ANNUAL REPORT 2016
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
ABOUT THI S REPORT
Welcome to the 2016 Annual Report
of the Berkeley Group Holdings plc
(“the Berkeley Group”, “Berkeley”,
“the Group”), a publicly owned company,
listed on the London Stock Exchange. The
Strategic Report explains Berkeley’s strategy,
business model, risk management processes
and provides an overview of current
performance and outlook. The Governance
section covers the role and activities of
the Board in running the business and
their remuneration. The detailed Financials,
accompanied by a report from the Group’s
auditors, complete the Annual Report.
STRATEGIC REPORT
2 2016 Performance Highlights
6 Chairman’s Statement
8 Chief Executive’s Review
14 Berkeley’s Strategic Framework
16 Our Vision
46 The Berkeley Foundation
49 Our Business Model
52 Where We Operate
56 How We Manage Risk
66 Trading and Financial Review
GOVERNANCE
72 Board of Directors
74 Corporate Governance Report
78 Audit Committee Report
80 Directors’ Remuneration Report
99 Directors’ Report
FIN ANCIALS
104 Independent Auditors’ Report
110 Consolidated Income Statement
110 Consolidated Statement
111
of Comprehensive Income
Consolidated Statement
of Financial Position
112 Consolidated Statement
of Changes in Equity
113 Consolidated Cash Flow Statement
114 Notes to the Consolidated Financial
Statements
140 Company Balance Sheet
141 Company Statement
of Changes in Equity
142 Notes to the Company
Financial Statements
146 Five Year Summary
147 Financial Diary
147 Registered Office and Advisors
Cover image One Tower Bridge, Southwark
This page Goodman’s Fields, Aldgate
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Berkeley’s business is about placemaking; it’s about creating
strong communities where people enjoy a great quality of life.
Berkeley has a strategic appreciation of the cyclical nature of
the property market and recognises that there are significant
operational risks in identifying, designing, building and selling
homes and creating places.
Berkeley mitigates these risks by focusing on development
in London and the South of England, markets which it
knows and understands, and forward selling new homes
wherever possible. In doing this, Berkeley maintains a strong
balance sheet, keeps financial risk low and carefully allocates
resources to the right projects at the right time, matching
supply to demand wherever it can.
READ MORE ONLINE:
www.berkeleygroup.co.uk/about-berkeley-group
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
2016 PERFORMANCE
HI GH L IGHTS
A year of strong growth across our
key performance indicators.
PER FORMANCE ( FINA NCIAL KE Y PE RFO RMA NCE IN DICATO RS )
OU TLOOK (FINANCIAL KEY PERFORMAN CE INDICATORS)
ADJUSTED PROFIT BEFORE TAX
ADJUSTED BASIC EARNINGS PER SHARE
CASH DUE ON FORWARD SALES
GROSS MARGIN ON LAND HOLDINGS
£479.9 million
267.3p
£3,259 million £6,146 million
2012
2013
2014
2015
2016
£214.8m
£270.7m
£380.0m
£454.6m
£479.9m
2012
2013
2014
2015
2016
121.0p
160.0p
221.8p
263.6p
267.3p
2012
2013
2014
2015
2016
£1,056m
£1,453m
£2,274m
£2,959m
£3,259m
2014
2015
2016
£4,514m
£5,272m
£6,146m
Note: includes proportion of earnings per share paid as dividends per share.
Key Measure
Result
Key Measure
Result
Key Measure
Result
Key Measure
Result
This is our core measure
of profitability, our absolute
return from the sale and
delivery of new homes in
the year before the impact
of profit from the sale of
ground rent assets which
do not recur on a consistent
basis. The adjusted measure
therefore provides a more
meaningful measure.
Adjusted profit before
tax of £479.9 million is an
increase of 5.6% on last year.
Adjusted profit before tax
excludes £51.0 million (2015:
£85.1 million) of profit from
the sale of ground rent
assets. The unadjusted profit
before tax is £530.9 million
(2015: £539.7 million).
This measure of profitability
allows for total profit after tax
and takes into account the
weighted average number of
shares in issue during the year.
The dividend per share paid
in the year is articulated in the
graph to show earnings cover.
Adjusted basic earnings
per share is 267.3 pence,
up 3.7 pence from last year.
Basic earnings per share
is 295.8 pence (2015:
313.0 pence).
This measures cash due
from customers during
the next three financial
years under unconditional
contracts for sale, and
provides good visibility
over future cash flows.
This has risen by £300 million
to £3,259 million in the year,
an increase of 10.1 %. The
Group’s forward sales have
now peaked as it enters a
period of enhanced delivery
over the next two years, with
customers buying later in the
development cycle as market
conditions normalise.
This provides a measure of
expected value in the Group’s
existing land holdings in
the event that the Group
successfully sells and delivers
the developments planned for
this land.
This has increased by
£874 million to £6,146
million in the year, a result
of further value added from
optimisation through revised
consents and new schemes
acquired over and above
profit recognised in the year.
ADJUSTED RETURN ON EQUITY
NET ASSET VALUE PER SHARE
PERFORMANCE (NON-FINANCIAL KEY PERFORMANCE INDICATORS)
27.8 %
2012
2013
2014
2015
2016
1,314p
21.2%
22.4%
27.5%
29.5%
27.8%
2012
2013
2014
2015
2016
839p
1,009p
1,066p
1,199p
1,314p
Key Measure
Result
Key Measure
Result
Calculated as profit before
tax, excluding profit from the
sale of ground rent assets,
as a percentage of the
average of opening and
closing shareholders’ funds,
this measure shows the
efficiency of the returns
generated from shareholder
equity in the business.
A result of 27.8%, down from
29.5% last year, continues
to represent a strong
performance ahead of our
long-term historical range.
The unadjusted return
on equity, including profit
from the sale of ground
rent assets, is 30.8%
(2015: 35.1%).
This balance sheet measure
reflects the value of
shareholders’ interests in
the net assets of the business
on an historical cost basis.
The growth of 115 pence to
1,314 pence per share during
2016 demonstrates value
delivered to shareholders,
even after allowing for
dividend payments of
190 pence per share.
Our People
Customers
Our People
Accident Incident Rate
per 1,000 employees
2.40
(2015: 2.46)
Net Promoter Score
Payroll Giving
71.2
(2015: 69.8)
33%
(2015: 35%)
Managing health and safety on our sites
is a priority, to protect the wellbeing of
our staff and contractors. This year we
have performed within our target of
3.00 (2015: 3.25), and the industry
average of 4.20 (2015: 4.12).
Our continued efforts to provide world-
class customer service are evidenced
through our high levels of customer
satisfaction.
Payroll Giving Platinum Award received in
2016 for the third successive year for over
30% of employees donating through a
Give As You Earn scheme.
A result of 71.2 ranks us alongside some
of Britain’s top performing companies.
See pg 42
See pg 24
See pg 42
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
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STR ATE GIC
R EPOR T
Queensbury Gardens, Ascot
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
CHAIRMAN’S
STATE MENT
£107.4 million
Net cash
£3.25 billion
Forward sales
“ I am pleased to announce pre-tax profits for Berkeley of £530.9 million
for the year ended 30 April 2016. Berkeley remains ungeared with net
cash of £107.4 million, cash due over the next three years on forward
sales of £3.25 billion and is maintaining its earnings guidance for the
three years ending 30 April 2018.”
Following the enhancements to Berkeley’s
dividend return plan announced in
December 2015 which increased the
target returns by 2021 to £16.34 per share,
from £13.00 per share, the Board has
declared a further interim dividend of
£1 per share. This will be payable on
15 September 2016 to shareholders on
the register on 12 August 2016.
The outcome of this week’s referendum
on Britain’s membership of the
European Union is significant for the
UK’s housebuilding and property sector.
Berkeley supports a vote to remain in the
EU. London’s status as the world’s best
big city is underpinned by labour mobility,
cultural diversity and a constant influx of
talent and investment from around the
world, and the UK economy in turn is
powered by the success of our Capital City.
However, London will always be a world
city and a highly desirable place to live,
work and play. For Berkeley, our brand,
our land holdings and our forward sales
will continue to differentiate and underpin
our performance over the long-term and,
while we have a clear view about what
the better outcome would be on
Thursday 23 June, we are confident
about the future for our business.
We are also encouraged by the priority
accorded to housing by the new Mayor
of London, Sadiq Khan. This issue has to
become a political priority if we are to
have any chance of delivering 50,000 new
homes a year in London. His administration
has already shown welcome signs of
adopting an approach to delivery which is
both ambitious and pragmatic.
In terms of housing policy, it is important
that policies developed are consistent
with the ambition of delivering more
homes across all forms of tenure. This
includes: ensuring local plans are in
place across the country; finding the
right framework for property taxation;
and recognising the pressure that the
conflicting demands of CIL, Section 106
and affordable housing place on the
delivery of new homes. None of this is
easy but if we get it right, it will have a
profoundly positive impact on the future
of London and the country as a whole.
I firmly believe that placemaking is a force
for good in our country – giving people a
home, creating strong communities and
generating jobs and growth – making
our society better in many different ways.
We are proud of the places we create at
Berkeley and I would like to thank each
and every one of our people for their
dedication, enthusiasm and innovation
which has made the last twelve months
another successful year for Berkeley.
We live in exciting and fast moving times.
There are always headwinds, although
the strength of these ebb and flow.
Berkeley operates the right business
model and strategy for a cyclical market.
In particular, our unique operating model
of developing complex sites which others
are not willing to take on, recognises the
additional operational risk that comes
with this strategy whilst maintaining the
financial strength that it demands. The
current plan places a premium on careful
capital allocation to create consistent
and sustainable added value returns for
shareholders, through the delivery of
homes and places of the highest quality.
Tony Pidgley CBE
Chairman
21 June 2016
I firmly believe that placemaking is a
force for good in our country, making our
society better in many different ways.
TONY PIDGLEY CBE
CHAIRMAN
6
Berkeley’s contribution to housebuilding, job creation and the wider
economy remains strong:
£2.1 billion
contribution to UK GDP
17,750
homes built
ECONOMY
HOMES CONSTRUCTED
• Berkeley’s contribution to UK GDP was
• Berkeley has built a total of 17,750 homes
£2.1 billion in 2015, up 40% from 2014 and
the 7th consecutive year of growth.
over the last 5 years.
26,000
jobs supported
£1.8 billion
contributed to the Treasury
JOBS
PUBLIC FINANCES
• Berkeley supported through its business
• Berkeley has contributed a total of
and supply chain a total of 26,000 jobs in
2015. Berkeley supports more than 5 jobs
for every new home built.
£1.8 billion to the Treasury over the last
5 years, through direct and wider taxation.
• Berkeley contributes to the UK public
• The total number of jobs supported
by Berkeley has more than doubled over
the last 5 years (up 130%), compared with
a 7% growth in employment in London
and the South East over the same period.
finances both through the taxes it pays
directly and the taxes paid by its
suppliers and customers. In 2015, the
total tax paid was £571 million, an increase
of 168% from 2011.
£7.9 million
committed to over 85 charities
COMMUNITY
• Over the last 5 years Berkeley has
contributed £1.5 billion in affordable
housing subsidies, and made additional
direct payments of £396 million to help
pay for a wide range of facilities and
services in the community.
• £7.9 million has been committed by the
Berkeley Foundation to over 85 charities
since 2011, with £2.7 million having been
raised by Berkeley staff.
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Proud to be a member of
the Berkeley Group of Companies
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
CHIEF EXECUTIVE’S
RE VIEW
£479.9 million
Adjusted profit before tax for the year
£602.0 million
Net investment in inventories
SUMMARY OF PERFORMANCE
“ Berkeley has delivered adjusted pre-tax earnings of £479.9 million
for the year, an increase of 5.6% on last year. This is from the sale
of 3,776 homes (2015: 3,355) at an average selling price of £515,000
(2015: £575,000), reflecting the mix of properties sold in the year.
Together with a further £51.0 million of profit from the sale of ground
rent assets, this represents total pre-tax earnings of £530.9 million.”
After tax, the profit for the year was
£404.1 million, from which £259.5 million
was distributed to shareholders with the
dividend covered 1.6 times. The remaining
profit generated, along with the Group’s
existing cash balances, funded the
£602.0 million net investment in inventories
and £99.9 million net investment in joint
ventures, ahead of the enhanced profit
delivery anticipated over the next two
years, resulting in year-end net cash of
£107.4 million (2015: £430.9 million).
We remain on target to deliver pre-tax
profits in the region of £2.0 billion over the
three year period ending 30 April 2018,
underpinned by our £3.25 billion of forward
sales. The scale of the key regeneration
schemes from which we expect to
generate these earnings makes the delivery
of profit in specific annual periods sensitive
to timing and we always prioritise quality
ahead of individual period financial targets.
While sales are down 4% for the year as
whole, the market for Berkeley has slowed
some 20% in the five months to May 2016
as the EU Referendum approaches, with
no new London launches in this period.
This has had a more distinct impact on the
higher end of the market which has also
been affected by increased transaction
taxes and the policy shift against buy-to-let
investors. We continue to achieve sales
prices ahead of our business plan with
price inflation remaining for properties
of less than £1.25 million where demand
is most robust, with Berkeley already
absorbing the increased cost of transaction
taxes above this level in its pricing. New
sales activity is now focused on the periods
beyond 2017/18 with a number of new
launches planned for later in the year, once
the EU Referendum uncertainty has passed.
We have made great strides with our
land holdings in the last 12 months,
acquiring 12 new sites encompassing some
8,600 plots, securing nine new planning
consents and 21 revised planning consents.
This investment has seen our land holdings
rise to 42,858 plots with an estimated
future gross margin of £6.1 billion, up from
37,473 plots and £5.3 billion a year ago.
We remain on target to deliver
pre-tax profits in the region of
£2.0 billion over the three years
ending April 2018.
ROB PERRINS
CHIEF EXECUTIVE
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Student accommodation
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Goodman’s Fields, Aldgate
Wetlands at Woodberry Down
STRATEGIC DELIVERY
During the year the Board of Berkeley
reviewed the quantum and profile of
the Company’s dividend programme
that was put in place in 2011 to deliver
£13.00 per share to shareholders by 2021.
This review took into account a number
of factors, including: the Company’s
financial strength and its visibility over
future earnings and cash generation; the
prevailing market conditions and stable
operating environment; and the investment
opportunities that continue to present
themselves. Following the review, the
Board determined that it intended to
enhance the dividend programme by
£0.5 billion, increasing it from £13.00 per
share to £16.34 per share.
This has enhanced, and gives visibility of,
returns to shareholders within the proven
framework which allows Berkeley to
operate at its natural size and to optimise
returns to shareholders while managing
the risks of a cyclical market. The first £1.00
per share of this enhanced dividend return
was paid to shareholders in January of
this year and the next £1.00 per share will
be paid in September. The changes to the
dividend profile necessitated consequential
changes to the 2011 LTIP to ensure ongoing
alignment. These were approved by 94%
of shareholders who voted at the General
Meeting on 16 February 2016.
Paid to date
By September 2016
By September 2017
By September 2018
By September 2019
By September 2020
By September 2021
To come
Total
Original
Returns
£4.34
£1.44
£1.44
£1.45
-
-
£4.33
£8.66
£13.00
Enhanced
Returns
£5.34
£1.00
£2.00
£2.00
£2.00
£2.00
£2.00
£11.00
£16.34
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
CHIEF EXECUTIVE’S
RE VIEW
Continued
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Goodman’s Fields, Aldgate
Holborough Lakes, Kent
Berkeley Urban House
Fitzroy Gate, Isleworth
The Nine Elms Tavern, Riverlight
CUSTOMERS
HOMES
PLACES
HOUSING MARKET
Over the course of the year, the housing
market for Berkeley has remained stable,
with forward sales increasing by 10%, from
£2.95 billion to £3.25 billion. This reflects a
greater value of new properties exchanged
in the period compared to those taken
to profit in the year. Taking the year as a
whole, the value of new reservations is 4%
lower than in 2014/15 but this is from a
marginally higher number of transactions.
This reflects a change in mix due to the
underlying market dynamics, coupled
with the sales profile of Berkeley’s London
developments. It should be recognised
that the Group’s forward sales have now
peaked as we enter a period of enhanced
delivery over the next two years, over
which time both forward sales and
customer deposits on the balance sheet
are likely to reduce accordingly, with
customers buying later in the development
cycle as market conditions normalise.
Global macro uncertainty and the
impending EU Referendum have had a
dampening effect on investment levels
across all businesses and this is likely to
continue immediately after the result
of the Referendum. This, along with
the market adjusting to higher levels of
property transaction taxes, has affected
the upper end of the housing market in
London, although underlying interest and
demand remain good. As a consequence
of these converging headwinds,
reservations for the first five months of
the calendar year are 20% down on
the same period last year. At more
mainstream price points, the market
remains inflationary due to the embedded
under-supply and the ripple effect of the
increased transaction costs at the upper
end of the market. Only 96 of the Group’s
reservations in the year utilised the
Government’s Help to Buy scheme.
10
In terms of the Group’s available sales
profile, having acquired a number of
London developments in the period from
2009 to 2013, Berkeley forward sold these
into the particularly strong market that
began in 2013 and continued through 2014.
As a consequence, there have been fewer
launches of such schemes during the last
12 months and no new schemes launched
in London over the last five months to May
2016. The Group continues to sell across
all its developments at all price points
but the rate of sale and time taken to
complete transactions is adjusting to the
current market conditions. At around 10%,
reservation cancellation rates remain at the
low end of historical norms.
It is of some concern that, after such
strong market conditions for our industry,
transaction levels in both the secondhand
and new homes market have not increased
to the levels we all would hope for at this
stage in the cycle. Government policy
has sought to increase the level of home
ownership but has focused primarily on
the demand side, creating unintended
consequences for supply. The real challenge
is to build more homes for all sectors of the
market; home ownership, private rent (PRS),
shared ownership, affordable rent and
social rent. To meet the numbers required,
all these ownership models need to thrive.
We look forward to working with both
Central Government and the new London
Mayor to make this happen.
The customer experience is central to
Berkeley’s reputation and our ability
to secure sales. Our performance is
independently assessed using the Net
Promoter Score (“NPS”). This takes
the percentage of customers who are
promoters of the company and subtracts
the percentage who are detractors, leaving
a score in a possible range of -100 to +100.
Berkeley’s NPS of 71.2 (2015: 69.8) illustrates
our permanent focus on customer service
on each of our sites. At Goodman’s Fields
in Aldgate, for example, Berkeley is creating
1,038 homes as well as a hotel, student
accommodation, and public gardens. We
have recently completed the latest block of
179 apartments and achieved an average
NPS of 82.6.
These efforts were publicly acknowledged
in March when Berkeley won the Best
Customer Focus (Large Enterprise) Award
at the Institute of Customer Service’s
UK Customer Satisfaction Awards. This
is significant because the awards assess
companies across all sectors – not solely
in property or housing. Berkeley was
commended for its comprehensive
commitment to customer service, the
level of employee engagement and
a well-communicated strategy.
During 2016, we have continued to market
all our homes in line with our UK First
Policy. This policy has been in place since
2014 and is in line with the London Mayoral
Concordat which invites developers to
sell to the UK and international markets
simultaneously. We recognise the
importance of giving domestic customers
a level playing field and every chance to
compete in the new build market.
On every site, our goal is to create a
strong community and a place where
people enjoy a fantastic quality of life. No
two developments are the same; each is
tailored to the context. To enable this we
apply our social sustainability framework
to all developments above 100 homes to
set an approach to creating communities
on our developments.
As part of the estate regeneration
programme at Woodberry Down, we
have worked with the London Wildlife
Trust to restore an 11 hectare wetland.
This is now a free, beautiful, public amenity.
In the first five days after the opening by
Sir David Attenborough on 21 April, 4,500
people visited. At One Tower Bridge, we
have invested in building a 900-seat
theatre, designed by Stirling Prize winners
Haworth Tompkins. This is due to open in
September 2016.
During the final quarter of this year,
Berkeley launched a new design concept
called the Urban House. This enables
twice as many homes to be built on a site
compared to traditional terraced housing.
At a time when the demand for family
homes in London outstrips supply by 13
to 1, the Urban House offers an intelligent,
traditional three storey solution, which
is full of light, economical to run and
works equally well as private or affordable
housing. The efficiencies are achieved by
replacing the back garden with a private
roof garden, while retaining space at the
front for a car and bicycles.
The first 22 homes of this prototype have
been built on two streets at Kidbrooke
Village while others are under construction
at Green Park Village in Reading. It
represents the first time a large-scale
developer has designed and delivered its
own housing typology. Berkeley believes
the Urban House will offer local authorities
a new way of providing high density family
homes, while the increase in density will
make smaller sites viable for residential
development which would not otherwise
be possible.
It also illustrates the value of a flexible
approach to housing standards, focused
on delivering affordability and additionality.
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Computer generated image of
Brewery Wharf, Twickenham
In Bath, Berkeley recently completed 307
purpose-built student rooms for Bath
Spa University. This scheme won a 2015
Royal Town Planning Institute Award for
Planning Excellence on the basis of a
partnership with the local council. Our
work together transformed a derelict
eyesore in a World Heritage site into a
building that the city can be proud of.
We designed a Georgian style building
with a traditional Bath stone frontage,
while using modern methods of
construction and over 600 pods
manufactured off-site.
There remains an ongoing high profile
debate about the role of tall buildings
in solving the housing crisis. We believe
they have an important part to play. Tall
buildings can make efficient use of land
and locate many homes close to public
transport. With good design, they create
a fantastic sense of place and the tax and
levies paid make a major contribution to
local infrastructure.
The key challenge lies in how you create a
community in high rise buildings. Berkeley
is pioneering new solutions to this issue at
South Quay Plaza, one of Britain’s tallest
residential developments. We have also
now committed to develop community
plans for every new major site.
On every site, our goal is to create
a strong community and a place
where people enjoy a fantastic
quality of life.
ROB PERRINS
CHIEF EXECUTIVE
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
CHIEF EXECUTIVE’S
RE VIEW
Continued
OPERATIONS
OUR PEOPLE
OUTLOOK
Berkeley is proud of its reputation as
a leader in sustainability and holds a
Queen’s Award for Enterprise: Sustainable
Development, awarded in 2014; the
second time the Group had been awarded
this accolade. Most recently, following
the United Nations Climate Change
Conference in December 2015, Berkeley
has driven forward a range of major
environmental initiatives.
We have developed a new research
partnership, designed to help us better
understand and manage energy use
across our developments, and then deliver
operational carbon and financial savings.
We also helped the Institute for Public
Policy Research to undertake and launch
their initiative setting out how to make
London one of the greenest cities in the
world. Berkeley is currently creating 212
acres of new public open space across
all our developments in the Capital.
Most importantly, in a landmark
announcement for the housing industry,
Berkeley has committed to become the
first major housebuilder in Britain to be
carbon positive. Over the next two years
(2016-18), we will aim to deliver a 10%
reduction in office and construction
carbon emissions per person and set an
internal carbon price, using the funds
generated to offset more than all of the
remaining carbon emissions.
Berkeley currently has over 13,800 people
employed in the business or working
through contractors on our sites, up
2,000 in the year, and apprenticeships are
a central component of our workforce
development strategy. Berkeley now has
over 1,000 people in structured training
across its workforce, as construction
apprentices, or working on NVQs or
equivalent qualifications. Over the last
six months, plans have been developed
to set up a construction skills centre on
our regeneration sites at both Southall
Waterside and White City and, by 2018,
we intend to have had 1,500 people in
apprenticeship or vocational training
across the Berkeley Group.
Berkeley’s talented and varied people
are our strongest resource. Recruiting
and retaining a high calibre workforce
across our autonomous businesses is
crucial to the success of our company.
In recognition of this, we relaunched our
graduate scheme in September 2015 and
continue to evolve our talent management
programmes to ensure we realise the
potential of our people across all areas
of the business.
The safety of our people continues to be
a top priority across all our operations, in
addition to enabling enhanced health and
wellbeing. We aspire to operate incident
and injury free and are pleased to be able
to report a reduced Accident Incident Rate
(AIR) of 2.40 (2015: 2.46).
We are proud that Berkeley employees
continue to contribute to wider society
through support of the Berkeley
Foundation, which reached its fifth year
in 2016. This year, Berkeley received a
Platinum Award from the Charities Aid
Foundation for its Give As You Earn
scheme, with 33% of staff giving to the
Berkeley Foundation in this way. Through
this, and other activities, Berkeley’s staff
have raised just under £1 million in the
year. We are particularly delighted to
have been recognised for our work with
The Change Foundation through the
Street Elite programme, having won
the Best Charity Partnership (Property
& Construction) category at this year’s
Third Sector’s Business Charity Awards.
The programme has helped almost
300 young people on the edge of gangs
and crime to build the skills for work,
with many Street Elite graduates now
in full-time employment including
15 directly within Berkeley.
Berkeley’s focus is on building a modern
world-class business which is successful
and sustainable in the long-term.
We have in place an enhanced shareholder
returns programme through to 2021
which allows us to optimise returns to
shareholders while managing the risks
of a cyclical market and whilst retaining
sufficient capital to invest in opportunities
that will add incremental value to the
ongoing business.
The housing market in London and
the South East continues to have
strong underlying fundamentals with
an imbalance between demand and
supply, a persistent low interest rate
environment and high employment levels,
notwithstanding recent unhelpful changes
to property taxation. The short-term
outlook is impacted by uncertainty
whether it be global in nature or through
the economic consequences of the
outcome of the EU Referendum.
Berkeley is extremely well placed to deliver
its previously announced targets over
the next two years in this environment
with cash due on forward sales in the
next three years of £3.25 billion, net cash
of £107 million and a longer-term land
bank of some 42,858 plots comprising
estimated future gross margin of £6.1 billion.
The business is able to differentiate its
performance through the plan, Our Vision,
which embeds our strategy in each of our
businesses, and provides a focal point for
our ambition to be a modern world-class
business with a focus on the quality of the
homes and places we create and the way
in which we do this.
Rob Perrins
Chief Executive
21 June 2016
Berkeley’s focus is on building
a modern, world-class business
which is successful and
sustainable in the long-term.
ROB PERRINS
CHIEF EXECUTIVE
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The Berkeley Urban House at Kidbrooke Village, Greenwich
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
B ERKELEY’S STRATEGIC
FR AMEWORK
OUR ASPI RAT ION
OUR STRATEGY
OUR B USINESS MODEL
OUR RISK MAN AGEM ENT
To be a modern, world-class
business generating long-term
value by creating successful,
sustainable places where
people aspire to live.
Our strategic plan to ensure we remain firmly
focused on achieving our aspiration is articulated
through the framework of Our Vision.
For Berkeley to generate long-term value, the skills,
commitment and approach of our people throughout the
business are critical. We need to ensure we create the right
environment to enable them to work towards a common
set of goals.
To achieve this, and our aspiration to be a modern,
world-class business, Berkeley’s strategic plan is
articulated through the framework of Our Vision.
Our Vision sets out our underlying core company values,
together with five key strategic focus areas: Customers;
Homes; Places; Operations and Our People.
CHALLENGING HEADLINE COMMITMENTS
Every two years we set targeted, challenging headline
commitments to meet in each of the five focus areas
alongside our everyday actions.
Our commitments identify aspects of our business that we
focus on to ensure Berkeley remains a market leader across
all areas of its operations.
Achieving these commitments contributes to generating
long-term value.
The framework of Our Vision helps to empower our people,
gives them clear direction across every discipline of the
business and enables them to contribute to the ongoing
success of the business.
Our business is about placemaking; it’s about
creating strong communities where people enjoy
a great quality of life.
Our ongoing operational and market risk
management underpins our business model.
Our business model consists of five principal activities,
all of which are equally integral to supporting our
strategic commitments and achieving our aim of creating
long-term value.
Identifying the risks that a business is exposed to is
paramount to its success. However, understanding and
setting the appropriate level of appetite for risk is even
more critical.
IDENTIFYING AND ACQUIRING LAND
OPERATIONAL RISKS
We acquire land selectively, with a focus on long-term,
complex schemes where we can use our expertise to add
value through creating new places.
DESIGNING AND PLANNING
NEW HOMES AND PLACES
We work with consultants, local authorities and communities
to create places characterised by the quality of their design,
public realm, sustainability, transport links and access to jobs
and amenities.
Berkeley recognises that our value added approach means
we have an emphasis towards long-term regeneration,
which presents a complex array of operational challenges
on each of our sites.
Consequently, risk management is embedded
throughout the business and our autonomous, talented
operational teams are required to carefully manage each
individual scheme, regardless of size, to a bespoke
design, and embrace Berkeley’s core values and qualities
in their approach.
BUILDING NEW HOMES AND PLACES
MARKET RISK
We are supporting the employment of some 13,800
people in our offices and on our schemes under
construction, building new homes and places for
current and future generations.
MARKETING AND SELLING HOMES
Whether first-time buyers, families, experienced investors,
retailers, our partners in housing associations or providers
of student accommodation, Berkeley strives to ensure that
its customers receive an unparalleled service.
CUSTOMER SERVICE AND STEWARDSHIP
Customer satisfaction is the essential measure of whether our
homes and our service meet the aspirations of our customers.
Berkeley has always, and continues to, recognise that
the property market is inherently cyclical, where market
sentiment and transaction levels can change quickly.
Consequently, we operate in London and the South of
England, markets that we know and understand. We
believe that recognising the importance of relationships and
applying local knowledge gives us a competitive advantage
and enables us to deliver new places which are socially,
environmentally and economically successful.
Furthermore, Berkeley keeps financial risk low, by
maintaining a strong balance sheet, forward selling new
homes where possible and carefully allocating resources to
the right projects.
This ensures that the business is always well placed, with
the financial flexibility to take advantage of a breadth of
opportunities as they arise.
Read more: see pg 16
Read more: see pg 49
Read more: see pg 56
CONTINUAL MEASUREMENT
Our strategic commitments assist with the
measurement of our success, on both a financial
and non-financial basis.
In 2014, we set out 16 challenging strategic commitments.
Having achieved the majority of these, we have set ten new
strategic commitments for the forthcoming two year period,
with the intention of continually and incrementally improving
our business across all key focus areas.
Details of these new commitments, together with an overview
of our performance against the previous set are provided over
pages 16 to 43. Our financial performance, measured by a
further set of KPIs is presented on pages 2 and 3.
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OUR VISI ON
Berkeley aspires to be a modern, world-class business. Through the framework of Our Vision
we articulate our strategy across our five areas of strategic focus: Customers; Homes; Places;
Operations; and Our People. We set challenging headline commitments in each of the five areas
every two years continually to drive our performance.
OUR VISION
To be a world-class business generating long-term value by
creating successful, sustainable places where people aspire to live.
FIVE FOCUS AREAS
CUSTOMERS
HOME S
PLACES
OPERATIONS
Provide exceptional service to all
of our customers and put them
at the heart of our decisions.
Develop individually designed,
high quality homes with low
environmental impact.
Create great places where
residents enjoy a good quality
of life, now and in the future.
Make the right long-term
decisions whilst running the
business efficiently and working
with our supply chain.
OUR PEOPLE
Develop a highly skilled workforce who run autonomous businesses, operate
in a safe and supportive working environment and contribute to wider society.
OUR CULTURE AND VALUES
HAVE INTEGRITY
BE PASSIONATE
RESPECT PEOPLE
THINK CREATIVELY
EXCELLENCE THROUGH DETAIL
By focusing our business strategy on the
five areas, we ensure that we continue to
provide customers with an exceptional
service, whilst delivering high quality
homes and places where communities
can thrive. The skills, knowledge and
dedication of our people, alongside the
efficient management of our operations,
are fundamental to the ongoing success
of our business.
Our Vision provides clear direction and
enables the whole business to work to
a common set of goals, the overarching
aim of which is to be a modern, world-
class business. To drive improvements
in performance, we continually review
and develop our strategy across our five
focus areas to address the key challenges
and opportunities facing Berkeley, our
industry and other business sectors.
Every two years we launch new headline
commitments identifying our next set of
priority actions. These are determined
through an in-depth review of key
industry, national and global issues,
together with consultation with each
of our autonomous companies and
specialist committees.
Underpinning Our Vision is a core set
of company values: having integrity; being
passionate about what we do; showing
respect for people; thinking creatively; and
achieving excellence through detail.
For more information see
www.berkeleygroup.co.uk/our-vision
CUSTOMERS
HOMES
PLACES
OPERATIONS
OUR PEOPLE
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OUR VISI ON
COMM ITMENTS
Through the detailed review of
emerging opportunities and
challenges on a two-year cycle,
Berkeley is able to evaluate and
progress our actions under
our focus areas to ensure our
commitments continue to be
relevant, leading and world-class.
The regular review of our strategy enables
new priority themes to be incorporated
within our headline commitments and
ultimately our normal business activity.
However, some themes continue to
feature prominently within our headline
commitments in recognition of an
increased understanding of the continual
work required to drive incremental
performance improvements. Examples of
this include climate change actions and
upskilling of the industry workforce. In
these instances, our commitments evolve
to build on the excellent foundations
already achieved, challenging ourselves
further to be a world-class business.
Where headline commitments do not
feature within the subsequent two-year
cycle, we embed them into our ongoing
processes and activities.
In May 2016 we launched a new set of
ten stretching headline commitments to
achieve by April 2018.
2016-2018 HEADLINE COMMITMENTS
CUSTOMERS
HOME S
• Deliver world-class customer service
as evidenced by a top quartile Net
Promoter Score compared to UK
Customer Satisfaction Index results
• Design our homes to consider future
climate change to ensure continued
thermal comfort
• Run a programme of engagement
• Understand the evolution of
and research to further enhance our
product and processes based on the
needs of our customers
smart technology and connectivity
in homes and on developments
2014-2016 HEADLINE COMMITMENTS
• Deliver world-class customer
service measured through the
Net Promoter Score
• Launch an interactive way
of communicating with our
customers, ‘My Home Plus’
• Market all our developments
in the UK first
(cid:22)
(cid:22)
(cid:22)
• Enable fibre broadband on
all our new homes and provide
community Wi-Fi
• Guarantee space standards
for all new homes
• Launch a new R&D programme
to utilise customer feedback
and drive innovation through
improved design
95%
90%
(cid:22)
PLACES
OPERATION S
OUR PEOPLE
• Implement community plans on
our developments to facilitate
thriving communities
• Develop and apply an approach to
ensure that all new developments
create a net biodiversity gain
• Reduce our operational carbon emissions
• Launch and implement a new
intensity by 10% and introduce a
programme to become carbon positive
programme to promote the wellbeing of
our staff and create healthy workplaces
• Ensure at least 1,500 people across
our direct and indirect workforce
undertake an apprenticeship or
vocational training
• Invest in training and development
through our talent management
programmes to realise the potential
of our people across all areas
of the business
• Measure and increase people’s
quality of life by applying a
framework for social sustainability
• Test new forms of estate
management and
community governance
• Adapt all developments to
climate change through
measures on flooding,
overheating and water shortage
(cid:22)
(cid:22)
91%
• Achieve a 50% increase in
site-based apprenticeships
and training
• Launch a £2 million fund for
the supply chain to support
innovation in health and safety
• Map our supply chain risks
and develop a sustainable
specification and
procurement strategy
(cid:22)
(cid:22)
92%
• Pay at least the Living Wage
to all direct employees
• Reduce energy costs by up
to £500,000, investing 50%
of the saving in new health
and wellbeing initiatives
• Encourage and support every
member of staff to be involved
with the Berkeley Foundation
each year
(cid:22)
63%
(cid:22)
• Launch a talent management
programme which develops
new ideas to enhance the business
(cid:22)
Read more: see pg 22
Read more: see pg 26
Read more: see pg 32
Read more: see pg 36
Read more: see pg 40
Over time our commitments
become completely
embedded into our actions
and culture.
OUR COMM ITM ENTS
Every two years we launch new headline commitments identifying our next set of priority actions.
HEADLINE
COMMITMENTS
LEADING
COMMITMENTS
BUSINESS-AS-USUAL
COMMITMENTS
NORMAL
PRACTICE
New commitments launched
every two years to ensure
Berkeley continues to aspire
to be a leading and world-
class business
Existing commitments that
were previously headline
commitments and are still
considered leading, either
within the industry or across
wider business sectors
Commitments that are no
longer considered leading
but that continue to push
the company to ensure it is
consistently a top performer
within the industry or across
wider business sectors
Actions that are fully
integrated as part of business
activities and that do not
necessarily set Berkeley
apart from others within
the industry or across wider
business sectors
For more information see www.berkeleygroup.co.uk/our-vision
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
At Berkeley we create not just
homes but communities; places
where people can live, work
and play.
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Computer generated image of St William’s first development,
Prince of Wales Drive, Battersea
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CUSTOM ERS
We are committed to providing
exceptional service to all of our
customers and put them at the
heart of our decisions.
WH Y FOCUS ON CUSTOME R S?
Ensuring our customers are satisfied is crucial to the
ongoing success of the business; ultimately all areas of our
strategy are focused on the end customer. This extends
beyond customer-facing activities, from the initial purchase
of the land through to the design of each home and the
wider development.
OUR APPROACH
Our customers are at the heart of all our decisions. We aim
to understand their needs and consistently meet or exceed
their expectations. The service we provide is professional,
efficient and helpful to make the homebuying process
as straightforward and enjoyable as possible. Our levels
of customer service aim to be comparable to other top
performing companies.
All our customers are provided with a commitment that
when they buy a new home from Berkeley, they can be
safe in the knowledge that it is built to very high standards
of design and quality, has low environmental impact and
that they will enjoy an exceptional customer experience.
Each customer receives tailored information relating
to their purchase and has a dedicated point of contact
throughout the customer journey.
We provide award winning customer service
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Our customers are at the heart of everything we do
Berkeley Urban House Woodberry Down, Finsbury Park
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Customer service
Berkeley’s customers expect a professional,
quality and efficient service when purchasing
a property. We aim to meet and exceed
these expectations throughout the
customer journey, starting from the
moment a customer enquires about a
property, through the sales process, at the
point of handover and during occupation.
There is no single prescriptive world-class
customer service process. As our
customers are individuals with varying
needs, Berkeley has created a ‘customer
first’ mind-set and has empowered teams
to think and act differently. By responding
to the results of the Institute of Customer
Service (ICS) employee surveys, we have
improved our processes and highlighted
the importance of our commitment to
customer service to all employees. In 2016,
we ran our first Customer Service
Academy, bringing talented individuals
from other industries into the business and
providing them with a structured training
programme before placing them in a role.
Our continued efforts to provide
world-class customer service are
evidenced through our high levels of
customer satisfaction. In 2016, our Net
Promoter Score has increased to 71.2
and 98% of customers would recommend
us to a friend.
CUSTOM ERS
2016-2018 HEADLINE COMMITMENTS
• Deliver world-class customer service as evidenced by a top
quartile Net Promoter Score compared to UK Customer
Satisfaction Index results
• Run a programme of engagement and research to further
enhance our product and processes based on the needs
of our customers
2014-2016 HEADLINE COMMITMENTS
• Deliver world-class customer service measured through
the Net Promoter Score
• Launch an interactive way of communicating with our
customers, ‘My Home Plus’
• Market all our developments in the UK first
(cid:22)
(cid:22)
(cid:22)
2016 PERFORMANCE HIGHLIGHTS
UK Customer Satisfaction
Awards 2016:
Customer Focus Award Winner
(Large Enterprise)
Institute of Customer Service
ServiceMark achieved across
all businesses
71.2
Net Promoter Score
(on a scale of -100 to +100)
98%
customers would recommend
us to a friend
We are particularly proud that Berkeley
was named the winner of the ‘Customer
Focus Award – Large Enterprise’ at the
Institute of Customer Service’s UK
Customer Satisfaction Awards 2016.
This award recognises that Berkeley has
transitioned to a company that places the
customer at the centre of our operations
and business strategy.
My Home Plus
Providing a personalised service is key to
ensuring our customers feel valued. Each
customer receives tailored information
relating to the home they have purchased
and a dedicated contact at each stage of
the customer journey.
To enhance the way that we communicate
with our customers, an interactive online
system called ‘My Home Plus’ has been
developed. Initially launched in 2015 as a
trial on several developments, further
functionality has been added over the last
year following customer feedback. The full
version will be introduced on new
developments moving forward, providing
customers with the information they need
in one easily accessible place. This includes
updates on the buying process and
construction progress, along with key
information around specification choices and
manuals relating to the features of the home.
Tailored information with ‘My Home Plus’
UK First
Customer insight
We recognise that UK customers should
have the opportunity to buy our homes as
a priority. In line with our 2014-2016
headline commitment, we introduced our
‘UK First Policy’ in 2014. The UK First Policy
requires the initial sales launch to be in the
UK, with every individual home to be made
available to purchasers in the UK either first
or at the same time as launching overseas.
Our UK First Policy continues to be
implemented on all schemes.
Berkeley also appreciates that
international investors play a vital role in
generating the cash flow and confidence
to begin construction. This year, Berkeley
increased its overseas portfolio by
opening a new sales office in Shanghai.
Berkeley operates in a highly competitive
market. Key to the ongoing success of
our business is that we listen to,
understand and respond to the needs
of our customers.
Feedback is already sought through
customer surveys to help inform our
approach. Due to the limitations of this
feedback mechanism, we aim to run a
programme of enhanced engagement
over the next two years to achieve greater
customer insight. This will allow us to
evolve our customer service and design
processes to keep up to date with latest
customer behaviours.
Sustainable living
We continue to promote sustainable
living, both through the design of the
homes and places we create, and
through the inclusion of information
on sustainability features within
marketing and handover material
provided to our customers.
Learn more about Customers at
www.berkeleygroup.co.uk/about-berkeley-group/
our-vision/customers
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Professional, quality and efficient service
Sustainable living at Woodberry Down
World-class customer service
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HOMES
We are committed to developing
individually designed, high
quality homes with low
environmental impact.
WH Y FOCUS ON HOMES?
As a residential-led developer, building high quality and
well designed homes is fundamental to our business and is
intrinsic to all the other areas of Our Vision. It is demanded
of us by our customers and differentiates Berkeley. It is
clear that to have a successful business, our focus has to
be on the end product of the homes right from the outset.
OUR APPROACH
Each of our homes and developments is bespoke and we
use external architects to design each scheme. Attention
to detail in design is paramount to ensure homes meet the
needs of our customers and our specifications are planned
to meet the varied needs of all types of homebuyers, from
luxurious houses to key worker apartments. The impact
on the environment throughout the lifetime of the home
is considered during its design, with an aim to minimise
impacts and provide homeowners with the opportunity
to live more sustainably. The high quality finish which we
demand in our new homes requires a skilled workforce and
thorough checks before handover.
Highwood, Horsham
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Kidbrooke Village, Greenwich
Student accommodation in Bath
Goodman’s Fields, Aldgate
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Connectivity and smart homes
Space standards
We are increasingly living in a connected
world, with customers expecting access to
the internet from the first day they move
into a new home. Berkeley has worked
closely with other developers and third
party infrastructure and service providers,
to develop practical solutions that help
the whole industry to provide the correct
infrastructure to customers. The majority
of our new developments submitted to
planning during 2014-2016 are able to
provide fibre broadband in line with our
commitment. Those developments not
meeting our requirements have been
restrained by the existing infrastructure
provided in the area. We continue to apply
our commitment to enable fibre broadband
in all our new homes moving forward.
Technology also continues to develop,
providing people with enhanced
monitoring and control over their home.
As part of our 2016-2018 headline
commitments, we are committed
to exploring the smart technologies
available on the market and how these
could be incorporated into our homes.
In 2014, we were the first private
developer to commit to minimum space
standards for all our new homes. We set
standards covering three core aspects
in every home: master bedroom depth,
floor-to-ceiling height and storage. These
have been implemented on 90% of our
developments submitted to planning since
May 2014.
Since introducing our commitment,
Government has published a nationally
described space standard which local
planning policy can now refer to. We will
implement the Government’s standard
where requested and will go beyond
this by applying master bedroom depth,
floor-to-ceiling height and storage criteria
in locations where compliance is not
requested by the local authority.
Research and development
We continually evolve the design of
our homes. To help this process we
undertake research and development,
with a new working group formed from
representatives of a range of departments
including technical, customer services and
sustainability. A key action to date has
included the strengthening of feedback
channels between customers and other
stakeholders and our design teams.
Our 2016-2018 commitment to enhance
customer engagement mechanisms (see
page 24) will further aid the development
of our designs.
We are also exploring new processes,
materials and products to understand
how they can influence and improve
the design of our homes. This includes
looking further into areas such as modern
methods of construction, fabric efficiency
improvements and the operational
impacts of our buildings.
Climate change adaptation
It is essential that homes remain fit for
purpose over their lifetime. We have
therefore also committed to further
understanding the impacts of future
climate change on our homes and
designing measures to adapt our homes
to reduce these as applicable.
Bespoke design
Berkeley builds for everyone, from
families to first-time buyers, students
to senior people, and luxury living to
affordable housing. There is no generic
Berkeley scheme; every design is
bespoke, something which is uncommon
within the industry.
Adaptable homes
There is a need to provide more high
quality homes in the UK. At the same time,
we require homes that adapt to lifestyle
changes and provide families with space to
live in urban areas. To meet these demands,
we have developed the Berkeley Urban
House which allows the retention of a
typical street appearance while increasing
housing density. It is designed with flexible
space to adapt to meet different needs
as families grow, making it suitable for a
first-time buyer, through to those raising a
family or considering downsizing. In 2016,
we completed our first Berkeley Urban
Houses at Kidbrooke Village.
Attention to detail
The quality which we demand in our new
homes requires a skilled workforce and
attention to detail. We use our marketing
suites as the benchmark for build quality
and finish in each individual home.
Every area is thoroughly checked before
handover to ensure that high standards
are maintained.
HOMES
2016-2018 HEADLINE COMMITMENTS
• Design our homes to consider future climate change
to ensure continued thermal comfort
• Understand the evolution of smart technology and
connectivity in homes and on developments
2014-2016 HEADLINE COMMITMENTS
• Enable fibre broadband on all our new homes
and provide community Wi-Fi
• Guarantee space standards for all new homes
• Launch a new R&D programme to utilise customer
feedback and drive innovation through improved design
95%
90%
(cid:22)
2016 PERFORMANCE HIGHLIGHTS
WINNER
The Sunday Times British
Homes Awards 2015:
Homebuilder of the Year
London Evening Standard
New Homes Awards 2015:
Best Luxury Home (Large
Developer) for Ebury Square
64%
individual homes supplied with low
carbon or renewable technology
72%
individual homes provided
with smart meters
Learn more about Homes at
www.berkeleygroup.co.uk/about-berkeley-group/
our-vision/homes
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375 Kensington High Street, Kensington
Abell & Cleland, Westminster
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
Berkeley is currently developing
riverside apartments that will
redefine the London skyline.
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One Tower Bridge, Southwark
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
PLACE S
We are committed to creating
great places where people
enjoy a good quality of life,
now and in the future.
WH Y FOCUS ON PLACES?
To remain a developer of choice, it is essential that we focus on the
outcome of our developments in the long-term. This begins right
from the outset by ensuring the location is right at land purchase,
to focusing on placemaking during design and to ensuring that
suitable management processes are in place once the development
is occupied. Creating great places to live is integral to what we do
as it is about enabling our residents to enjoy a good quality of life,
now and in the future.
OUR APPROACH
We create well designed, high quality, safe and sustainable places
which will endure as settled, vibrant communities long into the
future. These are places where people choose to live, work and
spend their time, that directly encourage people’s wellbeing and
quality of life, and offer them a space and a base from which to
lead their lives.
Through our ability both to collaborate and to deliver, we aim
to be the developer of choice for local authorities and existing
communities. We believe that appreciating the needs of our
customers and wider stakeholders before, during and after the
delivery of our schemes is what makes them thrive as a community.
Through the design of our developments we have a strong focus on
the identity of the place. We focus on creating thriving communities
that are distinctive through their architecture and unique designs.
Celebrating the Queen’s birthday at Royal Arsenal Riverside, Woolwich
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Berkeley is creating a new school at Barns Green
Woodberry Down, Finsbury Park
The Leman Street Tavern at Goodman’s Fields, Aldgate
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
PLACE S
2016-2018 HEADLINE COMMITMENTS
• Implement community plans on our developments
to facilitate thriving communities
• Develop and apply an approach to ensure that all
new developments create a net biodiversity gain
2014-2016 HEADLINE COMMITMENTS
• Measure and increase people’s quality of life
by applying a framework for social sustainability
• Test new forms of estate management
and community governance
• Adapt all developments to climate change through
measures on flooding, overheating and water shortage
(cid:22)
(cid:22)
91%
2016 PERFORMANCE HIGHLIGHTS
WINNER
The Sunday Times British Homes
Awards 2015:
Development of the Year for
Wimbledon Hill Park (up to 25
homes category) and One Tower
Bridge (over 100 homes category)
The RESI Awards 2015:
Large Developer of the Year
85%
developments incorporating
features designed to
enhance ecology
96%
developments incorporating
sustainable drainage measures
Learn more about Places at
www.berkeleygroup.co.uk/about-berkeley-group/
our-vision/places
Community engagement
Creating communities
Climate change adaptation
We involve the community in the
development of our schemes from the
outset, using our Community Engagement
Strategy as a framework for the type
of engagement to be applied. Many of
our projects adopt community planning
strategies where local people are
involved in the design at an early stage,
whereas others include different types of
community events to share information
and encourage input.
Quality of life
To help us measure and enhance people’s
quality of life we launched a social
sustainability toolkit in 2014. We refer
to it during the design process for all
new developments and are committed
to conducting a formal assessment
pre-planning for every development
of 100 homes or more. Over the last
two years, 24 assessments have been
completed on our larger developments.
In 2016, LSE London undertook research
at Saffron Square to understand
residents’ experiences of living within the
development. The research was based
on our social sustainability framework
and found that 86% of respondents feel
‘reasonably happy’, compared to 68% of
people in similar areas.
Our work on quality of life and social
sustainability has identified that
placekeeping is as important as placemaking
and that they should be thought of as two
elements of the same process.
We want to ensure that our developments
remain great places in which to live for
decades to come. Over the last two years
we have reviewed our estate management
practices across the business. This
has led to the creation of community
plans as a structured approach to help
new communities to thrive for the
long-term. To date, community plans
have been initiated at three of our
large developments: Kidbrooke Village,
Woodberry Down and Saffron Square.
We intend further to develop our
approach across the breadth of
our scheme types and sizes so that
community plans can be implemented
consistently on our developments
moving forward.
With the effects of climate change
already being observed in the UK, we are
taking action to ensure that our homes
and developments remain comfortable
places in which to live for decades
to come. Climate change adaptation
measures around the key issues of
flooding, overheating and water shortage
are considered on new developments
submitted to planning. To achieve this, we
have developed a checklist which is applied
to schemes to identify the most pertinent
issues to address, based on the type of
development planned and its location.
We have also worked with the Zero Carbon
Hub to develop a greater understanding
of the potential effects of climate change
on our homes. To build on this work during
2016-2018, we have a new commitment
under our Homes focus area (see page 28).
Biodiversity
Biodiversity is the variation within wildlife,
species and habitats. It plays an important
role within our towns and cities as it helps
to improve air quality, provide resilience to
climate change and adds amenity value.
We consult an ecologist on our schemes
and have a new ambitious headline
commitment for 2016-2018 to enhance
biodiversity and to create a net gain.
At Woodberry Down, we have supported
the London Wildlife Trust to restore the
reservoir and create a new nature reserve
for London. The Woodberry Wetlands
nature reserve was unveiled by Sir David
Attenborough in April 2016 and provides
multiple habitats that combine to create a
haven for wildlife.
Sustainable infrastructure
The sustainability of the wider
development is as important as the
individual homes we create. When
acquiring sites, locality to transport links is
a key consideration. We further encourage
residents to use more sustainable
transport methods by providing cycle
storage and electrical car charging points.
Green infrastructure is incorporated into
our developments through the provision
of open space, parks, gardens and living
roofs. We were pleased to present our
work on green infrastructure as a best
practice case study at the UK Green
Building Council City Conference in
February 2016.
Public consultation events
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Places for everyone. Saffron Square, Croydon
The Woodberry Wetlands nature reserve
‘RARE’ - Royal Arsenal Riverside Explore - is an exciting vision for the community
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
O PERATIONS
We are committed to making
the right long-term decisions
whilst running the business
efficiently and working with
our supply chain.
WH Y FOCUS ON OPE RATIO NS?
WH Y FOCUS ON OPE RATIO NS?
Running our operations effectively and considerately is
fundamental to the long-term success of the business.
Running our operations effectively and considerately is
We need a skilled and reliable supply chain to help us
fundamental to the long-term success of the business.
deliver the pipeline of work and good relationships
We need a skilled and reliable supply chain to help us
with local stakeholders are essential to maintain our
deliver the pipeline of work and good relationships
reputation for quality.
with local stakeholders are essential to maintain our
reputation for quality.
OUR APPROACH
OUR APPROACH
Through recognition that the property market is
inherently cyclical we make decisions with a focus on
Through recognition that the property market is
the long-term. We understand the operational risks
inherently cyclical we make decisions with a focus on
in trying to successfully identify, design, build and sell
the long-term. We understand the operational risks
homes and create new places. We aspire to maintain
in trying to successfully identify, design, build and
excellent partnerships with our supply chain to ensure
sell homes and create new places. We continue to
that high quality services and materials are consistently
develop and build upon the good relationships we have
provided and we are a client of choice. We support and
with our supply chain and our communities to help
engage with our supply chain and, through our supply
us gain planning permission, to build and to sell our
chain, we help to provide employment. We conduct our
developments and remain a developer of choice. Each
day-to-day operations in an environmentally efficient
of our developments is led by a dedicated project team
manner and with consideration to our neighbours.
responsible for all aspects of the design and delivery on
the project, including the coordination of professional
teams of consultants and contractors ensuring strong
communication throughout. We aspire to maintain
excellent partnerships with our supply chain to ensure
that high quality services and materials are consistently
provided. Furthermore, we support and engage with
our supply chain and through which, we help to provide
employment. We conduct our day-to-day operations
in an environmentally efficient manner and with
consideration to our neighbours.
Construction at Goodman’s Fields, Aldgate
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Berkeley graduates on site
Yasar Ugur, a graduate of the Street Elite programme
Sharing best practice
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
Apprenticeships and training
Supply chain
Resource efficiency
Innovation Fund
Increasing the capacity of the workforce,
to ensure that there are enough people
with the right skills to deliver the pipeline
of future work, is a key challenge facing
the industry. Berkeley recognises this and
has committed to take action. Initiatives to
date include the launch of the Berkeley
Apprenticeship Scheme at Kidbrooke
Village and the introduction of a
Group-wide forum to share best practice.
We also work closely with our supply chain
and educational establishments. In April
2016, over 10% of our site workforce were in
an apprenticeship or training. Our actions
in this area will be further progressed
during 2016-2018, with greater focus on
direct apprenticeships across our activities.
Encouraging young people to join the
industry is vital. This year we became
the construction partner of the Mayor of
London’s ‘HeadStart London’ programme
which seeks to bridge the employability
gap between school and work. As part of
this, we have provided work experience
placements and our staff have volunteered
at employability workshops.
The support of our supply chain is
critical to the success of our business.
Engagement with our suppliers is
therefore key to remaining a client
of choice and achieving high quality
outcomes, on time and on budget. As
a result, we are further increasing our
engagement with suppliers, particularly
through our Supply Chain Taskforce.
We are continuing our work to map our
supply chain risks and are supporting
CIRIA’s research on responsible sourcing
in the construction industry. Our evolved
knowledge will feed into a new strategy
to source our materials more responsibly.
This is due to be launched later this year.
It is recognised that the majority of our
sustainability impacts occur indirectly
through our supply chain. We are proud
to be the first housebuilder to become
a partner of the ‘Homes School’ which
was launched by the Supply Chain
Sustainability School in November 2015.
The Homes School provides suppliers
with free resources to provide consistent
messaging on sustainability and encourage
more sustainable practices. Furthermore,
the Group has introduced a Human Rights,
Modern Slavery and Child Labour policy
during the year as set out in the Directors’
Report on page 100.
Office carbon emissions per person have
reduced by 12% this year as a result of
the actions taken under our 2014-2016
commitment to reduce energy costs (see
page 42). Our aim is to focus on realising
a 10% reduction across all our direct
activities during 2016-2018. To achieve
this, we plan to introduce minimum
standards for the set up and operation
of our offices, sites and marketing suites.
This will build on the recommendations
of energy audits completed to comply
with the Energy Savings Opportunity
Scheme. For emissions that remain, we
plan to introduce an offsetting programme
to become carbon positive. Further
information on our 2016 carbon emissions
is set out within the Directors’ report on
page 100.
In the same period, water consumption
across our activities has increased by 10%,
principally due to extensive landscaping
works and demolition operations requiring
dust suppression.
Berkeley’s Innovation Fund was launched
in January 2015 to promote innovation
in health and safety, and in doing so,
provide a positive influence to reduce
construction-related risk and improve
health and safety performance on sites.
To date, £1.5 million has been committed
to 12 projects ranging from research
studies through to product development.
We plan to build on the success of the
fund by broadening its scope, with the
next phase of funding envisaged to be
open to new applications from autumn
2016. For more information see www.
berkeleygroup.co.uk/innovation-fund.
Considerate construction
Berkeley’s continued efforts to construct
developments with consideration of
our workforce, the local community
and the environment have once again
been recognised at the Considerate
Constructors Scheme’s 2016 National
Site Awards. We are delighted that
more than half of our schemes achieved
awards, including four which obtained
Most Considerate Site Runner-Up status,
ranking them in the top 36 construction
sites in the country.
O PERATIONS
2016-2018 HEADLINE COMMITMENTS
• Reduce our operational carbon emissions intensity
by 10% and introduce a programme to become
carbon positive
• Ensure at least 1,500 people across our direct and
indirect workforce undertake an apprenticeship
or vocational training
2014-2016 HEADLINE COMMITMENTS
• Achieve a 50% increase in site-based apprenticeships
and training
• Launch a £2 million fund for the supply chain to
support innovation in health and safety
• Map our supply chain risks and develop a sustainable
specification and procurement strategy
(cid:22)
(cid:22)
92%
2016 PERFORMANCE HIGHLIGHTS
CIRIA’s BIG Biodiversity Challenge
Awards 2015:
Temporary Category Winner for
Chiswick Gate
Mayor of London’s Business
Energy Challenge 2015:
Silver Award Winner
12%
reduction in office carbon
emissions per person
42/50
average Considerate Constructors
Scheme score (industry average: 36)
Learn more about Operations at
www.berkeleygroup.co.uk/about-berkeley-group/
our-vision/operations
A trusted supply chain
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Topping out ceremony at Brewery Wharf, Twickenham
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
O UR PEOPLE
We are committed to developing
a highly skilled workforce who run
autonomous businesses, operate
in a safe and supportive working
environment and contribute
to wider society.
WH Y FOCUS ON OUR PEOP LE ?
Our people are key to the development process, from the
identification and purchase of land through to the sale of our
homes and ongoing customer service.
To run any business successfully it is vital to ensure that the
workforce is highly skilled and motivated. We understand the
importance of supporting all our employees to allow them to work
in a safe environment and to continue to advance their knowledge
and skills. Developing and retaining our workforce enables us to
deliver our objectives and grow as a business.
OUR APPROACH
A devolved business structure is at the heart of our strategy. Our
recognised brands and autonomous operational teams carefully
manage each individual scheme to ensure that the entrepreneurial
spirit of the business continues. Recruiting and retaining a high
calibre workforce is crucial to our approach. We must support both
our direct employees and the wider workforce of the contractors
working on our sites. We are proud to be safe; safety continues
to be a key focus area across all of our operations, in addition to
enhancing health and wellbeing. We also aim to have a positive
impact on society and enable young people to get into work
through our support of the Berkeley Foundation.
A warm welcome to a Berkeley marketing suite
We employ over 11,500 contractors
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We take pride in all aspects of our sites
Berkeley staff taking part in the Three Peaks Challenge to raise money for the Berkeley Foundation
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
O UR PEOPLE
2016-2018 HEADLINE COMMITMENTS
• Launch and implement a new programme to promote the
wellbeing of our staff and create healthy workplaces
• Invest in training and development through our talent
management programmes to realise the potential of
our people across all areas of the business
2014-2016 HEADLINE COMMITMENTS
• Pay at least the Living Wage to all direct employees
• Reduce energy costs by up to £500,000, investing
50% of the saving in new health and wellbeing initiatives
• Encourage and support every member of staff
to be involved with the Berkeley Foundation each year
• Launch a talent management programme which
develops new ideas to enhance the business
(cid:22)
63%
(cid:22)
(cid:22)
2016 PERFORMANCE HIGHLIGHTS
NHBC Health and Safety
Awards 2015:
National Best Site Awards for
Ryewood (Large Builder) and
Saffron Square (Multi-Storey Builder)
Payroll Giving Platinum Award
2016 achieved as over 30% of
employees donate through the
GAYE scheme
2.40
Accident Incident Rate
(industry average: 4.20,
HSE October 2015 figure)
68%
employees involved with the
Berkeley Foundation
Learn more about Our People at
www.berkeleygroup.co.uk/about-berkeley-group/
our-vision/our-people
Living wage
The Living Wage Foundation’s rate
of pay is calculated according to the
basic cost of living. We continue to
pay at least the Living Wage to all our
employees, going beyond Government’s
new mandatory national living wage
introduced in April 2016. We encourage
our contractors to do so also.
Talent management
We have a talented and varied workforce
that is our strongest resource. We look
to recognise employees’ performance
and potential and to provide support and
development opportunities. As a result
of our 2014-2016 commitment, various
talent management programmes have
been introduced across the operating
businesses. Some are intensive schemes
for selected individuals, whereas other
businesses are undertaking programmes
for all staff. Our 2016-2018 commitment
seeks to highlight the successes of these
programmes and build upon them.
We are extremely proud that one of our
senior project managers, Paul Dunnett, won
the prestigious accolade of the NHBC’s
Pride in the Job Supreme Award for the
multi-storey category in January 2016. This
marks the second consecutive year that a
Berkeley employee has received this award.
Supporting a diverse workforce
Our business continues to grow; we now
have over 2,300 direct employees working
in a range of roles across just under 100
sites and offices. Across the Group, 37%
of direct employees are female as are 23%
of our Board directors.
We also support a large workforce through
our contractors with more than 11,500
people working on our sites in April 2016.
Female Male
Total
Total Employees
888
1,491 2,379
Senior Management
Board of Directors
At 30 April 2016
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The Berkeley Foundation
All Berkeley offices have a Foundation
Representative who encourages staff
to get involved in fundraising events
and volunteering.
This year, 68% of staff engaged with the
activities of the Berkeley Foundation
through fundraising, Give As You Earn or
volunteering, raising just under £1 million.
Our aim is to inspire all employees to
support the Foundation at least once
each year.
More information on the achievements of
the Berkeley Foundation over the last five
years is provided on pages 46 and 47.
Energy and wellbeing
Over the last two years we have focused
on understanding consumption and
charges for electricity. A number of
our sites and offices have trialled more
effective sub-metering and monitored
out-of-hours usage to identify areas for
improvement. There has also been a focus
on site temporary electrics efficiency. As
a result of our 2014-2016 commitment, we
have reduced our electricity consumption
across our activities by 16% per person
and costs by just over £310,000. We aim
further to reduce our broader energy
consumption through our new carbon
commitment (see the Operations section,
page 38).
Health and wellbeing initiatives have been
selected locally by operating businesses
and include well person clinics, office fruit
baskets, exercise classes and awareness
campaigns. There will be an increased focus
during 2016-2018 on providing workplace
environments that encourage and enable
our employees to lead healthy lifestyles.
Health and safety
Through working closely with our supply
chain we aim to achieve industry-leading
performance in health and safety. Our
Innovation Fund (summarised within
the Operations section on page 39) is
an example of a leading initiative to help
improve health and safety, not just within
Berkeley but across the industry as a whole.
We are pleased to be able to report a
reduced Accident Incident Rate (AIR)
of 2.40 (2015: 2.46), demonstrating
performance beyond the industry average.
Our Accident Frequency Rate (AFR) is
0.11, down from 0.12 in 2015.
The NHBC Health and Safety Awards
recognise the very best in health and
safety. We are delighted that two of the
three 2015 National Best Site Awards
were won by Berkeley projects.
Our talented workforce is our strongest resource
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Staff and family supporting runners on
theVirgin Money London Marathon
Apprentices on site
We provide support and development opportunities to all employees
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
Great developments are delivered by
bringing together teams of talented
people with a real passion for creating
places that stand the test of time.
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
TH E BERKELEY
FOUNDATION
The Berkeley Foundation was launched five years
ago. Since 2011, it has committed £7.9 million
to more than 85 charities, reaching over 6,500
people. The Foundation is focused on supporting
projects which tackle homelessness, develop skills,
create jobs, and help people to live positively with
disability or illness.
Partnerships range from major national charities, such as Shelter
and the Lord’s Taverners, to smaller charities chosen by Berkeley
staff that are local to our offices and sites.
This year, 10% of Berkeley staff took part in Vertical Rush,
climbing 200,000 steps and raising £56,000 for Shelter.
We are delighted that Berkeley and The Change Foundation won
the Best Charity Partnership (Property & Construction) category
at the Third Sector's Business Charity Awards for the Street Elite
programme. This has helped almost 300 young people on the
edge of gangs and crime to build the skills for work, with
15 Street Elite graduates now employed directly by Berkeley.
READ MORE ONLINE:
www.berkeleyfoundation.org.uk
Tough Mudder
Street Elite Festival
Berkeley supports Queen Elizabeth’s
Foundation for Disabled People
Dragon boat racing at Woodberry Down
Volunteering at Providence Row
Three Peaks triathlon
2016 PERFORMANCE HIGHLIGHTS
£7.9m
has been committed to more
than 85 charities since the
Foundation launched five
years ago
46
Third Sector Business Charity
Awards 2016:
Charity Partnership (Property
& Construction) for Street Elite
(The Berkeley Group and The
Change Foundation)
Berkeley staff abseiled down the ArcelorMittal Orbit
Staff at Vertical Rush 2016
47
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
OUR BUSIN ESS MO DEL
OUR BUSINESS IS ABOUT PLACEMAKING;
IT IS ABOUT CREATING STRONG COMMUNITIES
WHERE PEOPLE ENJOY A GREAT QUALITY OF LIFE.
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Identifying and
acquiring land
Customer
service and
stewardship
MAKING
THE RIGHT
DECISIONS TO
CREATE GREAT
PLACES
Designing
and planning
new homes
and places
Marketing and
selling homes
Building new
homes and places
Fulham Reach, Fulham
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READ MORE ONLINE:
www.berkeleygroup.co.uk/about-berkeley-group
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
O UR BUSINESS MODEL
THE PLACES THAT WE CREATE RANGE FROM A FEW HOMES
IN MARKET TOWNS TO COMPLEX, MIXED-USE URBAN
REGENERATION SCHEMES OF OVER 4,000 HOMES.
IDENTIFYING AN D
ACQUIRING L AND
DESIGNING AND PLANNING
NEW HOMES A ND PLACES
BUILDING NEW HOMES
AN D PLACES
MA RK ETING AND
SELLING HOM ES
CU STOMER SERVICE
AND STEWARDS HIP
AWARDS
We acquire land selectively with
a focus on long-term, complex
schemes where we can use our
expertise to add value through
creating new places.
We work with consultants, local
authorities and communities and
aim to create places characterised
by the quality of their design,
public realm, sustainability,
transport links and access to jobs
and amenities.
We are supporting the
employment of some 13,800
people in our offices and on
our schemes under construction,
building new homes and
places for current and
future generations.
Customer satisfaction is the
essential measure of whether our
homes and our service meet the
aspirations of our customers.
Whether first-time buyers,
families, experienced investors,
retailers, our partners in housing
associations or providers of
student accommodation, Berkeley
strives to ensure that its customers
receive an unparalleled service
when buying from Berkeley.
Experience
Consultation
Intensive management
Customer focus
Customer journey
Our experienced land teams understand
our focus on investing selectively in the
right locations in our core markets of
London and the South of England, where
there is underlying demand for new
homes, good transport links and the
scope to create successful new places.
Appraisal
We undertake a rigorous internal appraisal
process to assess the opportunities
and risks of potential acquisitions and
pre-authorise all land offers at Board
level, which enables us to act quickly,
innovatively and decisively, and deliver
on our offers.
Entrepreneurship
The Group thrives in adopting an
entrepreneurial approach in taking on
complex, challenging, brownfield land
which others are often reluctant to
undertake, but only where there are
the right commercial fundamentals, the
potential to add value and where we have
the vision to create something special
through the development process.
We use professional architects and
leading consultants and engineers to
provide bespoke designs for every
new scheme, however large or small,
in consultation with local communities.
With the knowledge gained from
other developments, we strive to
deliver schemes which are of high
quality, sensitive to their heritage and
surroundings and meet the aspirations
of our customers and local and
national stakeholders.
Social and environmental sustainability
We have addressed the challenge of
understanding what makes a successful
place by implementing a framework
to promote quality of life and strength
of community, which we now apply to
our schemes. We have led the way in
delivering environmentally sustainable
living on largescale developments
and continue to lead our sector in
sustainable development.
Partnerships
We engage closely with our partners in
the local authorities and communities
surrounding each of our sites to
understand stakeholders’ needs and
prevailing sensitivities and reflect these
in our designs. We continue to build on
our reputation for quality and for
delivering on our promises, and thrive
on the strong working relationships that
we have developed.
Each of our developments is led by a
dedicated project team responsible for all
aspects of detailed design, delivery, quality,
health and safety, commercial appraisal
and technical detail. The coordination of
professional teams of consultants and
contractors and strong communication
throughout are critical in ensuring the
smooth delivery of every project.
Health and safety
We place the utmost importance on the
health, safety and wellbeing of our people
and our subcontractor teams on site with
dedicated health and safety managers
overseeing all of our developments and
health and safety matters monitored,
prioritised and debated at every Board
meeting in every company within the
business. We are proud of our record in
this area but seek continual improvement
in our methodologies and approach.
Considerate construction
The reputation of Berkeley amongst
its partners and stakeholders relies
on all of our project teams engaging
with surrounding communities, being a
responsible and considerate neighbour
and working with our suppliers and
contractors to complete our schemes
on time and budget. This year, more
than half of our sites were recognised at
the Considerate Constructors Scheme’s
National Site Awards. We are signed up
to the Prompt Payment Code, and aim to
develop strong, long-term relationships
with our contractors and suppliers.
Sales teams across the business have
an in-depth knowledge of their
developments and help our customers
find the right home to suit their needs.
They have the knowledge and
understanding to explain the intricacies
of every development, from the
specification of each new home and
the technical details to the on-site
amenities and wider context of
the scheme.
Meeting demand
We aim to forward sell our homes where
possible to ensure that our buildings
reflect what our customers want and
enables us to provide a range of customer
choices and a bespoke service across
all of our developments. Our financial
strength affords us the flexibility to evolve
our product to meet our customers’ tastes
and be flexible in how and when we
deliver it.
Modern living
We are constantly evolving our design,
product and features, as well as the
wider on-site amenities on each scheme,
to help turn our developments into the
homes that meet the expectations and
aspirations of people today. Many of our
commitments under Our Vision reflect
changing priorities for our customers and
help keep our homes at the forefront of
modern living.
Dedicated customer relationship
managers look after every stage of the
customer journey and provide a high
level of care and service after completion,
which we expect to match the quality of
our product across all of our schemes. We
benchmark our performance on customer
service not just across the sector but
against the top businesses in the country,
and look continually to improve our offering.
Estate management
Successful places need the right
long-term management strategy and
we work closely with appointed
managing agents to set the right tone
for our schemes long after they have
been completed. We are committed to
investigating and implementing excellent
forms of estate management and
community governance on our schemes.
Future-proofing
We recognise that technology advances
rapidly, sometimes more quickly than
we can build our schemes, and that we
need to be at the forefront of employing
new techniques and enabling the latest
technology to serve our customers. Our
current commitments under Our Vision
includes the incorporation of evolving
smart technology and connectivity
in our new homes.
Queen’s Award for Enterprise:
Sustainable Development 2014
Institute of Customer Service
ServiceMark achieved across
all businesses
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
WHERE WE OPERATE
WE FOCUS ON LONDON AND THE SOUTH OF ENGLAND,
MARKETS THAT WE KNOW AND UNDERSTAND.
LONDON
SOUTH OF ENGLAND
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30
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12
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40
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12
7
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26
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29
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Warwickshire
Gloucestershire
n s h ir e
p t o
N ortha m
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Oxfordshire
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Berkshire
9
13
1
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2
Wiltshire
Somerset
Hampshire
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Surrey
7
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West Sussex
East Sussex
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SOUTH OF ENGLAND
FUTURE SITES
1 Ascot*
2 Borehamwood Gasworks*
3 Rickmansworth
4 Sevenoaks (2 sites)
5 Southwater*
6 Watford Gasworks*
7 Winchester
8 Wokingham*
LONDON UNDER CONSTRUCTION
LONDON FUTURE SITES
SOUTH OF ENGLAND UNDER CONSTRUCTION
1 Battersea
2 Blackheath*
3 Chambers Wharf, Southwark
4 Fulham Gasworks*
5 Hornsey Gasworks*
6 Kingston
7 Oval Gasworks*
8 Southall
9 Stephenson Street*
10 Trent Park, Cockfosters*
11 West End Green, Paddington*
12 Westminster
1 Barns Green
2 Fleet
3 Gillingham
4 Gosport
5 High Wycombe
6 Holborough
7 Horsham
8 North Bersted
9 Reading (2 sites)
10 Sevenoaks
11 Taplow
12 Tunbridge Wells
13 Warfield
14 Worcester
190 Strand
1
2 250 City Road, City of London
375 Kensington High Street
3
& Kensington Row
4 Abell & Cleland House, Westminster
5 Battersea Reach
6 Beaufort Park, Hendon
7 Brewery Wharf, Twickenham
8 Brunswick Square, Orpington
9 Chelsea Creek
10 Chiswick Gate
11 Dickens Yard, Ealing
12 Fitzroy Gate, Isleworth
13 Fulham Reach, Hammersmith
14 Goodman’s Fields, Aldgate
15 Hurlingham Gate & Walk, Fulham
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17 Kew Bridge Road
18 Kew Bridge West, Brentford
19 Kidbrooke Village
20 Latchmere House, Richmond
Imperial Square, Finchley
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21 London Dock, Wapping
22 Marine Wharf, Deptford
23 Merano, Albert Embankment
24 One Blackfriars, Southwark
25 One Tower Bridge
26 Queenshurst, Kingston
27 Riverlight, Battersea
28 Royal Arsenal Riverside
29 Saffron Square, Croydon
30 Smithfield Square, Hornsey
31 South Quay Plaza, Docklands
32 Sovereign Court, Hammersmith
33 St Joseph’s, Mill Hill
34 Stanmore Place
35 The Corniche, Albert Embankment
36 The Dumont, Albert Embankment
37 The Villas, Barnes
38 Vista, Battersea
39 White City
40 Wimbledon Hill Park
41 Woodberry Park
*New sites contracted for acquisition during the year
*New sites contracted for acquisition during the year
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
From traditional family homes in
the countryside to city apartments
and vibrant mixed-use schemes,
the Berkeley Group is renowned for
creating award winning homes.
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Woodberry Down, Finsbury Park
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
H OW WE
MANAGE RISK
Risk appetite
Risk management framework
The Board is responsible for setting and
monitoring the risk appetite for Berkeley
when pursuing its strategic objectives.
The Board’s approach to, and appetite
for risk is summarised below:
– Cyclical market
Berkeley’s business model is centred
on the Board’s appreciation of the
risks of the cyclical market in which
the business operates, in which market
sentiment and transaction levels
change, requiring us to adopt a flexible
approach to our investment decisions.
– Operational challenges
The business model also recognises the
complexity of the planning and delivery
of the sites Berkeley undertakes, and
mitigates this risk by focusing its
activities in London and the South
East, recognising the importance of
relationships and local knowledge and
having highly skilled teams in place.
– Autonomy and values
We have recognised brands and
autonomous, talented and experienced
teams who embrace Berkeley’s core
values in their approach. We create
bespoke solutions for each site
which requires experienced, intensive
management and as such do not
produce a standard product.
– Strong financials
This translates into an approach that,
at all times through the cycle, keeps
financial risk low in recognition of the
operational risks within the business
(refer to page opposite).
56
In making its assessment, the Directors have
considered the principal risks facing the
Group and how the Group mitigates such
risks, which are summarised on pages 58
to 65 of the Strategic Report. The majority
of risks to the Group are operational in
nature primarily because the sites acquired
are mostly complex, long-term regeneration
schemes and therefore risk management
is appropriately embedded in the day-to-
day business processes and controls. The
individual site cash flow forecasts, which are
used to prepare the Group’s consolidated
cash forecasts, take account of these
individual site operational risks.
The Group’s business model, as set out on
pages 49 and 50 of the Strategic Report,
recognises these operational risks, and that
the property market is inherently cyclical,
and accordingly a core principal for the
Group is to keep financial risk sufficiently
low through forward selling where possible,
maintaining a sound balance sheet and
headroom within its financing activities.
The Group’s consolidated cash flow
forecasts include appropriate allowances for
discretionary investment and the quantum
and timing of this is in turn subject to the
delivery of the individual site operational
cash flows. The viability assessment
has considered the impact of reduced
sales activity in the five year period from
the current forecast levels as a result of
adverse macro-economic conditions and
the Directors have also taken into account
appropriate mitigating actions which may
be instigated in response, primarily around
curtailed discretionary investment, such as
lower new land purchases or deferment of
new site starts, amongst others.
Based on the assessment, the Directors
confirm that they have a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the five year
period commencing 1 May 2016.
The assessment of risk and embedding
risk management into the business is a
key element of setting and delivering our
strategy. Our approach combines a top-
down strategic review and feedback of
risk by the Board, coupled with a bottom
up review and reporting of risk by each
operating business.
The top down assessment of risk by the
Board includes a review of the external
environment in which Berkeley operates,
coupled with a deep seated knowledge
of our industry and operations based on
the substantial experience of the Board.
This takes into account the likelihood and
impact of risks, whether pre-existing or
emerging, which may materialise in the
short or longer-term.
A fundamental principle of the operating
structure of the Group is that the prime
responsibility for assessing, managing
and monitoring the majority of the risks
rests with operational management, thus
ensuring risk management is embedded in
our day-to-day operations.
Risk registers at operational level are
overlain by wider strategic risks facing
the Group, such as macro-economic risk.
This is then assessed and managed by the
Board and Executive Committee.
The Audit Committee has responsibility
for ensuring the effectiveness of risk
management and internal controls on
behalf of the Board. The controls and
processes surrounding how we assess
risk across the Group are explained
further in the Corporate Governance
report on page 76.
The principal operating risks and our
approach to mitigating them are described
in more detail on pages 58 to 65.
Viability statement
In accordance with provision C2.2 of the 2014
revision of the UK Corporate Governance
Code, the Directors have assessed the
longer term viability of the Group.
The Directors have undertaken their
assessment over a five year period, as the
majority of the Group’s developments are
long-term in nature and the Board’s strategic
planning reviews cover a five year timeframe.
Furthermore, the Group owns or controls
the land required for the next five years and
accordingly there is sufficient detail within the
individual site cash flow forecasts to enable
a meaningful assessment over this period.
KEEPING FINAN CIA L
RISK LOW
Exposure to financial risks
The financial risks to which Berkeley is exposed include:
Berkeley keeps financial risk
low by maintaining a strong
balance sheet and simplicity
and transparency in its approach
to financing the business.
Liquidity risk
The risk that the funding required for
the Group to pursue its activities may
not be available.
Market interest rate risk
The risk that Group financing activities
are affected by fluctuations in market
interest rates.
Market credit risk
The risk that counterparties (mainly
customers) will default on their
contractual obligations, resulting in a
loss to the Group. The Group’s exposure
to credit risk is comprised of cash
and cash equivalents and trade and
other receivables.
Other financial risks
Berkeley contracts all of its sales and the
vast majority of its purchases in sterling,
and so has no significant exposure to
currency risk, but does recognise that
its credit risk includes receivables from
customers in a range of jurisdictions
who are themselves exposed to
currency risk in contracting in sterling.
Management of financial risks
Berkeley adopts a prudent approach to managing these financial risks.
– Treasury policy and central overview
– Forward sales
The Board approves treasury policy and
senior management control day-to-day
operations. Relationships with banks
and cash management are coordinated
centrally as a Group function. The
treasury policy is intended to maintain
an appropriate capital structure to
manage the financial risks identified
and provide the right platform for the
business to manage its operating risks.
– Low gearing
The Group is currently financing its
operations through shareholder equity,
supported by over £107 million of net
cash on the balance sheet. This in turn
has mitigated its current exposure to
interest rate risk.
– Headroom provided by bank facilities
The Group extended its borrowing
facilities in the year, and now has
£575 million of committed, undrawn
credit facilities maturing in March 2021.
These facilities retain a further one
year extension option. Berkeley has a
strong working partnership with the six
banks which provide the facilities (listed
on page 147) and is key to Berkeley’s
approach to mitigating liquidity risk.
Berkeley’s approach to forward
selling new homes to customers provides
good visibility over future cash flows, as
expressed in cash due on forward sales
which stands at £3,259 million at 30 April
2016. It also helps mitigate market credit
risk by virtue of customers’ deposits held
from the point of unconditional exchange
of contracts with customers. These
deposits stood at £1,106 million at
30 April 2016 and provide security for
Berkeley in the event of customer default
at the point of completion of sales.
– Land holdings
By investing in land at the right point in
the cycle, holding a clear development
pipeline in our land holdings and
continually reviewing our existing
holdings, we are not under pressure to
buy new land when it would be wrong for
the long-term returns for the business.
– Detailed appraisal of spending
commitments
A culture which prioritises an
understanding of the impact of all
decisions on the Group’s spending
commitments and hence its balance
sheet, alongside weekly and monthly
reviews of cash flow forecasts at
operating company, divisional and
Group levels, recognises that cash
flow management is central to the
continued success of Berkeley.
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
HOW WE
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Continued
ECONOMIC
OUTLOOK
POLITIC AL
OUTLOOK
REGULATION
Risk description
Approach to mitigating risk
Measurement
Annual change
Read more
As a property developer,
Berkeley’s business is sensitive
to wider economic factors such
as changes in interest rates,
employment levels and general
consumer confidence.
Some customers are also
sensitive to changes in the
sterling exchange rate in terms
of their buying decisions or
ability to meet their obligations
under contracts.
Changes to economic conditions
in the UK, Europe and worldwide
may lead to a reduction in
demand for housing which could
impact on the Group’s ability to
deliver its corporate strategy.
Recognition that Berkeley operates in a cyclical market
is central to our strategy and maintaining a strong financial
position is fundamental to our business model and protects us
against adverse changes in economic conditions.
Land investment is carefully targeted and underpinned by
demand fundamentals and a solid viability case, even when
markets are uncertain.
Levels of committed expenditure are carefully monitored
against forward sales secured, cash levels and headroom
against our available bank facilities, with the objective
of keeping financial risk low to mitigate the operating risks
of delivery in uncertain markets.
Production programmes are continually assessed, depending
upon market conditions.
The business is committed to operating at an optimal size,
with a strong balance sheet, through autonomous businesses
to maintain the flexibility to react swiftly, when necessary,
to changes in market conditions.
The strength of the balance sheet is measured
by monitoring our KPIs, principally net asset
value per share, the profitability of the business
through profit before tax and basic earnings per
share, and the efficiency of the balance sheet
through return on equity.
Forward sales secured, cash levels and headroom
of available bank facilities are all assessed to ensure
financial risk is kept low.
The UK economy continues to grow,
with unemployment and interest rates
at historically low levels.
The timing of interest rate rises remains
uncertain, albeit consensus appears to
be that increases will be deferred.
Chief Executive’s Review
(page 8)
2016 Performance
Highlights
(page 2)
- Net asset value per share
- Adjusted profit before tax
- Adjusted basic earnings
per share
- Adjusted return on equity
Risk Appetite
(page 56)
Significant political events,
including membership of the
EU, may impact Berkeley’s
business through, for instance,
the reluctance of buyers to
make investment decisions
due to political uncertainty
and, subsequently, specific
policies and regulation may be
introduced that directly impact
our business model.
Adverse changes to Government
policy on areas such as taxation,
housing and the environment
could restrict the ability of the
Group to deliver its strategy.
Failure to comply with laws
and regulations could expose
the Group to penalties and
reputational damage.
Whilst we cannot directly influence political events, the risks
are taken into account when setting our business strategy and
operating model. In addition, we actively engage in the debate on
policy decisions.
The impact that specific political events have, or
could have on the business is regularly assessed.
There are significant political
uncertainties at present, which has
therefore increased the risk this year.
Chairman’s Statement
(page 6)
Chief Executive’s Review
(page 8)
Berkeley is focused geographically on London and the South
of England, which limits our risk when understanding and
determining the impact of new regulation across multiple
locations and jurisdictions.
The effects of changes to Government policies at all levels are
closely monitored by operating businesses and the Board, and
representations made to policy-setters where appropriate.
Berkeley’s experienced teams are well placed to interpret and
implement new regulations at the appropriate time through
direct lines of communication across the Group, with support
from internal and external legal advisors.
Detailed policies and procedures are in place where
appropriate to the prevailing regulations and these are
communicated to all staff.
The impact that regulatory changes have, or could
have on the business is regularly assessed.
During the year we have seen
increased property taxation for second
home/buy-to-let investors, as well
as a number of other new regulatory
changes which increase risk such as
new HSE prosecution guidelines and
the requirement to assess our supply
chain for modern slavery.
Chairman’s Statement
(page 6)
Chief Executive’s Review
(page 8)
Directors’ Report
(page 100)
Risk Appetite
(page 56)
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
HOW WE
M ANAGE RISK
Continued
Risk description
Approach to mitigating risk
Measurement
Annual change
Read more
LAND
AVAILABILI TY
An inability to source suitable
land to maintain the Group’s
land holdings at appropriate
margins in a highly competitive
market could impact on the
Group’s ability to deliver its
corporate strategy.
PLA NNING
PR OC ESS
Delays or refusals in obtaining
commercially viable planning
permissions could result in the
Group being unable to develop
its land holdings.
This could have a direct impact
on the Group’s ability to deliver
its product and on its profitability.
Understanding the markets in which we operate is central
to Berkeley’s strategy and, consequently, land acquisition is
focused on Berkeley’s core markets of London and the South
of England, markets in which it believes that the demand
fundamentals are strong.
Berkeley has experienced land teams with strong market
knowledge in their areas of focus, which gives us the confidence
to buy land without an implementable planning consent and, with
an understanding of local stakeholders’ needs, positions Berkeley
with the best chance of securing a viable planning consent.
Berkeley acquires land opportunistically, where it meets its
internal criteria for purchase, and considers joint ventures in
particular as a vehicle to work with the right partners who bring
good quality land complemented by Berkeley’s expertise.
Each land acquisition is subject to a formal internal appraisal and
approval process prior to the submission of a bid and again prior
to exchange of contracts to give the Group the greatest chance
of securing targeted land.
The Group maintains its land holdings to mitigate against
significant impacts from market changes or delayed build activity.
The Group’s strategic geographical focus and expertise places it
in the best position to conceive and deliver the right consents for
the land acquired.
Full detailed planning and risk assessments are performed and
monitored for each site without planning permission, both before
and after purchase.
Our assessment of the risk profile dictates whether sites are
acquired either conditionally or unconditionally.
The planning status of all sites is reviewed at both monthly
divisional Board meetings and Main Board meetings.
The Group works closely with local communities in respect of
planning proposals and strong relationships are maintained with
local authorities and planning officers.
RETAINING
PEOPLE
An inability to attract, develop,
motivate and retain talented
employees could have an impact
on the Group’s ability to deliver
its strategic priorities.
Failure to consider the
retention and succession of
key management could result
in a loss of knowledge and
competitive advantage.
We have developed a series of commitments within Our Vision,
our plan for the business, to ensure that we retain and develop
the best people to support the business in the long-term.
Succession planning is regularly reviewed at both divisional and
Main Board level. Close relationships and dialogue are maintained
with key personnel.
Remuneration packages are constantly benchmarked against the
industry to ensure they remain competitive.
We promote the engagement of our people with the business
and its impact on wider society through the activities of the
Berkeley Foundation.
Maintaining a strong financial position gives
us the liquidity and flexibility to remain
competitive when bidding for new land and
gives vendors the confidence that Berkeley
will deliver on any deals negotiated.
We carefully monitor the level of estimated
future gross margin in our land holdings as a
key performance indicator. This reflects the
future potential of the business from current land
holdings valued at current prices and current costs.
Accessing good quality land is a core
inherent risk of the business that we
steadily manage in a cyclical market.
Trading and Financial
Review
(page 66)
We continue to focus on enhancing
the value of our land bank and this
risk is unchanged.
Business Model
(page 50)
2016 Performance
Highlights
(page 3)
- Gross margin on land
holdings
The planning process is complex but
has been stable this year, and so the
risk profile is steady.
Business Model
(page 50)
Our Vision
- Places (page 32)
A stable senior team has continued
to manage the normal pressures of
people retention.
2016 Performance
Highlights
(pages 2 and 3)
Our Vision
- Our People (page 40)
We believe that our commitments to customer
service, design, quality and placemaking can make us
the developer of choice for local authorities, which
will help deliver the right planning consents for our
schemes. This has led to us securing further new
consents this year to support the future business.
By maintaining a strong balance sheet, and
through a long-established reputation, our
stakeholders in local communities trust our ability
to deliver against any commitments that we make,
whether financial or operational.
Remuneration packages are designed with
retention in mind and are explained within the
Financials section of this report and accounted
for in accordance with International Financial
Reporting Standards.
Consequently, they are appropriately reflected in our
profit-related KPIs and senior management across
the business has remained stable.
Berkeley’s Our People commitments are articulated
within Our Vision. We measure the engagement
of our people with the Berkeley Foundation as
representative of their engagement with the business
and its wider impact.
Staff turnover rates are regularly monitored.
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
HOW WE
M ANAGE RISK
Continued
Risk description
Approach to mitigating risk
Measurement
Annual change
Read more
SECURI NG
SA LES
An inability to match supply to
demand in terms of product,
location and price could result
in missed sales targets and / or
high levels of completed stock
which in turn could impact on
the Group’s ability to deliver its
corporate strategy.
Detailed market demand assessments of each site are undertaken
before acquisition and regularly during delivery of each scheme
to ensure that supply is matched to demand in each location.
Design, product type and product quality are all assessed on a
site-by-site basis to ensure that they meet the target market and
customer aspirations in that location.
The Group has a diverse range of developments with homes
available across a broad range of property prices to appeal
to a wide market.
The Group’s ability to forward sell reduces the risk of the
development cycle where possible, thereby justifying and
underpinning the financial investment in each of the Group’s sites.
Completed stock levels are reviewed regularly.
The level of cash due on secured forward sales is a
KPI which measures the cash Berkeley expects to
receive on contracted forward sales over the next
three financial years. This provides both a good
indication of past sales performance and visibility
over future cash flows.
The London housing market has
remained stable and there is
good underlying demand, albeit
transaction levels at the upper-end
of the housing market have moderated
from recent highs.
Through our commitments to Customers in
Our Vision, we have placed customer service,
interaction with our purchasers and a commitment
to market schemes in the UK first at the forefront
of our business.
We recognise this by measuring our performance
through the Net Promotor score.
Chief Executive’s Review
(page 8)
Business Model
(page 51)
2016 Performance
Highlights
(pages 2 and 3)
- Cash due on
forward sales
- Net promoter score
Our Vision
- Customers (page 22)
MORTGAGE
AVAILABILI TY
An inability of customers to
secure sufficient mortgage
finance now or in the future
could have a direct impact on
the Group’s transaction levels.
Berkeley has a broad product mix and customer base which
reduces the reliance on mortgage availability across its portfolio.
The Group participates in the Government’s Help to Buy scheme,
which provides deposit assistance to first-time buyers, and has
participated in other Government schemes historically.
The financial measure of cash due on forward sales
provides an indication of the level of sales on which
deposits have been taken and hence hedges against
the risk of non-completion of sales.
An economic environment of continued
low interest rates, combined with a
stable return to economic growth,
has supported mortgage availability,
leading to a steady risk profile.
2016 Performance
Highlights
(page 3)
- Cash due on
forward sales
Deposits are taken on all sales to mitigate the financial impact
on the Group in the event that sales do not complete due
to a lack of mortgage availability.
Our Vision includes specific commitments to enhance
environmental and social sustainability considerations in the
delivery of our schemes and operation of our business.
These complement existing practices within the Group to focus
on brownfield development, monitor carbon emissions and to be
a considerate contractor on all of our schemes and welcomed in
the communities within which we operate.
ENVIRONMENT
AN D SOCIAL
SUSTAINABI LITY
Berkeley is aware of the
environmental and social impact
of the homes and communities
that it builds, both during the
construction phase and on
occupation by its customers.
Failure to address sustainability
issues could affect the Group’s
ability to acquire land, gain
planning permission, manage
sites effectively and respond to
increasing customer demand for
sustainable homes.
HEALTH AND
SA FETY
Berkeley’s operations have a
direct impact on the health and
safety of its people, contractors
and members of the public.
Berkeley considers this to be an area of critical importance.
Berkeley’s health and safety strategy is set by the Board.
Dedicated health and safety teams are in place in each division
and at Head Office.
A lack of adequate procedures
and systems to reduce the
dangers inherent in the
construction process increases
the risk of accidents or
site-related catastrophes,
including fire and flood, which
could result in serious injury or
loss of life leading to reputational
damage, financial penalties and
disruption to operations.
Procedures, training and reporting are all regularly reviewed
to ensure high standards are maintained and comprehensive
accident investigation procedures are in place. Insurance is held
to cover the risks inherent in large-scale construction projects.
The Group has implemented a number of initiatives to improve
health and safety standards on site, with workshops held with
contractors during the year.
Berkeley’s commitments within Our Vision focus
on the long-term sustainability of our schemes and
business, including operating a carbon positive
business and ensuring that all new developments
create a net biodiversity gain.
Our focus on this area remains a key
differentiator of Berkeley and the risks
and our approach continually evolve.
Our Vision
- Homes (page 26)
- Places (page 32)
- Operations (page 36)
We continue to monitor RIDDOR reportable
Accident Incident Rates, reported within Our
Vision, and promote continual health and safety
programmes across the business.
Our Vision also includes a core commitment
to promote the wellbeing of our staff and create
healthy workplaces.
This consistently remains an operational
priority for Berkeley.
2016 Performance
Highlights
(page 3)
- Accident Incident Rate
Our Vision
- Operations (page 36)
- Our People (page 40)
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
HOW WE
M ANAGE RISK
Continued
Risk description
Approach to mitigating risk
Measurement
Annual change
Read more
BUILD COST AND
PR OGR AMME
Build costs are affected by the
availability of skilled labour
and the price and availability
of materials, supplies and
subcontractors.
Changes to these prices and
the availability of labour could
impact on the profitability of
each scheme.
A procurement and programming strategy for each development
is agreed by the divisional Board before site acquisition, whilst
a further assessment of procurement and programming is
undertaken and agreed by the divisional Board prior to the
commencement of construction.
Build cost reconciliations and build programme dates are
presented and reviewed in detail at divisional cost review
meetings each month.
The Group monitors its development obligations and recognises
any associated liabilities which arise.
PRODUCT
QUALITY
Berkeley has a reputation
for high standards of quality
in its product.
Detailed reviews are undertaken of the product on each scheme
both during the acquisition of the site and throughout the build
process to ensure that product quality is maintained.
If the Group fails to deliver
against these standards and its
wider development obligations, it
could be exposed to reputational
damage, as well as reduced sales
and increased cost.
Customer satisfaction surveys are undertaken on the handover of
our homes, and feedback incorporated into the specification and
design of subsequent schemes.
CYB ER AND
DATA RISK
The Group could suffer significant
financial and reputational
damage as a result of the
corruption, loss or theft of data,
whether inadvertent or via a
deliberate, targeted cyber-attack.
The Group acknowledges that it places significant reliance upon
the availability, accuracy and security of all of its underlying
operating systems and the data contained therein, whilst also
recognising the changing landscape of cyber-risk. Consequently,
Berkeley’s systems and control procedures are designed to ensure
that data confidentiality and integrity are not compromised.
Our Information Security Programme mirrors the relevant core
elements of the security standard ISO27001: Information Security
Management. Whilst there is a primary focus upon stopping
security breaches in the first instance, ongoing monitoring and
scanning is also conducted.
An IT Security Committee meets on a monthly basis to address all
cyber security matters. During the year, the committee initiated
a review under the Government’s Cyber-Essentials scheme,
which reviews compliance with key control areas. Additionally,
a Group-wide security awareness programme has been rolled out.
The Group operates multiple data centres, thereby ensuring that
there is no centralised risk exposure and the adequacy of the IT
disaster recovery plan is regularly assessed.
The Group has Cyber insurance in place to mitigate against any
financial impact.
Delivering new homes to customers on time and on
budget are crucial to meeting our profit targets, as
measured by our profit-related KPIs.
Control and deployment of capital, whilst embracing
the sector-leading commitments in Our Vision, is
essential in promoting the long-term success of
the business and delivering planned returns to
shareholders by 2021.
During the year we have seen a
moderation in cost inflation, principally
through material costs, with pressure
remaining on labour input costs.
2016 Performance
Highlights
(pages 2 and 3)
- Adjusted profit before tax
- Adjusted basic earnings
per share
- Adjusted return on equity
Our Vision
- Operations (page 36)
Our strong focus on maintaining
quality of design and product has
remained steady.
2016 Performance
Highlights
(pages 2 and 3)
- Adjusted profit before tax
- Adjusted basic earnings
per share
- Adjusted return on equity
- Net promoter score
Our Vision
- Homes (page 26)
- Places (page 32)
There has been an increased awareness
and focus upon emerging cyber-risk
over the last year.
We believe that delivering a quality product
in great places drives long-term profitability
through the planning consents that we can
secure, demand for the product and
recommendations from our customers.
Commitments for Homes and Places within
Our Vision demonstrate Berkeley’s targets for
continual improvement of our product delivery,
and our Customers’ commitments provide
assurance, especially in the area of customer
service, that the product delivers the right
experience for our customers.
The Group has achieved certification under the
Cyber-Essentials scheme. This accreditation
was further extended to Cyber-Essentials Plus
certification following the successful completion
of penetration testing by an external party. This
accreditation is subject to ongoing quarterly testing.
The Group is also regularly subject to independent
internal audits to ensure that its standard controls
and procedures remain in line with current practice.
The results of these audits are addressed accordingly.
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
TR ADIN G A ND FINA NCIA L
RE VIEW
Trading analysis
Revenue of £2,047.5 million in the year
(2015: £2,120.0 million) included
£1,994.1 million of revenue from operations
(2015: £2,020.2 million) and £53.4 million
from the sale of a portfolio of ground rent
assets (2015: £99.8 million).
The £1,994.1 million of revenue from
operations included £1,965.2 million of
residential revenue (2015: £1,936.2 million),
£2.3 million from land sales on two sites
(2015: £12.3 million) and £26.6 million of
commercial revenue (2015: £71.7 million).
3,776 new homes (2015: 3,355) were sold
across London and the South of England at
an average selling price of £515,000 (2015:
£575,000). The changes to the average
selling price are a result of mix with
Berkeley completing two student
developments in the current year, one in
Bath and one in London which together
comprise 638 units.
Revenue of £26.6 million from commercial
activities (2015: £71.7 million) included the
sale of some 119,000 sq ft of office, retail
and leisure space across a number of the
Group’s developments including Fulham
Reach in Hammersmith, Battersea Reach in
Wandsworth and Goodman’s Fields in
central London. The £71.7 million of revenue
last year was also from the sale of office,
retail and leisure space across a number of
the Group’s developments, in particular an
89,000 sq ft hotel at Goodman’s Fields.
During the year, the Group sold a portfolio
of ground rent assets across some 43 sites
for proceeds of £53.4 million and a gross
profit of £51.0 million. In the prior year, the
Group sold a portfolio of ground rent
assets across some 60 sites for proceeds
of £99.8 million and a gross profit of
£85.1 million. Income and expenses
associated with both sales have been
recognised in the income statement
through revenue and gross profit.
The adjusted gross margin percentage,
excluding profit from the sale of ground
rent assets, has increased to 32.6%
(2015: 31.3%), and reflects the mix
of homes sold in the year.
Overheads of £199.8 million (2015:
£192.7 million) included a charge of
£27.4 million in respect of the acceleration
(there is no increase in the overall cost) of
the accounting charge for the modifications
to the 2011 LTIP following the changes to
the shareholder returns programme made
during the year. It also included an
£8.3 million charge for Part B of the 2009
LTIP scheme which completed on
15 April 2016 with the vesting of the second
tranche of awards. In the prior year, there
was a charge of £47.0 million in respect of
the Company’s decision to settle the tax
and national insurance liabilities arising on
the vesting of options for participants in
Part B of the 2009 LTIP scheme on 15 April
2015, in lieu of issuing shares to this value.
The result is that the Group’s adjusted
operating margin, excluding the profit
from sale of the ground rent assets, has
increased to 22.6% from 21.7% last year.
Berkeley’s share of the results of joint
ventures was a profit of £36.5 million
(2015: £28.3 million) which reflects ongoing
completions at 375 Kensington High Street
and Stanmore Place within St Edward and
the costs for St William in the initial
pre-development stage of the joint venture.
The Group has remained cash positive
throughout the year, and has exercised an
option to extend the term of its current
corporate banking facilities by a further
year to 2021. The result is that net finance
costs in the year have decreased from
£12.7 million to £7.5 million with the prior
year including a £3.9 million charge from
amortising fees on the refinancing of
the Group’s bank facilities.
Income Statement for the year ended 30 April
Revenue
- from operations
- sale of ground rent assets
Gross profit
- from operations
- sale of ground rent assets
Operating expenses
Operating profit
Net finance costs
Share of joint ventures
Profit before tax
Profit before tax – Adjusted*
Income tax expense
Profit after tax
Earnings Per Share – Basic
Earnings Per Share – Adjusted*
Dividend Per Share
Pre-Tax Return on Equity – Adjusted*
2016
£’million
2,047.5
1,994.1
53.4
701.7
650.7
51.0
(199.8)
501.9
(7.5)
36.5
530.9
479.9
(126.8)
404.1
295.8p
267.3p
190p
27.8%
2015
£’million
Change
£’million %
2,120.0
2,020.2
99.8
716.8
631.7
85.1
(192.7)
524.1
(12.7)
28.3
539.7
454.6
(116.2)
423.5
313.0p
263.6p
180p
29.5%
-72.5
-26.1
-15.1
+19.0
-7.1
-22.2
+5.2
+8.2
-8.8
+25.3
-10.6
-19.4
-17.2p
+3.7p
+10p
-1.7%
-3.4%
-1.3%
-2.1%
+3.0%
+3.7%
-4.2%
-1.6%
+5.6%
+9.1%
-4.6%
-5.5%
+1.4%
+5.6%
*
‘Adjusted’ figures exclude £53.4 million of revenue (2015: £99.8 million) and £51.0 million of profit (2015: £85.1 million) from the sale of ground rent assets
Adjusted pre-tax return on equity,
excluding profit from the sale of ground
rent assets, has decreased from 29.5% to
27.8%. Basic earnings per share has
decreased by 5.5% from 313.0 pence to
295.8 pence, which takes into account the
issue of a further 1.4 million shares issued in
April to satisfy share awards under Part B
of the 2009 LTIP scheme.
Taxation
The Group has an overall tax charge
of £126.8 million for the year
(30 April 2015: £116.2 million) and an
effective tax rate of 23.9% (30 April 2015:
21.5%). The Group manages its tax affairs in
an open and transparent manner with the
tax authorities and observes all applicable
rules and regulations in the countries in
which it operates. Factors that may affect
the Group’s tax charge in future periods
include changes in tax legislation and the
resolution of open issues.
The Group holds tax provisions in respect
of the potential tax liability that may
arise on the resolution of open tax issues,
however the amount ultimately payable
may be higher or lower than the amount
accrued thus reducing or improving the
overall profitability and cash flow of the
Group in future periods. The increase in
the effective tax rate this year reflects an
increase in the prior year tax provision,
along with the repricing of deferred
tax assets following changes to future
corporate tax rates announced in the year.
Financial position
Banking
Net assets increased over the course
of the year by £174.9 million, or 10.7%, to
£1,812.8 million (2015: £1,637.9 million).
This is after payment of £259.5 million of
dividends and equates to a net asset value
per share of 1,314 pence, up 9.6% from
1,199 pence at 30 April 2015.
Inventories have increased by
£602.0 million from £2,654.1 million
at 30 April 2015 to £3,256.1 million
at 30 April 2016. Inventories include
£384.1 million of land not under
development (30 April 2015:
£342.0 million), £2,853.9 million of work
in progress (30 April 2015: £2,280.2 million)
and £18.1 million of completed stock
(30 April 2015: £31.9 million).
Trade and other payables are
£1,858.9 million at 30 April 2016
(£1,635.5 million at 30 April 2015).
These include £1,105.8 million of on
account receipts from customers
(30 April 2015: £920.9 million), which
have increased as a result of strong
trading in the year, and land creditors of
£174.7 million (30 April 2015: £205.1 million).
Provisions of £88.5 million (30 April 2015:
£75.1 million) include post completion
development obligations and
other provisions.
The Group ended the year ungeared with
net cash of £107.4 million (30 April 2015:
£430.9 million). This is a decrease of
£323.5 million during the year
(2015: increase of £301.7 million) as a
result of £530.8 million of cash generated
from operations (2015: £528.4 million) and
a net outflow of £436.8 million in working
capital (2015: net inflow of £115.2 million),
before tax and other net cash outflows
of £158.0 million (2015: £106.7 million)
and dividends of £259.5 million
(2015: £243.5 million).
The Group’s financial position is further
supported by the extension of the Group’s
banking facilities during the year. On 23
March 2016, Berkeley extended its
committed corporate banking facilities of
£575 million, taking the maturity date of
the Group’s facilities from March 2020 to
March 2021. This gives clarity of financing
for five years, with the option held over a
further one year extension, and extends the
benefit of the materially reduced ongoing
costs associated with the facility.
Joint ventures
Investments accounted for using the equity
method have increased from £50.1 million
at 30 April 2015 to £150.0 million at
30 April 2016. Berkeley’s joint ventures
include St Edward, a joint venture with
Prudential plc and St William, a joint
venture with National Grid plc. The increase
in joint venture investments during the year
reflects funding into the St William joint
venture along with profits generated in,
but not distributed from, St Edward.
St Edward has four schemes currently in
development at Stanmore Place,
375 Kensington High Street, 190 Strand
and, launched in the first half of the year,
a new site at Green Park in Reading.
240 homes were sold in the year at an
average selling price of £1,329,000
(2015: 230 at £1,229,000), which reflects
the mix of properties sold, predominantly
at 375 Kensington High Street.
1,868 plots in Berkeley’s land holdings relate
to St Edward schemes. St Edward is
continuing to identify opportunities to
develop the joint venture through further
sites to which it can add value, and controls
a commercial site in Westminster which
has a detailed planning consent but will not
move into development until the premises
are vacated by the current tenant.
3,599 plots in Berkeley’s land holdings
relate to St William schemes. Berkeley is
working closely with National Grid to
identify sites from across its portfolio to
bring through into its land holdings. Of the
12 new sites acquired by the Group during
the year, four were through St William.
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BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
BERKELEY ANNUAL REPORT 2016 / STRATEGIC REPORT
TR ADIN G A ND FINA NCIA L
RE VIEW
Continued
Balance Sheet
as at 30 April
Investment in joint ventures
Other non-current assets
Inventories
Debtors
2016
£’million
150.0
112.6
3,256.1
212.3
Deposits and on account receipts
(1,105.8)
Other trade payables
Provisions
Capital employed
Net cash
Net assets
NAVPS
(831.3)
(88.5)
1,705.4
107.4
1,812.8
1,314p
Analysis of Inventory
as at 30 April
2016
£’million
Land not under development
Work in progress: land cost
Work in progress: build cost
Completed units
Inventory
384.1
975.8
1,359.9
1,878.1
18.1
3,256.1
Abridged cash flow
for year ended 30 April
Adjusted profit before tax
Profit on sale of ground rents
Increase in inventory
Increase in customer deposits
Other working capital movements
Proceeds from the sale of a rental fund
Net (investment in) / receipts from joint ventures
Tax paid
Other movements
Cash (outflow) / inflow before dividends
Dividends
(Decrease) / increase in net cash
Opening net cash
Closing net cash
Change
£’million
2015
£’million
+99.9
-13.0
+602.0
+66.7
-184.9
-58.9
-13.4
+498.4
-323.5
+174.9
+115p
Change
£’million
+42.1
+177.2
+219.3
+396.5
-13.8
+602.0
2016
£’million
479.9
51.0
(602.0)
184.9
(21.2)
12.8
(63.2)
(100.8)
(5.4)
(64.0)
(259.5)
(323.5)
430.9
107.4
50.1
125.6
2,654.1
145.6
(920.9)
(772.4)
(75.1)
1,207.0
430.9
1,637.9
1,199p
2015
£’million
342.0
798.6
1,140.6
1,481.6
31.9
2,654.1
2015
£’million
454.6
85.1
(172.9)
179.2
108.9
-
39.6
(140.5)
(8.8)
545.2
(243.5)
301.7
129.2
430.9
The Group’s land holdings at 30 April 2016
are across some 77 sites, of which 56 (73%)
have an implementable planning consent
and are in construction, a further seven
(9%) have at least a resolution to grant
planning but the consent is not yet
implementable and 14 (18%) remain in the
planning process. Of this latter category,
11 are subject to conditional contracts.
This shows the underlying strength of the
Group’s land bank which will be developed
over the next 20 years. The estimated
future gross margin represents
management’s risk-adjusted assessment of
the potential development outturn for each
site, taking account of a wide range of
factors, including: current sales and input
prices; the political and economic
backdrop; the planning regime; and other
market forces; all of which could have a
significant effect on the eventual outcome.
The increase in gross margin in the year is
due to both acquisitions and value added
through improvements secured both to
current and future schemes, a core part of
the Group’s activities.
Land
Berkeley has made strong progress in
delivering value into and from its land
holdings during the year. At 30 April 2016,
the Group (including joint ventures)
controlled some 42,858 plots with an
estimated future gross margin of
£6,146 million. This compares with
37,473 plots and an estimated future gross
margin of £5,272 million at 30 April 2015.
Of the total land holdings plots, 33,786
plots (2015: 34,215) are owned and included
on the balance sheet and 9,072 plots
(2015: 3,258) are contracted sites which
cannot be moved into development as they
do not have an implementable planning
consent and/or as there are constraints and
challenges surrounding, for example, vacant
possession, CPO requirements or utilities
provision which need to be resolved. We
also hold a strategic pipeline of long-term
options for in excess of 5,000 plots.
12 new sites have been added to the land
bank in the year. The acquisitions have
included a range of sites from outside of
London in desirable locations such as
Ascot, Wokingham and Southwater and in
London at Cockfosters, Blackheath and
West End Green in Paddington, along with
the large, complex and long-term
regeneration sites of Stephenson Street,
the Oval Gasworks, and within St William,
the former gasworks sites at Fulham,
Hornsey, Watford and Borehamwood.
Five of the sites have been acquired
unconditionally and seven are contracted
on a subject to planning or vacant
possession basis.
Berkeley has secured 30 planning consents
this year, nine on schemes which did not
previously have an implementable planning
consent and 21 revised consents. The new
consents include White City for over
1,450 homes to be delivered over the next
15 years, St William’s scheme in Battersea,
West End Green in Paddington and on
other developments in Southwater, Taplow,
Winchester, Latchmere, Kingston and
Cranleigh, some of which remain subject
to finalisation of Section 106 agreements.
These schemes are all in good locations
underpinned by strong demand.
The revised consents include the securing
of an improved masterplan at Southall
along with a resolution to grant detailed
planning for the first phase on this
long-term regeneration scheme. The first
phase comprises some 620 units over
nine blocks with 1.4 acres of public
parkland. The affordable housing will be
delivered ahead of the private units. Our
core long-term regeneration schemes now
comprise Royal Arsenal, Kidbrooke Village,
Woodberry Down, Beaufort Park, Southall
and Stephenson Street, which we acquired
in the year. The latter site comprises some
27 acres adjacent to West Ham station and
offers real placemaking potential to
regenerate this area of East London,
providing an equal mix of private
affordable and private rental homes.
Land holdings
as at 30 April
Owned
Contracted
Plots
2016
Change
33,786
9,072
42,858
- 429
+ 5,814
+ 5,385
2015
34,215
3,258
37,473
Estimated sales value
£20,758m
+ £3,683m
£17,075m
Average selling price *
Average plot cost
Land cost (%)
Estimated gross margin
Gross margin (%)
£484k
£63k
12.9%
£6,146m
29.6%
+ £28k
+ £5k
+ 0.2%
+ £874m
- 1.3%
* Adjusted ASP with joint venture revenue at 100% is £529k (2015: £486k)
£456k
£58k
12.7%
£5,272m
30.9%
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
B OAR D OF
D IRECTORS
CHA IRMAN AND EXECUTIV E D IRE C TORS
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Tony Pidgley CBE N
Rob Perrins BSC (Hons) FCA
Richard Stearn FCA
Karl Whiteman BSC (Hons)
Sean Ellis BSC (Hons)
Greg Fry FCA
Co-founder of the Company in
1976. He was appointed Group
Chairman on 9 September 2009,
having previously been the
Group Managing Director since
the formation of the Group in
1976. He was elected President
of the London Chamber of
Commerce and Industry in
September 2013, and a trustee
of both Open City London
and the Sir Simon Milton
Foundation. He is Chairman
of the Nomination Committee.
Joined the Company in 1994.
He was appointed to the
Group Main Board on 1 May
2001 on becoming Managing
Director of Berkeley Homes
plc. He became Group Finance
Director on 2 November 2001,
moving to his current role as
Group Chief Executive on
9 September 2009. He is also
a Governor of Wellington
College and Aston University.
Re-joined Berkeley on 13 April
2015 as Group Finance Director,
having previously worked for
the company from 2002 to 2011
as Group Financial Controller.
Prior to re-joining Berkeley,
Richard spent three years at
Quintain Estates and
Development plc, becoming its
Finance Director in July 2012.
He trained and practiced for
12 years as a chartered
accountant with PwC.
NON -EX ECUTIVE D IR ECTOR S
Joined Berkeley in 1996 as
a Construction Director and
currently leads the Berkeley
Homes East Thames division.
He joined the Board on
10 September 2009 as a
Divisional Executive Director.
Joined Berkeley in 2004 with
an expertise in land and is
currently Chairman of
St James Group, St William
and the Berkeley Homes
Eastern Counties division. He
joined the Group Main Board
on 9 September 2010 as a
Divisional Executive Director.
Joined the Group in 1982 and
is currently Chairman of
St George, having been a
Director since its inception in
1986. He was reappointed to
the Group Main Board on
5 September 2011 as a
Divisional Executive Director,
having previously been a
member of the Group Main
Board from 1 May 1996 to
8 September 2010.
COMPANY
SECRETARY
E A Driver
Sir John Armitt N R
Adrian Li
Alison Nimmo CBE A
Veronica Wadley N A
Appointed a Non-executive
Director on 1 October 2007 and
became Deputy Chairman on
5 September 2012. He is
currently Chairman of National
Express Group PLC and the City
and Guilds Group, a member of
the Transport for London Board
and the National Infrastructure
Commission and President of
the Institution of Civil Engineers.
Sir John was Chairman of the
Olympic Delivery Authority
(2007 - 2014). From 2001 to
2007, he was Chief Executive of
Network Rail and its predecessor,
Railtrack. Sir John is the Senior
Independent Director.
72
Appointed a Non-executive
Director on 2 September
2013. He is currently Executive
Director and Deputy Chief
Executive of The Bank of East
Asia, Ltd. He is an Independent
Non-executive Director of
Sino Land Company Ltd.,
Tsim Sha Tsui Properties Ltd.,
Sino Hotels (Holdings) Ltd.,
China State Construction
International Holdings Ltd.
and COSCO Pacific Ltd. He is
a member of the International
Advisory Board of Abertis
Infraestructuras, S.A.
Appointed a Non-executive
Director on 5 September 2011,
Alison is Chief Executive of The
Crown Estate. Prior to that she
led the design and delivery of
the London 2012 Olympic and
Paralympic venues as Director
of Regeneration and Design at
the Olympic Delivery Authority.
She is a trustee of the UK’s
Green Building Council.
Appointed a Non-executive
Director on 3 January 2012.
She is currently Chair of the
Arts Council London and a
National Council member of
Arts Council England. Until
1 May 2016, she was a Senior
Advisor to the Mayor of
London. Previously Editor
of The Evening Standard,
she is also an Independent
Director of Times Newspapers
Holdings Ltd.
Glyn Barker BSc (Hons) FCA
A R
Andy Myers BEng ACA
A R
Diana Brightmore-
Armour FCCA, MCT N
Appointed a Non-executive
Director on 3 January 2012
following a 35 year career with
PwC. He held a number of senior
posts within PwC including
Managing Partner, Head of
Assurance and most recently
its UK Vice Chairman as well as
establishing and running their
Transactions Services Business.
Glyn is a Non-executive
Director of Aviva plc and
Transocean Limited, Chairman
of the law firm Irwin Mitchell
and Interserve plc and a Director
of the English National Opera
Company. He is Chairman of the
Remuneration Committee.
Appointed a Non-executive
Director on 6 December 2013,
he is currently Chief Financial
Officer at McLaren Technology
Group Limited, having previously
held senior finance roles in Rolls
Royce plc and BMW/Rover
Group. He is Chairman of the
Audit Committee.
Appointed a Non-executive
Director on 1 May 2014, Diana
is currently the UK, Europe
& Middle East CEO of The
Australia and New Zealand
Banking Group Ltd and
previously held the position
of CEO, Corporate Banking at
Lloyds Banking Group (2004-
2012). Diana has 30 years of
international experience in
banking, corporate finance,
financial management,
treasury and audit.
Key
N Nomination Committee
A Audit Committee
R Remuneration Committee
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
CORPORATE
GOVERNANCE REPO RT
The Company is committed to maintaining
a high standard of corporate governance
in respect of the main principles of the UK
Corporate Governance Code 2014 (the
Code):
– Leadership
– Effectiveness
– Accountability
– Remuneration
– Relations with shareholders
This section, including the Audit Committee
Report and the Directors’ Remuneration
Report, details how the Company has
applied the main principles and provisions
of the Code. The Company’s business
model is explained in the Strategic Report.
It is the Board’s view that it has been fully
compliant with the Code throughout the
2015/16 financial year. A copy of the Code
is available on the Financial Reporting
Council’s website www.frc.org.uk
Leadership
The Board has a collective responsibility
for promoting the long-term success of the
Company in a safe and sustainable manner
in order to create shareholder value. The
Board provides leadership and sets the
Company’s strategic long-term objectives.
Its duties are set out in a formal schedule
of matters specifically reserved for decision
by the Board, which include:
– Overall management of the Group, its
strategy and long-term objectives;
– Approval of corporate plans;
– Approval of all material corporate
transactions;
– Changes to the Group’s capital structure;
– Approval of the Group’s treasury policy;
– Approval of the Group’s interim and
annual results, dividend policy and
shareholder distributions;
– Reviewing the Group’s risks and system
of internal control;
– Changes to the Board and other senior
executive roles;
– Corporate Governance arrangements
and the Board evaluation; and
– Approval of policies in key areas
including Sustainability, Health & Safety
and Business Ethics.
Effectiveness
Composition, Diversity and Independence
At the date of this report the Board
comprises thirteen Directors: the Chairman,
five Executive Directors and seven
independent Non-executive Directors. The
biographies of these directors are set out
on pages 72 and 73.
The Board has evolved over recent years to
put in place the succession planning that
all successful organisations require and
the composition of the Board continues to
be reviewed on a regular basis to ensure
that an appropriate balance of skills and
experience is maintained. Currently women
comprise 23% of the Board. The Board has
chosen not to set specific representation
targets for women on the Board at this
time, however, it recognises that the
benefits of diversity, including gender
diversity, will continue to be an active
consideration when further changes to the
Board’s composition are considered.
The Board considers that all of the current
Non-executive Directors were independent
throughout the year. The Non-executive
Directors, led by the Senior Independent
Director Sir J Armitt, have the skills,
experience, independence and knowledge
of the Company to enable them to
discharge their respective duties and
responsibilities effectively.
The Group Executive Directors do not hold
any Non-executive Director appointments
or commitments required to be disclosed
under the Code.
Chairman and Managing Director
The roles of Group Chairman and Group
Chief Executive are separately held
and there are clear written guidelines
to support the division of responsibility
between them. The Group Chairman is
responsible for the effective conduct of the
Board and shareholder general meetings
and for ensuring that each Director
contributes to effective decision-making.
The Group Chief Executive has day-to-day
executive responsibility for the running
of the Group’s businesses. His role is to
develop and deliver the strategy to enable
the Group to meet its objectives.
Meetings
The Board met four times during 2015/16
and there were no absences other than
A Nimmo CBE was unable to attend the
meeting on 8 September 2015 due to
unavoidable personal circumstances.
In addition to the above formal meetings
of the whole Board, the Non-executive
Directors meet with the Group Chairman.
The Group Chief Executive and Group
Finance Director are invited to attend these
meetings in part, to provide an update on
the business activities of the Group. The
Non-executive Directors meet at least
annually without the Group Chairman
present, chaired by the Senior Independent
Director.
Board papers and agendas are sent out
in the week prior to each meeting, thus
allowing sufficient time for detailed review
and consideration of the documents
beforehand. In addition, the Board is
supplied with comprehensive management
information on a regular basis.
Election and re-election of Directors
The Articles of Association of the Company
include the requirement for Directors to
submit themselves to shareholders for
re-election every three years. In addition,
all Directors are subject to election by
shareholders at the first opportunity
after their appointment and thereafter at
intervals of no more than three years.
In accordance with the requirements of the
Code, all Directors offer themselves for re-
election at the Annual General Meeting to
be held on 6 September 2016.
Induction and development
On appointment, Non-executive Directors
are provided with a detailed induction
programme. This covers an overview of
the Group’s operations and its policies,
corporate responsibility and corporate
affairs issues, legal matters, and the
opportunity to meet with Directors and key
staff and to visit the Group’s sites.
No training needs were identified this year,
although ongoing training is available to
all Directors to meet their individual needs.
Board members also receive guidance
on regulatory matters and the corporate
governance framework that the Group
operates under.
Members of the Audit and Remuneration
Committees received briefings from
our auditors and remuneration advisers
respectively to ensure they remain up
to date with current regulations and
developments.
All Directors have access to advice from
the Company Secretary and independent
professional advisers, at the Company’s
expense, where specific expertise is
required in the course of their duties.
Board evaluation
The Code requires that the Board
undertakes an annual evaluation of its own
performance and that of its committees
and individual directors with an externally
facilitated evaluation conducted at least
every three years. The Board evaluation
for 2016 was, in accordance with Code
Provision B.6.2, externally facilitated by
Claire Howard Consultancies, who have
no other connection with the Company.
Following planning sessions with the Group
Chairman and Group Solicitor and review
of selected documents, confidential face
to face meetings were held with each of
the Main Board Directors and the Group
Solicitor. The Board evaluation meetings
were free-flowing and covered, Inter alia,
the following areas:
– Strategy, strategic direction and role of
the Board
– People, organisational development and
succession planning
– Board and Committee composition,
dynamics and culture
– Structure and operation of the Board
and its Committees
– Conduct and outcome of last year’s
Board evaluation and how to get the
best out of this one
The review concluded that the Board
continues to work effectively and that all
the Directors remain passionate about, and
committed to, the business and its future
prospects. Recommendations from the
previous year’s Board Evaluation either had
been, or were being, implemented.
The Board has a pivotal role in preserving
the organisation’s culture and ultimately
its success. In line with all successful
organisations, succession planning and
talent management are seen as key
success factors for the business and the
Board continues to focus on this area. The
autonomous structure of the Group also
provides strength in depth which further
mitigates this risk.
Recommendations from the 2015/16
Evaluation were included in the papers for
the June 2016 Board Meeting and agreed
actions will be implemented over the
coming year as appropriate.
Conflicts of interest
In accordance with the Companies
Act 2006, the Company’s Articles of
Association allow the Board to authorise
potential conflicts of interest that may arise
and to impose such limits or conditions
as it thinks fit. The decision to authorise a
conflict of interest can only be made by
non-conflicted Directors (those who have
no interest in the matter being considered)
and in making such a decision the Directors
must act in a way they consider in good
faith will be most likely to promote the
Company’s success.
The Company has established a procedure
whereby actual and potential conflicts of
interest of current and proposed roles to be
undertaken by Directors of the Board with
other organisations are regularly reviewed
in respect of both the nature of those
roles, and their time commitment, and for
proper authorisation to be sought prior to
the appointment of any new director. The
Board consider these procedures to be
working effectively.
Insurance
The Company had in place at 30 April
2016 an appropriate policy which insures
Directors against certain liabilities, including
legal costs, which they may incur in
carrying out their duties. This remains in
place.
Board Committees
The Board has delegated certain matters
to individual Executives and to the
specific committees of the Board; audit,
remuneration and nomination. The main
three Board Committees operate within
clearly defined Terms of Reference
pursuant to the provisions of the Code. The
Terms of Reference can be downloaded
from the section dealing with Investor
Relations on the Berkeley website (www.
berkeleygroup.co.uk). Copies are also
available to shareholders on application to
the Company Secretary.
The responsibilities of the key Board
committees are described below.
Executive Committee
The Executive Committee meets monthly
and reviews the financial and operating
performance of all Group divisions and
companies. The Group Chief Executive,
R C Perrins, chairs this Committee and
other members comprise, A W Pidgley
CBE, R J Stearn, K Whiteman, S Ellis
and G J Fry alongside other senior
management employees.
Audit Committee
The Audit Committee is responsible for
monitoring and reviewing the financial
reporting and accounting policies of
the Company, reviewing the adequacy
of internal controls and the activities of
the Group’s internal audit function and
overseeing the relationship with the
external auditor. The Audit Committee
comprises four independent Non-executive
Directors. The Committee is chaired by
A Myers and the other members at 30 April
2016 were A Nimmo CBE, G Barker and V
Wadley.
A Myers and G Barker are both considered
to have recent and relevant experience.
A Myers is qualified as a chartered
accountant and is currently Chief Financial
Officer at McLaren Technology Group
Limited and G Barker is also qualified as a
chartered accountant, having previously
held a number of senior posts within PwC
including Managing Partner and Head of
Assurance.
The Committee met formally on three
occasions during the year to 30 April 2016
with no absences.
An explanation of the role and activities
of the Audit Committee during the year is
contained in the Audit Committee report
on pages 78 and 79.
Remuneration Committee
The Remuneration Committee is
responsible for determining the Company’s
policy for Executive remuneration and
the precise terms of employment and
remuneration of the Executive Directors.
At 30 April 2016, the Committee comprised
G Barker, Sir J Armitt and A Myers who are
independent Non-executive Directors. The
Committee was chaired by G Barker.
The Committee met formally on three
occasions during the year to April 2016
with no absences.
No Director is involved in deciding his
or her remuneration. The Executive
Directors decide the remuneration of
the Non-executive Directors and the
Committee takes into consideration the
recommendations of the Group Chief
Executive and Group Finance Director
regarding the remuneration of their
Executive colleagues.
The principles and details of Directors’
remuneration are contained in the
Directors’ Remuneration Report on pages
80 to 98.
Nomination Committee
The Nomination Committee ensures
that the membership and composition
of the Board, including the balance of
skills, is appropriate, as well as giving full
consideration to succession planning on a
regular basis.
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CONT INUED
The Committee is chaired by the Group
Chairman, A W Pidgley CBE, and at 30
April 2016 includes Sir J Armitt, V Wadley
and D Brightmore-Armour who are all
independent Non-executive Directors.
The Committee met formally on two
occasions during the year to 30 April 2016
with no absences.
During the year, the activities of the
Committee included considering and
making recommendations to the Board
regarding the membership of the Board
committees and reviewing succession
plans for the Executive team.
The process for identifying and
recommending new appointments
includes a combination of discussions
and consultations, in addition to formal
interviews, utilising the services of
independent recruitment specialists, as
appropriate.
Accountability
Key risks and internal control
The Board acknowledges that it has overall
responsibility for ensuring that the Group’s
system of internal control complies with the
Code and for reviewing its effectiveness, at
least annually.
Internal control procedures are designed
to manage rather than eliminate the risk
of failure to achieve business objectives,
and can only provide reasonable and
not absolute assurance against material
misstatement or loss.
There are ongoing processes and
procedures for identifying, evaluating and
managing the significant risks faced by the
Group. These processes and procedures
were in place from the start of the financial
year to the date on which the 2016 Annual
Report and Accounts were approved and
accord with the Turnbull guidance issued
in 2005.
The processes are regularly reviewed by
the Board and include an annual review
by the Directors of the operation and
effectiveness of the system of internal
control as part of its year end procedures.
The key features of the system of internal
control include:
Clear organisational structure
The Group operates through autonomous
divisions and operating companies, each
with its own board. Operating company
boards meet on a weekly basis and
divisional boards on a monthly basis, and
comprehensive information is prepared for
such meetings on a standardised basis to
cover all aspects of the business. Formal
reporting lines and delegated levels of
authority exist within this structure and the
review of risk and performance occurs at
multiple levels throughout the operating
companies, divisions and at a Group level.
Risk assessment
Risk reporting is embedded within ongoing
management reporting throughout
the Group. At operating company and
divisional level, Board meeting agendas
and information packs are structured
around the key risks facing the businesses.
These risks include health and safety, sales,
production (build cost and programme),
land and planning, retaining people,
economic and political outlook, regulatory
and site specific matters.
In addition, there is a formalised process
whereby each division produces quarterly
risk and control reports that identify risks,
the potential impact and the actions
being taken to mitigate the risks. These
risk reports are reviewed and updated
quarterly.
A Group Risk Management Report is
presented at each Group Main Board
Meeting, which overlays wider strategic
risks than those covered by the operations.
This sets out the annual changes in the
risk profile of the Group, the impact and
mitigation of these risks.
Financial reporting
A comprehensive budgeting and real-time
forecasting system, covering both profit
and cash, operates within the Group. This
enables executive management to view
key financial and operating data on a daily
basis. On a weekly and monthly basis
more formal reporting up to the Group
Executives is prepared. The results of all
operating units are reported monthly and
compared to budget and forecast.
There is a consolidation process in place
which ensures that there is an audit trail
between the Group’s financial reporting
system and the Group’s statutory financial
statements.
Investment and contracting controls
The Group has clearly defined guidelines
for the purchase and sale of land within
the Group, which include detailed
environmental, planning and financial
appraisal and are subject to executive
authorisation. Rigorous procedures are also
followed for the selection of consultants
and contractors. The review and
monitoring of all build programmes and
budgets are a fundamental element of the
Company’s financial reporting cycle.
Policies and procedures
Policies and procedures, including
operating and financial controls, are
detailed in policies and procedures
manuals that are refreshed and improved
as appropriate. Training to staff is given
where necessary.
Central functions
Strong central functions, including Legal,
Health & Safety and Company Secretarial,
provide support and consistency to the
rest of the Group. In addition, the principal
treasury-related risks, decisions and control
processes are managed by the Group
Finance function, under the direction of the
Group Finance Director.
Internal audit
Internal auditors are in place at divisional
and Group level to provide assurance
on the operation of the Group’s control
framework.
Whistleblowing
The Group has a whistleblowing policy
which has been communicated to all
employees, where Directors, management,
employees and external stakeholders
can report in confidence any concerns
they may have of malpractice, financial
irregularity, breaches of any Group
procedures, or other matters. The policy is
available to view on the Group’s website.
Bribery Act and Anti-Money Laundering
Regulations
The Board has responsibility for complying
with the requirements of the Bribery
Act 2010 and The Money Laundering
Regulations 2007 and is charged
with overseeing the development and
implementation of the Group’s policies
and procedures and monitoring ongoing
compliance.
Remuneration
The principles and details of Directors’
remuneration are contained in the
Directors’ Remuneration Report on pages
80 to 98.
Relations with shareholders
The Company encourages active
dialogue with its current and prospective
shareholders through ongoing meetings
or calls with institutional investors. Major
shareholders have the opportunity to
meet all Directors after the Annual General
Meeting in addition to individual meetings
with the Company.
Shareholders are also kept up to date
with the Company’s activities through
the Annual and Interim Reports and
Interim Management Statements. In
addition, the corporate website provides
information on the Group and latest news,
including regulatory announcements.
The presentations made after the
announcement of the preliminary and
interim results are also available on the
website.
The Board is kept informed of the views
of the shareholders through periodic
reports from the Company’s broker, UBS.
Additionally, the Non-executive Directors
have the opportunity to attend the bi-
annual analyst presentations.
The Senior Independent Director is
available to shareholders if they have
concerns where contact through the
normal channels has failed or when such
contact is inappropriate.
Annual General Meeting
All shareholders are invited to participate
in the Annual General Meeting (“AGM”)
on 6 September 2016 at 11:00am where
the Group Chairman, the Group Chief
Executive and the Chairmen of the Audit,
Remuneration and Nomination Committees
will be available to answer questions and
will also be available for discussions with
shareholders both prior to and after the
meeting.
In accordance with the Code, the Company
arranges for the Annual Report and
Accounts and related papers to be posted
to shareholders so as to allow at least 20
working days for consideration prior to the
AGM.
The Company complies with the provisions
of the Code relating to the disclosure of
proxy votes, which, including abstentions,
are declared at the AGM after each
resolution has been dealt with on a show
of hands and are announced to the Stock
Exchange shortly after the close of the
meeting. The Company also complies
with the requirements of the Code with
the separation of resolutions and the
attendance of the Chairmen of the Board
Committees.
The terms and conditions of appointment
for the Non-executive Directors, which
set out their expected time commitment,
in addition to the service contracts for
the Executive Directors, are available for
inspection at the AGM and during normal
business hours at the Company’s registered
office.
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
AUDIT COMMITTEE R EPOR T
The Board of Directors presents its Audit
Committee Report for the year ended 30
April 2016 which has been prepared on the
recommendation of the Audit Committee
(“the Committee”).
issued during the year. The Committee’s
review incorporated consideration of the
appropriateness of the relevant accounting
policies and financial reporting judgements
adopted therein.
The report has been prepared in
accordance with the requirements of the
UK Corporate Governance Code, Schedule
8 of the Large & Medium-Sized Companies
and Groups (Accounts and Reports)
Regulations 2008, and the Listing Rules of
the Financial Conduct Authority.
The Committee’s review of the Annual
Report concentrated on whether,
taken as a whole, it was fair, balanced
and understandable and provided the
information necessary for users of the
Annual Report to assess the Group’s
business strategy and performance.
Details of the composition, experience and
the number of meetings of the Committee
are reported on page 75 of the Corporate
Governance Report.
Role and responsibilities of the Audit
committee
The Committee has formal Terms of
Reference which set out its role and the
authority delegated to it by the Board. The
key responsibilities of the Committee are
as follows:
– Financial Reporting
Monitoring the integrity of the financial
reporting of the Company and reviewing
significant financial reporting matters
and accounting policies;
– Internal Control and Internal Audit
Reviewing the adequacy and
effectiveness of the Group’s internal
control and risk management systems
and monitoring the effectiveness of the
Group’s internal audit function; and
– External Audit
Overseeing the relationship with the
external auditor, including appointment,
removal and fees, and ensuring the
auditor’s independence and the
effectiveness of the audit process.
This report considers each of these
responsibilities in turn, and how the
Committee has discharged them during
the year.
Financial reporting
At each of the Audit Committee meetings,
the Group Chief Executive and/or the
Group Finance Director presented, and
the Committee debated, the results
and business plan of the Group and any
significant financial reporting judgements
relevant to this.
The Committee reviewed, prior to their
publication, the financial disclosures in
the Group’s Annual Report and Accounts,
Preliminary Announcement, Half Year
Results Announcement and the contents
of interim management statements
The views of the Group’s auditor, which
was in attendance at each meeting of the
Committee during the year, were taken
into account in reaching its conclusions on
these matters.
The significant matters considered by the
Committee during the 2015/16 financial
year included:
– Carrying value of inventories and
margin recognition
Inventories comprise land not under
development, work in progress and
completed units, which are held in
the balance sheet at the lower of
cost and net realisable value. This
requires a periodic assessment by the
management team of each of Berkeley’s
sites which is sensitive to assumptions
in terms of future sales prices and
construction costs and recognises the
inherently cyclical nature of the property
market and the risks of delivery. These
assumptions are also relevant to the
determination of profit recognised on
properties sold. The conclusions of this
assessment were reported by exception
to the Committee in a financial overview
paper prior to release of the Group’s
annual results.
– Provisions
The Committee recognises that
accounting for provisions relies on
management judgement in estimating
the quantum and timing of outflows of
resources to settle any associated legal
or constructive obligations. The Group
holds provisions for post-completion
development obligations, onerous
leases, estate liabilities and litigation. The
basis for determining these provisions
was presented to the Committee for
their consideration. The Committee
reviewed the relevant papers and
discussed the assumptions underlying
this determination with management
and the Group’s external auditor, and
concluded that it was satisfied that the
assumptions adopted were appropriate.
A table of movements in provisions over
the period is included in note 17 to the
financial statements.
– Revenue recognition
The Committee recognises that
the Group’s accounting policy for
revenue recognition, namely that
properties are treated as sold and
profits are recognised when contracts
are exchanged and building work is
physically complete, involves an element
of judgement in determining the point
at which building work is physically
complete. The Committee reviewed the
quantum of properties not yet legally
completed at each balance sheet date, in
conjunction with the review undertaken
by the Group’s external auditor and
concluded that the judgements were
appropriate.
– Share-based payments
The Committee recognises that
accounting for share-based payments
represents a complex accounting area
and particularly so in a year in which
there was a modification to a scheme
(2011 LTIP). The Committee reviewed
the impact of this modification in
conjunction with the external auditor’s
assessment and concluded that the
judgement and application were
appropriate.
– Compliance with laws and regulations
The Committee recognises that the
Company is subject to laws and
regulations across a number of areas
including, but not limited to, anti-bribery,
anti-money laundering and sanctions
checking. The Committee considered
the Group’s approach to reviewing and
updating its policies with respect to
compliance with laws and regulations.
In performing this review, it considered
relevant legal matters. The Committee
was satisfied that there were no material
instances of non-compliance.
Other matters considered by the
Committee included management’s
assessment of the going concern status
of the Group at the balance sheet date,
and the Board’s assessment of the
viability statement. The Committee
concurred with the approach adopted
on all of these matters.
Since the year end, the Committee has
completed its review of the 2016 Annual
Report and has confirmed to the Board
that it considers it to be fair, balanced
and understandable.
The Committee has concluded that
it is comfortable that the auditors are
independent.
Appointment of KPMG
On completion of the audit, the
Committee reviewed the performance and
effectiveness of KPMG with feedback from
executive management. The Committee
has resolved to propose KPMG’s re-
appointment at the 2016 Annual General
Meeting.
The Committee remains mindful of evolving
best practice under the UK Corporate
Governance Code 2014, and will monitor
the new requirements of the Financial
Reporting Council and the European Union
in determining its future approach to re-
tendering the external audit appointment.
A Myers
Chairman, Audit Committee
21 June 2016
Internal control and internal audit
The Committee undertook its annual
review of the Group’s Internal Control
Framework during the year. This review
focused on the system of risk management
and internal control in place which is
explained in more detail on page 76 of
the Corporate Governance Report, and
covered:
– the key risks facing the Group;
– the key elements of the Group’s control
processes to mitigate these risks;
– the operations and effectiveness of
internal audit.
A paper was also presented to the
Committee which summarised the Group’s
consideration, controls and monitoring of
fraud risk across its activities.
The Committee also considered any
internal control recommendations
raised by the Group’s auditors during
the course of the external audit and the
company’s response to dealing with such
recommendations.
A report summarising the recent activities
of the Internal Audit function within
Berkeley was presented to each of the
Committee meetings during the year.
These reports covered:
– a summary of the key findings arising
from the most recent formal internal
audits undertaken;
– management responses to any control
weaknesses identified, the closure of any
open items and any recurring themes;
– the outcome of other operational review
work undertaken by the internal audit
function;
– the internal audit plan for the coming
year, for debate with and the approval of
the Committee.
The Committee was satisfied that the
scope, extent and effectiveness of the
Internal Audit function are appropriate for
the Group.
External audit
KPMG LLP (“KPMG”) was appointed as the
Company’s auditor in the year ended 30
April 2014.
Approach
KPMG presented its audit strategy to
the Audit Committee during the year.
The strategy document identified its
assessment of the key risks of the business
for the purpose of the audit, the scope of
their work and updated the Committee on
regulatory changes for the current year.
KPMG reported to the Committee at the
year end, prior to the public announcement
of the Company’s results, in which it set
out its assessment of the Company’s
judgements and estimates in respect of
these risks and any other findings arising
from its work.
The external auditors have open recourse
to the Non-executive Directors should
they consider it necessary. There is private
dialogue between the Chairman of the
Audit Committee and the external auditors
prior to each Audit Committee meeting
and, after each meeting, the opportunity
for the Committee to meet with the
external auditors without the Executive
Directors and management present.
Independence of the external auditors
As part of its audit strategy presentation,
and through the audit tender process,
KPMG identified the safeguards in
place within its internal processes and
procedures to protect, in respect of its own
role, the independence of its audit.
The Committee has a policy on the use of
the auditors for non-audit services in order
to safeguard auditor independence and
the ratio of audit fees (including the fees
for the Interim Review) to non-audit fees
should be no greater than 1:1. The ratio for
the year ended 30 April 2016 was within
the limits of this ratio. Audit and non-audit
fee disclosures are set out in Note 5 of the
Consolidated Financial Statements.
Any departure from this ratio will only
be as a consequence of transactional
work, where the Committee considers it
is right for the auditors to undertake such
work where the reasons for doing so are
compelling, such as where:
i) it is proprietary to them;
ii) they have pre-existing knowledge and
experience that precludes the use of
alternative firms;
iii) the nature of the transaction is such
that the Group’s auditors are the only
practical appointment.
Non-audit work carried out by all
accounting firms, including the auditors, is
formally reported to the Audit Committee
at each meeting. There is open dialogue
between KPMG and the Company’s senior
finance team to monitor any proposed new
instructions.
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
Annual statement from Chairman of the Remuneration Committee
Dear Shareholder
This Remuneration Report is split into two parts:
(i) Our Remuneration at a Glance sets out a summary of Berkeley’s Directors’ Remuneration policy and the key remuneration decisions
made by the Committee for the financial year ending 30 April 2016.
(ii) The Annual Report on Remuneration sets out payments and awards made to the Directors and details the link between Company
performance and remuneration for the 2015/16 financial year.
The Annual Report on Remuneration, together with this letter, is subject to an advisory shareholder vote at the AGM on 6 September
2016. The sections of this report that have been subject to audit are labelled accordingly.
In line with The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the Directors’
Remuneration Policy has not been presented in this report given that the Policy was approved at the 2014 AGM and it is not intended to
move a similar resolution again at the 2016 AGM. The Directors’ Remuneration Policy is available to view in full on the Company’s website
at www.berkeleygroup.co.uk/investor-information/corporate-governance.
Corporate performance
Berkeley has delivered strong performance and growth over 2015/16, with the key highlights being:
– Dividends paid to shareholders of £259 million (2015: £243 million)
– Adjusted pre-tax return on shareholders’ equity of 27.8% (2015: 29.5%)
– Net asset value increased by 10.7% to £1,813 million (2015: £1,638 million)
– Future anticipated gross margin in the land bank up 16.6% to £6,146 million (2015: £5,272 million)
– Adjusted earnings per share increased by 1.4% to 267.3 pence (2015: 263.6 pence)
The results continue to underline the Group’s strategy of balancing earnings in the near term and creating a sustainable business,
delivering value to shareholders over the long term. Berkeley’s Return on Equity compared with the sector over the last eight years
illustrates the relative performance of the Company:
Berkeley
Sector highest
Sector lowest
Sector average
(excluding Berkeley)
2008/9
2009/10
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
16.2%
16.2%
13.3%
13.3%
15.3%
15.3%
21.2%
21.2%
(73.4%)
(44.2%)
(6.2%)
(0.4%)
(26.0%)
(18.1%)
1.0%
4.8%
22.4%
22.4%
3.4%
8.5%
27.5%
27.5%
3.5%
11.4%
29.5%*
27.8%*
29.5%
12.2%
18.2%
27.8%
16.0%
22.3%
* Adjusted figures exclude gross margin from the sale of ground rents
Berkeley’s total shareholder return, when compared to the companies in the sector and also the FTSE 250, FTSE 100 and FTSE All Share
indices, illustrates the value delivered to shareholders over the long term.
Total shareholder return from 30 April 2005 (%)
650
600
550
500
450
400
350
300
250
200
150
100
50
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Berkeley Group
Holdings plc
FTSE 250 Index
FTSE 100 Index
FTSE All Share Index
Sector
Berkeley’s remuneration policy aims to encourage, reward and retain the Executives and ensure that their actions are aligned with the
Company’s strategy. In particular, the emphasis on performance related pay aligns the Executives with the performance of the business
which is coupled with long term incentives that lock in the Executive team for up to 10 years, which is far longer than is typical in most
publicly listed companies.
Incentive outcomes
On the back of continued strong corporate performance and also the performance of the Executives, the remuneration decisions and
incentive outcomes from the performance this year are:
– The Executive Directors earned 100% of the maximum annual contribution under the Bonus Plan following performance against the
stretching Net Asset Value growth, Return on Equity and Divisional PBT targets (see page 84 for details);
– The balance of the 2009 LTIP Part B awards vested during the year. The exercise of these awards resulted in a significant increase in
shareholding for A W Pidgley, R C Perrins, G J Fry, K Whiteman and S Ellis (see page 85 for details).
Operation of Policy in 2016/17
Salary
The Executive Directors have received salary increases for 2016/17 of approximately 2.9% compared to average salary increases across
the Group of 5.1%.
Bonus
Since 2011, Divisional Directors’ bonus targets have been set by reference to both Group and Divisional targets with an equal weighting.
Following a review of the operation of the Bonus Plan for 2016/17 and onwards, the Committee has determined that the bonus payable
for all the Executive Directors will be determined by reference to the Group performance conditions only. The change has been made
on the basis that the Committee wants the Executive Directors as a team to be focused on the strategic drivers of the business, being
Return on Equity and growth in Net Asset Value following the increased focus on annual dividends as a result of the changes made to
the Group’s strategic delivery during the year.
Divisional performance continues to be an important part of the Committee’s assessment of performance. Therefore, for the Divisional
Directors the Committee will take into account their respective Division’s performance when determining bonus payments for 2016/17
and future years. While the maximum amount of bonus for Divisional Directors will be determined by the satisfaction of the Group
targets; at the discretion of the Committee the failure of a particular Division to meet its individual targets may result in a reduction to
the bonus amount paid to the relevant Divisional Director.
As with prior years we have disclosed our Group targets for the 2016/17 bonus year in full on pages 86 and 87.
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
Changes to the 2011 LTIP
It is a key element of the Berkeley Remuneration philosophy that the remuneration arrangements are directly linked to the achievement
of the Company’s corporate strategy. In December 2015, the Company announced two changes to the delivery of the corporate
strategy:
– The increase in the targeted cumulative dividends paid by no later than 30 September 2021 by £3.34, from £13.00 to £16.34;
– The introduction of annual phased payments of dividends.
As a result of these changes the Remuneration Committee conducted a thorough review of the operation of the 2011 LTIP and
determined that it should be amended in the following way:
– The exercise price payable for the options should be increased by £3.34. This means that the total exercise price from the date of
grant has increased from £13.00 to £16.34;
– The introduction of phased vesting of options to match the dividend payments;
– In addition, the Committee took the opportunity to amend the 2011 LTIP to bring it up to date for corporate governance best practice
by (i) introducing malus and clawback provisions and (ii) capping the maximum value the participants can receive under the Plan.
In line with the rules of the 2011 LTIP and the Regulations, the proposed changes to the operation of the Plan and consequential changes
to the Company’s Remuneration Policy required shareholder approval, and approval was sought and received at a General Meeting held
on 16 February 2016.
In advance of seeking formal shareholder approval at the Meeting, the Company conducted an extensive consultation exercise with
the Company’s top shareholders. I and the other members of the Remuneration Committee were extremely appreciative of the input
received from shareholders as part of this process and the support we received for the changes and ultimately the approval at the
General Meeting (94.07% voted in favour of the amendments).
It should also be noted that as these proposed changes reduced the potential benefit received by participants their approval was
required and the participants unanimously agreed to these changes.
Full details of the changes made to the 2011 LTIP are set out on pages 87 to 89. In addition, the notice for the General Meeting on 16
February 2016 provides further information on the background to these changes.
In addition, the Committee determined to increase the minimum shareholding requirement for R C Perrins so that the requirement for
both the Group Chairman and the Group Chief Executive are the same at 400% of salary.
In conclusion
The Annual Report on Remuneration together with this letter will be subject to an advisory shareholder vote at the forthcoming AGM
in September 2016. Details of voting at last year’s Annual General Meeting, where 85.43% of those voting supported the resolution to
approve the Annual Report on Remuneration, are set out on page 98 of this report.
I look forward to receiving your support for the resolution seeking approval of the Annual Report on Remuneration at our forthcoming
AGM.
G Barker
Chairman, Remuneration Committee
OUR REMUNERATION AT A GLANCE
Ahead of the detail behind payments for 2015/16, I would like to take this opportunity to outline the Committee’s policy, key decisions
and performance outcomes during the past year.
Summary of Directors’ Remuneration Policy
Element
Policy summary description
Maximum opportunity
Executive Directors
Base salary
Core element of remuneration, set at a level which is sufficiently competitive to
recruit and retain Executive Directors of the appropriate calibre and experience
to achieve the Company’s business strategy.
In setting levels of base salary, the Committee takes into account the following
factors:
– The individual Executive Director’s experience and responsibilities;
– The levels of base salary for similar positions with comparable status,
responsibility and skills in organisations of broadly similar size and
complexity;
– The performance of the individual Executive Director and the Group;
– Pay and conditions throughout the Group.
Where an Executive is extremely
experienced and has a long-track
record of proven performance
salaries may be in the upper decile
when compared to companies
of broadly comparable size and
complexity – in particular those
within the comparator group and
those in the FTSE 250.
In general salary rises will be limited
to the level provided to employees of
the Company as a whole.
Pension and benefits
The Company’s policy is either to provide a contribution to a pension
arrangement or provide payments in lieu of pension.
The maximum contribution or
payment in lieu is 25% of salary.
Other benefits are provided to the Executive Directors including a fully
expensed company car or cash allowance alternative, medical insurance and
other benefits may be provided from time to time.
Levels of benefits are defined by
market rates.
Annual bonus
The Bonus Plan aligns rewards to the key objectives linked to short to medium
term performance whilst ensuring that there is a balance between incentivising
the Executive Directors, providing a sustainable ongoing level of return to
shareholders and ensuring the long term sustainability of the Company.
300% of salary.
Under the Bonus Plan, awards are earned annually over a six year plan period,
subject to stretching performance targets.
50% of a participant’s plan account will be paid out annually for the first five
years with 100% of the balance paid at the end of the sixth plan year.
Long term Incentives
No plan available for new grants during the three year Policy Period unless, on recruitment, where a new Executive
Director may be eligible to participate in the 2011 LTIP and also provided the total number of awards granted to all
participants do not exceed the limits agreed with shareholders at the 2011 AGM.
Shareholding
requirement
The Committee operates a system of shareholder guidelines to encourage
long-term share ownership by the Executive Directors.
This should be achieved within five years of appointment for Executive
Directors.
400% of base salary for the
Group Chairman and Group Chief
Executive.
200% of base salary for other
Executive Directors.
Non-executive
Directors
Fees
Each Non-executive Director receives a fee which relates to membership of the
Board and additional fees are paid for Committee Chairmanship.
In setting fees, the Board looks
at the upper quartile fee levels of
companies of broadly similar size
and complexity - in particular those
within the comparator group and
those in the FTSE 250.
In general fee rises will be limited to
the level provided to employees of
the Company as a whole.
The Directors’ Remuneration Policy is available to view in full on the Company’s website at
www.berkeleygroup.co.uk/investor-information/corporate-governance.
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
How have we performed against our 2015/16 Bonus Plan objectives?
The following table sets out the various performance metrics targeted by the Bonus Plan and how the Company has performed
against these metrics in respect of 2015/16. It should be noted that this is the first year of operation of the six-year Bonus Plan that was
approved by shareholders at the 2014 AGM.
Bonus Plan performance conditions
Targets set at the start of the year
Group performance
condition – 100%
weighting for the
Group Executives, 50%
weighting for Divisional
Directors
Divisional PBT
performance condition
– 50% weighting for
Divisional Directors
Return on
Equity
Net Asset
Value
ROE of 25% (maximum target)
Net Asset Value Growth of 5% (maximum target)
Divisional PBT
targets
Divisional PBT targets are set at the beginning of the
financial year at a level which is challenging taking into
account the potential level of bonus payments, the
market, development availability and other relevant
issues.
Percentage
of bonus
element
earned
following
assessment
against the
performance
targets
100%
100%
Actual
performance
outcome
27.8%
ROE(1)
10.7% Net
Asset Value
Growth
100% of
Divisional
PBT target
achieved(2)
Notes
1. Adjusted Return on Equity excludes gross margin from the sale of ground rents
2. Divisional PBT performance condition for the Divisional Directors – the percentage achievement of target is shown as the average performance for each
Division. Disclosure of PBT targets are considered to be commercially sensitive as the disclosure of such details could be detrimental to the Company’s
future strategic plans. The Committee will disclose these targets when they are no longer considered commercially sensitive which is anticipated to be at
the end of a period of two years.
The Committee is satisfied that there is strong alignment between Company performance and the remuneration of the Executive
Directors. As a result of strong performance during the year, the Committee determined that the Executive Directors would receive
bonus payments equal to 100% of their maximum bonus potential as set at the start of the year. Further details are set out in the Annual
Report on Remuneration on pages 91 and 92.
Other remuneration outcomes during the year
The balance of the awards granted under the 2009 LTIP Part B vested on 15 April 2016. These awards vested following the achievement
of the Net Assets per share performance condition underpin of £9.00. Actual Net Assets per share were £12.89 at 31 October 2015
and £13.14 at 30 April 2016. The exercise of these awards resulted in a significant increase in shareholding for A W Pidgley, R C Perrins,
G J Fry, K Whiteman and S Ellis.
Shareholder approval was received at the 2011 AGM to amend the rules of the 2009 LTIP Part B so that the terms of existing options
granted can be adjusted in the event of the payment of a cash dividend or dividend in specie. The exercise price of the 2009 LTIP Part B
awards at the date of vesting was £3.06 following £5.34 of dividends being paid during the vesting period. Full details are disclosed on
page 93.
Single total figure of Remuneration for Executive Directors for 2015/16
The table below summarises the 2015/16 single total figure of remuneration:
Executive Director
£’000
Salary
Benefits
Annual bonus
Multi-year
performance
incentive(1)
Pensions
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
850
515
350
355
335
335
49
33
17
29
28
20
1,275
773
350
311
335
369
19,170
9,585
–
6,390
3,195
2,236
145
87
53
53
50
50
Total
21,489
10,993
770
7,138
3,943
3,010
Notes
1. 2015/16 Multi-year performance incentive – the amounts relate to the balance of the 2009 LTIP Part B awards that vested in 2015/16.
Total equity exposure at 30 April 2016
The following table and chart sets out all subsisting interests in the equity of the Company held by the Executive Directors at 30 April
2016:
Executive Director
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
Scheme interests – Options and awards over shares
Beneficially owned
shares
2011 LTIP – Option
interests subject to
conditions
Other awards subject
to conditions(1)
Total interests held
6,463,855
1,676,598
3,867
1,351,327
153,003
113,659
5,000,000
5,000,000
954,328
1,866,503
1,000,000
2,250,000
–
–
45,672
–
–
–
5,000,000
5,000,000
1,000,000
1,866,503
1,000,000
2,250,000
Notes
1. Buy out awards granted to R J Stearn on joining Berkeley on 13 April 2015. Full details were provided in the Directors’ Remuneration Report for 2014/15.
The following charts show the minimum shareholding requirements for the Executive Directors, the value of the shares they currently
own and the value of share incentives held. All the Executive Directors exceed their minimum shareholding requirements other than
R J Stearn who has only recently been appointed and has five years to meet the requirements.
A W Pidgley (% of salary)
400%
11,147%
G J Fry (% of salary)
200%
22,776%
11,401%
9,963%
0
5000
10000
15000
20000
25000
0
2000
4000
6000
8000
10000 12000
R C Perrins (% of salary)
400%
9,750%
K Whiteman (% of salary)
200%
1,368%
0
5000
10000
15000
20000
0
1000
2000
3000
4000
5000
6000
18,398%
5,657%
R J Stearn (% of salary)
200%
33%
5,558%
S Ellis (% of salary)
200%
1,016%
12,728%
0
1000
2000
3000
4000
5000
6000
0
3000
6000
9000
12000
15000
Key: Shareholding requirement Value of beneficially owned shares Value/gain on interests over shares (unvested)
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
Statement of implementation of remuneration policy in the following financial year
Executive Directors
The remuneration policy and its implementation for the forthcoming financial year is summarised below.
Salary: The salaries for 2016/17 are set out below:
Executive Director
2015/16 Salary
£’000
2016/17 Salary
£’000
% change
Lower Quartile
Median
Upper Quartile
FTSE 250 - £’000
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
850
515
350
355
335
335
875
530
360
365
345
345
2.9
2.9
2.9
2.8
3.0
3.0
465
472
310
293
293
293
542
547
361
347
347
347
618
617
415
398
398
398
I
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P
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O
V
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N
A
N
C
E
I
F
N
A
N
C
A
L
S
I
The Committee when setting the Group performance conditions follows the approach agreed with shareholders as part of the approval
of the Bonus Plan. The Committee committed to setting performance conditions to ensure that over the six year plan period on average
the following ranges were achieved:
– ROE range 20% to 25% p.a.;
– NAV Growth range 0% to 5% p.a.
The Committee believes that taking into account the market faced by the Company and the strategy set that the above targets are
suitably challenging given the incentive opportunity that can be earned. The ROE targets have been increased to reflect the Company’s
expectations on revenue performance over the next period. The NAV Growth targets remain the same as the Committee believes they
provide the appropriate dynamic tension with the requirement to pay dividends whilst maintaining the Company’s asset base.
Long-term incentives: The current Executive Directors will not be granted additional options under the 2011 LTIP.
Non-executive Directors
The following table sets out the fee rates for the Non-executive Directors in the year ended 30 April 2016 and those rates which will
apply in the year ending 30 April 2017:
Non-executive Director
Deputy Chairman and SID fees
Basic Fee
2015/16
£’000
109.25
60.25
12.5
2016/17
£’000
112.5
62.0
12.5
% change
3.0
2.9
–
In reviewing the salaries of the Executive Directors for 2016/17, the Committee has also taken account of the employment conditions and
salary increases awarded to employees throughout the Group, which were on average 5.1%.
Additional fee for chairmanship of Audit or Remuneration Committee
Benefits and Pension: No changes are proposed to benefits or pension in 2016/17.
Bonus Plan: The maximum bonus potentials for the year ending 30 April 2017, the second year of operation of the new Bonus Plan
approved by shareholders at the 2014 AGM, are set out below. These are the same as those provided to each Executive Director for the
last financial year.
Executive Director
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
Maximum Bonus (% of salary)
300%
300%
200%
175%
200%
S Ellis
220%
From 2016/17 onwards the Committee has determined the bonus payable for all the Executive Directors will be determined by reference
to Group performance conditions only. The Committee’s rationale for the change is set out in the Chairman’s Annual Statement. The
table below sets out the targets in respect of the forthcoming year for all Executive Directors.
Group performance condition (year ending 30 April 2017)
Net Asset Value Growth
1.0%
60%
0%
30%
36%
42%
48%
54%
60%
2.0%
3.0%
4.0%
5.0%
70.0%
80.0%
90.0%
100.0%
0%
35%
42%
49%
56%
63%
70%
0%
40%
48%
56%
64%
72%
80%
0%
45%
54%
63%
72%
81%
90%
0%
50%
60%
70%
80%
90%
100%
Performance Requirement Matrix
<0%
0.0%
0.0%
50.0%
<25.0%
25.0%
26.0%
27.0%
28.0%
29.0%
30.0%
0%
50%
60%
70%
80%
90%
100%
Bonus Plan
Deduction
0%
0%
0%
0%
0%
0%
0%
25%
30%
35%
40%
45%
50%
y
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86
In reviewing the fees of the Non-executive Directors for 2016/17, the Committee has also taken account of the employment conditions
and salary increases awarded to employees throughout the Group, which were on average 5.1%.
Changes to the 2011 LTIP approved by shareholders at the General Meeting held on 16 February 2016
In 2011, Berkeley put in place a clear framework to deliver £13 per share to shareholders over a ten year period, as the market began to
recover from the global financial crisis.
At the time this challenging ambition represented 183% of the prevailing net asset value per share. It was anticipated that the return
would realise the significant majority of the value of the balance sheet and the potential within the land bank.
Berkeley is ahead of this plan in terms of profitability and cash generation, following a period of land investment at the right time in the
cycle and a favourable London market with ongoing stability following the May 2015 General Election result. This was reflected in the
£2 billion three year cumulative PBT ambition the Company set out with its results for the year ended 30 April 2015.
Berkeley had also achieved the first milestone under the plan of returning £4.34 to shareholders by 30 September 2015 and was on
course to deliver the two remaining milestones in September 2018 and September 2021.
In December 2015, the Company announced that it was increasing the 2021 target from £13.00 per share to £16.34 per share, with the
remaining £12 to be paid in annual dividends of £2 per share over the next six years (equating to 100% of current NAV), with sufficient
capital retained for incremental investment in the business.
Rationale for revision to strategic delivery
The Company announced in June 2015, as part of the annual results for the year to 30 April 2015, a plan to deliver pre-tax profits of
£2 billion over the three year period to 30 April 2018. This reflected three principle factors:
– London had emerged from the financial crisis firmly at the centre of the global economy, attracting both investment and talent to
stimulate demand in the under-supplied Capital;
– Berkeley’s strategy enabled it to acquire a number of outstanding sites in the period from 2009 to 2013 that are now being delivered;
– The May 2015 General Election result had provided the UK and, specifically, the London market with the ongoing stability that
business required to make long-term investment decisions.
At this point in the cycle, the Company had sufficient visibility to enhance the dividend return programme while retaining sufficient
capital to invest in opportunities that will add incremental value to the future business.
Summary of amendments to the 2011 LTIP
At the 16 February 2016 General Meeting the following changes were approved by shareholders:
– An increase in the exercise price payable for the options by £3.34. This means that the total exercise price from the date of grant has
increased from £13.00 to £16.34;
– The introduction of phased vesting of options to match the dividend payments.
In addition, the Committee amended the 2011 LTIP to bring it up to date for corporate governance best practice by:
– Introducing malus and clawback provisions;
– Capping the maximum value the participants can receive under the Plan.
87
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
Dividend Target
The following table sets out the dividend targets:
The following table sets out the dividend targets:
Sale Restriction
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
The following table summarises the key terms of the 2011 LTIP and the main difference between the old operation of the 2011 LTIP and
the amended operation:
Term
Number of Options
Capable of being
Granted
2011 LTIP
19,616,503
Actual number granted 17,045,831. Executive Directors at
the date of the original shareholder approval of the Plan
in 2011 cannot be granted additional options.
2011 LTIP Amended
19,616,503
This provision of the Plan remains unchanged.
Exercise Price
£13.00
£16.34
Impact of Dividend
Payments on Exercise
Price
The exercise price of options reduces by any dividend
payments made.
The exercise price of options both unvested and
vested but unexercised will continue to be reduced by
subsequent dividend payments.
Date
Dividend Paid
Date
Dividend Paid
By Sept 2015
434 pence
By Sept 2015
434 pence
By Sept 2016
By Sept 2017
By Sept 2016
200 pence
By Sept 2017
200 pence
By Sept 2018
433 pence
By Sept 2018
200 pence
By Sept 2019
By Sept 2020
By Sept 2019
200 pence
By Sept 2020
200 pence
By Sept 2021
433 pence
By Sept 2021
200 pence
TOTAL
£13.00
TOTAL
£16.34
Vesting Timing /
Lapse of Options
The operation of the 2011 LTIP provided for vesting:
– on 30 September 2021 dependent on the proportion
of the £13 paid (subject to meeting the gateways set
out below);
OR
– if earlier full vesting at the point the £13 of return has
The following table sets out the amended vesting
timetable and its relationship to the dividend payments
made by the Company:
Date
Dividend
Paid
Cumulative
Dividends
Paid
% of
Option
Vesting
been provided to shareholders.
By Sept 2016 434 pence
£4.34
26.5%
The following table sets out the circumstances when
options would lapse:
Gateway
Position
Sept 2015
Sept 2018
If 434 pence of dividend not
paid options lapse.
If 867 pence of dividend not
paid. Calculation of number
of options vesting performed
and the balance lapses.
Exercise price continues to
decrease as dividends are
paid until Sept 2021.
Sept 2021
If £13 of dividend not paid
same process as above.
200 pence
£6.34
By Sept 2017
200 pence
£8.34
By Sept 2018
200 pence
£10.34
By Sept 2019
200 pence
£12.34
By Sept 2020 200 pence
£14.34
By Sept 2021
200 pence
£16.34
TOTAL
£16.34
6.5%
13.4%
13.4%
13.4%
13.4%
13.4%
100%
Notes:
1. If the annual dividend payment is not made for the relevant
year that tranche of the option will lapse.
2. If in a subsequent year the cumulative dividends paid reach
the targeted level, the tranche for that year will vest;
however, tranches where the annual dividend payment was
not made for the relevant year will remain lapsed.
I
S
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A
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E
G
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E
P
O
R
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O
V
E
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N
A
N
C
E
I
F
N
A
N
C
A
L
S
I
Term
2011 LTIP
2011 LTIP Amended
Overall Cap on Value
No cap on value.
The new mechanism is as follows:
The rules of the Plan provide that there is a sale
restriction on shares resulting from the exercise of vested
options of 10% per annum, after taking into account any
shares sold to meet the tax liability on exercise; this sale
restriction falls away on 30 September 2021. It should
be noted that the sale restriction continues to apply to
shares following cessation of employment other than in
the case of death.
The rules of the Plan provide that options which are not
exercisable will lapse unless the cessation of employment
is for “good leaver” reasons set out in the rules of the
Plan.
If the participant is a good leaver the amount of the
option capable of exercise will be based on the dividend
paid up to that date and an estimation of the dividends
capable of being paid at that date. The option will
be exercisable at the beginning of the option period
(earliest of £13 being returned and 30 September 2021).
Any dividends paid from the date of termination will
continue to reduce the exercise price until the beginning
of the option period.
The rules of the Plan provide that options vest in full
on a change of control. The exercise price is £13 less
any dividends paid. The Remuneration Committee
has discretion to make adjustments to the timing of
the exercise and the exercise price to ensure equitable
treatment for executives and shareholders.
Cessation of
Employment
Change of Control
Malus & Clawback
No malus and clawback provisions for current options.
– The total value of options at vesting is capped based
on the following formulae: Number of shares subject to
the Plan x £35 per share.
– The value of an option for the purpose of the cap is
calculated as the gain on vesting (market price of a
share on vesting less the exercise price x number of
shares vesting);
– The cap is allocated proportionately to each vesting.
Any element of unused cap will roll forward to the next
vesting.
This provision of the Plan remains unchanged.
The Plan remains substantially unchanged.
This provision of the Plan remains unchanged apart from
the consequential change to the original exercise price
which under the amended Plan is increased from £13
to £16.34 and the introduction of an overall cap in value
provided.
Malus and clawback provisions have been incorporated
into all options granted under the Plan (including existing
in-flight options).
Position of participants
The changes required the consent of participants, which the Committee received, as the changes reduce the potential value of the
options compared to the current position; by:
– Increasing the exercise price payable by £3.34;
– Capping the potential value received under the Plan; and
– Introducing malus and clawback.
In addition, the proposals result in participants not being able to receive the £3.34 of dividends on their shares which would have been
the case had the exercise price stayed at £13.00.
88
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
ANNUAL REPORT ON REMUNERATION
This section of the Remuneration Report contains details of how the Company’s 2015/16 remuneration policy for Directors was
implemented during the financial year that ended on 30 April 2016. An advisory resolution to approve this report will be put to
shareholders at the AGM.
Single total figure of remuneration (Audited)
The table below sets out the single total figure of remuneration and breakdown for each Executive Director paid in the 2015/16 financial
year. Comparative figures for 2014/15 have also been provided.
Additional details in respect of single total figure table (Audited)
Taxable benefits
Taxable benefits comprise a fully expensed company car or cash allowance alternative and medical insurance.
Annual Bonus
In respect of the year under review, the Executive Directors’ performance was carefully reviewed by the Committee and performance
against the Bonus Plan targets is summarised below:
I
S
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R
A
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E
G
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E
P
O
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O
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E
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N
A
N
C
E
Executive
Director
(£’000)
Salary
Benefits(1)
Annual bonus
Multi-year
performance
incentive
Pensions
Other(4)
Total
2016
2015
2016
2015
2016
2015
2016(2)
2015(3)
2016
2015
2016
2015
2016
2015
Executive Director
The table below sets out the single total figure of remuneration and breakdown for each Non-executive Director.
Performance Requirement Matrix
<0%
0.0%
0.0%
50.0%
A W Pidgley
850
825
R C Perrins
515
500
R J Stearn
G J Fry
K Whiteman
S Ellis
350
355
335
335
19
344
324
324
49
33
17
29
28
20
48
1,275
2,475
19,170
19,808
145
140
31
1
26
30
20
773
1,500
9,585
10,241
350
–
–
–
311
602
6,390
6,281
335
369
567
3,195
3,427
713
2,236
2,646
87
53
53
50
50
85
3
52
49
49
–
–
–
–
–
–
–
–
21,489
23,296
10,993
12,357
1,609
770
1,632
–
–
–
7,138
7,305
3,943
4,397
3,010
3,752
Notes
1. Benefits include a fully expensed company car or cash allowance alternative and medical insurance.
2. 2015/16 Multi-year performance incentive – the amounts relate to the 2009 LTIP Part B awards that vested on 15 April 2016.
3. 2014/15 Multi-year performance incentive – the amounts relate to awards that were released under the Bonus Plan and the 2009 LTIP Part B awards that
vested on 15 April 2015.
4. Other – this represents buy out compensation awarded to R J Stearn on joining Berkeley on 13 April 2015 (cash payment and shares granted on 13 April
2015). Full details are provided in the 2014/15 Directors’ Remuneration Report.
Non-Executive Director
(£’000)
J Armitt
A Nimmo
G Barker
V Wadley
A Li
A Myers
D Brightmore-Armour
Basic fees
Additional fees(1)
Total fees
2016
109.25
60.25
60.25
60.25
60.25
60.25
60.25
2015
106.0
58.5
58.5
58.5
58.5
58.5
58.5
2016
2015
–
–
12.5
–
–
12.5
–
–
–
12.5
–
–
8.3
–
2016
109.25
60.25
72.75
60.25
60.25
72.75
60.25
2015
106.0
58.5
71.0
58.5
58.5
66.8
58.5
Notes
1. Additional fees represent fees paid for the role of Committee Chairmanship.
2. Non-executive Directors do not participate in any of the Company’s incentive arrangements nor do they receive benefits.
Maximum Annual
Bonus
Weighting – % of
maximum paid for
Group Performance
Weighting – % of
maximum paid
for Divisional
Performance
Annual Bonus
Contribution to
Plan Account for
2015/16
£’000
Annual Bonus
Contribution to
Plan Account for
2015/16
% of maximum
300%
300%
200%
175%
200%
220%
100%
100%
100%
50%
50%
50%
0%
0%
0%
50%
50%
50%
2,550
1,545
700
621
670
737
100%
100%
100%
100%
100%
100%
I
F
N
A
N
C
A
L
S
I
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
Assessment of Group performance condition
The matrix of targets against which performance has been assessed for the year ended 30 April 2016 is set out below:
y
t
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n
o
n
r
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t
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R
<20.0%
20.0%
21.0%
22.0%
23.0%
24.0%
25.0%
0%
50%
60%
70%
80%
90%
100%
Bonus Plan
Deduction
0%
0%
0%
0%
0%
0%
0%
25%
30%
35%
40%
45%
50%
Net Asset Value Growth
1.0%
60%
0%
30%
36%
42%
48%
54%
60%
2.0%
3.0%
4.0%
5.0%
70.0%
80.0%
90.0%
100.0%
0%
35%
42%
49%
56%
63%
70%
0%
40%
48%
56%
64%
72%
80%
0%
45%
54%
63%
72%
81%
90%
0%
50%
60%
70%
80%
90%
100%
Notes
1. The matrix shows the percentage of each of the performance requirements for a given level of performance and the corresponding percentage of the
targeted maximum annual bonus potential that could be earned for 2015/16.
2. Straight line bonus vesting between points.
3. Return on Equity (ROE) is defined as profit before tax divided by average shareholders’ funds.
4. Net Asset Value Growth is defined as the annual percentage increase in the Net Asset Value.
Actual performance against the maximum targets for 2015/16 is set out below:
Bonus Plan year
Maximum Target
2015/16
25.0%
Actual
27.8%*
Maximum Target
5.0%
Actual
10.7%
* Adjusted ROE for the year ended 30 April 2016 excludes gross margin from the sale of ground rents.
Return on Equity
Net Asset Value Growth
For the 2015/16 financial year, the annual Bonus Plan contribution based on performance against the Group performance targets matrix
equated to 100% of the maximum annual bonus subject to this condition.
90
91
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C
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P
O
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N
A
N
C
E
I
F
N
A
N
C
A
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S
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
Assessment of Divisional PBT performance condition
The Divisional PBT targets are set at the beginning of the financial year at a level which is challenging taking into account the potential
level of bonus payments, the market, development availability and other relevant issues. For the 2015/16 financial year, the annual Bonus
Plan contribution based on performance against the Divisional PBT targets equated to 100% of maximum annual bonus subject to this
condition.
Percentage of bonus
element paid for
threshold performance
Percentage of bonus
element paid for
maximum performance
Level of actual
performance as a
percentage of the
maximum performance
target
Percentage of bonus
element earned following
assessment against the
performance target
0%
0%
0%
100%
100%
100%
100%
100%
100%
100%
100%
100%
Division
St George
Berkeley Homes
East Thames
St James Group
The Committee believes the actual details of the targets set for the Divisions remain commercially sensitive and therefore they have
not been disclosed. The Committee will disclose these targets when they are no longer considered commercially sensitive which is
anticipated to be at the end of a period of two years.
The Committee exercised no discretion in determining incentive outcomes for the year ended 30 April 2016.
From 2016/17 onwards the Committee has determined the bonus payable for all the Executive Directors will be determined by reference
to Group performance conditions only. The Committee’s rationale for the change is set out in the Chairman’s Annual Statement. The
Group targets for 2016/17 are detailed on pages 86 and 87.
Bonus earned but deferred under the Bonus Plan
Under the Bonus Plan, the earned bonus for the year is added to each individual Director’s plan account. On the basis that this is the first
year of the operation of the new Bonus Plan (approved by shareholders at the 2014 AGM), in line with the Plan rules, 50% of the bonus
award for 2015/16 will be paid in cash with the remainder deferred.
c.
Contribution
into plan
account for
the financial
year 2015/16
d. Plan
account
balance
following
contribution
for financial
year 2015/16
e. Amount
released
following
contribution
for financial
year 2015/16
(50% of
column d)
a. Plan
account
brought
forward(1)
b. Plan
account
brought
forward(1)
f. Amount
released –
annual
bonus
(50% of
column c)
g. Amount
released –
Multi-year
(column
e less
column f)
h. Plan
account
carried
forward
i. Plan
account
carried
forward(2)
Shares
£’000
£’000
£’000
£’000
£’000
£’000
£’000
Shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,550
1,545
700
621
670
737
2,550
1,545
700
621
670
737
1,275
1,275
773
350
311
335
369
773
350
311
335
369
6,823
6,823
3,412
3,412
–
–
–
–
–
–
–
1,275
42,571
773
350
311
335
369
25,793
11,686
10,371
11,185
12,304
3,412
113,910
Executive
Director
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
Total
Notes
1. 2015/16 is the first year of operation on the new Bonus Plan therefore no shares have been brought forward from a prior Bonus Plan year.
2. Converted at a share price of £29.95 at 30 April 2016.
3 All amounts are rounded to the nearest £’000.
Long-term incentives
The balance of the Part B options granted under the 2009 LTIP vested on 15 April 2016. The table below sets out the numbers of options
over shares that vested for each Executive Director and the achievement against the conditions required for vesting.
Number of
options over
shares granted
(50% of the
2009 LTIP
Part B)(1)
Performance
measures
Performance
outcome
Percentage of
options vesting
Number of
options over
shares vesting
(50% of the
2009 LTIP
Part B)
Value of gain
on vested
options over
shares on 15
April 2016
(£’000)(2)
375,000
750,000 Continued employment
to the vesting date and
the satisfaction of the
underpin condition that
Net Assets per share
are at least £9.00 at 15
April 2016
250,000
125,000
87,500
Achieved – Net
Assets per share
of £12.89 at 31
October 2015 and
£13.14 at 30 April
2016
100%
100%
100%
100%
100%
750,000
375,000
250,000
125,000
87,500
19,170
9,585
6,390
3,195
2,236
Executive Director
A W Pidgley
R C Perrins
G J Fry
K Whiteman
S Ellis
Notes
1. The original exercise price was adjusted from £8.40 to £3.06 to reflect the payment of dividends during the vesting period of £5.34 – as approved by
shareholders at the 2011 AGM.
2. The value of options at vesting is calculated using the closing middle market share price of £28.62 on 15 April 2016, the date the options vested and
became exercisable, less the exercise price of £3.06 per share.
The above participants exercised their vested 2009 LTIP Part B awards on 15 April 2016.
Total pension entitlements (Audited)
No Executive Directors participate in any defined benefit arrangements. S Ellis is a member of a defined contribution scheme, and
R J Stearn was until December 2015. They received contributions equal to 15% of salary.
No amounts were paid into pension arrangements in respect of A W Pidgley, R C Perrins, G J Fry and K Whiteman during the year
ended 30 April 2016, who instead received payments in lieu of a pension contribution from the Company (2015/16: percentages of salary
17%, 17%, 15% and 15% respectively). R J Stearn received payments in lieu of pension contributions from the Company from January 2016
onwards at 15% of salary.
2011 LTIP (Audited)
As agreed at the time of his recruitment and in accordance with the Company’s recruitment policy, the Company committed to
granting R J Stearn 954,328 options over shares under the 2011 LTIP in two tranches. The first tranche of 704,328 options over shares
were granted on 3 July 2015. The second tranche of 250,000 options over shares were granted on the 15 April 2016 following the first
anniversary of R J Stearn’s commencement of employment. Full details of the remuneration on R J Stearn’s recruitment, including these
awards, was set out in the 2014/15 Directors’ Remuneration Report approved by shareholders at the 2015 AGM.
Type of award
Number of 2011 LTIP
options
Face Value of 2011
LTIP options
Options over shares
704,328
250,000
£23,883,762
£7,155,000
Dates of vesting
Phased vesting between
30 September 2016 and
September 2021.
Conditions and Exercise
Price
See summary on pages 88
and 89 of this report.
Notes
1. The Face Value of the options has been calculated using the closing middle market share price on the date of grant, being £33.91 for the first tranche and
£28.62 for the second tranche.
Payments to past Directors (Audited)
No additional disclosable payments to past Directors were made during the year.
Payments for loss of office (Audited)
No payments for loss of office were made during the year.
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
Service contracts
Details of the service contracts or letters of appointment for the Directors are as follows:
Executive Director
Date of contract/letter of appointment
Notice period by Company or Director
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
Non-executive Director
J Armitt
A Nimmo
G Barker
V Wadley
A Li
A Myers
24 June 1994
15 July 2002
3 October 2014
27 June 1996
15 January 1996
5 May 2004
1 October 2007
5 September 2011
3 January 2012
3 January 2012
2 September 2013
6 December 2013
D Brightmore-Armour
1 May 2014
12 months
12 months
12 months
12 months
12 months
12 months
n/a
n/a
n/a
n/a
n/a
n/a
n/a
All service contracts and letters of appointments are available for viewing at the Company’s registered office. The Company’s practice
is to appoint the Non-executive Directors under letters of appointment, which are renewable annually on 1 May. They are subject to the
provisions of the Articles of Association dealing with appointment and rotation every three years, however in accordance with the UK
Corporate Governance code are subject to annual re-election.
Directors’ shareholding and share interests (Audited)
The Company has a shareholding requirement for both Executive and Non-executive Directors, linked to base salary or net fee they
receive from the Company. In the case of the Group Chairman and Group Chief Executive this is 400% of base salary, for other Executive
Directors 200% of base salary and for the Non-executive Directors 100% of net fees. This should be achieved within five years of
appointment for Executive Directors and three years of appointment for Non-executive Directors.
Using the Company’s closing share price of £29.95 on 30 April 2016, compliance with these requirements was as follows:
Executive Director(1)
Obligation (% base salary)
% base salary at 30 April 2016
Achievement at 30 April 2016
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
Note
1. To be achieved within 5 years of appointment.
400%
400%
200%
200%
200%
200%
22,776%
9,750%
33%
11,401%
1,368%
1,016%
√
√
x
√
√
√
Non-executive Director (2)
Obligation (% NED net fees) % NED net fees at 30 April 2016
Achievement at 30 April 2016
J Armitt
A Nimmo
G Barker
V Wadley
A Li
A Myers
D Brightmore-Armour
Note
2. To be achieved within 3 years of appointment.
100%
100%
100%
100%
100%
100%
100%
431%
343%
713%
557%
857%
142%
86%
The table below summarises the Directors’ interests in shares at 30 April 2016.
√
√
√
√
√
√
x
Executive Director
A W Pidgley
R C Perrins
R J Stearn
G J Fry
K Whiteman
S Ellis
Non-executive Director
J Armitt
A Nimmo
G Barker
V Wadley
A Li
A Myers
D Brightmore-Armour
Scheme interests – Options and awards over shares
Beneficially owned
shares(1)
2011 LTIP - Option
interests subject to
conditions
Other awards subject
to conditions(2)
Total Interests held
6,463,855
1,676,598
3,867
1,351,327
153,003
113,659
9,112
4,000
10,042
6,500
10,000
2,000
1,000
5,000,000
5,000,000
954,328
1,866,503
1,000,000
2,250,000
–
–
–
–
–
–
–
–
–
45,672
–
–
–
–
–
–
–
–
–
–
5,000,000
5,000,000
1,000,000
1,866,503
1,000,000
2,250,000
–
–
–
–
–
–
–
Notes
1. Beneficial interests include shares held directly or indirectly by connected persons.
2. Other share awards subject to conditions relate to the buy out shares awarded to R J Stearn on joining Berkeley on 13 April 2015 (the performance
conditions on these shares had been met at the point of the buy-out). Full details were set out in the 2014/15 Directors’ Remuneration Report. In the
event that dealing restrictions were to apply when awards vest, the Company decided that share awards would be converted into a nil-cost option over
the same number of shares on 29 April 2016. The change provides no additional benefit to R J Stearn.
3. The balance of the 2009 LTIP Part B awards vested and were exercised during the year by the Executive Director participants (see page 93 for details).
4. There have been no changes in the shareholdings of the Directors between 30 April 2016 and the date of the Annual Report and Accounts, other than in
respect of R J Stearn, whose beneficially owned shares increased to 12,450 on 15 June 2016 following the vesting and exercise of the first tranche of nil
cost options under note 2 above at a share price of £29.54.
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
Performance and Group Chairman and Group Chief Executive pay over past 7 years
The graph below shows the Company’s performance, measured by total shareholder return (“TSR”), compared with the performance of
the FTSE 250, FTSE 100 and the FTSE All Share indices. The Company considers these the most relevant indices for total shareholder
return disclosure required under these Regulations.
Percentage change in Group Chairman’s and the Group Chief Executive’s remuneration
The table below compares the percentage increase in the Group Chairman’s and Group Chief Executive’s pay (including salary, taxable
benefits and annual bonus) between 2014/15 and 2015/16, with the wider employee population. The Company considers the full-time
employee population, excluding the Main Board, to be an appropriate comparator group and the most stable point of comparison:
Total shareholder return from 30 April 2009 (%)
400
350
300
250
200
150
100
50
0
2009
2010
2011
2012
2013
2014
2015
2016
Berkeley Group
Holdings plc
FTSE 250 Index
FTSE 100 Index
FTSE All Share Index
Notes
1. Total shareholder return (“TSR”) is a measure showing the return on investing in one share of the Company over the measurement period (the return is
the value of the capital gain and reinvested dividends). This calculation is then carried out for the relevant indices.
The table below shows the remuneration of the Group Chairman and Group Chief Executive for each of the financial years shown above.
Given the nature of the roles of A W Pidgley and R C Perrins, the table below provides this information for both individuals.
Executive Director
Single total figure of remuneration (£’000)(1)
A W Pidgley
Group Chairman
R C Perrins
Chief Executive
Annual bonus pay-out
(as % maximum
opportunity)(2)
Multi-year incentive
vesting awards (as %
maximum opportunity)
2015/16
2014/15
2013/14
2012/13
2011/12
2010/11
2009/10
21,489
23,296
3,757
3,638
2,799
2,033
2,406
10,993
12,357
2,271
2,198
1,692
1,226
1,127
100%
100%
100%
100%
100%
100%
100%
100% / See Note 5
100% / See Note 4
See Note 3
n/a
n/a
Notes
1. Single figure of total remuneration for each year has been calculated in accordance with the Regulations.
2. From 2010/11 onwards the annual bonus pay-out figures represent annual Company contributions under the Bonus Plan, introduced in 2010/11 and then
the new six year Bonus Plan put in place for 2015/16
3. 2011/12, 2012/13 and 2013/14 Multi-year vesting awards represent deferred awards that were released during the year under the initial Bonus Plan. In
accordance with the initial Bonus Plan rules the Company’s contribution is earned based on the satisfaction of the annual performance conditions. Part of
the Company contribution is provided as a deferred award. 100% of these deferred awards will be paid out unless there has been forfeiture during the
deferral period and subject to continued employment at the date of release. At the year ended 30 April 2015, the last financial year of the initial Bonus
Plan, there were no forfeiture events under the Bonus Plan.
4. 2014/15 Multi-year vesting represents the 2009 LTIP Part B awards that vested during the year and the deferred Bonus Plan awards as per note 3 above.
5. 2015/16 Multi-year vesting represents the 2009 LTIP Part B awards that vested during the year.
Base salary
Taxable benefits
Annual bonus
2014/15 to 2015/16 year on year change (%)
A W Pidgley
Group Chairman
R C Perrins
Chief Executive
Group employees
3.0%
1.5%
3.0%
3.0%
4.8%
3.0%
5.2%
6.1%
2.1%
Relative importance of spend on pay
The table below sets out the relative importance of spend on pay in the 2015/16 and 2014/15 financial years compared with distributions
to shareholders.
Remuneration of Group employees
(including Directors)
Distributions to shareholders
2015/16
(£m)
194
259
2014/15
(£m)
177
243
% change
10%
7%
Statement of implementation of Remuneration Policy for 2016/17
The details surrounding the statement of implementation of our Remuneration Policy for 2016/17 can be found in ‘Our Remuneration at
a glance’ on pages 86 to 89.
Consideration by the Directors of matters relating to Directors’ remuneration
Members of the Committee
The Committee currently comprises of three Independent Non-executive Directors, G Barker (Chairman), Sir J Armitt and A Myers.
The members of the Committee have no personal financial interest other than as shareholders in matters to be decided, no potential
conflicts of interest arising from cross Directorships and no day-to-day involvement in the running of the business.
Director
G Barker
Sir J Armitt
A Myers
Number of meetings during financial year Number of meetings attended
3
3
3
3
3
3
Role of the Committee and activities
The key responsibilities of the Committee are to:
– Determine and agree with the Board the broad policy for the remuneration of the Executive Directors. This includes salary, Bonus
Plans, share options, other share based incentives and pensions;
– Determine the performance conditions for the Bonus Plan operated by the Company and approve the total annual payments made
under this Plan;
– Determine all share incentive plans for approval by the Board and shareholders;
– Take into account the views of shareholders when determining plans under the remuneration policy;
– Ensure that the contractual terms on termination, and any payments made, are fair to the individual and the Company and that failure
is not rewarded;
– Note annually the remuneration trends and any major changes in employee benefit structures across the Company or Group.
The Committee has formal terms of reference which describes its full remit. These can be downloaded from the section dealing with
Investor Relations on the Berkeley website (www.berkeleygroup.co.uk).
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BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
BERKELEY ANNUAL REPORT 2016 / GOVERNANCE
DI RECTORS’
REMUNERATION R E PO RT
CONT INUED
D IRECTO RS’
RE POR T
The Committee’s activities during the 2015/16 financial year included:
Meeting
Items discussed
June 2015
– Draft Remuneration Report for the year ended 30 April 2015
– Annual performance targets under the Bonus Plan
November 2015
March 2016
– Pay review for the Group for the year ended 30 April 2015
– Approve grant of options under 2011 LTIP to R J Stearn
– Amendments to the 2011 LTIP
– Executive Remuneration Benchmarking report
– 2009 LTIP Part B vesting
Advisors to the Committee
In determining the Executive Directors’ remuneration for the year, the Committee consulted with the Group Chairman, A W Pidgley, the
Group Chief Executive, R C Perrins and the Group Finance Director, R J Stearn. No Director played a part in any discussion about his
own remuneration.
PricewaterhouseCoopers LLP (PwC) are the independent remuneration advisor to the Committee. PwC also provided Berkeley with tax
advisory services during the year. The Committee reviewed the nature of the other services provided by PwC and was satisfied that no
conflict of interest exists or existed in the provision of these services.
PwC is a member of the Remuneration Consultants Group and the voluntary code of conduct of that body is designed to ensure
objective and independent advice is given to remuneration committees. Fixed fees of £50,000 were provided to PwC during the year in
respect of remuneration advice received.
Statement of Voting at General Meeting
The table below shows the binding vote approving the Directors’ Remuneration Policy at the AGM on 1 September 2014 and the
advisory vote on the Annual Report on Remuneration at the AGM held on 8 September 2015.
Directors’ Remuneration Policy
Votes for
95,528,881
Annual Report on Remuneration
78,082,883
%
Votes against
95.88
85.43
4,090,177
13,276,012
%
4.11
14.52
Votes withheld
4,238,568
3,887,483
The Committee extensively consulted with its top shareholders on the changes made to the 2011 LTIP. The feedback the Committee
received was largely supportive reflected in the vote of 94.07% on the amendments to the 2011 LTIP on 16 February 2016. The majority
of shareholders raised no concerns on the Company’s remuneration generally during this consultation exercise.
The Directors Remuneration Report has been approved by the Board.
By Order of the Board
G Barker
Chairman, Remuneration Committee
21 June 2016
The Directors submit their report together
with the audited consolidated and
company financial statements for the year
ended 30 April 2016.
Principal activities and review of the
business
The Company is the UK holding company
of a Group engaged in residential-led
property development focusing on urban
regeneration and mixed-use developments.
The Company is incorporated and
domiciled in England and Wales and is
quoted on the London Stock Exchange.
The information that fulfils the
requirements of the Strategic Report
can be found on pages 2 to 69 of the
Annual Report which provide more
detailed commentaries on the business
performance during the year together with
the outlook for the future. In particular,
information in respect of the principal
financial and operating risks of the
business is set out on pages 56 to 65 of the
Strategic Report.
Trading results and dividends
The Group’s consolidated profit after
taxation for the financial year was £404.1
million (2015: £423.5 million). The Group’s
joint ventures contributed a profit after
taxation of £36.5 million (2015: £28.3
million).
An interim dividend of 90 pence per share
was paid to shareholders on 17 September
2015 and a further interim dividend of 100
pence per share was paid to shareholders
on 22 January 2016. A further interim
dividend of 100 pence per share is
proposed, payable on 15 September 2016
to shareholders on the register on 12
August 2016.
Post balance sheet event
There are no post balance sheet events.
Share capital
The Company had 138,257,183 ordinary
shares in issue at 30 April 2016 (2015:
136,657,183). No shares are held in treasury.
Authority will be sought from shareholders
at the forthcoming Annual General Meeting
to renew the authority given at the 2015
Annual General Meeting for a further year,
permitting the Company to purchase its
own shares in the market up to a limit of
10% of its issued share capital.
Movements in the Company’s share capital
are shown in note 19 to the consolidated
financial statements.
Information on the Group’s share option
schemes is set out in note 6 to the
consolidated financial statements. Details
of the Long-Term Incentive Schemes
and Long-Term Incentive Plans for key
executives are set out within the Directors’
Remuneration Report on pages 80 to 98.
of the Executive Directors were deemed
to have a non-beneficial interest in 338,061
(2015: 100,156) ordinary shares held by the
Trustees of The Berkeley Group Employee
Benefit Trust (“EBT”). The Trustee of the
EBT has agreed not to vote on any shares
held in the EBT at any general meeting.
Articles of association
The Articles of Association set out the
basic management and administrative
structure of the Company. They regulate
the internal affairs of the Company and
cover such matters as the issue and
transfer of shares, Board and shareholder
meetings, powers and duties of Directors
and borrowing powers. In accordance with
the Articles of Association, Directors can
be appointed or removed by shareholders
in a general meeting.
The Articles may only be amended by
special resolution at a general meeting
of shareholders. Copies are available by
writing to the Company Secretary and
are also open to inspection at Companies
House.
Directors
The Directors of the Company and their
profiles are detailed on pages 72 and 73.
All of these Directors served throughout
the year under review.
The Articles of Association of the Company
require Directors to submit themselves for
re-election every three years. In addition,
all Directors are subject to election at the
first opportunity after their appointment to
the Board. However, in accordance with the
UK Corporate Governance Code 2014 all of
the Directors will offer themselves for re-
election at the forthcoming Annual General
Meeting.
The Directors’ interests in the share capital
of the Company and its subsidiaries are
shown in the Directors’ Remuneration
Report on page 85. At 30 April 2016 each
There were no contracts of significance
during, or at the end of, the financial year in
which a Director of the Company is, or was,
materially interested, other than those set
out in note 6 to the consolidated financial
statements, the contracts of employment
of the Executive Directors, which are
terminable within one year, and the
appointment terms of the Non-executive
Directors, which are renewable annually
and terminable on one month’s notice.
Directors’ indemnities
The Company’s practice has always been
to indemnify its Directors in accordance
with the Company’s Articles of Association
and to the maximum extent permitted
by law. Qualifying third party indemnities,
under which the Company has agreed
to indemnify the Directors, were in force
during the financial year and at the date
of approval of the financial statements, in
accordance with the Company’s Articles
of Association and to the maximum extent
permitted by law, in respect of all costs,
charges, expenses, losses and liabilities,
which they may incur in or about the
execution of their duties to the Company,
or any entity which is an associated
company (as defined in Section 256 of
the Companies Act 2006), or as a result
of duties performed by the Directors
on behalf of the Company or any such
associated company.
Substantial shareholders
The Company has been notified of the
following interests, pursuant to Rule 5 of
the Disclosure Rules and Transparency
Rules, as at 21 June 2016:
First Eagle Investment
Management LLC
BlackRock Inc.
A W Pidgley
Standard Life Investments
Number of
ordinary shares
held
12,284,017
7,572,565
6,463,855
6,443,253
% of issued
share capital
8.99
5.54
4.68
Nature of
holdings
Indirect
Indirect
Direct
4.76
Indirect/Indirect
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CONT INUED
Donations
The Group made no political donations
(2015: £nil) during the year.
Employment policy
The Group’s policy of operating through
autonomous subsidiaries has ensured close
consultation with employees on matters
likely to affect their interests. The Group is
firmly committed to the continuation and
strengthening of communication lines with
all its employees.
An Equal Opportunities Policy was
introduced in 2001. Following periodic
reviews (the most recent in September
2010) the policy is now an Equality
and Diversity Policy with the aim of
ensuring that all employees, potential
employees and other individuals receive
equal treatment (including access to
employment, training and opportunity
for promotion) regardless of their age,
disability, gender reassignment, marriage
and civil partnership, pregnancy and
maternity, race, religion or belief (including
lack of belief), sex and sexual orientation.
It is the policy of the Group to support the
employment of people with disabilities
wherever practicable and to ensure,
as far as possible, the training, career
development and promotion opportunities
are available to all employees. This policy
includes employees who become disabled
whilst employed by the Group.
All disclosures concerning diversity of the
Group’s Directors, senior management
and employees (as required under the
Companies Act 2006 (Strategic Report
and Directors’ Report) Regulations 2013)
are contained within the Strategic Report
on page 43.
During the year, the Group has introduced
a Human Rights, Modern Slavery and
Child Labour Policy in support of human
rights which is implicit in all of its pre-
existing corporate policies and procedures.
The Group believes these policies to be
effective in promoting and protecting
human rights by establishing clear
ethical standards for ourselves and our
expectations for those external parties who
work with the Group or on our behalf.
Sustainability
The Group considers its approach to
sustainability, defined as the effective
management of environmental, social
and economic risks and opportunities
facing the company, to be an integral part
of managing its business. The Group’s
framework for the business, Our Vision, sets
100
out its integrated approach to managing
sustainability within the context of the
wider aims for the business. This approach
is outlined within the Strategic Report and
more extensive information is available on
Berkeley’s website. The Group believes that
this integrated approach demonstrates
how sustainability is embedded within the
day-to-day operations of its business.
The Group remains committed to
enhancing its high standards through
continuous improvement. The Board
is responsible for setting the strategic
objectives and continues to monitor
strategic development and progress
against commitments and Key
Performance Indicators. The Sustainability
Working Group is responsible for delivering
these objectives and reviewing progress
against targets.
Greenhouse gas emissions
2015
(Revised)
2016
Scope 1 (tCO2e)
2,364 A
2,422
Scope 2 (tCO2e)
11,780 A
11,380
Scope 3 (tCO2e)
13,651 A
14,620
Total (tCO2e)
27,795 A
28,422
2.59
2.28
Emissions intensity
(tCO2e/person)
A Information for the year ended 30 April
2016 has been subject to limited assurance
by PricewaterhouseCoopers LLP. For further
details of the assurance provided see the
independent assurance report found at
berkeleygroup.co.uk/sustainability/reports-
and-case-studies.
The Group has reported on greenhouse
gas emissions for which it is responsible, as
required under the Companies Act 2006
(Strategic Report and Directors’ Reports)
Regulations 2013. The emissions disclosed
are aligned to the Group’s financial
reporting year, are considered material
to its business and have the following
parameters:
Scope 1 – direct emissions relating to office,
sales and development site activities; and
work-related travel in company owned
vehicles;
Scope 2 – indirect emissions from
electricity and heat consumed for office,
sales and development site activities;
Scope 3 – other indirect emissions relating
to office, sales and development site
activities; work-related travel in leased and
employee owned vehicles; business air
travel; transmission and distribution losses
of purchased electricity and heat; and
upstream emissions.
Emissions include 50% of those resulting
from the Group’s joint ventures on the basis
of its equity share.
The intensity ratio has been calculated
using the total number of direct employees
across the Group and the number of
contractors working on our sites.
The UK Government Environmental
Reporting Guidelines 2013 and UK
Government GHG Conversion Factors
for Company Reporting 2015 have been
used to calculate and report the Group’s
greenhouse gas emissions.
2015 data has been revised based on
more accurate data now being available
for energy consumption within the period.
Further details on these changes and
the methodology adopted for the overall
calculations can be found at berkeleygroup.
co.uk/sustainability/reports-and-case-
studies.
Takeover directive – agreements
Pursuant to the Companies Act 2006, the
Company is required to disclose whether
there are any significant agreements that
take effect, alter or terminate upon a
change of control.
Change of control provisions are included
as standard in many types of commercial
agreement, notably bank facility
agreements and joint venture shareholder
agreements, for the protection of both
parties. Such standard terms are included
in Berkeley’s bank facility agreement
which contains provisions that give the
banks certain rights upon a change of
control of the Company. Similarly, in certain
circumstances, a change of control of
either National Grid or Berkeley may give
the other joint venture partner the ability to
sell its interest in the joint venture.
In addition, the Company’s share schemes
contain provisions which take effect
upon change of control. These do not
entitle the participants to a greater
interest in the shares of the Company
than that created by the initial grant of
the award. The Company does not have
any arrangements with any Director that
provide compensation for loss of office or
employment resulting from a takeover.
Independent Auditors and disclosure of
information to Auditors
Each of the persons who is a Director at
the date of approval of this Annual Report
confirms that:
– So far as the Director is aware, there is
no relevant audit information of which
the Company’s auditors are unaware;
and
– The Director has taken all the steps that
he/she ought to have taken as a Director
in order to make himself/herself aware
of any relevant audit information and to
establish that the Company’s auditors
are aware of that information.
This confirmation is given and should
be interpreted in accordance with the
provisions of Section 418 of the Companies
Act 2006.
A resolution to appoint KPMG LLP as
auditors to the Company will be proposed
at the Annual General Meeting.
Annual general meeting
The Annual General Meeting of the
Company is to be held at The Woodlands
Park Hotel, Woodlands Lane, Stoke
D’Abernon, Cobham, Surrey KT11 3QB
at 11.00am on 6 September 2016. The
Notice of Meeting, which is contained in a
separate letter from the Group Chairman
accompanying this report, includes
a commentary on the business to be
transacted at the Annual General Meeting.
Share capital structure
The Company is compliant with DTR
7.2.6. and the information relating to the
Company’s share capital structure is
included in the Directors’ Report on
page 99.
Statement of Directors’ responsibilities
in respect of the Annual Report and the
Financial Statements
The Directors are responsible for preparing
the Annual Report, the Directors’
Remuneration Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the Directors
to prepare financial statements for
each financial year. Under that law the
Directors have prepared the Group
Financial Statements in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union,
and have prepared the Parent Company
Financial Statements in accordance with
United Kingdom Accounting Standards
(United Kingdom Generally Accepted
Accounting Practice) and applicable law.
Under company law the Directors must not
approve the financial statements unless
they are satisfied that they give a true and
fair view of the state of affairs of the Group
and the Company and of the profit or loss
of the Group for that period.
In preparing these financial statements, the
Directors are required to:
– select suitable accounting policies and
then apply them consistently;
– make judgements and estimates that
are reasonable and prudent;
– state whether IFRS as adopted by
the European Union and applicable
UK accounting standards have been
followed, subject to any material
departures disclosed and explained
in the Group and Parent Company
Financial Statements respectively; and
– prepare financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group will continue in business.
The Directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the Company and
the Group and to enable them to ensure
that the financial statements and the
Directors’ Remuneration Report comply
with the Companies Act 2006 and, as
regards the Group financial statements,
Article 4 of the IAS Regulation. They are
also responsible for safeguarding the
assets of the Company and the Group
and hence for taking reasonable steps for
the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the
maintenance and integrity of the
Company’s website. Legislation in the
United Kingdom governing the preparation
and dissemination of financial statements
may differ from legislation in other
jurisdictions.
Directors responsibility statement
Each of the Directors, whose names and
functions are listed on pages 72 and 73
confirm that, to the best of each person’s
knowledge:
a. the Group financial statements, which
have been prepared in accordance with
IFRS’s as adopted by the European
Union, give a true and fair view of the
assets, liabilities, financial position and
profit of the Group;
b. the Strategic Report, together with the
Directors’ report, includes a fair review
of the development and performance
of the business and the position of the
Group, together with a description of
the principal risks and uncertainties
that it faces, including those that would
threaten its business model, future
performance, solvency or liquidity; and
c. the Annual Report, taken as a whole, is
fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s
financial performance and position,
business model and strategy.
Going concern
The Group’s business activities together
with the factors likely to affect its future
development performance and position
are set out in the Strategic Report. The
financial position of the Group, its cash
flows, liquidity position and borrowing
facilities are all described in the Trading and
Financial Review on pages 66 to 69.
The Group has significant financial
resources and the Directors have assessed
the future funding requirements of the
Group, including the return of £2.2 billion
to shareholders by 2021, and compared
this to the level of committed loan facilities
and cash resources over the medium term.
In making this assessment consideration
has been given to the uncertainty inherent
in future financial forecasts and where
applicable reasonable sensitivities have
been applied to the key factors affecting
the financial performance of the Group.
The Directors have a reasonable
expectation that the Company has
adequate resources to continue its
operational existence for the foreseeable
future. For this reason they continue
to adopt the going concern basis of
accounting in preparing the annual
financial statements.
By order of the Board
E A Driver
Company Secretary
The Berkeley Group Holdings plc
Registered number: 5172586
21 June 2016
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
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FINAN CI ALS
Hurlingham Walk, Fulham
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
IN DEPENDENT AUDI TO RS’ RE PO RT
TO THE MEMBERS OF THE BERKELEY GROUP HOLDINGS 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 The Berkeley Group Holdings plc for the year ended 30 April 2016 set out on pages
110 to 145.
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 April 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.
Our audit approach
Materiality
– £24.0 million (2015 – £22.5 million) representing 5.0% of normalised profit before tax (2015 – 5.0%).
Scope
– 88% (2015 – 88%) of total group revenue
– 93% (2015 – 94%) of total profits and losses before tax
– 88% (2015 – 86%) of total group assets
Key recurring risks identified for which our assessment of significance has not changed from the prior year
– Carrying value of inventories and profit recognition;
– Revenue recognition;
– Provisions;
– Share-based payment recognition; and
– Compliance with Laws and Regulations
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:
The risk
Our response
Carrying value of inventories and profit recognition (inventories:
£3,256.1 million (2015 - £2,654.1 million), gross profit: £701.7 million
(2015 - £716.8 million))
Refer to page 78 (Audit Committee report), pages 115 to 117
(accounting policy) and page 127 (financial disclosures).
The Group recognises profit on each sale by reference to the overall
site margin, which is the forecast profit percentage for a site that
may comprise multiple phases and can last a number of years. The
recognition of profit is therefore dependent on the Group’s estimate
of future selling prices and build costs, which form the basis of their
forecasts, including an appropriate allowance for risk.
Future selling prices are dependent on market conditions, which
can be difficult to predict and be influenced by broader political and
economic factors.
Future build costs are subject to a number of variables including the
accuracy of designs, market conditions in respect of materials and
sub-contractor cost and construction issues.
Inventory represents the costs of land, materials, design and related
production and site costs to date. It is held at the lower of cost and net
realisable value, the latter also being based on the forecast for the site.
As such errors in these forecasts can impact the assessment over the
carrying value of inventories and gross profit.
There is also a risk that costs are inappropriately capitalised within
inventories or that the allocation of costs that relate to the whole site,
such as land and infrastructure, is inappropriate across development
phases, resulting in a material misstatement of inventory or gross
profit.
Our audit procedures in respect of this area included:
Testing the Group’s controls by checking approvals over reviewing and
updating selling price and cost forecasts, authorising and recording of
costs.
We inspected the site forecasts on a sample basis and challenged the
assumptions for future costs and sales.
We corroborated a sample of forecast costs back to supplier
agreements or tenders. We also consider, based on the risks
highlighted by build cost review meetings and wider industry cost
indices, the appropriateness of allowances made for cost increases
and for risks inherent in longer term developments.
We corroborated forecast sales prices against recent prices achieved
in the relevant local market, and considered factors that may influence
the achievable price on future sales.
We compared the margin recognised in the year on any units sold to
the forecast site margin over the life of the development.
We inspected the minutes and attended a selection of management’s
build cost review meetings. At these meetings management review
actual costs and revenues against detailed site budgets. Estimates
of future costs and selling prices in the forecasts are challenged by
management including reference to tendered works packages, actual
costs incurred and forward sales reservation prices. Our inspection
of the minutes and attendance at a selection of meetings included
assessing whether the appropriate individuals attended the meetings
and that the valuations and costs to complete forecasts for all
developments were discussed, challenged and the valuations updated
as appropriate.
We agreed a sample of additions in the inventory balance to invoice
and/or payment, including checking that they were allocated to the
appropriate site and development phase and met the definition of
inventory costs.
For all new land acquisitions we inspected purchase contracts to
understand the terms and any deferred or contingent payments. We
re-performed the calculation of such amounts to check the amounts
recorded. For a sample of both pre-development and active sites we
evaluated the reliance on planning and other third party actions to
achieve the forecast and considered the impact on carrying values.
We evaluated the sensitivity of the forecast margin to a change in
sales prices and costs and considered whether this indicated a risk of
impairment of the inventory balance.
We considered the adequacy of the Group’s disclosures over inventory
and the degree of judgement and estimation involved in arriving at the
forecast, resultant profit and carrying value of inventory.
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
IN DEPENDENT AUDI TO RS’ RE PO RT
TO THE MEMBERS OF THE BERKELEY GROUP HOLDINGS PLC ONLY
CONT INUED
The risk
Our response
The risk
Our response
Revenue recognition (£232.3 million (2015 – £215.6 million))
Our audit procedures in respect of this area included:
Provisions (£88.5 million (2015 – £75.1 million))
Our audit procedures in respect of this area included:
Refer to page 78 (Audit Committee report) and page 115 (accounting
policy).
It is the Group’s policy to recognise 100% of revenue on property units
when contracts are exchanged and the building work is physically
complete, being the point at which the Group is satisfied it has
discharged its obligations to the buyer.
Contract exchange, including the payment of a deposit, may have
occurred sometime in the past. However, the legal completion of the
sale, being the point at which the balance of the sale is paid for and
title transfers, remains dependent on the receipt of final payment. The
recognition of revenue is generally before legal completion, and as
such is potentially more subjective than recognising at this latter point.
The risk is that the unit is not physically complete or that the buyer is
unable to complete the purchase, as should either of these be the case
the revenue should not be recognised.
The group also recognised revenue and resultant profit on the disposal
of a portfolio of ground rents in the period. The risk pertaining to the
sale of ground rents is whether the risks and rewards of ownership of
the assets have transferred to the purchaser at the balance sheet date
and that the transaction is presented appropriately in the financial
statements.
Testing controls over property sales including:
– documentation evidencing internal and third party physical
inspection and confirmation of build complete status; and
– customer background checks including checks of availability of
funds
For a sample of property sales in the year, we inspected the
paperwork confirming legal completion.
For a sample of sales recorded close to the year end where the final
payment was not yet received, we performed the following tests:
– performed site visits to verify build completion status;
– inspected the internal sign-off sheets to check that sales recorded
in the year had gone through the Group’s approval process for sale
of properties;
– after the year end, and up to the date of signing the audit report,
we confirmed whether final payments from buyers had been made
and appeared as receipts in the bank statements. Where significant
amounts were still outstanding we considered other information,
such as correspondence agreeing subsequent payment and
reasons for this, or reasons for known rescissions, in evaluating the
recoverability of these amounts and appropriateness of related
revenue recognition.
We also performed a physical inspection on a sample of properties for
which the sale had not been recognised to check that these did not
meet this criterion for revenue recognition.
We reviewed the contract for the sale of ground rent assets in the
period. We considered the treatment in conjunction with the revenue
recognition principles of the group’s accounting policy to ascertain
if revenue and profit is appropriately recognised in the correct
accounting period.
In particular we considered the transfer of risks and rewards made
under the agreement and timing of these. We have recalculated the
profit on disposal recorded for the transaction, and verified revenue
recorded to the sale agreement.
We have also considered the adequacy of the Group’s disclosures in
respect of the judgements taken in recognising revenue for property
units prior to legal completion and the adequacy of the disclosure of
the Group’s accounting policy with regards sales of ground rent assets,
and the disclosure of the specific transaction undertaken in the period.
Refer to page 78 (Audit Committee report), page 116 (accounting
policy) and page 128 (financial disclosures).
The Group holds provisions in respect of claims and construction
related liabilities that have arisen, or that prior claims experience
indicates may arise, subsequent to the completion of certain
developments, as well as in relation to other matters of litigation
including legal disputes.
The determination and valuation of provisions is judgmental by
its nature and there is a risk that the estimate is incorrect and the
provision is materially misstated.
Share-based payment recognition
(£42.9 million (2015 – £55.5 million))
Refer to page 78 (Audit Committee report), page 117 (accounting
policy) and pages 120 and 121 (financial disclosures).
Share-based payments is a complex accounting area including
assumptions utilised in the fair value calculations and judgements
regarding accounting for modifications. There is a risk in the
financial statements that amounts are incorrectly recognised and/or
inappropriately disclosed.
The Group has made changes to share-based long term incentive
plan awards which vest in September 2016 and in future periods.
This requires further complex accounting considerations regarding
classification and treatment of modifications which could result in a
material impact to the Income Statement.
Enquiring of Group Directors and divisional management, and
inspecting board minutes for actual and potential claims arising in the
year, and challenging whether provisions are required for these claims.
For all significant known issues and claims provided for we inspected
the calculation of the provision held and compared this to third party
evidence, where available.
For claims that past events indicated may arise, we evaluated
settled and potential issues and considered any differences in the
development portfolio then and now, such as increasing complexity of
construction, as evidence for the calculation of the provision.
In respect of open matters of litigation, we had discussions with
the Group’s internal and external legal advisors and reviewed
correspondence in respect of these matters.
We assessed each provision against the requirements of the relevant
accounting standards and assessed whether the Group’s disclosures
present the potential liabilities of the Group in accordance with
accounting standards.
Our audit procedures in respect of this area included:
We made inquiries of the directors to understand the share-based
payment schemes in place and the changes made to the awards.
We have also inspected communications made to scheme members
regarding these changes, and evidence of shareholder approval.
We considered whether changes to the schemes met the criteria to
be treated as a modification to the scheme and whether the resulting
accounting treatment was appropriate.
For equity-settled options we recalculated the estimated charge which
reflected the best estimate of the number of options expected to vest.
For cash-settled schemes we inspected the vesting price and
recalculated the amounts to be recognised in the financial statements.
For all schemes, we verified the inputs to the calculations by reference
to, where appropriate, external data.
We considered the adequacy of the Group’s disclosures in respect of
the treatment of share-based payments in the financial statements,
including the judgement over equity or cash settlement, and over the
disclosure of this choice in its accounting policies.
Compliance with Laws and Regulations
Our audit procedures in respect of this area included:
Refer to page 78 (Audit Committee report).
The Group is subject to a number of laws and regulations. These
include, but are not limited to, anti-bribery, anti-money laundering,
sanctions checking and those relevant to publicly traded companies.
Failure to comply with any of these applicable laws and regulations
could have a material financial and reputational impact on the
business.
The Directors reviewed their policies in these areas during the year and
did not record any material instances of non-compliance.
Obtaining an understanding of the relevant legal and regulatory
framework within which the Group operates and assessing the design
and operation of its key controls over this framework.
We discussed the applicable policies and procedures with divisional
and group management, including internal legal counsel. We reviewed
Board papers, and internal audit reports for any recorded instances
of potential non-compliance, and maintained a high level of vigilance
when carrying out our other audit procedures for indications of non-
compliance.
We reviewed the Group’s documentation and correspondence with
respect to relevant legal matters. We had discussions with the Group’s
internal and external legal advisors in respect of these matters.
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
IN DEPENDENT AUDI TO RS’ RE PO RT
TO THE MEMBERS OF THE BERKELEY GROUP HOLDINGS PLC ONLY
CONT INUED
3) Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at £24.0 million (2015 – £22.5 million), determined with reference to
a benchmark of Group profit before taxation, normalised to exclude profit from sale of ground rent assets, of £479.9 million (2015 –
£454.6 million), of which it represents 5% (2015: 5%). Our approach to the audit of disposals of ground rent assets has been discussed
within our response to the risk surrounding revenue recognition.
We reported to the audit committee any corrected or uncorrected identified misstatements exceeding £1.1 million (2015 – £1.1 million), in
addition to other identified misstatements that warranted reporting on qualitative grounds.
Normalised profit
before tax
£479.9m
(2015: £454.6m)
0
0
6
0
0
5
0
0
4
0
0
3
0
0
2
0
0
1
0
Materiality
£24.0m
(2015: £22.5m)
0
4
5
3
£24.0m Whole financial statements materiality
(2015: £22.5m)
0
3
5
2
0
2
5
1
£13.9m Range of materiality at 10 components
0
1
5
(£1.3m to £13.9m)
(2015: £2.3m to £11.3m)
£1.1m
0
Misstatements reported to the audit committee
(2015: £1.1m)
Of the group’s 15 (2015: 14) reporting components, we subjected 10 (2015: 8) to audits, all performed by the group team. These
components accounted for 88% (2015 – 88%) of Group revenue; 93% (2015 – 94%) of Group profit before taxation and 88% (2015 –
86%) of Group total assets.
For the remaining components, we performed analysis and certain detailed procedures at an aggregated Group level to re-examine our
assessment that there were no significant risks of material misstatement within these.
Coverage
Group revenue
88%
Group profit before tax
93%
Group assets
88%
12%
12%
7%
0
20
40
60
80
100
Audits Analysis
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’ statement of longer-term viability on page 56, concerning the principal risks, their management, and, based on that, the
directors’ assessment and expectations of the group’s continuing in operation over the five years to 30 April 2021; or
– the disclosures in note 1 of 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.
In particular, we are required to report to you if:
– 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.
Under the Listing Rules we are required to review:
– the directors’ statement, set out on pages 101 and 56, in relation to going concern and longer-term viability; and
– the part of the Corporate Governance Statement on page 74 relating to the company’s compliance with the eleven provisions of the
2014 UK Corporate Governance Code specified for our review.
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 101, 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 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.
Sean McCallion (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
15 Canada Square
London, E14 5GL
21 June 2016
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
CONSOLIDATED
INCOME STATEMENT
CONS OL IDATE D STATEM EN T O F
FINANCIAL POSITION
For the year ended 30 April
Revenue
Revenue includes:
Revenue from operations
Revenue from sale of ground rent assets
Cost of sales
Gross profit
Gross profit includes:
Gross profit from operations
Gross profit from sale of ground rent assets
Net operating expenses
Operating profit
Finance income
Finance costs
Share of results of joint ventures using the equity method
Profit before taxation for the year
Income tax expense
Profit after taxation for the year
Earnings per ordinary share:
Basic
Diluted
Notes
3
3
4
4
11
2, 5
7
2016
£m
2,047.5
1,994.1
53.4
(1,345.8)
701.7
650.7
51.0
(199.8)
501.9
3.1
(10.6)
36.5
530.9
(126.8)
404.1
2015
£m
2,120.0
2,020.2
99.8
(1,403.2)
716.8
631.7
85.1
(192.7)
524.1
3.0
(15.7)
28.3
539.7
(116.2)
423.5
8
8
295.8p
268.7p
313.0p
276.9p
CONSOLIDATED STATEMEN T O F
COMPREHENSIVE IN CO ME
For the year ended 30 April
Profit after taxation for the year
Other comprehensive expense:
Items that will not be reclassified to profit or loss
Remeasurements of the net defined benefit asset/liability
Deferred tax on remeasurements of the net defined benefit asset/liability
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Change in value of other investments
Total items that may be reclassified subsequently to profit or loss
Items reclassified to profit or loss
Change in value of other investments
Total items reclassified to profit or loss
Other comprehensive income for the year
Total comprehensive income for the year
Notes
6
7
12
12
2016
£m
404.1
(0.6)
0.1
(0.5)
–
–
(2.0)
(2.0)
(2.5)
401.6
2015
£m
423.5
(0.6)
0.1
(0.5)
1.0
1.0
–
–
0.5
424.0
As at 30 April
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investment properties
Investments accounted for using the equity method
Other investments
Deferred tax assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Trade and other payables
Provisions for other liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Provisions for other liabilities
Total liabilities
Total net assets
Equity
Shareholders’ equity
Share capital
Share premium
Capital redemption reserve
Other reserve
Retained profit
Total equity
Notes
2016
£m
2015
£m
9
10
10
11
12
18
13
14
15, 24
16
17
16
17
19
19
20
20
20
17.2
23.5
–
150.0
–
71.9
262.6
3,256.1
212.3
107.4
3,575.8
3,838.4
17.2
23.5
0.2
50.1
12.0
72.7
175.7
2,654.1
145.6
430.9
3,230.6
3,406.3
(90.3)
(68.3)
(158.6)
(131.7)
(61.1)
(192.8)
(1,768.6)
(1,503.8)
(78.2)
(20.2)
(1,867.0)
(2,025.6)
1,812.8
6.9
49.8
24.5
(961.3)
2,692.9
1,812.8
(57.8)
(14.0)
(1,575.6)
(1,768.4)
1,637.9
6.8
49.6
24.5
(961.3)
2,518.3
1,637.9
The financial statements on pages 110 to 139 were approved by the board of directors on 21 June 2016 and were signed on its behalf by:
R J Stearn
Finance Director
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
CONSOLIDATED STATEMEN T O F
CHANGES IN EQUI TY
CONS OL IDATE D
CASH FLOW STATEMEN T
Share
capital
£m
Share
premium
£m
Notes
Capital
redemption
reserve
£m
Other
reserve
£m
Revaluation
reserve
£m
Retained
earnings
£m
Total
£m
At 1 May 2015
6.8
49.6
24.5
(961.3)
Profit after taxation for the year
Other comprehensive income for the year
Total comprehensive income for the year
Issue of ordinary shares
Purchase of ordinary shares
Transactions with shareholders:
Credit in respect of employee share schemes
Deferred tax in respect of employee share
schemes
Dividends to equity holders of the Company
19
6
7
21
–
–
–
–
–
–
0. 1
0.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 30 April 2016
6.9
49.8
24.5
(961.3)
–
–
–
–
–
–
–
–
–
–
2,518.3
1,637.9
404.1
404.1
(2.5)
(2.5)
401.6
401.6
–
(1.2)
0.3
(1.2)
28.8
28.8
4.9
4.9
(259.5)
(259.5)
2,692.9
1,812.8
Share
capital
£m
Share
premium
£m
Notes
Capital
redemption
reserve
£m
Other
reserve
£m
Revaluation
reserve
£m
Retained
earnings
£m
At 1 May 2014
Profit after taxation for the year
Other comprehensive income for the year
Total comprehensive income for the year
Reserves transfer from revaluation reserve
Issue of ordinary shares
Transactions with shareholders:
20
19
Credit in respect of employee share schemes
6
Deferred tax in respect of employee share
schemes
Dividends to equity holders of the Company
At 30 April 2015
7
22
6.8
49.3
24.5
(961.3)
–
–
–
–
–
–
–
–
–
–
–
0.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6.8
–
49.6
–
24.5
–
(961.3)
4.1
–
–
–
(4.1)
–
–
–
–
–
Total
£m
1,441.3
423.5
0.5
2,317.9
423.5
0.5
424.0
424.0
4.1
–
2.7
–
0.3
2.7
13.1
13.1
(243.5)
2,518.3
(243.5)
1,637.9
For the year ended 30 April
Cash flows from operating activities
Cash generated from operations
Proceeds from sale of investment properties
Interest received
Interest paid
Income tax paid
Net cash flow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds on disposal of financial assets
Dividends from investments
Proceeds on disposal of property, plant and equipment
Movements in loans with joint ventures
Net cash flow from investing activities
Cash flows from financing activities
Proceeds from issue of shares
Purchase of own shares
Increased/(Repayment of) borrowings
Dividends paid to Company’s shareholders
Net cash flow from financing activities
Notes
24
10
11
11
21
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the start of the financial year
Cash and cash equivalents at the end of the financial year
15, 24
2016
£m
94.0
0.2
3.0
(2.7)
(100.8)
(6.3)
(4.9)
12.8
–
2.1
(63.2)
(53.2)
0.3
(4.8)
–
(259.5)
(264.0)
(323.5)
430.9
107.4
2015
£m
643.6
8.3
3.2
(5.4)
(140.5)
509.2
(4.6)
–
12.3
0.6
27.3
35.6
0.4
–
(1.0)
(243.5)
(244.1)
300.7
130.2
430.9
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
1 Accounting policies
General Information
The Berkeley Group Holdings plc (the “Company”) is a public limited company incorporated and domiciled in the United Kingdom. The address of its
registered office is Berkeley House, 19 Portsmouth Road, Cobham, Surrey, KT11 1JG. The Company and its subsidiaries (together the “Group”) are engaged in
residential-led, mixed-use property development. Further information about the nature of the Group’s operations and its principal activities are set out in the
Directors’ Report on page 99.
Basis of preparation
These Consolidated Financial Statements have been prepared in accordance with European Union endorsed International Financial Reporting Standards
(“IFRSs”), IFRS-IC interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Consolidated
Financial Statements have been prepared under the historical cost convention and on the going concern basis. Historical cost is generally based on the fair
value of the consideration given in exchange for the assets.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group’s accounting policies. 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 on page 117.
The following new standards, amendments to standards and interpretations are applicable to the Group and are mandatory for the first time for the
financial year beginning 1 May 2015: IAS 19 Defined Benefit Plans Employee Contributions (Amendment) and Annual improvements to 2010-12 Cycle.
These standards have not had a material impact on the results of the Company for the year ended 30 April 2016.
The following new standards, amendments to standards and interpretations have been issued, but are not yet effective for the financial year ending
30 April 2016 and have not been adopted early: Annual improvements Cycle 2012-14; IAS 12 Income Taxes (Amendment); IAS 7 Cashflow Statements
(Amendment); IFRS 9 Financial Instruments; IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases.
The Group will consider the impact of relevent forthcoming standards.
The Group has significant financial resources and the Directors have assessed the future funding requirements of the Group and compared this to the level
of committed loan facilities and cash resources over the medium term. In making this assessment, consideration has been given to the uncertainty inherent
in future financial forecasts and where applicable, reasonable sensitivities have been applied to the key factors affecting the financial performance of the
Group. The Directors have a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future.
For this reason it continues to adopt the going concern basis of accounting in preparing its consolidated financial statements.
Basis of consolidation
(a) Subsidiaries
The Consolidated Financial Statements comprise the financial statements of the Parent Company and all its subsidiary undertakings. The accounting date
for subsidiary undertakings is 30 April.
Subsidiaries are entities controlled by the Group. The Group controls an entity when it 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. In assessing control, the Group takes into consideration
substantive rights that are currently exercisable. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Losses
applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests
to have a deficit balance.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
The purchase method of accounting is used to account for the acquisition of subsidiary undertakings by the Group.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the
Group.
All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Acquisition-related costs are expensed as incurred.
(b) Joint ventures
Joint ventures are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment includes
goodwill identified on acquisition, net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of the total
comprehensive income and equity movements of equity accounted investees, from the date that joint control commences until the date that joint control
ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the Group’s carrying amount is reduced to nil and recognition
of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an
investee.
Segmental reporting
Operating segments are identified in a manner consistent with the internal reporting provided to the chief operating decision-maker. The Group determines
its reportable segments having regard to permitted aggregation criteria with the principal condition being that the operating segments should have similar
economic characteristics.
The Group is predominantly engaged in residential-led, mixed-use property development, comprising residential revenue, revenue from land sales and
commercial revenue.
For the purposes of determining its operating segments, the chief operating decision-maker has been identified as the Executive Committee of the Board.
This committee approves investment decisions, allocates the Group’s resources and reviews the internal reporting in order to assess performance.
The Group has determined that its operating segments are the management teams that report into the Executive Committee of the Board. These
management teams are all engaged in residential-led, mixed-use development in the United Kingdom and, having regard to the aggregation criteria in
IFRS 8, the Group has one reportable operating segment.
In addition to its development activities, the Group holds certain residential properties for investment purposes. These investment activities represent a
separate segment which is included within “Other activities”, as they do not meet the size thresholds to be disclosed as a separate reportable segment.
Revenue
Revenue represents the amounts receivable from the sale of properties, investment properties and ground rent assets during the year and other income
directly associated with property development. Properties are treated as sold and profits are recognised when contracts are exchanged and the building
work is physically complete. Ground rent assets are treated as sold when contracts are exchanged, all material conditions precedent to the sale have been
satisfied and the risks and rewards of ownership have transferred to the purchaser. See Accounting estimates and judgements below for further disclosures
on revenue recognition.
Rental income is recognised in the income statement on a straight line basis over the life of the lease. Any lease incentives are recognised as an integral part
of the total rental income.
Expenditure
Expenditure recorded in inventory is expensed through cost of sales at the time of the related property sale. The amount of cost related to each property
includes its share of the overall site costs including, where relevant, its share of forecast costs to complete. Net operating expenditure is recognised in
respect of goods and services received when supplied in accordance with contractual terms. Provision is made when an obligation exists for a future liability
in respect of a past event and where the amount of the obligation can be reliably estimated. See Accounting estimates and judgements below for further
disclosures on cost recognition.
Taxation
The taxation expense represents the sum of the current tax payable and deferred tax. Current tax, including UK corporation tax, is provided at the amounts
expected to be paid (or received) using the tax rules and laws that have been enacted, or substantively enacted, by the reporting date.
Deferred taxation is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial
statements and corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised on all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill, or from the initial recognition (except in a business combination) of other assets and liabilities in a transaction that affects
neither the taxable profit nor the accounting profit, or from differences relating to investments in subsidiaries to the extent that it is probable that they will
not reverse in the foreseeable future.
Deferred taxation is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws
and rates that have been enacted or substantively enacted at the balance sheet date. The carrying value of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available against which taxable temporary
differences can be utilised. Deferred taxation is charged or credited to the income statement, except when it relates to items charged or credited directly to
reserves, in which case the deferred taxation is also dealt with in reserves.
Deferred taxation 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 taxation assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable
entities where there is an intention to settle the balances on a net basis.
Intangible assets
Where the cost of acquiring new and additional interests in subsidiaries, joint ventures and businesses exceeds the fair value of the net assets acquired, the
resulting premium on acquisition (goodwill) is capitalised and its subsequent measurement is based on annual impairment reviews and impairment reviews
performed where an impairment indicator exists, with any impairment losses recognised immediately in the income statement. Goodwill is allocated to
cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that
are expected to benefit from the business combination in which the goodwill arose.
Property, plant and equipment
Property, plant and equipment is carried at historic purchase cost less accumulated depreciation. Cost includes the original purchase price of the asset and
the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided to write off the cost of the assets on a
straight line basis to their residual value over their estimated useful lives at the following annual rates:
Freehold buildings
2%
Fixtures and fittings
15%/20%
Motor vehicles
25%
Computer equipment
33 1/3%
Freehold property disclosed in the notes to the consolidated financial statements consists of both freehold land and freehold buildings. No depreciation is
provided on freehold land. Computer equipment is included within fixtures and fittings. The assets’ residual values, carrying values and useful lives are
reviewed on an annual basis and adjusted if appropriate at each balance sheet date. Where an impairment is identified, the recoverable amount of the asset
is identified and an impairment loss, where appropriate, is recognised in the income statement.
Subsequent costs are included in the assets’ carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced
part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within net operating expenses in
the income statement.
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
1 Accounting policies continued
Investment properties
Investment properties, which are properties held to earn rental income, are recognised using the “cost model” and are carried in the statement of financial
position at historic cost less accumulated depreciation.
Depreciation is provided to write off the element of the cost of the assets that relates to buildings at 2% per annum on a straight line basis. No depreciation
is charged on the element of the cost of the assets that relates to land.
Sales of investment properties are recognised in revenue and cost of sales. These are considered to be similar in nature to the underlying property sales of
the Group.
Inventories
Property in the course of development and completed units are valued at the lower of cost and net realisable value. Direct cost comprises the cost of land,
raw materials and development costs but excludes indirect overheads. Provision is made, where appropriate, to reduce the value of inventories and work in
progress to their net realisable value.
Land purchased for development, including land in the course of development, is initially recorded at cost. Where such land is purchased on deferred
settlement terms, and the cost differs from the amount that will subsequently be paid in settling the liability, this difference is charged as a finance cost in
the income statement over the period to settlement.
Trade and other receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for
impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivables. 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 original effective interest rate. The carrying amount of the asset is reduced through the use
of an allowance account, and the amount of the loss is recognised in the income statement within net operating expenses. When a trade receivable is
uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited
against net operating expense in the income statement.
Cash and cash equivalents
Cash and cash equivalents comprises cash balances in hand and at the bank, including bank overdrafts repayable on demand which form part of the
Group’s cash management, for which offset arrangements across Group businesses have been applied where appropriate.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.
Where any Group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable
incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, sold or
reissued. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and
the related income tax effects, is included in equity attributable to the Company’s equity holders.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. 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.
Trade and other payables
Trade and other payables on normal terms are not interest bearing and are stated at their nominal value which is considered to be their fair value. Trade
payables on extended terms are recorded at their fair value at the date of acquisition of the asset to which they relate. The discount to nominal value is
amortised over the period of the credit term and charged to finance costs.
Provisions
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of
resources will be required to settle that obligation, and the amount has been reliably estimated. See Accounting estimates and judgements below for further
disclosures on recognition of provisions.
Deposits
New property deposits and on account contract receipts are held within current trade and other payables.
Employee benefits
(a) Pensions
The Group accounts for pensions under IAS 19 “Employee benefits”. The Group has both defined benefit and defined contribution plans. The defined
benefit plan was closed to future accrual with effect from 1 April 2007.
For the defined benefit scheme, the obligations are measured using the projected unit method. The calculation of the net obligation is performed by a
qualified actuary. The operating and financing costs of these plans are recognised separately in the income statement; service costs are set annually on the
basis of actuarial valuations of the scheme and financing costs are recognised in the period in which they arise. Actuarial gains and losses are recognised
immediately in the statement of comprehensive income. In accordance with IAS 19 the Group does not recognise on the statement of financial position any
surplus in the scheme.
Pension contributions under defined contribution schemes are charged to the income statement as they fall due.
(b) Share-based payments
Equity-settled
Where the Company operates equity-settled, share-based compensation plans, the fair value of the employee services received in exchange for the grant of
the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options
granted, taking into account only service and non-market conditions.
At each balance sheet date, the Group revises its estimates of the number of options 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.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options
are exercised.
Cash-settled
The cost of cash settled transactions is recognised as an expense over the vesting period measured by reference to the fair value of the corresponding
liability which is recognised on the balance sheet. The liability is remeasured at fair value at each balance sheet date until settlement with changes in fair
value recognised in the income statement.
See Accounting estimates and judgements below for further disclosures on recognition of share based payments.
Dividends
Dividend distributions to shareholders are recognised as a liability in the period in which the dividends are appropriately authorised and approved for
payout and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial
statements.
Leasing agreements
Payments and receipts under operating lease agreements are charged or credited against profit on a straight line basis over the life of the lease.
Accounting estimates and judgements
Management applies the Group’s accounting policies as described above when making critical accounting judgements, of which no individual judgement is
deemed to have a significant impact upon the financial statements, apart from those involving estimations, which are detailed below.
(a) Carrying value of land and work in progress and estimation of costs to complete
The Group holds inventories stated at the lower of cost and net realisable value. Such inventories include land, work in progress and completed units. As
residential development is largely speculative by nature, not all inventories are covered by forward sales contracts. Furthermore due to the nature of the
Group’s activity and, in particular the scale of its developments and the length of the development cycle, the Group has to allocate site-wide development
costs between units being built and/or completed in the current year and those for future years. It also has to forecast the costs to complete on such
developments.
In making such assessments and allocations, there is a degree of inherent estimation uncertainty. The Group has established internal controls designed to
effectively assess and centrally review inventory carrying values and ensure the appropriateness of the estimates made. These assessments and allocations
evolve over the life of the development in line with the risk profile, and accordingly the margin recognised reflects these evolving assessments, particularly in
relation to the Group’s long-term developments.
(b) Provisions
The Group makes assumptions to determine the timing and its best estimate of the quantum of its construction and other liabilities for which provisions are
held.
(c) Revenue recognition
Assumptions are made which complement external certifications to assess whether the building work for properties sold is physically complete and hence
whether the Group’s revenue recognition criteria have been satisfied.
(d) Share-based payments
Assumptions are made in determining the fair value of employee services received in exchange for the grant of options under share-based payment awards
at the date of grant.
2 Segmental disclosure
For the purposes of determining its operating segments, the chief operating decision-maker has been identified as the Executive Committee of the Board.
This committee approves investment decisions, allocates the Group’s resources and reviews the internal reporting in order to assess performance.
The Group has determined that its operating segments are the management teams that report into the Executive Committee of the Board. These
management teams are all engaged in residential-led, mixed-use development in the United Kingdom and, having regard to the aggregation criteria in IFRS
8, the Group has one reportable operating segment.
In addition to its development activities, the Group held certain residential properties for investment purposes. These investment activities represent a
separate segment which is included within other activities as it does not meet the size thresholds to be disclosed as separate reportable segments. Revenue
and operating profit for the year ended 30 April 2016 included £0.2 million and £nil, respectively, on the sale of 1 other investment property. Revenue and
operating profit for the year ended 30 April 2015 included £8.3 million and £1.3 million, respectively, on the sale of 53 other investment properties.
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
2 Segmental disclosure continued
Segment results
Profit before tax
Residential-led mixed-use development
Other activities
2016
£m
530.9
–
530.9
2015
£m
539.4
0.3
539.7
Segment profit before tax represents the profit before tax allocated to each segment. This is the measure reported to the Executive Committee of the
Board for the purpose of resource allocation and assessment of segment performance. Segmental profit before tax on other activities is stated after
charging external and intercompany interest and depreciation.
Segment assets
Assets
Residential-led mixed-use development
Other activities
2016
£m
3,838.4
–
3,838.4
2015
£m
3,406.1
0.2
3,406.3
5 Profit before taxation
Profit before taxation is stated after charging/(crediting) the following amounts:
Staff costs (note 6)
Depreciation of property, plant and equipment (note 10)
(Profit)/loss on sale of fixed assets
Profit on sale of investment properties
Rental income from investment properties
Profit on sale of other investments
Direct operating expense in relation to investment properties including depreciation
Operating lease costs
Fees paid and payable to the Company’s current auditor for the audit of the Parent Company
and consolidated financial statements
Fees paid and payable to the Company’s current auditor for other services:
– Audit of the Company’s subsidiaries
– Audit related assurance services
– Taxation advisory services
2016
£m
287.3
3.1
(0.2)
–
–
(2.8)
–
2.8
0.4
0.1
0.1
0.1
2015
£m
270.3
2.7
0.2
(1.3)
(0.1)
–
0.1
2.6
0.3
0.1
0.1
0.1
For the purpose of monitoring segment performance and allocating resources between segments all assets are considered to be attributable to
residential-led mixed-use development with the exception of investment properties which are held for the Group’s investing activities and have therefore
been allocated to other activities.
3 Disposal of ground rent assets
During the year ended 30 April 2016, the Group sold a portfolio of ground rent assets for consideration of £53.4 million (2015: £99.8 million) and a gross
profit of £51.0 million (2015: £85.1 million). Income and expenses associated with this sale have been recognised in the income statement through revenue
and gross profit in accordance with the Group’s accounting policy for revenue and expenditure.
The value of inventories expensed and included in the cost of sales is £1,264.6 million (2015: £1,325.4 million).
In addition to the above services, the Group’s current auditor has been asked to act as auditor to The Berkeley Final Salary Plan. The appointment of
auditors to the Group’s pension scheme and the fees paid in respect of the audit are agreed by the trustees of the scheme, who act independently of the
management of the Group. The fees paid to the Group’s auditors for audit services to the pension scheme during the year were £10,000 (2015: £10,000).
Fees paid in the year to the Group’s current auditor for audit-related assurance services relate to the interim review and other non-statutory audit services.
6 Directors and employees
Profit before taxation is stated after charging/(crediting) the following amounts:
4 Net finance costs
Finance income
Finance costs:
Interest payable on bank loans and non-utilisation fees
Amortisation of facility fees
Other finance costs
Net finance costs
2016
£m
3.1
(2.8)
(1.0)
(6.8)
(10.6)
(7.5)
2015
£m
3.0
(4.8)
(5.7)
(5.2)
(15.7)
(12.7)
Finance income predominantly represents interest earned on cash deposits.
Amortisation of facility fees in 2015 includes fees expensed in relation to a refinancing of the Group’s revolving credit facilities in 2012, which was superseded
by the refinancing of the facilities in 2015. During 2016, this facility was extended by a further year. See note 25 for further information.
Other finance costs represent imputed interest on taxation and on land purchased on deferred settlement terms.
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Staff costs
Wages and salaries
Social security costs
Share-based payments
Pension costs
2016
£m
194.3
43.9
42.9
6.2
287.3
2015
£m
176.7
32.8
55.5
5.3
270.3
The average monthly number of persons employed by the Group during the year was 2,277 (2015: 2,045).
Key Management compensation
Key management comprises the Main Board, as the Directors are considered to have the authority and responsibility for planning, directing and controlling
the activities of the Group. Details of Directors’ emoluments as included in the Income Statement during the year are as follows:
Directors' remuneration
Amount charged under long term incentive scheme
Company contributions to the defined contribution pension schemes
Payments for loss of office
2016
£m
2.9
33.9
0.1
–
36.9
The Directors’ Remuneration Report includes disclosure of the gains made by Directors on the exercise of share options during the year, which was
£40.6 million in aggregate.
2015
£m
3.8
41.7
0.1
0.5
46.1
119
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
6 Directors and employees continued
During the 2014/2015 financial year, the Company dismissed its finance director, N Simpkin, who issued legal proceedings in an Employment Tribunal
against the Company on the 28 November 2014. On the 20 November 2015 N Simpkin served High Court proceedings on the Company. The proceedings
are being defended by the Company with the assistance of external professional advisers.
Equity-settled share based payments
The Group operates two equity-settled share-based payments schemes. The charge to the income statement in respect of share-based payments in the
year relating to grants of share options awarded under the 2009 Long-Term Incentive Plan and the 2011 Long-Term Incentive Plan was £38.1 million (2015:
£55.5 million). The charge to the income statement attributable to key management is £27.4 million (2015: £33.0 million).
There were no exercisable share options at the end of the year.
2009 Long-Term Incentive Plan
Part B
Part B of the 2009 Long-Term Incentive Plan covers 2,905,000 (2015: 6,830,000) share options with an exercise price of £3.06. The options were
conditional on continued employment at the relevant vesting date and the satisfaction of the underpin condition that Net Assets per Share are at least
£9.00 at 15 April 2016. During the year, 140,000 options lapsed on the departure of employees (2015: 280,000) prior to the shares vesting on 15 April 2016,
leaving 2,765,000 options to vest. In accordance with the scheme, these options became exercisable by the relevant employees on 15 April 2016. As a result,
2,487,121 shares were issuable to the participants, representing 2,765,000 options that vested under 2009 LTIP Part B, less 277,879 of shares equivalent to
the exercise price on vesting of £3.06 per share. The Company elected to enable participants to choose to allow the Company to settle the income tax and
national insurance liabilities of the participants of the Scheme in lieu of issuing shares to them for an equivalent value. This reduced the number of shares
issuable by a further 1,125,026 to 1,362,095 which were issued on 15 April 2016. The share price at the date of vesting was £29.76. As at 30 April 2016 there
were no options outstanding (2015: 2,905,000).
2011 Long-Term Incentive Plan
The Company announced in June 2011 as part of a strategic review of the business a long term plan to return approximately £1.7 billion to shareholders over
the next 10 years. In December 2015, a revision to the plan was proposed to return an additional £0.5 billion to shareholders.
A long term remuneration plan was proposed to support this strategy, the 2011 Long Term Incentive Plan (“2011 LTIP”), which was approved by shareholders
at the Annual General Meeting on 5 September 2011 and the amendment at the Annual General Meeting on 16 February 2016. The key features of the 2011
LTIP are:
– if the Company returns £2.3 billion to shareholders over a ten year period via a series of dividend payments (£16.34 per share) and share buy backs by
the milestone dates referred to below, participants will be entitled to exercise options and receive a number of ordinary shares in the capital of the
Company at the end of each period.
– the maximum number of shares capable of being earned by all participants is 19,616,503 shares, being 13% of the fully diluted share capital of the
Company at the date of approval of the plan. The number of options vesting at each milestone date is detailed on page 88 of the Directors Remuneration
report.
– the exercise price of options granted under the 2011 LTIP will be £16.34 per share less an amount equal to the value of all dividends paid between the date
of approval of the 2011 LTIP and vesting dates, beginning in September 2016 with five annual vestings thereafter, provided the exercise price cannot be
less than zero.
The cumulative distributions required by the plan on or before the relative milestone dates are set out below:
30 September 2016
30 September 2017
30 September 2018
30 September 2019
30 September 2020
30 September 2021
Cumulative distributions
£6.34 per share
£8.34 per share
£10.34 per share
£12.34 per share
£14.34 per share
£16.34 per share
Cash-settled share based payments
Bonus Banking Plan.
Under the Bonus Banking Plan, in the Directors’ Remuneration Report on page 92, 50% of the balance on the plan account at the end of the financial year is
deferred in notional shares in the Company. The notional shares will be settled in cash each year excluding the year ending 30 April 2021 when the scheme
will fully vest and at which point 50% of the remaining balance at that date will be settled in equity, and 50% in cash. Accordingly the plan is accounted for
as cash settled, with only the proportion expected to vest in shares at the end of the plan accounted for as equity settled. This amount is not of significant
quantum to warrant individual disclosure.
The liability has been accrued over the vesting period. The income statement is charged with an estimate for the vesting of notional shares awarded subject
to service and non-market performance conditions. The charge for 2016 was £6.5 million (2015: £8.7 million).
The total carrying amount of liabilities for the Bonus Banking Plan at the end of the year was £5.5 million (2015: £13.1 million).
Senior Management share appreciation rights
Certain key members of senior management have been awarded cash bonuses deferred in notional shares in the Company. The notional shares have a
contractual life of five years after the bonus is allocated, and are settled in cash subject to continued employment by the Company and individual and
divisional performance criteria.
The liability is accrued over the vesting period. The income statement is charged with an estimate for the vesting of notional shares awarded subject to
service and non-market performance conditions. The charge for 2016 was £16.9 million (2015: £13.7 million).
The total carrying amount of liabilities for share appreciation rights at the end of the year was £43.6 million (2015: £26.7 million)
Pensions
During the year, two principal pension schemes were in place for employees. The Berkeley Group plc Group Personal Pension Plan and the St George PLC
Group Personal Pension Plan are defined contribution schemes. The assets of these schemes were held in separate trustee administered funds.
The Berkeley Final Salary Plan is a defined benefit scheme which was closed to future accrual with effect from 1 April 2007.
Defined contribution plan
Contributions amounting to £5.2 million (2015: £4.5 million) were paid into the defined contribution schemes during the year.
Defined benefit plan
As at 30 April 2016, the Group operated one defined benefit pension scheme which was closed to future accrual with effect from 1 April 2007. This is a
separate trustee administered fund holding the pension plan assets to meet long term pension liabilities for some 335 past employees. The level of
retirement benefit is principally based on salary earned in the last three years of employment prior to leaving active service and is linked to changes in
inflation up to retirement.
The Berkeley Final Salary Plan is subject to an independent actuarial valuation at least every three years. The most recently finalised valuation was carried
out as at 1 May 2013 and finalised in December 2013. The method adopted in the 2013 valuation was the projected unit method, which assumed a return on
investment both prior to and after retirement of 4.00% per annum and pension increases of 3.25% per annum. The market value of the Berkeley Final Salary
Plan assets as at 1 May 2013 was £16.2 million and covered 97% of the scheme’s liabilities. Following the finalisation of the 2007 valuation, with effect from 1
July 2008, employer’s required regular contributions were reduced to zero. Following the finalisation of the 2013 valuation, the Group agreed with the
Trustees of the Scheme to make additional contributions to the Scheme of £0.2 million for the remainder of the year (1 December 2013 to 30 April 2015) to
address the Scheme’s deficit after which required contributions were reduced to zero. Notwithstanding this the Group made additional voluntary
contributions of £0.6 million during the year (2015: £0.5 million).
For the purposes of IAS 19, the 2013 valuation was updated for 30 April 2016.
The most significant risks to which the plan exposes the group are:
Inflation risk: A rise in inflation rates will lead to higher plan liabilities as a large proportion of the defined benefit obligation is indexed in line with price
inflation. This effect will be limited due to caps on inflationary increases to protect the plan against extreme inflation.
Interest rate risk: A decrease in corporate bond yields would result in an increase to plan liabilities although this effect would be partially offset by an
increase in the value of the plan’s bond holdings.
Mortality risk: An increase in life expectancy would result in an increase to plan liabilities as a significant proportion of the Pension Schemes’ obligations are
to provide benefits for the life of the member.
The fair value of the options granted during that year, determined using the current market pricing model, was £3.17 for options which then vest on
30 September 2021. The inputs into the current market option pricing model were:
The amounts recognised in the statement of financial position are determined as follows:
Grant date
Vesting date
Share price at grant date (p)
Exercise price (p)
Discount rate
Inputs
5 September 2011
30 September 2021
1,236
nil
6.3%
Present value of defined benefit obligations
Fair value of plan assets
Net surplus
Effect of the asset ceiling
Net amount recognised on the statement of financial position
As a result of the modification during the year, there was an acceleration of the fair value cost of the options, but not an increase in the overall fair value.
The discount rate was determined by calculating the Group’s expected cost of capital over the vesting period at the grant date.
During the year zero options lapsed on the departure of employees (2015: 3,250,000) and there were 954,328 additional options granted during the year
(2015: 975,000). As at 30 April 2016 there were 17,045,831 options outstanding (2015: 16,091,503).
120
2016
£m
(15.9)
18.1
2.2
(2.2)
–
2015
£m
(16.6)
18.1
1.5
(1.5)
–
121
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
Defined Benefit Obligation
Fair Value Plan Assets
Net Defined Benefit Asset
6 Directors and employees continued
Movement in net defined benefit asset:
Balance at 1 May
Included in income statement
Net interest
Included in other comprehensive income
Remeasurements:
Actuarial (loss)/gain arising from:
– demographic assumptions
– financial assumptions
– experience adjustments
Return on plan assets
(excluding interest income)
Other
Contributions by the employer
Benefits paid out
Balance at 30 April
2016
£m
(16.6)
2015
£m
(14.8)
2016
£m
18.1
(0.6)
(0.6)
0.6
–
0.5
0.3
–
–
0.5
(15.9)
–
(1.8)
0.1
–
–
0.5
(16.6)
–
–
–
(0.7)
0.6
(0.5)
18.1
2015
£m
16.0
0.7
–
–
–
1.4
0.5
(0.5)
18.1
Cumulative actuarial gains and losses recognised in equity:
Cumulative amounts of losses recognised in the statement of comprehensive income at 1 May
Net actuarial losses recognised in the year
Change in the effect of the asset ceiling
Cumulative amounts of losses recognised in the statement of comprehensive income at 30 April
The fair value of the assets were as follows:
UK Equities
Global Equities
Emerging Market Equities
Emerging Market Debt
High Yield Bonds
Diversified Growth Fund
Property
Government Bonds (over 15 years)
Government Bonds (5 to 15 years)
Index Linked Gilts (over 5 years)
Corporate Bonds
Cash
Fair value of plan assets
2016
£m
1.5
–
–
0.5
0.3
(0.7)
0.6
–
2.2
2016
£m
(5.6)
0.2
(0.7)
(6.1)
2015
£m
1.2
0.1
–
(1.8)
0.1
1.4
0.5
–
1.5
2015
£m
(5.0)
(0.3)
(0.3)
(5.6)
30 April 2016
Long-term
Value
£m
30 April 2015
Long-term
Value
£m
0.8
3.2
1.2
0.9
0.9
3.3
1.7
1.0
1.8
1.9
1.3
0.1
18.1
0.8
3.1
1.4
0.9
0.9
3.0
1.7
0.9
1.7
1.9
1.3
0.5
18.1
All equity securities and government bonds have quoted prices in active markets. All government bonds are issued by European governments and are
AAA- or AA- rated. All other plan assets are not quoted in an active market.
History of asset values
Fair value of scheme assets
Present value of scheme liabilities
Net surplus in the plan
122
30 April
2016
£m
18.1
(15.9)
2.2
30 April
2015
£m
18.1
(16.6)
1.5
30 April
2014
£m
16.0
(14.8)
1.2
30 April
2013
£m
16.0
(14.6)
1.4
30 April
2012
£m
14.0
(13.3)
0.7
Actuarial assumptions
The major assumptions used by the actuary for the 30 April 2016 valuation were:
Valuation at:
Discount rate
Inflation assumption (RPI)
Inflation assumption (CPI)
Rate of increase in pensions in payment post-97 (Pre-97 receive 3% p.a. increases)
30 April
2016
3.50%
3.00%
2.10%
3.00%
30 April
2015
3.50%
3.30%
2.40%
3.30%
The mortality assumptions are the standard S1PA CMI_2015_X [1.0%] (2015: S1PA CMI_2009_X [1.0%]) base table for males and females, both adjusted for
each individual’s year of birth to allow for future improvements in mortality rates. The life expectancy of male and female pensioners (now aged 65) retiring
at age 65 on the balance sheet date is 22.0 years and 24.3 years respectively (2015: 22.0 and 24.3). The life expectancy of male and female deferred
pensioners (now aged 40) retiring at age 65 after the balance sheet date is 23.7 years and 26.2 years respectively (2015: 23.7 and 26.1).
Sensitivity analysis
The calculation of the defined benefit obligation is sensitive to the assumptions set out above. The following table summarises how the impact on the
defined benefit obligation at the end of the reporting period would have increased as a result of a change in the respective assumptions.
Discount rate
Rate of inflation
Rate of mortality
Change in
Assumption
-0.25% p.a
+0.25% p.a
+1 year
Change in
defined
benefit
obligation
+4.0%
+2.7%
+3.0%
These calculations provide an approximate guide to the sensitivity of results and may not be as accurate as a full valuation carried out on these
assumptions. In practice, changes in some of the assumptions are correlated and so each assumption change is unlikely to occur in isolation, as shown
above.
Funding
The Group expects to pay £0.6 million in contributions to its defined benefit plan in the year ending 30 April 2017 (i.e. the next annual reporting period),
albeit it has no obligation to do so.
7 Taxation
The tax charge for the year is as follows:
Current tax
UK corporation tax payable
Adjustments in respect of previous years
Deferred tax
Tax on items recognised directly in other comprehensive income is as follows:
Deferred tax on remeasurements of the net defined benefit asset/liability (note 18)
Tax on items recognised directly in equity is as follows:
Deferred tax in respect of employee share schemes (note 18)
Current tax in respect of employee share schemes (note 18)
2016
£m
(107.5)
(14.9)
(122.4)
(4.4)
(126.8)
2016
£m
0.1
2016
£m
4.9
(7.0)
(2.1)
2015
£m
(130.2)
4.8
(125.4)
9.2
(116.2)
2015
£m
0.1
2015
£m
13.1
(11.5)
1.6
123
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
7 Taxation continued
The tax charge assessed for the year differs from the standard rate of UK corporation tax of 20% (2015: 20.92%).
The differences are explained below:
Profit before tax
Tax on profit at standard UK corporation tax rate
Effects of:
Expenses not deductible for tax purposes
Tax effect of share of results of joint ventures
Adjustments in respect of previous periods
Effect of change in rate in tax (note 18)
Other
Tax charge
2016
£m
530.9
106.2
0.8
1.9
14.9
1.6
1.4
126.8
2015
£m
539.7
113.2
0.5
0.9
1.9
–
(0.3)
116.2
Corporation tax is calculated at 20% of the estimated assessable profit for the year.
The Group manages its tax affairs in an open and transparent manner with the tax authorities and observes all applicable rules and regulations in the
countries in which it operates. Factors that may affect the Group’s tax charge in future periods include changes in tax legislation and the resolution of open
issues. The Group holds tax provisions in respect of the potential tax liability that may arise on the resolution of open tax issues, however the amount
ultimately payable may be higher or lower than the amount accrued thus reducing or improving the overall profitability and cash flow of the Group in future
periods. The adjustments in respect of previous periods reflects the status of open issues.
Changes to the UK corporation tax rates were substantially enacted as part of the Finance Bill 2015 on 26 October 2015. These include reductions to the
main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using
these enacted tax rates and reflected in these financial statements.
8 Earnings per ordinary share
Basic earnings per ordinary share is calculated as profit for the financial year attributable to shareholders of the Group divided by the weighted average
number of shares in issue during the year.
Profit attributable to shareholders (£m)
Weighted average number of shares (m)
Basic earnings per ordinary share (p)
2016
£m
404.1
136.6
295.8
2015
£m
423.5
135.3
313.0
For diluted earnings per ordinary share, the weighted average number of shares in issue is adjusted to assume the conversion of all potentially dilutive
ordinary shares. At 30 April 2016, the Group had two (2015: three) categories of potentially dilutive ordinary shares: 16.8 million (2015: 16.1 million) share
options under the 2011 LTIP and 5,000 (2015: 0.5 million) share options under the Bonus Banking plan.
2.8 million share options vested on 15 April 2016 under the 2009 LTIP Part B scheme and 1.4 million were issued to participants, with the Company settling
the option price and participants’ tax liability in respect of the balance, in lieu of issuing shares. In 2015, 2.9 million share options vested and were issued on
15 April 2015 under Part B of the 2009 LTIP scheme.
A calculation is done to determine the number of shares that could have been acquired at fair value based on the aggregate of the exercise price of each
share option and the fair value of future services to be supplied to the Group which is the unamortised share-based payments charge. The difference
between the number of shares that could have been acquired at fair value and the total number of options is used in the diluted earnings per share
calculation.
Profit used to determine diluted EPS (£m)
Weighted average number of shares (m)
Adjustments for:
Share options – 2009 LTIP Part B (m)
Share options – 2011 LTIP (m)
Bonus Banking plan shares
Shares used to determine diluted EPS (m)
Diluted earnings per ordinary share (p)
124
2016
£m
404.1
136.6
1.3
12.5
–
150.4
268.7
2015
£m
423.5
135.3
3.5
13.6
0.5
152.9
276.9
9 Intangible assets
Cost
At 1 May 2015 and 30 April 2016
Accumulated impairment
At 1 May 2015 and at 30 April 2016
Net book value
At 1 May 2015 and at 30 April 2016
Cost
At 1 May 2014 and 30 April 2015
Accumulated impairment
At 1 May 2014 and at 30 April 2015
Net book value
At 1 May 2014 and at 30 April 2015
Goodwill
£m
17.2
–
17.2
17.2
–
17.2
The goodwill balance relates solely to the acquisition of the 50% of the ordinary share capital of St James Group Limited, completed on 7 November 2006,
that was not already owned by the Group. The goodwill balance is tested annually for impairment. The recoverable amount has been determined on the
basis of the value in use of the business using the current five year pre-tax forecasts. Key assumptions are as follows:
(i) Cash flows beyond a five year period are not extrapolated;
(ii) A pre-tax discount rate of 10.18% (2015: 12.06%) based on the Group’s weighted average cost of capital.
The Directors have identified no reasonably possible change in a key assumption which would give rise to an impairment charge.
10 Property, plant and equipment and investment property
Property, plant and equipment
Cost
At 1 May 2015
Additions
Disposals
At 30 April 2016
Accumulated Depreciation
At 1 May 2015
Charge for the year
Disposals
At 30 April 2016
Net book value
At 1 May 2015
At 30 April 2016
Freehold
property
£m
Fixtures and
fittings
£m
Motor
vehicles
£m
16.6
2.6
(1.8)
17.4
1.0
0.3
(0.2)
1.1
15.6
16.3
8.7
1.6
(0.3)
10.0
3.8
2.1
(0.3)
5.6
4.9
4.4
4.5
0.7
(0.7)
4.5
1.5
0.7
(0.5)
1.7
3.0
2.8
Total
£m
29.8
4.9
(2.8)
31.9
6.3
3.1
(1.0)
8.4
23.5
23.5
Investment
properties
£m
0.2
–
(0.2)
–
–
–
–
–
0.2
–
125
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
10 Property, plant and equipment and investment property continued
Property, plant and equipment
12 Other investments
Other investments comprise available-for-sale financial assets.
Cost
At 1 May 2014
Additions
Disposals
At 30 April 2015
Accumulated Depreciation
At 1 May 2014
Charge for the year
Disposals
At 30 April 2015
Net book value
At 1 May 2014
At 30 April 2015
Freehold
property
£m
Fixtures and
fittings
£m
Motor
vehicles
£m
16.3
0.3
–
16.6
0.7
0.3
–
1.0
15.6
15.6
6.0
2.9
(0.2)
8.7
2.3
1.7
(0.2)
3.8
3.7
4.9
4.0
1.4
(0.9)
4.5
1.3
0.7
(0.5)
1.5
2.7
3.0
Total
£m
26.3
4.6
(1.1)
29.8
4.3
2.7
(0.7)
6.3
22.0
23.5
Investment
properties
£m
7.5
–
(7.3)
0.2
0.3
–
(0.3)
–
7.2
0.2
The market value of the investment properties held at 30 April 2016 is £nil (30 April 2015: £0.3 million), following the sale of the remaining Investment
properties during the year.
11 Investments
Unlisted shares at cost
Loans
Share of post-acquisition reserves
Elimination of profit on transfer of inventory to joint ventures
Details of the joint ventures are provided in note 27.
The Group’s share of joint ventures’ net assets, income and expenses is made up as follows:
At 1 May
Profit after tax for the year
Dividends from investments
Net increase/(decrease) in loans to joint ventures
At 30 April
2016
£m
11.0
79.1
60.3
(0.4)
150.0
2016
£m
50.1
36.5
–
63.4
150.0
Net increase/(decrease) in loans to joint ventures includes movements in unlisted shares at cost. The current year movement includes a £0.2 million
(2015: £nil) non-cash movement.
The Group’s share of joint ventures’ net assets, income and expenses is made up as follows:
Current assets
Current liabilities
Non-current liabilities
Revenue
Costs
Operating profit
Interest charges
Profit before taxation
Tax charge
Share of post tax profit of joint ventures
126
2016
£m
374.3
(168.4)
(55.9)
150.0
161.6
(124.9)
36.7
–
36.7
(0.2)
36.5
2015
£m
11.0
15.7
23.9
(0.5)
50.1
2015
£m
61.4
28.3
(12.3)
(27.3)
50.1
2015
£m
196.1
(92.4)
(53.6)
50.1
141.5
(111.1)
30.4
(1.9)
28.5
(0.2)
28.3
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A
N
C
E
2016
£m
12.0
–
(10.0)
(2.0)
–
2015
£m
11.0
–
–
1.0
12.0
At 1 May
Additions
Disposals
Fair value adjustment taken through other comprehensive income
At 30 April
I
F
N
A
N
C
A
L
S
I
Other investments comprise available for sale financial assets. These related to the Group’s investment in 100,000 units in a fund into which in 2014 the
Group sold 534 rental properties. In accordance with IFRS 7 ‘Financial Instruments: Disclosures’, these financial assets have been classified as Level 2 within
the fair value hierarchy and were held at £12.0 million at 30 April 2015.
In the year to 30 April 2016, the Group completed the sale of this investment for proceeds of £12.8 million which realised a profit on disposal of £2.8 million
of which £2.0 million had been previously recognised in the Consolidated Statement of Comprehensive Income and has therefore been recycled through
the Consolidated Income Statement within operating expenses in the current period.
Further disclosures relating to financial assets are set out in note 25.
13 Inventories
Land not under development
Work in progress
Completed units
14 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Further disclosures relating to trade receivables are set out in note 25.
15 Cash and cash equivalents
Cash and cash equivalents
16 Trade and other payables
Current
Trade payables
Deposits and on account contract receipts
Loans from joint ventures
Other taxes and social security
Accruals and deferred income
Non-current
Trade payables
Total trade and other payables
2016
£m
384.1
2,853.9
18.1
3,256.1
2016
£m
189.8
14.5
8.0
212.3
2016
£m
107.4
2016
£m
(478.0)
(1,105.8)
(0.1)
(63.2)
(121.5)
2015
£m
342.0
2,280.2
31.9
2,654.1
2015
£m
123.9
13.7
8.0
145.6
2015
£m
430.9
2015
£m
(391.9)
(920.9)
(0.1)
(39.4)
(151.5)
(1,768.6)
(1,503.8)
(90.3)
(1,858.9)
(131.7)
(1,635.5)
All amounts included above are unsecured. The total of £63.2 million (2015: £39.4 million) for other taxes and social security includes £30.5 million
(2015: £24.7 million) for Employer’s National Insurance provision in respect of share-based payments.
Further disclosures relating to current trade and non-current trade payables are set out in note 25.
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17 Provisions for other liabilities and charges
At 1 May 2015
Utilised
Released
Charged to the income statement
At 30 April 2016
At 1 May 2014
Reclassified from accruals
Utilised
Released
Charged to the income statement
At 30 April 2015
Analysis of total provisions:
Non-current
Current
Total
Total
£m
(75.1)
2.0
18.8
(34.2)
(88.5)
Total
£m
(57.1)
(5.9)
4.5
24.5
(41.1)
(75.1)
2015
£m
61.1
14.0
75.1
2016
£m
68.3
20.2
88.5
Provisions for other liabilities and charges primarily relate to provisions for a best estimate of certain post-completion development obligations in respect of
the construction of its portfolio of complex mixed-use developments which are expected to be incurred in the ordinary course of business, based on historic
experience, but which are uncertain in terms of timing and quantum. In addition, the Group holds provisions for litigation, for onerous leases on properties
leased by the Group and for the Group’s exposure to specific estate liabilities on historic sites developed by the Group. These are not individually significant
in terms of quantum to warrant separate disclosure.
128
18 Deferred tax
The movement on the deferred tax account is as follows:
At 1 May 2015
Transfer to corporation tax receivable
(Charged)/credited to the income statement in year
Adjustment in respect of change of tax rate from 20% to 19%/17% (note 7)
Credited/(Charged) to income statement in the year
Credited to equity at 20%
Adjustment in respect of change of tax rate from 20% to 19%/17% (note 7)
Realisation of deferred tax asset on vesting of employee share scheme
Credited to equity in year (note 7)
At 30 April 2016
At 1 May 2014
Transfer to corporation tax receivable
(Charged)/credited to the income statement in year
Credited to equity at 20%
Realisation of deferred tax asset on vesting of employee share scheme
Credited to equity in year (note 7)
At 30 April 2015
Accelerated
capital
allowances
£m
Retirement
benefit
obligations
£m
Short-term
timing
differences
£m
0.4
–
0.4
–
0.4
–
–
–
–
0.8
–
–
–
–
–
0. 1
–
–
0. 1
0.1
72.3
5.6
(3.2)
(1.6)
(4.8)
7.1
(2.2)
(7.0)
(2.1)
71.0
Accelerated
capital
allowances
£m
Retirement
benefit
obligations
£m
Short-term
timing
differences
£m
0.3
–
0.1
–
–
–
0.4
–
–
(0.1)
0.1
–
0.1
–
60.8
0.7
9.2
13.1
(11.5)
1.6
72.3
Deferred tax is calculated in full on temporary differences at the tax rates that are expected to apply for the period when the asset is realised and the
liability is settled using a tax rate of 19/17% as appropriate (2015: 20%). There is no unprovided deferred tax (2015: nil) at the balance sheet date.
All deferred tax assets are available for offset against deferred tax liabilities and hence the net deferred tax asset at 30 April 2016 is £71.9 million
(2015: £72.7 million).
Deferred tax assets of £42.8 million (2015: £49.0 million) are expected to be recovered after more than one year.
The deferred tax credited to equity during the year was as follows:
Deferred tax on remeasurements of the net defined benefit asset/liability (note 7)
Deferred tax in respect of employee share schemes (note 7)
Movement in the year
Cumulative deferred tax credited to equity at 1 May
Cumulative deferred tax credited to equity at 30 April
2016
£m
0.1
(2.1)
(2.0)
28.7
26.7
Total
£m
72.7
5.6
(2.8)
(1.6)
(4.4)
7.2
(2.2)
(7.0)
(2.0)
71.9
Total
£m
61.1
0.7
9.2
13.2
(11.5)
1.7
72.7
2015
£m
0.1
1.6
1.7
27.0
28.7
129
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19 Share capital and share premium
The movements on allotted and fully paid share capital for the Company in the year were as follows:
23 Operating leases – minimum lease payments
The total future aggregate minimum lease payments of the Group under non-cancellable operating leases are set out below:
Issued
At start of year
Issued in year
At end of year
Ordinary shares
Share Capital
Share Premium
2016
No ‘000
2015
No ‘000
136,657
1,600
138,257
135,357
1,300
136,657
2016
£m
6.8
0.1
6.9
2015
£m
6.8
–
6.8
2016
£m
49.6
0.2
49.8
2015
£m
49.3
0.3
49.6
Each ordinary share of 5p is a voting share in the capital of the Company, is entitled to participate in the profits of the Company and on a winding-up is
entitled to participate in the assets of the Company.
On 24 March 2016, 1.6 million ordinary shares (2015: 1.3 million) were allotted and issued to the Employee Benefit Trust.
On 21 April 2016, 1.4 million ordinary shares (2015: 1.3 million) were transferred from the Employee Benefit Trust to Executive Directors and Senior
Management to satisfy the exercise of options under the 2009 Long Term Incentive Plan Part B.
At 30 April 2016 there were 0.3 million shares held in trust (2015: 0.1 million) by the Employee Benefit Trust. The market value of these shares at
30 April 2016 was £10.1 million (2015: £2.5 million).
20 Reserves
The movement in reserves is set out in the Consolidated Statement of Changes in Equity on page 112.
Other reserve
The other reserve of negative £961.3 million (2015: negative £961.3 million) arose from the application of merger accounting principles to the financial
statements on implementation of the capital reorganisation of the Group, incorporating a Scheme of Arrangement, in the year ended 30 April 2005.
Revaluation reserve
The revaluation reserve previously consisted of balances in relation to two separate transactions. Recognition of associated fair value adjustments reduced
both of these balances to £nil in the year to 30 April 2015. No additional reserves arose in the year to 30 April 2016.
The first element arose following the acquisition on 7 November 2006 of the 50% of the ordinary share capital of St James Group Limited not already
owned.
A revaluation reserve of £20.3 million was originally created in accordance with IFRS 3 through fair value adjustments to the 50% of the net assets of St
James Group Limited owned by the Group prior to 7 November 2006. Transfers of £3.9 million in the year to 30 April 2015 out of retained earnings were
recognised as the associated fair value adjustments. At 30 April 2015 the balance in the revaluation reserve relating to the acquisition of St James Group
Limited was £nil.
The second element arose in 2010 following the acquisition on 23 July 2009 of the shares owned by SAAD Investments Company Limited and the
outstanding shareholder loans in five joint ventures which became fully owned subsidiaries from this date. A revaluation reserve of £0.6 million was created
in accordance with IFRS 3 through fair value adjustments to the 50% of the net assets of the joint ventures owned by the Group prior to 23 July 2009.
Transfers of £0.2 million in the year to 30 April 2015 out of retained earnings were recognised as the associated fair value adjustments. At 30 April 2015 the
balance in the revaluation reserve relating to the acquisition of the five entities that were previously joint ventures with SAAD Investments Company Limited
was £nil.
Capital redemption reserve
The capital redemption reserve was created to maintain the capital of the Company following the redemption of the B Shares associated with the Scheme
of Arrangement created in 2004 which completed on 10 September 2009 with the re-designation of the unissued B shares as ordinary shares.
Retained earnings
On 2 July 2015 the Company acquired and transferred to the Company’s Employee Benefit Trust 0.1 million (2015: none) of its own shares through
purchases on the London Stock Exchange at a total cost of £4.8 million (2015: £nil). On 6 July 2015, 0.1 million ordinary shares (2015: nil) were transferred
from the Employee Benefit Trust to Executive Directors to satisfy the exercise of options under the Bonus Banking Plan.
21 Dividends per share
The dividends paid in 2016 were a total of £259.5 million, £136.6 million in January 2016 (100 pence per share) and £122.9 million in September 2015 (90
pence per share) (2015: £243.5 million being £121.75 million in September 2014, 90 pence per share, and £121.75 million in January 2015, 90 pence per share).
A further interim dividend of £137.9 million (100 pence per share) has been declared for payment on 15 September 2016. These financial statements do not
reflect this further interim dividend.
22 Contingent liabilities
Certain companies within the Group have given performance and other trade guarantees on behalf of other members of the Group in the ordinary course
of business. The Group has performance agreements in the ordinary course of business of £15.1 million which are guaranteed by third parties
(2015: £19.5 million). The Group considers that the likelihood of an outflow of cash under these agreements is low and that no provision is required.
130
Amounts due within:
Within one year
Between one and five years
After five years
24 Notes to the consolidated cash flow statement
Reconciliation of profit after taxation for the year to cash generated from operations:
Profit after taxation for the year
Adjustments for:
– Taxation
– Depreciation
– (Profit)/Loss on sale of fixed assets
– (Profit)/Loss on sale of financial assets
– Profit on sale of investment properties
– Finance income
– Finance costs
– Share of results of joint ventures after tax
– Non-cash charge in respect of share-based payments
Changes in working capital:
– Increase in inventories
– (Increase)/decrease in trade and other receivables
– Increase in trade and other payables
– Decrease in employee benefit obligations
Cash generated from operations
Reconciliation of net cash flow to net cash:
Net (decrease)/increase in cash and cash equivalents, including bank overdraft
Net cash outflow from decrease in borrowings
Movement in net cash/(debt) in the year
Opening net cash
Closing net cash
Net cash:
As at 30 April
Cash and cash equivalents
Current borrowings
Net cash
2016
£m
1.8
2.5
1.8
6.1
2016
£m
404.1
126.8
3.1
(0.2)
(2.8)
–
(3.1)
10.6
(36.5)
28.8
(602.0)
(67.8)
233.6
(0.6)
94.0
2016
£m
(323.5)
–
(323.5)
430.9
107.4
2016
£m
107.4
–
107.4
2015
£m
1.6
2.8
1.7
6.1
2015
£m
423.5
116.2
2.7
0.2
–
(1.3)
(3.0)
15.7
(28.3)
2.7
(172.9)
7.6
281.1
(0.6)
643.6
2015
£m
300.7
1.0
301.7
129.2
430.9
2015
£m
430.9
–
430.9
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25 Capital management, financial instruments and financial risk management
The Group finances its operations by a combination of shareholders’ funds, working capital and, where appropriate, borrowings. The Group’s objective when
managing capital is to maintain an appropriate capital structure in the business to allow management to focus on creating sustainable long-term value for
its shareholders, with flexibility to take advantage of opportunities as they arise in the short and medium term. This allows the Group to take advantage of
prevailing market conditions by investing in land and work in progress at the right point in the cycle or delivering returns to shareholders through dividends
or share buy backs. In 2012 the Group put in place a long-term strategic plan to see £13 per share returned to shareholders over the following 10 years. This
plan was revised in December 2015 and the return to shareholders increased to £16.34 per share. This plan, reported in more detail in the Strategic Report
on page 9, ensures there is sufficient working capital retained in the business to continue investing selectively in new land opportunities as they arise.
The Group monitors capital levels principally by monitoring net cash/debt levels, cash flow forecasts and return on average capital employed. The Group
considers capital employed to be net assets adjusted for net cash/debt. Capital employed at 30 April 2016 was £1,705.4 million (2015: £1,207.0 million). The
increase in capital employed in the year of £498.4 million reflects an increase in net assets during the year.
The Group’s financial instruments comprise financial assets being: trade receivables and cash and cash equivalents and financial liabilities being: bank loans,
trade payables, deposits and on account receipts, loans from joint ventures and accruals. Cash and cash equivalents and borrowings are the principal
financial instruments used to finance the business. The other financial instruments highlighted arise in the ordinary course of business.
As all of the operations carried out by the Group are in sterling there is no direct currency risk, and therefore the Group’s main financial risks are primarily:
– liquidity risk – the risk that suitable funding for the Group’s activities may not be available;
– market interest rate risk – the risk that Group financing activities are adversely affected by fluctuation in market interest rates; and
– credit risk – the risk that a counterparty will default on their contractual obligations resulting in a loss to the Group.
Financial instruments: financial assets
The Group’s financial assets can be summarised as follows:
Current
Trade receivables
Cash and cash equivalents
Non-current
Available-for-sale financial assets
Total financial assets
2016
£m
189.8
107.4
297.2
–
–
297.2
2015
£m
123.9
430.9
554.8
12.0
12.0
566.8
Trade receivables and available-for-sale financial assets are non-interest bearing. Of the current trade receivables balance of £189.8 million
(30 April 2015: £123.9 million), £174.7 million (30 April 2015: £119.1 million) was not past due, with £7.5 million being 0–30 days past due
(30 April 2015: £4.8 million, 0–30 days past due).
Cash and cash equivalents are short-term deposits held at either floating rates linked to LIBOR or fixed rates.
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
– Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
– Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is,
derived from prices) (level 2).
– Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the group’s assets that are measured at fair value:
2016
Assets
Available-for-sale financial assets
Total assets
2015
Assets
Available-for-sale financial assets
Total assets
132
Notes
12
Notes
12
Level 1
£m
Level 2
£m
Level 3
£m
–
–
–
–
–
–
Level 1
£m
Level 2
£m
Level 3
£m
–
–
12.0
12.0
–
–
Total
£m
–
–
Total
£m
12.0
12.0
Financial instruments: financial liabilities
The Group’s financial liabilities can be summarised as follows:
Current
Trade payables
Loans from joint ventures
Accruals and deferred income
Non-current
Trade payables
Total financial liabilities
2016
£m
(478.0)
(0.1)
(121.5)
(599.6)
(90.3)
(90.3)
(689.9)
2015
£m
(391.9)
(0.1)
(151.5)
(543.5)
(131.7)
(131.7)
(675.2)
All amounts included above are unsecured.
Current bank loans have term expiry dates within twelve months of the balance sheet date and are held at floating interest rates linked to LIBOR. Trade
payables and other current liabilities are non-interest bearing.
The maturity profile of the Group’s non-current financial liabilities, all of which are held at amortised cost, is as follows:
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2016
£m
(36.6)
(32.2)
(21.5)
(90.3)
2015
£m
(67.4)
(32.3)
(32.0)
(131.7)
The carrying amounts of the Group’s financial assets and financial liabilities approximate to fair value.
Current trade receivables and current trade and other payables approximate to their fair value as the transactions which give rise to these balances arise in
the normal course of trade and, where relevant, with industry standard payment terms and have a short period to maturity (less than one year).
Current trade receivables include £8.1 million relating to amounts owed by St Edward Homes Limited in respect of the inventory sold by the Group in 2009
(Note 26). This is held at its discounted present value (calculated by discounting expected future cash flows at prevailing interest rates and yields as
appropriate). The discount rate applied reflects the nominal, risk-free pre-tax rate at the balance sheet date, applied to the maturity profile. At 30 April 2016
a rate of 0.67% was applied (2015: 0.85%).
Non-current trade payables comprise long-term land payables, which are held at their discounted present value (calculated by discounting expected future
cash flows at prevailing interest rates and yields as appropriate). The discount rate applied reflects the nominal, risk-free pre-tax rate at the balance sheet
date, applied to the maturity profile of the individual land creditors within the total. At 30 April 2016 a rate of 0.67% was applied (2015: 0.85%). Non-current
loans approximate to fair value as they are held at variable market interest rates linked to LIBOR.
Liquidity risk
This is the risk that suitable funding for the Group’s activities may not be available. Group management addresses this risk through review of rolling cash
flow forecasts throughout the year to assess and monitor the current and forecast availability of funding, and to ensure sufficient headroom against facility
limits and compliance with banking covenants. The committed borrowing facilities are set out below.
The contractual undiscounted maturity profile of the Group’s financial liabilities, included at their carrying value in the preceding tables, is as follows:
In less than one year
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2016
£m
2015
£m
(599.6)
(543.5)
(36.9)
(33.0)
(23.3)
(692.8)
(68.0)
(33.0)
(35.0)
(679.5)
Market interest rate risk
The Group’s cash and cash equivalents and bank loans expose the Group to cash flow interest rate risk.
The Group’s rolling cash flow forecasts incorporate appropriate interest assumptions, and management carefully assesses expected activity levels and
associated funding requirements in the prevailing and forecast interest rate environment to ensure that this risk is managed.
If interest rates on the Group’s cash/debt balances had been 50 basis points higher throughout the year ended 30 April 2016, profit after tax for the year
would have been £1,143,000 higher (2015: £1,014,000 higher). This calculation is based on the monthly closing net cash/debt balance throughout the year. A
50 basis point increase in interest rate represents management’s assessment of a reasonably possible change for the year ended 30 April 2016.
133
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25 Capital management, financial instruments and financial risk management continued
Credit risk
The Group’s exposure to credit risk encompasses the financial assets being: trade receivables and cash and cash equivalents.
Trade receivables are spread across a wide number of customers, with no significant concentration of credit risk in one area. There has been no impairment
of trade receivables during the year (2015: £nil), nor are there any material provisions held against trade receivables (2015: £nil), and £7.5 million trade
receivables are past their due date (2015: £4.8 million).
The credit risk on cash and cash equivalents is limited because counterparties are leading international banks with long-term A credit-ratings assigned by
international credit agencies.
Committed borrowing facilities
The Group has committed borrowing facilities as follows:
Available
£m
Drawn
£m
Undrawn
£m
Termination
£m
Available
£m
Drawn
£m
Undrawn
£m
Termination
£m
2016
2015
Revolving credit facility
575
575
–
–
575
575
Mar-21
575
575
–
–
575
575
Mar-20
On 23 March 2016, Berkeley extended its committed corporate banking facilities of £575 million, taking the maturity date of the Group’s facilities from
March 2020 to March 2021.
At 30 April 2016 the total drawn down balance of the facility was £nil (2015: £nil). In addition, at 30 April 2016 there were no bank bonds in issue
(2015: £5.0 million).
The revolving credit facility is secured by debentures provided by certain Group holding companies over their assets. The facility agreement contains
financial covenants, which is normal for such agreements, with all of which the Group is in compliance.
26 Related party transactions
The Group has entered into the following related party transactions:
Transactions with directors
In terms of new transactions in the 2016 financial year:
i) During the financial year, A W Pidgley paid £378,593 (2015: £25,470) and R C Perrins paid £155,167 (2015: £nil) to the Group for works carried out at their
homes under the Group’s own build scheme. This is a scheme whereby eligible employees may enter into an arrangement, at commercial rates, in
accordance with the relevant policies of the Group. There were no balances outstanding at the year end.
ii) Berkeley Homes plc has entered into an agreement with Langham Homes, a company controlled by T K Pidgley who is the son of the Group’s Chairman,
under which Langham Homes will be paid a fee for a land introduction on an arm’s length basis. No payments have been made under this agreement in
the year and there were no outstanding balances at 30 April 2016. In the year ended 30 April 2015, a fee of £173,000 was paid under this agreement
when an associated land purchase became unconditional. Langham Homes continues to introduce land to the Group and in the event that any further
land purchases are agreed, further fees may be payable to Langham Homes in future periods.
iii) K Whiteman, a Director of the Company, contracted to purchase an apartment at Royal Arsenal Riverside for £650,000 on 12 April 2016 from Berkeley
Homes plc, a wholly owned subsidiary of the Company. The contract between Berkeley Homes plc and K Whiteman is a standard form sale and purchase
agreement used by the Company on its developments, save that as K Whiteman’s purchase of his apartment is for a value in excess of £100,000, it is
conditional upon the agreement of shareholders which will be sought at the Annual General Meeting in September 2016. K Whiteman paid a ten per cent
deposit of £65,000 on exchange of contracts which will only be returned to him in the event that shareholders do not approve the transaction.
Director property purchases previously disclosed and not yet completed, which have all received shareholder approval, include:
– G J Fry – purchases of an apartment at Sovereign Court for £819,950 in 2014 and Brewery Wharf for £565,000 in 2015,
– R C Perrins – purchase of an apartment at 190 Strand for £2,100,000 in 2013,
– D Brightmore Armour – purchase of an apartment at 190 Strand for £2,985,000 in 2014 along with a storage room at the property for £101,200 in 2015.
During the year R C Perrins paid a contractual deposit on account of £210,000 and D Brightmore Armour paid contractual deposits on account of
£286,000 for the apartment and £10,120 for the storage room. These were in addition to contractual deposits paid in previous years. During the year,
G J Fry paid an additional £17,043 for enhancements to specification in relation to his apartment at Sovereign Court and £23,770 for enhancements to
specification in an apartment already owned at Chelsea Creek. At 30 April 2016, any contractual deposits due to date had been paid to the Group, there
were no current balances outstanding and the properties were still under construction and so the sales had not yet completed.
Transactions with joint ventures
During the financial year there were no transactions with joint ventures other than movements in loans. In 2009 inventory was sold to St Edward Homes
Limited for £17,411,000 being the share of the transaction attributable to the other venturer in the joint venture. At 30 April 2016 an amount of £8,091,000
was outstanding and included within trade receivables (2015: £14,449,000).
27 Subsidiaries and joint ventures
(a) Subsidiaries
At 30 April 2016 the Company had the following subsidiary undertakings which have all been consolidated, are registered and operate in England and
Wales, are all 100% owned and for which 100% of voting rights are held except where stated:
Residential led mixed-use development and ancillary activities
Ancestral Homes Limited
Battersea Reach Estate Company Limited
Berkeley (Canalside) Limited
Berkeley (Inner City Partnerships) Limited
Berkeley (SQP) Limited
Berkeley (Virginia Water) Limited
Berkeley Affordable Homes Limited
Berkeley Asset MSA Limited
Berkeley Build Limited
Berkeley College Homes Limited
Berkeley Forty-Two Limited
Berkeley Fourteen Limited
Berkeley Group Pension Trustees Limited
Berkeley Group Services Limited
Berkeley Group SIP Trustee Limited
Berkeley Guarantee One Limited
Berkeley Homes (Barn Elms) Limited
Berkeley Homes (Capital) PLC
Berkeley Homes (Carmelite) Limited
Berkeley Homes (Central & West London) Plc
Berkeley Commercial Developments Limited
Berkeley Homes (Central London) Limited
Berkeley Commercial Investments Limited
Berkeley Commercial Limited
Berkeley Community Villages Limited
Berkeley Construction Limited
Berkeley Developments Limited
Berkeley Eighteen Limited
Berkeley Eighty Limited
Berkeley Eighty-Nine Limited
Berkeley Eighty-One Limited
Berkeley Eighty-Three Limited
Berkeley Eighty-Two Limited
Berkeley Enterprises Limited
Berkeley Festival Development Limited
Berkeley Festival Hotels Limited
Berkeley Festival Investments Limited
Berkeley Festival Limited
Berkeley Fifty Limited
Berkeley Fifty-Eight Limited
Berkeley Fifty-Five Limited
Berkeley Fifty-Four Limited
Berkeley Fifty-Nine Limited
Berkeley Fifty-One Limited
Berkeley Fifty-Seven Limited
Berkeley Fifty-Three Limited
Berkeley Fifty-Two Limited
Berkeley First Limited
Berkeley Five Limited
Berkeley Forty Limited
Berkeley Forty-Eight Limited
Berkeley Forty-Five Limited
Berkeley Forty-Four plc
Berkeley Forty-Nine Limited
Berkeley Forty-Seven Limited
Berkeley Forty-Six Limited
Berkeley Forty-Three Limited
Berkeley Homes (Chertsey) Limited
Berkeley Homes (Chiltern) Limited
Berkeley Homes (City & East London) Limited
Berkeley Homes (City) Limited
Berkeley Homes (Dorset) Limited
Berkeley Homes (East Anglia) Limited
Berkeley Homes (East Kent) Limited
Berkeley Homes (East London) Limited
Berkeley Homes (East Thames) Limited
Berkeley Homes (Eastern Counties) Limited
Berkeley Homes (Eastern) Limited
Berkeley Homes (Essex) Limited
Berkeley Homes (Festival Waterfront Company) Limited
Berkeley Homes (Fleet) Limited
Berkeley Homes (Greater London) Limited
Berkeley Homes (Hampshire) Limited
Berkeley Homes (Hertfordshire & Cambridgeshire) Limited
Berkeley Homes (Home Counties) plc
Berkeley Homes (Kent) Limited
Berkeley Homes (North East London) Limited
Berkeley Homes (North Western) Limited
Berkeley Homes (Oxford & Chiltern) Limited
Berkeley Homes (PCL) Limited
Berkeley Homes (South East London) Limited
Berkeley Homes (South London) Limited
Berkeley Homes (South Western House No.1) Limited
Berkeley Homes (South) Limited
Berkeley Homes (Southern) Limited
Berkeley Homes (Stanmore) Limited
Berkeley Homes (Surrey) Limited
Berkeley Homes (Thames Gateway) Limited
Berkeley Homes (Thames Valley) Limited
Berkeley Homes (Three Valleys) Limited
Berkeley Homes (Urban Developments) Limited
Berkeley Homes (Urban Living) Limited
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
27 Subsidiaries and joint ventures continued
Residential led mixed-use development and ancillary activities
Berkeley Homes (Urban Renaissance) Limited
Berkeley One Hundred and Forty Three Limited
Berkeley Homes (West London) Limited (1)
Berkeley Homes (Western) Limited (1)
Berkeley Homes Group Limited
Berkeley Homes plc
Berkeley London Residential Limited
Berkeley Manhattan Limited
Berkeley Ninety Limited
Berkeley Ninety-Eight Limited
Berkeley Ninety-Five Limited
Berkeley Ninety-Four Limited
Berkeley Ninety-Nine Limited
Berkeley Ninety-One Limited
Berkeley Ninety-Seven Limited
Berkeley Ninety-Six Limited
Berkeley Ninety-Three Limited
Berkeley Number Four Limited
Berkeley Number Seven Limited
Berkeley Number Six Limited
Berkeley One Hundred and Four Limited
Berkeley One Hundred and Nine Limited
Berkeley One Hundred and Ninety Eight Limited
Berkeley One Hundred and Ninety Five Limited
Berkeley One Hundred and Ninety Four Limited
Berkeley One Hundred and Ninety Limited
Berkeley One Hundred and Ninety Nine Limited
Berkeley One Hundred and Ninety One Limited
Berkeley One Hundred and Ninety Seven Limited
Berkeley One Hundred and Ninety Six Limited
Berkeley One Hundred and Ninety Three Limited
Berkeley One Hundred and Ninety Two Limited
Berkeley One Hundred and One Limited
Berkeley One Hundred and Seven Limited
Berkeley One Hundred and Seventeen Limited
Berkeley One Hundred and Seventy Eight Limited
Berkeley One Hundred and Seventy Five Limited
Berkeley One Hundred and Seventy Four Limited
Berkeley One Hundred and Eight Limited
Berkeley One Hundred and Seventy Limited
Berkeley One Hundred and Eighteen Limited
Berkeley One Hundred and Seventy Nine Limited
Berkeley One Hundred and Eighty Eight Limited
Berkeley One Hundred and Seventy One Limited
Berkeley One Hundred and Eighty Five Limited
Berkeley One Hundred and Seventy Seven Limited
Berkeley One Hundred and Eighty Limited
Berkeley One Hundred and Seventy Six Limited
Berkeley One Hundred and Eighty Nine Limited
Berkeley One Hundred and Seventy Three Limited
Berkeley One Hundred and Eighty One Limited
Berkeley One Hundred and Seventy Two Limited
Berkeley One Hundred and Eighty Seven Limited
Berkeley One Hundred and Six Limited
Berkeley One Hundred and Eighty Three Limited
Berkeley One Hundred and Sixteen Limited
Berkeley One Hundred and Eighty Two Limited
Berkeley One Hundred and Sixty Five Limited
Berkeley One Hundred and Fifteen Limited
Berkeley One Hundred and Sixty Four Limited
Berkeley One Hundred and Fifty Eight Limited
Berkeley One Hundred and Sixty One Limited
Berkeley One Hundred and Fifty Five Limited
Berkeley One Hundred and Sixty Six Limited
Berkeley One Hundred and Fifty Four Limited
Berkeley One Hundred and Sixty Three Limited
Berkeley One Hundred and Fifty Limited
Berkeley One Hundred and Sixty Two Limited
Berkeley One Hundred and Fifty Nine Limited
Berkeley One Hundred and Thirteen Limited
Berkeley One Hundred and Fifty One Limited
Berkeley One Hundred and Thirty Eight Limited
Berkeley One Hundred and Fifty Seven Limited
Berkeley One Hundred and Thirty Five Limited
Berkeley One Hundred and Fifty Six Limited
Berkeley One Hundred and Thirty Four Limited
Berkeley One Hundred and Fifty Three Limited
Berkeley One Hundred and Thirty Limited
Berkeley One Hundred and Fifty Two Limited
Berkeley One Hundred and Thirty Nine Limited
Berkeley One Hundred and Five Limited
Berkeley One Hundred and Thirty One Limited
Berkeley One Hundred and Forty Eight Limited
Berkeley One Hundred and Thirty Seven Limited
Berkeley One Hundred and Forty Five Limited
Berkeley One Hundred and Thirty Six Limited
Berkeley One Hundred and Forty Four Limited
Berkeley One Hundred and Thirty Three Limited
Berkeley One Hundred and Forty Limited
Berkeley One Hundred and Thirty Two Limited
Berkeley One Hundred and Forty Nine Limited
Berkeley One Hundred and Three Limited
Berkeley One Hundred and Forty One Limited
Berkeley One Hundred and Twenty Eight Limited
Berkeley One Hundred and Forty Seven Limited
Berkeley One Hundred and Twenty Five Limited
Berkeley One Hundred and Forty Six Limited
Berkeley One Hundred and Twenty Four Limited
Residential led mixed-use development and ancillary activities
Berkeley One Hundred and Twenty Limited
Berkeley Two Hundred and Six Limited
Berkeley One Hundred and Twenty Nine Limited
Berkeley Two Hundred and Three Limited
Berkeley One Hundred and Twenty One Limited
Berkeley Two Hundred and Two Limited
Berkeley One Hundred and Twenty Seven Limited
Berkeley Two Hundred Limited
Berkeley One Hundred and Twenty Six Limited
Berkeley Urban Renaissance Limited
Berkeley One Hundred and Twenty Three Limited
Berkeley One Hundred and Twenty Two Limited
Berkeley One Hundred and Two Limited
Berkeley One Hundred Limited
Berkeley Partnership Homes Limited
Berkeley Portsmouth Harbour Limited
Berkeley Portsmouth Waterfront Limited
Berkeley Properties Limited
Berkeley Residential Limited
Berkeley Ryewood Limited
Berkeley Seven Limited
Berkeley Seventy Limited
Berkeley Seventy-Four Limited
Berkeley Seventy-Nine Limited
Berkeley Seventy-One PLC
Berkeley Seventy-Seven Limited
Berkeley Seventy-Six Limited
Berkeley Seventy-Three Limited
Berkeley Seventy-Two Limited
Berkeley Sixty Four Limited
Berkeley Sixty Limited
Berkeley Sixty-Eight Limited
Berkeley Sixty-Five Limited
Berkeley Sixty-Nine Limited
Berkeley Sixty-One Limited
Berkeley Sixty-Six Limited
Berkeley Special Projects Limited
Berkeley STE Limited
Berkeley Strategic Land Limited
Berkeley Sustainable Communities Limited
Berkeley SW Management Limited
Berkeley Thirty-Eight Limited
Berkeley Thirty-Nine Limited
Berkeley Thirty-Three Limited
Berkeley Three Limited
Berkeley Twenty Limited
Berkeley Twenty-Eight Limited
Berkeley Twenty-Four Limited
Berkeley Twenty-Nine Limited
Berkeley Twenty-Seven Limited
Berkeley Twenty-Three Limited
Berkeley Twenty-Two Limited
Berkeley Two Hundred and Five Limited
Berkeley Two Hundred and Four Limited
Berkeley Two Hundred and One Limited
Berkeley Ventures Limited
BH (City Forum) Limited
Boardcable Limited
Bromyard House (Car Park) Limited
Bromyard House (Freehold) Limited
Bromyard House (North) Limited
Bromyard House Limited
BWW Management Limited
Castle Court Putney Wharf Limited
Charco 143 Limited
Chelsea Bridge Wharf (Block A) Limited
Chelsea Bridge Wharf (Block B) Limited
Chelsea Bridge Wharf (Block P) Limited
Chelsea Bridge Wharf (C North) Limited
Chelsea Bridge Wharf (C South) Limited
Chelsea Bridge Wharf (Management Company) Limited
Chelsea Bridge Wharf Car Park Limited
Clare Homes Limited
Community Housing Action Limited
Community Villages Limited
CPWGCO 1 Limited
Drummond Road (Number 1) Limited
Drummond Road (Number 2) Limited
Ely Business Park Limited
Exchange Place No 2 Limited
Fishguard Bridge Limited
Fishguard Tunnel Limited
Great Woodcote Park Management Limited
Hertfordshire Homes Limited
Historic Homes Limited
Imperial Wharf (Block C) Limited
Imperial Wharf (Block J) Limited
Imperial Wharf (Riverside Tower) Residential Limited
Kensington Westside No 2 Limited
Lisa Estates (St Albans) Limited
One Tower Bridge Limited
PEL Investments Limited
Putney Wharf Estate Limited
Quod Erat Demonstrandum Properties Limited
Retirement Homes Limited
Riverside West (Block C) Commercial Limited
Riverside West (Block C) Residential Limited
Riverside West (Block D) Commercial Limited
Riverside West (Block D) Residential Limited
Riverside West Car Park Limited
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE CON SO LIDATE D
F INANCIAL STATEMEN TS
CONT INUED
27 Subsidiaries and joint ventures continued
Residential led mixed-use development and ancillary activities
Royal Clarence Yard (Marina) Limited
Royal Clarence Yard (Phase A) Limited
Royal Clarence Yard (Phase B) Limited
Royal Clarence Yard (Phase C) Limited
Royal Clarence Yard (Phase E) Limited
St George Wharf (Block D) Commercial Limited
St George Wharf Car Park Limited
St George Wharf Hotel Limited
St George's Hill Property Co Limited
St James (West London) Limited
Royal Clarence Yard (Phase G) Management Co Limited
St James Group Limited
Royal Clarence Yard (Phase H) Limited
Royal Clarence Yard (Phase I) Limited
St James Homes Grosvenor Dock Limited
St James Homes Limited
Royal Clarence Yard (Phase K) Management Co Limited
St John Homes Limited
Royal Clarence Yard Estate Limited
Sandgates Developments Limited
Sitesecure Limited
SJC (Highgate) Limited
St Edward Homes Number Five Limited
St Edward Homes Number Four Limited
St Edward Homes Number One Limited
St Edward Homes Number Three Limited
St Edward Homes Number Two Limited
St Edward Limited
St George (Crawford Street) Limited
St George (Queenstown Place) Limited
St George Blackfriars Limited
St George Central London Limited (2)
St George City Limited (2)
St George Commercial Limited
St George Developments Limited
St George Eastern Limited
St George Kings Cross Limited
St George London Limited
St George North London Limited (2)
St George Partnerships Limited
St George plc
Stanmore Relocations Limited
Tabard Square (Building A) Limited
Tabard Square (Building B) Limited
Tabard Square (Building C) Limited
Tabard Square (Car Park) Limited
TBG (1) 2009 Limited
TBG (3) 2009 Limited
TBG (4) Limited
TBG (5) LLP
The Berkeley Festival Waterfront Company Limited
The Berkeley Group plc
The Millennium Festival Leisure Company Limited
The Oxford Gateway Development Co Limited
The Tower, One St George Wharf Limited
Thirlstone (JLP) Limited
Thirlstone Commercial Limited
Thirlstone Homes (Western) Limited
Thirlstone Homes Limited
Thirlstone plc
Woodside Road Limited
Berkeley Two Hundred and Eight Limited
Berkeley Homes (Holdings) Limited
Berkeley Two Hundred and Eleven Limited
St George Project Management Limited
Berkeley Two Hundred and fourteen Limited
St George Properties Limited
St George Real Estate Limited
St George Regeneration Limited
Berkeley Two Hundred and Nine Limited
Berkeley Two Hundred and Seven Limited
Berkeley Two Hundred and Ten Limited
St George South and Central London Limited
Berkeley Two Hundred and Thirteen Limited
St George South London Limited (2)
St George Southern Limited
St George West London Limited (2)
St George Western Limited
St George Wharf (Block B) Limited
(1) Agency companies of Berkeley Homes plc
(2) Agency companies of St George PLC
(3) Agency companies of St James Group Limited
Berkeley Two Hundred and Twelve Limited
Kentdean Limited
St George Inner Cities Ltd
St George Investments ltd
St George Wharf (Block C) Limited
(4) The Berkeley Group plc is the only direct subsidiary of the Parent Company and is an intermediate holding company
Other activities
BRP Investments No.1 Limited (Jersey)
BRP Investments No.2 Limited (Jersey)
Berkeley (Hong Kong) Limited (Hong Kong)
Berkeley Carnwath Road Limited (Isle of Man)
St George Battersea Reach Limited (Jersey)
Berkeley Commercial Investment Properties Limited (Jersey)
TBG (Jersey) 2009 Limited (Jersey)
Aragon (Investments) Limited (Jersey)
Berkeley Residential (Singapore) Limited (Singapore)
Real Star Investments Limited (3) (Jersey)
Berkeley Investments (IOM) Limited (Isle of Man)
Berkeley Whitehart Investments Limited (Jersey)
Berkeley Homes Special Contracts plc (Scotland)
Comiston Properties Ltd (Bahamas)
Berkeley Property Investments Limited (Jersey)
The brackets following company names above denote place of registration.
(b) Joint Ventures
At 30 April 2016 the Group had an interest in the following joint ventures which have been equity accounted to 30 April, have an accounting date of
30 April otherwise indicated and are registered and operate in England and Wales and which are 50% owned:
St Edward Homes Limited
St Edward Homes Partnership
The St Edward (Strand) Partnership
St William Homes LLP*
Berkeley Carlton Holdings Limited
Berkeley Sutton Limited
Community Housing Initiatives Limited**
SEH Manager Limited
SEH Nominee Limited
SES Manager Limited
SES Nominee Limited
Thirlstone Centros Miller Limited
UB Developments Limited
Diniwe One Limited
Diniwe Two Limited
St Katherine Homes LLP
St Edward Home Partnership Freeholds
St Edward (Strand) Partnership Freeholds
One Tower Bridge Partnership
St George Little Britain (No 1) Limited
St George Little Britain (No 2) Limited
Strand Property Unit Trust
Berkeley Breamore (Oceana) Limited
STKM Limited
* Accounting date of 31 March
** Accounting date of 31 December
Principal activity
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
Residential-led mixed-use development
138
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
COMPANY B ALAN CE SHEET
COM PAN Y STATEM EN T OF
CHANG ES IN EQUITY
As at 30 April
Fixed assets
Investments
Current assets
Debtors
Cash at bank and in hand
Current liabilities
Creditors (amounts falling due within one year)
Net current liabilities
Total assets less current liabilities and net assets
Capital and reserves
Called-up share capital
Share premium account
Capital redemption reserve
Profit and loss account
Total shareholders’ funds
Notes
C5
C6
C7
C8
2016
£m
1,412.7
1,412.7
26.8
0.9
27.7
(634.0)
(606.3)
806.4
6.9
49.8
24.5
725.2
806.4
2015
£m
1,400.6
1,400.6
21.4
0.9
22.3
(618.2)
(595.9)
804.7
6.8
49.6
24.5
723.8
804.7
The financial statements on pages 140 to 145 were approved by the board of directors on 21 June 2016 and were signed on its behalf by:
R J Stearn
Finance Director
Share
capital
£m
Notes
At 1 May 2015
Profit after taxation for the year
Issue of ordinary shares
Purchase of ordinary shares
Transactions with shareholders:
Credit in respect of employee share schemes
Deferred tax in respect of employee share
schemes
Dividends to equity holders of the Company
C8
C6
C9
6.8
–
0.1
–
–
–
–
Share
premium
£m
49.6
–
0.2
–
–
–
–
Capital
redemption
reserve
£m
24.5
–
–
–
–
–
–
At 30 April 2016
6.9
49.8
24.5
At 1 May 2014
Re-measurement of deferred tax on employee
share schemes
At 1 May 2014
Profit after taxation for the year
Issue of ordinary shares
Transactions with shareholders:
Credit in respect of employee share schemes
Deferred tax in respect of employee share
schemes
Dividends to equity holders of the Company
Notes
C6
C8
C6
C9
Share
capital
£m
6.8
–
6.8
–
–
–
–
–
Share
premium
£m
Capital
redemption
reserve
£m
49.3
–
49.3
–
0.3
–
–
–
24.5
–
24.5
–
–
–
–
–
At 30 April 2015
6.8
49.6
24.5
Retained
earnings
£m
723.8
229.5
–
(1.2)
Total
£m
804.7
229.5
0.3
(1.2)
28.8
28.8
3.8
(259.5)
725.2
3.8
(259.5)
806.4
Retained
earnings
£m
700.4
13.6
714.0
249.3
–
2.7
1.3
(243.5)
723.8
Total
£m
781.0
13.6
794.6
249.3
0.3
2.7
1.3
(243.5)
804.7
140
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
In these financial statements, the company has applied the exemptions available under FRS 101 in respect of the following disclosures:
Auditors’ remuneration – audit fees
NOTES TO THE COMPAN Y
F INANCI AL STATEMENTS
C1 Accounting policies
Basis of preparation
These financial statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework (“FRS 101”).
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International Financial
Reporting Standards as adopted by the EU (“Adopted IFRSs”), but makes amendments where necessary in order to comply with Companies Act 2006 and,
as set out below, where advantage of FRS 101 reduced disclosure exemptions has been taken.
In the transition to FRS 101, the Company has applied IFRS 1 whilst ensuring that its assets and liabilities are measured in compliance with FRS 101. An
explanation of how the transition to FRS 101 has affected the reported financial position of the Company is provided in note C6.
The accounting policies adopted for the Parent Company, The Berkeley Group Holdings plc, are otherwise consistent with those used for the Group which
are set out on pages 114 to 117.
– Cash Flow Statement and related notes;
– Comparative period reconciliations for share capital and intangible assets;
– Disclosures in respect of transactions with wholly owned subsidiaries;
– Disclosures in respect of capital management;
– The effects of new but not yet effective IFRSs;
– An additional balance sheet for the beginning of the earliest comparative period following the retrospective change in accounting policy; and
– Disclosures in respect of the compensation of Key Management Personnel.
The principal activity of The Berkeley Group Holdings plc (“the Company”) is to act as a holding company.
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006.
Going concern
The Group’s business activities together with the factors likely to affect its future development performance and position are set out in the Strategic Report.
The financial position of the Group, its cash flows, liquidity position and borrowing facilities are all described in the Trading and Financial Review on pages
66 to 69.
The Group has significant financial resources and the Directors have assessed the future funding requirements of the Group, including the return of
£2.2 billion to shareholders by 2021, and compared this to the level of committed loan facilities and cash resources over the medium term. In making this
assessment consideration has been given to the uncertainty inherent in future financial forecasts and where applicable reasonable sensitivities have been
applied to the key factors affecting the financial performance of the Group.
Based on the financial performance of the Group, the Directors have a reasonable expectation that the Company has adequate resources to continue its
operational existence for the foreseeable future, notwithstanding its net current liability position of £606.3 million (30 April 2015: £595.9 million). For this
reason they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Expenditure
Expenditure is recognised in respect of goods and services received when supplied in accordance with contractual terms. Provision is made when an
obligation exists for a future liability in respect of a past event and where the amount of the obligation can be reliably estimated.
Pensions
Pension contributions under defined contribution schemes are charged to the income statement as they fall due.
Investments
Investments in subsidiary undertakings are included in the balance sheet at cost less provision for any impairment.
Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events
that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date.
A net deferred tax asset is recognised as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more
likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying
timing differences can be deducted.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based
on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on an undiscounted basis.
Share-based payments
The Company operates two equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of
the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options
granted.
At each balance sheet date, the Company revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision
to original estimates, if any, in the profit and loss account, with a corresponding adjustment to equity. Amounts recognised in respect of executive directors
of the Company’s subsidiaries are recognised as an addition to cost of Investment.
The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options
are exercised.
C1 Accounting policies continued
Dividends
Dividend distributions to shareholders are recognised as a liability in the period in which the dividends are appropriately authorised and approved for
payout and are no longer at the discretion of the Company. Unpaid dividends that do not meet these criteria are disclosed in the notes to the financial
statements.
C2 Profit/(loss) on ordinary activities before taxation
Profit/(loss) on ordinary activities before taxation is stated after charging the following amounts:
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£m
0.1
2016
£m
7.3
14.0
21.7
43.0
2015
£m
0.1
2015
£m
12.9
7.6
19.2
39.7
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No disclosure of other non-audit services has been made as this is included within note 5 of the consolidated financial statements.
C3 Directors and employees
Staff costs
Wages and salaries
Social security costs
Share-based payments
The average monthly number of persons employed by the company during the year was 10, all of whom are Directors (2015: 10).
Directors
Details of Directors’ emoluments are set out in the Remuneration Report on pages 80 to 98.
Pensions
During the year, the Company participated in one of the Group’s pension schemes, The Berkeley Group plc Group Personal Pension Plan. Further details on
this scheme are set out in note 6 of the Consolidated Financial Statements. Contributions amounting to £57,623 (2015: £49,650) were paid into the defined
contribution scheme during the year.
Share-based payments
The charge to the income statement in respect of share-based payments in the year, relating to grants of shares; share options and notional shares awarded
under the 2009 Long-Term Incentive Plan and the 2011 Long-Term Incentive Plan was £21.7 million (2015: £19.2 million). Further information on the
Company’s share incentive schemes are included in the Remuneration Report on pages 80 to 98 as well as note 6 to the Consolidated Financial Statements.
C4 The Berkeley Group Holdings plc profit and loss account
The profit for the year in the Company is £229.5 million (2015: profit of £249.3 million).
C5 Investments
Investments in shares of subsidiary undertaking at cost at 1 May
Additions
Investment in shares of subsidiary undertaking at cost at 30 April
2016
£m
1,400.6
12.1
1,412.7
2015
£m
1,397.0
3.6
1,400.6
Additions in the year relate to company contributions to The Berkeley Group plc for employee services to be settled through the issue of shares on the
vesting of the Berkeley Group Holdings plc 2009 Part (b) and 2011 Long Term Incentive Plan awards for the benefit of executive directors of its subsidiaries.
The directors believe that the carrying value of the investments is supported by their underlying net assets.
Details of subsidiaries are given within note 27 of the Consolidated Financial Statements.
142
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
NOTES TO THE COMPAN Y
F INANCI AL STATEMENTS
CONT INUED
C6 Debtors
Current
Deferred tax
The movements on the deferred tax asset are as follows:
At 1 May
Remeasurement of deferred tax on employee share schemes
At 1 May
Deferred tax in respect of employee share schemes credited to reserves
Realisation of deferred tax asset on vesting of employee share scheme
At 30 April
2016
£m
26.8
2016
£m
6.5
14.9
21.4
8.1
(2.7)
26.8
2015
£m
21.4
2015
£m
6.0
13.6
19.6
3.1
(1.3)
21.4
C8 Called-up share capital continued
On 24 March 2016, 1.6 million ordinary shares (2015: 1.3 million) were allotted and issued to the Employee Benefit Trust.
On 21 April 2016, 1.4 million ordinary shares (2015: 1.3 million) were transferred from the Employee Benefit Trust to Executive Directors to satisfy the exercise
of options under the 2009 Long Term Incentive Plan Part B.
At 30 April 2016 there were 0.3m shares held in trust (2015: 0.1m). The market value of these shares at 30 April 2016 was £10.1 million (2015: £2.5 million).
The movements in the year are disclosed in note 19 and note 20 of the Consolidated Financial Statements.
C9 Dividends per share
The dividends paid in 2016 were a total of £259.5 million, £136.6 million in January 2016 (100 pence per share) and £122.9 million in September 2015 (90
pence per share) (2015: £243.5 million being £121.75 million in September 2014, 90 pence per share, and £121.75 million in January 2015, 90 pence per share).
A further interim dividend of £137.9 million (100 pence per share) has been declared for payment on 15 September 2016. These financial statements do not
reflect this further interim dividend.
C10 Related party transactions
The Company has not undertaken related party transactions during the year with entities that are not wholly owned subsidiaries of The Berkeley Group
Holdings plc. Transactions with wholly owned members of The Berkeley Group Holdings plc are exempt under FRS 101 with reduced disclosure.
Deferred tax is calculated in full on temporary differences at the tax rates that are expected to apply for the period when the asset is realised and the
liability is settled using a tax rate of 19/17% as appropriate (2015: 20%). Accordingly, all temporary differences have been calculated. There is no unprovided
deferred tax (2015: nil) at the balance sheet date.
The deferred tax asset of £26.8 million relates to short-term timing differences (2015: £6.5 million).
On transition to FRS 101 deferred tax has been remeasured in relation to employee share scheme awards on the temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Accordingly deferred tax assets and retained earnings at the opening balance sheet date of 1 May 2014 have increased by £13.6 million, from £6.0 million to
£19.6 million and from £700.4 million to £714.0 million respectively. Deferred tax assets and retained earnings at the current year opening balance sheet date
of 1 May 2015 have increased by £14.9 million, from £6.5 million to £21.4 million and from £708.9 million to £723.8 million respectively.
C7 Creditors: amounts falling due within one year
Amounts owed to subsidiary undertakings
Other taxation and social security
2016
£m
(609.7)
(24.3)
(634.0)
2015
£m
(610.1)
(8.1)
(618.2)
All amounts included above are unsecured. The interest rate on £649.9 million (2015: £624.9 million) of the balance owed to subsidiary undertakings is 4.0%
(2015: 4.0%), with no fixed repayment date. At 30 April 2016 all other amounts owed to subsidiary undertakings are at floating rates linked to LIBOR and
have no fixed repayment date.
C8 Called-up share capital
Each ordinary share of 5p is a voting share in the capital of the Company, is entitled to participate in the profits of the Company and on a winding-up is
entitled to participate in the assets of the Company.
The movements on allotted and fully paid share capital for the Company in the year were as follows:
Issued
At start of year
Issued in year
At end of year
Ordinary shares
Share Capital
Share Premium
2016
No ‘000
2015
No ‘000
136,657
1,600
138,257
135,357
1,300
136,657
2016
£m
6.8
0.1
6.9
2015
£m
6.8
–
6.8
2016
£m
49.6
0.2
49.8
2015
£m
49.3
0.3
49.6
On 2 July 2015 the Company acquired and transferred to the Company’s Employee Benefit Trust 0.1 million (2015: none) of its own shares through
purchases on the London Stock Exchange at a total cost of £4.8 million (£nil). On 6 July 2015, 0.1 million ordinary shares (2015: nil) were transferred from the
Employee Benefit Trust to Executive Directors to satisfy the exercise of options under the Bonus Banking Plan.
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6 September 2016
31 October 2016
2 December 2016
March 2017
30 April 2017
June 2017
August 2017
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BERKELEY ANNUAL REPORT 2016 / FINANCIALS
BERKELEY ANNUAL REPORT 2016 / FINANCIALS
F IVE YEAR SUMMA RY
FINAN CIA L
D IARY
Years ended 30 April
Income statement
Revenue from operations
Operating profit
Share of results of joint ventures
Net finance (costs)/income
Profit before taxation
Taxation
Profit after taxation
Profit attributable to:
Shareholders
Non-controlling interest
Basic earnings per ordinary share
Statement of financial position
Capital employed
Net cash/(debt)
Net assets
Non-controlling interest
Shareholders’ funds
Net assets per share attributable to shareholders(1)
Ratios and statistics
Return on capital employed(2)
Return on equity after tax(3)
Return on equity before tax(4)
Units sold(5)
2016
£m
2,047.5
501.9
36.5
(7.5)
530.9
(126.8)
404.1
404.1
–
404.1
295.8p
1,705.4
107.4
1,812.8
–
1,812.8
1,314p
31.0%
25.5%
27.8%
3,776
2015
£m
2,020.2
524.1
28.3
(12.7)
539.7
(116.2)
423.5
423.5
–
423.5
313.0p
1,207.0
430.9
1,637.9
–
1,637.9
1,199p
34.8%
25.2%
29.5%
3,355
2014
£m
1,620.6
374.8
1 2.1
(6.9)
380.0
(87.1)
292.9
292.9
–
292.9
221.8p
1,312.1
129.2
1,441.3
–
1,441.3
1,066p
29.9%
21.2%
27.5%
3,742
2013
£m
1,372.6
280.1
(1.3)
(8.1)
270.7
(61.0)
209.7
209.7
–
209.7
160.0p
1,277.7
44.7
1,322.4
–
1,322.4
1,009p
22.9%
17.3%
22.4%
3,712
2012
£m
1,041.1
226.4
(2.2)
(9.4)
214.8
(56.7)
158.1
158.5
(0.4)
158.1
121.0p
1,157.7
(57.9)
1,099.8
–
1,099.8
839p
21.9%
15.6%
21.2%
3,565
(1) Net assets attributable to shareholders divided by the number of shares in issue excluding shares held in treasury and shares held by the employee
benefit trust.
(2) Calculated as adjusted* profit before interest and taxation (including joint venture (loss)/profit before tax) divided by the average net assets adjusted for
(debt)/cash.
(3) Calculated as adjusted* profit after taxation attributable to shareholders as a percentage of the average of opening and closing shareholders’ funds.
(4) Calculated as adjusted* profit before taxation attributable to shareholders as a percentage of the average of opening and closing shareholders’ funds.
(5) The number of units completed and taken to sales in the year excluding joint ventures.
* Adjusted figures exclude the benefit of profit on the sale of ground rent assets.
Annual General Meeting and Interim Management Statement
Half year end
Interim Results Announcement for the six months ending 31 October 2016
Interim Management Statement
Year end
Preliminary Announcement of Results for the year ending 30 April 2017
Publication of 2017 Annual Report
RE GISTER ED OFFICE
AN D ADVIS ORS
Registered office and
principal place of business
Berkeley House
19 Portsmouth Road
Cobham
Surrey KT11 1JG
Registered number: 5172586
Registrars
Capita Registrars
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
0871 664 0300 (from the UK)
+44 20 8639 3399 (from overseas)
Corporate broker and
financial advisor
UBS Investment Bank
Share price information
The Company’s share capital is
listed on the London Stock Exchange.
The latest share price is available
via the Company’s website at
www.berkeleygroup.co.uk
Solicitors
Herbert Smith Freehills LLP
Bankers
Barclays Bank plc
HSBC Bank plc
Lloyds TSB Bank plc
Santander UK plc
Svenska Handelsbanken AB (Publ)
The Royal Bank of Scotland plc
Auditors
KPMG LLP
146
147
The Berkeley Group Holdings plc
Berkeley House
19 Portsmouth Road
Cobham
Surrey KT11 1JG
UK
T +44 (0)1932 868 555
F +44 (0)1932 868 667
www.berkeleygroup.co.uk
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