VALUE ADDED back
The 1999 results outlined below produced a pre-tax return on property
assets of 13.6%.
Over the last five years our property return has averaged 16.4% pa (on
a compound basis). Our pre-tax weighted average cost of capital (WACC)
is currently 10% and over the last five years has averaged 12.7%; against
this we have generated added value of £227 million.
We calculate our WACC using as a base the Capital Asset Pricing Model;
the key judgmental elements are the equity risk premium and volatility
of returns (Beta). A significant part of our net rental income is ground
rented and as a consequence our Beta is lower than average for the industry
A key influence on our returns is the performance of our core asset,
the Grosvenor Mayfair and Belgravia Estate, representing 45 hectares
(110 acres) of prime central London property. This interest remains
highly reversionary and continues to generate purchase, sale and development
opportunities. A further 77 hectares (190 acres) of Belgravia is managed
by the Group for Grosvenor Trusts.
By contrast our directly owned overseas portfolios are rack rented.
The largest of these is in North America, £432 million.
Our investments in Continental Europe, £167 million, and Asia, £39 million,
are at present held mainly in publicly quoted companies; in each case
we work closely with the company's management team. Additionally we
hold a stake in a UK quoted company, Wates City of London Properties
plc. Our cashflow from these holdings reflects the dividend yield. Our
holdings in publicly quoted companies are as follows:
At the year end the spread of our property assets was as shown in the
We are active investors with partners round the world and the following
chart shows the geography of total assets under management.
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Total Operating Profit was £67.4 million against £61.4 million
in 1998, an increase of 9.8% including a contribution from Associates
of £26.9 million (1998 - £21.5 million). These principally comprise
our operations in North America and Portugal. The North American business
is held through Grosvenor International Holdings Limited (GIHL) in which
our effective interest during the year was 57.7%. GIHL has now been
renamed Grosvenor Americas Limited and since 31 December 1999 the Group
has owned 100% of the shares. In Portugal our holding is through Sonae
Imobiliaria SGPS SA in which GFEPI holds a 25% interest.
Group Profit Before Tax of £48.8 million compared with £67.5
million in 1998 reflects the planned lower profits from sale of investment
properties of £10.5 million against £30.9 million in the previous year.
Revenue Profit which excludes investment sale profits, rose 5% to £38.3
million against £36.6 million in 1998. Taxation charged to the Profit
and Loss Account in the year was £13.0 million, equivalent to an effective
rate of 26.6% (1998 £21.1 million and 31.2%). Balance Sheet The Group's
balance sheet remains strong with shareholders' funds of over £1.3 billion
and gearing of 46.7% up from 22.9% last year, largely reflecting the
acquisition of GIHL.
Taxation charged to the Profit and Loss
Account in the year was £13.0 million, equivalent to an effective rate
of 26.6% (1998 £21.1 million and 31.2%).
Balance Sheet The Group's balance sheet remains strong with shareholders'
funds of over £1.3 billion and gearing of 46.7% up from 22.9% last year,
largely reflecting the acquisition of GIHL.
GROUP RESTRUCTURING back
The Group Restructuring is referred to in detail in notes 1 and 3 to
the Accounts. On 31 December 1999 GIHL became a wholly owned subsidiary.
For the year under review the results of GIHL were equity accounted
as for 1998 but with the group balance sheet at 31 December 1999 reflecting
its full assets and liabilities. On 18 November 1999 the Group demerged
its non-property businesses. The value of the assets demerged was £28.8
million and the combined results of those businesses up to the date
of demerger was a loss of £1.5 million (1998 a loss of £1.6 million)
reflecting certain start-up losses.
FINANCING AND TREASURY POLICIES
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We have operated our financial disciplines along public company lines
for many years. One key difference, however, is that as a company committed
to private ownership our expansion capital is drawn from banks and financial
institutions rather than from shareholders. Further financial resources
for our overall operations are provided by jointly investing with partners
as has been shown on the previous page.
Our Treasury Policies, approved by the
Board, are as follows:
to ensure sufficient committed loan facilities to support current
and future business requirements;
to ensure that the Group's debt can be supported from maintainable
cashflow through clear internal guidelines;
to manage interest rate exposure with a combination of fixed
rate debt and interest rate swaps, maintaining a fixed interest rate
floor of 60% of borrowings;
not to hedge long-term net asset positions held in foreign currencies;
to pool funds efficiently on a regional basis and invest short-term
cash with approved institutions up to limits agreed by the Board.
All transactions in financial instruments are required to have prior
Board approval. The Group does not enter into any speculative positions.
Committed Debt Facilities including bonds
at the year end totalled £860.6 million with an average life of 7.0
Undrawn Committed facilities of £176.0
million were available at the year end
Average Debt Utilisation during the year
was £315.9 million. At the year end, before the consolidation of GIHL,
borrowings were £403.4 million and gearing was 28.9%. With the acquisition
of GIHL, total borrowings were £693.8 million.
In the notes to our Accounts we have shown the fair value of our debt
in accordance with the new FRS13 disclosure rules for financial instruments
and the adverse impact of £32.8 million.
The following charts show the analysis of borrowings between fixed and
floating rate and between secured and unsecured debt:
Interest The average
interest rate during the year on gross borrowing was 7.6%.
Net interest paid during the year was £34.2 million of which £3.5 million
was capitalised in respect of development expenditure.
We view the interest cost in respect of the funds attributable to the
development of a property, whether as an addition to our investment
portfolio or as a trading stock for subsequent sale, as an inherent
part of the cost of development. This is a logical step in reflecting
the economics of development which is always subject to rigorous appraisal
prior to commitment. The Board and shareholders are kept fully informed
of the sums capitalised which are referred to in note 11.
Interest Cover for the year was 1.9 times.
Given the ground rented and reversionary nature of our core asset referred
to above and our private status, the level of cover is more than adequate.
Foreign Currency borrowings amounting to £442 million were drawn
at the end of 1999. This represents borrowings of overseas subsidiaries
of £299 million and UK subsidiaries of £143 million. The latter were
established for the short to medium term to finance new investment overseas.
During the year the original currency debt in foreign currencies of
participating states within the European Union was converted into Euros
as were interest swaps hedging this debt.
The net effect of currency movements on unhedged overseas assets was
favourable, resulting in a gain of £4.9 million taken directly to reserves.
Cashflow Net cash inflow from operating activities was £31.5
million. Property acquisition and improvement expenditure was £142.4
million and expenditure on trade invested totalled £44.1 million. These
were financed by £90.4 million received in respect of realisations of
property interests and from our committed facilities.
FINANCE TEAM back
Each region is supported by a highly professional finance team. Through
their skill and dedication the group is provided with the necessary
framework on which to build its commercial success.
Jonathan Hagger, 16 March 2000