grainger
Grainger plc Annual report and accounts for the year ended 30 September 2009
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Grainger plc is the UK’s largest specialist
residential property owner and manager traded
on the London Stock Exchange. We have
approximately £2.1 billion of property assets
and £2.8 billion of assets under management.
We are property managers for approximately
24,650 properties in the UK and Germany.
We intend to maintain this market leading
position and to provide investors with exposure
to a variety of risks and returns from the
residential sector in the UK and Germany
by leveraging our existing management,
financial and sector experience and expertise.
Grainger plc Annual report and accounts 2009
1
business review
2 Highlights 2009
3 Chairman’s statement
6 Chief executive’s review
9 Operating review
14 Financial review
18 Corporate responsibility
2009 operational
and financial review
governance
23 The board
24 Corporate governance report
30 Report of the remuneration committee
and directors’ remuneration report
37 Directors’ report
how we manage
the business
financials
41 Independent auditors’ report
on the group financial statements
42 Consolidated financial statements
48 Notes to the financial statements
106 Independent auditors’ report on the
parent company financial statements
107 Parent company balance sheet
108 Notes to the parent company financial
statements
useful information
112 Five-year record
113 Shareholders’ information
114 Advisers
115 Glossary of terms
116 Corporate addresses
our performance
Annual General Meeting
10 February 2010
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Grainger plc Annual report and accounts 2009
Highlights 2009
(cid:129) Operating profit of £79m (2008: £106m) before valuation movements
and non-recurring items reflecting market conditions and the decline
in residential trading profit margins.
(cid:129) Loss before tax of £3m (excluding valuation movements and non-
recurring items) (2008: profit of £12m).
(cid:129) Loss before tax of £170m (2008: £112m), largely derived from valuation
deficits, mark to market adjustments and non-recurring items.
(cid:129) As at 30 September 2009, the group’s wholly owned portfolios of 13,259
residential properties in the UK and 7,180 primarily residential properties
in Germany, together were valued at £2.1 billion (2008: £2.3 billion).
(cid:129) Gross net asset value per share of 411p (2008: 535p); Grainger net
asset value per share of 360p (2008: 520p).
(cid:129) Extended liquidity for the group’s financing secured through the
agreement of two new forward start credit facilities totalling £615m.
(cid:129) Net debt levels (before unamortised finance costs) reduced to £1,561m
at the year end from £1,621m in 2008. On the successful completion
of the Rights Issue, pro forma net debt levels as at 30 September 2009
will fall to £1,323m.
(cid:129) At 30 September 2009, the loan to value on the group’s core banking
facility was 66% (2008: 66%). Under the interest cover covenant, the
interest cost must be covered 1.25 times by net cash flow before interest.
At the year end, this ratio was well covered at 2.7 times (2008: 2.2 times).
On the successful completion of the Rights Issue, the group’s pro forma
loan to value ratio will decrease to 53.2%.
(cid:129) Given the housing market’s stabilisation over recent months and
the group’s success in generating sales income during the reporting
period, the board is recommending a final dividend of 3.91p per
share (final dividend in 2008: 3.91p).
2,322
2,260
2,083
1,901
828
677
535
411
6.18
6.18
5.62
3.91
2006
2007
2008
2009
2006
2007
2008
2009
2006
2007
2008
2009
GROSS PROPERTY ASSETS (£m)
GROSS NAV PER SHARE (pence)
DIVIDEND PER SHARE (pence)
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Grainger plc Annual report and accounts 2009
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Chairman’s statement
Objectives
At the beginning of this financial year we stated that, given the anticipated difficult
market conditions, cash conservation and generation was to be our key objective for
the year. Accordingly, our focus during the year to 30 September 2009 has been on:
(cid:129) Maximisation of sales revenue;
(cid:129) Reduction in property purchases;
(cid:129) Overhead reduction; and
(cid:129) Enhancing the group’s financial stability.
Key progress during the year
(cid:129) Sales of property across the group amounted to £220m, an increase of 21.5% over
2008’s figure of £181m;
(cid:129) Only £12m of UK property assets were acquired compared to £123m in 2008 and
£403m in 2007;
(cid:129) We have reduced the number of full-time equivalent employees at 30 September
2009 by 13% as compared to 30 September 2008; and
(cid:129) We finalised the refinancing of our core UK debt facility and reset various maturities.
These steps, in conjunction with the successful conclusion of the proposed Rights
Issue announced today, will strengthen Grainger’s financial position and ensure our
business is able to take advantage of compelling future acquisition opportunities as
the market recovers.
Results
Grainger’s results for the year have been significantly affected by valuation movements
and non-recurring items. Accordingly, within note 3 to the financial statements, we
have analysed our income statement into trading activities and valuation and other
mark to market adjustments and non-recurring items. This analysis enables us to
present more meaningful comparisons of our core operations year on year.
Loss before tax has increased to £170m from £112m, the majority of which is derived
from valuation deficits/write downs, mark to market adjustments, change in fair value
of derivatives and non-recurring items. Adjusting for these, the group’s result for the
year would be a loss of £3m compared to a profit of £12m last year. In addition, the
business has remained strongly cash generative.
Loss before taxation
Add back:
Property – valuation movements (note 3 to the financial statements)
Financial – mark to market and non-recurring items
(note 3 to the financial statements)
Other – cost of sales and other movements
Cash generated from operations (statement of consolidated cash flows)
£m
(170)
49
118
173
170
Robin Broadhurst
Chairman
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Grainger plc Annual report and accounts 2009
Chairman’s statement continued
The trading profit included within operating profit before net valuation deficits on
investment property has declined from £106m to £79m. This is primarily due to a fall
in profits on disposal of trading property, with an increase in volume being offset by
decreased margins.
Our net asset values have been adversely affected by falls in property values.
Net asset value (‘NAV’) per share
Triple net asset value (‘NNNAV’)
Grainger net asset value (‘GNAV’)
2009
per share
411p
251p
360p
2008
per share
535p
385p
520p
Details of the calculation of these NAV measures are provided in the financial review.
Rights Issue
This morning we have announced our intention to raise approximately £250m
(approximately £238m net of expenses) by way of a 2 for 1 Rights Issue of up to
277,628,724 new shares. The Rights Issue price of 90p represents a 40.2% discount
to the theoretical ex-rights price based on the closing middle-market price of 271.4p
per ordinary share on 4 November 2009 and a 39.7% discount to the theoretical
ex-rights price based on that closing price adjusted for the proposed final dividend
of 3.91p per ordinary share which will be paid to shareholders on the register of
members at close of business on 20 November 2009.
We have determined to raise additional equity finance to improve our balance sheet
leverage ratios, reduce the overall cost and size of our debt and to better enable us
to move from our current position of cash conservation to recommence active trading
as opportunities arise.
Full details of the issue are contained in the Prospectus which is expected to be issued
this morning.
Dividends
At the half year the board felt that it was prudent to wait until the year end before
deciding on dividends. Given the stabilisation in the housing market over recent
months and our success in generating sales income the board are recommending
a final dividend equivalent to that paid as a final dividend in 2008. This will therefore
amount to 3.91p per share and if approved will be paid on 12 February 2010 to
shareholders on the register of members at close of business on 20 November 2009.
Assuming the stabilisation in the economy and the housing market continues, the
board anticipates being in a position to revert to its progressive dividend policy in the
year ended 30 September 2010, from a base total cash payment of between £5.5m
and £8m, the total dividend payments made in respect of 2009 and 2008 respectively.
We have announced our intention
to raise approximately £250m
(approximately £238m net of
expenses) by way of a 2 for 1
Rights Issue
The board are recommending a
final dividend equivalent to that paid
in 2008. This will amount to 3.91p
per share
Whilst economic conditions may
remain challenging for some
time to come, we believe we are
well positioned to capitalise on
future upturns and are excited
by the prospect
Grainger plc Annual report and accounts 2009
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Board changes
Subsequent to the year end and as previously announced, our chief executive,
Rupert Dickinson, stepped down from the board on 20 October 2009, for reasons
of ill health. On behalf of the board I thank Rupert for his significant contribution
over the 17 years he was a director and in particular, for the leading role he played
in the acquisition of BPT plc. His place has been taken by Andrew Cunningham who
was previously deputy chief executive and finance director and who has sat on the
board since 1996. The company has also commenced the search for a new property
director and finance director to strengthen the executive team.
Outlook
Although the residential trading market has shown some sign of recovery over the
late summer, we remain cautious in our near-term outlook and will not remove our
focus from prudent financial management. Nevertheless, assuming the successful
conclusion of the Rights Issue announced today, we would anticipate being in a position
to recommence property acquisitions as the market recovers provided pricing levels
are appropriate and we see the ability to generate or enhance shareholder value.
Indeed, we are already beginning to see potential opportunities to build on our
existing portfolio.
Whilst economic conditions may remain challenging for some time to come, we believe
we are well positioned to capitalise on future upturns and are excited by the prospect.
I would like to take this opportunity to thank everyone at Grainger for the committed,
professional way they have performed in extremely difficult conditions.
Robin Broadhurst
Chairman
5 November 2009
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Grainger plc Annual report and accounts 2009
Strategic review
It remains our overriding objective to maintain and consolidate our position as the
UK’s largest quoted specialist residential property owner. On a divisional level, our
position is as follows:
Core portfolio We will seek to build on our existing position in the ownership
and management of properties subject to regulated tenancies. The supply of such
tenancies is finite and our objective is to replenish our stock levels through individual,
portfolio and corporate acquisitions to the extent they can be sourced at appropriate
prices and to look at opportunities to grow market share.
Retirement solutions We hold a market leading position in home reversions and
intend to retain this. A key focus to support future acquisitions will be funding – for
which we will investigate alternatives such as non-recourse asset specific debt and/or
third-party equity investment.
Fund management and residential investments The G:res fund launched by
the group in 2007 is the largest of its type in the UK and we also have experience
in working in residential joint ventures such as our association with Genesis Housing
Association. We believe this represents a significant potential growth area for Grainger
and offers the opportunity to retain exposure to a variety of residential asset classes
with a reduced capital and risk exposure to direct ownership of such properties and
the opportunity to generate stable income through fees obtained from fund and
asset management services as well as performance-based distributions.
Development division This division represents a very different risk/reward balance
from that which we obtain from our core and retirement solutions portfolios and
we intend to ensure that our exposure remains controlled. It is our intention that
this division will not account for greater than 10% of the group’s assets but, at this
level and given the greater risks involved, we aim for it to contribute at least 15% of
group profit. We will continue to focus on residential-led schemes, in joint ventures
where appropriate.
Europe We believe that we have reached critical mass in the size of our German
residential portfolio. It is our intention to introduce third-party equity into the structure
and build on our management platform in Germany to create sources of fee income.
However, current pricing levels are not attractive and we will only move to a co-
investment structure when we believe that we can obtain adequate value.
Other asset classes Grainger intends to use its experience of the residential
market allied to our existing portfolio to investigate and invest in other sectors of
the residential universe, either through direct ownership or in co-investment vehicles
and joint ventures. Areas currently under consideration range from intermediate
housing and shared equity to retirement villages and student accommodation.
Andrew Cunningham
Chief executive
Grainger plc Annual report and accounts 2009
7
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Market review
The disruption to the global financial markets, which began in the summer of 2007,
and the consequential global recession, particularly in the UK, has led to marked
declines in residential housing prices and significant restrictions in the availability
of mortgage financing in the UK. This continues to have a negative impact on the
largely credit-dependent UK residential property market.
However, the latter part of our financial year has seen signs of stability returning
to the housing market. The rate of house price fall has slowed considerably and
most indicators show a slight increase in prices over the summer months.
The improvement in the market is reflected by the results of our year-end valuation.
Vacant possession values of our UK residential properties fell by 4.1% over the year,
a significantly better result than was anticipated at the beginning of the year. The
strengthening of the UK residential investment market was also shown by a narrowing
of the discount applied to vacant possession values to obtain the market value of our
properties. At 30 September 2008, our regulated properties were valued at 71.3%
of vacant possession value and this had increased to 72.5% at 30 September 2009.
Nevertheless, we believe the market remains fragile and our near-term outlook
is suitably cautious. In the longer term however, we see grounds for optimism.
There remains a significant shortfall between supply and demand. The Government
has indicated that some three million new homes will be required by 2020 but we
believe new house build levels will be well below 100,000 for 2009. Inevitably, such
an imbalance will serve to produce upward pressure on prices over the longer term.
We are also seeing signs of a political imperative to make changes to the structure of
the UK housing sector – most notably the Homes and Communities Agency (‘HCA’)
work on the Private Rented Sector Initiative (‘PRSI’). With suitable fiscal incentives and
planning policies and practices to encourage, for example, build to let schemes, the
PRSI 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.
Our recent focus has been on cash conservation – particularly through maximising
sales revenue and reducing property spend. Following completion of the Rights Issue
we will have positioned our business to ensure that we are able to take advantage
of opportunities if the market continues to stabilise and recover.
Risk review
The major risks to Grainger’s business
are macroeconomic.
Housing market
– further severe and rapid downturn
in UK house prices
– stagnation in the market including
through lack of mortgage finance
and/or finance to acquire properties
Financing
– significant increases in borrowing costs
– lack of or reduction in finance available
to Grainger
Extract from note 25.
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Grainger plc Annual report and accounts 2009
Chief executive’s review continued
Housing market
Our unique UK residential portfolio has a number of defensive features in the face
of a market slowdown, including:
(cid:129) It has been assembled over a significant period of time and, even after recent falls
in value, its current market value exceeds cost by £320m;
(cid:129) It is a reversionary portfolio and the value to be obtained by selling on vacancy
exceeds the present ‘tenanted’ market value by £570m (‘the reversionary surplus’);
(cid:129) It is geographically diverse (although 54% is in London and the South East) and
not overly exposed to cluster risk;
Average vacant possession value (£)
(cid:129) The low average value (average vacant possession value at 30 September 2009 is
09
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189,000
190,000
205,000
188,000
£189,000 (2008: £190,000)) and unmodernised nature of our regulated properties
support demand; and
(cid:129) As demonstrated by the level of sales we have achieved in the last two difficult
trading years, our portfolio is liquid. As well as normal sales on vacancy we are
also able to sell many of our properties with a tenant in place (‘investment sales’).
Financing
We seek to mitigate financing risks by:
Our hedging policy At 30 September 2009, 93% 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 LIBOR rates.
Maintaining cash headroom At 30 September 2009, this stood at £171m
(2008: £370m) and, assuming a successful outcome to the Rights Issue, this will
increase to £304.5m.
Extending debt maturity profile We have no debt repayments uncovered
by 30 September 2009 headroom until December 2012.
Generating cash The business has generated £170m of cash from operating
activities, excluding sales of investment property, compared to net interest paid
of £76m.
Monitoring of covenant compliance to ensure that any pre-emptive action
(such as asset sales) is taken to prevent any breaches occurring. Details of our
covenants are given in the financial review.
Andrew R Cunningham
Chief executive officer
5 November 2009
Grainger plc Annual report and accounts 2009
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Operating review
Operating review
Our main operating divisions and the market value of the assets in each as a
percentage of our total property and investment assets are:
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Division
Core portfolio
Assets
Primarily our portfolio of regulated tenancies
Retirement solutions
Our interests in home reversion and retirement-related assets
Fund management and investments
in residential joint ventures
Investments in managed funds (G:res1 and Schroders ResPUT)
and in Grainger GenInvest
UK and European development
Residential or residential-led mixed use developments
European residential
Investment in German residential portfolio
Core portfolio
Regulated units owned
Market value
Vacant possession value
Other assets (vacants, assured, etc)
Market value
Vacant possession value
Market value
£m
Percentage
of total
1,059
481
101
83
473
2,197
48.2
21.9
4.6
3.8
21.5
100.0
2009
6,327
2008
7,316
£871m
£1,000m
£1,197m
£1,399m
831
£188m
£214m
803
£190m
£216m
Regulated units owned (number)
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6,327
7,316
7,655
7,715
Trading conditions, particularly in the early part of this financial year, have been
difficult but we have achieved sales of £143m (2008: £141m), demonstrating
the liquidity of the portfolio.
There has been a concerted effort to make selected investment sales (sales of a
property with a tenant in place rather than with vacant possession – ‘normal sales’),
both as part of our usual portfolio housekeeping and also to enhance cash generation.
The total number of units sold in the year was 1,060 (2008: 817), of which 517
were investment sales accounting for £55m of proceeds and £7m of profit (2008:
302 investment sales for proceeds of £41m and profit of £17m).
The average sales price achieved on normal sales was £157,620 (2008: £193,000)
and over the course of the whole year were 6% below September 2008 vacant
possession values. Margins on normal sales fell to 37.6% from 45.9%.
In line with our stated policy of cash conservation, we significantly reduced acquisitions
in this portfolio, buying only seven units for £0.9m (2008: 403 units for £80m).
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Grainger plc Annual report and accounts 2009
Operating review continued
Operating contribution from the core business (comprising profits on sale of trading
and investment assets together with net rents and other income, after deducting
divisional overheads and adding back write down of inventories and provision for
impairment of loans receivable and goodwill) amounted to £56m (2008: £83m).
Retirement solutions
Interest in residential units (number)
Market value
Vacant possession value
2009
6,101
£481m
£699m
2008
6,227
£521m
£754m
During the year, we sold interests in 245 assets from this portfolio, raising aggregate
proceeds of £27m and generating a profit of £7m (2008: 185 assets for £27m and
profit of £11m).
As with the core portfolio, we have significantly reduced the level of acquisitions in
this portfolio; buying 119 units for an aggregate of £11m (2008: 460 units for an
aggregate of £43m).
Operating contribution from the retirement solutions business (on the same basis as the
core portfolio but excluding the CHARM revaluation) amounted to £12m (2008: £16m).
Fund management and residential investments
Grainger GenInvest*
G:res1
Schroders ResPUT
Total 2009
Total 2008
Holding
%
50.0
21.6
21.8
Number
of units
1,528
2,073
374
3,975
4,234
Gross
asset value
£m
Net
asset value
£m
Grainger
investment
£m
290
366
40
696
772
52*
113
40
205
294
68
24
9
101
129
*Net asset value for Grainger GenInvest is shown after adjusting for the mezzanine loan provided by Grainger
of £74m.
Contribution from the fund management and residential investments business
(comprising share of profits, dividends received, fee income, share of revaluation
movements and provisions against loans) amounted to a loss of £14m (2008 loss:
£50m). Included within this is our share of revaluation movements amounting to
a loss of £5m. The external debt in these vehicles is non-recourse to Grainger plc.
The investors in Schroders ResPUT have agreed to a controlled liquidation of the fund
and, as at 30 September 2009, Grainger has received £7.6m from the redemption of
units in the fund at average values equal to 2008 levels.
Interest in retirement solutions
residential units (number)
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3,003
6,101
6,227
5,952
Grainger residential investment (£m)
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101
129
175
Grainger plc Annual report and accounts 2009
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UK residential units managed (number)
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.
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17,470
19,433
19,312
15,221
Market value of development
portfolios including share of
joint ventures (£m)
UK residential units managed
Gross rent roll
Gross property expenditure
Development division
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71
Market value of development portfolio
(including share of joint ventures)
142
Estimate of completed development value
127
97
Of this, with planning consent
Committed cash expenditure
2009
17,470
£78m
£21m
2008
19,433
£78m
£19m
2009
2008
£71m
£580m
£442m
£10m
£142m
£850m
£484m
£30m
Although the development activities of this business have been curtailed in the
interests of cash conservation, we have been successful in generating sales income
with total proceeds of £47m being raised (2008: £10m). The major sources of income
have come from our Barnsbury and Hornsey Road sites in North London. The first was
sold as a development site for £19m. At Hornsey Road we launched 92 units for sale
in early April 2009 and had completed sales or exchanged on 91 of them for £21.6m
by the end of September 2009. Following the period end, as at 30 October, 25 out of
the 26 units of Phase 2 of this development have been reserved, of which 13 transactions
are already completed and five exchanged.
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Grainger plc Annual report and accounts 2009
Operating review continued
Project
Description
Status
The current status of our other major projects is as set out below:
Newlands Common
537 acre Greenfield site, freehold with overage
interest in Waterlooville, Hampshire.
Macaulay Road
1.811 acres brownfield site, Clapham, freehold.
Wards Corner
Gateshead College
Newbury
Development agreement with London Borough
of Haringey. A number of smaller interests within
overall site currently owned.
9.87 acres brownfield former college site, Gateshead. Planning consent granted for 245
Owned freehold with deferred purchase payment.
residential units.
Preferred developer status with Newbury for
key town centre site.
Curzon Park
10 acres brownfield freehold, central Birmingham,
50:50 joint venture with Development Securities Plc.
Hammersmith
Preferred developer of Hammersmith and Fulham
Borough Council. Development agreement signed
with Borough and joint venture partner Helical Bar,
King Street, Hammersmith.
Zizkov
Joint venture 50% owned by Grainger, 31 acre
brownfield site, Prague.
Outline consent granted for 1,635
residential units and 1 million sq. ft.
B1-B8 space. 1,000 further properties
on land in local core strategy.
Detailed consent granted for 97
residential units and 30,000 sq. ft. office.
Demolition complete.
Planning consent granted for 197
residential units with ground floor
retail units. CPO likely to be required
to purchase remaining site.
Conditional development agreement
under current discussion for
approximately 330 residential units,
50,000 sq. ft. retail.
Outline planning consent granted for
400,000 sq. ft. residential, 800,000
sq. ft. office, 20,000 sq. ft. retail,
200-bed hotel.
Application for 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 to be
submitted spring/summer 2010.
Planning application in preparation for
mix use scheme comprising 483,000
sq. ft. retail, 580,000 sq. ft. office,
245 residential units, hotel.
Grainger plc Annual report and accounts 2009
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The operating loss from this business in the year (comprising trading results, net of
divisional overheads and asset write downs) amounted to £14m (2008: loss of £12m).
The development business has future commitments to spend £10m in the period to
April 2013.
Residential units owned (number)
European residential
6,807
6,894
09
08
07
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4,520
Residential units owned
Market value
Gross rents
Gross annual running rent
2009
6,807
2008
6,894
£473m
£418m
£30m
£31m
£21m
£28m
During the year, we cleared all regulatory hurdles arising from the April 2008
acquisition of FranconoRheinMain AG (‘FRM’) and the company has now been
de-listed. Sales and acquisitions have been minimal in the year and the focus
has been on portfolio management.
The operating contribution from our German business (comprising profits on sale
of investments assets together with net rents and other income after deducting
divisional overheads) amounted to £11.8m (2008: £11.4m).
The revaluation movement on the portfolio resulted in asset write downs of £10.9m.
The net rental yield on the portfolio is 5.0% (2008: 5.1%). External debt amounts to
£321.4m and is non-recourse to Grainger plc.
Prospects
Since the year end, we have continued to sell properties. As at 30 October 2009,
our UK residential sales pipeline (being completed sales, exchanged contracts and
in solicitors hands) amounted to £55m.
Given our recent refinancing and depending on future market conditions, we do not
anticipate making the same level of investment sales in 2010 as we have in the last
year. This is expected to produce an improvement in overall sales margins albeit at
the expense of total sales volumes.
Despite some recent signs of recovery in market conditions, we are still cautious
in our near-term view. Against this context, we will seek to use our expertise and
experience to ensure that acquisitions offer the potential to create and enhance
value for our shareholders in the medium to long term.
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Grainger plc Annual report and accounts 2009
Financial review
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)
2009
411p
2008
535p
£78.8m
£106.0m
(4.3)%
(11.4)%
1 year
(33.7)%
5 year
(4.5)%
10 year
3.6%
1 Profit before financing costs together with all revaluation movements as a percentage of opening gross capital.
2 Growth in net net net asset value (‘NNNAV’) plus dividends paid per share as a percentage of opening NNNAV on an annualised basis.
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 market value of the assets and so we set out below a summary of our net assets with the
properties restated at market value.
Properties
Investments/other assets
Goodwill
Cash
Total assets
Borrowings etc
Other net liabilities
Provisions/deferred tax
Total liabilities
Net assets
2009 net assets per share (pence)
2008 net assets per share (pence)
Statutory
balance
sheet
£m
1,779
116
6
28
1,929
(1,676)
(103)
(22)
(1,801)
128
93
178
Adjustments to
market value,
deferred tax and
derivatives
£m
304
17
–
–
321
99
–
22
121
442
318
357
Gross NAV
balance
sheet
£m
2,083
133
6
28
2,250
(1,577)
(103)
–
(1,680)
570
411
535
Deferred
and
contingent
tax
£m
Derivatives
£m
–
–
–
–
–
–
–
(137)
(137)
(137)
(99)
(144)
–
(9)
–
–
(9)
(108)
–
33
(75)
(84)
(61)
(6)
Triple NAV
balance
sheet
£m
2,083
124
6
28
2,241
(1,685)
(103)
(104)
(1,892)
349
251
385
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 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 remove any balances for deferred tax on property revaluations and the fair value of
derivatives as calculated under International Financial Reporting Standards (‘IFRS’). Triple NAV 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.
Grainger plc Annual report and accounts 2009
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Market value analysis of property assets
Residential
Development
Total September 2009
Total September 2008
Net asset value
Shown as
stock at cost
£m
Market value
adjustment
£m
Market value
£m
929
87
1,016
1,142
321
(17)
304
377
1,250
70
1,320
1,519
Investment
property/financial
interest in
property assets
£m
763
–
763
741
Total
£m
2,013
70
2,083
2,260
Movements in NAV 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 (NAV)
– market value of net assets per share before deduction for deferred tax on property
revaluations and before adjustments for the fair value of derivatives
2009
411p
2008
535p
Movement
(23)%
Triple net assets per share (NNNAV)
251p
385p
(35)%
– gross NAV per share adjusted for deferred and contingent tax on revaluation gains
and for mark to market adjustments
Grainger NAV
– NNNAV adjusted for the discounted and taxed reversionary surplus (the difference
between vacant possession and current market value) in our long-term regulated
and home reversion portfolios
The major movements in NAV in the year are:
360p
520p
(31)%
Gross net assets 1 October 2008
Conversion of convertible bond
Results after tax net of adjustments (see table on page 16)
Revaluation movements
Elimination of previously recognised surplus
Dividends paid
Other*
Gross net assets 30 September 2009
*The pence per share movement in ‘other’ reflects the impact on the opening balance resulting from the increase in shares in issue.
£m Pence per share
688
42
(92)
(23)
(44)
(5)
4
570
535
30
(66)
(17)
(31)
(4)
(36)
411
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Grainger plc Annual report and accounts 2009
Financial review continued
Results after tax net of adjustments shown above can be
reconciled to the loss after tax in the income statement
as follows:
Loss after tax from income statement
Pre-tax inducement cost on convertible bond
Net of tax charge on mark to market adjustments
Deferred tax credit on property revaluations
Results after tax net of adjustments (see table on page 15)
£m
(122)
31
28
(29)
(92)
Reconciliation of NAV measures
Gross NAV
Deferred and contingent tax
Mark to market adjustments net of tax
NNNAV
Discounted reversionary surplus
Tax thereon
Grainger NAV as at 30 September 2009
£m
570
(137)
(84)
349
209
(59)
499
Pence
per share
411
(99)
(61)
251
151
(42)
360
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 8.22% used to calculate the present value
of the reversionary surplus (weighted average cost of capital
+ 3%) (2008: discount rate 8.43%);
(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.
Financial performance in the year
Operating profit before all revaluation movements, fair value,
impairment and goodwill adjustments has decreased £27.2m
(26%) to £78.8m from £106.0m.
2008 operating profit
Increase in gross rents and other income
Increase in property expenses and overheads
Decrease in residential trading profits
Increase in development trading profits
Increase in interest expense from interest in financial asset
Other
2009 operating profit
(see note 3 to the financial statements)
£m
106.0
5.8
(4.9)
(26.3)
6.9
(3.8)
(4.9)
78.8
The major movement in operating profit is a reduction in
trading profit from the core and retirement solutions businesses.
This reflects the lower margins achieved on sales resulting from
the difficult market conditions existing during the year. The
increase in development trading profit arose from the sale of
properties at Barnsbury, Hornsey Road, Kensington Church
Street and Elder Street. The increase in gross rents and other
income reflects a full year of FRM results in Germany compared
to six months in 2008, and this has also led to an increase
in property expenses. The run rate of our overhead costs
(excluding non-recurring costs) at 30 September 2009
amounts to £29.4m (2008: £32.2m), a reduction of 8.7%.
Earnings per share
Basic earnings per share has fallen to a loss of 90p from a loss
of 61p.
Pence
per share
£m
(77.4)
(61.0)
(27.2)
(20.2)
33.4
(20.1)
12.9
2008 loss per share
Movements in:
Operating profit
Contribution from joint ventures and associates 45.4
Fair value of derivatives and financial assets
Revaluation losses on investment properties
(27.2)
17.5
Provisions against trading stock values
and loan balances
Goodwill impairment
Net interest payable
Convertible bond
Taxation and other
2009 loss per share
(25.6)
(18.8)
6.2
(12.9)
(31.1)
10.3
4.6
(9.5)
(22.9)
11.8
(122.0)
(89.8)
Grainger plc Annual report and accounts 2009
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Interest expense and similar charges
Our net interest charge has increased by £12.9m from £89.0m
to £101.9m, principally because of the write-off of certain
unamortised loan costs brought forward, costs incurred in the
refinancing of our banking facilities and a non-recurring interest
charge relating to a potential tax liability.
As part of the early conversion in November 2008, holders
representing £87.1m of the £112m 2014 convertible bond
accepted a cash payment of £35,000 per £100,000 nominal
bond value to convert early. This cash payment of £31.1m is
shown in the income statement as an inducement cost. The
other effects of the early conversion have been to:
(cid:129) Issue 10.08 million ordinary shares;
(cid:129) Eliminate £57m of nominal debt; and
(cid:129) Increase net assets by £42.0m and decrease net assets
per share by 1.6%.
Financial resources
The business has produced £235m of cash from its operating
activities being net rents and other income, property sales and
other working capital movements net of overheads. The largest
outflow of cash is £76m on net interest.
At the year end, our net debt levels (before unamortised
finance costs) had reduced from £1,621m in 2008 to £1,561m,
despite a deterioration in the Sterling/Euro exchange rate which
increased overall group debt by £69m. The debt was 93%
hedged (2008: 85%), of which 16% was subject to caps.
At the year end, the group had headroom of £171m
(2008: £370m).
On 30 September 2009, we announced the finalisation of
two new forward start credit facilities totalling £615m which
will provide the group with extended liquidity at a time when
certain of our existing facilities will expire.
The facilities comprise a £250m committed term loan available
from June 2010 and a £365m committed term loan available in
June 2011. On these dates they will be used to refinance
facilities of £400m and £475m that mature on those dates.
These facilities have been reduced to £250m and £445m
respectively by using excess short-term committed but undrawn
facilities. The two new forward start facilities will mature in
December 2012.
The other facilities under Grainger’s core banking facilities are
a £228m revolving credit facility maturing in December 2012
and £425m of term loans maturing in June 2013. The average
maturity of all of the group’s debt is 4.4 years (2008: 4.5 years).
As a result of the above, the group has no core banking
facilities maturing in its financial year to 2010, with only £109m
maturing in the year to September 2011 and £57m in the year
to September 2012. A total of £872m of the core banking
facilities will mature in December 2012.
Our effective average interest rate on the group’s bank loans
in the year ended 30 September 2009 was 5.7% (2008:
6.2%). Immediately post the refinancing, Grainger’s effective
average interest rate on the group’s bank loans was 5.5%
but this would reduce to 5.2% under an interest ratchet
mechanism should the loan to value ratio on the core facilities
fall below 60%.
Our core banking facilities have two covenants covering loan
to value (‘LTV’) and interest cover. The method of calculation
and limits of these covenants remain unchanged by the
new facilities.
Under the LTV covenant, an LTV of 80% could lead to default
of the agreement and, at 70% LTV, purchasing restrictions and
a cash sweep mechanism apply. At 30 September 2009, ‘V’
was £1,820m (2008: £1,971m) and ‘L’ was £1,206m (2008:
£1,308m) (in each case for purposes of the LTV covenant) and
accordingly the LTV on the core facility was 66% (2008: 66%).
Under the interest cover covenant, our interest cost must be
covered 1.25 times by net cash flow before interest. As at 30
September 2009, the ratio stood at 2.7 times (2008: 2.2 times).
Andrew R Cunningham
Chief executive officer
5 November 2009
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Grainger plc Annual report and accounts 2009
Reporting approach
We see corporate responsibility (‘CR’)
as an integral part of the way we
run our business and to this end, we
report below key data on our impacts
and activities over the last year. For
the second year running, we are also
producing a separate online CR report,
which includes more detail on our
activities in each of the main impact
areas. This year, we have divided the
online CR report into a selection
of different stakeholder-focused
sections and these will be available
from January 2010 on our dedicated
website: www.graingercr.com.
Corporate responsibility
CEO statement
The past 18 months have been extremely challenging for the property sector and
despite some current signs of increasing stability, we anticipate that the market will
remain fragile in the short term. These tough operating conditions call for innovation
in business strategy and a robust approach to risk management. We must ensure
that alongside our primary focus on cash conservation, we continue to achieve strong
sales, customer satisfaction, employee well-being, positive community relations and
good environmental management.
In this context, our CR strategy must add value to the business, reflect stakeholder
concerns and help us to adapt so that we are best placed to take advantage of
potential opportunities as we come out of the recession. All investments we make in
CR initiatives at Grainger will continue to be rigorously assessed for costs and benefits,
while we strive to anticipate future challenges for the sector and position ourselves
to best respond to them. We are currently undertaking a review of our CR strategy,
which incorporates a programme of stakeholder consultation. The outcome of this
review will be a strategy that is aligned with our evolving business priorities and to the
risks that arise from changing environmental, social and economic pressures. Please
see our website for more detailed information.
Despite being a period of significant change, we have continued to see strong CR
performance in the year and we fully achieved or substantially progressed 60% of
our targets. I am proud that a commitment to responsible business is at the heart
of Grainger’s operations. We are continually learning from our experience and expect to
perform even better in years to come.
Andrew R Cunningham
Chief executive officer
5 November 2009
Grainger plc Annual report and accounts 2009
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Opportunities and risks
Governance
While the economic downturn has dominated much decision-
making over the last year, we believe that CR issues remain
material to the short, medium and long-term prospects of
our business. Moreover, failing to address our corporate
responsibilities would expose us to risk. The good management
of our CR impacts presents several opportunities for Grainger
to increase performance, for example, through reduced costs,
enhanced asset value and increased social capital.
(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) Working to continually improve our service quality
and relationships with customers will improve customer
satisfaction and could result in reduced void periods,
a protected rental income and increased lease renewals.
(cid:129) Initiatives that contribute to the health and well being of
our employees will contribute towards enhanced employee
productivity and company reputation.
We also see the progression towards a low carbon economy
as one that offers several opportunities for companies such
as ourselves to differentiate and streamline our operations,
for example, through providing innovative solutions for more
efficient property management and by future-proofing our
assets ahead of tightening regulations. We believe these will
help us to maintain a strong market position and competitive
advantage as the UK’s largest listed specialist residential
property owner.
On the other side of the coin to these opportunities, we also
recognise a number of potential risks, such as tightening
regulations, increasing costs of meeting required planning and
development standards, and changing customer and investor
expectations. By anticipating and addressing these risks we
hope to manage their impacts on our business and convert
them into opportunities for differentiation wherever possible.
We have now commissioned Energy Performance Certificates
(‘EPCs’) for the majority of properties in our portfolio. This
means that both rental customers and buyers acquiring
properties from us have access to an assessment of the energy
performance of their building. While other market factors have
somewhat overshadowed the impact of energy efficiency on
property attractiveness and value over the last 12 months, we
expect this issue to be of growing importance as we emerge
from the downturn and energy prices continue to rise.
The board maintains overall responsibility for CR at Grainger.
The operations board is responsible for implementation of
CR policy and reviews progress against targets against a
six-monthly progress assessment and as required. Specific target
delivery is assigned to individuals and teams across the
organisation, meaning that there is a shared responsibility for
integrating responsible practice into all of our operations and
functions. Last year we reported that we planned to establish
a series of working groups around our key areas of focus.
We have successfully launched an Environmental Working
Group, bringing together professionals from our property
services, asset management and corporate teams to address
environmental issues across the business. Other working
groups are currently on hold as we undergo the process
of a CR strategy review. One outcome of this review will
be a revised governance structure, which will be published
on our website.
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
Target achievement
2
7
2008/09
number
of targets
3
2 1
No or minimal progress (less than 25%)
Limited progress (25%– 49%)
Partially achieved (50%–74%)
Substantially achieved (75%–99%)
Fully achieved (100%)
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Grainger plc Annual report and accounts 2009
Corporate responsibility continued
In 2008/09, we set targets across all of our main identified
impacts. We have fully achieved seven (47%) of our 15 CR
targets and have substantially progressed a further two (13%).
For a full breakdown of our performance against targets, and
for a full set of key performance indicators, please see our
downloadable CR report: www.graingercr.com.
It should be noted that:
(cid:129) We saw particular success in targets related to customers,
employees and the community.
(cid:129) We set ourselves a range of challenging environmental
targets this year. Two were completed, one was substantially
progressed, one was started and one has yet to be addressed.
(cid:129) Several targets related to the appointment of suppliers for
both refurbishment and development projects. Target progress
in relation to development practices could not, however, be
assessed as no new developments were started this year. Best
practice procedures are already in place for our development
activities. We set out environmental design standards and
construction process requirements in contracts and proactively
engage with contractors about sustainability issues. This will
continue to be a feature of all future developments.
(cid:129) A number of business decisions, such as that to broaden the
training of property managers, has delayed delivery of some
targets related to training in specific areas as we have spent
more time in planning these programmes.
(cid:129) We will continue to work towards the achievement of all
of our targets that were not achieved this year.
Ideally, we would have liked to fully achieve more of our
targets. Personnel changes meant that some implementation
programmes were started a little late in the year and a focus
on cost minimisation across the business has slowed progress
in some areas. Despite these significant challenges, we are
proud to have made progress against almost all targets, putting
in the groundwork to ensure their achievement in the future.
Our business strategy has evolved significantly over the past
two years and we acknowledge the need for our CR strategy
to reflect this. One goal of our aforementioned strategy review
is to align our CR strategy more closely with key business
priorities. The outcomes of this will be a more relevant and
well-embedded strategy and, correspondingly, higher target
achievement in future years.
Notable achievements and activities – carbon emissions
We have seen overall emissions from air transport reduce significantly this year.
Source
Office electricity consumption (small power)
Office central plant (heating and cooling)
Energy use in common parts of residential portfolio
Air travel
Rail travel
Taxi travel
Car travel
Energy use at development sites (electricity and diesel consumption)
2008/09
carbon emissions
(tonnes)
476
Not available
Not available
31
26
Not available
Not available
3.5
2007/08
carbon emissions
(tonnes)
372
Not available
Not available
62
13
Not available
Not available
346
Grainger plc Annual report and accounts 2009
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The energy used within tenanted properties under our
ownership and management forms the greatest part of our
carbon footprint. However, due to tenant power supply being
outside of our control we are unable to access this data or put
in place significant measures to reduce consumption within
tenant demise. We have, therefore, chosen to focus our
monitoring on those areas over which we do have control.
(cid:129) We have built upon last year’s success in raising our
employees’ awareness of sustainability issues, by establishing
a network of eco-champions in offices across the UK and
Germany. The champions are daily advocates for energy,
water and waste efficiency and they also promote
volunteering and sustainable transport opportunities to
other staff members across our offices.
(cid:129) Despite extending the monitoring of transport carbon
(cid:129) Our employees have shown remarkable enthusiasm for
emissions, we have seen overall emissions from air transport
reduce significantly this year, with rail transport making up
a greater proportion of transport costs and emissions.
(cid:129) A reported increase in electricity use within our offices
is largely due to improved accuracy and coverage of
monitoring and moves into new space in Birmingham
and Frankfurt.
(cid:129) Due to few development projects being on site over the
past 12 months, carbon emissions from diesel used on site
is much reduced. We continue to work towards obtaining
meaningful electricity data for the common parts of our
managed blocks and hope to be able to report this fully
next year.
(cid:129) Given that all of our offices are in multi-tenanted buildings,
we are unlikely to ever be able to access data on central
plant emissions from our offices, but instead we continue to
improve the quality of electricity monitoring, such as through
live energy meters which are being put in place in all of our
UK offices.
(cid:129) We continue to assess the viability of obtaining emissions data
for car and taxi travel, but at present, the material benefits
of this task would not overcome the significant complexity
associated with collecting this information effectively.
Notable achievements and activities – other areas
of performance
(cid:129) We have successfully completed a number of changes
to our internal communications programme, including
relaunching our intranet ‘Source’, introducing a cascade
briefing system for employees and giving a few staff each
month the opportunity to have breakfast with the CEO
for open discussion on topics of their interest.
community volunteering and we easily met our target to
achieve 20% of employees contributing time to a good
cause. A total of 71 days were dedicated to good causes.
These included helping to build houses with Habitat for
Humanity and creating a horticultural learning space at
a community centre for Business in the Community’s
‘Give and Gain’ day.
(cid:129) We have scored well in tenant feedback surveys, which is
particularly positive given the current focus on maintaining
revenue streams. Around 80% of tenants leaving our
properties rated management department services as
either excellent or very good.
(cid:129) We ran a pilot project placing energy monitors into all the
flats in one of our properties, to give tenants live information
on the electricity they use at different times of the day. We
now intend to roll these monitors out across various parts
of our managed portfolio and within our own offices as
well as placing them in all houses when we carry out major
refurbishment works.
(cid:129) Nearly half of the properties to receive Energy Performance
Certificates (‘EPCs’) to date are rated C or above.
Adviser’s statement
Upstream Sustainability Services, part of Jones Lang LaSalle,
has been working to advise Grainger plc on CR for several
years. This programme of work includes helping Grainger to
set its 2008/09 CR targets, as well as to assess the extent to
which it has achieved these targets. Due to Upstream’s long-
standing relationship with Grainger and its CR commitments,
the review of performance against targets and this statement
itself cannot be considered as fully independent, nor should any
data be viewed as formally verified. However, Upstream has
carried out a full and documented review of Grainger’s
performance and management of CR over the year 1 October
2008 to 30 September 2009 and all information presented
is accurate to the best of Upstream’s knowledge.
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Corporate responsibility continued
The method for assessing Grainger’s level of performance
against CR targets and commitments was based on:
1 Meetings and telephone interviews with Grainger
representatives, responsible for target delivery.
2 Detailed review of documentation and information submitted
by Grainger and collected by Upstream over the year.
A percentage score has been awarded against each target,
depending on the evidence received to validate completion. For
some targets that relate to management actions rather than
quantifiable performance, it has been necessary for Upstream
to use its professional judgement to assess the evidence
received and award weightings for various milestones achieved.
Upstream’s review can conclude the following general findings:
(cid:129) Almost half (47%) of Grainger’s 2008/09 CR targets
have been fully achieved, with a further two targets (13%)
substantially progressed (over 75% achieved).
(cid:129) A further four targets (27%) have been progressed either
minimally (at least 25% achieved) or partially (at least 50%
achieved).
(cid:129) Only two targets (13%) were not progressed at all this year.
Upstream has made the following specific findings:
(cid:129) Targets relating to employee initiatives are an area of
particular achievement to highlight for Grainger for the
last 12 months. Upstream is pleased to see success in
improving internal communications, encouraging staff to
volunteer for community causes and identifying individuals
in all offices to become eco-champions, promoting a more
sustainable workplace. These initiatives underline Grainger’s
commitment to fully engaging its staff in order to embed
sustainability into all aspects of its operations.
(cid:129) Grainger has made good progress in communicating with
its customers and investors for feedback on its approach
to business and the needs of its stakeholders. Customers
of market let properties are now contacted at point of
moving into a property, exiting a property and when they
are visited by one of Grainger’s contractors. These feedback
questionnaires received largely positive responses this year,
with approximately 80% of exiting tenants rating Grainger’s
management department services as either very good or
excellent. Grainger has continued to maintain a dialogue
with its top shareholders around CR and has proactively
engaged with two more investors this year, obtaining
valuable feedback on how its sustainability strategy is viewed
by both socially responsible and mainstream investors.
(cid:129) The two supplier targets have been assessed as not
progressed and minimal progress. The lack of progress
in this area can in part be attributed to a break down
of communication channels and the departure of key
members of staff during the target scoping stage. In
assessing progress, it has become clear that a more rigorous
scoping exercise, including a cost-benefit analysis, should
have been carried out when deciding on the appropriateness
of these targets to refurbishment activity. Grainger does
continue to demonstrate impressive performance in reducing
the environmental impacts of its development activities,
setting out a range of environmental design standards and
construction process requirements in its standard contracts
and engaging with contractors about sustainability issues
on an ongoing basis. However, there have been no new
projects commencing this year, so these targets were only
relevant to refurbishment works. As the economy picks
up in the coming year, Upstream encourages Grainger to
adopt a renewed focus on promoting high standards of
environmental awareness within its refurbishment supply
chain, whether this is through contract specifications or
engagement activity.
Despite a challenging year, it is clear to Upstream that Grainger
has retained its commitment to CR and continues to recognise
this as an important part of its business strategy. While
performance against CR targets has not been as strong as
in previous years, this is largely a product of setting some
particularly stretching targets in some areas, significant internal
reorganisation over the previous year and a focus on cost
constraint. Grainger is currently undergoing a process to review
its CR strategy over the next few months and will redefine its
commitment in a way which is meaningful in a changing
economic and regulatory landscape, relevant to core business
objectives and reflective of stakeholder desires. Upstream looks
forward to working with Grainger to develop and deliver its
new strategy and to realise the opportunities presented by its
commitment to sustainability.
Abigail Dean
Senior Consultant
Upstream Sustainability Services, Jones Lang LaSalle
October 2009
Grainger plc Annual report and accounts 2009
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5 Henry Pitman*
Member of audit committee. Aged 47
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.
6 Bill Tudor John*
Senior independent director, chairman of remuneration
committee, member of nomination committee. Aged 65
Appointed a director of the company in February 2005.
Currently a senior adviser to 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.
7 Baroness Margaret Ford*
Member of audit committee. Aged 52
Appointed a director of the company in July 2008.
Managing director in the Royal Bank of Canada’s
Capital Markets Group and is the Chair of Legacy
Committee of the London Organising Committee
of the Olympic Games and Paralympic Games Limited.
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.
The board
1 Robin Broadhurst
C.B.E., F.R.I.C.S. Chairman, chairman of nomination
committee. Aged 63
Appointed director of the company in February 2004.
Previously European chairman of Jones Lang LaSalle, he
is now trustee and non-executive director of Grosvenor, a
senior adviser 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.
2 Andrew R Cunningham
F.C.A. Chief executive officer. Aged 53, 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.
Appointed chief executive in October 2009. From May
2007 until September 2009, he was a non-executive
director of The Local Shopping REIT plc.
3 Robert R S Hiscox*
A.C.I.I. Member of nomination and remuneration
committees. Aged 66
Appointed a director of the company in March 2002.
Chairman of Hiscox Limited. Deputy chairman of Lloyd’s
1993-1995.
4 John Barnsley*
F.C.A. Chairman of audit committee and member of
remuneration committee. Aged 61, 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.
24
Grainger plc Annual report and accounts 2009
Corporate governance report
Compliance with the Combined Code
The board of Grainger is committed to maintaining high
standards of corporate governance, which the directors see
as fundamental to effective management of the business
and delivery of long-term shareholder value.
The governance rules applicable to all UK companies admitted
to the Official List of the UK Listing Authority are set out in the
Combined Code, published by the Financial Reporting Council
in June 2003, and revised in 2008. The board fully supports the
principles set out in the Combined Code and confirms that it
has complied with all of the provisions set out in Section 1
throughout the financial year ended 30 September 2009.
This report sets out Grainger’s governance policies and practices
and includes details of how the group applies the principles
and complies with the provisions of the Combined Code.
The role of the board
The board provides leadership of the group and, either
directly or through the operation of committees of directors
and delegated authority, applies independent judgement on
matters of strategy, performance, resources (including key
appointments) and standards of behaviour. The board sets the
group’s strategic objectives and approves and monitors business
plans and budgets submitted by the executive directors and
senior management.
The written statement of matters reserved to the board is
reviewed and approved annually by the board and a copy is
available on the group’s website (www.graingerplc.co.uk) or
from the company secretary on request.
Board composition, structure and roles
The board was made up of a non-executive chairman, a non-
executive deputy chairman (until 10 February 2009), the chief
executive, the deputy chief executive and finance director, and
five non-executive directors.
The posts of chairman and chief executive are separate and
their roles and responsibilities are clearly established, set out
in writing and agreed by the board. A copy of the written
statement of roles is available on the group’s website
(www.graingerplc.co.uk) or from the company secretary
on request.
The chairman is responsible for running the board and
ensuring its effectiveness. The chief executive reports to
the chairman, as does the company secretary on matters
of corporate governance. The chairman is the guardian
of the board’s decision-making.
The chief executive is responsible for running the business and
implementing the board’s decisions. All executive management
report to him, directly or indirectly. In November 2008 the
group appointed Peter Couch as chief operating officer
reporting to the chief executive and responsible for day-to-day
management of the group’s operations in accordance with
the strategy and business plans set by the board. The chief
operating officer chairs a monthly operations board meeting
made up of the senior management team.
The non-executive directors are responsible for bringing
independent and objective judgement and scrutiny to all
matters before the board and its committees, using their
substantial and wide-ranging experience. The key
responsibilities of non-executive directors are set out in
their letters of appointment and include requirements to:
(cid:129) Challenge and contribute to the development of strategy;
(cid:129) Scrutinise the performance of management in meeting
agreed goals and objectives and monitor the reporting
of performance; and
(cid:129) Satisfy themselves that financial information is accurate
and that financial controls and systems of risk management
are robust and defensible.
A copy of the standard letter of appointment for a non-
executive director is available on the group’s website
(www.graingerplc.co.uk) or from the company secretary
on request. The non-executive directors meet periodically
without the executive directors present. There were three
such meetings in the year and an additional meeting of
the non-executive directors without the chairman or the
executive directors present.
The senior independent director is Bill Tudor John. He is
available to shareholders if they request a meeting or have
concerns, which contact through the normal channels has
failed to resolve or where such contact is inappropriate.
No such requests were received from shareholders during
the year. As senior independent director, Bill Tudor John leads
the annual performance review of the chairman. He is also
chairman of the remuneration committee.
Grainger plc Annual report and accounts 2009
25
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Meetings
There were seven meetings of the board in the year. The board
has a list of matters reserved to it and a rolling annual plan of
items for discussion, agreed between the chairman and the
chief executive. The list of reserved matters and annual plan
are reviewed regularly to ensure all matters reserved to the
board, as well as other key issues, are discussed at the
appropriate time. At each board meeting the chief executive
provided a review of the business, how it was performing
and strategic issues arising. In the year, the range of subjects
discussed included:
(cid:129) The strategy of the group in response to changing
economic conditions;
(cid:129) Operational changes arising from the change to a cash
conservation strategy;
(cid:129) Key business areas, including Germany, retirement solutions,
residential and funds;
(cid:129) The group’s debt and capital structure;
(cid:129) The group’s financial results;
(cid:129) Dividend policy;
(cid:129) Regulatory and governance issues; and
(cid:129) The development of the group’s people.
Five of the meetings were preceded, the evening before, by an
informal meeting allowing more time to debate issues in depth.
Three of the board meetings were held at the company’s head
office in Newcastle, two of the board meetings were held in
the company’s offices in Knightsbridge with the other meetings
being held in the company’s offices in Birmingham and Putney
– giving the board the opportunity to meet staff in a number
of locations.
The chairman, together with the company secretary, ensures
that the directors receive clear and relevant information on all
relevant matters in a timely manner. Board papers are circulated
sufficiently in advance of meetings for them to be thoroughly
digested in advance of the meeting to ensure clarity of
informed debate. The board papers contain the chief
executive’s written report, high level papers on each business
area, key metrics and specific papers relating to agenda items.
The board papers are accompanied by a working papers pack
containing detailed financial and other supporting information.
The board receives a bi-weekly update throughout the year
and occasional ad hoc papers on matters of particular relevance
or importance.
Throughout the year the board received presentations from
various business units.
Stephen Dickinson did not attend the board meeting held
immediately before the Annual General Meeting in February
2009 and Rupert Dickinson was absent from three meetings.
Otherwise all directors attended all board meetings.
Changes to the board
There were no appointments to the board in the year.
Stephen Dickinson stepped down as a director and as deputy
chairman on the conclusion of the Annual General Meeting
on 10 February 2009.
The nomination committee consisted throughout the year
of Robin Broadhurst as chairman and Robert Hiscox and Bill
Tudor John. The nomination committee met in April 2009
to formally review the composition of the board, including
the balance between executive and non-executive directors
and succession planning.
The terms of reference of the nomination committee are
available on the group’s website (www.graingerplc.co.uk)
or from the company secretary on request. Principally, the
nomination committee is responsible for filling vacancies on
the board, reviewing the continuation of service of directors
required to retire by rotation and succession planning.
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.
Rupert Dickinson, the chief executive, was absent due to ill
health throughout the latter part of the year, during which
time Andrew Cunningham was acting chief executive. Rupert
stood down as a director and as chief executive with effect
from 20 October 2009 and Andrew Cunningham has been
appointed as chief executive with effect from the same date.
Andrew Cunningham continues in the role of finance director
but the company is seeking to recruit a new executive finance
director to the board. The board is also considering additional
appointments of executive directors in the current financial
year to strengthen the board and to achieve a better balance
between executive and non-executive directors.
26
Grainger plc Annual report and accounts 2009
Corporate governance report continued
Independence
The following table sets out the board’s duly considered view of the independence of the non-executive directors with reference
to the criteria set out at A.3.1 of the Combined Code.
Director
Board’s determination
Explanatory notes
Robin Broadhurst (Chairman)
Independent
Independent under A.3.1 criteria
Stephen Dickinson (Deputy chairman)
(Retired 10 February 2009)
Not independent
– Close family ties
– More than nine years’ service
– Previously managing director
– Part-time executive responsibilities
– Participation in all-employee share scheme
Bill Tudor John (Senior independent director)
Independent
Independent under A.3.1 criteria
John Barnsley
Robert R S Hiscox
Independent
Independent
Independent under A.3.1 criteria
– 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 Limited, 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
– The estate has reduced its shareholding over the past
four years, from 12.5 million shares to 6 million shares
Henry Pitman
Baroness Margaret Ford
Independent
Independent
Independent under A.3.1 criteria
Independent under A.3.1 criteria
The board reviews non-executive director independence on an
annual basis and takes into account the individual’s professional
characteristics, their behaviour at board meetings and their
contribution to unbiased and independent debate.
The board consisted of a majority of independent non-
executive directors (excluding the chairman) throughout the
year. Biographical details of all the current directors are set
out on page 23.
Time commitment
The board is satisfied that the chairman and each of the non-
executive directors committed sufficient time during the year
to fulfilment of their duties as directors of the company. None
of the non-executive directors has any conflict of interest which
has not been disclosed to the board in accordance with the
company’s articles of association.
Professional development
The chairman is responsible for ensuring that induction
and training are provided to each director and the company
secretary organises the induction process and regular updating
and training of board members. No new board members were
appointed in the year so no induction was necessary. Training
and updating as to the business of the group and the legal and
regulatory responsibilities of directors was provided by a variety
of means to board members, including presentations by
executives, visits to business operations and circulation of
briefing materials.
Individual directors are also expected to take responsibility
for identifying their training needs and to ensure they are
adequately informed about the group and their responsibilities
as a director.
The board is confident that all its members have the
knowledge, ability and experience to perform the functions
required of a director of a listed company.
Grainger plc Annual report and accounts 2009
27
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Access to independent advice
All directors have access to the advice and services of the
company secretary who ensures that board processes are
followed and good corporate governance standards are
maintained. Any director who considers it necessary or
appropriate may take independent, professional advice at the
company’s expense. None of the directors sought such advice
in the year.
Performance evaluation
Each year the board undertakes a formal evaluation of the
performance of the board, its committees and of individual
directors. The chairman led the process which was, as in
previous years, in the form of a confidential survey completed
by all directors in relation to the board and any committee
of which they were a member together with a one-to-one
meeting between the chairman and each director.
The board considered the merit of using an external body to
undertake the performance evaluation process. It concluded
that the current approach was most appropriate in the
circumstances of the current year but that serious consideration
would be given to an external process in the next financial year.
The company secretary collated the evaluation results and these
were considered by the chairman and the company secretary.
These were positive and indicated that the board, its
committees and individual directors were all operating
effectively. The chairman’s performance was reviewed and
his leadership and performance were considered to have
been of a high standard.
No major areas were highlighted for consideration from the
review but there were recommendations made for continuous
improvement in the areas of supply of information and
improved access to company management and employees.
Recommendations arising from the 2007/08 evaluation process
were implemented in the course of the year, principally in
establishing the role of the chief operating officer assumed
by Peter Couch.
Re-election of directors
The company’s articles of association require the directors to
offer themselves for re-election at least once every three years.
At the Annual General Meeting in 2010, both Robin
Broadhurst (the chairman) and Robert Hiscox will be
proposed for re-election. In the light of the performance
evaluations summarised above, the board recommends
that both directors be re-elected.
Internal control
The board is responsible for reviewing and approving the
group’s system of internal control and its adequacy and
effectiveness.
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.
28
Grainger plc Annual report and accounts 2009
Corporate governance report continued
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.
The group’s processes for internal control have been in place
throughout the year and accord with the Turnbull guidelines
(2005). The board regularly reviews the group’s processes
for internal control and conducts a formal annual review
of these processes and the risks relating to the business.
No significant failings or weaknesses were identified from
this review in the year.
Audit committee and auditor independence
The audit committee consisted throughout the year of John
Barnsley as chairman and Henry Pitman and Baroness Ford.
The audit committee met four times in the year, in each case
with all members of the committee present. John Barnsley has
the particular recent, relevant financial experience required by
the Combined Code.
The terms of reference of the audit committee are available
on the group’s website (www.graingerplc.co.uk) or from the
company secretary on request.
In addition to the work referred to in the section ‘internal
control’ above, the audit committee is responsible for reviewing
the independence and objectivity of the external auditor, and
ensuring this is safeguarded notwithstanding any provision
of any non-audit services to the group.
The board recognises the importance of safeguarding auditor
objectivity and has taken the following steps to ensure that
auditor independence is not compromised:
(cid:129) The audit committee carries out each year a full evaluation
of the external auditor as to its complete independence from
the group and relevant officers of the group in all material
respects and that it is adequately resourced and technically
capable to deliver an objective audit to shareholders. Based
on this review the audit committee recommends to the
board each year the continuation, or removal and
replacement, of the external auditor.
(cid:129) The external auditors provide audit-related services such
as regulatory and statutory reporting as well as formalities
relating to shareholders and other circulars.
(cid:129) The external auditors may undertake due diligence reviews
and provide assistance on tax and pension matters given
its knowledge of the group’s businesses. Such provision
will, however, be assessed on a case-by-case basis so that
the best placed adviser is retained. The audit committee
monitors the application of policy in this regard and keeps
the policy under review.
(cid:129) The audit committee reviews on a regular basis all fees
paid for audit, and all consultancy fees, with a view to
assessing reasonableness of fees, value of delivery, and any
independence issues that may have arisen or may potentially
arise in the future.
(cid:129) The auditors’ report to the directors and the audit committee
confirming their independence in accordance with Auditing
Standards.
During the year, £106,000 was paid by the group to
PricewaterhouseCoopers for taxation services during the
year. The audit committee give careful consideration before
appointing the auditors to provide taxation advice and regularly
use other providers to ensure that independence and full value
for money are achieved. A further £531,000 was paid for due
diligence services in respect of the acquisition of FRM and other
transactional work. These fees were one-off in nature and are
not expected to reoccur.
The audit committee is responsible for reviewing and
reporting to the board on the accounting policies and
practices of the group and on the annual and half-yearly
financial reporting process.
The audit committee reviewed the company’s whistle-blowing
policy and was satisfied that this meets FSA rules and good
standards of corporate governance.
The finance director and external audit partner are invited
to attend meetings of the committee. Question and answer
sessions were held by the committee with members of staff
managing key business areas, including treasury, IT and the
retirement solutions business. These sessions assist the
committee to question risk in the business and to stay close
to staff who have significant control responsibilities.
Once in each year the committee meets with management
without the auditors present and also with the auditors without
management present.
Grainger plc Annual report and accounts 2009
29
Relations with shareholders
The company has held over 100 meetings with shareholders,
analysts and potential investors in the year in addition to the
usual half-yearly results announcements and briefings. Andrew
Cunningham, as acting chief executive and finance director,
has had the vast majority of these meetings and manages
the group’s investor relations programme with the head of
corporate affairs. Feedback is always sought following such
meetings and is presented to the board as a whole and the
board is briefed on the views of major shareholders. All the
directors intend to 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 and similar materials. All shareholders have the
opportunity to attend the Annual General Meeting, which
continues as a route for communication with smaller and
private shareholders.
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.
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.
By order of the board
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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
Nick On
Company secretary
5 November 2009
30
Grainger plc Annual report and accounts 2009
Report of the remuneration committee
and directors’ remuneration report
This report meets the disclosure requirements of the
Companies Act 2006 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.
The committee comprised three independent non-executive
directors throughout the year. Mr Hiscox is a trustee of an
estate containing a material shareholding, but having taken
this into account the board has reconfirmed its 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 every meeting. The
committee have also communicated informally during the year.
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. The committee’s terms of reference
are available on the group’s website (www.graingerplc.co.uk)
or on request from the company secretary.
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 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 37. 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 provided.
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 (‘LTIS’) 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.
Grainger plc Annual report and accounts 2009
31
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 R Cunningham
Robin Broadhurst
Bill Tudor John
John Barnsley
Robert R S Hiscox
Henry Pitman
Baroness Margaret Ford
Contract date
19 July 1996
26 July 2000
26 February 2004
24 February 2005
27 February 2003
6 March 2002
1 May 2007
3 July 2008
Unexpired term*
No fixed term
No fixed term
5 months
17 months
29 months
17 months
5 months
17 months
Notice period
12 months
12 months
3 months
3 months
3 months
3 months
3 months
3 months
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*Calculated as at 30 September 2009 and rounded to the nearest whole month.
**Rupert Dickinson retired from the board on 20 October 2009.
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. The new contracts
contain no entitlement to compensation for early termination.
Other directorships
Rupert Dickinson served as a non-executive director of
Workspace Group plc throughout the period under review.
Andrew Cunningham served as a non-executive director of
The Local Shopping REIT plc until 30 September 2009. 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
£36,600 and £28,423 respectively.
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. Executive directors and the deputy
chairman, Stephen Dickinson, who had part-time executive
responsibilities during this period of office, 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 2009, with the next
review date set at 1 October 2010.
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Grainger plc Annual report and accounts 2009
Report of the remuneration committee
and directors’ remuneration report continued
Pensions
The group contributed 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
The executive directors, and Stephen Dickinson, deputy
chairman during his period of office, were 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 34 and 35.
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. In the financial year ending 30 September 2009,
the executive directors, Rupert Dickinson and Andrew
Cunningham, participated in an arrangement introduced in
2003 whereby each year a notional provisional bonus amount
is calculated 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.
The calculated amount is aggregated with the unpaid notional
amounts from previous years and each year the remuneration
committee consider the appropriate proportion, if any, of this
aggregate notional sum to be approved for payment. The
notional balance after any approved payment remains to be
taken into account over future years.
Approval of any bonus payment in any year is at the discretion
of the remuneration committee. The intention of the
remuneration committee is to pay to the relevant executive
as bonus in any given year an amount equal to one third
of the aggregate unpaid notional amount relating to that
executive in that year, subject always to the overriding
discretion of the remuneration committee to vary this in the
light of performance. In any event, bonuses remain capped
at 150% of salary and this could only be achieved under
exceptional performance conditions.
Andrew Cunningham was paid a bonus of £124,000 (being
one sixth of the relevant aggregated sum) in May 2009 in
recognition of his performance and additional responsibilities.
No other bonuses have been paid under these arrangements
for the year (2008: no bonus paid). No additional provisional
bonus amount for the year has been added to unpaid notional
amounts from previous years (2008: no amounts added).
As at 30 September 2009, the aggregate unpaid notional
amounts to be taken into account going forward were
£992,521 in respect of Rupert Dickinson and £619,093
in respect of Andrew Cunningham.
Long-term incentives
Grainger’s policy in relation to LTIS 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 LTIS was approved by shareholders in February 2007.
Grainger plc Annual report and accounts 2009
33
Awards were made under this current scheme on 23 December
2008 and are quantified in the table on page 36.
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
The one prior year award outstanding under the previous
LTIS referred to in last year’s report lapsed in January 2009.
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 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.
G
O
V
E
R
N
A
N
C
E
125
100
75
50
25
0
2007
2008
2009
GRAINGER
FTSE 250 – PRICE INDEX
FTSE 350 REAL ESTATE – PRICE INDEX
Source: Datastream
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
total shareholder return (‘TSR’) as follows:
Average annual growth
in NNNAV
Percentage of the NNNAV
proportion of an award which
will vest
Less than or equal to average
weighted average cost of
capital (‘WACC’)
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)
TSR being equal to or greater
than 16% compounded
per annum (56.09% growth
in total over the TSR
performance period)
0%
100%
Between 8% compounded
per annum and 16%
compounded per annum
Between 0% and 100%
pro rata on a straight-line
basis
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.
34
Grainger plc Annual report and accounts 2009
Report of the remuneration committee
and directors’ remuneration report continued
The auditors have audited the following parts of the remuneration report:
Directors’ remuneration
Chairman, deputy chairman and 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 2009
Total remuneration for the year ended 30 September 2008
Pension contributions into money purchase schemes
Year ended 30 September 2009
Year ended 30 September 2008
Robin
Broadhurst
£’000
Stephen
Dickinson
£’000
120
–
–
120
–
–
120
120
–
–
63
17
4
84
–
–
84
174
–
–
Rupert
Andrew
Dickinson Cunningham
£’000
£’000
490
12
6
508
–
–
508
508
74
74
Total
£’000
1,043
56
16
1,115
124
124
1,239
1,202
130
130
Total all
directors
2009
£’000
Total
£’000
205
1,248
–
–
56
16
205
1,320
–
–
124
124
205
1,444
179
1,381
370
27
6
403
124
124
527
400
56
56
Bill
Tudor
John
£’000
50
–
–
50
–
–
50
50
John
Barnsley
£’000
Baroness
Margaret
Ford
£’000
Robert
Hiscox
£’000
Henry
Pitman
£’000
Non-executive directors
Non-performance-related remuneration
Salary and fees
Taxable benefits
Share incentive plan
50
–
–
Total non-performance-related remuneration
50
Performance-related remuneration
Annual discretionary bonus
Total performance-related remuneration
Total remuneration for the year ended
30 September 2009
Total remuneration for the year ended
30 September 2008
–
–
50
50
35
–
–
35
–
–
35
9
35
–
–
35
–
–
35
35
35
–
–
35
–
–
35
35
Stephen Dickinson retired from the board on 10 February 2009.
Rupert Dickinson retired from the board on 20 October 2009. Persuant to the terms of a compromise agreement between Rupert
Dickinson and the company relating to his resignation as a director and as chief executive with effect from 20 October 2009 the
company has made an aggregate payment to Rupert Dickinson of £2,982,521 (less PAYE deductions).
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.
Grainger plc Annual report and accounts 2009
35
Directors’ share options
Ordinary shares (thousands)
Rupert Dickinson
Andrew Cunningham
Total
Dates exercisable
Non-performance-related
(available to all staff)
SAYE scheme
Exercise
price
30 Sept
2009
30 Sept
2008
30 Sept
2009
30 Sept
2008
30 Sep
2009
30 Sep
2008
1 September 2013 to 28 February 2014
1 February 2014 to 31 July 2014
£1.678
£0.652
Performance-related
(conditional awards)
Inland Revenue Approved Executive
Share Option Scheme
23 March 2010 to 23 March 2017
£6.409
Long-term incentive scheme
12 January 2009 to 12 January 2016 (lapsed)
£5.280
–
26
5
–
31
10
–
5
104
119
–
26
5
–
31
10
–
5
78
93
–
52
10
–
62
20
–
10
182
212
Performance conditions for options exercisable 12 January 2009 to 12 January 2116 at £5.280 were not met, thus the
options lapsed.
The market price of the company’s shares at the end of the financial year was £2.98, and the range of the closing mid-market
prices during the year was £0.64 to £3.02.
G
O
V
E
R
N
A
N
C
E
36
Grainger plc Annual report and accounts 2009
Report of the remuneration committee
and directors’ remuneration report continued
Directors’ share awards
Ordinary shares of 5p each (thousands)
Rupert Dickinson
Andrew Cunningham
Total
Award date
Earliest
vesting date
30 Sept
2009
30 Sept
2008
30 Sept
2009
30 Sept
2008
30 Sept
2009
30 Sept
2008
Performance-related
(conditional awards)
Long-term incentive scheme
2005 scheme (lapsed)
12 Jan 2006
12 Jan 2009
2006 scheme
2007 scheme
2008 scheme
23 Mar 2007
23 Mar 2010
09 Jan 2008
09 Jan 2011
(granted upon)
23 Dec 2008
23 Dec 2011
Matching awards
(conditional)
23 Mar 2007
23 Mar 2010
09 Jan 2008
09 Jan 2011
23 Dec 2008
23 Dec 2011
–
108
217
597
22
43
119
42
108
217
–
22
43
–
1,106
432
–
81
164
450
16
33
90
834
31
81
164
–
189
381
–
1,047
16
33
–
38
76
209
73
189
381
–
38
76
–
325
1,940
757
Performance conditions for the conditional share awards set to vest on 12 January 2009 were not met.
The conditional awards therefore lapsed on this date.
On behalf of the board
Bill Tudor John
Chairman of the remuneration committee
Grainger plc Annual report and accounts 2009
37
Directors’ report
The directors present their report and the audited consolidated
financial statements for the year ended 30 September 2009.
Principal activities
Grainger plc is a holding company and during the year the
group (through subsidiaries of Grainger plc) has continued its
activities of property trading and development.
Review of business development and prospects
Development of the group’s activities, its prospects and the
main trends and factors likely to affect the future development,
performance and position of the business are reviewed in the
chairman’s statement on pages 3 to 5 and the chief executive’s
review on pages 6 to 8.
Results for the year
The results of the group are set out in the consolidated income
statement on page 42 which shows a loss for the financial year
attributable to the equity holdings in the group of £122.0m
(2008: £77.4m loss).
Robin Broadhurst
Rupert Dickinson**
Andrew R Cunningham
Bill Tudor John
John Barnsley
Robert R S Hiscox
Henry Pitman
Baroness Margaret Ford
*Or date of resignation, if earlier.
**Resigned 20 October 2009.
Details of directors’ share options are given on page 35.
Dividends
No interim dividend (2008: 2.27p) was paid (2008: total
cost £2.9m) and the directors recommend the payment of
a final dividend of 3.91p per share (2008: 3.91p), to be paid
on 12 February 2010 amounting to £5.3m (2008: £5.3m).
Any shareholder wishing to participate in the Dividend
Reinvestment Plan for the 2009 final dividend will need to
ensure that their application form is returned to our registrars
by 23 January 2010.
Directors
The directors of the company who served during the year are
listed on page 23.
Directors’ and other interests
The interests of the directors in the shares of the company at
30 September 2009 and 4 November 2009, with comparative
figures as at 1 October 2008 are as follows:
G
O
V
E
R
N
A
N
C
E
Ordinary shares of 5p each (thousands)
Beneficial
Non-beneficial
1 Oct
2008
9
1,448
507
–
28
30
26
–
30 Sept
2009
26
1,458
512
–
46
50
451
4
4 Nov
2009*
26
1,458
512
–
46
50
451
4
1 Oct
2008
–
207
–
–
–
–
–
–
30 Sept
2009
–
207
4 Nov
2009*
–
207
–
–
–
–
–
–
–
–
–
–
–
–
2,048
2,547
2,547
207
207
207
38
Grainger plc Annual report and accounts 2009
Directors’ report continued
Robert Hiscox is one of the trustees for the Viscount Lymington
Settlement whose shareholding is referred to below.
In preparing these financial statements, the directors are
required to:
Save as disclosed on the previous page, as at 4 November
2009, the company is aware of the following interests
amounting to 3% or more in the company’s shares:
Schroder Investment
Management Limited*
Standard Life
Investments Limited
BlackRock Investment
Management Limited
Viscount Lymington Settlement
Legal & General Investment
Management Limited*
Holding
000’s
Holding
%
23,435
16.88
10,113
8,428
6,000
4,307
7.29
6.07
4.32
3.10
*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.
Statement of directors’ responsibilities
The directors are responsible for preparing the annual report,
the directors’ remuneration report and the financial statements
in accordance with applicable law and regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have elected to prepare the group financial statements in
accordance with International Financial Reporting Standards
(‘IFRS’) as adopted by the European Union, and the parent
company financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United
Kingdom Accounting Standards and applicable law). Under
company law, the directors must not approve the financial
statements unless they are satisfied that they give a true and
fair view of the state of affairs of the group and the company
and of the profit or loss of the group for that period.
(cid:129) Select suitable accounting policies and then apply them
consistently;
(cid:129) Make judgements and accounting estimates that are
reasonable and prudent;
(cid:129) State whether IFRS as adopted by the European Union and
applicable UK Accounting Standards have been followed,
subject to any material departures disclosed and explained
in the group and parent company financial statements
respectively; and
(cid:129) Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the company and the group and
enable them to ensure that the financial statements and the
directors’ remuneration report comply with the Companies
Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the company and the group and
hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Each of the directors, whose names and functions are listed
on page 23 confirm that, to the best of their knowledge:
(cid:129) The group financial statements, which have been prepared
in accordance with IFRS as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and loss of the group;
(cid:129) The operating review on pages 9 to 13 includes a fair
review of the development and performance of the business
and the position of the group, together with a description
of the principal risks and uncertainties that it faces;
(cid:129) So far as the directors are aware, there is no relevant
audit information of which the company’s auditors are
unaware; and
(cid:129) The directors have taken all the steps that they ought to
have taken as a director in order to make themselves aware
of any relevant audit information and to establish that the
company’s auditors are aware of that information.
Grainger plc Annual report and accounts 2009
39
G
O
V
E
R
N
A
N
C
E
The directors are responsible for the maintenance and integrity
of the company’s website. Legislation in the UK governing of
the preparation and dissemination of financial statements may
differ from legalisation in other jurisdictions.
Corporate governance
A report on matters of corporate governance is set out on
pages 24 to 29 of this annual report.
Environmental matters and social and community issues
Details of these are contained within the corporate responsibility
statement set out on pages 18 to 22 of this annual report.
Insurance of directors
The company has put in place insurance to cover its directors
and officers against the costs of defending themselves in civil
legal proceedings taken against them in that capacity and in
respect of damages awarded in such proceedings. Following
shareholder approval the group maintains insurance for
Grainger plc’s directors in respect of the duties as director,
which is a qualifying third-party indemnity provision for the
purposes of the Companies Act 2006.
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
2009 relating to purchases of property stock generally
complete 28 days after exchange of contracts. The company
has no trade creditors. Trade creditor days of the group were
calculated as 18 days (2008: 19 days).
Financial risk management
Details of this are included in note 25 to the financial
statements.
Charitable donations
During the year the group made charitable donations
amounting to £12,577 (2008: £28,495).
Health and safety
The group seeks to achieve the highest standards in respect
of health and safety of employees and tenants. Consultants
are employed to ensure that the group 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.
Employment of disabled persons
The group 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 group continues and that appropriate
training is arranged where necessary. It is the policy of the
group that the training, career development and promotion of
disabled persons should, as far as possible, be identical to that
of other employees.
Employee involvement
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 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.
40
Grainger plc Annual report and accounts 2009
Directors’ report continued
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
and the group will be proposed at the next Annual General
Meeting.
Shares
As disclosed in note 31 to the financial statements, the
company issued 10,082,019 5p ordinary shares, of which
10,081,013 related to the conversion of £87.1m of convertible
bonds as referred to in note 33 to the financial statements, and
the balance of 1,006 to the company’s SAYE share scheme. The
company also bought back 194,987 5p ordinary shares for
total consideration of £209,850, which were put into treasury.
A further 626,489 5p ordinary shares were transferred out
of treasury into an Employee Benefit Trust. At 30 September
2009, the directors had unexpired power to repurchase up
to 13,834,410 shares.
Change of control
On a change of control, the club bank facilities (described in
note 26 to the financial statements) 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
Grainger plc has announced, at the same time as these
financial statements have been approved, its intention to raise
approximately £250m (approximately £238m net of expenses)
by way of a 2 for 1 Rights Issue up to 277,628,724 new shares.
The group has determined to raise additional equity finance to
improve its balance sheet leverage ratios, reduce the overall
cost and size of its debt and to enable it to move from its
current position of cash conservation to recommence active
trading as opportunities arise.
By order of the board
Nick On
Company secretary
5 November 2009
Grainger plc Annual report and accounts 2009
41
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 2009 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. The financial reporting framework that has been applied
in their preparation is applicable law and International Financial
Reporting Standards (‘IFRS’) as adopted by the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors’
responsibilities set out in the directors’ report, the directors
are responsible for the preparation of the group financial
statements and for being satisfied that they give a true and
fair view. Our responsibility is to audit the group financial
statements in accordance with applicable law and International
Standards on Auditing (UK and Ireland). Those standards
require us to comply with the Auditing Practices Board’s
Ethical Standards for Auditors.
This report, including the opinions, has been prepared for
and only for the company’s members as a body in accordance
with Sections 495 and 496 of the Companies Act 2006 and
for no other purpose. We do not, in giving these opinions,
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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies
are appropriate to the group’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and
the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the group financial statements:
(cid:129) Give a true and fair view of the state of the group’s affairs
as at 30 September 2009 and of its loss and cash flows for
the year then ended;
(cid:129) Have been properly prepared in accordance with IFRS
as adopted by the European Union; and
(cid:129) Have been prepared in accordance with the requirements of
the Companies Act 2006 and Article 4 of the lAS Regulation.
Opinion on other matter prescribed by the Companies
Act 2006
In our opinion the information given in the directors’ report
for the financial year for which the group financial statements
are prepared is consistent with the group financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required to report
to you if, in our opinion:
(cid:129) Certain disclosures of directors’ remuneration specified
by law are not made; or
(cid:129) We have not received all the information and explanations
we require for our audit; or
(cid:129) A corporate governance report has not been prepared by
the parent company.
Under the Listing Rules we are required to review:
(cid:129) The directors’ statement, set out in the corporate
governance report, in relation to going concern; and
(cid:129) The part of the corporate governance report relating to
the company’s compliance with the nine provisions of the
June 2008 Combined Code specified for our review.
Other matter
We have reported separately on the parent company financial
statements of Grainger plc for the year ended 30 September
2009 and on the information in the report of the remuneration
committee and directors’ remuneration report that is described
as having been audited.
Bowker Andrews (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
5 November 2009
F
I
N
A
N
C
I
A
L
S
42
Grainger plc Annual report and accounts 2009
Consolidated income statement
For the year ended 30 September 2009
Group revenue
Net rental income
Profit on disposal of trading properties
Administrative expenses
Other income
Goodwill impairment
(Loss)/profit on disposal of investment property
Profit on disposal of shares in subsidiary
Interest expense from financial interest in property assets
Write down of inventories to net realisable value
Provision for impairment of loans receivable
Operating profit before net valuation deficits on investment properties
Net valuation deficits on investment properties
Operating profit after net valuation deficits on investment properties
Change in fair value of derivatives
Interest expense and similar charges
Interest income
Inducement costs and expenses on convertible bond
Share of loss of associates after tax
Share of loss of joint ventures after tax
Loss before tax
Taxation – current
Taxation – deferred
Tax credit for the year
Loss for the year attributable to equity shareholders
Basic loss per share
Diluted loss per share
Dividend per share
All of the above results relate to continuing operations.
Notes
5
6
8
9
22
7
10
21
23
20, 24
17
25
13
13
26
19
20
12
14
16
16
15
2009
£m
302.2
38.5
44.9
(8.9)
7.3
(2.9)
(1.1)
–
(4.7)
(18.4)
(19.6)
35.1
(25.6)
9.5
(38.7)
(107.1)
5.2
(31.1)
(6.4)
(1.4)
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)
(170.0)
(112.1)
10.8
37.2
48.0
(122.0)
(89.8)p
(89.8)p
3.91p
(5.7)
40.4
34.7
(77.4)
(61.0)p
(61.0)p
6.18p
Grainger plc Annual report and accounts 2009
43
Consolidated statement of recognised income and expense
For the year ended 30 September 2009
Notes
Loss for the year
2009
£m
£m
(122.0)
2008
£m
£m
(77.4)
Actuarial (loss)/gain on BPT Limited defined benefit
pension scheme net of tax
28, 33
(2.9)
Fair value movement on available-for-sale financial
asset 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 recognised directly in equity
Total recognised income and expense for the year and
since the last report attributable to equity shareholders
33
33
25, 33
1.9
0.6
(47.0)
0.3
–
0.8
(2.8)
(47.4)
(169.4)
(1.7)
(79.1)
F
I
N
A
N
C
I
A
L
S
44
Grainger plc Annual report and accounts 2009
Consolidated balance sheet
As at 30 September 2009
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
Investment in associates
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
2009
£m
2008
£m
17
18
19
20
21
22
19
23
24
25
26
26
27
28
27
14, 29
26
30
14
25
654.3
1.9
24.5
80.7
109.1
5.9
876.4
619.3
2.3
51.6
90.8
121.2
8.0
893.2
8.7
–
1,015.6
1,142.2
20.0
0.2
28.3
1,072.8
1,949.2
23.0
11.9
43.2
1,220.3
2,113.5
1,557.0
1,635.4
4.0
5.8
0.9
21.1
4.0
2.1
1.0
78.4
1,588.8
1,720.9
19.9
88.1
24.4
99.5
17.9
80.1
51.4
13.4
231.9
162.8
1,820.7
1,883.7
128.5
229.8
Grainger plc Annual report and accounts 2009
45
As at 30 September 2009
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
Available-for-sale reserve
Retained earnings
Total shareholders’ equity
Equity minority interests
Total equity
Notes
2009
£m
2008
£m
31, 33
33
33
33
33
33
33
33
33
6.9
109.7
20.1
0.3
(41.6)
5.0
1.9
26.1
128.4
0.1
128.5
6.4
23.1
20.1
0.3
5.4
22.4
–
152.0
229.7
0.1
229.8
The financial statements on pages 42 to 105 were approved by the board of directors on 5 November 2009 and were signed
on their behalf by:
Andrew R Cunningham
Director
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Grainger plc Annual report and accounts 2009
Statement of consolidated cash flows
For the year ended 30 September 2009
Cash flow from operating activities
Loss for the year
Depreciation
Impairment of goodwill
Net valuation deficits on investment properties
Gain on acquisition of subsidiary
Net finance costs
Share of loss of associates and joint ventures
Loss/(profit) on disposal of investment property
Provision for impairment of loans receivable
Inducement costs on convertible bond
Profit on disposal of shares in subsidiary
Share-based payment charge
Change in fair value of derivatives
Interest expense from financial interest in property assets
Taxation
Operating profit before changes in working capital
Decrease in trade and other receivables
Decrease in trade and other payables
Decrease/(increase) in trading properties
Cash generated from operations
Interest paid
Taxation paid
Net cash inflow/(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
Redemption of units in associate
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 minority interests
Net cash inflow/(outflow) from investing activities
Notes
2009
£m
2008
£m
(122.0)
(77.4)
18
22
17
13
19, 20
7
20, 24
26
10
32
25
21
14
14
7
21
19
19
22
0.8
2.9
25.6
–
101.9
7.8
1.1
19.6
31.1
–
0.8
38.7
4.7
(48.0)
65.0
1.4
(22.9)
126.9
170.4
(77.9)
(16.2)
76.3
8.8
10.1
–
7.6
1.9
0.4
(0.8)
(4.8)
(5.1)
–
18.1
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)
For the year ended 30 September 2009
Cash flows from financing activities
Proceeds from the issue of share capital
Purchase of own shares
Inducement payment to convertible bondholders
Proceeds from new borrowings
Repayment of borrowings
Dividends paid
Payment to defined benefit pension scheme
Net cash (outflow)/inflow from financing activities
Net decrease 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
Grainger plc Annual report and accounts 2009
47
Notes
33
33
26
15
28
26
26
2009
£m
–
(0.4)
(31.1)
11.6
(86.0)
(5.3)
(0.5)
(111.7)
(17.3)
43.2
2.4
28.3
2008
£m
0.1
(1.0)
–
131.4
(11.0)
(8.1)
–
111.4
(38.0)
80.1
1.1
43.2
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Grainger plc Annual report and accounts 2009
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 113. 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 European Union endorsed International
Financial Reporting Standards (‘IFRS’), IFRIC interpretations
and those parts of the Companies Act 2006 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 107 to 111.
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, financial interest in
property assets, defined benefit pension scheme and share-
based payments.
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.
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.
Grainger plc Annual report and accounts 2009
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1 Accounting policies continued
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 6 to 8 of this document and in note 4.
d) Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
e) 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.
iii Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated into 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.
iv Net investment hedges
Hedges of net investments in foreign operations are accounted
for similarly to cash flow hedges. Any gain or loss on the
hedging instrument relating to the effective portion of the
hedge is recognised in equity within the translation reserve
as part of retained earnings. Any gain or loss relating to the
ineffective portion is recognised in the income statement within
other interest payable. Gains and losses accumulated in equity
are included in the income statement when the foreign
operation is partially disposed of or sold.
f) 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.
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Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
1 Accounting policies continued
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.
g) 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.
h) 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/expense 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.
i) 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.
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.
Grainger plc Annual report and accounts 2009
51
1 Accounting policies continued
j) 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.
k) Income tax and deferred 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.
l) 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 are reflected in the income statement
each year. Actuarial gains and losses net of deferred income
tax are 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’), a share incentive plan 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.
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.
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Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
1 Accounting policies continued
m) Revenue recognition
n) Leases
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 Management fee income
Management fee income is recognised in the accounting
period in which the services are rendered.
iii Service charges
The group is responsible for providing service charge services
in both the UK and in Germany. Where Grainger is exposed
to the significant risks and rewards associated with the
rendering of services it is acting as principal. Otherwise it
is acting as agent.
In the UK, Grainger acts primarily as agent. Accordingly, service
charge income and costs are shown net in the balance sheet.
Where recovery of service charges is doubtful a provision for
impairment is made. Any management fees earned are
recognised in the income statement on an accruals basis.
In Germany, Grainger acts primarily as principal. Accordingly,
service charge income and costs are shown gross in the income
statement with service charge recoveries from tenants recorded
as a component of group revenue. Where recovery of service
charges is doubtful a provision for impairment is made.
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, 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.
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 of 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.
o) Financial instruments
i 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.
Derivatives are classified as current assets and current liabilities.
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.
Grainger plc Annual report and accounts 2009
53
1 Accounting policies continued
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.
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.
ii Fair value estimation
The fair value of interest rate swaps is based on a discounted
cash flow model using quoted market information.
iii 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.
p) 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.
q) 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.
r) Convertible bond
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.
s) Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate 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.
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Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
1 Accounting policies continued
t) Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest rate method.
u) 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.
v) Dividends
Dividend distributions to the company’s shareholders are
recognised as a liability in the consolidated 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.
w) 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.
x) 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 33).
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.
y) 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 (for example, contingent consideration) remeasured
at fair value through income ii) the expensing of all
transaction costs 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.
Grainger plc Annual report and accounts 2009
55
1 Accounting policies continued
(cid:129) Amendment to IAS 1 ‘Presentation of Financial Statements’
(effective from 1 January 2009). The amendment requires
the introduction of a Statement of Comprehensive Income
along with voluntary changes in the titles of some of the
financial statements and the requirement to aggregate
information in the financial statements on the basis of
shared characteristics. The statement of changes in equity
will become a primary statement in the group’s results.
The following interpretations to existing standards have been
published and are mandatory for the group’s accounting
periods beginning on or after 1 January 2009 or later periods
but are not expected to have any material impact on the
financial statements of the group:
(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.
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.
Property valuations
After a review by the directors, the valuations performed by
the group’s own in-house qualified surveying team are used
to value the UK-based property as at 30 September 2009.
A structured sample of the in-house valuations are checked
by Allsop LLP, an external independent valuer. Allsop LLP has
(cid:129) IFRIC 15 ‘Agreements of Construction on Real Estate’. IFRIC
15 standardises accounting practices across jurisdictions for
the recognition of revenue by real estate developers for sales
of units before construction is complete. IFRIC 15 is not
considered to have a material impact on the group’s results.
(cid:129) IAS 32 ‘Financial Instruments Presentation’. Amendments
to IAS 32 classify puttable financial instruments as equity
provided they have particular features and meet specific
conditions. IAS 32 is not relevant to the group’s operations
as the group does not hold any such financial instruments.
(cid:129) IAS 39 ‘Financial Instruments: Recognition and
Measurement’. Amendments to IAS 39 regarding eligible
hedged items clarifies how the principles that determine
whether a hedged risk or portion of cash flows is eligible
for designation should be applied in particular situations.
The amendment is not applicable to the group as no
reclassifications of financial instruments are to be carried out.
provided the directors with the following opinion on the
directors’ valuation of the group’s UK property, “Property
held in the core residential and retirement solutions portfolios
was valued as at 30 September 2009 by Grainger’s in-house
surveyors. These valuations were reviewed and approved by the
directors. Allsop LLP has undertaken a comprehensive review of
the directors’ 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 31% of the retirement
solutions portfolio, independently of the group. Allsop LLP has
concluded that they have a high degree of confidence in the
totals reported by the directors in the core residential and
retirement solutions portfolios.”
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Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
2 Critical accounting estimates and assumptions continued
Valuing the large number of properties in the portfolio is a
significant task. For this reason, and because we have no right
to internal access, it is undertaken on an external inspection
basis only. Invariably, when the 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 this is discussed 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 the
group and the valuer agree the appropriate valuation that
should be adopted.
Investment property
i
Investment property in the UK portfolio is valued as set out
under property valuations above.
The net deficit on valuation of the core and retirement
solutions portfolios as at 30 September 2009 was £14.7m
and this has been taken through the income statement.
As at 30 September 2009, Cushman & Wakefield LLP and
Jones Lang LaSalle GmbH, both external valuers, have valued
separate parts of the portfolio in Germany. Cushman &
Wakefield LLP valued property with a value of €346.4m
(£316.7m) and Jones Lang LaSalle valued property with
a value of €168.0m (£153.6m).
The net deficit on valuation of investment property in the
German portfolio as at 30 September 2009 was £10.9m
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 £279.7m. 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. 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’s share of the investment property across both
GenInvest entities of £139.9m represents only 6% of the total
market value of the group’s total interest in property assets
at 30 September 2009.
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 2008 and 30 June
2009 by external valuers, Allsop LLP and DTZ Debenham Tie
Leung Limited. In aggregate, the valuation of investment
property at 30 June 2009 was £346.2m. Other than for sales
and purchases, no adjustment has been made to these
valuations in the group’s accounts to 30 September 2009.
The group has a 21.8% share in Schroders Residential Property
Unit Trust (ResPUT). Investment property in this Fund was
valued at £40.0m by Allsop LLP as at 30 September 2009.
Grainger plc Annual report and accounts 2009
57
2 Critical accounting estimates and assumptions continued
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. As
stated above, a structured sample of the in-house valuations
was checked by Allsop LLP, an external independent valuer.
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 has been made at 30 September
2009 to write down properties expected to be sold ultimately
at vacant possession value. For properties expected to be held
beyond the immediate future, the provision has been assessed
on what the group considers to be prudent assumptions. These
allow for a further decline in property prices in 2010 followed
by a period of stable prices with price increases thereafter
in line with conservative historical house price growth rates.
The group does sell some property as investment sales, a sale
with the tenant still in situ. A net realisable value provision
has been made at 30 September 2009 against projected
investment sales.
In aggregate a charge of £4.4m has been made in the 2009
income statement to reduce the book value of trading
properties to the lower of cost and net realisable value.
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 2009 are based upon the current intentions
of the directors. In addition, estimates at 30 September 2009
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 £14.0m has been made in the 2009 income
statement to reduce the book value of development stock
to net realisable value.
Valuation of financial interest in property assets
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(h)
on page 50. 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
property’ above. A change of 1% to average house price
inflation over the 10-year period from 1 October 2009 would
either increase the valuation by £7.4m or reduce the valuation
by £6.7m.
Consideration has been given to the effective interest rate
to adopt for the valuation. We have concluded that the
effective interest rate should be reduced by 0.35% as at
30 September 2009. A 1% change to the discount rate
would either increase the carrying value by £8.1m or reduce
the carrying value by £7.3m.
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.
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Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
2 Critical accounting estimates and assumptions continued
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.
Goodwill impairment
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 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 2009
relating to taxation as described above was £2.2m. 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 a post-tax weighted average cost
of capital of 4.83%, 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 £0.8m whilst a
1% decrease would increase the impairment charge by £0.9m.
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 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 11 years to 15 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 £0.7m arose in the
year from the acquisition of FRM in 2008. Additional legal
and professional costs were incurred during the year relating
to the group’s acquisition of the remaining shares from the
minority interest. This goodwill has been fully impaired in the
income statement.
Going concern
The directors are required to make an assessment of the
group’s ability to continue to trade as a going concern. The
two main considerations were as follows:
i Refinancing of banking facilities
The group announced on 30 September 2009 that two new
forward start facilities totalling £615m had been finalised to
refinance the group’s £400m facility maturing in June 2010 and
£475m facility maturing in June 2011. These two latter facilities
have been reduced to £250m and £445m respectively by using
short-term committed but undrawn facilities. As a result of the
above, the group has no core debt facilities maturing in its
2010 financial year. A total of £109m matures in the group’s
2011 financial year.
As demonstrated this year, the group is able to generate strong
cash inflows even in very difficult market conditions.
ii Covenant compliance
The core facility has two covenants, both unchanged by the
new facilities, covering loan to value (‘LTV’) ratio and interest
cover. The group has remained well within both of these
covenants during the year. At 30 September 2009 the LTV
ratio on the core facility was 66%; an LTV of 80% could lead
to default. The interest cover ratio was 2.7 times against a
minimum requirement of 1.25 times.
The group’s financial forecasts confirm that, in the absence of
unforeseen circumstances, the group will operate within its
banking facilities and also remain compliant with its covenants
for at least the next 12 months.
On the basis of the above, 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.
Grainger plc Annual report and accounts 2009
59
3 Analysis of loss before tax
The results for the year have been significantly affected by valuation movements and non-recurring charges. The table below
provides further analysis of the income statement showing the results of trading activities separately from these items.
Trading
£m
302.2
40.2
45.3
(8.2)
7.3
–
(1.1)
–
(4.7)
–
–
78.8
–
78.8
–
(84.5)
5.2
–
0.2
(3.1)
(3.4)
2009
Valuation Non-recurring
£m
£m
Total
£m
–
–
–
–
–
(2.9)
–
–
–
(18.4)
(19.6)
(40.9)
(25.6)
(66.5)
(38.7)
–
–
–
(6.6)
1.7
–
302.2
(1.7)
(0.4)
(0.7)
–
–
–
–
–
–
–
(2.8)
–
(2.8)
–
38.5
44.9
(8.9)
7.3
(2.9)
(1.1)
–
(4.7)
(18.4)
(19.6)
35.1
(25.6)
9.5
(38.7)
(22.6)
(107.1)
–
5.2
(31.1)
(31.1)
–
–
(6.4)
(1.4)
Trading
£m
246.2
37.7
62.6
(6.2)
8.7
–
0.6
3.5
(0.9)
–
–
106.0
–
106.0
–
(96.1)
7.1
–
0.2
(5.0)
2008
Valuation
£m
–
–
–
–
0.5
(9.6)
–
–
–
(12.3)
–
(21.4)
(43.1)
(64.5)
(11.5)
–
–
–
(14.2)
(34.1)
Total
£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)
(110.1)
(56.5)
(170.0)
12.2
(124.3)
(112.1)
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Group revenue
Net rental income
Profit on disposal of trading properties
Administrative expenses
Other income
Goodwill impairment
(Loss)/profit on disposal of investment properties
Profit on disposal of shares in subsidiary
Interest expense from financial interest in
property assets
Write down of inventories to net realisable value
Provision for impairment of loans receivable
Operating profit before net valuation
deficits on investment properties
Net valuation deficits on investment properties
Operating profit after net valuation
deficits on investment properties
Change in fair value of derivatives
Interest expense and similar charges
Interest income
Inducement costs and expenses on conversion
of bond
Share of loss of associates after tax
Share of loss of joint ventures after tax
Loss before tax
4 Segmental information
As at 30 September 2009 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.
60
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
Fund
management/
residential
investments Development
European
tenanted
European
residential development
Unallocated
4 Segmental information continued
2009 Income statement (£m)
Group revenue
Net rental income
Profit on disposal of trading properties
Administrative expenses
Other income
Goodwill impairment
Profit/(loss) on disposal of
investment property
Interest expense from financial
interest in property assets
Write down of inventories to
net realisable value
Provision for impairment
of loans receivable
Core
portfolio
180.0
Retirement
solutions
24.1
21.0
35.5
–
0.9
(2.2)
4.3
4.4
–
0.1
–
0.3
(0.3)
–
(4.7)
(4.4)
–
–
–
5.7
(0.4)
–
–
5.7
–
–
–
–
48.2
1.1
5.0
–
0.1
–
–
–
(14.0)
(9.2)
(5.7)
44.2
12.5
–
–
0.5
(0.7)
(1.1)
–
–
–
Operating profit/(loss) before net valuation
deficits on investment properties
51.1
3.8
(3.9)
(13.5)
11.2
(5.2)
(9.5)
–
–
(10.9)
45.9
(5.7)
(3.9)
(13.5)
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
Group total
30 September
2009
302.2
38.5
44.9
(8.9)
7.3
(2.9)
(1.1)
(4.7)
(18.4)
–
–
–
(8.9)
–
–
–
–
–
(4.7)
(19.6)
(13.6)
35.1
–
(25.6)
(13.6)
9.5
(38.7)
(107.1)
5.2
(31.1)
(6.4)
(1.4)
(170.0)
Net valuation deficits on
investment properties
Operating profit/(loss) –
segment result
Change in fair value of derivatives
Interest expense and similar charges
Interest income
Inducement costs and expenses
on conversion of bond
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)
(0.2)
–
–
–
–
–
–
–
–
(0.1)
(0.5)
(0.8)
(0.8)
The share of loss of associates after tax of £6.4m is all attributable to fund management/residential investments.
Of the share of loss of joint ventures after tax of £1.4m, a loss of £0.8m is attributable to fund management/residential investments,
a loss of £0.6m is attributable to development, a loss of £0.2m is attributable to European development and a profit of £0.2m is
attributable to European tenanted residential.
Grainger plc Annual report and accounts 2009
61
Fund
management/
residential
investments Development
Retirement
solutions
European
tenanted
European
residential development
Group total
30 September
2008
Unallocated
6.3
–
–
(3.6)
6.3
–
–
–
–
–
2.7
–
2.7
11.3
1.0
(3.1)
–
–
–
–
–
–
(9.2)
21.9
10.8
–
–
0.5
–
0.1
–
–
–
(11.3)
11.4
–
(11.3)
(8.6)
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
–
(6.2)
(43.1)
41.5
(11.5)
(96.1)
7.1
(14.0)
(39.1)
(112.1)
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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 expense from financial
interest in property assets
Write down of inventories to
net realisable value
Core
portfolio
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)
–
Operating profit/(loss) before net valuation
deficits on investment properties
76.8
7.7
Net valuation deficits on
investment properties
(20.7)
(13.8)
Operating profit/(loss) – segment result
56.1
(6.1)
Change in fair value of derivatives
Interest expense and similar charges
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 investments
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 investments,
£0.8m is attributable to development and £0.2m is attributable to European development.
62
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
4 Segmental information continued
2009 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
Group total
European 30 September
2009
development
95.4
88.6
–
–
–
5.9
686.8
3.0
0.4
–
–
109.1
–
239.8
1.3
2.0
–
33.2
68.1
–
–
–
7.2
–
791.5
440.8
108.5
–
–
1.1
–
–
87.2
1.4
0.3
90.0
470.3
–
3.0
–
–
1.8
4.5
11.9
491.5
–
–
8.5
–
–
–
0.9
0.2
9.6
–
3.1
3.1
35.4
28.0
63.4
–
–
–
–
11.9
11.9
321.4
9.9
331.3
–
–
–
654.3
33.2
80.7
109.1
5.9
1,015.6
18.3
14.8
1,931.9
1.9
0.2
1.7
13.5
1,949.2
356.8
52.9
409.7
1,220.1
39.2
5.8
24.4
0.9
21.1
99.5
1,820.7
128.5
–
–
–
–
–
–
0.4
Grainger plc Annual report and accounts 2009
63
Core
portfolio
Retirement
solutions
Fund
management/
residential
investments Development
European
tenanted
residential
Group total
European 30 September
2008
development
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
416.1
–
–
–
–
1.4
1.9
19.8
883.7
462.2
138.7
142.1
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
F
I
N
A
N
C
I
A
L
S
–
–
–
–
–
–
0.7
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
64
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
5 Net rental income
Gross rental income
Service charge income on a principal basis
Property repair and maintenance costs
Service charge expense on a principal basis
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 (see note 23)
Other sales costs (see note 8)
7 (Loss)/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
2009
£m
77.9
13.4
(22.3)
(15.3)
(15.2)
38.5
2009
£m
198.4
(144.4)
(9.1)
44.9
2009
£m
8.8
(9.9)
(1.1)
2009
£m
33.2
2008
£m
70.7
5.6
(19.2)
(6.3)
(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
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:
Property operating expenses (see note 5)
Costs attributable to the disposal of trading properties (see note 6)
Administrative expenses
2009
£m
15.2
9.1
8.9
33.2
2008
£m
13.1
10.8
6.2
30.1
Grainger plc Annual report and accounts 2009
65
9 Other income
Property and asset management fee income
Crop store and agricultural income
Other sundry income
Gain on acquisition of subsidiary
10 Profit on disposal of shares in subsidiary
Sale of shares in CCZ a.s. and Prazsky Project a.s.
2009
£m
5.7
0.5
1.1
–
7.3
2009
£m
–
2008
£m
7.0
0.6
1.1
0.5
9.2
2008
£m
3.5
In 2008 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.
11 Employees
Wages and salaries
Termination benefits
Social security costs
Other pension costs – defined contribution scheme (see note 28)
Share-based payments
2009
£m
13.1
1.5
1.3
0.8
0.8
17.5
2008
£m
13.2
0.1
1.4
0.9
0.5
16.1
F
I
N
A
N
C
I
A
L
S
Interest on net pension scheme liabilities amounted to £0.2m in 2009 (2008: £nil) and is included within interest expense and
similar charges (see note 13).
The average monthly number of group employees during the year (including executive directors) was:
UK tenanted residential
UK development
European tenanted residential
2009
Number
2008
Number
251
10
13
274
273
15
12
300
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 34 to 36 which form part of these financial statements.
66
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
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 before tax
Loss before tax is stated after charging/(crediting):
Depreciation on fixtures, fittings and equipment
Impairment of goodwill (see note 22)
Gain on acquisition of subsidiary
Bad debt expense
Foreign exchange losses/(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 services pursuant to legislation:
Tax services
Other services
Total fees
2009
£m
3.0
0.2
0.7
3.9
2009
£m
0.8
2.9
–
1.1
0.4
1.7
0.1
0.8
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
2009
£’000
2008
£’000
148
103
106
531
888
136
58
145
166
505
During the year, £106,000 was paid by the group to PricewaterhouseCoopers LLP for taxation services during the year. The Audit
Committee give careful consideration before appointing the auditors to provide taxation advice and regularly use other providers
to ensure that independence and full value for money are achieved. A further £531,000 was paid for due diligence services in
respect of the acquisition of FRM and other transactional work. These fees were one-off in nature and are not expected to reoccur.
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 one to 13 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 37.
Grainger plc Annual report and accounts 2009
67
13 Interest
Interest expense and similar charges
Bank loans and mortgages
Convertible bond
Loan notes
Other interest payable
Foreign exchange gains on financing activities
Loan issue costs – amortisation and loss on extinguishment
Interest on net pension scheme liabilities
Interest income
Interest receivable from associates and joint ventures (see note 35)
Other interest receivable
Net finance costs
2009
£m
78.2
2.1
0.4
5.2
0.4
20.6
0.2
107.1
3.3
1.9
5.2
101.9
2008
£m
87.9
6.9
0.8
–
(1.5)
2.0
–
96.1
4.1
3.0
7.1
89.0
Loan issue costs – amortisation and loss on extinguishment of £20.6m includes £17.5m of loan costs and fees expensed as a result
of the debt refinancing concluded immediately prior to the year end through which certain loans have been accounted for as an
extinguishment under IAS 39 ‘Financial Instruments: Recognition and Measurement’.
14 Taxation
Current tax
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 for the year
2009
£m
0.9
(11.7)
(10.8)
(38.8)
1.6
(37.2)
(48.0)
2008
£m
11.6
(5.9)
5.7
(38.6)
(1.8)
(40.4)
(34.7)
F
I
N
A
N
C
I
A
L
S
68
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
14 Taxation continued
Movements in taxation during the year are set out below:
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
Equity component of available-for-sale
financial asset
Fair value movement in cash flow hedges
and exchange adjustments
Opening
balance
£m
51.4
Payments
in the year
£m
(16.2)
60.3
20.1
2.2
(8.7)
0.7
–
3.8
78.4
–
–
–
–
–
–
–
–
Total tax – 2009 movement
129.8
(16.2)
Acquired
in the year
£m
–
–
–
–
–
–
–
–
–
–
Movements
recognised
in income
£m
(10.8)
(18.3)
(11.0)
(1.8)
(6.1)
–
–
–
(37.2)
(48.0)
Total tax – 2008 movement
159.3
(0.2)
3.9
(34.7)
The tax credit for the year comprises:
UK taxation
Overseas taxation
Exchange
adjustments
£m
Movements
recognised
in equity
£m
–
–
0.3
–
–
–
–
–
0.3
0.3
0.3
Closing
balance
£m
24.4
42.0
9.4
0.4
(14.8)
(0.4)
–
–
–
–
–
(1.1)
0.7
0.7
(20.0)
(20.4)
(20.4)
(16.2)
21.1
45.5
1.2
129.8
2009
£m
(46.1)
(1.9)
(48.0)
2008
£m
(41.4)
6.7
(34.7)
The tax credit for the year is higher than the standard rate of corporation tax in the UK of 28% (2008: 29%). The differences are
explained below:
Loss before tax
Loss before tax at a rate of 28% (2008: 29%)
Expenses not deductible for tax purposes
Goodwill impairment
Impact of tax rate change
Utilisation of current and prior period losses
Other losses and non-taxable items
Adjustment in respect of prior periods
Total income tax credit in the income statement (see above)
2009
£m
(170.0)
(47.6)
2.5
0.8
–
2008
£m
(112.1)
(32.5)
2.1
2.6
1.7
(11.9)
(10.6)
6.6
1.6
–
2.0
(48.0)
(34.7)
Grainger plc Annual report and accounts 2009
69
14 Taxation continued
As detailed in note 29, 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.
The movement in the tax rate used for the group computation is as a result of the tax rate change part way through the prior year
resulting in an average rate taken for group tax purposes in 2008.
Factors that may affect future tax charges
A number of matters have been agreed during the year with the relevant tax authorities. At the year end there are no material
outstanding factors that would affect future tax charges.
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 until 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
Interim dividend for the year ended 30 September 2008 – 2.27p per share
Final dividend for the year ended 30 September 2008 – 3.91p per share
2009
£m
–
–
5.3
5.3
2008
£m
5.2
2.9
–
8.1
A final dividend relating to 2009 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 12 February 2010 to shareholders on the register on 20 November 2009. No interim
dividend for 2009 was declared. In addition to the above, £0.1m of the provision for dividend payment to the minority interest
in FRM made in the accounts to 30 September 2008, has been reversed. Further shares were acquired by the group prior to the
payment date resulting in a payment of only £0.1m. The total dividend taken to equity in the year is therefore £5.2m (£2008: £8.3m).
16 Loss 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 (loss)/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 2009 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 debt component of
the convertible bond. Where the effect of the above adjustments is antidilutive, as is the case for both years being reported, they
are excluded from the calculation of diluted (loss)/earnings per share.
F
I
N
A
N
C
I
A
L
S
70
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
16 Loss per share continued
30 September 2009
30 September 2008
Weighted
average
number
of shares
(thousands)
Loss for
the year
£m
Loss
per share
pence
Loss for
the year
£m
Weighted
average
number
of shares
(thousands)
Loss
per share
pence
Basic loss per share
Loss attributable to equity holders
(122.0)
135,816
(89.8)
(77.4)
126,720
(61.0)
Effect of potentially dilutive securities
Options and shares
Convertible bond
Diluted loss per share
–
–
–
–
–
–
–
–
–
–
–
–
Loss attributable to equity holders
(122.0)
135,816
(89.8)
(77.4)
126,720
(61.0)
17 Investment property
Opening balance
Additions:
Acquisitions
Subsequent expenditure
Business combinations
Disposals
Net valuation deficits
Exchange adjustments
Transfer from owner occupied property
Closing balance
2009
£m
619.3
1.1
3.7
–
(9.9)
(25.6)
65.7
–
654.3
2008
£m
478.6
23.9
4.4
131.9
(6.8)
(43.1)
30.3
0.1
619.3
The group has valued all of its investment property as at 30 September 2009 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 £25.6m has arisen on valuation of investment property to fair value as at 30 September 2009 (2008: deficit
of £43.1m) and this has been taken to the income statement.
The historical cost of the group’s investment property as at 30 September 2009 is £637.6m (2008: £605.7m).
Rental income from investment property during the year was £41.3m (2008: £31.9m). Direct property repair and maintenance
costs arising from investment property that generated rental income during the year was £12.2m (2008: £7.8m). Direct operating
expenses arising from investment property that did not generate rental income during the year amounted to £0.1m (2008: £0.1m).
Grainger plc Annual report and accounts 2009
71
Fixtures
fittings and
equipment
£m
Owner-
occupied
property
£m
4.7
0.4
5.1
2.4
0.8
3.2
1.9
2.3
4.7
0.7
0.2
–
(0.9)
4.7
2.5
0.8
(0.9)
2.4
2.3
2.2
–
–
–
–
–
–
–
–
0.1
–
–
(0.1)
–
–
–
–
–
–
–
0.1
Total
£m
4.7
0.4
5.1
2.4
0.8
3.2
1.9
2.3
4.8
0.7
0.2
(0.1)
(0.9)
4.7
2.5
0.8
(0.9)
2.4
2.3
2.3
F
I
N
A
N
C
I
A
L
S
18 Property, plant and equipment
Cost
At 1 October 2008
Additions
At 30 September 2009
Accumulated depreciation
At 1 October 2008
Charge for the year
At 30 September 2009
Net book value
At 30 September 2009
At 30 September 2008
Cost
At 1 October 2007
Additions
Acquisition of subsidiary
Transfer to investment property
Disposals
At 30 September 2008
Accumulated 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
72
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
19 Investment in associates
Opening balance
Share of losses
Distributions received
Redemption of equity units
Share of change in fair value of cash flow hedges taken through equity
Closing balance
Disclosed as:
Non-current assets
Current assets
Closing balance
2009
£m
51.6
(6.4)
(0.4)
(7.6)
(4.0)
33.2
24.5
8.7
33.2
2008
£m
68.5
(14.0)
(2.1)
–
(0.8)
51.6
51.6
–
51.6
The investors in Schroders ResPUT have agreed to a controlled liquidation of the fund and the group has received a number
of redemption payments as assets have been realised. The investment is therefore held as a current asset in 2009.
As at 30 September 2009, the group’s interest in associates was as follows:
G:res1 Limited
Schroders Residential Property Unit Trust (ResPUT)
% of ordinary share
capital/units held
Country of
incorporation
21.6
21.8
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:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenues
Loss
G:res 1 Limited
£m
2009
ResPUT
£m
74.2
4.9
(53.0)
(1.6)
24.5
4.4
(6.0)
7.8
0.9
–
–
8.7
0.6
(0.4)
Total
£m
82.0
5.8
(53.0)
(1.6)
33.2
5.0
(6.4)
Grainger plc Annual report and accounts 2009
73
19 Investment in associates continued
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Revenues
(Loss)/profit
20 Investment in joint ventures
At 1 October 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
Loans advanced
Provisions against loans
Share of losses
Net assets acquired through purchase of joint venture
Goodwill arising on investment in Gebau (see note 40)
Exchange adjustment
Share of change in fair value of cash flow hedges taken through equity
At 30 September 2009
G:res1 Limited
£m
81.7
5.0
(50.6)
(1.6)
34.5
4.5
(11.6)
Net assets
£m
39.8
2.3
–
(39.1)
–
(1.0)
0.6
(0.4)
2.2
–
–
(1.4)
0.1
–
0.4
(4.6)
(3.3)
2008
ResPUT
£m
16.9
0.2
–
–
17.1
1.0
(2.6)
Loans
£m
74.8
–
13.8
–
–
–
–
–
88.6
7.5
(14.8)
–
–
–
–
–
81.3
OU Robbins
£m
–
–
–
–
–
0.2
0.2
Goodwill
£m
0.2
–
–
–
(0.2)
–
–
–
–
–
–
–
–
2.7
–
–
2.7
Total
£m
98.6
5.2
(50.6)
(1.6)
51.6
5.7
(14.0)
Total
£m
114.8
2.3
13.8
(39.1)
(0.2)
(1.0)
0.6
(0.4)
90.8
7.5
(14.8)
(1.4)
0.1
2.7
0.4
(4.6)
80.7
F
I
N
A
N
C
I
A
L
S
74
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
20 Investment in joint ventures continued
Provisions against loans represent a provision of £9.1m against the group’s mezzanine loan to Grainger GenInvest No.2 (2006)
LLP and a £5.7m provision against the group’s loan to Curzon Park Limited. These provisions are included within the provision for
impairment of loans receivable on the face of the consolidated income statement.
At 30 September 2009, 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 ordinary
share capital held
50
50
50
50
50
50
50
Country of
incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
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:
2009 Summarised income statement
Net rental income and other income
Profit on disposal of investment property
Operating profit before valuation deficits
Net valuation gains on investment
properties
Operating profit
Interest payable
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
Grainger
GenInvest LLP
£m
Grainger
GenInvest No.2
(2006) LLP
£m
Czech Republic
combined
£m
Curzon Park
Limited
£m
Gebau
Vermogen
GmbH
£m
2009
0.9
–
0.9
1.7
2.6
(1.9)
0.7
–
0.7
2.6
–
2.6
–
2.6
(4.1)
(1.5)
–
(1.5)
–
–
–
–
–
(0.2)
(0.2)
–
(0.2)
–
–
–
–
–
(0.6)
(0.6)
–
(0.6)
0.4
–
0.4
–
0.4
(0.2)
0.2
–
0.2
Total
£m
3.9
–
3.9
1.7
5.6
(7.0)
(1.4)
–
(1.4)
Grainger plc Annual report and accounts 2009
75
20 Investment in joint ventures continued
2009 Summarised balance sheet
Investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Grainger
GenInvest LLP
£m
Grainger
GenInvest No.2
(2006) LLP
£m
Czech Republic
combined
£m
Curzon Park
Limited
£m
Gebau
Vermogen
GmbH
£m
2009
39.1
0.1
39.2
(33.7)
(3.1)
2.4
100.8
5.0
105.8
(108.3)
(4.6)
(7.1)
–
14.0
14.0
(5.2)
(5.9)
2.9
–
18.5
18.5
(12.7)
(7.6)
(1.8)
–
0.5
0.5
(0.1)
(0.1)
0.3
Total
£m
139.9
38.1
178.0
(160.0)
(21.3)
(3.3)
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.
2008 Summarised income statement
Net rental income
Profit on disposal of investment property
Operating profit before valuation deficits
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)
F
I
N
A
N
C
I
A
L
S
Grainger
GenInvest LLP
£m
Grainger
GenInvest No.2
(2006) LLP
£m
2008
Czech
Republic
combined
£m
Curzon Park
Limited
£m
0.8
(0.1)
0.7
(9.8)
(9.1)
(2.4)
(11.5)
–
(11.5)
2.2
0.1
2.3
(24.3)
(22.0)
(4.6)
(26.6)
–
(26.6)
Grainger
GenInvest LLP
£m
Grainger
GenInvest No.2
(2006) LLP
£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)
–
–
–
–
–
(0.2)
(0.2)
–
(0.2)
2008
Czech
Republic
Combined
£m
–
11.4
11.4
(4.7)
(4.0)
2.7
–
–
–
–
–
(0.8)
(0.8)
–
(0.8)
Curzon Park
Limited
£m
–
18.4
18.4
(12.0)
(7.6)
(1.2)
Total
£m
3.0
–
3.0
(34.1)
(31.1)
(8.0)
(39.1)
–
(39.1)
Total
£m
141.6
34.9
176.5
(156.7)
(17.6)
2.2
There is no tax charge on any profits made in the LLP businesses as they are ‘transparent’ for tax. Any tax payable on Grainger’s
share of the profits/(losses) is included within the group tax charge.
76
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
21 Financial interest in property assets
Opening balance
Cash received from the instrument
Amounts taken to income statement
Amounts taken to equity before tax
Closing balance
2009
£m
121.2
(10.1)
(4.7)
2.7
109.1
2008
£m
131.7
(9.6)
(0.9)
–
121.2
Financial interest in property assets relates to the CHARM portfolio, which is a financial interest in equity mortgages held by the
Church of England Pensions Board as mortgagee. 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 payable
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.
22 Goodwill
Opening balance
Arising on prior year acquisitions
Impairment charge taken to income statement
Closing balance
2009
£m
8.0
0.8
(2.9)
5.9
2008
£m
17.4
–
(9.4)
8.0
The opening and closing goodwill shown above relates to the UK core portfolio both in 2009 and 2008. Goodwill arising on
a prior year acquisition relates to the additional legal and professional costs incurred in acquiring the remaining share from the
minority interest in FRM. It has been fully impaired and is included within the impairment charge taken to the income statement.
The total goodwill impairment charge in the consolidated income statement comprises:
Impairment charge as shown above
Impairment charge on goodwill shown within investment in joint ventures (see note 20)
Details of the impairment tests are given in note 2.
2009
£m
(2.9)
–
(2.9)
2008
£m
(9.4)
(0.2)
(9.6)
Grainger plc Annual report and accounts 2009
77
23 Inventories – trading properties
Residential trading properties
Development trading properties
2009
£m
928.4
87.2
1,015.6
2008
£m
1,009.0
133.2
1,142.2
The market value of trading properties as at 30 September 2009 was £1,319.2m (2008: £1,519.1m).
Write downs to net realisable value and amounts written off book values in the year amounted to £18.4m (2008: £12.3m). Further
details are given in note 2.
The cost of trading properties recognised as an expense is shown in note 6 ‘profit on disposal of trading properties’ and amounted
to £144.4m (2008: £88.8m).
24 Trade and other receivables
Trade receivables
Less: Provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments
2009
£m
10.1
(2.2)
7.9
9.9
2.2
20.0
2008
£m
11.1
(1.2)
9.9
11.2
1.9
23.0
The fair values of trade and other receivables are considered to be equal to their carrying amounts. Other receivables includes
a loan of £7.2m net of an impairment provision of £4.8m (2008: £9.4m) made to the Mornington Capital Special Situations
Co-investment Fund 1 Limited Partnership. The provision has been based on the group’s assessment of discounted future cash
flows. 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 2009, trade receivables of £2.2m were impaired and fully provided for (2008: £1.2m). 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
2009
£m
0.1
2.1
2.2
2008
£m
0.1
1.1
1.2
Rental debtors are due on demand and hence all balances outstanding at the year end are past due. The balances within trade
receivables 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
2009
£m
1.9
2008
£m
1.7
F
I
N
A
N
C
I
A
L
S
78
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
24 Trade and other receivables continued
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
Pounds Sterling
Czech Koruna
Euros
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 uncollectable
Unused amounts reversed
Closing balance
2009
£m
7.3
0.9
11.8
20.0
2009
£m
1.2
1.5
(0.1)
(0.4)
2.2
2008
£m
9.3
2.4
11.3
23.0
2008
£m
0.7
1.0
(0.4)
(0.1)
1.2
The creation and release of provisions for impaired receivables have been included in property repair and maintenance costs in
the consolidated income statement (see note 5). Amounts provided for are generally written off when there is no expectation of
recovering additional cash.
The loan due from Mornington included within other receivables has been impaired and the provision of £4.8m is included within
the provision for impairment of loans receivable on the face of the consolidated income statement. 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 £3.6m (2008: £3.3m) 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.
25 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 management.
Grainger plc Annual report and accounts 2009
79
25 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
30 September 2009
30 September 2008
Book value
£m
109.1
17.8
0.2
28.3
Fair value
£m
109.1
17.8
0.2
28.3
155.4
155.4
Fair value
adjustment
£m
–
–
–
–
–
Book value
£m
121.2
21.1
11.9
43.2
Fair value
£m
121.2
21.1
11.9
43.2
197.4
197.4
Fair value
adjustment
£m
–
–
–
–
–
Interest-bearing loans and borrowings
1,557.0
1,565.8
8.8
1,635.4
1,644.8
9.4
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
0.9
19.9
11.2
99.5
4.0
0.9
19.9
11.2
99.5
–
–
–
–
–
4.0
1.0
17.9
17.0
13.4
4.0
1.0
17.9
17.0
13.4
1,692.5
1,537.1
1,701.3
1,545.9
8.8
8.8
1,688.7
1,491.3
1,698.1
1,500.7
–
–
–
–
–
9.4
9.4
F
I
N
A
N
C
I
A
L
S
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 of England
Pensions Board as mortgagee, 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.
80
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
25 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 2009 amounted to £28.3m (2008: £43.2m).
Deposits were placed with financial institutions with A- or better credit ratings.
At 30 September 2009, the fair value of all interest rate derivatives which had a positive value was £0.2m (2008: £11.9m).
All the counterparties have investment grade credit ratings.
At 30 September 2009, the largest combined credit exposure to a single counterparty arising from money market deposits
and interest rate swaps was £305.4m (2008: £306.3m) which represents 15.7% (2008: 14.5%) of total assets.
At 30 September 2009, the loan advanced to Mornington Capital Special Situations Co-investment Fund 1 Limited Partnership
was impaired on the basis of discounted future cash flows (see note 24).
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 2009
(see note 2 on page 58).
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, investment sales can be increased and new acquisitions can be stopped. 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
81. 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.
Grainger plc Annual report and accounts 2009
81
25 Financial risk management and derivative financial instruments continued
At 30 September 2009
Interest-bearing loans and borrowings
Cash flow hedges
Trade and other payables
Provision for liabilities and charges
Less than
1 year
£m
63.3
45.5
62.0
0.1
Less than
1 year
£m
Between
1 and 2
years
£m
172.7
28.5
–
0.1
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
1,395.6
214.0
24.3
4.0
0.4
Between
2 and 5
years
£m
9.6
–
0.7
Over 5
years
£m
Total
£m
1,845.6
107.9
66.0
1.3
Total
£m
At 30 September 2008
Interest-bearing loans and borrowings
124.1
488.4
958.1
562.2
2,132.8
Cash flow hedges
Trade and other payables
Provision for liabilities and charges
Reconciliation of maturity analysis
At 30 September 2009
Interest-bearing loans and borrowings (see note 26)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
At 30 September 2008
Interest-bearing loans and borrowings (see note 26)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
(5.8)
51.0
0.1
(1.2)
–
0.1
(3.8)
4.0
0.4
8.8
–
0.8
(2.0)
55.0
1.4
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
Total
£m
19.9
(0.3)
39.4
4.3
63.3
Less than
1 year
£m
17.9
0.7
105.5
–
124.1
109.6
1,275.6
171.8
1,576.9
(0.1)
58.9
4.3
(13.7)
127.1
6.6
(6.6)
47.5
1.3
(20.7)
272.9
16.5
172.7
1,395.6
214.0
1,845.6
Between
1 and 2
years
£m
393.1
0.4
91.5
3.4
488.4
Between
2 and 5
years
£m
787.5
2.2
164.9
3.5
958.1
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
F
I
N
A
N
C
I
A
L
S
82
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
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
2009
£m
5.0
–
159.5
164.5
2008
£m
46.8
–
296.0
342.8
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 or 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.
The following financial instruments were in existence as at 30 September 2009:
Interest rate swaps – cash flow hedges in hedge
accounting relationships
Interest rate swaps – cash flow hedges not in hedge
accounting relationships
2009
Assets
£m
Liabilities
£m
–
0.2
0.2
60.0
39.5
99.5
2008
Assets
£m
8.4
3.5
11.9
Liabilities
£m
1.2
12.2
13.4
Interest rate swaps are all classified as either current assets or current liabilities.
The notional principal amounts of the outstanding interest rate swap contracts as at 30 September 2009 was £1,117.3m (2008:
£1,228.3m). As at 30 September 2009 the fixed interest rates vary from 3.51% to 5.22% (2008: 3.43% to 6.0%). The fair value
movement relating to cash flow hedges not in hedge accounting relationships amounted to a charge of £38.7m (2008: charge of
£11.5m).
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 and 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.
Grainger plc Annual report and accounts 2009
83
25 Financial risk management and derivative financial instruments continued
A valuation was carried out at 30 September 2009 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 values compared to the
carrying amounts of the group’s fixed rate financial liabilities are analysed below.
Fixed rate loan facilities
Fixed rate loan facilities
Interest rate risk
Book value at
30 September
2009
Fair value at
30 September
2009
86.2
95.0
Book value at
30 September
2008
Fair value at
30 September
2008
153.6
163.0
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 2009, 93% (2008: 85%) of the group’s net borrowings were
economically hedged to fixed or capped rates.
As at 30 September 2009, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of £60.0m
(2008: net asset of £7.2m). The movement in fair value measured in the income statement on cash flow hedges in the year ended
30 September 2009 was a charge of £38.7m (2008: £11.5m). At 30 September 2009, the market value of derivatives not designated
as cash flow hedges under IAS 39, is a net liability of £39.3m (2008: £8.7m). 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 2009.
F
I
N
A
N
C
I
A
L
S
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
2009
£m
–
82.0
958.3
77.0
2008
£m
214.2
227.4
565.9
220.8
1,117.3
1,228.3
84
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
Interest rate profile – including the effect of derivatives
Fixed rate
Capped rate
Variable rate
Sterling
£m
59.0
945.1
81.1
1,085.2
2009
Euro
£m
27.2
423.5
53.9
504.6
Total
£m
86.2
1,368.6
135.0
1,589.8
Sterling
£m
133.3
862.1
235.6
1,231.0
2008
Euro
£m
20.3
366.2
46.6
433.1
Total
£m
153.6
1,228.3
282.2
1,664.1
At 30 September 2009, the weighted average interest rate of the Sterling fixed rate debt is 5.4% (2008: 7.13%). The weighted
average period for which the rate is fixed is 12 years (2008: nine years). The weighted average interest rate of the Euro fixed rate
debt is 0.5% (2008: 0.5%). The weighted average period for which the rate is fixed is 41 years (2008: 42 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 £2.3m (2008: £3.3m). Similarly, a 1% decrease would increase annual profits by £2.3m (2008: £5.3m). 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.
The group’s balance sheet translation exposure is summarised below:
Gross foreign currency assets
Gross foreign currency liabilities
Net exposure
2009
Euro
£m
499.1
(534.8)
(35.7)
2008
Euro
£m
2009
Czech Koruna
£m
2008
Czech Koruna
£m
454.4
(449.9)
4.5
8.5
–
8.5
9.2
–
9.2
As at 30 September 2009, it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling
against the Euro would decrease/increase the group’s profit before tax by approximately £1.6m (2008 £1.2m) and equity
by £3.6m (2008: £0.5m).
Grainger plc Annual report and accounts 2009
85
25 Financial risk management and derivative financial instruments continued
As at 30 September 2009, 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 (2008: £0.3m) and
equity by £0.9m (2008 £0.9m).
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 2009, it is estimated that, with respect to the group’s financial interest in property assets, a general
increase/(decrease) of 1 percentage point in house prices at the balance sheet date would increase/(decrease) the group’s
profit before tax by approximately £0.9m (2008: £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 2009, the
weighted average cost of debt was 5.7% (2008: 6.2%) and the WACC was 5.22% (2008: 5.43%). 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 not have any material impact on the group as a whole.
F
I
N
A
N
C
I
A
L
S
86
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
26 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
2009
£m
0.3
11.9
7.7
19.9
2008
£m
0.2
4.9
12.8
17.9
22.9
20.1
1,513.1
1,524.2
21.0
1,557.0
1,576.9
91.1
1,635.4
1,653.3
Costs relating to the raising of the loan finance set off against the balances shown in the above table amount to £12.9m (2008: £10.8m).
Analysis of bank loans
a) £1.3 billion Multi Option Facility (the ‘MOF’) agreement
Term Facility A
Term Facility B
Revolving Facility A
Revolving Facility A Euro
Revolving Facility B
Revolving Facility B Euro
Revolving Facility C Euro
Total
Headroom on the MOF at 30 September 2009 was £159.5m (2008: £302.8m).
2009
£m
225.0
200.0
392.4
53.5
193.0
59.4
68.5
2008
£m
225.0
200.0
407.0
–
245.0
148.2
–
1,191.8
1,225.2
Grainger plc Annual report and accounts 2009
87
26 Financial assets and liabilities continued
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:
Facility
Term Facility A
Term Facility B
Revolving Facility A
Revolving Facility B
Revolving Facility C
Final
Margin % repayment date
0.90
0.85
0.70
0.65
1.00
Jun 2013
Jun 2013
Jun 2011
Jun 2010
Dec 2012
The MOF is secured by floating charges over the assets of the group.
On 30 September 2009, the group signed two new forward start credit facilities totalling £615m which will provide extended
liquidity for the group at the time that certain of its existing facilities expire. These two new facilities comprise a £250m committed
term loan which will become available in June 2010 and a £365.0m committed term loan available in June 2011. They will be
used to refinance existing revolving credit facilities of £250m and £445m that mature on those dates.
b) Other UK bank loans
Fixed rate – Pounds Sterling
Variable rate – Pounds Sterling
2009
£m
37.3
8.5
45.8
2008
£m
40.0
8.5
48.5
F
I
N
A
N
C
I
A
L
S
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
2009
£m
299.9
299.9
2008
£m
264.6
264.6
Headroom on these facilities at 30 September 2009 amounted to £nil (2008: £30.0m).
The Euro bank loans are secured by floating and fixed charges over the investment property in the group’s German portfolio.
The loans bear interest at between 0.6% and 2.1% over EURIBOR.
88
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
26 Financial assets and liabilities continued
d) Analysis of loan notes
Fixed rate – Pounds Sterling
Floating rate – Pounds Sterling
2009
£m
0.4
7.3
7.7
2008
£m
0.6
12.2
12.8
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
2009
£m
23.3
2008
£m
20.3
The mortgages are secured by floating and fixed charges over the investment property in the group’s German portfolio and bear
interest at a fixed rate of 0.5%.
f) Convertible bond
Opening balance
Early conversion during the year
Amortised during the year
2009
£m
92.7
(72.2)
0.8
21.3
2008
£m
90.2
–
2.5
92.7
As part of the early conversion in November 2008, holders representing £87.1m of the £112m 2014 convertible bond accepted
a cash payment of £35,000 per £100,000 nominal bond value to convert early.
This cash payment totalling, with expenses, £31.1m is shown in the income statement as an inducement cost.
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, £1.2m within two to five years and £21.8m after more than five years. The effective interest rate on
borrowings in the year ended 30 September 2009 was 5.7% (2008: 6.2%).
Grainger plc Annual report and accounts 2009
89
26 Financial assets and liabilities continued
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
2009
£m
19.9
109.6
1,275.6
171.8
1,576.9
2008
£m
17.9
393.1
787.5
454.8
1,653.3
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
Unamortised issue costs
F
I
N
A
N
C
I
A
L
S
2009
Fixed rate
liabilities
£m
Capped rate
liabilities
£m
Floating rate
liabilities
£m
0.4
23.3
21.3
37.3
3.9
86.2
–
–
–
945.1
423.5
1,368.6
7.3
–
–
73.8
53.9
135.0
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
Total
£m
7.7
23.3
21.3
1,056.2
481.3
1,589.8
(12.9)
1,576.9
Total
£m
12.8
20.3
92.7
1,125.5
412.8
1,664.1
(10.8)
1,653.3
90
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
26 Financial assets and liabilities continued
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.
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
Fixed rate
weighted
average rate
%
3.25
0.50
3.63
6.32
–
Fixed rate
weighted
average rate
%
3.25
0.50
3.63
6.32
–
The group has the following cash and cash equivalents at 30 September 2009:
Pounds Sterling
Euros
Czech Koruna
2009
Weighted
average
period
years
Capped rate
weighted
average rate
%
Weighted
average
period
years
1
41
5
16
–
–
–
–
6.50
5.10
–
–
–
3
4
2008
Weighted
average
period
years
Capped rate
weighted
average rate
%
Weighted
average
period
years
1
42
6
16
–
–
–
–
6.02
4.94
2009
£m
15.9
12.2
0.2
28.3
–
–
–
3
6
2008
£m
33.4
8.9
0.9
43.2
Short-term deposits totalling £7.5m (2008: £12.1m) with an average maturity of three months are held as cash collateral. These
have an effective interest rate of 1.4% (2008: 5.51%). Included within 2009 year end cash balances is £2.9m (2008: £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 £nil was placed on the overnight money market (2008: £4.7m at a rate of 4.35%). Remaining cash and cash
equivalents are held as cash at bank or in hand.
The group has an overdraft facility of £5m as at 30 September 2009 (2008: £10m).
Grainger plc Annual report and accounts 2009
91
27 Non-current liabilities
i Trade and other payables
Deferred consideration payable
Deferred consideration is for the purchase of land at West Waterlooville and is payable in April 2013.
ii Provisions for other liabilities and charges
Other
28 Pension costs
Defined contribution scheme
2009
£m
4.0
2009
£m
0.9
2008
£m
4.0
2008
£m
1.0
F
I
N
A
N
C
I
A
L
S
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 34. The pension cost charge of £0.8m (2008: £0.9m)
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 final salary 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.
No benefits have accrued since 30 June 2003 although active members retain a final salary link.
Pension benefits for deferred members are based on the members’ final pensionable salaries and service at the date employment
ceased (or date of leaving if earlier).
The company has opted to recognise all actuarial gains and losses immediately via the consolidated Statement of Recognised
Income and Expense (SORIE).
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, excluding standard expense charges,
£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 2009 by a qualified independent actuary.
92
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
28 Pension costs continued
Principal actuarial assumptions under IAS 19
Discount rate
Price inflation
Salary increases
Rate of increase of pensions in payment
Rate of increase for deferred pensioners
Expected return on assets
2009
2008
5.30% p.a.
7.00% p.a.
3.05% p.a.
3.60% p.a.
4.55% p.a.
5.10% p.a.
5.00% p.a.
5.00% p.a.
3.05% p.a.
3.60% p.a.
5.30% p.a.
6.50% p.a.
The overall expected return on assets assumption of 5.30% per annum as at 30 September 2009 has been derived by calculating
the weighted average of the expected rate of return for each asset class. The following approach has been used to determine the
expected rate of return for each asset class:
(cid:129) Fixed interest securities, current market yields;
(cid:129) Equities, allowance for an additional return of 2.60% per annum above that available on UK government securities;
(cid:129) Property, allowance for an additional return of 2.60% per annum above that available on UK government securities; and
(cid:129) Cash, current Bank of England base rate.
Demographic assumptions
Mortality tables for pensioners
Mortality tables for non-pensioners
Life expectancies
2009
2008
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
As for pensioners
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
As for pensioners
Life expectancy for a current 65 year old
88.2 years
90.3 years
88.7 years
90.7 years
Life expectancy at age 65 for a current 55 year old
89.5 years
91.1 years
89.5 years
91.1 years
The other demographic assumptions are the same as those adopted in the Scheme Funding valuation as at 1 July 2007.
30 September 2009
30 September 2008
Males
Females
Males
Females
Grainger plc Annual report and accounts 2009
93
28 Pension costs continued
Market value of scheme assets and expected rates of return
Equities
Bonds
Properties
Other
Insurance policies
Total value of assets
The actual return on assets over
the period was
30 September 2009
30 September 2008
Market
value
£m
% of total
scheme assets
%
Long-term
expected rate
of return
%
Market
value
£m
% of total
scheme assets
%
Long-term
expected rate
of return
%
32.0%
42.0%
2.0%
–
24.0%
6.5%
4.4%
6.5%
0.5%
5.3%
5.3
7.0
0.3
0.1
4.0
16.7
1.9
33.0%
43.0%
2.0%
–
22.0%
7.3%
5.5%
7.3%
5.0%
7.0%
5.0
6.5
0.3
–
3.4
15.2
(1.7)
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 6.5% in 2009 and 7.3% in 2008 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.
Defined benefit obligations, scheme assets and scheme deficit
Total market value of assets
Present value of scheme liabilities
Scheme deficit at 30 September
2009
£m
16.7
(22.5)
(5.8)
2008
£m
15.2
(17.3)
(2.1)
2007
£m
14.0
(16.7)
(2.7)
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 loss/(gain)
Benefits paid
Insurance policies
Present value of projected defined benefit obligation at end of the year
2006
£m
13.5
(18.1)
(4.6)
2009
£m
17.3
1.1
5.0
(0.9)
–
22.5
2005
£m
12.1
(17.4)
(5.3)
2008
£m
16.7
0.9
(3.0)
(0.7)
3.4
17.3
F
I
N
A
N
C
I
A
L
S
94
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
28 Pension costs continued
The change in fair value of scheme assets over the year was as follows:
Opening fair value of scheme assets
Expected return on scheme assets
Employer contributions
Actuarial gain/(loss)
Benefits paid
Insurance policies
Closing fair value of scheme assets
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 and similar charges (see note 13).
Actuarial (loss)/gain recognised in the consolidated statement of recognised income and expense
Actual return less expected return on assets
Experience gain on liabilities
(Loss)/gain on change of assumptions
Total actuarial (loss)/gain before tax
2009
£m
15.2
0.9
0.5
1.0
(0.9)
–
16.7
2009
£m
1.1
(0.9)
0.2
2009
£m
1.0
–
(5.0)
(4.0)
2008
£m
14.0
0.9
0.2
(2.6)
(0.7)
3.4
15.2
2008
£m
0.9
(0.9)
–
2008
£m
(2.6)
1.3
1.7
0.4
The net actuarial gain shown in the above tables of £4.0m (2008: £0.4m) net of tax has been included in the consolidated
statement of recognised income and expense (see page 43).
History of assets, liabilities, experience gains and losses
Gains/(losses) arising on scheme liabilities:
Due to experience
Percentage of defined benefit obligation
Due to change of basis
Percentage of defined benefit obligation
Experience adjustments:
Gains/(losses) arising on scheme assets
Percentage of scheme assets
2009
2008
2007
2006
2005
–
–
£(5.0)m
(22.2)%
£1.3m
7.5%
£1.7m
9.8%
–
–
£2.0m
12.0%
–
–
–
–
£1.0m
6.0%
£(2.6)m
(17.1)%
–
–
£0.6m
4.2%
£0.9m
5.2%
–
–
£0.8m
6.6%
Grainger plc Annual report and accounts 2009
95
28 Pension costs continued
Future funding obligation
The last actuarial valuation of the scheme was performed by the actuary for the trustees as at 1 July 2007. The company has
agreed a recovery plan with the trustees and expects to pay £597,000 including the standard expense charges payable under
the managed fund policy to the scheme during the year beginning 1 October 2009.
Sensitivity analysis
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 £0.3m
increase in deficit of £0.1m
increase in deficit of £0.7m
The cumulative amount of actuarial losses recognised in the consolidated statement of recognised income and expense before
taxation is £1.7m (2008: gains of £2.3m).
29 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
Equity component of available-for-sale financial asset
Exchange adjustments
Closing balance
F
I
N
A
N
C
I
A
L
S
2009
£m
78.4
–
(37.2)
(1.1)
(20.0)
0.7
0.3
21.1
2008
£m
113.5
3.8
(40.4)
0.1
1.1
–
0.3
78.4
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
£85.7m (2008: £104.5m).
96
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
30 Trade and other payables
Deposits received
Trade payables
Other taxation and social security
Accruals and deferred income
2009
£m
3.6
7.3
0.3
76.9
88.1
2008
£m
3.3
15.8
0.5
60.5
80.1
Trade payables includes £nil (2008: £0.6m) relating to acquisitions of property where contracts have either been unconditionally
exchanged or notarised.
Accruals and deferred income includes £26.1m (2008: £29.1m) of rent received in advance relating to lifetime leases.
31 Share capital
Authorised
160,000,000 (2008: 160,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid
138,798,113 (2008: 128,716,094) ordinary shares of 5p each
2009
£m
8.0
6.9
2008
£m
8.0
6.4
Grainger plc acquired 194,987 of its own shares for £0.2m in January 2009. In addition, the group paid £0.2m to the SIP scheme
during the year for the purchase of matching shares in the scheme.
The overall cost of £0.4m has been deducted from retained earnings within shareholders’ equity (see note 33).
As at 30 September 2009, share capital included 31,929 (2008: 584,673) shares held by The Grainger Trust Employee Trustee
Company Limited, 1,975,867 (2008: 1,017,088) shares held by The Grainger Employee Benefit Trusts and 21,410 (2008: 452,912)
shares held by Grainger plc as treasury shares. The total of these shares is 2,029,206 (2008: 2,054,673) with a nominal value of
£101,460 (2008: £102,734).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2007
Options exercised under LTIS
Options exercised under SAYE schemes
At 30 September 2008
Shares issued following conversion of £87.1m of 2014 convertible bond
Options exercised under SAYE schemes
At 30 September 2009
Number
128,656,385
11,307
48,402
128,716,094
10,081,013
1,006
138,798,113
Nominal
value
£’000
6,433
1
2
6,436
504
–
6,940
Grainger plc Annual report and accounts 2009
97
31 Share capital continued
Share options
Certain senior executives hold options to subscribe for shares in the company under LTIS. In addition, the company operates a
SAYE share option scheme available to employees. The number of shares subject to options as at 30 September 2009, the periods
in which they were granted and the periods in which they may be exercised are given below:
Year of grant
LTIS
2003
2006
2007
SAYE share options
2003
2004
2005
2006
2007
2008 (A)
2008 (B)
2009
Total share options
Exercise price
(pence)
Exercise
period
2009
number
2008
number
191.8
528.0
640.9
186.5
271.8
334.0
413.0
454.3
167.8
65.2
118.0
2006-13
2009-16
2010-17
2006-09
2007-10
2008-11
2009-12
2010-13
2011-14
2012-14
2012-15
52,586
–
9,360
52,586
313,445
14,040
61,946
380,071
–
1,800
–
1,899
997
25,615
6,250
18,796
3,527
1,745
74,687
612,351
1,366,337
85,913
–
–
1,531,633
668,284
1,593,579
1,048,355
F
I
N
A
N
C
I
A
L
S
98
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
31 Share capital continued
The movement on the share options schemes during the year is as follows:
LTIS
2003
2006
2007
Weighted average exercise price (pence per share)
SAYE schemes
2003
2004
2005
2006
2007
2008 (A)
2008 (B)
2009
Opening
position
52,586
313,445
14,040
380,071
485.7
25,615
6,250
18,796
3,527
1,745
612,351
–
–
Exercised
Granted
Lapsed
Closing
position
–
–
–
–
–
–
(240)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
52,586
(313,445)
(4,680)
(318,125)
529.7
(25,615)
(4,210)
(18,796)
(1,628)
(748)
(537,664)
–
9,360
61,946
259.7
–
1,800
–
1,899
997
74,687
(766)
1,408,144
(41,041)
1,366,337
–
85,913
–
85,913
Weighted average exercise price (pence per share)
176.2
114.5
68.2
168.5
74.1
668,284
(1,006)
1,494,057
(629,702)
1,531,633
For those share options exercised during the year, the weighted average share price at the date of exercise was 290.1p (2008:
350.9p). For share options outstanding at the end of the year, the weighted average remaining contractual life is 3.9 years (2008:
2.6 years). There were 56,285 (2008: 96,404) share options exercisable at the year end with a weighted average exercise price of
201.8p (2008: 217.2p).
Further details of the above option schemes is provided in the report of the remuneration committee and directors’ remuneration
report on pages 30 to 36 which form part of these financial statements.
32 Share-based payments
The group operates an equity-settled, share-based compensation plan comprising awards under a LTIS, a SIP and a 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 2009, 2008 and 2007 LTIS, one third are subject to an absolute TSR 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.
Grainger plc Annual report and accounts 2009
99
32 Share-based payments continued
Awards under the SIP and 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 (£)
21 January
2009
Market
based
57,859
–
3
7
1.037
5.310
0.900
26.000
0.387
21 January
2009
Non-market
based
23 December
2008
Market
based
23 December
2008
Non-market
based
115,718
697,647
1,395,293
–
3
7
1.037
5.310
0.900
26.000
0.387
–
3
7
1.232
5.310
0.900
26.000
0.520
–
3
7
1.232
5.310
0.900
26.000
0.520
28 July
2009
3-year scheme
28 July
2009
5-year scheme
23 December
2008
3-year scheme
23 December
2008
5-year scheme
57,979
1.180
3
27,934
1.180
5
674,324
733,820
0.652
3
0.652
5
1 Nov 12
1 Nov 14
1 Apr 12
1 Apr 14
1.805
4.698
1.100
21.000
0.570
1.805
4.698
1.100
21.000
0.650
1.358
4.698
1.100
21.000
0.430
1.358
4.698
1.100
21.000
0.490
F
I
N
A
N
C
I
A
L
S
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 £0.8m (2008: £0.5m).
Movements in options and options exercisable as at 30 September 2009 are shown in note 31.
100
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
33 Consolidated statement of changes in equity
Issued
share
capital
£m
6.4
Share
premium
£m
23.0
Merger
reserve
£m
20.1
Equity
component
of
Capital
convertible redemption
reserve
£m
bond
£m
Cash flow
hedge
reserve
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Total
£m
Balance as at 1 October 2007
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 paid
Acquisition of minority interests
22.4
0.3
8.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.8)
–
–
–
–
–
–
Balance as at 30 September 2008
6.4
23.1
20.1
22.4
0.3
5.4
Loss for the year
Actuarial loss on BPT pension
scheme net of tax
Changes in fair value of cash
flow hedges net of tax
Fair value movement on available-
for-sale financial asset net of tax
Net exchange adjustment offset
in reserves
Purchase of own shares
Issue of shares
Conversion of convertible bond
Transfer on early conversion
of convertible bond
Share-based payments charge
Dividends
–
–
–
–
–
–
–
–
–
–
–
–
0.5
86.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(17.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(47.0)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.9
–
–
–
–
–
–
–
242.6
323.0
(77.4)
(77.4)
0.3
0.3
–
(2.8)
0.8
(1.0)
–
0.5
(8.3)
(5.5)
0.8
(1.0)
0.1
0.5
(8.3)
(5.5)
152.0
229.7
(122.0)
(122.0)
(2.9)
(2.9)
–
–
0.6
(0.4)
–
–
3.2
0.8
(5.2)
(47.0)
1.9
0.6
(0.4)
87.1
(17.4)
3.2
0.8
(5.2)
Balance as at 30 September 2009
6.9
109.7
20.1
5.0
0.3
(41.6)
1.9
26.1
128.4
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 612 of the Companies Act 2006 and the premium relating to the shares issued was credited
to a merger reserve.
Grainger plc Annual report and accounts 2009
101
33 Consolidated statement of changes in equity continued
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.
Equity component of convertible bond
In November 2008, holders representing £87.1m of the £112m 2014 convertible bond accepted a cash payment of £35,000
per £100,000 nominal bond value to convert early. The effects of this early conversion were the issuance of 10.08 million ordinary
shares, the reduction of £57m in nominal debt and an increase in net assets of £42m.
The retained earnings reserve comprises various elements. Those elements and the movements in each are set out below:
Share-based
payment
reserve
£m
Treasury shares
bought back
and cancelled
£m
Investment in
own shares
£m
Translation
reserve
£m
Retained
earnings
£m
Total retained
earnings reserve
£m
Balance as at 1 October 2007
1.5
(7.8)
(8.4)
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
Loss for the year
Actuarial loss on BPT pension scheme net of tax
Net exchange adjustment offset in reserves
Purchase of own shares
Award of shares from own shares
Transfer on conversion of convertible bond
Share-based payments charge
Dividends
Balance as at 30 September 2009
Share-based payments reserve
–
–
–
–
0.5
–
–
2.0
–
–
–
–
(0.7)
–
0.8
–
2.1
–
–
–
–
–
–
–
–
–
–
(1.0)
–
–
–
(7.8)
(9.4)
–
–
–
–
–
–
–
–
–
–
–
(0.4)
0.7
–
–
–
0.4
–
–
0.8
–
–
–
–
1.2
–
–
0.6
–
–
–
–
–
F
I
N
A
N
C
I
A
L
S
256.9
(77.4)
0.3
–
–
–
(8.3)
(5.5)
166.0
(122.0)
(2.9)
–
–
–
3.2
–
(5.2)
39.1
242.6
(77.4)
0.3
0.8
(1.0)
0.5
(8.3)
(5.5)
152.0
(122.0)
(2.9)
0.6
(0.4)
–
3.2
0.8
(5.2)
26.1
(7.8)
(9.1)
1.8
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.
Investment in own shares reserve
As at 30 September 2009, the group owned its own shares as follows: 31,929 (2008: 584,673) shares held by The Grainger Trust
Employee Trustee Company Limited, 1,975,867 (2008: 1,017,088) shares held by The Grainger Employee Benefit Trusts and 21,410
(2008: 452,912) shares held by Grainger plc as treasury shares. The total of shares held is 2,029,206 (2008: 2,054,673) with a cost
of £9,125,863 (2008: £9,459,400).
102
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
34 List of principal subsidiaries
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2009 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 of
ordinary issued shares held by
Group
%
Company
%
Incorporated
Activity
England & Wales
Property Trading
England & Wales
Property Management
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 One Sarl & Co KG
Grainger Recklinghausen Portfolio Two Sarl & Co KG
Grainger Berlin Portfolio One Sarl & Co KG
Grainger Stuttgart Portfolio One Sarl & Co KG
Grainger Stuttgart Portfolio Two Sarl & Co KG
Francono Rhein-Main AG
Grainger Luxembourg Financing (No. 1) Sarl
Grainger Luxembourg Financing (No. 2) SA
Grainger Luxembourg Financing (No. 3) SA
Grainger Luxembourg Germany Holdings Sarl
Grainger Treasury Property (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
100
100
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
100
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Germany
Germany
Germany
Germany
Germany
Germany
Luxembourg
Luxembourg
Luxembourg
Luxembourg
England & Wales
England & Wales
England & Wales
England & Wales
Asset Management
Property Trading
Land Development
Land Development
Property Trading
Property Investment
Finance Company
Finance Company
Property Trading
Property Trading
Property Investment
Property Investment
Property Trading
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Finance Company
Finance Company
Finance Company
Investment Company
Property Investment
Property Investment
Property Investment
Investment Company
Malta
Finance Company
Grainger plc Annual report and accounts 2009
103
35 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
2009
Fees
recognised
£’000
700
43
26
30
799
2009
Year-end
balance
£’000
199
6
7
8
220
2008
Fees
recognised
£’000
878
36
30
30
974
2008
Year-end
balance
£’000
256
8
8
9
281
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%
Balance as at
30 September
2009
£m
Balance as at
30 September
2008
£m
2009
Interest
receivable
£m
2008
Interest
receivable
£m
7.8
5.2
75.3
88.3
7.1
4.8
68.3
80.2
0.7
0.3
5.3
6.3
0.7
0.3
6.6
7.6
F
I
N
A
N
C
I
A
L
S
Interest receivable is included within interest receivable from associates and joint ventures shown in note 13. The difference of £3.0m
between the figure shown above of £6.3m and the amount shown in note 13 of £3.3m 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 within 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 2009. The group has provided a loan to Curzon Park
Limited as at 30 September 2009 of £7.5m (2008: £7.4m). The loan is repayable on demand and bears interest at 4% per annum.
104
Grainger plc Annual report and accounts 2009
Notes to the financial statements continued
35 Related party transactions continued
The group held a 21.6% interest in G:res1 Limited as at 30 September 2009. 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
2009
Fees
recognised
£’000
1,443
167
2,229
3,839
2009
Year-end
balance
£’000
370
50
1,033
1,453
2008
Fees
recognised
£’000
1,437
187
2,739
4,363
2008
Year-end
balance
£’000
364
49
616
1,029
The group held a 21.8% interest in the Schroders Residential Property Unit Trust as at 30 September 2009. The group provides
a number of services to the trust and receives a property management fee, a lettings and renewal fee, an asset management fee
and a sales 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
Sales fees
2009
Fees
recognised
£’000
2009
Year-end
balance
£’000
2008
Fees
recognised
£’000
202
9
369
91
671
19
–
67
64
150
320
13
530
–
863
2008
Year-end
balance
£’000
90
4
140
–
234
Details of key management compensation are provided in note 11.
36 Capital commitments
As at 30 September 2009, the group and its joint ventures and associates had capital commitments of £nil (2008: £nil).
37 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
The group expects to receive £1.0m under non-cancellable sub-leases (2008: £nil).
2009
£m
0.4
2.7
5.9
9.0
2008
£m
0.5
0.9
5.9
7.3
Grainger plc Annual report and accounts 2009
105
38 Contingent liabilities
The properties in certain subsidiary companies forming a ‘guarantee group’ provide the security for the group’s MOF (see note 26).
The properties in certain of the group’s German subsidiaries provide security for the non-recourse finance raised in those subsidiary
undertakings. Barclays Bank PLC and Lloyds TSB Bank plc have provided guarantees under performance bonds relating to the
group’s UK development division. In addition, they have provided guarantees against certain loan notes issued by the group.
In either case, if called upon, the relevant bank would have recourse to the group in relation to these guarantees.
As at 30 September 2009, total guarantees amounted to £4.5m (2008: £14.3m).
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.
39 Post balance sheet events
Grainger plc has announced, at the same time as these financial statements have been issued, its intention to raise approximately
£250m (approximately £238m net of expenses) by way of a fully underwritten Rights Issue. The group will use this additional equity
finance to improve its balance sheet leverage ratios, reduce the overall cost and size of its debt and to recommence property
acquisition activities as suitable opportunities arise.
40 Business combinations
Effective from 1 January 2009, the group acquired a 50% joint venture interest in Gebau Vermogen GmbH, a residential property
management company based in Germany. The consideration for the acquisition was €2.9m. The net assets acquired totalled
€0.2m, generating goodwill of €2.7m. Due to the immaterial nature of the transaction, no further disclosure is provided.
F
I
N
A
N
C
I
A
L
S
106
Grainger plc Annual report and accounts 2009
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 2009 which
comprise the parent company balance sheet and the related
notes. The financial reporting framework that has been applied
in their preparation is applicable law and United Kingdom
Accounting Standards (United Kingdom Generally Accepted
Accounting Practice).
(cid:129) Have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
(cid:129) Have been prepared in accordance with the requirements
of the Companies Act 2006.
Opinion on other matters prescribed by the Companies
Act 2006
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors’
responsibilities set out in the directors’ report, the directors
are responsible for the preparation of the parent company
financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit the parent
company financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland).
Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for
and only for the company’s members as a body in accordance
with Sections 495 to 497 of the Companies Act 2006 and
for no other purpose. We do not, in giving these opinions,
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.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free
from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting
policies are appropriate to the parent company’s circumstances
and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates
made by the directors; and the overall presentation of the
financial statements.
Opinion on financial statements
In our opinion the parent company financial statements:
(cid:129) Give a true and fair view of the state of the company’s
affairs as at 30 September 2009;
In our opinion:
(cid:129) The part of the report of the remuneration committee
and directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act
2006; and
(cid:129) The information given in the directors’ report for the
financial year for which the parent company financial
statements are prepared is consistent with the parent
company financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if,
in our opinion:
(cid:129) Adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have
not been received from branches not visited by us; or
(cid:129) The parent company financial statements and the part of
the directors’ remuneration report to be audited are not in
agreement with the accounting records and returns; or
(cid:129) Certain disclosures of directors’ remuneration specified by
law are not made; or
(cid:129) We have not received all the information and explanations
we require for our audit.
Other matter
We have reported separately on the group financial statements
of Grainger plc for the year ended 30 September 2009.
Bowker Andrews (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
5 November 2009
Parent company balance sheet
As at 30 September 2009
Fixed assets
Tangible assets
Investments
Current assets
Investment in associates
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
EQUITY
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
Grainger plc Annual report and accounts 2009
107
Notes
2
3
3
4
5
6
7
8
9
9
9
9
2009
£m
0.1
127.7
127.8
8.7
309.9
1.1
319.7
162.3
157.4
285.2
21.0
–
264.2
6.9
109.7
0.3
5.0
142.3
264.2
2008
£m
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
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The financial statements on pages 107 to 111 were approved by the board of directors on 5 November and were signed
on their behalf by:
Andrew R Cunningham
Chief executive officer
108
Grainger plc Annual report and accounts 2009
Notes to the parent company financial statements
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 2006 and applicable
UK accounting standards.
The company has taken the exemption allowed under
Section 408 of the Companies Act 2006 from the requirement
to present its own profit and loss account. The loss for the
year was £20.4m (2008: profit of £36.3m). On an historical
cost basis the loss for the year would have been £20.0m
(2008: profit of £38.5m). These financial statements present
information about the company as an individual undertaking
and not about its group.
In accordance with the exemption in FRS 1 ‘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.
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 consolidated 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.
h) Convertible bond
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.
i) Share-based payments
Under the share-based compensation arrangements set out
in note 1(l)(iii) on page 51, employees of Grainger Employees
Limited have been awarded options and conditional shares
in the company. These share-based arrangements have been
treated as equity-settled in the group consolidated financial
statements. In the company accounts the share-based payment
charge has been added to the cost of investment in subsidiaries
with a corresponding adjustment to equity.
Grainger plc Annual report and accounts 2009
109
Fixtures, fittings
and equipment
£m
0.9
0.7
0.1
0.8
0.1
0.2
Total
£m
109.4
35.4
(7.6)
(0.8)
136.4
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Investment in
Schroders
Residential
Property
Unit Trust
£m
Investment in
subsidiaries
£m
92.3
35.4
–
–
127.7
17.1
–
(7.6)
(0.8)
8.7
2 Tangible fixed assets
Cost
At 1 October 2008 and 30 September 2009
Depreciation
At 1 October 2008
Charge for the year
At 30 September 2009
Net book value
At 30 September 2009
At 1 October 2008
3 Investments
Valuation
At 1 October 2008
Additions
Disposals
Reduction to fair value
At 30 September 2009
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 Schroders Residential Property Unit Trust can be
reliably measured and, therefore, has been valued at fair value under FRS 26.
The additions in the year relate to an investment of £34.6m in Grainger Europe No.2 Ltd and a capital contribution during the
year of £0.8m in respect of share-based payment awards granted to employees of a subsidiary company.
The investors in Schroders ResPUT have agreed to a controlled liquidation of the fund and the group has received a number
of redemption payments as assets have been realised. The investment is therefore held as a current asset in 2009.
A list of the principal subsidiaries of the company is given in note 34 on page 102.
4 Debtors
Amounts owed by group undertakings
Other debtors
Debtors in both 2009 and 2008 are all due within one year.
2009
£m
309.8
0.1
309.9
2008
£m
325.1
0.7
325.8
110
Grainger plc Annual report and accounts 2009
Notes to the parent company financial statements continued
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
6 Convertible bond
Opening balance
Early conversion during the year
Amortised during the year
Unamortised issue costs
Liability component at 30 September 2009
2009
£m
–
161.6
–
0.1
0.6
162.3
2009
£m
92.7
(72.2)
0.8
21.3
(0.3)
21.0
2008
£m
0.4
125.3
0.3
0.1
1.8
127.9
2008
£m
90.2
–
2.5
92.7
(1.6)
91.1
As part of the early conversion in November 2008, holders representing £87.1m of the £112m 2014 convertible bond accepted
a cash payment of £35,000 per £100,000 nominal bond value to convert early.
7 Provision for liabilities and charges
Deferred tax liability:
Opening balance
Deferred tax on revaluation deficits
Closing balance
2009
£m
0.4
(0.4)
–
The deferred tax balance relates to the tax on the unrealised gain on the revaluation of the investment in units in the Schroders
Residential Property Unit Trust. Deferred tax is provided at a rate of 28% (2008: 28%).
8 Share capital
Authorised
160,000,000 (2008: 160,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid
138,798,113 (2008: 128,716,094) ordinary shares of 5p each
2009
£m
8.0
6.9
2008
£m
1.2
(0.8)
0.4
2008
£m
8.0
6.4
Grainger plc acquired 194,987 of its own shares for £0.2m in January 2009. In addition, the group paid £0.2m to the SIP scheme
during the year for the purchase of matching shares in the scheme. The overall cost of £0.4m has been deducted from retained
earnings within shareholders’ equity (see note 9 on page 111).
Grainger plc Annual report and accounts 2009
111
8 Share capital continued
As at 30 September 2009, share capital included 31,929 (2008: 584,673) shares held by The Grainger Trust Employee Trustee
Company Limited, 1,975,867 (2008: 1,017,088) shares held by The Grainger Employee Benefit Trusts and 21,410 (2008: 452,912)
shares held by Grainger plc as treasury shares. The total of these shares is 2,029,206 (2008: 2,054,673) with a nominal value of
£101,460 (2008: £102,734).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2007
Options exercised under LTIS
Options exercised under SAYE schemes
At 30 September 2008
Shares issued following conversion of £87.1m of 2014 convertible bond
Options exercised under SAYE schemes
At 30 September 2009
Details of share options granted by the company are provided in note 31 on pages 96 to 98.
Number
128,656,385
11,307
48,402
128,716,094
10,081,013
1,006
138,798,113
9 Reserves
At 1 October 2008
Retained loss for the year
Share-based payment charge
Issue of shares
Conversion of convertible bond
Purchase of own shares
Dividends paid
At 30 September 2009
10 Other information
Share
premium
£m
23.1
–
–
86.6
–
–
–
109.7
Capital
redemption
reserve
£m
Equity
component
of convertible
bond
£m
0.3
–
–
–
–
–
–
0.3
22.4
–
–
–
(17.4)
–
–
5.0
Nominal
value
£’000
6,433
1
2
6,436
504
–
6,940
Profit
and loss
account
£m
164.4
(20.4)
0.8
–
3.2
(0.4)
(5.3)
142.3
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Post balance sheet event
Grainger plc has announced, at the same time as these financial statements have been issued, its intention to raise approximately
£250m (approximately £238m net of expenses) by way of a fully underwritten Rights Issue. The group will use this additional equity
finance to improve its balance sheet leverage ratios, reduce the overall cost and size of its debt and to recommence property
acquisition activities as suitable opportunities arise.
Dividends
Information on dividends paid and declared is given in note 15 on page 69.
Share options
Details of share options outstanding and the movements during the year are given in note 31 on pages 97 and 98 respectively.
Audit fees
The audit fee for the year was £8,000 (2008: £8,000).
112
Grainger plc Annual report and accounts 2009
Five-year record for the year ended 30 September 2009
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
456.0p
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
628.0p
IFRS
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
447.5p
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
–
200.0p
2009
£m
302.2
77.9
8.8
44.9
(170.0)
(122.0)
5.2
Pence
per share
(89.81)
3.91
£m
1,886.1
2,201.1
128.5
Pence
per share
92.6
317.5
–
297.6p
Group revenue
Gross rental income
Sales of investment properties
Profits on disposal of trading properties
Profit/(loss) before taxation**
Profit/(loss) after taxation and minority interests**
Dividends taken to equity
(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**
Share price at 30 September
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.
Grainger plc Annual report and accounts 2009
113
Shareholders’ information
Financial calendar
Share dealing service
Annual General Meeting
Payment of 2009 final dividend
Announcement of 2010 interim results May 2010
Announcement of 2010 final results
10 February 2010
12 February 2010
November 2010
Share price
During the year ended 30 September 2009, the range of
the closing mid-market prices of the company’s ordinary
shares were:
Price at 30 September 2009
Lowest price during the year
Highest price during the year
298p
64p
302p
Daily information on the company’s share price can be
obtained on our website or by telephoning: The Financial
Times Cityline Service on 09068 432 750.
Capital gains tax
The market value of the company’s shares for capital gains
tax purposes at 31 March 1982 was 6.08p.
Website
Website address www.graingerplc.co.uk
A share dealing service is available to existing shareholders
to buy or sell the company’s shares via Capita Share Dealing
Services. Online and telephone dealing facilities provide an
easy to access and simple to use service.
For further information on this service, or to buy or sell shares,
please contact:
www.capitadeal.com – online dealing
0870 458 4577 – telephone dealing
Please note that the directors of the company are not seeking
to encourage shareholders to either buy or sell their shares.
Shareholders in any doubt as to what action to take are
recommended to seek financial advice from an independent
financial adviser authorised by the Financial Services and
Markets Act 2000.
Secretary and registered office
Nick On
Citygate
St James Boulevard
Newcastle upon Tyne
NE1 4JE
Shareholders’ enquiries
Company registration number 125575
All administrative enquiries relating to shareholdings (for
example, notification of change of address, loss of share
certificates, dividend payments) should be addressed to
the company’s registrar at:
Capita IRG Plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
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Grainger plc Annual report and accounts 2009
Advisers
Solicitors
Dickinson Dees
St Ann’s Wharf
112 Quayside
Newcastle upon Tyne
NE1 3DX
Freshfields, Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
DWF
West 1
Wellington Street
Leeds
LS1 1BA
Financial public relations
Financial Dynamics
Holborn Gate
26 Southampton Buildings
London
WC2A 1PB
Corporate public relations
FD Tamesis
Holborn Gate
26 Southampton Buildings
London
WC2A 1PB
Banking
Auditors
Clearing Bank and Facility Agent
Barclays Bank PLC
Other bankers
Lloyds TSB Bank plc
The Royal Bank of Scotland plc
Allied Irish Banks plc
The Governor and Company of the
Bank of Scotland
National Australia Bank Limited
Nationwide Building Society
Eurohypo AG
Deutsche Pfandbriefbank AG
The Governor and Company of the
Bank of Ireland
GE Real Estate Finance Limited
Svenska Handelsbanken AB
SEB AG
Bayerische Hypo-und VereInsbank AG
HSH Nordbank AG
Sparkasse
PricewaterhouseCoopers LLP
89 Sandyford Road
Newcastle upon Tyne
NE1 8HW
Stockbrokers
JP Morgan Cazenove Limited
20 Moorgate
London
EC2R 6DA
Brewin Dolphin Securities
Times Central
Gallowgate
Newcastle upon Tyne
NE1 4SR
Registrars and transfer office
Capita Registers plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Grainger plc Annual report and accounts 2009
115
Glossary of terms
Property
Financial continued
Assured periodic tenancy (’APT’)
Market-rented tenancy arising from succession from regulated.
Tenant has security of tenure.
Assured shorthold tenancy (’AST’)
Market-rented tenancy where landlord may obtain possession
if appropriate notice served.
Assured tenancy (’AT’)
Market-rented tenancy where tenant has right to renew.
Home reversion
Rent free tenancy where tenant has right of occupation until
possession is forfeited (usually on death). If tenant retains an
equity interest in the property this is a partial life tenancy.
Investment value (’IV’) or market value
Open market value of a property subject to relevant tenancy
in place.
PRS
Private rented sector.
Dividend cover
Earnings per share divided by dividends per share.
Earnings per share (’EPS’)
Profit after tax attributable to shareholders divided by the
weighted average number of shares in issue in the year.
Gearing
The ratio of borrowings, net of cash, to market net asset value.
Goodwill
On acquisition of a company, the difference between the fair
value of net assets acquired and the purchase price paid.
Gross net asset value (’Gross NAV’)
Market value of net assets before deduction for deferred tax on
property revaluations and before adjustments for the fair value
of derivatives.
Hedging
The use of financial instruments to protect against interest
rate movements.
Regulated tenancy
Tenancy regulated under 1977 Rent Act, rent (usually sub-
market) set by rent officer and tenant has security of tenure.
Interest cover
Profit on ordinary activities before interest and tax divided by
net interest payable.
Tenanted residential (’TR’)
Activity covering the acquisition, renting out and subsequent
sale (usually on vacancy) of residential units subject to a
tenancy agreement.
Vacant possession (’VP’) value
Open market value of a property free from any tenancy.
Loan to value (‘LTV’)
Ratio of net debt to the market value of properties.
Net net net asset value (triple net or ’NNNAV’)
Gross NAV adjusted for contingent tax liabilities which would
accrue if assets sold at market value and for the market value
of long-term debt and derivatives.
Corporate
Grainger NAV
NNNAV adjusted for the after tax value of the reversionary
surplus in our regulated and equity release portfolios discounted
back to present value using our risk adjusted weighted average
cost of capital over the expected average period of realisation.
IFRS
International Financial Reporting Standards, Mandatory for
UK-listed companies for accounting periods ending on or after
31 December 2005.
Financial
Cap
Financial instrument which, in return for a fee, guarantees an
upper limit for the interest rate on a loan.
Contingent tax
The amount of tax that would be payable should assets be sold
at the market value shown in the accounts.
Return on capital employed
Growth in NNNAV plus dividends paid per share as a
percentage of opening NNNAV.
Return on shareholders’ equity
Profit before financing costs together with all revaluation
movements as percentage of opening gross capital.
Swap
Financial instrument to protect against interest rate movements.
Total shareholder return (’TSR’)
Return attributable to shareholders on basis of share price
growth with dividends reinvested.
Weighted average cost of capital (’WACC’)
The weighted average cost of funding the group’s activities
through a combination of shareholders’ funds and debt.
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Grainger plc Annual report and accounts 2009
Corporate addresses
Newcastle
Ipswich
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Tel: 0191 261 1819
42a Barrack Square
Martlesham Heath
Ipswich
Suffolk
IP5 3RF
London
Luxembourg
9 Parc d’Activite Syrdall
L-5365 Munsbach
Luxembourg
Germany
Weissfrauenstrasse12-16
Entrance: Friedenstrasse 6-10
60311 Frankfurt am Main
Hesse
Germany
Ireland
57 Herbert Lane
Dublin 2
Ireland
161 Brompton Road
Knightsbridge
London
SW3 1QP
Tel: 020 7795 4700
Birmingham
Elm House
Edgbaston Park
351 Bristol Road
Birmingham
B5 7SW
Putney
1st Floor
SWISH Building
73-75 Upper Richmond Road
London
SW15 2SR
Manchester
St John’s House
Barrington Road
Altrincham
Cheshire
WA14 1TJ
www.graingerplc.co.uk
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