Preliminary Results
27 APRIL 2006
CHAIRMAN'S STATEMENT
I am delighted to once again report on a year of considerable progress for
London & Associated Properties during which the Group's fully diluted net
assets per share have grown by 18.1% to 115.9p. This growth was principally
driven by the value of our overall property portfolio which, including joint
ventures and associated companies, rose to £272.5m, an increase of 9%.
The 12 months to 31 December 2005 have been an extremely exciting period for
LAP. We have embarked on a major development programme that will substantially
enhance the value of properties in both our directly owned portfolio and in our
joint venture with the Bank of Scotland. This is the largest development
programme undertaken by the Group; however, it is one we believe to be of low
risk as we pursue our policy of pre-letting the majority of space in the
development before commencing on-site. These developments have a short-term
impact on our rental stream, but this will be more than covered by the overall
uplift in income and values we expect to achieve over the medium term.
As shareholders are aware, our largest development is at King Edward Court,
Windsor, which we own in joint venture with the Bank of Scotland through
Analytical Properties. This development will create over 100,000 sq ft of
modern retail space, taking the overall total to more than 215,000 sq ft, as
well as a 113-bed Travelodge hotel. Once fully let, this new development alone
will produce £2.4m of annual rents compared to the £1.1m previously produced
from those buildings we are replacing. To-date, 90% by rental value has been
pre-let. However, there have been some unavoidable delays in the construction
and we now expect the construction to be completed by the middle of 2007.
Further details are set out in the Chief Executive's Review.
Elsewhere the portfolio has performed well over the year. This is as a result
of our continued successful asset management programme that aims to constantly
improve the tenant mix and rental values at our centres. This in turn enables
us to grow capital values as well as income thus laying the foundations for
future profitability and NAV enhancement.
Turning to our results for the year, shareholders will see that we are now
reporting under IFRS, which became obligatory after 1 January 2005, rather than
UK GAAP, the previous accounting standard for companies with a full listing on
the London Stock Exchange. The new standard impacts on our results in two
principal areas: our net assets now reflect in the balance sheet any deferred
tax which may or may not be crystallised at an unspecified time in the future,
as well as our listed investments which are now reported at market value; and
our Consolidated Income Statement (formerly Profit & Loss Statement) now
reflects the increase in value of our investment properties, our joint venture
properties and those owned through associated companies.
Under IFRS our net assets are now £88.3m, a 9.6% increase over the re-stated
figures for the year to 31 December 2004 of £80.6m. Under UK GAAP, our net
assets would have shown a near 15% rise from £90.2m to £103.5m, a landmark as
they exceeded the £100m mark for the first time.
The impact on LAP's net asset value per share is as follows: under IFRS,
diluted net assets per share rose by 18.1% to 115.9p against 98.1p, while under
UK GAAP the increase would have been a rise of 22.3% to 135.8p from 111.0p per
share.
Our consolidated income statement shows pre-tax profits broadly unchanged at £
17.9m against £18.6m while under UK GAAP pre-tax profits would have risen some
13.3% to £3.4m from £3.0m last time. Diluted earnings per share were 18.8p
against 20.2p under IFRS, which incorporates the revaluation of our investment
portfolio. UK GAAP would have shown a 35% increase to 3.8p per share. Gross
rental income of our directly owned portfolio increased by 1.4% to £7.9m.
The Board is recommending a final dividend of 1.175p per share, making a total
for the year of 1.725p per share which, if agreed by shareholders, will be paid
on 7 July 2006 to those shareholders on the register as at 16 June 2006. This
is an increase of some 5% over the previous year.
During the year we completed the sale of Brierley Hill, West Midlands, for £
4.85m and our shops in Petergate, Bradford were compulsorily purchased by the
local council on an initial valuation of £1.4m.
Over the same period we acquired the Stonehouse pub for £2.5m. This property is
strategically located adjacent to our Orchard Square shopping centre in
Sheffield and will provide further exciting development opportunities for us
there.
In June 2005 we returned £6.2m to shareholders through a tender offer for
shares. This increased our fully diluted NAV per share by 0.6p. The 5.9m
shares that were acquired are held in Treasury and can be reissued should a
suitable opportunity arise.
In January this year Clive Parritt joined the Board as a non-executive
Director. Clive has extensive business experience as a practicing accountant
and holds a number of other directorships. I look forward to working with him
and I am confident that LAP will benefit from his wise counsel.
At this year's AGM John Brown will be retiring as a non-executive director
after more than 20 years on our Board. John has contributed greatly to our
progress and has, for many years, chaired our Audit Committee. We wish him a
long and happy retirement.
I would like to take this opportunity to thank my Board colleagues, LAP staff
and advisors for all their hard work over the period under review. On a
personal note I would like to express my personal satisfaction at the way LAP
has grown. This year marks my 35th year as a Director of the Company during
which time the Group's gross assets have increased from £400,000 to over £270m.
2005 was another year of considerable progress and I am pleased to report that
your Company is in a very strong financial position with a number of exciting
value enhancing projects underway. As a result, I look forward to the future
with great confidence.
Michael Heller
Chairman
27 April 2006.
CHIEF EXECUTIVE'S REVIEW 2005
The year under review was, once again, one of growth for the Company. At the end
of the period our directly owned portfolio, comprising town centre shopping
centres, was externally valued at £117 m compared to £ 108m , a rise of 8%.
This increase was achieved after sales of £6.3m. The properties sold had an
aggregate book value of £4.9m.
Analytical Properties, our joint venture with Bank of Scotland, also made good
progress. Its two properties, King Edward Court in Windsor and Church Square
in St Helens were valued at £135.5m, an uplift of 9.3%. LAP manages these
properties on behalf of Analytical.
During 2005 we progressed two substantial developments. The largest is at
Windsor, and we are also making significant improvements to Orchard Square,our
wholly owned shopping centre in Sheffield.
We contracted £369,000 of incremental like-for-like annualised rental income
through the portfolio as a whole, and our annualised rent roll now stands at £
17.9mdespite disposals accounting for £504,000 a year. Once we include units
that we vacated for redevelopment, we will have absorbed a temporary loss of
rental income of some £1.0m a year.
We have grown rental levels at all of our major centres. This has been achieved
through low void levels and continuing our programme of creating improved space
for retailers who wish to trade from our centres. We have undertaken a number
of amalgamations and extensions to shops within our centres during the year,
enablingus to attract top level retailers prepared to pay record rents for each
respective centre.
I will now report in greater detail on some of our principal shopping centres.
Orchard Square, Sheffield
Following our acquisition of the Dixons unit immediately adjacent to Orchard
Square in April 2004, we have now finalised plans to amalgamate this unit with
the former Index unit to create a flagship store in one of Sheffield's most
prominent locations. During 2005 we negotiated surrenders with both Dixons and
Index, and these units are now vacant.
As expected, there was strong interest in this new unit both from retailers who
are not currently represented in Sheffield as well as those looking to relocate
from other units on Fargate. We are now entering the final stages of a lengthy
negotiation with our preferred tenant, an international fashion retailer, and
expect to sign the agreement for lease shortly.
As a result of this development work, we have vacated units with a total rental
income of £532,250 per annum. However, the new unit will produce around £
800,000 per annum in total including a separate lock-up shop and additional
upper parts. Construction costs, including fees, are not expected to exceed £
2m.
In August 2005 we acquired the freehold of the Stonehouse pub at the rear of
Orchard Square for £2.5m. Although it is a listed building, we believe we will
be able to incorporate it within the main shopping centre and create 42,000 sq
ft of redeveloped space. We are still at an early stage, but have already
received positive interest from a number of retailers for different
combinations of space, including the possibility of a single letting to an
anchor retailer. I will report further on progress during the course of the
year.
Elsewhere Orchard Square remains effectively fully let which bodes well for the
next round of major rent reviews later this year and in 2007.
Kings Square, West Bromwich
Kings Square had a good year with gross income increasing to £1.4m compared to
£1.2 m in 2004. This growth was achieved by successfully reconfiguring units to
attract better retailers, and then using the subsequent high errents paid per
square foot as evidence to achieve good rental growth from existing retailers
at rent review.
During the course of the year, we let new units to Vodafone, Benjy's Sandwich
Bar and Passion for Perfume at a combined rent of £103,000 per annum reflecting
Zone A rents of between £71 and £81 per sq ft, a record for this centre. This
was achieved by successfully dividing a poorly configured unit formerly
producing £68,000 a year, and the rents have enabled us to achieve significant
uplifts at each of the nine units where rent reviews were concluded during the
year. Total costs for these works, including fees, were under £100,000.
We have also maximised value from the common areas, and let the central square
for use as a café to BB's Coffee & Muffins Limited at £40,000 per annum.
Finally, we have benefited from the redevelopment of the former cinema to the
rear of Kings Square intotwo large retail units which have been let to Peacocks
and 99p Stores. Although we did not carry out the redevelopment, footfall at
that part of the centre has increased by 20% over the last 12 months,
significantly enhancing future rental values of our adjacent shops.
The Mall, Dagenham
We let a large unit to 99p Stores, the variety retailer, in 2005 and demand at
The Mall has remained satisfactory through out the remainder of the year and
into 2006. We have completed a number of lettings and rents have increased at
this centre by £45,000 a year. Currently, we are negotiating new leases with a
combined annual rental income of over £100,000. These lettings are expected to
complete shortly.
We continue to explore with the local authority a number of options for the
Post Office adjacent to the Mall which we acquired in 2005. These include
incorporating it into a major redevelopment of part of the town's High Street
that will substantially benefit our own shopping centre.
Saxon Square, Christchurch
During the year, we increased gross rents at this centre by over £75,000 per
annum. We have also, since the year end, let some upper parts for the first
time during our ownership of this centre. Demand for shop units in the centre
has been consistently high,and we now have a strong offer from a
national retailer on the retail element of the space we are hoping to develop to
the rear of the centre. This development is still being negotiated with the
local authority, although some progress has been made during the year.
King Edward Court, Windsor
Construction work is now underway for our partial re development of King Edward
Court and the demolition work has been completed. We have started to build the
new Waitrose supermarket and Travelodge hotel, as well as shops pre-let to
tenants including Zara, Hennes and New Look .
There have been some complications in the piling and foundation work, caused
principally by unforeseeable difficulties in re-routing electricity and
telephone infrastructure. This has led to additional costs which have been
quantified and agreed with the contractor. The total contract has increased to
£ 18.2 m compared to the £16.5 m originally envisaged. It is not unusual to
experience such difficulties during underground works. However, these works
are now completed and we are building the more straightforward above-ground
element of the project.
Approximately 90% of the work involved in this contract has been placed or
agreed, and we are confident that we will not encounter such complications
during the remainder of the contract.
The project remains profitable in its own right and the new units, which are
let at Zone A rates of £125 per sq ft, will also have a positive impact on
rental and capital values in the rest of the centre .
Elsewhere in King Edward Court, we have completed a number of excellent
lettings. Johnsons Shoes, a multiple retailer already trading from the
centre, has signed a new 15 year lease on both its existing unit and an
adjacent unit at £157,500 per annum. This compares to the previous rent on
both these units of £135,500 and equates to a record £ 105 Zone A. We have
also let a former Dixons unit to Vision Express at £77,500 per annum compared
to £70,000 previously, again at a record £105 Zone A, and we have let a unit
to Toni and Guy hairdressers at £45,000 per annum. This unit had never
previously been let. The letting was achieved by bringing forward the shop
front which had been overshadowed by those of the adjacent shops.
Demand for space at King Edward Court remains strong and all tenants with lease
expiries during 2005/6 have renewed. In addition, Mothercare was able to
assign its lease to Lakeland, the kitchenware company, for a significant premium,
further demonstrating the desirability to tenants of King Edward Court.
Church Square, St Helens
Church Square remained effectively fully let during 2005, although we have
actively sought to vacate a number of units to meet outstanding retailer
demand and thereby grow the rents.
The most significant of these initiatives was to negotiate a surrender with
Next enabling us to create a double unit following the collapse of Allsports,
which was trading in the adjacent unit. This double shop is now under offer to
a major fashion retailer at a rent that will show £103 Zone A compared to £90
previously achieved in that part of the centre.
A further prime unit has become vacant following the relocation of New Look to
larger premises within the town. Initial interest is strong and we are
confident that we will be able to prove further that the level of rent in St
Helens has some way to go.
The local authority is investing heavily in St Helen's towncentre with new
paving, street furniture and landscaping. This will significantly benefit our
shopping centre which is, by some margin, the largest single landholding within
central St Helens.
Elsewhere, during 2005 we sold the Moor Centre, Brierley Hill for £4.85 m in cash
compared to a book value of £4.3m. Bradford Council has also compulsorily
purchased from us a small block of property in Bradford city centre. Although
the value has not yet beenfinalised, we have been offered £1.4 m by the
Council. We do not believe this fully reflects the level that we should
achieve. However, the property was held in our balance sheet at £600,000 and
the amount so far offered will show a significant surplus.
We did not acquire any significant new properties in the period under review
although we did bid unsuccessfully on a number of shopping centres. In the
absence of acceptable opportunities to invest in retail property, we have
sought other ways to achieve value for shareholders . In July, we returned some
£6.2 m to shareholders via a tender offer for shares at 104p. The positive
effect of this will be more fully described in the Finance Director's Report.
There can be no doubt that the widely-reported mixed conditions for retailers
arehaving an impact on retail property in general. However, we feel well
positioned to meet any downturn. We specialise in towns with Zone A levels
typically around £100 per sq ft, and retailers who focus on the value oriented
customer. It is a commonly accepted view that th is type of centrewill be less
susceptible to a dramatic swing in value if retail conditions become more
adverse. In addition, we have pursued a policy of diversifying our portfolio
of properties by location,with a well-spread and quality tenant profile ,and we
enjoy a solid income base that does not rely on performance fees.
The new year to date had started well. I remain confident that for the
reasons outlined in the preceding paragraph, we are in an excellent position to
grow our properties by both income and value in the coming year.
John Heller
Chief Executive
27 April 2006
FINANCIAL DIRECTOR'S REPORT
International Financial Reporting Standards (IFRS)
2005 is the first year that LAP has reported under IFRS, the new International
Financial Reporting Standards. The Group's half year results were published
in October 2005 in this format and at the same time a 'Transition Statement'
was also published showing the movements between the figures reported under UK
GAAP and IFRS. The main effects of the changes are:
Income Statement - (previously the Profit and Loss Account)
The fundamental change in this statement is that certain items that were
previously taken direct to reserves now have to be taken through the Income
Statement. The largest item to affect our figures is the revaluation surplus
of our investment properties. As I stated last year this will lead to
distortions in the profit declared on a year on year basis making it difficult
to directly compare the overall trading performance of the Group.
Balance Sheet
The largest change to the balance sheet is the inclusion of a full provision
for deferred taxation on all our investment properties whether or not it is
intended to sell them in the foreseeable future.
It is only the Group figures that are prepared under IFRS. The Company
figures are still prepared under UK GAAP. The Company Balance Sheet and
figures will be therefore shown separately in this year's accounts.
It should be reiterated that the Group's overall cash position remains
unchanged by the adoption of IFRS.
Treasury Shares
In June we offered by way of tender to acquire up to £10m of our own shares.
We received acceptances for 5,928,273 shares at 104p per share (a total of £
6.37m) and we now hold 6,188,121 shares in T reasury. This tender increased
our fully diluted net asset per share by 0.6p as at 31 December 2005. These
shares can be reissued in the market without the normal cost of issuing shares
at the prevailing share price on the day of reissue.
Cash Flow
We are currently talking to some of our lenders about substantially increasing
the size and improving the terms of our revolving credit facilities. I will
update shareholders in due course.
During the year cash reduced by £7.6 m, mainly as a result of spending £6.7m on
the purchase of our shares for Treasury.
Income statement
The Group generated a profit before tax of £17.9m (2004: £18.6m). However,
under UK GAAP the profit before tax was £3.4m (2004: £3.0m), an increase of
13.3%. This maintains our 26 year record of unbroken annual profit growth.
This was despite a drop in gross rental income of £0.6m to £12.4m (2004: £
13.0m) and the lost interest earned on the £6.4m used in the year for the
purchase of our own shares.
The average cost of debt has fallen to 7.25% (2004: 7.5%). I nterest payable
increased during the year to £4.4 m (2004: £4.1 m). This figure is net of the
ground rents payable on certain properties which, under IFRS, must now be shown
as a financing charge. The rise in interest costs is due to the increased
borrowings for the purchase of the Stonehouse pub in Sheffield and a higher
average overdraft during the year.
Taxation
The effective tax rate for the year is 1 7.0% (2004: 10.8%). This can be split
between the current year's tax charge of £0.5m (2004: £0.5m) and the deferred
tax charge of £2.5 m (2004: £1.5m). The rate of tax payable has remained low
due largely to capital allowances that have been successfully claimed.
Balance Sheet
The property portfolio, which includes those properties owned by Analytical,
Bisichi and Dragon Retail, grew by 9.0%. Under UK GAAP, the net assets of the
Group grew by 15% to £103.5m. Had we not purchased our own shares in June the
net assets would have been £110m, an increase of 22% under UK GAAP.
Fully diluted net assets per share rose 18.1% to 115.9p per share (2004:
98.1p). Under UK GAAP this increase would have been 22.2%.
Gearing as at 31 December 2005 was slightly higher at 50.1% (2004: 45.7%) due
mainly to using cash to purchase our own shares.
Under IFRS our long term debenture debt is not shown at fair value. An
adjustment to fair value of the debenture debt would be 5.6p per share (2004:
4.4p). It remains our policy not to repay this long term debt early. Banking
debt and derivatives associated with it are shown at fair value in the balance
sheet.
Dividends
As stated last year we are no longer paying a scrip dividend. This year,
however, we introduced a n interim dividend, which was 0.55p per share, paid to
shareholders on 25 January 2006. We are proposing a final dividend of 1.175p
per share which will be paid to shareholders on 7 July 2006. The dividend is
covered 2.3 times, if the revaluation surpluses shown in the income statement
are excluded.
Analytical Properties, our joint venture with the Bank of Scotland had another
strong year with net assets rising 28.2% to £40.6m (as reported under UK
GAAP). The redevelopment of King Edward Court in Windsor is progressing and is
being entirely financed by a development facility from the Bank of Scotland.
This facility is for £19.0 m and was signed in 2005. As at 31 December 2005 £
1.7m was drawn.
Our associated company, Bisichi Mining, in which we hold a 42% stake, produced
profits before tax under IFRS of £4.2m (2004: £4.1m), an increase of 2.4%,
while s hareholders' funds grew by 26.7%. Dragon Retail Properties, our
joint venture with Bisichi, also had a good year with net assets rising by
35.5% to £4.3m (as reported under UK GAAP).
With potentially available cash and facilities of £27.0 m, LAP is in a strong
position to take advantage at short notice of any opportunities that arise. It
is also cushioned against any downturn that may occur in the retail market. It
remains our policy to manage the finances of the Group on a prudent basis, and
I feel confident as we enter into 2006.
ROBERT CORRY
Finance Director
27 April 2006
Consolidated income statement for the year ended 31 December 2005
Restated*
2005 2004
Notes £'000 £'000
Gross rental income
Group and share of joint ventures 12,392 12,964
Less: joint ventures - share of rental income (4,525) (5,205)
7,867 7,759
Less: property overheads:
Direct property expenses (1,918) (1,924)
Attributable overheads (2,829) (2,162)
(4,747) (4,086)
Less: joint ventures - share of overheads 1,337 1,456
Property overheads (3,410) (2,630)
Net rental income 4,457 5,129
Listed investments 169 345
Operating profit before adjustments 4,626 5,474
Lease surrender (173) -
Profit on sale of investment properties 1,230 142
Net gain on revaluation of investment properties 10,078 9,088
Net increase in value of investments held for trading 831 -
Operating profit after adjustments 16,592 14,704
Share of profit of joint ventures 3,659 6,067
Share of profit of associate 1,232 1,205
21,483 21,976
Interest receivable 1 820 721
Interest payable 1 (4,408) (4,078)
Profit before taxation 17,895 18,619
Income tax 2 (3,046) (2,003)
Profit for the year 14,849 16,616
Basic earnings per share 3 18.83p 20.34p
Diluted earnings per share 3 18.79p 20.23p
*Restated under IFRS (see note 7)
Consolidated balance sheet at 31 December 2005
Restated*
2005 2004
Notes £'000 £'000
Non-current assets
Value of properties attributable to group 116,978 108,331
Present value of head leases 8,582 8,618
Property 6 125,560 116,949
Plant and equipment 968 520
Investments in joint ventures 18,033 14,560
Investments in associated company 6,495 5,294
Held to maturity investments 3,784 3,784
154,840 141,107
Current assets
Trade and other receivables 4,608 1,923
Financial assets-investments held for trading 4,586 2,681
Cash and cash equivalents 6,212 12,253
15,406 16,857
Total assets 170,246 157,964
Current liabilities
Financial liabilities-borrowings (2,446) (907)
Trade and other payables (6,724) (8,938)
Current tax liabilities (177) (422)
(9,347) (10,267)
Non current liabilities
Financial liabilities-borrowings (52,494) (49,830)
Present value of head leases on properties (8,582) (8,618)
Deferred tax (11,482) (8,649)
(72,558) (67,097)
Total liabilities (81,905) (77,364)
Net assets 88,341 80,600
Equity
Share capital 8,232 8,232
Share premium account 5,228 5,226
Capital redemption reserve 47 47
Other reserves 429 429
Retained earnings 81,037 67,247
Treasury shares (6,632) (581)
Total shareholders' equity 88,341 80,600
Net assets per share 4 116.04p 98.82p
Diluted net assets per share 4 115.88p 98.14p
*Restated under IFRS (see note 7)
Consolidated statement of changes in shareholders' equity
Consolidated cash flow statement for the year ended 31 December 2005
Restated*
2005 2004
£'000 £'000 £'000 £'000
Operating activities
Operating profit after adjustments 16,592 14,704
Depreciation 125 108
Gain on disposal of non-current assets (1) (10)
Profit on sale of investment properties (1,230) (142)
Net gain on revaluation of investment properties (10,078) (9,088)
Net increase in value of investments held for trading (831) -
Increase in net current assets (695) (2,976)
Cash generated from operations 3,882 2,596
Interest paid (4,360) (4,224)
Interest received 535 868
Income tax paid (843) (1,011)
Cash flows after interest and tax (786) (1,771)
Investing activities
Property acquisitions and improvements (3,455) (9,555)
Sale of properties 4,726 4,360
Purchase of office equipment and motor cars (578) (206)
Sale of office equipment and motor cars 6 46
Dividends received 87 178
Cash flows from investing activities 786 (5,177)
Financing activities
Shares issued for cash - 107
Issue expenses (1) -
Purchase of Treasury shares (6,721) (581)
Sale of Treasury shares 367 -
Equity dividends paid (1,355) (867)
Cash attributable as agents (2,520) -
Drawdown (Repayment) of short term bank loan - 643
Drawdown (Repayment) of medium term bank loan 2,650 8,525
Cash flows from financing activities (7,580) 7,827
Net increase/(decrease) in cash and cash equivalents (7,580) 879
Cash and cash equivalents at beginning of period 11,346 10,467
Cash and cash equivalents at end of period 3,766 11,346
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
the following balance sheet amounts:
2005 2004
£'000 £'000
Cash and cash equivalents 6,212 12,253
Bank overdraft (2,446) (907)
Cash and cash equivalents at end of period 3,766 11,346
*Restated under IFRS (see note 7)
Consolidated statement of recognised income and expense
for the year ended 31 December 2005
Restated*
2005 2004
£'000 £'000
Profit for the year 14849 16616
Loss on disposal of own shares (306) -
Currency translation (35) 116
Transitional adjustment on adoption of IAS 39 948 -
Deferred tax thereon (311) -
Total recognised income and
expense for the year 15,145 16,732
*Restated under IFRS (see note 7)
Consolidated statement of changes in shareholders' equity for the year ended 31
December 2005
Share Share Other Treasury Retained Total
capital premium reserves shares earnings equity
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 January 2004 8,140 4,837 476 - 51,756 65,209
Issue of shares 92 389 481
Acquisition of own shares (581) (581)
Currency translation 116 116
Dividend (1,241) (1,241)
Retained profit for year 16,616 16,616
Balance at 31 December 2004-Restated* 8,232 5,226 476 (581) 67,247 80,600
Adoption of IAS 39
Value financial assets less deferred tax 732 732
Associate share of financial assets 91 91
Joint venture share of financial liabilities (186) (186)
Balance at 1 January 2005-Restated* 8,232 5,226 476 (581) 67,884 81,237
Issue expenses of own shares (1) (1)
Acquisition of own shares (6,721) (6,721)
Disposal of own shares 670 670
Gain/(loss) on disposal of own shares 3 - (306) (303)
Currency translation (35) (35)
Dividend (1,355) (1,355)
Retained profit for year 14,849 14,849
Balance at 31 December 2005 8,232 5,228 476 (6,632) 81,037 88,341
*Restated under IFRS (see note 7)
At 31 December 2005 £48,990,000 (2004:£39,943,000) of retained earnings
represent unrealised revaluation gains and do not constitute distributable
reserves.
Notes to the preliminary announcement for the year ended 31 December 2005
1. Net finance costs
2005 2004
£'000 £'000
Interest receivable 820 721
Interest payable -
Interest on bank loans and overdrafts (1,923) (1,557)
Other loans (2,106) (2,107)
Interest on obligations under finance leases (442) (414)
Interest capitalised 63 0
(4,408) (4,078)
(3,588) (3,357)
2. Income tax
2005 2004
£'000 £'000
Current tax (524) (549)
Deferred tax (2,522) (1,454)
(3,046) (2,003)
3. Earnings per share
2005 2004
£'000 £'000
Group profit after tax 14,849 16,616
Weighted average number of shares in issue for the
period ('000) 78,839 81,663
Basic earnings per share 18.83p 20.34p
Diluted number of shares in issue re. outstanding share
options('000) 79,021 82,154
Fully diluted earnings per share 18.79p 20.23p
EARNING PER SHARE - UK GAAP
4.Net assets per share
2005 2004
£'000 £'000
Shares in issue ('000) 76,129 81,567
Net assets per balance sheet 88,341 80,600
Basic net assets per share 116.04p 98.82p
Shares in issue diluted by outstanding share options
('000) 76,279 82,358
Net assets after issue of share options 88,393 80,823
Fully diluted net assets per share 115.88p 98.14p
5.Dividend
2005 2004
Per share £'000 Per share £'000
Dividends paid during the year relating to the prior year 1.65p 1,355 1.525p 1,241
An interim dividend for 2005 of 0.55p amounting to £419,000 was paid on 25
January 2006 (2004: No interim dividend). The directors recommend the payment
of a final dividend for 2005 of 1.175p per ordinary share (2004: 1.65p)
amounting to £895,000 (2004: £1,355,000), making the total dividend for 2005
1.725p amounting to £1,314,000 (2004:1.65p amounting to £1,355,000). The final
dividend will be payable on 7th July 2006 to shareholders registered at the
close of business on 16 June 2006.
Dividends are now accounted for only in the financial year in which they are
paid, in accordance with revised accounting standards.
6. Revaluation of investment properties
99.9% of freehold and long leasehold properties were valued as at 31 December
2005 by external professional firms of chartered surveyors, the balance being
valued by the directors. The valuations were made at open market value on the
basis of existing use.
7. The figures for the year ended 31 December 2004 are based on the audited
accounts for that year, which have been delivered to the Registrar of
Companies and on which the Auditors gave an unqualified report and did not
contain a statement under Section 237(2) and (3) of the Companies Act 1985.
The preliminary announcement has been prepared on the basis of the accounting
policies set out above and the IFRS effects are set out in the document
entitled ' London & Associated Properties PLC announces the effect of
International Reporting Standards' dated 20 October 2005 which is available on
the Company's website (www.lap.co.uk/Press). The Group has applied these
policies for the year ended 31 December 2005 in the financial statements in
accordance with IFRS for the first time and with those parts of the Companies
Act 1985 applicable to companies reporting under IFRS. The figures for the year
ended 31 December 2004 have been restated accordingly.
The financial information set out in this preliminary announcement, which was
approved by the Board of London & Associated Properties PLC on 27 April 2006,
is unaudited and does not constitute the Company's statutory accounts for the
year ended 31 December 2005, but is derived from those accounts.
Accounting policies
The following are the principal accounting policies:
Basis of accounting
The group financial statements have been prepared in accordance with
International Financial Reporting Standards(IFRS), as adopted by the European
Union for the first time and with those parts of the Companies Act 1985
applicable to companies reporting under IFRS. The company has elected to
prepare the parent company's financial statements in accordance with UK GAAP,
as applied in accordance with the provisions of the Companies Act 1985.
The financial statements have been prepared under the historical cost
convention, except for the revaluation of freehold and leasehold properties and
financial assets held for
trading.
The preparation of the financial statements requires management to make
assumptions and estimates that may affect the reported amounts of assets and
liabilities and the reported income and expenses. Although management believes
that the assumptions and estimates used are reasonable, the actual results may
differ from those
estimates.
Change in accounting policies
Prior to the adoption of IFRS the financial statements had been prepared in
accordance with United Kingdom accounting standards(UK GAAP). The accounting
policies set out below have been applied consistently to all periods presented
in these consolidated statements and in preparing an opening IFRS balance sheet
at 1 January 2004, for the purposes of the transition to Adopted IFRS.
Basis of consolidation
The group accounts incorporate the accounts of London & Associated Properties
PLC and all of its subsidiary undertakings, together with the group's share of
the results of its joint ventures and associates.
Subsidiaries
Subsidiaries are those entities controlled by the group. Control is assumed
when the group has the power to govern the financial and operating policies of
an entity or business and to benefit from its activities. Subsidiaries
acquired during the year are consolidated using the acquisition method. Their
results are incorporated from the date that control passes.
Joint ventures
Investments in joint ventures, being those entities over whose activities the
group has joint control, as established by contractual agreement, include the
appropriate share of the results and net assets of those undertakings.
Associates
Undertakings in which the group has a participating interest of not less that
20% in the voting capital and over which it has the power to exert significant
influence are defined as associated undertakings. The financial statements
include the appropriate share of the results and reserves of those undertakings.
Revenue
Rental income
Rental income arises from operating leases granted to tenants . An operating
lease is a lease other than a financial lease. A finance lease is one whereby
substantially all the risks and rewards of ownership are passed to lessee.
Rental income is recognised in the group income statement on a straight-line
basis over the term of the lease. This includes the effect of lease incentives
to tenants, which are normally in the form of rent free periods or capital
contributions in lieu of rent free periods.
For income from property leased out under a finance lease, a lease receivable
asset is recognised in the balance sheet at an amount equal to the net
investment in the lease, as defined in IAS17. Minimum lease payments
receivable, again as defined in IAS 17, are apportioned between finance income
and the reduction of the outstanding lease receivable so as to produce a
constant periodic rate of return on the remaining net investment in the lease.
Contingent rents, being the difference between the rent currently receivable
and the minimum lease payments when the net investment in the lease was
originally calculated, are recognised in property income in the periods in
which they are receivable.
Reverse surrender premiums
Payments received from tenants to surrender their lease obligations are
recognised immediately in the income statement.
Dilapidations
Dilapidations monies received from tenants in respect of their lease
obligations are recognised immediately in the income statement.
Other revenue
Revenue in respect of listed investments held for trading represents investment
dividends received and profit or loss recognised on realisation. Dividends are
recognised in the income statement when the dividend is received.
Property operating expenses
Property operating expenses are expenses as incurred and any property operating
expenditure not recovered from tenants through service charges is charges to
the income statement.
Employee benefits
Share based remuneration
The company operates a long- term incentive plan and share option scheme. The
fair value of the conditional awards on shares granted under the long- term
incentive plan and the options granted under the share option scheme are
determined at the date of grant. This fair value is then expensed on a
straight- line basis over the vesting period, based on an estimate of the
number of shares that will eventually vest. At each reporting date, the fair
value of the non- market based performance criteria of the long- term incentive
plan is recalculated and the expense is revised. In respect of the share option
scheme, the fair value of options granted is calculated using binomial a model.
Pensions
The company operates a defined contribution pension scheme. The contributions
payable to the scheme are expensed in the period to which they relate.
Financial instruments
Investments
Held to maturity investments are stated at cost less impairment losses.
Investments held for trading are included in current assets and are revalued at
fair value. For listed investments, fair value is the bid market listed value
at the balance sheet date. Realised and unrealised gains or losses arising from
changes in fair value are included in the income statement of the period in
which they arise.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. A provision
for impairment of trade receivables is made when there is evidence that the
group will not be able to collect all amounts due.
Trade and other payables
Trade and other payables are stated at cost.
Bank loans and overdrafts
Bank loans and overdrafts are included as financial liabilities on the group
balance sheet at the amounts drawn on the particular facilities. Interest
payable on those facilities is expensed as a finance cost in the period to
which it relates.
Debenture loan
The debenture loan is included as a financial liability on the balance sheet
net of the unamortised discount and costs on issue. The difference between this
carrying value and the redemption value is recognised in the group income
statement over the life of the debenture on an effective interest basis.
Interest payable to debenture holders is expensed in the period to which it
relates.
Finance lease liabilities
Finance lease liabilities arise for those investment properties held under a
leasehold interest and accounted for as investment property. The liability is
initially calculated as the present value of the minimum lease payments at inception,
reducing in subsequent reporting periods by the apportionment of payments to the lessor.
Lease payments are allocated between the liability and finance charges so as to
achieve a constant financing rate. Contingent rents payable, such as rent
reviews or those related to rental income, are charged as an expense in the
period in which they are incurred.
Interest rate derivatives
The group uses derivative financial instruments to hedge the interest rate risk
associated with the financing of the group's business. No trading in such
financial instruments is undertaken. At each reporting date, these interest
rate derivatives are recognised at fair value, being the estimated amount that
the group would receive or pay to terminate the agreement at the balance sheet
date, taking into account current interest rates and the current credit rating
of the counterparties. The attaching hedged instrument is also recognised at
fair value. The gain or loss at each fair value remeasurement is recognised
immediately in the group income statement.
The group has applied IAS32 'Financial instruments: Disclosure and
presentation' and IAS39 'Financial instruments: Recognition and measurement'
with effect from 1 January 2005.
Treasury shares
When the group's own equity instruments are repurchased, consideration paid is
deducted from equity as treasury shares until they are cancelled. When such
shares are subsequently sold or reissued, any consideration received is
included in equity.
Investment properties
Valuation
Investment properties are those that are held either to earn rental income or
for capital appreciation or both, including those that are undergoing
redevelopment. They are reported on the group balance sheet at fair value,
being the amount for which an investment property could be exchanged between
knowledgeable and willing parties in an arm's length transaction, and adjusted
to include the carrying value of leasehold interests and lease incentive
debtors. The valuation is undertaken by independent valuers who hold recognised
and relevant professional qualifications and have recent experience in the
locations and categories of properties being valued.
Surpluses or deficits resulting from changes in the fair value of investment
property are reported in the group income statement in the period in which they
arise.
Capital expenditure
Capital expenditure, being costs directly attributable to the redevelopment or
refurbishment of an investment property, up to the point of it being completed
for its intended use, are capitalised in the carrying value of that property.
The redevelopment on an existing investment property will remain an investment
property measured at fair value and is not reclassified.
Capitalised interest is calculated with reference to the actual rate payable on
borrowings for development purposes, or for that part of the development costs
financed out of borrowings the capitalised interest is calculated on the basis
of the average rate of interest paid on the relevant debt outstanding.
Disposal
The disposal of investment properties is accounted for on completion of
contract. On disposal, any gain or loss is calculated as the difference between
the net disposal proceeds and the valuation at the last year end plus
subsequent capitalised expenditure in the period.
Depreciation and amortisation
In applying the fair value model to the measurement of investment properties,
depreciation and amortisation are not provided in respect of investment
properties.
Property, plant and equipment
Other non- current assets, comprising property, plant and equipment, are
depreciated at a rate of between 10% and 25% per annum which is calculated to
write off the cost, less estimated residual value of the assets, over their
expected useful lives.
Goodwill
Goodwill arising on acquisition is recognised as an intangible asset and
initially measured at cost, being the excess of the cost of the acquired entity
over the group's interest in the fair value of the assets, liabilities
acquired. Goodwill is carried at cost less accumulated impairment losses.
Income taxes
The charge for current taxation is based on the results for the year as
adjusted for disallowed or non-assessable items.
Tax payable upon realisation of revaluation gains recognised in prior periods
is recorded as a current tax charge with a release of the associated deferred
tax.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the tax computations, and is
accounted for using the balance sheet liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. In respect of the deferred tax on the revaluation
surplus, this is calculated on the basis of the chargeable gains that would
crystallise on the sale of the investment portfolio as at the reporting date.
The calculation takes account of indexation on the historic cost of properties
and any available capital losses.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the group income statement , except when it relates to
items charged or credited directly to equity, in which case it is also dealt
with in equity.
Cash and cash equivalents
Cash comprises cash in hand and on-demands deposits, net of bank overdrafts.
Cash equivalents comprises short- term, highly liquid investments that are
readily convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value and original maturities of three months
or less.
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