UANC.L Regulatory News (UANC)

Urban&Civic plc

("Urban&Civic", the "Company" or the "Group")

RESULTS FOR THE SIX MONTHS TO 31 MARCH 2019

DELIVERING ON THE MASTER DEVELOPER MODEL

Urban&Civic plc (LSE: UANC) announces its unaudited results for the six months to 31 March 2019.

Financial highlights 

Operational highlights

Commenting on the results, Nigel Hugill, Chief Executive, said:

"This is a market in which housebuilders are going well and estate agents badly. Urban&Civic creates value by obtaining planning consents and delivering new environments in which housebuilders want to build and new homeowners want to live. Demand in our identified locations is driven by simple demographics. Projects like ours disproportionately attract first time buyers and growing families in search of excellent schools; precisely the groups with the highest current tendency to move. We expect to exceed previous sales guidance for the current year."

For further information, please contact:

A presentation for analysts and investors will be held at 09.30 am today at FTI Consulting, 200 Aldersgate, Aldersgate Street, London, EC1A 4HD.

If you would like to attend please contact Ellie Sweeney at FTI on +44 (0)20 3727 1000 or urban&civic@fticonsulting.com. A live webcast of the presentation will be available at www.urbanandcivic.com or via the following link http://webcasting.brrmedia.co.uk/broadcast/5c9a0e21ec650d01c34f4309 and presentation slides will also be available to download.

Alternatively, details for the live dial-in facility are as follows:

Participants: Tel: +44 (0)330 336 9125

Passcode: 1327706

Chief Executive's statement

Summary

Urban&Civic continues to gain projects and build value. The Group has made further progress against stated KPIs on our strategic projects. Total number of plot sales to September 2019 is expected to exceed the November 2018 guidance of 970 for the year, with maintaining housebuilder enthusiasm for new Urban&Civic licences (if anything, demand has lifted in a flatlining land market). The recent Resolution to Grant at Waterbeach constitutes an important further step forward, as does the addition of a prospective new settlement adjoining the M25 at Tyttenhanger in Hertfordshire, to take the number of strategic projects to nine.

All achieved in conjunction with strong realisations in Catesby.

Introduction and commentary

Starting with our preferred measure, EPRA net asset value as at 31 March 2019 reached £497.3 million. EPRA net asset value per share was 2.7 per cent per share over 30 September 2018, or a year on year rise from 31 March 2018 of 7.8 per cent. The appraised increases ran significantly above national land indices reflecting the benefits of our licence model.

Profit before tax to 31 March 2019 at £5.1 million on revenues of £30.9 million were both lower than last year but the residential licence contribution continues to grow. The 2018 interim figures (pre-tax profit £10.1 million on revenues of £84.0 million) were inflated by the Stansted Hilton sale, as precursor to a switch in October 2017 into the investment in Priors Hall in Northamptonshire. Purchased at a cost of £40.5 million and now valued at £59.1 million, Priors Hall has been the strongest performing Urban&Civic strategic asset in the period since acquisition. Stripping the Stansted sale out of the previous interim figures, leaves comparables of pre-tax profits of £1.7 million in six months to March 2018 and revenues of £35.5 million.

Resolution to Grant at Waterbeach to the immediate north of Cambridge obtained on 13th May 2019 represents a significant post balance sheet event that will be recognised in the full year accounts to 30 September 2019. The determined application is for 6,500 new homes on 716 brownfield acres and in a highly supply constrained location. The land remains majority owned, ultimately by the Ministry of Defence, subject to a participation in favour of Urban&Civic.

The application at Manydown, on the outskirts of Basingstoke, is also scheduled to come to planning committee before the summer and with a recommendation to approve. On that basis and by 30 September 2019, Group strategic projects are expected to aggregate 32,000 approved plots with a sharply escalating monetisation profile. 25 licence arrangements over 3,300 plots are contracted currently with a further (mostly smaller) 11 under negotiation.

Large site discount

Discount calculated at 139.0p per share, so that the add back was (139.0p+340.6p) = 479.6p per share at 31 March 2019, as compared with (145.0p+331.8p) = 476.8p at 30 September 2018.

The calculation is made only on consented strategic sites, once infrastructure spend is commenced, and represents the difference between the current open market value of a typical retail parcel of 150 housing plots as appraised by CBRE and the discount for bulk or wholesale disposal as carried in the statutory accounts. The comparison between the current open market retail valuation of standard parcels and the wholesale figures included in our reported EPRA NAV amounted to an estimated £203 million, or 41 per cent of EPRA NAV at 31 March 2019. This represents a store of future value. On flat house price and cost assumptions, the discount will unwind automatically through the profit and loss account with successive future sales. The reduction over the past six months reflects there being no major new consents within the strategic portfolio during the period under review.

Dividend

The Board has approved the payment of an interim dividend of 1.4p per share. The dividend will be payable on 12 July 2019 to shareholders on the register on 7 June 2019. As with last year, the payment represents a 7.7 per cent increase over twelve months previous. The growth profile remains upward and the payment is in line with the increase in EPRA NAV per share over the same period. A scrip dividend alternative will be made available, for which I shall be electing. Investors choosing to participate in the dividend reinvestment scheme will need to make their election by 21 June 2019.

Strategic site plot carrying values

31 March 2019 carrying values on unserviced plots amounted to £28,800 at Alconbury; £24,900 at Wintringham, £20,300 at Rugby; £12,500 at Priors Hall Corby and £6,700 at Newark. In all instances, the March 2019 figures remain below half of current realised sales values having accounted for infrastructure spend and Section 106 costs. The valuations were appraised on the basis of assumed average house prices of £300 per sq. ft. at Alconbury and Wintringham, £280 per sq.ft. at Rugby; £235 per sq.ft. at Priors Hall Corby and £215 per sq.ft. at Newark. All other strategic land holdings were valued at cost at 31 March 2019, including Waterbeach.

Trading conditions

The consensus of recent housebuilder updates is that demand continues to hold up outside London, albeit with only localised house price pressure, which accords directly with house buyer evidence from our strategic sites. Sales rates are averaging around 40 per outlet per year amongst the larger builders. Note also that the average national increase in annual output amongst our core housebuilder customers is over 7 per cent, as compared with 2.1 per cent reported by the three majors. Accordingly, the current expectation is that we will exceed the previous guidance of 635 sales on strategic sites for the year to 30 September 2019 (itself a 40+ per cent increase over the previous year), with a further 335 sales on the infrastructured Catesby site at Europa Way at Warwick. Prices across our strategic sites are broadly flat with little upward movement, other than at Priors Hall where the early benefits of the more rigorous Urban&Civic approach continue to be recognised. The tone of house price sales at Priors Hall has risen approximately 10 per cent over the 18 months since acquisition.

The same housebuilding commentaries that describe maintaining demand warn that Returns on Capital Employed ("ROCE") are under some pressure with costs going up faster than prices nationally. The difference for Urban&Civic is that, whilst the licence model means that our income on strategic projects is derived from the same source as housebuilders (typically, we receive around one third of realised house sales prices), the cost base and any concomitant pressures, is quite different. Housebuilders have spoken recently of annual build cost pressures running at up to 5 per cent. The equivalent on civils infrastructure spend for us is more like 1-2 per cent. The contracting personnel are also predominantly domestic, so there is not the same Brexit exposure.

When increasing build costs and static house prices threaten housebuilder ROCEs, the options are quite limited. They can look to build faster; pay less for land or contract with Urban&Civic. The success rate on speculative residential appeals peaked in Q4 2016, which is likely to impact on land availability in the medium term, especially in supply constrained locations. Meanwhile, our Master Developer approach is enabling housebuilders to outsource planning and front end timing risks precisely as those become more pressing under the capital lite, rapid circulation, high dividend payout model favoured by the listed sector. The arrangements work for us due to our longer time horizons for sustained value creation (the minimum commitments assumed by the housebuilders means that we are 3.6 years forward sold on contracted plots); inherently lower land entry costs; reduced inflationary pressures on infrastructure spend and access to funding from Homes England.

Increasing institutional investment into a new asset class

Homes England confirmed as part of the Premium Listing exercise that their current intention was to make additional facilities available on new Urban&Civic strategic projects, subject to existing assessments and credit evaluations being met. There are also signs that as the new asset class of strategic land holdings becomes established, the nature of core holding investors is changing. No question that the evidence is slowly improving and, importantly, the nature of purchasers is moving away from private equity to long dated investing institutions.

The purchase by Legal & General of a 2,750 unit scheme with outline consent at North Horsham in Sussex from Liberty Property Trust in February 2019 represents a case in point. The second largest investment management business in Europe made specific reference to its entrance into the "underserved" market area of Master Development and to the suitability of patient capital for strategic projects. Ultimately this ought to go to lower discount rates. Early mover advantage combined with demonstrable delivery has enabled the Group to accumulate nine projects, with more in the pipeline. The scarcity of consents and the long lead times are such that it will not be easy for others to catch up, irrespective of the extent of available resources.

Tyttenhanger

The Tyttenhanger Estate, over which we signed conditional contracts in March, constitutes 2,000 acres of land predominantly to the immediate north of junction 22 to the M25 approximately 18 miles from Marble Arch in Central London and equidistant between St Albans and Potters Bar. The Development Management agreement provides for Urban&Civic taking responsibility for planning and delivery, including site servicing costs, receiving a substantial minority participation. The acquisition reflects an increasing emphasis on identifying new projects requiring the stewardship of a Master Developer in heavily supply constrained locations. Tyttenhanger exhibits all the core geographic and demographic criteria that we look for in new strategic projects; prospectively strong transport connectivity, high employment, consistent population growth and lower house prices relative to the surrounding areas. To date our rule has been outside the M25 and within 100 miles of London. My expectation is that second parameter may tighten. In the process, we will promote some releases from the Green Belt, such as Tyttenhanger but only where councils have no viable alternative. The Government identified housing need for Hertsmere is 714 houses per year in a Borough that is 79 per cent designated Green Belt.

Priors Hall 

Priors Hall straddles Corby Borough and East Northamptonshire District and was already in the process of development on acquisition in October 2017. Urban&Civic purchased 3,656 uncontracted plots and the benefit of overage receipts from earlier sales at a net actual purchase consideration of £7,700 per plot. Total homes sold to date (including pre Urban&Civic acquisition) approach 1,200, all on land in Corby Borough. The values in East Northamptonshire are likely to be higher. A revised planning application for a total of 5,316 new homes (including those built to date) is about to be submitted with a larger weighting of houses in East Northamptonshire.

Waterbeach

Resolution to Grant consent, subject inter alia to our entering into the associated Section 106 agreement, was granted on 13 May, 2019 to a 6,500 home mixed-use development for which application was submitted jointly by Urban&Civic and the Secretary of State for Defence in February 2017. The former Barracks site is 3 miles north of the Cambridge Science and Business Parks, in a location of exceptionally high, employment driven demand and heavily constrained supply. The Royal Engineers left behind a fully mature 23 acre lake, which will be the centrepiece around which first construction is orientated. Preparatory works have commenced and we are aiming to sign the Section 106 agreement with a full start on site prior to September.

Catesby

Good first half profit performance. Reported six month pre tax profit of £2.1 million after overheads. EPRA valuations in accordance with accounting practice amounted to another £4.0 million, the majority of which arose from a sale that has since completed. The aggregated net after tax contribution to EPRA NAV from Catesby was £5.7 million. The uplift on sale will give rise to an EPRA reversal and likely Catesby pre-tax profit of the order of £4.8 million for the full year.

Civic Living

First occupation of a home built by our fledgling Civic Living, backed by Homes England as a new entrant into the market, has taken place at Alconbury.

Premium Listing

Urban&Civic shares transferred to the Premium Listing on the official list of the Financial Conduct Authority in accordance with Rule 5.4A of the Listing Rules on 30 April 2019. The Company's stock should be included in the relevant Stock Exchange indices from June 2019 onwards.

Outlook

This is a market in which housebuilders are going well and estate agents badly. There are good grounds for thinking that the current equilibrium of sufficient demand and anaemic prices will maintain. First time buyers and new housing both constitute an increasing proportion of lower transaction levels, traditionally a sign of price stability. New housing starts in England over the past 2 years have been running at about 16 per cent of total transactions, a full 20 per cent up on the previous 10 year average. First time buyers now almost certainly account for over 1/3 of new house purchases. Projects like ours disproportionately attract first time buyers and growing families; precisely the groups with the highest current tendency to move. Affordability outside London is already better than long-term averages and will be improved further by a lack of price inflation.

As we report in the immediate aftermath of European elections that few wanted, political uncertainties cannot be disregarded. Causality runs both ways between house prices and the macroeconomy. Even then, the contracted annual minimums in the Urban&Civic model provide unusual downside income protection. The extent of that protection is increasing. Three years ago our first licence minimum was 57 per cent of then projected sales value. The equivalent written into our most recent licences is 93 per cent. Expressed as contracted revenues, the minimum entitlement on existing licence arrangements pro rata to percentage holdings was £1.7 million at 31 March 2016 and now aggregates £26.8 million per year. From here, our upside sensitivity is much more to sales rates than to prices.

The Urban&Civic business is founded on simple demographics. It is not realistic to meet housing demand in south east England without the incorporation of more large sites. The planning presumptions have moved towards large sites. The barriers to entry as Master Developer and to project enlargement are extremely high. We offer ROCE protection to our housebuilding customers when that is coming under pressure elsewhere. Those customers, typically one level below the largest, are increasing annual output at 3.5x the rate of the UK's biggest housebuilders. Ours is a singularly resilient model that provides a robust platform on which to build.

Nigel Hugill

Chief Executive

29 May 2019 

Financial review

Introduction

Over the last six months there have been 365 residential plot completions at four of the Group's nine strategic land sites, generating £18.3 million of cash for the Group. These sales, representing 57.5 per cent of the 635 plot annual target, together with £95.9 million of contracted minimum forward sales under the Group's licencing arrangements and Catesby planning consents, have helped underpin a 3.3 per cent growth in EPRA Net Asset Value.

All consented strategic land sites, other than Wintringham which has just commenced infrastructure works and Waterbeach which received a resolution to grant consent after the period-end, are now witnessing house completions.

Gross profits, including the Group's share of joint ventures on a pro-rata basis are slightly up on last year and have all been derived through residential and Catesby sales rather than the historic commercial property disposals.

Key performance indicators

The Group's key performance indicators for the six months to 31 March 2019 (set out in the table below) remain consistent with those detailed in the Strategic Report section of the 2018 Annual Report and Accounts.

1. Includes 60 plots at Alconbury (six months ended 31 March 2018: 49; year ended 30 September 2018: 100); 62 at Rugby (six months to 31 March 2018: 10; year ended 30 September 2018: 78); 63 at Newark (six months to 31 March 2018: nil; year ended 30 September 2018: 37); 47 plots from new contracts at Priors Hall and 133 plots from pre-acquisition contracts at Priors Hall (acquisition to 31 March 2018: 115; acquisition to 30 September 2018: 230).

2. Represents Urban&Civic's (U&C's) share of cash generated by plot completions.

3. Large site discount represents the difference between the unserviced land values ascribed by CBRE strategic site valuations (which take into account site scale and build-out duration among other matters) and the current retail prices being achieved on smaller parcel sales.

We maintain that total shareholder return and EPRA NAV metrics remain appropriate principal measures with which to assess business performance, and in particular value growth, particularly where residential plot sales at the Group's strategic land sites continue to grow. To remind the reader, EPRA balance sheet measures record the net asset value attributable to equity shareholders, adjusted for the revaluation of trading properties with tax (EPRA triple net asset value) or without tax (EPRA net asset value). The basis for selecting the other KPI's is set out in the 2018 Annual Report.

Net Asset Value - EPRA and IFRS

I have presented below a non-statutory analysis explaining the movements in EPRA NAV in the last six months and comparable periods.

1. Classified as property revaluations for the purposes of the below EPRA NAV growth commentary.

2. Classified as profit on property sales for the purposes of the below EPRA NAV growth commentary.

Following the adoption of IFRS 15 'Revenue from Contracts with Customers' overages as well as minimums are now recognised ahead of house exchanges or house completions to the extent they are not expected to reverse in the future. The £3.2 million total set out in the table above represents the estimated additional discounted overages, net of tax, receivable up to 30 September 2018 and is accounted for as an opening reserve adjustment.

You will also note from the table that property revaluations contributed 8.8p1 to the Group's EPRA NAV growth of 8.8p, while profits on property sales contributed a further 6.9p2. Overheads, dividends and the dilutive effect of share options net 10.4p from these gains.

A more detailed reconciliation between IFRS and EPRA NAV is provided in note 18.

Total shareholder return

Urban&Civic's share price fell 28.0p or 9.2 per cent over the period (from 304.0p at 30 September 2018 to 276.0p at 1 April 2019) which, combined with the payment of a 2.2p final dividend, has resulted in total shareholder return falling by 8.5 per cent. This compares with a 0.6 per cent reduction in the FTSE 350 Real Estate Index and a 3.6 per cent fall in the FTSE All Share Index over the same period and also follows the July 2018 placing of 40.4 million shares held by GIP U&C S.À R.L (representing 27.9 per cent of issued share capital).

Subsequent to the period-end Urban&Civic's share price has rallied and at the close of business on 28th May 2019 reached 326.0p (equivalent to a total shareholder return of 8.0 per cent since 30 September 2018).

Consolidated statement of comprehensive income

Gross profits, including the Group's share of joint ventures, have improved slightly despite not making any commercial asset disposals in the last six months (which have been a feature of periods past) and the Group's profit before tax was down £5.0 million over the comparative period. Given the compensating movement in gross profit this is predominantly as a result of lower property revaluations going through the income statement, following the reclassification of the majority of the Group's property interests into trading stock in this and prior periods.

I have provided further explanation of the income statement movements below.

1. Including residential property sales and revenue on construction contracts as disclosed in note 2.

Gross profit

Gross profit is broadly in line with last year at £12.5 million (including £5.1 million generated by joint ventures); predominantly due to increased trading property profits (up £6.7 million) and significantly lower property write-downs (down £1.7 million) compensating for reduced commercial asset disposal profits (down £8.9 million reflecting last year's sale of the Stansted Hilton Hotel development and Skelton Retail Park).

Profits from trading property sales of £9.4 million include residential profits at Alconbury, Newark and Priors Hall (£1.1 million), £5.1 million in respect of Urban&Civic's share of residential profits at Rugby and £3.2 million of Catesby land promotion profits.

Residential profits at Alconbury, Newark and Priors Hall comprise £0.8 million generated by the sale of 16 Hopkins homes and pre-completion profit recognition of discounted overages of £0.3 million across all three sites. Rugby's profits include Urban&Civic's share of the contractual minimums and discounted overages following the completion of the sale of a 248 plot parcel to Redrow (£4.1 million) and £1.0 million of other profits from Davidsons Homes, Morris Homes and Crest Nicholson agreements.

I have provided a breakdown of plot completions by site, with comparatives, as a footnote to the KPI table above. You should note that 133 completions at Priors Hall in the period relate to existing contracts that were in place when the Group purchased the site in October 2017 and therefore receipts have been credited against the acquisition trade receivable on the balance sheet as opposed to being recognised through the income statement.

The terms minimums, overages and licences have been defined within the glossary on the last page of these interim statements.

Administrative expenses

Gross administrative costs have increased £1.0 million to £10.9 million in the six months to 31 March 2019, largely as a result of increased share based payment charges and one off costs associated with the Group's move to the Premium Listing segment of the London Stock Exchange.

We continue to capitalise overheads associated with development activity although in the six months to 31 March 2019 the proportion capitalised fell to around 20 per cent compared to 28 per cent last year thereby increasing net overheads by £1.6 million.

Surplus on revaluation of investment properties

We expect, in the near future, to submit a residential-led planning application for the Alconbury expansion land, better known as Grange Farm and therefore, and on commencement of early development works, we have reclassified this property into trading stock on 1 October 2018.

Following this reclassification, and as a result of prior period reclassifications and disposals, the Group's only investment properties now comprise commercial buildings and development land at Alconbury and a proportion of the Group's interest in Waterbeach, which could deliver both commercial buildings and residential rental properties in the future. Consequently there are very few property revaluations accounted for through the income statement under International Financial Reporting Standards.

In order to help the reader understand the value of the Group's total property portfolio we continue to publish EPRA metrics which allow for the non-statutory revaluation of trading properties. The table below sets out not only the investment property valuation movements that are accounted for within the primary statements, but also details the trading uplifts recognised by EPRA measures.

From the above table you can see that investment properties generated £1.0 million of revaluation surpluses in the period with a further £14.7 million derived from retained trading properties at the EPRA level. Against this £6.5 million of EPRA adjustments have been reversed as properties have been disposed of or profits recognised.

Of the total £15.7 million uplift, Alconbury accounted for £6.7 million, Priors Hall generated £3.1 million and Catesby planning consents yielded a further £6.6 million.

The revaluation movements in respect of Alconbury and Priors Hall reflect on-site progress, both in terms of sales and infrastructure works and Catesby uplifts are derived from changes in planning status of a number of its promotion sites. Alconbury remains the Group's most significant property asset comprising 44 per cent of the total property portfolio value.

The Directors have once again valued Waterbeach interests at cost at 31 March 2019 on the basis that the resolution to grant planning consent for 6,500 new homes was not gained until after that date (see post balance sheet events for further details).

Taxation expense

The tax charge as a proportion of profits has increased over recent reporting periods as historic tax losses have been utilised and changes in legislation have restricted how much of these historic tax losses can be utilised in any one period. In the six months to 31 March 2019 the Group's tax charge of £1.3 million amounted to 24.5 per cent of profit before tax, higher than the 19 per cent UK corporation tax rate; predominantly due to share based payments being non-deductible until settlement. Taxable profits relate in most part to residential property sales and Catesby disposals.

Dividend

Given the Group's continuing sales and development progress at its strategic land sites the Board has decided to maintain a progressive dividend by approving the payment of a 1.4p interim dividend. This represents an annualised increase of 7.7 per cent over last year and the dividend will be paid on 12 July 2019 to those shareholders on the register at 7 June 2019. Investors choosing to participate in the dividend reinvestment scheme will need to make their election by 21 June 2019.

The Group paid its 2018 final dividend of 2.2p per share (£3.2 million) in February 2019.

Consolidated balance sheet

Overview

1. Total property related interests: £644.2 million (31 March 2018: £589.2 million; 30 September 2018: £609.1 million).

Non-current assets

Investment properties

Investment properties at 31 March 2019 amounted to £46.5 million and comprised the commercial development area at Alconbury (£42.3 million) and a proportion of the Waterbeach site that could deliver both commercial buildings and residential properties for rent in due course (£4.2 million).

The Group's total period-end property portfolio, irrespective of balance sheet classification, was valued at £644.2 million, 90 per cent by independent valuers CBRE and 10 per cent by Directors.

Investment in equity accounted joint ventures and associates

The Group's joint venture in Rugby has been included in the balance sheet at £80.0 million, which along with a half interest in the 351 apartment scheme known as Manchester New Square (£15.1 million), a one-third interest in a 400 acre (162.3 hectares) site at Wintringham Park, St. Neots (£15.9 million) and £2.6 million of other residual interests combine to form an overall Group investment in joint ventures and associates of £113.6 million.

During the period the Group advanced £4.2 million to Rugby and Wintringham to fund infrastructure works and sales at Rugby generated a further £6.0 million of profits (including £0.8 million on adoption of IFRS 15).

Non-current trade and other receivables

The £20.0 million disclosed on the face of the balance sheet comprises both the non-current proportions of the acquired Priors Hall receivables and the discounted values of the contractual minimums and pre-completion discounted overages with Morris Homes and Redrow at Alconbury, Kier at Corby and Avant at Newark.

Equivalent receivables (U&C's share) are owed to the Rugby joint venture by Crest Nicholson (£3.3 million) and again Morris Homes (£4.0 million) and Redrow (£11.6 million).

All sums due will be received as and when the houses to which they relate are sold, or if earlier, when the housebuilders are contractually obliged to pay minimum sums.

Current assets

Trading properties

The carrying value of trading properties increased by £47.0 million in the period to £320.8 million.

This increase was the result of capital expenditure of £16.8 million (including £12.5 million in respect of Alconbury and Priors Hall development works), capitalised overheads amounting to £2.1 million, capitalised finance costs of £1.3 million and £41.9 million of reclassified investment properties - all net of £15.1 million of disposals (including residential disposals at Alconbury and Priors Hall of £8.4 million and £6.5 million in respect of the sale of Catesby sites including Bude).

Cash

Group cash balances at the period-end totalled £28.2 million, up £11.6 million since last year-end; largely due to a loan drawdown being held on deposit, which was used to pay down creditors just after the period-end. Sales receipts (£25.8 million) and loan drawdowns (£24.3 million) have exceeded development expenditure (£20.7 million),loan repayments (£1.7 million), loans to joint ventures (£4.2 million) and other expenses (£11.9 million).

Sales receipts comprised £10.3 million of Catesby promotion receipts (including cost reimbursement) and £15.5 million of residential sales receipts.

Liabilities

Current and non-current borrowings

The Group has put in place three new facilities in the six months to 31 March 2019: the first is effectively a 5 year extension of the expiring Revolving Credit Facility with HSBC Bank, the second is an £8.6 million, three year and ten month, housebuilding facility at Alconbury with Homes England and the third is a £26.0 million infrastructure loan for our Wintringham joint venture, again with Homes England.

At the period-end, total Group borrowing amounted to £118.6 million (30 September 2018: £94.9 million) with the Group's share of joint ventures borrowing a further £35.5 million (30 September 2018: £21.8 million).

During the period the Group made £10.3 million of further drawings from the Alconbury Homes England facility, together with £7.9 million from the Revolving Credit Facility and £6.6 million from the Civic Living facility. All other movements in respect of Group facilities were the result of either capitalisation of interest net or loan amortisations (following residential disposals at Newark).

Joint ventures made further drawings during the period of £1.6 million under the Homes England Wintringham facility and £12.1 million from the Manchester New Square development facilities; all sums reflecting U&C's share.

Financial resources and capital management

The Group's net debt position at 31 March 2019 totalled £90.4 million (30 September 2018: £78.3 million), comprising external borrowings of £118.6 million and cash reserves of £28.2 million, producing a net gearing ratio of 22.9 per cent (30 September 2018: 20.1 per cent) on an IFRS NAV basis and 18.2 per cent (30 September 2018: 16.3 per cent) on an EPRA NAV basis.

On a full look-through basis, which additionally includes the Group's share of joint ventures' net debt, gearing on an EPRA NAV basis increases to 24.6 per cent (30 September 2018: 20.6 per cent). Gearing on all measures continues to remain within our self-imposed limit of 30 per cent.

Of the £156.6 million of borrowings at the period-end, which includes the Group's share of joint ventures' borrowings, £110.4 million or 70 per cent relates to facilities with Homes England, Local Authorities or the Housing Infrastructure Fund.

The Group's weighted average loan maturity at 31 March 2019 was 7.5 years (30 September 2018: 7.9 years) and weighted average cost of borrowing on drawn debt was 3.7 per cent (30 September 2018: 3.3 per cent).

The Group has no loans maturing over the next three years, with the exception of the Newark Homes England facility (£9.9 million currently drawn) and the joint venture development loans at Manchester New Square. The Newark facility is amortising along with residential plot sales and is due for repayment by March 2021 and the Manchester New Square borrowings will be repaid from sale proceeds.

A new £13 million investment facility with HSBC, secured against the Group's hotel in Deansgate Manchester, is expected to be in place shortly and discussions with Homes England are ongoing in relation to an extension to the Newark facility.

The Group continues to assess its long-term viability using the procedures set out on page 35 of the 2018 Annual Report and Accounts.

Post balance sheet events

Resolution to grant consent at Waterbeach

Waterbeach strategic land site received a resolution to grant consent for 6,500 new homes and other commercial uses on 13 May 2019. The Group's interest in the site is held through a Development Management Agreement with the Secretary of State for Defence and is carried at a value of £20.1 million (reflecting planning and development expenditure incurred to date) in the 31 March 2019 balance sheet. CBRE will be asked to value our interest at 30 September 2019.

Transfer to the Premium Listed segment of the London Stock Exchange

On 30 April 2019 Urban&Civic plc transferred from the Standard Listed segment of the London Stock Exchange to the Premium Listed segment.

Principal risks and uncertainties

The principal risks of the business are set out on pages 38 to 43 of the 2018 Annual Report and Accounts and include commentary on their potential impact, links to the Group's strategic priorities and the relevant mitigation factors. Since the publication of the 2018 Annual Report and Accounts, the Board believes that there has been no material change to the principal risks and the reported mitigation actions remain appropriate to manage the risks.

Responsibility statement

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and a description of where to find the principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

Signed on behalf of the Board on 29 May 2019

David Wood

Group Finance Director

Consolidated statement of comprehensive income

For the six month period-ended 31 March 2019

The Group had no amounts of other comprehensive income for the current or prior periods and the profit for the respective periods is wholly attributable to equity shareholders.

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated balance sheet

As at 31 March 2019

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

Consolidated statement of changes in equity

For the six month period-ended 31 March 2019

Consolidated cash flow statement

For the six month period-ended 31 March 2019

Notes to the condensed consolidated interim financial statements

For the six month period-ended 31 March 2019

1. Basis of preparation

These condensed consolidated financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting', as adopted by the European Union. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2018 Annual Report and Accounts. The financial information for the six months ended 31 March 2019 and 31 March 2018 does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act 2006 and is unaudited.

The statutory annual accounts of Urban&Civic plc for the year ended 30 September 2018 have been reported on by the Company's auditor and have been delivered to the Registrar of Companies. The independent auditor's report on the annual accounts for 2018 was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under sections 498(2) or 498(3) of the Companies Act 2006.

Significant accounting policies

In the current period, the Group has adopted IFRS 9 "Financial Instruments" and IFRS 15 'Revenue from Contracts with Customers' which has resulted in a change to certain of the Group's accounting policies.

The adoption of IFRS 9 has not had any transitional impact on the Group. Financial assets previously accounted for as loans and receivables continue to be measured at amortised cost and financial assets previously accounted for at fair value through profit and loss continue to be measured at fair value. No material amendment to provisioning adjustments was required as a result of applying the expected credit loss model when assessing financial assets for impairment principally because:

· development values are considered sufficient, even in the worst case scenario, to enable repayment of loans to joint ventures; and

· receivables from housebuilders are secured on land which is valued in excess of the amounts due.

The adoption of IFRS 15 has resulted in additional revenue being recognised in relation to the variable consideration to which the Group is entitled under a certain number of its land parcel sales to housebuilders. The impact on the Group's balance sheet at 1 October 2018 has been to increase contract receivables by £3,078,000, increase the investment in joint ventures by £781,000, increase the deferred tax liability by £656,000 and increase retained earnings by £3,203,000. The Group's new accounting policy in respect of revenue recognition is as follows:

Revenue is recognised to the extent that a significant reversal is not expected in future periods and performance obligations have been satisfied. The following recognition policies have been applied:

Other than as described above, the same accounting policies, presentation and method of computation are followed in these condensed interim financial statements as were applied in the Group's latest audited financial statements and the accounting policies used in preparing these condensed interim financial statements are those which are expected to be applied for the financial year ending 30 September 2019.

The Group continues to consider the impact of new standards not yet applied (IFRS 16 'Leases' (effective date: 1 January 2019)) on the financial position and performance of the Group, which will depend on projects undertaken at the time of initial application. There have been no identified changes to the initial assessment set out in the 2018 annual report.

Use of estimates and judgements

Revenue recognition

Judgement is involved when determining how much revenue to recognise at a point in time in respect of residential property sales where there is variable consideration which is only determined at the point of the future onward sale of constructed homes by the Group's housebuilder customers. In determining the amount of revenue recognised, the Directors consider factors that may give rise to significant reversals and for this period have assessed that a 20 per cent reduction in house prices, being the approximate peak to trough fall in house prices in the last two recessions, and a 1 year delay in receipt of overage payments, to take into account a significant fall in sales rates in a downturn, are appropriate reductions to cover the risk of significant reversal.

Other than as described above, there have been no new or material revisions to the nature and amount of estimates reported in the 2018 accounts, other than changes to certain assumptions applied in the valuation of properties. Details of the key assumptions applied at 31 March 2019 are set out in note 9.

Going concern

The Directors are required to make an assessment of the Group's ability to continue to trade as a going concern. The Directors have given this matter due consideration and have concluded that it is appropriate to prepare the interim financial information on a going concern basis.

2. Revenue and gross profit

3. Operating profit

Operating profit is arrived at after allocating £2,142,000 of administrative expenses to the cost of investment and trading properties (six months to 31 March 2018: £2,834,000; year ended 30 September 2018: £4,724,000).

4. Segmental information

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker and within the 2018 Annual Report and Accounts. The chief operating decision maker has been identified as the Board of Directors.

The segmental results that are monitored by the Board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.

Consolidated statement of comprehensive income

For the six month period-ended 31 March 2019

Consolidated balance sheet

As at 31 March 2019

Consolidated statement of comprehensive income

For the six month period-ended 31 March 2018

Consolidated balance sheet

As at 31 March 2018

5. Finance income and finance costs

Interest is capitalised at the same rate as the Group is charged on respective borrowings.

6. Tax on profit on ordinary activities

(a) Analysis of tax charge in the period

(b) Factors affecting the tax charge for the period

7. Earnings per share

Basic earnings per share

The calculation of basic earnings per share is based on a profit of £3,849,000 (six months to 31 March 2018: £8,880,000; year ended 30 September 2018: £18,695,000) and on 143,397,834 (six months to 31 March 2018: 143,422,387; year ended 30 September 2018: 143,413,414) shares, being the weighted average number of shares in issue during the period less own shares held.

Diluted earnings per share

The calculation of diluted earnings per share is based on a profit of £3,849,000 (six months to 31 March 2018: £8,880,000; year ended 30 September 2018: £18,695,000) and on 145,875,912 (six months to 31 March 2018: 145,111,843; year ended 30 September 2018: 145,156,832) shares, being the weighted average number of shares in issue, less own shares held and the dilutive impact of share options granted.

8. Dividends

An interim dividend of 1.4p per share was approved by the Board on 29 May 2019 and is payable on 12 July 2019 to shareholders on the register on 7 June 2019. Investors choosing to participate in the dividend reinvestment scheme will need to make their election by 21 June 2019. The interim dividend is not recognised as a liability in the interim financial information. Dividends are not paid on the shares held by the Employee Benefit Trust.

9. Investment properties

Transfer of properties

On 1 October 2018, based on the site intention set out in the submitted development plan and the commencement of development works, the Group agreed that the strategy for Grange Farm at Alconbury Weald previously held within investment properties was to develop it for sale. Accordingly, on 1 October 2018 this element of the property was reclassified as a trading property.

Fair value measurement

The Group's principal investment properties comprise commercial buildings and development land at Alconbury Weald, which represent 91 per cent of the period-end carrying value (31 March 2018: 79 per cent, 30 September 2018: 97 per cent). These are valued on a semi-annual basis by CBRE Limited (CBRE), an independent firm of chartered surveyors, on the basis of fair value. The valuation at each period-end is carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors. Fair value represents the estimated amount that should be received for selling an investment property in an orderly transaction between market participants at the valuation date.

The Group's investment properties are all classified as level 3 within the fair value hierarchy as some of the inputs used in determining the fair value are based on unobservable market data. The valuation technique used in measuring the fair value of Alconbury Weald, investment properties, as well as the significant unobservable inputs, is summarised below.

Valuation technique

Discounted cash flows: the valuation model for the Group's investment properties considers the present value of net cash flows to be generated from the properties (reflecting the current approach of constructing the infrastructure and discharging the Section 106 cost obligations), taking into account expected land value growth rates, build cost inflation, absorption rates and general economic conditions. The expected net cash flows are discounted using risk-adjusted discount rates and the resultant value is benchmarked against transaction evidence.

Significant unobservable inputs

The key inputs to the valuation of the principal investment properties at Alconbury Weald, included:

The inter-relationship between the unobservable inputs set out above and the fair value measurement is unchanged from that reported in the 2018 Annual Report and Accounts.

10. Property, plant and equipment

11. Investments 

Investments in joint ventures and associates

At 31 March 2019 the Group's interests in its joint ventures were as follows:

12. Deferred tax

The net movement on the deferred tax account is as follows:

The deferred tax balances are made up as follows:

At 31 March 2019, the Group had unused tax losses of £22,477,000 (31 March 2018: £28,004,000; 30 September 2018: £23,118,000), of which £21,956,000 (31 March 2018: £18,202,000; 30 September 2018: £16,302,000) has been recognised as a deferred tax asset. A further £96,000 (31 March 2018: £9,098,000; 30 September 2018: £6,227,000) has been applied to reduce the Group's deferred tax liability recognised at the balance sheet date as required by IAS 12 'Income Taxes' in respect of tax potentially payable on the realisation of investment properties at fair value at the balance sheet date. No deferred tax asset is recognised in respect of realised or unrealised capital losses if there is uncertainty over future recoverability.

Tax losses of £424,000 (31 March 2018: £704,000; 30 September 2018: £589,000) have not been recognised as it is not considered sufficiently certain that there will be appropriate taxable profits available in the foreseeable future against which these losses can be utilised.

The Group's deferred tax balances have been measured at rates between 17 and 19 per cent (2018: 17 and 19 per cent), being the enacted rates of corporation tax in the UK at the balance sheet date against which the temporary differences giving rise to the deferred tax are expected to reverse. The UK corporation tax rate reduced to 19 per cent from 1 April 2017 and will reduce to 17 per cent from 1 April 2020, which will reduce the amount of UK corporation tax that the Group will have to pay in the future.

13. Trading properties

Capitalised interest of £4,706,000 is included within the carrying value of trading properties as at 31 March 2019 (31 March 2018: £2,752,000; 30 September 2018: £3,449,000).

14. Trade and other receivables

Trade receivables include minimum and overage amounts due from housebuilders on strategic land parcel sales.

Included within current (£1,458,000) and non-current (£2,151,000) other receivables are amounts totalling £3,609,000 (31 March 2018: £6,352,000; 30 September 2018: £6,582,000) relating to overage entitlements that were acquired with the Priors Hall asset in the prior year and attributed a purchase price allocation of £9,366,000.

The asset is measured at fair value through profit and loss using a discounted cash flow model and is categorised as level 3 in the fair value hierarchy.

The key assumptions applied in the valuation at 31 March 2019 are current expectations over future house price values, the timing of housebuilder delivery and a discount rate of 8.8 per cent. The fair value movement since 30 September 2018 is £528,000 (31 March 2018: £324,000; 30 September 2018: £1,090,000) which has been credited to the income statement for the period.

Amounts totalling £7,375,000 (31 March 2018: £3,338,000; 30 September 2018: £3,874,000) have been collected by 31 March 2019.

15. Trade and other payables

16. Borrowings

Other loans comprise borrowings from Homes England and a conditional grant. Interest on borrowings from Homes England is charged between 2.2 and 2.5 per cent above the EC Reference Rate and the facilities are secured against specific land holdings. The £1,000,000 grant is conditional on certain milestones of construction being achieved before 2020. The grant is only repayable if these are not reached.

Bank loans are secured against specific property holdings.

17. Share capital

Movements in share capital in issue

Transactions in own shares

At the end of the period the Employee Benefit Trust held 1,589,015 20p shares in Urban&Civic plc (31 March 2018: 1,535,868; 30 September 2018: 1,769,935) at a cost of £4,261,000 (31 March 2018: £3,930,000; 30 September 2018: £4,748,000), which had a market value of £4,449,000 (31 March 2018: £4,700,000; 30 September 2018: £5,381,000). The movement is as follows:

Share options

During the six month period to 31 March 2019 the Company granted 1,981,452 share options to employees (six months to 31 March 2018: 2,090,636; year ended 30 September 2018: 2,090,636), 163,084 share options were exercised (six months to 31 March 2018: 153,205; year ended 30 September 2018: 339,976) and 450,284 options lapsed (six months to 31 March 2018: 1,528,563; year ended 30 September 2018: 1,633,666). The number of share options outstanding at 31 March 2019 was 6,544,122 (31 March 2018: 5,467,912; 30 September 2018: 5,176,038).

18. Net asset value and EPRA net asset value per share

Net asset value and EPRA net asset value per share are calculated as the net assets or EPRA net assets of the Group attributable to shareholders at each balance sheet date, divided by the number of shares in issue and to be issued at that date, adjusted for own shares held and the dilutive effect of outstanding share options.

19. Contingent liabilities, capital commitments and guarantees

Capital commitments relating to the Group's development sites are as follows:

20. Related party transactions

There have been no material changes to the nature of the related party transactions described in the 2018 Annual Report and Accounts.

Details of transactions with and amounts owed from joint ventures and associates are given in note 11.

21. Post balance sheet events

Post balance sheet events are disclosed within operational highlights at the beginning of this announcement.

Independent review report to Urban&Civic plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2019 which comprises the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement and the related notes.