Final Results
Great Portland Estates PLC
03 June 2003
3 June 2003
PRELIMINARY RESULTS
The Directors of Great Portland Estates plc announce the results of the Group
for the year ended 31 March 2003.
Highlights
• Adjusted* earnings up 4.7% to 13.3p per share (2002: 12.7p)
• Dividend up 2.5% to 10.25p per share (2002: 10.0p)
• Dividend cover* 1.3 times
• Interest cover (pre-exceptionals) 2.7 times
• Adjusted+ diluted net assets per share before exceptional items down 11.2%
to 310p (2002: 349p)
• Adjusted+ diluted net assets per share after exceptional items down 17.8% to
287p (2002: 349p)
• £130 million 10 3/4% Debenture 2021 purchased
• £216 million of property sales in the year
• 24% of rent roll reviewed, renewed, let or restructured
• Like-for-like rent roll up 8.2%
• Void rate of 3% (1.9% in Central London) well below market average
• Net gearing+ 32%
• £310 million of cash and undrawn bank facilities
• Triple NAV adjustments less than 4% of NAV as compared to 14.4% in 2001
*excluding exceptional items, profits or losses on sales of investment
properties and deferred tax on capital allowances
+excluding deferred tax on capital allowances
Toby Courtauld, Chief Executive, said:
'This was an active year for Great Portland. Following a strategic review we
sold £216 million of non-core properties, reduced gearing to 32%, made some
solid progress on our development programme, maintained full occupancy within
the portfolio and strengthened the team.
'The London occupational markets remain challenging, particularly in the City.
In the West End, the rental market has broadly corrected and, with our
significant firepower, we will be looking to uncover interesting opportunities
for future growth.'
Enquiries etc:
Great Portland Estates plc 020 7580 3040
Toby Courtauld, Chief Executive
John Whiteley, Finance Director
Finsbury Group 020 7251 3801
Edward Orlebar
Key Statistics
At 31 March 2003
• Rent roll £58.5 million
• Reversionary potential over the next five years £1.1 million
• Average length of lease 7.2 years
• Adjusted+ net assets per share 285p
• FRS 13 adjustment per share (net of tax) 4p
• Contingent CGT per share 7p
• Average length of debt 20 years
• Average cost of debt 6.6%
+excluding deferred tax on capital allowances
CHAIRMAN'S STATEMENT
Overview
As I reflect on the past twelve months, I am pleased to be able to report
positive progress in challenging markets. Just over a year ago Toby Courtauld
was appointed as the new Chief Executive at a time when the Company had been
largely transformed into a focused, central London investment and development
business, with an appropriate debt and gearing structure. Since then, assisted
by Robert Noel, he has put together a strong property team, who have not only
continued the momentum of change, but also thoroughly reappraised the existing
portfolio, whilst adhering to the traditional principles of sound property
management for asset enhancement. In the prevailing climate we have addressed
the key issue of preservation of income, paying particular attention to the
elimination of current and potential voids.
Results
The results for the year under review are, once again, somewhat distorted by the
recent activities and by the purchase in April 2002 of the £130 million 10 3/4%
Debenture 2021. Not only did this prove to be exceptionally well-timed but, more
importantly, gave us the flexibility to dispose of assets which had hitherto
been encumbered. Nearly one quarter of the investment properties has been sold
at an aggregate figure in line with the March 2002 valuation, a notable
achievement in tough conditions. The remaining portfolio fell by 10% in the same
period which, coupled with the loss on the debenture purchase, has left diluted
net asset value per share at 287p and triple net asset value per share at 276p.
Meanwhile, adjusted earnings per share have risen to 13.3p and your directors
are recommending a final dividend of 6.83p, making a total for the year of
10.25p, up 2.5%. As I said at the interim stage, your Board continues to attach
great importance to the level of dividend as an integral part of total
shareholder return, where we have outperformed the main indices since January
2000.
Board
During the year there have been significant Board changes, with Toby Courtauld
and Robert Noel being appointed Chief Executive and Property Director
respectively. Howard Perlin, who has been an exemplar of corporate governance
and wise counsel since 1994, will be retiring at the Annual General Meeting in
July and I would like to place on record my personal appreciation of his
substantial contribution. Kathleen O'Donovan who, inter alia, is Chairman of the
Audit Committee of the Court of the Bank of England, joined us on 1 April. On
corporate governance generally I, along with many other Chairmen of listed
companies, have reservations about some of the Higgs reforms and it is to be
hoped that the Financial Reporting Council will consider some redrafting before
implementation. Meanwhile, we do comply with the vast majority of the
recommendations and, where not, we have chosen explanation rather than
fulmination.
Conclusion
The markets in which we operate remain challenging and may well do so for
slightly longer than some commentators had previously anticipated. Nevertheless,
we have put in place a new management team and the firepower to take advantage
of the opportunities which will become available, particularly in the West End.
The recent purchase of Metropolis House is the start of a sensibly structured
short and medium-term development programme, including sites which have been
carefully assembled over the years. In conclusion, your Board remains committed
to the strategy, which has been rigorously implemented for over four years, to
provide a focused central London portfolio with an appropriate capital structure
and with the aim of delivering maximum shareholder value.
Richard Peskin
Chairman
CHIEF EXECUTIVE'S REVIEW
The financial year that ended in March can be characterised by a number of
factors: continued portfolio rationalisation with disposals totalling some £216
million; a de-gearing of the balance sheet using sales proceeds to repay 31% of
outstanding debt; some solid progress on our development programme; the
maintenance of approaching full occupancy levels despite the challenging London
occupational markets; and a significant strengthening of both the team and the
way we run, and measure the performance of, our business at Great Portland.
This time last year in my first Chief Executive's Review, I outlined three key
areas for the new management team to address under the headings of Capital
Structure, Asset Strategy and our People and Processes. On each count, I am
pleased to report that we have made good progress and we are better positioned
today than we were twelve months ago.
Following the use of £197 million to repay debt, including the purchase of our
£130 million 103/4% Debenture 2021 in April 2002, financed by property sales
during the year, the Group now has net gearing of 32% (down from 47% at the
start of the year) and an average interest cost on the outstanding debt of 6.6 %
(down from 7.8% at the start of the year). Over the past 24 months the liability
side of the balance sheet has been entirely restructured. Through both redeeming
and purchasing debentures, the FRS13 adjustment to NAV has been almost
eliminated, at 4p per share, as compared to 32p per share in 2001. Great
Portland's balance sheet, therefore, is clean and transparent as a result of
this restructuring. We have cash and undrawn bank facilities of £313 million
providing us with the capacity to exploit value-enhancing opportunities as we
unearth them. In the meantime, the crystallisation of reversions through rent
review settlements during the year, together with the reduced interest charge,
has increased interest cover from 1.9 times in 2002 to 2.7 times this year.
In considering our capital structure, we review continually the amount of
capital we believe we will require, particularly in the context of the state of
the market and our prospective development and acquisition programmes. We remain
of the view that the current weak state of the London property market will
provide us with ample opportunity to profit from our balance sheet strength in
the near future.
Building on my predecessors' refocusing of the portfolio into central London,
during the year we refined our asset strategy through a detailed property
planning exercise that helped us to identify which assets would produce
acceptable, risk-adjusted returns when measured against our cost of capital, and
which would not. As a result of this analysis, we capitalised on the strength of
the investment market (particularly from private investors) to dispose of 28
ex-growth or mature properties for £215.6 million, exactly in line with their
March 2002 book value. In each case, these were assets with little opportunity
for us to add any further value due to their level of over-renting and weak
local market. Following these sales, the bulk of our disposal programme has now
been completed.
With the relatively benign outlook for general asset price inflation in the UK
economy and the central London markets currently showing declining rental
trends, we have to sweat our assets harder in order to generate outperformance.
This means taking a pragmatic approach to, for example, lettings, lease renewals
and rent reviews in order to keep our portfolio as close to fully let as
possible. Simultaneously, we must constantly be on the look out for
opportunities to strengthen the rental cash flow generated by each property.
Good examples of this approach during the year are the lease renewals of
tenancies accounting for some 10% of the Group's annual rent roll before they
were due to expire, thereby avoiding the risk inherent in re-letting these units
in a weak occupational market. As a result our void level at 3.0% remains low,
and in central London, where 95% of our portfolio is based, it stands at 1.9%,
significantly lower than central London market levels.
Recycling shareholders' capital is an integral component of our asset strategy.
Once we have brought a property's cash flow to maturity, we look to dispose of
the asset in order to reinvest the capital into immature propositions -
situations where we can add value through our management efforts. At 21
Bloomsbury Street, WC1 we lengthened the Government's lease and simultaneously
sold the investment to an institutional investor generating a profit of almost
£3 million. At the other end of the spectrum, in the first major acquisition by
the new team, we contracted to purchase Metropolis House on Tottenham Court
Road, W1. This 1960's, largely vacant and dilapidated tower provides us with the
opportunity for a major refurbishment to deliver 100,000 sq. ft. of grade A West
End office and retail space in 2005, when, we predict, the market will be short
of new high quality floor plates.
Of significant importance during the year has been the strengthening of the team
at Great Portland and the modernisation of some of our systems and processes.
This work is now largely complete and we now have a first class group of
professionals working in an atmosphere of constructive dynamism.
Outlook
Whilst we have made good progress in addressing some of the key themes I
outlined at the beginning of the year, we are operating in a challenging
occupational environment with the supply of office space currently outstripping
demand. We will continue to offer our existing and prospective occupiers
flexibility in our approach to their requirements with our sights set firmly on
generating new rental income and keeping the void rate low.
We will focus much of our attention this year on new business - both on looking
outside the portfolio for interesting acquisitions, and on bringing our
development prospects forward. We have the nucleus of a high quality,
medium-term development programme emerging, recently supplemented by the
nearer-term opportunity at Metropolis House. With the important caveat that we
are still witnessing unrealistic price expectations on the part of many vendors,
with careful timing and imaginative stock picking, we expect to start the
process of replenishing the rent roll with income from acquisitions that will
provide us with medium-term, real growth prospects.
Great Portland has a clear, well communicated strategy, a committed management
supported by strong, entrepreneurial property and finance teams and significant
reserves of balance sheet firepower. This is an exciting combination and I am
looking forward to meeting the challenges from this enviable position of
strength and reporting to you on our progress.
Toby Courtauld
Chief Executive
PORTFOLIO REVIEW
The last year was a difficult one for central London property markets. Across
the Capital supply, particularly of office space, outstripped demand with
vacancy rates at the end of the period exceeding 11%. Whilst much of the
surplus office accommodation was marketed by tenants, not landlords, the
negative effect on rental values has been felt by all, particularly in the City.
Here rental values for Grade A space in some areas have declined by over 25%
in the past twelve months and are, we estimate, set to fall further this year.
We will not witness rental stability until general business sentiment improves
and companies regain the confidence to expand.
It was against this background that we carried out a strategic review of our
portfolio early in the year, from which it was clear that we needed to act
decisively on three fronts:
1. Property Disposals
During the year, £215.6 million of investment properties were sold in line with
their March 2002 valuation, the majority of which took place in the second half
of the year, and we sold the remainder of our trading portfolio.
2. Management of Income and Voids
In the face of rapidly correcting rental values, we regarded it essential that
we concluded as many outstanding rent reviews as possible whilst also
approaching occupiers to discuss impending lease expiries well in advance.
During the year, 24% of the rent roll has been reviewed, renewed, let or
restructured. £3.5 million of net new rents have been added to the rent roll
through rent reviews, lease renewals and new lettings, whilst the percentage of
rent subject to an expiry during the next 24 months has been reduced by over a
third from 23.4% to 14.7%.
At the beginning of the year, our void rate stood at 1.3%. In the face of
challenging letting market conditions, today that figure has moved to 3.0%. In
central London, which contains 95% of our portfolio, voids are only 1.9%,
comparing favourably with the rate for the central London market overall of over
11%.
3. Revisiting our Development Prospects
We have potential development sites in London at Bishopsgate, EC2, our head
office building in Mortimer Street, W1, Great Portland Street, W1, Titchmor on
Mortimer Street, W1, and New Bond Street, W1. All of these and other
opportunities have been considered fully during the year. We will be submitting
new planning applications during the summer for 190 Great Portland Street, and
later this year for our Titchmor site, which will likely provide for the
retention of the 1930's Elsley House and Elsley Court. We are in the design
stage of an exciting redevelopment of Bond Street House situated in one of the
best retail locations in the Capital at the junction of New Bond Street and
Clifford Street, W1.
At two of our sites, redevelopment has been deferred following profitable asset
management activities. First, at our Bishopsgate holdings, we restructured a
lease with the principal occupier and the Group's single largest tenant, the
Willis Group, extending 93% of the property's income from 2004 until 2011.
Second, at Hanover Square, W1, following an extension of the leases to Harbottle
& Lewis and Abbey National from 2004 to 2013 and 2017, respectively, a
redevelopment of the building will not be taken forward.
Valuation
The external valuation, carried out by CB Hillier Parker, registered a decline
of £91.4 million or 10.5% to £780.0 million. The West End portfolio fell by
10.1% in the year, although the rate of fall was lower in the second half,
whilst the City and Holborn properties fell by 14.1%, primarily in the second
six months. The small portfolio outside London rose by 0.5% during the period.
As we predicted both this time last year and at the Interim stage, the central
London market - particularly in the City - has seen a material correction in
values. The valuation of our central London properties has fallen broadly in
line with the declines registered in the Capital and, were it not for our
disposals and asset management activities, would have fared less well
relatively. There are two key reasons behind the valuation result: first,
weakness in the letting market has undermined rental values (by 15.2% in our
London portfolio) meaning that reversions previously anticipated by the valuers
are now less likely to flow through; and, second, empty space is proving more
difficult to let, with rents lower and incentives higher than 12 months
previously. The reality of our letting efforts during the year was that the
void rate remained at similarly low levels to that at March 2002, and the City
and Holborn portfolio remained fully let.
As at 31 March 2003, the portfolio's value of £780.0 million reflected a net
initial yield of 6.3%. It was broadly rack-rented, with £1.1 million of
reversion to come through over the next five years before a number of
over-rented leases expire to reduce the income. The total five year
reversionary potential of the portfolio, including voids and properties under
refurbishment, was £62.0 million, on a rent roll at the year end of £58.5
million. At the beginning of the year the reversionary potential of the Group
stood at £12.5 million. Since then, £5.1 million has been crystallised through
asset management activities and £10.0 million was accounted for by declining
rental values, whilst through our sales programme we disposed of properties
which were over-rented by £1.5 million.
West End and Covent Garden
At March 2003, availability in the West End office market stood at just over 9
million sq. ft., or approximately 11% of the stock, up from around 5% in March
2002. Take up during 2002 was in line with the long-term average at just under
4 million sq. ft., but in the last quarter of 2002 and the first quarter of 2003
it was disappointing at 1.7 million sq. ft., with viewings down on normal market
levels.
By far the majority of space to let was second-hand and quoting rents had been
reduced significantly to encourage demand. Although there were pockets of the
market where many years' supply existed at current demand levels and there will
be further downward pressure on rents, we believe that rental levels in the West
End have now broadly corrected for good quality space and we are encouraged by
the significant level of viewings since the end of hostilities in Iraq. Today,
there is little availability of good new floor plates of Grade A standard in the
West End and, indeed, where these become available there is evidence of
increasing demand.
Our West End portfolio at 31 March 2003 was valued at £550.6 million,
representing 70.5% of the Group's total portfolio. Of this, £290.1 million was
in offices north of Oxford Street, with £121.2 million in offices in the rest of
the West End and £136.2 million in West End retail.
Average rents passing for offices north of Oxford Street at 31 March 2003 were
£29 per sq. ft., up from £25 per sq. ft. last year, primarily due to significant
rent reviews at 160 Great Portland Street, where the passing rents of £2.2
million were reviewed to £4.0 million, in line with our estimates this time last
year. Average rental values of offices north of Oxford Street fell from £33 per
sq. ft. to £29 per sq. ft. In the rest of the West End and Covent Garden
portfolio office rents passing increased from £35 per sq. ft. to £38 per sq. ft.
through rent reviews, although office rental values declined from £39 per sq.
ft. last year to £33 per sq. ft.
Retail rental values in the West End remained stable in the year with continued
demand for large format, well-located units. Average rents passing for our West
End retail properties, excluding those north of Oxford Street, rose from £58 per
sq. ft. to £76 per sq. ft., following the crystallisation of significant rental
reversion at 15/16 New Bond Street, W1.
Significant lease restructurings were entered into at 21 Bloomsbury Street, WC1,
34/43 Russell Street WC2, 55 Drury Lane, WC2, 14 Hanover Square, W1, and 27/35
Mortimer Street, W1. In each case the tenants committed to new, longer leases
at a total rent of £4.1 million strengthening the Group's rental cash flow.
£117.7 million of sales of West End investment property were executed during the
period including 11 Maddox Street, W1, 17/19 Bedford Street, WC2, 33 Chancery
Lane, WC2, 42/43 Drury Lane, WC2, Broad Court, WC2, 21 Bloomsbury Street, WC1
following the lease restructuring, 350 Oxford Street, W1, Kings Walk Shopping
Mall, Kings Road, SW3 and three flats in Covent Garden. These sales produced a
surplus over the March 2002 values of £6.1 million net of costs, mainly from the
sales of Bloomsbury Street and Kings Walk Shopping Mall. We also sold the
remaining flats at our residential development at Ranelagh House, SW3 resulting
in a small trading loss. Since the year end we have sold two properties, our
last remaining flat in Covent Garden and 26a,b,c Albemarle Street, W1, for £10.8
million, in line with 31 March 2003 values.
We acquired one small investment property during the year and, more
significantly, we exchanged contracts to buy a large refurbishment opportunity
at Metropolis House, 39/45 Tottenham Court Road and 28 Percy Street, W1 for £16
million with completion due towards the end of June. Starting on site in the
late summer, we will completely recondition this 1960's tower to offer 100,000
sq. ft. in a variety of Grade A floor sizes to the West End market in mid 2005.
City and Holborn
The City market has continued to see the effects of excess supply as the
expansionary boom of the late 1990's unwinds. The real estate economy in the
City is less diverse than the West End with a reliance on Financial and Business
Services, a sector reported to have shrunk by 25,000 jobs in the City since
2001.
Our City and Holborn portfolio at 31 March 2003 was valued at £187.0 million,
representing 24% of the Group's portfolio. The fall in values of 14.1% was
cushioned by the significant restructuring of this portfolio carried out during
the year. Average rents in our City portfolio were £32 per sq. ft., in line
with those at the same time last year. Average rental values were £30 per sq.
ft., down from £39 per sq. ft. last year.
Significant rent reviews were completed at 24/31 Holborn, EC1 and 90 Fetter
Lane, EC4, where rents were increased from £0.7 million to £1.5 million, broadly
in line with our estimates at the beginning of the year.
At 31 March 2003, we had no voids in the City and Holborn. We continue to work
to pre-empt potential voids through active asset management, an example of which
was the lease restructuring with the Group's single largest tenant, Willis, at 1
Camomile Street, EC2. Due to expire in September 2004, we extended the term on
this 75,000 sq. ft. of space to March 2011, in line with expiries at our
adjoining holding, 80 Bishopsgate. Put together, these two buildings comprise
130,000 sq. ft. and represent an exciting medium-term opportunity to develop a
significantly larger office building in a first rate City location.
During the year we sold 13/15 and 17 Moorgate, EC2 in two transactions for an
aggregate price of £31.3 million, just in excess of their 31 March 2002
valuation. The first of these was let at an average rent of £65 per sq. ft.
with 10.5 years remaining on the lease. The rental value was virtually half
this amount at the time we sold it in September.
Other Properties
The remainder of our portfolio consists of assets located outside central
London. These are considered non-core and will be disposed of at best advantage
over time. At 31 March 2003 we had four assets in this category with an
aggregate value of £42.4 million, up 0.5% over the period. The portfolio
comprises a leisure development at Sol Central, Northampton, now 95% let with
the last significant unit under offer, two office buildings in Maidenhead and a
recently-refurbished, largely vacant office building in Hounslow.
During the year we sold: Weybridge Business Park, Surrey; Stephenson and Knollys
House, Addiscombe Road, Croydon; 714/746 London Road, Hounslow; 51/53 Station
Road, Redhill; and a small parcel of land at London Road, Hounslow. The
aggregate net disposal receipts of £66.4 million, were some £8 million below the
31 March 2002 valuation.
FINANCIAL REVIEW
The major transactions to affect the results for the year ended 31 March 2003
were property disposals of £215.6 million and the repurchase of a high-coupon
debenture for £196.6 million.
There were no new accounting standards which applied for the first time in the
year, but, with the advent of the Group's first major development programme for
many years, we have changed our accounting policy in order to capitalise
interest on expenditure on developments and major refurbishments. This change of
accounting policy brings the Group into line will industry practice and complies
with international as well as UK accounting standards, and will affect the
results of the Group for the first time in the year ending 31 March 2004.
Results
The profit and loss account for the year ended 31 March 2003 comprises four
distinct elements: the underlying core business, which generated profits before
tax of £38.7 million (2002: £36.2 million) and earnings of 13.3p (2002: 12.7p);
the disposal of investment properties; exceptional finance costs; and a deferred
tax adjustment for accelerated capital allowances occasioned by FRS 19.
Rent receivable of £72.6 million was £12.7 million, or 15%, lower than last
year. Property disposals reduced rent by £18.5 million and expiries by £1.0
million, whereas new lettings and acquisitions added £3.0 million and rent
reviews a further £3.8 million. We have 269 tenants on 357 leases, but, despite
maintaining the portfolio virtually fully let throughout the year, we have been
required to provide for bad debts equivalent to only 0.3% of gross rents.
This year saw a significant turnover of personnel, particularly within the
property group, and the costs of those changes, together with professional fees
associated with initiatives put in place by the new team, were largely
responsible for the increase in property and administration costs in the year.
The sales of investment properties of £215.6 million were in line with the
valuation at 31 March 2002, and the loss on their sale of £2.4 million comprised
associated selling costs. Net interest payable of £93.4 million was distorted by
the premium of £66.6 million paid on the purchase of the £130 million 103/4%
First Mortgage Debenture Stock 2021 and the provision for the future cost of
interest rate swaps unlikely to be matched by borrowings in the coming year; in
2002 it was similarly distorted by a debenture redemption cost of £28.2 million
and a £2.1 million cost of cancelling an interest rate swap. Excluding these
exceptional items, net interest payable fell by £17.1 million, or 42%, from
£40.3 million to £23.2 million, largely reflecting the use of disposal proceeds
to cancel the high-coupon debenture in the year.
Adjusted profits before tax of £38.7 million attracted a tax charge of £11.7
million, representing a tax rate on the underlying core business of 30.0% (2002:
27.1%). Crystallising the loss on the debenture purchased in the year will
largely preclude our paying any corporation tax in 2003 and 2004, as the tax
charge on the underlying business in 2003 will be offset against the tax credit
available on the exceptional debenture loss. In total, exceptional items
attracted a tax credit of £20.7 million, £9.3 million of which has been carried
forward as a deferred tax asset. The loss on disposal of investment properties
attracted no immediate tax relief, and the requirement of FRS 19 to account for
the potential tax payable on the reversal of all capital allowances claimed,
produced a tax credit of £4.7 million, in respect of capital allowances which
did not reverse on disposals made during the year. The aggregate effect of these
various elements is a tax credit on the face of the profit and loss account of
£13.7 million.
The final dividend will be paid, subject to shareholders' approval, on 17 July
2003 to shareholders on the register at 13 June; the total dividend for the year
of 10.25p per share (2002: 10.0p) reflected a 2.5% increase on last year, and
was covered 1.30 times by adjusted earnings (2002: 1.27 times).
Financing
The purchase of the £130 million 103/4% First Mortgage Debenture Stock 2021 in
April 2002 saved approximately £5.5 million in interest costs in the year, and
had the purchase been effected on 31 March 2003, falls in interest rates and
margins on corporate bonds in the intervening period would have increased its
cost by over £20 million before tax. Importantly, purchasing the debenture
released 20% of the portfolio from charge, enabling the property disposals to be
made later in the year. Purchasing the 2021 debenture has reduced our weighted
average cost of borrowing, but the significant number of property disposals in
recent years has enabled us to pay off all of our bank borrowings against which
we had entered into interest rate swaps to fix their effective rates.
Accordingly, the weighted average cost of borrowing of those facilities which
were drawn down fell to 6.6% at 31 March 2003 (2002: 7.8%), and the future costs
associated with interest rate swaps unlikely to be matched by borrowings have
been provided for. Gearing at 31 March 2003, adjusted to exclude the capital
allowances element of the deferred tax provision, was 32% (2002: 47%), net of
cash balances of £103.5 million, and the Group had in place undrawn bank
facilities of £210 million. Under FRS 13, the market value of the Group's
financial instruments at 31 March 2003 exceeded the amount at which they were
shown in the group balance sheet by £9.2 million, representing a potential
reduction in diluted net assets per share of 4p.
The 51,531 share options exercised in April 2002 represented the last of those
issued under the 1988 Executive Share Option Scheme, and there were no other
movements in share capital during the year. At the Annual General Meeting on 15
July 2003 the Board will seek to renew shareholders' authority to be able to buy
up to 15% of the Company's issued share capital.
Cash Flow
Net cash from operating activities, after the payment of interest and tax, was
£39.9 million, from which dividends of £20.4 million were paid, leaving £19.5
million of cash generated by the underlying business retained within the Group.
Of the proceeds from the disposal of investment properties of £210.5 million,
£197.4 million was used to repay loans, and £12.5 million to finance capital
expenditure, resulting in a small surplus of £0.6 million. £18.3 million of
these net cash inflows was placed on short-term deposit, and the remaining £1.8
million accounted for the increase in the cash balance over that of twelve
months earlier.
Net Assets
Shareholders' funds at 31 March 2003 were £568.5 million (2002: £701.8 million)
or £578.7 million (2002: £716.7 million) excluding the capital allowances effect
of FRS 19. The fall in adjusted net assets of £138.0 million comprised a
reduction in the value of the property portfolio of £91.4 million, exceptional
items, which will be earnings-enhancing in the future, of £49.8 million, and
retained profits of £5.6 million, before exceptional items, which offset capital
losses of £2.4 million.
Excluding the effect of FRS 19, net assets per share fell from 353p to 285p, and
diluted net assets per share from 349p to 287p. Had the Group's investment
properties been sold for their book value at the balance sheet date, the
contingent liability to taxation on capital gains would have been approximately
£14 million, or 7p per share (2002: 13p), and disposing of the high coupon
debenture during the year was the principal reason for the fall from 22p to 4p
per share in the effect of marking the Group's financial instruments to market.
Accordingly, fully diluted adjusted triple net asset value fell by 12.1% from
314p to 276p.
Financial Instruments
The Group raises finance through equity and borrowings, and places surplus cash
on short-term deposit. The primary sources of borrowing are debenture loans,
convertible loans and bank and other loans. The Group also enters into interest
rate swaps, collars and caps, but solely as a way of managing the interest rate
risks arising from some of the Group's sources of finance, primarily bank loans.
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and credit risk. The policies for managing these are
reviewed by the Board, and have been in place throughout the year ended 31 March
2003.
Interest Rate
Borrowings are made either at fixed rates of interest, or at floating rates,
which can be fixed simultaneously, and co-terminously, by means of interest rate
swaps. The Group's policy has been to ensure that most of its borrowings were at
fixed rates; at 31 March 2003, 98% of borrowings were at fixed rates. In the
year ended 31 March 2003, provision has been made for expected future costs of
interest rate swaps no longer matched by bank borrowings.
Liquidity
The Group operates a long-term business, and its policy is to finance it
primarily with equity, and medium-term and long-term borrowings. Accordingly, at
the year end 69% of the Group's borrowings were due to mature in more than 15
years. Short-term flexibility is achieved by cash balances and overdraft
facilities.
Credit
At 31 March 2003, the Group had £101.7 million on short-term deposit with
financial institutions. It is the Board's policy that deposits and derivative
contracts are placed only after consideration of the current credit worthiness
of the counter-party.
John Whiteley
Finance Director
Portfolio Statistics
Rental income At 31 March 2003
Rent Roll Five Year Five Year Reversionary Total
£m Reversionary Rental Potential Rental
Potential Values Over Five Values
£m £m Years £m
£m
London North of Office 20.8 0.7 21.5 0.2 21.7
Oxford Street
Retail 3.8 0.1 3.9 (0.1) 3.8
Other 0.3 - 0.3 - 0.3
Rest of West Office 9.7 - 9.7 (1.2) 8.5
End
Retail 5.0 0.2 5.2 (0.1) 5.1
Total West End and 39.6 1.0 40.6 (1.2) 39.4
Covent Garden
City and Office 15.3 0.1 15.4 (1.5) 13.9
Holborn
Retail 0.4 - 0.4 0.5 0.9
Total London 55.3 1.1 56.4 (2.2) 54.2
Outside London 3.2 - 3.2 - 3.2
Total Let Portfolio 58.5 1.1 59.6 (2.2) 57.4
Voids 1.8 - 1.8
Premises under refurbishment 0.6 - 0.6
Total Portfolio 62.0 (2.2) 59.8
Rent Roll Weighted
Secure for Average
Five Years Lease Length
% Years Voids
%
London North of Office 57.6 5.0 2.0
Oxford Street
Retail 53.9 6.6 0.6
Other 64.4 0.7 -
Rest of West Office 86.1 8.0 4.8
End
Retail 67.8 8.4 2.3
Total West End and 65.6 6.3 2.6
Covent Garden
City and Office 78.1 8.0 -
Holborn
Retail 41.4 10.9 -
Total London 68.9 6.7 1.9
Outside London 77.4 14.1 18.8
Total Let Portfolio 69.4 7.2 3.0
Rental income At 31 March 2003
Average Rent Average ERV Initial Equivalent
£psf £psf Yield Yield
% %
London North of Oxford Street Office 29 29 6.8 7.1
Retail 21 21 6.1 6.8
Other 21 17 8.0 7.6
Rest of West End Office 38 33 5.7 7.0
Retail 76 77 5.2 6.0
Total West End and Covent Garden 32 31 6.3 6.9
City and Holborn Office 34 31 6.5 7.5
Retail 9 22 4.5 7.0
Total London 32 31 6.3 7.0
Outside London 13 13 6.8 8.5
Total Let Portfolio 30 29 6.3 7.1
Analysis of Five Year Rental Values Lease Expiries
£m %
Rent roll 58.5 Less than 5 years 30.6
Rent reviews 1.1 5 to 10 years 45.7
and lease 1.8 10 to 15 years 17.8
renewals 0.6 Over 15 years 5.9
Under
refurbishment
Voids 62.0 100.0
Occupier Portfolio Breakdown
% London (%) Other (%)
Retailers 23.2 2000 53 47
Professional 22.8 2001 70 30
Media & 20.1 2002 90 10
Marketing 18.9 2003 95 5
Banking and 8.2
Finance 3.7
Corporates 3.1
IT & Telecoms
Government
100.0
Investment Property Portfolio
Offices Retail Other Total
£m £m £m £m
London North of Oxford Street 290.1 54.7 3.1 347.9
Rest of West End 121.2 81.5 - 202.7
Total West End and Covent Garden 411.3 136.2 3.1 550.6
City and Holborn 178.8 8.2 - 187.0
Total London 590.1 144.4 3.1 737.6
Outside London 17.0 8.4 17.0 42.4
Total 607.1 152.8 20.1 780.0
Portfolio Performance
Valuation Proportion of Valuation Movement 12 Month
£m Portfolio % Total
% Return
%
London North of Oxford Office 290.1 37.2 (13.0) (6.9)
Street
Retail 54.7 7.0 (3.7) 1.4
Other 3.1 0.4 - 7.8
Rest of West End Office 121.2 15.5 (15.1) (3.4)
Retail 81.5 10.4 6.1 11.4
Total West End and Covent 550.6 70.5 (10.1) (2.0)
Garden
City and Holborn Office 178.8 22.9 (14.7) (7.0)
Retail 8.2 1.1 - 8.5
Total City and 187.0 24.0 (14.1) (6.4)
Holborn
Total London 737.6 94.5 (11.1) (4.2)
Outside London Office 17.0 2.2 (11.5) (2.6)
Retail 8.4 1.1 6.3 12.2
Other 17.0 2.2 12.6 10.4
Total Let Portfolio 780.0 100.0 (10.6) (2.6)
By Use
Valuation Proportion of Valuation Movement 12 Month
£m Portfolio % Total
% Return
%
Offices 607.1 77.8 (13.9) (5.6)
Retail 152.8 19.6 2.1 7.1
Other 20.1 2.6 14.2 10.1
Total 780.0 100.0 (10.6) (2.6)
Group Profit and Loss Account
For the year ended 31 March 2003
Notes 2003 2002
£m £m
Rent receivable 2 72.6 85.3
Ground rents (1.9) (1.7)
Net rental income 70.7 83.6
Property and refurbishment costs (1.9) (2.1)
Administration expenses 3 (6.7) (5.7)
62.1 75.8
Trading (losses)/profits (0.5) 0.4
Operating profit 61.6 76.2
Loss on sale of investment properties (2.4) (3.2)
Profit on ordinary activities before interest 59.2 73.0
Interest receivable 5 1.7 1.8
Interest payable 6 (24.9) (42.1)
Exceptional interest costs 7 (70.2) (30.3)
(Loss)/profit on ordinary activities before taxation (34.2) 2.4
Tax on (loss)/profit on ordinary activities 8 13.7 2.1
(Loss)/profit on ordinary activities after taxation (20.5) 4.5
Dividends 9 (20.8) (20.3)
Retained loss for the year (41.3) (15.8)
(Loss)/earnings per share - basic 10 (10.1)p 2.1p
Earnings per share - adjusted 10 13.3p 12.7p
A statement of the movement on reserves is given in note 22.
Group Balance Sheet
At 31 March 2003
Notes 2003 2002
£m £m
Tangible fixed assets
Investment properties 11 779.4 1,076.1
Investments 12 1.7 -
781.1 1,076.1
Current assets
Stock of trading properties - 1.9
Debtors 13 26.4 17.8
Cash at bank and short-term deposits 103.5 83.4
129.9 103.1
Creditors: amounts falling due within one year 14 (41.6) (44.8)
Net current assets 88.3 58.3
Total assets less current liabilities 869.4 1,134.4
Creditors: amounts falling due after more than one year
Debenture loans 15 (223.7) (353.8)
Convertible loans 16 (57.1) (56.9)
Bank and other loans 17 (5.9) (6.7)
Provisions for liabilities and charges 19 (14.2) (15.2)
568.5 701.8
Capital and reserves
Called up share capital 20 101.5 101.5
Share premium account 21 24.8 24.8
Revaluation reserve 22 255.4 445.9
Other reserves 22 25.0 25.0
Profit and loss account 22 161.8 104.6
Equity shareholders' funds 568.5 701.8
Group Statement of Cash Flows
For the year ended 31 March 2003
2003 2002
Notes £m £m
Net cash inflow from operating activities 24 59.2 72.5
Returns on investments and servicing of finance 25 (23.0) (55.2)
Taxation 25 3.7 (5.2)
Net cash inflow from capital expenditure 25 198.0 330.5
Equity dividends paid (20.4) (20.7)
Net cash inflow before use of liquid resources and financing 217.5 321.9
Management of liquid resources 25 (18.3) 11.8
Net cash outflow from financing 25 (197.4) (334.5)
Increase/(decrease) in cash 1.8 (0.8)
Group Statement of Total Recognised Gains and Losses
For the year ended 31 March 2003
2003 2002
£m £m
(Loss)/profit for the year (20.5) 4.5
Unrealised deficit on revaluation of fixed assets (92.0) (99.5)
Total recognised gains and losses for the year (112.5) (95.0)
Note of Historical Cost Profits and Losses
For the year ended 31 March 2003
2003 2002
£m £m
Reported (loss)/profit on ordinary activities before taxation (34.2) 2.4
Realisation of fixed asset revaluation surpluses of previous years 98.5 40.5
Historical cost profit on ordinary activities before taxation 64.3 42.9
Historical cost profit for the year retained after taxation and dividends 57.2 24.7
Notes Forming Part of the Financial Statements
1 Accounting Policies
Accounting Convention The financial statements are prepared under the historical
cost convention as modified by the revaluation of tangible fixed assets and
investments in subsidiary undertakings, and are prepared in accordance with
applicable accounting standards. The true and fair override provisions of the
Companies Act 1985 have been invoked, as explained in Depreciation below.
In preparing the financial statements for the current year, the Group has
changed its accounting policy to capitalise interest attributable to properties
in the course of development (including major refurbishments). Previously such
interest was written off to the profit and loss account as incurred. This new
accounting policy has been adopted because, as the Group's development programme
gathers momentum, the inclusion of interest in development costs will give a
more appropriate view of the results for the period and of the expenditure on
developments and the surpluses created by development activity. The effect of
this change in accounting policy is not material to this year's results, nor
does it give rise to a prior year adjustment.
Basis of Consolidation The group financial statements consolidate the financial
statements of the Company and all its subsidiary undertakings for the year ended
31 March.
Rent Receivable This comprises rental income on investment and trading
properties for the year, exclusive of service charges receivable. Service
charges are credited against relevant expenditure.
Property and Refurbishment Costs Irrecoverable running costs directly
attributable to specific properties within the Group's portfolio are charged to
the profit and loss account as property expenses. Costs incurred in the
improvement of the portfolio which, in the opinion of the directors, are not of
a capital nature are written off to the profit and loss account as incurred.
Administration Expenses Costs not directly attributable to individual properties
are treated as administration expenses.
Properties Trading properties are included at the lower of cost and net
realisable value. Investment properties, including those in the course of
development, are professionally valued each year, on an open market basis, and
any surpluses or deficits arising are taken to revaluation reserve. Disposals of
investment and trading properties are recognised where contracts have been
exchanged during the accounting period and completion has taken place before or
shortly after the year end.
Depreciation In accordance with Statement of Standard Accounting Practice No.
19, no depreciation is provided in respect of freehold investment properties and
leasehold investment properties with over 20 years to run. Although the
Companies Act 1985 would normally require the systematic annual depreciation of
fixed assets, the directors believe that this policy of not providing
depreciation is necessary in order for the accounts to give a true and fair
view, since the current value of investment properties, and changes in that
current value, are of prime importance rather than a calculation of systematic
annual depreciation. Depreciation is only one of the many factors reflected in
the annual valuation, and the amount which might otherwise have been shown
cannot be separately identified or quantified.
Deferred Taxation Deferred tax is provided in full on timing differences which
result in an obligation at the balance sheet date to pay more tax, or a right to
pay less tax, at a future date, at rates expected to apply when they crystallise
based on current tax rates and law. Timing differences arise from the inclusion
of items of income and expenditure in taxation computations in periods different
from those in which they are included in the financial statements. Deferred tax
is not provided on timing differences arising from the revaluation of tangible
fixed assets where there is no commitment to sell the asset. Deferred tax assets
are recognised to the extent that it is regarded as more likely than not that
they will be recovered. Deferred tax assets and liabilities are not discounted.
Subsidiary Undertakings Shares in subsidiary undertakings are valued at amounts
equal to their original cost and any subsequent movement in the capital reserves
of those subsidiaries, thus reflecting in the Company's balance sheet the
surplus arising from the revaluation and the sale of investments and investment
properties of those subsidiaries.
Pensions The Group contributes to a defined benefit pension plan which is funded
with assets held separately from those of the Group. Contributions are charged
to the profit and loss account so as to spread the cost of pensions over the
employees' working lives with the Group. The regular cost is attributed to
individual years using the projected unit method. Variations in pension cost,
which are identified as a result of actuarial valuations, are amortised over the
average expected remaining working lives of employees in proportion to their
expected payroll costs. Differences between the amounts funded and the amounts
charged to the profit and loss account are treated as either provisions or
prepayments in the balance sheet.
Capitalisation of Interest Interest associated with direct expenditure on
properties under development (including major refurbishments) is capitalised.
Direct expenditure includes the purchase cost of a site or property if it was
acquired specifically for development, but does not include the acquisition cost
or valuation of properties held as investments. Interest is capitalised from the
start of the development work until the date of practical completion. The rate
used is the Group's pre-tax weighted average cost of borrowings or, if
appropriate, the rate on specific associated borrowings.
Financial Instruments An interest rate swap is accounted for as a hedge when it
alters the risk profile of an existing underlying exposure, typically a floating
rate bank loan.
2 Turnover and Segmental Analysis
Rent receivable by location:
2003 2002
£m £m
West End - Offices North of Oxford Street 20.2 18.3
- Other offices 12.5 13.4
- Retail 12.0 11.8
- Other 0.5 0.5
City and Holborn - Offices 16.7 16.9
- Retail 0.8 1.0
Outside London - Offices 7.9 10.0
- Retail 0.8 1.0
- Other 0.9 -
Shopping Centres 0.3 12.4
72.6 85.3
Rent receivable is stated exclusive of value added tax, and arose wholly from
continuing operations in the United Kingdom. No operations were discontinued
during the year.
3 Administration Expenses 2003 2002
£m £m
Administration expenses
Other 6.4 5.4
Exceptional items
Costs of early repayment of debenture 0.3 0.3
6.7 5.7
Included within administration expenses are fees charged by the auditors
comprising audit fees of £0.1 million (2002: £0.1 million) and taxation fees of
£0.3 million (2002: £0.2 million).
4 Employee Information
The average number of employees of the Group, including directors, was:
2003 2002
Number Number
Head office and administration 45 49
On-site property management - 15
45 64
Included within administration expenses are staff costs, including those
of directors, comprising:
2003 2002
£m £m
Wages and salaries 3.6 3.6
Social security costs 0.4 0.4
Other pension costs 0.4 0.7
4.4 4.7
Less: recovered through service charges - (0.4)
4.4 4.3
The directors received fees of £264,000 (2002: £265,000) and other emoluments of
£1,104,000 (2002: £1,116,000), and pension contributions have been made for
directors of £134,000 (2002: £102,000).
5 Interest Receivable 2003 2002
£m £m
Short-term deposits 0.9 1.5
Other 0.8 0.3
1.7 1.8
6 Interest Payable 2003 2002
£m £m
Bank loans and overdrafts 5.6 8.0
Other 19.3 34.1
24.9 42.1
7 Exceptional Interest Costs
2003 2002
£m £m
Premium on purchase/early repayment of debenture 66.6 28.2
Provision for swap costs 3.6 -
Cost of swap cancellation - 2.1
70.2 30.3
8 Tax on (Loss)/Profit on Ordinary Activities 2003 2002
£m £m
Current tax
UK corporation tax - 0.4
Tax underprovided in previous years 0.2 -
Total current tax 0.2 0.4
Deferred tax (13.9) (2.5)
Tax on (loss)/profit on ordinary activities (13.7) (2.1)
The difference between the standard rate of tax and the effective rate arises
from the items set out below:
2003 2002
£m £m
(Loss)/profit on ordinary activities before tax (34.2) 2.4
Tax on (loss)/profit on ordinary activities at standard rate of 30% (10.3) 0.7
Accounting losses arising in the year not relievable against current tax 9.7 -
Expenses not deductible for tax purposes 0.2 0.2
Income not taxable (0.1) -
Capital allowances - (1.2)
Pension contributions in excess of pensions charge (0.2) (0.3)
Sale of investment properties covered by capital losses 0.7 1.0
Tax underpaid in previous years 0.2 -
0.2 0.4
Taxation on capital gains of approximately £14 million would have arisen if the
Group's investment properties had been sold for their book value at the balance
sheet date.
9 Dividends 2003 2002
£m £m
Interim at 3.42p on 203,093,515 shares
(2002: 3.33p on 203,041,984 shares) 6.9 6.8
Proposed final at 6.83p on 203,093,515 shares
(2002: 6.67p on 203,041,984 shares) 13.9 13.5
20.8 20.3
The final dividend will be payable on 17 July 2003 to shareholders on the
register at 13 June 2003.
10 Earnings per Share
Earnings per share are based on the loss attributable to ordinary shareholders
of £20.5 million (2002: profit of £4.5 million) and on the weighted average of
203,092,527 shares in issue (2002: 207,994,455 shares). There is no impact on
earnings per share of conversion of the convertible bonds, or share options.
The directors believe that earnings per share before deferred tax arising on
capital allowances exceeding depreciation, exceptional items and profits or
losses on sales of investment properties provide a more meaningful measure of
the Group's performance. Accordingly, earnings per share on that adjusted basis
have been disclosed on the face of the profit and loss account and calculated as
follows:
2003 2003 2002 2002
(Loss)/Profit Earnings Profit Earnings
After Tax Per Share After Tax Per Share
£m Pence £m Pence
Basic (20.5) (10.1) 4.5 2.1
Deferred tax (4.7) (2.3) (2.8) (1.3)
Exceptional items 49.8 24.5 21.5 10.3
Loss on sale of investment properties 2.4 1.2 3.2 1.6
Adjusted 27.0 13.3 26.4 12.7
11 Investment Properties Freehold Leasehold Leasehold Total
£m over 900 Years 50-250 Years £m
£m £m
Book value at 1 April 2002 813.9 114.8 147.4 1,076.1
Add: Included in prepayments and accrued income - - - -
Market Value at 1 April 2002 813.9 114.8 147.4 1,076.1
Additions at cost 10.7 0.2 - 10.9
Disposals (212.5) (0.2) (2.9) (215.6)
612.1 114.8 144.5 871.4
Deficit on revaluation (77.1) (10.3) (4.0) (91.4)
Market value at 31 March 2003 535.0 104.5 140.5 780.0
Less: Included in prepayments and accrued income (0.3) (0.2) (0.1) (0.6)
Book value at 31 March 2003 534.7 104.3 140.4 779.4
£m
Movement in revaluation reserve:
Deficit on revaluation (91.4)
Add: Included within prepayments and accrued income at 1 April -
2002
Less: Included within prepayments and accrued income at 31 March (0.6)
2003
Movement in revaluation reserve (note 22) (92.0)
The freehold and leasehold investment properties were valued on the basis of
Open Market Value by CB Hillier Parker as at 31 March 2003 in accordance with
the Appraisal and Valuation Manual of The Royal Institution of Chartered
Surveyors. The historical cost of investment properties at 31 March 2003 was
£539.0 million (2002: £645.2 million).
12 Investments Investment in own shares
£m
At 1 April 2002 -
Additions 1.7
At 31 March 2003 1.7
The investment in the Company's own shares at 31 March 2003 had a market value
of £1.6 million and comprised 747,765 shares with a nominal value of 50p each,
representing 0.4% of the shares in issue, acquired at a cost of £2.21 each. The
shares, which are held by the Great Portland Estates P.L.C. LTIP Employee Share
Trust, will vest in certain senior employees of the Group if performance
conditions are met.
13 Debtors 2003 2002
£m £m
Rental debtors 5.0 5.6
Corporation tax 2.8 6.7
Other Debtors 5.3 3.9
Prepayments and accrued income 4.0 1.6
Deferred taxation 9.3 -
26.4 17.8
Included within prepayments and accrued income is £2.8 million (2002: £1.2
million) in respect of pension contribution payments made in advance of their
recognition in the profit and loss account, of which £2.8 million (2002: £1.2
million) falls due after more than one year.
The deferred taxation asset arises from the accounting loss in the year ended 31
March 2003 and has been recognised on the basis of future estimated taxable
profits against which it will be offset.
14 Creditors: Amounts Falling Due Within One Year 2003 2002
£m £m
Accruals and rents in advance 22.6 26.4
Other taxes and social security costs 1.6 1.9
Other creditors 3.5 3.0
Proposed dividend 13.9 13.5
41.6 44.8
15 Debenture Loans 2003 2002
£m £m
First mortgage debenture stock
£24 million 113/16 per cent. debenture stock 2009/14 27.1 27.2
£60.5 million 111/4 per cent. debenture stock 2021* - 130.0
£100 million 71/4 per cent. debenture stock 2027 97.7 97.7
£100 million 55/8 per cent. debenture stock 2029 98.9 98.9
223.7 353.8
*At 31 March 2002, the nominal value outstanding of this debenture was £130
million and its coupon 103/4 per cent. During the year ended 31 March 2003, it
became an unsecured loan, its coupon was raised to 111/4 per cent., and £69.5
million was redeemed.
Certain of the freehold and leasehold properties are charged to secure the other
first mortgage debenture stock.
16 Convertible Loans 2003 2002
£m £m
5 1/4 per cent. convertible bonds 2008 58.0 58.0
Costs of issue (0.9) (1.1)
57.1 56.9
The bonds, which are unsecured, are convertible by the bondholder at any time
until 2008 at a price of £3.10 per share, and redeemable by the Company in 2008
at par.
17 Bank and Other Loans 2003 2002
£m £m
Unsecured loan notes 2007 5.9 6.7
The unsecured loan notes, which together with an associated guarantee attract a
floating rate of interest of 0.275 per cent. in aggregate above LIBOR, are
redeemable at the option of the noteholder until 2007, and by the Company in
2007.
18 Derivatives and Other Financial Instruments
An explanation of the Group's objectives, policies and strategies for the role
of derivatives and other financial instruments in creating and changing the
risks of the Group in its activities can be found in the Financial Review.
The disclosures below exclude short-term debtors and creditors.
Interest rate profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at
31 March 2003 was as follows:
2003 2002
£m £m
Fixed rate financial liabilities 280.8 410.7
Floating rate financial liabilities 5.9 6.7
286.7 417.4
All financial liabilities were in sterling. The fixed rate financial liabilities
carried a weighted average interest rate of 6.8 per cent. (2002: 7.8 per cent.),
and the weighted average period for which the rate was fixed was 19.7 years
(2002: 20.3 years). The floating rate financial liabilities comprised unsecured
loan notes.
Interest rate profile of financial assets
The Group held the following financial assets as at 31 March 2003:
2003 2002
£m £m
Sterling cash deposits 103.5 83.4
The sterling cash deposits were all held as part of the financing arrangements
of the Group, and comprised deposits placed on money markets for up to three
months at fixed rates and cash. The weighted average interest rate on the
deposits was 3.6 per cent. (2002: 4.0 per cent.).
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at 31 March 2003 was
as follows:
2003 2002
£m £m
In more than two years but not more than five years 63.0 -
In more than five years 223.7 417.4
286.7 417.4
Borrowing facilities
Undrawn committed borrowing facilities available to the Group at 31 March 2003
were as follows:
2003 2002
£m £m
Expiring in one year or less 15.0 40.0
Expiring in between one and two years 175.0 -
Expiring in more than two years 20.0 195.0
210.0 235.0
Fair values of financial assets and financial liabilities
2003 2003 2002 2002
Book Value Fair Value Book Value Fair Value
£m £m £m £m
Long-term borrowings 286.7 298.3 417.4 485.8
Interest rate swaps 3.6 5.1 - 2.5
The fair values of the Group's fixed asset investments and cash and short-term
deposits are not materially different from those at which they are carried in
the financial statements.
Market values have been used to determine the fair value of listed long-term
borrowings, and interest rate swaps have been valued by reference to market
rates of interest. The fair values of all other items have been calculated by
discounting the expected future cash flows at prevailing interest rates.
The cumulative aggregate losses on financial instruments for which hedge
accounting has been used that are unrecognised at the balance sheet date are
£1.5 million (2002: losses of £2.5 million). Changes in the fair value of
hedging instruments are not recognised in the accounts until the hedged position
matures. The movement in these unrecognised gains and losses is as follows:
Net (gains)/losses
£m
Unrecognised losses on hedging instruments at 1 April 2002 2.5
Losses recognised in the year (5.9)
Losses arising that were not recognised in the year 4.9
Unrecognised losses on hedging instruments at 31 March 2003 1.5
Of which:
Losses expected to be recognised in the year to 31 March 2004 0.9
Losses expected to be recognised in the year to 31 March 2005 or later 0.6
19 Provisions for Liabilities and Charges Deferred Provision for swap costs Total
tax £m £m
£m
At 1 April 2002 15.2 - 15.2
(Released)/arising during the year (4.6) 3.6 (1.0)
At 31 March 2003 10.6 3.6 14.2
The provision for deferred tax comprises £10.2 million in respect of capital
allowances exceeding depreciation, and £0.4 million of other timing differences.
20 Share Capital 2003 2003 2002 2002
Number £m Number £m
Ordinary shares of 50p each
Authorised 300,000,000 150.0 300,000,000 150.0
Allotted, called up and fully paid
At 1 April 2002 203,041,984 101.5 214,249,114 107.1
Purchased - - (11,207,130) (5.6)
Exercise of share options 51,531 - - -
At 31 March 2003 203,093,515 101.5 203,041,984 101.5
At 31 March 2003, there were no remaining options to subscribe for shares in the
Company under the 1988 Executive Share Option Scheme. At 31 March 2002, there
were 51,531 existing options, all of which were originally granted on 23 June
1995, were exercisable at a price of 164.95p, and were exercised in the year
ended 31 March 2003.
21 Share Premium Account 2003 2002
£m £m
At 31 March 2003 and at 1 April 2002 24.8 24.8
The exercise of share options in the year did not generate a material share
premium.
Other Reserves
22 Reserves Capital Acquisition Total Revaluation Profit and
Redemption Reserve £m Reserve Loss
Reserve £m £m Account
£m £m
At 1 April 2002 16.4 8.6 25.0 445.9 104.6
Realised on disposal of properties - - - (98.5) 98.5
Deficit on revaluation - - - (92.0) -
Retained loss for the year - - - - (41.3)
At 31 March 2003 16.4 8.6 25.0 255.4 161.8
23 Reconciliation of Movements in Shareholders' Funds 2003 2002
£m £m
(Loss)/profit for the financial year (20.5) 4.5
Dividends (20.8) (20.3)
(41.3) (15.8)
Purchase of shares - (30.3)
Other recognised gains and losses relating to the year (net) (92.0) (99.5)
Net decrease in shareholders' funds (133.3) (145.6)
Opening shareholders' funds 701.8 847.4
Closing shareholders' funds 568.5 701.8
24 Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities 2003 2002
£m £m
Operating profit 61.6 76.2
Decrease in stock of trading properties 1.9 5.0
Increase in debtors (0.4) (2.2)
Decrease in creditors (3.9) (6.5)
Net cash inflow from operating activities 59.2 72.5
25 Analysis of Cash Flows 2003 2002
£m £m
Returns on investments and servicing of finance
Interest received 1.6 1.8
Interest paid (24.6) (57.0)
(23.0) (55.2)
Taxation
Corporation tax paid (0.1) (5.7)
Corporation tax refunded 3.8 0.5
3.7 (5.2)
Net cash inflow from capital expenditure
Payments to acquire investment properties (10.8) (27.8)
Receipts from sales of investment properties 210.5 358.3
Payments to acquire investments (1.7) -
198.0 330.5
Management of liquid resources
Cash (placed on)/withdrawn from short-term deposit (18.3) 11.8
(18.3) 11.8
Net cash outflow from financing
Redemption of loans - nominal value (130.8) (101.0)
- premium on redemption (66.6) (28.2)
Repayment of bank loans - (175.0)
Purchase of shares - (30.3)
(197.4) (334.5)
26 Reconciliation of Net Cash Flow to Movement in Net Debt 2003 2002
£m £m
Increase/(decrease) in cash in the year 1.8 (0.8)
Cash placed on/(withdrawn from) short-term deposit 18.3 (11.8)
Cash outflow from redemption of loans 130.8 276.0
Change in net debt arising from cash flows 150.9 263.4
Other non-cash movements (0.1) 0.1
Movement in net debt in the year 150.8 263.5
Net debt at 1 April 2002 (334.0) (597.5)
Net debt at 31 March 2003 (183.2) (334.0)
27 Analysis of Net Debt At 1 April Cash Flow Non-Cash At 31 March
2002 Changes 2003
£m £m £m £m
Cash - 1.8 - 1.8
Short-term deposits 83.4 18.3 - 101.7
Debt due after one year (417.4) 130.8 (0.1) (286.7)
(334.0) 150.9 (0.1) (183.2)
28 Capital Commitments
At 31 March 2003 there were outstanding contracts of Group undertakings for
capital expenditure amounting to £16.0 million (2002: £10.0 million).
29 Pension Commitments
The Group contributes to a defined benefit pension plan, the assets of which are
held by trustees separately from the assets of the Company. The contributions
relating to the Plan are determined with the advice of an independent qualified
actuary on the basis of triennial valuations using the Attained Age funding
method. The most recent valuation of the Plan was conducted as at 1 April 2002,
using the following main assumptions:
* rate of salary increases - 5 per cent. per annum;
* rate of increase in deferred pensions - 2.75 per cent. per annum;
* rate of increase in pensions in payment, subject to indexation at the
lower of RPI and 5 per cent. per annum -2.75 per cent. per annum;
* discount rate pre-retirement - 7 per cent. per annum;
* discount rate post-retirement - 5.5 per cent. per annum;
* inflation - 2.75 per cent. per annum; and
* asset valuation - market value.
The valuation showed that the market value of the Plan's assets at 1 April 2002
amounted to £9.1 million and the actuarial value of the accumulated fund was
sufficient to cover 90 per cent. of the benefits which had accrued to the
members of the Plan at that date, allowing for expected future increases in
earnings. Following the valuation, the Group's contributions have been paid at a
rate of 5.5 per cent. of pensionable salaries plus pensions in payment (in
aggregate equating to 28.6 per cent. of pensionable salaries at the valuation
date). In addition, a special lump sum was paid in the year of £1.2 million
(2002: £0.9 million) to accelerate the improvement in the Plan's funding level.
The total normal cost for the Group of £0.3 million (2002: £0.7 million),
including amounts payable to personal pensions, is included in administration
expenses. A prepayment of £2.8 million (2002: £1.2 million), representing the
excess of employer contributions over accumulated pension costs, is included
within current assets.
The valuation used for FRS 17 disclosures has been based on the most recent
actuarial valuation at 1 April 2002 and updated by a qualified independent
actuary to take account of the requirements of FRS 17 in order to assess the
liabilities of the Plan at 31 March 2003. Plan assets are stated at their market
value at 31 March 2003.
At 31 At 31 March
March 2003 2002
% %
Main assumptions:
Rate of increase in salaries 4.75 5.00
Rate of increase of pensions in payment 2.50 2.75
Discount rate 5.50 6.00
Inflation assumption (Limited Price Indexation) 2.50 2.75
Following the full actuarial valuation as at 1 April 2002, the 2003 mortality
assumptions were updated to reflect increased life expectancy.
The assets and liabilities of the Plan and the expected rates of return were:
Long-term At 31 March Long-term At 31 March
rate of return 2003 rate of return 2002
% p.a. £m % p.a. £m
Equities 7.00 6.4 7.00 6.8
Bonds 4.50 2.5 5.25 2.3
Total market value of assets 8.9 9.1
Present value of Plan liabilities (12.2) (10.2)
Shortfall in the Plan (3.3) (1.1)
Related deferred tax asset 1.0 0.3
Net pension liability (2.3) (0.8)
If these net pension liabilities were to be recognised in the group financial
statements, the effect on net assets and profit and loss reserve would be as
follows:
At 31 March At 31 March
2003 2002
£m £m
Net Assets
As currently stated 568.5 701.8
Net pension liability (2.3) (0.8)
Net reversal of prepaid pension contribution (2.4) (0.9)
As restated 563.8 700.1
Profit and Loss Reserve
As currently stated 161.8 104.6
Net pension liability (2.3) (0.8)
Net reversal of prepaid pension contribution (2.4) (0.9)
As restated 157.1 102.9
The net return on the Plan for the year ended 31 March 2003 comprised:
2003
£m
Expected return on Plan assets 0.6
Interest on Plan liabilities (0.6)
Net return -
The movement in the deficit in the Plan in the year ended 31 March 2003
comprised:
2003
£m
Deficit in Plan at beginning of year (1.1)
Current service cost (0.3)
Contributions 1.7
Net return on assets -
Actuarial loss (3.6)
Deficit in Plan at end of year (3.3)
The amount charged to operating profit in 2003 comprised entirely current
service costs. The Plan is closed to new entrants and the service cost is,
therefore, expected to increase as a percentage of salaries as the membership
approaches retirement.
The amount recognised in the Statement of Total Recognised Gains and Losses
(STRGL) in the year ended 31 March 2003 would have been:
2003
£m
Actual return less expected return on assets (2.2)
Experience gains and losses on liabilities 0.2
Changes in assumptions (1.6)
Actuarial loss (3.6)
The £2.2 million by which the actual return fell short of the expected return
represented 24% of Plan assets; the £0.2 million of experience gains and losses
on liabilities represented 2% of Plan liabilities; and the £3.6 acturial loss
which would have been recognised in the STRGL was 30% of the size of Plan
liabilities.
30 Directors' Interests
From 1 April 2002 to his retirement as a director of the Company on 17 July
2002, Paul Gittens was a trustee and member of the pension plan to which the
Group contributes. There are no other interests in contracts which are required
to be disclosed under the Companies Act 1985.
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