UANC.L Regulatory News (UANC)

28 November 2019

Urban&Civic plc

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

RESULTS FOR THE YEAR TO 30 SEPTEMBER 2019

CONTINUED STRONG PERFORMANCE FROM UK'S LEADING MASTER DEVELOPER

Urban&Civic plc (LSE: UANC) announces its results for the year ended 30 September 2019.

Financial highlights

Operational highlights

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

"The debate over large sites is over. Urban&Civic is now consistently outperforming static land markets as Master Developer of new prime environments in which housebuilders want to build and homeowners want to live. Net assets per share were up approaching 9 per cent, marking five years of uninterrupted growth. The keys are location and stakeholder alignment. Government policies are providing enough land supply for new market homes across most of the country but not South East England, where the Company enjoys actual platform advantage. If we can only see a return to stable politics, the reasonable assumption is for the maturing profile of our projects and pipeline to enable further medium-term acceleration."

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/5d9489a1f8cc7162f3b011d3 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: 7563190

Chief Executive's statement

Introduction

The Urban&Civic Master Developer model continues to return sustainable growth in generally static market conditions. Witness another strong performance even after a movement in valuation assumptions to reflect current cautions: EPRA net asset value per share up 8.6 per cent at 360.3p as at 30 September 2019. A commensurate increase in EPRA NAV to £527.5 million, as compared with £481.2 million at 30 September 2018. The debate about large site contributions to meeting housing shortfalls in South East England is over. The attention has turned to delivery quality and practicalities. Home ground for our company. Whilst the published indices are that political uncertainty is weighing on land values, the Company maintains upward performance by creating new prime environments where housebuilders want to build and homeowners want to live. Given the now maturing nature of Urban&Civic projects and the extent of existing pipeline, the reasonable assumption is for further medium term acceleration.

Profits before tax at £16.3 million were down from £22.3 million last year but fully in line with expectations. The previous twelve months had been boosted by residual commercial realisations as part of the strategy to deploy the Group balance sheet in strategic residential assets where the Company is seen to have maximum competitive advantage. The number and net cash generated from plot realisations to September 2019 were both modestly above November 2018 expectations.

Some analysts and commentators prefer to use EPRA NNNAV as the base measure: in our case that involves ignoring any benefit from the terms of funding from Homes England and making an adjustment for the estimated fair value of deferred tax liabilities. EPRA NNNAV per share was calculated as 339.5p as at 30 September 2019, up 7.5 per cent on the comparable figure 12 months previous. In future, we will headline with both net asset per share calculations. It is noteworthy that Urban&Civic has reported successive increases in net asset value-across all measures - in each interim and full year period since coming to market in May 2014.

Particular points of note

Good progress has been recorded across the board, including at Catesby, our land promotion business that contributed significant sales during the period. Four particular aspects merit highlighting.

First, the minimum value of contracted future licence sales on Group projects reached £101.7 million. The infrastructure investment for those realisations is all made.

Second, planning consent was issued for 6,500 new homes at Waterbeach, on the northern perimeter of Cambridge, in September 2019 following the Resolution to Grant announced in May. We are in advanced discussions for an associated £60.6 million infrastructure facility. Both consent and facility represent our largest to date. Preliminary works are on site with the start of the substantive capital programme early in the New Year. Initial new build occupations are scheduled for 3Q 2022.

Third, whilst it remains early days, the signs are good for the proposed new settlement at Tyttenhanger in Hertsmere, Hertfordshire. Agreements were signed in February 2019 over 2,000 acres, predominantly to the immediate north of junction 22 to the M25, 18 miles from Marble Arch in Central London. The Development Management arrangements provide for Urban&Civic having responsibility for planning and delivery, including site servicing costs, for which we stand to receive a substantial minority participation. The project requires release from the Green Belt and, as such, necessarily is to be taken through the Local Plan. On the other hand, Hertsmere Borough is 79 per cent Green Belt; it is simply infeasible to reach local employment and housing aspirations without a major release. The current Council timetable is for Local Plan adoption during 2021. There are no local authority elections for Hertsmere during that period providing a correspondingly stable governance base.

Fourth, the valuers made some changes to the weighting of their assumptions at the year end, including inflation and discount rates. The impact of those changes was to lower the level of reported net asset uplift by approximately £25 million when compared with the assumptions used at 30 September 2018. Partly as consequence, the estimated large site discount also reduced by £13 million to £197 million, equivalent to 135p per share. The calculation is made between the current open market value of a standard 150- 200 plot parcel on our consented sites only, as then discounted by CBRE into a balance sheet valuation to account for the strategic size of our actual holdings. Adding back that discount to EPRA NAV gives a figure of 495p per share at 30 September 2019, up from 477p on 12 months previous and notwithstanding the alteration in valuation assumptions.

Regional differentiation across the UK land market

Urban&Civic was founded on the political impracticality of meeting housing requirements in the South East without an increased contribution from large developments. Young families and inward movement, not just from abroad but also from other parts of the country, combine to produce local population growth often approaching 1 per cent a year. That translates into a requirement for somewhere approaching 10,000 new homes in each borough or district over the next 10-12 years. That simple calculation demonstrates the necessity for strategic projects in our chosen areas within 100 miles of London.

National land indices show no real price movement since the start of 2018. Housebuilders have sought to protect margin and mitigate risk through careful site selection. The nationals are able to point to good land buying opportunities in benign conditions. Government policies and interventions are having a greater national impact than is often credited. Recently published official statistics are that the housing supply in England increased at the highest annual rate to March 2019 at any time in the past 30 years. Significantly, the net addition figure was almost 8 per cent above the pre financial crash peak, despite the aggregate number of housing transactions for the year being 30 per cent lower than the high of 2006-2007. Purchasers (especially first time buyers) are staying longer, having families later and mostly choosing houses over apartments, leaving the secondary market to stagnate relatively, while demand for new-build property strengthens assisted by the continuation of Help to Buy.

The statistics also serve to reinforce an observation made in previous reports: the regional shortfalls in new houses being built against the Government's Standard Methodology for measuring those requirements are limited to London, the South East and some parts of the East of England. In the rest of the country, the official targets are now being met or, in some cases comfortably, exceeded. As consequence, outside the South East, the actual limitations are not the availability of consented land on which to build but the extent of customer demand and the fierce determination of housebuilders to maintain cost efficiency.

UK employment remains close to a record high and earnings growth exceeds inflation. Fortunately, these are the two principal historic housing drivers, regardless of the prevailing political turmoil. Outside London, the subdued economic environment is impacting upon house prices but much less on absorption rates. Positive underlying demographics, supported by good servicing affordability from low mortgage interest rates, sustain demand nationally without meaningful house price inflation. The evidence from our own projects is for continued build out at a pace above contractual minimums with house price growth at Corby and Newark.

Urban&Civic's performance relative to those markets

Pulling those strands together explains why the Company has been able to outperform the land indices and affords good confidence for new openings arising from our established competitive advantage. The success achieved by Urban&Civic to date has not been in especially supply constrained locations. Sales are taking place currently on four strategic projects plus Europa Way at Warwick, which is smaller at 735 units but also fully infrastructured. Alconbury is on the margin of the area for which current net additions are falling short of official housing requirements. The remainder, Houlton in Rugby in particular, are in high demand/well supplied areas. The differentiation lies in our ability to create new quality places and schooling. As illustration, there are 18 new housing outlets in Rugby Borough, where there is a current shortage of school places. The initial intake at the primary school on our project at Houlton is approaching capacity after little more than two years. The consented design provides for ready expansion. Work has started on the secondary school which is on course for September 2021 opening. Our devised funding structure, whereby the Department of Education advances £35.5 million, interest free and repayable only against section 106 hurdles, has been extended to a national pilot. The £25 million link road, accelerated with favourable funding from Homes England, is now open. The greenspace investment looks terrific. The anecdotal evidence is that Houlton is outselling other new outlets in Rugby by 50 per cent per housebuilder.

As progression, our next two projects stand squarely in areas of limited supply. Wintringham is within walking distance of the East Coast mainline railway station at St Neots on the Cambridgeshire/ Bedfordshire border. Contracts on parcels totalling 455 units are completed; one to Cala Homes, a new customer, the other to Morris Homes, who are also building at Alconbury and Rugby. Two further contracts are in documentation for approximately the same number again: both new customers. Those four licences will comprise around one third of the total 2,800 consented plots. The frame is erected for the first primary school that will open in September 2020 to coincide with initial residential occupations. Bids have been received from nursery operators and from metro food retailers. The 33 per cent in the project was acquired from our partners, Nuffield College in Oxford, in April 2017 at an acquisition consideration equivalent to £14,285 per unserviced residential plot. The equivalent CBRE valuation as at September 2019, which took account only of the first two contracts, was almost double at £27,400 per plot. The date of first occupations will be a little shy of our original ambitious target but well within three years of first application submission.

Waterbeach, three miles to the north of the Science and Business Parks in Cambridge, will follow closely after Wintringham. Planning consent took longer here but in an area of greatest shortfall. The section 106 was signed in September 2019, giving rise to a valuable interest in the former barracks land to Urban&Civic, as well as a right to draw down in accordance with the development management contract. An initial valuation of the combined interests included in the year end accounts gave rise to an uplift over cost of £24.6 million. Occupations of the first new homes are scheduled for third quarter of 2022. From the outset and regardless of the extraordinary lakeside environment, Waterbeach has been positioned as affordable Cambridge. The valuations are based on starting prices well below £400 per sq. ft. The completed conversion of the barracks buildings for nursing accommodation to Papworth hospital supports the assumption that the demand for PRS looks set to be of a different order from other Group projects to further boost likely delivery rates.

Environmental and social virtues from operating at scale

If Urban&Civic was established out of the practical necessity for more strategic projects, the virtues of well managed infrastructure led development are now apparent. Put simply, large projects afford the opportunity of creating new green environments with good practices and quality education designed in from the outset in a manner that infill sites never can.

Whilst the advantages of infill are speed and lack of risk, as Master Developer, Urban&Civic can provide the same to our housebuilder customers on their serviced land parcels whilst creating new social fabric for all stakeholders across the site. Strategic projects are necessarily infrastructure led. The funding support from Homes England is correspondingly important. That is being repeated at Waterbeach. Securing planning consent also required empirical demonstration to South Cambridgeshire planners of net carbon improvement, emphasising the importance of our Sustainability Framework.

We are on site with new schools at Rugby and Wintringham and about to commence the primary school at Newark. The link road at Rugby is open five years ahead of planning obligation. The Urban&Civic way is creating a level of goodwill and institutional alignment that will take some matching. The stream of official visitors to our sites is testimony to the prevailing level of interest. The monetisation that comes from building our own prime becomes shared with our housebuilding customers via the licence arrangements. The price profile may have flattened but the stepped growth since first sales is marked.

Operating at scale is underpinned by our natural enthusiasm for consulting widely and with genuine intent; early tree planting; creating usable and sustainable green landscape; recycling and reusing as much material as we can; establishing meaningful programmes for jobs and skills and forging strong bonds of trust with the communities in which we are delivering. We know that what we do makes a difference. I am proud of what we have achieved to date and very aware of the increasing focus on these issues. Having extensively reviewed standard metrics and measurements, we found that none encompass accurately the role of the Master Developer across large scale sites. Accordingly, a bespoke assessment of metric options for Alconbury identified five key sustainability capitals which will underpin our work during 2020 to forge a detailed, repeatable and relevant assessment that we can report on more widely. We welcome comments on the analysis to date and shareholder involvement in the process going forward.

Catesby

The Group's land promotion business continued to capitalise on its planning expert positioning. I am pleased to report that the two outstanding Supreme Court hearings and the judicial review were all determined in Catesby's favour. Total sales in the year amounted to £10.1 million giving a realised post tax contribution after overheads of £5.3 million. The net EPRA movement on sites for which consents have been secured but the land not yet sold was a further £1.4 million. Capital invested in Catesby was £29.0 million as recorded in the balance sheet at 30 September 2019. The EPRA uplift included within capital invested aggregated £12.9 million.

Operating conditions are not getting any easier but a good pipeline is being maintained with approximately 10,000 units across 52 sites on 2,000 acres. At the time of writing four projects are at appeal or subject to judicial review. A small satellite office has been opened in Basingstoke to provide better coverage to the south and west of London.

Manchester

Completion of the three residential blocks at Manchester New Square is programmed between April and September 2020. The development is in joint venture with the Greater Manchester Pension Fund, who provide all incremental funding. Sales are steady with a noticeable increase in footfall now that the hoardings are down. 145 units exchanged/ reserved out of 351. Help to Buy finance will be available on remaining apartments early in the New Year.

Refurbishment works contracted at £4 million are about to commence on the Renaissance hotel in Deansgate, in conjunction with a new five year operating lease to Marriott. Manchester City Council has ratified a Strategic Regeneration Framework to confirm the subsequent redevelopment potential.

Immediate Priorities

We must always look to improve but last year was one of few project disappointments. The obvious frustration is the time that is being taken to get started at Manydown. The conversion of the procurement process into contract has taken longer than anticipated but does now appear close to completion. An industry leading joint venture between a local authority, a county council, a master developer and the world's second largest charity was never going to be entirely straightforward but, once formed, will have significant experience and firepower. The outline planning application, being run to date by the Councils, shows that large site approvals are not easy even when a local authority is effectively making an application to itself. We look forward to putting our shoulder fully to the wheel post contract.

Work will start in earnest at Waterbeach where we enjoy the advantage of making the most of an already established natural environment, really for the first time.

The outcome of the deliberations over HS2 have obvious ramifications for Calvert in Buckinghamshire. Our interests in 785 acres, with a working understanding over more, are at the intersection of the programmed HS2 route and the track beds of the Oxford to Cambridge railway line. The rail connections are fundamental, whereas the now unlikely Oxford to Cambridge Expressway is not. We are making the case. Several new projects in which we can look to capitalise on platform advantage are in early due diligence. But no more than that. The priority is for early income realisation.

The Executive Management Committee is working well and helps integrate not only internal decision making but also external stakeholder engagement. The operating structures are in place for further expansion.

Outlook

Expressing confidence a fortnight before the most significant General Election in living memory is the preserve of the brave, not to say foolhardy. The level of large project realisations last year amounted to 1,066 plots (665 strategic plus 401 Europa Way). The total combined exceeded guidance, albeit not by as much as for 2017/18. Predicting the current year is more difficult again. The resilience in mid-range housing demand is demonstrably hard to suppress, just as the UK economy has faltered, not stalled, despite all bleak prognoses. Maintained uncertainty and further parliamentary gymnastics were there not to be a majority outcome must test the resolve of new purchasers, probably beyond previous limits. Housebuilders may also choose to run slower in securing detailed planning approvals ahead of starting on site.

The contrary is also perfectly plausible. The emphasis is manifestly different but there is much common ground across the political manifestos. Housing priorities are unusually detailed. A growing population has to live somewhere and, with the possible exception of Waterbeach, buying is cheaper than renting on and around our projects. Climate and social concerns will continue to accelerate. Our housebuilding customers will be able to apportion some of the benefits in driving down impacts that large sites can provide. To maintain revenues when facing continued political uncertainty, housebuilders may regard Urban&Civic sites as a preferable low risk route to return on capital employed. Build cost pressures are abating. We are seeing those signs in the interest for new parcels from existing and new customers alike: current licences and forward realisations number 28 with a further 11, including some smaller sales, in legal documentation.

The most straightforward course in estimating the coming year is to use our central business plan assumptions, acknowledging the extent to which external events could impact in either direction. On that basis, the 2019/20 sales profile remains sharply upwards at 1,200 strategic site realisations (approaching double last year), with an additional 334 at Europa Way. The downside risk is mitigated by the structure of the licence contracts. The average length of forward sales at 3.3 years with progressively higher minimums affords significant comfort if we are to face another bout of unstable minority administration.

Looking further forward, the Board is determined to play to the Company's strengths and clear platform advantage. Group projects including Catesby amount to 32,000 consented or allocated plots, with a further 19,000 moving through the planning process. That represents a tripling of holdings in five years. We offer a rapid and pre consented route to sales in affordable and well connected locations with strong underlying demographics in the South East. By contrast, our expectation is that the buyers' market for land will maintain elsewhere and may yet become more pronounced. NPPF guidance envisages circumstances in which councils might need to plan for more housing than the standard method calculation. A recent report from, planning consultants, Lichfields reviewed the plan making progress of all local authorities in England, excluding London. The research found that of one third of submitted or emerging Local Plans went above the pro rata 273,000 home target but that the sponsoring authorities were overwhelmingly in the North and Midlands. Plans in the South East either matched or were providing for less, predominantly citing constraints on supply.

That is our area and those are the authorities with which Urban&Civic, as the leading Master Developer, can command most leverage. Tyttenhanger exemplifies where we are concentrating our attention and resources. Equidistant between St Albans and Potters Bar, in one of the most supply constrained locations in Southern England. The covering agreement was made bilaterally with a single landowner and takes our total number of strategic projects to nine, much the highest of any UK Master Developer.

We are working on more.

Dividend

The final dividend of 2.5p per share maintains the stated policy of increasing shareholder distributions by 10 per cent per annum in the normal course. The 11.4 per cent increase in the current year recognises the planning consent at Waterbeach and continued strong Group performance. It goes without saying that the Board will review at the half year, at which point the landscape will hopefully have become clearer, or perhaps not.

A scrip dividend alternative will be made available for the 2019 final payment, for which I shall again be electing.

Continuing thanks

Ever grateful thanks to Board and staff colleagues alike. An inclusive stakeholder approach has been part of the DNA of Urban&Civic from the very outset. Doing things right is just how we work.

Nigel Hugill

Chief Executive

27 November 2019

Financial review

Introduction

The Group has delivered a 9.6 per cent growth in EPRA net asset value (or 8.5 per cent on an EPRA triple net asset value basis) in the last 12 months, through a combination of planning uplifts (including outline consent for 6,500 homes at Waterbeach), accelerated infrastructure delivery and placemaking across the Group's strategic sites and completion of 665 plot sales (1,066 plots if you include our sub-strategic site at Europa Way). These 665 strategic site plot sales generated £34.3 million cash for the Group, which was around 5 per cent above expectations in terms of numbers and 3 per cent higher in respect of values (the slightly lower cash generation outperformance was the result of variations to sales mix rather than pricing). This level of sales was achieved without having any housebuilders commencing sales on new parcels in the second half of the year.

All consented strategic land sites are now benefitting from house completions except for Waterbeach, which has just received consent, and Wintringham, where two housebuilders are now on site and building homes (completions due in 2020). At 30 September 2019, the Group had sales contracts in place with 19 housebuilders across five sites, which will generate minimum total receipts of £101.7 million (up from £95.9 million at 31 March 2019 and £93.4 million at 30 September 2018) - an annual minimum equivalence of £30.7 million.

Gross profits are slightly down on last year and have mostly been derived from residential and Catesby sales rather than the historic commercial property disposals.

Key performance indicators

The Group's key performance indicators for the year to 30 September 2019 remain consistent with last year, although I have increased the prominence of the EPRA triple net metric this year (EPRA NNNAV) and I have also added a total NAV return measure (which is defined in the glossary of terms).

1. Includes 144 plots at Alconbury Weald (six months ended 31 March 2019: 60; year ended 30 September 2018: 100); 155 at Rugby (six months to 31 March 2019: 62; year ended 30 September 2018: 78); 87 at Newark (six months to 31 March 2019: 63; year ended 30 September 2018: 37); 53 plots from new contracts at Priors Hall and 226 plots from pre-acquisition contracts at Priors Hall (six months to 31 March 2019: 180; acquisition to 30 September 2018: 230).

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

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

4. EPRA NNNAV per share + large site discount (net of tax) equates to 451.6p (30 September 2018: 436.3p). The tax allowance was calculated by applying a tax rate of 17 per cent to the gross large site discount.

EPRA NAV metrics and total shareholder return remain the Group's principal performance measures, particularly when assessing value growth. EPRA balance sheet measures record the net asset value attributable to equity shareholders, adjusted for the revaluation of trading properties without tax (EPRA net asset value) or with tax (EPRA triple net asset value).

Given the impact that revaluations of trading properties have on the Group's EPRA NAV metrics, we continue to engage CBRE Limited (our independent valuers) to provide Red Book valuations for all our consented strategic land sites (as well as others property valuations) using discounted cashflows as a basis for their assessment.

I mentioned above that I have increased my focus on EPRA NNNAV in my commentary this year. This reflects the Group's increasing profitability and usage of its historic tax losses; both of which are likely to mean that the Group will pay more tax in the future (especially as the Group is not a REIT).

Our justification for selecting the other KPI's is set out in the Strategic Report section of the Annual Report and Accounts.

Net Asset Value - EPRA NAV, EPRA NNNAV and IFRS NAV

I have presented below a non-statutory analysis explaining the movements in net asset value over the last 12 months (and comparable period).

1. Comprises surpluses on the revaluation of investment properties (£5.8 million) net of trading property write downs (£0.7 million).

2. Total classified as property revaluations for the purposes of the below EPRA NNNAV growth commentary.

3. Comprises profits from trading and residential property sales (£22.6 million), construction contracts (£1.3 million) and investment property sales (whether earned by subsidiaries or joint ventures) as well as unwinding of discounts applied to long-term residential property sales debtors (£2.6 million) and surpluses on revaluation of overage entitlements that were acquired with the Priors Hall asset (£0.9 million).

4. Total classified as profit on property sales for the purposes of the below EPRA NNNAV growth commentary.

As reported at the half year, 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 23.9p2 to the Group's EPRA NNNAV growth of 23.6p, while profits on property sales contributed a further 17.7p4. Overheads, dividends and the dilutive effect of share options net 20.5p from these gains.

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

Total shareholder and NAV return

Urban&Civic's share price increased 20.0p (or 6.6 per cent) over the financial year (from 304.0p on 30 September 2018 to 324.0p on 30 September 2019). This increase, combined with the payment of a 2.2p final dividend and 1.4p interim dividend, has resulted in total shareholder return of 7.8 per cent for the financial year.

Total NAV return, which substitutes movements in EPRA NNNAV for movements in share prices when compared to shareholder return calculations, has increased by 8.6% over the 12 months to 30 September 2019.

Consolidated statement of comprehensive income

Gross profits, including the Group's share of joint ventures, are broadly in line with last year despite not making the significant commercial asset disposals that have been a feature of prior periods.

The Group's profit after tax was down £6.1 million over the comparative financial year, which (given consistent gross profits) is predominantly as a result of lower property revaluations going through the income statement, following the reclassification of most of the Group's property interests into trading stock in this and prior years.

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

1. Comprises profits from trading property sales and residential property sales and profits on construction contracts as disclosed in note 2.

2. Total classified as profit on trading and investment property sales in the EPRA movement table above.

3. Recurring project management fees comprise £2.1 million of the total (30 September 2018: £2.1 million) and are earned through recharging administrative expenses to joint ventures where Group employees are engaged on joint venture activities.

4. Total classified as revaluation of investment properties and write downs of trading properties in the above table.

Gross profit

Gross profit is slightly down on last year at £28.4 million (including £7.2 million generated by joint ventures); predominantly due to reduced commercial disposal profits (down £7.6 million - reflecting last year's sale of the Stansted Hilton Hotel development and Skelton Retail Park), which have been compensated by increased residential property profits (up £2.8 million), and significantly lower property write-downs (down £1.9 million).

Profits from trading property sales of £23.9 million (which make up 84 per cent of gross profit) include residential profits at Alconbury Weald, Newark and Priors Hall (£2.8 million), £7.2 million in respect of Urban&Civic's share of residential profits at RadioStation Rugby and Wintringham, £3.2 million generated by the disposal of Canningford House commercial property, £1.3 million of Europa Way residential profits and £9.4 million from Catesby land promotion transactions.

Included within the residential profits figures are profits from the Group's strategic site licence arrangements. These arrangements are complicated from an accounting perspective, however they are predominantly recognised in two places in the income statement, although often at different points in time.

Firstly, we typically recognise the total minimum amounts due under a licence arrangement when the land has been transferred to the housebuilder (usually on contract completion). This minimum sum is discounted and recorded through gross profit line together with an estimate of the overages that the Group expects to collect from the housebuilder when the homes are ultimately sold. This overage sum is also discounted, due to the length of time it takes to earn that overage, and it is only recognised if we do not believe there is a high probability that it will reverse due to market conditions prior to collection.

At each subsequent reporting period our estimates will be compared with what has taken place and adjustments made.

The second place where you might consider that 'residential profits' are recorded, is through the finance income line. It is here that the discount applied to the long-term minimums and overage debtors unwind; through either the passage of time or upon receipt of the licence proceeds, minimum sum and/or overage.

During this financial year, residential profits at Alconbury Weald, Newark and Priors Hall included £2.6 million from the completion of 26 Hopkins Homes and £1.6 million of pre-completion profit recognition of discounted overages across all three sites. A further £1.7 million of discount unwinding, in respect of minimum and overage receivables, was recognised in finance income.

Of the £7.2 million of joint venture residential profits, £5.0 million was attributable to the contractual minimums and discounted overages following the sale of a 248-plot parcel to Redrow at Rugby (£4.0 million) and the sale of a 177-plot parcel to Cala at Wintringham (£1.0 million). A further £2.2 million of other profits from Davidsons Homes, Morris Homes and Crest Nicholson agreements were also recognised. Joint ventures also booked a further £0.9 million of discount unwinding, in respect of the overage receivables, through finance income.

I have provided a breakdown of plot completions by site, with comparatives, as a footnote to the KPI table above. You should note that 226 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 against these acquisition receivables have been credited to the balance sheet receivables; rather than the income statement.

The terms minimums, overages and licences have been defined within the glossary and our accounting policy notes sets out how we recognised revenue.

Administrative expenses

The Group's gross administrative costs have increased by £1.8 million (to £25.3 million) in the 12 months to 30 September 2019. This is largely as a result of increased staff costs (headcount has increased by seven employees this year) and one-off costs associated with the Group's move to the Premium Listing segment of the London Stock Exchange in April. After capitalising overheads associated with development activity, this gross amount falls to £20.0 million compared with £18.8 million last year.

It is worth noting that the Group's recurring project management fees, which are fees earned by our employees for the provision of project management services to our joint ventures (or other third parties), now amount to £2.1 million (30 September 2018: £2.1 million). These project management services and associated fees contribute to overheads as well as acting as a profit centre.

Surplus on revaluation of investment properties

The residential-led planning application for the Alconbury expansion land, better known as Grange Farm has now been submitted and therefore, on commencement of early development works, we 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, commercial 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, as well as reconcile the movements in values at IFRS and EPRA levels, I have produced the table below, which pulls together the property interests that arise throughout the balance sheet .

1. Classified as EPRA adjustments reversed as properties sold or profits recognised in below commentary.

From the above table you can see that investment properties generated £5.8 million of revaluation surpluses in the year (under IFRS) with a further £39.3 million derived from revaluing retained trading properties (wholly owned and held by joint ventures) at the EPRA level. Against this, £4.7 million of EPRA adjustments have been reversed as properties have been disposed of or profits recognised.

Of the total £45.1 million uplift, £24.6 million (54.5 per cent) was the result of the revaluation of our interest in Waterbeach following the grant of outline consent for 6,500 homes. Alconbury Weald, Wintringham and Priors Hall strategic land sites contributed a further £6.5 million, £3.8 million and £4.6 million respectively and Catesby planning consents generated a further £1.4 million of uplifts.

The revaluation movements in respect of Alconbury Weald, Wintringham and Priors Hall reflect on-site progress, both in terms of sales and infrastructure works (which have resulted in a reduction in the discount rates that CBRE apply to their valuation cashflow models) and Catesby uplifts are derived from changes in planning status of several of its promotion sites. Alconbury Weald remains the Group's most significant property asset comprising 40.7 per cent of the total property portfolio value.

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 12 months to 30 September 2019 the Group's tax charge of £3.7 million amounted to 22.7 per cent of profit before tax, higher than the 19 per cent UK corporation tax rate; predominantly due to share based payments and costs such as depreciation being either non-deductible or non-deductible until settlement in the case of share-based payment costs. Taxable profits relate in most part to residential property sales and Catesby disposals.

Dividend

The Board proposes to pay a final dividend of 2.5p this year; subject to shareholder approval at the AGM on 6 February 2020. Assuming the final dividend is approved, this will mean that the total dividend for the year amounts to 3.9p, up 11.4 per cent over the prior year and broadly in line with the Group's EPRA NNNAV growth.

The final dividend will be paid on 21 February 2020 to those shareholders on the register on 10 January 2020. Investors choosing to participate in the dividend reinvestment scheme will need to make their election by 24 January 2020.

The Group paid its 2018 final dividend of 2.2p per share (£3.2 million) in February 2019 and the interim 1.4p per share (£2.0 million) in July 2019.

Consolidated balance sheet

Overview

1. Total property related interests: £702.5 million (30 September 2018: £609.1 million).

Non-current assets

Investment properties

Investment properties at 30 September 2019 amounted to £52.9 million and comprised the commercial development area at Alconbury Weald (£43.0 million) and a proportion of the Group's interest in the Waterbeach site that could deliver both commercial buildings and residential properties for rent in due course (£9.9 million).

The Group's total period-end property portfolio, irrespective of balance sheet classification, was valued at £702.5 million, 94 per cent by independent valuers CBRE and 6 per cent by Directors.

Investment in equity accounted joint ventures and associates

The Group's Rugby joint venture has been included in the balance sheet at £86.6 million, which along with a half interest in the 351 apartment Manchester New Square development (£15.2 million), a one-third interest in a 2,800 plot site at Wintringham, St. Neots (£17.0 million) and £2.5 million of other residual interests, combine to form an overall Group investment in joint ventures and associates of £121.3 million.

During the year joint ventures generated £8.0 million of profits for the Group (£7.0 million at Rugby and £1.0 million at Wintringham) and received £9.2 million of loans from the Group to fund development and infrastructure works at Rugby, Wintringham and Manchester New Square.

Non-current trade property and other receivables

The £45.9 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 Hopkins Homes, Morris Homes, Crest Nicholson and Redrow at Alconbury Weald, Kier at Priors Hall and Avant and Bellway at Newark.

Equivalent receivables (U&C's share) are owed to the Rugby joint venture by Crest Nicholson (£4.0 million) and again Morris Homes (£5.8 million) and Redrow (£12.1 million) and to the Wintringham joint venture by Cala (£5.8 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 £33.2 million in the year to £307.0 million.

This increase was the result of capital expenditure of £38.3 million (including £35.8 million in respect of Alconbury Weald, Priors Hall, Waterbeach and Newark development works), capitalised overheads amounting to £5.1 million, capitalised finance costs of £3.1 million and £41.9 million of reclassified investment properties - all net of £54.5 million of disposals (including residential disposals at Alconbury Weald, Priors Hall and Newark of £44.9 million and £6.1 million in respect of the sale of Catesby sites) and £0.7 million of written off land promotion and other projects costs; where it was decided not to progress .

Cash

Group cash balances at the year-end totalled £24.4 million, up £7.8 million since last year-end; largely due to sales receipts (£54.0 million) and loan drawdowns (£42.0 million) exceeding development expenditure (£45.8 million), loan repayments (£5.3 million), loans to joint ventures (£9.2 million) and other expenses (£27.9 million).

Sales receipts comprised £23.1 million of Catesby promotion receipts (including cost reimbursement), £26.3 million of residential sales receipts and £4.6m of commercial sales receipts.

Liabilities

Current and non-current borrowings

The Group has put in place four new facilities during the year (totalling £85.8 million). The first was a 5 year extension to the expiring £40.0 million Revolving Credit Facility with HSBC Bank, the second was an £8.6 million, three year and ten month, housebuilding facility at Alconbury Weald with Homes England, the third was a £26.0 million infrastructure loan for our Wintringham joint venture, again with Homes England, and the last facility was an £11.2 million investment facility with HSBC against our hotel in Deansgate, Manchester.

In addition to these facilities and following the receipt of outline planning consent at Waterbeach, terms have been agreed in respect of a 10 year, £60.6 million infrastructure facility. Urban&Civic will be the borrower (i.e. it will be on balance sheet) with security provided by the landowner (the MOD). This will significantly reduce recourse to the Group. The facility will help accelerate delivery at Waterbeach.

At the year-end, total Group borrowings amounted to £129.3 million (30 September 2018: £94.9 million) with the Group's share of joint venture borrowings adding a further £47.6 million (30 September 2018: £21.3 million).

Drawings predominantly funded infrastructure expenditure at Alconbury Weald, Priors Hall and Wintringham and construction costs at Manchester New Square and Civic Living, Alconbury Weald.

Financial resources and capital management

The Group's net debt position at 30 September 2019 totalled £104.9 million (30 September 2018: £78.3 million), which after taking into account the Group's cash reserves produces a net gearing ratio of 26.0 per cent (30 September 2018: 20.1 per cent) on an IFRS NAV basis and 19.9 per cent (30 September 2018: 16.3 per cent) on an EPRA NAV basis. A large proportion of this increase relates to Homes England drawings (including Civic Living house building facilities, which will be repaid when homes are sold).

Our Homes England infrastructure facilities are typically long dated and only require us to repay an agreed proportion of the loans when we distribute proceeds (i.e. we are typically not required to repay the full amount of the distribution in priority to Homes England); if there is an agreement to recycle distributable funds into further project works then no repayment will be made at that time.

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 28.3 per cent (30 September 2018: 20.6 per cent). The increase is predominantly due to ongoing development works at Manchester New Square, where the joint venture's capital costs are being fully met by £75.6 million of development facilities. These facilities will be repaid out of apartment sales proceeds when phased practical completions commence (expected in the second quarter of next year).

Gearing on all measures continues to remain within our self-imposed limit of 30 per cent, even including the shorter-term Civic Living and Manchester New Square development facilities.

The Group's weighted average loan maturity at 30 September was 6.7 years (30 September 2018: 7.9 years) and weighted average cost of borrowing on drawn debt was 3.8 per cent (30 September 2018: 3.3 per cent).

The Group has no loans maturing over the next three years, except for the Newark Homes England facility (£9.2 million currently drawn), the Deansgate hotel facility (£11.2 million) 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 as previously noted. The term of the Deansgate facility will be reviewed once new hotel management arrangements (which are currently under discussion) are finalised.

The Group continues to assess its long-term viability using the procedures set out in the 2019 Annual Report and Accounts.

David Wood

Group Finance Director

27 November 2019

Consolidated statement of comprehensive income

for the year ended 30 September 2019

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

The accompanying notes form part of this preliminary financial information. 

Consolidated balance sheet

as at 30 September 2019

The accompanying notes form part of this preliminary financial information. 

Consolidated statement of changes in equity

for the year ended 30 September 2019

Consolidated cash flow statement

for the year ended 30 September 2019

The accompanying notes form part of this preliminary financial information. 

Notes to the consolidated financial information

for the year ended 30 September 2019

1. Accounting policies

Basis of preparation

The financial information contained in this announcement has been prepared on the basis of the accounting policies set out in the statutory accounts for the year ended 30 September 2019. Whilst the financial information included in this announcement has been computed in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The financial information does not constitute the Company's statutory accounts for the periods ended 30 September 2019 or 2018, but is derived from those accounts. Those accounts give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company and the undertakings included in the consolidation taken as a whole. Statutory accounts for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting. The auditor's reports on both the 2019 and 2018 accounts were unqualified; did not draw attention to any matters by way of emphasis; and did not contain statements under s498(2) or (3) of the Companies Act 2006.

The principal accounting policies adopted in the preparation of this preliminary financial information are set out below. The policies have been consistently applied to both years, unless otherwise stated.

Functional and presentation currency

All financial information is presented in British Pounds Sterling (£), the functional currency of all Group entities, and has been rounded to the nearest thousand (£'000) unless indicated to the contrary.

Going concern

The consolidated financial information has been prepared on a going concern basis, which assumes that the Group will continue to meet its liabilities as they fall due. At 30 September 2019 the Group has prepared cash flow projections that show that it is expected to have adequate resources to continue in operational existence for the foreseeable future.

In arriving at this assessment the Directors have considered any facilities that are due to expire in the next 12 months against progress made on their extension or renewal to date, and/or the Group's ability to repay the maturing facilities from Group resources.

Adoption of new and revised standards

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 included within residential property sales. The Group has elected to adopt IFRS 15 using the Cumulate Effect Method meaning that full retrospective adjustment of comparative periods is not required. The impact on the Group's balance sheet at 1 October 2018 has been to increase trade 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 stated later in note 1.

New standards and interpretations not yet applied

The IASB has issued or amended the following standards that are mandatory for later accounting years, are relevant to the Group and have not been adopted early. These are:

• IFRS 16 'Leases' (effective date: 1 January 2019)

The Group has undertaken an assessment of the impact should this standard have been adopted for the current period of account.

IFRS 16 'Leases' will be effective for the Group from the period beginning 1 October 2019, and will result in the Group recognising a right-of-use asset and liability on the balance sheet initially at the present value of all future lease payments it is obliged to make for any material leases for which it is the lessee. These are disclosed in note 20. At 30 September 2019, it has been assessed that this would lead to the recognition on the balance sheet of assets and liabilities of £4.3 million. There is no net impact on profit and loss over the lease term, but under IFRS 16 part of the payment currently recognised within administrative expenses (£0.1 million) in the year ended 30 September 2019 would be recognised as a finance cost. The treatment of leases where the Group is acting as a lessor is substantially unchanged from that currently applied under IAS 17.

Basis of consolidation

Where the Company has control over an investee, it is classified as a subsidiary. The Company controls an investee if all three of the following elements are present: power over the investee, exposure to variable returns from the investee, and the ability of the investor to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

The consolidated financial information presents the results of the Group as if it formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

Business combinations

The consolidated financial information incorporates the results of business combinations using the purchase method. In the consolidated balance sheet, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained.

Joint arrangements

The Group is party to joint arrangements where there are contractual arrangements that confer joint control over the relevant activities of the arrangements to the Group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

Joint arrangements are accounted for as joint ventures where the Group has rights to only a share of the net assets of the joint arrangements.

In the consolidated financial information, interests in joint ventures are accounted for using the equity method of accounting whereby the consolidated balance sheet incorporates the Group's share of the net assets of the joint ventures. The consolidated statement of comprehensive income incorporates the Group's share of the joint ventures' profits after tax.

Where there is objective evidence that the investment in a joint venture has been impaired, the carrying amount of the investment is tested for impairment in the same way as other non-financial assets.

Joint arrangements are accounted for as joint operations where the Group, along with the other parties that have joint control, have the rights and obligations for assets and liabilities respectively relating to such contractual arrangements.

In the consolidated financial information, where the Group has interests accounted for as joint operations, the Group's share of jointly controlled assets, liabilities, income and expenses are reflected on a line by line basis.

Associates

Where the Group has significant influence but not control or joint control over the financial and operating policy decisions of another entity, it is classified as an associate. Associates are initially recorded in the consolidated balance sheet at cost. The Group's share of post-acquisition profits and losses is recognised in the consolidated statement of comprehensive income, except that losses in excess of the Group's investment in the associate are not recognised unless there is an obligation to make good those losses.

Where the Group has a legal obligation to a third party in relation to the losses of an associate, the Group fully provides for its share and the charge is recognised in the consolidated statement of comprehensive income.

Investment properties

Investment properties are properties held for long-term rental income and/or for capital appreciation and are measured initially at cost, including related transaction costs, and subsequently at fair value. Changes in fair value of an investment property at the balance sheet date and its carrying amount prior to remeasurement are recorded in the consolidated statement of comprehensive income.

Investment properties are recognised as an asset when:

• it is probable that future economic benefits that are associated with the investment property will flow to the Group;

• there are no material conditions present that could prevent completion; and

• the cost of the investment property can be measured reliably.

Additions to investment properties in the course of development or refurbishment include the cost of finance and directly attributable internal and external costs incurred during the period of development until the properties are ready for their intended use.

An investment property undergoing redevelopment or refurbishment for continued use as an investment property will remain as an investment property measured at fair value and is not reclassified.

An investment property is classified as held for sale when it is available for immediate sale, management is committed to a plan to sell, an active programme to locate a buyer has been initiated and a sale is expected to occur within 12 months.

A transfer of a property from investment properties to trading properties will be made where there is a change in use such that the asset is to be developed or held with a view to sale.

Trading properties

Trading properties comprise both direct interests in property and indirect beneficial interests in property held through land promotion agreements or other contractual arrangements. They are classified as inventory and are included in the consolidated balance sheet at the lower of cost and net realisable value. Net realisable value is the expected net sales proceeds of the developed property in the ordinary course of business less the estimated costs to completion and associated selling costs. A provision is made to the extent that projected costs exceed projected revenues.

All external and internal costs, including borrowing costs, directly associated with the purchase, promotion and construction of a trading property are capitalised up to the date that the property is ready for its intended use. Property acquisitions are recognised when legally binding contracts that are irrevocable and effectively unconditional are exchanged.

Properties reclassified to trading properties from investment properties are transferred at deemed cost, being the fair value at the date of reclassification.

Properties reclassified from trading properties to investment properties are transferred at cost when there is a change in use of the asset such that it is to be held for long-term rental income and/or for capital appreciation.

Leases

Where the Group is the lessor, the Directors have considered the potential transfer of risks and rewards of ownership in accordance with IAS 17 'Leases' and in their judgement have determined that all such leases are operating leases. Rental income from operating leases is recognised in the consolidated statement of comprehensive income on a straight line basis over the term of the relevant lease.

Where the Group is the lessee, leases in which substantially all risks and rewards of ownership are retained by another party are classified as operating leases. The Directors have determined that all of their lessee arrangements constitute operating leases. Rentals paid under operating leases are charged to the consolidated statement of comprehensive income on a straight line basis over the term of the lease.

Property, plant and equipment

Property, plant and equipment is stated at cost or fair value at the date of transfer less accumulated depreciation and accumulated impairment losses. This includes costs directly attributable to making the asset capable of operating as intended.

Depreciation is provided on all plant and equipment at rates calculated to write off the cost less estimated residual value, based on prices prevailing at the reporting date, over its expected useful life as follows:

Freehold property - shorter of expected period to redevelopment and 2 per cent straight line

Leasehold improvements - shorter of term of the lease and 10 per cent straight line

Furniture and equipment - 20-33 per cent straight line

Revenue recognition

Revenue is recognised to the extent that a significant reversal is not expected in future periods and performance obligations have been satisfied. The below recognition policies have been applied in respect of each of the Group's principal revenue streams. Note that the only material change in the Group's revenue recognition policies since the previous year is that under IAS 18 variable revenue was only recognised to the extent that it could be reliably measured. Under IAS 18, revenue relating to overages on sales of land parcels to housebuilders was typically only recognised when the housebuilder had made an onward sale of the properties being developed on the relevant parcel. The adoption of IFRS 15 has resulted in overage revenue from certain of these sales being recognised earlier, at the point of sale, to the extent that it is considered such revenue will not be subject to a significant reversal in the future.

Trading property sales

The sale of trading properties, including beneficial interests held indirectly through land promotion and other contractual agreements, usually have contractual performance obligations such as securing planning consent or a buyer for the property that are satisfied at a point in time. Revenue is recognised when the performance obligation is satisfied, which occurs when control of the Group's interest has passed to the buyer on completion of contracts. Any variable consideration is estimated, taking into account the timing and variability of consideration and only recognised where it is considered highly probably that there will not be a future significant reversal. Any deferred consideration is discounted to present value with the discount being unwound to profit and loss as finance income. Costs, which prior to sale are included within trading properties on the balance sheet, are expensed to cost of sales at the point of sale.

Residential property sales

The sale of residential properties, including land parcels sold to housebuilders for residential development, usually have performance obligations such as securing planning consent and transferring legal title that are satisfied at a point in time. Revenue is recognised when control of the property has passed to the buyer on completion of contracts. Any variable consideration including overages is estimated at the point of sale taking into consideration the time to recover overage amounts as well as other factors which may give rise to variability. It is only recognised to the extent that it is highly probable that there will not be a significant reversal in the future and is reassessed throughout the duration of the sales contracts. Any deferred consideration is discounted to present value with the discount being unwound to profit and loss on finance income. Costs, which prior to sale are included within trading properties on the balance sheet, are expensed to cost of sales at the point of sale.

Revenue on construction contracts

Revenue on construction contracts is recognised in line with when performance obligations are deemed to be satisfied. Performance obligations in respect of construction contracts where the Group has no interest in the land are typically determined as being satisfied over time, meaning that revenue is recognised as these obligations are satisfied, which is usually on the basis of percentage of work completed using the input method (reflecting the enhancement in value of the customer's asset). Associated costs are expensed as incurred.

Where contracts contain multiple distinct performance obligations, revenue is allocated to each performance obligation in proportion to the assessed stand-alone selling price of the services being provided. For any such performance obligations that are determined as being satisfied at a point in time, revenue is recognised at the point of satisfaction of the relevant performance obligations. Associated costs are initially recognised in trading properties and expensed as a cost of sale at the point of sale.

Rental and other property income

Rental and other property income arising from property is accounted for under IAS 17 and recognised on a straight line basis over the term of the lease. Lease incentives, including rent free periods and payments to tenants, are allocated to the consolidated statement of comprehensive income on a straight line basis over the lease term as a deduction from rental income.

Hotel income

Hotel income comprises revenues derived from hotel operations, including the rental of rooms and food and beverage sales. Revenue is recognised at the point in time when rooms are occupied and services are rendered.

Project management fees and other income, including recoverable property expenses

Fees from development management service arrangements and other agreements are determined by reference to the relevant agreement and recognised over time as the services are provided, typically using the output method.

Taxation

Current tax

The charge for current taxation is based on the results for the year as adjusted for items that are non-taxable or disallowed. It is calculated using rates and laws that have been enacted or substantively enacted by the balance sheet date. Tax payable upon realisation of revaluation gains on investment property disposals that were recognised in prior periods is recorded as a current tax charge with a release of the associated deferred taxation.

Deferred tax

Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities in the consolidated balance sheet and the corresponding tax base cost used in computing taxable profit.

Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the consolidated statement of comprehensive income except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same tax authority.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Under IAS 12 'Income Taxes', a deferred tax liability is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date.

Deferred tax balances are not discounted.

Share-based payments

The fair value of granting share awards under the Group's performance share plan, and the other share-based remuneration of the Directors and other employees, is recognised through the consolidated statement of comprehensive income. The fair value of shares awarded is calculated by using an option pricing model. The resulting fair value is amortised through the consolidated statement of comprehensive income on a straight line basis over the vesting period. The charge is reversed if it is likely that any non-market-based vesting criteria will not be met. The charge is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

Employee Benefit Trust

The Group is deemed to have control of its Employee Benefit Trust (EBT) and it is therefore treated as a subsidiary and consolidated for the purposes of the consolidated accounts. The EBT's investment in the parent company's shares is deducted from equity in the consolidated balance sheet as if they were treasury shares. Other assets and liabilities of the EBT are recognised as assets and liabilities of the Group. Any shares held by the EBT are excluded for the purposes of calculating earnings per share and net assets per share.

Retirement benefits

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the period to which they relate.

Government grants

Government grants received in relation to property asset capital expenditure are generally deducted in arriving at the cost of the relevant asset. Where retention of a Government grant is dependent on the Group satisfying certain criteria, it is initially recognised in other loans. When the criteria for retention have been satisfied, the balance is netted against the cost of the asset.

Dividends

Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when the dividends are paid, following approval by the Directors. In the case of final dividends, this is when the dividends are approved by the shareholders at the AGM.

Impairment of non-financial assets (excluding trading properties, investment properties and deferred tax)

Impairment tests on the Group's property, plant and equipment and interests in joint arrangements are undertaken at each reporting date to determine whether there is any indication of impairment. If such indication becomes evident, the asset's recoverable amount is estimated and an impairment loss is recognised in the consolidated statement of comprehensive income whenever the carrying amount of the asset exceeds its recoverable amount.

The recoverable amount of an asset is the greater of its fair value less costs to sell and its value in use. The value in use is determined as the net present value of the future cash flows expected to be derived from the asset.

Financial instruments

Financial assets and financial liabilities are recognised in the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, deposits with banks and other short-term, highly liquid investments with original maturities of three months or less from inception. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand and deposits with banks net of bank overdrafts.

Trade and other receivables

Trade and other receivables arising in the normal course of business are initially recognised at fair value and subsequently at amortised cost or recoverable amount.

For significant receivables, particularly in respect of amounts due from housebuilders, the Group monitors the expected annual and lifetime credit loss by undertaking periodic reviews of housebuilder WACCs, at least six monthly credit checks and the continual monitoring of payment track records and housing sales. Additionally, six monthly comparisons are performed monitoring third party valuations in respect of particular land parcels upon which the receivables are secured compared to those receivables recognised in the balance sheet in respect of such land parcels. As part of this consideration, the Group considers the recoverability of the receivable in the event of a downturn in the market.

For all other trade receivables and amounts recoverable under contracts, the Group applies the IFRS 9 simplified approach to measuring expected credit losses using a lifetime expected credit loss provision. To measure expected credit losses on a collective basis, trade receivables and amounts recoverable under contracts are grouped based on similar credit risk and ageing. The expected loss rates are based on the Group's historic credit losses experienced prior to year end and adjusted for current and forward-looking information on macroeconomic factors affecting the Group's customers.

Receivables acquired by the Group that include a variable right to receive cash are recognised initially at fair value and are subsequently remeasured to fair value at each reporting date with fair value movements recognised within the income statement.

Trade and other payables

Trade and other payables are initially recorded at fair value and subsequently at amortised cost.

Borrowings

Interest-bearing loans are initially recorded at fair value, net of any directly attributable issue costs, and subsequently recognised at amortised cost.

Borrowing costs

Finance and other costs incurred in respect of obtaining borrowings are accounted for on an accruals basis using the effective interest method and amortised to the consolidated statement of comprehensive income over the term of the associated borrowings.

Borrowing costs directly attributable to the acquisition and construction of investment and trading properties are added to the costs of such properties until the properties are ready for their intended use.

All other borrowing costs are recognised in the consolidated statement of comprehensive income in the period in which they are incurred.

Critical accounting estimates and judgements

The preparation of financial information in accordance with IFRSs requires the use of certain critical accounting estimates and judgements. It also requires management to exercise judgement in the process of applying the Group's accounting policies. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may differ from those estimates.

Areas requiring the use of estimates and critical judgement that may impact on the Group's earnings and financial position include:

Accounting estimates

Valuation of investment and trading properties

For the purposes of calculating the fair value of its investment property portfolio and the net realisable value (and, for EPRA reporting purposes, the fair value) of its trading property portfolio, the Group uses valuations carried out by either independent valuers or the Directors on the basis of market value in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The valuations are based upon assumptions including future rental income, sales prices and rates, estimates of typical profit margins and finance costs, anticipated maintenance costs, development costs, inflation forecasts and appropriate discount rates. Assumptions used in the valuations of the Group's significant investment property interests carried at valuation and trading properties valued for EPRA reporting purposes at 30 September 2019 are disclosed later in note 1. Details of the Group's trading properties that are measured at net realisable value are disclosed in note 13. The valuers and Directors also make reference to market evidence for comparable property transactions and principal inputs and assumptions.

Due to the nature of development timescales, it is routinely necessary to estimate costs to complete and future revenues and to allocate non-unit-specific development costs between units legally completing in the current financial year and in future periods.

Revenue

Estimates are involved when determining how much revenue to recognise at the point in time of residential property sales where there is deferred consideration and/or 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 the following factors:

Absorption rates - licence sale contracts contain minimum sales rates as well as minimum prices. The Directors consider as a base case assumption that houses will be sold by housebuilding customers in line with the contracted minimum sales rates. Deferred revenue is therefore discounted by reference to these rates.

Discount rates - the onward sale of constructed homes by housebuilder customers will occur over a number of years. Consequently, the time value of money and the credit risk of the housebuilder must be taken into account when measuring the present value of the consideration receivable. The Directors consider the WACC of the housebuilder, or third party cost of borrowing where WACC is not available, to be an appropriate rate at which to discount deferred consideration for the sale of the land. These discount rates are kept under review in the event of indications of a significant change in circumstance of the housebuilding customer. The impact of a change in the discount rates of one per cent either up or down on the Group's revenue recognised would be £1.3 million.

Overages - licence sale contracts consist of fixed minimum prices as well as variable overage elements based on the future onward sale value achieved by the housebuilder customer. When determining how much of the variable revenue to recognise at the point of sale, the Directors estimate the amount that they would expect to receive based on market evidence for current house prices and house price inflation forecasts. They then consider the risk of a significant reversal of this revenue in future periods and constrain it accordingly. For the current year, the Directors 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 one-year delay to the expected receipt of overage payments, to take into account a significant fall in sales rates in a downturn, are appropriate constraints in response to the risk. The impact of a change in the assumed house price reduction by five per cent up and down would be to decrease/increase overage recognised in the year by £1.2 million and £1.3 million respectively.

Inflation rates - some contractual minimum prices are subject to annual review and inflation. The Directors consider publicly available inflation forecasts when calculating minimum amounts receivable over the licence contracts.

Cost of trading property sales

The sale of parcels or units of strategic land requires an allocation of costs, (where applicable including site-wide infrastructure, any construction costs directly attributable to individual land parcels and capitalised administrative expenses) in order to account for cost of sales associated with the disposal. The costs being allocated, based on plot numbers as a proportion of total project plot numbers, include those incurred to date together with an allocation of costs remaining estimated with reference to latest project forecasts.

Taxation

There are transactions and calculations for which the ultimate tax determination is uncertain. As a result, the Group recognises tax liabilities based on estimates of whether additional taxes and interest will be due. The Group believes that its accruals for tax liabilities are adequate for all open years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve judgements about future events. The Directors have also exercised their judgement in relation to the recognition of certain deferred tax assets and liabilities. In order to assess whether the Group should recognise a deferred tax asset or liability and the tax rate at which that asset or liability should be measured, the Directors consider the timing and likelihood of expected future profits along with how these expected future profits match up with the existing tax losses within specific Group entities. The proportion of the Group's estimated available tax losses for deferred tax has been disclosed in note 12. The impact of a two per cent increase/decrease in the tax rate would change the net deferred tax liability by £0.7 million up or down at 30 September 2019.

Share-based payments

The value of share-based payments is estimated using an option pricing model as at the date of grant and using certain assumptions.

Judgements

Distinction between investment properties and trading properties

Where there is a strategic decision taken to develop any element of an investment property for sale rather than hold for investment purposes, then that element is remeasured to fair value at the decision date and transferred to trading properties. Where there is a strategic decision taken to hold any element of a trading property for long-term capital growth or income, then that element is transferred to investment properties at cost and subsequently held at fair value.

Property value assumptions

Significant unobservable inputs

The key inputs to the strategic property valuations, for both investment properties and trading properties valued for EPRA purposes, including properties wholly owned, within joint venture vehicles, or subject to joint arrangements included:

Inter-relationship between significant unobservable inputs and fair value measurement

The estimated fair value would increase/(decrease) if:

• expected house prices inflation were higher/(lower);

• expected annual cost price inflation was lower/(higher);

• commercial land prices was higher/(lower); and

• risk-adjusted discount rate was lower/(higher).

The significant valuation inputs to the Group's strategic land interest are too interdependent to meaningfully present the impact of varying these inputs.

2. Revenue and gross profit

for the year ended 30 September 2019

for the year ended 30 September 2018

Other than rental and other property income, all of the Group's revenue has been accounted for under the provisions of IFRS 15. Of this IFRS 15 revenue, £87,887,000 has been recognised at a point in time and £11,343,000 has been recognised over time.

The above construction contract includes a further £6,369,000 of estimated revenue which will be recognised over time in future periods as performance obligations are satisfied.

3. Operating profit

1. Total fees for 2019 payable to the Company's auditor are £432,500 (2018: £340,500). Of this, £310,500 (2018: £261,500) relates to audit services and £43,000 (2018: £37,000) to assurance services. £79,000 (2018: £42,000) relates to fees incurred for reporting accountant services in relation to the Company's premium listing application.

4. Segmental information

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

The two principal segments are strategic sites and Catesby (being one segment) and commercial property development. The strategic sites and Catesby segment includes serviced and unserviced land, consented and unconsented land and mixed-use development and promotion sites. The commercial segment includes city centre development and commercial regional developments. All of the Group's revenue is generated in the United Kingdom.

Segmental information is reported in the table that follows in respect of the current year in accordance with the requirements of IFRS 8 'Operating Segments'.

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 year ended 30 September 2019

In the year ended 30 September 2019, there were three major customers that generated £11,367,000, £13,036,000 and £12,500,000 of revenue. Each of these represented 10 per cent or more of the total revenue.

Consolidated balance sheet

as at 30 September 2019

Consolidated statement of comprehensive income

for the year ended 30 September 2018

In the year ended 30 September 2018, there were two major customers that generated £49,350,000 and £22,961,000 of revenue. Each of these represented 10 per cent or more of the total revenue.

Consolidated balance sheet

as at 30 September 2018

5. Finance income and finance costs

Finance costs are capitalised at the same rate as the Group is charged on respective borrowings.

6. Tax on profit on ordinary activities

(a) Analysis of charge in the year