Final Results

Hammerson PLC 27 February 2006 PART 1 Hammerson plc - Results for the year ended 31 December 2005 ----------------------------------------------------------- Restated under Change IFRS 2005 2004 Net rental income £210.3m £189.5m +11.0% Profit before tax £698.6m £413.4m +69.0% Adjusted profit before tax(1) £89.4m £83.2m +7.5% Basic earnings per share 198.0p 156.2p +26.8% Adjusted earnings per share, EPRA basis (2) 31.2p 3.1p n/a Adjusted earning per share(3) 31.2p 28.7p +8.7% Dividend per share 19.71p 17.92p +10.0% Equity shareholders' funds £3,126m £2,410m +29.7% Adjusted net asset value per share, EPRA basis(2) £12.37 £9.45 +30.9% Loan to value ratio 38% 46% Gearing 66% 72% Recommended final dividend of 13.91 pence (2004: 12.47 pence) making a total for the year of 19.71 pence, an increase of 10.0%. Notes (1) Excluding gains on investment properties and changes in the fair value of interest rate swaps of £609.2 million (2004: £330.2 million) as disclosed in the consolidated income statement on page 18. (2) The European Public Real Estate Association ('EPRA') has issued recommended bases for the calculation of certain adjusted data. Further details of these calculations are provided in note 6 to the financial information on page 27. The EPRA adjusted earnings per share figure for 2004 included the current tax charge in respect of entry into the SIIC regime in France. (3) Excluding gains on investment properties, the change in the fair value of interest rate swaps, deferred tax and related minority interests. The figure for 2004 also excluded the effects of entry into the SIIC regime in France. Copies of the Chairman's statement, preliminary results statement, income statement, balance sheet, statement of recognised income and expense, reconciliation of equity, cash flow statement and notes are attached. The terms in the commentary that follows are defined in the glossary in Appendix 2 of this document. All comments and figures relating to 2004 refer to the restated IFRS results for that year published on the Company's website, www.hammerson.co.uk. Highlights • Net rental income from the investment portfolio increased by 6.0% on a like-for-like basis. • Adjusted net asset value per share (EPRA basis) increased by 30.9% to £12.37, reflecting a capital return of 17.6% overall. • Return on shareholders' equity in 2005 was 34.0% (2004: 21.7%). • During the year, the group invested over £600 million, including the acquisitions of Villebon 2, near Paris, for £105 million and a 50% interest in the Queensgate Shopping Centre, Peterborough, for £156 million. • Three major developments were completed showing a total valuation surplus of £232 million at 31 December 2005 on costs of £331 million. • Major retail developments were started in Bristol and Leicester with anticipated completion of both schemes due in 2008. John Nelson, Chairman, said: ' I am very pleased to be able to report an excellent set of results for 2005. Adjusted net asset value per share increased by 30.9% to £12.37, due to a further strong performance from the group's portfolio, which showed a capital return of 17.6%. For 2005, Hammerson achieved a return on shareholders' equity of 34.0%. Over the next three years, the group's rental income will increase substantially, principally as a result of new contracted income from completed developments. In the light of the results for 2005 and the group's future prospects, the Board is recommending a final dividend of 13.91 pence per share, making a total for 2005 of 19.71 pence per share, an increase of 10.0% on last year. The group has a high quality investment property portfolio and an outstanding development programme and pipeline. We anticipate good growth in the Company's rental income over the next three years, providing the potential for continuing dividend increases.' For further information: John Richards, Chief Executive Tel: 020 7887 1000 Simon Melliss, Group Finance Director Tel: 020 7887 1000 Christopher Smith, Director of Corporate Affairs Tel: 020 7887 1019 Fax: 020 7887 1010 csmith@hammerson.co.uk Presentation Hammerson is making a presentation to investors and analysts at 9.30 a.m. today at New Broad Street House, 35 New Broad Street, London EC2M. A conference call facility is available for those unable to attend the presentation by dialling + 44 (0) 1296 480 180 and entering the conference pin number, 194999#. A copy of the slide presentation has been posted simultaneously on the Company's website (www.hammerson.co.uk). A webcast is available from Cantos at www.cantos.com, also on the Hammerson website. Calendar Ex dividend date 12 April 2006 Record date 18 April 2006 Dividend payable 17 May 2006 Interim results 2006 August 2006 CHAIRMAN'S STATEMENT -------------------- I am very pleased to be able to report an excellent set of results for 2005 in this, my first statement to you as Chairman. Net asset value per share increased by 30.9% to £12.37, due to a further strong performance from the group's portfolio, which showed a capital return of 17.6%. For 2005, Hammerson achieved a return on shareholders' equity of 34.0%. Adjusted earnings per share increased by 8.7% to 31.2 pence per share in 2005. The group's rental income will increase substantially over the next three years, principally as a result of new contracted income from completed developments. Against this background, the Board is recommending a final dividend of 13.91 pence per share, making a total for 2005 of 19.71 pence per share, an increase of 10.0% on last year. Hammerson's position I have been a non-executive director of Hammerson since May 2004 and Chairman now for some five months. Hammerson is a fine company with an outstanding management team and excellent prospects. I believe there are a number of features of Hammerson which differentiate us from our competitors and which will enable the group to continue to perform well in the future. First, Hammerson has a strong presence in two of Europe's largest and most liquid real estate markets, the UK and France. This broadens the range of investment opportunities available to the group and diversifies risk. Second, the group has an exceptionally strong portfolio of properties, particularly of major regional shopping centres and retail parks. Notwithstanding the more challenging conditions faced by retailers in the UK, these types of asset provide a secure income, generate good risk-adjusted returns, and are anticipated to show consistent growth over the medium term, gaining market share from weaker retail locations. Third, the current development programme and substantial pipeline of future developments provide excellent potential to add shareholder value. Hammerson is playing a leading role in regenerating key towns and cities by creating some of the most exciting retail and office environments. This reflects the relationships Hammerson has fostered with local authorities and city councils in many major towns and cities. Progress in 2005 Hammerson invested over £600 million during 2005, whilst £224 million was raised from recycling fully exploited assets. There was an increase in the retail weighting in the portfolio from 69% to 72%. Acquisitions during the year included a 50% interest in the Queensgate Centre, Peterborough, for £156 million and Villebon 2, a retail park near Paris, for £105 million. The major office development, Bishops Square, in the City of London was completed at an estimated total cost to Hammerson of £290 million and showed a development surplus of £157 million at the year end. The group also completed its first two retail park developments, Cyfarthfa in Merthyr Tydfil and St Oswald's in Gloucester, to show aggregate development surpluses of £75 million. These are good examples of the way in which the group adds value by development. Excellent progress was made during 2005 on the major office and retail development at 9 place Vendome in Paris, where completion is due shortly. Hammerson also commenced the mixed-use redevelopment of Merchants Quarter in Bristol, a project being carried out in a joint venture known as the Bristol Alliance and in which the group's 50% share of the costs will amount to around £230 million. Since the year end, construction work has started on a major expansion of The Shires shopping centre in Leicester, known as New Shires. Hammerson continues to work closely with a number of local authority partners in progressing other major retail-led urban regeneration schemes, including projects in Kingston-upon-Thames, Leeds, London, Peterborough and Sheffield. In June 2006, we shall be relocating our head office to 10 Grosvenor Street, London W1. This will provide the group with modern, efficient office space in a building developed by Hammerson and provide the flexibility for future expansion of the business. Contracts for the sale of the leasehold on 100 Park Lane, our existing headquarters, were exchanged in December. Property Markets and Outlook Retail Property --------------- UK consumer spending grew more slowly in 2005 than in recent years leading to more challenging trading conditions for retailers. Despite this, rental growth for prime retail property remained good. Looking forward, it is anticipated that prime regional shopping centres and retail parks will see stronger tenant demand than either the high street or secondary centres. French retail sales continued to grow during 2005, though consumers remained cautious. Demand from retailers for additional space was concentrated in the best locations, supporting higher rents. Retail sales and rents are expected to increase further in 2006, driven by growth in the overall economy. In Germany, economic activity slowed in 2005, though there was some improvement in retail sales growth. A more robust recovery in spending is likely to be dependent on faster economic growth resulting in a sustained fall in unemployment and stronger consumer confidence. Office Property --------------- In central London, take up of office space was similar to that in the previous year. Combined with a very low level of new office completions, this led to a reduction in the overall market vacancy rate from 12% to 9%. Lower availability of space translated into a shortening of rent-free periods and an improvement in headline rents. Continuing demand for space and a further reduction in the vacancy level should lead to higher headline rents in 2006. In central Paris, although more space was let during 2005 than in the previous year, tenants' decisions were motivated mainly by consolidation or cost cutting. As a result, there was little increase in the overall amount of space occupied and rents remained broadly stable. Faster economic growth anticipated over the next few years should support higher employment and lead to an increase in rents. Investment Market The strong demand from investors for property in recent years continued during 2005, boosting transaction levels in both the UK and France and leading to further valuation increases. Following several years of declining property yields, it is anticipated that future capital growth will be driven more by underlying rental growth than by a further fall in yields. This trend should favour prime property over secondary assets. Taxation and REITs In the UK, the Government has published draft legislation for the introduction of Real Estate Investment Trusts ('REITs'). REITs will be exempt from tax on property income and capital gains, subject to them paying an initial entry charge and thereafter being subject to minimum dividend distribution requirements. Hammerson already benefits from its tax exempt status in France and the introduction of REITs in the UK could provide an opportunity to grow shareholder value at a faster rate than would otherwise be the case. There are, however, some issues in the draft legislation which need to be resolved. Hammerson is continuing to play a leading role in the industry's efforts to resolve these matters and the Board is monitoring developments closely. The Board and Management I would like to pay tribute to Ron Spinney who retired as Chairman on 30 September 2005. Ron joined Hammerson in 1993 at a time when the Company's fortunes were at a low ebb. Under his leadership, Hammerson has been transformed into the successful and respected company it is today. On behalf of the Board and all our shareholders, I would like to thank Ron for his outstanding contribution to Hammerson. Graham Pimlott stood down from the Board on 31 December 2005. Graham was appointed a non-executive Director in September 1993, becoming Deputy Chairman in January 2000. I would like to place on record the Board's appreciation to Graham for his wise counsel over many years. Tony Watson joined the Board as a non-executive director on 1 February 2006. Tony was formerly Chief Executive of Hermes Pensions Management. He has had an outstanding career in the investment management industry and I am sure that the Board will benefit from his considerable experience. Conclusion Hammerson has shown an excellent performance in 2005. Whilst the recent rate of growth in capital values is unlikely to be sustained, demand for prime property investments remains strong. The group has a high quality investment property portfolio and an outstanding development programme and pipeline. We have a strong balance sheet, access to finance on attractive terms and we anticipate substantial growth in the Company's rental income over the next three years, providing the potential for continuing dividend increases. John Nelson Chairman 27 February 2006 FINANCIAL REVIEW ---------------- The financial information contained in this review is extracted or calculated from the attached income statement, balance sheet, cash flow statement, other statements, notes and glossary of terms. International Financial Reporting Standards ('IFRS') --------------------------------------------------- • In common with all companies listed on European Union stock exchanges, Hammerson adopted IFRS with effect from 1 January 2005. The group issued its 2004 full year financial statements restated under IFRS on 26 April 2005, complete with reconciliations to, and explanations of the differences from, the figures as they were reported under UK GAAP. The 2005 Interim Report, published in September, was also prepared under IFRS. These reports are available on the Company's website, www.hammerson.co.uk. Further details of the impacts of the change on reported profits and equity shareholders' funds are provided in the notes to the accounts. • The main changes to Hammerson's financial statements have been the recognition of the revaluation changes of investment properties and certain derivatives in the income statement rather than the statement of recognised income and expense, and the inclusion in the balance sheet of contingent tax that may arise on the disposal of all properties in the portfolio. • The adoption of IFRS has changed the presentation and format of the financial statements. However, it has no impact on the cash flows of the business or its underlying performance. Results and Dividend -------------------- • In 2005 net rental income was £210.3 million, compared with £189.5 million in 2004. The increase principally reflected the contribution from recently acquired properties, rent reviews at The Oracle Shopping Centre, indexation in France and the receipt of surrender premiums. On a like-for-like basis, net rental income from the investment portfolio increased by 6.0%. For the portfolio as a whole the year on year movements may be analysed as follows: --------------------------------------- -------- ------- Net rental income reconciliation 2005 2004 £m £m --------------------------------------- -------- ------- Properties owned throughout 2005 and 2004 185.2 174.0 Acquisitions 20.7 3.2 Properties sold 1.2 12.5 Developments 3.2 0.3 Exchange translation and other - (0.5) --------------------------------------- -------- ------- Net rental income 210.3 189.5 --------------------------------------- -------- ------- • During the year, net rental income included £4.8 million related to retail tenants' turnover and net income of £8.1 million from car parks at the group's shopping centres. Rent receivable of £5.6 million has been accrued and allocated to rent free periods in 2005. • Administration expenses in 2005 rose by £4.8 million to £31.4 million, primarily due to increased staff costs and a reduction in asset management and development management fees receivable. • Net finance costs in 2005, excluding the change in fair value of interest rate swaps, increased by £9.8 million compared with 2004 as a result of increased borrowings drawn to fund acquisitions and the development programme, although the effect was partly offset by lower interest rates. The average cost of borrowing for 2005 was 5.8%. Interest cover was 1.9 times in both 2004 and 2005. • Profit before tax was £698.6 million, compared with £413.4 million in 2004. Adjusted profit before tax, which excludes gains on investment properties and certain other items, rose by £6.2 million in 2005 to £89.4 million. --------------------------------------- -------- ------- Analysis of profit before tax 2005 2004 £m £m --------------------------------------- -------- ------- Profit before tax 698.6 413.4 Less: Profit on sale of investment properties 32.1 40.3 Revaluation gains on investment properties 575.5 283.7 Negative goodwill - 6.2 Movement in fair value of interest rate swaps 1.6 - --------------------------------------- -------- ------- Adjusted profit before tax 89.4 83.2 --------------------------------------- -------- ------- • The current tax credit of £1.0 million in 2005 reflected the write back of prior year tax relating to Germany, while profits in the year were sheltered from tax primarily by the French tax exemption. The 2004 charge of £80.9 million included the one-off entry charge to the French SIIC regime. The deferred tax charge in 2005 mainly reflected the increase in the value of the investment property portfolio. • Adjusted earnings per share in 2005 increased by 2.5 pence, or 8.7% to 31.2 pence. Full details of the calculations for earnings per share are provided in note 6 to the accounts. • The directors have proposed a final dividend of 13.91 pence per share which, taking account of the interim dividend of 5.80 pence per share, makes a total of 19.71 pence per share for the year. This represents an increase of 10.0% over the total dividend for 2004. Cash Flow --------- • Cash flow from operating activities was £45 million in 2005, compared with £61 million in the previous year. The decrease principally arose because the first annual interest payment on the £300 million sterling bond issued in February 2004 was made in February 2005. This more than offset additional rent receipts during the year. • Disposals in 2005 raised £224 million, whilst property acquisitions and capital expenditure amounted to £538 million. After the net cash inflow of £236 million from financing activities, there was a net decrease in cash and short term deposits over the year of £8 million. Balance Sheet ------------- • Hammerson's property portfolio was valued at £5,732 million at 31 December 2005, compared with £4,603 million at the end of 2004. The revaluation surplus accounted for £773 million of the increase, with additions, including capitalised interest, accounting for a further £616 million. These increases were partly offset by exchange translation losses of £41 million, the sale of properties with a book value of £193 million and transfers to owner occupied property of £26 million. • At the year end, net asset value per share, calculated in line with the recommendations of EPRA, was £12.37, an increase of 292 pence per share or 30.9% during 2005. The revaluation surplus contributed 271 pence to the increase, with the remainder primarily accounted for by retained profits. --------------------------------------- ------------------------------------------------- Analysis of net asset value 2005 2004 ------------------------- ----------------------- Pence per Pence per £m share £m share --------------------------------------- ------------------------------------------------- Basic 3,125.8 1,097 2,410.2 869 Effect of dilution: On exercise of share options 8.5 - 8.8 - --------------------------------------- ------------------------------------------------- Diluted 3,134.3 1,097 2,419.0 869 Adjustments: Fair value of interest rate swaps (7.3) (2) - - Deferred tax on revaluation surpluses and other items 370.3 130 187.9 67 Deferred tax on capital allowances 36.1 12 25.5 9 --------------------------------------- ------------------------------------------------- EPRA, diluted 3,533.4 1,237 2,632.4 945 --------------------------------------- ------------------------------------------------- Basic shares in issue used for calculation (million) 285.0 277.3 Diluted shares used for calculation (million) 285.7 278.5 --------------------------------------- ------------------------------------------------- Borrowings ---------- • At 31 December 2005, Hammerson's borrowings totalled £2,095 million. With cash and deposits of £46 million, net debt amounted to £2,049 million. The weighted average maturity of debt at 31 December 2005 was approximately nine years. • Unsecured borrowings represented 97% of total debt at the year end; secured debt of £70 million was principally in respect of the group's share of a borrowing facility financing the Moorhouse joint venture. • Gearing was 66% compared with 72% at the end of 2004 and the loan to value ratio was 38%. The balance sheet at 31 December 2005 included a deferred tax liability of £406 million. If deferred tax had been added back to equity shareholders' funds, gearing would have been 58%. • The market value of borrowings at the end of December 2005 was £2,301 million, some £207 million greater than the book value, equivalent, after tax relief, to a reduction in net asset value of 51 pence per share. • Undrawn committed facilities at the year end were £284 million which, when added to cash and deposits, provided liquidity of £329 million. • In May 2005, Hammerson signed a £370 million five year syndicated revolving credit facility. Since the year end, the Company has issued £300 million unsecured bonds at a coupon of 5.25%, redeemable in December 2016. PORTFOLIO REVIEW ---------------- Property Portfolio and Allocation --------------------------------- • Hammerson owns and manages 16 major shopping centres and 14 retail parks providing 1.2 million m(2) of retail space, primarily in the UK and France. The group's office portfolio consists of 11 prime buildings, located principally in central London and central Paris, and provides 260,000 m (2) of accommodation. • Hammerson's property portfolio was valued at £5.7 billion at 31 December 2005, with the investment portfolio accounting for £4.9 billion and developments for £0.8 billion. Capital expenditure during 2005, principally on property acquisitions and the development programme, totalled £616 million, whilst valuation increases amounted to £773 million. Property disposals reduced the value of the portfolio by £193 million. • During 2005, the retail component of the portfolio increased by three percentage points to 72%. Over the same period, the UK component of the portfolio increased by two percentage points to 71%. Capital Return -------------- • The group's property portfolio showed a capital return of 17.6% for the year ended 31 December 2005. The investment portfolio showed a capital return of 14.6%, whilst the capital return from developments was 42.2%. • A table of property valuations and the underlying percentage changes for the year to 31 December 2005 is shown below: --------------------------------------------------------------------------------------------------- Shopping Centres Retail Parks Offices Total ------------- ------------------- ------------------ ------------------- -------------------- Value % change Value % change Value % change Value % £m £m £m £m change ------------- --------- --------- --------- ------- -------- -------- --------- -------- UK 2,221 13.1 703 18.8 1,169 25.1 4,093 17.4 ------------- --------- --------- --------- ------- -------- -------- --------- -------- France 948 20.8 104 - 443 27.5 1,495 22.2 ------------- --------- --------- --------- ------- -------- -------- --------- -------- Germany 144 (15.1) - - - - 144 (15.1) ------------- --------- --------- --------- ------- -------- -------- --------- -------- Total 3,313 13.4 807 17.3 1,612 26.3 5,732 17.6 ------------- --------- --------- --------- ------- -------- -------- --------- -------- • During 2005 the retail and office portfolios showed capital returns of 14.1% and 26.3% respectively. This resulted in an overall capital return for the group's portfolio of 17.6%. • The capital return in the UK was 17.4%. The strong investment market reduced yields generally and around two thirds of the increase in value of Hammerson's UK portfolio can be attributed to this factor. A further one tenth of the uplift in value arose from increased rental values, whilst the balance reflected property specific factors, development surpluses, management initiatives and a reduction in values resulting from the withdrawal of stamp duty relief from properties in disadvantaged areas. • In France, the capital return was 22.2%. The majority of the growth in value was due to lower yields which reflected favourable investment market conditions. The balance reflected higher rental values at the shopping centres. • In Germany, weak consumer markets caused rental values to decline and an increase in investment yields also contributed to the reduction in values. Investment Portfolio --------------------- • The group's investment portfolio is summarised in the table below: ---------------------- --------- --------- ------- ------- ------------- --------- Net Average rental Property Capital Total Reversionary/ unexpired income valuation return return (Over-rented) lease term £m £m % % % years ---------------------- --------- --------- ------- ------- ------------- --------- United Kingdom Retail: Shopping centres 85.4 2,134 12.1 17.4 11.9 11.9 Retail parks 26.0 690 18.9 24.1 11.0 17.1 ---------------------- --------- --------- ------- ------- ------------- --------- 111.4 2,824 13.7 18.9 11.7 13.1 ---------------------- --------- --------- ------- ------- ------------- --------- Office: City 19.3 362 12.7 18.5 (15.8) 10.8 West End 0.5 95 36.0 36.5 11.7 10.8 Docklands & Other 9.0 173 7.7 13.6 (18.1) 8.4 ---------------------- --------- --------- ------- ------- ------------- --------- 28.8 630 14.9 19.9 (12.2) 10.1 ---------------------- --------- --------- ------- ------- ------------- --------- Total United Kingdom 140.2 3,454 13.9 19.1 5.8 12.4 ---------------------- --------- --------- ------- ------- ------------- --------- Continental Europe France Retail 46.6 1,038 19.0 25.7 10.9 5.2 Office 16.1 322 22.1 27.5 (1.8) 5.1 ---------------------- --------- --------- ------- ------- ------------- --------- Total France 62.7 1,360 20.4 26.8 7.9 5.2 ---------------------- --------- --------- ------- ------- ------------- --------- Germany Retail 5.2 144 (15.1) (11.9) (1.0) 4.6 ---------------------- --------- --------- ------- ------- ------------- --------- Total Continental Europe 67.9 1,504 16.5 22.0 6.7 5.2 ---------------------- --------- --------- ------- ------- ------------- --------- Group Retail 163.2 4,006 13.6 19.1 10.8 10.5 Office 44.9 952 18.0 23.2 (9.2) 8.7 ---------------------- --------- --------- ------- ------- ------------- --------- Total Group Investment Properties 208.1 4,958 14.6 20.0 6.1 10.1 ---------------------- --------- --------- ------- ------- ------------- --------- • The investment portfolio increased by £876 million over the year to 31 December 2005. During the year, capital expenditure of £462 million, transfers from developed properties of £96 million and a revaluation surplus of £576 million were partially offset by property disposals of £193 million and exchange and other movements of £65 million. • In April, Hammerson acquired Fife Central Retail Park, Kirkcaldy for £75 million. Generating current annual passing rent of £3.4 million, it provides significant reversionary potential and opportunities to increase value through active asset management and expansion. • In July 2005, Hammerson acquired its first retail park in France. Villebon 2, located in Villebon-sur-Yvette, 20 kilometres to the southwest of Paris, provides 41,000 m(2) of retail accommodation and currently generates an annual passing rent of £5.3 million. The total cost of the acquisition was £105 million and this was partly financed by a share-for-share exchange. In February 2006 work started on a 5,500 m(2) extension. • The group purchased a 50% interest in the freehold of Queensgate Shopping Centre, in Peterborough, in November for £156 million. Comprising 81,100 m(2) of retail accommodation, the centre is anchored by a John Lewis department store, and Hammerson's share of the passing rent is £8.7 million per annum. Hammerson, together with Norwich Union, which owns the remaining 50% of the property, is advancing plans for a refurbishment of the existing scheme and a major extension, North Westgate, which will provide additional space of 60,000m(2). Following completion, the Queensgate centre will be one of the largest retail schemes in the UK. • In December, Hammerson acquired the freehold of 54-60 rue du Faubourg Saint-Honore in Paris for £38 million. Located in a prestigious part of the eighth arrondissement, the buildings consist of six blocks of multi-let properties, some of which retain their original 17th and 19th century facades. The properties provide 2,500 m(2) of retail space, 1,100 m(2) of offices and 3,400 m(2) of residential accommodation and generates passing rent of £1.9 million per annum, three-quarters of which is in respect of retail occupiers. • Two properties were sold during 2005. Neo, 14 boulevard Haussmann, Paris 9eme, realised net cash proceeds of £185 million in June, 19% more than its value at 31 December 2004. Sittingbourne Industrial Estate was sold for £34 million in March, having been acquired in February 2003 for £17 million. • Since the year end, 100 Park Lane, which is currently Hammerson's head office, has been sold. The property was held by Hammerson under a leasehold from Grosvenor, the freeholder. The interests of both parties were combined to facilitate the sale and Hammerson received approximately £15 million, or 40%, of the £37 million proceeds. In June 2006, Hammerson will relocate to 10 Grosvenor Street, an office building it developed in a 50:50 joint venture with Grosvenor. Income Quality -------------- • The group's property portfolio generates a secure and high quality income stream. At 31 December 2005, the rents passing from the investment portfolio amounted to £244 million, whilst the average unexpired lease term was ten years. Within the retail portfolio, the average unexpired lease term was nine years for shopping centres and 17 years for retail parks. The equivalent lease terms for the office portfolio were ten years in the UK and five years in Paris. • During 2005, there was an underlying increase in the group's rents from the investment portfolio of 6.0% compared with the previous year. The group agreed almost 100 rent reviews and renewed over 220 leases following expiry. • In view of the wide spread of tenants in the retail portfolio, the overall risk to Hammerson of individual tenant default is considered low. The group's five largest retail tenants accounted for 9.6% of the passing rent from the investment portfolio at the year end: Kingfisher 2.9%; H&M Hennes 2.2%; Arcadia 1.9%; Pinault Printemps Redoute 1.3%; and DSG 1.3%. • Passing rents from the group's two largest office occupiers, Deutsche Bank and HVB Bank, represented 4.7% and 1.2% respectively of the total rents passing from the investment portfolio at 31 December 2005. Rent from Allen & Overy, a leading international law firm, will commence in June 2007 with Hammerson's annual share being £25 million. This is equivalent to 11% of the group's rents passing at 31 December 2005. Rent Reviews ------------ • In 2005, rent reviews in the UK were agreed in respect of leases with passing rents of £9.6 million, giving rise to an increase in annual rents of £1.9 million. Reviews remaining to be settled from 2005 are anticipated to increase rents by a further £7 million. • Shopping centre leases in France are indexed annually according to a construction cost index. The level of indexation, applicable from 1 January 2005, was 5.4%, which led to an increase in retail rents of £1.9 million. The index applicable from 1 January 2006 is 0.7%. • The initial rent reviews at The Oracle in Reading are now substantially complete and the first rent reviews at WestQuay in Southampton are in progress. On completion, it is anticipated that the rent roll from these two schemes will be some 25% higher than the previous passing rents. • At 31 December 2005, the UK shopping centre portfolio was 11.9% reversionary and the retail parks 11.0% reversionary. The office portfolio was over-rented by 12.2%, principally accounted for by two office buildings, 99 Bishopsgate and Exchange Tower. In France, the retail portfolio was 10.9% reversionary and the offices 1.8% over-rented. • In the UK, leases subject to rent review in the years 2006 to 2008 have current rents passing of £62 million. Management estimates that, on review, rents receivable in respect of these leases would increase by £5 million to £67 million by 2008 if reviewed at current rental values. This is not a forecast and takes no account of increases or decreases in rental values before the relevant review dates. ---------------------------------------------- ------------ -------- ------ ------ -------- Rent Reviews Total Outstanding 2006 2007 2008 2006-8 £m £m £m £m £m ---------------------------------------------- ------------ -------- ------ ------ -------- Rents passing from leases subject to review 32 26 14 22 62 ---------------------------------------------- ------------ -------- ------ ------ -------- Projected rent after review at current ERV 39 28 16 23 67 ---------------------------------------------- ------------ -------- ------ ------ -------- Potential rent increases 7 2 2 1 5 ---------------------------------------------- ------------ -------- ------ ------ -------- Lease Expiries and Breaks ------------------------- • The year ended 31 December 2005 saw the expiry of leases with rents passing of £15.7 million. Most of the leases were renewed or the tenants replaced and, because the expired leases were at rents below market levels, additional annual income of £1.0 million was secured. • In the UK shopping centre portfolio, 14 units became vacant during 2005 and a further 37 units were occupied by retailers which went into administration. Of these 51 units, new leases have been signed in respect of 49, giving rise to an increase in rents of £0.7 million per annum. • Over the five years 2006 to 2010, leases with current rents passing of £63 million are subject either to expiry or tenants' break clauses. Management estimates that, assuming renewals at current rental values, additional annual rents from this part of the portfolio would total £7 million by 2010. This is not a forecast and takes no account of void periods, tenants' incentives, or possible changes in rental values before the relevant lease expiry dates. ---------------------------------------------------------- -------- ------- --------- ----------- Lease expiries and breaks Total 2006 2007 2008-10 2006-10 £m £m £m £m ---------------------------------------------------------- -------- ------- --------- ----------- Rents passing from leases subject to expiries or breaks 17 10 36 63 ---------------------------------------------------------- -------- ------- --------- ----------- Current ERV 20 12 38 70 ---------------------------------------------------------- -------- ------- --------- ----------- Potential rent increases 3 2 2 7 ---------------------------------------------------------- -------- ------- --------- ----------- Vacancy ------- • The overall vacancy rate in the investment portfolio decreased by 2.5 percentage points during the year to 6.8% at 31 December 2005. The vacancy rate in the retail portfolio was 1.7%, compared with 2.2% at the end of 2004. The vacancy rate in the office portfolio reduced from 30.3% to 26.0% as lettings were achieved at office properties developed in recent years. • One London Wall, London, EC2, is now 88% let, reflecting lettings in 2005 and lettings agreed since the end of the year, including 1,500 m(2) to Bowne. At Moorhouse, London, EC2, 9,300 m(2) was leased to HVB Group during 2005. Since the year end, leases in respect of a further 13,700 m(2) have been signed or are in solicitors' hands. This means that 76% of the building is now let or under offer. • Hammerson's West End office portfolio is now only 5.3% vacant, compared with 64.6% at 31 December 2004. This is due in part to lettings under offer at 18 and 19 Hanover Square, London W1 at annual rents of £1.0 million and £1.4 million respectively. New Contracted Income --------------------- • As at 27 February 2006, the group has secured a substantial and rising income stream reflecting the leasing activity referred to above and leases which have been signed in respect of recently completed and current developments, as shown in the table below. ----------------------------------- --------------- -------- ------ ------ ----- Rents Passing Ownership 2006 2007 2008 2009 interest £m £m £m £m ----------------------------------- --------------- -------- ------ ------ ----- Bishops Square, London E1 75% 0.4 13.2 25.4 25.4 ----------------------------------- --------------- -------- ------ ------ ----- Other completed offices 50-100% 1.4 4.8 9.6 10.3 ----------------------------------- --------------- -------- ------ ------ ----- Retail parks 41-100% 9.7 11.8 12.4 12.4 ----------------------------------- --------------- -------- ------ ------ ----- 9 place Vendome, Paris 50% 0.3 1.0 4.2 4.7 ----------------------------------- --------------- -------- ------ ------ ----- Total - cash flow 11.8 30.8 51.6 52.8 - SIC 15 basis 28.3 50.2 49.9 49.9 ----------------------------------- --------------- -------- ------ ------ ----- Notes ----- (1) The figures include Hammerson's share of income in respect of joint ventures. (2) Income is included according to when rent payments commence, with the allocation to rent free periods, as required by SIC 15, also shown. Developments ------------ • Hammerson's objective from development is to create assets that provide attractive returns at a cost substantially below the price of acquiring completed and income-producing assets on the open market. The group continues to build on its excellent reputation for its approach to urban regeneration, its ability to forge strong links with local authorities and its skills in delivering complex development projects. • At 31 December 2005 the value of the group's development portfolio was £774 million, compared with a cost of £512 million. Capital expenditure, including interest, during 2005 on the development portfolio totalled £154 million. • Bishops Square, a 75,900 m(2) building in Spitalfields, London E1 was completed in July and the 71,900 m(2) of offices were handed over to Allen & Overy for fitting out works. The scheme also includes 4,000 m(2) of retail space, nearly all of which is now let. Bishops Square is a 75:25 joint venture with City of London. The group's share of the rents passing following rent free periods is £25.4 million per annum and, at the year end, the valuation surplus was some £157 million. • Two retail parks projects were finished during 2005 and transferred to the investment portfolio. In January, Cyfarthfa Retail Park in Merthyr Tydfil was completed at a total development cost of £35 million. The park will produce an annual net rental income of £4.0 million when fully let and, at 31 December 2005, the scheme was valued at £48 million above cost. St Oswald's in Gloucester, a mixed-use development of 22,500 m(2), incorporating a retail park, and leisure facilities, was completed in September. It will generate an annual net rental income of £4.1 million when fully let. Hammerson is working with a residential developer on a further phase of the project. At the year end, the scheme was valued at £27 million above cost. -------------------------- --------- -------- ------- -------- ------ ------ ----- Current Projects Estimated Amount let total Projected or under Ownership Cost at development annual offer by Anticipated interest Area 31/12/05 cost income income at completion % m(2) £m £m £m 31/12/05 % date -------------------------- --------- -------- ------- -------- ------ ------ ----- Shopping centres -------------------------- --------- -------- ------- -------- ------ ------ ----- Merchants Quarter, Bristol 50 140,000 33 * 230 * 16 * 35 Sep 2008 -------------------------- --------- -------- ------- -------- ------ ------ ----- New Shires, Leicester 60 60,000 16 * 190 * 12 * 26 Sep 2008 -------------------------- --------- -------- ------- -------- ------ ------ ----- Retail parks -------------------------- --------- -------- ------- -------- ------ ------ ----- The Avenue Retail Park, 100 4,500 23 25 2 79 Jan 2006 Cardiff -------------------------- --------- -------- ------- -------- ------ ------ ----- Dallow Road, Luton 100 8,700 24 28 2 100 Mar 2006 -------------------------- --------- -------- ------- -------- ------ ------ ----- Westwood & East Kent, 100 8,400 11 17 2 80 Jun 2006 Thanet -------------------------- --------- -------- ------- -------- ------ ------ ----- Offices -------------------------- --------- -------- ------- -------- ------ ------ ----- 9 place Vendome, Paris 1er 50 27,700 79 * 90 * 7 * 83 Apr 2006 -------------------------- --------- -------- ------- -------- ------ ------ ----- * Hammerson's share • At the year end, the development surplus in respect of these six schemes totalled £95 million. The group's developments are shown at a valuation which is discounted for the estimated costs to complete them, including interest, and a profit margin that a potential purchaser might apply. Hammerson does not intend to dispose of any of its developments prior to their completion, which should give rise to additional surpluses when the buildings are completed and let. Management estimates that, if these developments were complete and let at 31 December 2005, a further surplus of approximately £120 million would arise. • In Bristol, remaining planning consents for a major retail-led regeneration of the Broadmead area were secured and a start on site was made in the autumn. Known as Merchants Quarter, this 140,000 m(2) scheme includes 93,000 m(2) of retail and leisure space and is being developed by the Bristol Alliance, a 50:50 joint venture between Hammerson and Land Securities Group PLC. House of Fraser and Harvey Nichols have signed leases to take major stores and some 35% of the forecast property rental income has been secured, or is in solicitors' hands. Hammerson's estimated total development cost is £230 million and the group's share of the projected total income is approximately £16 million per annum. • In Leicester, the group is working with Hermes in a 60:40 joint venture to carry out a major expansion of the existing shopping centre, The Shires. The new scheme, provisionally called New Shires, includes 60,000 m(2) of additional retail space, anchored by a John Lewis department store, leisure facilities and residential units. Construction work started in January 2006. Hammerson's 60% share of the estimated total development cost of New Shires is £190 million and its share of the projected income is approximately £12 million per annum. The total development cost includes £11 million to be spent on refurbishing and improving the existing centre. • In Cardiff, The Avenue Retail Park has undergone a 4,500 m(2) extension and refurbishment, which has been completed since the end of 2005 at a total cost of £25 million. Leases representing 79% of the forecast rental income have been signed. • Two other retail park developments are due to complete in the first six months of 2006. A new 8,700 m(2) store is being built for B&Q at Dallow Road, Luton, at a cost of £28 million. In Thanet, Kent, at the Westwood and East Kent Retail Parks, Hammerson's existing 16,600 m(2) property is being extended by 8,400 m(2) at an estimated total development cost of £17 million. Around 80% of the projected rental income for the extension has been secured with lettings to Homebase, Sportsworld and Argos. • In Paris, Hammerson has a 50:50 joint venture with AXA and is creating 22,200 m(2) of high quality office accommodation at 9 place Vendome and 5,500 m(2) of prime retail space in the adjacent Faubourg St Honore. Completion is scheduled for April 2006 and Hammerson's share of the estimated total development cost is £90 million. During 2005, 14,800 m(2) was let to Clifford Chance and, in February 2006, a further 3,500 m(2) has been leased to Proskauer Rose. Six of the eight retail units have been let or are in solicitors' hands, so that overall the property is now 83% let in terms of income. Potential Developments 2006 --------------------------- -------------------------- --------- -------- ------- -------- Project Scheme Ownership Size Indicative total outline interest m(2) development costs % £m -------------------------- --------- -------- ------- -------- Retail -------------------------- --------- -------- ------- -------- Union Square, Aberdeen Development 50 50,000 80 * -------------------------- --------- -------- ------- -------- West Berkshire Retail Park, Development 100 11,100 23 Theale -------------------------- --------- -------- ------- -------- Fife Central Retail Park, Extension 100 10,400 25 Kirkcaldy -------------------------- --------- -------- ------- -------- Parinor, Phase 1, Paris Redevelopment 100 24,000 75 -------------------------- --------- -------- ------- -------- Offices -------------------------- --------- -------- ------- -------- 125 Old Broad Street, London EC2 Development 100 30,700 160 -------------------------- --------- -------- ------- -------- 60 Threadneedle Street, London Development 100 20,600 110 EC2 -------------------------- --------- -------- ------- -------- Opera Capucines, Paris 2eme Refurbishment 50 10,300 32 * -------------------------- --------- -------- ------- -------- Total 505 -------------------------- --------- -------- ------- -------- * Hammerson's share • Seven further development schemes could start in 2006, although the timing of some of these projects will be dependent upon site assembly, planning and letting markets. The indicative total development costs to Hammerson of these projects is £505 million and the potential annual rent roll when the schemes are fully let is of the order of £47 million. At 31 December 2005, the cost of these developments was £132 million and their value £182 million. • The group has a 50% interest in the proposed Union Square development at Aberdeen. The scheme has planning consent for 50,000 m(2) of mixed-use space, incorporating a retail park, shopping mall and leisure facilities. Leasing is progressing well with 23% of the scheme pre-let and an additional 16% in solicitors' hands. The estimated total development cost to Hammerson of the project is £80 million. • At Theale near Reading, contracts have been exchanged with ILVA, the furniture retailer, for the development of the West Berkshire Retail Park to provide an 11,100 m(2) two level store. A start on site is anticipated later in 2006, dependent on planning consent. • Heads of terms have been agreed with the local authority for an extension to Fife Central Retail Park, Kirkcaldy, which was acquired in 2005. The scheme will provide an additional 10,400 m(2) of retail space at an estimated cost of £25 million and leases in respect of 29% of the projected rental income are in solicitors' hands. • In France, Hammerson has plans to carry out a major expansion and restructuring of its existing shopping centre, Parinor, to the north west of Paris. The scheme involves the creation of two medium sized stores, 69 unit shops and 600 additional car parking spaces. Planning consent has been applied for and works could start in late 2006 with completion in 2008. The 24,000 m(2) redevelopment will increase the size of Parinor to 90,000 m(2), making it the largest shopping centre serving the north of Paris. • In Paris, construction of 5,800 m(2) of offices and 4,500 m(2) of retail space is due to start in April 2006 at Opera Capucines, a prime central Paris location. The development is held in a 50:50 joint venture with MAAF. The group's share of the estimated total development cost is £32 million and leases have been signed in respect of 42% of the anticipated rental income. • Since purchasing the freehold of the former London Stock Exchange buildings in 2004, which had planning consent for 45,500 m(2) of office and retail accommodation, Hammerson has successfully expanded and enhanced the potential schemes. The group has planning consent for the refurbishment of the 26-storey tower building at 125 Old Broad Street to provide 30,100 m(2) of office accommodation and 600 m(2) of retail space. Demolition and enabling works have been completed and construction work has started. At 60 Threadneedle Street, Hammerson has planning consent for a 20,600 m(2) nine-storey building, incorporating 900 m(2) of retail space. Development Pipeline -------------------- • Hammerson has a talented development team, which has demonstrated its skills in identifying and acquiring future development opportunities. These are often very long term projects, which involve close working relationships with city councils, local authorities and other landowners. • To date, Hammerson has invested approximately £140 million in the pipeline. The projects, which currently generate an interim income of around £4 million per annum fall into four principal categories: major retail-led, mixed-use schemes; extensions to existing shopping centres; retail parks; and offices. • Firstly, the group is working in partnership with local authorities and councils to advance several major retail-led city centre schemes. These include developments in Kingston-upon-Thames, Leeds, London, Peterborough and Sheffield. • Secondly, within Hammerson's retail portfolio there are opportunities to extend and enhance a number of its shopping centres. In the UK, these include Brent Cross in north London, WestQuay in Southampton and The Oracle in Reading. In France, there are plans to carry out expansion schemes at another three of the group's shopping centres near Paris: Italie 2; Espace St Quentin; and Les 3 Fontaines. • Thirdly, Hammerson has a number of opportunities to develop and expand its existing retail parks portfolio and a proposed scheme in Nice, France. • Fourthly, Hammerson has the potential to expand its commercial portfolio in London by around 310,000 m(2), including 160,000 m(2) of offices. Hammerson is currently progressing a project to the north of Bishopsgate, London EC1, having entered into an option agreement with Hackney Council to acquire land adjoining the group's existing Norton Folgate site. Hammerson intends to submit a planning application during 2006 for a mixed-use development of 79,000m(2), incorporating 43,000 m(2) of offices. The group is also advancing major mixed-use schemes at Shoreditch High Street, Bishopsgate Goodsyard and Paddington. • Potentially, construction of the schemes within the group's current development pipeline could add significantly to the group's portfolio over the next seven to 10 years, with individual projects targeted to show a yield on cost of between 6% and 9%. It is anticipated that the group would enter into joint ventures in respect of certain of the larger developments. CONSOLIDATED INCOME STATEMENT ----------------------------- for the year ended 31 December 2005 2005 2004* Unaudited Audited Notes £m £m ----------------------------------------------------------------- ------- ----------- ----------- Gross rental income 249.2 219.6 ----------------------------------------------------------------- ------- ----------- ----------- Operating profit before gains on investment properties 1 178.9 162.9 Gains on investment properties 1 607.6 330.2 ----------------------------------------------------------------- ------- ----------- ----------- Operating profit 1 786.5 493.1 ----------- ----------- Finance costs ! (102.1) ! ! (97.7) ! Finance income ! 12.6 ! ! 18.0 ! Change in fair value of interest rate swaps ! 1.6 ! ! - ! ----------- ----------- Net finance costs 3 (87.9) (79.7) ----------------------------------------------------------------- ------- ----------- ----------- Profit before tax 698.6 413.4 ----------- ----------- Current tax ! 1.0 ! ! (80.9) ! Deferred tax ! (133.9) ! ! 104.2 ! ----------- ----------- Tax (charge)/credit 4(a) (132.9) 23.3 ----------------------------------------------------------------- ------- ----------- ----------- Profit for the year 565.7 436.7 ----------------------------------------------------------------- ------- ----------- ----------- Attributable to: Equity shareholders 554.4 431.4 Minority interests 11.3 5.3 ----------------------------------------------------------------- ------- ----------- ----------- Profit for the year 565.7 436.7 ----------------------------------------------------------------- ------- ----------- ----------- Basic earnings per share 6 198.0p 156.2p Diluted earnings per share 6 197.6p 155.9p ----------------------------------------------------------------- ------- ----------- ----------- Adjusted earnings per share are shown in note 6. All results derive from continuing operations. *Restated under IFRS (see note 20). CONSOLIDATED BALANCE SHEET -------------------------- as at 31 December 2005 2005 2004* Unaudited Audited Notes £m £m ----------------------------------------------------------------- ------- ----------- ----------- Non-current assets Investment and development properties 7 5,731.7 4,603.0 Interests in leasehold properties 35.6 32.6 Plant, equipment and owner-occupied properties 8 44.3 6.2 Investments 10 49.5 46.4 Loans receivable 11 - 21.2 Other receivables 4.5 2.1 ----------------------------------------------------------------- ------- ----------- ----------- 5,865.6 4,711.5 Current assets Receivables 11 144.2 85.5 Cash and deposits 12 45.5 53.7 ----------------------------------------------------------------- ------- ----------- ----------- 189.7 139.2 ----------------------------------------------------------------- ------- ----------- ----------- Total assets 6,055.3 4,850.7 ----------------------------------------------------------------- ------- ----------- ----------- Current liabilities Payables 13 220.7 209.4 Tax liabilities 60.5 63.0 Borrowings 14 0.5 0.7 ----------------------------------------------------------------- ------- ----------- ----------- 281.7 273.1 Non-current liabilities Borrowings 14 2,094.3 1,798.8 Deferred tax 4(d) 406.4 213.4 Tax liabilities 25.5 35.4 Obligations under finance leases 35.9 32.9 Net pension liability 16.9 13.0 Other payables 18.9 32.2 ----------------------------------------------------------------- ------- ----------- ----------- 2,597.9 2,125.7 ----------------------------------------------------------------- ------- ----------- ----------- Total liabilities 2,879.6 2,398.8 ----------------------------------------------------------------- ------- ----------- ----------- ----------------------------------------------------------------- ------- ----------- ----------- Net assets 3,175.7 2,451.9 ----------------------------------------------------------------- ------- ----------- ----------- Equity Called up share capital 15 71.2 69.3 Share premium account 16 659.5 597.8 Revaluation reserve 16 221.8 89.4 Translation reserve 16 (32.8) 5.4 Hedging reserve 16 32.9 - Capital redemption reserve 16 7.2 7.2 Other reserves 16 6.7 5.3 Retained earnings 16 2,163.7 1,638.6 Investment in own shares 17 (4.4) (2.8) ----------------------------------------------------------------- ------- ----------- ----------- Equity shareholders' funds 3,125.8 2,410.2 Equity minority interests 49.9 41.7 ----------------------------------------------------------------- ------- ----------- ----------- Total equity 3,175.7 2,451.9 ----------------------------------------------------------------- ------- ----------- ----------- Diluted net asset value per share 6 1,097p 869p EPRA net asset value per share 6 1,237p 945p ----------------------------------------------------------------- ------- ----------- ----------- *Restated (see notes 17 and 20). CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSES -------------------------------------------------------- for the year ended 31 December 2005 2005 2004* Unaudited Audited Notes £m £m ------------------------------------------------------------ ------- ----------- ----------- Foreign exchange translation differences (39.3) 0.1 Net gain on hedge of net investment in foreign 32.9 - subsidiaries Revaluation gains on development properties 197.5 61.6 Revaluation gains on owner-occupied properties 11.6 - Revaluation gains on investments 2.7 5.9 Actuarial losses on pension schemes (6.3) (4.2) Tax on items taken directly to equity 4(c) (55.5) (17.7) ------------------------------------------------------------ ------- ----------- ----------- Net gain recognised directly in equity 143.6 45.7 Profit for the year 565.7 436.7 Transitional adjustment on adoption of IAS39 20 5.7 - Deferred tax thereon 4(c) (1.7) - ------------------------------------------------------------ ------- ----------- ----------- Total recognised income and expense 713.3 482.4 ------------------------------------------------------------ ------- ----------- ----------- Attributable to: Equity shareholders 703.2 477.1 Minority interests 10.1 5.3 ------------------------------------------------------------ ------- ----------- ----------- Total recognised income and expense 713.3 482.4 ------------------------------------------------------------ ------- ----------- ----------- RECONCILIATION OF EQUITY ------------------------ for the year ended 31 December 2005 2005 2004* Unaudited Audited £m £m ------------------------------------------------------------ ----------- ----------- Opening equity shareholders' funds 2,410.2 1,975.2 Issue of shares 63.6 3.9 Purchase of own shares (2.3) - Share-based employee remuneration 2.1 1.4 ------------------------------------------------------------ ----------- ----------- 2,473.6 1,980.5 Total recognised income and expense 703.2 477.1 ------------------------------------------------------------ ----------- ----------- 3,176.8 2,457.6 Dividends (51.0) (47.4) ------------------------------------------------------------ ----------- ----------- Closing equity shareholders' funds 3,125.8 2,410.2 ------------------------------------------------------------ ----------- ----------- * Restated under IFRS (see note 20). CONSOLIDATED CASH FLOW STATEMENT -------------------------------- for the year ended 31 December 2005 2005 2004* Unaudited Audited Notes £m £m ------------------------------------------------------------ ------- --------- ------- Operating activities Operating profit before gain on investment properties 178.9 162.9 Adjustment for non-cash items 18 1.8 1.8 (Increase)/Decrease in receivables (44.4) 14.3 Increase/(Decrease) in payables 38.9 (17.4) ------------------------------------------------------------ ------- --------- ------- Cash generated from operations 175.2 161.6 Interest paid (123.6) (100.1) Interest received 13.1 21.0 Tax paid (19.8) (22.0) ------------------------------------------------------------ ------- --------- ------- Cash flows from operating activities 44.9 60.5 ------------------------------------------------------------ ------- --------- ------- Investing activities Purchase of property (314.9) (99.7) Development of property (223.2) (223.5) Sale of property 224.4 398.7 Purchase of interests in joint ventures and subsidiary 19 6.8 (221.1) companies Purchase of investments (0.5) - Decrease in other long term receivables 18.2 5.6 ------------------------------------------------------------ ------- --------- ------- Cash flows from investing activities (289.2) (140.0) ------------------------------------------------------------ ------- --------- ------- Financing activities Issue of shares 3.0 3.9 Purchase of own shares (2.3) - Increase in medium and long term borrowings 318.6 239.8 Decrease in short term borrowings (30.3) (249.4) Dividends paid to minorities (1.8) (1.7) Equity dividends paid (51.0) (47.4) ------------------------------------------------------------ ------- --------- ------- Cash flows from financing activities 236.2 (54.8) ------------------------------------------------------------ ------- --------- ------- ------------------------------------------------------------ ------- --------- ------- Net decrease in cash and deposits (8.1) (134.3) Opening cash and deposits 53.7 187.0 Exchange translation movement (0.1) 1.0 ------------------------------------------------------------ ------- --------- ------- Closing cash and deposits 12 45.5 53.7 ------------------------------------------------------------ ------- --------- ------- *Restated under IFRS (see note 20). ANALYSIS OF MOVEMENT IN NET DEBT -------------------------------- for the year ended 31 December 2005 Short term Cash Current Non-current Net debt deposits at bank borrowings borrowings Unaudited £m £m £m £m £m --------------------------- --------- ------- --------- ------- --------- Balance at 1 January 2005 29.8 23.9 (0.7) (1,798.8) (1,745.8) Acquisition of subsidiaries 6.1 1.1 (39.2) - (32.0) Cash flow (13.4) (1.9) 30.3 (318.6) (303.6) Exchange (0.1) - 9.1 23.1 32.1 --------------------------- --------- ------- --------- ------- --------- Balance at 31 December 2005 22.4 23.1 (0.5) (2,094.3) (2,049.3) --------------------------- --------- ------- --------- ------- --------- This information is provided by RNS The company news service from the London Stock Exchange MORE TO FOLLOW FR BRGDDRUDGGLS

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