Grainger’s move to cut costs appreciated by City

Aug 13 2008 by Iain Laing, The Journal

PROPERTY company Grainger wants to slash its costs by 10% under pressure of sinking property prices and it is considering ideas including renting out its spare offices.

Newcastle-based Grainger, the largest UK stock market listed residential property company, is also working to make as many house sales as possible to ease its £1.65bn debt burden, while cutting back on new acquisitions.

Finance director Andrew Cunningham said yesterday the company was looking at a range of options to save money, including renting out spare office space and moving some parts of the business to cheaper accommodation.

A handful of jobs are likely to be cut from the company’s 250-strong workforce in the UK and Germany, where it has a large property portfolio. Cunningham said he did not yet know whether the 120 staff in Newcastle would be affected. Investors in the City appreciated the company’s actions yesterday, with Grainger’s share price gaining more than 9% on the day’s trading, closing at 233p.

But Grainger said tough conditions in the housing market were expected to continue for at least a couple of years. The company has bought only £9m of property in the last four months but sales in the 10 months to July 31 soared to £122m, with a further £62m of sales exchanged or in solicitors’ hands.

And it said sales of vacant units from its core property portfolio since March 31 had achieved prices around 2.7% below September 2007 book values.

Cunningham, who is also Grainger’s deputy chief executive, said: “The basic principle is we are selling as much property as we can and have cut back on acquisitions that we would normally make. The end result is generating cash.”

He added: “The difficulty at the moment is the current market is unusual as there is a lack of finance rather than a lack of demand. For things to move, the banks need to free up mortgage finance. Until that happens, it’s going to be fairly stagnant. ”

Last year, Grainger’s total running costs amounted to some £32m, hence the aim to cut 10% from that total will see more than £3m savings.

Cunningham said: “We will be cutting back on excess office space. Instead of being largely cellular based, we could move to open plan, and we could re-let spare space.

“We could move to more economical offices, and we can grow our use of technology. Also some salaries may have an element of bonus, and that may be reduced.”

Cunningham said Regis, the company which had been interested in acquiring Grainger, had formally decided not to make an offer, and that meant they were barred from making another approach for six months, unless it was full fully recommended by the Grainger board.