Final Results - Part 2

Land Securities Group Plc 21 May 2003 LAND SECURITIES GROUP PLC Preliminary results for the year ended 31 March 2003 (PART 2) Interest Interest in joint Total in joint Total Consolidated profit Group venture 2003 Group venture 2002 and loss account for the year ended 31 Notes £m £m £m £m £m £m March 2003 ---------- ---------- ---------- ---------- ---------- ---------- GROSS PROPERTY INCOME 2 1,071.3 168.2 1,239.5 977.1 48.5 1,025.6 ========== ========== ========== ========== ========== ========== OPERATING PROFIT 2 462.4 87.8 550.2 497.5 19.3 516.8 Profit on sales of 2 26.6 15.1 41.7 13.4 - 13.4 fixed asset properties ---------- ---------- ---------- ---------- ---------- ---------- PROFIT ON ORDINARY 2 489.0 102.9 591.9 510.9 19.3 530.2 ACTIVITIES BEFORE INTEREST AND TAXATION Interest receivable 3 12.0 2.4 14.4 4.2 0.8 5.0 and similar income Interest payable and similar charges ---------- ---------- ---------- ---------- ---------- ---------- - gross 3 (195.9) (77.8) (273.7) (168.2) (24.6) (192.8) - exceptional deficit 3 (28.2) - (28.2) - - - on purchase and redemption of convertible bonds - exceptional cost of 3 (23.5) (0.3) (23.8) - - - cancellation/novation of interest rate swaps - interest capitalised 3 39.0 - 39.0 21.1 - 21.1 ---------- ---------- ---------- ---------- ---------- ---------- (208.6) (78.1) (286.7) (147.1) (24.6) (171.7) ---------- ---------- ---------- ---------- ---------- ---------- PROFIT/(LOSS) ON 292.4 27.2 319.6 368.0 (4.5) 363.5 ORDINARY ACTIVITIES BEFORE TAXATION Taxation 4 (89.7) (99.9) ---------- ---------- ---------- ---------- ---------- ---------- PROFIT ON ORDINARY 229.9 263.6 ACTIVITIES AFTER TAXATION Dividends 5 (167.4) (178.4) ---------- ---------- RETAINED PROFIT FOR 16 62.5 85.2 THE FINANCIAL YEAR ========== ========== PROFIT/(LOSS) ON 292.4 27.2 319.6 368.0 (4.5) 363.5 ORDINARY ACTIVITIES BEFORE TAXATION Profit on sales of (26.6) (15.1) (41.7) (13.4) - (13.4) fixed asset properties Bid costs 2 4.7 - 4.7 6.7 8.0 14.7 Exceptional items - Deficit on purchase 28.2 - 28.2 - - - and redemption of convertible bonds - Cost of 23.5 0.3 23.8 - - - cancellation/novation of interest rate swaps - Group reorganisation 2 6.3 - 6.3 - - - costs ---------- ---------- ---------- ---------- ---------- ---------- REVENUE PROFIT BEFORE 328.5 12.4 340.9 361.3 3.5 364.8 TAXATION ========== ========== ========== ========== ========== ========== 2003 2003 2002 2002 Basic Diluted Basic Diluted ---------- ---------- ---------- ---------- EARNINGS PER SHARE 6 46.46p 46.44p 50.27p 49.54p ADJUSTED EARNINGS PER 6 50.39p 50.36p 51.61p 50.81p SHARE ========== ========== ========== ========== 2003 2002 DIVIDENDS PER ORDINARY 5 35.50p 34.00p SHARE ========== ========== All income was derived from within the United Kingdom from continuing operations. No operations were discontinued during the year. The interest in the joint venture was acquired on 13 December 2001. Results for the year ended 31 March 2002 therefore include three and a half months trading for that business. The notes form an integral part of these financial statements. 2002 Consolidated balance sheet 2003 (restated) 31 March 2003 Notes £m £m ---------- ---------- FIXED ASSETS Intangible asset Goodwill 8 36.7 38.9 Tangible assets ---------- ---------- Investment properties 9 7,823.9 7,800.0 Operating properties 11 557.4 428.9 ---------- ---------- Properties 12 8,381.3 8,228.9 Other tangible assets 14 41.5 45.3 Investment in joint venture ---------- ---------- Share of gross assets of joint venture 21 1,156.1 1,297.8 Share of gross liabilities of joint venture 21 (1,049.3) (1,109.0) ---------- ---------- 106.8 188.8 ---------- ---------- 8,566.3 8,501.9 ---------- ---------- CURRENT ASSETS Trading properties 52.6 36.9 Debtors falling due within one year 273.5 254.8 Debtors falling due after more than one year 15.9 5.5 Investments: short term deposits 3.4 60.9 Cash at bank and in hand 96.0 7.5 ---------- ---------- 441.4 365.6 CREDITORS falling due within one year (594.9) (690.9) ---------- ---------- NET CURRENT LIABILITIES (153.5) (325.3) ---------- ---------- TOTAL ASSETS LESS CURRENT LIABILITIES 8,412.8 8,176.6 CREDITORS falling due after more than one year Debentures, bonds and loans (2,648.4) (1,744.0) Convertible bonds - (243.3) Other creditors (22.3) (22.8) PROVISION FOR LIABILITIES AND CHARGES (179.0) (129.9) ---------- ---------- 5,563.1 6,036.6 ========== ========== CAPITAL AND RESERVES Called up share capital 15 76.9 524.3 Share premium account 16 13.3 - Capital redemption reserve 16 0.1 - Revaluation reserve 16 3,038.9 3,376.9 Other reserves 16 - 901.3 Profit and loss account 16 2,433.9 1,234.1 ---------- ---------- SHAREHOLDERS' FUNDS 16 5,563.1 6,036.6 ========== ========== EQUITY SHAREHOLDERS' FUNDS 16 5,532.7 6,036.6 NON-EQUITY SHAREHOLDERS' FUNDS 16 30.4 - ---------- ---------- 16 5,563.1 6,036.6 ========== ========== NET ASSETS PER SHARE 7 1188p 1151p DILUTED NET ASSETS PER SHARE 7 1188p 1132p ADJUSTED NET ASSETS PER SHARE 7 1215p 1176p ADJUSTED DILUTED NET ASSETS PER SHARE 7 1215p 1155p The combined reserves as at 31 March 2002 have been restated as required under merger accounting rules for the effects of the Scheme of Arrangement ('scheme'), described in Note 1, to reflect the introduction of Land Securities Group PLC as the new holding company. The restatement only affected consolidated reserves as Land Securities Group PLC did not trade prior to the scheme. The financial statements were approved by the directors on 21 May 2003. Consolidated cash flow statement 2003 2002 for the year ended 31 March 2003 Notes £m £m £m £m ---------- ---------- ---------- ---------- NET CASH INFLOW FROM OPERATING ACTIVITIES 17 484.4 406.2 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE ---------- ---------- Interest received 12.0 4.2 Interest paid (292.0) (166.5) ---------- ---------- NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (280.0) (162.3) TAXATION - Corporation tax paid (95.8) (111.3) ---------- ---------- NET CASH INFLOW FROM OPERATING ACTIVITIES AND INVESTMENTS AFTER FINANCE CHARGES AND TAXATION 108.6 132.6 CAPITAL EXPENDITURE ---------- ---------- Investment property development expenditure (301.4) (256.4) Acquisitions and other capital expenditure* (311.8) (306.1) ---------- ---------- Additions to properties (613.2) (562.5) Sales of properties 436.3 549.2 ---------- ---------- Investing in properties (176.9) (13.3) Increase in other tangible assets (12.9) (19.6) ---------- ---------- NET CASH OUTFLOW ON CAPITAL EXPENDITURE (189.8) (32.9) ACQUISITIONS Investment in joint venture - (146.4) Part repayment of loan capital by joint venture 80.6 - EQUITY DIVIDENDS PAID (176.6) (172.5) ---------- ---------- CASH OUTFLOW BEFORE USE OF LIQUID RESOURCES AND FINANCING (177.2) (219.2) MANAGEMENT OF LIQUID RESOURCES 18(a) 57.5 (38.9) FINANCING ---------- ---------- Issues of shares 15(b) 1.2 1.1 Repayment of B Shares 16 (511.1) - Purchase and cancellation of own ordinary shares 16 (5.1) Increase in debt 18(b) 728.2 239.6 ---------- ---------- NET CASH INFLOW FROM FINANCING 213.2 240.7 ---------- ---------- INCREASE/(DECREASE) IN CASH IN YEAR 93.5 (17.4) ========== ========== * Includes £105.8m on the BBC developments and £14.4m on life cycle capital expenditure 2003 2002 RECONCILIATION OF NET CASH FLOW TO MOVEMENTS IN £m £m NET DEBT ---------- ---------- Increase/(decrease) in cash in year 93.5 (17.4) Cash (inflow)/outflow from (decrease)/increase in 18(a) (57.5) 38.9 liquid resources Cash inflow from increase in debt 18(b) (728.2) (239.6) ---------- ---------- Change in net debt resulting from cash flow 19 (692.2) (218.1) Non-cash changes in debt 19 45.0 3.8 ---------- ---------- Movement in net debt in year (647.2) (214.3) Net debt at 1 April (1,942.1) (1,727.8) ---------- ---------- Net debt at 31 March 19 (2,589.3) (1,942.1) ========== ========== Other primary statements for the year ended 31 March 2003 2003 2002 STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Notes £m £m ---------- ---------- Profit on ordinary activities after taxation 229.9 263.6 Unrealised deficit on revaluation of investment properties 16 (56.8) (105.5) Share of unrealised surplus on revaluation of investment properties held in 16 - 46.8 joint venture Taxation on revaluation surpluses realised on sales of investment properties 16 (25.4) (12.0) ---------- ---------- Total gains and losses relating to the financial year 147.7 192.9 ========== ========== 2003 2002 NOTE OF HISTORICAL COST PROFITS AND LOSSES Notes £m £m ---------- ---------- Profit on ordinary activities before taxation 319.6 363.5 Revaluation surplus arising in previous years now realised on sales of 16 281.2 237.8 investment properties Taxation on revaluation surpluses realised on sales of investment properties 16 (25.4) (12.0) ---------- ---------- Historical cost profit on ordinary activities before taxation 575.4 589.3 Taxation 4 (89.7) (99.9) ---------- ---------- Historical cost profit on ordinary activities after taxation 485.7 489.4 Dividends 5 (167.4) (178.4) ---------- ---------- Retained historical cost profit for the financial year 318.3 311.0 ========== ========== 2003 2002 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Notes £m £m ---------- ---------- Profit on ordinary activities after taxation 229.9 263.6 Dividends 5 (167.4) (178.4) ---------- ---------- Retained profit for the financial year 62.5 85.2 Unrealised deficit on revaluation of investment properties 16 (56.8) (105.5) Share of unrealised surplus on revaluation of properties held in joint venture 16 - 46.8 Taxation on revaluation surpluses realised on sales of investment properties 16 (25.4) (12.0) Issues of shares 16 62.4 4.3 Repayment of B Shares 16 (511.1) - Purchase and cancellation of own ordinary shares 16 (5.1) - ---------- ---------- Net change in shareholders' funds (473.5) 18.8 Opening shareholders' funds 6,036.6 6,017.8 ---------- ---------- Closing shareholders' funds 5,563.1 6,036.6 ========== ========== Notes to the financial statements for the year ended 31 March 2003 The financial information is abridged and does not constitute the Group's full Financial Statements for the years ended 31 March 2002 or 31 March 2003. Full Financial Statements for the year ended 31 March 2002 (which received an unqualified audit report) have been filed with the Registrar of Companies. Financial Statements for the year ended 31 March 2003 will be presented to the Members at the forthcoming Annual General Meeting; the auditors have indicated that their report on these Financial Statements will be unqualified. 1. Basis of Accounting In July 2002, Land Securities PLC announced proposals for the return of £541m to shareholders by way of a capital reorganisation, incorporating a Scheme of Arrangement. Following approval by shareholders in August 2002 and subsequent ratification by the Court in September, shareholders have exchanged their shareholdings in Land Securities PLC for a combination of shares in a newly formed company, Land Securities Group PLC ('the company'). This exchange, which was made on the basis of seven ordinary shares and eight B Shares in the company for every eight ordinary shares in Land Securities PLC, had the effect of introducing the company as the new holding company of Land Securities PLC and its subsidiaries. Holders of B Shares have the right to have their shares redeemed for 102p each in cash, although shareholders were given the choice of electing for an immediate redemption of these shares in September. Approximately 94% of shareholders elected for such immediate repayment with the remaining shareholders retaining their B Shares for later redemption in accordance with their terms. The repayment of the B Shares was effected by reducing the capital of the company. This was achieved by cancelling and repaying the B Shares held by those shareholders who had elected for immediate cash repayment and, in addition, the share capital of the company was reduced by decreasing the nominal amount of each ordinary share issued pursuant to the scheme from 683p to 10p. This second reduction of capital has created distributable reserves of approximately £3.1bn which will be available to facilitate the repayment of the B Shares held by shareholders who have elected for deferred repayment. The balance of the reserves will give the company additional financial flexibility. The company was incorporated on 7 February 2002 as Hackplimco (no. 104) plc and changed its name to Land Securities Group PLC on 25 June 2002. On 6 September 2002 the company acquired 100% of the issued share capital of Land Securities PLC, following the implementation of the Scheme of Arrangement under section 425 of the Companies Act 1985, described above. In these results, the company has accounted for its acquisition of Land Securities PLC using merger rather than acquisition accounting principles. Schedule 4A to the Companies Act 1985 and FRS 6 'Acquisitions and Mergers' requires acquisition accounting to be adopted where all the conditions laid down for merger accounting are not satisfied. Under the Scheme of Arrangement, not all of the conditions were satisfied because the fair value of the non-equity share element of the consideration (the redeemable B Shares) issued by the company for the shares in Land Securities PLC exceeded 10% of the nominal value of the equity share element of the consideration. However, in the opinion of the directors, the Scheme of Arrangement is a group reconstruction rather than an acquisition, since the shareholders of the company are the same as the former shareholders in Land Securities PLC and the rights of each shareholder, relative to the others, are unchanged and no minority interest in the net assets of the Group is altered. Therefore, the directors consider that to record the Scheme of Arrangement as an acquisition by the company, requiring the attribution of fair values to the assets and liabilities of the Group and reflecting only the post Scheme of Arrangement results within these financial statements would fail to give a true and fair view of the Group's results and financial position. Accordingly, having regard to the overriding requirement under section 227(6) of the Companies Act 1985 for the financial statements to give a true and fair view of the Group's results and financial position, the directors have adopted merger accounting principles in drawing up these financial statements. The directors consider that it is not practicable to quantify the effect of this departure from the Companies Act 1985 requirements. The financial information for the year ended 31 March 2002 has been restated for the effects of the Scheme of Arrangement. The combined reserves as at 31 March 2002 have been restated to reflect the introduction of the new holding company, as required under merger accounting rules. The impact of the reduction and return of capital is shown as movements in reserves in the current period when the Scheme of Arrangement was effected. However, as Land Securities Group PLC did not trade prior to the Scheme of Arrangement and had no material assets, the restatement only affected consolidated reserves. Total Property Property Property Joint 2003 Investment Outsourcing Trading Group Venture Total Note 2(iii) 2. Segmental Information £m £m £m £m £m £m (i) PROFIT AND (Note LOSS ACCOUNT 2(iii)(a)) ---------- ---------- ---------- ---------- ---------- ---------- Rental income (b) 519.7 519.7 519.7 Service charges (c) 55.9 55.9 55.9 and other recoveries Property services (d) income ---------- - Unitary charge 342.4 - Capital 149.6 projects and other reimbursable costs ---------- 492.0 492.0 166.3 658.3 Proceeds of sales 3.7 3.7 1.9 5.6 of trading properties ---------- ---------- ---------- ---------- ---------- ---------- GROSS PROPERTY 575.6 492.0 3.7 1,071.3 168.2 1,239.5 INCOME Rents payable (17.0) (97.5) (114.5) (49.9) (164.4) ---------- ---------- ---------- ---------- ---------- ---------- Other direct (e) (71.1) (328.3) - (399.4) - (399.4) property or contract expenditure Indirect property (f) (33.8) (7.7) (1.5) (43.0) (14.1) (57.1) or contract expenditure Bid costs - (4.7) - (4.7) - (4.7) ---------- ---------- ---------- ---------- ---------- ---------- (104.9) (340.7) (1.5) (447.1) (14.1) (461.2) Costs of sales of (2.4) (2.4) (1.4) (3.8) trading properties ---------- ---------- ---------- ---------- ---------- ---------- 453.7 53.8 (0.2) 507.3 102.8 610.1 Depreciation (g) (9.8) (14.9) - (24.7) (15.0) (39.7) Amortisation of (2.2) - (2.2) - (2.2) goodwill ---------- ---------- ---------- ---------- ---------- ---------- 443.9 36.7 (0.2) 480.4 87.8 568.2 Profit on sales 26.5 0.1 - 26.6 15.1 41.7 of fixed asset properties ---------- ---------- ---------- ---------- ---------- ---------- SEGMENT PROFIT 470.4 36.8 (0.2) 507.0 102.9 609.9 ---------- ---------- ---------- ---------- ---------- Common costs (h) (11.7) Group (6.3) reorganisation costs ---------- ---------- OPERATING PROFIT 550.2 Profit on sales 41.7 of fixed asset properties ---------- PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND 591.9 TAXATION ========== 2. Segmental Information (continued) 2003 Total Property Property Property Investment Outsourcing Trading Total (ii) NET ASSETS £m £m £m £m ---------- ---------- ---------- ---------- Properties in development programme (Note 10) 967.4 - - 967.4 Other investment properties 6,856.5 - - 6,856.5 Operating properties - 557.4 - 557.4 Other tangible and intangible fixed assets 12.0 66.2 - 78.2 ---------- ---------- ---------- ---------- FIXED ASSETS 7,835.9 623.6 - 8,459.5 INVESTMENT IN JOINT VENTURE - 106.8 - 106.8 NET CURRENT (LIABILITIES)/ASSETS (114.3) 37.9 64.1 (12.3) (excluding financing and dividends) ---------- ---------- ---------- ---------- 7,721.6 768.3 64.1 8,554.0 ---------- ---------- ---------- FINANCING AND DIVIDENDS (2,789.6) LONG TERM LIABILITIES AND PROVISIONS (201.3) ---------- NET ASSETS 5,563.1 ========== Total 2002 Property Property Property Joint (restated) 2. Segmental Investment Outsourcing Trading Group Venture Total Information Note (continued) 2(iii) £m £m £m £m £m £m (i) PROFIT AND (Note LOSS ACCOUNT 2(iii) (a)) ---------- ---------- ---------- ---------- ---------- ---------- Rental income (b) 525.9 525.9 525.9 Service charges (c) 53.1 53.1 53.1 and other recoveries Property services (d) income ---------- - Unitary charge 295.8 - Capital 61.9 projects and other reimbursable costs ---------- 357.7 357.7 48.5 406.2 Proceeds of sales 40.4 40.4 40.4 of trading properties ---------- ---------- ---------- ---------- ---------- ---------- GROSS PROPERTY 579.0 357.7 40.4 977.1 48.5 1,025.6 INCOME Rents payable (17.4) (92.7) - (110.1) (14.4) (124.5) ---------- ---------- ---------- ---------- ---------- ---------- Other direct (e) (62.0) (187.9) - (249.9) - (249.9) property or contract expenditure Indirect property (f) (29.4) (16.7) (1.5) (47.6) (3.0) (50.6) or contract expenditure Bid costs - (6.7) - (6.7) (8.0) (14.7) ---------- ---------- ---------- ---------- ---------- ---------- (91.4) (211.3) (1.5) (304.2) (11.0) (315.2) Costs of sales of (34.6) (34.6) (34.6) trading properties ---------- ---------- ---------- ---------- ---------- ---------- 470.2 53.7 4.3 528.2 23.1 551.3 Depreciation (g) (4.0) (10.9) - (14.9) (3.8) (18.7) Amortisation of - (2.3) - (2.3) - (2.3) goodwill ---------- ---------- ---------- ---------- ---------- ---------- 466.2 40.5 4.3 511.0 19.3 530.3 Profit on sales 10.1 3.3 - 13.4 - 13.4 of fixed asset properties ---------- ---------- ---------- ---------- ---------- ---------- SEGMENT PROFIT 476.3 43.8 4.3 524.4 19.3 543.7 Common costs (h) ---------- ---------- ---------- ---------- ---------- (13.5) Group - reorganisation costs ---------- ---------- OPERATING PROFIT 516.8 Profit on sales 13.4 of fixed asset properties ---------- PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND 530.2 TAXATION ========== 2. Segmental Information (continued) 2002 (restated) Property Total Investment Property Property Outsourcing Trading Total (ii) NET ASSETS £m £m £m £m ---------- ---------- ---------- ---------- Properties in development programme (Note 10) 790.8 - - 790.8 Other investment properties 7,009.2 - - 7,009.2 Operating properties - 428.9 - 428.9 Other tangible and intangible fixed assets 17.7 66.5 - 84.2 ---------- ---------- ---------- ---------- FIXED ASSETS 7,817.7 495.4 - 8,313.1 INVESTMENT IN JOINT VENTURE - 188.8 - 188.8 NET CURRENT (LIABILITIES)/ASSETS (275.5) (22.2) 43.7 (254.0) (excluding financing and dividends) ---------- ---------- ---------- ---------- 7,542.2 662.0 43.7 8,247.9 ---------- ---------- ---------- FINANCING AND DIVIDENDS (2,058.6) LONG TERM LIABILITIES AND PROVISIONS (152.7) ---------- NET ASSETS 6,036.6 ========== (iii) NOTES TO THE SEGMENTAL INFORMATION (a) Includes the results of investment properties under development and the Group's share of the results of its development partnerships (Note 22). (b) As a consequence of adopting UITF28, rental income includes £7.3m (2002 £3.5m) of rent receivable allocated to rent free periods falling in the respective financial years. Rental income also includes the net income from managed operations e.g. car parks, food courts, serviced offices and flats. (c) Includes income in relation to service charges and directly recoverable expenditure together with any chargeable management fee. (d) Property services income represents unitary charges and the recovery of other direct property or contract expenditure reimbursable by customers. (e) Other direct property or contract expenditure are costs incurred in the direct maintenance and upkeep of properties together with the costs of rent reviews, lease renewals and relettings of properties and in providing services in compliance with outsourcing contracts together with additional costs incurred at the request of customers and reimbursable by them. Void costs, which include those relating to empty properties pending redevelopment and refurbishment costs, and costs of development schemes which are not proceeded with are also included. It includes pre-commitment costs written off of £3.1m (2002 £Nil). (f) Indirect property or contract expenditure are indirect costs of managing the portfolio. It includes the cost of staff involved in development projects and all office administration and operating costs other than common costs. (g) Depreciation includes £5.9m (2002 £Nil) of accelerated depreciation relating to a re-assessment of the remaining useful lives of certain Information Systems used by the property investment business. (h) Common costs comprise all costs associated with central Group management including company secretarial and non-executive directors, their premises costs and non-segment related depreciation charges. The group total of indirect property or contract expenditure, depreciation and common costs includes: 2003 2002 Auditors' remuneration: £m £m ---------- ---------- Audit fees (Company: £80,000; 2002 £Nil) 0.5 0.3 Non-audit fees for: ---------- ---------- Bids - Trillium 0.2 0.2 Other 0.5 0.7 Taxation 1.0 0.4 ---------- ---------- 1.7 1.3 Directors' remuneration 3.2 4.2 Depreciation (including depreciation in 'common costs' above) 26.4 16.0 ========== ========== In addition, the auditors also received non-audit fees of £0.5m (2002 £2.6m) from Telereal. £0.4m (2002 £1.6m) of this is related to fees for PWC Consulting before it was sold to IBM. 2003 2003 2003 2002 2002 2002 ---------- ---------- ---------- ---------- ---------- ---------- Joint Joint Group Venture Total Group Venture Total 3. Finance £m £m £m £m £m £m ---------- ---------- ---------- ---------- ---------- ---------- INTEREST RECEIVABLE: Short term deposits 0.9 - 0.9 3.3 0.8 4.1 Other interest receivable 3.4 2.4 5.8 0.9 - 0.9 Loan to joint venture 7.7 7.7 - - ---------- ---------- ---------- ---------- ---------- ---------- 12.0 2.4 14.4 4.2 0.8 5.0 ========== ========== ========== ========== ========== ========== INTEREST PAYABLE: Borrowings not wholly repayable 117.2 70.1 187.3 132.6 20.0 152.6 within five years Borrowings wholly repayable 76.2 - 76.2 32.6 3.7 36.3 within five years Other interest payable 2.5 - 2.5 3.0 0.9 3.9 ---------- ---------- ---------- ---------- ---------- ---------- 195.9 70.1 266.0 168.2 24.6 192.8 Loans from joint venture 7.7 7.7 - - - partners Deficit on purchase and 28.2 - 28.2 - - - redemption of convertible bonds Cost of cancellation/novation 23.5 0.3 23.8 - - - of interest rate swaps Less: Capitalised in relation (39.0) - (39.0) (21.1) - (21.1) to properties under development ---------- ---------- ---------- ---------- ---------- ---------- 208.6 78.1 286.7 147.1 24.6 171.7 ========== ========== ========== ========== ========== ========== Interest has been capitalised at the Group's pre-tax weighted average borrowing rate for non-specific borrowings for the year of 8.3% (2002 8.5%). Non-specific borrowings exclude certain bank debt which is specific to the PRIME contract. Interest payable on borrowings wholly repayable within five years includes £6.7m of arrangement fees out of a total of £8.4m incurred in relation to the utilised proportion of the £1.5bn of new committed bank facilities put in place during the year. The balance of the arrangement fees is being amortised over the remaining lives of the facilities. 2003 2002 4. Taxation £m £m ---------- ---------- Current tax Corporation tax on Group profit for the year at 30% (2002 30%) 32.0 92.8 Adjustments to current taxation in respect of previous years (7.8) 0.2 Share of joint venture's taxation 14.5 - ---------- ---------- Current tax including 38.7 93.0 Deferred tax - Group 51.0 6.9 ---------- ---------- Tax charge for the period 89.7 99.9 ========== ========== Factors affecting the tax charge for the period The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 30% (2002 30%) The differences are explained below: Profit on ordinary activities before taxation 319.6 363.5 ========== ========== Profit on ordinary activities multiplied by the standard rate of corporation tax at 30% 95.9 109.1 Add: Disallowable/non-taxable expenses 1.9 2.2 Telereal depreciation and goodwill amortisation 5.3 1.8 ---------- ---------- 103.1 113.1 Release of deferred tax on property disposals (8.2) (10.7) Adjustments to current and deferred taxation in respect of prior years (1.8) (0.2) Reduced rate of tax on profits on disposal of assets (3.4) (2.3) ---------- ---------- Tax charge for the period 89.7 99.9 Add back: Depreciation 7.9 5.6 Capital allowances (26.9) (16.9) Capitalised interest and other timing differences (32.0) 4.4 ---------- ---------- Current tax payable 38.7 93.0 ========== ========== The joint venture's taxation charge is after disallowing depreciation charges but without the availability of capital allowances which were retained by British Telecom plc. Included in the tax charge is a net credit of £12.6m (2002 £1.2m) attributable to property sales, bid costs and the exceptional items analysed. A tax credit of £15.6m (2002 £Nil) is attributable to exceptional items. Dividends Dividends per ordinary per ordinary share share 2003 2002 2003 2002 5. Dividends pence pence £m £m ---------- ---------- ---------- ---------- Ordinary shares - interim 9.50 9.05 44.1 47.5 - final 26.00 24.95 121.1 130.9 B Shares - 0.5 Additional prior period dividends - ordinary shares - 1.7 - ---------- ---------- ---------- ---------- 35.50 34.00 167.4 178.4 ========== ========== ========== ========== B Shares carry the right to a dividend of 70% of six month LIBOR paid twice yearly. The dividend rate for the first dividend period to 17 April 2003 was 2.8% of the nominal value of the shares. Additional prior year dividends relate to increases in share capital arising after the respective prior period ends but before their corresponding dividend record dates. 6. Earnings per Share Profit after Profit after Weighted Weighted taxation and taxation and average average preference and preference and number of number of Earnings Earnings B share B share ordinary ordinary per per dividends dividends shares shares share share 2003 2002 2003 2002 2003 2002 EARNINGS PER SHARE £m £m m m pence pence ---------- ---------- ---------- ---------- ---------- ---------- Earnings per share 229.4 263.6 493.8 524.2 46.46 50.27 Effect of dilutive securities: Convertible bonds - 10.9 - 29.7 Share options 0.1 0.2 ---------- ---------- ---------- ---------- ---------- ---------- Diluted earnings per 229.4 274.5 493.9 554.1 46.44 49.54 share ========== ========== ========== ========== ========== ========== ADJUSTED EARNINGS PER SHARE Earnings per share 229.4 263.6 493.8 524.2 46.46 50.27 Effect of results of property disposals, bid costs and exceptional items after taxation 16.5 1.2 3.35 0.24 Effect of deferred tax arising from capital allowances on investment properties 2.9 5.9 0.58 1.10 ---------- ---------- ---------- ---------- ---------- ---------- Adjusted earnings per 248.8 270.7 493.8 524.2 50.39 51.61 share ========== ========== ========== ========== ========== ========== Diluted earnings per 229.4 274.5 493.9 554.1 46.44 49.54 share Effect of results of property disposals, bid costs and exceptional items after taxation 16.5 1.2 3.34 0.23 Effect of deferred tax arising from capital allowances on investment properties 2.9 5.9 0.58 1.04 ---------- ---------- ---------- ---------- ---------- ---------- Adjusted diluted 248.8 281.6 493.9 554.1 50.36 50.81 earnings per share ========== ========== ========== ========== ========== ========== £196.8m of the nominal value of the Group's convertible bonds were purchased and redeemed during the year at a loss over book value of £28.2m. FRS14 requires the post-tax effect of all changes in income or expense that would arise from conversions into dilutive potential ordinary shares to be taken into account in deriving earnings to be used in the calculation of diluted earnings per share. For the year ended 31 March 2003, the convertible bonds have not been included in the calculation of diluted earnings per share because adjusting earnings by the loss on redemption results in the convertible bonds becoming accretive, rather than dilutive, to earnings per share. In accordance with FRS14 'Earnings per share', the earnings per share for the prior year have not been restated for the effects of the Group's Scheme of Arrangement referred to in Note 1. Profits on the sales of properties, bid costs and exceptional items (comprising the deficit arising on the purchase and redemption of convertible bonds, cost of cancellation/novation of interest rate swaps and the costs of reorganising the Group) are excluded from adjusted earnings as these are non-recurring items. The additional deferred tax arising from capital allowances on investment properties is also excluded as the Group's experience is that it is very unusual for plant allowances to be claimed back through balancing charges on the disposal of a property. Adjusted earnings and adjusted diluted earnings per share have also been disclosed, therefore, to show measures of earnings that better reflect the principal operating activities of the Group. 7. Net Assets per Share Equity Equity Number of Number of shareholders' shareholders' ordinary ordinary Net assets Net assets funds funds shares shares per share per share 2003 2002 2003 2002 2003 2002 £m £m m m pence pence ---------- ---------- ---------- ---------- ---------- ---------- Net assets per share 5,532.7 6,036.6 465.6 524.3 1188 1151 Effect of deferred tax arising from capital allowances on investment 124.7 128.3 27 25 properties ---------- ---------- ---------- ---------- ---------- ---------- Adjusted net assets per 5,657.4 6,164.9 465.6 524.3 1215 1176 share ========== ========== ========== ========== ========== ========== Net assets per share 5,532.7 6,036.6 465.6 524.3 1188 1151 Adjustments for - 243.3 - 29.7 convertible bonds Exercise of outstanding 0.1 0.8 share options ---------- ---------- ---------- ---------- ---------- ---------- Diluted net assets per 5,532.7 6,279.9 465.7 554.8 1188 1132 share ========== ========== ========== ========== ========== ========== Diluted net assets per 5,532.7 6,279.9 465.7 554.8 1188 1132 share Effect of deferred tax arising from capital allowances on investment properties 124.7 128.3 27 23 ---------- ---------- ---------- ---------- ---------- ---------- Adjusted diluted net 5,657.4 6,408.2 465.7 554.8 1215 1155 assets per share ========== ========== ========== ========== ========== ========== The additional deferred tax liability arising from capital allowances on investment properties is excluded from the calculations of the adjusted values as the Group's experience is that deferred tax on capital allowances in relation to investment properties is unlikely to crystallise in practice. Cost Amortisation Net 8. Goodwill £m £m £m ---------- ---------- ---------- At 1 April 2002 42.0 (3.1) 38.9 Amortisation for the year (2.2) (2.2) ---------- ---------- ---------- At 31 March 2003 42.0 (5.3) 36.7 ========== ========== ========== The goodwill arose on the acquisition of Trillium Investments GP Limited in November 2000 by Land Securities PLC when it was calculated as the excess of cost over the fair value of net assets acquired. It was capitalised in the year in which it arose and is amortised on a straight line basis over the remaining life of the PRIME contract. Leasehold Leasehold Over 50 Under 50 9. Investment Properties (including development Freehold years to run years to run Total programme assets) £m £m £m £m ---------- ---------- ---------- ---------- At 1 April 2002: Net book amount 5,715.3 2,020.9 63.8 7,800.0 Additions 289.8 187.7 0.8 478.3 Reclassifications 2.4 - (2.4) Sales (225.3) (169.1) (1.7) (396.1) ---------- ---------- ---------- ---------- 5,782.2 2,039.5 60.5 7,882.2 Depreciation - - (1.5) (1.5) Unrealised deficit on valuation (Note 16) (22.3) (25.6) (8.9) (56.8) ---------- ---------- ---------- ---------- At 31 March 2003: Net book amount 5,759.9 2,013.9 50.1 7,823.9 Amount included in prepayments under UITF28 12.0 8.0 0.1 20.1 ---------- ---------- ---------- ---------- Open market value 5,771.9 2,021.9 50.2 7,844.0 ========== ========== ========== ========== At 31 March 2003, the cumulative interest capitalised in relation to investment properties under development amounts to £70.5m (2002 £39.7m). Freeholds include £408.9m (2002 £366.1m) of leaseholds with unexpired terms exceeding 900 years; leaseholds under 50 years to run include £12.1m (2002 £10.3m) with unexpired terms of 20 years or less. The historical cost of investment properties is £4,577.9m (2002 £4,261.4m). 10. Development Programme The movement in the carrying value of investment properties forming the development programme (excluding the BBC developments and trading properties) is as follows: £m ---------- At 1 April 2002: at open market value - as previously reported 1,050.1 Less: Prior year adjustment to adopt revised definition of development programme (259.3) ---------- At 1 April 2002 as restated 790.8 Properties transferred into the development programme during the year ( at 1 April 2002 valuation) 2.5 Part disposal during the year (3.3) Expenditure during the year including development property acquisitions 291.1 Capitalised interest 30.8 Deficit on valuation (30.1) ---------- 1,081.8 Developments completed, let and transferred out of development programme during the year (114.4) ---------- At 31 March 2003: at open market value 967.4 ========== To aid clarity, the classification of projects forming the 'development programme' was revised during the year. As a result the development programme now includes: - Developments which are completed but less than 95% let - Developments on site - Committed developments (being projects which are approved and the building contract let) - Authorised developments (Board approved projects for which the building contract has not yet been let) Projects in these classifications are sufficiently firm to ensure that reporting from period to period provides a good basis for performance comparison. 'Proposed developments' will now be excluded from the development programme as experience has shown that these schemes can be subject to substantial revision. However, the Group will continue to give an indication of the likely size and timing of these schemes and their potential impact on cash flow when discussing the 'development pipeline', which combines both the development programme and proposed schemes. Developments are taken out of the development programme when physically complete and 95% let. Schemes completed during the year comprise retail parks at Cheetham Hill, Manchester, Phase 1 of Almondvale, Livingston, Designer Outlet Mall, Livingston, Lakeside Retail Park, West Thurrock a new unit at Markham Road, Chesterfield, Neptune Point, Cardiff and Bessemer Road, Welwyn Garden City. In addition to the above, investment properties include properties to the value of £180.5m in respect of proposed developments. Leasehold Leasehold Freehold buildings buildings land and Over 50 Under 50 buildings years to run years to run Total 11. Operating Properties £m £m £m £m ---------- ---------- ---------- ---------- COST At 1 April 2002 341.6 45.3 50.0 436.9 Additions 129.3 0.4 17.7 147.4 Sales (8.3) (2.5) - (10.8) ---------- ---------- ---------- ---------- At 31 March 2003 462.6 43.2 67.7 573.5 ========== ========== ========== ========== ACCUMULATED DEPRECIATION At 1 April 2002 (5.9) (1.1) (1.0) (8.0) Depreciation for the year (4.4) (0.9) (2.9) (8.2) Sales 0.1 0.1 ---------- ---------- ---------- ---------- At 31 March 2003 (10.2) (2.0) (3.9) (16.1) ========== ========== ========== ========== NET BOOK AMOUNT At 31 March 2003 452.4 41.2 63.8 557.4 ========== ========== ========== ========== At 31 March 2002 335.7 44.2 49.0 428.9 ---------- ---------- ---------- ---------- At 31 March 2003, the cumulative interest capitalised in operating properties under development amounts to £9.0m (2002 £0.8m). Leasehold Investment Operating Over 50 Under 50 Total Properties Properties Freehold years to run years to run (Note 9) (Note 11) 12. Properties £m £m £m £m £m £m ---------- ---------- ---------- ---------- ---------- ---------- BOOK AMOUNT/COST At 1 April 2002 6,056.9 2,066.2 114.9 8,238.0 7,801.1 436.9 Additions 419.1 188.1 18.5 625.7 478.3 147.4 Reclassifications 2.4 - (2.4) - - - Sales (233.6) (171.6) (1.7) (406.9) (396.1) (10.8) ---------- ---------- ---------- ---------- ---------- ---------- 6,244.8 2,082.7 129.3 8,456.8 7,883.3 573.5 Unrealised deficit on (22.3) (25.6) (8.9) (56.8) (56.8) - valuation (Note 16) ---------- ---------- ---------- ---------- ---------- ---------- At 31 March 2003 6,222.5 2,057.1 120.4 8,400.0 7,826.5 573.5 ========== ========== ========== ========== ========== ========== ACCUMULATED DEPRECIATION At 1 April 2002 (5.9) (1.1) (2.1) (9.1) (1.1) (8.0) Depreciation for the year (4.4) (0.9) (4.4) (9.7) (1.5) (8.2) Sales 0.1 - - 0.1 - 0.1 ---------- ---------- ---------- ---------- ---------- ---------- At 31 March 2003 (10.2) (2.0) (6.5) (18.7) (2.6) (16.1) ========== ========== ========== ========== ========== ========== NET BOOK AMOUNT At 31 March 2003 6,212.3 2,055.1 113.9 8,381.3 7,823.9 557.4 ========== ========== ========== ========== ========== ========== At 31 March 2002 6,051.0 2,065.1 112.8 8,228.9 7,800.0 428.9 ---------- ---------- ---------- ---------- ---------- ---------- At 31 March 2003, the cumulative capitalised interest in investment and operating properties amounts to £79.5m (2002 £40.5m). Group 13. Commitments for Future Expenditure on Properties (in the Development Pipeline) 2003 2002 £m £m ---------- ---------- Under contract 586.6 574.1 Board authorisations not contracted 82.2 312.1 ---------- ---------- Contracted and authorised commitments 668.8 886.2 Less: Commitments outside the development programme (175.4) (70.3) Estimated additional expenditure on the development programme and proposed schemes (excluding future interest) 897.4 918.2 Capital creditors relating to the development programme 53.2 86.9 ---------- ---------- Total outstanding cash outlay of the development pipeline (including the BBC 1,444.0 1,821.0 development) ========== ========== Cost Depreciation Net 14. Other Tangible Assets £m £m £m ---------- ---------- ---------- At 1 April 2002 72.0 (26.7) 45.3 Additions 13.4 13.4 Disposals (1.7) 1.2 (0.5) Depreciation for the year (16.7) (16.7) ---------- ---------- ---------- At 31 March 2003 83.7 (42.2) 41.5 ========== ========== ========== Other tangible assets include computers, motor vehicles, furniture, fixtures and fittings, improvements to Group offices and £1.0m (2002 £Nil) for Landflex product development costs. Authorised Authorised Allotted and Allotted and 2003 2002 fully paid fully paid No. No. 2003 2002 15. Called up Share Capital m m £m £m ---------- ---------- ---------- ---------- LAND SECURITIES PLC Ordinary shares of £1 each 720.0 524.3 LAND SECURITIES GROUP PLC Ordinary shares of 10p each 600.0 46.5 Non-equity B Shares of £1.02 each 540.0 30.3 Redeemable preference shares of £1 each 0.1 0.1 ---------- ---------- 76.9 524.3 ========== ========== 18,439,941 B Shares were redeemed at the holders' option on 17 April 2003 for £18.8m. The sequence of events relating to the changes in the share capitals of Land Securities PLC, the former holding company of the Group, and Land Securities Group PLC, the successor holding company was as follows: (a) Land Securities PLC No of Shares ------------------- At 1 April 2002 524,345,045 Issued during the period: On the exercise of options under: 1983 and 1993 savings related share option schemes 51,499 1984 Executive Share Option Scheme 62,750 On the conversions of: 6 per cent Guaranteed Convertible Bonds due 2007 3,176,950 7 per cent Convertible Bonds due 2008 3,155,128 Issued to facilitate the transfer of the shares to the company under the 12 Scheme of Arrangement ------------------- At 6 September 2002 530,791,384 =================== (b) Land Securities Group PLC 7 February 2002 The company was incorporated with an authorised share capital of 50,000 ordinary shares of £1 each and two shares were issued. 3 July 2002 The authorised share capital was increased to £100,000 by the creation of 50,000 redeemable preference shares of £1 each which were all issued at par. 14 July 2002 The authorised share capital was increased from £100,000 to £4,648,850,000 by the creation of 409,795,000,000 additional ordinary shares of 1p each and 540,000,000 B Shares of 102p each. Each issued ordinary share of £1 each was sub-divided into 100 ordinary shares of 1p each and a further 1,166 ordinary shares were issued at par. All issued and unissued ordinary shares of 1p each were consolidated into shares of £6.83 each resulting in the issued share capital being consolidated into two ordinary shares of £6.83 each. 6 September 2002 464,442,461 ordinary shares of £6.83 each and 530,791,384 B Shares of £1.02p each with a total nominal value of £3,713,549,221 were issued in consideration for 100% of the issued ordinary share capital of the predecessor company. 17 September 2002 Under a Court approved capital reduction: a) the nominal value of the ordinary shares was reduced from £6.83 each to 10p each. b) 501,057,544 of the B Shares were cancelled and £511,078,695 was returned to shareholders. The holders of B Shares are not entitled to receive notification of any general meeting of Land Securities Group PLC, or to attend, speak or vote at any such meeting. B Shares carry the right to a dividend of 70% of six month LIBOR paid twice yearly. In the event of the winding up of Land Securities Group PLC, the holders of B Shares will be entitled to 102p in respect of each B share held together with the relevant proportion of the dividend payable. The holders of B Shares may elect to have their shares redeemed at six monthly intervals. The first redemption date (after the initial redemption of shares on 17 September 2002) was 17 April 2003 on which date 18,439,941 B Shares were redeemed at the holders' option. The next redemption date will be 17 October 2003. Land Securities Group PLC may, on giving notice in writing to the holders of B Shares, redeem for £1.02 per share all, but not some, of the remaining B Shares. The movements in the issued ordinary share capital of the company from incorporation to 31 March 2003 were: No. of Shares ------------------- Consolidation of shares issued on incorporation 2 Issued as part consideration for 530,791,384 Land Securities PLC shares under the Scheme of 464,442,461 Arrangement Issued as consideration for the purchase of a property interest 1,760,000 Shares purchased and cancelled (700,000) Issued on the exercise of options under: 1983 and 1993 savings related share option schemes 50,345 1984 Executive Share Option Scheme 10,000 ------------------- At 31 March 2003 465,562,808 =================== The exercise of all options outstanding at 31 March 2003, granted under the savings related and executive share option schemes, would result in the issue of a further 4,696,262 ordinary shares. The cash considerations received on the exercise of options under the 1983 and 1993 savings related share option schemes and the 1984 Executive Share Option Scheme, for shares in both the company and the predecessor company, were £0.7m and £0.5m respectively. Called up Called up Called up share share share capital capital capital (Note (15)) Ordinary Non-equity Redeemable Share Capital Revaluation Shares B preference premium redemption reserve shares shares account reserve 16. Shareholders' Funds £m £m £m £m £m £m ---------- ---------- ---------- ---------- ---------- ---------- At 1 April 2002 524.3 - - 314.9 36.0 3,376.9 Proforma restatement (314.9) (36.0) ---------- ---------- ---------- ---------- ---------- ---------- At 1 April 2002 as restated 524.3 - - - - 3,376.9 Shares issued prior to capital restructure (Note 15 (a)) 6.5 0.1 42.3 Transfer to profit and loss account Capital restructure 2,641.3 541.4 (42.3) Reduction of capital and repayment of B Shares (3,125.7) (511.1) Purchase and cancellation of ordinary shares (Note 15(b)) (0.1) 0.1 Issue of ordinary shares 0.2 12.9 (Note 15(b)) Exercise of options 0.4 Unrealised surplus on revaluation of investment properties (56.8) (Note 9) Realised on disposals of investment properties (281.2) Taxation on revaluation surpluses realised on disposals of investment properties Retained profit for the financial year ---------- ---------- ---------- ---------- ---------- ---------- At 31 March 2003 46.5 30.3 0.1 13.3 0.1 3,038.9 ---------- ---------- ---------- ---------- ---------- ---------- Comprising: Equity shareholders' funds 46.5 13.3 0.1 3,038.9 Non-equity shareholders' 30.3 0.1 funds ---------- ---------- ---------- ---------- ---------- ---------- 46.5 30.3 0.1 13.3 0.1 3,038.9 ---------- ---------- ---------- ---------- ---------- ---------- Profit Other and Loss reserves account Total 16. Shareholders' Funds (continued) £m £m £m ---------- ---------- ---------- At 1 April 2002 550.4 1,234.1 6,036.6 Proforma restatement 350.9 0.0 ---------- ---------- ---------- At 1 April 2002 as restated 901.3 1,234.1 6,036.6 Shares issued prior to capital restructure (Note 15(a)) 48.9 Transfer to profit and loss account (550.4) 550.4 - Capital restructure (350.9) (2,789.5) - Reduction of capital and repayment of B Shares 3,125.7 (511.1) Purchase and cancellation of ordinary shares (Note 15(b)) (5.1) (5.1) Issue of ordinary shares (Note 15(b)) 13.1 Exercise of options 0.4 Unrealised surplus on revaluation of investment properties (Note 9) (56.8) Realised on disposals of investment properties 281.2 - Taxation on revaluation surpluses realised on disposals of investment properties (25.4) (25.4) Retained profit for the financial year 62.5 62.5 ---------- ---------- ---------- At 31 March 2003 - 2,433.9 5,563.1 ---------- ---------- ---------- Comprising: Equity shareholders' funds - 2,433.9 5,532.7 Non-equity shareholders' funds 30.4 ---------- ---------- ---------- - 2,433.9 5,563.1 ---------- ---------- ---------- As explained in Note 1, the reserves at 1 April 2002 have been restated under merger accounting rules to reflect the Group reconstruction. 2003 2002 17. Reconciliation of Group Operating Profit to Net Cash Inflow from Operating Activities £m £m ---------- ---------- Operating profit (group) 462.4 497.5 Depreciation and amortisation 28.6 18.3 Increase in trading properties (15.7) (36.9) Increase in debtors (16.1) (107.9) Increase in creditors 25.2 35.2 ---------- ---------- Net cash inflow from operating activities 484.4 406.2 ========== ========== 2003 2002 18. Analysis of Net Cash Flows £m £m ---------- ---------- (a) MANAGEMENT OF LIQUID RESOURCES Net decrease/(increase) in short term deposits 57.5 (38.9) ---------- ---------- Net cash inflow/(outflow) from management of liquid resources 57.5 (38.9) ========== ========== 2003 2002 £m £m ---------- ---------- (b) CASH MOVEMENT IN DEBT Debt due within one year ---------- ---------- - Repayment of secured debt (1.4) (0.4) - Unsecured bank loan - (25.0) ---------- ---------- (1.4) (25.4) Debt due after one year ---------- ---------- - Unsecured bank loans 335.5 265.0 - Issue of new bonds 600.0 - - Purchase/redemption of convertible bonds (198.0) - Expenses of new issues (7.9) - ---------- ---------- 729.6 265.0 ---------- ---------- Increase in debt 728.2 239.6 ========== ========== Movements Movements during year during year 1 April ---------- ---------- 31 March 2002 Cash Flow Non-cash 2003 19. Analysis of Net Debt £m £m £m £m ---------- ---------- ---------- ---------- Net bank balance/(overdraft) (14.3) 93.5 79.2 Liquid resources 60.9 (57.5) 3.4 Debt due within one year (1.4) 1.4 (23.5) (23.5) Debt due after one year (1,987.3) (729.6) 68.5 (2,648.4) ---------- ---------- ---------- ---------- Net debt (1,942.1) (692.2) 45.0 (2,589.3) ========== ========== ========== ========== 20. Financial Assets and Liabilities The group has defined financial assets and liabilities as those assets and liabilities of a financial nature, namely cash, investments, borrowings and interest rate swaps. Short term debtors/creditors, capital debtors/creditors, taxation and prepayments and accruals have been excluded. All the group's financial assets and liabilities are sterling based and, with the exception of the committed bank facilities, at fixed rates. Excess of Excess of fair value fair value Book Book Book Fair over book over book value value value value value value 2003 2002 2003 2002 2003 2002 The group's financial assets £m £m £m £m £m £m and liabilities and their fair values are: ---------- ---------- ---------- ---------- ---------- ---------- FINANCIAL ASSETS Short term investments and cash 102.1 72.3 102.1 72.3 - - FINANCIAL LIABILITIES Debentures, bonds, other loans (2,688.7) (1,767.2) (3,204.9) (2,205.6) (516.2) (438.4) and overdraft Convertible bonds - (243.3) - (274.9) (31.6) Non-equity B Shares (30.3) - (30.3) - Redeemable preference shares (0.1) - (0.1) - FINANCIAL INSTRUMENTS Interest rate swaps - - (82.3) (4.9) (82.3) (4.9) ---------- ---------- ---------- ---------- ---------- ---------- (2,617.0) (1,938.2) (3,215.5) (2,413.1) (598.5) (474.9) ========== ========== ========== ========== ========== ========== Financial Financial Financial Financial assets assets liabilities liabilities 2003 2002 2003 2002 Weighted average period of fixed interest rates 1 day 3 days 13.3 years 14.1 years ========== ========== ========== ========== Weighted average interest rate 4.2% 3.0% 7.9% 8.3% ========== ========== ========== ========== Fair value has been calculated by taking the market value, where one is available, or using a discounted cash flow approach for those financial assets and liabilities that do not have a published market value. The difference between book value and fair value will not result in any change to the cash outflows of the group unless, at some stage in the future, borrowings are purchased in the market, or repaid, at a price different to the nominal value. The group has entered into a number of interest rate swaps in the name of Land Securities PLC to hedge current and future interest rate risk. In each case the group pays a fixed rate of interest and receives six-month LIBOR. The total notional value of the interest rate swaps is £900m all of which are now operational. The end dates of these swaps are from March 2012 to September 2030 and the interest rates range from 5.00% to 5.58%. In the case of four swaps, which have a total notional value of £400m and end dates of June 2022 and September 2030, the counterparties have the right to terminate the swaps mid-life. Interest rate swaps with a notional value of £500m were entered into during June 2002 with a start date of March 2003 and an end date of March 2013 and interest rates ranging from 5.46% to 5.5%. £300m of these swaps were cancelled at the time of the February 2003 bond issues, resulting in an exceptional interest cost of £23.5m. As the intention of these swaps is to fix the interest rates on existing and new borrowings, their mark to market values have not been incorporated into the financial statements and instead net interest is accrued through the profit and loss account. In addition there is a further swap with a notional value of £198.4m which was taken out by Trillium to hedge the secured bank loan, which funds the PRIME contract. Either party to the swap may terminate the swap on 15 April 2005 and every second anniversary thereafter. This swap has a maximum life of 15 years and mirrors the repayment schedule for the associated bank loan. As part of the fair value accounting exercise on the acquisition of Trillium, this swap was marked to market at a cost of £14.9m. The cost is being amortised over the life of the swap as a credit to interest payable. The maturity and repayment Undrawn Undrawn profiles of the group's committed committed financial assets and Financial Financial Financial Financial borrowing borrowing liabilities, excluding the assets assets liabilities liabilities facilities facilities non-equity B Shares and 2003 2002 2003 2002 2003 2002 redeemable preference £m £m £m £m £m £m shares, and the expiry periods of its undrawn committed borrowing facilities are: ---------- ---------- ---------- ---------- ---------- ---------- One year or less, or on 102.1 72.3 40.1 23.2 - 250 demand More than one year but no - - 29.8 6.7 - - more than two years More than two years but no - - 829.8 537.6 899.5 335 more than five years More than five years - - 1,789.0 1,443.0 - - ---------- ---------- ---------- ---------- ---------- ---------- 102.1 72.3 2,688.7 2,010.5 899.5 585 ========== ========== ========== ========== ========== ========== The amount of debt that is repayable by instalments, where any of the instalments fall due after more than five years, is not material. The holders of the 50,000 redeemable preference shares may elect to have them redeemed by the company on any fixed date following on or after 30 September 2003. The company may, on giving notice in writing to the holders of the B Shares, redeem all of the B Shares then in issue on the date specified in the notice. 21. Joint Venture The Group has a 50% interest in the Telereal group of companies ('Telereal'), which draws up accounts to 31 March. Telereal, a 50:50 joint venture between Land Securities Trillium and The William Pears Group, acquired the majority of the properties of British Telecommunications PLC ('BT') on 13 December 2001. Telereal is responsible for providing accommodation and estate management services to BT in return for a total availability and service charge under a 30-year contract. Telereal was funded with £2.5bn to meet the consideration of £2.4bn due to BT and the other costs of £112m associated with bidding for and mobilising the contract. The funding was provided externally by way of securitisation of £1.8bn and bank debt of £400m, both secured on Telereal's properties without any recourse to the shareholders of Telereal, and an initial equity investment by the shareholders of £292.8m shared equally. The property portfolio has been financed according to the different occupational needs within the BT portfolio. Year Year 13.12.01 13.12.01 ended 31.3.03 ended 31.3.03 to 31.3.02 to 31.3.02 Telereal Group's share Telereal Group's share 100% 50% 100% 50% SUMMARY FINANCIAL INFORMATION OF TELEREAL £m £m £m £m ---------- ---------- ---------- ---------- Turnover 336.4 168.2 97.0 48.5 Operating profit 205.8 102.9 38.6 19.3 Depreciation (30.0) (15.0) (7.6) (3.8) Profit on sales of fixed asset properties 30.2 15.1 - - Bid costs written off - - (16.0) (8.0) Finance costs (net) (151.4) (75.7) (47.6) (23.8) Profit/(loss) before tax 54.4 27.2 (9.0) (4.5) Profit/(loss) after tax 25.4 12.7 (9.0) (4.5) ---------- ---------- ---------- ---------- 31.3.03 31.3.02 Telereal Group's share Telereal Group's share 100% 50% 100% 50% £m £m £m £m ---------- ---------- ---------- ---------- Fixed assets - properties 2,113.8 1,056.9 2,386.8 1,193.4 Current assets 226.6 113.3 208.8 104.4 ---------- ---------- ---------- ---------- 2,340.4 1,170.2 2,595.6 1,297.8 ---------- ---------- ---------- ---------- Securitisation (1,756.0) (878.0) (1,760.0) (880.0) Bank debt (220.2) (110.1) (391.2) (195.6) Other liabilities (150.6) (75.3) (66.8) (33.4) ---------- ---------- ---------- ---------- (2,126.8) (1,063.4) (2,218.0) (1,109.0) ---------- ---------- ---------- ---------- Net assets 213.6 106.8 377.6 188.8 ========== ========== ========== ========== Financed by: Shareholders' investment 131.6 65.8 292.8 146.4 Reserves 82.0 41.0 84.8 42.4 ---------- ---------- ---------- ---------- 213.6 106.8 377.6 188.8 ========== ========== ========== ========== The Telereal figures have been adjusted to adopt the Group's accounting policies. The properties held by Telereal at 31 March 2003 are part of the 30-year contract with BT and are held at cost to the joint venture. During the year ended 31 March 2003, Telereal sold its investment properties for a total consideration of £270m. Part of the proceeds were used to repay debts secured on those assets and part was returned to the partners. The Group's 50% share of the fair value of Telereal's financial liabilities as at 31 March 2003 is £1,050.8m (31 March 2002 £1,042.8m). The Telereal entities include two limited partnerships, Telereal Securitised Property Limited Partnership and Telereal General Property Limited Partnership, which are registered in England and Wales and whose accounts are dealt with in the Group financial statements by way of gross equity accounting and are consolidated in the Group's financial information as set out above. Advantage has been taken of the exemption conferred by Regulation 7 of The Partnership and Unlimited Companies (Accounts) Regulations 1993 in not delivering the financial statements of the partnerships to the Registrar of Companies. 22. Membership of Certain Undertakings Throughout the year, the Group has been a member of the following limited partnerships, all of which are registered in England. The accounts of the partnerships, drawn up to the dates indicated below, are dealt with in the Group's financial statements as 'joint arrangements'. Profit/ Profit/ Gross Gross Gross Gross (loss) (loss) Assets Assets Liabilities Liabilities before before tax tax Group share 31.03.03 31.03.02 31.03.03 31.03.02 31.03.03 31.03.02 Partnership % £m £m £m £m £m £m ---------- ---------- ---------- ---------- ---------- ---------- Martineau 33 1/3 132.0 125.0 (3.5) (4.8) 5.4 3.9 Limited Partnership (31 December) Martineau 33 1/3 112.2 114.8 (2.1) (1.7) 4.0 5.1 Galleries Limited Partnership (31 December) Bull Ring 33 1/3 362.9 235.9 (213.5) (85.9) (0.7) (0.3) Limited Partnership (31 December) Gunwharf 50 147.9 117.0 (3.3) (2.5) 7.7 5.2 Quays Limited Partnership (31 March) Ebbsfleet 50 35.3 26.5 (0.4) (13.4) - - Limited Partnership (31 March) ---------- ---------- ---------- ---------- ---------- ---------- 790.3 619.2 (222.8) (108.3) 16.4 13.9 ========== ========== ========== ========== ========== ========== Advantage has been taken of the exemption conferred by Regulation 7 of The Partnership and Unlimited Companies (Accounts) Regulations 1993 in not delivering the financial statements of the partnerships to the Registrar of Companies. The gross liabilities of these partnerships consist generally of capital and revenue accruals and also, in the case of Bull Ring Limited Partnership, £195.5m (2002 £64.9m) of loans from partners; at 31 March 2003 there was no third party debt in these partnerships (2002: Nil). 23. Related Party Transactions The Group has a 50% interest in the Telereal group of companies ('Telereal'). The Group, principally through Land Securities Trillium Telecom Services Limited, provides staff to Telereal to deliver services to BT, for which it received £17.7m (2002 £2.5m) in the year ended 31 March 2003. As at 31 March 2003, the Group was owed £66.0m (2002 £151.7m) by Telereal. This comprised a subordinated loan from the Group of £65.8m (2002 £149.4m), including accrued interest, and an amount rechargeable to Telereal of £0.2m (2002 £2.3m) in respect of services provided by the Group. 24. Contingent Liabilities The Group has a contingent liability arising from a performance guarantee that Land Securities PLC, as the parent company of Land Securities Trillium Limited, has given, severally with its Telereal joint venture partner, for the performance by Telereal Services Limited of its service obligations to BT together with a guarantee related to transaction issues associated with the BT outsourcing contract. The Group's maximum liability under the guarantee is £50m plus a further amount which is capped by reference to amounts either distributed or available for distribution to each shareholder by certain of the Telereal companies up to a further £50.7m. The transaction element of the guarantee is capped at £10m. The maximum potential liability which the company could be exposed to under such arrangements is capped at £110.7m. The total maximum liability of £110.7m will, however, amortise over time in accordance with a contractual formula included and defined in the agreement with BT. At 31 March 2003, the estimated amount of the Group's exposure to the guarantee was approximately £100.7m (2002 £52.6m). This information is provided by RNS The company news service from the London Stock Exchange

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