imagine… …sustainablegrowth,yearafteryearafteryear Finance director’s review See page 58 … a team of expert people, driven by core values How we create value See page 8 … extraordinary performance recognised by winning the ‘National Property Company of the Year’ award Review of our portfolios See page 24 Front cover and inside covers show St. James’s Gateway, Piccadilly, Eagle Place, London W1 Artwork cornice by Richard Deacon Our first integrated report We continue to evolve our approach to reporting and are proud to present our first integrated annual report. You will notice some differences from previous years, including a representation of our business model, an exploration of our material issues and the integration of sustainability into the report rather than as a separate section. You can find out more about why we have done this by turning the page. Integrated reporting See page 2 Inside this year’s integrated Annual Report and Accounts 2013: Overview 2 Integrated reporting 3 Summary of the year 4 Chairman’s statement 6 How we operate 8 How we create value 10 Interview with the Chief executive 14 Our investment strategy 15 Material issues affecting our business 20 Our performance Performance 24 Review of our portfolios 58 Finance director’s review 65 Looking ahead Governance 66 Introduction to governance 68 Board members 70 Management board 71 Governance report 86 Principal corporate risks and opportunities 89 Remuneration report Financials 94 The Certificate and Report of the Comptroller and Auditor General to the Houses of Parliament 95 Consolidated statement of income and expenditure 95 Consolidated statement of comprehensive income 96 Consolidated balance sheet 97 Consolidated cash flow statement 98 Consolidated statement of changes in capital and reserves 99 Notes to the financial statements 119 Ten-year record (unaudited) 120 Glossary To The Queen’s Most Excellent Majesty May it please Your Majesty, The Crown Estate Commissioners take leave to submit this their fifty-seventh Report and Accounts, in obedience to sections 2(1) and 2(5) of the Crown Estate Act 1961. The Crown Estate 2 Annual Report 2013 Integrated reporting Why integrated reporting? An integrated report is a concise communication about how an organisation creates value in the short, medium Our Contribution and long term. Sustainability is core to everything we do A report on The Crown Estate’s Total Contribution to the UK and a driving factor behind our strategy and long-term commercial success; integrated reporting is an ideal way of expressing this. Who else is doing this? We are playing an important role in defining the future of integrated reporting by participating in the International 016116_Total_Contributions_Report_COVER_v9.indd 1 16/04/2013 13:26 Integrated Reporting Council’s (IIRC) pilot programme. Through this, we are sharing our experiences with other leading companies and supporting the development of an international framework for better reporting. What next? Integrated reporting is evolving and this, our first integrated annual report, is an important step in the journey. In future reports, we intend to: • Incorporate measurement of the broader value we deliver to the UK – what we call Total Contribution. • Explore the connections and inter-dependencies between the resources and relationships* that sustain our business and to which we contribute. • Demonstrate how we are embedding integrated thinking into our business. Find out more International Integrated Reporting Council: www.theiirc.org The Crown Estate’s Total Contribution: www.thecrownestate.co.uk/about-us/total-contribution * The IIRC refers to these as ‘capitals’ in its Draft Framework. Overview Performance Governance Financials The Crown Estate 3 Annual Report 2013 Summary of the year We are privileged to own and manage some of the most diverse assets in the UK. Despite today’s tough economic climate, we’ve had yet another strong year – an achievement which wouldn’t have happened without the passion and expertise of our team. We are committed to maintaining and enhancing the value of our estate – and its income – in a way that is sustainable for the future. Here’s a snapshot of what we’ve achieved… n £252.6 million 5.2% Net revenue surplus (profit) up 5.2 per cent compared to £240.2 million in 2012 11.3% The Crown Estate total return. Outperforming our target of 9.9 per cent (IPD bespoke) n £8.1 billion 7.2% Property value up 7.2 per cent compared to £7.6 billion in 2012 (including share of joint venture properties and other property investments) n £8.6 billion 7.0% Capital value up 7.0 per cent compared to £8.1 billion in 2012 Achieved Business in the Community (BITC) Platinum Big Tick +19% +19% Improvement in carbon emission intensity (directly managed properties) 0.65% of net revenue surplus invested in stewardship projects Key performance indicators See page 20 The Crown Estate 4 Annual Report 2013 Chairman’s statement This year marks another excellent performance by The Crown Estate against a tough economic backdrop. Once again, we’ve outperformed the market, growing the underlying value of our assets and delivering a record net revenue surplus of over £250 million. The Crown Estate is proud to have contributed £252.6 million to the nation’s finances in a time of austerity, despite an extremely challenging economic climate. We’re a total returns business, and this revenue performance has been achieved alongside an impressive growth in the underlying value of our assets by 7.2 per cent to £8.1 billion – an historic high. Our performance in recent years has been measured against our ‘Going for Gold’ targets, which have served us well. The achievement of our £250 million landmark – a year early – now means that we can confidently look further to the future and set out an ambitious new plan for the ongoing development of the business for the next decade. The diversity of our business and the quality of our assets give us a great advantage, but it’s the way in which we actively work those assets, taking a long-term view, that is the distinctive hallmark of The Crown Estate. Over the years we’ve also continued to build our core expertise and to assemble a team who work hard to deliver results, with a clear sense of purpose and pride in a job well done. Our values – commercialism, integrity and stewardship – sit at the heart of our business and add value to everything we do. This year we were particularly proud to win the Estates Gazette’s ‘2012 Property Company of the Year’ award. The judges summed up their decision by saying “there is something magical about The Crown Estate”. We welcome the recognition, but application and initiative, rather than wizardry, underpin the many notable achievements of the year, some of which are highlighted in this report, and I thank the team for their tireless efforts and give them full credit. We are proud to exceed our targets despite a challenging economic climate. Overview Performance Governance Financials The Crown Estate 5 Annual Report 2013 The past 12 months have indeed been challenging, but 2012 has also been a year of special celebration for London and the UK. The Queen’s Diamond Jubilee and the £252.6m London 2012 Olympic and Paralympic Games brought the whole country together in a glorious summer of celebration. It also served to underpin international Record net surplus interest and continued confidence in London as a global capital. We take great pride in how we continue to invest and improve the public face of our capital city, and to do this working in partnership with the best – ranging from our international partners to long-standing local stakeholders. Outside of London it has also been a busy year. We’ve continued to develop our wider regional portfolios – Urban, Rural and Coastal – and have achieved many important new milestones in our growing offshore renewable business, again, working with great partners. It’s not just hard work that underpins our continued strong results. The Crown Estate is an enthusiastic innovator, pushing boundaries and striving for excellence. In January 2012, we welcomed Alison Nimmo CBE as our new CEO, and I’m pleased to say that it’s been a seamless transition, with momentum maintained at the same time as fresh thinking is brought into the business. Our Annual Report this year reflects some of our new approach, adopting the principles of integrated reporting and reflecting how we are embedding sustainability throughout the business in a way that will drive long-term added value for both us and our customers. It also reflects a focus on our total business ethos – one team with a common sense of purpose. We have an excellent working relationship with the Treasury and work with the grain of government, both national and devolved, without ever compromising the independence that is a key element of the Crown Estate Act 1961. Following criticisms raised by the Scottish Affairs Committee, we’ve now resolved all the specific points of contention and are working on the longer-term aim of transferring more responsibility to local communities – with promising initial pilots of Local Management Agreements on North Uist and Skye. At the same, time we apply the full strength of The Crown Estate as a UK-wide organisation to advance the ambitious plans for wind, tidal and wave power around the Scottish coastline. One of my key responsibilities as chairman is to ensure good governance, and we’ve again maintained the high standards expected of us. Integrity and trust are behaviours more important than ever in today’s business world. Our Board members bring a critical balance and wealth of skills and experience to our organisation, and this complements the skills of our executive team.