Final Results

Slough Estates PLC 22 March 2006 SLOUGH ESTATES PLC FINANCIAL RESULTS FOR THE YEAR TO 31 DECEMBER 2005 STRONG PERFORMANCE FIRMLY FOCUSED ON FLEXIBLE BUSINESS SPACE Financial Highlights for Slough Estates Plc ('SEI') Diluted adjusted NAV per share 680.4p (558.4p) UP 21.8% Profit before tax Â£582.3m (Â£388.0m) UP 50% Adjusted profit before tax Â£120.4m (Â£120.1m) - - including exceptional surrender premiums Â£156.8m (Â£127.6m) UP 23% Basic EPS 91.7p (68.5p) UP 34% Diluted adjusted EPS 24.3p (24.4p) - Total dividend 17.5p (16.0p) UP 9.4% Adjusted gearing 62% (51%) UP 11% - Loan to value ratio 42% (34%) UP 8% Equity shareholders' funds Â£2,440m (Â£2,165m) UP 18% Total property portfolio - including share of joint ventures Â£5,137.8m (Â£3,987.5m) UP 29% Diluted adjusted net asset value per share NAV per share adjusted to add back deferred tax associated with investment properties and to reflect the dilution caused by preference shares and shares held in the ESOP trust. Adjusted profit before tax Profit before tax excluding exceptional gains and losses, property revaluations surpluses and the gains and losses on derivative instruments. lease surrender premiums which are exceptional by virtue of their size are excluded from adjusted profit before tax. Diluted adjusted earnings per share Earnings per share based on adjusted profit before tax, and reflecting the dilutive effects of preference shares and shares held by the ESOP trust properties. Adjusted Gearing Net debt as a percentage of shareholders' funds adjusted to add back deferred tax associated with investment properties and treating preference shares as equity. Highlights â€¢ Flexible business space focus now firmly in place, representing 94% of portfolio â€¢ Managing our assets for value + Bought and sold Â£895m of assets in 2005 o Floor space increased by 34% o Land area doubled in Continental Europe o Â£136m profit on disposals â€¢ Strong growth in NAV (up 21.8%) including + Benefit of continuing yield compression + Valuation gains from development programme + Valuation uplift from 2005 acquisitions â€¢ Further significant value creation potential in 2.5 million sq m development pipeline â€¢ Record level of lettings - 364,000 sq m in 2005 + 100,000 sq m post year end letting successes in Continental Europe â€¢ Significant progress on target voids - key target wins + UK vacancy* down from 12.1% to 10.9% + Underlying** UK vacancy down from 9.8% to 8.1% â€¢ Like for like rental income from investment portfolio broadly unchanged on prior year + Reflecting generally flat market conditions and loss of income from disposals + Lettings and rent reviews delivered Â£14.5m new rental income + Â£52m reversionary potential (excluding over-rented) * Treating rental guarantees as vacant - as analysed at the interims 2005 ** Excluding acquisitions and completed developments (< 18 months old) Ian Coull, Chief Executive, said: 'Slough Estates International ('SEI') has delivered a strong set of results, making good progress on a number of key objectives. Our flexible business space focus is now firmly in place, representing 94% of our portfolio. In markets showing little if any rental growth we have been very actively managing our assets for value, delivering a 22% uplift in NAV. We have grown our floor space by 34% to over 4m sq m under management and we are building on our position as the European leader in this specialised area of flexible business space. In 2005 SEI bought and sold Â£895m of assets. Over a two year period, SEI has been involved in approximately Â£1.8bn worth of transactions. In 2005 we made major acquisitions in North America, the UK and in particular in Continental Europe where by the end of the year we had doubled the size of our portfolio. By the end of 2005 our development pipeline had grown to 2.5 million sq m with an expected aggregate expenditure of some Â£2.6bn and we are well placed to realise its value potential. The 22% increase in NAV per share was driven not only by market yield compression but also by direct management input from the record level of lettings, from a valuation uplift in our development projects and from an uplift in the value of the assets acquired during the year. Heywood and Woodside alone delivered year end valuation gains of almost 8% since the acquisition of the holding entities in mid-year. Similarly, the US acquisitions delivered almost 10% of uplift since acquisition. Total returns on our UK industrial properties at 18.4% were identical to the IPD industrial index. In 2005 we made good progress against our key target voids - such as the prime site taken by Research In Motion (BlackBerry(R)) on the Slough Trading Estate. We report a profit before tax, excluding valuation gains and exceptionals of Â£120.4 million, unchanged on last year - reflecting the generally flat rental trends in 2005 and the disposals we made at the end of 2004. We delivered a record level of lettings of over 364,000 square metres and, although this was to some extent offset by space returned, in many cases space was brought back in order to create fresh redevelopment opportunities. The UK achieved significant progress with voids down from 12.1% to 10.9%. A key differentiator for SEI is our major development programme and much of the vacancy we record therefore represents an opportunity to enhance value. Similarly, acquisitions of portfolios with voids will naturally increase our vacancy levels but, actually, represent a significant opportunity for us. Stripping out recent major acquisitions and completed development sites the underlying SEI vacancy is down from 9.8% to 8.1%. We have been actively managing our assets for value - locking in gains by making disposals (Â£136m profit against book value in 2005) and reinvesting where there are greater opportunities. Our profit performance was achieved despite the loss of significant income from those assets sold as part of the recycling programme. Strength in both NAV and profit resulted in total returns for the year of 24.8%. Our strong financial performance, coupled with confidence in the future performance of the business, has led the Board to recommend a final dividend of 11p per share, making the total dividend for the year 17.5p per share, an increase of 9.4% on 2004. Outlook 2006 has got off to a good start. We have achieved 100,000 sq m of new lettings in Continental Europe and we have seen an early increase in the level of UK leasing activity leading to a further reduction in vacancy rates by the end of February. Whilst there has been some limited evidence that rental levels are edging up, we do not expect to see significant growth in market rentals in 2006. There is further evidence of yield compression in the early part of 2006 but the indications are that this is not likely to be as sustained as we experienced in 2005. The recent dynamic pace of change continues. Our focused business model and our core areas of expertise leave us well positioned to generate strong levels of returns for investors. We are in good shape.' For further information please contact: Slough Estates plc The Maitland Consultancy Michael Waring Colin Browne Tel: 07775 788628 Tel: 0207 379 5151 1) REVIEW OF THE YEAR ENDED 31 DECEMBER 2005 The Portfolio The group's investment and development portfolio is summarised in the table below: Gross Valuation Total Reversionary/ Rental at 31 Property (Over-rented) Income December Valuation Return Initial (including 2005* 2005 Surplus (ungeared) Yield** vacant space) Â£m Â£m Â£m % % % ------- -------- -------- --------- ------- ---------- UK Slough 73.4 1,313.1 145.8 19.5 5.3 14.1 S London & S England 14.4 403.9 29.1 12.8 3.5 35.8 N London & E England 21.5 472.0 33.4 14.4 4.9 27.5 Midlands 16.3 374.2 25.5 16.1 5.5 22.7 Heathrow & W London 29.6 552.0 54.2 17.7 4.9 15.5 TV & W 28.4 442.8 33.4 15.7 5.9 10.5 England ------- -------- -------- --------- ------- ---------- Total 183.6 3,558.0 321.4 17.0 5.1 18.0 Industrial 142.6 2,541.7 246.9 18.4 5.4 22.2 Office 30.4 489.0 48.5 17.9 6.5 2.1 Retail 10.6 216.9 28.4 21.2 4.8 12.3 Land - 310.4 (2.4) - - - ------- -------- -------- --------- ------- ---------- Total 183.6 3,558.0 321.4 17.0 5.1 18.0 Continental Europe Industrial 12.6 200.4 5.7 11.7 6.5 9.6 Office 8.2 132.4 2.0 9.1 6.7 16.9 Retail 1.1 15.0 2.3 28.7 7.8 Land/WIP - 33.6 (1.4) (4.4) - - ------- -------- -------- --------- ------- ---------- Total 21.9 381.4 8.6 9.8 6.0 11.9 North America Office / R&D 60.8 712.2 86.5 27.7 8.0 (5.2) Land / WIP - 224.8 41.0 28.6 - - ------- -------- -------- --------- ------- ---------- Total 60.8 937.0 127.5 28.0 6.1 (5.2) Group Total*** 266.3 4,876.4 457.5 19.1 5.3 12.9 * Represents gross rental income receivable for the year, excluding exceptional lease surrenders and calculated under IFRS. ** Passing rent at 31 December 2005 as a percentage of property valuation, including vacant space and land. *** Excludes joint ventures Good valuation surpluses were achieved in all regions, countries and asset classes. Particularly strong performances were delivered in the Slough Trading Estate and in North America - the latter building on several successive years of strong performance and the Slough Trading Estate benefiting from an improved product offer and a marketing re-launch. Total returns of 18.4% on our UK industrial properties were in line with the IPD industrial index. Overview - UK The portfolio in the UK is at the heart of our business and although we are expanding our Continental European business, we expect the UK to remain the financial driver for the Group for the foreseeable future. The UK business performance has been flat for a few years and so we took the decision at the beginning of 2005 to significantly change the way we operated in the UK. We changed our management structure from a traditional functional reporting model and created six new, market-facing geographic regions, each headed by a Regional Director. This change has created a clear ownership of the value creation within each region and has ensured that business decisions are now taken on the basis of this overall value creation rather than on a narrower, functional basis. The new regional teams were created at the beginning of April and we believe that the excellent financial performance in the second half of the year was due substantially to the cultural change which has followed this restructuring. We expect to see more benefits emerging this year and beyond. The Slough Trading Estate is one of Europe's the best known business facilities and is, we believe, the biggest single trading estate in private ownership in Europe. Over the last two years, we have recognised that the traditional industrial businesses which have been at the heart of the Slough Trading Estate are no longer in such profusion in the UK and we recognised that if the Estate was to continue in its premier position in Europe then it needed some radical re-thinking. Accordingly, in October we re-launched the Trading Estate with a new branding, underpinned by an improved service offering and have launched a master-planning exercise designed to ensure that the Estate continues to develop by attracting contemporary business users in the future and we expect to see these positive changes directly reflected in the value of the Estate in the years ahead. Major acquisitions in the UK notably included the holding entities owning Heywood and Woodside industrial parks. The UK also achieved a record 224,000 sq m of lettings in 2005. The 50/50 joint venture HelioSlough was created in 2004 to provide us with access to the UK logistics market where we were under-represented. In its first full year of operating, it has succeeded in making a profit before tax of Â£0.6m (SEI's share), which is ahead of plan. We have been very successful in acquiring a number of new opportunities and the prospects for HelioSlough for 2006, and beyond, are very encouraging. The high level of post year end activity has resulted in a Â£42m of pre-funding agreement being secured for HelioSlough's 70,000 sq m speculative distribution facility at Nimbus Park, near Doncaster. Overview - Continental Europe At the Interims in 2004, we announced that we planned to significantly expand our operations in Continental Europe. We have had development and investment programmes in Belgium, France and Germany for over 40 years and we have built up an enviable reputation in those markets. We are now building on this market position, both within those countries by expanding out of the core areas in which we have operated previously and also by moving into new countries. We believe that there is an appetite with both investors and occupiers for a pan-European business space provider. We are already building up strong relationships with a number of international businesses who want support in developing across international boundaries and we believe that there are many multi-national organisations who want to enter into partnership arrangements to deliver their space requirements. During the year we made two significant corporate acquisitions which are helping us to deliver our vision. In July we acquired 60% of Mainland BV which is a Netherlands based development company, specialising in the light industrial and suburban office market around Amsterdam's Schiphol airport. The acquisition not only brought substantial development opportunities for around 100,000 sq m of new business accommodation but, also, an established and well respected team of professionals whom we have now embraced into the Slough 'family'. Our relationship with Jelle Kuiper who owned the business and retains the other 40% of the company is very strong and we could exercise our option to acquire the balance of 40% at an appropriate time as the business develops. In December we acquired the Central European development arm of a Dutch engineering company, Grontmij, and as a result have secured development opportunities in a number of new countries in Central Europe. We are now represented in Poland, the Czech Republic and Hungary and we also have options for development sites in northern Italy and Hungary. As well as the 80 hectares that we have acquired, we have been joined by an excellent team of professionals who all know the markets in which they operate and who have been swiftly integrated into the Group. We are optimistic about achieving good performance in these new territories - as evidenced already in 2006 by the pre-let to a major US company of a 43,000 sq m distribution and manufacturing facility. Meanwhile our organic programme has also accelerated and we have acquired some outstanding new opportunities around Paris, at Schiphol airport and a large portfolio of logistics and office facilities from KarstadtQuelle in Germany. The latter provides a powerful combination of a significant revenue stream and major development opportunity - a combination which we believe few of the other potential bidders were in a position to unlock. Overview - North America Over the last ten years we have developed a real expertise in the health science market in California and we are undoubtedly the leading developer in the sector. In October 2005 we organised a trip for investors and analysts to see our U.S. operation. The purpose was to highlight the excellent quality of our local portfolio, the development pipeline, our people and also of our customers. The feedback we received clearly indicated that this was a very worthwhile trip and that this business is now much better understood. Health science is now a mature industry and as a result of consolidation over the last few years we find ourselves with some of the biggest corporations in the world as our customers. In 2005 construction started on the first phase of the 72,836 sq m $329m campus we are developing for Genentech - currently on target for completion during 2006. We will continue to exploit the outstanding pipeline of development sites that we have in the Bay Area of San Francisco and in San Diego. In 2005 two major new sites were acquired for Â£168m at Shoreline and Seaport in the Bay Area. We have been selling all of the activities in the U.S. outside our Californian health science core and we have been successful in hitting markets at the right time. During the year we sold the leisure and residential complex in Florida, known as Quail West, and we also sold our holding in the Tipperary Oil and Gas Company. Both of these disposals produced substantial profits over book value. Strength of Rental Income Profile SEI has an excellent spread of customers including many blue chip clients but with no major exposure to any one customer and a particularly resilient lease expiry and break profile. The weighted average lease expiry including breaks is 11.4 years, 10.1 years including breaks (note the basis of calculation here is the weighted average calculated by value of annual contracted rent per year and includes pre-let developments and pre-contracted rents). The number of tenants occupying property throughout the group increased by 5.7% to 1,639, with the top 10 representing 21% of income and the top 20 representing 28% of income. 91% of income is secured for 5 years, 57% for 10 years. If all breaks were exercised these percentages would only drop to 81% and 49% for 5 and 10 years, respectively. In terms of UK occupational markets the tenant profile is diversified with the largest industry sectors represented being Telecommunications Media & Technology (25%), Engineering & Machinery (16%), Food Producers, Beverages & Household Goods (12%) and Retailers (11%) - no other single sector represented more than 10%. Information on current rent passing, upcoming rent reviews, expiries and breaks can be found in the Financial Review. Lettings Analysis Area Rent * pa 000's Sq M Â£m ----------- ----------- UK: Vacant let first time 25.6 4.2 New construction 2005 16.4 1.8 Existing vacant 146.9 9.0 Licenses 35.2 0.8 ----------- ----------- Total UK 224.2 15.8 ----------- ----------- Continental Europe ** 107.4 9.7 ----------- ----------- North America 32.8 3.1 ----------- ----------- Total SEI 364.4 28.6 * Annual passing rent in first full year excluding rent free periods ** Includes sale and leaseback transactions with KarstadtQuelle and Alstom Vacancy Analysis Occupancy rates - Headline (basis** as per interims 2005 2004 2005) % % ----------- ------------ UK 89.1 87.9 Continental Europe 87.7 87.9 (Continental Europe - excluding trading properties 92.9 94.2 ----------- ------------ USA 80.5 86.2 ----------- ------------ Total 87.8 87.7 ----------- ------------ Analysis of UK Occupancy rates ----------- ------------ Recent acquisitions (Heywood, Woodside, Land 85.0 77.5 Securities) ----------- ------------ Completed development sites (less than 18 months) 54.3 43.6 ----------- ------------ Underlying* UK Portfolio Occupancy rates 91.9 90.2 ----------- ------------ * Excluding recent acquisitions and completed development sites (less than 18 months) ** Treating former Land Securities properties as vacant Record levels of lettings in the UK improved overall occupancy levels from 87.9% to 89.1% with the Slough Trading Estate and The Thames Valley & West of England regions showing the best progress. An important driver of SEI's performance is its development programme - consequently much of its vacancy level actually represents an opportunity. The majority of the vacancy increase in the US relates to the acquisitions of Shoreline and Seaport. Similarly, if the UK vacancy position is adjusted to exclude recent major acquisitions and completed development sites, the underlying UK vacancy figure for 2005 becomes 8.1% compared to 9.8% for 2004. 8.1% is a reasonable level at this stage of the cycle to allow for the management of both the demand for new space and for the flexibility to relocate tenants as required. In 2006 the Continental European businesses have achieved major letting successes in a series of post balance sheet transactions - including SEI's largest ever letting in Continental Europe with a 43,000 sq m transaction in the newly acquired business in Poland. Acquisitions & Disposals In 2005 SEI made Â£597m of acquisitions and Â£187m of property disposals (including Quail West) - plus a further Â£111m from the sale of non-core Tipperary which generated a profit of Â£100m against book value. These included important strategic moves with the Â£279m acquisition of holding entities owning Woodside and Heywood in Dunstable and Manchester - two of the largest industrial parks in the UK, the Â£168m acquisition of major bio-tech sites for SEI's strong specialist operations in California and the acquisition of a large portfolio of both investment and development properties from retailer KarstadtQuelle in Germany (Â£58m in 2005 - parts of the deal completed after the year end). With the acquisition of the holding entities owning Woodside and Heywood SEI now owns five of the largest industrial estates in the UK. The major 2005 acquisitions have delivered significant year end valuation uplifts against acquisition prices. In addition to these strategic moves SEI continued with its active asset recycling programme across the board - crystallising value on sites where the company's ability to add further value was outweighed by opportunities elsewhere in the portfolio or by new acquisition opportunities. This programme resulted in significant disposals at Elstree (Â£49m), Heston (Â£10m) and two sites at Pleasanton, California (Â£29m and Â£8m) and acquisitions in Feltham (Â£11m), Alstom - near Paris (Â£17m), and Carlsbad - in California (Â£20m). Just before the end of 2005 we concluded a further strategic move in Continental Europe, with SEI's first expansion into Central Europe via the â‚¬19.1m acquisition of the engineering company Grontmij's landbank in Poland, the Czech Republic and Hungary - all providing excellent development potential at strategic locations well placed for logistics projects. In early 2006 SEI also completed the remaining elements of the KarstadtQuelle deal announced but not concluded in 2005. Post year end activity in the UK also demonstrates our increasingly flexible approach with the announcement of a proposed sale of land at Farnborough Business Park to the De Vere Group for the development of a hotel - designed to enhance the comprehensive offer and the overall attractiveness of the 125 acre park to its occupiers. Development Programme An important driver of SEI's performance is the development programme. We completed 143,000 sq m of projects during 2005, of which 45% has been let and at 31 December we had 123,000 sq m under construction of which 71% has been let. The total 'pipeline' of 2.5 million sq m of current and potential developments, with a built-out cost in the order of Â£2.6bn represents a major opportunity to generate superior returns for investors. The overall development pipeline as at 31 December 2005 is summarised in the following table. Space to Land Current Future Estimated ERV Be built Book Total 000's sq Area Value Spend Spend m hectares Â£m Â£m Â£m Â£m -------- -------- -------- -------- --------- ---------- Investment Properties Work In 125 18 227 122 350 33 Progress Future 1,080 224 490 1,149 1,638 143 Developments -------- -------- -------- -------- --------- ---------- Total 1,205 242 717 1,271 1,988 176 Development Trading Profit Â£m Properties Work in 0 0 0 0 0 0 Progress Future 1,336 274 117 534 651 86 Developments -------- -------- -------- -------- --------- ---------- Total 1,336 274 117 534 651 86 -------- -------- -------- -------- --------- ---------- Group total 2,541 516 834 1,805 2,639 -------- -------- -------- -------- --------- ---------- Note: Space to be built and land area includes joint ventures on a 100% basis. All financial figures are estimates and subject to change. These amounts include the Group's developments plus its share of joint ventures' projects. Estimated total spend comprises current value plus all future expenditure including capitalised interest. Future developments include development of bare land and redevelopment of existing buildings - some of which are currently income producing. In the UK over the course of 2005 we saw a good level of take up for our core product of flexible business space. The year was a letting record in terms of numbers, volume, floor space and rental income secured. After a low level of activity in previous years, occupiers are now starting to reassess their future space requirements and are becoming more confident about updating their property portfolios. There is a particular interest in occupying new and modern premises, which reflect an appropriate image to both customers and employees. As a result we have committed to increasing our continuing our programme of speculative development in the UK. Our success in pre-letting ranges from the 47,000 sq m complex under development for Thales at Crawley (by floor space our largest UK letting ever), to the small premises built for Bradford Builders Merchants at Weston-super-Mare. The majority of letting transactions in 2005 (63 per cent) and in previous years were in respect of buildings provided in anticipation of future requirements, that is, on a speculative basis. While we are targeting increasing proportions of pre-let accommodation we recognise that going forward it will continue to be advantageous to provide a range of new flexible business accommodation designed to suit the most diverse range of potential customers. In Continental Europe we significantly increased our land bank over the course of 2005 and by the end of the year held 206 ha across the 7 European countries. This land bank provides a significant development pipeline in the target suburban markets across Europe. Notably we have high profile developments in each of our core markets at Pegasus Park next to Brussels International Airport, the 17 ha De Hoek scheme next to Schiphol airport, Amsterdam, the 'Porte de France' suburban office scheme next to the Stade de France in St Denis, the Alzenau logistics park in Germany, Tulipan Park next to Prague Airport in the Czech Republic and at Strykow in Poland. These international projects are supported by a tier of schemes targeted at their respective domestic markets which complement the existing investment portfolio; such as the 'Carre des Aviateurs' scheme and the Alstom project both to the north of Paris and the Zellik and Zaventem projects in the periphery of Brussels, Belgium. Over the course of the year our German operations have expanded from providing a concentration of business park developments in the Dusseldorf and Frankfurt suburban markets to, through our acquisition of the KarstadtQuelle AG industrial portfolio, holding assets and potential schemes in most of the large business centres across the country. We believe that the time was right to make this move in Germany - given the improving market conditions and the excellent opportunites we had secured. In Central Europe, our development pipeline in Poland is provided by three projects; the largest of which is a 61 ha logistics/ business park adjacent to the new motorway at Strykow in central Poland. In the Czech Republic we have a 16 ha scheme next to Prague Airport and there is a 9 ha scheme in Budapest, Hungary. In North America in December 2004 we completed a master lease with Genentech to develop a $329 million, eight-building 72,836 sq m campus on our Britannia East Grand site in South San Francisco, California. In 2005 construction started on the four-building, 41,806 sq m, Phase I component which is on target for completion during 2006. The Phase II component, consisting of four buildings totaling 31,030 sq m, will commence construction during 2006. We also completed, in mid 2005, Phase I of our unique, modular lab facility in South San Francisco. This pioneering 6,039 sq m life sciences facility, featuring flexible 464 and 929 sq m square laboratory units, was the product of two years planning and design and is targeted at small biotech companies requiring small laboratories on flexible lease terms. We developed the modular lab concept in order to cater for smaller life sciences companies requiring sophisticated laboratory facilities for relatively short periods of time. We believe this investment will also provide access to life sciences companies at the smaller end of the scale, to develop relationships and to capture opportunities for future expansion. A Phase II project of 5,760 sq m, adjacent to the initial facility and featuring four 1,393 sq m units, commenced construction during the year and is scheduled for completion in mid 2006. In October 2005, Amgen exercised an option to commence construction of a further building at Britannia Oyster Point, South San Francisco. The 8,640 sq m office/ laboratory facility is now under construction and is scheduled for completion and occupancy in January 2007. We are encouraged by the level of enquiries for life sciences facilities in the Bay Area and San Diego County and are confident that additional development and acquisition transactions will take place during 2006 and beyond. REITS SEI has been carefully studying developments with regard to the possible introduction of real estate investment trusts in the UK and has played a leading role in the industry-wide consultation undertaken by the UK Government. We are generally supportive and positive about recent developments in this area but many important details are still to be resolved and we do not yet know key aspects of the structures which the government will implement. These areas include the interest cover test, the ten per cent shareholding limit, the treatment of overseas subsidiaries and the conversion charge. We await future developments with interest. Property Markets & Outlook - By Geography In the UK to the end of February 2006 we have let 29,000 sq m of space - giving an additional Â£2.2m of income leading to a further reduction in vacancy levels. The level of take up of the core product - evidenced by the number of transactions and the level of rent secured - has encouraged us to plan for an increase in development starts in 2006; we are currently planning to commence 568,000 sq m of construction, 8 per cent of which is already pre-let. We anticipate that in 2006 more companies will review their property needs and our plan is to be in a position to satisfy those requirements and to deliver a standard of service that will encourage even greater customer loyalty. In Continental Europe we believe that the investment market will become more competitive. Our rare position as both an investor and developer can give us a significant competitive advantage when sellers want to sell both types of assets to one purchaser - as evidenced in the acquisition of the KarstadtQuelle portfolio in Germany. In 2006 we aim to bring together the individual country operations under a single, enhanced European presence and to fully integrate our recent corporate acquisitions into the existing network - increasingly we are leveraging and growing customer relationships on a pan-European basis. In the US we aim to build on the substantial value creation of the last three years through the further pursuit of both new and existing development opportunities in the same specialised market in the Bay Area and in San Diego County. Building on a productive and rewarding year in 2005, more initiatives are in the pipeline and will generate attractive development and investment opportunities during 2006 and beyond. We aim to further reduce our core vacancy through leasing and development of pre-leased product. 2) SUPPLEMENTARY INFORMATION ON DEVELOPMENT - Individual Projects COMPLETED CONSTRUCTION 2005 Location Type sq m sq m Let or Sold Edinburgh Avenue, Slough Industrial 2,394 Camberley Business Centre Industrial 2,484 2,484 Radlett Road, Radlett Industrial 9,676 2,384 Stone Close, West Drayton Car Showroom 2,926 2,926 Stockley Close, West Drayton Industrial 876 876 Buckingham Avenue, Slough Industrial 2,440 511 Buckingham Avenue, Slough Industrial 4,706 Gazelle Road, Weston Super Mare Industrial 1,757 1,757 Pulborough Way, Hounslow Industrial 2,527 Motor Park, Portsmouth Car Showroom 3,074 3,074 Railway Triangle, Portsmouth Industrial 1,934 Handley Page Way, Radlett Industrial 6,968 6,968 HelioSlough, various Logistics 11,148 11,148 ----------- ---------- ------------ UK TOTAL 52,910 32,128 ----------- ---------- ------------ Belgium Pegasus building 5 extension Offices 6,694 688 France Le Blanc Mesnil Industrial 10,147 3,709 Germany Kapellen Logistics 12,186 Centre Krefeld Business Park 7,596 3,507 Neuss IV Logistics 21,170 18,327 Centre Dormagen 6,327 6,327 Neuss V Business Park 5,804 392 USA Britannia Modular Labs I (Allerton), South San Francisco Biotech / 6,029 Office Poway A&B Biotech / 14,492 Office ----------- ---------- ------------ OVERSEAS TOTAL 90,445 32,950 ----------- ---------- ------------ GROUP TOTAL 143,355 65,078 ----------- ---------- ------------ % Let or Sold 45.4% UNDER CONSTRUCTION AT 31 DECEMBER 2005 Location Type Sq m Sq m Let or Sold UK Ajax Avenue, Slough Office 5,914 5,914 Fowler Avenue, Farnborough Office 3,796 Fowler Avenue, Farnborough Office 3,233 O'Gorman Avenue, Farnborough Office 4,544 Riverside Way, Uxbridge Office 1,978 Riverside Way, Uxbridge Industrial 2,899 Riverside Way, Uxbridge Industrial 2,093 Stockley Close, West Drayton Industrial 5,100 Bilton Court, Luton Industrial 6,266 ----------- ---------- ------------ UK TOTAL 35,823 5,914 ----------- ---------- ------------ USA East Grand, South San Francisco R&D 72,836 72,836 East Grand, South San Francisco R&D 5,739 Oyster Point, South San Francisco R&D 8,658 8,658 ----------- ---------- ------------ OVERSEAS TOTAL 87,233 81,494 ----------- ---------- ------------ GROUP TOTAL 123,056 87,408 ----------- ---------- ------------ % Let or Sold 71% ANTICIPATED DEVELOPMENT - in 2006 Location Type Sq m UK Whitby Road, Slough Industrial 2,590 Farnham Road, Slough Retail 5,824 Buckingham Avenue, Slough Industrial 7,000 Farnham Road, Slough Leisure 3,351 Ajax Avenue Industrial 5,685 Bedford Avenue Industrial 1,430 Oxford Avenue Industrial 3,964 Bath Road Office 11,000 Voyager Park, Portsmouth Industrial 16,063 Lovelace Road, Bracknell Industrial 1,488 Heywood Industrial 6,747 Argyle Street, Birmingham Industrial 20,900 Stanhope Road, Camberley Industrial 10,046 Crawley Office 42,310 Faggs Road, Feltham Industrial 8,900 Javelin Park, Haresfield Industrial 9,058 Aglient Site, Winnersh Office 1,858 Frogmore Business Centre, W Thurrock Industrial 4,294 HS. Nimbus Thorne. Doncaster Industrial 69,677 HS. Chorley Industrial 27,871 ----------- ---------- UK TOTAL 260,056 ----------------------- ----------- ---------- Belgium Rumst Logistics 43,000 Sirius Hotel 21,000 Zellik Industrial 10,100 Kortenberg Industrial 6,500 Pegasus Office 5,250 ----------- ---------- Belgium Total 85,850 ---------- France Saint Denis Offices 26,500 Le Blanc Mesnil Industrial 5,000 ----------- ---------- France Total 31,500 ---------- Germany Kapellen, Phase II Industrial 7,860 Monchengladbach Industrial 22,731 Frankfurt Industrial 12,780 Braunschweig Industrial 15,316 Damstadt Industrial 12,000 Essen Industrial 12,000 Berlin Industrial 8,000 ----------- ---------- Germany Total 90,687 ---------- Central Europe Poland Industrial 46,000 Czech Republic Industrial 20,000 Hungary Industrial 12,000 ----------- ---------- Central Europe Total 78,000 ----------- ---------- USA Poway R&D 17,837 Torrey Pines Science Park 5, San Diego R&D 4,181 ----------- ---------- USA Total 22,018 ----------- ---------- OVERSEAS TOTAL 308,055 ----------- ---------- GROUP TOTAL 568,111 3) FINANCIAL REVIEW International Financial Reporting Standards The Group adopted International Financial Reporting Standards ('IFRS') with effect from 1 January 2005 and summary financial statements for 2004 presented under IFRS were issued on 13 July 2005, complete with reconciliations to, and explanations of the differences from, the previously published figures prepared in accordance with UK GAAP. These documents are available on the Group's website, www.sloughestates.com. Income Statement Adjusted profit before tax The published IFRS Income Statement includes the revaluation surplus on investment properties and a number of exceptional gains and losses. The directors consider it helpful for shareholders to show an additional presentation of the income statement which separately highlights such items. Accordingly, the adjusted profit before tax shown below has been arrived at by following the EPRA Best Practices Policy Recommendations (January 2006) and by making other adjustments to exclude exceptional gains and losses not related to the Group's underlying property activities, as follows. 2005 2004 Â£m Â£m Net rental income from investment properties 221.2 225.0 Net income from trading properties 9.7 6.8 Net loss from utilities and gas (0.9) (7.4) Other investment income 5.5 6.1 Administration expenses (20.7) (14.7) Share of joint ventures' profits before tax & valuation gains 6.2 12.7 --------- ---------- Operating income 221.0 228.5 Net finance costs (100.6) (108.4) --------- ---------- Adjusted profit before tax 120.4 120.1 Revaluation gains on investment properties (including joint ventures) 419.6 182.1 Exceptional lease surrender premiums 36.4 7.5 Profit on sale of non-current assets 20.3 64.7 Profit on sale of gas interests 99.7 4.4 Profit on sale of Quail West 16.1 - Cost of bond refinancing (126.0) - Net losses on derivatives (1.0) Tax in joint ventures & associate (3.2) (4.0) Notional finance charge in respect of preference shares - 13.2 --------- ---------- Reported profit before tax per Income Statement 582.3 388.0 --------- ---------- Adjusted profits before tax for the year were unchanged at Â£120.4m (2004: Â£120.1m). This mainly reflects a reduction in net rental income following the sale of the Pfizer campus in the USA at the end of 2004 and a lower contribution from joint ventures following the sale of retail assets, also in 2004. Offsetting these factors was a significant turnaround in the performance of Slough Heat & Power (utilities) and a reduction in finance costs, following the bond refinancing earlier in 2005. Net rental income Reflecting the 2004 disposals referred to above, total net rental income for the year, including rents from trading properties and the Group's share of joint ventures' rental income, but excluding exceptional surrender premiums, reduced by 5.0% from Â£244.4m to Â£232.5m, comprised as follows. Year ended 31 December 2005 2004 Â£m Â£m Rental income from investment properties 289.1 259.1 Less exceptional surrender premiums (36.4) (7.5) -------- -------- 252.7 251.6 Property operating costs less recharges to tenants and other property income (31.5) (26.6) -------- -------- Net rental income from investment properties 221.2 225.0 Net rental income from trading properties 2.7 3.1 Share of net rental income of joint ventures 8.6 16.3 -------- -------- Total net rental income 232.5 244.4 -------- -------- Total surrender premiums of Â£42.7m (2004: Â£11.7m) were unusually high in 2005 as a result of Â£36.4m ($68.4m) received from Pfizer in January 2005 to buy-out of its obligations in respect of the Sugen campus in South San Francisco; all of the space surrendered by Pfizer was subsequently re-let and is now fully occupied. In the year ended 31 December 2004 a premium of Â£7.5 million was received from Cubist in connection with 252 Bath Road, Slough; this space has also since been fully re-let. Due to their magnitude, the Pfizer and Cubist premiums have been excluded from adjusted profit before tax. The directors believe this treatment, which differs from that adopted for the 2005 Interim Results, provides a clearer picture of the underlying performance of the business. The increase in property operating costs was mainly attributable to the non recovery of property outgoings on vacant buildings, property taxes and costs associated with properties acquired in the year. The movement in underlying net rental income is analysed in the table below. Â£m Net rental income - 2004 244.4 Pfizer sale & Pfizer/Sugen space surrendered (14.3) Other space returned (9.2) Other disposals (Group Â£18.5m, JV's Â£7.8m) (26.3) Acquisitions 28.9 New lettings, rent reviews & other 14.5 Increase in property operating expenses, net of recoveries (4.9) Other including rent averaging (0.6) -------- Net rental income - 2005 232.5 -------- The current passing rent of the Group's investment properties at 31 December 2005, including the Group's share of joint ventures and trading properties, was Â£275m and the profile of future rents passing allowing for contracted rents on pre-let developments and the loss of rents from lease expiries and potential breaks is as follows. Contracted rents at 31 2005 2006 2007 2008 2009 2010 December Â£m Â£m Â£m Â£m Â£m Â£m Ignoring break clauses 275 270 267 272 261 252 Assuming all breaks exercised 275 261 253 250 237 222 The profile of rent reviews, expiries, potential breaks and contracted rents from pre-let developments yet to be completed and other recent lettings where the customer has yet to take up occupation is as follows. 2006 2007 2008 Â£m Â£m Â£m Current rent passing subject to: - Rent reviews 22 27 42 - Lease expiries 10 9 8 - Potential breaks 9 4 9 Contracted additional rent (cumulative) 5 11 24 In addition to the above, the Group has significant potential to grow its rental income through letting existing vacant space and through building out the development pipeline. The total potential rental income which could be generated from the development pipeline (including the amounts shown above in respect of pre-lettings already agreed) amounts to approximately Â£176m in respect of investment property developments although, it may take several years before the potential developments could be fully built and let. In some cases where redevelopments of existing properties are planned, there would be a loss of existing income in order to generate the redevelopment opportunity. The reversionary potential of the investment portfolio at 31 December 2005 was as follows: Reversion to ERV On Occupied On vacant Properties properties Â£m Â£m UK - Industrial 8.3 22.3 - Offices (5.0) 6.8 - Retail 0.9 0.4 USA (13.0) 10.0 Europe (0.5) 3.3 (9.3) 42.8 Property Trading Net income from property trading activities increased by Â£2.9m to Â£9.7m (2004: Â£6.8m), reflecting the net rental income shown above plus profits from the sale of trading properties of Â£7.0m (2004:Â£3.7m) which included Â£4.5m relating to the sale of the Group's Avenue Kleber development in Paris. Also included within property trading activities in the Income Statement is an amount of Â£16.1m representing the gain on disposal of the Group's interest in the Quail West leisure development in Naples, Florida. This was sold in April 2005 and, for presentational purposes, the gain has been excluded from adjusted profit before tax. Utilities and Gas Following several difficult years at Slough Heat & Power, the business showed a significant improvement in performance in 2005, turning an operating loss of Â£4.1m in 2004 into an operating profit of Â£1.2m in 2005. This was a result of the management changes introduced at the end of 2004, the subsequent implementation of plant operating improvements and stronger market conditions for energy trading and for the trading of carbon emission credits and renewable energy certificates. The net loss from gas activities amounted to Â£2.1m (2004: Â£3.3m) and represents the Group's share of the operating losses of Tipperary Corporation up to July 2005, when the Group disposed of its interests in that company. The Group's interests in Tipperary Corporation were sold for Â£110.5m ($197.6m) giving rise to a net profit on sale of Â£99.7m. Other income Other income represents the Group's share of realisations from available for sale investments, principally comprising holdings in venture capital funds and warrants received from certain tenants in the USA. At 31 December 2005, the Group had available for sale investments recorded at fair value amounting to Â£54.7m, with a remaining commitment to invest further funds of Â£10.5m. Administration expenses Administration expenses included a number of one-off costs associated with the implementation of IFRS, pensions advice and additional staff and related costs associated with the refocusing and growth of the Group's activities. Net income from joint ventures The Group's share of net income from joint ventures reduced from Â£12.7m in 2004 to Â£6.2m in 2005. This is attributable to the sale of retail assets to Land Securities at the end of 2004 since a number of the Group's former retail assets were held in joint ventures. Net finance costs Adjusted net finance costs for the year, excluding the exceptional cost of the bond refinancing and gains and losses on derivatives, are comprised as follows: Year ended 31 December 2005 2004 Â£m Â£m Interest on overdrafts & loans 116.9 115.7 Interest on convertible preference shares (1) 13.2 13.2 Interest receivable (9.9) (6.7) Other net (income)/expense (0.5) 2.2 -------- ------- Net finance costs before capitalisation 119.7 124.4 Less amounts capitalised in respect of development activities (19.1) (16.0) -------- ------- Adjusted net finance costs before 'mark to market' adjustment of derivatives and costs of bond refinancing 100.6 108.4 -------- ------- (1) In accordance with IAS 32 & 39, with effect from 1 January 2005, the Group's convertible redeemable preference shares are classified as borrowings and preference dividends are replaced by a financing charge recorded within finance costs. In order to aid comparability between the two years, a notional finance charge of Â£13.2m has been included in the comparative amounts shown above for 2004. Interest costs before capitalisation benefited in, the second half of the year by approximately Â£5m as a result of the bond refinancing undertaken in June. On a like for like basis, therefore, net interest costs showed a slight increase between 2004 and 2005, reflecting higher net debt levels associated with the acquisitions undertaken in the year. Exceptional items and valuation gains and losses Under IFRS, revaluation gains on investment properties are included within the Income Statement and the equivalent items in respect of our joint venture companies are included within the group's share of results of such entities. As recommended by EPRA, such valuation gains have been excluded from adjusted profits before tax. Similarly, the Â£22.2m (2004: Â£64.7m) gain on the sale of investment properties is excluded from adjusted earnings, as is the gain arising on the disposal of the group's interests in Tipperary Corporation and the surplus on the disposal of the group's residential leisure development at Quail West, Florida. Whilst the latter property was classified as a trading activity, it was not part of the core business and, accordingly, the profit on disposal of that asset is excluded from our underlying performance measures. Details of the exceptional cost of the bond refinancing and the net losses on derivatives are provided below in the section entitled 'Financing'. Taxation The tax charge for the year can be analysed as follows: Year ended 31 December 2005 2004 Â£m % Â£m % Underlying tax charge on adjusted profit before tax 16.9 14 20.2 17 Tax relating to exceptional items and valuation gains/losses 180.5 39 76.0 28 Less amounts included above in respect of joint ventures (3.2) 19 (4.0) 14 ------- ------- Total Group tax charge 194.2 33 92.2 24 ------- ------- The underlying tax charge for the year as a percentage of adjusted profit before tax was 14% (2004: 17%) primarily due to the release of an over-provision in relation to previous years' taxation. Looking ahead for the next two years, we expect the underlying current tax rate to remain less than 15% of adjusted profit before tax as the Group benefits from utilising UK tax losses. The tax charge on exceptional items and valuation gain/losses includes a tax charge of Â£34.0m arising on the sale of Tipperary, Â£14.9m on the exceptional lease surrender premium (2004: Â£nil) and deferred tax of Â£130.5m (2004: Â£58.2m) on the revaluation gains on investment properties. Earnings per share and dividends Basic earnings per share for the year were 91.7p, an increase of 34% over 2004 (68.5p). Diluted adjusted earnings per share were unchanged at 24.3p (2004: 24.4p). Diluted adjusted earnings per share is based upon adjusted profit before tax, excluding all exceptional items and valuation gains and losses, and takes into account the dilutive effects of the convertible preferred shares and shares held by the ESOP trust. The directors have proposed a final dividend of 11 pence per share, taking the total dividend for the year to 17.5 pence per share, an increase of 9.4% over the total dividend for 2004. Under IFRS no provision is made for dividends declared after the balance sheet date. Property Portfolio The Group's total property portfolio at 31 December 2005 amounted to Â£5,137.8m, as follows: 31 December 2005 2004 Â£m Â£m Investment properties - completed properties 4,304.7 3,413.1 - under development 135.4 39.6 Development properties 436.3 276.8 -------- -------- Sub-total: investment and development properties 4,876.4 3,729.5 Trading Properties - completed properties 61.4 88.7 - properties under development 62.2 36.6 Share of properties held within joint ventures - investment properties 113.5 115.0 - trading properties 24.3 17.6 -------- -------- Total property portfolio, including share of joint ventures 5,137.8 3,987.4 -------- -------- All of the Group's properties except trading properties were independently valued at 31 December 2005. Trading properties are recorded at the lower of cost and net realiseable value. The value of property portfolio increased by Â£1,150.4m (29%) during 2005. This increase was comprised of: Â£m Additions 757.8 Disposals (156.8) Valuation surpluses - included in Income Statement 409.1 - included in SORIE* 48.4 - joint ventures 10.5 Currency translation differences 68.7 Other changes 12.7 -------- 1,150.4 -------- *Statement of Recognised Income and Expense Net Assets Per Share Under IFRS, the Group is required to provide for deferred tax on investment properties and the capital gains tax on revaluation surpluses. In arriving at adjusted net assets and adjusted net assets per share, the Board believes it is appropriate to add back such contingent tax liabilities since the nature of the Group's investment portfolio means the tax is not expected to crystallise. Accordingly, diluted adjusted net assets per share is calculated as follows. 31 December 2005 2004 Â£m Â£m Equity attributable to ordinary shareholders 2,447.3 2,034.3 Less shares held by ESOP (6.9) (5.2) -------- -------- 2,440.4 2,029.1 Add back: Deferred tax on revaluation surpluses 412.1 256.6 Deferred tax on capital allowances 237.1 200.7 Dilution adjustment in respect of preference shares 107.7 136.0 -------- -------- Diluted adjusted net assets 3,197.3 2,622.4 -------- -------- Shares in issue (diluted) millions 469.9 469.6 -------- -------- Net assets per share (diluted, adjusted) 680.4p 558.4p -------- -------- At the year end diluted adjusted net assets per share were 680.4p, an increase of 22% over the previous year end. The increase is analysed in the following table. Pence per Â£m share Adjusted diluted equity attributable to shareholders 31 December 2004 2,622.4 558.4 Adjusted profit after tax 103.5 22.0 Exceptional items, net of tax 28.8 6.1 Property valuation gains (including joint ventures) 468.0 99.6 Increase in value of available for sale investments 6.5 1.4 Actuarial loss on pension scheme, net of tax (7.8) (1.7) Currency translation differences 37.2 7.9 Ordinary dividends paid (69.0) (14.7) Other items 7.7 1.4 Adjusted diluted equity attributable to -------- -------- shareholders 31 December 2005 3,197.3 680.4 -------- -------- NNNAV The Group's 'triple net asset' ('NNNAV') per share, calculated using the principles recommended by EPRA, is set out in the table below. It should be noted that capital allowance elections at the point of sale of a property often mean that deferred tax liabilities relating to capital allowances do not, in practice, reverse. Per At 31 December 2005 Â£m share (p) Diluted adjusted NAV 3,197.3 680.4 'Mark to market' adjustment of debt, net of tax (106.0) (22.6) Deferred tax on investment properties - in respect of capital allowances (237.1) (50.5) - in respect of revaluation surpluses (412.1) (87.7) - less unrecognised indexation allowances 93.6 19.9 -------- -------- 'Triple NAV' (NNNAV) 2,348.5 539.6 -------- -------- Cash Flow A summary of the cash flow for the year is as follows: Year ended 31 December Â£millions 2005 2004 Â£m Â£m Cash flow from operations 237.3 202.4 Finance costs (net) (116.3) (108.3) Tax paid (net) (91.8) (15.3) Additional pension scheme contributions (16.2) - -------- -------- Free cash flow 13.0 78.8 Capital expenditure (738.9) (102.7) Property sales (including joint ventures) 147.0 238.0 Sale of Tipperary 110.5 - Cash cost of bond exchange (40.8) - Ordinary dividends (69.0) (64.1) Other items 0.8 6.6 -------- -------- Net funds flow (577.4) 156.6 Investments in term deposits 185.6 (184.5) Net increase in borrowings 340.0 88.2 -------- -------- Net cash (outflow)/inflow (51.8) 60.3 Opening cash and cash equivalents 218.1 158.6 Exchange rate changes 0.6 (0.8) -------- -------- Closing cash and cash equivalents 166.9 218.1 -------- -------- Commentary on cash flows Cash flow from operations increased by 17% to Â£237.3m (2004: Â£202.4m) mainly as a result of the exceptional surrender premium received in the first half. Finance costs paid, net of interest income and dividends from joint ventures, increased from Â£108.3m to Â£116.3m due to higher levels of average debt caused by the capital expenditure programme, mitigated partly by savings from the bond exchange. Tax paid of Â£91.8m was much higher than in 2004 (Â£15.3m) mainly as a result of taxes paid relating to the 2004 sale of the Pfizer campus and other US taxes. During the year, the Company agreed to make a one-off UK pension contribution of Â£15m and to accelerate the elimination of the remaining UK pension scheme deficit through increased monthly contributions, resulting in additional contributions of Â£16.2m in the year over and above the regular charge. Capital expenditure of Â£738.9m included property acquisitions of Â£587.6m, the acquisitions of Mainland BV (Â£1.8m) and Grontmij (Â£7.5m) and development expenditure of Â£142.0m. Property sales, including joint ventures, generated proceeds of Â£147.1m and the sale of Tipperary gave rise to net receipts of Â£110.5m. After the cash cost of the bond refinancing and the payment of dividends, there was a net 'funds outflow' of Â£577.4m (2004 : inflow of Â£156.6m). Allowing for movements in borrowings and investments in term deposits, the net cash outflow for the year was Â£51.3m (2004: inflow of Â£60.3m). Potential future capital expenditure on the Group's development programme as at 31 December 2005 was as follows: 2006 2007 Thereafter Â£m Â£m Â£m Projects in progress or already approved 225 110 55 Potential future projects, not yet authorised 185 270 960 ------- ------- --------- Total 410 380 1,015 ------- ------- --------- Financing At 31 December 2005, the Group's borrowings totalled Â£2,264.9 million including Â£107.7million representing the deemed debt component of the 8.25p convertible redeemable preference shares 2006 - 2011 which were reclassified as debt under IFRS on 1st January 2005. Cash balances totalled Â£172.6 million resulting in reported net debt of Â£2,092.3 million (2004: Â£1,325.3m). The weighted average maturity of the debt portfolio was 11.8 years. Unsecured borrowings represent 96% of gross debt at the year end. Secured debt totalled Â£86.6 million being certain historical mortgage debt domiciled in the Group's overseas operations. Â£1,783.6m of debt is domiciled in the UK, is unsecured and is issued by the Parent Company without any supporting up-stream guarantees. Â£394.7 million of debt is unsecured and is issued by subsidiary companies located overseas. Reported financial gearing was 86% (2004: 54%) or 62% (2004: 51%) after adding back deferred tax of Â£649.2 million and treating the convertible redeemable preference shares as equity. The loan to value ratio (net debt divided by property assets) at 31 December 2005 was 42%. Interest cover based upon adjusted profit before interest and tax and adjusted net finance costs was 2.2 times (2004: 2.1 times), or 2.0 times (2004: 2.0 times) based upon recurring income allowing for the inclusion of capitalised interest. The market value of borrowings at the end of December 2005 was Â£151.4 million higher than the book value, equivalent, after tax relief, to a reduction in net asset value of 23 pence per share or 3.4%. Funds availability at year end 2005 totalled Â£706.9 million, comprised of Â£172.6 million of cash deposits and Â£534.3 million of undrawn bank facilities. Only Â£25 million of this total is uncommitted overdraft lines with the balance of undrawn facilities being fully committed and with Â£471 million remaining available to 2010/11. In June the Company completed a debt exchange transaction whereby Â£322 million of bonds at a weighted average interest rate of circa 11% were exchanged into Â£200 million of 5.50% 2018 bonds and Â£100 million of 5.75% 2035 bonds with the balance being redeemed from new bank line drawings. The cost of the exchange was Â£126 million which has been expensed through the Income Statement but is treated as an exceptional loss above. Going forward this transaction will save the group approximately Â£10 million per annum in interest charges. Also in June the Group's Â£415 million committed revolving credit facility was extended through to 2011 at a reduced margin. In September the similar â‚¬150 million committed revolving credit facility was extended through to 2010 at a reduced margin. In November a new $550 million committed revolving credit facility was signed with a new syndicate of banks. This remains available to 2010 but with extension options to 2012. Finally in December a Â£100 million tap of the 5.75% 2035 bond was closed along with a new Â£250 million 5.625% 2020 bond. Hedging Policies The Group has set policies on interest rate and foreign currency translation exposures, liquidity and funding. These policies state that at least 85% (increased from 70% effective January 2006) of the Group's debt portfolio should attract a fixed or capped rate of interest and that at least 75% of foreign currency assets (excluding unrealised valuation gains) should be matched with liabilities of the same currency. Interest rate exposure As at 31 December 2005 87% (2004 81%) of the debt portfolio attracted a fixed or capped rate of interest at a weighted average rate of 6.19% (2004 7.09%) much of this debt is in the form of fixed rate debt issues raised through Sterling Eurobonds and US dollar private placements. Such fixed rate debt issues are held in the balance sheet at amortised cost. Interest rate swaps, caps, collars and forward rate agreements are also used to convert variable rate bank debt to fixed rate. The 13% of debt remaining at a variable rate of interest brought the overall weighted average cost of debt down to 5.81% (2004 6.41%). The Group has decided not to elect to hedge account its interest rate derivatives portfolio. Therefore movements in the fair value are taken to the Income Statement but, in accordance with EPRA recommendations, these gains and losses are eliminated from adjusted profit before tax and adjusted eps. Foreign currency translation exposure Due to the nature of the Group's business it has no cross border trading transactions and therefore, foreign exchange transaction exposure is negligible. However, it does have operations located overseas which transact business in the domestic currency of where the business is located - mostly in US dollars and Euros. The Group's main currency exposure therefore is the translation risk associated with converting net currency assets back into sterling in the Group consolidated accounts at each balance sheet date. As mentioned above the policy is that at least 75% of currency denominated assets (excluding unrealised valuation surpluses) are matched with liabilities of the same currency. At year end 2005 Â£260.7m (excluding unrealised valuation surpluses) or 19.6% of currency denominated net assets were exposed to exchange movements. This increases to Â£460.9 million or 34% when unrealised valuation surpluses are included. A 10% movement in the value of sterling against all currencies in which the group operates would therefore change net assets by Â£46 million and net assets per share by 10 pence or 1.4%. However it should be noted that, historically, sterling has rarely moved in the same direction against the US dollar and Euro. Financial Ratios and Credit Rating The Group follows an unsecured funding model which relies upon maintaining a strong investment grade credit rating. The Board believes it is appropriate to adapt gearing levels according to its assessment of prevailing property market conditions and the stage in the economic cycle. Accordingly, whilst current Group policy is to maintain an adjusted long term financial gearing level below 80% (net debt to adjusted equity) and interest cover in excess of 1.8 (recurring, adjusted profit before tax divided by net interest before capitalisation) the Group retains flexibility to temporarily exceed these thresholds should particular circumstances warrant it. The Group is currently rated A- (long term) F2 (short term) with a stable outlook, by the credit rating agency FITCH. Liquidity and funding The policy on liquidity risk is that at any given time forecasts should demonstrate that there is headroom of at least Â£200 million against immediately available cash and/or committed bank facilities for 2 years projected forward. As property investment is a long term business the Group aims to raise funding on a long term basis through a mix of equity, long term debt issues and committed medium term revolving credit facilities as well as recycling capital generated from property sales. Typically developments are funded through cash resources or drawing down committed bank lines whilst the investment portfolio is funded through unsecured long term debt issues of similar weighted average life to that of the unexpired remaining term of the lease portfolio. Notes: Slough Estates plc (Also known as Slough Estates International or 'SEI' - Slough Estates plc is listed on the London Stock Exchange - stock code: SLOU.L) www.sloughestates.com SEI is a leading provider of flexible business space in business parks in Western Europe and North America, with over 1600 customers occupying over 4m square metres of business space. SEI's fundamental focus is industrial property and based on this core activity, 94% of its portfolio is now in flexible business space. Slough Estates' properties are in strategic locations in close proximity to major business centres - where there is long term demand for business accommodation. By geography its business space is located in the UK (62%), Continental Europe (28%) and North America (10%). Details as at 31 December 2005. SLOUGH ESTATES plc 2005 Preliminary results Group income statement For the year ended 31 December 2005 2005 2004 Note Â£m Â£m Revenue 4 405.2 342.7 ------ ------ Gross rental income from investment properties 301.8 270.8 Interest received on finance lease assets 0.9 0.9 Property operating expenses (45.1) (39.2) ------ ------ Net rental income 257.6 232.5 ------ ------ Proceeds on sale of trading properties 57.3 31.4 Carrying value of trading properties sold (34.2) (27.7) Trading property rental income 3.3 4.2 Property outgoings relating to trading properties (0.6) (1.1) ------ ------ Net income from trading properties 25.8 6.8 ------ ------ Income from sale of utilities and gas 41.9 35.4 Cost of sales (42.8) (42.8) Gain from sale of gas interests 99.7 4.4 ------ ------ Net income/(loss) from utilities and gas 98.8 (3.0) ------ ------ Other investment income 5 5.5 6.1 Administration expenses 6 (20.7) (14.7) Gain on disposal of property assets 14.4 56.4 Gain on disposal of joint ventures 7.8 8.3 Net valuation gains 7 409.1 166.7 ------ ------ Operating income 798.3 459.1 Finance costs 8 (124.9) (101.9) Exceptional cost of refinancing 8 (126.0) - ------ ------ (250.9) (101.9) ------ ------ Finance income 9 21.4 6.7 Share of profit from joint ventures and associate after tax 10 13.5 24.1 ------ ------ Profit before tax 582.3 388.0 Taxation - current 11 (44.4) (49.4) - deferred 11 (149.8) (42.8) ------ ------ (194.2) (92.2) ------ ------ Profit after tax from continuing operations 388.1 295.8 Preference dividends 12 - (11.2) ------ ------ Profit for the period 388.1 284.6 ------ ------ Attributable to equity shareholders 23 385.1 285.8 Attributable to minority interests 3.0 (1.2) ------ ------ 388.1 284.6 ------ ------ Basic earnings per ordinary share 13 91.7p 68.5p Diluted earnings per ordinary share 13 85.0p 63.4p SLOUGH ESTATES plc 2005 Preliminary results Group statement of recognised income and expenses (SORIE) For the year ended 31 December 2005 2005 2004 Â£m Â£m ---- ---- Revaluation gains on properties in the course of development 48.4 24.1 Exchange differences arising on translation of overseas operations 25.4 (13.5) Actuarial losses on defined benefit pension schemes (4.0) (10.6) Increase in value of available-for-sale investments 10.8 - Tax on items taken directly to equity (25.4) (3.3) ------ ------ Net gain/(loss) recognised directly in equity 55.2 (3.3) Transferred to income statement on sale of available-for-sale investments (1.1) - Profit for the period 388.1 284.6 ------ ------ Total recognised income and expenses for the period 442.2 281.3 Adoption of IAS 39 (103.9) - ------ ------ Total recognised income and expenses for the period after restatement 338.3 281.3 ------ ------ Attributable to - equity shareholders 334.8 283.6 - minority interests 3.5 (2.3) ------ ------ 338.3 281.3 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Group balance sheet As at 31 December 2005 2005 2004 Note Â£m Â£m ------ ---- ---- Non-current assets Goodwill 14 0.7 - Investment properties 15 4,440.1 3,452.7 Development and owner occupied properties 16 436.3 276.8 Plant and equipment 17 45.0 118.0 Finance lease receivables 10.9 10.9 Available-for-sale investments 54.7 38.4 Investments in joint ventures and associate 18 100.1 84.1 Deferred tax asset - 0.2 ------ ------ Total non-current assets 5,087.8 3,981.1 ------ ------ Current assets Inventories 1.6 1.9 Trading properties 123.6 125.3 Finance lease receivables 0.1 0.1 Tax recoverable 8.1 1.0 Trade and other receivables 162.8 114.0 Cash and cash equivalents 172.6 397.4 ------ ------ Total current assets 468.8 639.7 ------ ------ Total assets 5,556.6 4,620.8 ------ ------ Non-current liabilities Borrowings 19 2,250.2 1,683.5 Obligations under finance leases 0.5 0.5 Deferred tax provision 22 635.9 448.4 Provisions for liabilities and charges 21 29.6 59.8 Other payables 7.1 15.8 ------ ------ Total non-current liabilities 2,923.3 2,208.0 ------ ------ Current liabilities Borrowings 19 14.7 39.2 Tax liabilities 7.2 47.4 Trade and other payables 162.4 141.7 ------ ------ Total current liabilities 184.3 228.3 ------ ------ Total liabilities 3,107.6 2,436.3 ------ ------ Net assets 2,449.0 2,184.5 ------ ------ Equity Share capital 137.5 138.8 Share premium account 256.8 339.1 Own shares held (6.9) (5.2) Other reserves 1,471.6 1,127.2 Retained earnings 581.4 565.2 ------ ------ Total shareholders' equity 23 2,440.4 2,165.1 Minority interests 8.6 19.4 ------ ------ Total equity 2,449.0 2,184.5 ------ ------ Net assets per ordinary share basic 13 579p 486p diluted 13 542p 461p Approved by the Board on 21 March 2006 SLOUGH ESTATES plc 2005 Preliminary results Group cash flow statement For the year ended 31 December 2005 2005 2004 Note Â£m Â£m ------ ---- ---- Cash inflow generated from operations 25 237.3 202.4 Interest received on deposits 10.3 7.4 Dividends received from joint ventures and associate 2.8 8.4 Dividends received from available-for-sale investments 1.5 3.1 Interest paid (including penalty on bond repayment) (156.7) (115.0) Dividend paid to preference shareholders (10.8) (11.3) Minority dividends paid (4.2) (0.9) Tax paid (91.8) (15.3) Funding pension scheme deficit (16.2) - ------ ------ Net cash (outflow)/inflow from operating activities (27.8) 78.8 ------ ------ Cash flows from investing activities Purchase of subsidiary undertakings (9.3) - Purchase and development of investment properties (587.4) (68.1) Sales of investment properties 118.6 237.1 Amount received from property swap 0.8 3.4 Legal costs paid in relation to property swap (0.6) (2.2) Purchase and development of property, plant and (142.4) (35.8) equipment Sales of property, plant and equipment 7.6 0.9 Purchase of available-for-sale investments (11.9) (16.2) Proceeds from disposal of available-for-sale 16.4 20.5 investments Proceeds from disposal of gas interests 110.5 - Repayment of loans by purchaser of gas interests 12.3 - Proceeds from reduction in holding of a subsidiary - 3.3 Investment and loans to joint ventures and associate (16.5) (3.8) Proceeds from the disposal of an investment in joint venture 20.8 - Investment in term deposits 185.6 (184.5) Acquisition of minority interests - (4.0) Contribution from minorities - 4.6 ------ ------ Net cash used in investing activities (295.5) (44.8) ------ ------ Cash flows from financing activities Dividend paid to ordinary shareholders (69.0) (64.1) Net increase in borrowings 340.0 88.2 Proceeds from the issue of ordinary shares 1.5 3.0 Purchase of own shares (1.0) (0.8) ------ ------ Net cash from financing activities 271.5 26.3 ------ ------ Net (decrease)/increase in cash and cash equivalents (51.8) 60.3 Cash and cash equivalents at the beginning of the year 218.1 158.6 Effect of foreign exchange rate changes 0.6 (0.8) ------ ------ Cash and cash equivalents at the end of the year 166.9 218.1 ------ ------ Cash and cash equivalents per balance sheet 172.6 397.4 Less restricted deposits - (176.0) ------ ------ 172.6 221.4 Bank overdrafts (5.7) (3.3) ------ ------ Cash and cash equivalents per cash flow 166.9 218.1 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 1. Basis of preparation The Preliminary Report is unaudited and does not constitute statutory accounts within the meaning of s240 of the Companies Act 1985. The statutory accounts for 2004, which were prepared under United Kingdom Generally Accepted Accounting Principles (UK GAAP), have been delivered to the Registrar of Companies. The auditors' opinion on these accounts was unqualified and did not contain a statement made under s237(2) or s237(3) of the Companies Act 1985. The financial information has been prepared in accordance with the accounting policies set out in the press release document entitled 'Slough Estates plc and Subsidiaries (Slough) Adoption of International Financial Reporting Standards (IFRS) 2004 Income statement and balance sheet' dated 13 July 2005 which is available on the company's website (www.sloughestates.com). The Group has adopted these policies for the year ended 31 December 2005 in the financial statements in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union for the first time and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The financial statements have been prepared under the historical cost convention as modified for the revaluation of properties, available-for-sale investments and financial assets and liabilities held for trading. Change of accounting policies Prior to the adoption of IFRS the financial statements of Slough Estates plc had been prepared in accordance with UK GAAP. UK GAAP differs in several respects from IFRS and certain accounting, valuation and consolidation methods and policies have been amended, when preparing these preliminary results, to comply with IFRS. The comparative figures in respect of 2004 have been restated to reflect these amendments. Reconciliations and description of the effect of the transition from UK GAAP to IFRS on the reported movement in equity for 2004 are set out in note 26. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 2. Segmental analysis For management purposes the Group's primary reporting format is the geographic location of its properties as set out below. The secondary reporting format is by business sector. Geographical UK Europe USA * Group segments 2005 2004 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Segment revenue 222.8 211.7 55.3 50.9 127.1 80.1 405.2 342.7 ------ ------ ------ ------ ------ ------ ------ ------ Gross rental income from investment Properties 182.7 177.5 21.9 21.6 97.2 71.7 301.8 270.8 Interest received on finance lease assets 0.9 0.9 - - - - 0.9 0.9 Property operating expenses (28.9) (25.1) (1.8) (1.3) (14.4) (12.8) (45.1) (39.2) ------ ------ ------ ------ ------ ------ ------ ------ Net rental income 154.7 153.3 20.1 20.3 82.8 58.9 257.6 232.5 ------ ------ ------ ------ ------ ------ ------ ------ Proceeds on sale of trading properties 1.1 2.6 30.1 25.1 26.1 3.7 57.3 31.4 Carrying value of trading properties sold (0.5) (2.4) (23.7) (21.9) (10.0) (3.4) (34.2) (27.7) Trading property rental income - - 3.3 4.2 - - 3.3 4.2 Property outgoings relating to trading properties - - (0.6) (1.1) - - (0.6) (1.1) ------ ------ ------ ------ ------ ------ ------ ------ Net income from trading properties 0.6 0.2 9.1 6.3 16.1 0.3 25.8 6.8 ------ ------ ------ ------ ------ ------ ------ ------ Income from sale of utilities and gas 38.1 0.7 - - 3.8 4.7 41.9 35.4 Cost of (36.9) (34.8) - - (5.9) (8.0) (42.8) (42.8) sales Gain from sale of gas interests - - - - 99.7 4.4 99.7 4.4 ------ ------ ------ ------ ------ ------ ------ ------ Net income/(loss) from utilities and gas 1.2 (4.1) - - 97.6 1.1 98.8 (3.0) ------ ------ ------ ------ ------ ------ ------ ------ Other investment income 4.0 3.1 - - 1.5 3.0 5.5 6.1 Administration expenses (15.0) (11.0) (2.7) (1.1) (3.0) (2.6) (20.7) (14.7) (Loss)/gain on disposal of property assets (2.8) (1.6) - - 17.2 58.0 14.4 56.4 Gain on disposal of joint ventures - 8.3 - - 7.8 - 7.8 8.3 Net valuation gains 314.9 128.3 8.1 7.0 86.1 31.4 409.1 166.7 ------ ------ ------ ------ ------ ------ ------ ------ Operating income 457.6 276.5 34.6 32.5 306.1 150.1 798.3 459.1 Finance (99.2) (69.4) (6.6) (6.9) (19.1) (25.6) (124.9) (101.9) costs Exceptional cost of refinancing (126.0) - - - - - (126.0) - Finance income 18.1 5.7 0.4 0.3 2.9 0.7 21.4 6.7 Share of profit/(loss) from joint ventures and associate after tax 8.3 18.4 (0.2) (0.1) 5.4 5.8 13.5 24.1 ------ ------ ------ ------ ------ ------ ------ ------ Profit before tax 258.8 231.2 28.2 25.8 295.3 131.0 582.3 388.0 Taxation (80.5) (33.8) (10.3) (7.8) (103.4) (50.6) (194.2) (92.2) ------ ------ ------ ------ ------ ------ ------ ------ Net profit after tax 178.3 197.4 17.9 18.0 191.9 80.4 388.1 295.8 ------ ------ ------ ------ ------ ------ ------ ------ Segment assets 3,788.5 3,093.8 532.8 427.8 1,062.7 701.8 5,384.0 4,223.4 Segment liabilities (559.9) (484.1) (85.1) (74.0) (197.7) (155.5) (842.7) (713.6) ------ ------ ------ ------ ------ ------ ------ ------ Net segment assets 3,228.6 2,609.7 447.7 353.8 865.0 546.3 4,541.3 3,509.8 Net external borrowings (1,629.2) (1,025.4) (203.3) (180.0) (259.8) (119.9) (2,092.3) (1,325.3) Net inter-segment borrowings 123.0 142.2 (56.1) - (66.9) (142.2) - - ------- ------- ------ ------ ------ ------ ------- ------- Net assets 1,722.4 1,726.5 188.3 173.8 538.3 284.2 2,449.0 2,184.5 ------- ------- ------ ------ ------ ------ ------- ------- Depreciation by segment 3.9 3.4 0.1 0.1 1.1 1.2 5.1 4.7 Capital expenditure in the period 406.9 385.2 136.9 22.7 258.1 65.0 801.9 472.9 ------- ------- ------ ------ ------ ------ ------- ------- *includes the results of Canada and gas interests in Australia SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 3. Segmental analysis Business Property Trading Other segments investment property Utilities activities Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Rental 288.2 258.2 3.3 4.2 - - - - 291.5 262.4 income Recharges to tenants 13.6 12.6 - - - - - - 13.6 12.6 Sales - - 57.3 31.4 38.1 30.7 3.8 4.7 99.2 66.8 Interest received on finance lease assets 0.9 0.9 - - - - - - 0.9 0.9 ------ ------ ----- ----- ------ ----- ------ ------ ------- ------ Total 302.7 271.7 60.6 35.6 38.1 30.7 3.8 4.7 405.2 342.7 revenue Depreciation (0.7) (0.7) - - (2.4) (2.1) (1.1) (1.1) (4.2) (3.9) Property outgoings (44.4) (38.5) (0.6) (1.1) - - - - (45.0) (39.6) Cost of - - (34.2) (27.7) (34.5) (32.7) (4.8) (6.9) (73.5) (67.3) sales Gain on sale of gas interests - - - - - - 99.7 4.4 99.7 4.4 ------ ------ ----- ----- ------ ----- ------ ------ ------- ----- Segment net income 257.6 232.5 25.8 6.8 1.2 (4.1) 97.6 1.1 382.2 236.3 Share of profits/(loss) from joint ventures and associate after tax 13.0 24.9 0.5 (0.8) - - - - 13.5 24.1 Other activities - - - - - - 5.5 6.1 5.5 6.1 Unallocated administration expenses - - - - - - (20.7) (14.7) (20.7) (14.7) Profit on disposal of property assets 14.4 56.4 - - - - - - 14.4 56.4 Profit on disposal of joint ventures 7.8 8.3 - - - - - - 7.8 8.3 Net valuation gains 409.1 166.7 - - - - - - 409.1 166.7 Finance - - - - - - (124.9) (101.9) (124.9) (101.9) costs Exceptional cost on refinancing - - - - - - (126.0) - (126.0) - Finance income - - - - - - 21.4 6.7 21.4 6.7 ------ ------ ----- ----- ------ ----- ------ ------ ------- ----- Profit/(loss) before tax 701.9 488.8 26.3 6.0 1.2 (4.1) (147.1) (102.7) 582.3 388.0 ------ ------ -- ----- ----- ------ ----- Taxation (194.2) (92.2) (194.2) (92.2) ------ ------ ------- ------- Net profit after tax (341.3) (194.9) 388.1 295.8 ------ ------ ------- ------- Segment assets 5,060.3 3,876.5 185.2 163.0 52.8 51.2 85.7 132.7 5,384.0 4,223.4 Segment liabilities (757.8) (562.6) (10.2) (15.2) (11.4) (11.3) (63.3) (124.5) (842.7) (713.6) ------ ------ ----- ----- ------ ----- ------ ------ ------- ------- Net segment assets 4,302.5 3,313.9 175.0 147.8 41.4 39.9 22.4 8.2 4,541.3 3,509.8 Net borrowings - - - - - - (2,092.3) (1,325.3) (2,092.3) (1,325.3) ------ ------ ----- ----- ------ ----- ------ ------ ------- ------- Net assets 4,302.5 3,313.9 175.0 147.8 41.4 39.9 (2,069.9) (1,317.1) 2,449.0 2,184.5 ------ ------ ----- ----- ------ ----- ------ ------ ------- ------- Capital expenditure in the period 714.0 426.6 76.0 31.0 3.4 1.2 8.5 14.1 801.9 472.9 ------ ------ ----- ----- ------ ----- ------ ------ ------- ------- There are no significant inter-segment trading activities SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 4.Revenue 2005 2004 Â£m Â£m ---- ---- Rental income from investment properties 245.5 246.5 Interest received on finance lease assets 0.9 0.9 Service charge income 13.6 12.6 Surrender premiums 42.7 11.7 ------ ------ Total property investment income 302.7 271.7 Proceeds on sale of trading properties 57.3 31.4 Trading property rental income 3.3 4.2 Sale of electricity, water and steam 38.1 30.7 Sale of gas 3.8 4.7 ------ ------ Total revenue 405.2 342.7 ------ ------ 5. Other investment income 2005 2004 Â£m Â£m ---- ---- Net profit on available-for-sale investments 2.9 5.7 Transfer of fair value surplus realised on the sale of available-for-sale investments 1.1 - Dividends from available-for-sale investments 1.5 0.2 Other - 0.2 ------ ------ 5.5 6.1 ------ ------ 6. Administration expenses 2005 2004 Â£m Â£m ---- ---- Directors' remuneration 2.7 2.5 Depreciation 0.9 0.8 Auditors' remuneration 0.9 0.7 Auditors' remuneration - IFRS transition work 0.2 - Paid to company's auditors for non-audit work 0.9 0.7 Other administration costs 15.1 10.0 ------ ------ 20.7 14.7 ------ ------ 7. Net valuation gains The total valuation gains and losses for the period are shown in the financial statements as follows: 2005 2004 Â£m Â£m ---- ---- Income statement 409.1 166.7 Statement of recognised income and expenses 48.4 24.1 ------ ------ Total valuation gains reported 457.5 190.8 ------ ------ and arise on the following properties: Investment properties 423.3 175.8 Development and owner occupied properties 34.2 15.0 ------ ------ 457.5 190.8 ------ ------ The valuation gains and losses of joint ventures and associate amounting to Â£10.5m (2004 Â£15.4m) are included within their results shown on the face of the income statement and are excluded from the above figures. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 8. Finance costs 2005 2004 Â£m Â£m ---- ---- Interest on overdrafts and loans 116.9 115.7 Interest on convertible redeemable preference shares 13.2 - Unwinding of discount on the pensions liability less return on assets 0.5 0.9 Unwinding of discount on other provisions 0.2 0.5 ------ ------ Total borrowing costs 130.8 117.1 Less amount charged to: the development of trading properties (0.7) (0.8) : the development of investment and development properties (17.9) (14.0) : the development of other assets (0.5) (1.2) ------ ------ Net borrowing costs 111.7 101.1 Fair value losses on interest rate swaps and other derivatives 0.2 - Swaption close out cost 2.3 - Borrowing close out cost relating to property disposals 1.9 0.7 Exchange differences 8.8 0.1 ------ ------ Total finance costs before exceptional expense 124.9 101.9 Exceptional cost of refinancing (see explanation below) 126.0 - ------ ------ Total finance costs 250.9 101.9 ------ ------ On 10 May 2005 the Group announced a debt exchange programme whereby holders of certain bonds were offered the chance to exchange the bonds at market value plus an incentive into new longer dated current coupon bonds. The cost of the exchange reflecting the mark-to-market fair value of the old bonds plus the Â£4.9 million incentive fee results in a one-off tax deductible finance charge of Â£126.0 million. However, future cash interest charges should be reduced by circa Â£10.0 million per annum. 9. Finance income 2005 2004 Â£m Â£m ---- ---- Interest received on bank deposits 9.9 6.7 Fair value gains on interest rate swaps and other derivatives 1.5 - Unwinding of discount on amounts receivable 1.4 - Exchange differences 8.6 - ------ ------ 21.4 6.7 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 10. Share of profits from joint ventures and associate Property Trading Total investment property 2005 2004 2005 2004 2005 2004 Â£m Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- --- ---- ---- Revenue 9.5 18.7 7.6 1.6 17.1 20.3 ------ ------ ------ ------ ------ ------ Net rental income 8.3 15.9 0.3 0.4 8.6 16.3 Profit/(loss) on sale of trading properties - - 0.8 (0.9) 0.8 (0.9) Finance cost (2.6) (2.4) (0.6) (0.3) (3.2) (2.7) ------ ------ ------ ------ ------ ------ 5.7 13.5 0.5 (0.8) 6.2 12.7 Valuation surplus 10.5 15.4 - - 10.5 15.4 ------ ------ ------ ------ ------ ------ Profit/(loss) before tax 16.2 28.9 0.5 (0.8) 16.7 28.1 Current tax (0.9) (1.0) - (0.1) (0.9) (1.1) Deferred tax (2.2) (2.9) (0.1) - (2.3) (2.9) ------ ------ ------ ------ ------ ------ Group share of profit/(loss) after tax 13.1 25.0 0.4 (0.9) 13.5 24.1 ------ ------ ------ ------ ------ ------ 11. Taxation 2005 2004 Â£m Â£m ---- ---- Current tax Provision for taxation based on profits for the year United Kingdom Corporation tax charged at 30 per cent (2004 30 per cent) - 14.1 Over provision in earlier years (4.6) (2.8) ------- --------- (4.6) 11.3 Overseas Current tax charge 15.4 3.1 (Over) / under provision in earlier years (2.3) 0.6 Tax charge on sale of Tiperrary 34.0 - Tax charge on sale of investment properties 1.9 34.4 ------- --------- Total current tax 44.4 49.4 ------- --------- Deferred tax Origination and reversal of timing differences 19.1 30.1 Charged / (released) in respect of property disposals in the period 11.5 (51.6) On valuation surplus 130.5 58.2 ------- --------- Total deferred tax in respect of investment properties 161.1 36.7 Released in respect of Quail West 10.6 - Other deferred tax (21.9) 6.1 ------- --------- Total deferred tax 149.8 42.8 ------- --------- Total tax on profit on ordinary activities 194.2 92.2 ------- --------- Factors affecting the tax charge for the period: The tax charge for the year is higher (2004 lower) than the standard rate of corporation tax in the UK. The differences are explained below: 2005 2004 Â£m Â£m ---- ---- Profit on ordinary activities before tax 582.3 388.0 Profit on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30 per cent (2004 30 per cent) 174.7 116.4 Effects of : Capital allowances released due to property sales - (25.6) Permanent timing differences 4.7 2.3 Profit on joint ventures already taxed (4.1) (7.2) Higher tax rates on overseas earnings 23.6 8.5 Prior year adjustments (4.7) (2.2) ------ ------ 194.2 92.2 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 11. Taxation (continued) In addition to the amount charged to the income statement, deferred tax of Â£25.4million (2004 Â£3.3 million) has been recognised directly in equity. This includes deferred tax relating to the revaluation of the Group's land and buildings other than investment property amounting to Â£18.4 million (2004 Â£5.8 million). 12. Dividends 2005 2004 Â£m Â£m ---- ---- Ordinary dividends paid Final dividend for the year ended 31 December 2003 @ 9.2 pence per share - 38.4 Interim dividend for the year ended 31 December 2004 @ 6.15 pence per share - 25.7 Final dividend for the year ended 31 December 2004 @ 9.85 pence per share 41.6 - Interim dividend for the year ended 31 December 2005 @ 6.50 pence per share 27.4 - ------ ------ 69.0 64.1 ------ ------ In respect of the current year the directors propose that a dividend of 11 pence per ordinary share will be paid to shareholders on 16 May 2006. This dividend is subject to approval by the shareholders at the Annual General Meeting (AGM). As required by IFRS this final dividend is not recognised in the financial statements until paid. The preference dividend paid during 2005 of Â£10.8 million is included within finance costs. The preference dividend paid during 2004 of Â£11.2 million is included in the comparative figures in the income statement as an appropriation of profit. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 13. Earnings and net assets per ordinary share 2005 2004 Earnings per share The weighted average number of shares used for the calculation of the earnings per share is as follows: Weighted average number of shares in issue Shares m 421.8 418.6 Less the weighted average number of shares held by the ESOP Shares m (1.7) (1.4) ------ ------ Basic weighted average number of shares a Shares m 420.1 417.2 Dilution adjustments: Preference shares Shares m 47.1 50.4 Share options and save-as-you-earn schemes Shares m 1.5 1.3 ------ ------ Diluted weighted average number of shares b Shares m 468.7 468.9 ------ ------ Earnings used for the calculation of earnings per share is as follows: Attributable profit c Â£m 385.1 285.8 Interest on preference shares Â£m 13.2 11.2 ------ ------ d Â£m 398.3 297.0 Revaluation surpluses including joint ventures Â£m (419.2) (182.1) and associate net of minority Add back exceptional loss on refinancing Â£m 126.0 - Profits and losses on sale of investment properties Â£m (20.3) (64.7) and joint ventures net of borrowing close out costs Add back profit on the sale of Quail West Â£m (16.1) - Add back fair value of derivatives Â£m 1.0 - Add back exceptional surrender premiums Â£m (36.4) (7.5) Add back profit on sale of gas interests Â£m (99.7) (4.4) Tax on above exceptional items Â£m 28.6 10.1 Deferred tax relating to investment properties Â£m 151.9 65.9 including valuation surpluses ------ ------ Diluted adjusted earnings e Â£m 114.1 114.3 ------ ------ Basic adjusted earnings f Â£m 100.9 103.1 ------ ------ Earnings per ordinary share : Basic c/a pence 91.7 68.5 Basic - adjusted f/a pence 24.0 24.7 Diluted d/b pence 85.0 63.4 Diluted - adjusted e/b pence 24.3 24.4 Net assets per ordinary share The number of shares used for the calculation of net assets per ordinary share is as follows: Number of shares in issue Shares m 423.0 419.3 Less shares held by the ESOP Shares m (1.7) (1.4) ------ ------ Basic number of shares h Shares m 421.3 417.9 Dilution adjustments: Preference shares Shares m 47.1 50.4 Share options and save-as-you-earn schemes Shares m 1.5 1.3 ------ ------ Diluted number of shares l Shares m 469.9 469.6 ------ ------ Equity used for the calculation of net assets per ordinary share is as follows: Total equity attributable to ordinary shareholders Â£m 2,447.3 2,034.3 Less shares held by the ESOP Â£m (6.9) (5.2) ------ ------ Restated equity j Â£m 2,440.4 2,029.1 Adjustment to exclude deferred tax on investment Â£m 649.2 457.3 properties and latent CGT on revaluation surpluses ------ ------ Adjusted equity attributable to ordinary shareholders k Â£m 3,089.6 2,486.4 Dilution adjustment for preference shares Â£m 107.7 136.0 ------ ------ Adjusted diluted equity attributable to ordinary shareholders m Â£m 3,197.3 2,622.4 ------ ------ Diluted equity attributable to ordinary shareholders n Â£m 2,548.1 2,165.1 ------ ------ Net assets per ordinary share Basic j/h pence 579 486 Basic excluding deferred tax on investment properties k/h pence 733 595 Diluted n/l pence 542 461 Diluted excluding deferred tax on investment m/l pence 680 558 properties SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 14. Goodwill Group 2005 2004 Â£m Â£m ---- ---- Balance 1 January - - Additions arising on acquisitions in the period 0.7 - ------ ------ At 31 December 0.7 - ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 15. Investment properties Investment properties consist of completed land and buildings and properties in the course of redevelopment. They exclude trading properties, properties occupied by group companies, land held for development and developments in the course of construction. UK Europe USA Total Â£m Â£m Â£m Â£m ---- ----- ---- ---- At 1 January 2004 2,449.9 259.0 534.0 3,242.9 Exchange movement - 1.9 (32.0) (30.1) Acquisitions 334.9 - - 334.9 Additions 37.7 (0.7) 7.2 44.2 Disposals (185.0) - (169.3) (354.3) Transfer from development properties - - 39.3 39.3 Revaluation surplus during period 139.3 4.6 31.9 175.8 -------- -------- -------- -------- At 1 January 2005 2,776.8 264.8 411.1 3,452.7 Exchange movement - (8.5) 62.2 53.7 Acquisitions 280.0 67.3 168.1 515.4 Additions 47.5 (1.8) 18.1 63.8 Disposals (74.9) - (40.2) (115.1) Transfer from development properties 15.6 3.1 15.6 34.3 Transfer from trading property - 12.0 - 12.0 Revaluation surplus during period 326.8 9.9 86.6 423.3 -------- -------- -------- -------- At 31 December 2005 3,371.8 346.8 721.5 4,440.1 -------- -------- -------- -------- Completed properties 3,245.7 346.8 712.2 4,304.7 Properties for or under redevelopment 126.1 - 9.3 135.4 -------- -------- -------- -------- At 31 December 2005 3,371.8 346.8 721.5 4,440.1 -------- -------- -------- -------- 2005 2004 Â£m Â£m ---- ---- Properties held at valuation - cost 2,710.5 2,146.4 - valuation surplus 1,729.6 1,306.3 -------- -------- Valuation 4,440.1 3,452.7 -------- -------- The above assets include long term leaseholds valued at Â£105 million (2004 Â£110 million). All other properties are freehold. Investment properties have been included at market value after having deducted an amount of Â£50.6 million (2004 Â£45.0 million) in respect of lease incentives and letting fees included in trade and other receivables. The Group's properties were externally valued as at 31 December 2005 by CB Richard Ellis, DTZ Debenham Tie Leung or Colliers CRE in the United Kingdom, in the USA by Walden-Marling Inc., in Belgium by De Crombrugghe & Partners s.a. and in France by CB Richard Ellis. The valuation basis is fair value, conforms to international valuation standards and was arrived at by reference to market evidence of the transaction prices for similar properties. All the valuers listed above are qualified valuers who hold a recognised and relevant professional qualification and have recent experience in the relevant location and category of the properties being valued. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 16. Development and owner occupied properties UK Europe USA Total Â£m Â£m Â£m Â£m ---- ---- ---- ---- Cost or valuation At 1 January 2004 149.5 25.2 83.9 258.6 Exchange - 0.4 (7.0) (6.6) Additions 7.1 4.0 41.0 52.1 Disposals (1.0) - (0.8) (1.8) Revaluation (deficit)/surplus during period (14.9) 2.1 27.8 15.0 Transfer to investment property - - (39.3) (39.3) ------ ------ ------ ------ At 1 January 2005 140.7 31.7 105.6 278.0 Exchange - (1.1) 17.7 16.6 Additions 71.6 6.6 70.9 149.1 Disposals (3.1) - (4.1) (7.2) Transfer to investment property (15.6) (3.1) (15.6) (34.3) Transfer from trading property - 1.6 - 1.6 Revaluation (deficit)/surplus during period (5.4) (1.4) 41.0 34.2 ------ ------ ------ ------ At 31 December 2005 188.2 34.3 215.5 438.0 ------ ------ ------ ------ Depreciation and impairment At 1 January 2004 1.0 - - 1.0 Additions 0.2 - - 0.2 ------ ------ ------ ------ At 1 January 2005 1.2 - - 1.2 Additions 0.5 - - 0.5 ------ ------ ------ ------ At 31 December 2005 1.7 - - 1.7 ------ ------ ------ ------ Net book value At 31 December 2005 186.5 34.3 215.5 436.3 ------ ------ ------ ------ At 31 December 2004 139.5 31.7 105.6 276.8 ------ ------ ------ ------ Land for and under development and owner occupied buildings are valued on the same basis as investment properties. The valuers are detailed on the previous page within note 15 SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 17. Plant and equipment Other plant Fixtures Gas Utilities and assets plant fittings Total Â£m Â£m Â£m Â£m ---- ---- ---- ---- Cost At 1 January 2004 80.9 30.8 10.4 122.1 Exchange (5.1) - - (5.1) Additions - 14.5 0.5 15.0 Disposals - - (0.2) (0.2) ------- ------- ------ ------ At 1 January 2005 75.8 45.3 10.7 131.8 Exchange 4.1 - - 4.1 Additions 7.1 3.3 2.1 12.5 Disposals (87.0) - (0.1) (87.1) ------- ------- ------ ------ At 31 December 2005 - 48.6 12.7 61.3 ------- ------- ------ ------ Depreciation and impairment At 1 January 2004 - 3.1 7.0 10.1 Additions 1.1 2.1 0.9 4.1 Disposals - - (0.4) (0.4) ------- ------ ------ ------ At 1 January 2005 1.1 5.2 7.5 13.8 Additions 1.0 2.4 1.2 4.6 Disposals (2.1) - - (2.1) ------- ------ ------ ------ At 31 December 2005 - 7.6 8.7 16.3 ------- ------ ------ ------ Net book value at 31 December 2005 - 41.0 4.0 45.0 ------- ------ ------ ------ Net book value at 31 December 2004 74.7 40.1 3.2 118.0 ------- ------ ------ ------ 18. Investments in joint ventures and associate 2005 2004 Â£m Â£m ---- ---- Cost or valuation at 1 January 84.1 203.3 Exchange movement 2.2 (1.8) Additions 15.7 7.3 Disposal (12.6) (140.4) Dividends received (2.8) (8.4) Valuation surplus 10.5 15.4 Deferred taxation on valuation surplus (2.3) (2.9) Share of profits net of current taxation 5.3 11.6 ------ ------ Cost or valuation at 31 December 100.1 84.1 ------ ------ Analysed as follows: Cost 40.7 29.2 Valuation surplus net of deferred tax 51.2 44.1 Share of retained profits 8.2 10.8 ------ ------ 100.1 84.1 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 19. Borrowings 2005 2004 Â£m Â£m ---- ---- Borrowings falling due after one year Payable in more than five years: Secured: 11.25% first mortgage debenture 2019 - 40.0 Currency first mortgages on overseas properties: US dollars 6.85% to 7.51% 2008 to 2017 30.4 40.4 â‚¬uro mortgages 5.14% to 6.36% 2014 to 2016 42.3 45.6 Australian dollar project finance loan 2014 - 45.4 Unsecured: 7.125% bonds 2010 - 124.4 11.625% bonds 2012 - 100.0 6.25% bonds 2015 148.0 148.3 10% bonds 2017 - 98.7 5.5% bonds 2018 197.8 - 5.625% bonds 2020 246.6 - 7% bonds 2022 148.7 148.8 6.75% bonds 2024 220.6 221.0 5.75% bonds 2035 197.9 - 8.09% US dollar Notes 2015 5.8 5.2 8.0% US dollar Notes 2012 25.3 22.6 7.94% US dollar Notes 2010 - 47.6 9.27% Canadian dollar Notes 2010 - 10.9 6.57% US dollar Notes 2011 58.0 52.0 6.97% US dollar Notes 2016 58.0 52.0 6.417% Euro Notes 2011 34.2 35.5 Long term loan 2010 - 18.4 8.25% Convertible redeemable preference shares 107.7 - Bank loans scheduled for renewal in over five years 156.3 - ------ ------ 1,677.6 1,256.8 Exchange difference on currency swaps - (2.6) Less instalments due in less than five years (21.1) (51.7) ------ ------ 1,656.5 1,202.5 ------ ------ Payable by instalments in more than five years 51.6 98.1 Payable on final maturity date 1,604.9 1,104.4 ------ ------ 1,656.5 1,202.5 ------ ------ Wholly repayable between three and five years: Secured: US dollars 6.9% 2007 first mortgage - 4.1 â‚¬uro mortgage 2009 2.5 - Unsecured: 7.58% US dollar Notes 2007 - 10.4 7.84% US dollar Notes 2008 8.7 7.8 7.94% US dollar Notes 2010 53.1 - 9.27% Canadian dollar Notes 2010 12.5 - 10% Bonds 2007 - 50.0 12.375% loan stock 2009 - 31.9 7.125% bonds 2010 124.3 - Bank loans and overdrafts scheduled for renewal between three and five years 331.5 327.9 ------ ------ 532.6 432.1 Instalments due on longer dated borrowings 13.3 42.0 Less instalments due in less than three years (1.4) (0.4) ------ ------ 544.5 473.7 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 19. Borrowings (continued) 2005 2004 Repayable between one and two years: Â£m Â£m ---- ---- Secured: US dollars 6.9% 2007 first mortgage 4.3 - Polish mortgage 3.5 - Unsecured: 7.58% US dollar Notes 2007 11.6 - Bank loans and overdrafts scheduled for renewal in one to two years 25.5 2.1 ------ ------ 44.9 2.1 Instalments due on longer dated borrowings 4.5 5.2 Less instalments due within one year (0.2) - ------ ------ 49.2 7.3 ------ ------ Total repayable in more than one year 2,250.2 1,683.5 ------ ------ Borrowings falling due within one year Secured: European mortgages 3.6 - Unsecured: Bank loans and overdrafts 5.9 34.3 Preference shares held by subsidiary 0.3 - ------ ------ 9.8 34.3 Instalments due on longer dated borrowings 4.9 4.9 ------ ------ Total repayable within one year 14.7 39.2 ------ ------ Maturity profile of group debt In one year or less 14.7 39.2 In more than one year but less than two 49.2 7.3 In more than two years but less than five 544.5 473.7 In more than five years but less than ten 567.1 466.6 In more than ten years 1,089.4 735.9 ------ ------ Total Group debt 2,264.9 1,722.7 ------ ------ Split between secured and unsecured borrowings Secured (on land, buildings and other assets) 86.6 175.5 Unsecured 2,178.3 1,547.2 ------ ------ 2,264.9 1,722.7 ------ ------ Maturity profile of undrawn borrowing facilities In one year or less 44.8 47.3 In more than one year but less than two 18.5 - In more than two years 471.0 275.9 ------ ------ Total available undrawn facilities 534.3 323.2 ------ ------ Rates at which interest is charged on borrowings due after more than one year 2005 2005 2004 2004 before after before after swaps swaps swaps swaps Â£m Â£m Â£m Â£m ---- ---- ---- ---- Up to 5% 4.3 75.0 - 78.1 5% to 7.5% 1,496.9 1,659.4 862.6 881.1 Over 7.5% 124.8 124.8 429.9 429.9 ------ ------ ------ ------ 1,626.0 1,859.2 1,292.5 1,389.1 8.25p convertible redeemable preference shares 107.7 107.7 - - Variable rate 516.5 283.3 391.0 294.4 ------ ------ ------ ------ 2,250.2 2,250.2 1,683.5 1,683.5 ------ ------ ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 20. Financial instruments and fair values Book Fair Book Fair value value value value 2005 2005 2004 2004 Â£m Â£m Â£m Â£m ---- ---- ---- ---- Fair value of borrowings Secured bonds - - 40.0 63.0 Secured bank loans 86.6 92.9 138.0 144.7 Unsecured bond issues 1,283.9 1,400.1 923.1 1,080.4 Unsecured loans 267.2 296.1 243.9 278.0 Bank loans & overdrafts 519.2 519.2 380.3 380.3 Guildhall preference shares 0.3 0.3 - - Convertible redeemable preference shares 107.7 107.7 - - ------- ------- ------ ------- Fair value of debt 2,264.9 2,416.3 1,725.3 1,946.4 ------- ------- ------ ------- Interest rate swaps 1.4 1.4 - 1.7 Cross currency swaps (4.2) (4.2) (2.6) (3.3) FRAs (0.2) (0.2) - - Caps & collars 0.2 0.2 - 0.5 Options - - - 3.8 ------- ------- ------- ------- Fair value of derivatives (2.8) (2.8) (2.6) 2.7 ------- ------- ------- ------- Fair value of debt and derivatives (pre-tax) 2,262.1 2,413.5 1,722.7 1,949.1 Tax relief due on early redemption/termination @ 30% (45.4) (67.9) ------- ------- ------- ------- Fair value of debt and derivatives (post tax) 2,262.1 2,368.1 1,722.7 1,881.2 ------- ------- ------- ------- After tax mark-to-market adjustment 106.0 158.5 Included in the above analysis are Â£18.6 million (2004 Â£12.9 million) of unamortised borrowing costs. 21. Provisions for liabilities and charges Pension scheme Quail Other deficit West liabilities Total Â£m Â£m Â£m Â£m ---- ---- ---- ---- Balance at 1 January 2005 41.5 18.0 0.3 59.8 Exchange movement 0.1 1.0 - 1.1 Charged/(credited) to income statement 2.9 (19.0) - (16.1) Charged to SORIE 4.0 - - 4.0 Paid (19.1) - (0.1) (19.2) -------- ----- ------ ------- Balance at 31 December 2005 29.4 - 0.2 29.6 ------- ------ ------- ------- The other liabilities relate principally to provisions for onerous leases on rented properties and represent the estimated liability of future costs for lease rentals and dilapidation costs less the expected receipts from sub-letting these properties which are surplus to business requirements. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 22. Deferred tax assets and liabilities Balance Balance 1 January Recognised Recognised 31 December 2005 Exchange in income in Equity 2005 Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ---- Movement in deferred tax Valuation surpluses on 256.6 6.6 130.5 18.4 412.1 properties Capital 127.6 5.8 37.0 - 170.4 allowances Others 73.1 - (6.4) - 66.7 -------- -------- --------- --------- --------- Total relating to investment 457.3 12.4 161.1 18.4 649.2 properties Capital allowances on 2.6 - 3.7 - 6.3 plant and equipment Pension deficit (11.9) - - 3.8 (8.1) Deferred tax (13.1) (0.8) (10.9) - (24.8) assets Others 13.5 0.7 (4.1) 3.2 13.3 -------- -------- --------- --------- --------- Total deferred 448.4 12.3 149.8 25.4 635.9 tax -------- -------- --------- --------- --------- Balance Balance 1 January Recognised Recognised 31 December 2004 Exchange in income in Equity 2004 Â£m Â£m Â£m Â£m Â£m ---- ---- ---- ---- ---- Movement in deferred tax Valuation surpluses on 221.7 (2.5) 31.6 5.8 256.6 properties Capital 129.7 (2.5) 0.4 - 127.6 allowances Others 78.2 (0.3) (5.6) 0.8 73.1 -------- -------- --------- --------- --------- Total relating to investment 429.6 (5.3) 26.4 6.6 457.3 properties Capital allowances on 0.1 - 2.5 - 2.6 plant and equipment Pension deficit (8.6) - - (3.3) (11.9) Deferred tax (24.5) - 11.4 - (13.1) assets Others 10.7 0.3 2.5 - 13.5 -------- -------- --------- --------- --------- Total deferred 407.3 (5.0) 42.8 3.3 448.4 tax -------- -------- --------- --------- --------- At the balance sheet date, the Group has unused revenue tax losses of Â£75.4 million (2004 Â£16.8 million) available for offset against future profits. A deferred tax asset has been recognised in respect of all of these losses as it is expected that future profits will be available. The Group also has capital tax losses of Â£45.3 million (2004 Â£48.3 million) which can only be utilised against future profits from the sale of investment properties. In accordance with IAS 12 these losses give rise to a deferred tax asset which is offset against the deferred tax liability. At the balance sheet date, the aggregate amount of temporary differences associated with undistributed profits of subsidiaries and joint ventures for which deferred tax liabilities have not been recognised was Â£nil (2004 Â£nil ). No liability has been recognised because the Group is in a position to control the distribution of these profits and this is unlikely in the foreseeable future. A contingent tax asset of Â£93.6 million (2004 Â£90.7 million) relating to unused indexation allowances has not been recognised in the financial statements due to restrictions in IFRS. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 23. Statement of changes in equity Retained Other Pref Balance Balance Restated profit items Reserve share 31 1 January for for in Shares Div'd trans- conve- December 2005 IAS 39 Exch Period SORIE* issued Other paid fers rsion 2005 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revaluation reserve net of deferred tax 1,090.8 - 9.3 - 29.6 - - - 289.9 - 1,419.6 Share based payments reserve 0.3 - - - - - 2.6 - - - 2.9 Fair value reserve- available-for-sale investments - 4.1 0.7 - 6.5 - - - (1.1) - 10.2 Unrealised surplus reserve 47.4 - - - - - - - - - 47.4 Translation reserve net of deferred tax (11.3) 2.0 (0.2) - (0.1) - - - 1.1 - (8.5) ------------------------------------------------------------------------------------------------------ Total other reserves 1,127.2 6.1 9.8 - 36.0 - 2.6 - 289.9 - 1,471.6 Revenue reserve 565.2 (18.7) 15.3 385.1 (7.8) - - (69.0) (289.9) 1.2 581.4 Ordinary share capital 104.8 - - - - 0.1 - - - 0.8 105.7 Preference shares 34.0 - - - - - - - - (2.2) 31.8 Share premium 339.1 (91.0) - - - 1.4 - - - 7.3 256.8 Own shares held (5.2) - - - - - (1.7) - - - (6.9) ----------------------------------------------------------------------------------------------------- Total equity attributable to equity shareholders 2,165.1 (103.6) 25.1 385.1 28.2 1.5 0.9 (69.0) - 7.1 2,440.4 Minority interests 19.4 (0.3) 0.8 3.0 - - (9.9) (4.4) - - 8.6 ----------------------------------------------------------------------------------------------------- Total equity 2,184.5 (103.9) 25.9 388.1 28.2 1.5 (9.0) (73.4) - 7.1 2,449.0 ------------------------------------------------------------------------------------------------------- *SORIE is the term used for the Statement of Recognised Income and Expenses. SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 24. Commitments Contractual obligations to purchase, construct, develop, repair, maintain or enhance: 2005 2004 Â£m Â£m ------ ------ Property - United Kingdom 120.9 36.6 - Overseas 188.1 147.5 Available-for-sale investments 10.5 17.3 Utilities plant 0.6 0.6 Other plant and equipment 0.1 - ------ ------ Total capital commitments 320.2 202.0 ------ ------ Group's share of capital commitments of joint ventures and associate 15.8 2.7 ------ ------ 25. Reconciliation of cash generated from operations 2005 2004 Â£m Â£m ---- ---- Net operating income 798.3 459.1 Less gain from sale of oil and gas interests separately disclosed (99.7) - Adjustments for: Depreciation of property, plant and equipment 5.1 4.7 Profit on sale of properties (14.0) (56.4) Profit on disposal of property, plant and equipment (0.4) - Profit on disposal of joint venture (7.8) (8.3) Revaluation surplus on investment properties (409.1) (166.7) Other income re-allocated (5.5) (11.0) Other provisions (17.8) (1.9) ------ ------ 249.1 219.5 Changes in working capital: Decrease in trading properties 14.3 6.9 Decrease/(increase) in inventories 0.3 (0.3) Increase in debtors (21.6) (33.6) (Decrease)/increase in creditors (4.8) 9.9 ------ ------ Net cash inflow generated from operations 237.3 202.4 ------ ------ SLOUGH ESTATES plc 2005 Preliminary results Notes to the group financial statements 26. Reconciliation of opening shareholders' equity as previously reported under UK GAAP to IFRS Year to Year to 31 31 December December 2004 2003 Note Â£m Â£m -------- ------- Shareholders' equity previously reported under UK 2,446.2 2,176.1 GAAP Effects of adopting IFRS Proposed dividends 1 41.3 38.4 Business combinations 2 7.4 - Operating lease incentives 3 (9.4) (4.7) Joint ventures and associate 4 (8.2) (6.1) Finance leases as lessor 5 (10.7) (8.5) Deferred tax 6 (260.3) (225.0) Pension scheme deficit 7 (41.0) (29.5) Fair value of share based payments 8 1.3 0.8 Other (1.5) 0.9 -------- -------- Shareholders' equity restated under IFRS 2,165.1 1,942.4 -------- -------- Notes 1. IAS 10 - Ordinary dividend excluded from the income statement. Recognised on the balance sheet when approved. 2. IFRS 3 - The acquisition of Ravenseft has been treated as a property acquisition. Goodwill and deferred tax on acquisition have been eliminated. Opted to apply this standard with effect from 1 January 2004. 3. SIC 15 - Lease incentives amortised over period of lease or to the first break whichever is the shorter. 4. IAS 28 & 31 - Equity account for the results of joint ventures and associate's profits, including its share of valuation surpluses and deficits, interest and taxation as a one line entry in profit before tax. The reduction in shareholders' funds arises principally from deferred taxation provided on revaluation surpluses. 5. IAS 17 - Finance leases included on the balance sheet as a debtor. No revaluation. Previously accounted for as investment property. 6. IAS 12 - Mainly deferred tax on investment property valuation surpluses, with movements in the income statement. Previously disclosed in the notes. 7. IAS 19 - Recognise in full the cumulative deficits at the transition date 1 January 2004 - corridor approach not adopted. 8. IFRS 2 - Share option plans fair valued at the date of grant and costs taken to the income statement over the vesting period. Transitional exemption used. This information is provided by RNS The company news service from the London Stock Exchange

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