grainger =
residential
Annual Report and Accounts 2013
In this report:
Financial highlights
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Strategic report
02 / Our business model
04 / Our report in brief
06 / Strategic objectives
07 / Chairman’s statement
09 / Chief executive’s review
20 / Key performance indicators
24 / grainger = sales
26 / grainger = rents
28 / grainger = fees
30 / Risk management
34 / Asset performance
36 / Financial review
42 / Our people, tenants and partners
46 / Corporate responsibility
Governance
54 / The Grainger board
56 / Corporate governance
62 / Audit committee report
65 / Nominations committee report
66 / Remuneration committee report
80 / Board risk and compliance
committee report
81 / Other disclosures
Financials
83 / Independent auditors’ report
87 / Financial statements
167 / EPRA performance measures
168 / EPRA sustainability
performance measures
175 / Five year record
176 / Shareholders’ information
177 / Advisers
178 / Glossary of terms
179 / Corporate addresses
Gross NAV
2012: 223p
Profit before tax
2012: Loss of £1.7m
242p
£64.3m
NNNAV
2012: 157p
Net debt
2012: £1,194m
195p
£959m
Recurring profit*
2012: £34.6m
Group LTV
2012: 55%
£37.0m
48%
OPBVM**
2012: £126.4m
Return on capital employed
2012: 5.9%
£107.6m
8.1%
Growth in vacant possession value 2012: 2.8%
Return on shareholder equity
2012: 3.8%
6.4%
25.2%
Profit before tax is the only recognised GAAP measure in the financial highlights above.
* Recurring profit is defined as profit before tax, valuation movements and non-recurring
items (see note 3 to the accounts on page 108).
** OPBVM is operating profit before valuation movements and non-recurring items
(see page 37 and note 3 to the accounts on page 108).
For more information visit our website
www.graingerplc.co.uk
Grainger plc / Annual Report and Accounts 2013
01
Grainger is a specialist residential company.
Our objective is to be a leader in the residential
market, delivering sustainable long-term returns
to our investors and our partners from a
combination of sales, rents and fee income.
Our strategy and our business reflect the
changing dynamics of the residential market.
We will use our core skills (trading, managing,
investing, developing and fund management)
and our agility to take advantage of the
opportunities presented by these changes.
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Grainger plc / Strategic report
Our business model
grainger =
residential
Assets
Through our business
model we deliver
strong returns from
our reversionary and
market rented assets
and our residential
expertise allows us
to supplement these
returns by generating
management
fee income.
Our expertise and the
scale of our assets and
operations enable us
to generate sustainable
income streams.
Reversionary assets
We acquire tenanted properties
at a discount to vacant possession
value and sell them when they
become vacant. We continue to
seek acquisition opportunities for
reversionary assets.
Market rented assets
We let at market rents and actively
manage our assets to drive rental
growth. We will grow our market
rental business and develop
purpose built residential rental
assets to hold and manage for
the long term.
No. of units
99,3334446666
Market value
££111,3339997777mmmm
Vacant possession value
Reversionary surplus
££111,888444999mmm
££4444555222mmmmm
No. of units
444,,0000007777
Market value
£££44444446666mmmm
Assets under management
Units under management
Market value
We earn fees from our
management of residential
assets owned by third-parties
or within co-investment
vehicles. We will use our
residential expertise to
increase our fee income.
££11133mmm
Total assets owned and managed
888,,222116666
Fees in 2013
£££99995553333mmmm
Share of profits and
revaluation gains
£££111555mmmmm
In total, therefore, we
own and manage 21,569
properties with a market
value of £2.8bn.
No. of units owned
Market value
113333,333555333
No. of units owned
and managed
22111,5556666999
£££111,,8884444433mmmm
Market value
££222,,77799666mmm
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Grainger plc / Annual Report and Accounts 2013
03
Sales
Rents
Fees
Profit from sales
Net rents
Gross fees and other income
The majority of our recurring sales
revenues and profit on sale comes
from the sale of properties when they
fall vacant (normal sales) thereby
releasing the inherent reversionary
surplus. In addition, when we
decide that a particular property or
portfolio no longer offers attractive
future value growth we sell these
properties while occupied (tenanted
sales). We also take advantage
of opportunities for adding value
by utilising our in-house expertise
to refurbish a select number of
properties before sale.
Rental income is a key income
stream for our business.
It is regular and predictable,
complementing our sales from
trading. Rental income is derived
from both our reversionary and
our market rented portfolios.
Our opportunities to increase rent
come largely from rent reviews
on existing reversionary tenanted
assets and renewals and new lets
in our market rented portfolio.
A key strategic element of
Grainger’s business is to seek
opportunities to generate
recurring income. Over the past
years we have been successful
in increasing fee income from a
number of different sources. Gross
fee income was £12.5m in 2013,
an increase of 24% compared
to 2012, derived from asset and
property management fees from
our co-investment vehicles and
management contracts.
A balanced risk profile
A balanced risk profile
A balanced risk profile
Our sales revenue – a stable and reliable cash
flow – and the associated profit from sales will
continue to be delivered through the predictable
sales of our reversionary assets and through our
development projects including Macaulay Walk,
Berewood, Hortensia Road and Young Street.
In our market let properties and those we
manage for others, rents follow market trends.
As the average length of tenure is around
20 months we have regular opportunities
to maximise rents (and related fees) through
our market awareness, our proactive lettings
team and our asset management activities.
Application for rent increases on units in our
regulated portfolio can be sought every two
years based on increases in UK RPI plus 5%.
Our fee income comes from ventures such
as GRIP, our JVs with Moorfield and Heitman,
our partnership with the Ministry of Defence
at Aldershot and from our RAMP business in
partnership with Lloyds Bank. The breadth and
depth of our offering and our position in the
residential market will enable us to generate
new fee earning opportunities.
How we maintain success
How we maintain success
How we maintain success
Sales of reversionary assets will continue to
generate profit on sale. Our 2013/14 financial
year has started well. At 31 October the group
sales pipeline (completed sales, contracts
exchanged and properties in solicitors’ hands)
amounted to £52.3m with UK vacant sales
values 6.3% above September 2013 valuations.
We expect the current momentum in the UK
rental market to continue. Strong consumer
demand should drive further rental growth and
we will increase our presence and rental income
through our new build-to-rent schemes.
We have successfully increased fee income
through a number of different ventures and
across all business units. We will continue
to seek diverse opportunities to generate
recurring income.
Read more on pages 24 and 25
Read more on pages 26 and 27
Read more on pages 28 and 29
04
Grainger plc / Strategic report
Our report
in brief
Grainger is the UK’s
largest listed specialist
residential landlord and
property manager.
We operate in the UK
and in Germany. We own
£1.8bn of residential
property and manage
21,500 properties
worth £2.8bn on our
own behalf and for our
investors and partners.
Our business model:
Our strategic objectives:
Our business model is dedicated
to ensuring that we are the
first port of call for investors
seeking exposure to the
residential market.
We are a specialist residential
business, focused on long-term
success in this market.
We deliver our strategy through
four key objectives.
– We acquire tenanted properties at a
discount to vacant possession value,
earn rent whilst we own them and
sell them when they become vacant.
– We let properties at market value.
– We earn fees from our management
of residential assets owned by third-
parties or within co-investment vehicles.
These activities enable us to
generate sustainable income streams
fro
from three sources.
Sales
+
Rents
+
Fees
Read more on pages 24 to 29
#1
#1
#2
#3
#4
#4
####
grainger =
leadership
We will maintain our leading position
in the residential property market
grainger =
returns
We will locate and manage our
assets to deliver the best returns
grainger =
balance
We will balance the sources of
our income through exploiting
changing market opportunities
grainger =
optimisation
We will optimise our financial
and operational gearing to
match market conditions
Grainger plc / Annual Report and Accounts 2013
05
Our strategy in action:
The risks involved:
How we measure success:
We have delivered successfully
against each of our four strategic
objectives and created a scalable
platform enabling us to compete
effectively now and in the future.
The principal risks involved
in delivering our strategy are
actively managed and monitored
against our risk appetite and
policies put in place to guide
our business managers.
Our success is measured
through a clear set of KPIs
monitoring achievement
against our strategic objectives.
Repeated contributions to the
development of the residential market.
Recognised by our peers through the
award of ‘Asset Manager of the Year’
again and ‘Best Property Company –
Residential’. New partnering
arrangements established with APG,
Heitman and Dorrington.
Main risks are failing to satisfy stakeholders
through operational, financial and
reputational performance. We protect
against these risks by focusing on our service
to tenants and clients, driving our financial
performance against clear KPIs and engaging
with opinion formers to influence and shape
our markets.
–Breadth and depth of our offering
–Peer recognition as experts
in the residential sector
–Ability to create new business
opportunities and attract high
quality strategic partners
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Active asset management and a
geographical focus on areas we believe will
deliver the best returns has enabled Grainger
to consistently outperform the market.
Currently, 60% of the UK portfolio is located
in London and the South East, areas that
have seen the strongest value growth.
The main risks are unavailability of stock
or funds to purchase the stock. We mitigate
against this through close contact with
our market to identify opportunities and
through maintenance of financial resources
to execute transactions.
Sales: Significant sales in 2013 include sales
into co-investment vehicles.
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.
We have grown our fee income in 2013.
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
To reduce the risk of lower non-trading
income we are creating high yielding
opportunities in build-to-rent and creating
fee-generating co-investment vehicles
with high quality partners.
To avoid the risk of sub-optimal operational
gearing we have rationalised our repairs
and maintenance service through a single
outsourcing contract. Our financial gearing
has been reduced through the increase
in value of our assets (see 2 above) and
managed deleveraging.
Profit before tax
HPI outperformance:
2012: loss of £1.7m
£££6666444..333mmmm
NAV measures
6666.444%4%%%%
Grainger vacant
possession value
uplift
555..6666%%%%%%
Nationwide/Halifax
average uplift
Gross NAV
224444222pp
2012
223p
NNNAV
1999955pp
2012
157p
Proportion of net rents and
fees compared to trading profit
5533..99%%%
Proportion of gross
management fees to overheads
3377.222%%%
2012
58.9%
2012
32.5%
Group LTV
4444888%%%%%
Efficiency
2012
55%
11.6666666%%%%%%
2012
1.69%
Cash generated from
sales rents fees
££4444433311mmmm
2012
£353m
Property expenses
and overheads net of
fees/other income as a
percentage of market
value of assets under
management
Read more on pages 12 to 19
Read more on pages 30 to 33
Read more on pages 20 and 21
06
Grainger plc / Strategic report
Strategic objectives
Our objective is to be a leader in the residential market, delivering
sustainable long term returns to our investors and our partners from
a combination of sales, rents and fee income.
Our strategy looking forward:
#1
grainger =
leadership
We will maintain our leading position
in the residential property market
#2
#3
#4
grainger =
returns
We will locate and manage our
assets to deliver the best returns
grainger =
balance
We will balance the sources of
our income through exploiting
changing market opportunities
grainger =
optimisation
We will optimise our financial
and operational gearing to
match market conditions
We will continue to invest in our scalable owner
manager platform, our capabilities, our skilled people,
expert processes, and financial strength. This will create
business opportunities across the residential market
and attract high quality partners. We will continue to
engage with others to push forward thinking about
important issues that will take our industry forward and
create better products and services to meet our
stakeholders’ needs and ambitions.
All we do will be based on our two key principles –
active asset management and geographical focus –
that lead to outperformance. Our appetite to acquire
regulated tenancy portfolios and individual regulated
properties will continue. We will also focus on the
development of purpose built residential rental stock
(build-to-rent) in London and the South East and key
regional cities. In some cases we will acquire stock by
forward commitment to the developers.
Actions and impacts:
W
We will develop new
a
and innovative products
to create and exploit
to
opportunities as the
o
m
market changes.
We are currently active
W
in the ‘doughnut’ zones
in
around central London
a
to acquire large scale
to
build-to-rent opportunities.
b
The emerging more mature, customer focused private
rental sector (PRS) will become a more significant part
of our business. We will also increase our focus and our
capabilities on the creation of joint ventures and fund
management structures to generate recurring fee
income. We will increase the proportion of our income
from net rents and fees, towards 60% and ultimately to
cover our interest costs.
At Berewood we will
A
develop our own PRS
d
stock to hold and manage
s
for the long term and
fo
we are investigating similar
w
potential at Aldershot.
p
Our current level of gearing of 45%–50% is appropriate
in the medium term and LTV, rather than absolute
debt levels, will be the more relevant measure for us
going forward. We will also actively manage our average
cost of debt downwards from its current level, towards
5.0%. With headroom of £292m, and mindful of
maintaining appropriate leverage, we are now able
to take advantage of opportunities that are aligned
with our strategic objectives.
Going forward, whilst we
G
will require purchases
w
to meet strict investment
to
criteria, we will be actively
c
seeking and creating
s
investment opportunities.
in
Grainger plc / Annual Report and Accounts 2013
07
Chairman’s statement
Delivering
shareholder
returns
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The first year of our
second century has seen
strong increases in asset
values and reduced debt.
As I wrote in my
statement last year,
Grainger continues to be
uniquely placed to take a
leading role in what is a
dynamic and changing
residential sector.
Robin Broadhurst Chairman
In the year our business has produced
strong growth in asset values, substantially
increased profit and generated cash to
reduce debt. We have taken forward
opportunities in the private rented sector
and our first build-to-rent scheme at
London Road, Barking is already under
construction. We have also been creating
new, and reinforcing existing, strategic
alliances with high quality partners.
These arrangements enhance our returns.
Results
Triple net asset value (‘NNNAV’) rose 38p
(24%) to 195p per share (2012: 157p).
Gross net asset value rose 19p (9%) to
242p per share (2012: 223p).
The composition of our profit reflects
our evolution into a lower geared business.
Recurring profit has increased to £37.0m
(2012: £34.6m), with reduced interest
cost more than outweighing reduced
operating profit on a less capital intensive
asset base. Supported by strong valuation
gains and positive movement on interest
rate derivatives, our pre-tax profit rose
significantly to £64.3m after a year-on-
year favourable movement of £39.1m on
derivatives (2012: loss of £1.7m).
In line with our stated strategy, we
continued to reduce net debt which fell in the
period by £235m from £1,194m to £959m.
This reduction combined with our continued
outperformance in UK asset values means
that the group’s consolidated loan to value
(‘LTV’) is now 48% (2012: 55%). Since March
2011 we have reduced our net debt by a total
of £611m whilst increasing our NNNAV by
£152m (23%).
Dividends
The directors have recommended a final
dividend of 1.46p per ordinary share
(2012: 1.37p) to be paid on 7 February 2014
to shareholders on the register at close of
business on 20 December 2013. The total
dividend for the year will therefore be
2.04p per ordinary share (2012:1.92p), an
increase of 6.25%, following the interim
dividend of 0.58p per ordinary share
(2012: 0.55p). The dividend is covered
6.4 times by earnings.
Board changes
As announced during the year, there have
been two changes since 30 September
2012. Henry Pitman retired from the
board at our Annual General Meeting on
6 February 2013 and I would like to take this
opportunity to thank him for his contribution
to the group during his six-year tenure.
Simon Davies was appointed to the board
on 20 November 2012 and we are already
benefiting from his wealth of experience,
including that gained during his 17 years at
08
Grainger plc / Strategic report
Chairman’s statement
continued
Threadneedle Investments which included
the roles of chief executive and chairman.
Fair, balanced and understandable
The board has concluded that the 2013
Annual Report is fair, balanced and
understandable and provides the necessary
information for shareholders to assess
the group’s performance, business model
and strategy.
Review of business development and prospects
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 19, pages 22 to 29 and pages
34 to 41. Details of the group’s KPI’s are
provided on pages 20 and 21. A description
of the principal risks and uncertainties
facing the group and how these are
mitigated can be found on pages 30 to 33.
Additional information on environmental
matters, on employees, tenants and
partners and on social and community
matters is set out on pages 42 to 53.
Outlook
The last few years have shown our ability
to outperform when market conditions
are challenging. Our results for 2013
show us continuing to outperform in
strengthening markets.
The major housing market indices
(Nationwide and Halifax) show that
national UK house prices have strengthened
on average over the twelve months
to 30 September 2013 by 5.6%.
Transaction volumes have also increased,
with the Council of Mortgage Lenders
(CML) reporting gross mortgage lending at
an estimated £16.2bn in September 2013,
41% higher than September 2012. The UK
economy is showing more general signs
of growth with GDP showing an increase
of 0.8% in Q3 2013, up by 1.5% from Q3
2012. The issues around the Euro, whilst
not yet fully resolved, have abated and the
September German election result, whilst a
coalition is yet to be confirmed, is a sign of
stability in the Eurozone’s largest economy
which bodes well for the future of assets
which we own either directly or indirectly
in Germany.
The Government support for the owner
occupied market has been very evident in
2013. The Help to Buy scheme has enabled
more buyers to access mortgage finance
and this will continue as the scheme is
expanded. Local housing market price
performance will however continue to
experience variations driven by housing
supply and demand, which in turn is driven
by the strength of the local economy.
The Government has also been
increasing its support of the private rented
sector, introducing two major financial
incentive schemes to help stimulate growth
and investment in the sector. These are
the £1bn build-to-rent fund and £10bn of
Government Housing Guarantees to support
growth in the rental sector. In addition, it has
also established a specialist Private Rented
Sector (PRS) Taskforce to support growth
in the sector, comprising experts from the
private sector with residential experience
including the secondment of a senior
manager from Grainger. We will continue
to engage closely with the Government
and Taskforce and are confident that we
will benefit from these financial incentive
schemes in due course.
We have positioned the business both
to take advantage of the positive changes
in the owner occupied market (through our
reversionary portfolio) and the private rented
sector (through our market rental portfolio)
including both assets on our balance
sheet and in funds and joint ventures.
Whilst taking this positive stance we have
also further protected the group from the
effect of any future cooling of the markets
by reducing leverage.
Strategy and financial position
Grainger is a specialist residential company.
Our objective is to be a leader in the
residential market, delivering sustainable
long-term returns to our investors and our
partners from a combination of sales, rents
and fee income.
Our strategy and our business reflect the
changing dynamics of the residential market
and the current point in the market cycle.
We will use our core skills (trading, managing,
investing, developing and fund management)
and our agility to take advantage of the
opportunities presented by these changes.
In the past year we have managed the
composition of profit between trading,
rents and fees and attained another key
objective of reducing net debt and LTV.
The deleveraging resulted in a higher level
of property sales in 2013 compared to 2012.
Adjusting for the effect of profit from sales
from tenanted property, the proportion of
net rents and gross fees compared to rents,
fees and trading profits from vacant sales
in 2013 is 54% (2012: 59%). We intend to
increase our income from net rents and fees
over the coming years, taking advantage
of the group’s in-depth expertise and
operating platforms.
Having achieved a net debt position of
£959m and loan to value of 48% we are
within a range of gearing of 45%–50%
which we feel is appropriate in the medium
term. We believe that LTV, rather than
absolute debt levels, will be a more relevant
measure through which we can manage
the capital structure. Whilst mindful of
maintaining appropriate leverage, we are
now in a position, with headroom of £292m
and on-going cash generation, to take
advantage of opportunities that are aligned
with the strategy outlined above so long
as they generate acceptable returns for our
shareholders. In this context we are pleased
to confirm that we will pursue a progressive
dividend policy.
Our centenary year has been another
period of huge achievement. My thanks go to
our highly skilled, enthusiastic and committed
staff whose efforts have allowed us to reach
this position.
We see 2014 as being a year of
continuing strength in our markets and we
anticipate another year of outperformance.
Robin Broadhurst
Chairman
7 November 2013
Grainger plc / Annual Report and Accounts 2013
09
Chief executive’s review
Achieving
our objectives
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We have seen another
period of outperformance
from our UK assets
this year.
Margins on normal
trading sales have
increased as have net
asset values and we have
delivered on our target to
reduce debt and gearing.
Andrew Cunningham Chief Executive Officer
Our UK assets have again outperformed
the national indices with their market value
rising by 8.3% compared to the average
increase of 5.6% in the Nationwide and
Halifax indices. Within central and inner
London the market value of our assets rose
by 15.6% compared to an average increase
of 9.5% in the Nationwide and Halifax
indices for those regions.
Market overview
The housing market continues to improve
particularly beyond London and the South
East which has already seen considerable
house price growth. It is important that
the Government ensures the increased
purchasing ability of homebuyers is
matched by an increase in housing supply
to avoid excessive house price inflation
although we currently see no signs of this.
The residential market continued
to show regional variations in 2013.
However there was an underlying upward
trend in house prices across the whole of
the UK according to the Land Registry,
Nationwide and Halifax house price indices.
For the first time since 2007, Nationwide’s
Q3 index showed annual house price
growth in all 13 UK regions. In London
and the South East, where 60% of our
assets by market value are located we saw
year-on-year growth of 10.7% in vacant
possession values (‘VPV’) (2012: 6.0%).
There remains a significant mis-match
between housing supply and demand
in the UK, and the three major political
parties in the UK recognise the need for
a major increase in housing supply of all
tenure types.
The UK Government has supported
the housing market in a number of ways.
In the home ownership mortgage market
the Government has introduced two
financial support measures – Funding for
Lending and Help to Buy – which have led
to an increase in the number of housing
transactions over the last year. This, in turn,
has boosted confidence among house-
builders and developers and, according
to the Purchasing Managers’ Index (PMI),
housing construction activity is at its highest
point since November 2003.
Following the Montague Review, the
Government has made significant strides
in implementing policies to stimulate
investment and growth in the sector.
In particular, it has introduced a £1bn
fund for the construction of build-to-
rent developments and set aside £10bn
of Housing Guarantees, whereby it will
guarantee borrowers’ liabilities against new
rental homes. In addition, the Government
has established the PRS Taskforce, a
specialist group of private sector experts
within Government, including a Grainger
secondee, responsible for kick-starting
10
Grainger plc / Strategic report
Chief executive’s review
continued
Increase in residential UK portfolio
market value
Reversionary surplus including
share of JV/associates
With gearing
in the range of
45–50% the group
will take advantage
of acquisition
and investment
opportunities.
investment in the private rented sector.
We are well placed to take advantage of
these financial incentive schemes and are in
regular dialogue with the Government and
the Taskforce.
The general political consensus in the
UK in support for growth and investment
in the private rented sector, particularly
focused on large scale, institutional
investors, was clearly demonstrated by a
recent inquiry by the Communities and
Local Government Select Committee.
In the same report, the Committee found
that rent controls would have a significant
negative impact on the sector and called
for increased supply of privately rented
housing to combat affordability issues.
In mid-October 2013, the Government
responded to the Select Committee’s
inquiry and alongside its response
published a draft Tenant’s Charter for the
private rented sector. The Tenants’ Charter,
which is evidence of the Government’s
ambition to drive up standards in the sector,
is business-friendly and will help improve
understanding among both the landlord
and tenant communities.
As a result of all these initiatives, we
have seen increased activity and investor
interest in the UK’s private rented sector
as we and others have engaged with the
Government to put into practice our shared
aspirations for this increasingly important
tenure type.
Business overview
Grainger has three main sources of income:
receipts from sales of assets that are
vacant (2013: £116.4m, 2012: £127.9m)
and tenanted and other asset sales
(2013: £236.5m, 2012: £130.5m); rents
(2013: net rents of £48.5m, 2012: £62.8m);
and fees from co-invested and co-managed
vehicles and other income (2013: £12.9m,
2012: £11.0m).
In addition, the contribution from our
investment in joint ventures and associates
before tax and non-recurring items,
comprising our share of profit plus our
share of revaluation surpluses, amounted
to a strongly increased figure of £15.4m
(2012: £3.5m).
We have used our skills in trading,
managing, developing, fund management
and investing in residential property to great
effect in 2013 and have generated growth
in the value of our property through our
asset and property management expertise,
both on our own behalf and that of our
co-investors and partners.
Trading
Profit from asset sales
Margins on vacant sales
Sales of tenanted and
other sales
2013
2012
£77.7m £77.6m
39.6%
44.9%
£236.5m £130.5m
Profit from total asset sales increased
by £0.1m to £77.7m (2012: £77.6m).
Margins on sales of vacant properties
increased to 44.9% (2012: 39.6%) and
sales of vacant properties were made at an
average of 7.9% above September 2012
VPV (2012 excess to 2011 VPV: 6.1%).
Sales of tenanted properties and other
sales increased from 2012 by £106.0m to
£236.5m (2012: £130.5m). Whilst we do
not expect this scale of tenanted sales in
2014, this nonetheless re-emphasises the
liquidity of our portfolio and the defensive
quality of our assets as well as our ability to
manage the scale of our investments.
Managing
Rise in market values of
UK Residential portfolio
Rise in market values
of Retirement solutions
portfolio
2013
2012
9.3%
4.8%
5.9%
1.0%
Market values of our UK Residential
portfolio rose by 9.3% (2012: 4.8%) and
market values of our Retirement solutions
portfolio rose by 5.9% (2012: 1.0%).
We mobilised the outsourcing of UK repairs
and maintenance to Kier in September
2013 which has resulted in run rate savings
of approximately £2m p.a. We also sold a
further 1,534 properties for Lloyds Bank
under our RAMP proposition.
Our performance was again recognised
by our peers when we won the award of
‘Asset Manager of the Year’ at the RESI
Awards in May 2013 for the second year
11
We formed a joint venture with Dorrington
allowing Grainger to partly crystallise the
capital growth in its Walworth Estate,
South London, while maintaining a
strategic long-term stake. The gross
asset value of this entity is £136m and
the Company’s net equity investment is
£36.1m.
Operational and financial gearing
We have been taking actions in the year to
reduce both the operational and financial
gearing of the business. Property expenses,
on a run rate basis as at 30 September
2013 compared to 30 September 2012
have fallen by £2.5m. We have reduced
group net debt by £235m to £959m in
the past 12 months. Over the same period
growth NNNAV level is 38p (24%) to 195p
since September 2012 when it was 157p.
Growth at gross net asset value is 19p (9%)
to 242p since 30 September 2012 when it
was 223p.
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in a row, and when we were awarded
‘Best Property Company – Residential’ at the
Estates Gazette Awards in December 2012.
Developing
Gross development value
with detailed planning
consent
2013
2012
£314m £243m
At Wellesley, Aldershot we act as
development partner for the Defence
Infrastructure Organisation. Our application
to redevelop the former Aldershot Garrison
for 3,850 homes was granted consent
within a six-month timescale and work
to facilitate the sale of the first phase has
already commenced.
We also made progress on our
Macaulay Walk scheme in Clapham.
We have already pre-sold the social housing
element to Networking Housing Group and
we will commence sales of the 65 private
houses/apartments and 30,000 sq. ft.
office space in early 2014. The estimated
gross development value is £58m.
We announced in October 2012 that
we had agreed a 125 year contract with the
Royal Borough of Kensington and Chelsea
to construct and manage a development
of affordable, private rented and private
homes for sale. In August this year we
submitted a detailed planning application
for 84 units with a gross development value
of circa £110m, of which approximately
£60m is build-to-rent.
We submitted a detailed planning
application (in joint venture with Helical
Bar) for 196 private residential units as part
of a mixed use scheme in Hammersmith.
The scheme also includes 20,000 sq.
ft. of retail/leisure and a 40,000 sq.
ft. Council office. This has a gross
development value of circa £150m.
At Berewood, the construction work is
progressing on site and the first residents
moved into the new community this
summer. Further to the sale of Phase
I to Bloor Homes in September 2012,
Grainger sold Phase 2 to Redrow
Homes in September this year. The sale
comprised 14.4 acres of serviced land
on which Redrow will build 248 homes.
Total sales revenue from this site now
amounts to £24.9m and we anticipate
that the next phase will come to market in
December 2014.
The development business will be a
material contributor to group profit in 2014.
Fund management and investing
Gross asset value of
co-investment vehicles
Grainger net equity
investment in the
vehicles
Grainger share of profit
and revaluation surplus
2013
2012
£924m £524m
£145.9m £60.3m
£15.4m
£3.5m
In December 2012, we formed a strategic
partnership with Heitman in Germany,
allowing Grainger to retain a management
mandate and earn a long-term recurring
fee income. The gross asset value of this
entity at 30 September 2013 is €253m
(£212m) and Grainger’s net equity
investment is €22.5m (£18.8m).
We also formed GRIP, a strategic
partnership with Dutch pension fund
asset manager APG, in January 2013 to
take over the G:res portfolio, keeping
it under Grainger’s property and asset
management. GRIP is one of the largest
PRS funds in the UK and has the ambition
to continue to grow, through further
acquisitions. The gross asset value of this
entity is £429m and Grainger’s net equity
investment is £65.4m. As part of GRIP’s
acquisition strategy, Grainger retained
management of its Tilt portfolio, through
an arm’s-length sale to GRIP, further
increasing the recurring source of fee
income from that vehicle in the process.
12
Grainger plc / Strategic report
Strategic objective:
#1
grainger =
leadership
Leading the market and creating
new business opportunities
Smith Dorrien building,
Wellesley, Aldershot
Grainger plc / Annual Report and Accounts 2013
13
How we are delivering on our objective
We continue to maintain our leading position in the
UK residential sector through the breadth and depth of
our offering, our thought leadership and expertise. Our
leadership is recognised by our peers and our market
leading position creates new business opportunities for us.
Our efforts have been recognised:
–We were awarded Asset Manager
of the Year at the RESI Awards for
the second consecutive year.
–We won Best Property Company –
Residential at the Estates Gazette Awards,
and have subsequently been shortlisted
for the award again this forthcoming year.
–We were a finalist at the Ethical
Corporation awards for our activities
around corporate responsibility.
–We have maintained our position on the
FTSE4Good index, recognising our leading
position regarding corporate responsibility.
–We have established new partnership
arrangements in 2013 with APG, Heitman
and Dorrington.
Over the year we have:
–Maintained an open and regular dialogue
with politicians and the Government over
housing policy, particularly with regard to
new Government support measures for
the private rented sector and build-to-rent;
–Regularly submitted evidence to
Government consultation and Select
Committee inquiries on the housing market;
–Contributed to various industry and
think tank research projects;
–Presented at over 20 conferences
and seminars across the UK and
Europe to provide expert insight
into residential investment;
–Actively worked with leading industry
bodies to help inform housing policy,
such as the British Property Federation,
the Urban Land Institute and the Royal
Institution of Chartered Surveyors; and
–We have engaged with numerous
think tanks and charity groups on
housing issues, such as Shelter and
the Resolution Foundation.
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Grainger plc / Strategic report
Strategic objective:
#2
grainger =
returns
Ensuring our assets are located and
managed to deliver the best returns
+
+
+
National Asset and Property
Management capabilities
Grainger offices
Kier service centres
+
+
+
+
+
60%
of assets owned are
in London and the
South East
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Grainger plc / Annual Report and Accounts 2013
15
How we are delivering on our objective
Maximising returns from our assets by ensuring they are
located in the best places and by actively managing them.
By using our skills, expertise and broad
geographical reach in residential asset
management, we are able to maximise the
growth in capital values from our investments
and ensure that our portfolios’ valuations
outperform the general market. In the UK,
the growth in capital values of our portfolios
consistently beat the leading national house
price indices (Nationwide and Halifax).
In the year to 30 September 2013 these two
indices showed an average rise of 5.6%. By
contrast, the vacant possession value (VPV)
in our combined UK portfolios rose by 6.4%
whilst their market value rose by 8.3%. The
valuations are supported by regular sales
evidence (675 units of vacant properties)
which on average were made at 7.9% in
excess of September 2012 VPV.
This increase in market value equates to
a total addition to net assets, before asset
sales, of £144m. Within this, the VPV of our
UK Residential portfolio, which benefits from
a concentration weighted towards London
and the South East of England, rose by 8.2%.
The VPV of the more geographically diverse
Retirement solutions assets rose by 2.3%.
The assets in our UK Residential business
were sold, on average throughout 2013,
after 107 days and at 10.4% above their
September 2012 VPV. To achieve an average
of just 107 days across over 800 individual
sales highlights the residential management
skills available within Grainger and
demonstrates the liquidity of the portfolio.
Our current activities include residential
management, trading, development,
investment, fund management, accounting
and reporting and this ‘one-stop-shop’ facility
combined with our national geographic
presence is a strong competitive advantage.
The addition of our new subsidiary, Grainger
Trust, a For Profit Registered Provider of
social housing, also gives us access to this
market where many of our future main
competitors operate. Our geographic spread
will enable us to seize opportunities that are
difficult for most London-centric operators.
We will continue to emphasise this breadth
as part of the Grainger = Residential
strategic message.
Grainger UK portfolio as at 30 September 2013
1. Central London
2. Inner London
3. Outer London
4. South East
Total
No. of units
595
1,163
770
1,531
4,059
Vacant possession
value £m
357
436
183
259
1,235
Increase in vacant
possession value %
13.0
14.2
7.4
4.3
10.7
Market value
£m
280
345
134
188
947
% of
market value
18
22
8
12
60
16
Grainger plc / Strategic report
Strategic objective:
#3
grainger =
balance
Balancing the sources of our
income through exploiting
changing market opportunities
Young Street, Kensington
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17
How we are delivering on our objective
Due to the growth in the UK rental market there are
an increasing number of opportunities for generating
greater non-trading income. Over the past two years
we have increased our non-trading income streams
significantly which helps to cover our operational and
finance costs.
Grainger partners with APG, Europe’s biggest
pension fund asset manager, to create GRIP,
one of the largest institutionally-backed UK
private rented sector funds.
This year, we joined together with APG as
co-equity partners to create the GRIP fund,
which initially purchased the £350m portfolio
from G:res1, a fund set up by Grainger in
2005. In addition to a minority equity stake in
the GRIP fund, Grainger also provides asset
and property management services in return
for a fee. This fund marks one of the biggest
institutional investments in the UK private
rented sector.
In addition, during the year Grainger
formed a co-investment vehicle with global
real estate investment firm, Heitman, to
acquire a portfolio owned by Grainger and to
invest in further German residential property.
Other existing rent and fee income generators
In addition to the new initiatives above –
GRIP and the Heitman co-investment vehicle
– we have a number of other key business
ventures which generate non-trading income.
Our Residential Asset Management Platform
– RAMP – with Lloyds Bank is a significant
fee income driver. We provide strategic
asset management to distressed residential
property portfolios in administration or
receivership across Britain.
We are the development partner to the
Defence Infrastructure Organisation of
the Ministry of Defence and the Homes
and Communities Agency for Wellesley,
the Aldershot urban extension in the
South East of England which will comprise
3,850 new homes, two new schools,
and new health and leisure facilities.
Sources of income and profit
1. Net rent
2. Gross fees
3. Profits on sale of vacant property
£m
48
13
52
113
Finlay St, London
Improving sales margins through refurbishment –
an extensive, high quality refurbishment of a property
formally subject to a regulated tenancy.
1
3
2
18
Grainger plc / Strategic report
Strategic objective:
#4
grainger =
optimisation
Optimising our operational
and financial gearing
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Grainger plc / Annual Report and Accounts 2013
19
How we are delivering on our objective
As our business evolves, we are taking actions to secure
the long-term future success of Grainger. As part of that,
we have adjusted our capital structure to ensure it is an
appropriate fit to the changing nature of our asset base
and the profile of our income streams. This year we have
delivered on our target to reduce our net debt to below
£1bn, and our LTV to below 50%, and to implement
efficiency and cost-saving measures.
Reducing gearing and enhancing value
Throughout this process of de-gearing,
we have been successful in both protecting
and enhancing the value of our business.
While achieving a reduction of £611m in net
debt since March 2011, we have increased
the business’ NNNAV by 23%.
Last year we set out a target to reduce our
net debt to below £1bn in the year, which
we successfully achieved ahead of schedule
in August. In addition, we wanted to reduce
our LTV to below 50%. As at 30 September
2013 group LTV was 48%. We also set a
target to reduce property expenses and
overheads by 5% on a run rate basis
comparing September 2013 to September
2012, which we have also achieved.
Driving operational efficiency
One way in which we have increased
the efficiency in our business is through
changing our supply chain. We have secured
cost savings of approximately £2m on the
day-to-day reactive repairs and maintenance
works we undertake on our assets in Britain.
We have done this by appointing a single
supplier, Kier, to undertake all reactive repairs
and maintenance across our entire UK
portfolio. We have ensured that the new
arrangement will provide greater efficiency
and cost control, as well as an enhanced and
more responsive service to our tenants.
We are also making improvements and
upgrades to our IT and information systems
and processes to prepare the business for
continued future growth and to support
our growing fund management business.
Gross net asset value (p)
Group net debt (£m)
250
225
200
175
1700
1500
1300
1100
900
Sept’09 Mar’10 Sept’10 Mar’11 Sept’11 Mar’12 Sept’12 Mar’13 Sept’13
Sept’09 Mar’10 Sept’10 Mar’11 Sept’11 Mar’12 Sept’12 Mar’13 Sept’13
20
Grainger plc / Strategic report
Chief executive’s review
continued
Key performance indicators:
Our key performance indicators have been selected to provide a balance between financial and
non-financial targets. They have been set to enable us to measure success against the group’s
strategic objectives and are used to help determine how the executive directors are remunerated.
#1
#2
grainger =
leadership
Breadth and
depth of our
offering
We offer a range of core skills
– residential management
– residential trading
– development
– investment and fund management
– registered provider
– accounting and reporting
In the UK these skills are provided through
our national geographical presence
Peer recognition
as experts in
the residential
sector
Ability to create
new business
opportunities
and attract high
quality strategic
partners
– residential awards
– members of key industry and
sector representative bodies
– dialogue with politicians,
Government, think tanks
and charities on residential
housing policy
New partnership arrangements
entered into in 2013:
– APG
– Heitman
– Dorrington
grainger =
returns
PBT
Profit/(loss) before tax
UK HPI outperformance %
Measured against average
movement in Nationwide
and Halifax indices
64.3
Grainger
Average indices
26.1
(1.7)
11
12
13
6.4
5.6
13
2.8
(1.3)
12
1.0
(1.3)
11
See pages 36 to 39.
See pages 34 and 35.
NAV
Gross net asset per share
NNNAV*
Triple net asset per share
216
223
242
195
153
157
11
12
13
11
12
13
* Growth in NNNAV is a performance condition
for the Long-term incentive scheme (see page 75).
See pages 39 and 40.
See pages 39 and 40.
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Grainger plc / Annual Report and Accounts 2013
21
#3
grainger =
balance
Proportion of net rents and fees to net rents and fees
plus trading profit from vacant sales
Target – increase to
59.2
58.9
53.9
11
12
13
Proportion of gross management
fees to overheads
Target – increase to
37.2
32.5
21.0
#4
grainger =
optimisation
Group LTV
61
55
48
11
12
13
Target range
Gross cash generated from sales, gross rents and fees
431
353
312
11
12
13
Efficiency
Proportion of property expenses and overheads
net of fees/other income as a percentage of market
value of assets under management
Target – reduce to
1.60
1.69
1.66
11
12
13
11
12
13
22
Grainger plc / Strategic report
Chief executive’s review
continued
Operational measures
In addition to our strategic KPIs there are a number of other performance measures that the
group actively monitors to assess the performance and direction of the business and which
contribute to its overall performance as measured by the KPIs.
Staff
Percentage turnover for
permanent employees
Sickness absence per
employee per annum
Sales
Sales velocity in days –
UK Residential
Margin on
vacant sales
The average hours of training
per employee per annum
Ratio of female to male staff at
senior manager level or above
Vacant sales values above
previous year VPV
See page 43.
Corporate responsibility
Percentage of tenants rating
Grainger’s management service
as good or above
Percentage of tenant
complaints resolved
at year end
See pages 15, 24 and 25.
Rents
Increase in regulated rents
Rent Arrears percentage: UK
Number of staff working days
contributed for charitable causes
Average vacancy rate on
regulated properties in 2013
See page 49.
Financial
OPBVM
Recurring profit
See pages 26 and 27.
Treasury
Interest cover ratio on core
syndicate facility
Average maturity
of drawn debt
ROCE
ROSE
Average cost of debt
Hedging percentage
See pages 36 and 37.
See page 41.
Cash and headroom on facilities
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23
Strategy and future outlook
In the past, our core business has been
heavily focused on the long-term
ownership and trading of reversionary
assets, principally those subject to regulated
tenancies. These assets have and will
continue to provide predictable income
from sales and rental income, and can
provide opportunities to deliver low risk,
above-market returns. They also benefit
from enhanced value growth due to
their London and South East weighting.
Market dynamics suggest, however, that in
the future there will be greater demand for
a more mature, customer focused private
rental market. Grainger’s experience and
expertise make it ideally suited to thrive
in this market. This focus on the private
rented sector will therefore become a more
significant part of our business in the future.
Allied to growth in the rental market
are increasing numbers of opportunities
for the creation of joint ventures and fund
management structures where we can
leverage our core skills to create added
value for our shareholders and partners
and thereby generate recurring fee income
for the business. We will continue to
strengthen our capabilities in these areas.
In addition, the successful delivery of
our strategy over recent years has created a
scalable platform in terms of skilled people,
expert processes and financial strength that
enables us to compete effectively now and
in the future across the residential market.
Over this period, we have reduced our debt,
achieved a balance of income between
sales, rents and fees and increased our two
net asset measures, NAV and NNNAV.
The four strands of our strategy remain:
leading the market, ensuring our assets
are located and managed to deliver the
best returns, balancing the sources of
our income and optimising our financial
and operational gearing. As market
conditions change so too will each of these
strands to ensure an appropriate fit to the
opportunities that will arise.
In some cases we will be able to
acquire stock by forward commitment
to the developers, as we have done at
London Road, Barking with Bouygues
Development UK. We are currently active
in the ‘doughnut’ zones around central
London to acquire similar but somewhat
larger opportunities.
At Berewood, we are developing our
own stock of PRS housing that we will
hold and manage for the long term and
we are investigating similar potential at
Aldershot. These are examples of where
we can accelerate the delivery of new
homes on large development sites that
we own or manage. As well as selling land
with planning permission to house builders
for the owner occupier market, we will
build stock that we will commit to rent
for the longer term. This has a number of
advantages to Grainger: first, it allows us to
complete large sites more quickly; secondly
it ensures we will not compete with the
house builders (the natural purchasers of
our development plots); and, thirdly, it
enables us to secure significant economies
of scale in property management.
We are now operating within a
range of gearing of 45%–50% which we
consider is appropriate in the medium term.
We will also actively manage our average
cost of debt downwards from its current
level, towards 5.0%, which will assist the
relationship between rents and fees and
interest costs.
After allowing for further vacant sales
in the normal course of business, this means
that the group is able to create and take
advantage of acquisition and investment
opportunities. As well as our appetite for
regulated tenancy portfolios and individual
regulated properties our focus will include
the development of purpose built residential
rental stock (build-to-rent) in London and
the South East and, increasingly, in key
regional city locations.
The company is now strongly
positioned to take advantage of the current
positive market conditions and we look
forward to another successful year of
forward momentum and value creation.
Andrew Cunningham
Chief executive officer
7 November 2013
LTV
Net debt
A focus on the private
rented sector will
become a more
significant part of our
business in the future.
24
Grainger plc / Strategic report
Sales
Macaulay Walk development
Macaulay Walk is a beautiful, mixed-use
development in the heart of Clapham Old
Town, London, providing a collection of well-
designed one, two and three-bedroom homes,
apartments, penthouses and offices.
Designed by award-winning Assael
Architects, with interiors by prime residential
interior specialists MMM, the development
combines converted 19th century warehouse
buildings with crisp, contemporary architecture,
as well as offering modern flexible office space.
Old Town Clapham, London
65 new homes
Completion early 2014
Margins on vacant sales
have increased to 44.9%
from 39.6%. Vacant sales
were made 7.9% above
last year’s valuations.
The majority of our sales revenue is
generated through the sale of properties
when they fall vacant (also known as
normal sales). In addition, when we decide
that a particular property or portfolio no
longer offers attractive future value growth
we sell these properties while occupied
(tenanted sales). We also take advantage
of opportunities to add value by utilising
our in-house expertise to refurbish a select
number of properties before sale.
This year, profit from sales of property
was £77.7m, compared to £77.6m in the
previous year. Total gross sales proceeds
were £352.9m, compared to £258.4m in
2012. Normal sales generated proceeds
of £116.4m compared to £127.9m in
the previous year at margins of 44.9%
(2012: 39.6%). Tenanted sales rose this
year to £200.0m from £58.2m in 2012.
These figures reiterate how well our
properties continue to sell due to their low
average value and un-refurbished nature.
Several large, one-off portfolio
sales contributed to this year’s sales
of tenanted properties, an intentional
result of our strategic objective both to
reduce our debt and to remove less well
performing property from the portfolio.
Some investment sales, however, were sold
Grainger plc / Annual Report and Accounts 2013
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Sales performance
Trading sales on vacancy
UKR
RS
Tenanted sales
Other sales
Residential total
Development
UK total
Full year 2013
Full year 2012
Gross
sales
value
(£m)
No. of
units
Profit
(£m)
No. of
units
Gross
sales
value
(£m)
Profit
(£m)
337
338
675
79.5
36.9
116.4
1,684 200.0
3.5
319.9
15.0
2,376 334.9
17
2,376
–
40.2
12.0
52.2
23.4
1.4
77.0
1.9
78.9
390
323
713
489
8
1,210
–
89.2
38.7
127.9
58.2
29.0
215.1
18.9
1,210 234.0
37.4
13.3
50.7
9.9
12.5
73.1
3.4
76.5
1.1
77.6
0.6
77.0
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Overall total
Deduct: Sales of
CHARM properties
Statutory sales and profit
245
2,621
18.0
352.9
(1.2)
77.7
294
24.4
1,504 258.4
59
2,562
5.8
347.1
0.4
77.3
68
7.9
1,436 250.5
into third-party entities in which Grainger
has an existing equity stake, allowing us
both to repatriate capital and continue to
share in the future upside of the assets’
value. The sales value recorded is the share
of proceeds sold externally and includes the
sale of the Walworth Estate, with £56.0m
being a 50% share of the full sales value,
and the sale of the Tilt Estate to GRIP Fund,
with £43.6m being a 75.1% share of the
full sales value.
Our vacant sales revenue – a stable and
reliable cash flow – will not only continue to
be supported through the natural vacancy
rate on our reversionary assets, but will also
be supported by a number of forthcoming
development projects including Berewood,
Hortensia Road (RBKC), Macaulay Walk and
Young Street (RBKC) in future years.
Our 2013/14 financial year has started
well. As at 31 October 2013 our total
group sales pipeline (completed sales,
contracts exchanged and properties in
solicitors’ hands) amounted to £52.3m
with UK vacant sales values 6.3% above
September 2013 valuations (2012: £38.4m
and 4.1% respectively).
26
Grainger plc / Strategic report
Rents
Cafe on the Tilt Estate
A beautiful and attractive place to live in East
Dulwich, South London, 296 properties with a
mixture of market rented accommodation and
regulated tenancies. Situated around a private
garden square for residents and with a local cafe
and art gallery, this estate is a well sought after
example of a vibrant place to live, centred around
rental accommodation.
Tilt Estate, East Dulwich, London
296 properties
Rental income levels for
the year have remained
strong, underpinned
by growing demand
for renting in the UK.
Gross rental income
for the year was £71.3m,
representing 25% of
total group revenue.
Rental income is a regular and predictable
income stream for our business. The main
contributors to our rental income stream
are our wholly-owned UK and German
portfolios. Our opportunities to increase
rent come largely from rent reviews of
existing tenanted assets.
In our market let properties and those
we manage on behalf of others, rents
follow market trends and reflect the quality
of the individual 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, the
proactivity of our lettings team and our
asset management activities.
Our regulated tenancy portfolio also
provides a reliable rental income stream
albeit at a lower gross yield than our market
rented portfolio since the rents charged
on our regulated tenancies are sub-market
rents. Application can be made for rents
on regulated tenancies to be re-registered
every two years by local Government rent
officers. Any rent increase is capped at
the percentage change in UK RPI since the
rent was last registered plus a percentage
prescribed by law, which is currently 5%.
In the past year our regulated tenancy
portfolio generated £30m of gross rent.
Grainger plc / Annual Report and Accounts 2013
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Net rents
UK Residential
Germany
Retirement Solutions
Development
Total
2013
£m
37.2
8.7
2.3
0.3
48.5
2012
£m
41.8
17.1
3.7
0.2
62.8
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The UK rental market continues to grow
with strong consumer demand and
significant interest among international
institutional investors. The UK private
rented sector is beginning to show signs
of maturity, with recent investments from
major pension funds and the breakthrough
of several build-to-rent schemes, including
our development in Barking, East
London. We expect this momentum to
continue, providing future opportunities
for leveraging our expertise and skills to
generate further rental income.
Total net rents in the year amounted to
£48.5m (2012: £62.8m). Our UK Residential
portfolio generated net rental income in the
year of £37.2m (2012: £41.8m), an anticipated
reduction following the portfolio transfers into
co-investment structures. Underlying rental
levels per asset, however, remain strong.
The German business delivered net rents,
before property management expenses, of
€11.6m (2012: €22.8m). Again, the reduction
was anticipated and resulted from the
transfer of the two Stuttgart portfolios into
our co-investment vehicle with Heitman.
Certain assets in the Retirement solutions
portfolio also produce a net rental income
and this amounted to £2.3m in the year
(2012: £3.7m).
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Grainger plc / Strategic report
Fees
Canonbury Heights East
A block of apartments in Canonbury, North
London, owned by our private rented sector
fund, GRIP, backed by the Dutch pension fund
asset manager, APG. The flat has recently
been refurbished as part of GRIP’s strategic
reinvestment strategy for its portfolio.
Canonbury Heights East, Canonbury, London
44 properties
Gross fee income
for the year was
£12.5m – an increase
of 128% over the
last three years.
The UK Residential division generated
£0.5m in service charge management fees
and £0.2m in other income. In Retirement
solutions, management fees of £1.1m
and other income of £0.1m were
earned. Management 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.
A key strategic element of Grainger’s
business is to seek opportunities to
generate recurring income, including
fees. Over the past years we have been
successful in increasing fee income through
a number of different ventures. Fee income
currently makes up 11% of Grainger’s total
income, and has increased by 128% over
three years.
Gross fee income was £12.5m, an
increase of 24% compared to £10.0m in
2012 and derives from asset and property
management fees from our co-investment
vehicles and management contracts.
In addition, the group earned other income
of £0.4m (2012: £1.0m).
Grainger plc / Annual Report and Accounts 2013
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During 2011 Grainger was appointed as
development partner for Wellesley, the
Aldershot Urban Extension, working with
the Defence Infrastructure Organisation,
part of the Ministry of Defence. This year
this partnership generated a management
fee income of £0.3m (2012: £0.3m).
As land sales commence, our fees for this
project will increase.
Fund and third-party management fees
of £9.6m comprise management fees from
RAMP and GRIP.
Fees and other income
Fund and third party
management
Retirement solutions
Germany
UK Residential
Development
Other income
Total
2013
£m
2012
£m
9.6
1.1
0.8
0.5
0.5
0.4
12.9
8.3
1.0
–
0.2
0.5
1.0
11.0
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Grainger plc / Strategic report
Risk
management
approach
Risk management
is an inherent part of
the group’s activities
to provide assurance
to our stakeholders.
Figure 1:
Grainger risk management framework
Grainger risk management policy
Market and strategic risk
Project assurance risk
Operational risk
Financial funding risk
IT risk
Legal and regulatory risk
People risks
Independent monitoring
Risk-based monitoring plan
External verification
Key control checks
Appropriate risk management aids effective
decision making and helps to ensure that
the risks the business takes are adequately
assessed and challenged. It helps to ensure
that the appropriate rewards are achieved
whilst retaining our overall resilience
to risks.
Our overall risk management ambition
is to foster and embed a culture of risk
management that is responsive, forward
looking, consistent and accountable.
Our capability continues to develop
through on-going risk assessments across
the group and post project reviews. On-
going improvements to risk management
performance can further aid the delivery of
projects and increase the effectiveness of
our operations.
Risk assessment
Our risk management approach looks
at risks arising in all parts of the group
using both a bottom-up and a top-down
approach. A systematic risk management
framework and process (Figure 1) is used to
consider both external factors arising from
the environment within which we operate,
and internal risks arising from the nature
of our business, its controls and processes,
and our management decisions.
Once identified, the impact and
probability of risks are determined and
scored at both a gross (before mitigation)
and net (after mitigation) basis. A risk-
scoring matrix is used to ensure that
a consistent approach is taken when
assessing the overall impact.
Figure 2: Grainger risk reporting framework
Group audit committee
Grainger plc board
Grainger executive
Board risk and compliance
committee
Grainger internal audit
Executive risk committee
Business unit boards and operations team
Business unit/shared service management teams
These risk scores are documented in
risk registers. These are maintained at a
project, business unit, divisional and group
level. They change as new risks emerge and
existing risks diminish, so that the registers
reflect the current threats to the relevant
strategic objectives. We review the group
and divisional risk registers at least quarterly
and more frequently, as required.
Grainger’s risk and compliance function
leads and supports the risk management
process and also challenges the risk findings
and reported controls. Executive directors,
risk and compliance and other senior
management form the executive risk
committee (ERC) and are closely involved
at critical stages in the process to review,
challenge and debate the risks identified
(Figure 2). The resultant output, which takes
into account the reputational impact of any
of the risks arising, is a list of top risks faced
by the group.
In the forthcoming year we plan to
adopt a more integrated approach to
assessing and reporting our corporate
social responsibility risks. We will bring
sustainability risk within the group’s risk
management framework and aim to
further integrate our reporting of these
risks in future reports. We will also work
in conjunction with the audit committee
to create a group assurance framework.
The Grainger plc board risk and
compliance committee (BRCC) has the
board’s delegated responsibility for the
group’s risk management framework.
It regularly reviews the group’s top
risks and ratifies the risk appetite and
tolerances on the key risk areas of the
risk framework set by the executive.
In addition to the risk assessment process
above, the BRCC also spent time this year
considering the emerging enterprise risks
and opportunities that the group may face.
The BRCC is supported in the discharge of
this responsibility by various committees,
specifically the audit committee and
the executive risk committee, and by
the risk and compliance and internal
audit functions.
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Principal risks to the group’s
strategy and objectives
31
Figure 3 shows the principal risks faced by Grainger are those deemed to be the most
material to Grainger’s strategic, business and financial objectives.
The risks are set out in accordance with Grainger’s risk framework but are in no particular
order and so should not be taken as a suggestion of the level of risk posed.
Strategic objectives
1. Leading the market;
2. Ensuring assets are located and managed to deliver the best returns;
3. Balancing income sources; and
4. Optimise financial and operational gearing.
Strategic
objectives linkage
1; 2; 3; 4.
Figure 3:
Market and
strategic
(external)
risks
Risk description
Risk impact
Mitigation
Change
from 2012
Deterioration
of wider global
economic markets
– Drop in housing demand
or prices, particularly
in London and the
South East
– Asset and portfolio
value falls
– Subsequent financial
constraints
– Reduced reliance on trading
income
– Maintenance of headroom
against covenants providing
a cushion for market adjustments
– Continuous review by board
1; 2; 3; 4.
Long-term flat or
negative growth in
the value of assets
– Unattractive to external
investors and partners
– Poor shareholder returns
– Maintain balance of income
from sales, rents and fees
– Portfolios weighted towards
areas of higher growth
1.
4.
Project
risk
assurance
Failure to determine
the expectations of
our stakeholders –
customers, tenants,
staff, partners
and shareholders
– Value not maximised
– Inability to attract or
retain tenants, staff
and/or partners
– Increased cost base
– Reputational damage
– Active sustainability
programme and targets
– Formal complaints process
to learn from tenant concerns
– Tenant surveys
– Staff surveys and management
Multiple concurrent
operational and
change projects
engagement
– Values programme
implemented in the year
– Overextension of people
– Awareness by executives and
and resources
– Missed deadlines,
increased costs
– Poor delivery
performance
senior management
– Oversight by board risk and
compliance committee
– Use of external expertise and
resource to support where
appropriate
– Pursuing a more standardised
approach to change and project
management
– Up-skilling our internal resources
(cid:51)
Key
The principal risks faced by the group are:
No change (cid:51)
Increased risk (cid:51)
Decreased risk (cid:51)
32
Grainger plc / Strategic report
Risk management approach
continued
Figure 3:
People
risks
Strategic
objectives linkage
1; 2; 3; 4.
Operational
risks
1; 4.
1; 4.
Financial
funding
risks
1; 4.
Change
from 2012
(cid:51)
Risk description
Risk impact
Mitigation
Failure to attract,
retain and develop
our people to
ensure we have the
right skills to deliver
our strategy
Inability to recover
from a significant
external event
such as large scale
terrorist attack,
extreme weather,
environmental
disaster or civil
emergency
A significant
health and safety
incident as a result
of inadequate or
inappropriately
implemented
health and safety
procedures and
controls within
Grainger or its
contractor/
supplier base
Lack of availability
of finance for the
group to achieve its
strategic objectives;
inability to obtain
sufficient funds
either through
debt or equity, at
appropriate price
and terms
– Reduced ability to
– Succession plans are regularly
deliver to expectations
reviewed
– Management development
training
– Retention policies in place
for key staff
– Annual benchmarking of reward
– Regular staff surveys
– Performance reviews
and appraisals
Documented business
continuity plan:
– Strong tested IT and information
(cid:51)
security recovery processes
– Group insurance framework
– Externally audited
– The inability to recover
swiftly from a sudden,
high impact event could
lead to operational
failures, contractual
breaches, substantial
costs and reputational
damage
– Harm to people
– Possible legal action/
fine/reputational
damage as a result
of an incident
– Full utilities management plan in
place which includes asbestos,
fire, gas, electrical, water and
project controls
– All contractors are ‘Gas safe’
registered
– Specific health and safety
director responsible for
compliance monitoring plan
– Updated whistleblowing policy
– Monitoring by senior
management and executive
– Bi-annual report to the main
board
– Constant monitoring of
headroom and capital structures
– Constant activity in establishing
potential sources of funds and
specialist skills
– Positive relationship
management with banks and
other sources
– Creation of co-ownership
structures
– Gearing reduced to 48.0%
as at 30 September 2013
– Reduced or severely
limited ability to take
advantage of business
opportunities; unable
to grow; unable to
trade profitably
Key
The principal risks faced by the group are:
No change (cid:51)
Increased risk (cid:51)
Decreased risk (cid:51)
Grainger plc / Annual Report and Accounts 2013
Strategic
objectives linkage
1; 3; 4.
Figure 3:
Legal and
regulatory
risks
IT and
technological
risks
1; 2; 3; 4.
33
Change
from 2012
(cid:51)
Risk description
Risk impact
Mitigation
Failure to anticipate
and respond
to changes
in legislation
or regulation
that creates
increased and
costly obligations,
e.g. Energy Act,
GHG Reporting,
AIFMD etc.
Failure to maintain
adequate IT
infrastructure
and systems to
appropriately
support the growth
and strategy
of the business
– Reduction in market
opportunities; impact
on ability to finance
opportunities; up-front
cost implications of
building new systems
and approached
to meet obligations
– Active networking with key policy
influencers and relevant industry
groups who lobby government
and policy makers
– Specialist legal, compliance and
corporate affairs teams who
monitor legislative, regulatory
and consultation papers
– Use external specialists to advise
and maintain forward focus
– Increased costs;
inability to report
on performance
to the satisfaction
of stakeholders
(cid:51)
– Core Systems Design project
underway to promote increased
standardisation and improved
controls
– Employment of high quality
motivated IT staff
– Use of external specialist advisers
where required
– Specialist project management
– Overseen by senior managers;
executive and board
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Emerging risks
Emerging risks are those risks that have
been identified as potential issues for the
future although the extent of the risk is
yet to be fully understood. A number of
emerging risks have been identified by the
board risk and compliance committee as
follows and these will be monitored over
the coming months:
– Cyber crime
– Increasing environmental, financial
and landlord regulation
Risk mitigation response
All material risks and their associated
controls, raised throughout the business,
go through a process of review and
challenge by the executive risk committee
and ultimately the board risk and
compliance committee.
This assessment of the effectiveness of the
internal control systems is supplemented
through the following regular reviews:
– discussion and approval by the
board of the company strategy,
plans and objectives and the risks to
achieving them;
– approval by the board of budgets and
forecasts, including those for both
revenue and capital expenditure;
– key projects – the BRCC reviews
the risks posed by these projects to
achieving objectives, mitigating controls
and actions;
– oversight by the audit committee of the
scope and results of the work of internal
auditors and the external auditors and
of any significant issues arising;
– audit committee review of accounting
policies and the levels of delegated
authority; and
– the board and the audit committee
are informed of material incidents such
as material fraudulent activity or a
significant whistleblowing event, and
actions being taken to remedy any
control weaknesses.
In 2014 we plan to increase management
assessment on the quality of controls in
place and introduce a comprehensive group
risk assurance table.
34
Grainger plc / Strategic report
Asset
performance
Asset performance
2013
VPV Market value
Year-on-year HPI (Nationwide/Halifax)
UK Residential portfolio VPV rise and market value rise
Retirement solutions portfolio VPV rise and market value rise
Combined UK Grainger VPV rise and market value rise
5.6%
8.2%
2.3%
6.4%
Combined UK portfolio increase in VPV
Sales value above 2012 VPV
Reversionary surplus in combined UK portfolio
Pence per share before tax
Reversionary surplus including share of joint ventures/ associates
Pence per share before tax
UK Residential portfolio excess on sale to September 2012 value
Retirement solutions portfolio excess on sale to September 2012 value
Average excess on sale to September 2012 value
9.3%
5.9%
8.3%
2013
£483m
116p
£527m
127p
10.4%
2.8%
7.9%
We continued to outperform the general
housing market in 2013. In the year to
30 September 2013 the two major housing
indices (Nationwide and Halifax) showed
an average rise of 5.6%. By contrast,
the vacant possession value (VPV) in our
combined UK portfolios rose by 6.4%
whilst their market value rose by 8.3%.
The valuations are supported by normal
sales (675 units of vacant properties) which
on average were made at 7.9% in excess of
September 2012 VPV.
Within this, the VPV of our UK Residential
portfolio, which benefits from a
concentration weighted towards London
and the South East of England, rose by
8.2%. The VPV of the more geographically
diverse Retirement solutions assets rose
by 2.3%.
The assets in our UK reversionary
business continue to sell above their
previous valuation. On average our
regulated tenancies, supported by selective
refurbishment prior to sale, sold at values
10.4% above their September 2012
VPV. Without the benefit of pre-sale
refurbishment, sales were at 6.3% above
September 2012 VPV. Properties in our
Retirement solutions business were sold at
2.8% above their September 2012 VPV.
Performance of Grainger UK assets vs Halifax and Nationwide indices
Grainger UKR
Grainger UKR and RS
Halifax
Nationwide
Index
125
120
115
110
105
100
95
Year to 30 September
2009
2010
2011
2012
2013
Grainger plc / Annual Report and Accounts 2013
Mitre Road, London
Part of the G:Invest portfolio and an excellent
performing asset, highly sought after by
prospective tenants.
Total reversionary
surplus, including
JV/associates, is £527m.
This surplus is excluded
from NAV and NNNAV
and represents a future
pipeline of profit.
35
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We have been particularly selective in
our acquisition activity during the year
and have spent only £9.0m on property
purchases (2012: £21.7m). Going forward,
whilst we will require purchases to
meet strict investment criteria, we
will be actively seeking and creating
investment opportunities.
Despite asset sales of £353m, the
reversionary surplus attributable to our
UK portfolio is £483m, 116p per share
before tax and, including our share of the
reversionary surplus in joint ventures and
associates, is £527m, 127p per share before
tax. This surplus, which does not include
future house price inflation, represents the
difference between the VPV and market
value of our properties which we will realise
on sale. This surplus is excluded from gross
NAV and NNNAV and represents a pipeline
of profit which will be realised with no
planning or construction risk of any sort.
In the year ended 30 September 2013,
the market value of our UK development
portfolio increased by £7.8m before sales.
This increase primarily relates to Macaulay
Walk where completion of all phases of the
development is expected in early 2014.
Our German portfolio increased in value
by 0.9% over the last year although this
uplift was partly negated by an increase
in real estate taxes which serve to reduce
the valuation increase to £0.4m. The two
Stuttgart portfolios in our co-investment
with Heitman saw increases in market
value of 2.2% over the nine months to
September 2013. The group’s share of this
increase amounted to £1.0m which has
been taken through the income statement.
Grainger’s equity investment in its
joint ventures and associates amounts to
£145.9m and principally comprises: our
24.9% investment in GRIP for which we
provide property and asset management
services, a 50% investment in Walworth
Investment Property (WIP), our joint
venture with Dorrington, which owns the
Walworth Estate, our 25% investment in
the two Stuttgart portfolios with Heitman,
a 50% interest in the New Sovereign
Reversions Ltd joint venture with Moorfield,
a 50% interest in our joint ventures at
Curzon Park, Prague and Hammersmith
within the Development division, a 50%
interest in our joint venture in Gebau and
our remaining investment in G:res1 Limited.
36
Grainger plc / Strategic report
Financial review
Improving
our financial
returns
Pre-tax profit increased
to £64.3m. Group
net debt fell by £235m
in the year to £959m
and group LTV fell
from 55% to 48%.
Mark Greenwood Finance Director
Our key performance indicators are:
Gross net asset value
per share (pence)
Triple net asset value
per share (pence)
Operating profit before
valuation movements
and non-recurring items
(OPBVM)
Recurring profit
Profit/(loss) before tax
Excess on sale of
normal sales to previous
valuation
Return on
capital employed*
Return on
shareholder equity**
2013
2012
242p
223p
195p
157p
£107.6m £126.4m
£37.0m £34.6m
£64.3m £(1.7)m
7.9%
6.1%
8.1%
5.9%
25.2%
3.8%
* 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 and
non-recurring items (OPBVM), recurring profit
and profit before tax.
Profit on sale of assets
Net rents
Management fees/
other income
CHARM
Overheads/
other expenses
OPBVM
Finance costs, net
JVs and associates
Recurring profit
before tax
Valuation movements
including derivatives
Non-recurring items
Profit/(loss) before tax
2013
£m
77.7
48.5
12.9
5.7
(37.2)
107.6
(71.3)
0.7
2012
£m
77.6
63.5
11.0
7.1
(32.8)
126.4
(90.7)
(1.1)
37.0
34.6
33.2
(5.9)
64.3
(24.6)
(11.7)
(1.7)
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37
We have three income streams within OPBVM. These are sales of residential properties,
rental income and management fees/other income. Within OPBVM we also include income
from our CHARM asset, property expenses, overheads and other expenses. A summary of
OPBVM by division and of the main movements in the year is set out below:
NNNAV up 24% to
Divisional analysis of OPBVM
Gross NAV up 9% to
UK Residential portfolio
Retirement solutions portfolio
Fund and third-party
management
Development assets
German residential portfolio
Group and other
OPBVM 2013
OPBVM 2012
Profit on
sale of
assets
£m
64.5
12.5
Management
fees/other
income
£m
0.7
1.2
Net
rents
£m
37.2
2.3
Overheads/
other
£m
(7.8)
3.0
–
1.9
(1.2)
–
77.7
77.6
–
0.3
8.7
–
48.5
63.5
9.6
0.5
0.9
–
12.9
11.0
(6.7)
(1.5)
(3.7)
(14.8)
(31.5)
(25.7)
Total
2013
£m
94.6
19.0
2.9
1.2
4.7
(14.8)
107.6
–
Total
2012
£m
94.7
22.3
1.9
2.8
15.7
(11.0)
–
126.4
– An increase of £1.8m in relation to profit
on sale of residential property assets,
primarily due to an increase in margin
on vacant sales from 39.6% to 44.9%.
– An increase in gross management fees
and other income of £1.9m arising
primarily from RAMP, which generated
an additional £1.3m of fee income, and
the addition of fee income from our
German co-investment vehicle within
Heitman which contributed £0.8m.
Interest income and expense
The net recurring interest charge has
decreased by £19.4m from £90.7m in
2012 to £71.3m at 30 September 2013.
This follows from the reduction in debt
which was (on a daily average) £1,248m in
2013 (2012: £1,528m), and a lower average
cost of debt of 5.7% (2012: 6.0%).
Joint ventures and associates
Joint ventures and associates contributed
a profit of £0.7m to recurring profit in the
year (2012: loss of £1.1m).
Main movements within OPBVM
2012 OPBVM
Decrease in gross rents
Increase in residential profit on sale
Increase in gross management fee
and other income
Decrease in interest income
from CHARM
Decrease in development
trading profit
Decrease in property expenses
and overheads
Increase in other expenses
2013 OPBVM
£m
126.4
(18.5)
1.8
1.9
(1.6)
(1.5)
0.8
(1.7)
107.6
The major movements within OPBVM are:
– A decrease of £18.5m in gross rents.
This has arisen, as predicted, primarily
as a result of the transfer of assets
into co-investment vehicles during the
year, in Germany with Heitman, and
with Dorrington and APG in the UK.
This reduced gross rents by £12.9m, with
the decrease of £10.5m in Germany
being the major contributor to the fall
in their OPBVM. Sales across the group
have resulted in a reduction in gross
rents of £6.6m, offset by £1.8m of
rental increases.
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Financial review
continued
Valuation and non-recurring items
Valuation and non-recurring items in 2013 compared with 2012 is analysed as follows:
Valuation
Write down of inventories to net realisable value
Valuation gain on investment property
Goodwill impairment
Change in fair value of derivatives
Valuation gains on investment property in
joint venture and associates before tax
Tax on valuation gains on investment property
in joint ventures and associates
Change in fair value of derivatives of joint venture
and associates
Non-recurring
Net gain on purchase of Tricomm debt
Loss on disposal of subsidiary
Costs/charges/gains relating to GRIP/G:res
Write down of investment property in disposal group
Other non-recurring costs
30 September
2013
£m
30 September
2012
£m Movement
0.7
2.9
(4.7)
21.6
14.7
(2.3)
0.3
1.6
(2.3)
(2.6)
–
(2.6)
27.3
(0.1)
2.1
–
(31.2)
4.6
–
–
–
–
–
–
(6.9)
(4.8)
(36.3)
0.8
0.8
(4.7)
52.8
10.1
(2.3)
0.3
–
1.6
(2.3)
(2.6)
6.9
2.2
63.6
Tricomm debt settlement
On 27 March 2013 we purchased debt
specifically associated with our Tricomm
portfolio using our core group facilities.
This was at a discount of 25% to the
principal amount of £67m, resulting in
a non-recurring profit and a reduction
in group net debt of £15.3m along
with an increase in NAV and NNNAV of
3.7p. The associated interest rate swap
did not require settlement but we have
transferred the movement on its mark
to market since acquisition of £13.7m
through our income statement in the
period. The overall income statement
impact is therefore a net gain of £1.6m.
This transaction follows our purchase
of the portfolio in 2011 when we acquired
net assets of £33.4m (which were reduced
in full for the swap mark to market liability
at the time of £8.6m) for a consideration
of £18.5m leading to a profit on acquisition
of £14.9m.
Investment property valuation gain
There was a valuation uplift in 2013 of
£2.9m relating primarily to the group’s
wholly-owned investment property in its
UK Residential division. This compares to
an uplift of £2.1m to 30 September 2012.
Derivative movements
Fair value movements on derivatives is a
credit of £21.6m excluding the Tricomm
movement noted above. This includes
a positive valuation gain of £31.8m and
a further transfer from reserves to income
statement of £10.2m relating to swaps
settled during the current and prior periods.
The fair value of swaps at
30 September 2013 is a liability of £91.1m
compared to £171.9m at 30 September
2012. The September 2012 balance
included £21.7m relating to an agreed swap
settlement and £4.8m included in liabilities
associated with assets held-for-sale.
Grainger plc / Annual Report and Accounts 2013
Valuation gains in joint ventures/associates
Valuation gains within joint venture and
associates amounted to £12.4m after
deferred tax comprising gains from our
joint venture and associate operations
with Heitman, Dorrington and APG.
Other
In addition to those items mentioned above
the other non-recurring items in 2013
included costs, charges and gains, including
the recycling of swaps, of £2.6m in relation
to the transfer of assets from G:res to
GRIP; a £2.3m loss on sale on our German
co-investment vehicle with Heitman; and
an impairment of goodwill of £4.7m on the
sale of the Tilt portfolio to GRIP.
Profit before tax
Having taken account of all of the above
movements, profit before tax was £64.3m
compared to a loss before tax of £1.7m
in 2012. (See note 3 to the accounts for
further analysis.)
Tax
The group has an overall tax charge of
£10.7m for the year, comprising an £11.8m
UK tax charge and a £1.1m overseas
tax credit.
The net reduction of £4.4m, from
the expected charge of £15.1m, results
primarily from a prior period credit of
£7.5m relating to agreement of tax
positions with the UK and German tax
authorities, reduced by non-deductible
expenditure totalling £2.7m.
The group works in an open
and transparent manner with the tax
authorities. HM Revenue & Customs has
graded the group as a ‘low risk’ taxpayer.
The group is committed to maintaining
this status.
The group made net corporation tax
payments totalling £16.4m in the year.
Earnings per share
Basic earnings per share is a profit of 13.1p (2012: a profit of 0.1p). A year-on-year
comparison is shown below:
2012 profit/earnings per share
Movements in:
OPBVM
Goodwill impairment
Contribution from joint ventures and associates excluding revaluation
Fair value of derivatives
Revaluation of investment properties including joint ventures and
associates net of tax
Provisions against trading stock values and loans
Net interest payable
Taxation/other
2013 profit/earnings per share
£m
0.4
(18.8)
(4.7)
(2.8)
52.8
13.2
0.8
22.0
(9.3)
53.6
39
Pence per
share
0.1
(4.6)
(1.2)
(0.7)
12.9
3.2
0.2
5.4
(2.2)
13.1
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Dividend for the year
After considering the investment and working capital needs of the business, the directors
have recommended a final dividend of 1.46p per ordinary share (2012: 1.37p) which
equates to £6.0m (2012: £5.6m). This is in addition to the interim dividend of 0.58p per
ordinary share (2012: 0.55p). The total dividend for the year will therefore be 2.04p per
ordinary share (2012: 1.92p) an increase of 6.25%. Earnings cover dividends by 6.4 times.
Net asset values
We set out below the two measurements to enable shareholders to compare our
performance year-on-year.
30 September
2013
30 September
2012
Movement
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
242p
223p
9%
195p
157p
24%
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 this document.
40
Grainger plc / Strategic report
Financial review
continued
Cash inflows from sales, rents, fees
Consolidated LTV
Headroom
A reconciliation between the statutory
balance sheet and the market value balance
sheets for both gross NAV and NNNAV is
set out in note 4 to the accounts.
Reconciliation of gross NAV to NNNAV
Gross NAV
Deferred and contingent
tax
Fair value of derivatives
adjustments net of tax
NNNAV
£m
1,008
Pence per
share
242
(113)
(84)
811
(27)
(20)
195
The major movements in gross NAV in the
year are:
Gross NAV at
30 September 2012
Profit after tax
Revaluation gains on
trading stock
Elimination of previously
recognised surplus on
sales
Dividends paid
Impact of derivatives
and hedging net of tax
Other
Gross NAV at
30 September 2013
Pence per
share
£m
929
54
126
(55)
(8)
(33)
(5)
223
13
30
(13)
(2)
(8)
(1)
1,008
242
The major movements in NNNAV in the
year are:
NNNAV at
30 September 2012
Profit after tax
Revaluation gains on
trading stock
Elimination of previously
recognised surplus on
sales
Dividends paid
Cashflow hedge reserve
net of tax
Contingent tax
Other
NNNAV at
30 September 2013
Pence per
share
£m
654
54
126
(55)
(8)
29
(4)
15
157
13
30
(13)
(2)
7
(1)
4
811
195
The effect of HPI and our outperformance
of it has been a major contributor to
growth in asset value. An analysis of the
sources of valuation growth split between
the gain shown in the income statement
and the gain included within our gross NAV
and NNNAV movements is shown below:
Division
UK
Residential
portfolio
Retirement
solutions
portfolio
Development
JV and
associates
Trading
stock
£m
Income
statement
£m
Total
increase
in value
£m
96
3
99
21
8
1
126
–
–
15
18
21
8
16
144
An increase in market value of 1% across
the group’s residential property including
our share of joint ventures and associates
leads to an increase in value of £20.4m
before deferred and contingent tax and
£16.0m after tax. This is equivalent to
5p per share on NAV and 4p per share
on NNNAV.
Grainger plc / Annual Report and Accounts 2013
Market value analysis of property assets
Shown as stock
at cost
£m
872
Residential
78
Development
950
Total at 30 September 2013
1,023
Total at 30 September 2012
* Incudes property assets within held-for-sale.
Market value
adjustment
£m
427
6
433
364
Market value
£m
1,299
84
1,383
1,387
Financial resources, interest cost and derivative movements
Net debt
Consolidated loan to value
Core loan to value
Core interest cover
Average maturity of drawn facilities
Headroom
Average cost of debt including costs
Investment
property/
financial
interest in
property
assets
£m
460
–
460
843
Total*
£m
1,759
84
1,843
2,230
2013
£959m
48%
40%
5.0
4.6 years
£292m
5.7%
2012
£1,194m
55%
48%
3.0
5.1 years
£148m
6.1%
Our headroom
provides capacity
for accretive
re-investment in
the business.
41
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We delivered early on our commitment to
reduce net debt to below £1bn by the end
of 2013. As at 30 September 2013 net debt
was £959m, a reduction of £235m from
the 30 September 2012 level of £1,194m
and a reduction of £611m in the 30 months
since 31 March 2011 when net debt was
£1,570m. Our consolidated loan to value
now stands at 48% (2012: 55%). LTV on
the core facility was 40% (2012: 48%).
This compares to a maximum allowable
LTV covenant under that facility of 75%.
The interest cover ratio on the core facility
stood at 5.0 times (2012: 3.0 times).
This compares to a minimum interest cover
covenant of 1.35 times.
The reduction in debt is after £39m
cash outflow on breaking certain ‘fixed’
rate swaps, investing £22.8m into our
associate venture with APG and a rise
in our Euro denominated debt of £9m
through exchange rate movements.
Notable factors which have served to
reduce debt are strong vacant sales of
£116m, transfers of assets into strategic
alliances of £100m and sales of tenanted
and other assets of £137m.
As at 30 September 2013, the average
maturity of the group’s committed facilities
was 4.4 years (2012: 5.1 years) and the
average maturity of the group’s drawn
debt was 4.6 years (2012: 5.5 years).
The group has free cash balances
of £62m plus available overdraft of £5m
along with undrawn committed facilities
of £225m. Thus, headroom totals £292m
as at 30 September 2013 (2012: £148m).
This headroom is already sufficient, without
any further actions, to repay the element
of the core debt facility of £137m due
in December 2014. There are no further
significant repayments until March 2016.
The group’s average interest rate,
excluding costs as at 30 September 2013
(based on current Libor/Euribor rates and
on current debt hedging), was 5.5%
(2012: 6.0%).
The group’s average cost of
debt, including costs, through the
year to 30 September was 5.7%
(year to September 2012: 6.0%).
At 30 September 2013, gross debt
was 68% hedged (2012: 85%) of which
3% was subject to caps (2012: 4%).
The business has produced £431m of cash
from gross rents, property sales net of fees
and fee and other income. The largest
outflows of cash are £39m to settle swaps
and £60m of interest.
We will also ensure we create options
for ourselves as regards the medium to
long-term financing for the group and act
at appropriate times. These considerations
will take into account diversification of
funding sources (which may include
accessing the debt capital markets),
maturity profile, and average maturity
as well as cost. This will include regular
reviews of our level of interest rate hedging
and in particular our portfolio of interest
rate swaps.
Having fully considered the group’s
current trading, cash flow generation
and debt maturity, the directors have
concluded that it is appropriate to prepare
the group financial statements on a going
concern basis.
Mark Greenwood
Finance Director
7 November 2013
42
Grainger plc / Strategic report
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 upon the
providers of our income: purchasers
who buy our properties, tenants who
rent our properties and co-investors and
partners who provide the opportunities
to generate fees. Our success comes from
understanding their needs and objectives
and using our expertise to create products
and services that meet these needs at the
right quality and price or deliver attractive
returns at appropriate levels of risk.
A continuing emphasis is on engaging
more closely with our tenants, increasing
our focus on their needs and in particular
increasing our understanding of the
requirements of our PRS tenants and
what they value, both in the property
they wish to rent and the services they are
seeking. Research into our existing tenants’
perceptions is allied to work to design the
future in our first PRS developments.
To support our income-generating
activities, we need effective long-term
relationships with suppliers and advisers.
This year we have made strong progress
in many areas, the most significant
being the 10-year agreement with Kier
Services for the provision of repairs and
maintenance services to our UK properties.
In Germany we have recently entered into
an agreement with Treureal to provide
property management services to our
owned and managed portfolios.
A key part of the Business
Improvement Programme in 2013 has
been to focus the expertise of our staff
on areas where we can add most value.
Underpinning this is a commitment to
developing the skills of our staff to keep
pace with the changing requirements of
the market and the organisation.
Talent development
Our continued success depends on
effective leadership and the expertise of our
staff. Our skill requirements are constantly
evolving to enable us to take advantage
of the opportunities for growth and
diversification within our business.
We are proud of our record in
developing our staff by providing first-
class learning and career opportunities,
for those starting their career through
to appointment at senior manager level.
Our Graduate Programme is in its
second year with our trainee graduate
surveyors having completed their first-
year placements and making a valuable
contribution to the business. Two graduates
joined us in September 2013.
As a leader in the residential sector we
believe we have a responsibility to engage
with young people and encourage them
to consider a career in residential property.
We have provided 36 weeks’ work
experience for 20 students, focusing on
those from under-represented groups.
We are working in partnership with the
Royal Borough of Kensington and Chelsea
and Reading University in giving students
an insight into working in the sector.
Our first apprentice has joined us, based
in Aldershot.
We constantly look for opportunities
for staff to broaden their skills and
experience through internal job moves
or short-term assignments. This year
we have made internal appointments
at senior manager and manager levels
and supported the Government’s PRS
initiative through a secondment to the
PRS Task Force.
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Our people
Our aim is to continue to
be an employer of choice
for talented people,
whatever their professional
background.
Achievements in 2013
per employee invested in training
work experience placements
provided during the year
Leadership and staff development
We have established a partnership with
Ashridge Business School in delivering our
Leadership Programme. We launched our
first Emerging Leaders programme in July,
in addition to individual and group training
for our senior managers.
It is our objective to increase the
percentage of senior positions within
Grainger that are held by women and our
staff development programmes are a key
tool toward achieving this ambition.
Further education investment
continued with 17 members of
staff being supported in gaining a
professional qualification.
We are proud that this year our staff,
on average, received training equivalent
to almost 2½ days per person.
Staff engagement
Staff from every function and office
were involved in the development of our
company values, introduced in July this
year. We are now working to embed our
values in our business operations and
people processes.
This year we have also run stress
management and emotional resilience
courses to encourage a self-reliant
approach to change in the workplace.
Staff turnover and absence are,
inter alia, important indicators of levels of
engagement. Our experience is normally
below comparable industry levels, however
this year our staff turnover figure has risen
as the result of the transfer of staff to
Kier Services under the new repairs and
maintenance contract.
Our people – our values
Our values underpin our behaviours and
help create a resilient business.
43
Female
2
0
9
37
28
75
1
3
155
Male
4
4
24
51
13
11
3
5
115
No. of employees
6
4
33
88
41
86
4
8
270
No. of employees
26
75
69
49
28
21
2
270
Employee profile
Role
Non-executive directors
Executive directors
Senior managers
Managers
Associate
Support
Graduates
Off-site
Employee profile
Role
1. Non-executive directors
2. Executive directors
3. Senior managers
4. Managers
5. Associate
6. Support
7. Graduates
8. Off-site
7 8
1 2
3
4
6
5
Employee profile
Role
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. 65+ years
7
1
6
5
4
2
3
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Grainger plc / Strategic report
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.
Understanding our tenants’ needs
Just as our portfolios vary, so too do our
tenants and their needs. As part of our
objective to ensure that our products and
services meet these needs, this year we
have sought to engage more closely with
our tenants in all portfolios and particularly
to increase our understanding of existing
and future PRS tenants.
In our regulated portfolio when we
undertake capital works we discuss them
more closely with our tenants and involve
them wherever possible, for example in
selecting the type of fittings, work-tops
and units. We are also providing green
tips and referring our tenants to grants
where suitable.
For PRS tenants, as part of our
increasing research programme, we
have undertaken in -depth analysis of the
move-in and move-out experience and are
using this to identify areas for improvement.
In the GRIP portfolio, we have improved
the refurbishment specification; installing
‘A’ rated appliances, low energy lighting
and condensing boilers where possible
to reduce day-to-day running costs for
tenants and to improve the sustainability
of the property.
The Kier repairs and maintenance
contract is designed to provide services
tailored to the needs of different tenant
groups, for example scheduling evening
repair visits for PRS tenants, while improving
overall levels of service, for example
through a single national call centre and
scheduling an appointment with an
operative on the first call to the call centre.
Finally we have extended our
complaints procedure across all portfolios
to match the standards of that offered in
our FCA regulated business.
Our properties – our tenants’ lifestyle
Our future will be shaped by ensuring that we
understand our tenants’ choices.
Achievements in 2013
Gross rents
Units managed
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.
Achievements in 2013
£12.5m
Fee income
24%
Increase
45
Elsewhere in this report we highlight
the new and existing partnerships in our
funds, co-investment and development
businesses. In support of these and other
income-generating activities, the creation
and maintenance of effective long-term
relationships with suppliers and advisers
is central to ensuring our sustainable
profitability and to increasing efficiency.
This year we have made significant strides
forward in a number of areas.
At the start of the year we
implemented our legal panel, which
focused our use of legal advisers on their
areas of expertise and improved our
management of a crucial area of cost and
expertise. In December we outsourced
the process of inspection and valuation of
our properties owned or managed by our
Retirement solutions business to Allsop,
enabling both an improvement in the use
of internal resources and the efficiency with
which the inspection and valuations are
carried out. This emphasis on ensuring that
we focus our people and our management
time on those areas that add most value
has been at the heart of our Business
Improvement Programme and has been
best exemplified by the announcement
in May of the award of a 10-year contract
to Kier for the provision of reactive repairs
and maintenance services in the UK.
The core objectives of this agreement,
the first large-scale and only national
arrangement of its kind in the Private
Rented Sector, are a reduction in the costs
of these services both to Grainger, and to
its co-investors, and an improvement in the
quality of services provided to the tenants
in the properties that we manage. In the
longer term we hope to work closely with
Kier on opportunities where our skills and
interests are aligned.
In Germany, in parallel with the
partnership arrangement with Heitman,
we have undertaken a fundamental review
of how best to take our business forward
and ensure that we possess the capabilities
and resources that we require to meet a
new level of expectation and performance.
Accordingly we have entered into a long-
term arrangement with Treureal to provide
property management services to our
wholly and jointly-owned portfolios.
016739_Grainger_AR13_p34-45.indd 45
02/12/2013 18:55
Grainger plc / Annual Report and Accounts 2013FinancialsStrategic reportGovernance 46
Grainger plc / Strategic report
Corporate responsibility
How CR supports
our business strategy
The CEO perspective from
Andrew Cunningham
Our values
As a responsible business,
we take a long-term approach
to what we do. We are proud
to be and committed to continuing
as the leader in the residential
property sector.
This means:
We are always striving to be
the best, whether it’s improving
how we do things or finding
new opportunities that give us
the edge in the residential market.
Our expertise is the key to
our success, creating confidence
in both ourselves and others.
At the heart of all of this is
a mutual respect, whether it
is for colleagues, customers,
competitors, communities
or our clients.
Looking back over the past year, our
achievements demonstrate Grainger’s
commitment to embedding corporate
responsibility into our everyday work and
the competitive advantage behaving as a
responsible business provides. Partners and
investors like APG (see page 11 and page
17) and the Ministry of Defence (see page
29) have clear standards of corporate
behaviour and responsibility – a robust
corporate responsibility track record is on
par with our status as a listed company, our
large portfolio, and geographic diversity
in making Grainger a partner of choice.
Other organisations see those relationships
and know we are a company of quality.
Our corporate responsibility (CR)
programme is directly linked to our
business model and four key strategic
objectives: leadership, location, balance and
optimisation. We set CR targets to manage
risks and opportunities related to our
strategic objectives and then embed these
initiatives into our everyday work for long-
term value creation. I’m pleased to report
that we achieved 67% of our corporate
responsibility targets this year. For example,
in 2012/13:
We defined the values necessary
for Grainger to meet its customer demands:
Our values are the foundation of our
leadership of the residential property
market. We defined the values that have
been at the heart of Grainger for the last
100 years through a collaborative, bottom-
up process with our employees. Our values
will set the guidelines for behaviours and
a framework to make good commercial
and ethical decisions going forward. I also
believe that they will help us to retain and
attract the talented people needed to
deliver our strategy (see pages 32 and 42).
One of next year‘s CR targets is to embed
our values throughout the business.
We modelled the financial impact
of sustainability risk:
The UK government’s 2012 Climate
Change Risk Assessment identified damage
to property due to flooding as a key risk
and the Government’s recent negotiations
with the insurance industry also highlighted
the financial impact of this risk for property
owners. We undertook an extensive
process of flood risk assessment for
13,500 UK properties this year. Flood risk
is already considered in our sustainable
investment policy, published in 2012.
Understanding the financial impact of
flood risk and actively managing it in our
existing portfolio and acquisitions is part
of how we manage our assets to deliver
the best returns. Our flood risk database
also feeds into business recovery plans for
environmental disasters (see page 32).
Grainger plc / Annual Report and Accounts 2013
We improved our process for measuring
tenant satisfaction (in the UK):
We seek honest feedback from our
tenants to continually improve our property
management services, which makes us a
desirable third-party portfolio manager.
The 2012/13 phone customer survey pilot
increased response rates to 88% and
highlighted the move-in experience and
customer communication as areas for
improvement. We are extending this new
process to additional portfolios in 2013/14
and have set ourselves a 2013/14 target
to define and improve the PRS customer
communication experience. These initiatives
help us to manage the risk that we fail to
determine the expectations of stakeholders
(see page 31). And, the fees earned from
our property management services are a
key driver for greater balance in our income
streams (see case study page 44).
We increased the Energy Performance
Certificate level of our units:
We piloted a scheme to upgrade the EPC
ratings of our portfolio through our regular
refurbishment programme – instructing our
contractors that this was a requirement of
the refurbishment. Government regulation,
from the Green Deal to the UK Energy
Act, targets existing housing stock for
improvements in energy efficiency in order
to meet the UK’s carbon reduction targets
(see page 33). This will impact our ability
to let lower rated units starting in 2018.
In 2013/14, we will partner with Kier to
implement property conditions assessments
within our repairs and maintenance
programme that will be the foundation of
a multi-year EPC improvement programme.
Preserving asset value for the long-term
will enable us to continue to optimise our
financial gearing.
UK required sustainability reporting
We are pleased to be able to make our first
report of greenhouse gas (GHG) emissions
this year in line with UK mandatory
reporting regulations. Our total GHG
footprint, reported in line with Defra‘s
guidance on mandatory GHG reporting
requirements, is 2,423 tonnes CO2e.
47
More broadly, tenant carbon emissions
from our UK Residential portfolio are an
estimated 29,551 tonnes CO2. Reporting of
these Scope 3 emissions is not required by
UK regulation, but our estimate makes clear
that Grainger’s mandatory GHG footprint
is very small compared to tenant emissions
from heating, lighting and hot water in
the properties we own and manage.
We are actively working to improve
the energy efficiency of our existing
homes through ECO funding and our
refurbishment specifications.
There are several areas under our
operational control for which we were
not able to collect data this year. These are
fully disclosed and explained in our GHG
statement (see page 52).
We have judged that human rights
are not a material risk for the business due
to existing regulatory requirements in the
UK and Germany and the nature of our
supply chain. However, we will consider
how Grainger can contribute to the
advancement of human rights in 2013/14.
For information on our staff diversity, please
see Employee profile page 43.
Our first report of
greenhouse gas (GHG)
emissions in line with
UK mandatory reporting
regulation is provided
on pages 52 and 53.
Looking forward
One of the Grainger values is to take
a long-term view and accordingly,
corporate responsibility is increasingly
a fully integrated part of our business.
I intend to lead our CR programme away
from a focus on detail, towards big picture
solutions. We can update one process and
eliminate a problem for 15,000 tenants,
rather than solve each problem individually.
I am proud to share highlights from
the past year and our plans for the year
ahead in this report, and in our CR report
at www.graingercr.com.
Andrew Cunningham
CEO
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B u si n
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Grainger plc / Strategic report
Corporate responsibility
continued
What we have
achieved this year
2012/13 CR target progress
Status
1. Achieved
2. Partially achieved
3. In progress
4. Not achieved
Progress against CR targets in 2012/13
2012/13 CR target
Strategic
objective linkage
Final status
Improve Grainger’s (UK and Germany) process and accuracy
for measuring and managing tenant satisfaction with a robust
baseline to be used from 2013/14.
Define the in-house customer-focused value, skills and
behaviours necessary to enable Grainger to meet its
customer needs.
Total
6
3
2
0
Identify and respond to current and future customer needs
through research and customer profiling for property and
asset management.
Include clauses on environmental, social and service quality
criteria and reporting in all major supplier contracts.
Progress against CR targets in 2012/13
We are proud to have achieved 67% of
our targets for 2012/13, in addition to
completing 67% of targets that were
partially achieved at the end of 2011/12.
We are committed to completing the
targets that were partially achieved in
2012/13 – on customer profiling, and
improving Grainger’s measurement of
tenant satisfaction (achieved in our UK
business though not in our German arm)
and continuing our pilot to uprate EPCs on
our UK properties. We have two two-year
targets which are in progress and will be
assessed in 2014.
Train managing agents on raising health and safety and
environmental standards.
Increase to EPC level E or above 10 Assured Shorthold
Tenancy (AST) units and 10 regulated units that are currently
F or G rated. Minimum target, which may be extended if initial
results are positive.
Partner with Green Deal providers to test Green Deal on at least
10 Grainger units in 2013. Initial target, which may be exceeded
if pilot is successful.
Model the financial impact of key sustainability risks
such as carbon price on Grainger’s business.
Report on global Scope 1 and 2 Greenhouse Gas (GHG) emissions
in line with the requirements of UK mandatory reporting
regulation.
Continue improving Grainger’s GRESB score year-on-year in 2013
and 2014 – Target to be assessed in 2014.
Earn an EPRA sustainability award for 2012/13 report
– Target to be assessed in 2014.
Key:
Progress against targets
2011/12 CR target
Achieved
Partially achieved
In progress
Not achieved
(cid:51)
l
For full information on our current
and future targets, performance
and strategy, visit www.graingercr.com
Collect annual electricity, gas and water meter readings
at all blocks for which Grainger purchases energy.
Create a CR library on Grainger policies, achievements and
FAQs for use in internal and external communications on
Grainger’s corporate responsibility approach.
Publish an executive director approved policy outlining
how Grainger values sustainability risks and opportunities
in its investment process.
1; 3
1; 3; 4
1; 2; 3; 4
1; 4
1; 3; 4
1; 4
1; 4
2; 4
1; 4
1; 4
1
(cid:51)
(cid:51)
Final status
Grainger plc / Annual Report and Accounts 2013
Progress against key
performance indicators
in 2012/13
We use key performance indicators to track
our continuing performance on previous
corporate responsibility targets that are
embedded into our business activities.
The table below provides a summary of our
most material KPIs. For full details on our
corporate responsibility KPI performance,
visit www.graingercr.com.
Our properties
Our understanding of the EPC ratings
of our portfolio continues to improve as
more EPCs are commissioned each year.
F and G rated properties are concentrated
in our regulated portfolio – these units are
generally sold upon vacancy rather than
re-let. Whilst this means that the impact of
the 2018 lettings ban for F and G properties
is minimal, we launched a pilot to uprate
properties through refurbishment in
2012/13 and will extend this in partnership
with Kier in 2013/14. Our Considerate
Constructors Scheme scores demonstrate
continuous improvement in operating
our development sites in a manner which
respects local communities.
49
Supply chain and customers
Customers consistently rate Grainger
and our contractors’ customer service
as good or satisfactory, but we aim to
improve these KPIs over the next year.
Our new partnership with Kier introduces
a single, national repairs hotline and service
level promises for repairs. Also, we are
working to improve tenant satisfaction
through new move-in procedures and
changes to customer communication.
The company-wide customer complaints
procedure introduced in 2011 means
that all complaints received are logged
and carefully reviewed by management,
including the executive board.
The percentage of applicable
complaints received and resolved during
the financial year has increased to 81% and
KPI
the number of complaints has decreased
from 60 to 54. We will be reviewing how
we measure and report ‘resolution’ of
complaints in 2013/14 as part of our on-
going efforts to improve customer service.
Community investment
In 2011/12 we made a large increase in
our volunteering and charitable donations
as part of our centenary celebrations.
These have returned to more normal
levels in 2012/13. The greater dip in staff
volunteering was due to high demands on
staff time for business purposes. We aim to
increase the level of volunteering back to
an equivalent of 30% of staff volunteering
one day in 2013/14.
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2011/12
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1-year trend
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Our properties
EPC energy efficiency ratings (% of properties)1 A–C: 47%
D–E: 42%
F–G: 10%
71%
Average Considerate Constructors Scheme
(CCS) score2
A–C: 36%
D–E: 44%
F–G: 20%
78%
A–C: 36%
D–E: 47%
F–G: 17%
79%
Supply chain
Customers rating contractors’ service at good
or above %3
98%
87%
84%
Customers
Proportion of tenants rating Grainger’s
management service as good or above (%)4
Percentage of tenant complaints fully resolved
(% as of year end)5
61%
Not
measured
77%
73%
75%
81%
Community investment
Total donated to charities
(total cash and in-time contributions, £)6
Number of staff working days contributed
for charitable causes
Number of staff involved in volunteering
activities during company time
£55,548
£69,411
£51,597
56
60
86
78
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1 Includes all properties in EPC database for UK Residential and GRIP (2,316 as of 30 September 2013 up from 2,287 in 2011/12).
2 Major refurbishments and development sites. Figures for previous years have been restated as percentages due to change in
the CCS scoring methodology – UK only.
3 Existing market rented and regulated tenants – UK only.
4 In the customer survey process introduced in 2012/13, the wording of this question was changed slightly to “very satisfied or quite
satisfied” with service provided by Grainger – UK only.
5 All complaints via the executive and through Grainger website – UK only.
6 Includes corporate donations, money raised by employees for charitable causes (including activities by employees in their own time),
staff time contributed through volunteering and money donated by staff through payroll giving.
Case study
The role of corporate
responsibility in the
GRIP fund
Grainger’s co-equity partnership with
APG, Europe’s biggest pension fund
asset manager and a leading sustainable
investor, to create GRIP, one of the largest
institutionally-backed UK private rented
sector funds is an opportunity to further
improve our corporate responsibility
standards and performance.
“We are aiming to create a unique, sector
leading GRIP product – a totally better
quality service (unit type, finish, repairs,
customer communication, environmental
efficiency) in the private rented sector.
Sustainability is one important facet of that
overall product. What we’re doing with
sustainability is not a tick box exercise, it’s
about improving the asset performance
and making a product that gives better
choice to tenants.”
Paul Ruston, GRIP asset manager,
Grainger plc
GRIP fund
A newly refurbished property
in the GRIP fund.
“APG takes ESG criteria into consideration
in our due diligence process for real estate
investment. We use the annual Global
Real Estate Sustainability Benchmark
(GRESB) survey and results for measuring,
monitoring and comparing the sustainability
performance of our property investments.
We are engaging with GRIP to use its
2013 GRESB performance to highlight
potential areas for improvement, and to
target advances for the next reporting year.
Grainger’s GRIP fund management has
responded proactively over the last nine
months, targeting smart metering, quarterly
energy reporting, tenant communications
and capital works to improve the
sustainability performance of a strategic
portfolio of private rented sector blocks.”
Sander Paul Van Tongeren,
senior sustainability specialist
global real estate and infrastructure,
APG Asset Management.
“APG see corporate responsibility as
a competitive advantage and part of
the extensive due diligence process they
conducted was into our CR performance.
APG are very serious about CR and, as
when a footballer plays with a top team,
he or she gets better; by interacting with
APG, we will improve.”
Andrew Cunningham, CEO, Grainger plc
50
Grainger plc / Strategic report
Corporate responsibility
continued
Case study
Reporting our
corporate responsibility
performance
We believe that transparent disclosure of
our corporate responsibility performance is
part of our leadership role in the residential
sector. We disclose performance through
a range of industry recognised standards
and benchmarks. One of the challenges
we face in responding to investor surveys
is the difficulty in collecting environmental
data for a residential portfolio dominated
by single family residences. In 2013/14,
we plan to engage with organisations that
measure sustainability in real estate to drive
appropriate reporting for the residential sector.
– We improved our corporate score in
the Global Real Estate Sustainability
Benchmark (GRESB) by 9% and aim to
improve further in 2014 with expanded
environmental performance indicators.
The GRIP fund submitted a separate
GRESB response for the first time in 2013
and has agreed a roadmap to ensure
it outperforms its peer group average
next year.
– Grainger has expanded its reporting
against EPRA sustainability best practice
recommendations (see page 51).
– We scored 78 for disclosure and level C
for performance in the Carbon Disclosure
Project 2013, outperforming the UK
and FTSE 350 averages and significantly
improving on our score from 2012.
– We continue to be listed in the
FTSE4Good Index.
And, for the first time we are reporting GHG
emissions in line with UK mandatory reporting
regulations (see page 52). Next year we will
begin to report emissions from our
German portfolio.
CARBON DISCLOSURE PROJECT
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Summary of
EPRA sustainability
performance measures
The following table 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, outlines our plans to
expand our data collection in 2013/14 to
be able to report more fully against the
recommendations next year and includes
directions on where to find each indicator
in our reporting. We have significantly
expanded our reporting this year to include
water, waste and energy for our portfolio.
We are reporting on an operational control
approach, in line with our reporting for
UK mandatory GHG reporting. We are
not reporting on any energy or water
sub-metered to tenants, as this is outside
our Scope 1 and 2 boundaries. Since this
is the first year that we are reporting
most measures, we are only able to
comment on trends in office energy use.
Energy use in both our like-for-like and
all offices decreased slightly (2% and 3%
respectively). We expect further decreases
next year when we combine our two
London offices.
For our full EPRA sustainability best
practice recommendations reporting table,
see page 168.
EPRA sustainability best practice recommendations compliance table
Compliance self assessment
EPRA sustainability
performance measure
Property investment portfolio
Own office
occupation Grainger commentary
German
assets
UK
residential
assets
GRIP
assets
Own office
occupation
N/A
N/A
N/A
Not gathered for our German property investment portfolio due to a transfer
in property management. We will commence collecting data for this portfolio
in 2013/14.
There is no Grainger-obtained district heating and cooling for our UK
property investment portfolio and there is no district heating and cooling
consumption sub-metered to Grainger from our landlord for our UK and
German occupied offices.
N/A
Not gathered for our German property investment portfolio due to a transfer
in property management. We will commence collecting data for this portfolio
in 2013/14. There is no fuel consumption sub-metered to Grainger from our
landlord for our UK and German occupied offices.
The intensity measure used for property investment portfolio is kWh per
£m value of assets under management. The intensity measure used for
own occupied offices is kWh per employee.
Direct GHG emissions includes emissions from fuel combustion from our
property investment portfolio only. We have not included emissions from
our vehicle fleet in reporting of own operations. Please see our mandatory
GHG statement for a full footprint figure.
Indirect GHG emissions include Scope 2 GHG emissions from purchased
electricity and Scope 3 GHG emissions from transmission and distribution
losses associated with purchased electricity for our UK property investment
portfolio and our UK and Germany occupied offices.
Greenhouse gas intensity from building energy includes Scope 1 and 2 GHG
emissions only. The intensity measure used for property investment portfolio
is kg/CO2e per £m value of assets under management. The intensity measure
used for own occupied offices is kg/CO2e per employee.
Not gathered for our own occupied offices due to landlord metering
arrangement. Not gathered for our German property investment portfolio.
Not gathered for our offices due to landlord metering arrangement.
Not gathered for our German property investment portfolio. The intensity
measure used for property investment portfolio is m3 per £m value of assets
under management.
We do not provide waste management for our UK Residential portfolio.
Waste data was not gathered for our German occupied office or property
investment portfolio.
We do not provide waste management for our UK Residential portfolio.
Waste data was not gathered for our German occupied office or property
investment portfolio.
N/A
N/A
3.1
Total energy consumption
from electricity
[GRI: EN4]
3.2 Total energy consumption
from district heating and
cooling [GRI: EN4]
3.3 Total energy consumption
from fuels [GRI: EN3]
3.4 Building energy intensity
[GRI: CRESS – CRE1]
3.5 Total direct greenhouse gas
(GHG) emissions
[GRI: EN16]
3.6 Total indirect greenhouse gas
(GHG) emissions
[GRI: EN16]
3.7 Greenhouse gas intensity
from building energy
[GRI: CRESS – CRE 3]
3.8 Total water withdrawal
by source [GRI: EN8]
3.9 Building water intensity
[GRI: CRESS – CRE2]
3.10 Total weight of waste by
disposal route [GRI: EN22]
3.11 Percentage of waste
by disposal route
Key:
Fully reported
Partially reported
Not reported l
Where
measure
is reported
Pages
168 to 172
168 to 172
168 to 172
168 to 172
168 to 172
168 to 172
168 to 173
173
173
174
174
52
Grainger plc / Strategic report
Corporate responsibility
continued
Grainger plc
mandatory greenhouse gas
emissions reporting
Global GHG emissions data for period
1 October 2012 to 30 September 20131
Tonnes
of CO2e
1,467
956
2,423
Emissions from
Combustion of fuel and operation
of facilities
Electricity, heat, steam and cooling
purchased for own use
Total footprint
Company’s chosen
intensity measurement:
Emissions reported above,
per £m value of assets
under management:
Emissions reported above,
per owned unit2:
Emissions reported above,
per employee3:
Scope 3 Global GHG emissions data for period
1 October 2012 to 30 September 2013
0.98 per
£m value
of AUM
0.18 per
owned unit
8.97 per
employee
Emissions from
Developments
(contractor electricity and fuel use)
Electricity transmission and
distribution losses
Business travel
(air and rail in UK and Germany)
Tonnes
of CO2e
239
81
140
Tonnes
of CO2
Scope 1
Scope 2
Scope 3
Estimated tenant energy use,
calculated from a sample of
Energy Performance Certificates,
(EPCs) and reported in CO2 only.
Not included
29,551
1 As this is the first year of Mandatory GHG reporting, there is no
comparison year reported.
2 This is the number of owned units in the UK; in future years this
will also include the number of owned units in Germany.
3 Total number of employees in Grainger plc at 30 September 2013.
Methodology
We have used the main requirements of
the GHG Protocol Corporate Accounting
and Reporting Standard (revised edition)
and ISO14064 Part 1; data gathered for
our on-going reporting under the Carbon
Disclosure Project; energy consumption
data for our UK properties and emission
factors from the UK Government’s
Conversion Factors for Company
Reporting 2013.
We have reported on all of the
emission sources required under the
Companies Act 2006 (Strategic Report
and Directors’ Reports) Regulations 2013.
We have used the Operational Control
consolidation method. These sources fall
within our consolidated financial statement.
We do not have responsibility for any
emission sources that are not included
in our consolidated statement.
Limitations to data collection
UK Residential
We have not reported emissions from the
properties in our GInvest portfolio or from
units undergoing small-scale refurbishment
as we do not have energy consumption
data for the reporting year – we are
working to improve data collection for
future reporting.
Fund and third-party management
We have not reported emissions from the
properties in our WIP portfolio as we do
not have energy consumption data for the
reporting year – we are working to improve
data collection for future reporting.
German Residential
We have not reported emissions from
the properties in our German residential
portfolio as we do not have energy
consumption data for the reporting year –
we are working to improve data collection
for future reporting and will report on our
German properties next year.
Landlord-obtained gas consumed in common areas and by tenants
on an unmetered basis.
Fuel consumption in vehicles owned or leased by Grainger plc.
Landlord-obtained electricity consumed in common areas and by tenants
on an unmetered basis.
Electricity consumed by Grainger plc. that is sub-metered by its landlord
in offices which it occupies as a tenant.
Contractor-obtained energy used in developments and refurbishments,
where available.
Grainger employees’ business travel; ‘grey fleet’ travel.
Tenant-obtained energy consumption (estimated from the properties’
EPC certificate).
Waste treatment and disposal.
Water consumption.
Staff commuting.
Landlord-obtained energy consumed by tenants on a metered basis
(scenario not currently applicable).
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53
Estimation
For properties where some consumption
is known, missing periods of consumption
have been estimated using the daily
average of known consumption. 37% of
the total energy use has been estimated
using this methodology. 12 out of 204
properties have been excluded from the
analysis because we have not been able
to record any consumption.
Grainger has used a database of over
2,000 EPCs produced between 2008 and
2013 across the UK Residential and GRIP
portfolios to estimate tenant carbon dioxide
emissions. Every EPC has an estimate of
the unit’s annual carbon footprint for
heating, lighting and hot water based on
the unit’s predicted energy consumption.
We have taken an average of emissions for
each portfolio so that the average reflects
the portfolio’s characteristics (e.g. flats,
single family dwellings, etc.) The respective
averages have been multiplied by the
number of units per portfolio and the
results summed to produce an estimate
of emissions for UK Residential. We first
published an estimate of tenant emissions
using this methodology in our 2010/11
Annual report and have updated it to
reflect the addition of new EPCs and
changes in the composition of our
portfolio in each succeeding year.
Intensity metrics
We have used the market value of assets
under management as our main intensity
measurement as this is also what we use
to measure our business efficiency KPI as
reported in this Strategic report. We have
also used the number of UK units that we
own and the number of our employees.
We have chosen these metrics to align with
our financial reporting.
Our reported carbon footprint will
be larger in the 2013/14 reporting year
because we will be able to obtain data for
those parts of our portfolio that are missing
in 2012/13.
Advisor’s statement
Upstream Sustainability Services, a division
of Jones Lang LaSalle has been engaged
since 2005 as advisors to Grainger plc on
its corporate responsibility (CR) strategy and
implementation. Our programme of work
includes assisting Grainger plc with setting
CR targets and reviewing performance
against these targets at year end. Due to
Upstream’s long-standing relationship
with Grainger plc, the review of target
achievement and this statement itself
cannot be considered entirely independent.
Jones Lang LaSalle’s observations
and recommendations are based on
independent analysis of documents,
interviews and/or other secondary evidence
provided by Grainger plc and relevant
third-parties. Reasonable efforts were
made to check the quality, accuracy and
credibility of all available information but
this did not include site visits or audits on
primary data (e.g. meter readings and
invoices). Consequently, this statement
does not represent formal assurance or
verification of the corporate responsibility
content of Grainger plc’s 2012/13 Annual
report and accounts.
Summary of target performance
Grainger achieved 6 (67%) and partially
achieved 3 (33%) corporate responsibility
targets in the year to 30 September 2013.
The company also completed two targets
which were partially achieved at the end
of 2011/12 and made significant progress
in the final outstanding 2011/12 target to
collect annual electricity, gas and water
meter readings at all blocks for which
Grainger purchases energy. Two targets are
in progress and will be assessed in 2013/14.
Observations and recommendations
– Grainger continued to embed CR
throughout its operations in 2012/13 and
built on the achievement of previous CR
targets to implement more concrete CR
initiatives throughout its supply chain and
business activities. The long-term value
of Grainger’s CR programme will depend
on the company’s ability to capitalise
on lessons learned through targets and
related initiatives to implement new ways
of thinking and doing business.
– As one of the first companies to report in
compliance with mandatory greenhouse
gas reporting under the Companies Act
2006 (Strategic and Directors’ Reports)
Regulations 2013, we commend Grainger
for significantly improving the data
collection coverage for its UK residential
portfolio. Grainger has not been able
to report on emissions from its German
portfolio for 2012/13 due to a change
in property manager. We recommend
Grainger integrates reporting of energy
consumption into arrangements with
its new German property manager and
continues to expand and improve its UK
reporting next year.
– Grainger has made significant progress
in measuring tenant satisfaction and
identifying areas to improve its supply
chain and tenant communication
for UK private rented sector tenants.
Implementing a similar programme
in Germany has proved challenging
this year.
– The process of defining the company
values through an extensive process
of staff engagement is clear evidence
that Grainger continues to engage with
its employees on being a responsible
business, building on the CR Innovation
Day in 2012.
– Looking ahead, Grainger is
demonstrating its commitment to
risk management by incorporating
sustainability risks into its corporate
risk register. In line with best practice
standards and the requirements of the
new Global Reporting Initiative G4
standard, we recommend Grainger
conducts a materiality review to identify
the most significant sustainability risks
and opportunities and incorporates
these into the corporate risk register.
The materiality review should include
both the UK and German businesses, to
ensure greater alignment in approach to
corporate responsibility going forward.
Lora Brill, associate director.
Upstream Sustainability Services,
Jones Lang LaSalle
7 November 2013
54
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 67
Andrew Cunningham, FCA, FRICS
Chief executive Aged 57
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 11 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
Member of remuneration 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 Institute of Chartered
Surveyors. He is a member of the advisory
boards of the Cambridge University Land
Economy Department and the Durham
University Business School.
Committee membership
None
John Barnsley
Non-executive director Aged 65
Baroness Margaret Ford
Non-executive director Aged 55
Appointment
Appointed to the board in 2003 and became
senior independent director in February 2011.
Appointment
Appointed to the board in 2008.
Experience
John is a non-executive director of Northern
Investors Company plc, American Appraisal
Associates LLP and The Hippodrome Casino
Ltd. Until December 2001 he was a senior
partner at PricewaterhouseCoopers.
Committee membership
Senior independent director
Member of audit committee
Member of risk committee
Member of nominations committee
Experience
Margaret is chairman of Barchester Healthcare
and STV Group Plc and is also a non-executive
director of Segro plc and Taylor Wimpey plc.
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
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Grainger plc / Governance 55
Mark Greenwood, FCMA
Finance director Aged 54
Nick Jopling, FRICS
Executive director Aged 52
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 Urban Land
Institute’s UK Residential Council and was a
member of Sir Adrian Montague’s committee
which reviewed the Barriers to Institutional
Investment in Private Rented Homes.
Committee membership
Member of risk committee
Committee membership
None
Peter Couch
Executive director, chief operating
officer Aged 55
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
None
Belinda Richards
Non-executive director Aged 55
Tony Wray
Non-executive director Aged 52
Simon Davies
Non-executive director Aged 53
Appointment
Appointed to the board in 2011.
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
Resolution plc and Balfour Beatty Plc.
Committee membership
Chairman of audit committee
Member of risk 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
Chairman of risk committee
Member of audit 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 Old Mutual Wealth
Management Limited.
Committee membership
Member of risk committee
Member of remuneration committee
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Grainger plc / Annual Report and Accounts 2013Strategic reviewFinancialsGovernance 56
Grainger plc / Governance
Corporate governance
What does
it mean
to Grainger?
The board of Grainger is
committed to maintaining
high standards of
corporate governance and
have implemented in full
the changes to the UK
Corporate Governance
Code introduced this year.
The directors and I
see good governance
as fundamental to
effective management
of the business
and delivery of long-term
shareholder value.
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 2013.
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 directors’ service
Robin Broadhurst Non-executive chairman
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 continue 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.
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 54 and 55.
In accordance with the UK Corporate
Governance Code, all the directors will
stand for re-election at the AGM.
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Diversity
Grainger believes that a diverse culture
is a key factor in driving its success, and
supports the Davies Report’s aspiration
to promote greater female representation
on listed company boards.
As at 30 September 2013, 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 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 and 2012. Further details are
available on page 60.
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 61.
Robin Broadhurst
Non-executive chairman
7 November 2013
57
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.
The role of the board
Governance framework
30 September 2013
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 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
Balance of directors
1. One–Two years
2. Two–Three years
3. Four–Six years
4. More than six years
1
30 September 2013
2
4
1
3
1. Male
2. Female
3. Chairman
4. Executive directors
5. Non-executives
30 September 2013
8
2
1
4
5
2
2
4
3
3
1
4
5
58
Grainger plc / Governance
Corporate governance
continued
The directors
As at the date of this report the directors
of the company are:
directors, holds monthly meetings with
each of the divisional boards to review
all operational issues.
Chairman
– Robin Broadhurst
Executive directors
– Andrew Cunningham
– Peter Couch
– Mark Greenwood
– Nick Jopling
Non-executive directors
– John Barnsley
(senior independent director)
– Baroness Margaret Ford
– Belinda Richards
– Tony Wray
– Simon Davies
Simon Davies was appointed to
the board on 20 November 2012.
Henry Pitman retired from the board
following the conclusion of the
company’s AGM on 6 February 2013.
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
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 have been two such
meetings since 1 October 2012 and an
additional meeting of the non-executive
directors without the chairman or the
executive directors present where the
chairman’s performance was discussed.
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.
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59
Effectiveness
Attendance table
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, UK Residential,
funds and the new registered provider
business;
– 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.
Five of the meetings were preceded, the
evening before, by an informal meeting
allowing more time to debate issues in
depth. One of these was held together with
members of the senior management team.
Two of the board meetings were held at
the company’s head office in Newcastle
upon Tyne, two in the company’s London
office, one at the company’s office
in Putney and one at the company’s
office in Frankfurt. During the course of
these meetings the directors have heard
presentations from divisional directors on
the following matters:
– The business improvement programme.
– Grainger’s properties in and around
London.
– The strategy and operational activities
of Grainger’s business in Germany.
– Fund management.
– Property and asset management.
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
Simon Davies
Meetings
attended
6
6
6
6
Meetings
eligible
to attend
6
6
6
6
Meetings
attended
5
6
2
6
5
6
6
Meetings
eligible
to attend
6
6
2
6
6
6
6
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 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. 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.
Simon Davies 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 UK residential
regulated portfolio through to some
of the development activities.
Training and updating in relation 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.
60
Grainger plc / Governance
Corporate governance
continued
The board is confident that all its members
have the knowledge, ability and experience
to perform the functions required of a
director of a listed company.
Access to independent advice
All directors have access to the advice and
services of the company secretary who
ensures that board processes are followed
and good corporate governance standards
are maintained. Any director who considers
it necessary or appropriate may take
independent, professional advice at the
company’s expense. None of the directors
sought such advice in the year.
Performance evaluation
The 2013 annual evaluation of the
board and its committees was led by the
chairman through individual meetings
with each of the directors, in advance
of which, each director had completed
a series of questionnaires relating to
the composition and running of the
board and its committees. 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 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 previous reviews,
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 an external facilitation of the
board evaluation will be carried out in 2014,
the last external evaluation having been
undertaken in 2011.
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 will be offering themselves for
re-election at the AGM in February 2014.
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,
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61
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 31 October 2013, the company is
aware of the following interests amounting
to 3% or more in the company’s shares:
Schroder Investment
Management Ltd
BlackRock Investment
Management Ltd
Henderson Global
Investors
Scottish Widows
Investment Partnership
Norges Bank
Investment
Management Ltd
Franklin Templeton
Fund Management Ltd
Holding
million
Holding
%
78.1
18.74
23.0
5.53
20.6
4.95
13.9
3.33
13.0
13.0
3.12
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Grainger plc / Annual Report and Accounts 2013
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 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 progress of our
debt reduction programme, the growing
importance of the private rented sector
and the role that Grainger can play in it and
Grainger’s fund management business and
the prospects for growth of that business.
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 2014
and to be available to answer questions.
All shareholders have the opportunity
62
Grainger plc / Governance
Audit
committee
report
The audit committee
currently comprises
four independent
non-executive directors.
Belinda Richards took over the role
of chairman of the committee from
John Barnsley in February 2013.
Belinda Richards
Committee chairman
Attendance table
Committee member
Belinda Richards
(Committee chairman)
Member
since
April 2011
John Barnsley
February 2003
Baroness Margaret Ford
July 2008
Tony Wray
November 2011
Meetings
attended
Meetings eligible
to attend
4
4
3
4
4
4
4
4
Both John Barnsley and Belinda Richards have recent and relevant financial experience as required
by the UK Corporate Governance Code. Biographical details relating to each of the committee
members is shown on pages 54 and 55.
Committee meetings
The committee met four times during the
year. The meetings are attended by the
committee members and, by invitation,
the finance director, representatives from
the external auditors and the internal audit
manager. Once a year, the committee
meets separately with the external auditors
and with management without the
other being present. The chairman of the
committee has regular quarterly meetings
with the internal audit manager.
Role and responsibilities
– Monitoring the integrity of the annual
and interim financial statements, the
accompanying reports to shareholders
and corporate governance statements.
– Reporting to the board on the
appropriateness of our accounting
policies and practices.
– In conjunction with the board risk
and compliance committee reviewing
and monitoring the effectiveness
of the group’s internal control and
risk-management systems, including
reviewing the process for identifying,
assessing and reporting all key risks.
– Managing the internal audit function
and approving their terms of reference
and their forward audit plan.
– To make recommendations to the board
in relation to the appointment and
removal of the external auditors and to
approve their remuneration and terms
of engagement;
– To review and monitor the external
auditor’s independence and objectivity
and the effectiveness of the audit
process, taking into consideration,
relevant UK professional and regulatory
requirements;
– To develop and implement policy on
the engagement of the external auditor
to supply non-audit services, taking
into account relevant ethical guidance
regarding the provision of non-audit
services by the external audit firm, and
to report to the board, identifying any
matters in respect of which it considers
that action or improvement is needed
and making recommendations as the
steps to be taken;
– To report to the board on how it has
discharged its responsibilities; and
– To oversee the whistleblowing provisions
of the group and to ensure they are
operating effectively.
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Grainger plc / Annual Report and Accounts 2013
63
Activities of the committee
– Reviewed and discussed with the
external auditors the key accounting
considerations and judgements reflected
in the group’s results for the six month
period ending 31 March 2013.
– Reviewed and agreed the external
auditors’ audit strategy memorandum
advance of their audit for the year ending
30 September 2013.
– Discussed the report received from the
external auditors regarding their audit in
respect of the year ending 30 September
2013, which report included comments
on their findings on internal control and
a statement on their independence and
objectivity.
– Reviewed the group’s whistleblowing
policy and satisfied themselves that this
met FCA rules and good standards of
corporate governance.
– Received reports from internal audit
covering various aspects of the group’s
operations, controls and processes.
– Reviewed a summary of the group’s
insurance arrangements and discussed
the insurance philosophy adopted by
the group.
– Reviewed and approved the register of
non-audit assignments undertaken by
the external auditors in the year ending
30 September 2013.
Significant areas
The significant areas considered by the
committee and discussed with the external
auditors during the year were:
– Property valuations: We received reports
from management on the assumptions
to be used in valuing the group’s property
assets. In considering the proposals
we reviewed the valuations and, for
reversionary assets, the suggested
discount rates provided by the external
valuers, and confirmed that they were
sufficiently independent from the group.
Management’s recommendations in
relation to the directors’ valuations were
scrutinised against external evidence
and the verification work completed by
the external valuers. We were content
after due challenge and debate with the
assumptions and judgements applied.
– Valuation of derivatives: Throughout the
period we reviewed accounting papers
in relation to the management of the
group’s derivatives, including the impact
of swap cancellations and any hedge
ineffectiveness.
– Presumed risk of fraud in revenue
recognition and management override
of controls: The committee considered
the presumed risks of fraud as defined by
auditing standards and was content that
there were no issues arising.
– Reviewed the audit committee’s terms
– Accounting for substantial transactions:
of reference.
– During the year the committee agreed
to outsource the management of the
internal audit function. After considering
several providers, Deloitte was engaged.
We considered the accounting treatment
of substantial transactions including
any judgemental areas. This included
the formation of co-investment vehicles
with Heitman, APG and Dorrington, the
purchase of debt at a discount from the
Bank of America and scrutiny of sales by
the group into co-investment vehicles.
– Financial statements: We considered the
presentation of the financial statements,
and in particular, the analysis between
recurring and non-recurring items.
We were satisfied with management’s
presentation.
External audit
The group’s external auditors are
PricewaterhouseCoopers LLP. The audit
committee is responsible for reviewing
the independence and objectivity of the
external auditors, 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;
– 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 external 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,
64
Grainger plc / Governance
Audit committee report
continued
tender process. This included assessing the
Corporate Governance Code requirements
to tender the external audit contracts at
least every 10 years, the change in the chair
of the committee during the year and the
committee’s assessment of the external
auditors’ effectiveness and independence.
The review concluded that a tender was
not in the group’s interests at this time.
The committee note that current
FRC transitional guidance indicates that
the company should tender the audit, at
the latest, at the time of the next audit
partner rotation currently scheduled for
2017. We may, however, put the audit
out to tender at any time before this
date. There are no contractual obligations
restricting our choice of external auditors
and no auditor liability agreement has been
entered into.
During the year, £85,000 was paid by
the group to PricewaterhouseCoopers LLP
for taxation services. A further £93,000
was paid for other services, the main
element of which was £81,000 relating to
the non-statutory audit of the completion
balance sheet relating to the formation of
the Heitman co-investment vehicle.
PricewaterhouseCoopers LLP operates a
five-year rotation policy for audit partners.
– Different teams are utilised on all other
assignments undertaken by the auditors.
Before any such assignments can
commence teams must obtain 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.
PricewaterhouseCoopers LLP have
remained in place as auditors for a
considerable number of years and the audit
contract has not been put out to tender
in the last 10 years. Their performance
is reviewed annually by the committee.
As part of its review the committee
notes that the Group Audit Partner
was rotated in 2012 and the current
audit partner’s five-year term will end
in 2017. The committee considered the
appropriateness of putting in place a
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Grainger plc / Annual Report and Accounts 2013
Nominations
Nominations
committee
committee
report
report
The nominations
committee comprises
the chairman and
two independent
non-executive directors.
Robin Broadhurst
Committee chairman
65
Attendance table 2013
Committee member
Robin Broadhurst
(Committee chairman)
John Barnsley
(Senior independent director)
Member
since
February 2005
February 2011
Baroness Margaret Ford
(Independent non-executive director)
February 2012
Meetings
attended
Meetings eligible
to attend
2
2
1
2
2
2
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.
– Consider succession planning for directors
and other senior executives.
– Identify and nominate for the approval
of the board candidates to fill board
vacancies.
– 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, remuneration
and risk and compliance committees.
Main activities of the committee during
the year and subsequent to the year end
The committee met twice during the year
to 30 September 2013.
The key matters considered at these
meetings were:
Board composition
– Reviewed the composition of the
board including the range of skills, level
of experience and balance between
executive and non-executive directors.
– Reviewed the membership of the various
board committees. Following this review
the following changes were made:
–Belinda Richards took over the role of
chairman of the audit committee from
John Barnsley, who remained on the
committee.
–Tony Wray replaced Belinda Richards
as chairman of the board risk and
compliance committee.
–Simon Davies, following his
appointment to the board in November
2012 joined both the remuneration and
board risk and compliance committees.
Senior independent director
Having considered carefully the roles of
all the directors it was determined that,
having regard to the length of time that
John Barnsley had been on the board, it
would be sensible to change the senior
independent director. It was subsequently
agreed, after consultation with some of
the company’s major shareholders that
Baroness Margaret Ford should replace
John Barnsley as senior independent
director with effect from the conclusion
of the Annual General Meeting in 2014.
Succession planning
Kept under review the succession
plans for both the executive and
non-executive directors and the level
of senior management immediately
below board level.
66
Grainger plc / Governance
Remuneration
committee
report
Attendance table
Committee member
Baroness Margaret Ford
(Committee chairman)
Robin Broadhurst
Simon Davies
Henry Pitman
Belinda Richards
Member
since
January 2010
February 2013
February 2013
Retired from committee
February 2013
Retired from committee
February 2013
Meetings
attended
Meetings eligible
to attend
4
2
2
1
1
4
2
2
2
2
The remuneration
committee currently
comprises three
independent
non-executive directors.
Robin Broadhurst and Simon Davies were
appointed to the committee in February
2013 to replace Belinda Richards and
Henry Pitman.
Baroness Margaret Ford
Committee chairman
Dear Shareholder
This is the first new style of remuneration
report since the passage of the Enterprise
and Regulatory Reform Act 2013.
Grainger’s style of reporting had
already anticipated many of the changes
required by the Act and so we have
pleasure in complying with the additional
detail required in the new reporting
requirements and would confirm that
there have been no changes to the
policy in the current year. We believe that
this will provide even more assurance
for shareholders that our approach to
remuneration is considered, fair and fully
aligned with shareholder interests.
The report is set out in two sections:
the annual report on remuneration on
pages 67 to 71, and the remuneration
policy on pages 72 to 79.
The terms of reference of the
remuneration committee are available on
the group’s website www.graingerplc.co.uk
or from the company secretary on request.
Baroness Margaret Ford
Chairman of the remuneration committee
Grainger plc / Annual Report and Accounts 2013
Annual report on remuneration
Single total figure of remuneration for each director.
The details set out on pages 67 to 69 of this report have been audited by PricewaterhouseCoopers LLP.
a
b
Salary &
fees
£’000
Taxable
benefits
£’000
Share
incentive
plan
£’000
c
Bonus
Annual1
£’000
Legacy
£’000
DBP2
£’000
d
LTIS
awards
vesting
£’000
e
Pension
costs
£’000
2013
Chairman and executive directors
Robin Broadhurst
Andrew Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
Non-executive directors
John Barnsley
Baroness Margaret Ford
Henry Pitman
Belinda Richards
Tony Wray
Simon Davies
Total
2012
Chairman and executive directors
Robin Broadhurst
Andrew Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
Non-executive directors
John Barnsley
Baroness Margaret Ford
Robert Hiscox
Henry Pitman
Belinda Richards
Tony Wray
Total
140
420
265
260
325
1,410
49
47
14
47
45
35
237
1,647
140
420
265
260
325
1,410
52
47
14
40
46
38
237
1,647
–
17
33
16
16
82
–
–
–
–
–
–
–
82
–
18
34
16
16
84
–
–
–
–
–
–
–
84
–
6
6
6
6
–
396
195
195
247
–
109
–
–
–
24
1,033
109
–
–
–
–
–
–
–
24
–
6
6
2
2
16
–
–
–
–
–
–
–
16
–
–
–
–
–
–
–
1,033
–
117
62
61
76
316
–
–
–
–
–
–
–
316
–
–
–
–
–
–
–
109
–
109
–
–
–
109
–
–
–
–
–
–
–
109
–
–
140
–
–
140
–
–
–
–
–
–
–
140
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
155
85
–
–
240
–
–
–
–
–
–
–
240
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67
Total
£’000
140
1,011
679
516
643
2,989
49
47
14
47
45
35
237
3,226
140
888
492
383
468
–
63
40
39
49
191
–
–
–
–
–
–
–
191
–
63
40
44
49
196
2,371
–
–
–
–
–
–
–
196
52
47
14
40
46
38
237
2,608
1 The performance related annual bonus is based on performance measures, as disclosed in the policy table on page 73, 37.5% of which relate to operating profit before
valuation movements and non-recurring items (OPBVM), 37.5% to return on shareholder equity (ROSE) and 25% to an assessment of the personal performance of the
directors. The final bonus payable for the year included 66.2% (2012: 62.1%) of the OPBVM element and 100% (2012: nil) of the ROSE element.
2 This relates to the deferred bonus plan where Peter Couch was awarded shares in 2010, before he was appointed as a director. This share award vested during
the year.
68
Grainger plc / Governance
Remuneration committee report
continued
Scheme interests awarded during the year
Andrew Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
LTIS share awards
Matching awards
Number
554,675
233,315
228,913
286,141
Face value
£’000
630
265
260
325
Number
110,935
69,994
68,674
84,496
Face value
£’000
126
79
78
96
The face value is based on a price of 113.58p being the average share price from the five business days immediately preceding the award
which was made on 8 December 2012.
The awards are contingent upon satisfying the performance criteria, as detailed on page 75, in the three years to 8 December 2015.
Statement of directors’ shareholding and share interests
Performance share awards
Andrew Cunningham
LTIS Shares
Matching shares
Peter Couch
LTIS Shares
Matching shares
Mark Greenwood
LTIS Shares
Matching shares
Awards
granted
2-Dec-11
8-Dec-12
Maximum
award
9-Dec-09 480,695
667,231
26-Nov-10
2-Dec-11 625,496
8-Dec-12 554,675
96,139
9-Dec-09
26-Nov-10 133,446
125,099
110,935
26-Nov-10 280,660
263,105
2-Dec-11
233,315
8-Dec-12
13,168
26-Nov-10
78,931
2-Dec-11
8-Dec-12
69,994
21-Sep-10 230,129
26-Nov-10 275,365
258,141
228,913
10,000
2-Dec-11
8-Dec-12
21-Sep-10
Awards
vested
Awards
lapsed
– 480,695
–
–
–
–
–
–
96,139
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 230,129
–
–
–
–
–
–
10,000
–
Maximum
outstanding
awards at
30 Sep 2013
–
667,231
625,496
554,675
–
133,446
125,099
110,935
280,660
263,105
233,315
13,168
78,931
69,994
–
275,365
258,141
228,913
–
26-Nov-10
10,498
2-Dec-11
10,000
8-Dec-12
68,674
–
–
–
–
–
–
10,498
10,000
68,674
Market
price at
date of
vesting
(p)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Market
price at
date of
exercise
(p)
Vesting date
9-Dec-12
–
– 26-Nov-13
2-Dec-14
–
8-Dec-15
–
9-Dec-12
–
– 26-Nov-13
2-Dec-14
–
–
8-Dec-15
– 26-Nov-13
2-Dec-14
–
–
8-Dec-15
– 26-Nov-13
2-Dec-14
–
8-Dec-15
–
–
9-Dec-12
– 26-Nov-13
2-Dec-14
–
8-Dec-15
–
9-Dec-12
–
– 26-Nov-13
–
–
2-Dec-14
8-Dec-15
Grainger plc / Annual Report and Accounts 2013
Non-performance share awards
Nick Jopling
LTIS Shares
Matching shares
Peter Couch
Deferred Bonus shares
Awards
granted
Maximum
award
21-Sep-10 283,235
26-Nov-10 344,206
322,676
286,141
22,615
38,888
40,000
84,496
90,615
2-Dec-11
8-Dec-12
21-Sep-10
26-Nov-10
2-Dec-11
8-Dec-12
3-Feb-10
69
Awards
vested
Awards
lapsed
– 283,235
–
–
–
–
–
–
22,615
–
–
–
–
–
–
–
–
90,615
Maximum
outstanding
awards at
30 Sep 2013
–
344,206
322,676
286,141
–
38,888
40,000
84,496
–
Market
price at
date of
vesting
(p)
–
–
–
–
–
–
–
–
131.7
Market
price at
date of
exercise
(p)
Vesting date
–
9-Dec-12
– 26-Nov-13
2-Dec-14
–
8-Dec-15
–
–
9-Dec-12
– 26-Nov-13
2-Dec-14
–
8-Dec-15
–
3-Feb-13
154.4
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Share options
Andrew
Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
Granted in Year
Exercised during year
Share
options at
1 Oct 2012 Number
Grant
price (p) Number
Exercise
price
(p)
Market
price on
exercise
(p)
Gains on
exercise
of share
options
(£)
Share
options at
30 Sep
2013
Exercise
price
(p)
Earliest
exercise date
Latest
exercise date
SAYE
CSOP
SAYE
CSOP
SAYE
CSOP
SAYE
CSOP
44,415
31,772
13,062
31,772
13,062
31,772
21,770
31,772
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 44,415
–
31,772
– 13,062
–
31,772
– 13,062
31,772
–
21,770
–
31,772
–
37.70
94.42
68.90
94.42
68.90
94.42
68.90
94.42
1-Feb-14
26-Nov-13
1-Sep-15
26-Nov-13
1-Sep-15
26-Nov-13
1-Sep-17
26-Nov-13
31-Jul-14
26-Nov-20
1-Mar-16
26-Nov-20
1-Mar-16
26-Nov-20
1-Mar-18
26-Nov-20
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The closing trade share price on 30 September 2013 was 174.8p. The highest trade share price during the year was 187.5p and the lowest
was 105.1p.
Directors’ shareholdings
Andrew Cunningham
Peter Couch
Nick Jopling
Mark Greenwood
Robin Broadhurst
John Barnsley
Baroness Margaret Ford
Belinda Richards
Tony Wray
Simon Davies
Ordinary shares of 5p each (thousands)
Beneficial
1 Oct 2012
30 Sep 2013
31 Oct 2013
1,194
193
166
83
121
103
18
–
10
–
1,888
1,164
247
171
109
131
103
40
–
10
100
2,075
1,164
247
171
109
131
103
40
–
10
100
2,075
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Grainger plc / Governance
Remuneration committee report
continued
Performance graph and table
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.
Grainger
FTSE 250 Index
FTSE 350 Real Estate/Real Estate Investment
& Services indices
250
200
150
100
50
0
30 Sept 2008
30 Sept 2009
30 Sept 2010
30 Sept 2011
30 Sept 2012
30 Sept 2013
CEO single figure
2013
2012
2011
2010
2009*
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Rupert Dickinson
CEO single figure of
total remuneration
£’000
1,011
888
928
777
583
582
Annual variable element
award rates against
maximum opportunity
%
63
19
50
43
22
0
Long-term incentive
vesting rates against
maximum opportunity
%
0
16
0
0
0
0
*Andrew Cunningham was acting CEO for most of 2009 due to the absence through illness of Rupert Dickinson.
Percentage change in remuneration of CEO and employees
The percentage change in remuneration between 2013 and 2012 for the CEO and for all employees in the group was:
CEO
Employee population
41%
23%
Grainger plc / Annual Report and Accounts 2013
71
Relative importance of spend or pay
The difference in actual expenditure between 2012 and 2013 on remuneration for all employees in comparison to profit after tax and
distributions to shareholders by way of dividend are set out in the tabular graphs below:
Profit after tax (£m)
Dividend (£m)
Total employee pay (£m)
60
50
40
30
20
10
0
60
50
40
30
20
10
0
60
50
40
30
20
10
0
12
13
12
13
12
13
Statement of implementation of remuneration policy in the current financial year
Subject to increasing the salaries of the executive directors by 2.5% with effect from 1 January 2014, and the basic fees payable to the
non-executive directors by £2,000 p.a. with effect from 1 October 2013, there are no changes to the way that the remuneration policy
will be implemented in the current year.
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Details of the remuneration committee, advisers to the committee and their fees
The remuneration committee currently comprises three independent non-executive directors.
Details of the directors who were members of the committee during the year are disclosed on page 66.
Committees advisers
The company secretary and the HR director attend all of the committee meetings.
Aon Hewitt Limited (formerly Hewitt New Bridge Street Limited) provide advice to the committee
on market practice, governance and performance analysis. They don’t provide any other services
to the company.
Statement of voting at general meeting
At the AGM held on 6 February 2013 the Directors’ Remuneration Report received the following votes from shareholders.
For
Against
Total votes cast (for and against)
Votes withheld
Total votes cast (including withheld votes)
Total number of votes
257,717,424
24,886,079
282,603,503
1,472,138
284,075,641
12
% of votes cast
91
9
100
–
–
Fees for committee assistance
£’000
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Grainger plc / Governance
Remuneration committee report
continued
Remuneration policy
The tables below summarise the main elements of the remuneration packages for the executive directors.
Base salary
Purpose and link to strategy
To provide a competitive level of non-variable remuneration aligned to market practice for similar
sized organisations; to reflect the seniority of the post and expected contribution to the delivery
of the company’s strategy.
Operation
Opportunity
Performance metrics
Changes in year
Basic salaries are reviewed by the remuneration committee annually with uplifts effective
from 1 January being by reference to cost of living, responsibilities and market rates, as for
all employees.
The basic salaries for the executive directors will be increased by 2.5% with effect from
1 January 2014 in line with the standard increase that will be applied to all staff.
N/A
None
Benefits
Purpose and link to strategy
To aid recruitment and retention of high-quality executives.
Operation
– Car allowance
– Private medical insurance
– Life assurance
– Ill health income protection
– Travel insurance
– Health check up
–Andrew Cunningham annual
–Others biannual
Opportunity
Performance metrics
Changes in year
N/A
N/A
None
Pension
Purpose and link to strategy
To aid recruitment and retention of high-quality executives.
Operation
The group will pay a pension allowance or contribute into a personal pension arrangement for all
of the executive directors.
Opportunity
Performance metrics
Changes in year
If appropriate a salary sacrifice arrangement can apply.
The pension contribution or allowance is based on 15% of basic salary.
N/A
None
Grainger plc / Annual Report and Accounts 2013
73
Bonus
Annual bonus
Purpose and link to strategy
To incentivise performance over a 12-month period based on a balanced scorecard performance
agreement, with two financial performance measures plus an assessment of personal
performance agreed with the remuneration committee.
Operation
Opportunity
Performance measures are based on:
– 37.5% – operating profit before valuation movements and non-recurring items (OPBVM)
– 37.5% – return on shareholders’ equity (ROSE)
– 25% – assessment of personal performance
Maximum bonus potential is capped at:
– 150% of salary for the chief executive
– 125% of salary for the other executive directors
Performance metrics
OPBVM (37.5%) – Actual OPBVM is compared to the budgeted figure that is approved by
the board.
Budget less 10% – 0% vests
Budget achieved – 60% vests
Budget plus 20% – 100%
Calculated on a pro rata basis.
ROSE (37.5%) – The calculation of ROSE is:
Closing NNNAV + dividends paid
Opening NNNAV
Less than or equal to 5% – 0% vests
Greater than 15% – 100% vests
Calculated on a pro rata basis.
Personal performance (25%) – Personal performance is assessed against individual
personal objectives that are set at the beginning of the financial year.
The chairman assesses the performance of the chief executive, and the chief executive assesses
the performance of the other executive directors.
Changes in year
None
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Grainger plc / Governance
Remuneration committee report
continued
Bonus
Legacy bonus
Purpose and link to strategy
To incentivise delivery of sustained performance over the longer term.
Operation
Opportunity
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 market 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 a review of bonus arrangements in 2011 the remuneration committee agreed to close
this bonus scheme as it 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 Andrew Cunningham. This reflected performance between 2003 and 2010, had been fully
earned and had been approved by shareholders.
The legacy bonus is being paid out in five equal tranches, beginning in 2011. The third instalment
of £109,124 was paid in March 2013. The balance in the bonus pool at 30 September 2013 was
£218,249.
Performance metrics
Changes in year
As above.
N/A
Grainger plc / Annual Report and Accounts 2013
75
Long-term incentive scheme (‘LTIS’)
Purpose and link to strategy
– To incentivise delivery of sustained performance over the longer term.
– To encourage greater shareholder alignment through personal investment in the company’s shares.
Operation
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 in residential property assets. All other comparably sized
property companies are principally commercial and/or development focused.
Opportunity
The awards are capped at 150% of basic salary for the chief executive and at 100% of basic
salary for the other three directors.
There is also a matching awards element to the scheme, where participants are able to pledge
shares of equivalent value to 30% of their basic salary. To the extent that performance criteria are
met, these shares will be matched one-for-one at the end of the three-year performance period.
Performance metrics
Awards are split equally between NNNAV and TSR.
TSR Performance Conditions (50%)
Percentage of the TSR element of an award
which will vest
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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%
Nil
Pro rata vesting
More than 15%
100%
NNNAV Performance Conditions (50%)
Percentage of the NNNAV element of an award
which will vest
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 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 and 3
Greater than 3
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 the performance criteria
outlined above 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.
Changes in year
None
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Grainger plc / Governance
Remuneration committee report
continued
The Grainger plc Company Share Option Plan (‘CSOP’)
Purpose and link to strategy
To aid recruitment and retention of high-quality executives.
Operation
The CSOP is approved by HMRC under schedule 4 of ITEPA.
Opportunity
The remuneration committee has discretion to grant options under the CSOP, which awards
will be subject to the same performance conditions as apply to the LTIS above.
The exercise price per ordinary share under an option is determined by the remuneration
committee at the time of grant but may not be less than the greater of (i) the market value of
an ordinary share as at the date of grant and (ii) in the case of an option to subscribe for ordinary
shares, the nominal value of an ordinary share.
Each director’s participation is limited so that the aggregate market value of ordinary shares
subject to all options (calculated as at the date of grant of each option) held by that individual
and granted under the CSOP or any other HMRC approved company share option plan operated
by the company or any associated company, shall not exceed £30,000 (or such other amount as
may be permitted by HMRC from time to time).
Performance metrics
These are the same as those outlined for the LTIS above.
Changes in year
None
Purpose and
link to strategy
Operation
Savings related share schemes
To encourage employees to make a long-term investment in the company’s shares.
All employees, including the executive directors, are eligible to participate in the company’s
save as you earn (‘SAYE’) scheme and share incentive plan (‘SIP’), both of which are approved
by HMRC and subject to the limits prescribed.
Opportunity
– SAYE: Participants may invest up to £250 per month for three or five year periods in order to
purchase shares at the end of the contractual period at a discount of 20% to the market price of
the shares at the commencement of the saving period.
– SIP: Participants can invest up to £125 per month in shares in the company, and the company will
then subject to certain limits, double that investment. The company may also allocate free shares
annually on a percentage of basic pay, subject to a maximum of £3,000.
Performance metrics
Changes in year
N/A
None
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Grainger plc / Annual Report and Accounts 2013
77
Approach to recruitment remuneration
When setting the remuneration package
for a new executive director, the committee
will apply the same principles and
implement the policy as set out in the
above tables.
Base salary will be set at a level
appropriate to the role and the experience
of the director being appointed. This may
include agreement on future increases
up to a market rate, in line with increased
experience and/or responsibilities,
subject to good performance, where
it is considered appropriate.
In relation to external appointments,
the committee may structure an
appointment package that it considers
appropriate to recognise awards or
benefits that will or may be forfeited on
resignation from a previous position, taking
into account timing and valuation and
such other specific matters as it considers
relevant. This may take the form of cash
and/or share awards. The policy is that
the maximum payment under any such
arrangements (which may be in addition
to the normal variable remuneration)
should be no more than the committee
considers is required to provide reasonable
compensation to the incoming director.
If the director will be required to
relocate in order to take up the position, it
is the company’s policy to allow reasonable
relocation, travel and subsistence payments.
Any such payments will be at the discretion
of the committee.
In the case of an employee who is
promoted to the position of director, it is
the company’s policy to honour pre-existing
award commitments in accordance with
their terms.
Non-executive director appointments
will be through letters of appointment.
Non-executive directors’ base fees,
including those of the chairman, will
be set at a competitive market level,
reflecting experience, responsibility and
time commitment. Fees will be reviewed
bi-annually. Additional fees are payable
for the chairmanship of audit, risk and
remuneration committees and for the
additional responsibilities of the senior
independent director.
It was agreed at the biennial
review undertaken in 2012 that the
fees would be reviewed again in 2013.
Following this review undertaken by the
executive committee during the year it
was agreed that the basic fees payable
to the non-executive directors would be
increased by £2,000 p.a. with effect from
1 October 2013.
Non-executive directors do not receive
any performance-related remuneration, or
any benefits.
Directors’ service agreements and letters of appointment
Executive directors
Andrew Cunningham
Peter Couch
Nick Jopling
Mark Greenwood
Non-executive directors
Robin Broadhurst
John Barnsley
Baroness Margaret Ford
Belinda Richards
Tony Wray
Simon Davies
Contract
commencement date
October 2009
June 2010
September 2010
September 2010
Date of initial appointment
February 2004
February 2003
July 2008
April 2011
October 2011
November 2012
Notice period
12 months
12 months
6 months
6 months
78
Grainger plc / Governance
Remuneration committee report
continued
Illustration of the application of the remuneration policy
Andrew Cunningham (£’000)
Minimum
In line with
expectations
Maximum
82%
40%
25%
18%
615
20%
8%
32%
1,277
30%
5%
40%
2,064
0
500
1,000
1,500
2,000
Peter Couch (£’000)
Minimum
100%
344
In line with
expectations
Maximum
53%
20% 27%
649
34%
32%
0
500
1,020
34%
1,000
1,500
2,000
Mark Greenwood (£’000)
Minimum
100%
321
In line with
expectations
52%
21% 27%
620
Maximum
33%
0
33%
500
34%
984
1,000
1,500
2,000
Nick Jopling (£’000)
Minimum
100%
396
In line with
expectations
52%
21%
27%
770
Maximum
32%
33%
35%
1,225
0
500
1,000
1,500
2,000
Key:
Salary, pension and benefits
Bonus
Legacy bonus
LTIS – performance
Provision on payment for loss of office
If an executive director’s employment is
to be terminated, the committee’s policy
in respect of the contract of employment,
in the absence of a breach of the service
agreement by the director, is to agree
a termination payment based on the
value of base salary and contractual
pension amounts and benefits that would
have accrued to the director during the
contractual notice period. The policy is that,
as is considered appropriate at the time,
the departing director may work, or be
placed on garden leave, for all or part of
his notice period, or receive a payment in
lieu of notice in accordance with the service
agreement. The committee will consider
mitigation to reduce the termination
payment to a leaving director when
appropriate to do so, having regard to
the circumstances.
In addition, where the director may
be entitled to pursue a claim against the
company in respect of his/her statutory
employment rights or any other claim
arising from the employment or its
termination, the company will be entitled
to negotiate settlement terms (financial
or otherwise) with the director that the
committee considers to be reasonable
in all the circumstances and in the best
interests of the company and to enter into
a Settlement Agreement with the director
to effect both the terms agreed under
the Service Agreement and any additional
statutory or other claims, including bonus
payments and to record any agreement
in relation to bonus and/or share awards,
in line with the policies described above.
The company has an enhanced
redundancy policy allowing redundancy
amounts to be calculated by reference to
actual basic weekly salary and the policy
may be extended to executive directors
where relevant.
Grainger plc / Annual Report and Accounts 2013
The committee will consider whether
a departing director should receive an
annual bonus in respect of the financial
year in which the termination occurs or in
respect of any period of the financial year
following termination for which the director
has been deprived of the opportunity to
earn annual bonus. If the employment
ends by reason of redundancy, retirement
with the agreement of the company, ill
health or disability or death, the director
may be considered for a bonus payment.
If the termination is for any other reason,
any bonus payment would only be at
the discretion of the committee. It is the
committee’s policy to ensure that any such
bonus payment reflects the departing
director’s performance and behaviour
towards the company.
Any bonus payment will normally be
delayed until the performance conditions
have been determined for the relevant
period and may be time pro rated,
where appropriate.
The committee will consider whether
share awards, including matching share
awards, held by the director under the
company’s long-term incentive plan should
lapse or vest. Any determination by the
committee will be in accordance with the
rules of the relevant plan, which have been
approved by shareholders. In summary, the
plan rules provide that awards can vest if
employment ends by reason of redundancy,
retirement, ill health or disability, death or
change of ownership. Vesting of awards
will normally be in accordance with the
normal performance cycle of the relevant
awards, with vesting subject to satisfaction
of the relevant performance conditions.
Any awards which vest will normally be
time pro rated. The committee will have
discretion to allow a higher level of vesting
if appropriate.
79
If employment ends for any other reason,
the plan rules permit the committee to
exercise its discretion. In doing so, the
policy is that it will take account of all
relevant circumstances, in particular,
having regard to the performance of the
company, the director’s performance and
behaviour towards the company during the
performance cycle of the relevant awards.
Options under the company’s HMRC
approved share option scheme (CSOP)
may be exercised early. The policy is that
the committee should retain the ability
to exercise discretion in accordance with
the rules but that performance conditions
would be assessed in the advance of early
exercise. Options may also be exercised
in connection with a change of control
or other corporate events and again the
policy is that performance conditions would
be assessed as at the date of the early
exercise event.
It is the company’s policy to honour
pre-existing award commitments in
accordance with their terms.
Where the executive director
participates in one or more of the
company’s all-employee share schemes,
his awards may vest or be exercisable on or
following termination, where permissible, in
accordance with the rules of the plan.
Non-executive directors’ appointments
may be terminated without compensation.
Other directorships
The board has an approved policy
on other directorships. This permits
a full-time executive director to hold
one non-executive directorship, 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.
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.
Current levels of share ownership by
the executive directors are as follows.
The values were calculated as at
31 October 2013 when the share price
was 194.5p. These values do not include
the value of the shares that will vest on
26 November 2013.
Andrew Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
Current
holding
(thousands)
1,164
247
109
171
Value at
31 October 2013
£’000
2,264
480
212
333
% of current
salary
539%
181%
82%
102%
Date by which
guideline target
to be achieved
N/A
N/A
2015
N/A
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Grainger plc / Governance
Board
risk and
compliance
committee
report
Attendance table
Committee member
Tony Wray
(Committee chairman)
John Barnsley
Belinda Richards
Mark Greenwood
Simon Davies
Member
since
May 2012
May 2012
May 2012
May 2012
February 2013
Meetings
attended
Meetings eligible
to attend
5
3
5
5
3
5
5
5
5
3
The board risk and
compliance committee
currently comprise
three independent
non-executive
directors and one
executive director.
Tony Wray took over the role of chairman
of the committee from Belinda Richards
in February 2013.
Tony Wray
Committee chairman
The committee usually meets four times
during the year. The meetings are attended
by the committee members and by
invitation the chief operating officer and
the group’s risk and compliance manager.
At each meeting the committee
review the quarterly risk and compliance
report prepared by the Risk and
Compliance Manager together with the
quarterly complaints and Top Risk and
Projects reports.
Other areas reviewed at the regular
quarterly meetings included risks associated
with the retirement solutions business,
block management and the core systems
review project together with risk briefings
prepared by departmental managers.
These briefings included reports on people
risk and embedding risk management,
tax risks, the IT security policy and a legal
regulatory update.
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.
A fifth meeting was held during the year
which looked specifically at risk mitigation
planning over change processes within
the group.
The Retirement solutions business
is regulated by the FCA. The committee
oversees compliance with regulatory
obligations and receives regular updates on
proposed future regulatory developments.
The culture of risk awareness, and
effective risk management, is becoming
more 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.
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Grainger plc / Annual Report and Accounts 2013
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.
Results for the year
The results of the group are set out in the
consolidated income statement on page 87
which shows a profit for the financial year
attributable to the owners of the company
of £53.6m (2012: £0.4m).
Dividends
An interim dividend of 0.58p (2012: 0.55p)
per share was paid on 5 July 2013.
The directors recommend the payment
of a final dividend of 1.46p per share
(2012: 1.37p), to be paid on 7 February
2013 making a total dividend for the
year of 2.04p (2012: 1.92p) per share.
Any shareholder wishing to participate in
the Dividend Reinvestment Plan for the
2013 final dividend will need to ensure that
their application form is returned to our
registrars by 13 January 2014.
Share Capital
During the year 148,278 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 2013, 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.
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
81
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 54
and 55 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 strategic report on pages 2 to 53
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.
Legislation in the United Kingdom
governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
82
Grainger plc / Governance
Other disclosures
continued
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.
Financial risk management
Details are included in note 29 to the
financial statements.
Corporate responsibility (CR)
Our approach to CR is based on our
assessment of the potential risk and
opportunity to our business. In the year
ended 30 September 2013, the group
achieved 67% and partially achieved
33% of the applicable CR targets that
it committed to meeting by that date.
Further information is provided in
the corporate responsibility report on
pages 46 to 53.
International operations
Our German portfolio continues to be
centrally managed and controlled from
our overseas offices.
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 28 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.
The directors have confirmed approval
of the Director’s report.
By order of the board
Michael Windle
Company Secretary
7 November 2013
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 the group 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.
Grainger plc / Annual Report and Accounts 2013
83
Independent auditors’ report
to the members of Grainger plc on the group financial statements
What an audit of financial statements involves
We conducted our audit in accordance
with International Standards on Auditing
(UK and Ireland) (ISAs (UK & Ireland)). 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 (the ‘Annual report’)
to identify material inconsistencies with the
audited group financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired
by us in the course of performing the audit.
If we become aware of any apparent
material misstatements or inconsistencies
we consider the implications for our report.
Report on the group
financial statements
Our opinion
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
2013 and of the group’s profit and cash
flows for the year then ended;
– have been properly prepared in
accordance with International Financial
Reporting Standards (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 IAS Regulation.
This opinion is to be read in the context of
what we say below.
What we have audited
The group financial statements, which are
prepared by Grainger plc, comprise:
– the Consolidated statement of financial
position as at 30 September 2013;
– the Consolidated income statement
and Consolidated statement of
comprehensive income for the year
then ended;
– the Consolidated statement of changes
in equity and Consolidated statement of
cash flows for the year then ended; and
– the notes to the group financial
statements, which include a summary of
significant accounting policies and other
explanatory information.
The financial reporting framework that has
been applied in their preparation comprises
applicable law and IFRSs as adopted by the
European Union.
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Grainger plc / Financials
Independent auditors’ report
continued
Overview of our audit approach
Materiality
We set certain thresholds for materiality.
These helped us to determine the nature,
timing and extent of our audit procedures
and to evaluate the effect of
misstatements, both individually and on
the financial statements as a whole.
Based on our professional judgement,
we determined materiality for the group
financial statements as a whole to be
£5.8m. In arriving at this value, we
have considered the average Operating
Profit before valuation movements and
non-recurring items (OPBVM) over a
three-year period, to account for volatility
in the measure arising from fluctuations
in trading. We believe OPBVM is the
most appropriate measure of recurring
group performance.
We agreed with the audit committee
that we would report to them
misstatements identified during our audit
above £0.3m as well as misstatements
below that amount that, in our view,
warranted reporting for qualitative reasons.
Areas of particular audit focus
In preparing the financial statements, the
directors made a number of subjective
judgements, for example in respect of
significant accounting estimates that
involved making assumptions and
considering future events that are inherently
uncertain. We primarily focused our work
in these areas by assessing the directors’
judgements against available evidence,
forming our own judgements, and
evaluating the disclosures in the
financial statements.
In our audit, we tested and examined
information, using sampling and other
auditing techniques, to the extent
we considered necessary to provide a
reasonable basis for us to draw conclusions.
We obtained audit evidence through
testing the effectiveness of controls,
substantive procedures or a combination
of both.
We considered the following areas
to be those that required particular focus
in the current year. This is not a complete
list of all risks or areas of audit focus
identified by our audit. We discussed these
areas of focus with the audit committee.
Their report on those matters that they
considered to be significant issues in
relation to the financial statements is set
out on page 63.
Overview of the scope of our audit
The group reports its operating results and
financial position along five business lines
being UK residential, Retirement solutions,
Fund and third party management, UK
& European development and German
residential. The group financial statements
are a consolidation of the business lines
detailed above and centralised functions
(see note 4 to the financial statements).
The accounting books and records for
all business lines and centralised functions,
with the exception of the German
residential business, are located in the UK at
the group’s Head Office in Newcastle upon
Tyne. The accounting books and records
for the German residential business line are
located in Frankfurt.
In establishing the overall approach to
the group audit, we determined the type
of work that needed to be performed
at the two locations, Newcastle upon
Tyne and Frankfurt. Accordingly, we
analysed financial statement line items and
disclosures individually for the transactions
posted in the UK and Germany, and
tailored our testing across each location,
together with additional procedures
performed at the group level Treasury
function, to be able to conclude whether
sufficient appropriate audit evidence had
been obtained as a basis for our opinion on
the group financial statements as a whole.
Additional procedures performed at
the group level Treasury function concerned
testing of balances and disclosures relating
to Cash and cash equivalents, Derivative
financial instruments, Interest-bearing
loans and borrowings and the Cash flow
hedge reserve.
Grainger plc / Annual Report and Accounts 2013
85
Area of focus
How the scope of our audit addressed the area of focus
Valuation of investment and trading properties
We focused on this area because the group’s
property assets in the UK and Germany represent
the majority of assets in the Consolidated statement
of financial position.
Property valuations are subject to a high degree of
judgement as they are calculated from a number
of different assumptions specific to each individual
property or development site.
A relatively small percentage change in valuations
of individual properties, in aggregate, could result
in a material impact to the financial statements.
(Refer also to note 2 to the financial statements.)
Valuation of derivative financial instruments
We focused on this area as the valuations of
derivative financial instruments are derived through
cash flow models, which can be complex with a
number of different inputs. (Refer also to note 29
to the financial statements.)
The group holds a number of these instruments,
and a relatively small error in the calculation of their
values, in aggregate, could result in a material impact
on the financial statements.
Risk of fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud
in revenue recognition.
We focused on the risk that revenue may have been
recognised for all revenue streams for transactions
that had not occurred.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
We checked that the property database information supplied to external valuers by
management was consistent with the underlying property records held by the group
and tested during our audit.
Our assessment of the net realisable value of trading properties held as inventories
and the fair value of investment properties focused upon the critical accounting
assumptions disclosed in note 2 to the financial statements, including the discount
applied to the vacant value for each tenanted property in establishing its market value.
We identified and challenged those assumptions that had the greatest impact on
property valuations and reperformed calculations made by the directors and external
valuers in arriving at the year end valuations recorded in the financial statements.
Our challenge of the assumptions involved performing sensitivity analyses to determine
the extent of change in those assumptions that either individually or collectively
would be required for the valuations to be materially misstated. Having done so we
considered the likelihood of such a movement in those key assumptions arising.
We developed valuations using our own models, based on contracts originating from
the group’s derivative counterparties, for a number of year-end derivative positions
and compared these valuations to those calculated by the directors.
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Our testing of revenue transactions, to assess whether a service had been provided or
a sale had occurred, focused on understanding whether cash had been received and
reading extracts of the related contracts – for example a property sale completion
statement, a rental contract or an asset or property management contract.
Where revenue was recorded through journal entries, we performed testing to
establish whether a service had been provided or a sale had occurred in the financial
year to support this recognition.
We assessed the overall control environment of the group, including the
arrangements for staff to ‘whistle-blow’ inappropriate actions, and interviewed senior
management and the group’s internal audit function.
We examined the significant accounting estimates and judgements relevant to the
financial statements for evidence of bias by the directors that may represent a risk of
material misstatement due to fraud (including but not limited to property valuations).
We also tested journal entries to determine the rationale for manual adjustments.
86
Grainger plc / Financials
Independent auditors’ report
continued
Going concern
Under the Listing Rules we are required to
review the directors’ statement, on page 61,
in relation to going concern. We have nothing
to report having performed our review.
As noted in the directors’ statement,
the directors have concluded that it is
appropriate to prepare the group’s financial
statements using the going concern basis
of accounting. The going concern basis
presumes that the group has adequate
resources to remain in operation, and that
the directors intend it to do so, for at least
one year from the date the financial
statements were signed. As part of our
audit we have concluded that the directors’
use of the going concern basis is appropriate.
However, because not all future events
or conditions can be predicted, these
statements are not a guarantee as to the
group’s ability to continue as a going concern.
Opinions on matters
prescribed by the
Companies Act 2006
In our opinion the information given in the
Strategic report and the Directors’ report
for the financial year for which the group
financial statements are prepared is consistent
with the group financial statements.
Other matters on which
we are required to report
by exception
Adequacy of information and
explanations received
Under the Companies Act 2006 we are
required to report to you if, in our opinion
we have not received all the information
and explanations we require for our audit.
We have no exceptions to report arising
from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are
required to report if, in our opinion, certain
disclosures of directors’ remuneration
specified by law have not been made, and
under the Listing Rules we are required to
review certain elements of the report to
shareholders by the board on directors’
remuneration. We have no exceptions to
report arising from these responsibilities.
Corporate governance statement
Under the Listing Rules we are required to
review the part of the Corporate
Governance Statement relating to the
company’s compliance with nine provisions
of the UK Corporate Governance Code
(‘the Code’). We have nothing to report
having performed our review.
On page 8 of the Annual report,
as required by the Code Provision C.1.1,
the directors state that they consider the
Annual report taken as a whole to be fair,
balanced and understandable and provides
the information necessary for members to
assess the group’s performance, business
model and strategy. On page 63, as
required by C3.8 of the Code, the audit
committee has set out the significant issues
that it considered in relation to the financial
statements, and how they were addressed.
Under ISAs (UK & Ireland) we are required
to report to you if, in our opinion:
– the statement given by the directors
is materially inconsistent with our
knowledge of the group acquired in
the course of performing our audit; or
– the section of the Annual report
describing the work of the audit
committee does not appropriately
address matters communicated by
us to the audit committee.
We have no exceptions to report arising
from this responsibility.
Other information in the Annual report
Under ISAs (UK & Ireland), we are required
to report to you if, in our opinion,
information in the Annual report is:
– materially inconsistent with the
information in the audited group financial
statements; or
– apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the group acquired in
the course of performing our audit; or
– is otherwise misleading.
We have no exceptions to report arising
from this responsibility.
Responsibilities for the
financial statements
and the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of
directors’ responsibilities set out on page 81,
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 ISAs
(UK & 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.
Other matter
We have reported separately on the parent
company financial statements of Grainger
plc for the year ended 30 September 2013
and on the information in the Directors’
remuneration report that is described as
having been audited.
David Snell (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 November 2013
Grainger plc / Annual Report and Accounts 2013
Consolidated income statement
For the year ended 30 September 2013
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Goodwill impairment
Profit on disposal of investment property
Income from financial interest in property assets
Profit on acquisition of equity in associate
Loss on disposal of subsidiary
Write back/(down) of inventories to net realisable value
Operating profit before net valuation gains on investment property
Net valuation gains on investment property
Write down of investment property in disposal group
Operating profit after net valuation gains and write downs on investment property
Change in fair value of derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of profit/(loss) of joint ventures after tax
Profit/(loss) before tax
Tax (charge)/credit for the year
Profit for the year attributable to the owners of the company
Basic earnings per share
Diluted earnings per share
87
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
0.4
0.1p
0.1p
Notes
4, 5
6
7
9
10
11
23
8
22
20
39
24
18
39
29
14
14
20
21
13
15
34
17
17
2013
£m
283.2
48.5
75.5
(33.6)
12.9
(6.3)
(4.7)
1.8
6.1
2.1
(2.3)
0.7
100.7
2.9
–
103.6
7.9
(73.3)
17.3
1.0
7.8
64.3
(10.7)
53.6
13.1p
12.8p
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Grainger plc / Financials
Consolidated statement of comprehensive income
For the year ended 30 September 2013
Profit for the year
Items that will not be transferred to consolidated income statement:
Actuarial gain/(loss) on BPT Limited defined benefit pension scheme
Items that will be reclassified subsequently to consolidated income statement:
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:
Tax relating to items that will not be transferred to consolidated income statement
Tax relating to items that will be reclassified subsequently to consolidated income statement
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
Notes
34
30
22
15
15
2013
£m
53.6
0.7
(0.3)
0.5
36.2
37.1
(0.2)
(7.2)
29.7
83.3
2012
£m
0.4
(2.0)
(0.4)
(0.6)
14.1
11.1
0.5
(2.9)
8.7
9.1
Included within other comprehensive income is £2.4m (2012: £5.0m) relating to associates and joint ventures accounted for under the
equity method.
Grainger plc / Annual Report and Accounts 2013
89
Consolidated statement of financial position
As at 30 September 2013
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
Intangible assets
Current assets
Inventories – trading property
Trade and other receivables
Cash and cash equivalents
Assets classified as held-for-sale
Total assets
LIABILITIES
Non-current liabilities
Interest-bearing loans and borrowings
Retirement benefits
Provisions for other liabilities and charges
Deferred tax liabilities
Current liabilities
Interest-bearing loans and borrowings
Trade and other payables
Provisions for other liabilities and charges
Current tax liabilities
Derivative financial instruments
Liabilities associated with assets held-for-sale
Total liabilities
Net assets
Notes
2013
£m
2012
£m
18
19
20
21
22
15
23
24
25
29
39
28
30
26
15
28
27
26
15
29
39
354.1
0.6
88.2
57.7
96.3
20.1
1.4
618.4
525.9
0.8
41.2
19.2
99.0
44.5
5.3
735.9
949.6
1,023.4
43.1
90.3
9.9
1,092.9
1,711.3
35.6
73.3
222.1
1,354.4
2,090.3
1,006.6
1,240.1
4.1
0.4
25.7
5.8
0.5
37.8
1,036.8
1,284.2
42.4
58.7
2.9
13.9
91.1
–
209.0
1,245.8
465.5
27.3
88.4
–
24.4
145.4
129.7
415.2
1,699.4
390.9
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Grainger plc / Financials
Consolidated statement of financial position
continued
As at 30 September 2013
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
Notes
31
34
2013
£m
2012
£m
20.8
109.8
20.1
0.3
(5.5)
5.0
3.8
311.1
465.4
0.1
465.5
20.8
109.8
20.1
0.3
(24.5)
5.0
3.9
255.4
390.8
0.1
390.9
The financial statements on pages 87 to 159 were approved by the board of directors on 7 November 2013 and were signed on their
behalf by:
Andrew R Cunningham
Director
Mark Greenwood
Director
Company registration number: 125575
Grainger plc / Annual Report and Accounts 2013
91
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
Balance as at
1 October 2012
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
Reclassification
Purchase of own shares
34
31,34
Share-based
payments charge
Dividends paid
Balance as at
30 September 2013
32
16
20.8
109.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
20.1
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(24.5)
–
–
–
–
36.2
(7.4)
28.8
(9.8)
–
–
–
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component
of
convertible
bond
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
5.0
–
3.9
–
255.4
53.6
0.1 390.9
–
53.6
–
–
–
–
–
–
–
–
–
–
–
0.7
–
0.7
(0.3)
–
–
–
0.5
–
–
–
(0.3)
0.5
–
36.2
0.2
(0.2)
–
(7.4)
(0.1)
54.6
–
–
–
–
9.8
(3.0)
2.3
(8.0)
–
–
–
–
–
83.3
–
(3.0)
2.3
(8.0)
20.8
109.8
20.1
0.3
(5.5)
5.0
3.8
311.1
0.1 465.5
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Grainger plc / Financials
Consolidated statement of changes in equity
continued
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Cash flow
hedge
reserve
£m
Notes
Balance as at
1 October 2011
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
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
–
–
–
–
Equity
component
of
convertible
bond
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
5.0
–
4.1
–
261.6
0.4
0.1
387.4
–
0.4
–
–
–
–
–
–
–
–
–
–
–
(2.0)
–
(2.0)
(0.4)
–
–
–
(0.6)
–
–
–
–
(0.4)
(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
Grainger plc / Annual Report and Accounts 2013
Consolidated statement of cash flows
For the year ended 30 September 2013
Cash flow from operating activities
Profit for the year
Depreciation
Goodwill impairment
Write down of investment property in disposal group
Net valuation gains on investment property
Net finance costs
Loss on disposal of subsidiary
Share of profit of associates and joint ventures
Profit on disposal of investment property
Profit on acquisition of equity in associate
Share-based payment charge
Change in fair value of derivatives
Interest income from financial interest in property assets
Taxation
Operating profit before changes in working capital
Increase in trade and other receivables
Decrease in trade and other payables
Decrease in provisions for liabilities and charges
Decrease in trading property
Cash generated from operations
Interest paid
Taxation paid
Payments to defined benefit pension scheme
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 sale of subsidiary
Interest received
Distributions received
Investment in associates and joint ventures
Acquisition of investment property
Acquisition of property, plant and equipment and intangible assets
Net cash inflow from investing activities
93
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)
(1.0)
85.6
48.3
10.6
3.5
0.7
–
(0.5)
(5.5)
–
57.1
Notes
19
23
39
18
14
39
20, 21
8
20
32, 34
29
22
15
15
30
8
22
20, 21
20, 21
18
19, 23
2013
£m
53.6
0.2
4.7
–
(2.9)
56.0
2.3
(8.8)
(1.8)
(2.1)
2.3
(7.9)
(6.1)
10.7
100.2
(7.6)
(3.5)
(0.8)
73.8
162.1
(60.3)
(16.4)
(1.1)
84.3
219.9
8.5
45.0
0.5
1.4
(57.8)
(4.3)
(0.9)
212.3
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Grainger plc / Financials
Consolidated statement of cash flows
continued
For the year ended 30 September 2013
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
Net cash outflow from financing activities
Net increase/(decrease) 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
Notes
34
31, 34
16
29
39
28
2013
£m
–
(3.0)
150.1
–
(39.3)
(380.0)
(8.0)
(280.2)
16.4
73.3
0.6
90.3
–
90.3
2012
£m
0.4
(0.5)
79.0
(10.5)
(1.2)
(215.5)
(7.6)
(155.9)
(13.2)
90.9
(1.8)
75.9
(2.6)
73.3
Grainger plc / Annual Report and Accounts 2013
95
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 175. 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 2013 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 160 to 166.
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.
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Grainger plc / Financials
Notes to the financial statements
continued
1 Accounting policies continued
iii) Joint ventures and associates Joint ventures are those entities over whose activities the group has joint control, established by
contractual agreement. Associates are all entities over which the group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the
financial and operating decisions of the investee but is not control or joint control over those policies.
Investments in joint ventures and associates are accounted for by the equity method of accounting and are initially recognised at
cost. The group’s investment in joint ventures and associates includes goodwill (net of any accumulated impairment loss) identified on
acquisition.
The group’s share of its joint ventures’ and associates’ post-acquisition profits or losses is recognised in the income statement, and
its share of post-acquisition movements in reserves is recognised in other comprehensive income. Where the group’s interest has been
reduced to £nil, additional losses are provided for, and a liability is recognised, only to the extent that the group has incurred legal or
constructive obligations or made payments on behalf of the joint venture or associate. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment.
Unrealised gains on transactions between the group and its joint ventures and associates are eliminated to the extent of the
group’s interest in joint ventures and associates. The accounting policies of joint ventures and associates have been changed where
necessary to ensure consistency with the policies adopted by the group.
Dilution gains and losses arising on investment in associates and joint ventures are recognised in the income statement.
(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:
–(cid:3)UK residential;
–(cid:3)Retirement solutions;
–(cid:3)Fund and third-party management;
–(cid:3)UK and European development; and
–(cid:3)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.
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97
(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.
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.
98
Grainger plc / Financials
Notes to the financial statements
continued
1 Accounting policies continued
(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.
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 and 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.
Grainger plc / Annual Report and Accounts 2013
99
(k) Employee benefits
i) Defined contribution pension scheme Obligations for contributions to defined contribution pension schemes are recognised as
an expense in the income statement in the period to which they relate.
ii) Defined benefit pension scheme The group currently contributes to a defined benefit pension scheme that was closed to new
members and employee contributions in 2003. The full deficit in the scheme was recognised in the 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.
Awards that are subject to a market-based performance condition are valued at fair value using the Monte Carlo simulation
model. Awards not subject to a market-based performance condition are valued at fair value using the Black Scholes valuation model.
When options are exercised the proceeds received, net of any directly attributable transaction costs, are credited to share capital
(nominal value) and share premium.
(l) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is stated net of sales taxes and value added taxes.
Revenue is recognised 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.
iv) Performance fee income Performance fee income is recognised in line with contract provisions when the revenue can be reliably
measured, and there is reasonable certainty that the performance criteria will be met.
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Grainger plc / Financials
Notes to the financial statements
continued
1 Accounting policies continued
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 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.
Grainger plc / Annual Report and Accounts 2013
101
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 are either 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.
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Grainger plc / Financials
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 and amended standards 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 2012. There are no new standards, amendments or interpretations that are effective for the first time for the current f
year that have had a material impact on the group.
inancial
ii) New and amended standards
–(cid:3)IAS 1, ‘Financial Statement Presentation’ has been amended and introduced the requirement to group items presented in ‘other
comprehensive income’ on the basis of whether they are potentially reclassable to profit or loss subsequently (reclassification
adjustments). The group has adopted this revised presentation in these financial statements.
–(cid:3)IAS 12, ‘Deferred Tax: Recovery of Underlying Assets’ introduces a rebuttable presumption that deferred tax on investment
properties measured at fair value will be recognised on a sales basis, unless an entity has a business model that would indicate the
investment property will be consumed in the business.
iii) New and amended standards not yet effective
At the date of authorisation of these financial statements, there were a number of new standards, amendments to existing standards
and interpretations in issue that have not been applied in preparing these consolidated financial statements. The group has no plan to
adopt these standards earlier than the effective date. Those that are most relevant to the group are set out below.
–(cid:3)IAS 19, ‘Employee benefits’, was amended in June 2011 and is effective for annual periods beginning on or after 1 January 2013.
For defined benefit plans, the group will change its measurement principles by replacing the interest costs and expected return on
plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability including
the IFRIC 14 Liability. There will also be a corresponding change in the amount recognised in other comprehensive income, so
that the net impact on total comprehensive income and net assets will be nil. If this standard had been applied to the year ended
30 September 2013, it is estimated the income statement charge would have been increased by approximately £0.1m.
–(cid:3)IFRS 10, ‘Consolidated Financial statements’, which establishes a single control model that applies to all entities including special
purpose entities and requirements management to exercise judgement over which entities are required to be consolidated. IFRS 10
is effective for annual periods beginning on or after 1 January 2014.
–(cid:3)IFRS 11, ‘Joint arrangements’, under IFRS 11 the structure of the joint arrangement, although still an important consideration, is no
longer the main factor in determining the type of joint arrangement and therefore subsequent accounting. IFRS 11 is effective for
annual periods beginning on or after 1 January 2014.
Grainger plc / Annual Report and Accounts 2013
103
–(cid:3)IFRS 12, ‘Disclosures of interests in other entities’ brings together all the disclosure requirements about an entity’s interests in
subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 is effective for annual periods beginning
on or after 1 January 2014.
–(cid:3)IFRS 13, ‘Fair value measurement’, provides consistency by making available a single source of guidance on how fair value is
measured. IFRS 13 is applied when fair value measurements or disclosures are required or permitted by other IFRSs. IFRS 13 is
effective for annual periods beginning on or after 1 January 2013.
In addition, as part of the IASB’s project to replace IAS 39 ‘Financial Instruments: Recognition and Measurement’, the IASB has issued
the phases of IFRS 9 covering the classification and measurement of financial assets and the accounting for financial liabilities.
The other phases, covering hedge accounting and impairment, are still to be completed. In December 2011, the IASB decided that
IFRS 9 will be effective for annual periods beginning on or after 1 January 2015. The date for EU adoption is not yet known.
All the above IFRSs, IFRIC interpretations and amendments to existing standards are endorsed by the European Union (‘EU’) at the
date of approval of these financial statements.
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% (2012: 1%) movement in interest rates, a +/- 10 percentage point (2012: 10 percentage
point) movement in sterling exchange rates and a +/- 1 percentage point (2012: 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 detailed below.
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Grainger plc / Financials
Notes to the financial statements
continued
2 Critical accounting estimates and assumptions continued
The results and the basis of each valuation and their impact on both the statutory financial statements and market value for the
group’s net asset value measures are set out below:
UK
Residential
(‘UKR’)
£m
Retirement
solutions
(‘RS’)
£m
Fund and
third-party
management
(‘Funds’)
£m
UK and
European
Developments
(‘Dev’)
£m
German
Residential
(‘Germany’)
£m
Trading property
Investment property ***
Financial asset
Total statutory book value
Allsop LLP
Directors in-house valuation
RS
Grainger invest
Investment valuation
Cushman and Wakefield LLP
CBRE Limited
Total assets at market value
Trading property
Investment property ***
Financial asset
Total assets at market value
Statutory book value
Market value uplift*
Net revaluation gain recognised in the Income
Statement for wholly owned properties
Net revaluation gain relating to joint ventures and
associates **
Net revaluation gain recognised in period**
645.5
135.6
–
781.1
751.7
–
287.4
105.9
–
–
1,145.0
1,009.4
135.6
–
1,145.0
781.1
363.9
2.2
–
2.2
226.4
50.1
96.3
372.8
–
435.3
–
–
–
–
435.3
288.9
50.1
96.3
435.3
372.8
62.5
0.3
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
13.7
13.7
77.7
–
–
77.7
–
–
–
–
–
84.3
84.3
84.3
–
–
84.3
77.7
6.6
–
–
–
% of
properties for
which
external
valuer
provides
valuation
%
51%
100%
100%
100%
100%
100%
Total
£m
949.6
364.0
96.3
1,409.9
751.7
435.3
287.4
105.9
178.3
84.3
–
178.3
–
178.3
–
–
–
–
178.3
–
178.3
1,842,9
–
1,382.6
178.3
–
178.3
178.3
364.0
96.3
1,842.9
1,409.9
–
433.0
0.4
1.0
1.4
2.9
14.7
17.6
* The market value uplift is the difference between the statutory book value and the market value of the group’s properties. Refer to note 4 for market value net
asset measures.
** Includes group share of joint ventures and associates revaluation gain before tax
*** Includes investment property classified as held-for-sale
i) Directors in-house Valuation
The group’s own in-house qualified surveying team provided a vacant possession value for the majority of the group’s UKR properties
as at 30 September 2013. 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, a high proportion, this
year around 77%, of the valuations are within a small acceptable tolerance. Where the difference is more significant this is discussed
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105
with the valuer to determine the reasons for the difference. Typically the reasons vary but it could be, for example, that further or
better information about internal condition is available or that respective valuers have placed a different interpretation on comparable
sales. Once such reasons have been identified the group and the valuer agree the appropriate valuation that should be adopted as the
directors’ valuation.
Overall, across all of the properties valued by Allsop LLP, the directors’ valuations were approximately 1.4% lower than the
Allsop LLP values.
Allsop LLP has provided the directors with the following opinion on the directors’ valuation: ‘Property held in the UK Residential
portfolios was valued as at 30 September 2013 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 UK Residential
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.’ 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. The directors have adopted all of the
recommendations made by Allsop LLP in relation to the discounts.
ii) Grainger Invest (‘GInvest’)
All of the property owned by the group in the GInvest portfolio was valued as at 30 September 2013 by Allsop LLP who are external
independent valuers.
The market values of the properties subject to the assumption that the dwellings would be sold individually, in their existing
condition, and subject to any existing leases or tenancies was provided by Allsop LLP. The valuer’s opinion of market value was
primarily derived using comparable recent market transactions on arm’s-length terms.
iii) Investment Valuation
Allsop LLP has also valued as at 30 September 2013 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, and is based on a discounted cash flow model.
iv) Retirement Solutions
All of the property owned by the group in the Retirement Solutions portfolio was valued as at 30 September 2013 by Allsop LLP who
are external independent valuers. Allsop LLP undertake a Red Book valuation of approximately a third of the portfolio in accordance
with the RICS Valuation – Professional Standards Global and UK Edition (as amended) including an internal inspection. Using the
results of the internal inspection programme as a base, Allsop LLP inspect an additional sample of the Retirement Solutions portfolio
externally in order for Allsop LLP to have seen a sample of 50% of the Retirement Solutions portfolio within the previous 12 months as
at every 30 September year-end valuation date. To value the remaining properties within the Retirement Solutions portfolio Allsop LLP
undertake a valuation using desktop valuation methodology, based wherever possible on a physical inspection which will have been
undertaken at a minimum of 23 months prior to the year-end date.
Allsop LLP also recommend the discount to apply to the vacant possession valuations to establish the market value of each
property. 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.
v) Cushman and Wakefield – German Residential
The whole of the property portfolio in Germany was valued as at 30 September 2013 by Cushman and Wakefield LLP who are
external independent valuers. 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.
106
Grainger plc / Financials
Notes to the financial statements
continued
2 Critical accounting estimates and assumptions continued
vi) CBRE – UK and European Development
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 (2013) where fair value is the same as market value.
vii) Joint ventures and associates
The valuation methodology for assets held within joint ventures and associates is as described above for each of the divisions with the
exception of assets held within the GRIP Unit Trust (‘GRIP’) and Walworth Investment Properties Limited (‘WIP’), both of which are
shown within the Funds division. WIP is valued on the same basis as the Grainger Invest portfolio. Valuations of 100% of the GRIP
portfolio were carried out at 30 June 2013 by external valuers, Savills (UK) Limited. In aggregate, the valuation of the individual
dwellings as at 30 June 2013 was £348.3m. After full consideration of house price movements in those areas where GRIP property
assets are situated the group’s directors made an adjustment to the 30 June 2013 valuations based on the movement in house price
indices to 30 September 2013 and an adjustment for sales, purchases and capital expenditure, in assessing the group’s share of GRIP
net assets for the purposes of the group’s accounts to 30 September 2013. The group’s share of the revaluation gain based on the
indexed revaluation was £1.5m. For every 1% movement in the market value of the GRIP investment property the group’s share of the
movement would amount to £1.0m.
The directors consider the valuations provided by external valuers to be representative of fair value.
As required by RICS Valuation Professional Standards, all of the external valuers in the UK mentioned above have made full
disclosure 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.
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 2013 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 3.8% growth in property prices in 2014 followed by growth in house prices of 4.1% in 2015 with price increases thereafter in line
with conservative historical house price growth rates. The assumptions also allow for an annual vacancy rate of 7.0%. 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 2013 against projected investment sales.
In aggregate a credit of £0.9m has been made in the 2013 income statement (2012: charge of £0.1m) 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 £3.5m (2012:
£4.4m) in its statement of financial position. A 1% increase/decrease in house prices would increase/decrease the provision by £0.1m.
A 1% increase/decrease in annual vacancy rate assumptions would increase/decrease the provision by £0.1m.
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.
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 2013 are based upon the current intentions of the directors.
In addition, estimates at 30 September 2013 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.
A charge of £0.2m has been made in the 2013 income statement (2012: £nil) in adjusting the book value of development stock
to net realisable value.
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107
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.
The fair value of our interest has decreased as cash flows are realised and this decrease of £0.3m (2012: £0.4m) has been
recognised in the statement of other comprehensive income and the available-for-sale reserve.
The assumptions adopted with regard to house prices are 2.5% for 2014, 3.5% in 2015, rising to 4% thereafter. A change of
1% to average house price inflation over the 10-year period from 1 October 2013 would either increase the valuation by £5.1m or
reduce the valuation by £4.6m. At 30 September 2013 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 £0.8m (2012: £0.8m).
There is no additional 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.
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 2013 should be the same as the rate adopted at 30 September
2012 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 £5.4m or reduce the carrying value by £5.9m.
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 2013 the LTV was 40.1% compared to a default level of 75% and the interest cover ratio was 5.0 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 2013, 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 £810.5m on 30 September 2013, of which £596.8m were drawn.
The group had free cash balances plus available overdraft of £67m and undrawn committed facilities of £225m (in total, ‘headroom’)
of £292m at 30 September 2013. The next maturity on the core facility is in December 2014 when a repayment of £137m is required.
The directors have reviewed the available headroom of the group, and confirmed that even without any further management actions,
the group has sufficient resources to meet future repayments as they fall due.
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.
108
Grainger plc / Financials
Notes to the financial statements
continued
3 Analysis of profit before tax
The results for the years ended 30 September 2012 and 2013 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.
2013
2012
Trading
Valuation
Non-
recurring
Total
Trading
Valuation
Non-
recurring
(£m)
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Goodwill impairment
Profit on disposal of investment property
Income from financial interest in property
assets
Profit on acquisition of equity in associate
Loss on disposal of subsidiary
Write back/(down) of inventories
to net realisable value
Operating profit before net valuation gains
on investment property
Net valuation gains on investment property
Write down of investment property
in disposal group
Operating profit after net valuation gains on
investment property
Change in fair value of derivatives
Finance costs
Finance income
Share of profit of associates after tax
Share of profit/(loss) of joint ventures
after tax
Profit/(loss) before tax
283.2
48.5
75.5
(33.6)
12.9
(3.6)
–
1.8
6.1
–
–
–
107.6
–
–
107.6
–
(73.3)
2.0
0.7
–
37.0
–
–
–
–
–
–
(4.7)
–
–
–
–
0.7
(4.0)
2.9
–
(1.1)
21.6
–
–
4.9
7.8
33.2
–
–
–
–
–
(2.7)
–
–
–
2.1
(2.3)
–
(2.9)
–
–
(2.9)
(13.7)
–
15.3
(4.6)
–
(5.9)
283.2
48.5
75.5
(33.6)
12.9
(6.3)
(4.7)
1.8
6.1
2.1
(2.3)
0.7
100.7
2.9
–
103.6
7.9
(73.3)
17.3
1.0
7.8
64.3
311.4
63.5
74.0
(31.0)
11.0
(1.8)
–
3.0
7.7
–
–
–
126.4
–
–
126.4
–
(92.8)
2.1
(0.1)
(1.0)
34.6
Total
311.4
62.8
74.0
(31.0)
11.0
(3.4)
–
3.0
7.7
–
–
(0.1)
–
(0.7)
–
–
–
(1.6)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.1)
(0.1)
2.1
(2.3)
–
124.0
2.1
–
(6.9)
(6.9)
2.0
(31.2)
–
–
4.6
–
(9.2)
–
(2.5)
–
–
–
(24.6)
(11.7)
119.2
(31.2)
(95.3)
2.1
4.5
(1.0)
(1.7)
Profit/(loss) before tax in the trading columns above of £37.0m (2012: £34.6m) is the recurring profit of the group.
The non-recurring gain of £15.3m under ‘finance income’ and £13.7m charge under ‘changes in fair value of derivatives’ relate to
the purchase at a discount of bank debt from Bank of America and recycling of the associated swap. The non-recurring charges of
£2.7m (2012: £1.6m) under ‘other expenses’ primarily relate to transaction costs. The £2.1m gain shown under ‘profit on acquisition
of equity in associate’ and £4.6m charge under ‘share of profit of associates after tax’ relates to the transfer of assets from G:Res to
GRIP. The £2.3m loss on sale of subsidiary relates to our German co-investment vehicle with Heitman.
Grainger plc / Annual Report and Accounts 2013
109
The prior year 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. The prior year non-recurring charge of £6.9m relates to the disposal group of assets transferred into a
co-investment vehicle post year end as explained further in note 39. The prior year non-recurring charge of £2.5m under ‘Finance
costs’ includes interest payable on overdue tax of £1.5m.
4 Segmental information
Information relating to the group’s operating segments is set out in the tables below:
2013 Income statement
(£m)
Group revenue
Segment revenue-external
Net rental income
Profit on disposal of trading property
Administrative expenses
Other income
Other expenses
Profit on disposal of investment property
Income from financial interest in property assets
Operating profit before net valuation deficits on
investment property
Net trading interest payable
Share of trading profit/(loss) of joint ventures and
associates after tax
Trading profit before tax, valuation and
non-recurring items
Write back of inventories to net realisable value
Net valuation gains on investment property
Goodwill Impairment
Profit on acquisition of equity in associate
Loss on disposal of subsidiary
Change in fair value of derivatives
Share of valuation gains in joint ventures and
associates after tax
Net gain on purchase of debt
Other net non-recurring items
Profit before tax
UK
residential
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
Other
Total
204.7
37.2
61.8
(7.8)
0.7
–
2.7
–
94.6
(9.0)
31.1
2.3
11.8
(2.7)
1.2
–
0.3
6.1
19.0
(9.3)
–
–
1.0
2.2
(4.7)
–
–
–
–
1.6
(1.5)
–
0.3
–
–
–
–
–
–
–
9.6
–
–
(4.2)
9.6
(2.5)
–
–
2.9
0.9
0.9
–
–
–
2.1
–
–
12.0
–
(5.0)
15.7
0.3
1.9
(1.3)
0.5
(0.2)
–
–
1.2
(0.2)
(0.2)
(0.3)
–
–
–
–
–
–
–
–
22.1
8.7
–
(3.2)
0.9
(0.5)
(1.2)
–
4.7
(5.8)
–
–
0.4
–
–
(2.3)
–
0.7
–
(0.7)
–
–
–
(14.4)
–
(0.4)
–
–
(14.8)
(47.9)
–
–
–
–
–
–
21.6
–
–
(0.1)
283.2
48.5
75.5
(33.6)
12.9
(3.6)
1.8
6.1
107.6
(71.3)
0.7
37.0
0.7
2.9
(4.7)
2.1
(2.3)
21.6
12.7
1.6
(7.3)
64.3
i
S
t
r
a
t
e
g
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
l
s
i
110
Grainger plc / Financials
Notes to the financial statements
continued
4 Segmental information continued
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
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
Change in fair value of derivatives
Share of valuation gains in joint ventures and
associates after tax
Other net non-recurring items
Loss before tax
UK
residential
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
Other
Total
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
–
(0.1)
8.2
–
–
(0.9)
–
(3.3)
–
–
–
–
–
–
4.6
–
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)
–
(0.7)
(0.1)
(0.3)
–
–
–
(11.0)
–
–
–
(11.0)
(61.1)
–
–
–
(31.2)
–
(2.2)
311.4
63.5
74.0
(31.0)
9.2
3.0
7.7
126.4
(90.7)
(1.1)
34.6
(0.1)
2.1
(31.2)
4.6
(11.7)
(1.7)
Segmental revenue from external customers is derived as follows:
£261.1m from UK customers (2012: £274.8m)
£22.1m from Germany (2012: £36.6m).
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:
£410.6m within the UK (2012: £422.2m)
£191.5m in Germany (2012: £170.2m).
Grainger plc / Annual Report and Accounts 2013
111
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.
2013 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
UK
residential
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
164.5
546.1
455.7
131.6
198.4
172.4
68.6
71.1
68.6
57.0
59.4
58.9
91.5
100.9
91.5
Other
(47.7)
Total
465.5
32.1
1,008.0
(36.2)
810.9
i
S
t
r
a
t
e
g
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
l
s
i
112
Grainger plc / Financials
Notes to the financial statements
continued
4 Segmental information continued
2013 Reconciliation of NAV measures
(£m)
Investment property
CHARM
Trading stock
Joint ventures and associates
Cash
Deferred tax
Assets held-for-sale
Other assets
Total assets
External debt
Derivatives
Deferred tax
Other liabilities
Total liabilities
Net assets
Adjustments
to market
value,
deferred
tax and
derivatives
Gross NAV
balance
sheet
Deferred and
contingent
tax
Derivatives
Statutory
balance
sheet
354.1
96.3
949.6
145.9
90.3
20.1
9.9
45.1
–
–
433.0
1.3
–
(18.3)
–
11.5
354.1
96.3
1,382.6
147.2
90.3
1.8
9.9
56.6
1,711.3
427.5
2,138.8
(1,049.0)
(91.1)
(25.7)
(80.0)
(1,245,8)
465.5
–
91.1
23.9
–
115.0
542.5
(1,049.0)
–
(1.8)
(80.0)
(1,130.8)
1,008.0
Triple NAV
balance
sheet
354.1
96.3
1,382.6
143.3
90.3
22.7
9.9
56.6
2,155.8
(1,062.0)
(91.1)
(111.8)
(80.0)
–
–
–
(0.4)
–
20.9
–
–
20.5
(13.0)
(91.1)
–
–
(104.1)
(1,344.9)
(83.6)
810.9
–
–
–
(3.5)
–
–
–
–
(3.5)
–
–
(110.0)
–
(110.0)
(113.5)
Grainger plc / Annual Report and Accounts 2013
113
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
30 September 2013
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Intangibles
Inventories – trading property
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
Total segment NNNAV assets
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
UK
residential
portfolio
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
Other
Total
135.6
–
–
–
0.5
46.2
–
15.8
96.3
–
1,009.4
288.9
6.0
31.7
–
–
–
2.4
5.3
–
2.7
3.9
–
–
69.4
36.2
–
–
–
2.2
1.0
–
0.1
–
–
–
–
2.7
–
–
84.3
28.1
3.9
–
–
–
–
172.3
18.8
0.4
–
0.4
–
2.5
8.1
–
1.0
6.0
–
1,183.2
461.5
108.9
119.0
209.5
–
–
–
–
0.5
–
1.9
40.3
0.6
18.9
–
11.5
73.7
354.1
88.2
55.1
96.3
1.4
1,382.6
43.1
90.3
0.6
22.7
9.9
11.5
2,155.8
(622.8)
(9.8)
–
(0.6)
–
(94.3)
–
(727.5)
455.7
(247.3)
(24.9)
–
(3.1)
–
(13.8)
–
(289.1)
172.4
(40.2)
(0.1)
(49.6)
(10.0)
–
–
–
–
–
(40.3)
68.6
–
–
–
(0.5)
–
(60.1)
58.9
(102.1)
–
(1,062.0)
(6.6)
–
(0.8)
–
(3.2)
(5.3)
(10.2)
(4.1)
(9.4)
(0.4)
–
(85.8)
(61.6)
(4.1)
(13.9)
(0.4)
(111.8)
(91.1)
(118.0)
(109.9)
(1,344.9)
91.5
(36.2)
810.9
i
S
t
r
a
t
e
g
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
l
s
i
114
Grainger plc / Financials
Notes to the financial statements
continued
4 Segmental information continued
2012 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
2012 Reconciliation of NAV measures
(£m)
Investment property
CHARM
Trading stock
Joint ventures and associates
Cash
Deferred tax
Assets held-for-sale
Other assets
Total assets
External debt
Derivatives
Deferred tax
Liabilities held-for-sale
Other liabilities
Total liabilities
Net assets
UK
residential
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
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
Other
(988.3)
(858.7)
(983.1)
Total
390.9
928.8
654.4
Adjustments
to market
value,
deferred
tax and
derivatives
Gross NAV
balance
sheet
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
–
–
364.0
(1.3)
–
(40.2)
–
6.3
525.9
99.0
1,387.4
59.1
73.3
4.3
222.1
48.0
328.8
2,419.1
–
(1,267.4)
145.4
37.2
4.8
21.7
209.1
537.9
–
(0.6)
(124.9)
(97.4)
(1,490.3)
928.8
–
–
–
–
–
–
–
–
–
–
–
(120.0)
–
–
Triple NAV
balance
sheet
525.9
99.0
1,387.4
56.3
73.3
50.4
222.1
48.0
–
–
–
(2.8)
–
46.1
–
–
43.3
2,462.4
–
(1,267.4)
(171.2)
–
(4.8)
(21.7)
(171.2)
(120.6)
(129.7)
(119.1)
(120.0)
(120.0)
(197.7)
(1,808.0)
(154.4)
654.4
Grainger plc / Annual Report and Accounts 2013
115
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
30 September 2012
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Goodwill
Inventories – trading property
Trade and other receivables
Cash and cash equivalents
Property, plant and equipment
Deferred tax asset
Assets classified as held-for-sale
Value of own shares held
Total segment NNNAV assets
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
Liabilities associated with assets held-for-sale
Derivative financial instruments
Total segment NNNAV liabilities
Net NNNAV assets
UK
residential
portfolio
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
Other
Total
308.5
–
–
–
5.3
47.7
–
15.3
99.0
–
1,029.6
287.6
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
–
–
1,375.1
490.6
44.6
95.9
181.2
11.5
116.6
28.0
–
–
–
101.8
–
–
294.5
1,080.6
–
–
–
14.8
–
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
76.7
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
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
i
S
t
r
a
t
e
g
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
i
F
n
a
n
c
a
l
s
i
116
Grainger plc / Financials
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
2013
£m
71.3
5.7
193.3
12.9
283.2
2013
£m
71.3
5.7
(21.7)
(6.8)
48.5
2012
£m
89.8
9.0
201.6
11.0
311.4
2012
£m
89.8
9.0
(25.6)
(10.4)
62.8
There are no contingent rents recognised within net rental income in 2013 and 2012 relating to properties where the group acts as a
lessor of assets under operating leases. A significant proportion of the group’s non-cancellable operating leases relate to Regulated
Tenancies and Lifetime Leases under which tenants have the right to remain in a property for the remainder of their lives. It is therefore
not possible to estimate the timing of future minimum lease payments.
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
2013
£m
193.3
(5.1)
188.2
(112.7)
75.5
2012
£m
201.6
(5.6)
196.0
(122.0)
74.0
Grainger plc / Annual Report and Accounts 2013
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:
– Investment property
– Assets classified as held-for-sale
117
2012
£m
48.9
(0.6)
48.3
(45.3)
–
3.0
i
S
t
r
a
t
e
g
c
r
e
p
o
r
t
G
o
v
e
r
n
a
n
c
e
2013
£m
153.8
(1.9)
151.9
(122.2)
(27.9)
1.8
During the year the group has sold investment properties into joint ventures and associates as noted in notes 20 and 21. The total
proceeds and carrying value disclosed above have been adjusted to reflect the proportion of the sale that relates to an external party
only. The adjustment to carrying value amounts to £68.0m, resulting in a carrying value of £190.2m as shown in note 18.
9 Administrative expenses
Total group expenses
10 Other income
Property and asset management fee income
Other sundry income
11 Other expenses
External costs relating to fee income
Non-recurring transaction expenses
Business improvement costs
2013
£m
33.6
2013
£m
12.5
0.4
12.9
2013
£m
2.4
2.7
1.2
6.3
2012
£m
31.0
2012
£m
10.0
1.0
11.0
2012
£m
1.8
1.6
–
3.4
i
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Grainger plc / Financials
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)
2013
£m
15.0
0.2
1.7
0.9
2.3
20.1
2012
£m
12.9
0.1
1.5
0.9
2.1
17.5
Interest on net pension scheme liabilities amounted to £0.1m in 2013 (2012: £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 residential portfolio
Retirement solutions
UK and European development
German residential
Shared services
Group
2013
Number
2012
Number
96
17
10
10
119
15
267
64
18
7
8
171
16
284
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 69.
Key management compensation
Salaries and short-term employee benefits
Post-employment benefits
Share-based payments
2013
£m
6.5
0.4
1.6
8.5
2012
£m
5.6
0.4
1.4
7.4
Key management figures shown include executive and non-executive directors and all internal directors of specific functions.
Grainger plc / Annual Report and Accounts 2013
13 Profit/(loss) before tax
Profit/(loss) before tax is stated after charging/(crediting):
Depreciation on fixtures, fittings and equipment (see note 19)
Impairment of goodwill (see note 23)
Bad debt expense (see note 25)
Foreign exchange losses
Operating lease payments (see note 37)
Auditors’ remuneration (see below)
119
2012
£m
0.4
–
0.2
–
1.7
0.7
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£m
0.2
4.7
0.2
(0.2)
1.5
0.5
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 assurance services
Services relating to taxation
Tax services
Other services not covered above
Total non-audit services
Total fees
2013
£’000
2012
£’000
124
143
267
85
85
8
178
445
120
139
259
–
64
368
432
691
During the year, £85,000 was paid by the group to PricewaterhouseCoopers LLP for taxation services. A further £93,000 was paid for
other services, the main element of which was £81,000 relating to the non-statutory audit of the completion balance sheet relating to
the formation of the Heitman co-investment vehicle. The prior year other services primarily related to the preparation of a financial due
diligence report in relation to the group’s German business for which the fee charged was £325,000.
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 62 to 64. No services were provided pursuant to contingent fee arrangements.
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Grainger plc / Financials
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 losses 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
Gain on purchase of debt
Net finance costs
15 Taxation
Current tax
Corporation tax on profit/(loss)
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 charge/(credit) for the year
2013
£m
56.2
10.4
1.8
0.1
0.2
4.5
0.1
73.3
1.4
0.4
0.2
15.3
17.3
56.0
2013
£m
19.7
(13.8)
5.9
(1.3)
6.3
(0.2)
4.8
10.7
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)
The 2013 net adjustments relating to prior years of £7.5m include the release of a provision for £5.1m where the tax liability has now
been extinguished. A potential and corresponding deferred tax asset existed but was un-provided at the prior year end and will now
not arise. Therefore, there is a credit of £5.1m to the group’s tax charge for the period, with no corresponding deferred tax debit,
reducing the group’s tax charge by 7.9%. In addition, a prior year credit of £2.4m arose following the agreement of loss availability
and settlement of other tax positions during the year.
The group works in an open and transparent manner and maintains a regular dialogue with HM Revenue & Customs.
This approach is consistent with the ‘low risk’ rating we have been awarded by HM Revenue & Customs and to which the group
is committed.
Grainger plc / Annual Report and Accounts 2013
Movements in taxation during the year are set out below:
2013 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 gain/(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 – 2013 movement
Opening
balance
£m
24.4
Payments
made in
the year
£m
(16.4)
29.5
6.1
0.7
(32.6)
(0.7)
1.2
(10.9)
(6.7)
17.7
–
–
–
–
–
–
–
–
(16.4)
Deferred tax balances are disclosed as follows:
Deferred tax assets: non-current assets
Deferred tax liabilities: non-current liabilities
Deferred tax
Movements
recognised in
income
£m
Exchange
adjustments
£m
Transfers
£m
Movements
recognised
in other
comprehensive
income
£m
–
–
–
–
0.2
–
–
(0.2)
–
–
5.9
–
(10.6)
(1.5)
0.1
16.8
–
–
–
4.8
10.7
–
0.3
–
–
–
–
(0.1)
0.2
0.2
–
–
–
–
–
0.2
(0.2)
7.3
7.3
7.3
2013
£m
20.1
(25.7)
(5.6)
121
Closing
balance
£m
13.9
18.9
4.9
0.8
(15.6)
(0.5)
1.0
(3.9)
5.6
19.5
2012
£m
44.5
(37.8)
6.7
Deferred tax has been predominantly calculated at a rate of 20% (2012: 23%).
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 £86.1m (2012: £82.9m).
No benefit has been recognised in respect of unexpired trading losses carried forward with a tax value of £nil (2012: £2.1m); or
deductible temporary differences with a tax value of £1.1m (2012: £1.3m).
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.
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Grainger plc / Financials
Notes to the financial statements
continued
15 Taxation continued
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)
The tax charge for the year of £10.7m (2012: credit of £2.1m) comprises:
UK taxation
Overseas taxation
Movements
recognised
in other
comprehensive
income
£m
–
–
–
–
–
(0.5)
(0.2)
3.1
2.4
2.4
2013
£m
11.8
(1.1)
10.7
Closing
balance
£m
24.4
29.5
6.1
0.7
(32.6)
(0.7)
1.2
(10.9)
(6.7)
17.7
2012
£m
1.0
(3.1)
(2.1)
The main rate of Corporation Tax in the UK changed from 24% to 23% with effect from 1 April 2013 and will change to 21% from
1 April 2014 and 20% from 1 April 2015. Accordingly the group’s results for this accounting period are taxed at an effective rate of
23.5% and should be taxed at 22% in the 2014 period. The change in tax rate has resulted in a £0.2m credit to the income statement
in the current year.
Grainger plc / Annual Report and Accounts 2013
123
The tax charge for the year is different to the charge for the year derived by applying the standard rate of corporation tax in the UK of
23.5% (2012: 25%) to the profit before tax. The differences are explained below:
Profit/ (loss) before tax
Profit/ (loss) before tax at a rate of 23.5% (2012: 25%)
Expenses not deductible for tax purposes
Goodwill impairment not tax deductible
Impact of tax rate change
Other losses and non-taxable items
Adjustment in respect of prior periods
2013
£m
64.3
15.1
1.6
1.1
(0.2)
0.6
(7.5)
10.7
2012
£m
(1.7)
(0.4)
1.1
–
0.2
(0.1)
(2.9)
(2.1)
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 consolidated statement of other comprehensive
income on page 88.
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 have
been proposed or enacted. A further reduction in the main rate has been enacted, reducing the main rate to 20% from 1 April 2015.
This reduction has been reflected in the deferred tax items in the balance sheet which are predominantly measured at this 20% rate.
This change is not therefore expected to further impact future tax charges.
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 2011 – 1.30p per share
Interim dividend for the year ended 30 September 2012 – 0.55p per share
Final dividend for the year ended 30 September 2012 – 1.37p per share
Interim dividend for the year ended 30 September 2013 – 0.58p per share
2013
£m
–
–
5.6
2.4
8.0
2012
£m
5.3
2.3
–
–
7.6
A final dividend in respect of the year ended 30 September 2013 of 1.46p per share amounting to £6.0m will be proposed at the
2014 AGM. If approved, this dividend will be paid on 7 February 2014 to shareholders on the register at close of business on
20 December 2013. The 2013 interim dividend of 0.58p per share was paid in July 2013. This gives a total dividend for 2013 of 2.04p
per share (2012: 1.92p per share).
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Grainger plc / Financials
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 2013 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 28.
30 September 2013
30 September 2012
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
Effect of potentially
dilutive securities
53.6
410.808
13.1
0.4
409,937
Share options and contingent shares
–
7.234
Diluted earnings per share
Profit attributable to equity holders
53.6
418.042
(0.3)
12.8
–
0.4
4,971
414,908
18 Investment property
Opening balance
Additions
Disposals
Write down of investment property in disposal group (see note 39)
Transfer to assets classified as held-for-sale
Net valuation gains
Exchange adjustments
Closing balance
2013
£m
525.9
4.3
(190.2)
–
(1.3)
2.9
12.5
354.1
0.1
–
0.1
2012
£m
819.9
5.5
(45.3)
(6.9)
(218.1)
2.1
(31.3)
525.9
The group has valued all of its investment property as at 30 September 2013 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.
Grainger plc / Annual Report and Accounts 2013
125
A revaluation gain of £2.9m has arisen on valuation of investment property to fair value as at 30 September 2013 (2012: gain of
£2.1m) and this has been taken to the income statement.
The historical cost of the group’s investment property as at 30 September 2013 is £365.5m (2012: £534.2m).
Rental income from investment property during the year was £32.7m (2012: £46.7m).
Direct property repair and maintenance costs arising from investment property that generated rental income during the year was
£9.2m (2012: £12.4m).
The increase in value of £12.5m (2012: decrease £31.3m) 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, and is shown within
other comprehensive income.
19 Property, plant and equipment
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Cost
Opening cost
Additions
Reclassification to intangible assets
Closing cost
Accumulated depreciation
Opening accumulated depreciation
Charge for the year
Reclassification to intangible assets
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.
Total
2013
£m
5.5
0.1
(0.3)
5.3
4.7
0.2
(0.2)
4.7
0.6
0.8
Total
2012
£m
5.5
–
5.5
4.3
0.4
4.7
0.8
1.2
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Grainger plc / Financials
Notes to the financial statements
continued
20 Investment in associates
Opening balance
Share of profit
Further Investment
Dividends received
Loans advanced to associates
Exchange movements
Share of change in fair value of cash flow hedges taken through other comprehensive income
Closing balance
2013
£m
41.2
1.0
55.5
(48.2)
35.6
0.1
3.0
88.2
2012
£m
34.6
4.5
–
–
–
–
2.1
41.2
On 10 December 2012 the group acquired a 21.0% interest in MH Grainger JV Sarl, a co-investment vehicle set up to acquire a
portfolio of German residential assets previously wholly owned by the group.
During the period the group increased its holding in G:res1 Limited from 21.96% to 26.2%, recognising a gain of £1.1m.
On 21 January 2013, the GRIP Unit Trust was formed between the group and APG Strategic Real Estate Pool (‘APG’) and the
group acquired a 27.2% interest. GRIP then acquired the full residential property portfolio previously owned by G:res1 Limited. £1.0m
of the consideration due to G:Res1 was paid by GRIP directly to shareholders of G:Res1 Limited.
On 6 August 2013, the group diluted its share in GRIP to 24.9% as APG contributed a disproportionate share of the equity
finance when GRIP acquired the Tilt estate portfolio of properties from the group.
Of the £48.2m dividends received, £44.1m were reinvested into GRIP, £3.3m were declared but not paid at 30 September 2013
and the remaining £0.8m was received in cash.
As stated above, the group made a profit on acquisition of equity in associate of £2.1m and this has been shown as a separate
item in the consolidated income statement.
Increased holding in G:Res1 Limited
Payment to G:Res1 shareholders
As at 30 September 2013, the group’s interest in associates was as follows:
G:res1 Limited
GRIP Unit Trust
MH Grainger JV Sarl*
2013
£m
1.1
1.0
2.1
2012
£m
–
–
–
% of ordinary
share capital/
units held
26.2
24.9
21.0
Country of
incorporation
Jersey
Jersey
Luxembourg
* Grainger FRM GmbH holds a 20.969% interest in the equity of MH Grainger JV Sarl which owns 94.9% of the equity of Grainger Stuttgart Portfolio one GmbH
and Grainger Stuttgart Portfolio two GmbH (‘Stuttgart Portfolios’). Grainger FRM GmbH holds a direct interest of 5.1% in the equity of the Stuttgart Portfolios.
Overall, therefore, Grainger FRM GmbH has an interest of 25% in the equity of the Stuttgart Portfolios.
The accounting period end of all associates is 31 December 2013. Their results for the 12 months/period to 30 September 2013 and
their financial position as at that date have been equity accounted in these accounts.
Grainger plc / Annual Report and Accounts 2013
The group’s share of the aggregated assets, liabilities, revenues and profit or loss of associates is 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)
Reconciliation to cash flow
127
2012
£m
81.6
4.8
(43.4)
(1.8)
41.2
4.7
4.5
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2013
£m
152.1
11.7
(71.1)
(4.5)
88.2
6.0
1.0
Associates (note 20)
Joint Ventures (note 21)
Investment
into associates
£m
Cash
distribution
received
£m
Loans
advanced to
associates
£m
Net assets
acquired
through sale of
assets into
joint venture
£m
Distributions
received
£m
Loans
advanced to
joint ventures
£m
Consolidated
statement of
cashflows
£m
55.5
(48.2)
35.6
21.4
(0.6)
9.7
–
(16.7)
(11.9)
–
26.9
–
26.9
26.9
–
3.3
–
44.1
–
(0.8)
–
(0.8)
–
(0.8)
(3.3)
–
(32.2)
–
0.1
0.6
0.7
0.7
–
–
–
–
–
21.4
–
21.4
21.4
–
–
–
–
–
(0.6)
–
(0.6)
–
(0.6)
–
–
–
(0.5)
9.2
(0.4)
8.8
8.8
–
–
–
–
–
–
–
–
–
57.8
(1.4)
As shown in above notes
Non-cash movements
Dividend converted to loan
Reinvested into MH Grainger JV Sarl from
sale of subsidiary
Reinvested into GRIP Unit Trust
Capitalised interest and exchange
movements
Total after non-cash adjustments
Loan advancements/(repayments)
Total cashflows
Presented as:
Additional investments
Distributions received
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Grainger plc / Financials
Notes to the financial statements
continued
21 Investment in joint ventures
At 1 October 2011
Loans advanced
Loans repaid
Share of loss
Exchange adjustment
Distributions received
At 30 September 2012
Loans advanced
Decrease in provisions against loans
Net assets acquired through sale of assets into a joint venture
Share of profit
Reclassification of loss to other expenses
Exchange adjustment
Distributions received
At 30 September 2013
Net
assets
£m
17.8
–
–
(1.0)
(0.4)
(1.9)
14.5
–
–
21.4
7.8
(0.3)
0.1
(0.6)
42.9
Loans
£m
6.1
0.5
(1.6)
–
(0.3)
–
4.7
9.7
0.3
–
–
–
0.1
–
14.8
Total
£m
23.9
0.5
(1.6)
(1.0)
(0.7)
(1.9)
19.2
9.7
0.3
21.4
7.8
(0.3)
0.2
(0.6)
57.7
On 13 May 2013 the group formed a 50:50 joint venture, Walworth Investment Properties Limited (‘WIP’), to acquire a portfolio of
South London residential properties previously wholly-owned by the group.
On 17 October 2013 the group disposed of our 50% interest in Gebau Vermogen GmbH to our joint venture partners, for a
consideration of €0.5m (£0.4m).
Loans advanced of £9.7m relate to loans advanced to WIP (2012: Loans repaid by the group’s Sovereign joint venture of £1.6m).
Distributions received of £0.6m (2012: £1.9m) relate to dividends received from the Sovereign joint venture.
At 30 September 2013, 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
Walworth Investment Properties Limited
CCZ a.s.
CCY a.s.
Prazsky Project a.s.
Gebau Vermogen GmbH
50
50
50
50
50
50
50
50
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Czech Republic
Czech Republic
Czech Republic
Germany
The accounting period end of Curzon Park Limited is 28 February. The results for the 12 months to 30 September 2013 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 end is 31 March. The results for the 12 months
to 30 September 2013 and the financial position as at that date have been equity accounted in these accounts.
Grainger plc / Annual Report and Accounts 2013
129
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. In July 2013 the Appeal Court rejected all legal challenges to 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 was made in prior years against the carrying value of our joint venture investment to write
down its value to £nil. During the current year the joint venture has commenced repayment of its bank loan, funded by loans from its
shareholders. Grainger’s loan of £2.6m made during the year ended 30 September 2013 is included within ‘Investments in joint
ventures’. 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 or the period over which value may be realised. However the directors believe no further impairment provision is
required at the statement of financial position date. Should Grainger’s share of the value of the site, together with any compensation
received, be insufficient to repay its share of the remaining bank loan in the joint venture entity and the carrying value of the group’s
investment, the group may incur further charges in respect of its obligations to the joint venture and the bank.
In relation to the group’s investment in joint ventures, the group’s share of the aggregated assets, liabilities, revenues and profit
or loss are shown below.
2013 Summarised income statement
Net rental income and other income
Administration and other expenses
Profit on disposal of properties
Operating profit
Net revaluation gains on investment
property
Interest payable
Change in fair value derivatives
(Loss)/profit before tax
Taxation
(Loss)/profit after tax
2013
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)
–
–
–
–
–
(0.2)
–
(0.2)
–
(0.2)
–
–
–
–
–
–
–
–
–
–
–
(0.4)
0.7
0.3
–
(0.7)
0.3
(0.1)
0.1
–
Gebau
Vermogen
GmbH
£m
2.5
(2.5)
–
–
–
–
–
–
–
–
Walworth
Investment
Properties
Limited
£m
0.7
–
0.1
0.8
9.8
(0.7)
0.1
10.0
(2.0)
8.0
Total
£m
3.2
(2.9)
0.8
1.1
9.8
(1.9)
0.4
9.4
(1.9)
7.5
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Grainger plc / Financials
Notes to the financial statements
continued
21 Investment in joint ventures continued
2013 Summarised statement of financial position
2013
Czech
Republic
combined
£m
Curzon Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
£m
New Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
13.4
1.3
14.7
(6.1)
(7.1)
1.5
18.6
–
18.6
(5.4)
(16.3)
(3.1)
2.8
0.1
2.9
(2.9)
–
–
27.7
1.4
29.1
(12.7)
(1.8)
14.6
–
0.6
0.6
–
(0.2)
0.4
Walworth
Investment
Properties
Limited
£m
66.3
1.7
68.0
(30.0)
(8.5)
29.5
Total
£m
128.8
5.1
133.9
(57.1)
(33.9)
42.9
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
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.
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
Czech
Republic
combined
£m
Curzon Park
Limited
£m
King Street
Developments
(Hammersmith)
Limited
£m
New Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
–
(0.3)
–
(0.3)
–
–
–
–
–
–
–
–
–
–
(0.5)
0.7
0.2
(0.7)
(0.2)
(0.7)
–
(0.7)
4.9
(4.9)
–
–
–
–
–
–
–
Total
£m
4.9
(5.4)
0.7
0.2
(1.0)
(0.2)
(1.0)
–
(1.0)
Grainger plc / Annual Report and Accounts 2013
2012 Summarised statement of financial position
Czech
Republic
combined
£m
Curzon Park
Limited
£m
2012
King Street
Developments
(Hammersmith)
Limited
£m
New Sovereign
Reversions
Limited
£m
Gebau
Vermogen
GmbH
£m
Trading property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
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
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
–
0.5
0.5
(0.1)
–
0.4
2013
£m
99.0
(8.5)
6.1
(0.3)
96.3
131
Total
£m
61.3
4.8
66.1
(38.9)
(12.7)
14.5
2012
£m
102.3
(10.6)
7.7
(0.4)
99.0
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 29.
23 Intangible assets
Goodwill
Opening balance
Impairment charge taken to income statement
Closing balance
2013
£m
5.3
(4.7)
0.6
2012
£m
5.3
–
5.3
Goodwill is tested annually for impairment based on a value in use calculation. The current year impairment charge relates entirely
to goodwill which arose on the acquisition of the Tilt Estate. Following the sale of this portfolio to GRIP, as discussed in note 20,
the goodwill was fully impaired.
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Grainger plc / Financials
Notes to the financial statements
continued
23 Intangible assets continued
IT Software
Opening balance
Reclassified from property, plant and equipment
Additions
Closing balance
24 Inventories – trading property
Residential trading property*
Development trading property
2013
£m
–
0.1
0.7
0.8
2013
£m
871.9
77.7
949.6
2012
£m
–
–
–
–
2012
£m
953.6
69.8
1,023.4
* Residential trading property comprises assets held within the UK Residential and Retirement Solutions divisions).
The market value of inventories as at 30 September 2013 was £1,382.6m (2012: £1,387.4m).
Provisions of £0.7m against the net realisable value of residential trade property have been written back to the consolidated
income statement in the year (2012: charge of £0.1m). Further details are given in note 2 ‘Critical accounting estimates and
assumptions’.
It is not possible for the group to identify which other 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
Prepayments
2013
£m
31.3
(1.3)
30.0
7.4
5.7
43.1
2012
£m
27.4
(1.4)
26.0
4.9
4.7
35.6
Trade receivables includes deferred consideration receivable of £13.5m (2012:£11.8m) from sales within our Development division at
our previously held Gateshead College site and land sales at the Berewood site.
Other receivables include a loan of £4.3m (2012: £3.8m) 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.
The fair values of trade and other receivables are considered to be equal to their carrying amounts. The credit quality of financial
assets that are neither past due nor impaired is discussed in note 29, ‘financial risk management and derivative instruments’.
Grainger plc / Annual Report and Accounts 2013
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
133
2012
£m
2.1
0.8
(0.9)
(0.6)
1.4
2013
£m
1.4
0.8
(0.7)
(0.2)
1.3
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 carrying amounts of the group’s trade and other receivables are denominated in the following currencies:
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26 Provisions
Provisions for other liabilities and charges
Opening balance
Transfer from other payables
Addition
Utilisation
Released
Closing balance
2013
£m
40.6
2.5
43.1
Current
2013
£m
2012
£m
Non-current
2013
£m
–
0.7
3.1
(0.7)
(0.2)
2.9
–
–
–
–
–
–
0.5
–
–
(0.1)
–
0.4
2012
£m
33.9
1.7
35.6
2012
£m
0.6
–
–
(0.1)
0.5
The group holds a provision of £0.4m (2012:£0.6m) which relates to the estimated cost of providing private medical insurance to
former directors of BPT Limited.
In addition a provision of £2.5m (2012: £nil) relates to maintenance liabilities arising on certain of the group’s freehold properties.
We expect such obligations to be settled within 12 months of the statement of financial position date.
The remaining provision of £0.4m relates to costs associated with the exit from our Gebau Vermogen GmbH joint venture (see
note 21) and will be settled within 12 months of the statement of financial position date.
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Grainger plc / Financials
Notes to the financial statements
continued
27 Trade and other payables
Deposits received
Trade payables
Taxation and social security
Accruals and deferred income
Other payables
Deferred consideration payable
2013
£m
2.1
10.4
3.1
43.1
–
–
58.7
2012
£m
2.6
13.8
5.5
40.8
21.7
4.0
88.4
Accruals and deferred income includes £14.9m (2012: £17.3m) 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 in 2012 of £21.7m related to the settlement value of the interest rate swap contracts which were agreed in
September 2012 and settled in October 2012.
28 Interest-bearing loans and borrowings
Current liabilities
Bank loans
Non-bank financial institution
Mortgages
Convertible bond
Non-current liabilities
Bank loans
Non-bank financial institution
Mortgages
Convertible bond
Total interest-bearing loans and borrowings
2013
£m
12.6
5.2
0.3
24.3
42.4
810.5
176.5
19.6
–
1,006.6
1,049.0
2012
£m
21.0
6.0
0.3
–
27.3
1,023.0
174.9
18.9
23.3
1,240.1
1,267.4
Grainger plc / Annual Report and Accounts 2013
135
The analysis of the loans and borrowings in the below tables (a) to (d) is before deducting unamortised issue costs of £12.9m
(2012: £19.0m) relating to the raising of the loan finance.
(a) Analysis of bank loans
Bank loans – Pounds Sterling
Bank loans – Euro
2013
£m
655.1
179.9
835.0
2012
£m
830.6
231.2
1,061.8
Sterling bank loans include variable rate loans bearing interest at rates between 2.0% and 3.8% above LIBOR and Euro bank loans
include variable rate loans bearing interest at rates between 0.8% and 3.5% 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 2013 was 2.7% (2012: 2.9%). Bank loans are
secured by fixed and floating charges over specific property and other assets of the group.
(b) Analysis of non-bank financial institutions
Fixed rate – Pound Sterling
Variable rate – Pound Sterling
2013
£m
82.6
100.0
182.6
2012
£m
81.9
100.0
181.9
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 4.0% over LIBOR.
(c) Mortgages
Mortgages – Euro
2013
£m
19.9
2012
£m
19.2
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 (Pound Sterling)
2013
£m
23.5
0.8
24.3
2012
£m
22.7
0.8
23.5
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Grainger plc / Financials
Notes to the financial statements
continued
28 Interest-bearing loans and borrowings continued
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 and EURIBOR 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 12 May 2014 was issued in May 2007. Interest is payable semi-annually. Unless previously
redeemed, converted, purchased or cancelled the bond is convertible at any time up to 12 May 2014 into fully paid up ordinary shares
at a conversion price of £4.68. 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
2013
£m
42.4
149.4
601.8
255.4
1,006.6
1,049.0
2012
£m
27.3
39.5
903.7
296.9
1,240.1
1,267.4
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137
29 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
2013
–
37.4
90.3
127.7
–
–
–
–
–
–
–
–
96.3
96.3
96.3
–
–
96.3
37.4
90.3
224.0
37.4
90.3
224.0
–
–
–
–
Loans and
receivables/
cash and
cash equivalents
£m
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
–
–
–
–
–
–
–
–
–
–
–
–
–
–
80.8
80.8
10.3
10.3
1,006.6
1,006.6
1,018.8
3.3
3.3
3.3
42.4
15.6
–
1,067.9
42.4
15.6
91.1
1,159.0
43.2
15.6
91.1
1,172.0
127.7
(80.8)
(10.3)
(971.6)
(935.0)
(948.0)
12.2
–
0.8
–
–
13.0
(13.0)
Financial interest
in property assets
Trade and other
receivables excluding
prepayments
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)
The fair value adjustment relates to the group’s fixed rate loans with Lloyds Bank plc and Partnership Assurance Group 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.
138
Grainger plc / Financials
Notes to the financial statements
continued
29 Financial risk management and derivative financial instruments continued
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 excluding
prepayments
Cash and cash
equivalents
Total financial assets
–
30.9
73.3
104.2
–
–
–
–
–
–
–
–
99.0
99.0
99.0
–
–
99.0
30.9
73.3
203.2
30.9
73.3
203.2
–
–
–
–
Loans and
receivables/
cash and
cash equivalents
£m
Liabilities at
fair value
through
profit and loss
£m
Derivatives
used for
hedging
£m
Other financial
liabilities at
amortised
cost
£m
Total
book value
£m
Fair value
£m
Fair value
adjustment
£m
Non-current liabilities
Interest-bearing loans
and borrowings
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)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
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)
Grainger plc / Annual Report and Accounts 2013
139
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. 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 has entered into sales contracts within the Development division under which a proportion of the consideration is
deferred. Each purchaser is subject to financial due diligence prior to sale and the group retains a legal charge over the land until full
and final settlement is received. At 30 September 2013 £13.5m (2012: £11.8m) was outstanding from two counterparties.
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.
Tenant deposits of £2.1m (2012: £2.6m) are held which provide some security against rental arrears and property dilapidations
caused by the tenant. In addition the loan to Clarins Limited is secured against the property to which the development relates. The
group does not hold any other collateral as security. Of the net trade receivables balance of £30.0m, we consider £25.6m to be not
due and not impaired. Of the £7.4m other receivables balance, £4.2m is considered not due and not impaired.
As at 30 September 2013, tenant arrears of £1.3m within trade receivables were impaired and fully provided for (2012: £1.4m).
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
2013
£m
0.1
1.2
1.3
2012
£m
0.1
1.3
1.4
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Grainger plc / Financials
Notes to the financial statements
continued
29 Financial risk management and derivative financial instruments continued
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
2013
£m
1.4
2012
£m
1.7
The credit risk on liquid funds and derivative financial instruments is managed through the group’s policies of monitoring
counterparty exposure, monitoring the concentration of credit risk through the use of multiple counterparties and the use of
counterparties of good financial standing. At 30 September 2013, the fair value of all interest rate derivatives which had a positive
value was £nil (2012: £nil).
At 30 September 2013, the combined credit exposure arising from cash held at banks, money market deposits and interest rate
swaps was £90.3m (2012: £73.3m) which represents 5.2% (2012: 3.5%) of total assets. Deposits were placed with financial
institutions with A- or better credit ratings.
The group has the following cash and cash equivalents:
Pound Sterling
Euros
Czech Koruna
Cash and cash equivalents can be analysed as follows:
Cash at bank
Short-term deposits
2013
£m
82.0
8.1
0.2
90.3
2013
£m
52.8
37.5
90.3
2012
£m
62.7
10.4
0.2
73.3
2012
£m
31.7
41.6
73.3
Included within 2013 year end cash balances is £8.6m (2012: £11.5m) held in third-party client accounts where Grainger acts as
Trustee or agent. The corresponding liability is included within trade payables.
At the year end £37.5m was placed on deposit (2012: £41.6m) at effective interest rates between 0.30% and 0.42%
(2012: 0.05% and 1.59%). 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 2013 (2012: £5m).
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 2013 and as at 30 September 2013
(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.
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141
The business is very cash generative from its sales of vacant properties, gross rents and management fees. In adverse trading
conditions, tenanted 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. 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 2013
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 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
Reconciliation of maturity analysis
At 30 September 2013
Interest-bearing loans and borrowings (see note 28)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
Less than
1 year
£m
98.3
3.6
12.4
43.8
2.5
Less than
1 year
£m
68.5
18.3
14.6
71.1
0.1
Less than
1 year
£m
42.4
(0.6)
52.1
4.4
98.3
Between
1 and 2
years
£m
198.0
3.8
16.7
–
0.4
Between
1 and 2
years
£m
79.8
10.3
14.8
–
0.1
Between
1 and 2
years
£m
149.4
(0.9)
45.7
3.8
198.0
Between
2 and 5
years
£m
687.2
2.9
27.0
–
–
Between
2 and 5
years
£m
988.7
13.3
34.5
–
0.4
Between
2 and 5
years
£m
601.8
0.8
81.1
3.5
687.2
Over 5
years
£m
Total
£m
409.7
1,393.2
–
24.7
–
–
Over 5
years
£m
421.4
12.5
34.5
–
0.3
Over 5
years
£m
255.4
0.5
152.6
1.2
409.7
10.3
80.8
43.8
2.9
Total
£m
1,558.4
54.4
98.4
71.1
0.9
Total
£m
1,049.0
(0.2)
331.5
12.9
1,393.2
142
Grainger plc / Financials
Notes to the financial statements
continued
29 Financial risk management and derivative financial instruments continued
At 30 September 2012
Interest-bearing loans and borrowings (see note 28)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Financial liability cash flows shown above
Less than
1 year
£m
27.3
(0.8)
37.5
4.5
68.5
Between
1 and 2
years
£m
39.5
(0.9)
36.6
4.6
79.8
Between
2 and 5
years
£m
903.7
(1.8)
80.7
6.1
988.7
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
296.9
–
120.7
3.8
421.4
2013
£m
–
10.8
183.7
30.0
224.5
Total
£m
1,267.4
(3.5)
275.5
19.0
1,558.4
2012
£m
5.0
–
79.9
37.5
122.4
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 percent (2012: 1 percent) movement in interest rates, a +/- 10 percentage point (2012: 10
percentage point) movement in sterling and a +/- 1 percentage point (2012: 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’.
Grainger plc / Annual Report and Accounts 2013
143
The following table presents the group’s assets and liabilities that are measured at fair value.
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
2013
Assets
£m
Liabilities
£m
2012
Assets
£m
Liabilities
£m
96.3
–
–
96.3
–
10.3
80.8
91.1
99.0
–
–
99.0
–
50.7
94.7
145.4
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 2013 was £532.4m
(2012: £973.1m).
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 2013 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
2013
£m
Fair value at
30 September
2013
£m
161.5
174.5
Book value at
30 September
2012
£m
Fair value at
30 September
2012
£m
162.9
188.8
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Grainger plc / Financials
Notes to the financial statements
continued
29 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 2013, 68% (2012: 84%) of the group’s net
borrowings were economically hedged to fixed or capped rates.
At 30 September 2013, the weighted average interest rate of the group’s fixed rate debt is 6.3% (2012: 6.3%). The weighted
average period for which the rate is fixed is 15.0 years (2012: 11.7 years).
At 30 September 2013 the fixed interest rates on the interest rate swap contracts vary from 0.67% to 5.38% (2012: 0.67% to
5.38%) with a weighted average rate of 3.4% (2012: 4.6%) and a weighted average maturity of 7.3 years (2012: 5.7 years).
At 30 September 2013 the weighted average interest rate of the group’s variable rate debt is 2.9% (2012: 4.8%). The weighted
average debt maturity is 4.6 years (2012: 4.6 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 £2.8m (2012: £2.6m). Similarly a 1% decrease would increase annual profits by £2.8m (2012: £2.6m).
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 £2.1m (2012: £1.9m). Similarly a 1% decrease would increase the group’s equity by £2.1m (2012: £1.9m).
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 2013, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of £10.3m
(2012: net liability of £50.7m). The total ineffectiveness of cash flow hedges recognised within the income statement totals a gain of
£0.8m (2012: loss of £0.2m). 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 credit of £7.9m (2012: charge of £31.2m) 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
2013
£m
31.8
(23.9)
7.9
2012
£m
(24.6)
(6.6)
(31.2)
At 30 September 2013, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net liability of £80.8m
(2012: net liability of £94.7m). The cash flows occur and enter in the determination of profit and loss until the maturity of the
hedged debt.
Grainger plc / Annual Report and Accounts 2013
The table below summarises debt hedged at 30 September 2013.
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
Interest rate profile – including the effect of derivatives
2013
£m
147.6
75.7
99.5
209.6
532.4
Fixed rate
Hedged rate
Variable rate
2013
2012
Sterling
£m
139.7
501.8
220.6
862.1
Euro
£m
21.8
61.4
116.6
199.8
Total
£m
161.5
563.2
337.2
Sterling
£m
141.7
756.4
137.9
1,061.9
1,036.0
Euro
£m
21.2
150.9
78.3
250.4
145
2012
£m
291.4
384.4
229.7
67.6
973.1
Total
£m
162.9
907.3
216.2
1,286.4
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
2013
Euro
£m
92.4
(100.3)
(7.9)
2012
Euro
£m
379.4
(393.5)
(14.1)
2013
Czech Koruna
£m
2012
Czech Koruna
£m
1.6
–
1.6
1.4
–
1.4
As at 30 September 2013, it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling against
the Euro would increase/decrease the group’s profit before tax by approximately £0.3m (2012: £0.7m) and equity by £0.8m
(2012: £1.4m).
As at 30 September 2013 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 (2012: £nil) and equity by £0.6m
(2012: £0.1m).
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Grainger plc / Financials
Notes to the financial statements
continued
29 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, which has subsequently reduced to a facility of £810.5m, 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. Loan to value 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 is now operating within a range of gearing of 45% – 50% which it
considers to be appropriate in the medium term.
The group monitors its cost of debt and weighted average cost of capital (WACC) on a regular basis. At 30 September 2013, the
weighted average cost of debt was 5.7% (2012: 6.1%) and the WACC was 6.65% (2012: 5.08%). 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 Conduct Authority and therefore have externally applied capital adequacy
requirements; however, these do not have any material impact on the group as a whole.
Grainger plc / Annual Report and Accounts 2013
147
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 to 79. The pension cost charge in these financial
statements represents contributions payable by the group. The charge of £0.9m (2012: £0.9m) 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.
The valuation as at 1 July 2013 is currently being considered and will be completed within the 18 month statutory deadline.
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.
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 2013, 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
2013
2012
4.50% p.a.
3.50% p.a.
2.50% p.a.
4.50% p.a.
5.00% p.a.
2.50% p.a.
4.20% p.a.
2.80% p.a.
1.80% p.a.
3.80% p.a.
5.00% p.a.
1.80% p.a.
Year commencing
1 October 2013
Year commencing
1 October 2012
5.30% p.a.
4.40% p.a.
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Grainger plc / Financials
Notes to the financial statements
continued
30 Pension costs continued
The overall expected return on assets assumption of 5.30% p.a. as at 30 September 2013 has been derived by calculating the
weighted average of the expected rate of return for each asset class. The following approach has been used to determine the
expected rate of return for each asset class:
–(cid:3)fixed interest securities, current market yields
–(cid:3)equities and property, net dividend yield plus RPI inflation plus an allowance for future real dividend growth (net of investment
expenses)
–(cid:3)cash, current Bank of England base rate
–(cid:3)insured pensioner policies, in line with the discount rate
Demographic assumptions
Mortality tables for pensioners
2013
2012
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 S1PAlc year of birth
tables allowing for a minimum
improvement factor of 1.25%
for males and 0.75% for females
each year
Mortality tables for non-pensioners
As for pensioners
As for pensioners
Life expectancies
Life expectancy for a current 65 year old
Life expectancy at age 65 for an individual aged 45 in 2013
Market value of scheme assets and expected rates of return
30 September 2013
30 September 2012
Male
Female
Male
Female
88.0 years
90.5 years
90.2 years
91.8 years
87.9 years
90.3 years
90.1 years
91.7 years
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 2013
30 September 2012
% of total
scheme assets
Long-term
expected rate
of return
%
Market
value
£m
% of total
scheme assets
Long-term
expected rate
of return
%
35%
38%
2%
7%
18%
100%
8.0%
4.4%
8.0%
0.5%
4.5%
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
Market
value
£m
7.9
8.8
0.4
1.7
4.1
22.9
0.8
Grainger plc / Annual Report and Accounts 2013
149
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 2013 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 2013 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
2013
£m
22.8
(26.9)
(4.1)
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)
2013
2012
2011
2010
2009
–
–
£0.9m
3.3%
£(0.2)m
(0.9)%
–
–
£(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%
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Grainger plc / Financials
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 (gain)/loss
Benefits paid
Present value of projected defined benefit obligation at the end of the year
The change in the market value of the scheme assets over the year was as follows:
Market value of scheme assets at the start of the year
Expected return on scheme assets
Employer contributions
Actuarial (loss)/gain
Benefits paid
Market value of scheme assets at the end of the year
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
Gain/(loss) on change of assumptions
Actuarial gain/(loss)
2013
£m
27.5
1.1
(0.9)
(0.8)
26.9
2013
£m
21.7
1.0
1.1
(0.2)
(0.8)
22.8
2013
£m
1.1
(1.0)
0.1
2013
£m
(0.2)
0.9
0.7
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)
The actuarial gain shown in the above table of £0.7m (2012: loss of £2.0m) has been included in the consolidated statement
of comprehensive income on page 88.
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 2013.
Grainger plc / Annual Report and Accounts 2013
151
Sensitivity analysis
Set out below is an analysis of how the scheme deficit would vary with changes to the key actuarial assumptions:
Discount rate movement of 0.1% p.a.
Inflation movement of 0.1% p.a.
Life expectancies movement of one year
Increase/ decrease in deficit of £0.5m
Increase/ decrease in deficit of £0.1m
Increase/ decrease in deficit of £0.8m
The cumulative amount of actuarial losses recognised in the consolidated statement of comprehensive income before deferred
taxation is £2.3m (2012: £3.0m).
31 Share capital
Allotted, called-up and fully paid:
416,529,484 (2012: 416,381,206) ordinary shares of 5p each
2013
£m
20.8
2012
£m
20.8
During the year the Grainger Employee Benefit Trust acquired 1,400,000 shares at a cost of £2.4m (2012: £nil). The group also paid
£0.6m 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 £3.0m (2012: £0.5m) has been deducted from retained earnings within shareholders’ equity.
As at 30 September 2013, share capital included 5,097,428 (2012: 4,375,984) shares held by The Grainger Employee Benefit
Trust and 1,506,300 (2012: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 6,603,728
(2012: 5,882,284) with a nominal value of £330,186 (2012: £294,114) and a market value as at 30 September 2013 of £11.5m
(2012: £6.3m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2011
Options exercised under the SAYE scheme
At 30 September 2012
Options exercised under the SAYE scheme
At 30 September 2013
Number
416,372,103
9,103
Nominal
value
£’000
20,818
1
416,381,206
20,819
148,278
7
416,529,484
20,826
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Grainger plc / Financials
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 2013, 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
2013
Total share options
Exercise price
(pence)
Exercise
period
2013
number
111.0
2006–13
–
–
2012
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
115.1
2011–14
2012–14
2012–15
2013–16
2014–17
2015–18
2016–19
8,713
38,220
1,100,602
1,180,549
20,956
30,648
49,022
626,956
109,758
53,837
78,415
49,022
660,916
–
1,946,655
2,060,959
2,073,743
2,208,861
Grainger plc / Annual Report and Accounts 2013
The movement on the share options schemes during the year is as follows:
LTIS schemes
2003
Weighted average exercise price (pence per share)
HMR & C Approved Executive Share Option Scheme (CSOP)
2011
Weighted average exercise price (pence per share)
SAYE scheme
2008 (A)
2008 (B)
2009
2010
2011
2012
2013
Opening
position
20,814
111.0
127,088
94.4
38,220
1,180,549
53,837
78,415
49,022
660,916
–
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Closing
position
–
–
127,088
94.4
8,713
1,100,602
20,956
30,648
49,022
626,956
109,758
Exercised
Granted
Lapsed
–
–
–
–
(29,507)
(71,444)
(10,100)
(47,327)
–
–
–
–
–
–
–
–
–
–
–
–
–
109,758
109,758
115.1
(20,814)
111.0
–
–
–
(8,503)
(22,781)
(440)
–
(33,960)
–
Weighted average exercise price (pence per share)
53.1
66.6
2,060,959
(158,378)
(65,684)
1,946,655
64.8
55.1
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For those share options exercised during the year, the weighted average share price at the date of exercise was 171.2p
(2012: 103.7p). For share options outstanding at the end of the year, the weighted average remaining contractual life is 2.0 years
(2012: 2.8 years). There were 30,515 (2012: 30,914) share options exercisable at the year end with a weighted average exercise
price of 92.6p (2012: 97.0p).
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 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.
154
Grainger plc / Financials
Notes to the financial statements
continued
32 Share-based payments
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 6 December 2010, 16 December 2011
and 21 December 2012 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.
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 (£)
LTIS
DBP
SAYE
10 December
2012
Market based
10 December
2012
Non-market based
21 December
2012
11 July 2013
3-year scheme
11 July 2013
5-year scheme
818,572
–
3
7
1.14
0.36
1.38
58.97
0.65
818,572
–
3
7
1.14
0.36
1.38
58.97
1.09
135,212
–
1-3
7
1.17
n/a
1.38
n/a
1.16
90,201
1.151
3
–
1.38
0.54
1.01
51.70
0.86
19,547
1.151
5
–
1.38
1.41
1.01
51.70
0.99
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 £2.3m (2012: £2.1m).
Movements in options and options exercisable as at 30 September 2013 are shown in note 31.
33 Changes in equity
The consolidated statement of changes in equity is shown on pages 91 and 92. 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.
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Grainger plc / Annual Report and Accounts 2013
155
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.
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 30 September 2011
Profit for the year
Actuarial loss on BPT Limited pension
Exchange adjustments offset in reserves
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
Profit for the year
Actuarial gain on BPT Limited pension
Exchange adjustments offset in reserves
Reclassification
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Balance as at 30 September 2013
4.2
–
–
–
–
(0.9)
–
2.1
–
5.4
–
–
–
–
–
(1.0)
2.3
–
6.7
(7.8)
(15.2)
–
–
–
–
–
–
–
–
(7.8)
–
–
–
–
–
–
–
–
(7.8)
–
–
–
(0.5)
0.9
0.4
–
–
(14.4)
–
–
–
–
(3.0)
1.0
–
–
(16.4)
2.1
–
–
0.5
–
–
–
–
–
2.6
–
–
0.5
–
–
–
–
–
3.1
278.3
0.4
(1.5)
–
–
–
–
–
(7.6)
269.6
53.6
0.5
–
9.8
–
–
–
(8.0)
325.5
261.6
0.4
(1.5)
0.5
(0.5)
–
0.4
2.1
(7.6)
255.4
53.6
0.5
0.5
9.8
(3.0)
–
2.3
(8.0)
311.1
Reclassification
Following an internal review, a net amount after taxation of £9.8m previously shown as a credit within the cash flow hedge reserve,
has been reclassified as a credit to retained earnings in the year ended 30 September 2013. The results for 2009 have been restated in
the five year record on page 175. There is no impact on either the current or prior year results and the reclassification has no impact
on the group’s net assets, net asset values or cash flows.
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.
156
Grainger plc / Financials
Notes to the financial statements
continued
34 Movement in retained earnings continued
Investment in own shares reserve
As at 30 September 2013, share capital included 5,097,428 (2012: 4,375,984) shares held by The Grainger Employee Benefit
Trust and 1,506,300 (2012: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 6,603,728
(2012: 5,882,284) with a nominal value of £330,186 (2012: £294,114) and a market value as at 30 September 2013 of £11.5m
(2012: £6.3m).
35 List of principal subsidiaries
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2013 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 GmbH
Grainger Recklinghausen 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
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
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
England & Wales
Germany
Germany
Germany
England & Wales
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 Trading and Investment
Property Trading and Investment
Property Investment
Investment Partnership
Property Investment
Investment Company
Grainger plc / Annual Report and Accounts 2013
157
36 Related party transactions
During the year ended 30 September 2013 the group transacted with its joint ventures and associates (details of which are set out
in notes 20 and 21). The related party transactions recognised in the Income Statement and Statement of Financial Position are as
follows:
As described in note 20, on 6 August 2013, the group sold a portfolio of assets to GRIP for £58.4m. On 13 May 2013 the
group formed a 50:50 joint venture, Walworth Investment Properties Limited, which acquired a portfolio of assets from the group
for £112m.
The group provides a number of services to its joint ventures and associates including property and asset management services.
In addition the group utilises the services of Gebau Vermogen GmbH to provide property management services for parts of its German
portfolio. The fees received/(paid) in respect of these services are set out below:
GRes1 Limited
GRIP Unit Trust
MH Grainger Sarl JV
New Sovereign Reversions Limited
Walworth Investment Properties Limited
Gebau Vermogen GmbH
GRIP Unit Trust
MH Grainger Sarl JV
New Sovereign Reversions Limited*
Czech Republic combined**
Curzon Park Limited**
King Street Developments (Hammersmith) Limited
Walworth Investment Properties Limited
2013
Fees
recognised
£’000
2013
Year end
balance
£’000
2012
Fees
recognised
£’000
1,062
1,902
790
1,073
19
(913)
3,933
687
–
–
271
19
(2)
975
2,766
–
–
1,052
–
(997)
2,821
2013
Interest
recognised
£’000
2013
Year end loan
balance
£m
2013
Interest
Rate
%
2012
Interest
recognised
£’000
2012
Year end loan
balance
£m
756
534
(7)
73
–
–
180
1,536
4.75
8.00
LIBOR +
2.35
1.25
Nil
Nil
7.00
0.3
11.6
(0.4)
6.2
16.1
2.9
6.7
43.4
–
–
17
74
–
–
–
91
–
–
–
5.9
13.5
2.1
–
21.5
2012
Year end
balance
£’000
2,397
–
–
166
–
(52)
2,511
2012
Interest
Rate
%
–
–
LIBOR +
7.00
1.25
Nil
Nil
–
* The loan to the New Sovereign Reversions Limited group was repaid in full in January 2012. The group received a loan from the New Sovereign Reversions Limited
group of £0.4m during the year.
**The amount disclosed above is the gross loan amount. Some provisions have been provided against the loans, see note 21 for details of carrying value. Accordingly
interest, where charged, has not been recognised in the Income Statement in either year although the amounts involved are immaterial.
The group’s key management are the only other related party. Details of key management compensation are provided in note 12.
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Grainger plc / Financials
Notes to the financial statements
continued
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
2013
£m
1.3
2.3
0.4
4.0
2012
£m
1.3
2.5
0.4
4.2
The group expects to receive £nil under non-cancellable sub-leases (2012: £nil). 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 five 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 has provided guarantees under performance bonds relating to the group’s UK development division. As at
30 September 2013 total guarantees amounted to £1.8m (2012: £1.8m).
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.
39 Assets classified as held-for-sale
The group has identified certain of its investment properties as held-for-sale in accordance with the criteria set out in IFRS 5.
The group announced on 9 November 2012, that it had signed an agreement with Heitman, to create a new company to acquire
two wholly-owned subsidiaries of the group. These assets were 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, was recognised in the 2012 Consolidated Income Statement 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) arose in relation to the loss on revaluation. The net
income statement impact after tax was therefore £5.2m (€6.3m). These assets were sold when the transaction completed on
10 December 2012.
Grainger plc / Annual Report and Accounts 2013
159
39 Assets classified as held-for-sale continued
In 2013 additional costs relating to the sale of £2.3m were recognised in the Income Statement.
In addition, investment property in the Retirement Solutions portfolio with a value of £24.9m was identified as held-for-sale at
30 September 2012. All but £3.9m of these assets were sold in the year and the remaining assets are being actively marketed.
Investment property within the FRM portfolio, with a value of €7.2m (£6.0m) is expected to be sold in December 2013 and
accordingly has been classified as held-for-sale. Investment property with a value of €19.1m (£15.3m) was classified as held-for-sale at
30 September 2012. Sales of assets with a value of €6.7m were made in the year but the remaining €12.4m not sold are no longer
being actively marketed and have been transferred back to investment property.
Included on the face of the consolidated statement of financial position are total assets of £9.9m (2012:£222.1m) and total liabilities
associated with those assets of £nil (2012: £129.7m) classified as held-for-sale. These balances comprise the following:
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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
40 Capital Commitments
2013
£m
2012
£m
–
–
–
–
6.0
3.9
9.9
–
–
–
–
177.9
2.6
1.4
181.9
15.3
24.9
222.1
120.9
4.0
4.8
129.7
The group has current commitments under a number of its development projects totalling £37.9m as at 30 September 2013
(2012: £34.0m).
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Grainger plc / Financials
Independent auditors’ report
on the parent company financial statements
Report on the parent
company financial
statements
Our opinion
In our opinion the parent company
financial statements:
– give a true and fair view of the state
of the parent company’s affairs as at
30 September 2013;
– 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.
This opinion is to be read in the context of
what we say below.
What we have audited
The parent company financial statements,
which are prepared by Grainger plc,
comprise:
– the parent company balance sheet
as at 30 September 2013; and
– the notes to the parent company financial
statements, which include a summary of
significant accounting policies and other
explanatory information.
The financial reporting framework that has
been applied in their preparation comprises
applicable law and United Kingdom
Accounting Standards (United Kingdom
Generally Accepted Accounting Practice).
In applying the financial reporting
framework, the directors have made a
number of subjective judgements, for
example in respect of significant accounting
estimates. In making such estimates, they
have made assumptions and considered
future events.
Certain disclosures required by the
financial reporting framework have been
presented elsewhere in the Annual report,
rather than in the notes to the financial
statements. These are cross-referenced
from the financial statements and are
identified as audited.
What an audit of financial statements involves
We conducted our audit in accordance
with International Standards on Auditing
(UK & Ireland) (‘ISAs (UK & Ireland)’). 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.
Grainger plc / Annual Report and Accounts 2013
161
In addition, we read all the financial and
non-financial information in the Annual
report and accounts to identify material
inconsistencies with the audited parent
company financial statements and to
identify any information that is apparently
materially incorrect based on, or materially
inconsistent with, the knowledge acquired
by us in the course of performing the audit.
If we become aware of any apparent
material misstatements or inconsistencies
we consider the implications for our report.
Opinions on matters
prescribed by the Companies
Act 2006
In our opinion:
– The information given in the Strategic
report and the Directors’ report for
the financial year for which the parent
company financial statements are
prepared is consistent with the parent
company financial statements.
– The part of the Directors’ remuneration
report to be audited has been properly
prepared in accordance with the
Companies Act 2006.
Other matters on which we
are required to report by
exception
Adequacy of accounting records and
information and explanations received
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– we have not received all the information
and explanations we require for our
audit; or
– 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.
We have no exceptions to report arising
from this responsibility.
Directors’ remuneration
Under the Companies Act 2006 we are
required to report if, in our opinion, certain
disclosures of directors’ remuneration
specified by law have not been made.
We have no exceptions to report arising
from this responsibility.
Other information in the Annual report
Under International Standards on Auditing
(‘ISAs (UK & Ireland)’), we are required to
report to you if, in our opinion, information
in the Annual report is:
– materially inconsistent with the
information in the audited parent
company financial statements; or
– apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the parent company
acquired in the course of performing our
audit; or
– is otherwise misleading.
We have no exceptions to report arising
from this responsibility.
Our responsibilities and
those of the directors
As explained more fully in the Statement
of directors’ responsibilities set out on page
81, 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 ‘ISAs (UK & 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
Other matter
We have reported separately on the group
financial statements of Grainger plc for the
year ended 30 September 2013.
David Snell
(Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
7 November 2013
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Grainger plc / Financials
Parent company balance sheet
As at 30 September 2013
Fixed assets
Investments
Current assets
Debtors
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
Capital and reserves
Called-up share capital
Share premium account
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
2013
£m
911.6
911.6
29.2
30.7
59.9
407.0
(347.1)
564.5
24.3
99.1
441.1
20.8
109.8
0.3
5.0
305.2
441.1
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
The financial statements on pages 162 to 166 were approved by the board of directors on 7 November 2013 and were signed on
their behalf by:
Andrew R Cunningham
Director
Mark Greenwood
Director
Grainger plc / Annual Report and Accounts 2013
163
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 £21.0m (2012 loss: £34.6m). 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 is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date,
where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have
occurred at the balance sheet date.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are
expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred
tax is measured on a non-discounted basis.
(e) Own shares including treasury shares
Transactions of 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 £4.68. The convertible bond is a compound financial instrument and the carrying amount has been allocated
to its equity and liability components in the company’s balance sheet. The liability component has been determined by measuring the
fair value of a similar liability that does not have an associated equity component. The discount rate used for this was based on a rate
of 7.5% compounded semi-annually. The liability component has been deducted from the fair value of the compound financial
instrument as a whole and the residual element has been assigned to the equity component. The liability element is subsequently
measured at amortised cost using the effective interest rate method.
(g) Share-based payments
Under the share-based compensation arrangements set out in note 1(k)(iii) on page 99 and note 32 on page 154, 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.
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Grainger plc / Financials
Notes to the parent company financial statements
continued
2 Investments
Cost of Investment
At 1 October
Additions
Disposals
At 30 September
Impairments
Opening balance
Additional provision
Write back
At 30 September
Net carrying value
2013
£m
939.2
79.6
–
1,018.8
97.8
17.9
(8.5)
107.2
911.6
2012
£m
896.8
42.4
–
939.2
90.4
7.8
(0.4)
97.8
841.4
The directors believe that the carrying value of the investments is supported by their underlying net assets.
The additions in the year relate to a further investment of £29.7m in Atlantic Metropolitan (UK) Limited, £36.6m in Bromley
Property Holdings Limited, £9.8m in Grainger Europe (No. 4) Limited and £1.2m in Grainger (603) Limited.
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 £2.3m in respect of share-based payment awards granted
to subsidiary employees.
After an assessment of net recoverable value a net impairment provision of £9.4m has been made.
A list of the principal subsidiaries of the company is given in note 35 on page 156.
3 Debtors
Amounts owed by group undertakings
Other debtors
2013
£m
28.8
0.4
29.2
2012
£m
20.8
0.1
20.9
Debtors in both 2013 and 2012 are all due within one year.
Included within amounts owed by group undertakings is an unsecured loan with a year end balance of £28.8m (2012: £20.8m).
The loan bears interest at LIBOR plus margin plus costs, which averaged 3.3% in the year (2012: 3.3%), and is repayable on demand
but is not expected to be repaid within the next 12 months.
Grainger plc / Annual Report and Accounts 2013
4 Creditors: amounts falling due within one year
Amounts owed to group undertakings
Other taxation and social security
Accruals and deferred income
2013
£m
406.2
–
0.8
407.0
Amounts owed to group undertakings bear interest at a rate of 3.3% plus LIBOR per annum and are repayable on demand.
5 Convertible bond
Opening balance
Amortised during the year
Unamortised issue costs
Closing balance
2013
£m
23.3
0.9
24.2
0.1
24.3
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2012
£m
278.2
3.8
1.0
283.0
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
2013
£m
99.1
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.
The amount due in more than 5 years is £99.1m (2012: £99.0m).
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Grainger plc / Financials
Notes to the parent company financial statements
continued
7 Share capital
Allotted, called-up and fully paid
416,529,484 (2012: 416,381,206) ordinary shares of 5p each
2013
£m
20.8
2012
£m
20.8
During the year the Grainger Employee Benefit Trust acquired 1,400,000 shares at a cost of £2.4m (2012: £nil). The group also paid
£0.6m 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 £3.0m (2012: £0.5m) has been deducted from retained earnings within shareholders’ equity.
As at 30 September 2013, share capital included 5,097,428 (2012: 4,375,984) shares held by The Grainger Employee Benefit
Trust and 1,506,300 (2012: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 6,603,728
(2012: 5,882,284) with a nominal value of £330,186 (2012: £294,114) and a market value as at 30 September 2013 of £11.5m
(2012: £6.3m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2011
Options exercised under the SAYE scheme
At 30 September 2012
Options exercised under the SAYE scheme
At 30 September 2013
Number
416,372,103
9,103
Nominal
value
£’000
20,818
1
416,381,206
20,819
148,278
7
416,529,484
20,826
Details of share options and awards granted by the company are provided in note 31 on pages 152 and 153 and discussed within the
Remuneration committee’s report on pages 66 and 79.
8 Reserves
At 1 October 2012
Retained loss for the year
Share-based payment charge
Purchase of own shares
Dividends paid
At 30 September 2013
9 Other information
Share
premium
£m
109.8
–
–
–
–
109.8
Capital
redemption
reserve
£m
Equity component
of convertible
bond
£m
Profit and
loss account
£m
0.3
–
–
–
–
0.3
5.0
–
–
–
–
5.0
334.9
(21.0)
2.3
(3.0)
(8.0)
305.2
Dividends
Information on dividends paid and declared is given in note 16 of the group accounts on page 123.
Directors’ share options and share awards
Details of the directors’ share options and of their share awards are set out in the Remuneration report.
Grainger plc / Annual Report and Accounts 2013
167
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
5) EPRA Vacancy Rate
6) EPRA Cost Ratios
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).
Estimated Market Rent Value (ERV) of vacant space divided by ERV of the whole portfolio.
This measure includes all administrative and operating expenses including the share of joint
ventures’ overheads and operating expenses, net of any service fees. This measure should be
calculated and shown as both including direct vacancy costs and excluding direct vacancy costs.
The group is supportive of the EPRA initiative however, we believe that four 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 £78m
(2012: £77m) 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 £483m 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.
The EPRA Cost Ratios are a measure of the ratio of administrative and operating costs as a percentage of gross rental income
and require specific inclusions and exclusions. We have adopted our own efficiency measure which shows our administrative and
operating costs net of fee income as a proportion of the value of assets under management. We believe this provides a useful
high level assessment of how efficient the business is and so we prefer this measure and have therefore adopted it as a Key
Performance Indicator.
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Grainger plc / Financials
EPRA Sustainability Performance Measures
3.1–3.7 Absolute and like-for-like energy and GHG emissions for Own Office Occupation
2011/12
Coverage of
applicable
properties
Consumption
Consumption
UK
2012/13
Coverage of
applicable
properties
3.1, 3.2, 3.3: Energy (kWh) GRI: EN4/EN3
Own offices
Grand total
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and cooling
submetered to Grainger by its landlord
Total energy consumption from fuels submetered to Grainger
by its landlord
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and cooling
submetered to Grainger by its landlord
Total energy consumption from fuels submetered to Grainger
by its landlord
3.4: Building Energy Intensity (kWh per employee per year) GRI: CRESS – CRE1
Building Energy
Intensity
Building Energy Intensity for all energy submetered to Grainger
by its landlord
Not available
3.5, 3.6: GHG Emissions (tonnes CO2e) GRI: EN16
Own offices
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Grand total
3.7: Building GHG Intensity (kg CO2e per employee per year) GRI: CRESS – CRE3
Building GHG
Intensity
Building GHG Intensity [GHG Protocol Scopes 1 and 2]
Not available
621,153
–
–
621,153
–
–
–
277
24
–
277
24
6 of 6
6 of 6
6 of 6
6 of 6
601,694
–
–
601,694
–
–
2,350
–
268
23
–
268
23
1,047
7 of 7
7 of 7
7 of 7
7 of 7
Methodology
We have reported on all EPRA Sustainability Performance Measures, using the EPRA Best Practices Recommendations on Sustainability
Reporting, the main requirements of the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and emission
factors from the UK Government’s Conversion Factors for Company Reporting 2013. We have used the Operational Control boundary
approach for all Sustainability Performance Measures. Data is reported for our property investment portfolio and own occupied offices.
Our property investment portfolio includes our UK Residential portfolio and the GRIP fund. We have not reported energy consumption
and GHG emissions from the properties in our GInvest portfolio and in our WIP portfolio as we do not have energy consumption data for
the reporting year – we are working to improve data collection for future reporting. We have not reported energy consumption and GHG
emissions from the properties in our German residential portfolio as we do not have energy consumption data for the reporting year – we
are working to improve data collection for future reporting and will report on our German properties next year. Grainger only reports on
landlord-obtained energy, water and waste consumption. Data on tenant consumption is not available, however we report estimated
tenant carbon dioxide emissions in our mandatory greenhouse gas statement.
Grainger plc / Annual Report and Accounts 2013
169
3.1–3.7 Absolute and like-for-like energy and GHG emissions for Own Office Occupation continued
2011/12
Coverage of
applicable
properties
Consumption
Consumption
Germany
2012/13
Coverage of
applicable
properties
3.1, 3.2, 3.3: Energy (kWh) GRI: EN4/EN3
Own offices
Grand total
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and cooling
submetered to Grainger by its landlord
Total energy consumption from fuels submetered to Grainger
by its landlord
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and cooling
submetered to Grainger by its landlord
Total energy consumption from fuels submetered to Grainger
by its landlord
39,807
–
–
39,807
–
–
1 of 1
1 of 1
43,205
–
–
43,205
–
–
3.4: Building Energy Intensity (kWh per employee per year) GRI: CRESS – CRE1
Building Energy
Intensity
Building Energy Intensity for all energy submetered to Grainger
by its landlord
Not available
3,086
3.5, 3.6: GHG Emissions (tonnes CO2e) GRI: EN16
Own offices
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Grand total
–
18
1
–
18
1
1 of 1
1 of 1
–
20
1
–
20
1
1 of 1
1 of 1
1 of 1
1 of 1
3.7: Building GHG Intensity (kg CO2e per employee per year) GRI: CRESS – CRE3
Building GHG
Intensity
Building GHG Intensity [GHG Protocol Scopes 1 and 2]
Not available
1,422
Energy and Greenhouse Gases Notes
Greenhouse gas emissions are calculated using the UK Government’s Conversion Factors for Company Reporting 2013. 2011/12
greenhouse gas emissions data has been restated using the 2013 conversion factors. Transmission and distribution losses are reported
as Scope 3 emissions. Greenhouse gas emissions are reported as metric tonnes CO2e (t CO2e) and greenhouse gas intensity is reported
as kilogrammes of CO2 equivalent (kg CO2e). Greenhouse gas emissions from Germany electricity consumption and transmission and
distribution are reported in carbon dioxide (CO2) only per the UK Government’s Conversion Factors for Company Reporting 2013.
Germany Scope 1 emissions use the emissions factors based on UK natural gas calculations, as the greenhouse gas content of natural
gas varies only marginally over time and between regions. Scope 3 emissions are for transmission and distribution losses associated with
purchased electricity only and do not include business travel or supply chain emissions. For more information on our scope 3 greenhouse
gas emissions please refer to our mandatory greenhouse gas statement.
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Grainger plc / Financials
EPRA Sustainability Performance Measures
continued
3.1–3.7 Absolute and like-for-like energy and GHG emissions for Own Office Occupation continued
UK and Germany
2011/12
Coverage of
applicable
properties
Consumption
2012/13
Coverage of
applicable
properties
Consumption
3.1, 3.2, 3.3: Energy (kWh) GRI: EN4/EN3
Own offices
Grand total
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and
cooling submetered to Grainger by its landlord
Total energy consumption from fuels submetered to
Grainger by its landlord
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and
cooling submetered to Grainger by its landlord
Total energy consumption from fuels submetered to
Grainger by its landlord
660,960
–
–
660,960
–
–
7 of 7
7 of 7
644,899
–
–
644,899
–
–
3.4: Building Energy Intensity (kWh per employee per year) GRI: CRESS – CRE1
Building Energy
Intensity
Building Energy Intensity for all energy submetered to
Grainger by its landlord
2,295
2,389
3.5, 3.6: GHG Emissions (tonnes CO2e) GRI: EN16
Own offices
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Total direct GHG emissions [GHG Protocol Scope 1]
Grand total
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
–
295
25
–
295
25
7 of 7
7 of 7
–
288
24
–
288
24
3.7: Building GHG Intensity (kg CO2e per employee per year) GRI: CRESS – CRE3
Building GHG
Intensity
Building GHG Intensity [GHG Protocol Scopes 1 and 2]
1,025
1,067
8 of 8
8 of 8
8 of 8
8 of 8
% Change
2011/12
–2012/13
(2%)
Not
applicable
Not
applicable
(2%)
Not
applicable
Not
applicable
Not
applicable
Not
applicable
(2%)
(3%)
Not
applicable
(2%)
(3%)
Not
applicable
Data coverage notes
Only electricity which is submetered to Grainger’s offices is included in our reporting. Other energy is provided through a service charge
by the landlord. No energy is submetered by Grainger to other tenants. The data disclosed in the absolute and like-for-like analysis for the
two-year period provides 100% coverage of all eligible assets. No assets have been excluded due to missing data.
Grainger does not gather or report water consumption for its offices due to metering arrangements with the landlord.
The intensity metric used to measure building energy intensity and greenhouse gas intensity is the number of UK and German employees
respectively. This figure includes non-executive directors.
2011/12 greenhouse gas emissions data has been restated using the 2013 UK Government (DEFRA) conversion factors for UK
and Germany.
Grainger plc / Annual Report and Accounts 2013
171
3.1–3.7 Absolute and like-for-like energy and GHG emissions for Own Office Occupation continued
3.1, 3.2, 3.3: Energy (kWh) GRI: EN4/ EN3
Own offices
Grand total
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and cooling
submetered to Grainger by its landlord
Total energy consumption from fuels submetered to Grainger
by its landlord
Total electricity submetered to Grainger by its landlord
Total energy consumption from district heating and cooling
submetered to Grainger by its landlord
Total energy consumption from fuels submetered to Grainger
by its landlord
2011/12
2012/13
628,077
–
609,133
–
–
–
628,077
–
609,133
–
–
–
Total like-for-like
% Change
2011/12
–2012/13
No. of assets
5 of 5
5 of 5
(3%)
Not
applicable
Not
applicable
(3%)
Not applicable
Not
applicable
3.4: Building Energy Intensity (kWh per employee per year) GRI: CRESS – CRE1
Building Energy
Intensity
Building Energy Intensity for all energy submetered to Grainger
by its landlord
Not
applicable
Not
applicable
Not
applicable
Not
applicable
3.5, 3.6: GHG Emissions (tonnes CO2e) GRI: EN16
Own offices
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Total direct GHG emissions [GHG Protocol Scope 1]
Grand total
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
–
280
23
–
280
23
–
272
23
–
272
23
5 of 5
5 of 5
Not
applicable
(3%)
(3%)
Not
applicable
(3%)
(3%)
3.7: Building GHG Intensity (kg CO2e per employee per year) GRI: CRESS – CRE3
Building GHG
Intensity
Building GHG Intensity [GHG Protocol Scopes 1 and 2]
Not
applicable
Not
applicable
Not
applicable
Not
applicable
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Grainger plc / Financials
EPRA Sustainability Performance Measures
continued
3.1–3.9 Absolute energy, GHG emissions and water withdrawal for owned assets by portfolio; Building Energy,
GHG emissions and Water intensity by portfolio
3.1, 3.2, 3.3: Energy (kWh) GRI: EN4/EN3
UK Residential
portfolio
GRIP Fund
Grand total
Grainger-obtained electricity
Total energy consumption from district heating and cooling
Total energy consumption from Grainger-obtained fuels
Grainger-obtained natural gas
Grainger-obtained electricity
Total energy consumption from district heating and cooling
Total energy consumption from Grainger-obtained fuels
Grainger-obtained natural gas
Grainger-obtained electricity
Total energy consumption from district heating and cooling
Total energy consumption from Grainger-obtained fuels
Grainger-obtained natural gas
UK
2012/13
Coverage of
applicable
properties
122 of 134
Not applicable
5 of 6
Consumption
889,607
–
5,070,870
5,070,870
608,124
611,291
611,291
1,497,731
69 of 70
– Not applicable
5 of 5
191 of 204
– Not applicable
5,682,161
5,682,161
10 of 11
Data coverage notes
We report on Grainger-obtained electricity, fuel and water consumption for applicable properties with common areas; exclusions due
to missing data are listed in detail below. Grainger does not report on energy or water consumption submetered to tenants. Landlord-
obtained energy and water data were not gathered for our portfolio prior to 2012/13. We are segmenting our reporting by fund rather
than geography, since all reported assets are located in the UK. In 2013/14, we will commence collecting energy consumption data for
our German portfolio.
Figures for the coverage of applicable properties are year end figures. The Tilt Estate was acquired by the GRIP fund on the 6 August
2013 and includes 40 properties with Grainger-obtained electricity. The GRIP fund includes one commercial property which was sold
on 20 August 2013. One property was sold from the UK residential portfolio on 17 May 2013.
We have used the market value of assets under management as our main intensity measurement as this is also what we use to measure
our business efficiency KPI as reported in our Strategic Report.
Energy and GHG Emissions:
UK Residential portfolio: Consumption from assets subsequently transferred to the GRIP Fund is included in UK Residential Grainger-
obtained electricity and fuels for the period from October to December 2012. Twelve properties are excluded from the calculation of
Grainger-obtained electricity because insufficient data was gathered. One property is excluded from Grainger-obtained natural gas
because insufficient data was gathered. The GlassHouse, Putney was sold on 17 May 2013. Where the unit of measurement for natural
gas consumption is not known, consumption has been calculated using 100s of cubic feet as the default unit of measurement to avoid
understating consumption.
GRIP Fund: Annual consumption is reported as the portfolio stood at year end for the period from January to September 2013.
One property is excluded from the calculation of Grainger-obtained natural gas because insufficient data was gathered. Ability House was
sold on 20 August 2013. The TILT Estate was acquired on 6 August and includes 40 applicable properties. Where the unit of measurement
for natural gas consumption is not known, consumption has been calculated using 100s of cubic feet as the default unit of measurement
to avoid understating consumption.
Grainger plc / Annual Report and Accounts 2013
173
3.1–3.9 Absolute energy, GHG emissions and water withdrawal for owned assets by portfolio; Building Energy,
GHG emissions and Water intensity by portfolio continued
3.4: Building Energy Intensity (kWh per £m value of assets under management per year) GRI: CRESS – CRE1
Building Energy
Intensity
3.5, 3.6: GHG Emissions (metric tonnes CO2e) GRI: EN16
UK Residential
portfolio
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
GRIP Fund
Grand total
UK
2012/13
Coverage of
applicable
properties
Consumption
2,912 Not applicable
933
396
34
113
271
23
1,046
667
57
5 of 6
122 of 134
122 of 134
5 of 5
69 of 70
69 of 70
10 of 11
191 of 204
191 of 204
3.7: Building GHG Intensity (kg/CO2e per £m value of assets under management per year) GRI: CRESS – CRE3
GHG Intensity
Greenhouse gas intensity for all Grainger-obtained building energy [GHG Protocol Scopes 1 and 2]
695 Not applicable
Grainger-obtained water withdrawal
3.8: Water Withdrawal (m3) GRI: EN8
UK Residential
portfolio
GRIP Fund
Grand total
Grainger-obtained water withdrawal
Total water withdrawal
3.9: Building Water Intensity (m3 per £m value of assets under management per year) GRI: CRESS – CRE2
Building Water
Intensity
Building Water intensity for all Grainger-obtained water
7,170
21,500
28,670
1 of 2
5 of 6
6 of 6
12 Not applicable
Water:
UK Residential portfolio: Consumption from assets subsequently transferred to the GRIP Fund is included in UK Residential Grainger-
obtained water withdrawal for the period from October to December 2012. One property is excluded because insufficient data
was gathered.
GRIP Fund: Annual consumption is reported as the portfolio stood at year end for the period from January to September 2013.
One property is excluded because insufficient data was gathered. Ability House was sold on 20 August 2013.
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Grainger plc / Financials
EPRA Sustainability Performance Measures
continued
3.10 and 3.11 Total weight of waste by disposal route and proportion of waste by disposal route for owned assets and
own occupied offices
3.10 and 3.11: Waste (metric tonnes and proportion by weight %) GRI: EN22
GRIP Fund
Total
Recycled
Incineration (with and without energy recovery)
Landfill (non-hazardous)
Hazardous Waste Treatment Facility
Total
Recycled
Incineration (with and without energy recovery)
Landfill (non-hazardous)
Hazardous Waste Treatment Facility
Grand total
Own office occupation Total
Recycled
Incineration (with and without energy recovery)
Landfill (non-hazardous)
Hazardous Waste Treatment Facility
2012/13
2012/13
Metric tonnes
% of total
UK
Coverage of
applicable
properties
202
65
103
34
–
202
65
103
34
–
25
15
–
10
–
32%
51%
17%
–
32%
51%
17%
–
60%
–
40%
–
11 of 13
11 of 13
5 of 7
Data coverage notes
Assets
Waste management is not provided by Grainger for its UK Residential portfolio, so there is no data to report.
Waste data is gathered for all properties in the GRIP Fund portfolio where Grainger has waste management contracts in place, excluding
Bethnal Green and West Tenter Street where it was not possible to convert the available waste data into weight.
Waste weight in metric tonnes is calculated from bin volume in litres using the WRAP waste conversion factor 20 03 01 for mixed
municipal waste, rather than actual weight measurements at each property. Proportion of waste by disposal route is based on statistics
for each applicable waste management contractor as a whole and is not specific to Grainger properties.
Own occupied offices
Waste data was not gathered for our German office. Our Martlesham office closed in 2013 and was excluded. Our Birmingham office
relocated during the financial year and waste data was estimated for the year based on actual waste data collected at the new office
occupied since February 2013.
Annual figures are estimated from an audit of actual waste weight produced by each office on two separate days during the financial year.
Total weight was calculated for the 255 working days per year, excluding bank holidays and weekends.
Grainger plc / Annual Report and Accounts 2013
Five year record
For the year ended 30 September 2013
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
175
2013
£m
283.2
347.1
71.3
12.5
107.6
64.3
53.6
8.0
Pence
13.1
2.0
Pence
242.0
194.7
174.8
%
8.1
25.2
2009
£m
302.2
212.7
77.9
5.7
78.8
(157.3)
(122.2)
5.2
Pence
(27.1)
1.3
Pence
194.0
141.0
170.0
%
(3.8)
(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
2011
£m
296.2
217.0
86.3
6.9
126.2
26.1
39.1
4.9
2012
£m
311.4
250.5
89.8
10.0
126.4
(1.7)
0.4
7.6
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
Where relevant adjustment has been made to historical figures to reflect the impact of the rights issue in December 2009 and the adjustment referred to in note 34.
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Company secretary and registered office
Michael Windle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Company registration number 125575
176
Grainger plc / Financials
Shareholders’ information
Financial calendar
AGM
Payment of 2013
final dividend
Announcement of 2014
interim results
Announcement of 2014
final results
5 February
2014
7 February
2014
May
2014
November
2014
Share price
During the year ended 30 September
2013, the range of the closing
mid-market prices of the company’s
ordinary shares were:
Price at 30 September 2013
Lowest price during the year
Highest price during the year
174.8p
105.1p
187.5p
Daily information on the company’s
share price can be obtained on our
website www.graingerplc.co.uk
or by telephone from FT Cityline
on 09058 171 690. Please note that
FT Cityline is a chargeable service.
Capital gains tax
The market value of the company’s
shares for capital gains tax purposes at
31 March 1982 was 2.03p.
Website
Website address www.graingerplc.co.uk
Shareholders’ enquiries
All administrative enquiries relating to
shareholdings (for example, notification
of change of address, loss of share
certificates, dividend payments) should be
addressed to the company’s registrar at:
Capita IRG Plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Share dealing service
A share dealing service is available to
existing shareholders to buy or sell the
company’s shares via Capita Share Dealing
Services. Online and telephone dealing
facilities provide an easy to access and
simple to use service.
For further information on this service,
or to buy or sell shares, please contact:
www.capitadeal.com – online dealing
0870 458 4577 – telephone dealing
Please note that the directors of the
company are not seeking to encourage
shareholders to either buy or sell their
shares. Shareholders in any doubt as to
what action to take are recommended to
seek financial advice from an independent
financial adviser authorised by the
Financial Services and Markets Act 2000.
Grainger plc / Annual Report and Accounts 2013
177
Advisers
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
Financial public relations
FTI Consulting
Holborn Gate
26 Southampton Buildings
London
WC2A 1PB
Banking
Clearing Bank and Facility Agent
Barclays Bank PLC
Other bankers
Allied Irish Banks plc
Deutsche Pfandbriefbank AG
HSBC Bank plc
HSH Nordbank AG
Hypothekenbank Frankfurt AG
Lloyds 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
Aaeral Bank AG
Corealcredit Bank AG
InvestKredit Bank AG
NRW Bank
Independent auditors
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
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
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Grainger plc / Financials
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.
Financial
Cap
Financial instrument which, in return for
a fee, guarantees an upper limit for the
interest rate on a loan.
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.
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.
Corporate
IFRS
International Financial Reporting
Standards, mandatory for UK-listed
companies for accounting periods ending
on or after 31 December 2005.
Contingent tax
The amount of tax that would be payable
should trading property 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.
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.
Recurring Profit
Profit before tax before valuation
movements and non-recurring items.
Operating Profit before Valuation Movements
(‘OPBVM’)
Operating profit before valuation
movements and non-recurring items.
Luxembourg
16 Avenue Pasteur
L-2310
Luxembourg
Germany
Weissfrauenstrasse 12-16
Entrance: Friedenstrasse 6-10
60311 Frankfurt am Main
Hesse
Germany
Corporate addresses
Newcastle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Tel: 0191 261 1819
London
161 Brompton Road
Knightsbridge
London
SW3 1QP
Tel: 020 7795 4700
Birmingham
The Circle
Harborne
Birmingham
B17 9OY
Putney
1st Floor
SWISH Building
73-75 Upper Richmond Road
London
SW15 2SR
Manchester
St John’s House
Barrington Road
Altrincham
Cheshire
WA14 1TJ
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View our website
www.graingerplc.co.uk