ANNUAL REPORT AND ACCOUNTS 2014
Leading
in Residential
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.
Our core business is currently the acquisition, management
and sale of properties subject to regulated tenancies. Even at
current levels we estimate that our reversionary business will
generate over £120m of cash each year until 2030. We will
continue to actively acquire these assets while they remain
available and provide appropriate levels of return.
Our long term vision is to be the first and foremost truly
national market rented landlord offering a high quality product
and service that enables people to increase their housing
choices. This entails a strong, recognised brand that will help
people to move easily and seamlessly both from location to
location, and through different price points.
Our report in brief
Our business model:
Our business model is dedicated to
ensuring that we are the first port of call
for investors seeking exposure to the
residential market.
–We acquire tenanted properties at a discount to
vacant possession value, earn rent while 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 from
three sources.
SALES
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RENTS
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FEES
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Our strategic objectives
We are a specialist residential
business, focused on long-term
success in this market. We deliver
our strategy through four
key objectives.
Our strategy in action
We have delivered successfully
against each of our four
strategic objectives.
The risks involved
The risks in delivering our
strategy are actively managed
and monitored.
How we measure success
Our success is measured
through a clear set of KPIs
monitoring achievement
against our strategic objectives.
WE WILL MAINTAIN OUR LEADING
POSITION IN THE RESIDENTIAL
PROPERTY MARKET
We were awarded Best Residential Asset Manager
for the third year1; our Macaulay Walk development
was named Best Development and Best Mixed Use
Development2; our GRIP Fund was recognised for
sustainability3; we achieved an EPRA Gold Award for
sustainability reporting; our Wellelsey development
achieved a Built for Life quality mark and our build
to rent development, Young Street, won the Best
Private Rented Sector design award4.
Failure to meet our stakeholder expectations of
us as a leader in the residential property market;
our operational, financial or ethical performance
undermines our excellent reputation. We protect
against these risks by constantly engaging with
our stakeholders and opinion formers seeking
ways to enhance and improve our performance.
–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.
Residential Awards
1 RESI Awards
2 Sunday Times’ British Homes Awards
3 Sector Leader in the Global Real Estate
Sustainability Benchmark
4 Housing Design Awards
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Grainger is the UK’s largest listed specialist residential landlord and property manager.We operate in the UK and in Germany. We own £2.0bn of residential property and manage 19,831 properties worth £3.2bn on our own behalf and for our investors and partners.Grainger = LEADERSHIP WE WILL LOCATE AND MANAGE
OUR ASSETS TO DELIVER THE
BEST RISK ADJUSTED RETURNS
WE WILL BALANCE THE SOURCES
OF OUR INCOME THROUGH
EXPLOITING CHANGING MARKET
OPPORTUNITIES
Active asset management and a geographical
focus on areas we believe will deliver the best
returns have enabled Grainger to consistently
outperform the market.
In 2014, we saw a 14.6% increase in value in
our portfolio, compared to a combined average
of 9.5% for the Halifax and Nationwide house
price indices.
Sales: Profit from sales increased by 14% and
margins on sales of vacant properties rose
strongly to 49.2%.
Rents: Gross rents reduced as expected due
to assets sold or transferred to co-investment
ventures in the previous year.
Fees: Fees from co-invested and co-managed
vehicles remained consistent.
WE WILL MAINTAIN AN
APPROPRIATE CAPITAL STRUCTURE
AND OPTIMISE OUR FINANCIAL AND
OPERATIONAL GEARING TO MATCH
MARKET CONDITIONS
Our consolidated loan to value now stands at
46.5%, LTV on the core portfolio is 42% and
interest cover ratio on the core facility is 3.7 times.
The Group’s average interest rate is 5.4%. During
the year we further diversified our sources of debt
by issuing £275m of bonds with a maturity date of
December 2020 at an effective rate of 4.94%.
The main risks to our returns are a lack of
suitable stock to purchase or a sustained inability
to realise appropriate values on sales. These risks
are managed via continuous monitoring of the
market, the tight control of financial resources
and our property management expertise to flex
as conditions change.
Our ability to identify opportunities and to
consistently perform to all our stakeholder
expectations is key to our ability to achieve the
desired mix of income streams. We continue
to closely control our on-going management
of sales, rents & fees whilst building strategic
relationships for our future.
Our ability to access sufficient financial resources is
important to our ability to implement our strategy,
as we increase our investment in build to rent
in order to drive our future returns. This will be
managed through strong financial controls, clear
and consistent communication with all our current
and potential investors and financing partners.
Profit before tax
HPI outperformance
Proportion of net rents and fees
compared to trading profit
12.0%
9.5%
Grainger vacant
possession
value uplift
Nationwide/
Halifax average
uplift
2013: 53.9%
44.8%
Group LTV
2013: 48.0%
46.5%
Efficiency
2013: 1.66%
1.38%
NAV measures
Proportion of gross management fees to overheads
Cash generated from sales rents fees
Gross NAV
2013: 242p
NNNAV
2013: 195p
291P
242P
2013: 37.2%
35.5%
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2013: £431m
£303m
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Property expenses
and overheads net of
fees/other income as a
percentage of market
value of assets under
management
2013: £64.3m
£81.1m
ROSE
2013: 25.2%
25.6%
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Grainger = RETURNSGrainger = BALANCEGrainger = OPTIMISATION 01
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Strategic report
/ Chairman’s statement
/ Our business model
/ Chief executive’s review
/ Strategy in Action
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17 / Key performance indicators
20 / Risk management
24 / Sales, Rents, Fees
28 / Financial review
34 / Our people, tenants and partners
38 / Corporate responsibility
Governance
48 / Corporate governance
50 / The Grainger Board
57 / Audit Committee report
60 / Nominations Committee report
62 / Remuneration Committee report
76 / Board Risk and Compliance
Committee report
77 / Other disclosures
Financials
79 / Independent auditors’ report
87 / Financial statements
167 / EPRA performance measures
170 / EPRA sustainability
performance measures
178 / Five year record
179 / Shareholders’ information
180 / Advisers
181 / Glossary of terms
182 / Corporate addresses
Financial highlights
2013: 242p
Profit before tax
2013: £64.3m
Contents
Gross NAV
291p
NNNAV
242p
Recurring profit*
£47.1m
£81.1m
2013: 195p
Net debt
2013: £959m
£1,044m
2013: £37.0m
Group LTV
2013: 48%
46.5%
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OPBVM**
2013: £107.6m
Return on capital employed
2013: 8.1%
£107.5m
17.0%
Growth in vacant possession value 2013: 6.4%
Return on shareholder equity
2013: 25.2%
12.0%
25.6%
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 109).
** OPBVM is operating profit before valuation
movements and non-recurring items (see page 29
and note 3 to the accounts on page 109).
For more information visit our website:
www.graingerplc.co.uk
View
Our report in brief
02
Grainger plc / Annual Report and Accounts 2014 / Strategic report
CHAIRMAN’S STATEMENT
Delivering
shareholder returns
I am pleased to announce in my final statement as
chairman of Grainger that the Company has once
again had a strong period of performance and is on
solid foundations for continuing growth.
Robin Broadhurst
Chairman
Total dividend
2.50p
Return on shareholder
equity (ROSE)
Corporate Responsibility
targets achieved
10
25.6%
During the year, our business has continued
to produce strong growth in asset values
and increased profits. We are also making
good progress within the build to rent
sector and towards our goal of substantially
increasing our market rented assets across
the country. In addition, our regulated
tenancy and equity release businesses also
performed strongly.
Dividend
The Company is declaring a final dividend
of 1.89p per ordinary share (FY13: 1.46p) to
be paid on 6 February 2015 to shareholders
on the register at the close of business on
30 December 2014. The total dividend
for the year will therefore be 2.50p per
ordinary share (FY13: 2.04p), an increase
of 22.6%. This reflects our performance
in the year whilst maintaining capacity for
accretive reinvestment in the business.
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2014 AWARDS
3years
Young Street won the
Best Private Rented
Sector design award8
Best Residential Asset
Manager for the third
consecutive year5
Wellesley development in
Aldershot achieved a Built
for Life quality mark
Macaulay Walk development
was named Best Development and
Best Mixed Use Development6
PRS Fund with APG,
GRIP, was recognised
as Sector Leader for
sustainability measurement7
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Board changes
As previously announced, I will be stepping
down as chairman at the AGM in February
2015 and Ian Coull, who joined the Board
in September 2014, will take over as
chairman following that meeting.
I am also pleased to announce that
Andrew Carr-Locke will be joining the
Board as an independent non-executive
director following the AGM in February
2015, subject to normal FCA confirmations.
Andrew is a Fellow of the Chartered
Institute of Management Accountants
and has previously held directorships of
a number of listed companies including
as Group Finance Director at George
Wimpey plc and as Executive Chairman of
Countryside Properties plc.
I am confident that Ian will be a strong
leader for the business, and that Andrew’s
experience and expertise will be of great
value to the Company.
John Barnsley will also step down
from the Board at the AGM, having been
a Board director since 2003. I would like to
thank John for his significant commitment
and contribution to Grainger over
those years.
Fair, balanced and understandable
The Board has concluded that the 2014
Annual Report is fair, balanced and
understandable and provides the necessary
information for shareholders to assess the
Group’s performance, business model
and strategy.
Concluding remarks
The last few years have been a period of
significant achievement and success for
the Company. It has been a privilege to
work with so many skilled and committed
individuals within the Company who do
their jobs with great enthusiasm and with
such enjoyment. I am pleased that this has
been recognised by Grainger receiving
a number of industry awards this year
including: Best Residential Asset Manager
for the third consecutive year5; Macaulay
Walk was named Best Development
and Best Mixed Use Development6; our
market rented fund with APG, GRIP,
was recognised as a Sector Leader for
sustainability measurement7; our Wellesley
development in Aldershot achieved a Built
for Life quality mark and our build to rent
development at Young Street won the
Best Private Rented Sector design award8.
These achievements are a direct result of
the efforts of all of the staff at Grainger.
I will miss being part of the Company, but I
know that it is also on solid foundations to
achieve even greater things.
Robin Broadhurst
Chairman
20 November 2014
5 RESI Awards
6 Sunday Times’ British Homes Awards
7 Global Real Estate Sustainability Benchmark
8 Housing Design Awards
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Grainger plc / Annual Report and Accounts 2014 / 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 rent these assets 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
7,536
Market value
£1,507m
Vacant possession value
Reversionary surplus
£1,929m
No. of units
3,779
£422m
Market value
£434m
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.
8,516
Fees in 2014
£12.3m
TOTAL ASSETS OWNED AND MANAGED
In total, therefore, and
including development
assets of £107m, we own and
manage 19,831 properties
with a market value of
£3.2bn.
No. of units owned
11,315
No. of units owned
and managed
19,831
£1,111m
Share of profits and
revaluation gains
£37m
Market value
£2,048m
Market value
£3,159m
Sales
Rents
Fees
05
Profit from sales
£88.6m
Strategic importance
The majority of our recurring sales revenues
and profit on sales comes from the sale of
properties when they fall vacant (normal sales)
thereby releasing the 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 number of properties before sale.
Further sales revenue is generated by our
development projects.
Net rents
£37.0m
Gross fees and other income
£12.8m
Strategic importance
Rental income is a key income stream for our
business. Like our sales income from trading,
rental income is regular and predictable.
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.
In our market rented properties and those we
manage for others, rents follow market trends.
Strategic importance
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 £12.8m in 2014.
Our fee income comes from ventures such as
GRIP and Heitman and our partnership with
the Ministry of Defence at Aldershot.
These ventures also build scale across our
business, giving rise to scope for efficiency
gains.
Our capabilities
Our capabilities
Our capabilities
Our sales revenue – a stable and reliable cash
flow – and the associated profit will continue
to be delivered through the predictable sales
of our reversionary assets. The predictability
of this revenue is enhanced by the granularity
and liquidity of our asset base.
As the average length of tenure is around
20 months, we have regular opportunities
to maximise rents through our market
awareness, our proactive lettings team and
our asset management activities.
The breadth and depth of our offering, our
position in the residential market, and the
expertise of our people provide a unique
platform to generate and take advantage of
fee-earning opportunities.
FUTURE FOCUS
FUTURE FOCUS
FUTURE FOCUS
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Sales of reversionary assets will continue to
generate revenue for many years to come.
Our portfolio, excluding future acquisitions,
will generate more than £120m per year
from normal vacant sales until 2030. We
have made an encouraging start to FY2015.
At 31 October 2014 the Group sales pipeline
(completed sales, contracts exchanged and
properties in solicitors’ hands) amounted to
£76.6m (FY13: £52.3m).
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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 will continue to seek diverse
opportunities to generate recurring income
primarily through asset and property
management activities within co-investment
vehicles and management contracts.
Year-on-year levels may fluctuate depending
on volume of work and recognition of profit
shares.
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Grainger plc / Annual Report and Accounts 2014 / Strategic report
CHIEF EXECUTIVE’S REVIEW
Achieving targets
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
+20%
NAV growth
291p
NNNAV growth
+24%
242p
UK portfolio market value
growth
14.6%
Grainger has had another period of strong
financial performance and we have created
significant growth in the asset value of the
Company. Our triple net asset value has
risen 24% to 242p per share, and our gross
net asset value has risen by 20% to 291p
per share. Profit before tax increased 26%
to £81.1m (FY13: £64.3m), while margins
on sales of vacant properties rose strongly
to 49.2% (FY13: 44.9%).
The market value of our portfolio
once again outperformed the general
market in capital value terms, increasing
14.6% compared to the 9.5% average
of the Nationwide and Halifax indices.
This achievement reflects the nature and
geographic location of our assets and the
benefits of our strong asset management
capabilities, which have always been and
will continue to be a key strategic focus.
CHELSEA HOUSES
A unique portfolio of 61 freehold
houses in Knightsbridge and
Chelsea, which provide significant
potential for value enhancement
through refurbishment and
extensions.
+14%
Increase in square
footage
+£55m
Increase in
portfolio value
after
refurbishment
VALUE ADD OPPORTUNITIES
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Market commentary
As we indicated when announcing our half
year results in May, we have seen strong
house price growth over the year and, for
the first time in many years, we have seen
values in the UK increase in every region
in which we operate. In addition, the
performance of our portfolios have been
supported by strong sales margins. We also
continue to see growth in London, albeit at
varying rates.
Sentiment within the housing market
has been dampened by wider concerns
about the economy combined with
the possibility of interest rate rises, the
mortgage market review and the Labour
Party’s proposed mansion tax, should they
assume power after the next election.
This political uncertainty and the outcome
of the forthcoming election has likely been
a factor in the reduction in house price
inflation in some areas of London as well as
reduced transaction levels.
There remains, however, a significant
undersupply of housing in the UK and,
along with a slowly improving economy,
jobs market and expected population
growth, this imbalance supports a positive
house price inflation environment, albeit
at more sustainable levels. In the regions
we have seen positive momentum in terms
of sales and capital values. Specifically,
we expect to see a gradual improvement
in those regions with stronger economic
prospects. In our own experience in the
south of England over recent months,
we have seen the time to complete
sales slightly increase and the number
of viewings diminish; this has been most
apparent in central London.
The business is well placed to respond
to the market. Our assets have defensive
qualities which help maintain strong values
due to their size, type, location, pricing and
condition. Moreover, it is important to note
that, although 68% of our UK portfolios by
value are in London and the South East of
England, only 27% of our assets are located
in Central London. In addition, we have
80 assets worth £2m and over at vacant
possession value out of our UK portfolio of
c.11,500 units.
Rent levels in the market rented sector
remain robust, with stable increases seen
throughout the year. The UK market rented
properties which we manage strongly
outperformed the market. According to the
Office of National Statistics, the average
private rent increases in the UK were
1% for the year to September 2014.
Our portfolio saw like-for-like rent increases
at both renewals (4.2%) and on new lets
(9.1%). This outperformance is due to our
active asset management, refurbishment
investment programme and strong asset
characteristics which are in high demand.
Although political manoeuvring in the
run-up to the General Election, such as the
proposal for a mansion tax, risk creating
uncertainty over the next six months, it is
encouraging to note that the main political
parties are broadly supporting growth
policies in terms of housing supply and
institutional investment in the private rented
sector, which is important to our longer
term strategy.
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Grainger plc / Annual Report and Accounts 2014 / Strategic report
CHIEF EXECUTIVE’S MARKET AND PERFORMANCE REVIEW CONTINUED
“The whole development has been
renovated beautifully. We were
amazed to have a garden, and with all
the shared areas, it instantly had that
homey feeling.”
Louise, Macaulay Walk resident
The Government and the Conservative
Party are pursuing policies with the
intention of supporting house building, the
mortgage market and the private rented
sector and Labour’s Lyons Review of the
housing market was broadly welcomed by
the industry, setting a positive direction of
travel for the formation of Labour’s housing
policies in the run-up to the election.
This backdrop continues to provide
a good tailwind for institutional investor
interest in the UK private rented sector,
and we see clear opportunities for growth
which we can leverage in order to further
our long term strategic direction for
the business.
Investment focus
As we have indicated previously, with our
deleveraging programme now concluded,
we are in a position to increasingly turn our
attention to growing the business through
purchases of reversionary assets and
investment in build to rent opportunities.
As such, we have been active in business
development over the past year, with our
strong team of experts pursuing a number
of exciting opportunities.
We continue to believe that the regions
provide increasingly attractive investment
opportunities. In line with this, we have
recently announced a new partnership
agreement with Sigma Capital which
provides us the exclusive option to acquire
sites from their significant pipeline of
build to rent developments outside of
London, located across the UK in major
regional cities.
We are also pleased to have been
selected by the Greater London Authority,
along with the London Pensions Fund
Authority as part of a Bouygues-led
consortium to develop 211 build to rent
units in a scheme at Pontoon Dock in
East London.
We acquired the Chelsea
Houses Portfolio in April for £160m,
a demonstration of our continued
commitment to reversionary assets.
The portfolio has significant potential for
value enhancement through refurbishment
and extension. Since acquisition, the
portfolio has performed ahead of
expectations and the vacant possession
value of the portfolio has increased by 4.2%.
Strategy and future outlook
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.
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.
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.
Our core business is the acquisition,
management and sale of properties
subject to regulated tenancies and other
reversionary assets. (continued on page 16)
OUR STRATEGY IN ACTION
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.
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LEADERSHIP
RETURNS
BALANCE
OPTIMISATION
WE WILL MAINTAIN
OUR LEADING POSITION
IN THE RESIDENTIAL
PROPERTY MARKET
WE WILL LOCATE AND
MANAGE OUR ASSETS TO
DELIVER THE BEST RISK
ADJUSTED RETURNS
WE WILL BALANCE THE
SOURCES OF OUR INCOME
THROUGH EXPLOITING
CHANGING MARKET
OPPORTUNITIES
WE WILL OPTIMISE OUR
FINANCIAL AND
OPERATIONAL GEARING
TO MATCH MARKET
CONDITIONS
We will seek recognition as a
market leader by setting out our
vision of the future in key areas
that matter to us such as the
PRS, House Price Inflation (HPI)
and the position of the London
housing market in the UK.
We will build on our core values
to demonstrate through our
behaviours, our people and
and our brand what it means to
aspire to leadership.
ACTION AND IMPACT S:
Market leadership will
maximise the opportunities
open to us, such as entry to
tender positions, attracting
the best staff and partners,
and providing the credibility
to have a meaningful input
into govermment policy.
This is at the heart of Grainger
as a property business.
We will constantly revisit
capital allocations in terms of
geographic diversity, asset type,
investment criteria and length
of hold.
We will be agile, buying assets
in the right places for the right
prices.
ACTION AND IMPACT S:
As leaders in the regulated
tenancy and home
reversion markets, we will
continue to acquire these
assets as appropriate.
Growth in our market
rented business will shift to
a greater emphasis on build
to rent projects. Our first
significant step towards
this, London Road, Barking,
will launch in 2015.
We will continue to flex our
sources of debt to support our
evolving business model.
Having reduced our absolute
levels of debt over the last two
years, LTV will be our preferred
measure going forward,
reflecting the more dynamic
business environment. Our
current target level of gearing of
45% - 50% is appropriate in the
medium term.
ACTION AND IMPACT S:
We will continue to manage
the average cost of debt
balanced with terms and
tenor.
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 through the
creation of joint ventures and
fund management structures to
generate recurring fee income.
ACTION AND IMPACT S:
It is our intention that
market rented assets will
make up an increasing
proportion of our portfolio
and income. As this
progresses we will define
the rate and scale of
transformation.
10
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OUR STRATEGY IN ACTION
Reversionary leaders
Grainger is the UK’s leading investor in residential
reversionary assets. Our position and strong
reputation provide us with unrivalled investment
opportunities in the marketplace.
PEWSEY, WILTSHIRE
Grainger purchased a property in Pewsey,
Wiltshire in September 2003 with a
regulated tenant in situ for £134,000,
approximately a 30% discount to the
vacant possession value at that time.
Throughout ownership, Grainger received
a rental income. The property was vacated
in January 2014 and sold in April 2014 for
£372,000, generating an ungeared
Internal Rate of Return (IRR) of 11.2%.
SALE PRICE
£372,000
RENTAL INCOME
INITIAL INVESTMENT
at discount to VPV
£134,000
11.2%
RATE OF
RETURN
RENTAL
RETURN
30%
DISCOUNT
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REVERSIONARY BUSINESS MODEL
In Grainger’s reversionary business, we acquire a residential property with a sitting
tenant at a discount to the property’s vacant possession value (VPV). This is because
the tenants have the right to live in the property for their entire life. Once the
properties are vacated by the tenant we sell them, which generates sales profit.
Over time the value of our reversionary assets tend to appreciate due to house price
inflation, and Grainger crystallises both the discount (also known as the ‘reversionary
surplus’) and the house price inflation when the property is sold. In addition, we receive
a sub-market rental payment over the hold period from our regulated tenancies.
VALUE CREATION
HOUSE PRICE
INFLATION
REVERSIONARY
SURPLUS
INITIAL INVESTMENT
at discount to VPV
RENTAL INCOME
TIME
TOTAL
RENTAL
RETURN
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OUR REVERSIONARY PORTFOLIO
Within Grainger, there are primarily two
types of reversionary assets: regulated
tenancies and home reversions (a type of
equity release product).
The portfolio is geographically diverse
and spread across England however,
70% of this portfolio by value is located
in London and the South East of England.
By number of units, 43% are in London
and the South East.
The average vacant possession
value of an individual reversionary asset
in our portfolio is £272,000. Grainger’s
reversionary portfolio is held at market
value at £1.3bn.
The value of the ‘reversionary surplus’
that has not yet been crystallised in the
portfolio is £503m or 120p, including our
share of joint ventures and associates.
This unrealised reversionary surplus is
not reflected in our NAV or NNNAV
measurements, but it is important to
note that we capture this reversionary
surplus on all the vacant sales of our
reversionary assets.
STRATEGIC OBJECTIVES
LEADERSHIP
Grainger is a leading investor in reversionary assets
in the UK and we are recognised in the marketplace
as such.
RETURNS
Through active asset management, our unrivalled
property and asset management platform, specialist
sales team and our refurbishment division, we are able
to maximise the total returns we generate from our
reversionary assets.
BALANCE
While our reversionary business primarily generates
sales income, our regulated tenancies also generate
rental income. In addition, through several strategic
partnerships, we manage reversionary asset portfolios
on behalf of third parties and in return receive a
profitable fee income.
OPTIMISATION
Our reversionary assets provide consistent, long term
cashflows to the Group.
12
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OUR STRATEGY IN ACTION
Creating places for
tomorrow’s communities
By using our experience as a long term landlord and
manager, we leverage our in-house development
skills creating new communities where we will have
a long-term interest.
BEREWOOD, WATERLOOVILLE DEVELOPMENT
In 2011, Grainger, as the lead developer, secured
planning consent for 2,550 new homes, two
new primary schools and retail and office space
at Berewood.
Thereafter, Grainger installs the infrastructure on
a phase by phase basis and subsequently sells
each phase on to a house builder but with
WORD COUNT:
certain conditions. The first phase was sold to
106
Bloor Homes, which constructed the new
homes and the first residents moved in this year.
The second phase was sold to Redrow at the end
of 2013 and construction is expected to
commence in late 2014.
Through its social housing subsidiary, Grainger
retains ownership and management for the
affordable houses at Berewood.
246
Residential
units
194
Residential
units
30ha
Employment
use
8.96ha
Local
centre
6.56ha
Mixed
use
1
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WELLESLEY, ALDERSHOT DEVELOPMENT
Wellesley differs from Berewood in that Grainger is the development partner, acting on behalf of the
Defence Infrastructure Organisation (DIO), a part of the Ministry of Defence which still owns the site at
Wellesley, Aldershot.
In this way, Grainger receives fees for providing the DIO with our expertise and skills in development,
masterplanning, delivery and long term estate and property management, as well as a proportion of the
profits from the sale of each phase to housebuilders.
Delivery of the development will take up to 20 years and will create up to 3,850 new homes, 35% of which
will be for social rent or shared ownership.
Phases of the development
sold to house builders
Private and affordable
rented units
Site management
and joint partnership with
Defence Infrastructure
Organisation, HCA
SALES
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FEES
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STRATEGIC DEVELOPMENTS
Grainger’s strategic land business is capable
of delivering across all three of our income
streams – sales, rents and fees.
Grainger takes the role of lead
developer and takes responsibility for
overall placemaking and masterplanning for
the development.
Grainger applies for planning
permission and once we have received
planning consent, we install the necessary
infrastructure such as roads, and will then
sell on parcels (or ‘oven ready’ sites) of the
development to house builders to build the
specific phases in the scheme, generating
sales income. The house builders are
required to build to our designs, ensuring
the whole scheme is delivered in a joined-
up manner, allowing us to bring our vision
to life.
At both Berewood and Wellesley,
Grainger will retain management
responsibility for the private rented sector
(PRS) phases but also the affordable houses.
These assets will provide a long term rental
income stream to the business.
Grainger will use its existing asset and
property platform to ensure the long term
success of the new communities we are
creating, as well as securing a long term
income stream for the business.
STRATEGIC OBJECTIVES
LEADERSHIP
Grainger is recognised as a leader in delivering large and
long term strategic land development projects. Our
development, Wellesley, Aldershot received the Design
Council’s Built for Life quality mark (endorsed by the UK
Government), which recognises high quality design in
new residential developments.
RETURNS
Grainger’s long term approach and ability to take an
ongoing management role in these new communities
allows us to maximise values over the course of the
development and beyond.
BALANCE
Our strategic developments deliver all three income
streams – sales, rents and fees.
OPTIMISATION
Our Wellesley project requires minimal funding from
Grainger.
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OUR STRATEGY IN ACTION
Building new
rental communities
The number of households in the private rented
sector (PRS) continues to steadily increase and
Grainger is well placed to take advantage of this
trend. We will build new rental communities that
we will retain and rent out.
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BUILD TO RENT
To support the future of our business, we
plan to use our core skills of investment and
management to take advantage of growth
in the PRS and develop specially designed
residential blocks for rent, which we will
own and manage for the long term.
Our breadth of skills in the residential
property sector means that we are one
of a handful of companies in the UK with
the ability to deliver large scale new rental
communities from scratch, retain a long
term financial interest in them, as well as
manage them.
By approaching build to rent
opportunities in an integrated fashion, we
are able to identify, shape and successfully
execute transactions better than most.
Our unique platform and broad skillset
means that not only are we competitive at
a transactional level but also our newly built
rental blocks are better designed, generate
better returns, and the service we are able
to provide the end user, our customers and
tenants, is well above industry standards.
Grainger colleagues have been
heavily involved in advancing this sector,
including involvement in the London
Mayor’s Housing Taskforce, the UK
Government’s Montague Review and the
UK Government’s very own PRS Taskforce.
In addition, Grainger was heavily involved in
the production and publication of the UK’s
first build to rent Design Guide by the ULI.
STRATEGIC OBJECTIVES
LEADERSHIP
We received the Best Build to Rent Development award
at the Housing Design Awards (scheme: Young Street,
RBKC), as well as Best Asset Manager for the third year
in a row at the RESI Awards.
RETURNS
By using our experience in both asset and property
management as well as development, we design our
new build to rent developments with a view to
increasing rental income and improving management
efficiency, thereby increasing profit margins.
BALANCE
By increasing our portfolio of market rented assets we
will grow our rental income.
OPTIMISATION
As the proportion of rented assets increase we will
manage our LTV to an appropriate level.
ROYAL BOROUGH OF KENSINGTON AND CHELSEA
In 2012, Grainger was selected by the
Royal Borough of Kensington and Chelsea
to develop and manage two innovative
housing schemes on council-owned land
in the borough. Both schemes received
planning consent this year. More than 50%
of the homes across both sites will be
purpose-built specifically for the PRS. One
of the sites, Young Street in Kensington,
won Best Private Rented Sector Project at
the Housing Design Awards.
Young Street in
Kensington won Best
Private Rented Sector
Project at the Housing
Design Awards
more than
50%
PRS
PONTOON DOCK
In September 2014, the Mayor of London,
announced the appointment of the preferred
delivery partner for a new development
within Royal Docks, Pontoon Dock,
East London. The selected consortium led by
Bouygues Development alongside the
London Pensions Fund Authority and
Grainger will develop the 1.7 acre public car
park into more than 200 homes. The site
will provide 137 PRS, 42 affordable rent and
31 shared ownership homes.
137
PRS
31
Shared
ownership
42
Affordable
rent
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1.7acre
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CHIEF EXECUTIVE’S MARKET AND PERFORMANCE REVIEW CONTINUED
Market rented assets will
become a more significant
part of our business over the
medium term
GROSS NAV
291p
PBT
£81.1m
Strategy and Future Outlook (continued)
Even at current levels, we estimate our
reversionary portfolio will generate over
£120m of cash each year until 2030.
The overall market for these assets is in
gradual decline and this is why, over the
years, we have increased our exposure to
other forms of residential assets, for example
home reversion assets in the UK and
residential investments in Germany.
We are market leaders in both the
regulated tenancy and home reversion
markets and it is our intention to maintain
those positions. We will continue to actively
acquire those assets while they remain
available and provide appropriate levels
of return.
Changes to the residential landscape,
in particular the development of the market
rented sector, present a further opportunity
for growth, building on our reputation and
expertise and our existing operating and
management platforms. Consequently, it
is one of the areas in which we will invest
over the next few years.
Our long term vision is to be the first
(and foremost) truly national market rented
landlord offering a high quality product
and service that enables people to increase
their housing choices; this entails a strong,
recognised brand that will help people
to move easily and seamlessly both from
location to location, and through different
price points.
We will grow this part of the business
primarily through build to rent projects,
integrating our core skills of asset and
property management, with those
of development.
Our geographic focus for investment
will continue to be in the UK, ahead of
anticipated value growth in the regions
and in the ‘doughnut’ zones around
central London.
We have had an encouraging start to
the new financial year and are confident
of delivering good levels of profitability in
2015. Our sales will continue to benefit
from the realisation of the reversionary
value embedded in our portfolio.
In addition to our core rental and fee
income, our development business is
expected to see high levels of activity over
the next three years, with existing schemes
anticipated to generate on average c.£10-
12m of profit per annum.
Grainger will continue to be highly
cash generative, providing significant
firepower to invest in market rental and fee
generating opportunities, as well as our
more traditional reversionary assets.
Our business provides shareholders
with exposure to the housing market; a
unique residential portfolio supported by
an expert management platform; short
term profitability from our opening sales
pipeline and expected development
profits; medium term value growth from
our portfolio and the realisation of the
£503m reversionary surplus; and significant
long term opportunities from the market
rented sector.
I would like to personally thank Robin
Broadhurst who has been chairman for
over seven years and a director of the
Company for over ten. Over this period,
Grainger has seen significant change and
positive advancements, and together we
have successfully worked through some
challenging economic times. His constant
support and counsel have been valuable
and much appreciated. Likewise, my sincere
thanks and best wishes go to John Barnsley,
who leaves after many years of service with
Grainger. We wish them both the very best
for the future.
Andrew Cunningham
Chief executive
20 November 2014
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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
grainger = RETURNS
#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 of affordable housing
– accounting and reporting
In the UK, these skills are provided through
our national presence.
PEER RECOGNITION AS EXPERTS IN THE
RESIDENTIAL SECTOR
We were awarded Best Residential Asset Manager for the third year
running9; our Macaulay Walk development was named Best
Development and Best Mixed Use Development10; our GRIP Fund was
recognised for sustainability11; we achieved an EPRA Gold Award for
sustainability reporting; our Wellelsey development achieved a Built
for Life quality mark and our build to rent development, Young Street,
won the Best Private Rented Sector design award12.
Residential Awards
9 RESI Awards
10 Sunday Times’ British Homes Awards
11 Sector Leader in the Global Real Estate Sustainability Benchmark
12 Housing Design Awards
ABILITY TO CREATE NEW BUSINESS
OPPORTUNITIES AND ATTRACT
HIGH QUALITY STRATEGIC PARTNERS
New partnership arrangements entered
into in 2014 and post year end include:
– Pontoon Dock (read more on page 15);
– Sigma Capital (read more on page 8).
PBT (£m)
Profit/(loss) before tax
81.1
64.3
(1.7)
12
13
14
ROSE
2013: 25.2%, 2012: 3.8%
25.6%
SEE P28 TO P31
UK HPI outperformance %
Measured against average
movement in the Nationwide
and Halifax indices
Grainger
Average indices
12.0
9.5
6.4
5.6
2.8
(1.3)
12
13
14
SEE P26 TO P27
NAV (p)
Gross net asset per share
NNNAV* (p)
Triple net asset per share
291
242
223
242
195
157
12
13
14
12
13
14
* Growth in NNNAV is a performance condition
for the long‑term incentive scheme (see pages 63 and 72).
SEE P31 TO P32
SEE P31 TO P32
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KEY PERFORMANCE INDICATORS CONTINUED
grainger = BALANCE
Proportion of net rents and fees to net rents and
fees plus trading profit from vacant sales – %
#3
grainger = OPTIMISATION
#4
Group LTV – %
58.9
53.9
44.8
12
13
14
Proportion of gross management
fees to overheads – %
37.2
35.5
32.5
12
13
14
55.0
48.0
46.5
12
13
14
Gross cash generated from sales, gross rents and fees – £m
431
353
303
12
13
14
Efficiency
Proportion of property expenses and overheads net
of fees/other income as a percentage of market value
of assets under management – %
1.69
1.66
1.38
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13
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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
READ MORE
p34
SALES
READ MORE
p24
8.7%
PERCENTAGE
TURNOVER FOR PERMANENT
EMPLOYEES
4.2days
SICKNESS ABSENCE PER
EMPLOYEE PER ANNUM
15.7
THE AVERAGE HOURS OF
TRAINING PER EMPLOYEE
PER ANNUM
25%
RATIO OF FEMALE TO MALE
STAFF AT SENIOR MANAGER
LEVEL OR ABOVE
107
Days
14.1%
SALES VELOCITY IN DAYS
UK RESIDENTIAL
VACANT SALES
VALUES ABOVE PREVIOUS
YEAR VPV
49.2%
MARGIN ON VACANT
SALES
CORPORATE RESPONSIBILITY
READ MORE
p38
RENTS
READ MORE
p25
Percentage of tenants rating
Grainger’s management
service as good or above
77%
Number of homes built to the Code
for Sustainable Homes (CSH)
CSH3:50 CSH4:22
Increase in regulated rents
10.6%
Rent Arrears percentage: UK
57DAYS
NUMBER OF STAFF WORKING
DAYS CONTRIBUTED
FOR CHARITABLE CAUSES
2.2%
FINANCIAL
OPBVM
£107.5m
ROCE
17.0%
READ MORE
p28
£47.1m
RECURRING
PROFIT
TREASURY
Interest cover ratio on core
syndicate facility
3.7:1
Average cost of debt
5.4%
6.4%
AVERAGE VACANCY
RATE ON REGULATED
PROPERTIES IN 2014
READ MORE
p33
Average maturity
of drawn debt
4.8years
Hedging percentage
68%
Cash and headroom on facilities
£297m
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Risk management approach
Our risk management approach is designed to provide high levels of
assurance that risks are identified and assessed in a clear and
informed way.
Through our risk management processes
and activities, clear decision-making is
encouraged at all levels of the business as
to which risks we accept and how these are
effectively managed.
Risk assessment
We assess risk across the Group using a
systematic risk management framework
(Figure 1) covering both external and
internal factors.
Our risk management work
increasingly extends to delivering enhanced
performance by instituting stronger
processes and controls across the Group’s
full range of activities.
Overall we continue to foster and
embed a culture of risk management that
is responsive, forward looking, consistent
and accountable.
Figure 1: Grainger Risk Management Framework
RISK MANAGEMENT FRAMEWORK
Grainger risk management policy
People risks
Market and strategy risk
Project assurance risk
Operational risk
Financial risk
Legal and regulatory risk
IT risk
Sustainability risk
Independent monitoring
Risk based monitoring plan
External verification
The impact and probability of risks are
determined and scored both gross (before
controls) and net (after controls), which
allows us to monitor the risk areas most
heavily reliant on controls. A risk scoring
matrix is used to ensure that a consistent
approach is taken when assessing the
overall impact to the Group. Likelihood is
based on the frequency of occurrence in a
rolling 12 month period.
These risk scores are documented in
risk registers and maintained at project,
business unit, divisional and Group levels.
They change as new risks emerge and
existing risks diminish, so that the registers
reflect the current threats.
Grainger’s Risk and Compliance
function drives the risk management
process and challenges the risk findings and
reported controls. The Risk and Compliance
function is managed by the group general
counsel as part of the Legal, Risk and
Governance Group, which also includes
legal, health and safety and company
secretarial functions. This group, along with
the executive directors, are closely involved
at critical stages in the process to review,
challenge and debate the risks identified.
A register of the top risks faced by the
Group is produced through our bottom up
and top down process.
The Board has overall responsibility
for ensuring our risks are managed
appropriately. The Board Risk and
Compliance Committee (BRCC) has
delegated authority from the Board
and regularly reviews the Group’s risk
management approach and framework,
the top risks, risk appetite and tolerances.
During the year, actions have included:
– integrating sustainability risks in to the
overall risk management framework;
– developing an assurance framework and
a supporting 3 Lines of Defence model;
– running training workshops with
senior managers;
– further enhancing internal e-learning in
key risk areas;
– establishing a project office and detailed
protocols for the management of all
change and transactional projects.
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PRINCIPAL RISKS TO THE GROUP’S STRATEGY AND OBJECTIVES
The following overview of the principal risks
faced by Grainger are those deemed to be
the most material to Grainger’s strategic,
business and financial objectives in the
context of the current market conditions
including an indication of those that may
arise in the forthcoming year. The risks are set
out in accordance with Grainger’s strategic
objectives. The symbols indicate the direction
of movement of each risk in each period.
STRATEGIC OBJECTIVES
1 LEADERSHIP
2 RETURNS
3 BALANCE
4 OPTIMISATION
Primary strategic
objective links
2, 4
3, 4
1, 3, 4
3, 4
Risk description
Risk impact
Mitigation
2013
2014
Deterioration and/
or instability of wider
global economic
markets
– Market uncertainty may cause
drop in housing demand; asset and
portfolio values fall; development
risks increase;
– Subsequent financial/
investment constraints.
– Reduced reliance on trading income;
– Maintenance of financial
headroom providing a cushion for
market adjustments;
– Continuous review by Board .
Long term flat or
negative growth in
the value of assets
– Unattractive to external investors
– Maintain balance of income from sales,
and partners;
rents and fees;
– Poor shareholder returns.
– Portfolios weighted towards areas of
higher growth.
Failure to determine
the expectations of
our stakeholders and
wider population –
customers, tenants,
staff, partners and
shareholders
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
– Value not maximised
– Inability to attract or retain
– Active sustainability programme
and targets;
tenants, staff and/or partners;
– Complaints process to learn from
– Increased cost base;
– Reputational damage.
tenant concerns;
– Tenant surveys;
– Staff surveys and
– Reduced or severely limited ability
to take advantage of business
opportunities; unable to grow;
unable to trade profitably.
management engagement;
– Values programme implemented in
the year.
– Headroom maintained at agreed levels;
– Diversification of sources/forms of
Group finance;
– Positive relationship management with
banks and other sources;
– Gearing maintained within a range of
45% to 50%.
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1, 2, 4 Failure to implement
changes required
to deliver PRS
objectives
– Suboptimal delivery of strategy;
investment does not deliver
expected returns; investor and
customer expectations not met.
– Medium term operational plan for
delivery; comprehensive expert market
analysis and product design.
Key
The principal risks faced by the Group are:
Significant
High/Increasing
Neutral/Emerging
Low/Reducing
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RISK MANAGEMENT APPROACH CONTINUED
Primary strategic
objective links
1, 4
1, 3, 4
1, 3
1, 2,
3, 4
1, 4
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
Multiple concurrent
operational and
change projects
Failure to evolve
the business and
develop our people to
ensure we have the
necessary resource
with the right skills
and behaviours to
deliver our strategy
Failure to maintain
adequate and secure
IT infrastructure
and systems to
appropriately
support the growth
and strategy of the
business
Risk description
Risk impact
Mitigation
2013
2014
Failure to anticipate
and respond to
changes in legislation
or regulation that
creates increased
and costly obligations
– Reduction in market opportunities;
impact on ability to finance
opportunities; up-front cost
implications of building new
systems and approached to
meet obligations.
– Harm to people – tenants,
employees, contractors or visitors;
– Possible legal action and/or fine;
subsequent reputational damage.
– Active networking with key policy
influencers and relevant industry
groups that lobby Government and
policy makers;
– Specialist legal, compliance and
corporate affairs teams that
monitor legislative, regulatory and
consultation papers;
– Use external specialists to advise and
maintain forward focus.
– Health and Safety compliance plan in
place to include asbestos, fire, gas,
electrical and water management;
– All contractors are ‘Gas safe’ registered;
– Specific Health and Safety Director
responsible for compliance
monitoring plan;
– Whistleblowing policy;
– Monitoring by senior management
and Executive;
– Regular reporting to the main Board.
– Over extension of people
– Awareness by executives and
and resources;
senior management;
– Missed deadlines, increased costs;
– Poor delivery performance.
– Oversight by Board Risk and
Compliance Committee;
– Use of external expertise and resource
to support where appropriate;
– Development of Grainger Project Office
with clear project protocols and specific
Project Management skills.
– Succession plans are regularly reviewed;
– Management Development Training;
– Retention policies in place for key staff;
– Annual benchmarking of reward;
– Regular staff surveys;
– Performance reviews and appraisals.
– Reduced ability to deliver to
stakeholder expectations;
mismanagement;
– reduced control;
– inability to grow market share
of PRS.
– Increased costs; risk of regulatory
action if data lost;
– High quality, competent IT team;
– Use of external specialist advisers
– inability to report on performance
to the satisfaction of stakeholders;
– reputational damage.
where required;
– Availability and security overseen by
senior managers, executive and Board.
Key
The principal risks faced by the Group are:
Significant
High/Increasing
Neutral/Emerging
Low/Reducing
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internal and external auditors and of any
significant issues arising;
– Audit Committee review of accounting
policies, assurance framework and the
levels of delegated authority; and
– the Board and the Audit Committee are
informed of material incidents including
any fraudulent activity or significant
whistleblowing event, and actions being
taken to remedy any control weaknesses
The Board, through its own annual agenda
plan and in approving those of the Audit
Committee and the BRCC, determines the
process for risk management and review
including the frequency and scope of all
assurance reports and areas for particular
focus. The Board, Audit Committee and
BRCC agenda plans are designed to
ensure that all significant areas of actual
and potential risk are reported on and
considered in the course of the year.
Emerging risks and further developments
The BRCC considers emerging risks at every
meeting and obtains regular reports on
these. The Board also reviews emerging
risk, particularly in the context of the
Group’s strategic objectives and wider
political, legal and economic factors.
In the coming year we intend to maintain
and extend our risk management focus
including by:
– further refining our risk scoring matrix
and risk appetite tolerances;
– developing the application of the
assurance framework to enhance controls
at all levels of assurance;
– developing the project framework
protocols to further enhance risk
analysis in a number of areas, including
resourcing and other non-financial risks.
Risk response
The executive is accountable to the
Board for establishing and maintaining
an appropriate system of internal control
and for providing assurance to the Board
and its committees that it has done so.
All employees have responsibility for
controls in their areas as part of their overall
responsibility for achieving their objectives.
The Legal Risk and Governance
group manages the operational risk
management process and is made up of
highly experienced professionals in law,
risk, compliance and health and safety.
This group provides advice, intervention
and incident response across the wider
business. It also advises the BRCC and the
executive in the determination of the nature
and extent of risks the Group is willing to
take in achieving its strategic objectives.
We treat each risk in one of four ways:
– tolerate (accept risk and take no
further action);
– treat (reduce risk by completing
appropriate actions to improve or
implement controls);
– transfer (share or remove risk by partial or
whole transfer to a third party);
– remove (avoid risk by ceasing or
altering the activities giving rise to the
risk occurring).
In addition to the detailed risk mapping
process and assessment outlined above,
there are a wide range of risk controls in
place, including but not limited to:
– All change and transactional projects
are run within a project framework
overseen by a dedicated project office.
This framework incorporates continuous
risk assessment of each project through
a log capturing risk, assumptions, issues
and dependencies. The BRCC also
reviews all significant projects and the
project portfolio board reports.
– An assurance framework has been
introduced (approved and reviewed by
the Audit Committee) to facilitate and
structure improved assurance activities
and reporting. The Legal Risk and
Governance group will work with this
framework to provide oversight and
assurance across all activities where
appropriate. The framework will also
assist the Audit Committee and the BRCC
in determining the appropriateness of
this assurance work and the controls
and procedures.
– The Director of Health and Safety meets
monthly with the group general counsel,
the finance director and the property
director to review and monitor all health
and safety processes and incidents.
Any health and safety incidents are also
reported to the Board and the BRCC.
– Complaints are recorded and dealt
with in accordance with a Group
policy overseen by the Legal Risk and
Governance group and the complaints
register is reviewed by the BRCC.
– The group general counsel reports on all
known potential reputational risk matters
to the Board.
– Internal policies are written and refined
through a standing cross-functional
committee at the direction of the BRCC.
– The Group has a detailed business
continuity plan in place, supported by
a cross-functional senior management
committee empowered to make
decisions in the event of a potentially
disruptive major incident. This committee
meets twice yearly to review policies
and test readiness to deal with a major
incident. These plans have performed
well in real and simulated incidents which
have occurred to date.
The effectiveness of the internal control
systems is challenged 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
– key project risks are reviewed by
the BRCC;
– the BRCC approves all Group policies;
– complaint trends are overseen by
the BRCC;
– oversight by the Audit Committee of
the scope and results of the work of
24
Grainger plc / Annual Report and Accounts 2014 / Strategic report
GRAINGER =
Performance
Sales
Margins on vacant sales
have increased to 49.2%
from 44.9%. Vacant sales
were made 14.1% above
last year’s valuations.
Gross rental income
for the year was £57.4m,
representing 18% of
total Group revenue.
UK Residential & Retirement Solutions
Development
Margins on sales of vacant properties
increased to 49.2% (FY13: 44.9%) and
sales of vacant properties were made at an
average of 14.1% above September 2013
VPV (2013 excess to 2012 VPV: 7.9%).
Sales of tenanted properties and other
sales decreased from 2013 by £100.4m
to £103.1m (FY13: £203.5m). The main
disposal in the year was the sale of a home
reversion (Retirement Solutions) portfolio in
January 2014 for £88m, which generated
a profit of £9.9m. This represents the end
of the deleveraging programme which
Grainger has been working through in
recent years.
The Development business had a
good year with £32.8m of sales and
£12.3m of profit (FY13: £15.0m and
£1.9m respectively). This performance was
weighted towards the second half of FY14
which saw higher levels of activity that have
continued into the first half of FY15.
Our Macaulay Walk development has
been the key profit driver and has delivered
an outstanding sales performance with
53 of a total of 57 private units now sold,
exchanged or reserved at values between
£800-£1300/sqft, significantly above
expectations. Over the period, Macaulay
Walk has delivered £11.6m of profit to
the business, and we expect a similar level
of profit in the new financial year which
will be weighted toward the first half.
The development won Best Mixed Use
Scheme and Best Development (between
26-100 units) at the Sunday Times’ British
Homes Awards 2014.
We will shortly be entering the
construction phase on our two schemes
Sales
Trading sales on vacancy
UK Residential
Retirement Solutions
Tenanted Sales
Other Sales
Residential Total
Development
UK Total
Germany
Overall Total
Deduct: Sales of CHARM
properties
Statutory sales and profit
Full year 2014
Full year 2013
No. of
units
Gross sales
value (£m)
Profit
(£m)
No. of
units
Gross sales
value (£m)
Profit
(£m)
287
364
651
1,331
27
2,009
–
2,009
191
2,200
78.1
45.2
123.3
96.6
6.5
226.4
32.8
259.2
15.2
274.4
(67)
2,133
(7.2)
267.2
42.9
17.7
60.6
10.4
5.5
76.5
12.3
88.8
(0.2)
88.6
(0.6)
88.0
337
338
675
1,684
17
2,376
–
2,376
245
2,621
(59)
2,562
79.5
36.9
116.4
200.0
3.5
319.9
15.0
334.9
18.0
352.9
(5.8)
347.1
40.2
12.0
52.2
23.4
1.4
77.0
1.9
78.9
(1.2)
77.7
(0.4)
77.3
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with the Royal Borough of Kensington and
Chelsea, Young Street and Hortensia Road.
At Berewood, we sold Phase 2 to
Redrow Homes in September 2013, and
anticipate that the next phase will come to
market in 2015.
Over the next three years, our
development activities on average are
currently expected to generate £10-12m of
profit per annum.
Germany
The £15.2m of sales (FY13: £18.0m) relates
to general portfolio management and
optimisation activities. A broadly breakeven
profit result (-£0.2m) compares against
a £1.2m loss in the prior year. As assets
are held as investment property and are
revalued annually, a breakeven result
indicates that the sales prices achieved met
the latest valuation.
Rents
Fees
25
We recorded an anticipated reduction
in net rent following the recent portfolio
transfers into co-investment structures and
investment sales. Total net rents in the year
amounted to £37.0m (FY13: £48.5m).
Our UK Residential portfolio generated
net rental income in the year of £30.2m
(FY13: £37.2m).
Allied to our strategy of growing
our private rented sector offering are
the opportunities we have developed
for creating new joint ventures and fund
management structures where we can
leverage our core skills to create added
value for shareholders and partners and
generate fee income for Grainger.
The German business delivered net
The majority of fee income is derived
rents of £5.1m (FY13: £8.7m).
Certain assets in the Retirement
Solutions portfolio also produce a net rental
income and this amounted to £1.5m in the
year (FY13: £2.3m).
Despite the overall net rent decrease,
the UK market rented properties which
we manage saw like-for-like rent increases
on new lets of 9.1% and on renewals of
4.2%, compared to the market average
of 1% according to the Office of National
Statistics. While rent levels generally follow
market trends, more importantly they
reflect the quality of the individual unit and
benefit from our active management to
maximise rental income.
Across our entire portfolio, rental
increases generated an additional £1.8m of
gross rental income.
from asset and property management
fees from co-investment vehicles and
management contracts. Overall, fees were
stable year-on-year.
Retirement Solutions saw increased
activity levels and fees following the
commencement of services for Clifden
Holdings Limited (the buyer of one of our
home reversion portfolios in January).
Development fees also increased.
These relate to land sales at Wellesley, the
Aldershot Urban Extension, working with
the Defence Infrastructure Organisation,
part of the Ministry of Defence.
Following a very positive 2013 for
G:Ramp (our residential asset management
agreement with Lloyds Banking Group),
2014 also benefited from performance
fees, albeit at a lower level. These relate
to the successful work-out of the bulk of
the portfolios we have been managing,
a reduced level of activity is therefore
expected in 2015.
Net rents
Fees and other income
2014
£m
30.2
1.5
5.1
0.2
37.0
UK Residential
Retirement Solutions
Germany
Development
Net Rents
Refer to note 3 of the accounts on page 109 for a
reconciliation to the statutory income statement.
2013
£m
37.2
2.3
8.7
0.3
48.5
12.9
12.8
13
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26
Grainger plc / Annual Report and Accounts 2014 / Strategic report
GRAINGER =
Asset
Performance
The total market value of
assets under management
at 30 September 2014
was £3.2bn, up from
£2.8bn the previous year.
19,831 units were under
management at the year-
end (FY13: 21,569).
Group Performance
For the twelve months to 30 September 2014, Gross NAV increased by 20% to 291p and
triple NAV by 24% to 242p.
(£m)
30 September 2013
Profit after tax
Revaluation gain on trading stock
Elimination of previously recognised surplus on sales
Dividends paid
Impact of derivatives and hedging net of tax /
Cashflow hedge reserve net of tax
Contingent tax
Other
30 September 2014
Gross NAV
pence/share
242
18
53
(13)
(2)
NNNAV
pence/share
195
18
53
(13)
(2)
(7)
–
–
291
1
(8)
(2)
242
Grainger’s reversionary surplus, which is the uplift from the reported market value of
our properties to the vacant possession value, including our share of investments in joint
ventures and associates, is valued at £503m, equivalent to 120p per share before tax (FY13:
127p, £527m). For our wholly owned assets, this is 109p per share (£455m) before tax
(FY13: 116p, £483m). This surplus is based on current values (it excludes future house price
inflation), is supplementary to our net asset calculations and highlights the additional latent
value in Grainger’s reversionary portfolio.
Market Value Analysis – Property Assets
UK Residential Portfolio
Retirement Solutions Portfolio
Development Portfolio
UK Joint Ventures and Associates*
German Portfolios*
2014
Market value
£m
1,448
345
107
233
195
2,328
VPV
£m
1,793
454
107
281
195
2,830
2013
Market value
£m
1,145
435
84
198
228
2,090
VPV
£m
1,451
613
84
242
228
2,618
*Includes Grainger share of assets held within joint ventures and associates
This is after the one-off valuation deficit of £5.9m relating to some of our German assets
referred to below.
UK residential portfolios
Year-on-year HPI (Nationwide and
Halifax)
Grainger’s UK Residential portfolio
Grainger’s Retirement Solutions
portfolio
Grainger’s combined UK portfolio
2014
2013
VPV Market value
VPV Market value
9.5%
14.6%
6.0%
12.0%
15.9%
9.4%
14.6%
5.6%
8.2%
2.3%
6.4%
9.3%
5.9%
8.3%
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owned German portfolio was £148.4m
(8% of our overall wholly owned portfolio;
FY13: £178.3m). The reduction in market
value follows sales of €18.6m (£15.2m)
and the cost of additional investment
outlined above.
Purchases
Our strong cash generation supports
reinvestment and we have spent £182m
on property purchases, excluding
development (FY13: £9.0m). The largest
single element of this expenditure was the
acquisition in April of the Chelsea Houses
Portfolio. This portfolio has performed
well in the five months since acquisition,
with a growth in vacant possession
value of 4.2%. Apart from its attractive
reversionary characteristics and returns,
the portfolio provides a significant number
of value accretive refurbishment and
redevelopment opportunities.
Assets under management
The total market value of assets under
management at 30 September 2014 was
£3,159m, up from £2,796m the previous
year. 19,831 units were under management
at the year-end (FY13: 21,569), with
most of the reduction attributable to the
successful conclusion of G:Ramp asset
management activities.
The gross asset value of co-investment
vehicles at 30 September 2014 was
£1,016m (FY13: £924m). Grainger’s total
return from co-investment vehicles in the
year amounted to 23.5%.
Germany
The overall German residential market
has developed well and investor interest
continues to be strong. In order to benefit
from this interest and to further leverage
its platform and assets, the Group intends
to use existing German portfolios to
form further co-investment vehicles with
institutional partners to which it will provide
asset management services. This relates
mainly to the FRM portfolio. During the past
year and following a thorough portfolio
review, we have initiated an investment
programme in order to ensure compliance
with local regulations which will maximise
the potential of the assets in respect of rents
and occupancy. We believe it is right to
invest in order to create a highly attractive
entry possibility for institutional investors.
The costs of this programme have been
accounted for in the current year and have
impacted profit before tax and net asset
value by £5.9m.
Our Heitman associate in Germany has
delivered a positive performance in 2014,
supported by investment activity in Munich
and other dynamic markets and our active
asset management approach, returning in
excess of 15% to Grainger in 2014.
The value of the assets Grainger
manages in Germany, including the Heitman
associate, has increased by 4.4% on a per
sqm like-for-like basis. As at 30 September
2014, the market value of the wholly
Performance of Grainger UK assets vs Halifax and Nationwide indices
Grainger UKR
Grainger UKR and RS
Halifax
Nationwide
Index
140
135
130
125
120
115
110
105
100
95
Year to
30 September
2009
2010
2011
2012
2013
2014
Our traditional reversionary UK
residential portfolios have performed
particularly strongly in 2014 and have again
outperformed the wider UK residential
market. In the year to 30 September 2014
the two major housing indices (Nationwide
and Halifax) showed an average rise of
9.5%. By contrast, the vacant possession
value (VPV) in our combined UK portfolios
rose by 12.0% whilst their market value
rose by 14.6%.
Within this, the VPV of our UK
Residential portfolio, which benefited
from a concentration weighted towards
London and the South East of England,
rose by 14.6%. The VPV of the more
geographically diverse Retirement Solutions
assets rose by 6.0%.
Development portfolio
As at 30 September 2014, the market
value of our UK development portfolio
increased to £107.2m (FY13: £84.3m),
largely fuelled by the investment in our
Macaulay Walk scheme (Clapham, London).
The gross development value, including
joint ventures, with detailed planning
consent is valued at £434m (FY13: £314m).
This includes our 50% share of the King
Street, Hammersmith development in
conjunction with Helical Bar, which has a
total gross development value of £180m,
following the receipt of planning permission
in November 2013, and two sites in the
Royal Borough of Kensington and Chelsea
which also received planning permissions
within the period.
Co-investment vehicles
Grainger’s equity investment in its joint
ventures and associates equates to £177.2m
and principally comprises:
• our 24.9% investment in GRIP, for
which we provide property and asset
management services, co-investing
with APG;
• a 50% investment in Walworth
Investment Properties Limited (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 Sovereign joint
venture with Moorfield;
• and a 50% interest in the Hammersmith
joint venture with Helical Bar.
28
Grainger plc / Annual Report and Accounts 2014 / Strategic report
FINANCIAL REVIEW
Improving our
financial returns
Pre-tax profit increased to £81.1m. It is very pleasing to
be able to report a gross increase in market value of
over £0.25bn on our directly and indirectly owned
portfolio.
Mark Greenwood
Finance director
Return on capital employed
17.0%
Gross NAV up 20% to
Total market value increase
291p
£264m
Our key measures of financial
performance 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 before tax
Excess on sale of
normal sales to
previous valuation
Return on capital
employed *
Return on shareholder
equity **
2014
2013
291p
242p
242p
195p
£107.5m £107.6m
£47.1m £37.0m
£81.1m £64.3m
14.1%
7.9%
17.0%
8.1%
25.6%
25.2%
* Operating profit after net valuation movements
(OPBVM) 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 triple asset value (NNNAV) in the year
plus the dividend per share relating to each year as a
percentage of opening NNNAV.
29
to 49.2% and a reduction in tenanted
sales as we reached the end of our
deleveraging programme.
– An increase of £10.4m in relation
to profit on sale of assets from our
development division. In the year our
Macaulay Walk site has come to market,
realising profits of £11.6m based on
completion of 34 of the 57 private units
and 6 of the commercial units.
Interest income and expense
The net recurring interest charge has
decreased by £7.9m from £71.3m in
2013 to £63.4m at 30 September 2014.
This follows on from the reduction in debt
which was (on a daily average) £1,101m in
2014 (FY13: £1,248m), and an average cost
of debt at the period end including costs
but excluding commitment fees of 5.4%
(FY13: 5.9%).
Joint ventures and associates
Joint ventures and associates contributed
a profit of £3.0m to recurring profit in the
year (FY13: £0.7m) as we benefited from a
full year of trading from our Heitman and
Walworth ventures.
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The table below summarises our OPBVM,
recurring profit and profit before tax.
Main movements within OPBVM
2013 OPBVM
Decrease in gross rents
Increase in residential profit on
sale
Increase in development trading
profit
Increase in interest income from
CHARM
Decrease in gross management
fee and other income
Decrease in property expenses,
overheads and other income and
expenses
2014 OPBVM
£m
107.6
(13.9)
0.9
10.4
0.3
(0.1)
2.3
107.5
The major movements within OPBVM are:
– A decrease of £13.9m in gross rents.
This has arisen, as predicted, primarily
as a result of the transfer of assets into
co-investment vehicles in the prior
year with Heitman for German assets,
and with Dorrington and APG for UK
assets. This reduced gross rents by
£8.9m. Sales across the Group have
resulted in a reduction in gross rents of
£7.9m. This has been offset by £1.1m
of additional rents from acquisitions in
the year, primarily the Chelsea Houses
Portfolio, and £1.8m of rental increases.
– An increase of £0.9m in relation to
profit on sale of residential property
assets, primarily due to an increase in
margin on vacant sales from 44.9%
Profit on sale of assets
Net rents
Management fees/
other income
CHARM
Overheads/other
expenses
OPBVM
Net finance costs
Joint ventures and
associates
Recurring Profit before
tax
Valuation movements
including derivatives
Non-recurring items
Profit before tax
2014
£m
88.6
37.0
12.8
6.4
(37.3)
107.5
(63.4)
2013
£m
77.7
48.5
12.9
5.7
(37.2)
107.6
(71.3)
3.0
0.7
47.1
37.0
37.7
(3.7)
81.1
33.2
(5.9)
64.3
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:
Divisional Analysis of OPBVM
UK Residential portfolio
Retirement Solutions portfolio
Fund and third party management
Development assets
German residential portfolio
Group and other
OPBVM 2014
OPBVM 2013
Profit on sale
of assets
£m
48.9
27.6
–
12.3
(0.2)
–
88.6
Management
fees/other
income
£m
0.4
1.7
8.5
1.1
1.0
0.1
12.8
Net
rents
£m
30.2
1.5
–
0.2
5.1
–
37.0
Overheads/
other
£m
(8.4)
4.0
(6.1)
(1.7)
(3.2)
(15.5)
(30.9)
Total
2014
£m
71.1
34.8
2.4
11.9
2.7
(15.4)
107.5
Total
2013
£m
94.6
19.0
2.9
1.2
4.7
(14.8)
–
107.6
30
Grainger plc / Annual Report and Accounts 2014 / Strategic report
FINANCIAL REVIEW CONTINUED
Valuation and non-recurring items
Valuation and non-recurring items in 2014 compared with 2013 is analysed as follows:
Valuation
Adjustment of inventories to net realisable value
Valuation gain on investment property
One-off valuation deficit on German FRM 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
Profit/(loss) on disposal of subsidiary/joint venture
Impairment of Prague joint venture
Net gain on purchase of Tricomm debt
Costs/ charges/ gains relating to GRIP/ G:res
Other non-recurring costs
Total
2014
£m
0.8
7.4
(5.9)
–
1.2
2013
£m Movement
0.7
2.9
–
(4.7)
21.6
0.1
4.5
(5.9)
4.7
(20.4)
39.2
14.7
24.5
(4.6)
(0.4)
37.7
0.8
(2.4)
–
–
(2.1)
(3.7)
34.0
(2.3)
(2.3)
0.3
33.2
(2.3)
–
1.6
(2.6)
(2.6)
(5.9)
27.3
(0.7)
4.5
3.1
(2.4)
(1.6)
2.6
0.5
2.2
6.7
Investment property valuation gain
The net valuation uplift in 2014 totals
£1.5m (FY13: £2.9m). Our UK portfolios,
relating primarily to the Group’s wholly
owned investment property in its UK
Residential division showed an uplift of
£7.6m (FY13: £2.5m). In Germany, as
stated previously, we are intending to
start a programme of works on our FRM
portfolio, the cost of which has been taken
into account as part of the September
valuations, resulting in a one-off downward
valuation of £5.9m. The remaining German
portfolios showed a deficit of £0.2m (FY13:
surplus of £0.4m).
Derivative movements
Fair value movements on derivatives is a
credit of £1.2m relating to the Group’s
derivative contracts, offset by a £0.4m
charge relating to our share of derivatives
within joint ventures and associates.
The fair value of swaps at
30 September 2014 is a liability of
£48.0m compared to £91.1m at
30 September 2013.
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Valuation gains in joint ventures/associates
Valuation gains within joint venture and
associates amounted to £39.2m before
deferred tax (FY13: £14.7m) comprising
gains from our joint venture and associate
operations with Heitman, Dorrington
and APG.
Non-Recurring
The non-recurring items in 2014 included
a £0.7m gain on sale of a subsidiary as part
of the tenanted portfolio sale completed in
January 2014 and a £0.1m gain on sale of
our Gebau joint venture in October 2013.
This is offset by a £2.4m loan impairment
charge relating to our Prague investment,
£1.3m of one-off property costs and
provision increases relating to a small
number of properties across the portfolio
and £0.8m following the acquisition of the
Chelsea Houses Portfolio.
Profit before tax
Having taken account of all of the above
movements, profit before tax was £81.1m
compared to a profit before tax of £64.3m
in 2013. The most significant movements
which contributed to the 26.1% increase
were a £11.3m increase in profit from sales
largely driven from development sales in
the year, a £7.9m decrease in interest costs
and a £4.6m increase in valuation gains
from investment properties, offset by a
reduction in net rents of £11.5m following
the recent portfolio transfers into co-
investment structures and investment sales.
Tax
The Group has an overall tax charge of
£6.4m for the year, comprising a £7.3m UK
tax charge and a £0.9m overseas tax credit.
The net reduction of £11.4m, from the
expected charge of £17.8m, results from
a prior period credit of £6.5m, a £4.2m
reduction as tax on JV and Associates’
profit is included above the tax line in the
Income Statement and a £1.8m deferred
tax credit following recognition of future
capital losses against future capital gains,
offset by non-deductible expenditure
totalling £1.1m.
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 £7.2m in the year.
Earnings per share
Basic earnings per share is a profit of 18.1p (FY13: a profit of 13.1p). A year-on-year
comparison is shown below:
2013 Profit/earnings per share
Movements in:
OPBVM
Contribution from joint ventures and associates
Fair value of derivatives
Revaluation of investment properties
Net interest payable
Taxation/other
2014 Profit/ earnings per share
Pence per
share
13.1
£m
53.6
(0.1)
2.2
(20.9)
20.9
7.9
11.1
74.7
–
0.5
(5.1)
5.1
1.9
2.6
18.1
Dividend for the year
After considering the investment and working capital needs of the business, the directors
have recommended a final dividend of 1.89p per ordinary share (FY13: 1.46p) which
equates to £7.8m (FY13: £6.0m). This is in addition to the interim dividend of 0.61p per
ordinary share (FY13: 0.58p). The total dividend for the year will therefore be 2.50p per
ordinary share (FY13: 2.04p), an increase of 22.6%. Earnings cover dividends by 7.3 times.
Net asset values
We set out below the two measurements to enable shareholders to compare our
performance year on year.
30 September
2014
30 September
2013 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
291p
242p
20%
242p
195p
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 NNNAV as described
and shown in this document.
32
Grainger plc / Annual Report and Accounts 2014 / Strategic report
FINANCIAL REVIEW CONTINUED
Cash inflows from sales, rents, fees
£303m
Consolidated LTV
46.5%
£297m
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
Pence per
share
291
£m
1,215
(151)
(36)
(52)
1,012
(13)
242
The major movements in Gross NAV in the
year are:
Pence per
share
£m
Gross NAV at
30 September 2013
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 2014
1,008
75
223
(55)
(9)
(29)
2
242
18
53
(13)
(2)
(7)
–
1,215
291
The major movements in NNNAV in the
year are:
NNNAV at 30
September 2013
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 2014
Pence per
share
195
18
53
(13)
(2)
1
(8)
(2)
£m
811
75
223
(55)
(9)
6
(34)
(5)
1,012
242
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
Retirement
Solutions
Development
Joint
venture and
associates*
German
Portfolios*
Trading
stock
£m
Income
statement
£m
Total
increase
in value
£m
183
24
12
4
–
223
7
1
–
37
(4)
41
190
25
12
41
(4)
264
* includes Grainger share of assets held within joint
ventures and associates
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 £22.5m
before deferred and contingent tax and
£17.7m after tax. This is equivalent to 5p per
share on NAV and 4p per share on NNNAV.
Market value analysis of property assets
Residential
Development
Total at 30 September 2014
Total at 30 September 2013
* Incudes property assets within held-for-sale
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 Debt9
Average cost of Debt at period end10
As at 30 September 2014 net debt was
£1,044m, an increase of £85m from
the 30 September 2013 level of £959m.
Our consolidated loan to value now stands
at 46.5% (FY13: 48.0%). LTV on the core
facility was 42.0% (FY13: 40.1%) compared
to a maximum allowable LTV covenant
under that facility of 75%. The interest
cover ratio on the core facility stood at
3.7 times (2013: 5.0 times) compared to
a minimum interest cover covenant of
1.35 times.
As at 30 September 2014, the average
maturity of the Group’s drawn debt was
4.8 years (FY13: 4.6 years).
The Group has free cash balances
of £50m plus available overdraft of £5m
along with undrawn committed facilities
of £242m. Thus, headroom totals £297m
as at 30 September 2014 (FY13: £292m).
There are no further significant repayments
until March 2016.
The Group’s average cost of debt at the
period end, including costs but excluding
commitment fees, was 5.4% (FY13: 5.9%).
We will continue to manage the average
cost of debt, balanced with terms
and tenor.
At 30 September 2014, gross debt was
68% hedged (FY13: 68%) of which 4%
was subject to caps (FY13: 3%).
During the year we further diversified
our sources of debt by issuing £275m of
bonds with a maturity date of December
2020 at an all in effective rate of 4.94%.
The business has produced £303m of
cash from gross rents, property sales net of
fees and fee and other income. The largest
outflows of cash are £160m investment
in the Chelsea Houses Portfolio, £35m to
settle interest rate swaps required before
issuance of our corporate bonds and £55m
of interest.
33
Total*
£m
1,941
107
2,048
1,843
Shown as
stock at cost
£m
926
94
1,020
950
Market value
adjustment
£m
584
13
597
433
Market value
£m
1,510
107
1,617
1,383
Investment
property/
financial
interest in
property
assets
£m
431
–
431
460
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£1,044m
46.5%
42.0%
3.7
4.8 years
£297m
6.0%
5.4%
2013
£959m
48.0%
40.1%
5.0
4.6 years
£292m
5.7%
5.9%
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
20 November 2014
Including costs and commitment fees
9
10 Including costs excluding commitment fees
34
Grainger plc / Annual Report and Accounts 2014 / Strategic report
Our people, tenants
and partners
The sustainability of our business
depends on positive relationships with
our stakeholders, including our people,
tenants and partners.
Our people
The foundation of our business
is our people and we aspire to
be the best team in residential.
Introduction
In addition to being a property business,
we are also strongly committed to being
a people focussed business. Our strength
comes from the relationships that we have
with each person and organisation with
whom we work. We regard our tenants
and our partners as customers.
As a long term investor in homes and
communities, we know that it is critical
to build and maintain open and positive
relationships. Such relationships are with
our tenants, whose homes are our assets,
the communities in which we invest and
operate, our suppliers and our partners.
One of our core values is our long term
approach, and ensuring we have a strong
and sustainable future requires us to earn
a ‘licence to operate’, which is granted
implicitly by our stakeholders. If we ignore
our key stakeholders, and their concerns,
this could be challenged. It is therefore no
surprise that maintaining and nurturing
these relationships is a key focus in
our business.
Our focus on engagement and
customer service is ever increasing as our
business evolves and grows. Over the years
we will continue to invest in understanding
the needs and experiences of our existing
customers as well as our future customers
and tenants.
Our increasing emphasis on
understanding our customers’ needs and
building our business to focus on meeting
current and future needs has been a
major theme for the business over the
past year and will continue in the years
ahead. Our efforts have taken place on
many fronts.
We have partnered with the leading
market research organisation, Mindfolio,
in order to gain greater insight into the
experiences and expectations of our
future customers. Specifically, we research
what they would like to see in design
and management on our new build to
rent developments. In addition, we have
increased the surveys we undertake with
existing customers so that we can better
understand their experiences.
It is equally important that everyone
in Grainger shares this customer focus and
understands how we are putting this focus
into practice. Accordingly, we have started
a programme of training and testing,
particularly for our front-line staff, aimed
at measuring and consequently improving
customer service within Grainger.
Investing in our employees
and ensuring they are
engaged, motivated and
well informed gives us the
competitive advantage
that helps keep us at the
forefront of our industry.
They are the key to our
success and the driving
force behind moving the
business forward.
Achievements in 2014
80
21
training and briefing
sessions were held for staff
work experience
placements provided
5
4
7
1
6
2
Employee profile
Age
1. 18–25 years
2. 26–33 years
3. 34–41 years
4. 42–49 years
5. 50–57 years
6. 58–65 years
7. 65+ years
3
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No. of employees
23
83
78
43
32
19
4
282
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Supporting our people
In addition to the specific focus on the
customer, we continue to invest heavily
in developing the skills and careers of
our employees.
Over the year we have held more than
80 training and briefing sessions for staff,
covering technical, professional, systems,
project management, finance, presentation
and negotiation, media and health and
safety skills. Where possible, we use the
expertise of colleagues within the business
to share their knowledge with others
through a series of Lunch & Learn events.
Leadership and management development
is a key part of our ongoing effort to invest
in the continued and ongoing success of
our business into the future. Our investment
in this area includes coaching, leadership
profiling and development planning,
management training, and specialist
business programmes including at Insead,
London Business School and IREBS Real
Estate Academy in Germany.
Further education is always an
important part of our talent development
programme, and this year we supported
12% of staff members (32) in acquiring
professional qualifications.
We also focus our attention on those
entering business at a younger age and
we are pleased to have supported 21
individuals for work experience placements
and our Graduate Recruitment Programme
continues to be highly sought after with
more than 200 applicants for the two
vacancies we have annually.
Engaging staff to support our strategic priorities
The best way to support positive business
growth is through a motivated and informed
workforce. In order to achieve this, our
staff engagement activities centre around
telling our Company’s story in the most
compelling and relevant way possible,
and bringing it to life through personal
experiences. We leverage off an active
events programme, including conferences,
roadshows and town hall meetings.
Each year, we hold a strategy
conference for the senior management
team where we discuss and debate our
strategic objectives. Following this, each
senior manager discusses key findings from
the strategy conference with each of their
teams. This cascading process is followed
up by a roadshow hosted by our CEO and
other executives for all staff across our
offices in the UK and Germany.
One way we have found success in
terms of communicating to staff in an
engaging way is through the use of real
case studies from around the business to
demonstrate how our Company values and
business initiatives come to life in real day to
day scenarios. This year we also focused on
utilising video more to discuss our Company
values as well as highlighting each of the
respective job roles and responsibilities of
every senior manager across the business.
We also use our Corporate
Responsibility programme as a way to
engage employees, letting them choose a
charity of their choice when volunteering,
or we support them in their personal
charitable endeavours through a charity
match funding programme.
Employee profile
Role
Non-executive
Directors
Grainger Trust Non-
executive directors
Executive directors
Senior managers
Managers
Associate
Support
Graduates
Off-site
Male Female
Total
5
2
7
1
3
29
51
17
9
2
4
121
1
0
10
43
41
59
2
3
161
2
3
39
94
58
68
4
7
282
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Grainger plc / Annual Report and Accounts 2014 / Strategic report
Our tenants
It is crucial that we continue to
listen and respond to our
customers.
As our business evolves
along with the market, we
will continue to increase our
focus on our tenants.
Increasing demand for
renting and increased
market competition means
that we need to continue to
be able to attract and retain
customers.
We recognise the need to continually
improve our knowledge and understanding
of our customer base – what their
experiences are, if they are satisfied with
the service they receive and what their
preferences and desires are. We have
set our corporate responsibility targets
accordingly and have increased and
improved the surveys we undertake with
our tenants. We ask them how they were
doing when they first move in, after repairs
and towards the end of their tenancy.
This year, we began asking our
prospective future tenants what they
want. Working with our market research
partner, Mindfolio, we have undertaken
a series of research surveys to try to find
out broadly what future renters want
from their landlord and accommodation,
but also specifically what they would like
to see at our specific new build to rent
development projects.
The insight we’ve gathered from this
initiative has helped us to restructure our
service offering as well as the design of
our buildings and management strategies.
Our plan is to continue to increase the
use of market insight to help us improve
our offering to our customers, existing
and prospective.
As an organisation that firmly has its
sights set on the future, we commissioned
a research report alongside ADAM
Urbanism to explore emerging social trends
in Britain and their impact on the built
environment. The report, “Tomorrow’s
Home”, was launched at the Royal Institute
of British Architects and provides some
robust evidence for changing needs and
preferences affecting urban design, master-
planning and residential architecture.
Another good example of our
customer focus over the year is our
forthcoming accreditation as one of the
first major corporate landlords to the
London Rental Standard, an initiative by
the Greater London Authority to help
drive improved standards in the private
rented sector.
Lastly, Grainger colleagues played a key
role in helping the Urban Land Institute’s
UK Residential Council produce the UK’s
first ever guide to design for build to rent
developments. The guide has a strong
focus on the customer – what they want
in terms of rental accommodation, what
differences renters want compared to
owner occupiers, and the best way to
manage a rental apartment block. It truly
puts the customer at the heart of the
design and management of these new
innovative types of buildings.
Our partners
It is important that we are
fully aligned with those
organisations we work with in
order to achieve our collective
goals.
The relationships we have
with each of our partners is
critical to the success of
both organisations. Together
we are able to achieve more
for our stakeholders.
37
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This project also brought with it one of
our most recent new partners, the London
Pensions Fund Authority, which is the
majority equity investor of the project.
Both Bouygues, as contractor, and LPFA,
as majority investor, have similar ambitions
to us to deliver good quality homes for real
people for the long term.
Our partnership with APG, which is
the PRS Fund, GRIP, has achieved a major
milestone this year. It was recognised for its
sustainability credentials by being selected
as the Sector Leader by the Global Real
Estate Sustainability Benchmark (GRESB).
Not only was this a fantastic achievement
for the fund but also for the residential
sector in the UK, since this is one of the
first times the sector has been recognised
in this area.
Grainger has over several years built up a
strong set of partners across the business.
Our approach to partnerships is one that
builds on one of our Company’s values:
long term. By establishing long term
partnerships with reputable organisations
with complementary values and ambitions,
we are able to generate additional value for
our shareholders as well as customers.
The synergies and cross pollination
between our organisations means that we
are able to achieve more than we would
have been able to apart.
Each partnership has been set up in
direct alignment to our corporate strategy,
whether it be geographical, asset oriented,
income stream related or driving improved
services and efficiencies.
In the past year, we have been working
to strengthen existing relationships and we
have also established new ones.
An example of strengthening an
existing relationship is with Bouygues.
Following our agreement to purchase
from Bouygues the 100 unit build to rent
development at London Road, Barking
in 2013, we will be working together
at another exciting build to rent project
at Pontoon Dock, East London where
we were selected by the London Mayor
to develop 211 new homes for rent.
38
Grainger plc / Annual Report and Accounts 2014 / Strategic report
HOW CR SUPPORTS OUR
BUSINESS STRATEGY
Corporate
responsibility
and our
business
strategy
Embedding our
values as our business
strategy evolves.
Andrew Cunningham
Chief executive
Chief executive’s statement
Last year, we defined the values that make
Grainger what it is today: a company
that thinks long term, constantly seeks
improvement, provides unparalleled
expertise, fosters mutual respect and
creates confidence in our people
and partners.
This year, we focused on embedding
these values so that they underpin
everything we do. Thanks to the significant
involvement of staff in their creation, our
values were not a surprise to anyone that
knows our Company and are now more
alive than ever.
The theme of ‘embedding’ is also
one that has been occurring in our
approach to CR during the last year.
For example, seven of our fourteen 2014
CR targets will become ‘business as usual’
practices going forward (see page 40).
A further seven targets will continue
into next year, as Grainger’s targets are
often long-term strategic initiatives.
I am pleased to report that overall we
achieved 71% of our targets for this year.
Significant achievements included:
Targets achieved in 2014
71%
We achieved GRESB ‘Green Star’
status for our GRIP Fund
After taking part in the Global Real Estate
Sustainability Benchmark (GRESB) survey for
several years, we have become a member
of GRESB as part of our commitment to
exercising leadership in our chosen areas
of activity. I am also pleased to report that
we have improved our performance for a
second year running and achieved
Green Star status for our GRIP Fund.
We won an EPRA Gold award for our public
reporting of sustainability data
Having decided to report against the
European Public Real Estate Association’s
(EPRA) best practice recommendations for
sustainability reporting in 2013, I am also
pleased to announce that this year we won
an EPRA Gold award for our corporate
sustainability reporting, in a challenging
year when only 40% of companies that
were assessed managed to improve
their score.
We have undertaken sector leading market
research into tenants’ needs
The private rented market is changing.
New demographics and rental patterns will
bring new challenges and expectations.
Grainger will have an increasing amount
of market rented properties and
understanding tenants’ needs is key
to providing the quality service we aim
to deliver.
Research has focused on needs,
communication methods and the definition
of robust tenant satisfaction metrics that
can be analysed and used to demonstrate
real improvements.
39
We have implemented a portfolio-wide
Property Conditions Assessment Programme
This ambitious programme of work is
being carried out to assess all of Grainger’s
properties against a wide range of criteria.
This will enable improvements to the
stock, including EPC upgrades and other
sustainability improvements, to be achieved
in the most cost effective manner possible.
In 2014, the assessments commenced, and
for next year the focus will be on using the
data gathered to plan future activity.
It has been interesting to witness
that of all our values, ‘long term’ is the
one which resonates the most with
our employees and our stakeholders,
particularly our long term partners such as:
Kier (our property maintenance partner),
the Royal Borough of Kensington & Chelsea
(our 125 year partner for private rented
homes), the Ministry of Defence (where
we are creating new communities in
Aldershot) and our investors such as APG.
Our role as an ‘enabler’ or ‘facilitator’ of
thriving communities is also one which
comes to the fore when thinking long
term. The growth of the market rent and
build to rent sector will lead to new forms
of communities that have not been seen
before in the UK, with different needs and
challenges to existing tenures.
CR remains a key part of our long
term approach and we intend to take
a step back and adopt an increasingly
future orientated approach within our
CR strategy and targets. In particular, as
our business strategy continues to evolve
towards meeting the demands of tenants
with choice and a greater emphasis on
operational income (as the market rent
sector grows), our CR strategy will adjust
to accommodate this. For instance, our
responsibilities to our customers and
to creating an exceptional customer
experience, and the sustainability of our
homes, will differentiate our product in an
increasingly competitive market.
Conclusion
Finally, CR continues to be a way in which
we demonstrate leadership, one of the
four objectives of our business strategy.
Whether through our participation and
continued high performance in awards
and benchmarks such as EPRA (see page
43) and GRESB (see page 42) or through
contributions to Government reviews and
initiatives, we remain comfortable with
being the leader within the residential
property market financially but also on
important issues like CR. It therefore gives
me great pride to share more details about
our achievements from the past year and
our plans for the long term in this report
and our CR report at: www.graingercr.com.
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Chief executive
20 November 2014
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DELIVERING VALUE THROUGH CORPORATE RESPONSIBILITY
Of all our values, ‘long term’ is the one
that resonates most with our employees
and our stakeholders.
C R s trategy:
s i n e s s strategy:
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HOW CR SUPPORTS OUR BUSINESS STRATEGY CONTINUED
WHAT WE HAVE ACHIEVED
THIS YEAR
PROGRESS AGAINST CR TARGETS IN 2014
2014 CR TARGET PROGRESS
Status
Achieved
Partially Achieved
Not Achieved
Key
Total
10
3
1
Grainger’s approach to CR targets is both
strategic and long term. Whereas specific
actions are defined for a year, many targets
are defined as longer strategic objectives
that span several years. In addition, many
produce outcomes that are embedded
into the business structure. In this way, the
targets set a framework for the assimilation
of new challenges in sustainability and
managing long term change.
We are happy to report that we have
achieved this year’s work in 10 of our 14
targets, and are committed to continuing
unfinished actions into next year. Only one
target was not achieved.
Seven of our targets will continue with
further work into next year, and seven will
become business as usual actions.
FUTURE TARGET ACTIONS
Status
Key
Total
Business as Usual
Continues in 2015
7
7
For full information on our current and
future targets, performance and strategy,
visit www.graingercr.com
2014
status
Future
status
CR targets commenced in 2014
Measure and improve tenant satisfaction in G:Invest and Walworth
portfolios between 2013 and 2014.
Define and improve the PRS tenant communication experience.
Implement the agreed Property Conditions Assessment Programme as
part of the repairs and maintenance activities in 2014 and use the results to
develop a standard process and schedule for sustainability improvements,
including, but not limited to, EPC ratings.
Implement Embedding Plan for Grainger's company values.
Create a joint multi-year strategy with Kier to implement Grainger and Kier's
aligned CR priorities in property maintenance.
Report on the GHG emissions generated by Kier in delivering services for
Grainger in 2014 and set a target to reduce footprint in 2015.
Integrate Grainger's EMS fully into our procurement processes.
Incorporate the reporting of Sustainability risks within the Group's risk
management framework.
Actively contribute to organisations that measure sustainability in real
estate to drive the residential perspective.
CR targets commenced in 2013
2014
status
Future
status
Continue improving Grainger's GRESB score year on year in 2013 and 2014.
Earn an EPRA sustainability award for 2013 report.
Report on global Scope 1 & 2 Greenhouse Gas (GHG) emissions in line with
the requirements of UK mandatory reporting regulation.
Improve Grainger's (UK & Germany) process and accuracy for measuring and
managing tenant satisfaction with a robust baseline to be used from 2014.
Identify and respond to current and future tenant needs through research
and tenant profiling for property and asset management.
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Community investment
Although our financial donations to
charities have fallen from a historic high in
2012 during our centenary celebrations,
the number of staff days contributed to
charitable causes and the number of staff
participating in volunteering both increased
in 2014. This is partly due to an all-staff
volunteering day held in Birmingham,
but also due to a concerted campaign to
embed our values in the business during
2014, highlighting Grainger’s history of
corporate responsibility and our ‘long term’
outlook, as well as our increasing role
as an ‘enabler’ of communities through
community activity.
Operational measures
Our properties
Average EPC energy efficiency rating
(% of properties)1
2014
2013 1-year trend
A-C 46% A–C 37%
D-E 43% D–E 47%
F-G 11% F–G 16%
Average Considerate Constructors Scheme (CCS) score2
Number of new homes built to the Code for Sustainable
Homes3
67%
CSH 3: 50
CSH 4: 22
79%
–
N/A
Supply chain
Customers rating contractors’ service at good or
above (%)4
Customers
Proportion of tenants rating Grainger’s management
service as good or above (%)5
77%
84%
77%
75%
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
£39,947
£51,597
57
62
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1 Based on all EPCs commissioned by Grainger since 2006 – UK only.
2 Grainger registers all major refurbishment and development sites – UK only.
3 In addition to new homes built to Code for Sustainable Homes, there were 4 offices built to BREEAM Very Good and
33 homes built to Eco Homes Very Good.
4 Existing market rented and regulated tenants – UK only. In 2014, this KPI was amended to report responses in
relation to services performed by Grainger’s repairs and maintenance contractor, Kier, based on a sample of
1,366 surveys.
5 Based on the percentage of respondents who said they were ‘very satisfied’ with the service provided by Grainger in
letting and exit surveys – 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.
PROGRESS AGAINST KEY
PERFORMANCE INDICATORS
IN 2014
Grainger maintains a record of a wide
range of non-financial key performance
indicators. Many of these relate to
embedding previous CR targets. A sample
of our operational measures are reported
below, and further information can be
found at www.graingercr.com.
Our properties
Our ongoing improvement in the Energy
Performance Certificate ratings of our
properties ensures both timely preparation
for the implementation of the Energy
Act in 2018, but also our focus on
continued improvement and efficiency in
our operations.
Grainger continues to expand its
activities in the build to rent sector. Last year
we completed a total of 105 homes, with
50 of these built to Code for Sustainable
Homes Level 3, 22 built to Level 4 and
the remainder to EcoHomes Very Good.
This represents a standard far in excess of
the industry norm. However, building to
Code also ensures a quality that is important
in future-proofing our stock.
All our sites are registered with
the Considerate Constructors Scheme.
This year our performance has reduced
from previous years as we have undertaken
a number of refurbishments and we are
reviewing how we can improve our average
score when undertaking these more
challenging types of project.
Supply Chain & Customers
Significant efforts have been spent in
2014 to better understand our customers’
expectations, particularly in a more
competitive rental market. This culminated
in the launch of our ‘Tomorrow’s Home’
research report and improvements such
as a new tenant handbook and move- in
checklist, which should continue the
upwards trend in tenant satisfaction with
our property management demonstrated
this year.
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HOW CR SUPPORTS OUR BUSINESS STRATEGY CONTINUED
WHAT WE HAVE ACHIEVED
THIS YEAR
Grainger CDP Results
Grainger has participated in the CDP
(formerly known as the Carbon Disclosure
Project) since 2006. In assessing a
company’s management of climate change,
the CDP focusses on associated risks
and opportunities.
This year, Grainger has embedded
sustainability risks into our corporate risk
management framework, thus ensuring
an integrated approach to management.
This is reflected in the improvement in our
Disclosure score in 2014.
Disclosure
Performance
2014
88
C
2013
78
C
Grainger’s commitment to long term
improvement in sustainability is reflected
in our performance in several corporate
sustainability benchmarks. Our continuous
improvement captures the results of
a wide array of initiatives across our
portfolios. Grainger actively contributes to
the development of these benchmarks to
ensure that the specific challenges of the
residential sector are properly reflected in
their analysis, and also to share Grainger’s
expertise in this area.
Grainger GRESB results
Our commitment to long term
improvement is reflected in achieving
Green Star status for our GRIP Fund and
three years of consistent improvement in
the performance of the overall Company.
GRESB takes a holistic approach to
analysing our corporate policies, portfolio
performance and construction activities
and captures a wide range of actions across
our operations.
Management & Policy
Implementation
& Performance
New Construction
2014
72
2013
76
48
64
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GOVERNMENT ECO SCHEME
Grainger has actively pursued a programme of building fabric
upgrades under the Government ECO scheme. To date, 337
properties have benefited from these works, including loft
insulation on 277 properties in the Walworth Estate, London and
boiler replacements in properties in Newcastle, York and
Liverpool.
We have also pioneered the use of smart meters on our GRIP
portfolio in partnership with the Smart Meter Delivery Body,
achieving 69.5% coverage of our sites, ahead of the
Government’s target for all properties to have smart meters
installed by 2020.
As well as improving the quality of our homes for our tenants and
helping to implement Government policy, these case studies also
helped to improve our score under GRESB, demonstrating the
link between practical improvements in sustainability and
investor benchmarks such as GRESB.
337
Properties
benefited
277
including loft insulation in
the Walworth Estate, London
CASE STUDY
As part of Grainger’s long term partnership with
Kier, Scope 3 Greenhouse Gas emissions data is being
collected and reported through the CDP and other
channels. Scope 3 emissions are those indirectly
related to our operations, such as from our customers
or in this case, our supply chain. Some companies are
not yet able to accurately report these emissions.
However, our approach to CR goes beyond our own
operations to ensure the resilience of our supply
chain. The engagement with Kier is one example of
this and means that we are accurately reporting
emissions from Kier’s depots, their vehicles used to
carry out repairs on Grainger properties and even
from Kier staff based in our own offices.
For 2015, a target to reduce these emissions will
be identified, which will further expand the accuracy
of our carbon reporting and also drive efficient
delivery of our repairs.
-%
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EPRA award
Grainger is delighted to have received an
EPRA Gold award for the quality of our
sustainability data reporting. This award
confirms our commitment to following
industry best practice and to making our
CR reporting as clear and transparent
as our reporting on all other aspects of
our performance.
Our performance was particularly
enhanced this year as we are able to report
two years of data and show improvement
over time. In addition, we have further
increased the scope of data collection by
including our German portfolio in our
sustainability reporting.
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two years of being included in the
assessment, and to be one of only 16
companies to win a Gold award among 86
that were assessed, is particularly satisfying
as a practical demonstration of two core
company values: ‘improve’ and ‘leadership’.”
Dave Butler, Director – strategy & change
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Grainger plc / Annual Report and Accounts 2014 / Strategic report
HOW CR SUPPORTS OUR BUSINESS STRATEGY CONTINUED
SUMMARY OF EPRA
SUSTAINABILITY
PERFORMANCE MEASURES
This table provides an overview
of the EPRA sustainability performance
measures that Grainger is able to report
on, and an explanation of where data
cannot be reported.
EPRA sustainability best practice recommendations compliance table
We have once again expanded our data
collection in 2014, this time to include our
German portfolio. The remaining data gaps
cannot presently be closed due to metering
arrangements, and therefore from 2015
Grainger will focus on analysing trend
data to identify opportunities to improve
our performance on an intensity basis.
Compliance self-assessment
EPRA sustainability performance measure
Property investment portfolio
Offices
Grainger commentary
Where measure is reported
German
assets
UK Residential
assets
GRIP
assets
Own office
occupation
Elec-Abs
Elec-LfL
DH&C-Abs
DH&C-LfL
Fuels-Abs
Total electricity consumption
Like-for-like total electricity consumption
Total district heating & cooling consumption
Like-for-like total district heating & cooling consumption
Total fuel consumption
Fuels-LfL
Like-for-like total fuel consumption
Energy-Int
Building energy intensity
GHG-Dir-Abs
Total direct greenhouse gas (GHG) emissions
GHG-Indir- Abs
Total indirect greenhouse gas (GHG) emissions
GHG-Dir-LfL
Like-for-like total direct greenhouse gas (GHG) emissions
GHG-Indir- LfL
Like-for-like total indirect greenhouse gas (GHG) emissions
GHG-Int
Greenhouse gas (GHG) intensity from building energy consumption
Water-Abs
Total water consumption
Water-LfL
Like-for-like total water consumption
Water-Int
Building water intensity
Waste-Abs
Total weight of waste by disposal route
Waste-LfL
Like-for-like total weight of waste by disposal route
Cert-Tot
Type and number of sustainably certified assets
Key
Fully reported
Partially reported
Not reported
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
This year we are able to report full coverage for all of our portfolios, including our German property investment portfolio.
This year we are able to report on like-for-like electricity consumption for our UK properties.
District heating & cooling is not applicable for our property investment portfolio or our offices.
This year we are able to report full coverage for all of our portfolios. Fuel consumption is not applicable in our offices
or our German property investment portfolio.
As above.
As above.
The intensity measure used for our property investment portfolio is kWh per £m value of assets under management.
The intensity measure used for our own occupied offices is kWh per employee.
Direct GHG emissions include emissions from fuel combustion from our property investment portfolio only.
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.
This year we are able to report full coverage for all of our portfolios. Fuel consumption is not applicable in our office or our
172 & 175
German property investment.
Indirect GHG emissions include Scope 2 GHG emissions from purchased electricity and Scope 3 GHG emissions from
172 & 175
transmission and distribution losses associated with purchased electricity.
Greenhouse gas intensity from building energy includes Scope 1 and 2 GHG emissions only. The intensity measure used for
172 & 174
our property investment portfolio is kg/CO2e per £m value of assets under management. The intensity metric used for our
own occupied offices is kg/CO2e per employee.
Not gathered for our own offices due to landlord metering arrangement. Not gathered for our German property
investment portfolio.
As above.
The intensity metric used for our 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 office
or property investment portfolio.
The GRIP Fund was created in January 2013 therefore there is not two full years of data to report.
Type and number of sustainably certified assets are reported in our Key Performance Indicators at www.graingercr.com
www.graingercr.com
Pages
171 & 173
171 & 175
N/A
N/A
171 & 173
171 & 175
171 & 173
172 & 173
172 & 173
174
175
174
176
176
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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
consumed by our tenants, as this is outside
our Scope 1 and 2 boundaries.
As this is the second year with data
coverage for our UK portfolio, we are
able to comment on trends in energy use
for the first time. We continue to report
on trend data relating to our office energy,
which has been significantly affected
this year through the consolidation of
our two London offices.
For our full EPRA sustainability best practice
recommendations reporting table, see
pages 170 to 177 and www.graingercr.com
EPRA sustainability performance measure
Property investment portfolio
Offices
Grainger commentary
Where measure is reported
This year we are able to report full coverage for all of our portfolios, including our German property investment portfolio.
This year we are able to report on like-for-like electricity consumption for our UK properties.
District heating & cooling is not applicable for our property investment portfolio or our offices.
As above.
This year we are able to report full coverage for all of our portfolios. Fuel consumption is not applicable in our offices
or our German property investment portfolio.
As above.
The intensity measure used for our property investment portfolio is kWh per £m value of assets under management.
The intensity measure used for our own occupied offices is kWh per employee.
Direct GHG emissions include emissions from fuel combustion from our property investment portfolio only.
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.
This year we are able to report full coverage for all of our portfolios. Fuel consumption is not applicable in our office or our
German property investment.
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.
Greenhouse gas intensity from building energy includes Scope 1 and 2 GHG emissions only. The intensity measure used for
our property investment portfolio is kg/CO2e per £m value of assets under management. The intensity metric used for our
own occupied offices is kg/CO2e per employee.
Not gathered for our own offices due to landlord metering arrangement. Not gathered for our German property
investment portfolio.
As above.
The intensity metric used for our 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 office
or property investment portfolio.
The GRIP Fund was created in January 2013 therefore there is not two full years of data to report.
Pages
171 & 173
171 & 175
N/A
N/A
171 & 173
171 & 175
171 & 173
172 & 173
172 & 173
172 & 175
172 & 175
172 & 174
174
175
174
176
176
Type and number of sustainably certified assets are reported in our Key Performance Indicators at www.graingercr.com
www.graingercr.com
EPRA sustainability best practice recommendations compliance table
Elec-Abs
Elec-LfL
DH&C-Abs
DH&C-LfL
Fuels-Abs
Total electricity consumption
Like-for-like total electricity consumption
Total district heating & cooling consumption
Like-for-like total district heating & cooling consumption
Total fuel consumption
Fuels-LfL
Like-for-like total fuel consumption
Energy-Int
Building energy intensity
GHG-Dir-Abs
Total direct greenhouse gas (GHG) emissions
GHG-Indir- Abs
Total indirect greenhouse gas (GHG) emissions
GHG-Dir-LfL
Like-for-like total direct greenhouse gas (GHG) emissions
GHG-Indir- LfL
Like-for-like total indirect greenhouse gas (GHG) emissions
GHG-Int
Greenhouse gas (GHG) intensity from building energy consumption
Water-Abs
Total water consumption
Water-LfL
Like-for-like total water consumption
Water-Int
Building water intensity
Waste-Abs
Total weight of waste by disposal route
Waste-LfL
Like-for-like total weight of waste by disposal route
Cert-Tot
Type and number of sustainably certified assets
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Compliance self-assessment
German
assets
UK Residential
assets
GRIP
assets
Own office
occupation
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
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Grainger plc / Annual Report and Accounts 2014 / Strategic report
GRAINGER PLC MANDATORY GREENHOUSE GAS EMISSIONS REPORTING
For 2014 we have expanded the scope
of data collection to include our G:Invest
portfolio, Walworth portfolio and our
German assets. The increase in our
Scope 1 and 2 emissions reflects this
increased scope.
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 CDP, energy
consumption data and emissions factors
from the UK Government’s Conversion
Factors for Company Reporting 2014.
We have reported on all emissions
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 emissions
sources that are not included in our
consolidated statement.
Scope 1 Data
This includes landlord-obtained gas
consumed in common areas and by tenants
on an unmetered basis as well as fuel
consumption in vehicles owned or leased
by Grainger plc.
Scope 2 Data
This includes landlord-obtained electricity
consumed in common areas and by
tenants on an unmetered basis as well as
electricity consumed by Grainger plc in its
own offices.
Scope 1 & 2 Global GHG emissions data for the financial year:
Emissions from
Combustion of fuels and operation of facilities
2014
1,650 tCO2e
2013
1,467 tCO2e
Trend1
Electricity, heat, steam and cooling for own use
1,546 tCO2e
956 tCO2e
Total footprint
3,196 tCO2e
2,423 tCO2e
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
1.01 per £m
value of AUM
0.16 per
owned unit
11.33 per
employee
0.98 per £m
value of AUM
0.18 per
owned unit
8.97 per
employee
Scope 3 Global GHG emissions data for the financial year:
Emissions from
Developments (contractor electricity and fuel use)
Repairs and maintenance (contractor fuel use)
Electricity transmission and distribution losses
2014
904 tCO2e
187 tCO2e
115 tCO2e
2013
239 tCO2e
–
81 tCO2e
Trend
N/A
Business travel (air and rail in the UK and Germany)
128 tCO2e
140 tCO2e
Estimated tenant energy use4
26,883 tCO2
29,551 tCO2
1 Note that for 2014, Grainger has expanded the scope of data collection meaning that Scope 1 and 2 emissions
figures are not strictly comparable to 2013.
2 This is the number of owned units on the last day of the financial year within the scope of data collection.
For 2013, this data excludes the German portfolio, but these are included in 2014.
3 Total number of employees in Grainger plc on the last day of the financial year, 30 September 2014.
4 This has been estimated based on sample of Energy Performance Certificates (EPCs) and reported in CO2 only.
Estimation
Missing periods of consumption for
properties has been estimated using
the daily or weekly average of known
consumption. Properties have been
excluded from the analysis where we have
not been able to record any consumption.
Grainger uses a database of more than
2,000 EPCs produced between 2006 and
2014 across the UK Residential and GRIP
portfolios to estimate tenant emissions.
The EPC carbon footprint is taken across a
representative sample of properties, and
this is multiplied out to produce an estimate
for the whole UK portfolio.
Limitations to data collection
We have not reported on emissions relating
to small-scale refurbishment as they are
not considered material. Emissions related
to water consumption, waste treatment
and disposal and staff commuting are also
not included.
Intensity metrics
We have used three intensity metrics: the
market value of assets under management,
the number of units owned and the
number of employees in line with our
financial reporting.
47
ADVISER’S STATEMENT
Grainger has engaged Upstream
Sustainability Services, a division of JLL,
as advisers on its corporate responsibility
strategy and implementation since 2005.
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.
JLL’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 CR content of Grainger plc’s 2014
Annual report and accounts.
Summary of target performance
Most of Grainger’s targets are set as
multi-year strategic objectives, but each
have specific actions to achieve within a
reporting year. Grainger has achieved 10 of
its 14 targets in 2014, and a further three
were partially achieved. One target, relating
to tenant satisfaction in the German
portfolio, was not achieved owing to a
change in property manager and this has
been deferred to next year.
Observations and recommendations
Grainger has made significant progress this
year in reporting on the CR performance of
its German portfolio, particularly in relation
to closing gaps in its carbon emissions
data. The new approach developed to
improve the customer’s experience in
Grainger’s UK portfolio should also be
expanded into its German portfolio during
the next reporting year to ensure the two
portfolios are aligned in their approach to
CR issues. This expansion should include
the measurement of tenant satisfaction in a
consistent way.
Grainger and Kier have begun their long-
term partnership with some excellent
examples of collaboration around CR,
such as a community fund (for residents to
access funding for community projects) and
window box scheme (funding for residents
to plant window boxes on their balconies)
pilots. However, operational factors, such
as insurance and risk issues, still need to
be resolved before these pilots can be fully
rolled out. The development of a wider
strategy over the next two years will help
to ensure that future collaboration is as
effective as possible and aligned with each
company’s CR priorities.
Grainger has ensured that its suppliers
take into consideration environmental
requirements when delivering services to
Grainger. Now that these requirements
have been established within agreed
contracts, we recommend that
consideration is given as to how compliance
with these requirements can be assessed,
reported and factored into future
procurement decisions.
Grainger has clearly demonstrated its
commitment to ‘leadership’ within the
residential sector through achieving GRESB
Green Star status for its GRIP Fund and
an EPRA Gold award for the reporting of
its sustainability data. Looking forward,
now that the Company has cemented
its position as a leader in CR under these
benchmarks, consideration should be
given as to how other leaders report
on CR issues, for example by using the
Global Reporting Initiative’s G4 standard
or the International Integrated Reporting
Council’s Integrated Reporting standard.
Such an exercise may also give rise to the
question as to whether Grainger continues
to use the term ‘corporate responsibility’ or
‘CR’, or instead moves towards using the
broader term of ‘sustainability’ in line with
many of its fellow leaders.
Philip Hirst
Associate director
Upstream Sustainability Services
JLL
20 November 2014
Strategic Report Approval
The Strategic Report on pages 2 to 47 has
been approved by the Board of Directors
and signed on their behalf by
Adam McGhin
Company Secretary
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Grainger plc / Annual Report and Accounts 2014 / Governance
CORPORATE GOVERNANCE
What does
Corporate
Governance mean
to Grainger?
The Board of the Company is
committed to providing effective
leadership and promoting the
highest standards. At our core,
the relationship we have with
our many thousands of tenants
is the foundation on which our
reputation depends.
Robin Broadhurst
Non-executive chairman
Chairman’s introduction
The continuing development of existing
systems and controls balanced with
the grant of appropriate discretion
to our staff is the key to successfully
establishing the accountability and
responsibility of the whole Grainger team.
Excellent communications, together with a
team approach promoting a culture of self-
discipline, is infinitely superior to the issuing
and receiving of orders.
Within this context, the Board’s job
is to exercise judgement in all matters
of leadership, governance and risk to
create confidence within the Company
and ensure that its reputation for its
commercial, profit driven approach
with integrity is understood by all the
Company’s stakeholders.
From my perspective as chairman of
Grainger, good governance means having
a diverse, strong and robust Board that
constructively challenges the executive
directors, but is supportive in helping
them implement the agreed strategy of
the Company.
The culture of the Board is based on
mutual respect for each of its members and
promotes a free flowing dialogue, with me,
as chairman, encouraging participation by
every member. It needs to be purposeful
but sufficiently relaxed to be conducive to
making good decisions with a consensus.
I find that the best test of success is that
when each meeting is concluded every
participant feels that the process was
not long winded and adequate time was
spent on the key areas for debate resulting
in unanimous agreement. In addition
to our usual Board meetings, the Board
met in May 2014 for a strategy discussion
facilitated by an external independent
adviser. The proposed strategy was
developed further in June 2014 with the
involvement of approximately 40 members
of Grainger’s senior management team.
This process provided useful feedback
in helping develop the Company’s five
year strategy and the budget for the
forthcoming financial year.
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Details of the agreed strategy are set out
within the Strategic Report on pages 2
to 47.
I will be stepping down as chairman
and as a director at the Company’s AGM
in February 2015 when John Barnsley, who
has been a huge asset to the Board over
the last twelve years will also be stepping
down. In order to retain stability and to
ensure ongoing continuity during this
transition, various changes to the Board
Committees were made to smooth this
process. Both myself and John Barnsley
stepped down from the Nominations
Committee in February 2014 and were
replaced by Belinda Richards and Tony
Wray with Baroness Margaret Ford
replacing myself as chairman of the
committee. At the same time Margaret
also replaced John Barnsley as senior
independent director and she has led the
full external process to find directors to
replace John and myself. Ian Coull joined
the Board on 23 September 2014 as a
non-executive director and subject to his
re-election as a director at the AGM in
February 2015 will take over from me as
chairman at the conclusion of that meeting.
Andrew Carr-Locke will be joining the
Board in February 2015.
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 2014.
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
beyond nine years will prejudice their
independence. John Barnsley has served
on the Board since February 2003.
The Board and myself believe that John
Barnsley has always exercised 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 of considerable benefit
to the Company through a period of
significant change in both the executive
and non-executive directors and has
provided an important knowledge link with
the past and an in-depth understanding
of the Company that 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 50 and 51.
In accordance with the UK Corporate
Governance Code, all the directors, with
the exception of myself and John Barnsley
who are retiring from the Board, will stand
for re-election at the AGM.
Diversity
Grainger believes that a diverse culture
is a key factor in driving its success, and
supports the Davies Report’s aspiration to
promote greater female representation on
listed company boards.
49
As at 30 September 2014, 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
This year, an independent evaluation of
the Grainger Board was carried out by
Advanced Boardroom Excellence following
on from the internal assessments, led by
myself, undertaken in 2012 and 2013.
The report indicated that the Board came
out well in overall effectiveness with
particular strengths in challenge and
debate, Board committees and quality
of Board discussions. Areas for potential
development were board information, the
decision making process and succession
and development plans. Further details are
available on pages 54 and 55.
Shareholder engagement
The Board regards it as important
to maintain an active dialogue with
our shareholders.
Andrew Cunningham, the chief
executive, and Mark Greenwood, the
finance director, had regular meetings with
the company’s shareholders and analysts
while myself and Baroness Margaret
Ford met with the corporate governance
representatives of our major shareholders in
advance of the Annual General Meeting in
February 2014.
Further details regarding our
engagement with our shareholders are set
out on page 56
Robin Broadhurst
Non-executive chairman
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Grainger plc / Annual Report and Accounts 2014 / Governance
THE GRAINGER BOARD
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
Andrew Cunningham
FCA, FRICS
NON-EXECUTIVE CHAIRMAN AGED 68
CHIEF EXECUTIVE AGED 58
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
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
Baroness Margaret Ford
NON-EXECUTIVE DIRECTOR AGED 66
NON-EXECUTIVE DIRECTOR AGED 56
Appointment
Appointed to the Board in 2003 and was senior
independent director from February 2011 to
February 2014.
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
Member of Audit Committee
Member of Risk Committee
Appointment
Appointed to the Board in 2008 and became
senior independent director in February 2014.
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
Senior Independent Director
Chairman of Remuneration Committee
Chairman of Nominations Committee
Member of Audit Committee
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Mark Greenwood
FCMA
Nick Jopling
FRICS
Ian Coull
FINANCE DIRECTOR AGED 55
EXECUTIVE DIRECTOR AGED 53
NON-EXECUTIVE DIRECTOR AGED 64
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 that reviewed
the Barriers to Institutional Investment in
Private Rented Homes.
Committee membership
Member of Risk Committee
Committee membership
None
Appointment
Appointed to the Board in September 2014.
Experience
Ian was chairman of Galliford Try plc from 2011
until October 2014. He was Chief Executive
of SEGRO plc from 2003 to 2011 and prior to
this, a main Board director of J Sainsbury plc.
He was a non-executive director of Pendragon
plc from December 2010 to January 2013. He is
currently a non-executive director of London
Scottish International Ltd , a senior adviser to
Oaktree Capital Management and Stonehaven
Search, a member of The Duchy of Lancaster
Council and of the Government’s Property
Advisory Panel.
Committee membership
None
Belinda Richards
Tony Wray
Simon Davies
NON-EXECUTIVE DIRECTOR AGED 56
NON-EXECUTIVE DIRECTOR AGED 53
NON-EXECUTIVE DIRECTOR AGED 55
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 Friends Life Group plc and Balfour Beatty Plc.
Committee membership
Chairman of Audit Committee
Member of Risk Committee
Member of Nominations Committee
Experience
Tony was the chief executive of FTSE 100 water
company Severn Trent plc from 2007 to 2014,
having joined its board in 2005. He has also
held director roles within Transco and National
Grid Transco.
Committee membership
Chairman of Risk Committee
Member of Audit Committee
Member of Nominations 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 Sound
Oil plc and is also a director of Old Mutual
Wealth Management Limited and LCHClearnet
Group Limited.
Committee membership
Member of Risk Committee
Member of Remuneration Committee
52
Grainger plc / Annual Report and Accounts 2014 / Governance
CORPORATE GOVERNANCE CONTINUED
LEADERSHIP
The Board
The Board is responsible to the Company’s
shareholders for the long-term success
of the Group, its strategy, values and
its governance.
The role of the Board
The Board provides leadership of the
Group and, either directly or through the
operation of committees of directors and
delegated authority, applies independent
judgement on matters of strategy,
performance, resources (including key
appointments) and standards of behaviour.
The Board sets the Group’s strategic
objectives and approves and monitors
business plans and budgets submitted
by the executive directors and senior
management. The written statement of
matters reserved to the Board is reviewed
and approved annually by the Board and
a copy is available on the group’s website
www.graingerplc.co.uk or from the
company secretary on request.
The executive directors
Oversee the day-to-day running of the
business, ensuring strategic coordination
and alignment.
The Project Portfolio Board
Monitors and coordinates projects
across Grainger.
The Operating Board
Ensures that Grainger’s central support
functions and general operations are fit-
for-purpose and, where relevant, able to
provide Grainger with a potential source of
competitive advantage.
The Business Development Board
Supports the executive directors in
setting the overall strategic direction of
the business and in identifying strategic
business development opportunities.
GOVERNANCE FRAMEWORK
30 September 2014
Chairman
Board: non-executive chairman, three executive directors and six non-executive directors
Nominations
Committee
Audit
Committee
Chief
executive
Remuneration
Committee
Board Risk and
Compliance Committee
Executive
directors
Project Portfolio
Board
Operating Board
Business
Development
Board
Divisional Boards:
Retirement Solutions
UK Residential
Development
Fund Management
Germany
LENGTH OF TENURE OF DIRECTORS
1998
1999
2000
2001
2002 2003 2004
2005
2006 2007 2008 2009 2010
2011 2012 2013 2014
AGM
Feb
2015
Robin
Broadhurst
Andrew
Cunningham
Nick
Jopling
Mark
Greenwood
John
Barnsley
Baroness
Margaret Ford
Belinda
Richards
Tony
Wray
Simon
Davies
Ian
Coull
Key:
3 years
5 years
7 years
8 years
6 years
5 years
5 years
12 years
7 years
4 years
3 years
2 years
1
Chairman
CEO
Deputy CEO
Executive directors
Non-executive directors
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53
is available 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 2013 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.
EFFECTIVENESS
Meetings
There were six meetings of the Board in
the year. The Board has a list of matters
reserved to it and a rolling annual plan of
items for discussion, agreed between the
chairman and the chief executive. The list
of reserved matters and annual plan are
reviewed regularly to ensure all matters
reserved to the Board, as well as other key
issues, are discussed at the appropriate
time. At each board meeting the chief
executive provided a review of the business
setting out how it was performing and
details of strategic issues arising. In the year
the range of subjects discussed included:
– Strategy;
The directors
As at the date of this report the directors of the Company are:
Chairman
– Robin Broadhurst
Executive directors
– Andrew Cunningham
– Mark Greenwood
– Nick Jopling
Non-executive directors
– Baroness Margaret Ford (senior independent director)
– John Barnsley
– Belinda Richards
– Tony Wray
– Simon Davies
– Ian Coull
Ian Coull was appointed to the Board on 23 September 2014.
Peter Couch retired from the Board on 31 January 2014.
Balance of directors
1. Male
2. Female
8
2
1
2
3
3. Chairman
4. Executive directors
5. Non-executives
4
2
1
5
1
3
6
30 September 2014
3
4
5
each of the divisional boards to review all
operational issues.
Non-executive directors
The non-executive directors are responsible
for bringing independent and objective
judgement and scrutiny to all matters
before the Board and its committees,
using their substantial and wide ranging
experience. The key responsibilities of
non-executive directors are set out in
their letters of appointment and include
requirements to:
– Challenge and contribute to the
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, both of whom report directly
to him, and, together with the executive
directors, holds monthly meetings with
development of the Company’s strategy;
– Performance of business divisions;
– 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
– The Group’s debt and capital structure
and hedging/swaps policy;
– The Group’s financial results;
– Dividend policy;
– Regulatory and governance issues; and
– The development of the Group’s people.
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CORPORATE GOVERNANCE CONTINUED
Three of the meetings were preceded, the
evening before, by an informal meeting
allowing more time to debate issues
in depth. One meeting preceded the
Company’s strategy conference attended
by members of the senior management
team. Two of the Board meetings were held
at the Company’s head office in Newcastle
upon Tyne, three in the Company’s London
office and one at its Wellesley development
in Aldershot. During the course of these
meetings, the directors have heard
presentations from divisional directors on
the following matters:
– Talent development
– Strategic land
– Future of regulated tenancies
– Future of home reversions
– PRS – strategic objectives
Attendance table
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
Meetings
attended
6
1
6
6
Meetings
eligible
to attend
6
1
6
6
Meetings
attended
6
6
5
6
6
5
Meetings
eligible
to attend
6
6
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 from
the chief executive throughout the year
and occasional ad hoc papers on matters
of particular relevance or importance.
The Board also received presentations from
various business units.
of the senior management team in the
Newcastle, London and Frankfurt offices.
He was also shown some of the Company’s
properties near each of these offices.
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.
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.
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 that has not been disclosed to the
board in accordance with the Company’s
articles of association.
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.
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.
Ian Coull was appointed in the year
and received a comprehensive, tailored
induction to the company. This involved
meeting with the company secretary to
go through the Board Handbook which
includes sections on directors duties,
corporate governance, Company policies
and the use of the Companys electronic
Board portal. He also received briefings
from the chief executive regarding
Grainger’s business operations as well as
having individual sessions with members
Performance evaluation
The 2014 review was undertaken by
Advanced Boardroom Excellence (‘ABE’)
an independent firm of consultants who
specialises in Board performance and
corporate governance and which was
appointed to undertake a thorough
independent review of the Board and its
committees. The process involved a review
of information provided to the Board
and committees followed by confidential
interviews with the directors and the
company secretary, and observation of
a Board meeting and meetings of the
Remuneration, Audit, Risk and Nominations
committees. The key findings and action
points arising from ABE’s report are
as follows:
55
Debate
Board Information and
Decision Making
Succession and
Development Plans
Board Committees
Culture and Relationships
Findings
– The level of challenge
– NEDs were
comfortable that
nothing was being
hidden and that they
would be given any
information they
asked for.
– The chairman was
praised for his role
in ensuring that
everyone had the
opportunity to have
their say.
was good.
– There was
emphatically felt
to be no danger of
‘groupthink’, given
the collection of
strong personalities.
– There is an air of
robust challenge at
the Grainger Board
and the majority
of directors were
very positive about
the quality of
Board discussions.
– The Board needs to
explore options for
providing additional
external stimulus to
the strategy debate.
– Board succession
has been and
continues to be a
high priority activity.
– Board succession
planning is well
considered with
good briefings and
sounding out of
major shareholders.
– The induction
of directors
is reasonably
effective, but needs
to be formally
documented and
more structured.
– The committees were
working effectively.
– Committee
structures are
revisited annually
by the chairman
and company
secretary to review
the effectiveness
and composition of
the committees.
– Board members
engage in committee
business and
draw on their
skills, experience,
knowledge and,
where appropriate,
independence.
– Directors expressed
a high degree of
confidence in standards
of integrity and
professionalism, led
by the chairman and
chief executive.
– There was felt to be a
strong sense of ‘The
Grainger Way’, praising
the Company culture.
– The Grainger Board
currently has good
skills, experience and
knowledge within its
NED population and
NEDs are able to provide
the appropriate level
of challenge to the
executive team.
– The chief executive
encouraged NEDs to
have access to the wider
executive team.
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points
– Chairman and CEO
to consider having
more presentations
from external
professionals.
– Adopt a consistent,
focussed and
succinct approach
to format of
board information.
– Review the decision
making process to
establish a more
structured approach.
– Formally document
the existing director
induction process.
– Seek ways to
continue to build
upon the current
exemplary work of
the Committees.
The Board and its committees will monitor progress and continue their critical review of its effectiveness during the year ahead.
In accordance with the prevailing provisions of the Code, it is the current intention of the Board that external facilitation of the Board
evaluation will be carried out every three years.
Re-election of directors
Notwithstanding that the Company’s
articles of association require the directors
to offer themselves for re-election at least
once every three years, in accordance with
the recommendations of the Code all of
the directors, with the exception of Robin
Broadhurst and John Barnsley who are
retiring from the Board, will be offering
themselves for re-election at the AGM in
February 2015. 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 and up to
the date of approval of the Annual report
and accounts. The process is designed to
enable the Board to be confident that such
risks are mitigated, or controlled as far as
possible. It should be noted however, that
no system can eliminate the risk of failure to
achieve business objectives entirely and can
only provide reasonable and not absolute
assurance against material misstatement or
loss. The Risk and Compliance Committee
is delegated the task of reviewing all
identified risks, with the ultimate key risks
retained for full board review. The Audit
Committee reports to the Board at every
Board meeting. Risks and controls are
reviewed to ensure effective management
of appropriate strategic, financial,
operational and compliance issues.
The Audit Committee also reviews the
half year and full year financial statements,
which includes the results of our associate
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CORPORATE GOVERNANCE CONTINUED
and joint ventures, which are subject to the
same internal controls as within the Group.
In addition, the Group has an internal audit
function that 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 that
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 more than
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 strong growth
in values in the UK property portfolios,
Grainger’s view on the likely future growth
in UK HPI and the growing importance
of the PRS and the role that Grainger
can play in it. Feedback is always sought
following such meetings and this feedback
is presented to the Board.
The chairman, company secretary,
and Baroness Ford, the chairman of the
Schroder Investment Management Ltd
with voting rights
without voting rights
BlackRock Investment Management Ltd
Henderson Global Investors
Aberforth Partners
State Street Global Advisers Ltd
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
directors’ 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 2015
and to be available to answer questions.
All shareholders have the opportunity to
attend the AGM, which continues as a
route for communication with smaller and
private shareholders.
The notice of meeting and Annual
report and accounts are sent out at least
20 working days before the meeting.
Separate votes are held for each proposed
resolution, including the approval of
the Remuneration Committee report,
and a proxy count is given in each
case after the voting on a show of
hands. Grainger includes, as standard,
a ‘vote withheld’ category, in line with
best practice.
Shareholders are also able to lodge
their votes through the CREST system.
Substantial shareholdings
As at 30 September 2014 and 31 October
2014 (being the latest practicable date prior
to the date of this report), the Company is
aware of the following interests amounting
to 3% or more in the Company’s shares:
30 September 2014
31 October 2014
Holding
million
Holding
%
Holding
million
Holding
%
73.7
12.9
27.7
14.9
13.0
12.9
17.6
3.1
6.6
3.6
3.1
3.1
71.2
13.6
31.8
14.9
13.0
13.1
17.1
3.2
7.6
3.6
3.1
3.1
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The Audit Committee
currently comprises
four independent
non-executive directors.
Belinda Richards
Committee chairman
57
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
4
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.
Committee meetings
The Committee met four times during
the year. The meetings were attended by
the Committee members, the company
secretary 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 the Group’s
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.
– To oversee the whistleblowing provisions
of the group and to ensure they are
operating effectively.
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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 2014.
– Reviewed and agreed the external
auditors’ audit strategy memorandum in
advance of their audit for the year ending
30 September 2014.
– Discussed the report received from the
external auditors regarding their audit in
respect of the year ending 30 September
2014, 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 itself that this met
FCA rules and good standards of
corporate governance.
– Reviewed and agreed the forward
internal audit plans and monitored
the progress against those plans at
each meeting.
– Formalised and agreed the scope, delivery
and implementation of the Group wide
assurance framework.
– Received reports from internal audit
covering various aspects of the Group’s
operations, controls and processes in
both the UK and Germany.
– Reviewed and approved the register of
non-audit assignments undertaken by
the external auditors in the year ending
30 September 2014.
– Organised the audit tender process (see
section below).
– Reviewed the Audit Committee’s terms
of reference.
– Financial statements: 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.
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
the external valuers 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 by overstatement 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.
– Considered the accounting treatment
of substantial transactions including
any judgemental areas. This included
the sale of the home reversion portfolio
to Clifden Holdings Limited in January
2014, and the recoverability of any
outstanding consideration.
External audit
The Group’s current 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.
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Audit tender process
During the year, the Audit Committee
determined to undertake a competitive
tender process. Ten firms were considered,
including PricewaterhouseCoopers LLP, our
incumbent auditors, that were assessed
against predetermined criteria agreed by
the Audit Committee. Having assessed
these firms a short list of three firms was
selected. Whilst PricewaterhouseCoopers
LLP declined to join the tender process
there were no reasons that needed to be
brought to the attention of shareholders.
All three firms met the chief executive,
the chairman of the Audit Committee,
the executive directors and key senior
managers within the business and were
given access to an electronic data room
with all relevant company information.
The three firms then made
presentations to the Audit Committee
panel, which presentations were scored
against pre-set parameters. At the
conclusion of this process it was agreed
that KPMG LLP were the panel’s preferred
choice and that the committee would
recommend to the main Board that KPMG
LLP be appointed as the Company’s
auditor for the year ending 30 September
2015. The Board subsequently ratified
this recommendation. The appointment
of KPMG LLP will be recommended to
shareholders for approval at the 2015
Annual General Meeting.
Internal Audit
Internal Audit undertake audits across
Grainger using a risk based methodology
and in accordance with the changing risk
profile of the Company. Individual audits
are supported as appropriate by specialist
skills and subject matter expertise. Audits
are identified during an annual audit
planning cycle, which is informed by the
results of current and previous audit testing,
the Company’s strategy and performance,
the risk management process and the plans
of other assurance providers.
Additional audits are identified during
the year in response to changing priorities
and requirements.
All Internal Audit findings are
graded, appropriate remedial actions,
responsibilities and timescales are agreed
with management, and progress monitored
and reported.
Internal Audit’s plans and resources
are considered and monitored by the Audit
Committee, together with all internal
control findings and remedial actions.
Internal Audit have a direct reporting line
to the Chair of the Audit Committee. The
effectiveness of internal audit is assessed
by review of their reports, meetings
with the Head of Internal Audit without
management being present and holding
separate meetings with the finance director
to assess his views on their effectiveness.
– 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,
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.
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
During the year, £76,000 was paid by the
group to PricewaterhouseCoopers LLP for
taxation services. A further £74,000 was
paid for other services, which was made up
of payments relating to comfort letters on
the prospectus to be issued relating to the
bond issuance on the Irish Stock Exchange,
as well as work over the systems migration.
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Nominations
Committee
report
The Nominations
Committee currently
comprises
three independent
non-executive directors.
Baroness Margaret Ford
Committee chairman
ATTENDANCE TABLE
Committee member
Baroness Margaret Ford
(Committee chairman)
Robin Broadhurst
John Barnsley
Belinda Richards
Tony Wray
Member
since
February 20021
February 20051
February 20112
February 2014
February 2014
Meetings
attended
Meetings eligible
to attend
3
1
1
2
2
3
1
1
2
2
1 Baroness Margaret Ford became chairman of the Committee in February 2014 when Robin Broadhurst retired
from the Committee.
2 John Barnsley retired from the Committee in February 2014.
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 chairmen regarding
membership of the Audit, Remuneration
and Risk and Compliance committees.
Main activities of the committee
during the year
The Committee met formally three times
during the year to 30 September 2014.
Board composition and membership of Board
Committees
– 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 its review in November 2013
it was agreed that, with effect from the
AGM in February 2014, Robin Broadhurst
and John Barnsley would stand down
from the Nominations Committee and
be replaced by Belinda Richards and Tony
Wray. Baroness Margaret Ford would
succeed Robin Broadhurst as the chairman
of the committee. After reviewing the
membership of the Audit, Risk and
Remuneration Committees and noting that
they were all working well it was agreed
that the memberships of those committees
should remain unchanged.
Senior independent director
Having considered the composition of
the Board and its committees and after
consultation with major shareholders, it
was agreed that Baroness Margaret Ford
should replace John Barnsley as senior
independent director after the AGM in
February 2014 which would allow her
to lead the process to appoint the non
executive directors to replace Robin
Broadhurst and John Barnsley who were
scheduled to retire from the Board after the
AGM in February 2015.
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Non-Executive Director
– As John Barnsley will be retiring from
the Board in February 2015 Zygos were
also commissioned to search for a non-
executive director to join the Board in
February 2015.
– The Committee indicated that the
candidate brief was for someone
with strong recent and relevant
financial experience.
– A shortlist of four candidates was agreed
from the initial long list of potential
candidates identified by Zygos.
– Having interviewed all short listed
candidates the Committee then met
formally to discuss the candidates. The
unanimous recommendation of the
committee to the Board following this
meeting was that Andrew Carr-Locke be
appointed as a non-executive director
from February 2015.
Appointments to the Board
Chairman
– The Nominations Committee oversaw
the selection process of Ian Coull as
chairman with effect from the AGM in
February 2015 and his appointment as a
non-executive director with effect from
September 2014.
– The Zygos Partnership were appointed
as advisers to the Committee and were
asked to compile a long list of potential
candidates. Zygos have worked previously
with the Board on other non-executive
and executive appointments and
do not provide any other services to
the Company.
– The Committee determined that the
candidate brief was for a successful
business leader in the property or related
sector, with main Board experience and
strong credentials in strategy and driving
business growth.
– A shortlist of three candidates was
agreed by the Committee, all of whom
were then interviewed by the Committee
chairman and each member of the
committee. The chief executive was also
involved in the interview process and the
HR director attended all of the interviews.
– The Committee then met formally to
discuss the candidates. The unanimous
recommendation of the Committee to
the Board following this meeting was
that Ian Coull be appointed as a non-
executive director from September 2014.
After the AGM in February 2015 Ian Coull
will take over as chairman of the Board
when Robin Broadhurst retires and will
replace Margaret Ford as chairman of
Nominations Committee.
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Remuneration
Committee
report
ATTENDANCE TABLE
Committee member
Baroness Margaret Ford
(Committee chairman)
Robin Broadhurst
Simon Davies
Member
since
January 2010
February 2013
February 2013
Meetings
attended
Meetings eligible
to attend
4
4
4
4
4
4
The Remuneration
Committee currently
comprises three
independent
non-executive directors.
Baroness Margaret Ford
Committee chairman
year, in light of developments in best
practice, the Committee intends to review
the appropriateness of including these
provisions in a manner that is appropriately
tailored to Grainger’s business.
Bonus
While the maximum bonus potential is
capped at 150% of salary for the chief
executive and 125% of salary for the
other executive directors the Committee
would like to stress that it would only
be in exceptional circumstances that the
bonus payments would be geared to this
maximum level. In 2014, as was the case
in the previous three years, the bonus
performance assessments were linked to
120% of salary for the chief executive and
100% for the other executive directors.
The final bonus payable for 2014 included
67.7% (2013:66.2%) of the OPBVM
element and 100% (2013:100%) of
the ROSE element. The annual bonus
arrangements do not currently include the
ability to recover sums paid or the facility to
withhold the payment of any sums due to
be paid (e.g. as a result of a misstatement
of the Company’s audited financial results).
As noted above in relation to the LTIS,
during the course of the current financial
year the Committee intends to review
the appropriateness of including these
provisions in a manner that is appropriately
tailored to Grainger’s business.
Dear Shareholder
The Remuneration Committee met four
times during the year and has operated
the remuneration policy exactly in line with
the policy approved by shareholders at
the AGM in February 2014. Consequently,
there are no changes to report to our policy
and the Board is satisfied that all of our
arrangements are operating in a way that
reflects the performance of the Company
and are designed to reflect the long term
success of the Company.
LTIS
In November 2013, 100% of the LTIS
awards that had been granted in 2010
vested, which reflected the strong
performance of the Company since
the awards were granted with Total
Shareholder Return showing an annual
compound increase of 21% and NNNAV
increasing by 39% against the 4% increase
in the Halifax and Nationwide Home Price
Indices. Prior to the vesting of these awards,
LTIS awards had only vested twice in the
last nine years as follows:
Date of
vesting
December
2011
January
2006
Date of
grant
December
2008
January
2003
Percentage
vesting
16%
66%
The LTIS does not currently include the
ability to recover sums paid following a
vesting event or the facility to withhold
the payment of any sums due to be paid
(e.g. as a result of a misstatement of the
Company’s audited financial results).
During the course of the current financial
63
Salary
The base salaries of the executive directors
were increased by 2.5% with effect from
1 January 2014 in line with the standard
increase that applied to all staff. Prior to this
increase, Andrew Cunningham’s base salary
had remained unchanged since October
2009 and the salaries for Nick Jopling and
Mark Greenwood had not changed since
they joined the Board in 2010.
Payments for Loss of Office
Peter Couch left the company on
31 January 2014. On the cessation of his
employment, as a good leaver, he was
entitled to receive the value of his salary
and contractual benefits, including pension
payments, which would have accrued
to him during his twelve months’ notice
period. These payments are being made
to him on a monthly basis and may be
mitigated in line with the remuneration
policy. No bonus was paid to him in
respect of the 2014 financial year. He also
received a severance payment calculated in
accordance with the Company’s standard
policy that is applicable to all staff. In the
event that any of the Long Term Incentive
Scheme (‘LTIS’) share awards that were
outstanding as at 30 September 2013 vest
the number of shares that he would receive
will be pro rated to the date of cessation of
employment in accordance with the rules
of the LTIS, which have been approved
by shareholders. All of the conditional
share awards granted to him under the
LTIS on 9 December 2013 lapsed in full
on the cessation of his employment with
the Company.
Remuneration policy in summary
Grainger’s remuneration policy is designed
to attract, motivate and retain high calibre
individuals to enable the Group to operate
in the interests of the long term success
of the Company and to reward significant
outperformance of expectations. It aligns
the director’s interests with those of
shareholders through the use of share
based incentives and by encouraging
directors to maintain a reasonable
shareholding in the group.
The annual bonus plan and the
Long Term Incentive Scheme (‘LTIS’) link
remuneration to the short-term and
long-term Key Performance Indicators
and Operational Measures in the
following manner:
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Chairman of Remuneration Committee
Strategy
Remuneration
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Objective
Grainger =
RETURNS
Locate and manage our assets
to deliver the best risk adjusted returns
Key Performance Indicator or
Operational Measure
OPBVM
ROSE
ROCE
NNNAV/UK HPI
Measure
Profit (OPBVM v Budget)
ROSE
3 yr Growth in Total Shareholder
Return (TSR)
NNNAV (growth relative to HPI,
as measured by Nationwide and
Halifax)
Weighting
(Annual Bonus)
37.5%
37.5%
Weighting
(LTIS)
50%
50%
Grainger =
LEADERSHIP
Maintain our leading position in the
residential property market
Grainger =
BALANCE
Balance our sources of income
through exploiting changing market
opportunities and continue to focus
on the sales / rents / fees proposition
Grainger =
OPTIMISATION
Maintain an appropriate Capital
Structure and optimise financial
and operational gearing to match
market conditions
– Breadth of skills
– Peer recognition
as experts
– Ability to create new
business opportunities
Balance targets
– Rents and fees
– Gross management fees
LTV targets
– Cash flow targets
– Efficient cost structure
Specific measures reflected
in executive directors’ annual
performance agreements that
would typically embrace the
following measures:
– Group LTV
– Efficiency targets
– Average cost of debt
– Balance of income
– Corporate responsibility targets
25%
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Grainger plc / Annual Report and Accounts 2014 / Governance
REMUNERATION COMMITTEE REPORT CONTINUED
ANNUAL REPORT ON REMUNERATION
Single total figure of remuneration for each director.
The details set out on pages 64 to 67 of this report have been audited by PricewaterhouseCoopers LLP.
2014
Chairman and executive directors
Robin Broadhurst
Andrew Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
Non-executive directors
John Barnsley
Baroness Margaret Ford
Belinda Richards
Tony Wray
Simon Davies
Ian Coull
Total
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
a
Salary &
fees
£’000
Taxable
benefits
£’000
b
Share
incentive
plan
£’000
c
Bonus
Annual1
£’000
Legacy
£’000
DBP2
£’000
d
e
LTIS
awards
vesting3
£’000
Pension
costs
£’000
140
428
89
265
331
1,253
45
55
50
50
42
1
243
1,496
140
420
265
260
325
1,410
49
47
14
47
45
35
237
1,647
–
16
11
16
16
59
–
–
–
–
–
–
–
59
–
17
33
16
16
82
–
–
–
–
–
–
–
82
–
6
4
6
6
22
–
–
–
–
–
–
–
22
–
6
6
6
6
24
–
–
–
–
–
–
–
24
–
409
–
203
254
866
–
–
–
–
–
–
–
866
–
396
195
195
247
1,033
–
–
–
–
–
–
–
1,033
–
109
–
–
–
109
–
–
–
–
–
–
–
109
–
109
–
–
–
109
–
–
–
–
–
–
–
109
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
140
–
–
140
–
–
–
–
–
–
–
140
–
1,617
594
577
774
3,562
–
–
–
–
–
–
–
3,562
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
64
13
40
50
167
–
–
–
–
–
–
–
167
–
63
40
39
49
191
–
–
–
–
–
–
–
191
Total
£’000
140
2,649
711
1,107
1,431
6,038
45
55
50
50
42
1
243
6,281
140
1,011
679
516
643
2,989
49
47
14
47
45
35
237
3,226
1 The performance related annual bonus is based on performance measures, as disclosed in the policy table on page 71, 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 67.7% (2013:66.2%) of the OPBVM element and 100% (2013:100%) 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 2013.
3 Share price at date of grant 94p, share price at date of vesting 202p.
Scheme interests awarded during the year
Andrew Cunningham
Peter Couch
Mark Greenwood
Nick Jopling
65
LTIS share awards
Matching awards
Number
311,234
130,9151
128,445
160,557
Face value
£’000
630
265
260
325
Number
62,246
39,2741
38,533
48,167
Face value
£’000
126
79
78
97
The face value is based on a price of 202.42p being the average share price from the five business days immediately preceding the award
that was made on 9 December 2013.
The awards are contingent upon satisfying the performance criteria, as detailed on page 72, in the three years to 9 December 2016.
1 Peter Couch’s LTIS awards lapsed in full when he left the Company on 31 January 2014.
Payments for loss of office
Peter Couch left the Company on 31 January 2014.
On the cessation of his employment he was entitled to receive the following:
i. £271,625 in lieu of his entitlement to twelve months’ notice pay. This is being paid on a monthly basis over the notice period.
ii. £70,518 redundancy entitlement which has been calculated in accordance with the Company’s standard redundancy policy.
iii. £40,743 in lieu of twelve months’ employer pension contribution.
iv. £15,000 in lieu of twelve months’ car allowance.
ii, iii, and iv were paid to Peter Couch when he left the Company.
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Grainger plc / Annual Report and Accounts 2014 / Governance
REMUNERATION COMMITTEE REPORT CONTINUED
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
Nick Jopling
LTIS Shares
Matching shares
Maximum
award
667,231
625,496
554,675
311,234
133,446
125,099
110,935
62,246
Awards
Awards
Awards
lapsed
vested
granted
–
667,231
26-Nov-10
–
–
02-Dec-11
–
–
08-Dec-12
–
–
09-Dec-13
–
133,446
26-Nov-10
–
–
02-Dec-11
–
–
08-Dec-12
–
09-Dec-13
–
–
26-Nov-10 280,660 280,660
263,105
73,218
–
02-Dec-11
233,315
– 144,464
08-Dec-12
130,915
130,915
–
09-Dec-13
13,168
13,168
26-Nov-10
–
78,931
21,965
–
02-Dec-11
69,994
43,339
–
08-Dec-12
39,274
39,274
09-Dec-13
–
275,365
–
275,365
26-Nov-10
258,141
–
–
02-Dec-11
228,913
–
–
08-Dec-12
128,445
–
–
09-Dec-13
10,498
–
10,498
26-Nov-10
10,000
–
–
02-Dec-11
68,674
–
–
08-Dec-12
–
09-Dec-13
–
38,533
–
344,206
26-Nov-10 344,206
–
–
322,676
02-Dec-11
–
–
286,141
08-Dec-12
–
160,557
09-Dec-13
–
–
38,888
38,888
26-Nov-10
–
–
40,000
02-Dec-11
–
–
84,496
08-Dec-12
–
–
48,167
09-Dec-13
Maximum
outstanding
awards at
30 Sep 2014
–
625,496
554,675
311,234
0
125,099
110,935
62,246
–
189,887
88,851
–
–
56,966
26,655
–
–
258,141
228,913
128,445
–
10,000
68,674
38,533
–
322,676
286,141
160,557
–
40,000
84,496
48,167
Market price
at date of
vesting
(p)
202
–
–
–
202
–
–
–
202
–
–
–
202
–
–
–
202
–
–
–
202
–
–
–
202
–
–
–
202
–
–
–
Vesting date
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
26-Nov-13
02-Dec-14
08-Dec-15
09-Dec-16
67
Share options
Granted in Year
Lapsed
in year
Exercised during year
Share
options at
1 Oct 2013 Number
Grant
price (p) Number Number
Exercise
price
(p)
Market
price on
exercise
(p)
Gains on
exercise
of share
options
(£)
Share
options at
30 Sep
2014
Exercise
price
(p)
Earliest
exercise date
Latest
exercise date
Andrew
Cunningham SAYE 44,415
–
31,772
13,062
31,772
SAYE
CSOP
Peter Couch SAYE
CSOP
–
17,331
–
–
–
Mark
Greenwood
Nick Jopling
SAYE
SAYE
CSOP
SAYE
SAYE
CSOP
13,062
–
31,772
21,770
–
5,199
–
–
– 8,665
–
31,772
–
173.10
–
–
–
–
173.10
–
–
173.10
–
– 44,415
–
–
– 31,772
8,345
– 31,772
4,717
–
–
–
–
– 31,772
–
–
–
–
– 31,772
–
37.70 225.00 83,189
–
199.70 33,450
11,942
199.70 33,450
–
94.42
68.90 212.00
94.42
–
17,331
–
–
–
–
–
–
173.10 01-Sep-19 01-Mar-20
–
–
–
–
–
–
–
–
–
–
–
94.42
–
–
–
–
– 13,062
5,199
–
–
197.00 32,592
– 21,770
– 8,665
–
–
–
68.90 01-Sep-15 01-Mar-16
01-Sep-17 01-Mar-18
173.10
–
–
68.90
01-Sep-17 01-Mar-18
173.10 01-Sep-19 01-Mar-20
–
–
–
–
94.42 234.20 44,411
The closing trade share price on 30 September 2014 was 185.5p. The highest trade share price during the year was 250.0p and the lowest
was 171.0p.
Directors’ shareholdings
Andrew Cunningham
Nick Jopling
Mark Greenwood
Robin Broadhurst
John Barnsley
Baroness Margaret Ford
Belinda Richards
Tony Wray
Simon Davies
Ian Coull
Ordinary shares of 5p each (thousands)
1 Oct 2013
1,164
171
109
131
103
40
–
10
100
–
1,828
30 Sep 2014
1,424
402
306
131
103
40
–
10
100
–
2,516
Beneficial
31 Oct 2014
1,424
402
306
131
103
40
–
10
100
–
2,516
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Grainger plc / Annual Report and Accounts 2014 / 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
30 Sept 2014
Chief executive single figure
2014
2013
2012
2011
2010
2009*
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Rupert Dickinson
Chief executive single
figure of
total remuneration
£’000
2,649
1,011
888
928
777
583
582
Annual variable element
award rates against
maximum opportunity
%
64
63
19
50
43
22
0
Long-term incentive
vesting rates against
maximum opportunity
%
100
–
16
–
–
–
–
* Andrew Cunningham was acting chief executive 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 2014, excluding LTIS and pension contributions, for the chief executive and for
all other employees in the Group was as follows:
Chief executive
Employee population
2%
4%
69
Relative importance of spend or pay
The difference in actual expenditure between 2013 and 2014 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)
74.7m
+£21.1m
53.6m
80
70
60
50
40
30
20
10
0
+£1.9m
10.3m
8.4m
15
10
5
0
25
20
15
10
5
0
+£0.7m
20.1m
20.8m
13
14
13
14
13
14
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Statement of implementation of remuneration policy in the current financial year
Subject to increasing the salaries of the executive directors in line with the company wide increases with effect form 1 January 2015, there
are no changes to the way that the remuneration policy will be implemented in the current year.
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 62.
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.
Fees for Committee assistance
£’000
12
Statement of voting at general meeting
At the AGM held on 5 February 2014 the Directors’ Remuneration Report and the Director’s Remuneration Policy received the following
votes from shareholders:
For
Against
Total votes cast (for and against)
Votes withheld
Total votes cast (including withheld votes)
Directors’ remuneration report
Directors’ remuneration policy
Total number of
votes
267,625,281
21,638,526
289,263,807
14,528,397
303,792,204
% of votes cast
93
7
100
–
–
Total number of
votes
216,275,016
27,612,838
243,887,854
59,904,350
303,792,204
% of votes cast
89
11
100
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–
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Grainger plc / Annual Report and Accounts 2014 / Governance
REMUNERATION COMMITTEE REPORT CONTINUED
REMUNERATION POLICY
The tables below summarise the main elements of the remuneration packages for the executive directors.
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Changes in year
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Changes in year
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Changes in year
Purpose and link to strategy
Base salary
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.
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 with effect from 1 January 2015 in line
with the standard increase that will be applied to all staff.
N/A
None
Benefits
To aid recruitment and retention of high-quality executives.
Car allowance
Private medical insurance
Life assurance
Ill health income protection
Travel insurance
Health check up
Andrew Cunningham annual
Others biannual
N/A
N/A
None
Pension
To aid recruitment and retention of high-quality executives.
The Group will pay a pension allowance or contribute into a personal pension arrangement for all of
the executive directors. If appropriate, a salary sacrifice arrangement can apply.
The pension contribution or allowance is based on 15% of basic salary.
N/A
None
Annual bonus
To incentivise performance over a 12-month period based on a balanced scorecard performance
agreement which is aligned to:
Leadership
Corporate Strategy
Innovation/growth
External relationships/reputation
with two financial performance measures that are linked to the strategic objectives of the Company
and the KPIs through which those objectives are monitored plus an assessment of personal
performance against objectives that are set for the executive directors that reflect the business
targets and priorities for each year.
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Operation
Opportunity
Performance metrics
Changes in year
Bonus
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Annual bonus
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
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% vests
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.
None
Legacy bonus
To incentivise delivery of sustained performance over the longer term.
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 fourth instalment of
£109,124 was paid in March 2014. The balance in the bonus pool at 30 September 2014 was £109,125,
which will be paid in March 2015.
As above.
72
Grainger plc / Annual Report and Accounts 2014 / Governance
REMUNERATION COMMITTEE REPORT CONTINUED
Changes in year
Annual bonus
N/A
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Changes in year
Purpose and link to strategy
Operation
Long-Term Incentive Scheme (‘LTIS’)
To incentivise delivery of sustained performance over the longer term.
To encourage greater shareholder alignment through personal investment in the Company’s shares.
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.
Awards are split equally between NNNAV and TSR.
TSR Performance Conditions (50%)
Percentage of the TSR element of an award
that will vest
Growth in TSR over 3 years
TSR base threshold for vesting is 5% with the maximum at 15%
Less than 5%
Between 5% and 15%
More than 15%
NNNAV Performance Conditions (50%)
Nil
Pro rata vesting
100%
Percentage of the NNNAV element of an award
that 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
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.
None
Nil
Pro rata vesting
100%
The Grainger plc Company Share Option Plan (‘CSOP’)
To aid recruitment and retention of high-quality executives.
The CSOP is approved by HMRC under schedule 4 of ITEPA.
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.
73
Opportunity
Purpose and link to strategy
Operation
Opportunity
Performance metrics
Changes in year
Long-Term Incentive Scheme (‘LTIS’)
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).
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.
SAYE: Participants may invest up to £500 per month (or such other amount as may be permitted by
HMRC from time to time) 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 £150 per month (or such other amount as may be permitted by
HMRC from time to time) 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 £3,600 (or such other amount as may be permitted by HMRC
from time to time).
N/A
HMRC increased the allowances relating to the SAYE and SIP schemes in April 2014.
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Illustration of the application of the remuneration policy
Andrew Cunningham (£’000)
Minimum
In line with
expectations
Maximum
82%
40%
24%
18%
627
20%
8%
31%
32%
1,305
5%
40%
2,112
0
500
1,000
1,500
2,000
Mark Greenwood (£’000)
Minimum
In line with
expectations
Maximum
0
100%
52%
33%
Nick Jopling (£’000)
Minimum
In line with
expectations
Maximum
100%
52%
32%
0
329
21%
27%
636
33%
500
406
34%
1,009
1,000
1,500
2,000
21%
27%
789
33%
500
35%
1,000
1,256
1,500
2,000
Key:
Salary, pension and benefits
Salary, pension and benefits
Bonus
Bonus
LTIS: Value at date of grant
Legacy bonus
74
Grainger plc / Annual Report and Accounts 2014 / Governance
REMUNERATION COMMITTEE REPORT CONTINUED
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
proceding 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
Notice
period
12 months
September 2010 6 months
September 2010 6 months
Date of initial
appointment
Contract
commencement
date
Executive
directors
Andrew
Cunningham October 2009
Nick Jopling
Mark
Greenwood
Non-executive
directors
Robin
Broadhurst
John Barnsley
Baroness
Margaret Ford July 2008
Belinda
Richards
Tony Wray
Simon Davies November 2012
September 2014
Ian Coull
February 2004
February 2003
April 2011
October 2011
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
their 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.
75
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 2014 when the share price
was 189p. These values do not include
the value of any shares that might vest on
2 December 2014.
Current
holdings
(thousands)
Value at
31 October
2014
£’000
% of
current
salary
1,424
2,691 629%
306
578
218%
402
760 230%
Andrew
Cunningham
Mark
Greenwood
Nick
Jopling
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 an 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 scheme
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.
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.
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76
Grainger plc / Annual Report and Accounts 2014 / 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
4
4
4
4
4
4
4
4
4
4
The Board Risk and
Compliance Committee
currently comprise four
independent non-executive
directors and one executive
director.
Tony Wray
Committee chairman
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 effectiveness of the Committee
was reviewed as part of the overall
independent Board evaluation process.
The culture of risk awareness, and
effective risk management through the
further development of the risk assurance
framework, continues to become 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.
The Committee met four times during
the year. The meetings were attended by
the Committee members, the company
secretary and by invitation, the Group’s
risk and compliance manager, the
group general counsel and the internal
audit manager.
The Committee operates a forward
agenda plan. At each meeting, the
Committee reviews the quarterly risk and
compliance report prepared by the risk
and compliance manager together with
the quarterly complaints and Top Risk
and Projects reports. The Committee also
regularly discusses emerging risks.
Other areas reviewed in the last
year include risks associated with block
management, the supply chain and core
systems review projects together with
risk briefings prepared by departmental
managers. These briefings included reports
on people risk and the embedding of risk
management, business continuity planning,
the project management capability
within the business and a legal and
regulatory update.
The purpose of these briefings is
to provide the Committee with a more
comprehensive insight into the principal
risks and processes within the Group
and ensure that the risk mitigation plans
are robust.
Other
disclosures
77
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;
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the company and the
Group and enable them to ensure that
the financial statements and the directors’
remuneration report comply with the
Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the
IAS Regulation. They are also responsible
for safeguarding the assets of the Company
and the Group and hence for taking
reasonable steps for the prevention and
detection of fraud and other irregularities.
The directors are responsible for
the maintenance and integrity of the
Company’s website. Legislation in the
UK governing the preparation and
dissemination of financial statements
may differ from legislation in other
jurisdictions. Each of the directors, whose
names and functions are listed on pages
50 and 51 confirm that, to the best of
their knowledge:
– the Group financial statements, which
have been prepared in accordance with
IFRSs as adopted by the EU, give a true
and fair view of the assets, liabilities,
financial position and profit of the Group;
– make judgements and accounting
– the Strategic Report on pages 2 to 47
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.
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.
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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.
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 Directors’ report.
By order of the Board.
Adam McGhin
Company secretary
78
Grainger plc / Annual Report and Accounts 2014 / Governance
OTHER DISCLOSURES CONTINUED
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 UK governing the
preparation and dissemination of financial
statements may differ from legislation in
other jurisdictions.
Directors’ indemnities and insurance
We have in place contractual entitlements
for the directors of the Company and of
its subsidiaries to claim indemnification
by the Company in respect of certain
liabilities which might be incurred by them
in the course of their duties as directors.
These arrangements, which constitute
qualifying third party indemnity provision
and qualifying pension scheme indemnity
provision, have been established in
compliance with the relevant provisions
of the Companies Act 2006. They include
provision for the Company to fund the
costs incurred by directors in defending
certain claims against them in relation to
their duties as directors of the company
or its subsidiaries. The Company also
maintains an appropriate level of directors’
and officers’ liability insurance.
Financial risk management
Details are included in note 29 to the
financial statements.
Corporate responsibility
Our approach to CR is based on our
assessment of the potential risk and
opportunity to our business. In the year
ended 30 September 2014, the Group
achieved 71% and partially achieved
21% of the applicable CR targets that
it committed to meeting by that date.
Further information is provided in the
CR report on pages 38 to 47.
International operations
Our German portfolio continues to be
centrally managed and controlled from our
overseas offices.
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. 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.
79
Independent auditors’ report
TO THE MEMBERS OF GRAINGER PLC
REPORT ON THE GROUP FINANCIAL
STATEMENTS
Our opinion
In our opinion, Grainger plc’s
Group financial statements (the
“financial statements”):
– give a true and fair view of the state of
the Group’s affairs as at 30 September
2014 and of its 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.
What we have audited
Grainger plc’s financial statements
comprise:
– the Consolidated statement of financial
position as at 30 September 2014;
– the Consolidated income statement
and the Consolidated statement of
comprehensive income for the year
then ended;
– the Consolidated statement of cash flows
for the year then ended;
– the Consolidated statement of changes in
equity 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.
Certain required disclosures have been
presented elsewhere in the Annual Report
and Accounts 2014 (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.
The financial reporting framework that
has been applied in the preparation of the
financial statements is applicable law and
IFRSs as adopted by the European Union.
Our audit approach
Materiality
– Overall Group materiality: £5.8m, which
represents 5% of average operating
profit before valuation movements and
non-recurring items (OPBVM) over a
three year period.
Audit Scope
– The scope of our Group audit was
determined through assessment of the
location of the underlying accounting
books and records, of which there are
two distinct components: the head office
in Newcastle upon Tyne, and the German
residential business in Frankfurt.
– The head office was assessed as a full
scope component, with audit procedures
performed over all material account
balances combined with testing of Group
account balances managed centrally from
this location, including treasury line items
– Specific audit procedures were
performed over account balances in the
German residential business, based on
our assessment of the risk of material
misstatement by both their nature
and value. This work involved visiting
and performing audit procedures at
the Group’s Frankfurt office on those
account balances at this location that
contributed significantly to the Group’s
financial performance and/or position.
Areas of focus
– Valuation of investment properties and
inventories (trading properties).
– Valuation of derivative
financial instruments.
– Recoverability of deferred consideration
from the disposal of the former subsidiary
Equity Release (Increments) Limited
(“ERIL”).
– Risk of fraud in revenue recognition
through the posting of manual entries.
The scope of our audit and our areas of focus
We conducted our audit in accordance with
International Standards on Auditing (UK
and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining
materiality and assessing the risks of
material misstatement in the financial
statements. In particular, we looked at
where the directors made subjective
judgements, for example in respect
of significant accounting estimates
that involved making assumptions and
considering future events that are inherently
uncertain. As in all of our audits, we also
addressed the risk of management override
of internal controls, including evaluating
whether there is evidence of bias by the
directors that may represent a risk of
material misstatement due to fraud.
The risks of material misstatement
that had the greatest effect on our audit,
including the allocation of our resources
and effort, are identified as “areas of
focus” in the table below together with
an explanation of how we tailored our
audit to address these specific areas. This is
not a complete list of all risks identified by
our audit.
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80
Grainger plc / Annual Report and Accounts 2014 / Financials
INDEPENDENT AUDITORS’ REPORT CONTINUED
Area of focus
Valuation of investment properties and inventories (trading
properties)
Refer to page 58 (Audit Committee report), pages 97-98 (Accounting
policies), pages 103-107 (Critical accounting estimates and
assumptions) and note 2 to the financial statements.
The Group’s property assets, which are located in both the UK and
Germany and recorded as either Investment properties or Inventories,
represent the majority of assets in the Consolidated statement
of financial position, amounting to £1.4bn. The Group’s property
portfolios are not uniform in nature, and therefore a number of
different assumptions are made by the Group’s in-house valuers and/or
independent valuers appointed by the Group in determining fair value.
The key assumptions which affect fair value and which we focussed on in
our audit were:
– UK residential properties – the estimated vacant possession value,
based on comparable sales in the same locality and the external and
internal condition of the property; and the appropriate discount/
haircut applied to the estimated vacant value based on the type of
tenure in place by the current occupant, as calculated by the external
independent valuers.
Where such properties are recorded as Inventories, we also focussed
on the additional key assumptions relating to future expected house
price inflation and the vacancy rate (which is used as a proxy for
estimating the period of time until vacant possession and sale) in
assessing the appropriateness of the net realisable values arrived at by
the directors.
– Retirement solutions properties – the assumptions in arriving at
vacant possession value and assessing net realisable value (where
recorded as inventories) are the same as for UK residential properties.
However the discount to vacant possession value to arrive at market
value is property specific (instead of a standard discount being applied
by tenure type).
Individual property discounts are calculated by the external
independent valuers and requires estimation of the period until the
Group can obtain vacant possession and application of an appropriate
discount rate.
– Developments – where the directors’ intention is to realise sale
on completion of a development, the significant assumptions
affecting market value relate to total projected revenues and total
projected costs as prepared by the directors and assessed by
external independent valuers. Where the intention is to sell without
development, the market value in its current condition as assessed by
the external independent valuers (based on comparable sales) is the
key assumption. All developments are recorded as inventories.
How our audit addressed the area of focus
We agreed that property information supplied to external independent
valuers by management (including details of the current tenant, type of
tenure, type of property and address) for a sample from all portfolios was
consistent with the underlying property records held by the Group and
tested during our audit.
We read all year end valuation reports provided by external organisations
who were engaged by the Group to conduct valuations for the purpose
of these financial statements. We confirmed valuations had been
performed on bases consistent with practices approved by the Royal
Institution of Chartered Surveyors (“RICS”); and assessed whether these
external organisations had appropriate qualifications and expertise to
undertake such valuations and that the definition of fair value adopted
by both the directors and these organisations was consistent with
definitions in IFRSs as adopted by the European Union. We also read the
reports and associated terms of engagement between the Group and
the external organisations to identify any apparent matters which might
have affected the independence and objectivity of the organisations, or
limitations imposed on them, in their performance of these valuations.
In assessing vacant possession values of the UK residential properties,
we attended a meeting between management and the external
independent valuer at which we discussed those properties where
the initial directors’ in-house and the external independent valuers’s
valuations were not within our independently determined acceptable
tolerance/range. We assessed whether additional evidence presented
in arriving at the final directors’ valuations for those properties agreed
by both parties was appropriate, and where provided by management
whether this was robustly challenged by the external independent
valuers where appropriate.
For assessing market values of UK residential and Retirement solution
properties, we also assessed whether the discounts applied to vacant
possession value were appropriate. We utilised our knowledge and
experience of discounts normally observed in both markets for sales
of tenanted properties and, specifically for the Retirement solutions
portfolio, our independently derived longevity assumptions. We also
recalculated the application of these discounts to vacant possession
values to identify any error in management’s calculations and completed
sensitivity analyses to determine the extent of a change in assumptions
that collectively would be required for the valuations to be materially
misstated. Having done so we considered the likelihood of such a
change arising.
In auditing the net realisable value calculations for the UK residential
and Retirement solution portfolios, we independently re-performed
management’s calculations to identify errors in the input data or
calculations. We also evaluated the house price inflation and vacancy
assumptions with reference to our independently derived house price
inflation estimates and historic average vacancy rates on the portfolios.
We further assessed for any likely material error by performing sensitivity
analyses on these two assumptions in these models.
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Area of focus
– German residential – the multiple of net rental income (inverse yield)
which is applied to the individual properties in arriving at their market
value, using an income capitalisation approach. The rent multiple is
dependent on a number of factors including the property’s location,
size and condition and calculated directly by the external independent
valuers. All properties in Germany are recorded as investment
properties.
Each of the key assumptions for the Group’s portfolios discussed above
require significant estimation, and are used where market value or net
realisable value cannot be observed directly through realisation via sale
to a third party.
The existence of significant estimation uncertainty, coupled with the fact
that only a small percentage difference in individual property valuations
when aggregated could result in material misstatement, is why we have
given specific audit focus and attention to this area.
81
How our audit addressed the area of focus
For Developments, we focussed on sites where market valuation of the
site in its current state suggested the potential need for a provision to
bring the site down to its net realisable value (where the valuation on the
basis provided by the external independent valuers was lower than the
cost recorded in the balance sheet). Where management’s intention is
to develop out such sites, we obtained management’s project appraisal
model detailing the total projected revenues and costs and tested
the model to ensure that there were no apparent material errors in
underlying calculations of expected profit. We assessed the underlying
assumptions within such models with reference to evidence from
previous sales at the site (where available) together with a comparison of
development spending in current and prior years to original estimates.
We also performed sensitivity analyses to assess the change in
assumptions that would be required to eliminate the development profit
and result in recognition of a provision, as well as assessing the likelihood
of such changes arising.
Our work on the German residential market valuations involved
assessment of the rent multiples applied across the different properties
utilising our knowledge of the German property market. We also
factored into our testing evidence of any defects or required repairs
to properties and costs required to rectify them, as provided to the
external independent valuers, performing work to ensure such costs
were supported by independent evidence and complete. Where remedial
work was identified as being required, we checked that this had been
accounted for in the valuations recorded in the financial statements.
Area of focus
Valuation of derivative financial instruments
Refer to page 58 (Audit Committee report), page 108 (Critical
accounting estimates and assumptions) and pages 138 to 144
(Financial risk management and derivative financial instruments)
(see note 29 to the financial statements).
The Group’s operations are funded through a number of variable-rate
loan facilities through a number of different lenders in both the UK and
Germany. As a result, the Group is exposed to changes in interest rates
on these facilities. The directors have sought to mitigate this risk through
the use of a number of derivative financial instruments in the form of
floating to fixed interest rate swaps, collars and caps to hedge the risk of
future movements in interest rates on these loans.
Changes in current and future interest rate expectations since the inception
of these instruments have resulted in an aggregate fair value attributable
to the contracts of £48.0m, which are recorded as liabilities in the balance
sheet and a resulting fair value movement compared to the prior year
recorded in the income statement as a loss/gain of £1.2m.
How our audit addressed the area of focus
We agreed models and fair values derived for each derivative financial
instrument by the external consultants to the values recorded in the
financial statements.
A sample of derivative contracts were obtained from the Group and
the key terms of these contracts, being the nominal value, the floating
and fixed interest rates and the frequency and timing of payments
were used to determine independent valuations for these instruments
at the balance sheet date using our own models. Within our models
we used externally available sources to determine our own estimates
independently of the Group for interest yield curves, discount rates and
an estimate of the appropriate credit risk adjustment for the Group in
arriving at our estimates of fair value.
We compared our independently determined fair values to those
calculated by the external consultants for the same instruments to
evaluate whether any differences arising were within our accepted
tolerance thresholds and estimated the potential aggregate fair value
difference across the portfolio of instruments as a whole.
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INDEPENDENT AUDITORS’ REPORT CONTINUED
Area of focus
The directors engage external consultants to determine the fair value of
each individual derivative financial instrument at the balance sheet date.
The key assumptions in the valuation of these instruments are:
– the interest yield curve (estimate of future interest rates) used to
estimate future cash flows for the floating element of these contracts;
– determination of the appropriate discount rate to apply to all of the
future cash flows; and
– for instruments that are “out of the money” (i.e. liabilities) assumptions
regarding the Group’s creditworthiness used in calculating credit risk
adjustments applied in arriving at the fair value of the instruments and
required to comply with accounting standards.
We focussed on this area as the use of specific models and the level
of judgement that needs to be applied in determining appropriate
assumptions in such models to derive fair values increases the risk
of error. As there are a number of these instruments with combined
fair values that are highly material , a relatively small rate of error in
the calculation of their values, in aggregate, could result in material
misstatement of the financial statements.
Area of focus
Recoverability of deferred consideration from the disposal of the
former subsidiary Equity Release (Increments) Limited (“ERIL”)
Refer to page 58 (Audit Committee report), page 134 (Trade and other
receivables) and page 140 (Financial risk management and derivative
financial instruments).
On 9 January 2014, the Group completed the sale of a number of
residential units previously owned as home reversion plans in its
Retirement Solutions portfolio and the sale of the former subsidiary
ERIL to a third party. The terms of the sale involved payment of 60% of
the agreed consideration on this date, with the remaining 40% due for
payment within one calendar year of completion.
At the balance sheet date, an asset of £35.0m was recorded within
trade and other receivables relating to this deferred consideration.
The directors’ assessment of the likelihood of settlement is a key factor
in determining recoverable value for this consideration.
The directors are of the view that no impairment write-down of the asset
receivable is warranted based on their assessment that this will be fully
recovered. In arriving at this assessment the directors have reviewed by
the financial position of the buyer and their ability to pay the determined
amount on the due date, taking into account the security provided for
the benefit of the Group in the event of non-payment of the outstanding
receivable, which the directors consider is robust.
The magnitude of the receivable in addition to the reliance placed by the
directors on security arrangements in assessing recoverability is why we
have focussed on this receivable.
How our audit addressed the area of focus
How our audit addressed the area of focus
We read the sale and purchase agreement for the disposal of ERIL,
and the properties included as part of this sale, to ascertain the extent
of protections security provided to the Group in the event of non-
repayment by the purchaser.
We also inquired of management as to other security arrangements in
place, which were relied upon by the directors in their assessment of the
recoverability of this receivable, contained in side agreements. Where
security side agreements were identified we read the agreement to
ascertain the extent of security provided.
In assessing the likelihood of repayment, we obtained the unaudited
management accounts of the purchaser to form an independent view
as to whether the purchaser has sufficient funds available at the date of
these financial statements, or assets which could be used as security to
raise sufficient funds at this date, to meet its obligations to the Group.
We read correspondence to and from the purchaser and the Group
to confirm no inconsistencies between this correspondence and the
assessment of recoverability arrived at by the directors. We also read
minutes of meetings of the Group for any apparent inconsistencies. Both
of these procedures were carried out up to the date of approval of these
financial statements.
83
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How our audit addressed the area of focus
We utilised computer assisted auditing techniques to obtain a complete
population of manual journal entries in the accounting books and
records of the Group. From this population we applied risk weightings
to each manual journal entry. Our weightings were tailored to identify
all manual journal entries increasing recorded revenues as well as any
manual journal entries which suggested settlement of revenue via
non-standard means (i.e. not through settlement directly to cash or to
receivables and then to cash) which are regarded as higher risk.
High risk entries were substantively tested to determine the rationale for
the manual adjustment with evidence obtained to confirm that either
a service had been provided or a sale had occurred supporting the
recognition of the associated revenue recorded via these entries.
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Area of focus
Risk of fraud in revenue recognition through the posting of manual
entries
Refer to page 58 (Audit Committee report) and pages 99-100 for
disclosures of the relevant accounting policies for recognition of
revenue and a list of revenue streams.
ISAs (UK & Ireland) presume there is a risk of fraud in revenue recognition.
We have analysed the risk based on our knowledge of the standard
processes followed for recording revenue entries in the accounting
books and records for each revenue stream individually. The Group has
four revenue streams, being Rental income, Service Charge income,
Proceeds from sale of trading properties and management fee income
(see note 5 to the financial statements).
The process for recording rental income, service charge income and
property disposals are highly standardised, closely controlled and
relatively straightforward to reconcile to cash receipts and receivables.
Rental and service charge income are also predictable. Management fee
income involves more judgement for certain contracts, particularly those
involving performance related fees in assessing the timing of revenue
recognition however this is not a significant revenue stream to the Group.
We focused on the risk that revenue may have been recognised for all
revenue streams for transactions that had not occurred. Use of manual
journal entries represents an opportunity for standardised revenue entry
processes to be bypassed. Such entries may not be picked up through
management’s controls and and therefore present a heightened risk that
they may not be supported by an underlying transaction (e.g. no actual
sale of a property or no service provided for a fee income entry).
How we tailored the audit scope
We tailored the scope of our audit to
ensure that we performed enough work to
be able to give an opinion on the financial
statements as a whole, taking into account
the geographic structure of the Group, the
accounting processes and controls, and the
industry in which the Group operates.
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 these business lines 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. The head office
in Newcastle upon Tyne and the Frankfurt
operations were therefore identified as
the two components for scoping our audit
of the Group financial statements and, in
establishing the overall approach to our
audit, we determined the type of work
that needed to be performed at these
two locations.
Accordingly, due to the financial
significance of the books and records
located at the head office, we performed
an audit of all material account balances
and other financial information at
this location, together with additional
procedures performed for account
balances and other financial information
managed centrally from the head
office, which included audit procedures
performed over treasury line items: Cash
and cash equivalents, Derivative financial
instruments, Interest-bearing loans and
borrowings and the Cash flow hedge
reserve. Centralised audit procedures were
also performed over Inventories, Taxation,
Equity and Investments in joint ventures and
84
Grainger plc / Annual Report and Accounts 2014 / Financials
INDEPENDENT AUDITORS’ REPORT CONTINUED
associates together with the assessment of
management’s going concern assumption.
We also determined it necessary to
perform specific audit procedures over
account balances and other financial
information in the German residential
business where we identified a significant
risk of material misstatement to the
group financial statements or where this
component significantly contributed to the
amount recorded in the group financial
statements. As a result we performed audit
procedures on Investment properties and
Service charge income and expenditure,
and performed procedures to address
the risk of override of controls by local
management in Frankfurt. We visited
the group’s Frankfurt office in order to
obtain the audit evidence required from
these procedures.
The performance of audit procedures
at these locations, combined with the
centralised testing, enabled us to conclude
whether sufficient and appropriate
evidence had been obtained as a basis
of our opinion on the group financial
statements as a whole.
We agreed with the Audit Committee that
we would report to them misstatements
identified during our audit above £0.3m
(2013: £0.3m) as well as misstatements
below that amount that, in our view,
warranted reporting for qualitative reasons.
Going concern
Under the Listing Rules we are required
to review the directors’ statement, set
out on page 56, 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 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.
Materiality
The scope of our audit is influenced by our
application of materiality. We set certain
quantitative thresholds for materiality.
These, together with qualitative
considerations, helped us to determine the
scope of our audit and 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 financial
statements as a whole as follows:
Overall Group materiality
£5.8m (2013: £5.8m).
How we determined it
5% of the average Operating profit before
valuation movements and non-recurring
items (OPBVM) over a three year period.
Adjustments to Profit before tax in
the Consolidated income statement
in arriving at OPBVM for current and
prior years are disclosed in note 3 to the
financial statements.
Rationale for benchmark applied
In our view, OPBVM continues to be
the most appropriate benchmark for
determining materiality because it provides
a consistent basis that eliminates the
volatility of valuation adjustments on
the Group’s properties and derivative
financial instruments and the impact of
non-recurring transactions. We have also
used a three year average to further adjust
for the effects of volatility in trading in any
single year.
85
OTHER REQUIRED REPORTING
Consistency of other information
Companies Act 2006 opinion
In our opinion, the information given in the Strategic Report and the directors’ Report for the financial
year for which the financial statements are prepared is consistent with the financial statements.
ISAs (UK & Ireland) reporting
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 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
– otherwise misleading.
The statement given by the directors on page 3, in accordance with provision C.1.1 of the UK Corporate
Governance Code (“the Code”), 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 is materially inconsistent with our knowledge of
the Group acquired in the course of performing our audit.
The section of the Annual Report on page 58, as required by provision C.3.8 of the Code, describing
the work of the Audit Committee does not appropriately address matters communicated by us to the
Audit Committee.
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 to you if, in our
opinion, certain disclosures of directors’
remuneration specified by law are not
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.
We have no exceptions to report arising from
this responsibility.
We have no exceptions to report arising from
this responsibility.
We have no exceptions to report arising from
this responsibility.
Corporate governance statement
Under the Listing Rules we are required
to review the part of the Corporate
Governance Statement relating to the
parent company’s compliance with nine
provisions of the UK Corporate Governance
Code. We have nothing to report having
performed our review.
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Grainger plc / Annual Report and Accounts 2014 / Financials
INDEPENDENT AUDITORS’ REPORT CONTINUED
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 77, the directors are responsible for
the preparation of the 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 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.
What an audit of financial statements involves
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;
In addition, we read all the financial and
non-financial information in the Annual
Report to identify material inconsistencies
with the audited 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.
– the reasonableness of significant
accounting estimates made by the
directors; and
– the overall presentation of the
financial statements.
We primarily focus 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.
We test and examine information,
using sampling and other auditing
techniques, to the extent we consider
necessary to provide a reasonable basis for
us to draw conclusions. We obtain audit
evidence through testing the effectiveness
of controls, substantive procedures or a
combination of both.
OTHER MATTER
We have reported separately on the Parent
Company financial statements of Grainger
plc for the year ended 30 September 2014
and on the information in the directors’
Remuneration Report that is described as
having been audited.
David A Snell (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 November 2014
Consolidated income statement
For the year ended 30 September 2014
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Fees and 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
Profit/(loss) on disposal of subsidiary
Profit on disposal of joint venture
Write back of inventories to net realisable value
Impairment of joint venture
Operating profit before net valuation gains on investment property
Net valuation gains on investment property
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 of joint ventures after tax
Profit before tax
Tax charge for the year
Profit for the year attributable to the owners of the Company
Basic earnings per share
Diluted earnings per share
87
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
Notes
4, 5
6
7
9
10
11
23
8
22
20
3
21
24
21
18
29
14
14
20
21
13
15
34
17
17
2014
£m
319.1
35.9
87.2
(34.7)
12.8
(3.6)
–
0.8
7.0
–
0.7
0.1
0.8
(2.4)
104.6
1.5
106.1
1.2
(66.3)
2.9
21.1
16.1
81.1
(6.4)
74.7
18.1p
17.9p
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Grainger plc / Annual Report and Accounts 2014 / Financials
Consolidated statement of comprehensive income
For the year ended 30 September 2014
Profit for the year
Items that will not be transferred to consolidated income statement:
Actuarial gain 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 differences on translating foreign operations
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
34
15
15
2014
£m
74.7
0.9
1.0
(0.3)
5.4
7.0
(0.1)
(1.5)
5.4
80.1
2013
£m
53.6
0.7
(0.3)
0.5
36.2
37.1
(0.2)
(7.2)
29.7
83.3
Included within other comprehensive income is a charge of £0.9m (2013: credit of £2.4m) relating to associates and joint ventures
accounted for under the equity method.
Consolidated statement of financial position
As at 30 September 2014
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
Total liabilities
Net assets
89
Notes
2014
£m
2013
£m
18
19
20
21
22
15
23
24
25
29
39
28
30
26
15
28
27
26
15
29
332.9
2.1
103.5
73.6
94.5
12.2
2.2
621.0
1,020.2
74.9
74.4
3.4
1,172.9
1,793.9
1,085.0
2.2
0.3
25.8
1,113.3
33.1
54.5
0.8
6.5
48.0
142.9
1,256.2
537.7
354.1
0.6
88.2
57.7
96.3
20.1
1.4
618.4
949.6
43.1
90.3
9.9
1,092.9
1,711.3
1,006.6
4.1
0.4
25.7
1,036.8
42.4
58.7
2.9
13.9
91.1
209.0
1,245.8
465.5
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Grainger plc / Annual Report and Accounts 2014 / Financials
CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONTINUED
As at 30 September 2014
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
2014
£m
2013
£m
20.9
110.4
20.1
0.3
(1.4)
–
4.6
382.7
537.6
0.1
537.7
20.8
109.8
20.1
0.3
(5.5)
5.0
3.8
311.1
465.4
0.1
465.5
The financial statements on pages 87 to 159 were approved by the Board of Directors on 20 November 2014 and were signed on their
behalf by:
Andrew R Cunningham
Director
Mark Greenwood
Director
Company registration number: 125575
91
Consolidated statement of changes in equity
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Notes
Capital
redemption
reserve
£m
Cash
flow
hedge
reserve
£m
Equity
component
of convertible
bond
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests £m
Total
equity
£m
Balance as at
1 October 2013
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
Repayment of
convertible bond
Award of SAYE shares
Purchase of own
shares
Share-based payments
charge
Dividends paid
Balance as at
30 September 2014
34
30
22
15
31,34
32
16
20.8
–
109.8
–
20.1
–
0.3
–
(5.5)
–
5.0
–
3.8
–
311.1
74.7
0.1 465.5
74.7
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
0.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5.4
(1.3)
4.1
–
–
–
–
–
20.9
110.4
20.1
0.3
(1.4)
–
–
–
–
–
–
(5.0)
–
–
–
–
–
–
0.9
1.0
–
–
–
(0.3)
–
–
–
–
–
0.9
1.0
(0.3)
5.4
(0.2)
(0.1)
–
(1.6)
0.8
75.2
–
–
–
–
–
5.0
–
(2.1)
2.0
(8.5)
–
–
–
–
–
–
80.1
–
0.7
(2.1)
2.0
(8.5)
4.6
382.7
0.1
537.7
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Grainger plc / Annual Report and Accounts 2014 / Financials
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONTINUED
Issued
share
capital
£m
Notes
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Cash
flow
hedge
reserve
£m
Equity
component
of convertible
bond
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests £m
Total
equity
£m
Balance as at
1 October 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
Reclassification
Purchase of own
shares
Share-based payments
charge
Dividends paid
Balance as at
30 September 2013
34
30
22
15
34
31,34
32
16
20.8
–
109.8
–
20.1
–
0.3
–
(24.5)
–
5.0
–
3.9
–
255.4
53.6
0.1
–
390.9
53.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
36.2
(7.4)
28.8
(9.8)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.7
(0.3)
–
–
–
0.5
–
–
–
–
–
0.7
(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
Consolidated statement of cash flows
For the year ended 30 September 2014
Cash flow from operating activities
Profit for the year
Depreciation and amortisation
Goodwill impairment
Net valuation gains on investment property
Net finance costs
(Profit)/loss on disposal of subsidiary
Profit on disposal of joint venture
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
Tax
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
(Increase)/decrease in trading property
Cash (used)/generated from operations
Interest paid
Tax paid
Payments to defined benefit pension scheme
Net cash (outflow)/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
2014
£m
2013
£m
74.7
0.9
–
(1.5)
63.4
(0.7)
(0.1)
(37.2)
(0.8)
–
2.0
(1.2)
(7.0)
6.4
98.9
(31.3)
(6.2)
(3.2)
(65.9)
(7.7)
(54.5)
(7.2)
(1.1)
(70.5)
22.1
9.8
–
1.7
4.3
(5.1)
(3.4)
(2.7)
26.7
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
Notes
19, 23
23
18
14
20, 21
8
20
32, 34
29
22
15
15
30
22
20, 21
20, 21
18
19, 23
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Grainger plc / Annual Report and Accounts 2014 / Financials
CONSOLIDATED STATEMENT OF CASH FLOWS CONTINUED
For the year ended 30 September 2014
Cash flows from financing activities
Awards of SAYE options
Purchase of own shares
Proceeds from new borrowings
Issue of corporate bond
Repayment of convertible bond
Payment of loan costs
Settlement of derivative contracts
Repayment of borrowings
Dividends paid
Net cash inflow/(outflow) from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Net exchange movements on cash and cash equivalents
Cash and cash equivalents at the end of the year
Notes
31, 34
16
29
29
2014
£m
2013
£m
0.6
(2.1)
381.2
275.8
(24.3)
5.1
(35.3)
(561.5)
(8.5)
31.0
(12.8)
90.3
(3.1)
74.4
–
(3.0)
150.1
–
–
–
(39.3)
(380.0)
(8.0)
(280.2)
16.4
73.3
0.6
90.3
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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 179. 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 2014 have been prepared in accordance with EU endorsed International
Financial Reporting Standards (‘IFRSs’), IFRS IC 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 162 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,
financial interest in property assets and assets classified as held-for-sale.
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 control. The Group controls an entity
when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date
control ceases.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated.
Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.
ii) Goodwill and impairment The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
The cost of the acquisition is measured as the fair value of the assets given and equity instruments issued. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the date of acquisition.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of net identifiable assets including
intangible assets of the acquired entity at the date of acquisition. If the cost of the acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognised directly in the income statement. Costs attributable to an acquisition are expensed in
the consolidated income statement under the heading ‘Other expenses’.
Goodwill on acquisition of subsidiaries is included within this caption on the statement of financial position. Goodwill on acquisition
of joint ventures and associates is included in investments in joint ventures and associates.
Goodwill is allocated to cash generating units for the purpose of impairment testing and is tested annually for impairment and carried
at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity
include the carrying amount of goodwill relating to the entity sold.
iii) Joint ventures and associates Joint ventures are those entities over whose activities the Group has joint control, established by contractual
agreement. Associates are all entities over which the Group has significant influence but not control, generally accompanying a
shareholding of between 20% and 50% of the voting rights. Significant influence is the power to participate in the financial and operating
decisions of the investee but is not control or joint control over those policies.
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Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Investments in joint ventures and associates are accounted for by the equity method of accounting and are initially recognised at cost, and
the carrying amount is increased or decreased to recognise the Group’s share of the profit or loss after the date of acquisition. The Group’s
investment in joint ventures and associates includes goodwill (net of any accumulated impairment loss) identified on acquisition.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts
previously recognised in other comprehensive income is reclassified to profit or loss where appropriate.
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.
An operating 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 operating 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.
The Group has identified five such segments as follows:
– UK residential;
– Retirement solutions;
– Fund and third-party management;
– UK and European development; and
– German residential.
All of the above segments are UK based except German residential which has its assets and tenants based in Germany and UK and
European Development which includes assets based in the Czech Republic. More detail is given relating to each of the above segments
in note 4.
The Group has a segment director responsible for the performance of each of these five segments and the Group reports key financial
information to the CODM on the basis of these five segments. Each of these five segments operates within a different part of the overall
residential market.
The title ‘Other’ 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.
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 ‘Finance costs’. 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. The majority of investment property
falls within Level 2 of the fair value hierarchy as defined by IFRS 13. Further details are given in note 29.
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 are expected to sell 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.
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Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
Differences between the updated projected cash flows using the effective interest rate applicable at acquisition compared to updated
projected cash flows using a year end effective interest rate, assessed as the rate available in the market for an instrument with a similar
maturity and credit risk, are taken through other comprehensive income with a corresponding adjustment to the carrying value of the
assets. When gains or losses in the assets are realised, the accumulated fair value adjustments recognised in equity are included in the
income statement as gains and losses from financial interest in property assets.
(h) Inventories – trading property
Tenanted residential properties held-for-sale in the normal course of business are shown in the financial statements as a current asset at the
lower of cost and net realisable value. Cost includes legal and surveying charges and introducer fees incurred during acquisition together
with improvement costs. Net realisable value is the net sale proceeds that 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 tax.
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 tax authority on either the
taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
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. The defined benefit obligation is valued by projecting the best estimate of
future benefit outgo (allowing for future salary increases for active members, revaluation to retirement for deferred members and annual
pension increases for all members) and then discounting to the statement of financial position date.
There are no current or past service costs as the scheme is closed to new members and employee contributions. The net interest
amount, calculated by applying the discount rate to the net defined benefit liability, is 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 / Annual Report and Accounts 2014 / 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.
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 are 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 was a compound financial instrument and the carrying amount was allocated to its equity and liability components
in the Group statement of financial position. The liability component was determined by measuring the fair value of a similar liability that
did 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 was deducted from the fair value of the compound financial instrument as a whole and the residual element was
assigned to the equity component. The liability element was subsequently measured at amortised cost using the effective interest rate
method. The nominal value of the bond was repaid in full in May 2014 with no option to convert taken.
(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 / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
1 ACCOUNTING POLICIES CONTINUED
(v) Assets classified as held-for-sale
Assets are 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 2013. There are no new standards, amendments or interpretations that are effective for the first time for the current financial
year that have had a material impact on the Group.
ii) New and amended standards
– IAS 19, ‘Employee benefits’, has been amended and for defined benefit plans, the Group has changed 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 has also been a corresponding change in the amount recognised
in other comprehensive income, so that the net impact on total comprehensive income and net assets is £nil.
– IFRS 10, ‘Consolidated Financial statements’, 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 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 12, ‘Disclosures of interests in other entities’, brings together all the disclosure requirements about the Group’s interests in
subsidiaries, joint arrangements, associates and unconsolidated structured entities.
– 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. The revised disclosures are
detailed in note 29. Investment property has been included within the fair value hierachy, but this has not resulted in any impact on total
comprehensive income or net assets.
103
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.
– IFRS 9, ‘Financial Instruments’, replaces IAS 39 and sets out the requirements for recognising and measuring financial assets,
financial liabilities and some contracts to buy or sell non-financial items. IFRS 9 is effective for annual periods beginning on or after
1 January 2018.
– IFRS 15, ‘Revenue from contracts’, replaces both IAS 11 and IAS 19 as well as SIC 31, IFRIC 13, IFRIC 15 and IFRIC 18 and establishes a
single, comprehensive framework for revenue recognition. IFRS 15 is effective for annual periods beginning on or after 1 January 2017.
All the above IFRSs, IFRIC interpretations and amendments to existing standards are still to be 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% (2013: 1%) movement in interest rates, a +/- 10 percentage point (2013: 10 percentage point)
movement in Sterling exchange rates and a +/- 1 percentage point (2013: 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.
The valuation methodologies described below determine the fair value of property. Further details are included within note 29.
As trading property is only shown at market value within the NAV and NNAV measures it is excluded from note 29. The directors believe
that, were the market value of trading property included, it would fall within Level 2 of the fair value hierarchy as defined by IFRS 13.
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Grainger plc / Annual Report and Accounts 2014 / 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:
Trading property
Investment property ***
Financial asset
Total statutory book value
Allsop LLP
Directors in-house valuation
RS
Grainger Invest
Tricomm 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 year**
% of properties
for which
external valuer
provides
valuation
%
51%
100%
100%
100%
100%
100%
UK
residential
(‘UKR’)
£m
788.4
140.1
–
928.5
Retirement
solutions
(‘RS’)
£m
137.4
47.8
94.5
279.7
Fund and
third-party
management
(‘Funds’)
£m
–
–
–
–
UK and European
developments
(‘Development’)
£m
94.4
–
–
94.4
German
residential
(‘Germany’)
£m
–
148.4
–
148.4
995.5
–
343.1
109.1
–
–
1,447.7
1,307.6
140.1
–
1,447.7
928.5
519.2
6.4
–
6.4
–
344.6
–
–
–
–
344.6
202.3
47.8
94.5
344.6
279.7
64.9
1.2
–
1.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37.0
37.0
–
–
–
–
–
107.2
107.2
107.2
–
–
107.2
94.4
12.8
–
–
–
–
–
–
–
148.4
–
148.4
–
148.4
–
148.4
148.4
–
(6.1)
2.2
(3.9)
Total
£m
1,020.2
336.3
94.5
1,451.0
995.5
344.6
343.1
109.1
148.4
107.2
2,047.9
1,617.1
336.3
94.5
2,047.9
1,451.0
596.9
1.5
39.2
40.7
* 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
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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 2014. 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 75%,
of the valuations are within a small acceptable tolerance. Where the difference is more significant this is discussed with the valuer to
determine the reasons for the difference. Typically the reasons vary but it could be, for example, that further or better information about
internal condition is available or that respective valuers have placed a different interpretation on comparable sales. Once such reasons have
been identified the Group and the valuer agree the appropriate valuation that should be adopted as the directors’ valuation.
Overall, across all of the properties valued by Allsop LLP, the directors’ valuations were approximately 1.33% higher 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 2014 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 Group. Based on the results of that review Allsop LLP has concluded that they have a high degree of confidence in
those directors’ valuations.’ Allsop LLP also recommend the discount to apply to the vacant possession valuations to establish the market
value of each property. For property in UK residential the discounts are established by tenancy type and are based on evidence gathered
by Allsop LLP from recent transactional market evidence. 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 2014 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, which is deemed to be
the highest and best use, 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) Tricomm investment valuation
Allsop LLP has also valued as at 30 September 2014 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 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 (2014), and is based on a discounted cash flow model.
Significant unobservable inputs within the valuation relate to assumptions for house price inflation and the discount rates to apply to
the cash flows. The assumptions adopted for house prices are 4% in 2015 to 2018, 3.5% in 2019 and 3% thereafter. The discount rates
applied to the cash flows range between 4.9% and 9.5%.
iv) Retirement solutions
All of the property owned by the Group in the Retirement solutions portfolio was valued as at 30 September 2014 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.
106
Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS CONTINUED
v) Cushman and Wakefield – German residential
The whole of the property portfolio in Germany was valued as at 30 September 2014 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 IFRS 13.
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 (2014)
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’), Walworth Investment Properties Limited (‘WIP’) and MH Grainger JV Sarl, all
of which are shown within the Funds division. WIP is valued on the same basis as the GInvest portfolio. MH Grainger Sarl is valued on the
same basis as the German residential portfolio. Valuations of 100% of the GRIP portfolio were carried out at 30 June 2014 by external
valuers, Savills (UK) Limited. In aggregate, the valuation of the individual dwellings as at 30 June 2014 was £457.9m for all assets still held at
September. 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 2014 valuations based on the movement in house price indices to 30 September 2014 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 2014. The Group’s share of the revaluation gain based on the indexed revaluation was £4.5m. For every 1%
movement in the market value of the GRIP investment property the Group’s share of the movement would amount to £1.2m.
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 2014 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
4.8% growth in property prices in 2015 followed by growth in house prices of 4.4% in 2016, 3.9% in the following two years to 2018
with price increases thereafter in line with conservative historical house price growth rates. The assumptions also allow for an annual
vacancy rate of 7.6%. The Group does sell some property as investment sales, a sale with the tenant still in situ. A net realisable value
provision has been made at 30 September 2014 against projected investment sales.
In aggregate a credit of £0.5m has been made in the 2014 income statement (2013: credit of £0.9m) to adjust the book value of
trading properties to the lower of cost. 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.
107
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 2014 are based upon the current intentions of the directors. In addition,
estimates at 30 September 2014 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 credit of £2.7m has been made in the 2014 income statement (2013: charge of £0.2m) in adjusting the book value of development
stock to net realisable value. In addition a charge of £2.4m relating to a loan receivable secured against property (refer to note 25) has been
taken to the income statement (2013: £nil).
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 an increase of £1.0m (2013: decrease of £0.3m) in the fair
value 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 4.0% for 2015 and 2016, 3.5% to 2018, rising to 4.0% thereafter.
A change of 1% to average house price inflation over the 10-year period from 1 October 2014 would either increase the valuation by
£4.6m or reduce the valuation by £4.3m. At 30 September 2014 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 £0.7m (2013: £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 2014 should be the same as the rate adopted at 30 September 2013 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 £7.8m or reduce the carrying value by £6.8m.
We have considered the impact of changes to the vacation rate used in the cash flow model, and in the current year have made a
change to the vacation rate based on updated mortality tables and experience of the portfolio. The income statement impact was to
reduce profit by £1.7m.
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.
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Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
2 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS CONTINUED
Derivative financial instruments
Fair value measurements for derivative financial instruments are obtained from quoted market prices and/or valuation models as
appropriate. When not directly observable in active markets, the fair value of derivative contracts must be computed internally based on
internal assumptions as well as directly observable market information, including forward and yield curves for commodities, currencies
and interest. Changes in internal assumptions and forward curves could materially impact the internally computed fair value of derivative
contracts, particularly long-term contracts, resulting in corresponding impact on income or loss in the consolidated income statement.
The Group utilise an external independent valuer, J C Rathbone Associates Limited, to provide recommendations on the internal
assumptions which have been fully adopted by the directors.
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
2014 the LTV was 42% compared to a default level of 75% and the interest cover ratio was 3.7 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 2014,
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 £703.9m on 30 September 2014, of which £457.1m were drawn. The Group
had free cash balances plus available overdraft of £55.5m and undrawn committed facilities of £241.6m, in total, ‘headroom’, of £297.1m
at 30 September 2014. The next maturity on the core facility is in December 2014 when a repayment of £30m 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.
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3 ANALYSIS OF PROFIT BEFORE TAX
The results for the years ended 30 September 2013 and 2014 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.
2014
Valuation Non-recurring
–
(1.1)
–
–
–
(1.0)
–
–
–
–
–
–
–
–
(£m)
Group revenue
Net rental income
Profit on disposal of trading property
Administrative expenses
Fees and 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
Profit/(loss) on disposal of subsidiary
Profit on disposal of joint venture
Write back of inventories to net
realisable value
Impairment of joint venture
Operating profit before net valuation
gains on investment property
Net valuation gains on investment
property
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 of joint ventures after tax
Profit before tax
Trading
319.1
37.0
87.2
(34.7)
12.8
(2.6)
–
0.8
7.0
–
–
–
–
–
107.5
–
107.5
–
(66.3)
2.9
3.0
–
47.1
–
–
–
–
–
0.8
–
0.8
1.5
2.3
1.2
–
–
18.1
16.1
37.7
Total
319.1
35.9
87.2
(34.7)
12.8
(3.6)
–
0.8
7.0
–
0.7
0.1
0.8
(2.4)
Trading
283.2
48.5
75.5
(33.6)
12.9
(3.6)
–
2013
Valuation Non-recurring
–
–
–
–
–
(2.7)
–
–
–
–
–
–
–
(4.7)
1.8
6.1
–
–
–
–
–
–
–
–
–
–
0.7
–
–
–
2.1
(2.3)
–
–
–
Total
283.2
48.5
75.5
(33.6)
12.9
(6.3)
(4.7)
1.8
6.1
2.1
(2.3)
–
0.7
–
–
–
–
0.7
0.1
–
(2.4)
(3.7)
104.6
107.6
(4.0)
(2.9)
100.7
–
(3.7)
–
–
–
–
–
(3.7)
1.5
106.1
1.2
(66.3)
2.9
21.1
16.1
81.1
–
2.9
–
2.9
107.6
–
(73.3)
2.0
0.7
–
37.0
(1.1)
21.6
–
–
4.9
7.8
33.2
(2.9)
(13.7)
–
15.3
(4.6)
–
(5.9)
103.6
7.9
(73.3)
17.3
1.0
7.8
64.3
Profit before tax in the trading columns above of £47.1m (2013: £37.0m) is the recurring profit of the Group.
The £0.7m non-recurring profit on sale of subsidiary relates to the profit on sale of Equity Release (Increments) Limited to Clifden
Holdings Limited in January 2014. The £0.1m profit on sale of joint venture relates to the sale of the Group’s 50% share of Gebau
Vermogen GmbH to our joint venture partners in October 2013. The £2.4m impairment of joint venture relates to the Group’s investment
in CCZ a.s., CCY a.s. and Prazsky Project a.s. The Group incurred costs of £0.8m following the acquisition of the Chelsea Houses portfolio
shown within other expenses. The £1.1m non-recurring costs presented within net rental income relate to a provision for contractor
remedial costs which we expect to be recouped.
110
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
3 ANALYSIS OF PROFIT BEFORE TAX CONTINUED
The prior year 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 prior year non-recurring
charges of £2.7m under ‘other expenses’ primarily relate to transaction costs. The prior year £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 prior year £2.3m loss on sale of subsidiary relates to our German co-investment vehicle with Heitman.
4 SEGMENTAL INFORMATION
Information relating to the Group’s operating segments is set out in the tables below:
2014 Income statement
(£m)
Group revenue
Segment revenue-external
Net rental income
Profit on disposal of trading property
Administrative expenses
Fees and other income
Other expenses
Profit on disposal of investment property
Income from financial interest in
property assets
Operating profit before net valuation gains
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
Impairment of joint venture
Profit on disposal of subsidiary
Profit on disposal of joint venture
Change in fair value of derivatives
Share of valuation gains in joint ventures
and associates after tax
Other net non-recurring items
Profit before tax
UK
residential
Retirement
solutions
Fund and
third-party
management
UK and
European
development
German
residential
Other
Total
136.8
30.2
47.8
(8.3)
0.4
(0.1)
1.1
–
71.1
(8.4)
–
0.5
6.4
–
–
–
–
–
(2.0)
123.1
1.5
27.1
(2.3)
1.7
(0.1)
(0.1)
7.0
34.8
(9.1)
0.6
–
1.2
–
0.7
–
–
–
–
8.5
–
–
(4.6)
8.5
(1.5)
–
–
2.4
1.6
2.6
–
–
–
–
–
(0.2)
33.2
34.1
0.2
12.3
(1.6)
1.1
(0.1)
–
–
11.9
(1.0)
(0.1)
0.3
–
(2.4)
–
–
–
–
–
16.5
5.1
–
(3.1)
1.0
(0.1)
(0.2)
–
2.7
(2.7)
(0.1)
–
(6.1)
–
–
0.1
(0.1)
1.0
(0.1)
0.1
–
–
(14.8)
0.1
(0.7)
–
319.1
37.0
87.2
(34.7)
12.8
(2.6)
0.8
–
7.0
(15.4)
(43.8)
107.5
(63.4)
–
–
–
–
–
–
1.5
–
–
3.0
47.1
0.8
1.5
(2.4)
0.7
0.1
1.2
34.2
(2.1)
81.1
111
2013 Income statement
(£m)
Group revenue
Segment revenue-external
Net rental income
Profit on disposal of trading property
Administrative expenses
Fees and other income
Other expenses
Profit on disposal of investment property
Income from financial interest in
property assets
Operating profit before net valuation gains
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)
–
1.0
2.2
(4.7)
–
–
–
–
1.6
(1.5)
31.1
2.3
11.8
(2.7)
1.2
–
0.3
6.1
19.0
(9.3)
–
–
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)
–
283.2
48.5
75.5
(33.6)
12.9
(3.6)
1.8
–
6.1
(14.8)
(47.9)
–
–
–
–
–
–
21.6
–
–
(0.1)
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
Segmental revenue from external customers is derived as follows:
£302.6m from UK customers (2013: £261.1m)
£16.5m from Germany (2013: £22.1m).
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:
£444.4m within the UK (2013: £410.6m)
£166.7m in Germany (2013: £191.5m).
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 SEGMENTAL INFORMATION CONTINUED
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.
2014 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
UK
residential
216.2
768.0
631.5
Retirement
solutions
135.1
207.3
176.9
Fund and
third-party
management
87.4
92.7
87.4
UK and
European
development
56.1
65.3
63.5
German
residential
83.2
91.7
83.2
Other
(40.3)
(9.8)
(30.7)
Total
537.7
1,215.2
1,011.8
2014 Reconciliation of NAV measures
(£m)
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Intangible assets
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 assets
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 liabilities
Net assets
Adjustments
to market
value, deferred
tax and
derivatives
–
(0.4)
9.4
–
–
596.9
–
–
–
(9.6)
–
9.6
605.9
–
–
–
–
–
23.6
48.0
71.6
677.5
Statutory
balance sheet
332.9
103.5
73.6
94.5
2.2
1,020.2
74.9
74.4
2.1
12.2
3.4
–
1,793.9
(1,118.1)
(54.5)
(2.2)
(6.5)
(1.1)
(25.8)
(48.0)
(1,256.2)
537.7
Gross NAV
balance
sheet
332.9
103.1
83.0
94.5
2.2
1,617.1
74.9
74.4
2.1
2.6
3.4
9.6
2,399.8
(1,118.1)
(54.5)
(2.2)
(6.5)
(1.1)
(2.2)
–
(1,184.6)
1,215.2
Deferred and
contingent
tax
–
–
(7.7)
–
–
–
–
–
–
–
–
–
(7.7)
–
–
–
–
–
(143.2)
–
(143.2)
(150.9)
Derivatives
–
0.4
(0.5)
–
–
–
–
–
–
13.1
–
–
13.0
(17.5)
–
–
–
–
–
(48.0)
(65.5)
(52.5)
113
Triple NAV
balance
sheet
332.9
103.5
74.8
94.5
2.2
1,617.1
74.9
74.4
2.1
15.7
3.4
9.6
2,405.1
(1,135.6)
(54.5)
(2.2)
(6.5)
(1.1)
(145.4)
(48.0)
(1,393.3)
1,011.8
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 SEGMENTAL INFORMATION CONTINUED
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
30 September 2014
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Intangible assets
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
140.1
–
–
–
0.5
1,307.5
5.8
52.6
–
–
–
–
1,506.5
(746.9)
(7.6)
(2.2)
(0.6)
(0.8)
(103.2)
(13.7)
(875.0)
631.5
44.3
–
18.5
94.5
–
202.4
37.8
7.9
–
3.5
3.4
–
412.3
(193.8)
(26.5)
–
–
–
(15.1)
–
(235.4)
176.9
–
86.2
52.0
–
–
–
0.8
3.6
–
–
–
–
142.6
(55.0)
(0.1)
–
–
–
–
(0.1)
(55.2)
87.4
–
–
4.3
–
1.0
107.2
25.4
(6.4)
–
–
–
–
131.5
(59.4)
(6.8)
–
–
–
(1.8)
–
(68.0)
63.5
148.5
17.3
–
–
–
–
2.3
7.9
–
–
–
–
176.0
(80.4)
(5.1)
–
(0.1)
–
(3.0)
(4.2)
(92.8)
83.2
–
–
–
–
0.7
–
2.8
8.8
2.1
12.2
–
9.6
36.2
(0.1)
(8.4)
–
(5.8)
(0.3)
(22.3)
(30.0)
(66.9)
(30.7)
332.9
103.5
74.8
94.5
2.2
1,617.1
74.9
74.4
2.1
15.7
3.4
9.6
2,405.1
(1,135.6)
(54.5)
(2.2)
(6.5)
(1.1)
(145.4)
(48.0)
(1,393.3)
1,011.8
115
2013 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (NAV)
Total segment net assets (NNNAV)
2013 Reconciliation of NAV measures
(£m)
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Intangible assets
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 assets
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 liabilities
Net assets
UK
residential
164.5
546.1
455.7
Retirement
solutions
131.6
198.4
172.4
Fund and
third-party
management
68.6
71.1
68.6
UK and
European
development
57.0
59.4
58.9
German
residential
91.5
100.9
91.5
Other
(47.7)
32.1
(36.2)
Total
465.5
1,008.0
810.9
Adjustments to
market value,
deferred tax
and derivatives
–
(0.3)
1.6
–
–
433.0
–
–
–
(18.3)
–
11.5
427.5
–
(2.9)
–
–
2.9
23.9
91.1
115.0
542.5
Statutory
balance sheet
354.1
88.2
57.7
96.3
1.4
949.6
43.1
90.3
0.6
20.1
9.9
–
1,711.3
(1,049.0)
(58.7)
(4.1)
(13.9)
(3.3)
(25.7)
(91.1)
(1,245,8)
465.5
Gross NAV
balance sheet
354.1
87.9
59.3
96.3
1.4
1,382.6
43.1
90.3
0.6
1.8
9.9
11.5
2,138.8
(1,049.0)
(61.6)
(4.1)
(13.9)
(0.4)
(1.8)
–
(1,130.8)
1,008.0
Deferred and
contingent tax
–
–
(3.5)
–
–
–
–
–
–
–
–
–
(3.5)
–
–
–
–
–
(110.0)
–
(110.0)
(113.5)
Derivatives
–
0.3
(0.7)
–
–
–
–
–
–
20.9
–
–
20.5
(13.0)
–
–
–
–
–
(91.1)
(104.1)
(83.6)
Triple NAV
balance sheet
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
(1,062.0)
(61.6)
(4.1)
(13.9)
(0.4)
(111.8)
(91.1)
(1,344.9)
810.9
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Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
4 SEGMENTAL INFORMATION CONTINUED
In order to provide further analysis the following table sets out NNNAV assets and liabilities by segment.
Segment assets and liabilities for NNNAV
30 September 2013
(£m)
NNNAV assets
Investment property
Investment in associates
Investment in joint ventures
Financial interest in property assets
Intangible assets
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
1,009.4
6.0
31.7
–
–
–
–
1,183.2
(622.8)
(9.8)
–
(0.6)
–
(94.3)
–
(727.5)
455.7
46.2
–
15.8
96.3
–
288.9
2.4
5.3
–
2.7
3.9
–
461.5
(247.3)
(24.9)
–
(3.1)
–
(13.8)
–
(289.1)
172.4
–
69.4
36.2
–
–
–
2.2
1.0
–
0.1
–
–
108.9
(40.2)
(0.1)
–
–
–
–
–
(40.3)
68.6
–
–
2.7
–
–
84.3
28.1
3.9
–
–
–
–
119.0
(49.6)
(10.0)
–
–
–
(0.5)
–
(60.1)
58.9
172.3
18.8
0.4
–
0.4
–
2.5
8.1
–
1.0
6.0
–
209.5
(102.1)
(6.6)
–
(0.8)
–
(3.2)
(5.3)
(118.0)
91.5
–
–
–
–
0.5
–
1.9
40.3
0.6
18.9
–
11.5
73.7
–
(10.2)
(4.1)
(9.4)
(0.4)
–
(85.8)
(109.9)
(36.2)
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
(1,062.0)
(61.6)
(4.1)
(13.9)
(0.4)
(111.8)
(91.1)
(1,344.9)
810.9
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
117
2013
£m
71.3
5.7
193.3
12.9
283.2
2013
£m
71.3
5.7
(21.7)
(6.8)
48.5
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£m
57.4
4.2
244.7
12.8
319.1
2014
£m
57.4
4.2
(20.4)
(5.3)
35.9
There are no contingent rents recognised within net rental income in 2014 or 2013 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
2014
£m
244.7
(6.1)
238.6
(151.4)
87.2
2013
£m
193.3
(5.1)
188.2
(112.7)
75.5
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2014
£m
22.5
(0.6)
21.9
(12.5)
(8.6)
0.8
2013
£m
153.8
(1.9)
151.9
(122.2)
(27.9)
1.8
During the prior year the Group sold investment properties into joint ventures and associates as noted in notes 20 and 21. The total
proceeds and carrying value disclosed above were adjusted to reflect the proportion of the sale that related to an external party only.
The adjustment to carrying value amounted to £68.0m, resulting in a carrying value of £190.2m as shown in note 18.
9 ADMINISTRATIVE EXPENSES
Total Group administrative expenses
10 FEES AND 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
2014
£m
34.7
2014
£m
12.3
0.5
12.8
2014
£m
0.9
2.5
0.2
3.6
2013
£m
33.6
2013
£m
12.5
0.4
12.9
2013
£m
2.4
2.7
1.2
6.3
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)
2014
£m
15.7
0.5
1.3
1.0
2.0
20.5
Interest on net pension scheme liabilities amounted to £0.2m in 2014 (2013: £0.1m) and is included within finance costs (see note 14).
The average monthly number of Group employees during the year (including executive directors) was:
119
2013
£m
15.0
0.2
1.7
0.9
2.3
20.1
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UK residential
Retirement solutions
UK and European development
German residential
Shared services
Group
2014
Number
97
15
10
15
118
15
270
2013
Number
96
17
10
10
119
15
267
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 64 to 67.
Key management compensation
Short-term employee benefits
Post-employment benefits
Share-based payments
Payments for loss of office
2014
£m
6.4
0.4
1.4
0.4
8.6
2013
£m
6.5
0.4
1.6
–
8.5
Key management figures shown include executive and non-executive directors and all internal directors of specific functions.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
13 PROFIT BEFORE TAX
Profit before tax is stated after charging/(crediting):
Depreciation on fixtures, fittings and equipment (see note 19)
Impairment of goodwill (see note 23)
Amortisation of IT software (see note 23)
Bad debt expense (see note 25)
Foreign exchange losses
Operating lease payments
Auditors’ remuneration (see below)
The remuneration paid to PricewaterhouseCoopers LLP, the Group’s principal auditors, is disclosed below:
Auditors’ remuneration
Fee’s payable to the Company’s auditors and their associates for the audit of the Company’s annual accounts
Fee’s 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
Tax advisory services
Other assurance services
Other services not covered above
Total fees
2014
£m
0.3
–
0.6
1.2
(0.1)
1.3
0.4
2014
£’000
117
134
76
74
22
423
2013
£m
0.2
4.7
–
0.2
(0.2)
1.5
0.5
2013
£’000
124
143
85
85
8
445
During the year, £76,000 was paid by the Group to PricewaterhouseCoopers LLP for tax services. A further £74,000 was paid for other
services, which was made up of payments relating to comfort letters on the prospectus to be issued relating to the bond issuance on the
Irish Stock Exchange as well as work on the system migration.
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 57 to 59. No services were provided pursuant to contingent fee arrangements.
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 TAX
Current tax
Corporation tax on profit
Adjustments relating to prior years
Deferred tax
Origination and reversal of temporary differences
Adjustments relating to prior years
Impact of tax rate change
Income tax charge for the year
121
2014
£m
2013
£m
40.2
19.2
1.2
–
0.1
5.4
0.2
66.3
2.4
0.3
0.2
–
2.9
63.4
2014
£m
5.3
(5.5)
(0.2)
7.6
(1.0)
–
6.6
6.4
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
The 2014 current tax adjustments relating to prior years include the release of a provision of £3.1m and the utilisation of tax losses and
other reliefs available to the Group which have been included in submitted tax returns of £2.4m.
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.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 TAX CONTINUED
Movements in tax during the year are set out below:
2014 Movement in tax
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 – 2014 movement
Deferred tax balances are disclosed as follows:
Deferred tax assets: non-current assets
Deferred tax liabilities: non-current liabilities
Deferred tax
Opening
balance
£m
13.9
Payments
made in
the year
£m
(7.2)
Movements
recognised in
income
£m
(0.2)
Exchange
adjustments
£m
–
Transfers
£m
–
Movements
recognised
in other
comprehensive
income
£m
–
Closing balance
£m
6.5
18.9
4.9
0.8
(15.6)
(0.5)
1.0
(3.9)
5.6
19.5
–
–
–
–
–
–
–
–
(7.2)
–
–
–
(1.9)
–
–
1.9
–
–
(1.7)
1.9
–
6.4
–
–
–
6.6
6.4
–
(0.2)
–
–
–
–
–
(0.2)
(0.2)
–
–
–
–
0.1
0.2
1.3
1.6
1.6
2014
£m
12.2
(25.8)
(13.6)
17.2
6.6
0.8
(11.1)
(0.4)
1.2
(0.7)
13.6
20.1
2013
£m
20.1
(25.7)
(5.6)
Deferred tax has been predominantly calculated at a rate of 20% (2013: 20%).
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 £119.6m (2013: £86.1m).
No benefit has been recognised in respect of deductible temporary differences with a tax value of £1.4m (2013: £1.1m).
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.
2013 Movement in tax
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 – 2013 movement
Opening
balance
£m
24.4
Payments
made in
the year
£m
(16.4)
Movements
recognised in
income
£m
5.9
Exchange
adjustments
£m
–
Transfers
£m
–
Movements
recognised
in other
comprehensive
income
£m
–
29.5
6.1
0.7
(32.6)
(0.7)
1.2
(10.9)
(6.7)
17.7
–
–
–
–
–
–
–
–
(16.4)
–
–
–
0.2
–
–
(0.2)
–
–
(10.6)
(1.5)
0.1
16.8
–
–
–
4.8
10.7
–
0.3
–
–
–
–
(0.1)
0.2
0.2
The tax charge for the year of £6.4m (2013: £10.7m) comprises:
UK tax
Overseas tax
123
Closing
balance
£m
13.9
18.9
4.9
0.8
(15.6)
(0.5)
1.0
(3.9)
5.6
19.5
2013
£m
11.8
(1.1)
10.7
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–
–
0.2
(0.2)
7.3
7.3
7.3
2014
£m
7.3
(0.9)
6.4
The main rate of corporation tax in the UK changed from 23% to 21% with effect from 1 April 2014 and will change to 20% from 1 April
2015. Accordingly, the Group’s results for this accounting period are taxed at an effective rate of 22% and should be taxed at 20.5% in the
2015 period. The change in tax rate has no impact on the income statement in the current year (2013: £0.2m credit).
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15 TAX CONTINUED
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 22%
(2013: 23.5%) to the profit before tax. The differences are explained below:
Profit before tax
Profit before tax at a rate of 22% (2013: 23.5%)
Expenses not deductible for tax purposes
Goodwill impairment not tax deductible
Impact of tax rate change
Included in share of joint ventures/associates after tax
Other losses and non-taxable items
Adjustment in respect of prior periods
2014
£m
81.1
17.8
1.1
–
–
(4.2)
(1.8)
(6.5)
6.4
2013
£m
64.3
15.1
1.6
1.1
(0.2)
–
0.6
(7.5)
10.7
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 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 2012 – 1.37p per share
Interim dividend for the year ended 30 September 2013 – 0.58p per share
Final dividend for the year ended 30 September 2013 – 1.46p per share
Interim dividend for the year ended 30 September 2014 – 0.61p per share
2014
£m
2013
£m
–
–
6.0
2.5
8.5
5.6
2.4
–
–
8.0
A final dividend in respect of the year ended 30 September 2014 of 1.89p per share amounting to £7.8m will be proposed at the 2015
AGM. If approved, this dividend will be paid on 6 February 2015 to shareholders on the register at close of business on 30 December 2014.
The 2014 interim dividend of 0.61p per share was paid in July 2014. This gives a total dividend for 2014 of 2.50p per share (2013: 2.04p
per share).
125
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 2014 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.
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30 September 2014
30 September 2013
Weighted
average
number of
shares
(thousands)
Profit for
the year
£m
Earnings
per share
pence
Profit for
the year
£m
Weighted
average
number of
shares
(thousands)
74.7
411.806
–
4.333
74.7
416.139
18.1
(0.2)
17.9
Basic earnings per share
Profit attributable to equity holders
Effect of potentially dilutive securities
Share options and contingent shares
Diluted earnings per share
Profit attributable to equity holders
18 INVESTMENT PROPERTY
Opening balance
Additions
Disposals
Transfer to assets classified as held-for-sale
Net valuation gains
Exchange adjustments
Closing balance
Earnings
per share
pence
13.1
(0.3)
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410.808
–
7.234
53.6
418.042
12.8
2014
£m
354.1
3.4
(12.5)
(2.2)
1.5
(11.4)
332.9
2013
£m
525.9
4.3
(190.2)
(1.3)
2.9
12.5
354.1
The Group has valued all of its investment property as at 30 September 2014 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.
126
Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
18 INVESTMENT PROPERTY CONTINUED
A net revaluation gain of £1.5m has arisen on valuation of investment property to fair value as at 30 September 2014 (2013: £2.9m) and
this has been taken to the income statement.
The historical cost of the Group’s investment property as at 30 September 2014 is £351.6m (2013: £365.5m).
Rental income from investment property during the year was £22.1m (2013: £32.7m).
Direct property repair and maintenance costs arising from investment property that generated rental income during the year was
£7.4m (2013: £9.2m).
The decrease in value of £11.4m (2013: increase of £12.5m) relates to an exchange movement on the Group’s German residential
property. This reflects the movement in the Sterling/Euro exchange rate between the respective year end dates, and is shown within other
comprehensive income.
19 PROPERTY, PLANT AND EQUIPMENT
Cost
Opening cost
Additions
Disposals
Reclassification to intangible assets
Foreign exchange gains
Closing cost
Accumulated depreciation
Opening accumulated depreciation
Charge for the year
Disposals
Reclassification to intangible assets
Foreign exchange gains
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
2014
£m
5.3
1.3
(0.1)
–
0.1
6.6
4.7
0.3
(0.1)
–
(0.4)
4.5
2.1
0.6
Total
2013
£m
5.5
0.1
–
(0.3)
–
5.3
4.7
0.2
–
(0.2)
–
4.7
0.6
0.8
20 INVESTMENT IN ASSOCIATES
Opening balance
Share of profit
Further investment
Dividends received
Loans advanced to associates
Interest received
Exchange movements
Share of change in fair value of cash flow hedges taken through other comprehensive income
Closing balance
127
2013
£m
41.2
1.0
55.5
(48.2)
35.6
–
0.1
3.0
88.2
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2014
£m
88.2
21.1
–
(3.4)
0.7
(1.2)
(1.4)
(0.5)
103.5
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 prior year the Group increased its holding in G:res1 Limited from 21.96% to 26.2% and recognised 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 in 2013, £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, in 2013 the Group made a profit on acquisition of equity in associate of £2.1m and this was 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 2014, the Group’s interest in associates was as follows:
G:res1 Limited
GRIP Unit Trust
MH Grainger JV Sarl*
2014
£m
–
–
–
2013
£m
1.1
1.0
2.1
% of ordinary
share capital/
Country of
units held
incorporation
26.2
Jersey
Jersey
24.9
21.0 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 & Co.KG (‘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 2014. Their results for the 12 months to 30 September 2014 and their financial
position as at that date have been equity accounted in these financial statements.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
20 INVESTMENT IN ASSOCIATES CONTINUED
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)
2013 Reconciliation to cash flow
2014
£m
164.6
14.5
(68.3)
(7.3)
103.5
9.6
21.1
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
55.5
Cash
distribution
received
£m
(48.2)
Loans
advanced to
associates
£m
35.6
Net assets
acquired
through sale of
assets into
joint venture
£m
21.4
Distributions
received
£m
(0.6)
Loans
advanced to
joint ventures
£m
9.7
Consolidated
statement of
cashflows
£m
–
–
(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)
2013 Reconciliation to cash flow
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
Due to the number of transactions relating to amounts in the prior year, a detailed reconciliation of movements and cashflows is shown above.
21 INVESTMENT IN JOINT VENTURES
At 1 October 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
Loans advanced
Decrease in provisions against loans
Interest received
Disposal
Share of profit
Exchange adjustment
Distributions received
At 30 September 2014
129
Total
£m
19.2
9.7
0.3
21.4
7.8
(0.3)
0.2
(0.6)
57.7
2.8
(0.4)
(0.3)
(0.4)
16.1
(1.0)
(0.9)
73.6
Net
assets
£m
14.5
–
–
21.4
7.8
(0.3)
0.1
(0.6)
42.9
–
–
–
(0.4)
14.4
(0.1)
(0.9)
55.9
Loans
£m
4.7
9.7
0.3
–
–
–
0.1
–
14.8
2.8
(0.4)
(0.3)
–
1.7
(0.9)
–
17.7
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), resulting in a profit on sale of £0.1m following receipt of a dividend.
The £1.7m profit on loans in the year relates to a release of provisions against future losses and impairments.
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.
At 30 September 2014, the Group’s interest in joint ventures was as follows:
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.
% of ordinary share capital held
50
50
50
50
50
50
50
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Czech Republic
Czech Republic
Czech Republic
The accounting period end of Curzon Park Limited is 28 February. The results for the 12 months to 30 September 2014 and the financial
position as at that date have been equity accounted in these financial statements.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 INVESTMENT IN JOINT VENTURES CONTINUED
The accounting period end of King Street Developments (Hammersmith) Limited is 31 March. The results for the 12 months to
30 September 2014 and the financial position as at that date have been equity accounted in these financial statements.
The White Paper on the proposed High Speed Rail Network from London to Birmingham indicates that the potential route will cover
at least part of our development site at Curzon Park in Birmingham. We are assessing the long-term impact with our advisers and aim
to collaborate with other affected owners in the area. In view of the uncertainty relating to the future of the Curzon Park site, the Group
is seeking advice in order to protect its position. Should the value of the site, together with any compensation received, be insufficient
to repay the bank loan in the joint venture entity and recover the carrying value of the Group’s investment, the Group may incur further
charges. HS2 remains a clear policy from this government and HS2 Ltd, part of Department of Transport, continue to prepare the work
required to allow the proposal to be submitted to parliament later this year. This subsequently targets a date at the end of 2015 for Royal
Assent by parliament (legal permission to construct line), leading to Compulsory Purchase Orders (CPO) in 2016. We have no current view
from advisers on possible CPO value. If the CPO did occur it is most likely that only part of the site would be subject to CPO, as only part
of the site is on the line of the new railway/station. We could therefore have the opportunity to develop the remainder of the site, as a
gateway next to the new HS2 station.
As a result of challenges to the planning consent obtained in relation to the Czech Republic joint ventures, the directors have reviewed
the carrying value of the investment and impaired the investment by £2.4m to leave a carrying value of £nil.
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.
2014 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
Net realisable value provision movement
(Loss)/profit before tax
Tax
(Loss)/profit after tax
Czech Republic
combined
£m
–
–
–
–
–
(0.3)
–
–
(0.3)
–
(0.3)
King Street
Developments
(Hammersmith)
Limited
£m
–
–
–
–
–
–
–
–
–
–
–
Curzon Park
Limited
£m
–
–
–
–
–
(0.1)
–
(1.3)
(1.4)
–
(1.4)
New Sovereign
Reversions
Limited
£m
–
(0.5)
1.1
0.6
–
(0.6)
–
–
–
0.5
0.5
Walworth
Investment
Properties
Limited
£m
1.5
–
0.2
1.7
19.5
(1.6)
(0.1)
–
19.5
(3.9)
15.6
Total
£m
1.5
(0.5)
1.3
2.3
19.5
(2.6)
(0.1)
(1.3)
17.8
(3.4)
14.4
2014 Summarised statement of financial position
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Czech Republic
combined
£m
12.0
0.7
12.7
(3.3)
(8.4)
1.0
King Street
Developments
(Hammersmith)
Limited
£m
3.1
0.1
3.2
(3.2)
–
–
New Sovereign
Reversions
Limited
£m
25.6
1.9
27.5
(11.3)
(1.9)
14.3
Curzon Park
Limited
£m
17.3
0.1
17.4
(12.4)
(9.5)
(4.5)
Walworth
Investment
Properties
Limited
£m
84.6
3.4
88.0
(36.8)
(6.1)
45.1
131
Total
£m
142.6
6.2
148.8
(67.0)
(25.9)
55.9
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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.
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
Tax
(Loss)/profit after tax
Czech Republic
combined
£m
–
–
–
–
King Street
Developments
(Hammersmith)
Limited
£m
–
–
–
–
New Sovereign
Reversions
Limited
£m
–
(0.4)
0.7
0.3
Curzon Park
Limited
£m
–
–
–
–
Gebau
Vermogen
GmbH
£m
2.5
(2.5)
–
–
Walworth
Investment
Properties
Limited
£m
0.7
–
0.1
0.8
–
(0.3)
–
(0.3)
–
(0.3)
–
(0.2)
–
(0.2)
–
(0.2)
–
–
–
–
–
–
–
(0.7)
0.3
(0.1)
0.1
–
–
–
–
–
–
–
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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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
21 INVESTMENT IN JOINT VENTURES CONTINUED
2013 Summarised statement of financial position
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets/(liabilities)
Czech Republic
combined
£m
13.4
1.3
14.7
(6.1)
(7.1)
1.5
King Street
Developments
(Hammersmith)
Limited
£m
2.8
0.1
2.9
(2.9)
–
–
New Sovereign
Reversions
Limited
£m
27.7
1.4
29.1
(12.7)
(1.8)
14.6
Curzon Park
Limited
£m
18.6
–
18.6
(5.4)
(16.3)
(3.1)
Gebau
Vermogen
GmbH
£m
–
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
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
2014
£m
96.3
(9.8)
7.0
1.0
94.5
Total
£m
128.8
5.1
133.9
(57.1)
(33.9)
42.9
2013
£m
99.0
(8.5)
6.1
(0.3)
96.3
Financial interest in property assets relates to the CHARM portfolio, which is a financial interest in equity mortgages held by the Church
of England Pensions Board as mortgagee. It is accounted for under IAS 39 in accordance with the designation available-for-sale financial
assets and is valued at fair value.
The CHARM portfolio is considered to be a Level 3 financial asset as defined by IFRS 13. 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
Cost
Opening cost at 1 October 2013
Additions
Closing cost at 30 September 2014
Accumulated amortisation
Opening accumulated amortisation at 1 October 2013
Charge for the year
Closing accumulated amortisation at 30 September 2014
Net book value
Closing net book value at 30 September 2014
Opening net book value at 1 October 2013
Cost
Opening cost at 1 October 2012
Additions
Reclassified from property, plant and equipment
Impairment charge taken to income statement
Closing cost at 30 September 2013
Accumulated amortisation
Accumulated amortisation at 1 October 2012 and 30 September 2013
Net book value
Closing net book value at 30 September 2013
Opening net book value at 1 October 2012
133
Goodwill
£m
IT Software
£m
Total
£m
0.6
–
0.6
–
–
–
0.6
0.6
0.8
1.4
2.2
–
0.6
0.6
1.6
0.8
1.4
1.4
2.8
–
0.6
0.6
2.2
1.4
Goodwill
£m
IT Software
£m
Total
£m
5.3
–
–
(4.7)
0.6
–
0.6
5.3
–
0.7
0.1
–
0.8
–
0.8
–
5.3
0.7
0.1
(4.7)
1.4
–
1.4
5.3
Goodwill is tested annually for impairment based on a value in use calculation. The prior 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.
24 INVENTORIES – TRADING PROPERTY
Residential trading property*
Development trading property
* Residential trading property comprises assets held within the UK residential and Retirement solutions divisions.
2014
£m
925.8
94.4
1,020.2
2013
£m
871.9
77.7
949.6
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
24 INVENTORIES – TRADING PROPERTY CONTINUED
The market value of inventories as at 30 September 2014 was £1,617.1m (2013: £1,382.6m).
Provisions of £0.8m against the net realisable value of residential trade property have been written back to the consolidated income
statement in the year (2013: £0.7m). 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
2014
£m
62.4
(2.2)
60.2
5.5
9.2
74.9
2013
£m
31.3
(1.3)
30.0
7.4
5.7
43.1
Trade receivables includes deferred consideration receivable of £4.0m (2013: £13.5m) from sales within our Development division at our
previously held Gateshead College site and £35.0m from the Retirement Solutions division relating to the portfolio sale to Clifden Holdings
Limited due for payment in January 2015.
Other receivables include a loan of £3.7m (2013: £4.3m) 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 financial instruments’.
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 year as not recoverable
Unused amounts reversed
Closing balance
2014
£m
1.3
1.8
(0.3)
(0.6)
2.2
2013
£m
1.4
0.8
(0.7)
(0.2)
1.3
The charge relating to the creation 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:
Pounds Sterling
Euros
2014
£m
72.6
2.3
74.9
2013
£m
40.6
2.5
43.1
26 PROVISIONS FOR OTHER LIABILITIES AND CHARGES
Opening balance
Transfer from other payables
Addition
Utilisation
Released
Closing balance
Current
Non-current
2014
£m
2.9
–
0.9
(2.5)
(0.5)
0.8
2013
£m
–
0.7
3.1
(0.7)
(0.2)
2.9
2014
£m
0.4
–
–
(0.1)
–
0.3
135
2013
£m
0.5
–
–
(0.1)
–
0.4
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The Group holds a non-current provision of £0.3m (2013: £0.4m) that relates to the estimated cost of providing private medical insurance
to former directors of BPT Limited.
In addition, a provision of £0.8m (2013: £2.5m) 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 prior year current provision also
included £0.4m relating to costs associated with the exit from our Gebau Vermogen GmbH joint venture (see note 21), which was settled
in the year.
27 TRADE AND OTHER PAYABLES
Deposits received
Trade payables
Tax and social security
Accruals and deferred income
2014
£m
2.4
12.0
2.4
37.7
54.5
2013
£m
2.1
10.4
3.1
43.1
58.7
Accruals and deferred income includes £12.9m (2013: £14.9m) 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 that is expected to be released to the income statement within the next 12 months.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
28 INTEREST-BEARING LOANS AND BORROWINGS
Current liabilities
Bank loans
Non-bank financial institution
Mortgages
Convertible bond
Corporate bond
Non-current liabilities
Bank loans
Non-bank financial institution
Mortgages
Corporate bond
Total interest-bearing loans and borrowings
2014
£m
33.5
(0.1)
0.3
–
(0.6)
33.1
2013
£m
12.6
5.2
0.3
24.3
–
42.4
612.6
182.6
18.0
271.8
1,085.0
1,118.1
810.5
176.5
19.6
–
1,006.6
1,049.0
The analysis of current liabilities above includes unamortised issue costs which will be released to the income statement.
The analysis of the loans and borrowings in the below tables (a) to (e) is before deducting unamortised issue costs of £12.7m
(2013: £12.9m) relating to the raising of the loan finance and the addition of a premium raised on the second issue (tap issue) on
the corporate bond, which is treated as a liability on the balance sheet and amortised using the effective interest rate method. As at
30 September 2014 the unamortised premium was £0.8m (2013: £nil).
(a) Analysis of bank loans
Bank loans – Pounds Sterling
Bank loans – Euro
2014
£m
497.8
155.8
653.6
2013
£m
655.1
179.9
835.0
Sterling bank loans include variable rate loans bearing interest at rates between 2.2% and 3.8% above LIBOR and Euro bank loans include
variable rate loans bearing interest at rates between 0.8% and 2.2% above EURIBOR. Fixed rate loans bear interest at rates between 5.2%
and 6.3%.
The weighted average variable interest rate on bank loans as at 30 September 2014 was 2.8% (2013: 2.7%). 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 – Pounds Sterling
Variable rate – Pounds Sterling
2014
£m
83.1
100.0
183.1
2013
£m
82.6
100.0
182.6
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
137
2014
£m
18.2
2013
£m
19.9
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
Repaid during the year
Closing balance (Pounds Sterling)
The convertible bond reached maturity in May 2014 and the nominal value was repaid in full.
(e) Corporate bond
Corporate bond - Pounds Sterling
2014
£m
24.3
0.6
(24.9)
–
2014
£m
275.0
2013
£m
23.5
0.8
–
24.3
2013
£m
–
The £275m, 5.0% secured corporate bond, due December 2020, was issued in the financial year ended September 2014. The primary
issue was £200m issued at par in November 2013 with a secondary tap issue in August 2014 at £75m issued at 101.125%. The premium
on the tap issue will be amortised to the income statement using the effective interest rate method.
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 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
More than five years
Total non-current interest bearing loans and borrowings
2014
£m
33.1
516.8
73.3
494.9
1,085.0
1,118.1
2013
£m
42.4
149.4
601.8
255.4
1,006.6
1,049.0
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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
2014
–
65.7
74.4
140.1
–
–
–
–
–
–
–
–
94.5
94.5
94.5
–
–
94.5
65.7
74.4
234.6
65.7
74.4
234.6
–
–
–
–
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
–
–
–
–
–
–
–
–
42.8
42.8
–
–
–
5.2
5.2
1,085.0
1,085.0
1,102.5
33.1
54.5
–
1,172.6
33.1
54.5
48.0
1,220.6
33.1
54.5
48.0
1,238.1
17.5
–
–
–
17.5
140.1
(42.8)
(5.2)
(1,078.1)
(986.0)
(1,003.5)
(17.5)
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
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, Partnership Assurance Group plc, UniCredit Bank
AG and the Corporate Bond, 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.
139
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
12.2
–
0.8
–
–
13.0
127.7
(80.8)
(10.3)
(971.6)
(935.0)
(948.0)
(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)
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED
Financial risk management
The Group’s objectives for managing financial risk are to minimise the risk of adverse effects on performance and to ensure the ability of
the Group to continue as a going concern while securing access to cost-effective finance and maintaining flexibility to respond quickly to
opportunities that 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, credit availability 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 2014 £4.0m (2013: £13.5m) was outstanding from one (2013: two) counterparties.
In addition there is £35.0m deferred consideration due from portfolio sales from the Retirement Solutions division. The Group is protected
from credit risk by a call option over the entire share capital of the entity sold to the counterparty, which expires on settlement of the
deferred consideration.
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 £1.9m (2013: £2.1m) are held that 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 £60.2m, we consider £40.8m to be not due and not impaired.
Of the £5.5m other receivables balance, £5.1m is considered not due and not impaired.
As at 30 September 2014, tenant arrears of £2.2m within trade receivables were impaired and fully provided for (2013: £1.3m).
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
2014
£m
0.1
2.1
2013
£m
0.1
1.2
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Rental receivables are due on demand and hence all balances outstanding at the year end are past due. The balances within trade
receivables that 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
2014
£m
2.2
2014
£m
2.2
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2013
£m
1.3
2013
£m
1.4
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 2014, the fair value of all interest rate derivatives that had a positive value was £nil (2013: £nil).
At 30 September 2014, the combined credit exposure arising from cash held at banks, money market deposits and interest rate swaps
was £74.4m (2013: £90.3m), which represents 4.2% (2013: 5.2%) of total assets. Deposits were placed with financial institutions with A-
or better credit ratings.
The Group has the following cash and cash equivalents:
Pounds Sterling
Euros
Czech Koruna
Cash and cash equivalents can be analysed as follows:
Cash at bank
Short-term deposits
2014
£m
66.3
7.9
0.2
74.4
2014
£m
63.8
10.6
74.4
2013
£m
82.0
8.1
0.2
90.3
2013
£m
52.8
37.5
90.3
Included within 2014 year end cash balances is £9.0m (2013: £8.6m) 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, £10.6m was placed on deposit (2013: £37.5m) at effective interest rates between 0.42% and 0.50% (2013: 0.30%
and 0.42%). 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 2014 (2013: £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 2014 and as at 30 September 2014 (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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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED
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 for borrowings only. 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 2014
Interest-bearing loans and borrowings
Cash flow hedges
Derivatives at fair value through profit and loss
Trade and other payables
At 30 September 2013
Interest-bearing loans and borrowings
Cash flow hedges
Derivatives at fair value through profit and loss
Trade and other payables
Reconciliation of maturity analysis
At 30 September 2014
Interest-bearing loans and borrowings (see note 28)
Foreign exchange impact of forward rates
Interest
Unamortised borrowing costs
Unamortised bond premium
Financial liability cash flows shown above
Less than
1 year
£m
77.1
2.9
9.7
43.4
Less than
1 year
£m
98.3
3.6
12.4
43.8
Less than
1 year
£m
33.1
–
39.8
4.3
(0.1)
77.1
Between
1 and 2
years
£m
560.3
1.8
5.6
–
Between
1 and 2
years
£m
198.0
3.8
16.7
–
Between
1 and 2
years
£m
516.8
–
40.2
3.4
(0.1)
560.3
Between
2 and 5
years
£m
155.4
0.5
11.0
–
Between
2 and 5
years
£m
687.2
2.9
27.0
–
Between
2 and 5
years
£m
73.3
–
78.9
3.6
(0.4)
155.4
More than 5
years
£m
613.5
–
16.5
–
More than 5
years
£m
409.7
–
24.7
–
More than 5
years
£m
494.9
0.5
116.9
1.4
(0.2)
613.5
Total
£m
1,406.3
5.2
42.8
43.4
Total
£m
1,393.2
10.3
80.8
43.8
Total
£m
1,118.1
0.5
275.8
12.7
(0.8)
1,406.3
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
42.4
(0.6)
52.1
4.4
98.3
Between
1 and 2
years
£m
149.4
(0.9)
45.7
3.8
198.0
Between
2 and 5
years
£m
601.8
0.8
81.1
3.5
687.2
More than 5
years
£m
255.4
0.5
152.6
1.2
409.7
The Group’s undrawn committed borrowing facilities are monitored against projected cash flows.
Maturity of committed undrawn borrowing facilities
Expiring:
Between one and two years
Between two and five years
More than five years
2014
£m
207.9
3.7
30.0
241.6
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Total
£m
1,049.0
(0.2)
331.5
12.9
1,393.2
2013
£m
10.8
183.7
30.0
224.5
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 (2013: 1 percent) movement in interest rates, a +/- 10 percentage point (2013: 10
percentage point) movement in Sterling and a +/- 1 percentage point (2013: 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 13 sets out a three-tier hierarchy for financial assets and liabilities valued at fair value. These are as follows:
Level 1 – quoted prices (unadjusted) in active markets for identical assets and liabilities;
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 – unobservable inputs for the asset or liability.
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. The significant unobservable inputs affecting
the carrying value are house price inflation and effective interest rate. Further details regarding the basis of valuation and the sensitivity to
changes in the key valuation assumptions are documented in note 2, ‘Critical accounting estimates and assumptions’. Note 22 provides a
reconciliation of movements and amounts recognised in the income statement and other comprehensive income.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED
The Tricomm Holdings portfolio falls within Level 3. The Investment valuation provided by Allsop LLP, which is based on a discounted
cash flow model in accordance with RICs Valuation Professional Standards (2014), includes a number of unobservable inputs and other
valuation assumptions. Further details of these assumptions and significant unobservable inputs are documented in note 2, ‘Critical
accounting estimates and assumptions’. The reconciliation between opening and closing balances is detailed in the table below.
Opening balance
Amounts taken to income statement
Closing balance
The following table presents the Group’s assets and liabilities that are measured at fair value.
2014
£m
105.9
3.2
109.1
2013
£m
106.2
(0.3)
105.9
Level 3
Financial interest in property assets
Tricomm Holdings portfolio
Level 2
Interest rate swaps – in cash flow hedge accounting relationships
Interest rate swaps – not in cash flow hedge accounting relationships
Interest-bearing loans and borrowings
Investment property
Assets classified as held-for-sale
2014
2013
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
94.5
109.1
203.6
–
–
–
223.8
3.4
227.2
–
–
–
5.2
42.8
418.6
–
–
466.6
96.3
105.9
202.2
–
–
–
248.2
9.9
258.1
–
–
–
10.3
80.8
174.5
–
–
265.6
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 2014 was £334.2m
(2013: £532.4m).
All of the financial derivatives included in the above table were valued by external consultants, J C Rathbone Associates Limited, 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.
145
A valuation was carried out at 30 September 2014 by external consultants, J C Rathbone Associates Limited, 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
2014
£m
401.1
Fair value at
30 September
2014
£m
418.6
Book value at
30 September
2013
£m
161.5
Fair value at
30 September
2013
£m
174.5
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 40% of expected borrowing. As at 30 September 2014, 68% (2013: 68%) of the Group’s net borrowings were economically hedged
to fixed or capped rates.
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 £3.9m (2013: £2.8m). Similarly, a 1% decrease would increase annual profits by £3.9m (2013: £2.8m).
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 £3.1m (2013: £2.1m). Similarly, a 1% decrease would increase the Group’s equity by £3.1m (2013: £2.1m).
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.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29 FINANCIAL RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS CONTINUED
As at 30 September 2014, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of £5.2m
(2013: £10.3m). The total ineffectiveness of cash flow hedges recognised within the income statement totals a gain of £0.4m
(2013: £0.8m). 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 £1.2m (2013: £7.9m) 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
2014
£m
3.0
(1.8)
1.2
2013
£m
31.8
(23.9)
7.9
At 30 September 2014, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net liability of £42.8m
(2013: £80.8m). The cash flows occur and enter in the determination of profit and loss until the maturity of the hedged debt.
The table below summarises debt hedged at 30 September 2014.
Cash flow hedged debt
Cash flow hedges maturing:
Within one year
Between one and two years
Between two and five years
Over five years
2014
£m
2013
£m
124.9
63.2
37.8
108.3
334.2
147.6
75.7
99.5
209.6
532.4
Interest rate profile – including the effect of derivatives
Weighted
average
interest rate
%
5.3
6.5
3.2
5.0
Average
maturity
years
9.0
2.0
3.1
4.8
2014
Sterling
£m
381.1
310.3
264.5
955.9
Euro
£m
20.0
54.8
99.2
174.0
Total
£m
401.1
365.1
363.7
1,129.9
Weighted
average
interest rate
%
6.3
3.4
2.9
5.4
Average
maturity
years
15.0
7.3
4.6
4.6
2013
Sterling
£m
139.7
501.8
220.6
862.1
Fixed rate
Hedged rate
Variable rate
Euro
£m
21.8
61.4
116.6
199.8
Total
£m
161.5
563.2
337.2
1,061.9
At 30 September 2014, the fixed interest rates on the interest rate swap contracts vary from 1.11% to 5.38% (2013: 0.67% to 5.38%); the
weighted average rate’s are shown in the table above.
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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
2014
Euro
£m
84.2
(93.5)
(9.3)
2013
Euro
£m
92.4
(100.3)
(7.9)
2014
Czech Koruna
£m
–
(7.8)
(7.8)
2013
Czech Koruna
£m
1.6
–
1.6
As at 30 September 2014, 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 (2013: £0.3m) and equity by £6.1m (2013: £0.8m).
As at 30 September 2014, 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 (2013: £nil) and equity by £0.7m (2013: £0.6m).
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 £703.9m, and this was used to refinance the Group’s existing core facilities.
During the year, the Group has raised £275m through a corporate bond issuance. 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) and the Tricomm Holdings portfolio 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 2014,
the weighted average cost of debt was 6.0% (2013: 5.7%) and the WACC was 6.93% (2013: 6.65%). 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.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
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. The Group has no legal or constructive obligations to pay further contributions if
the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
Pension arrangements for directors are disclosed in the report of the Remuneration Committee and the directors’ remuneration report on
pages 62 to 75. The pension cost charge in these financial statements represents contributions payable by the Group. The charge of £1.0m
(2013: £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. Pension benefits are linked to the members’ final pensionable salaries and service at their retirement (or date of
leaving if earlier). The Trustees are responsible for running the scheme in accordance with the scheme’s trust deed and rules, which
sets out their powers. The Trustees of the scheme are required to act in the best interests of the beneficiaries of the scheme. There is a
requirement that at least one-thrid of the Trustees are nominated by the members of the scheme.
There are three categories of pension scheme members:
– Active members: currently employed by the Group. Note no benefits have accrued since 30 June 2003, although active members retain
a final salary link;
– Deferred members: former employees of the Group; and
– Pensioner members: in receipt of pension.
The defined benefit obligation is valued by projecting the best estimate of future benefit outgo (allowing for future salary increases for
active members, revaluation to retirement for deferred members and annual pension increases for all members) and then discounting to
the statement of financial position date. In the period up to retirement, benefits receive increases linked to inflation (subject to a cap of no
more than 5% p.a.). After retirement, benefits receive fixed increases of 5% p.a. The valuation method used is known as the projected
unit method. The approximate overall duration of the scheme’s defined benefit obligation as at 30 September 2014 was 18 years.
The IAS 19 calculations for disclosure purposes have been based upon the preliminary results of the actuarial valuation carried out as at
1 July 2013, updated to 30 September 2014, 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
2014
3.80% p.a.
3.20% p.a.
2.20% p.a.
3.70% p.a.
5.00% p.a.
2.20% p.a.
2013
4.50% p.a.
3.50% p.a.
2.50% p.a.
4.50% p.a.
5.00% p.a.
2.50% p.a.
Demographic assumptions
Mortality tables for pensioners
2014
100% of S1PA CMI 2012 model with
a long-term rate of improvement
of 1.50% for males and 1.00% for
females
Mortality tables for non-pensioners
As for pensioners
Life expectancies
149
2013
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
As for pensioners
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Life expectancy for a current 65 year old
Life expectancy at age 65 for an individual aged 45 in 2014
30 September 2014
30 September 2013
Male
87.7 years
89.9 years
Female
89.4 years
90.9 years
Male
88.0 years
90.5 years
Female
90.2 years
91.8 years
Risks
Through the scheme, the Group is exposed to a number of risks:
– Asset volatility: the scheme’s defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields;
however, the scheme also invests in equities. These assets are expected to outperform corporate bonds in the long-term, but provide
volatility and risk in the short-term.
– Changes in bond yields: a decrease in corporate bond yields would increase the scheme’s defined benefit obligation; however, this
would be partially offset by an increase in the value of the scheme’s bond holdings. Inflation risk: some of the scheme’s defined benefit
obligation is linked to inflation, therefore higher inflation will result in a higher defined benefit obligation (subject to the appropriate caps
in place). The majority of the scheme’s assets are either unaffected by inflation, or only loosely correlated with inflation, therefore an
increase in inflation would also increase the deficit.
– Life expectancy: if scheme members live longer than expected, the scheme’s benefits will need to be paid for longer, increasing the
scheme’s defined benefit obligation.
The trustees and Group manage risks in the scheme through the following strategies:
– Diversification: investments are well diversified, such that the failure of any single investment would not have a material impact on the
overall level of assets.
– Investment strategy: the Trustees are required to review their investment strategy on a regular basis.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
30 PENSION COSTS CONTINUED
Market value of scheme assets
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 2014
30 September 2013
Market
value
£m
10.8
9.8
0.4
0.7
4.1
25.8
2.6
% of total
scheme assets
42%
38%
2%
2%
16%
100%
Market
value
£m
7.9
8.8
0.4
1.7
4.1
22.9
0.8
% of total
scheme assets
35%
38%
2%
7%
18%
100%
The assets of the scheme are held with Friends Life in a managed fund. All of the assets listed have a quoted market price in an
active market.
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
2014
£m
25.8
(28.0)
(2.2)
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)
2014
2013
2012
2011
2010
£0.5m
1.8%
£(1.2)m
(4.3)%
£(1.6)m
(6.2)%
–
–
£0.9m
3.3%
–
–
£(4.0)m
(14.5)%
£0.1m
0.4%
£1.7m
7.4%
£(0.2)m
(0.9)%
£2.0m
9.2%
£(0.6)m
(3.2)%
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
Interest income
Employer contributions
Actual return on assets less interest
Benefits paid
Market value of scheme assets at the end of the year
2014
£m
22.8
1.0
1.1
1.6
(0.7)
25.8
–
–
£(1.6)m
(6.5)%
£1.1m
5.9%
2013
£m
21.7
0.9
1.1
(0.1)
(0.8)
22.8
The change in value of the 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 gains: experience differing from that assumed
Actuarial gains: changes in demographic assumptions
Actuarial losses/(gains): changes in financial assumptions
Benefits paid
Value of defined benefit obligation at the end of the year
Amounts recognised in the income statement
Net interest cost
The total pension cost shown above has been included within ‘Finance costs’ (see note 14).
Amounts recognised in the consolidated statement of comprehensive income
Actual return less interest
Actuarial gains/(losses) on defined benefit obligation
151
2013
£m
27.5
1.1
–
–
(0.9)
(0.8)
26.9
2013
£m
0.1
2013
£m
(0.2)
0.9
0.7
2014
£m
26.9
1.2
(0.5)
(1.9)
3.1
(0.8)
28.0
2014
£m
0.2
2014
£m
1.6
(0.7)
0.9
The gain shown in the above table of £0.9m (2013: £0.7m) has been included in the consolidated statement of comprehensive income on
page 88.
Future funding obligation
The Trustees are required to carry out an actuarial valuation every 3 years. The last actuarial valuation of the scheme was performed by
the Actuary for the Trustees as at 1 July 2013. This valuation revealed a funding shortfall of £4.4m. 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 2014 and then £0.6m p.a. until 31 January 2020.
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 £0.4m
Increase/decrease in deficit of £0.1m
Increase/decrease in deficit of £1.0m
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31 ISSUED SHARE CAPITAL
Allotted, called-up and fully paid:
417,792,510 (2013: 416,529,484) ordinary shares of 5p each
2014
£m
2013
£m
20.9
20.8
During the year the Grainger Employee Benefit Trust acquired 1,000,000 shares at a cost of £2.1m (2013: 1,400,000 shares at cost of
£2.4m). The Group paid £0.5m (2013: £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 £2.1m (2013: £3.0m) has been deducted from retained earnings within
shareholders’ equity.
As at 30 September 2014, share capital included 3,651,092 (2013: 5,097,428) shares held by The Grainger Employee Benefit Trust and
1,506,300 (2013: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 5,157,392 (2013: 6,603,728) with a
nominal value of £237,870 (2013: £330,186) and a market value as at 30 September 2014 of £9.6m (2013: £11.5m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2012
Options exercised under the SAYE scheme
At 30 September 2013
Options exercised under the SAYE scheme
At 30 September 2014
Number
416,381,206
148,278
416,529,484
1,263,026
417,792,510
Nominal
value
£’000
20,819
7
20,826
64
20,890
Share options
The company operates a SAYE share option scheme available to employees. The number of shares subject to options as at 30 September
2014, the periods in which they were granted and the periods in which they may be exercised are given below.
Year of grant
HMRC Approved Executive Share Option Scheme (CSOP)
2011
SAYE share options
2008 (A)
2008 (B)
2009
2010
2011
2012
2013
2014
Total share options
Exercise price
(pence)
Exercise
period
2014
number
2013
number
94.4
2013–20
–
–
127,088
127,088
97.1
37.7
68.3
90.8
98.7
68.9
115.1
173.1
2011–14
2012–14
2012–15
2013–16
2014–17
2015–18
2016–19
2017–20
–
–
–
6,805
27,446
573,838
96,468
492,215
1,196,772
1,196,772
8,713
1,100,602
20,956
30,648
49,022
626,956
109,758
–
1,946,655
2,073,743
The movement on the share options schemes during the year is as follows:
HMRC 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
2014
Weighted average exercise price (pence per share)
Opening
position
Exercised
Granted
Lapsed
127,088
94.4
(127,088)
94.4
–
–
–
–
8,713
(7,374)
1,100,602 (1,054,498)
(20,956)
(23,189)
(21,576)
(8,345)
–
–
(1,135,938)
41.1
20,956
30,648
49,022
626,956
109,758
–
1,946,655
55.1
–
–
–
–
–
–
–
498,453
498,453
173.1
(1,339)
(46,104)
–
(654)
–
(44,773)
(13,290)
(6,238)
(112,398)
67.8
153
Closing
position
–
–
–
–
–
6,805
27,446
573,838
96,468
492,215
1,196,772
116.3
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For those share options exercised during the year, the weighted average share price at the date of exercise was 46.5p (2013: 171.2p).
For share options outstanding at the end of the year, the weighted average remaining contractual life is 3.0 years (2013: 2.0 years).
There were 7,130 (2013: 30,515) share options exercisable at the year end with a weighted average exercise price of 98.7p (2013: 92.6p).
The Group operates an equity-settled, share-based compensation plan comprising awards under a deferred bonus plan (‘DBP’), a
share incentive plan (‘SIP’) and a save as you earn (‘SAYE’) scheme.
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 2011, 6 December 2012
and 6 December 2013 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. 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.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
32 SHARE-BASED PAYMENTS
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
9 December
2014
Market based
9 December
2013
Non-market
based
421,523
–
3
7
2.02
1.0
0.9
46.49
1.06
421,523
–
3
7
2.02
1.0
0.9
46.49
1.97
9 December
2013
139,862
–
1-3
7
2.02
N/A
0.9
N/A
2.01
10 July 2014
3-year scheme
240,750
1.731
3
–
1.86
1.19
1.06
39.24
0.53
10 July 2014
5-year scheme
257,703
1.731
5
–
1.86
1.93
1.06
54.12
0.85
The expected volatility figures used in the valuation were calculated based on the historic volatility over a period equal to the expected term
from the date of grant.
The share-based payments charge recognised in the income statement is £2.0m (2013: £2.3m).
Movements in options and options exercisable as at 30 September 2014 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.
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.
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34 MOVEMENT IN RETAINED EARNINGS
The retained earnings reserve comprises various elements. Those elements, and the movements in each, are set out below:
Balance as at 1 October 2012
Profit for the year
Actuarial gain on BPT Limited pension scheme net of tax
Exchange adjustments offset in reserves net of tax
Reclassification
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Balance as at 30 September 2013
Profit for the year
Actuarial gain on BPT Limited pension scheme net of tax
Exchange adjustments offset in reserves net of tax
Repayment of convertible bond
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Balance as at 30 September 2014
Share-based
payment
reserve
£m
5.4
–
–
–
–
–
(1.0)
2.3
–
6.7
–
–
–
–
–
(5.4)
2.0
–
3.3
Treasury
shares
bought back
and cancelled
£m
(7.8)
–
–
–
–
–
–
–
–
(7.8)
–
–
–
–
–
–
–
–
(7.8)
Investment in
own shares
£m
(14.4)
–
–
–
–
(3.0)
1.0
–
–
(16.4)
–
–
–
–
(2.1)
5.4
–
–
(13.1)
Translation
reserve
£m
2.6
–
–
0.5
–
–
–
–
–
3.1
–
–
(0.3)
–
–
–
–
–
2.8
Retained
earnings
£m
269.6
53.6
0.5
–
9.8
–
–
–
(8.0)
325.5
74.7
0.8
–
5.0
–
–
–
(8.5)
397.5
Total retained
earnings
reserve
£m
255.4
53.6
0.5
0.5
9.8
(3.0)
–
2.3
(8.0)
311.1
74.7
0.8
(0.3)
5.0
(2.1)
–
2.0
(8.5)
382.7
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.
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NOTES TO THE FINANCIAL STATEMENTS CONTINUED
35 LIST OF PRINCIPAL SUBSIDIARIES
The directors consider that providing details of all subsidiaries, joint ventures and associates as at 30 September 2014 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:
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
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
Grainger PRS Limited
Group
%
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Company
%
100
100
100
100
Incorporated
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Germany
Germany
Germany
England & Wales
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 Investment
Property Investment
Property Investment
Property Trading and Investment
Property Trading and Investment
Property Investment
Investment Partnership
Property Investment
Investment Company
Property Investment
All subsidiaries are consolidated in the Group financial statements.
157
36 RELATED PARTY TRANSACTIONS
During the year ended 30 September 2014, 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 utilised the services of Gebau Vermogen GmbH to provide property management services for parts of its German
portfolio. As described in note 21, on 17 October 2013, the Group disposed of our interest in Gebau Vermogen GmbH for £0.4m.
The fees received/(paid) in respect of these services are set out below:
G:res1 Limited
GRIP Unit Trust
MH Grainger JV Sarl
Stuttgart Portfolios
New Sovereign Reversions Limited
Walworth Investment Properties Limited
Gebau Vermogen GmbH
GRIP Unit Trust
MH Grainger JV Sarl
Stuttgart Portfolios
New Sovereign Reversions Limited
Czech Republic combined*
Curzon Park Limited*
King Street Developments (Hammersmith) Limited
Walworth Investment Properties Limited
2014
Interest
recognised
£’000
1,100
812
60
2014
Year end loan
balance
£m
31.6
9.6
0.6
(23)
–
–
–
455
2,404
(0.6)
7.4
18.6
3.2
6.8
77.2
2014
Fees
recognised
£’000
–
3,131
–
956
1,051
40
–
5,178
2014
Interest
Rate
%
4.75
7.50
8.00
LIBOR +
2.35
1.25
Nil
Nil
7.00
2014
Year end
balance
£’000
–
933
–
–
193
40
–
1,166
2013
Fees
recognised
£’000
1,062
1,902
790
–
1,073
19
(913)
3,933
2013
Interest
recognised
£’000
756
534
–
2013
Year end loan
balance
£m
0.3
11.6
–
(7)
73
–
–
180
1,536
(0.4)
6.2
16.1
2.9
6.7
43.4
2013
Year end
balance
£’000
687
–
–
–
271
19
(2)
975
2013
Interest
Rate
%
4.75
8.00
–
LIBOR +
2.35
1.25
Nil
Nil
7.00
* The amount disclosed above is the gross loan amount. Some provisions have been provided against the loans, see notes 20 and 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’s provided in note 12.
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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
2014
£m
1.3
3.3
1.7
6.3
2013
£m
1.3
2.3
0.4
4.0
The Group expects to receive £nil under non-cancellable sub-leases (2013: £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 and ten years.
Rent reviews generally take place every five years. Contract hire car leases generally have a three-year term. There are no other
significant operating lease arrangements requiring disclosure under IAS 17.
38 CONTINGENT LIABILITIES
The properties in certain subsidiary companies forming a ‘guarantee Group’ provide the security for the Group’s core debt facility.
Barclays Bank plc has provided guarantees under performance bonds relating to the Group’s UK Development division. As at
30 September 2014, total guarantees amounted to £2.9m (2013: £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 and recover the carrying value of our investment, the Group may incur further charges in excess of those provided
in these financial statements, in respect of obligations to the joint venture and the bank.
159
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.
Included on the face of the consolidated statement of financial position are total assets of £3.4m (2013: £ 9.9m) classified as held-for-
sale. These balances comprise the following:
Investment property – Germany
Investment property – Retirement solutions
40 CAPITAL COMMITMENTS
2014
£m
–
3.4
3.4
2013
£m
6.0
3.9
9.9
The Group has current commitments under a number of its development projects totalling £54.5m as at 30 September 2014
(2013: £37.9m).
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Grainger plc / Annual Report and Accounts 2014 / Financials
Independent auditors’ report
TO THE MEMBERS OF GRAINGER PLC
ISAs (UK & Ireland) reporting
Under International Standards on Auditing
(UK and Ireland) (‘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 financial
statements; or
– apparently materially incorrect based
on, or materially inconsistent with, our
knowledge of the company acquired in
the course of performing our audit; or
– otherwise misleading.
We have no exceptions to report arising
from this responsibility.
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 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.
REPORT ON THE PARENT
COMPANY FINANCIAL STATEMENTS
Our opinion
In our opinion, Grainger plc’s parent
company financial statements (the
‘financial statements’):
– give a true and fair view of the state
of the parent company’s affairs as at
30 September 2014;
– 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.
What we have audited
Grainger plc ’s financial statements
comprise:
– the parent company balance sheet as at
30 September 2014; and
– the notes to the financial statements,
which include a summary of significant
accounting policies and other
explanatory information.
The financial reporting framework that
has been applied in the preparation of the
financial statements is applicable law and
United Kingdom Accounting Standards
(United Kingdom Generally Accepted
Accounting Practice).
OTHER REQUIRED REPORTING
Consistency of other information
Companies Act 2006 opinions
In our opinion, the information given in the
Strategic report and the Directors’ report
for the financial year for which the financial
statements are prepared is consistent with
the financial statements.
Directors’ remuneration
Directors’ remuneration report – Companies
Act 2006 opinion
In our opinion, the part of the Directors’
remuneration report to be audited has
been properly prepared in accordance with
the Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we
are required to report to you if, in our
opinion, certain disclosures of Directors’
remuneration specified by law are
not made.
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
77, the Directors are responsible for the
preparation of the 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 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.
161
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OTHER MATTER
We have reported separately on the Group
financial statements of Grainger plc for the
year ended 30 September 2014.
David Snell (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
20 November 2014
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What an audit of financial statements involves
We conducted our audit in accordance
with 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.
We primarily focus 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.
We test and examine information,
using sampling and other auditing
techniques, to the extent we consider
necessary to provide a reasonable basis for
us to draw conclusions. We obtain audit
evidence through testing the effectiveness
of controls, substantive procedures or a
combination of both.
In addition, we read all the financial
and non-financial information in the
Annual report and accounts 2014 (the
‘Annual report’) to identify material
inconsistencies with the audited 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.
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Grainger plc / Annual Report and Accounts 2014 / Financials
Parent company balance sheet
As at 30 September 2014
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
2014
£m
928.3
928.3
32.4
4.8
37.2
167.5
(130.3)
798.0
–
370.5
427.5
20.9
110.4
0.3
–
295.9
427.5
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
The financial statements on pages 162 to 166 were approved by the Board of Directors on 20 November 2014 and were signed on their
behalf by:
Andrew R Cunningham
Director
Mark Greenwood
Director
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 £4.8m (2013: £21.0m). 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 that has been adopted for Group
reporting. The following accounting policies have been applied consistently in dealing with items that are considered material in relation to
the Company’s financial statements.
(c) Investments
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) Tax
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. The nominal value of the bond was repaid in full in May 2014 with no option to convert taken.
(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’s financial statements, 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 / Annual Report and Accounts 2014 / Financials
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
2 INVESTMENTS
Cost of investment
At 1 October
Additions
Disposals
At 30 September
Impairment
Opening balance
Additional provision
Write back
At 30 September
Net carrying value
2014
£m
1,018.8
–
(1.3)
1,017.5
107.2
0.1
(18.1)
89.2
928.3
2013
£m
939.2
79.6
–
1,018.8
97.8
17.9
(8.5)
107.2
911.6
The Directors believe that the carrying value of the investments is supported by their underlying net assets. After an assessment of net
recoverable value a net impairment write back of £18.0m (2013: 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
2014
£m
30.4
2.0
32.4
2013
£m
28.8
0.4
29.2
Debtors in both 2014 and 2013 are all due within one year.
Included within amounts owed by Group undertakings is an unsecured loan with a year end balance of £6.9m (2013: £28.8m).
The loan bears interest at LIBOR plus margin plus costs, which averaged 3.3% in the year (2013: 3.3%), and is repayable on demand but is
not expected to be repaid within the next 12 months.
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4 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Bank loans and overdrafts
Amounts owed to Group undertakings
Other tax and social security
Accruals and deferred income
165
2014
£m
6.0
155.7
1.3
4.5
167.5
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
Repaid during the year
Unamortised issue costs
Closing balance
In May 2014, the convertible bond term reached maturity and the nominal value was repaid in full.
6 INTEREST-BEARING LOANS AND BORROWINGS
Variable rate – pounds Sterling
Proceeds from bond issue
Unamortised issue costs
Corporate bond
2014
£m
24.3
0.6
(24.9)
–
–
–
2014
£m
100.1
275.0
(4.6)
270.4
370.5
2013
£m
23.3
0.9
–
24.2
0.1
24.3
2013
£m
99.1
–
–
–
99.1
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 five years is £100.1m (2013: £99.1m).
The £275m, 5.0% secured corporate bond, due December 2020, was issued in the financial year ended September 2014.
The primary issue was £200m issued at par in November 2013 with a secondary tap issue in August 2014 at £75m issued at 101.125%.
The premium on the tap issue will be amortised to the income statement using the effective interest rate method.
7 CALLED-UP SHARE CAPITAL
Allotted, called-up and fully paid
417,792,510 (2013: 416,529,484) ordinary shares of 5p each
2014
£m
20.9
2013
£m
20.8
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Grainger plc / Annual Report and Accounts 2014 / Financials
NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS CONTINUED
7 CALLED-UP SHARE CAPITAL CONTINUED
During the year, the Grainger Employee Benefit Trust acquired 1,000,000 shares at a cost of £2.1m (2013: 1,400,000 shares at a cost of
£2.4m). The Group paid £0.5m (2013: £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 £2.1m (2013: £3.0m) has been deducted from retained earnings within
shareholders’ equity.
As at 30 September 2014, share capital included 3,651,092 (2013: 5,097,428) shares held by The Grainger Employee Benefit Trust and
1,506,300 (2013: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 5,157,392 (2013: 6,603,728) with a
nominal value of £257,870 (2013: £330,186) and a market value as at 30 September 2014 of £9.6m (2013: £11.5m).
Movements in issued share capital during the year and the previous year were as follows:
At 1 October 2012
Options exercised under the SAYE scheme
At 30 September 2013
Options exercised under the SAYE scheme
At 30 September 2014
Number
416,381,206
148,278
416,529,484
1,263,026
417,792,510
Nominal
value
£’000
20,819
7
20,826
64
20,890
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 62 and 75.
8 RESERVES
At 1 October 2013
Loss for the financial year
Repayment of convertible bond
Share-based payment charge
Purchase of own shares
Options exercised under the SAYE scheme
Dividends paid
At 30 September 2014
Share
premium
£m
109.8
–
–
–
–
0.6
–
110.4
Capital
redemption
reserve
£m
0.3
–
–
–
–
–
–
0.3
Equity component
of convertible bond
£m
5.0
–
(5.0)
–
–
–
–
–
Profit and
loss account
£m
305.2
(4.8)
5.0
1.1
(2.1)
–
(8.5)
295.9
In May 2014, the convertible bond term reached maturity and the nominal value was repaid in full. No option to convert was taken out
during the bond period: therefore, the equity component has been transferred to the profit and loss reserve.
9 OTHER INFORMATION
Dividends
Information on dividends paid and declared is given in note 16 of the Group financial statements on page 124.
Directors’ share options and share awards
Details of the Directors’ share options and of their share awards are set out in the Remuneration Committee’s report.
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EPRA performance measures
1. Introduction
The EPRA Best Practice Recommendations (EPRA BPR) were issued by EPRA’s Reporting and Accounting Committee in August 2011 and
additional guidance has subsequently been issued in January 2014. Included within EPRA BPR are six EPRA Performance Measures deemed
to be of key importance to investors in property companies and which aim to encourage more consistent and widespread disclosure.
The EPRA performance measures are set out below:
Performance measure
1) EPRA Earnings
2) EPRA NAV
3) EPRA NNNAV
4i) EPRA Net Initial Yield (NIY)
4ii) EPRA ‘topped-up’ yield
5) EPRA Vacancy Rate
6) EPRA Cost Ratios
Definition
Recurring earnings from core operational activities. This is a key measure of a Company’s underlying
operating results providing an indication of the extent to which current dividend payments are
supported by earnings.
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 property business model. This measure is
consistent with NAV as defined and disclosed in the Financial review and in note 4 to the Group financial
statements.
EPRA NAV adjusted to include the fair values of i) financial instruments, ii) debt and iii) deferred taxes.
This measure is consistent with NNNAV as defined and disclosed in the Financial review and in note 4 to
the Group financial statements.
Annualised rental income based on cash rents at the balance sheet date, less non-recoverable property
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 share of joint ventures’
overheads and operating expenses, net of any service fees, all divided by gross rental income.
Grainger is supportive of EPRA’s initiative and, in this report, is disclosing against five of the EPRA measures, EPRA Earnings, EPRA Net
Asset Value (NAV) and EPRA Triple Net Asset Value (NNNAV), EPRA Net Initial Yield (NIY) and EPRA Vacancy Rate. EPRA topped-up NIY
is not appropriate to Grainger’s business. The EPRA Cost Ratios, too, is less relevant to Grainger as it is distorted by the fact that in our
reversionary portfolio rental levels range between a sub-market rent are a zero rent. The Group continues to disclose other KPIs and
operational measures in this report, including an efficiency ratio which measures administrative and operating costs, net of fee income, as
a proportion of the value of assets under management, which it believes are more appropriate to its business and these are shown in the
Strategic report.
In relation to EPRA NIY and EPRA vacancy rate, the figures shown are in respect of the Grainger wholly-owned market rented assets
only. Not included in these numbers are Grainger’s wholly-owned reversionary assets or any assets within joint ventures or associates.
The calculation of EPRA earnings, EPRA NAV, EPRA NNNAV and EPRA NIY are as follows:
EPRA Earnings
EPRA Earnings per share
EPRA NAV
EPRA NAV per share
EPRA NNNAV
EPRA NNNAV per share
EPRA Net Initial Yield (NIY)1
EPRA Vacancy Rate1
2014
£33.5m
8.1p
2013
£26.7m
6.5p
£1,214.3m £1,008.0m
242p
£1,010.9m £810.9m
195p
4.5%
3.0%
242p
4.5%
4.5%
291p
2 Excludes property that is vacant and is being marketed for sale. The increase in 2014 relates to a higher number of properties both in the UK and Germany subject to
refurbishment at 30 September 2014.
168
Grainger plc / Annual Report and Accounts 2014 / Financials
EPRA PERFORMANCE MEASURES CONTINUED
2. EPRA Earnings
Earnings per IFRS income statement
Adjustments to calculate EPRA Earnings, exclude:
i)
Changes in value of investment properties, development
properties held for investment and other interests
Profits or losses on disposal of investment properties,
development properties held for investment and other
interests
Profits or losses on sales of trading properties including
impairment charges in respect of trading properties
(note 1)
ii)
iii)
iv) Tax on profits or losses on disposals
v) Negative goodwill/goodwill impairment
vi)
Changes in fair value of financial instruments and
associated close-out costs
vii) Acquisition costs on share deals and non-controlling joint
venture interests
viii) Purchase of debt at a discount
ix) Deferred tax in respect of EPRA adjustments
x) Adjustments i) to viii) in respect of joint ventures
xi) Minority interests in respect of the above
EPRA Earnings/Earnings per share
Earnings
£m
74.7
2014
Shares
Millions
411.8
Pence per
share
18.1
Earnings
£m
53.6
2013
Shares
Millions
410.8
Pence per
share
13.1
(1.5)
(0.8)
(0.8)
–
–
(1.2)
–
–
0.7
(37.6)
–
33.5
–
–
–
–
–
–
–
–
–
–
–
411.8
–
–
–
–
–
–
–
–
–
–
–
8.1
(2.9)
(1.8)
(0.7)
–
4.7
(7.9)
3.2
(15.3)
3.8
(10.0)
–
26.7
–
–
–
–
–
–
–
–
–
–
–
410.8
–
–
–
–
–
–
–
–
–
–
–
6.5
Note 1 – Sales of trading property is a fundamental part of Grainger’s business model. Therefore, it is not appropriate to show any measure of earnings that excludes profit on sale of
trading property and so no adjustment has been made for this in the table above. The adjustment made in this item relates to the reversal of an impairment provision made against
trading stock.
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3. EPRA Net Asset Value (NAV)
NAV from the financial statements
Include:
i.a) Revaluation of investment property
i.b) Revaluation of investment property under construction
i.c) Revaluation of other non-current investments
ii) Revaluation of tenant leases held as finance leases
iii) Revaluation of trading properties
iv) Value of own shares (note 2 below)
Exclude:
v) Fair value of financial instruments
vi.a) Deferred tax
vi.b) Goodwill as a result of deferred tax
Include/exclude:
Adjustments i) to v) above in respect of joint venture interests
EPRA NAV/EPRA NAV per share
2014
2013
Net assets
£m
536.8
Shares
Millions
417.8
NAV pence
per share
128
Net assets
£m
465.5
Shares
Millions
416.5
NAV pence
per share
112
–
–
–
–
596.9
9.6
38.4
23.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
433.0
11.5
73.0
23.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
9.0
1,214.3
–
417.8
–
291
1.2
1,008.0
–
416.5
–
242
Note 2 – The Grainger measures of NAV and NAV per share disclosed in Note 4 to the financial statements is equal to the EPRA NAV presented above. The adjustment to add the
value of the Group’s own shares is recognised as these shares do have a market value and this has been the historical basis of the Group’s calculation. In addition, the number of
shares used in the NAV calculation is the total number of shares in issue including those held by the Company in treasury or trust for the purposes of settling future share awards.
This should be a close representation of the fully diluted number of shares and so is very unlikely to produce materially different NAV measures.
4. EPRA Triple Net Asset Value (NNNAV)
EPRA NAV
Include:
i) Fair value of financial instruments
ii) Fair value of debt
iii) Deferred tax
EPRA NNNAV/EPRA NNNAV per share
5. EPRA Net Initial Yield (NIY)
Market value of wholly owned market rented assets
Allowance for estimated purchasers' costs
Grossed up market value of wholly owned market rented assets
Annualised passing rental income
Property outgoings
Annualised net rents
EPRA NIY
2014
2013
Net assets
£m
1,214.3
Shares
Millions
417.8
NAV pence
per share
291
Net assets
£m
1,008.0
Shares
Millions
416.5
NAV pence
per share
242
(38.5)
(14.0)
(150.9)
1,010.9
–
–
–
417.8
–
–
–
242
(73.2)
(10.4)
(113.5)
810.9
–
–
–
416.5
2014
£m
393.4
12
405.4
26.5
(8.4)
18.1
4.5%
–
–
–
195
2013
£m
406.0
12.1
418.1
27.4
(8.6)
18.8
4.5%
1 – Based on Grainger’s wholly owned market rented portfolio of property assets which has a market value as at 30 September 2014 of £433m (2013: £446m) but excluding interests
in garages, ground rents and land amounting to £39m (2013: £40m).
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EPRA Sustainability Performance Measures
Methodology
We have reported on all EPRA Sustainability Performance Measures, using the EPRA Best Practices Recommendations on Sustainability
Reporting 2nd Version, the main requirements of the GHG Protocol Corporate Accounting and Reporting Standard (revised edition) and
emissions factors from the UK Government’s Conversion Factors for Company Reporting 2014 and 2013.
Organisational boundary
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, our Germany
residential portfolio and the GRIP Fund.
Reporting on landlord and tenant consumption
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 on page 46.
Coverage
Where we are not able to include 100% of all assets within our operational control in our reporting for a Sustainability Performance
Measure, we have specified the level of data coverage.
Energy and Greenhouse gas notes
Greenhouse gas emissions are calculated using the UK Government’s Conversion Factors for Company Reporting 2014 and 2013.
Transmission and distribution losses are reported as Scope 3 emissions. Greenhouse gas emissions are reported as metric tonnes CO2
equivalent (t CO2e) and greenhouse gas intensity is reported as kilogrammes of CO2 equivalent (kg CO2e). Greenhouse gas emissions for
German electricity consumption and transmission and distribution are reported in carbon dioxide (CO2) only as per the UK Government’s
Conversion Factors for Company Reporting 2014 and 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.
Estimation of landlord-obtained utility consumption
Where data for Grainger-obtained utility consumption is missing or unreliable, we have used the following estimation methodology:
– Where data is available for the same period (quarter) for the previous reporting year, we have estimated missing utility consumption
using the daily consumption rate from the previous year.
– Where data is not available for the same period (quarter) for the previous reporting year, we have estimated missing utility consumption
using the daily consumption rate from all previous quarters in the current reporting year.
– Where insufficient previous data was available, we have excluded the property from reporting.
We have only estimated data to fill gaps using known consumption from other periods for the metered supply in question. We have
disclosed the proportion of total disclosed data that is estimated in the data notes that accompany each Performance Measure.
171
Absolute and like-for-like energy and GHG emissions for Own Office Occupation
2013
2014
Absolute
consumption
Like-for-like
consumption
Absolute
consumption
Like-for-like
consumption
Absolute
trend
Like-for-
like trend
Elec-Abs: Total electricity consumption; DH&C-Abs: Total district heating & cooling consumption;
Fuels-Abs: Total fuel consumption; Elec-Lfl: Life-for-life electricity consumption;
DH&C-Lfl: Like-for-like District heating & cooling; Fuels-Lfl: Like-for-like fuel consumption (Annual kWh) GRI G4-EN3
UK Offices
514,250
601,694
334,313
329,773
-15%
-1%
Total electricity submetered to Grainger by
its landlord
Total energy consumed from district heating
and cooling submetered to Grainger by
its landlord
Total energy consumption from fuels
submetered to Grainger by its landlord
Coverage of applicable properties
Total electricity submetered to Grainger by
its landlord
Total energy consumed from district heating
and cooling submetered to Grainger by
its landlord
Total energy consumption from fuels
submetered to Grainger by its landlord
Coverage of applicable properties
Total electricity submetered to Grainger by
its landlord
Total energy consumed from district heating
and cooling submetered to Grainger by
its landlord
Total energy consumption from fuels
submetered to Grainger by its landlord
German Offices
Grand Total
Energy-Int: Building Energy Intensity (kWh per employee per year) GRI: CRE1
UK Offices
2,350
German Offices
Grand Total
Building Energy Intensity for all energy
submetered to Grainger by its landlord
Building Energy Intensity for all energy
submetered to Grainger by its landlord
Building Energy Intensity for all energy
submetered to Grainger by its landlord
–
–
–
–
–
–
–
–
–
N/A
–
–
7 of 7
43,205
2 of 7
43,205
6 of 6
40,574
2 of 6
40,574
-6%
-6%
–
–
–
–
–
–
–
–
–
–
–
–
1 of 1
644,899
1 of 1
377,518
1 of 1
554,995
1 of 1
370,518
-14%
-2%
–
–
3,086
2,389
–
–
N/A
N/A
N/A
–
–
1,912
3,121
–
–
–
–
–
–
N/A
-19%
N/A
N/A
1%
N/A
1,967
N/A
-18%
N/A
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EPRA SUSTAINABILITY PERFORMANCE MEASURES CONTINUED
2013
2014
Absolute
consumption
Like-for-like
consumption
Absolute
consumption
Like-for-like
consumption
Absolute
trend
Like-for-
like trend
GHG-Dir-Abs: Total direct greenhouse gas (GHG) emissions; GHG-Indir-Abs: Total indirect greenhouse gas (GHG) emissions;
GHG-Dir-Lfl: Like-for-like direct greenhouse gas emissions; GHG-Indir-Lfl: Like-for-like indirect greenhouse gas emissions
(Annual metric tonnes CO2e) GRI G4-EN15 and G4-EN16
UK 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]
Coverage of applicable properties
Total direct GHG emissions [GHG Protocol
Scope 1]
Total indirect GHG emissions [GHG Protocol
Scope 2]
Total indirect GHG emissions [GHG Protocol
Scope 3]
Coverage of applicable properties
Total direct GHG emissions [GHG Protocol
Scope 1]
Total indirect GHG emissions [GHG Protocol
Scope 2]
Total indirect GHG emissions [GHG Protocol
Scope 3]
German Offices
Grand Total
-5%
7%
268
23
7 of 7
–
149
13
2 of 7
–
254
22
6 of 6
–
159
20
2 of 6
–
20
20
20
20
0%
0%
1
1 of 1
–
288
24
1
1 of 1
–
169
14
0.5
1 of 1
–
274
23
0.5
1 of 1
–
179
-5%
6%
21
1,422
1,067
N/A
N/A
1,538
972
N/A
N/A
-10%
8%
-9%
N/A
N/A
N/A
GHG-Int: Greenhouse gas (GHG) intensity from building energy consumption (kg CO2e per employee per year) GRI: CRE3
N/A
UK Offices
1,047
944
N/A
German Offices
Grand Total
Building GHG Intensity [GHG Protocol
Scopes 1 and 2]
Building GHG Intensity [GHG Protocol
Scopes 1 and 2]
Building GHG Intensity [GHG Protocol
Scopes 1 and 2]
Data coverage notes for occupied offices
Absolute energy and GHG emissions: 24% of data is estimated. Our London offices in Knightsbridge and Putney were closed in April and
May of the reporting year and a new consolidated London Bridge office was opened in April. Consumption has been reported for the
period of the reporting year that each office was occupied by Grainger.
Like-for-like Energy and GHG emissions: No data is estimated. Due to office consolidation in 2013 and 2014, there are only two UK offices
that have been occupied for two full reporting years: Newcastle and Altrincham. Our Frankfurt office in Germany has also been occupied
for two full reporting years. Martlesham, Putney and Knightsbridge are no longer occupied by Grainger and the Birmingham office moved
in 2013, therefore these four properties have been excluded from like-for-like reporting.
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Absolute energy, GHG emissions and water consumption for owned assets by portfolio; Building Energy Intensity, GHG Intensity and Water Intensity
by portfolio
2013
Coverage of
applicable
properties
Absolute
consumption
2014
Coverage of
applicable
properties
Absolute
consumption
Elec-Abs: Total electricity consumption; DH&C-Abs: Total district heating & cooling consumption; Fuel-Abs: Total fuel consumption
(Annual kWh) GRI: G4-EN3
UK Residential
portfolio
Grainger obtained electricity
Total energy consumed from district heating and cooling
Total energy consumption from Grainger obtained fuels
Grainger obtained natural gas
Grainger obtained electricity
Total energy consumed from district heating and cooling
Total energy consumption from Grainger obtained fuels
Grainger obtained natural gas
Grainger obtained electricity
Total energy consumed from district heating and cooling
Total energy consumption from Grainger obtained fuels
Grainger obtained natural gas
Grainger obtained electricity
Total energy consumed from district heating and cooling
Total energy consumption from Grainger obtained fuels
Grainger obtained natural gas
889,607
–
5,070,870
5,070,870
608,124
–
611,291
611,291
N/A
N/A
N/A
N/A
1,497,731
–
5,682,161
5,682,161
122 of 134
N/A
5 of 6
5 of 6
69 of 70
N/A
5 of 5
5 of 5
N/A
N/A
N/A
N/A
191 of 204
N/A
10 of 11
10 of 11
–
5,928,673
5,928,673
471,022
–
300,476
300,476
1,064,332 245 of 252
N/A
6 of 6
6 of 6
69 of 70
N/A
3 of 3
3 of 3
1,075,439 590 of 590
N/A
N/A
N/A
2,610,793 904 of 912
N/A
9 of 9
9 of 9
–
6,228,150
6,228,150
–
–
–
GRIP Fund
German
Residential
portfolio
Grand Total
Energy-Int: Building Energy Intensity (kWh per £m value of assets under management per year) GRI: CRE1
Building Energy Intensity for all Grainger-obtained building energy
2,912
N/A
2,798
N/A
-4%
GHG-Dir-Abs: Total direct greenhouse gas (GHG) emissions; GHG-Indir-Abs: Total indirect greenhouse gas (GHG) emissions
(Annual metric tonnes CO2e) GRI G4-EN15 and G4-EN16
UK Residential
portfolio
1,095
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]
Total direct GHG emissions [GHG Protocol Scope 1]
Total indirect GHG emissions [GHG Protocol Scope 2]
Total indirect GHG emissions [GHG Protocol Scope 3]
933
396
34
113
271
23
N/A
N/A
N/A
1,046
667
57
5 of 6
122 of 134
122 of 134
5 of 5
69 of 70
69 of 70
N/A
N/A
N/A
10 of 11
191 of 204
191 of 204
6 of 6
506 245 of 252
46 245 of 252
56
3 of 3
69 of 70
226
69 of 70
20
N/A
–
N/A
509
12
N/A
9 of 9
1,151
1,241 904 of 912
78 904 of 912
GRIP Fund
German
Residential
portfolio
Grand Total
Trend
20%
N/A
17%
17%
-23%
N/A
-51%
-51%
N/A
N/A
N/A
N/A
74%
N/A
10%
10%
17%
28%
35%
-50%
-16%
-13%
N/A
N/A
N/A
10%
86%
37%
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Grainger plc / Annual Report and Accounts 2014 / Financials
EPRA SUSTAINABILITY PERFORMANCE MEASURES CONTINUED
Absolute energy, GHG emissions and water consumption for owned assets by portfolio; Building Energy Intensity, GHG Intensity and Water Intensity
by portfolio continued
2013
2014
Absolute
Consumption
Coverage of
applicable
properties
Absolute
Consumption
Coverage of
applicable
properties
Trend
GHG-Int: Greenhouse gas (GHG) intensity from building energy consumption (kg CO2e per £m value of assets under management per year)
GRI: CRE3
GHG Intensity
695
N/A
N/A
757
9%
Greenhouse gas intensity for all Grainger obtained building
energy [GHG Protocol Scopes 1 & 2]
Water-Abs: Total water consumption annual cubic metres (m3) GRI: G4-EN8
Grainger obtained water consumption
UK Residential
portfolio
GRIP Fund
Grand Total
Grainger obtained water consumption
Total water consumption
7,170
1 of 2
4
1 of 1
-100%
21,500
28,670
5 of 6
6 of 8
23,215
23,219
6 of 6
7 of 7
8%
-19%
Water-Int: Building Water Intensity (m3 per £m value of assets under management per year) GRI: CRE2
N/A
Building Water
Intensity
Building Water Intensity for all Grainger obtained water
12
7
N/A
-39%
Data coverage notes for owned assets
We report on Grainger-obtained electricity, fuel and water consumption for applicable properties with common areas; the proportion
of estimation and exclusions due to missing data are listed in detail below. Grainger does not report on energy or water consumed by
tenants. All annual consumption is reported as the portfolio stood at year end for the period from 1 October 2013 to 30 September 2014.
Consumption from assets subsequently transferred to the GRIP Fund was included in UK Residential Grainger obtained electricity, fuel and
water for the period from October to December 2012.
We have used the market value of assets under management as our main intensity Performance Measure as this is also what we use to
measure our business efficiency KPI as reported in our Strategic report.
Absolute energy and GHG emissions: 4% of electricity consumption data has been estimated. 32% of fuels consumption data has
been estimated.
UK Residential portfolio: Seven properties have been excluded from electricity consumption because insufficient data is available to
calculate consumption.
GRIP Fund: One property has been excluded from electricity consumption because there was no confirmed electricity supplier and so
consumption could not be calculated.
German Residential portfolio: There are no properties excluded from reporting.
Absolute water: 83% of water consumption data has been estimated.
UK Residential portfolio: One property with Grainger-obtained water consumption was sold and is excluded from reporting.
GRIP Fund: There are no properties excluded from reporting.
German Residential portfolio: Water consumption data is not available for our German residential portfolio for the reporting year.
Like-for-like energy, GHG emissions and water consumption for owned assets by portfolio
2013
Like-for-like
Consumption
Coverage of
applicable
properties
Like-for-like
Consumption
Elec-LfL: Like-for-like total electricity consumption; DH&C-Lfl: Like-for-like district heating and cooling consumption;
Fuels-Lfl: Like-for-like fuel consumption (Annual kWh) GRI: G4-EN3
Grainger obtained electricity
UK Residential
Total energy consumed from district heating and cooling
portfolio
Total energy consumption from Grainger obtained fuels
Grainger obtained natural gas
Grainger obtained electricity
Total energy consumed from district heating and cooling
Total energy consumption from Grainger obtained fuels
Grainger obtained natural gas
20 of 134
N/A
0 of 6
0 of 6
20 of 134
N/A
0 of 6
0 of 6
20,284
–
–
–
20,284
–
–
–
17,902
–
–
–
17,902
–
–
–
Grand Total
2014
Coverage of
applicable
properties
20 of 252
N/A
0 of 6
0 of 6
20 of 252
N/A
0 of 6
0 of 6
GHG-Dir-LfL: Like-for-like total direct greenhouse gas (GHG) emissions; GHG-Indir-LfL: Like-for-like total indirect greenhouse gas (GHG)
emissions (Annual metric tonnes CO2e) GRI: G4-EN15 and G4-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]
–
9
0.9
–
9
0.9
0 of 6
20 of 134
20 of 134
0 of 6
20 of 134
20 of 134
–
8
0.8
–
8
0.8
0 of 6
20 of 252
20 of 252
0 of 6
20 of 252
20 of 252
Grand Total
175
Trend
-12%
N/A
N/A
N/A
-12%
N/A
N/A
N/A
-11%
-11%
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UK Residential
portfolio
Grand Total
Grainger obtained water consumption
Total water consumption
3
3
1 of 2
1 of 2
4
4
1 of 1
33%
1 of 1
33%
Data coverage notes for owned assets
Like-for-like energy and GHG emissions: 1% of like-for-like electricity consumption has been estimated.
UK Residential portfolio: The GInvest and WIP portfolios are excluded from like-for-like reporting because this is the first year for which data
is available to report. Where data is not available for two full reporting years properties are excluded from like-for-like reporting. However,
minimal estimation has been applied to missing days in a quarter as per the estimation methodology used for all Performance Measures.
GRIP Fund: The GRIP Fund is excluded from like-for-like reporting as the Fund was created in January 2013 and data is not available for two
full reporting years.
German Residential portfolio: The German Residential portfolio is excluded from like-for-like reporting because this is the first year for which
data is available to report.
Like-for-like water: For the one property included in like-for-like water reporting, 100% of consumption data for this reporting year
was estimated.
UK Residential portfolio: One property with Grainger-obtained water consumption was sold and is excluded from reporting.
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Grainger plc / Annual Report and Accounts 2014 / Financials
Data coverage notes for owned assets continued
Total weight of waste by disposal route and like-for-like total weight of waste by disposal route for owned assets and occupied offices
2013
2014
Absolute
tonnes
Proportion
Like-for-like
Absolute
tonnes
Proportion
Like-for-like
Absolute
trend
Like-for-
like trend
Waste-Abs: Total weight of waste by disposal route; Waste-LfL: Like-for-like weight of waste by disposal route
(Annual metric tonnes and proportion by disposal route) GRI: G4-EN23
GRIP Fund
Grand Total
Grand Total
Total
Recycled
Incineration (with and
without energy recovery)
Landfill (non-hazardous)
Hazardous Waste
Treatment Facility
Coverage of applicable
properties
Total
Recycled
Incineration (with and
without energy recovery)
Landfill (non-hazardous)
Hazardous Waste
Treatment Facility
Coverage of applicable
properties
Total
Recycled
Incineration (with and
without energy recovery)
Landfill (non-hazardous)
Hazardous Waste
Treatment Facility
Coverage of applicable
properties
202
65
103
34
–
11 of 13
202
65
103
34
–
11 of 13
25
15
–
10
–
32%
51%
17%
–
32%
51%
17%
–
60%
–
40%
–
N/A
N/A
N/A
375
131
188
N/A
N/A
N/A
N/A
N/A
N/A
N/A
14
8
N/A
6
N/A
56
–
11 of 13
375
131
188
56
–
11 of 13
35
26
–
9
–
35%
50%
15%
–
35%
50%
15%
–
74%
–
26%
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
27
21
N/A
6
N/A
86%
102%
83%
64%
–
86%
102%
83%
64%
–
40%
73%
–
-1%
N/A
–
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
89%
263%
–
-9%
N/A
–
5 of 7
–
2 of 7
6 of 7
–
2 of 7
177
Data coverage notes for owned assets continued
Absolute waste
UK Residential portfolio: Waste management is not provided by Grainger for its UK Residential portfolio, so there is no data to report.
GRIP Fund: 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. 100% of data
is estimated because data is not gathered by waste management contractors for actual weight of waste generated by Grainger owned
properties. 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. Food waste for three
properties has been excluded because it was not possible to calculate weight from the data provided.
Like-for-like waste
GRIP Fund: The GRIP Fund is excluded from like-for-like reporting as the Fund was created in January 2013 and data is not available for two
full reporting years.
Data coverage notes for occupied offices
Absolute waste
Annual figures are estimated from an audit of actual waste weight produced by each office on a minimum of two separate days during
the reporting year. Total weight was calculated for the 255 working days per year, excluding bank holidays and weekends. 85% of data
was estimated. Waste data was not measured at our German occupied office.
Like-for-like waste
Due to office consolidation in 2013 and 2014, there are only two UK offices that have been occupied for two full reporting years:
Newcastle and Altrincham. Both are reported in like-for-like reporting. In 2013, shredded paper waste data was not available for the
Newcastle office, but this is included in 2014 reporting.
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Five year record
FOR THE YEAR ENDED 30 SEPTEMBER 2014
Revenue
Gross proceeds from property sales
Gross rental income
Gross fee income
Operating profit before valuation and non-recurring items (OPBVM)
Profit/(loss) before tax
Profit/(loss) after tax
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
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
Pence
9.5
1.8
Pence
216.2
153.3
86.6
%
6.5
11.1
2012
£m
311.4
250.5
89.8
10.0
126.4
(1.7)
0.4
7.6
Pence
0.1
1.9
Pence
223.0
157.1
107.7
%
5.9
3.8
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
2014
£m
319.1
267.2
57.4
12.3
107.5
81.1
74.7
8.5
Pence
18.1
2.5
Pence
290.6
242.0
185.5
%
17.0
25.6
179
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Company secretary and registered office
Adam McGhin
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Company registration number 125575
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Shareholders’ information
Financial calendar
AGM
Payment of 2014
final dividend
Announcement of 2015
interim results
Announcement of 2015
final results
4 February
2015
6 February
2015
May
2015
November
2015
Share price
During the year ended 30 September 2014,
the range of the closing mid market prices
of the Company’s ordinary shares were:
Price at 30 September 2014
Lowest price during the year
Highest price during the year
185.50
171.00
250.00
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.
180
Grainger plc / Annual Report and Accounts 2014 / 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
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.
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.
Cap
Financial instrument which, in return for
a fee, guarantees an upper limit for the
interest rate on a loan.
Operating Profit before Valuation Movements
(‘OPBVM’)
Operating profit before valuation
movements and non-recurring items.
181
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Advisers
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
Financial public relations
FTI Consulting
200 Aldersgate
Aldergate Street
London
EC1A 4HD
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
Central Square South
Orchard Street
Newcastle upon Tyne
NE1 3AZ
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
Designed and produced by Radley Yeldar
www.ry.com
Manchester
St John’s House
Barrington Road
Altrincham
Cheshire
WA14 1TJ
Luxembourg
16 Avenue Pasteur
L-2310
Luxembourg
Germany
Weissfrauenstrasse 12-16
60311 Frankfurt am Main
Hesse
Germany
Corporate addresses
Newcastle
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Tel: 0191 261 1819
London
1 London Bridge
3rd Floor East
London
SE1 9BG
Tel: 020 7795 4700
Birmingham
The Circle
Harborne
Birmingham
B17 9OY
View our website
www.graingerplc.co.uk