ENTERPRISE VALUE ADDED back to top

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 at 0.5.

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 following charts:





We are active investors with partners round the world and the following chart shows the geography of total assets under management.





FINANCIAL RESULTS back to top

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 to top

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 back to top

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 years:





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.


THE FINANCE TEAM back to top

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