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Annual Report
and Accounts 2016
More online
www.graingerplc.co.uk
Our purpose
The UK Private Rented Sector (‘PRS’) presents
a major opportunity as more people are choosing
to rent.
We plan to capture this opportunity. We are
the UK’s largest residential landlord listed on
the London Stock Exchange and have a clear,
focused strategy to significantly grow our portfolio
of homes for rent and deliver sustainable returns
to our Shareholders while providing our customers
with great homes to live in.
Building on our growing national portfolio of
8,609 rental homes, we plan to invest over £1bn
into the UK’s private rented sector by 2020. We
will execute this plan with our unrelenting focus
on growing net rental income, driving operational
efficiency and improving customer service – to
the benefit of our Shareholders and customers.
Contents
Strategic report
Highlights
1
The Grainger Difference
2
Chairman’s letter
8
9
Chief Executive’s strategic review
12 Market review
14 Business model and strategy
16 Key performance indicators
18 Strategy in action
24 People, relationships and resources
28 Risk management
30
34 Viability statement
35 Financial review
Principal risks and uncertainties
Governance
43 Letter from the chairman
44 Board of Directors
46 Leadership
48 Effectiveness
51 Accountability
52 Relations with Shareholders
54 Audit Committee report
60 Nominations Committee report
62 Remuneration Committee report
73 Annual Report on Remuneration
86
Directors’ report
Financial statements
90
94
95
Independent auditor’s report
Consolidated income statement
Consolidated statement
of comprehensive income
Consolidated statement
of financial position
Consolidated statement of changes
in equity
Consolidated statement of cash flows
99
100 Notes to the financial statements
Parent company statement of
159
financial position
96
97
160 Parent company statement of
161
changes in equity
Notes to the parent company
financial statements
168 EPRA Performance Measures
171 Five year record
Other information
172 Shareholders’ information
173 Glossary of terms
175 Advisers
Strategic report – Highlights
Financial highlights:
Net rental income1
Adjusted earnings2
Profit before tax
£37.4m
(FY15: £32.4m)
+15%
£53.1m
(FY15: £31.5m)
+69%
£84.2m
(FY15: £51.4m)
+64%
Dividend per share
EPRA NNNAV3
Total return4
(Return on shareholder equity)
4.5p
(FY15: 2.75p)
+64%
287pps
(FY15: 263pps)
+9%
10.6%
(FY15: 10.0%)
+60bps
LTV5
35.9%
(FY15: 45.5%)
-960bps
Cost of debt6
(at period end)
3.9%
(FY15: 4.6%)
-70bps
Strategic and operational highlights:
Grow net rental income
Simplify and focus
Investing £850m into UK PRS by 2020 to
grow net rental income and our dividend
(£1.1bn alongside our partners)
£389m investment in PRS secured
this year
Secured Clippers Quay in Salford for
£100m, comprising 614 rental homes
Acquisition of Kew Bridge Court in
London by GRIP for £57.3m, comprising
98 rental homes
Conditional forward acquisition of
Yorkshire Post in Leeds for £40m,
a development of 242 rental homes
Conversion of GRIP into a REIT
£52m of stabilised PRS stock acquired
Planning consent achieved of Apex House
PRS development in London
Sale of German portfolio and
business platform
Sale of Retirement Solutions division,
Equity Release business
Czech Republic land sale
Internal restructuring into a Property
team, focused on driving capital growth,
and an Operations team, focused
on driving rental growth
24% overhead savings in FY17 from
actions taken to reduce costs
Improving capital structure through the
reduction in cost of financing by £12m,
cost of debt to under 4% and gearing
under 40%
1 Net rental income is gross rental income after charging directly attributable property expenses (see Note 7 to the financial statements on page 117).
2 Adjusted earnings, previously called recurring profit, is profit before tax, less valuation movements and non-recurring items (see Note 2 for explanation
and Note 4 for reconciliation from statutory measure).
EPRA NNNAV definition and reconciliation is shown in Note 5.
Total return (return on shareholder equity) is growth in EPRA NNNAV in the year plus the dividend per share as a percentage of opening EPRA NNNAV.
LTV is the ratio of net debt to the market value of properties on a consolidated Group basis (see page 38 for further details).
3
4
5
6 Cost of debt is the weighted average cost of debt at the year end date including costs and commitment fees.
1
Grainger plc Annual Report and Accounts 2016Strategic report
Strategic report – The Grainger Difference
Providing
homes for
better renting
We provide homes for rent and we are
professionalising the sector and improving
the customer experience by creating new
purpose built rental homes that offer an
attractive alternative to owning.
We are designing, building and managing
great homes in desirable areas.
Driving net rental
income through design
and management
Our new PRS assets are designed to deliver
a great experience for our customers and
are efficient to run.
Well-designed buildings are more
cost-effective to run and last longer,
mitigating against depreciation and
obsolescence and reducing maintenance
costs. They also make for happy, loyal
customers which, in turn, provide
robust, sustainable income.
2
Grainger plc Annual Report and Accounts 2016
Our investment focus
We target cities with attractive market
fundamentals and positive economic
prospects, including wage and job
growth. We look for top universities,
teaching hospitals, infrastructure
investment and high-quality employers.
We use our extensive, local knowledge
and our strong network to identify
investment opportunities.
Grainger’s
target
locations:
1
2
3
4
5
Manchester
(pop. 2.5m)
Leeds
(pop. 750k)
Birmingham
(pop. 1.1m)
Bristol
(pop. 450k)
London
(pop. 8.7m)
Among our target cities are London,
Manchester, Bristol, Birmingham and Leeds.
2
1
3
4
5
Growing net rental
income
Our strategy is transforming Grainger
from a business reliant on capital growth
to one with more balanced total returns
and greater rental income.
We are investing over £1bn into rental
homes by 2020, a pipeline which is fully
funded through the measures we have
taken to simplify the business. This
strategy is enabled by our portfolio
of regulated tenancies which generate
stable long-term cash flows.
By driving ever greater operational
efficiencies and creating economies
of scale, we are enhancing net rental
income, which will in turn allow us to
grow our dividend.
For further details on our
strategy and focus, please
see the Chief Executive’s
review on pages 9 to 11.
3
Grainger plc Annual Report and Accounts 2016Strategic report
Strategic report – The Grainger Difference
continued
Renting on
the rise
Renting is the fastest growing housing
tenure in the UK. It has doubled in size
in the last decade and it is predicted
to grow by 25% by 2020.
The UK needs more homes
Last year, the UK built about 152,520
new homes (DCLG). This is less than half
the projected demand. According to a
recent report by the House of Lords
Economic Affairs Committee, it is
estimated the UK needs at least
300,000 new homes each year.
By building homes specifically for the
rental market (‘build to rent’), we are able
to significantly contribute to new housing
supply, and we are able to deliver homes
much more quickly than other traditional
forms of housebuilding.
For more about our market
opportunities see
pages 12 and 13.
4
Grainger plc Annual Report and Accounts 2016
A decade ago 1 in 10
households in England
rented. Today
1 in 5
rent privately
(English Housing Survey)
Opportunity for large
scale professional
landlords
Ninety-eight per cent of landlords in
the UK own less than 10 properties.
This gives Grainger a clear opportunity
to provide a differentiated product with
high-quality service and gain significant
market share in the new, emerging PRS
of large scale professional, purpose built
rental housing (DCLG Landlord Survey).
Renting is the fastest
growing housing tenure
In the last decade, the PRS has
increased in size by 82% to over 4 million
households. This equals growth of 17,500
households per month on average
(English Housing Survey).
Forecasts predict the PRS will continue
to grow. PwC indicates that an additional
1.8 million UK households will rent by
2025 (PwC, UK Economic Outlook report,
July 2015), a 45% increase, while Savills
suggests an additional 1 million PRS
households in the next five years (Savills,
Rental Britain report, February 2016).
The drivers behind this growth in
demand for renting are both economic
and cultural: the cost of owning is
increasing and the flexibility of renting
is becoming more desirable.
“ One of things that has impressed
me most about Grainger is how
responsive they are to our needs.
We always receive a reply to our
emails within 24 hours and they
actually care about making us feel
comfortable in our home! We’re
treated like valued clients, rather
than simply tenants.”
Jane, renting with Grainger
5
Grainger plc Annual Report and Accounts 2016Strategic report
Strategic report – The Grainger Difference
continued
More than 100 years
of renting homes
Our tenants know that they can trust us
as a professional and responsible landlord,
looking after them and their homes.
An unrivalled
operational platform
A team of experts in acquisitions,
development and design.
Highly skilled, dedicated
professionals in lettings and asset
and property management.
Our four strategic operational offices are
aligned to our investment strategy. They are
located in Newcastle, London, Manchester
and Birmingham. Our Property team is
responsible for driving capital growth from
our investments, while our Operations team
is focused on growing net rental income.
Together they deliver attractive
balanced total returns to
our shareholders.
6
Grainger plc Annual Report and Accounts 2016
An unrivalled
operational
platform
Our portfolio
8,609
rental homes
Our portfolio of rental
homes is worth
£2.6bn
Our portfolio by geography
Region
Central London
Inner London
Outer London
South East
South West
East
East Midlands
West Midlands
Wales
Yorkshire
North West
North East
Scotland
Total
Homes under
management
(units)
1,020
2,358
542
665
914
424
276
500
12
329
1,263
285
21
8,609
Market
value
(£m)
691
959
183
159
250
69
24
83
1
37
137
28
3
2,624
Grainger’s
share of
market value
(£m)
525
634
177
147
197
64
24
82
1
37
136
28
3
2,055
Average
house price (avg
VPV per unit)
(£’000)
798
471
400
305
305
211
112
202
173
144
125
119
141
359
Excludes development work in progress and discontinued operations.
This year we have secured investment in a further
2,103 new rental homes.
7
A high-quality, cash
generative portfolio
delivering balanced
total returns
We manage our portfolio to protect
value and capture growth opportunities.
Our regulated tenancy portfolio is
expected to generate more than £100m
of gross cash per year from sales and
rental income for the next ten years.
This provides us with a solid foundation
for growth in the PRS. These cash flows
have proved resilient throughout
economic cycles.
This stable trading income from our
regulated tenancy portfolio is balanced by
a robust rental income coupled with the
higher yielding PRS assets. This year, our PRS
homes generated rental growth of 3.6%.
To learn more about how we
generate value for our shareholders
and stakeholders, please turn to pages
14 and 15 to see our business model.
Grainger plc Annual Report and Accounts 2016Strategic report
Strategic report – Chairman’s letter
A period of significant progress
Baroness Margaret Ford
Chairman
I am pleased to report significant
progress following our changes
in the executive leadership at the
beginning of the year.
Shortly after taking office as Chief
Executive, Helen Gordon, supported
by an energetic leadership team,
reviewed and refined the strategy
the Board had initiated at the end of
2015. She immediately set out the key
milestones to achieving a step change in
the strategic direction of the Company
with the ultimate objective of improving
value for all stakeholders. The benefits
are already beginning to materialise and
the future attractions of the business as
an income generating, residential rental
company are becoming increasingly clear.
In simple terms, we are shifting the nature
of the business from a traditional trading
model, heavily reliant on house price
inflation as a driver of capital value, to
an investment model with a sustainable
and visible income stream from well-run
private rented residential homes.
have been cut, and resources have
been concentrated on identifying and
creating a strong pipeline of private
rented sector (‘PRS’) assets, that build
on our heritage and will deliver strong,
sustainable shareholder returns over
the coming years.
The Grainger model continues to
capture over time the full reversionary
value of our regulated portfolio.
The predictable cash flow from these
properties is then reinvested directly
into developing or acquiring modern,
purpose-built residential rental
properties. This is a significant growth
market in the UK as the demand
for homes outstrips supply and the
option to rent becomes an increasingly
attractive and affordable alternative
to buying a home.
I am pleased to say that the new
management team has lost no time
in delivering on the milestones set out
in January 2016 and in reshaping the
organisation to support the strategy.
Disposals have been made, costs
The transition from strategy to
implementation has been short and
decisive and I would like to thank all of
my colleagues on the Board for their
tremendous effort in achieving this.
The effective management and proper
governance of the Group is critical to our
continued success and I have set out on
pages 43 to 53 a number of key actions
that we have taken to ensure that it
remains of the highest standard.
We have also enjoyed strong support
from the majority of our Shareholders
for our move to a UK residential rental
model with a greater focus on reliable
income. Their support of this and our
new management team during this
first year of transition has been
much appreciated.
Sadly we have to report that this year
we lost Stephen Dickinson, who died
after a short illness. Stephen joined
Grainger in 1974 and was an extremely
effective Chief Executive of the
Company until 2002, eventually retiring
from the Board in 2009, and was
instrumental in leading the Company
from private to public ownership. He
was a wonderful person who left a very
strong legacy and will be much missed
by all at Grainger.
Finally, we never forget that over 18,000
people choose to make their home with
Grainger. We take that responsibility
very seriously and our staff will continue
to go the extra mile for our customers,
day in and day out providing the best
service and best support possible.
Baroness Margaret Ford
Chairman
1 December 2016
8
Grainger plc Annual Report and Accounts 2016 Strategic report – Chief Executive’s strategic review
Maximising the opportunity
in the private rented sector
This is my first full year statement
to you as Chief Executive of your
Company and I am pleased to report
a solid performance and the swift
execution of the planned strategic
changes in the business, which will
ultimately drive all stakeholder value.
I set out in this report how we have
simplified and put focus into the
business to capture the opportunity
created by the growing demand for
private rental housing in the UK.
Strategic review
In January I presented my review of
the Company’s strategy. The strategy
positions Grainger for sustainable
growth in an emerging sector. It is
designed to grow rents, simplify and
focus the business and build on the
operational strength and foundations
of over 100 years of renting homes.
I was supported in this review by an
enthusiastic and engaged leadership
team. The whole of the Grainger team
provided insights and contributions. The
review examined every division and all
assets and portfolios were appraised
and avenues for growth explored.
The key findings supported our
view that there is a significant market
opportunity in an area where Grainger
has unparalleled expertise and
committed employees ready for change.
We identified the need for Grainger to
focus on growing rental income, to exit
non-UK assets and dispose of assets
which consume shareholder capital and
were focused on capital growth.
We concluded that our regulated
tenancy business remains a compelling
investment with robust cash flows. The
retention of these assets supports and
provides financing for Grainger’s
evolution to our new PRS model. Most
Helen Gordon
Chief Executive
importantly, this PRS model will establish
Grainger as an income generating quoted
vehicle, which provides Shareholders
easy and liquid access to the UK’s
high-growth PRS market, which is
otherwise only achievable through direct
real estate investment.
Delivering on our strategy
of simplifying the business
During the year we sold our
non-core assets and reorganised
our operational platform.
In January 2016 we agreed to sell our
Equity Release business as it was no
longer complementary to Grainger’s
core focus. This was completed in
May 2016.
Having decided to sell our German
business, we disposed of a series of
portfolios. We sold our German joint
venture in January. In February we
agreed to sell our German business
platform with one of the portfolios,
thereby securing the majority of the
Grainger employees’ jobs with the new
owners and reducing exit costs. The
majority of remaining assets were also
sold by May 2016. We disposed of surplus
land at Kennel Farm, Basingstoke, and in
August we were able to secure the
unwinding of our joint venture in Prague
by securing planning consent and
disposing of the land. I am pleased to
report that these disposals have been
achieved profitably, while successfully
securing the future for Grainger
colleagues within those non- core
businesses under their new owners.
These disposals reduced the quantum
and cost of debt and enabled us to
embark on a restructuring of our more
expensive debt resulting in further cost
reductions. This is explained more fully
in the Financial review. In June 2016 we
embarked on the restructuring of our
operations by removing divisions and
restructuring the business into Property
Highlights
NNNAV up 8.9% to 287p
Net rental income up 15%
Adjusted earnings up 69%
Operating costs reduced by 24%
Dividend per share increased by 64%
Profit before tax up 64% to £84.2m
9
Grainger plc Annual Report and Accounts 2016Strategic report Strategic report – Chief Executive’s strategic review
continued
and Operations (a PropCo/OpCo model)
backed by our central corporate teams.
This is designed to focus on driving
capital and income growth in the
business as well as significantly reducing
overheads. The benefit of this will be
fully realised in 2017 when overheads
are on track to be 24% lower than
in 2015. We will continue to pursue
ongoing improvements where possible,
realising further cost efficiencies that
our new model creates.
Delivering on our strategy of
growing rents and dividends
The growth of our rental income is
at the heart of the strategic objective
of delivering shareholder returns
which are a balanced mixture of both
income and capital growth. During
this transitional period to 2020 we have
linked our dividend directly to net rental
income and will distribute the equivalent
of 50% of net rents to Shareholders.
The majority of Grainger staff are also
Shareholders and this approach will
further incentivise the teams to drive
rental growth alongside providing a
high-quality service.
In January we announced a target that
over 50% of our wholly-owned assets
would be modern PRS stock by 2020 and
2016: A year of
significant action
that by that date net rental income
would exceed profit from sales. This is a
model which is more income focused and
structured to give more sustainable and
less volatile returns.
We also announced we would invest
£850m (c.£1.1bn alongside our partners)
in the PRS between now and 2020. I
am pleased to announce that we have
already achieved significant progress
and have secured £389m with a further
pipeline of £347m of potential sites in
the planning or legal process.
The growth in rents has been achieved
by new acquisitions but also by the
operations team delivering great
customer service and encouraging
our customers to stay for longer, and
increasing demand for our homes.
Disciplined approach to acquisition
We have restructured our investment
and acquisitions teams to enable them
to identify and assess opportunities
quickly in our target markets, and
provided an investment framework
which is supported by rigorous analysis
and in-depth local knowledge. This has
dramatically increased the number of
opportunities we are evaluating and has
enabled us to make good progress on
our pipeline.
UK PRS market
As you will read in the market review
section of this report, the demand for
renting is growing and this trend is set
to continue. Ten years ago, one in ten
households in England rented privately.
Today it is one in five. In London, it is one
in four. PwC predicts that 1.8 million new
rental homes will be required by 2025 to
meet demand. This demand, coupled
with positive support for the build-to-rent
sector and large scale institutional
investment in the PRS, presents Grainger
with a very compelling opportunity.
As the UK market leader in the
residential rental sector, we are targeting
investment in the PRS in key target cities
where demand for renting is highest and
local economic prospects are greatest,
including cities with top universities
and good graduate retention, teaching
hospitals and strong professional
services. Our top five target cities are:
London, Manchester, Bristol, Birmingham
and Leeds. I am pleased to say that we
have secured sizeable investments in four
of five of these cities since we launched
our strategy.
Vanessa Simms joins as
Chief Financial Officer
Sale of German business
Secured £100m PRS
development, Clippers Quay
Acquisition of PRS asset, Kew
Bridge Court by GRIP
£124m secured in PRS pipeline
PRS rental growth of c.3.6% in
six months to the end of March
Q1
Q2
Appointment of Helen Gordon
as Chief Executive
Sale of Retirement Solutions,
Equity Release business
New strategy and vision
announced, including pledge
to invest £850m by 2020
10
Grainger plc Annual Report and Accounts 2016 Working in partnership
Our reputation of working in partnership
and taking the long-term view of key
relationships is well established. Whilst
we are clear about our commitment to
existing partners, we believe we should
drive returns for our shareholders and
not take on more third-party property
management mandates at this time.
Our relationship with APG is important
to us and I am delighted that GRIP, our
fund with APG, was converted to a Real
Estate Investment Trust (REIT) in July
of this year.
Our partners in local and central
government are important to
us. We are aligned in our objective
of creating new high-quality homes.
Grainger’s longevity and commitment
to stewardship with communities has
been evidenced across a number of
development projects. In particular, our
work at Aldershot in partnership with the
Defence Infrastructure Organisation
(part of the Ministry of Defence) and our
developments with the Royal Borough of
Kensington and Chelsea are both worthy
of highlighting.
We continue to work with some
housebuilders and to look for ways in
Total cost savings of 24% identified
New dividend policy linked to
growing net rental income and
PRS investment pipeline
which to increase the availability of private
rental housing stock in the UK which is
complementary to housebuilders’ needs
to build new homes.
Political and legislative changes
There is an undersupply of quality
housing in the UK and this has been
recognised by central and local
government. Whilst the political
environment has been largely
supportive, the sector was adversely
affected by an additional 3% stamp
duty land tax surcharge on second
homes in the Spring. In June the vote to
leave the European Union was seen to
have a negative impact on the housing
market but was not evidenced in our
sales pipeline, and the PRS sector is
widely regarded as one of the most
resilient real estate classes post the
EU referendum.
Outlook
2016 has been a landmark year for
Grainger. The team has worked hard to
support the delivery of the key milestones
of the strategy. The UK PRS market is on
the cusp of high growth as it provides a
practical and compelling solution to the
housing shortage in the UK. Grainger’s
established leading market position and
operational expertise provide us with
Q3
Organisation restructured into
Property and Operations teams
£389m secured in PRS pipeline
confidence that we can capture this
market opportunity to its fullest.
2017 will be an important year for
Grainger as we forge ahead with the
transition into a more balanced rental
model and as we realise the benefits
of the restructuring and continue to
manage our all-important portfolio
of regulated tenancies.
Our long-term aspirations for
Grainger are for the business to be the
acknowledged leader in the PRS market in
the UK, delivering quality services whilst
generating strong shareholder returns.
Grainger has seen substantial change
and I would like to take the opportunity
of thanking each and every one of our
staff with whom so much has been
and will be achieved. Together with our
Shareholders, we look forward to an
exciting and profitable future ahead.
Helen Gordon
Chief Executive
1 December 2016
Moving forward
into 2017
Grow net rental income
Continue improving
operational efficiency
Q4
GRIP converted to UK REIT status
Legacy swaps recouponed,
reducing cost of debt to around 4%
Acquisition of £40m PRS
development in Leeds,
Yorkshire Post
Czech Republic land sale
11
Grainger plc Annual Report and Accounts 2016Strategic report Strategic report – Market review
Strong market conditions
Grainger’s business model is based
on maximising the total returns
generated from residential property
investments. We do this through a
combination of capital growth and
rental income.
Capital values (house prices)
UK house prices rose in the year ending
30 September 2016 by 3.7% according
to the LSL Acadata House Price Index,
5.5% for the combined average of the
Nationwide and Halifax house price
indices, and 7.7% according to the Office
of National Statistics.
This growth was significantly weighted
towards the first half of the year. In the
second half, activity and price growth in
predominantly Central London slowed
in the wake of increases to stamp duty
land tax and the EU referendum result.
Looking ahead, the consensus among
the main UK estate agencies (including
JLL, CBRE and Savills) is that house
price inflation in the forthcoming year is
anticipated to be between 0% and 5%.
Renting on the rise
Renting privately is the second most
common housing tenure in the UK
and it is rapidly growing.
One in five households rent privately
in England. In London, it is one in four.
Owner occupation levels peaked in
2003 at 71%, before the financial crisis,
and are now at 64%, while in the last
decade, the PRS has increased in size
by 82% to over 4 million households.
Private renting has been growing by
17,500 households per month on
average over the past decade (English
Housing Survey 2014-15, February 2016).
12
Housing tenures
80
70
60
50
40
30
20
10
0
e
g
a
t
n
e
c
r
e
P
0
8
9
1
2
8
9
1
4
8
9
1
6
8
9
1
8
8
9
1
0
9
9
1
2
9
9
1
4
9
9
1
6
9
9
1
8
9
9
1
0
0
0
2
2
0
0
2
4
0
0
2
6
0
0
2
8
0
0
2
0
1
-
9
0
0
2
1
1
-
0
1
0
2
2
1
-
1
1
0
2
3
1
-
2
1
0
2
4
1
-
3
1
0
2
5
1
-
4
1
0
2
Owner occupiers
Private renters
Social renters
Households (25 – 34 years), by tenure
60
50
40
30
20
10
0
e
g
a
t
n
e
c
r
e
P
2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Owner occupiers
Private renters
Social renters
Forecasts predict the PRS will continue
to grow. PwC predicts an additional
1.8 million UK households will rent
by 2025, a 45% increase (PwC, UK
Economic Outlook report, July 2015).
Savills predicts an additional 1 million
households in the PRS in the next five
years (Savills, Rental Britain report,
February 2016).
70% of individuals in the PRS are
under age 45, compared with 25%
in owner occupation. The proportion
of individuals between ages 25 and 54
who are privately renting has increased
steadily over the last two decades,
reflected in the term ‘Generation Rent’
(English Housing Survey).
The drivers behind the rental rise
There are two sets of drivers behind the
rise in renting:
1. Financial
Affordability challenges, lower levels
of savings and high mortgage deposit
requirements are some of the key
drivers behind more people choosing
to rent over owning, at least for a
longer period of time. In particular
the rising cost of buying and selling
a home is making ownership less
attractive, particularly for those
who want the flexibility in their
living arrangements.
2. Cultural and behavioural
Lifestyle changes mean that an
increasing number of people prefer
the flexibility of renting for longer.
Later family formation, greater job
mobility, changing spending patterns
Grainger plc Annual Report and Accounts 2016 and preferences are all driving an
increased demand for renting, due
to its flexibility and reduced levels
of commitment and liability.
Research suggests that these two sets
of drivers will continue to underpin
increasing demand for rental housing.
Britain needs to build more homes
Latest estimates suggest Britain requires
an additional 300,000 new homes per
year (House of Lords Economic Affairs
Committee, ‘Building more homes’
report, July 2016). Last year only
152,520 homes were built (DCLG).
It is widely accepted that more homes
must be delivered in the UK. The
Government recognises the need for
increasing housing supply, while business
surveys regularly cite housing amongst
the top issues for the future success of
the UK economy and its competitiveness.
This undersupply of housing has
underpinned, and will continue
to underpin, capital values and
rental income.
Opportunity for large scale
investors to gain market share
The UK rental housing market is
dominated by small scale landlords.
With less than ten properties each,
they make up 98% of the entire PRS
(DCLG, Landlord Survey).
Increasing demands for greater
professionalism, improved standards,
better service and better quality
housing provide an opportunity for
large scale investors such as ourselves.
There is a growing recognition among
both consumers and politicians of the
differentiation between large scale,
institutional landlords and smaller
scale, buy-to-let landlords.
Housing completions (England)
350
300
250
200
150
)
0
0
0
’
(
100
50
0
1969
1973
1977
1981
1985
1989
1993
1997
2001
2005
2009
2013
Real house prices (£)
350
300
250
200
150
)
0
0
0
’
(
100
50
0
1968
1978
1988
1998
2008
2015
Rental growth
Percentage change on a year earlier
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May
2015
2011
2012
2014
2013
Sep
Jan May
2016
Number of properties per landlord
1
2 – 4
5 – 9
10 – 24
25 – 100
More than 100
78%
17%
3%
1%
1%
0%
Source for charts: Office for National Statistics
13
Grainger plc Annual Report and Accounts 2016Strategic report Strategic report – Business model and strategy
A simplified and focused business...
Grow rents
– Page 18
Simplify and focus
– Page 20
Build on our heritage
– Page 22
PRS
Acquire or
develop
Let
Manage
Delivered by our Property and Operations teams
Regulated
tenancies
Acquire
Manage
Sell
Our
strategy
Inputs and
sources of
competitive
advantage
People
Staff
Customers
Investors
Partners
Relationships
Supply chain
Local
government
Customers
Capital
Assets
Technology
Intellectual
Property
Read more
Pages
24 to 27
14
Grainger plc Annual Report and Accounts 2016 ... creating value for shareholders
and the stakeholders we serve
Please see our KPI section on the next
two pages (16 and 17) to see how we
measure performance against our
strategy and business model.
Outputs
Outcomes
Net
rental
income
Dividend
+
NNNAV
growth
=
Total
returns
Shareholders
— Growing balanced, stable
long-term total returns,
including an increased dividend
Employees
— Clear purpose and direction;
stable employment and clear link
between remuneration, strategy
and business model
Supply chain
— Employment creation through our
supply chain, as a reliable client
with strong long-term prospects
Local communities
— Creation of new homes for
long-term rent
— Long-term investment in local
areas, supporting regeneration,
economic activity and labour
mobility
— Supporting great places and
communities, underpinning values
— Creating both housing and
employment opportunities for
local people
Customers
— A place to call home
— Dealt with in a fair and
professional manner
— Given the attention and service
expected in accordance with their
product (e.g. type of tenancy)
15
Grainger plc Annual Report and Accounts 2016Strategic report Strategic report – Key performance indicators
Our KPIs are used to measure the success
of the Group’s strategic performance
Income returns
The Directors have reviewed the use of key performance indicators (‘KPIs’) to ensure that they are aligned to the business
strategy. These measures are used by the Board and senior management to actively monitor business performance. The
following KPIs focus on a key strand of Grainger’s strategy, which is to increase the overall returns generated from income
and improve the resilience and efficiency of the business model which will support increasing dividend distributions.
PRS rental growth
(%)
Net rental income
(£m)
Property operating
costs (gross to net
costs)
(%)
Adjusted earnings
(£m)
Profit before tax
(£m)
3.6%
£37.4m
28.0%
£53.1m
£84.2m
4
4
.
4
1
0
2
Y
F
6
3
.
6
1
0
2
Y
F
4
3
.
5
1
0
2
Y
F
.
4
7
3
6
1
0
2
Y
F
.
4
2
3
5
1
0
2
Y
F
.
4
0
3
4
1
0
2
Y
F
.
8
0
3
.
7
0
3
.
0
8
2
4
1
0
2
Y
F
5
1
0
2
Y
F
6
1
0
2
Y
F
.
1
3
5
6
1
0
2
Y
F
.
5
1
3
5
1
0
2
Y
F
.
4
7
2
4
1
0
2
Y
F
.
2
4
8
6
1
0
2
Y
F
.
2
5
6
4
1
0
2
Y
F
.
4
1
5
5
1
0
2
Y
F
KPI definition
Average growth of rents
across our PRS portfolio.
Comment
Good rental growth
maintained through the
year, reflecting market
conditions and our
proactive approach to
asset management.
KPI definition
Rental income after
property operating
expenses.
KPI definition
Property operating
costs as a percentage
of gross rental income.
Comment
15% growth in net rental
income, primarily a result
of acquiring tenanted
rental homes that deliver
immediate income, a
key strand of our PRS
investment strategy.
Comment
300bps improvement,
which reflects the
actions taken in the
year to develop a more
efficient and scalable
operating platform.
KPI definition
Profit before tax, less
valuation movements
and non-recurring items.
Previously referred to as
recurring profit.
KPI definition
Profit before tax for
the continuing business
including valuation
movements and
non-recurring items.
Comment
69% increase in FY16
adjusted earnings,
reflecting growth in net
rental income, a robust
sales performance and
lower operational
and financial costs.
Comment
Growth of 64% to
£84.2m reflecting positive
valuation movements
and the disposal of land
in Czech Republic.
Key
Grow rents
Simplify and focus
Build on our heritage
Link to the strategy
Link to the strategy
Link to the strategy
Link to the strategy
Link to the strategy
Calculated in accordance
with the accounting policy
shown in Note 7 to the
financial statements.
16
See Note 7 to the
financial statements.
See Note 7 to the
financial statements.
See Note 2 for explanation
and Note 4 to the financial
statements for reconciliation
from statutory measures.
See Note 2 for explanation
and Note 4 to the financial
statements for reconciliation
from statutory measures.
Grainger plc Annual Report and Accounts 2016
Please refer to the Remuneration report
for details on how our strategy and key
financial metrics are linked to remuneration.
Capital returns
The Directors have reviewed the use of KPIs to ensure that they are aligned to the business strategy. These measures are used
by the Board and senior management to actively monitor business performance. The following KPIs capture Grainger’s strategy
to maximise total returns and capital growth from its residential investments, with an increasing focus on growing the PRS
business and investing £850m by 2020.
The net asset metrics below measure the value of our residential assets and liabilities and capture the year-on-year capital growth.
The loan to value (‘LTV’) reflects the capital structure of the business while cost of debt shows the cost effectiveness of our financing.
EPRA NAV
(pence)
EPRA NNNAV
(pence)
LTV
(%)
Cost of debt
(at period end)
(%)
Total return
(%)
330p
287p
35.9%
3.9%
10.6%
0
3
3
9
1
3
5
1
0
2
Y
F
6
1
0
2
Y
F
1
9
2
4
1
0
2
Y
F
7
8
2
6
1
0
2
Y
F
3
6
2
5
1
0
2
Y
F
2
4
2
4
1
0
2
Y
F
.
5
6
4
.
5
5
4
4
1
0
2
Y
F
5
1
0
2
Y
F
.
9
5
3
6
1
0
2
Y
F
4
5
.
4
1
0
2
Y
F
6
4
.
5
1
0
2
Y
F
9
3
.
6
1
0
2
Y
F
.
6
5
2
4
1
0
2
Y
F
.
0
0
1
5
1
0
2
Y
F
.
6
0
1
6
1
0
2
Y
F
KPI definition
Market value of property
assets, before deferred
and contingent tax on
property revaluations and
derivative adjustments.
KPI definition
EPRA NAV after
deducting deferred
and contingent tax on
property revaluations and
derivative adjustments.
KPI definition
Ratio of net debt
to the market value
of properties on
a consolidated
Group basis.
Comment
6.5% compound annual
growth from FY14, 3.4%
growth in FY16 reflecting
a strong trading and
valuation performance,
despite adjustments
for strategic non-core
disposals and the
recouponing of
legacy swaps.
Comment
8.9% compound annual
growth from FY14,
8.9% growth in FY16
supported by a strong
trading performance,
good valuation growth,
accretive strategic
disposals and reduced
deferred and contingent
tax liabilities associated
with lower corporate
tax rates.
Comment
Reduction of 960 basis
points (‘bps’) in LTV
fuelled by 5.3% growth
in market value of our
assets in the year and
a 33% reduction in net
debt, supported by
strong cash generation
from sales of vacant
regulated tenancies and
non-core disposals of the
German and Equity
Release businesses.
KPI definition
Cost of debt at the period
end including costs and
commitment fees.
Comment
Improvement of 70bps,
helped by refinancing
activity including the
recouponing of two
legacy swaps during the
period. Further benefit
should be seen in FY17.
KPI definition
Growth in NNNAV
combined with total
dividend per share
in the year. Also known
as return on shareholder
equity (‘ROSE’).
Comment
Growth of 60bps
compared with FY15.
Link to the strategy
Link to the strategy
Link to the strategy
Link to the strategy
Link to the strategy
See Note 5 to the financial
statements for reconciliation.
See Note 5 to the financial
statements for reconciliation.
See further detail in Financial
review on page 38.
17
Grainger plc Annual Report and Accounts 2016Strategic report
Strategic report – Strategy in action
Growing rents
Inject pace and accelerate
the acquisition of existing and
newly built rental homes
“ Clippers Quay is a highly attractive
place to invest, driven by its
connectivity and proximity to
Manchester and MediaCityUK.”
Helen Gordon, Chief Executive
A clear and effective three
pillar strategy:
portfolio and provide enhanced
and balanced total returns to
our Shareholders.
1. Significantly grow net
rental income
2. Simplify and focus the business
3. Build on our heritage by
leveraging our regulated tenancy
assets to grow our PRS business
Growing net rental income
Swift progress on our PRS
investment pipeline
To significantly grow net rental income,
we are investing £850m into the PRS by
2020. Coupled with our co-investment
partners’ share, this totals £1.1bn of
investment by 2020. The resultant
growth in net rental income will
supplement the capital returns
generated from our regulated tenancy
This investment plan requires no
additional capital raising. Our dividend
policy is directly linked to net rental
income for this investment period,
and therefore will rise in line with our
investments. Our 2020 objective is for
net rental income to more than cover
all operating costs and to exceed gross
sales revenue from our regulated
tenancy portfolio.
We are focused on driving net rental
yields and are taking significant
strides in reducing operating costs,
improving efficiency and creating
greater scalability.
18
Grainger plc Annual Report and Accounts 2016
Net rental income up by
15% to
£37.4m
Our 2020 targets
Invest over £850m by 2020 in
order to grow net rental income
More than half of our portfolio
comprising PRS assets
Reduced reliance on sales
(cost coverage)
Net rental income to exceed
profit from sales
Achieving our targets
To achieve our goal of growing
rents, we must be able to attract
the best customers and keep
them for the long-term. This
will allow us to capture the
best possible sustainable gross
rental yield and maximise net
rental yield.
We believe that through smart
investment, good design and
scalable, customer focused
operations, we can create more
sustainable income through more
efficient, durable buildings and
happier customers that stay with
us for longer.
Read more
Pages 2 and 3
Grainger plc Annual Report and Accounts 2016
19
Strategic report
Strategic report – Strategy in action
continued
Simplify and focus
Reducing running costs
and increasing efficiency
and scalability
“We will continue to pursue
ongoing improvements, realising
further cost efficiencies that our
new model creates.”
Helen Gordon, Chief Executive
We have streamlined our business.
We are now solely a UK business,
strategically focused on providing
rental homes.
This year we sold our major non-core
businesses, German and Equity Release.
We have refocused the operations of the
business. Our development team is now
focused solely on developing PRS assets
(build-to-rent). We will no longer seek
additional fund management mandates
while our focus is on growing our own
balance sheet and shareholder returns.
We have significantly reduced operating
costs. These costs, including overheads,
are being reduced by 24% from £36.1m
in FY15 to £27.5m for FY17. We achieved
this through a combination of the
non-core disposals, restructuring
and operational efficiency measures.
We have begun to reduce the cost
of managing our assets, with the
leakage ratio between gross to net
yield improving from 30.7% to 28.0%
in the year.
20
Grainger plc Annual Report and Accounts 2016
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
We have taken actions
to reduce overheads by
24 %
Our 2020 targets
Continue to improve
operational efficiency and
scalability, and thereby
enhancing rental margins
Reduced reliance on sales
(cost covered by income)
Achieving our targets
Going forward, we will continue
to identify ways of reducing costs
and improving efficiencies within
the business that will enable us
to grow our portfolio without
significantly increasing costs.
This will likely entail the use of
technology to provide scalability.
Read more
Page 37
Grainger plc Annual Report and Accounts 2016
21
Strategic report – Strategy in action
continued
Building on our heritage
Leveraging our regulated
tenancy assets to grow
net rental income
“Our regulated tenancy
business continues to be
a compelling investment
with robust cash flows.”
Helen Gordon, Chief Executive
Our portfolio of regulated tenancies
(£1.2bn, 3,652 homes) is predicted
to generate over £100m of gross
cash per annum for at least the next
decade. This will provide a significant
proportion of the capital to support
our investment in PRS assets and
grow rents.
The majority of cash flow from regulated
tenancies is generated through sales of
these properties as the regulated tenants
vacate their homes and we sell the
properties on vacancy. About 7% of the
portfolio is vacated and sold each year.
These assets also generate a stable
rental yield, which due to the nature of
the assets is a very solid income stream.
This is because it is linked to inflation
and sees very limited levels of arrears.
Regulated tenancy business model
Recurring rental income
Purchase
price
Revisionary
surplus
H o u s e p r i c e
‘ H P I
(
i n fl a t i o n
)
’
Revisionary
surplus
e
c
i
r
p
s
e
l
a
S
Buy at
discount
Hold
Sell
Time
22
Grainger plc Annual Report and Accounts 2016
S
t
r
a
t
e
g
i
c
r
e
p
o
r
t
We expect our regulated tenancy
portfolio to generate over
£100m
of gross cash per year
for the next 10 years
Our 2020 targets
Net rental income to exceed
profit from sales
PRS assets to exceed
regulated tenancy assets
Regulated tenancy
business model
Regulated tenancies are a
historical residential asset type
Last created in 1988, c.90,000
to 100,000 tenancies remaining
They are no longer created
due to legislative changes in
1988 which introduced the
Assured Shorthold Tenancies
(modern PRS)
Stable, low-yielding assets,
acquired at a discount and
sold on vacancy at full price
(vacant possession value)
Locked-in value, realisable on
vacancy (‘reversionary surplus’)
Read more
Read more
Page 00
Pages 6 and 7
Grainger plc Annual Report and Accounts 2016
23
Strategic report – People, relationships and resources
Supporting long-term, sustainable performance
through our people, relationships and resources
For 104 years Grainger has been
renting out homes. The importance
of providing shelter to our customers
is always at the front of our minds
and informs every action and decision
we take. We recognise the weight of
this responsibility.
Sustainability targets
We set annual and long-term
targets to deliver improvements
in our sustainability performance
across our core impact areas as they
relate to our sustainability strategy.
A full list of targets and our progress
against them is available on the
sustainability section of our website.
Online sustainability
www.graingerplc.co.uk/responsibility
A culture aligned to our strategy
Grainger’s success is predicated on
more than just our property portfolio.
Critical to our sustainable future are
our people, our relationships with
customers, partners and suppliers,
and our impact on the world around
us. Our investment in these areas is
essential to the success of our business.
We are proud to be recognised as
a responsible business, achieving
FTSE4Good recognition, ‘Green Star’
ratings for both Grainger and GRIP
REIT by the Global Real Estate
Sustainability Benchmark (‘GRESB’)
and a ‘Gold’ for EPRA’s Sustainability
Best Practice Reporting.
The Board recognises the increasing
significance of the culture of the business.
The Board works with the Executives in
setting the corporate culture and its
values. As the business goes through a
period of change, the role of culture in
the business will be of further importance
to ensure that Grainger’s values are
aligned to the newly focused strategy
and that good standards of behaviour are
embedded and integrated across the
Company. In addition, the Board will
regularly review and monitor Grainger’s
culture to ensure that it is reflective of the
Company’s purpose and values.
24
2015/16
2014/15
Achieved
6
Partially achieved 4
2
Not achieved
Achieved
9
Partially achieved 5
2
Not achieved
Total
12
Total
16
The Executive Directors are directly
responsible for people issues, including
well-being and health & safety. The HR
Director supports the Executive team
on a day-to-day basis, and the Board
receives a standing report on such
issues at every meeting.
Investing in people to deliver
strategic performance
Providing our customers with a good
home and ensuring that they are happy
in their home through efficient and
cost-effective operations is central
to our business model. Our culture
and values are about creating a work
environment whereby staff are focused,
aligned and working together towards
these unifying objectives.
This year we restructured the business to
align everyone’s role and remuneration
directly to our strategy of delivering a
balance of capital growth and income
growth and driving operational efficiency.
Our Property team is responsible for
delivering capital growth, while our
Operations team is responsible for
income growth. See the business model
section of this report for further details.
Employee engagement has been a key
focus of the leadership team over the
course of the year, a period of challenges
and change within the organisation,
including internal restructuring and
the sale of two business divisions.
We have a range of communication
forums for employees to engage in
which occur at regular intervals. They
are designed to encourage two-way
communication across all levels within
the business where we are all able to
contribute towards Grainger’s strategic
progress and improvement. Feedback
from this year’s survey has resulted in a
number of initiatives, such as the creation
of new forums for communication.
Through an established set of bi-annual
performance reviews, we help people
grow and progress, including career
planning and development discussions.
Alongside performance, we monitor key
metrics, such as turnover and sick days.
Our Share Incentive Plan and Save As You
Earn Plan (with most employees taking
advantage of at least one) align staff
interest with the success of the business
and our strategy.
Developing our people
Emerging
leaders
Graduate
programme
Leadership
team
Grainger plc Annual Report and Accounts 2016
We are
helping create
strong and
desirable
communities
Leadership and succession planning
Grainger is committed to being a
great employer and providing career
progression paths throughout the
business. Starting with our successful
graduate programme, we provide a
supportive environment for learning,
development and progression.
Diversity
In order for Grainger to be the best
provider of rental homes to the most
number of customers, it is critical that
we understand all our customers. It is
essential for us to create an environment
where we can share experiences and
insights to understand our customer
base and to make our business more
resilient. Diversity in the business is
a core component of this and we
support diversity in the workplace.
Health and safety
Grainger is committed to protecting
the health, safety and welfare of our
employees and customers, and those
affected by our business. Our culture
supports a positive and proactive
approach to health and safety which
is designed to be both pre-emptive and
proportionate. Through appropriate
policies and procedures we ensure that
we meet our obligations as a
responsible business through
influencing our supply chain to the
greatest extent possible and ensuring
that everyone in Grainger is responsible
for health and safety and performing
Employee profile
Non-Executive Directors
Executive Directors
Senior Managers1
Employees2
Total staff3
Total staff FY15
Male
3
1
14
69
84
117
60%
33%
78%
35%
39%
41%
Female
2
2
4
126
132
166
Total FY16
5
3
18
195
216
283
40%
66%
22%
65%
61%
59%
1
2
3
Senior employees with strategic input and influence.
Excluding six roles scheduled for redundancy in late 2016, post financial year end.
Excluding Non-Executive Directors.
their activities in a safe manner. An
example of this is the introduction
of an integrated safety, health and
environmental management system in
Wellesley, which allows us to maintain
and control standards across our supply
chain on this large, diverse project.
Protecting human rights
Due to the nature of our business and
our supply chain, we do not consider
the risk of human rights abuses a
material risk. Following the Modern
Slavery Act 2015, we are undertaking
an internal review of the requirements
and implications for our business and
within our supply chain. We will publish
a Modern Slavery Act Transparency
Statement as required in 2017.
Working with our partners
and suppliers
The relationships we have with our
partners and suppliers are fundamental
to our business model. Our partners
supplement and complement Grainger’s
position and enable us to amplify our
business activities, and they are an
extension of our business. We therefore
work very closely with them and ensure
25
Grainger plc Annual Report and Accounts 2016Strategic report Strategic report – People, relationships and resources
continued
that our contracts require them to
uphold the high standards we set so
that we deliver the products and
services that our customers expect,
and ensure that we make a positive
impact, drive performance and
manage risk accordingly.
Working with our neighbours
towards a better future
We believe that much of our success
relies on the success of the communities
and areas in which we operate.
We are therefore committed to
working alongside our neighbours
where we are either based or have
significant investments. We do this
through a number of ways, including
everything from organising family fun
days for residents through to supporting
local community events and working
closely with other stakeholders to
positively influence the future. For
instance, at our development at Young
Street in Kensington, London, we are
working with our building contractor,
Ellmer, and have introduced a residents
panel to provide an open forum for
communication and engagement. At
Wellesley we have a Residents Trust
which consists of a board of residents
who will make decisions about the
future management of the estate
and community.
Grainger is an active contributor to
the UK housing debate and engages
proactively with central and local
government to positively influence
policy to enable our sector to invest
in more good-quality homes for rent.
Through charitable giving, both employer
(£14,467) and employee-led (£29,280), we
collectively gave £43,747 to both local and
national charities, including our charity
partner, LandAid, which is committed
to ending youth homelessness by 2026.
Through Grainger’s policy of providing
a day’s paid leave for volunteering,
employees provided 35 days for
charitable causes this year.
Where we are developing new
homes and neighbourhoods, we
undertake and also support initiatives
that underpin the future success of
the area and community.
Our business model enables us to offer
a range of housing options, including
those at a more affordable level for those
on low incomes, while ensuring that each
asset is still commercially viable.
Managing our impact on
the environment
As both an owner and developer of
property, we are mindful of our impact
on the environment and our approach
helps secure the future success of the
business and protect the value of
our investments.
Creating new homes that are desirable but
also resilient and sustainable is critical to
protecting future value for Grainger and is
central to the specifications and designs of
our developments.
We actively monitor and take
action to reduce our impact on the
environment. Our policies, procedures,
governance structure and decision
making processes, such as our
Environmental Management System and
refurbishment programmes, are designed
to take our environmental impact into
account and reduce it wherever possible.
Energy efficiency is a particular focus as
we look to the introduction of Minimum
Energy Efficiency Standards in 2018. This
year, we achieved full EPC coverage on
GRIP REIT’s portfolio and have developed
a strategy to understand and manage
the risk across our other portfolios,
while at Wellesley, one of our major
EPRA Sustainability Performance
We report on all EPRA Sustainability
Performance Measures for all our property
portfolios. Detailed tables that illustrate our
performance in line with the EPRA Sustainability
Best Practice Recommendations are available
on the sustainability section of our website.
For more details on our
sustainability efforts,
please visit our website:
www.graingerplc.co.uk/responsibility
26
Grainger plc Annual Report and Accounts 2016 developments, more than 99%
of all waste is recycled back into
the development.
Greenhouse gas emissions report
We are committed to measuring
and reducing the carbon emissions
associated with our property portfolios
and our own operations. In accordance
with the Companies Act 2006
(Strategic Report and Director’s Report)
Regulations 2013, we report on all
greenhouse gas emissions within our
operational control (pages 87 and 88). We
continued to improve our performance in
the CDP Climate Change programme,
achieving a ‘B’ score for 2016, reflecting
our commitment to good environmental
management and effective disclosure of
our processes and procedures.
Adviser’s statement
Grainger has engaged Upstream
Sustainability Services, JLL, as advisers
on its sustainability strategy and
implementation since 2005. Our
programme of work includes assisting
Grainger plc with setting sustainability
targets and reviewing performance against
these targets at year end. Due to JLL’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 analysis of documents,
interviews and/or other secondary
evidence provided by Grainger plc and
relevant third parties. All reasonable
efforts were made to check the quality,
accuracy and credibility of the 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 sustainability
content of Grainger plc’s 2016
Annual Report and Accounts.
Summary of target performance
Grainger’s target performance
must be placed in the context of the
significant changes to the Company’s
leadership and operations that have
taken place over the past 12 months.
Overall, Grainger achieved four of its
seven new targets for 2016, and two
out of the five targets that were
carried over from 2015.
Progress was made as Grainger
continued to embed sustainability
into its core processes and procedures,
with successes this year including the
creation of a green lease clause to be
rolled out to commercial leases, the
integration of sustainability into
Grainger’s development specification
and successful pilots of whole life
costing and tenant focus groups.
A full review of Grainger’s operating
model resulted in the decision to place
two 2016 targets on hold. The remaining
four targets that are in progress will be
carried over for completion in 2017.
Observations and recommendations
The significant organisation and
strategic changes that have taken place
during 2016 have meant that three of
Grainger’s sustainability targets were
either made redundant or had to be put
on hold until the changes have been
fully implemented. The organisational
changes nonetheless provide Grainger
with an opportunity to realign its
sustainability strategy to reflect its new
business model. It is an opportunity we
encourage Grainger to capitalise on, and
over the next year we recommend that
the Company reviews its sustainability
strategy to ensure that it continues to
deliver value for its business.
Key to this will be making sure that
Grainger focuses on its most significant
sustainability impacts in order to channel
its resources most effectively. An updated
materiality review, which the Company
was not able to complete in 2016, will
support this goal and strengthen the
Company’s commitment to transparency
(as evidenced by the welcome decision to
align its 2016 sustainability reporting with
the ‘Core’ in accordance with requirements
of the recently published Global Reporting
Initiative (‘GRI’) Standards).
Grainger continues to perform strongly
in relation to the real estate sector more
broadly. Both Grainger plc and GRIP REIT
(formerly GRIP Unit Trust) achieved
‘Green Star’ status in the 2016 Global
Real Estate Sustainability Benchmark
(‘GRESB’) Assessment, and achieved four
out of five stars in the new GRESB Rating.
This places it in the top two quintiles for
real estate companies globally based on
its performance and disclosure.
While Grainger has put on hold its
target to study the impact on staff
wellbeing of its offices, health and
wellbeing is also an area where the
Company deserves praise. Grainger was
one of only 174 real estate organisations
globally to complete the voluntary
Health and Wellbeing module in the
2016 GRESB Assessment. Its score of
75% places it comfortably above the
global average of 58% and reflects its
sector-leading approach. We encourage
Grainger to build on this strong start
and investigate further the benefits to
both tenants and Company that can
be captured by integrating health and
wellbeing into its sustainability strategy.
Claire Racine
Associate Director
Upstream Sustainability Services JLL
1 December 2016
27
Grainger plc Annual Report and Accounts 2016Strategic report Strategic report – Risk management
A strong and robust risk
management framework
To achieve our objective of being
the UK’s leading PRS landlord we
recognise that we must have a clear
understanding of the risks we face,
both those inherent in our strategy
and operations and those posed by
external conditions. Our systematic
and robust approach aims to
continuously monitor those risks,
our risk management and internal
controls systems and evolve our
approach accordingly.
Risk management approach
Good risk management is fundamental
to our ability to meet our operational
and strategic objectives. The competitive
market in which we operate requires
effective decision making; ensuring
that the risks the business takes are
adequately assessed and challenged
and appropriate returns are achieved.
We must also retain our overall resilience
to risks over which we have limited
control through our disaster recovery
and business continuity procedures.
During the reporting period we
have endeavoured to embed our
risk management approach in the
restructured and simplified business
following the strategic review in
early 2016.
on internal mitigating controls. When
forming this assessment the business
considers a range of risk categories,
including strategic, market, financial,
legal/regulatory, operational, IT, project
and people risks.
Our overall risk management ambition
remains – to foster and embed a
culture of risk management that is
responsive, forward looking,
consistent and accountable.
Robust risk assessment
Our systematic risk management
approach is designed to identify risks
to the business using both a bottom-
up and a top-down approach.
Once identified, the impact and
probability of risks are determined
and scored on both a Gross (before
mitigation) and Net (after mitigation)
basis. This allows the business to identify
those risks which are heavily dependent
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 for risks arising within
operational areas. These risks, and their
impact and likelihood scores, are
documented in divisional, unit and
project risk registers. The risk registers
are reviewed at least quarterly, and
more frequently as required, then
collated into a Group top risk report
for consideration by the Executive
Committee and the Audit Committee.
Mapping our key risks
Post-mitigation
1. Market (see page 30)
2. Financial (see page 30)
3. Regulatory (see page 31)
4. People (see page 31)
5. Supplier (see page 31)
6. Health and safety (see page 32)
7. Controls (see page 32)
8. Transactional (see page 32)
9. Development (see page 33)
10. Brexit (see page 33)
Risk 1 reduced since 2015. Other risks remain
unchanged. Risk 10 is a new principal risk.
28
i
n
a
t
r
e
c
t
s
o
m
A
l
10
1
d
o
o
h
i
l
e
k
L
i
y
l
e
k
L
i
e
l
b
i
s
s
o
P
y
l
e
k
i
l
n
U
4
7
5
8
6
9
2
3
Minor
Moderate
Major
Extreme
Impact
Grainger plc Annual Report and Accounts 2016
Risk control framework and assurance
The Board has ultimate responsibility for
Grainger’s risk management and internal
control systems and for determining its
risk appetite. The Board approves the
risk management framework developed
by the Executive Committee. This
framework has been restructured during
the course of the year to align itself with
the reshaped business that has been
adopted pursuant to the new PRS-
focused strategy. This structure also
complements Grainger’s evolution
to a ‘three lines of defence’ model as
discussed in the 2015 Annual Report.
This included the introduction of
various management committees in
respect of key property, operational
and corporate functions. These
management committees and
the Executive Committee provide
appropriate challenge and input to
the identified risks, reported controls,
mitigants and the Group top risk report.
The Audit Committee supports the
Board by monitoring and reviewing
the control processes and mitigants
in respect of the identified risks. It
also ensures that the process for
reconsidering the principal risks is
carried out on an ongoing basis. The
internal controls framework for these
risks is monitored through the Internal
Audit monitoring plan and the resulting
audit outcomes. For more information
on internal controls please refer to
page 51.
Assurance on risk controls is currently
provided by internal management
information, internal audits, external
audits and Board oversight. There
is also an externally supported
anonymous whistleblowing hotline
that staff can utilise if other methods
of notification are not suitable in the
circumstances. In addition to embedding
the revised risk management framework,
in 2017 we plan to introduce a software
solution which will improve efficiency
and quality of risk reporting. The usage of
this software will result in top or common
risks being more visible when reported
centrally and also assist in ensuring
that focused and consistent controls
are applied.
Risk control framework
Board and Audit Committee
Executive Committee
1st line
of defence
Management
controls
Policy and
procedure
Understanding of
risk management
2nd line
of defence
Financial
controls
Risk
management
Compliance
Key performance
indicators
Oversight by
Management
Committees
3rd line
of defence
Internal
Audit
Ad hoc
review/Audit
E
x
t
e
r
n
a
l
A
u
d
i
t
29
Strategic reportGrainger plc Annual Report and Accounts 2016
Strategic report – Principal risks and uncertainties
Managing our principal risks
and uncertainties
Principal risks and uncertainties
The Directors have undertaken a robust and systematic assessment of the Group’s principal risks. These have been considered
within the timeframe of four years, which aligns with our viability statement detailed on page 34.
Table of principal risks and uncertainties
Category
of risk
Risk
description
Impact on
strategy
Risk appetite Mitigation
1. Market
Weak macro-
economic conditions
leading to long-term
flat or negative
house price inflation.
Grainger’s business
is based on taking
well-judged risks
on house price and
rental inflation.
Economic uncertainty
may cause drop in
home ownership;
asset values fall;
subsequent
investment
constraints on
delivery of PRS
business model;
covenant compliance
risk; business
unattractive
to investors.
2. Financial
Lack of availability
or volatile pricing in
respect of debt or
equity finance for the
Group to achieve its
strategic objectives;
inability to obtain
sufficient, diverse or
appropriately priced
funds to implement
the current strategy.
Reduced or severely
limited ability to
take advantage
of business
opportunities;
unable to grow
PRS asset base;
reduces Group’s
profitability and NAV.
Grainger has no
appetite to commit to
investment without
secured funding at
appropriate rates nor
without sufficient
headroom.
Wider market risk is largely
dependent on factors we
cannot influence
Reducing reliance on trading
income and house price inflation
Maintenance of capacity against
banking covenants
High proportion of liquid assets
to enable sales where necessary,
as evidenced in last economic
downturn
Focus on PRS potentially
leverages greater customer
flexibility and lower overall
financial commitment compared
with home ownership which could
be attractive for customers during
uncertain economic periods
Geographically diverse portfolio,
exercising active asset
management and implementing
future strategic focus on
economically active locations
Financial headroom and relevant
key metrics maintained at
appropriate compliance levels and
in accordance with Board approved
capital operating guidelines
Appropriately qualified
Treasury team
Positive relationship management
with banks and other funding
institutions resulting in diversity
of finance
Ability to control the timing and
quantum of new acquisitions
to reduce cash outflows
Simplification of business
model makes financing
more straightforward
Agreed hedging policy to
manage exposure to volatility
in interest rates
30
Grainger plc Annual Report and Accounts 2016 Category
of risk
Risk
description
Impact on
strategy
Risk appetite Mitigation
3. Regulatory
4. People
5. Supplier
Failure to meet
current or increased
legal or regulatory
obligations or
anticipate and
respond to changes
in regulation that
creates increased
and costly
obligations including,
but not limited to,
the introduction of
rent caps or similar
limitations.
Failure to attract,
retain and develop
our people to ensure
that we have the right
skills in the right place
at the right time to
deliver our strategy.
This is an acute risk
issue as there is
currently a limited
pool of individuals in
the market with the
relevant requisite skill
set in acquiring and
managing PRS assets.
A significant failure
within or by a key
third-party supplier
or contractor.
Grainger has no
appetite for legal and
regulatory breach
due to the risks this
poses to its staff,
customers, assets
and reputation.
Fines, penalties and
sanctions; damage
to reputation; loss
of operational
efficiency and
competitiveness;
increased costs;
reduction in market
opportunities; impact
on ability to finance
opportunities.
Reduced ability to
deliver business plan
and strategy; reduced
control; inability to
grow market share of
PRS; failure to
innovate and evolve
to maintain
competitiveness in
a customer driven
market.
We have no appetite
to accept a lack of
appropriate skills,
expertise and
experience that
would materially
diminish our ability to
deliver our strategy
and respond to
changes.
Increased costs;
inability to deliver
performance
objectives to
satisfaction
of stakeholders;
possible legal action
and regulatory
sanctions;
reputational
damage, customer
dissatisfaction.
We utilise a
significant range of
third-party services
and so recognise that
we carry an inherent
risk of some type of
unforeseen failure.
However, through
management and
control we seek to
minimise this risk.
Increased
Reduced
Unchanged * New
Ongoing management and
staff training
Specialist legal, compliance and
corporate affairs teams who
monitor and advise internally and
review the regulatory horizon
Use of external specialists to
advise and maintain forward
looking focus
Close alignment and involvement
with leading industry groups/bodies
Robust asset management
controls and compliance processes
Position as UK’s leading PRS
provider embeds a cultural
requirement to comply with
regulation and best practice
Succession plans are
regularly reviewed
Management and leadership
development training
Retention policies in place for
key staff including careful
monitoring of remuneration
packages to ensure
competiveness in the market
Performance reviews and
appraisals
Identification of opportunities
to develop and provide internal
career development
Established internal controls
and management systems
with regard to third-party
contractor/supplier base
Experienced Senior Managers
oversee relationships
Identification of key suppliers
and ongoing assessment
of covenant strength
Sufficient diversity of key suppliers
and relationships with potential
suppliers to minimise overreliance
on any one organisation
Established ‘three lines of defence’
model to facilitate stronger
monitoring and controls
31
Strategic reportGrainger plc Annual Report and Accounts 2016
Strategic report – Principal risks and uncertainties
continued
Table of principal risks and uncertainties continued
Category
of risk
Risk
description
Impact on
strategy
Risk appetite Mitigation
Harm to customers,
tenants, employees,
contractors or
visitors; possible legal
action and/or fine;
subsequent
reputational damage.
Grainger has no
appetite for health
and safety breaches
both within its own
operations and those
of its third-party
contractors.
6. Health
and safety
7. Controls
A significant
health and safety
incident as a result
of inadequate or
inappropriately
implemented
health and safety
procedures and
controls within
Grainger.
Weak environment
of systems, controls
and culture resulting
in the failure of
mitigants regarding
the likelihood and
impact of other
principal risks.
Weak underlying
control environment
does not support the
efficient operation
of the business;
increased costs and
lower profitability;
compliance failings;
reputational damage.
We accept that
problems may occur
and risks are part of
doing business.
However, all such
problems should be
contained within an
effective control
framework and
supporting culture.
Our focus is on
continuously
improving this
framework on a
standard ‘three lines
of defence’ model.
Grainger’s business
is based on taking
considered risks for
appropriate returns
in the acquisition,
delivery and
management of
PRS assets.
Specific internal management
systems for health and safety
Established ‘three lines of
defence’ model to facilitate
stronger monitoring and controls
Specialist Health and Safety
Director and team responsible
for oversight of compliance
Regular reporting to the
Executive Committee
Implementation of an operating
model bespoke to the new
strategy which includes a robust
framework of controls,
governance, processes and
systems that are specifically
designed to mitigate vulnerability
or ineffectiveness whilst
empowering staff to act on
initiative if circumstances require it
Clear and comprehensive policy
framework duly documented and
communicated to staff
Use of external specialist advisers
where required
Implementation of ‘three lines of
defence’ responsibilities
Experienced team assembled to
focus on winning and delivering
PRS acquisitions (including
build-to-rent schemes) and
subsequent ongoing
management of such assets
Detailed analysis and
benchmarking of pricing/costs
of management
Close review and monitoring by
Investment Committee, Executive
Committee and the Board (as
appropriate) having regard to
applicable capital management
guidelines and robust budgeting
Use of external professionals
where appropriate
8. Transactional
Unable to fully
implement PRS
strategy due to
failure to transact
and acquire assets
on acceptable terms
and/or inability to
integrate PRS assets
efficiently in the
management
platform.
Acquisition of
unprofitable schemes
will depress Group
returns. Lack of
competitiveness in
acquiring schemes
will lead to failure to
deliver strategy,
reduction in scale
and profitability
of business.
32
Grainger plc Annual Report and Accounts 2016
Category
of risk
Risk
description
Impact on
strategy
Risk appetite Mitigation
9. Development
Excessive capital
allocated to
activities which carry
development risk.
Exposure to risk
of cost overrun/
income shortfall
on development
for rent schemes.
Part of Grainger’s
returns are based on
considered capital
allocation which
includes such
activities.
10. Brexit
*
Negative impact
of Brexit.
Grainger’s business
is based on taking
considered risks
on house price/
rental levels and
management of
development projects.
Increased
construction costs;
asset and portfolio
values fall; inability
to build competitive
PRS portfolio; lower
demand for Grainger’s
assets in certain
locations; currency
volatility; reduction
in supply of requisite
skilled labour.
Increased
Reduced
Unchanged * New
Capital allocated to
development is carefully
monitored with due regard
to capital allocation guidelines
Specific team responsible with
specialist development skills
Review and monitoring of all
such schemes by the Investment
Committee, Executive Committee
and the Board (as appropriate)
Portfolio of development
schemes are now focused on
delivering build-to-rent assets,
thus reducing sales risk
Expert advisers/professional
team and experienced
development partners
The economic implications
resulting from the impact of
Brexit are largely beyond the
control of the Company
Proven ability to generate cash
in uncertain economic periods
Appropriate levels of debt and
maintenance of headroom
Location of portfolios is
positioned in geographically
diverse areas with PRS schemes
targeted in locations with robust
levels of economic activity
Implementation of PRS
strategy on target
Maintaining an open dialogue
regarding Brexit impact with
key third parties, suppliers and
industry bodies
33
Strategic reportGrainger plc Annual Report and Accounts 2016
Strategic report – Viability statement
Underpinned by a robust
planning process
The financing risks of the Group are
also considered to have an impact on
the Group’s financial viability. The two
principal financing risks for the Group are
the Group’s ability to replace expiring
debt facilities and adverse movements in
interest rates. A substantial amount of
the group’s debt facilities mature by
2020. A Board approved funding strategy
will address this as we put in place new
facilities to align with the transition to
PRS investment assets. The Group has
currently secured funding to deliver the
planned PRS pipeline and has prepared
the strategic plan on a fully funded basis.
In addition the Group manages its hedge
exposure with interest rate swaps, caps
and fixed rate facilities.
Based on the results of this analysis, the
Directors have a reasonable expectation
that the Group will be able to continue in
operation and meet its liabilities as they
fall due over the four-year period of their
detailed assessment.
The Group’s business model has
proved to be strong and resilient
throughout the different economic
cycles even with higher levels of gearing
and over the long term, with consistent
demonstration through its ability to
sell assets and let vacant properties to
provide stable income returns and cash
generation, throughout challenging
market conditions. Currently the Group
directly owns £1.7bn of residential
property assets which are relatively
liquid, as has been proved in the past.
The Group would remain viable even in
the event of very severe and sustained
house price deflation as it would be able
to accelerate the natural conversion
of its assets to cash and reduce or
suspend development and acquisition
activity. Only an unprecedented and
long-term lack of liquidity in UK
residential property markets would
cause any threat to the Group.
The Board has reviewed its strategic
and financial plans in detail and believes
that a viability assessment period to
September 2020 is appropriate as any
of the principal risks during this period
could be managed. The financial plan
budget has been stress tested against
severe and prolonged reductions in
house prices.
The Directors have assessed the
viability of the Group, taking account
of the Group’s current position and
the potential impact of the principal
risks documented in the Strategic
report. Based on the assessment,
the Directors have a reasonable
expectation that the Company will
be able to continue in operation and
meet its liabilities as they fall due
over the four year period to the end
of 2020.
This assessment was made recognising
the principal risks that could have an
impact on the future performance
of the Company (see pages 30 to 33).
The business plan process incorporates
planning for severe scenarios, with
the amalgamation of multiple risks
to assess impact and longer-term
viability of the Company.
The Company has developed a
business planning process, which is
conducted annually and comprises
of a five year strategic plan, a financial
forecast for the current year and a
financial projection for the next five
years. The plan is reviewed each year
by the Board as part of its budget
and strategy review process. Once
approved by the Board, the plan is
cascaded down across the Company and
provides a basis for setting all detailed
financial budgets and strategic actions
that are subsequently used by the Board
to monitor performance and for the
Remuneration Committee to set targets
for the annual incentive.
34
Grainger plc Annual Report and Accounts 2016 Strategic report – Financial review
Delivering performance as
we reposition for growth
FY16 has been a transformational
year, with significant progress made
in delivering our private rented sector
(‘PRS’) growth strategy. We have
secured £389m of investment, disposed
of our non-core businesses, improved
the capital structure of the Company
and reduced financial and operational
costs following our internal
restructuring which has enhanced
Grainger’s income generation.
Performance overview
These positive changes have been
achieved alongside the delivery of strong
financial results, with an improved
income return and good capital growth:
Net rental income increased by 15%
to £37.4m (FY15: £32.4m);
Adjusted earnings increased by 69%
to £53.1m (FY15: £31.5m);
EPRA NNNAV increased by 9%
(24p per share) to 287p (FY15: 263p);
Profit before tax up 64% to £84.2m
(FY15: £51.4m);
Net debt reduced by 33%, loan to
value reduced to 35.9% (FY15: 45.5%),
and cost of debt at the period end
was down to 3.9% (FY15: 4.6%); and
Total return (return on shareholder
equity) of 10.6% (FY15: 10.0%).
Substantial progress has been made
during the year to simplify and focus
the business, which has delivered a
significant reduction in finance and
operational costs. We have completed
our internal restructuring and are on
track to deliver an £8.6m (24%)
overhead saving in FY17 to £27.5m from
the FY15 reported result.
The strategic disposals of our Equity
Release and German businesses are
key milestones, which have enabled a
£374m reduction in net debt to £764m
(FY15: £1,138m) and, combined with
financing activity, cost of debt is now
below our 4% target.
Vanessa Simms
Chief Financial Officer
With a strengthened balance sheet and
loan to value (‘LTV’) of 35.9% (FY15:
45.5%) we have the capacity to invest
and grow our rental income. Coupled
with reduced overhead and finance
costs, this will further enhance Grainger’s
income returns in FY17 and beyond.
A new dividend policy, aligned to our
strategy to grow rental income, is now in
place, with distribution during Grainger’s
strategic transition to be equivalent to
50% of net rental income. The total
dividend for the year of 4.5p per share is
64% up on the prior year (FY15: 2.75p).
Financial highlights
Income financials and reversionary surplus on a continuing operations basis.
Income
Like-for-like PRS rental growth
Net rental income
Adjusted earnings* (Note 4)
Adjusted earnings per share (after tax) (Note 4)
Dividend per share (Note 15)
Profit before tax (Note 4)
Earnings per share (diluted) – continuing (Note 16)
Capital
EPRA NAV per share
EPRA NNNAV per share
Net debt (Note 28)
Group LTV
Cost of debt (average) (Note 28)
Cost of debt (period end)
Reversionary surplus (page 41)
Total return**
FY16
FY15
3.4%
3.6%
£32.4m £37.4m
£31.5m £53.1m
10.2p
4.5p
£51.4m £84.2m
17.9p
6.0p
2.75p
10.6p
Change
20bps
15%
69%
70%
64%
64%
69%
FY15
319p
263p
330p
287p
£1,138m £764m
45.5%
5.3%
4.6%
4.4%
3.9%
£329m £327m
10.0%
10.6%
FY16
Change
3%
9%
(33)%
35.9% 960bps
90bps
70bps
(1)%
60bps
* Adjusted earnings, previously called recurring profit, is profit before tax, less valuation
movements and non-recurring items (see Note 2 for explanation and Note 4 for reconciliation
from statutory measure).
** Total return (return on shareholder equity) is growth in EPRA NNNAV in the year plus dividend
declared as a percentage of opening EPRA NNNAV.
Definitions for KPIs are shown on pages 16 and 17.
35
Strategic reportGrainger plc Annual Report and Accounts 2016 Strategic report – Financial review
continued
Income statement
The table below summarises adjusted earnings and profit before tax from continuing operations for the 12 months to
30 September 2016.
Income statement £m
Net rental income
Profit on sale of assets
Mortgage income (CHARM)
Fee income
Overheads
Other expenses
Joint ventures and associates
Net finance costs
Adjusted earnings**
Valuation movements
Derivative movements
Non-recurring items
Profit before tax
Discontinued operations before tax
FY15*
32.4
70.6
6.5
5.6
(32.4)
(3.2)
0.9
(48.9)
31.5
29.7
(6.3)
(3.5)
51.4
(1.4)
FY16
37.4
71.5
6.5
6.2
(31.8)
(1.1)
1.5
(37.1)
53.1
33.6
(9.9)
7.4
84.2
62.0
Restated for continuing operations.
*
** See Note 4 to the financial statements for reconciliation from statutory measures.
Rental income
Gross rental income has increased by 11% to £51.9m (FY15: £46.7m), driven by 3.6% average rental growth on our PRS portfolio
and the acquisition of tenanted rental homes that deliver immediate income. Net rental income has increased by 15% (£5.0m)
to £37.4m (FY15: £32.4m) further benefiting from improvements made in operational efficiencies.
m
£
40
38
36
34
32
30
1.4
4.4
1.3
37.4
32.4
(2.1)
FY15
Net rental
income*
Disposals
Acquisitions
Rental
growth
Property
expenditure
efficiencies
FY16
Net rental income
Sales
Profit from sales at £71.5m for the 12 months to 30 September 2016 was slightly ahead of the prior year (FY15: £70.6m) with
increased profits from development activities more than offsetting a small reduction in residential sales profit, which is linked
to the natural unwind of our regulated tenancy portfolio.
Over the year, sales on vacancy achieved average prices 8.6% over the September 2015 vacant possession value, illustrating
the resilience of our valuations and liquidity of our assets.
Residential sales on vacancy generated revenue of £110.0m which was 11% ahead of 2015 (FY15: £99.5m) with profit marginally
lower at £52.2m (FY15: £53.2m). The predominant driver of the revenue growth related to the Chelsea Houses portfolio,
although this reduced the overall margin to 47.4% (FY15: 53.5%). We expect margins from this portfolio to improve over time
from reversionary gains, refurbishment and further asset management activities.
36
Grainger plc Annual Report and Accounts 2016 Development sales activity delivered £11.8m of profit primarily driven by the final phase of Macaulay Walk, a residential
development for sale scheme in Clapham, London (£5.8m) and the disposal of non-core development land at
Kennel Farm, Basingstoke (£5.8m).
In addition, we recorded revenue of £24.1m on our PRS development for The Royal Borough of Kensington & Chelsea (RBKC).
Due to the early stage of the development no profit has yet been recognised.
£m
UK Residential sales
CHARM sales
Sales on vacancy
Tenanted and other sales
Residential sales total
Development sales
Construction contract
Overall sales
Reconciliation to statutory numbers
Less CHARM portfolio
Statutory sales and profit
*
Restated for continuing operations.
FY15*
Sales
£m
92.0
7.5
99.5
23.5
123.0
33.8
–
156.8
Units sold
310
61
371
130
501
–
–
501
FY16
Profit
£m Units sold
Sales
£m
Profit
£m
52.8
0.4
53.2
8.0
61.2
9.8
–
71.0
307
54
361
59
420
–
–
420
103.1
6.9
110.0
12.5
122.5
25.1
24.1
171.7
52.0
0.2
52.2
7.7
59.9
11.8
–
71.7
(61)
440
(7.5)
149.3
(0.4)
70.6
(54)
366
(6.9)
164.8
(0.2)
71.5
Operating expenses
The overhead cost for this year was £31.8m for continuing operations (FY15: £32.4m). We are on track to achieve our FY17
overhead cost target of £27.5m, which is 24% (£8.6m) lower than the reported FY15 overhead of £36.1m (before restatement for
discontinued operations). This has been achieved through restructuring savings, corporate overhead reductions and lower costs
following the disposal of non-core businesses.
Other expenses relate to pre-contract transaction costs. Through improved acquisition targeting and effective cost
management, our other expenses have reduced to £1.1m (FY15: £3.2m).
Fee income is associated with the recovery of overheads. Overall operating expenses net of fee income which is associated with
the overhead cost totalled £27.0m as set out in the table below (FY15: £30.6m).
FY16
Overheads
Fee income (overheads recovery)
Net overheads
Other expenses
FY16 Operating expenses
FY15 Operating expenses
£m
31.8
(5.9)
25.9
1.1
27.0
30.6
37
Strategic reportGrainger plc Annual Report and Accounts 2016 Strategic report – Financial review
continued
Finance costs and capital structure
Net debt has reduced by 33% to £764m (FY15: £1,138m), LTV is down to 35.9% (FY15: 45.5%) and cost of debt is now below our
4% target, ahead of plan.
The reduction in net debt was driven by the non-core disposals and supplemented by resilient cash generation from sales of
vacant regulated tenancies; this more than offset £162m of new investment predominantly in PRS assets. Cost of debt
benefited from the non-core disposals and refinancing activities.
Our strengthened balance sheet provides capacity for our planned PRS investment. As funds are deployed our optimal target
range for LTV is 40-45%.
Net debt bridge
1,400
1,300
1,200
m
£
1,100
1,000
900
800
700
1,138
(235)
70
42
38
162
(451)
FY15
Net debt
Gross
rent, sales
and fees
Propex,
overheads,
tax and
dividends
Finance
costs
Swap
recoupon
Investment
Discounted
operations
FY16
Net debt
764
In the second half of the year, immediately following the EU Referendum we took the opportunity to recoupon two legacy
swaps, securing lower rates at a discount to market value. The upfront cost (before tax savings) was £37.8m (£30.2m after tax)
and the benefit to cost of debt is c.55bps (£4.8m saving per annum).
Net finance costs for the year are £11.8m lower, a 24% reduction, at £37.1m (FY15: £48.9m). Average cost of debt over the year
was 4.4%, a 90bps improvement, while cost of debt at the period end was 3.9%.
Subsequent to the year end, we have refinanced a £100m loan which is expected to reduce the average cost of debt by a
further c.20bps in 2017 (3.7% proforma). With our incremental cost of debt less than 2%, we have the potential to prudently
utilise leverage to deliver strong earnings accretion as we invest.
Net debt
Consolidated LTV
Headroom
Cost of debt (average)
Cost of debt (period end)
Hedging
FY15
£1,138m
45.5%
£142m
5.3%
4.6%
77%
FY16
£764m
35.9%
£321m
4.4%
3.9%
87%
Adjusted earnings
We have delivered adjusted earnings (previously referred to as recurring profit) of £53.1m which is 69% ahead of the prior year
(FY15: £31.5m), a result of growth in net rental income, a robust sales performance and lower operational and financial costs.
38
Grainger plc Annual Report and Accounts 2016 Tax
Grainger is a UK based, taxpaying Group with a tax charge of £9.7m for the year from continuing operations.
Grainger works in an open and transparent manner with the tax authorities. HM Revenue & Customs has graded the Group
as a ‘low risk’ taxpayer. We are committed to maintaining this status.
Discontinued operations
The disposal of our non-core Equity Release and German businesses were accretive to EPRA NNNAV, adding £23m, 6p per
share. These delivered a discontinued profit before tax of £62.0m: £48.3m from the Equity Release disposal, £8.3m from the
sale of the German operations and £5.4m from pre-disposal trading.
Dividend
The Board revised and implemented a new dividend policy in the year, which is supported by strong underlying cash generation
to enhance distribution returns to shareholders during Grainger’s strategic transition, with payment aligned to the group’s
strategy of growing rental income.
The policy is to distribute the equivalent to 50% of annual net rental income. Around one-third of the payment will be made
through the interim dividend based on half year results, with the balance paid through the final dividend. As the shape of
the business evolves to a more balanced total return model, we are committed to delivering progressive and sustainable
dividend returns.
The dividend payment for the year will be £18.7m, 50% of the £37.4m net rental income reported. This delivers 64% growth
in the total dividend for the year to 4.5p per share, comprising 1.45p interim dividend and 3.05p proposed final dividend.
The dividend is 4.0x covered by diluted EPS.
If approved at the AGM, the final dividend will be paid on 10 February 2017 to Shareholders on the register at the close of
business on 30 December 2016.
Net assets and investment
Market value balance sheet (£m)
Residential – PRS
Residential – regulated tenancies
Development work in progress
Investment in joint ventures/associates
Total investments
Net debt
Other assets/liabilities
Discontinued (excluding loans)
EPRA NAV
Deferred and contingent tax
Fair value of fixed rate debt and derivatives
Discontinued
EPRA NNNAV
EPRA NAV (pence per share)
EPRA NNNAV (pence per share)
LTV
FY15
399
1,317
95
166
1,977
(1,138)
18
477
1,334
(158)
(34)
(41)
1,101
319
263
45.5%
FY16
461
1,342
105
193
2,101
(764)
32
11
1,380
(146)
(34)
–
1,200
330
287
35.9%
39
Strategic reportGrainger plc Annual Report and Accounts 2016 Strategic report – Financial review
continued
EPRA NNNAV is an important metric for Grainger as it reflects overall assets and liabilities (including deferred and contingent
tax and fair value adjustments for fixed rate debt). These future liabilities are presented in current terms (not discounted) and
neither EPRA NNNAV or EPRA NAV include the future benefit of the reversionary surplus, which as at 30 September 2016 was
valued at £327m, or 78p per share.
EPRA NNNAV increased by 9% (24p per share) to 287p (FY15: 263p), supported by a strong trading performance, valuation
growth, accretive strategic disposals and reduced deferred and contingent tax liabilities associated with lower corporation tax
rates. This growth was achieved despite the negative impact from movements in bond markets which resulted in an adverse
movement of £16m (4p per share) from the mark to market of fixed rate debt.
EPRA NAV increased by 7% to 341p, reflecting a strong trading and valuation performance, before the adjustment for
discontinued operations and the recoupon of legacy swaps. 3% growth (11p per share to 330p (FY15: 319p)) is reported after
these adjustments. The Equity Release disposal was accretive to EPRA NNNAV but dilutive to EPRA NAV by £15m (4p per
share). The recoupon of two legacy swaps after tax had an adverse impact of £30m (7p per share) on EPRA NAV.
Reconciliation of EPRA NAV to EPRA NNNAV
EPRA NAV
Deferred and contingent tax
Fair value of derivatives and fixed rate debt net of tax
EPRA NNNAV
FY16
£m
1,380
(146)
(34)
1,200
FY16
Pence per
share
330
(35)
(8)
287
A reconciliation between the statutory balance sheet and the market value balance sheets for both EPRA NAV and EPRA
NNNAV is set out in Note 5 to the financial statement.
EPRA NNNAV movement
Key movements in EPRA NNNAV
EPRA NNNAV at 30 September 2015
Profit after tax (before discontinued operations and derivatives)
Revaluation gains on trading stock
Disposals (trading assets)
Contingent tax
Dividends and other
Discontinued operations
Mark to market on fixed rate debt
EPRA NNNAV at 30 September 2016
£m
1,101
84
84
(50)
13
(39)
1,193
23
(16)
1,200
Pence per
share
263
20
20
(12)
3
(9)
285
6
(4)
287
Our portfolio saw a 5.3% growth in market value over the year and a 4.8% increase in vacant possession value. This compares
to 3.7% for the LSL Acadata House Price Index, 5.5% for the combined average of the Nationwide and Halifax house price
indices, and 7.7% according to the Office of National Statistics. This contributed to £116m total valuation gain, which comprises
£84m on trading stock and £32m from investment property assets and associates/joint ventures which is included within
profit after tax.
Residential portfolio
40
FY15
Vacant posession value
5.6%
FY16
Market value Vacant posession value
4.8%
10.2%
Market value
5.3%
Grainger plc Annual Report and Accounts 2016 The positive contingent tax movement of £13m (3p per share) relates to a £19m (4p per share) release due to lower corporation
tax rates, offset by a charge on the revaluation of trading properties.
Disposals of our Equity Release and German businesses were both EPRA NNNAV accretive, with a total gain of £23m
(6p per share).
EPRA NNNAV was also affected by movements in the bond markets in the period, which had an adverse impact on the mark
to market of our corporate bond. This reduced EPRA NNNAV by £16m after tax (4p per share).
EPRA NAV movements
EPRA NAV at 30 September 2015
Profit after tax (before disc. operations and derivatives)
Revaluation gains on trading stock
Disposals from continuing operations
Dividends and other
Discontinued operations
Swap recoupons (net of tax)
EPRA NAV at 30 September 2016
£m
1,334
84
84
(50)
(24)
1,428
(18)
(30)
1,380
Pence per
share
319
20
20
(12)
(6)
341
(4)
(7)
330
Investment
We have spent £162m in the 12 months to 30 September 2016, of which £17m relates to the acquisition of regulated tenancies
and the remainder to PRS assets and capital expenditure on our existing portfolio.
Our investments are expected to deliver gross rental yields of between 6.5% and 8.0%.
Portfolio summary
Residential – market rented
Residential – regulated tenancies
Residential – mortgages
Development work in progress
Wholly-owned assets
Investment in JVs/associates (Grainger share)
Total investments
Assets held-for-sale
FY16 Total
Assets under management
Total assets under management
Vacant
posession
value
£m
500
1,507
91
105
2,203
284
2,487
3
2,490
644
3,134
Market
value £m
461
1,249
93
105
1,908
252
2,160
3
2,163
569
2,732
Reversionary
surplus
39
258
(2)
–
295
32
327
–
327
No. units
2,092
3,652
704
–
6,448
676
7,124
3
7,127
1,485
8,612
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.
41
Strategic reportGrainger plc Annual Report and Accounts 2016 Strategic report – Financial review
continued
Strategy financial targets to 2020
The three strands of the 2020 strategy are to:
1) grow rents (and increase distributions to shareholders);
2) simplify and focus; and
3) build on our heritage as the UK’s leading listed residential landlord.
The four financial benchmarks used to monitor progress against our strategy are:
1) Invest over £850m into PRS assets by 2020
£389m secured, £347m in planning or legal process.
2) More than half of our portfolio comprising PRS assets
27% of PRS assets (FY15: 23%).
We expect to see an acceleration towards 2020 as assets being constructed are completed and let.
3) Net rental income to exceed profit from sales
FY16 net rental income was the equivalent to 52% of profit from sales (FY15: 44%).
Sales profit will benefit from development activity over the next two to three years as we work through current schemes
and projects. Net rental income growth should accelerate towards the end of the strategy period as assets being
constructed are completed and let out.
4) Reducing reliance on sales (cost coverage)
FY16 income covered 74% of costs (FY15: 53%).
This benchmark was designed to reflect the transition to an increasingly income focused model with reduced reliance on
capital growth and profit from sales. Substantial progress has been made in FY16. Reduced finance costs and lower
overheads have been the key drivers. Rental growth and tightly controlled overheads and finance costs are expected to
deliver further benefits.
Conclusion
This year’s results demonstrate that the Company is performing strongly in conjunction with delivering against its strategic
objectives as set out in January.
It has been a year of significant change and progress, with £389m of investment secured, the disposal of two major non-core
businesses, an improved capital structure, materially reduced finance costs and restructured operations which will deliver
further efficiencies in FY17. Alongside these changes, the Company has delivered a 69% increase in adjusted earnings to £53.1m
and a total return (return on shareholder equity) of 10.6%. The actions we are taking to make Grainger a more balanced total
return business with an increased focus on income returns will support further strategic progress in the coming years.
Our 2016 Strategic report, from pages 1 to 42, has been reviewed and approved by the Board of Directors on 1 December 2016.
Vanessa Simms
Chief Financial Officer
1 December 2016
42
Grainger plc Annual Report and Accounts 2016 Governance – Letter from the Chairman
Strong governance supporting our strategy
appointment as Chairman. All of the
Non-Executive Directors are considered
by the Board to be independent.
In accordance with the Code, all
current Directors will stand for election
or re-election (as applicable) at the
2017 Annual General Meeting (‘AGM’).
Details of the Directors are set out
below, together with a summary of their
experience, competences and skills.
Diversity
Grainger believes that a diverse
culture and perspective is a key factor
in driving its success, and supports
the Davies Report’s aspiration to
promote greater female representation
on listed company boards. Whilst all
appointments are made on merit, an
example of our commitment to diversity
is that the Company currently has a
female Chairman, Senior Independent
Director, Chief Executive and Chief
Financial Officer.
We will continue to look to follow the
procedures recommended by Lord
Davies and by the Code to maintain a
balanced and diverse Board. However,
diversity is much wider than gender.
Diversity of thought is also hugely
important amongst the Board. By
bringing together Non-Executive
Directors with diverse backgrounds
and experience, we gain enormously
from varied perspectives across a range
of issues. The Nominations Committee
report contains further details of
diversity in our business.
Board evaluation
This year the Company Secretary and
I have led the evaluation of the Board.
In addition, I have reflected on the
recommendations and action points
from last year and the areas to focus
on for next year. Further details are
set out below.
Baroness Margaret Ford
Chairman
The Directors are committed
to applying effective corporate
governance and promoting the
highest standards. I am therefore
pleased to introduce this year’s
corporate governance report.
Compliance with the UK Corporate
Governance Code 2014 (the ‘Code’)
The governance rules applicable to all
UK companies admitted to the Official
List of the UK Listing Authority are
set out in the Code, published by the
Financial Reporting Council (‘FRC’).
Copies of the Code can be obtained
from the UK FRC’s website at www.frc.
org.uk. 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 2016.
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. The Board
agreed that I was independent on my
Shareholder engagement
The Board regards strong engagement
with stakeholders and investors as
fundamental to maintaining an active
ongoing dialogue with them and to
understand their views.
Helen Gordon and Vanessa Simms had
regular meetings with the Company’s
Shareholders and analysts, while I have
met with both fund managers and
corporate governance officers of our
major Shareholders throughout the
year. Further meetings will also be
held in advance of the AGM in
February 2017.
How the Board supports strategy
The Board spent a significant portion
of its time during the year working
together to develop the PRS strategy.
On leading this year’s Board evaluation
it was clear to me that the Directors
felt that this strategic review was
carried out in a highly effective and
collaborative way with appropriate
challenge throughout.
To learn more about our
Board Activity see page 48.
Baroness Margaret Ford
Chairman
1 December 2016
43
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Board of Directors
The skills and experience to deliver our strategy
The Board is responsible to the
Company’s Shareholders for the
long-term success of the Group,
its strategy, its values and
its governance.
Baroness Margaret Ford
Chairman
Aged: 58
Appointment: Appointed to the Board
in 2008, became Senior Independent
Director in February 2014 and Chairman
in February 2015.
Skills, competence and experience:
Margaret has wide-ranging experience
in a number of sectors and extensive
knowledge of the residential property
market. She has substantial plc level
experience including chairmanship of
both boards and committees. She is
currently chairman of STV Group plc
and is a non-executive director of
SEGRO plc. She is an Honorary
Professor of Real Estate at Glasgow
University and an Honorary Member
of the Royal Institution of Chartered
Surveyors. Margaret formerly chaired
the Olympic Park Legacy Company,
English Partnerships, Barchester
Healthcare Limited and May Gurney
Integrated Services plc. Prior to these
appointments, Margaret had a long
career in management consulting
with Price Waterhouse and then
Eglinton Management Centre, which
she founded. She sits in the House
of Lords as an independent peer.
Tenure: 8 years
Committee membership
N R
44
Skills, competence and experience:
Vanessa brings extensive financial
experience to Grainger from the property
sector in the UK. Vanessa has particular
expertise in leading and implementing
strategic change in businesses. She has
substantial experience in senior finance
leadership roles in a listed environment.
Vanessa has worked in finance since 1998
and immediately prior to joining Grainger
held a number of senior positions within
Unite Group plc, including deputy chief
financial officer. Prior to that Vanessa
was UK finance director at SEGRO plc.
Tenure: 10 months
Committee membership
E
Nick Jopling FRICS
Executive Director
Aged: 55
Appointment: Appointed to the Board
in 2010 as Executive Director with
responsibility for property.
Skills, competence and experience:
Nick has approximately 30 years’
experience in the residential property
sector. He has substantial knowledge
and expertise in relation to residential
property transactions and asset and
property management. Nick was
previously with CB Richard Ellis where he
was executive director of residential. He
is a member and former chairman of the
Urban Land Institute’s UK Residential
Council and was a member of Sir Adrian
Montague’s committee that produced
the review Barriers to Institutional
Investment in Private Rented Homes.
Tenure: 6 years
Committee membership
E
Helen Gordon MRICS
Chief Executive
Aged: 57
Appointment: Appointed to the Board
in November 2015.
Skills, competence and experience:
Helen is a highly experienced, proven
and well regarded real estate investor.
She has significant experience working
across a wide range of real estate asset
classes, including residential property.
This is combined with an extensive
knowledge of the City. Helen is a
Chartered Surveyor and before joining
Grainger was Global Head of Real Estate
Asset Management of Royal Bank of
Scotland plc. She previously held senior
property positions at Legal & General
Investment Management, Railtrack and
John Laing Developments. Helen has
held a number of non-executive board
roles over her career, including British
Waterways and the Covent Garden
Market Authority. She is also an
Advisory Board member of Cambridge
University’s Land Economy Department.
Tenure: 1 year
Committee membership
E
Vanessa Simms FCCA
Chief Financial Officer
Aged: 41
Appointment: Appointed to the
Board as Chief Financial Officer
in February 2016.
Grainger plc Annual Report and Accounts 2016
E Executive Committee
A Audit Committee
R Remuneration Committee
N Nominations Committee
Committee Chairman
Belinda Richards
Non-Executive Director
Aged: 58
Appointment: Appointed to the Board
in April 2011 and appointed Senior
Independent Director in March 2015.
Skills, competence and experience:
Belinda has a wide-ranging experience
and understanding of commerce,
finance and business operations.
She has strong experience as a board
member of other substantial listed
companies. Until 2010, Belinda was a
senior partner and vice chairman at
Deloitte where she was head of Merger
Integration and Separation Advisory
Services. Prior to this, she held senior
roles at KPMG and EY. Belinda is a
non-executive director of Wm Morrison
Supermarkets plc, The Monks
Investment Trust plc and Aviva UK Life
and Pensions. She was previously a
non-executive director of Balfour Beatty
plc and Friends Life Group plc. Belinda
serves on the Advisory Group of Audit
Committee Chairmen at the Financial
Reporting Council and is a member of
the Governing Council of the Centre for
the Study of Financial Innovation.
Tenure: 5 years
Committee membership
A R N
Tony Wray
Non-Executive Director
Aged: 55
Appointment: Appointed to the Board
in October 2011.
Skills, competence and experience:
Tony brings extensive experience in a
broad range of senior operational and
strategic leadership roles, in particular
in public companies. He 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, and was a
member of the Water UK board.
Tenure: 5 years
Committee membership
A R N
Andrew Carr-Locke
Non-Executive Director
Aged: 63
Appointment: Appointed to the Board
in March 2015.
Skills, competence and experience:
Andrew has substantial experience
in senior finance positions in listed
companies, particularly in respect
of the residential property sector.
He also has wide-ranging experience
as a non-executive director of public
companies. Andrew is a Fellow of the
Chartered Institute of Management
Accountants and was group finance
director at George Wimpey plc between
2001 and 2007. He has previously
held senior finance roles at Courtaulds
Textiles plc, Diageo plc, Bowater-Scott
and Kodak. More recently, Andrew was
executive chairman of Countryside
Properties where he led the refocus of
the company’s strategy. Andrew stood
down as a director of Countryside
Properties in 2014. He is currently a
non-executive director of Dairy Crest plc
and previously held non-executive
directorships at Royal Mail Holdings,
Venture Production and AWG.
Tenure: 2 years
Committee membership
A N R
Rob Wilkinson
Non-Executive Director
Aged: 44
Appointment: Appointed to the Board
in October 2015.
Skills, competence and experience:
Rob has substantial experience in real
estate and corporate finance. Rob is a
Chartered Accountant and the chief
executive of AEW Europe, a leading
European real estate investment
manager. Prior to joining AEW Europe
in 2009, he was a managing director
with the Goodman Group and also held
investment banking positions at UBS
and Eurohypo. Rob is also chairman
of the Green Rating Alliance.
Tenure: 1 year
Committee membership
A
45
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Leadership
Governance framework
The Board
Chairman, three Executive Directors
and four Non-Executive Directors
Board Committees
Management Committees
Audit
Committee
Nominations
Committee
Remuneration
Committee
Executive Committee
Has responsibility for the day-to-day
management of the Group’s operations
Principal Management sub-committees
which support the Executive Committee:
Investment
Finance
Operations
Development
GRIP
Market Disclosure
The Board
The Board is responsible to the
Company’s Shareholders for the
long-term success of the Group, its
strategy, its values and its governance.
matters of strategy, performance,
resources (including key appointments)
the overall approach to risk mnagement
and internal control, culture and
standards of behaviour.
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
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.
The Executive Committee
This Committee operates under the
direction and authority of the Chief
Executive. It oversees the day-to-day
running of the property, operational
and corporate business functions
ensuring coordination, alignment of
the Company’s strategic objectives
and risk management oversight.
46
Grainger plc Annual Report and Accounts 2016 The Executive Committee is supported
by sub-committees each focusing on an
area of the business. The key objectives
of these sub-committees are to ensure:
the delivery of the strategic plan;
that all business functions and
operations provide a competitive
advantage to the Company; and
effective oversight of the systems
and controls in order to manage risk.
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 skills, competencies and
experience. The key responsibilities of
Non-Executive Directors are set out in
their letters of appointment and include
requirements to:
Senior Independent Director
The Senior Independent Director
is available to Shareholders if they
request a meeting or have concerns,
where contact through the normal
channels has failed to resolve the issue
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.
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. 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 an open culture where
debate is an appropriate balance of
robust challenge and support.
The Chief Executive is responsible for
running the business and implementing
the Board’s decisions. She chairs a regular
meeting with the other Executive
Directors and the additional members
of the Executive Committee.
challenge and contribute to
the development of the
Company’s strategy;
scrutinise the performance of
management in meeting agreed
goals and objectives and monitor
the reporting of performance; and
to satisfy themselves that financial
information is accurate and that
financial controls and systems
of risk management are robust
and defensible.
A copy of the standard letter of
appointment for a Non-Executive
Director is available from the Company
Secretary on request. The Non-
Executive Directors meet periodically
without the Executive Directors present.
There have been three such meetings
since 1 October 2015 and an additional
meeting of the Non-Executive Directors
without the Chairman or the Executive
Directors present where the Chairman’s
performance was discussed.
Balance of Directors
Chairman
Executive Directors
Non-Executive Directors
47
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Effectiveness
Following feedback from the Directors in
the 2015 Board evaluation, the standard
Board schedule increased the number
of formal meetings throughout the year
from six to seven, with the additional
meeting being focused on strategic
matters. These meetings were duly
held together with a further meeting to
discuss the role of the regulated tenancy
portfolio in relation to the strategic
business plan. The Board also spent a day
visiting a number of Grainger properties
and sites in London.
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
that 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.
The Board activity table below sets out
examples of the range of subjects that
were debated and considered by the
Board throughout the year.
Board activity
Strategic
People
Financial
Governance
Property transactions
and operations
Strategy has been the
key focus of the Board
during the year.
Additional Board
meetings were held to
debate the proposed
PRS focused strategy,
simplification of the
business and the role of
the regulated tenancies
in the business plan.
The disposals of the
Company’s German
and Retirement
Solutions businesses.
Goldman Sachs gave a
presentation regarding
domestic and
international real
estate and equities
markets, together with
an update in respect
of mergers and
acquisitions activity
in the sector.
Competitor activity
in the growing
PRS sector.
Economic and
legislative landscape,
including the impact
of the referendum
on membership of
the EU.
Risk management and
appetite, in particular
with regard to the
new strategy.
Requirements of a REIT
conversion and the
application and
effectiveness of this to
Grainger or parts of its
business, such as GRIP.
48
Executive and
Review of the Group’s
Regulatory and
Material transactions
governance issues,
including receiving
briefings on the Market
Abuse Regulations and
amendments to the
UK Corporate
Governance Code.
Shareholder relations,
in particular the
thorough engagement
with investors in
connection with
the proposed
Remuneration Policy.
Reports from the
Nominations, Audit
and Remuneration
Committees.
and business
opportunities including,
amongst others, the
acquisition of Clippers
Quay, Kings Dock Mill,
Kew Bridge Court and
Yorkshire Post.
Supply chain
management, with
particular focus on
key repairs and
maintenance contracts.
Health & Safety, which
included a presentation
to the Board from
the Health and
Safety Director.
Non-Executive Director
succession and
development.
The development of
the Group’s people.
The Board also
received a presentation
from the Human
Resources Director on
talent development
across the Company.
The HR structure of
business in connection
with implementation
of the new strategy
and target operating
model.
Evaluation of the
effectiveness
of the Board.
debt and capital
structure.
The Group’s financial
performance and
results throughout
the year.
Dividend policy to
reflect the transition
to an income focused
business. This included
receiving a
presentation from one
of the Company’s
brokers, Numis, in
respect of the
proposed policy.
Reviewed and
approved an updated
tax strategy.
The Company’s
portfolio of interest
rate hedges, including
the decision to break
and recoupon two
material hedges.
Corporate and
operating overheads
and the related cost
reduction plan.
KPI’s for a PRS focused
business.
Assessed the strategic
merits or otherwise of
a share buy-back
programme.
Split of Board activity
35%
5%
25%
10%
25%
Grainger plc Annual Report and Accounts 2016 Board meetings 2015/16
Board meetings
Site visit
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Attendance table to 30 September 2016
Executive Directors
Helen Gordon
Vanessa Simms
Nick Jopling
Andrew Cunningham
Mark Greenwood
Non-Executive Directors
Baroness Margaret Ford
Belinda Richards1
Tony Wray
Simon Davies
Andrew Carr-Locke
Rob Wilkinson
Meetings
attended
8
5
8
1
1
Meetings eligible
to attend
8
5
8
1
1
Meetings
attended
8
7
8
1
8
8
Meetings eligible
to attend
8
8
8
1
8
8
1 Belinda Richards was unable to attend the March 2016 Board meeting due to illness.
Board Committees
The Board has established three
principal Board Committees to
which it has delegated certain of its
responsibilities. They are the Audit
Committee, Remuneration Committee
and Nominations Committee. The roles,
membership and activities of these
Committees are described in more
detail later in the Corporate
Governance Statement.
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 also received
presentations from various business
units, including Human Resources,
Legal, Risk and Governance, IT and
Health & Safety.
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 informed
debate. The Board papers contain the
Chief Executive’s written report,
Time commitment
The Board, supported by the Nominations
Committee, carefully considered the
external commitments of the Chairman
and each of the Non-Executive Directors.
The Board is satisfied that each such
Director committed sufficient time during
the year to enable them to fulfil their
duties as Directors of the Company and
has capacity to continue to do so. 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 high
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
current year.
Induction and professional
development
The Chairman, supported by the
Company Secretary, is responsible for
ensuring that a comprehensive and
tailored induction to the Company is
provided to each Director. This was duly
carried out in relation to Helen Gordon,
Rob Wilkinson and Vanessa Simms who
joined the Board during the course of
the year.
Each new Director met with the
Company Secretary in the year and
discussed their particular induction and
training requirements. This covered
matters such as Directors’ duties,
corporate governance, share dealing
and the use of the Company’s electronic
Board portal.
In the case of Rob Wilkinson, to give
him an insight into the Group, he met
with Executive Directors and senior
managers from across the property,
operational and central functions of
the business. Rob also met with key
third-party relationships such as the
external auditor and principal
corporate lawyers.
49
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Effectiveness
continued
In addition, Rob visited Grainger’s
Abbeville development to view
Grainger’s purpose built PRS units.
As Executive Directors, Helen’s and
Vanessa’s inductions adopted a different
emphasis and focused on familiarising
them with the business, its staff,
operations and core processes. Having
this understanding of the business at the
commencement of their employment
was fundamental in order to identify the
strategic change that was required and
the consequential reshaping of the
Group’s operating model.
Training and updating in relation to a
range of matters is provided to Board
members throughout the year. Subjects
include the business of the Group, legal
and regulatory responsibilities of the
Company and changes to accounting
requirements. This training and
updating is delivered by a combination
of presentations by Grainger senior
management and external advisers
and by circulation of appropriate Board
papers and briefing materials. Individual
Directors are also expected to take
responsibility for identifying their own
training needs and to ensure that they
are adequately informed about the
Group and their responsibilities as
a Director.
The Board on a site visit to one of our PRS
developments in partnership with the Royal
Borough of Kensington and Chelsea.
50
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.
Performance evaluation
The annual evaluation of the Board
and its Committees for 2016 was led
by the Chairman and the Company
Secretary through completion of a
detailed questionnaire relating to the
effectiveness of the Board and its
Committees and thereafter individual
meetings with each of the Directors.
The Company Secretary collated the
results of the questionnaire and these
were considered by the Chairman and
reported to the Board as a whole.
The overall results were positive and
indicated that the Board, its Committees
and individual Directors were all
operating effectively and demonstrated
a commitment to the role. A selection
of the key findings arising from the
evaluation are summarised as follows:
Board meetings are conducted in an
effective manner which encourages
open discussions, with appropriate
time allocated to key issues and
strategy in particular.
Committees are performing to a
high standard.
Whilst there is always room for
improvement, good progress on the
quality of Board information has been
made, which strikes an appropriate
balance between being concise and
having sufficient detail.
Input from each of the Directors
during this year of strategic change
was effective and constructive.
Further improvements can be made in
relation to the structure and approach
of Non-Executive Director training
and development. The Chairman,
Company Secretary and Human
Resources Director will consider
this feedback accordingly and make
proposals to the Board to seek to
improve this area.
The review of the Chairman’s
performance, which was led by
Belinda Richards as Senior Independent
Director, concluded that the Chairman’s
leadership and performance were
effective and of a high standard.
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 the
next external facilitation of the Board
evaluation will be carried out in 2017,
being three years since the previous
external evaluation.
Re-election of Directors
We continue to adopt the
recommendations of the Code that
all of the Directors offer themselves for
re-election annually, notwithstanding
that the Company’s Articles of
Association require the Directors to offer
themselves for re-election every three
years. Therefore, in accordance with the
Code all current Directors, with the
exception of Vanessa Simms, will stand
for re-election at the 2017 AGM. As it
will be Vanessa’s first AGM as a Director
of the Company, she will be subject
to election by the Shareholders at the
2017 AGM.
In light of the performance evaluation
summarised above and the provisions
of the Company’s Articles of Association,
the Board recommends that all of those
Directors proposed for election and
re-election are so elected and re-elected
(as applicable).
Grainger plc Annual Report and Accounts 2016
Governance – 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 Audit Committee is delegated the
task of reviewing all identified risks, with
the ultimate key risks retained for full
Board review. The Audit Committee
reports to the Board at every Board
meeting subsequent to a meeting
of that Committee. 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. In addition, the Group
outsources its Internal Audit function
which performs relevant reviews as part
of a programme approved by the Audit
Committee. The Committee considers
any issues or risks arising from an Internal
Audit review, so that appropriate actions
are undertaken to ensure satisfactory
resolution. Internal Audit 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 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 Committee 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
initially considered by the Investment
Committee which comprises all the
Executive Committee and certain senior
managers. 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 have sought to implement the FRC
Guidance on Risk Management, Internal
Control and Related Financial and
Business Reporting. Further details are
contained in the Audit Committee report.
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.
51
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Relations with Shareholders
Key shareholder events 2015/16
November
January
February
April
May
June
August
September
Full year results announcement and presentation (London)
Full year investor roadshow (London)
Strategy update announcement and investor presentation (London)
Roadshow (London)
Chairman and Company Secretary met with investors in advance of the AGM
Trading update
AGM (Newcastle)
Roadshows (London, Amsterdam, Edinburgh)
Property tour (London)
Investor conference (London)
Half year results announcement and presentation (London)
Half year investor roadshow (London)
Property tours (London)
Chair of the Remuneration Committee and the Company Secretary met with
investors as part of the engagement around the new Remuneration Policy
Trading update
Property tours (London, Liverpool)
Investor conference (New York)
Substantial shareholdings
As at 30 September 2016 and 31 October 2016 (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:
Schroder Investment Management Ltd
BlackRock Inc.
Aberforth Partners LLP
Columbia Threadneedle Investments
Crystal Amber Advisers (UK) LLP
M&G Investment Management Ltd
State Street Global Advisors Ltd
52
30 September 2016
Holding
million
Holding
%
31 October 2016
Holding
million
Holding
%
67.9
38.0
14.9
14.6
14.2
13.3
12.9
16.2
9.1
3.6
3.5
3.4
3.2
3.0
67.6
40.7
14.9
14.6
14.2
13.5
13.3
16.1
9.7
3.6
3.5
3.4
3.2
3.1
Grainger plc Annual Report and Accounts 2016
The Board of Grainger believes
that understanding the views of
its Shareholders is a fundamental
principle of good corporate governance;
therefore strong engagement with
stakeholders and investors is key to
achieving this and progressing the
business and its strategy.
and corporate governance officers
of the Company’s major Shareholders
in advance of the 2016 AGM. It is
anticipated that a similar pre-AGM
engagement process will take place
in advance of the 2017 AGM.
Attendance at key investor meetings
Investor meetings held
Chief Executive
Chief Financial Officer
Senior Executive
Shareholders by region
111
96%
93%
87.5%
2016
The framework of investor
relations is set around the financial
reporting calendar, with additional
engagement taking place throughout
the year when regarded beneficial to the
Company. Grainger 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.
Helen Gordon and Vanessa Simms
have held the vast majority of these
meetings and manage the Group’s
investor relations programme with
the Director of Corporate Affairs.
Feedback is always sought following
such meetings, which is then presented
to the Board. In addition, the Chairman
and the Company Secretary also met
with a combination of fund managers
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, standing
for election or re-election (as applicable),
intend to be in attendance at the 2017
AGM 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. 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.
62.5%
UK
10.3%
US
Scotland
6.9%
Netherlands 2.5%
Norway
2.3%
Switzerland 1.5%
14%
Other
Shareholders are also able to lodge
their votes through the CREST system.
Examples of the issues raised as part of the corporate governance shareholder engagement programme include:
Grainger’s strategic review and focus on PRS
The impact of legislative change and Brexit
The Company’s capital structure,
in particular discussion of share buy-backs
Director succession, in particular in respect
of new CEO and CFO appointments
Optimal overall debt levels and cost of debt
Remuneration policy proposals
and alignment to strategy
53
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Audit Committee report
Audit Committee report
Attendance table
Member since
Committee member
Andrew Carr-Locke
(Committee Chairman) March 2015
Belinda Richards1
Tony Wray
Rob Wilkinson
April 2011
November 2011
February 2016
Meetings
attended
Meetings eligible
to attend
4
3
4
3
4
4
4
3
Andrew Carr-Locke
Committee Chairman
The Audit Committee currently
comprises four independent
Non-Executive Directors.
Dear Shareholder
This is my first year of chairing
Grainger’s Audit Committee. In that
time, we have refined the process of
governance having regard to the change
in committee structure since 2015,
and reviewed the work-streams for
consideration by the Committee. In
particular, during this year of strategic
change, the Audit Committee has
carefully considered the risk
management framework designed
by the Executive and the processes in
connection with internal controls that
were applied during the year under
review and going forward. Details
of this framework and Grainger’s
risk appetite are contained on pages
30 to 33.
As a matter of course the Committee
considers its terms of reference each
year, taking into account changes to
Grainger and to external governance
requirements. In addition, we develop
a clear work plan through the year to
ensure that we fulfil all our
responsibilities. At the core of those
responsibilities is ensuring that the
Company is operating an effective risk
assessment and management process
and that an appropriate control
framework is in place. We are helped by
the Internal Audit team at Deloitte LLP
54
Andrew Carr-Locke, Belinda Richards and Rob Wilkinson have recent and relevant financial experience
as required by the Code.
1 Belinda Richards was unable to attend the September 2016 meeting due to an alternative
commitment, which was notified in advance to the Committee.
(‘Deloitte’) which reports directly to the
Committee and which works against
an agreed plan to ensure that controls
are effective.
One of the Committee’s other key
responsibilities is ensuring that the
Group’s published accounts have integrity
and are consistent with accounting
and governance requirements. In
achieving this we have given particular
consideration to the viability statement
having regard to the new strategic focus
of Grainger. This included interrogating
the financial models and related
sensitivity analysys of various economic
scenarios. In addition, we have
concentrated on the fair, balanced and
understandable requirements for the
Annual Report. In this regard we are
helped by receiving a number of
appropriate papers from the Chief
Financial Officer and her team and
by the independent work of our internal
and external auditors.
We respond to developments during
the year as required, focusing on key
matters which arise in addition to our
planned work programme. This year,
the sale of the German and Retirement
Solutions businesses were key events.
We have concentrated on appropriate
accounting for these disposals and the
risk and control environment as the
Company restructured in order to
implement its PRS strategy.
As part of the FRC’s work programme
we were fortunate to receive a report
on the quality of the external audit
carried out by KPMG LLP (‘KPMG’)
of our prior year accounts, it being
the first audit carried out by KPMG
since its appointment following
successful tender in 2014. We found
this independent input both helpful
and reassuring.
The regular challenge and engagement
with management, the external auditor
and the internal audit team, together
with the timely receipt of high-quality
reports and information from them, has
enabled the Committee to discharge its
duties and responsibilities efficiently.
I would like to record my thanks for the
support of the other members of the
Committee, to Grainger’s Finance team,
to Deloitte and to KPMG for their
thorough approach.
Andrew Carr-Locke
Chairman of the Audit Committee
1 December 2016
Grainger plc Annual Report and Accounts 2016 Significant matters relating to the Group’s 2016 financial statements
The most significant matters considered by the Committee and discussed with the external auditor in relation to the Group’s
2016 financial statements were as follows:
Property valuations
1
We received reports from management on the assumptions
to be used in valuing the Group’s property assets. In considering
the proposals we met with external valuers. We reviewed the valuations
and, in the case of reversionary assets, the suggested discount rates
provided. We also 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.
Exceptional and
non-recurring items
2
The Committee considered management’s accounting proposals
in respect of:
Accounting for unusual contracts
3
the costs and profits of the disposals during the year of Grainger’s
Retirement Solutions and German businesses, and the classification
of these divisions as being held-for-sale and presented as discontinued
operations; and
the costs being incurred in connection with the restructuring of the
business in order to implement the PRS focused strategy.
The Committee concurred with the accounting treatment of such matters.
The Committee reviewed management’s proposal for accounting for the
Company’s contractual arrangements with the Royal Borough of
Kensington and Chelsea in respect of the various sites located around the
borough. The contract will be accounted for as a cost plus contract in line
with International Accounting Standard (‘IAS’) 11 Construction Contracts.
In line with the provisions of this standard, revenue will be recognised as it
is earned through the duration of the contract. Profits will be recognised
to the extent that recoverability is considered probable. The Committee
concurred with the accounting treatment for this arrangement.
Fraud risk from revenue
recognition and management
override of controls
4
In respect of the presumed risk of fraud in revenue recognition by
overstatement and management override of controls, the Committee
considered the presumed risk of fraud as defined by auditing standards
and was content that there were no issues arising.
55
GovernanceGrainger plc Annual Report and Accounts 2016
Governance – Audit Committee report
continued
Objectives
The Board has delegated authority to
the Committee to oversee and review
the Group’s financial reporting process,
system of internal control and
management of business risks, the
internal audit process, the external audit
process and relationship with the
external auditor, and the Company’s
process for monitoring compliance with
applicable laws and external regulations.
Final responsibility for financial
reporting, compliance with laws and
regulations and risk management rests
with the Board, to which the Committee
regularly reports back.
Meetings
The Committee’s core work is driven
by a structured programme of activity
settled at the start of the year between
the Committee Chairman, management
and the external auditor. As well as its
core work, the Committee undertakes
additional work in response to the
evolving audit landscape. The following
non-exhaustive list provides highlights
of the Committee’s core and additional
work undertaken during the year:
Fair, balanced and understandable
The Committee has undertaken a
detailed review in assessing whether
the 2016 Annual Report and Accounts
is fair, balanced and understandable,
and whether it provides the necessary
information to Shareholders to assess
the Group’s performance, business
model and strategy. The Committee
reviewed and made suggestions to the
processes put in place by management
to provide the necessary assurance
that appropriate disclosures are
made. The Committee considered
management’s assessment of items
included in the financial statements
and the prominence given to those
items. This review process also included
receiving a near final draft of the Annual
Report in advance of the November
2016 Committee meeting. This was
accompanied by a reminder of the areas
the Committee should focus on having
regard to the Audit Committee Institute
guidance in this respect, and how such
guidance can be applied to the draft
Annual Report. The Committee, and
subsequently the Board, were both
satisfied that, taken as a whole, the 2016
Report and Accounts is fair, balanced
and understandable.
Going concern
The Committee reviewed the
appropriateness of adopting the going
concern basis of accounting in preparing
the full year financial statements and
assessed whether the business was
viable in accordance with the new
requirement of the Code. The
assessment included a review of the
principal risks facing the Group, their
financial impact and how they were
being managed, together with a
discussion as to the appropriate period
for assessment. The Group’s viability
statement is on page 34.
Invitations to attend meetings
A standing invitation has been made by
the Committee to the Chairman of the
Board and the Executive Directors to
attend the Committee’s meetings.
Senior management from Grainger’s
Finance team and representatives of
the internal and external auditors attend
all meetings at the invitation of the
Committee. During the year the external
and internal auditors attended all
meetings and also met privately with
the Committee.
Role and responsibilities
The Committee’s role and
responsibilities are concerned with
financial reporting, narrative reporting,
whistleblowing and fraud, internal
controls and risk management systems,
internal audit and external audit.
Terms of reference
The Committee has documented terms
of reference which are approved by the
Board. They are reviewed at least
annually and were last reviewed at the
Committee’s meeting in March 2016.
The Committee’s terms of reference
comply with the Code and can be
found on the Group’s website.
56
Grainger plc Annual Report and Accounts 2016 Key activities
11 November
2015
9 February
2016
Received and considered KPMG’s 2015 Audit
Reviewed KPMG’s objectivity and the independence
Highlights Memorandum.
Received and considered a summary of the FRC Audit
Quality Review report into the ‘Big Four’ audit firms.
Reviewed the draft Annual Report and Accounts for
the year ending 30 September 2015 (including the
viability statement and compliance with the fair,
balanced and understandable principle and the going
concern assessment).
Reviewed the Group’s Gifts and Hospitality
Register and Directors’ expenses for the year.
Reviewed the effectiveness of the
Committee’s performance.
Assessed the performance of the external auditors
and reviewed their programme of work.
and effectiveness of KPMG’s processes, and
recommended to the Board KPMG’s reappointment
as the external auditor.
Reviewed the procedures manual for Grainger’s
Treasury team.
Received an Internal Audit report on Grainger’s
Treasury team, assessed progress against the
internal audit plan and approved Internal Audit’s
work plan for the next financial year.
Reviewed Grainger’s whistleblowing arrangements
and considered a report in this regard, noting that
no notifications had been made either by the
whistleblowing hotline or by other methods.
Received and considered a paper on proposed risk
Received Internal Audit reports on the progress
management process and approach pursuant to the
new PRS focused strategy.
Considered KPMG’s 2016 Half Year Audit Plan. This was
pursuant to a decision by the Committee to instruct
KPMG to carry out a Half Year Review. The current
intention is for such a review to be carried out in
future years.
17 May 2016
Received and considered management’s judgements
5 September
2016
and estimates in relation to the interim financial
statements, in particular the classification of the
German and Retirement Solutions businesses as
discontinued operations.
Received management’s analytical review of the Group’s
results for the six months ended 31 March 2016; reviewed
and approved the draft Interim Financial Statements
for that period for recommendation to the Board.
Received and considered KPMG’s half year report
for the six month period ended 31 March 2016.
Received an update on the Group’s accounting policies
and considered the clarity of such policies.
Received and debated a paper regarding a refocusing
of the Internal Audit strategy to align with the wider
Group PRS strategy.
Received and considered a report on the proposed
viability statement to be included in the 2016 Annual
Report and Accounts.
Received and considered KPMG’s Audit Strategy
Memorandum in connection with the audit for year
ending 30 September 2016.
Received a verbal report from the Chief Financial
Officer regarding the quality of the finance function
and succession plans for senior members of the team.
against the Internal Audit programme, payments
and receipts, procurement, revenue interrogation,
post-transaction operation delivery planning, data
governance and project delivery management
of a key IT project.
Reviewed the Audit Committee terms of reference,
including giving appropriate consideration to the
assumption of duties and functions of the Board
Risk and Compliance Committee.
Received and considered the results of the Audit
Quality Review carried out by the FRC in respect
of KPMG’s audit of the Group’s financial statements
for the year ending 30 September 2015.
Received Internal Audit reports on insurance, health
& safety and investment and financial appraisals.
Received and considered reports on the Group’s
principal risks, update on regulatory matters and
anti-financial crime.
Received and recommended to the Board a revision
to the Company’s tax policy.
Reviewed Grainger’s whistleblowing policy, systems
for notifications and results in that regard. There
were no issues of concern highlighted.
Received an update on the changes to the audit
regulatory regime, Corporate Governance Code
and Listing Rules.
Received a report on the Group’s risk management
framework pursuant to the restructuring of the
Company and reviewed Grainger’s principal risks.
Reviewed Grainger’s policy on instructing external
auditors in respect of non-audit services having
regard to the changes required to the EU Audit
Directive and the related regulatory regime.
57
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Audit Committee report
continued
External auditor objectivity
and independence
The objectivity and independence of
the external auditor are critical to the
integrity of the Group’s audit. During
the year the Committee reviewed
the external auditor’s own policies
and procedures for safeguarding its
objectivity and independence. There are
no contractual restrictions on the Group
with regard to the external auditor’s
appointment. The audit engagement
partner provided his annual
representation to the Committee as
to the external auditor’s independence
and confirmed that KPMG’s reward and
remuneration structure includes no
incentives for him to cross sell non-audit
services to audit clients. KPMG duly
applies the requirement to rotate audit
partners every five years and therefore
such rotation will be due in respect of
the 2020 audit.
The Committee’s assessment of KPMG’s
independence is underpinned by the
Group’s policy on the use of KPMG for
the provision of non-audit services.
This policy was reviewed during the year,
having particular regard to the impact
of the recent introduction of new audit
regulations. The policy contains a
presumption against the use of the
external auditor for non-audit services.
KPMG may only be engaged for the
provision of non-audit services in
contravention of that presumption
where those services are expressly
permitted under the policy and where
it is demonstrable that the external
auditor is best suited to undertake
the services. The policy includes the
requirement that non-audit services
must not be carried out by the external
auditor unless prior approval of the
Audit Committee Chairman has
been obtained.
Services which the external auditor is
prohibited from providing to the Group
include, amongst others:
Bookkeeping services and
preparation of financial information
The design, supply or implementation
of financial information systems
Appraisal or valuation services
Internal audit services
Actuarial services
Fees paid to KPMG during the year are
set out in the table below:
Schedule of fees
Statutory audit of
Grainger Group
New UK GAAP
conversion work
Total audit fees
Half year review
Non-statutory certificate
on Berewood
development site
German tax advisory
services
Luxembourg tax
compliance services
Work relating to disposal
of retirement solutions
Total non-audit fees
Year ended
30 September
2016
210,000
32,000
242,000
30,000
11,500
48,000
4,000
27,000
120,500
In addition, a further £8,000 for
audit services was billed by KPMG
to Walworth Investment Properties
Limited, the joint venture in which
Grainger has a 50% shareholding.
The Committee was satisfied that
the overall levels of audit related and
non-audit fees were not material relative
to the income of the external auditor
firm as a whole. It was satisfied that the
objectivity and independence of the
external auditor was maintained
throughout the year.
External auditor appointment
KPMG has been Grainger’s external
auditor since successfully tendering
in 2014 and carried out its first audit
in 2015.
The Committee discussed the
implications of the Competition and
Markets Authority’s Order requiring
FTSE 350 companies to hold an audit
tender every ten years, as well as the
recently introduced Statutory Auditors
and Third Country Auditors Regulations
2016. Due to the relatively recent
appointment of KPMG, the Committee
was satisfied that it was not optimal
to tender external audit services in the
current year. The Committee noted that,
based on the prevailing legislation, a
competitive tender for external auditor
must be held no later than 2025.
The Committee monitors the
performance of the external auditor
throughout the year and formally
concludes the assessment of its
performance following conclusion of
the annual external audit. Thereafter,
the Committee makes a corresponding
recommendation to the Board on the
appointment of the external auditor
for the forthcoming financial year.
Shareholders formally appoint the
external auditor at the AGM in February.
In light of the assessments and review
undertaken, the Board endorsed the
Committee’s recommendation which
was approved by shareholders in
February 2016. When considering the
appropriateness of the re-appointment
of KPMG as the Group’s external auditor
for the forthcoming year, the Audit
Committee took account of its review
of the external auditor’s independence
and objectivity, the ratio of audit to
non-audit fees and the effectiveness of
the audit process, together with other
58
Grainger plc Annual Report and Accounts 2016
relevant review processes conducted
throughout the year. The Committee
also had regard to the positive results of
the Audit Quality Review carried out by
the FRC in respect of the 2015 audit.
The Committee was satisfied that it
should recommend to the Board the
re-appointment of KPMG as the
Company’s external auditor.
Internal Audit
As referred to above, Deloitte is
appointed by the Company as Internal
Auditor. Internal Audit undertakes 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
and the risk management process.
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 timeframes
are agreed with management, and
progress monitored and reported.
Internal Audit’s plans and resources
are considered, monitored and approved
by the Audit Committee, together with
all internal control findings and remedial
actions. Internal Audit has a direct
reporting line to the Chairman of the
Audit Committee. The effectiveness
of Internal Audit is assessed by the
review of its reports, meetings with
the Chairman of the Audit Committee
without management being present,
and feedback from senior management
and the Chief Financial Officer to assess
views on the effectiveness of
Internal Audit.
In respect of the Internal Audit
programme for 2017 and thereafter,
pursuant to the strategic change in
the business to focus on the PRS sector,
and the related restructuring of the
Group’s operating model, the Internal
Audit strategy and forward plan have
similarly been redesigned. The revised
approach will focus on providing
assurance, process improvement and
value adding insights around Grainger’s
core processes, complemented by an
appropriate and proportionate number
of targeted risk reviews on principal risks
and/or areas of management request
and concern.
59
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Nominations Committee report
Nominations Committee report
Attendance table
Committee member
Baroness Margaret Ford
(Committee Chairman)
Belinda Richards
Tony Wray
Andrew Carr-Locke
Member since
February 2012
February 2014
February 2014
March 2015
Meetings
attended
Meetings eligible
to attend
2
2
2
2
2
2
2
2
Key responsibilities
The key responsibilities of the Committee are to:
review the size, balance and constitution of the Board, including the diversity
and balance of skills, knowledge and experience of the Non-Executive Directors;
consider succession planning for Directors and other senior executives;
identify and nominate, for the approval of the Board, candidates to fill
Board vacancies;
review annually the time commitment required of Non-Executive Directors; and
make recommendations to the Board, in consultation with the respective
Committee Chairmen, regarding membership of the three Board Committees.
Process for Board appointments
Prior to making an appointment, the
Nominations Committee will evaluate
the balance of skills, knowledge and
experience on the Board. Pursuant to
this evaluation, a specification of the
personal attributes, experience and
capabilities required to effectively
perform the relevant appointment will
be drafted. The Committee will also
make any recommendations to the
Board concerning the appointment
of any Director and of the Company
Secretary. In circumstances where
external recruitment or benchmarking
of an internal candidate is appropriate,
the Committee will engage the services
of an independent external search
consultancy to assist in preparing the
appointment specification.
Main activities of the Committee
during the year
The Committee met twice formally
during the year to 30 September 2016.
The Committee has a number of
standing agenda items which relate to
its key responsibilities detailed above.
In applying those responsibilities, the
Committee considered, discussed and
made decisions in relation to a range of
matters throughout the course of the
year, the most significant of which are
specified below. It is highlighted that the
2015 Nominations Committee report
specified certain changes to the Board
that would take place during the course
of the 2016 financial year. These
changes have now taken place and, for
completeness, are also included below:
Baroness Margaret Ford
Committee Chairman
The Nominations Committee
currently comprises the Chairman
of the Board and three independent
Non-Executive Directors.
Dear Shareholder
The Nominations Committee plays
a fundamental role in ensuring the
selection and recommendation of
strong candidates for appointment
to the Board. The Committee monitors
the balance of skills, experience,
independence and knowledge of the
Board and its Committees, with any
changes recommended to the Board for
its review and decision. The Committee
is also responsible for succession
planning and monitors talent
development at senior management
level. 2015 was a particularly busy year
for the Nominations Committee with
significant change to the Board and its
Committees. 2016 has therefore been
focused on embedding the changes that
took place. This report details the main
activities of the Nominations Committee
undertaken during the course of the
year in fulfilling its responsibilities.
Baroness Margaret Ford
Committee Chairman
1 December 2016
60
Grainger plc Annual Report and Accounts 2016
Search consultants
The Committee engaged the Zygos
Partnership (‘Zygos’), an independent
executive search consultancy, for the
recruitment of Directors during the
course of the year. The Board confirms
that Zygos is not connected with the
Company in any other way.
Diversity
The Directors are committed to
having a balanced Board which
includes diversity of perspectives,
skills, knowledge and background. In
respect of gender diversity specifically,
the Board supports Lord Davies’
aspiration to promote greater female
representation on listed company
boards, and notes the significant positive
progress that has been made in this area
in respect of FTSE 350 companies since
the original Davies report was published.
All appointments to the Grainger Board
are made on merit, and within this
context the Directors will continue to
have regard to the recommendations
of the Davies report and the issue of
diversity as it and best practice develop
further. As at the date of this report,
female representation at Board level
was 50%. Page 25 contains details
of the gender split of all Grainger staff.
Board changes
Andrew Cunningham and Mark
Greenwood retired from Grainger
in January 2016 and December
2015 respectively.
Helen Gordon joined Grainger
as Chief Executive designate on
3 November 2015 and took up
the role in January 2016.
Vanessa Simms joined Grainger as
the Company’s Chief Financial Officer
in February 2016.
Rob Wilkinson joined the Board as an
independent Non-Executive Director
in October 2015.
Committee changes
As previously reported, Belinda
Richards was appointed Senior
Independent Director and Chair of the
Remuneration Committee in 2015.
Therefore, the Nominations
Committee reflected on the
appropriate balance of the Committee
Chairmen and members, whilst having
due regard to time commitment, skills
and experience, and was of the view
that it was in the best interests of the
Company to appoint Andrew Carr-
Locke as Chairman of the Audit
Committee in place of Belinda. It was
further agreed that in the interests
of continuity Belinda would remain
a member of the Audit Committee.
Following a review of the membership
of the Committees having regard to
the balance of skills, knowledge and
experience, it was subsequently
decided to appoint Rob Wilkinson as
a member of the Audit Committee.
In addition, Rob has a standing
invitation to attend meetings of
the Nominations Committee should
he choose to do so.
61
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Remuneration Committee report
Remuneration Committee report
I am pleased to present on behalf
of the Board the 2016 Directors’
Remuneration report.
Dear Shareholder
This Directors’ Remuneration report
sets out our proposed Remuneration
Policy which we expect to apply for
three years from the 2017 AGM,
subject to shareholder approval.
It provides a summary of how we intend
to implement the new Remuneration
Policy in the year ahead and discloses
the amounts paid to our Executive and
Non-Executive Directors for the year
ended 30 September 2016.
What is in this report?
The report complies with the provisions
of the Companies Act 2006 and
Schedule 8 of the Large and Medium-
sized Companies and Groups (Accounts
and Reports) (Amendment) Regulations
2013. The report has been prepared in
line with the recommendations of the
UK Corporate Governance Code and the
requirements of the UKLA Listing Rules.
The Directors’ Remuneration Policy
(set out on pages 65 to 72) will be put to
shareholders for approval in a binding
vote at the forthcoming AGM. The
effective date of the updated policy
is 8 February 2017 which is the date
Shareholder approval is being sought
for the revised policy.
This Annual Statement (pages 62 to 64)
and the Annual Report on Remuneration
(set out on pages 73 to 85) will be
subject to an advisory vote at the AGM.
2016 performance and reward
Aligned with our focus on generating
shareholder returns through the active
management of our assets, the majority
of our annual bonus in 2016 was subject
to a combination of OPBVM and ROSE
targets. These metrics combined to
ensure that Executive Directors were
focused on driving profit from our
day-to-day activities at the same time
as maximising the value of our
underlying assets. In addition, a minority
of bonus opportunity was based on how
well our Executive Directors performed
against an individually tailored scorecard
of key performance metrics.
With regard to the performance
achieved during the year, we delivered
OPBVM of £88.7m and ROSE of 10.6%.
The performance against OPBVM was
£7.8m ahead of the target set for the
year of £80.9m and ROSE was
marginally above mid-range of 5%
to 15%. When performance against
these metrics was aggregated with
achievement against individually
tailored strategic targets, annual
bonuses ranged from 67% to 76% as
a percentage of the maximum available.
Full disclosure of the actual targets set,
and performance against those targets,
is set out on pages 74 to 76.
73
74
77
77
78
79
79
81
81
82
82
82
84
85
85
Belinda Richards
Committee Chairman
Index to the report
Committee Chairman’s
Annual Statement
Remuneration Policy
Annual Report on Remuneration
1
2
3
4
5
6
7
8
Single total figure of
remuneration for each Director
– 2015 and 2016
Annual bonus awards –
performance assessment
for 2016
LTIP awards – performance
assessment for 2016
Share scheme interests
awarded during the year
Payments to past Directors
Payments for loss of office
Directors’ shareholdings and
share interests
Performance graph and table
– total shareholder return
Chief Executive single figure
9
10 Percentage change in
remuneration of Chief
Executive and employees
11 Relative importance of spend
on pay
12 Statement of implementation
of Remuneration Policy
for 2017
13 Directors’ service agreements
and letters of appointment
14 Details of the Remuneration
Committee, advisers to the
Committee and their fees
15 Statement of voting at
general meeting
62
Grainger plc Annual Report and Accounts 2016 Over the longer term, we have
historically operated a Long-Term
Incentive Scheme (‘LTIP’) that measured
our success based on performance
against NNNAV (50% of an award)
and absolute total shareholder return
(‘TSR’) (50% of an award) targets.
Operating in tandem, these metrics are
aligned with creating a strong balance
sheet and creating shareholder value.
The awards granted in 2013 under
the LTIP will be eligible to vest in
December 2016. With regard to NNNAV
performance over the period ending
30 September 2016, NNNAV has
increased by 47.2% against the 22.4%
increase in the Halifax and Nationwide
House Price indices. This will result in
40% vesting of this part of the award.
In terms of TSR, it is currently forecast
to show an annual compound increase
in the region of 10.7% over the three-
year performance period (ending
10 December 2016). Should this level of
TSR be maintained to the conclusion of
the performance period, this would result
in 57% of this part of the award vesting.
In light of the strong performance
delivered over the relevant performance
periods to date, the Committee is
comfortable, overall, with the level
of variable pay earned and forecast
in light of the performance delivered.
Alignment of remuneration
with strategy
As detailed in the Strategic report,
the year under review has been a year
of change at Grainger. Under new
executive leadership we undertook
a deep review of every aspect of our
business and announced a refined
strategy in January 2016. At the heart
of our refined strategy is targeting
improved long-term shareholder
returns. This is to be achieved through
a combination of growing rents following
the application of a targeted residential
investment programme and
simplification and focus within our
business model through exiting non-core
assets and reducing operating costs.
In light of our refined corporate
objectives, and having had regard to the
feedback received from Shareholders
in relation to our remuneration practices
at the time of our 2016 AGM, the
Committee undertook a full review of
our approach to remuneration during
the year under review. The objective
was to ensure that future policy will
support Grainger through its next
three-year remuneration policy
period, which will commence from
the 2017 AGM.
The key conclusions of the Committee’s
review were that the current approach
to weighting remuneration to long-term
performance remained aligned with our
overall strategic objective of improving
long-term returns to Shareholders.
However, it was agreed that the current
policy should be simplified and updated
to take account of developments in
‘best practice’. As a result, subject to
shareholder approval at the AGM, there
are a number of revisions to be made to
our current Remuneration Policy which
are detailed below:
Simplifying the annual bonus
structure with the removal of the
‘exceptional’ bonus maximum and
introducing part-deferral of annual
bonus into Grainger shares
Streamlining the LTIP so that only
performance shares will be granted
in future years (i.e. there will be no
further awards of matching shares
under the LTIP)
The introduction of a two-year
holding period on vested LTIP shares
A tailoring of incentive plan
performance metrics to better align
with Grainger’s refined strategy. This
includes increasing the weighting on
return and profitability in the annual
bonus and introducing relative total
shareholder return and total property
return into the LTIP
Introducing Committee discretion
to override incentive pay outcomes
based on the application of the
conditions set if payouts are not
considered reflective of overall
company performance
Increasing our share ownership
guidelines from 100% to 200%
of salary
The above changes are considered,
in aggregate, to create a more
strategically aligned and long-term
focused Remuneration Policy.
63
GovernanceGrainger plc Annual Report and Accounts 2016
Governance – Remuneration Committee report
continued
Shareholder engagement
The changes proposed to the
Remuneration Policy noted above were
the subject of extensive shareholder
engagement during the year under
review. The Board values the opinions of
its Shareholders and other stakeholders
and has proactively taken their views
into account when finalising the
proposed Remuneration Policy and
its application for 2017.
The Committee is committed to
maintaining an ongoing dialogue with
Shareholders on the issue of executive
remuneration and we welcome any
further feedback you may have.
We look forward to your support on the
resolutions relating to remuneration at
the AGM on 8 February 2017.
Belinda Richards
Chairman of Remuneration Committee
1 December 2016
Implementation of policy for 2017
The base salaries of the Executive
Directors will not be increased with
effect from 1 January 2017 (see
Note 12 to the Annual Report on
Remuneration for more details).
An overview of the changes to our
general approach to remuneration
which we intend to operate from the
AGM are detailed above. Full details
of the intended application of the
Remuneration Policy are set out on
pages 82 to 84 of the Annual Report
on Remuneration.
With regard to the current LTIP, as
the scheme will shortly reach the end
of its ten-year duration, shareholder
approval is being sought at the AGM for
a replacement. Subject to Shareholders’
approval of the replacement LTIP, this
will enable Grainger to continue to
operate a LTIP in line with the proposed
Remuneration Policy.
In addition, I would highlight that the
current HMRC approved all-employee
Save As You Earn (‘SAYE’) share scheme
will also reach the end of its ten-year life.
Consequently, a resolution requesting
shareholder approval in respect of a
successor SAYE scheme on similar terms
will also be sought at the 2017 AGM.
The Committee firmly supports the
principle of broad employee share
ownership and the previous SAYE
scheme was successful in encouraging
employees to become owners in
Grainger. Renewal of the scheme will
enable all our employees, including the
Executive Directors, to continue to
acquire Company shares on a consistent
tax favoured basis in the future.
64
Grainger plc Annual Report and Accounts 2016 Governance – Remuneration policy
Remuneration policy
Set out below is the Remuneration Policy for the Company that will be effective from 8 February 2017 (the ‘Effective Date’),
subject to shareholder approval at the AGM to be held on that day.
The following table summarises the main elements of the Executive Directors’ Remuneration Policy for 2017 onwards, the
key features of each element, their purpose and linkage to our strategy. Details of the remuneration arrangements for the
Non-Executive Directors are set out on page 72.
Base salary
Purpose and link to strategy
To enable the recruitment and retention of individuals of the necessary calibre to execute the
Company’s business strategy.
Operation
Reviewed annually and effective from 1 January.
Decision influenced by:
Opportunity
role, experience and personal performance;
average change in total workforce salary;
total organisational salary budgets; and
Company performance and other economic conditions.
Salaries are benchmarked periodically and are set by reference to companies of a similar size
and complexity.
Salaries will be eligible for increases during the three-year period that the Remuneration Policy
operates from the Effective Date.
During this time, salaries may be increased each year (in percentage of salary terms) in line with
increases granted to the wider workforce.
Increases beyond those granted to the wider workforce (in percentage of salary terms) may be
awarded in certain circumstances such as where there is a change in responsibility, experience or
a significant increase in the scale of the role and/or size, value and/or complexity of the Group.
Where new joiners or recent promotions have been placed on a below market rate of pay initially,
a series of increases above those granted to the wider workforce (in percentage of salary terms) may
be given over the following few years’ subject to individual performance and development in the role.
Framework to assess performance The Committee considers individual salaries at the appropriate Committee meeting each year after
having due regard to the factors noted in operating the salary policy.
Benefits
Purpose and link to strategy
Operation
Opportunity
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.
Other ancillary benefits (including relocation expenses) may be offered, as required.
The value of benefits may vary from year to year depending on the cost to the Company
from third-party providers.
Framework to assess performance N/A
Pension
Purpose and link to strategy
Operation
Opportunity
Framework to assess performance N/A
To aid recruitment and retention of high-quality executives and enable long-term savings through
pension provision.
The Company may contribute directly into an occupational pension scheme (an Executive Director’s
personal pension) or pay a salary supplement in lieu of pension. If appropriate, a salary sacrifice
arrangement can apply.
The pension contribution or allowance is based on 15% of basic salary.
65
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Remuneration policy
continued
Annual bonus
Purpose and link to strategy
Operation
Opportunity
To incentivise the achievement of annual targets, rewarding strong operational performance
set with reference to target performance levels for the year.
Compulsory deferral of 25% of any bonus paid into shares for three years with the balance of the
bonus paid in cash. Deferred shares typically vest after three years and are normally subject to
continued employment.
Dividend equivalent payments may be made in cash or shares on deferred shares at the time
of vesting and may assume the reinvestment of dividends.
Maximum bonus potential is capped at:
140% of salary for the Chief Executive; and
120% of salary for the other Executive Directors.
Framework to assess performance Details of the performance measures used for the current year and targets set for the year under
review and performance against them will be provided in the Annual Report on Remuneration.
Bonus will be predominantly based on a challenging range of financial targets set in line with the
Group’s KPIs tailored to each individual role as appropriate, for example, targets relating to ROSE
and adjusted earnings (previously called recurring profit). For a minority of the bonus, targets relating
to the Group’s other KPIs will operate (for example strategic targets).
For financial targets, and where practicable in respect of strategic targets, bonus starts to accrue once
the threshold target is met (0% payable) rising on a graduated scale to 100% for outperformance.
The Committee may adjust bonus outcomes, based on the application of the bonus formula set at
the start of the relevant year, if it considers the quantum to be inconsistent with the Company’s overall
performance during the year. For the avoidance of doubt this can be to zero and bonuses may not
exceed the maximum levels detailed above. Any use of such discretion would be detailed in the
Annual Report on Remuneration.
In the event that there was (i) a misstatement of the Company’s results; (ii) a miscalculation or an
assessment of any performance conditions that was based on incorrect information; or (iii) misconduct
on behalf of an individual, recovery and/or withholding provisions may apply for three years from the
date of payment of any bonus.
To incentivise the delivery of sustained performance over the longer term.
To encourage greater shareholder alignment through personal investment in the Company’s shares.
Long Term Incentive Schemes have been provided under the 2007 Long Term Incentive Plan and
will be provided, with effect from the 2017 AGM and subject to Shareholder approval, under the
2017 Long Term Incentive Plan (collectively referred to as ‘LTIP’). The LTIP provides for awards
of free shares (i.e. either conditional shares or nil-cost options) normally made annually which are
eligible to vest after three years subject to continued service and the achievement of challenging
performance conditions.
Shares (as a minimum on an after tax basis) are subject to a two-year post-vesting holding period
for awards granted from the Effective Date of the Remuneration Policy.
Dividend equivalent payments may be made (in cash or shares) on LTIP shares at the time of vesting
on vested shares and may assume the reinvestment of dividends.
Annual awards are capped at:
175% of salary for the Chief Executive; and
130% of basic salary for the other Executive Directors.
The Committee may grant awards at up to 200% of salary in exceptional circumstances
(e.g. recruitment to compensate for value forfeit from a previous employer).
Long-Term Incentive Schemes
Purpose and link to strategy
Operation
Opportunity
66
Grainger plc Annual Report and Accounts 2016 Long-Term Incentive Schemes
Framework to assess performance Granted subject to a blend of challenging financial (e.g. total property return) and total shareholder
continued
return performance targets tested over three years.
25% of awards will vest for threshold performance with full vesting taking place for equalling, or
exceeding, the maximum performance targets. No awards vest for performance below threshold.
A graduated vesting scale operates between threshold and maximum performance levels.
The Committee may adjust LTIP vesting outcomes, based on the result of testing the performance
condition, if it considers the quantum to be inconsistent with the Company’s overall performance
during the three-year performance period. For the avoidance of doubt this can be to zero. Any use
of such discretion would be detailed in the Annual Report on Remuneration.
In the event that there was (i) a misstatement of the Company’s results; (ii) a miscalculation or
an assessment of any performance conditions based on incorrect information; or (iii) misconduct
on behalf of an individual, recovery and/or withholding provisions may apply for three years from
an award becoming eligible to vest.
To encourage employees to make a long-term investment in the Company’s shares.
All employees, including the Executive Directors, are eligible to participate on the same terms 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 up to 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 may 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).
Dividend payments on SIP shares are reinvested in dividend shares and must be held in trust for
three years.
Savings related share schemes
Purpose and link to strategy
Operation
Opportunity
Framework to assess performance N/A
Shareholding guidelines
Under the Shareholding Guidelines Executive Directors are expected to build up over time a shareholding equivalent to 200% of their base
salary. Executive Directors are required to retain a minimum of half the after tax number of vested shares in relation to future LTIP awards
to satisfy the guideline. The Committee will also operate a general expectation that the guideline will be met within five years of its
introduction, although the Committee reserves the right to take into account vesting levels and personal circumstances when assessing
progress against the guideline.
67
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Remuneration policy
continued
Changes to the Remuneration Policy
The above Remuneration Policy includes
a number of revisions when compared
against the Remuneration Policy
approved by shareholders at the 2014
AGM. The changes have been made
to better align remuneration with the
refined Company strategy detailed in
the Strategic report, as well as taking
into account the feedback from our
major institutional investors.
The key changes included:
simplifying the annual bonus
structure so that in future a single
bonus maximum will operate as
opposed to separate ‘normal’ and
‘exceptional’ maximum bonus
opportunities. This change reduced
the aggregate maximum potential
bonus in any year for the Chief
Executive from 150% to 140% of
salary and from 125% to 120% for
other Executive Directors;
the ability to grant matching shares
under the LTIP (being up to 30% of
salary linked to the deferral of annual
bonus or purchase of shares) has
been removed with only a single type
of share award (performance shares)
to be granted in future years.
Accordingly, the LTIP maximum
award limit has been revised to 175%
of salary for the Chief Executive and
130% of salary for the other
Executive Directors. The revised
limits compare to aggregate award
limits of matching shares and
performance shares of 180% of
salary and 130% of salary under the
previous Remuneration Policy;
the introduction of a two-year
holding period on vested LTIP shares;
the performance metrics to be
operated in incentive plans, as
detailed below, have been refined
to better align with the Company’s
refined strategy as detailed in the
Strategic report;
68
introducing Committee discretion
to override incentive pay outcomes
based on the application of the
conditions set if payouts are not
considered reflective of overall
company performance; and
increasing the share ownership
guideline from 100% to 200%
of base salary.
Choice of performance measures
and approach to target setting
The performance metrics that are
used for annual bonus and long-term
incentive plans are a sub-set of the
Group’s KPIs.
Under the annual bonus plan for the
first year of operating the Remuneration
Policy in 2017, bonuses will be based
40% on ROSE, 40% on adjusted
earnings and 20% on individually
tailored strategic targets.
The use of adjusted earnings as a metric
is intended to incentivise operational
success in achieving specified levels of
rental growth, income from sales and
reduction in overheads which reflect
the current key strategic priorities of
the Company and feed through to
adjusted earnings.
The term ‘adjusted earnings’
has replaced the term ‘recurring profit’.
In the context of recently published
guidance from ESMA and the FRC; the
Directors considered the use of the term
‘recurring profit’ and determined that a
description as ‘adjusted earnings’ more
appropriately reflects the adjustments
between statutory profit and this
measure (see Note 4 to the financial
statements). The calculation of the
measure is unchanged.
Use of ROSE is aligned with delivering
targeted overall returns from the
Company’s property portfolio which is
supported by a strong balance sheet.
Use of strategic targets enables the
Committee to incentivise delivery against
the evolving strategy of the Group.
In respect of long-term performance
targets, LTIP awards will vest subject
to: (i) challenging total property return
targets that are aligned with the
long-term levels of return targeted
by the Company; and (ii) relative TSR
targets which incentivise the Executive
team to outperform sector peers and
provide clear alignment of interests
between Shareholders and Executives.
Targets are set based on sliding scales
that take account of internal planning
and external market expectations for
the Company. Only modest rewards
are available for delivering threshold
performance levels with maximum
rewards requiring substantial
outperformance of the challenging
plans approved by the Board at the
start of each financial year.
The incentive metrics, their weightings
and the range of targets set will be
subject to review each year and may be
adjusted to better reflect the strategic
priorities of the Company at that time
(subject to the constraints set out in
the policy above).
No performance targets are applied
to the all-employee plans which are
aimed at encouraging broad based
equity ownership.
Further details of the annual bonus
metrics to be used for the current
financial year are set out in the Annual
Report on Remuneration. The targets
for awards to be granted under the
LTIP in the current financial year are
consistent with the policy set out above
and are also specified in the Annual
Report on Remuneration.
Grainger plc Annual Report and Accounts 2016
Bonus plan and LTIP policy
The Committee will operate the annual
bonus plan, LTIP and all-employee plans
according to their respective rules and
in accordance with the relevant Listing
Rules and HMRC rules consistent with
market practice. The Committee retains
discretion, within the confines and
opportunity detailed above, in a number
of respects with the operation and
administration of these plans.
These include:
Reward scenarios for
Executive Directors
The Company’s Remuneration Policy
results in a significant proportion of
remuneration received by Executive
Directors being dependent on
Company performance. The graph
below illustrates how the total pay
opportunities for the Executive
Directors varies under three different
performance scenarios:
Assumptions:
Below target = fixed pay only
(base salary, benefits and pension)
On-target = 55% payable of the 2017
annual bonus and 62.5% vesting of
the 2017 LTIP awards
Maximum = 100% payable of the
2017 annual bonus and 100% vesting
of the 2017 LTIP awards
Salary levels (on which other elements
of the package are calculated) are based
on those applying on 30 September
2016. The value of taxable benefits is
based on the cost of supplying those
benefits (as disclosed on page 73) for
the year ending 30 September 2016.
The Executive Directors can participate
in the all-employee share plans on the
same basis as other employees. The
value that may be received under these
Below target
On-target
Maximum
When reviewing the graph, it should be
noted that it has been prepared based
on the policy detailed above and
ignores, for simplicity, the potential
impact of future share price growth.
Reward scenarios for Executive Directors
2,200
2,000
1,800
1,600
1,400
0
0
0
£
’
1,200
1,000
800
600
£545
£1,994
41%
£1,402
36%
25%
32%
400
200
0
£1,184
35%
33%
£855
30%
25%
£384
£1,319
35%
33%
£952
30%
25%
£427
100%
39%
27%
100%
45%
32%
100%
45%
32%
Below
Target
Target
Maximum
Below
Target
Target
Maximum
Below
Target
Target
Maximum
CEO
CFO
Property Director
Fixed
Annual Bonus
Long-Term Share Awards
69
the individual(s) participating in
the plans;
the timing of grant of award
and/or payment;
the size of an award and/or payment;
the determination of vesting;
dealing with a change of control
(e.g. the timing of testing performance
targets) or restructuring;
determination of a ‘good/bad leaver’
for incentive plan purposes based
on the rules of each plan and the
appropriate treatment chosen;
adjustments required in certain
circumstances (e.g. rights issues,
corporate restructuring and special
dividends); and
the annual review of performance
conditions for the annual bonus plan
and LTIP.
The Committee also retains the ability
to adjust the targets, and/or set
different measures and alter weightings
for the annual bonus plan and to adjust
targets for the LTIP if events occur
(e.g. material divestment of a Group
business) which cause it to determine
that the conditions are no longer
appropriate and the amendment is
required so that the conditions achieve
their original purpose and are not
materially less difficult to satisfy.
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Remuneration policy
continued
schemes is subject to tax approved
limits. For simplicity, the value that may
be received from participating in these
schemes has been excluded from the
graph on the previous page. Since the
above analysis ignores share price
growth, the values will differ from the
values included in the Single total figure
remuneration table on page 73.
How the Executive Directors’
Remuneration Policy relates
to the wider Group
The Remuneration Policy provides an
overview of the structure that operates
for the Company’s Executive Directors
and senior executive population.
However, it is highlighted that there
are differences in quantum within this
determined by the size and scope of
individual positions.
The Committee is made aware of pay
structures across the Group when
setting the Remuneration Policy for
Executive Directors. The key difference
is that, overall, the Remuneration Policy
for Executive Directors is more heavily
weighted towards variable pay than for
other employees.
Base salaries are operated under
the same policy as detailed in the
Remuneration Policy table with any
comparator groups used as a reference
point. The Committee considers the
general basic salary increase for
the broader Company (if any) when
determining the annual salary review
for the Executive Directors.
Outside of the most senior tiers of
executives, the LTIP is not operated
as this arrangement is reserved for
those anticipated as having the
greatest potential to influence
Company level performance.
However, the Committee believes in
wider employee share ownership and
70
promotes this through the operation of
the HMRC tax approved all-employee
share schemes which are open to all
UK employees.
How the views of employees are
taken into account
The Company, in line with current
market practice, does not currently
actively consult with employees on
executive remuneration.
The Committee takes due account of
remuneration structures elsewhere in
the Group when setting pay for the
Executive Directors. For example,
consideration is given to the overall
salary increase budget and the
incentive structures that operate
across the Company.
How the views of Shareholders
are taken into account
The Remuneration Committee
considers shareholder feedback
received in relation to the AGM each
year and guidance from shareholder
representative bodies more generally.
This feedback, plus any additional
feedback received during any meetings
held with Shareholders from time to
time, is then considered as part of
the Committee’s ongoing review
of remuneration policy.
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 preceding tables.
Base salary will be set at a level
appropriate to the role and the
experience of the Executive 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 offer compensation
that it considers appropriate to take
account of awards and benefits that will
or may be forfeited on resignation from
a previous position. Such compensation
would reflect the performance
requirements, timing and such other
specific matters as the Committee
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
Executive Director.
If the Executive 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 Executive
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 the Audit and
Remuneration Committees and for the
additional responsibilities of the Senior
Independent Director.
Grainger plc Annual Report and Accounts 2016 Directors’ service contracts and
provision on payment for loss of office
Executive Directors’ service contracts
are terminable by the Company on up
to one year’s notice and by the Director
on at least six months’ notice.
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 Executive 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 Executive Director during
the contractual notice period. The policy
is that, as is considered appropriate
at the time, the departing Executive
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 also seek to apply the principle of
mitigation where possible so as to
reduce any termination payment to a
leaving Executive Director, having had
regard to the circumstances.
In addition, the Committee may also
make payments in relation to any
statutory entitlements, to settle any claim
against the Company (e.g. in relation to
breach of statutory employment rights
or wrongful dismissal) or make a modest
provision in respect of legal costs or
outplacement fees.
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.
With regard to annual bonus for
a departing Executive Director,
if employment ends by reason of
redundancy, retirement with the
agreement of the Company, ill health
or disability or death, or any other
reason as determined by the Committee
(i.e. the individual is a ‘good leaver’), the
Executive Director may be considered
for a bonus payment. If the termination
is for any other reason, any entitlement
to bonus would normally lapse. Under
any circumstance, it is the Committee’s
policy to ensure that any bonus
payment reflects the departing Executive
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 be subject to
a pro-rata reduction for the portion
of the relevant bonus year that the
individual was employed.
The treatment for share-based incentives
granted to an Executive Director will be
determined based on the relevant plan
rules. The default treatment will be for
outstanding awards to lapse on cessation
of employment. In relation to awards
granted under the Company’s long-term
incentive plans, in certain prescribed
circumstances, such as injury or disability,
redundancy, transfer or sale of the
employing company, retirement with
the Company’s agreement or other
circumstances at the discretion of the
Committee (reflecting the circumstances
that prevail at the time) ‘good leaver’
status may be applied.
If treated as a good leaver, awards will be
eligible to vest subject to performance
conditions, which will be measured
over the original performance period
(unless the Committee elected to test
performance to the date of cessation
of employment), and be subject to
a pro-rata reduction (unless the
Committee considered it inappropriate
to do so) to reflect the proportion of
the vesting period actually served.
With regard to the deferral of annual
bonus, deferred share bonus awards
will normally lapse on cessation of
employment other than where an
Executive Director is a ‘good leaver’
(as detailed above) with awards then
vesting on the normal vesting date.
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 HMRC approved
share plans, awards may vest or be
exercisable on or following termination
of employment in certain good leaver
circumstances, where permissible,
in accordance with the rules of the
plan and relevant legislation.
External appointments
Executive Directors are permitted
to accept external non-executive
appointments with the prior approval
of the Board. It is normal practice
for Executive Directors to retain
fees provided for non-executive
appointments.
Non-Executive Directors’ letters
of appointment
The Chairman and Non-Executive
Directors have letters of appointment
for an initial fixed term of three years
subject to earlier termination by either
party on written notice. In each case,
this term can be extended by
mutual agreement.
Non-Executive Directors have
no entitlement to contractual
termination payments.
The dates of the initial appointments of
the Non-Executive Directors are set out
in the Annual Report on Remuneration.
71
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Remuneration policy
continued
Non-Executive Directors’ fees
The policy on Non-Executive Directors’ fees is set out below:
Non-Executive Directors
Purpose and link to strategy
Operation
Opportunity
To provide a competitive fee which will attract those high-calibre individuals who, through their
experience, can further the interests of the Group through their stewardship and contribution to
strategic development.
The fees for Non-Executive Directors (including the Chairman) are typically reviewed every second
year or more frequently if required.
Fee levels are set by reference to the expected time commitment and responsibility, and are periodically
benchmarked against relevant market comparators as appropriate reflecting the size and nature of
the role.
The Chairman and Non-Executive Directors are paid an annual fee which is paid at least monthly in cash
and do not participate in any of the Company’s incentive arrangements or receive any pension provision.
The Non-Executive Directors receive a basic Board fee, with additional fees payable for chairmanship
of the Company’s key Committees and for performing the Senior Independent Director role.
All Non-Executive Directors are reimbursed for travel and related business expenses reasonably
incurred in performing their duties.
The Committee recommends the remuneration of the Chairman to the Board.
The Chairman’s fee is determined by the Committee (during which the Chairman has no part in
discussions) and recommended by it to the Board. The Non-Executive Directors’ fees are determined
by the Chairman and the Executive Directors.
Fee levels will be eligible for increases during the period that the Remuneration Policy operates to
ensure that they continue to appropriately recognise the time commitment of the role, increases
to fee levels for Non-Executive Directors in general and fee levels in companies of a similar size
and complexity.
Framework to assess performance N/A
72
Grainger plc Annual Report and Accounts 2016 Governance – Annual Report on Remuneration
1
Single total figure of remuneration for each Director
The details set out in notes 1 to 7 on pages 73 to 81 of this report have been audited by KPMG.
2016
Executive Directors6
Helen Gordon
Vanessa Simms
Nick Jopling
Former Executive Directors
Andrew Cunningham
Mark Greenwood
Non-Executive Directors
Baroness Margaret Ford
Belinda Richards
Tony Wray
Andrew Carr-Locke
Rob Wilkinson
a
b
c
Salary
and fees1
£’000
Taxable
benefits2
£’000
Share
incentive
Plan
£’000
Annual
bonus3
£’000
d
LTIP
awards
vesting4
£’000
e
Pension
costs5
£’000
422
209
354
985
155
69
224
150
63
46
53
46
358
14
10
15
39
5
4
9
–
–
–
–
–
–
–
–
7
7
5
1
6
–
–
–
–
–
–
370
158
236
764
–
–
–
–
–
–
–
–
–
–
–
227
227
291
125
416
–
–
–
–
–
–
63
31
53
147
22
10
32
–
–
–
–
–
–
Other6
Total7
£’000
13
–
–
13
882
408
892
2,182
–
–
–
–
–
–
–
–
–
478
209
687
150
63
46
53
46
358
Former Non-Executive Directors
Simon Davies8
Totals
8
1,575
–
48
–
13
–
764
–
643
–
179
–
13
8
3,235
4
2
3
1 As detailed in last year’s Annual Report on Remuneration, Helen Gordon was appointed on a base salary of £460,000 with effect from 3 November 2015 and
the value included in the table above reflects her salary paid for the part of the financial year that she was employed. Full details of her recruitment terms
were included in last year’s Annual Report on Remuneration. Vanessa Simms was appointed on a base salary of £320,000 with effect from 4 February 2016
and the value included in the table above reflects her salary paid for the part of the financial year that she was employed. There was no compensation for
incentive value forfeit on joining Grainger provided to Vanessa in connection with her appointment. Her salary was set with reference to current market rates
for the role and the calibre and experience of the individual. Nick Jopling’s base salary during the year under review was £356,842 with effect from 1 January
2016 and the value included in the above table reflects the total salary received following the application of the staff-wide salary increase on 1 January 2016
for part of the year.
Taxable benefits include a car allowance and private medical insurance.
In line with the contractual provisions specified in their service agreements and having reference to the Company’s policy for departing Executive Directors,
Andrew Cunningham and Mark Greenwood were not eligible for a bonus in relation to 2015, or for the part of 2016 for which they were in employment,
having given notice to the Company to terminate their employment in connection with their retirements during 2015.
In line with the requirements of the Remuneration Reporting Regulations, the 2016 LTIP vesting values are based on the forecast value of the awards due
to vest on 9 December 2016 (50% of the award is based on NNNAV performance measured over the three years to 30 September 2016 and 50% of the
award is based on absolute total shareholder return measured over the three-year period to 9 December 2016). The NNNAV performance measured to
30 September 2016 was 2.11% and so 40% of this part of the award is due to vest and forms part of the 2016 LTIP value. Absolute TSR performance (based
on an assessment of performance measured to 30 September 2016) is forecast to be 10.7% based on absolute TSR growth of 33%. The share price for
the purposes of valuing the award is the share price at 30 September 2016 (230p) for the NNNAV element, and the three-month average share price to
30 September 2016 (221.7p) for the TSR element. This value will be trued up in next year’s report to reflect the actual level of vesting and share price at the
vesting date. The 2015 LTIP value has been restated and reflects the actual value of the awards that vested in January 2016. Andrew Cunningham and Mark
Greenwood retired and stepped down from the Board on 4 January 2016 and 22 December 2015 respectively. Their outstanding LTIP awards were retained
and will vest and be exercisable in accordance with the LTIP Rules. These awards will vest at the end of their respective performance periods pro-rata to the
time elapsed between the date of grant of the relevant award and their termination date, and to the extent that the relevant performance targets have been
met over the full performance period including following cessation of employment.
The pension costs are based on 15% of base salary.
Please see Note 4 on page 78 in relation to the vesting of the Tranche 1 buy-out award made to Helen Gordon.
5
6
7 With regard to the single total figure of remuneration for each Director in relation to the year under review, the Committee was comfortable with the
amounts payable given the performance achieved. In forming this view the Committee noted the delivery of a ROSE of 10.6% and an OPBVM of £88.7m and
that this was delivered in a challenging market context. In addition, substantial strategic progress was also made with a refined strategy being developed and
embedding in the organisation. From a longer-term perspective, three-year forecast annualised TSR of 10.7% was delivered at the same time as an
increasing NNNAV relative to the increase in the Halifax and Nationwide House Price indices of 2.11.
Simon Davies retired from the Board on 30 November 2015.
8
73
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Annual Report on Remuneration
continued
1
Single total figure of remuneration for each Director continued
a
b
Salary
and fees1
£’000
Taxable
benefits2
£’000
Share
incentive
Plan
£’000
c
Bonus
Annual3
£’000
Legacy
£’000
d
LTIP
awards
vesting4
£’000
e
Pension
costs5
£’000
443
274
343
1,060
112
49
15
55
50
42
29
28
380
1,440
16
16
16
48
–
–
–
–
–
–
–
–
–
48
7
7
7
21
–
–
–
–
–
–
–
–
–
21
–
–
192
192
–
–
–
–
–
–
–
–
–
192
109
–
–
109
–
–
–
–
–
–
–
–
–
109
1,543
690
859
3,092
–
–
–
–
–
–
–
–
–
3,092
67
41
51
159
–
–
–
–
–
–
–
–
–
159
Total7
£’000
2,185
1,028
1,468
4,681
112
49
15
55
50
42
29
28
380
5,061
2015
Executive Directors
Andrew Cunningham
Mark Greenwood
Nick Jopling
Non-Executive Directors
Baroness Margaret Ford
Robin Broadhurst
John Barnsley
Belinda Richards
Tony Wray
Simon Davies8
Ian Coull
Andrew Carr-Locke
Total
2
Annual bonus awards – performance assessment for 2016
Actual performance against the targets set for 2016 are set out below (straight-line payouts occur between the relevant
performance points).
Helen Gordon and Vanessa Simms both participated in the 2016 annual bonus on a pro-rata basis, reflecting the proportion
of the year for which they were employed. Neither Andrew Cunningham nor Mark Greenwood was eligible to participate in
the 2016 annual bonus plan.
The detail below sets out the financial targets that were set at the start of the year (which were considered equally challenging
to those set in prior years allowing for the prevailing trading environment) and performance achieved against them together
with the personal targets and the extent of achievement against these.
Weighting
37.5%
Threshold
(0% out-turn)
90% of
budget
(£72.8m)
Target
(60% out-turn)
100% of
budget
(£80.9m)
Maximum
(100% out-turn)
120% of
budget
(£97.1m)
2016
Performance
109.6% of
budget
(£88.7m)
Weighting
37.5%
Threshold
(0% out-turn)
5%
Maximum
(100% out-turn)
15%
2016
Performance
10.6%
Out-turn (% of
max element)
Bonus
79.3%
Out-turn (% of
max element)
Bonus
55.7%
Measure
Profit (OPBVM)
Measure
ROSE
74
Grainger plc Annual Report and Accounts 2016
The ROSE as detailed above at 10.6% was calculated from the closing NNNAV of 286.7p per share plus the dividend per share
for the year divided by the opening NNNAV per share of 263.4p.
In respect of the personal performance targets set for each Executive Director, these were set against a range of strategic and
personal targets at the start of the year (or on appointment where appropriate). The targets set were aligned to Grainger’s
corporate objectives having due regard to the refocused strategy being the key overarching deliverable during the year.
Chief Executive
Measure
Stakeholder management
Cost management
Income growth
Operational performance
Leadership
Objective
Deliver effective communication
of refined Company strategy
to stakeholders.
Design and commence overhead
reduction programme.
Deliver increased rental income
(measured on a consistent basis) of £5m.
Complete restructuring of the Company
to be embedded and aligned with the
Company’s strategy.
Lead, coach and develop leadership
team to deliver strategy and improve
the pace of output.
Performance
Achieved in full following very positive feedback from the Board
and the Company’s leading investors and analysts.
Achieved in full and in line with the annual budget.
Achieved in full with strong overall rental income at £37.4m
against a prior year of £32.4m in respect of the UK portfolio.
Partially achieved, on the basis of restructuring delivered with
alignment of KPIs to strategy, but yet to be fully embedded
throughout the organisation.
Achieved in full and evidenced by having worked highly
effectively with the new leadership team to conclude the
strategic review, deliver the strategic plan, and made substantial
strides in its execution.
On the basis of the above performance, the Committee determined that payment of 90% of the maximum 25% of this part
of the bonus was proportionate and reasonable in the circumstances.
Chief Financial Officer
Measure
Stakeholder management Simplify and align financial reporting, forge
strong relationships with stakeholders and
improve clarity of external communications.
Objective
KPI and reporting
Funding strategy
Cost reduction
Review range and structure of the
Company’s KPIs pursuant to the refined
strategy and be in a position to implement
and embed such KPIs in 2017 financial year.
Define and implement refined funding
strategy, manage financial risks and improve
the Company’s capital structure.
In conjunction with the Chief Executive,
identify revised operating model,
communicate, and set timetable
for implementation.
Performance
Achieved in full and evidenced by highly positive feedback from
the Board and the Company’s leading investors and analysts
confirming that there had been significant progress in the
method and process of communication of the Company’s
financial performance.
Achieved in full. The Chief Financial Officer undertook a
thorough review of Group KPIs with the conclusions of this
analysis being implemented as part of the revised strategy,
and such refined KPIs feed through to 2017 (including in respect
of the new Remuneration Policy).
Achieved in full. The future funding strategy was designed and
approved by the Board and is being implemented.
Achieved in full by having undertaken a full and thorough review
of potential cost savings and duly delivered those matters
identified for 2016.
Pursuant to the above exceptional performance out-turn, the Committee determined that 100% of the maximum 25% of this
part of the bonus would be payable.
75
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Annual Report on Remuneration
continued
2
Annual bonus awards – performance assessment for 2016 continued
Property Director
Measure
Sales
Cost reduction
Income
Operational
Pipeline
Objective
Achieve predetermined sales and
profit targets included within the
2016 budget from core, Chelsea
and development portfolios:
a) 55% margin on £94m core sales;
b) £9.5m development profit; and
c) £46m Chelsea sales.
Deliver a restructuring of the property
business with redefined leadership
structure implemented.
Grow net revenue income to 72%
from 70.3%.
Achieve operational excellence in dealings
with key long-term business partners.
Progress measured against business plan.
Achieve up to £500m committed to acquire
quality pipeline in 2016.
Performance
Partial achievement on the following basis for each element:
a) £87.4m of core sales was achieved with a margin of 59.5%;
b) £11.8m in respect of development profit; and
c) £14.1m of Chelsea sales, it being noted by the Committee
that this market has faced considerable external macro-
economic challenges.
Substantially (but not fully) achieved as part of the
implementation of the strategic plan.
Achieved in full with a net revenue income at 72%.
Partially achieved due to a combination of strong relationships
with some partners, but not yet at this level in respect of
other cases.
Partial achievement with approximately £300m commitment to
acquire pipeline in the context of challenging market conditions
in certain areas.
Following consideration of the performance against the objectives set, the Committee determined that payment of 64% of the
maximum 25% of this part of the bonus was appropriate in the circumstances.
The total bonuses earned, therefore, were 73%, 76% and 67% of the maximum bonus opportunity (based on pro-rata base
salaries as appropriate) for the Chief Executive, Chief Financial Officer and Property Director respectively.
The 2015 Annual Report on Remuneration highlighted that certain matters were excluded due to commercial sensitivity. This
related to Nick Jopling’s personal target to “Lead the strategic plan to secure a private rented sector portfolio of scale against
the projected timeline”. The outcome of that target as specified in the 2015 report can now be supplemented by reference to
the Clippers Quay, Salford transaction, which since the production of the 2015 report has been secured and duly announced.
This transaction was well progressed at the time of the 2015 report and formed part of the PRS pipeline but was subject to
typical confidentiality provisions until the date of exchange.
76
Grainger plc Annual Report and Accounts 2016 3
LTIP awards – performance assessment for 2016
The awards made to Executive Directors in December 2013, and which are due to vest in December 2016, are based on NNNAV
and absolute TSR targets measured over a three-year period. Performance against the vesting schedule can be summarised
as follows:
LTIP awards vesting in December 2016
Measure
Three year growth in TSR (annual compound)1
NNNAV (increase over three years relative to HPI,
as measured by Halifax and Nationwide)2
Weighting
50%
Threshold
5%
Maximum
15%
Actual
performance
10.7%
Out-turn (% of
max element)
LTIP
57%
50%
1.5%
3.0%
2.11%
40%
1 Performance measurement period three years to 9 December 2016 – actual performance is a forecast based on performance measured to
30 September 2016.
2 Performance measurement period three years to 30 September 2016. NNNAV increased by 47.2% between September 2012 and September 2015
whilst the average increase in the Halifax and Nationwide House Price indices over the same period was 22.4%.
The forecast vesting value of the awards made in December 2013, subject to the above performance targets, is included in the
2016 single figure table above.
The awards made to Executive Directors in December 2012, and which vested in December 2015, were based on NNNAV
and absolute TSR targets measured over a three-year period. Performance against the vesting schedule can be summarised
as follows:
LTIP awards vesting in December 2015
Measure
Three-year growth in TSR (annual compound)1
NNNAV (increase over three years relative to HPI,
as measured by Halifax and Nationwide)2
Weighting
50%
Threshold
5%
Maximum
15%
Actual
performance
32%
Out-turn (% of
max element)
LTIP
100%
50%
1.5%
3.0%
2.95%
96%
1 Performance measurement period three years to 10 December 2015. Actual performance over the performance period, at 32%, was marginally lower than
the forecast included in last year’s Directors’ Remuneration report which had been estimated at 33%. This had no impact on the forecast vesting result.
2 Performance measurement period three years to 30 September 2015. NNNAV increased by 67.5% between September 2012 and September 2015,
whilst the average increase in the Halifax and Nationwide House Price indices over the same period was 22.9%.
4
Share scheme interests awarded during the year
Helen Gordon
Vanessa Simms
Nick Jopling
LTIP share awards
Matching awards
Number
287,117
130,995
144,161
Face value
£’000
689
284
346
Number
57,423
11,750
43,248
Face value
£’000
137
26
104
The face value for Helen Gordon and Nick Jopling is based on a price of 240.3p being the average share price from the five
business days immediately preceding the award that was made on 11 January 2016. The face value for Vanessa Simms is based
on a price of 217.1p being the average share price from the five business days immediately preceding the award that was made
on 11 February 2016 which was shortly after she commenced employment with the Company.
77
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Annual Report on Remuneration
continued
4
Share scheme interests awarded during the year continued
The face value of performance shares awarded were 150% of salary in the case of Helen Gordon, 89% of salary in the case
of Vanessa Simms (being a pro-rata award to reflect her joining part way through the year) and 100% of salary in the case
of Nick Jopling.
The awards of both performance and matching shares will be eligible to vest in three years contingent upon continued
employment and satisfying the performance criteria. Half of the award is subject to a TSR growth condition (measured over
three years from the grant of the award) with the other half subject to a NNNAV growth condition (measured over three
financial years starting with the year in which the award was granted). The performance targets require three year growth
in NNNAV to be 1.5 times the average growth recorded by the Halifax and Nationwide indices for threshold vesting (0%)
and 3 times the indices for full vesting.
In terms of TSR, annual compound growth of 5% per annum is required for threshold vesting (0%) with 15% per annum growth
is required for full vesting. Straight line vesting takes place between performance points.
In addition to the above, as disclosed in last year’s Annual Report on Remuneration, Helen Gordon received performance
adjusted and/or related buy-out awards to replace share awards forfeited from her previous employer on joining Grainger.
The awards were structured (where practicable) so that performance related Grainger share awards replaced the
performance linked awards from her former employer.
Tranche 1 (19 May 2016)
Tranche 2 (7 March 2017)
Tranche 3 (9 March 2018)
Total
Helen Gordon buy-out
share awards
Number
33,122
69,328
50,045
152,495
Face value
£
79,601
99,967
120,270
299,838
In relation to Tranche 1, 27,602 shares comprised in this award lapsed with the remaining 5,520 shares vesting in May 2016.
The lapsed element arose pursuant to the Committee’s assessment of the value actually forfeit in connection with the award
received from her previous employer it was granted to replace.
In relation to Tranche 2 and Tranche 3, the same performance targets as detailed above for the awards granted during the year
under review will apply save for the fact that the three year performance period of Tranche 2 runs from 1 October 2013 to 30
September 2016 for the NNNAV part of the award with the TSR part of the award having a performance period that runs from
December 2013 to December 2016. For Tranche 3, the performance period runs from 1 October 2014 to 30 September 2017
for the NNNAV part of the award with the TSR part of the award having a performance period that runs from December 2014
to December 2017. These conditions are the same as those applying to other Grainger employees receiving awards in 2013
and 2014.
5
Payments to past Directors
Peter Couch, who retired from the Board on 31 January 2014, retained a pro-rated entitlement to 115,507 shares granted on
10 December 2012 under the terms of the Company’s LTIP. This award vested at 98% when the value of the shares that vested
at 233.6p per share was £264,426. The payments to Andrew Cunningham and Mark Greenwood, who retired during the year,
are detailed elsewhere in this report.
78
Grainger plc Annual Report and Accounts 2016 6
Payments for loss of office
In relation to the retirement of Andrew Cunningham and Mark Greenwood, which took place on 4 January 2016 and
22 December 2015 respectively, in line with the Company’s Remuneration Policy, they were treated as ‘good leavers’ for
the purposes of their outstanding long-term incentive awards. Accordingly, their outstanding awards will remain eligible
to vest at the normal vesting date subject to: (i) a pro-rata reduction for the proportion of the vesting period elapsed to
the date of their retirement; and (ii) the application of performance targets over the original performance period.
There have not been, nor will there be, any other payments made in connection with their retirement.
7
Directors’ shareholdings and share interests
Performance share awards
Andrew Cunningham
LTIP shares
Matching
shares
Mark Greenwood
LTIP shares
Matching
shares
Nick Jopling
LTIP shares
Matching
shares
Buy-out
awards
(three tranches)
LTIP shares
Matching shares
LTIP shares
Matching shares
Helen Gordon
Vanessa Simms
Awards
granted
10-Dec-12
09-Dec-13
16-Dec-14
10-Dec-12
09-Dec-13
16-Dec-14
10-Dec-12
09-Dec-13
16-Dec-14
10-Dec-12
09-Dec-13
16-Dec-14
10-Dec-12
09-Dec-13
16-Dec-14
11-Jan-16
10-Dec-12
09-Dec-13
16-Dec-14
11-Jan-16
12-Jan-16
Maximum
award
554,675
311,234
336,503
110,935
62,246
67,300
228,913
128,445
138,874
68,674
38,533
41,662
286,141
160,557
173,592
144,161
84,496
48,167
52,077
43,248
152,495
Awards
vested
543,581
–
–
108,716
–
–
224,335
–
–
67,300
–
–
280,418
–
–
–
82,806
–
–
–
5,520
Maximum
outstanding
awards at
30 Sept 2016
–
222,351
126,189
–
44,470
25,237
–
88,130
48,150
–
26,439
14,445
–
160,557
173,592
144,161
–
48,167
52,077
43,248
119,373
Awards
lapsed
11,094
88,883
210,314
2,219
17,776
42,063
4,578
40,315
90,724
1,374
12,094
27,217
5,723
–
–
–
1,690
–
–
–
27,602
Market price
at date of
vesting
(p)
233.6
–
–
233.6
–
–
233.6
–
–
233.6
–
–
233.6
–
–
–
233.6
–
–
–
232.5
11-Jan-16
11-Jan-16
11-Feb-16
11-Feb-16
287,117
57,423
130,995
11,750
–
–
–
–
–
–
–
–
287,117
57,423
130,995
11,750
–
–
–
–
Vesting
date*
08-Jan-16
09-Dec-16
16-Dec-17
08-Jan-16
09-Dec-16
16-Dec-17
08-Jan-16
09-Dec-16
16-Dec-17
08-Jan-16
09-Dec-16
16-Dec-17
08-Jan-16
09-Dec-16
16-Dec-17
11-Jan-19
08-Jan-16
09-Dec-16
16-Dec-17
11-Jan-19
19-May-16
07-Mar-17
09-Mar-18
11-Jan-19
11-Jan-19
11-Feb-19
11-Feb-19
* a) Vesting of the awards made on 10 December 2012 was delayed from 10 December 2015 to January 2016 by approximately one month due to a
closed period regarding the dealing of shares.
b) The performance conditions that apply to awards granted in the year under review are set out on page 78 and for the previous financial year were set
out in full in the previous Annual Report and Accounts.
79
GovernanceGrainger plc Annual Report and Accounts 2016
Governance – Annual Report on Remuneration
continued
7
Directors’ shareholdings and share interests continued
Share options
Granted in year
Lapsed in
year
Exercised
during
year
Share
options at
1 Oct
2015 Number
Grant
price
(p) Number Number
Market
price on
exercise
(p)
Gains on
exercise
of share
options
(£)
Share
options
at
30 Sept
2016
Exercise
price
(p)
Exercise
price
(p)
Earliest
exercise date
Latest*
exercise date
Andrew
Cunningham SAYE 20,026
Mark
Greenwood
Nick Jopling
SAYE
5,199
SAYE 21,770
SAYE 10,013
Helen Gordon SAYE
–
– 16,061
3,965 151.30
220
2,724
–
–
–
–
–
–
–
–
–
–
– 10,791 166.80
5,199
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
68.9 01-Sep-17 01-Mar-18
– 21,770
– 10,013
151.3 01-Mar-20 01-Sep-20
– 10,791 166.80 01-Sept-19 01-Mar-20
–
The closing trade share price on 30 September 2016 was 230.0p. The highest trade share price during the year was 252.5p
and the lowest was 193.1p.
Directors’ shareholdings
Nick Jopling
Helen Gordon
Vanessa Simms
Baroness Margaret Ford
Belinda Richards
Tony Wray
Andrew Carr-Locke
Rob Wilkinson
Ordinary shares of 5p each (thousands)
Beneficial
1 Oct
2015
599
–
–
40
–
10
–
–
649
30 Sep
2016
795
81
12
61
12
10
10
10
991
31 Oct
2016
795
81
12
61
12
10
10
10
991
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
200% of salary from the 2017 AGM, which is an increase from the previous guideline of 100% of salary.
Current levels of share ownership by the Executive Directors in post during the financial year under review are as follows.
The values were calculated as at 31 October 2016 when the share price was 221p. These values do not include the value
of any shares that are scheduled to vest on 9 December 2016.
80
Grainger plc Annual Report and Accounts 2016
Helen Gordon
Vanessa Simms
Nick Jopling
Former Directors1
Andrew Cunningham
Mark Greenwood
Current
holdings
(thousands)
81
12
795
Value at
31 October
2016
£’000
179
27
1,757
1,771
467
3,914
1,032
% of
current
salary
39
8
492
N/A
N/A
1
The shareholdings of Andrew Cunningham and Mark Greenwood were correct at the time of cessation of employment.
8
Performance graph and table
Total shareholder return
This graph shows the value by 30 September 2016 of £100 invested in Grainger plc on 30 September 2008 compared with
the value of £100 invested separately in both the FTSE 250 Index and the FTSE 350 Real Estate Supersector Index.
)
d
e
s
a
b
e
R
(
n
r
u
t
e
R
r
e
d
o
h
e
r
a
h
S
l
l
a
t
o
T
300%
250%
200%
150%
100%
50%
0%
30/09/2008
30/09/2009
30/09/2010
30/09/2011
30/09/2012
30/09/2013
30/09/2014
30/09/2015
30/09/2016
This graph shows the value, by 30 September 2016, of £100 invested in Grainger plc on 30 September 2008 compared
with the value of £100 invested separately in both the FTSE 250 Index and the FTSE 350 Real Estate Supersector Index.
Grainger plc
FTSE 250 Total Return Index
FTSE 350 Real Estate Supersector Total Return Index
Source: Datastream (Thomson Reuters)
9
Chief Executive single figure
2016*
2016
2015
2014
2013
2012
2011
2010
2009**
Helen Gordon (from 4 January 2016)
Andrew Cunningham (to 4 January 2016)
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Andrew Cunningham
Chief Executive
single figure of
total remuneration
£’000
882
478
2,185
2,477
2,519
733
1,083
777
583
Annual variable
element award rates
against maximum
opportunity
%
42
–
–
64
63
19
50
43
22
Long-term incentive
vesting rates
against maximum
opportunity
%
N/A
–
98
100
100
–
16
–
–
* Helen Gordon’s single figure total remuneration includes a period when she was Chief Executive designate, during which Andrew Cunningham was Chief
Executive. Accordingly there is an element of double counting in her single figure total remuneration for 2016.
** Andrew Cunningham was acting Chief Executive for most of 2009 due to the absence through illness of Rupert Dickinson.
81
GovernanceGrainger plc Annual Report and Accounts 2016
Governance – Annual Report on Remuneration
continued
10
Percentage change in remuneration of Chief Executive and employees
The percentage change in remuneration between 2015 and 2016, excluding LTIP and pension contributions, for the
Chief Executive and for all other employees in the Group was as follows:
Chief Executive
Employee population
11
Relative importance of spend on pay
Percentage change 2015–2016
Base salary
-5%
2%
Benefits
-13%
8%
Annual bonus
100%
-28%
The difference in actual expenditure between 2015 and 2016 on remuneration for all employees in comparison to profit after
tax and distributions to Shareholders by way of dividend are set out in the graphs below:
Profit after tax
(£m)
Dividend
(£m)
+£7.4m
+65%
+£92.6m
+216.9%
(Includes £60.8m of
discontinued operations)
.
3
5
3
1
6
1
0
2
.
7
2
4
5
1
0
2
.
7
8
1
6
1
0
2
.
3
1
1
5
1
0
2
Total employee pay
(£m)
-£1.4m
-6.4%
.
9
1
2
.
5
0
2
5
1
0
2
6
1
0
2
12
Statement of implementation of Remuneration Policy for 2017
Base salary
Pursuant to the strategic focus on management of overheads and the wider prevailing executive remuneration environment,
the Remuneration Committee (following consultation with management) determined that in respect of three Executive
Directors there should be no increase to the base salary during the 2016/17 pay review process.
Annual bonus
As detailed in the Annual Statement and Remuneration Policy, the structure and metrics to operate for the 2017 annual bonus
are being revised.
The revised bonus opportunities that will operate for 2017 will be as follows:
Chief Executive: 140% of salary
Chief Financial Officer: 120% of salary
Property Director: 120% of salary
82
Grainger plc Annual Report and Accounts 2016
Deferral of part of the annual bonus into Grainger shares is being introduced for the first time in 2017 with 25% of any bonus
earned to be deferred into Grainger shares for three years. This change will provide a clear link between the short-term actions
that will determine bonus out-turn and the longer-term implications on Company performance.
The performance metrics to apply will be as follows:
Metric
Adjusted earnings (40% of bonus opportunity) Performance level
Targets
Threshold
Target
Maximum
Budget
90%
100%
120%
Payout
0%
60%
100%
Rationale for metric
Incentivises operational success in achieving
rental growth, income from sales and
reduction in operational and finance cost
relative to a challenging budget.
ROSE (40% of bonus opportunity)
Straight line between performance points
Performance level
Threshold
Maximum
ROSE
5%
15%
Payout
0%
100%
Strategic targets (20% of bonus opportunity) The metrics for each Executive Director will
Straight line between performance points
be as follows:
Chief Executive: (i) deliver on strategy
and business plan; (ii) improve operational
performance; and (iii) secure increased
rental growth to enhance dividend.
Chief Financial Officer: (i) improve
debt maturity and cost of debt; (ii)
secure technology transformation; and
(iii) secure overhead reduction.
Property Director: (i) deliver agreed
PRS pipeline; (ii) secure sales in line with
target; and (iii) improve gross to net leakage
and property operational performance.
Incentivises the delivery of targeted levels of
return from our property portfolio which is
aligned with a strong balance sheet in respect
of the NNNAV performance and dividend level.
Each of the headline metrics are underpinned
by defined measurable milestones or a range
of targets set with reference to budgeted
objectives. These are consistent with the
strategy and targeted objectives for the
year agreed by the Board.
With regards to the above targets, full retrospective disclosure of the targets will be provided in next year’s Annual Report on
Remuneration (subject to considering any perceived areas of price sensitivity).
LTIP
As detailed in the Annual Statement and Remuneration Policy report, the LTIP is being simplified in its operation for awards to
be granted from 2017 with no further awards of matching shares to take place. As a result, only awards of performance shares
will take place in future years. The LTIP is also to expire in 2017 and so a replacement LTIP is being proposed at the AGM.
The replacement LTIP mirrors the general terms of the previous LTIP other than for the removal of the matching share element
and introduction of a two-year holding period on vested shares. The award levels to operate in 2017 are the same as, or lower
than, the maximum award levels previously operated under the LTIP when account was taken of both awards of performance
and matching share awards.
Subject to shareholder approval at the AGM, it is anticipated that the following awards will be granted to the Executive
Directors under the scheme in 2017:
Chief Executive: 175% salary
Chief Financial Officer: 130% of salary
Property Director: 130% of salary
83
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Annual Report on Remuneration
continued
12
Statement of implementation of Remuneration Policy for 2017 continued
The performance metrics to apply will be as follows:
Metric
TSR (Versus FTSE 350 Real Estate
Supersector constituents)
Targets
Ranking
Below median
Median
Upper quartile
Rationale for metric
Incentivises Executives to deliver above median
sector TSR which is a targeted outcome of an
effective execution of our strategy.
Budget
0%
25%
100%
Total Property Return
Straight line between performance points
Performance level
Threshold
Target
Maximum
TPR
<5%
5%
9%
Payout
0%
25%
100%
Rewards for delivering the key pillars of our
long-term strategy – income growth and
capital returns.
Straight line between performance points
three-year average.
As detailed in the Remuneration Policy, robust recovery and withholding provisions will apply to both LTIP and annual bonus
awards which will enable the Committee to reclaim or adjust future variable pay awards in the event of a misstatement of the
Company’s results, any errors in calculation of actual performance against a target set or in the event of misconduct.
Furthermore, the Committee will retain the right to reduce overall pay outcomes if it considers the variable pay out-turn is not
reflective of broader Company performance over the relevant performance periods.
Non-Executive Directors’ fees
There is no current intention to change the prevailing fee levels of the Non-Executive Directors in respect of the current
financial year. The fees were most recently reviewed with effect from 1 October 2015. Current fee levels are as follows:
Basic Non-Executive Director fee: £45,000
Additional fee for chairing Board Committee: £9,000
Additional fee for Senior Independent Director duties: £7,500
Chairman’s fee: £150,000
13
Directors’ service agreements and letters of appointment
Executive Directors
Helen Gordon
Vanessa Simms
Nick Jopling
Former Executive Directors
Mark Greenwood
Andrew Cunningham
Non-Executive Directors
Baroness Margaret Ford
Belinda Richards
Tony Wray
Andrew Carr-Locke
Rob Wilkinson
Former Non-Executive Directors
Simon Davies
84
Notice period
12 months
6 months
6 months
6 months
12 months
Contract commencement date
November 2015
February 2016
September 2010
September 2010
October 2009
Date of initial appointment
July 2008
April 2011
October 2011
March 2015
October 2015
November 2012
Grainger plc Annual Report and Accounts 2016
14
Details of the Remuneration Committee, advisers to the Committee and their fees
The Remuneration Committee currently comprises four independent Non-Executive Directors including the Company
Chairman. Details of the Directors who were members of the Committee during the year are as follows:
Committee Member
Belinda Richards (Committee Chairman)
Member since
March 2015
Baroness Margaret Ford
Simon Davies
Andrew Carr-Locke
Tony Wray
January 2010
February 2013 – November 2015
April 2015
February 2016
Meetings
attended
5
41
1
5
4
Meetings
eligible to
attend
5
5
1
5
4
1 Margaret Ford notified the Company in advance that she would be unable to attend the 9 September 2016 meeting due to a prior diary commitment.
The Company Secretary and the Human Resources Director and other members of the senior management team may be
invited to attend Committee meetings as appropriate. No Directors are involved in deciding their own remuneration.
The Committee appointed New Bridge Street (‘NBS’), a trading name of Aon plc, as advisers to the Committee for part of the
year under review. Korn Ferry Hay Group (‘KFH’) was subsequently appointed by the Committee. The role of the adviser is to
keep the Committee informed of developments in the market and best practice and to support the Committee in the design
and implementation of Remuneration Policy. Total fees paid or payable (as applicable) to NBS and KFH in respect of services
to the Committee during the 2016 financial year were £93,280 (2015: £63,000) and £10,800 (2015: N/A). Both NBS and KFH
are signatories to the Remuneration Consultants’ Group Code of Conduct and any advice provided is governed by that Code.
The Committee reviews the adviser relationship periodically and remains satisfied that the advice it receives from its advisers
is independent and objective.
15
Statement of voting at general meeting
At the AGM held on 10 February 2016, the Directors’ Remuneration report received the following votes from Shareholders:
For
Against
Total votes cast (for and against)
Votes withheld
Directors’ Remuneration report
% of
votes cast
93
7
100
–
Total number
of votes
288,823,290
22,002,475
310,825,765
2,517,601
85
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Directors’ report
In accordance with the UK Financial
Conduct Authority’s Listing Rules,
the information to be included in the
Annual Report and Accounts, where
applicable, under LR 9.8.4, is set out in
Note 16 to the financial statements on
page 125 in relation to the dividend
waiver arrangements.
Information incorporated
by reference
The Corporate Governance Statement
on pages 43 to 89 forms part of this
Directors’ Report and is incorporated
into this Directors’ report by reference.
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 and the
Group and parent company financial
statements in accordance with
applicable law and regulations.
Company law requires the Directors
to prepare Group and parent company
financial statements for each financial
year. Under that law they are required to
prepare the Group financial statements
in accordance with IFRSs as adopted
by the EU and applicable law and have
elected to prepare the parent company
financial statements in accordance with
UK Accounting Standards, including FRS
101 Reduced Disclosure Framework.
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 parent company and
of their profit or loss for that period. In
preparing each of the Group and parent
company financial statements, the
Directors are required to:
86
select suitable accounting policies
and then apply them consistently;
make judgements and estimates
that are reasonable and prudent;
for the Group financial statements,
state whether they have been
prepared in accordance with IFRSs
as adopted by the EU;
for the parent company financial
statements, state whether applicable
UK Accounting Standards have been
followed, subject to any material
departures disclosed and explained
in the parent company financial
statements; and
prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the parent company will
continue in business.
The Directors are responsible for
keeping adequate accounting records
that are sufficient to show and explain
the parent company’s transactions and
disclose with reasonable accuracy at any
time the financial position of the parent
company and enable them to ensure
that its financial statements comply
with the Companies Act 2006. They
have general responsibility for taking
such steps as are reasonably open to
them to safeguard the assets of the
Group and to prevent and detect fraud
and other irregularities.
Under applicable law and regulations,
the Directors are also responsible for
preparing a Strategic report, Directors’
report, Directors’ Remuneration report
and Corporate Governance statement
that comply with that law and
those regulations.
The Directors are responsible for
the maintenance and integrity of the
corporate and financial information
included on the Company’s website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Responsibility statement of the
Directors in respect of the annual
financial report
We confirm that to the best of our
knowledge:
the financial statements, prepared in
accordance with the applicable set
of accounting standards, give a true
and fair view of the assets, liabilities,
financial position and profit or loss of
the Company and the undertakings
included in the consolidation taken
as a whole; and
the Strategic report and Directors’
report include a fair review of the
development and performance
of the business and the position
of the issuer and the undertakings
included in the consolidation taken as
a whole, together with a description
of the principal risks and uncertainties
that they face.
The Directors have taken all the steps
that they ought to have taken as a
Director in order to make themselves
aware of any relevant audit information
and to establish that the Company’s
auditors are aware of that information.
The maintenance and integrity
of the Grainger plc website is the
responsibility of the Directors; the work
carried out by the auditors does not
involve consideration of these matters
and, accordingly, the auditors accept
no responsibility for any changes that
may have occurred to the financial
statements since they were initially
presented on the website.
Legislation in the UK governing the
preparation and dissemination of
financial statements may differ from
legislation in other jurisdictions.
Grainger plc Annual Report and Accounts 2016 Directors’ indemnities and insurance
The Company has 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 28 to the
financial statements.
Sustainability
Further information is provided on
our website: www.graingerplc.co.uk/
responsibility. Our approach to
sustainability is based on our
assessment of the potential risk and
opportunity to our business. In the year
ended 30 September 2016, the Group
achieved 50% and partially achieved
33% of the applicable sustainability
targets that it committed to meeting
by that date. Further information
is provided on our website
www.graingerplc.co.uk/responsibility.
Scope 1 & 2 Global GHG emissions data for period 1 October 2015 to
30 September 2016:
Emissions from
Combustion of fuels and operation
of facilities
Electricity, heat, steam and cooling
for own use
Total footprint
Company’s chosen intensity measurement:
Emissions reported above per £m value of
assets under management1
Emissions reported above per owned unit2
Emissions reported above per employee3
Tonnes of CO2e
2016
location-
based
2015
Trend
2016
600
603
0%
603
1,303
1,903
989
1,592
-24%
-16%
979
1,582
0.58
0.15
6.52
0.61
0.28
6.98
5%
86%
7%
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
Business travel (air and rail)
Estimated tenant energy use (tCO2)4
2015
454
188
89
127
29,026
2016
211
182
78
72
18,669
Trend
-54%
-3%
-12%
-44%
-36%
1 Value of assets under management (‘AUM’) on the last day of the financial year, expressed
in £millions.
2 Number of owned units on the last day of the financial year within the scope of data collection,
3
4
therefore excluding the sold Germany portfolio.
Total number of employees of Grainger plc on the last day of the financial year.
This has been estimated based on a sample of Energy Performance Certificates (EPCs) and reported
in CO2 only for UK.
Summary
Grainger complies with the greenhouse
gas (‘GHG’) emissions reporting
requirements of the Companies Act
2006 (Strategic and Directors’ Reports)
Regulations 2013. Emissions are reported
for our operations in the UK for the full
reporting period and Germany until the
sale of that business which was finalised
in April 2016. Grainger reports all
material GHG emissions, wherever
possible using ‘tonnes of CO2 equivalent’
(tCO2e) as the unit of measurement. Our
reporting period for GHG emissions is
1 October 2015 to 30 September 2016.
Our portfolio in 2016 changed part-way
through the year with the sale of our
German business in April.
Our Scope 1 and Scope 2 greenhouse
gas emissions reduced by 16% between
2015 and 2016. This was driven by the
sale of our German business, and a
reduction in energy consumption in our
UK offices and the GRIP REIT portfolio
on a like-for-like basis.
Our absolute Scope 1 and Scope 2
greenhouse gas emissions from our
UK residential and GRIP REIT property
portfolios have increased due to the
acquisition and development of large
properties including our first Build to
Rent property, Abbeville Apartments.
87
GovernanceGrainger plc Annual Report and Accounts 2016 Governance – Directors’ report
continued
Our greenhouse gas emissions per £m
value of assets under management have
increased slightly due to a reduction in
the number of assets following the sale
of our German assets and our Equity
Release Division.
Methodology
Grainger follows the GHG Protocol
Corporate Standard (revised edition)
and ISO14064: Part 1 standard for its
reporting. In alignment with the UK
Government Environmental Reporting
Guidelines, we have used the 2016
emissions conversion factor for the
Oct 2015 – Sep 2016 reporting year.
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.
In 2015 the GHG Protocol guidance
was updated advising organisations to
provide separate figures to reflect the
market and location based emissions
resulting from purchased electricity.
The location-based method uses
average emissions intensity of the grid
network for that area; the market-based
method uses emissions based on
purchasing decisions made by Grainger.
For market-based emissions there is a
reporting hierarchy and Grainger has
used contractual instruments where
there is data readily available. We
purchase 100% renewable electricity
tariffs for GRIP REIT plc which has
resulted in reduced Scope 2 emissions
using the market-based approach.
Where no contractual data is available
we use residual mix factors.
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. Fugitive
emissions are not included as they
have been assessed to be immaterial.
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.
There is no purchased heat or steam.
Scope 3 data
This includes emissions from electricity
used by Grainger’s tenants in its
UK buildings based on EPC analysis
and extrapolation. Emissions from
the transmission and distribution of
Grainger’s Scope 2 electricity are
included. We also report emissions from
business travel and from contractors on
our development sites and for services
delivered by our repairs and maintenance
contractor. No other Scope 3 emissions
are included.
Restatements
We have recalculated emissions for 2015
as we are able to report more accurate
data for Scope 1 and Scope 2 emissions
from energy consumption in owned
properties and fuel consumption in
leased vehicles. In addition we have also
restated our Scope 3 emissions from
electricity transmission and distribution
losses for our offices and owned
properties. We are also able to report
more accurate data for our business
travel Scope 3 emissions.
Intensity metrics
We have used three intensity metrics:
emissions by market value of assets
under management (tCO2e/£m value
of AUM), emissions per the number of
owned units (tCO2e/owned unit) and
emissions per number of employees
in line with our financial reporting
(tCO2e/employee).
International operations
The remainder of our German portfolio
is managed on our behalf by local asset
and property managers.
Health and safety
Grainger has a well-developed
Health and Safety Management
System for the internal and external
control of health and safety risks, which
is managed by the Health and Safety
Director. 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.
88
Grainger plc Annual Report and Accounts 2016 Takeover directive
On a change of control, the core
bank facility (included in Note 27 of
the financial statements) will become
repayable should alternative terms for
continuing the facilities not be agreed
with the lenders within 45 days. In
addition the corporate bond (also
referred to in Note 27) may become
repayable following a change of control.
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
1 December 2016
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
Company intranet, ‘The Source’, through
regular newsletters, team meetings,
presentations by senior management
and quarterly all-staff conference calls
hosted by the Executives.
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.
Political donations
In accordance with the Company’s
policy, no political donations were
made in 2016 (2015: £nil).
89
GovernanceGrainger plc Annual Report and Accounts 2016 Independent auditor’s report to the members of Grainger plc only
Opinions and conclusions arising
from our audit
1 Our opinion on the financial
statements is unmodified
We have audited the financial
statements of Grainger plc for the year
ended 30 September 2016 set out on
pages 94 to 167. In our opinion:
the financial statements give a true
and fair view of the state of the
Group’s and of the parent company’s
affairs as at 30 September 2016 and
of the Group’s profit for the year
then ended;
the Group financial statements have
been properly prepared in accordance
with International Financial Reporting
Standards as adopted by the
European Union;
the parent company financial
statements have been properly
prepared in accordance with UK
Accounting Standards, including
FRS 101 Reduced Disclosure
Framework; and
the financial statements have
been prepared in accordance with
the requirements of the Companies
Act 2006; and, as regards the Group
financial statements, Article 4 of
the IAS Regulation.
2 Our assessment of risks of material
misstatement
In arriving at our audit opinion above
on the financial statements the risks
of material misstatement that had
the greatest effect on our audit, in
decreasing order of audit significance,
were as follows (unchanged from 2015):
Valuation of investment properties
(investment properties £261.3m)
(2015: £357.8m)
Risk vs 2015: Unchanged
Refer to Annual Report page 55 (Audit
Committee report), Annual Accounts
pages 103 to 106 (critical accounting
estimates and assumptions) and
Annual Accounts pages 126 and 127
(accounting policy and financial
disclosures).
The risk:
Investment property is carried at
fair value which relies on assumptions
which are inherently judgemental, in
some cases unobservable and reflective
of changing market factors. A small
adjustment in one or more of these
assumptions could result in a material
change in the carrying value of
investment properties.
The valuation approach adopted by
the Directors varies between portfolios
in order to reflect the nature of each
type of asset:
For the Tricomm portfolio,
valuation is based on a discounted
cash flow model produced by an
external valuer. There is a risk that
the significant assumptions of house
price inflation (‘HPI’) and discount
rates are inappropriate.
For properties let into the private
rental market, valuation is derived
by applying a gross initial yield to
the estimated rental value of the
property. The yield applied is based
on market evidence for comparable
properties and rental growth
prospects. Rental value is based
on existing tenancy agreements,
condition and comparable market
evidence. Assessing these factors
and determining the appropriate
comparable evidence involves a
high degree of judgement.
Property held in UK residential
portfolios is valued by determining
vacant possession value (‘VP’) and
deriving fair value by applying a
discount to reflect the fact that the
property is tenanted. The Directors
are assisted in arriving at VP by the
in-house surveying team and engage
an external valuer to re-perform a
sample of valuations. The external
valuer also provides recommendations
for the level of discount to apply from
VP to fair value. VP and the discount
are based on data derived from
comparable market transactions.
The determination of the appropriate
data requires significant judgement.
For all valuations there is a risk that
inaccurate or incomplete information is
used by the in-house surveying team or
the external valuers in their valuation.
Our response:
We engaged a property valuation
expert to assist us in assessing the
methodologies and key assumptions
used in the valuations adopted
by the Directors for use in the
financial statements.
Our procedures to address the risks
in relation to the three categories of
property identified above included:
The Tricomm portfolio
comparing the key assumptions,
included in the discounted cash
flow model relating to HPI and
to market indices;
assessing discount rates against
market information including
gilt rates and benchmarked
risk premiums;
Private rented sector blocks
considering the degree of
comparability and the quality of
the market evidence used by the
valuer in determining estimated
rental value; and
assessing the yield rates applied
through our understanding of
the nature of the assets and
benchmarking against market data.
90
Grainger plc Annual Report and Accounts 2016 Property held in UK residential portfolios
assessing the design of the valuations
process and sample testing Directors’
valuations to evaluate if they have
been prepared in accordance with
the process;
attending the regional meetings
between the independent external
valuer and the Group, for properties
where there is a variance above a set
percentage between the VP from the
external valuer and the Director’s
valuation. By attending these
meetings, together with our valuation
expert, we assessed the degree of
challenge, evidence presented and
the conclusions reached;
evaluating the inputs used in the
valuations against our knowledge
and experience of the industry,
including challenging the valuations
by comparison with market
comparable transactions and
changes in industry benchmarks; and
performing sensitivity analyses over
the identified key assumptions.
For each separate valuation our
procedures included testing whether
the property information provided
by the Group to the independent
external valuers and/or used by
the in- house surveying team was
complete and accurate. This was
carried out by assessing the key
inputs in the Group’s property
database, such as address, rental
income, occupancy and current
tenancy details, through a mixture
of controls testing, including IT
controls, and agreeing inputs to
Group property contracts on a
sample basis.
We compared the investment
property value recorded in the
financial statements to the independent
external valuers’ reports and assessed
the adequacy of the Group’s disclosures
about the sensitivities and inputs to the
valuations in accordance with relevant
accounting standards.
Our response:
Residential trading property
The procedures outlined above in
relation to assessing the process for
the valuation of residential portfolio
investment properties also formed
part of the response to this risk. Other
procedures included:
Carrying value of inventories (trading
properties) (£904.3m) (2015: £1,152.2m)
Risk vs 2015: Unchanged
Refer to Annual Report page 55
(Audit Committee report), Annual
Accounts pages 103 to 106 (critical
accounting estimates and assumptions)
and Annual Accounts page 133
(accounting policy and financial
disclosures).
The risk:
Trading properties are held in
inventories at the lower of cost and net
realisable value (‘NRV’). Generally, the
Group’s strategy is to sell trading stock
on vacancy, and therefore the NRV of
existing residential properties is the net
proceeds expected on sale with vacant
possession. An assessment of the NRV
is carried out by reference to VP which,
as outlined in relation to investment
property, requires significant judgement
to determine.
For land and property developments
where the intention is to sell on
completion, NRV is the forecast
selling price less the remaining costs
to construct and sell. The key risk is
that development inventories continue
to be held at cost when an impairment
should be recognised, because the
total forecast profits on the individual
developments may be overestimated.
comparing the value carried in the
balance sheet with the sales price
achieved for a selection of property
sales after the balance sheet date,
and for sales throughout the year
as a review of the past accuracy
of the Group’s estimates; and
confirming the mathematical
accuracy of, and completeness
and accuracy of inputs to, the
Directors’ assessment and
sensitising the assessment.
Development trading property
We performed a detailed risk assessment
at an individual development level to
identify the sites where an impairment
may be required to reduce the carrying
amount below cost. This included
comparison of the carrying value
with market value, estimated by the
independent external valuer of the site
in its current condition, based on
comparable sales.
For sites where the intention is to
sell without further development,
comparing the carrying value of
inventory to the market value of the
site in its current condition, was one
of our key procedures in challenging
NRV assessment.
91
Grainger plc Annual Report and Accounts 2016Financial Statements Independent auditor’s report to the members of Grainger plc only
continued
For sites where the intention is to sell
on completion, for a sample informed
by our risk assessment, we inspected
the Group’s plans and forecasts used
to support the NRV assessment,
challenged assumptions against
third- party data, and against experience
of actual costs and revenues and
performed sensitivity analyses to assess
the headroom before an adjustment to
the carrying value is required.
We also considered the adequacy
of the Group’s disclosures about the
degree of estimation involved before
an adjustment to the carrying value
is required.
3 Our application of materiality and an
overview of the scope of our audit
We applied materiality at the financial
statement level and a lower materiality
for specific significant accounts. The
materiality for the Group financial
statements as a whole was set at
£15.0m (2015: £4.0m), determined
with reference to a benchmark of
Group total assets, of which it
represents approximately 1% (2015:
£4.0m representing approximately 5%
of Group profit before tax normalised to
exclude non-recurring items, as
disclosed in Note 4 and averaged over
three years to reduce volatility, of
£74.1m). We concluded that determining
materiality based on total assets was
more consistent with industry peers and
appropriately reflects the nature of
the business.
In addition, we applied lower materiality
of £3.1 million to the specific income
statement items which depict the
trading performance of the Group,
which exclude valuation movements,
taxation and results of discontinued
operations. We believe misstatement of
these specific income statement items
of a lesser amount than materiality for
the financial statements as a whole
could reasonably be expected to
influence the Company’s members’
assessment of the financial
performance of the Group.
We report to the Audit Committee
any corrected or uncorrected identified
misstatements exceeding £0.45m (2015:
£0.20m), or exceeding £0.15m where
they relate to specific significant trading
balances listed above, in addition to other
identified misstatements that warranted
reporting on qualitative grounds.
Following the business disposals in
Germany (as disclosed in Note 3), the
Group team performed the audit of the
Group as if it was a single aggregated
set of financial information. The audit
was performed using the materiality
levels set out above and covered 100%
of total Group revenue, Group profit
before tax and total Group assets (in
2015, we identified two components,
the UK and Germany. The UK
component was subject to a full-scope
audit performed to component
materiality of £3.7m. The German
component was subject to audit of
specific balances and classes of
transactions. German component
materiality was £2.0m. The UK and
German component audits covered
100% of Group revenue, 100% of
Group profit before tax and 100%
of Group total assets).
4 Our opinion on other matters
prescribed by the Companies Act
2006 is unmodified
In our opinion:
the part of the Directors’
Remuneration report to be audited
has been properly prepared in
accordance with the Companies Act
2006; and
the information given in the Strategic
report and the Directors’ report
for the financial year for which the
financial statements are prepared
is consistent with the financial
statements.
5 We have nothing to report on the
disclosures of principal risks
Based on the knowledge we acquired
during our audit, we have nothing
material to add or draw attention to
in relation to:
the Directors’ viability statement
on page 34, concerning the principal
risks, their management, and, based
on that, the Directors’ assessment
and expectations of the Group’s
continuing in operation over the four
years to September 2020; or
the disclosures in Note 2 to the
financial statements concerning
the use of the going concern basis
of accounting.
6 We have nothing to report in respect
of the matters on which we are
required to report by exception
Under ISAs (UK and Ireland) we are
required to report to you if, based on the
knowledge we acquired during our audit,
we have identified other information in
the Annual Report that contains a
material inconsistency with either that
knowledge or the financial statements,
a material misstatement of fact, or
that is otherwise misleading.
92
Grainger plc Annual Report and Accounts 2016 In particular, we are required to report
to you if:
Under the Listing Rules we are required
to review:
we have identified material
inconsistencies between the
knowledge we acquired during
our audit and the Directors’
statement that they consider that
the Annual Report and financial
statements taken as a whole is fair,
balanced and understandable and
provides the information necessary
for Shareholders to assess the
Group’s position and performance,
business model and strategy; or
the Audit Committee report
does not appropriately address
matters communicated by us
to the Audit Committee.
Under the Companies Act 2006 we
are required to report to you if, in
our opinion:
adequate accounting records
have not been kept by the parent
company, or returns adequate for
our audit have not been received
from branches not visited by us; or
the parent company financial
statements and the part of the
Directors’ Remuneration report to be
audited are not in agreement with the
accounting records and returns; or
certain disclosures of Directors’
remuneration specified by law are
not made; or
we have not received all the
information and explanations we
require for our audit.
the Directors’ statements, set out
on pages 56 and 34, in relation to
going concern and longer-term
viability; and
the part of the Corporate Governance
Statement on page 43 relating to
the Company’s compliance with the
eleven provisions of the 2014 UK
Corporate Governance Code
specified for our review.
Bill Holland (Senior Statutory Auditor)
for and on behalf of KPMG LLP,
Statutory Auditor
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
1 December 2016
We have nothing to report in respect
of the above responsibilities.
Scope and responsibilities
As explained more fully in the
Directors’ Responsibilities Statement
set out on page 86, the Directors are
responsible for the preparation of
the financial statements and for being
satisfied that they give a true and fair
view. A description of the scope of an
audit of financial statements is provided
on the Financial Reporting Council’s
website at www.frc.org.uk/
auditscopeukprivate. This report is
made solely to the Company’s members
as a body and is subject to important
explanations and disclaimers regarding
our responsibilities, published on
our website at www.kpmg.com/uk/
auditscopeukco2014a, which are
incorporated into this report as if set out
in full and should be read to provide an
understanding of the purpose of this
report, the work we have undertaken
and the basis of our opinions.
93
Grainger plc Annual Report and Accounts 2016Financial Statements Financial Statements –
Consolidated income statement
For the year ended 30 September
Group revenue
Net rental income
Profit on disposal of trading property
Profit on disposal of investment property
Income from financial interest in property assets
Fees and other income
Administrative expenses
Other expenses
Impairment of inventories to net realisable value
Reversal of impairment/(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 – continuing operations
Tax charge for the year – continuing operations
Profit after tax – continuing operations
Discontinued operations
Profit/(loss) after tax for the year for discontinued operations
Profit for the year attributable to the owners of the Company
Basic earnings per share
Diluted earnings per share
Basic earnings per share – continuing operations only
Diluted earnings per share – continuing operations only
2016
£m
219.9
37.4
69.9
1.6
5.8
7.3
(31.8)
(6.0)
(2.7)
14.1
95.6
20.3
115.9
(9.9)
(39.2)
2.5
9.8
5.1
84.2
(9.7)
74.5
60.8
135.3
32.6p
32.5p
18.0p
17.9p
2015
Restated*
£m
193.1
32.4
70.2
0.4
9.2
5.6
(32.4)
(3.2)
(1.2)
(4.1)
76.9
14.6
91.5
(6.3)
(54.1)
1.7
9.6
9.0
51.4
(7.4)
44.0
(1.3)
42.7
10.4p
10.3p
10.7p
10.6p
Notes
6
7
8
9
21
10
23
20
17
28
13
13
19
20
12
14
3
33
16
16
16
16
*
The 2015 comparatives have been restated throughout these financial statements to show the results from continuing and discontinued operations
separately. See Note 3 for analysis of discontinued operations which includes the sale of subsidiaries and interest in associate.
94
Grainger plc Annual Report and Accounts 2016 Consolidated statement of comprehensive income
For the year ended 30 September
Profit for the year – continuing operations
Items that will not be transferred to consolidated income statement:
Actuarial loss on BPT Limited defined benefit pension scheme
Items that may be reclassified subsequently to consolidated income statement:
Fair value movement on financial interest in property assets
Exchange differences on translating foreign operations
Exchange adjustments recycled on disposal of 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 may be reclassified subsequently to consolidated income statement
Total tax relating to components of other comprehensive income
Other comprehensive income and expense for the year after tax – continuing operations
Total comprehensive income and expense for the year after tax – continuing operations
Profit/(loss) after tax – discontinued operations
Total comprehensive income and expense for the year attributable to the owners of the Company
Notes
4
29
21
14
14
2016
£m
74.5
(4.1)
2.9
1.1
(4.3)
(9.5)
(13.9)
0.5
1.7
2.2
(11.7)
62.8
60.8
123.6
2015
Restated*
£m
44.0
(0.6)
–
(0.7)
–
(0.8)
(2.1)
0.1
(0.7)
(0.6)
(2.7)
41.3
(1.3)
40.0
*
The 2015 comparatives have been restated to show the results from continuing and discontinued operations separately. See Note 3 to the financial
statements for further details of the discontinued operations.
Included within other comprehensive income is a charge of £0.6m net of tax (2015: charge of £0.6m) relating to associates and
joint ventures accounted for under the equity method.
95
Grainger plc Annual Report and Accounts 2016Financial Statements
Financial Statements –
Consolidated statement of financial position
As at 30 September
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
Derivative financial instruments
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
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
Available-for-sale reserve
Retained earnings
Equity attributable to the owners of the Company
Non-controlling interests
TOTAL EQUITY
Notes
2016
£m
2015
£m
17
18
19
20
21
14
22
23
24
28
28
3
27
29
25
14
27
26
25
14
28
30
32
32
32
33
261.3
1.1
105.1
78.9
93.1
8.6
2.1
550.2
904.3
64.0
0.3
90.7
3.4
1,062.7
1,612.9
744.7
5.2
1.4
30.2
781.5
99.0
38.4
0.9
4.8
13.1
156.2
937.7
675.2
20.9
110.8
20.1
0.3
(12.0)
7.3
527.7
675.1
0.1
675.2
357.8
1.6
108.4
70.8
93.7
12.0
2.7
647.0
1,152.2
31.6
2.0
88.8
–
1,274.6
1,921.6
1,093.1
1.7
0.2
32.3
1,127.3
133.3
56.9
0.7
3.0
35.5
229.4
1,356.7
564.9
20.9
110.7
20.1
0.3
(3.5)
4.6
411.7
564.8
0.1
564.9
The financial statements on pages 94 to 158 were approved by the Board of Directors on 1 December 2016 and were signed on
its behalf by:
Helen Gordon
Director
Company registration number: 125575
Vanessa Simms
Director
96
Grainger plc Annual Report and Accounts 2016
Consolidated statement of changes in equity
Balance as at
1 October 2015
Profit for the year
Actuarial loss on BPT
Limited defined benefit
pension scheme
Fair value movement
on financial interest in
property assets
Exchange adjustments
on retranslation of
foreign operations
Exchange differences
recycled on disposal
of foreign operations
Changes in fair value
of cash flow hedges
Tax relating to
components of other
comprehensive income
Total comprehensive income
and expense for the year
Award of SAYE shares
Purchase of own shares
Share-based
payments charge
Dividends paid
Balance as at
30 September 2016
Notes
33
29
14
30
30, 33
31
15
Issued
share
capital
£m
Share
premium
£m
Merger
reserve
£m
Capital
redemption
reserve
£m
Cash
flow hedge
reserve
£m
Available-
for-sale
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
20.9
–
110.7
–
20.1
–
0.3
–
(3.5)
–
4.6
–
411.7
135.3
0.1
–
564.9
135.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(9.5)
–
(4.1)
2.9
–
–
–
–
1.1
(4.3)
–
1.0
(0.2)
1.4
(8.5)
–
–
–
–
2.7
–
–
–
–
129.4
–
(0.6)
1.9
(14.7)
–
–
–
–
–
–
–
–
–
–
–
(4.1)
2.9
1.1
(4.3)
(9.5)
2.2
123.6
0.1
(0.6)
1.9
(14.7)
20.9
110.8
20.1
0.3
(12.0)
7.3
527.7
0.1
675.2
97
Grainger plc Annual Report and Accounts 2016Financial Statements
Financial Statements –
Consolidated statement of changes in equity
continued
Issued
share
capital
£m
Share
premium
£m
Capital
redemption
reserve
£m
Cash flow
hedge
reserve
£m
Available-
for-sale
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Non-
controlling
interests
£m
Total
equity
£m
Notes
Balance as at
1 October 2014
Profit for the year
Actuarial loss on BPT
Limited defined benefit
pension scheme
Exchange adjustments on
retranslation of foreign
operations
Changes in fair value
of cash flow hedges
Tax relating to
components of other
comprehensive income
Total comprehensive
income and expense
for the year
Award of SAYE shares
Purchase of own shares
Share-based
payments charge
Dividends paid
Balance as at
30 September 2015
33
29
14
30
30, 33
31
15
20.9
–
110.4
–
20.1
–
0.3
–
(1.4)
–
4.6
–
382.7
42.7
0.1
–
537.7
42.7
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.8)
(1.3)
(2.1)
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.6)
(0.7)
–
0.7
42.1
–
(4.7)
2.0
(10.4)
–
–
–
–
–
–
–
–
–
(0.6)
(0.7)
(0.8)
(0.6)
40.0
0.3
(4.7)
2.0
(10.4)
20.9
110.7
20.1
0.3
(3.5)
4.6
411.7
0.1
564.9
98
Grainger plc Annual Report and Accounts 2016 Consolidated statement of cash flows
For the year ended 30 September
Cash flow from operating activities
Profit for the year
Depreciation and amortisation
Net valuation gains on investment property
Net finance costs
Profit on disposal of joint venture
Share of profit of associates and joint ventures
Profit on disposal of investment property
Share-based payment charge
Change in fair value of derivatives
(Reversal of)/impairment of joint venture
Impairment of deferred consideration receivable
Income from financial interest in property assets
Tax
Profit on disposal of discontinued operations
Costs of loan settlement – discontinued operations
Operating profit before changes in working capital
(Increase)/decrease in trade and other receivables
Decrease in trade and other payables
Decrease in provisions for liabilities and charges
Decrease/(increase) in inventories
Cash generated by operations
Interest paid
Tax paid
Payments to defined benefit pension scheme
Net cash inflow/(outflow) from operating activities
Cash flow from investing activities
Proceeds from sale of investment property
Proceeds from financial interest in property assets
Proceeds from disposal of discontinued operations net of costs and cash disposed
Proceeds from disposal of joint venture
Interest received
Dividends received
Cash repaid from/(investment in) associates and joint ventures
Acquisition of subsidiary net of cash acquired
Acquisition of investment property
Acquisition of property, plant and equipment and intangible assets
Net cash inflow from investing activities
Cash flows from financing activities
Awards of SAYE options
Purchase of own shares
Proceeds from new borrowings
Payment of loan costs
Purchase of interest rate caps
Payment of loan settlement costs
Settlement of derivative contracts
Repayment of borrowings
Dividends paid
Net cash (outflow)/inflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Net exchange movements on cash and cash equivalents
Cash and cash equivalents at the end of the year
Notes
12
17
19, 20
9
31, 33
28
20
21
14
3
14
29
21
3
19, 20
19, 20
17
30, 33
15
28
28
2016
£m
135.3
0.9
(19.4)
45.4
–
(15.1)
(1.6)
1.9
9.9
(14.1)
–
(5.8)
10.9
(56.6)
12.3
104.0
(12.2)
(6.0)
(0.1)
13.2
98.9
(42.4)
(1.9)
(0.6)
54.0
13.2
9.3
222.3
–
–
7.5
0.7
–
(79.5)
(0.6)
172.9
0.1
(0.6)
188.2
(1.7)
(1.0)
(11.7)
(37.9)
(347.5)
(14.7)
(226.8)
0.1
88.8
1.8
90.7
The Consolidated statement of cash flows above includes cash flows from both continuing and discontinued operations.
Cash flows from discontinued operations are set out in Note 3 to the financial statements.
2015
£m
42.7
1.1
(13.9)
65.8
(4.4)
(24.9)
(0.5)
2.0
5.8
4.1
15.8
(9.2)
7.3
–
–
91.7
8.2
(0.5)
(0.2)
(34.4)
64.8
(60.8)
(4.9)
(1.1)
(2.0)
14.5
10.0
–
18.4
0.6
2.7
(0.2)
0.6
(29.6)
(1.2)
15.8
0.3
(4.7)
523.0
(5.9)
(2.0)
–
(17.9)
(481.2)
(10.4)
1.2
15.0
74.4
(0.6)
88.8
99
Grainger plc Annual Report and Accounts 2016Financial Statements
Financial Statements –
Notes to the financial statements
1
Accounting policies
Accounting policies applicable across the financial statements are shown below. Accounting policies that are specific to a
component of the financial statements have been incorporated in the relevant note.
(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. 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 the Group.
These financial statements for the year ended 30 September 2016 have been prepared in accordance with EU endorsed
International Financial Reporting Standards (‘IFRSs’), IFRIC interpretations and those parts of the Companies Act 2006
applicable to companies reporting under IFRS. The Company has prepared its company financial statements in accordance
with Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (FRS 101) for the first time this year. Details of the
change in basis of preparation and its impact are shown in Note 1 to the parent company financial statements. These are
presented on pages 159 to 167.
The accounting policies set out below and in the notes to the financial statements, have, unless otherwise stated, been
applied consistently to all periods presented in the Group financial statements. Other than the new accounting policy for
construction contracts, set out in Note 8, no new accounting policies have been adopted in the year and there has been no
change to the basis of accounting estimates in the year.
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 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 de-
consolidated from the date control ceases.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the
policies adopted by the Group.
100
Grainger plc Annual Report and Accounts 2016
ii) 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.
Where the Group owns less than 50% of the voting rights but acts as property and/or asset manager an assessment
is made as to whether or not the Group has de facto control over an investee. This includes a review of the Group’s
rights relative to those of another investor or investors and the ability the Group has to direct the investees’ relevant
activities (further detail is provided in Note 19).
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 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.
iii) Business combinations – At the time of acquisition, the Group considers whether each acquisition represents
the acquisition of a business or the acquisition of an asset. The Group accounts for an acquisition as a business
combination where an integrated set of activities are acquired in addition to the property. When the acquisition
of a subsidiary does not represent a business, it is accounted for as an acquisition of asset and liabilities. The cost
of acquisition is allocated to the assets and liabilities acquired based on their fair values, and no goodwill or
deferred tax is recognised.
iv) Goodwill and impairment – Business combinations are accounted for using the acquisition method. 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.
101
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
1
Accounting policies continued
(c) Foreign currencies
i) Functional and presentation currency – Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment in which the entity operates (‘the functional
currency’). The consolidated financial statements are presented in Pounds Sterling, which is the Group’s functional
and presentation currency.
ii) Foreign currency transactions – Foreign currency transactions are translated at the foreign exchange rates
prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at
the 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, net of deferred income tax, are recognised within other
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.
(d) Adoption of new and revised International Financial Reporting standards and interpretations
There are no new standards, amendments or interpretations that are effective for the first time for the current financial year
that have a material impact on the Group.
The Group is assessing the impact of the following revised standards and interpretations that are not yet effective. Where
already endorsed by the EU, these changes will be adopted on the effective dates noted. Where not yet endorsed by the EU
the adoption date is less certain.
Annual Improvements to IFRSs 2012 – 2014, effective 2017 financial year;
IFRS 9 Financial Instruments: Classification and Measurement, effective 2019 financial year (not yet endorsed by the EU);
IFRS 15 Revenue from Contracts with Customers, effective 2018 financial year (not yet endorsed by the EU);
IFRS 16 Leases, effective 2020 financial year (not yet endorsed by the EU). This standard replaces the exisiting standard,
IAS17 Leases, where lessee’s are required to make a distinction between a finance lease (on balance sheet) and an operating
lease (off balance sheet); and
IAS 40 Investment Property, proposed amendment. In November 2015 the IASB issued an Exposure Draft on
a proposed amendment to clarify situations in which properties can be transferred from investment property to
trading property and vice versa. The IASB further announced in July 2016 that it has now recommended finalising
this amendment. The Group anticipate that a number of trading properties will be reclassified as investment property
as a consequence of the amendment.
Of the other IFRSs that are available for early adoption, none are expected to have a material impact on the
financial statements.
102
Grainger plc Annual Report and Accounts 2016
2
Critical accounting estimates and assumptions
The Group’s significant accounting policies are stated in the relevant notes to the financial statements. 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 and we have set out below on page 106 the
impact of changes to key assumptions adopted.
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 non-GAAP net asset value measures, EPRA NAV and EPRA 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 results and the basis of each valuation and their impact on both the statutory financial statements and market value for
the Group’s non-GAAP net asset value measures are set out below:
% of properties
for which
external valuer
provides
valuation
%
53%
100%
100%
***
94%
100%
Trading property
Investment property
Financial asset (CHARM)
Total statutory book value
Allsop LLP
Residential
Grainger Invest
Tricomm Housing
Financial asset (CHARM)
CBRE Limited
Developments
Abbeville Apartments
Total assets at market value
Trading property
Investment property
Financial asset
Total assets at market value
Statutory book value
Market value uplift*
Total assets at market value
Net revaluation gain recognised
in the income statement for
wholly-owned properties – continuing
Net revaluation gain relating to joint
ventures and associates**
Net revaluation gain recognised
in the year – continuing**
Residential
£m
818.8
261.3
–
1,080.1
Development
£m
85.5
–
–
85.5
Others
£m
–
–
–
–
1,225.1
366.7
116.1
–
–
28.9
1,736.8
1,475.5
261.3
–
1,736.8
1,080.1
656.7
1,736.8
20.3
–
20.3
–
–
–
–
78.2
–
78.2
78.2
–
–
78.2
85.5
(7.3)
78.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
12.3
12.3
Financial
Asset
£m
–
–
93.1
93.1
–
–
–
93.1
–
–
93.1
–
–
93.1
93.1
93.1
–
93.1
–
–
–
Total
£m
904.3
261.3
93.1
1,258.7
1,225.1
366.7
116.1
93.1
78.2
28.9
1,908.1
1,553.7
261.3
93.1
1,908.1
1,258.7
649.4
1,908.1
20.3
12.3
32.6
*
The market value uplift is the difference between the statutory book value and the market value of the Group’s inventories. Refer to Note 5 for market value
net asset measures.
Includes Group share of joint ventures and associates revaluation gain after tax.
**
*** Allsop provides vacant possession values used by the Directors to value the financial asset in accordance with the accounting policy set out in Note 21.
103
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
2
Critical accounting estimates and assumptions continued
i) Residential
The Group’s own in-house qualified surveying team provided a vacant possession value for the majority of the Group’s UK
residential properties as at 30 September 2016. A structured sample of these in-house valuations was reviewed by Allsop LLP,
an external independent valuer. Valuing the large number of properties in the portfolio is a significant task. For this reason,
it is undertaken on an external inspection basis only. Invariably, when the in-house valuations are compared to those of the
external valuer, around 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 0.03% lower than the
Allsop LLP values.
Allsop LLP has provided the Directors with the following opinion on the Directors’ valuation: ‘Property held in the UK Residential
portfolio was valued as at 30 September 2016 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 53% 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 the UK Residential portfolio the discounts
are established by tenancy type and are based on evidence gathered by Allsop LLP from recent transactional market evidence.
After due consideration and challenge of Allsop LLP, the Directors have adopted all of the recommendations made by Allsop LLP in
relation to the discounts. Compared to the discounts adopted in 2015, the discounts adopted in 2016 have increased the market
value of trading stock in the Group’s non-GAAP net asset measures by £8.0m and increased the valuation gain in the income
statement by £1.8m.
ii) Grainger Invest (‘GInvest’)
All of the property owned by the Group in the GInvest portfolio was valued as at 30 September 2016 by Allsop LLP.
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 Housing
Allsop LLP has also valued as at 30 September 2016 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 Professional Valuation Standards, 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 price inflation are 2.5% in 2017, 3.5% in 2018 and 2019, 3.0% in
2020 and 2021 and 2.75% thereafter. The discount rates applied to the cash flows range between 3.5% and 9.25%.
104
Grainger plc Annual Report and Accounts 2016 iv) CBRE – 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, representing 94% of the total value of development trading
stock, is on the basis of fair value as defined in the RICS Professional Valuation Standards where fair value is the same
as market value. The remaining 6% of the portfolio is a Directors’ valuation.
v) CBRE – Abbeville Apartments
CBRE have also assessed the current market value of the Abbeville Apartments. The principal approach was to value the
apartments on an income capitalisation basis, having regard to prevailing market conditions and evidence, and with close
regard to the relativity between the Market Value and the aggregate vacant possession value. The valuation has been
prepared in accordance with RICS Professional Valuation Standards where fair value is the same as market value.
v) Joint ventures and Associates
Property assets in the joint venture Walworth Investment Properties Limited (‘WIP’) are valued on the same basis as the
GInvest portfolio. Property assets in the associate, GRIP REIT Plc were valued at 30 June 2016 by external valuers, CBRE
Limited. In aggregate, the valuation of the individual dwellings as at 30 June 2016 was £599.9m 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 no adjustment to the 30 June 2016 valuations based on the movement in house price indices
to 30 September 2016, in assessing the Group’s share of GRIP net assets for the purposes of the Group’s accounts to
30 September 2016.
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.
Valuation of financial interest in property assets (CHARM)
The valuation methodology adopted for the CHARM asset is set out in Note 21 to the accounts.
The key assumptions affecting the carrying value are house price inflation and the discount rate. The assumptions used to value
the asset adopt an increase in house prices of between 2.5% and 4.0% per annum.
A discount rate of 3.5% has been applied to the interest income and a rate of 6.5% has been applied to the projected proceeds
from sales of the underlying properties, reflecting the risk profile of each individual stream. In previous years, a single discount
rate had been adopted.
The fair value of the interest changes as cash flows are realised and an increase of £2.9m (2015: increase of £nil) in the fair value
has been recognised in the statement of other comprehensive income and the available-for-sale reserve.
Credit risk arises from the credit exposure relating to cash receipts from the financial instrument. All of the cash receipts are
payable by the Church Commissioners, a counterparty considered to be low risk as they have no history of past due or impaired
amounts and there are no past due amounts outstanding at the year end.
105
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
2
Critical accounting estimates and assumptions continued
Net realisable value of trading property
The Group’s residential trading properties are carried in the statement of financial position at the lower of cost and net
realisable value.
As the Group’s business model is to sell trading stock on vacancy, net realisable value is the net sales proceeds which the Group
expects on sale of a property with vacant possession.
The Group has a net realisable value provision of £3.2m as at 30 September 2016 (2015: £2.3m) to write down the value of its
trading properties to the lower of cost and net realisable value. This provision relates primarily to properties expected to be sold
ultimately at vacant possession value. The provision includes specific properties which are vacant and properties we expect to
become vacant on the assumption of an annual vacancy rate of 7.3%.
After releasing part of the opening provision against sales made in the year, in aggregate, a charge of £2.7m has been made
in the 2016 income statement (2015: charge of £1.2m).
For land and property held within the Development segment of the business, net realisable value is the expected net sales
proceeds of the developed property and a provision is made when, and to the extent that, total projected project costs exceed
total projected project revenues. Where land and property is sold without development, net realisable value is the current
market value net of associated selling costs. Decisions regarding whether to develop a site or to sell a site undeveloped are
made by the Directors based on market conditions prevailing at the time.
A charge of £0.1m has been made in the 2016 income statement (2015: charge of £0.2m) in adjusting the book value of
development stock to net realisable value.
The impact of changes to key assumptions is set out in the table below:
Increase of 1% in house prices
Decrease of 1% in house prices
Increase of 1% in house prices
Decrease of 1% in house prices
Increase of 1% in house prices
Decrease of 1% in house prices
Increase of 1% in discount rate
Decrease of 1% in discount rate
GRIP
GRIP
NRV provision
NRV provision
CHARM
CHARM
CHARM
CHARM
2016
2015
Income
statement
impact
£m
1.5
(1.5)
0.1
(0.1)
0.7
(0.7)
–
–
Statement
of financial
position
impact
£m
1.5
(1.5)
0.1
(0.1)
4.8
(4.4)
(6.6)
7.5
Income
statement
impact
£m
1.3
(1.3)
–
(0.1)
0.7
(0.7)
–
–
Statement
of financial
position
impact
£m
1.3
(1.3)
–
(0.1)
5.5
(5.1)
(6.4)
7.4
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.
106
Grainger plc Annual Report and Accounts 2016 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 utilises an external independent valuer, J C Rathbone Associates Limited, to
provide recommendations on the internal assumptions which have been fully adopted by the Directors.
Accounting for unusual contracts
In 2012, the Group entered into a contractual arrangement to build PRS properties on behalf of the Royal Borough of
Kensington and Chelsea (‘RBKC’). The Group will manage and fund the construction of a number of sites, and will receive
a developers priority return from the sale of units to third parties as they are completed. The construction contract is being
accounted for as a cost plus contract in line with International Accounting Standard 11 – Construction Contracts. Revenue
of £24.1m has been recognised in the year but, as the project is in the early stage of development, no trading profit has yet
been recorded.
Once completed, under a separate arrangement, Grainger will manage the retained units on behalf of RBKC.
Adjusted earnings
Adjusted earnings is one of Grainger’s key performance indicators. The metric is utilised as a key measure to aid understanding
of the performance of the continuing business and excludes valuation movements and non-recurring items that are one-off in
nature, which do not form part of the normal ongoing revenue or costs of the business and, either individually or in aggregate,
are material to the reported Group results. The classification of amounts as non-recurring is a significant judgement made by
management and is a matter referred to the Audit Committee for approval.
Non-recurring in 2016 primarily comprises a £10.7m profit from our investment in Prague, restructuring costs of £2.6m,
an additional provision of £1.3m relating to the provision of a pension and BUPA medical cover to former employees of
the company and BPT Limited, and income of £0.8m related to the outcome of a claim against a contractor.
As the business simplifies, management’s view is that the need for items to be classified as non-recurring will reduce.
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
2016, the LTV was 35.9% compared to a default level of 75% and the interest cover ratio was 3.86 times compared to
a minimum requirement of 1.35 times. The Group has other bank debt and a £275m corporate bond on which there are
also covenant requirements. As at 30 September 2016, 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.
107
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
2
Critical accounting estimates and assumptions continued
ii) Banking facilities
The Group’s existing core facilities were £580.0m on 30 September 2016, of which £302.1m were drawn. The Group had
free cash balances plus available overdraft of £43.1m and undrawn committed facilities of £277.9m, in total, ‘headroom’, of
£321.0m at 30 September 2016. 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.
In addition, as set out on page 34, the Directors have considered the Group’s viability in detail over a four-year period to
September 2020.
3
Discontinued operations
Accounting Policy
Discontinued operations
A discontinued operation is a component of the Group’s business, the operations and cash flows of which can be clearly
distinguished from the rest of the Group and which:
represents a separate major line of business or geographical area of operations;
is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or
is a subsidiary acquired exclusively with a view to re-sale.
Classification as a discontinued operation occurs at the earlier of disposal or when the operation meets the criteria to be
classified as held-for-sale. For the discontinued operation, the comparable statement of profit or loss and OCI has been
re-presented as if the operation had been discontinued from the start of the comparative year.
Assets 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.
Non-current assets classified as held-for-sale are measured at the lower of their carrying amount and fair value less costs to
sell. Assets and liabilities classified as held-for-sale are presented separately as current items in the statement of financial
position. On re-classification, investment property that is measured at fair value continues to be measured at fair value.
The Group identified certain of its investment properties as held-for-sale in 2016 in accordance with the criteria set out
in IFRS 5.
During the financial year, the Group has disposed of the Retirement Solutions division, other than the CHARM portfolio which
has been retained, and the majority of the German operations. These operations have been classified as discontinued and the
prior period consolidated income statement, and where appropriate, related supporting notes to the financial statements, have
been restated to exclude these operations. The Retirement Solutions business has been classified as a discontinued operation
despite the retention of the CHARM assets as these are clearly distinguishable cash flows.
108
Grainger plc Annual Report and Accounts 2016
Retirement Solutions
Completion of the sale of Grainger’s Retirement Solutions business, to Patron Capital Partners and Electra Private Equity plc
took place on 18 May 2016. The profit on sale was £48.3m after charging £12.3m in settlement of a fixed rate loan with Lloyds
Bank plc securing assets sold as part of the transaction as the purchasers did not wish to acquire this debt. The profit on sale of
£4.4m in 2015 relates to the sale of the Group’s joint venture interest in New Sovereign Reversions Limited.
Germany
The Group has disposed of its interests in its German operations. The overall profit from the German disposals was £8.3m
which includes the impact of recycling the translation reserve.
Discontinued operations
For the year ended 30 September
Group revenue
Net rental income
Profit on disposal of trading and investment property
Fees and other income
Administrative expenses
Impairment of deferred consideration receivable and associated other costs
Operating profit before net valuation deficits on investment property
Net valuation deficits on investment property
Operating profit after net valuation deficits on investment property
Change in fair value of derivatives
Net finance costs
Share of profit of joint ventures and associates after tax
Profit/(loss) before disposals
Profit on sale of Retirement Solutions
Profit on sale of Germany operations
Discontinued disposal profit before tax
Profit/(loss) before tax
Current tax:
Current tax on discontinued operations
Current tax on sale of discontinued operations
Profit after tax
Basic earnings/(loss) per share – discontinued operations
Diluted earnings/(loss) per share – discontinued operations
Notes
14
14
2016
£m
33.4
3.5
11.9
1.4
(2.4)
–
14.4
(0.9)
13.5
–
(8.3)
0.2
5.4
48.3
8.3
56.6
62.0
(1.0)
(0.2)
60.8
14.6p
14.6p
2015
Restated
£m
51.0
5.5
15.2
2.7
(3.7)
(18.2)
1.5
(0.7)
0.8
0.5
(13.4)
6.3
(5.8)
4.4
–
4.4
(1.4)
0.1
–
(1.3)
(0.3)p
(0.3)p
Assets classified as held-for-sale
The assets and liabilities relating to the Retirement Solutions and German businesses sold in the year have moved into and then
out of assets and liabilities held-for-sale. Investment property in Grainger Portfolio 3 GmbH of £3.1m has been transferred to
investment property held-for-sale in the year. After an exchange adjustment of £0.3m, investment property held-for-sale as at
30 September 2016 had a value of £3.4m. Disposal is expected within the next 12 months. There were no other assets or
liabilities held-for-sale as at 30 September 2016 (2015: £nil).
The remaining net assets relating to the German business as at 30 September 2016, amounting to £8.0m are shown within
their respective headings in the consolidated statement of financial position. The remaining business in Germany is being
wound down as quickly as possible to be followed by voluntary liquidation of the remaining companies.
109
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
3
Discontinued operations continued
The profit on disposal of both the Retirement Solutions and German businesses is analysed as follows:
Disposal proceeds
Asset and Liabilities disposed
Investment property
Intangible assets
Investment in associates
Inventories – trading property
Cash and cash equivalents
Other current assets
Interest-bearing loans and borrowings
Deferred and current tax liabilities
Other current liabilities
Net assets disposed
Costs of disposal
Costs of loan settlement
Recycling of hedge reserve net of tax
Recycling of translation reserve net of tax
Profit on disposal before tax
Retirement
Solutions
£m
134.8
Germany
£m
98.8
(43.7)
–
–
(210.5)
(0.3)
(1.9)
168.1
0.2
15.1
(73.0)
(1.2)
(12.3)
–
–
48.3
(144.6)
(0.9)
(16.1)
–
(4.7)
(2.5)
71.9
3.5
4.8
(88.6)
(5.1)
–
(0.3)
3.5
8.3
Total
£m
233.6
(188.3)
(0.9)
(16.1)
(210.5)
(5.0)
(4.4)
240.0
3.7
19.9
(161.6)
(6.3)
(12.3)
(0.3)
3.5
56.6
Disposal proceeds in Germany are based on closing balance sheets still subject to audit and final agreement between the
principals. Included within the consolidated statement of financial position is a net amount of £1.4m Grainger expect to
repay to the portfolio acquirers once the final positions are agreed. Costs of loan settlement relate to the fixed rate loan
with Lloyds Bank plc as stated above.
Cash flow from discontinued operations
Net cash inflow from operating activities
Net cash inflow from investing activities
Net cash outflow from financing activities
Total net cash inflow
2016
£m
16.5
226.3
(24.0)
218.8
2015
£m
12.7
21.3
(18.7)
15.3
110
Grainger plc Annual Report and Accounts 2016 4
Analysis of profit before tax – continuing operations
The results for the years ended 30 September 2016 and 2015 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 to arrive at a measure of recurring earnings before valuation movements.
(£m)
Group revenue
Net rental income
Profit on disposal of trading property
Profit on disposal of investment property
Income from financial interest in
property assets
Fees and other income
Administrative expenses
Other expenses
Impairment of inventories to net
realisable value
Reversal of impairment/(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/(loss) of joint ventures
after tax
Profit/(loss) before tax – continuing
operations
Tax charge for the year – continuing
operations
Profit after tax – continuing operations
Discontinued operations – profit/(loss)
before tax
Tax (charge)/credit for the year –
discontinued operations
Profit for the year attributable to the
owners of the company
2016
2015 restated
Statutory
Valuation
Non-
recurring
Adjusted
earnings
Statutory
Valuation
Non-
recurring
Adjusted
earnings
219.9
37.4
69.9
1.6
5.8
7.3
(31.8)
(6.0)
(2.7)
–
–
–
–
0.7
–
–
–
2.7
–
–
–
–
–
(1.1)
–
4.9
–
14.1
(4.7)
(9.4)
219.9
37.4
69.9
1.6
6.5
6.2
(31.8)
(1.1)
–
–
193.1
32.4
70.2
0.4
9.2
5.6
(32.4)
(3.2)
(1.2)
(4.1)
95.6
(1.3)
(5.6)
88.7
76.9
–
–
–
–
(2.7)
–
–
–
1.2
4.1
2.6
20.3
(20.3)
–
–
14.6
(14.6)
115.9
(9.9)
(39.2)
2.5
9.8
(21.6)
9.9
–
–
(8.8)
(5.6)
–
–
(0.4)
–
88.7
–
(39.2)
2.1
1.0
91.5
(6.3)
(54.1)
1.7
9.6
(12.0)
6.3
–
–
(8.5)
5.1
(3.2)
(1.4)
0.5
9.0
(9.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3.5
–
–
–
193.1
32.4
70.2
0.4
6.5
5.6
(32.4)
(3.2)
–
–
79.5
–
79.5
–
(50.6)
1.7
1.1
(0.2)
84.2
(23.7)
(7.4)
53.1
51.4
(23.4)
3.5
31.5
(9.7)
74.5
62.0
(1.2)
135.3
(7.4)
44.0
(1.4)
0.1
42.7
Diluted earnings per share – adjusted
10.2p
6.0p
CHARM income recorded through the income statement is shown on the line ‘Income from financial interest in property assets’. The
amount comprises income from the asset calculated at the effective interest rate, shown as adjusted earnings, and any movements
in the future cash flow projections related to the asset, are shown within valuations. Further details are shown in Note 21.
Profit before tax in the adjusted earnings columns above of £53.1m (2015: restated £31.5m) is the adjusted earnings
of the Group.
111
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
4
Analysis of profit before tax – continuing operations continued
Non-recurring in 2016 primarily comprises a £10.7m profit from our investment in Prague (see analysis in Note 20),
restructuring costs of £2.6m, an additional provision of £1.3m relating to the provision of a pension and BUPA medical
cover to former employees of the company and BPT Limited, and income of £0.8m from a claim against a contractor.
Non-recurring in 2015 of £3.5m related to the accelerated write off of loan costs after refinancing of bank syndicate debt.
5
Segmental information
Accounting Policy
IFRS 8 ‘Operating Segments’ requires operating segments to be identified based upon the Group’s internal reporting to the
Chief Operating Decision Maker (CODM) so that the CODM can make decisions about resources to be allocated to segments
and assess their performance. The Group’s CODM is the Chief Executive Officer. Following the disposal of the Retirement
Solutions and German Residential operations, the three significant segments for continuing operations are outlined below.
Residential;
Development; and
Funds
The two segments Retirement Solutions and German Residential, which are now classified as discontinued, are combined
and analysed in Note 3. The title “Other” has been included in the tables below to reconcile the segments to the figures
reviewed by the CODM. The key operating performance measure of profit or loss used by the CODM is adjusted earnings
before tax, valuation and non-recurring items. The CODM reviews by segment two key balance sheet measures of net asset
value. These are EPRA Net Asset Value (‘EPRA NAV’) and EPRA Triple Net Asset Value (‘EPRA NNNAV’).
Information relating to the Group’s operating segments is set out in the tables below. The tables distinguish between
adjusted earnings, valuation and non-recurring items and should be read in conjunction with Note 4.
2016 Income statement – continuing operations
(£m)
Group revenue
Segment revenue – external
Net rental income
Profit on disposal of trading property
Profit on disposal of investment property
Income from financial interest in property assets
Fees and other income
Administrative expenses
Other expenses
Operating profit/(loss) before net valuation gains on
investment property
Net finance costs
Share of trading profit of joint ventures and associates after tax
Adjusted earnings/(loss) before tax, valuation and non-recurring items
Valuation movements
Non-recurring items
Profit before tax – continuing operations
Residential Development
Funds
Other
Total
165.3
37.2
58.1
1.6
–
1.0
(9.3)
(0.8)
87.8
(34.8)
–
53.0
49.7
0.2
11.8
–
–
0.3
(1.8)
(0.1)
10.4
(0.2)
0.1
10.3
4.8
–
–
–
–
4.8
(2.8)
(0.1)
1.9
(2.0)
1.4
1.3
0.1
–
–
–
6.5
0.1
(17.9)
(0.1)
(11.4)
(0.1)
–
(11.5)
219.9
37.4
69.9
1.6
6.5
6.2
(31.8)
(1.1)
88.7
(37.1)
1.5
53.1
23.7
7.4
84.2
112
Grainger plc Annual Report and Accounts 2016
2015 Income statement (restated*) – continuing operations
(£m)
Group revenue
Segment revenue – external
Net rental income
Profit/(loss) on disposal of trading property
Profit on disposal of investment property
Income from financial interest in property assets
Fees and other income
Administrative expenses
Other expenses
Operating profit before net valuation gains on investment property
Net finance costs
Share of trading profit of joint ventures and associates after tax
Adjusted earnings/(loss) before tax, valuation and non-recurring items
Valuation movements
Non-recurring items
Profit before tax – continuing operations
Residential Development
Funds
Other
Total
154.3
32.3
60.5
0.4
–
0.5
(8.9)
(0.4)
84.4
(41.6)
–
42.8
34.4
0.1
9.8
–
–
0.5
(1.1)
(0.6)
8.7
(2.3)
–
6.4
4.3
–
–
–
–
4.3
(3.9)
(1.0)
(0.6)
(1.4)
0.9
(1.1)
0.1
–
(0.1)
–
6.5
0.3
(18.5)
(1.2)
(13.0)
(3.6)
–
(16.6)
193.1
32.4
70.2
0.4
6.5
5.6
(32.4)
(3.2)
79.5
(48.9)
0.9
31.5
23.4
(3.5)
51.4
*
The 2015 comparatives have been restated to show the results from continuing and discontinued operations separately. See Note 3 to the financial
statements for further details of the discontinued operations.
Segmental revenue from external customers for continuing operations is all derived from UK customers.
Non-current assets other than financial instruments and deferred tax assets are located as follows:
£541.6m within the UK (2015: £469.3m).
Nil in Germany (2015: £165.7m).
Segmental assets
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 EPRA NAV and EPRA 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.
113
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
5
Segmental information continued
2016 Segment net assets
(£m)
Total segment net assets (statutory)
Total segment net assets (EPRA NAV)
Total segment net assets (EPRA NNNAV)
Continuing
Residential
363.4
1,048.7
908.5
Development
96.9
89.5
90.8
Funds
116.6
124.9
116.6
Other
98.3
116.4
83.6
Total
675.2
1,379.5
1,199.5
Pence
per share
–
330
287
“Other” includes CHARM assets within continuing operations, which were previously included in the Retirement Solutions Division.
Adjustments to
market value,
deferred
tax and
derivatives
–
–
1.4
7.2
–
(2.5)
–
649.4
–
(0.3)
–
–
7.5
662.7
–
–
–
28.5
–
–
13.1
41.6
704.3
Statutory
balance
sheet
261.3
1.1
105.1
78.9
93.1
8.6
2.1
904.3
64.0
0.3
90.7
3.4
–
1,612.9
(843.7)
(5.2)
(2.3)
(30.2)
(38.4)
(4.8)
(13.1)
(937.7)
675.2
EPRA NAV
balance
sheet
261.3
1.1
106.5
86.1
93.1
6.1
2.1
1,553.7
64.0
–
90.7
3.4
7.5
2,275.6
(843.7)
(5.2)
(2.3)
(1.7)
(38.4)
(4.8)
–
(896.1)
1,379.5
Deferred
and
contingent
tax
–
–
–
(6.9)
–
–
–
–
–
–
–
–
–
(6.9)
–
–
–
(138.8)
–
–
–
(138.8)
(145.7)
Derivatives/
fixed rate
debt
–
–
(1.4)
(0.3)
–
7.0
–
–
–
0.3
–
–
–
5.6
(26.8)
–
–
–
–
–
(13.1)
(39.9)
(34.3)
EPRA
NNNAV
balance
sheet
261.3
1.1
105.1
78.9
93.1
13.1
2.1
1,553.7
64.0
0.3
90.7
3.4
7.5
2,274.3
(870.5)
(5.2)
(2.3)
(140.5)
(38.4)
(4.8)
(13.1)
(1,074.8)
1,199.5
2016 Reconciliation of NAV measures
(£m)
Investment property
Property, plant and equipment
Investment in associates
Investment in joint ventures
Financial interest in property assets
Deferred tax asset
Intangible assets
Inventories – trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Assets classified as held-for-sale
Value of own shares held
Total assets
Interest-bearing loans and borrowings
Retirement benefits
Provisions for other liabilities and charges
Deferred and contingent tax liabilities
Trade and other payables
Current tax liabilities
Derivative financial instruments
Total liabilities
Net assets
114
Grainger plc Annual Report and Accounts 2016 In order to provide further analysis the following table sets out EPRA NNNAV assets and liabilities by segment.
30 September 2016 (£m)
EPRA NNNAV assets
Investment property
Investment in joint ventures and associates
Financial interest in property assets
Inventories – trading property
Cash and cash equivalents
Other assets
Total segment EPRA NNNAV assets
EPRA NNNAV liabilities
Interest-bearing loans and borrowings
Deferred and contingent tax liabilities
Other liabilities
Total segment EPRA NNNAV liabilities
Net EPRA NNNAV assets
2015 Segment net assets – Restated*
Residential
Development
Funds
Other
Total
261.3
16.3
–
1,475.6
35.2
1.9
1,790.3
(729.7)
(140.1)
(12.0)
(881.8)
908.5
–
(1.4)
–
78.1
12.0
56.2
144.9
(49.9)
1.3
(5.5)
(54.1)
90.8
–
169.1
–
–
7.8
1.9
178.8
(62.2)
–
–
(62.2)
116.6
–
–
93.1
–
35.7
31.5
160.3
261.3
184.0
93.1
1,553.7
90.7
91.5
2,274.3
(28.7)
(1.7)
(46.3)
(76.7)
83.6
(870.5)
(140.5)
(63.8)
(1,074.8)
1,199.5
Continuing
(£m)
Total segment net assets (statutory)
Total segment net assets (EPRA NAV)
Total segment net assets (EPRA NNNAV)
Residential Development
81.7
81.4
81.5
223.3
864.1
696.9
Funds
92.3
100.6
92.0
Other
64.9
104.8
87.5
Discontinued
German
Residential
80.2
87.1
81.3
Retirement
Solutions
22.5
96.1
62.3
Total
564.9
1,334.1
1,101.5
Pence per
share
–
319
263
*
The 2015 comparatives have been restated to show the results from continuing and discontinued operations separately. See Note 3 to the financial
statements for further details of the discontinued operations.
“Other” includes CHARM assets within continuing operations, which were previously included in the Retirement Solutions division.
115
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
5
Segmental information continued
2015 Reconciliation of EPRA NAV measures
(£m)
Investment property
Property, plant and equipment
Investment in associates
Investment in joint ventures
Financial interest in property assets
Deferred tax asset
Intangible assets
Inventories – trading property
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Value of own shares held
Total assets
Interest-bearing loans and borrowings
Retirement benefits
Provisions for other liabilities and charges
Deferred and contingent tax iiabilities
Trade and other payables
Current tax liabilities
Derivative financial instruments
Total liabilities
Net assets
Adjustments
to market
value,
deferred
tax and
derivatives
–
–
4.8
8.0
–
(7.1)
–
687.7
–
(2.0)
–
12.3
703.7
–
–
–
30.0
–
–
35.5
65.5
769.2
Statutory
balance
sheet
357.8
1.6
108.4
70.8
93.7
12.0
2.7
1,152.2
31.6
2.0
88.8
–
1,921.6
(1,226.4)
(1.7)
(0.9)
(32.3)
(56.9)
(3.0)
(35.5)
(1,356.7)
564.9
EPRA NAV
balance
sheet
357.8
1.6
113.2
78.8
93.7
4.9
2.7
1,839.9
31.6
–
88.8
12.3
2,625.3
(1,226.4)
(1.7)
(0.9)
(2.3)
(56.9)
(3.0)
–
(1.291.2)
1,334.1
Deferred and
contingent
tax
–
–
(3.5)
(7.8)
–
–
–
–
–
–
–
–
(11.3)
–
–
–
(167.6)
–
–
–
(167.6)
(178.9)
Derivatives/
fixed rate
debt
–
–
(1.3)
(0.2)
–
13.6
–
–
–
2.0
–
–
14.1
(32.3)
–
–
–
–
–
(35.5)
(67.8)
(53.7)
In order to provide further analysis the following table sets out EPRA NNNAV assets and liabilities by segment.
30 September 2015 (£m)
EPRA NNNAV assets
Investment property
Investment in joint ventures and associates
Financial interest in property assets
Inventories – trading property
Cash and cash equivalents
Other assets
Total segment EPRA NNNAV assets
EPRA NNNAV liabilities
Interest-bearing loans and borrowings
Deferred and contingent tax liabilities
Other liabilities
Total segment EPRA NNNAV liabilities
Net EPRA NNNAV assets
Continuing
Residential Development
Funds
Other
Discontinued
German
Residential
Retirement
Solutions
169.1
–
–
1,452.8
56.6
4.4
1,682.9
(814.2)
(122.9)
(48.9)
(986.0)
696.9
–
10.7
–
95.0
18.2
17.0
140.9
(53.0)
–
(6.4)
(59.4)
81.5
–
146.6
–
–
5.2
2.5
154.3
(61.5)
–
(0.8)
(62.3)
92.0
–
–
93.7
–
–
30.0
123.7
(8.0)
(24.8)
(3.4)
(36.2)
87.5
142.6
21.9
–
–
5.3
3.2
173.0
(82.6)
(4.0)
(5.1)
(91.7)
81.3
46.1
–
–
292.1
3.5
11.6
353.3
(239.4)
(18.2)
(33.4)
(291.0)
62.3
116
EPRA
NNNAV
balance
sheet
357.8
1.6
108.4
70.8
93.7
18.5
2.7
1,839.9
31.6
2.0
88.8
12.3
2,628.1
(1,258.7)
(1.7)
(0.9)
(169.9)
(56.9)
(3.0)
(35.5)
(1,526.6)
1,101.5
Total
357.8
179.2
93.7
1,839.9
88.8
68.7
2,628.1
(1,258.7)
(169.9)
(98.0)
(1,526.6)
1,101.5
Grainger plc Annual Report and Accounts 2016
6
Group revenue – continuing operations
Accounting Policy
Revenue is measured at the fair value of the consideration received or receivable and is stated net of sales taxes and value
added taxes.
Gross rental income (Note 7)
Gross proceeds from disposal of trading property (Note 8)
Fees and other income (Note 10)
7
Net rental income – continuing operations
2015
Restated
(Note 3)
£m
46.7
140.8
5.6
193.1
2016
£m
51.9
160.7
7.3
219.9
Accounting Policy
Gross rental income is recognised on a straight-line basis over the lease term on an accruals basis. Directly attributable
property repair and maintenance costs are deducted from gross rental income to determine net rental income.
Gross rental income
Property repair and maintenance costs
2015
Restated
(Note 3)
£m
46.7
(14.3)
32.4
2016
£m
51.9
(14.5)
37.4
117
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
8
Profit on disposal of trading property – continuing operations
Accounting Policy
Property is regarded as sold when the significant risks and returns have been transferred to the buyer. This is deemed
to be on legal completion. Profits or losses are calculated by reference to the carrying value of the property sold. For a
development property this is assessed through the use of a gross margin for the site as a whole or such other basis that
provides an appropriate allocation of costs.
Contract revenue and expenses from construction contracts is recognised in the income statement in accordance with
the stage of completion of the contract. Contract costs incurred that relate to future activities are deferred and recognised
as inventory.
Proceeds from disposal of trading property
Revenue from construction contract
Gross proceeds from disposal of trading property
Selling costs
Net proceeds from disposal of trading property
Carrying value of trading property sold
Carrying value of construction contract expenses
2015
Restated
(Note 3)
£m
140.8
–
140.8
(3.0)
137.8
(67.6)
–
70.2
2016
£m
136.6
24.1
160.7
(3.3)
157.4
(63.4)
(24.1)
69.9
Amounts relating to the construction contract included in the above table relate to a PRS development the Group is building
for a customer. The Group will manage the development, once built, from which activity it will earn management fees. Due to
the early stage of the development, no trading profit has yet been recognised.
9
Profit on disposal of investment property – continuing operations
Accounting Policy
Investment property is regarded as sold when the significant risks and returns have been transferred to the buyer. This is
deemed to be on legal completion. Profits or losses are calculated by reference to the carrying value of the property sold.
Gross proceeds from disposal of investment property
Selling costs
Net proceeds from disposal of investment property
Carrying value of investment property sold:
– Investment property (Note 17)
118
2015
Restated
(Note 3)
£m
8.5
(0.1)
8.4
(8.0)
0.4
2016
£m
4.1
(0.1)
4.0
(2.4)
1.6
Grainger plc Annual Report and Accounts 2016
10
Fees and other income – continuing operations
Accounting Policy
Management fee income includes performance fees which are 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. Management fee
income is recognised in the accounting period in which the services are rendered.
Property and asset management fee income
Other sundry income
11
Employees – continuing operations
Wages and salaries
Termination benefits
Social security costs
Other pension costs – defined contribution scheme (Note 29)
Share-based payments (Note 31)
The average monthly number of Group employees during the year (including Executive Directors) was:
Residential
Development
Shared services
Group
2015
Restated
(Note 3)
£m
5.0
0.6
5.6
2016
£m
5.9
1.4
7.3
2015
Restated
(Note 3)
£m
14.7
–
2.1
1.0
2.0
19.8
2015
Restated
(Note 3)
Number
99
9
118
17
243
2016
£m
14.7
1.8
1.7
1.0
1.9
21.1
2016
Number
106
12
111
17
246
Details of Directors’ remuneration, including pension costs, share options and interests in the LTIP are provided in the audited
section of the Remuneration Committee report on pages 73 to 81.
Information about benefits of Directors
The following amounts are disclosed in accordance with Schedule 5 of the Large and Medium-Sized Companies and Groups
(Accounts and Reports) Regulations 2008 (Schedule 5).
Aggregate Directors’ remuneration
Aggregate amount of gains on exercise of share options
Aggregate amount of money or assets received or receivable under scheme interests
Aggregate cash paid into deferred contribution pension schemes
2016
£’000
2,400
3
3,092
179
5,674
2015
£’000
1,810
–
3,134
159
5,103
119
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
11
Employees – continuing operations continued
The number of Directors in defined contribution pension schemes during 2016 was five (2015: three). None of the Directors
(2015: None) were members of the Group defined benefit scheme.
Key management compensation
Short-term employee benefits
Post-employment benefits
Share-based payments
Payments for loss of office
2016
£m
6.4
0.5
1.2
0.7
8.8
Key management figures shown above include Executive and Non-Executive Directors and all internal directors
of specific functions.
12
Profit before tax – continuing operations
Profit before tax is stated after charging:
Depreciation on fixtures, fittings and equipment
Amortisation of IT software
Bad debt expense
Operating lease payments
Auditor’s remuneration (see below)
The remuneration paid to KPMG LLP, the Group’s principal auditor is disclosed below:
Auditor’s remuneration
Fees payable to the Company’s auditor and their associates for the audit of the Company’s annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group:
The audit of the Company’s subsidiaries pursuant to legislation
Audit related assurance services
Tax advisory services
Tax compliance services
Other assurance services
Total fees
2016
£m
0.6
0.3
0.2
1.0
0.4
2016
£’000
84
158
242
30
48
4
39
363
2015
£m
5.7
0.4
1.5
–
7.6
2015
£m
0.6
0.3
0.3
1.2
0.2
2015
£’000
107
126
233
–
2
12
–
247
The relevant proportion of amounts paid to the auditor for the audit of financial statements of joint ventures is £4,000.
Details of the Group’s policy on the use of the Group’s auditors for other services, the reasons why the firm was used rather
than another supplier and how the auditor’s independence and objectivity was safeguarded are set out in the Audit Committee
report on pages 58 and 59. No services were provided pursuant to contingent fee arrangements.
120
Grainger plc Annual Report and Accounts 2016
13
Finance costs and income – continuing operations
Finance costs
Bank loans and mortgages
Non-bank financial institution
Corporate bond
Other finance costs
Loan issue costs – amortisation and write off
Interest capitalised under IAS23
Finance income
Interest receivable from associates and joint ventures (see Note 35)
Other interest receivable
Bank deposits
Net finance costs
2015
Restated
(Note 3)
£m
28.5
4.8
13.6
0.1
7.2
(0.1)
54.1
(1.5)
(0.1)
(0.1)
(1.7)
52.4
2016
£m
18.7
5.1
13.6
0.1
3.0
(1.3)
39.2
(1.6)
(0.8)
(0.1)
(2.5)
36.7
Loan issue costs – amortisation and write off shown under finance costs in 2015 include a £3.5m charge classified as non-
recurring relating to the accelerated write off of loan costs after refinancing of bank syndicate debt during 2015 (see Note 4).
14
Tax
Accounting Policy
The taxation charge for the year represents the sum of the tax currently payable and deferred tax. The charge is recognised in
the income statement and statement of comprehensive income according to the accounting treatment of the related transaction.
Current tax payable or receivable is based on the taxable income for the period and any adjustment in respect of prior
periods and is calculated using tax rates that have been enacted or substantively enacted at the end of the reporting period.
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 at the end of the reporting period 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 only to the extent that it is probable that taxable profit will give rise to a future
tax liability against which the deferred tax assets can be recovered.
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.
121
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
14
Tax continued
The tax charge for the year of £10.9m (2015: £7.3m) comprises:
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
Total tax charge for the year
Tax charge for the year comprises:
Tax charge in income statement
Tax from discontinued operations (excluding gain on sale)
Tax on sale of discontinued operations
Total tax charge for the year
2015
Restated
(Note 3)
£m
5.1
(3.7)
1.4
6.9
(1.0)
–
5.9
7.3
7.4
(0.1)
–
7.3
2016
£m
8.0
(2.2)
5.8
9.0
–
(3.9)
5.1
10.9
9.7
1.0
0.2
10.9
The 2016 current tax adjustments relating to prior years include the utilisation of tax losses and other reliefs available to the
Group which have been included in submitted tax returns.
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.
Movements in tax during the year are set out below:
2016 Movement in tax
Current tax
Deferred tax
Trading property uplift to fair value on business combinations
Investment property revaluation
Accelerated capital allowances
Short-term timing 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
Deferred tax total
Total tax – 2016 movement
Opening
balance
£m
3.0
Payments
made in
the year
£m
(1.9)
Disposals/
Transfers
£m
(2.1)
Movements
recognised
in income
£m
5.8
Movements
recognised
in other
comprehensive
income
£m
–
Closing
balance
£m
4.8
18.0
12.0
0.7
(10.5)
(0.5)
1.2
(0.6)
20.3
23.3
–
–
–
–
–
–
–
–
(1.9)
(3.3)
–
–
1.7
–
–
–
(1.6)
(3.7)
(3.3)
5.0
(0.9)
4.3
–
–
–
5.1
10.9
–
–
–
–
(0.5)
0.2
(1.9)
(2.2)
(2.2)
11.4
17.0
(0.2)
(4.5)
(1.0)
1.4
(2.5)
21.6
26.4
122
Grainger plc Annual Report and Accounts 2016
Deferred tax balances are disclosed as follows:
Deferred tax assets: non-current assets
Deferred tax liabilities: non-current liabilities
Deferred tax
2016
£m
8.6
(30.2)
(21.6)
2015
£m
12.0
(32.3)
(20.3)
Deferred tax has been predominantly calculated at a rate of 17% (2015: 20%).
In addition to the tax amounts shown 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 financial statements, amounts to £110.4m (2015: £137.5m).
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.
2015 Movement in tax
Current tax
Deferred tax
Trading property uplift to fair value on business
combinations
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
Deferred tax
Total tax – 2015 movement
Opening
balance
£m
6.5
Payments
made in
the year
£m
(4.9)
Transfers
£m
–
Acquired in
the year
£m
–
Movements
recognised in
other
comprehensive
income
£m
–
Movements
recognised
in income
£m
1.4
17.2
6.6
0.8
(11.1)
(0.4)
1.2
(0.7)
13.6
20.1
–
–
–
–
–
–
–
–
(4.9)
–
–
–
0.6
–
–
(0.6)
–
–
2.1
–
–
(1.9)
–
–
–
0.2
0.2
(1.3)
5.4
(0.1)
1.9
–
–
–
5.9
7.3
–
–
–
–
(0.1)
–
0.7
0.6
0.6
Closing
balance
£m
3.0
18.0
12.0
0.7
(10.5)
(0.5)
1.2
(0.6)
20.3
23.3
The total tax charge for the year of £10.9m (2015: £7.3m) comprises:
UK Tax
Overseas Tax
The Group’s results for this accounting period are taxed at an effective rate of 20% (2015: 20.5%).
2015
Restated
(Note 3)
£m
7.4
(0.1)
7.3
2016
£m
11.0
(0.1)
10.9
123
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
14
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 20% (2015: 20.5%) to the profit before tax. The differences are explained below:
Profit before tax including discontinued operations
Profit before tax at a rate of 20% (2015: 20.5%)
Expenses not deductible for tax purposes
Share of joint ventures/associates after tax
Non-taxable disposal of investments
Impact of tax rate changes
Adjustment in respect of prior periods
2016
£m
146.2
29.2
1.5
(0.5)
(13.2)
(3.9)
(2.2)
10.9
2015
£m
50.0
10.2
4.9
(2.8)
(0.3)
–
(4.7)
7.3
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 asset 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 95.
Factors that may affect future tax charges
Changes to the main rate of corporation tax, which falls to 19% from 1 April 2017 and to 17% from 1 April 2020, have been
reflected in the calculation of deferred tax assets and liabilities. In addition, a number of changes to the UK corporate tax
system have been proposed and will be reflected in the Group’s tax accounts, as required, once substantively enacted.
15
Dividends
Accounting Policy
Dividends are recognised through equity when approved by the Company’s shareholders or on payment, whichever is earlier.
Dividends paid in the year are shown below:
Ordinary dividends on equity shares:
Final dividend for the year ended 30 September 2014 – 1.89p per share
Interim dividend for the year ended 30 September 2015 – 0.64p per share
Final dividend for the year ended 30 September 2015 – 2.11p per share
Interim dividend for the year ended 30 September 2016 – 1.45p per share
2016
£m
–
–
8.7
6.0
14.7
2015
£m
7.8
2.6
–
–
10.4
A final dividend in respect of the year ended 30 September 2016 of 3.05p per share amounting to £12.7m will be proposed at
the 2017 AGM. If approved, this dividend will be paid on 10 February 2017 to Shareholders on the register at close of business
on 30 December 2016. The 2016 interim dividend of 1.45p per share was paid in July 2016. This gives a total dividend for 2016
of 4.50p per share (2015: 2.75p per share).
124
Grainger plc Annual Report and Accounts 2016
16
Earnings per share
Accounting Policy
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 Plan (‘LTIP’), Deferred Bonus
Plan (‘DBP’) and SAYE schemes, on which the dividends are being waived.
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 share option schemes and contingent share awards
under the LTIP and DBP, based upon the number of shares that would be issued if 30 September 2016 was the end of the
contingency period. Where the effect of the above adjustments is antidilutive, they are excluded from the calculation of
diluted earnings per share.
30 September 2016
Weighted
average
number of
shares
(millions)
Profit for
the year
£m
Earnings
per share
pence
30 September 2015 restated
Weighted
average
number of
shares
(millions)
Profit for
the year
£m
Earnings
per share
pence
Basic earnings per share – continuing and
discontinued operations
Profit attributable to equity holders
Effect of potentially dilutive securities
Share options and contingent shares
Diluted earnings per share – continuing and
discontinued operations
Profit attributable to equity holders
Basic earnings per share – continuing operations only
Profit attributable to equity holders
Effect of potentially dilutive securities
Share options and contingent shares
Diluted earnings per share – continuing and
discontinued operations
Profit attributable to equity holders
135.3
414.4
32.6
42.7
412.5
10.4
–
1.5
(0.1)
–
2.9
(0.1)
135.3
415.9
32.5
42.7
415.4
10.3
74.5
414.4
18.0
44.0
412.5
10.7
–
1.5
(0.1)
–
2.9
(0.1)
74.5
415.9
17.9
44.0
415.4
10.6
125
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
17
Investment property
Accounting Policy
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. Investment property falls within Level 3 of the fair value hierarchy as defined by IFRS 13. Further details are
given in Note 28.
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. Any loss on the reclassification of these assets from investment properties
to assets held-for-sale is charged to the income statement of the period in which this occurs.
Opening balance
Additions
Disposals – continuing operations (Note 9)
Disposals – discontinued operations
Business disposals
Net transfer to assets classified as held-for-sale (Note 3)
Net valuation gains – continuing operations
Net valuation deficits – discontinued operations (Note 3)
Exchange adjustments
Closing balance
2016
£m
357.8
79.5
(2.4)
(9.2)
(188.3)
(3.1)
20.3
(0.9)
7.6
261.3
2015
£m
332.9
29.6
(8.0)
(2.2)
–
(0.4)
14.6
(0.7)
(8.0)
357.8
The Group has valued all of its investment property as at 30 September 2016 at fair value. The current use of the property
is considered to be highest and best use.
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 2016 A net revaluation gain of £19.4m has arisen on valuation of investment property to fair value as at 30 September 2016
comprising £20.3m on the continuing business and a deficit of £0.9m on the discontinued operations (2015: £13.9m of which
£14.6m is continuing and a deficit of £0.7m is discontinued operations) and this has been taken to the income statement.
The historical cost of the Group’s investment property as at 30 September 2016 is £219.8m (2015: £362.2m).
Rental income from investment property during the year was £19.6m (2015: £20.8m).
Direct property repair and maintenance costs arising from investment property that generated rental income during the year
was £5.1m (2015: £7.6m).
Exchange adjustments of £7.6m (2015: decrease of £8.0m) relate to the Group’s German Residential property prior to its
disposal. This reflects the movement in the Sterling/Euro exchange rate and is recognised within other comprehensive income.
18
Property, plant and equipment
Accounting Policy
Property, plant and equipment are stated at cost less residual value and comprise fixtures, fittings and equipment.
Depreciation is charged to the income statement on a straight-line basis over the estimated useful life ranging from
3-5 years.
19
Investment in associates
Opening balance
Share of profit for the year – continuing
Share of profit for the year – discontinued
Dividends received
Loans advanced to/(repaid by) associates
Exchange movements
Share of change in fair value of cash flow hedges taken through other comprehensive income
Disposal (Note 3)
Closing balance
2016
£m
108.4
9.8
0.2
(7.5)
10.5
0.6
(0.8)
(16.1)
105.1
2015
£m
103.5
9.6
5.8
(2.1)
(7.2)
(0.8)
(0.4)
–
108.4
The disposal relates to the sale of Grainger’s 25% interest in its German associate MH Grainger JV Sarl which completed on
1 January 2016. The sale generated a profit of £11.2m and forms part of the profit on sale of discontinued operations in Note 3.
Grainger invested an additional £10.5m net into GRIP in the year to enable GRIP to make further investment in PRS assets.
As at 30 September 2016, the Group’s interest in associates was as follows:
GRIP REIT PLC
Vesta LP
24.9
15.0
% of ordinary share capital/units held
Country of incorporation
United Kingdom
United Kingdom
127
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
19
Investment in associates continued
Although the Group acts as property and/or asset manager for the GRIP REIT PLC, the remaining equity is held by a single
investor. This investor is actively involved in the business and in controlling the key financial and operational activities of the
business. Accordingly, the Group does not have de facto control of the entity.
G:Res 1 Limited has now been voluntarily wound up and the Group no longer provides any management services to it. Although
the Group’s equity interest in Vesta LP is 15%, the investment is being equity accounted as an associate as the Group is
exercising significant influence through its representation on the Board.
The accounting period end for the GRIP REIT PLC is 31 December 2016. The results for the 12 months to 30 September 2016
and financial position as at that date have been equity accounted in these financial statements.
In relation to the Group’s investment in associates, the Group’s share of the aggregated assets, liabilities, revenues and profit
or loss of associates is shown below:
2016 Summarised income statement
Net rental income and other income
Administration and other expenses
Profit on disposal of properties
Operating profit
Revaluation gains on investment property
Change in fair value of derivatives
Interest payable
Profit before tax
Tax
Profit after tax
2016 Summarised statement of financial position
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets
MH Grainger
JV Sarl
0.5
(0.1)
–
0.4
–
–
(0.1)
0.3
GRIP REIT
PLC
4.7
(0.9)
0.2
4.0
9.0
(0.2)
(2.2)
10.6
(0.1)
0.2
(0.8)
9.8
–
–
–
–
–
–
154.6
6.5
161.1
(53.6)
(2.4)
105.1
Vesta
LP
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Total
£m
5.2
(1.0)
0.2
4.4
9.0
(0.2)
(2.3)
10.9
(0.9)
10.0
154.6
6.5
161.1
(53.6)
(2.4)
105.1
128
Grainger plc Annual Report and Accounts 2016 2015 Summarised income statement
Net rental income and other income
Administration and other expenses
Profit on disposal of properties
Operating profit
Revaluation gains on investment property
Change in fair value of derivatives
Interest payable
Profit/(loss) before tax
Tax
Profit/(loss) after tax
2015 Summarised statement of financial position
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets
20
Investment in joint ventures
MH Grainger
JV Sarl
1.3
(0.2)
0.6
1.7
8.2
–
(1.0)
8.9
(3.1)
5.8
GRIP Unit
Trust
4.3
(0.7)
1.0
4.6
8.9
(0.4)
(3.2)
9.9
–
9.9
48.2
8.9
57.1
(24.8)
(10.4)
21.9
128.7
8.7
137.4
(48.8)
(2.2)
86.4
G:Res1
Limited
–
(0.3)
–
(0.3)
–
–
–
(0.3)
–
(0.3)
–
0.1
0.1
–
–
0.1
Opening balance
Share of profit for the year – continuing
Share of profit for the year – discontinued
Dividends received
Reversal of impairment/(impairment)
Loan interest received
Disposal
Loans advanced to joint ventures
Loans repaid by joint ventures
Share of change in fair value of cash flow hedges taken through other comprehensive income
Closing balance
Vesta
LP
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2016
£m
70.8
5.1
–
–
14.1
0.1
–
5.5
(16.7)
–
78.9
Total
£m
5.6
(1.2)
1.6
6.0
17.1
(0.4)
(4.2)
18.5
(3.1)
15.4
176.9
17.7
194.6
(73.6)
(12.6)
108.4
2015
£m
73.6
9.0
0.5
(0.6)
(4.1)
(0.7)
(14.0)
7.4
–
(0.3)
70.8
The closing balance comprises share of net assets of £55.0m (2015: £49.1m) and net loans due from joint ventures of £23.9m
(2015: £21.7m).
At 30 September 2016, the Group’s interest in joint ventures was as follows:
Curzon Park Limited
King Street Developments (Hammersmith) 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
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
Czech Republic
Czech Republic
Czech Republic
129
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
20
Investment in joint ventures continued
The accounting period end of Curzon Park Limited is 28 February and for King Street Developments (Hammersmith) Limited
is 31 March. The results for the 12 months to 30 September 2016 and the financial position as at that date have been equity
accounted in these financial statements.
The proposed High Speed Rail Link (‘HS2’) 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 as well as with HS2 Ltd, the company responsible for developing
and promoting this new rail link.
The Group has reversed part of the impairment provision held against the investment, crediting £4.7m to the income
statement in the year (2015: £3.2m impairment provision). The carrying value at 30 September 2016 of £9.5m (2015: £4.8m)
has been provided by CBRE Limited, the Group’s external, independent valuers for its development assets. This is based
on the value the site may have as a development opportunity discounted to reflect the uncertainty around HS2 and the
Compulsory Purchase Order process.
In August 2016 the three companies in Prague in which the Group held a 50% equity stake, sold all of their development land.
The Group’s share of proceeds amounted to £16.7m. The Group has recorded a profit of £10.7m from its Prague Investment
this year which is analysed as follows:
Reversal of prior year provisions
Share of profit
Interest receivable on loan notes
Group sales costs
£m
9.4
1.4
0.4
(0.5)
10.7
Income Statement Classification
Reversal of impairment of joint venture
Share of profit of joint ventures after tax
Finance Income
Other expenses
The above amounts are included under non-recurring in Note 4.
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:
2016 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
Profit before tax
Tax
Profit after tax
130
Czech Republic
combined
£m
–
(0.7)
3.2
2.5
–
(0.1)
2.4
(1.0)
1.4
King Street
Developments
(Hammersmith)
Limited
£m
–
–
–
–
–
–
–
–
–
Curzon Park
Limited
£m
–
–
–
–
–
–
–
–
–
Walworth
Investment
Properties
Limited
£m
2.1
–
0.2
2.3
2.5
(1.7)
3.1
0.6
3.7
Total
£m
2.1
(0.7)
3.4
4.8
2.5
(1.8)
5.5
(0.4)
5.1
Grainger plc Annual Report and Accounts 2016
2016 Summarised statement of financial position
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets
Czech Republic
combined
£m
–
4.2
4.2
–
(2.0)
2.2
King Street
Developments
(Hammersmith)
Limited
£m
6.8
0.1
6.9
–
(6.9)
–
Curzon Park
Limited
£m
17.5
0.1
17.6
–
(22.0)
(4.4)
Walworth
Investment
Properties
Limited
£m
96.6
5.1
101.7
(30.0)
(14.5)
57.2
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 Group manages its investment on an aggregate basis.
2015 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
Profit before tax
Tax
Profit after tax
Czech Republic
combined
£m
–
–
–
–
King Street
Developments
(Hammersmith)
Limited
£m
–
–
–
–
Curzon Park
Limited
£m
–
–
–
–
New Sovereign
Reversions
Limited
£m
–
(0.2)
1.0
0.8
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(0.3)
0.5
–
0.5
2015 Summarised statement of financial position
Trading and investment property
Current assets
Total assets
Non-current liabilities
Current liabilities
Net assets
Czech Republic
combined
£m
11.6
0.6
12.2
(3.5)
(8.7)
–
King Street
Developments
(Hammersmith)
Limited
£m
5.4
0.7
6.1
–
(6.1)
–
Curzon Park
Limited
£m
17.4
0.1
17.5
–
(21.9)
(4.4)
Walworth
Investment
Properties
Limited
£m
1.6
–
0.2
1.8
11.3
(1.7)
11.4
(2.4)
9.0
Walworth
Investment
Properties
Limited
£m
94.8
3.9
98.7
(30.0)
(15.2)
53.5
Total
£m
120.9
9.5
130.4
(30.0)
(45.4)
55.0
Total
£m
1.6
(0.2)
1.2
2.6
11.3
(2.0)
11.9
(2.4)
9.5
Total
£m
129.2
5.3
134.5
(33.5)
(51.9)
49.1
131
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
21
Financial interest in property assets
Accounting Policy
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 recorded is as follows: i) the carrying value of the assets
is increased by the effective interest rate; ii) Cash received from the instrument in the year is deducted from the carrying
value of the asset; and iii) 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 arising
from i) and iii) above is recorded through the income statement and is shown on the line ‘Income from financial interest in
property assets’.
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.
Opening balance
Cash received from the instrument
Amounts taken to income statement
Amounts taken to other comprehensive income before tax
Closing balance
2016
£m
93.7
(9.3)
5.8
2.9
93.1
2015
£m
94.5
(10.0)
9.2
–
93.7
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 in the
fair value hierarchy within Note 28.
22
Intangible assets
Accounting Policy
Intangible assets comprise computer software and goodwill.
IT software is amortised on a straight-line basis over 4 to 7 years being the estimated useful lives of the assets, from the date
they are available for use. Amortisation is charged to the income statement.
Goodwill is tested for impairment based on a value in use calculation at each reporting date.
Net Book Value at 1 October 2014
Net Book Value at 30 September 2015
Net Book Value at 30 September 2016
132
Goodwill
£m
0.6
0.6
0.6
IT Software
£m
1.6
2.1
1.5
Total
£m
2.2
2.7
2.1
Grainger plc Annual Report and Accounts 2016
23
Inventories
Accounting Policy
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.
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 sale proceeds that the Group expects on sale of a property or current market value
net of associated selling costs.
Residential trading property
Development trading property
2016
£m
818.8
85.5
904.3
2015
£m
1,056.9
95.3
1,152.2
The market value of inventories as at 30 September 2016 was £1,553.7m (2015: £1,839.9m).
It is not possible for the Group to identify which properties will be sold within the next 12 months. The size of the Group’s
property portfolio does result in a relatively predictable vacancy rate. However, it is not possible to predict in advance the
specific properties that will become vacant. Trading property is shown as a current asset in the consolidated statement of
financial position.
Amounts relating to inventories that have been recognised as an expense in the consolidated income statement are as follows:
Carrying value of trading property sold (Note 8)
Carrying value of construction contract expenses (Note 8)
Impairment of inventories to net realisable value
2016
£m
63.4
24.1
2.7
2015
£m
67.6
–
1.2
133
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
24
Trade and other receivables
Accounting Policy
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 consolidated income statement.
Rent and other tenant receivables
Deduct: Provision for impairment
Rent and other tenant receivables – net
Amounts recoverable on contracts
Other receivables
Prepayments
2016
£m
3.1
(0.5)
2.6
50.5
4.2
6.7
64.0
2015
£m
11.0
(1.8)
9.2
12.2
2.3
7.9
31.6
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 28, ‘Financial risk management and derivative
financial instruments’.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Pounds Sterling
Euros
25
Provisions for other liabilities and charges
2016
£m
62.1
1.9
64.0
2015
£m
29.7
1.9
31.6
Accounting Policy
Provisions are recognised when: (a) the Group has a present obligation as a result of a past event; (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.
134
Grainger plc Annual Report and Accounts 2016
26
Trade and other payables
Accounting Policy
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
Deposits received
Trade payables
Tax and social security costs
Accruals
Deferred income
2016
£m
2.6
16.0
0.2
18.2
1.4
38.4
2015
£m
2.9
12.0
0.5
29.5
12.0
56.9
Deferred income includes £1.4m (2015: £10.8m) of rent received in advance. 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.
Information about the Group’s exposure to currency and liquidity risks is included in Note 28.
27
Interest-bearing loans and borrowings
Accounting Policy
Borrowings are initially recognised at 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.
Current liabilities
Bank loans
Non-bank financial institution
Mortgages
Corporate bond
Non-current liabilities
Bank loans
Non-bank financial institution
Mortgages
Corporate bond
Total interest-bearing loans and borrowings
2016
£m
(1.5)
101.1
–
(0.6)
99.0
447.7
23.9
–
273.1
744.7
843.7
2015
£m
124.4
9.3
0.2
(0.6)
133.3
537.7
266.2
16.8
272.4
1,093.1
1,226.4
135
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
27
Interest-bearing loans and borrowings continued
Information about the Group’s exposure to interest rate, foreign currency and liquidity risks is included in Note 28.
The £0.6m debit shown above under current liabilities for the Corporate bond and the £1.5m debit shown under bank loans
represent issue costs that will be amortised to the income statement during the next financial year. The Corporate bond and
bank loans do not mature until 2020.
The analysis of the loans and borrowings in the below tables (a) to (d) is before deducting unamortised issue costs of £9.0m
(2015: £11.1m) relating to the raising of the loan finance. It also includes the 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 2016, the unamortised premium was £0.6m (2015: £0.7m). In addition, for 2015 only, the balances shown
are before adding a fair value adjustment of £8.2m arising from the acquisition of debt.
(a) Analysis of bank loans
Bank loans – Pounds Sterling
Bank loans – Euro
2016
£m
440.0
12.1
452.1
2015
£m
528.7
140.0
668.7
Sterling bank loans include variable rate loans bearing interest at rates between 1.6% and 1.7% above LIBOR and Euro bank
loans include variable rate loans bearing interest at a rate of 1.6% above EURIBOR.
The weighted average variable interest rate on bank loans as at 30 September 2016 was 2.0% (2015: 2.3%). 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
2016
£m
–
125.0
125.0
2015
£m
142.1
125.8
267.9
The fixed rate loans in 2015 were secured by specific assets within the Retirement Solutions division. £100m of the variable rate
loan is secured by floating charges over the assets of the Group and bears interest at 4.0% over LIBOR and has been repaid
since the year end. The balance of £25m is funded by the Homes and Communities Agency and bears interest at 1% over the
European Commission reference rate applicable to the UK.
(c) Mortgages
Mortgages – Euro
2016
£m
–
2015
£m
17.0
The mortgages in 2015 were secured by fixed and floating charges over specific investment property in the Group’s German
Residential portfolio.
(d) Corporate bond
Corporate bond – Pounds Sterling
136
2016
£m
275.0
2015
£m
275.0
Grainger plc Annual Report and Accounts 2016
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 of £75m issued at
101.125%. The premium on the tap issue is being amortised to the income statement using the effective interest rate method.
Other loans and borrowings information
The core banking facility, variable rate UK loans and the Homes and Communities Agency loans are generally rolled over every
three months. At roll over, LIBOR, EURIBOR and the EC reference rate are reset for the following interest period.
28
Financial risk management and derivative financial instruments
Accounting Policies
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.
Derivative financial instruments
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 via other comprehensive income.
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 on-going basis. This effectiveness testing is re-performed at each period end to ensure that the hedge remains
highly effective.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting,
any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecasted
transaction is ultimately recognised in the income statement. When a forecasted transaction is no longer expected
to occur, the cumulative gain or loss that was recognised in equity is immediately transferred to the income statement.
Fair value estimation
The fair value of interest rate swaps is based on a discounted cash flow model using market information.
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.
137
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
28
Financial risk management and derivative financial instruments continued
Categories of financial instruments
A summary of the classifications of the financial assets and liabilities held by the Group is set out in the following table:
2016
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
Non-current assets
Financial interest in property assets
Current assets
Trade and other receivables excluding prepayments
Derivative financial instruments
Cash and cash equivalents
Total financial assets
–
57.3
–
90.7
148.0
–
–
0.3
–
0.3
–
–
–
–
–
93.1
93.1
93.1
–
–
–
93.1
57.3
0.3
90.7
241.4
57.3
0.3
90.7
241.4
–
–
–
–
–
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)
Loans and
receivables/
cash and
cash
equivalents
£m
Liabilities at
fair value
through
profit and
loss
£m
Other
financial
liabilities at
amortised
cost
£m
Derivatives
used for
hedging
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
–
–
–
–
–
148.0
–
–
–
–
–
0.3
–
744.7
744.7
771.5
–
–
13.1
13.1
(13.1)
99.0
38.4
–
882.1
(789.0)
99.0
38.4
13.1
895.2
(653.8)
99.0
38.4
13.1
922.0
(680.6)
–
–
–
–
–
–
The fair value difference relates to the Group’s Corporate Bond, which is stated at amortised cost in the consolidated statement
of financial position. The fair value of the bond is calculated as £301.8m (2015: £283.0m). There is no requirement under IAS 39
to revalue these loans to fair value in the consolidated statement of financial position.
Included in cash above is £10.7m (2015: £10.6m) relating to cash held on behalf of tenants, leaseholders and clients comprising
Service Charge amounts, Sinking Fund balances, tenant deposits and cash held on behalf of joint ventures. These cash amounts
are held by the Group as agent in separate ring-fenced client bank accounts and are excluded from net debt. In addition £37.9m
(2015: £39.8m) of the cash balance is restricted in use by underlying financing arrangements comprising either reserve fund
amounts or amounts where the release of cash is contingent upon proof of qualifying expenditure.
138
Grainger plc Annual Report and Accounts 2016
2015
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
–
23.7
–
88.8
112.5
–
–
2.0
–
2.0
–
–
–
–
–
93.7
93.7
93.7
–
–
–
93.7
23.7
2.0
88.8
208.2
23.7
2.0
88.8
208.2
–
–
–
–
–
Loans and
receivables/
cash and
cash
equivalents
£m
Liabilities at
fair value
through
profit and
loss
£m
Other
financial
liabilities at
amortised
cost
£m
Derivatives
used for
hedging
£m
Total book
value
£m
Fair value
£m
Fair value
adjustment
£m
–
–
–
1,093.1
1,093.1
1,125.4
–
–
–
–
112.5
–
–
30.5
30.5
(28.5)
–
–
5.0
5.0
(5.0)
133.3
56.9
–
1,283.3
(1,189.6)
133.3
56.9
35.5
1,318.8
(1,110.6)
133.3
56.9
35.5
1,351.1
(1,142.9)
–
–
–
–
–
–
Non-current assets
Financial interest in property assets
Current assets
Trade and other receivables excluding prepayments
Derivative financial instruments
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)
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 Audit 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 Tricomm Housing portfolio and 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.
139
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
28
Financial risk management and derivative financial instruments continued
The Group’s financial interest in property assets relates to a financial interest in equity mortgages held by the Church of
England Pensions Board. The Group’s cash receipts are payable by the Church Commissioners, a counterparty considered
to be low risk as they have no history of past due or impaired amounts and there are no past due amounts outstanding at
the year end.
The Group sometimes enters 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 2016, £nil (2015: £nil) was outstanding.
The Group also has credit risk relating to trade receivables. Where it is identified that recovery is doubtful, a provision for
impairment is made. For all Assured Shorthold Tenancies, credit checks are performed prior to acceptance of the tenant.
Regulated tenants are incentivised through the benefit of their tenancy agreement to avoid default on their rent. Lifetime
tenancies are generally at low or zero rent and hence suffer minimal credit risk. Rent deposits and personal guarantees are held
in respect of some leases. Taking these factors into account, the risk to the Group of individual tenant default and the credit risk
of trade receivables is considered low, as is borne out by the low level of trade receivables written off both in this year and in
prior years.
Tenant deposits of £2.0m (2015: £1.5m) are held which provide some security against rental arrears and property dilapidations
caused by the tenant. The Group does not hold any other collateral as security. Of the net trade receivables balance of £2.6m,
we consider Nil to be not due and not impaired. We consider that all of the £4.2m other receivables balance, and all of the
£50.5m amounts recoverable on contracts as not due and not impaired.
As at 30 September 2016, tenant arrears of £0.5m within trade receivables were impaired and fully provided for (2015: £1.8m).
The individually impaired receivables are based on a review of outstanding arrears and an assessment of collectability. Impaired
receivables and receivables not considered to be impaired are not material to the financial statements and, therefore, no
further analysis is provided.
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 2016, the fair value of all interest rate derivatives that had a positive
value was £0.3m (2015: £2.0m).
At 30 September 2016, the combined credit exposure arising from cash held at banks, money market deposits and interest rate
swaps was £80.3m (2015: £80.2m), which represents 5.0% (2015: 4.7%) 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
2016
£m
79.4
11.3
90.7
2015
£m
83.5
5.3
88.8
At the year end, £42.3m was placed on deposit (2015: £23.4m) at effective interest rates between 0.2% and 0.3% (2015: 0.4%
and 0.5%). Remaining cash and cash equivalents are held as cash at bank or in hand.
The Group has an overdraft facility of £1.0m as at 30 September 2016 (2015: £1.0m).
140
Grainger plc Annual Report and Accounts 2016
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 2016
and as at 30 September 2016 (see Note 2 ‘Critical accounting estimates and assumptions’).
The Group ensures that it maintains sufficient cash for operational requirements at all times. The Group also ensures that it
has sufficient undrawn committed borrowing facilities from a diverse range of banks and other sources to allow for operational
flexibility and to meet committed expenditure. The business is highly 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 2016
Interest-bearing loans and borrowings
Cash flow hedges
Trade and other payables
At 30 September 2015
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 2016
Interest-bearing loans and borrowings (Note 27)
Interest
Financial liability cash flows shown above
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
More than
5 years
£m
124.1
3.2
38.4
29.9
3.3
–
784.1
7.3
–
13.4
–
–
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
More than
5 years
£m
Total
£m
951.5
13.8
38.4
Total
£m
168.8
3.8
5.1
46.1
90.1
1.6
4.7
–
698.3
0.4
11.5
–
547.7
(0.3)
17.2
–
1,504.9
5.5
38.5
46.1
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
More than
5 years
£m
99.0
25.1
124.1
5.4
24.5
29.9
726.2
57.9
784.1
13.1
0.3
13.4
Total
£m
843.7
107.8
951.5
141
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
28
Financial risk management and derivative financial instruments continued
At 30 September 2015
Interest-bearing loans and borrowings (Note 27)
Foreign exchange impact of forward rates
Interest
Financial liability cash flows shown above
Less than
1 year
£m
Between
1 and 2
years
£m
Between
2 and 5
years
£m
More than
5 years
£m
Total
£m
133.3
1.6
33.9
168.8
52.8
2.6
34.7
90.1
582.5
1.4
114.4
698.3
457.8
0.4
89.5
547.7
1,226.4
6.0
272.5
1,504.9
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
2016
£m
–
277.9
–
277.9
2015
£m
–
96.7
–
96.7
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 Tricomm Housing portfolio and the CHARM portfolio. The Group internally measures its
market risk exposure by running various sensitivity analyses. The Directors consider that a +/– 1 percent (2015: 1 percent)
movement in interest rates, a +/– 10 percentage point (2015: 10 percentage point) movement in Sterling and a +/– 1 percentage
point (2015: 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 the discount 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 21 provides a reconciliation of movements and amounts recognised in the income statement and other
comprehensive income.
142
Grainger plc Annual Report and Accounts 2016
Investment property falls within Level 3. The Investment valuations provided by Allsop LLP and CBRE Limited are based on
RIC’s Professional Valuation Standards, but include a number of unobservable inputs and other valuation assumptions. In prior
years, investment property has been included within Level 2. However, as all inputs to their valuation on a property by property
basis are not always observable, investment property is better shown within Level 3 and a transfer has been made in the
current year to reflect this. 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 for Level 3 is detailed
in the table below.
Assets – Level 3
Opening balance
Amounts taken to income statement
Transfer from Level 2
Other movements
Closing balance
The following table presents the Group’s assets and liabilities that are measured at fair value.
2016
£m
205.2
26.1
246.3
(123.2)
354.4
2015
£m
203.6
11.6
–
(10.0)
205.2
Level 3
Financial interest in property assets
Investment property
Level 2
Interest rate swaps – in cash flow hedge accounting relationships
Interest rate swaps – not in cash flow hedge accounting relationships
Interest rate caps – not in cash flow hedge accounting relationships
Investment property
Assets classified as held-for-sale
2016
2015
Assets
£m
Liabilities
£m
Assets
£m
Liabilities
£m
93.1
261.3
354.4
–
–
0.3
–
3.4
3.7
–
–
–
13.1
–
–
–
–
13.1
93.7
111.5
205.2
–
–
2.0
246.3
–
248.3
–
–
–
5.0
30.5
–
–
–
35.5
The Group’s trading property is carried in the consolidated statement of financial position at the lower of cost and net realisable
value. As trading property is only shown at market value within the Group’s non-GAAP EPRA NAV and EPRA NNNAV measures
it has been excluded from the fair value hierarchy table above. If the market value of trading property were included it would
fall within Level 3 of the fair value hierarchy as defined by IFRS 13. The statutory book value of trading property is £904.3m and
its market value is £649.4m higher at £1,553.7m.
The Group’s fixed rate loans are included in the consolidated statement of financial position at amortised cost. As the fixed rate
loans are only shown at fair value in the Group’s non-GAAP EPRA NAV and EPRA NNNAV measures they have been excluded
from the fair value hierarchy table above. Had they been included they would fall within Level 2 of the fair value hierarchy as
defined in IFRS 13. The statutory book value of fixed rate loans is £275m and their fair value is £301.8m.
Interest rate swaps and caps are all classified as either current assets or current liabilities.
The notional principal amount of the outstanding interest rate swap and cap contracts as at 30 September 2016 was
£462.2m (2015: £493.1m).
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 market information and were checked internally using a software package.
143
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
28
Financial risk management and derivative financial instruments continued
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.
As at 30 September 2016 the Group’s only fixed rate debt was the £275m quoted corporate bond due December 2020,
which has been valued using quoted market prices, consistent with the approach as at 30 September 2015. JC Rathbone
Associates Limited has valued the Group’s fixed rate debt on a replacement basis, taking into account the difference between
the fixed rates for the Group’s borrowings and the market value and prevailing interest rates 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 – 30 September 2016
Fixed rate loan facilities – 30 September 2015
Book value
£m
275.0
464.8
Fair value
£m
301.8
497.1
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 and caps. 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 30% of expected borrowing. As at 30 September 2016, 87% (2015: 77%) 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 £1.8m (2015: an increase of £7.4m). Similarly, a 1% decrease would increase annual profits by
£1.8m (2015: a decrease of £7.4m).
Based on the Group’s interest rate profile at the statement of financial position date, a 1% increase in interest rates would
increase the Group’s equity by £14.5m (2015: £15.6m). Similarly, a 1% decrease would decrease the Group’s equity by
£14.5m (2015: £15.6m).
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.
144
Grainger plc Annual Report and Accounts 2016 As at 30 September 2016, the market value of derivatives designated as cash flow hedges under IAS 39, is a net liability of
£13.1m (2015: £5.0m). The total ineffectiveness of cash flow hedges recognised within the income statement totals a gain of
£nil (2015: £0.4m). The fair value movement on derivatives not in hedge accounting relationships and amounts reclassified
from equity to the income statement amounted, in aggregate, to a charge of £9.9m (2015 charge restated: £6.3m) 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
2015
restated
(Note 3)
£m
(6.7)
0.4
(6.3)
2016
£m
(9.9)
–
(9.9)
At 30 September 2016, the market value of derivatives not designated as cash flow hedges under IAS 39, is a net asset
of £0.3m (2015: a liability of £28.5m). 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 2016.
Hedged debt
Hedged debt maturing:
Within one year
Between one and two years
Between two and five years
Over five years
2016
£m
2015
£m
1.3
1.3
203.3
256.3
462.2
90.2
36.7
109.1
257.1
493.1
Interest rate profile – including the effect of derivatives and amortisation of issue costs
Weighted
average
interest
rate
%
5.2
3.4
2.9
3.9
Average
maturity
years
4.3
3.3
3.5
3.6
2016
Sterling
£m
275.0
462.2
102.8
840.0
Gross
Debt
Total
£m
275.0
462.2
114.9
852.1
Weighted
average
interest
rate
%
5.5
4.4
3.0
4.5
Average
maturity
years
7.2
3.8
4.4
5.2
Euro
£m
–
–
12.1
12.1
2015
Sterling
£m
437.0
445.3
189.3
1,071.6
Gross
Debt
Total
£m
455.6
493.1
279.9
1,228.6
Euro
£m
18.6
47.8
90.6
157.0
Fixed rate
Hedged rate
Variable rate
At 30 September 2016, the fixed interest rates on the interest rate swap contracts vary from 0.69% to 1.96% (2015: 1.11% to
5.23%); the weighted average rates are shown in the table above.
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.
145
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
28
Financial risk management and derivative financial instruments continued
The Group’s statement of financial position translation exposure is summarised below:
Gross foreign currency assets
Gross foreign currency liabilities
Net exposure
2016
Euro
£m
11.4
(12.1)
(0.7)
2015
Euro
£m
89.2
(83.3)
5.9
As at 30 September 2016, it is estimated that a general increase/decrease of 10 percentage points in the value of Sterling
against the Euro would decrease/increase the Group’s profit before tax by approximately £0.4m (2015: £0.2m) and equity
by Nil (2015: £0.5m).
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. As at 30 September 2016, the Group had available headroom of £321m. The £100m loan from
M&G Investments Management Limited was repaid on 6 October 2016. There are no other material maturities of committed
borrowings until 2020.
House price risk
The cash flows arising from the Group’s financial interest in property assets (CHARM) and the Tricomm Housing 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 35%–45%, 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 2016, the
weighted average cost of debt was 3.9% (2015: 4.6%) and the WACC was 6.02% (2015: 6.22%). Investment and development
opportunities are evaluated using a risk adjusted WACC in order to ensure long-term shareholder value is created.
146
Grainger plc Annual Report and Accounts 2016 29
Pension costs
Accounting Policy
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 outgoings (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 other comprehensive income
each year.
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 85. The pension cost charge in these financial statements represents
contributions payable by the Group. The charge of £1.0m (2015: £1.0m) is included within employee remuneration in Note 11.
Defined benefit scheme
In addition to the above, the Group also operates a final salary defined benefit pension scheme, the BPT Limited Retirement
Benefits Scheme. The assets of the scheme are held separately in funds administered by Trustees and are invested with Rathbones
Investment Management Limited, an independent investment manager. Pension benefits are linked to the members’ final
pensionable salaries and service at their retirement date (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-third 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.
147
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
29
Pension costs continued
The defined benefit obligation is valued by projecting the best estimate of future benefit payments (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 CPI 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 2016 was 17 years.
The IAS 19 calculations for disclosure purposes have been based upon the results of the actuarial valuation carried out as at
1 July 2013, updated to 30 September 2016, by a qualified independent actuary.
Principal actuarial assumptions under IAS 19 (per annum)
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
Demographic assumptions
Mortality tables for pensioners
Mortality tables for non-pensioners
Life expectancies
2016
2.25%
3.10%
2.10%
3.60%
5.00%
2.10%
2015
3.70%
3.10%
2.10%
3.60%
5.00%
2.10%
2016
100% of S2PA CMI 2015 model with a
long-term rate of improvement of 1.50% p.a.
for males and 1.00% p.a. for females
As for pensioners
2015
100% of S1PA CMI 2012 model with a
long-term rate of improvement of 1.50% p.a.
for males and 1.00% p.a. for females
As for pensioners
Life expectancy for a current 60-year-old (years)
Life expectancy at age 60 for an individual aged 40 in 2016 (years)
Risks
Through the scheme, the Group is exposed to a number of risks:
30 September 2016
30 September 2015
Male
87.2
89.5
Female
88.6
90.2
Male
87.6
90.1
Female
89.3
90.9
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.
148
Grainger plc Annual Report and Accounts 2016
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.
Market value of scheme assets
The assets of the scheme are invested in a diversified portfolio as follows:
Equities
Bonds
Properties
Cash
Insurance policies
Total value of assets
The actual return on assets over the year was
30 September 2016
30 September 2015
Market
value
£m
12.2
11.7
–
1.5
4.1
29.5
2.9
% of total
scheme
assets
41%
40%
–
5%
14%
100%
Market
value
£m
10.4
10.8
0.5
1.2
4.0
26.9
0.8
% of total
scheme
assets
39%
40%
2%
4%
15%
100%
The assets of the scheme were transferred from Friends Life in the year and are now held with Rathbone Investment
Management Limited in a managed fund. All of the assets listed have a quoted market price in an active market with the
exception of the insurance policy asset where its value has been set equal to the secured pensioner liability.
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
2016
£m
29.5
(34.7)
(5.2)
2015
£m
26.9
(28.6)
(1.7)
2014
£m
25.8
(28.0)
(2.2)
2013
£m
22.8
(26.9)
(4.1)
2012
£m
21.7
(27.5)
(5.8)
2016
2015
2014
2013
2012
–
–
–
–
£(6.0)m £(0.4)m
(1.4)%
(17.3)%
£0.5m
1.8%
£(1.2)m
(4.3)%
–
–
£0.9m
3.3%
–
–
£(4.0)m
(14.5)%
£1.9m £(0.2)m
(0.7)%
6.4%
£1.6m
6.2%
£(0.2)m
(0.9)%
£2.0m
9.2%
149
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
29
Pension costs continued
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
The change in value of the defined benefit obligation over the year was as follows:
Value of defined benefit obligation at the start of the year
Interest on pension scheme liabilities
Actuarial gains: changes in demographic assumptions
Actuarial losses: changes in financial assumptions
Benefits paid
Value of defined benefit obligation at the end of the year
Amounts recognised in the consolidated statement of comprehensive income
Actual return on assets less interest
Actuarial loss on defined benefit obligation
2016
£m
26.9
1.0
0.6
1.9
(0.9)
29.5
2016
£m
28.6
1.0
(2.1)
8.1
(0.9)
34.7
2016
£m
1.9
(6.0)
(4.1)
2015
£m
25.8
1.0
1.1
(0.2)
(0.8)
26.9
2015
£m
28.0
1.0
–
0.4
(0.8)
28.6
2015
£m
(0.2)
(0.4)
(0.6)
The loss shown in the above table of £4.1m (2015: loss of £0.6m) has been included in the consolidated statement of
comprehensive income on page 95.
Future funding obligation
The Trustees are required to carry out an actuarial valuation every three 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 eliminate the deficit
by 31 January 2020. Based on this plan, the Company expects to pay £0.6m p.a. to the scheme, until 31 January 2020.
A full actuarial valuation is currently in progress based on the scheme assets and liabilities as at 1 July 2016. The Group and the
Trustees will review the results of the valuation on completion. In line with paragraph 23 of IFRIC 14, no additional liability is
recognised as the additional contributions under the funding plan will reduce the future contributions payable into the Scheme.
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.
RPI Inflation movement of 0.1% p.a.
Life expectancies movement of one year
Increase/decrease in deficit of £0.6m
Increase/decrease in deficit of £0.1m
Increase/decrease in deficit of £1.6m
150
Grainger plc Annual Report and Accounts 2016 30
Issued share capital
Accounting Policy
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.
Allotted, called-up and fully paid:
418, 374,535 (2015: 418,256,902) ordinary shares of 5p each
2016
£m
2015
£m
20.9
20.9
During the year, The Grainger Employee Benefit Trust has not acquired any shares (2015: 2,000,000 shares at cost of £4.1m).
The Group paid £0.6m (2015: £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 £0.6m (2015: £4.7m) has been deducted from retained earnings
within Shareholders’ equity.
As at 30 September 2016, share capital included 1,733,127 (2015: 3,656,096) shares held by The Grainger Employee Benefit
Trust and 1,506,300 (2015: 1,506,300) shares held by Grainger plc as treasury shares. The total of these shares is 3,239,427
(2015: 5,162,396) with a nominal value of £161,971 (2015: £258,120) and a market value as at 30 September 2016 of £7.5m
(2015: £12.3m).
Movements in issued share capital during the year and the previous year were as follows:
At 30 September 2014
Options exercised under the SAYE scheme
At 30 September 2015
Options exercised under the SAYE scheme
At 30 September 2016
Number
417,792,510
464,392
418,256,902
117,633
418,374,535
Nominal
value
£’000
20,890
23
20,913
5
20,918
Share options
Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans comprising awards under a Long-Term
Incentive Plan (‘LTIP’), 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.
151
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
30
Issued share capital continued
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.
The Company operates a SAYE share option scheme available to employees. The number of shares subject to options as at
30 September 2016, the periods in which they were granted and the periods in which they may be exercised, are given below.
Year of grant
SAYE share options
2011
2012
2013
2014(A)
2014(B)
2015
2016
Total SAYE share options
Exercise
price
(pence)
Exercise
period
2016
number
2015
number
98.7
68.9
115.1
173.1
151.3
173.3
166.8
2014–17
2015–18
2016–19
2017–20
2018–20
2018–21
2019–21
–
74,018
44,561
163,578
474,352
199,320
291,834
20,316
107,716
95,427
187,488
524,494
215,979
–
1,247,663 1,151,420
The movement on the share options schemes during the year is as follows:
SAYE scheme
2011
2012
2013
2014(A)
2014(B)
2015
2016
Weighted average exercise price (pence per share)
Opening
position
20,316
107,716
95,427
187,488
524,494
215,979
–
1,151,420
147.30
Exercised
Granted
Lapsed
Closing
position
(20,316)
(33,698)
(39,448)
(6,413)
(13,678)
(4,080)
–
(117,633)
108.40
–
–
–
–
–
–
291,834
291,834
166.80
–
–
(11,418)
(17,497)
(36,464)
(12,579)
–
–
74,018
44,561
163,578
474,352
199,320
291,834
(77,958) 1,247,663
155.10
154.40
For those share options exercised during the year, the weighted average share price at the date of exercise was 225.1p
(2015: 229.5p). For share options outstanding at the end of the year, the weighted average remaining contractual life is
2.8 years (2015: 3.4 years). There were 25,014 (2015: 33,698) share options exercisable at the year end with a weighted
average exercise price of 115.1p (2015: 68.9p).
The Group operates an equity-settled, share-based compensation plan comprising awards under a long-term incentive
plan (‘LTIP’), a deferred bonus plan (‘DBP’), a share incentive plan (‘SIP’) and a save as you earn (‘SAYE’) scheme.
152
Grainger plc Annual Report and Accounts 2016
For the LTIP awards, one-half are subject to an absolute total shareholder return performance condition measured over three
years from the date of grant and one-half are subject to annual growth in NNNAV compared to the average growth in the
Halifax and Nationwide House Price indices all measured over three years from the date of grant.
Awards 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 employees in the scheme continuing
to be employed. 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. In addition to the normal DBP
scheme, an enhanced DBP scheme (EDBP) is also provided. The enhanced scheme operates in exactly the same way as the
normal DBP scheme except that if participants retain their awards within the plan until the end of the fifth year, a further
additional 50% matching award is added to their award entitlement. Awards under the DBP/EDBP 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 LTIP. 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.
31
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 (£)
LTIP
LTIP
DBP
SAYE
11 January
2016
Market
based
404,955
–
3
7
2.40
0.8
1.2
29.1
0.92
11 January
2016
Non-
market
based
404,955
–
3
7
2.40
0.8
1.2
29.1
2.32
11 February
2016
Market
based
71,373
–
3
7
2.10
0.8
1.2
28.8
0.78
11 February
2016
Non-
market
based
71,372
–
3
7
2.10
0.8
1.2
28.8
2.03
12 January
2016
Basic
56,502
–
1–3
3
2.40
n/a
1.2
n/a
2.40
12 January
2016
Enhanced
97,468
–
1–5
3
2.40
n/a
1.2
n/a
2.40
21 July
2016
3 year
scheme
225,833
1.668
3
–
2.23
0.11
1.1
27.3
0.66
21 July
2016
5 year
scheme
66,001
1.668
5
–
2.23
0.15
1.1
34.2
0.82
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 £1.9m (2015: £2.0m).
Movements in options and options exercisable under the SAYE scheme as at 30 September 2016 are shown in Note 30.
153
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
31
Share-based payments continued
The movement in share awards during the year is as follows:
Scheme
LTIP
10 December 2012
13 December 2012
9 December 2013
16 December 2014
11 January 2016
12 January 2016*
11 February 2016
Total
Opening
balance
Awards
vested
Awards
granted
Awards
lapsed
Closing
position
165,649
843,046
1,029,199
–
–
–
1,449,341 (1,420,895)
(162,336)
–
–
–
(5,520)
–
–
–
–
–
809,910
152,495
142,745
3,487,235 (1,588,751) 1,105,150
(28,446)
(3,313)
(165,064)
(458,715)
(216,523)
(27,602)
–
–
–
677,982
570,484
593,387
119,373
142,745
(899,663) 2,103,971
*
The grant of LTIP awards made on 12 January 2016 was made to Helen Gordon as replacement of awards made by her previous employer. The fair value of
these awards is based on the assumptions relating to previous LTIP awards. Please see section 4 of the remuneration report on page 78 for further details.
Scheme
DBP
6 December 2010
12 December 2011
21 December 2012
9 December 2013
16 December 2014
12 January 2016
EDBP
16 December 2014
12 January 2016
Total
32
Changes in equity
Opening
balance
Awards
vested
Awards
granted
Awards
lapsed
Closing
position
32,653
67,582
168,306
192,927
85,752
–
163,860
–
711,080
(32,653)
(40,676)
(156,165)
(47,933)
(18,804)
(6,381)
–
–
–
–
–
56,502
–
–
–
–
(4,082)
–
–
26,906
12,141
144,994
62,866
50,121
(24,390)
(11,356)
(338,358)
–
97,468
153,970
–
–
(4,082)
139,470
86,112
522,610
The consolidated statement of changes in equity is shown on pages 97 and 98. 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 33.
Merger reserve
The merger reserve arose when the Company issued shares in partial consideration for the acquisition of City North Group plc
in the year ended 30 September 2005. The issue satisfied the provisions of Section 612 of the Companies Act 2006 (formerly
Section 131 of the Companies Act 1985) 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.
Available for sale reserve
The fair value movements in the valuation of the CHARM financial asset, net of tax, are taken to this reserve.
154
Grainger plc Annual Report and Accounts 2016
33
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 30 September 2014
Profit for the year
Actuarial loss on BPT Limited pension scheme net of tax
Exchange adjustments offset in reserves net of tax
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Balance as at 30 September 2015
Profit for the year
Actuarial loss on BPT Limited pension scheme net of tax
Exchange adjustments offset in reserves net of tax
Recycling of exchange adjustments to income statement net of tax
Purchase of own shares
Award of shares from own shares
Share-based payments charge
Dividends
Balance as at 30 September 2016
Treasury
shares
bought
back and
cancelled
£m
(7.8)
–
–
–
–
–
–
–
(7.8)
–
–
–
–
–
–
–
–
(7.8)
Investment
in own
shares
£m
(13.1)
–
–
–
(4.7)
2.8
–
–
(15.0)
–
–
–
–
(0.6)
0.6
–
–
(15.0)
Translation
reserve
£m
2.8
–
–
(0.1)
–
–
–
–
2.7
–
–
1.1
(3.5)
–
–
–
–
0.3
Share-based
payment
reserve
£m
3.3
–
–
–
–
(2.8)
2.0
–
2.5
–
–
–
–
–
(0.6)
1.9
–
3.8
Total
retained
earnings
reserve
£m
382.7
42.7
(0.5)
(0.1)
(4.7)
–
2.0
(10.4)
411.7
135.3
(3.5)
1.1
(3.5)
(0.6)
–
1.9
(14.7)
527.7
Retained
earnings
£m
397.5
42.7
(0.5)
–
–
–
–
(10.4)
429.3
135.3
(3.5)
–
–
–
–
–
(14.7)
546.4
Share-based payment 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.
155
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the financial statements
continued
34
List of subsidiaries, associates and joint ventures
A full list of all subsidiaries, joint ventures, associates and other related undertakings as at 30 September 2016 is set out in the
notes to the parent company financial statements on pages 164 to 167.
35
Related party transactions
During the year ended 30 September 2016, the Group transacted with its associates and joint ventures (details of which are set
out in Notes 19 and 20). The Group provides a number of services to its associates and joint ventures. These include property
and asset management services for which the Group receives fee income. The related party transactions recognised in the
income statement and statement of financial position are as follows:
GRIP REIT PLC
Grainger Stuttgart Portfolios
New Sovereign Reversions Limited
Walworth Investment Properties Limited
2016
2015
Fees
recognised
£’000
3,670
301
–
40
4,011
Year end
balance
£’000
1,745
–
–
40
1,785
Fees
recognised
£’000
3,398
924
704
40
5,066
Year end
balance
£’000
1,527
–
–
40
1,567
On 1 January 2016, the Group sold its 25% equity interest in MH Grainger JV Sarl and its investment in Grainger Stuttgart
Portfolio one GmbH & Co Kg and Grainger Stuttgart Portfolio two GmbH & Co Kg. The fees shown in the table above in 2016
represent asset management fees earned by the Group from 1 October 2015 upto completion on 1 January 2016.
On 1 June 2015, the Group sold its 50% equity interest in New Sovereign Reversions Limited. The fees shown in the table above
in 2015 represent asset management fees earned by the Group from 1 October 2014 upto completion on 1 June 2015.
GRIP REIT PLC
MH Grainger JV Sarl
Grainger Stuttgart Portfolios
New Sovereign Reversions Limited
Czech Republic combined*
Curzon Park Limited*
King Street Developments (Hammersmith) Limited
Walworth Investment Properties Limited
Vesta LP
2016
Year end
loan
balance
£m
Interest
recognised
£’000
795
–
–
–
388
–
–
455
–
1,638
19.9
–
–
–
(3.6)
19.5
6.8
6.7
0.1
49.4
Interest
rate
%
Nil and
4.75
–
–
–
4.00
Nil
Nil
7.00
Nil
2015
Year end
loan
balance
£m
Interest
recognised
£’000
1,010
97
11
(12)
–
–
–
456
–
1,562
24.1
–
–
–
6.9
19.5
5.9
6.6
0.1
63.1
Interest
rate
%
4.75
7.50
8.00
LIBOR +
2.35
1.25
Nil
Nil
7.00
Nil
*
The amount disclosed above is the gross loan amount. Some provisions have been made against the loans.
The Group’s key management are the only other related party. Details of key management compensation is provided in Note 11.
156
Grainger plc Annual Report and Accounts 2016
36
Operating leases
Accounting Policy
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.
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 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
2016
£m
0.8
3.7
1.1
5.6
2015
£m
1.1
4.3
1.9
7.3
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.
There are no contingent rents recognised within net rental income in 2016 or 2015 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 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.
157
Financial StatementsGrainger plc Annual Report and Accounts 2016 Financial Statements –
Notes to the financial statements
continued
37
Contingent liabilities
The properties in certain subsidiary companies forming a ‘guarantee Group’ with a market value of £1,181.1m provide the
security for the Group’s core debt facility.
Barclays Bank plc and Lloyds Bank plc have provided guarantees under performance bonds relating to the Group’s UK
Development division. As at 30 September 2016, total guarantees amounted to £2.3m (2015: £2.8m).
The Group has an obligation, under an agreement for sale in relation to its land at West Waterlooville, to pay further
consideration should the site value exceed certain pre-agreed amounts. It also has an obligation under a profit sharing
agreement to share profits above an agreed threshold. 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, our current best
estimate is that the earliest payment under these arrangements will not be before October/November 2017 and any payments
are likely to be spread over a number of years.
As explained in more detail in Note 20, there is uncertainty relating to the future of the site at 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
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.
38
Capital commitments
2016
£m
117.1
2015
£m
63.1
The Group has current commitments under a number of its PRS projects totalling £117.1m as at 30 September 2016
(2015: £63.1m).
39
Post balance sheet events
An irrevocable prepayment notice was delivered to M&G Investments Management Limited on the 29 September 2016, setting
out the early repayment terms of the £100m term loan due 2021. The loan was subsequently repaid in full on 6 October 2016
utilising headroom on the Group’s Core Facilities.
On 28 November 2016, the Group agreed and signed two new £50m bi-lateral term loans with HSBC and RBS. The initial term
of each loan is 5 years. The HSBC facility agreement has an option to extend the maturity for a further one year.
On 28 November 2016, the Group agreed to aquire a PRS, build-to-rent development at Finzels Reach in Bristol for £45.7m.
The site will deliver 194 private rental homes and is expected to complete at the beginning of 2019.
158
Grainger plc Annual Report and Accounts 2016
Parent company statement of financial position
As at 30 September
Fixed assets
Investments
Current assets
Trade and other receivables
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Creditors: amounts falling due after more than one year
Interest-bearing loans and borrowings
Net assets
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Retained earnings
Total Shareholders’ funds
Notes
2016
£m
2015
£m
2
3
4
5
6
893.3
934.4
35.9
25.8
61.7
(321.3)
(259.6)
633.7
30.2
5.3
35.5
(204.5)
(169.0)
765.4
(272.5)
361.2
(371.2)
394.2
20.9
110.8
0.3
229.2
361.2
20.9
110.7
0.3
262.3
394.2
The financial statements on pages 159 to 167 were approved by the Board of Directors on 1 December 2016 and were signed
on its behalf by:
Helen Gordon
Director
Vanessa Simms
Director
159
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Parent company statement of changes in equity
As at 30 September
Balance as at 1 October 2014
Loss for the year
Share-based payments charge
Purchase of own shares
Award of SAYE shares
Dividends paid
Balance as at 30 September 2015
At 1 October 2015
Loss for the year
Share-based payments charge
Purchase of own shares
Award of SAYE shares
Dividends paid
Balance as at 30 September 2016
Issued
share
capital
£m
20.9
–
–
–
–
–
20.9
20.9
–
–
–
–
–
20.9
Share
premium
£m
110.4
–
–
–
0.3
–
110.7
Capital
redemption
reserve
£m
0.3
–
–
–
–
–
0.3
110.7
–
–
–
0.1
–
110.8
0.3
–
–
–
–
–
0.3
Retained
earnings
£m
295.9
(20.5)
2.0
(4.7)
–
(10.4)
262.3
262.3
(19.7)
1.9
(0.6)
–
(14.7)
229.2
Total
equity
£m
427.5
(20.5)
2.0
(4.7)
0.3
(10.4)
394.2
394.2
(19.7)
1.9
(0.6)
0.1
(14.7)
361.2
160
Grainger plc Annual Report and Accounts 2016 Notes to the parent company financial statements
1
Accounting policies
(a) Basis of preparation
The financial statements have been prepared in accordance with Financial Reporting Standard 101, ‘Reduced Disclosure
Framework’ (FRS101). The financial statements have been prepared on a going concern basis under the historical cost
convention, in accordance with the Companies Act 2006.
These are the first financial statements of the Company to be prepared under FRS 101. The Company’s date of transition to
FRS 101 is 1 October 2014. The previous financial statements were prepared in accordance with previously applicable UK
accounting standards. The adoption of FRS 101 has not resulted in any change to the recognition and measurement principles
previously adopted and so the disclosure requirements of IFRS 1 are not included and the comparatives have not been restated,
other than for certain presentational changes. The Company has notified its shareholders in writing about, and they do not
object to, the use of the disclosure exemptions used by the Company in these financial statements.
The application of FRS 101 has enabled the Company to take advantage of certain disclosure exemptions that would have been
required had the Company adopted International Financial Reporting Standards in full. The exemptions that have been applied
in the preparation of these financial statements are:
A cash flow statement and related notes have not been presented.
Disclosures in respect of new standards and interpretations that have been issued but which are not yet effective have not
been provided.
Disclosures in respect of transactions with wholly owned subsidiaries have not been made.
Certain disclosures required by IFRS 13 Fair Value Measurement and the disclosures required by IFRS 7 Financial
Instruments: DIsclousres have not been made.
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 £19.7m (2015: £20.5m). These financial statements present
information about the Company as an individual undertaking and not about its Group.
The following accounting policies have been applied consistently in dealing with items that are considered material in relation
to the Company’s financial statements.
(b) 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 due to change
in economic conditions, impairment provisions are reversed.
(c) Tax
Corporation tax is provided on taxable profits or losses at the current rate.
Deferred tax is recognised in respect of all temporary 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 temporary 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.
161
Grainger plc Annual Report and Accounts 2016Financial Statements
Financial Statements –
Notes to the parent company financial statements
continued
1
Accounting policies continued
(d) 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.
(e) Share-based payments
Under the share-based compensation arrangements set out Note 31, 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.
(f) Borrowings
Borrowings are initially recognised at 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.
2
Investments
Cost of investment
At 1 October
Additions
Disposals
At 30 September
2016
£m
1,021.5
1.9
(48.2)
975.2
2015
£m
1,017.5
4.0
–
1,021.5
Included within additions of £4.0m in 2015 was an investment in Greit Limited of £2.0m. The remaining additions relate to
share-based payments.
Impairment
At 1 October
Additional provision
Reversal of impairment provisions
At 30 September
Net carrying value
2016
£m
87.1
–
(5.2)
81.9
893.3
2015
£m
89.2
–
(2.1)
87.1
934.4
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 reversal of £5.2m (2015: reversal of £2.1m) has been made.
A list of the subsidiaries of the Company is contained within Note 8 on pages 164 to 167.
162
Grainger plc Annual Report and Accounts 2016 3
Trade and other receivables
Amounts owed by Group undertakings
Other receivables
Amounts due in both 2016 and 2015 are all due within one year.
4
Creditors: amounts falling due within one year
Variable rate loan (Note 5)
Bank loans and overdrafts
Amounts owed to Group undertakings
Accruals and deferred income
Amounts owed to Group undertakings are interest free and are repayable on demand.
5
Interest-bearing loans and borrowings
Variable rate – Pounds Sterling
Unamortised issue costs
5% Guaranteed Secured Bonds due 2020
Unamortised issue costs
Unamortised bond premium
Total interest-bearing loans and borrowings
2016
£m
35.4
0.5
35.9
2015
£m
28.9
1.3
30.2
2016
£m
100.0
2.7
214.3
4.3
321.3
2015
£m
–
–
200.1
4.4
204.5
2016
£m
–
–
–
275.0
(3.1)
271.9
0.6
272.5
2015
£m
100.0
(0.6)
99.4
275.0
(3.9)
271.1
0.7
371.2
The variable rate loan shown in Notes 4 and 5 is secured by floating charges over the assets of the Group. The loan bears
interest at 4% (2015: 4%) over LIBOR. The amount due in more than five years is Nil (2015: £60.0m). This loan has been repaid
since the year end.
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 of £75m issued at
101.125%. The premium on the tap issue is being amortised to the income statement using the effective interest rate method.
163
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the parent company financial statements
continued
6
Called-up share capital
Allotted, called-up and fully paid
418,374,535 (2015: 418,256,902) ordinary shares of 5p each
2016
£m
20.9
2015
£m
20.9
Details of movements in issued share capital during the year and the previous year are provided in Note 30 to the Group
financial statements on page 151.
Details of share options and awards granted by the Company are provided in Note 30 to the Group financial statements on
pages 151 to 153 and discussed within the Remuneration Committee’s report on pages 62 to 85.
7
Other information
Dividends
Information on dividends paid and declared is given in Note 15 to 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.
8
List of subsidiaries, associates and joint ventures
A full list of of the Group’s subsidiaries, associates, joint ventures and other related undertakings as at 30 September 2016 is set
out below:
Company
Atlantic Metropolitan (U.K.) Limited
BPT (Assured Homes) Limited
BPT (Bradford Property Trust) Limited
BPT (Residential Investments) Limited
BPT (Residential Management Services) Limited
BPT Limited
Brierley Green Management Company Limited
Bromley No 1 Limited
Bromley No. 1 Holdings Limited
Bromley Property Holdings Limited
Bromley Property Investments Limited
Cambridge Place Management Company Limited
Chrisdell Limited
City North 5 Limited
City North Group Limited
City North Properties Limited
City Property Developments (No.2) Limited
City Property Developments Limited
Crofton Estate Management Company Limited
Crossco (No. 103) Limited
Curzon Park Limited
Derwent Developments (Curzon) Limited
164
Proportion of nominal value
of ordinary shares held by:
Company %
100%
100%
100%
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Group %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
50%
100%
Grainger plc Annual Report and Accounts 2016
8
List of subsidiaries, associates and joint ventures
Company
Derwent Developments Limited
Derwent Nominees (No 2) Limited
Ekacroft Limited
Faside Estates Limited
Frincon Holdings 1986 Limited
Frincon Holdings Limited
GIP Limited
Globe Brothers Estates Limited
Grainger (Aldershot) Limited
Grainger (Clapham) Limited
Grainger (Hadston) Limited
Grainger (Hornsey) Limited
Grainger (London) Limited
Grainger (Octavia Hill) Limited
Grainger (Peachey) Limited
Grainger Asset Management Limited
Grainger Bradley Limited
Grainger Developments Limited
Grainger Employees Limited
Grainger Enfranchisement No. 1 (2012) Limited
Grainger Enfranchisement No. 2 (2012) Limited
Grainger Enfranchisement No. 3 (2012) Limited
Grainger Europe (No.2) Limited
Grainger Europe (No.3) Limited
Grainger Europe (No.4) Limited
Grainger Europe Limited
Grainger European Ventures Limited Liability Partnership
Grainger Finance (Tricomm) Limited
Grainger Finance Company Limited
Grainger Homes (Gateshead) Limited
Grainger Homes Limited
Grainger Housing & Developments Limited
Grainger Invest No.1 Limited Liability Partnership
Grainger Invest No.2 Limited Liability Partnership
Grainger Invest (No.1 Holdco) Limited
Grainger Kensington & Chelsea Limited
Grainger Land & Regeneration Limited
Grainger Maidenhead Limited
Grainger Newbury Limited
Grainger OCCC Limited
Grainger Pearl Holdings Limited
Grainger Pearl Limited
Grainger Pimlico Limited
Grainger Properties Limited
Grainger Property Services Limited
Grainger PRS Limited
Grainger RAMP Limited
Grainger Real Estate Limited
Grainger REIT 1 Limited
Grainger REIT 2 Limited
Grainger REIT 3 Limited
Grainger Residential Limited
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Group %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Proportion of nominal value
of ordinary shares held by:
Company %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
165
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
Notes to the parent company financial statements
continued
8
List of subsidiaries, associates and joint ventures continued
Country of incorporation
Company
United Kingdom
Grainger Residential Management Limited
United Kingdom
Grainger Rural Developments Limited
United Kingdom
Grainger Rural Limited
United Kingdom
Grainger Serviced Apartments Limited
United Kingdom
Grainger Seven Sisters Limited
United Kingdom
Grainger Southwark Limited
Grainger Treasury Property Investments Limited Partnership
United Kingdom
Grainger Treasury Property (2006) Limited Liability Partnership United Kingdom
United Kingdom
Grainger Trust Limited
United Kingdom
Grainger Unitholder No 1 Limited
United Kingdom
Grainger Upminster Limited
United Kingdom
Greit Limited
United Kingdom
GRIP REIT Plc
United Kingdom
GRIP UK Holdings Limited
United Kingdom
H I Tricomm Holdings Limited
United Kingdom
Harborne Tenants Limited
United Kingdom
Home SGO Properties Limited
United Kingdom
Infrastructure Investors Defence Housing (Bristol) Limited
United Kingdom
Ingleby Court Management Limited
United Kingdom
Jesmond Place Management Limited
United Kingdom
King Street Developments (Hammersmith) Limited
United Kingdom
Kings Dock Mill (Liverpool) Management Company Limited
United Kingdom
Langwood Properties Limited
United Kingdom
Letpress Limited
United Kingdom
Manor Court (Solihull) Management Limited
United Kingdom
Margrave Estates Limited
United Kingdom
Mariners Park Estate North Management Company Limited
United Kingdom
Mariners Park Estate South Management Company Limited
United Kingdom
N & D London Investments
United Kingdom
N & D London Limited
United Kingdom
N & D Properties (Midlands) Limited
United Kingdom
N & D Southern Limited
United Kingdom
Northumberland & Durham Property Trust Limited
United Kingdom
Oakleigh House (Sale) Management Company Limited
United Kingdom
Park Developments (Liverpool) Limited
United Kingdom
Park Estates (Liverpool) Limited
United Kingdom
Park Estates Investments (Liverpool) Limited
United Kingdom
PHA Limited
United Kingdom
Planfirst Limited
United Kingdom
Portland House Holdings Limited
United Kingdom
Redoubt Close Management Limited
United Kingdom
Residential Leases Limited
United Kingdom
Residential Tenancies Limited
United Kingdom
Rotation Finance Limited
United Kingdom
Sandown (Whitley Bay) Management Limited
United Kingdom
Sixty-two Stanhope Gardens Limited
United Kingdom
Southvale Investments Limited
United Kingdom
Stagestar Limited
United Kingdom
Suburban Homes Limited
United Kingdom
The Bradford Property Trust Limited
United Kingdom
The Chancel Management Company Limited
United Kingdom
The Greenhalgh Court Management Company Limited
166
Group %
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
24.9%
24.9%
100%
100%
100%
100%
100%
70%
50%
100%
100%
100%
100%
100%
100%
17%
100%
100%
100%
100%
100%
69%
100%
100%
100%
100%
100%
100%
3%
100%
100%
100%
51%
20%
100%
25%
100%
100%
96%
77%
Proportion of nominal value
of ordinary shares held by:
Company %
100%
100%
100%
100%
100%
100%
100%
Grainger plc Annual Report and Accounts 2016
Proportion of nominal value
of ordinary shares held by:
Company %
Company
The Owners of the Middlesbrough Estate Limited
The Sandwarren Management Company Limited
The Tilt Estate Company Limited
Tricomm Housing (Holdings) Limited
Tricomm Housing Limited
Vesta Limited Partnership
Vesta (General Partner) Limited
Victoria Court (Southport) Limited
Walworth Investment Properties Limited
Wansbeck Lodge Management Limited
Warren Court Limited
Warwick Square Management Company Limited
Wellesley Residents Trust Limited
West Waterlooville Developments Limited
1 Ifield Road Management Limited
16 Beverley Terrace Limited
19 Ifield Road Management Limited
31-37 Disbrowe Road Freehold Company Limited
36 Finborough Road Management Limited
45 Ifield Road Management Limited
86 Holland Park Freehold Limited
CCY a.s.
CCZ a.s.
Prazsky Projekt a.s.
Grainger FRM GmbH
Grainger FRM General Partner GmbH
Grainger FRM (No.1) GmbH & Co. Kg
Grainger Portfolio 3 GmbH
Kew Bridge Court Guernsey Limited
G:Res-Co4 Limited
GRIP Jersey Property Holdings (2016) Limited
Grip NomCo1 Limited
Grip NomCo2 Limited
Grip NomCo3 Limited
Grip NomCo4 Limited
Grip NomCo5 Limited
Grip NomCo6 Limited
Grip NomCo7 Limited
Grip NomCo8 Limited
Grip Unit Trust
Grip Unit Trust 1
Grip Unit Trust 2
Grip Unit Trust 6
The Grainger Residential Property Unit Trust
Country of incorporation
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
United Kingdom
Czech Republic
Czech Republic
Czech Republic
Germany
Germany
Germany
Germany
Guernsey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Group %
100%
100%
100%
100%
100%
15%
30%
100%
50%
100%
100%
100%
100%
100%
50%
33%
100%
50%
100%
67%
67%
50%
50%
50%
100%
100%
94.9%
100%
24.9%
24.9%
24.9%
24.9%
24.9%
24.9%
24.9%
24.9%
24.9%
22.2%
22.2%
24.9%
24.9%
24.9%
22.2%
24.9%
167
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
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 the guidance has subsequently been updated in December 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 5 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 5
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 NAV and EPRA 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 the reversionary
portfolio rental levels are at a sub-market level.
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 numbers presented in the tables below for EPRA Earnings, EPRA Earnings per share, EPRA NIY and EPRA Vacancy
Rate, relate to continuing operations only. The 2015 comparatives have been restated to exclude discontinued operations.
See Note 3 to the financial statements for further details of discontinued operations.
168
Grainger plc Annual Report and Accounts 2016 The EPRA measures being reported and the calculation of EPRA earnings, EPRA NAV, EPRA NNNAV and EPRA NIY are set
out below:
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
Excludes property that is vacant and is being marketed for sale.
1
2 Restated to exclude discontinued operations.
2
EPRA earnings – continuing
2016
£41.8m
10.1p
2015
£22.5m2
5.4p2
£1,379.5m £1,334.1m
319p
£1,199.5m £1,101.5m
263p
4.4%2
2.5%2
287p
4.3%
2.1%
330p
Earnings per IFRS income statement – continuing operations
Adjustments to calculate EPRA Earnings, exclude:
i) Changes in value of investment properties, development
properties held for investment and other interests
ii) Profits or losses on disposal of investment properties,
development properties held for investment and other
interests
iii) Profits or losses on sales of trading properties including
impairment charges in respect of trading properties1
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
74.5
2016
Shares
(millions)
414.4
Pence per
share
18.0
2015 restated
Shares
(millions)
412.5
Earnings
£m
44.0
Pence per
share
10.7
(20.3)
(1.6)
2.7
–
–
9.9
–
–
1.5
(24.9)
–
41.8
–
–
–
–
–
–
–
–
–
–
–
414.4
(4.9)
(14.6)
(0.4)
(0.4)
0.7
–
–
2.4
–
–
0.4
(6.1)
–
10.1
1.2
–
–
6.3
–
–
1.4
(15.4)
–
22.5
–
–
–
–
–
–
–
–
–
–
–
412.5
(3.5)
(0.1)
0.3
–
–
1.5
–
–
0.3
(3.8)
–
5.4
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 under this heading in both years
relates to an impairment provision made against trading stock.
169
Financial StatementsGrainger plc Annual Report and Accounts 2016
Financial Statements –
EPRA Performance Measures
continued
3
EPRA 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 shares1
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
2016
Net assets
£m
675.2
Shares
(millions)
418.4
NAV pence
per share
161
Net assets
£m
564.9
2015
Shares
(millions)
418.3
NAV pence
per share
135
–
–
–
–
649.4
7.5
10.7
28.4
–
–
–
–
–
–
–
–
–
–
–
–
–
–
155
2
3
7
–
–
–
–
–
687.7
12.3
26.8
30.0
–
–
–
–
–
–
–
–
–
–
8.3
1,379.5
–
418.4
2
330
12.4
1,334.1
–
418.3
–
–
–
–
165
3
6
7
–
3
319
1
The Grainger measures of NAV and NAV per share disclosed in Note 5 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 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 assets1
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
2016
Net assets
£m
1,379.5
Shares
(millions)
418.4
NAV pence
per share
330
Net assets
£m
1,334.1
2015
Shares
(millions)
418.3
NAV pence
per share
319
(12.0)
(22.3)
(145.7)
1,199.5
–
–
–
418.4
(3)
(5)
(35)
287
(27.9)
(25.8)
(178.9)
1,101.5
–
–
–
418.3
(7)
(6)
(43)
263
2016
£m
412.9
11.5
424.4
24.3
(6.0)
18.3
4.3%
2015
restated
£m
356.7
10.0
366.7
21.4
(5.3)
16.1
4.4%
1 Based on Grainger’s wholly-owned market rented portfolio of property assets excluding assets under construction which has a market value as at 30 September
2016 of £461m (2015: £399m) but excluding interests in garages, ground rents and land amounting to £48m (2015: £42m).
170
Grainger plc Annual Report and Accounts 2016
Five year record
For the year ended 30 September 2016
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 after tax
Dividends taken to equity
Earnings 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 (ROCE)
Return on shareholder equity (ROSE)
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
2015
restated
£m
193.1
149.3
46.7
5.0
79.5
51.4
44.0
10.4
Pence
10.7
2.8
Pence
319.0
263.4
238.0
%
11.0
10.0
2016
£m
219.9
164.8
51.9
5.9
88.7
84.2
74.5
14.7
Pence
18.0
4.5
Pence
329.7
286.7
230.0
%
8.4
10.6
The 2015 results in the table above have been restated in order to be comparable with 2016 results following the disposals
made in the current financial year. All other years are as previously reported and have not been restated.
171
Grainger plc Annual Report and Accounts 2016Financial Statements
Other information
Shareholders’ information
Financial calendar
AGM
Payment of 2016 final dividend
Announcement of 2017 interim results
Announcement of 2017 final results
8 February 2017
10 February 2017
May 2017
November 2017
Share price
During the year ended 30 September 2016, the range of the closing mid-market prices of the Company’s ordinary shares were:
Price at 30 September 2016
Lowest price during the year
Highest price during the year
230.0p
193.1p
252.5p
Daily information on the Company’s share price can be obtained on our website www.graingerplc.co.uk or by telephone from
FT Cityline on 09058 171 690. Please note that FT Cityline is a chargeable service.
Capital gains tax
The market value of the Company’s shares for capital gains tax purposes at 31 March 1982 was 2.03p.
Website
Website address www.graingerplc.co.uk
Shareholders’ enquiries
All administrative enquiries relating to shareholdings (for example, notification of change of address, loss of share certificates,
dividend payments) should be addressed to the Company’s registrar at:
Capita IRG plc
Northern House
Woodsome Park
Fenay Bridge
Huddersfield
West Yorkshire
HD8 0LA
Share dealing service
A share dealing service is available to existing Shareholders to buy or sell the Company’s shares via Capita Share Dealing
Services. Online and telephone dealing facilities provide an easy to access and simple to use service.
For further information on this service, or to buy or sell shares, please contact: www.capitadeal.com – online dealing
0870 458 4577 – telephone dealing
Please note that the Directors of the Company are not seeking to encourage Shareholders to either buy or sell their shares.
Shareholders in any doubt as to what action to take are recommended to seek financial advice from an independent financial
adviser authorised by the Financial Services and Markets Act 2000.
Company Secretary and registered office
Adam McGhin
Citygate
St James’ Boulevard
Newcastle upon Tyne
NE1 4JE
Company registration number 125575
172
Grainger plc Annual Report and Accounts 2016
Other information
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.
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.
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
Adjusted earnings
Profit before tax before valuation
movements and non-recurring items.
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.
EPRA 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.
Cap
Financial instrument which, in return for
a fee, guarantees an upper limit for the
interest rate on a loan.
Hedging
The use of financial instruments to protect
against interest rate movements.
Investment value (‘IV’) or
market value
Open market value of a property subject
to relevant tenancy in place.
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.
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.
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.
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.
EPRA NNNAV
EPRA 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.
173
Grainger plc Annual Report and Accounts 2016Other information Other information
Glossary of terms
continued
Operating Profit before Valuation
Movements (‘OPBVM’)
Operating profit before valuation
movements and non-recurring items.
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.
174
Grainger plc Annual Report and Accounts 2016 Advisers
Solicitors
Freshfields Bruckhaus Deringer
65 Fleet Street
London
EC4Y 1HS
Financial public relations
Camarco
107 Cheapside
London
EC2V 6DN
Banking
Clearing Bank and Facility Agent
Barclays Bank PLC
HSBC Bank PLC
Other bankers
Allied Irish Banks plc
Lloyds Bank plc
Nationwide Building Society
Santander UK plc
The Royal Bank of Scotland plc
Aaeral Bank AG
National Westminster Bank
Independent auditor
KPMG LLP
Chartered Accountants
15 Canada Square
Canary Wharf
London
E14 5GL
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
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 9DY
Manchester
St John’s House
Barrington Road
Altrincham
Cheshire
WA14 1TJ
View our website
www.graingerplc.co.uk
175
Grainger plc Annual Report and Accounts 2016Other information Visit our website
www.graingerplc.co.uk
This report has been printed on paper which supports the FSC
(Forest Stewardship Council) chain of custody environmental
sustainment programme. The material used throughout the
report is biodegradable, fully recyclable and elemental chlorine
free. Both the paper mill and printer involved in the production
support the growth of responsible forest management and are
both accredited to ISO 14001 which specifies a process for
continuous environmental improvement. Vegetable-based inks
were used throughout the production process.
Designed and produced by Luminous
www.luminous.co.uk
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 9DY
Manchester
St John’s House
Barrington Road
Altrincham
Cheshire
WA14 1TJ
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