| Grainger ordered to restate accounts |
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| Friday, 30 November 2007 | |
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Property developer Grainger plc has been ordered to restate its results for the year ended 30 September 2006 by the Financial Reporting Review Panel (FRRP). Grainger (LSE:GRI) owns over 14,000 residential properties in the UK and a further 4,520 in Germany. The group is the largest quoted residential property owner in the UK. While acquiring, managing and selling these properties is the mainstay of its business, Grainger is increasingly active in other areas such as equity release, residential development, fund and asset management. The firm is are also expanding into residential development and investment in Continental Europe. Reclassified as investment properties During the period in question, the company transferred trading properties with a carrying amount, at cost, of £43.5m to a Jersey Property Unit Trust (JPUT), a wholly-owned subsidiary of the company at 30 September 2006. On transfer, the properties were reclassified as investment properties and a gain on revaluation to market value of £23.5m was recognised in the income statement. The Panel said it was concerned about the reclassification of these properties. IAS 40 “Investment property” limits the circumstances in which transfers to, or from, investment property can be made to those circumstances, specified in the standard, that provide evidence of a change in use. No such change in use attended the company’s transfer to the JPUT. The directors have agreed that the transfer did not comply with the requirements of IAS 40 as it did not provide evidence of the required change in use, as a result of discussion with the Panel. In their 2007 preliminary announcement released on Thursday, the directors state that they have conducted a considered and detailed review of all of the group’s property assets. Long term capital appreciation As a result of their review, the directors have concluded that, amongst other findings, the properties selected for transfer to the JPUT were originally acquired for the purpose of long term capital appreciation and rental growth and, consequently, should always have been shown as investment property rather than trading stock. This error has been corrected by a prior year adjustment, restating the opening 2006 balance sheet and the income statement for the year ended 30 September 2006. The total value of the assets reclassified in this prior year adjustment amounts to £67m out of Grainger’s total property portfolio valued at £2.0bn at 30 September 2006. The correction results in the reduction of the 2006 reported profit after tax by £16.5m. Together with the effect of other changes described in the company’s announcement, the 2006 profit after tax reduces from £50.5m to £33.5m with net assets reducing by £0.5m to £250.1m. The Panel said it welcomed the action taken by the directors. Increased dividends Grainger released final results for the year ended 30 September 2007 that showed profit before tax up 62 per cent to £77.5m , compared to restated profit of £47.7m in 2006. Gross net asset value per share up was up 22.3 per cent to 828 pence, compared to 677 pence in 2006. The group's market value of property assets went up by 25 per cent to £2.5bn, an increase from £2.0bn in 2006. Earnings per share up rose by 82 per cent to 47.3 pence, from a restated 26 pence in 2006. Final dividend up increased by 10 per cent to 4.12 pence per share, making a total dividend for the year of 6.18 pence per share, compared to 5.62 pence in 2006. This represents the 13th consecutive year of increased dividends for Grainger. The group boasted a strong liquidity position, with headroom of £226m. Return on shareholders' equity increased to 27.1 per cent from 26.5 per cent. Related articles
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