Interim Results - Pre-tax Profit Up 4.8%
Land Securities PLC
17 November 1999
LAND SECURITIES
Interim Results
for the six months ended 30 September 1999
HIGHLIGHTS
Pre-tax profit up 4.8% to £151.7m
Interim dividend 8.25p per share, an increase of 5.1%
Net rental income up 5.7% to £223.1m
Enlarged development programme progressing well:
- 350,000 sq ft (32,520 sq m) office development planned for 30 Gresham
Street
- development agreement concluded for Whitefriars, Canterbury - adjoining
Marlowe Arcade acquired
- The Bridges, Sunderland 96% let with completion September 2000
- The Gate, Newcastle - work started and multiplex cinema pre-let
Commenting on the results, Peter Birch, Chairman, said, 'The state of
the UK economy is generally sound for property investment and
development . We will continue to create opportunities principally
through development rather than competing for standing investments, as
this will provide shareholders with a higher return'.
For further information Financial Dynamics
Ian Henderson/Jim Murray Tony Knox/Emma Denne
020 7413 9000 020 7831 3113
REVIEW OF THE GROUP'S ACTIVITIES
Pre-tax profit for the half-year to 30 September 1999 increased by 4.8% to
£151.7m, compared with £144.7m for the corresponding period last year. After
excluding the results of selling investment properties, profit before taxation
was £147.1m, compared with £143.7m for the equivalent period last year. Your
Board is declaring an interim dividend of 8.25p per share, an increase of 5.1%
over the interim dividend paid in January 1999. This will be paid on 10
January 2000 to shareholders registered on 3 December 1999.
We are pleased to confirm the appointment of Mr Win Bischoff, Chairman of
Schroders plc, as a Non-executive Director with effect from 1 November. We
look forward to benefiting from his broad business experience and expertise.
Portfolio Review
We have continued to create shareholder value through our extensive
development programme and by optimising the return from our investment
portfolio.
The demand for office space in central London, against a background of limited
supply, has stimulated further rental growth. There is relatively little
speculative development under construction and we are assembling a major site
at 30 Gresham Street EC2 to provide approximately 350,000 sq ft (32,520 sq m)
of office space. Plans will be submitted shortly to the City Corporation for
the redevelopment of this well located site opposite Guildhall.
In central London we have completed and substantially let our two office
developments at Theobald's Road WC1 and our mixed-use scheme at Tottenham
Court Road W1. At Empress State Building SW6, adjoining Earls Court, the
local authority has resolved that it is minded to grant planning permission
for change of use for a 513-bedroom hotel, subject to completion of a Section
106 agreement. The refurbishment of our 46,000 sq ft (4,270 sq m) offices at
St Alban's House, Haymarket SW1 is due for completion early next year. We
have started the redevelopment of Gulf House in Oxford Street W1 to provide
100,000 sq ft (9,290 sq m) of offices and 20,000 sq ft (1,860 sq m) of first
floor retail, over the existing shops, with completion planned for autumn
2001.
Many retailers are experiencing challenging conditions in a highly competitive
trading environment. Pricing pressures, combined with the effects of new
technology, and in particular the advance of e-commerce, are influencing
retailer requirements. Against this background, retail demand continues to
polarise to the dominant shopping centres.
In Birmingham, the Alliance Partnership documentation was completed in July
and the construction of the new Bull Ring market hall and multi-storey car
park was started. We await the outcome of the public enquiry for compulsory
purchase powers to complete the site assembly for Martineau Place while
continuing negotiations with the Council for a new headlease to enable work to
start early in 2000. Also in Birmingham, we are due to complete Caxtongate
Phase II in December. This development is fully pre-let subject to completion
of legal documentation; the residential element has been sold to Crosby Homes,
a subsidiary of The Berkeley Group plc.
We are making good progress with the 265,000 sq ft (24,620 sq m) extension to
The Bridges, Sunderland, with completion planned for next autumn; 96% of the
scheme's income is secured or in solicitors' hands. At Canterbury we have
concluded the development agreement with the local authority and preliminary
works are underway. Exeter City Council has resolved that it is minded to
grant planning permission for the 465,000 sq ft (43,200 sq m) Princesshay
project and the Secretary of State's direction is now awaited. Consultations
with York City Council continue and we propose to submit plans for a revised
scheme on an enlarged site for Coppergate Phase II early next year.
At our leisure development, The Gate, in Newcastle, lease documentation has
been signed with Rank Plc to pre-let the multiplex cinema to Odeon Cinemas
Ltd, and demolition works have started. We are making good progress with the
development of the designer outlet and leisure scheme at Livingston, which we
are undertaking in partnership with BAA McArthur Glen.
We continue to create opportunities for enhancing the performance of our
retail warehouse portfolio in a restrictive planning environment. In
particular, at Kingsway West, Dundee, detailed planning permission is awaited
for the expansion of our retail park to provide some 340,000 sq ft (31,590 sq
m). We are also reconfiguring and enlarging existing parks elsewhere in the
portfolio, including Lakeside Retail Park at Thurrock, Retail World at
Gateshead and our holdings at Chesterfield and Chadwell Heath, in order to
achieve their full rental potential.
Our recently completed distribution warehouse developments at Tamworth and
Banbury have been let. We have acquired a site at Cardiff Bay to provide a
150,000 sq ft (13,940 sq m) industrial development. We have also exchanged
contracts for the purchase of a site in Hemel Hempstead where we have applied
for planning permission to build a 250,000 sq ft (23,230 sq m) industrial
estate.
Further major development opportunities are being considered and we have been
short-listed for several potential city centre projects.
Our acquisition policy is focused on sites or buildings with future
development potential and those that offer good opportunities for growth.
Since 30 September we have acquired the IBM Building, on London's South Bank,
which is well located and has long-term development potential. We have also
recently acquired the Marlowe Arcade in Canterbury which will benefit from our
adjoining Whitefriars development.
We continue with our strategy of selling smaller properties, particularly in
secondary locations.
Results
Revenue profits have increased by £3.4m compared with the corresponding period
last year. The increase of £12.1m in net rental income reflects initial
income from completed developments, improved rents following reviews within
the existing portfolio, savings in ground rents mainly due to the acquisition
of the freehold of Dashwood House EC2, and further reductions in net property
outgoings. At 30 September the annualised rent roll, net of ground rents, was
almost £450m. The improvement in revenue profits has been achieved in spite
of sales of high yielding smaller properties and the financing of an
increasing level of development activity.
During the period under review we have increased the anticipated spend on our
development programme and capital expenditure amounted to £179.9m, almost
entirely on our development activity. Since 30 September we have spent a
further £82m on the two major investment acquisitions referred to previously.
In the first half of the year we sold 35 properties for £66.5m, which produced
a surplus over book value before taxation of £4.6m.
Year 2000
We have taken the action which we believe is necessary to ensure that the
Group will be able to operate effectively through the millennium change.
Assurances have been sought and received from key third parties that they have
taken the appropriate steps to deal with the Year 2000 issue.
Outlook
The economic background is generally favourable, with stronger growth in the
United Kingdom than was anticipated and an encouraging outlook for the future.
Voids within the portfolio are currently less than 1.5% by rental value and
in a low inflation environment we have generally been encouraged by the
rents achieved through reviews and renewals in the first half of the year.
We will continue to create opportunities principally through development
rather than competing for standing investments, as this will provide
shareholders with a higher return. Demographic and economic changes are
strengthening the demand for an improved urban environment which
provides a wide range of leisure and cultural activities and an increasing
residential element. Our focus will remain on major schemes that contribute
to the regeneration of town and city centres.
Low inflation and increasing competition, accelerated by technological
advances which create greater price transparency, are putting the retail
industry under pressure. We continue to work closely with retailers to ensure
that we satisfy their current and future occupational requirements. The
concept of working in partnership with local authorities and commercial
organisations extends throughout our retail development programme.
Continuing consolidation in the banking and financial sectors will affect
future occupier requirements and the increasing level of development activity
in the City and Docklands may restrict future rental growth once second-hand
space is returned to the market following planned relocations.
The impending change in Uniform Business Rate must include provisions to
minimise the impact on those occupiers who will be liable for substantial
increases. There are also signs that the significant increases in stamp duty
are adversely affecting some sectors of the market, making property a less
attractive investment when compared to equities or bonds. Further increases
must be resisted strongly.
The state of the UK economy is generally sound for property investment and
development. Our key challenge is to meet the changing requirements of
occupiers in a low inflation, highly competitive and rapidly changing
environment.
Peter G Birch Ian J Henderson
Chairman Chief Executive
For information: I J Henderson
Chief Executive
J I K Murray
Finance Director
Tel: 020 7413 9000
A copy of the Interim Results will be sent to shareholders and copies will
also be made available to the public on request to the Secretary at the
registered office, 5 Strand, London WC2N 5AF.
Website
This report and the Report and Financial Statements for the year ended 31
March 1999 are available on the Company's website at www.landsec.co.uk.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999
Six months Six months Year to
to 30.9.99 to 30.9.98 31.3.99
unaudited unaudited audited
Notes £m £m £m
GROSS PROPERTY INCOME 2 257.5 246.2 500.2
-------------------------------------
NET RENTAL INCOME 2 223.1 211.0 427.5
Property management and
administration expenses (15.8) (14.3) (29.0)
-------------------------------------
OPERATING PROFIT 207.3 196.7 398.5
Profit on sales of 4.6 1.0 .6
properties -------------------------------------
PROFIT ON ORDINARY
ACTIVITIES BEFORE 211.9 197.7 399.1
INTEREST AND TAXATION
Interest receivable and
similar income 3 11.9 19.9 38.7
Interest payable and 3 (72.1) (72.9) (144.5)
similar charges
REVENUE PROFIT 147.1 143.7 292.7
Profit on sales of 4.6 1.0 .6
properties ---------------------------------------------
PROFIT ON ORDINARY
ACTIVITIES BEFORE 151.7 144.7 293.3
TAXATION
Taxation on:
Revenue profit (38.9) (38.6) (76.8)
Property sales (.7) - (.1)
Taxation 4 (39.6) (38.6) (76.9)
-------------------------------------
PROFIT ON ORDINARY
ACTIVITIES AFTER 112.1 106.1 216.4
TAXATION
Dividends 5 (46.7) (44.8) (165.2)
-------------------------------------
RETAINED PROFIT
FOR THE FINANCIAL PERIOD 65.4 61.3 51.2
-------------------------------------
Basic Diluted Basic Diluted Basic Diluted
EARNINGS PER SHARE 6 20.12p 20.02p 19.32p 19.18p 39.21p 38.95p
ADJUSTED EARNINGS PER
SHARE 6 19.41p 19.35p 19.13p 19.01p 39.11p 38.86p
--------------------------------------------------
CONSOLIDATED BALANCE SHEET
30 SEPTEMBER 1999
30.9.99 30.9.98 31.3.99
unaudited unaudited audited
£m £m £m
Notes
FIXED ASSETS
Tangible assets
Properties 7 7,037.7 6,454.6 6,910.5
Other tangible assets 13.8 11.3 13.1
----------------------------------
7,051.5 6,465.9 6,923.6
----------------------------------
CURRENT ASSETS
Debtors 8 86.5 92.2 72.5
Investments and cash 9 376.8 529.0 486.6
----------------------------------
463.3 621.2 559.1
CREDITORS falling due within 10 (389.0) (352.2) (424.8)
one year ----------------------------------
NET CURRENT ASSETS 74.3 269.0 134.3
----------------------------------
TOTAL ASSETS LESS CURRENT
LIABILITIES 7,125.8 6,734.9 7,057.9
CREDITORS falling due after more than
one year
Borrowings 11 (1,547.0) (1,598.1) (1,567.4)
Other creditors 12 (21.8) (19.9) (20.1)
----------------------------------
5,557.0 5,116.9 5,470.4
----------------------------------
CAPITAL AND RESERVES
Called up share capital 557.7 549.5 554.3
Share premium account 301.8 258.8 284.0
Revaluation and other reserves 3,918.5 3,585.6 3,918.5
Profit and loss account 779.0 723.0 713.6
----------------------------------
EQUITY SHAREHOLDERS' FUNDS 5,557.0 5,116.9 5,470.4
----------------------------------
CONSOLIDATED CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999
Six Six Year to
months to months to 31.3.99
30.9.99 30.9.98 audited
unaudited Unaudited
£m £m £m
NET CASH INFLOW FROM OPERATING
ACTIVITIES (Note b) 199.3 195.6 409.9
RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE
Interest received 16.7 21.5 36.3
Interest paid (81.1) (83.2) (143.7)
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENTS AND SERVICING OF FINANCE (64.4) (61.7) (107.4)
TAXATION - Corporation tax (10.7) 20.6 (73.4)
(paid)/repaid ------------------------------
NET CASH INFLOW FROM OPERATING
ACTIVITIES AND INVESTMENTS AFTER
FINANCE CHARGES AND TAXATION 124.2 154.5 229.1
CAPITAL EXPENDITURE
Additions to properties and increase
in other tangible assets (179.9) (101.3) (261.4)
Sales of properties 66.5 39.3 126.0
NET CASH OUTFLOW ON CAPITAL (113.4) (62.0) (135.4)
EXPENDITURE
EQUITY DIVIDENDS PAID (120.7) (112.1) (155.6)
------------------------------
CASH OUTFLOW BEFORE USE OF LIQUID
RESOURCES AND FINANCING (109.9) (19.6) (61.9)
MANAGEMENT OF LIQUID RESOURCES 115.8 30.7 60.7
FINANCING
Issues of shares .4 1.2 1.6
Decrease in debt - - (.8)
NET CASH INFLOW FROM FINANCING .4 1.2 .8
------------------------------
INCREASE/(DECREASE) IN CASH IN 6.3 12.3 (.4)
PERIOD ------------------------------
NOTES TO THE CASH FLOW STATEMENT
FOR THE SIX MONTHS ENDED 30 SEPTEMBER 1999
Six months Six months Year to
a) RECONCILIATION OF NET CASH to 30.9.99 to 30.9.98 31.3.99
FLOW TO MOVEMENTS IN NET unaudited unaudited audited
DEBT Notes £m £m £m
Increase/(decrease) in 6.3 12.3 (.4)
cash in period
Decrease in debt - - .8
Decrease in liquid (115.8) (30.7) (60.7)
resources
------------------------------------
Increase in net debt c)
resulting from (109.5) (18.4) (60.3)
cash flow
Non-cash changes in debt c) 20.4 52.5 82.5
------------------------------------
Movement in net debt in (89.1) 34.1 22.2
period
Net debt brought forward (1,082.7) (1,104.9) (1,104.9)
------------------------------------
Net debt carried forward c) (1,171.8) (1,070.8) (1,082.7)
------------------------------------
b) RECONCILIATION OF Six months Six months Year to
OPERATING PROFIT TO NET to 30.9.99 to 30.9.99 31.3.99
CASH INFLOW FROM OPERATING unaudited unaudited audited
ACTIVITIES £m £m £m
Operating profit (page 6) 207.3 196.7 398.5
Depreciation 1.4 1.2 2.4
(Increase)/decrease in (17.6) (5.6) 2.9
debtors
Increase in creditors 8.2 3.3 6.1
--------------------------------
Net cash inflow from
operating activities 199.3 195.6 409.9
--------------------------------
Movements
during six months
1.4.99 unaudited 30.9.99 30.9.98
c) ANALYSIS OF audited Cash flow Non-cash unaudited unaudited
NET DEBT £m £m £m £m £m
Cash at bank and (.3) 6.3 6.0 12.4
in hand
Liquid resources 486.6 (115.8) 370.8 516.6
Debt due within (1.6) - - (1.6) (1.7)
one year
Debt due after one (1,567.4) - 20.4 (1,547.0) (1,598.1)
year
---------------------------------------------------
Net debt (1,082.7) (109.5) 20.4 (1,171.8) (1,070.8)
---------------------------------------------------
NOTES
1 INTERIM RESULTS
The Accounting Standards Board (ASB) has issued a non-mandatory statement
'Interim Reports', which seeks to codify best practice in the presentation of
interim results. The Interim Results have been prepared having regard to the
guidance in the ASB statement and on the basis of the accounting policies set
out in the Group's audited financial statements for the year ended 31 March
1999.
The financial information for the year to 31 March 1999 has been extracted
from the Group's financial statements to that date. These statements received
an unqualified auditors' report, did not contain a statement under Section
237(2) or (3) of the Companies Act 1985 and have been filed with the Registrar
of Companies.
The Interim Results for the six months ended 30 September 1999 were approved
by the Directors on 17 November 1999.
Six months Six months Year to
to 30.9.98 to 30.9.98 31.3.99
unaudited unaudited audited
2 NET RENTAL INCOME £m £m £m
Rental income 234.6 224.1 453.6
Service charges and other recoveries 22.9 22.1 46.6
-------------------------------
Gross property income 257.5 246.2 500.2
Ground rents payable (8.0) (9.0) (18.6)
Other property outgoings (26.4) (26.2) (54.1)
(34.4) (35.2) (72.7)
-------------------------------
223.1 211.0 427.5
-------------------------------
All income was derived from within the United Kingdom from continuing
operations. No operations were discontinued during the period.
Six months Six months Year to
to 30.9.98 to 30.9.98 31.3.99
unaudited unaudited audited
3 INTEREST £m £m £m
RECEIVABLE:
Short term deposits and corporate 11.4 19.2 36.8
bonds
Other interest receivable .5 .7 1.9
-------------------------------
11.9 19.9 38.7
-------------------------------
PAYABLE:
Borrowings not wholly repayable 70.0 72.3 142.5
within five years
Borrowings wholly repayable within .5 .1 1.0
five years
Other interest payable 1.6 .5 1.0
-------------------------------
72.1 72.9 144.5
-------------------------------
Six months Six months Year to
to 30.9.98 to 30.9.98 31.3.99
unaudited unaudited audited
4 TAXATION £m £m £m
Revenue profit at the Corporation
Tax rate of 30% (1998 31%) 44.1 44.5 90.7
Tax allowances on expenditure (6.1) (6.5) (12.8)
relating to properties
Movement in deferred taxation .2 (.2) (.3)
Other adjustments .5 .8 (.3)
-------------------------------
38.7 38.6 77.3
Adjustments relating to previous years .2 - (.5)
-------------------------------
On revenue profit 38.9 38.6 76.8
On property sales .7 - .1
-------------------------------
39.6 38.6 76.9
-------------------------------
5 DIVIDENDS
The interim distribution will amount to £46.0m (1998 £43.1m) based on the
interim dividend of 8.25p per share (1998 7.85p per share) calculated on
557.7m shares (1998 549.5m shares) in issue on 30 September 1999. However,
dividends shown in the Profit & Loss Account include £0.7m (1998 £1.7m) of
prior year final dividend arising from increases in share capital before the
record date of 11 June 1999.
6 EARNINGS PER SHARE
Earnings per share are calculated on the profit on ordinary activities after
taxation of £112.1m (1998 £106.1m) and on the weighted average number of
shares in issue during the period of 557.6m (1998 549.4m).
Adjusted earnings per share, calculated on the same weighted average number of
shares but excluding the profit arising on sales of properties after taxation
of £3.9m (1998 £1.0m), have been disclosed to show a measure of earnings that
reflects the principal operating activities of the Group.
Diluted earnings per share are calculated on the profit on ordinary activities
after taxation of £117.9m (1998 £113.0m), after adjusting for the effects of
the exercise of conversion rights relating to the convertible bonds, and on
the weighted average number of shares in issue during the period of 589.1m
(1998 589.0m), which takes into account the number of potential shares arising
from the exercise of conversion rights and share options.
7 PROPERTIES
No interim valuation has been undertaken in respect of the Group's properties
which are stated at the previous 31 March valuation adjusted for additions and
sales. The Board has considered the issues involved in commissioning an
interim valuation but, at present, has decided not to do so.
30.9.99 30.9.98 31.3.99
unaudited unaudited audited
8 DEBTORS £m £m £m
Trade debtors 32.2 30.2 21.8
Capital debtors 15.4 .6 12.5
Other debtors 11.7 9.2 11.6
ACT recoverable - 28.0 -
Prepayments and accrued income 27.2 24.2 26.6
-------------------------------
86.5 92.2 72.5
-------------------------------
30.9.99 30.9.98 31.3.99
unaudited unaudited audited
9 INVESTMENTS AND CASH £m £m £m
Short term deposits 370.8 516.6 486.6
Cash at bank and in hand 6.0 12.4 -
-------------------------------
376.8 529.0 486.6
-------------------------------
30.9.99 30.9.98 31.3.99
10 CREDITORS FALLING DUE WITHIN unaudited unaudited audited
ONE YEAR £m £m £m
Debentures and loans 1.6 1.7 1.6
Overdraft - - .3
Trade and other creditors 19.1 15.5 18.9
Taxation and Social Security 87.2 142.2 58.4
Deferred taxation .2 - -
Proposed dividend 46.0 43.1 120.0
Capital creditors 77.6 .3 65.1
Accruals and deferred income 157.3 149.4 160.5
-------------------------------
389.0 352.2 424.8
-------------------------------
30.9.99 30.9.98 31.3.99
11 BORROWINGS FALLING DUE AFTER unaudited unaudited audited
MORE THAN ONE YEAR £m £m £m
Debentures, bonds and loans 1,296.7 1,297.3 1,296.6
Falling due within one year (Note 10) (1.6) (1.7) (1.6)
-------------------------------
1,295.1 1,295.6 1,295.0
Convertible bonds 251.9 302.5 272.4
-------------------------------
1,547.0 1,598.1 1,567.4
-------------------------------
At 30 September 1999 the fair value of the Group's financial liabilities was
£2,121.9m. Fair value has been calculated by taking the market value, where
available, and using a discounted cash flow approach for those financial
liabilities that do not have published market values. It is the intention of
the Group to repay its debentures, bonds and other loans at maturity.
30.9.99 30.9.98 31.3.99
12 OTHER CREDITORS FALLING DUE unaudited unaudited audited
AFTER MORE THAN ONE YEAR £m £m £m
Deferred income 18.4 16.6 17.5
Deferred taxation .1 .1 .1
Other creditors 3.3 3.2 2.5
-------------------------------
21.8 19.9 20.1
-------------------------------
LAND SECURITIES PLC INVESTOR INFORMATION
DIVIDEND REINVESTMENT PLAN (DRIP)
The Company is considering the introduction of a DRIP to enable shareholders
to use cash dividends to purchase Land Securities shares in the market. It is
anticipated that the first opportunity for shareholders to use this facility
would be with the final dividend for the financial year ending 31 March 2000.
Detailed literature explaining the DRIP will be sent to shareholders prior to
their first potential application.
REVIEW REPORT BY THE AUDITORS
INDEPENDENT REVIEW REPORT TO LAND SECURITIES PLC
INTRODUCTION
We have been instructed by the Company to review the financial information set
out on pages 6 to 14 and we have read the other information contained in the
interim report for any apparent misstatements or material inconsistencies with
the financial information.
DIRECTORS' RESPONSIBILITIES
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Listing
Rules of the London Stock Exchange require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes,
and the reasons for them, are disclosed.
REVIEW WORK PERFORMED
We conducted our review in accordance with guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board. A review consists principally
of making enquiries of group management and applying analytical procedures to
the financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed
in accordance with Auditing Standards and therefore provides a lower level of
assurance than an audit. Accordingly we do not express an audit opinion on
the financial information.
REVIEW CONCLUSION
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 September 1999.
PricewaterhouseCoopers
Chartered Accountants
London
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