Grainger plc annual review for the year ended 30 September 2008
grainger facts
ACHIEVEMENTS OF THE YEAR
At Grainger, our dedicated management and staff have
worked diligently in the very challenging conditions which
existed during the year. As a result of these efforts, we are
pleased to count the following amongst our achievements:
Operating profit up 19.1% to £106m (2007: £89m)
before valuation and goodwill movements as a result
of increased net rents and management fees
Sales from core and retirement solutions portfolios
up 15% to £168m (30 September 2007: £146m)
New bank financing raised totalling circa. £228m
Cash conservation, by reducing property spend and
overheads and increasing sales
Planning permission obtained for 1,550 new homes
and 100,000 sq. m. of commercial space at Newlands
Common, West Waterlooville
Successful tender offer for German residential company
Francono Rhein-Main AG for €41.4m (£32.6m) creating
critical mass in Germany
1
Grainger plc is the UK’s largest
listed residential landlord...
3
6
10
19
25
29
33
38
40
45
52
74
75
76
78
Overview
Chairman’s statement
Chief executive’s review
Financial review
Corporate responsibility
Our operations
Our portfolio
The board
Corporate governance report
Report of the remuneration committee
and directors’ remuneration report
Directors’ report
Shareholders’ information
Advisers
Glossary of terms
Corporate addresses
2
Grainger plc annual review 2008
Not retail, not office blo
Not a volu
1,000s of t
Reversio
Co-in
Defensive ch
e h
sti
v
e
m
e
s
r
o
n
a
t
n
u
a
s
y
n
n
g
c
k
s
o
r
w
e
b
u
il
d
a
r
e
y
e
n
i e s
a n c
e
d m a n a g e r
n ti a l t
n
ner, develo p e r, f u
Range of resid
e r m a
UK a n d G
Diversific a
t i o n
w
O
n
e
r
h
o
u
s
e
s
e
r
o
c
t
n
a
c
a
v
r
o
d
e
t
n
a
n
g
n
i
t
a
r
e
n
e
g
-
h
as
a
r
a
c
t
e
r
i
s
t
i
c
s
o
i
l
o
f
t
r
o
e
l
c
y
c
e
g lif
n
Quality of p
High margin, c
Tradeable – te
Lo
M
a
r
k
e
t
l
e
a
d
i
n
g
r
e
L
a
r
g
e
s
t
,
l
i
s
t
e
R
e
s
p
e
c
t
e
d
i
n
d
H
o
m
e
r
e
v
e
r
s
i
s
i
d
d
r
e
e
n
s
i
t
i
d
o
u
n
s
t
m
r
y
a
s
r
p
M
a
r
k
e
t
l
e
a
d
i
n
a
l
e
k
o
n
e
k
f
t
t
e
u
n
i
a
l
s
s
h
p
d
l
a
a
r
e
m
n
e
r
s
a
n
a
d
3
l
o
5
r
d
%
g
e
m
e
n
t
E E N ABLES US T
C
N
O
R EXPE RIE
we are
different
U
O
S
E
S
E
E
G
N
E
L
L
A
H
O
P
P
O
R
T
U
N
I
T
IE
S W
HERE O
N
g
C E
o
E
p
R
o
n
o
T
H
n
s
s
i
t
i
THERS ONLY SEE C
E POINT OF D I F F E
Unique plat f o r m
Integrate d
Residential, prof e s s i o n a l
Owner/manager pe r s p e c t
i v e
UNIQUE
expertise and perspective
3
O
v
e
r
v
i
e
w
Grainger plc is the UK’s largest listed residential landlord with
approximately £2.3bn of property assets and £3.0bn of assets
under management. We specialise in owning, developing,
managing, selling and delivering sustainable value from
residential property.
We have a unique blend of expertise gained from owning and managing properties
in local communities for many years. Our wealth of experience is invaluable in our
task to manage the business through this challenging time.
Our strategy
Our long-term strategy remains unchanged. At our core, we have an irreplaceable portfolio
of regulated properties, which generates regular cash flow through sales following natural
vacancies. Our properties have continued to be desirable as they fall in an affordable price
bracket and provide purchasers with refurbishment opportunities. It is also possible to sell
these properties tenanted making them attractive liquid assets. We use our skills and
experience of the market to ensure we sell to deliver the best possible value.
Grainger’s Bridgewater business is also an industry leader in home reversion plans, which
offer equity release for the elderly. Bridgewater is the first home reversion provider to be
awarded the ‘Best Home Reversion Provider’ for three years in a row at the prestigious
Mortgage Solutions Equity Release Awards. Grainger has an overall market share of some
35%. We are constantly broadening our portfolio of products and properties in this area,
to include other solutions for retirement living, recognising a major area of growth over
the coming years.
Our development business gives us further insight into the residential property market. We
take a long-term approach where we can see strategic land opportunities. More recently we
have recognised the benefits of working with partners to deliver large, mixed use schemes.
Over the last few years we have capitalised on our strengths and skills in the UK to enter
the German residential market. This year we achieved critical mass of over €500m of
property following the successful acquisition of Francono Rhein-Main AG. We have utilised
those same abilities to launch and become fund, asset and property manager of G:res1,
a residential property fund in which Grainger co-invests. These diversifications have spread
our risk and reduced our dependency on the UK residential market. When appropriate
opportunities arise, we will continue to leverage our capabilities.
4
Grainger plc annual review 2008
Our aim is to maintain and consolidate our position as the UK’s leading quoted
residential property company. To do this we aim, over the long term to:
(cid:129) provide superior risk-adjusted returns;
(cid:129) maximise the efficiency of our capital structure by introducing third-party
equity and debt through residential property funds;
(cid:129) enter new residential sectors where we can use our management skills
and resources to build large portfolios;
(cid:129) diversify income streams to include fund management fees alongside
co-investment growth;
(cid:129) continue to build on our unique position as a long-term holder, asset manager,
trader and developer of residential property;
(cid:129) use our skills and property network reputation to integrate developing,
managing and funding; and
(cid:129) encourage and capitalise on the growing recognition of residential property
as an investment class.
These aims are underpinned by our group-wide ethical way of doing business. This includes
commitment to integrity in all business relationships, employee development, tenant care,
environmental responsibility and community service.
In the short to medium term our plans for growth will be undoubtedly dampened by the
economic climate. Our focus is fundamentally on managing the business in a prudent way,
as we have done through previous downturns in the cycle. In practice this means focusing
our efforts on maximising cash flow and delivering covenant compliance.
5
O
v
e
r
v
i
e
w
d rents/agricult u r a l
K RESIDEN TIA L
ulated/assure d
N RESID E N TI A L
CORE
U
g
e
n
R
u
ro
G
A
M
R
E
G
s
n
Aquisiti o
R PE O P L
U
O
G
-R
F
e
s/
R
U
N
D
S
e
s
P
N
U
T
T
u
U
r
z
R
E
o
S
GenIn
JOIN
T
st/
v
e
C
V
E
D
S/J
O
I
N
FUN
Asset m
a
n
a
E W O R K AS A TEA
M
,
S
H
A
g
e
m
e
n
t
T
n
V
P
E
N
T
U
a
r
k
R
E
S
F
u
n
d
m
a
n
a
g
e
m
e
n
t
R
e
s
i
d
e
D
n
E
t
i
a
l
V
E
L
l
e
d
O
P
M
m
i
x
e
E
N
T
E
R
U
T
U
F
E
N
H
D A VISION FOR T
OUR OPER A T I O N
Property mana g e m e
PORTFOLI O S
d
u
s
e/strategic land
R
I
N
G
I
N
F
O
R
M
ATION A
S
n t
E
R
s
n
o
i
t
a
u
al
NS
Sales & V
M E N T SOLUTIO
a t er/N orwich Unio
E
n
T I R
w
e
g
B r i d
INTEGRATED
asset base and interests
6
Grainger plc annual review 2008
CHAIRMAN’S STATEMENT
Despite the turmoil in the financial markets over the last
12 months and its inevitable overspill into the wider economy,
I can report that our core business has continued to perform.
In particular, sales of residential property, the heart of our activities,
have shown a year-on-year increase in proceeds received of 15%.
However, Grainger is not, of course, immune from the general economic problems and this
is reflected in decreased trading margins, increased funding costs and falls in net asset value
from asset writedowns.
Current main objectives
In our interim management statement in August we set out our three main objectives
for the anticipated difficult period ahead. These are:
(cid:129) to maximise sales revenue;
(cid:129) to reduce purchases of replacement stock; and
(cid:129) to cut our overhead base.
Gross property assets (£m)
Progress on these to date
08
07
06
05
2,260
2,322
1,901
1,597
(cid:129) sales of residential property amounted to £168m compared to £146m in 2007;
(cid:129) in the period April to September 2008 we acquired just £27m of UK property assets
compared to £96m in the first half of the year and to £403m in the whole of 2007; and
(cid:129) our overhead costs are 10% lower than 2007.
In addition, we will maintain an overriding focus on the protection and enhancement of our
revenue, cash maximisation, financial stability and compliance with our banking covenants
until market conditions improve.
Gross NAV per share (pence)
535
Results
08
07
06
05
828
677
563
Dividends per share (pence)
08
07
06
05
6.18
6.18
5.62
5.11
As with all real estate companies our results for the year have been significantly affected
by valuation movements. We have therefore analysed our income statement into trading
activities and valuation and other mark-to-market adjustments in note 3 to the accounts.
This analysis enables us to present more meaningful comparisons of our core operations
year-on-year.
Profit before tax has decreased by £190m from a profit of £78m to a loss of £112m,
of which £177m comes from valuation deficits, goodwill impairment and mark-to-market
adjustments. Adjusting for these, our result for the year would be a profit before tax
of £12m compared to £25m on the same basis last year, the fall resulting largely from
increased funding costs.
Operating profit has increased by 19.1% from £89m to £106m (before valuation writeoffs
and goodwill impairment) reflecting increases in net rents from our enlarged UK and German
portfolios and in management fees from our fund management activities. Despite the
market conditions our trading profits are relatively unchanged.
7
C
h
a
i
r
m
a
n
’s
s
t
a
t
e
m
e
n
t
Gross net asset value per share (‘Gross NAV’) has decreased by 35% to 535p from 828p and
this fall is also reflected in our other NAV measures: triple net asset value (‘NNNAV’) down
37% to 385p from 613p and base case Grainger NAV down 29% to 520p from 732p.
The major factors behind the decrease have been the fall in vacant possession value of our
properties and an increase in the discount applied to those values to calculate market values
which are then used for NAV purposes. Details of the calculation of the NAV measures are
provided in the financial review.
We are maintaining our full year dividend for shareholders in Grainger plc at the same level
as last year. Thus the board is recommending a final dividend of 3.91p which together with
the interim dividend of 2.27p per share paid on 4 July 2008 will produce a total dividend for
the year of 6.18p per share. If approved the final dividend will be paid on 16 February 2009
to shareholders on the register on 9 January 2009.
Strategy
In the short to medium term, management’s entire focus is on managing the business in
a prudent way, ensuring that we steer the business through this cycle by maximising cash
flow and remaining covenant compliant.
In the long term, the group’s strategic objective is to maintain and consolidate its position
as the UK’s leading quoted residential company. Underpinning this objective are these
key features:
(cid:129) the group has a unique, diversified portfolio built up over many years;
(cid:129) supporting this portfolio is our core property management services division. This not only
delivers a personal and caring service to our tenants but also enables us to expand and
diversify the residential activities we are able to supply;
(cid:129) in turn, in addition to our market leadership in the ownership of properties subject to
regulated tenancies we are leaders in the fields of home reversions and residential fund
management;
(cid:129) we now have additional income streams not reliant on the direct ownership of property
and at low incremental cost. We have widened our risk and return exposure by entering
the German residential market and curtailing our involvement in residential development;
and
(cid:129) when the market bottoms out, we believe attractive new opportunities will present
themselves, and our objective is to be in a position to take advantage of these.
Our core portfolio is unique and diverse in nature. We are not exposed to new build
properties (particularly city centre flats which have been most adversely affected by recent
price falls) and our relatively low average value, un-refurbished properties tend to maintain
their demand and value better than many other sectors. This is reflected in our year end
valuation which showed a 12-month fall of 7.6%, compared to national indices from
the Halifax and Nationwide showing a fall of 12.4%. We also have the ability in many
of our portfolios to make investment sales (i.e. sales with a tenant in possession) and
this is invaluable in increasing liquidity and generating cash.
Robin Broadhurst Chairman
8
Grainger plc annual review 2008
CHAIRMAN’S STATEMENT
Board changes
In July, we welcomed Baroness Margaret Ford of Cunninghame as a non-executive director.
Currently a managing director in the Royal Bank of Canada’s Capital Markets Group, her
extensive experience as Chairman of English Partnerships, the Government’s Regeneration
Agency, and her wide ranging knowledge of housing and regeneration in both the public
and private sectors will be of great assistance to the board.
I must also take this opportunity to pay tribute to Stephen Dickinson who will step down
from the board at the company’s Annual General Meeting on 10 February 2009. Stephen
joined Grainger in 1974 and was chief executive until October 2002. During that time he
was unquestionably the face of Grainger and presided over an exciting period of growth
and consolidation which included flotation of the group in 1983 when it had assets of just
£18m. Stephen laid the foundations that enabled the business to progress and develop and
his experience of the residential market, as well as his unique style, will be greatly missed.
On behalf of the board I thank him for his long service and contribution.
Outlook
It is difficult to recall a period of such economic uncertainty. The impact on the housing
market in the UK has been well documented and it is inevitable that funding constraints
and forecasted lack of economic growth will further depress the market over the coming
12 months.
However, the last year has demonstrated the continuing resilience of Grainger’s portfolio
and it is worth repeating that our sales proceeds were up 15% on last year, showing its
inherent liquidity and ability to generate cash.
The coming year will present many challenges and in response we will continue to operate
as we have through the latter part of 2008 – maximising sales revenue, reducing property
spend and cutting back on overhead. We are under no illusions as to how difficult these
tasks will be but are confident that the irreplaceable and diverse nature of our core portfolio,
the range of activity and expertise within the business and our experience of managing the
business through previous downturns will stand us in good stead.
I would like to take this opportunity to thank everyone at Grainger for the drive and
commitment they have shown in extremely testing times.
Robin Broadhurst Chairman 16 December 2008
DIVERSE
operational platform
In the UK we own:
7,300 regulated properties
6,200 retirement properties /interests, including home reversions
£142m of development assets (including joint ventures)
£117m co-investment shares in residential funds / investments
In continental Europe we own:
6,900 residential units in Germany
9
C
h
a
i
r
m
a
n
’
s
s
t
a
t
e
m
e
n
t
10
Grainger plc annual review 2008
CHIEF EXECUTIVE’S REVIEW
Market review
This year has seen significant falls in both the value and volume of residential transactions
as indicated by the fact that mortgage approvals for September 2008 were down 57%
compared to September 2007.
Whilst we are seeing a correction to house prices, the market situation has been considerably
worsened by the lack of appropriate funding for house buying with many of the usual
sources either stopping lending altogether or offering terms which are unacceptable.
Without question, the era of high level loan to value home loans based on excessive
multiples of earnings has ended. Lenders are requiring higher deposits and better earnings
coverage. The market will inevitably take time to adjust to this new environment.
However, we believe that other factors must also be considered, in particular imbalances
between supply and demand and levels of affordability.
The most stark example of imbalance currently exists in the oversupply of one or two-
bedroom city centre apartments primarily built for the buy to let market. This sector, to
which Grainger has virtually no exposure, has shown falls of as much as 50% in some areas.
Overriding this, however, are the broader statistics. The Government has stated that three
million new homes will be needed by 2020, two million of them by 2016. This does not
sit comfortably with estimates of the current level of supply, estimated to be well below
100,000 new units in 2009. Inevitably at some point in the future this will once again
produce upward pressure on prices.
To help alleviate this situation we have been strong advocates for policy action to promote
and professionalise the private rented sector (‘PRS’). The recent Rugg Review (‘The Private
Rented Sector; its contribution and potential’) showed that the Government acknowledges
the importance of the PRS but the review’s focus was more on the regulation and potential
licensing of landlords rather than on the need for further investment. Without this there will
be no real contribution towards increasing housing supply and improving quality for those
wishing to enter this sector.
We consider that, with suitable fiscal incentives and planning policies and practices to
encourage build to let schemes, the PRS would not only help alleviate the supply problem
but would also present Grainger, as the UK’s largest listed residential owner, with significant
business opportunities.
The second factor is that of affordability. Two recent significant cuts have put base rates
down to 2.0%. It is too early to say whether this will act as a significant stimulus to the
housing market but at the very least it will encourage potential acquirers at the margin
to purchase.
We have positioned the business so that we can manage through the current difficulties by
maintaining our focus on our key strategic priorities; cash generation from our portfolios,
reduction in property and development spend and overhead reduction. We intend to ensure
that we are in a strong position to take advantage of opportunities when the market
stabilises and starts to show signs of recovery.
Rupert Dickinson Chief executive
Average vacant possession
value (£)
08
07
06
05
190,000
205,000
188,000
173,000
5 0 , 0 0 0
2
ed ab o v e £
3 4 %
alu
v
portfolio’s
assets
0
w £250,00
%
e lo
6 6
d b
v a l u e
11
i
C
h
e
f
e
x
e
c
u
t
i
v
e
’s
r
e
v
i
e
w
Risk review
The major risks to Grainger’s business are macroeconomic:
Housing market – A further severe and rapid downturn in UK house prices and stagnation
in the market through lack of mortgage finance and/or willingness to acquire properties.
Financing – Significant increases in borrowing costs and/or a lack of or reduction in finance
available to Grainger.
Housing market Our unique residential portfolio has been assembled over a significant
period of time. Even after recent falls, its current market value is some £378m greater than
cost. Furthermore, much of the portfolio is reversionary and the value that we will obtain
by selling on vacancy currently exceeds market value by £658m (the ‘reversionary surplus’).
Our portfolio is inherently defensive in times of market slowdown. It is geographically diverse
and not overly exposed to cluster risk. The majority of our properties are un-modernised and
of relatively low average value – the average vacant possession at 30 September 2008 was
£190,000 (2007: £205,000) and 66% of our portfolio’s assets are valued below £250,000.
This level of affordability and the opportunity to maintain or increase value through
refurbishment are key elements of continued or sustained demand when they become
available for sale. The nature of many of our tenancies are such that we can sell them without
waiting for vacancy and still realise a profit. These ‘investment’ sales are a useful way to
produce additional cash flows. As we have demonstrated through the 15% increase in sales
during our last financial year, we are able to sell assets even in difficult market conditions.
Operationally we manage our exposure to house price inflation by constant reviews of the
portfolio to ensure that we crystallise gains and maximise returns at the right time. The fact
that many of our properties are acquired at a significant discount to vacant possession values
provides us with an inbuilt buffer against value falls and also considerable pricing flexibility.
We are also diversifying our income streams (for example, fund management income) and
our geographic presence to spread risk.
Financing Our exposure to adverse interest rate movements is limited by adopting a prudent
hedging policy. At 30 September 85% of group debt was hedged through being fixed or
subject to caps or swaps. Debt subject to caps or which is floating can benefit from lower
rates, provided they are reflected in LIBOR. The hedging instruments used and the fixed rate
debt have a variety of maturity dates to give protection over the medium term.
The cost of debt is also dependent upon the lending margins charged by banks. This has
increased significantly over the course of this year although this has not yet been reflected
in our costs. Our blended margin is still competitive at 77 bps at 30 September.
At 30 September, the group had headroom of £370m, £303m of which was from the UK
core facility. This headroom represents 76% of the first significant debt maturity we have –
a facility of £400m due in June 2010. The average maturity of our debt is 4.5 years.
We guard against lack of liquidity by constantly recycling capital. The business has produced
£213m of cash from operating activities, including sales of investment property, the majority
of which has been generated by the core and retirement solutions businesses. This compares
to a cash interest cost of £92m.
Liquidity and debt cost can also be threatened by covenant breach. Details of our covenant
structure and compliance are given in the financial review. We constantly monitor current
and prospective covenant compliance on all of our facilities and take pre-emptive action
where necessary, for example asset sales, to ensure that no breaches occur.
12
Grainger plc annual review 2008
CHIEF EXECUTIVE’S REVIEW
OPERATING REVIEW
At Grainger, we pride ourselves on our integrated approach. Our skills can be used across our
different divisions, bringing them together and creating a group where the whole is greater
than the sum of the parts. By sharing our experiences and ideas, we can maximise the value
from our assets and of our people. Our operating divisions are supported by our property
management division which has over 140 staff in our seven UK and one German office.
Our main operating divisions and the market value of each as a percentage of our total
property and investment assets are:
n
t
p
l
a
e
7 %
e
n ti n
u r o
C o
E
1
ent
m
p
%
elo
5
v
e
D
%
/
t
n
e
m
e
g
a
n
a
m
d
n
u
F
t
n
i
o
j
s
e
r
u
t
n
e
v
operating
divisions
M
A
R
K
E
T
V
A
L
U
E O
F EACH DIVI S I O N A
2
2
6
R
e
t
i
r
e
m
e
n
%
t solutions
E
G
A
T
N
E
S A PERC
0
5
C o r
e p
o rtf olio
%
Core portfolio
Primarily our portfolio of properties subject to regulated tenancies
Retirement solutions
Our interest in home reversion and retirement related assets
Fund management and
investments in residential and in Grainger GenInvest
joint ventures
Investments in managed funds (G:res1 and Schroders)
Development
Focused on relatively large scale residential or residential led
mixed use developments
Continental Europe
Principally investment in German residential portfolios
Core portfolio
Regulated units owned
Regulated units owned
08
07
06
05
7,316
7,655
7,715
Market value
Vacant possession value
Other assets (vacants, assured etc)
8,161
Market value
Vacant possession value
2008
7,316
£1,000m
£1,399m
803
£190m
£216m
2007
7,655
£1,221m
£1,571m
882
£196m
£220m
O t h
s
s e t
s s u r e d etc)
s
e r a
(vaca nts, a
0 m
£ 1 9
core
portfolio
0 0 m
0
£1 ,
d u nits
Re g u l a
t
e
Despite the difficult market conditions, the liquidity of our core portfolio remained strong
and sales proceeds have increased by 10.3% to £141m from £128m. This has been
achieved through a concerted effort to maintain volumes and by careful selection of suitable
properties for investment sales (these occur when a property is sold with a tenant in place,
as opposed to normal sales which occur on vacancy). The number of units sold was 817
of which 302 were investment sales (2007: 86 investment sales out of a total of 661).
The average value achieved on normal sales has remained static at £193,000 and over the
course of the whole year those sales achieved a slight fall of 0.7% from September 2007
vacant possession values, an indicator of the prudence of our valuation process and the
resilience of the portfolio. Margins on normal sales have fallen from 50.7% to 45.9%.
Proceeds and profit from investment sales amounted to £41m and £17m respectively
(2007: £17m and £10m).
In line with our stated intentions in our interim statement in May we significantly reduced
acquisitions in this portfolio in the latter part of the year. In total we acquired 403 units for
£80m (2007: 863 units for £151m) of which only 72 units costing £9.5m were purchased
in the second half of the year.
Operating contribution from this division (comprising profits on sale of trading and
investment assets together with net rents and other income, after deducting divisional
overheads) amounted to £83m (2007: £81m).
13
i
C
h
e
f
e
x
e
c
u
t
i
v
e
’s
r
e
v
i
e
w
14
Grainger plc annual review 2008
CHIEF EXECUTIVE’S REVIEW
OPERATING REVIEW
Interest in residential units
(number)
Retirement solutions
6,227
5,952
08
07
06
05
3,003
2,663
Interest in residential units (number)
Market value
Vacant possession value
2008
6,227
£521m
£754m
2007
5,952
£542m
£779m
home
reversion
plans
%
r
k
5
3
U K m a
e t share
This operating division has shown a pleasing level of profit growth during the year, reflecting
the increasing maturity of the portfolio. We have sold interests in 185 assets in the retirement
solutions portfolio (including CHARM) for £27.2m and recorded a profit on sale of £10.9m
(2007: 146 assets, £18.5m proceeds, £7.7m profit).
As with the core portfolio, we have taken steps to reduce acquisitions although the long
lead time in the home reversion process means that the results of this will not be seen fully
until the financial year ending September 2009. During the year ended 30 September 2008,
we acquired 460 assets for £43m, compared to 2,889 assets for £252m in 2007. The
performance of the two major acquisitions made in 2007 has been in line with expectations:
CHARM, where realisations have been as expected and The Capital Appreciation Trust (Isle
of Man) plc (‘CAT’) where we have reduced vacancy rates from 25% to 6% since acquisition.
Operating contribution from this division (on the same basis as the core portfolio but
excluding the CHARM revaluation) amounted to £16m (2007: £9m).
For the third consecutive year, our Bridgewater business has been named as Home Reversion
Provider of the Year by Mortgage Solutions.
Fund management and residential investments
Grainger share (£m)
Grainger GenInvest*
08
07
117
161
G:res1
Schroders
Total 2008
Total 2007
Holding
%
50.0
21.6
23.6
Gross asset
value £m
Net asset
value £m
Grainger
share £m
298
401
73
772
911
62
159
73
294
443
65
35
17
117
161
Fee income (£m)
08
07
6.3
5.0
* net asset value for Grainger GenInvest is shown after adjusting for the mezzanine loan provided by Grainger of £67m
The value of our investments in these vehicles has been hit by falls in asset values.
Consequently, the contribution from this division (comprising share of profits, dividends
received, fee income and share of revaluation movements) has fallen to a loss of £50m
compared to a gain of £40m in 2007, largely due to our share of revaluation movements
amounting to a loss of £48.3m, despite fee income for the year totalling £6.3m. All of the
debt in these vehicles is non-recourse to Grainger plc.
Property services
This division carries out the asset and day-to-day property management of our core portfolios
and those of our co-invested funds.
2008
19,433
£78m
£19m
2007
19,312
£69m
£18m
UK residential units managed
UK residential units managed
19,433
19,312
Gross rent roll
Gross property expenditure
08
07
06
05
15,221
13,567
Rents have increased primarily because of the acquisition of the Tilt portfolio late in 2007.
Market value of development
portfolios including share of joint
ventures (£m)
08
07
06
05
142
127
97
124
Development
Market value of development portfolios
(including share of joint ventures)
Estimate of completed development value
Of this, with planning consent
Committed cash expenditure
2008
£142m
£850m
£484m
£30m
2007
£127m
£809m
£324m
£57m
As previously announced, we have, in the light of prevailing market conditions, curtailed the
activities of this division in order to focus on cash conservation. We are, however, moving
forward on public/private partnerships and achieving improved planning status for our
holdings at the appropriate pace. Construction work has continued on 150 private units
at Hornsey Road in Islington. The Council office building has been handed over and these
apartments will become available for either sale or rent early in 2009.
Since the year end we have received a resolution to grant planning permission at our site
at Wards Corner, North London for 197 residential units and a range of retail units. We have
also completed the disposal of our development site in Barnsbury, North London, for £19m
in early December.
15
i
C
h
e
f
e
x
e
c
u
t
i
v
e
’s
r
e
v
i
e
w
16
Grainger plc annual review 2008
CHIEF EXECUTIVE’S REVIEW
OPERATING REVIEW
The current status of our other major projects is set out below:
Project
Wholly owned
Description
Status
Hornsey Road, Islington
200 residential units, community building
Construction almost complete
Newlands Common
100,000 sq. m. commercial, 1,550 new
homes and 1,000 reserve
Macaulay Road, Clapham
97 residential units, 30,000 sq. ft. retail
Outline planning consent granted
for Phase 1
Consent granted and demolition
complete. On hold
Wards Corner
197 residential units with a range of retail units, Development agreement with Haringey
including provision for the Seven Sisters market
Council. Resolution to grant planning
permission achieved 17 November 2008
Gateshead College
245 residential units
Newbury
330 residential units, 50,000 sq. ft. retail
Planning appeal submitted end of
November 2008, decision pending
Preferred developer status, conditional
development agreement expected
Summer 2009
Joint ventures
Curzon Park
Hammersmith
400,000 sq. ft. residential, 800,000 sq. ft. office, Mixed use joint venture with
20,000 sq. ft. retail, 118-bed hotel
Development Securities. Outline
planning consent granted
290 residential units, 5,202 sq. m. commercial
space, 11,000 sq. m. council offices, a public
square, a bridge linking Hammersmith with
the river, and 200 car parking spaces
Awarded Development Agreement in
partnership with Helical Bar. Working up
a scheme in preparation for submission
of a planning application
The operating loss from this business in the year (comprising trading profits/(losses), net
of divisional overheads and asset writedowns) amounted to £12m (2007: profit of £4m).
Continental Europe
Residential units owned
Residential units owned
6,894
Market value
4,520
Gross rent
Gross annual running rent
08
07
06 2,739
05
1,400
2008
6,894
2007
4,520
£417.5m
£241.7m
£21.4m
£27.8m
£9.8m
£15.0m
17
i
C
h
e
f
e
x
e
c
u
t
i
v
e
’s
r
e
v
i
e
w
E u r o pean
d e v e l o pments
11
europe
6
4 1
Germ a n p o r tf olios
The major activity in the year was the acquisition of Francono Rhein-Main AG (‘FRM’) for
£32.6m. This lifted our German portfolio to a critical mass of some 7,289 units (including
395 commercial). Our current focus is to integrate FRM with our existing business and to
improve returns through rent reviews, void reductions and cost savings. In addition, in
August we appointed Peter Brock formerly Head of Asset Management of listed German
real estate company Vivacon AG, as managing director of Grainger Deutschland GmbH,
our German advisory business.
The operating contribution from our German portfolio (comprising profits on sale of
investment assets together with net rents and other income after deducting divisional
overheads) in the year was £11.4m. The revaluation movement on the portfolio, however,
resulted in asset writedowns of £8.6m. The net rental yield is running at 5.1% (2007: 4.5%).
External debt amounts to £285m and is non-recourse to Grainger plc.
Our other European interest relates to a joint venture company in which we have a 50%
stake and which owns a development site in Zizkov, Prague. Our original stake was 81.6%
and we have sold this down to realise a profit in the year of £3.5m. Our investment in this
joint venture, with land at market value, amounts to £10.6m and the development is going
through the planning process.
Prospects
Since the year end we have continued to sell properties. As at 30 November, we had
completed, exchanged contracts on or had put in solicitors hands normal sales amounting
to £32.0m, 0.1% above September 2008 vacant possession values.
As well as our ongoing programme of selling properties on vacancy we have identified circa.
£100m of additional properties for sale from our core and development portfolios although
this is obviously dependent upon both market conditions and availability of funding. We
continue to examine opportunities to bring in third-party equity through the establishment
of joint ventures or other structures. Also, since the year end we have taken action to reduce
our overhead running rate by a further 10%.
Our commitment is to continue to manage the business in a prudent way through these
turbulent market conditions. Our portfolio is uniquely resilient, with its mix of property
types, tenures and excellent liquidity.
It is held for the long term and this will help us through the short and medium-term
corrections that are taking place. Real estate is a cyclical activity and we are confident that
we have in place the assets, people and management platform that will ensure we are
strongly positioned to take advantage of the opportunities that will undoubtedly arise.
Rupert Dickinson Chief executive 16 December 2008
18
Grainger plc annual review 2008
LEADING
market positions
Unique regulated portfolio, with market value of £1bn
35% market share of new home reversions
Fund, asset and property manager to G:res1
19
F
i
n
a
n
c
i
a
l
r
e
v
i
e
w
FINANCIAL REVIEW
Andrew Cunningham
Deputy chief executive
and finance director
We believe it is essential to continue to be transparent in this uncertain economic climate.
Inevitably, our net asset values have fallen, and we set out over the coming pages, the main
factors that affected this. We are pleased to give details of the 19% increase in operating
profit before valuation and goodwill adjustments, and sales from our core and retirement
solutions businesses up 15%. We have also increased the detail in the disclosure of our debt
covenants, including how we manage these, with a focus on LTV levels and interest cover,
which can be found on page 24.
Performance overview Our key performance indicators are:
Gross net asset value per share (pence)
Operating profit before valuation and goodwill adjustments
Return on capital employed (1)
Return on shareholder equity (2)
1 Profit before financing costs adjusted for revaluation movements as a percentage of opening gross capital
2 Growth in NNNAV plus dividends paid per share as a percentage of opening NNNAV on an annualised basis
2008
535p
£106.0m
(11.4%)
5 year
8.2%
2007
828p
£89.0m
12.1%
10 year
15.3%
1 year
(36.1%)
20
Grainger plc annual review 2008
FINANCIAL REVIEW
Most of our properties are held as trading stock and are therefore shown in the statutory balance sheet at the lower of cost and
net realisable value. This does not reflect the true worth of the assets and so we set out below a summary of our net assets with
the properties restated at market value.
Adjustments to
Statutory market value,
deferred tax
sheet and derivatives
£m
balance
£m
Gross NAV
balance
sheet
£m
Contingent
tax
£m
Derivatives
£m
Triple NAV
balance
sheet
£m
Properties
Investments/other assets
Goodwill
Cash
Total assets
Borrowings etc
Other net liabilities
Provisions/deferred tax
Total liabilities
Net assets
2008 net assets per share (pence)
2007 net assets per share (pence)
1,883
145
8
43
2,079
(1,663)
(107)
(79)
(1,849)
230
178
251
377
–
–
–
377
2
–
79
81
458
357
577
2,260
145
8
43
2,456
(1,661)
(107)
–
(1,768)
688
535
828
–
–
–
–
–
–
–
(184)
(184)
(184)
(144)
(221)
–
–
–
–
–
(11)
–
3
(8)
(8)
(6)
6
2,260
145
8
43
2,456
(1,672)
(107)
(181)
(1,960)
496
385
613
The European Public Real Estate Association (‘EPRA’) Best Practices Committee has recommended the calculation and use of a
diluted EPRA NAV and a diluted EPRA Net Net Net Assets Value (‘NNNAV’). The definitions of these measures are consistent with
Gross NAV and Triple NAV as described and shown in the table above.
This definition of Gross NAV requires us to take out any adjustments for deferred tax and changes in the fair value of derivatives
as calculated under IFRS. NNNAV requires certain of these adjustments to be reinstated and, in addition, a deduction is made
for contingent tax which is calculated by applying the expected rate of tax to the full inherent gains at the balance sheet date.
Market value analysis of property assets
Residential
Development
Total September 2008
Total September 2007
Shown as Market value
stock at cost
£m
adjustment Market value
£m
£m
1,009
133
1,142
1,069
378
(1)
377
643
1,387
132
1,519
1,712
Investment
property/
financial
interest in
property
at value
£m
741
–
741
610
Total
£m
2,128
132
2,260
2,322
21
F
i
n
a
n
c
i
a
l
r
e
v
i
e
w
Net asset value Measurements of net asset value are key
performance indicators for the group. We set out three
measurements to better enable shareholders to compare
our performance year-on-year and with our peers, whilst
reflecting the unique nature of our business:
Gross net assets per share down 35% to 535p from 828p
(market value of net assets per share before deduction for
deferred tax on property assets and before adjustments for
fair value of derivatives).
Triple net assets per share NNNAV down 37% to 385p
from 613p (gross NAV per share adjusted for deferred tax
on revaluation gains and for mark-to-market adjustments).
Grainger NAV down 29% to 520p from 732p (NNNAV
adjusted for the discounted and taxed reversionary surplus
in our long-term regulated and home reversion portfolios).
The major movement in NAV in the year comes from
the revaluation of our residential assets. Points worthy
of note are:
i) Core and home reversions portfolios including CHARM
(Churches Housing Assistance for Retired Ministry). The
vacant possession values of these portfolios have fallen by
approximately 8% over the year. This accounted for a fall
of £134.0m in NAV, of which £35.5m has been taken
through the income statement.
ii) Market value percentages. The market value of our UK
residential portfolios is arrived at by applying a discount
to vacant possession values. For our home reversion
portfolios this discount is actuarially calculated based
upon the age of the tenant. For the regulated and other
UK residential portfolios the discount is based upon
market experience. In last year’s valuation, regulated
assets were valued at 77.5% of vacant possession value.
This year, a geographic weighting has been applied to
better reflect yields and local market conditions with the
overall result that these assets have been valued at 71.3%
of vacant possession value. Similar discount spreads have
been applied to our other residential assets (e.g. assureds)
and to the assets held in our joint ventures and associates.
The increase in discount on our wholly owned assets has
accounted for a fall of £97.1m in NAV, of which £3.6m is
through the income statement.
iii) Residential joint ventures and associates. Valuation falls in
these investments account for a fall of £48.3m in NAV, all
of which has been taken through the income statement.
iv) German portfolios. The German residential market has
not been subject to the severe downward price pressure
in the UK and our portfolio has fallen by approximately
3.4% over the year resulting in a NAV fall of £8.6m, all
through the income statement.
v) Development assets. In total we have made provisions
of £19.2m against the market value of our development
assets including investments in development joint
ventures. The largest provisions are at Curzon Park
£8.6m, Gateshead £4.8m and Kylins £2.1m. £9.2m
has been taken through the income statement.
Gross net assets per share
1,100
1,000
900
800
700
600
500
(£m)
1,065
(213)
(165)p
(77)
(60)p
(56)
(44)p
828p
t
a
s
a
V
A
N
s
s
o
r
G
7
0
0
2
r
e
b
o
t
c
O
1
s
t
i
c
i
f
e
d
n
o
i
t
a
u
a
v
e
R
l
s
s
o
L
x
a
t
r
e
t
f
a
f
o
n
o
i
t
a
n
m
E
i
l
i
l
e
a
s
n
o
l
s
e
s
u
p
r
u
s
d
e
s
i
n
g
o
c
e
r
y
l
s
u
o
v
e
r
p
i
(31)
(24)p
r
e
h
t
O
688
535p
t
a
s
a
V
A
N
s
s
o
r
G
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
Grainger net assets per share Reconciliation of NNNAV
to Grainger NAV
NNNAV as at 30 September 2008
Discounted reversionary surplus
Tax thereon
Grainger NAV as at
30 September 2008
£m
496
241
(68)
669
Pence per
share
385
187
(52)
520
22
Grainger plc annual review 2008
FINANCIAL REVIEW
The major assumptions used in calculating the base case Grainger NAV are set out below:
(cid:129) house price inflation taken as zero over the entire reversionary period;
(cid:129) discount rate of 8.43% used to calculate the present value of the reversionary surplus
(weighted average cost of capital +3%) (2007 discount rate: 9.38%);
(cid:129) no discounting of contingent tax on the revaluation surpluses; and
(cid:129) reversionary periods taken as 14 years for regulated properties and 10 years for home reversions.
Our website (www.graingerplc.co.uk) sets out how these assumptions may be varied and we show below some examples:
House price inflation per annum
0%
4%
6%
No discount of deferred tax
Discounting deferred tax
Discount rate
WACC + 3%
Discount rate
WACC
Discount rate
WACC +3%
Discount rate
WACC
520p
604p
662p
576p
695p
778p
612p
696p
754p
646p
766p
849p
Financial performance in the year Operating profit
before all revaluation movements, fair value and goodwill
adjustments increased by 19.1% to £106.0m from £89.0m
as shown below.
(£m)
20.6
(0.5)
2.3
(2.2)
(3.2)
106.0
110
100
The major movement in operating profit comes from higher
rents in both our UK and German residential portfolios in
line with increases in the size of those portfolios. Residential
portfolio profits have stayed relatively constant and, as
anticipated, development profits have decreased along with
the number of projects completed and/or sold in the year.
Overheads have fallen by 10.3% from £33.6m to £30.1m.
90
89.0
80
70
60
t
i
f
o
r
p
g
n
i
t
a
r
e
p
o
7
0
0
2
e
m
o
c
n
i
r
e
h
t
o
d
n
a
s
t
n
e
r
s
s
o
r
g
n
i
e
s
a
e
r
c
n
I
y
t
r
e
p
o
r
p
n
i
e
s
a
e
r
c
n
I
s
d
a
e
h
r
e
v
o
d
n
a
s
e
s
n
e
p
x
e
s
t
i
f
o
r
p
i
g
n
d
a
r
t
l
a
i
t
n
e
d
i
s
e
r
n
i
e
s
a
e
r
c
n
I
s
t
i
f
o
r
p
i
g
n
d
a
r
t
t
n
e
m
p
o
e
v
e
d
l
n
i
e
s
a
e
r
c
e
D
r
e
h
t
O
t
i
f
o
r
p
g
n
i
t
a
r
e
p
o
8
0
0
2
)
s
t
n
u
o
c
c
a
o
t
3
e
t
o
n
e
e
s
(
23
F
i
n
a
n
c
i
a
l
r
e
v
i
e
w
Interest and taxation Our net interest charge has
increased by £24m from £65m to £89m. This reflects higher
debt levels in the year (used for acquisitions in Germany and
in home reversions) and higher underlying interest rate costs.
On average, monthly debt levels have exceeded 2007
figures by £360m and as the majority of our debt is hedged
through fixed rate loans or interest rate swaps, the high
LIBOR and EURIBOR rates have not had a significant impact
on the overall cost of our debt.
(77.4)
The income statement shows a tax credit at an effective rate
of 31.0%, the major items affecting it being:
Group loss before tax
Tax credit at 29%
Adjustments:
Permanent differences
Utilisation of capital losses
Other including prior period adjustments
Actual tax credit
£m
(112.1)
(32.5)
4.7
(10.6)
3.7
(34.7)
Earnings per share Basic earnings per share have
decreased by 229% to a loss of 61.0p from earnings
of 47.3p.
(£m)
17.0
(93.7)
60.9
13.5p
47.3p
(73.9)p (14.5)
(11.5)p (53.0)
90
60
30
0
-30
-60
-90
-120
-150
(41.9)p (12.3)
(9.7)p
49.0
(61.0)p
(9.1)
(7.2)p
(21.7)
(17.2)p
39.6p
e
r
a
h
s
r
e
p
i
s
g
n
n
r
a
e
7
0
0
2
t
i
f
o
r
p
g
n
i
t
a
r
e
p
O
t
n
o
i
j
m
o
r
f
i
s
e
t
a
c
o
s
s
a
n
o
i
t
u
b
i
r
t
n
o
C
d
n
a
s
e
r
u
t
n
e
v
s
t
e
s
s
a
l
i
a
c
n
a
n
i
f
d
n
a
s
e
v
i
t
a
v
i
r
e
d
f
o
e
u
a
v
l
r
i
a
F
n
o
s
e
s
s
o
l
n
o
i
t
a
u
a
v
e
R
l
s
e
i
t
r
e
p
o
r
p
t
n
e
m
t
s
e
v
n
i
i
t
s
n
a
g
a
s
e
u
a
v
l
s
n
o
i
s
i
v
o
r
P
k
c
o
t
s
i
g
n
d
a
r
t
t
n
e
m
r
i
a
p
m
i
l
l
i
w
d
o
o
G
l
e
b
a
y
a
p
t
s
e
r
e
t
n
I
r
e
h
t
o
d
n
a
n
o
i
t
a
x
a
T
e
r
a
h
s
r
e
p
s
s
o
l
8
0
0
2
The major movements relate to revaluation and mark-
to-market adjustments. In 2007, our joint ventures and
associates contributed £41m, of which £39m related to
revaluation gains. In 2008, these gains were reversed and
a loss of £53m was recorded, of which £48m related to
revaluation deficits. There is a further revaluation deficit of
£43.1m (2007: gain of £9.9m) on Grainger’s investment
properties and net realisable value provisions on our trading
stock of £12.3m. We have suffered a loss of £11.5m
(2007: gain of £3.0m) on marking to market the fair value
of our derivatives.
24
Grainger plc annual review 2008
FINANCIAL REVIEW
Financial resources The business has produced £213m
of cash from its net rents and other income, the sales of
property and other working capital movements net of
overheads. The largest outflows relate to interest £92m and
to residential property expenditure £178m, of which only
£42m was made in the second half of the year. We spent
a further £32.6m on the acquisition of FRM which had
debt of £91m, and which has now been consolidated on
the group balance sheet. Deterioration in the Sterling/Euro
exchange rate increased overall group debt by £32m,
although there is an equivalent increase in the value of
Euro denominated assets.
At the year end, our net debt levels (before unamortised
finance costs) stood at £1,621m (2007: £1,342m) and
were 85% hedged (2007: 74%).
During the year, we increased our core borrowing facility
by raising a new five-year facility of £228m. At the year end,
the headroom on our core UK borrowings amounted to
£303m and we had a further £30m committed facilities on
our various Euro borrowings. Including cash balances and
our overdraft facility amounting in total to £37m, total
group headroom at 30 September 2008 was £370m. The
average maturity of our debt is 4.5 years (2007: 5.4 years)
and the first major repayment of £400m is due in June 2010.
Our all-in cost of debt in the year was 6.2% (2007: 6.1%)
and our weighted average cost of capital was 5.43%
(2007: 6.38%).
Covenants Our core facility has two covenants covering
loan to value (‘LTV’) ratio and interest cover. Under the first,
a LTV of 80% could lead to default of the agreement.
At 70% LTV, purchasing restrictions apply. To a large extent
the business is currently operating under the restrictions by
cutting back on new acquisitions. LTV on the core facility at
30 September was 66% although this was reduced to 64%
shortly after the year end by the early conversion of 78% of
our convertible bond. We are able to take action to help
keep the LTV ratio down, the main one being asset sales.
We estimate that if we are able to maintain sales proceeds
in 2009 at the same level as achieved in 2008 then UK asset
values as used for covenant purposes will have to fall by
circa. 24% in the year ended 30 September 2009 for us
to reach 80% LTV.
Under the second covenant, our interest cost must be
covered 1.25 times by net cash flow before interest. As at
30 September the ratio stood at 2.2 times (2007: 2.8 times).
This covenant is calculated by reference to the previous
12 months’ results and, given the cash inflows that we
have already achieved to date, we are very confident that
this covenant will be met at the next testing period in
March 2009.
We maintain regular and constructive dialogue with our
banking group and keep them fully informed of covenant
status. Constant monitoring of these covenants ensures
that we can take early and proactive measures, for example,
asset sales, to prevent default levels being reached. This
remains a key objective for the near and medium term.
Post balance sheet event Since the year end holders
of £87.1m of our £112m 2014 convertible bond have
accepted a cash payment of £35,000 per £100,000
nominal bond value to convert early. The effects of this
early conversion have been to:
(cid:129) issue 10.08m ordinary shares;
(cid:129) eliminate £57m nominal of debt;
(cid:129) increase net assets by £42.0m and decrease net assets
per share by 1.6%; and
(cid:129) reduce the LTV on our core facility to 64.1% from the
figure of 66.4% at the year end.
In the year to 30 September 2009, there will be a one-off
charge to the income account of £30.5m representing the
cash amount paid to bondholders. Going forward, annual
interest costs will be reduced by circa. £3.6m because of the
overall reduction in reported debt. By converting prior to
the interest payment date of 14 November we have made
interest savings of £1.6m (bondholders must hold on the
payment date to receive interest).
Andrew R Cunningham
Deputy chief executive and finance director
16 December 2008
25
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
i
b
i
l
i
t
y
CORPORATE RESPONSIBILITY
Reporting approach
For the first time this year, we
are producing a comprehensive
report focused specifically on our
CR activities over the past year in
addition to this summary of CR
activity. This can be downloaded
from our website:
www.graingerplc.co.uk
The economic downturn has had a significant impact on the property sector and it would be
inaccurate to suggest that this is not having an effect on Grainger’s Corporate Responsibility
(CR) strategy, and indeed on the approach to sustainable development of those across the
property sector.
However, a strong commitment to CR is embedded in Grainger’s core business strategy
and our seven key objectives are still of central importance. Maintaining our commitment to
CR whilst remaining focused on our responsibility to deliver profits to our shareholders will be
a challenge in the years ahead. As such, the focus of our strategy is being adapted to reflect
these changing conditions, with a greater focus on behavioural change of staff and tenants
as opposed to substantial capital investment.
Within this context of economic change, I am particularly proud to be able to report on
the success of Grainger’s CR strategy in the past year. The fact that we have fully achieved
71% of our targets for 2007/08 is testament to the hard work and commitment of the
Grainger team.
Rupert Dickinson Chief executive
Opportunities and risks
Real business opportunities are presented by our continued commitment to CR:
(cid:129) we believe that investing in our portfolio to make it more energy and water efficient
enhances its value;
(cid:129) engaging with, and investing in, the community is an essential part of good property
management. It gives us the opportunity to enhance the communities in which we
operate and is also central to the planning process;
(cid:129) managing and reducing the waste from our development and refurbishment sites
can save us money;
(cid:129) providing opportunities for employee involvement in local communities contributes
to employee satisfaction and retention; and
(cid:129) working with a network of small, local contractors stimulates the economies in which
we manage assets. This also means that our tenants receive better customer care.
We are also faced with risks. The recent requirement for us to provide energy performance
certificates for all properties at point of rent or sale means that for the first time, customers
have an accurate picture of the efficiency of our properties. This combined with rises in
energy prices means that the efficiency of our properties is of greater importance than
ever before. We hope to turn this risk into an opportunity by focusing on the cost efficient
measures we can take to improve the efficiency of our portfolio, thus increasing our
competitiveness. We can also use this as an opportunity to further engage with customers
about the actions they can take to reduce their impact on the environment and save
money on fuel bills.
26
Grainger plc annual review 2008
CORPORATE RESPONSIBILITY
KEY ISSUES OF FOCUS
OBJECTIVE
Environment
Communities
Tenants/Customers
Employees
Suppliers
Health and safety
Investors
Reduce our direct adverse environmental impacts, and help and encourage
our employees, suppliers, tenants and customers to do the same
Seek to understand the needs of the communities within which we operate,
and positively contribute to their well-being
Ensure that we treat our tenants and customers fairly, and that we are responsive
to their needs
Encourage staff to contribute to, and share in, the success of the company through
their own ideas and ongoing professional development, whilst supporting them
to maintain a healthy balance between home and work commitments
Engage proactively with prioritised suppliers to ensure that they meet with
our specified economic, social and environmental standards
Safeguard the health, safety and welfare of our employees, and where possible
that of our tenants, contractors, visitors, clients and the general public
Maintain high standards of business conduct, and secure long-term sustainable
returns for our investors
Governance
For the past three years, Grainger has had a CR committee which reports to the executive
team. Grainger will be restructuring its internal management of CR in the 2008/09 period,
which we believe will facilitate greater communication of CR activities across the business.
The executive committee, led by CEO Rupert Dickinson will consider key CR issues on a half-
yearly basis. These discussions will be informed by a series of working groups that report
directly to the executive committee, and which are structured around our key areas of focus.
We have various policies and procedures which inform our CR strategy, these are set out
in full on our website: http://www.graingercr.com/policies-procedure-guidance.asp
Performance
We have fully achieved 12 (71%) of our 17 applicable CR targets. For a full breakdown
of our performance against targets, and for a full set of key performance indicators, please
see our downloadable CR report.
The proportion of CR targets that were fully achieved rose from 36% in 2006/07 to 71%
in 2007/08. We set targets across all of our main identified impacts. It should be noted that:
(cid:129) 100% of the environmental and all of the applicable customer targets were fully achieved,
representing impressive performance; and
(cid:129) only one of Grainger’s three community targets was 100% achieved and the other two
were only 25% achieved. We will therefore ensure a renewed focus on community
engagement and investment in the year ahead.
27
C
o
r
p
o
r
a
t
e
r
e
s
p
o
n
s
i
b
i
l
i
t
y
0% – 0
N/A
1
2
5
%
2
Particular successes for Grainger in the past year include the following:
(cid:129) all Grainger offices have some form of recycling with 90% of staff able to recycle paper,
cardboard and plastic;
(cid:129) 99% of construction waste from our Newlands Common development was reused
on site;
2007/08
progress
against
targets
13
100%
3
5
0
%
(cid:129) all newly developed homes are fitted with real time display energy monitors, this will
be rolled out to cover newly refurbished properties in our managed portfolio in 2009;
75% – 0
(cid:129) in 2008, Grainger worked with the charity Emmaus to recycle and reuse 8,000kg
of furniture and electrical items;
(cid:129) 225 members of staff saw our environmental road show presentation; and
(cid:129) the first survey of customer satisfaction with regard to repair work was undertaken
and 69% of customers rated contractors as very good or excellent.
Carbon Emissions 2008/09
Source
2007/08 carbon emissions (tonnes)
Office electricity consumption (small power)
372
Office central plant (heating and cooling)
Not available
Energy use in common parts of residential portfolio
Not available
Air travel
Rail travel
Taxi travel
Car travel
Energy use at development sites
(electricity and diesel consumption)
62
13
Not available
Not available
346
This is the first year that Grainger has been able to monitor its carbon emissions.
The information included in the above table is based on the following:
(cid:129) meter readings taken at our eight offices for a 10-month period and extrapolated
up to constitute 12 months;
(cid:129) diesel and electricity consumption on our development sites that is reported
via our contractors; and
(cid:129) business journeys recorded through our corporate travel booking service.
We are, therefore, reliant on the accuracy of data provided by our contractors and we also
recognise that additional business journeys may have taken place that weren’t booked
through this system. These figures should therefore be judged with these limitations in
mind and taken as indication of our overall impact rather than a truly accurate measure
of our emissions.
28
Grainger plc annual review 2008
CREATIVE
and ambitious approach
Our people are not only the best in their field, but are those
who consistently apply their skills and experience to benefit
the group as a whole
Our ability to innovate enables us to compete where others
can’t. We aim to be a high-performance team of like-minded
experts who share a common vision for growth
29
O
u
r
o
p
e
r
a
t
i
o
n
s
Acquisitions & Disposals
Asset Management
WE ARE INTEGRATED
Teamwork across our divisions is vital to our success.
By sharing our skills and experience, we can derive
the best returns from our assets.
Grainger acquires all types of residential property, throughout the UK. Acquisitions are made
from a wide variety of sources, ranging from single assets at auction through to portfolios
sourced from long-standing trusted contacts. We have a professional team which is able
to execute technically complex transactions. Equally, these expert skills apply to our disposals
of assets.
Our knowledge of local areas teamed with an awareness of changing markets and lateral
thinking allows us to capitalise effectively on growth areas, or sell at the right time to achieve
the best returns.
Performance driven asset management is key to our strategy. We add value by minimising
void periods and arrears as well as recommending and managing improvements to increase
rentals or enhance capital values and marketability. Having applied these skills successfully
to our own portfolio for years, we now apply them to portfolios that we manage for others.
The cash flows we receive for our asset management activities are an important income
stream which is not wholly reliant on the UK house price inflation. We currently provide asset
management for Schroders ResPUT, Grainger GenInvest (a 50:50 joint venture between
Grainger and Genesis Housing Group) and the Grainger launched G:res1 residential fund.
Fund Management
Fund management is an integral part of Grainger’s strategy. It adds a further layer of leverage
to our operations, enabling us to generate fees from the skills of the people we employ.
We believe that our perspective as a property owner and manager gives us a unique and
valuable insight.
The additional layers of fees we can generate enhance the return on capital employed.
Property Management
Property management covers the day-to-day operational running of the properties including
rent reviews and renewals, repairs and maintenance, block management, lettings and
customer care. Again, we manage properties for others, enhancing our returns.
In total, we manage some 20,000 UK properties for ourselves and others. We are passionate
about raising standards and improving the perception of residential property management
in the UK. Therefore, we constantly strive to improve our processes and services.
Sales & Valuations
Our team of professionals cover all areas of the UK which ensures that we have a localised
knowledge of our portfolios. This is important in determining strategic acquisitions, accurate
valuations and best price on disposal.
Our sales team have increased sales proceeds this year by 15%.
30
Grainger plc annual review 2008
WE HAVE TALENT
We pride ourselves on recruiting and retaining
outstanding people who are individual experts
and great team players. We encourage an
entrepreneurial culture where everyone feels
they can make a significant contribution to
the business, as well as be rewarded by it.
Our people make the difference. They work together seamlessly
as assets are managed through their trading cycle, from their initial
purchase to their ultimate sale, creating value at each opportunity.
Others build trusted relationships, leveraging our skills and those
of our partners. We encourage our people, as specialists, to represent
Grainger, now a recognised spokesperson in the marketplace.
Our culture supports individuals who want to perform and succeed.
Autonomy levels are high, where people are given the opportunity
to develop and implement their own initiatives, but with a safety
net of an experienced leadership team who oversee and guide.
Learning and development During the year, we implemented a new
development initiative called ‘Unleash Your Potential’. Every member
of staff was given the opportunity to develop themselves, where the
development would be mutually beneficial to Grainger. Proposals
ranged from spreadsheet skills courses to mini-business plans.
Climate and leadership At Grainger, we strive to continually create
and improve an environment which attracts and retains high calibre
staff. This year, we conducted a significant staff survey including
employees rating how they felt about the ‘climate’ of Grainger, that
is, the aspects of a company which best practice suggests separate
high performing companies from others. We are reviewing the results
and are dedicated to making more improvements over the coming
year and reporting these in our next annual report.
Shared services Throughout the operating division sections of this
report, we describe the work and achievements of our property, asset
and fund managers. It is important to recognise the professional staff,
who work behind the scenes in our support functions. These staff cover
a wide variety of roles, from ensuring that we comply with all relevant
laws and regulations to providing IT systems capable of handling the
many thousands of transactions processed every day. Others in the
team are responsible for covenant monitoring, raising finance and deal
structuring. It is critical that we seek to continually improve these areas,
to maintain a competitive advantage.
Involvement and reward We have high levels of participation in our
share schemes and also in Workplace Giving. Many of our employees
take up the benefits offered of health care for themselves and their
families and travel cover. We expect the highest standards from our staff
and offer them a rewarding career with attractive remuneration in return.
our
people
3 5 %
e o r m
F i v
e
c
vi
ore years’ ser
31
O
u
r
o
p
e
r
a
t
i
o
n
s
% of staff turnover
12
10
08
07
06
05
25
19
% of eligible employees
participating in
share incentive plan
08
07
06
92
85
83
32
Grainger plc annual review 2008
1 Feldberg Strasse
Mannheim
2 A typical home
reversion property
3 Mannheim
Germany
4 Ashes Farmhouse
Essex
5 Pitmaston Court
Birmingham
6 Witthues
Germany
7 Wetherby Road
Leeds
8 Tait and Benson
London
9 Ivy Cottage
Lawn Head, Staffordshire
10 Rohrhofer Street
Mannheim
1
3
5
7
9
2
4
6
8
10
33
O
u
r
p
o
r
t
f
o
l
i
o
WE HAVE A DIVERSE PORTFOLIO
Core At the heart of our business are 7,300 regulated properties worth £1bn. These are
tenanted assets which are bought at a discount to the vacant possession value, so have an
inherent ‘reversion’ (the difference between the tenanted value and the vacant possession
value). The tenant has a right to live at the property for the rest of their life. We collect the
typically sub-market rent, which is set by a rent officer, and then sell on vacancy to realise
the reversion. There have been no new regulated tenancies made since 1989, so our tenants
are on average getting older. We therefore have predictable rents and vacancies from these
low-value, geographically spread, liquid assets, producing cash flows of over £100m per
year and high trading margins. These assets are very liquid as they can be sold tenanted.
This provides us with an ideal stock from which to generate additional cash as required.
Also in our core are a further £190m of other units including market let tenancies (assured
shorthold tenancies), agricultural tenancies, garages and ground rents.
Retirement solutions Our retirement solutions business is worth in excess of £500m.
The largest part of this portfolio, averaging £184,287 full vacant possession, is home
reversion assets. Under a home reversion plan, an owner sells Grainger part or all of their
home in return for a cash lump sum (or a series of payments) which is dependent upon
the vacant possession value of the property, the ages of the individuals and the proportion
being sold. This creates a reversion similar to a regulated tenancy, but typically with a deeper
discount as there is no rent. The occupiers can then remain in the property for the rest of their
lives, after which, the property is sold, to realise the reversion. Distribution, product innovation
and regulation are the keys to success in this market. Grainger’s equity release products are
FSA (Financial Services Authority) regulated and we insist that all of our customers receive
impartial professional advice from a qualified third party. Recognising that equity release is
not the solution for all, this division also owns approximately 1,000 retirement units. CHARM
(a financial asset with returns based on reversionary mortgages) also sits within this area.
Fund management and residential investments Grainger GenInvest LLP – is a 50:50
partnership between Grainger and Genesis Housing Group which was initially formed in
June 2005 and owns some £300m of assets. Grainger provides asset management services
and Genesis oversee day-to-day management of the properties.
G:res1 – was launched in November 2006 and is a Jersey-based company that invests
primarily in market let properties in the UK. Grainger co-invests (current ownership 21.6%),
property, asset and fund manages. Total assets are currently worth over £400m.
Schroders ResPUT – is a specialist residential fund which is ungeared. Grainger advises the
fund and provides property management services. The portfolio is worth £72m and Grainger
owns a 23.6% stake.
Development Our development portfolio consists of a number of key sites, details of which
can be found on page 16. Our focus is on large scale, residential led, mixed use sites, where
we can work effectively with partners; local authorities and communities, joint venture
partners and all other relevant stakeholders. The market value of our portfolio is some
£142m including joint ventures.
Continental Europe Our German residential portfolio, with some 6,900 units, is worth
over £400m. The majority of the portfolio is in the more affluent south western areas of
the country. We believe in time there will be a growth in demand for home ownership of
quality housing. We are different from the pure financial investors who have also entered
this market in recent years because of our long-term view. The relatively low cost per unit
provides potential for significant future capital growth. We also have a joint venture which
is developing a site in Zizkov, Prague, worth £10.6m.
34
Grainger plc annual review 2008
Grainger’s Bridgewater business has
now won ‘Best Home Reversion
Provider’ for three consecutive years.
A Grainger commissioned report
to contribute to the Rugg Review.
WE ARE AN INDUSTRY LEADER
Our core portfolio of primarily regulated tenancies is one of
a kind. It has been built up over a significant number of years
and encompasses over 7,000 units spread across the UK.
Our success comes from the scale of our portfolio as well as our ability to derive
value from it. The regulated tenancies are valued at a discount to their vacant possession
values. The total vacant possession value of our regulated tenancies is £1.4bn. This means
the reversion, the difference between the vacant possession value and the value these
assets are valued at in our market value balance sheet is £0.4m. When the tenants leave,
the assets are sold and the reversion is realised. House price changes affects different areas
of the country at different times and rates. The knowledge we gain from owning as many
properties, geographically spread, means that we can and do buy and sell assets at the best
time, to realise best value. We retain a majority of assets in the South East, where there is
an undersupply of housing. Another key strength of our core portfolio is the average vacant
possession value, which at 30 September 2008 stood at £190,000, compared to the national
average of £175,143. In total, some 66% of this portfolio has a vacant possession value of
under £250,000. The portfolio therefore has limited exposure to top end volatility. Many
properties offer refurbishment opportunities and this keeps them in demand.
Retirement solutions has grown significantly and we expect this to continue as more
people seek to release cash to supplement pensions, improve lifestyles or realise dreams.
We seek to provide choice in our home reversion products – some people prefer a lump sum,
others prefer a series of cash payments. Some find comfort in an early vacancy guarantee
and others wish to share in the upside, should house price inflation exceed certain levels.
These options are just one reason for the success of our Bridgewater business. Grainger now
owns almost 5,000 home reversion assets, with an average vacant possession value (for the
whole property) of £184,287. Again, we have limited exposure to top end volatility. We also
appreciate that equity release is just one solution to retirement living and it is our aim to
provide more options. We have over 1,000 specific retirement apartments, within retirement
complexes which are very popular and as a result have high occupancy rates.
Property services within Grainger, prides itself on customer care. We appreciate that our
assets are also the homes of thousands of people. We believe that it is this appreciation,
combined with our owner/manager perspective that sets us apart from others. Our dedicated
property management staff are based in seven offices throughout the UK, giving us national
coverage as well as local knowledge. We ensure that our tenants know how to get in touch
with their property manager to resolve issues or arrange for repairs to be carried out. Our
property managers’ knowledge of their portfolio enables them to understand the needs of the
assets and the tenants. We strive to raise professionalism in the industry. All of our property
managers complete our in-house training to understand how to balance the needs of our
customers with expectations for financial returns. Some also study professional qualifications.
As a market leading spokesperson on landlord and tenant issues, our opinion is sought
and valued. We believe that a truly professional private rented sector (‘PRS’) is one potential
solution to the current and expected housing shortage in the UK. As the largest listed
residential landlord, we are ideally placed to both assist in this change and to benefit from it.
We are active in promoting the PRS, through our membership of the British Property
Federation. We also have strong proactive relationships with the Chartered Institute of
Housing, Association of residential Letting Agents and the Association of Residential
Managing Agents. We also fundamentally believe that residential assets should be recognised
as an investment class in their own right. This has been starting to happen over recent years.
35
O
u
r
p
o
r
t
f
o
l
i
o
WE SHARE EXPERTISE, RISK AND REWARDS
Part of our long-term strategy is to capitalise on our expertise
by providing fund management to third parties and entering
into joint ventures.
Funds
G:res1 is a fund which Grainger launched in November 2006. It is a Jersey-based company
that invests primarily in market-let residential properties in the UK. Grainger is a co-investor
in the fund, which is independently managed and controlled. Investors are currently a broad
mix of UK and overseas institutions.
The fund now holds 2,149 units. 90% of the property is held in London and the south east.
During the year, there were strategic sales of blocks of assets. As asset and fund manager,
we also recommended and subsequently implemented, breaking up blocks for sale – where
greater value could be achieved by selling each apartment individually. We have also
managed some refurbishment activity, where it has added value.
As advisor and asset and property manager, we earn fees for delivering returns.
As a co-investor we benefit from dividends.
ResPUT (The Schroders Residential Property Unit Trust) is a specialist residential fund which
provides investors with almost ungeared exposure to the UK residential market. The fund is
managed by Schroders Property Managers (Jersey) Limited and advised by Grainger. We also
manage the property on a day-to-day basis. This fund aims to combine a high quality income
yield with above average prospects for capital growth. It has gross assets of £73m and
Grainger currently holds a 23.6% stake. The fund is valued monthly. Capital is recycled
through strategic sales and astute acquisitions.
Joint ventures
Grainger GenInvest LLP was created in June 2005, when Grainger and GenInvest Housing
Association formed a 50:50 joint venture to acquire a £70m portfolio of 461 residential units
from the Church Commissioners. The partnership acquired a further 1,138 units for £196m
in March/June 2006.
The portfolio now consists of 1,566 units in eight blocks in central London. We stated
last year that we would identify strategic opportunities to refurbish and so far we have
refurbished four blocks. We are now selling from seven blocks in order to generate cash
flow. Grainger provides asset management services while GenInvest handles day-to-day
property management.
Curzon Park is a 10-acre site in Central Birmingham, acquired through a collaborative
(50:50) joint venture with Development Securities plc in December 2006. The initial intention
had been to develop this site over six to eight years. We have submitted our outline planning
application, however economic conditions are such that development on the site is likely
to take place over a longer period than originally anticipated.
Hammersmith is a large mixed use scheme in the heart of the town. Grainger, in a
50:50 joint venture with Helical Bar plc, was awarded preferred developer status and
the Conditional Development Agreement was exchanged in March 2008.
Kempshott Park, Basingstoke
Completed in January 2006, Grainger
built to let this 25 unit scheme which
now belongs to the G:res1 fund.
Grainger GenInvest LLP, a joint venture
between Grainger plc, the UK’s largest
listed private landlord, and Genesis
Housing Group has invested £1m
into the Walworth Estate to refurbish
existing homes and transform a
derelict space within the estate into
a community garden.
36
Grainger plc annual review 2008
WE ARE NOT VOLUME HOUSE BUILDERS
Our core and retirement solutions portfolios are
geographically spread and are purchased at significant
discounts to their vacant possession values.
These factors protect us to an extent from certain risks in the housing market.
Unlike a volume house builder, we do not attempt to sell many properties in one location
at the same time and our properties do not suffer from cluster risk. Furthermore, due to
the discounts at which we purchase our properties and the long average period we hold
the assets before sale, our margins are typically 45% to 50%. This means that in the current
market, we can ensure our properties are competitively priced, to keep cash flow coming
into the business.
Our development business focuses on building residential led mixed use schemes.
We promote the benefits of good design by creating schemes that take into account
the way people live.
Our development activities fall into two main categories:
Residential led mixed use schemes where we work with partners to leverage our
respective skills and knowledge, to deliver complex developments. Examples of this
include the Curzon Park and Hammersmith joint ventures described on the previous page.
Strategic Land where we take a long-term view, setting out with an initial objective
to achieve planning, then to develop, often in a number of phases. We currently own
a significant 520-acre site, Newlands Common, West Waterlooville in Hampshire. During
the year, we obtained planning permission for 1,550 new homes and 100,000 sq. m.
of commercial space. We originally signed an option agreement for this land in 1995.
OUR SKILLS ARE TRANSFERABLE ABROAD
In Germany we now own or have a majority interest in
almost 7,000 residential properties worth more than €500m.
We approach our investment in Germany for the long term as we believe that, at some
point, an increase in home ownership will occur in this nation which lags others across
Europe. Grainger is now well placed to benefit from this.
Our ownership is substantially in the more affluent areas of the country, in the south and
west. Our property and asset management skills are ensuring that whilst we hold these
assets, we maximise the value by minimising voids, identifying strategic refurbishment
opportunities and effectively collecting rents. Our staff advise on asset management,
including acquisitions and disposals. We believe we now have a critical mass and intend
to seek third-party equity investment, in line with our strategy.
We have recently moved offices, from Mannheim to Frankfurt.
King Street, Hammersmith, London
The 50:50 joint venture partnership
of Grainger/Helical Bar were selected
as preferred developer by the London
Borough of Hammersmith and Fulham
in 2008 for this mixed use scheme
in the heart of Hammersmith.
Wards Corner, Haringey, London
Grainger was selected by the London
Borough of Haringey and the Bridge
New Deals for Communities (NDC)
in 2004 as the preferred development
partner to regenerate the area around
Seven Sisters underground station.
Longstrops, Martlesham, Ipswich
Longstrops is 130 acres of land which
is designated for an extension of the
existing settlement of Kesgrave in Suffolk.
Grainger has made a representation to
the local development framework process
and Suffolk Coastal District Council
is currently reviewing potential sites.
37
O
u
r
p
o
r
t
f
o
l
i
o
1 Highbrow
Harborne
2 Mannheim
Germany
3 Dibden House
Maida Vale, London
4 Cottage on Ranton Estate
Staffordshire
5 Walworth
London
6 Carless Avenue
Harborne
7 Ravenhurst Avenue
Harborne
8 Homewell
Havant, Hampshire
9 The Lodge
Pitmaston, Birmingham
10 Hill Top Farm
Staffordshire
1
3
5
7
9
2
4
6
8
10
38
Grainger plc annual review 2008
THE BOARD
1
4
7
2
5
8
3
6
9
39
T
h
e
b
o
a
r
d
1
2
Robin Broadhurst C.B.E., F.R.I.C.S. Chairman, chairman of nomination committee. Aged 62
Appointed director of the company in February 2004. Previously European chairman of Jones
Lang La Salle, Trustee and non-executive director of Grosvenor, a senior advisor to Credit
Suisse Group, property consultant to Sir Robert McAlpine Limited, member of the Prince’s
Council for the Duchy of Cornwall and non-executive director of the British Library and
Invista Real Estate Investment Management plc.
Rupert Dickinson M.R.I.C.S. Chief executive. Aged 49, Chartered Surveyor
Joined the company in 1992 from Richard Ellis (now CBRE). Appointed a director of the
company in 1994. Appointed chief executive in October 2002. Joined Workspace Group plc
as a non-executive director in August 2006. Chairman of the residential committee and
member of the policy committee of the British Property Federation, member of the
International Property Federation.
3 Andrew Cunningham F.C.A. Deputy chief executive and finance director. Aged 52,
Chartered Accountant
Joined Deloitte Haskins and Sells in London in 1978 and worked in their Nairobi and Bristol
offices before being made a partner in their Newcastle office in 1989. Appointed a director
of the company in December 1996. Appointed deputy chief executive in December 2002.
In May 2007, was appointed non-executive director of The Local Shopping REIT plc.
4
5
6
Stephen Dickinson* F.C.A. Deputy chairman. Aged 74, Chartered Accountant
In practice in British Virgin Islands 1963-1974. Appointed managing director of the company
in 1974. Upon retiring as managing director in October 2002, became deputy chairman.
British Virgin Islands representative on United Kingdom Overseas Territories Association
1993-2004. Chairman of Deutsche Land plc since February 2006.
Robert R S Hiscox* A.C.I.I. Member of nomination and remuneration committees. Aged 65
Appointed a director of the company in March 2002. Chairman of Hiscox Limited. Deputy
chairman of Lloyd’s 1993-1995.
John Barnsley* F.C.A. Chairman of audit committee and member of remuneration
committee. Aged 60, Chartered Accountant
Appointed a director of the company in 2002. Non-executive director of Northern
Investors Company plc, American Appraisal Associates LLP and LMS Capital plc.
Chairman of Westover Medical Limited. Until December 2001 was a senior partner
at PricewaterhouseCoopers.
7 Henry Pitman* Member of audit committee. Aged 46
Appointed a director in May 2007. Currently chairman of African Century, an African
investment business. Previously chief executive of Tribal Group plc. Prior to this, he was
managing director of JHP Group Limited. From 1990-1995 he worked for the Property
Corporation of South Africa.
8
9
Bill Tudor John* Senior independent director, chairman of remuneration committee,
member of nomination committee. Aged 64
Appointed a director of the company in February 2005. Currently a managing director of
Nomura International, previously a partner at Allen & Overy LLP for 29 years, serving as senior
partner for six years. Also deputy chairman of the Nationwide Building Society and deputy
chairman of the Bank of England Financial Markets Law Committee. An Associate Fellow
of Downing College, Cambridge.
Baroness Margaret Ford* Member of audit committee. Aged 51
Managing director in the Royal Bank of Canada’s Capital Markets Group. Senior
independent director of Serco Group plc. Prior to this she was chairman, from 2002,
of English Partnerships. Early career in a variety of housing and regeneration roles across
the public and private sector.
* non-executive directors
40
Grainger plc annual review 2008
CORPORATE GOVERNANCE REPORT
The board continues to uphold the highest standards of
governance which are at the heart of the way business is
conducted by Grainger. Changes made to the operation
of the board by Robin Broadhurst in his early months as
chairman in 2007, are now embedded in the way the
board functions.
The board believes that corporate governance is
fundamentally about the way a company operates and
should not be an automatic response to a check list.
However, it is also mindful that The Combined Code 2006
is generally accepted to describe good governance and
seeks to comply as far as possible where this is in the best
interests of the company. The statement of compliance
refers to The Combined Code 2006, which was applicable
to Grainger.
This report fulfils the requirements of the Listing Rules
and should be read in conjunction with the reports of
the individual committees which follow.
The directors
A company is only as good as the people who work for
it and the directors are committed to ensuring that the
board itself includes people who have all of the necessary
skills, knowledge and experience to successfully lead the
organisation. For the period 1 October 2007 until 3 July
2008, the composition of the board was, in the board’s
view, the chairman, deputy chairman, two executive
directors and four independent non-executive directors.
Baroness Margaret Ford was appointed to the board
as an independent non-executive director on 3 July
increasing the level of independence on the board.
The directors therefore believe that, excluding the
chairman, the board consisted of at least half independent
non-executive directors for the entire reporting period.
Roles
There is a written, approved statement of the separation of
duties of the chairman, who reports to the board and the
chief executive, who reports to the chairman. Other key
differentiating factors are as follows:
The chairman
Responsible for running the board
Only the chief executive and the company secretary
(for corporate governance matters) reports to him
Guardian of the board’s decision making
The chief executive
Responsible for running the business
All executive management report to him, directly
or indirectly
Responsible for implementing the board’s decisions
Other key roles include the senior independent director and
the chairmen of the committees. Bill Tudor John held the
position of senior independent director for the entire period
under review. The committees’ compositions and work are
described in detail in their own reports which follow.
Independence
For several years the board has been increasing the number
of independent directors and again this year a further
independent non-executive has been appointed. As noted
in previous years, the chief executive is a cousin of the
deputy chairman. However, as announced at the time of
the preliminary announcement on 27 November 2008, the
deputy chairman will be stepping down from the board at
the conclusion of the Annual General Meeting in February
2009. As explained in The Combined Code, the criteria of
A.3.1 are only a guideline and it is the directors’ view of
the independence of a particular director that is ultimately
important. In forming their opinion, the directors consider,
amongst other things, the individual’s professional
characteristics, their behaviour at board meetings, their
contribution to the debate and unbiased judgement.
The following analysis explains the board’s duly considered
view of the independence of the directors.
41
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
Director
Robin Broadhurst
(Chairman)
Stephen Dickinson
(Deputy chairman)
Board’s determination
Explanatory notes
Independent
(cid:129) Independent under A.3.1 criteria
Not independent
(cid:129) Close family ties
(cid:129) More than nine years’ service
(cid:129) Previously managing director
(cid:129) Part-time executive responsibilities
(cid:129) Participation in all-employee share scheme
Bill Tudor John
Independent
(cid:129) Independent under A.3.1 criteria
(Senior independent director)
John Barnsley
Robert R S Hiscox
Independent
Independent
(cid:129) Independent under A.3.1 criteria
(cid:129) Although a trustee for an Estate holding a material shareholding,
the board is of the opinion that this position does not interfere
with or influence his character or judgement in any way.
As chairman of Hiscox Ltd, and past deputy chairman of Lloyd’s,
Mr Hiscox brings extensive skills and experience in his own right,
which can only be beneficial to Grainger’s board
(cid:129) The Estate has reduced its shareholding over the past four years,
from 12.5 million shares to 9 million shares
Henry Pitman
Baroness Margaret Ford
(Appointed 3 July 2008)
Independent
Independent
(cid:129) Independent under A.3.1 criteria
(cid:129) Independent under A.3.1 criteria
Full biographical details of all current directors are given on page 39.
Retirement by rotation and re-election
Meetings
The board recognises that it is important to adhere to good
governance principles and all board members are as such,
required to stand for re-election at intervals of no more than
three years. However, the board is also of the view that long-
term stability in the board is an important factor, given the
long-term nature of the business. Continuation of leadership
throughout, for example, the period of a significant
development, is considered particularly beneficial. The
chairman has satisfied himself that, following evaluation,
all directors offering themselves for re-election continue to
show the required commitment and effective performance.
There were six ordinary meetings of the board in the year,
where the board met to review the business and to consider
the items reserved specifically for it which have been
documented and approved by the board. These include
setting the overall strategy, approving major transactions,
setting debt/gearing limits and associated hedging strategy
and agreeing accounting policies. No changes were made
to this schedule during the year. Decisions regarding more
minor transactions are delegated to management.
Most meetings were preceded, the evening before, with an
informal meeting allowing more time for debate and also
a dinner, giving an opportunity for the directors to enhance
their relationships with each other. All directors attended all
meetings during their relevant periods of office except for
Robert Hiscox, who was not present at two of the meetings,
and Henry Pitman who was not present for one. This was
the first year where six ordinary meetings were held,
compared to four previously. The board is satisfied that
six is an appropriate number and intends to continue
to meet with such frequency.
42
Grainger plc annual review 2008
CORPORATE GOVERNANCE REPORT
In order to accommodate the new timetable of meetings,
the meeting which is held for an extended period in order
to debate and reflect fully on strategy, was held in April
rather than June. This event continues to provide an ideal
opportunity for the board to spend time with the senior
executives. Further, the board now receives presentations
from senior executives on a rotational basis.
As well as the ordinary meetings, ad hoc meetings are
arranged as necessary in order to consider major transactions
or events. Due to the short notice, which is unavoidable,
all directors are not always able to attend, or to join by
teleconference. Wherever possible the chairman will take
on views of the non-attending director prior to the meeting.
Board papers are produced and distributed in a timely
manner for each meeting, being in the hands of the board
five working days before the meeting. They contain
sufficient financial and non-financial information to allow
the board to properly monitor the group and understand
the challenges facing it and opportunities open to it. The
format of the papers specifically highlights items for decision
and for discussion. In this way the board can be sure that it
concentrates its efforts and allocates sufficient time to those
items which are most important.
Each director is given an opportunity to raise an item to
the agenda and any request for further information from
a director is treated as a high priority. The directors also have
direct access to the services of the company secretary, who
reports to the chairman regarding matters of corporate
governance. The appointment and removal of the company
secretary is a matter for the board as a whole. Procedures
also exist for directors to take independent professional
advice as required, at the group’s expense.
The chairman met twice during the year with the non-
executives, without the executives present as planned.
These meetings will continue with this frequency.
Induction, evaluation, training and development
Baroness Margaret Ford was appointed in the year and
received a comprehensive, tailored induction to the
company. This consisted of the provision of a ‘bible’ of
information covering such items as the most recent risk
review, recent minutes, terms of reference of the committees
etc as well as sessions with each member of the senior
management team. These meetings were arranged in small
groups so that as well as the divisional leaders each giving
a presentation of their business area, discussion and debate
was encouraged.
Baroness Ford also joined a property tour, to enable her to see
some of the company’s properties – ranging from the core
regulated portfolio through to the development activities.
Directors and Officers insurance is held by the company
and details of the policy are given to new directors
on appointment.
The evaluation process was again successfully completed.
The process was conducted internally and consisted of a
written questionnaire followed by an interview with the
chairman. The questionnaire covered all of the board as
a whole, the committees and the individual directors and all
of these areas were picked up as relevant in the subsequent
interviews. Notes of the interviews are held only by the
chairman and the company secretary since it has been
proved in recent years that this allows the directors to be
more open in their discussions.
The chairman was pleased with the commitment shown by
the directors to the process. The whole evaluation exercise
and its outcomes were reviewed formally at a board
meeting. As a result of the evaluation process the board
identified the need for a chief operating officer to sit below
board level and are in the process of defining a clear role.
In response to results from last year’s evaluation, there has
been increased communication between executives and
non-executives this year. In particular, the non-executives
now receive a bi-weekly update covering items ranging
from sales and the market, to management and leadership
initiatives. This has been invaluable during the rapidly
changing economic climate over the period under review.
The senior independent director spoke with the executives
and the non-executives individually in order to evaluate the
chairman. The board’s written document for the separation
of the roles of the chairman and the chief executive was
used as a basis for the evaluation.
The board is provided with regular written updates which
are relevant to a listed property company. Presentations are
also received from the senior management who lead the
business divisions, which inform the directors about relevant
aspects of their markets. Directors are able to request
specific training, through the chairman or company
secretary. If any development areas are identified for
the board as a whole, its committees or for directors as
individuals, then they would be appropriately addressed
on appointment or thereafter.
Relations with stakeholders
The primary contacts with shareholders, analysts and
potential investors are the chief executive, and deputy
chief executive and finance director. The usual half yearly
results announcements and briefings were also attended by
some of the company’s most senior management and this
was welcomed by shareholders. Apart from these meetings,
there have again been circa. 100 meetings and presentations
by the executive directors, to maintain an appropriate
dialogue. They also participated in conferences, including
the Credit Suisse Real Estate conference in New York. The
level of meetings with private client brokers was maintained
from the previous year. Feedback is always sought following
such events and is presented to the board as a whole. The
board is briefed on the views of major shareholders. Further,
all directors, including the chairman and non-executives,
are available for meetings with shareholders. There were
no requests in the year from shareholders to meet Baroness
Ford, the newly appointed non-executive director. Along
with all other directors, she will be in attendance at the
annual general meeting and available to answer questions.
The group’s website includes a specific and comprehensive
Investor Relations section, containing all RNS announcements,
share price information, annual documents available for
download etc. All shareholders have the opportunity to
attend the Annual General Meeting, which continues as a
route for communication with smaller/private shareholders.
The notice of meeting and annual report and accounts
are sent out at least 20 working days before the meeting.
Separate votes are held for each proposed resolution,
including the approval of the remuneration committee
report, and a proxy count is given in each case after the
voting on a show of hands. Grainger includes, as standard,
a ‘vote withheld’ category, in line with best practice.
Shareholders are also able again to lodge their votes
through the CREST system.
Internal control
The group has a cyclical process for identifying, assessing
and managing its significant risks, which has been in place
for the full year under review. The process is designed to
enable the board to be confident that such risks are
mitigated, or controlled as far as possible. It should be noted
however that no system can eliminate the risk of failure to
achieve business objectives entirely and can only provide
reasonable and not absolute assurance against material
misstatement or loss. The audit committee is delegated the
task of reviewing all identified risks, with the ultimate key
risks retained for full board review. The audit committee
reports to the board at every board meeting. Risks and
controls are reviewed to ensure effective management of
appropriate strategic, financial, operational and compliance
issues. The audit committee also reviews the half year and
full year financial statements and holds discussions with
the group’s auditors. In addition, the group has an internal
audit function which performs relevant reviews as part
of a programme approved by the audit committee.
The committee considers any issues or risks arising from
internal audit in order that appropriate actions can be
undertaken for their satisfactory resolution. The internal
audit manager has a direct reporting line to the chairman
of the audit committee.
An annual budget is produced, together with longer-term
projections in accordance with the agreed strategy, which
are presented to the board for approval. A fundamental part
of the control process is the diligent monitoring of actual
performance against this budget by the board. Where
applicable, revisions are made to expected outturn against
which further progress can be monitored.
The board also discusses in detail the projected financial
impact of major proposed acquisitions and disposals,
including their financing. All such proposed substantial
investments are considered by all directors. Where meetings
are required between board meetings and a full complement
of directors cannot be achieved, a committee of directors
considers the necessary formalities. The board is also
responsible for the discussion and approval of the group’s
treasury strategy, including mitigation against changes in
interest rates.
Going concern
After making diligent enquiries, including the review of
future anticipated cash flows and compliance with banking
covenants, the directors have a reasonable expectation
that the group and company have adequate resources
to continue in existence for the foreseeable future. For this
reason they continue to adopt the going concern basis in
preparing the accounts.
43
C
o
r
p
o
r
a
t
e
g
o
v
e
r
n
a
n
c
e
r
e
p
o
r
t
44
Grainger plc annual review 2008
CORPORATE GOVERNANCE REPORT
Compliance statement
Independence of non-executive directors is explained in
detail above. In the board’s view it is their assessment of
independence which determines compliance with the
Code and therefore no non-compliance on grounds of
independence has been recorded.
The board considers that it has complied in full with
the Combined Code 2006, during the year ended
30 September 2008.
Nomination committee report
The nomination committee consisted throughout the year,
of Robin Broadhurst as chairman, and Robert Hiscox and
Bill Tudor John as independent members.
Due to the relatively small size of the board, matters which
are included in the nomination committee’s terms of
reference are often discussed by the board as a whole.
As a result, this committee met only informally and
communicated by telephone or email.
The terms of reference are available on the group’s website
and principally relate to filling vacancies on the board. The
committee is also responsible for reviewing the desirability
of the continuation of service of directors required to retire
by rotation.
Baroness Margaret Ford was appointed in the year.
Although there was an external agency involved, having
been introduced by an existing director, she was subject
to a formal process involving being interviewed by all of
the directors, prior to her being appointed.
Audit committee report
The audit committee meets four times each year and reports
on its work at every subsequent board meeting. This is a
critical part of the internal control process.
On appointment to the board on 3 July, Baroness Ford was
also appointed to the audit committee. The board considers
that being a member of the audit committee is an excellent
way to quickly gain an understanding of the key risks in the
business. After one meeting with four members present,
Bill Tudor John resigned from the audit committee.
Attendance of the individual directors is shown below.
Mr Barnsley has the particular recent, relevant financial
experience required by The Combined Code.
Nov
2007
Feb May
2008
2008
Sep
2008
John Barnsley
Chairman
Henry Pitman
Member
✓
✓
Bill Tudor John
Member (resigned 10 September 2007) ✓
Baroness Margaret Ford
Member (appointed 3 July 2008)
n/a
✓
✓
✓
✓
✓
✓
n/a
n/a
✓
✓
✓
✓
The audit committee adheres to particularly strict and
detailed terms of reference, which are available for
inspection on the group’s website. In addition to the work
described within the ‘Internal Control’ section of the main
report above, the audit committee is also responsible for
reviewing the independence of the external auditor, which
includes the approval of any non-audit service fees above a
relatively nominal level. The audit committee is responsible
for the appointment of the external auditor and for agreeing
the audit fee.
The deputy chief executive/finance director and external
audit partner as well as other senior management are invited
to attend meetings of the committee. The audit committee
requires presentations from members of staff such as the
treasury director, tax director and IT director (all non-
statutory directors), to ensure that they feel sufficiently close
to these important individuals who have significant levels of
control to maintain. Once each year the audit committee
meet with management without the auditors present and
also with the auditors without management present.
By order of the board
Marie Glanville ACA ACIS
Company secretary 16 December 2008
REPORT OF THE REMUNERATION COMMITTEE AND DIRECTORS’ REMUNERATION REPORT
This report meets the disclosure requirements of the
Companies Act and the Listing Rules and in accordance
with usual practice will be put to shareholders for approval
at the Annual General Meeting.
The remuneration committee
The remuneration committee consisted throughout the
period of Bill Tudor John (chairman), with Robert Hiscox
and John Barnsley as members.
In the opinion of the directors the committee therefore
comprised three independent non-executives throughout
the year. Certain shareholder pressure groups continue
to raise concerns that Mr Hiscox, as trustee of an estate
containing a material shareholding, should not be regarded
as independent. The board maintains their view that
Mr Hiscox is independent and a valued contributor to
the remuneration committee.
The remuneration committee met formally four times during
the year and all members attended except for Robert Hiscox,
who was unable to attend one of those meetings. The
committee have also communicated informally during
the year, in particular with regard to the finalisation of
the LTIP grant.
This year New Bridge Street Consultants LLP (‘NBSC’)
continued to be involved in the set up and implementation
of the LTIP. NBSC have no other connection with the
company or its directors as individuals. Further, the
remuneration committee engaged the services of the
Hay Group to benchmark the salaries and packages
of the executive directors.
The committee’s terms of reference are available
on the group’s website.
Remuneration policy
Grainger’s remuneration policy is designed to attract,
motivate and retain high calibre individuals to enable the
group to operate strategically for the continued benefit of
shareholders, over the long term. In order to operate this
policy, the remuneration committee receives information on
remuneration packages awarded to directors in comparable
organisations and aims to ensure that the rewards paid by
Grainger are competitive.
The policy is also designed to align the directors’ interests
with those of shareholders. This is principally achieved
through the use of share-based incentives and by
encouraging executive directors to maintain a reasonable
shareholding in the group. As a guideline, executive
directors (and senior executives) are expected to hold the
equivalent value of at least one year’s salary in Grainger
shares. Details of executive directors’ shareholdings are
shown on page 52. Share awards are generally satisfied by
the acquisition of shares in the market, so are not dilutive
to shareholders. Share options are satisfied by the issue
of new share capital.
Remuneration packages balance both short and long-term
rewards, as well as performance-related pay and non-
performance-related. They include salary, bonus and
defined contribution pension elements as well as long-term
share incentive and option schemes. Usual benefits are
also afforded.
No executive director is involved in the determination of
his own remuneration. Fees of the non-executive directors,
which include increments where a committee chairmanship
or senior independent position is held, are determined by
the board as a whole.
The salaries and bonuses of senior management are
determined by the executive directors and reported to
the remuneration committee. Senior management also
participate in long-term incentive scheme arrangements
described below. Usual benefits are also afforded to these
individuals. In this context, senior management are those
employees who are members of the ‘executive team’. In
addition to this, specific bonus schemes were negotiated
with certain key senior management during the year, based
on their specific business areas, in order to drive performance.
The remuneration committee also review the total level of
salaries and bonuses paid to the group as a whole. This
includes reviewing the details of any employee earning
over £50,000 or earning a bonus in excess of £5,000.
45
a
n
d
d
i
r
e
c
t
o
r
s
’
r
e
m
u
n
e
r
a
t
i
o
n
r
e
p
o
r
t
R
e
p
o
r
t
o
f
t
h
e
r
e
m
u
n
e
r
a
t
i
o
n
c
o
m
m
i
t
t
e
e
46
Grainger plc annual review 2008
REPORT OF THE REMUNERATION COMMITTEE AND DIRECTORS’ REMUNERATION REPORT
Service contracts
Service contracts were updated during the year to incorporate best practice. Contract dates and unexpired terms for the directors
are as follows:
Rupert Dickinson
Andrew Cunningham
Robin Broadhurst
Stephen Dickinson
Bill Tudor John
John Barnsley
Robert Hiscox
Henry Pitman
Baroness Margaret Ford
* calculated as at 30 September 2008 and rounded to the nearest whole month
Apart from salary and benefits in relation to the notice
period described above, there are no other terms in any
of the contracts which would give rise to compensation
payable for early termination, or any other liability of
the company.
Each non-executive director has specific terms of reference.
Their contracts state an initial one-year period, with a
continuation subject to review at that time. Their contracts
contain no entitlement to compensation for early termination.
Other directorships
Rupert Dickinson has served as a non-executive director of
Workspace Group plc throughout the period under review.
Grainger’s board were satisfied that the appointment would
be of mutual benefit, with Rupert gaining invaluable
experience of another plc. Andrew Cunningham has served
as a non-executive director of The Local Shopping REIT plc.
As in the previous year, both executive directors retained the
fees paid to them by the respective organisations. In the year
under review, Rupert Dickinson and Andrew Cunningham
retained £36,000 and £30,000 respectively.
Contract date
Unexpired term*
19 July 1996
26 July 2000
No fixed term
No fixed term
26 February 2004
28 February 2000
24 February 2005
27 February 2003
6 March 2002
1 May 2007
3 July 2008
5 months
5 months
29 months
5 months
29 months
17 months
29 months
Notice period
12 months
12 months
None
None
3 months
3 months
3 months
3 months
3 months
NON-PERFORMANCE-RELATED REMUNERATION
Basic salaries and benefits
Basic salaries are reviewed by the remuneration committee
annually. Uplifts are by reference to cost of living,
responsibilities and market rates, as for all employees and
are performed at the same time of year. It was decided for
the year commencing 1 October 2008 that the executive
directors would receive no salary increase, in light of
market conditions. Executive directors and the deputy
chairman, Stephen Dickinson, who has part-time executive
responsibilities, along with other senior members of staff,
receive a fully expensed company car, or a car allowance.
All members of staff, including the executive directors,
benefit from health and life insurances.
The chairman’s and non-executive directors’ fees are
reviewed on a biennial basis by the whole board. The
non-executives agreed that due to market conditions,
they would waive an increase for the period starting
1 October 2008, with the next review date set at
1 October 2009.
Pensions
The group contributes 15% of basic salary to the money
purchase pension schemes of Rupert Dickinson and
Andrew Cunningham. No other elements of remuneration
are pensionable.
Share schemes open to all employees
Executive directors, and Stephen Dickinson, deputy
chairman, are eligible to participate in two share schemes
which are open to all employees with relevant service,
subject to the rules of the schemes.
The first is a save as you earn (‘SAYE’) scheme, and the
second a share incentive plan (‘SIP’). Both are Inland Revenue
approved and therefore subject to the limits prescribed.
Amounts relating to directors’ participation in the SIP and
share options under the SAYE scheme are shown on pages
49 and 50.
PERFORMANCE-RELATED REMUNERATION
As should be expected and in accordance with the
Combined Code, a significant element of executive
directors’ and senior management’s potential remuneration
is performance-related. The combination of short and long-
term incentives attempt to align the interests of executives
and senior management with the interests of shareholders,
and to reward significant outperformance of expectations.
Non-executive directors do not receive performance-related
remuneration.
Annual discretionary bonus
Each year the remuneration committee considers the award
of a bonus to the executive directors, which is at their
ultimate discretion. The chief and deputy chief executive
officers, Rupert Dickinson and Andrew Cunningham
participate in an arrangement introduced in 2003 whereby
the provisional bonus is calculated over a three-year period,
by reference to the enhancement of the triple net asset
value of Grainger, relative to a theoretical market comparator.
The comparator movement is calculated with regard to the
Nationwide and Halifax house price indices and also interest
rates – using five-year swap rates. Bonuses remain capped
at 150% of salary which would only be achieved under
exceptional performance conditions. Subject always to the
committee’s discretion, one third of the calculated amount
is approved for payment and the provisional balance is taken
into account over the next two years.
It has been decided that no award will be payable for the
year ended 30 September 2008, in recognition of the
market conditions. In 2007, 107% of salary for that year
was paid.
Long-term incentives
Grainger’s policy in relation to long-term incentive schemes
has evolved over time to more closely align the long-term
interests of executives and senior management with those of
shareholders, to reward sustained performance over a number
of financial years and to encourage these employees to
grow their shareholdings.
The current long-term incentive scheme (‘LTIS’) was
approved by shareholders in February 2007.
Current long-term incentive scheme
This scheme makes conditional awards of shares to reward
performance and retain key staff over rolling three-year
periods. The potential award is split into two, with two thirds
of the awards being dependent upon the absolute level of
increase in NNNAV and one third dependent upon the
increase in absolute TSR as follows:
Average annual growth
in NNNAV
Less than or equal to
average WACC
Percentage of the NNNAV
proportion of an award which
will vest
0%
Equal to average WACC + 3% 100%
Between average WACC
and average WACC + 3%
Pro rata on a straight-line
basis between 0% and 100%
TSR of the company over the
TSR performance period
Percentage of the TSR proportion
of an award which will vest
TSR being less than or equal to
8% compounded per annum
(25.98% growth in total over
the TSR performance period)
0%
TSR being equal to or greater
than 16% compounded per
annum (56.09% growth in
total over the TSR
performance period)
100%
Between 8% compounded
per annum and 16%
compounded per annum
Between 0% and 100%
pro rata on a straight-line
basis
47
a
n
d
d
i
r
e
c
t
o
r
s
’
r
e
m
u
n
e
r
a
t
i
o
n
r
e
p
o
r
t
R
e
p
o
r
t
o
f
t
h
e
r
e
m
u
n
e
r
a
t
i
o
n
c
o
m
m
i
t
t
e
e
48
Grainger plc annual review 2008
REPORT OF THE REMUNERATION COMMITTEE AND DIRECTORS’ REMUNERATION REPORT
There is also a matching awards element to the scheme,
to encourage executives to develop and maintain a
shareholding in the company. Participants may pledge or
buy shares of equivalent value to 30% of their relevant
salary and to the extent that performance criteria are met,
these shares will be matched one for one at the end of
the three-year period.
Fundamentally it was considered that absolute measures
of performance were suitable because Grainger is unusual
in nature and has no natural comparator group. Grainger
is the only listed company of its size to invest primarily in
residential property assets. All other comparably sized
property companies are principally commercial or
development focused.
Awards were made under this current scheme in March
2007 and January 2008 and are quantified below.
These performance criteria are believed to be stretching,
but realistic and reward executives if Grainger’s return
to shareholders is significant in absolute terms.
Previous long-term incentive scheme
There is one prior year award outstanding which operates
under the previous long-term incentive scheme so the
details of that scheme are also included here. Participants
were eligible to receive annual conditional awards of shares
worth up to 50% of salary under the long-term incentive
scheme and of share options up to a maximum of 125%
of salary under the executive share option scheme. The
awards under both schemes will become unconditional if
challenging performance criteria are satisfied over a single
three-year performance period following grant. The criteria
for the awards were based on total shareholder return
(‘TSR’) – dependent upon where Grainger’s TSR lies with
respect to a pre-determined comparator group as follows:
Performance condition
Vesting of option
If Grainger’s TSR is equal to or
greater than the upper quartile
TSR of the comparator companies
If Grainger’s TSR is equal
to the median TSR of the
comparator companies
If Grainger’s TSR is above the median
but below the upper quartile TSR of
the comparator companies
100%
40%
Pro rata vesting
If Grainger’s TSR is below the median
TSR of the comparator companies
0%
As shown in the table above, no award vests unless
Grainger’s TSR is higher than the median TSR of the
comparator group.
It should be noted that during its period of operation, it has
been necessary to change the comparator group due to
companies being taken over. The comparator group for the
awards made in January 2006 comprised A & J Mucklow
Group plc, Big Yellow Group plc, Brixton plc, Capital and
Regional plc, CLS Holdings plc, Daejan Holdings plc,
Derwent Valley Holdings plc, Freeport plc, Great Portland
Estates plc, Helical Bar plc, London Merchant Securities plc,
Mapeley Limited, Minerva plc, Quintain Estates and
Development plc, Shaftesbury plc, St Mowden Properties
plc, The Unite Group plc, Warner Estate Holdings plc and
Workspace Group plc.
The awards under the scheme failed to vest for the second
year in January 2008.
As required by legislation covering the directors’
remuneration report, the graph below shows TSR (based
upon share price growth with dividends reinvested) for
Grainger, compared to the comparator group, the FTSE 250
and the FTSE Real Estate Index. These comparators have
been chosen on the basis that they are the markets within
which Grainger operates, albeit that the Real Estate Index
comprises mainly commercial property companies.
250
200
150
100
50
03
04
05
06
07
08
GRAINGER
GRAINGER PEERS TSR 8 COS – PRICE INDEX
FTSE 250 – PRICE INDEX
FTSE 350 REAL ESTATE – PRICE INDEX
Source: Datastream
The auditors have audited the following parts of the remuneration report:
Directors’ remuneration
Chairman, deputy chairman and executive directors
Non-performance-related remuneration
Robin
Broadhurst
£’000
Stephen
Dickinson
£’000
Rupert
Andrew
Dickinson Cunningham
£’000
£’000
Salary and fees
Taxable benefits
Share incentive plan
120
–
–
Total non-performance-related remuneration
120
Performance-related remuneration
Annual discretionary bonus
Total performance-related remuneration
Total remuneration for the year ended
30 September 2008
Total remuneration for the year ended
30 September 2007
Pension contributions into money
purchase schemes
Year ended 30 September 2008
Year ended 30 September 2007
–
–
120
88
–
–
150
18
6
174
–
–
174
174
–
–
490
12
6
508
–
–
508
976
74
69
370
24
6
400
–
–
400
750
56
52
Non-executive directors
Non-performance-related remuneration
Salary and fees
Taxable benefits
Share incentive plan
Total non-performance-related remuneration
Performance-related remuneration
Annual discretionary bonus
Total performance-related remuneration
Total remuneration for the year ended
30 September 2008
Total remuneration for the year ended
30 September 2007
John
Barnsley
£’000
Baroness
Margaret
Ford
£’000
Robert
Hiscox
£’000
Henry
Pitman
£’000
50
–
–
50
–
–
50
47
9
–
–
9
–
–
9
–
35
–
–
35
–
–
35
35
35
–
–
35
–
–
35
15
Robert
Dickinson
£’000
–
–
–
–
–
–
–
Total
£’000
1,130
54
18
1,202
–
–
1,202
56
2,044
–
–
Bill
Tudor
John
£’000
50
–
–
50
–
–
50
47
130
121
Total
£’000
Total all
directors
2008
£’000
179
1,309
–
–
54
18
179
1,381
–
–
–
–
179
1,381
144
2,188
Baroness Margaret Ford was appointed a non-executive director on 3 July 2008. Prior to her appointment she was paid £8,750
in advisory fees.
Robert Dickinson retired from the board on 28 February 2008. Robin Broadhurst was appointed chairman on the same date.
Henry Pitman was appointed a non-executive director on 1 May 2007.
49
a
n
d
d
i
r
e
c
t
o
r
s
’
r
e
m
u
n
e
r
a
t
i
o
n
r
e
p
o
r
t
R
e
p
o
r
t
o
f
t
h
e
r
e
m
u
n
e
r
a
t
i
o
n
c
o
m
m
i
t
t
e
e
50
Grainger plc annual review 2008
REPORT OF THE REMUNERATION COMMITTEE AND DIRECTORS’ REMUNERATION REPORT
Directors’ share options
Ordinary shares (thousands)
Dates exercisable
Stephen
Dickinson
Rupert
Dickinson
Andrew
Cunningham
Total
Exercise
price
30 Sep
2008
30 Sep
2007
30 Sep
2008
30 Sep
2007
30 Sep
2008
30 Sep
2007
30 Sep
2008
30 Sep
2007
Non-performance-related (available to all staff)
SAYE scheme
1 September 2008 to 1 March 2009
1 September 2012 to 28 February 2013
1 September 2013 to 28 February 2014
Performance-related (conditional awards)
Inland Revenue Approved Executive
Share Option Scheme
23 March 2010 to 23 March 2017
Long-term incentive scheme
11 January 2008 to 11 January 2015 (lapsed)
12 January 2009 to 12 January 2016
£1.865
£4.543
£1.678
£6.409
£3.818
£5.280
9
–
10
–
–
–
19
9
–
–
–
–
–
9
–
–
10
5
–
104
119
–
4
–
5
138
104
251
–
–
10
5
–
78
93
–
4
–
9
–
30
9
8
–
5
10
10
103
78
190
–
182
231
241
182
450
Performance conditions for options exerciseable 11 January 2008 to 11 January 2115 at £3.818 were not met, thus the
options lapsed.
The market price of the company’s shares at the end of the financial year was £2.00, and the range of the closing mid-market
prices during the year was £1.868 to £4.65.
Directors’ share awards
Ordinary shares of 5p each (thousands)
Rupert
Dickinson
Andrew
Cunningham
Total
Award
date
Earliest
vesting date
30 Sep
2008
30 Sep
2007
30 Sep
2008
30 Sep
2007
30 Sep
2008
30 Sep
2007
Performance-related (conditional awards)
Long-term incentive scheme
2004 scheme (lapsed)
2005 scheme
2006 scheme
11 Jan 2005
11 Jan 2008
12 Jan 2006
12 Jan 2009
23 Mar 2007
23 Mar 2010
2007 scheme (granted in the year)
09 Jan 2008
09 Jan 2011
Matching awards (conditional)
23 Mar 2007
23 Mar 2010
09 Jan 2008
09 Jan 2011
–
42
108
217
22
43
55
42
108
–
22
–
–
31
81
164
16
33
41
31
81
–
16
–
–
73
189
381
38
76
96
73
189
–
38
–
432
227
325
169
757
396
Performance conditions for the conditional share awards set to vest on 11 January 2008 were not met.
The conditional awards therefore lapsed on those respective dates.
On behalf of the board
Bill Tudor John
Chairman of the remuneration committee
51
a
n
d
d
i
r
e
c
t
o
r
s
’
r
e
m
u
n
e
r
a
t
i
o
n
r
e
p
o
r
t
R
e
p
o
r
t
o
f
t
h
e
r
e
m
u
n
e
r
a
t
i
o
n
c
o
m
m
i
t
t
e
e
52
Grainger plc annual review 2008
DIRECTORS’ REPORT
The directors present their report and the audited financial
statements for the year ended 30 September 2008.
Principal activities
During the year the group has continued its activities of
property trading and development.
Review of business development and prospects
Development of the group’s activities and its prospects are
reviewed in the chairman’s statement on pages 6 to 8 and
the chief executive’s review on pages 10 to 17
Results for the year
The results of the group are set out in the consolidated
income statement on page 4 of the accounts section of
this document which shows a loss for the financial year
attributable to the equity holders of the company of
£77.4m (2007: £60.9m profit).
An interim dividend of 2.27p per share (2007: 2.06p) was
paid on 4 July 2008 amounting to £2.9m (2007: £2.7m)
and the directors recommend the payment of a final
dividend of 3.91p per share (2007: 4.12p), to be paid on
16 February 2009, amounting to £5.3m (2007: £5.2m).
Any shareholder wishing to participate in the Dividend
Reinvestment Plan for the 2008 final dividend will need
to ensure that their application form is returned to our
registrars by 18 January 2009.
Directors
The directors of the company who served during the year
are listed on page 39.
Directors’ and other interests
The interests of the directors in the shares of the company
at 30 September 2008 and 15 December 2008, with
comparative figures as at 1 October 2007 (or date of
appointment, if later), are as follows:
Ordinary Shares of 5p each (thousands)
Beneficial
Non-beneficial
1 Oct
2007*
5
3,461
1,420
498
–
14
20
25
–
30 Sept
2008
9
3,463
1,448
507
–
28
30
26
–
15 Dec
2008
26
3,464
1,449
508
–
46
50
426
–
1 Oct
2007
–
2,386
207
–
–
–
30 Sept
2008
–
2,386
207
–
–
–
15 Dec
2008
–
2,386
207
–
–
–
9,000
9,000
9,000
–
–
–
–
–
–
5,443
5,511
5,969
11,593
11,593
11,593
Robin Broadhurst
Stephen Dickinson
Rupert Dickinson
Andrew Cunningham
Bill Tudor John
John Barnsley
Robert Hiscox
Henry Pitman
Baroness Margaret Ford**
* or date of appointment, if later
** appointed 3 July 2008
Details of directors’ share options are given on page 50.
Save as disclosed above, as at 28 November 2008, the
company is aware of the following interests amounting
to 3% or more in the company’s shares:
Schroder Investment
Management Limited*
BlackRock Investment
Management Ltd
Taube Hodson & Stonex
Partners Ltd*
Standard Life Investments Ltd
Aberforth Partners*
Legal & General Investment
Management Ltd*
Holding
000’s
Holding
%
19,234
13.86
7,950
7,159
4,694
4,499
4,162
5.73
5.16
3.38
3.24
3.00
* shares held by funds managed or advised by the company indicated and/or
its subsidiaries. The company is not aware of any other substantial interests
amounting to 3% or more
Directors’ interests in significant contracts
No directors were materially interested in any contract
of significance.
Insurance of directors
The directors confirm that they have complied with the
above requirements in preparing the financial statements.
The directors are responsible for keeping proper accounting
records that disclose with reasonable accuracy at any time
the financial position of the company and the group.
They are also responsible for safeguarding the assets of
the company and of the group, and hence for taking
reasonable steps for the prevention and detection of
fraud and other irregularities.
Creditor payment policy
It is the group’s policy to pay suppliers in accordance with
their normal terms and conditions of trading. Payment in
respect of the purchase of property is subject to and will
comply with contractual terms. Trade creditors existing at
30 September 2008 relating to purchases of property stock
generally complete 28 days after exchange of contracts.
Trade creditor days relating to other trade creditors of
the company and group were calculated as 19 days
(2007: 18 days).
Financial risk management
Details of this are included in note 26 to the financial
statements.
The group maintains insurance for Grainger plc’s directors
in respect of their duties as director.
Charitable donations
Statement of directors’ responsibilities
The directors are required by UK Company law to prepare
financial statements for each financial year which give a true
and fair view of the affairs of the company and the group as
at the end of the financial year and of the profit or loss for
that period and comply with the Companies Act 1985.
The directors are responsible for ensuring that applicable
accounting standards have been followed and that suitable
accounting policies, consistently applied and supported by
reasonable and prudent judgements and estimates, have
been used in the preparation of the financial statements
for the year ended 30 September 2008.
The directors must also prepare the financial statements on
the going concern basis unless it is inappropriate to presume
that the company and the group will continue in business.
During the year the group made charitable donations
amounting to £28,495 (2007: £71,283).
Health and safety
The company seeks to achieve the highest standards in
respect of health and safety of employees, and the safety
of tenants. Consultants are employed to ensure that the
company complies with health and safety regulations and
each year the gas supply and appliances within all of the
group’s relevant residential properties are independently
inspected under the Gas Safety (Installation and Use)
Amended Regulations 1996 and certificates of compliance
issued. The group employs a full time health and
safety manager.
53
D
i
r
e
c
t
o
r
s
’
r
e
p
o
r
t
54
Grainger plc annual review 2008
DIRECTORS’ REPORT
Employment of disabled persons
Shares
The company gives full and fair consideration to applications
for employment made by disabled persons, having regard
to their particular aptitudes and abilities. In the event of an
employee becoming disabled every effort is made to ensure
that their employment within the company continues and
that appropriate training is arranged where necessary.
It is the policy of the company that the training, career
development and promotion of disabled persons should,
as far as possible, be identical
to that of other employees.
As disclosed in note 32 to the financial statements,
the company issued 59,709 5p ordinary shares for an
aggregate consideration of £116,289 in the year under
various employee share option schemes. The company
also bought back 300,000 5p ordinary shares for total
consideration of £982,444, which are being held in treasury.
A further 497,088 5p ordinary shares were transferred out
of treasury into an Employee Benefit Trust. At 30 September
2008, the directors had unexpired power to repurchase
up to 12,804,110 shares.
Employee involvement
Takeover directive
The group places considerable value on the involvement
of its employees and has continued its practice of keeping
them informed on matters affecting them as employees,
for example, eligibility to join company share schemes,
and on the various factors affecting the performance
of the group. Communication is made using the intranet,
‘The Source’, and through regular meetings with, and
presentations by senior management.
Independent auditors and disclosure of information
to auditors
As far as each director is aware, there is no relevant audit
information of which the company’s auditors are unaware.
Each director has taken all steps that he ought to have taken
as a director in order to make himself aware of any relevant
audit information and to establish that the company’s
auditors are aware of that information.
PricewaterhouseCoopers LLP have expressed their
willingness to continue in office as auditors to the company
and group. A resolution to reappoint them as auditors
to the company will be proposed at the next Annual
General Meeting.
On a change of control, the club bank facilities (described
in note 27 to the accounts) would become repayable had
prior consent not been obtained, or the debt had not been
renegotiated within 45 days. There are no other material
matters relating to a change of control of the company
following a takeover bid.
Post balance sheet events
Since the year end holders of £87.1m of Grainger’s £112m
2014 Convertible Bond have accepted a cash payment of
£35,000 per £100,000 nominal bond value to convert early.
As a result 10,081,013 new shares have been issued.
On 4 December 2008, Grainger announced the completion
of the sale of its Barnsbury development site for total cash
consideration of £19m.
By order of the board
Marie Glanville ACA ACIS
Company secretary 16 December 2008
s
r
e
s
i
v
d
A
n
o
i
t
a
m
r
o
f
n
i
l
’
s
r
e
d
o
h
e
r
a
h
S
8
0
0
2
s
t
n
u
o
c
c
a
d
n
a
t
r
o
p
e
r
l
a
u
n
n
a
c
l
p
r
e
g
n
a
r
G
i
5
7
/
4
7
.
s
e
c
i
v
r
e
S
g
n
i
l
a
e
D
e
r
a
h
S
a
t
i
p
a
C
a
i
v
s
e
r
a
h
s
s
’
y
n
a
p
m
o
c
e
h
t
l
l
e
s
r
o
y
u
b
o
t
l
s
r
e
d
o
h
e
r
a
h
s
g
n
i
t
s
i
x
e
o
t
e
l
b
a
l
i
a
v
a
s
i
e
c
i
v
r
e
s
g
n
i
l
a
e
d
e
r
a
h
s
A
e
c
i
v
r
e
s
g
n
i
l
a
e
d
e
r
a
h
S
N
O
I
T
A
M
R
O
F
N
I
’
S
R
E
D
L
O
H
E
R
A
H
S
9
0
0
2
y
r
a
u
r
b
e
F
6
1
d
n
e
d
i
v
i
d
l
a
n
i
f
8
0
0
2
f
o
t
n
e
m
y
a
P
9
0
0
2
y
r
a
u
r
b
e
F
0
1
g
n
i
t
e
e
M
a
r
e
n
e
G
l
l
a
u
n
n
A
r
a
d
n
e
l
a
c
l
a
i
c
n
a
n
i
F
s
s
e
c
c
a
o
t
y
s
a
e
n
a
e
d
i
v
o
r
p
s
e
i
t
i
l
i
c
a
f
g
n
i
l
a
e
d
e
n
o
h
p
e
l
e
t
d
n
a
e
n
i
l
n
O
9
0
0
2
y
a
M
s
t
l
u
s
e
r
m
i
r
e
t
n
i
9
0
0
2
f
o
t
n
e
m
e
c
n
u
o
n
n
A
,
s
e
r
a
h
s
l
l
e
s
r
o
y
u
b
o
t
r
o
,
e
c
i
v
r
e
s
s
i
h
t
n
o
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
r
u
f
r
o
F
.
e
c
i
v
r
e
s
e
s
u
o
t
e
l
p
m
i
s
d
n
a
9
0
0
2
r
e
b
m
e
v
o
N
s
t
l
u
s
e
r
l
a
n
i
f
9
0
0
2
f
o
t
n
e
m
e
c
n
u
o
n
n
A
9
0
0
2
e
n
u
J
d
n
e
d
i
v
i
d
m
i
r
e
t
n
i
9
0
0
2
f
o
t
n
e
m
y
a
P
g
n
i
k
e
e
s
t
o
n
e
r
a
y
n
a
p
m
o
c
e
h
t
f
o
s
r
o
t
c
e
r
i
d
e
h
t
t
a
h
t
e
t
o
n
e
s
a
e
l
P
.
s
e
r
a
h
s
r
i
e
h
t
l
l
e
s
r
o
y
u
b
r
e
h
t
i
e
o
t
l
s
r
e
d
o
h
e
r
a
h
s
e
g
a
r
u
o
c
n
e
o
t
t
n
e
d
n
e
p
e
d
n
i
n
a
m
o
r
f
e
c
i
v
d
a
l
a
i
c
n
a
n
i
f
k
e
e
s
o
t
d
e
d
n
e
m
m
o
c
e
r
d
n
a
s
e
c
i
v
r
e
S
l
a
i
c
n
a
n
i
F
e
h
t
y
b
d
e
s
i
r
o
h
t
u
a
r
e
s
i
v
d
a
l
a
i
c
n
a
n
i
f
e
r
a
e
k
a
t
o
t
n
o
i
t
c
a
t
a
h
w
o
t
s
a
t
b
u
o
d
y
n
a
n
i
l
s
r
e
d
o
h
e
r
a
h
S
e
c
i
f
f
o
d
e
r
e
t
s
i
g
e
r
d
n
a
y
r
a
t
e
r
c
e
S
s
i
c
a
a
c
a
e
l
l
i
v
n
a
l
G
e
i
r
a
M
.
0
0
0
2
t
c
A
s
t
e
k
r
a
M
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
d
r
a
v
e
l
u
o
B
’
s
e
m
a
J
t
S
e
t
a
g
y
t
i
C
E
J
4
1
E
N
n
o
d
e
n
i
a
t
b
o
e
b
n
a
c
e
c
i
r
p
e
r
a
h
s
s
’
y
n
a
p
m
o
c
e
h
t
n
o
n
o
i
t
a
m
r
o
f
n
i
y
l
i
a
D
p
0
0
2
p
7
8
1
p
5
6
4
r
a
e
y
e
h
t
g
n
i
r
u
d
e
c
i
r
p
t
s
e
w
o
L
r
a
e
y
e
h
t
g
n
i
r
u
d
e
c
i
r
p
t
s
e
h
g
H
i
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
t
a
e
c
i
r
P
e
c
i
v
r
e
S
e
n
i
l
y
t
i
C
s
e
m
T
i
l
a
i
c
n
a
n
i
F
e
h
T
:
i
l
g
n
n
o
h
p
e
e
t
y
b
r
o
e
t
i
s
b
e
w
r
u
o
x
a
t
s
n
i
a
g
l
a
t
i
p
a
c
r
o
f
s
e
r
a
h
s
s
’
y
n
a
p
m
o
c
e
h
t
l
f
o
e
u
a
v
t
e
k
r
a
m
e
h
T
.
0
5
7
2
3
4
8
6
0
9
0
n
o
x
a
t
s
n
i
a
g
l
a
t
i
p
a
C
.
.
p
8
0
6
s
a
w
2
8
9
1
h
c
r
a
M
1
3
t
a
s
e
s
o
p
r
u
p
.
k
u
o
c
.
c
l
p
r
e
g
n
a
r
g
w
w
w
i
.
s
s
e
r
d
d
a
e
t
i
s
b
e
W
e
t
i
s
b
e
W
5
7
5
5
2
1
r
e
b
m
u
n
n
o
i
t
a
r
t
s
i
g
e
r
y
n
a
p
m
o
C
s
e
i
r
i
u
q
n
e
l
’
s
r
e
d
o
h
e
r
a
h
S
g
n
i
l
a
e
d
e
n
o
h
p
e
l
e
t
–
7
7
5
4
8
5
4
0
7
8
0
:
e
r
e
w
i
s
e
r
a
h
s
y
r
a
n
d
r
o
s
’
y
n
a
p
m
o
c
e
h
t
f
o
s
e
c
i
r
p
t
e
k
r
a
m
-
d
m
g
n
i
s
o
l
c
i
,
e
l
p
m
a
x
e
r
o
f
(
i
l
s
g
n
d
o
h
e
r
a
h
s
o
t
g
n
i
t
a
e
r
l
s
e
i
r
i
u
q
n
e
e
v
i
t
a
r
t
s
i
n
m
d
a
l
l
i
A
d
n
e
d
i
v
i
d
,
s
e
t
a
c
i
f
i
t
r
e
c
e
r
a
h
s
f
o
s
s
o
l
,
s
s
e
r
d
d
a
f
o
e
g
n
a
h
c
f
o
n
o
i
t
a
c
i
f
i
t
o
n
:
t
a
r
a
r
t
s
i
g
e
r
s
’
y
n
a
p
m
o
c
e
h
t
o
t
d
e
s
s
e
r
d
d
a
e
b
d
u
o
h
s
l
)
s
t
n
e
m
y
a
p
e
s
u
o
H
n
r
e
h
t
r
o
N
k
r
a
P
e
m
o
s
d
o
o
W
c
l
P
G
R
I
a
t
i
p
a
C
e
g
d
i
r
B
y
a
n
e
F
d
l
e
i
f
s
r
e
d
d
u
H
e
r
i
h
s
k
r
o
Y
t
s
e
W
A
L
0
8
D
H
g
n
i
l
a
e
d
e
n
i
l
n
o
–
m
o
c
.
l
a
e
d
a
t
i
p
a
c
.
w
w
w
e
h
t
f
o
e
g
n
a
r
e
h
t
,
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
d
e
d
n
e
r
a
e
y
e
h
t
g
n
i
r
u
D
:
t
c
a
t
n
o
c
e
s
a
e
l
p
e
c
i
r
p
e
r
a
h
S
P
L
L
s
r
e
p
o
o
C
e
s
u
o
h
r
e
t
a
w
e
c
i
r
P
s
r
o
t
i
d
u
A
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
d
a
o
R
d
r
o
f
y
d
n
a
S
9
8
P
L
1
9
9
E
N
d
e
t
i
m
i
L
e
v
o
n
e
z
a
C
n
a
g
r
o
M
P
J
s
r
e
k
o
r
b
k
c
o
t
S
e
t
a
g
r
o
o
M
0
2
A
D
6
R
2
C
E
n
o
d
n
o
L
e
c
i
f
f
o
r
e
f
s
n
a
r
t
d
n
a
s
r
a
r
t
s
i
g
e
R
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
R
S
4
1
E
N
l
a
r
t
n
e
C
e
m
i
T
e
t
a
g
w
o
l
l
a
G
e
s
u
o
H
n
r
e
h
t
r
o
N
k
r
a
P
e
m
o
s
d
o
o
W
c
l
P
G
R
I
a
t
i
p
a
C
e
g
d
i
r
B
y
a
n
e
T
d
l
e
i
f
s
r
e
d
d
u
H
e
r
i
h
s
k
r
o
Y
t
s
e
W
A
L
0
8
D
H
i
s
e
i
t
i
r
u
c
e
S
n
h
p
o
D
n
w
e
r
B
i
l
t
n
e
g
A
y
t
i
l
i
c
a
F
d
n
a
k
n
a
B
g
n
i
r
a
e
l
C
C
L
P
k
n
a
B
s
y
a
l
c
r
a
B
c
l
p
d
n
a
l
t
o
c
S
f
o
k
n
a
B
l
a
y
o
R
e
h
T
c
l
p
s
k
n
a
B
h
s
i
r
I
d
e
i
l
l
A
c
l
p
k
n
a
B
B
S
T
s
d
y
o
l
L
s
r
e
k
n
a
b
r
e
h
t
O
s
r
e
k
n
a
B
k
n
a
B
e
h
t
f
o
y
n
a
p
m
o
C
d
n
a
r
o
n
r
e
v
o
G
e
h
T
d
n
a
l
t
o
c
S
f
o
d
e
t
i
m
i
L
k
n
a
B
a
i
l
a
r
t
s
u
A
l
a
n
o
i
t
a
N
r
e
g
n
i
r
e
D
s
u
a
h
k
c
u
r
B
,
s
d
l
e
i
f
h
s
e
r
F
t
e
e
r
t
S
t
e
e
l
F
5
6
S
H
1
Y
4
C
E
n
o
d
n
o
L
t
e
e
r
t
S
n
o
t
g
n
i
l
l
e
W
1
t
s
e
W
F
W
D
S
R
E
S
I
V
D
A
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
X
D
3
1
E
N
s
e
e
D
n
o
s
n
i
k
c
i
D
f
r
a
h
W
s
’
n
n
A
t
S
e
d
i
s
y
a
u
Q
2
1
1
s
r
o
t
i
c
i
l
o
S
k
n
a
B
e
h
t
f
o
y
n
a
p
m
o
C
d
n
a
r
o
n
r
e
v
o
G
e
h
T
d
n
a
l
e
r
I
f
o
d
e
t
i
m
i
L
e
c
n
a
n
i
F
e
t
a
t
s
E
l
a
e
R
E
G
G
A
k
n
a
B
e
t
a
t
s
E
l
a
e
R
o
p
y
H
G
A
o
p
y
h
o
r
u
E
y
t
e
i
c
o
S
g
n
d
i
l
i
i
u
B
e
d
w
n
o
i
t
a
N
s
n
o
i
t
a
e
r
c
i
l
l
b
u
p
A
B
1
1
S
L
s
d
e
e
L
l
a
i
c
n
a
n
i
F
s
c
i
m
a
n
y
D
l
a
i
c
n
a
n
i
F
e
t
a
G
n
r
o
b
o
H
l
s
g
n
d
i
l
i
u
B
n
o
t
p
m
a
h
t
u
o
S
6
2
s
n
o
i
t
a
e
r
c
i
l
l
b
u
p
e
t
a
r
o
p
r
o
C
B
P
1
A
2
C
N
n
o
d
n
o
L
G
A
k
n
a
b
s
n
e
r
e
V
d
n
u
-
o
p
y
H
e
h
c
s
i
r
e
y
a
B
G
A
B
E
S
B
P
1
A
2
C
W
n
o
d
n
o
L
S
h
a
r
e
h
o
d
e
r
s
’
l
i
n
f
o
r
m
a
t
i
o
n
A
d
v
i
s
e
r
s
s
g
n
d
i
l
i
u
B
n
o
t
p
m
a
h
t
u
o
S
6
2
B
A
n
e
k
n
a
b
s
l
e
d
n
a
H
a
k
s
n
e
v
S
s
i
s
e
m
a
T
D
F
s
m
r
e
t
f
o
y
r
a
s
s
o
G
l
8
0
0
2
s
t
n
u
o
c
c
a
d
n
a
t
r
o
p
e
r
l
a
u
n
n
a
c
l
p
r
e
g
n
a
r
G
i
7
7
/
6
7
.
e
r
u
n
e
t
f
o
y
t
i
r
u
c
e
s
s
a
h
t
n
a
n
e
T
.
d
e
t
a
u
g
e
r
l
m
o
r
f
n
o
i
s
s
e
c
c
u
s
m
o
r
f
g
n
i
s
i
r
a
y
c
n
a
n
e
t
d
e
t
n
e
r
-
t
e
k
r
a
M
)
’
T
P
A
‘
(
y
c
n
a
n
e
t
c
i
d
o
i
r
e
p
d
e
r
u
s
s
A
S
M
R
E
T
F
O
Y
R
A
S
S
O
L
G
Y
T
R
E
P
O
R
P
.
d
e
v
r
e
s
e
c
i
t
o
n
e
t
a
i
r
p
o
r
p
p
a
f
i
i
n
o
i
s
s
e
s
s
o
p
n
a
t
b
o
y
a
m
d
r
o
d
n
a
l
l
e
r
e
h
w
y
c
n
a
n
e
t
d
e
t
n
e
r
-
t
e
k
r
a
M
)
’
T
S
A
‘
(
l
y
c
n
a
n
e
t
d
o
h
t
r
o
h
s
d
e
r
u
s
s
A
.
w
e
n
e
r
o
t
t
h
g
i
r
s
a
h
t
n
a
n
e
t
e
r
e
h
w
y
c
n
a
n
e
t
d
e
t
n
e
r
-
t
e
k
r
a
M
)
’
T
A
‘
(
y
c
n
a
n
e
t
d
e
r
u
s
s
A
.
e
c
a
p
n
l
i
y
c
n
a
n
e
t
t
n
a
v
e
e
r
o
t
l
j
t
c
e
b
u
s
y
t
r
e
p
o
r
p
a
f
o
e
u
a
v
l
t
e
k
r
a
m
n
e
p
O
e
u
a
v
l
t
e
k
r
a
m
r
o
)
’
V
I
‘
(
e
u
a
v
l
t
n
e
m
t
s
e
v
n
I
.
n
o
i
s
r
e
v
e
r
e
m
o
h
l
a
i
t
r
a
p
a
s
i
s
i
h
t
y
t
r
e
p
o
r
p
e
h
t
n
i
t
s
e
r
e
t
n
i
y
t
i
u
q
e
n
a
i
s
n
a
t
e
r
t
n
a
n
e
t
f
I
t
n
a
n
e
t
d
n
a
r
e
c
fi
f
o
t
n
e
r
y
b
t
e
s
)
t
e
k
r
a
m
-
b
u
s
y
l
l
a
u
s
u
(
t
n
e
r
,
t
c
A
t
n
e
R
7
7
9
1
r
e
d
n
u
d
e
t
a
u
g
e
r
l
y
c
n
a
n
e
T
y
c
n
a
n
e
t
d
e
t
a
u
g
e
R
l
.
e
r
u
n
e
t
f
o
y
t
i
r
u
c
e
s
s
a
h
.
s
e
i
c
n
a
n
e
t
y
n
a
m
o
r
f
e
e
r
f
y
t
r
e
p
o
r
p
a
f
o
e
u
a
v
l
t
e
k
r
a
m
n
e
p
O
e
u
a
v
l
)
’
P
V
‘
(
n
o
i
s
s
e
s
s
o
p
t
n
a
c
a
V
.
r
o
t
c
e
s
d
e
t
n
e
r
e
t
a
v
i
r
P
S
R
P
y
t
i
u
q
e
d
n
a
d
e
t
a
u
g
e
r
l
r
u
o
n
i
l
s
u
p
r
u
s
y
r
a
n
o
i
s
r
e
v
e
r
e
h
t
f
o
e
u
a
v
l
x
a
t
r
e
t
f
a
e
h
t
j
r
o
f
d
e
t
s
u
d
a
V
A
N
N
N
E
T
A
R
O
P
R
O
C
V
A
N
r
e
g
n
a
r
G
i
.
)
h
t
a
e
d
n
o
y
l
l
a
u
s
u
(
d
e
t
i
e
f
r
o
f
l
i
t
n
u
n
o
i
t
a
p
u
c
c
o
f
o
t
h
g
i
r
s
a
h
t
n
a
n
e
t
e
r
e
h
w
y
c
n
a
n
e
t
e
e
r
f
t
n
e
R
n
o
i
s
r
e
v
e
r
e
m
o
H
e
g
a
r
e
v
a
d
e
t
h
g
e
w
d
e
t
s
u
d
a
j
i
k
s
i
r
r
u
o
g
n
i
s
u
e
u
a
v
l
t
n
e
s
e
r
p
o
t
k
c
a
b
d
e
t
n
u
o
c
s
i
d
s
o
i
l
o
f
t
r
o
p
e
s
a
e
e
r
l
.
t
s
i
x
e
s
e
i
t
i
v
i
t
i
s
n
e
s
d
n
a
e
s
a
c
e
s
a
B
.
n
o
i
t
a
s
i
l
a
e
r
f
o
d
o
i
r
e
p
e
g
a
r
e
v
a
d
e
t
c
e
p
x
e
e
h
t
r
e
v
o
l
a
t
i
p
a
c
f
o
t
s
o
c
.
5
0
0
2
r
e
b
m
e
c
e
D
1
3
r
e
t
f
a
r
o
n
o
g
n
d
n
e
i
s
d
o
i
r
e
p
g
n
i
t
n
u
o
c
c
a
r
o
f
i
s
e
n
a
p
m
o
c
d
e
t
s
i
l
-
K
U
r
o
f
y
r
o
t
a
d
n
a
M
.
s
d
r
a
d
n
a
t
S
g
n
i
t
r
o
p
e
R
l
a
i
c
n
a
n
i
F
l
a
n
o
i
t
a
n
r
e
t
n
I
S
R
F
I
e
t
a
r
t
s
e
r
e
t
n
i
e
h
t
r
o
f
t
i
m
i
l
r
e
p
p
u
n
a
s
e
e
t
n
a
r
a
u
g
,
e
e
f
a
r
o
f
n
r
u
t
e
r
n
i
,
h
c
i
h
w
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
F
l
e
u
a
v
g
n
y
r
r
a
c
i
e
h
t
n
e
e
w
t
e
b
e
c
n
e
r
e
f
f
i
d
e
h
t
n
o
e
b
a
y
a
p
e
b
d
u
o
w
l
l
t
a
h
t
x
a
t
f
o
t
n
u
o
m
a
e
h
T
.
n
a
o
l
a
n
o
.
e
u
a
v
l
t
e
k
r
a
m
r
i
e
h
t
d
n
a
t
e
e
h
s
l
e
c
n
a
a
b
e
h
t
n
i
d
e
d
r
o
c
e
r
s
a
s
e
i
t
r
e
p
o
r
p
g
n
d
a
r
t
i
f
o
.
e
r
a
h
s
r
e
p
s
d
n
e
d
i
v
i
d
y
b
d
e
d
i
v
i
d
e
r
a
h
s
r
e
p
s
g
n
n
r
a
E
i
I
L
A
C
N
A
N
I
F
p
a
C
x
a
t
t
n
e
g
n
i
t
n
o
C
r
e
v
o
c
d
n
e
d
v
D
i
i
s
e
r
a
h
s
f
o
r
e
b
m
u
n
e
g
a
r
e
v
a
d
e
t
h
g
e
w
e
h
t
i
y
b
d
e
d
i
v
i
d
s
r
e
d
o
h
e
r
a
h
s
l
y
t
i
u
q
e
o
t
l
e
b
a
t
u
b
i
r
t
t
a
t
fi
o
r
P
)
’
S
P
E
‘
(
e
r
a
h
s
r
e
p
s
g
n
n
r
a
E
i
d
e
r
i
u
q
c
a
s
t
e
s
s
a
t
e
n
f
o
e
u
a
v
l
r
i
a
f
e
h
t
n
e
e
w
t
e
b
e
c
n
e
r
e
f
f
i
d
e
h
t
,
y
n
a
p
m
o
c
a
f
o
n
o
i
t
i
s
i
u
q
c
a
n
O
.
e
u
a
v
l
t
e
s
s
a
t
e
n
t
e
k
r
a
m
e
h
t
o
t
,
h
s
a
c
i
f
o
t
e
n
,
s
g
n
w
o
r
r
o
b
f
o
o
i
t
a
r
e
h
T
i
.
d
a
p
e
c
i
r
p
e
s
a
h
c
r
u
p
e
h
t
d
n
a
.
r
a
e
y
e
h
t
n
i
e
u
s
s
i
n
i
g
n
i
r
a
e
G
l
l
i
w
d
o
o
G
l
e
m
o
h
d
n
a
d
e
t
a
u
g
e
r
n
o
s
u
p
r
u
s
l
y
r
a
n
o
i
s
r
e
v
e
r
d
e
t
n
u
o
c
s
i
d
d
e
x
a
t
e
h
t
j
r
o
f
d
e
t
s
u
d
a
V
A
N
N
N
V
A
N
r
e
g
n
a
r
G
i
.
s
e
v
i
t
a
v
i
r
e
d
f
o
e
u
a
v
l
r
i
a
f
e
h
t
r
o
f
s
t
n
e
m
t
s
u
d
a
j
e
r
o
f
e
b
d
n
a
x
a
t
d
e
r
r
e
f
e
d
k
c
a
b
g
n
d
d
a
d
n
a
i
,
k
c
o
t
s
l
s
a
d
e
h
s
t
e
s
s
a
y
t
r
e
p
o
r
p
f
o
e
u
a
v
l
t
e
k
r
a
m
e
h
t
r
o
f
d
e
t
s
u
d
a
j
s
d
n
u
f
l
’
s
r
e
d
o
h
e
r
a
h
S
.
s
t
n
e
m
e
v
o
m
e
t
a
r
t
s
e
r
e
t
n
i
i
t
s
n
a
g
a
t
c
e
t
o
r
p
o
t
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
fi
f
o
e
s
u
e
h
T
e
u
a
v
l
t
e
k
r
a
m
e
h
t
f
o
n
o
i
t
i
n
g
o
c
e
r
e
h
t
r
o
f
s
e
u
r
l
i
i
l
x
e
p
m
o
c
g
n
n
a
t
n
o
c
d
r
a
d
n
a
t
s
g
n
i
t
n
u
o
c
c
A
l
.
e
b
a
y
a
p
t
s
e
r
e
t
n
i
t
e
n
y
b
d
e
d
i
v
i
d
x
a
t
d
n
a
t
s
e
r
e
t
n
i
e
r
o
f
e
b
s
e
i
t
i
v
i
t
c
a
i
y
r
a
n
d
r
o
n
o
t
fi
o
r
P
.
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
fi
d
n
a
t
b
e
d
m
r
e
t
-
g
n
o
l
f
o
.
s
d
r
a
d
n
a
t
S
g
n
i
t
r
o
p
e
R
l
a
i
c
n
a
n
i
F
l
a
n
o
i
t
a
n
r
e
t
n
I
.
s
o
i
l
o
f
t
r
o
p
n
o
i
s
r
e
v
e
r
)
’
V
A
N
s
s
o
r
G
‘
(
e
u
a
v
l
t
e
s
s
a
t
e
n
s
s
o
r
G
r
e
v
o
c
t
s
e
r
e
t
n
I
S
R
F
I
i
g
n
g
d
e
H
9
3
S
A
I
.
s
e
i
t
r
e
p
o
r
p
f
o
e
u
a
v
l
t
e
k
r
a
m
e
h
t
o
t
t
b
e
d
t
e
n
f
o
o
i
t
a
R
)
’
V
T
L
‘
(
l
e
u
a
v
o
t
n
a
o
L
.
s
e
v
i
t
a
v
i
r
e
d
d
n
a
t
b
e
d
m
r
e
t
-
g
n
o
l
f
o
e
u
a
v
l
t
e
k
r
a
m
e
h
t
r
o
f
d
n
a
.
l
a
t
i
p
a
c
i
s
s
o
r
g
g
n
n
e
p
o
f
o
e
g
a
t
n
e
c
r
e
p
a
s
a
l
s
e
s
u
p
r
u
s
n
o
i
t
a
u
a
v
e
r
l
l
l
a
l
s
u
p
s
t
s
o
c
g
n
i
c
n
a
n
fi
e
r
o
f
e
b
t
fi
o
r
P
y
t
i
u
q
e
l
’
s
r
e
d
o
h
e
r
a
h
s
n
o
n
r
u
t
e
R
.
d
e
t
s
e
v
n
e
r
i
s
d
n
e
d
i
v
i
d
h
t
i
w
h
t
w
o
r
g
e
c
i
r
p
e
r
a
h
s
f
o
s
i
s
a
b
n
o
s
r
e
d
o
h
e
r
a
h
s
o
t
l
l
e
b
a
t
u
b
i
r
t
t
a
n
r
u
t
e
R
)
’
R
S
T
‘
(
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
.
s
t
n
e
m
e
v
o
m
e
t
a
r
t
s
e
r
e
t
n
i
i
t
s
n
a
g
a
t
c
e
t
o
r
p
o
t
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
F
p
a
w
S
.
i
V
A
N
N
N
g
n
n
e
p
o
f
o
e
g
a
t
n
e
c
r
e
p
a
s
a
e
r
a
h
s
i
r
e
p
d
a
p
s
d
n
e
d
i
v
i
d
s
u
p
V
A
N
N
N
n
l
i
h
t
w
o
r
G
d
e
y
o
p
m
e
l
l
a
t
i
p
a
c
n
o
n
r
u
t
e
R
n
o
i
t
a
n
b
m
o
c
i
a
h
g
u
o
r
h
t
s
e
i
t
i
v
i
t
c
a
s
’
p
u
o
r
g
e
h
t
g
n
d
n
u
f
i
f
o
t
s
o
c
e
g
a
r
e
v
a
d
e
t
h
g
e
w
e
h
T
i
.
t
b
e
d
d
n
a
s
d
n
u
f
l
’
s
r
e
d
o
h
e
r
a
h
s
f
o
)
’
C
C
A
W
‘
(
l
G
o
s
s
a
r
y
o
f
t
e
r
m
s
l
a
t
i
p
a
c
f
o
t
s
o
c
e
g
a
r
e
v
a
d
e
t
h
g
e
W
i
e
u
a
v
l
t
e
k
r
a
m
t
a
d
o
s
l
s
t
e
s
s
a
f
i
l
e
u
r
c
c
a
d
u
o
w
h
c
i
h
w
s
e
i
t
i
l
i
b
a
i
l
x
a
t
j
r
o
f
d
e
t
s
u
d
a
V
A
N
s
s
o
r
G
)
’
V
A
N
N
N
‘
r
o
t
e
n
e
p
i
r
t
(
l
e
u
a
v
l
t
e
s
s
a
t
e
n
t
e
N
s
e
s
s
e
r
d
d
a
e
t
a
r
o
p
r
o
C
8
0
0
2
s
t
n
u
o
c
c
a
d
n
a
t
r
o
p
e
r
l
a
u
n
n
a
c
l
p
r
e
g
n
a
r
G
i
8
7
l
l
a
d
r
y
S
e
t
i
v
i
t
c
A
d
c
r
a
P
9
’
g
r
u
o
b
m
e
x
u
L
h
c
a
b
s
n
u
M
5
6
3
5
-
L
g
r
u
o
b
m
e
x
u
L
)
0
1
–
6
.
r
t
s
s
n
e
d
e
i
r
F
:
g
n
a
g
n
i
E
(
6
1
–
2
1
.
r
t
s
n
e
u
a
r
f
s
s
i
e
W
y
n
a
m
r
e
G
n
i
a
M
m
a
t
r
u
f
k
n
a
r
F
1
1
3
0
6
l
t
e
e
r
t
S
o
o
t
r
a
B
A
r
i
S
7
1
,
1
e
t
i
u
S
a
t
l
a
M
e
n
a
L
t
r
e
b
r
e
H
7
5
x
e
i
b
X
a
T
a
t
l
a
M
d
n
a
l
e
r
I
2
n
i
l
b
u
D
d
n
a
l
e
r
I
d
a
o
R
d
n
o
m
h
c
i
R
r
e
p
p
U
5
7
-
3
7
d
a
o
R
n
o
t
g
n
i
r
r
a
B
e
s
u
o
H
s
’
n
h
o
J
t
S
r
e
t
s
e
h
c
n
a
M
R
S
2
5
1
W
S
n
o
d
n
o
L
m
a
h
c
n
i
r
t
l
A
J
T
1
4
1
A
W
e
r
i
h
s
e
h
C
r
e
t
e
x
E
r
o
o
l
F
d
n
u
o
r
G
r
e
w
o
L
t
n
e
c
s
e
r
C
d
l
e
i
f
n
r
a
B
4
y
a
h
n
r
e
h
t
u
o
S
F
R
1
1
X
E
r
e
t
e
x
E
g
n
d
i
l
i
u
B
H
5
1
W
S
r
o
o
l
F
t
s
1
y
e
n
t
u
P
S
E
S
S
E
R
D
D
A
E
T
A
R
O
P
R
O
C
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
d
r
a
v
e
u
o
B
l
’
s
e
m
a
J
t
S
9
1
8
1
1
6
2
1
9
1
0
:
l
e
T
E
J
4
1
E
N
d
a
o
R
n
o
t
p
m
o
r
B
1
6
1
n
o
d
n
o
L
0
0
7
4
5
9
7
7
0
2
0
:
l
e
T
P
Q
1
3
W
S
n
o
d
n
o
L
e
l
t
s
a
c
w
e
N
e
t
a
g
y
t
i
C
k
r
a
P
n
o
t
s
a
b
g
d
E
d
a
o
R
l
o
t
s
i
r
B
1
5
3
e
s
u
o
H
m
l
E
m
a
h
g
n
m
i
r
i
B
m
a
h
g
n
m
i
r
i
B
W
S
7
5
B
e
r
a
u
q
S
k
c
a
r
r
a
B
a
2
4
h
t
a
e
H
m
a
h
s
e
l
t
r
a
M
h
c
i
w
s
p
I
k
l
o
f
f
u
S
F
R
3
5
P
I
.
k
u
o
c
.
c
l
p
r
e
g
n
i
a
r
g
w
w
w
.
h
c
i
w
s
p
I
Grainger plc annual report and accounts for the year ended 30 September 2008
grainger figures
ACHIEVEMENTS OF THE YEAR
At Grainger, our dedicated management and staff have
worked diligently in the very challenging conditions which
existed during the year. As a result of these efforts, we are
pleased to count the following amongst our achievements:
Operating profit up 19.1% to £106m (2007: £89m)
before valuation and goodwill movements as a result
of increased net rents and management fees
Sales from core and retirement solutions portfolios
up 15% to £168m (2007: £146m)
New bank financing raised totalling circa. £228m
Our focus on cash conservation will continue by reducing
property spend and overheads and increasing sales
Planning permission obtained for 1,550 new homes
and 100,000 sq. m. of commercial space at Newlands
Common, West Waterlooville
Successful tender offer for German residential company
Francono Rhein-Main AG for €41.4m (£32.6m) creating
critical mass in Germany
1
Grainger plc is the UK’s largest
listed residential landlord...
Financials
Independent auditors’ report to the members
of Grainger plc on the group financial statements
Consolidated financial statements
Notes to the financial statements
Independent auditors’ report to the
members of Grainger plc on the
parent company financial statements
Parent company financial statements
Notes to the parent company financial statements
Five-year record
Shareholders’ information
Advisers
Glossary of terms
Corporate addresses
2
4
9
65
67
68
73
74
75
76
78
2
Grainger plc annual report and accounts 2008
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GRAINGER PLC
ON THE GROUP FINANCIAL STATEMENTS
We have audited the group financial statements of Grainger
plc for the year ended 30 September 2008 which comprise
the consolidated income statement, the consolidated
statement of recognised income and expense, the
consolidated balance sheet, the statement of consolidated
cash flows and the related notes. These group financial
statements have been prepared under the accounting
policies set out therein.
We have reported separately on the parent company
financial statements of Grainger plc for the year ended
30 September 2008 and on the information in the report
of the remuneration committee and directors’ remuneration
report that is described as having been audited.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual
report and the group financial statements in accordance
with applicable law and International Financial Reporting
Standards (‘IFRS’) as adopted by the European Union are
set out in the statement of directors’ responsibilities.
Our responsibility is to audit the group financial statements
in accordance with relevant legal and regulatory requirements
and International Standards on Auditing (UK and Ireland).
This report, including the opinion, has been prepared for
and only for the company’s members as a body in
accordance with Section 235 of the Companies Act 1985
and for no other purpose. We do not, in giving this opinion,
accept or assume responsibility for any other purpose or
to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed
by our prior consent in writing.
We report to you our opinion as to whether the group
financial statements give a true and fair view and whether
the group financial statements have been properly prepared
in accordance with the Companies Act 1985 and Article 4
of the IAS Regulation. We also report to you whether in
our opinion the information given in the directors’ report
is consistent with the group financial statements.
The information given in the directors’ report includes that
specific information presented in the chairman’s statement
and the chief executive’s review that is cross-referenced from
the review of business development and prospects section
of the directors’ report.
In addition we report to you if, in our opinion, we have
not received all the information and explanations we
require for our audit, or if information specified by law
regarding directors’ remuneration and other transactions
is not disclosed.
We review whether the corporate governance report reflects
the company’s compliance with the nine provisions of the
Combined Code (2006) specified for our review by the
Listing Rules of the Financial Services Authority, and we report
if it does not. We are not required to consider whether the
board’s statements on internal control cover all risks and
controls, or form an opinion on the effectiveness of the
group’s corporate governance procedures or its risk and
control procedures.
We read other information contained in the annual report
and consider whether it is consistent with the audited
group financial statements. The other information comprises
only the chairman’s statement, the chief executive’s review,
the financial review, the corporate governance report, the
directors’ report, the corporate responsibility report and
the unaudited part of the report of the remuneration
committee and directors’ remuneration report and the
other items listed on both contents pages. We consider
the implications for our report if we become aware of any
apparent misstatements or material inconsistencies with
the group financial statements. Our responsibilities do
not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination,
on a test basis, of evidence relevant to the amounts and
disclosures in the group financial statements. It also includes
an assessment of the significant estimates and judgements
made by the directors in the preparation of the group
financial statements, and of whether the accounting policies
are appropriate to the group’s circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the
information and explanations which we considered necessary
in order to provide us with sufficient evidence to give
reasonable assurance that the group financial statements
are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion
we also evaluated the overall adequacy of the presentation
of information in the group financial statements.
Opinion
In our opinion:
(cid:129) the group financial statements give a true and fair view,
in accordance with IFRS as adopted by the European
Union, of the state of the group’s affairs as at
30 September 2008 and of its loss and cash flows
for the year then ended;
(cid:129) the group financial statements have been properly
prepared in accordance with the Companies Act 1985
and Article 4 of the IAS Regulation; and
(cid:129) the information given in the directors’ report is consistent
with the group financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
16 December 2008
Note
The maintenance and integrity of the Grainger plc website is the
responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially
presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
3
I
n
d
e
p
e
n
d
e
n
t
a
u
d
i
t
o
r
s
’
r
e
p
o
r
t
t
o
t
h
e
m
e
m
b
e
r
s
o
f
i
G
r
a
n
g
e
r
p
l
c
o
n
t
h
e
g
r
o
u
p
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
4
Grainger plc annual report and accounts 2008
CONSOLIDATED INCOME STATEMENT
For the year ended 30 September 2008
Notes
Group revenue
Net rental income
Profit on disposal of trading properties
Administrative expenses
Other income
Goodwill impairment
Profit on disposal of investment property
Profit on disposal of shares in subsidiary
Interest income from financial interest in property assets
Write down of inventories to net realisable value
Operating profit before net valuation (deficits)/gains on investment properties
Net valuation (deficits)/gains on investment properties
Operating profit after net valuation (deficits)/gains on investment properties
Change in fair value of derivatives
Interest expense
Interest income
Share of (loss)/profit of associates after tax
Share of (loss)/profit of joint ventures after tax
(Loss)/profit before tax
Taxation – current
Taxation – deferred
Tax credit/(charge) for the year
(Loss)/profit for the year
Attributable to:
Equity holders of the company
Minority interest
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
Dividend per share
All of the above results relate to continuing operations.
5
6
8
9
23
7
10
21
17
26
13
13
19
20
12
14
16
16
15
2008
£m
246.2
37.7
62.6
(6.2)
9.2
(9.6)
0.6
3.5
(0.9)
(12.3)
84.6
(43.1)
41.5
(11.5)
(96.1)
7.1
(14.0)
(39.1)
(112.1)
(5.7)
40.4
34.7
(77.4)
(77.4)
–
(77.4)
(61.0)p
(61.0)p
6.18p
2007
£m
229.3
23.2
62.8
(9.5)
6.2
–
2.5
2.0
1.8
–
89.0
9.9
98.9
3.0
(74.4)
9.4
7.7
32.9
77.5
(16.6)
–
(16.6)
60.9
61.0
(0.1)
60.9
47.3p
46.6p
6.18p
5
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
For the year ended 30 September 2008
(Loss)/profit for the year
Actuarial profit on BPT Limited defined benefit
pension scheme net of tax
Net exchange adjustments offset in reserves
net of tax
Changes in fair value of cash flow hedges
net of tax
Net (expense)/income recognised directly in equity
Total recognised income and expense for the year
Prior year adjustment – reclassification of equity
release assets
Total recognised income and expense since last report
The total recognised income and expense in the year
is attributable to:
Equity shareholders of the parent
Minority interest
Notes
2008
£m
£m
(77.4)
2007
£m
£m
60.9
29
34
26
0.3
0.8
(2.8)
1.5
0.3
9.0
(1.7)
(79.1)
–
(79.1)
(79.1)
–
(79.1)
10.8
71.7
(0.5)
71.2
71.8
(0.1)
71.7
C
o
n
s
o
l
i
d
a
t
e
d
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
6
Grainger plc annual report and accounts 2008
CONSOLIDATED BALANCE SHEET
As at 30 September 2008
ASSETS
Non-current assets
Investment property
Property, plant and equipment
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Current assets
Inventories – trading properties
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Retirement benefits
Provisions for other liabilities and charges
Deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Current tax liabilities
Derivative financial instruments
Total liabilities
Net assets
Notes
2008
£m
2007
£m
17
18
19
20
21
23
24
25
26
27
27
28
29
28
14, 30
27
31
14
26
619.3
2.3
51.6
90.8
121.2
8.0
893.2
478.6
2.3
68.5
114.8
131.7
17.4
813.3
1,142.2
1,069.1
23.0
11.9
43.2
16.4
13.1
80.1
1,220.3
2,113.5
1,178.7
1,992.0
1,635.4
1,393.8
4.0
2.1
1.0
78.4
8.0
2.7
1.2
113.5
1,720.9
1,519.2
17.9
80.1
51.4
13.4
18.2
84.9
45.8
0.8
162.8
149.7
1,883.7
1,668.9
229.8
323.1
As at 30 September 2008
EQUITY
Capital and reserves attributable to the company’s equity holders
Issued share capital
Share premium
Merger reserve
Capital redemption reserve
Cash flow hedge reserve
Equity component of convertible bond
Retained earnings
Total shareholders’ equity
Equity minority interests
Total equity
Notes
2008
£m
2007
£m
32, 34
34
34
34
34
34
34
34
6.4
23.1
20.1
0.3
5.4
22.4
152.0
229.7
0.1
229.8
6.4
23.0
20.1
0.3
8.2
22.4
242.6
323.0
0.1
323.1
The financial statements on pages 4 to 64 were approved by the board of directors on 16 December 2008 and were signed
on their behalf by:
Rupert Dickinson
Director
Andrew Cunningham
Director
7
C
o
n
s
o
l
i
d
a
t
e
d
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
8
Grainger plc annual report and accounts 2008
STATEMENT OF CONSOLIDATED CASH FLOWS
For the year ended 30 September 2008
Cash flow from operating activities
(Loss)/profit for the year
Depreciation
Impairment of goodwill
Net valuation deficits/(gains) on investment properties
Gain on acquisition of subsidiary
Net finance costs
Share of loss/(profit) of associates and joint ventures
Profit on disposal of investment property
Profit on disposal of shares in subsidiary
Share-based payment charge
Change in fair value of derivatives
Interest income from financial interest in property assets
Taxation
Operating profit before changes in working capital
Decrease/(increase) in trade and other receivables
Decrease in trade and other payables
Increase in trading properties
Cash generated from operations
Interest paid
Taxation paid
Net cash outflow from operating activities
Cash flow from investing activities
Proceeds from sale of investment property
Proceeds from financial interest in property assets
Disposal of subsidiary net of cash disposed of
Interest received
Dividends/distributions received
Acquisition of subsidiaries, net of cash acquired
Investment in associates and joint ventures
Acquisition of investment property and property, plant and equipment
Acquisition of financial interest in property assets
Acquisition of minority interests
Net cash outflow from investing activities
Cash flows from financing activities
Proceeds from the issue of share capital
Purchase of own shares including treasury shares
Proceeds from new borrowings
Issue of convertible bond net of costs
Repayment of borrowings
Dividends paid
Purchase of financial derivative
Net cash inflow from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Net exchange movements on cash and cash equivalents
Cash and cash equivalents at end of year
Notes
18
23
17
13
19, 20
7
10
33
26
21
14
14
7
19, 20
41
21
34
34
15
27
27
2008
£m
(77.4)
0.8
9.6
43.1
(0.5)
89.0
53.1
(0.6)
(3.5)
0.5
11.5
0.9
(34.7)
91.8
2.9
(0.3)
(79.4)
15.0
(92.4)
(0.2)
(77.6)
7.4
9.5
3.7
3.8
2.5
(29.1)
(11.0)
(51.9)
–
(6.7)
(71.8)
0.1
(1.0)
131.4
–
(11.0)
(8.1)
–
111.4
(38.0)
80.1
1.1
43.2
2007
£m
60.9
0.6
–
(9.9)
–
65.0
(40.6)
(2.5)
(2.0)
1.0
(3.0)
(1.8)
16.6
84.3
(12.1)
(1.9)
(65.1)
5.2
(66.1)
(8.5)
(69.4)
14.8
4.9
251.0
4.7
8.0
(146.5)
(93.3)
(100.9)
(134.7)
–
(192.0)
0.5
(14.8)
227.2
109.6
(12.1)
(7.6)
(0.3)
302.5
41.1
39.0
–
80.1
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies
a) Basis of preparation
Grainger plc is a company incorporated and domiciled in
the UK. It is a public limited liability company listed on the
London Stock Exchange and the address of the registered
office is given on page 74. The group financial statements
consolidate those of the company and its subsidiaries,
together referred to as the ‘group’, and equity account the
group’s interest in joint ventures and associates. The parent
company financial statements present information about
the company and not about its group.
The group financial statements have been prepared in
accordance with EU endorsed International Financial
Reporting Standards (‘IFRS’), IFRIC interpretations and those
parts of the Companies Act 1985 applicable to companies
reporting under IFRS. The company has elected to prepare
its company financial statements in accordance with UK
GAAP. These are presented on pages 67 to 72.
The accounting policies set out below have, unless
otherwise stated, been applied consistently to all periods
presented in the group financial statements.
The group financial statements have been prepared under
the historical cost convention except for the following assets
and liabilities which are stated at their fair value; investment
property, derivative financial instruments and financial
interest in property assets.
The preparation of financial statements in conformity with
IFRS requires management to make judgements, estimates
and assumptions that affect the application of accounting
policies and the reported amounts of assets and liabilities,
income and expenses. Although these estimates are based
on management’s best knowledge of the events and
amounts involved, actual results ultimately may differ from
those estimates. The areas involving a higher degree of
judgement or complexity, or areas where assumptions
and estimates are significant to the consolidated financial
statements are disclosed in note 2.
b) Basis of consolidation
i Subsidiaries
Subsidiaries are all entities (including special purposes
entities) over which the group has the power to govern the
financial and operating policies generally accompanying a
shareholding of more than one half of the voting rights.
The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when
assessing whether the group controls another entity.
Subsidiaries are fully consolidated from the date on which
control is transferred to the group. They are de-consolidated
from the date control ceases.
Inter-company transactions, balances and unrealised gains
on transactions between group companies are eliminated.
Accounting policies of subsidiaries have been changed
where necessary to ensure consistency with the policies
adopted by the group.
ii Goodwill and impairment
The purchase method of accounting is used to account for
the acquisition of subsidiaries by the group. The cost of the
acquisition is measured as the fair value of the assets given,
equity instruments issued plus costs directly attributable
to the acquisition. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination
are measured initially at their fair values at the date of
acquisition. Goodwill represents the excess of the cost of
an acquisition over the fair value of the group’s share of net
identifiable assets including intangible assets of the acquired
entity at the date of acquisition. If the cost of the acquisition
is less than the fair value of the net assets of the subsidiary
acquired, the difference is recognised directly in the
income statement.
Goodwill on acquisition of subsidiaries is included in
intangible assets. Goodwill on acquisition of joint ventures
and associates is included in investments in joint ventures
and associates.
9
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
10
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies continued
Goodwill is allocated to cash-generating units for the
purpose of impairment testing and is tested annually for
impairment and carried at cost less accumulated impairment
losses. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
iii Joint ventures and associates
Joint ventures are those entities over whose activities
the group has joint control, established by contractual
agreement. Associates are all entities over which the
group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50%
of the voting rights.
Investments in joint ventures and associates are accounted
for by the equity method of accounting and are initially
recognised at cost. The group’s investment in joint ventures
and associates includes goodwill (net of any accumulated
impairment loss) identified on acquisition.
The group’s share of its joint ventures’ and associates’
post-acquisition profits or losses is recognised in the income
statement, and its share of post-acquisition movements
in reserves is recognised in reserves. The cumulative post-
acquisition movements are adjusted against the carrying
amount of the investment.
Unrealised gains on transactions between the group and its
joint ventures and associates are eliminated to the extent
of the group’s interest in joint ventures and associates. The
accounting policies of joint ventures and associates have
been changed where necessary to ensure consistency with
the policies adopted by the group.
iv Transactions with minority interests
The group applies a policy of treating transactions with
minority interests as transactions with parties external to the
group. Disposals to minority interests result in gains or losses
for the group that are recorded in the income statement.
On acquisition of minority interests, where the consideration
paid exceeds the relevant share acquired of the carrying
value of net assets of the subsidiary the difference is
recorded in equity as a deduction from retained earnings.
c) Segmental reporting
The group’s risks and rates of return are affected
predominantly by differences between the property asset
types it owns and manages. A business segment is a
distinguishable group of assets and operations, reflected
in the way that the group manages its business, that is
subject to risks and returns that are different from those
of other business segments.
The group has identified six such segments as follows:
(cid:129) Core portfolio;
(cid:129) Retirement solutions;
(cid:129) Fund management/ residential investments;
(cid:129) Development;
(cid:129) European tenanted residential; and
(cid:129) European Development.
All of the above segments are UK based except European
tenanted residential which has its assets and tenants based
in Germany and European development which has its assets
based in the Czech Republic. More detail is given relating to
each of the above segments, and their geographical split in
the chief executive’s review on pages 10 to 17 of the review
section of this document and in note 4.
d) Foreign currency translation
i Functional and presentation currency
Items included in the financial statements of each of the
group’s entities are measured using the currency of the
primary economic environment in which the entity operates
(‘the functional currency’). The consolidated financial
statements are presented in pounds sterling, which is
the group’s functional and presentation currency.
ii Foreign currency transactions
Foreign currency transactions are translated at the foreign
exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated into
sterling at the foreign exchange rate ruling at that date.
Foreign exchange gains and losses resulting from the
settlement of such transactions are recognised in the
income statement.
11
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
1 Accounting policies continued
iii Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated to sterling at foreign exchange rates ruling at
the balance sheet date. Revenues and expenses of foreign
operations are translated at average foreign exchange rates
for the relevant period.
Exchange differences arising from the translation of the net
investment in foreign operations are taken to the translation
reserve.
e) Investment property
Property that is held for long-term rental yields or for capital
appreciation or both, and that is not occupied by the
companies in the consolidated group, is classified as
investment property.
Investment property is measured initially at its cost, including
related transaction costs.
After initial recognition, investment property is carried at fair
value. Fair value is based on active market prices, adjusted,
if necessary, for any difference in the nature, location or
condition of the specified asset. If this information is not
available, the group uses alternative valuation methods such
as recent prices on less active markets or discounted cash
flow projections.
Subsequent expenditure is included in the carrying amount
of the property when it is probable that future economic
benefits associated with the item will flow to the group
and the cost of the item can be measured reliably. All
other repairs and maintenance costs are charged to the
income statement during the financial period in which
they are incurred.
Gains or losses arising from changes in the fair value of the
group’s investment properties are included in the income
statement of the period in which they arise.
f) Property, plant and equipment
Property, plant and equipment is stated at historical cost
less subsequent depreciation and impairment. Cost includes
expenditure that is directly attributable to the acquisition
of the items.
Subsequent costs are included in the assets’ carrying amount
or recognised as a separate asset, as appropriate, only when
it is probable that the future economic benefits associated
with the item will flow to the group and the cost of the item
can be measured reliably. All other repairs and maintenance
costs are charged to the income statement during the
financial period in which they are incurred.
Land is not depreciated. Depreciation on property, plant and
equipment is calculated using the straight-line method to
allocate their cost less residual values over their estimated
useful lives, as follows:
Land
Fixtures, fittings and equipment
Nil
Five years
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.
g) Financial interest in property assets
Financial interest in property assets is initially recognised at
fair value plus transaction costs and subsequently carried at
fair value. Subsequent to initial recognition, the net change
in value is recorded through the income statement as
follows: i) the carrying value of the asset is increased by the
effective interest rate and ii) the carrying value of the asset
is revised to the net present value of the revised cash flows
arising from the instrument using the effective interest rate
applicable at acquisition. The change in value recorded
through the income statement is shown on the line ‘interest
income from financial interest in property assets’.
Differences between the revised cash flows using the
effective interest rate applicable at acquisition compared
to revised cash flows using a year end effective interest
rate, assessed as the rate available in the market for an
instrument with a similar maturity and credit risk, are taken
through equity. When gains or losses in the assets are
realised, the accumulated fair value adjustments recognised
in equity are included in the income statement as gains
and losses from financial interest in property assets.
h) Inventories – trading properties
Tenanted residential properties held for sale in the normal
course of business are shown in the financial statements at
the lower of cost and net realisable value. Cost includes legal
and surveying charges incurred during acquisition together
with improvement costs. Net realisable value is the net sale
proceeds which the group expects on sale of a property with
vacant possession.
12
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies continued
Land and property held within the development segment
of the business, including house-building sites, are shown
in the financial statements at the lower of cost and net
realisable value. Cost represents the acquisition price
including legal and other professional costs associated
with the acquisition together with subsequent development
costs net of amounts transferred to costs of sale. Net
realisable value is the expected net sales proceeds of the
developed property.
Where residential properties are sold tenanted or where
land is sold without development, net realisable value is
the current market value net of associated selling costs.
i) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits
held at call with banks, other short-term highly liquid
investments with original maturities of three months
or less, and bank overdrafts.
j) Income tax
Income tax on the profits or losses for the periods presented
comprises both current and deferred tax. Current tax is the
expected tax payable on the taxable income for the year
using rates applicable at the balance sheet date. Tax payable
upon the realisation of revaluation gains recognised in prior
periods is recorded as a current tax charge with a release of
the associated deferred taxation.
Deferred income tax is provided using the balance sheet
liability method. Provision is made for temporary differences
between the carrying value of assets and liabilities in the
consolidated financial statements and the values used for
tax purposes. Deferred income tax is calculated after taking
account of any indexation allowances and capital losses. The
amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount
of assets and liabilities and is calculated using rates enacted
or substantially enacted at the balance sheet date in the tax
jurisdiction in which the temporary differences arise.
Deferred income tax assets are recognised only to the extent
that it is probable that future taxable profits will be available
against which the assets can be used. The deferred income
tax assets and liabilities are only offset if there is a legally
enforceable right of set off.
k) Employee benefits
i Defined contribution pension scheme
Obligations for contributions to defined contribution
pension schemes are recognised as an expense in the
income statement in the period to which they relate.
ii Defined benefit pension scheme
The group currently contributes to a defined benefit pension
scheme that was closed to new members and employee
contributions in 2003. The full deficit in the scheme was
recognised in the balance sheet as at 1 October 2004.
An actuarial valuation of the scheme is carried out every
three years. However, the valuation is updated annually
by a qualified actuary for the purpose of determining the
amounts to be reflected in the group’s financial statements
under IAS 19.
The liability recognised in the balance sheet is the present
value of the defined benefit obligation at the balance sheet
date less the fair value of scheme assets.
There are no current or past service costs as the scheme
is closed to new members and employee contributions.
Interest on pension scheme liabilities and the expected
return on pension scheme assets will be reflected in the
income statement each year. Actuarial gains and losses will
be reflected in the consolidated statement of recognised
income and expense each year.
iii Share-based compensation
The group operates a number of equity-settled, share-based
compensation plans comprising awards under a long-term
incentive scheme (‘LTIS’) and a save as you earn (‘SAYE’)
scheme. The fair value of the employee services received in
exchange for the grant of shares and options is recognised
as an employee expense. The total amount to be expensed
over the vesting period is determined by reference to the
fair value of the shares and options granted, excluding the
impact of any non-market vesting conditions. Non-market
vesting conditions are included in assumptions about the
number of options that are expected to vest. At each
balance sheet date, the group revises its estimates of the
number of options that are expected to vest. It recognises
the impact of the revision to original estimates, if any, in the
income statement with a corresponding adjustment to equity.
13
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
1 Accounting policies continued
Awards that are subject to a market-based performance
condition are valued at fair value using the Monte Carlo
simulation model. Awards not subject to a market-based
performance condition are valued at fair value using the
Black Scholes valuation model.
When options are exercised the proceeds received net of any
directly attributable transaction costs, are credited to share
capital (nominal value) and share premium.
l) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and is stated net of sales taxes and
value added taxes. Revenue is recognised as follows:
i Rental and similar income
Rental income from operating leases is recognised on a
straight-line basis over the lease term on an accruals basis.
ii Service charge and management fee income
Service charge and management fee income is recognised
in the accounting period in which the services are rendered.
Other income is accounted for as follows:
Income from property trading
i
Profits or losses arising from the sale of trading and
investment property are included in the income statement
where contract completion has taken place and are
calculated by reference to their carrying value and are
included in operating profit.
ii Income from investments
Dividend income from investments is recognised when
the shareholders’ rights to receive payment have been
established.
m) Leases
i Group as lessor
The net present value of ground rents receivable is, in the
opinion of the directors, immaterial. Accordingly, ground
rents receivable are taken to the income statement on a
straight-line basis over the period of the lease. Properties
leased out to tenants are included in the balance sheet as
either investment property or as trading property under
inventories.
Where the group grants a lifetime lease on an investment
property and receives from the lessee an upfront payment
in respect of the grant of the lease, the upfront payment is
treated as deferred rent in the balance sheet. This deferred
rent is released to the income statement on a straight-line
basis over the projected term of the lease. At each year end
the projected term of the lease is revised on an actuarial
basis and the remaining deferred rent is released to the
income statement on a straight-line basis over this revised
lease term.
ii Group as lessee
The group occupies a number of its offices as a lessee.
After a review of all of its occupational leases, the directors
have concluded that all such leases are operating leases.
Payments, including prepayments, made under operating
leases (net of any incentives received from the lessor) are
charged to the income statement on a straight-line basis
over the period the lease.
The net present value of ground rents payable is, in the
opinion of the directors, immaterial. Accordingly, ground
rent expenses are taken to the income statement on a
straight-line basis over the lease term.
n) Financial instruments
Derivatives
The group uses derivative instruments to help manage its
interest rate risk. In accordance with its treasury policy, the
group does not hold or issue derivatives for trading purposes.
The derivatives are recognised initially at fair value.
Subsequently, the gain or loss on remeasurement to fair
value is recognised immediately in the income statement,
unless the derivatives qualify for cash flow hedge accounting
in which case any gain or loss is taken to equity in a cash
flow hedge reserve.
In order to qualify for hedge accounting, the group is
required to document in advance the relationship between
the item being hedged and the hedging instrument. The
group is also required to demonstrate that the hedge will
be highly effective on an ongoing basis. This effectiveness
testing is reperformed at each period end to ensure that
the hedge remains highly effective.
14
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
1 Accounting policies continued
When a hedging instrument expires or is sold, or when a
hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time
remains in equity and is recognised when the forecasted
transaction is ultimately recognised in the income statement.
When a forecasted transaction is no longer expected to
occur, the cumulative gain or loss that was recognised in
equity is immediately transferred to the income statement.
Fair value estimation
The fair value of interest rate swaps is based on a discounted
cash flow model using quoted market information.
Derecognition of financial assets and liabilities
Derecognition is the point at which the group removes an
asset or a liability from its balance sheet. The group’s policy
is to derecognise financial assets only when the contractual
right to the cash flows from the financial asset expires.
The group also derecognises financial assets that it transfers
to another party provided the transfer of the assets also
transfers the right to receive cash flows from the financial
asset. When the transfer does not result in the group
transferring the right to receive cash flows from the
financial asset but it does result in the group assuming
a corresponding obligation to pay cash flows to another
recipient, the financial asset is derecognised.
The group derecognises financial liabilities only when
its obligation is discharged, is cancelled or expires.
o) At fair value through profit or loss financial assets
At fair value through profit or loss financial assets are
included in the balance sheet at fair value with changes in
fair value taken through the income statement. At fair value
through profit or loss financial assets are managed, and their
performance is evaluated, on a fair value basis in accordance
with the group’s documented investment policy.
p) Borrowings
Borrowings are initially recognised at cost, being the fair
value of consideration received, net of transaction costs
incurred. Borrowings are subsequently stated at amortised
cost. Any difference between the proceeds (net of
transaction costs) and the redemption value is recognised
in the income statement over the period of the borrowings
using the effective interest method.
Borrowings are classified as current liabilities unless the
group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
q) Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision
for impairment in trade receivables is established when
there is objective evidence that the group will not be able
to collect all amounts due. The amount of the provision is
the difference between the asset’s carrying amount and the
present value of estimated future cash flows, discounted at
the effective interest rate. The movement in the provision
is recognised in the income statement.
r) Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
s) Provisions
Provisions are recognised when a) the group has a present
obligation as a result of a past event and b) it is probable
that an outflow of resources will be required to settle the
obligation and c) a reliable estimate can be made of the
amount of the obligation.
t) Dividends
Dividend distributions to the company’s shareholders are
recognised as a liability in the group financial statements
in the period in which the dividends either are approved by
the company’s shareholders or are appropriately authorised
and no longer at the discretion of the group.
u) Assets held for sale
Where a group of assets are to be disposed of by sale
together or as a single group, they are classified as a disposal
group. The disposal group is classified as held for sale as
defined by IFRS 5 when they are available for sale in their
present condition and the sale is highly probable and
expected to be completed within one year from the date
of classification.
15
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
1 Accounting policies continued
v) Acquisition of and investment in own shares
The group acquires its own shares to enable it to meet its
obligations under the LTIS. No gain or loss is recognised in
profit or loss on the purchase, sale, issue or cancellation of
the company’s own shares. The acquisition cost of the shares
is debited to an investment in own shares reserve within
retained earnings. When shares are issued to employees
under the LTIS, a transfer is made at the average cost of the
shares issued between the investment in own shares reserve
and the share-based payments reserve all within retained
earnings (see note 34).
Where the group buys back its own shares as treasury
shares it adopts the accounting as described above. Where
it subsequently cancels them, issued share capital is reduced
by the nominal value of the shares cancelled and this same
amount is transferred to the capital redemption reserve.
w) Impact of standards and interpretations in issue
but not yet effective
At the date of authorisation of these financial statements
there are a number of standards, amendments and
interpretations to existing standards that have been
published but which are not yet effective and which have
not been early adopted by the group. These are as follows:
(cid:129) IFRS 8 ‘Operating Segments’ (effective from 1 January
2009). IFRS 8 amends the current segmental reporting
requirements of IAS 14 and aligns segment reporting
with the requirements of the US standard SFAS 131.
It requires a ‘management approach’ to be adopted
so that segment information is presented on the same
basis as that used for internal reporting purposes. This
standard will apply to the group from 1 October 2009
and is expected to impact upon the group by requiring
additional disclosures in the annual financial statements;
(cid:129) Amendment to IAS 23 ‘Borrowing Costs’ (effective from
1 January 2009). This amendment requires an entity to
capitalise borrowing costs directly attributable to the
acquisition, construction or production of a qualifying
asset as part of the cost of the asset. A qualifying asset is
one that takes a substantial period of time to get ready
for use or sale. The option of immediately expensing
these borrowing costs is removed. This amendment will
apply to the group from 1 October 2009 and its impact
is currently being assessed;
(cid:129) Amendments to IFRS 3 ‘Business Combinations’ (effective
from I July 2009) and IAS 27 ‘Consolidated and Separate
Financial Statements’ (effective from 1 January 2009).
The amendment to both of these standards is still subject
to endorsement by the European Union. Some of the
key changes are: i) the requirement to measure all
consideration at fair value at acquisition date, with any
subsequent changes (e.g. contingent consideration)
remeasured at fair value through income; ii) the expensing
of all transaction costs; and iii) stepped acquisitions to be
accounted for as a disposal of existing interests and an
acquisition of an enlarged interest, giving rise to potential
profits or losses on disposal of the existing interest; and
(cid:129) IFRIC 14 ‘IAS 19 – The limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction’.
IFRIC 14 provides guidance on assessing the limit in IAS
19 on the amount of the surplus that can be recognised
as an asset. It also explains how the pension asset or
liability may be affected by a statutory or contractual
minimum funding requirement. The group will apply
IFRIC 14 from 1 October 2008 but it is not expected
to have any impact on the group’s accounts.
The following interpretations to existing standards have
been published and are mandatory for the group’s
accounting periods beginning on or after 1 January 2008
or later periods but are not expected to have any material
impact on the financial statements of the group:
(cid:129) IFRIC 12 ‘Service Concession Arrangements’. IFRIC 12
applies to contractual arrangements whereby a private
sector operator participates in the development,
financing, operation and maintenance of infrastructure
for public sector services. IFRIC 12 is not relevant to the
group’s operations as the group does not provide public
sector services; and
(cid:129) IFRIC 13 ‘Customer Loyalty Programmes’. IFRIC 13 clarifies
that where goods or services are sold together with a
customer loyalty incentive, the arrangement is a multiple-
element arrangement and the consideration receivable
from the customer is allocated between the components
of the arrangement using fair values. IFRIC 13 is not
relevant to the group’s operations because none of the
group companies operate any loyalty programmes.
16
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
2 Critical accounting estimates and assumptions
The group’s significant accounting policies are stated in
note 1 above. Not all of these accounting policies require
management to make subjective or complex judgements or
estimates. The following is intended to provide further detail
relating to those accounting policies that management
consider critical because of the level of complexity,
judgement or estimation involved in their application and
their impact on the consolidated financial statements.
Investment property valuations
The group, after review by the directors, used the valuations
performed by its own in-house qualified surveying team
to value its own UK-based residential investment property
as at 30 September 2008. A structured sample of our in-
house valuations was checked by Allsop LLP, an external
independent valuer. Allsop LLP has provided the directors
with the following opinion on the valuation of the group’s
UK investment property, “Investment property held in the
core residential and retirement solutions portfolios with a
value of £203.2m was valued as at 30 September 2008
by Grainger’s in-house surveyors. These valuations were
reviewed and approved by the directors. Allsop LLP has
undertaken a comprehensive review of the director’s
valuation and they are satisfied with the process by
which the in-house valuations were conducted. As part
of the review, Allsop LLP valued approximately 50% of the
core residential portfolio and approximately 33% of the
retirement solutions portfolio, independently of the group.
In view of the low volumes of recent market transactional
evidence and the guidance to valuers under GN5 of the
RICS Valuation Standards, Allsop LLP has stated to the
directors that valuations of some individual dwellings may
be subject to a higher than normal level of uncertainty.
However, when taken in aggregate, and reported as such,
Allsop LLP has concluded that the large sample size assists
in the smoothing out of individual differences in value with
the result that they have a high degree of confidence in the
totals reported by the directors in the core and retirement
solutions portfolios.”
The net deficit on valuation of the core and retirement
solutions portfolios as at 30 September 2008 was £34.5m
and this has been taken through the income statement.
Investment property in the Germany portfolio with a value
of €354.6m (£279.6m) has been valued by an external
independent valuer, Cushman & Wakefield LLP as at
30 September 2008. Investment property with a value as
at 30 September 2008 of £133.9m is held by FRM AG, a
company acquired by the group on 4 April 2008. The last
external valuation of the FRM portfolio was carried out as
at 31 December 2007. However, the value of the portfolio
has been reviewed by the directors as at 30 September
2008 and, in their opinion, the fair value was not materially
different from the book value. Property assets with a fair
value as at 30 September 2008 of £2.6m were valued by
the directors.
The net deficit on valuation of investment property in the
Germany portfolio as at 30 September 2008 was £8.6m
and this has been taken through the income statement.
Whilst in the UK valuers rely predominantly on recent
transactional evidence for similar properties to value
investment property, in Germany investment property
is valued using an income capitalisation approach under
which net rental income is discounted to a net present
value. Both methodologies are permitted under IAS 40.
The group also has investments in joint ventures and
associates which include investment property. Investment
property held in Grainger GenInvest LLP and Grainger
GenInvest No.2 (2006) LLP, in both of which Grainger has a
50% share, were valued by an external valuer, Martin Angel
FRICS, of Allsop LLP. He has provided the directors of those
entities with the following opinion. “The valuations of the
portfolios were made in accordance with the requirements of
the RICS Valuation Standards sixth edition and International
Valuation Standards. The valuation of each portfolio was on
the basis of market value, subject to the assumption that
the properties would be sold individually, in their existing
condition, and subject to any existing leases or tenancies.
In aggregate, across both entities, the valuation of the
investment property was £283.2m. Allsop LLP is satisfied
that, in respect of this valuation market value is the same as
fair value. The valuers opinion of market value was primarily
derived using comparable recent market transactions on
arm’s length terms.
17
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
2 Critical accounting estimates and assumptions continued
However, although there has been reasonable activity in
the market for properties subject to Regulated Tenancies,
there have been lower than usual volumes of recent market
transactional evidence, in particular for vacant properties
and properties subject to Assured Shorthold Tenancies. In
line with the guidance to valuers under GN5 of the RICS
Valuation Standards, Allsop LLP has stated to the directors
that valuations of some individual dwellings may be subject
to a lower level of confidence than is normal. However,
when taken in aggregate, and reported as such, Allsop LLP
has concluded that individual differences in value are likely
to be smoothed out across the whole portfolio and would
not materially affect our valuation”.
The group has a 21.63% interest in G:res which has invested
in investment property. Valuations of 100% of the G:res
portfolio were carried out jointly as at 31 December 2007
and 30 June 2008 by external valuers, Allsop LLP and DTZ
Debenham Tie Leung Limited. Within the valuations, blocks
of flats have been valued on a block basis rather than as
individual properties. As the current intention of G:res is to
dispose of flats individually, valuation on an individual property
basis is more in accordance with the requirements of IAS 40.
Grainger has therefore estimated the uplift in value
appropriate to a valuation on an individual property basis
rather than a block basis for flats and has also made
an assessment of the further downward movement in the
market between 1 July and 30 September. It has concluded
that its share of the net effect of these two adjustments
is not material to the group accounts and therefore no
adjustment has been made to the G:res valuation as at
30 June 2008.
The group has a 23.6% share in Schroders Residential
Property Unit Trust (ResPUT). Investment property in this
Fund was valued by Allsop LLP as at 30 September 2008.
Net realisable value of trading property
The group’s residential trading properties are carried in the
balance sheet at the lower of cost and net realisable value.
In assessing net realisable value the group uses valuations
carried out by its own in-house qualified surveying team.
A structured sample of our in-house valuations was checked
by Allsop LLP, an external independent valuer. Allsop LLP
has provided the directors with the same opinion on the
valuation of the group’s UK trading property as they gave
on the group’s UK investment property (see above).
Valuing the large number of properties in our portfolio is
a significant task and for this reason is undertaken on an
external inspection basis only. Invariably, when our in-house
valuations are compared to those of the external valuer,
over 95% of the valuations are within a small acceptable
tolerance. Where the difference is more significant we
discuss this with the valuer to determine the reasons for
the difference. Typically the reasons vary but it could be, for
example, that further or better information about internal
condition is available or that respective valuers have placed
a different interpretation on comparable sales. Once such
reasons have been identified we and the valuer agree the
appropriate valuation that should be adopted.
As the group’s business model is to sell trading stock on
vacancy, net realisable value is the net sales proceeds which
the group expects on sale of a property with vacant
possession. A net realisable value provision of £2.7m has
been made at 30 September 2008 to write down properties
expected to be sold ultimately at vacant possession value.
For properties expected to be held beyond the immediate
future, this provision allows for some further decline in
property prices but assumes that house prices will increase
on average by 4% per annum over the 10-year period from
1 October 2007 to 30 September 2017. This is based on
our review of various independent statistics which show
that since 1979 the rolling 10-year average for house price
inflation has not fallen below 4%. The group does sell some
property as investment sales which is where the property
is sold with the tenant still in situ. A net realisable value
provision of £0.4m has been made at 30 September 2008
against projected investment sales.
Land and property held within the development segment
of the business, including house-building sites, are shown
in the financial statements at the lower of cost and net
realisable value. Net realisable value is the expected net sales
proceeds of the developed property and a provision is made
when, and to the extent that, total projected project costs
exceed total projected project revenues.
Where land is sold without development, net realisable value
is the current market value net of associated selling costs.
Decisions regarding whether to develop a site or to sell a site
undeveloped are made by the directors based on market
conditions prevailing at the time. The assumptions adopted
as at 30 September 2008 are based upon the current
18
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
2 Critical accounting estimates and assumptions continued
intentions of the directors. In addition, estimates at
30 September 2008 of project profitability are based on
assumptions regarding projected build costs and sales
proceeds for those sites where development is expected to
occur. In some cases these projections are made without the
benefit of planning permission having been agreed. The
assumptions made may or may not be borne out in practice.
It is possible therefore that the net realisable value provision
required should be more than or less than that made.
A charge of £9.2m has been made to the 2008 income
statement to reduce the book value of development stock
to net realisable value.
Income taxes
There are some transactions and calculations that involve
a degree of estimation and judgement and whose tax
treatment cannot be determined until a formal resolution
has been reached with the relevant tax authorities. In such
cases, the group’s policy is to be prudent in its assessment of
the tax benefit that may accrue in line with the contingent
asset rules set out in IAS 37. Where the final outcome of
these matters is different from the amounts initially
recorded, such differences will impact on the income and
deferred tax amounts reflected in subsequent accounting
periods (see note 14).
Valuation of financial interest in property assets
Goodwill impairment
The valuation is based on an assessment of the future cash
flows that will arise from our financial interest and on the
effective interest rate used to discount those cash flows.
The valuation methodology adopted is set out in note 1(g)
above. The key assumptions affecting the carrying value
are house price inflation and the effective interest rate.
The assumptions adopted with regard to house prices are
the same as those set out under ‘net realisable value of
trading properties’ above. A change of 1% to average
house price inflation over the 10-year period from 1 October
2007 to 30 September 2017 would either increase the
valuation by £5.3m or reduce the valuation by £4.9m.
We have considered the effective interest rate to adopt
for valuation of our interest as at 30 September 2008. We
have concluded that the effective interest rate on original
recognition of the asset should also be used in the valuation
as at 30 September 2008. A 1% change to the discount
rate would either increase the carrying value by £9.7m or
reduce the carrying value by £8.5m.
Distinction between investment and trading property
The group considers the intention at the outset when each
property is acquired in order to classify the property as either
an investment or a trading property. Where the intention is
to either trade the property or where the property is held
for immediate sale upon receiving vacant possession within
the ordinary course of business, the property is classified as
trading property. Where the intention is to hold the property
for its long-term rental yield and/or capital appreciation,
the property is classified as an investment property.
Goodwill can arise when a portfolio is acquired on the
acquisition of a corporate entity accounted for as a business
combination. The goodwill arises from the difference
between how deferred tax is calculated for accounting
purposes and the value ascribed to it in the acquisition
negotiations. Generally, the value of goodwill is supported
by the fact that the taxation cash flows will arise in future
years and the discounted value of these cash flows is
significantly less than the tax actually provided. The cash-
generating unit for impairment testing is the portfolio
acquired in the relevant entity and a goodwill impairment
loss arises if the carrying amount of the portfolio exceeds
the value in use which is determined as the present value
of the future cash flows arising.
The goodwill impairment charge in the core business in
2008 relating to taxation as described above was £6.3m.
The key sensitivities relating to the goodwill impairment
testing are the discount rate used and the expected hold
period for the assets concerned.
The discount rate used is the post-tax 2007 weighted
average cost of capital of 6.38%, a post-tax rate as the cash
flows being discounted are tax payments. A 1% increase in
the discount rate would reduce the impairment charge by
£0.7m whilst a 1% decrease would increase the impairment
charge by £0.8m.
The hold periods used for the assets, and over which the
cash flows have been discounted, are dependent upon
the classification of assets between investment property
and trading stock and the different property tenures.
For instance, regulated properties are likely to be sold on
vacancy whereas an assured shorthold property held as
19
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
2 Critical accounting estimates and assumptions continued
an investment property is more likely to be held for long-
term investment gains and rental income. The hold periods
used in the impairment calculations range from 10 years to
16 years with an average of 14.5 years. If the average hold
period was changed by one year the impairment charge
would either be reduced or increased by £0.3m
In addition to the above, goodwill of £3.3m arose in 2007
on the acquisition of the CAT portfolio in the retirement
solutions business. The cash-generating unit is the CAT
portfolio and a comparison has been made of the carrying
value of this portfolio and the value in use based on the
present value of future cash flows. The value in use does
not support the carrying value of the goodwill and therefore
it has been fully impaired in the 2008 income statement.
The key sensitivity relating to the impairment charge is the
discount rate used. A pre-tax discount rate of 9% has been
adopted in the calculations. To support the full amount of
goodwill would require a discount rate of 7.37% or less.
To support any goodwill would require a discount rate of
8.06% or less.
Going concern
The directors are required to make an assessment of the
group’s ability to continue to trade as a going concern.
Because of the difficult market conditions prevailing this
assessment has been subject to more uncertainties than are
usual. The directors have given this matter due consideration
and have concluded that it is appropriate to prepare the
group financial statements on a going concern basis. The
two main considerations were as follows:
i Strength of the group’s cash flow
The group has generated £213m of cash in 2008 from its
net rents and other income, the sales of property and other
working capital movements net of overhead costs. The
nature of the group’s property assets is that the majority are
unmodernised and of relatively low average value. They are
therefore generally affordable and provide the opportunity
for a purchaser to maintain or increase value through
refurbishment. These factors help the group to sustain
demand when properties become vacant. In addition,
properties can be sold without waiting for vacancy and
these ‘investment’ sales assist the group in generating cash
flows. The group has demonstrated, through the 15%
increase in sales proceeds achieved in 2008 from its core
and retirement solution portfolios, that it can sell assets
even in more difficult market conditions.
ii Continued support of the group’s banks
We maintain a regular and constructive dialogue with our
banking syndicate and keep them informed of how the
company is performing. Two important issues to consider
in relation to our banks are the renewal of facilities and
covenant compliance.
Facilities – At 30 September 2008 the group had headroom
of £370m on its bank facilities, £303m of which was on
the UK core facility. The first significant debt maturity is
a facility of £400m due in June 2010 which is more than
12 months after the date of these financial statements.
The headroom at 30 September 2008 represents 76%
of this first debt maturity.
Covenant compliance – Our core facility has two
covenants covering loan to value (‘LTV’) ratio and interest
cover. Under the first, it is possible that a LTV of 80% could
lead to default of the facility agreement. At 70% LTV
purchasing restrictions apply although to a large extent
the business is currently operating under the restrictions by
reducing its expenditure on new acquisitions. LTV on the
core facility was 66% at 30 September 2008 although this
was reduced to 64% shortly after the year end by the early
conversion of 78% of our convertible bond. We are able
to take action to help keep the LTV ratio down, the main
action being asset sales. We have estimated that if we are
able to maintain sales proceeds in 2009 at the same level as
achieved in 2008, then UK asset values as used for covenant
purposes will have to fall by approximately 24% in the year
ended 30 September 2009 for the 80% LTV level to be
reached. This is before any other actions that management
could take to improve the LTV position.
Under the second covenant test, our interest cost must
be covered 1.25 times by net cash flow before interest.
As at 30 September 2008 the ratio stood at 2.2 times.
This covenant is calculated by reference to the previous
12 months results and, given the cash inflows that have
already been achieved to date and our expectations in
relation to sales to 30 September 2009 the directors are
confident that, in the absence of unforseen circumstances,
this covenant will be met at the next two testing points,
31 March 2009 and 30 September 2009.
20
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
3 Analysis of (loss)/profit before tax
The results for the year have been significantly affected by valuation movements. The table below provides further analysis of the
income statement showing the results of trading activities separately from valuation movements.
Group revenue
Net rental income
Profit on disposal of trading properties
Administrative expenses
Other income
Goodwill impairment
Profit on disposal of investment properties
Profit on disposal of shares in subsidiary
Interest income from financial interest
in property assets
Write down of inventories to net realisable value
Operating profit/(loss) before net valuation
(deficits)/gains on investment properties
Net valuation (deficits)/gains on investment
Trading
£m
246.2
37.7
62.6
(6.2)
8.7
–
0.6
3.5
(0.9)
–
2008
Valuation
£m
–
–
–
–
0.5
(9.6)
–
–
–
(12.3)
Total
£m
246.2
37.7
62.6
(6.2)
9.2
(9.6)
0.6
3.5
(0.9)
(12.3)
Trading
£m
229.3
23.2
62.8
(9.5)
6.2
–
2.5
2.0
1.8
–
106.0
(21.4)
84.6
89.0
properties
–
(43.1)
(43.1)
–
Operating profit/(loss) after net valuation
(deficits)/gains on investment properties
Change in fair value of derivatives
Interest expense
Interest income
Share of (loss)/profit of associates after tax
Share of (loss)/profit of joint ventures after tax
(Loss)/profit before tax
4 Segmental information
106.0
–
(96.1)
7.1
0.2
(5.0)
12.2
(64.5)
(11.5)
–
–
(14.2)
(34.1)
41.5
(11.5)
(96.1)
7.1
(14.0)
(39.1)
(124.3)
(112.1)
89.0
–
(74.4)
9.4
3.2
(2.0)
25.2
2007
Valuation
£m
–
–
–
–
–
–
–
–
–
–
–
9.9
9.9
3.0
–
–
4.5
34.9
52.3
Total
£m
229.3
23.2
62.8
(9.5)
6.2
–
2.5
2.0
1.8
–
89.0
9.9
98.9
3.0
(74.4)
9.4
7.7
32.9
77.5
As at 30 September 2008 the group is organised into the six segments as set out in the tables below. All of the segments have
their assets and undertake their business in the UK except European tenanted residential which has its assets and tenants in
Germany and European development which has its assets and undertakes its business in the Czech Republic.
The group monitors its operations in the segments as shown in the tables following. There is no primary or secondary split and
the above is a complete analysis by business and geographic segment.
21
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
4 Segmental information continued
Core
portfolio
Retirement
solutions
Fund
management/
residential
investments Development
European
tenanted
European
residential development Unallocated
Group total
30 September
2008
181.0
21.3
58.4
3.6
2.4
(6.3)
0.5
–
–
25.7
4.6
7.3
–
–
(3.3)
–
–
(0.9)
(3.1)
–
6.3
–
–
(3.6)
6.3
–
–
–
–
–
11.3
1.0
(3.1)
–
–
–
–
–
–
(9.2)
21.9
10.8
–
–
0.5
–
0.1
–
–
–
76.8
7.7
2.7
(11.3)
11.4
(20.7)
(13.8)
–
–
(8.6)
56.1
(6.1)
2.7
(11.3)
2.8
–
–
–
–
–
–
–
3.5
–
–
3.5
–
3.5
–
–
–
(6.2)
–
–
–
–
–
–
246.2
37.7
62.6
(6.2)
9.2
(9.6)
0.6
3.5
(0.9)
(12.3)
(6.2)
84.6
–
(43.1)
(6.2)
41.5
(11.5)
(96.1)
7.1
(14.0)
(39.1)
(112.1)
2008 Income statement (£m)
Group revenue
Net rental income
Profit on disposal of
trading properties
Administrative expenses
Other income
Goodwill impairment
Profit on disposal of
investment property
Profit on disposal of shares
in subsidiary
Interest income from financial
interest in property assets
Write down of inventories
to net realisable value
Operating profit/(loss) before
net valuation deficits on
investment properties
Net valuation deficits on
investment properties
Operating profit/(loss) –
segment result
Change in fair value of derivatives
Interest expense
Interest income
Share of loss of associates
after tax
Share of loss of joint ventures
after tax
Loss before tax
Included in the above analysis are
the following non-cash expenses:
Depreciation
Share-based payments
(0.6)
(0.1)
(0.1)
(0.1)
–
–
(0.1)
(0.1)
–
–
–
–
–
(0.2)
(0.8)
(0.5)
Of the share of loss of associates after tax of £14.0m, a loss of £14.2m is attributable to fund management/residential
investment and a profit of £0.2m is attributable to European development.
Of the share of loss of joint ventures after tax of £39.1m, £38.1m is attributable to fund management/residential
investment, £0.8m is attributable to development and £0.2m is attributable to European development.
22
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
4 Segmental information continued
Core
portfolio
Retirement
solutions
Fund
management/
residential
investments Development
European
tenanted
European
residential development Unallocated
Group total
30 September
2007
2007 Income statement (£m)
Group revenue
Net rental income
Profit on disposal of
trading properties
Administrative expenses
Other income
Profit on disposal of
investment property
Profit on disposal of shares
in subsidiary
Interest income from financial
interest in property assets
Operating profit/(loss) before
net valuation gains on
investment properties
Net valuation gains/(deficits)
on investment properties
Operating profit/(loss) –
segment result
160.3
15.0
59.2
4.6
0.6
1.6
–
–
16.7
1.2
4.8
–
–
–
–
1.8
81.0
7.8
2.5
(1.5)
83.5
6.3
1.1
1.1
–
(4.6)
5.3
0.1
2.0
–
3.9
–
3.9
41.3
1.3
(1.2)
–
0.2
0.4
–
–
0.7
–
9.9
4.6
–
–
0.1
0.4
–
–
5.1
8.9
0.7
14.0
Change in fair value of derivatives
Interest expense
Interest income
Share of profit of associates
after tax
Share of profit of joint ventures
after tax
Profit before tax
Included in the above analysis are
the following non-cash expenses:
Depreciation
Share-based payments
(0.4)
(0.2)
(0.1)
(0.1)
–
(0.2)
(0.1)
(0.1)
–
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9.5)
–
–
–
–
229.3
23.2
62.8
(9.5)
6.2
2.5
2.0
1.8
(9.5)
89.0
–
9.9
(9.5)
98.9
3.0
(74.4)
9.4
7.7
32.9
77.5
–
(0.3)
(0.6)
(1.0)
Of the share of profit of associates after tax of £7.7m, £6.5m is attributable to fund management/residential
investment and £1.2m is attributable to European development.
Of the share of profit of joint ventures after tax of £32.9m, £29.6m is attributable to fund management/residential
investment and £3.3m is attributable to development.
4 Segmental information continued
2008 Segment assets (£m)
Assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Inventories – trading properties
Trade and other receivables
Cash and cash equivalents
Total segment assets
Unallocated assets
Property, plant and equipment
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total segment liabilities
Unallocated liabilities
Interest-bearing loans and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities and charges
Deferred tax liabilities
Derivative financial instruments
Total liabilities
Net assets
Other unallocated items
Capital expenditure on property, plant
and equipment
Core
portfolio
Retirement
solutions
Fund
management/
residential
investments Development
European
tenanted
residential development
Total
European 30 September
2008
104.2
99.0
–
–
–
8.0
768.1
2.8
0.6
–
–
121.2
–
239.5
0.7
1.8
–
51.6
77.7
–
–
–
9.4
–
–
–
7.2
–
–
133.2
1.4
0.3
883.7
462.2
138.7
142.1
416.1
–
–
–
–
1.4
1.9
19.8
439.2
–
–
5.9
–
–
–
2.8
0.9
9.6
–
4.3
4.3
38.0
32.4
70.4
–
–
–
–
18.7
18.7
301.4
13.3
314.7
–
0.9
0.9
619.3
51.6
90.8
121.2
8.0
1,142.2
19.0
23.4
2,075.5
2.3
11.9
4.0
19.8
2,113.5
339.4
69.6
409.0
1,313.9
14.5
2.1
51.4
1.0
78.4
13.4
1,883.7
229.8
–
–
–
–
–
–
0.7
23
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
24
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
4 Segmental information continued
2007 Segment assets (£m)
Assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Inventories – trading properties
Trade and other receivables
Cash and cash equivalents
Total segment assets
Unallocated assets
Property, plant and equipment
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total segment liabilities
Unallocated liabilities
Interest-bearing loans and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities and charges
Deferred tax liabilities
Derivative financial instruments
Total liabilities
Net assets
Other unallocated items
Capital expenditure on property, plant
and equipment
Core
portfolio
Retirement
solutions
Fund
management/
residential
investments Development
European
tenanted
residential development
Total
European 30 September
2007
127.8
109.1
–
–
–
14.1
753.7
1.5
1.6
–
–
131.7
3.3
210.8
0.7
7.3
–
67.5
108.0
–
–
–
8.1
–
–
–
6.8
–
–
98.2
1.3
0.1
241.7
–
–
–
–
–
1.0
4.9
–
1.0
–
–
–
6.4
2.3
0.7
478.6
68.5
114.8
131.7
17.4
1,069.1
14.9
14.6
898.7
462.9
183.6
106.4
247.6
10.4
1,909.6
–
9.0
9.0
41.0
34.6
75.6
–
–
–
–
12.2
12.2
133.2
23.2
156.4
3.6
0.5
4.1
2.3
13.1
1.5
65.5
1,992.0
177.8
79.5
257.3
1,234.2
13.4
2.7
45.8
1.2
113.5
0.8
1,668.9
323.1
–
–
–
–
–
–
0.8
5 Net rental income
Gross rental income
Property repair and maintenance costs
Property operating expenses (see note 8)
6 Profit on disposal of trading properties
Proceeds from sale of trading properties
Carrying value of trading properties sold
Other sales costs (see note 8)
7 Profit on disposal of investment property
Proceeds from sale of investment property
Carrying value of investment property sold (see note 17)
8 Administrative expenses
Total group expenses
2008
£m
70.7
(19.9)
(13.1)
37.7
2008
£m
162.2
(88.8)
(10.8)
62.6
2008
£m
7.4
(6.8)
0.6
2008
£m
30.1
2007
£m
52.7
(15.8)
(13.7)
23.2
2007
£m
166.0
(92.8)
(10.4)
62.8
2007
£m
14.8
(12.3)
2.5
2007
£m
33.6
Many of the group’s expenses relate directly to either property management activities or to staff involved directly with the sale and
acquisition of property. Accordingly, total group expenses shown above have been allocated as follows:
25
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
Property operating expenses (see note 5)
Costs attributable to the disposal of trading properties (see note 6)
Administrative expenses
2008
£m
13.1
10.8
6.2
30.1
2007
£m
13.7
10.4
9.5
33.6
s
t
a
t
e
m
e
n
t
s
26
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
9 Other income
Property and asset management fee income
Crop store and agricultural income
Other sundry income
Gain on acquisition of subsidiary (note 41)
2008
£m
7.0
0.6
1.1
0.5
9.2
2007
£m
5.8
0.4
–
–
6.2
The gain on acquisition of subsidiary represents the excess of the group’s interest in the net fair value of Francono Rhein-Main AG’s
(FRM) identifiable assets, liabilities and contingent liabilities over the cost to the group. Further details relating to the acquisition of
FRM are provided in note 41.
10 Profit on disposal of shares in subsidiary
Sale of shares in CCZ a.s and Prazsky Project a.s.
Sale of shares in G:res1 Limited
2008
£m
3.5
–
3.5
During the year, the group acquired an additional 3.4% of the equity of two companies incorporated in the Czech Republic,
CCZ a.s. and Prazsky Project a.s. bringing the aggregate group holding to 85% in each company. The group then sold 35%
of its equity holding in each company reducing its holding to 50% and making a profit on sale of equity of £3.5m. In 2007,
the group disposed of 78.4% of its equity interest in G:res1 Limited and made a profit on sale of equity of £2.0m.
11 Employees
Wages and salaries including termination benefits
Social security costs
Other pension costs – defined contribution scheme (see note 29)
Share-based payments
The average monthly number of group employees during the year (including executive directors) was:
UK tenanted residential
UK development
European tenanted residential
2008
£m
13.3
1.4
0.9
0.5
16.1
2008
£m
273
15
12
300
2007
£m
–
2.0
2.0
2007
£m
14.6
1.5
0.8
1.0
17.9
2007
£m
226
14
7
247
Details of directors’ remuneration, including pension costs, share options and interests in the LTIS are provided in the audited
section of the remuneration committee report on pages 49 to 51 of the review section of this document which form part of these
financial statements.
27
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
11 Employees continued
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
Key management figures shown above include the executive and the non-executive directors.
12 (Loss)/profit before tax
(Loss)/profit before tax is stated after charging/(crediting):
Depreciation on fixtures, fittings and equipment
Impairment of goodwill
Gain on acquisition of subsidiary
Bad debt expense
Foreign exchange gains
Operating lease payments
Auditors’ remuneration – audit
Auditors’ remuneration – non-audit
The remuneration paid to PricewaterhouseCoopers LLP, the group’s principal auditors, is disclosed below:
Auditors’ remuneration
Audit fees
Fees payable to the company’s auditors for the audit of the parent company
and consolidated financial statements
Non-audit fees
The audit of the company’s subsidiaries pursuant to legislation
Other service pursuant to legislation:
Tax services
Other services
Total fees
2008
£m
3.1
0.3
0.4
3.8
2008
£m
0.8
9.6
(0.5)
0.9
(1.5)
1.5
0.1
0.4
2007
£m
4.5
0.3
0.8
5.6
2007
£m
0.6
–
–
0.1
(0.4)
1.1
0.1
0.5
2008
£’000
2007
£’000
136
58
145
166
505
136
45
172
241
594
Other services include transaction services of £163,000 (2007: £210,849).
Operating lease payments represent the lease payments made in the year relating to renting of office space used by the group,
car leases under contract hire arrangements and operating lease payments relating to office equipment such as photocopiers.
Leases relating to office space used by the group have initial terms of varying lengths, between five to 14 years.
Rent reviews generally take place every five years. Contract hire car leases generally have a three-year term. There are no other
significant operating lease arrangements requiring disclosure under IAS 17. The group’s operating lease commitments are shown
in note 38.
28
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
13 Interest
Interest expense
Bank loans and mortgages
Convertible bond
Loan notes
Other interest payable
Foreign exchange gains on financing activities
Amortisation of issue costs
Interest on net pension scheme liabilities
Interest income
Interest receivable from associates and joint ventures (see note 36)
Other interest receivable
Net finance costs
14 Taxation
Current tax
UK corporation tax on profits
Adjustments relating to prior years
Deferred tax
Origination and reversal of timing differences
Adjustments relating to prior years
Income tax (credit)/expense for the year
2008
£m
87.9
6.9
0.8
–
(1.5)
2.0
–
96.1
4.1
3.0
7.1
89.0
2008
£m
11.6
(5.9)
5.7
(38.6)
(1.8)
(40.4)
(34.7)
2007
£m
69.5
2.5
0.8
0.5
(0.4)
1.3
0.2
74.4
6.3
3.1
9.4
65.0
2007
£m
15.9
0.7
16.6
1.9
(1.9)
–
16.6
29
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
14 Taxation continued
Movements in taxation during the year are set out below:
Opening
balance
£m
45.8
67.5
40.6
2.1
(0.2)
0.8
2.7
113.5
159.3
128.3
Current tax
Deferred tax
Trading property uplift to fair value
on acquisition
Investment property revaluation
Accelerated capital allowances
Short-term timing differences
Actuarial surplus on BPT Limited
pension scheme
Fair value movement in cash flow hedges
and exchange adjustments
Total tax – 2008 movement
Total tax – 2007 movement
The tax (credit)/charge for the year comprises:
UK taxation
Overseas taxation
Payments
in the year
£m
Acquired
in the year
£m
Movements
recognised
in income
£m
Exchange
adjustments
£m
Movements
recognised
in equity
£m
(0.2)
0.1
5.7
–
–
–
–
–
–
–
–
(0.2)
(8.5)
–
3.8
–
–
–
–
3.8
3.9
(7.2)
(24.5)
0.1
(8.6)
(0.2)
–
(40.4)
(34.7)
19.4
16.6
–
0.2
–
0.1
–
–
0.3
0.3
–
–
–
–
–
–
0.1
1.1
1.2
1.2
3.5
2008
£m
(41.4)
6.7
(34.7)
The tax (credit)/charge for the year is lower than the standard rate of corporation tax in the UK of 29% (2007: 30%).
The differences are explained below:
(Loss)/profit before tax
(Loss)/profit before tax at a rate of 29% (2007: 30%)
Expenses not deductible for tax purposes
Goodwill impairment
Impact of tax rate change
Corporation tax on capital gains
Utilisation of current and prior period capital losses
Deferred tax released relating to capital gains
Other losses and non-taxable items
Adjustment in respect of prior periods
Total income tax (credit)/expense in the income statement (see above)
2008
£m
(112.1)
(32.5)
2.1
2.6
1.7
–
(10.6)
–
–
2.0
(34.7)
Closing
balance
£m
51.4
60.3
20.1
2.2
(8.7)
0.7
3.8
78.4
129.8
159.3
2007
£m
9.2
7.4
16.6
2007
£m
77.5
23.3
0.7
–
(6.0)
7.4
(3.0)
(6.3)
1.7
(1.2)
16.6
30
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
14 Taxation continued
As detailed in note 30, deferred tax has been taken direct to equity in relation to the actuarial surplus on the BPT Limited pension
scheme and the fair value movement in cash flow hedges and exchange adjustments.
Factors that may affect future tax charges
The group has not taken all of the benefit in relation to capital losses brought forward and available for offset against subsequent
capital gains arising as this has yet to be formally agreed with the relevant tax authorities. If it is found that all the capital losses are
available for offset against capital gains, then provisions of up to £16m would be released over the coming years.
15 Dividends
Under IAS 10, final dividends are excluded from the balance sheet either until they are approved by the company in general
meeting or when they have been appropriately authorised and are no longer at the discretion of the group. Dividends paid in the
year are shown below:
Ordinary dividends on equity shares:
Final dividend for the year ended 30 September 2007 – 4.12p per share
Final dividend for the year ended 30 September 2006 – 3.75p per share
Interim dividend for the year ended 30 September 2008 – 2.27p per share
Interim dividend for the year ended 30 September 2007 – 2.06p per share
2008
£m
5.2
–
2.9
–
8.1
2007
£m
–
4.9
–
2.7
7.6
In addition to the above, a provision has been made in the accounts to 30 September 2008 of £0.2m for the payment of a
dividend to the minority interest in FRM at a rate of €0.13 per share before tax. The payment of this dividend has been authorised
by the management board of FRM and was approved by the Local Court of Frankfurt on 30 September 2008. The total dividend
taken to equity in the year is therefore £8.3m (2007: £7.6m).
A final dividend relating to 2008 of 3.91p per share has been proposed by the board. If approved, this will result in a further
distribution of £5.3m and it will be paid on 16 February 2009 to shareholders on the register on 9 January 2009. The 2008 interim
dividend of 2.27p per share was paid in July 2008.
This gives a total dividend for 2008 of 6.18p per share, the same level as in 2007.
16 (Loss)/earnings per share
Basic
Basic (loss)/earnings per share is calculated by dividing the profit or loss attributable to equity holders of the company by the
weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the group and held
both in trust and as treasury shares to meet its obligations under the long-term incentive scheme (‘LTIS’).
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of shares outstanding by the dilutive effect
of ordinary shares that the company may potentially issue relating to its convertible bond and its share option schemes and
contingent share awards under the LTIS, based upon the number of shares that would be issued if 30 September 2008 was the
end of the contingency period. The (loss)/profit for the year is adjusted to add back the after tax interest cost on the liability
component of the convertible bond. Where the effect of the above adjustments is antidilutive, as is the case in 2008, they are
excluded from the calculation of diluted (loss)/earnings per share.
16 Earnings per share continued
30 September 2008
30 September 2007
Loss
for the
year
£m
Weighted
average
number
of shares
(thousands)
Loss
per share
pence
Profit
for the
year
£m
Weighted
average
number
of shares
(thousands)
Earnings
per share
pence
Basic (loss)/earnings per share
(Loss)/profit attributable to equity holders
(77.4)
126,720
(61.0)
61.0
128,849
47.3
Effect of potentially dilutive securities
Options and shares
Convertible bond
Diluted (loss)/earnings per share
–
–
–
–
–
–
–
1.8
752
4,866
(0.3)
(0.4)
(Loss)/profit attributable to equity holders
(77.4)
126,720
(61.0)
62.8
134,467
46.6
17 Investment property
Opening balance
Additions:
Acquisitions
Subsequent expenditure
Business combinations
Disposals
Disposal as part of disposal of subsidiary
Net valuation (deficits)/gains
Exchange adjustments
Transfer from owner occupied property
Transfer from a disposal group
Closing balance
2008
£m
478.6
23.9
4.4
131.9
(6.8)
–
(43.1)
30.3
0.1
–
619.3
2007
£m
219.4
122.5
–
173.3
(12.3)
(209.8)
9.9
7.3
–
168.3
478.6
31
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
The group has valued all of its investment property as at 30 September 2008 at fair value.
Information relating to the basis of valuation of investment property, the use of external, independent, valuers and the judgements
and assumptions adopted by management is set out in note 2 ‘Critical accounting estimates and assumptions’.
A revaluation deficit of £43.1m has arisen on valuation of investment property to fair value as at 30 September 2008
(2007: gain of £9.9m) and this has been taken to the income statement.
The historical cost of the group’s investment property as at 30 September 2008 is £605.7m (2007: £420.6m).
Rental income from investment property during the year was £31.9m (2007: £16.1m).
Direct property repair and maintenance costs arising from investment property that generated rental income during the year
was £7.8m (2007: £4.2m).
Direct operating expenses arising from investment property that did not generate rental income during the year amounted
to £0.1m (2007: £0.4m).
s
t
a
t
e
m
e
n
t
s
32
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
18 Property, plant and equipment
Fixtures
fittings and
equipment
£m
Owner-
occupied
property
£m
Cost
At 1 October 2007
Additions
Acquisition of subsidiary
Transfer to investment property
Disposals
At 30 September 2008
Depreciation
At 1 October 2007
Charge for the year
Disposals
At 30 September 2008
Net book value
At 30 September 2008
At 30 September 2007
Cost
At 1 October 2006
Additions
At 30 September 2007
Depreciation
At 1 October 2006
Charge for the year
At 30 September 2007
Net book value
At 30 September 2007
At 30 September 2006
19 Investment in associates
Opening balance
Loans repaid
Share of (losses)/profits
Distributions received
4.7
0.7
0.2
–
(0.9)
4.7
2.5
0.8
(0.9)
2.4
2.3
2.2
3.9
0.8
4.7
1.9
0.6
2.5
2.2
2.0
Share of change in fair value of cash flow hedges taken through equity
At fair value through profit or loss financial assets transferred to investment in associates (see note 22)
Net assets of G:res1 Limited transferred to investment in associates
Additional equity invested in G:res1 Limited
Sale of equity in G:res1 Limited
Closing balance
0.1
–
–
(0.1)
–
–
–
–
–
–
–
0.1
0.1
–
0.1
–
–
–
0.1
0.1
2008
£m
68.5
–
(14.0)
(2.1)
(0.8)
–
–
–
–
51.6
Total
£m
4.8
0.7
0.2
(0.1)
(0.9)
4.7
2.5
0.8
(0.9)
2.4
2.3
2.3
4.0
0.8
4.8
1.9
0.6
2.5
2.3
2.1
2007
£m
2.0
(2.1)
7.7
(0.6)
0.4
19.0
88.3
84.4
(130.6)
68.5
19 Investment in associates continued
As at 30 September 2008, the group’s interest in associates was as follows:
G:res1 Limited
Schroders Residential Property Unit Trust (ResPUT)
% of share
capital/units held
Country of
incorporation
21.6
23.6
Jersey
Jersey
In relation to the group’s investment in associates, the group’s share of the aggregated assets, liabilities, revenues and profit or loss
are shown below:
G:res1 Limited
£m
ResPUT
£m
OU Robbins
£m
81.7
5.0
(50.6)
(1.6)
34.5
4.5
(11.6)
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenues
(Loss)/profit
20 Investment in joint ventures
At 1 October 2006
Loans advanced
Share of profits
Share of change in fair value of cash flow hedges taken through equity
Distributions received
At 30 September 2007
Additions
Loans advanced
Share of losses
Goodwill impairment charge taken to income statement
Share of change in fair value of cash flow hedges taken through equity
Net assets of subsidiaries transferred to investment in joint ventures
Distributions received
At 30 September 2008
16.9
0.2
–
–
17.1
1.0
(2.6)
Net assets
£m
12.2
–
34.3
0.7
(7.4)
39.8
2.3
–
(39.1)
–
(1.0)
0.6
(0.4)
2.2
–
–
–
–
–
0.2
0.2
Loans
£m
57.7
17.1
–
–
–
74.8
–
13.8
–
–
–
–
–
88.6
2008
£m
98.6
5.2
(50.6)
(1.6)
51.6
5.7
(14.0)
Goodwill
£m
1.6
–
(1.4)
–
–
0.2
–
–
–
(0.2)
–
–
–
–
2007
£m
114.3
5.8
(49.7)
(1.9)
68.5
12.3
7.7
Total
£m
71.5
17.1
32.9
0.7
(7.4)
114.8
2.3
13.8
(39.1)
(0.2)
(1.0)
0.6
(0.4)
90.8
33
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
34
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
20 Investment in joint ventures continued
At 30 September 2008, the group’s interest in joint ventures was as follows:
Grainger GenInvest LLP
Grainger GenInvest No 2 (2006) LLP
Curzon Park Limited
King Street Developments (Hammersmith) Limited
CCZ a.s.
CCY a.s.
Prazsky Project a.s.
% of share
capital held
50
50
50
50
50
50
50
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
Czech Republic
Czech Republic
Czech Republic
Czech Republic
In relation to the group’s investment in joint ventures, the group’s share of the aggregated assets, liabilities, revenues and profit or
loss are shown below:
2008 Summarised income statement
Net rental income
Profit on disposal of investment property
Operating profit before valuation gains
Net valuation deficits on investment properties
Operating loss
Interest payable
Loss before tax
Taxation
Loss after tax
2008 Summarised balance sheet
Investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Grainger
Grainger GenInvest No.2 Czech Republic
combined
(2006) LLP
£m
£m
GenInvest LLP
£m
Curzon Park
Limited
£m
0.8
(0.1)
0.7
(9.8)
(9.1)
(2.4)
(11.5)
–
2.2
0.1
2.3
(24.3)
(22.0)
(4.6)
(26.6)
–
(11.5)
(26.6)
–
–
–
–
–
(0.2)
(0.2)
–
(0.2)
–
–
–
–
–
(0.8)
(0.8)
–
(0.8)
Grainger
Grainger GenInvest No.2 Czech Republic
combined
(2006) LLP
£m
£m
GenInvest LLP
£m
Curzon Park
Limited
£m
39.0
0.4
39.4
(34.7)
(2.3)
2.4
102.6
4.7
107.3
(105.3)
(3.7)
(1.7)
–
11.4
11.4
(4.7)
(4.0)
2.7
–
18.4
18.4
(12.0)
(7.6)
(1.2)
2008
£m
3.0
–
3.0
(34.1)
(31.1)
(8.0)
(39.1)
–
(39.1)
2008
£m
141.6
34.9
176.5
(156.7)
(17.6)
2.2
The results and financial position of the three Czech Republic companies have been aggregated in the above tables as individually
they are not material and the development being undertaken in Prague is being managed as a single development with each
company owning part of the combined site.
35
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
20 Investment in joint ventures continued
2007 Summarised income statement
Net rental income
Profit on disposal of trading property
Profit on disposal of investment property
Goodwill impairment
Operating profit before valuation gains
Net valuation gains on investment properties
Operating profit
Interest payable
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
2007 Summarised balance sheet
Investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Grainger
Grainger GenInvest No.2
(2006) LLP
£m
GenInvest LLP
£m
Regen
(NT) LLP
£m
Curzon Park
Limited
£m
1.3
–
1.5
–
2.8
9.1
11.9
(2.4)
9.5
–
9.5
3.8
–
1.1
–
4.9
22.3
27.2
(7.1)
20.1
–
20.1
–
5.1
–
(1.4)
3.7
–
3.7
–
3.7
–
3.7
–
–
–
–
–
–
–
(0.4)
(0.4)
–
(0.4)
Grainger
Grainger GenInvest No.2
(2006) LLP
£m
GenInvest LLP
£m
Regen
(NT) LLP
£m
Curzon Park
Limited
£m
49.3
0.3
49.6
(33.1)
(2.4)
14.1
127.4
4.7
132.1
(102.9)
(3.5)
25.7
–
0.4
0.4
–
–
0.4
–
20.9
20.9
(11.2)
(10.1)
(0.4)
2007
£m
5.1
5.1
2.6
(1.4)
11.4
31.4
42.8
(9.9)
32.9
–
32.9
2007
£m
176.7
26.3
203.0
(147.2)
(16.0)
39.8
There is no tax charge on any profits made in the LLP companies as they are ‘transparent’ for tax. Any tax payable on Grainger’s
share of the profits is included within the group tax charge.
21 Financial interest in property assets
Opening balance
Additions
Cash received from the instrument
Amounts taken to income statement
Closing balance
2008
£m
131.7
–
(9.6)
(0.9)
2007
£m
–
134.7
(4.8)
1.8
121.2
131.7
Financial interest in property assets relates to the CHARM portfolio, which is a financial interest in equity mortgages.
It is accounted for under IAS 39 in accordance with the designation available-for-sale financial assets.
Credit risk arises from the credit exposure relating to cash receipts from the financial instrument. All of the cash receipts are
guaranteed by the Church Commissioners, a counterparty considered to be low risk as they have no history of past due or
impaired amounts and there are no past due amounts outstanding at the year end.
36
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
22 At fair value through profit or loss financial assets
Opening balance
Transfer to investment in associates (see note 19)
Closing balance
2008
£m
–
–
–
2007
£m
19.0
(19.0)
–
In 2007, due to an increase in the group’s percentage holding in the Schroder Residential Property Unit Trust, combined with an
increased level of influence for the group arising from its engagement as property adviser to the Unit Trust, the group’s investment,
which had been classified as an at fair value through profit or loss financial asset, was transferred to investment in associates
(see the 2007 comparative in note 19).
23 Goodwill
Opening balance
Arising on acquisitions during the year
Impairment charge taken to income statement
Closing balance
2008
£m
17.4
–
(9.4)
8.0
Of the £8.0m (2007: £17.4m) of goodwill carried in the group’s balance sheet, £8.0m (2007: £14.1m) relates to the UK core
portfolio and £nil (2007: £3.3m) to the retirement solutions division.
The total goodwill impairment charge in the income statement comprises:
Impairment charge as shown above
Impairment charge on goodwill shown within investment in joint ventures (see note 20)
2007
£m
–
17.4
–
17.4
2008
£m
(9.4)
(0.2)
(9.6)
The gross carrying amount of goodwill and accumulated goodwill impairment losses as at 30 September 2008 were £24.0m
and £16.0m respectively (2007: £24.0m and £6.4m respectively). Details of the impairment tests and charge are given in note 2.
24 Inventories – trading properties
Residential trading properties
Development trading properties
2008
£m
1,009.0
133.2
2007
£m
964.5
104.6
1,142.2
1,069.1
The market value of inventories as at 30 September 2008 was £1,519.1m (2007: £1,711.9m).
Write-downs to net realisable value and amounts written off book values in the year amounted to £12.3m (2007: £1.9m).
The cost of inventories recognised as an expense is shown in note 6 ‘Profit on disposal of trading properties’ and amounted
to £88.8m (2007: £92.8m).
25 Trade and other receivables
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments
2008
£m
11.1
(1.2)
9.9
11.2
1.9
23.0
2007
£m
6.4
(0.7)
5.7
9.0
1.7
16.4
The fair values of trade and other receivables are considered to be equal to their carrying amounts.
Other receivables includes a loan of £9.4m (2007: £7.0m) made to the Mornington Capital Special Situations Co-investment Fund
1 Limited Partnership. The loan has been used by the fund to invest in real estate joint venture partnerships. The loan bears interest
at between 5% and 8% per annum above EURIBOR and is repayable within one year. The loan is secured by fixed and floating
charges over the assets of the fund.
As at 30 September 2008, trade receivables of £1.2m were impaired and fully provided for (2007: £0.7m). The individually
impaired receivables are based on a review of outstanding arrears and an assessment of collectability. The ageing of these
receivables is:
Up to two months
Three months or more
2008
£m
0.1
1.1
1.2
2007
£m
0.1
0.6
0.7
Rental debtors are due on demand and hence all balances outstanding at the year end are past due. The balances within trade
debtors which are past due but are not considered to be impaired, because we have either collected the debt since the balance
sheet date or there is a history of regular payment, are as follows:
Up to two months
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
Pounds
Czech Koruna
Euros
2008
£m
1.7
2008
£m
9.3
2.4
11.3
23.0
2007
£m
1.0
2007
£m
8.4
0.2
7.8
16.4
37
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
38
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
25 Trade and other receivables continued
Movements on the group provision for impairment of trade receivables are as follows:
Opening balance
Provision for receivables impairment during the year
Receivables written off during the period as uncollectible
Unused amounts reversed
Closing balance
2008
£m
0.7
1.0
(0.4)
(0.1)
1.2
2007
£m
1.0
0.2
(0.4)
(0.1)
0.7
The creation and release of provisions for impaired receivables have been included in property repair and maintenance costs in
the consolidated income statement (note 5). Amounts provided for are written off when there is no expectation of recovering
additional cash.
The other classes within trade and other receivables do not contain impaired assets.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above.
Tenant deposits of £0.7m (2007: £0.6m) are held which provide some security against rental arrears and property dilapidations
caused by the tenant. In addition, the loan to Mornington is secured as described above. The group does not hold any other
collateral as security.
26 Financial risk management and derivative financial instruments
Financial risk management
The group’s objectives for managing financial risk are to minimise the risk of adverse effects on performance and to ensure the
ability of the group to continue as a going concern while securing access to cost effective finance and maintaining flexibility to
respond quickly to opportunities which arise.
The group’s policies on financial risk management are approved by the board of directors and implemented by group treasury.
Written policies and procedures cover interest rate risk, credit risk, the use of derivative and non-derivative financial instruments
and investment of excess liquidity. Compliance is monitored by internal auditors. Group treasury reports to the risk committee.
The group uses derivative financial instruments to hedge its exposure to financial risk but does not take positions for
speculative purposes.
The sources of financial risk and the policies and activities used to mitigate each are discussed below and include credit risk,
liquidity risk and market risk which includes interest rate risk, foreign exchange risk, house price risk in relation to the CHARM
portfolio, our financial interest in property assets, and capital risk.
39
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
26 Financial risk management and derivative financial instruments continued
Categories of financial instruments
A summary of the classifications of the financial assets and liabilities held by the group is set out in the following table:
Financial interest in property assets
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total financial assets
Non-current liabilities
Book value
£m
121.2
21.1
11.9
43.2
2008
Fair value
£m
121.2
21.1
11.9
43.2
197.4
197.4
Fair value
adjustment
£m
Book value
£m
131.7
14.7
13.1
80.1
–
–
–
–
–
2007
Fair value
£m
131.7
14.7
13.1
80.1
Fair value
adjustment
£m
–
–
–
–
–
239.6
239.6
Interest-bearing loans and borrowings
1,635.4
1,644.8
9.4
1,393.8
1,396.6
2.8
Trade and other payables
Provisions for other liabilities and charges
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Derivative financial instruments
Total financial liabilities
Total net financial liabilities
4.0
1.0
17.9
17.0
13.4
4.0
1.0
17.9
17.0
13.4
–
–
–
–
–
8.0
1.2
18.2
30.6
0.8
8.0
1.2
18.2
30.6
0.8
1,688.7
1,491.3
1,698.1
1,500.7
9.4
9.4
1,452.6
1,213.0
1,455.4
1,215.8
–
–
–
–
–
2.8
2.8
The fair value adjustment relates to the group’s fixed rate loan with Lloyds TSB Bank plc and the liability component of the
convertible bond, both of which are stated at amortised cost in the consolidated balance sheet. There is no requirement under
IAS 39 to revalue these loans to fair value in the statutory balance sheet.
Credit risk
Credit risk is the risk of financial loss due to a counterparty’s failure to honour its obligations. The group’s principal financial assets
include its financial interest in property assets, bank balances and cash, trade and other receivables and financial derivatives. The
carrying amount of financial assets recorded in the financial statements represents the group’s maximum exposure to credit risk
without taking account of the value of any collateral obtained.
The group’s financial interest in property assets relates to a financial interest in equity mortgages held by the Church Commissioners,
a counterparty considered to be low risk as they have no history of past due or impaired amounts and there are no past due
amounts outstanding at the year end.
The group’s principal credit risk relates to trade receivables. Where it is identified that recovery is doubtful a provision for
impairment is made. For all Assured Shorthold Tenancies credit checks are performed prior to acceptance of the tenant. Regulated
tenants are incentivised through the benefit of their tenancy agreement to avoid default on their rent. Lifetime tenancies are
generally at low or zero rent and hence suffer minimal credit risk. Rent deposits and personal guarantees are held in respect
of some leases. Taking these factors into account the risk to the group of individual tenant default and the credit risk of trade
receivables is considered low, as is borne out by the low level of trade receivables written off both in this year and in prior years.
40
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
26 Financial risk management and derivative financial instruments continued
The credit risk on liquid funds and derivative financial instruments is managed through the group’s policies of monitoring
counterparty exposure, concentration of credit risk through the use of multiple counterparties and the use of counterparties of
good financial standing. Cash and short-term deposits at 30 September 2008 amounted to £43.2m (2007: £80.1m). Deposits
were placed with financial institutions with A- or better credit ratings.
At 30 September 2008, the fair value of all interest rate derivatives which had a positive value was £11.9m (2007: £13.1m).
All the counterparties have investment grade credit ratings.
At 30 September 2008, the largest combined credit exposure to a single counterparty arising from money market deposits and
interest rate swaps was £306.3m (2007: £280.5m) which represents 14.5% (2007: 14.1%) of total assets.
Liquidity risk
The group ensures that it maintains continuity and flexibility through a spread of maturities.
Although the group’s core funding is supported by covenants requiring certain levels of loan to value with respect to the entities
in the group of obligors and to maintaining a certain level of interest cover at the group level the loan is not secured directly
against any property allowing operational flexibility. The group has comfortably complied with its covenants during 2008 and
as at 30 September 2008 (see note 2 on page 19).
The group ensures that it maintains sufficient cash for operational requirements at all times. The group uses short-term money
market deposits to manage its liquidity. The group also ensures that it has sufficient undrawn committed borrowing facilities
from a diverse range of banks to allow for operational flexibility and to meet committed expenditure on its developments.
The core business in particular is very cash generative from its gross rents and sales of trading properties. In adverse trading conditions,
new acquisitions can be stopped and, consequently, the group is able to reduce gearing levels and improve liquidity quickly.
The following table analyses the group’s financial liabilities and net-settled derivative financial liabilities at the balance sheet date
into relevant maturity groupings based on the remaining period to the contractual maturity date. The amounts disclosed in the
table are the contractual undiscounted cash flows. As the amounts included in the table are the contractual undiscounted cash
flows, these amounts will not equal the amounts disclosed on the balance sheet for borrowings, derivative financial instruments,
trade and other payables and provisions for liabilities and charges. A reconciliation to the balance sheet amounts is given on page 41.
Trade and other payables due within 12 months equal their carrying balances as the impact of discounting is not significant.
The cash flows are calculated using yield curves for floating rate interest-bearing liabilities. Foreign currency related cash flows are
calculated by means of the forward rates relevant to each maturity date.
At 30 September 2008
Interest-bearing loans and borrowings
Cash flow hedges
Trade and other payables
Provisions for liabilities and charges
At 30 September 2007
Interest-bearing loans and borrowings
Cash flow hedges
Trade and other payables
Provisions for liabilities and charges
Less than
1 year
£m
124.1
(5.8)
51.0
0.1
Less than
1 year
£m
111.5
(4.7)
53.7
0.1
Between
1 and 2
years
£m
488.4
(1.2)
–
0.1
Between
1 and 2
years
£m
94.4
(2.3)
4.0
0.1
Between
2 and 5
years
£m
958.1
(3.8)
4.0
0.4
Between
2 and 5
years
£m
Over
5 years
£m
Total
£m
562.2
2,132.8
8.8
–
0.8
Over
5 years
£m
(2.0)
55.0
1.4
Total
£m
988.9
736.8
1,931.6
(4.4)
–
0.4
(2.2)
4.0
1.0
(13.6)
61.7
1.6
41
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
26 Financial risk management and derivative financial instruments continued
Reconciliation of maturity analysis
At 30 September 2008
Interest-bearing loans and borrowings (see note 27)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
At 30 September 2007
Interest-bearing loans and borrowings (see note 27)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
Less than
1 year
£m
17.9
0.7
105.5
–
124.1
Less than
1 year
£m
18.2
0.3
93.0
–
111.5
Between
1 and 2
years
£m
393.1
0.4
91.5
3.4
488.4
Between
1 and 2
years
£m
5.0
1.4
88.0
–
94.4
Between
2 and 5
years
£m
787.5
2.2
164.9
3.5
958.1
Between
2 and 5
years
£m
783.6
1.2
197.4
6.7
988.9
The group’s undrawn committed borrowing facilities are monitored against projected cash flows.
Maturity of committed undrawn borrowing facilities
Expiring:
Within one year
Between one and two years
Between two and five years
Total
Over
5 years
£m
Total
£m
454.8
1,653.3
36.3
67.2
3.9
39.6
429.1
10.8
562.2
2,132.8
Over
5 years
£m
Total
£m
605.2
1,412.0
41.6
86.2
3.8
44.5
464.6
10.5
736.8
1,931.6
2008
£m
2007
£m
46.8
–
296.0
342.8
10.0
41.4
174.6
226.0
The above facilities are those freely available to be drawn for group purposes.
Market risk
The group is exposed to market risk through interest rates, foreign exchange fluctuations, the availability of credit and house price
movements relating to the CHARM portfolio. The approach the group takes to each of these risks is set out below. The group is
not exposed to equity price risk nor to commodity price risk.
Fair values
The fair value of swaps and other financial instruments is derived from the present value of future cash flows discounted at rates
obtained by means of the current yield curve appropriate for those instruments.
42
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
26 Financial risk management and derivative financial instruments continued
The following financial instruments were in existence as at 30 September 2008:
Interest rate swaps – cash flow hedges
in hedge accounting relationships
Interest rate swaps – cash flow hedges
not in hedge accounting relationships
2008
2007
Assets
Liabilities
Assets
Liabilities
8.4
3.5
11.9
1.2
12.2
13.4
9.5
3.6
13.1
0.1
0.7
0.8
Interest rate swaps are all classified as either current assets or current liabilities.
The notional principal amount of the outstanding interest rate swap contracts as at 30 September 2008 was £1,228.3m
(2007: £847.3m). As at 30 September 2008 the fixed interest rates vary from 3.43% to 6.0% (2007: 3.43% to 6.0%).
The fair value movement relating to cash flow hedges not in hedge accounting relationships amounted to a charge of
£11.5m (2007: credit of £3.0m).
All of the financial derivatives included in the above table were valued by external consultants, using a discounted cash flow
model and quoted market information. They were checked internally using a bespoke software package.
In accordance with IAS 39, the group has reviewed its interest rate hedges. In the absence of hedge accounting, movements in
fair value would have been taken directly to the income statement. However, where cash flow hedges have been viewed as being
effective any gains or losses have been taken to equity through the cash flow hedge reserve.
A valuation was carried out at 30 September 2008 by external consultants, to calculate the market value of the group’s fixed rate
debt on a replacement basis, taking into account the difference between the fixed interest rates for the group’s borrowings and
the market value and prevailing interest rate of appropriate debt instruments as a fair value adjustment. The fair value compared
to the carrying amounts of the group’s fixed rate financial liabilities at 30 September 2008 is analysed below.
Fixed rate loan facilities
Fixed rate loan facilities
Interest rate risk
Book value at
30 September
2008
Fair value at
30 September
2008
153.6
163.0
Book value at
30 September
2007
Fair value at
30 September
2007
152.5
155.3
The group’s interest rate risk arises from the risk of fluctuations in interest charges on floating rate borrowings. The group mitigates
this risk through the use of variable to fixed interest rate swaps, caps and collars. This subjects the group to fair value risk as the
value of the financial derivatives fluctuates in line with variations in interest rates. However, the group seeks to cash flow hedge
account where applicable. The group is, however, driven by commercial considerations when hedging its interest rate risk and is
not driven by the strict requirements of the hedge accounting rules under IAS 39 if this is to the detriment of achieving the best
commercial arrangement.
Hedging activities are carried out under the terms of the group’s hedging policies and are regularly reviewed by the board to
ensure compliance with this policy. The board reviews its policy on interest rate exposure regularly with a view to establishing that
it is still relevant in the prevailing and forecast economic environment. The current group treasury policy is to maintain floating rate
exposure of no greater than 35% of expected borrowing. As at 30 September 2008, 85% (2007: 74%) of the group’s net
borrowings were economically hedged to fixed or capped rates.
43
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
26 Financial risk management and derivative financial instruments continued
As at 30 September 2008, the market value of derivatives designated as cash flow hedges under IAS 39, is a net asset of
£7.2m (2007: £9.4m). The movement in fair value measured in the income statement on cash flow hedges in the year ended
30 September 2008 was a charge of £11.5m (2007: credit of £3.0m). At 30 September 2008, the market value of derivatives
not designated as cash flow hedges under IAS 39, is a net liability of £8.7m (2007: asset of £2.9m). The cash flows occur and
enter in the determination of profit and loss until the maturity of the hedged debt. The table below summarises debt hedged
at 30 September 2008.
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
Interest rate profile – including the effect of derivatives
Fixed rate
Capped rate
Variable rate
2008
Sterling
£m
133.3
862.1
235.6
1,231.0
2008
Euro
£m
20.3
366.2
46.6
433.1
2008
Total
£m
153.6
1,228.3
282.2
2007
Sterling
£m
134.3
712.1
354.2
1,664.1
1,200.6
2008
£m
2007
£m
214.2
227.4
565.9
220.8
1,228.3
2007
Euro
£m
18.2
135.1
68.6
221.9
0.1
216.9
407.0
223.3
847.3
2007
Total
£m
152.5
847.2
422.8
1,422.5
At 30 September 2008, the weighted average interest rate of the sterling fixed rate debt is 7.13% (2007: 7.09%). The weighted
average period for which the rate is fixed is nine years (2007: 10 years). The weighted average interest rate of the euro fixed rate
debt is 0.5% (2007: 0.5%). The weighted average period for which the rate is fixed is 42 years (2007: 43 years).
Based on the group’s interest rate profile at the balance sheet date a 1% increase in interest rates would decrease annual profits
by £3.3m (2007: £4.1m). Similarly a 1% decrease would increase annual profits by £5.3m (2007: £6.9m). This has been calculated
to include the effect of hedge accounting.
Upward movements in medium and long-term interest rates, associated with higher interest rate expectation, increase the value
of the group’s interest rate swaps that provide protection against such moves. The converse is true for downward movements in
the yield curve. Where the group’s swaps qualify as effective hedges under IAS 39, these movements in fair value are recognised
directly in equity rather than the income statement.
Foreign exchange risk
The group’s foreign exchange risk arises from the exposure due to translating overseas trading performance and overseas net
assets into sterling and it does not have foreign currency trading with cross border currency flows. The group hedges foreign
currency assets naturally by funding them through borrowings in the applicable foreign currency and aims to ensure that it has
no material unhedged net assets or liabilities denominated in a foreign currency. Profit translation is not hedged.
44
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
26 Financial risk management and derivative financial instruments continued
The group’s balance sheet translation exposure is summarised below:
Gross foreign currency assets
Gross foreign currency liabilities
Net exposure
2008
Euro
£m
454.4
(449.9)
4.5
2007
Euro
£m
2008
Czech Koruna
£m
2007
Czech Koruna
£m
257.5
(245.2)
12.3
9.2
–
9.2
8.8
(3.9)
4.9
As at 30 September 2008 it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling against
the Euro would increase/decrease the group’s profit before tax by approximately £1.2m (2007: £1.2m) and equity by £0.5m
(2007: £1.2m).
As at 30 September 2008 it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling against
the Czech Koruna would increase/decrease the group’s profit before tax by approximately £0.3m (2007: £0.1m) and equity by
£0.9m (2007: £0.5m).
In 2007 the group also had an investment of £1m in Tallin. The sensitivities against movements in the Estonian Kroon are not
considered material.
Credit availability risk
Credit availability risk relates to the group’s ability to refinance its borrowings at the end of their terms or to secure additional
financing where necessary. The group maintains relationships with a range of lenders and maintains sufficient headroom through
committed borrowings.
House price risk
The cash flows arising from the group’s financial interest in property assets (CHARM) are related to the movement in value of
the underlying property assets and, therefore, are subject to movements in house prices. However, consistent with the group’s
approach to house price risk across its portfolio of trading and investment properties the group does not seek to eliminate this
risk as it is a fundamental part of the group’s business model.
At 30 September 2008 it is estimated that, with respect to the group’s financial interest in property assets a general increase/
(decrease) of one percentage point in house prices would increase/(decrease) the group’s profit before tax by approximately
£1m (2007: £1m).
Capital risk management
The board manages the group’s capital through the regular review of: cash flow projections, the ability of the group to meet
contractual commitments, covenant tests, dividend cover and gearing. The group manages the level of its equity shareholders
funds by means of dividends, share purchases and share issues.
Loans within the group have associated covenant requirements with respect to loan to value and interest cover ratios. The board
regularly reviews all covenants and projected future levels to monitor anticipated compliance and available headroom against
key thresholds. For the group as a whole the board does not have a specific loan to value target but it is reviewed in the context
of the board’s view of markets, the prospects of and risks relating to the portfolio and the recurring cash flows of the business.
The group monitors its cost of debt and weighted average cost of capital (‘WACC’) on a regular basis. At 30 September 2008,
the weighted average cost of debt was 6.17% (2007: 6.14%) and the WACC was 5.43% (2007: 6.38%). Investment and
development opportunities are evaluated using the WACC in order to ensure long-term shareholder value is created.
Certain group subsidiaries are regulated by the Financial Services Authority and therefore have externally applied capital adequacy
requirements, however, these do no have any material impact on the group as a whole.
27 Financial assets and liabilities
i Interest-bearing loans and borrowings
Current liabilities
Mortgages
Bank loans
Loan notes
Non-current liabilities
Mortgages
Bank loans
Convertible bond
Total interest-bearing loans and borrowings
2008
£m
0.2
4.9
12.8
17.9
2007
£m
0.2
1.8
16.2
18.2
20.1
18.0
1,524.2
1,287.3
91.1
1,635.4
1,653.3
88.5
1,393.8
1,412.0
Costs relating to the raising of the loan finance set off against the balances shown in the above table amount to £10.8m (2007:
£10.5m).
Analysis of bank loans
a) £1.3bn Multi Option Facility Agreement (the ‘MOF’)
Term Facility A
Term Facility B
Revolving Facility A
Revolving Facility B
Revolving Facility B Euro
Total
2008
£m
225.0
200.0
407.0
245.0
148.2
2007
£m
225.0
200.0
475.0
141.0
84.5
1,225.2
1,125.5
45
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
Headroom on the MOF facility at 30 September 2008 was £302.8m (2007: £174.6m).
Interest is payable at the agreed margin over LIBOR plus mandatory costs. The agreed margin and final repayment date of the
options are as follows:
s
t
a
t
e
m
e
n
t
s
Facility
Term Facility A
Term Facility B
Revolving Facility A
Revolving Facility B
Revolving Facility C
The MOF is secured by floating charges over the assets of the group.
Margin %
Final
repayment
date
0.90
0.85
0.70
0.65
1.00
June 2013
June 2014
June 2011
June 2010
June 2013
46
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
27 Financial assets and liabilities continued
b) Other UK bank loans
Fixed rate – Pounds Sterling
Variable rate – Pounds Sterling
2008
£m
40.0
8.5
48.5
2007
£m
43.2
10.0
53.2
The fixed rate loan is secured by fixed charges over specific retirement solutions home reversion assets in the group’s subsidiary
company Hamsard 2517 Limited and bears interest at a fixed rate of 6.32%.
The variable rate loan is secured by fixed charges over specific investment property assets in The Tilt Estate Company Limited and
bears interest at 0.9% above base rate.
c) European bank loans
Bank loans – Euro
Bank loan – Czech Koruna
2008
£m
264.6
–
264.6
2007
£m
115.6
3.6
119.2
Headroom on these facilities at 30 September 2008 amounted to £30.0m (2007: £41.4m).
The Euro bank loans are secured by floating and fixed charges over the investment property in the group’s Germany portfolio.
The loans bear interest at between 0.6% and 2.1% over EURIBOR.
d) Analysis of loan notes
Fixed rate – Pounds Sterling
Floating rate – Pounds Sterling
2008
£m
0.6
12.2
12.8
2007
£m
0.9
15.3
16.2
The fixed rate loan notes are secured by a bank guarantee and bear interest at a fixed rate of 3.25%.
The floating rate loan notes are secured by bank guarantees and cash collateral and bear interest at between 0.75% and 1%
under LIBOR.
e) Mortgages
Mortgages – Euro
2008
£m
20.3
2007
£m
18.2
The mortgages are secured by floating and fixed charges over the investment property in the group’s Germany portfolio and bear
interest at a fixed rate of 0.5%.
27 Financial assets and liabilities continued
f) Convertible bond
Opening balance
Total fair value on initial recognition
Equity component of new issue
Amortised during the year
2008
£m
90.2
–
–
2.5
92.7
2007
£m
–
112.0
(22.4)
0.6
90.2
A £112m 3.625% convertible bond due 2014 was issued in May 2007. Interest is payable semi-annually. Unless previously
redeemed, converted, purchased or cancelled the bond is convertible at any time up to 12 May 2014 into fully paid up ordinary
shares at a conversion price of £8.64. The convertible bond is a compound financial instrument and the carrying amount has been
allocated to its equity and liability components in the group balance sheet. The liability component has been determined by
measuring the fair value of a similar liability that does not have an associated equity component. The discount rate used for this
was based on a rate of 7.5% compounded semi-annually. The liability component has been deducted from the fair value of the
compound financial instrument as a whole and the residual element has been assigned to the equity component. The liability
element is subsequently measured at amortised cost using the effective interest rate method.
Since the year end, holders of £87.1m of the £112m 3.625% 2014 convertible bond have accepted a cash payment of £35,000
per £100,000 nominal bond value to convert early (see note 40).
The analysis of the loans and borrowings in the above tables is before deducting unamortised issue costs relating to the raising
of the loan finance.
Other loans and borrowings information
The MOF, variable rate UK bank loans and the European bank loans are generally rolled over every three months. At roll over,
LIBOR, EURIBOR and PRIBOR are reset for the following interest period.
The fixed rate UK bank loan and the mortgages are at a fixed rate of interest which do not reprice. The fixed rate loan is repayable
after more than five years. The mortgage has repayments of £0.3m within one year, £1.1m within two to five years and £18.9m
after more than five years. The effective interest rate on borrowings was 6.2% (2007: 6.1%).
The maturity profile of the group’s debt, net of finance costs, is as follows:
Within one year
Between one and two years
Between two and five years
Over five years
2008
£m
17.9
393.1
787.5
454.8
2007
£m
18.2
5.0
783.6
605.2
1,653.3
1,412.0
47
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
48
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
27 Financial assets and liabilities continued
The interest rate risk profile of the group’s debt after taking into account the various financial derivatives used by the group
to manage its interest rate risk is as follows:
Loan notes
Mortgages – Euro
Convertible bond
Bank loans
Pounds Sterling
Euro
Unamortised issue costs
Loan notes
Mortgages – Euro
Convertible bond
Bank loans
Pounds Sterling
Euro
Czech Koruna
Unamortised issue costs
2008
Fixed rate
liabilities
£m
Capped rate
liabilities
£m
Floating rate
liabilities
£m
0.6
20.3
92.7
40.0
–
–
–
–
862.1
366.2
153.6
1,228.3
12.2
–
–
223.4
46.6
282.2
2007
Fixed rate
liabilities
£m
Capped rate
liabilities
£m
Floating rate
liabilities
£m
Total
£m
12.8
20.3
92.7
1,125.5
412.8
1,664.1
(10.8)
1,653.3
Total
£m
16.2
18.2
90.2
0.9
18.2
90.2
43.2
–
–
152.5
–
–
–
712.1
135.1
–
847.2
15.3
–
–
338.9
1,094.2
65.0
3.6
200.1
3.6
422.8
1,422.5
(10.5)
1,412.0
The group’s borrowings subject to fixed interest rates and to swaps, caps and collars (capped rates) have the following weighted
average interest rates and weighted average maturity dates. The weighted average interest rates shown are inclusive of loan
margins.
27 Financial assets and liabilities continued
Loan notes
Mortgages
Convertible bond
Bank loans – Pounds Sterling
Bank loans – Euro
Loan notes
Mortgages
Convertible bond
Bank loans – Pounds Sterling
Bank loans – Euro
ii Financial assets
2008
Fixed rate
weighted
average rate
%
Weighted
average
period
years
Capped rate
weighted
average rate
%
Weighted
average
period
years
3.25
0.50
3.63
6.32
–
–
–
–
6.02
4.94
1
42
6
16
–
2007
–
–
–
3
6
Fixed rate
weighted
average rate
%
Weighted
average
period
years
Capped rate
weighted
average rate
%
Weighted
average
period
years
3.25
0.50
3.63
6.32
–
1
43
7
17
–
–
–
–
6.30
4.76
2008
£m
33.4
8.9
0.9
43.2
–
–
–
3
7
2007
£m
73.4
6.0
0.7
80.1
The group has the following cash and cash equivalents at 30 September 2008:
Pounds Sterling
Euro
Czech Koruna
Short-term deposits totalling £12.1m (2007: £14.7m) with an average maturity of three months are held as cash collateral.
These have an effective interest rate of 5.51% (2007: 4.86%). Included within 2008 year end cash balances is £4m held in
third-party client accounts where Grainger acts as Trustee or agent. The corresponding liability is included within trade creditors.
At the year end £4.7m (2007: £47.2m) was placed on the overnight money market at a rate of 4.35% (2007: £46.0m at
a rate of 5.49% and £1.2m at a rate of 3.01%). Remaining cash and cash equivalents are held as cash at bank or in hand.
The group has an overdraft facility of £10m as at 30 September 2008 (2007: £10m).
49
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
50
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
28 Non-current liabilities
i Trade and other payables
Trade and other payables
2008
£m
4.0
2007
£m
8.0
Trade and other payables is deferred consideration for the purchase of land at West Waterlooville and is payable in April 2013.
ii Provisions for other liabilities and charges
Other
29 Pension costs
Defined contribution scheme
2008
£m
1.0
2007
£m
1.2
The group operates a defined contribution pension scheme for its employees. The assets of the scheme are held separately from
those of the group in independently administered funds. Pension arrangements for directors are disclosed in the report of the
remuneration committee and the directors’ remuneration report on page 49 of the review section of this document. The pension
cost charge in these financial statements represents contributions payable by the group. This is shown in note 11.
Defined benefit scheme
In addition to the above, the group also operates a defined benefit pension scheme, the BPT Limited Retirement Benefits Scheme.
The assets of the scheme are held separately in funds administered by trustees and are invested with an independent investment
manager. Costs and funding are assessed with the advice of an independent qualified actuary using the projected unit credit
method. Actuarial valuations are carried out every three years and the last full actuarial valuation was undertaken as at 1 July
2007. This scheme was operated by BPT Limited which became a subsidiary of Grainger plc in 2003.
The actuarial valuation as at 1 July 2007 was based on the main actuarial assumptions of an investment return of 6.8% per
annum, salary increases of 4.9% per annum and inflation-linked increases to pensions in deferment of 3.4% per annum. The
scheme assets were valued at £17.9m and scheme liabilities at £21.1m, a funding level of 85%. The funding level for the scheme
at the previous valuation as at 1 July 2004 was 79%.The trustees and the employer have agreed a recovery plan to eliminate the
deficit. This plan will run for seven years with company contributions to the scheme of £48,350 per month, £580,200 per annum.
The actuary also undertook a Section 179 valuation as at 1 July 2007 as required by the Pension Protection Fund. The funding level
on a Section 179 valuation basis was 142%.
The scheme was closed to new members and to employee contributions in 2003. Accordingly, there is no current service cost for
the scheme.
The IAS 19 calculations for disclosure purposes have been based upon the 1 July 2007 actuarial valuation but have been updated
to 30 September 2008 by a qualified independent actuary.
29 Pension costs continued
Pension cost recognised in the income statement
Interest on pension scheme liabilities
Expected return on pension scheme assets
The net pension cost shown above has been included within interest expense (see note 13).
The change in the present value of defined benefit obligation over the year was as follows:
Present value of projected defined benefit obligation at start of the year
Interest on pension scheme liabilities
Actuarial gain
Benefits paid
Insurance policies
Present value of projected defined benefit obligation at end of the year
The change in the present value of the scheme assets over the year was as follows:
Opening fair value of scheme assets
Expected return on scheme assets
Employer contributions
Actuarial loss
Benefits paid
Insurance policies
Closing fair value of scheme assets
2008
£m
0.9
(0.9)
–
2008
£m
16.7
0.9
(3.0)
(0.7)
3.4
17.3
2008
£m
14.0
0.9
0.2
(2.6)
(0.7)
3.4
15.2
2007
£m
0.9
(0.7)
0.2
2007
£m
18.1
0.9
(2.0)
(0.3)
–
16.7
2007
£m
13.5
0.7
0.1
–
(0.3)
–
14.0
51
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
The net actuarial gain shown in the above tables of £0.4m (2007: £2.0m) net of tax has been included in the consolidated
statement of recognised income and expense (see page 5).
Defined benefit obligations, scheme assets and scheme deficit
s
t
a
t
e
m
e
n
t
s
Total market value of assets
Present value of scheme liabilities
Scheme deficit at 30 September
2008
£m
15.2
(17.3)
(2.1)
2007
£m
14.0
(16.7)
(2.7)
2006
£m
13.5
(18.1)
(4.6)
2005
£m
12.1
(17.4)
(5.3)
2004
£m
10.7
(15.3)
(4.6)
The scheme deficit of £4.6m, net of deferred tax, was taken into the opening IFRS balance sheet as at 1 October 2004.
52
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
29 Pension costs continued
Actuarial gain recognised in the consolidated statement of recognised income and expense
Actual return less expected return on assets
Experience gain on liabilities
Gain on change of assumptions
Total actuarial gain before tax
Market value of scheme assets and expected rates of return
Equities
Bonds
Properties
Other
Insurance policies
Total value of assets
2008
£m
(2.6)
1.3
1.7
0.4
2007
£m
–
–
2.0
2.0
30 September 2008
30 September 2007
Market
value
£m
Long-term
expected rate
of return
%
Market
value
£m
Long-term
expected rate
of return
%
5.0
6.5
0.3
–
3.4
15.2
7.3%
5.5%
7.3%
5.0%
7.0%
6.3
6.8
0.4
0.5
–
14.0
7.6%
5.3%
7.6%
5.8%
–
The assets of the scheme are held with AXA Sun Life in a managed fund. As the above table shows, the assets of the scheme are
primarily held within equities and bonds. The equity return of 7.3% in 2008 and 7.6% in 2007 is based on an equity risk premium
of 2.6% above the 15-year fixed rate on gilts. The directors consider this to be at the mid point of the acceptable range. The
return on bonds has been determined by reference to actual yields.
Principal actuarial assumptions under IAS 19
Discount rate
Inflation
Rate of increase in salaries
Rate of increase in pensions in payment
Mortality tables for pensioners
2008
7.00% p.a.
3.60% p.a.
5.10% p.a.
5.00% p.a.
2007
5.90% p.a.
3.40% p.a.
4.90% p.a.
5.00% p.a.
107% of PCMA00 year of
birth tables allowing for long
cohort improvements with
1.25% minimum improvements
for males and 0.75% minimum
improvements for females
each year
PXA92c2025*
Mortality tables for non-pensioners
As for pensioners
As for pensioners
* after allowing for short cohort effect
The mortality assumption has been updated to be the same as that used in the actuarial valuation as at 1 July 2007. The resulting
life expectancy for a future male pensioner currently aged 55 is 89.5 years (2007: 86.2 years), and for a future female pensioner
aged 55 is 91.1 years (2007: 89.1 years). The life expectancy for a current male pensioner is 88.7 years (2007: 85.9 years), and for
a current female pensioner is 90.7 years (2007: 88.7 years).
29 Pension costs continued
History of experience gains and losses
Difference between the expected and the actual return
on scheme assets:
Amount
Percentage of scheme assets
Experience gains and losses on scheme liabilities:
Amount
Percentage of present value of liabilities
2008
2007
2006
2005
2004
£(2.6)m
(17.1)%
£1.3m
7.5%
–
–
–
–
£0.6m
4.2%
–
–
£0.8m
6.6%
£0.9m
5.2%
(£0.9)m
(8.4)%
(£0.5)m
(3.3)%
Set out below is an analysis of how the scheme deficit would vary with changes to the key actuarial assumptions:
Discount rate increased by 0.1%
Inflation increased by 0.1%
Life expectancies increased by one year
decrease in deficit of £0.2m
increase in deficit of £0.1m
increase in deficit of £0.4m
The actual returns on scheme assets in 2008 was a loss of £1.7m (2007: a gain of £0.7m). The cumulative amount of actuarial
gains recognised in the consolidated statement of recognised income and expense before taxation is £2.3m (2007: £1.9m).
Payments to the scheme in 2008
The group expects to make payments to the scheme in 2008 based on the recovery plan agreed with the scheme trustees.
Contributions in the next 12 months are estimated at £580,200.
30 Deferred tax liabilities
The movement in the provision for deferred taxation is as follows:
Opening balance
Acquisition of subsidiaries in the year
Recognised in the income statement
Recognised in equity:
Actuarial surplus on BPT pension scheme
Fair value movement in cash flow hedges and exchange adjustments
Exchange adjustments
Closing balance
2008
£m
113.5
3.8
(40.4)
0.1
1.1
0.3
78.4
2007
£m
91.1
18.9
–
0.6
2.9
–
113.5
In addition to the above, the group has a contingent tax liability representing the difference between the carrying value of trading
properties in the balance sheet and their market value. This contingent tax, which is not provided in the accounts, amounts to
£104.5m (2007: £176.7m).
53
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
54
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
31 Trade and other payables
Deposits received
Trade payables
Other taxation and social security
Accruals and deferred income
2008
£m
0.7
15.8
0.5
63.1
80.1
Trade payables includes £0.6m (2007: £23.6m) relating to acquisitions of property where contracts have either been
unconditionally exchanged or notarised.
Accruals and deferred income includes £29.1m (2007: £31.2m) of rent received in advance relating to lifetime leases.
32 Share capital
Authorised
160,000,000 (2007: 160,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid
128,716,094 (2007: 128,656,385) ordinary shares of 5p each
2008
£m
8.0
6.4
2007
£m
0.6
29.7
0.3
54.3
84.9
2007
£m
8.0
6.4
Grainger plc acquired 300,000 of its own shares on 10 January 2008. The total amount paid to acquire the shares was £1.0m and
has been deducted from retained earnings within shareholders’ equity (see note 34). These shares are held as treasury shares.
As at 30 September 2008, share capital included 584,673 (2007: 584,673) shares held by The Grainger Trust Employee Trustee
Company Limited, 1,017,088 (2007: 520,000) shares held by The Grainger Employee Benefit Trusts and 452,912 (2007: 650,000)
shares held by Grainger plc as treasury shares. The total of these shares is 2,054,673 (2007: 1,754,673) with a nominal value of
£102,734 (2007: £87,734).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2006
Options exercised under the executive share option scheme
Options exercised under the LTIS scheme
Options exercised under SAYE schemes
Treasury shares bought back and cancelled
At 30 September 2007
Options exercised under the LTIS scheme
Options exercised under SAYE schemes
At 30 September 2008
Number
129,925,482
63,645
74,586
117,672
(1,525,000)
128,656,385
11,307
48,402
Nominal
value
£’000
6,496
3
4
6
(76)
6,433
1
2
128,716,094
6,436
32 Share capital continued
Share options
Certain senior executives hold options to subscribe for shares in the company under long-term incentive schemes. In addition,
the company operates a SAYE share option scheme available to employees. The number of shares subject to options as at
30 September 2008, the periods in which they were granted and the periods in which they may be exercised are given below:
Year of grant
Long-term incentive scheme (‘LTIS’)
2003
2005
2006
2007
SAYE share options
2002
2003
2004
2005
2006
2007
2008
Total share options
Exercise price
(pence)
Exercise
period
2008
number
2007
number
191.8
381.8
528.0
640.9
163.6
186.5
271.8
334.0
413.0
454.3
167.8
2006-13
2008-15
2009-16
2010-17
52,586
–
313,445
14,040
63,893
370,525
313,445
14,040
380,071
761,903
2005-08
2006-09
2007-10
2008-11
2009-12
2010-13
2011-14
–
25,615
6,250
18,796
3,527
1,745
612,351
668,284
10,115
58,060
29,655
39,702
65,798
65,592
–
268,922
1,048,355
1,030,825
55
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
56
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
32 Share capital continued
The movement on the share options schemes during the year is as follows:
LTIS schemes
2003
2005
2006
2007
Weighted average exercise price (pence per share)
SAYE scheme
2002
2003
2004
2005
2006
2007
2008
Opening
position
63,893
370,525
313,445
14,040
761,903
430.8p
10,115
58,060
29,655
39,702
65,798
65,592
–
Exercised
Granted
Lapsed
Closing
position
(11,307)
–
–
–
(11,307)
191.8p
(10,115)
(31,173)
(6,160)
(954)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
612,351
612,351
167.8p
–
52,586
(370,525)
–
–
–
313,445
14,040
(370,525)
380,071
381.8p
485.7p
–
(1,272)
(17,245)
(19,952)
(62,271)
(63,847)
–
(164,587)
402.9p
–
25,615
6,250
18,796
3,527
1,745
612,351
668,284
176.2p
Weighted average exercise price (pence per share)
268,922
337.6p
(48,402)
195.5p
For those share options exercised during the year, the weighted average share price at the date of exercise was 350.9p
(2007: 610p).
For share options outstanding at the end of the year, the weighted average remaining contractual life is 2.60 years
(2007: 1.17 years).
There were 96,404 share options exercisable at the year end with a weighted average exercise price of 217.2p.
Further details of the above option schemes is provided in the report of the remuneration committee and directors’ remuneration
report on pages 45 to 51 of the review section of this document which forms part of these financial statements.
33 Share-based payments
The group operates an equity-settled, share-based compensation plan comprising awards under a long-term incentive scheme
(‘LTIS’) and a save as you earn (‘SAYE’) scheme.
Awards under the LTIS for 2006 and prior are subject to market performance conditions under which the total shareholder return
(‘TSR’) of the company is measured against a peer group. There is no vesting below median performance. If the company TSR
equals the median of the peer group 40% will vest. If the group’s TSR is equal to or greater than the upper quartile TSR of the
peer group, 100% will vest. At points between the median and upper quartile of the peer group there is pro rata vesting between
40% and 100%. Awards under the LTIS for 2006 and prior have been valued at fair value using a Monte Carlo simulation model.
For awards under the 2008 and 2007 LTIS, one third are subject to an absolute total shareholder return performance condition
measured over three years from the date of grant and two thirds are subject to annual growth in Net Net Net Asset Value
(‘NNNAV’) measured over three years from the date of grant. One third of the awards, therefore, are subject to a market-based
performance condition and these have been valued at fair value using a Monte Carlo simulation model. The remaining two thirds
of the awards are subject to a non-market-based performance condition and have been valued at fair value using a Black-Scholes
valuation model.
57
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
33 Share-based payments continued
Awards under the SAYE scheme have been valued at fair value using a Black Scholes model.
Shares were awarded, subject to the vesting conditions set out above, to executive directors and selected employees during the
year under the LTIS but there were no options granted in the year under this scheme.
Share options were granted to employees of the group during the year under the SAYE scheme. The main assumptions used to
value the shares and options granted during the year are as follows:
LTIS
Share awards:
Award date
Number of shares on grant
Exercise price (£)
Vesting period from date of grant (years)
Exercise period after vesting (years)
Share price at grant (£)
Expected risk free rate (%)
Expected dividend yield (%)
Expected volatility (%)
Fair value (£)
SAYE
Award date
Number of shares on grant
Exercise price (£)
Vesting period from date of grant (years)
Expected exercise date
Share price at grant (£)
Expected risk free rate (%)
Expected dividend yield (%)
Expected volatility (%)
Fair value (£)
9 January
2008
Market-
based
9 January
2008
Non-market-
based
350,096
700,193
–
3
7
3.170
5.310
0.900
26.000
1.210
–
3
7
3.170
5.310
0.900
26.000
3.081
11 July 2008
3-year scheme
11 July 2008
5-year scheme
229,837
382,514
1.678
3
1.678
5
1 Dec 11
1 Dec 13
2.020
4.698
1.100
21.000
0.640
2.020
4.698
1.100
21.000
0.730
The expected volatility figures used in the valuation were calculated based on the historic volatility over a period equal to the
expected term from the date of grant.
The share-based payments charge recognised in the income statement is £0.5m (2007: £1.0m).
Movements in options and options exercisable as at 30 September 2008 are shown in note 32.
58
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
34 Consolidated statement of changes in equity
Issued share
capital
£m
Share
premium
£m
Equity
component
Merger of convertible
bond
reserve
£m
£m
Balance as at 1 October 2006
6.5
22.6
20.1
Retained profit for the year
Actuarial gain on BPT pension
scheme net of tax
Changes in fair value of cash
flow hedges net of tax
Net exchange adjustment
offset in reserves
Purchase of own shares
Issue of shares to satisfy
employee share options
Treasury shares bought back
and cancelled
Share-based payments charge
Dividends paid
Issue of convertible bond
–
–
–
–
–
–
(0.1)
–
–
–
–
–
–
–
–
0.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance as at 30 September 2007
6.4
23.0
20.1
Loss for the year
Actuarial gain on BPT pension
scheme net of tax
Changes in fair value of cash
flow hedges net of tax
Net exchange adjustment offset
in reserves
Purchase of own shares
Issue of shares to satisfy employee
share options
Share-based payments charge
Dividends
Acquisition of minority interests
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
22.4
22.4
–
–
–
–
–
–
–
–
–
Capital
redemption
reserve
£m
Cash flow
hedge
reserve
£m
0.2
(0.8)
–
–
–
–
–
–
0.1
–
–
–
–
–
9.0
–
–
–
–
–
–
–
0.3
8.2
–
–
Retained
earnings
£m
201.3
60.9
1.5
–
0.3
(7.0)
Total
£m
249.9
60.9
1.5
9.0
0.3
(7.0)
–
0.4
(7.8)
1.0
(7.6)
–
242.6
(77.4)
(7.8)
1.0
(7.6)
22.4
323.0
(77.4)
0.3
0.3
–
–
–
–
–
–
–
–
–
(2.8)
–
(2.8)
–
–
–
–
–
–
0.8
(1.0)
–
0.5
(8.3)
(5.5)
0.8
(1.0)
0.1
0.5
(8.3)
(5.5)
Balance as at 30 September 2008
6.4
23.1
20.1
22.4
0.3
5.4
152.0
229.7
Merger reserve
The merger reserve arose when the company issued shares in partial consideration for the acquisition of City North Group plc.
The issue satisfied the provisions of Section 131 of the Companies Act 1985 and the premium relating to the shares issued was
credited to a merger reserve.
Cash flow hedge reserve
The fair value movements on those derivative financial instruments qualifying for hedge accounting under IAS 39 are taken
to this reserve.
34 Consolidated statement of changes in equity continued
The retained earnings reserve comprises various elements. Those elements and the movements in each are set out below:
Share-based Treasury shares
bought back
and cancelled
£m
payment
reserve
£m
Investment in
own shares
£m
Translation
reserve
£m
Balance as at 1 October 2006
Retained profit for the year
Actuarial gain on BPT pension scheme net of tax
Net exchange adjustment offset in reserves
Purchase of own shares
Treasury shares bought back and cancelled
Share-based payments charge
Dividends paid
Balance as at 30 September 2007
Loss for the year
Actuarial gain on BPT pension scheme net of tax
Net exchange adjustment offset in reserves
Purchase of own shares
Share-based payments charge
Dividends
Acquisition of minority interests
Balance as at 30 September 2008
Share-based payments reserve
0.5
–
–
–
–
–
1.0
–
1.5
–
–
–
–
0.5
–
–
2.0
–
–
–
–
–
(7.8)
–
–
(1.4)
–
–
–
(7.0)
–
–
–
(7.8)
(8.4)
–
–
–
–
–
–
–
–
–
–
(1.0)
–
–
–
0.1
–
–
0.3
–
–
–
–
0.4
–
–
0.8
–
–
–
–
Retained
earnings
£m
202.1
60.9
1.5
–
–
–
–
(7.6)
256.9
(77.4)
0.3
–
–
–
(8.3)
(5.5)
Total retained
earnings
reserve
£m
201.3
60.9
1.5
0.3
(7.0)
(7.8)
1.0
(7.6)
242.6
(77.4)
0.3
0.8
(1.0)
0.5
(8.3)
(5.5)
(7.8)
(9.4)
1.2
166.0
152.0
This reserve comprises the cumulative credit entries relating to the share-based payments charge made in the income statement
less the average cost of shares issued to employees as part of the LTIS scheme.
Shares bought back and cancelled
During the year, Grainger plc did not buy back and cancel any shares (2007: 1,525,000 shares at a cost of £7,846,020).
Investment in own shares reserve
As at 30 September 2008, the group owned its own shares as follows: 584,673 (2007: 584,673) shares held by The Grainger
Trust Employee Trustee Company Limited, 1,017,088 (2007: 520,000) shares held by The Grainger Employee Benefit Trusts and
452,912 (2007: 650,000) shares held by Grainger plc as treasury shares. The total of shares held is 2,054,673 (2007: 1,754,673)
with a cost of £9,459,400 (2007: £8,455,374).
59
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
60
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
35 List of principal subsidiaries
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2008 would result
in disclosure of excessive length. The following information relates to those subsidiary undertakings whose results or financial
position, in the opinion of the directors, principally affected the group. A full list will be appended to the next annual return.
Proportion of nominal value
ordinary issued shares held by
Group
%
Company
%
Name of undertaking
Northumberland & Durham Property Trust Limited
Grainger Residential Management Limited
Grainger Asset Management Limited
Warren Court Limited
Grainger Hornsey Limited
West Waterlooville Developments Limited
BPT (Bradford Property Trust) Limited
BPT (Residential Investments) Limited
Grainger Finance Company Limited
Bromley Property Investments Limited
Home Properties Limited
Bridgewater Tenancies Limited
Bridgewater Equity Release Limited
Homesafe Equity Release LP
Hamsard 2517 Limited
Grainger Recklinghausen Portfolio 1 Sarl & Co KG
Grainger Recklinghausen Portfolio 2 Sarl & Co KG
Grainger Berlin Portfolio 1 Sarl & Co KG
Grainger Stuttgart Portfolio 1 Sarl & Co KG
Grainger Stuttgart Portfolio 2 Sarl & Co KG
Francono Rhein-Main AG
Grainger Luxembourg Financing (No. 1) Sarl
Grainger Luxembourg Financing (No. 2) Sarl
Grainger Luxembourg Financing (No. 3) Sarl
Grainger Luxembourg Germany Holdings Sarl
Grainger Treasury Properties (2006) LLP
The Tilt Estate Company Limited
Grainger Retirement Housing No.1 (2007) Limited
BPT Limited
Grainger Malta Finance Limited
All subsidiaries are consolidated in the group accounts.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Incorporated
Activity
England & Wales
Property Trading
100
100
England & Wales
Property Management
England & Wales
Asset Management
England & Wales
Property Trading
England & Wales
Land Development
England & Wales
Land Development
England & Wales
Property Trading
England & Wales
Property Investment
100
England & Wales
Finance Company
England & Wales
Finance Company
England & Wales
England & Wales
Property Trading
Property Trading
England & Wales
Property Investment
England & Wales
Property Investment
England & Wales
Property Trading
Germany
Germany
Germany
Germany
Germany
Germany
Luxembourg
Luxembourg
Luxembourg
Luxembourg
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Finance Company
Finance Company
Finance Company
Holding Company
England & Wales
Property Investment
England & Wales
Property Investment
England & Wales
Property Investment
England & Wales
Investment Company
Malta
Finance Company
61
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
36 Related party transactions
During the year and at the year end, the group held a 50% interest in Grainger GenInvest LLP and Grainger GenInvest No 2
(2006) LLP. The group provides a number of services to both partnerships and receives an asset adviser fee, a sales fee, a
commercial management fee and a treasury services fee. Amounts recognised in the income statement and outstanding balances
at the year end are as follows:
Asset adviser fee
Sales fee
Commercial management fee
Treasury fee
In addition, the group has provided loans to both partnerships as follows:
Grainger GenInvest LLP – 8.5% fixed interest loan note
Grainger GenInvest No 2 (2006) LLP – 11.0% fixed interest loan note
Grainger GenInvest No 2 (2006) LLP – mezzanine loan at LIBOR plus 4%
2008
Fees
recognised
£’000
878
36
30
30
974
2008
Year-end
balance
£’000
256
8
8
9
281
2007
Fees
recognised
£’000
688
83
7
10
788
2007
Year-end
balance
£’000
200
–
5
9
214
Balance as at
30 September
2008
£m
Balance as at
30 September
2007
£m
2008
Interest
receivable
£m
2007
Interest
receivable
£m
7.1
4.8
68.3
80.2
7.9
4.5
55.6
68.0
0.7
0.3
6.6
7.6
0.7
0.3
5.1
6.1
Interest receivable is included within interest receivable from associates and joint ventures shown in note 13. The difference of £3.5m
between the figure shown above of £7.6m and the amount shown in note 13 of £4.1m is a consolidation adjustment to eliminate
interest receivable by the group from the Grainger GenInvest entities against interest payable in those entities to the group.
The loan notes have no fixed repayment date and are subordinated to external financing with each LLP. If not demanded before,
the Grainger GenInvest LLP loan notes are repayable by 23 June 2015 and the Grainger GenInvest No 2 (2006) LLP loan notes by
31 December 2016. The mezzanine loan is repayable on demand but has a final repayment date of 20 March 2011.
The group held a 50% interest in Curzon Park Limited as at 30 September 2008. The group has provided a loan to Curzon Park
Limited as at 30 September 2008 of £7.4m (2007: £6.8m). The loan is repayable on demand and bears interest at 4% per annum.
The group held a 21.6% interest in G:res1 Limited as at 30 September 2008. The group provides a number of services to the fund
and receives a property management fee, a lettings and renewal fee, and an asset management fee. Amounts recognised in the
income statement and the outstanding balance at the year end are as follows:
Property management fees
Lettings and renewal fees
Asset management fees
Insurance intermediary fee
2008
Fees
recognised
£’000
2008
Year-end
balance
£’000
2007
Fees
recognised
£’000
1,437
187
2,739
–
4,363
364
49
616
–
1,029
1,081
130
2,078
38
3,327
2007
Year-end
balance
£’000
352
49
707
–
1,108
62
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
36 Related party transactions continued
The group held a 23.6% interest in the Schroder Residential Property Unit Trust as at 30 September 2008. The group provides a
number of services to the Trust and receives a property management fee, a lettings and renewal fee and an asset management
fee. Amounts recognised in the income statement and the outstanding balance at the year end are as follows:
2008
Fees
recognised
£’000
2008
Year-end
balance
£’000
2007
Fees
recognised
£’000
2007
Year-end
balance
£’000
Property management fees
Lettings and renewal fees
Asset management fees
320
13
530
863
90
4
140
234
345
26
587
958
Details of key management compensation are provided in note 11.
37 Capital commitments
As at 30 September 2008, the group and its joint ventures and associates had capital commitments of £nil (2007: £nil).
38 Operating lease commitments
The future aggregate minimum lease payments payable by the group under non-cancellable operating leases are as follows:
Operating leases which expire:
Not later than one year
Later than one year and not later than five years
Later than five years
2008
£m
0.5
0.9
5.9
7.3
87
–
168
255
2007
£m
0.5
0.8
6.6
7.9
The group does not expect to receive any payments under non-cancellable sub-leases (2007: £nil).
39 Contingent liabilities
The properties in certain subsidiary companies forming a ‘guarantee group’ provide the security for the group’s MOF facility
(see note 27). The properties in certain of the group’s German subsidiaries provide security for the non-recourse finance raised
in those subsidiary undertakings.
The group has provided guarantees under performance bonds relating to its UK development division and as guarantees against
certain loan notes issued by the group. As at 30 September 2008, this amounted to £14.3m (2006: £11.4m). Subsequent to the
year end a guarantee for £8.5m relating to a development project was released.
In addition, the group has an obligation, under the sale and purchase agreement for the land at West Waterlooville, to pay
further consideration should the site value exceed certain pre-agreed amounts. It is not possible to determine the amount or
timing of any such future payments due to the long-term nature of the site’s development and the associated uncertainties with
respect to planning applications. However, any future payments will not fall due until at least 2015 and will be spread over a
number of years.
40 Post-balance sheet events
i Since the year end, holders of £87.1m of the £112m 3.625% 2014 convertible bond have accepted a cash payment of
£35,000 per £100,000 nominal bond value to convert early. The effects of this early conversion have been to: i) issue 10.08m
ordinary shares; ii) eliminate £57m nominal of debt; iii) increase net assets by £42.0m; and iv) to reduce the LTV on our core facility
to 64.1% from 66.4% at the year end.
In the year to 30 September 2009 there will be a one-off charge to the income statement of £30.5m representing the cash
amount paid to bondholders. Annual interest costs will be reduced by approximately £3.6m per annum as a result of the overall
reduction in debt. In addition, by converting prior to the interest payment date of 14 November the group will be able to write
back to the 2009 income statement approximately £1.6m of interest accrued at 30 September 2008 that will not be paid.
ii We completed the sale of our development site at Barnsbury in North London on 4 December 2008 realising proceeds of £19m.
41 Business combinations
On 4 April 2008, the group acquired 85.1% of Francono Rhein-Main AG a property investment company owning residential
property in the Frankfurt area of Germany. The acquired business contributed revenue of £4.8m and net profit before tax of
£0.6m to the group for the period from 4 April 2008 to 30 September 2008. If the acquisition had occurred on 1 October 2007,
group revenue would have been £250.3m and group loss before tax would have been £109.6m.
Details of the net assets acquired and the gain on acquisition are as follows:
Purchase consideration:
Cash paid
Direct costs relating to the acquisition
Total purchase consideration
Fair value of net assets acquired
Gain on acquisition of subsidiary (note 9)
£m
30.3
2.3
32.6
(33.1)
(0.5)
The gain on acquisition of subsidiary is attributable to the fact that the group has been able to negotiate a ‘bargain purchase’.
63
N
o
t
e
s
t
o
t
h
e
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
64
Grainger plc annual report and accounts 2008
NOTES TO THE FINANCIAL STATEMENTS
41 Business combinations continued
The assets and liabilities as at 4 April 2008 arising from the acquisition are as follows:
Investment property
Property, plant and equipment
Trade and other receivables
Inventories
Cash and cash equivalents
Borrowings
Trade and other payables
Deferred tax liabilities (see note 14)
Net assets
Minority interests (14.9%)
Net assets acquired
Purchase consideration settled in cash
Cash and cash equivalents in subsidiary acquired
Cash outflow on acquisition
Fair value
and acquiree’s
carrying value
£m
131.9
0.2
2.9
1.3
3.2
(90.7)
(6.0)
(3.8)
39.0
(5.9)
33.1
(32.6)
3.2
(29.4)
There were no adjustments required to adjust the book values of FRM’s assets and liabilities to fair value.
On 18 October 2007 the group acquired 81.6% of Prazsky Project a.s. a company registered in the Czech Republic and which
owns land on the same development site as the land owned by the group’s existing subsidiary CCZ a.s. The acquisition has had
no material impact on the group’s results for the period to 30 September 2008. The assets and liabilities as at 18 October arising
from the acquisition are as follows:
Inventories – development land
Cash and cash equivalents
Borrowings
Trade and other payables
Net assets
Minority interests (18.4%)
Net assets acquired
Purchase consideration settled in cash
Cash and cash equivalents in subsidiary acquired
Cash inflow on acquisition
Inventories – development land was valued at a fair value of £5.3m on acquisition. This was £0.9m higher than the value
in Prazsky Project a.s.
Fair value
£m
5.3
0.3
(3.3)
(1.5)
0.8
(0.1)
0.7
–
0.3
0.3
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GRAINGER PLC
ON THE PARENT COMPANY FINANCIAL STATEMENTS
We have audited the parent company financial statements
of Grainger plc for the year ended 30 September 2008
which comprise the company balance sheet and the related
notes. These parent company financial statements have
been prepared under the accounting policies set out therein.
We have also audited the information in the report of the
remuneration committee and directors’ remuneration report
that is described as having been audited.
We have reported separately on the group financial
statements of Grainger plc for the year ended
30 September 2008.
Respective responsibilities of directors and auditors
The directors’ responsibilities for preparing the annual report,
the report of the remuneration committee and the parent
company financial statements in accordance with applicable
law and United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice) are set
out in the statement of directors’ responsibilities.
Our responsibility is to audit the parent company financial
statements and the part of the report of the remuneration
committee and directors’ remuneration report to be
audited in accordance with relevant legal and regulatory
requirements and International Standards on Auditing
(UK and Ireland). This report, including the opinion, has
been prepared for and only for the company’s members
as a body in accordance with Section 235 of the Companies
Act 1985 and for no other purpose. We do not, in giving
this opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is
shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
We report to you our opinion as to whether the parent
company financial statements give a true and fair view and
whether the parent company financial statements and the
part of the report of the remuneration committee and
directors’ remuneration report to be audited have been
properly prepared in accordance with the Companies Act
1985. We also report to you whether in our opinion the
information given in the directors’ report is consistent with
the parent company financial statements.
The information given in the directors’ report includes that
specific information presented in the chairman’s statement
and the chief executive’s review that is cross-referenced from
the review of business development and prospects section
of the directors’ report.
In addition we report to you if, in our opinion, the
company has not kept proper accounting records, if we
have not received all the information and explanations
we require for our audit, or if information specified by law
regarding directors’ remuneration and other transactions
is not disclosed.
We read other information contained in the annual
report and consider whether it is consistent with the
audited parent company financial statements. The other
information comprises only the chairman’s statement, the
chief executive’s review, the financial review, the corporate
governance report, the directors’ report, the corporate
responsibility report and the unaudited part of the report
of the remuneration committee and directors’ remuneration
report and the other items listed in both contents pages. We
consider the implications for our report if we become aware
of any apparent misstatements or material inconsistencies
with the parent company financial statements. Our
responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) issued by the
Auditing Practices Board. An audit includes examination,
on a test basis, of evidence relevant to the amounts and
disclosures in the parent company financial statements and
the part of the report of the remuneration committee and
directors’ remuneration report to be audited. It also includes
an assessment of the significant estimates and judgements
made by the directors in the preparation of the parent
company financial statements, and of whether the
accounting policies are appropriate to the company’s
circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all
the information and explanations which we considered
necessary in order to provide us with sufficient evidence to
give reasonable assurance that the parent company financial
statements and the part of the report of the remuneration
committee and directors’ remuneration report to be audited
are free from material misstatement, whether caused by
fraud or other irregularity or error. In forming our opinion
we also evaluated the overall adequacy of the presentation
of information in the parent company financial statements
and the part of the report of the remuneration committee
and directors’ remuneration report to be audited.
65
I
n
d
e
p
e
n
d
e
n
t
a
u
d
i
t
o
r
s
’
r
e
p
o
r
t
t
o
t
h
e
m
e
m
b
e
r
s
o
f
i
G
r
a
n
g
e
r
p
c
l
o
n
t
h
e
p
a
r
e
n
t
c
o
m
p
a
n
y
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
66
Grainger plc annual report and accounts 2008
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF GRAINGER PLC
ON THE PARENT COMPANY FINANCIAL STATEMENTS
Opinion
In our opinion:
(cid:129) the parent company financial statements give a true and
fair view, in accordance with United Kingdom Generally
Accepted Accounting Practice, of the state of the
company’s affairs as at 30 September 2008;
(cid:129) the parent company financial statements and the part of
the report of the remuneration committee and directors’
remuneration report to be audited have been properly
prepared in accordance with the Companies Act 1985;
and
(cid:129) the information given in the directors’ report is consistent
with the parent company financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants and Registered Auditors
London
16 December 2008
Note
The maintenance and integrity of the Grainger plc website is the
responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially
presented on the website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
PARENT COMPANY BALANCE SHEET
As at 30 September 2008
Fixed assets
Tangible assets
Investments
Current assets
Debtors
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Convertible bond
Provisions for liabilities and charges
Net assets
Capital and reserves
Called-up equity share capital
Share premium
Capital redemption reserve
Equity component of convertible bond
Profit and loss account
Total shareholders’ funds
67
Notes
2008
£m
2007
£m
2
3
4
5
6
7
8
9
9
9
9
0.2
109.4
109.6
325.8
0.6
326.4
127.9
198.5
308.1
91.1
0.4
216.6
6.4
23.1
0.3
22.4
164.4
216.6
0.3
149.1
149.4
261.4
3.0
264.4
135.3
129.1
278.5
88.5
1.2
188.8
6.4
23.0
0.3
22.4
136.7
188.8
The financial statements on pages 67 to 72 were approved by the board of directors on 16 December 2008 and were signed
on their behalf by:
Rupert Dickinson
Director
Andrew Cunningham
Director
P
a
r
e
n
t
c
o
m
p
a
n
y
fi
n
a
n
c
a
i
l
s
t
a
t
e
m
e
n
t
s
68
Grainger plc annual report and accounts 2008
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
d) Investments
Investments in equity instruments that have a quoted
market price in an active market or whose fair value can
be reliably measured are valued at fair value under FRS 26
‘Financial Instruments: Recognition and Measurement’.
Fair value is measured as the net asset value per unit held.
e) Investment in subsidiaries
Investments in subsidiaries are carried at historical cost less
provision for impairment.
f) Taxation
Corporation tax is provided on taxable profits or losses
at the current rate.
Deferred tax assets and liabilities arise from timing
differences between the recognition of gains and losses
in the accounts and their recognition in a tax computation.
In accordance with FRS 19 ‘Deferred Tax’, deferred tax
is provided in respect of all timing differences that have
originated, but not reversed, at the balance sheet date that
may give rise to an obligation to pay more or less tax in
future. Deferred tax is measured on a non-discounted basis.
g) Own shares including treasury shares
Transactions of the Grainger Trust Employee Trust Company
Limited and The Grainger Employee Benefit Trusts are
included in the company’s financial statements. The
purchase of shares in the company by each trust and any
treasury shares bought back by the company are debited
directly to equity.
1 Accounting policies
a) Basis of preparation
The financial statements have been prepared on a going
concern basis in accordance with the historical cost
convention as modified by the revaluation of certain
investments, in accordance with the Companies Act 1985
and applicable UK accounting standards.
The company has taken the exemption allowed under
Section 230(4) of the Companies Act 1985 from the
requirement to present its own profit and loss account.
The profit for the year was £36.3m (2007: £2.1m). On
an historical cost basis the profit for the year would have
been £38.5m (2007: £1.2m). These financial statements
present information about the company as an individual
undertaking and not about its group.
In accordance with the exemption in FRS1 ‘Cash Flow
Statements’ (revised 1996), the company has not prepared
a cash flow statement on the grounds that it has presented
its own consolidated financial statements.
The company has taken advantage of the exemption in
FRS 8 ‘Related Party Transactions’, from the requirement
to disclose such transactions on the grounds that it has
presented its own consolidated financial statements.
b) Accounting policies
The company financial statements have been prepared
under UK GAAP rather than under IFRS which has been
adopted for group reporting. The following accounting
policies have been applied consistently in dealing with items
which are considered material in relation to the company’s
financial statements.
c) Tangible fixed assets
These comprise office fixtures, fittings and equipment and
are carried at historical cost less accumulated depreciation
and impairment. Subsequent costs are included in the
assets carrying amount or recognised as a separate asset,
as appropriate, only when it is probable that the future
economic benefits associated with the item will flow to the
company and the cost of the item can be measured reliably.
Depreciation is provided on a straight-line basis over the
estimated useful life of the assets which is assessed as
five years.
2 Tangible fixed assets
Cost
At 1 October 2007 and 30 September 2008
Depreciation
At 1 October 2007
Charge for the year
At 30 September 2008
Net book value
At 30 September 2008
At 1 October 2007
3 Fixed asset investments
Cost
At 1 October 2007
Additions
Provision for impairment
Reduction to fair value
At 30 September 2008
Fixtures,
fittings and
equipment
£m
0.9
0.6
0.1
0.7
0.2
0.3
Total
£m
149.1
0.5
(37.2)
(3.0)
109.4
Investment in
Schroder
Residential
Property
Unit Trust
£m
Investment in
subsidiaries
£m
129.0
0.5
(37.2)
–
92.3
20.1
–
–
(3.0)
17.1
The provision for impairment of £37.2m has been made against the company’s investment in City North Limited. The provision
is required after the reduction in capital in that company (see note 10).
Investments in equity instruments that do not have a quoted market price in an active market or whose fair value cannot be
reliably measured cannot be valued at fair value under FRS 26. The investment in the Schroder Residential Property Unit Trust
can be reliably measured and, therefore, has been valued at fair value under FRS 26.
A list of the principal subsidiaries of the company is given in note 35 on page 60.
4 Debtors
Amounts owed by group undertakings
Other debtors
Debtors in both 2007 and 2008 are all due within one year.
2008
£m
325.1
0.7
325.8
2007
£m
260.7
0.7
261.4
69
N
o
t
e
s
t
o
t
h
e
p
a
r
e
n
t
c
o
m
p
a
n
y
fi
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
70
Grainger plc annual report and accounts 2008
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
5 Creditors: amounts falling due within one year
Loan notes
Amounts owed to group undertakings
Corporation tax payable
Other taxation and social security
Accruals and deferred income
2008
£m
0.4
2007
£m
0.6
125.3
132.6
0.3
0.1
1.8
127.9
–
–
2.1
135.3
The loan notes are secured by bank guarantees and cash collateral and bear interest at between 0.75% and 1% under LIBOR.
The loan notes are repayable within one year.
6 Convertible bond
Opening balance
Total fair value on initial recognition
Equity component of new issue
Amortised during the year
Unamortised issue costs
Liability component at 30 September 2008
2008
£m
90.2
–
–
2.5
92.7
(1.6)
91.1
2007
£m
–
112.0
(22.4)
0.6
90.2
(1.7)
88.5
The £112m 3.625% convertible bond due 2014 was issued in May 2007. Interest is payable semi-annually. Unless previously
redeemed, converted, purchased or cancelled the bond is convertible at any time up to 12 May 2014 into fully paid up ordinary
shares at a conversion price of £8.64. The convertible bond is a compound financial instrument and the carrying amount has
been allocated to its equity and liability components in the group balance sheet. The liability component has been determined by
measuring the fair value of a similar liability that does not have an associated equity component. The discount rate used for this
was based on a rate of 7.5% compounded semi-annually. The liability component has been deducted from the fair value of the
compound financial instrument as a whole and the residual element has been assigned to the equity component. The liability
element is subsequently measured at amortised cost using the effective interest rate method.
Since the year end, holders of £87.1m of the £112m 3.625% 2014 convertible bond have accepted a cash payment of £35,000
per £100,000 nominal bond value to convert early (see note 11).
7 Provisions for liabilities and charges
Deferred tax liability:
Opening balance
Deferred tax on revaluation deficits/gains
Impact of change in tax rate
Closing balance
2008
£m
1.2
(0.8)
–
0.4
The deferred tax balance relates to the tax on the unrealised gain on the revaluation of the investment in units in the Schroder
Residential Property Unit Trust. Deferred tax is provided at a rate of 28% (2007: 28%).
8 Share capital
Authorised
160,000,000 (2007: 160,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid
128,716,094 (2007: 128,656,385) ordinary shares of 5p each
2008
£m
8.0
6.4
2007
£m
1.0
0.3
(0.1)
1.2
2007
£m
8.0
6.4
Grainger plc acquired 300,000 of its own shares on 10 January 2008. The total amount paid to acquire the shares was £1.0m
and has been deducted from retained earnings within shareholders’ equity (see note 9). These shares are held as treasury shares.
As at 30 September 2008, share capital included 584,673 (2007: 584,673) shares held by The Grainger Trust Employee Trustee
Company Limited, 1,017,088 (2007: 520,000) shares held by The Grainger Employee Benefit Trusts and 452,912 (2007: 650,000)
shares held by Grainger plc as treasury shares. The total number of shares held at 30 September 2008 was 2,054,673
(2007: 1,754,673) with a nominal value of £102,734 (2007: £87,734).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2006
Options exercised under the executive share option scheme
Options exercised under the LTIS scheme
Options exercised under SAYE schemes
Treasury shares bought back and cancelled
At 30 September 2007
Options exercised under the LTIS scheme
Options exercised under SAYE schemes
At 30 September 2008
Details of share options granted by the company are provided in note 32 on pages 55 and 56.
Number
129,925,482
63,645
74,586
117,672
(1,525,000)
128,656,385
11,307
48,402
Nominal
value
£’000
6,496
3
4
6
(76)
6,433
1
2
128,716,094
6,436
71
N
o
t
e
s
t
o
t
h
e
p
a
r
e
n
t
c
o
m
p
a
n
y
fi
n
a
n
c
i
a
l
s
t
a
t
e
m
e
n
t
s
72
Grainger plc annual report and accounts 2008
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS
9 Reserves
At 1 October 2007
Retained profit for the year
Share-based payment charge
Issue of shares to satisfy employee share options
Purchase of own shares
Dividends paid
At 30 September 2008
10 Reduction of share capital in subsidiary
Share
premium
£m
23.0
Capital
redemption
reserve
£m
Equity
component
of convertible
bond
£m
0.3
22.4
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
Profit
and loss
account
£m
136.7
36.3
0.5
–
(1.0)
(8.1)
23.1
0.3
22.4
164.4
Following a written resolution dated 18 July 2008, the High Court sanctioned on 13 August 2008 the reduction of the share
capital of City North Limited a wholly owned subsidiary of the company. Details of the reduction can be found in the accounts of
the subsidiary. Grainger plc received amounts totalling £74,083,479 following the reduction of the share capital and this has been
credited to the profit and loss account.
11 Other information
Post balance sheet event
Since the year end, holders of £87.1m of the £112m 3.625% 2014 convertible bond have accepted a cash payment of £35,000
per £100,000 nominal bond value to convert early. The effects of this early conversion have been to: i) issue 10.08m ordinary
shares; ii) eliminate £57m nominal of debt; iii) increase net assets by £42.0m; and iv) to reduce the LTV on our core facility to
64.1% from 66.4% at the year end.
In the year to 30 September 2009 there will be a one-off charge to the income statement of £30.5m representing the cash
amount paid to bondholders. Annual interest costs will be reduced by approximately £3.6m per annum as a result of the overall
reduction in debt. In addition, by converting prior to the interest payment date of 14 November, the company will be able to
write back to the 2009 income statement approximately £1.6m of interest accrued at 30 September 2008 that will not be paid.
Dividends
Information on dividends paid and declared is given in note 15 on page 30.
Share options
Details of share options outstanding and the movements during the year are given in note 32 on pages 55 and 56 respectively.
Employees
The company had no employees in 2008 (2007: none) other than the directors. Details of their remuneration are given
on page 49 of the review section of this document.
Audit fees
The audit fee for the year was £8,000 (2007: £8,000).
FIVE-YEAR RECORD FOR THE YEAR ENDED 30 SEPTEMBER 2008
Turnover
Gross rental income
Sales of investment properties
Trading profits
Profit/(loss) before taxation**
Profit/(loss) after taxation and minority interests**
Dividends
(Loss)/earnings**
Dividends per share
Fixed assets and stocks on a financial statements basis
Fixed assets and stocks at market value
Share capital and reserves
Net asset value on a financial statements basis
Net asset value including fixed assets and stocks
at market value*
Dividend cover**
UK GAAP
IFRS
2004
£m
217.4
41.0
41.1
72.6
59.6
36.8
5.7
Pence
per share
29.94
4.65
£m
950.8
1,454.5
177.9
Pence
per share
143.4
546.8
6.5x
2005
£m
227.6
45.5
13.3
67.2
41.0
31.1
6.9
Pence
per share
24.88
5.11
£m
1,225.4
1,639.3
211.1
Pence
per share
159.1
475.4
4.7x
Restated
2006
£m
206.3
52.6
40.6
56.2
47.7
33.5
6.9
Pence
per share
25.99
5.62
£m
1,467.8
2,009.9
250.1
Pence
per share
192.5
606.3
4.6x
2007
£m
229.3
52.7
14.8
62.8
77.5
60.9
7.6
Pence
per share
47.26
6.18
£m
1,865.0
2,514.7
323.1
Pence
per share
251.1
751.7
7.7x
2008
£m
246.2
70.7
7.4
62.6
(112.1)
(77.4)
8.3
Pence
per share
(61.05)
6.18
£m
2,027.4
2,404.6
229.8
Pence
per share
178.4
471.5
–
Share price at 30 September
367.0p
456.0p
628.0p
447.5p
200.0p
Share price and per share figures have been restated for 2004 to take account of the five for one share split that took place
in February 2005.
Information relating to 2004 is presented under UK GAAP as directed by IFRS 1. The main adjustments that would
be required to comply with IFRS are those set out in note 38 to the 2006 consolidated financial statements.
In addition:
* corporation tax has not been provided on valuation surpluses relating to stocks
** excluding exceptional items and including share of joint ventures and associates
73
i
F
v
e
-
y
e
a
r
r
e
c
o
r
d
s
r
e
s
i
v
d
A
n
o
i
t
a
m
r
o
f
n
i
l
’
s
r
e
d
o
h
e
r
a
h
S
8
0
0
2
s
t
n
u
o
c
c
a
d
n
a
t
r
o
p
e
r
l
a
u
n
n
a
c
l
p
r
e
g
n
a
r
G
i
5
7
/
4
7
.
s
e
c
i
v
r
e
S
g
n
i
l
a
e
D
e
r
a
h
S
a
t
i
p
a
C
a
i
v
s
e
r
a
h
s
s
’
y
n
a
p
m
o
c
e
h
t
l
l
e
s
r
o
y
u
b
o
t
l
s
r
e
d
o
h
e
r
a
h
s
g
n
i
t
s
i
x
e
o
t
e
l
b
a
l
i
a
v
a
s
i
e
c
i
v
r
e
s
g
n
i
l
a
e
d
e
r
a
h
s
A
e
c
i
v
r
e
s
g
n
i
l
a
e
d
e
r
a
h
S
N
O
I
T
A
M
R
O
F
N
I
’
S
R
E
D
L
O
H
E
R
A
H
S
9
0
0
2
y
r
a
u
r
b
e
F
6
1
d
n
e
d
i
v
i
d
l
a
n
i
f
8
0
0
2
f
o
t
n
e
m
y
a
P
9
0
0
2
y
r
a
u
r
b
e
F
0
1
g
n
i
t
e
e
M
a
r
e
n
e
G
l
l
a
u
n
n
A
r
a
d
n
e
l
a
c
l
a
i
c
n
a
n
i
F
s
s
e
c
c
a
o
t
y
s
a
e
n
a
e
d
i
v
o
r
p
s
e
i
t
i
l
i
c
a
f
g
n
i
l
a
e
d
e
n
o
h
p
e
l
e
t
d
n
a
e
n
i
l
n
O
9
0
0
2
y
a
M
s
t
l
u
s
e
r
m
i
r
e
t
n
i
9
0
0
2
f
o
t
n
e
m
e
c
n
u
o
n
n
A
,
s
e
r
a
h
s
l
l
e
s
r
o
y
u
b
o
t
r
o
,
e
c
i
v
r
e
s
s
i
h
t
n
o
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
r
u
f
r
o
F
.
e
c
i
v
r
e
s
e
s
u
o
t
e
l
p
m
i
s
d
n
a
9
0
0
2
r
e
b
m
e
v
o
N
s
t
l
u
s
e
r
l
a
n
i
f
9
0
0
2
f
o
t
n
e
m
e
c
n
u
o
n
n
A
9
0
0
2
e
n
u
J
d
n
e
d
i
v
i
d
m
i
r
e
t
n
i
9
0
0
2
f
o
t
n
e
m
y
a
P
g
n
i
k
e
e
s
t
o
n
e
r
a
y
n
a
p
m
o
c
e
h
t
f
o
s
r
o
t
c
e
r
i
d
e
h
t
t
a
h
t
e
t
o
n
e
s
a
e
l
P
.
s
e
r
a
h
s
r
i
e
h
t
l
l
e
s
r
o
y
u
b
r
e
h
t
i
e
o
t
l
s
r
e
d
o
h
e
r
a
h
s
e
g
a
r
u
o
c
n
e
o
t
t
n
e
d
n
e
p
e
d
n
i
n
a
m
o
r
f
e
c
i
v
d
a
l
a
i
c
n
a
n
i
f
k
e
e
s
o
t
d
e
d
n
e
m
m
o
c
e
r
d
n
a
s
e
c
i
v
r
e
S
l
a
i
c
n
a
n
i
F
e
h
t
y
b
d
e
s
i
r
o
h
t
u
a
r
e
s
i
v
d
a
l
a
i
c
n
a
n
i
f
e
r
a
e
k
a
t
o
t
n
o
i
t
c
a
t
a
h
w
o
t
s
a
t
b
u
o
d
y
n
a
n
i
l
s
r
e
d
o
h
e
r
a
h
S
e
c
i
f
f
o
d
e
r
e
t
s
i
g
e
r
d
n
a
y
r
a
t
e
r
c
e
S
s
i
c
a
a
c
a
e
l
l
i
v
n
a
l
G
e
i
r
a
M
.
0
0
0
2
t
c
A
s
t
e
k
r
a
M
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
d
r
a
v
e
l
u
o
B
’
s
e
m
a
J
t
S
e
t
a
g
y
t
i
C
E
J
4
1
E
N
n
o
d
e
n
i
a
t
b
o
e
b
n
a
c
e
c
i
r
p
e
r
a
h
s
s
’
y
n
a
p
m
o
c
e
h
t
n
o
n
o
i
t
a
m
r
o
f
n
i
y
l
i
a
D
p
0
0
2
p
7
8
1
p
5
6
4
r
a
e
y
e
h
t
g
n
i
r
u
d
e
c
i
r
p
t
s
e
w
o
L
r
a
e
y
e
h
t
g
n
i
r
u
d
e
c
i
r
p
t
s
e
h
g
H
i
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
t
a
e
c
i
r
P
e
c
i
v
r
e
S
e
n
i
l
y
t
i
C
s
e
m
T
i
l
a
i
c
n
a
n
i
F
e
h
T
:
l
i
g
n
n
o
h
p
e
e
t
y
b
r
o
e
t
i
s
b
e
w
r
u
o
x
a
t
s
n
i
a
g
l
a
t
i
p
a
c
r
o
f
s
e
r
a
h
s
s
’
y
n
a
p
m
o
c
e
h
t
l
f
o
e
u
a
v
t
e
k
r
a
m
e
h
T
.
0
5
7
2
3
4
8
6
0
9
0
n
o
x
a
t
s
n
i
a
g
l
a
t
i
p
a
C
.
k
u
o
c
.
c
l
p
r
e
g
n
a
r
g
w
w
w
i
.
s
s
e
r
d
d
a
e
t
i
s
b
e
W
e
t
i
s
b
e
W
.
.
p
8
0
6
s
a
w
2
8
9
1
h
c
r
a
M
1
3
t
a
s
e
s
o
p
r
u
p
g
n
i
l
a
e
d
e
n
o
h
p
e
l
e
t
–
7
7
5
4
8
5
4
0
7
8
0
:
e
r
e
w
i
s
e
r
a
h
s
y
r
a
n
d
r
o
s
’
y
n
a
p
m
o
c
e
h
t
f
o
s
e
c
i
r
p
t
e
k
r
a
m
-
d
m
g
n
i
s
o
l
c
i
5
7
5
5
2
1
r
e
b
m
u
n
n
o
i
t
a
r
t
s
i
g
e
r
y
n
a
p
m
o
C
s
e
i
r
i
u
q
n
e
l
’
s
r
e
d
o
h
e
r
a
h
S
,
e
l
p
m
a
x
e
r
o
f
(
l
i
s
g
n
d
o
h
e
r
a
h
s
o
t
g
n
i
t
a
e
r
l
s
e
i
r
i
u
q
n
e
e
v
i
t
a
r
t
s
i
n
m
d
a
l
l
i
A
d
n
e
d
i
v
i
d
,
s
e
t
a
c
i
f
i
t
r
e
c
e
r
a
h
s
f
o
s
s
o
l
,
s
s
e
r
d
d
a
f
o
e
g
n
a
h
c
f
o
n
o
i
t
a
c
i
f
i
t
o
n
:
t
a
r
a
r
t
s
i
g
e
r
s
’
y
n
a
p
m
o
c
e
h
t
o
t
d
e
s
s
e
r
d
d
a
e
b
d
u
o
h
s
l
)
s
t
n
e
m
y
a
p
e
s
u
o
H
n
r
e
h
t
r
o
N
k
r
a
P
e
m
o
s
d
o
o
W
c
l
P
G
R
I
a
t
i
p
a
C
e
g
d
i
r
B
y
a
n
e
F
d
l
e
i
f
s
r
e
d
d
u
H
e
r
i
h
s
k
r
o
Y
t
s
e
W
A
L
0
8
D
H
g
n
i
l
a
e
d
e
n
i
l
n
o
–
m
o
c
.
l
a
e
d
a
t
i
p
a
c
.
w
w
w
e
h
t
f
o
e
g
n
a
r
e
h
t
,
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
d
e
d
n
e
r
a
e
y
e
h
t
g
n
i
r
u
D
:
t
c
a
t
n
o
c
e
s
a
e
l
p
e
c
i
r
p
e
r
a
h
S
P
L
L
s
r
e
p
o
o
C
e
s
u
o
h
r
e
t
a
w
e
c
i
r
P
s
r
o
t
i
d
u
A
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
d
a
o
R
d
r
o
f
y
d
n
a
S
9
8
P
L
1
9
9
E
N
d
e
t
i
m
i
L
e
v
o
n
e
z
a
C
n
a
g
r
o
M
P
J
s
r
e
k
o
r
b
k
c
o
t
S
e
t
a
g
r
o
o
M
0
2
A
D
6
R
2
C
E
n
o
d
n
o
L
e
c
i
f
f
o
r
e
f
s
n
a
r
t
d
n
a
s
r
a
r
t
s
i
g
e
R
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
R
S
4
1
E
N
l
a
r
t
n
e
C
e
m
i
T
e
t
a
g
w
o
l
l
a
G
e
s
u
o
H
n
r
e
h
t
r
o
N
k
r
a
P
e
m
o
s
d
o
o
W
c
l
P
G
R
I
a
t
i
p
a
C
e
g
d
i
r
B
y
a
n
e
T
d
l
e
i
f
s
r
e
d
d
u
H
e
r
i
h
s
k
r
o
Y
t
s
e
W
A
L
0
8
D
H
i
s
e
i
t
i
r
u
c
e
S
n
h
p
o
D
n
w
e
r
B
l
i
t
n
e
g
A
y
t
i
l
i
c
a
F
d
n
a
k
n
a
B
g
n
i
r
a
e
l
C
C
L
P
k
n
a
B
s
y
a
l
c
r
a
B
c
l
p
d
n
a
l
t
o
c
S
f
o
k
n
a
B
l
a
y
o
R
e
h
T
c
l
p
s
k
n
a
B
h
s
i
r
I
d
e
i
l
l
A
c
l
p
k
n
a
B
B
S
T
s
d
y
o
l
L
s
r
e
k
n
a
b
r
e
h
t
O
s
r
e
k
n
a
B
k
n
a
B
e
h
t
f
o
y
n
a
p
m
o
C
d
n
a
r
o
n
r
e
v
o
G
e
h
T
d
n
a
l
t
o
c
S
f
o
d
e
t
i
m
i
L
k
n
a
B
a
i
l
a
r
t
s
u
A
l
a
n
o
i
t
a
N
r
e
g
n
i
r
e
D
s
u
a
h
k
c
u
r
B
,
s
d
l
e
i
f
h
s
e
r
F
t
e
e
r
t
S
t
e
e
l
F
5
6
S
H
1
Y
4
C
E
n
o
d
n
o
L
t
e
e
r
t
S
n
o
t
g
n
i
l
l
e
W
1
t
s
e
W
F
W
D
S
R
E
S
I
V
D
A
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
X
D
3
1
E
N
s
e
e
D
n
o
s
n
i
k
c
i
D
f
r
a
h
W
s
’
n
n
A
t
S
e
d
i
s
y
a
u
Q
2
1
1
s
r
o
t
i
c
i
l
o
S
k
n
a
B
e
h
t
f
o
y
n
a
p
m
o
C
d
n
a
r
o
n
r
e
v
o
G
e
h
T
d
n
a
l
e
r
I
f
o
d
e
t
i
m
i
L
e
c
n
a
n
i
F
e
t
a
t
s
E
l
a
e
R
E
G
G
A
k
n
a
B
e
t
a
t
s
E
l
a
e
R
o
p
y
H
G
A
o
p
y
h
o
r
u
E
y
t
e
i
c
o
S
g
n
d
i
l
i
i
u
B
e
d
w
n
o
i
t
a
N
s
n
o
i
t
a
e
r
c
i
l
l
b
u
p
A
B
1
1
S
L
s
d
e
e
L
l
a
i
c
n
a
n
i
F
s
c
i
m
a
n
y
D
l
a
i
c
n
a
n
i
F
e
t
a
G
n
r
o
b
o
H
l
s
g
n
d
i
l
i
u
B
n
o
t
p
m
a
h
t
u
o
S
6
2
s
n
o
i
t
a
e
r
c
i
l
l
b
u
p
e
t
a
r
o
p
r
o
C
B
P
1
A
2
C
N
n
o
d
n
o
L
G
A
k
n
a
b
s
n
e
r
e
V
d
n
u
-
o
p
y
H
e
h
c
s
i
r
e
y
a
B
G
A
B
E
S
B
P
1
A
2
C
W
n
o
d
n
o
L
S
h
a
r
e
h
o
d
e
r
s
’
l
i
n
f
o
r
m
a
t
i
o
n
A
d
v
i
s
e
r
s
s
g
n
d
i
l
i
u
B
n
o
t
p
m
a
h
t
u
o
S
6
2
B
A
n
e
k
n
a
b
s
l
e
d
n
a
H
a
k
s
n
e
v
S
s
i
s
e
m
a
T
D
F
s
m
r
e
t
f
o
y
r
a
s
s
o
G
l
8
0
0
2
s
t
n
u
o
c
c
a
d
n
a
t
r
o
p
e
r
l
a
u
n
n
a
c
l
p
r
e
g
n
a
r
G
i
7
7
/
6
7
.
e
r
u
n
e
t
f
o
y
t
i
r
u
c
e
s
s
a
h
t
n
a
n
e
T
.
d
e
t
a
u
g
e
r
l
m
o
r
f
n
o
i
s
s
e
c
c
u
s
m
o
r
f
g
n
i
s
i
r
a
y
c
n
a
n
e
t
d
e
t
n
e
r
-
t
e
k
r
a
M
)
’
T
P
A
‘
(
y
c
n
a
n
e
t
c
i
d
o
i
r
e
p
d
e
r
u
s
s
A
S
M
R
E
T
F
O
Y
R
A
S
S
O
L
G
Y
T
R
E
P
O
R
P
.
d
e
v
r
e
s
e
c
i
t
o
n
e
t
a
i
r
p
o
r
p
p
a
f
i
i
n
o
i
s
s
e
s
s
o
p
n
a
t
b
o
y
a
m
d
r
o
d
n
a
l
l
e
r
e
h
w
y
c
n
a
n
e
t
d
e
t
n
e
r
-
t
e
k
r
a
M
)
’
T
S
A
‘
(
l
y
c
n
a
n
e
t
d
o
h
t
r
o
h
s
d
e
r
u
s
s
A
.
w
e
n
e
r
o
t
t
h
g
i
r
s
a
h
t
n
a
n
e
t
e
r
e
h
w
y
c
n
a
n
e
t
d
e
t
n
e
r
-
t
e
k
r
a
M
)
’
T
A
‘
(
y
c
n
a
n
e
t
d
e
r
u
s
s
A
.
e
c
a
p
n
l
i
y
c
n
a
n
e
t
t
n
a
v
e
e
r
o
t
l
j
t
c
e
b
u
s
y
t
r
e
p
o
r
p
a
f
o
e
u
a
v
l
t
e
k
r
a
m
n
e
p
O
e
u
a
v
l
t
e
k
r
a
m
r
o
)
’
V
I
‘
(
e
u
a
v
l
t
n
e
m
t
s
e
v
n
I
.
n
o
i
s
r
e
v
e
r
e
m
o
h
l
a
i
t
r
a
p
a
s
i
s
i
h
t
y
t
r
e
p
o
r
p
e
h
t
n
i
t
s
e
r
e
t
n
i
y
t
i
u
q
e
n
a
i
s
n
a
t
e
r
t
n
a
n
e
t
f
I
t
n
a
n
e
t
d
n
a
r
e
c
fi
f
o
t
n
e
r
y
b
t
e
s
)
t
e
k
r
a
m
-
b
u
s
y
l
l
a
u
s
u
(
t
n
e
r
,
t
c
A
t
n
e
R
7
7
9
1
r
e
d
n
u
d
e
t
a
u
g
e
r
l
y
c
n
a
n
e
T
y
c
n
a
n
e
t
d
e
t
a
u
g
e
R
l
.
e
r
u
n
e
t
f
o
y
t
i
r
u
c
e
s
s
a
h
.
s
e
i
c
n
a
n
e
t
y
n
a
m
o
r
f
e
e
r
f
y
t
r
e
p
o
r
p
a
f
o
e
u
a
v
l
t
e
k
r
a
m
n
e
p
O
e
u
a
v
l
)
’
P
V
‘
(
n
o
i
s
s
e
s
s
o
p
t
n
a
c
a
V
.
r
o
t
c
e
s
d
e
t
n
e
r
e
t
a
v
i
r
P
S
R
P
y
t
i
u
q
e
d
n
a
d
e
t
a
u
g
e
r
l
r
u
o
n
i
l
s
u
p
r
u
s
y
r
a
n
o
i
s
r
e
v
e
r
e
h
t
f
o
e
u
a
v
l
x
a
t
r
e
t
f
a
e
h
t
j
r
o
f
d
e
t
s
u
d
a
V
A
N
N
N
E
T
A
R
O
P
R
O
C
V
A
N
r
e
g
n
a
r
G
i
.
)
h
t
a
e
d
n
o
y
l
l
a
u
s
u
(
d
e
t
i
e
f
r
o
f
l
i
t
n
u
n
o
i
t
a
p
u
c
c
o
f
o
t
h
g
i
r
s
a
h
t
n
a
n
e
t
e
r
e
h
w
y
c
n
a
n
e
t
e
e
r
f
t
n
e
R
n
o
i
s
r
e
v
e
r
e
m
o
H
e
g
a
r
e
v
a
d
e
t
h
g
e
w
d
e
t
s
u
d
a
j
i
k
s
i
r
r
u
o
g
n
i
s
u
e
u
a
v
l
t
n
e
s
e
r
p
o
t
k
c
a
b
d
e
t
n
u
o
c
s
i
d
s
o
i
l
o
f
t
r
o
p
e
s
a
e
e
r
l
.
t
s
i
x
e
s
e
i
t
i
v
i
t
i
s
n
e
s
d
n
a
e
s
a
c
e
s
a
B
.
n
o
i
t
a
s
i
l
a
e
r
f
o
d
o
i
r
e
p
e
g
a
r
e
v
a
d
e
t
c
e
p
x
e
e
h
t
r
e
v
o
l
a
t
i
p
a
c
f
o
t
s
o
c
.
5
0
0
2
r
e
b
m
e
c
e
D
1
3
r
e
t
f
a
r
o
n
o
g
n
d
n
e
i
s
d
o
i
r
e
p
g
n
i
t
n
u
o
c
c
a
r
o
f
i
s
e
n
a
p
m
o
c
d
e
t
s
i
l
-
K
U
r
o
f
y
r
o
t
a
d
n
a
M
.
s
d
r
a
d
n
a
t
S
g
n
i
t
r
o
p
e
R
l
a
i
c
n
a
n
i
F
l
a
n
o
i
t
a
n
r
e
t
n
I
S
R
F
I
e
t
a
r
t
s
e
r
e
t
n
i
e
h
t
r
o
f
t
i
m
i
l
r
e
p
p
u
n
a
s
e
e
t
n
a
r
a
u
g
,
e
e
f
a
r
o
f
n
r
u
t
e
r
n
i
,
h
c
i
h
w
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
F
l
e
u
a
v
g
n
y
r
r
a
c
i
e
h
t
n
e
e
w
t
e
b
e
c
n
e
r
e
f
f
i
d
e
h
t
n
o
e
b
a
y
a
p
e
b
d
u
o
w
l
l
t
a
h
t
x
a
t
f
o
t
n
u
o
m
a
e
h
T
.
n
a
o
l
a
n
o
.
e
u
a
v
l
t
e
k
r
a
m
r
i
e
h
t
d
n
a
t
e
e
h
s
l
e
c
n
a
a
b
e
h
t
n
i
d
e
d
r
o
c
e
r
s
a
s
e
i
t
r
e
p
o
r
p
g
n
d
a
r
t
i
f
o
.
e
r
a
h
s
r
e
p
s
d
n
e
d
i
v
i
d
y
b
d
e
d
i
v
i
d
e
r
a
h
s
r
e
p
s
g
n
n
r
a
E
i
I
L
A
C
N
A
N
I
F
p
a
C
x
a
t
t
n
e
g
n
i
t
n
o
C
r
e
v
o
c
d
n
e
d
v
D
i
i
s
e
r
a
h
s
f
o
r
e
b
m
u
n
e
g
a
r
e
v
a
d
e
t
h
g
e
w
e
h
t
i
y
b
d
e
d
i
v
i
d
s
r
e
d
o
h
e
r
a
h
s
l
y
t
i
u
q
e
o
t
l
e
b
a
t
u
b
i
r
t
t
a
t
fi
o
r
P
)
’
S
P
E
‘
(
e
r
a
h
s
r
e
p
s
g
n
n
r
a
E
i
d
e
r
i
u
q
c
a
s
t
e
s
s
a
t
e
n
f
o
e
u
a
v
l
r
i
a
f
e
h
t
n
e
e
w
t
e
b
e
c
n
e
r
e
f
f
i
d
e
h
t
,
y
n
a
p
m
o
c
a
f
o
n
o
i
t
i
s
i
u
q
c
a
n
O
.
e
u
a
v
l
t
e
s
s
a
t
e
n
t
e
k
r
a
m
e
h
t
o
t
,
h
s
a
c
i
f
o
t
e
n
,
s
g
n
w
o
r
r
o
b
f
o
o
i
t
a
r
e
h
T
i
.
d
a
p
e
c
i
r
p
e
s
a
h
c
r
u
p
e
h
t
d
n
a
.
r
a
e
y
e
h
t
n
i
e
u
s
s
i
n
i
g
n
i
r
a
e
G
l
l
i
w
d
o
o
G
l
e
m
o
h
d
n
a
d
e
t
a
u
g
e
r
n
o
s
u
p
r
u
s
l
y
r
a
n
o
i
s
r
e
v
e
r
d
e
t
n
u
o
c
s
i
d
d
e
x
a
t
e
h
t
j
r
o
f
d
e
t
s
u
d
a
V
A
N
N
N
V
A
N
r
e
g
n
a
r
G
i
.
s
e
v
i
t
a
v
i
r
e
d
f
o
e
u
a
v
l
r
i
a
f
e
h
t
r
o
f
s
t
n
e
m
t
s
u
d
a
j
e
r
o
f
e
b
d
n
a
x
a
t
d
e
r
r
e
f
e
d
k
c
a
b
g
n
d
d
a
d
n
a
i
,
k
c
o
t
s
l
s
a
d
e
h
s
t
e
s
s
a
y
t
r
e
p
o
r
p
f
o
e
u
a
v
l
t
e
k
r
a
m
e
h
t
r
o
f
d
e
t
s
u
d
a
j
s
d
n
u
f
l
’
s
r
e
d
o
h
e
r
a
h
S
e
u
a
v
l
t
e
k
r
a
m
e
h
t
f
o
n
o
i
t
i
n
g
o
c
e
r
e
h
t
r
o
f
s
e
u
r
l
i
i
l
x
e
p
m
o
c
g
n
n
a
t
n
o
c
d
r
a
d
n
a
t
s
g
n
i
t
n
u
o
c
c
A
.
s
t
n
e
m
e
v
o
m
e
t
a
r
t
s
e
r
e
t
n
i
i
t
s
n
a
g
a
t
c
e
t
o
r
p
o
t
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
fi
f
o
e
s
u
e
h
T
l
.
e
b
a
y
a
p
t
s
e
r
e
t
n
i
t
e
n
y
b
d
e
d
i
v
i
d
x
a
t
d
n
a
t
s
e
r
e
t
n
i
e
r
o
f
e
b
s
e
i
t
i
v
i
t
c
a
i
y
r
a
n
d
r
o
n
o
t
fi
o
r
P
.
s
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
fi
d
n
a
t
b
e
d
m
r
e
t
-
g
n
o
l
f
o
.
s
d
r
a
d
n
a
t
S
g
n
i
t
r
o
p
e
R
l
a
i
c
n
a
n
i
F
l
a
n
o
i
t
a
n
r
e
t
n
I
.
s
o
i
l
o
f
t
r
o
p
n
o
i
s
r
e
v
e
r
)
’
V
A
N
s
s
o
r
G
‘
(
e
u
a
v
l
t
e
s
s
a
t
e
n
s
s
o
r
G
r
e
v
o
c
t
s
e
r
e
t
n
I
S
R
F
I
i
g
n
g
d
e
H
9
3
S
A
I
.
s
e
i
t
r
e
p
o
r
p
f
o
e
u
a
v
l
t
e
k
r
a
m
e
h
t
o
t
t
b
e
d
t
e
n
f
o
o
i
t
a
R
)
’
V
T
L
‘
(
l
e
u
a
v
o
t
n
a
o
L
.
l
a
t
i
p
a
c
i
s
s
o
r
g
g
n
n
e
p
o
f
o
e
g
a
t
n
e
c
r
e
p
a
s
a
l
s
e
s
u
p
r
u
s
n
o
i
t
a
u
a
v
e
r
l
l
l
a
l
s
u
p
s
t
s
o
c
g
n
i
c
n
a
n
fi
e
r
o
f
e
b
t
fi
o
r
P
y
t
i
u
q
e
l
’
s
r
e
d
o
h
e
r
a
h
s
n
o
n
r
u
t
e
R
.
d
e
t
s
e
v
n
e
r
i
s
d
n
e
d
i
v
i
d
h
t
i
w
h
t
w
o
r
g
e
c
i
r
p
e
r
a
h
s
f
o
s
i
s
a
b
n
o
s
r
e
d
o
h
e
r
a
h
s
o
t
l
l
e
b
a
t
u
b
i
r
t
t
a
n
r
u
t
e
R
)
’
R
S
T
‘
(
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
s
l
a
t
o
T
.
s
t
n
e
m
e
v
o
m
e
t
a
r
t
s
e
r
e
t
n
i
i
t
s
n
a
g
a
t
c
e
t
o
r
p
o
t
t
n
e
m
u
r
t
s
n
i
l
a
i
c
n
a
n
i
F
p
a
w
S
.
s
e
v
i
t
a
v
i
r
e
d
d
n
a
t
b
e
d
m
r
e
t
-
g
n
o
l
f
o
e
u
a
v
l
t
e
k
r
a
m
e
h
t
r
o
f
d
n
a
.
i
V
A
N
N
N
g
n
n
e
p
o
f
o
e
g
a
t
n
e
c
r
e
p
a
s
a
e
r
a
h
s
i
r
e
p
d
a
p
s
d
n
e
d
i
v
i
d
s
u
p
V
A
N
N
N
n
l
i
h
t
w
o
r
G
d
e
y
o
p
m
e
l
l
a
t
i
p
a
c
n
o
n
r
u
t
e
R
n
o
i
t
a
n
b
m
o
c
i
a
h
g
u
o
r
h
t
s
e
i
t
i
v
i
t
c
a
s
’
p
u
o
r
g
e
h
t
g
n
d
n
u
f
i
f
o
t
s
o
c
e
g
a
r
e
v
a
d
e
t
h
g
e
w
e
h
T
i
.
t
b
e
d
d
n
a
s
d
n
u
f
l
’
s
r
e
d
o
h
e
r
a
h
s
f
o
)
’
C
C
A
W
‘
(
l
G
o
s
s
a
r
y
o
f
t
e
r
m
s
l
a
t
i
p
a
c
f
o
t
s
o
c
e
g
a
r
e
v
a
d
e
t
h
g
e
W
i
e
u
a
v
l
t
e
k
r
a
m
t
a
d
o
s
l
s
t
e
s
s
a
f
i
l
e
u
r
c
c
a
d
u
o
w
h
c
i
h
w
s
e
i
t
i
l
i
b
a
i
l
x
a
t
j
r
o
f
d
e
t
s
u
d
a
V
A
N
s
s
o
r
G
)
’
V
A
N
N
N
‘
r
o
t
e
n
e
p
i
r
t
(
l
e
u
a
v
l
t
e
s
s
a
t
e
n
t
e
N
s
e
s
s
e
r
d
d
a
e
t
a
r
o
p
r
o
C
8
0
0
2
s
t
n
u
o
c
c
a
d
n
a
t
r
o
p
e
r
l
a
u
n
n
a
c
l
p
r
e
g
n
a
r
G
i
8
7
l
l
a
d
r
y
S
e
t
i
v
i
t
c
A
d
c
r
a
P
9
’
g
r
u
o
b
m
e
x
u
L
h
c
a
b
s
n
u
M
5
6
3
5
-
L
g
r
u
o
b
m
e
x
u
L
)
0
1
–
6
.
r
t
s
s
n
e
d
e
i
r
F
:
g
n
a
g
n
i
E
(
6
1
–
2
1
.
r
t
s
n
e
u
a
r
f
s
s
i
e
W
y
n
a
m
r
e
G
n
i
a
M
m
a
t
r
u
f
k
n
a
r
F
1
1
3
0
6
l
t
e
e
r
t
S
o
o
t
r
a
B
A
r
i
S
7
1
,
1
e
t
i
u
S
a
t
l
a
M
e
n
a
L
t
r
e
b
r
e
H
7
5
x
e
i
b
X
a
T
a
t
l
a
M
d
n
a
l
e
r
I
2
n
i
l
b
u
D
d
n
a
l
e
r
I
d
a
o
R
d
n
o
m
h
c
i
R
r
e
p
p
U
5
7
-
3
7
d
a
o
R
n
o
t
g
n
i
r
r
a
B
e
s
u
o
H
s
’
n
h
o
J
t
S
r
e
t
s
e
h
c
n
a
M
R
S
2
5
1
W
S
n
o
d
n
o
L
m
a
h
c
n
i
r
t
l
A
J
T
1
4
1
A
W
e
r
i
h
s
e
h
C
r
e
t
e
x
E
r
o
o
l
F
d
n
u
o
r
G
r
e
w
o
L
t
n
e
c
s
e
r
C
d
l
e
i
f
n
r
a
B
4
y
a
h
n
r
e
h
t
u
o
S
F
R
1
1
X
E
r
e
t
e
x
E
g
n
d
i
l
i
u
B
H
5
1
W
S
r
o
o
l
F
t
s
1
y
e
n
t
u
P
S
E
S
S
E
R
D
D
A
E
T
A
R
O
P
R
O
C
e
n
y
T
n
o
p
u
e
l
t
s
a
c
w
e
N
d
r
a
v
e
u
o
B
l
’
s
e
m
a
J
t
S
9
1
8
1
1
6
2
1
9
1
0
:
l
e
T
E
J
4
1
E
N
d
a
o
R
n
o
t
p
m
o
r
B
1
6
1
n
o
d
n
o
L
0
0
7
4
5
9
7
7
0
2
0
:
l
e
T
P
Q
1
3
W
S
n
o
d
n
o
L
e
l
t
s
a
c
w
e
N
e
t
a
g
y
t
i
C
k
r
a
P
n
o
t
s
a
b
g
d
E
d
a
o
R
l
o
t
s
i
r
B
1
5
3
e
s
u
o
H
m
l
E
m
a
h
g
n
m
i
r
i
B
W
S
7
5
B
m
a
h
g
n
m
i
r
i
B
e
r
a
u
q
S
k
c
a
r
r
a
B
a
2
4
h
t
a
e
H
m
a
h
s
e
l
t
r
a
M
h
c
i
w
s
p
I
k
l
o
f
f
u
S
F
R
3
5
P
I
.
k
u
o
c
.
c
l
p
r
e
g
n
i
a
r
g
w
w
w
.
h
c
i
w
s
p
I