Unlocking
residential potential...
Annual report and accounts 2011
Grainger plc
Grainger = Residential
Our business is to provide investors
with exposure to a range of returns
from the residential sector.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
01
Contents
Overview
02 _ Chairman’s statement
04 _ Grainger = Residential
06 _ Our performance – group KPIs
Business review
07 _ CEO strategic overview
14 _ Where our properties are located
16 _ Our business activities
18 _ UK residential
19 _ Retirement solutions
20 _ Fund management and
residential investments
Governance
42 _ The Grainger board
44 _ Corporate governance report
50 _ Report of the remuneration committee
and directors’ remuneration report
57 _ Directors’ report
21 _ Development
22 _ German residential
23 _ Financial review
30 _ Corporate responsibility
39 _ Risk management
Financials
61 _ Independent auditors’ report to the
members of Grainger plc on the group
financial statements
62 _ Consolidated income statement
63 _ Consolidated statement of
comprehensive income
64 _ Consolidated statement of
financial position
66 _ Consolidated statement of
changes in equity
68 _ Consolidated statement of cash flows
70 _ Notes to the financial statements
145 _ Independent auditors’ report on the
parent company financial statements
146 _ Parent company balance sheet
147 _ Notes to the parent company
financial statements
153 _ Five-year record for the year ended
30 September 2011
154 _ Shareholders’ information
155 _ Advisers
156 _ Glossary of terms
157 _ Corporate addresses
Key financial highlights
for 2011
Operating profit*
£126.2m
+34%
Profit before tax
£26.1m
return to profit
Gross NAV per share
NNNAV per share
Dividend per share
216p
+8.2%
153p
+9.7%
1.83p
+7.6%
* before valuation movements and
non-recurring items
Grainger plc
02
Chairman’s statement
The group has performed strongly in the year to 30 September 2011,
achieving a profit before tax of £26.1m compared to a loss of £20.8m
in 2010. Profit before tax and movements on financial derivatives
rose almost three-fold from £18.8m to £54.1m, while operating profit
before valuation movements and non-recurring items has shown a
34% increase to £126.2m from £94.2m. Gross net asset value per share
increased 8.2% to 216p from 200p.
Business overview
Our business has three income streams –
sales of residential properties, rental
income and fees or other income from
managed or co-invested vehicles. In each
of these areas we have made good
progress in consolidating our position
as a leading residential trader, investor
and manager:
• Trading.
We have actively sought to improve the
range and quality of our residential portfolio,
selling non-core and low growth assets
and acquiring good quality replacements.
An example of this was the acquisition of
our partners’ interests in Grainger GenInvest
which helped increase our proportion of UK
assets in London and the South East to 62%.
• Investment.
Our gross rental income has increased
from £75.6m to £86.3m, augmented by
the acquisition of HI Tricomm Holdings.
Its portfolio of 317 properties let on a
long-term basis to the Ministry of Defence
generates a gross annual rental yield of
8.3% on its acquisition price.
• Management.
We have been successful in leveraging
off our asset and property management
skills to increase the group’s fee income
levels. In doing so, we have established
working relationships with high quality
partners such as Moorfield, Lloyds Banking
Group, Defence Infrastructure Organisation
and Bouygues Development. Fees have
increased by 23% in the year.
Dividends
The board is recommending a final
dividend of 1.30p per share. If approved,
this will be paid on 10 February 2012
to shareholders on the register on
9 December 2011. At the half year we
returned £2.2m to shareholders (equivalent
to 0.53p per share) through a tender offer
for shares. This totals an equivalent of
1.83p per share (2010: 1.70p).
Board
As announced at the half year, Bill Tudor
John left the board after six years of valuable
service as a director and was replaced by
Belinda Richards. Robert Hiscox will retire
from the board at our Annual General
Meeting on 8 February 2012 and his place
has been taken by Tony Wray, Chief Executive
of Severn Trent plc. Robert has been a director
since March 2002 and has made a significant
Robin Broadhurst
Chairman
Annual report and accounts 2011
Overview
Business review
Governance
Financials
03
Total dividend 2011
1.83p
and pertinent contribution to our business
over that period. We look forward to
being able to take advantage of both
Tony’s broad corporate experience gained
at a major listed company and Belinda’s
corporate finance expertise.
It is appropriate for me to also note the sad
and premature death of Rupert Dickinson
in September. Rupert was Chief Executive
of Grainger until ill health caused his early
retirement in October 2009. His leadership
of the business was characterised by his
passion and enthusiasm for the company
and the residential sector. He will be
sadly missed.
Outlook
Our business has continued to show
resilient performance and a proven ability
to take advantage of opportunities that
will provide long-term value. Our core skills
remain our ability to asset manage, across
the UK, large numbers of residential
properties efficiently to provide enhanced
returns within the sector. This is supported
both by our recent refinancing and by
the strong cash generative capability of
our portfolio. As a result, whilst mindful of
the challenges presented by the external
environment, we are positioning ourselves
to take advantage of what we expect to
be interesting opportunities over the
medium term.
We have invested wisely in strategic
acquisitions during the year. Going forward
we will also continue to supplement profits
from our reversionary business with a
growth in fee income from our asset and
property management activities. Such
activities enhance return on capital and
rely less on investment. We therefore
anticipate a reduction in our requirement
for debt in the near to medium term and
our successful refinancing strategy has
been based around this approach.
Grainger was incorporated in 1912 and as
we enter our first centenary year we have
cemented our brand and our reputation
as a professional and caring landlord. In turn
this has benefited our tenants, partners
and stakeholders.
None of this would have been possible
without the enthusiasm, skill and commitment
not only of our current staff but also their
predecessors. I would like to extend my
thanks to them all.
Robin Broadhurst
Chairman
5 December 2011
Grainger plc
04
Grainger = Residential
Our business model is dedicated to ensuring Grainger is the first port
of call for residential investment. Our expertise and the scale of our
assets and operations enable us to generate sustainable income
streams from sales, rents, management fees and other related activities.
Multiple investment routes
Large scale assets and
management platform
Income streams
We seek to ensure Grainger’s name
is the first to mind whenever residential
property investment and management
is considered – among investors,
prospective partners and other key
stakeholders, offering a number of
routes to investment.
Wholly-owned property
UK: 13,564
Sales income
see page 14
Sales income is primarily generated through:
Germany: 6,718
see page 15
Value: £2.3bn
Our wholly owned portfolios are at
the heart of our business and through
the benefits of long-term asset and
property management produce regular
and consistent income.
Assets under management
26,691 units
Value: £3.0bn
Inclusive of 13,759 third party properties
in Germany managed by our joint venture,
Gebau Vermogen, the total properties
under management is 40,450 units.
The scale of our residential operations
has enabled us to invest in systems,
processes and procedures which
can provide value to other parties.
Consequently we derive income from
fund, property and asset management
as well as direct returns from any stakes
we hold in co-investment vehicles.
UK residential
9 More information see page 18
Retirement solutions
9 More information see page 19
In addition we have made significant sales
this year from:
Development
9 More information see page 21
German residential
9 More information see page 22
£m
152
28
22
21
223
Gross sales income
1. UK residential
2. Retirement solutions
3. Development
4. Germany
Total
4
3
2
1
Annual report and accounts 2011
Overview
Business review
Governance
Financials
05
Rental income
Rental income is primarily generated through:
UK residential
9 More information see page 18
Retirement solutions
9 More information see page 19
German residential
9 More information see page 22
Net rental income
1. UK residential
2. Germany
3. Retirement solutions
Total
£m
38.4
20.2
3.8
62.4
3
2
Fees and other income
Fees and other income is primarily
generated through:
UK residential
9 More information see page 18
Retirement solutions
9 More information see page 19
Fund management
and residential investments
9 More information see page 20
Development
9 More information see page 21
Fee income
1. Fund management and
residential investments
2. UK residential
3. Retirement solutions
4. Development
5. Germany
Total
4 5
3
2
£m
6.3
0.5
0.5
0.4
0.3
8.0
1
1
Shareholder returns
Debt servicing
Disciplined recycling back
into asset portfolio
Grainger plc
06
Our performance
We measure our performance through a clear set of KPIs.
Operating profit before valuation
movements and non-recurring
items – OPBVM (£m)
2
.
6
2
1
2
.
4
9
8
.
8
7
Gross net asset value
per share – NAV (p)
Triple net asset value
per share – NNNAV (p)
Return on capital employed –
ROCE (%)
4
9
1
0
0
2
6
1
2
1
4
1
0
4
1
3
5
1
5
.
6
3
.
5
)
3
.
4
(
09
10
11
09
10
11
09
10
11
09
10
11
OPBVM is a measure of the profit
generated by our key income streams
of net rents, profits on sale of property
and other income, net of overheads.
OPBVM reached £126.2m in 2011 up
by 34% from 2010. This was assisted
by increases in net rent from our two
key acquisitions and strong residential
and development trading profits.
NAV is based on property assets
stated at market value. It is stated
after adding back deferred tax on
property revaluations and the balance
sheet value of derivatives.
NAV increased from 200p to 216p at
the 2011 year end primarily as a result
of our profit after tax and an increase
of 3.0% in the market value of our
UK properties.
Return on shareholder equity
– ROSE (%)
Profit/(loss) before tax – PBT
(£m)
1
.
1
1
6
.
0
)
7
.
3
3
(
1
.
6
2
)
0
.
0
7
1
(
)
8
.
0
2
(
NNNAV is also based on property assets
at market value but also includes the
contingent tax on this uplift, deferred
tax on asset revaluations and the full
balance sheet value of derivatives net
of deferred tax.
NNNAV increased from 140p to
153p at the 2011 year end as a result
of the group’s profit after tax and the
net increase in market value of our
property assets.
Sales price above previous year
end vacant possession
value (VPV)
5
.
7
7
.
5
7
.
6
7
.
3
)
8
.
6
(
)
8
.
6
(
09
10
11
09
10
11
09
10
11
ROSE measures the movement in
NNNAV in the year plus the dividend
relating to the year as a percentage
of opening NNNAV.
ROSE was 11.1% in 2011 reflecting
the increase in NNNAV from 140p
to 153p and also the dividend for the
year of 1.83p (including the tender
offer equivalent to 0.53p per share).
Whereas OPBVM above measures
specific elements of the income
statement, PBT includes all items taken
through the income statement before
tax, including net interest expense.
PBT was £26.1m in 2011 assisted by
the strong trading performance of the
business as noted above and despite
a charge to income of £28.0m arising
from derivatives.
We compare actual prices achieved
on sales of vacant properties in our
UK residential and retirement solutions
business to their VPV at the previous
year end. This measure shows how prices
are moving and the effectiveness of
our sales process. This year we sold
un-refurbished properties on average
at 3.7% above the 2010 year end VPV,
and those with pre-sale refurbishment
at 6.7% above the 2010 year end VPV.
ROCE measures the overall profit
of the business before interest and
derivative expense, as a percentage
of the opening market value of all
property assets and investments in
JV’s/associates.
ROCE was 6.5% in 2011 assisted by
the strong trading performance noted
in OPBVM.
Pre refurb %
After refurb %
Annual report and accounts 2011
Overview
Business review
Governance
Financials
07
CEO strategic overview
Grainger operates as a trader, investor and manager of residential
properties and therefore offers its investors exposure to residential
returns from three main sources of income.
Main sources of income
• Receipts from the sale of assets
(profits from sale: £81m).
• Rents (net rents: £62m).
• Fees from co-invested
and/or managed vehicles
(total fees: £8m).
Business overview
Grainger owns £2.3bn of residential property
of which 82% is located in the UK and
the balance in Germany. In the year ended
30 September 2011 this portfolio generated
£86m of gross rents and total asset sales
amounted to £223m. A further £8m of
fees and other income was produced.
The overall portfolio can be categorised by
asset type, location and income as follows:
Sales
Rents
Fees
Assets & value
(£m)
UK residential
portfolio
£1,402m
Retirement
solutions assets
£474m
Fund management
and residential
investments
£54m
Development
assets
£73m
German residential
portfolio
£422m
Our UK residential portfolio comprises
13,564 tenanted houses and flats,
together with other associated interests
such as ground rents and garage blocks.
Most of the properties are, or have been,
subject to regulated tenancies or home
reversions plans. Under a regulated
tenancy the tenant pays us a rent set by
a local rent officer which is usually below
the prevailing market rent. The tenant also
has right of tenure but, when the property
is vacated, it reverts back to Grainger
and can be sold on the open market with
Andrew R Cunningham
Chief executive
Grainger plc
08
CEO strategic overview continued
vacant possession. We buy these tenanted
properties at a discount (‘the reversion’)
to the vacant possession value and so our
returns consist of rents received during
occupation, the value of the reversion
crystallised when the property is vacated
and sold, together with any growth in
value from house price inflation during the
period of ownership. It is a key characteristic
of the residential market that properties
are more valuable vacant than tenanted.
The properties are usually owned for ten
years or more and this helps smooth out
price volatility arising from economic cycles.
Our retirement solutions assets consist
primarily of ownership stakes in properties
occupied by elderly people (home reversion
plans). A lump sum is paid to the owner
occupier for some or all of their residential
property reflecting an appropriate discount,
and they are entitled to remain in their
house for the rest of their lives without
paying any rent. When they vacate the
property it reverts back to Grainger and
we are then able to sell it with vacant
possession. The returns therefore consist
of the reversion enhanced by house
price inflation.
These two reversionary portfolios account
for about 77% by value of our total business
and offer a blend of trading and rental
returns. The majority of our regulated
tenants receive financial support through
housing benefit and, because of their
rights of tenure, have a vested interest in
ensuring the rent is paid. Consequently our
rental returns are long term, stable and
secure with very low levels of arrears.
Both of our reversionary portfolios provide
a steady stream of predictable vacancies
giving us the opportunity to sell and
crystallise value. The reversionary surplus
in our UK business (the difference between
vacant possession value and tenanted
or market value) now stands at £571m
(2010: £604m). The low average value
(c.£197K), often un-refurbished nature
of the properties and high level of cash
purchasers they attract mean that these
vacant properties sell well and quickly.
Our development activities are much
smaller in scale (book value £80m at
30 September 2011) but offer opportunities
for significant returns and cash flow.
We often work in joint venture arrangements
(for example with Development Securities
in Birmingham and Helical Bar in
Hammersmith) to leverage the respective
skills and resources of ourselves and
our partners. Our major development
activity at present is at our site in West
Waterlooville, Hampshire. We will bring
some 2,550 residential units through
the planning process, install infrastructure
and then sell fully serviced plots to
housebuilders under common standards
of quality and sustainability. This activity
follows the core Grainger principles of
long-term residential expertise and the
creation of returns through a change in
value and subsequent sale. In the UK
residential and home reversions portfolios
this comes from a change in tenure and
in development, it largely derives from a
change in use or planning permission.
Our German residential portfolio consists
of some 6,718 units with a value at the
year end of €490m. The returns from these
assets are more heavily biased towards
rental income than those in the UK, and
so provide a good balance of risk through
stable asset values and higher gross yields.
In total we own 20,282 residential
properties. This has enabled us to invest
in the systems, processes and people
required to run such a large portfolio.
Together with the breadth of our
residential expertise this has placed us
in a good position to offer these skills to
third parties, often on a co-investing
basis (for example, G:res and our Sovereign
Reversions Joint Venture with Moorfield).
This is a growing part of the business as
demonstrated clearly this year by the
success of our expanding these activities
through arrangements with Defence
Infrastructure Organisation (the Aldershot
Urban Extension) and with Lloyds Banking
Group (the Grainger Residential Asset
Management Platform G:RAMP).
Subsequent to the year end we also
announced our framework agreement
with Bouygues Development to co-invest
in a residential Build-to-Let fund which,
on creation, will provide institutional
investors with the opportunity to invest
in scale in the private rented sector.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
09
Strategy in action
Objective set in 2010
Action in 2011
1
2
3
4
Rebalancing residential
portfolios to selective
areas of value or growth.
Reducing capital employed
in non-core assets and
underperforming locations.
Introducing third party
capital to diversify returns.
• Acquisitions of high yielding
HI Tricomm portfolio and the Grainger
GenInvest LLPs.
• Some 62% of UK portfolio in London
and the South East (54% two years ago).
• Increase in gross rental income of 14%.
• Disposal of £41m of tenanted properties
in the UK and €23m in Germany
to improve overall portfolio quality.
• Joint venture with Moorfield to hold
Sovereign Reversion assets.
• G:res life extended.
• Partnership with Defence Infrastructure
Organisation at Aldershot.
• Partnership with Lloyds Banking Group
through G:RAMP.
• Increase in management fees of 23%.
Acting early to
consider and implement
debt financing options.
• Approximately £1.2bn of debt finance
raised including the introduction of
several new lenders and the extension
of average maturities.
Grainger plc
10
CEO strategic overview continued
Business performance
This year has been characterised by a number of significant transactions
which have moved the business forward and which reflect how our strategic
objectives are put into practice.
Transaction
Sovereign Reversions
joint venture
HI Tricomm acquisition
Description
Impact
Sovereign Reversions was acquired by
Grainger in August 2010. It owned 1,038
home reversion assets with a market
value of approximately £68m. In October
2010, Moorfield acquired a 50% stake in
the vehicle.
Acquisition of corporate entity owning
317 houses let to the Ministry of Defence.
Gross annual yield of 8.3% based on its
acquisition price and existing long-term
financing retained.
Grainger GenInvest LLP’s
acquisition
The acquisition of our JV partner’s (Genesis
Housing Group) stake in these LLPs to
give us 100% ownership. The portfolios
included c.1,650 residential units in central
London with a market value of £289m and
a vacant possession value of £353m.
The acquisition adds scale to Grainger’s
own home reversion business. As well
as the returns from our investment we
obtain fees for managing the portfolio.
Adds c.£9m to the group’s gross rent
roll. The financing brought a new
lender into the group and extended our
overall debt maturities. The discount
on acquisition produced a one-off gain
of £14.9m and the value has increased
by a further £0.6m since acquisition.
Net rental income since acquisition
was £5.0m.
Incremental gross rents of c.£12m
and a significant addition to the UK
residential portfolio, increasing its size
by 25% on acquisition and providing
us with significant development and
reversionary potential. The acquisition
also enabled us to introduce two new
lenders, HSBC and Santander. Since
acquisition, net rental income of £5.3m,
representing a gross annual yield of
4.2% and a further revaluation uplift
of 4.2% at £11.9m.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
11
Transaction
G:RAMP
Aldershot Urban
Extension
Waterlooville
Description
Impact
Provision of G:RAMP for Lloyds Banking
Group. By 30 September 2011 some 1,545
residential units were included in G:RAMP.
Significant leveraging off existing skills
and operational platform to provide fees
and improve return on capital employed.
Appointment as preferred developer by
Defence Infrastructure Organisation and
Homes and Communities Agency for
148 hectares of land which may result in
up to 4,500 residential units.
Outline planning consent obtained for
2,550 homes, 15–20 year pipeline
of serviced land sales to housebuilders.
Long-term recurring fee income with
high quality partner. Based on value of
sales of serviced plots to housebuilders.
Long-term income from land sales.
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Grainger plc
12
CEO strategic overview continued
Overall market review
Residential property values are driven by
supply and demand and can be distorted
significantly by local economic factors.
This has been most noticeable over the last
year in the prime London market where
ultra high value properties have adopted
many of the characteristics of precious
metal investment. Shortage of supply,
exacerbated by planning restrictions,
geopolitical stability, the attractiveness
of the time zone and London’s standing
as a high quality urban environment
have pushed prices of these properties to
unprecedented levels. To a lesser extent,
prices in other London and South East
areas have also reflected the imbalance
between supply and demand by exhibiting
stronger price levels than other parts of
the UK, which are much more susceptible
to the weak economy and to the effects
of the mortgage market. Some 62% of
our UK properties are situated in London
and the South East and so benefit from
these factors.
As well as geographical imbalances we
find, that in these markets, certain types
of property sell better. Generally, our
properties are of low average value and
tend to be un-refurbished on vacancy.
Demand for these properties from a mixed
constituency of cash buyers, amateur and
professional developers and local specialist
landlords as well the usual mortgage
backed owner-occupier remains strong.
This is reflected by the fact that our
average sales period runs at approximately
112 days and our vacant sales were
completed for values on average 3.7%
above the equivalent September 2010
valuation. Refurbishment works prior to
sale can improve returns and when these
are taken into account we have sold at
6.7% above September 2010 valuations.
We believe the switch between home
ownership and rented occupation signals
a significant and permanent structural
change in the housing market. We anticipate
demand for rental properties, particularly
in major metropolitan areas, to increase
and there to be more blurring of the edges
between the affordable/public/private
rented sectors.
Mortgage funding for house purchases
remains at very low levels reflecting
primarily the higher levels of deposit
required by lenders – the average first time
buyer deposit stands at 21% of purchase
price. This, allied to weak confidence in the
economic outlook, has led to a significant
increase in the number of household
properties being rented. In London it is
estimated that the percentage level of
home ownership has fallen from 60%
in 2001 to 52% in 2010. The increase
in demand has also pushed rentals up
with prime London residential rents
showing annual increases of up to 10%
on new lettings.
Government has indicated support for a
stronger more professional private rented
sector. There is an increased possibility
of residential REITs being created once
legislative changes are enacted in 2012.
The Government’s Housing Strategy,
announced on 21 November 2011, clearly
states the Government’s desire to support
the private rented sector and announced
the creation of an independent review
to explore ways to attract institutional
investment into the sector.
We are well placed to take advantage
of these changes through our expertise
as a major residential landlord and by
positioning ourselves in the market rented
sector through our involvement with G:res
and the Bouygues and Grainger build-to-
let fund. The fund was recognised by the
UK Government in its Housing Strategy
as an exemplar of private sector initiatives.
The German residential market shows
different characteristics from the UK.
Overall levels of home ownership are much
lower at approximately 42%, the second
lowest in Europe. The size of the rental
market has led to a diverse range of rental
housing and vacancy rates are relatively
constant at below 4%. These factors have
led to a more investment based market
with some 40% of rental units being
owned by professional/commercial landlords.
As with the UK, geographical differences
are evident and both residential prices and
rental demand are strongest in the larger
economically successful cities, particularly
in the West. It is in these areas that our
German portfolio is located and these
attractive locations, together with a good
quality portfolio, bode well for future rental
growth and capital appreciation.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
13
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W e w i
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f e e s
Future prospects
The prospects for the UK economy and
therein the broad housing market is
uncertain. Wider global economic conditions
will play an important, if not the most
important, part in the health of the UK
economy in the short to medium term.
This uncertainty will result in subdued
behaviour both among businesses and
consumers. We therefore take a cautious
view of the prospects for general house
price growth in the short to medium
term, but believe this can be offset by the
severe undersupply of housing compared
to growing demand in local markets.
The imbalance between supply and
demand will vary significantly from area
to area with an impact on pricing.
Our future focus will be to build on our
three main income streams in a risk
controlled way – property sales primarily
of assets to capture their reversionary
value, rental income and fees or other
income from managed or co-invested
vehicles. Our existing portfolio provides
us with a ready source of liquid assets
that sell well and quickly. The portfolio
also provides opportunities for rental
appreciation and we continue to increase
our fee income through the application
of our residential property expertise.
We have seen a good start to the new
financial year and our total group sales
pipeline (completed sales, contracts
exchanged and properties in solicitors
hands) amounted to £60.3m at
25 November 2011 with UK normal
residential sales values some 5.3% above
September 2011 vacant possession values.
We are disposing of assets that are either
regarded as non-core or where we see
limited opportunities for growth. When
taken in conjunction with our normal sales
on vacancy, we anticipate being net sellers
of property in the short to medium term.
We believe that operating at lower levels
of debt in conjunction with a greater
emphasis on fee generating activities, will
generate a better risk adjusted return to
our shareholders. Our property management
activities may result in increased assets
under management.
We are well positioned to take advantage
of the opportunities presented by the
changes in the residential market. A large
proportion of our portfolio is in geographic
areas where economic activity, and
therefore demand, is highest enabling
us to maximise sales value and velocity.
Our expertise as residential landlords will
enable us to take full advantage of the
increasing rental market and, in particular,
the build-to-let sector. We are optimistic
about our opportunities to improve return
on capital by managing other parties’
residential real estate exposure.
In summary, we remain confident in our
ability to deliver good levels of long-term
return in the residential property sector
for our shareholders.
Andrew R Cunningham
Chief executive
5 December 2011
Grainger plc
14
Where our properties are located
We own £2.3bn of residential property assets in the
UK and Germany located in those areas with good
prospects for rental growth and capital appreciation.
UK
IPD region:
Relative change in valuation Sept 2010 – September 2011
High
Low
12
11
7
3
10
8
9
6
5
2
4
1
Key statistics
Overview
The market value of our UK residential
properties has increased by 3.0% overall
in the year ended 30 September 2011.
As reflected by the shading in the map of
the UK, property values have been most
resilient in London and the South East.
This reflects the imbalance between supply
13,564
Properties
£2,447m
Vacant Possession Value
£1,876m
Market Value
UK assets
Substantial asset value and future revenue potential embedded in Grainger’s large,
mature and geographically diverse portfolio focused on attractive areas.
London and South East:
62% of UK portfolio
London (Total)
1
South East
2
South West
3
East
4
5
East Midlands
6 West Midlands
7 Wales
8
Yorkshire
9 North West
10 North East
11 Scotland
12 Northern Ireland
Total
September 2011
September 2010
Vacant
possession
value
£m
1,160
333
290
165
62
145
15
72
143
40
21
1
2,447
Number
of units
4,006
2,134
1,786
1,299
562
970
138
674
1,368
365
250
12
13,564
Market
value
£m
915
240
244
120
43
107
9
51
102
30
14
1
1,876
%
of Grainger
market
value
49%
13%
13%
6%
2%
6%
0%
3%
5%
2%
1%
0%
Number
of units
2,783
2,210
1,521
1,389
841
1,025
184
770
1,436
381
274
13
100% 12,827
%
of Grainger
market
value
40%
16%
9%
8%
4%
7%
1%
4%
7%
2%
1%
0%
100%
The reversionary surplus in our UK business, the difference between vacant possession value
and market value, is £571m.
UK
UK assets
Substantial asset value and future revenue potential embedded in Grainger’s large,
mature and geographically diverse portfolio focused on attractive areas.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
15
Germany
Germany:
Socioeconomic attractiveness
High
Low
and demand as well as the relative
attractiveness of our low average value
and generally un-refurbished properties.
As a result of acquisitions in the year,
Grainger now has 62%, by market value,
of its property located in these more
attractive regions.
3
6
5
2
1
4
UK assets by tenure
As at 30 September 2011
Regulated
Home Reversion
Assured Shorthold
HI Tricomm
Other
Vacant
Total
Number
of units
5,853
5,902
1,220
317
52
220
13,564
Market
value
£m
954
474
233
106
52
57
1,876
Source: Berlin Institute
Key statistics
Overview
As shown by the shading in the map of
Germany, the economically successful areas
in the West and South of the country
are the most attractive in terms of rental
demand and prices. The majority of our
portfolio is located in these more attractive
regions such as Baden-Würtemberg, Hesse,
Bavaria and Rhineland – Palatinate and we
expect this to provide a good platform for
future rental and price growth.
Germany assets
1 Baden–
Württemberg
2 Hesse
3 North Rhine
– Westphalia
4 Bavaria
5 Lower Saxony
6 Rhineland
– Palatinate
Other
Total
Number
of units
1,501
Investment
value
€m
127
% of
Grainger
investment
value
26%
1,490
1,677
560
751
337
112
101
56
37
26
23%
21%
11%
8%
5%
402
6,718
31
490
6%
100%
£422m
Book value
6,718
Properties
7.0%
Annual gross rental yield
4.6%
Annual net rental yield
Grainger plc
16
Our business activities
Grainger owns, acquires and trades regulated and market-let
tenanted properties and has a substantial portfolio of home
reversion properties. We also undertake fund, asset and property
management along with residential-led development.
£
£
Sales + rents + fees
UK residential
Sales + rents + fees
Retirement solutions
The UK residential business primarily
consists of properties subject to a
regulated tenancy. The portfolio is
geographically widespread but with a
strong concentration in London and the
South East, (72% by value). This unique
portfolio brings strong and stable cash
flows from rental income and trading
profits on the sale of property.
Regulated units owned
Market value
Vacant possession value
Other assets
Market value
Vacant possession value
2011
5,853
2010
5,969
£954m £863m
£1,280m £1,185m
915
£448m £205m
£490m £232m
1,809
We are a market leader in the UK
equity release business, with a particular
focus on the home reversion sector.
Our retirement solutions business offers
home reversion plans with a range
of features through our Bridgewater
business, which distributes these plans
through independent financial advisers.
We have won the Best Provider Home
Reversions for the last five years at the
Equity Release awards.
Units owned
Market value
Vacant possession value
2011
5,902
2010
6,981
£474m £545m
£677m £800m
Fees
Fund management and
residential investments
Our fund management and residential
investments business comprises our
investments in funds and joint ventures
and the income from asset and property
management fees. The principal
components are G:res1, a market rented
residential property fund in which we
are a co-investor and asset and property
manager and G:RAMP, our asset
management platform which services
our contract with Lloyds Banking Group.
Contribution to income
Contribution to income
Contribution to income
£191m
65%
£33m
11%
£6m
2%
9 More information see page 18
9 More information see page 19
9 More information see page 20
Annual report and accounts 2011
Overview
Business review
Governance
Financials
17
Sales + fees
Development
Grainger’s development business
focuses on value creation by
assembling residential development
and mixed-use opportunities, obtaining
or amending planning permissions,
installing infrastructure and then either
selling or self-developing plots. We take
a long-term interest in the communities
that we create and have the perspective
of an investor rather than a
developer/trader.
Market value including
share of joint ventures
Number of
development sites
Gross development value
2011
£73m
2010
£79m
24
23
£490m £460m
£
Sales + rents
German residential
Our portfolio is concentrated in the
economically and demographically
stronger regions of Germany (Baden–
Württemberg, Bavaria and the Rhine
–Main area) and major cities such as
Frankfurt, Cologne, Düsseldorf and
Munich. Our asset and property
management JV, Gebau Vermögen,
looks after c.20,000 units throughout
Germany and enables us to offer an
integrated asset and property
management service.
The overall portfolio can be
categorised by asset type, location
and income as follows:
Business area/
asset value
(£m)
UK residential
£1,402m
Retirement
solutions
£474m
Fund management
and residential
investments
£54m
Development
£73m
German
residential
£422m
Sales
£m
Net
rent
£m
Fees/
other
£m
152
38
28
4
1
1
6
22
21
20
Total
£m
191
33
6
22
41
Units owned
Gross rent roll
Market value
2011
6,718
£29m
2010
7,148
£30m
£422m £442m
Total
9 More information
223
62
8
293
page
4
page
5
page
5
Contribution to income
Contribution to income
£22m
8%
£41m
14%
9 More information see page 21
9 More information see page 22
Grainger plc
18
UK residential
Sales + rents + fees
£
Operational highlights
Regulated units owned
Other units
5,853
1,809
Market value
£954m
Market value
£448m
Vacant possession
value
£1,280m
Vacant possession
value
£490m
• Year-on-year increase in market values
of 3.8% outperformed the Halifax
(2.3% decrease) and Nationwide
(0.3% decrease) indices.
• Gross rent in 2011 of £51m. Gross rent
running rate at 30 September 2011 £57m.
• £89m of completed normal sales were at
an average of 4.6% above September 2010
valuations, 8.6% after refurbishment work
prior to sale.
• Portfolio liquidity demonstrated through
speed of sales – average 99 days from
vacancy to receipt of cash.
• Acquisitions of HI Tricomm and Grainger
GenInvest LLPs increased property assets by
£394m. Total property assets acquired £402m.
The UK residential business (UKR) primarily
consists of properties subject to a regulated
tenancy, the whole portfolio producing a
gross rental yield of 4.1%. These are valued
at 75% of vacant possession value in
London and at 72.5% of vacant possession
value in other locations. The portfolio is
geographically widespread but with a
strong concentration in London and the
South East, where 72% by value and 59%
by volume of these properties are situated.
Net rental income in the year increased
significantly to £38.4m from last year’s
figure of £28.5m, assisted by the strategic
portfolio acquisitions during the year of the
HI Tricomm and Grainger GenInvest LLPs.
(Prior to the date of acquisition of the
remaining 50% of Grainger GenInvest our
share of its results are reported in Fund
Management and Residential Investments
business below). The division also generated
£0.5m of other income.
During the year we generated normal sales
of £88.5m from this portfolio (2010: £81.0m)
producing a profit of £37.8m (2010: £37.4m).
The margins that we achieved on normal
sales were 42.8% (2009: 46.2%). This year
we conducted a regional review of our
portfolios in view of future expected returns.
This resulted in a growth of ‘investment
sales’ (those with a tenant in place) which
gave £56.6m of sales with a profit of £14.6m
(2010: sales £7.5m and profit £2.0m).
We also made other miscellaneous sales
of £7.3m with a profit of £2.6m. Last year,
including a larger amount of agricultural
sales, the miscellaneous sales figure was
£32.4m with profit of £8.2m.
Year end valuations were up 3.8% from the
previous September compared to decreases
in the Nationwide and Halifax Housing Indices
of 0.3% and 2.3% respectively. This clearly
illustrates the specialised nature of our
property assets and the value we add to
them through expert asset and property
management. The carrying values were
also again supported by the fact that
completed normal sales were at values,
on average, 4.6% above September 2010
valuations. Refurbishment works prior to
sale can improve returns and when these
are taken into account we have sold at
8.6% above September 2010 valuations.
The liquidity of the properties was also
demonstrated by the time taken for sale,
measured from the date of vacancy to
receipt of cash, being maintained at 99 days.
Other than the two specific strategic
portfolios referred to above we were
cautious buyers in the UK residential
business in 2011 acquiring 44 units for
£7.5m (2010: 308 units for £55.7m).
Given current economic conditions our
key criteria for purchases continue to be:
• Good prospects for long-term capital
appreciation. This is reflected by the
geographic spread of our purchases
this year, with some 72% by value
being in London and the South East.
• Good levels of discounts and/or
high yields.
• Opportunities for redevelopment
or refurbishment potential.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
19
Local residents on our Moorpool Estate in
Harborne, Birmingham
Retirement solutions
Sales + rents + fees
£
Operational highlights
Units owned
5,902
Market value
£474m
Vacant possession
value
£677m
• A 50% equity stake in Sovereign Reversions
sold to Moorfield to form our 50:50 JV.
Moorfield paid 50% of the acquisition
and integration costs. Management of the
joint venture generates management fees
for Grainger. Operational integration has
progressed well and management of
Sovereign assets has transferred to Newcastle.
• Completed sales of £27.6m generating
a profit of £10.0m
• Acquired £14m of home reversion assets.
Future opportunities
• We anticipate that the joint venture with
Moorfield will look to make further acquisitions
in the equity release sector, further enhancing
our market-leading position.
• Increased activity to develop IFA understanding
of Home Reversions will strengthen our
distribution capability and drive sales of
Bridgewater products.
Sales proceeds in 2011, including CHARM,
amounted to £27.6m, generating a profit
of £10.0m (2010: sales £29.1m; profit
£10.2m). Certain assets in the portfolio
also produce a net rental income and
this amounted to £3.8m in the year
(2010: £4.1m). Other income of £0.5m
comprises management fees from the
Sovereign Reversions joint venture.
The assets in this portfolio are more
geographically widespread than the UK
residential portfolios and do not benefit
from the bias they have towards London
and the South East. This is reflected in
the valuation results for the year, which
showed a small increase of 0.1% at
investment value level.
We bought £14.0m of home reversion
assets in the year. We also, early in the
year and as noted in last year’s report
and accounts, sold 50% of our equity
in Sovereign to MREF II Equity Release
Limited, a wholly-owned subsidiary of
Moorfield Real Estate Fund II (‘Moorfield’),
and entered into a 50:50 joint venture
agreement under which Moorfield paid
50% of the acquisition and certain
integration costs and Grainger receives
management fees.
Grainger plc
20
£
Fund management
and residential investments
Fees
Operational highlights
• Residential Asset management programme
commenced with Lloyd’s Banking Group to
establish the G:RAMP earning management
fees for the group. There were 1,545 units
under management at 30 September 2011.
• Strengthening rental market has increased
demand for properties in G:res enabling rental
increases of 5.2% on renewals and 11.4% on
new lets in the quarter ended September 2011.
Future opportunities
• We are continuing to identify and develop a
number of opportunities to parcel residential
and residential related assets into fund and
joint venture structures based on our proven
market expertise and unique breadth of
capability from development to management
and on to value realisation through disposal.
Profit from our Fund Management and
Residential Investments business amounted
to £3.6m (2010: profit £2.7m) arising from
gross fee income of £6.3m from asset and
property management fees from G:res 1
(‘G:res’), G:RAMP and Grainger GenInvest,
less allocated overheads. At the year end,
and following our acquisition in the year
of the remaining equity in the two Grainger
GenInvest LLPs, the remaining equity
investment in this division is our 21.96%
stake in G:res which is a market rented
fund of 2,031 units.
G:res is subject to a full external valuation
in December and June of each year and
showed an increase in market values
of 5.2% for the twelve months ended
30 June 2011, producing an increase in
net asset value in the fund of 13.6%.
Operational results at G:res provide a
continuing insight into the current UK
residential rental market. Rental increases
on renewals amounted to 5.2% for
the quarter ended September 2011 and
increases on new lets for the same period
were 11.4%. Both results indicate a
continued strengthening of the rental
market. The investors in this fund voted
to extend its duration by two years to
2013 and its controlled liquidation is under
way as planned.
During the year, and before we acquired
our partner’s 50% stake referred to above,
our 50% investment in Grainger GenInvest
was reported in this division. Prior to that
acquisition the values in Grainger GenInvest
increased by 2.8% in the period from
1 October 2010.
The controlled liquidation of the Schroder
Residential Property Unit Trust was
completed in the year; cash realisations
were 6.3% in excess of the property value
at the time of the decision of the unit
holders taken to liquidate the fund in
January 2009.
A significant advance in the fee earning
element of this business in the year was
the agreement with Lloyds Banking
Group to establish the G:RAMP. There is
no requirement for Grainger investment
in this arrangement. By the year end,
G:RAMP was proceeding to plan with
1,545 units under management.
€
£
Annual report and accounts 2011
Overview
Business review
Governance
Financials
21
Development
Sales + fees
Operational highlights
Market value
£73m
Number of sites
24
In 2011 we have had the following successes:
• Appointed as development partner at
Aldershot with Defence Infrastructure
Organisation. This will generate the group
long term recurring fees.
• Obtained planning permission at Macaulay
Road (design led smaller scale London
development).
• Obtained outline planning consent at
Waterlooville for a further 915 units bringing
the total on which we have outline consent
to 2,550 units.
Future opportunities
We will focus going forward on:
• Strategic land options, primarily in
Southern England.
• Design led smaller size London developments.
• Larger scale joint venture partnerships.
We will manage the development pipeline to
deliver consistent returns through balancing
existing larger scale opportunities with smaller
scale developments.
• We play to our strengths; the quality of
our covenants, strength of our balance sheet
and our reputation. Together these make
us an ideal development and joint venture
development partner.
Sales in this division at £22.1m were similar
to last year’s of £18.7m. The profits derived
from this year’s sales were significantly
increased at £15.1m (2010: £2.1m). The profits
primarily derive from two transactions in
central London which both yielded profits
of c.£7m, one of which was an overage
receipt which had no associated cost.
During the year the business was
appointed as development partner for the
Aldershot Urban Extension. This is a 400
acre brownfield site on which we intend to
achieve outline planning permission and to
sell serviced land-parcels to housebuilders.
This will lead to further recurring fee
generation from 2012.
Artist’s impression of public green
space at Grainger’s development site
at Waterlooville, Hampshire
Grainger plc
22
German residential
Sales + rents
£
Operational highlights
Market value
£422m
Units
6,718
Gross rents
£30m
• Grainger’s German asset management
platform covers the full range of residential
property investment and management
activities.
• The JV with the Lindner Group allows
us to offer an integrated asset and property
management service as in the UK.
• The income generated by the portfolio is
predominantly market-based rental income,
although sales of €24m were achieved this
year including the sale of our Berlin portfolio.
Future opportunities
• A focus on improving returns through a
higher level of active asset management
activities.
• Business growth through introducing
third party equity and generating
management fees.
• Capital recycling through sales and
privatisation with assets identified for
sale in 2012.
The German business delivered net rents
of €25.3m (2010: €24.7m) at an annual
net yield of 4.6% (gross yield of 7.03%)
in a largely stable price environment.
Property assets were written down at
year end by €1.9m (0.4%). Our portfolio
comprises 6,397 residential units and 321
commercial units located predominantly in
the South and South West of the country.
We have undertaken a programme of
capital recycling to improve the overall
quality of the asset base and enhance
cash flow. As part of this on-going process
we sold investment assets for €24.3m
generating a profit on sale of €1.1m in
2011 and have identified further assets
to be sold in 2012.
Grainger property in Wiesbaden,
Hesse, Germany
Annual report and accounts 2011
Overview
Business review
Governance
Financials
23
Financial review
Performance overview
Our key performance indicators are:
Operating profit before valuation movements and non-recurring items
Gross net asset value per share (pence) (NAV)
Triple net asset value per share (pence) (NNNAV)
Excess on sale of normal sales to previous valuation
Profit/(loss) before tax
Return on capital employed
Return on shareholder equity
2011
£126.2m
216p
153p
3.7%
2010
£94.2m
200p
140p
5.7%
£26.1m
£(20.8)m
6.5%
5.3%
1 year
11.1%
5 year
(5.4)%
10 year
3.9%
Our three income streams, sales of residential properties, rental income, and fees or other income, net of property expenses and overheads
and before valuation and non-recurring items has produced an operating profit before valuation movements (OPBVM) as follows:
UK residential portfolio
Retirement solutions portfolio
Fund management and residential
investments
Development assets
German residential portfolio
Group and other
OPBVM – 2011
OPBVM – 2010
Net
rents
£m
38.4
3.8
–
–
20.2
–
62.4
52.9
Profit on
sale of assets
£m
55.0
10.0
–
15.1
0.9
–
81.0
61.5
Fees
£m
0.5
0.5
6.3
0.4
0.3
–
8.0
6.5
Overheads/
other/CHARM
£m
(9.7)
4.4
(2.7)
(1.1)
(3.1)
(13.0)
(25.2)
(26.7)
2011
Total
£m
84.2
18.7
3.6
14.4
18.3
(13.0)
126.2
2010
Total
£m
69.4
12.2
2.7
2.0
17.1
(9.2)
94.2
In the year net rents rose by 18% from £52.9m to £62.4m primarily due to contributions from our acquisitions in the year of the
Grainger GenInvest LLPs and HI Tricomm which are both performing in line with expectations.
Profit from sales of property including CHARM, was £81.0m compared to £61.5m in 2010 including a £1.4m release of net realisable
value provision. This was generated from gross sales proceeds of £223m compared to £173m in 2010. This movement in volume was
driven mainly by an increase in investment sales (properties with tenants in place) and other sales which rose from £39.9m to £63.9m.
Overall margins rose from 34.8% to 36.3% assisted by an increased contribution from our development business.
Fees have risen to £8.0m from £6.5m assisted by increased G:res fees (fees have been driven by increased asset values and higher rents)
and income from both G:RAMP and the Sovereign Reversions joint venture.
Grainger plc
24
Financial review continued
Sales and margins
Sales on vacancy
UK residential
Retirement solutions
Investment and other
Residential sales total
Development
UK total
Germany
Overall total
Full year 2011
Full year 2010
Units sold
423
217
640
607
1,247
–
1,247
438
1,685
Sales
£m
88.5
27.6
116.2
63.9
180.1
22.1
202.2
21.1
223.3
Profit
£m
37.8
10.0
47.8
17.2
65.0
15.1
80.1
0.9
81.0
Margin
Units sold
42.8%
36.0%
41.2%
26.9%
36.1%
68.2%
39.6%
4.4%
36.3%
447
251
698
111
809
–
809
55
864
Sales
£m
81.0
29.1
110.1
39.9
150.0
18.7
168.7
4.3
172.9
Profit
£m
37.4
10.2
47.6
10.2
57.8
2.1
59.9
0.2
60.1
Margin
46.2%
35.1%
43.3%
25.5%
38.5%
11.4%
35.5%
5.0%
34.8%
Overhead costs in 2011 at £33.1m are £2.4m higher than in 2010 (£30.7m) supporting the increase in the business represented by
additional assets under management and to enable future growth in our management capacity.
The key elements of the movement in OPBVM are shown below:
2010 OPBVM
Increase in gross rents and other income
Increase in property expenses and overheads
Increase in residential trading profit
Increase in development trading profit
Increase in interest income from CHARM
Other
2011 OPBVM (see note 3 to the accounts)
£m
94.2
12.9
(4.8)
6.0
12.9
5.4
(0.4)
126.2
Annual report and accounts 2011
Overview
Business review
Governance
Financials
25
Valuation movements, impairment and goodwill adjustments and non-recurring items amounted to a credit of £1.3m
(2010: charge of £9.3m) as shown below:
Gain on acquisition of subsidiaries
Goodwill impairment
(Write down)/write back of inventories to net realisable value
Movement on impairment provisions against loans
Valuation deficit on investment properties
Transaction costs
Non-recurring overhead costs
2011
£m
16.1
(2.2)
(1.8)
(4.2)
(2.0)
(3.8)
(0.8)
1.3
2010
£m
2.8
(1.5)
2.9
(10.7)
(0.8)
–
(2.0)
(9.3)
Interest expense and similar charges
Our net interest charge has increased by £3.6m from £76.3m to £79.9m, the principal reason being debt either assumed or raised
in connection with the acquisitions of the Grainger GenInvest LLPs and HI Tricomm and a write-off of brought forward loan costs on
the refinancing.
Our profit before tax and before movements on derivatives was £54.1m compared to £18.8m in 2010.
In the second half of our financial year the yield curve for long-term interest rates showed rates staying lower and for longer. The effect
in the full year has been to increase the group’s fair value of derivatives liability in the consolidated statement of financial position from
£128.3m to £154.3m with a charge through the consolidated income statement of £28.0m (2010: £39.6m).
Having taken account of these derivative movements profit before tax was £26.1m compared to a loss of £20.8m in 2010.
Tax
During the year, the group successfully concluded discussions with HM Revenue & Customs (‘HMR&C’) on a number of outstanding tax
matters for which credit had not previously been taken. The group’s tax credit to income statement includes an exceptional tax credit of
£10.2m relating to the agreement reached with HMR&C which assisted in giving an overall tax credit of £13.0m for the year.
Grainger plc
26
Financial review continued
Earnings per share
Basic earnings per share is a profit of 9.5p (2010: 2.9p loss). A year-on-year reconciliation is shown below:
2010 Loss/(loss) per share
Movements in:
OPBVM
Contribution from joint ventures and associates
Fair value of derivatives
Revaluation deficits on investment properties
Provisions against trading stock values and loans
Goodwill credit
Net interest payable
Taxation and other
2011 Profit/earnings per share
£m
Pence per share
(10.8)
32.0
(3.7)
11.6
(1.2)
1.8
12.5
(3.6)
0.5
39.1
(2.9)
7.9
(0.9)
2.8
(0.3)
0.4
3.1
(0.9)
0.3
9.5
Dividend for the year
After considering the investment and working capital needs of the business the directors have recommended a final dividend per share
of 1.30p per ordinary share (2010: 1.30p) which equates to £5.3m (2010: £4.9m). This is in addition to the return to shareholders by way
of a tender offer earlier in the year which amounted to £2.2m. Earnings cover dividends 7.4 times.
Net asset value
We set out two measurements to better enable shareholders to compare our performance year-on-year.
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
216p
200p
8.2%
Triple net asset value per share (NNNAV)
– NAV per share adjusted for deferred and contingent tax on revaluation gains and
for the fair value of derivatives
153p
140p
9.7%
2011
2010
Movement
Annual report and accounts 2011
Overview
Business review
Governance
Financials
27
£m
Pence per share
900
(132)
(130)
638
216
(32)
(31)
153
£m
Pence per share
832
39
57
(45)
(5)
29
(7)
900
200
9
14
(11)
(1)
7
(2)
216
£m
Pence per share
582
39
57
(45)
(5)
9
3
(2)
638
140
9
14
(11)
(1)
2
1
(1)
153
Reconciliation of NAV to NNNAV
Gross NAV
Deferred and contingent tax
Fair value of derivative adjustment net of tax
NNNAV
The major movements in NAV in the year are:
NAV at 30 September 2010
Results after tax
Revaluation gains
Elimination of previously recognised surplus on sales
Dividends paid
Derivatives movement net of tax
Others
NAV at 30 September 2011
The major movements in NNNAV in the year are:
NNNAV at 30 September 2010
Results after tax
Revaluation gains
Elimination of previously recognised surplus on sales
Dividends paid
Cash flow hedge reserve net of tax
Contingent tax
Others
NNNAV at 30 September 2011
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.
Grainger plc
28
Financial review continued
Investment property
CHARM
Trading stock
JV/Associates
Cash
Deferred tax
Other assets
Total assets
External debt
Derivatives
Deferred tax
Other liabilities
Total liabilities
Net assets
30 September 2011 net assets per share (pence)
30 September 2010 net assets per share (pence)
Adjustments to
market value,
deferred tax
and derivatives
£m
Statutory
balance sheet
£m
Gross NAV
balance sheet
£m
Deferred and
contingent tax
£m
Derivatives
£m
Triple NAV
balance sheet
£m
820
102
1,105
59
91
43
24
2,244
(1,545)
(154)
(48)
(110)
(1,857)
387
93
83
–
–
820
102
344
1,449
–
–
(40)
7
311
–
154
48
–
202
513
123
117
59
91
3
31
2,555
(1,545)
–
–
(110)
(1,655)
900
216
200
–
–
–
–
–
–
–
–
–
–
(132)
–
(132)
(132)
(32)
(34)
–
–
–
(5)
–
43
–
38
–
(168)
–
–
(168)
(129)
(31)
(26)
820
102
1,449
54
91
46
31
2,593
(1,545)
(168)
(132)
(110)
(1,955)
638
153
140
The European Public Real Estate Association (‘EPRA’) Best Practices Committee has recommended the calculation and use of an
EPRA NAV and an EPRA NNNAV. The definitions of these measures are consistent with Gross NAV and Triple NAV as described and
shown in 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.
Market value analysis of property assets
Residential
Development
Total September 2011
Total September 2010
Shown as stock
at cost
£m
Market value
adjustment
£m
Market value
£m
1,025
80
1,105
1,056
351
(7)
344
332
1,376
73
1,449
1,388
Investment
property/financial
interest in
property assets
£m
922
–
922
739
Total
£m
2,298
73
2,371
2,127
Annual report and accounts 2011
Overview
Business review
Governance
Financials
29
Financial resources
The group has significantly refreshed and
diversified its sources of finance during
the year and up to the date of signing the
Annual report and accounts. A total of
£1.2bn of new debt has been secured for
the purposes of refinancing existing debt
and in connection with acquisitions. As at
30 September, this has resulted in an
average maturity of the group’s committed
facilities of 5.5 years (2010: 3.5 years) and
an average maturity of the group’s drawn
debt of 5.9 years (2010: 3.6 years).
The group has diversified its lender base
with the addition of HSBC, Bank of
America, Banco Santander, M&G and
Partnership Assurance to its range of
funders – at the same time securing large
long-term commitments and continued
support from its existing major lenders.
Financing secured includes:
• A new forward start facility, signed with
RBS, Lloyds, Barclays, Nationwide and
HSBC, providing £840m of committed
facilities which will be used to refinance
the group’s existing core facilities. £606m
of the committed £840m has a five year
tenor, maturing in July 2016. The balance
of the facilities matures in three years
(£166.5m maturing December 2014),
seven years (£7.5m maturing July 2018)
and nine years (£60m maturing July 2020).
• Committed facilities of £120m from
HSBC and Banco Santander to fund the
Grainger GenInvest portfolio acquired in
March 2011. These are five year facilities,
£108.8 of which matures in March 2016.
• £100m from the M&G UK Companies
Financing Fund LP, used to pay down
existing core facilities and with a 10 year
maturity to March 2021.
• £69m from Bank of America funding the
HI Tricomm portfolio acquired in February
2011. These are 17 year facilities, and
have a final maturity date in 2028.
• £50m from Partnership Assurance
provided through an innovative structure
against certain of the group’s retirement
solutions assets, non-recourse to the rest
of the group. This facility is repayable on
a property-by-property basis as the assets
are sold on vacancy, with interest rolling
up. Thus the facility exactly matches the
cash flow characteristics of this part of
the business, with an expected average
maturity of 11 years. These funds have been
used to reduce the group’s core facilities.
We announced on 24 November an
agreement for a further £28.6m of debt
provided by Partnership Assurance under
similar terms to those mentioned above.
The group’s existing core facilities were
£1,093m on 30 September 2011, of which
£927m were drawn. The group had free
cash balances plus available overdraft of
£48m and undrawn committed facilities
of £166m at 30 September 2011. The
core facilities have since been reduced
to £1,043m, of which £877m were
drawn as at 25 November 2011. The new
forward start facility of £840m (which will
be drawn to replace the existing facilities
by 30 September 2012) together with
existing free cash balances of £42m
(as at 25 November 2011) will enable the
group to repay the existing core facilities
in the course of the current financial year.
We have the flexibility through cash
generation and new debt facilities to
ensure the group can operate its business
as planned and meet its strategic objectives.
current LIBOR rates and on current debt
hedging of 73%) will be 5.8% (2010: 5.0%).
The business has produced £254m 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
£71m of interest.
At the year end net debt levels had risen
from £1,350m in 2010 to £1,454m which
is an increase of £104m. The increase
mainly comprises the addition of debt
through the acquisitions noted above
(£255m) offset by the cash generation
referred to above net of property acquisitions
and capital expenditure which generated
in total net cash of £127m, with £28m of
debt in Sovereign Reversions moving into a
joint venture in the year. Year end net debt
of £1,454m is £116m lower than at 31 March
2011 when net debt was £1,570m. The
reduction is indicative of the ability of the
business to generate very strong cash flows.
At 30 September 2011 gross debt was
73% hedged (2010: 75%) of which 5.0%
was subject to caps.
During the year loan-to-value (LTV) on the
core facility has fallen to 52% (2010: 54%).
This compares to a minimum required LTV
covenant of 75%.
At 30 September 2011 the interest cover
ratio on the core facility stood at 3.1 times
(2010: 2.4 times). This compares to an
interest cover covenant of 1.35.
Following these refinancings, the group’s
average effective cost of debt (based on
Mark Greenwood
Finance director
5 December 2011
Grainger plc
30
Corporate responsibility
“Grainger’smaturing
approachisevidenceof
ourcommitmenttobeing
aCRleaderwithintheUK
residentialsector.”
Chief executive statement
Grainger is making strides towards being a
Corporate Responsibility (CR) leader in the
UK residential sector. The Executive Team
and I strongly believe, and our stakeholders
agree, that CR leadership is a hallmark of
business resilience and maturity.
Over the last three years we have laid a
solid foundation for integrating CR into the
working practices of our long-established
business. Key achievements during 2010/11
include estimating the carbon footprint
of a large portion of our UK residential
portfolio and making CR business as
usual through benchmark performance
measures. We demonstrate our
commitment to transparency by improving
our level of CR disclosure and actively
engaging with stakeholders, from industry
bodies, to tenants and contractors. 88%
of the applicable 2010/11 CR targets that
we committed to are fully achieved or are
in progress.
Our focus for the year ahead is on making
sure our CR programme is embedded
across all of our business activities. We are
committing to ambitious targets in new
areas of our business that will deliver
economic, social and environmental value.
In 2011/12, each executive board member
will take responsibility for the delivery of
a pillar of our strategic CR framework
ETHOS1, driving our CR activities from the
highest levels.
I am proud to report the progress we’ve
made during 2010/11 and the direction
Grainger plans to take over 2011/12.
As always, I welcome your comments and
feedback.
Andrew R Cunningham
Chief executive
5 December 2011
1 Please see our full CR report or our
dedicated CR website www.graingercr.com
for more information.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
31
Risks and opportunities
2011/12 Risks
Grainger regularly considers the changing
landscape of sustainability risks and
opportunities and has identified the
following as key areas to manage.
• Legislation: Climate change and
environmental issues are set to continue
to rise up the political agenda in the
coming years. There is potential for there
to be significant impact on our business
through having to meet increasingly
stringent legislative requirements.
It is our intention to engage with
Government to ensure that policy is
appropriate for the private rented sector
and that Government understands the
complexities that varying tenure types
and tenant demographics will have upon
the likelihood of successfully improving
the energy efficiency of existing housing
stock.
• Reputation: Stakeholders’ expectations
of how effectively and transparently
Grainger manages its environmental
and socio-economic impacts continue
to grow. For investors in particular, it is
important to demonstrate maturity by
reporting meaningful metrics that link
CR to business performance.
• Physical: Rising temperatures are seen as
inevitable. The impacts of climate change
have not yet affected our portfolio value
or maintenance costs, but in the long-
term there is potential across the UK
for flooding, water stress, overheating,
subsidence, increased weathering and
other physical impacts such as damage
to infrastructure. We already take some
of these factors into account in our
acquisition activities, though the time
horizon for analysis varies. This year we
intend to publish details of our processes
and policies in this area.
• Energy costs: Rising fossil fuel based
energy costs have direct financial
implications for companies and are also
likely to impact customer demand for
less energy-efficient housing in some
markets. Energy efficiency information,
such as Energy Performance Certificates,
is expected to increasingly influence
buying and renting decisions. We are
committed to ensuring that we fully
understand these impacts on our various
portfolios and to transparency in our
reporting.
Top: Grainger staff volunteer at the
Vauxhall City Farm, London
Bottom: Grainger tenant, Acklington
village, Northumberland
Grainger plc
32
Corporate responsibility continued
2011/12 Opportunities
Grainger proactively seeks opportunities
to distinguish itself from its peers and to
future-proof our assets in order to protect
asset value and secure a long-term income
stream for the business.
• Legislation: As the UK’s largest listed
residential landlord, we are in a unique
position to actively engage with the
Government, directly and through
industry bodies. Grainger can influence
and shape future sustainability policy
to ensure it is both practical and
cost-effective.
• Physical: If developed in partnership
with industry, current Government
proposals relating to minimum energy
efficiency standards and the Green Deal,
for example, offer Grainger a significant
opportunity to upgrade our properties
using third party funding.
• Reputation: Community engagement
and investment are central to the
planning process and are likely to
become even more so with the Localism
Bill. A proactive approach can win
the trust and respect of stakeholders,
increasing success with planning
applications and attracting potential
employees. With operations across the
UK, Grainger’s procurement policies can
stimulate local economies. This year we
are seeking to understand the make-up
of our contractor base from a local vs.
national supplier perspective.
• Energy costs: Externally, CR factors
such as energy performance are
increasingly valued into residential
properties and investment is available
to those companies that demonstrate
strong leadership. Demand for high
quality rented housing from tenants
able to exercise choice is likely to rise
as an increasing percentage of the UK
population rent rather than buy.
These risks and opportunities should be
viewed in the context of our risk disclosure
on pages 39 to 41.
Governance
The operations board maintains overall
responsibility for CR – managing the risks
associated with the delivery of our strategic
objectives across multiple business units.
It consists of the management team
leading each business unit and shared
service teams. Our chief operating officer
chairs the monthly operations board
meeting and reports on its activities to
the main board of directors on a quarterly
basis. From 2011/12, each executive board
member will take responsibility for a pillar
of our ETHOS strategy, driving CR from
the highest levels. In 2010, we established
the Green Projects Group to manage
the opportunities and threats to Grainger
arising from climate change. Chaired by
our chief operating officer, this group is
an example of how we are embedding
our CR strategy further into the business.
Specific target delivery is assigned to
individuals and teams throughout Grainger
and is now integrated into individuals’
personal objectives each year. The operations
board reviews progress against targets at
least quarterly.
2010/11 Performance
In 2010/11, we set targets across all
components of our sustainability strategy,
aligning impact areas and business
priorities through our ETHOS pillars.
A number of 2010/11 targets were in progress
as of 30 September 2011. We will continue
to work towards the achievement of all
targets that were not completed this year.
2010/11 performance
Not achieved
In progress
Substantially
achieved
Achieved
Not applicable
Targetsfullyachieved
orinprogress
88%
Annual report and accounts 2011
Overview
Business review
Governance
Financials
33
2010/11 Grainger target performance
summary by strategic focus
2010/11 Targets
Influencing
the future
Protecting assets
and income
Driving efficiency
Investing in
communities & places
Responsibility to
stakeholders
Identify the key
sustainability policy issues
presenting risks and
opportunities for
Grainger and develop
Grainger policy positions.
Carry out sustainability
assessments of a sample
of properties and use
to model portfolio
carbon footprint and
sustainability risks.
Engage with Government
and other stakeholders
on key sustainability policy
issues identified.
Carry out an analysis
of which properties
could take advantage
of FITs, and which
technologies are most
suitable. Consider a
pilot scheme.
Update and further develop
Grainger’s Eco-Champions
Action Plan based on
two years of practical
experience and best practice
standards. Integrate with
the Eco-Champions KPIs
tracked in previous years
to establish an overall
standard for each office to
achieve or beat this year.
With a view to reducing
carbon emissions by
5% from 2009/10 levels,
undertake an internal
awareness campaign.
Building on existing
initiatives, produce a
responsible procurement
framework to cover
property services,
refurbishment and
new development.
Establish a customer
engagement programme
by 2011 (focusing
specifically on sharing
environmental information
and on community
improvement initiatives).
Provide Property Services
with an internal quality
management system.
Achieved
Substantially achieved
In progress
Not achieved
Not applicable
Investigate tenure specific
customer satisfaction
indicators. Where appropriate
indicators are identified,
report on these at the end
of the year.
Report carbon emissions
from common area
electricity usage in
a sample of flat blocks
based on quarterly
meter readings.
Report on how each
active development has
incorporated consideration
or development of
renewable energy.
Embed consideration
of renewables into
the acquisition, design
and planning stages
of development.
Identify a number of relevant
benchmark KPIs that are most
important to Grainger in
driving sustainability for the
development department.
Identify the levels Grainger
will aim to beat or achieve
and add those for end of
year reporting.
Identify a number of
relevant benchmark KPIs
that are most important
to Grainger in driving
sustainability for the
refurbishment department.
Identify the levels Grainger
will aim to beat or achieve
and add those for end of
year reporting.
Align the 2010/11 report
to GRI Standard level C.
Conduct health
and safety audits for
100% of Grainger’s
managing agents.
Conduct health and
safety audits for 100%
of Grainger’s contractors
undertaking projects
under CDM regulations.
Implement a programme
of activity to improve
employee health and
well-being in order to
boost morale.
Grainger plc
34
Corporate responsibility continued
Notable achievements and activities
– carbon emissions
Grainger’s first attempt to rigorously
quantify and publish the carbon impact of
its tenants’ building-related energy use was
completed this year. We have produced a
statistical estimate (95% confidence level)
of the carbon footprint of two major
portfolios, being UK residential (excluding
Grainger GenInvest) and G:res.
Our modelling, based on data taken from
Energy Performance Certificates, showed
that UK residential (excluding Grainger
GenInvest) homes in use contribute
approximately 37,000 tonnes of CO2 per
annum (+/- 3,000 tonnes). A majority of
these properties are subject to regulated
tenancy. G:res, primarily market-led units
contributed 5,000 tonnes (+/- 120 tonnes).
In contrast, Grainger’s own offices and
travel generate only approximately
677 tonnes CO2e.
UK residential includes distinct property
types. The majority of the units (5,700),
on average, produced annually 5.7 to 6.7
tonnes of CO2 each. However, a distinct
subgroup of the portfolio of 550 units,
is much more efficient, producing on
average just 2.5-2.7. The G:res portfolio is
also fairly efficient on average with carbon
emissions of 3.0 to 3.2 tonnes per unit.
That CO2 from most UK residential units
is, on average, twice that of the average
G:res unit, clearly demonstrates the
difference between property types within
the two portfolios. UK residential figures
are in line with estimates for average
housing stock in England (English Housing
Survey). Grainger’s UK residential portfolio
is a fair proxy for the houses which
Government aims to increase the efficiency
of by 2020 (UK Climate Change Act 2008).
Grainger’s understanding of the complex
interaction between tenure type, tenant
demographics and the market demand for
various energy efficiency incentives, gives
us a strong and credible basis to engage
Government and others on shaping energy
efficiency legislation and modelling its
likely impact.
Relative annual estimated carbon emissions of Grainger’s business activities (CO2e)
and emissions of portfolios it owns or manages (CO2)1, 2
Grainger business activities
Residential Portfolios
o li o –
f
t
r
o
t i a l p
u m
n
7 , 0 0 0 t o
n
n
e
r a
s i d
e
U K r
e
C O 2 p
c . 3
s
e
n
n
Air
Air
travel
travel
Rail
Rail
travel
travel
Car
Car
travel
travel
Office
Office
electricity
electricity
G:res
G:res
1,600 units
1,600 units
UK residential
UK residential
(excluding Grainger
(excluding Grainger
GenInvest)
GenInvest)
6,250 units
6,250 units
1 CO2 emission predictions provided by Energy Performance Certificate include heating, lighting and hot
water. CO2 from appliances such as ranges, refrigerators, televisions are not included in the calculation of
building related emissions.
2 The chart shown here illustrates the central estimate of emissions for Grainger’s portfolio and does not
include the full confidence interval range referenced in the text.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
35
Graingerofficesandtravel–
CO2eperannum
677tonnes
G:resportfolio–CO2perannum
c.5,000tonnes
Over the next year we intend to further
improve the quality and quantity of the data
that we can capture, to refine our model
and to explore ways to extend our modelling
to other portfolios, particularly those within
Retirement Solutions. We will also seek to
use this data to engage with stakeholders
and Government to understand and
influence thinking in this vital area.
We continue to measure and report on
the carbon emissions associated with our
operations, including travel. Our office
and business car travel are by far the most
significant areas of operational impact that
we measure.
Grainger has a Green Travel Policy to reduce
carbon emissions associated with business
travel wherever possible. We will continue
to promote this policy and green office
practices among staff during 2011/12 to
reduce our carbon impact. We also conducted
a Green Travel Survey among staff during
2010/11 and will use the results to identify
areas where Grainger could encourage the
use of green forms of transport.
From 2009/10 to 2010/11
Measure
Progress
• Carbon emissions from
office electricity
Carbon emissions from office electricity consumption
increased marginally by 1%.
• Annual electricity
consumption
• Carbon intensity
per employee
We are proud to note that four out of our seven offices
achieved reductions in annual electricity consumption. For
example, our Frankfurt and Putney offices managed
reductions of 10% and 5% respectively.
We reduced our carbon intensity related to office
electricity (per employee) by 10% between 2009/10 and
2010/11 (employee numbers increased 12%).
• Carbon emissions
from travel
Emissions associated with air, rail and car travel rose,
air and car by over 10 tonnes each.
• Efficiency of car fleet
Average efficiency of our fleet cars increased by 8%.
Grainger plc
36
Corporate responsibility continued
Officeelectricityperemployee
down10%
Carbon emissions1
Source
Tonnes of carbon emissions
(CO2e) from office electricity
consumption (lighting and
small power)2
2007/8
329
2008/9
309
2009/10
2010/11
350
352
Tonnes of carbon emissions
(CO2e) from energy use in common
parts of residential portfolio
Not
measured
Not
measured
Tonnes of carbon emissions
(CO2e) from air travel
Tonnes of carbon emissions
(CO2e) from rail travel
Tonnes of carbon emissions
(CO2) from car travel
Average carbon emissions level of
cars in Grainger’s fleet (g/km)
62
13
31
26
Not
measured
Not
measured
155
139
49
23
37
228
146
Not
measured
35
41
249
134
1 Detailed data notes for carbon emission calculations are available in our online CR report, available at
www.graingercr.com.
2 All office electricity CO2 figures prior to 2010/11 have been recalculated using the same emissions factor
from DEFRA 2011 guidance to highlight energy efficiency changes in Grainger’s operations.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
37
Notable achievements – other areas
of performance and benchmark KPIs
Protecting assets and income
• Our customers are increasingly satisfied
with the repairs service provided by our
contractors, both in terms of punctuality
and overall level of service.
Driving efficiency
• We reduced our annual electricity
consumption at four out of our seven
offices between 2009/10 and 2010/11
and our carbon intensity (per employee)
by 10%.
Investing in communities and places
• The number of staff involved in
volunteering activities in company time
doubled from 31 to 60.
• Grainger and staff donated £55,548 to
charitable causes in 2010/11, even higher
than our record value of £50,785 in
2009/10.
Responsibility to stakeholders
• Over half of our technical or professional
positions are filled by women and the
percentage of senior management
positions filled by women continues to
increase (8% in 2007/08 and 16% in
2010/11).
• Grainger invested £625 in training per
employee in 2010/11, lower than during
our training drive in 2009/10, but higher
than in 2007/08 and 2008/09.
• Almost all staff rate Grainger as a good
employer, with 72% describing the
company as extremely or very good.
• No reportable health and safety accidents
or incidents among our employees,
contractors or subcontractors.
• No health and safety fines or pollution
incidents in the last year.
CR focus areas for next year
• Investigating our CR impact through
the supply chain.
• Continuing to embed CR across all
business lines and at all levels.
• Influencing Government legislation
and thinking regarding availability and
sustainability of housing.
• Increasing our awareness of customer
satisfaction through surveys and
complaints procedure.
• Using our Centenary as a platform
to increase impact of community
based activities, particularly charitable
giving and our work in Newcastle and
to increase awareness of Grainger’s
capability to contribute to issues
regarding the future of the residential
sector – Grainger = Residential.
• Minimising the environmental and
community impact of our active
developments as schemes and major
refurbishments get underway in
2011/12.
Advisor’s statement
Upstream Sustainability Services, part of
Jones Lang LaSalle, has advised Grainger
plc on its Corporate Responsibility strategy
for several years. This programme of
work includes helping Grainger set its CR
targets, and assessing target achievement
at year end.
Due to Upstream’s long-standing
relationship with Grainger, 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
sustainability over the company’s financial
year (1 October 2010 – 30 September
2011). All information presented is accurate
to the best of our knowledge.
The method for assessing Grainger’s level
of performance against CR targets and
commitments was based on:
• Face-to-face meetings and telephone
interviews with Grainger representatives
responsible for target delivery.
• Detailed review of documentation and
information submitted by Grainger and
collected by Upstream over the year.
Grainger plc
38
Corporate responsibility continued
Grainger has completed the first stage
of the sustainability journey successfully,
putting in place a strong foundation of
CR policy and reporting. The next step is
to win the hearts and minds of Grainger
employees beyond the committed core
who have driven CR achievements to date.
We are encouraged that engagement
with and support for the implementation
of the CR strategy grew in the last year.
Accountability is increasing throughout
the business with the addition of CR
targets into performance agreements.
Executive board members are providing
further momentum by taking responsibility
for the success of each ETHOS pillar.
We look forward to seeing Grainger
actively manage and increase business
value from CR through its ambitious
2011/12 targets, which are clearly linked
to core business strategy.
Lora Brill
Senior sustainability consultant
Jones Lang LaSalle,
Upstream Energy and Sustainability Services
5 December 2011
Each target is rated for achievement,
based on the evidence received to validate
completion. Upstream makes the following
specific findings:
• Grainger aligned its CR report with GRI
Level C this year. Grainger continues to
increase transparency to gain the trust
of its stakeholders.
• The percentage of applicable targets
either fully or partially achieved during
2010/11 was in line with 2009/10 at 88%.
• However, the percentage of applicable
targets that Grainger fully achieved
dropped from 70% in 2009/10 to 44%
in 2010/11. Seven targets are currently
in progress, although it is important to
note that four of these are substantially
achieved.
• Grainger performed well in the area
of ‘Influencing the future’, achieving the
two applicable targets. The sustainable
procurement target was deemed not
applicable due to Grainger’s decision to
adopt a case-by-case approach and use
existing frameworks where appropriate.
• Under ‘Protecting assets & income’,
Grainger’s success this year in modelling
the carbon footprint and sustainability
risks of its UK residential portfolio is a
significant achievement.
• The two 2010/11 targets that were
not achieved sat within the ‘Driving
efficiency’ pillar. Grainger has decided
not to pursue an internal quality
management system, as there is
insufficient business need. However,
Grainger has re-set itself a 2011/12
focus on the collection of electricity
readings for the common parts areas
of its flat block properties.
Looking ahead to 2011/12, Upstream
recommends that Grainger pay particular
attention to its customer satisfaction
ratings. Tenant satisfaction is a vital CR
area for the business but has suffered
during 2010/11.
Grainger aspires to be a Corporate
Responsibility leader in the UK residential
sector. Most of the company’s global
warming impact is from tenants living
in Grainger’s homes. We particularly
commend the company for estimating
the carbon footprint of its buildings
from tenant use. Establishing a baseline
is crucial to managing carbon emissions
improvements. We eagerly look forward
to how Grainger will use this data to
drive change internally and in the wider
residential sector.
Upstream fully recognises the resource
challenges that Grainger faced during
2010/11 and commends the progress
made in CR given the increased work
load of property management staff in
particular. Aligning Grainger’s annual
targets to its commercial priorities will
continue to be essential in an ambitious,
growth-oriented business where staff
have many demands on their time.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
39
Risk management
Riskmanagementfacilitatesbusinessdecision-making
basedonstructuredjudgements.
Risk reporting framework
Grainger plc Board
Group Audit
Committee
Executive Risk
Committee
Group
Internal
Audit
Business
Unit Boards
Operations
Board
Business Unit/Shared Service
Management Teams
Grainger staff
Risk is a recognised part of the Group’s
every day activities. Risk management
is viewed as the systematic identification
and treatment of those risks that pose a
threat to our business, people, assets,
capital and reputation. It is a process used
to identify risks across Grainger plc, its
subsidiaries and associates (the ‘group’).
It assesses the potential impact of these
risk events and then provides a method
for addressing these impacts, to manage
and mitigate threats. Risk management
is an important component of corporate
governance and helps to encourage
continuous quality improvement.
The Grainger plc board is ultimately
responsible for the group’s risk management
framework. It regularly reviews the group’s
key risks and in the period to the year end
date, has been supported in the discharge
of this responsibility by various committees,
specifically the audit committee and the
executive risk committee. Subsequent to
the year end a risk committee has been
established under the chairmanship of
Belinda Richards.
Risk management framework
The risk reporting framework enables
a two way approach to monitoring and
reporting risk across the group.
The overall aim of risk management is
to enable the business to base all material
business decisions on judgements by
competent people reached following a
structured and documented review.
The Risk Management Framework has
been designed to support this policy and
to incorporate the full range of risks faced
across the group.
A categorisation of risk has been
adopted to enable a rigorous and
comprehensive approach to risk
assessment. The categorisation adopted
is intended to be relatively simple and easy
to use and to best reflect the characteristics
of the group and the risks it faces. Risks are
categorised as Market & Strategy, Project
Assurance, Operational, Financial and Legal
& Regulatory. Responsibility for each risk
category is assigned to one of the four
executive directors.
Grainger Risk Management Policy
Market
& Strategic
Risk
Financial
Risk
Operational
Risk
Project
Assurance
Risk
Legal &
Regulatory
Risk
Independent monitoring
Risk based monitoring plan. External verification. Key control checks.
Description and relevance to strategy Mitigation and management action
Change in
Net Risk in year
Grainger plc
40
Risk management continued
Principal risks
The principal risks faced by the Group are:
Risk and executive lead
Market &
Strategic Risk
Andrew Cunningham
Long term flat or negative
House Price Inflation depresses
income from sales.
A rapid further decline in house
prices and/or mortgage availability
increases difficulties in maintaining
sales income.
Financial Risk
Mark Greenwood
Limited availability of further
capital constrains the growth
of our business.
A significant misappropriation
or fraud could damage the
financial performance of the
group and its reputation.
Insufficient or inappropriate
levels of suitably skilled staff
hinder achievement of our
strategic objectives.
Operational Risk
Peter Couch
• Rebalance owned portfolios towards
areas of higher economic growth.
• Grow non-HPI dependent income streams.
• Continue to grow alternative
income streams.
• Focus sales on markets that are not
mortgage dependent.
• Regular scenario planning and active
management of debt levels.
• Cash flow and funding needs are
continuously monitored to ensure
sufficient headroom available.
• Ongoing area of strategic priority,
particularly building on our successful
refinancing strategy and focusing on
reducing our requirement for debt in
the near to medium term.
• Policies and procedures designed to
control risk are in place and regularly
monitored.
• New Bribery and Corruption policy
and procedures introduced.
• A comprehensive review of our
remuneration structures and benchmarking
against external markets has been carried
out this year.
• Performance management procedures
and annual appraisals are in place for
all staff.
• Long-term incentive schemes for senior
staff and opportunities for all staff to
become equity owners through SIP and
SAYE schemes.
Annual report and accounts 2011
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41
Risk and executive lead
Operational Risk
continued
Description and relevance to strategy Mitigation and management action
Change in
Net Risk in year
Inadequate assessment of
and action planning for health
and safety risks.
• We have dedicated and experienced
Health and Safety staff to implement
the company’s management procedures,
which include regular risk assessments
and audits to pro-actively address health
and safety risks areas including health
and safety risks affecting our staff,
contractors and tenants.
Key third party contractor/supplier
failure may lead to business
disruption, additional costs and
operational risks.
• Monitoring of supplier and subcontractor
performance through regular assessments,
market testing and maintenance of
alternative sources of supply.
Project Assurance Risk
Andrew Cunningham
Projects fail to deliver expected
benefits through poor initiation
or management.
Legal and
Regulatory Risk
Mark Greenwood
Significant regulatory changes may
impact on the value of the group’s
assets, its strategy and profitability.
• We conduct extensive initial checks on
new suppliers in accordance with their
strategic importance to the company.
• Project initiation is subject to appropriate
governance and business case controls.
Ongoing progress and management
monitored at project and Operational
Board level. Lessons learned exercises
carried out on all projects prior to formal
closedown.
• Grainger is an active member of groups
and committees (BPF, HBF, EPRA, CBI etc)
which seek to influence Government and
EEU policy.
• In-house teams (legal, compliance, corporate
affairs etc) are tasked with identifying
changes in legislation and regulation in
order to identify potential impact and if
necessary initiate lobbying activity.
We monitor the status of each of our principal risks and identify whether the net risk has increased, decreased or remains
unchanged from last year. Net risk refers to the likelihood and impact of the risk after mitigating actions have been taken.
No change in Net Risk
Increased Net Risk
Decreased Net Risk
Grainger plc
42
The Grainger board
Robin Broadhurst* CVO, CBE, FRICS
Chairman. Aged 65
Andrew R Cunningham FCA
Chief executive. Aged 55
Mark Greenwood FCMA
Finance director. Aged 52
Robin joined the board in February 2004 and
was appointed chairman in February 2007.
Previously European chairman of Jones Lang
LaSalle, he is now a trustee and non-executive
director of Grosvenor, property consultant to
Sir Robert McAlpine Limited and a
non-executive director of the British Library
and Chelsfield Partners.
Committee membership:
Chairman of nominations committee.
Andrew joined Grainger in 1996 as finance
director, became deputy chief executive in
December 2002, and chief executive in October
2009. A fellow of the Institute of Chartered
Accountants in England and Wales, Andrew
was a partner in a predecessor firm of
PricewaterhouseCoopers before joining
Grainger. Andrew is a member of the British
Property Federation’s Policy Committee.
Mark joined the board as finance director in
September 2010. A fellow of the Chartered
Institute of Management Accountants,
Mark has worked in finance since 1982 and
held a number of senior positions within Alfred
McAlpine Plc from 1989 to 2008. He was group
finance director from 2007 until its takeover in
2008 by Carillion. From 2008 to 2010 Mark was
finance director of the Middle East and North
Africa business of Carillion plc.
Robert R S Hiscox* ACII
Aged 68
John Barnsley* FCA
Aged 63
Henry Pitman*
Aged 49
Robert was appointed a director of the company
in March 2002. He is chairman of Hiscox Limited
and was deputy chairman of Lloyd’s from 1993
to 1995.
Committee membership:
Member of nominations and remuneration
committees.
John was appointed a director of the company
in 2003. He is a non-executive director of
Northern Investors Company plc, American
Appraisal Associates LLP and LMS Capital plc
and the chairman of Westover Medical Limited.
Until December 2001 he was a senior partner
at PricewaterhouseCoopers.
Henry was appointed a director in May 2007.
He is currently chairman of African Century, an
African investment business. Previously he was
chief executive of Tribal Group plc. Prior to this,
he was managing director of JHP Group Limited.
From 1990 to 1995 he worked for the Property
Corporation of South Africa.
Committee membership:
Senior Independent Director, chairman of audit
committee and member of nominations committee.
Committee membership:
Member of remuneration committee.
*Non-executive directors
Annual report and accounts 2011
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43
Nick Jopling
Executive director. Aged 50
Peter Couch
Executive director. Aged 53
Nick joined Grainger plc in September 2010
as executive director with responsibility for
property matters from CB Richard Ellis where
he was executive director of residential.
Nick’s responsibility covers Grainger’s UK
residential portfolio, development and fund
management business units. Nick is also the
chairman of the Urban Land Institute’s UK
Residential Product Council.
Peter Couch was appointed to the board as
executive director responsible for Grainger’s
retirement solutions business in June 2010.
He also acts as chief operating officer, a position
he was appointed to in 2009. Peter joined
Grainger in 2005 to manage the company’s
retirement solutions business. Prior to joining
Grainger, Peter spent most of his career in the
financial services sector and held several senior
roles within the AMP Group.
Baroness Margaret Ford*
Aged 53
Belinda Richards*
Aged 53
Tony Wray*
Aged 50
Margaret was appointed a director of the
company in July 2008. She has, since 2009,
been the chairman of the Olympic Park Legacy
Company. From 2007 to 2009, she was a
managing director in the Royal Bank of Canada’s
Global Infrastructure Group and between 2002
and 2007 was chairman of English Partnerships.
Committee membership:
Member of audit committee and chairman of
remuneration committee.
Belinda was appointed a director in April 2011.
Prior to joining the board she was Global Head
of Deloitte’s Merger Integration and Separation
Advisory Services. She is also a non-executive
director of Friends Life Group plc.
Committee membership:
Member of audit and remuneration committees.
Chairman designate to risk committee.
Tony was appointed a director in October 2011.
He has been the Chief Executive of FTSE 100
water company Severn Trent plc since 2007.
Committee membership:
Member of audit committee.
Grainger plc
44
Corporate governance report
Compliance with the UK Corporate Governance 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 UK
Corporate Governance Code (the ‘Code’), published by the
Financial Reporting Council. The board fully supports the
principles set out in the Code and confirms that it has complied
with all of the provisions of the Code throughout the financial
year ended 30 September 2011.
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 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
At the date of this report the board consists of a non-executive
chairman, the chief executive, the chief operating officer, the
property director, the finance director and six non-executive
directors.
Bill Tudor John resigned as a non-executive director on
9 February 2011.
Belinda Richards was appointed to the Board as an independent
non-executive director on 05 April 2011 and Tony Wray was
appointed as an independent non-executive director on
24 October 2011.
Referring to the findings of the Davies Report ‘Women on Boards’
we have over the last three and a half years appointed two
women to the board as non-executive directors. As at 30
September 2011 33% of the non-executive directors and 20% of
the total board were women. We would expect to at least
maintain these levels over the next few years subject always to
there being suitable directors with the appropriate quality available.
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.
All of the non-executive directors are considered by the board to
be independent.
We are aware that, for some investors, length of non-executive
director’s service beyond nine years will prejudice their
independence.
Robert Hiscox who will be retiring from the board at the AGM in
February 2012 has served as a director since March 2002 and John
Barnsley, the senior independent director, has served on the board
since February 2003.
The board believe that both Robert Hiscox and John Barnsley
continue to exercise a degree of rigorous enquiry and intellectual
challenge in respect of their roles as non-executive directors and
as such continue to regard them as independent.
Their continuity of service has been, and continues to be of
considerable benefit to the company through a period of
significant change in both the executive and non-executive
directors and provides an important knowledge link with the past
and an in-depth understanding of the company which is
considered to be highly beneficial to the board. Further, this
enhanced duration of service is complimentary to the longer term
business cycle applicable to the Grainger business model.
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
pages 42 and 43.
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 and is
responsible for ensuring a constructive relationship between
executive and non-executive directors and for fostering a culture
of challenge and debate in the boardroom.
Annual report and accounts 2011
Overview
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Financials
45
The chief executive is responsible for running the business and
implementing the board’s decisions. All executive directors report
to him. Peter Couch, the group’s chief operating officer, is
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 which
also includes the finance and property directors.
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:
• Challenge and contribute to the development of the company’s
strategy;
• Scrutinise the performance of management in meeting agreed
goals and objectives and monitor the reporting of performance;
and
• 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 two such meetings in the year and an additional
meeting of the non-executive directors without the chairman or
the executive directors present.
Bill Tudor John was the senior independent director until his
retirement from the Board at the AGM on 09 February 2011,
when he was replaced as senior independent director by John
Barnsley. The senior independent director 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. The senior
independent director leads the annual performance review of the
chairman.
Meetings
There were six 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:
• The strategy of the group in response to changing economic
conditions;
• Key business areas, including Germany, retirement solutions,
residential and funds;
• The group’s debt and capital structure;
• The group’s financial results;
• Dividend policy;
• Regulatory and governance issues; and
• The development of the group’s people.
Three of the meetings were preceded, the evening before, by an
informal meeting allowing more time to debate issues in depth.
Two of the board meetings were held at the company’s head
office in Newcastle and three of the board meetings were held in
the company’s offices in Knightsbridge. The meeting on 28 June
2011 was held in a central London hotel to coincide with a full
day’s meeting of senior management – giving the board the
opportunity to engage with key staff on a range of issues.
All directors attended all board meetings during their relevant
periods of office except for Robert Hiscox, Baroness Margaret Ford
and Belinda Richards who were each not present at one meeting.
Information Flow
The chairman, together with the company secretary, ensures that
the directors receive clear 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.
Grainger plc
46
Corporate governance report continued
Time commitment
The board is satisfied that the chairman and each of the non-
executive directors committed sufficient time during the year to
enable them to fulfil 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.
Belinda Richards was appointed in the year and received a
comprehensive, tailored induction to the company. This consisted
of the provision of a corporate handbook covering such items as
matters reserved for the board, division of responsibility between
the chairman and chief executive and the terms of reference of
the various board committees as well as individual sessions with
members of the senior management team. Belinda Richards was
also taken on a property tour to enable her to see some of the
company’s properties – ranging from the core regulated portfolio
through to some of the development activities.
Tony Wray is undertaking a similar induction process.
Training and updating as to the business of the group and the
legal and regulatory responsibilities of directors was provided
throughout the year 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.
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.
and its individual directors. The 2011 review was undertaken by
Independent Audit Limited (Independent Audit), an independent
firm of consultants who specialise in board performance and
corporate governance and who were appointed to undertake a
thorough independent review of the board and its committees.
The process involved a review of information provided to the
board and committees followed by confidential interviews with
the directors, the company secretary together with senior
members of the management team, and observation of a board
meeting and meetings of the remuneration, audit and
nominations committees.
Independent Audit’s report concluded that there was considerable
evidence to show that the board and its committees are effective.
Areas which will be developed further over the coming year
include:
• Strategic messaging
• Risk related work
• Succession planning
• Board information
The board and its committees will monitor progress and continue
their critical review of its effectiveness during the year ahead.
In accordance with the prevailing provisions of the Code, it is the
current intention of the board that external facilitation of the
board evaluation will be carried out every three years.
Re-election of directors
Notwithstanding that the company’s articles of association require
the directors to offer themselves for re-election at least once every
three years, in accordance with the recommendations of the Code
all of the directors (except for Robert Hiscox) will be offering
themselves for re-election at the Annual General Meeting in
February 2012.
In light of the performance evaluations summarised above and the
provisions of the company’s articles of association, the board
recommends that all of the directors be re-elected.
Board committees
The board delegates some of its activities to the following
committees each of which have written terms of reference, which
are available on the company’s web site, and which report back to
the board. The company secretary acts as secretary to each of
these committees.
Performance evaluation
In previous years the board has undertaken formal evaluations, led
by the chairman, of the performance of its board, its committees
Audit committee and auditor independence
The audit committee comprised John Barnsley as chairman,
Baroness Margaret Ford and one other non-executive director
Annual report and accounts 2011
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47
for most of the year. Bill Tudor John was a member of the audit
committee up to 09 February 2011 when he retired from the
board. Belinda Richards and Tony Wray became members of the
committee on 5 April 2011 and 22 November 2011 respectively.
The audit committee met four times in the year, in each case with
all members of the committee present save that Bill Tudor John
did not attend the meeting in November 2010. Both John Barnsley
and Belinda Richards have the particular recent and relevant
financial experience required by the Code.
In addition to the work referred to in the section ‘Internal Control’
below, 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.
In addition to the steps taken by the board to safeguard auditor
objectivity, PricewaterhouseCoopers LLP operates a five-year
rotation policy for audit partners.
The audit committee give careful consideration before appointing
the auditors to provide non audit advice and regularly use other
providers to ensure that independence and full value for money
are achieved. £317,000 was paid to PricewaterhouseCoopers LLP
for such services, the main element of which was £185,000
relating to financial due diligence work on acquisitions during the
year. 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 board recognises the importance of safeguarding auditor
objectivity and has taken the following steps to ensure that
auditor independence is not compromised:
The audit committee reviewed the company’s whistleblowing
policy and was satisfied that this meets FSA rules and good
standards of corporate governance.
• 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;
• The external auditors provide audit-related services such as
regulatory and statutory reporting as well as formalities relating
to shareholders and other circulars;
• 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;
• 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;
and
• The auditors report to the directors and the audit committee
confirming their independence in accordance with Auditing
Standards.
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 risk and taxation. 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 audit committee meets with management
without the auditors present and also with the auditors without
management present.
Remuneration committee
The remuneration committee comprises four independent
non-executive directors. Baroness Margaret Ford (chairman),
Robert Hiscox, Henry Pitman and Belinda Richards. Belinda
Richards joined the committee in May 2011.
The committee’s main duties are to determine the basic salary,
taxable benefits, terms and conditions of employment, including
performance related payments, share options and pension
benefits of the executive directors.
The committee is also responsible for the operation of the
company’s share options schemes and for monitoring the
framework for the policy on, and levels of remuneration of the
company’s senior management.
Grainger plc
48
Corporate governance report continued
A separate executive directors’ committee sets, after discussion
with the chairman, the fees of the non-executive directors.
The report of the remuneration committee is set out on pages
50 to 56.
Nominations committee
The nominations committee comprises Robin Broadhurst
(chairman), John Barnsley and Robert Hiscox. John Barnsley joined
the committee on 09 February 2011. Bill Tudor John was a
member until 09 February 2011 when he retired from the board
at the Annual General Meeting.
The nominations committee reviews the size, balance and
constitution of the board, formulates plans for succession for both
executive and non-executive directors and recommends to the
board as to whether directors retiring by rotation should be
nominated for re-election by the members.
Appointments to the board are recommended following an
effective search, interview and evaluation process based on
objective criteria.
The nominations committee meets as is necessary and met twice
during the year under review
Risk committee
Subsequent to 30 September 2011 it has been agreed to set up a
risk committee under the chairmanship of Belinda Richards. Risk
had previously been overseen by the audit committee.
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. A detailed annual budget is produced
each year, together with longer-term projections in accordance
with the agreed strategy, which are presented to the board for
consideration and 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 out-turn against which further progress can be
monitored. A detailed management information pack is prepared
monthly which covers each major area of the business and which
includes detailed consolidated results and financial information for
the business as a whole. The performance of each business area is
reviewed monthly by both divisional management and the
operations board and is subsequently reported to the board.
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.
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 and Mark Greenwood, chief executive and
financial director respectively, have had the vast majority of these
meetings and manage 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,
Annual report and accounts 2011
Overview
Business review
Governance
Financials
49
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.
The notice of meeting and annual report and accounts are sent
out at least 20 working days before the meeting. Separate votes
are held for each proposed resolution, including the approval of
the remuneration committee report, and a proxy count is given in
each case after the voting on a show of hands. Grainger includes,
as standard, a ‘vote withheld’ category, in line with best practice.
Shareholders are also able again to lodge their votes through the
CREST system.
Share capital
Details of the major interests in the company’s share capital are
provided in the directors’ report on page 57.
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
Michael Windle
Company Secretary
5 December 2011
Grainger plc
50
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 currently comprises four
independent non-executive directors, Baroness Margaret Ford
(chairman), Robert Hiscox, Henry Pitman and Belinda Richards.
Belinda Richards joined the committee on 17 May 2011.
The remuneration committee met formally four times during the
year. In each case with all members present save that Robert
Hiscox did not attend the meeting in February 2011. The
committee have also communicated informally during the year.
This year Hewitt New Bridge Street (‘HNBS’) continued to be
involved in the set-up and implementation of the Long Term
Incentive Scheme (‘LTIS’). HNBS 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 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 (and senior executives) are expected
to hold the equivalent value of at least one year’s salary in
Grainger shares. Details of executive directors’ share options and
share awards are shown on pages 55 and 56 respectively and
their shareholdings are shown within the table in the Directors’
report on page 57. 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 pay. They include salary, bonus and defined contribution
pension elements and long-term share incentives; option schemes
and other usual benefits are also afforded.
No executive director is involved in the determination of his own
remuneration. Fees of the non-executive directors, which include
increments where a committee chairmanship or senior
independent position is held, are determined by the executive
committee of the board.
The remuneration committee also review the total level of salaries
and bonuses paid to the group as a whole.
Service contracts
Contract dates and unexpired terms for the directors as at
30 September 2011 are as follows:
Contract
date
Unexpired
term*
Notice
period
Andrew Cunningham 20 October
2009
Peter Couch
1 June 2010
Nick Jopling
Mark Greenwood
Robin Broadhurst
John Barnsley
Robert Hiscox
Henry Pitman
1 September
2010
13 September
2010
26 February
2004
27 February
2003
No fixed
term
No fixed
term
No fixed
term
No fixed
term
12 months
12 months
6 months
6 months
17 months 3 months
5 months 3 months
6 March 2002 5 months 3 months
1 May 2007
17 months 3 months
Baroness Margaret Ford 3 July 2008
29 months 3 months
Belinda Richards
5 April 2011
28 months 3 months
* Calculated as at 30 September 2011 and rounded to the nearest whole
month.
Apart from salary and benefits in relation to the notice period
described above, there are no other terms in any of the contracts
which would give rise to compensation payable for early
termination, or any other liability of the company.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
51
Each non-executive director has specific terms of reference.
Their contracts state an initial three-year period, with a
continuation subject to review at that time. The new contracts
contain no entitlement to compensation for early termination.
Other directorships
The board has an approved policy on other directorships. This
permits a full-time executive director to hold non-executive
directorships, and to retain fees from any such appointment,
provided that the board considers that this will not adversely
affect their executive responsibilities. None of the executive
directors held any other directorships outside of the group
during the year.
NON-PERFORMANCE-RELATED REMUNERATION
Basic salaries and benefits
Basic salaries are reviewed by the remuneration committee
annually. Uplifts are by reference to cost of living, responsibilities
and market rates, as for all employees, and are performed at the
same time of year. It was decided for the years commencing
1 October 2010 and 2011 respectively that the executive directors
would receive no increase in their basic salaries, in light of market
conditions. Executive directors, 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 fees for the chairman and
non-executive directors are reviewed on a biennial basis by the
executive committee to the board. Increases in these fees effective
from 1 October 2010 were agreed in November 2010.
Pensions
The group contributes 15% of basic salary to the money purchase
pension schemes of all of the executive directors.
No other elements of remuneration are pensionable.
Share schemes open to all employees
The four executive directors are eligible to participate in a save as
you earn scheme (‘SAYE’), and Andrew Cunningham and Peter
Couch are eligible to participate in a share incentive plan (‘SIP’).
Both are Inland Revenue approved and therefore subject to the
limits prescribed, and both schemes are open to all employees
with relevant service, subject to the rules of the schemes.
Nick Jopling and Mark Greenwood will be eligible to participate in
the SIP once they have been employed for the requisite period of
eighteen months.
Amounts relating to directors’ participation in the SIP and share
options under the SAYE scheme are shown on pages 54 and 55.
PERFORMANCE-RELATED REMUNERATION
As should be expected and in accordance with the Code,
a significant element of executive directors’ and senior
management’s potential remuneration is performance related.
The combination of short and long-term incentives attempts 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.
Revised arrangements for incentive schemes
The remuneration committee had during the previous year
undertaken, with the independent assistance of HNBS, a review
of the remuneration arrangements for the executive directors.
Following this review the committee made revisions to the
arrangements which it believes should motivate, retain and
appropriately reward management within a best practice
compliant framework that aligns their interests with those of
shareholders. The key revisions made by the committee are set
out below.
The remuneration committee carefully considered the new
arrangements to ensure that they were no less challenging than
the previous system and were satisfied that this was the case.
Annual cash bonus
Under the new annual bonus scheme that was introduced this
year 75% of the performance measure was based on the
following two financial measures – operating profit before
valuation and return on shareholders’ equity. The remaining 25%
of the performance measure was based on an assessment of
personal performance.
The assessment of the personal performance for the chief
executive is undertaken by the chairman and for the other
executive directors by the chief executive.
The maximum potential bonus for the chief executive is capped at
a multiple of 150% of salary with the other executive directors
maximum bonus being capped at 125% of salary.
Following an assessment of all of the above measures the total
bonuses payable relative to their salary for the executive directors
were 75% for the chief executive and 60% for the other directors.
Grainger plc
52
Report of the remuneration committee
and directors’ remuneration report continued
Unwinding of previous bonus scheme
Up to the financial year ending 30 September 2010 Andrew
Cunningham had participated in an arrangement introduced in
2003 whereby each year a notional provisional bonus amount was
calculated by reference to the enhancement of the triple net asset
value of Grainger, relative to a theoretical market comparator.
The comparator movement was calculated with regard to the
Nationwide and Halifax house price indices and also interest rates
– using five-year swap rates.
The calculated amount was aggregated with the unpaid notional
amounts from previous years and each year the remuneration
committee considered the appropriate proportion, if any, of this
aggregate notional sum to be approved for payment. The notional
balance after any approved payment remained to be taken into
account over future years. The maximum amount that could be
transferred into the pool in any one year was 150% of salary and
this could only be achieved under exceptional performance
conditions.
As at 30 September 2010 the balance in the notional bonus pool
stood at £545,621.
Following the review of bonus arrangements the remuneration
committee agreed to close this bonus scheme and to replace it
with an annual bonus scheme with the balance of the bonus pool,
which had already been approved by the remuneration committee
in previous years, being paid to Andrew Cunningham in five equal
tranches between 2011 and 2015. The first payment of £109,124
was made in March 2011, reducing the balance in the pool at
30 September 2011 to £436,497.
Long-term Incentives
Grainger’s policy in relation to long-term incentive schemes has
evolved over time to more closely align the long-term interests of
executives and senior management with those of shareholders,
to reward sustained performance over a number of financial years
and to encourage these employees to grow their shareholdings.
The current LTIS was approved by shareholders in February 2007
and makes conditional awards of shares to reward performance
and retain key staff over rolling three-year periods.
The awards are based upon the absolute levels of increase in
both NNNAV and TSR. Up until 2010 two-thirds of the award was
based on the absolute level of increase in NNNAV and one-third
on the increase in absolute TSR, however, following the review
of remuneration arrangements referred to above, the awards
are with effect from 1 October 2010 now split equally between
NNNAV and TSR, with the TSR target range having been adjusted
from 8% – 16% to 5% – 15%, as follows:
Average annual growth in NNNAV
Percentage of the NNNAV proportion of an
award which will vest
Less than or equal to average
WACC
Equal to average WACC + 3% 100%
0%
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 period
Percentage of the TSR proportion of an award
which will vest
TSR being less than or equal
to 5% (previously 8%)
compounded per annum,
equivalent to 15.76%
(previously 25.97%) growth in
total over the TSR performance
period.
TSR being equal to or greater
than 15% (previously 16%)
compounded per annum,
equivalent to 52.08%
(previously 56.09%) growth in
total over the TSR performance
period.
Between 5% compounded per
annum and 15% compounded
per annum
0%
100%
Between 0% and 100% pro
rata on a straight-line basis
Annual report and accounts 2011
Overview
Business review
Governance
Financials
53
There is also a matching awards element to the scheme, to
encourage executives to develop and maintain a shareholding
in the company. Participants are able to 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 and/or development focused.
These performance criteria are believed to be stretching, but
realistic, and to reward executives if Grainger’s return to
shareholders is significant in absolute terms.
The initial conditional awards under the reviewed basis were made
on 26 November 2010 with the awards made in the previous
financial year having been made on the original basis.
Total shareholder return
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
Total shareholder return
Grainger operates, albeit that the real estate index comprises
mainly commercial property companies.
150
120
90
60
30
30 Sept
2006
30 Sept
2007
30 Sept
2008
30 Sept
2009
30 Sept
2010
30 Sept
2011
This graph shows the value by 30 September 2011 of £100 invested in
Grainger on 30 September 2006 compared with the value of £100 invested
in the FTSE 250 Index and in the FTSE 350 Real Estate/Real Estate Investment
& Services indices.
Grainger
FTSE 250 Index
FTSE 350 Real Estate/Real Estate Investment & Services indices
Grainger plc
54
Report of the remuneration committee
and directors’ remuneration report continued
The auditors have audited the following parts of the remuneration report.
Directors’ remuneration
Robin
Broadhurst
£’000
Andrew
Cunningham
£’000
Peter
Couch
£’000
Nick
Jopling
£’000
Mark
Greenwood
£’000
Rupert
Dickinson
£’000
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
Unwinding of previous bonus scheme
Total performance-related remuneration
Total remuneration for the year ended
30 September 2011
Total remuneration for the year ended
30 September 2010
Pension contributions into money
purchase schemes
Year ended 30 September 2011
Year ended 30 September 2010
140
–
–
140
–
–
–
140
120
–
–
420
20
6
446
315
109
424
870
711
58
66
265
34
6
305
159
–
159
464
234
41
14
325
16
–
341
195
–
195
536
28
49
4
260
16
–
276
156
–
156
432
15
34
3
Total
£’000
1,410
86
12
1,508
825
109
934
2,442
–
–
–
–
–
–
–
–
26
1,134
–
–
182
87
Non-executive directors
Non-performance-related
remuneration
Salary and fees
Taxable benefits
Share incentive plan
Total non-performance-related
remuneration
Performance-related remuneration
Annual discretionary bonus
Unwinding of previous bonus scheme
Total performance-related
remuneration
Total remuneration for the year
ended 30 September 2011
Total remuneration for the year ended
30 September 2010
John
Barnsley
£’000
Baroness
Margaret
Ford
£’000
Robert
Hiscox
£’000
Henry
Pitman
£’000
Bill Tudor
John
£’000
Belinda
Richards
£’000
Total
£’000
Total all
directors
2011
£’000
51
–
–
51
–
–
–
51
50
47
–
–
47
–
–
–
47
39
40
–
–
40
–
–
–
40
35
40
–
–
40
–
–
–
40
35
17
–
–
17
–
–
–
17
46
20
–
–
20
–
–
–
20
–
215
1,625
–
–
86
12
215
1,723
–
–
–
825
109
934
215
2,657
205
1,339
Annual report and accounts 2011
Overview
Business review
Governance
Financials
55
Peter Couch was appointed to the board on 1 June 2010.
Nick Jopling was appointed to the board on 1 September 2010.
Mark Greenwood was appointed to the board on 13 September 2010.
Belinda Richards was appointed to the board on 5 April 2011.
Bill Tudor John retired from the board on 9 February 2011.
Rupert Dickinson retired from the board on 20 October 2009. Pursuant 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 made an aggregate payment to Rupert Dickinson of £2,982,521 (less PAYE deductions).
Directors’ share options
Ordinary shares (thousands)
Andrew Cunningham
Peter Couch
Nick Jopling
Mark Greenwood
Total
Exercise
price
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
Dates exercisable
Non-performance-related
(available to all staff)
SAYE Scheme
1 February 2012 to 31 July 2012
1 February 2014 to 31 July 2014
Performance-related
(conditional awards)
HMRC Approved Executive Share
Option Scheme
37.7p
37.7p
–
44
–
44
25
–
25
–
–
–
–
–
–
–
–
–
32
32
–
–
–
–
25
44
25
44
128
197
–
69
26 November 2013 to 26 November 2020
94.4p
32
76
–
44
32
57
–
25
32
32
The market price of the company’s shares at the end of the financial year was 86.6p, and the range of the closing mid-market prices
during the year was 86p to 133p.
Grainger plc
56
Report of the remuneration committee
and directors’ remuneration report continued
Directors share awards
Ordinary shares of 5p each
(thousands)
Non-performance-related
– miscellaneous
Non-performance-related
– deferred bonus plan
Performance-related
(conditional awards)
Long term incentive
scheme
2007 Scheme (lapsed)
2008 Scheme
2009 Scheme
2009 Scheme
2010 Scheme
Matching awards
(conditional)
2007 Scheme (lapsed)
2008 Scheme
2009 Scheme
2009 Scheme
2010 Scheme
i
ii
iii
iii
Award
date
12 Dec
2007
3 Feb
2010
Earliest
vesting
date
12 Dec
2010
3 Feb
2011
9 Jan
2008
23 Dec
2008
9 Dec
2009
29 Sept
2010
26 Nov
2010
9 Jan
2011
23 Dec
2011
9 Dec
2012
9 Dec
2012
26 Nov
2013
9 Jan
2008
23 Dec
2008
9 Dec
2009
29 Sept
2010
26 Nov
2010
9 Jan
2011
23 Dec
2011
9 Dec
2012
9 Dec
2012
26 Nov
2013
Andrew
Cunningham
Peter
Couch
Nick
Jopling
Mark
Greenwood
Total
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
–
–
–
–
–
90
26
90
–
284
–
153
779
779
429
429
481
481
–
667
–
–
–
56
156
156
96
96
–
–
–
–
281
–
86
–
–
–
–
–
31
86
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90
–
–
–
26
90
–
–
437
1,208 1,208
481
481
283
283
230
230
513
513
344
–
275
–
1,567
–
–
87
–
–
242
242
96
33
96
33
–
–
–
–
–
–
–
–
–
–
–
–
23
23
10
10
133
–
2,312 1,852
84
970
–
815
39
689
–
306
10
525
–
240
266
–
4,496 3,213
i This award vested on 12 December 2010. The share price at the vesting date was 106.7p.
ii These shares were awarded to Peter Couch before his appointment as a director of the Company.
iii Performance conditions for the conditional share awards set to vest on 9 January 2011 were not met and therefore lapsed on that date.
On behalf of the board
Baroness Margaret Ford
Chairman of the remuneration committee
5 December 2011
Directors’ report
Annual report and accounts 2011
Overview
Business review
Governance
Financials
57
The directors present their report and the audited financial
statements for the year ended 30 September 2011.
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, investment, development and management.
Review of business development and prospects
The information that fulfils the requirements of the Business
review can be found on pages 2 to 41, which are incorporated
into this Directors’ report by reference. A review of the
performance and development of the business during the year,
the position of the group at the year end and its future prospects,
is set out in the sections of the Annual report from pages 2 to 29.
Details of the group’s KPIs are provided on page 6. A description
of the principal risks and uncertainties facing the group and how
these are mitigated can be found on pages 39 to 41. Additional
information on environmental matters, on employees and social
and community matters is set out on pages 30 to 38.
Results for the year
The results of the group are set out in the consolidated income
statement on page 62 which shows a profit for the financial year
attributable to the owners of the company of £39.1m (2010: a
loss of £10.8m).
Dividends
Although no interim dividend was declared (2010: 0.5p), in
June 2011 the directors distributed £2.2m by means of a tender
buy-back of shares. This represented an effective dividend
of 0.53p per share. The directors recommend the payment
of a final dividend of 1.30p per share (2010: 1.20p), to be paid
on 10 February 2012 making a total effective dividend for the
year of 1.83p (2010: 1.70p) per share. Any shareholder wishing
to participate in the Dividend Reinvestment Plan for the 2011
final dividend will need to ensure that their application form
is returned to our registrars by 16 January 2012.
Directors
The directors of the company who served during the year are
listed on page 42 and 43 except for Tony Wray who was
appointed to the board on 24 October 2011, and Bill Tudor John
who retired from the board on 9 February 2011.
Directors’ and other interests
The interests of the directors in the shares of the company at
30 September 2011 and 30 November 2011, with comparative
figures as at 1 October 2010 are as follows:
Ordinary shares of 5p each (thousands)
Robin Broadhurst
Andrew Cunningham
John Barnsley
Robert Hiscox
Henry Pitman
Baroness Margaret Ford
Peter Couch
Nick Jopling
Mark Greenwood
Beneficial
30 Sept
2011
110
1,115
1 Oct
2010
90
1,092
76
150
102
14
88
23
10
103
200
101
18
121
82
30
30 Nov
2011
110
1,115
103
200
101
18
122
82
30
1,645
1,880
1,881
Details of directors’ share options are given on page 55.
Save as disclosed above, as at 30 November 2011, 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 Inc
Norges Bank Investment
Management
BNP Paribas Investment Partners SA
Morgan Stanley Investment
Management
Holding
million
Holding
%
69.6
33.7
18.7
16.8
13.7
13.0
16.77
8.13
4.50
4.04
3.30
3.13
Grainger plc
58
Directors’ report continued
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 prepared the group financial statements in accordance with
International Financial Reporting Standards (IFRSs) 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.
In preparing these financial statements, the directors are required
to:
• select suitable accounting policies and then apply them
consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether IFRSs 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
• 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
pages 42 and 43 confirm that, to the best of their knowledge:
• the group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit of
the group;
• the business review on pages 2 to 41 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;
• so far as the directors are aware, there is no relevant audit
information of which the company’s auditors are unaware; and
• 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.
The maintenance and integrity of the Grainger plc website is the
responsibility of the directors; the work carried out by the auditors
does not involve consideration of these matters and, accordingly,
the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially
presented on the website.
Corporate governance
A report on matters of corporate governance is set out on pages
44 to 49 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 their duties as director, which is a qualifying
third party indemnity provision for the purposes of the Companies
Act 2006. This cover was in place during the financial year and at
the date of approval of these financial statements.
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 2011 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 22 days
(2010: 21 days).
Annual report and accounts 2011
Overview
Business review
Governance
Financials
59
Financial Risk Management
Details are included in note 25 to the financial statements.
Sustainability
Our approach to sustainability is based on our assessment of the
potential risk and opportunity to our business. In the year ended
30 September 2011 we either fully or partially achieved 88% of
the applicable sustainability targets that we committed to meeting
by that date. Further information is provided in the corporate
responsibility report on pages 30 to 38.
Charitable donations
During the year the group made charitable donations amounting
to £17,500 (2010: £12,320). Grainger makes charitable donations
in three ways. Firstly, we are a Foundation Partner member of
LandAid, the property industry charity, and have committed to
donating £10,000 per annum to LandAid for a period of three
years of which this is the second year of contribution. Secondly,
we match fund our staff’s individual fundraising efforts up to a
maximum of £100 per person per annum and we make occasional
donations to specific events or good causes. We have not made
any contributions for political purposes.
Overseas operations
Our German portfolio continues to be centrally managed and
controlled by our Luxembourg managers.
Health and safety
Grainger has a well-developed Health and Safety Management
System for the internal and external control of health and safety
risks which is managed by the Director of Health and Safety.
This includes the use of online risk management systems for the
identification, mitigation and reporting of real time health and
safety management information. The group health and safety
committee consists of members from across the organisation and
is chaired by the chief operating officer. The committee continues
to monitor the delivery of legal compliance in health and safety
through audit and implementation of improvements to enable
us to become ‘best in class’.
Employment of disabled persons
The company gives full and fair consideration to applications
for employment made by disabled persons, having regard to
their particular aptitudes and abilities. In the event of an employee
becoming disabled every effort is made to ensure that their
employment within the company continues and that appropriate
training is arranged where necessary. It is the policy of the
company that the training, career development and promotion
of disabled persons should, as far as possible, be identical to that
of other employees.
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 they ought to have taken
as directors in order to make themselves aware of any relevant
audit information and to establish that the company’s auditors
are aware of that information.
PricewaterhouseCoopers LLP have expressed their willingness
to continue in office as auditors to the company and group.
A resolution to reappoint them as auditors to the company will
be proposed at the next Annual General Meeting.
Grainger plc
60
Directors’ report continued
Shares
A tender offer of 1 for every 238 shares was undertaken in June
2011. Following the general meeting to approve the tender offer
a total of 1,484,890 ordinary shares were tendered at a price of
149p per share and purchased by the company for approximately
£2.2m. These shares are now held in treasury. In September 2011
9,683 shares were issued pursuant to the exercise of share options
under the group’s SAYE scheme. The company has one class of
ordinary shares and all shares rank equally and are fully paid. No
person holds shares carrying special rights with regard to control
of the company. There are neither restrictions on the transfer of
shares nor the size of a holding which are both governed by the
Articles of Association and prevailing legislation. The directors are
not aware of any agreements between holders of shares in the
Company that may result in restrictions on the transfer of shares
or on voting rights.
At 30 September 2011, the directors had unexpired power to
repurchase up to 41,600,000 shares.
Takeover directive
On a change of control, the core banking facilities (described in
note 26 to the accounts) would become repayable should prior
consent not be obtained, or should the debt not be 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
On 5 October 2011, the group signed an agreement for £50.3m
of debt funding from Partnership Assurance provided through
an innovative structure against certain of the group’s Retirement
Solutions assets, non-recourse to the rest of the group.
On 21 November 2011 the Group signed a further agreement
with Partnership Assurance for an additional £28.6m of debt
funding under similar terms to the initial £50.3m. These facilities
are repayable on a property-by-property basis as the assets are
sold on vacancy, with interest rolling up. In this way the facility
exactly matches the cash flow characteristics of this part of the
business, with an expected average maturity of 11 years. These
funds are being used to reduce the group’s core debt facilities.
By order of the board
Michael Windle
Company Secretary
5 December 2011
Annual report and accounts 2011
Overview
Business review
Governance
Financials
61
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 2011 which comprise the
consolidated income statement, the consolidated statement
of comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity,
the consolidated statement of 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 (IFRSs) as adopted by the European Union.
Respective responsibilities of directors and auditors
As explained more fully in the directors’ responsibilities statement
set out on page 58, 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 and express an opinion on 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
Chapter 3 of Part 16 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. In addition, we read all the financial and
non-financial information in the annual report to identify material
inconsistencies with the audited financial statements. If we become
aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
Opinion on financial statements
In our opinion the group financial statements:
Have been prepared in accordance with the requirements
of the Companies Act 2006 and Article 4 of the lAS Regulation.
Opinion on other matters 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; and
The information given in the Corporate Governance Statement
set out on pages 44 to 49 with respect to internal control and
risk management systems and about share capital structures is
consistent with the 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:
Certain disclosures of directors’ remuneration specified by law
are not made; or
We have not received all the information and explanations
we require for our audit; or
A corporate governance statement has not been prepared
by the parent company.
Under the Listing Rules we are required to review:
The directors’ statement, set out on page 49, in relation to
going concern;
The part of the Corporate Governance Statement relating to
the company’s compliance with the nine provisions of the UK
Corporate Governance Code specified for our review; and
Certain elements of the report to shareholders by the board on
directors’ remuneration.
Other matter
We have reported separately on the parent company financial
statements of Grainger plc for the year ended 30 September 2011
and on the information in the directors’ remuneration report that is
described as having been audited.
Give a true and fair view of the state of the group’s affairs as at
30 September 2011 and of its profit and cash flows for the year
then ended;
Have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
Bowker Andrews (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
5 December 2011
Grainger plc
62
Consolidated income statement
For the year ended 30 September 2011
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Profit on redemption of equity units in associate
Finance income from financial interest in property assets
(Write down)/write back of inventories to net realisable value
Provision for impairment of loans receivable net of write backs
Operating profit before net valuation deficits on investment property
Net valuation deficits on investment property
Operating profit after net valuation deficits on investment property
Fair value movements on derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of profit of joint ventures after tax
Profit/(loss) before tax
Tax credit before exceptional item
Exceptional tax credit
Tax credit for the year
Profit/(loss) for the year attributable to the owners of the company
.
Notes
4, 5
6
7
9
10
41
22
8
19
21
23
20, 24
17
25
13
13
19
20
12
14
14
14
34
2011
£m
296.2
49.1
72.3
(13.0)
4.2
16.1
(2.2)
1.1
–
7.9
(1.8)
(4.2)
129.5
(2.0)
127.5
(28.0)
(82.6)
2.7
4.4
2.1
26.1
2.8
10.2
13.0
39.1
2010
£m
244.5
40.8
52.8
(11.2)
5.9
2.8
(1.5)
0.4
1.0
2.5
2.9
(10.7)
85.7
(0.8)
84.9
(39.6)
(81.3)
5.0
5.6
4.6
(20.8)
10.0
–
10.0
(10.8)
Consolidated statement of
comprehensive income
For the year ended 30 September 2011
Profit/(loss) for the year
Actuarial gain/(loss) on BPT Limited defined benefit pension scheme
Fair value movement on financial interest in property assets
Exchange adjustments offset in reserves
Changes in fair value of cash flow hedges
Other comprehensive income and expense for the year before tax
Tax relating to components of other comprehensive income
Other comprehensive income and expense for the year
Total comprehensive income and expense for the year attributable to the owners
of the company
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
Dividend per share
Annual report and accounts 2011
Overview
Business review
Governance
Financials
63
Notes
28
21
14
16
16
15
2011
£m
39.1
1.2
(0.3)
(0.9)
13.2
13.2
(4.5)
8.7
47.8
9.5p
9.4p
1.83p
2010
£m
(10.8)
(0.5)
3.1
0.9
(1.4)
2.1
(0.7)
1.4
(9.4)
(2.9)p
(2.9)p
1.70p
Included within comprehensive income is £8.8m (2010: £11.1m) relating to associates and joint ventures accounted for under the
equity method.
All of the above results relate to continuing operations.
Consolidated income statement
For the year ended 30 September 2011
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Profit on redemption of equity units in associate
Finance income from financial interest in property assets
(Write down)/write back of inventories to net realisable value
Provision for impairment of loans receivable net of write backs
Operating profit before net valuation deficits on investment property
Net valuation deficits on investment property
Operating profit after net valuation deficits on investment property
Fair value movements on derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of profit of joint ventures after tax
Profit/(loss) before tax
Tax credit before exceptional item
Exceptional tax credit
Tax credit for the year
.
Profit/(loss) for the year attributable to the owners of the company
Notes
4, 5
20, 24
6
7
9
10
41
22
8
19
21
23
17
25
13
13
19
20
12
14
14
14
34
2011
£m
296.2
49.1
72.3
(13.0)
4.2
16.1
(2.2)
1.1
–
7.9
(1.8)
(4.2)
129.5
(2.0)
127.5
(28.0)
(82.6)
2.7
4.4
2.1
26.1
2.8
10.2
13.0
39.1
2010
£m
244.5
40.8
52.8
(11.2)
5.9
2.8
(1.5)
0.4
1.0
2.5
2.9
(10.7)
85.7
(0.8)
84.9
(39.6)
(81.3)
5.0
5.6
4.6
(20.8)
10.0
–
10.0
(10.8)
Grainger plc
64
Consolidated statement of financial position
As at 30 September 2011
ASSETS
Non-current assets
Investment property
Property, plant and equipment
Investment in associates
Investment in joint ventures
Financial interest in property assets
Deferred tax assets
Goodwill
Current assets
Investment in associates
Inventories – trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
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
Liabilities held for sale
Total liabilities
Net assets
Notes
17
18
19
20
21
14, 29
22
19
23
24
25
26
26
27
28
27
14, 29
26
30
14
25
2011
£m
2010
£m
819.9
1.2
34.6
23.9
102.3
42.7
5.3
1,029.9
–
1,105.1
18.3
0.2
90.9
–
634.7
1.3
28.6
91.0
103.9
38.4
6.2
904.1
0.1
989.9
17.2
–
91.5
70.7
1,214.5
2,244.4
1,169.4
2,073.5
1,428.0
1,361.7
4.0
4.5
0.6
47.7
1,484.8
116.7
76.4
24.6
154.5
–
372.2
1,857.0
387.4
4.0
6.0
0.8
52.6
1,425.1
55.6
57.3
27.8
128.3
34.1
303.1
1,728.2
345.3
Consolidated statement of financial position
As at 30 September 2011
ASSETS
Non-current assets
Investment property
Property, plant and equipment
Investment in associates
Investment in joint ventures
Financial interest in property assets
Deferred tax assets
Goodwill
Current assets
Investment in associates
Inventories – trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets held for sale
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
Liabilities held for sale
Total liabilities
Net assets
Notes
2011
£m
2010
£m
As at 30 September 2011
EQUITY
Capital and reserves attributable to the owners of the company
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
Equity attributable to the owners of the company
Non-controlling interests
Total equity
Annual report and accounts 2011
Overview
Business review
Governance
Financials
65
Notes
31
34
2011
£m
2010
£m
20.8
109.8
20.1
0.3
(34.4)
5.0
4.1
261.6
387.3
0.1
387.4
20.8
109.8
20.1
0.3
(43.0)
5.0
4.2
228.0
345.2
0.1
345.3
The financial statements on pages 62 to 144 were approved by the board of directors on 5 December 2011 and were signed on their
behalf by:
1,214.5
2,244.4
1,169.4
2,073.5
Andrew R Cunningham
Director
Mark Greenwood
Director
1,428.0
1,361.7
Company registration number: 125575
14, 29
17
18
19
20
21
22
19
23
24
25
26
26
27
28
27
26
30
14
25
14, 29
819.9
1.2
34.6
23.9
102.3
42.7
5.3
1,029.9
–
1,105.1
18.3
0.2
90.9
–
4.0
4.5
0.6
47.7
1,484.8
116.7
76.4
24.6
154.5
–
372.2
1,857.0
387.4
634.7
1.3
28.6
91.0
103.9
38.4
6.2
904.1
0.1
989.9
17.2
–
91.5
70.7
4.0
6.0
0.8
52.6
1,425.1
55.6
57.3
27.8
128.3
34.1
303.1
1,728.2
345.3
Grainger plc
66
Consolidated statement of changes in equity
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Cash flow
hedge
reserve
£m
Notes
Equity
component
of
convertible
bond
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
6.9
109.7
20.1
0.3
(41.6)
5.0
1.9
26.1
0.1 128.5
34
28
21
29
–
31
31, 34
31, 40
40
32
15
–
–
–
–
–
–
–
–
–
13.9
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
235.9
–
(235.9)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.4)
–
(1.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10.8)
–
(10.8)
–
(0.5)
–
(0.5)
3.1
–
–
–
0.9
–
–
–
–
3.1
0.9
(1.4)
(0.8)
0.1
–
(0.7)
2.3
(10.3)
–
–
–
–
(4.5)
(13.1)
–
235.9
–
–
1.3
(7.4)
–
–
–
(9.4)
0.1
(4.5)
– 236.7
–
–
–
–
1.3
(7.4)
20.8
109.8
20.1
0.3
(43.0)
5.0
4.2
228.0
0.1 345.3
Balance as at
1 October 2009
Loss for the year
Actuarial loss on BPT
Limited defined benefit
pension scheme
Fair value movement
on financial interest in
property assets
Exchange adjustments
offset in reserves
Changes in fair value
of cash flow hedges
Tax relating to
components of other
comprehensive income
Total comprehensive
income and expense for
the year
Issue of shares
Purchase of own shares
Rights issue
Transfer to retained
earnings
Share-based
payments charge
Dividends paid
Balance as at
30 September 2010
Consolidated statement of changes in equity
Issued
share
Share
Merger
redemption
hedge
convertible
Notes
capital
premium
reserve
£m
£m
£m
reserve
£m
reserve
£m
bond
£m
for-sale
Retained
controlling
reserve
earnings
interests
£m
£m
£m
Total
equity
£m
Capital
Cash flow
of
Available-
Non-
Equity
component
6.9
109.7
20.1
0.3
(41.6)
5.0
1.9
26.1
0.1 128.5
34
28
21
29
–
31
40
32
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
31, 34
31, 40
13.9
235.9
–
–
–
–
–
–
–
–
–
–
–
–
–
(1.4)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10.8)
–
(10.8)
–
(0.5)
–
(0.5)
(0.8)
0.1
–
(0.7)
3.1
–
0.9
–
–
–
–
–
–
–
–
–
(4.5)
(13.1)
1.3
(7.4)
–
–
–
–
–
–
–
–
–
3.1
0.9
(1.4)
(9.4)
0.1
(4.5)
–
1.3
(7.4)
– 236.7
(1.4)
2.3
(10.3)
–
(235.9)
–
235.9
Balance as at
1 October 2009
Loss for the year
Actuarial loss on BPT
Limited defined benefit
pension scheme
Fair value movement
on financial interest in
property assets
Exchange adjustments
offset in reserves
Changes in fair value
of cash flow hedges
Tax relating to
components of other
comprehensive income
Total comprehensive
income and expense for
the year
Issue of shares
Purchase of own shares
Rights issue
Transfer to retained
earnings
Share-based
payments charge
Dividends paid
Balance as at
30 September 2010
20.8
109.8
20.1
0.3
(43.0)
5.0
4.2
228.0
0.1 345.3
Annual report and accounts 2011
Overview
Business review
Governance
Financials
67
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Cash flow
hedge
reserve
£m
Notes
Equity
component
of
convertible
bond
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
20.8
109.8
20.1
0.3
(43.0)
5.0
4.2
228.0
0.1 345.3
Balance as at
1 October 2010
Profit for the year
Actuarial gain on BPT
Limited defined benefit
pension scheme
Fair value movement on
financial interest in
property assets
Exchange adjustments
offset in reserves
Changes in fair value
of cash flow hedges
Tax relating to
components of other
comprehensive income
Total comprehensive
income and expense for
the year
Purchase of own shares
31, 34
Share-based
payments charge
Dividends paid
Balance as at
30 September 2011
32
15
34
28
21
29
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13.2
(4.6)
8.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
39.1
–
39.1
–
1.2
–
1.2
(0.3)
–
(0.9)
–
–
–
–
(0.3)
(0.9)
–
–
13.2
0.2
(0.1)
–
(4.5)
(0.1)
39.3
–
–
–
(2.8)
2.0
(4.9)
–
–
–
–
47.8
(2.8)
2.0
(4.9)
20.8
109.8
20.1
0.3
(34.4)
5.0
4.1
261.6
0.1 387.4
Grainger plc
68
Consolidated statement of cash flows
For the year ended 30 September 2011
Cash flow from operating activities
Profit/(loss) for the year
Depreciation
Net gain on acquisition of subsidiary
Goodwill impairment
Net valuation deficits on investment property
Net finance costs
Share of profit of associates and joint ventures
Profit on disposal of investment property
Provision for impairment of loans receivable net of write-backs
Profit on redemption of equity units in associate
Share-based payment charge
Change in fair value of derivatives
Interest income from financial interest in property assets
Taxation
Operating profit before changes in working capital
Increase in trade and other receivables
Decrease in trade and other payables
Decrease in provisions for liabilities and charges
Decrease in trading property
Cash generated from operations
Interest paid
Taxation (paid)/refund
Net cash inflow from operating activities
Cash flow from investing activities
Proceeds from sale of investment property
Proceeds from financial interest in property assets
Proceeds from redemption of equity units in associate
Interest received
Proceeds from disposal of interest in subsidiary
Acquisition of subsidiaries, net of cash acquired
Investment in associates and joint ventures
Acquisition of investment property and property, plant and equipment
Net cash inflow/(outflow) from investing activities
Notes
18
41
22
17
13
19, 20
8
20, 24
19
32
25
21
14
14
8
21
19
42
41
19, 20
17, 18
2011
£m
39.1
0.6
(16.1)
2.2
2.0
79.9
(6.5)
(1.1)
4.2
–
2.0
28.0
(7.9)
(13.0)
113.4
(0.8)
(4.8)
(0.2)
71.7
179.3
(73.1)
(4.4)
101.8
24.6
9.2
0.1
1.9
17.5
(23.1)
(2.4)
(5.9)
21.9
2010
£m
(10.8)
0.7
(2.8)
1.5
0.8
76.3
(10.2)
(0.4)
10.7
(1.0)
1.3
39.6
(2.5)
(10.0)
93.2
(2.5)
(23.9)
–
42.5
109.3
(80.2)
3.6
32.7
9.9
10.8
9.8
1.7
–
(47.0)
(7.0)
(15.4)
(37.2)
Annual report and accounts 2011
Overview
Business review
Governance
Financials
69
Notes
2011
£m
2010
£m
40
31
15
28
26
26
–
(2.8)
220.0
(335.1)
–
(4.9)
(0.6)
(123.4)
0.3
91.5
(0.9)
90.9
–
90.9
236.7
(4.5)
–
(139.4)
(13.4)
(7.4)
(0.6)
71.4
66.9
28.3
(0.6)
94.6
(3.1)
91.5
For the year ended 30 September 2011
Cash flows from financing activities
Proceeds from the issue of share capital
Purchase of own shares
Proceeds from new borrowings
Repayment of borrowings
Settlement of derivative contract
Dividends paid
Payments to defined benefit pension scheme
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Net exchange movements on cash and cash equivalents
Total cash and cash equivalents at the end of the year
Cash held in Sovereign Reversions Limited at the end of the year
Cash and cash equivalents at the end of the year
Consolidated statement of cash flows
For the year ended 30 September 2011
Cash flow from operating activities
Profit/(loss) for the year
Depreciation
Net gain on acquisition of subsidiary
Goodwill impairment
Net valuation deficits on investment property
Net finance costs
Share of profit of associates and joint ventures
Profit on disposal of investment property
Provision for impairment of loans receivable net of write-backs
Profit on redemption of equity units in associate
Share-based payment charge
Change in fair value of derivatives
Interest income from financial interest in property assets
Taxation
Operating profit before changes in working capital
Increase in trade and other receivables
Decrease in trade and other payables
Decrease in provisions for liabilities and charges
Decrease in trading property
Cash generated from operations
Interest paid
Taxation (paid)/refund
Net cash inflow from operating activities
Cash flow from investing activities
Proceeds from sale of investment property
Proceeds from financial interest in property assets
Proceeds from redemption of equity units in associate
Interest received
Proceeds from disposal of interest in subsidiary
Acquisition of subsidiaries, net of cash acquired
Investment in associates and joint ventures
Acquisition of investment property and property, plant and equipment
Net cash inflow/(outflow) from investing activities
Notes
19, 20
20, 24
18
41
22
17
13
8
19
32
25
21
14
14
8
21
19
42
41
19, 20
17, 18
2011
£m
39.1
0.6
(16.1)
2.2
2.0
79.9
(6.5)
(1.1)
4.2
–
2.0
28.0
(7.9)
(13.0)
113.4
(0.8)
(4.8)
(0.2)
71.7
179.3
(73.1)
(4.4)
101.8
24.6
9.2
0.1
1.9
17.5
(23.1)
(2.4)
(5.9)
21.9
2010
£m
(10.8)
0.7
(2.8)
1.5
0.8
76.3
(10.2)
(0.4)
10.7
(1.0)
1.3
39.6
(2.5)
(10.0)
93.2
(2.5)
(23.9)
–
42.5
109.3
(80.2)
3.6
32.7
9.9
10.8
9.8
1.7
–
(47.0)
(7.0)
(15.4)
(37.2)
Grainger plc
70
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 154. 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.
These financial statements for the year ended 30 September 2011 have been prepared in accordance with EU endorsed International
Financial Reporting Standards (‘IFRSs’), 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 146 to 152.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the group
financial statements.
The group financial statements have been prepared under the historical cost convention except for the following assets and liabilities
which are stated at their fair value; investment property, derivative financial instruments and financial interest in property assets.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Although these
estimates are based on management’s best knowledge of the events and amounts involved, actual results ultimately may differ from those
estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the consolidated financial statements are disclosed in note 2.
(b) Basis of consolidation
i) Subsidiaries
Subsidiaries are all entities (including special purposes entities) over which the group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date control ceases.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
ii) Goodwill and impairment
The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of the acquisition is
measured as the fair value of the assets given and equity instruments issued. 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. Costs attributable to an acquisition are expensed in the consolidated income
statement under the heading ‘Other income and expenses’.
Goodwill on acquisition of subsidiaries is included within this caption on the statement of financial position. 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.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
71
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. Significant influence is the power to participate in the financial and operating decisions of the investee but is not
control or joint control over those policies.
Investments in joint ventures and associates are accounted for by the equity method of accounting and are initially recognised at cost. The
group’s investment in joint ventures and associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.
The group’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised in the income statement, and its share
of post-acquisition movements in reserves is recognised in other comprehensive income. Where the group’s interest has been reduced to
£nil, additional losses are provided for, and a liability is recognised, only to the extent that the group has incurred legal or constructive
obligations or made payments on behalf of the joint venture or associate. 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 non-controlling interests
The group applies a policy of treating transactions with non-controlling interests as transactions with parties external to the group.
Disposals to non-controlling interests resulting in gains or losses for the group are recorded in equity. On acquisition of non-controlling
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.
IFRS 8, ‘Operating Segments’ (‘IFRS 8’) requires operating segments to be identified based upon the Group’s internal reporting to the
chief operating decision maker (‘CODM’) to make decisions about resources to be allocated to segments and to assess their performance.
The group’s CODM is the chief executive officer.
ii) Goodwill and impairment
The group has identified five such segments as follows:
UK residential;
Retirement solutions;
Fund management/residential investments;
UK and European development; and
German residential.
All of the above segments are UK based except European tenanted residential which has its assets and tenants based in Germany and
Development which includes assets based in the Czech Republic. More detail is given relating to each of the above segments, and their
geographical split on pages 4 to 22 of the Business review and in note 4.
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 154. 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.
These financial statements for the year ended 30 September 2011 have been prepared in accordance with EU endorsed International
Financial Reporting Standards (‘IFRSs’), 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
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the group
pages 146 to 152.
financial statements.
The group financial statements have been prepared under the historical cost convention except for the following assets and liabilities
which are stated at their fair value; investment property, derivative financial instruments and financial interest in property assets.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Although these
estimates are based on management’s best knowledge of the events and amounts involved, actual results ultimately may differ from those
estimates. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the consolidated financial statements are disclosed in note 2.
(b) Basis of consolidation
i) Subsidiaries
Subsidiaries are all entities (including special purposes entities) over which the group has the power to govern the financial and operating
policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date control ceases.
Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Accounting policies
of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.
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 and equity instruments issued. 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. Costs attributable to an acquisition are expensed in the consolidated income
statement under the heading ‘Other income and expenses’.
Goodwill on acquisition of subsidiaries is included within this caption on the statement of financial position. 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.
Grainger plc
72
Notes to the financial statements continued
1 Accounting policies continued
The group has a segment director responsible for the performance of each of these five segments and the group reports key financial
information to the CODM on the basis of these five segments. Each of these five segments operates within a different part of the overall
residential market.
The title ‘All other segments’ has been included in the segmental tables in note 4 to reconcile the segments to the figures reviewed
by the CODM.
The measure of profit or loss used by the CODM is the trading profit or loss before valuation gains or deficits on investment properties and
excluding all revaluation and non recurring items as set out in note 3. The CODM reviews by segment two key balance sheet measures of
net asset value. These are Gross net asset value (‘NAV’) and Triple net asset value (‘NNNAV’) measures. Both measures include trading
stock at market value as opposed to the lower of cost and net realisable value.
Gross net asset value is defined as the market value of net assets before deduction for deferred tax on property revaluations and before
adjustments for the fair value of derivatives.
Triple net asset value is defined as gross net asset value adjusted for deferred and contingent tax on revaluation gains and for mark to
market adjustments.
Information relating to the group’s operating segments and the two net asset value measures is set out 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 company’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 to
Sterling at foreign exchange rates ruling at the balance sheet date. Revenues and expenses of foreign operations are translated at average
foreign exchange rates for the relevant period. Foreign exchange gains and losses are recognised within the consolidated statement of
comprehensive income.
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 other comprehensive income 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 interest expense and
similar charges. 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.
Notes to the financial statements continued
1 Accounting policies continued
The group has a segment director responsible for the performance of each of these five segments and the group reports key financial
information to the CODM on the basis of these five segments. Each of these five segments operates within a different part of the overall
The title ‘All other segments’ has been included in the segmental tables in note 4 to reconcile the segments to the figures reviewed
residential market.
by the CODM.
The measure of profit or loss used by the CODM is the trading profit or loss before valuation gains or deficits on investment properties and
excluding all revaluation and non recurring items as set out in note 3. The CODM reviews by segment two key balance sheet measures of
net asset value. These are Gross net asset value (‘NAV’) and Triple net asset value (‘NNNAV’) measures. Both measures include trading
stock at market value as opposed to the lower of cost and net realisable value.
Gross net asset value is defined as the market value of net assets before deduction for deferred tax on property revaluations and before
adjustments for the fair value of derivatives.
Triple net asset value is defined as gross net asset value adjusted for deferred and contingent tax on revaluation gains and for mark to
Information relating to the group’s operating segments and the two net asset value measures is set out in note 4.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as
market adjustments.
(d) Share capital
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 company’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.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to
Sterling at foreign exchange rates ruling at the balance sheet date. Revenues and expenses of foreign operations are translated at average
foreign exchange rates for the relevant period. Foreign exchange gains and losses are recognised within the consolidated statement of
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 other comprehensive income 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 interest expense and
similar charges. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially
iii) Foreign operations
comprehensive income.
iv) Net investment hedges
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.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
73
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 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.
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.
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:
Fixtures, fittings and equipment
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 that is recorded through the income statement is as follows: i) the carrying value
of the assets is increased by the effective interest rate and ii) the carrying value of the assets is revised to the net present value of the
updated projected 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 ‘finance income from financial interest in property assets’. Cash received
from the instrument in the year is deducted from the carrying value of the asset.
Differences between the updated projected cash flows using the effective interest rate applicable at acquisition compared to updated
projected 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 other comprehensive income with a corresponding adjustment to the carrying value of the
assets. 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 property
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 and introducer fees 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
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Notes to the financial statements continued
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.
(k) Income tax
Income tax on the profits or losses for the periods presented comprises both current and deferred tax. Current tax is the expected tax
payable on the taxable income for the year using rates applicable during the year. 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 recognised, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted
or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of
the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either
the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
(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. The cost of providing benefits is determined using the Projected Unit
Credit Method, with actuarial valuations being carried out at each balance sheet date by a qualified actuary, also under the Projected Unit
Credit Method, 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 comprehensive income each year.
Notes to the financial statements continued
1 Accounting policies continued
(j) Cash and cash equivalents
maturities of three months or less.
(k) Income tax
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original
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 during the year. 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 recognised, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it
arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted
or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the
Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of
the reversal of the temporary difference is controlled by the group and it is probable that the temporary difference will not reverse in the
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax
liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either
the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
deferred income tax liability is settled.
temporary differences can be utilised.
foreseeable future.
(l) Employee benefits
i) Defined contribution pension scheme
to which they relate.
ii) Defined benefit pension scheme
Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement in the period
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. The cost of providing benefits is determined using the Projected Unit
Credit Method, with actuarial valuations being carried out at each balance sheet date by a qualified actuary, also under the Projected Unit
Credit Method, 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 comprehensive income each year.
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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 deferred bonus plan (‘DBP’), a Share Incentive Plan (‘SIP’) 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. For market based conditions,
the probability of vesting is taken into account in the fair value calculation and no revision is made to the number of shares or options
expected to vest. For non-market conditions, each year the group revises its estimate of the number of options or shares 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.
(m) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is stated net of sales taxes and value added taxes.
Revenue is recognised on our three primary income streams as follows:
i) Income from property trading
Revenue and profits or losses arising from the sale of trading and investment property are included in the income statement where
contract completion has taken place. Profits or losses are calculated by reference to the carrying value of property and are included in
operating profit.
ii) Rental income
Rental income from operating leases is recognised on a straight-line basis over the lease term on an accruals basis.
iii) Management fee income
Management fee income is recognised in the accounting period in which the services are rendered.
In addition, income is recognised as follows on service charges and investments:
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 receivables and payables are shown net in the balance sheet.
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.
Income from investments
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Group revenue
Group revenue set out in note 5, comprises gross rental income, service charge income on a principal basis, gross proceeds, before sales
costs, from the sale of trading properties and management fee and other income.
Grainger plc
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Notes to the financial statements continued
1 Accounting policies continued
(n) Leases
i) Group as lessor
The net present value of ground rents receivable is, in the opinion of the directors, immaterial. Accordingly, ground rents receivable are
taken to the income statement on a straight-line basis over the period of the lease. Properties leased out to tenants are included in the
balance sheet as either investment property or as trading property under inventories.
Where the group grants a lifetime lease on an investment property and receives from the lessee an upfront payment in respect of the
grant of the lease, the upfront payment is treated as deferred rent in the balance sheet. This deferred rent is released to the income
statement on a straight-line basis over the projected term of the lease. At each year end the projected term of the lease is revised on an
actuarial basis and the remaining deferred rent is released to the income statement on a straight-line basis over this revised lease term.
ii) Group as lessee
The group occupies a number of its offices as a lessee. After a review of all of its occupational leases, the directors have concluded that all
such leases are operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the
lessor) are charged to the income statement on a straight-line basis over the period 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) Derivative financial instruments
Derivatives
The group uses derivative instruments to help manage its interest rate risk. In accordance with its treasury policy, the group does not hold
or issue derivatives for trading purposes. Derivatives are classified as current assets and current liabilities.
The derivatives are recognised initially at fair value. Subsequently, the gain or loss on re-measurement to fair value is recognised
immediately in the income statement, unless the derivatives qualify for cash flow hedge accounting in which case any gain or loss is taken
to equity in a cash flow hedge reserve.
In order to qualify for hedge accounting, the group is required to document in advance the relationship between the item being hedged
and the hedging instrument. The group is also required to demonstrate that the hedge will be highly effective on an ongoing basis.
This effectiveness testing is re-performed 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.
Fair value estimation
The fair value of interest rate swaps is based on a discounted cash flow model using quoted market information.
(p) 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 that 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.
Financial assets classified as available-for-sale is the financial interest in property assets. Derivative financial instruments not in hedge
accounting relationships are classified as fair value through profit and loss.
Notes to the financial statements continued
1 Accounting policies continued
(n) Leases
i) Group as lessor
The net present value of ground rents receivable is, in the opinion of the directors, immaterial. Accordingly, ground rents receivable are
taken to the income statement on a straight-line basis over the period of the lease. Properties leased out to tenants are included in the
balance sheet as either investment property or as trading property under inventories.
Where the group grants a lifetime lease on an investment property and receives from the lessee an upfront payment in respect of the
grant of the lease, the upfront payment is treated as deferred rent in the balance sheet. This deferred rent is released to the income
statement on a straight-line basis over the projected term of the lease. At each year end the projected term of the lease is revised on an
actuarial basis and the remaining deferred rent is released to the income statement on a straight-line basis over this revised lease term.
ii) Group as lessee
The group occupies a number of its offices as a lessee. After a review of all of its occupational leases, the directors have concluded that all
such leases are operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the
lessor) are charged to the income statement on a straight-line basis over the period 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) Derivative financial instruments
Derivatives
The group uses derivative instruments to help manage its interest rate risk. In accordance with its treasury policy, the group does not hold
or issue derivatives for trading purposes. Derivatives are classified as current assets and current liabilities.
The derivatives are recognised initially at fair value. Subsequently, the gain or loss on re-measurement to fair value is recognised
immediately in the income statement, unless the derivatives qualify for cash flow hedge accounting in which case any gain or loss is taken
to equity in a cash flow hedge reserve.
In order to qualify for hedge accounting, the group is required to document in advance the relationship between the item being hedged
and the hedging instrument. The group is also required to demonstrate that the hedge will be highly effective on an ongoing basis.
This effectiveness testing is re-performed 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.
Fair value estimation
The fair value of interest rate swaps is based on a discounted cash flow model using quoted market information.
(p) 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 that 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.
Financial assets classified as available-for-sale is the financial interest in property assets. Derivative financial instruments not in hedge
accounting relationships are classified as fair value through profit and loss.
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77
(q) At fair value through profit or loss financial asset
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.
(r) 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.
(s) 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.
(t) Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less
provision for impairment. A provision for impairment in trade receivables is established when there is objective evidence that the group will
not be able to collect all amounts due. The amount of the provision is the difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the effective interest rate. The movement in the provision is recognised in the income
statement.
(u) Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
(v) 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.
(w) Dividends
Dividend distributions to the company’s shareholders are recognised as a liability in the group financial statements in the period in
which the dividends either are approved by the company’s shareholders or are appropriately authorised and no longer at the discretion
of the group.
(x) 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.
Grainger plc
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Notes to the financial statements continued
1 Accounting policies continued
(y) Acquisition of and investment in own shares
The group acquires its own shares to enable it to meet its obligations under the various share schemes in operation. 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, a transfer is made at the
average cost of the shares issued between the investment in own shares reserve and the share-based payments reserve all within retained
earnings (see note 34).
Where the group buys back its own shares as treasury shares it adopts the accounting as described above. Where it subsequently cancels
them, issued share capital is reduced by the nominal value of the shares cancelled and this same amount is transferred to the capital
redemption reserve.
(z) Impact of standards and interpretations issued
i) New standards and interpretations in the year
At the date of approval of these financial statements, the following interpretations and amendments were issued, endorsed by the EU and
are mandatory for the group for the first time for the financial year beginning 1 October 2010.
International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations
IFRIC 15 ‘Arrangement for construction of real estates’ clarifies when IAS 18 ‘Revenue Recognition’ and IAS 11 ‘Construction contracts’
should be applied to particular transactions.
IFRIC 18 ‘Transfer of assets from customers’ clarifies the accounting for arrangements where an item of property, plant and equipment
that is provided by the customer is used to provide an ongoing service.
IFRIC 19 ‘Extinguishing financial liabilities with equity instruments’ clarifies the accounting when an entity renegotiates the terms of its
debt with the result that the liability is extinguished through the creditor issuing its own equity instruments to the debtor.
Amendments to existing standards
Amendment to IFRS 2 ‘Share-based payment’ was updated to confirm that contribution of a business on the formation of a joint
venture and common control transactions are not within its scope.
Amendment to IFRS 5 ‘Non-current assets held for sale and discontinued operations’ confirmed the disclosure requirements required
under IAS 1 ‘Presentation of Financial Statements’ paragraphs 15 and 125.
Amendment to IFRS 8 ‘Operating Segments’ which removes the automatic requirement to report a measure of total assets for each
reportable segment. Total assets continue to be reported within note 4 of these financial statements as this measure is regularly provided
to the chief operating decision maker.
Amendment to IAS 1 ‘Presentation of Financial Statements’ was updated to clarify the definition of a current liability where
classification is derived from the lack of an unconditional right to defer settlement more than 12 months from the statement of
financial position date.
Amendment to IAS 7 ‘Statement of Cash Flows’ which restricts the eligibility of expenditure for inclusion as investing activity cash flows
to those expenditures which result in recognised assets in the statement of financial position only.
Amendment to IAS 17 ‘Leases’ to remove the presumption that leases of land were operating leases unless title transferred to the lessee
at the end of the lease.
Amendment to IAS 18 ‘Revenue Recognition’ to provide guidance for when an entity is acting as principal or agent. This has not resulted
in any changes in accounting policy for the group.
Amendment to IAS 38 ‘Intangible Assets’ to confirm measurement of intangible assets in business combinations.
Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement’ to confirm the scope of the standard excludes forward
contracts to enter into a business combination and clarify the definition of external parties for hedge accounting.
1 Accounting policies continued
(y) Acquisition of and investment in own shares
Amendments to existing interpretations
Amendment to IFRIC 9 ‘Reassessment of Embedded Derivatives’ to confirm the scope of the interpretation excludes business
The group acquires its own shares to enable it to meet its obligations under the various share schemes in operation. No gain or loss is
combinations.
Annual report and accounts 2011
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Financials
79
Amendment to IFRIC 16 ‘Hedges of a Net Investment in a Foreign Currency’ to remove the restriction that the foreign entity being
hedged may not hold the hedging instrument.
These standards and amendments to these standards and interpretations have had no material financial impact on these financial
statements.
ii) 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:
International Financial Reporting Standards (‘IFRS’)
IFRS 9 ‘Financial Instruments: classification and measurement’ which has two measurement categories: amortised cost and fair value.
All equity instruments are measured at fair value. A debt instrument is measured at amortised cost only if the entity is holding it to
collect contractual cash flows and the cash flows represent principal and interest.
IFRS 10 ‘Consolidated financial statements’ which identifies the concept of control as the determining factor of whether an entity
should be included within the consolidated financial statements.
IFRS 11 ‘Joint arrangements’ includes revised definitions of joint arrangements which focus on the rights and obligations over the legal
form. The standard removes the option of proportional consolidation.
IFRS 12 ‘Disclosure of interests in other entities’ requires disclosure of all interests in other entities.
Amendments to existing standards
IFRS 13 ‘Fair value measurement’ provides a precise definition of fair value and a single source of fair value measurement and disclosure
Amendment to IFRS 2 ‘Share-based payment’ was updated to confirm that contribution of a business on the formation of a joint
requirements.
IAS 27 (revised 2011) ‘Separate Financial Statements’ and IAS 28 (revised 2011) ‘Associates and joint ventures’ include the provisions on
separate financial statements which are not included in IFRS 10.
International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations
IFRIC 14 ‘Prepayments of a minimum funding requirement’ applies only to entities required to make minimum funding contributions to
a defined benefit pension plan.
Amendments to existing standards and interpretations
Annual improvements 2010 covering changes to IFRS 1, IFRS 3, IFRS 7, IAS1, IAS 27, IAS 34 and IFRIC 13.
IAS 24 ‘Related Party Disclosures’ has been amended to remove the requirement for government-related entities to disclose details of all
transactions with the government and other government-related entities and clarifies and simplifies the definition of a related party.
IFRS 7 ‘Financial Instruments: Disclosures’ includes changes to promote transparency in the reporting of transfer transactions and
improve users’ understanding of the risk exposures of transfers of financial assets.
IFRS 1 ‘First time Adoption’ amends fixed dates and includes guidance on implementations affected by hyperinflation.
IAS 12 ‘Income taxes’ introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on
investment property measured at fair value.
IAS 19 ‘Employee benefits’ introduces a requirement to group items presented in Other comprehensive income on the basis of whether
they are potentially recycled to income statement.
Notes to the financial statements continued
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, 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
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
earnings (see note 34).
redemption reserve.
(z) Impact of standards and interpretations issued
i) New standards and interpretations in the year
At the date of approval of these financial statements, the following interpretations and amendments were issued, endorsed by the EU and
are mandatory for the group for the first time for the financial year beginning 1 October 2010.
International Financial Reporting Interpretations Committee (‘IFRIC’) interpretations
IFRIC 15 ‘Arrangement for construction of real estates’ clarifies when IAS 18 ‘Revenue Recognition’ and IAS 11 ‘Construction contracts’
should be applied to particular transactions.
IFRIC 18 ‘Transfer of assets from customers’ clarifies the accounting for arrangements where an item of property, plant and equipment
that is provided by the customer is used to provide an ongoing service.
IFRIC 19 ‘Extinguishing financial liabilities with equity instruments’ clarifies the accounting when an entity renegotiates the terms of its
debt with the result that the liability is extinguished through the creditor issuing its own equity instruments to the debtor.
venture and common control transactions are not within its scope.
Amendment to IFRS 5 ‘Non-current assets held for sale and discontinued operations’ confirmed the disclosure requirements required
under IAS 1 ‘Presentation of Financial Statements’ paragraphs 15 and 125.
Amendment to IFRS 8 ‘Operating Segments’ which removes the automatic requirement to report a measure of total assets for each
reportable segment. Total assets continue to be reported within note 4 of these financial statements as this measure is regularly provided
to the chief operating decision maker.
Amendment to IAS 1 ‘Presentation of Financial Statements’ was updated to clarify the definition of a current liability where
classification is derived from the lack of an unconditional right to defer settlement more than 12 months from the statement of
financial position date.
at the end of the lease.
Amendment to IAS 7 ‘Statement of Cash Flows’ which restricts the eligibility of expenditure for inclusion as investing activity cash flows
to those expenditures which result in recognised assets in the statement of financial position only.
Amendment to IAS 17 ‘Leases’ to remove the presumption that leases of land were operating leases unless title transferred to the lessee
Amendment to IAS 18 ‘Revenue Recognition’ to provide guidance for when an entity is acting as principal or agent. This has not resulted
in any changes in accounting policy for the group.
Amendment to IAS 38 ‘Intangible Assets’ to confirm measurement of intangible assets in business combinations.
Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement’ to confirm the scope of the standard excludes forward
contracts to enter into a business combination and clarify the definition of external parties for hedge accounting.
Grainger plc
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Notes to the financial statements continued
1 Accounting policies continued
All the above IFRSs, IFRIC interpretations and amendments to existing standards are yet to be endorsed by the European Union (‘EU’)
at the date of approval of these financial statements with the exception of IAS 24 and IFRIC 14.
The directors are currently considering the potential impact arising from the future adoption of these standards and interpretations listed
above.
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. The group performs sensitivity analysis as part of the risk management process. Accordingly the
sensitivities applied in the critical accounting estimates and assumptions are relative to the risk assessment and materiality of each balance.
Valuation of residential property
The group’s residential trading property is carried in the balance sheet at the lower of cost and net realisable value. The group’s investment
property is carried in the balance sheet at fair value. The group does, however, in its principal net asset value measures, NAV and NNNAV,
include trading stock at market value. The market value of the group’s property which, in the case of investment property, is the same as
fair value, is established as set out below.
i) The group’s own in-house qualified surveying team provide a vacant possession value for the majority of the group’s UK based property
as at 30 September 2011. A structured sample of these in-house valuations are reviewed by Allsop LLP, an external independent valuer.
Valuing the large number of properties in the portfolio is a significant task. For this reason it is undertaken on an external inspection basis
only. Invariably, when the in-house valuations are compared to those of the external valuer, around 85% 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 as the directors’ valuation. Overall, across all of the properties valued by
Allsop LLP, the directors’ valuations were approximately 1.0% lower than the Allsop LLP values.
Allsop LLP has 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 2011 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 33% of the retirement solutions portfolio, independently
of the group. Based on the results of that review Allsop LLP has concluded that they have a high degree of confidence in those
directors’ valuations.
Allsop LLP also recommend the discount to apply to the vacant possession valuations to establish the market value of each property.
For property in UK residential the discounts are established by tenancy type and are based on evidence gathered by Allsop LLP from
recent transactional market evidence. For property in retirement solutions the discounts recommended by Allsop LLP are on a property-
by-property basis taking into account a number of factors, primarily the estimated period until vacant possession may arise and the
appropriate discount rate.
The directors have adopted all of the recommendations made by Allsop LLP in relation to the discounts.
For the property held in the group balance sheet as investment property, the valuation process as set out above gave a market value of
£187.5m. A net valuation deficit of £4.4m has been taken through the income statement in relation to this property. The remaining
property is held in the group’s balance sheet as trading property at the lower of cost and net realisable value of £839.8m.
ii) All of the property owned by the group in the Grainger GenInvest portfolio and which is now wholly owned (see note 41(ii)) was valued
as at 30 September 2011 by Allsop LLP who are external independent valuers.
Notes to the financial statements continued
1 Accounting policies continued
All the above IFRSs, IFRIC interpretations and amendments to existing standards are yet to be endorsed by the European Union (‘EU’)
at the date of approval of these financial statements with the exception of IAS 24 and IFRIC 14.
The directors are currently considering the potential impact arising from the future adoption of these standards and interpretations listed
above.
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. The group performs sensitivity analysis as part of the risk management process. Accordingly the
sensitivities applied in the critical accounting estimates and assumptions are relative to the risk assessment and materiality of each balance.
Valuation of residential property
The group’s residential trading property is carried in the balance sheet at the lower of cost and net realisable value. The group’s investment
property is carried in the balance sheet at fair value. The group does, however, in its principal net asset value measures, NAV and NNNAV,
include trading stock at market value. The market value of the group’s property which, in the case of investment property, is the same as
fair value, is established as set out below.
i) The group’s own in-house qualified surveying team provide a vacant possession value for the majority of the group’s UK based property
as at 30 September 2011. A structured sample of these in-house valuations are reviewed by Allsop LLP, an external independent valuer.
Valuing the large number of properties in the portfolio is a significant task. For this reason it is undertaken on an external inspection basis
only. Invariably, when the in-house valuations are compared to those of the external valuer, around 85% 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 as the directors’ valuation. Overall, across all of the properties valued by
Allsop LLP, the directors’ valuations were approximately 1.0% lower than the Allsop LLP values.
Allsop LLP has 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 2011 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 33% of the retirement solutions portfolio, independently
of the group. Based on the results of that review Allsop LLP has concluded that they have a high degree of confidence in those
directors’ valuations.
Allsop LLP also recommend the discount to apply to the vacant possession valuations to establish the market value of each property.
For property in UK residential the discounts are established by tenancy type and are based on evidence gathered by Allsop LLP from
recent transactional market evidence. For property in retirement solutions the discounts recommended by Allsop LLP are on a property-
by-property basis taking into account a number of factors, primarily the estimated period until vacant possession may arise and the
appropriate discount rate.
The directors have adopted all of the recommendations made by Allsop LLP in relation to the discounts.
For the property held in the group balance sheet as investment property, the valuation process as set out above gave a market value of
£187.5m. A net valuation deficit of £4.4m has been taken through the income statement in relation to this property. The remaining
property is held in the group’s balance sheet as trading property at the lower of cost and net realisable value of £839.8m.
ii) All of the property owned by the group in the Grainger GenInvest portfolio and which is now wholly owned (see note 41(ii)) was valued
as at 30 September 2011 by Allsop LLP who are external independent valuers.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
81
The aggregate of the market values of the properties at 30 September 2011 was £298.6m, subject to the assumption that the dwellings
would be sold individually, in their existing condition, and subject to any existing leases or tenancies. The valuers opinion of market value
was primarily derived using comparable recent market transactions on arm’s-length terms. Part of the property is held in the group’s
balance sheet as investment property with a market value of £104.9m at 30 September 2011. The remaining property is held in the
group’s balance sheet as trading property at the lower of cost and net realisable value of £184.2m. The net gain on valuation of the
investment property in this portfolio was £3.3m which has been taken through the income statement.
iii) The whole of the property portfolio in Germany was valued at 30 September 2011 by Cushman and Wakefield LLP who are external
independent valuers. The Germany portfolio is virtually all held in the group balance sheet as investment property and has a market value
at 30 September 2011 of €489.3m (£421.4m). The net deficit on valuation of the Germany portfolio was £1.6m which has been taken
through the income statement. The remaining property is held in the group’s balance sheet as trading property at the lower of cost and
net realisable value of €1.1m (£0.9m).
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.
iv) Allsop LLP has also valued as at 30 September 2011 the property assets owned by Tricomm Housing Limited and let under a long-term
lease arrangement with the Secretary of State for Defence under a PFI Project Agreement. Allsop LLP has provided a ‘calculation of worth’
which is defined as ‘the value of a property to a particular owner, investor or class of investors for identified investment or operational
objectives’. The ‘calculation of worth’ has been made in accordance with RICS Valuation Standards, is based on a discounted cash flow
model, and results in a worth of £106.1m as at 30 September 2011. The property is held in the group balance sheet as investment
property at this figure. A gain on valuation of £0.7m since acquisition (see note 41) has been taken through the income statement.
v) The group has a 21.96% interest in G:res which has invested in investment property. Valuations of 100% of the G:res portfolio were
carried out in two parts as at 31 December 2010 and 30 June 2011 by external valuers, Allsop LLP and DTZ Debenham Tie Leung Limited.
In aggregate, the valuation of the individual dwellings at 30 June 2011 was £384.3m. After full consideration of house price movements
in those areas where G:res property assets are situated the group’s directors made no adjustment to the 30 June 2011 valuations, other
than for sales and purchases, in assessing the group’s share of G:res net assets for the purposes of the group’s accounts to 30 September
2011. For every 1% movement in the market value of the G:res investment property the group’s share of the movement would amount
to £0.8m.
All of the external valuers in the UK mentioned above have made full disclosure, as required by RICS Valuation Standards UKVS 4, of the
extent and duration of their work for, and fees earned by them from, the company, which in all cases are less than 5% of their total fees.
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 the valuations carried out by its own in-house qualified surveying team. As stated above, a structured
sample of the in-house valuations was reviewed 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 2011 to write down properties
expected to be sold ultimately at vacant possession value. The provision has been assessed on what the group considers to be reasonable
assumptions. These allow for no change to property prices in 2012 followed by growth in house prices of 2.5% in 2013 with price
increases thereafter in line with conservative historical house price growth rates. The assumptions also allow for an annual vacancy rate of
6.5%. 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 2011 against projected investment sales.
In aggregate a charge of £0.8m has been made in the 2011 income statement (credit of £2.3m in 2010 income statement) to adjust the
book value of trading properties to the lower of cost and net realisable value and at the year end the group is holding a provision of £4.4m
(2010: £3.6m) in its balance sheet.
Grainger plc
82
Notes to the financial statements continued
2 Critical accounting estimates and assumptions continued
Land and property held within the development segment of the business, 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 and property is sold without development, net realisable value is the current market value net of associated selling costs.
The current market value of the group’s land and property held within the development segment has been assessed by Knight Frank LLP
who are external valuers. Their valuation is on the basis of market value as defined in the RICS Valuation Standards.
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 2011 are based upon the current intentions of the directors.
In addition, estimates at 30 September 2011 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 £1.0m has been made in the 2011 income statement (credit of £0.6m in 2010) to adjust 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) above. The key assumptions affecting the
carrying value are house price inflation and the effective interest rate.
The assumptions adopted with regard to house prices are the same as those set out under ‘net realisable value of trading property’ above.
A change of 1% to average house price inflation over the 10-year period from 1 October 2011 would either increase the valuation by
£5.6m or reduce the valuation by £5.8m.
Consideration has been given to the effective interest rate to adopt for the valuation. We have concluded that the effective interest rate as
at 30 September 2011 should be the same as the rate adopted at 30 September 2010 which is 0.85% lower than the effective interest
rate when the financial interest was acquired. A 1% change to the discount rate would either increase the carrying value by £7.2m or
reduce the carrying value by £6.4m.
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.
Income taxes
There are some transactions and calculations that involve a degree of estimation and judgement and whose tax treatment can not 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.
During the year, the group concluded its discussions with HM Revenue & Customs in connection with a number of outstanding tax
matters. Further information is provided in note 14.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
83
Going concern
The directors are required to make an assessment of the group’s ability to continue to trade as a going concern for the foreseeable future.
The directors have given this matter due consideration and have concluded that it is appropriate to prepare the group financial statements
on a going concern basis. The main considerations were as follows:
i) Covenant compliance – The group’s core banking facility has two covenants, being loan to value (‘LTV’) and interest cover. At 30
September 2011 the LTV was 52% compared to a default level of 75% and the interest cover ratio was 3.1 times compared to a
minimum requirement of 1.35 times. The group has other bank debt on which there are also covenant requirements. As at 30 September
2011, the group is operating comfortably within these requirements. The directors have reviewed the group’s financial projections
covering a minimum period of at least 12 months beyond the date of signing of these financial statements, and which include covenant
compliance forecasts. These projections show that the group will comfortably meet its covenant requirements.
ii) Banking facilities – The group’s existing core facilities were £1,093m on 30 September 2011, of which £927m were drawn. The group
had free cash balances plus available overdraft of £48m and undrawn committed facilities of £166m at 30 September 2011. As a result of
securing £50.3m of debt financing from Partnership Assurance on 5 October 2011, the core facilities have since been reduced to
£1,043m, of which £877m were drawn as at 25 November 2011. The new forward start facility of £840m (which will be drawn to replace
the existing facilities by 30 September 2012) together with existing free cash balances of £42m (as at 25 November 2011) will enable the
group to repay the existing core facilities in the course of the current financial year.
In addition to the above, the group is actively engaging with a number of interested lenders to provide additional funding and an
agreement for a further £28.6m of debt financing from Partnership Assurance was concluded on 21 November 2011.
As has been demonstrated over the past few years, the group is able to generate strong cash flows even in very difficult general market
conditions. The group’s cash flow projections confirm that the group will remain well within its facilities for a minimum period of at least
12 months beyond the date of signing of these financial statements.
Notes to the financial statements continued
2 Critical accounting estimates and assumptions continued
Land and property held within the development segment of the business, 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 and property is sold without development, net realisable value is the current market value net of associated selling costs.
The current market value of the group’s land and property held within the development segment has been assessed by Knight Frank LLP
who are external valuers. Their valuation is on the basis of market value as defined in the RICS Valuation Standards.
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 2011 are based upon the current intentions of the directors.
In addition, estimates at 30 September 2011 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 £1.0m has been made in the 2011 income statement (credit of £0.6m in 2010) to adjust 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) above. The key assumptions affecting the
carrying value are house price inflation and the effective interest rate.
The assumptions adopted with regard to house prices are the same as those set out under ‘net realisable value of trading property’ above.
A change of 1% to average house price inflation over the 10-year period from 1 October 2011 would either increase the valuation by
£5.6m or reduce the valuation by £5.8m.
Consideration has been given to the effective interest rate to adopt for the valuation. We have concluded that the effective interest rate as
at 30 September 2011 should be the same as the rate adopted at 30 September 2010 which is 0.85% lower than the effective interest
rate when the financial interest was acquired. A 1% change to the discount rate would either increase the carrying value by £7.2m or
reduce the carrying value by £6.4m.
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.
Income taxes
There are some transactions and calculations that involve a degree of estimation and judgement and whose tax treatment can not 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.
During the year, the group concluded its discussions with HM Revenue & Customs in connection with a number of outstanding tax
matters. Further information is provided in note 14.
Grainger plc
84
Notes to the financial statements continued
3 Analysis of profit/(loss) before tax
The results for the years ended 30 September 2010 and 2011 respectively have been significantly affected by valuation movements and
non-recurring items, although the impact of these items in 2010 was greater than it has been in 2011. The table below provides further
analysis of the consolidated income statement showing the results of trading activities separately from these other items.
2011
2010
Trading
£m
Valuation
£m
Non-
recurring
£m
Total
£m
Trading
£m
Valuation
£m
–
296.2
244.5
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Profit on redemption of equity units
in associate
Finance income from financial interest
in property assets
(Write down)/write back of inventories
to net realisable value
Provision for impairment of loans receivable
net of write-backs
Operating profit before net valuation
deficits on investment property
Net valuation deficits on investment property
Operating profit after net valuation
deficits on investment property
296.2
49.9
72.3
(13.0)
8.0
–
–
1.1
–
7.9
–
–
126.2
–
–
–
–
–
–
16.1
(2.2)
–
–
–
(1.8)
(4.2)
7.9
(2.0)
Fair value movements on derivatives
–
(28.0)
Finance costs
Finance income
Share of profit of associates after tax
Share of profit of joint ventures after tax
Profit/(loss) before tax
(79.0)
2.7
0.2
(1.8)
48.3
–
–
4.2
3.9
(0.8)
–
–
(3.8)
–
–
–
–
–
–
–
49.1
72.3
(13.0)
4.2
16.1
(2.2)
1.1
–
7.9
(1.8)
(4.2)
(4.6)
129.5
–
(2.0)
–
(3.6)
(28.0)
(82.6)
–
–
–
2.7
4.4
2.1
40.8
52.8
(9.2)
5.9
–
–
0.4
1.0
2.5
–
–
94.2
–
94.2
–
(82.2)
5.0
–
(2.3)
14.7
126.2
5.9
(4.6)
127.5
Non-
recurring
£m
–
–
–
Total
£m
244.5
40.8
52.8
(2.0)
(11.2)
–
–
–
–
–
–
–
–
(2.0)
–
(2.0)
–
0.9
–
–
–
5.9
2.8
(1.5)
0.4
1.0
2.5
2.9
(10.7)
85.7
(0.8)
84.9
(39.6)
(81.3)
5.0
5.6
4.6
–
–
–
–
–
2.8
(1.5)
–
–
–
2.9
(10.7)
(6.5)
(0.8)
(7.3)
(39.6)
–
–
5.6
6.9
(14.0)
(8.2)
26.1
(34.4)
(1.1)
(20.8)
The non-recurring charge of £3.8m under ‘other income and expenses’ relates primarily to costs incurred on acquisitions made in the year
and other transaction costs.
The non-recurring charge of £3.6m under ‘Finance costs’ relates to the refinancing carried out in the year.
3 Analysis of profit/(loss) before tax
The results for the years ended 30 September 2010 and 2011 respectively have been significantly affected by valuation movements and
non-recurring items, although the impact of these items in 2010 was greater than it has been in 2011. The table below provides further
analysis of the consolidated income statement showing the results of trading activities separately from these other items.
4 Segmental information
IFRS 8, ‘Operating Segments’ (‘IFRS 8’) requires operating segments to be identified based upon the group’s internal reporting to the chief
operating decision maker (‘CODM’) so that the CODM can make decisions about resources to be allocated to segments and to assess their
performance. The group’s CODM is the chief executive officer.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
85
The group has identified five segments and is treating all of these as reportable segments. The segments are: UK residential; retirement
solutions; fund management and residential investments; UK and European development and German residential. The group has a
segment director responsible for the performance of each of these five segments and the group reports key financial information to the
CODM on the basis of these five segments. Each of these five segments operate within a different part of the overall residential market.
The title ‘All other segments’ has been included in the tables below to reconcile the segments to the figures reviewed by the CODM.
Inter-segment sales, services and property management are charged at prevailing market prices with reference to external contracts
in place.
The measure of profit or loss used by the CODM is the trading profit or loss before valuation gains or deficits on investment property and
excluding all revaluation and non-recurring items as set out in note 3. The CODM reviews by segment two key balance sheet measures of
net asset value. These are gross net asset value (NAV) and triple net asset value (NNNAV).
The adoption of IFRS 8 in the prior year resulted in several changes to the group’s segmental information. Major changes were to combine
UK and European development into a single segment, to change the basis of the segment operating profit/(loss) and to show NAV and
NNNAV by segment in addition to statutory net assets by segment. In the current year we have included segmental information relating to
the previously disclosed Property Services segment within UK residential and fund management and residential investments on the
grounds of materiality as outlined within IFRS 8.
Further information regarding the products and services from which reportable segments derive their revenues is set out on pages 4 to 22
of the Annual report.
Notes to the financial statements continued
2011
2010
Trading
Valuation
recurring
Trading
Valuation
recurring
£m
£m
£m
£m
Non-
£m
296.2
244.5
Profit on disposal of investment property
1.1
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on redemption of equity units
in associate
Finance income from financial interest
in property assets
(Write down)/write back of inventories
to net realisable value
Provision for impairment of loans receivable
net of write-backs
Operating profit before net valuation
Net valuation deficits on investment property
Operating profit after net valuation
Finance costs
Finance income
Share of profit of associates after tax
Share of profit of joint ventures after tax
296.2
49.9
72.3
(13.0)
8.0
7.9
–
–
–
–
–
–
(79.0)
2.7
0.2
(1.8)
48.3
–
–
–
–
–
–
–
–
16.1
(2.2)
(1.8)
(4.2)
7.9
(2.0)
5.9
–
–
4.2
3.9
Non-
£m
(0.8)
(3.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3.6)
Total
£m
49.1
72.3
(13.0)
4.2
16.1
(2.2)
1.1
–
7.9
(1.8)
(4.2)
(2.0)
(28.0)
(82.6)
2.7
4.4
2.1
(2.0)
(11.2)
Total
£m
244.5
40.8
52.8
5.9
2.8
(1.5)
0.4
1.0
2.5
2.9
(10.7)
85.7
(0.8)
84.9
(39.6)
(81.3)
5.0
5.6
4.6
–
–
–
–
–
–
–
–
–
–
–
(2.0)
–
(2.0)
0.9
–
–
–
–
–
–
–
–
–
–
–
–
2.8
(1.5)
2.9
(10.7)
(6.5)
(0.8)
(7.3)
(39.6)
–
–
5.6
6.9
40.8
52.8
(9.2)
5.9
–
–
0.4
1.0
2.5
–
–
–
–
(82.2)
5.0
–
(2.3)
14.7
deficits on investment property
126.2
(4.6)
129.5
94.2
deficits on investment property
126.2
(4.6)
127.5
94.2
Fair value movements on derivatives
–
(28.0)
Profit/(loss) before tax
(14.0)
(8.2)
26.1
(34.4)
(1.1)
(20.8)
The non-recurring charge of £3.8m under ‘other income and expenses’ relates primarily to costs incurred on acquisitions made in the year
and other transaction costs.
The non-recurring charge of £3.6m under ‘Finance costs’ relates to the refinancing carried out in the year.
Grainger plc
86
Notes to the financial statements continued
4 Segmental information continued
Information relating to the group’s operating segments is set out in the tables below.
UK
residential
Retirement
solutions
Fund
management/
residential
investments
UK and
European
development
German
residential
All other
segments
2011 Income statement
(£m)
Group revenue
Segment revenue-external
Segment revenue-internal
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Profit/(loss) on disposal of investment property
Finance income from financial interest in
property assets
Internal recharges
Operating profit before net valuation
deficits on investment property
Net trading interest payable
Share of trading loss of joint ventures and
associates after tax
Trading profit before tax, valuation and
non-recurring items
200.6
25.9
–
29.0
50.9
–
0.5
0.3
–
3.5
84.2
(2.9)
–
3.8
7.4
–
0.5
(0.1)
7.9
(0.8)
18.7
(3.2)
6.3
7.4
–
–
–
6.3
–
–
(2.7)
3.6
1.2
22.8
–
–
14.0
–
0.4
–
–
–
14.4
0.1
–
(0.1)
(1.0)
(0.5)
Write down of inventories to net realisable value
(0.8)
–
Net valuation gains/(deficits) on
investment property
air value
F
movements on derivatives
Provision for impairment of loans receivable net
of write-backs
Net gain on acquisition of subsidiary
Goodwill impairment
Share of valuation gains in joint ventures and
associates after tax
Other net non-recurring items
Profit before tax
4.7
(5.1)
–
–
16.1
(0.9)
–
(2.3)
–
–
–
–
–
(0.1)
–
–
(0.8)
3.3
–
–
8.1
(0.2)
Total
296.2
7.4
49.9
72.3
–
–
–
–
(13.0)
(13.0)
–
–
–
–
8.0
1.1
7.9
–
40.6
–
17.1
–
–
0.3
0.9
–
–
18.3
(13.0)
126.2
(13.9)
(57.6)
(76.3)
–
–
(1.6)
(1.6)
–
–
(1.3)
–
–
–
–
(25.6)
(2.3)
–
–
–
(1.0)
–
–
(5.2)
–
–
–
(0.2)
(0.8)
(4.6)
(1.6)
48.3
(1.8)
(2.0)
(28.0)
(4.2)
16.1
(2.2)
8.1
(8.2)
26.1
Annual report and accounts 2011
Overview
Business review
Governance
Financials
87
Notes to the financial statements continued
4 Segmental information continued
Information relating to the group’s operating segments is set out in the tables below.
2011 Income statement
(£m)
Group revenue
Segment revenue-external
Segment revenue-internal
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Profit/(loss) on disposal of investment property
Finance income from financial interest in
property assets
Internal recharges
Operating profit before net valuation
deficits on investment property
Net trading interest payable
Share of trading loss of joint ventures and
associates after tax
Trading profit before tax, valuation and
non-recurring items
Net valuation gains/(deficits) on
investment property
F
air value
movements on derivatives
Provision for impairment of loans receivable net
of write-backs
Net gain on acquisition of subsidiary
Goodwill impairment
Share of valuation gains in joint ventures and
associates after tax
Other net non-recurring items
Profit before tax
UK
Retirement
residential
German
All other
residential
solutions
investments
development
residential
segments
Total
Fund
management/
UK and
European
200.6
25.9
22.8
40.6
–
29.0
50.9
–
0.5
0.3
–
3.5
84.2
(2.9)
–
–
16.1
(0.9)
–
(2.3)
–
3.8
7.4
–
0.5
(0.1)
7.9
(0.8)
18.7
(3.2)
–
–
–
–
–
–
6.3
7.4
6.3
(2.7)
3.6
1.2
–
–
–
–
–
–
–
–
–
(0.8)
3.3
8.1
(0.2)
14.0
0.4
17.1
0.3
0.9
(13.0)
(13.0)
14.4
0.1
18.3
(13.0)
126.2
(13.9)
(57.6)
(76.3)
–
–
–
–
–
–
–
–
–
–
–
(1.0)
(5.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
296.2
7.4
49.9
72.3
8.0
1.1
7.9
–
(1.6)
48.3
(1.8)
(2.0)
(28.0)
(4.2)
16.1
(2.2)
8.1
(8.2)
26.1
(25.6)
(2.3)
(1.6)
(1.6)
(1.3)
(0.1)
(0.2)
(0.8)
(4.6)
–
(0.1)
(1.0)
(0.5)
Write down of inventories to net realisable value
(0.8)
4.7
(5.1)
2010 Income Statement
(£m)
Group revenue
Segment revenue-external
Segment revenue-internal
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Profit on disposal of investment property
Profit on redemption of equity units in associate
Finance income from financial interest in
property assets
Internal recharges
Operating profit before net valuation
deficits on investment property
Net trading interest payable
Share of trading loss of joint ventures and
associates after tax
Trading profit before tax, valuation and
non-recurring items
Reversal of write down of inventories to net
realisable value
Net valuation gains/(deficits) on
investment property
F
air value
movements on derivatives
Provision for impairment of loans receivable net
of write-backs
Net gain on acquisition of subsidiary
Goodwill impairment
Share of valuation gains in joint ventures and
associates after tax
Other net non-recurring items
Loss before tax
UK
residential
Retirement
solutions
Fund
management/
residential
investments
UK and
European
development
German
residential
All other
segments
155.2
25.6
–
19.2
45.0
–
0.5
0.2
–
–
4.5
69.4
–
–
2.3
5.2
–
–
–
(0.1)
–
–
–
4.1
6.7
–
(0.4)
–
–
2.5
(0.7)
12.2
(3.2)
–
–
(3.4)
–
–
2.8
–
–
–
5.5
7.1
–
–
–
5.5
–
1.0
–
(3.8)
2.7
2.4
19.7
–
0.8
1.1
–
0.1
–
–
–
–
38.5
–
16.7
–
–
0.2
0.2
–
–
–
–
–
–
–
(9.2)
–
–
–
–
–
Total
244.5
7.1
40.8
52.8
(9.2)
5.9
0.4
1.0
2.5
–
2.0
0.1
17.1
(13.9)
(9.2)
(62.6)
94.2
(77.2)
(1.7)
(0.6)
–
–
–
–
–
–
12.5
–
0.6
–
–
(4.9)
–
–
–
–
–
–
(2.6)
(1.5)
–
–
(1.4)
–
–
–
(2.3)
14.7
2.9
(0.8)
(39.6)
–
–
(38.1)
(5.8)
(10.7)
–
–
–
(1.1)
2.8
(1.5)
12.5
(1.1)
(20.8)
Grainger plc
88
Notes to the financial statements continued
4 Segmental information continued
Segmental revenue from external customers is derived as follows:
£255.6m from UK customers (2010: £206.0m)
£40.6m from Germany (2010: £38.5m). There are no other material revenue streams from external customers in foreign countries.
Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance
contracts are located as follows:
£462.9m within the UK (2010: £319.1m)
£422.0m in Germany (2010: £442.7m)
The majority of the group’s properties are held as trading stock and are therefore shown in the statutory balance sheet at the lower cost
and net realisable value. This does not reflect the market value of the assets and, accordingly, our key balance sheet measures of net asset
value includes trading stock at market value. The two principal net asset value measures reviewed by the CODM are gross net asset value
(‘NAV’) and triple net asset value (‘NNNAV’).
NAV is the statutory net assets plus the adjustment required to increase the value of trading stock from its statutory accounts value of
the lower of cost and net realisable value, to its market value. In addition, the statutory balance sheet amounts for both deferred tax
on property revaluations and derivative financial instruments net of deferred tax, including those in joint ventures and associates, are
added back to statutory net assets. Finally, the market value of Grainger plc shares owned by the group are added back to statutory
net assets.
NNNAV reverses some of the adjustments made between statutory net assets and NAV. All of the adjustments for the value of derivative
financial instruments net of deferred tax, including those in joint ventures and associates, are reversed. The adjustment for the deferred tax
on property revaluations is also reversed. In addition, adjustments are made to net assets to reflect the fair value, net of deferred tax, of the
group’s fixed rate debt and to deduct from net assets the contingent tax calculated by applying the expected rate of tax to the adjustment
to increase the value of trading stock from its statutory accounts value of the lower of cost and net realisable value, to its market value.
These measures are set out below by segment along with a reconciliation to the summarised statutory balance sheet.
2011 Segment net assets
(£m)
Total segment net
assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
UK
residential
Retirement
solutions
Fund
management/
residential
investments
UK and
European
development
German
residential
All other
segments
886.9
1,227.3
1,112.2
385.0
437.7
414.3
37.6
41.0
37.6
84.1
72.3
75.3
132.8
(1,139.0)
151.4
(1,029.7)
132.7
(1,133.9)
Total
387.4
900.0
638.2
Notes to the financial statements continued
4 Segmental information continued
Segmental revenue from external customers is derived as follows:
£255.6m from UK customers (2010: £206.0m)
contracts are located as follows:
£462.9m within the UK (2010: £319.1m)
£422.0m in Germany (2010: £442.7m)
£40.6m from Germany (2010: £38.5m). There are no other material revenue streams from external customers in foreign countries.
Non-current assets other than financial instruments, deferred tax assets, post-employment benefit assets and rights arising under insurance
The majority of the group’s properties are held as trading stock and are therefore shown in the statutory balance sheet at the lower cost
and net realisable value. This does not reflect the market value of the assets and, accordingly, our key balance sheet measures of net asset
value includes trading stock at market value. The two principal net asset value measures reviewed by the CODM are gross net asset value
(‘NAV’) and triple net asset value (‘NNNAV’).
NAV is the statutory net assets plus the adjustment required to increase the value of trading stock from its statutory accounts value of
the lower of cost and net realisable value, to its market value. In addition, the statutory balance sheet amounts for both deferred tax
on property revaluations and derivative financial instruments net of deferred tax, including those in joint ventures and associates, are
added back to statutory net assets. Finally, the market value of Grainger plc shares owned by the group are added back to statutory
net assets.
NNNAV reverses some of the adjustments made between statutory net assets and NAV. All of the adjustments for the value of derivative
financial instruments net of deferred tax, including those in joint ventures and associates, are reversed. The adjustment for the deferred tax
on property revaluations is also reversed. In addition, adjustments are made to net assets to reflect the fair value, net of deferred tax, of the
group’s fixed rate debt and to deduct from net assets the contingent tax calculated by applying the expected rate of tax to the adjustment
to increase the value of trading stock from its statutory accounts value of the lower of cost and net realisable value, to its market value.
These measures are set out below by segment along with a reconciliation to the summarised statutory balance sheet.
2011 Segment net assets
(£m)
Total segment net
assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
UK
Retirement
residential
German
All other
residential
solutions
investments
development
residential
segments
Total
Fund
management/
UK and
European
886.9
1,227.3
1,112.2
385.0
437.7
414.3
37.6
41.0
37.6
84.1
72.3
75.3
132.8
(1,139.0)
151.4
(1,029.7)
132.7
(1,133.9)
387.4
900.0
638.2
2011 Reconciliation of NAV measures
(£m)
Investment property
CHARM
Trading stock
JV/Associates
Cash
Deferred tax
Derivatives
Other assets
Total assets
External debt
Derivatives
Deferred tax
Other liabilities
Total liabilities
Net assets
Annual report and accounts 2011
Overview
Business review
Governance
Financials
89
Statutory
balance
sheet
Adjustments to
market value,
deferred tax
and derivatives
Deferred and
contingent tax
Derivatives
Gross NAV
balance
sheet
819.9
102.3
–
–
344.0
1,449.1
0.4
–
(39.7)
(0.2)
6.4
310.9
58.9
90.9
3.0
–
31.2
2,555.3
–
(1,544.7)
154.5
47.2
–
201.7
512.6
–
(0.5)
(110.1)
(1,655.3)
900.0
Triple NAV
balance
sheet
819.9
102.3
1,449.1
54.3
90.9
46.2
0.2
31.2
2,594.1
–
–
–
(4.6)
–
43.2
0.2
–
38.8
–
(1,544.7)
(168.4)
–
–
(168.4)
(129.6)
(168.4)
(132.7)
(110.1)
(1,955.9)
638.2
–
–
–
–
–
–
–
–
–
–
–
(132.2)
–
(132.2)
(132.2)
819.9
102.3
1,105.1
58.5
90.9
42.7
0.2
24.8
2,244.4
(1,544.7)
(154.5)
(47.7)
(110.1)
(1,857.0)
387.4
Grainger plc
90
Notes to the financial statements continued
4 Segmental information continued
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
UK residential
portfolio
Retirement
solutions
Fund
management/
residential
investments
UK and
European
development
German
residential
All other
segments
30 September 2011
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
320.9
–
–
–
5.3
77.6
–
19.3
102.3
–
Inventories – trading property
1,081.1
294.6
Trade and other receivables
Cash and cash equivalents
Property, plant and equipment
Deferred tax asset
Derivative financial instruments
Value of own shares held
1.4
19.3
–
2.1
–
–
1.9
1.1
–
2.9
–
–
–
34.6
–
–
–
–
2.8
0.4
–
–
–
–
–
–
–
–
–
72.5
5.9
0.2
–
1.5
–
–
421.4
–
0.4
–
–
0.9
2.6
25.8
0.2
0.1
0.1
–
–
–
–
–
–
–
3.7
44.1
1.0
39.6
0.1
6.4
Total
819.9
34.6
19.7
102.3
5.3
1,449.1
18.3
90.9
1.2
46.2
0.2
6.4
Total segment NNNAV assets
1,430.1
499.7
37.8
80.1
451.5
94.9
2,594.1
NNNAV liabilities
Interest-bearing loans and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities and charges
Deferred and contingent tax liabilities
Derivative financial instruments
Total segment NNNAV liabilities
193.0
8.8
–
–
–
116.1
–
317.9
32.4
27.8
–
–
–
13.4
11.8
85.4
Net NNNAV assets
1,112.2
414.3
–
0.2
–
–
–
–
–
0.2
37.6
–
7.8
–
–
–
(3.0)
–
4.8
287.4
1,031.9
1,544.7
8.3
–
–
–
5.9
17.2
27.5
4.5
24.6
0.6
0.3
139.4
80.4
4.5
24.6
0.6
132.7
168.4
318.8
1,228.8
1,955.9
75.3
132.7
(1,133.9)
638.2
Inventories – trading property
1,081.1
294.6
Notes to the financial statements continued
4 Segmental information continued
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
UK residential
Retirement
residential
German
All other
portfolio
solutions
investments
development
residential
segments
Total
Fund
management/
UK and
European
30 September 2011
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Trade and other receivables
Cash and cash equivalents
Property, plant and equipment
Deferred tax asset
Derivative financial instruments
Value of own shares held
NNNAV liabilities
Interest-bearing loans and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities and charges
Deferred and contingent tax liabilities
Derivative financial instruments
Total segment NNNAV liabilities
320.9
77.6
–
–
–
5.3
1.4
19.3
2.1
–
–
–
193.0
8.8
–
–
–
–
116.1
317.9
–
–
–
–
–
–
–
–
19.3
102.3
1.9
1.1
2.9
32.4
27.8
13.4
11.8
85.4
34.6
2.8
0.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
421.4
0.4
–
–
–
0.9
2.6
25.8
0.2
0.1
0.1
–
–
–
–
5.9
17.2
–
–
–
–
–
–
3.7
44.1
1.0
39.6
0.1
6.4
819.9
34.6
19.7
102.3
5.3
1,449.1
18.3
90.9
1.2
46.2
0.2
6.4
27.5
4.5
24.6
0.6
0.3
139.4
80.4
4.5
24.6
0.6
132.7
168.4
72.5
5.9
0.2
1.5
–
–
–
–
–
–
–
–
–
–
–
–
–
(3.0)
4.8
75.3
0.2
7.8
8.3
287.4
1,031.9
1,544.7
Net NNNAV assets
1,112.2
414.3
0.2
37.6
318.8
1,228.8
1,955.9
132.7
(1,133.9)
638.2
Total segment NNNAV assets
1,430.1
499.7
37.8
80.1
451.5
94.9
2,594.1
Annual report and accounts 2011
Overview
Business review
Governance
Financials
91
2010 Segment net assets
(£m)
Total segment net
assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
2010 Reconciliation of NAV measures
(£m)
Investment property
CHARM
Trading stock
JV/Associates
Cash
Deferred tax
Assets held for sale
Other assets
Total assets
External debt
Derivatives
Deferred Tax
Liabilities held for sale
Other liabilities
Total liabilities
Net assets
UK
residential
Retirement
solutions
Fund
management/
residential
investments
UK and
European
development
German
residential
All other
segments
781.8
1,115.5
993.3
403.4
459.6
433.3
108.6
114.5
111.1
88.3
73.5
76.0
131.4
(1,168.2)
152.5
(1,083.8)
131.2
(1,163.3)
Statutory
balance
sheet
Adjustments to
market value,
deferred tax and
derivatives
634.7
103.9
989.9
119.6
91.5
38.4
70.7
24.8
2,073.5
(1,417.3)
(128.3)
(52.6)
(34.1)
(95.9)
(1,728.2)
345.3
–
–
331.5
2.8
–
(36.5)
–
6.6
304.4
–
128.3
53.8
–
–
182.1
486.5
Gross NAV
balance
sheet
634.7
103.9
1,321.4
122.4
91.5
1.9
70.7
31.4
2,377.9
(1,417.3)
–
1.2
(34.1)
(95.9)
(1,546.1)
831.8
Deferred and
contingent tax
Derivatives
–
–
–
–
–
–
–
–
–
–
–
(142.1)
–
–
(142.1)
(142.1)
–
–
–
(7.0)
–
40.0
–
–
33.0
–
(141.1)
–
–
–
(141.1)
(108.1)
Total
345.3
831.8
581.6
Triple NAV
balance
sheet
634.7
103.9
1,321.4
115.4
91.5
41.9
70.7
31.4
2,410.9
(1,417.3)
(141.1)
(140.9)
(34.1)
(95.9)
(1,829.3)
581.6
Grainger plc
92
Notes to the financial statements continued
4 Segmental information continued
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
30 September 2010
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Inventories – trading property
Trade and other receivables
Cash and cash equivalents
Property, plant and equipment
Deferred Tax asset
Assets held for sale
Value of own shares held
UK
residential
portfolio
Retirement
solutions
Fund
management/
residential
investments
UK and
European
development
German
residential
All other
segments
110.0
84.0
–
–
–
6.2
–
–
103.9
–
958.6
289.5
3.3
(0.8)
–
–
–
–
1.9
0.8
–
2.7
70.7
–
–
28.7
79.9
–
–
–
–
–
–
–
–
–
–
–
5.2
–
–
72.1
6.0
0.3
–
–
–
–
440.7
–
1.7
–
–
1.2
2.5
13.4
0.3
0.1
–
–
–
–
–
–
–
–
3.5
77.8
1.0
39.1
–
6.6
Total
634.7
28.7
86.8
103.9
6.2
1,321.4
17.2
91.5
1.3
41.9
70.7
6.6
Total segment NNAV assets
1,077.3
553.5
108.6
83.6
459.9
128.0
2,410.9
NNNAV liabilities
Interest-bearing loans
and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities
and charges
Deferred and contingent
tax liabilities
Derivative financial instruments
Liabilities held for sale
Total segment NNNAV liabilities
Net NNNAV assets
–
5.8
–
–
–
78.2
–
–
84.0
993.3
34.6
26.1
–
–
–
15.3
10.1
34.1
120.2
433.3
–
–
–
–
–
–
10.1
–
–
–
(2.5)
(2.5)
–
–
(2.5)
111.1
–
–
7.6
76.0
297.3
1,085.4
1,417.3
6.7
–
–
–
2.6
22.1
–
12.6
6.0
27.8
61.3
6.0
27.8
0.8
0.8
49.8
108.9
–
140.9
141.1
34.1
328.7
1,291.3
1,829.3
131.2
(1,163.3)
581.6
Notes to the financial statements continued
4 Segmental information continued
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
UK
residential
Retirement
Fund
management/
residential
UK and
European
portfolio
solutions
investments
development
residential
German
All other
segments
5 Group revenue
Gross rental income (see note 6)
Service charge income on a principal basis (see note 6)
Proceeds from sale of trading property (see note 7)
Management fee and other income (see note 10)
Annual report and accounts 2011
Overview
Business review
Governance
Financials
93
2011
£m
86.3
10.1
191.8
8.0
296.2
2010
£m
75.6
7.2
155.1
6.6
244.5
Proceeds from sale of trading property are before deducting fees on sale of trading property of £4.5m (2010: £4.1m) included within
note 7.
6 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 9)
2011
£m
86.3
10.1
(22.4)
(11.6)
(13.3)
49.1
2010
£m
75.6
7.2
(19.9)
(10.0)
(12.1)
40.8
There are no contingent rents recognised within net rental income in 2011 and 2010 relating to properties where the group acts as a
lessor of assets under operating leases.
5.8
10.1
6.7
7 Profit on disposal of trading property
Proceeds from sale of trading property
Carrying value of trading property sold
Other sales costs (see note 9)
8 Profit on disposal of investment property
Proceeds from sale of investment property
Carrying value of investment property sold
2011
£m
187.3
(108.2)
(6.8)
72.3
2011
£m
24.6
(23.5)
1.1
2010
£m
151.0
(90.8)
(7.4)
52.8
2010
£m
9.9
(9.5)
0.4
30 September 2010
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Inventories – trading property
Trade and other receivables
Cash and cash equivalents
Property, plant and equipment
Deferred Tax asset
Assets held for sale
Value of own shares held
NNNAV liabilities
Interest-bearing loans
and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities
and charges
Deferred and contingent
tax liabilities
Derivative financial instruments
Liabilities held for sale
Total segment NNNAV liabilities
Net NNNAV assets
Total
634.7
28.7
86.8
103.9
6.2
1,321.4
17.2
91.5
1.3
41.9
70.7
6.6
–
–
–
–
–
–
3.5
77.8
1.0
39.1
–
6.6
440.7
1.7
–
–
–
1.2
2.5
13.4
0.3
0.1
–
–
297.3
1,085.4
1,417.3
12.6
6.0
27.8
61.3
6.0
27.8
0.8
0.8
–
–
–
2.6
22.1
–
49.8
108.9
–
140.9
141.1
34.1
5.2
72.1
6.0
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
110.0
84.0
28.7
79.9
958.6
289.5
–
–
–
6.2
3.3
(0.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
103.9
1.9
0.8
–
2.7
70.7
–
34.6
26.1
–
–
–
15.3
10.1
34.1
120.2
433.3
78.2
(2.5)
(2.5)
84.0
993.3
(2.5)
111.1
7.6
76.0
328.7
1,291.3
1,829.3
131.2
(1,163.3)
581.6
Total segment NNAV assets
1,077.3
553.5
108.6
83.6
459.9
128.0
2,410.9
Grainger plc
94
Notes to the financial statements continued
9 Administrative expenses
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:
Total group expenses
Property operating expenses (see note 6)
Costs directly attributable to the disposal of trading property (see note 7)
Administrative expenses
10 Other income and expenses
Property and asset management fee income
Crop store and agricultural income
Other sundry income
Cost on acquisition of subsidiary undertakings
Other sundry expenses
11 Employees
Wages and salaries
Termination benefits
Social security costs
Other pension costs – defined contribution scheme (see note 28)
Share-based payments (see note 32)
2011
£m
33.1
2011
£m
13.3
6.8
13.0
33.1
2011
£m
6.9
–
1.1
(2.4)
(1.4)
4.2
2011
£m
13.9
0.2
1.3
0.8
2.0
18.2
2010
£m
30.7
2010
£m
12.1
7.4
11.2
30.7
2010
£m
5.5
0.3
0.8
(0.7)
–
5.9
2010
£m
11.7
2.1
1.2
0.7
1.3
17.0
Interest on net pension scheme liabilities amounted to £0.3m in 2011 (2010: £0.3m) and is included within finance costs (see note 13).
Notes to the financial statements continued
Total group expenses
Property operating expenses (see note 6)
Costs directly attributable to the disposal of trading property (see note 7)
Administrative expenses
10 Other income and expenses
Property and asset management fee income
Crop store and agricultural income
Other sundry income
Cost on acquisition of subsidiary undertakings
Other sundry expenses
11 Employees
Wages and salaries
Termination benefits
Social security costs
Other pension costs – defined contribution scheme (see note 28)
Share-based payments (see note 32)
2011
£m
33.1
2011
£m
13.3
6.8
13.0
33.1
2011
£m
6.9
–
1.1
(2.4)
(1.4)
4.2
2011
£m
13.9
0.2
1.3
0.8
2.0
18.2
2010
£m
30.7
2010
£m
12.1
7.4
11.2
30.7
2010
£m
5.5
0.3
0.8
(0.7)
–
5.9
2010
£m
11.7
2.1
1.2
0.7
1.3
17.0
Interest on net pension scheme liabilities amounted to £0.3m in 2011 (2010: £0.3m) and is included within finance costs (see note 13).
9 Administrative expenses
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:
The average monthly number of group employees during the year (including executive directors) was:
UK tenanted residential
UK development
European tenanted residential
2011
Number
2010
Number
258
6
10
274
238
4
12
254
Annual report and accounts 2011
Overview
Business review
Governance
Financials
95
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 54 to 56.
Key management compensation
Salaries and short-term employee benefits
Termination benefits
Post-employment benefits
Share-based payments
2011
£m
4.0
0.2
0.3
0.9
5.4
2010
£m
3.0
–
0.2
0.4
3.6
Key management figures shown include both the executive and non-executive directors as well as senior managers who are members of
the operations board.
12 Profit/(loss) before tax
Profit/(loss) before tax is stated after charging/(crediting):
Depreciation on fixtures, fittings and equipment (see note 18)
Impairment of goodwill (see note 22)
Net gain on acquisition of subsidiary (see note 41)
Bad debt expense
Foreign exchange (gains)/losses
Operating lease payments
Auditors’ remuneration – Audit fees
Auditors’ remuneration – Other fees
2011
£m
0.6
2.2
(16.1)
0.7
(0.8)
1.6
0.1
0.5
2010
£m
0.7
1.5
(2.8)
1.4
1.0
1.7
0.1
0.8
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 two to eleven years.
Rent reviews generally take place every five years. Contract hire car leases generally have a three-year term. There are no other significant
operating lease arrangements requiring disclosure under IAS 17. The group’s operating lease commitments are shown in note 38.
Grainger plc
96
Notes to the financial statements continued
12 Profit/(loss) before tax continued
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 company’s annual accounts
Fees payable to the company’s auditors and their associates for other services to the group:
The audit of the company’s subsidiaries pursuant to legislation
Total Audit fees
Other fees
Tax services
Other services
Total Other fees
Total fees
2011
£’000
2010
£’000
146
122
268
90
227
317
585
146
131
277
205
382
587
864
During the year, £90,000 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 £227,000 was paid for other services, the main element of which was
£185,000 relating to financial due diligence work on acquisitions made by the group during the year. These fees were one-off in nature.
Notes to the financial statements continued
12 Profit/(loss) before tax continued
The remuneration paid to PricewaterhouseCoopers LLP, the group’s principal auditors, is disclosed below:
13 Finance costs and income
Fees payable to the company’s auditors for the audit of the company’s annual accounts
Fees payable to the company’s auditors and their associates for other services to the group:
The audit of the company’s subsidiaries pursuant to legislation
Auditors’ remuneration
Audit fees
Total Audit fees
Other fees
Tax services
Other services
Total Other fees
Total fees
2011
£’000
2010
£’000
146
122
268
90
227
317
585
146
131
277
205
382
587
864
During the year, £90,000 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 £227,000 was paid for other services, the main element of which was
£185,000 relating to financial due diligence work on acquisitions made by the group during the year. These fees were one-off in nature.
Finance costs
Bank loans and mortgages
Non-bank Financial Institution
Convertible bond
Other finance costs
Foreign exchange (gains)/losses on financing activities
Loan issue costs – amortisation and write-off
Interest on net pension scheme liabilities (see note 28)
Finance income
Interest receivable from associates and joint ventures (see note 36)
Bank deposits
Net finance costs
14 Taxation
Current tax
Corporation tax on profits
Adjustments relating to prior years
Deferred tax
Origination and reversal of temporary differences
Adjustments relating to prior years
Income tax credit for the year
Annual report and accounts 2011
Overview
Business review
Governance
Financials
97
2011
£m
71.9
2.8
1.7
2.9
(0.8)
3.8
0.3
82.6
1.2
1.5
2.7
79.9
2011
£m
11.9
(11.3)
0.6
(8.4)
(5.2)
(13.6)
(13.0)
2010
£m
75.0
–
1.7
0.1
1.0
3.2
0.3
81.3
2.4
2.6
5.0
76.3
2010
£m
4.1
(4.2)
(0.1)
(12.3)
2.4
(9.9)
(10.0)
During the year ended 30 September 2011, the group concluded its discussions with HM Revenue & Customs in connection with
a number of outstanding tax matters. This has resulted in a non-recurring exceptional credit of £10.2m within the prior year tax credits
of £16.5m. The balance of £6.3m relates to the agreement that capital losses are available to reduce deferred tax on investment property
revaluations, giving a credit of £2.8m, the settlement of overseas tax positions, giving a credit of £2.6m, and a credit of £0.9m in respect
of the deficit on the BPT Limited pension scheme.
The group works in an open and transparent manner and maintains a regular dialogue with HM Revenue & Customs. This approach is
consistent with the ‘low risk’ rating we have been awarded by HM Revenue & Customs and to which the group is committed.
Grainger plc
98
Notes to the financial statements continued
14 Taxation continued
Movements in taxation during the year are set out below:
2011 Movement in taxation
Current tax
Deferred tax
Trading property uplift to fair value
on acquisition
Investment property revaluation
Accelerated capital allowances
Short-term temporary differences
Actuarial deficit on BPT Limited
pension scheme
Equity component
of available-for-sale financial asset
Fair value movement in cash flow
hedges and exchange adjustments
Total tax – 2011 movement
2010 Movement in taxation
Current tax
Deferred tax
Trading property uplift to fair value
on acquisition
Investment property revaluation
Accelerated capital allowances
Short-term temporary differences
Actuarial deficit on BPT Limited
pension scheme
Equity component
of available-for-sale financial asset
Fair value movement in cash flow
hedges and exchange adjustments
Total tax – 2010 movement
Opening
balance
£m
Payments
made in
the year
£m
Acquired
in
the year
£m
Movements
recognised
in income
£m
Exchange
adjustments
£m
Movements
recognised
in other
comprehensive
income
£m
Closing
balance
£m
27.8
(4.4)
0.7
0.6
(0.1)
–
24.6
41.5
9.2
0.4
(21.6)
(0.5)
1.5
(16.3)
14.2
42.0
–
–
–
–
–
–
–
–
(4.4)
–
1.2
1.0
–
–
–
(2.3)
(0.1)
0.6
(3.7)
(3.2)
(0.1)
(6.6)
–
–
–
(13.6)
(13.0)
–
–
–
–
–
–
–
–
(0.1)
–
–
–
–
37.8
7.2
1.3
(28.2)
0.3
(0.2)
(0.1)
1.4
4.3
4.5
4.5
(14.3)
5.0
29.6
Opening
balance
£m
Repayments
received in
the year
£m
Transfers
£m
Acquired in
the year
£m
Movements
recognised in
income
£m
Exchange
adjustments
£m
Movements
recognised
in other
comprehensive
income
£m
Closing
balance
£m
24.4
3.6
–
0.1
(0.1)
(0.2)
–
27.8
42.0
9.4
0.4
(14.8)
(0.4)
0.7
(16.2)
21.1
45.5
–
–
–
–
–
–
–
–
3.6
0.3
–
–
(0.3)
–
–
–
–
–
2.4
–
–
–
–
–
–
(3.2)
(0.2)
–
(6.5)
–
–
–
2.4
2.5
(9.9)
(10.0)
–
–
–
–
–
–
(0.1)
(0.1)
(0.3)
–
–
–
–
41.5
9.2
0.4
(21.6)
(0.1)
(0.5)
0.8
1.5
–
(16.3)
0.7
0.7
14.2
42.0
14 Taxation continued
Movements in taxation during the year are set out below:
The tax credit for the year of £13.0m (2010: credit of £10.0m) comprises:
Payments
Acquired
Movements
Opening
balance
made in
the year
in
recognised
Exchange
comprehensive
the year
in income
adjustments
income
UK taxation
Overseas taxation
£m
27.8
£m
(4.4)
Annual report and accounts 2011
Overview
Business review
Governance
Financials
99
2011
£m
(11.5)
(1.5)
(13.0)
2010
£m
(8.6)
(1.4)
(10.0)
The main rate of Corporation Tax in the UK changed from 28% to 26% with effect from 1 April 2011 and will change to 25%
from 1 April 2012. Accordingly the group’s profits for this accounting period are taxed at an effective rate of 27% and should be taxed
at 25.5% in the 2012 period. The change in tax rate has resulted in a £0.8m credit to the income statement in the current year.
The tax credit for the year is different to the charge for the year derived by applying the standard rate of corporation tax in the UK of 27%
(2010: 28%) to the profit/(loss) before tax. The differences are explained below:
0.3
(0.2)
Profit/(loss) before tax
(0.1)
1.4
Expenses not deductible for tax purposes
Profit/(loss) before tax at a rate of 27% (2010: 28%)
(13.6)
(13.0)
(0.1)
4.3
4.5
4.5
(14.3)
5.0
29.6
Goodwill credit not taxable
Impact of tax rate change
Other losses and non-taxable items
Adjustment in respect of prior periods
Total income tax credit in the income statement (see above)
2011
£m
26.1
7.0
1.8
(3.8)
(0.8)
(0.7)
(16.5)
(13.0)
2010
£m
(20.8)
(5.8)
2.0
(0.4)
(0.9)
(3.0)
(1.9)
(10.0)
As shown in note 29, deferred tax has been taken directly to other comprehensive income in relation to the actuarial gain or loss on the
BPT Limited pension scheme, the equity component of available-for-sale financial assets and the fair value movement in cash flow hedges
and exchange adjustments. The tax effect is shown separately within the statement of other comprehensive income on page 63.
Factors that may affect future tax charges
In addition to the changes in rates of Corporation Tax disclosed above, a number of changes to the UK Corporation Tax system are
proposed. Further reductions to the main rate are proposed to reduce the rate by 1% per annum to 23% from 1 April 2014. These further
changes have not been substantively enacted at the balance sheet date and, therefore, are not included in these financial statements.
The effect of the changes expected to be enacted would be to increase the deferred tax liability provided at the balance sheet date by
£0.1m. This £0.1m increase in the deferred tax liability would increase profit by £0.4m and decrease other comprehensive income by
£0.5m. This increase in the deferred tax liability is due to the reduction in the corporation tax rate from 25% to 23% by 1 April 2014.
Notes to the financial statements continued
Total tax – 2011 movement
(4.4)
2011 Movement in taxation
Current tax
Deferred tax
on acquisition
Trading property uplift to fair value
Investment property revaluation
Accelerated capital allowances
Short-term temporary differences
Actuarial deficit on BPT Limited
pension scheme
Equity component
of available-for-sale financial asset
Fair value movement in cash flow
hedges and exchange adjustments
2010 Movement in taxation
Current tax
Deferred tax
on acquisition
Trading property uplift to fair value
Investment property revaluation
Accelerated capital allowances
Short-term temporary differences
Actuarial deficit on BPT Limited
pension scheme
Equity component
of available-for-sale financial asset
Fair value movement in cash flow
hedges and exchange adjustments
Movements
recognised
in other
Closing
balance
£m
24.6
£m
–
–
–
–
–
37.8
7.2
1.3
(28.2)
£m
0.7
–
1.2
1.0
–
–
–
(2.3)
(0.1)
0.6
–
–
–
–
–
–
£m
0.6
(3.7)
(3.2)
(0.1)
(6.6)
–
–
–
£m
(0.1)
(3.2)
(0.2)
(6.5)
–
–
–
–
£m
(0.1)
–
–
–
–
–
–
–
–
£m
(0.2)
–
–
–
–
–
–
(0.1)
(0.1)
(0.3)
41.5
9.2
0.4
(21.6)
(0.5)
1.5
(16.3)
14.2
42.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
–
–
–
–
–
–
–
the year
Transfers
the year
income
adjustments
income
Acquired in
recognised in
Exchange
comprehensive
Movements
Repayments
received in
Opening
balance
£m
24.4
£m
3.6
£m
–
£m
0.1
Movements
recognised
in other
0.3
2.4
42.0
9.4
0.4
(14.8)
(0.4)
0.7
(16.2)
21.1
45.5
Closing
balance
£m
27.8
£m
–
–
–
–
–
41.5
9.2
0.4
(21.6)
(0.1)
(0.5)
0.8
1.5
–
(16.3)
0.7
0.7
14.2
42.0
Total tax – 2010 movement
3.6
2.4
2.5
(9.9)
(10.0)
Grainger plc
100
Notes to the financial statements continued
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 2009 – 1.29p per share
Interim dividend for the year ended 30 September 2010 – 0.5p per share
Final dividend for the year ended 30 September 2010 – 1.20p per share
2011
£m
–
–
4.9
4.9
2010
£m
5.3
2.1
–
7.4
The directors took the decision to return cash to shareholders by way of a share buyback rather than by paying an interim dividend
for 2011 and a tender offer of 1 for every 238 shares at 149p was announced in May 2011. Pursuant to the tender offer a total of
1,484,890 ordinary shares were tendered at a price of 149p per share and were purchased by the company in June 2011 for £2.2m.
This was equivalent to 0.53p per share.
A final dividend in respect of the year ended 30 September 2011 of 1.30p per share amounting to £5.3m will be proposed
at the 2012 Annual General Meeting. If approved, this dividend will be paid on 10 February 2012 to shareholders on the register
at close of business on 9 December 2011.
16 Earnings/(loss) per share
Basic
Basic earnings/(loss) per share is calculated by dividing the profit or loss attributable to the owners 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’) and deferred bonus plan (‘DBP’).
Diluted
Diluted earnings/(loss) per share is calculated by adjusting the weighted average number of shares in issue 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 and DBP, based upon the number of shares that would be issued if 30 September 2011 was the end
of the contingency period. The profit/(loss) 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, they are excluded from the calculation of diluted
earnings/(loss) per share.
Notes to the financial statements continued
15 Dividends
below:
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
Ordinary dividends on equity shares:
Final dividend for the year ended 30 September 2009 – 1.29p per share
Interim dividend for the year ended 30 September 2010 – 0.5p per share
Final dividend for the year ended 30 September 2010 – 1.20p per share
The directors took the decision to return cash to shareholders by way of a share buyback rather than by paying an interim dividend
for 2011 and a tender offer of 1 for every 238 shares at 149p was announced in May 2011. Pursuant to the tender offer a total of
1,484,890 ordinary shares were tendered at a price of 149p per share and were purchased by the company in June 2011 for £2.2m.
This was equivalent to 0.53p per share.
A final dividend in respect of the year ended 30 September 2011 of 1.30p per share amounting to £5.3m will be proposed
at the 2012 Annual General Meeting. If approved, this dividend will be paid on 10 February 2012 to shareholders on the register
at close of business on 9 December 2011.
16 Earnings/(loss) per share
Basic
Basic earnings/(loss) per share is calculated by dividing the profit or loss attributable to the owners 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’) and deferred bonus plan (‘DBP’).
Diluted
Diluted earnings/(loss) per share is calculated by adjusting the weighted average number of shares in issue 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 and DBP, based upon the number of shares that would be issued if 30 September 2011 was the end
of the contingency period. The profit/(loss) 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, they are excluded from the calculation of diluted
earnings/(loss) per share.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
101
30 September 2011
30 September 2010
Profit
for the
year
£m
Weighted
average
number
of shares
(thousands)
Earnings
per share
pence
Loss
for the
year
£m
Weighted
average
number
of shares
(thousands)
Loss
per share
pence
39.1
410,003
9.5
(10.8)
375,687
(2.9)
Basic earnings/(loss) per share
Profit/(loss) attributable
to equity holders
Effect of potentially
dilutive securities
Share options and contingent shares
–
5,472
(0.1)
–
–
–
2011
£m
–
–
4.9
4.9
2010
£m
5.3
2.1
–
7.4
39.1
415,475
9.4
(10.8)
375,687
(2.9)
Diluted earnings/(loss) per share
Profit/(loss) attributable
to equity holders
17 Investment property
Opening balance
Additions:
Acquisitions arising from business combinations (see note 41)
Acquisitions
Subsequent expenditure
Disposals
Net valuation deficits
Exchange adjustments
Closing balance
2011
£m
634.7
207.8
–
5.4
(23.5)
(2.0)
(2.5)
819.9
2010
£m
654.3
–
13.0
2.1
(9.5)
(0.8)
(24.4)
634.7
The group has valued all of its investment property as at 30 September 2011 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’. The fees paid
to the independent valuers were not on a contingent basis.
A revaluation deficit of £2.0m has arisen on valuation of investment property to fair value as at 30 September 2011 (2010: deficit
of £0.8m) and this has been taken to the income statement.
The historical cost of the group’s investment property as at 30 September 2011 is £824.8m (2010: £638.0m).
Rental income from investment property during the year was £49.7m (2010: £41.7m).
Direct property repair and maintenance costs arising from investment property that generated rental income during the year was £12.4m
(2010: £10.8m).
Direct operating expenses arising from investment property that did not generate rental income during the year amounted to nil
(2010: nil).
The reduction in value of £2.5m (2010: £24.4m) relates to an exchange movement on the group’s German residential property.
This reflects the movement in the sterling/euro exchange rate between the respective year end dates.
Grainger plc
102
Notes to the financial statements continued
18 Property, plant and equipment
Cost
Opening cost
Additions
Disposals
Closing cost
Accumulated depreciation
Opening accumulated depreciation
Charge for the year
Disposals
Closing accumulated depreciation
Net book value:
Closing net book value
Opening net book value
All Property, plant and equipment relates to fixtures, fittings and equipment.
19 Investment in associates
Opening balance
Share of profit
Profit on redemption of equity units
Proceeds on redemption of equity units
Acquisition of additional equity in G:res
Share of change in fair value of cash flow hedges taken through other comprehensive income
Closing balance
Disclosed as:
Non-current assets
Current assets
Closing balance
Total
2011
£m
5.0
0.5
–
5.5
3.7
0.6
–
4.3
1.2
1.3
2011
£m
28.7
4.4
–
(0.1)
0.3
1.3
34.6
34.6
–
34.6
Total
2010
£m
5.1
0.3
(0.4)
5.0
3.2
0.7
(0.2)
3.7
1.3
1.9
2010
£m
33.2
5.6
1.0
(9.8)
–
(1.3)
28.7
28.6
0.1
28.7
In January 2009 the investors in Schroder ResPUT agreed to a controlled liquidation of the fund. The liquidation was completed by
31 March 2011. The equity stake in G:res1 Limited was increased from 21.63% to 21.96% during the year at a cost of £0.3m.
18 Property, plant and equipment
As at 30 September 2011, the group’s interest in associates was as follows:
Annual report and accounts 2011
Overview
Business review
Governance
Financials
103
G:res1 Limited
% of ordinary
share capital/
units held
Country of
incorporation
21.96
Jersey
The accounting period end of G:res 1 Limited is 31 December 2011. Their results for 12 months to 30 September 2011 and their financial
position as at that date have been equity accounted in these accounts as the three month period is considered to be material.
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
Profit (including share of gain on revaluation of investment property)
2011
2010
G:res 1 Limited
£m
G:res 1 Limited
£m
ResPUT
£m
83.9
5.5
(53.2)
(1.6)
34.6
4.7
4.4
79.0
5.7
(54.4)
(1.7)
28.6
4.4
5.5
–
0.1
–
–
0.1
–
0.1
Total
£m
79.0
5.8
(54.4)
(1.7)
28.7
4.4
5.6
Notes to the financial statements continued
Cost
Opening cost
Additions
Disposals
Closing cost
Accumulated depreciation
Opening accumulated depreciation
Charge for the year
Disposals
Closing accumulated depreciation
Net book value:
Closing net book value
Opening net book value
19 Investment in associates
Opening balance
Share of profit
Profit on redemption of equity units
Proceeds on redemption of equity units
Acquisition of additional equity in G:res
Closing balance
Disclosed as:
Non-current assets
Current assets
Closing balance
All Property, plant and equipment relates to fixtures, fittings and equipment.
Share of change in fair value of cash flow hedges taken through other comprehensive income
Total
2011
£m
5.0
0.5
–
5.5
3.7
0.6
–
4.3
1.2
1.3
2011
£m
28.7
4.4
–
(0.1)
0.3
1.3
34.6
34.6
–
34.6
Total
2010
£m
5.1
0.3
(0.4)
5.0
3.2
0.7
(0.2)
3.7
1.3
1.9
2010
£m
33.2
5.6
1.0
(9.8)
–
(1.3)
28.7
28.6
0.1
28.7
In January 2009 the investors in Schroder ResPUT agreed to a controlled liquidation of the fund. The liquidation was completed by
31 March 2011. The equity stake in G:res1 Limited was increased from 21.63% to 21.96% during the year at a cost of £0.3m.
Grainger plc
104
Notes to the financial statements continued
20 Investment in joint ventures
At 1 October 2009
Loans advanced
Provision for impairment of loans receivable
Share of profit
Goodwill impairment arising on investment in Gebau Vermogen GmbH
(see note 22)
Exchange adjustment
Share of change in fair value of cash flow hedges taken through other
comprehensive income
At 30 September 2010
Loans advanced
Provision for impairment of loans receivable
Share of profit
Consolidation adjustment
Net assets acquired through sale of subsidiary into a joint venture
Net assets disposed of through transfer to subsidiary
Goodwill impairment arising on investment in Gebau Vermogen GmbH
(see note 22)
Exchange adjustment
Share of change in fair value of cash flow hedges taken through other
comprehensive income
At 30 September 2011
Net
assets
£m
(3.3)
–
–
4.6
–
–
2.8
4.1
–
–
2.1
(1.3)
19.2
(7.5)
–
(0.1)
1.3
17.8
Loans
£m
81.3
9.3
(4.9)
–
–
(0.1)
–
85.6
3.3
(1.9)
–
–
–
(80.9)
–
–
–
6.1
Goodwill
£m
2.7
–
–
–
(1.4)
–
–
1.3
–
–
–
–
–
–
(1.3)
–
–
–
Total
£m
80.7
9.3
(4.9)
4.6
(1.4)
(0.1)
2.8
91.0
3.3
(1.9)
2.1
(1.3)
19.2
(88.4)
(1.3)
(0.1)
1.3
23.9
The provision for impairment of loans receivable in 2011 of £1.9m (2010: £4.9m) comprises the release of £3.3m of the provision made
against the group’s mezzanine loan to Grainger GenInvest No.2 (2006) LLP prior to the group’s acquisition of the remaining 50% equity in
that company (see note 41) and a £5.2m provision against the group’s investment in its Czech Republic joint ventures.
These amounts are included within the provision for impairment on loans receivable net of write backs on the face of the consolidated
income statement.
The net assets disposed of through transfer to a subsidiary of £88.4m represents the group’s share of net assets and its loans to the two
Grainger GenInvest LLP’s which became subsidiaries of Grainger on 22 March 2011 (see note 41).
On 12 October 2010 a 50% interest in Sovereign Reversions Limited (formerly Sovereign Reversions plc) was sold to MREF II Equity Release
Limited, a wholly-owned subsidiary of Moorfield Real Estate Fund II for consideration of £17.5m. The remaining net assets of £19.2m were
transferred into investment in joint ventures. The consolidation adjustment of £1.3m represents our 50% share of interest and management
fees receivable from the Sovereign Reversions joint venture. This amount has been deducted from other income and expenses and finance
income in the consolidated income statement and share of profit of joint ventures after tax increased by the same amount.
Of the loans advanced of £3.3m (2010: £9.3m) only £2.1m (2010: £7.0m) was advanced in cash. The remaining £1.2m (2010: £2.3m)
relates to interest income earned from the Grainger Geninvest LLP’s (2011: prior to 22 March 2011) that was not received in cash.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
105
A White Paper on the proposed High Speed Rail Network from London to Birmingham indicates that the potential route will cover at least
part of our development site (held in joint venture with Development Securities plc) at Curzon Park in Birmingham. We are still assessing
the long-term impact with our advisers and aim to collaborate with other affected owners in the area. A provision of £4.9m was made in
our 2010 year end accounts against the carrying value of our joint venture investment to write down the value of our investment to £nil
and this provision is still being held. In view of the uncertainty relating to the future of the Curzon Park site, the group is seeking advice in
order to protect its position. Should the value of the site, together with any compensation received, be insufficient to repay the bank loan
in the joint venture entity, the group may incur further charges in respect if its obligations to the joint venture and the bank.
At 30 September 2011, the group’s interest in joint ventures was as follows:
% of ordinary share capital held
Country of incorporation
Curzon Park Limited
King Street Developments (Hammersmith) Limited
Sovereign Reversions Limited
CCZ a.s.
CCY a.s.
Prazsky Project a.s.
Gebau Vermogen GmbH
50
50
50
50
50
50
50
United Kingdom
United Kingdom
United Kingdom
Czech Republic
Czech Republic
Czech Republic
Germany
The accounting period end of Curzon Park Limited is 31 December 2011. The results for 12 months to 30 September 2011 and the
financial position as at that date have been equity accounted in these accounts.
The accounting period end of King Street Developments (Hammersmith) is 31 March 2012. The results for 12 months to 30 September
2011 and the financial position as at that date have been equity accounted in these accounts.
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. In relation to the two Grainger GenInvest LLP’s, the revenues and profits relate to the period from 1 October 2010
to 22 March 2011 when the group acquired the remaining 50% equity (see note 41).
Notes to the financial statements continued
20 Investment in joint ventures
Provision for impairment of loans receivable
Goodwill impairment arising on investment in Gebau Vermogen GmbH
Share of change in fair value of cash flow hedges taken through other
At 1 October 2009
Loans advanced
Share of profit
(see note 22)
Exchange adjustment
comprehensive income
At 30 September 2010
Loans advanced
Provision for impairment of loans receivable
Share of profit
Consolidation adjustment
Net assets acquired through sale of subsidiary into a joint venture
Net assets disposed of through transfer to subsidiary
Goodwill impairment arising on investment in Gebau Vermogen GmbH
Share of change in fair value of cash flow hedges taken through other
(see note 22)
Exchange adjustment
comprehensive income
At 30 September 2011
Net
assets
£m
(3.3)
4.6
2.8
4.1
–
–
–
–
–
–
2.1
(1.3)
19.2
(7.5)
–
(0.1)
1.3
17.8
Loans
£m
81.3
9.3
(4.9)
(0.1)
85.6
3.3
(1.9)
(80.9)
–
–
–
–
–
–
–
–
–
6.1
Goodwill
£m
2.7
(1.4)
1.3
(1.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
80.7
9.3
(4.9)
4.6
(1.4)
(0.1)
2.8
91.0
3.3
(1.9)
2.1
(1.3)
19.2
(88.4)
(1.3)
(0.1)
1.3
23.9
The provision for impairment of loans receivable in 2011 of £1.9m (2010: £4.9m) comprises the release of £3.3m of the provision made
against the group’s mezzanine loan to Grainger GenInvest No.2 (2006) LLP prior to the group’s acquisition of the remaining 50% equity in
that company (see note 41) and a £5.2m provision against the group’s investment in its Czech Republic joint ventures.
These amounts are included within the provision for impairment on loans receivable net of write backs on the face of the consolidated
income statement.
The net assets disposed of through transfer to a subsidiary of £88.4m represents the group’s share of net assets and its loans to the two
Grainger GenInvest LLP’s which became subsidiaries of Grainger on 22 March 2011 (see note 41).
On 12 October 2010 a 50% interest in Sovereign Reversions Limited (formerly Sovereign Reversions plc) was sold to MREF II Equity Release
Limited, a wholly-owned subsidiary of Moorfield Real Estate Fund II for consideration of £17.5m. The remaining net assets of £19.2m were
transferred into investment in joint ventures. The consolidation adjustment of £1.3m represents our 50% share of interest and management
fees receivable from the Sovereign Reversions joint venture. This amount has been deducted from other income and expenses and finance
income in the consolidated income statement and share of profit of joint ventures after tax increased by the same amount.
Of the loans advanced of £3.3m (2010: £9.3m) only £2.1m (2010: £7.0m) was advanced in cash. The remaining £1.2m (2010: £2.3m)
relates to interest income earned from the Grainger Geninvest LLP’s (2011: prior to 22 March 2011) that was not received in cash.
Grainger plc
106
Notes to the financial statements continued
20 Investment in joint ventures continued
2011 Summarised income statement
Grainger
GenInvest
LLP
£m
Grainger
GenInvest
No.2 (2006)
LLP
£m
Czech
Republic
combined
£m
Curzon Park
Limited
£m
2011
King Street
Developments
(Hammersmith)
Limited
£m
Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
Net rental income and other income
Administration and other expenses
Profit on disposal of
investment property
Operating profit before
valuation gains
Net valuation gains on
investment property
Operating profit after valuation gains
0.3
–
0.1
0.4
1.7
2.1
1.7
–
–
1.7
2.2
3.9
Interest payable
(0.6)
(2.7)
Change in fair value derivatives
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
–
1.5
–
1.5
–
1.2
–
1.2
2011 Summarised balance sheet
–
–
–
–
–
–
(0.2)
–
(0.2)
–
(0.2)
–
–
–
–
–
–
(0.3)
–
(0.3)
–
(0.3)
–
(0.4)
0.6
0.2
–
0.2
(0.4)
(0.2)
(0.4)
0.3
(0.1)
–
–
–
–
–
–
–
–
–
–
–
2011
–
–
–
–
–
–
–
–
–
–
–
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Czech
Republic
combined
£m
Curzon
Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
£m
Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
14.8
14.8
–
(12.6)
2.2
18.6
18.6
(21.1)
–
(2.5)
2.0
2.0
–
(2.0)
–
36.6
36.6
(16.7)
(2.1)
17.8
0.7
0.7
(0.4)
–
0.3
Total
£m
2.0
(0.4)
0.7
2.3
3.9
6.2
(4.2)
(0.2)
1.8
0.3
2.1
Total
£m
72.7
72.7
(38.2)
(16.7)
17.8
Annual report and accounts 2011
Overview
Business review
Governance
Financials
107
Notes to the financial statements continued
Grainger
2011
King Street
Grainger
GenInvest
Czech
Developments
Sovereign
Gebau
GenInvest
No.2 (2006)
Republic
Curzon Park
(Hammersmith)
Reversions
Vermogen
combined
Limited
Limited
Limited
£m
£m
£m
GmbH
£m
LLP
£m
0.3
–
0.1
0.4
1.7
2.1
1.5
–
–
1.5
LLP
£m
1.7
–
–
1.7
2.2
3.9
1.2
–
–
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.2)
(0.3)
(0.2)
(0.3)
£m
–
(0.4)
0.6
0.2
–
0.2
(0.4)
(0.2)
(0.4)
0.3
(0.1)
–
–
–
–
–
–
–
–
–
–
–
Total
£m
2.0
(0.4)
0.7
2.3
3.9
6.2
(4.2)
(0.2)
1.8
0.3
2.1
–
–
–
–
–
–
–
–
–
–
–
2011
King Street
Czech
Curzon
Developments
Sovereign
Gebau
Republic
combined
Park
(Hammersmith)
Reversions
Vermogen
Limited
Limited
Limited
GmbH
£m
14.8
14.8
–
(12.6)
2.2
£m
18.6
18.6
(21.1)
–
(2.5)
£m
2.0
2.0
(2.0)
–
–
£m
36.6
36.6
(16.7)
(2.1)
17.8
£m
0.7
0.7
(0.4)
–
0.3
Total
£m
72.7
72.7
(38.2)
(16.7)
17.8
Net rental income and other income
Administration and other expenses
Profit on disposal of
investment property
Operating profit before
valuation gains
Net valuation gains on
investment property
Operating profit after valuation gains
Change in fair value derivatives
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
2011 Summarised balance sheet
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
20 Investment in joint ventures continued
2011 Summarised income statement
2010 Summarised income statement
2010
Grainger
GenInvest
LLP
£m
Grainger
GenInvest
No.2 (2006)
LLP
£m
Czech
Republic
combined
£m
Curzon Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
£m
Gebau
Vermogen
GmbH
£m
Interest payable
(0.6)
(2.7)
(0.2)
(0.3)
2010 Summarised balance sheet
Net rental income and other income
Profit on disposal of investment property
Operating profit before valuation gains
Net valuation gains on investment properties
Operating profit after valuation gains
Interest payable
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
0.9
0.1
1.0
4.7
5.7
(1.9)
3.8
–
3.8
2.8
0.4
3.2
2.2
5.4
(4.0)
1.4
–
1.4
–
–
–
–
–
(0.2)
(0.2)
–
(0.2)
–
–
–
–
–
(0.4)
(0.4)
–
(0.4)
2010
–
–
–
–
–
–
–
–
–
0.2
–
0.2
–
0.2
(0.2)
–
–
–
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
King Street
Developments
(Hammersmith)
Limited
£m
Gebau
Vermogen
GmbH
£m
41.6
0.6
42.2
(6.4)
101.1
3.6
104.7
(4.0)
(28.9)
(104.1)
6.9
(3.4)
–
14.9
14.9
(5.6)
(6.8)
2.5
–
18.6
18.6
(20.7)
(0.1)
(2.2)
–
1.9
1.9
–
(1.9)
–
–
1.2
1.2
–
(0.9)
0.3
Total
£m
3.9
0.5
4.4
6.9
11.3
(6.7)
4.6
–
4.6
Total
£m
142.7
40.8
183.5
(36.7)
(142.7)
4.1
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.
21 Financial interest in property assets
Opening balance
Cash received from the instrument
Amounts taken to income statement
Amounts taken to other comprehensive income before tax
Closing balance
2011
£m
103.9
(9.2)
7.9
(0.3)
2010
£m
109.1
(10.8)
2.5
3.1
102.3
103.9
Grainger plc
108
Notes to the financial statements continued
21 Financial interest in property assets
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 and is valued at fair value.
For interests held at 30 September 2011 we have revised our assessment of the projected future cash flows from the instrument. This has
contributed to a decrease in the fair value of £0.3m (2010: increase of £3.1m) before tax which has been taken through the statement of
other comprehensive income and the available-for-sale reserve.
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.
The CHARM portfolio is considered to be a Level 3 financial asset as defined by IFRS 7. The key assumptions used to value the asset are set
out within note 2 ‘Critical accounting estimates and assumptions’, and the financial asset is included within the fair value hierarchy within
note 25.
22 Goodwill
Opening balance
Arising on prior year acquisition
Impairment charge taken to income statement
Closing balance
2011
£m
6.2
–
(0.9)
5.3
Goodwill arising in the prior year of £0.4m relates to the group’s acquisition of PHA Limited on 31 March 2010 (see note 42).
The total goodwill impairment charge in the income statement comprises:
Impairment charge as shown above
Impairment charge relating to Gebau Vermogen GmbH (see note 20)
2011
£m
(0.9)
(1.3)
(2.2)
2010
£m
5.9
0.4
(0.1)
6.2
2010
£m
(0.1)
(1.4)
(1.5)
Notes to the financial statements continued
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 and is valued at fair value.
For interests held at 30 September 2011 we have revised our assessment of the projected future cash flows from the instrument. This has
contributed to a decrease in the fair value of £0.3m (2010: increase of £3.1m) before tax which has been taken through the statement of
other comprehensive income and the available-for-sale reserve.
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.
The CHARM portfolio is considered to be a Level 3 financial asset as defined by IFRS 7. The key assumptions used to value the asset are set
out within note 2 ‘Critical accounting estimates and assumptions’, and the financial asset is included within the fair value hierarchy within
note 25.
22 Goodwill
Opening balance
Arising on prior year acquisition
Impairment charge taken to income statement
Closing balance
Goodwill arising in the prior year of £0.4m relates to the group’s acquisition of PHA Limited on 31 March 2010 (see note 42).
The total goodwill impairment charge in the income statement comprises:
Impairment charge as shown above
Impairment charge relating to Gebau Vermogen GmbH (see note 20)
2011
£m
6.2
–
(0.9)
5.3
2011
£m
(0.9)
(1.3)
(2.2)
2010
£m
5.9
0.4
(0.1)
6.2
2010
£m
(0.1)
(1.4)
(1.5)
21 Financial interest in property assets
23 Inventories – trading property
Residential trading property
Development trading property
Annual report and accounts 2011
Overview
Business review
Governance
Financials
109
2011
£m
1,024.9
80.2
1,105.1
2010
£m
908.5
81.4
989.9
The market value of inventories as at 30 September 2011 was £1,449.1m (2010: £1,321.4m).
Provisions of £1.8m against the net realisable value of residential trade property have been charged to the consolidated income
statement in the year. (2010: credit to income statement of £2.9m). Further details are given in note 2 ‘Critical accounting estimates
and assumptions’.
The cost of inventories recognised as an expense in the consolidated income statement is shown in note 7 ‘Profit on disposal of trading
property’ and amounted to £108.2m (2010: £90.8m).
It is not possible for the group to identify which properties will be sold within the next twelve months. The size of the group’s property
portfolio does result in a relatively predictable vacancy rate. However, it is not possible to predict in advance the specific properties that will
become vacant. Trading property is shown as a current asset in the consolidated statement of financial position.
24 Trade and other receivables
Trade receivables
Deduct: Provision for impairment of trade receivables
Trade receivables – net
Other receivables
Deduct: Provision for impairment of other receivables
Other receivables – net
Prepayments
2011
£m
11.5
(2.1)
9.4
17.7
(12.9)
4.8
4.1
18.3
2010
£m
8.8
(2.0)
6.8
16.0
(10.6)
5.4
5.0
17.2
The fair values of trade and other receivables are considered to be equal to their carrying amounts.
Other receivables includes a loan of £nil net of an impairment provision of £12.9m (2010: loan of £1.6m net of an impairment provision of
£10.6m) made to the Mornington Capital Special Situations Co-investment Fund 1 Limited Partnership (‘Mornington’). The increase in the
provision arises from a revision of the cash flow projections. The increase in the balance before provision arises from the addition of unpaid
interest receivable and foreign exchange movements. No further cash investment has been made in the year. The group is in regular
contact with the fund managers at Mornington and is discussing how to realise value from the investment made. However, in assessing
impairment, a reasonable view has been taken on assessment of the discounted future cash flows likely to be realised. 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.
Other receivables also include a loan of £3.2m (2010: £2.4m) made to Clarins Limited to enable that company to develop a property
in the City of Westminster. The loan is interest free and subordinated to the senior debt provider funding the development. Grainger
is entitled to a priority profit share of up to £4.3m on sale of the developed property. The loan is secured by a charge on the property
being developed.
Grainger plc
110
Notes to the financial statements continued
24 Trade and other receivables continued
As at 30 September 2011, tenant arrears of £2.1m within trade receivables were impaired and fully provided for (2010: £2.0m). 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
2011
£m
0.1
2.0
2.1
2010
£m
0.1
1.9
2.0
Rental receivables 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
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
Pounds Sterling
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 not recoverable
Unused amounts reversed
Closing balance
2011
£m
2.7
2011
£m
15.7
2.6
18.3
2011
£m
2.0
0.7
(0.6)
–
2.1
2010
£m
2.5
2010
£m
13.1
4.1
17.2
2010
£m
2.2
2.2
(1.6)
(0.8)
2.0
Notes to the financial statements continued
24 Trade and other receivables continued
As at 30 September 2011, tenant arrears of £2.1m within trade receivables were impaired and fully provided for (2010: £2.0m). The
individually impaired receivables are based on a review of outstanding arrears and an assessment of collectability. The ageing of these
Rental receivables 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:
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
receivables is:
Up to two months
Three months or more
Up to two months
Pounds Sterling
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 not recoverable
Unused amounts reversed
Closing balance
2011
£m
0.1
2.0
2.1
2011
£m
2.7
2011
£m
15.7
2.6
18.3
2011
£m
2.0
0.7
(0.6)
–
2.1
2010
£m
0.1
1.9
2.0
2010
£m
2.5
2010
£m
13.1
4.1
17.2
2010
£m
2.2
2.2
(1.6)
(0.8)
2.0
Annual report and accounts 2011
Overview
Business review
Governance
Financials
111
The charge/credit relating to 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 6). Amounts provided for are generally written off when there is
no expectation of recovering additional cash.
The loan due from Mornington included within other receivable has been fully impaired and the provision made in the year of £2.3m
(2010: £5.8m) is included within the provision for impairment on loans 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 £4.0m (2010: £3.7m) are held which provide some security against rental arrears and property dilapidations caused by the
tenant. In addition the loans to Mornington and Clarins are 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.
Grainger plc
112
Notes to the financial statements continued
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:
Loans and
receivables/
cash and cash
equivalents
£m
Assets at fair
value through
profit and loss
£m
Derivatives
used for
hedging
£m
Available-
for-sale
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
2011
Financial interest in
property assets
Trade and other
receivables
Derivative financial
instruments
Cash and cash
equivalents
Total financial assets
–
14.2
–
90.9
105.1
–
–
0.2
–
0.2
–
–
–
–
–
102.3
102.3
102.3
–
–
–
102.3
14.2
0.2
90.9
207.6
14.2
0.2
90.9
207.6
–
–
–
–
–
Liabilities at fair
value through
profit and loss
£m
Derivatives
used for
hedging
£m
Other financial
liabilities at
amortised
cost
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
91.8
91.8
62.7
62.7
1,428.0
1,428.0
1,441.9
13.9
4.0
0.6
4.0
0.6
4.0
0.6
116.7
116.7
116.7
18.2
18.2
18.2
–
154.5
154.5
–
–
–
–
–
1567.5
1,722.0
1,735.9
13.9
105.1
(91.6)
(62.7)
(1,465.2)
(1,514.4)
(1,528.3)
(13.9)
Non-current
liabilities
Interest-bearing loans
and borrowings
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
assets/(liabilities)
Notes to the financial statements continued
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:
Loans and
receivables/
cash and cash
equivalents
£m
Assets at fair
value through
profit and loss
£m
Derivatives
used for
hedging
£m
2011
Available-
for-sale
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
Financial interest in
property assets
Trade and other
receivables
Derivative financial
instruments
Cash and cash
equivalents
Total financial assets
14.2
–
–
90.9
105.1
Non-current
liabilities
Interest-bearing loans
and borrowings
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
assets/(liabilities)
–
–
–
–
–
–
–
102.3
102.3
102.3
–
–
–
102.3
14.2
0.2
90.9
207.6
14.2
0.2
90.9
207.6
–
–
0.2
–
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Liabilities at fair
Derivatives
value through
profit and loss
£m
used for
hedging
£m
Other financial
liabilities at
amortised
cost
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
1,428.0
1,428.0
1,441.9
13.9
4.0
0.6
4.0
0.6
4.0
0.6
116.7
116.7
116.7
18.2
18.2
18.2
–
154.5
154.5
91.8
91.8
62.7
62.7
1567.5
1,722.0
1,735.9
13.9
105.1
(91.6)
(62.7)
(1,465.2)
(1,514.4)
(1,528.3)
(13.9)
–
–
–
–
–
–
–
–
–
–
Annual report and accounts 2011
Overview
Business review
Governance
Financials
113
Loans and
receivables/
cash and cash
equivalents
£m
Assets at fair
value through
profit and loss
£m
Derivatives used
for hedging
£m
Available-
for-sale
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
2010
Financial interest in
property assets
Trade and other
receivables
Derivative financial
instruments
Cash and cash
equivalents
Total financial assets
–
12.2
–
91.5
103.7
–
–
–
–
–
–
–
–
–
–
103.9
103.9
103.9
–
–
–
103.9
12.2
12.2
–
–
91.5
207.6
91.5
207.6
–
–
–
–
–
Liabilities at fair
value through
profit and loss
£m
Derivatives used
for hedging
£m
Other financial
liabilities at
amortised cost
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
Non-current
liabilities
Interest-bearing loans
and borrowings
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
assets/(liabilities)
–
–
–
–
–
–
–
–
–
–
–
–
72.7
72.7
1,361.7
1,361.7
1,374.4
12.7
–
–
–
–
–
4.0
0.8
55.6
15.8
4.0
0.8
55.6
15.8
4.0
0.8
55.6
15.8
–
–
–
–
–
55.6
–
128.3
128.3
55.6
1,437.9
1,566.2
1,578.9
12.7
103.7
(72.7)
(55.6)
(1,334.0)
(1,358.6)
(1,371.3)
(12.7)
The fair value adjustment relates to the group’s fixed rate loan with Lloyds TSB Bank plc, the liability component of the convertible
bond, and the group’s fixed rate loans with UniCredit Bank AG all of which are stated at amortised cost in the consolidated statement
of financial position. There is no requirement under IAS 39 to revalue these loans to fair value in the consolidated statement of
financial position.
Grainger plc
114
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
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.
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 2011 amounted to £90.9m (2010: £91.5m). Deposits were placed with financial
institutions with A- or better credit ratings.
At 30 September 2011, the fair value of all interest rate derivatives which had a positive value was £0.2m (2010: nil). For 2011 balances,
all the counterparties have investment grade credit ratings.
At 30 September 2011, the largest combined credit exposure to a single counterparty arising from money market deposits and interest
rate swaps was £246.8m (2010: £291.7m) which represents 11.0% (2010: 14.1%) of total assets.
At 30 September 2011, 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 operated well within its covenants during 2011 and as at 30 September 2011
(see note 2 ‘Critical accounting estimates and assumptions’).
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 and other sources to allow for operational flexibility and to meet committed expenditure.
The UK residential 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 pages 115 and 116. Trade and other
payables due within 12 months equal their carrying balances as the impact of discounting is not significant.
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
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.
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.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
115
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.
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Over 5
years
£m
Total
£m
At 30 September 2011
Interest-bearing loans and borrowings
Cash flow hedges
Derivatives at fair value through profit and loss
Trade and other payables
Provision for liabilities and charges
173.3
23.2
12.0
56.3
0.1
62.9
18.5
12.9
4.0
0.1
17.8
35.7
–
0.4
1,240.7
447.2
1,924.1
11.2
35.8
–
0.4
Over 5
years
£m
70.7
96.4
60.3
1.0
Total
£m
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
Cash and short-term deposits at 30 September 2011 amounted to £90.9m (2010: £91.5m). Deposits were placed with financial
At 30 September 2010
Interest-bearing loans and borrowings
At 30 September 2011, the fair value of all interest rate derivatives which had a positive value was £0.2m (2010: nil). For 2011 balances,
Cash flow hedges
Derivatives at fair value through profit and loss
institutions with A- or better credit ratings.
all the counterparties have investment grade credit ratings.
At 30 September 2011, the largest combined credit exposure to a single counterparty arising from money market deposits and interest
Trade and other payables
rate swaps was £246.8m (2010: £291.7m) which represents 11.0% (2010: 14.1%) of total assets.
At 30 September 2011, 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).
Provision for liabilities and charges
Reconciliation of maturity analysis
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 operated well within its covenants during 2011 and as at 30 September 2011
(see note 2 ‘Critical accounting estimates and assumptions’).
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 and other sources to allow for operational flexibility and to meet committed expenditure.
The UK residential 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 pages 115 and 116. Trade and other
payables due within 12 months equal their carrying balances as the impact of discounting is not significant.
At 30 September 2011
Interest-bearing loans and borrowings (see note 26)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
92.0
22.4
10.5
34.6
0.1
90.1
19.9
11.7
–
0.1
Less than
1 year
£m
Between
1 and 2
years
£m
116.7
–
52.0
4.6
173.3
8.9
–
49.4
4.6
62.9
1,185.4
198.2
1,565.7
20.6
28.7
4.0
0.4
Between
2 and 5
years
£m
1,082.0
(0.4)
148.1
11.0
1,240.7
1.3
18.4
–
0.6
Over 5
years
£m
337.1
(0.4)
107.0
3.5
447.2
64.2
69.3
38.6
1.2
Total
£m
1,544.7
(0.8)
356.5
23.7
1,924.1
Grainger plc
116
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
Between
2 and 5
years
£m
Between
1 and 2
years
£m
Less than
1 year
£m
Over 5
years
£m
Total
£m
At 30 September 2010
Interest-bearing loans and borrowings (see note 26)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
55.6
–
33.4
3.0
92.0
51.4
(0.1)
35.8
3.0
90.1
1,144.9
165.4
1,417.3
(3.6)
41.7
2.4
(4.5)
36.0
1.3
(8.2)
146.9
9.7
1,185.4
198.2
1,565.7
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
2011
£m
171.2
–
–
171.2
2010
£m
5.0
–
188.1
193.1
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 significantly exposed to equity price risk or to commodity price risk.
Fair values
IFRS 7 sets out a three-tier hierarchy for financial assets and liabilities value at fair value. These are as follows:
Level 1 – quoted prices in active markets for identified assets and liabilities
Level 2 – inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly as prices or indirectly
as derived from prices; and
Level 3 – inputs for assets and liabilities that are not based on observable market data.
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. As all significant inputs required to value the swaps are observable,
they all fall within level 2.
The CHARM portfolio falls within level 3, inputs not based on observable market data. Note 21 provides a reconciliation of movements
and amounts recognised in the income statement and other comprehensive income. The basis of valuation and the sensitivity to changes
in the key valuation assumptions are documented in note 2, ‘Critical accounting estimates and assumptions’.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
117
Notes to the financial statements continued
At 30 September 2010
Interest-bearing loans and borrowings (see note 26)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
Maturity of committed undrawn borrowing facilities
Expiring:
Within one year
Between one and two years
Between two and five years
Total
Market risk
Fair values
The above facilities are those freely available to be drawn for group purposes.
Over 5
years
£m
(4.5)
36.0
1.3
2011
£m
171.2
–
–
171.2
Total
£m
(8.2)
146.9
9.7
2010
£m
5.0
–
188.1
193.1
25 Financial risk management and derivative financial instruments continued
The following table presents the group’s assets and liabilities that are measured at fair value.
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
55.6
–
33.4
3.0
92.0
51.4
(0.1)
35.8
3.0
90.1
(3.6)
41.7
2.4
1,185.4
198.2
1,565.7
1,144.9
165.4
1,417.3
Financial interest in property assets
Level 3
Level 2
Interest rate swaps – in cash flow hedge accounting relationships
Interest rate swaps – not in cash flow hedge accounting relationships
2011
Assets
£m
Liabilities
£m
2010
Assets
£m
Liabilities
£m
102.3
–
0.2
102.5
–
103.9
–
62.7
91.8
154.5
–
–
103.9
55.6
72.7
128.3
The group’s undrawn committed borrowing facilities are monitored against projected cash flows.
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 2011 was £986.5m (2010: £932.2m).
All of the financial derivatives included in the above table were valued by external consultants, J.C. Rathbone Associates Ltd, 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
are taken directly to the income statement. However, where cash flow hedges have been viewed as being effective, and have been
designated as such, any gains or losses have been taken to other comprehensive income through the cash flow hedge reserve.
A valuation was carried out at 30 September 2011 by external consultants, J.C. Rathbone Associates Ltd, 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.
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 significantly exposed to equity price risk or to commodity price risk.
Fixed rate loan facilities
IFRS 7 sets out a three-tier hierarchy for financial assets and liabilities value at fair value. These are as follows:
Level 1 – quoted prices in active markets for identified assets and liabilities
Level 2 – inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly as prices or indirectly
as derived from prices; and
Fixed rate loan facilities
Book value at
30 September
2011
£m
Fair value at
30 September
2011
£m
80.8
94.7
Book value at
30 September
2010
£m
Fair value at
30 September
2010
£m
83.8
96.5
Level 3 – inputs for assets and liabilities that are not based on observable market data.
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. As all significant inputs required to value the swaps are observable,
they all fall within level 2.
The CHARM portfolio falls within level 3, inputs not based on observable market data. Note 21 provides a reconciliation of movements
and amounts recognised in the income statement and other comprehensive income. The basis of valuation and the sensitivity to changes
in the key valuation assumptions are documented in note 2, ‘Critical accounting estimates and assumptions’.
Interest rate risk
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 2011, 73% (2010: 75%) of the group’s net borrowings were economically hedged
to fixed or capped rates.
Grainger plc
118
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
At 30 September 2011, the weighted average interest rate of the group’s fixed rate debt is 4.2% (2010: 4.2%). The weighted average
period for which the rate is fixed is 17.9 years (2010: 18.3 years).
At 30 September 2011 the fixed interest rates on the interest rate swap contracts vary from 2.805% to 5.26% (2010: 3.51% to 5.26%)
with a weighted average rate of 4.5% (2010: 4.6%) and a weighted average maturity of 7.0 years (2010: 7.0 years).
At 30 September 2011 the weighted average interest rate of the group’s variable rate debt is 2.9% (2010: 1.9%). The weighted average
debt maturity is 5.0 years (2010: 2.7 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 £4.6m
(2010: £4.1m). Similarly a 1% decrease would increase annual profits by £4.4m (2010: £4.1m).
Based on the group’s interest rate profile at the balance sheet date a 1% increase in interest rates would decrease the group’s equity
by £3.4m (2010: £3.0m). Similarly a 1% decrease would increase the group’s equity by £3.2m (2010: £3.0m).
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 interest yield
curve. Where the group’s swaps qualify as effective hedges under IAS 39, these movements in fair value are recognised directly in other
comprehensive income rather than the income statement.
As at 30 September 2011, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of £62.7m (2010:
net liability of £55.6m). The fair value movement on derivatives not in hedge accounting relationships and amounts reclassified from equity
to the income statement amounted, in aggregate, to a charge of £28.0m (2010: charge of £39.6m) in the income statement analysed
as follows:
Fair value movement on derivatives not designated as cash flow hedges
Amounts reclassified from equity to the income statement
2011
£m
18.8
9.2
28.0
2010
£m
33.4
6.2
39.6
At 30 September 2011, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net liability of £91.6m
(2010: net liability of £72.7m). 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 2011.
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
2011
£m
24.1
298.8
553.2
110.4
986.5
2010
£m
75.0
13.0
789.0
55.2
932.2
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
At 30 September 2011, the weighted average interest rate of the group’s fixed rate debt is 4.2% (2010: 4.2%). The weighted average
period for which the rate is fixed is 17.9 years (2010: 18.3 years).
At 30 September 2011 the fixed interest rates on the interest rate swap contracts vary from 2.805% to 5.26% (2010: 3.51% to 5.26%)
with a weighted average rate of 4.5% (2010: 4.6%) and a weighted average maturity of 7.0 years (2010: 7.0 years).
At 30 September 2011 the weighted average interest rate of the group’s variable rate debt is 2.9% (2010: 1.9%). The weighted average
debt maturity is 5.0 years (2010: 2.7 years).
Fixed rate
Hedged rate
Variable rate
2011
2010
Sterling
£m
56.8
712.9
364.2
1,133.9
Euro
£m
24.0
349.7
60.8
434.5
Total
£m
80.8
1,062.6
425.0
1,568.4
Sterling
£m
58.6
630.0
292.9
981.5
Euro
£m
25.2
366.0
54.3
445.5
Total
£m
83.8
996.0
347.2
1,427.0
Interest rate profile – including the effect of derivatives
Annual report and accounts 2011
Overview
Business review
Governance
Financials
119
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
2011
Euro
£m
451.2
(461.1)
(9.9)
2010
Euro
£m
2011
Czech Koruna
£m
2010
Czech Koruna
£m
459.7
(475.4)
(15.7)
2.2
–
2.2
7.5
–
7.5
As at 30 September 2011 it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling against the Euro
would increase/decrease the group’s profit before tax by approximately £0.3m (2010: £0.2m) and equity by £1.0m (2010: £1.6m).
As at 30 September 2011 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 £0.5m (2010: £0.3m) and equity by £0.2m
(2010: £0.8m).
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 cash and
committed borrowings. On 30 September 2011 the group signed a new Forward Start Facility providing £840m of committed facilities
which will be used to refinance the group’s existing core facilities. In addition, the group has signed two debt financing agreements
with Partnership Assurance since the year end securing an aggregate amount of £78.9m of new financing. More information is provided
in note 2 ‘Critical accounting estimates and assumptions’.
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 2011 it is estimated that, with respect to the group’s financial interest in property assets a general increase/(decrease) of
one percentage point in house prices at the balance sheet date would increase/(decrease) the group’s profit before tax by approximately
£0.8m (2010: £0.9m).
Based on the group’s interest rate profile at the balance sheet date a 1% increase in interest rates would decrease annual profits by £4.6m
(2010: £4.1m). Similarly a 1% decrease would increase annual profits by £4.4m (2010: £4.1m).
Based on the group’s interest rate profile at the balance sheet date a 1% increase in interest rates would decrease the group’s equity
by £3.4m (2010: £3.0m). Similarly a 1% decrease would increase the group’s equity by £3.2m (2010: £3.0m).
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 interest yield
curve. Where the group’s swaps qualify as effective hedges under IAS 39, these movements in fair value are recognised directly in other
comprehensive income rather than the income statement.
As at 30 September 2011, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of £62.7m (2010:
net liability of £55.6m). The fair value movement on derivatives not in hedge accounting relationships and amounts reclassified from equity
to the income statement amounted, in aggregate, to a charge of £28.0m (2010: charge of £39.6m) in the income statement analysed
as follows:
Fair value movement on derivatives not designated as cash flow hedges
Amounts reclassified from equity to the income statement
At 30 September 2011, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net liability of £91.6m
(2010: net liability of £72.7m). The cash flows occur and enter in the determination of profit and loss until the maturity of the
The table below summarises debt hedged at 30 September 2011.
hedged debt.
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
2011
£m
18.8
9.2
28.0
2011
£m
24.1
298.8
553.2
110.4
986.5
2010
£m
33.4
6.2
39.6
2010
£m
75.0
13.0
789.0
55.2
932.2
Grainger plc
120
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
There is no effect on equity as a result of a change in house prices as in accordance with IAS 39 AG8 changes to future cash flows are
recognised though the income statement.
We have considered the impact of changes to the vacation rate used in the cash flow model. However, we do not consider this to be a
material risk and actual experience to date has been very close to the vacation assumption adopted in the model.
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 shareholders’ funds by means of dividends, share purchases and share issues.
The rights issue completed in December 2009 is an example of how the board manages the group’s capital. The rights issue proceeds
were used, inter alia, to improve the balance sheet leverage ratios and to reduce the overall size and cost of the group’s debt.
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 2011, the weighted
average cost of debt was 5.8% (2010: 5.0%) and the WACC was 4.91% (2010: 5.66%). Investment and development opportunities are
evaluated using a risk adjusted 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.
26 Financial assets and liabilities
i) Interest-bearing loans and borrowings
Current liabilities
Bank loans
Loan notes
Mortgages
Non-current liabilities
Bank loans
Non-bank financial institution
Mortgages
Convertible bond
Total interest-bearing loans and borrowings
2011
£m
116.3
–
0.4
116.7
2010
£m
49.8
5.5
0.3
55.6
1,285.7
1,318.6
98.9
20.9
22.5
1,428.0
1,544.7
–
21.5
21.6
1,361.7
1,417.3
Annual report and accounts 2011
Overview
Business review
Governance
Financials
121
The group’s core banking facility as at 30 September 2011 was £1,093m of which £927m was drawn. Committed but undrawn amounts
under the group’s core banking facility were therefore £166m.
In addition, the group had free cash balances plus available overdraft facilities of £48m as at 30 September 2011. The group signed a new
£840m Forward Start Facility on 30 September 2011 which is available for drawdown at any time up to 30 September 2012. When this is
drawn, it will be used to repay the amount drawn on the group’s core banking facility.
As disclosed further in note 2 on page 83, the group has signed two debt financing agreements with Partnership Assurance since the year
end securing an aggregate amount of £78.9m of new debt financing. This new debt is being used to reduce the core banking facility
mentioned above.
The group has sufficient flexibility through cash generation and these new facilities to ensure that it can operate its business as planned
and meet its strategic objectives.
(a) Analysis of bank loans
Bank loans – Pounds Sterling
Bank loans – Euro
2011
£m
1,011.2
413.2
1,424.4
2010
£m
954.1
423.7
1,377.8
Sterling bank loans include variable rate loans bearing interest at rates between 0.9% and 3.8% above LIBOR and Euro bank loans include
variable rate loans bearing interest at rates between 0.6% and 2.4% above EURIBOR. Fixed rate loans bear interest at rates between 5.2%
and 7.5%.
The weighted average interest rate on bank loans as at 30 September 2011 was 5.9% (2010: 5.1%). Bank loans are secured by fixed and
floating charges over specific property and other assets of the group.
(b) Analysis of non-bank financial institutions
Variable rate – Pounds Sterling
2011
£m
100.0
2010
£m
–
The variable rate loan from M & G UK Companies Financing Fund LP is secured by floating charges over the assets of the group. The loan
bears interest at 4% over LIBOR.
(c) Analysis of loan notes
Fixed Rate – Pounds Sterling
Floating rate – Pounds Sterling
2011
£m
–
–
–
2010
£m
0.3
5.2
5.5
Total interest-bearing loans and borrowings
The outstanding loan notes at the start of the year of £5.5m were virtually all repaid during the year with the balance as at 30 September
2011 having reduced to £48,000.
Notes to the financial statements continued
25 Financial risk management and derivative financial instruments continued
There is no effect on equity as a result of a change in house prices as in accordance with IAS 39 AG8 changes to future cash flows are
recognised though the income statement.
We have considered the impact of changes to the vacation rate used in the cash flow model. However, we do not consider this to be a
material risk and actual experience to date has been very close to the vacation assumption adopted in the model.
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 shareholders’ funds by means of dividends, share purchases and share issues.
The rights issue completed in December 2009 is an example of how the board manages the group’s capital. The rights issue proceeds
were used, inter alia, to improve the balance sheet leverage ratios and to reduce the overall size and cost of the group’s debt.
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 2011, the weighted
average cost of debt was 5.8% (2010: 5.0%) and the WACC was 4.91% (2010: 5.66%). Investment and development opportunities are
evaluated using a risk adjusted 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.
26 Financial assets and liabilities
i) Interest-bearing loans and borrowings
Current liabilities
Bank loans
Loan notes
Mortgages
Non-current liabilities
Bank loans
Non-bank financial institution
Mortgages
Convertible bond
2011
£m
116.3
–
0.4
116.7
98.9
20.9
22.5
1,428.0
1,544.7
2010
£m
49.8
5.5
0.3
55.6
–
21.5
21.6
1,361.7
1,417.3
1,285.7
1,318.6
Grainger plc
122
Notes to the financial statements continued
26 Financial assets and liabilities continued
(d) Mortgages
Mortgages – Euro
2011
£m
21.3
2010
£m
21.8
The mortgages are secured by floating and fixed charges over the investment property in the group’s German residential portfolio and
bear interest at a fixed rate of 0.5%.
(e) Convertible bond
Opening balance
Early conversion during the year
Amortised during the year
Closing balance (Pounds Sterling)
2011
£m
21.9
–
0.8
22.7
2010
£m
21.3
–
0.6
21.9
The analysis of the loans and borrowings in the above tables (a) to (e) is before deducting unamortised issue costs of £23.7m (2010:
£9.7m) relating to the raising of the loan finance.
Other loans and borrowings information
The core banking facility, variable rate UK bank loans and the European bank loans are generally rolled over every three months. At roll
over, LIBOR, EURIBOR and PRIBOR are reset for the following interest period.
The fixed rate UK bank loan and the mortgages are at a fixed rate of interest which do not reprice. The fixed rate loan is repayable after
more than five years. The mortgage has repayments of £0.3m within one year, £1.1m within two to five years and £19.9m after more
than five years. The effective interest rate on borrowings during the year was 5.4% (2010: 5.6%).
The maturity profile of the group’s debt, net of finance costs and including the new £840m forward start facility signed on 30 September
2011 is as follows:
Within one year
Between one and two years
Between two and five years
Over five years
2011
£m
116.7
8.9
1,082.0
337.1
1,544.7
2010
£m
55.6
51.4
1,144.9
165.4
1,417.3
Notes to the financial statements continued
26 Financial assets and liabilities continued
(d) Mortgages
ii) Financial assets
The group has the following cash and cash equivalents at 30 September 2011:
The mortgages are secured by floating and fixed charges over the investment property in the group’s German residential portfolio and
Pounds Sterling
Euros
Czech Koruna
Cash and cash equivalents can be analysed as follows:
Cash at bank
Short-term deposits
Annual report and accounts 2011
Overview
Business review
Governance
Financials
123
2011
£m
64.8
25.9
0.2
90.9
2011
£m
23.4
67.5
90.9
2010
£m
77.7
13.6
0.2
91.5
2010
£m
22.7
68.8
91.5
The analysis of the loans and borrowings in the above tables (a) to (e) is before deducting unamortised issue costs of £23.7m (2010:
£9.7m) relating to the raising of the loan finance.
Other loans and borrowings information
The core banking facility, variable rate UK bank loans and the European bank loans are generally rolled over every three months. At roll
over, LIBOR, EURIBOR and PRIBOR are reset for the following interest period.
The fixed rate UK bank loan and the mortgages are at a fixed rate of interest which do not reprice. The fixed rate loan is repayable after
more than five years. The mortgage has repayments of £0.3m within one year, £1.1m within two to five years and £19.9m after more
than five years. The effective interest rate on borrowings during the year was 5.4% (2010: 5.6%).
The maturity profile of the group’s debt, net of finance costs and including the new £840m forward start facility signed on 30 September
Short-term deposits totalling £nil (2010: £5.4m) with an average maturity of three months are held as cash collateral. These have
an effective interest rate of nil (2010: 0.6%).
Included within 2011 year end cash balances is £11.7m (2010: £7.5m) held in third-party client accounts where Grainger acts as Trustee
or agent. The corresponding liability is included within trade payables.
At the year end £67.5m was placed on deposit (2010: £63.4m) at effective interest rates between 0.75% and 1.23% (2010: 0.9% and
1.55%). 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 2011 (2010: £5m).
Mortgages – Euro
bear interest at a fixed rate of 0.5%.
(e) Convertible bond
Opening balance
Early conversion during the year
Amortised during the year
Closing balance (Pounds Sterling)
2011 is as follows:
Within one year
Between one and two years
Between two and five years
Over five years
2011
£m
21.3
2011
£m
21.9
–
0.8
22.7
2010
£m
21.8
2010
£m
21.3
–
0.6
21.9
2011
£m
116.7
8.9
1,082.0
337.1
1,544.7
2010
£m
55.6
51.4
1,144.9
165.4
1,417.3
Grainger plc
124
Notes to the financial statements continued
27 Non-current liabilities
i) Trade and other payables
Deferred consideration payable
2011
£m
4.0
Trade and other payables is deferred consideration for the purchase of land at West Waterlooville and is payable in April 2013.
ii) Provisions for other liabilities and charges
Other
2011
£m
0.6
2010
£m
4.0
2010
£m
0.8
28 Pension costs
Defined contribution scheme
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 51 and page 54. The pension cost charge in these financial statements
represents contributions payable by the group. The charge of £0.8m (2010: £0.7m) is included within employee remuneration 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 Friends Life, 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. The last actuarial valuation issued was as at 1 July 2007 although the
valuation as at 1 July 2010 is substantially complete as at the date of these financial statements. 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 accrual ceased (or
date of leaving if earlier).
Notes to the financial statements continued
27 Non-current liabilities
i) Trade and other payables
Deferred consideration payable
ii) Provisions for other liabilities and charges
Other
28 Pension costs
Defined contribution scheme
Trade and other payables is deferred consideration for the purchase of land at West Waterlooville and is payable in April 2013.
2011
£m
4.0
2011
£m
0.6
2010
£m
4.0
2010
£m
0.8
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 51 and page 54. The pension cost charge in these financial statements
represents contributions payable by the group. The charge of £0.8m (2010: £0.7m) is included within employee remuneration 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 Friends Life, 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. The last actuarial valuation issued was as at 1 July 2007 although the
valuation as at 1 July 2010 is substantially complete as at the date of these financial statements. 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 accrual ceased (or
date of leaving if earlier).
Annual report and accounts 2011
Overview
Business review
Governance
Financials
125
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 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 provisional actuarial valuation carried out as at 1 July 2010 but
have been updated to 30 September 2011 by a qualified independent actuary.
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
2011
2010
5.30% p.a.
4.90% p.a.
3.40% p.a.
3.10% p.a.
4.40% p.a.
4.60% p.a.
5.00% p.a.
5.00% p.a.
3.40% p.a.
3.10% p.a.
Year
commencing
1 October 2011
Year
commencing
1 October 2010
4.80% p.a.
5.00% p.a.
The overall expected return on assets assumption of 4.80% p.a. as at 30 September 2011 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:
Fixed interest securities, current market yields;
Equities, allowance for an additional return of 2.60% p.a. above that available on UK government securities;
Property, allowance for an additional return of 2.60% p.a. above that available on UK government securities;
Cash, current Bank of England base rate; and
Insured pensioner policies, in line with the discount rate.
Grainger plc
126
Notes to the financial statements continued
28 Pension costs continued
Demographic assumptions
Mortality tables for pensioners
2011
2010
100% of S1PAIc year of
birth tables allowing for
a minimum improvement
factor of 1.25% for males
and 0.75% for females
each year
107% of PCA00 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
Mortality tables for non-pensioners
As for pensioners
As for pensioners
Life expectancies
Life expectancy for a current 65 year old
87.7 years
90.1 years
88.2 years
90.3 years
Life expectancy at age 65 for a current 55 year old
89.0 years
90.9 years
89.5 years
91.1 years
30 September 2011
30 September 2010
Males
Females
Males
Females
Market value of scheme assets and expected rates of return
The assets of the scheme are invested in a diversified portfolio as follows:
30 September 2011
30 September 2010
Market
value
£m
% of total
scheme assets
Long-term
expected rate
of return
%
Equities
Bonds
Properties
Other
Insurance policies
Total value of assets
The actual return on assets over the
period was
5.9
7.9
0.4
0.5
3.9
18.6
0.4
32%
42%
2%
3%
21%
100%
5.5%
5.1%
5.5%
0.5%
5.3%
% of total
Scheme assets
Long-term
expected rate
of return
%
33%
40%
2%
3%
22%
100%
6.1%
4.4%
6.1%
0.5%
4.9%
Market
value
£m
6.2
7.5
0.3
0.5
4.1
18.6
2.0
The assets of the scheme are held with Friends 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 5.5% in 2011 and 6.1% in 2010 are 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.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
127
Defined benefit obligations, scheme assets and scheme deficit
2011
2010
100% of S1PAIc year of
107% of PCA00 year of birth
birth tables allowing for
tables allowing for long cohort
a minimum improvement
improvements with 1.25%
factor of 1.25% for males
minimum improvements for
and 0.75% for females
males and 0.75% minimum
each year
improvements for females
Market value of scheme assets
Present value of scheme liabilities
Scheme deficit at 30 September
History of assets, liabilities, experience gains and losses
each year
Gains/(losses) arising on scheme liabilities:
Mortality tables for non-pensioners
As for pensioners
As for pensioners
Life expectancies
Life expectancy for a current 65 year old
87.7 years
90.1 years
88.2 years
90.3 years
Life expectancy at age 65 for a current 55 year old
89.0 years
90.9 years
89.5 years
91.1 years
30 September 2011
30 September 2010
Males
Females
Males
Females
Market value of scheme assets and expected rates of return
The assets of the scheme are invested in a diversified portfolio as follows:
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
Notes to the financial statements continued
28 Pension costs continued
Demographic assumptions
Mortality tables for pensioners
30 September 2011
30 September 2010
Market
% of total
expected rate
value
scheme assets
of return
Long-term
Market
value
£m
% of total
expected rate
Scheme assets
Long-term
of return
%
%
5.5%
5.1%
5.5%
0.5%
5.3%
32%
42%
2%
3%
21%
100%
£m
5.9
7.9
0.4
0.5
3.9
18.6
0.4
33%
40%
2%
3%
22%
100%
6.1%
4.4%
6.1%
0.5%
4.9%
6.2
7.5
0.3
0.5
4.1
18.6
2.0
Equities
Bonds
Properties
Other
Insurance policies
Total value of assets
The actual return on assets over the
period was
determined by reference to actual yields.
The change in the present value of defined benefit obligation over the year was as follows:
Present value of projected defined benefit obligation at the start of the year
Interest on pension scheme liabilities
Actuarial (gain)/loss
Benefits paid
Present value of projected defined benefit obligation at the end of the year
The change in the market value of the scheme assets over the year was as follows:
The assets of the scheme are held with Friends 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 5.5% in 2011 and 6.1% in 2010 are 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
Market value of scheme assets at the start of the year
Expected return on scheme assets
Employer contributions
Actuarial (loss)/gain
Benefits paid
Market value of scheme assets at the end of the year
2011
£m
24.6
1.2
(1.8)
(0.9)
23.1
2011
£m
18.6
0.9
0.6
(0.6)
(0.9)
18.6
2011
£m
18.6
(23.1)
(4.5)
2010
£m
18.6
(24.6)
(6.0)
2009
£m
16.7
(22.5)
(5.8)
2008
£m
15.2
(17.3)
(2.1)
2007
£m
14.0
(16.7)
(2.7)
2011
2010
2009
2008
2007
£0.1m
0.4%
£1.7m
–
–
–
–
£(1.6)m
£(5.0)m
£1.3m
7.5%
£1.7m
–
–
£2.0m
7.4%
(6.5)%
(22.2)%
9.8%
12.0%
–
–
2010
£m
22.5
1.2
1.6
(0.7)
24.6
2010
£m
16.7
0.9
0.6
1.1
(0.7)
18.6
£(0.6)m
(3.2)%
£1.1m
5.9%
£1.0m
6.0%
£(2.6)m
(17.1)%
Grainger plc
128
Notes to the financial statements continued
28 Pension costs continued
Pension cost recognised in the income statement
Interest on pension scheme liabilities
Expected return on pension scheme assets
Total pension cost
The total pension cost shown above has been included within Finance costs (see note 13).
Actuarial gain/(loss) recognised in the consolidated statement of comprehensive income
Actual return less expected return on assets
Gain/(loss) on change of assumptions
Total actuarial gain/(loss) before tax
2011
£m
1.2
(0.9)
0.3
2011
£m
(0.6)
1.8
1.2
2010
£m
1.2
(0.9)
0.3
2010
£m
1.1
(1.6)
(0.5)
The actuarial gain shown in the above tables of £1.2m (2010: loss of £0.4m) has been included in the consolidated statement
of comprehensive income (see page 63).
Future funding obligation
The last actuarial valuation of the scheme was performed by the Actuary for the Trustees as at 1 July 2007. As a result of this valuation the
group agreed a recovery plan with the Trustees to run over seven years to pay annual deficit contributions of £580,200. Based on this plan
the company 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 2011. The next actuarial valuation of the scheme as at 1 July 2010 is currently being finalised.
Following completion of this valuation, the contributions required to be paid by the group are likely to increase.
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% p.a.
decrease in deficit of £0.4m
Inflation increased by 0.1% p.a.
increase in deficit of £0.1m
Life expectancies increased by one year
increase in deficit of £0.7m
The cumulative amount of actuarial losses recognised in the consolidated statement of comprehensive income before deferred taxation is
£1.0m (2010: £2.2m).
Notes to the financial statements continued
28 Pension costs continued
Pension cost recognised in the income statement
Interest on pension scheme liabilities
Expected return on pension scheme assets
Total pension cost
2011
£m
1.2
(0.9)
0.3
2011
£m
(0.6)
1.8
1.2
2010
£m
1.2
(0.9)
0.3
2010
£m
1.1
(1.6)
(0.5)
The total pension cost shown above has been included within Finance costs (see note 13).
Actuarial gain/(loss) recognised in the consolidated statement of comprehensive income
Actual return less expected return on assets
Gain/(loss) on change of assumptions
Total actuarial gain/(loss) before tax
of comprehensive income (see page 63).
Future funding obligation
The actuarial gain shown in the above tables of £1.2m (2010: loss of £0.4m) has been included in the consolidated statement
The last actuarial valuation of the scheme was performed by the Actuary for the Trustees as at 1 July 2007. As a result of this valuation the
group agreed a recovery plan with the Trustees to run over seven years to pay annual deficit contributions of £580,200. Based on this plan
the company 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 2011. The next actuarial valuation of the scheme as at 1 July 2010 is currently being finalised.
Following completion of this valuation, the contributions required to be paid by the group are likely to increase.
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% p.a.
decrease in deficit of £0.4m
Inflation increased by 0.1% p.a.
increase in deficit of £0.1m
Life expectancies increased by one year
increase in deficit of £0.7m
Annual report and accounts 2011
Overview
Business review
Governance
Financials
129
2011
£m
14.2
(0.1)
(13.6)
0.3
4.3
(0.1)
–
5.0
42.7
(47.7)
(5.0)
2010
£m
21.1
2.4
(9.9)
(0.1)
–
0.8
(0.1)
14.2
38.4
(52.6)
(14.2)
29 Deferred tax
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 other comprehensive income:
Actuarial gain/ (loss) 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
Deferred tax balances are disclosed as follows:
Deferred Tax assets- non-current assets
Deferred Tax liabilities- non-current liabilities
Deferred tax
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 £84.9m
(2010: £88.4m).
Information relating to group’s deferred tax is being shown gross to identify both the deferred tax asset and deferred tax liability rather
than the net liability shown in previous years. Comparatives have also been restated.
It is not possible for the group to identify the timing of movements in deferred tax between those expected within one year and those
expected in greater than one year. This is because movements in the main balances, both assets and liabilities, will be determined by
factors outside the control of the group, namely the vacation date of properties and interest yield curve movements. However, given the
long-term nature of our property ownership, we anticipate that the balance will predominantly be crystallised in a period greater than
one year.
The cumulative amount of actuarial losses recognised in the consolidated statement of comprehensive income before deferred taxation is
£1.0m (2010: £2.2m).
30 Trade and other payables
Deposits received
Trade payables
Taxation and social security
Accruals and deferred income
2011
£m
4.0
12.7
1.5
58.2
76.4
2010
£m
3.7
10.9
1.2
41.5
57.3
Trade payables includes £nil (2010: £0.6m) relating to acquisitions of property where contracts have either been unconditionally
exchanged or notarised.
Accruals and deferred income includes £20.1m (2010: £22.7m) of rent received in advance relating to lifetime leases.
Grainger plc
130
Notes to the financial statements continued
31 Share capital
Authorised
500,000,000 (2010: 500,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid:
416,372,103 (2010: 416,362,420) ordinary shares of 5p each
2011
£m
25.0
20.8
2010
£m
25.0
20.8
The group paid £0.6m to the share incentive plan during the year for the purchase of matching shares and free shares in the scheme. In
addition, the group returned £2.2m to shareholders by way of a tender offer for shares during the year (see note 15). The total cost of
acquiring own shares of £2.8m (2010: £4.5m) has been deducted from retained earnings within shareholders’ equity (see note 34).
As at 30 September 2011, share capital included nil (2010: 46,803) shares held by The Grainger Trust Employee Trustee Company Limited,
5,833,401 (2010: 5,976,623) shares held by The Grainger Employee Benefit Trusts and 1,506,300 (2010: 21,410) shares held by Grainger
plc as treasury shares. The total of these shares is 7,339,701 (2010: 6,044,836) with a nominal value of £366,985 (2010: £302,242) and
a market value as at 30 September 2011 of £6.4m (2010: £6.6m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2009
Issue of shares under the rights issue
Options exercised under the SAYE scheme
At 30 September 2010
Options exercised under the SAYE scheme
At 30 September 2011
Number
138,798,113
277,553,406
10,901
Nominal
value
£’000
6,940
13,878
–
416,362,420
20,818
9,683
–
416,372,103
20,818
Annual report and accounts 2011
Overview
Business review
Governance
Financials
131
Notes to the financial statements continued
31 Share capital
Authorised
500,000,000 (2010: 500,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid:
416,372,103 (2010: 416,362,420) ordinary shares of 5p each
Share options
Certain senior executives hold options to subscribe for shares in the company under the long-term incentive scheme (‘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
2011, the periods in which they were granted and the periods in which they may be exercised are given below. Prior year numbers have
been restated to take account of the rights issue in December 2009.
The group paid £0.6m to the share incentive plan during the year for the purchase of matching shares and free shares in the scheme. In
2003
Year of grant
Long-term Incentive Scheme (LTIS)
addition, the group returned £2.2m to shareholders by way of a tender offer for shares during the year (see note 15). The total cost of
acquiring own shares of £2.8m (2010: £4.5m) has been deducted from retained earnings within shareholders’ equity (see note 34).
As at 30 September 2011, share capital included nil (2010: 46,803) shares held by The Grainger Trust Employee Trustee Company Limited,
5,833,401 (2010: 5,976,623) shares held by The Grainger Employee Benefit Trusts and 1,506,300 (2010: 21,410) shares held by Grainger
plc as treasury shares. The total of these shares is 7,339,701 (2010: 6,044,836) with a nominal value of £366,985 (2010: £302,242) and
a market value as at 30 September 2011 of £6.4m (2010: £6.6m).
Movements in issued share capital during the year and the previous year were as follows:
HMR & C Approved Executive Share Option Scheme
2011
SAYE share options
2007
2008 (A)
2008 (B)
2009
2010
2011
416,362,420
20,818
Total share options
At 1 October 2009
Issue of shares under the rights issue
Options exercised under the SAYE scheme
At 30 September 2010
Options exercised under the SAYE scheme
At 30 September 2011
Exercise price
(pence)
Exercise
period
2011
number
2010
number
111.0
2006 – 13
20,814
20,814
20,814
20,814
94.4
2013 – 20
127,088
127,088
–
–
262.8
2010 – 13
–
1,003
97.1
37.7
68.3
90.8
98.7
2011 – 14
100,872
124,110
2012 – 14
2,086,814
2,166,864
2012 – 15
2013 – 16
2014 – 17
127,788
102,998
99,722
133,903
113,304
–
2,518,194
2,539,184
2,666,096
2,559,998
2011
£m
25.0
20.8
2010
£m
25.0
20.8
Number
138,798,113
277,553,406
10,901
9,683
Nominal
value
£’000
6,940
13,878
–
–
416,372,103
20,818
Grainger plc
132
Notes to the financial statements continued
31 Share capital continued
The movement on the share options schemes during the year is as follows:
LTIS schemes
2003
Weighted average exercise price (pence per share)
HMR & C Approved Executive
Share Option Scheme
2011
Weighted average exercise price (pence per share)
SAYE scheme
2007
2008 (A)
2008 (B)
2009
2010
2011
Weighted average exercise price (pence per share)
Opening
position
20,814
20,814
111.0
–
–
–
1,003
124,110
2,166,864
133,903
113,304
–
2,539,184
40.6
Exercised
Granted
Lapsed
–
–
–
–
–
–
–
(9,683)
–
–
–
–
(9,683)
97.1
–
–
–
127,088
127,088
94.4
–
–
–
–
–
99,722
99,722
98.7
Closing
position
20,814
20,814
111.0
127,088
127,088
94.4
–
–
–
–
–
–
(1,003)
(13,555)
–
100,872
(80,050)
2,086,814
(6,115)
(10,306)
–
127,788
102,998
99,722
(111,029)
2,518,194
53.6
46.2
For those share options exercised during the year, the weighted average share price at the date of exercise was 86.6p (2010: 139.7p).
For share options outstanding at the end of the year, the weighted average remaining contractual life is 2.4 years. (2010: 3.0 years).
There were 56,638 (2010: 21,817) share options exercisable at the year end with a weighted average exercise price of 102.2p
(2010: 118.0p).
Notes to the financial statements continued
31 Share capital continued
The movement on the share options schemes during the year is as follows:
Opening
position
20,814
20,814
111.0
–
–
–
–
1,003
124,110
2,166,864
133,903
113,304
2,539,184
40.6
Exercised
Granted
Lapsed
–
–
–
–
–
–
–
–
–
–
–
(9,683)
127,088
127,088
94.4
–
–
–
–
–
–
–
–
(9,683)
97.1
99,722
99,722
98.7
Closing
position
20,814
20,814
111.0
127,088
127,088
94.4
–
–
–
–
–
–
(1,003)
(13,555)
–
100,872
(80,050)
2,086,814
(6,115)
(10,306)
–
127,788
102,998
99,722
(111,029)
2,518,194
53.6
46.2
Weighted average exercise price (pence per share)
HMR & C Approved Executive
Share Option Scheme
2011
Weighted average exercise price (pence per share)
LTIS schemes
2003
SAYE scheme
2007
2008 (A)
2008 (B)
2009
2010
2011
(2010: 118.0p).
Weighted average exercise price (pence per share)
For those share options exercised during the year, the weighted average share price at the date of exercise was 86.6p (2010: 139.7p).
For share options outstanding at the end of the year, the weighted average remaining contractual life is 2.4 years. (2010: 3.0 years).
There were 56,638 (2010: 21,817) share options exercisable at the year end with a weighted average exercise price of 102.2p
Annual report and accounts 2011
Overview
Business review
Governance
Financials
133
32 Share-based payments
The group operates an equity-settled, share-based compensation plan comprising awards under a long-term incentive scheme (‘LTIS’),
a deferred bonus plan (‘DBP’), a share incentive plan (‘SIP’) and a save as you earn (‘SAYE’) scheme.
For LTIS awards granted before September 2010, one-third are subject to an absolute total shareholder return performance condition
measured over three years from the date of grant and two-thirds are subject to annual growth in Net Net Net Asset Value (‘NNNAV’)
measured over three years from the date of grant. For the LTIS awards granted on 26 November 2010 one-half are subject to an absolute
total shareholder return performance condition measured over three years from the date of grant and one-half are subject to annual
growth in Net Net Net Asset Value (‘NNNAV’) compared to the growth in the Halifax and Nationwide House Price indices all measured
over three years from the date of grant. Awards subject to an absolute total shareholder return performance, which is a market based
performance condition, have been valued at fair value using a Monte Carlo simulation valuation model. Awards subject to growth in
NNNAV, which is a non-market based performance condition, have been valued at fair value using a Black-Scholes valuation model.
Awards granted under the DBP have no specific performance conditions other than the company meeting its target for operating profit
before valuation movements and non-recurring items (OPBVM) and continued employment by the group. There is a three-year vesting
period from the date of grant. One third of the awards vest at the end of each year. Participants can choose to exercise their awards on
vesting or to retain their awards within the plan until the end of the third year at which point a 50% matching element is added to their
award entitlement. There are currently two schemes in operation commencing on 3 February 2010 and 6 December 2010 respectively.
Awards under the DBP have been valued based on the share price at the date of the award less the dividend yield at the award date as
there is no entitlement to dividends during the vesting period.
Awards under the SAYE scheme have been valued at fair value using a Black Scholes valuation model.
Awards under the SIP scheme have been based on the share price at the date of the award.
Shares were awarded, subject to any vesting conditions set out above, to executive directors and selected employees during the year under
the LTIS and the DBP. 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 SAYE options granted during the year are set out in the tables below. Conditional share awards
over a total of 545,979 shares granted to Nick Jopling and Mark Greenwood on 21 September 2010 are also shown. These were not
disclosed in last year’s annual report as no share-based payment charge was made in 2010 relating to these awards on grounds of
immateriality given the proximity of the awards to the group’s financial year end.
Grainger plc
134
Notes to the financial statements continued
32 Share-based payments continued
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 (£)
DBP
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 (£)
Dividend yield (£)
Fair value (£)
21 September
2010
Market based
21 September
2010
Non-market
based
26 November
2010
Market based
26 November
2010
Non-market
based
181,993
363,986
917,246
917,246
–
3
7
1.130
5.31
0.90
26.00
0.433
–
3
7
1.130
–
–
–
1.130
–
3
7
0.944
1.35
1.54
55.7
0.549
–
3
7
0.944
1.35
1.54
55.7
0.902
6 December
2010
665,642
–
1 to 3
3
0.893
0.017
0.876
Notes to the financial statements continued
32 Share-based payments continued
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 (£)
DBP
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 (£)
Dividend yield (£)
Fair value (£)
21 September
26 November
21 September
2010
26 November
2010
Non-market
2010
Non-market
Market based
based
Market based
181,993
363,986
917,246
917,246
–
3
7
1.130
5.31
0.90
26.00
0.433
–
3
7
–
–
–
1.130
1.130
–
3
7
0.944
1.35
1.54
55.7
0.549
2010
based
–
3
7
0.944
1.35
1.54
55.7
0.902
6 December
2010
665,642
1 to 3
–
3
0.893
0.017
0.876
Annual report and accounts 2011
Overview
Business review
Governance
Financials
135
14 July 2011
3-year scheme
14 July 2011
5-year scheme
70,031
0.987
3
29,691
0.987
5
31 Oct 2014
31 Oct 2016
1.234
0.82
2.17
63.0
0.298
1.234
1.48
2.17
41.0
0.234
SAYE
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 (£)
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 £2.0m (2010: £1.3m).
Movements in options and options exercisable as at 30 September 2011 are shown in note 31.
33 Changes in equity
The consolidated statement of changes in equity is shown on pages 66 and 67. Further information relating to the merger reserve and
cash flow hedge reserve is provided below. Movements on the retained earnings reserve are set out in note 34.
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.
In December 2009 the group completed a two for one rights issue at an issue price of 90p per share raising a total gross amount
of £249.8m, net of costs £236.7m. The rights issue increased the number of share in issue by 277,553,406 shares, increasing share capital
by £13.9m. The group took advantage of section 612 of the Companies Act 2006 to take proceeds in excess of the nominal value of
shares issued, amounting to £235.9m, to a merger reserve. The group used a cash-box structure to effect the rights issue and under this
mechanism, £235.9m was subsequently transferred to retained earnings. Costs of issue, which totalled £13.1m have been taken directly
to reserves.
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
net of tax.
Grainger plc
136
Notes to the financial statements continued
34 Movement in retained earnings
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 2009
2.1
(7.8)
(9.1)
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
Rights issue costs
Transfer from merger reserve
Share-based payments charge
Dividends
Balance as at 30 September 2010
Profit for the year
Actuarial gain on BPT pension scheme
net of tax
Net exchange adjustment offset in
reserves
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Balance as at 30 September 2011
–
–
–
–
(0.5)
–
–
1.3
–
2.9
–
–
–
–
(0.7)
2.0
–
4.2
–
–
–
–
–
–
–
–
–
–
–
–
(4.5)
0.5
–
–
–
–
(7.8)
(13.1)
–
–
–
–
–
–
–
–
–
–
(2.8)
0.7
–
–
1.8
–
–
0.9
–
–
–
–
–
–
2.7
–
–
(0.6)
–
–
–
–
39.1
(10.8)
(0.4)
–
–
–
(13.1)
235.9
–
(7.4)
243.3
39.1
0.8
–
–
–
–
(4.9)
278.3
26.1
(10.8)
(0.4)
0.9
(4.5)
–
(13.1)
235.9
1.3
(7.4)
228.0
39.1
0.8
(0.6)
(2.8)
–
2.0
(4.9)
261.6
(7.8)
(15.2)
2.1
Share-based payments reserve
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 2011, the group owned its own shares as follows: nil (2010: 46,803) shares held by The Grainger Trust Employee
Trustee Company Limited, 5,833,401 (2010: 5,976,623) shares held by The Grainger Employee Benefit Trusts and 1,506,300 (2010:
21,410) shares held by Grainger plc as treasury shares. The total of these shares is 7,339,701 (2010: 6,044,836) with a nominal value of
£366,985 (2010: £302,242) and a market value as at 30 September 2011 of £6.4m (2010: £6.6m).
Details relating to the rights issue and transfer from merger reserve are set out in notes 33 and 40.
Notes to the financial statements continued
34 Movement in retained earnings
The retained earnings reserve comprises various elements. Those elements, and the movements in each, are set out below:
Treasury shares
Investment
Share-based
bought back and
payment reserve
cancelled
£m
2.1
£m
(7.8)
in own
shares
£m
(9.1)
Translation
reserve
Retained
earnings
Total retained
earnings reserve
Award of shares from own shares
(0.5)
Balance as at 1 October 2009
Loss for the year
Actuarial loss on BPT pension scheme
net of tax
reserves
Net exchange adjustment offset in
Purchase of own shares
Rights issue costs
Transfer from merger reserve
Share-based payments charge
Dividends
Profit for the year
Actuarial gain on BPT pension scheme
net of tax
reserves
Net exchange adjustment offset in
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Share-based payments reserve
average cost of shares issued to employees.
Investment in own shares reserve
–
–
–
–
–
–
–
–
–
–
–
1.3
2.9
(0.7)
2.0
–
4.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.5)
0.5
(2.8)
0.7
£m
1.8
0.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.6)
£m
39.1
(10.8)
(0.4)
–
–
–
(13.1)
235.9
–
(7.4)
243.3
39.1
0.8
–
–
–
–
(4.9)
278.3
£m
26.1
(10.8)
(0.4)
0.9
(4.5)
–
(13.1)
235.9
1.3
(7.4)
228.0
39.1
0.8
(0.6)
(2.8)
–
2.0
(4.9)
261.6
Balance as at 30 September 2011
(7.8)
(15.2)
2.1
This reserve comprises the cumulative credit entries relating to the share-based payments charge made in the income statement less the
As at 30 September 2011, the group owned its own shares as follows: nil (2010: 46,803) shares held by The Grainger Trust Employee
Trustee Company Limited, 5,833,401 (2010: 5,976,623) shares held by The Grainger Employee Benefit Trusts and 1,506,300 (2010:
21,410) shares held by Grainger plc as treasury shares. The total of these shares is 7,339,701 (2010: 6,044,836) with a nominal value of
£366,985 (2010: £302,242) and a market value as at 30 September 2011 of £6.4m (2010: £6.6m).
Details relating to the rights issue and transfer from merger reserve are set out in notes 33 and 40.
Balance as at 30 September 2010
(7.8)
(13.1)
2.7
Annual report and accounts 2011
Overview
Business review
Governance
Financials
137
35 List of principal subsidiaries
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2011 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, are material to the group. A full list will be appended to the next annual return.
Name of undertaking
Northumberland & Durham Property Trust Limited
Grainger Residential Management Limited
Grainger Asset Management Limited
Grainger Unit Holder Number 1 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 Stuttgart Portfolio One Sarl & Co KG
Grainger Stuttgart Portfolio Two Sarl & Co KG
Francono Rhein-Main GmbH
Grainger Invest No. 1 LLP
Grainger Invest No. 2 LLP
Tricomm Housing Limited
Grainger Luxembourg Germany Holdings Sarl
Grainger Treasury Property (2006) LLP
The Tilt Estate Company Limited
Grainger Retirement Housing No.1 (2007) Limited
BPT Limited
All subsidiaries are consolidated in the group accounts.
Proportion of nominal value of
ordinary issued shares held by:
Group
%
Company
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Incorporated
Activity
England & Wales
Property Trading
100
100
100
England & Wales
Property Management
England & Wales
Asset Management
England & Wales
Investment Company
England & Wales
England & Wales
Development
Property Trading
England & Wales
Property Investment
100
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Germany
Germany
Germany
Germany
Germany
England & Wales
England & Wales
Finance Company
Finance Company
Property Trading
Property Trading
Property Trading
Property Trading
Property Trading
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Trading
Property Trading and
Investment
England & Wales
Property Investment
Luxembourg
Investment Company
England & Wales
Investment Partnership
England & Wales
Property Investment
England & Wales
Property Investment
England & Wales
Investment Company
Grainger plc
138
Notes to the financial statements continued
36 Related party transactions
The group held a 50% interest in Grainger GenInvest LLP and Grainger GenInvest No 2 (2006) LLP at 1 October 2010. The remaining
50% equity in both entities were acquired by the group on 22 March 2011 (see note 41). Prior to the acquisition, the group provided
a number of services to both partnerships and received 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 for the portion of the year where
the Grainger share was 50% are as follows:
Asset adviser fee
Sales fee
Commercial management fee
Treasury fee
In addition, the group has provided loans to both partnerships as follows:
Grainger GenInvest LLP – 8.5% fixed interest loan note
Grainger GenInvest No 2 (2006) LLP – 11.0% fixed interest loan note
Grainger GenInvest No 2 (2006) LLP – mezzanine loan at LIBOR plus 4%
2011
Fees
recognised
£’000
2011
Year end
balance
£’000
2010
Fees
recognised
£’000
298
26
7
15
346
–
–
–
–
–
691
49
28
30
798
2010
Year end
balance
£’000
201
5
8
9
223
Balance as at
30 September
2011
£m
Balance as at
30 September
2010
£m
2011
Interest
receivable
£m
2010
Interest
receivable
£m
–
–
–
–
8.5
5.5
79.0
93.0
0.3
0.2
1.9
2.4
0.7
0.3
3.8
4.8
Interest receivable is included within interest receivable from associates and joint ventures shown in note 13. The difference of £1.2m
between the figure shown above of £2.4 and the amount shown in note 13 of £1.2m 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 group held a 50% interest in Curzon Park Limited as at 30 September 2011. The group has provided a loan to Curzon Park Limited as
at 30 September 2011 of £13.2m (2010: £12.8m). The loan is repayable on demand.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
139
Notes to the financial statements continued
36 Related party transactions
The group held a 50% interest in Grainger GenInvest LLP and Grainger GenInvest No 2 (2006) LLP at 1 October 2010. The remaining
50% equity in both entities were acquired by the group on 22 March 2011 (see note 41). Prior to the acquisition, the group provided
a number of services to both partnerships and received 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 for the portion of the year where
the Grainger share was 50% are as follows:
Asset adviser fee
Sales fee
Commercial management fee
Treasury fee
In addition, the group has provided loans to both partnerships as follows:
Grainger GenInvest LLP – 8.5% fixed interest loan note
Grainger GenInvest No 2 (2006) LLP – 11.0% fixed interest loan note
Grainger GenInvest No 2 (2006) LLP – mezzanine loan at LIBOR plus 4%
2011
Fees
£’000
298
26
7
15
346
2011
£m
–
–
–
–
–
–
–
–
–
2010
£m
8.5
5.5
79.0
93.0
2010
Year end
balance
£’000
201
5
8
9
223
£m
0.7
0.3
3.8
4.8
691
49
28
30
798
£m
0.3
0.2
1.9
2.4
Balance as at
30 September
Balance as at
30 September
2011
Interest
receivable
2010
Interest
receivable
The group held a 22.0% interest in G:res1 Limited as at 30 September 2011. 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:
recognised
2011
Year end
balance
£’000
2010
Fees
recognised
£’000
Property management fees
Lettings and renewal fees
Asset management fees
2011
Fees
recognised
£’000
1,657
202
2,658
4,517
2011
Year end
balance
£’000
528
80
835
1,443
2010
Fees
recognised
£’000
1,421
183
2,302
3,906
2010
Year end
balance
£’000
748
58
1,242
2,048
The group held a 21.8% interest in the Schroder Residential Property Unit Trust as at 1 October 2010, which was subject to a controlled
liquidation completed by 31 March 2011. As a result fee income in 2011 is considerably lower than in 2010. 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
2011
Fees
recognised
£’000
2011
Year end
balance
£’000
2010
Fees
recognised
£’000
2010
Year end
balance
£’000
–
2
–
–
2
–
–
–
–
–
2
11
44
118
175
–
–
–
–
–
Interest receivable is included within interest receivable from associates and joint ventures shown in note 13. The difference of £1.2m
between the figure shown above of £2.4 and the amount shown in note 13 of £1.2m 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 group held a 50% interest in Curzon Park Limited as at 30 September 2011. The group has provided a loan to Curzon Park Limited as
at 30 September 2011 of £13.2m (2010: £12.8m). The loan is repayable on demand.
The group held a 50% interest in New Sovereign Reversions Limited as at 30 September 2011. The group has provided a loan to
Sovereign Reversions Limited, a wholly owned subsidiary of New Sovereign Reversions Limited, as at 30 September 2011 of £1.5m.
The loan is repayable on demand and bears interest at LIBOR plus 7% per annum.
The group provides management services to the New Sovereign Reversions Limited group for which it receives a management fee.
Amounts recognised in the income statement and outstanding balances at the year end are as follows:
Asset management fees
Details of key management compensation are provided in note 11.
2011
Fees
recognised
£’000
1,190
2011
Year end
balance
£’000
235
2010
Fees
recognised
£’000
–
2010
Year end
balance
£’000
–
37 Capital commitments
As at 30 September 2011, the group and its joint ventures and associates had capital commitments of £nil (2010: £nil).
Grainger plc
140
Notes to the financial statements continued
38 Operating lease commitments
The future aggregate minimum lease payments payable by the group under non-cancellable operating leases are as follows:
Operating lease payments due:
Not later than one year
Later than one year and not later than five years
Later than five years
2011
£m
1.4
3.5
0.7
5.6
2010
£m
1.5
4.6
1.4
7.5
The group expects to receive £0.1m under non-cancellable sub-leases (2010: £0.8m).
39 Contingent liabilities
The properties in certain subsidiary companies forming a ‘guarantee group’ provide the security for the group’s core debt facility.
Barclays Bank Plc and Lloyds TSB Bank Plc have provided guarantees under performance bonds relating to the group’s UK development
division. As at 30 September 2011 total guarantees amounted to £2.1m (2010: £2.4m).
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. However, it is unlikely that any
future payments will fall due until at least 2015 and any payments made will be spread over a number of years.
As explained in more detail in note 20, there is uncertainty relating to the future of the site of Curzon Park in which the group has a 50%
joint venture interest. Should the value of the site, together with any compensation received, be insufficient to repay the bank loan
in the joint venture entity, the group may incur charges in excess of those provided in these financial statements, in respect of obligations
to the joint venture and the bank.
40 Rights issue
In December 2009 the company completed a two for one rights issue at an issue price of 90p per share raising a total gross amount
of £249.8m, net of costs £236.7m. The rights issue increased the number of share in issue by 277,553,406 shares, increasing share
capital by £13.9m.
The group took advantage of section 612 of the Companies Act 2006 to take proceeds in excess of the nominal value of shares issued,
amounting to £235.9m, to a merger reserve. Under a cash-box mechanism this amount has been subsequently transferred to retained
earnings. Costs of issue which totalled £13.1m have been taken directly to reserves.
Notes to the financial statements continued
38 Operating lease commitments
The future aggregate minimum lease payments payable by the group under non-cancellable operating leases are as follows:
Operating lease payments due:
Not later than one year
Later than one year and not later than five years
Later than five years
The group expects to receive £0.1m under non-cancellable sub-leases (2010: £0.8m).
39 Contingent liabilities
The properties in certain subsidiary companies forming a ‘guarantee group’ provide the security for the group’s core debt facility.
Barclays Bank Plc and Lloyds TSB Bank Plc have provided guarantees under performance bonds relating to the group’s UK development
division. As at 30 September 2011 total guarantees amounted to £2.1m (2010: £2.4m).
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. However, it is unlikely that any
future payments will fall due until at least 2015 and any payments made will be spread over a number of years.
As explained in more detail in note 20, there is uncertainty relating to the future of the site of Curzon Park in which the group has a 50%
in the joint venture entity, the group may incur charges in excess of those provided in these financial statements, in respect of obligations
Annual report and accounts 2011
Overview
Business review
Governance
Financials
141
2011
£m
1.4
3.5
0.7
5.6
2010
£m
1.5
4.6
1.4
7.5
41 Acquisitions in the year
i) Acquisition of HI Tricomm Holdings Limited
On 4 February 2011 Grainger acquired the HI Tricomm Holdings Limited (‘HITHL’) group including its trading subsidiary Tricomm Housing
Limited (‘THL’) from Invista Castle Limited.
The main reason for the acquisition was reflective of Grainger’s strategy to diversify its assets into selective areas of value or growth.
THL owns a high quality portfolio of 317 freehold houses in five separate locations around the Bristol and Portsmouth areas and the assets
are high yielding. The houses are let under a long-term lease arrangement with the Secretary of State for Defence until 2028 providing
a consistent revenue stream.
The fair value at acquisition of the total consideration transferred amounted to £6.8m.
The acquisition has been treated as a business combination and resulted in a gain on acquisition of £14.9m. This gain on acquisition arose
due to it being a bargain purchase reflecting the particular situation of the vendors and their requirement to dispose of HITHL quickly.
The identifiable assets and liabilities acquired were as follows:
Assets
Investment Property
Cash and cash equivalents
Trade and other receivables
Deferred tax assets
Liabilities
to the joint venture and the bank.
40 Rights issue
capital by £13.9m.
joint venture interest. Should the value of the site, together with any compensation received, be insufficient to repay the bank loan
Interest bearing loans and borrowings
Trade and other payables
Deferred tax liabilities
Loan notes payable
In December 2009 the company completed a two for one rights issue at an issue price of 90p per share raising a total gross amount
Amounts payable to Invista Castle Limited
of £249.8m, net of costs £236.7m. The rights issue increased the number of share in issue by 277,553,406 shares, increasing share
Derivative Financial Instruments
The group took advantage of section 612 of the Companies Act 2006 to take proceeds in excess of the nominal value of shares issued,
Net assets acquired
amounting to £235.9m, to a merger reserve. Under a cash-box mechanism this amount has been subsequently transferred to retained
earnings. Costs of issue which totalled £13.1m have been taken directly to reserves.
Fair value of consideration paid
Gain on acquisition
£m
105.4
5.4
0.8
2.3
113.9
67.6
2.1
2.2
9.5
2.2
8.6
92.2
21.7
6.8
14.9
Investment property acquired of £105.4m represents its fair value. For the acquired trade and other receivables the above values represent
the fair values. They are the expected amounts receivable and, at the acquisition date, there are no amounts not expected to be collected.
Trade and other payables primarily represent amounts payable for bank interest, corporation tax and VAT. There was no contingent
consideration and there are no contingent liabilities that have not been recognised.
In addition to the consideration of £6.8m for the share capital of HITHL, Grainger settled on acquisition the amount of £2.2m payable to
Invista Castle Limited by the HITHL group and Grainger also acquired a loan note receivable plus accrued interest thereon totalling £9.5m
from Invista Castle Limited. The loan note payable was part of the liabilities acquired as shown in the above table. All three amounts
together made up the total consideration of £18.5m which was paid in cash.
Grainger plc
142
Notes to the financial statements continued
41 Acquisitions in the year continued
The post acquisition revenue and profit before tax included in the group’s consolidated income statement for year to 30 September 2011
were £5.9m and £2.0m respectively.
ii) Acquisition of 50% equity in Grainger GenInvest LLP’s
On 22nd March, Grainger acquired the 50% interest of Genesis Housing Group in the two Grainger GenInvest LLP’s thereby becoming
the sole owner of both entities.
The main reason for the acquisition is as part of Grainger’s strategy to diversify its assets into selective areas of value or growth. The
partnerships own c.1,650 properties in Central London where we believe there are good prospects for long term capital appreciation.
The fair value at acquisition of the total consideration transferred amounted to £15.0m and was paid in cash. This consideration was paid
to acquire the remaining 50% equity in Grainger GenInvest LLP. No consideration was paid for the remaining 50% equity in Grainger
GenInvest No. 2 (2006) LLP. The acquisition has been treated as a business combination and resulted in a gain on acquisition of Grainger
GenInvest LLP of £1.2m. This gain on acquisition arose due to it being a bargain purchase and reflected the particular situation
of the vendor and the requirement to re-finance the debt in the two LLP’s.
The identifiable assets and liabilities acquired were as follows:
Assets
Investment Property
Trading Property
Cash and cash equivalents
Liabilities
Interest bearing loans and borrowings
Trade and other payables
Interest bearing loans due to Grainger
Net assets acquired
50% of net assets acquired
Fair value of consideration paid
Gain on acquisition
£m
102.4
186.9
5.0
294.3
187.0
2.7
72.2
261.9
32.4
16.2
15.0
1.2
Investment and trading property acquired of £289.3m in aggregate, represents its fair value.
Trade and other payables primarily represent amounts payable to external suppliers and for bank interest.
There was no contingent consideration and there are no contingent liabilities that have not been recognised.
The post acquisition revenue and profit before tax included in the group’s consolidated income statement for year to 30 September 2011
were £6.6m and £4.6m respectively.
Notes to the financial statements continued
The post acquisition revenue and profit before tax included in the group’s consolidated income statement for year to 30 September 2011
41 Acquisitions in the year continued
were £5.9m and £2.0m respectively.
ii) Acquisition of 50% equity in Grainger GenInvest LLP’s
the sole owner of both entities.
On 22nd March, Grainger acquired the 50% interest of Genesis Housing Group in the two Grainger GenInvest LLP’s thereby becoming
The main reason for the acquisition is as part of Grainger’s strategy to diversify its assets into selective areas of value or growth. The
partnerships own c.1,650 properties in Central London where we believe there are good prospects for long term capital appreciation.
The fair value at acquisition of the total consideration transferred amounted to £15.0m and was paid in cash. This consideration was paid
to acquire the remaining 50% equity in Grainger GenInvest LLP. No consideration was paid for the remaining 50% equity in Grainger
GenInvest No. 2 (2006) LLP. The acquisition has been treated as a business combination and resulted in a gain on acquisition of Grainger
GenInvest LLP of £1.2m. This gain on acquisition arose due to it being a bargain purchase and reflected the particular situation
of the vendor and the requirement to re-finance the debt in the two LLP’s.
The identifiable assets and liabilities acquired were as follows:
Assets
Investment Property
Trading Property
Cash and cash equivalents
Liabilities
Interest bearing loans and borrowings
Trade and other payables
Interest bearing loans due to Grainger
Net assets acquired
50% of net assets acquired
Fair value of consideration paid
Gain on acquisition
£m
102.4
186.9
5.0
294.3
187.0
2.7
72.2
261.9
32.4
16.2
15.0
1.2
Investment and trading property acquired of £289.3m in aggregate, represents its fair value.
Trade and other payables primarily represent amounts payable to external suppliers and for bank interest.
There was no contingent consideration and there are no contingent liabilities that have not been recognised.
The post acquisition revenue and profit before tax included in the group’s consolidated income statement for year to 30 September 2011
were £6.6m and £4.6m respectively.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
143
iii) Pro forma full year information
We have set out below a pro forma summary presenting the group as if both of the above acquisitions had taken place on 1 October
2010 instead of the actual acquisition dates. The pro forma figures for group revenue and group profit before tax include the additional
net rent from the acquired entities, assume that the refinancing of Grainger GenInvest took place on 1 October 2010 rather than
on acquisition on 22 March 2011 and also assume that the gains on acquisition were the same as shown above despite the earlier
assumed acquisition date. The pro forma information is provided for comparative purposes only and does not necessarily reflect the
actual results that would have occurred.
Revenue
Profit before tax
£m
304.6
28.3
42 Acquisitions in the prior year
i) Acquisition of PHA Limited
On 31 March 2010 the group acquired 100% of the equity in PHA Limited, a company which owned 162 residential properties located
in Devon. The total consideration for the purchase was £15.4m paid in cash. The acquisition was treated as a business combination and
goodwill of £0.4m arose reflecting the discount obtained against the potential contingent tax inherent in the portfolio. There has been
no impairment of goodwill in the period since acquisition.
The identifiable assets and liabilities acquired were as follows:
Assets
Inventories – trading property
Cash and cash equivalents
Other current assets
Liabilities
Corporation tax
Deferred tax
Other current liabilities
Net assets acquired
Fair value of consideration paid
Goodwill arising (see note 22)
£m
17.2
0.4
0.1
17.7
0.2
2.4
0.1
2.7
15.0
15.4
0.4
The post acquisition revenue and profit of PHA Limited included within the group’s 2010 consolidated income statement was £0.5m
and £0.3m respectively. Had the acquisition taken place on 1 October 2009, we estimate on a pro forma basis, that the revenue
and profit of PHA Limited for the 12-month period from that date to be consolidated in the 2010 group accounts would have been
£1.0m and £0.6m respectively.
Grainger plc
144
Notes to the financial statements continued
42 Acquisitions in the prior year continued
ii) Acquisition of Sovereign Reversions Limited (formerly Sovereign Reversions plc)
On 9 August 2010 the group acquired Sovereign Reversions plc (‘Sovereign’) a company which specialises in equity release investment,
advice, plan provision and plan administration. The Sovereign property portfolio on acquisition was valued at approximately £67.9m.
Grainger Equity Release Limited (‘GERL’) paid £34.2m for 100% of the issued share capital of Sovereign (excluding acquisition costs).
The fair value of assets and liabilities was £73.1m and £34.4m respectively. The fair value of net assets acquired was therefore £38.7m.
The resulting gain on acquisition of £4.5m was credited to the 2010 income statement in line with IFRS 3 (Revised).
The purchase was made with the subsequent intention of entering into a joint venture with Moorfield Real Estate Fund II Equity Release
Limited, a wholly-owned subsidiary of Moorfield Real Estate Fund II (‘Moorfield’). Moorfield is a UK-based real estate investor and
Fund Manager.
Subsequent to the 2010 Grainger year end, on 12 October 2010, GERL received a cash consideration of £17.5m from Moorfield for
a 50% stake in Sovereign valued at £19.2m. The group provided for the resulting loss of £1.7m in its 2010 financial statements.
In accordance with IFRS 5 all of the assets and liabilities of Sovereign at 30 September 2010 were classified as a disposal group held-for-
sale. This is because the disposal group met the two criteria set out in IFRS 5 of being available-for-sale in its present condition and the sale
being highly probable. Included on the face of the 2010 consolidated statement of financial position are total assets of £70.7m and total
liabilities of £34.1m relating to Sovereign. These balances comprised the following:
Total assets
Inventories – trading property
Cash and cash equivalents
Other current assets
Total liabilities
Bank loans
Deferred tax
Other current liabilities
£m
66.5
3.1
1.1
70.7
28.2
4.9
1.0
34.1
A net gain of £2.8m, comprising the gain on acquisition of £4.5m and impairment loss of £1.7m were credited to the 2010 consolidated
statement of comprehensive income and are shown in the segmental analysis in note 4 within the retirement solutions segment.
The Sovereign assets and liabilities are shown as part of the retirement solutions segment in note 4.
Following the formation of the joint venture on 12 October 2010 the remaining 50% interest in Sovereign is now shown within note 20
of these financial statements.
43 Post balance sheet events
On 5 October 2011, the group signed an agreement for £50.3m of debt funding from Partnership Assurance provided through an
innovative structure against certain of the group’s Retirement Solutions assets, non-recourse to the rest of the group. On 21 November
2011 the group signed a further agreement with Partnership Assurance for an additional £28.6m of debt funding under similar terms to
the initial £50.3m. These facilities are repayable on a property-by-property basis as the assets are sold on vacancy, with interest rolling up.
In this way the facility exactly matches the cash flow characteristics of this part of the business, with an expected average maturity of 11
years. These funds are being used to reduce the group’s core debt facilities.
Notes to the financial statements continued
Independent auditors’ report on the parent
company financial statements
Annual report and accounts 2011
Overview
Business review
Governance
Financials
145
42 Acquisitions in the prior year continued
ii) Acquisition of Sovereign Reversions Limited (formerly Sovereign Reversions plc)
On 9 August 2010 the group acquired Sovereign Reversions plc (‘Sovereign’) a company which specialises in equity release investment,
advice, plan provision and plan administration. The Sovereign property portfolio on acquisition was valued at approximately £67.9m.
Grainger Equity Release Limited (‘GERL’) paid £34.2m for 100% of the issued share capital of Sovereign (excluding acquisition costs).
The fair value of assets and liabilities was £73.1m and £34.4m respectively. The fair value of net assets acquired was therefore £38.7m.
The resulting gain on acquisition of £4.5m was credited to the 2010 income statement in line with IFRS 3 (Revised).
The purchase was made with the subsequent intention of entering into a joint venture with Moorfield Real Estate Fund II Equity Release
Limited, a wholly-owned subsidiary of Moorfield Real Estate Fund II (‘Moorfield’). Moorfield is a UK-based real estate investor and
Fund Manager.
Subsequent to the 2010 Grainger year end, on 12 October 2010, GERL received a cash consideration of £17.5m from Moorfield for
a 50% stake in Sovereign valued at £19.2m. The group provided for the resulting loss of £1.7m in its 2010 financial statements.
In accordance with IFRS 5 all of the assets and liabilities of Sovereign at 30 September 2010 were classified as a disposal group held-for-
sale. This is because the disposal group met the two criteria set out in IFRS 5 of being available-for-sale in its present condition and the sale
being highly probable. Included on the face of the 2010 consolidated statement of financial position are total assets of £70.7m and total
liabilities of £34.1m relating to Sovereign. These balances comprised the following:
Total assets
Inventories – trading property
Cash and cash equivalents
Other current assets
Total liabilities
Bank loans
Deferred tax
Other current liabilities
A net gain of £2.8m, comprising the gain on acquisition of £4.5m and impairment loss of £1.7m were credited to the 2010 consolidated
statement of comprehensive income and are shown in the segmental analysis in note 4 within the retirement solutions segment.
The Sovereign assets and liabilities are shown as part of the retirement solutions segment in note 4.
Following the formation of the joint venture on 12 October 2010 the remaining 50% interest in Sovereign is now shown within note 20
of these financial statements.
43 Post balance sheet events
On 5 October 2011, the group signed an agreement for £50.3m of debt funding from Partnership Assurance provided through an
innovative structure against certain of the group’s Retirement Solutions assets, non-recourse to the rest of the group. On 21 November
2011 the group signed a further agreement with Partnership Assurance for an additional £28.6m of debt funding under similar terms to
the initial £50.3m. These facilities are repayable on a property-by-property basis as the assets are sold on vacancy, with interest rolling up.
In this way the facility exactly matches the cash flow characteristics of this part of the business, with an expected average maturity of 11
years. These funds are being used to reduce the group’s core debt facilities.
£m
66.5
3.1
1.1
70.7
28.2
4.9
1.0
34.1
We have audited the parent company financial statements of
Grainger plc for the year ended 30 September 2011 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).
Respective responsibilities of directors and auditors
As explained more fully in the directors’ responsibilities statement
set out on page 58, 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 and express an opinion on 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 Chapter
3 of Part 16 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. In addition, we read all
the financial and non-financial information in the annual report
to identify material inconsistencies with the audited financial
statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications
for our report.
Opinion on financial statements
In our opinion the parent company financial statements:
Give a true and fair view of the state of the company’s affairs
as at 30 September 2011;
Have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
Have been prepared in accordance with the requirements
of the Companies Act 2006.
Opinion on other matters prescribed by the
Companies Act 2006
In our opinion:
The part of the directors’ remuneration report to be audited has
been properly prepared in accordance with the Companies Act
2006; and
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:
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
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
Certain disclosures of directors’ remuneration specified by law
are not made; or
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 2011.
Bowker Andrews (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Newcastle upon Tyne
5 December 2011
Grainger plc
146
Parent company balance sheet
As at 30 September 2011
Fixed assets
Investments
Current assets
Investment in associates
Trade and other receivables
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Convertible bond
Interest-bearing loans and borrowings
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
Notes
2
2
3
4
5
6
7
8
8
8
8
2011
£m
806.4
806.4
–
11.4
33.1
44.5
218.5
(174.0)
632.4
22.5
98.9
511.0
20.8
109.8
0.3
5.0
375.1
511.0
2010
£m
348.2
348.2
0.1
130.2
48.9
179.2
14.5
164.7
512.9
21.6
–
491.3
20.8
109.8
0.3
5.0
355.4
491.3
The financial statements on pages 146 to 152 were approved by the board of directors on 5 December 2011 and were signed on their
behalf by:
Andrew R Cunningham
Director
Mark Greenwood
Director
Parent company balance sheet
Notes to the parent company
financial statements
Annual report and accounts 2011
Overview
Business review
Governance
Financials
147
As at 30 September 2011
Fixed assets
Investments
Current assets
Investment in associates
Trade and other receivables
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current (liabilities)/assets
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Convertible bond
Interest-bearing loans and borrowings
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
behalf by:
Andrew R Cunningham
Mark Greenwood
Director
Director
Notes
2
2
3
4
5
6
7
8
8
8
8
2011
£m
806.4
806.4
–
11.4
33.1
44.5
218.5
(174.0)
632.4
22.5
98.9
511.0
20.8
109.8
0.3
5.0
375.1
511.0
2010
£m
348.2
348.2
0.1
130.2
48.9
179.2
14.5
164.7
512.9
21.6
–
491.3
20.8
109.8
0.3
5.0
355.4
491.3
1 Accounting policies
(a) Basis of preparation
The financial statements have been prepared on a going concern basis in accordance with the historical cost, 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 profit for the year was £25.4m (2010: £0.9m). On an historical cost basis the profit for the year would have
been £25.4m (2010: £0.9m). These financial statements present information about the company as an individual undertaking and not
about its group.
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) Investment in subsidiaries
Investments in subsidiaries are carried at historical cost less provision for impairment based upon an assessment of the net recoverable
amount of each investment. To the extent that the assessment of recoverable amount improves impairment provisions are reversed.
(d) Investment in joint ventures and associates
Investments in joint ventures and associates are accounted for by the equity method of accounting and are initially recognised at cost.
The company’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised in the profit and loss account,
and the 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.
(e) 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.
(f) Own shares including treasury shares
Transactions of The Grainger Trust Employee Trustee Company Limited and The Grainger Employee Benefit Trusts are included in the
company’s financial statements. The purchase of shares in the company by each trust and any treasury shares bought back by the
company are debited direct to equity.
(g) 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 £4.68. The convertible bond is a compound financial instrument and the carrying amount has been allocated to its equity and
liability components in the company’s 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.
The financial statements on pages 146 to 152 were approved by the board of directors on 5 December 2011 and were signed on their
Grainger plc
148
Notes to the parent company financial statements continued
1 Accounting policies continued
(h) Share-based payments
Under the share-based compensation arrangements set out in note 1(l)(iii) on page 75 and note 32 on pages 133 to 135, 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 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.
2 Investments
Valuation
At 1 October 2010
Additions
Disposals
Impairment write-back
At 30 September 2011
Investment in
Schroder
Residential
Property Unit
Trust
£m
0.1
–
(0.1)
–
–
Investment in
subsidiaries
£m
348.2
438.6
–
19.6
806.4
Total
£m
348.3
438.6
(0.1)
19.6
806.4
In January 2009 the investors in Schroder ResPUT agreed to a controlled liquidation of the fund. The liquidation was completed by
31 March 2011 and the group’s investment fully repaid.
The additions in the year relate primarily to a further investment of £160.0m in Grainger Finance Company Limited, an investment of
£103.0m in Grainger Europe (No. 2) Limited, £91.0m in Bromley Property Holdings Limited, £42.9m in Atlantic Metropolitan (UK) Limited
and £29.5m relates to an investment in Reversions Financing Limited. The balance of £12.2m comprises other smaller investments in
group subsidiaries.
The investments made by the parent company have in most instances been passed down the group in order to facilitate the acquisitions
made during the year (see note 41).
The additions also include a capital contribution during the year of £2.0m in respect of share-based payment awards granted to subsidiary
employees.
After an assessment of net recoverable value there has been a net reversal of impairment provisions, made in prior years, of £19.6m.
A list of the principal subsidiaries of the company is given in note 35 on page 137.
Notes to the parent company financial statements continued
1 Accounting policies continued
(h) Share-based payments
Under the share-based compensation arrangements set out in note 1(l)(iii) on page 75 and note 32 on pages 133 to 135, 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 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.
3 Trade and other receivables
Amounts owed by group undertakings
Other receivables
Investment in
Schroder
Residential
Property Unit
Trust
£m
0.1
(0.1)
–
–
–
Investment in
subsidiaries
£m
348.2
438.6
–
19.6
806.4
Total
£m
348.3
438.6
(0.1)
19.6
806.4
Receivables in both 2011 and 2010 are all due within one year.
4 Creditors: amounts falling due within one year
Amounts owed to group undertakings
Other taxation and social security
Accruals and deferred income
5 Convertible bond
Opening balance
Amortised during the year
Unamortised issue costs
Liability component at 30 September 2010
Annual report and accounts 2011
Overview
Business review
Governance
Financials
149
2011
£m
11.2
0.2
11.4
2011
£m
216.2
1.1
1.2
218.5
2011
£m
21.9
0.8
22.7
(0.2)
22.5
2010
£m
130.1
0.1
130.2
2010
£m
12.6
1.0
0.9
14.5
2010
£m
21.3
0.6
21.9
(0.3)
21.6
After an assessment of net recoverable value there has been a net reversal of impairment provisions, made in prior years, of £19.6m.
A list of the principal subsidiaries of the company is given in note 35 on page 137.
Variable rate – Pounds Sterling
2011
£m
98.9
2010
£m
–
The variable rate loan from M & G UK Companies Financing Fund LP is secured by floating charges over the assets of the group. The loan
bears interest at 4% over LIBOR.
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.
6 Interest-bearing loans and borrowings
2 Investments
Valuation
At 1 October 2010
Additions
Disposals
Impairment write-back
At 30 September 2011
In January 2009 the investors in Schroder ResPUT agreed to a controlled liquidation of the fund. The liquidation was completed by
31 March 2011 and the group’s investment fully repaid.
The additions in the year relate primarily to a further investment of £160.0m in Grainger Finance Company Limited, an investment of
£103.0m in Grainger Europe (No. 2) Limited, £91.0m in Bromley Property Holdings Limited, £42.9m in Atlantic Metropolitan (UK) Limited
and £29.5m relates to an investment in Reversions Financing Limited. The balance of £12.2m comprises other smaller investments in
The investments made by the parent company have in most instances been passed down the group in order to facilitate the acquisitions
The additions also include a capital contribution during the year of £2.0m in respect of share-based payment awards granted to subsidiary
group subsidiaries.
made during the year (see note 41).
employees.
Grainger plc
150
Notes to the parent company financial statements continued
7 Share capital
Authorised
500,000,000 (2010: 500,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid
416,372,103 (2010: 416,362,420) ordinary shares of 5p each
2011
£m
25.0
20.8
2010
£m
25.0
20.8
The group paid £0.6m to the share incentive plan during the year for the purchase of matching shares and free shares in the scheme.
In addition, the group returned £2.2m to shareholders by way of a tender offer for shares during the year. The total cost of acquiring our
shares of £2.8m (2010: £4.5m) has been deducted from retained earnings within shareholders’ equity (see note 8).
As at 30 September 2011, share capital included nil (2010: 46,803) shares held by The Grainger Trust Employee Trustee Company Limited,
5,833,401 (2010: 5,976,623) shares held by The Grainger Employee Benefit Trusts and 1,506,300 (2010: 21,410) shares held by Grainger
plc as treasury shares. The total of these shares is 7,339,701 (2010: 6,044,836) with a nominal value of £366,985 (2010: £302,242) and
a market value as at 30 September 2011 of £6.4m (2010: £6.6m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2009
Issue of shares under the rights issue
Options exercised under the SAYE scheme
At 30 September 20010
Options exercised under the SAYE scheme
At 30 September 2011
Details of share options granted by the company are provided in note 31 on page 132.
Number
138,798,113
277,553,406
10,901
Nominal
value
£’000
6,940
13,878
–
416,362,420
20,818
9,683
–
416,372,103
20,818
8 Reserves
At 1 October 2010
Retained profit for the year
Share-based payment charge
Purchase of own shares
Dividends paid
At 30 September 2011
Share
premium
£m
109.8
–
–
–
–
Capital
redemption
reserve
£m
Equity
component
of convertible
bond
£m
0.3
5.0
–
–
–
–
–
–
–
–
Profit and
loss account
£m
355.4
25.4
2.0
(2.8)
(4.9)
109.8
0.3
5.0
375.1
Notes to the parent company financial statements continued
7 Share capital
Authorised
500,000,000 (2010: 500,000,000) ordinary shares of 5p each
Allotted, called-up and fully paid
416,372,103 (2010: 416,362,420) ordinary shares of 5p each
2011
£m
25.0
20.8
2010
£m
25.0
20.8
9 Other information
Post balance sheet event
There are no post balance sheet events requiring disclosure in these financial statements.
Dividends
Information on dividends paid and declared is given in note 15 on page 100.
Directors’ share options and share awards
Details of the directors’ share options and of their share awards are set out below.
Annual report and accounts 2011
Overview
Business review
Governance
Financials
151
Directors’ share options
Ordinary shares (thousands)
Dates exercisable
Non-performance-related
(available to all staff)
SAYE Scheme
1 February 2012 to 31 July
2012
1 February 2014 to 31 July
2014
Performance-related
(conditional awards)
HMRC Approved Executive
Share Option Scheme
26 November 2013 to
26 November 2020
Andrew Cunningham
Peter Couch
Nick Jopling
Mark Greenwood
Total
Exercise
price
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
37.7p
37.7p
–
44
–
44
25
25
–
–
–
–
94.4p
32
76
–
44
32
57
–
25
32
32
–
–
–
–
–
–
–
–
25
44
25
44
32
32
–
–
128
197
–
69
Details of share options granted by the company are provided in note 31 on page 132.
The market price of the company’s shares at the end of the financial year was 86.6p, and the range of the closing mid-market prices
during the year was 86p to 133p.
The group paid £0.6m to the share incentive plan during the year for the purchase of matching shares and free shares in the scheme.
In addition, the group returned £2.2m to shareholders by way of a tender offer for shares during the year. The total cost of acquiring our
shares of £2.8m (2010: £4.5m) has been deducted from retained earnings within shareholders’ equity (see note 8).
As at 30 September 2011, share capital included nil (2010: 46,803) shares held by The Grainger Trust Employee Trustee Company Limited,
5,833,401 (2010: 5,976,623) shares held by The Grainger Employee Benefit Trusts and 1,506,300 (2010: 21,410) shares held by Grainger
plc as treasury shares. The total of these shares is 7,339,701 (2010: 6,044,836) with a nominal value of £366,985 (2010: £302,242) and
a market value as at 30 September 2011 of £6.4m (2010: £6.6m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2009
Issue of shares under the rights issue
Options exercised under the SAYE scheme
At 30 September 20010
Options exercised under the SAYE scheme
At 30 September 2011
8 Reserves
At 1 October 2010
Retained profit for the year
Share-based payment charge
Purchase of own shares
Dividends paid
At 30 September 2011
Nominal
value
£’000
6,940
13,878
–
–
Number
138,798,113
277,553,406
10,901
9,683
416,362,420
20,818
416,372,103
20,818
Capital
component
redemption
of convertible
Share
premium
£m
109.8
–
–
–
–
reserve
£m
0.3
–
–
–
–
Equity
bond
£m
5.0
–
–
–
–
Profit and
loss account
£m
355.4
25.4
2.0
(2.8)
(4.9)
109.8
0.3
5.0
375.1
Grainger plc
152
Notes to the parent company financial statements continued
9 Other information continued
Directors’ share awards
Ordinary shares of 5p each
(thousands)
Andrew Cunningham
Peter Couch
Nick Jopling
Mark
Greenwood
Total
Award
date
Earliest
vesting
date
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
30 Sept
2011
30 Sept
2010
Non-performance-related –
miscellaneous
i
12 Dec
2007
12 Dec
2010
Non-performance-related –
deferred bonus plan
ii
3 Feb
2010
3 Feb
2011
–
–
–
–
–
90
26
90
Performance-related
(conditional awards)
Long-term incentive
scheme
2007 Scheme (lapsed)
2008 Scheme
2009 Scheme
2009 Scheme
2010 Scheme
9 Jan
2008
9 Jan
2011
iii
23 Dec
2008
23 Dec
2011
9 Dec
2009
29 Sept
2010
9 Dec
2012
9 Dec
2012
26 Nov
2010
26 Nov
2013
Matching awards (conditional)
2007 Scheme (lapsed)
2008 Scheme
2009 Scheme
2009 Scheme
2010 Scheme
9 Jan
2008
9 Jan
2011
iii
23 Dec
2008
23 Dec
2011
9 Dec
2009
29 Sept
2010
9 Dec
2012
9 Dec
2012
26 Nov
2010
26 Nov
2013
–
284
–
153
779
779
429
429
481
481
–
667
–
–
–
–
281
–
56
–
156
156
86
96
96
–
133
–
–
2,312 1,852
–
–
84
970
–
–
–
31
86
–
–
–
815
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90
–
–
–
26
90
–
–
437
– 1,208 1,208
–
481
481
283
283
230
230
513
513
275
– 1,567
–
–
–
344
–
–
–
–
–
–
–
–
–
–
–
242
242
–
96
23
23
10
10
33
39
689
–
10
–
266
306
525
240 4,496 3,213
–
–
87
96
33
–
i This award vested on 12 December 2010. The share price at the vesting date was 106.7p.
ii These shares were awarded to Peter Couch before his appointment as a director of the Company.
iii Performance conditions for the conditional share awards set to vest on 9 January 2011 were not met and therefore lapsed on that date.
Audit fees
The audit fee for the year was £8,000 (2010: £8,000).
Annual report and accounts 2011
Overview
Business review
Governance
Financials
153
Five-year record for the year
ended 30 September 2011
Revenue
Gross rental income
Gross proceeds from property sales
Operating profit before valuation and non-recurring
items (OPBVM)
Profit/(loss) before taxation
Profit/(loss) after taxation
Dividends taken to equity
Earnings/(loss) per share
Dividends per share
Gross net asset value per share
Triple net asset value per share
Share price at 30 September
Return on capital employed
Return on shareholder equity
2007
£m
229.3
52.7
180.8
89.0
77.5
60.9
7.6
Pence
15.0
2.0
Pence
320.7
252.6
255.3
%
12.1
27.1
2008
£m
246.2
70.7
169.6
106.0
(112.1)
(77.4)
8.3
Pence
(19.1)
2.0
Pence
227.9
180.7
114.1
%
(11.4)
(36.1)
IFRS
2009
£m
302.2
77.9
207.2
78.8
(170.0)
(122.0)
5.2
Pence
(29.5)
1.3
Pence
194.0
141.0
170.0
%
(4.3)
(33.7)
2010
£m
244.5
75.6
160.9
94.2
(20.8)
(10.8)
7.4
Pence
(2.9)
1.7
Pence
199.8
139.7
109.8
%
5.3
0.6
2011
£m
296.2
86.3
211.9
126.2
26.1
39.1
4.9
Pence
9.5
1.8
Pence
216.2
153.3
86.6
%
6.5
11.1
Where relevant adjustment has been made to historical figures to reflect the impact of the rights issue in December 2009.
Notes to the parent company financial statements continued
2007 Scheme (lapsed)
–
284
–
153
–
437
9 Other information continued
Directors’ share awards
Ordinary shares of 5p each
(thousands)
Andrew Cunningham
Peter Couch
Nick Jopling
Greenwood
Total
Mark
Award
date
Earliest
vesting
date
30 Sept
30 Sept
30 Sept
30 Sept
30 Sept
30 Sept
30 Sept
30 Sept
30 Sept
30 Sept
2011
2010
2011
2010
2011
2010
2011
2010
2011
2010
Non-performance-related –
12 Dec
12 Dec
miscellaneous
i
2007
2010
Non-performance-related –
3 Feb
deferred bonus plan
ii
2010
3 Feb
2011
–
–
–
90
26
90
Performance-related
(conditional awards)
Long-term incentive
scheme
2008 Scheme
2009 Scheme
2009 Scheme
2010 Scheme
2008 Scheme
2009 Scheme
2009 Scheme
2010 Scheme
9 Jan
2008
9 Jan
2011
iii
23 Dec
23 Dec
2008
2011
9 Dec
2009
29 Sept
2010
9 Dec
2012
9 Dec
2012
26 Nov
26 Nov
2010
2013
9 Jan
2008
9 Jan
2011
iii
23 Dec
23 Dec
2008
2011
9 Dec
2009
29 Sept
2010
9 Dec
2012
9 Dec
2012
26 Nov
26 Nov
2010
2013
–
667
–
133
Matching awards (conditional)
2007 Scheme (lapsed)
–
56
–
–
–
–
–
–
779
779
429
429
– 1,208 1,208
481
481
–
481
481
283
283
230
230
513
513
281
344
275
– 1,567
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
90
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26
90
–
–
–
–
87
96
33
–
–
–
–
–
–
–
–
–
–
–
–
31
86
156
156
86
–
242
242
96
96
–
96
23
23
10
10
33
2,312 1,852
815
306
525
240 4,496 3,213
84
970
39
689
10
–
266
i This award vested on 12 December 2010. The share price at the vesting date was 106.7p.
ii These shares were awarded to Peter Couch before his appointment as a director of the Company.
iii Performance conditions for the conditional share awards set to vest on 9 January 2011 were not met and therefore lapsed on that date.
Audit fees
The audit fee for the year was £8,000 (2010: £8,000).
Grainger plc
154
Shareholders’ information
Financial calendar
Annual General Meeting
Payment of 2011 final dividend
8 February 2012
10 February 2012
Announcement of 2012 interim results
May 2012
Announcement of 2012 final results
November 2012
Share price
During the year ended 30 September 2011, the range of the
closing mid-market prices of the company’s ordinary shares were:
Price at 30 September 2011
Lowest price during the year
Highest price during the year
87p
86p
133p
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 2.03p.
Website
Website address www.graingerplc.co.uk
Shareholders’ enquiries
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
Share dealing service
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.
Company secretary and registered office
Michael Windle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Company registration number 125575
Shareholders’ information
Financial calendar
Annual General Meeting
Payment of 2011 final dividend
Share dealing service
8 February 2012
10 February 2012
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
Announcement of 2012 interim results
May 2012
and simple to use service.
Announcement of 2012 final results
November 2012
For further information on this service, or to buy or sell shares,
Share price
During the year ended 30 September 2011, the range of the
closing mid-market prices of the company’s ordinary shares were:
please contact:
www.capitadeal.com – online dealing
0870 458 4577 – telephone dealing
87p
86p
133p
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
Daily information on the company’s share price can be obtained on
financial adviser authorised by the Financial Services and Markets
our website or by telephoning: The Financial Times Cityline Service
Act 2000.
Price at 30 September 2011
Lowest price during the year
Highest price during the year
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 2.03p.
Website
Website address www.graingerplc.co.uk
Shareholders’ enquiries
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
Company secretary and registered office
Michael Windle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Company registration number 125575
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
FTI Consulting
Holborn Gate
26 Southampton Buildings
London
WC2A 1PB
registrar at:
Capita IRG Plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Annual report and accounts 2011
Overview
Business review
Governance
Financials
155
Independent auditors
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
Banking
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
UniCredit Bank AG
HSH Nordbank AG
Sparkasse
Bank of America N.A.
HSBC Bank plc
M&G UK Companies Financing Fund LP
Grainger plc
156
Glossary of terms
Property
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.
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 market value balance sheet.
Assured tenancy (‘AT’)
Market-rented tenancy where tenant has
right to renew.
Dividend cover
Earnings per share divided by dividends
per share.
Investment value (‘IV’) or market value
Open market value of a property subject
to relevant tenancy in place.
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.
PRS
Private rented sector.
Regulated tenancy
Tenancy regulated under 1977 Rent Act,
rent (usually sub-market) set by rent officer
and tenant has security of tenure.
Tenanted residential (‘TR’)
Activity covering the acquisition, renting
out and subsequent sale (usually on
vacancy) of residential units subject to a
tenancy agreement.
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 (‘NAV’)
Shareholders’ funds adjusted for the
market value of property assets held as
stock but 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.
Vacant possession value (‘VP’)
Open market value of a property free
from any tenancy.
Interest cover
Profit on ordinary activities before interest
and tax divided by net interest payable.
Corporate
IFRS
International Financial Reporting Standards,
mandatory for UK-listed companies for
accounting periods ending on or after
31 December 2005.
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 deferred tax and
those contingent tax liabilities which
would accrue if assets sold at market
value and for the fair value of long-term
debt and derivatives.
Return on capital employed
Operating profit after net valuation
movements on investment properties
plus share of results from joint venture/
associates plus the movement on the
uplift of trading stock to market value
as a percentage of opening gross capital
defined as investment property, financial
interest in property assets (CHARM),
investment in joint venture/associates
and trading stock at market value.
Return on shareholders’ equity
Growth in net net net asset value (‘NNNAV’)
in the year plus the dividend per share
relating to each year as a percentage of
opening NNNAV.
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.
Corporate addresses
Newcastle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Tel: 0191 261 1819
London
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
Ipswich
42a Barrack Square
Martlesham Heath
Ipswich
Suffolk
IP5 3RF
Luxembourg
16 Avenue Pasteur
L-2310
Luxembourg
Germany
Weissfrauenstrasse 12-16
Entrance: Friedenstrasse 6-10
60311 Frankfurt am Main
Hesse
Germany
Malta
Verdala Business Centre
Level 2, TG Complex
Brewery Street
Mriehel
Malta
Designed and produced by Radley Yeldar
www.ry.com
www.graingerplc.co.uk