View our website
www.graingerplc.co.uk
G
r
a
i
n
g
e
r
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
2
Annual Report and Accounts 2012
grainger = residential
Grainger plc
Annual Report and Accounts 2012
Our business is to provide investors with a range of
returns from the residential sector. Our wholly-owned
portfolio and assets under management provide
balanced income streams from Sales, Rents and Fees.
With over 100 years experience Grainger is uniquely
placed to take a leading role in, and benefit from,
shifts in the residential property market.
All of our activities are underpinned by our core
skills in property and asset management and by
long-term relationships with our partners.
grainger = residential
Designed and produced by Radley Yeldar
www.ry.com
1
Overview
grainger = residential
02 / Our report in brief
04 / Chairman’s statement
06 / 100 years in property
08 / Our business model
10 / How we deliver our business model
12 / Our locations
16 / Chief executive’s review
21 / Our performance – group KPIs
Business review
Business review
22 / grainger = sales
£
t
r
o
p
e
r
’
s
r
o
t
c
e
r
i
D
24 / grainger = rents
26 / grainger = fees
28 / Asset performance
30 / Financial review
36 / Our people, tenants and partners
40 / Corporate responsibility
48 / Risk management
Governance
50 / The Grainger board
52 / Corporate governance
59 / Audit committee report
61 / Nominations committee report
62 / Remuneration committee report
71 / Board risk and compliance
committee report
72 / Other disclosures
Financials
75 / Independent auditors’ report
76 / Financial statements
162 / EPRA performance measures
163 / Five year summary
164 / Shareholders’ information
165 / Advisers
166 / Glossary of terms
168 / Corporate addresses
100 Years...
and counting
Centenary
Grainger was founded in
Newcastle upon Tyne on
27 November 1912. This
year we celebrated our
centenary and laid the
foundations for our
second century.
Read more on page 06
9
More information
This report and other
information can be found
online including:
– Corporate responsibility
site and reports
– Centenary information
and reports
– Grainger research
and reports
– Investor information
and downloads
www.graingerplc.co.uk
„
2
Grainger plc
Annual Report and Accounts 2012
Our report in brief
Our business model
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 three sources:
Who we are:
Grainger is the UK’s largest
specialist listed residential landlord
and property manager. We own
£2.23bn of residential property
of which 84% is located in the
UK and the balance in Germany.
We manage 18,500 properties
in the UK and 6,500 in Germany.
£
Sales
+
Rents
+
Fees
Grainger was founded
in Newcastle-upon-Tyne
in 1912 and we have
sought to be at the
forefront of the residential
property market ever
since. In our centenary
year we have continued
to drive standards
and lay the foundations
for the future.
Our strategy:
Our strategy remains focused
on the residential space. We aim
to deliver value to shareholders
by focusing on four key objectives:
1.
Maintaining our
leading position
in residential property
2.
Locating our assets
in areas of higher
economic activity
3.
Increasing the proportion
of non-trading income
4.
Reducing our financial
and operational gearing
Read more on pages 8 and 9
Read more on page 10
Read more on pages 18 and 19
9
9
9
3
Our strategy in action:
Delivering results across
our markets.
Strategic outcomes:
Delivering results for Grainger.
Our financial performance:
Operating profit has been maintained;
Net Asset values have risen; Dividend
has increased; Net debt has reduced;
Result before tax (after a non-cash
derivative charge) is reduced.
1.
Repeated contributions to the development
of the residential market
1.
New opportunities presented to us
because of our leading position
Operating profit (OPBVM)*
£126.4m
2011: £126.2m
+0.2%
2.
62% of the UK portfolio is in London
and the South East
2.
Outperformance of market indices in
valuation and sales
3.
Rents: Innovative transactions to increase
exposure to the rental market such as ‘Build
to Rent’ and ‘Registered Provider’ provision
Fees: Continuing demand for our operational
expertise from new high quality partners
4.
Reduction in financial gearing and a more
efficient cost base in light of a reduction in
owned assets and an increase in assets
under management
3.
Rents: HI Tricomm, Royal Borough
of Kensington & Chelsea and For Profit
Registered Provider of social housing
Fees: Income up by 45% to £10m
4.
Debt reduced by £260m and we are
targeting a fall to £1bn by the end of 2013.
LTV reduced to 55% and we are targeting a
fall to approximately 50% by the end of
2013. Cost reduction of 5% on a run rate
basis anticipated by the end of 2013
Gross NAV per share
223p
NNNAV per share
157p
Dividend per share
1.92p
Net debt
£1,194m
(Loss)/profit before tax
£(1.7)m
2011: 216p
+3.2%
2011: 153p
+2.5%
2011: 1.83p
+4.9%
2011: £1,454m
-18.0%
2011: £26.1m
-106.5%
* Operating profit before valuation movements
and non-recurring items
Read more on pages 18 and 19
Read more on pages 18 and 19
Read more on pages 30 to 35
9
9
9
4
Grainger plc
Annual Report and Accounts 2012
Chairman’s statement
In our centenary year we have both looked back and
prepared for our second century. However our focus
remains firmly on delivering shareholder returns.
This year we have grown our net assets and maintained
operating profit, whilst reducing debt.
Robin Broadhurst
Chairman
Grainger remains uniquely placed to take a leading role
in, and to benefit from, opportunities arising in all parts
of the residential property market using our core skills in
property and asset management. The recently published
Montague Review, the Government commissioned
‘Review of the barriers to institutional investment in
private rented homes’ reiterates the requirement for
more homes and a diverse range of tenure types in the
UK. This has been reinforced by recent Government
announcements and, while the report’s recommendations
will take time to translate into reality, it demonstrates the
major opportunities that are available to us.
Grainger is at the forefront of these changes and we
are reshaping the business to reflect long-term changes
in the market. We have rebalanced the portfolio to have
greater weight in economically strong areas and this,
together with our active management, has enabled us
to build a track record of out-performance against the
market. Over a period of time we will increase our
exposure to rental property through our Build to Rent
and affordable housing initiatives. We are also taking
advantage of our strong operating platform to build
strategic alliances with excellent partners, the latest
being our joint venture with Heitman in Germany in
which we will hold a 25% equity stake.
Results
Operating profit before valuation movements and
non-recurring items to 30 September 2012 has
marginally improved to £126.4m (2011: £126.2m).
Recurring profit before tax was £34.6m (2011: £48.3m).
We incurred a loss before tax of £1.7m (2011: £26.1m
profit) which is after a charge of £31.2m (2011: £28.0m)
relating to mark to market movements on our interest
rate derivatives. Net debt fell by £260m to £1,194m
from £1,454m. Gross net asset value (NAV) increased by
over 3% to 223p per share (2011: 216p per share).
Dividends
The directors have recommended a final dividend of
1.37p per ordinary share (2011: 1.30p). The total
dividend for the year will therefore be 1.92p per ordinary
share (2011: 1.83p), an increase of 4.9%, following the
interim dividend of 0.55p per ordinary share (2011:
0.53p equivalent by way of a tender offer). Before the
effect of charges for the change in the mark to market
of derivatives (which is a non-cash item) the dividend is
covered 3.2 times.
Board changes
Robert Hiscox retired from the board at the Annual
General Meeting (AGM) on 8 February 2012 and I
would like to take this opportunity to thank him for his
significant contribution over the years. Tony Wray, Chief
Executive of Severn Trent plc was appointed to the board
on 24 October 2011 and we have already benefitted
from his considerable operational and corporate
knowledge and experience during the course of the
year. Henry Pitman will retire from the board at the next
AGM on 6 February 2013. Henry has been a director
since May 2007 and we thank him for his invaluable
advice and contribution to the business over that period.
I am pleased to announce the appointment
of Simon Davies as a non-executive director (subject to
Read more on pages
22 and 23
Sales
£
Read more on pages
24 and 25
Rents
Read more on pages
26 and 27
Fees
5
Group net debt fell by £260m to £1.19bn from the
September 2011 position of £1.45bn. This includes
the effect of the transfer of a proportion of our German
assets into the joint venture with Heitman announced
recently. On this basis, since March 2011, we have
reduced net debt by £376m whilst increasing gross net
asset value by £54m. This degearing has therefore been
performed without any overall loss of value as our
gross net asset value has improved by 6.2% over that
18 month period.
We have now set ourselves the target of reducing
group debt to below £1bn by the end of 2013.
Assuming no changes to valuation this would result in a
consolidated loan to value approaching
50% from its September 2012 level of 55% (September
2011: 61%).
In conjunction with this financial de-gearing we
have also set ourselves the goal of reducing our cost run
rate by at least 5% by the end of 2013.
The actions we have taken in 2012 and those we
anticipate taking in 2013 has given us the confidence to
increase our dividend by 5% until we reach a target net
debt of £1bn, at which point we will reappraise
the policy.
By changing the profiles of our asset base and
income streams and by reducing gearing, we have been
repositioning our business for the future. We will retain
this focus which will enable the group to take advantage
of opportunities as they arise.
As we close our centenary year we continue
to evolve our brand and maintain our reputation as a
professional and caring landlord. To have reached 100
years as a company is a tremendous achievement and
this is thanks to the enthusiasm, skill and commitment
of all our staff over the years. I would like to extend my
continuing thanks to them all.
Robin Broadhurst
Chairman
6 December 2012
normal FSA confirmations) Simon retired from the role
of Executive Chairman at Threadneedle earlier this year
after five years in the position, having previously been
Chief Executive (1999-2007) and Chief Investment
Officer (1995-1998). His long and wide experience
in the financial sector and within wider industry will
be a valuable supplement to our board.
Outlook
The major housing market indices show that UK
national house prices have declined slightly over the
last 12 months and liquidity and transaction volumes
remain low. The UK economy is likely to remain fragile
in the short to medium-term, exacerbated by the
continuing lack of resolution of the issues around the
Euro. We anticipate that these subdued market
conditions will persist through 2013.
Against this background however, through strategic
acquisitions and disposals, we have successfully
repositioned Grainger to be more focused on
geographic locations where economic activity is more
robust and on activities less reliant on trading Grainger
assets which has continued to show benefits. At 30
September 2012, 62% of the UK portfolio was located
in London and the South East (September 2009: 54%).
In Germany, 82% (September 2011: 81%) of our
properties lie in four of the more affluent areas of the
country: Baden-Württemberg, Hesse, North Rhine-
Westphalia and Bavaria.
As a result of the specialist nature of our UK
properties (predominantly second-hand, low average
value and un-refurbished) along with our active
value-added management, we continue to outperform
general UK house price indices. We are maintaining both
sales velocity and prices, achieving good rental growth
and growing our fee income.
Strategy and Financial Position
As we have stated previously, our two key strategic
objectives for 2012 have been firstly to increase the
proportion of profit generated from rents and fees
and secondly to reduce our overall net debt within the
business. We have made good progress in both regards.
In the 12 months ended 30 September 2012 the
proportion of operating profit composed of rents and
fees was 48.4% (2011: 46.1%). Our fee income has
increased from £6.9m to £10.0m, up 45% in the year.
This focus on the composition of profit will be
maintained in 2013 as we continue to build sustainable
sources of income and further strengthen and diversify
the company’s platform.
6
Grainger plc
Annual Report and Accounts 2012
grainger =
100 years in property
Centenary video launched
Public attitudes survey
Rental Review
We explored Grainger’s
history, the range of activities
we undertake and talked to
our customers.
We interviewed 2,200 people
in the UK’s most authoritative
survey on attitudes to renting.
We asked the experts on the
housing market, with very
distinct perspectives, for their
views on the future of the
housing and rental market.
Asset Manager of the year
Grainger awarded ‘Asset
Manager of the Year’ for
G:RAMP at Resi awards 2012.
NOV
2011
People expect that in 15 years’
time there will be more
people renting than owning
their own property.
DEC
2011
MAR
2012
FEB
2012
Grainger was founded in Newcastle-upon-Tyne
on 27 November 1912 and this year marked our
centenary. We have celebrated our achievements,
given back to the communities where we live
and operate and prepared for our second century.
Paralympians go for gold
Our athletes from the North
East, represented Team GB at
the 2012 Paralympic games.
SEPT
2012
Charity targets exceeded
The chairman, Robin Broadhurst
set a challenge to raise £25,000
for charity. We reached this target
three months early and raised
£29,000 in total.
AUG
2012
Total
£29,000
Target
£25,000
OCT
2012
Kilimanjaro conquered
Our team of trekkers reached
the peak of Kilimanjaro and
raised £8,000 for LandAid.
7
100th Birthday
The end of our first century–
we look forward to our second!
NOV
2012
Grainger Trust
Our original name ‘Grainger
Trust’ is reborn in our For
Profit Registered Provider (RP)
of social housing.
Best home
reversion provider
For the 7th consecutive year,
Bridgewater awarded ‘Best
Home Reversion Provider’
at the Equity Release awards.
8
Grainger plc
Annual Report and Accounts 2012
How we do business
Our business model
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 three sources:
Large scale assets
Wholly-owned property
UK:
Germany:
Value:
£1.87bn
£0.36bn
£2.23bn
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.
Sales + Rents + Fees
£
Assets under management
Units:
Value:
24,870
£2.94bn
Stakeholder value
Our wholly-owned portfolios of regulated
tenancies and home reversion properties
provide us with stable and predictable
long-term cash flows made up of rental
and sales. Long-term rentals in Germany
add further stability and together these
underpin the income we derive from open
market rents and fees.
1 Recession/Low growth; Euro crisis still
destabilising financial markets.
2 Recession/Low growth; massive cuts in
public spending announced.
3 October 2008, Government rescues RBS/Lloyds.
April 2009, Government announce record budget deficit.
4 March 2008, Bear Stearns collapse.
September 2008, Lehmans bankrupt.
Assets to be sold to the JV with Heitman earned gross rents
of £13m in 2012.
Inclusive of 12,064 third party properties in Germany
managed by our joint venture, Gebau Vermogen,
total property under management is 36,934 units.
Regular, resilient cash flows £m
Financial years ended 30 September
Gross rents
UK residential
Retirement solutions
Development
Germany
Total
Property Sales net
of sales fees
UK residential
Retirement solutions
Development
Germany
Total
Fees/other income
Overall total
Group overheads
Net Interest Payable
2012
20111
20102
20093
20084
58
5
–
27
90
172
38
18
24
252
11
353
(31)
(91)
51
5
1
30
87
148
27
22
21
218
8
313
(32)
(76)
39
6
1
30
76
118
29
19
4
170
7
253
(29)
(77)
41
6
1
30
78
139
27
46
3
215
7
300
(30)
(79)
42
6
1
22
71
137
27
10
2
176
9
256
(30)
(89)
9
Net rents
£63.5m
Most of our existing UK residential properties are
subject to regulated tenancies or home reversion
plans and provide below market or no rental income.
Returns from our German portfolio are more heavily
rental income based and as we deliver our strategy
of leadership and involvement in the PRS our UK
returns will follow this same trend.
A balanced risk profile:
Whilst we receive sub-market
rental income from our UK
residential properties that are
subject to regulated tenancies
and home reversion plans,
these incomes are highly
predictable, secure, and in
many cases, are supported by
housing benefit. In Germany,
long-term rentals also deliver
stable income flows.
How we maintain success:
– A dedicated in-house
lettings team
– Detailed knowledge of
local markets
– A focus on voids and arrears
– Focused maintenance
to protect and add value.
Read more on pages 24 and 25
£
Profit from sales £77.6m
Our reversionary portfolios have been purchased
at a significant discount to the vacant possession
value. When the property is vacated we are able
to sell it and crystallise the value of the reversion
together with any growth in value from house price
inflation. We also realise value by selling tenanted
properties and development sites at the most
appropriate point to maximise returns.
A balanced risk profile:
How we maintain success:
The UK residential
portfolios have a reversionary
surplus of £500m. This
represents a pipeline of future
added value without any
planning, development
or construction risk.
Read more on pages 22 and 23
– Detailed knowledge
of local markets
– Rigorous assessment
of individual asset
performance
– Selective refurbishment
to add value
– An optimised and effective
sales process
Gross fees and
other income
£11.0m
The scale of our residential operations has enabled
us to invest in systems, processes and procedures
which, together with the breadth of our residential
expertise, 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.
A balanced risk profile:
The development of our fee
generating business is built
upon our proven expertise
in owning and managing
our own assets. This together
with alignment of interests
through co-ownership and
performance based rewards
lays the foundation for
long-term success.
How we maintain success:
– Deep expertise across
all market segments
– Owner manager mentality
– Co-investment to
align interests
– Reward structures based
on added value
Read more on pages 26 and 27
10
10
Grainger plc
Grainger plc
Annual Report and Accounts 2012
Annual Report and Accounts 2012
grainger =
residential expertise
Over 100 years Grainger has built portfolios of wholly
and co-owned properties across the UK and Germany.
These portfolios reflect the diversity of the existing
housing stock and demonstrate the expertise and detailed
knowledge of location and potential required to identify,
manage and deliver value from residential property.
£
Sales
1111
Sales
Every year we sell c.600 properties
when they become vacant (normal
sales) and we sell further properties
when we decide that a particular
property although still occupied
no longer offers the potential to
deliver the value that we are seeking
(investment sales). We can refurbish
vacant properties before sale to
increase their value or saleability,
but in many cases we sell unimproved
to buyers who wish to carry out
improvements themselves.
We also realise value through
sales of properties or land that we
have developed.
Importantly the scale of our
operations is such that we can focus
on continuous improvement to our
efficiency and speed of sale.
Rents
Our gross rent for 2011/12 was
£89.8m and we collected £31.7m rent
on behalf of third parties, whose
properties we manage.
The rent from the wholly owned
and German portfolios is highly
predictable and our opportunities
to increase the rent come largely from
rent reviews.
In our market let properties and
those we manage on behalf of others,
rents follow market trends and reflect
the quality of the unit. As the average
length of tenure is around 20 months
we have regular opportunities to
ensure that we maximise rents (and
our related fees) through our market
awareness, our proactive lettings
team and our asset management
activities.
Fees
We earned £10m in fees in 2011/12,
an increase of 45% and evidence of
the delivery of our strategic intent.
We earn fees through the demonstration
of our track record and expertise
in development, fund management,
asset and property management
and sales.
Our owner manager mentality
enables us to base our performance
related fees on the value that we add
to the assets under our management.
The size of our operations and the
proven processes that we employ
provide us with a scalable and flexible
platform that can be deployed to
meet a range of diverse requirements
and opportunities.
See pages 22 and 23 for further details.
See pages 24 and 25 for further details.
See pages 26 and 27 for further details.
Fees
Rents
12
Grainger plc
Annual Report and Accounts 2012
Focused on key locations
C
O
S
T
A
SKIRSA
I
E
I
S
O
E
K
N
A
N
P
O
Y
A
W
O
N
R
O
T
S
E
I
S
S
E
D
R
A
E
L
A
D
S
M
L
E
H
KEISS
AWICK
S
L
S
L
E
O
N
P
L
Location density
A
LOSSIEMOUTH
BANFF
AVIEMORE
INVERNESS
FORT WILLIAM
ABERFELDY
N
A
B
O
Y
U
R
T
S
INVERGARRY
E
R
O
M
L
I
K
BURG
K
C
O
N
K
Y
R
O
M
R
E
B
O
T
G
A
U
C
B
A
L
G
O
W
N
P
O
R
T
R
E
E
RUM
I
N
E
E
D
R
E
B
A
D
N
O
M
R
C
I
N
E
H
T
E
L
T
R
O
P
E
S
R
A
C
D
R
O
F
N
W
O
T
L
E
B
P
M
A
C
T
R
O
F
L
E
M
DUNDEE
LOCHGELLY
CRAIL
ROSYTH
EDINBURGH
GLASGOW
KELSO
R
E
L
L
L
O
I
Y
K
B
LOCKERBIE
N
Y
A
A
DUMFRIES
E
M
P
STRANRAER
L
A
D
N
E
K
HADDINGTON
COLDINGHAM
K
C
I
W
S
E
K
I
H
T
E
H
P
T
R
Y
O
L
M
B
NEWCASTLE
R
O
O
L
L
A
B
Y
R
R
E
D
S
E
I
T
N
E
L
G
O
G
I
L
S
DONEGAL
BUNDORAN
PORTRUSH
COLERAINE
MALIN
CULDAFF
NEWTOWNABBEY
BELFAST
CASTLEREACH
CARRYDUFF
KILKEEL
NEWRY
DUNDALK
DROGHEDA
SWORDS
DUBLIN
GREYSTONES
GOREY
K
W
W
I
A
L
E
T
K
X
E
E
R
F
F
N
O
O
N
R
R
D
D
Y
I
E
N
R
O
B
H
S
A
M
R
T
ENNIS KILLEN
N
A
Y
A
N
GARRANARD
E
L
CASTLEBAR
A
CARROWKEERAN
E
FINNY
CONG
N
GALWAYKILCOCK
NAAS
S
NEWBRIDGE
I
K
N
C
R
ABBEYLEIX
N
I
NENAGH
R
R
E
E
ROSCREA
B
M
TEMPLEMORE
CLONMEL
I
L
FERMOY
YOUGHAL
Y
T
L
I
U
Q
FOYNES
TARBERT
TRAILEE
MILLTOWNMIDLETON
ARDGROOM
CAHER
CORK
KINSALE
BALLYFIN
G
R
E
B
N
O
O
D
I
B
A
N
D
O
N
L
E
A
P
L
A
N
C
A
S
T
E
R
MIDDLESBOROUGH
DARLINGTON
YORK
OTLEY
SUNDERLAND
H
A
W
E
S
BRADFORD
BOLTON
OLDHAM
MANCHESTER
N
O
N
O
T
T
G
S
R
E
W
V
L
U
BLACKPOOL
L
I
V
E
R
P
O
O
L
MACCLESFIELD
STOKE ON TRENT
S
D
E
E
L
ROTHERHAM
WHITBY
SELBY
BRIDLINGTON
HEDON
HULL
GRIMSBY
LOUTH
SHEFFIELD
S
K
E
G
N
E
S
S
L
I
N
C
O
L
N
KING’S
LYNN
L
L
A
N
D
U
D
N
O
I
L
E
C
E
S
T
E
R
HEMSBY
CHESTER
WREXHAM
TELFORD
TELFORD
C
ABERYSTWYTH H
R
O
W
E
NEW QUAY
C
S
R
C
S
M
RADYR
H
E
A
O
E
B
F
N
P
CARDIGAN
O
R
S
R
W
T
A
R
O
SWANSEA
Y
D
N
W
D
E
RHOOSE
NEWPORT
I
F
F
NORWICH
BELTON
PETERBOROUGH
IPSWICH
FELIXSTOWE
BASILDON
TIPTREE
NOTTINGHAM
WOLVERHAMPTON
BIRMINGHAM
COVENTRY
BANBURYCAMBRIDGE
OXFORD
W
S
T
LONDON
I
R
T
O
N
U
E
D
Y
EPSOM
R
B
Y
E
E
R
GUILDFORD
L
A
I
W
HOVE
S
D
A
T
R
N
O
WINCHESTERC
G
L PORTSMOUTH
SOUTHAMPTON
DARTFORD
SWANLEY
N
O
MAIDSTONE
T
SEVENOAKS
H
G
LEWES
R
RYE
B
DEAL
DOVER
BARNSTAPLE
HARLOW
P
O
R
T
I
S
H
E
A
D
H
G
H
B
R
D
G
E
GLASTONBURY
I
I
I
I
M
I
L
F
O
R
D
BOURNEMOUTH
BIDEFORD
BUDE
CHEDDAR
EXETER
PLYMOUTH
SALCOMBE
BODMIN
TRURO
PENZANCE
COWES
NEWPORT
T
S
I
L
SYLT
SASSNITZ
BINZ
PUTTGARDEN
P
M
A
D
N
E
R
U
B
L
E
S
S
E
W
SUDERLUGUM
NIEBULL
FLENSBURG
LANGENHORN
FOCKBECK
KROPP
FEHMARN
L
ZINGST
TONNING
E
NEUSTADT
GRIMMEN
WESSELBUREN
I
PREETZ
BUSUM
K
NEUENDORF-SACHSENBANDEBUTZOW
E
G
WISMAR
A
ELMSHORN
E
L
A
GADEBUSCHL
E
D
R
A
A
T
S
HAMBURG
PUTLITZG
DOMITZ
GYHUM WITTSTOCK
ZEVEN
NEURIPPEN
WITTENBERGE
LÜNEBURG
D
L
E
F
H
U
K
Z
T
I
O
L
R
A
N
S
E
E
Z
T
I
N
A
S
WOLGAST
LUBMIN
GARZ
ANKLAM
MISCHERN
M
WOLDEGK
R
LYCHEN
O
WPRENZLAU
I
AURICH
JUIST
WILHELMSHAVEN
FREIBURGV
BREMEN
WILDEHAUSEN
HAREN
TWIST
LINGEN
IBBENBUREN
BIELEFIELD
U
A
D
N
I
L
S
U
B
T
T
O
C
N
E
B
U
G
QUAKENBRÜCK
ESSEN
DORTMUND
DUSSELDORF
LEVERKUSEN
KOLN
BERLIN
OSNABRUCK
BAD OEYNHAUSEN
M
M
A
H
BELZIG
T
S
DESSAU
R
O
JUTERBORG
F
LUCKENWOLDE
JESSENWEISSWASSWE
FINSTERWALDEFORST
OLPE
WETZLAR
FRANKFURT
HANNOVER
SARSTEDT
HOLZMINDEN
NORDHAUSEN
BEVERUNGEN
HELBEDÜNDORF
KASSEL
ARNSTADT
FULDA
WIESENBURG
GOSLAR
HALLE
T
R
U
DRESDEN
F
R
E
PLAUEN
HOF
TIRSCHENREUTH
NÜRNBERG
FLOSS
ANSBACH
STUTTGART
STRAUBURG
DEGGENDORF
KEHL
AUGSBURG
REISBACH
MUNCHEN
ALBSTADT
LAHR
ROSENHEIM
BAISWEIL
FREIBERG
FALL
KEMPTEN
STRUB
FISCHEN
ULM
N
E
G
N
I
S
L
E
R
R
WORMS
MANNHEIM
NEUSTADT
G
R
U
B
T
I
B
MARRIENBERG
G
R
E
B
X
O
B
G
R
E
B
R
Ü
W
D
R
A
H
T
T
Ü
B
N
E
G
N
I
L
R
E
B
U
M
L
E
H
S
D
N
W
D
A
B
PLAUEN
TRIER
PRUM
I
SAYDA
I
UK
We have continued to follow our strategic objective of
locating our properties in the most economically attractive
areas, where prospects for rental and capital growth are
highest. In September 2012 62% of our owned assets were
located in London and the South East which has increased
from 54% over the past three years.
Germany
The economically successful areas in the West and
South of the country continue to be 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-Württemberg, Hesse, North Rhine –
Westphalia and Bavaria and this has provided a good
platform for rental and price growth.
13
We identify and invest in properties where
we can maximise our returns through our three
revenue streams – Sales, Rents and Fees.
Assets by region 2012
Properties
1. London & South East
2. South West, Midlands
& East
3. North & Scotland
4. Wales & Ireland
Total
% of
Grainger
market
value
Market
value
Units
VPV
5,591 1,443
1,115
62
3
4
1
4,383
2,446
144
629
254
15
12,564 2,341
491
181
10
1,797
27
11
–
100
2
Vacant Possession Value
12,564
£2,341m
£1,797m
Market Value
Assets by region 2012
Properties
UK
Germany
1. Baden–Württemberg
2. Hesse
3. North Rhine – Westphalia
4. Bavaria
5. Lower Saxony
6. Rhineland – Palatinate
7. Other
Total
Number
of units
1,489
1,329
1,655
560
749
230
384
6,396
Market
value
€m
119
100
100
56
36
18
27
456
% of
Grainger
investment
value
26%
22%
22%
12%
8%
4%
6%
100%
5
4
Includes the assets classified as held-for-sale
7
6
1
2
3
Market Value
Annual gross rental yield
6,396
£363m
7.0%
4.2%
Annual net rental yield
14
14
Grainger plc
Annual Report and Accounts 2012
grainger =
recognising
long-term value
The strategic drive to locate our assets in the areas
of greatest economic activity has resulted in a
concentration in London. 50% by value of our UK
wholly‑owned portfolios are distributed across the
metropolis. Attractive opportunities for development,
to add value through refurbishment and to co‑invest
also arise and we continue to apply our expertise
to identify and realise these.
1
4
5
2
3
6
1515
1.
5.
9.
Bethnal Green
G:res
Mixed use estate of 96 units
2.
Dalston
G:res
Ability House, Ability View,
Ability Plaza, Ability Towers,
Springfield House
and Kingsland Road
3.
East Dulwich
Core Portfolio
The Tilt Estate. See page 24
4.
Islington
Core Portfolio
Amwell Street. See page 22
Waterloo
Core Portfolio (Grainger
Invest) 276 mixed tenure units
and redevelopment opportunities
6.
Walworth
Core Portfolio (Grainger
Invest) The Walworth Estate –
617 mixed tenure units
7.
Vauxhall
Core Portfolio (Grainger
Invest) 257 mixed tenure units
8.
Clapham
Development
Macaulay Road – 97 residential
units and 30,000 sq. ft. of offices
Bayswater
Core Portfolio
Caroline House – mixed
tenure building and penthouse
development
10.
Knightsbridge
Core Portfolio
Trevor Square, 3 houses subject
to regulated tenancies
11.
Royal Borough of
Kensington and Chelsea
Development
Hortensia Road and Young Street
– PRS opportunity of 80 units
12.
Kensington
Core Portfolio
Emperor’s Gate. See page 23
10
9
11
12
7
8
16
Grainger plc
Annual Report and Accounts 2012
Chief executive’s review
Our UK assets continue to outperform the market
indices; the portion of profit derived from rents and
fees has increased; our sales margins on normal
trading sales have been maintained; our net asset
values have increased and our gearing has reduced.
Andrew Cunningham
Chief Executive
Market Overview
The residential market in 2012 continued to show marked
regional variations in valuation movements. In London,
where 50% of our assets by market value are located,
we saw year-on-year growth of 7.4% with Central
London showing the highest growth at 12.0% and Inner
and Outer London showing increases of 6.4% and
3.0% respectively. Our assets in some Northern regions
of the country saw further falls in value (Scotland -1.7%
and North East -1.7%) compared to the smaller falls/
marginal increases in other regions (South West -0.3%
and East Anglia 1.0%). More recently, however, there
are some signs of stability in the regions as confidence
improves at the lower end of the market where much
of Grainger’s stock is priced.
One significant area of growth in the housing
market is the private rented sector (PRS). The sector
comprises 3.65m households, a rise of over a million
in the last 10 years and in London the PRS is estimated
to now exceed 25% of households or 800,000 homes,
with the sector expected to continue to grow.
The Montague Review, set up by the Housing
Minister in December 2011, highlighted the need to
build more homes for rent and to increase the level of
institutional investment in the sector. The Review made
a number of recommendations including better use of
public land, the creation of an enabling fund to bridge
the gap between conception and completion of purpose
built rental stock and a reduction in the requirement
for the provision of affordable housing on build to rent
schemes. The Government embraced the report and
shortly afterwards announced a £200m enabling fund
for the PRS specifically and a £10bn loan guarantee for
the acquisition of new homes built for rent (private or
affordable). Local Planning Authorities already have the
power to determine the amount of affordable housing
each development proposal should build and there are
already signs that some Local Authorities are considering
the opportunities the recommendations provide on land
in their ownership.
These changes in tenure mix, development focus
and attitudes to renting provide a huge opportunity for
multi-disciplined residential investors and developers
such as Grainger. Indeed we are already creating
opportunities as evidenced by our innovative agreement
with the Royal Borough of Kensington and Chelsea,
announced recently, and our ongoing development of
activities in the build to rent sector.
The final area of the residential market that is
growing with central and local government support
is the affordable housing or Social Housing Sector
which is owned by Local Authorities 47% and Registered
Providers (RP’s formerly called Housing Associations)
53%. The Government’s Welfare Reform Act, in its
desire to see the delivery of more new affordable housing,
includes an ability for RP’s to charge ‘Affordable Rents’
of up to 80% of open market rents (subject to caps that
impact some London Boroughs) making affordable
housing much more viable than previously. The Act also
allows private sector companies to become ‘For Profit
Registered Providers’ (FPRP) of social housing in the hope
that the private sector can assist in the building of new
stock. This blurring of the dividing lines between the
private and public sector provides opportunities for
organisations such as Grainger to build on its existing
infrastructure and expertise to operate in this arena.
Consequently, as announced on 9 November, we have
formed our own FPRP by re-incarnating the name
Read more on pages
22 and 23
Sales
£
Read more on pages
24 and 25
Rents
Read more on pages
26 and 27
Fees
17
Grainger Trust as a subsidiary of Grainger plc which
was formally registered by the Homes and Community
Agency in November 2012. Its first properties will be
the 77 affordable units in the first phase of Berewood,
our 2,500 unit development site in Hampshire, currently
being built by Bloor Homes.
Business Overview
Grainger operates as owner, manager and trader
of residential properties and has three main sources of
income:
– Receipts from the sale of assets (profit from sales:
£78m; 2011: £81m)
– Rents (net rents: £63m; 2011: £62m)
– Fees from co-invested and/or managed vehicles (total
fees: £10m; 2011: £6.9m)
We have repositioned the business over the last two
years to reduce gearing and to increase the proportion
of our income from rents and fees.
We have continued to outperform the general
residential market. In the year ended 30 September
2012 the average of the two major housing indices
(as provided by Halifax and the Nationwide) showed a
fall of 1.3%. By contrast, Grainger’s UK portfolio
increased in value by 3.9%. The valuations are supported
by sales results in the year. Sales of property with vacant
possession were made 6.1% above last year’s valuation.
On a vacant possession basis, since 2004 our residential
portfolio in the UK has shown cumulative valuation
increases of 14.5% compared to the average index
increase of 2.5%.
This outperformance has come from active
management of the portfolio:
– Geographic weighting to areas of stronger
economic activity
• At 30 September 2012 62% of our UK portfolio
was situated in London and the South East of
England. In Germany, 82% of our properties were
in four of the more affluent areas of the country
before the Heitman transaction and 90% after it
– Strategic sales
• During the year lower performing assets or assets
in areas of lower expected economic activity
were disposed of, generating £83m in sales and
£11m in profit, which further assists the geographic
re-weighting of the Company’s portfolio
– Refurbishment, development and other added
value projects
• During the year we sold refurbished, high
value and development assets totalling £54m,
generating £19.6m profit
– Leveraging people and processes as well as our assets
• We manage assets largely or entirely owned
by third parties to the value of £706m which
generated £10.0m of fees during the year
The three income streams in our business have the
following characteristics:
– The trading element comprises sales of largely
reversionary assets (including home reversion assets),
a long-term strategic land bank and low risk
development schemes. The UK residential portfolio
has a reversionary surplus of £500m. This represents
a ‘pipeline’ of future added value which does not
carry any planning, development or construction
risk. The total value of these assets, including the
reversionary surplus, amounts to £1,917m. In addition
to this, there is a development pipeline of gross
development value with current planning permission
of £243m. This increases to £496m to include schemes
progressing to planning permission
– The rental element comprises a market rented
portfolio of £743m of assets (UK and Germany),
producing an overall gross yield of 6.6%. This part of
the business incorporates market-focused but multiple
tenure types. (This value is before a reversionary
surplus of £44m)
– Fees primarily arise from co-investment vehicles or
where our returns are based upon portfolio
performance which enhance recurring profits and
increase our overall return on capital. The joint venture
with Heitman announced after the year end which
will be managed by our German platform is our most
recent example
On 9 November 2012, we announced that we had
signed an agreement with global real estate investment
firm Heitman to create a joint venture, to invest in
c.3,000 German rented residential units which are
currently wholly owned by Grainger. The JV will be
75:25 owned by Heitman, on behalf of a global
institutional investor, and Grainger, respectively. The JV’s
long-term strategy is aimed at maximising returns
through income growth and active asset management.
The deal is subject to a set of Conditions Precedent
and is expected to complete soon.
Our accounts for the year ended 30 September
2012 recognise this transaction with the assets of
£182m and liabilities of £130m classified as held-for-sale
and we have written down the investment property
assets to be transferred by £6.9m (£5.2m net of tax).
18
Grainger plc
Annual Report and Accounts 2012
Chief executive’s review
continued
Near term objectives
Strategic objective
We will
improve total
returns to
shareholders
by:
Maintaining our
leading position in
residential property
1
Strategic objective
2
Locating our assets
in areas of higher
economic activity
Achievements in 2012
Achievements in 2012
– Contributed to Montague Review through
executive director Nick Jopling, who was a
member of the Review Group
– Launched For Profit Registered Provider
– Published the Rental Review and Public
Attitudes survey
– Awarded Asset Manager of the year and
Best Home Reversion provider for the 7th
year running (Equity Release awards 2012)
– Celebrated 100 years in business.
– Continued to shift the focus of our UK and
German portfolios to areas of higher
economic activity.
– Outperformed the Halifax and Nationwide
UK House Price indices
– Sold £83m of assets that were lower
performing or in areas of lower expected
activity.
How we are measuring success
How we are measuring success
– Recognition by our peers, our stakeholders
and by government
– Regular contributions to the development
of thinking about the future of UK housing and
solutions to pressing issues
– The number and type of opportunities that are
presented to us as a result of our position.
– The proportion of our UK and German assets
located in areas of higher economic activity:
• 62% of UK portfolio in London and the
South East
• 82% of German portfolio in four of the more
attractive areas
– Outperformance of general UK house price
indices:
• UK portfolio increased in value by 3.9%
• Average of Halifax and Nationwide indices
fell by 1.3%
Priorities for 2013
Priorities for 2013
– Continue to focus on delivering
outperformance of our assets through
relocation and portfolio optimisation.
– Continue to focus on sustainable long‑term
business
– Continue to develop our activities and
influence as recognised in our maxim
‘Grainger = Residential’
– Aim to exceed the expectations of our
stakeholders
– Continue to evolve our brand and maintain
our reputation as a professional and
caring landlord.
19
3
Strategic objective
4 Outcome
Strategic objective
Increasing the
proportion of
non-trading income
Reducing our
financial and
operational gearing
Achievements in 2012
Achievements in 2012
– Increased the proportion of operating profits
composed of rents and fees
– In 2012 net debt reduced to £1.19bn
and consolidated group LTV to 55%.
– Continued success of relationship with Lloyds
Banking Group through G:Ramp
• 1,595 units under management at year end
• 1,110 units sold since start of agreement
– New opportunities through German joint
venture with Heitman and agreement with
Royal Borough of Kensington and Chelsea.
How we are measuring success
How we are measuring success
– The proportion of operating profits
composed of net rents and fees:
• 2012 – 48.4% (2011 – 46.1%)
– Growth in net rental income:
• 2012 – £63.5m (2011 – £62.4m)
– Growth in fees and other income
• 2012 – £11.0m (2011 – £8.0m)
– Debt reduction both in absolute terms
and by consolidated loan to value:
• By the end of 2013 we are targeting net
debt of below £1bn and consolidated
group LTV of approaching 50%
– Our average cost of debt at 30 September
2012 was 6.0%. We anticipate it remaining
at around this level in 2013.
– We anticipate removing 5% of costs, on a run
rate basis, by the end of 2013.
Priorities for 2013
Priorities for 2013
– Continue to grow the proportion of operating
profits composed of rents and fees through
developing relationships with existing and
future partners and building operating and
management platforms.
– Build on opportunities arising in all parts of
the residential property market using our core
skills in property and asset management.
As our debt and LTV ratios reduce we will:
– Match our operational gearing to our
business model
– Efficiently and transparently manage interest
rate derivatives
By changing the profiles of
our asset base and income
streams and by reducing
gearing, we have been
repositioning our business
for the future. We will
retain this focus which will
enable the Group to take
advantage of opportunities
as they arise.
grainger = residential
The Grainger of the future
will have a greater proportion
of its activities in the rented
sector and will supplement
these by leveraging its asset
and property management
platform in co‑investment
vehicles and fee income
business.
20
Grainger plc
Annual Report and Accounts 2012
Chief executive’s review
continued
Strategy and Future Outlook
Historically Grainger’s business was in the trading of
reversionary residential assets, primarily those subject
to regulated tenancies. The scale and quality of this
portfolio will continue to provide healthy cash flows and
opportunities to produce added value for many years to
come. We are constantly seeking ways to maintain and
maximise returns from this portfolio.
The expertise and infrastructure that Grainger has
built up in accumulating and managing this portfolio
also has ensured that we have the platform in place that
positions the business strongly in terms of long-term
sustainability and the potential for accretive growth.
The Grainger of the future will have a greater proportion
of its activities in the rented sector and will supplement
these by leveraging its asset and property management
capabilities to manage and expand its co-investment
vehicles and fee income business.
This reflects the changing nature of the housing
market. The continued imbalance between supply and
demand has led to pressure points. For example, in value
terms, areas of strong economic performance such as
London, the South East and parts of Germany show
resilience and growth, with demand for good quality,
well priced rental property continuing to climb. In these
areas we see particular opportunities in the build to rent
sector including affordable housing.
These business activities together with the prevailing
economic conditions dictate that we will operate at
lower levels of gearing. In the last 18 months we have
reduced debt by £376m in a controlled and managed
way, whilst increasing the net asset value of the business
by £54m. We intend to continue this policy of debt
reduction so that by the end of 2013 our overall
Group debt will fall below £1bn. At equivalent levels
of value our group loan-to-value (LTV) at that point will
approach 50%.
Once we reach these targeted levels we will
consider further our dividend policy. In the meantime
we intend to continue our recent policy of increasing
dividends by 5% per annum.
Alongside this debt reduction programme we plan
to remove 5% of costs, on a run rate basis, from across
the business by the end of 2013.
Andrew Cunningham
Chief Executive
6 December 2012
21
Our performance
Key performance indicators
We measure our performance through a clear set of KPIs
Operating profit before valuation
movements and non-recurring items
– OPBVM (£m)
Gross net asset value per share
– NAV (pence)
Triple net asset value per share
– NNNAV (pence)
Return on capital employed
– ROCE (%)
126.2
126.4
216
223
194
200
141
140
153
157
6.5
5.9
5.3
94.2
78.8
(4.3)
09
10
11
12
09
10
11
12
09
10
11
12
09
10
11
12
OPBVM
Is a measure of the profit generated
by our key income streams of profits
on sale of property, net rents, and fees
and other income, net of overheads.
OPBVM reached £126.4m in 2012
up by 0.2% from 2011.
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 216p to 223p
at the 2012 year end primarily as a
result of an increase of 3.9% in the
market value of our UK properties.
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 153p to
157p at the 2012 year end primarily as
a result of the increase of 3.9% in the
market value of our property assets.
Growth in NNNAV is a key measure
in the determination of the vesting of
executive director LTIP awards. See
further details on pages 63 to 65.
ROCE
Measures the overall profit of the
business including the movement in
the uplift of trading stock to market
value but 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 5.9% in 2012 assisted
by the trading performance noted in
OPBVM and a net £20m uplift of
trading stock to market value.
Return on shareholder equity
– ROSE (%)
Profit/(loss) before tax
– PBT (£m)
Sales price compared to previous year end vacant possession value
– VPV (%)
11.1
26.1
(1.7)
0.6
3.8
(170.0)
(20.8)
(33.7)
7.5
5.7
6.7
6.1
3.7
3.2
(6.8)
(6.8)
09
10
11
12
09
10
11
12
09
09
10
10
11
11
12
12
ROSE
Measures the movement in NNNAV
in the year plus the dividend relating
to the year as a percentage of opening
NNNAV.
ROSE was 3.8% in 2012 reflecting
the increase in NNNAV from 153p
to 157p and also the dividend declared
for the year of 1.92p.
PBT
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 a loss of £1.7m in 2012
after a charge to income of £31.2m
arising from the change in fair value
of derivatives.
VPV
We compare actual prices achieved
on sales of vacant properties in our
UK residential and retirement solutions
businesses to their VPV at the previous
year end. This measure shows how
prices are moving and the effectiveness
of our sales process.
Pre refurb
After refurb
Excluding the impact of pre‑sale
refurbishment, sales were, on average
3.2% above the 2011 year end VPV.
Including the impact of pre‑sale
refurbishment this increased to 6.1%.
22
Grainger plc
Annual Report and Accounts 2012
£
grainger = sales
We maintained both sales velocity and prices.
Sales of property with vacant possession
were made 6.1% above last year’s valuation.
Sales
case study
Amwell Street
28 Amwell Street, Islington was acquired in 2010
and comprised 14 units over 7 floors. After a
sensitively managed programme we were able
to obtain vacant possession of 10 of the units
with the others being subject to regulated
tenancies. We then undertook a comprehensive
internal and external refurbishment programme
and created 10 high quality apartments that
are now being disposed of. Through the works
that we have undertaken we anticipate achieving
an uplift of c.50% on a £/sq. ft. basis after allowing
for costs.
23
176
39
19
24
258
60
13
4
1
78
Sales
Profit from sales of property, was £77.6m, compared to £81.0m
in 2011, generated from gross sales proceeds of £258.4m
compared to £223.3m in 2011.
Margins on our normal sales of vacant trading properties
in 2012 of 43.6% were in line with the 44.0% achieved in
2011.
During the year the first sales were generated within our
development business from our Berewood scheme in
Hampshire. This is a scheme where we own 460 acres of
land near West Waterlooville representing a pipeline of
2,550 houses to be built out by housebuilders. The scheme
is expected to generate sales over the next 15 years and will
be a source of both profit and cash.
Sales of tenanted trading stock and other sales rose from
£63.2m in 2011 to £68.8m in 2012. Sales included £38.7m
of tenanted sales, £18.5m from the sale of high value
elements from our central London stock and £7.1m of
agricultural sales.
Sales of investment properties and CHARM were £56.8m
(2011: £31.5m) generating profits of £3.6m (2011: £1.9m).
As at 30 November our total Group sales pipeline
(completed sales, contracts exchanged and properties in
solicitors’ hands) amounted to £66.6m with UK normal
sales values 3.6% above September 2012 valuations.
(£60.3m as at 25 November 2011). In addition to this
pipeline, and further sales of property as it becomes vacant,
we have identified potential additional tenanted sales of
c.£67m as at 30 September 2012.
Sales income £m
1. UK residential
2. Retirement solutions
3. Development
4. German residential
Total
1
4
3
2
Profit from sales £m
1. UK residential
2. Retirement solutions
3. Development
4. German residential
Total
4
3
1
2
Sales feature
Refurbishment of
Emperor’s Gate, London
Grainger has continued to refurbish
selected vacant properties within
our core portfolio before bringing
them to the market for sale. The stand
out project of the year was the
redevelopment of 46 Emperors Gate,
SW7. Vacant possession of the whole
building was achieved early in 2011
and c.£1m was spent remodelling
and refurbishing 5 flats and the
common parts. Flat 3, pictured above,
was remodelled with a mezzanine
floor to the double height reception
room and sold for £1.75m, (£1,600
per square foot).
Sales performance
Trading stock – Sales on vacancy
Trading stock – Development
Trading stock – Sales of tenanted and other
Investment property sales
Statutory sales and profit
(see accounts notes 7 and 8)
Sales of CHARM properties
Overall Total
Full Year 2012
Full Year 2011
Units
sold
605
–
395
436
Sales
£m
113.9
18.9
68.8
48.9
1,436
68
1,504
250.5
7.9
258.4
Profit
£m
49.6
3.4
21.0
3.0
77.0
0.6
77.6
Units
sold
561
–
607
461
1,629
56
1,685
Sales
£m
106.5
22.1
63.2
25.2
217.0
6.3
223.3
Profit
£m
46.8
15.1
17.2
1.1
80.2
0.8
81.0
24
Grainger plc
Annual Report and Accounts 2012
grainger = rents
This year has seen good rental growth and a
continued strengthening of the rental market.
Rents
case study
Café on the Tilt Estate
The Tilt Estate in East Dulwich is made up
of three sides of a garden square in a
conservation area. We invest in place making
to enhance the attractiveness of this asset and
maximise its rental potential. As part of this
programme we refurbished the old electrical
store on one corner of the estate that had
been used as a site office for 10 years.
We let the unit to a local entrepreneur to create
an independent café with a specific community
focus and continue to work closely with the
tenant to develop the business and to enhance
the estate.
25
58
5
27
90
42
4
17
63
Rents
Total net rents in the year amounted to £63m (2011: £62m).
UK Residential net rental income in the year increased
to £42.5m from last year’s figure of £38.4m, assisted by
the strategic portfolio acquisitions during the previous year
of HI Tricomm and the Grainger Invest LLPs. This represents
an annual gross yield of 4.1% (net yield of 3.0%).
The German business delivered net rents, before property
management expenses, of €22.8m (2011: €25.3m) at an
annual gross yield of 7.0% (net yield of 4.23%). The decrease
is due to strategic sales made at the end of 2011 and during
2012 including the sale of our portfolio in Berlin in 2011 for
€16m and sales of Frankfurt property in 2012 for €21m.
Certain assets in the Retirement Solutions portfolio also
produce a net rental income and this amounted to £3.7m
in the year (2011: £3.8m).
“The continued imbalance between supply and demand
has led to pressure points – in value terms areas of strong
economic performance such as London, the South East
and parts of Germany show resilience and growth, and the
demand for good quality, well priced rental property continues
to climb. We see particular opportunities in the Build to Rent
sector including that set aside for affordable housing.”
Andrew Cunningham
Gross rents £m
1. UK residential
2. Retirement solutions
3. German residential
Total
1
3
2
Net rents £m
1. UK residential
2. Retirement solutions
3. German residential
Total
1
3
2
Rents feature
Refurbishment of
Mariners cottages, South Shields
Mariners Cottages comprise 39
grade II listed properties. We undertook
a five year programme to improve
the fabric and windows to modern
standards and restore the external
décor to how the cottages would
have looked when constructed in 1843.
We now have satisfied tenants and
properties that are in high demand.
26
Grainger plc
Annual Report and Accounts 2012
grainger = fees
Our fee income has increased
by 45% in the year
Fees
case study
Aldershot, Hampshire
In 2011 we were appointed to create a
community of c.4,500 homes on surplus
military land in Aldershot, Hampshire.
This 25 year place making project includes
the provision of schools, leisure facilities
and the restoration and conversion of the
historic Cambridge Military Hospital.
Our fees for this project include a yearly
management retainer and a share of profits
which is directly linked to the value we add
for the MoD, the asset owners.
27
Gross fees and other income £m
1. Fund management and
residential investments
2. UK residential
3. Retirement solutions
4. Development
Total
8
1
1
1
11
4
1
3
2
Fees and other Income
Gross fee income increased by 45% to £10.0m (2011: £6.9m)
derived from asset and property management fees from our
co-investment vehicles and management contracts. In addition,
the group earned other income of £1.0m (2011: £1.1m).
The progress seen in the fee earning element of this
business in the year to September 2011, with the agreement
with Lloyds Banking Group to establish G:RAMP, has
continued and the numbers of properties under management
have risen, with no requirement for Grainger to invest in this
particular arrangement. By 30 September 2012, G:RAMP
had 1,595 units under management and, even more
importantly, had sold 1,110 units on behalf of Lloyds since
the start of the agreement.
The UK Residential division generated £0.2m in service
charge management fees and £0.8m in sundry other income.
In Retirement Solutions, management fees of £1.1m
were earned. These fees relate to the management both of
the assets owned by our Sovereign joint venture and the
third-party assets managed under external management
contracts with Sovereign.
During 2011 the Development business was appointed
as development partner for the Aldershot Urban Extension
working with the Defence Infrastructure Organisation.
Although this scheme is at an early stage it generated
management fee income of £0.3m in 2012.
The recently announced joint venture in Germany will
further increase fee generation for the group as Grainger will
provide asset management services to the joint venture.
G:RAMP feature
Grainger’s Residential Asset
Management Platform (G:RAMP)
provides clients with an integrated
strategic and operational property
and asset management solution for
their residential property portfolios.
G:RAMP secures maximum value
from clients’ residential property
portfolios by handling them in the
same way that Grainger handles its
own, through a tried and tested
process of inspection, migration
onto our platform, stabilisation
and then realisation.
Alignment of interests
G:RAMP processes ensure an alignment
of interest between Grainger’s property
and asset management teams and the
portfolio owner, our client.
We understand the importance of
making informed decisions to ensure
we achieve best value. An integrated
team considers property and asset
management at every level, from the
most cost effective ways to manage
a portfolio on a day-to-day basis to
maximising sales value on realisation.
G:RAMP can provide the portfolio
owner with anything from large scale
accretive refurbishment projects to
simply creating liquidity.
G:RAMP processes
Inspection
Migration
Stabilisation
Realisation
– High level analysis
of the portfolio
– Business plan
– Identify gaps
A
G
R
E
E
S
T
R
A
T
E
G
Y
– Absorbing portfolios
– Closing the gap
into Grainger’s
existing platform
(IT, Asset management,
Property management,
Lettings etc)
– Working through
the portfolio
– Execution on pre-agreed
business plan
– Getting the benefit
from closing the gap
– Combination of
improved yields, sales
& valuations
28
Grainger plc
Annual Report and Accounts 2012
Asset performance
Whilst we generate income from
sales, rents and fees, we look to
our assets to deliver capital growth.
Once again this year, our wholly‑
owned UK assets outperformed
the Halifax and Nationwide House
Price indices.
Performance of Grainger UK assets vs Halifax and Nationwide indices
Grainger UKR
Grainger UKR and RS
Halifax
Nationwide
125
120
115
110
105
100
95
2004
2005
2006
2007
2008
2009
2010
2011
2012
Valuations in our UK Residential portfolio were up 4.8%
at the year end from the previous September compared
to decreases in the Nationwide and Halifax House Price
indices of 1.4% and 1.2% respectively. This clearly
illustrates the specific characteristics of our property
assets and the value we add to them through expert
asset and property management. One of the features
of our business, given its trading nature, is that carrying
values are tested throughout the year by sales. Vacant
(normal) sales were at values, on average, 4.5% above
September 2011 vacant possession valuations. Selective
refurbishment works prior to sale can improve returns
and when these are taken into account we have sold
at 8.9% above September 2011 vacant possession.
The liquidity of the properties was again demonstrated
by the time taken for sale, measured from the date of
vacancy to receipt of cash, being a slight improvement
at 98 days (99 days in 2011).
We have been extremely selective as regards buying
property in the UK residential business in 2012 acquiring
86 units for £13.0m (2011: 1,950 units for £402m
including assets acquired in the Grainger Invest and
HI Tricomm transactions).
The assets in the Retirement Solutions portfolio are
more geographically widespread than the UK Residential
portfolio and do not benefit from the bias they have
towards London and the South East. This geographic
29
30 September 2012. Operational results at G:res provide
a continuing insight into the current UK residential rental
market. Rental increases on renewals amounted to
4.6% for the year ended 30 September 2012 and
increases on new lets for the same period were 8.1%.
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. In 2013 the German
joint venture referred to above will form part of this element
of the Group.
In summary, our UK assets continue to outperform the
market indices; the proportion of profit derived from
rents and fees has increased; our sales margins on normal
trading sales have been maintained; our net asset values
have increased and our gearing has reduced.
difference is reflected in the valuation results for the year,
which showed a small increase of 1.0% in market value,
although this is still above the average decrease of 1.3%
in the Nationwide and Halifax House Price indices.
Retirement Solutions sales were at values, on average,
0.6% above September 2011 vacant possession values.
Overall, combining UK Residential and Retirement
Solutions, valuations were up 3.9% from September
2011, and sales were at values, on average, 6.1% above
September 2011 vacant possession values.
We bought £8.8m of home reversion assets in the
year (2011: £14.0m).
In the year ended 30 September 2012 the market
value of the UK Development portfolio increased by
£7.8m after allowing for the disposal of the first tranche
of land at Berewood. This increase primarily relates to
Berewood given the greater certainty over values at this
scheme after the signing this year of the Section 106
Agreement and the first sales of land with associated
infrastructure.
Grainger’s equity investment of £41.2m in its fund
and Third Party Management division comprises our
21.96% stake in G:res, which is a market rented fund
of 1,677 units. G:res is subject to a full external valuation
in December and June of each year and for the twelve
months ended 30 June 2012 showed an increase in
market values of 5.8%, producing an increase in net
asset value in the fund of 18.9% in the year ended
30
Grainger plc
Annual Report and Accounts 2012
Financial review
We have maintained OPBVM in 2012
at £126m and group net debt has fallen
by £260m in the year. Group net debt
has fallen by £376m since March 2011
whilst over the same period gross NAV
has increased by £54m (6.2%).
Our key performance indicators are:
Operating profit before valuation
movements and non‑recurring items
(OPBVM)
Recurring Profit
(Loss) / profit before tax
Gross net asset value per share
(pence)
Triple net asset value per share
(pence)
Excess on sale of normal sales to
previous valuation
Return on capital employed*
Return on shareholder equity**
2012
2011
£126.4m £126.2m
£34.6m £48.3m
£(1.7m) £26.1m
223p
216p
157p
153p
6.1%
5.9%
3.8%
6.7%
6.5%
11.1%
* 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.
** 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.
Income Performance
The table below summarises our Operating Profit before
valuation movements (OPBVM), recurring profit and loss
before tax.
Profit on sale of assets
Net Rents
Fees/ other income
CHARM
Overheads /other expenses
OPBVM
Finance costs, net
JV’s and associates
Recurring Profit before tax
Valuation movements including
derivatives
Non‑recurring items
(Loss)/profit before tax
2012
£m
77.6
63.5
11.0
7.1
(32.8)
126.4
(90.7)
(1.1)
34.6
(24.6)
(11.7)
(1.7)
2011
£m
81.0
62.4
8.0
7.1
(32.3)
126.2
(76.3)
(1.6)
48.3
(14.0)
(8.2)
26.1
31
We have three income streams within operating profit
before valuation movements and non-recurring items
(OPBVM). These are sales of residential properties, rental
income and fees or other income, net of property
expenses and overheads and before valuation and
non-recurring items. The rebalancing of the three
sources of income has continued and operating profit
has been maintained.
In the year, net rents rose by 1.8% from £62.4m
to £63.5m primarily due to contributions from our
acquisitions in the previous year of Grainger Invest
and HI Tricomm which are both performing in line
with expectations.
Profit from sales of property was £77.6m, compared
to £81.0m 2011. This was generated from gross sales
proceeds of £258.4m compared to £223.3m in 2011.
This movement in volume was driven mainly by an
increase of £11.1m in Retirement Solutions sales and
also in value added and agricultural sales which totalled
£25.6m in 2012 (2011: £1.8m). Margins on normal
vacant sales were maintained.
Fees have risen to £10.0m from £6.9m assisted by
increased income from G:RAMP. Other income at £1.0m
was similar to last year’s figure of £1.1m.
Divisional Analysis of Operating Profit before valuation movements
Management
Fees/other
income
£m
1.0
1.1
8.3
0.5
0.1
–
11.0
8.0
UK Residential Portfolio
Retirement Solutions Portfolio
Fund and third‑party management
Development Assets
German Residential Portfolio
Group and other
OPBVM 2012
OPBVM 2011
Profit on sale
of assets
£m
59.8
13.3
–
3.4
1.1
–
77.6
81.0
Net Rents
£m
42.5
3.7
–
0.2
17.1
–
63.5
62.4
Overheads/
Other
£m
(8.6)
4.2
(6.4)
(1.3)
(2.6)
(11.0)
(25.7)
(25.2)
Total
2012
£m
94.7
22.3
1.9
2.8
15.7
(11.0)
126.4
Total
2011
£m
86.0
18.7
1.8
14.4
18.3
(13.0)
126.2
Main movements within OPBVM
2011 OPBVM
Increase in gross rents
Increase in residential trading profit
Increase in gross management fees and other
income
Decrease in interest income from CHARM
Decrease in development trading profit
Increase in property expenses/
overheads/ other
2012 OPBVM
£m
126.2
3.5
6.5
3.0
(0.2)
(11.7)
(0.9)
126.4
The major movements within OPBVM are:
– An increase of £3.5m in gross rents. A full year’s gross
rent from our 2011 acquisition of HI Tricomm and
Grainger Invest has added £9.1m. Rent increases in
the year, including an average increase in regulated
rents of 12.6%, added £2.0m. These increases were
negated by net sales of assets which resulted in a
reduction of £6.0m, and a reduction of £1.6m due
to exchange movements on rent in Germany.
– An increase of £6.5m in residential trading profits.
This arose from value added sales in UK Residential
and additional margin from higher sales of £11m
in Retirement Solutions.
– An increase in gross management fees and other
income of £3.0m arising primarily from G:RAMP
which commenced during the second half of 2011.
– A reduction of £11.7m in development profits.
Interest expense
Net recurring interest charge has increased by £14.4m
from £76.3m in 2011 to £90.7m at 30 September
2012. The interest charge increased following debt
either assumed or raised in connection with the
acquisitions of HI Tricomm and Grainger Invest.
These acquisitions were made at the end of the first
half of 2011. There is also an increase in the average
cost of debt following the refinancing activities of 2011
and our increasing proportion of hedged debt.
32
Grainger plc
Annual Report and Accounts 2012
Financial review
continued
Other than movements on derivatives the major items
in 2012 are a £2.1m valuation gain on our investment
property compared to a £2m deficit in 2011 and a
£6.9m write down applied to the net assets in Germany
being sold as part of the Heitman transaction to their
agreed value (see note 40 to the accounts).
Fair value movements on derivatives is a charge of
£31.2m. This comprises a £24.6m adverse movement
on the yield curve in the year and £6.6m in relation to
the settlement of swap contracts in both the current
and prior years.
Including an amount of £21.7m relating to an
agreed swap settlement value and £4.8m included in
liabilities related to assets held-for-sale, the fair value of
swaps at 30 September 2012 is a liability of £171.9m
compared to £154.3m at 30 September 2011.
Loss before tax
Having taken account of interest and derivative
movements and our share of profits from joint ventures
and associates of £3.5m, loss before tax was £1.7m
compared to a profit of £26.1m in 2011.
Tax
The group has an overall tax credit of £2.1m. In achieving
this credit, the group has released certain overseas tax
provisions following a reorganisation within the group.
In addition, there is a £1.7m reduction in deferred tax
liabilities relating to the assets in Germany being sold as
part of the Heitman transaction.
Joint ventures and associates
Joint ventures and associates contributed a loss of £1.1m
to recurring profit in the year (2011: loss of £1.6m).
Included within valuation movements is a profit of
£4.6m derived from our share of the G:res revaluation
surplus. In 2011 our share of revaluation surplus was
£8.1m which derived from G:res and Grainger Invest
(Grainger Invest was wholly owned by Grainger
throughout 2012).
Valuation and non‑recurring
The movement in valuation and non-recurring items is
analysed as follows:
30
September
2012
£m
30
September
2011
£m Movement
Gain on acquisition of
subsidiaries
Goodwill impairment
Write down of inventories
to net realisable value
Impairment provisions
against loans
Valuation gain/(deficit) on
investment property
Write down of investment
property in disposal group
Change in fair value of
derivatives
Valuation gains on
investment property in
joint venture and
associates
Other non‑recurring costs
–
–
16.1
(2.2)
(16.1)
2.2
(0.1)
(1.8)
–
2.1
(4.2)
(2.0)
1.7
4.2
4.1
(6.9)
–
(6.9)
(31.2)
(28.0)
(3.2)
4.6
(4.8)
(36.3)
8.1
(8.2)
(22.2)
(3.5)
3.4
(14.1)
In 2011 the gain on acquisition arose from our
acquisition of HI Tricomm which provided a gain of
£14.9m, and in the case of Grainger Invest, £1.2m.
Earnings per share
Basic earnings per share is a profit of 0.1p (2011: a profit
of 9.5p). A year-on-year comparison is shown below:
2011 Profit/earnings per share
Movements in:
OPBVM
Contribution from joint ventures
and associates
Fair value of derivatives
Revaluation of investment properties
Provisions against trading stock
values and loans
Gain on acquisition of subsidiaries
Net interest payable
Write down of investment property
in disposal group
Taxation and other
2012 Profit/ earnings per share
Pence
per share
9.5
£m
39.1
0.2
(2.8)
(3.2)
4.1
5.9
(13.9)
(13.3)
(6.9)
(8.8)
0.4
–
(0.7)
(0.8)
1.0
1.5
(3.4)
(3.2)
(1.7)
(2.1)
0.1
Dividend for the year
After considering the investment and working capital
needs of the business, the directors have recommended
a final dividend of 1.37p per ordinary share (2011:
1.30p). This is in addition to the dividend at the half year
of 0.55p per ordinary share (2011: 0.53p) equivalent by
way of a tender offer). The total dividend for the year
will therefore be 1.92p per ordinary share (2011: 1.83p),
an increase of 4.9%.
33
Asset Performance
Net asset value
We set out two measurements to enable shareholders
to compare our performance year on year.
30
September
2012
30
September
2011 Movement
223p
216p
3.2%
157p
153p
2.5%
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
Triple net asset value per
share (NNNAV)
– Gross NAV per share
adjusted for deferred
and contingent tax on
revaluation gains and
for the fair value of
derivatives
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.
A reconciliation between the statutory balance sheet
and the market value balance sheets for both Gross NAV
and NNNAV is set out below.
Reconciliation of Gross NAV to NNNAV
Gross NAV
Deferred and contingent tax
Fair value of derivatives adjustments
net of tax
NNNAV
Pence per
share
223
(29)
(37)
157
£m
929
(120)
(155)
654
34
Grainger plc
Annual Report and Accounts 2012
Financial review
continued
The major movements in Gross NAV in the year are:
The major movements in NNNAV in the year are:
Gross NAV at 30 September 2011
Profit after tax
Revaluation gains
Elimination of previously recognised
surplus on sales
Dividends paid
Derivatives movement net of tax
Others
Gross NAV at 30 September 2012
Pence per
share
216
–
16
(11)
(2)
6
(2)
223
£m
900
–
67
(47)
(8)
25
(8)
929
NNNAV at 30 September 2011
Profit 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 2012
Pence per
share
153
–
16
(11)
(2)
2
1
(2)
157
£m
638
–
67
(47)
(8)
10
2
(8)
654
Market value analysis of property assets
Shown as
stock at cost
£m
953
70
1,023
1,105
Market value
adjustment
£m
364
–
364
344
Investment
property/financial
interest in property
assets
£m
843
–
843
922
Market value
£m
1,317
70
1,387
1,449
Total
£m
2,160
70
2,230
2,371
Residential
Development
Total at 30 September 2012
Total at 30 September 2011
Financial resources
We have reduced net debt by a further £260m in the
year from £1,454m to £1,194m and maintained
headroom at appropriate levels. Included in the
reduction is net debt to be transferred to the new joint
venture with Heitman of £118m.
The Group significantly refreshed and diversified its
sources of finance during 2011. A total of £1.2bn of
new debt was secured for the purposes of refinancing
existing debt and in connection with acquisitions.
Our core group syndicated facility – with RBS, Lloyds,
Barclays, Nationwide, HSBC and Allied Irish – agreed in
September 2011 and drawn during the year provides
£840m of committed facilities. Of this, £606m matures
in July 2016. The balance of the facilities mature in three
stages, with £166.5m maturing in December 2014,
£7.5m maturing in July 2018 and £60m maturing in July
2020. Given the cash generative capabilities of the
business we will consider whether to repay, rather than
refinance, the December 2014 maturity.
35
Subsequent to the year end we also refinanced the
element of our German operations that were transferred
to the new joint venture with Heitman. The financing of
€164.9m was achieved at attractive interest rates with a
new lender. In the UK we attracted development finance
of £23m for our Macaulay Road development scheme in
Clapham again at competitive rates. Both these examples
evidence our continued ability to raise finance for our
activities and lenders’ confidence in our business model.
As at 30 September 2012, the average maturity of
the group’s committed facilities was 5.1 years
(September 2011: 5.5 years) and the average maturity of
the group’s drawn debt was 5.5 years (September 2011:
5.9 years).
The group has free cash balances of £26m plus
available overdraft of £5m along with undrawn
committed facilities of £117m. Thus headroom totals
£148m as at 30 September 2012 (2011: £214m).
The group’s average interest rate, excluding costs, as
At 30 September 2012 gross debt was 85% hedged
(September 2011: 73%) of which 4% was subject to
caps. This reduces to 84% following the Heitman
transaction.
At the year end LTV on the core facility was 48%
(September 2011: 52%). This compares to a minimum
required LTV covenant of 75%. Taking into account the
reduction in net debt of £118m arising from the
Heitman transaction group consolidated LTV was 55%
(September 2011: 61%) and upon receipt of proceeds
on completion the LTV will fall to 54%.
At 30 September 2012 the interest cover ratio on
the core facility stood at 3.0 times (September 2011:
3.1 times). This compares to an interest cover covenant
of 1.35 times.
Given the progress already made and our objective
of materially reducing debt and gearing we have set
ourselves the specific target of attaining a group net
debt figure of less than £1bn by the end of 2013.
at 30 September 2012 (based on current Libor/Euribor
rates and on current debt hedging) was 6.0%
(September 2011: 5.3%).
The group’s average cost of debt, including costs,
On the basis of the group’s current trading, cash
flow generation and debt reduction the directors have
concluded that it is appropriate to prepare the group
financial statements on a going concern basis.
through the year to 30 September was 6.1%
(September 2011: 5.4%).
The business has produced £267m of cash from its
operating activities derived from net rents and other
income, property sales and other working capital
movements net of overheads. The largest outflow of
cash is £77m of net interest.
At 30 September 2012 and taking into account the
reduction in net debt of £118m arising from the
Heitman transaction, net debt levels had fallen from
£1,454m at September 2011 to £1,194m which is a
decrease of £260m. Net debt is now £376m lower than
18 months ago at 31 March 2011 when net debt was
£1,570m.
Mark Greenwood
Finance Director
6 December 2012
36
Grainger plc
Annual Report and Accounts 2012
Our people, tenants and partners
The successful delivery of our
business model depends on strong
relationships with a range of
stakeholders. Our employees
play a key role in building these
relationships.
Introduction
Grainger does not operate in isolation, as a business
we depend on our customers, those who purchase
our properties, our tenants who rent our properties and
our partners who provide the opportunities to manage
their portfolios and to develop places and homes
together. Our success comes only though understanding
and creating products that meet their needs at a price
and a quality that is competitive.
Underpinning all we that we achieve as an
organisation are our people and Grainger is committed
to providing opportunities for all our staff to contribute
to the success of the company and to develop their own
careers in a stimulating and rewarding environment.
Achieving our centenary is testimony to the efforts
of all of our people and our partners over the last
100 years and stands us in good stead for the future.
Our people
Our aim is to continue to
be an employer of choice for
talented people, whatever
their professional background.
Our tenants
Our tenants are the heart of our
business; as the Private Rented
Sector grows in importance so
too will our focus on providing
homes and services that meet
their changing aspirations.
Our partners
Our partners are key to our
success; we create mutually
beneficial relationships that
enable us to create value for
ourselves and our partners in
the residential property market.
Read more about our people on page 37
Read more about our tenants on page 38
Read more about our partners on page 39
9
9
9
37
Leadership & Development
We have made significant investment in our Senior
Managers this year, all of whom have undertaken a
corporate Leadership Development Programme linked
to succession planning and personal development.
This autumn we will launch our Emerging Leaders
Programme aimed at our Senior Managers of the future.
Supporting Our People
Over the past year in addition to core training courses
we have continued with our Women in Business and
Property Management CPD programmes. 21 staff
are currently being supported financially in undertaking
a professional qualification and we are proud of
our continuing 100% first time success rate in the
APC examination.
Graduate Programme
2012 is the first year of our Graduate Programme.
Aimed at those keen to develop careers in residential
property, this is a two year programme including
placements across the business. We received over
450 applications and the first graduates started with
us on the 1st September. In addition we provided
work experience for 18 young people.
Engagement
We regularly conduct Staff Surveys and this year
participated in the Sunday Times Best Companies
Employee Engagement Survey. We achieved one
star accreditation which recognises Grainger as
a First Class Employer.
Health & Wellbeing
Supporting our sponsorship of 2012 Paralympic
athletes we continued the fitness theme with a
Pedometer Challenge. 31 teams from all our offices
in the UK and Germany took part with a target of
10,000 steps per day per individual.
Our people
Achievements in 2012
Our aim is to continue to be
an employer of choice for
talented people, whatever their
professional background.
Per employee invested in training
£625
72%
Of staff rate Grainger as an extremely or
very good employer
Employee profile
6
1
5
4
3
Employee profile
7
1
6
5
4
3
2
2
Role
1. Executive directors
2. Senior managers
3. Managers
4. Associate
5. Support
6. Off‑site
No. Employees
4
30
89
43
101
15
282
Age
1. 18 – 25 Years
2. 26 – 33 Years
3. 34 – 41 Years
4. 42 – 49 Years
5. 50 – 57 Years
6. 58 – 65 Years
7. 66 Years
No. Employees
40
87
61
38
36
19
1
282
„
Developing residential expertise
Residential property provides a broad range
of challenges and opportunities to develop
technical and management expertise.
38
Grainger plc
Annual Report and Accounts 2012
Our tenants
Achievements in 2011/2012
Gross rents
£89.8m
24,870
Units managed
Our tenants are the heart of our
business; as the Private Rented
Sector grows in importance so
too will our focus on providing
homes and services that meet
their changing aspirations.
„
Looking after the long term
Building mutually beneficial relationships with
our tenants is central to Grainger’s purpose.
A diversity of tenures
Just as our wholly owned and managed portfolios vary
by tenure types, so too do our tenants, our services and
relationships reflect this variety.
Our regulated portfolios largely comprise houses
and flats that are homes to our tenants for many years.
We provide a caring and responsible service that reflects
their needs and recognises their desire for privacy and
security. Tenants in our equity release properties also
enjoy lifetime tenure providing them with long term
security. Our impact on their day-to-day lives is
deliberately limited, enabling the householder to
continue living in his or her home as if it were their own.
In our AST properties, whether wholly owned,
co-owned or managed on behalf of others, we engage
in a much more active customer – supplier relationship.
With an average length of tenure of 20 months, our
focus has to be on ensuring that we provide and
manage properties that can attract tenants, whether
these are students looking for value for money
accommodation or city professionals looking for high
quality urban environments.
Our agreements with our German tenants are
open ended and many choose to stay in our properties
for many years. Here too we are focused on offering
a high level of service as well as an attractive product
to new tenants.
As Grainger’s focus on tenants with choice grows
so too will the need to understand our current and
future customers and how we can meet their needs
and ambitions better than our competitors in order to
deliver superior returns through rental and fee income.
Achievements in 2011/2012
Fee income
£10m
45%
Increase
Our partners
Our partners are key to our
success; we create mutually
beneficial relationships that
enable us to create value for
ourselves and our partners in
the residential property market.
„
Working together for the future
Aligning our interests with those of our partners is
a key part of the construction of our joint ventures.
39
Grainger = Residential
Grainger aims to be the first port of call for any organisation
seeking to participate in the residential property market,
or requiring a solution to issues facing it in this market.
We are a long-term player and aligning our interests to
those of our partners, through co-investment or shared
reward arrangements is at the heart of our values.
Our Partnerships
In Aldershot we have entered a long-term relationship
with the Defence Infrastructure Organisation of the
Ministry of Defence, leading a highly complex project to
deliver approximately 4,000 homes and community facilities
on historically important, but surplus, military land to
create a thriving community to the benefit of Aldershot
and delivering the best value for the Ministry of Defence.
In London and the South East, we are working
with Bouygues Group, one of the world’s leading
construction and services groups, to provide institutional
investors with the opportunity to invest in scale into the
PRS through a dedicated portfolio of purpose built
development sites.
For Lloyds Banking Group’s Commercial Real Estate
Business Support Unit team we provide a Residential Asset
Management Platform (RAMP) to manage residential
buy-to-let portfolios that have entered into administration.
In this deal, the first of its kind in the UK, we receive fees
based on rent, disposals and shared success fees, fully
aligning our interests with those of Lloyds Banking
Group for any assets placed into the RAMP.
In Hampshire, we are working with Winchester City
Council and Havant Borough Council to create
Berewood, a new community of 2,550 homes. We have
been working for more than 15 years on this project
and have spent five years in extensive consultation with
the local community to ensure that Berewood will be a
place where people want to live.
At London Borough of Hammersmith and Fulham, we
are working with Helical Bar to create a new civic
community that will regenerate King Street. The scheme
will deliver new council offices, new and improved public
areas, new retail units and residential accommodation.
Grainger and Helical Bar are working together to bring
their specific and complimentary expertise to this scheme.
40
Grainger plc
Annual Report and Accounts 2012
Corporate responsibility
Why does CR matter?
The CEO perspective from Andrew Cunningham
Andrew Cunningham
Chief executive officer
How has Corporate Responsibility at
Grainger evolved in the last year?
AC. There is greater investment in our Corporate
Responsibility performance at the highest levels.
Each executive director now takes responsibility for
the achievement of a subset of targets. Demonstrating
leadership by the executive team is key to embedding
Corporate Responsibility into the fabric of the business.
Our chairman, Robin Broadhurst, is also active in this
area, both in demonstrating a personal interest
in Granger’s CR activities and in recognising our CR
successes. I think that he puts our commitment very
well when he says that, as well as being a successful
business, Grainger is and should continue to be a
‘good-hearted’ organisation.
Why do you think it is important for Grainger
to invest in Corporate Responsibility?
AC. Our customers are individuals and families rather
than the corporate clients of most UK real estate
companies. As the largest business in our sector and a
publicly listed company, Grainger has a duty to act
responsibly and to be seen to be doing so. Historically,
that has meant taking special care to consider the needs
of our elderly tenants who have little housing choice.
In the next 10–15 years, Grainger’s tenant base will
become more market based. Our future tenants will be
able to vote with their feet, and we need to focus on
providing housing choices and services that meet their
aspirations and needs across a range of economic levels.
How do you view the value of Corporate
Responsibility to the business?
AC. Ove Arup made a speech to his staff in 1970 that
articulates well my personal understanding of the main
aims of a business, which include social usefulness,
straight and honourable dealings, and humanity.
These, plus delivering value for shareholders and quality
services and products, lead to satisfied customers,
satisfied staff and a strong brand or reputation.
Grainger has frequently been successful at putting
these principles into practice. For example, part of the
reason that we were awarded the development
programme at Aldershot was because we took a
different approach to our competitors and focused on
our history of place-making, our understanding of
‘Grainger in the community.’ These things are part of
how we do business and are the practical
demonstration of the business value of our Corporate
Responsibility programme.
What achievements are you proudest
of over the last 12 months?
AC. I am particularly proud of our giving, organised by
Grainger’s new charity committee, which I chair though
the work is done by others. As part of our centenary
activities, Robin Broadhurst set everyone a challenge
of raising £25,000 for charity, about £100 per member
of staff. We met this target within nine months as well
as meeting our regular volunteering target of 30% of
our staff giving a working day to charitable activities.
The 2012 centenary celebration was a positive driver for
this but every year our people give very generously of
their time and money to help others.
41
Our new complaints handling processes is another
important step forward in ensuring that we handle
tenant issues effectively. Our analysis of recent
complaints has identified improving communication as
an issue that we will focus on going forward. We have
also invested tremendously in the personal development
of our staff at all levels which is a key value for me as
CEO as well as a practical investment in the future of
the business.
What is your vision for 2012/13?
AC. We have recently spent a significant amount of time
focusing on risk management, which is at the heart of
future proofing the business and of our CR objectives.
I intend to see risk management integrated even more
closely into the way we do business.
In thinking about CR targets for 2012/13, these should
set the direction for Grainger to assist us to implement
the principles underpinning our CR strategy (ETHOS),
without being an end in themselves. I would rather set
stretch targets and see 50% of them achieved, than
80% tick-box completion. As CR becomes ever more
embedded in the way we do business, then the more
staff we can involve in setting and delivering our CR
objectives and targets and the more we will be able to
demonstrate the business value.
Taken from an interview with Andrew Cunningham
conducted by Jones Lang LaSalle, Upstream Sustainability
Services on 21 August 2012.
How we are creating a leading residential business
Our ETHOS strategy is focused on five CR principles
which we apply in our day-to-day operations:
Embedding the ETHOS strategy
in our business practices:
Protecting
assets &
income
Driving
efficiency
Our CR
principles
Investing in
communities
& places
Influencing
the future
Responsibility to
stakeholders
Supports our ambition to be a
leader in the residential sector
Helps to build relationships with
stakeholders who are critical to our
ongoing success
Protects and enhances our income
streams and the long-term value of
our portfolio
42
Grainger plc
Annual Report and Accounts 2012
Corporate responsibility
continued
What have we achieved this year?
Significant progress against our 2011/12 targets
Influencing the future
Targets
Establishing Grainger as a CR leader
through active government
engagement and industry debate
Commission two research reports on relevant CR related
policy issues for Grainger (e.g. the rented housing sector or equity
release sector).
Organise and host one practical workshop/roundtable with another
organisation to investigate a relevant CR policy issue.
Protecting assets and income
Targets
Proactive management of
CR risks and opportunities to
protect income streams
Publish an executive director approved policy outlining how
Grainger values sustainability risks and opportunities in its
investment process.
k
Establish a formal tenant complaints procedure with performance
standards for response times and response quality. Ensure that all
staff are trained on this new procedure.
Update Grainger’s existing auditing process for managing agents
and contractors to include environmental criteria. Managing agents
to be asked to supply details of their environmental management/
sustainability procedures. Contractors to be measured against
standards set by Grainger (based on Considerate Constructors
Scheme criteria).
Investing in communities and places
Targets
Maximising portfolio value by
investing in places and engaging
with communities
Place ten individuals in new apprenticeship or trainee management
positions within Grainger’s own UK operations or with contractors
through agreements.
Put in place a committee to oversee volunteering and charity
activities to help achieve Grainger’s benchmark KPI of 30% of staff
volunteering one working day and to coordinate and promote
charitable fundraising, giving and other relevant activities.
43
k
l
k
k
Driving efficiency
Targets
Efficiency in working practices to
make Grainger a lean business and
to minimise environmental impact
Organise a Corporate Responsibility innovation day for 30 Grainger
staff and selected external stakeholders to identify opportunities for
Grainger to improve its environmental and community performance.
Create and document standards for purchasing IT equipment
to ensure acquiring environmentally friendly kit.
Update the existing EMS to integrate the system more closely with
Grainger’s refurbishment and property service operations.
Collect annual electricity, gas and water meter readings at all blocks
for which Grainger purchases energy.
Analyse the environmental and socio-economic costs and
benefits of our procurement strategy in terms of using local
vs national suppliers. This target will be reformulated next year.
Responsibility to stakeholders
Targets
Managing stakeholder relationships
to achieve transparency
understanding and trust
Include updates on all CR benchmark KPIs and target progress
in the monthly senior management information pack.
Plan and implement a 1-month employee health and wellbeing
initiative in Summer 2012 connected to the Olympics.
Create a CR library on Grainger policies, achievements and FAQs
for use in internal and external communications on Grainger’s
Corporate Responsibility approach. Explore how the CR website
could help achieve this target.
Key: Progress against targets
Achieved
Not achieved
l
In progress
For more details about our 2011/12 CR initiatives,
achievements and performance, please go to
www.graingercr.com
44
Grainger plc
Annual Report and Accounts 2012
Corporate responsibility
continued
Influencing the future
Contributing to industry discussions
around the future of UK housing
Protecting assets and income
Responding more effectively
to tenants’ concerns
Throughout the year, Grainger has actively engaged
with government representatives, politicians, policy
makers, partners and peers on a number of key issues,
such as residential real estate investment trusts, stamp
duty land tax, planning and the future of housing,
particularly the private rented sector and Build-To-Rent.
Grainger has met with key influencers, spoken at
conferences, held private roundtables, supported a
number of research reports, undertaken a national
survey of people’s attitudes to renting, published its own
review of the rental market and submitted evidence to
a number of Government consultations. In addition,
Grainger’s Executive Property Director, Nick Jopling,
was an adviser to the Government-commissioned
‘Review of the barriers to institutional investment in
the private rented sector’ led by Sir Adrian Montague
(the Montague Review).
Over the last year, Grainger has implemented an
improved procedure for capturing and responding to
tenant complaints, including minimum response times.
Our CEO, Andrew Cunningham, now reviews the
complaints register on a monthly basis and Grainger
uses the results to identify key areas for improvement in
terms of customer service. Repairs and communication
are themes that Grainger has identified as priorities
for 2012/13.
Tenant complaints received
since October 2011
Complaints fully resolved
as of 30 September 2012
60
73%
Grainger’s ambition is to be the
company to talk to on any issue
relating to the future of UK
residential property.
Kurt Mueller, Director of Corporate Affairs
Responsibility to stakeholders
Incorporating the views of local communities
into new development designs
At the recently acquired Woodcroft Farm, Grainger’s
consultation strategy drew from our previous local
experience to proactively address public concerns. Public
exhibitions and meetings were held to hear from those
that live closest to the site. The sessions ran before the
masterplan was fixed, so that community members
could meet Grainger’s professional team and influence
the final design. Contact details were provided so that
residents could make contact with the team directly –
with many specific queries personally followed up
afterwards. The planning application is currently being
finalised, with submission anticipated late in 2012.
„
2012 London Paralympics
Grainger was proud to sponsor three athletes
from the North-East, Stephen Miller, Eleni
Papadopoulos and John Robertson. Stephen
and John represented Team GB at the 2012
London Paralympics.
45
Key performance indicators
We monitor a number of Key Performance Indicators (KPIs) to ensure that we are on track to achieve our long-term
vision. These include benchmark KPIs, which we aim to meet or exceed every year.
KPI
2009/10
2010/11
2011/12
1-year trend
Our properties
EPC energy efficiency ratings (% of properties)1
Average Considerate Constructors Scheme (CCS) score2
Supply chain
Customers rating contractors’ service at good or above (%)3
Suppliers with audit scores of satisfactory or above (%)4
A–C: 43%
D–E: 41%
F–G: 16%
Not measured
A–C: 47%
D–E: 42%
F–G: 11%
28
A–C: 36%
D–E: 44%
F–G: 20%
31
94%
Not measured
98%
Not measured
87%
Managing
agents: 75%
Contractors: 75%
Customers
Tenants rating Grainger’s management service as good or above (%)5
Percentage of tenant complaints fully resolved (% as of year end)6
68%
Not measured
61%
Not measured
GHG reporting7
Scope 1 total
Business car travel (tCO2e)8
Fuels on development sites (tCO2e)9
Scope 2 total
Office electricity (tCO2e)10
Electricity on development sites (tCO2e)
Scope 3 total
Air travel (tCO2e)11
Rail travel (tCO2e)11
249
249
228
228
No developments No developments
342
342
No developments No developments
60
23
37
76
35
41
345
345
77%
73%
398
263
135
379
340
39
80
33
47
x
h
x
h
h
h
x
Tenant-related emissions (tCO2)12
Not measured
37,000
2011/12 total being
calculated13
Key: Key performance indicators
Improved
Worsened
h
x
More detailed data notes are available
in our online CR report, available at
www.graingercr.com
Notes
1 All properties in EPC database (2,287 as of 30 September 2012 up from 1,254 in 2010/11) – UK only.
2 Major refurbishment and development sites – UK only.
3 Existing market rented and regulated tenants – UK only. New contractor survey process introduced
in 2011/12.
4 All managing agents and major contractors. Based on health, safety and environment audits – UK only.
5 Existing market rented and regulated tenants – UK only. New survey process of existing market rented
and regulated tenants introduced in 2011/12. Results based on exit surveys of market rented tenants only
in 2009/10 and 2010/11.
6 All complaints via the Executive and through Grainger website – UK only.
7 Reported on an operational control basis as in previous years. Grainger will align its reporting to a financial
control approach in 2012/13 in line with the requirements of UK mandatory GHG reporting regulation.
All office electricity CO2e figures prior to 2011/12 have been recalculated using the same emissions
factor from DEFRA 2012 guidance to highlight energy efficiency changes in Grainger’s operations.
8 Company leased cars (tCO2) and staff cars used for business purposes (tCO2e)– UK and Germany
from 2011/12.
9 Diesel.
10 Small power and lighting – UK and Germany.
11 UK and Germany.
12 Estimate based on EPCs – UK Residential.
13 This figure, and more detailed data notes, will be published in our online CR report at www.graingercr.com.
46
Grainger plc
Annual Report and Accounts 2012
Corporate responsibility
continued
Summary of EPRA Sustainability Performance Measures
The following information provides an overview of the EPRA sustainability performance measures that Grainger
is able to report on, an explanation for those that we cannot report on and outlines our plans to expand our
data collection in 2012/13 to be able to report more fully against the recommendations next year. Please refer
to www.graingercr.com for commentary on trends.
Energy Consumption
Total energy consumption
from electricity (kWh)
Energy intensity
(kWh/FTE/year)
GHG emissions
Total indirect
GHG emissions (tCO2e)
Greenhouse
gas intensity
(tCO2e/FTE/year)
UK
623,426
2010/11
Germany
47,590
UK
621,153
2011/12
Germany
39,807
UK
–0.4%
% Change
Germany
–16.4%
2,389
4,759
2,275
4,423
–5%
–7%
2010/11
Germany
20
UK
324
2011/12
Germany
17
UK
323
UK
–0.4%
% Change
Germany
–16.4%
1.24
2.05
1.18
1.90
–5%
–7%
Notes:
Grainger currently only reports on its own offices. 2010/11 and 2011/12 own office coverage – 7 out of 7 offices.
Grainger does not currently report on heating or cooling consumption for its own offices or residential portfolio (Grainger is responsible for common parts of flat blocks
and commercial units only).
Grainger has put in place processes to collect electricity and gas meter readings for the common parts of its flat blocks and commercial units from 2012/13.
Grainger does not currently measure energy on an intensity basis for its residential properties.
Total water withdrawal by source
Grainger does not currently measure water use for its own offices. For our residential portfolio, Grainger has put
in place processes to collect water meter readings for the common parts of its flat blocks and commercial units
from 2012/13.
Waste by disposal route
% of waste is recycled
(estimated)
UK
Not measured
2010/11
Germany
Not measured
2011/12
Germany
80%
UK
77%
% Change
Germany
N/A
UK
N/A
Notes:
Grainger only reports on its own offices. 2010/11 and 2011/12 own office coverage – 3 out of 7 offices.
Quantities by disposal route not currently measured for own offices.
Waste data is not collected for residential portfolio as Grainger has no control over tenants’ waste.
47
Advisor’s statement
Upstream Sustainability Services, part of Jones Lang
LaSalle, has advised Grainger plc on its Corporate
Responsibility (CR) 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. Upstream’s observations and
recommendations are based on independent analysis of
documents, interviews and/or other secondary evidence
provided by Grainger and relevant third-parties.
Reasonable efforts were made to check the quality,
accuracy and credibility of all available information but
site visits or audits on primary data (e.g. meter readings
and invoices) were not performed. Consequently, this
Statement does not represent formal assurance or
verification of the Corporate Responsibility content of
Grainger plc’s 2011/12 annual report and accounts.
Observations and recommendations
Grainger continues to mature in its approach to
Corporate Responsibility. A two-year push to embed
CR throughout the business is starting to bear fruit with
a notable increase in executive commitment and
management coordination. Additionally, a wider
cross-section of employees at all levels have been
involved in the CR programme through charity activities
and the CR Innovation Day. This is reflected in a near
doubling of target achievement since 2010/11.
– Grainger has made progress in its ambition to be
recognised as a CR sector leader through participation
in government consultations on housing, investor
surveys such as the Global Real Estate Sustainability
Benchmark (GRESB) and industry research using the
company’s unique access to residential information.
– Grainger has taken an important step in its maturity
by setting culturally appropriate CR targets for its
German business for the first time in 2012/13.
– Overall in 2011/12, we found that 11 targets were
fully achieved (73%), 3 partially achieved (20%)
and 1 not achieved (7%).
Looking ahead, Grainger is taking an ambitious step
to fully integrate CR targets with its business strategy.
Five key focus areas have been identified by the
executive directors, who will each take responsibility
for managing initiatives and business value in a
specific area for 2012/13. The level of ownership is
dramatically increasing at the highest levels with this
step. We fully support Grainger’s focus on its properties
as these represent the company’s most material
environmental impact.
Upstream recommends that Grainger pay
particular attention in 2012/13 to:
– Maintaining and directing the momentum built
during 2011/12, particularly through updating its
governance structure;
– Incorporating the German business into the
– We commend Grainger for improving customer
CR strategy;
service with its new tenant complaints procedure.
Improving customer service is as at the heart of
Grainger’s future business strategy.
– Collecting utility readings for the common parts of
all flat blocks for which Grainger procures energy
was a challenge for the third year in 2011/12 and
is still in progress.
– We commend Grainger for partnering with suppliers
to deliver better social and environmental outcomes
through its apprenticeship scheme and environmental
audits of managing agents and contractors.
– Ensuring that robust data collection processes are in
place to prepare for UK mandatory carbon reporting.
Lora Brill
Senior Sustainability Consultant
Jones Lang LaSalle,
Upstream Sustainability Services
6 December 2012
For the full Advisor’s Statement, please go to
www.graingercr.com
48
Grainger plc
Annual Report and Accounts 2012
Risk management
The Grainger plc board is ultimately
responsible for the group’s risk
management framework. The new
Board Risk and Compliance Committee
(BRCC), set up during the period,
regularly reviews the group’s key risks
and is supported in the discharge
of this responsibility by the internal
executive risk committee.
Grainger has a structured risk management process
that recognises the following risk categories: Strategic,
Operational, Financial, Project, Legal & Regulatory,
Information Technology (IT) and People Risks. This
categorisation is aligned to the group’s business objectives
and enables a comprehensive approach to risk assessment.
In the last year the BRCC and Executive have agreed
a risk appetite and tolerance policy aligned to the above
risk categories. This policy is now being implemented
and will provide a clear and agreed view of the level of
risk the group is prepared to accept in each of its risk
categories, acting as high level governance guides for
the business in its risk assessment and controls.
The risk management process is designed to capture
key risks from across the whole group. Each Division or
Corporate Department assesses its key risks using our
internal risk scoring matrix based on the level of
potential impact and the probability of the risk event
occurring. These risks are reviewed and monitored by
the executive risk committee on a regular basis. Macro
economic risks such as the Euro crisis, and their potential
impact on Grainger have also been considered by the
Executive. The subsequent agreed group top risks and
their management are then reviewed by the BRCC on
a quarterly basis.
The risk reporting framework below enables a two
way approach to monitoring and reporting risk across
the group.
Risk reporting framework
Grainger management framework
Grainger plc board
Grainger Risk management policy
Group audit committee
Board risk and
compliance committee
People risks
Grainger executive
Internal audit
Executive risk committee
Business unit boards
Operations team
Market &
strategic risk
Operational
risk
Legal &
regulatory risk
Project
assurance risk
Financial
risk
IT
risk
Business unit/shared service management teams
Grainger staff
Independent monitoring
Risk based monitoring plan
External verification
Key control checks
The principal risks faced by the group are:
Description and relevance to strategy
Mitigation
Negative impact on
Germany and UK of
deterioration of Eurozone
– De-gearing and hedging
– Euro exposure counter balanced by euro denominated debt
– Euro debt held in UK flexible facility that could be repaid and redrawn
in sterling if necessary
Legal and Regulatory Obligations
– Internal General Counsel team supervise and advise
– Clear corporate project management protocols
– Three lines of defence approach to FSA regulatory obligations
Failure to comply with
financial covenants
– Regular executive monitoring of loan to value and interest cover ratios
Long-term flat or negative
growth in value of group assets
– Portfolio weighting towards areas of higher economic growth
– Growth of non-HPI dependent income streams
– Maintenance of liquidity of assets to enable sale where necessary
Inadequate or inappropriately
implemented Health and Safety
procedures and controls
by external contractor base
– Full utilities management plan in place
– Health and Safety training provided to relevant staff
– Appropriately qualified and certified contractors used
– Executive and board oversight
Availability of sufficient funds
at the right price
– De-gearing
– Establishing other potential sources of debt
– Recruitment of specialist in strategic capital markets
Lack of clarity of values
and culture
– Internal values project
– Review of recruitment, induction and appraisal
– Staff engagement surveys
Key person risk
– Succession planning project
– Emerging leaders programme
– Retention policies in place for key staff
Rapid cataclysmic decline
in house prices
– Deleveraging
– Maintenance of low loan to value
49
Change during
the period
k
k
k
k
k
k
k
k
k
The principal risks faced by the group are:
No change
Increased risk
k
Decreased risk
k
k
50
Grainger plc
Annual Report and Accounts 2012
The Grainger board
The board is
responsible to
the company’s
shareholders for
the long-term
success of the
group, its strategy,
values and
its governance.
Robin Broadhurst CVO, CBE, FRICS
Non-executive chairman Aged 66
Andrew Cunningham FCA, FRICS
Chief executive Aged 56
Appointment
Appointed to the board in February 2004 and
became Chairman in February 2007
Experience
Robin was previously European Chairman at
Jones Lang LaSalle and served as trustee and
non-executive director at Grosvenor for eleven
years. He is a property consultant to Sir Robert
McAlpine Limited and is a Non-executive director
of Chelsfield Partners
Committee membership
Chairman of nominations committee
Appointment
Appointed to the board as Finance Director in
1996 and became Deputy Chief Executive in 2002
and Chief Executive in 2009
Experience
Andrew is a chartered accountant and before
joining Grainger was a partner in a predecessor
firm of PricewaterhouseCoopers. He is a member
of the British Property Federation Policy Committee
and in 2012 was appointed a Fellow of the Royal
Institution of Chartered Surveyors and was also
appointed a member of the Cambridge University
Land Economy Advisory Board.
Committee membership
None
John Barnsley
Non-executive director Aged 64
Appointment
Appointed to the board in 2003 and became
Senior Independent Director in February 2011.
Experience
John is a Non-executive director of Northern
Investors Company plc, American Appraisal
Associates LLP and Hippodrome Casino Limited.
Until December 2001 he was a senior Partner at
PricewaterhouseCoopers.
Committee membership
Senior independent director
Chairman of audit committee
Member of board risk and compliance committee
Member of nominations committee
Henry Pitman
Non-executive director Aged 50
Appointment
Appointed to the board in 2007.
Baroness Margaret Ford
Non-executive director Aged 54
Appointment
Appointed to the board in 2008.
Experience
Henry 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 and
from 1990 to 1995 he worked for the Property
Corporation of South Africa.
Committee membership
Member of remuneration committee
Experience
Margaret is Chairman of Barchester Healthcare Ltd
and May Gurney Group Ltd. She was Chairman of
the Olympic Park Legacy Company from 2009 to
2012, was a Managing Director in the Royal Bank
of Canada’s Global Infrastructure Group from
2007 to 2009, and between 2002 and 2007
was Chairman of English Partnerships.
Committee membership
Chairman of remuneration committee
Member of audit committee
Member of nominations committee
51
Mark Greenwood FCMA
Finance director Aged 53
Nick Jopling FRICS
Executive director Aged 51
Peter Couch Executive director,
Chief operating officer Aged 54
Appointment
Appointed to the board as Finance Director in
September 2010.
Appointment
Appointed to the board in 2010 as Executive
Director with responsibility for property.
Experience
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.
Experience
Nick was previously with CB Richard Ellis where he
was executive director of residential. He is the
Chairman of the UK Urban Land Institute Executive
Committee and was a member of Sir Adrian
Montague’s Committee which reviewed the
Barriers to Institutional Investment in Private
Rented Homes.
Appointment
Appointed to the board as executive director
responsible for Grainger’s retirement solutions
business in 2010.
Experience
Prior to joining Grainger in 2005 Peter spent most
of his career in the financial services sector and
held several senior roles within the AMP Group.
Committee membership
Member of board risk and compliance committee
Committee membership
Member of board risk and compliance committee
Committee membership
None
Belinda Richards
Non-executive director Aged 54
Appointment
Appointed to the board in 2011.
Tony Wray
Non-executive director Aged 51
Simon Davies
Non-executive director Aged 53
Appointment
Appointed to the board in 2011.
Appointment
Appointed to the board in 2012.
Experience
Belinda was previously Global Head of Deloitte’s
Merger Integration and Separation Advisory
Services and is also a Non-executive director
of Friends Life Group plc.
Committee membership
Chairman of board risk
and compliance committee
Member of audit committee
Member of remuneration committee
Experience
Tony has been the Chief Executive of FTSE 100
water company Severn Trent plc since 2007,
having joined their board in 2005. He is also a
member of the Water UK Board and has held
director roles within Transco and National Grid
Transco.
Committee membership
Member of audit committee
Member of board Risk
and compliance committee
Experience
Simon retired from the role of Executive Chairman
at Threadneedle Asset Management in 2012 after
five years in the position, having previously been
Chief Executive (1999 – 2007) and Chief
Investment Officer (1995 – 1998). He is currently
Chairman of JP Morgan Overseas Investment
Trust plc and is also a director of Intrinsic Financial
Services Ltd.
Committee membership
None
52
Grainger plc
Annual Report and Accounts 2012
Corporate governance
The board of Grainger is
committed to maintaining high
standards of corporate governance.
The directors and I see this
as fundamental to effective
management of the business
and delivery of long-term
shareholder value.
Robin Broadhurst
Chairman
Chairman’s Introduction
Compliance with the UK Corporate Governance Code
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 2012.
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.
Composition and independence
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. John Barnsley, the senior independent director, has
served on the board since February 2003.
The board and myself believe that John Barnsley continues to
exercise a degree of rigorous enquiry and intellectual challenge in
respect of his role as non-executive director and as such continues to
regard him as independent. His 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 complementary to the longer term business cycle
applicable to the Grainger business model.
53
Shareholder engagement
The board regards it as important to maintain an active dialogue
with our shareholders. Further details regarding this engagement
with our shareholders are set out on page 58.
Robin Broadhurst
Chairman
6 December 2012
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 50 and 51.
In accordance with the UK Corporate Governance Code, all the
directors, with the exception of Henry Pitman who is retiring from
the board, will stand for re-election at the AGM.
Diversity
Grainger believes that a diverse culture is a key factor in driving its
success, and supports the Davies Reports’ aspiration to promote
greater female representation on listed company boards.
As at 30 September 2012, the Grainger board had two female
non-executive directors, Baroness Margaret Ford and Belinda
Richards, representing 20% of board membership. Margaret and
Belinda bring invaluable skills to the composition of the board, and
as and when board appointments arise, we will look to follow the
procedures recommended by the Davies Report and by the
Governance Code to maintain a balanced board.
Board evaluation
As reported last year, an independent evaluation of the Grainger
board was carried out in 2011. This year I have personally carried out
an evaluation of the board, considering the recommendations from
2011. Further details are available on page 57.
54
Grainger plc
Annual Report and Accounts 2012
Corporate governance
continued
Leadership
The board
The board is responsible to the company’s shareholders for the long-term success of the group, its strategy, values and its governance.
Governance framework
30 September 2012
Chairman
Board: non-executive chairman, four executive directors and five non-executive directors
Nominations committee
Audit committee
Chief executive
Remuneration committee
Board risk and compliance committee
Executive directors
Executive risk committee
Divisional operating boards
Corporate business functions
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.
Length of service
30 September 2012
1. One – Two years
2. Two – Three years
3. Four – Six years
4. >Six years
1
4
Balance of directors
30 September 2012
1. Male
2. Female
3. Chairman
4. Exec directors
5. Non-executives
2
3
2
3
8
2
1
4
5
3
1
4
2
2
3
5
The directors
As at the date of this report the directors of the company are:
Chairman
– Robin Broadhurst
Executive directors
– Andrew Cunningham
– Peter Couch
– Mark Greenwood
– Nick Jopling
Non-executive directors
– John Barnsley (Senior independent director)
– Henry Pitman
– Baroness Margaret Ford
– Belinda Richards
– Tony Wray
– Simon Davies
Tony Wray was appointed to the board as a non-executive director
with effect from 24 October 2011. Robert Hiscox retired from
the board following the conclusion of the company’s AGM on
8 February 2012 and Simon Davies was appointed to the board
on 20 November 2012. Henry Pitman will be retiring from the board
at the AGM in February 2013.
55
Chairman and chief executive
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.
The chief executive is responsible for running the business and
implementing the board’s decisions. He chairs a weekly meeting
with the other executive directors, all of whom report directly to him,
and, together with the executive directors, holds monthly meetings
with each of the divisional boards to review all operational issues.
Non-executive 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 to
– 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.
Senior independent director
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.
Effectiveness
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 upon Tyne and three of the board meetings were held
in the company’s London office. The meeting in June 2012 was held
in a central London hotel to coincide with a full day’s strategy
conference with senior management – giving the board the opportunity
to engage with key staff on a range of issues. During the course of
these meetings the directors have heard presentations from divisional
directors on the following matters;
– Property and asset management.
– Development of the group’s core IT systems.
– Health & Safety Management within the group.
– The group’s German business.
– Grainger’s Asset Management platform.
– The business improvement programme.
– Accessing capital markets.
56
Grainger plc
Annual Report and Accounts 2012
Corporate governance
continued
Attendance table
Executive directors
Andrew Cunningham
Peter Couch
Nick Jopling
Mark Greenwood
Non-executive directors
Robin Broadhurst
John Barnsley
Henry Pitman
Baroness Margaret Ford
Belinda Richards
Tony Wray
Robert Hiscox
Meetings attended Meetings eligible to attend
6
6
6
6
6
6
6
6
Meetings attended Meetings eligible to attend
6
6
6
6
6
6
2
6
6
6
6
5
6
2
Board committees
The board has established four principal board committees to which
it has delegated certain of its responsibilities. They are the audit
committee, remuneration committee, nominations committee and
the board risk and compliance committee. The roles, membership
and activities of these committees are described in more detail later
in the Corporate Governance statement.
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
management information 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. As highlighted above the board
also received presentations from various business units.
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.
Induction and 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.
Tony Wray 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 in both the Newcastle
and London offices. He was also taken on a property tour to enable
him to see some of the company’s properties – ranging from the
core regulated portfolio through to some of the development
activities.
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.
57
Access to independent advice
All directors have access to the advice and services of the company
secretary who ensures that board processes are followed and good
corporate governance standards are maintained. Any director who
considers it necessary or appropriate may take independent,
professional advice at the company’s expense. None of the directors
sought such advice in the year.
Performance evaluation
As reported last year, the board evaluation in 2011 was undertaken
by Independent Audit Limited, an independent firm of consultants,
who concluded that there was considerable evidence to show that
the board and its committees were effective. Areas which have been
developed further subsequent to that report have been:
– the strategic messaging;
– risk related work;
– succession planning; and
– board information
The 2012 evaluation was led by the chairman who had private one
to one meetings with each of the directors. The company secretary
collated the evaluation results and these were considered by the
chairman and the company secretary and reported back to the
board. These were positive and indicated that the board, its
committees and individual directors were all operating effectively.
The review of the chairman’s performance, which review was led by
the senior independent director, concluded that the chairman’s
leadership and performance were considered to have been of a high
standard.
No major areas were highlighted within this review process but the
board intend to continue to develop themes arising from the review,
specifically on:
– strategic messaging;
– board information; and
– succession
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 Henry Pitman who will be retiring from
the board), will be offering themselves for re-election at the AGM in
February 2013. 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.
Accountability
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 risk and compliance 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, which includes the
results of our associate and joint ventures, which are subject to the
same internal controls as within the group. 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
58
Grainger plc
Annual Report and Accounts 2012
Corporate governance
continued
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 monthly management
information pack is prepared 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 executive directors 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 reviewing and approving 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.
Going concern
The Group closely monitors its future anticipated cash flows and
compliance with its banking covenants. Based on these forecasts
and the sensitivities which have been run on different scenarios 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.
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 finance
director respectively, have had the vast majority of these meetings
and manage the group’s investor relations programme with the
head of corporate affairs. Some of the key issues raised were the
levels of debt within the business and the strategy for the company’s
investment in Germany. Feedback is always sought following such
meetings and this feedback is presented to the board.
The chairman and Baroness Ford, the chairman of the
remuneration committee, also met with the Corporate Governance
officers of the company’s major shareholders in advance of the AGM
where the keys issues discussed were the company’s policy for
director’s remuneration and succession. The group’s website includes
a specific and comprehensive Investor Relations section, containing
all RNS announcements, share price information, annual documents
available for download and similar materials. All the directors intend
to be in attendance at the AGM in February 2013 and to be
available to answer questions. All shareholders have the opportunity
to attend the AGM, 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 to lodge their votes through the CREST
system.
Substantial shareholdings
As at 30 November 2012, the company is aware of the following
interests amounting to 3% or more in the company’s shares:
Schroder Investment Management Ltd
Standard Life Investments Ltd
BlackRock Inc
Henderson Global Investors
Franklin Templeton Fund Management Ltd
Holding
million
79.4
24.1
19.3
15.6
13.4
Holding
%
19.06
5.79
4.63
3.75
3.22
Audit committee report
John Barnsley
Committee Chairman
The audit committee currently comprises four independent
non-executive directors.
Member
since
Committee member
John Barnsley
(committee chairman)
Baroness Margaret Ford July 2008
April 2011
Belinda Richards
November 2011
Tony Wray
February 2003
Biographical details relating to each
of the committee members is shown
on pages 50 and 51.
Meetings
attended
Meetings
eligible to
attend
4
3
4
4
4
4
4
4
59
John Barnsley, the chairman of the committee is a chartered
accountant and Belinda Richards, who prior to joining the board
was Global Head of Deloitte’s Merger, Integration and Separation
Advisory Services both have recent and relevant financial experience
as required by the UK Corporate Governance Code.
The Group’s external auditors are PricewaterhouseCoopers LLP.
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 other services
to the group.
The board recognises the importance of safeguarding auditor
objectivity and has taken the following steps to ensure that auditor
independence is not compromised:
– 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;
60
Grainger plc
Annual Report and Accounts 2012
Audit committee report
continued
– 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;
– The auditors report to the directors and the audit committee
confirming their independence in accordance with Auditing
Standards. In addition to the steps taken by the board to
safeguard auditor objectivity, PricewaterhouseCoopers LLP
operates a five-year rotation policy for audit partners. During the
year a rotation occurred and a new audit partner took over
responsibility for the audit; and
– Different teams are utilised on all other assignments undertaken
by the auditors. Before any such assignments can commence
teams must obtain approval from the senior statutory audit
partner and the approval of the audit committee. This approval
confirms that sufficient and appropriate safeguards are put in
place to ensure that auditor independence is retained.
The audit committee give careful consideration before appointing
the auditors to provide other services. The group regularly use other
providers to ensure that independence and full value for money are
achieved. Other services are generally limited to work that is closely
related to the annual audit or where the work is of such a nature
that a detailed understanding of the business is necessary.
During the year, £64,000 was paid by the group to
PricewaterhouseCoopers LLP for taxation services. A further
£368,000 was paid for other services, the main element of which
was £325,000 relating to the preparation of a financial due diligence
report in relation to the group’s German business.
Key activities
They key work undertaken by the committee during the year was
as follows:
– Consideration and review of full year and half year results.
– Meeting with the external auditors and discussing with them the
significant financial reporting issues and accounting policies.
– Agreeing the scope of the work to be undertaken by the external
auditors for their review of the half year results and year end
statutory audit.
– Discussing with the external auditors the anticipated impact of
changes in forthcoming accounting standards.
– Consideration and approval of the annual internal audit plan,
internal audit resources and periodic reports from internal audit.
– Reviewing the audit committee’s terms of reference.
– Reviewing the Group’s Whistleblowing Policy and satisfying
themselves that this meets FSA rules and good standards of
corporate governance.
The Group’s Internal Audit Manager has direct access to the
chairman of the audit committee, and meets with him, without
the presence of management, to discuss the planning of audit
committee meetings.
Nominations committee report
61
Robin Broadhurst
Committee Chairman
The nominations committee currently comprises the chairman and
two independent non-executive directors.
Baroness Margaret Ford was appointed to the committee
in February 2012 to replace Robert Hiscox when he retired from the
board after the 2012 AGM.
Meetings
attended
Meetings
eligible to
attend
Member
since
February 2005
Committee member
Robin Broadhurst
(company chairman)
John Barnsley
(senior independent director)
Baroness Margaret Ford
(independent non-executive director) February 2012
Robert Hiscox
(independent non-executive director)
(retired
February 2012)
February 2011
Key responsibilities
The key responsibilities of the committee are to:
– Review the size, balance and constitution of the board, including
the diversity and balance of skills, knowledge and experience of
the non-executive directors.
– Identify and make recommendations to the board regarding
candidates to fill board vacancies as and when they arise.
– Review annually the time commitment required of non-executive
directors.
– Make recommendations for the board, in consultation with the
respective committee chairman regarding membership of the
audit, risk and compliance and remuneration committees.
– Review the tenure of each of the non-executive directors.
Main activities of the committee during the year and
subsequent to the year end
The committee met twice during the year to 30 September 2012
and has met once subsequently.
The key matters considered at these meetings were:
2
2
1
1
2
2
1
1
– Succession plans for both the executive and non-executive
directors.
– Membership of board committees.
– The time commitment required of non-executive directors.
– The qualities and skills that would be desirable in the new
non-executive director who was to be recruited in advance of
Henry Pitman’s retirement from the board at the 2013 AGM.
– Undertaking a selection process in conjunction with a specialist
recruitment consultancy to identify suitable candidates to fill
the board vacancy and subsequently recommending to the board
that Simon Davies be appointed as a non-executive director
in November 2012.
– The identification, after consulting with the CEO, of any existing
employees who could be developed to take on more senior roles
and any who may have the potential to become, in due course,
executive directors.
62
Grainger plc
Annual Report and Accounts 2012
Remuneration committee report
Baroness Margaret Ford
Committee Chairman
The remuneration committee currently comprises three independent
non-executive directors.
Committee member
Baroness Margaret Ford
(Committee chairman)
Henry Pitman
Belinda Richards
Robert Hiscox
Member
since
Meetings
attended
Meetings
eligible to
attend
January 2010
January 2010
May 2011
(Retired
February 2012)
4
3
4
2
4
4
4
2
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. However the board does
not follow benchmark data slavishly. We decide on what is correct
for our business.
The policy is also designed to align the directors’ interests with
those of shareholders. This is principally achieved through the use of
share-based incentives and by encouraging executive directors to
maintain a reasonable shareholding in the group. As a guideline,
executive directors are expected to hold the equivalent value of
at least one year’s salary in Grainger shares and they are encouraged
to build their shareholding over a five year period following their
appointment to the board. Details of executive directors’ share
options and share awards are shown on pages 68 and 69 respectively
and their shareholdings are shown within the table on page 70.
Share awards are generally satisfied by the acquisition of shares in
the market, so are not dilutive to shareholders. Share options are
usually satisfied by the issue of new share capital although the majority
of share options exercised during the year have been satisfied by
shares which have been acquired in the market and which have
been held within the company’s Employee Benefit Trust.
Remuneration packages balance both short and long-term
rewards. They include salary, bonus and pension elements as well as
long-term share incentives and option schemes. Usual benefits are
also provided.
No executive director is involved in the determination of his own
remuneration. Fees of the non-executive directors, which include
increments where a committee chairmanship or senior independent
position is held, are determined by the executive committee of the
board.
The remuneration committee also review the total level
of salaries and bonuses paid to the group as a whole.
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.
63
Elements of remuneration
Basic salaries and benefits
Basic salaries are reviewed by the remuneration committee annually
with uplifts being by reference to cost of living, responsibilities and
market rates, as for all employees.
The salaries for the executive directors have remained
unchanged for the last two years and it has been determined by
the committee that these will be unchanged for 2013. The salary
of the chief executive has remained the same since October 2009
and for the other three executives directors since they were
appointed to the board in 2010.
The non-salary benefits for executive directors comprise:
– a car allowance
– private medical insurance
– life insurance
The fees for the chairman and non-executive directors are reviewed
on a biennial basis by the executive committee to the board.
Following the biennial review undertaken by the executive
committee during the year it was agreed that the basic fees for the
chairman and non-executive directors would remain unaltered for
the forthcoming year.
Non-executive directors do not receive performance-related
remuneration, or any form of benefits.
Annual cash bonus
Under the new annual bonus scheme that was introduced in 2011
75% of the performance measure is based on the following two
financial measures – operating profit before valuation movements
and non-recurring items (OPBVM) and return on shareholders’
equity. The remaining 25% of the performance measure is 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. These maximum
potential figures are meant to represent stretch targets and to reflect
really exceptional performance.
Following an assessment of all of the above measures the total
bonuses payable relative to their salary for the executive directors
were 28% for the chief executive and 23% for the other directors.
Legacy bonus scheme
Up to the financial year ended 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 in 2011 the remuneration committee agreed to
close this bonus scheme as we did not feel that it was sufficiently
transparent and the deferred nature of the payments was not in line
with good practice. However a bonus pool remained in respect
of the chief executive. This reflected performance between 2003
and 2010, had been fully earned and had been approved by
shareholders. This legacy scheme is being paid out in five equal
tranches, beginning in 2011. The second instalment of £109,124
was paid in March 2012. The balance in the pool at 30 September
2012 was £327,373.
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. 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
64
Grainger plc
Annual Report and Accounts 2012
Remuneration committee report
continued
in residential property assets. All other comparably sized property
companies are principally commercial and/or development focused.
For awards granted before September 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 a review of
remuneration arrangements in 2010 it was determined that, with
effect from 1 October 2010 awards would be split equally between
NNNAV and TSR, with the TSR target range having been adjusted
from 8% – 16% to 5% – 15%, as follows:
LTIS awards granted before September 2010
LTIS awards granted after October 2010
TSR Performance Conditions (50%)
Growth in TSR over 3 years
TSR
The base threshold for vesting is 5%
with the maximum at 15%
Less than 5%
Between 5% and 15%
More than 15%
Percentage of the TSR element of an
award which will vest
Nil
Pro rata vesting
100%
TSR Performance conditions (33.33%)
Growth in TSR over 3 years
TSR
The base threshold for vesting is 8%
with the maximum of 16%
Less than 8%
Between 8% and 16%
More than 16%
NNNAV Performance Conditions (66.67%)
NNNAV
Base threshold for vesting where
NNNAV growth exceeded the
average WACC. The maximum level
occurs when growth in NNNAV
exceeds average WACC plus 3%.
Less than or equal to average WACC
Between average WACC and average
WACC + 3%
Equal to or greater than average
WACC + 3%
Percentage of the TSR element of
an award which will vest
Nil
Pro rata vesting
100%
Percentage of the NNNAV element
of an award which will vest
Percentage of the NNNAV element
of an award which will vest
NNNAV Performance Conditions (50%)
Growth in NNNAV over a three-year
period relative to the average of
the Halifax and Nationwide indices
by a factor of:
NNNAV Base threshold for vesting
where NNNAV growth exceeded the
average of Halifax and Nationwide
indices by a factor of 1.5. The maximum
level occurs at a factor of 3.
Less than 1.5
Between 1.5 & 3
Greater than 3
Nil
Pro rata vesting
100%
Nil
Pro rata vesting
100%
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.
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.
65
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.
Policy objective
Short-term incentives
Long-term incentives
Clear incentive for delivery of strategic objectives
Supported by competitive base salaries
and annual bonus measures
Supported by LTIS operational measures
and long-term personal shareholdings
Clear incentive for delivery
of strategic objectives
Alignment with shareholder’
longer term interests
Annual bonus weightings
LTIS weightings
37.5%
25.0%
37.5%
Linked to OPBVM
Linked to an assessment
of personal performance
Linked to return on
shareholders’ equity
50.0%
Linked to absolute total shareholder
return performance measured over
a three-year period
50.0%
Linked to growth in NNNAV compared to
growth in Halifax & Nationwide indices
measured over a three-year period
Shareholding (expectation)
Effect of policy for executive directors
The charts below illustrate the total pay of the executive directors in 2011 and 2012, and the sources of that remuneration.
Andrew Cunningham (£’000s)
Peter Couch (£’000s)
Actual
2011
Actual
2012
Actual
2011
Actual
2012
0
300
600
900
1200
0
300
600
900
1200
Mark Greenwood (£’000s)
Nick Jopling (£’000s)
Actual
2011
Actual
2012
Actual
2011
Actual
2012
0
300
600
900
1200
0
300
600
900
1200
Actual 2011: This chart reflects the total pay of the executive directors in 2011. None of the LTIS share awards which were granted in 2008 vested during the
year as the performance criteria were not met.
Actual 2012: This chart reflects the total pay of the executive directors in 2012 including the value of the LTIS share awards which were granted in 2009, and
which vested during the year.
Salary, pension and benefits
Bonus
Legacy bonus
LTIS – Performance
LTIS – Matching
Misc share award
66
Grainger plc
Annual Report and Accounts 2012
Remuneration committee report
continued
Shareholding Guidelines for Executive Directors
The committee believes that it is important for a significant investment to be made by each executive director in the shares of the company
and has established share ownership guidelines for the Grainger executive directors.
These guidelines state that executive directors are expected and encouraged to build over a five year period a shareholding, equivalent
in value to at least one year’s salary.
Pensions
The group contributes 15% of basic salary as a pension allowance or into a personal pension arrangement for 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 in a share incentive plan (‘SIP’). Both the
SAYE and SIP are Inland Revenue approved and therefore subject to the limits prescribed, and both schemes are open to all employees,
subject to the rules of the schemes.
Amounts relating to directors’ participation in the SIP and share options under the SAYE scheme are shown on pages 67 and 68.
67
Total
£’000
1,410
84
16
1,510
316
109
425
1,935
2,442
196
182
Total all
directors
2012
£’000
1,647
84
16
1,747
316
109
425
2,172
2,657
The auditors have audited the following parts of the remuneration report.
Directors’ remuneration
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 2012
Total remuneration for the year ended 30 September 2011
Pension contributions
Year ended 30 September 2012
Year ended 30 September 2011
Robin
Broadhurst
£’000
Andrew
Cunningham
£’000
Peter
Couch
£’000
Nick
Jopling
£’000
Mark
Greenwood
£’000
140
–
–
140
–
–
–
140
140
–
–
420
18
6
444
117
109
226
670
870
63
58
265
34
6
305
62
–
62
367
464
40
41
325
16
2
343
76
–
76
419
536
49
49
260
16
2
278
61
–
61
339
432
44
34
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 2012
Total remuneration for the year
ended 30 September 2011
John
Barnsley
£’000
Baroness
Margaret
Ford
£’000
Robert
Hiscox
£’000
Henry
Pitman
£’000
Bill Tudor
John
£’000
Belinda
Richards
£’000
Tony
Wray
£’000
Total
£’000
52
–
–
52
–
–
52
51
47
–
–
47
–
–
47
47
14
–
–
14
–
–
14
40
40
–
–
40
–
–
40
40
–
–
–
–
–
–
–
17
46
–
–
46
–
–
46
20
38
–
–
38
–
–
38
–
237
–
–
237
–
–
237
215
Bill Tudor John retired from the board on 9 February 2011
Belinda Richards was appointed to the board on 5 April 2011
Tony Wray was appointed to the board on 24 October 2011
Robert Hiscox retired from the board on 8 February 2012
68
Grainger plc
Annual Report and Accounts 2012
Remuneration committee report
continued
Directors’ share options
Granted in year
Exercised during year
Share
options at
1 Oct
2011 Number
Grant
price
(p)
Number
Exercise
price
(p)
Market
price on
exercise
(p)
Share
options at
30 Sept
2012
Exercise
price
(p)
Earliest
exercise date
Latest
exercise date
Andrew
Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
SAYE
CSOP
SAYE
SAYE
CSOP
SAYE
CSOP
SAYE
CSOP
44,415
31,772
25,454
31,772
31,772
31,772
13,062
68.90
13,062
68.90
21,770
68.90
25,454
37.70 104.00
44,415
31,772
–
13,062
31,772
13,062
31,772
21,770
31,772
1 Feb 2014
31 Jul 2014
37.70
94.42 26 Nov 2013 26 Nov 2020
1 Sep 2015
1 Sep 2015
68.90
1 Mar 2016
94.42 26 Nov 2013 26 Nov 2020
1 Mar 2016
68.90
94.42 26 Nov 2013 26 Nov 2020
68.90
1 Mar 2018
94.42 26 Nov 2013 26 Nov 2020
1 Sep 2017
Performance share awards
Andrew Cunningham
LTIS shares
Awards granted Maximum award
Awards vested
Awards lapsed
Maximum
outstanding
awards at
30 Sept 2012
Market price at
date of vesting
(p)
Matching shares
Peter Couch
LTIS shares
Matching shares
Mark Greenwood
LTIS shares
Matching shares
Nick Jopling
LTIS shares
Matching shares
23 Dec 2008
9 Dec 2009
26 Nov 2010
2 Dec 2011
23 Dec 2008
9 Dec 2009
26 Nov 2010
2 Dec 2011
23 Dec 2008
26 Nov 2010
2 Dec 2011
23 Dec 2008
26 Nov 2010
2 Dec 2011
21 Sep 2010
26 Nov 2010
2 Dec 2011
21 Sep 2010
26 Nov 2010
2 Dec 2011
21 Sep 2010
26 Nov 2010
2 Dec 2011
21 Sep 2010
26 Nov 2010
2 Dec 2011
778,850
480,695
667,231
625,496
155,769
96,139
133,446
125,099
429,418
280,660
263,105
85,884
13,168
78,931
230,129
275,365
258,141
10,000
10,498
10,000
283,235
344,206
322,676
22,615
38,888
40,000
124,948
653,902
24,988
130,781
68,890
360,528
13,778
72,106
–
480,695
667,231
625,496
–
96,139
133,446
125,099
–
280,660
263,105
–
13,168
78,931
230,129
275,365
258,141
10,000
10,498
10,000
283,235
344,206
322,676
22,615
38,888
40,000
69
Vesting date
23 Dec 2011
9 Dec 2012
26 Nov 2013
2 Dec 2014
23 Dec 2011
9 Dec 2012
26 Nov 2013
2 Dec 2014
103.2
103.2
103.2
103.2
23 Dec 2011
26 Nov 2013
2 Dec 2014
23 Dec 2011
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
Non-performance share awards
Peter Couch
Deferred Bonus (DBP) shares
3 Feb 2010
90,615
90,615
3 Feb 2013
70
Grainger plc
Annual Report and Accounts 2012
Remuneration committee report
continued
Directors’ shareholdings
Total shareholder return
Ordinary shares of 5p each (thousands)
Grainger
FTSE 250 Index
FTSE 350 Real Estate/Real Estate Investment
& Services indices
150
120
90
60
30
0
30 Sept
2007
30 Sept
2008
30 Sept
2009
30 Sept
2010
30 Sept
2011
30 Sept
2012
This graph shows the value by 30 September 2012 of £100 invested
in Grainger on 30 September 2007 compared with the value of
£100 invested in the FTSE 250 Index and in the FTSE 350 Real
Estate/Real Estate Investment & Services indices.
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 AGM.
On behalf of the board
Baroness Margaret Ford
Chairman of the remuneration committee
6 December 2012
Andrew Cunningham
Peter Couch
Nick Jopling
Mark Greenwood
Robin Broadhurst
John Barnsley
Henry Pitman
Baroness Margaret Ford
Belinda Richards
Tony Wray
Simon Davies
1 Oct 2011
1,115
121
82
30
110
103
101
18
–
–
–
1,680
Beneficial
30 Sept 2012
1,194
193
166
83
121
103
101
18
–
10
–
1,989
30 Nov 2012
1,195
194
166
103
121
103
101
18
–
10
100
2,111
Directors’ service agreements and letters of appointment
Contract Commencement Date Notice period
Executive directors
12 months
October 2009
Andrew Cunningham
12 months
June 2010
Peter Couch
6 months
September 2010
Nick Jopling
6 months
September 2010
Mark Greenwood
Non-executive directors
Robin Broadhurst
John Barnsley
Henry Pitman
Baroness Margaret Ford
Belinda Richards
Tony Wray
Simon Davies
Date of initial appointment
February 2004
February 2003
May 2007
July 2008
April 2011
October 2011
November 2012
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 Grainger
operates, albeit that the real estate index comprises mainly
commercial property companies.
Board risk and compliance
committee report
71
Belinda Richards
Committee chairman
The Board Risk and Compliance Committee currently comprise three
independent non-executive directors and two executive directors.
Committee member
Belinda Richards
(Committee chairman)
John Barnsley
Tony Wray
Mark Greenwood
Peter Couch
Meetings
attended
Meetings
eligible to
attend
2
2
2
2
2
2
2
2
2
2
The committee was established during the year and held its first
formal meeting in May 2012. Since its inception the committee has
overseen the development of a group wide risk appetite statement
which clearly lays out the level of risk that the business is prepared to
tolerate in order to achieve its goals in each of the key risk areas –
strategic, operational, financial, people, project, legal & regulatory
and IT. The statement has been adopted and now forms a
framework within which management decisions and reporting
occur.
On a standing agenda basis, the committee reviews the group’s
top risks, key projects, complaints register, internal audit risk reports
and the quarterly report from the group risk and compliance
manager. On a rolling basis there is a thorough review of each
division and each core business activity/process. This year there have
been specific reviews of the German business, Retirement Solutions,
Block Management and Health & Safety Management. The purpose
of these detailed reviews is to highlight the principal risks and
processes of each division at a more detailed level and to ensure that
the risk mitigation plans are robust.
The Retirement Solutions business is regulated by the FSA. The
committee oversees compliance with regulatory obligations and
receives regular updates on proposed future regulatory
developments, such as the formation of the Financial Conduct
Authority. Treating Customers Fairly, one of our key regulatory
obligations, is at the heart of Grainger’s operating philosophy.
The culture of risk awareness, and effective risk management, is
becoming embedded in the way that Grainger thinks and operates
at all levels within the business. This focus will be critical in protecting
our outstanding reputation in the market as we move forward.
72
Grainger plc
Annual Report and Accounts 2012
Other disclosures
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 49, which are incorporated into this
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 35.
Details of the group’s KPIs are provided on page 21.
A description of the principal risks and uncertainties facing the group
and how these are mitigated can be found on pages 48 and 49.
Additional information on environmental matters, on employees,
tenants and partners and on social and community matters is set out
on pages 36 to 47.
Results for the year
The results of the group are set out in the consolidated income
statement on page 76 which shows a profit for the financial year
attributable to the owners of the company of £0.4m (2011:
£39.1m).
Dividends
An interim dividend of 0.55p per share was paid on 6 July 2012.
Although no interim dividend was declared for 2011, 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 1.37p
per share (2011: 1.30p), to be paid on 8 February 2013 making a
total dividend for the year of 1.92p (2011: 1.83p) per share. Any
shareholder wishing to participate in the Dividend Reinvestment Plan
for the 2012 final dividend will need to ensure that their application
form is returned to our registrars by 14 January 2013.
Share Capital
In October 2011 9,103 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 2012, the directors had unexpired power to
repurchase up to 41,600,000 shares.
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.
73
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 50 and 51 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 49 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.
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 2012 relating to
purchases of property 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 (2011: 22 days).
Financial Risk Management
Details are included in note 28 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 2012 93% of the applicable sustainability targets that
we committed to meeting by that date were either fully achieved or
in progress. Further information is provided in the corporate
responsibility report on pages 40 to 47.
Charitable donations
During the year the group made charitable donations amounting to
£30,000 (2011: £17,500). 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 third 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.
International operations
Our German portfolio continues to be centrally managed and
controlled from our overseas offices.
74
Grainger plc
Annual Report and Accounts 2012
Other disclosures
continued
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
and group will be proposed at the next AGM.
Takeover directive
On a change of control, the core banking facilities (described in note
29 to the accounts) will become repayable should alternative terms
for continuing the facilities not be agreed with the lenders 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 9 November 2012, the group announced that it had signed
an agreement with Heitman, to create a new company which will
acquire, through a share purchase, a portfolio of German residential
assets currently wholly owned by the group. As a result of the
transaction, the new company will acquire €232m of investment
property from the group and €152m of debt will be transferred
to it from the group. Grainger will hold a 25% equity stake in the
new company which the group will account for as an associate.
The group will provide management services for which it will receive
standard management and incentive fees. It is anticipated that
completion will take place before the end of the 2012 calendar year.
On 5 October 2012, the group signed a facility agreement with
Coreal Credit Bank for a loan of €164.9m to refinance the existing
facility from Eurohypo which expires in October 2013. The facility
was drawn on 25 October 2012 and was used to settle the
Eurohypo loan in full. €152m of the Coreal loan will be transferred
to the new company referred to above.
By order of the board
Michael Windle
Company Secretary
6 December 2012
75
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 2012 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 statement of directors’
responsibilities set out on pages 72 and 73, 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.
− Have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
− 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 52 to 58 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.
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 and accounts
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.
Under the Listing Rules we are required to review:
− The directors’ statement, set out on page 58, 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
2012 and on the information in the directors’ remuneration
report that is described as having been audited.
Opinion on financial statements
In our opinion the group financial statements:
− Give a true and fair view of the state of the group’s affairs
as at 30 September 2012 and of its profit and cash flows for
the year then ended;
David A Snell
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 December 2012
76
Grainger plc
Annual Report and Accounts 2012
Consolidated income statement
For the year ended 30 September 2012
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Income from financial interest in property assets
Write down of inventories to net realisable value
Notes
4, 5
6
7
9
10
11
39
23
8
22
24
Provision for impairment of loans receivable net of write backs
21, 25
Operating profit before net valuation gains/(deficits) on investment property
Net valuation gains/(deficits) on investment property
Write down of investment property in disposal group
Operating profit after net valuation gains/(deficits) on investment property
Change in fair value of derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of (loss)/profit of joint ventures after tax
(Loss)/profit before tax
Tax credit before exceptional item
Exceptional tax credit
Tax credit for the year
Profit for the year attributable to the owners of the company
Basic earnings per share
Diluted earnings per share
18
40
28
14
14
20
21
13
15
15
15
34
17
17
2012
£m
311.4
62.8
74.0
(31.0)
11.0
(3.4)
–
–
3.0
7.7
(0.1)
–
124.0
2.1
(6.9)
119.2
(31.2)
(95.3)
2.1
4.5
(1.0)
(1.7)
2.1
–
2.1
0.4
0.1p
0.1p
2011
(restated)
£m
296.2
62.4
79.1
(33.1)
8.0
(3.8)
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
9.5p
9.4p
Consolidated statement of
comprehensive income
For the year ended 30 September 2012
Profit for the year
Actuarial (loss)/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
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 after tax
Total comprehensive income and expense for the year attributable to the owners
of the company
77
Notes
34
30
22
15
2012
£m
0.4
(2.0)
(0.4)
(0.6)
14.1
11.1
(2.4)
8.7
2011
(restated)
£m
39.1
1.2
(0.3)
(0.9)
13.2
13.2
(4.5)
8.7
9.1
47.8
Included within comprehensive income is £5.0m (2011: £8.8m) relating to associates and joint ventures accounted for under the
equity method.
Consolidated income statement
For the year ended 30 September 2012
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Income from financial interest in property assets
Write down of inventories to net realisable value
Change in fair value of derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of (loss)/profit of joint ventures after tax
(Loss)/profit before tax
Tax credit before exceptional item
Exceptional tax credit
Tax credit for the year
Profit for the year attributable to the owners of the company
Basic earnings per share
Diluted earnings per share
Provision for impairment of loans receivable net of write backs
21, 25
Operating profit before net valuation gains/(deficits) on investment property
Net valuation gains/(deficits) on investment property
Write down of investment property in disposal group
Operating profit after net valuation gains/(deficits) on investment property
Notes
4, 5
6
7
9
10
11
39
23
8
22
24
18
40
28
14
14
20
21
13
15
15
15
34
17
17
2012
£m
311.4
62.8
74.0
(31.0)
11.0
(3.4)
–
–
3.0
7.7
(0.1)
–
124.0
2.1
(6.9)
119.2
(31.2)
(95.3)
2.1
4.5
(1.0)
(1.7)
2.1
–
2.1
0.4
0.1p
0.1p
2011
(restated)
£m
296.2
62.4
79.1
(33.1)
8.0
(3.8)
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
9.5p
9.4p
78
Grainger plc
Annual Report and Accounts 2012
Consolidated statement of financial position
As at 30 September 2012
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
Inventories – trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets classified as 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 associated with assets held-for-sale
Total liabilities
Net assets
Notes
2012
£m
2011
£m
18
19
20
21
22
15
23
24
25
28
29
40
29
26
30
26
15
29
27
15
28
40
525.9
0.8
41.2
19.2
99.0
44.5
5.3
819.9
1.2
34.6
23.9
102.3
42.7
5.3
735.9
1,029.9
1,023.4
1,105.1
35.6
–
73.3
222.1
1,354.4
2,090.3
18.3
0.2
90.9
–
1,214.5
2,244.4
1,240.1
1,428.0
–
5.8
0.5
37.8
4.0
4.5
0.6
47.7
1,284.2
1,484.8
27.3
88.4
24.4
145.4
129.7
415.2
1,699.4
390.9
116.7
76.4
24.6
154.5
–
372.2
1,857.0
387.4
Consolidated statement of financial position
79
Notes
31
34
2012
£m
2011
£m
20.8
109.8
20.1
0.3
(24.5)
5.0
3.9
255.4
390.8
0.1
390.9
20.8
109.8
20.1
0.3
(34.4)
5.0
4.1
261.6
387.3
0.1
387.4
As at 30 September 2012
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
The financial statements on pages 76 to 152 were approved by the board of directors on 6 December 2012 and were signed on their
behalf by:
Andrew R Cunningham
Director
Mark Greenwood
Director
1,240.1
1,428.0
Company registration number: 125575
Notes
2012
£m
2011
£m
18
19
20
21
22
15
23
24
25
28
29
40
29
26
30
26
15
29
27
15
28
40
735.9
1,029.9
1,023.4
1,105.1
525.9
0.8
41.2
19.2
99.0
44.5
5.3
35.6
–
73.3
222.1
1,354.4
2,090.3
–
5.8
0.5
37.8
27.3
88.4
24.4
145.4
129.7
415.2
1,699.4
390.9
819.9
1.2
34.6
23.9
102.3
42.7
5.3
18.3
0.2
90.9
–
1,214.5
2,244.4
4.0
4.5
0.6
47.7
116.7
76.4
24.6
154.5
–
372.2
1,857.0
387.4
1,284.2
1,484.8
As at 30 September 2012
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
Inventories – trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets classified as 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 associated with assets held-for-sale
Total liabilities
Net assets
80
Grainger plc
Annual Report and Accounts 2012
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
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
34
30
22
15
–
Purchase of own shares
31, 34
Share-based
payments charge
Dividends paid
Balance as at
30 September 2011
32
16
20.8
109.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20.1
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(43.0)
–
–
–
–
13.2
(4.6)
8.6
–
–
–
5.0
–
4.2
–
228.0
39.1
0.1
345.3
–
39.1
–
–
–
–
–
–
–
–
–
–
1.2
–
1.2
(0.3)
–
–
(0.3)
–
–
(0.9)
–
(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
Consolidated statement of changes in equity
Issued
share
capital
£m
Capital
Cash flow
of
Available-
Non-
Share
premium
£m
Merger
reserve
£m
redemption
reserve
£m
hedge
reserve
£m
convertible
bond
£m
for-sale
reserve
Retained
earnings
controlling
interests
£m
£m
£m
Total
equity
£m
Notes
Equity
component
20.8
109.8
20.1
–
0.3
–
(43.0)
5.0
–
4.2
–
228.0
39.1
0.1
345.3
–
39.1
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
Share-based
payments charge
Dividends paid
Balance as at
30 September 2011
Purchase of own shares
31, 34
34
30
22
15
–
32
16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13.2
(4.6)
8.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1.2
–
1.2
(0.3)
–
–
(0.3)
–
–
(0.9)
–
(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
81
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
Balance as at
1 October 2011
Profit 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
34
30
22
15
–
Purchase of own shares
31, 34
Proceeds from SAYE shares
34
Share-based
payments charge
Dividends paid
Balance as at
30 September 2012
32
16
20.8
109.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20.1
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(34.4)
–
–
–
–
14.1
(4.2)
9.9
–
–
–
–
5.0
–
4.1
–
261.6
0.4
0.1
387.4
–
0.4
–
–
–
–
–
–
–
–
–
–
–
(2.0)
–
(2.0)
(0.4)
–
–
(0.4)
–
–
(0.6)
–
(0.6)
–
–
14.1
0.2
1.6
–
(2.4)
(0.2)
–
–
–
–
(0.6)
(0.5)
0.4
2.1
(7.6)
–
–
–
–
–
9.1
(0.5)
0.4
2.1
(7.6)
20.8
109.8
20.1
0.3
(24.5)
5.0
3.9
255.4
0.1 390.9
82
Grainger plc
Annual Report and Accounts 2012
Consolidated statement of cash flows
For the year ended 30 September 2012
Cash flow from operating activities
Profit for the year
Depreciation
Net gain on acquisition of subsidiary
Goodwill impairment
Write down of investment property in disposal group
Net valuation (gains)/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
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
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
Dividend and loan repayment from joint venture
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 from investing activities
Notes
19
39
23
40
18
14
20, 21
8
21, 25
32, 34
28
22
15
15
8
22
20
21
39
20, 21
18, 19
2012
£m
0.4
0.4
–
–
6.9
(2.1)
93.2
(3.5)
(3.0)
–
2.1
31.2
(7.7)
(2.1)
115.8
(13.5)
(3.8)
(0.1)
78.3
176.7
(78.1)
(12.0)
86.6
48.3
10.6
–
3.5
0.7
–
–
(0.5)
(5.5)
57.1
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
83
2011
£m
–
(2.8)
220.0
–
–
(335.1)
(4.9)
(0.6)
(123.4)
0.3
91.5
(0.9)
90.9
–
90.9
Notes
34
31, 34
16
30
29
40
29
2012
£m
0.4
(0.5)
79.0
(10.5)
(1.2)
(215.5)
(7.6)
(1.0)
(156.9)
(13.2)
90.9
(1.8)
75.9
(2.6)
73.3
For the year ended 30 September 2012
Cash flows from financing activities
Proceeds from SAYE options
Purchase of own shares
Proceeds from new borrowings
Payment of loan costs
Settlement of derivative contracts
Repayment of borrowings
Dividends paid
Payments to defined benefit pension scheme
Net cash outflow from financing activities
Net (decrease)/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 assets classified as held-for-sale 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 2012
Cash flow from operating activities
Profit for the year
Depreciation
Net gain on acquisition of subsidiary
Goodwill impairment
Write down of investment property in disposal group
Net valuation (gains)/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
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
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
Dividend and loan repayment from joint venture
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 from investing activities
Notes
19
39
23
40
18
14
8
28
22
15
20, 21
21, 25
32, 34
15
8
22
20
21
39
20, 21
18, 19
2012
£m
0.4
0.4
–
–
6.9
(2.1)
93.2
(3.5)
(3.0)
–
2.1
31.2
(7.7)
(2.1)
115.8
(13.5)
(3.8)
(0.1)
78.3
176.7
(78.1)
(12.0)
86.6
48.3
10.6
–
3.5
0.7
–
–
(0.5)
(5.5)
57.1
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
84
Grainger plc
Annual Report and Accounts 2012
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 164. 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
2012 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 154 to 161.
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, and corresponding income statement accounts, 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 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.
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.
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 164. 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
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.
and associates. The parent company financial statements present
ii) Goodwill and impairment The purchase method of accounting
information about the company and not about its group.
is used to account for the acquisition of subsidiaries by the group.
These financial statements for the year ended 30 September
The cost of the acquisition is measured as the fair value of the
2012 have been prepared in accordance with EU endorsed
assets given and equity instruments issued. Identifiable assets
International Financial Reporting Standards (‘IFRSs’), IFRIC
acquired and liabilities and contingent liabilities assumed in a
interpretations and those parts of the Companies Act 2006
business combination are measured initially at their fair values
applicable to companies reporting under IFRS. The company has
at the date of acquisition. Goodwill represents the excess of the
elected to prepare its company financial statements in accordance
cost of an acquisition over the fair value of the group’s share of
with UK GAAP. These are presented on pages 154 to 161.
net identifiable assets including intangible assets of the acquired
The accounting policies set out below have, unless otherwise
entity at the date of acquisition. If the cost of the acquisition is
stated, been applied consistently to all periods presented in the
less than the fair value of the net assets of the subsidiary
group financial statements.
acquired, the difference is recognised directly in the income
The group financial statements have been prepared under the
statement. Costs attributable to an acquisition are expensed
historical cost convention except for the following assets and
in the consolidated income statement under the heading
liabilities, and corresponding income statement accounts, which
‘Other expenses’.
are stated at their fair value; investment property, derivative
Goodwill on acquisition of subsidiaries is included within this
financial instruments and financial interest in property assets.
caption on the statement of financial position. Goodwill on
The preparation of financial statements in conformity with
acquisition of joint ventures and associates is included in
IFRS requires management to make judgements, estimates and
investments in joint ventures and associates.
assumptions that affect the application of accounting policies and
Goodwill is allocated to cash generating units for the purpose
the reported amounts of assets and liabilities, income and
of impairment testing and is tested annually for impairment and
expenses. Although these estimates are based on management’s
carried at cost less accumulated impairment losses. Impairment
best knowledge of the events and amounts involved, actual
losses on goodwill are not reversed. Gains and losses on the
results ultimately may differ from those estimates. The areas
disposal of an entity include the carrying amount of goodwill
involving a higher degree of judgement or complexity, or areas
relating to the entity sold.
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
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
purposes entities) over which the group has the power
accompanying a shareholding of between 20% and 50% of the
to govern the financial and operating policies generally
voting rights. Significant influence is the power to participate in
accompanying a shareholding of more than one half of the
the financial and operating decisions of the investee but is not
voting rights. The existence and effect of potential voting rights
control or joint control over those policies.
that are currently exercisable or convertible are considered
when assessing whether the group controls another entity.
85
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.
(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.
The group has identified five such segments as follows:
− UK residential;
− Retirement solutions;
− Fund and third party management;
− UK and European development; and
− German residential.
All of the above segments are UK based except German
residential which has its assets and tenants based in Germany and
UK and European Development which includes assets based in
the Czech Republic. More detail is given relating to each of the
above segments in note 4.
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 statements of financial position measures
of net asset value. These are Gross net asset value (‘NAV’)
and Triple net asset value (‘NNNAV’) measures. Further detail
is provided 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 statement of financial
position 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.
86
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
1 Accounting policies continued
iii) Foreign operations The assets and liabilities of foreign
operations, including goodwill and fair value adjustments arising
on consolidation, are translated to Sterling at foreign exchange
rates ruling at the statement of financial position 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.
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.
Where specific investment properties have been identified as
being for sale within the next 12 months their fair value is shown
under assets classified as held-for-sale within current assets.
In general, however, it is not possible for the group to identify
which properties will be sold within the next 12 months.
Although the size of the group’s property portfolio does result in
a relatively predictable vacancy rate, it is not possible to predict in
advance the specific properties that will become vacant.
(g) Financial interest in property assets
Financial interest in property assets is initially recognised at fair
value plus transaction costs and subsequently carried at fair value.
Subsequent to initial recognition, the net change in value 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 ‘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.
(h) Inventories – trading property
Tenanted residential properties held for sale in the normal course
of business are shown in the financial statements as a current
asset 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 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.
Notes to the financial statements continued
1 Accounting policies continued
iii) Foreign operations The assets and liabilities of foreign
operations, including goodwill and fair value adjustments arising
on consolidation, are translated to Sterling at foreign exchange
rates ruling at the statement of financial position date. Revenues
In general, however, it is not possible for the group to identify
which properties will be sold within the next 12 months.
Although the size of the group’s property portfolio does result in
a relatively predictable vacancy rate, it is not possible to predict in
advance the specific properties that will become vacant.
and expenses of foreign operations are translated at average
(g) Financial interest in property assets
foreign exchange rates for the relevant period. Foreign exchange
Financial interest in property assets is initially recognised at fair
gains and losses are recognised within the consolidated statement
value plus transaction costs and subsequently carried at fair value.
of comprehensive income.
Subsequent to initial recognition, the net change in value that is
recorded through the income statement is as follows: i) the
iv) Net investment hedges Hedges of net investments in foreign
carrying value of the assets is increased by the effective interest
operations are accounted for similarly to cash flow hedges. Any
rate and ii) the carrying value of the assets is revised to the net
gain or loss on the hedging instrument relating to the effective
present value of the updated projected cash flows arising from
portion of the hedge is recognised in other comprehensive
the instrument using the effective interest rate applicable at
income within the translation reserve as part of retained earnings.
acquisition. The change in value recorded through the income
Any gain or loss relating to the ineffective portion is recognised in
statement is shown on the line ‘Income from financial interest
the income statement within interest expense and similar charges.
in property assets’. Cash received from the instrument in the year
Gains and losses accumulated in equity are included in the
is deducted from the carrying value of the asset.
income statement when the foreign operation is partially
Differences between the updated projected cash flows using
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.
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
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.
necessary, for any difference in the nature, location or condition
(h) Inventories – trading property
of the specified asset. If this information is not available, the
Tenanted residential properties held for sale in the normal course
group uses alternative valuation methods such as recent prices
of business are shown in the financial statements as a current
on less active markets or discounted cash flow projections.
asset at the lower of cost and net realisable value. Cost includes
Subsequent expenditure is included in the carrying amount of
legal and surveying charges and introducer fees incurred during
the property when it is probable that the future economic
acquisition together with improvement costs. Net realisable value
benefits associated with the item will flow to the group and the
is the net sale proceeds which the group expects on sale of a
cost of the item can be measured reliably. All other repairs and
property with vacant possession.
maintenance costs are charged to the income statement during
Land and property held within the development segment of
the financial period in which they are incurred.
the business are shown in the financial statements at the lower of
Gains or losses arising from changes in the fair value of the
cost and net realisable value. Cost represents the acquisition price
group’s investment properties are included in the income
including legal and other professional costs associated with the
statement of the period in which they arise.
acquisition together with subsequent development costs net of
Where specific investment properties have been identified as
amounts transferred to costs of sale. Net realisable value is the
being for sale within the next 12 months their fair value is shown
expected net sales proceeds of the developed property.
under assets classified as held-for-sale within current assets.
87
Where residential properties are sold tenanted or where land is
sold without development, net realisable value is the current
market value net of associated selling costs.
(i) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held
at call with banks, other short-term highly liquid investments
with original maturities of three months or less.
(j) Income tax
Income tax on the profits or losses for the periods presented
comprises both current and deferred tax. Current tax is the
expected tax payable on the taxable income for the year
using rates applicable 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. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantively enacted
by the statement of financial position 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.
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 statement of financial
position 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 statement of financial position 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 statement of financial position is
the present value of the defined benefit obligation at the
statement of financial position 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.
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.
(k) Employee benefits
i) Defined contribution pension scheme Obligations for
contributions to defined contribution pension schemes are
recognised as an expense in the income statement in the period
to which they relate.
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.
88
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
1 Accounting policies continued
When options are exercised the proceeds received net of any
directly attributable transaction costs, are credited to share capital
(nominal value) and share premium.
(l) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and is stated net of sales taxes and value
added taxes. Revenue is recognised 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 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
statement of financial position.
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.
(m) Leases
i) Group as lessor The net present value of ground rents receivable
is, in the opinion of the directors, immaterial. Accordingly, ground
rents receivable are taken to the income statement on a straight-
line basis over the period of the lease. Properties leased out to
tenants are included in the statement of financial position 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 statement of financial position. 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.
(n) 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
Notes to the financial statements continued
1 Accounting policies continued
sales costs, from the sale of trading properties and management
When options are exercised the proceeds received net of any
directly attributable transaction costs, are credited to share capital
(m) Leases
fee and other income.
(nominal value) and share premium.
(l) Revenue recognition
Revenue is measured at the fair value of the consideration
received or receivable and is stated net of sales taxes and value
added taxes. Revenue is recognised on our three primary income
streams as follows:
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 statement of financial position as
either investment property or as trading property under inventories.
Where the group grants a lifetime lease on an investment
i) Income from property trading Revenue and profits or losses
property and receives from the lessee an upfront payment in
arising from the sale of trading and investment property are
respect of the grant of the lease, the upfront payment is treated
included in the income statement where contract completion has
as deferred rent in the statement of financial position. This
taken place. Profits or losses are calculated by reference to the
deferred rent is released to the income statement on a straight-
carrying value of property and are included in operating profit.
line basis over the projected term of the lease. At each year end
In addition, income is recognised as follows on service charges
Payments, including prepayments, made under operating leases
ii) Rental income Rental income 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.
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
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.
(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.
service charge receivables and payables are shown net in the
(n) Derivative financial instruments
statement of financial position.
Derivatives
In Germany, Grainger acts primarily as principal. Accordingly
The group uses derivative instruments to help manage its interest
service charge income and costs are shown gross in the income
rate risk. In accordance with its treasury policy, the group does
statement with service charge recoveries from tenants recorded
not hold or issue derivatives for trading purposes. Derivatives are
as a component of group revenue. Where recovery of service
classified as current assets and current liabilities.
charges is doubtful a provision for impairment is made.
The derivatives are recognised initially at fair value.
Income from investments
Dividend income from investments is recognised when the
shareholders’ rights to receive payment have been established.
Group revenue
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
Group revenue set out in note 5, comprises gross rental income,
required to document in advance the relationship between the
service charge income on a principal basis, gross proceeds, before
item being hedged and the hedging instrument. The group is also
required to demonstrate that the hedge will be highly effective on
89
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.
(o) Derecognition of financial assets and liabilities
Derecognition is the point at which the group removes an asset
or a liability from its statement of financial position. 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.
(p) Borrowings
Borrowings are initially recognised at cost, being the fair value
of consideration received, net of transaction costs incurred.
Borrowings are subsequently stated at amortised cost. Any
difference between the proceeds (net of transaction costs) and
the redemption value is recognised in the income statement over
the period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the group
has an unconditional right to defer settlement of the liability for at
least 12 months after the statement of financial position date.
(q) 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 statement of financial position. 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.
(r) 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.
(s) Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
(t) 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.
(u) 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. Interim dividends are
recognised on payment.
90
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
1 Accounting policies continued
(v) Assets and associated liabilities classified as held-for-sale
Where a group of assets are to be disposed of by sale 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 the assets
are available-for-sale in their present condition, the sale is highly
probable and it is expected to be completed within one year from
the date of classification.
(w) 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.
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.
(x) Impact of standards and interpretations issued
i) New standards and interpretations issued 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 2011.
Amendments to existing standards
− Amendment to IFRS 1 ‘First time adoption’ was updated to
clarify that a first-time adopter that changes its accounting
policies or its use of IFRS 1 exemptions after publishing a set
of IAS 34 interim financial information should explain those
changes and include the effects of such changes in its opening
reconciliations within the first annual IFRS reporting.
Amendments to IFRS 1 ‘First time adoption’ was updated to
extend the exemption to use a ‘deemed cost’ arising from a
revaluation triggered by an event such as a privatisation that
occurred at or before the date of transition to IFRS, to
revaluations that occur during the period covered by the first
IFRS financial statements.
− Amendments to IFRS 1 ‘First time Adoption’ amends fixed
dates and includes guidance on implementations affected
by hyperinflation.
− Amendments to IFRS 1 ‘First time adoption’ was updated
to clarify that entities subject to rate regulation are allowed
to use previous GAAP carrying amounts of property, plant
and equipment or intangible assets as deemed cost on an
item-by-item basis.
− Amendments to IFRS 3 ‘Business combinations’ was updated
to extend the application guidance to all share-based payment
transactions that are part of a business combination,
including un-replaced and voluntarily replaced share-based
payment awards.
− Amendments to IFRS 3 ‘Business combinations’ was updated
to clarify that the choice of measuring non-controlling interests
at fair value or at the proportionate share of the acquiree’s
net assets applies only to instruments that represent present
ownership interests and entitle their holders to a proportionate
share of the net assets in the event of liquidation. All other
components of non-controlling interest are measured at fair
value unless another measurement basis is required by IFRS.
− Amendments to 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.
− Amendments to IFRS 7 ‘Financial Instruments: Disclosures’
was updated to include multiple clarifications related to the
disclosure of financial instruments.
− Amendments to IAS 24 (revised) ‘Related party disclosures’
was updated to remove the requirement for government
related entities to disclose details of all transactions with the
government-related entities and it clarifies and simplifies the
definition of a related party.
− Amendment to IAS 27 ‘Consolidated and Separate Financial
Statements’ was updated to clarify that the consequential
amendments to IAS 21, IAS 28 and IAS 31 following the 2008
revisions to IAS 27 are to be applied prospectively.
− Amendment to IAS 34 ‘Interim Financial Reporting’ was
updated to place greater emphasis on the disclosure principles
involving significant events and transactions, including changes
to fair value measurements, and the need to update relevant
information from the most recent annual report.
Notes to the financial statements continued
1 Accounting policies continued
(v) Assets and associated liabilities classified as held-for-sale
Where a group of assets are to be disposed of by sale 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 the assets
are available-for-sale in their present condition, the sale is highly
probable and it is expected to be completed within one year from
the date of classification.
− Amendments to IFRS 1 ‘First time adoption’ was updated
to clarify that entities subject to rate regulation are allowed
to use previous GAAP carrying amounts of property, plant
and equipment or intangible assets as deemed cost on an
item-by-item basis.
− Amendments to IFRS 3 ‘Business combinations’ was updated
to extend the application guidance to all share-based payment
transactions that are part of a business combination,
including un-replaced and voluntarily replaced share-based
(w) Acquisition of and investment in own shares
payment awards.
The group acquires its own shares to enable it to meet its
− Amendments to IFRS 3 ‘Business combinations’ was updated
obligations under the various share schemes in operation. No gain
to clarify that the choice of measuring non-controlling interests
or loss is recognised in profit or loss on the purchase, sale, issue or
at fair value or at the proportionate share of the acquiree’s
cancellation of the company’s own shares. The acquisition cost
net assets applies only to instruments that represent present
of the shares is debited to an investment in own shares reserve
ownership interests and entitle their holders to a proportionate
within retained earnings.
share of the net assets in the event of liquidation. All other
Where the group buys back its own shares as treasury shares
components of non-controlling interest are measured at fair
it adopts the accounting as described above. Where it
value unless another measurement basis is required by IFRS.
subsequently cancels them, issued share capital is reduced by the
− Amendments to IFRS 7 ‘Financial Instruments: Disclosures’
nominal value of the shares cancelled and this same amount is
includes changes to promote transparency in the reporting of
transferred to the capital redemption reserve.
transfer transactions and improve users’ understanding of the
(x) Impact of standards and interpretations issued
i) New standards and interpretations issued 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 2011.
Amendments to existing standards
risk exposures of transfers of financial assets.
− Amendments to IFRS 7 ‘Financial Instruments: Disclosures’
was updated to include multiple clarifications related to the
disclosure of financial instruments.
− Amendments to IAS 24 (revised) ‘Related party disclosures’
was updated to remove the requirement for government
related entities to disclose details of all transactions with the
government-related entities and it clarifies and simplifies the
− Amendment to IFRS 1 ‘First time adoption’ was updated to
definition of a related party.
clarify that a first-time adopter that changes its accounting
− Amendment to IAS 27 ‘Consolidated and Separate Financial
policies or its use of IFRS 1 exemptions after publishing a set
Statements’ was updated to clarify that the consequential
of IAS 34 interim financial information should explain those
amendments to IAS 21, IAS 28 and IAS 31 following the 2008
changes and include the effects of such changes in its opening
revisions to IAS 27 are to be applied prospectively.
reconciliations within the first annual IFRS reporting.
− Amendment to IAS 34 ‘Interim Financial Reporting’ was
Amendments to IFRS 1 ‘First time adoption’ was updated to
updated to place greater emphasis on the disclosure principles
extend the exemption to use a ‘deemed cost’ arising from a
involving significant events and transactions, including changes
revaluation triggered by an event such as a privatisation that
to fair value measurements, and the need to update relevant
occurred at or before the date of transition to IFRS, to
information from the most recent annual report.
revaluations that occur during the period covered by the first
IFRS financial statements.
− Amendments to IFRS 1 ‘First time Adoption’ amends fixed
dates and includes guidance on implementations affected
by hyperinflation.
91
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 interpretations
− Amendment to IFRIC 13 ‘Customer loyalty programmes’ to
clarify the term ‘fair value’ in the context of measuring award
credits under customer loyalty programmes.
− Amendment to IFRIC 14 ‘Prepayments of a minimum funding
requirement’ applies only to entities that are required to make
minimum funding contributions to a defined benefit pension
plan.
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’)
− Amendment to IAS 1 ‘Financial statement presentation’
introduces a requirement for entities to group items presented
in other comprehensive income on the basis of whether they
are potentially reclassifiable to profit or loss subsequently.
− Amendment to IAS 12 (revised) ‘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.
− Amendment to IAS 19 ‘Employee benefits’ eliminates the
corridor approach and calculates finance costs on a net funding
basis and also introduces a requirement to group items
presented in Other Comprehensive Income on the basis of
whether they are potentially recycled to income statement.
− IAS 27 (revised) ‘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.
− Amendment to IAS 32 ‘Financial instruments: Presentation’
clarifies the offsetting requirements for amounts presented
in the statement of financial position.
− Amendment to IFRS 1 ‘First time adoption’ addresses how a
first time adopter would account for a government loan with
a below-market rate of interest when transitioning to 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.
− IFRS 13 ‘Fair value measurement’ provides a precise definition
of fair value and a single source of fair value measurement and
disclosure requirements.
92
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
1 Accounting policies continued
International Financial Reporting Interpretations Committee
(‘IFRIC’) interpretations
− IFRIC 20 ‘Stripping costs in the production phase of a surface
mine’ sets out the accounting for overburden waste removal
(stripping) costs in the production phase of a mine.
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 IFRS 7.
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.
The directors consider that a +/- 1% (2011: 1%) movement
in interest rates, a +/- 10 percentage point (2011: 10 percentage
point) movement in sterling and a +/- 1 percentage point (2011:
1 percentage point) movement in house prices represents a
reasonable possible change.
Valuation of residential property
The group’s residential trading property is carried in the statement
of financial position at the lower of cost and net realisable value.
The group’s investment property is carried in the statement of
financial position 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 provided a
vacant possession value for the majority of the group’s UK based
property as at 30 September 2012. A structured sample of these
in-house valuations was 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 0.4%
lower than the Allsop LLP values.
Allsop LLP has provided the directors with the following
opinion on the directors’ valuation. Property held in the core
residential and retirement solutions portfolios was valued
as at 30 September 2012 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 37% of the retirement
solutions portfolio, independently of the in-house surveyors.
Based on the results of that review Allsop LLP has concluded
that they have a high degree of confidence in those directors’
valuations.
Notes to the financial statements continued
1 Accounting policies continued
International Financial Reporting Interpretations Committee
(‘IFRIC’) interpretations
− IFRIC 20 ‘Stripping costs in the production phase of a surface
mine’ sets out the accounting for overburden waste removal
(stripping) costs in the production phase of a mine.
i) The group’s own in-house qualified surveying team provided a
vacant possession value for the majority of the group’s UK based
property as at 30 September 2012. A structured sample of these
in-house valuations was 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
All the above IFRSs, IFRIC interpretations and amendments to
valuations are compared to those of the external valuer, around
existing standards are yet to be endorsed by the European Union
85% of the valuations are within a small acceptable tolerance.
(‘EU’) at the date of approval of these financial statements with
Where the difference is more significant this is discussed with the
the exception of IFRS 7.
valuer to determine the reasons for the difference. Typically the
The directors are currently considering the potential impact
reasons vary but it could be, for example, that further or better
arising from the future adoption of these standards and
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 0.4%
lower than the Allsop LLP values.
Allsop LLP has provided the directors with the following
opinion on the directors’ valuation. Property held in the core
residential and retirement solutions portfolios was valued
as at 30 September 2012 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 37% of the retirement
solutions portfolio, independently of the in-house surveyors.
Based on the results of that review Allsop LLP has concluded
that they have a high degree of confidence in those directors’
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.
The directors consider that a +/- 1% (2011: 1%) movement
in interest rates, a +/- 10 percentage point (2011: 10 percentage
point) movement in sterling and a +/- 1 percentage point (2011:
1 percentage point) movement in house prices represents a
reasonable possible change.
Valuation of residential property
of financial position at the lower of cost and net realisable value.
The group’s investment property is carried in the statement of
financial position 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.
The group’s residential trading property is carried in the statement
valuations.
93
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 statement of financial
position as investment property, the valuation process as set out
above gave a market value of £141.6m. A net valuation gain of
£1.3m has been taken through the income statement in relation
to this property. The remaining property is held in the group’s
statement of financial position as trading property at the lower of
cost and net realisable value of £772.8m.
ii) All of the property owned by the group in the Grainger Invest
portfolio was valued as at 30 September 2012 by Allsop LLP who
are external independent valuers.
The aggregate of the market values of the properties at 30
September 2012 was £309.3m, 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 statement of financial
position as investment property with a market value of £108.4m
at 30 September 2012. The remaining property is held in the
group’s statement of financial position as trading property at the
lower of cost and net realisable value of £180.8m. The net gain
on valuation of the investment property in this portfolio was
£4.1m which has been taken through the income statement.
iii) The whole of the property portfolio in Germany is investment
property and was valued at 30 September 2012 by Cushman
and Wakefield LLP who are external independent valuers.
The Germany portfolio held in the group statement of
financial position as investment property has a market value
at 30 September 2012 of €213.1m (£169.7m). The net deficit
on valuation of the Germany portfolio was £2.8m which has
been taken through the income statement.
Whilst in the UK, valuers rely predominantly on recent
transactional evidence for similar properties to value investment
property, in Germany investment property is valued using an
income capitalisation approach under which net rental income
is discounted to a net present value. Both methodologies are
permitted under IAS 40.
iv) Allsop LLP has also valued as at 30 September 2012 the
property assets owned by the group and let under a long-term
lease arrangement with the Secretary of State for Defence under
a PFI Project Agreement. Allsop LLP has provided an Investment
Valuation, formerly described as Calculation of Worth, which is
defined as ‘the value of an asset to the owner or a prospective
owner for individual investment or operational objectives’. The
Investment Valuation has been made in accordance with RICS
Valuation Professional Standards, is based on a discounted cash
flow model, and results in an Investment Value of £106.2m as at
30 September 2012. The property is held in the group statement
of financial position as investment property at this figure.
v) At the year end the group had a 21.96% interest in G:res
which has invested in investment property. Valuations of 100%
of the G:res portfolio were carried out at both 31 December 2011
and 30 June 2012 by external valuers, Allsop LLP and DTZ
Debenham Tie Leung Limited. In aggregate, the valuation of the
individual dwellings at 30 June 2012 was £377.9m. 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 2012 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 2012.
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 Professional
Standards, of the extent and duration of their work for, and fees
earned by them from, the group, which in all cases are less than
5% of their total fees.
94
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
2 Critical accounting estimates and assumptions
continued
Net realisable value of trading property
The group’s residential trading properties are carried in the
statement of financial position at the lower of cost and net
realisable value.
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 2012 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 a 2% growth in property prices
in 2013 followed by growth in house prices of 3% in 2014
with price increases thereafter in line with conservative historical
house price growth rates. The assumptions also allow for an
annual vacancy rate of 7.6%. 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 2012
against projected investment sales.
In aggregate a charge of £0.1m has been made in the 2012
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 2012 are based upon the current intentions of the
directors. In addition, estimates at 30 September 2012 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 any net realisable value provision
required should be more than or less than that made.
No charge has been made in the 2012 income statement
(2011: £1.0m) in adjusting 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(g) above. The key
assumptions affecting the carrying value are house price inflation
and the effective interest rate.
income statement (2011: charge of £0.8m) 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 (2011: £4.4m) in its statement of financial position.
The fair value of our interest has decreased as cash flows are
realised and this decrease of £0.4m (2011: £0.3m) has been
recognised in the statement of other comprehensive income and
the available-for-sale reserve.
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 CBRE Limited who are external independent valuers. Their
valuation is on the basis of fair value as defined in the RICS
Professional Valuation Standards (2012) where fair value is the
same as market value.
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 2012 would either
increase the valuation by £4.0m or reduce the valuation by
£4.8m. At 30 September 2012 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
statement of financial position date would increase/(decrease) the
group’s profit before tax by approximately £1.5m (2011: £0.8m).
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
flow assumptions are recognised though the income statement.
Notes to the financial statements continued
2 Critical accounting estimates and assumptions
continued
Net realisable value of trading property
The group’s residential trading properties are carried in the
statement of financial position at the lower of cost and net
realisable value.
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 2012 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 a 2% growth in property prices
in 2013 followed by growth in house prices of 3% in 2014
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 2012 are based upon the current intentions of the
directors. In addition, estimates at 30 September 2012 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 any net realisable value provision
required should be more than or less than that made.
No charge has been made in the 2012 income statement
(2011: £1.0m) in adjusting the book value of development stock
to net realisable value.
with price increases thereafter in line with conservative historical
Valuation of financial interest in property assets
house price growth rates. The assumptions also allow for an
The valuation is based on an assessment of the future cash flows
annual vacancy rate of 7.6%. The group does sell some property
that will arise from our financial interest and on the effective
as investment sales, a sale with the tenant still in situ. A net
interest rate used to discount those cash flows. The valuation
realisable value provision has been made at 30 September 2012
methodology adopted is set out in note 1(g) above. The key
against projected investment sales.
assumptions affecting the carrying value are house price inflation
In aggregate a charge of £0.1m has been made in the 2012
and the effective interest rate.
income statement (2011: charge of £0.8m) to adjust the book
The fair value of our interest has decreased as cash flows are
value of trading properties to the lower of cost and net realisable
realised and this decrease of £0.4m (2011: £0.3m) has been
value and at the year end the group is holding a provision of
recognised in the statement of other comprehensive income and
£4.4m (2011: £4.4m) in its statement of financial position.
the available-for-sale reserve.
Land and property held within the development segment of
The assumptions adopted with regard to house prices are the
the business, are shown in the financial statements at the lower
same as those set out under ‘net realisable value of trading
of cost and net realisable value. Net realisable value is the
property’ above. A change of 1% to average house price inflation
expected net sales proceeds of the developed property and a
over the 10-year period from 1 October 2012 would either
provision is made when, and to the extent that, total projected
increase the valuation by £4.0m or reduce the valuation by
project costs exceed total projected project revenues.
£4.8m. At 30 September 2012 it is estimated that, with respect
Where land and property is sold without development, net
to the group’s financial interest in property assets a general
realisable value is the current market value net of associated
increase/(decrease) of one percentage point in house prices at the
selling costs. The current market value of the group’s land and
statement of financial position date would increase/(decrease) the
property held within the development segment has been assessed
group’s profit before tax by approximately £1.5m (2011: £0.8m).
by CBRE Limited who are external independent valuers. Their
There is no effect on equity as a result of a change in house
valuation is on the basis of fair value as defined in the RICS
prices as in accordance with IAS 39 AG8 changes to future cash
Professional Valuation Standards (2012) where fair value is the
flow assumptions are recognised though the income statement.
same as market value.
95
Consideration has been given to the current market value of the
financial asset based on our assessment of a market discount rate.
We have concluded that the discount rate as at 30 September
2012 should be the same as the rate adopted at 30 September
2011 which is 0.85% lower than the effective interest rate when
the financial interest was acquired. A 1% change to this discount
rate would either increase the carrying value by £6.7m or reduce
the carrying value by £6.0m.
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.
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.
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.
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 2012 the LTV was 48.0% compared to a
default level of 75% and the interest cover ratio was 3.0 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 2012, 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
£840m on 30 September 2012, of which £745m were drawn.
The group had free cash balances plus available overdraft of
£31m and undrawn committed facilities of £117m at
30 September 2012.
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.
96
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
3 Analysis of profit after tax
The results for the years ended 30 September 2011 and 2012 respectively have been affected by valuation movements and
non-recurring items. The table below provides further analysis of the consolidated income statement showing the results of trading
activities separately from these other items.
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Finance income from financial interest
in property assets
Write down of inventories
to net realisable value
Provision for impairment of
loans receivable net of write-backs
Operating profit before net valuation
gains/(deficits) on investment property
Net valuation gains/(deficits)
on investment property
Write down of investment property
in disposal group
Operating profit after net valuation
gains/(deficits) on investment property
Change in fair value of derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of (loss)/profit of joint ventures
after tax
(Loss)/profit before tax
Tax
Profit after tax
2012
Trading
£m
Valuation
£m
Non-
recurring
£m
311.4
63.5
74.0
(31.0)
11.0
(1.8)
–
–
3.0
7.7
–
–
–
–
–
–
–
–
–
–
–
–
(0.1)
–
–
(0.7)
–
–
–
(1.6)
–
–
–
–
–
–
Total
£m
311.4
62.8
74.0
(31.0)
11.0
(3.4)
–
–
3.0
7.7
(0.1)
–
Trading
£m
296.2
62.4
79.1
(32.3)
8.0
–
–
–
1.1
7.9
–
–
2011
Valuation
£m
Non-
recurring
£m
–
–
–
–
–
–
16.1
(2.2)
–
–
(1.8)
(4.2)
–
–
–
(0.8)
–
(3.8)
–
–
–
–
–
–
Total
£m
296.2
62.4
79.1
(33.1)
8.0
(3.8)
16.1
(2.2)
1.1
7.9
(1.8)
(4.2)
126.4
(0.1)
(2.3)
124.0
126.2
7.9
(4.6)
129.5
–
–
126.4
–
(92.8)
2.1
(0.1)
(1.0)
34.6
(6.3)
28.3
2.1
–
2.0
(31.2)
–
–
4.6
–
(24.6)
6.7
(17.9)
–
2.1
(6.9)
(6.9)
(9.2)
–
(2.5)
–
–
–
(11.7)
1.7
(10.0)
119.2
(31.2)
(95.3)
2.1
4.5
(1.0)
(1.7)
2.1
0.4
–
–
126.2
–
(79.0)
2.7
0.2
(1.8)
48.3
(7.9)
40.4
(2.0)
–
5.9
(28.0)
–
–
4.2
3.9
(14.0)
10.7
(3.3)
–
–
(4.6)
–
(3.6)
–
–
–
(8.2)
10.2
2.0
(2.0)
–
127.5
(28.0)
(82.6)
2.7
4.4
2.1
26.1
13.0
39.1
3 Analysis of profit after tax
The results for the years ended 30 September 2011 and 2012 respectively have been affected by valuation movements and
non-recurring items. The table below provides further analysis of the consolidated income statement showing the results of trading
activities separately from these other items.
The non-recurring charge of £0.7m under ‘net rental income’ relates to a specific provision made against a one-off structural issue at
one of our properties and a charge of £1.6m under ‘other expenses’ relates primarily to transaction costs. The non-recurring charge
of £6.9m relates to the disposal group of assets transferred into a joint venture vehicle post year end as explained further in note 40.
The non-recurring charge of £2.5m under ‘Finance costs’ includes interest payable on overdue tax of £1.5m.
Trading
Valuation
recurring
Trading
Valuation
recurring
Information relating to the group’s operating segments is set out in the tables below:
4 Segmental information
97
2012 Income statement
(£m)
Group revenue
Segment revenue-external
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income and expenses
Profit on disposal of investment property
Finance income from financial interest
in property assets
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
UK
residential
Retirement
solutions
Fund and third
party
management
UK and
European
development
German
residential
All other
segments
211.4
42.5
57.6
(8.6)
1.0
2.2
–
94.7
(10.0)
35.5
3.7
12.7
(2.9)
1.1
–
7.7
22.3
(8.3)
8.3
–
–
(4.6)
6.5
–
–
1.9
–
–
(0.7)
(0.1)
(0.3)
19.6
36.6
0.2
3.4
(1.3)
0.5
–
–
2.8
1.4
–
–
–
–
17.1
0.3
(2.6)
0.1
0.8
–
15.7
(12.7)
–
–
(2.8)
–
–
(0.1)
(8.5)
Total
311.4
63.5
74.0
(31.0)
9.2
3.0
7.7
–
–
–
(11.0)
–
–
–
(11.0)
(61.1)
126.4
(90.7)
–
–
–
(31.2)
–
(2.2)
(1.1)
34.6
(0.1)
2.1
(31.2)
4.6
(11.7)
(1.7)
Write down of inventories to net realisable value
(0.1)
Net valuation gains/(deficits) on
investment property
Fair value movements on derivatives
Share of valuation gains in joint ventures and
associates after tax
Other net non-recurring items
Loss before tax
8.2
–
–
(0.9)
–
(3.3)
–
–
–
–
–
–
4.6
–
Notes to the financial statements continued
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Net gain on acquisition of subsidiary
Goodwill impairment
Profit on disposal of investment property
Finance income from financial interest
in property assets
Write down of inventories
to net realisable value
Provision for impairment of
loans receivable net of write-backs
Operating profit before net valuation
gains/(deficits) on investment property
Net valuation gains/(deficits)
on investment property
Write down of investment property
in disposal group
Operating profit after net valuation
gains/(deficits) on investment property
Change in fair value of derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of (loss)/profit of joint ventures
after tax
(Loss)/profit before tax
Tax
Profit after tax
2012
£m
–
–
–
–
–
–
–
–
–
–
–
(0.1)
2.1
–
2.0
(31.2)
–
–
4.6
–
(24.6)
6.7
(17.9)
Non-
£m
–
(0.7)
(1.6)
–
–
–
–
–
–
–
–
–
–
(9.2)
(2.5)
–
–
–
–
(11.7)
1.7
(10.0)
2011
£m
Non-
£m
Total
£m
311.4
62.8
74.0
(31.0)
11.0
(3.4)
–
–
3.0
7.7
(0.1)
–
2.1
119.2
(31.2)
(95.3)
2.1
4.5
(1.0)
(1.7)
2.1
0.4
£m
296.2
62.4
79.1
(32.3)
8.0
–
–
–
1.1
7.9
–
–
–
–
–
126.2
(79.0)
2.7
0.2
(1.8)
48.3
(7.9)
40.4
–
–
–
–
–
–
–
–
16.1
(2.2)
(1.8)
(4.2)
(2.0)
–
5.9
(28.0)
–
–
4.2
3.9
(14.0)
10.7
(3.3)
Total
£m
296.2
62.4
79.1
(33.1)
8.0
(3.8)
16.1
(2.2)
1.1
7.9
(1.8)
(4.2)
(2.0)
–
127.5
(28.0)
(82.6)
2.7
4.4
2.1
26.1
13.0
39.1
(0.8)
(3.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4.6)
(3.6)
(8.2)
10.2
2.0
(6.9)
(6.9)
£m
311.4
63.5
74.0
(31.0)
11.0
(1.8)
–
–
3.0
7.7
–
–
–
–
–
126.4
(92.8)
2.1
(0.1)
(1.0)
34.6
(6.3)
28.3
126.4
(0.1)
(2.3)
124.0
126.2
7.9
(4.6)
129.5
98
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
4 Segmental information continued
2011 Income Statement (Restated)
(£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
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
Write down of inventories to net realisable value
Net valuation gains/(deficits) on investment property
Fair 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
residential
Retirement
solutions
Fund and third
party
management
UK and
European
development
German
residential
All other
segments
200.6
25.9
–
38.4
54.7
(7.9)
0.5
0.3
–
86.0
(2.9)
–
3.8
9.3
(2.7)
0.5
(0.1)
7.9
18.7
(3.2)
6.3
7.4
–
–
(4.5)
6.3
–
–
1.8
1.2
22.8
–
–
15.1
(1.1)
0.4
–
–
14.4
0.1
Total
296.2
7.4
62.4
79.1
–
–
–
–
(13.0)
(32.3)
–
–
–
8.0
1.1
7.9
40.6
–
20.2
–
(3.1)
0.3
0.9
–
18.3
(13.9)
(13.0)
(57.6)
126.2
(76.3)
–
(0.1)
(1.0)
(0.5)
–
–
(1.6)
(0.8)
4.7
–
–
16.1
(0.9)
–
(2.3)
–
(5.1)
–
–
–
–
–
(0.1)
–
–
(0.8)
3.3
–
–
8.1
(0.2)
(1.0)
–
–
(5.2)
–
–
–
(0.2)
–
(1.6)
(1.6)
–
–
(1.3)
–
(0.8)
48.3
(1.8)
(2.0)
–
–
(25.6)
(28.0)
(2.3)
–
–
–
(4.6)
(4.2)
16.1
(2.2)
8.1
(8.2)
26.1
99
Segmental revenue from external customers is derived as follows:
£274.8m from UK customers (2011: £255.6m)
£36.6m from Germany (2011: £40.6m).
There are no other material revenue streams from external customers in foreign countries.
Non-current assets other than financial instruments and deferred tax assets are located as follows:
£422.2m within the UK (2011: £462.9m)
£170.2m in Germany (2011: £422.0m)
The majority of the group’s properties are held as trading stock and are therefore shown in the statutory statement of financial
position at the lower of cost and net realisable value. This does not reflect the market value of the assets and, accordingly, our key
statement of financial position measures of net asset value include 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 statement of financial position 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 statement
of financial position.
2012 Segment net assets
(25.6)
(28.0)
(£m)
UK residential
Retirement
solutions
Fund and third
party
management
UK and
European
development
German
residential
All other
segments
(5.2)
(2.3)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
838.8
1,181.3
1,080.6
287.3
341.1
307.0
44.1
45.9
44.1
90.6
86.8
87.6
118.4
132.4
118.2
(988.3)
(858.7)
(983.1)
Total
390.9
928.8
654.4
UK
Retirement
Fund and third
party
UK and
European
residential
solutions
management
development
residential
German
All other
segments
200.6
25.9
Notes to the financial statements continued
4 Segmental information continued
2011 Income Statement (Restated)
(£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
Operating profit before net valuation deficits
on investment property
Net trading interest payable
Share of trading loss of joint ventures and associates
Trading profit before tax, valuation and
non-recurring items
Write down of inventories to net realisable value
Fair 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
–
38.4
54.7
(7.9)
0.5
0.3
–
86.0
(2.9)
(0.8)
4.7
–
–
16.1
(0.9)
–
(2.3)
–
3.8
9.3
(2.7)
0.5
(0.1)
7.9
18.7
(3.2)
–
–
–
–
–
–
6.3
7.4
–
–
(4.5)
6.3
–
–
1.8
1.2
–
–
(0.8)
3.3
–
–
8.1
(0.2)
Net valuation gains/(deficits) on investment property
(5.1)
(13.0)
(32.3)
18.3
(13.9)
(13.0)
(57.6)
126.2
(76.3)
–
–
–
–
–
–
–
–
–
–
–
–
Total
296.2
7.4
62.4
79.1
8.0
1.1
7.9
48.3
(1.8)
(2.0)
(4.2)
16.1
(2.2)
8.1
(8.2)
26.1
22.8
–
–
15.1
(1.1)
0.4
–
–
14.4
0.1
(1.0)
–
–
–
–
–
40.6
–
20.2
–
(3.1)
0.3
0.9
–
–
(1.6)
(1.6)
–
–
(1.3)
–
(0.8)
after tax
–
(0.1)
(1.0)
(0.5)
–
–
(1.6)
(0.1)
(0.2)
(4.6)
100
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
4 Segmental information continued
2012 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
Statutory
balance
sheet
525.9
99.0
1,023.4
60.4
73.3
44.5
222.1
41.7
2,090.3
(1,267.4)
(145.4)
(37.8)
(129.7)
(119.1)
(1,699.4)
390.9
Adjustments to
market value,
deferred tax and
derivatives
–
–
364.0
(1.3)
–
(40.2)
–
6.3
328.8
–
145.4
37.2
4.8
21.7
209.1
537.9
Gross NAV
balance
sheet
525.9
99.0
1,387.4
59.1
73.3
4.3
222.1
48.0
2,419.1
(1,267.4)
–
(0.6)
(124.9)
(97.4)
(1,490.3)
928.8
Deferred and
contingent tax
Derivatives
–
–
–
–
–
–
–
–
–
–
–
(120.0)
–
–
(120.0)
(120.0)
–
–
–
(2.8)
–
46.1
–
–
43.3
–
(171.2)
–
(4.8)
(21.7)
(197.7)
(154.4)
Triple NAV
balance
sheet
525.9
99.0
1,387.4
56.3
73.3
50.4
222.1
48.0
2,462.4
(1,267.4)
(171.2)
(120.6)
(129.7)
(119.1)
(1,808.0)
654.4
Notes to the financial statements continued
(£m)
Investment property
Assets held for sale
CHARM
Trading stock
JV/Associates
Cash
Deferred tax
Other assets
Total assets
External debt
Derivatives
Deferred tax
Liabilities held for sale
Other liabilities
Total liabilities
Net assets
Adjustments to
market value,
deferred tax and
derivatives
Deferred and
contingent tax
Derivatives
Statutory
balance
sheet
525.9
99.0
1,023.4
60.4
73.3
44.5
222.1
41.7
2,090.3
(1,267.4)
(145.4)
(37.8)
(129.7)
(119.1)
(1,699.4)
390.9
Gross NAV
balance
sheet
525.9
99.0
1,387.4
59.1
73.3
4.3
222.1
48.0
2,419.1
(1,267.4)
–
(0.6)
(124.9)
(97.4)
(1,490.3)
928.8
–
–
364.0
(1.3)
–
(40.2)
–
6.3
328.8
–
145.4
37.2
4.8
21.7
209.1
537.9
–
–
–
–
–
–
–
–
–
–
–
–
–
(120.0)
(120.0)
(120.0)
Triple NAV
balance
sheet
525.9
99.0
1,387.4
56.3
73.3
50.4
222.1
48.0
2,462.4
(1,267.4)
(171.2)
(120.6)
(129.7)
(119.1)
(1,808.0)
654.4
(2.8)
46.1
–
–
–
–
–
–
–
–
43.3
(171.2)
(4.8)
(21.7)
(197.7)
(154.4)
4 Segmental information continued
2012 Reconciliation of NAV measures
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
101
UK residential
portfolio
Retirement
solutions
Fund and third
party
management
UK and
European
development
German
residential
All other
segments
Total
30 September 2012
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
308.5
–
–
–
5.3
47.7
–
15.3
99.0
–
Inventories – trading property
1,029.6
287.6
Trade and other receivables
Cash and cash equivalents
Property, plant and equipment
Deferred tax asset
Assets classified as held-for-sale
Value of own shares held
3.3
26.4
–
2.0
–
–
2.6
7.9
–
5.6
24.9
–
–
41.2
–
–
–
–
2.7
0.7
–
–
–
–
–
–
(0.6)
–
–
70.2
22.3
2.9
–
1.1
–
–
Total segment NNNAV assets
1,375.1
490.6
44.6
95.9
NNNAV liabilities
Interest-bearing loans and borrowings
Trade and other payables
Retirement benefits
Current tax liabilities
Provisions for other liabilities
and charges
181.2
11.5
116.6
28.0
–
–
–
–
–
–
Deferred and contingent tax liabilities
101.8
14.8
Liabilities associated with assets
held-for-sale
Derivative financial instruments
Total segment NNNAV liabilities
Net NNNAV assets
–
–
294.5
1,080.6
–
24.2
183.6
307.0
–
0.5
–
–
–
–
–
–
0.5
44.1
0.1
9.1
–
–
–
(0.9)
–
–
8.3
87.6
169.7
–
0.4
–
–
–
1.7
10.3
0.1
0.1
197.2
–
379.5
115.0
4.4
–
–
–
4.9
129.7
7.3
261.3
118.2
–
–
–
–
–
–
3.0
25.1
0.7
41.6
–
6.3
525.9
41.2
15.1
99.0
5.3
1,387.4
35.6
73.3
0.8
50.4
222.1
6.3
76.7
2,462.4
854.5
1,267.4
34.9
5.8
24.4
0.5
–
–
139.7
88.4
5.8
24.4
0.5
120.6
129.7
171.2
1,059.8
1,808.0
(983.1)
654.4
102
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
4 Segmental information continued
2011 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
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
UK
residential
Retirement
solutions
886.9
1,227.3
1,112.2
385.0
437.7
414.3
Fund and
third party
management
UK and
European
development
German
residential
All other
segments
37.6
41.0
37.6
84.1
72.3
75.3
132.8
151.4
132.7
(1,139.0)
(1,029.7)
(1,133.9)
Statutory
balance
sheet
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
Adjustments to
market value,
deferred tax and
derivatives
–
–
344.0
0.4
–
(39.7)
(0.2)
6.4
310.9
–
154.5
47.2
–
201.7
512.6
Gross NAV
balance
sheet
819.9
102.3
1,449.1
58.9
90.9
3.0
–
31.2
2,555.3
(1,544.7)
–
(0.5)
(110.1)
(1,655.3)
900.0
Deferred and
contingent tax
Derivatives
–
–
–
–
–
–
–
–
–
–
–
(132.2)
–
(132.2)
(132.2)
–
–
–
(4.6)
–
43.2
0.2
–
38.8
–
(168.4)
–
–
(168.4)
(129.6)
Total
387.4
900.0
638.2
Triple NAV
balance
sheet
819.9
102.3
1,449.1
54.3
90.9
46.2
0.2
31.2
2,594.1
(1,544.7)
(168.4)
(132.7)
(110.1)
(1,955.9)
638.2
Notes to the financial statements continued
4 Segmental information continued
2011 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
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
UK
residential
Retirement
solutions
886.9
1,227.3
1,112.2
385.0
437.7
414.3
Fund and
third party
UK and
European
management
development
German
residential
All other
segments
37.6
41.0
37.6
84.1
72.3
75.3
132.8
151.4
132.7
(1,139.0)
(1,029.7)
(1,133.9)
Adjustments to
market value,
deferred tax and
derivatives
Deferred and
contingent tax
Derivatives
Statutory
balance
sheet
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
Gross NAV
balance
sheet
819.9
102.3
1,449.1
58.9
90.9
3.0
–
31.2
2,555.3
(1,544.7)
–
(0.5)
(110.1)
(1,655.3)
900.0
–
–
344.0
0.4
–
(39.7)
(0.2)
6.4
310.9
154.5
47.2
–
–
201.7
512.6
–
–
–
–
–
–
–
–
–
–
–
–
(132.2)
(132.2)
(132.2)
–
–
–
–
(4.6)
43.2
0.2
–
38.8
(168.4)
–
–
–
(168.4)
(129.6)
Total
387.4
900.0
638.2
Triple NAV
balance
sheet
819.9
102.3
1,449.1
54.3
90.9
46.2
0.2
31.2
2,594.1
(1,544.7)
(168.4)
(132.7)
(110.1)
(1,955.9)
638.2
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 and third
party
management
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
103
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
Net NNNAV assets
193.0
8.8
–
–
–
116.1
–
317.9
1,112.2
32.4
27.8
–
–
–
13.4
11.8
85.4
414.3
–
0.2
–
–
–
–
–
0.2
37.6
–
7.8
–
–
–
(3.0)
–
4.8
75.3
287.4
1,031.9
1,544.7
8.3
–
–
–
5.9
17.2
318.8
132.7
27.5
4.5
24.6
0.6
0.3
139.4
80.4
4.5
24.6
0.6
132.7
168.4
1,228.8
1,955.9
(1,133.9)
638.2
104
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
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)
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
2012
£m
89.8
9.0
201.6
11.0
311.4
2012
£m
89.8
9.0
(25.6)
(10.4)
62.8
2011
£m
86.3
10.1
191.8
8.0
296.2
2011
(restated)
£m
86.3
10.1
(22.4)
(11.6)
62.4
There are no contingent rents recognised within net rental income in 2012 and 2011 relating to properties where the group acts as a
lessor of assets under operating leases.
7 Profit on disposal of trading property
Gross proceeds from sale of trading property
Selling costs
Net proceeds from sale of trading property
Carrying value of trading property sold
2012
£m
201.6
(5.6)
196.0
(122.0)
74.0
2011
(restated)
£m
191.8
(4.5)
187.3
(108.2)
79.1
Notes to the financial statements continued
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)
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
lessor of assets under operating leases.
7 Profit on disposal of trading property
Gross proceeds from sale of trading property
Selling costs
Net proceeds from sale of trading property
Carrying value of trading property sold
2012
£m
89.8
9.0
201.6
11.0
311.4
2012
£m
89.8
9.0
(25.6)
(10.4)
62.8
2012
£m
201.6
(5.6)
196.0
(122.0)
74.0
2011
£m
86.3
10.1
191.8
8.0
296.2
2011
(restated)
£m
86.3
10.1
(22.4)
(11.6)
62.4
2011
(restated)
£m
191.8
(4.5)
187.3
(108.2)
79.1
There are no contingent rents recognised within net rental income in 2012 and 2011 relating to properties where the group acts as a
105
2012
£m
48.9
(0.6)
48.3
(45.3)
3.0
2011
(restated)
£m
25.2
(0.6)
24.6
(23.5)
1.1
8 Profit on disposal of investment property
Gross proceeds from sale of investment property
Selling costs
Net proceeds from sale of investment property
Carrying value of investment property sold
9 Administrative expenses
In prior years some of the group’s expenses have been allocated against net rental income and profit on disposal of trading property
with the balance shown as administrative expenses. The directors have reviewed this presentation and have concluded that it provides
a clearer picture of the group’s results by showing all of the group’s expenses as administrative expenses. The comparatives in the
consolidated income statement and in notes 6, 7 and this note have been restated to reflect the change which is presentational only
with no impact on profit.
Total group expenses
10 Other income
Property and asset management fee income
Other sundry income
11 Other expenses
Cost on acquisition of subsidiary undertakings
External costs relating to fee income
Other transaction expenses
2012
£m
31.0
2012
£m
10.0
1.0
11.0
2012
£m
–
1.8
1.6
3.4
2011
(restated)
£m
33.1
2011
(restated)
£m
6.9
1.1
8.0
2011
(restated)
£m
2.4
–
1.4
3.8
Other income and expenses were presented as a single line item in the 2011 consolidated income statement and notes to the
accounts. In 2012 other income and other expenses have been presented separately and the comparatives restated.
106
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
12 Employees
Wages and salaries
Termination benefits
Social security costs
Other pension costs – defined contribution scheme (see note 30)
Share-based payments (see note 32)
2012
£m
12.9
0.1
1.5
0.9
2.1
17.5
2011
£m
13.9
0.2
1.3
0.8
2.0
18.2
Interest on net pension scheme liabilities amounted to £0.3m in 2012 (2011: £0.3m) and is included within finance costs (see note 14).
The average monthly number of group employees during the year (including executive directors) was:
UK tenanted residential
UK development
Germany tenanted residential
2012
Number
2011
Number
267
8
9
284
258
6
10
274
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 67 to 70.
Key management compensation
Salaries and short-term employee benefits
Termination benefits
Post-employment benefits
Share-based payments
2012
£m
5.6
–
0.4
1.4
7.4
2011
(restated)
£m
6.2
0.2
0.4
1.1
7.9
Key management figures shown include executive and non-executive directors. In the previous year key management also included
members of the Operations board. However this board has been restructured during the year and key management now includes all
internal directors of specific functions. The 2011 comparatives have been restated to reflect this change.
13 (Loss)/profit before tax
(Loss)/profit before tax is stated after charging/(crediting):
Depreciation on fixtures, fittings and equipment (see note 19)
Impairment of goodwill (see note 23)
Net gain on acquisition of subsidiary (see note 39)
Bad debt expense (see note 25)
Foreign exchange gains
Operating lease payments (see note 37)
Auditors’ remuneration (see below)
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
107
2011
£m
0.6
2.2
(16.1)
0.7
(0.8)
1.6
0.6
2012
£m
0.4
–
–
0.2
–
1.7
0.7
2012
£’000
2011
£’000
120
139
259
64
368
432
691
146
122
268
90
227
317
585
Key management figures shown include executive and non-executive directors. In the previous year key management also included
members of the Operations board. However this board has been restructured during the year and key management now includes all
internal directors of specific functions. The 2011 comparatives have been restated to reflect this change.
During the year, £64,000 was paid by the group to PricewaterhouseCoopers LLP for taxation services. A further £368,000 was paid
for other services, the main element of which was £325,000 relating to the preparation of a financial due diligence report in relation
to the group’s German business.
Details of the group’s policy on the use of the group’s auditors for other services, the reasons why the firm was used rather than
another supplier and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee Report on
pages 59 and 60. No services were provided pursuant to contingent fee arrangements.
Notes to the financial statements continued
12 Employees
Wages and salaries
Termination benefits
Social security costs
Other pension costs – defined contribution scheme (see note 30)
Share-based payments (see note 32)
Interest on net pension scheme liabilities amounted to £0.3m in 2012 (2011: £0.3m) and is included within finance costs (see note 14).
The average monthly number of group employees during the year (including executive directors) was:
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 67 to 70.
Key management compensation
UK tenanted residential
UK development
Germany tenanted residential
Salaries and short-term employee benefits
Termination benefits
Post-employment benefits
Share-based payments
2012
£m
12.9
0.1
1.5
0.9
2.1
17.5
2012
Number
267
8
9
284
2012
£m
5.6
–
0.4
1.4
7.4
2011
£m
13.9
0.2
1.3
0.8
2.0
18.2
2011
Number
258
6
10
274
2011
(restated)
£m
6.2
0.2
0.4
1.1
7.9
108
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
14 Finance costs and income
Finance costs
Bank loans and mortgages
Non-bank Financial Institution
Convertible bond
Other finance costs
Foreign exchange gains on financing activities
Loan issue costs – amortisation and write-off
Interest on net pension scheme liabilities (see note 30)
Finance income
Interest receivable from associates and joint ventures (see note 36)
Other interest receivable
Bank deposits
Net finance costs
15 Taxation
Current tax
Corporation tax on (loss)/profit
Adjustments relating to prior years
Deferred tax
Origination and reversal of temporary differences
Adjustments relating to prior years
Impact of tax rate change
Income tax credit for the year
2012
£m
76.5
10.1
1.8
2.5
–
4.1
0.3
95.3
–
1.3
0.8
2.1
93.2
2012
£m
13.2
(1.2)
12.0
(12.6)
(1.7)
0.2
(14.1)
(2.1)
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
(7.6)
(5.2)
(0.8)
(13.6)
(13.0)
In 2011, prior year tax credits of £16.5m included a non-recurring exceptional credit of £10.2m arising from the conclusion of the
group’s discussion with HM Revenue and Customs on various outstanding tax matters.
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.
Notes to the financial statements continued
Interest receivable from associates and joint ventures (see note 36)
14 Finance costs and income
Finance costs
Bank loans and mortgages
Non-bank Financial Institution
Convertible bond
Other finance costs
Foreign exchange gains on financing activities
Loan issue costs – amortisation and write-off
Interest on net pension scheme liabilities (see note 30)
Finance income
Other interest receivable
Bank deposits
Net finance costs
15 Taxation
Current tax
Corporation tax on (loss)/profit
Adjustments relating to prior years
Deferred tax
Origination and reversal of temporary differences
Adjustments relating to prior years
Impact of tax rate change
Income tax credit for the year
2012
£m
76.5
10.1
1.8
2.5
–
4.1
0.3
95.3
–
1.3
0.8
2.1
93.2
2012
£m
13.2
(1.2)
12.0
(12.6)
(1.7)
0.2
(14.1)
(2.1)
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
(7.6)
(5.2)
(0.8)
(13.6)
(13.0)
109
Closing
balance
£m
24.4
29.5
6.1
0.7
(32.6)
(0.7)
1.2
(10.9)
(6.7)
17.7
2011
£m
42.7
(47.7)
(5.0)
Movements
recognised
in other
comprehensive
income
£m
–
–
–
–
–
(0.5)
(0.2)
3.1
2.4
2.4
2012
£m
44.5
(37.8)
6.7
Movements in taxation during the year are set out below:
2012 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 – 2012 movement
Opening
balance
£m
24.6
Payments
made in
the year
£m
(12.0)
Movements
recognised in
income
£m
Exchange
adjustments
£m
12.0
(0.2)
37.8
7.2
1.3
(28.2)
(0.2)
1.4
(14.3)
5.0
29.6
–
–
–
–
–
–
–
–
(12.0)
(8.3)
(0.8)
(0.6)
(4.4)
–
–
–
(14.1)
(2.1)
–
(0.3)
–
–
–
–
0.3
–
(0.2)
Deferred tax balances are disclosed as follows:
Deferred tax assets: non-current assets
Deferred tax liabilities: non-current liabilities
Deferred tax
In 2011, prior year tax credits of £16.5m included a non-recurring exceptional credit of £10.2m arising from the conclusion of the
group’s discussion with HM Revenue and Customs on various outstanding tax matters.
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.
Deferred tax has been calculated at a rate of 23% (2011:25%).
In addition to the above the group has a contingent tax liability representing the difference between the carrying value of trading
properties in the statement of financial position and their market value. This contingent tax, which is not provided in the accounts,
amounts to £82.9m (2011: £84.9m).
No benefit has been recognised in respect of unused tax credits with a tax value of £nil (2011: £nil); unexpired trading losses
carried forward with a tax value of £2.1m (2011: £2.3m); or deductible temporary differences with a tax value of £1.3m (2011: £nil).
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.
110
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
15 Taxation continued
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
Opening
balance
£m
27.8
Payments
made in
the year
£m
Acquired in
the year
£m
Movements
recognised in
income
£m
Exchange
adjustments
£m
(4.4)
0.7
0.6
(0.1)
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)
The tax credit for the year of £2.1m (2011: credit of £13.0m) comprises:
UK taxation
Overseas taxation
Movements
recognised
in other
comprehensive
income
£m
–
–
–
–
–
0.3
(0.1)
4.3
4.5
4.5
2012
£m
1.0
(3.1)
(2.1)
Closing
balance
£m
24.6
37.8
7.2
1.3
(28.2)
(0.2)
1.4
(14.3)
5.0
29.6
2011
£m
(11.5)
(1.5)
(13.0)
The main rate of Corporation Tax in the UK changed from 26% to 24% with effect from 1 April 2012 and will change to 23% from
1 April 2013. Accordingly the group’s results for this accounting period are taxed at an effective rate of 25% and should be taxed
at 23.5% in the 2013 period. The change in tax rate has resulted in a £0.2m charge to the income statement in the current year.
Notes to the financial statements continued
15 Taxation continued
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
UK taxation
Overseas taxation
Movements
recognised in
Acquired in
the year
Exchange
comprehensive
income
adjustments
income
Movements
recognised
in other
Opening
balance
£m
27.8
Payments
made in
the year
£m
(4.4)
£m
0.7
–
1.2
1.0
–
–
–
(2.3)
(0.1)
0.6
£m
0.6
(3.7)
(3.2)
(0.1)
(6.6)
–
–
–
(13.6)
(13.0)
£m
(0.1)
–
–
–
–
–
–
–
–
41.5
9.2
0.4
(21.6)
(0.5)
1.5
(16.3)
14.2
42.0
–
–
–
–
–
–
–
–
£m
–
–
–
–
–
0.3
(0.1)
4.3
4.5
4.5
2012
£m
1.0
(3.1)
(2.1)
Closing
balance
£m
24.6
37.8
7.2
1.3
(28.2)
(0.2)
1.4
(14.3)
5.0
29.6
2011
£m
(11.5)
(1.5)
(13.0)
Total tax – 2011 movement
(4.4)
(0.1)
The tax credit for the year of £2.1m (2011: credit of £13.0m) comprises:
The main rate of Corporation Tax in the UK changed from 26% to 24% with effect from 1 April 2012 and will change to 23% from
1 April 2013. Accordingly the group’s results for this accounting period are taxed at an effective rate of 25% and should be taxed
at 23.5% in the 2013 period. The change in tax rate has resulted in a £0.2m charge to the income statement in the current year.
The tax credit for the year is different to the credit for the year derived by applying the standard rate of corporation tax in the UK
of 25% (2011: 27%) to the (loss)/profit before tax. The differences are explained below:
(Loss)/profit before tax
(Loss)/profit before tax at a rate of 25% (2011: 27%)
Expenses not deductible for tax purposes
Goodwill credit not taxable
Impact of tax rate change
Other losses and non-taxable items
Adjustment in respect of prior periods
2012
£m
(1.7)
(0.4)
1.1
–
0.2
(0.1)
(2.9)
(2.1)
111
2011
£m
26.1
7.0
1.8
(3.8)
(0.8)
(0.7)
(16.5)
(13.0)
As shown above, 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 77.
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. A further reduction in the main rate was proposed in the Autumn Statement on 5 December 2012 to reduce the rate to
21% from 1 April 2014. This change has not been substantively enacted at the statement of financial position date and, therefore, is
not included in these financial statements.
The effect of the changes expected to be enacted would be to reduce the deferred tax asset provided at the statement of financial
position date by £0.5m. This £0.5m reduction in the deferred tax asset would reduce profit by £0.2m and decrease other
comprehensive income by £0.3m.
16 Dividends
Under IAS 10, final dividends are excluded from the statement of financial position either until they are approved by the company in
general meeting or until they have been appropriately authorised and are no longer at the company’s discretion. Dividends paid in the
year are shown below:
Ordinary dividends on equity shares:
Final dividend for the year ended 30 September 2010 – 1.20p per share
Final dividend for the year ended 30 September 2011 – 1.30p per share
Interim dividend for the year ended 30 September 2012 – 0.55p per share
2012
£m
–
5.3
2.3
7.6
2011
£m
4.9
–
–
4.9
A final dividend in respect of the year ended 30 September 2012 of 1.37p per share amounting to £5.6m will be proposed
at the 2013 AGM. If approved, this dividend will be paid on 8 February 2013 to shareholders on the register at close of business
on 7 December 2012. The 2012 interim dividend of 0.55p per share was paid in July 2012. This gives a total dividend for 2012
of 1.92p per share (2011: 1.83p per share).
112
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
17 Earnings per share
Basic
Basic earnings 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’), Deferred Bonus Plan (‘DBP’) and SAYE schemes.
Diluted
Diluted earnings 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 2012 was the end
of the contingency period. The profit for the year is adjusted to add back the after tax interest cost on the debt component
of the convertible bond. Where the effect of the above adjustments is antidilutive, as it is in relation to the convertible bond, they
are excluded from the calculation of diluted earnings per share. Further details in relation to the redemption of the convertible bond
are set out in note 29.
30 September 2012
30 September 2011
Profit
for the
year
£m
Weighted
average
number
of shares
(thousands)
Earnings
per share
pence
Profit
for the
year
£m
Weighted
average
number
of shares
(thousands)
Earnings
per share
pence
Basic earnings per share
Profit attributable to equity holders
0.4
409,937
Effect of potentially
dilutive securities
Share options and contingent shares
–
4,971
Diluted earnings per share
Profit attributable to equity holders
0.4
414,908
0.1
–
0.1
39.1
410,003
9.5
–
5,472
39.1
415,475
(0.1)
9.4
Basic earnings 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’), Deferred Bonus Plan (‘DBP’) and SAYE schemes.
Opening balance
Additions:
18 Investment property
Acquisitions arising from business combinations (see note 39)
Subsequent expenditure
Disposals
Write down of investment property in disposal group (see note 40)
Transfer to assets classified as held-for-sale (see note 40)
Net valuation gains/(deficits)
Exchange adjustments
Closing balance
113
2011
£m
634.7
207.8
5.4
(23.5)
–
–
(2.0)
(2.5)
819.9
2012
£m
819.9
–
5.5
(45.3)
(6.9)
(218.1)
2.1
(31.3)
525.9
Share options and contingent shares
–
4,971
–
5,472
£12.4m (2011: £12.4m).
Profit attributable to equity holders
0.4
414,908
39.1
415,475
The reduction in value of £31.3m (2011: £2.5m) 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.
The group has valued all of its investment property as at 30 September 2012 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 gain of £2.1m has arisen on valuation of investment property to fair value as at 30 September 2012 (2011: deficit
of £2.0m) and this has been taken to the income statement.
The historical cost of the group’s investment property as at 30 September 2012 is £534.2m (2011: £824.8m).
Rental income from investment property during the year was £46.7m (2011: £49.7m).
Direct property repair and maintenance costs arising from investment property that generated rental income during the year was
Notes to the financial statements continued
17 Earnings per share
Basic
Diluted
Basic earnings per share
Effect of potentially
dilutive securities
Diluted earnings per share
Diluted earnings 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 2012 was the end
of the contingency period. The profit for the year is adjusted to add back the after tax interest cost on the debt component
of the convertible bond. Where the effect of the above adjustments is antidilutive, as it is in relation to the convertible bond, they
are excluded from the calculation of diluted earnings per share. Further details in relation to the redemption of the convertible bond
are set out in note 29.
30 September 2012
30 September 2011
Profit
for the
year
£m
Weighted
average
number
of shares
(thousands)
Earnings
per share
pence
Profit
for the
year
£m
Weighted
average
number
of shares
(thousands)
Earnings
per share
pence
Profit attributable to equity holders
0.4
409,937
39.1
410,003
9.5
0.1
–
0.1
(0.1)
9.4
114
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
19 Property, plant and equipment
Cost
Opening cost
Additions
Closing cost
Accumulated depreciation
Opening accumulated depreciation
Charge for the year
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.
20 Investment in associates
Opening balance
Share of profit
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
Total
2012
£m
5.5
–
5.5
4.3
0.4
4.7
0.8
1.2
2012
£m
34.6
4.5
–
–
2.1
41.2
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
115
19 Property, plant and equipment
As at 30 September 2012, the group’s interest in associates was as follows:
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 2012. Their results for the 12 months to 30 September 2012 and their
financial position as at that date have been equity accounted in these accounts.
In relation to the group’s investment in G:res 1 Limited, 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)
2012
£m
81.6
4.8
(43.4)
(1.8)
41.2
4.7
4.5
2011
£m
83.9
5.5
(53.2)
(1.6)
34.6
4.7
4.4
Notes to the financial statements continued
Cost
Opening cost
Additions
Closing cost
Accumulated depreciation
Opening accumulated depreciation
Charge for the year
Closing accumulated depreciation
Net book value:
Closing net book value
Opening net book value
20 Investment in associates
Opening balance
Share of profit
Proceeds on redemption of equity units
Acquisition of additional equity in G:res
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
2012
£m
5.5
–
5.5
4.3
0.4
4.7
0.8
1.2
2012
£m
34.6
4.5
–
–
2.1
41.2
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
116
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
21 Investment in joint ventures
At 1 October 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 23)
Exchange adjustment
Share of change in fair value of cash flow hedges taken through other
comprehensive income
At 30 September 2011
Loans advanced
Loans repaid
Share of loss
Exchange adjustment
Distributions received
At 30 September 2012
Net
assets
£m
4.1
–
–
2.1
(1.3)
19.2
(7.5)
–
(0.1)
1.3
17.8
–
–
(1.0)
(0.4)
(1.9)
14.5
Loans
£m
85.6
3.3
(1.9)
–
–
–
(80.9)
–
–
–
6.1
0.5
(1.6)
–
(0.3)
–
4.7
Goodwill
£m
1.3
–
–
–
–
–
–
(1.3)
–
–
–
–
–
–
–
–
–
Total
£m
91.0
3.3
(1.9)
2.1
(1.3)
19.2
(88.4)
(1.3)
(0.1)
1.3
23.9
0.5
(1.6)
(1.0)
(0.7)
(1.9)
19.2
Loans repaid of £1.6m in 2012 relates to repayment of loans to the group by its Sovereign joint venture. Distributions received of
£1.9m in 2012 relate to dividends received from the Sovereign joint venture.
The provision for impairment/(write-back) of loans receivable in 2011 of £1.9m 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 and a further provision of £5.2m against the group’s investments in its Czech Republic joint ventures.
These amounts were 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 in 2011 represented 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.
Of the loans advanced in 2011 of £3.3m only £2.1m was advanced in cash. The remaining £1.2m relates to interest income
earned from the Grainger Invest LLP’s that was not received in cash.
117
A White Paper on the proposed High Speed Rail Network from London to Birmingham (HS2), was presented to Parliament on 11
March 2010 by the Secretary of State for Transport. This indicated that the potential route would cover at least part of our
development site (held in joint venture with Development Securities plc) at Curzon Park in Birmingham. In January 2012, the
Government confirmed their intention to proceed with HS2. The group, in conjunction with our joint venture partner, are liaising with
HS2 and the Department of Transport to discuss the impact on, and a revised plan for, the site. 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 its value to £nil and this provision is
still being held. In view of the continuing uncertainty relating to the future of the Curzon Park site, it is difficult to estimate the net
realisable value of the site. However the directors believe no further impairment provision is required at the statement of financial
position date. 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 of its obligations to the joint venture and the bank.
At 30 September 2012, 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
New 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 28 February 2013. The results for the 12 months to 30 September 2012 and the
financial position as at that date have been equity accounted in these accounts.
The accounting period end of King Street Developments (Hammersmith) Limited is 31 March 2013. The results for the 12 months
to 30 September 2012 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
Loans repaid of £1.6m in 2012 relates to repayment of loans to the group by its Sovereign joint venture. Distributions received of
loss are shown below.
Notes to the financial statements continued
21 Investment in joint ventures
At 1 October 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 23)
Exchange adjustment
comprehensive income
At 30 September 2011
Loans advanced
Loans repaid
Share of loss
Exchange adjustment
Distributions received
At 30 September 2012
Net
assets
£m
4.1
–
–
2.1
(1.3)
19.2
(7.5)
–
(0.1)
1.3
17.8
–
–
(1.0)
(0.4)
(1.9)
14.5
Loans
£m
85.6
3.3
(1.9)
(80.9)
–
–
–
–
–
–
6.1
0.5
(1.6)
–
(0.3)
–
4.7
Goodwill
£m
1.3
(1.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
91.0
3.3
(1.9)
2.1
(1.3)
19.2
(88.4)
(1.3)
(0.1)
1.3
23.9
0.5
(1.6)
(1.0)
(0.7)
(1.9)
19.2
£1.9m in 2012 relate to dividends received from the Sovereign joint venture.
The provision for impairment/(write-back) of loans receivable in 2011 of £1.9m 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 and a further provision of £5.2m against the group’s investments in its Czech Republic joint ventures.
These amounts were 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 in 2011 represented 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.
Of the loans advanced in 2011 of £3.3m only £2.1m was advanced in cash. The remaining £1.2m relates to interest income
earned from the Grainger Invest LLP’s that was not received in cash.
118
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
21 Investment in joint ventures continued
2012 Summarised income statement
Net rental income and other income
Administration and other expenses
Profit on disposal of trading property
Operating profit
Interest payable
Change in fair value derivatives
Loss before tax
Taxation
Loss after tax
2012 Summarised statement of financial position
Trading property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
2012
Czech
Republic
combined
£m
Curzon Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
£m
New
Sovereign
Reversions
Limited
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
–
(0.3)
–
(0.3)
–
(0.5)
0.7
0.2
(0.7)
(0.2)
(0.7)
–
(0.7)
–
–
–
–
–
–
–
–
–
2012
Gebau
Vermogen
GmbH
£m
4.9
(4.9)
–
–
–
–
–
–
–
Czech
Republic
combined
£m
Curzon Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
£m
New
Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
12.9
0.6
13.5
(5.4)
(6.4)
1.7
18.6
–
18.6
(19.1)
(2.3)
(2.8)
–
2.2
2.2
–
(2.2)
–
29.8
1.5
31.3
(14.3)
(1.8)
15.2
–
0.5
0.5
(0.1)
–
0.4
Total
£m
4.9
(5.4)
0.7
0.2
(1.1)
(0.2)
(1.0)
–
(1.0)
Total
£m
61.3
4.8
66.1
(38.9)
(12.7)
14.5
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.
Notes to the financial statements continued
21 Investment in joint ventures continued
2012 Summarised income statement
Net rental income and other income
Administration and other expenses
Profit on disposal of trading property
Change in fair value derivatives
Operating profit
Interest payable
Loss before tax
Taxation
Loss after tax
2012 Summarised statement of financial position
Trading property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Czech
Republic
combined
£m
Curzon Park
Limited
£m
2012
King Street
Developments
(Hammersmith)
Limited
£m
New
Sovereign
Reversions
Limited
Gebau
Vermogen
GmbH
£m
4.9
(4.9)
–
–
–
–
–
–
–
–
0.5
0.5
(0.1)
–
0.4
£m
–
(0.5)
0.7
0.2
(0.7)
(0.2)
(0.7)
–
(0.7)
£m
29.8
1.5
31.3
(14.3)
(1.8)
15.2
Total
£m
4.9
(5.4)
0.7
0.2
(1.1)
(0.2)
(1.0)
–
(1.0)
Total
£m
61.3
4.8
66.1
(38.9)
(12.7)
14.5
–
–
–
–
–
–
–
–
–
2012
£m
–
2.2
2.2
–
(2.2)
–
–
–
–
–
–
–
–
–
–
£m
12.9
0.6
13.5
(5.4)
(6.4)
1.7
–
–
–
–
–
–
(0.3)
(0.3)
(0.3)
18.6
–
18.6
(19.1)
(2.3)
(2.8)
Czech
Republic
combined
Curzon Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
New
Sovereign
Reversions
Limited
Gebau
Vermogen
GmbH
£m
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.
2011 Summarised income statement
2011
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
New
Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
Net rental income and
other income
Administration and other expenses
Profit on disposal of
trading property
Profit on disposal of
investment property
Operating profit before
valuation gains
Net valuation gains on
investment property
Operating profit after
valuation gains
Interest payable
Change in fair value derivatives
Profit/(loss) before tax
Taxation
Profit/(loss) after tax
0.3
–
–
0.1
0.4
1.7
2.1
(0.6)
–
1.5
–
1.5
1.7
–
–
–
1.7
2.2
3.9
(2.7)
–
1.2
–
1.2
–
–
–
–
–
–
–
(0.2)
–
(0.2)
–
(0.2)
–
–
–
–
–
–
–
(0.3)
–
(0.3)
–
(0.3)
2011 Summarised statement of financial position
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.4)
0.6
–
0.2
–
0.2
(0.4)
(0.2)
(0.4)
0.3
(0.1)
–
–
–
–
–
–
–
–
–
–
–
–
2011
Trading property
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
New
Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
14.0
0.8
14.8
–
(12.6)
2.2
18.5
0.1
18.6
(21.1)
–
(2.5)
–
2.0
2.0
–
(2.0)
–
32.2
4.4
36.6
(16.7)
(2.1)
17.8
–
0.7
0.7
(0.4)
–
0.3
119
Total
£m
2.0
(0.4)
0.6
0.1
2.3
3.9
6.2
(4.2)
(0.2)
1.8
0.3
2.1
Total
£m
64.7
8.0
72.7
(38.2)
(16.7)
17.8
120
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
22 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
2012
£m
102.3
(10.6)
7.7
(0.4)
99.0
2011
£m
103.9
(9.2)
7.9
(0.3)
102.3
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.
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 28.
23 Goodwill
Opening balance
Impairment charge taken to income statement
Closing balance
Goodwill is tested annually for impairment based on a value in use calculation.
The total goodwill impairment charge in the income statement comprises:
Impairment charge as shown above
Impairment charge relating to Gebau Vermogen GmbH (see note 21)
2012
£m
5.3
–
5.3
2012
£m
–
–
–
2011
£m
6.2
(0.9)
5.3
2011
£m
(0.9)
(1.3)
(2.2)
Notes to the financial statements continued
Opening balance
Cash received from the instrument
Amounts taken to income statement
Amounts taken to other comprehensive income before tax
Closing balance
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.
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 28.
23 Goodwill
Opening balance
Closing balance
Impairment charge taken to income statement
Goodwill is tested annually for impairment based on a value in use calculation.
The total goodwill impairment charge in the income statement comprises:
Impairment charge as shown above
Impairment charge relating to Gebau Vermogen GmbH (see note 21)
2012
£m
102.3
(10.6)
7.7
(0.4)
99.0
2011
£m
103.9
(9.2)
7.9
(0.3)
102.3
2012
£m
5.3
–
5.3
2012
£m
–
–
–
2011
£m
6.2
(0.9)
5.3
2011
£m
(0.9)
(1.3)
(2.2)
22 Financial interest in property assets
24 Inventories – trading property
Residential trading property
Development trading property
121
2012
£m
953.6
69.8
1,023.4
2011
£m
1,024.9
80.2
1,105.1
The market value of inventories as at 30 September 2012 was £1,387.4m (2011: £1,449.1m).
Provisions of £0.1m against the net realisable value of residential trade property have been charged to the consolidated income
statement in the year (2011: £1.8m). Further details are given in note 2 ‘Critical accounting estimates and assumptions’.
It is not possible for the group to identify which properties will be sold within the next 12 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.
25 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
2012
£m
27.4
(1.4)
26.0
4.9
–
4.9
4.7
35.6
2011
£m
11.5
(2.1)
9.4
17.7
(12.9)
4.8
4.1
18.3
The fair values of trade and other receivables are considered to be equal to their carrying amounts.
Other receivables in 2011 included a loan of £12.9m and an impairment provision of £12.9m relating to a loan made to the
Mornington Capital Special Situations Co-investment Fund 1 Limited Partnership (‘Mornington’). This loan and the associated provision
have been written off during the year.
Trade receivables in 2012 includes deferred consideration receivable of £11.8m from the sale of Gateshead College and our first
land sale at the Berewood site.
Other receivables include a loan of £3.8m (2011: £3.2m) 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 on sale of the developed property. The loan is secured by a charge on the property being developed.
122
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
25 Trade and other receivables continued
As at 30 September 2012, tenant arrears of £1.4m within trade receivables were impaired and fully provided for (2011: £2.1m). 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
2012
£m
0.1
1.3
1.4
2011
£m
0.1
2.0
2.1
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 statement
of financial position 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
2012
£m
1.7
2012
£m
33.9
1.7
35.6
2012
£m
2.1
0.8
(0.9)
(0.6)
1.4
2011
£m
2.7
2011
£m
15.7
2.6
18.3
2011
£m
2.0
0.7
(0.6)
–
2.1
123
Notes to the financial statements continued
25 Trade and other receivables continued
As at 30 September 2012, tenant arrears of £1.4m within trade receivables were impaired and fully provided for (2011: £2.1m). 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
Up to two months
Pounds Sterling
Euros
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 credit quality of financial assets that are neither past due nor impaired is discussed in note 28, ‘financial risk management and
derivative instruments’. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables
mentioned above. Tenant deposits of £2.6m (2011: £4.0m) are held which provide some security against rental arrears and property
dilapidations caused by the tenant. In addition the loan to Clarins is secured as described above. The group does not hold any other
collateral as security.
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 statement
of financial position date or there is a history of regular payment, are as follows:
26 Non-current liabilities
i) Trade and other payables
Deferred consideration payable
2012
£m
–
2011
£m
4.0
Trade and other payables is deferred consideration for the purchase of land at Berewood, West Waterlooville payable in April 2013
and is included within current payables in the current year.
The carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
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
ii) Provisions for other liabilities and charges
Other
27 Trade and other payables
Deposits received
Trade payables
Taxation and social security
Accruals and deferred income
Other payables
Deferred consideration payable
2012
£m
0.5
2012
£m
2.6
13.8
5.5
40.8
21.7
4.0
88.4
2011
£m
0.6
2011
£m
4.0
12.7
1.5
58.2
–
–
76.4
Accruals and deferred income includes £17.3m (2011: £20.1m) of rent received in advance relating to lifetime leases. It is not possible
for the group to identify which properties will become vacant within the next 12 months and therefore to identify the proportion of
rent received in advance which is expected to be released to the income statement within the next 12 months.
Other payables of £21.7m (2011: £nil) relates to the settlement value of the interest rate swap contracts which were agreed in
September 2012 and settled in October 2012.
2012
£m
0.1
1.3
1.4
2012
£m
1.7
2012
£m
33.9
1.7
35.6
2012
£m
2.1
0.8
(0.9)
(0.6)
1.4
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
124
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments
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
2012
Financial interest
in property assets
Trade and other
receivables
Cash and cash
equivalents
Total financial assets
Non-current liabilities
Interest-bearing loans
and borrowings
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)
–
30.9
73.3
104.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99.0
–
–
99.0
99.0
30.9
73.3
203.2
99.0
30.9
73.3
203.2
–
–
–
–
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
–
–
–
–
–
–
–
–
94.7
94.7
50.7
50.7
1,240.1
1,240.1
1,266.0
25.9
0.5
0.5
0.5
27.3
47.6
–
1,315.5
27.3
47.6
27.3
47.6
145.4
1,460.9
145.4
1,486.8
–
–
–
–
25.9
104.2
(94.7)
(50.7)
(1,216.5)
(1,257.7)
(1,283.6)
(25.9)
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.
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments
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
profit and loss
Assets at
fair value
through
£m
Derivatives
used for
hedging
£m
2012
Available-
for-sale
£m
Total
book value
£m
Fair value
£m
Fair value
adjustment
£m
£m
–
30.9
73.3
104.2
–
–
–
–
–
–
99.0
–
–
99.0
99.0
30.9
73.3
203.2
99.0
30.9
73.3
203.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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
1,240.1
1,240.1
1,266.0
25.9
0.5
0.5
0.5
27.3
47.6
27.3
47.6
27.3
47.6
–
1,315.5
94.7
94.7
50.7
50.7
145.4
1,460.9
145.4
1,486.8
25.9
–
–
–
–
–
–
–
–
Financial interest
in property assets
Trade and other
receivables
Cash and cash
equivalents
Total financial assets
Non-current liabilities
Interest-bearing loans
and borrowings
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)
financial position.
104.2
(94.7)
(50.7)
(1,216.5)
(1,257.7)
(1,283.6)
(25.9)
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 interest in
property assets
Trade and other
receivables
Derivative financial
instruments
Cash and cash
equivalents
Total financial assets
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)
125
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
–
–
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
1,428.0
1,428.0
1,441.9
13.9
–
–
–
–
–
–
–
–
–
–
91.8
91.8
62.7
62.7
4.0
0.6
116.7
18.2
–
1,567.5
4.0
0.6
116.7
18.2
154.5
1,722.0
4.0
0.6
116.7
18.2
154.5
1,735.9
–
–
–
–
–
13.9
(13.9)
105.1
(91.6)
(62.7)
(1,465.2)
(1,514.4)
(1,528.3)
–
14.2
–
90.9
105.1
–
–
–
–
–
–
–
126
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments continued
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 Audit. Group treasury reports to the Board Risk and Compliance
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.
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 2012 amounted to £73.3m (2011: £90.9m). Deposits were placed
with financial institutions with A- or better credit ratings.
At 30 September 2012, the fair value of all interest rate derivatives which had a positive value was £nil (2011: £0.2m).
At 30 September 2012, the largest combined credit exposure to a single counterparty arising from money market deposits and
interest rate swaps was £255.1m (2011: £246.8m) which represents 12.2% (2011: 11.0%) of total assets.
Liquidity risk
The group ensures that it maintains continuity and flexibility through a spread of maturities.
Although the group’s core funding is supported by covenants requiring certain levels of loan to value with respect to the entities in
the group of obligors and to maintaining a certain level of interest cover at the group level the loan is not secured directly against any
property allowing operational flexibility. The group has operated well within its covenants during 2012 and as at 30 September 2012
(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.
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments continued
Financial risk management
quickly to opportunities which arise.
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
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 Audit. Group treasury reports to the Board Risk and Compliance
The group uses derivative financial instruments to hedge its exposure to financial risk but does not take positions for speculative
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.
committee.
purposes.
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 2012 amounted to £73.3m (2011: £90.9m). Deposits were placed
with financial institutions with A- or better credit ratings.
At 30 September 2012, the fair value of all interest rate derivatives which had a positive value was £nil (2011: £0.2m).
At 30 September 2012, the largest combined credit exposure to a single counterparty arising from money market deposits and
interest rate swaps was £255.1m (2011: £246.8m) which represents 12.2% (2011: 11.0%) of total assets.
Liquidity risk
The group ensures that it maintains continuity and flexibility through a spread of maturities.
Although the group’s core funding is supported by covenants requiring certain levels of loan to value with respect to the entities in
the group of obligors and to maintaining a certain level of interest cover at the group level the loan is not secured directly against any
property allowing operational flexibility. The group has operated well within its covenants during 2012 and as at 30 September 2012
(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.
127
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 statement of financial
position 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 statement of financial position for borrowings, derivative financial
instruments, trade and other payables and provisions for liabilities and charges. A reconciliation to the statement of financial position
amounts is given below and on page 128. Trade and other payables due within 12 months equal their carrying balances as the impact
of discounting is not significant. The cash flows are calculated using yield curves for floating rate interest-bearing liabilities. Foreign
currency related cash flows are calculated by means of the forward rates relevant to each maturity date.
At 30 September 2012
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
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
Reconciliation of maturity analysis
At 30 September 2012
Interest-bearing loans and borrowings (see note 29)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
Less than
1 year
£m
68.5
18.3
14.6
71.1
0.1
Less than
1 year
£m
173.3
23.2
12.0
56.3
0.1
Between
1 and 2
years
£m
79.8
10.3
14.8
–
0.1
Between
1 and 2
years
£m
62.9
18.5
12.9
4.0
0.1
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
27.3
(0.8)
37.5
4.5
68.5
39.5
(0.9)
36.6
4.6
79.8
903.7
(1.8)
80.7
6.1
988.7
Between
2 and 5
years
£m
Over 5
years
£m
Total
£m
988.7
421.4
1,558.4
13.3
34.5
–
0.4
Between
2 and 5
years
£m
12.5
34.5
–
0.3
Over 5
years
£m
54.4
98.4
71.1
0.9
Total
£m
1,240.7
447.2
1,924.1
17.8
35.7
–
0.4
11.2
35.8
–
0.4
Over 5
years
£m
296.9
–
120.7
3.8
421.4
70.7
96.4
60.3
1.0
Total
£m
1,267.4
(3.5)
275.5
19.0
1,558.4
128
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments continued
At 30 September 2011
Interest-bearing loans and borrowings (see note 29)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
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
Between
2 and 5
years
£m
1,082.0
(0.4)
148.1
11.0
1,240.7
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
Over five years
Over 5
years
£m
337.1
(0.4)
107.0
3.5
447.2
2012
£m
5.0
–
79.9
37.5
122.4
Total
£m
1,544.7
(0.8)
356.5
23.7
1,924.1
2011
£m
171.2
–
–
–
171.2
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 group internally measures its market risk exposure by running various sensitivity
analyses. The directors consider that a +/- 1% (2011: 1%) movement in interest rates, a +/- 10 percentage point (2011: 10 percentage
point) movement in sterling and a +/- 1 percentage point (2011: 1 percentage point) movement in house prices represents a
reasonable possible change. 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 valued 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 22 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’.
Notes to the financial statements continued
129
28 Financial risk management and derivative financial instruments continued
The following table presents the group’s assets and liabilities that are measured at fair value.
At 30 September 2011
Interest-bearing loans and borrowings (see note 29)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
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
Between
2 and 5
years
£m
1,082.0
(0.4)
148.1
11.0
1,240.7
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
Over five years
Over 5
years
£m
337.1
(0.4)
107.0
3.5
447.2
2012
£m
5.0
–
79.9
37.5
122.4
Total
£m
1,544.7
(0.8)
356.5
23.7
1,924.1
2011
£m
171.2
–
–
–
171.2
Level 3
Financial interest in property assets
Level 2
Interest rate swaps – in cash flow hedge accounting relationships
Interest rate swaps – not in cash flow hedge accounting relationships
2012
Assets
£m
Liabilities
£m
2011
Assets
£m
Liabilities
£m
99.0
–
–
99.0
–
102.3
–
50.7
94.7
145.4
–
0.2
102.5
62.7
91.8
154.5
Interest rate swaps are all classified as either current assets or current liabilities.
The notional principal amount of the outstanding interest rate swap contracts as at 30 September 2012 was £973.1m
(2011: £986.5m).
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 2012 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.
Fixed rate loan facilities
Fixed rate loan facilities
Book value at
30 September
2012
£m
Fair value at
30 September
2012
£m
162.9
188.8
Book value at
30 September
2011
£m
Fair value at
30 September
2011
£m
80.8
94.7
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 group internally measures its market risk exposure by running various sensitivity
analyses. The directors consider that a +/- 1% (2011: 1%) movement in interest rates, a +/- 10 percentage point (2011: 10 percentage
point) movement in sterling and a +/- 1 percentage point (2011: 1 percentage point) movement in house prices represents a
reasonable possible change. 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 valued 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 22 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’.
130
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments continued
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 2012, 84% (2011: 73%) of the group’s net
borrowings were economically hedged to fixed or capped rates.
At 30 September 2012, the weighted average interest rate of the group’s fixed rate debt is 6.3% (2011: 4.2%). The weighted
average period for which the rate is fixed is 11.7 years (2011: 17.9 years).
At 30 September 2012 the fixed interest rates on the interest rate swap contracts vary from 0.67% to 5.38% (2011: 2.81% to
5.26%) with a weighted average rate of 4.6% (2011: 4.5%) and a weighted average maturity of 5.7 years (2011: 7.0 years).
At 30 September 2012 the weighted average interest rate of the group’s variable rate debt is 4.8% (2011: 2.9%). The weighted
average debt maturity is 4.6 years (2011: 5.0 years).
Based on the group’s interest rate profile at the statement of financial position date a 1% increase in interest rates would decrease
annual profits by £2.6m (2011: £4.6m). Similarly a 1% decrease would increase annual profits by £2.6m (2011: £4.4m).
Based on the group’s interest rate profile at the statement of financial position date a 1% increase in interest rates would decrease
the group’s equity by £1.9m (2011: £3.4m). Similarly a 1% decrease would increase the group’s equity by £1.9m (2011: £3.2m).
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 2012, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of
£50.7m (2011: net liability of £62.7m). 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 £31.2m (2011: charge of £28.0m) 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
2012
£m
24.6
6.6
31.2
2011
£m
18.8
9.2
28.0
At 30 September 2012, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net liability of £94.7m
(2011: net liability of £91.6m). The cash flows occur and enter in the determination of profit and loss until the maturity of the
hedged debt.
28 Financial risk management and derivative financial instruments continued
The table below summarises debt hedged at 30 September 2012.
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
2012
£m
291.4
384.4
229.7
67.6
973.1
Interest rate profile – including the effect of derivatives
Fixed rate
Hedged rate
Variable rate
2012
2011
Sterling
£m
141.7
756.4
137.9
1,036.0
Euro
£m
21.2
150.9
78.3
250.4
Total
£m
162.9
907.3
216.2
1,286.4
Sterling
£m
56.8
712.9
364.2
1,133.9
Euro
£m
24.0
349.7
60.8
434.5
131
2011
£m
24.1
298.8
553.2
110.4
986.5
Total
£m
80.8
1,062.6
425.0
1,568.4
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. The group 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 statement of financial position translation exposure is summarised below:
Gross foreign currency assets
Gross foreign currency liabilities
Net exposure
2012
Euro
£m
379.4
(393.5)
(14.1)
2011
Euro
£m
451.2
(461.1)
(9.9)
2012
Czech Koruna
£m
2011
Czech Koruna
£m
1.4
–
1.4
2.2
–
2.2
As at 30 September 2012 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 £0.7m (2011: £0.3m) and equity by £1.4m (2011: £1.0m).
As at 30 September 2012 it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling against
the Czech Koruna would decrease/increase the group’s profit before tax by approximately £nil (2011: £0.5m) and equity by £0.1m
(2011: £0.2m).
Notes to the financial statements continued
Interest rate risk
arrangement.
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
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 2012, 84% (2011: 73%) of the group’s net
borrowings were economically hedged to fixed or capped rates.
At 30 September 2012, the weighted average interest rate of the group’s fixed rate debt is 6.3% (2011: 4.2%). The weighted
average period for which the rate is fixed is 11.7 years (2011: 17.9 years).
At 30 September 2012 the fixed interest rates on the interest rate swap contracts vary from 0.67% to 5.38% (2011: 2.81% to
5.26%) with a weighted average rate of 4.6% (2011: 4.5%) and a weighted average maturity of 5.7 years (2011: 7.0 years).
At 30 September 2012 the weighted average interest rate of the group’s variable rate debt is 4.8% (2011: 2.9%). The weighted
average debt maturity is 4.6 years (2011: 5.0 years).
Based on the group’s interest rate profile at the statement of financial position date a 1% increase in interest rates would decrease
annual profits by £2.6m (2011: £4.6m). Similarly a 1% decrease would increase annual profits by £2.6m (2011: £4.4m).
Based on the group’s interest rate profile at the statement of financial position date a 1% increase in interest rates would decrease
the group’s equity by £1.9m (2011: £3.4m). Similarly a 1% decrease would increase the group’s equity by £1.9m (2011: £3.2m).
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 2012, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of
£50.7m (2011: net liability of £62.7m). 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 £31.2m (2011: charge of £28.0m) 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 2012, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net liability of £94.7m
(2011: net liability of £91.6m). The cash flows occur and enter in the determination of profit and loss until the maturity of the
hedged debt.
2012
£m
24.6
6.6
31.2
2011
£m
18.8
9.2
28.0
132
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments continued
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 7 September 2012 the group drew down its new Forward Start Facility providing £840m of committed
facilities and this was used to refinance the group’s existing core facilities. 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.
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 current capital structure of the group comprises a mix of
debt and equity. Debt is both current and non-current interest bearing loans and borrowings as set out in the consolidated statement
of financial position. Equity comprises issued share capital, reserves and retained earnings as set out in the consolidated statement of
changes in equity.
Group loans and borrowings have associated covenant requirements with respect to loan to value and interest cover ratios. The
board regularly reviews all current 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 2012, the
weighted average cost of debt was 6.0% (2011: 5.3%) and the WACC was 5.08% (2011: 4.91%). 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.
Notes to the financial statements continued
28 Financial risk management and derivative financial instruments continued
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 7 September 2012 the group drew down its new Forward Start Facility providing £840m of committed
facilities and this was used to refinance the group’s existing core facilities. More information is provided in note 2 ‘Critical accounting
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
estimates and assumptions’.
House price risk
fundamental part of the group’s business 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 current capital structure of the group comprises a mix of
debt and equity. Debt is both current and non-current interest bearing loans and borrowings as set out in the consolidated statement
of financial position. Equity comprises issued share capital, reserves and retained earnings as set out in the consolidated statement of
changes in equity.
Group loans and borrowings have associated covenant requirements with respect to loan to value and interest cover ratios. The
board regularly reviews all current 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 2012, the
weighted average cost of debt was 6.0% (2011: 5.3%) and the WACC was 5.08% (2011: 4.91%). 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.
29 Financial assets and liabilities
i) Interest-bearing loans and borrowings
Current liabilities
Bank loans
Non-bank financial institution
Mortgages
Non-current liabilities
Bank loans
Non-bank financial institution
Mortgages
Convertible bond
Total interest-bearing loans and borrowings
133
2011
£m
116.3
–
0.4
116.7
2012
£m
21.0
6.0
0.3
27.3
1,023.0
1,285.7
174.9
18.9
23.3
1,240.1
1,267.4
98.9
20.9
22.5
1,428.0
1,544.7
The group’s core banking facility as at 30 September 2012 was £840m of which £745m was drawn. Committed but undrawn
amounts under the group’s core banking facility were therefore £95m. In addition, the group has £22m of committed but undrawn
facilities outside the core banking facility and free cash balances plus available overdraft facilities of £31m. Total undrawn committed
facilities and cash therefore are £148m.
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.
The analysis of the loans and borrowings in the below tables (a) to (d) is before deducting unamortised issue costs of £19.0m
(2011: £23.7m) relating to the raising of the loan finance.
(a) Analysis of bank loans
Bank loans – Pounds Sterling
Bank loans – Euro
2012
£m
830.6
231.2
1,061.8
2011
£m
1,011.2
413.2
1,424.4
Sterling bank loans include variable rate loans bearing interest at rates between 1.0% and 3.8% above LIBOR and Euro bank loans
include variable rate loans bearing interest at rates between 0.8% and 2.2% above EURIBOR. Fixed rate loans bear interest at rates
between 5.2% and 6.3%.
The weighted average variable interest rate on bank loans as at 30 September 2012 was 2.9% (2011: 3.2%). Bank loans are
secured by fixed and floating charges over specific property and other assets of the group.
134
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
29 Financial assets and liabilities continued
(b) Analysis of non-bank financial institutions
Fixed rate – Pounds Sterling
Variable rate – Pounds Sterling
2012
£m
81.9
100.0
181.9
2011
£m
–
100.0
100.0
The fixed rate loan is secured by specific assets within the retirement solutions division and bears interest at 7.2%. The variable rate
loan is secured by floating charges over the assets of the group and bears interest at 4% over LIBOR.
(c) Mortgages
Mortgages – Euro
2012
£m
19.2
2011
£m
21.3
The mortgages are secured by fixed and floating charges over specific investment property in the group’s German residential portfolio
and bear interest at a fixed rate of 0.5%.
(d) Convertible bond
Opening balance
Amortised during the year
Closing balance (Pounds Sterling)
2012
£m
22.7
0.8
23.5
2011
£m
21.9
0.8
22.7
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, mortgages and non-bank financial institution debt are at fixed rates of interest which do not reprice.
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 £4.70. 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. The nominal value
remaining on the bond is £24.9m.
The maturity profile of the group’s debt, net of finance costs is as follows:
Within one year
Between one and two years
Between two and five years
Over five years
Total non-current interest bearing loans and borrowings
2012
£m
27.3
39.5
903.7
296.9
1,240.1
1,267.4
2011
£m
116.7
8.9
1,082.0
337.1
1,428.0
1,544.7
ii) Financial assets
The group has the following cash and cash equivalents at 30 September 2012:
Pounds Sterling
Euros
Czech Koruna
The fixed rate loan is secured by specific assets within the retirement solutions division and bears interest at 7.2%. The variable rate
loan is secured by floating charges over the assets of the group and bears interest at 4% over LIBOR.
Cash and cash equivalents can be analysed as follows:
The mortgages are secured by fixed and floating charges over specific investment property in the group’s German residential portfolio
Cash at bank
Short-term deposits
135
2011
£m
64.8
25.9
0.2
90.9
2011
£m
23.4
67.5
90.9
2012
£m
62.7
10.4
0.2
73.3
2012
£m
31.7
41.6
73.3
Included within 2012 year end cash balances is £11.5m (2011: £11.7m) 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 £41.6m was placed on deposit (2011: £67.5m) at effective interest rates between 0.05% and 1.59%
(2011: 0.75% and 1.23%). 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 2012 (2011: £5m).
30 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 pages 66 and 67. The pension cost charge in these financial
statements represents contributions payable by the group. The charge of £0.9m (2011: £0.8m) is included within employee
remuneration in note 12.
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 2010.
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).
The actuarial valuation as at 1 July 2010 was based on the main actuarial assumptions of an investment return of 5.0% per
annum, salary increases of 4.0% per annum and inflation-linked increases to pensions in deferment of 3.0% per annum. The scheme
assets were valued at £17.6m and scheme liabilities at £23.6m, a funding level of 75%. The funding level for the scheme at the
previous valuation as at 1 July 2007 was 85%. The actuary also undertook a Section 179 valuation as at 1 July 2010 as required
by the Pension Protection Fund. The funding level on a Section 179 valuation basis was 120%.
The scheme was closed to new members and to employee contributions in 2003. Accordingly, there is no current service cost for
the scheme.
Notes to the financial statements continued
29 Financial assets and liabilities continued
(b) Analysis of non-bank financial institutions
Fixed rate – Pounds Sterling
Variable rate – Pounds Sterling
(c) Mortgages
Mortgages – Euro
and bear interest at a fixed rate of 0.5%.
(d) Convertible bond
Opening balance
Amortised during the year
Closing balance (Pounds Sterling)
Other loans and borrowings information
Within one year
Between one and two years
Between two and five years
Over five years
Total non-current interest bearing loans and borrowings
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, mortgages and non-bank financial institution debt are at fixed rates of interest which do not reprice.
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 £4.70. 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. The nominal value
remaining on the bond is £24.9m.
The maturity profile of the group’s debt, net of finance costs is as follows:
2012
£m
81.9
100.0
181.9
2012
£m
19.2
2012
£m
22.7
0.8
23.5
2011
£m
–
100.0
100.0
2011
£m
21.3
2011
£m
21.9
0.8
22.7
2012
£m
27.3
39.5
903.7
296.9
1,240.1
1,267.4
2011
£m
116.7
8.9
1,082.0
337.1
1,428.0
1,544.7
136
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
30 Pension costs continued
The IAS 19 calculations for disclosure purposes have been based upon the actuarial valuation carried out as at 1 July 2010 which was
updated to 30 September 2012 by a qualified independent actuary.
Principal actuarial assumptions under IAS 19
Discount rate
Retail Price Index (RPI) inflation
Consumer Price Index (CPI) inflation
Salary increases
Rate of increase of pensions in payment
Rate of increase for deferred pensioners
Expected return on assets
2012
2011
4.20% p.a.
5.30% p.a.
2.80% p.a.
3.40% p.a.
1.80% p.a.
–
3.80% p.a.
4.40% p.a.
5.00% p.a.
5.00% p.a.
1.80% p.a.
3.40% p.a.
Year commencing
1 October 2012
Year commencing
1 October 2011
4.40% p.a.
4.80% p.a.
The overall expected return on assets assumption of 4.4% p.a. as at 30 September 2012 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 and property, net dividend yield plus RPI inflation plus an allowance for future real dividend growth
− cash, current Bank of England base rate
− insured pensioner policies, in line with the discount rate
− a deduction of 0.5% to allow for investment expenses
Demographic assumptions
Mortality tables for pensioners
Mortality tables for non-pensioners
Life expectancies
Life expectancy for a current 65 year old
Life expectancy at age 65 for a current 55 year old
2012
2011
100% of S1PAlc year of birth
tables allowing for a minimum
improvement factor of 1.25%
for males and 0.75% for females
each year
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
As for pensioners
As for pensioners
30 September 2012
30 September 2011
Males
Females
Males
Females
87.9 years
90.3 years
90.1 years
91.7 years
87.7 years
90.1 years
89.0 years
90.9 years
Notes to the financial statements continued
The IAS 19 calculations for disclosure purposes have been based upon the actuarial valuation carried out as at 1 July 2010 which was
30 Pension costs continued
updated to 30 September 2012 by a qualified independent actuary.
Principal actuarial assumptions under IAS 19
Discount rate
Retail Price Index (RPI) inflation
Consumer Price Index (CPI) inflation
Salary increases
Rate of increase of pensions in payment
Rate of increase for deferred pensioners
Expected return on assets
2012
2011
4.20% p.a.
5.30% p.a.
2.80% p.a.
3.40% p.a.
1.80% p.a.
–
3.80% p.a.
4.40% p.a.
5.00% p.a.
5.00% p.a.
1.80% p.a.
3.40% p.a.
Year commencing
Year commencing
1 October 2012
1 October 2011
4.40% p.a.
4.80% p.a.
The overall expected return on assets assumption of 4.4% p.a. as at 30 September 2012 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
− equities and property, net dividend yield plus RPI inflation plus an allowance for future real dividend growth
of return for each asset class:
− fixed interest securities, current market yields
− cash, current Bank of England base rate
− insured pensioner policies, in line with the discount rate
− a deduction of 0.5% to allow for investment expenses
Demographic assumptions
Mortality tables for pensioners
Mortality tables for non-pensioners
Life expectancies
Life expectancy for a current 65 year old
Life expectancy at age 65 for a current 55 year old
2012
2011
100% of S1PAlc year of birth
100% of S1PAIc year of birth
tables allowing for a minimum
tables allowing for a minimum
improvement factor of 1.25%
improvement factor of 1.25%
for males and 0.75% for females
for males and 0.75% for females
each year
each year
As for pensioners
As for pensioners
30 September 2012
30 September 2011
Males
Females
Males
Females
87.9 years
90.3 years
90.1 years
91.7 years
87.7 years
90.1 years
89.0 years
90.9 years
137
Market value of scheme assets and expected rates of return
The assets of the scheme are invested in a diversified portfolio as follows:
Equities
Bonds
Properties
Other
Insurance policies
Total value of assets
The actual return on assets
over the period was
30 September 2012
30 September 2011
Market
value
£m
% of total
scheme assets
Long-term
expected rate
of return
%
31%
42%
2%
5%
20%
100%
7.9%
4.0%
7.9%
0.5%
4.2%
6.8
9.1
0.4
1.0
4.4
21.7
2.9
% of total
Scheme assets
Long-term
expected rate
of return
%
32%
42%
2%
3%
21%
100%
5.5%
5.1%
5.5%
0.5%
5.3%
Market
value
£m
5.9
7.9
0.4
0.5
3.9
18.6
0.4
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 in 2012 is based upon the net dividend yield on the FTSE All Share Index
plus RPI inflation, plus a real dividend growth assumption of 1.5% p.a. The return on bonds in 2012 is based on the iBoxx AA rated
Sterling Corporate Bond Index for bonds with a term greater than 15 years.
Defined benefit obligations, scheme assets and scheme deficit
Market value of scheme assets
Present value of scheme liabilities
Scheme deficit at 30 September
History of assets, liabilities, experience gains and losses
Gains/(losses) arising on scheme liabilities:
Due to experience
Percentage of defined benefit obligation
Due to change of basis
Percentage of defined benefit obligation
Experience adjustments:
Gains/(losses) arising on scheme assets
Percentage of scheme assets
2012
£m
21.7
(27.5)
(5.8)
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)
2012
2011
2010
2009
2008
–
–
£(4.0)m
(14.5)%
£2.0m
9.2%
£0.1m
0.4%
£1.7m
7.4%
£(0.6)m
(3.2)%
–
–
£(1.6)m
(6.5)%
£1.1m
5.9%
–
–
£(5.0)m
(22.2)%
£1.0m
6.0%
£1.3m
7.5%
£1.7m
9.8%
£(2.6)m
(17.1)%
138
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
30 Pension costs continued
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 loss/(gain)
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:
Market value of scheme assets at the start of the year
Expected return on scheme assets
Employer contributions
Actuarial gain/(loss)
Benefits paid
Market value of scheme assets at the end of the year
Pension cost recognised in the income statement
Interest on pension scheme liabilities
Expected return on pension scheme assets
The total pension cost shown above has been included within Finance costs (see note 14).
Actuarial (loss)/gain recognised in the consolidated statement of comprehensive income
Actual return less expected return on assets
(Loss)/gain on change of assumptions
2012
£m
23.1
1.2
4.0
(0.8)
27.5
2012
£m
18.6
0.9
1.0
2.0
(0.8)
21.7
2012
£m
1.2
(0.9)
0.3
2012
£m
2.0
(4.0)
(2.0)
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
1.2
(0.9)
0.3
2011
£m
(0.6)
1.8
1.2
The actuarial loss shown in the above table of £2.0m (2011: gain of £1.2m) has been included in the consolidated statement
of comprehensive income on page 77.
Future funding obligation
The last actuarial valuation of the scheme was performed by the Actuary for the Trustees as at 1 July 2010. As a result of this valuation
the group agreed a recovery plan with the Trustees to pay additional contributions to clear the deficit by 31 January 2020. Based on
this plan the company expects to pay £1.1m, including the standard expense charges payable under the Managed Fund policy, to the
scheme during the year beginning 1 October 2012.
139
Sensitivity analysis
Set out below is an analysis of how the scheme deficit would vary with changes to the key actuarial assumptions:
decrease in deficit of £0.4m
Discount rate increased by 0.1% p.a.
increase in deficit of £0.1m
Inflation increased by 0.1% p.a.
increase in deficit of £1.0m
Life expectancies increased by one year
The cumulative amount of actuarial losses recognised in the consolidated statement of comprehensive income before deferred
taxation is £3.0m (2011: £1.0m).
31 Share capital
Allotted, called-up and fully paid:
416,381,206 (2011: 416,372,103) ordinary shares of 5p each
2012
£m
2011
£m
20.8
20.8
The group paid £0.5m to the share incentive plan during the year for the purchase of matching shares and free shares in the scheme.
The total cost of acquiring own shares of £0.5m (2011: £2.8m) has been deducted from retained earnings within shareholders’ equity.
As at 30 September 2012, share capital included 4,375,984 (2011: 5,833,401) shares held by The Grainger Employee Benefit
Trust and 1,506,300 (2011: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 5,882,284
(2011: 7,339,701) with a nominal value of £294,114 (2011: £366,985) and a market value as at 30 September 2012 of £6.3m
(2011: £6.4m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2010
Options exercised under the SAYE scheme
At 30 September 2011
Options exercised under the SAYE scheme
At 30 September 2012
Number
416,362,420
9,683
Nominal
value
£’000
20,818
–
416,372,103
20,818
9,103
1
416,381,206
20,819
Notes to the financial statements continued
30 Pension costs continued
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 loss/(gain)
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:
Market value of scheme assets at the start of the year
Expected return on scheme assets
Employer contributions
Actuarial gain/(loss)
Benefits paid
Market value of scheme assets at the end of the year
Pension cost recognised in the income statement
Interest on pension scheme liabilities
Expected return on pension scheme assets
The total pension cost shown above has been included within Finance costs (see note 14).
Actuarial (loss)/gain recognised in the consolidated statement of comprehensive income
Actual return less expected return on assets
(Loss)/gain on change of assumptions
of comprehensive income on page 77.
Future funding obligation
The actuarial loss shown in the above table of £2.0m (2011: gain of £1.2m) 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 2010. As a result of this valuation
the group agreed a recovery plan with the Trustees to pay additional contributions to clear the deficit by 31 January 2020. Based on
this plan the company expects to pay £1.1m, including the standard expense charges payable under the Managed Fund policy, to the
scheme during the year beginning 1 October 2012.
2012
£m
23.1
1.2
4.0
(0.8)
27.5
2012
£m
18.6
0.9
1.0
2.0
(0.8)
21.7
2012
£m
1.2
(0.9)
0.3
2012
£m
2.0
(4.0)
(2.0)
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
1.2
(0.9)
0.3
2011
£m
(0.6)
1.8
1.2
140
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
31 Share capital continued
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 2012, the periods in which they were granted and the periods in which they may be exercised are
given below.
Year of grant
Long-term Incentive Scheme (LTIS)
2003
HMR & C Approved Executive Share Option Scheme (CSOP)
2011
SAYE share options
2008 (A)
2008 (B)
2009
2010
2011
2012
Total share options
Exercise price
(pence)
Exercise
period
2012
number
111.0
2006 – 13
20,814
20,814
2011
number
20,814
20,814
94.4
2013 – 20
127,088
127,088
127,088
127,088
97.1
37.7
68.3
90.8
98.7
68.9
2011 – 14
2012 – 14
2012 – 15
2013 – 16
2014 – 17
2015 – 18
38,220
100,872
1,180,549
2,086,814
53,837
78,415
49,022
660,916
127,788
102,998
99,722
–
2,060,959
2,518,194
2,208,861
2,666,096
The movement on the share options schemes during the year is as follows:
Exercised
Granted
Lapsed
Notes to the financial statements continued
HMR & C Approved Executive Share Option Scheme (CSOP)
31 Share capital continued
Share options
given below.
Year of grant
Long-term Incentive Scheme (LTIS)
SAYE share options
2003
2011
2008 (A)
2008 (B)
2009
2010
2011
2012
Total share options
Exercise price
(pence)
Exercise
period
2012
number
111.0
2006 – 13
94.4
2013 – 20
97.1
37.7
68.3
90.8
98.7
68.9
2011 – 14
2012 – 14
2012 – 15
2013 – 16
2014 – 17
2015 – 18
2011
number
20,814
20,814
127,088
127,088
20,814
20,814
127,088
127,088
38,220
100,872
1,180,549
2,086,814
53,837
78,415
49,022
660,916
127,788
102,998
99,722
–
2,060,959
2,518,194
2,208,861
2,666,096
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 2012, the periods in which they were granted and the periods in which they may be exercised are
LTIS schemes
2003
Weighted average exercise price (pence per share)
HMR & C Approved Executive Share Option Scheme (CSOP)
2011
Weighted average exercise price (pence per share)
SAYE scheme
2008 (A)
2008 (B)
2009
2010
2011
2012
Opening
position
20,814
111.0
127,088
94.4
–
–
–
–
100,872
(7,744)
2,086,814
(880,994)
127,788
102,998
99,722
–
(56,101)
–
–
–
2,518,194
(944,839)
–
–
–
–
(54,908)
(25,271)
(17,850)
(24,583)
(50,700)
(21,770)
–
–
–
–
–
–
–
–
–
682,686
682,686
68.9
Weighted average exercise price (pence per share)
46.2
40.0
(195,082)
2,060,959
83.2
53.1
For those share options exercised during the year, the weighted average share price at the date of exercise was 103.7p (2011: 86.6p).
For share options outstanding at the end of the year, the weighted average remaining contractual life is 2.8 years (2011: 2.4 years).
There were 30,914 (2011: 56,638) share options exercisable at the year end with a weighted average exercise price of 97.0p
(2011: 102.2p).
141
Closing
position
20,814
111.0
127,088
94.4
38,220
1,180,549
53,837
78,415
49,022
660,916
142
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
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 30 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 after 30 September 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 average 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 three schemes in operation commencing on 3 February 2010, 6 December 2010
and 16 December 2011 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 share awards and SAYE options granted during the year are set out in the tables below.
Notes to the financial statements continued
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 30 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 after 30 September 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 average 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 three schemes in operation commencing on 3 February 2010, 6 December 2010
and 16 December 2011 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 share awards and SAYE options granted during the year are set out in the tables below.
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
Potential 50% matching element
Exercise price (£)
Vesting period from date of grant (years)
Exercise period after vesting (years)
Share price at grant (£)
Dividend yield (£)
Fair value (£)
143
2 December
2011
Market based
2 December
2011
Non-market based
861,724
861,724
–
3
7
1.01
0.59
1.18
66.04
0.61
–
3
7
1.01
0.59
1.18
66.04
0.97
16 December
2011
191,320
95,660
–
1 to 3
7
1.01
0.02
0.99
144
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
32 Share-based payments continued
SAYE
Share options:
Award date
Number of shares on grant
Exercise price (£)
Vesting period from date of grant (years)
Expected exercise date
Share price at grant (£)
Expected risk free rate (%)
Expected dividend yield (%)
Expected volatility (%)
Fair value (£)
11 July 2012
3-year scheme
11 July 2012
5-year scheme
556,420
0.689
3
126,266
0.689
5
11/7/2015
11/07/2017
1.08
0.82
1.90
62.44
0.54
1.08
1.48
1.90
47.91
0.52
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 £2.1m (2011: £2.0m).
Movements in options and options exercisable as at 30 September 2012 are shown in note 31.
33 Changes in equity
The consolidated statement of changes in equity is shown on pages 80 and 81. 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.
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.
Notes to the financial statements continued
11 July 2012
3-year scheme
11 July 2012
5-year scheme
556,420
0.689
3
126,266
0.689
5
11/7/2015
11/07/2017
1.08
0.82
1.90
62.44
0.54
1.08
1.48
1.90
47.91
0.52
32 Share-based payments continued
SAYE
Share options:
Award date
Number of shares on grant
Exercise price (£)
Vesting period from date of grant (years)
Expected exercise date
Share price at grant (£)
Expected risk free rate (%)
Expected dividend yield (%)
Expected volatility (%)
Fair value (£)
term from the date of grant.
33 Changes in equity
Merger reserve
credited to a merger reserve.
Cash flow hedge reserve
reserve net of tax.
The expected volatility figures used in the valuation were calculated based on the historic volatility over a period equal to the expected
The share-based payments charge recognised in the income statement is £2.1m (2011: £2.0m).
Movements in options and options exercisable as at 30 September 2012 are shown in note 31.
The consolidated statement of changes in equity is shown on pages 80 and 81. 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.
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
The fair value movements on those derivative financial instruments qualifying for hedge accounting under IAS 39 are taken to this
145
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 2010
Profit for the year
Actuarial gain on BPT Limited 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
Profit for the year
Actuarial loss on BPT Limited pension
scheme net of tax
Exchange adjustments offset in reserves
net of tax
Purchase of own shares
Award of shares from own shares
Proceeds from SAYE shares
Share-based payments charge
Dividends
Balance as at 30 September 2012
2.9
–
–
–
–
(0.7)
2.0
–
4.2
–
–
–
–
(0.9)
–
2.1
–
5.4
(7.8)
(13.1)
–
–
–
–
–
–
–
(7.8)
–
–
–
–
–
–
–
–
(7.8)
–
–
–
(2.8)
0.7
–
–
(15.2)
–
–
–
(0.5)
0.9
0.4
–
–
(14.4)
2.7
–
–
(0.6)
–
–
–
–
2.1
–
–
0.5
–
–
–
–
–
2.6
243.3
39.1
0.8
–
–
–
–
(4.9)
278.3
0.4
(1.5)
–
–
–
–
–
(7.6)
269.6
228.0
39.1
0.8
(0.6)
(2.8)
–
2.0
(4.9)
261.6
0.4
(1.5)
0.5
(0.5)
–
0.4
2.1
(7.6)
255.4
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 2012, the group owned its own shares as follows: 4,375,984 (2011: 5,833,401) shares held by The Grainger
Employee Benefit Trust and 1,506,300 (2011: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is
5,882,284 (2011: 7,339,701) with a nominal value of £294,114 (2011: £366,985) and a market value as at 30 September 2012 of
£6.3m (2011: £6.4m).
146
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
35 List of principal subsidiaries
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2012 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.
Proportion of nominal value of
ordinary issued shares held by:
Group
%
Company
%
Name of undertaking
Northumberland & Durham Property Trust Limited
Grainger Residential Management Limited
Grainger Asset Management Limited
Grainger Unitholder No. 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 GmbH
Grainger Stuttgart Portfolio two Gmbh
Francono Rhein-Main GmbH
Grainger Invest No. 1 LLP
Grainger Invest No. 2 LLP
Tricomm Housing Limited
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.
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Incorporated
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
100
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Germany
Germany
Germany
Germany
Germany
Activity
Property Trading
Property Management
Asset Management
Investment Company
Development
Property Trading
Property Investment
Finance Company
Investment Company
Property Trading
Property Trading
Property Trading
Property Trading
Property Trading
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
England & Wales
Property Trading and Investment
England & Wales
Property Trading and Investment
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Property Investment
Investment Partnership
Property Investment
Property Investment
Investment Company
147
35 List of principal subsidiaries
36 Related party transactions
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2012 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.
The remaining 50% equity in Grainger GenInvest LLP and Grainger GenInvest No. 2 (2006) LLP were acquired by the group on 22
March 2011. 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 2011 income statement 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
2012
Fees
recognised
£’000
2012
Year end
balance
£’000
2011
Fees
recognised
£’000
2011
Year end
balance
£’000
–
–
–
–
–
–
–
–
–
–
298
26
7
15
346
–
–
–
–
–
100
England & Wales
In addition, the group had provided loans to both partnerships. Interest receivable in 2011 prior to the acquisition on 22 March 2011
was 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%
2012
Interest
receivable
£m
2011
Interest
receivable
£m
–
–
–
–
0.3
0.2
1.9
2.4
The group held a 50% interest in Curzon Park Limited as at 30 September 2012. The group has provided a loan to Curzon Park
Limited as at 30 September 2012 of £13.5m (2011: £13.2m). The loan is repayable on demand.
The group held a 21.96% interest in G:res1 Limited as at 30 September 2012. The group provides a number of services to the fund
and receives a property management fee, a lettings and renewal fee, and an asset management fee. Amounts recognised in the
income statement and the outstanding balance at the year end are as follows:
Property management fees
Lettings and renewal fees
Asset management fees
2012
Fees
recognised
£’000
1,350
151
2,221
3,722
2012
Year end
balance
£’000
981
116
1,416
2,513
2011
Fees
recognised
£’000
1,657
202
2,658
4,517
2011
Year end
balance
£’000
528
80
835
1,443
Notes to the financial statements continued
Proportion of nominal value of
ordinary issued shares held by:
Group
%
Company
%
100
100
100
Name of undertaking
Northumberland & Durham Property Trust Limited
Grainger Residential Management Limited
Grainger Asset Management Limited
Grainger Unitholder No. 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 GmbH
Grainger Stuttgart Portfolio two Gmbh
Francono Rhein-Main GmbH
Grainger Invest No. 1 LLP
Grainger Invest No. 2 LLP
Tricomm Housing Limited
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.
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
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Germany
Germany
Germany
Germany
Germany
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Activity
Property Trading
Property Management
Asset Management
Investment Company
Development
Property Trading
Property Investment
Finance Company
Investment Company
Property Trading
Property Trading
Property Trading
Property Trading
Property Trading
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Property Investment
Investment Partnership
Property Investment
Property Investment
Investment Company
England & Wales
Property Trading and Investment
England & Wales
Property Trading and Investment
148
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
36 Related party transactions continued
The group held a 50% interest in New Sovereign Reversions Limited as at 30 September 2012. The group had provided a loan
of £1.5m, with interest payable at LIBOR plus 7% per annum, to Sovereign Reversions Limited, a wholly-owned subsidiary of New
Sovereign Reversions Limited. The loan was repaid in full in January 2012.
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
2012
Fees
recognised
£’000
1,052
2012
Year end
balance
£’000
166
2011
Fees
recognised
£’000
1,190
2011
Year end
balance
£’000
235
The group’s key management are the only other related party. Details of key management compensation are provided in note 12.
37 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
2012
£m
1.3
2.5
0.4
4.2
2011
£m
1.4
3.5
0.7
5.6
The group expects to receive £nil under non-cancellable sub-leases (2011: £0.1m). Operating lease payments represent the lease
payments made in the year relating to renting of office space used by the group, car leases under contract hire arrangements and
operating lease payments relating to office equipment such as photocopiers. Leases relating to office space used by the group have
initial terms of varying lengths, between one to ten 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.
38 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 2012 total guarantees amounted to £1.8m (2011: £2.1m).
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 21, 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.
36 Related party transactions continued
39 Acquisitions in the prior year
149
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
Interest bearing loans and borrowings
Trade and other payables
Deferred tax liabilities
Loan notes payable
Amounts payable to Invista Castle Limited
Derivative financial instruments
Net assets acquired
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.
Notes to the financial statements continued
The group held a 50% interest in New Sovereign Reversions Limited as at 30 September 2012. The group had provided a loan
of £1.5m, with interest payable at LIBOR plus 7% per annum, to Sovereign Reversions Limited, a wholly-owned subsidiary of New
Sovereign Reversions Limited. The loan was repaid in full in January 2012.
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:
2012
Fees
recognised
£’000
1,052
2012
Year end
balance
£’000
166
2011
Fees
recognised
£’000
1,190
2011
Year end
balance
£’000
235
The group’s key management are the only other related party. Details of key management compensation are provided in note 12.
The future aggregate minimum lease payments payable by the group under non-cancellable operating leases are as follows:
Asset management fees
37 Operating lease commitments
Operating lease payments due:
Not later than one year
Later than one year and not later than five years
Later than five years
2012
£m
1.3
2.5
0.4
4.2
2011
£m
1.4
3.5
0.7
5.6
The group expects to receive £nil under non-cancellable sub-leases (2011: £0.1m). Operating lease payments represent the lease
payments made in the year relating to renting of office space used by the group, car leases under contract hire arrangements and
operating lease payments relating to office equipment such as photocopiers. Leases relating to office space used by the group have
initial terms of varying lengths, between one to ten 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.
38 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 2012 total guarantees amounted to £1.8m (2011: £2.1m).
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 21, 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.
150
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
39 Acquisitions in the prior 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. Had the acquisition taken place on 1 October 2010, we estimate on a pro forma basis, that
the revenue and profit of HITHL for the 12 month period from that date to be consolidated in the 2011 group accounts would have
been £8.9m and £3.1m respectively.
ii) Acquisition of 50% equity in Grainger GenInvest LLP’s
On 22 March 2011, 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. Had the acquisition taken place on 1 October 2010, we estimate on a pro
forma basis, that the revenue and profit of Grainger GenInvest LLP for the 12 month period from that date to be consolidated in the
2011 group accounts would have been £12.0m and £5.7m respectively.
39 Acquisitions in the prior year continued
40 Assets classified as held-for-sale
The post acquisition revenue and profit before tax included in the group’s consolidated income statement for year to 30 September
The group has identified certain of its investment properties as held-for-sale in accordance with the criteria set out in IFRS 5.
2011 were £5.9m and £2.0m respectively. Had the acquisition taken place on 1 October 2010, we estimate on a pro forma basis, that
The group announced on 9 November 2012, that it had signed an agreement with Heitman, to create a new company in which
151
Grainger will have a 25% equity holding. The new company will acquire two wholly-owned subsidiaries of the group for cash of
€54.5m. This has been classified as a disposal group with the assets and liabilities shown as held-for-sale as at 30 September 2012.
A write down of £6.9m (€8.4m), before tax, has been recognised representing the director’s assessment of the loss on revaluation
to fair value, under IAS 40, of the investment property in the disposal group based on the transaction. A reduction in deferred tax
liabilities of £1.7m (€2.1m) arises in relation to the loss on revaluation. The net income statement impact after tax is therefore £5.2m
(€6.3m).
In addition, investment property in the Retirement Solutions portfolio with a value of £24.9m is being actively marketed.
Investment property within the Germany portfolio, with a value of €19.1m (£15.3m) is also being actively marketed. Both are expected
to be sold within the next financial year.
Included on the face of the consolidated statement of financial position are total assets of £222.1m and total liabilities associated with
those assets of £129.7m classified as held-for-sale. These balances comprise the following:
Total assets
Disposal Group
Investment property
Cash and cash equivalents
Trade and other receivables
Investment property – Germany portfolio
Investment property – Retirement Solutions portfolio
Total liabilities
Disposal Group
Interest bearing loans and borrowings
Trade and other payables
Derivative financial instruments
£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
£m
177.9
2.6
1.4
181.9
15.3
24.9
222.1
120.9
4.0
4.8
129.7
Notes to the financial statements continued
the revenue and profit of HITHL for the 12 month period from that date to be consolidated in the 2011 group accounts would have
been £8.9m and £3.1m respectively.
ii) Acquisition of 50% equity in Grainger GenInvest LLP’s
becoming the sole owner of both entities.
On 22 March 2011, Grainger acquired the 50% interest of Genesis Housing Group in the two Grainger GenInvest LLP’s thereby
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
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. Had the acquisition taken place on 1 October 2010, we estimate on a pro
forma basis, that the revenue and profit of Grainger GenInvest LLP for the 12 month period from that date to be consolidated in the
2011 group accounts would have been £12.0m and £5.7m respectively.
152
Grainger plc
Annual Report and Accounts 2012
Notes to the financial statements continued
41 Capital Commitments
The group has current commitments under a number of its development projects totalling £34.0m as at 30 September 2012
(2011: £nil).
42 Post balance sheet events
On 9 November 2012, the group announced that it had signed an agreement with Heitman, to create a new company which will
acquire, through a share purchase, a portfolio of German residential assets currently wholly owned by the group. As a result of the
transaction, the new company will acquire €232m of investment property from the group and €152m of debt will be transferred
to it from the group. Grainger will hold a 25% equity stake in the new company which the group will account for as an associate.
The group will provide management services for which it will receive standard management and incentive fees. It is anticipated that
completion will take place before the end of the 2012 calendar year.
On 5 October 2012, the group signed a facility agreement with Coreal Credit Bank for a loan of €164.9m to refinance the existing
facility from Eurohypo which expires in October 2013. The facility was drawn on 25 October 2012 and was used to settle the
Eurohypo loan in full. €152m of the Coreal loan will be transferred to the new company referred to above.
Notes to the financial statements continued
The group has current commitments under a number of its development projects totalling £34.0m as at 30 September 2012
41 Capital Commitments
(2011: £nil).
42 Post balance sheet events
On 9 November 2012, the group announced that it had signed an agreement with Heitman, to create a new company which will
acquire, through a share purchase, a portfolio of German residential assets currently wholly owned by the group. As a result of the
transaction, the new company will acquire €232m of investment property from the group and €152m of debt will be transferred
to it from the group. Grainger will hold a 25% equity stake in the new company which the group will account for as an associate.
The group will provide management services for which it will receive standard management and incentive fees. It is anticipated that
completion will take place before the end of the 2012 calendar year.
On 5 October 2012, the group signed a facility agreement with Coreal Credit Bank for a loan of €164.9m to refinance the existing
facility from Eurohypo which expires in October 2013. The facility was drawn on 25 October 2012 and was used to settle the
Eurohypo loan in full. €152m of the Coreal loan will be transferred to the new company referred to above.
153
Independent auditors’ report on the
parent company financial statements
We have audited the parent company financial statements of
Grainger plc for the year ended 30 September 2012 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 statement of directors’
responsibilities set out on pages 72 and 73, 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 and accounts 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 2012
− 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 2012.
David A Snell
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 December 2012
154
Grainger plc
Annual Report and Accounts 2012
Parent company balance sheet
As at 30 September 2012
Fixed assets
Investments
Current assets
Trade and other receivables
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
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
3
4
5
6
7
8
8
8
8
2012
£m
841.4
841.4
20.9
13.8
34.7
283.0
(248.3)
593.1
23.3
99.0
470.8
20.8
109.8
0.3
5.0
334.9
470.8
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
The financial statements on pages 154 to 161 were approved by the board of directors on 6 December 2012 and were signed on their
behalf by:
Andrew Cunningham
Director
Mark Greenwood
Director
Parent company balance sheet
As at 30 September 2012
Fixed assets
Investments
Current assets
Trade and other receivables
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
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
Director
Mark Greenwood
Director
Notes
2
3
4
5
6
7
8
8
8
8
2012
£m
841.4
841.4
20.9
13.8
34.7
283.0
(248.3)
593.1
23.3
99.0
470.8
20.8
109.8
0.3
5.0
334.9
470.8
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
The financial statements on pages 154 to 161 were approved by the board of directors on 6 December 2012 and were signed on their
155
Notes to the parent company
financial statements
1 Accounting policies
(a) Basis of preparation
The financial statements have been prepared on a going concern basis under the historical cost convention, in accordance with the
Companies Act 2006 and applicable UK accounting standards.
The company has taken the exemption allowed under section 408 of the Companies Act 2006 from the requirement to present
its own profit and loss account. The loss for the year was £34.6m (2011 profit: £25.4m). 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) 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.
(e) 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.
(f) 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 £4.70. 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.
(g) Share-based payments
Under the share-based compensation arrangements set out in note 1(k)(iii) on page 87 and note 32 on pages 142 to 144, 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.
156
Grainger plc
Annual Report and Accounts 2012
Notes to the parent company financial statements continued
2 Investments
Valuation
At 1 October
Additions
Disposals
(Provision for)/write-back of impairment
At 30 September
2012
£m
806.4
42.4
–
(7.4)
841.4
2011
£m
348.3
438.6
(0.1)
19.6
806.4
The additions in the year relate to a further investment of £21.5m in Atlantic Metropolitan (UK) Limited and an £18.7m investment
in Reversions Financing Limited. The balance of £0.1m 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 group
restructuring.
The additions also include a capital contribution during the year of £2.1m in respect of share-based payment awards granted to
subsidiary employees.
After an assessment of net recoverable value an impairment provision of £7.4m has been made.
A list of the principal subsidiaries of the company is given in note 35 on page 146.
3 Trade and other receivables
Amounts owed by group undertakings
Other receivables
Receivables in both 2012 and 2011 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
2012
£m
20.8
0.1
20.9
2012
£m
278.2
3.8
1.0
283.0
2011
£m
11.2
0.2
11.4
2011
£m
216.2
1.1
1.2
218.5
Amounts owed to group undertakings bear interest at a rate of 3.9% per annum and are repayable on demand.
Notes to the parent company financial statements continued
2 Investments
Valuation
At 1 October
Additions
Disposals
(Provision for)/write-back of impairment
At 30 September
restructuring.
subsidiary employees.
3 Trade and other receivables
Amounts owed by group undertakings
Other receivables
The additions in the year relate to a further investment of £21.5m in Atlantic Metropolitan (UK) Limited and an £18.7m investment
in Reversions Financing Limited. The balance of £0.1m 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 group
The additions also include a capital contribution during the year of £2.1m in respect of share-based payment awards granted to
After an assessment of net recoverable value an impairment provision of £7.4m has been made.
A list of the principal subsidiaries of the company is given in note 35 on page 146.
Receivables in both 2012 and 2011 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
Amounts owed to group undertakings bear interest at a rate of 3.9% per annum and are repayable on demand.
2012
£m
20.8
0.1
20.9
2012
£m
278.2
3.8
1.0
283.0
2011
£m
11.2
0.2
11.4
2011
£m
216.2
1.1
1.2
218.5
2012
£m
806.4
42.4
–
(7.4)
841.4
2011
£m
348.3
438.6
(0.1)
19.6
806.4
5 Convertible bond
Opening balance
Amortised during the year
Unamortised issue costs
Closing balance
157
2011
£m
21.9
0.8
22.7
(0.2)
22.5
2012
£m
22.7
0.8
23.5
(0.2)
23.3
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. The nominal value remaining on the bond is £24.9m.
6 Interest-bearing loans and borrowings
Variable rate – Pounds Sterling
2012
£m
99.0
The variable rate loan is secured by floating charges over the assets of the group. The loan bears interest at 4% over LIBOR.
7 Share capital
Allotted, called-up and fully paid
416,381,206 (2011: 416,372,103) ordinary shares of 5p each
2012
£m
20.8
2011
£m
98.9
2011
£m
20.8
The group paid £0.5m to the share incentive plan during the year for the purchase of matching shares and free shares in the scheme.
The total cost of acquiring own shares of £0.5m (2011: £2.8m) has been deducted from retained earnings within shareholders’ equity
(see note 8).
As at 30 September 2012, share capital included 4,375,984 (2011: 5,833,401) shares held by The Grainger Employee Benefit
Trust and 1,506,300 (2011: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 5,882,284 (2011:
7,339,701) with a nominal value of £294,114 (2011: £366,985) and a market value as at 30 September 2012 of £6.3m (2011: £6.4m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2010
Options exercised under the SAYE scheme
At 30 September 2011
Options exercised under the SAYE scheme
At 30 September 2012
Details of share options granted by the company are provided in note 31 on pages 140 and 141.
Number
416,362,420
9,683
Nominal
value
£’000
20,818
–
416,372,103
20,818
9,103
1
416,381,206
20,819
158
Grainger plc
Annual Report and Accounts 2012
Notes to the parent company financial statements continued
8 Reserves
At 1 October 2010
Retained profit for the year
Share-based payment charge
Purchase of own shares
Dividends paid
At 1 October 2011
Retained loss for the year
Share-based payment charge
Purchase of own shares
Proceeds from SAYE shares
Dividends paid
At 30 September 2012
Share
premium
£m
109.8
–
–
–
–
109.8
–
–
–
–
–
109.8
Capital
redemption
reserve
£m
Equity component
of convertible
bond
£m
Profit and
loss account
£m
0.3
–
–
–
–
0.3
–
–
–
–
–
0.3
5.0
–
–
–
–
5.0
–
–
–
–
–
355.4
25.4
2.0
(2.8)
(4.9)
375.1
(34.6)
2.1
(0.5)
0.4
(7.6)
5.0
334.9
159
Notes to the parent company financial statements continued
8 Reserves
At 1 October 2010
Retained profit for the year
Share-based payment charge
Purchase of own shares
Dividends paid
At 1 October 2011
Retained loss for the year
Share-based payment charge
Purchase of own shares
Proceeds from SAYE shares
Dividends paid
At 30 September 2012
Share
premium
£m
109.8
–
–
–
–
–
–
–
–
–
£m
0.3
–
–
–
–
–
–
–
–
–
bond
£m
5.0
–
–
–
–
–
–
–
–
–
£m
355.4
25.4
2.0
(2.8)
(4.9)
375.1
(34.6)
2.1
(0.5)
0.4
(7.6)
109.8
0.3
5.0
109.8
0.3
5.0
334.9
Capital
Equity component
of convertible
redemption
reserve
Profit and
loss account
Dividends
Information on dividends paid and declared is given in note 16 of the group accounts on page 111.
9 Other information
Directors’ share options and share awards
Details of the directors’ share options and of their share awards are set out below.
Directors’ share options
Granted in year
Exercised during year
Share
options at
1 Oct 2011
Grant
Number
price (p) Number
Exercise
price (p)
Market
price on
exercise
(p)
Share
options at
30 Sept
2012
Exercise
price (p)
Earliest
exercise date
Latest exercise
date
Andrew
Cunningham
SAYE
44,415
CSOP
31,772
Peter Couch
SAYE
25,454
–
–
–
–
–
–
–
–
–
–
–
44,415
37.70
1 Feb 2014
31 Jul 2014
31,772
94.42 26 Nov 2013 26 Nov 2020
– 25,454
37.70
104.00
–
–
–
–
Mark
Greenwood
SAYE
CSOP
SAYE
CSOP
–
13,062 68.90
31,772
–
–
–
13,062 68.90
31,772
–
–
Nick Jopling
SAYE
–
21,770 68.90
CSOP
31,772
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13,062
68.90
1 Sep 2015
1 Mar 2016
31,772
94.42 26 Nov 2013 26 Nov 2020
13,062
68.90
1 Sep 2015
1 Mar 2016
31,772
94.42 26 Nov 2013 26 Nov 2020
21,770
68.90
1 Sep 2017
1 Mar 2018
–
31,772
94.42 26 Nov 2013 26 Nov 2020
160
Grainger plc
Annual Report and Accounts 2012
Notes to the parent company financial statements continued
9 Other information continued
Directors’ share awards
Performance share awards
Andrew Cunningham
LTIS shares
Matching shares
Peter Couch
LTIS shares
Matching shares
Mark Greenwood
LTIS shares
Matching shares
Awards granted
Maximum
award
Awards
vested
Awards
lapsed
Maximum
outstanding
awards at 30
Sept 2012
Market price at
date of vesting
(p)
Vesting date
23 Dec 2008
778,850
124,948
653,902
–
103.2 23 Dec 2011
9 Dec 2009
480,695
26 Nov 2010
667,231
2 Dec 2011
625,496
480,695
667,231
625,496
9 Dec 2012
26 Nov 2013
2 Dec 2014
23 Dec 2008
155,769
24,988
130,781
–
103.2 23 Dec 2011
9 Dec 2009
96,139
26 Nov 2010
133,446
2 Dec 2011
125,099
96,139
133,446
125,099
9 Dec 2012
26 Nov 2013
2 Dec 2014
23 Dec 2008
429,418
68,890
360,528
–
103.2 23 Dec 2011
26 Nov 2010
280,660
2 Dec 2011
263,105
280,660
263,105
26 Nov 2013
2 Dec 2014
23 Dec 2008
85,884
13,778
72,106
–
103.2 23 Dec 2011
26 Nov 2010
2 Dec 2011
13,168
78,931
13,168
78,931
26 Nov 2013
2 Dec 2014
21 Sep 2010
230,129
26 Nov 2010
275,365
2 Dec 2011
258,141
21 Sep 2010
10,000
26 Nov 2010
10,498
2 Dec 2011
10,000
230,129
275,365
258,141
10,000
10,498
10,000
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
161
Performance share awards
Nick Jopling
LTIS shares
Matching shares
Non-performance share award
Peter Couch
Awards granted
Maximum
award
Awards vested
Awards lapsed
Sept 2012
Maximum
outstanding
awards at 30
Market price
at date of
vesting (p)
Vesting date
21 Sep 2010
283,235
26 Nov 2010
344,206
2 Dec 2011
322,676
21 Sep 2010
26 Nov 2010
22,615
38,888
2 Dec 2011
40,000
283,235
344,206
322,676
22,615
38,888
40,000
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
Deferred Bonus (DBP) shares
3 Feb 2010
90,615
90,615
3 Feb 2013
Audit fees
The audit fee for the year was £8,000 (2011: £8,000).
Notes to the parent company financial statements continued
9 Other information continued
Directors’ share awards
Performance share awards
Andrew Cunningham
LTIS shares
Matching shares
Peter Couch
LTIS shares
Matching shares
Mark Greenwood
LTIS shares
Matching shares
Awards granted
Maximum
award
Awards
vested
Awards
lapsed
Maximum
outstanding
awards at 30
Sept 2012
Market price at
date of vesting
(p)
Vesting date
23 Dec 2008
778,850
124,948
653,902
–
103.2 23 Dec 2011
9 Dec 2009
480,695
26 Nov 2010
667,231
2 Dec 2011
625,496
9 Dec 2009
96,139
26 Nov 2010
133,446
2 Dec 2011
125,099
480,695
667,231
625,496
96,139
133,446
125,099
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
23 Dec 2008
155,769
24,988
130,781
–
103.2 23 Dec 2011
23 Dec 2008
429,418
68,890
360,528
–
103.2 23 Dec 2011
26 Nov 2010
280,660
2 Dec 2011
263,105
280,660
263,105
26 Nov 2013
2 Dec 2014
23 Dec 2008
85,884
13,778
72,106
–
103.2 23 Dec 2011
26 Nov 2010
2 Dec 2011
13,168
78,931
13,168
78,931
26 Nov 2013
2 Dec 2014
21 Sep 2010
230,129
26 Nov 2010
275,365
2 Dec 2011
258,141
21 Sep 2010
10,000
26 Nov 2010
10,498
2 Dec 2011
10,000
230,129
275,365
258,141
10,000
10,498
10,000
9 Dec 2012
26 Nov 2013
2 Dec 2014
9 Dec 2012
26 Nov 2013
2 Dec 2014
162
Grainger plc
Annual Report and Accounts 2012
EPRA performance measures
The EPRA Best Practise Recommendations issued in 2010 identified 5 key performance measures. The measures are deemed to be of
importance for investors in property companies and aim to encourage more consistent and widespread disclosure.
The EPRA measures are defined below:
Definition
1) EPRA Earnings
2) EPRA NAV
3) EPRA Triple Net Asset Value (NNNAV)
4i) EPRA Net initial yield (NIY)
4ii) EPRA ‘topped-up’ yield
Recurring earnings from core operational activities. Property trading is not considered to be a
core activity of property investment companies therefore this measure excludes results from
property sales.
Net Asset Value adjusted to include properties and other investment interests at fair value and to
exclude certain items not expected to crystallise in a long-term investment property business
model. This measure is in line with the NAV as defined and disclosed in note 4 of the group
accounts.
EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred
taxes. This measure is in line with the Triple NAV as defined and disclosed in note 4 of the
group accounts.
Annualised rental income based on cash rents at the balance sheet date, less non-recoverable
property operating expenses, divided by the market value of the property, increased with
(estimated) purchasers’ costs.
This measure incorporates an adjustment to EPRA NIY in respect of the expiration of rent-free
periods (or other unexpired lease incentives such as discounted rent periods and step rents).
5) EPRA Vacancy Rate
Estimated Market Rent Value (ERV) of vacant space divided by ERV of the whole portfolio.
The group is supportive of the EPRA initiative however, we believe that three of the EPRA measures are not appropriate to the group
and its current operations.
EPRA Earnings exclude profits from sales of property which is a core element of the group’s earnings, contributing £77m (2011:
£80m) to earnings in the year. Accordingly, we believe that this measure does not provide a useful indication of the performance
of the group.
The EPRA NIY and ‘topped-up’ yields do not take into account the reversionary aspect of our portfolio. The UK reversionary
portfolio has a reversionary surplus of £500m not included within earnings or adjusted for within this measure. This represents a
‘pipeline’ of future added value but without any material planning, development or construction risk. A significant portion of our
reversionary portfolio relates to home reversion assets which do not generate a rental income. Therefore we do not believe that this
measure is appropriate for our business.
The EPRA Vacancy Rate focuses on rental values of vacant space at a point in time which would not accurately reflect the
experience of our portfolio. The group’s business model in relation to its reversionary portfolio is to sell assets on vacancy, therefore the
EPRA Vacancy Rate is not an appropriate measure of performance.
EPRA performance measures
Five year record
for the year ended 30 September 2012
The EPRA Best Practise Recommendations issued in 2010 identified 5 key performance measures. The measures are deemed to be of
importance for investors in property companies and aim to encourage more consistent and widespread disclosure.
The EPRA measures are defined below:
Definition
property sales.
accounts.
group accounts.
1) EPRA Earnings
2) EPRA NAV
Recurring earnings from core operational activities. Property trading is not considered to be a
core activity of property investment companies therefore this measure excludes results from
Net Asset Value adjusted to include properties and other investment interests at fair value and to
exclude certain items not expected to crystallise in a long-term investment property business
model. This measure is in line with the NAV as defined and disclosed in note 4 of the group
3) EPRA Triple Net Asset Value (NNNAV)
EPRA NAV adjusted to include the fair values of (i) financial instruments, (ii) debt and (iii) deferred
taxes. This measure is in line with the Triple NAV as defined and disclosed in note 4 of the
4i) EPRA Net initial yield (NIY)
Annualised rental income based on cash rents at the balance sheet date, less non-recoverable
property operating expenses, divided by the market value of the property, increased with
(estimated) purchasers’ costs.
4ii) EPRA ‘topped-up’ yield
This measure incorporates an adjustment to EPRA NIY in respect of the expiration of rent-free
periods (or other unexpired lease incentives such as discounted rent periods and step rents).
5) EPRA Vacancy Rate
Estimated Market Rent Value (ERV) of vacant space divided by ERV of the whole portfolio.
The group is supportive of the EPRA initiative however, we believe that three of the EPRA measures are not appropriate to the group
and its current operations.
of the group.
EPRA Earnings exclude profits from sales of property which is a core element of the group’s earnings, contributing £77m (2011:
£80m) to earnings in the year. Accordingly, we believe that this measure does not provide a useful indication of the performance
The EPRA NIY and ‘topped-up’ yields do not take into account the reversionary aspect of our portfolio. The UK reversionary
portfolio has a reversionary surplus of £500m not included within earnings or adjusted for within this measure. This represents a
‘pipeline’ of future added value but without any material planning, development or construction risk. A significant portion of our
reversionary portfolio relates to home reversion assets which do not generate a rental income. Therefore we do not believe that this
measure is appropriate for our business.
The EPRA Vacancy Rate focuses on rental values of vacant space at a point in time which would not accurately reflect the
experience of our portfolio. The group’s business model in relation to its reversionary portfolio is to sell assets on vacancy, therefore the
EPRA Vacancy Rate is not an appropriate measure of performance.
Revenue
Gross proceeds from property sales
Gross rental income
Gross fee income
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
2008
£m
246.2
174.4
70.7
7.0
106.0
(112.1)
(77.4)
8.3
Pence
(19.1)
2.0
Pence
227.9
180.7
114.1
%
(11.4)
(36.1)
2009
£m
302.2
212.7
77.9
5.7
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
165.3
75.6
5.5
94.2
(20.8)
(10.8)
7.4
Pence
(2.9)
1.7
Pence
199.8
139.7
109.8
%
5.3
0.6
Where relevant adjustment has been made to historical figures to reflect the impact of the rights issue in December 2009.
163
2012
£m
311.4
250.5
89.8
10.0
126.4
(1.7)
0.4
7.6
2011
£m
296.2
217.0
86.3
6.9
126.2
26.1
39.1
4.9
Pence
Pence
9.5
1.8
Pence
216.2
153.3
86.6
%
6.5
11.1
0.1
1.9
Pence
223.0
157.1
107.7
%
5.9
3.8
164
Grainger plc
Annual Report and Accounts 2012
Shareholders’ information
Financial calendar
AGM
Payment of 2012 final dividend
Announcement of 2013 interim results
Announcement of 2013 final results
6 February 2013
8 February 2013
May 2013
November 2013
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
Share price
During the year ended 30 September 2012, the range of the
closing mid-market prices of the company’s ordinary shares were:
Price at 30 September 2012
Lowest price during the year
Highest price during the year
107.7p
77.3p
116.0p
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
Shareholders’ information
Financial calendar
AGM
Payment of 2012 final dividend
Announcement of 2013 interim results
Announcement of 2013 final results
Share price
6 February 2013
8 February 2013
May 2013
November 2013
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.
please contact:
For further information on this service, or to buy or sell shares,
During the year ended 30 September 2012, the range of the
www.capitadeal.com – online dealing
closing mid-market prices of the company’s ordinary shares were:
0870 458 4577 – telephone dealing
Price at 30 September 2012
Lowest price during the year
Highest price during the year
Service on 09068 432 750.
Capital gains tax
Daily information on the company’s share price can be obtained
on our website or by telephoning: The Financial Times Cityline
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
107.7p
77.3p
116.0p
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
Company secretary and registered office
Act 2000.
Michael Windle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Company registration number 125575
registrar at:
Capita IRG Plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Advisers
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
Financial public relations
FTI Consulting
Holborn Gate
26 Southampton Buildings
London
WC2A 1PB
165
Banking
Clearing Bank and Facility Agent
Barclays Bank PLC
Other bankers
Allied Irish Banks plc
Bank of America N.A.
Deutsche Pfandbriefbank AG
HSBC Bank plc
HSH Nordbank AG
Hypothekenbank Frankfurt AG
Lloyds TSB Bank plc
M&G UK Companies Financing Fund LP
Nationwide Building Society
Santander UK plc
SEB AG
The Royal Bank of Scotland plc
UniCredit Bank AG
Independent auditors
PricewaterhouseCoopers LLP
89 Sandyford Road
Newcastle upon Tyne
NE1 8HW
Stockbrokers
JP Morgan Cazenove Limited
25 Bank Street
London
E14 5JP
Numis Securities Limited
10 Paternoster Square
London
EC4M 7LT
Registrars and transfer office
Capita Registers plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
166
Grainger plc
Annual Report and Accounts 2012
Glossary of terms
Property
Assured periodic tenancy (‘APT’)
Market-rented tenancy arising from
succession from a regulated tenancy.
Tenant has security of tenure.
Assured shorthold tenancy (‘AST’)
Market-rented tenancy where landlord
may obtain possession if appropriate
notice is served.
Assured tenancy (‘AT’)
Market-rented tenancy where tenant has
the right to renew.
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 the
right of occupation until possession is
forfeited (usually on death). If the tenant
retains an equity interest in the property
this is a partial life tenancy.
PRS
Private rented sector.
Regulated tenancy
Tenancy regulated under the 1977 Rent
Act. Rent (usually sub-market) is set by the
rent officer and the 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.
Vacant possession value (‘VP’ or ‘VPV’)
Open market value of a property free
from any tenancy.
Corporate
IFRS
International Financial Reporting
Standards, mandatory for UK-listed
companies for accounting periods ending
on or after 31 December 2005.
Financial
Cap
Financial instrument which, in return for
a fee, guarantees an upper limit for the
interest rate on a loan.
Contingent tax
The amount of tax that would be payable
should assets be sold at the market value
shown in the market value balance sheet.
Dividend cover
Earnings per share divided by dividends
per share.
Earnings per share (‘EPS’)
Profit after tax attributable to shareholders
divided by the weighted average number
of shares in issue in the year.
Gearing
The ratio of borrowings, net of cash,
to market net asset value.
Goodwill
On acquisition of a company, the
difference between the fair value of net
assets acquired and the fair value of 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.
167
Glossary of terms
Property
Financial
Cap
Assured periodic tenancy (‘APT’)
Regulated tenancy
Market-rented tenancy arising from
Tenancy regulated under the 1977 Rent
Financial instrument which, in return for
succession from a regulated tenancy.
Act. Rent (usually sub-market) is set by the
a fee, guarantees an upper limit for the
Tenant has security of tenure.
rent officer and the tenant has security of
interest rate on a loan.
Assured shorthold tenancy (‘AST’)
tenure.
Contingent tax
Market-rented tenancy where landlord
Tenanted residential (‘TR’)
The amount of tax that would be payable
may obtain possession if appropriate
Activity covering the acquisition, renting
should assets be sold at the market value
notice is served.
Assured tenancy (‘AT’)
out and subsequent sale (usually on
shown in the market value balance sheet.
vacancy) of residential units subject to a
tenancy agreement.
Dividend cover
Market-rented tenancy where tenant has
Earnings per share divided by dividends
the right to renew.
Vacant possession value (‘VP’ or ‘VPV’)
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 the
right of occupation until possession is
forfeited (usually on death). If the tenant
retains an equity interest in the property
this is a partial life tenancy.
PRS
Private rented sector.
Open market value of a property free
from any tenancy.
Corporate
IFRS
International Financial Reporting
Standards, mandatory for UK-listed
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.
companies for accounting periods ending
Goodwill
on or after 31 December 2005.
On acquisition of a company, the
difference between the fair value of net
assets acquired and the fair value of 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.
Return on shareholders’ equity
Growth in 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 the
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.
Hedging
The use of financial instruments to
protect against interest rate movements.
Interest cover
Profit on ordinary activities before interest
and tax divided by net interest payable.
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 were 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
the 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.
168
Grainger plc
Annual Report and Accounts 2012
Corporate addresses
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
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
Grainger plc
Annual Report and Accounts 2012
Our business is to provide investors with a range of
returns from the residential sector. Our wholly-owned
portfolio and assets under management provide
balanced income streams from Sales, Rents and Fees.
With over 100 years experience Grainger is uniquely
placed to take a leading role in, and benefit from,
shifts in the residential property market.
All of our activities are underpinned by our core
skills in property and asset management and by
long-term relationships with our partners.
grainger = residential
Designed and produced by Radley Yeldar
www.ry.com
View our website
www.graingerplc.co.uk
G
r
a
i
n
g
e
r
p
l
c
A
n
n
u
a
l
R
e
p
o
r
t
a
n
d
A
c
c
o
u
n
t
s
2
0
1
2
Annual Report and Accounts 2012
grainger = residential