Interim Results
Press Release
28th August 2003
SLOUGH ESTATES plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2003
Summary of Results
* Core property investment income increased by 5% to £71.9m, showing a 13% annual
compound increase over the last five years
* 53% of Slough Estates' core rental income is secured for at least 10 years on long
leases, while being underwritten by a diverse and high quality customer base
* Occupancy rates are stable, with occupancy standing at 90.3%, while the development
programme is 77% pre-let
* Interim dividend rises by 6.4% giving an increase in total dividend of 5.9%, compound
over 10 years
Results Half year Half year
to 30 June to 30 June
2003 2002 % change
_______________________________________________________
£m £m
Core property investment income* 71.9 68.5 5.0
Adjusted profit before tax** 71.1 76.1 (6.6)
Profit before tax 71.8 76.2 (5.8)
_______________________________________________________
Adjusted basic earnings per share** 13.9p 15.1p (7.9)
Basic earnings per share 11.6p 11.0p 5.5
Interim dividend 5.8p 5.45p 6.4
Diluted net assets per share before FRS19 deferred tax down 1% from 519p at 31st
December 2002 to 514p
* Core property income comprises investment and joint venture property income less
administration and net interest costs.
**Adjusted to exclude gains and losses on investment property sales and/or FRS19 deferred
tax.
Commenting on the results, the Chairman, Sir Nigel Mobbs, said: "The Group has produced a
solid set of results for the first half of the year but our short term caution,
particularly in terms of development, has been justified as global markets have continued
to be nervous about economic prospects. Encouragingly, occupancy rates remain stable, and
with only a very limited committed development programme and with low gearing, Slough
Estates is well positioned today and will look to increase development activity as
business sentiment recovers. The long term outlook for property remains good."
For further information contact:
Slough Estates plc Shared Value Limited
Ian Coull, Chief Executive Andrew Best
Dick Kingston, Finance Director Emily Bruning
Tel: 01753 537171 Tel: 020 7321 5022 / 5027
An interview with Ian Coull in video/audio and text will be available from 07:00 on:
www.sloughestates.com and on http://www.cantos.com
A conference call for analysts is being held at 09:00 today and is accessible, together
with a copy of the slide presentation, at www.sloughestates.com
Interim Statement 2003
The interim results reflect a solid performance across the Group's portfolio in what have
been challenging market conditions. At the preliminary results in March we signalled that
we expected that the continued uncertainty in global markets would make 2003 a slow year
and so far this has proved to be the case. What is encouraging is the resilience of the
Group's core property income stream, with its dominant industrial bias, our strong balance
sheet and a well-leased development programme, which has protected Slough Estates from the
worst of the downturn. Core property income was up 5 per cent which was a good result in
this market but the Group pre-tax profits were down by 5.8 per cent, being adversely
affected by comparison with a strong first half year in 2002 on the back of some
exceptional non-property realisations from venture capital investments (at Charterhouse
USA and Candover). The diluted net assets per share excluding FRS19 deferred tax were down
only marginally by 1 per cent to 514p. The valuations for the core industrial portfolio
showed no material change.
At the Preliminary results in March, I stated that a strategic review of the business was
to be conducted. The report and recommendations have now been completed and approved by
the Board. Independent research conducted for this review has confirmed that the current
focus, with over 80 per cent of the portfolio in Business Parks, offers Slough Estates the
greatest opportunity for superior returns over time. The changes in modern business usage
mean that the Business Parks developed by Slough Estates' today are for a wide variety of
business use, ranging from manufacturing, which is declining as a percentage of the total,
to distribution, research laboratories, and suburban office space. It is the Group's
intention to increase its exposure to such modern multi-use Business Parks maximising
returns for each location by providing the most appropriate mix of flexible business
space. Further, it is clear from the research that the potential returns for Business
Parks in selected overseas markets remain as good or better than the UK and the Group will
continue to invest to maximize its long-term returns regardless of geography. However,
the review has also shown the value of its small portfolio of retail shopping centres,
which have historically helped to smooth the property cycle. For this reason shopping
centres will continue to have a limited place in the portfolio. The Group has a number of
small non-property investments, which account for just 4 per cent of the assets of the
Group. It is the Group's intention over time to look to find the most advantageous exit
from these non-property investments.
As part of the strategic review, I have been looking closely at the internal structure,
reporting and overall management regime. As a result, we will shortly be introducing
changes to our rewards package as well as other reforms designed to streamline
communication and reporting. It is my firm belief that these changes will help to release
and encourage the considerable talent within the business and enable us to execute our
strategy better.
The defensive nature of Slough Estates' property portfolio is evident from the strong
cashflow generation especially when linked to a gearing level of only 62 per cent adjusted
to exclude FRS19 deferred tax. Our leased portfolio reflects the strong covenants that we
enjoy with our largest occupiers, such highly rated companies as Fiat, Mars, Microsoft,
mmO2, Centrica, Pfizer, DHL, Deloitte & Touche, McDonalds and Cisco, and the wide spread
of our portfolio across some 1,707 customers covering almost every market sector. This
diversity in the portfolio is backed by long leases, with a worldwide average of 11 years
to run, so bringing a high degree of income security. Overall the Group enjoys a
contracted income stream for the next five and ten years of 74 per cent and 53 per cent
respectively, compared to our current income, and this is on the most pessimistic and
improbable assumption of no new lettings being made and every tenant break clause being
exercised in the intervening period, when in reality we can expect a continued flow of
lettings. Currently new lettings are more difficult to achieve but it is worth noting that
77 per cent of the development programme has been pre-let and in the UK the number of
lettings are 40 per cent higher than this time last year showing signs of activity
although the total space let is lower.
Occupancy has improved from 89.6 per cent to 90.3 per cent across the portfolio compared
to the year end and this is a good performance as there have been a number of development
completions in this period. However, the Group's development programme was scaled back
over a year ago and there is now only 60,000 sq.m. of space under construction compared to
129,000 sq.m. at this time last year. Our short-term caution must be put in context and
it is in contrast to our medium term optimism. This is important as with the lead times
for construction it will be vital to have a range of products available for occupiers as
the market improves. The Group is well positioned in this regard with a substantial land
bank with planning consents and in total a £1bn development opportunity to be built out
over a number of years when market conditions allow.
Results
The Group's profit before tax for the first six months fell by 5.8 per cent to £71.8
million. Core property investment income increased by 5 per cent to £71.9 million,
whereas non-core activities, (trading property, utilities and other activities) recorded a
loss of £0.8 million, down from a profit of £7.6 million. In the first half of 2002 there
were a number of one off realisations from non-property venture capital investments that
were not repeated this year. Investment property sales produced a profit over year end
book values of £0.7 million compared with £0.1 million in the first half of 2002.
Adjusted basic earnings per share decreased by 7.9 per cent to 13.9p. Basic earnings per
share were 11.6p, a 5.5 per cent increase. The underlying current tax rate assumed was 11
per cent (10 per cent in the prior period) whilst the total tax rate including deferred
tax was 25 per cent compared with 32 per cent in the prior year interim results.
Underlying the core property investment income growth was rental income increasing 6.4 per
cent to £127.1 million, which included income from new developments of £8.1 million and a
loss of income resulting from the disposal of properties of £1.8 million.
The trading property loss was £0.9 million (2002 profit of £1.4 million) due to a lower
level of sales completions. Profit from Candover and CHUSA managed investment
realisations fell from the unusually high level of £8.1 million in 2002 to £2.4 million.
The utilities operation reduced its losses from £1.9 million in 2002 to £1.5 million.
The one effect of holding back from any further development is that accounting rules
require that we must expense the interest cost on our land holdings rather than capitalise
such interest in the normal way until completion. Therefore, if no further development
occurs on our major sites in the second half of 2003, this interest cost will have an
impact on core property income and earnings.
Dividends
An interim dividend of 5.8p per share will be paid on 10 October 2003 to shareholders on
the register on 5 September 2003. This represents an increase of 6.4 per cent over the
2002 interim dividend of 5.45p per share.
Balance Sheet
An interim valuation of all the Group's investment properties was undertaken as at 30th
June by external valuers, with the exception of the Group's Canadian assets (£26.8
million) where directors reconfirmed the prior year end valuation based on local advice.
The valuation including construction in progress at cost amounted to £3,594.3 million.
Overall the valuation fall of £70.1 million or 1.9 per cent was partly offset by a surplus
on property joint ventures' valuations of £1.9 million or 0.8 per cent, retained earnings
and other minor capital changes resulting in a 1.0 per cent reduction in diluted net
assets per share to 514p before application of FRS19 deferred tax, or a decrease of 1.5
per cent to 473p per share after provision for deferred tax.
In the UK the revaluation deficit was £63.5 million or 2.4 per cent, slightly down on last
year but with some strength in the retail and industrial sectors. For example, industrial
estimated rental values were stable over the period and retail rents increased by 2.7 per
cent, but south east office rents reduced across the portfolio by 10 per cent resulting in
a small negative average estimated rental decline of 1.9 per cent for all properties.
The attraction of a secure income stream means that in the current uncertain economic
conditions there is still strong investment demand for well-let properties. This demand
has continued to offset concerns about short-term rental growth prospects and, as a
result, yields are broadly unchanged from those reported at this time last year.
Development land reduced in value by 10.7 per cent.
In the USA the valuation was down by £7.6 million or 1.1 per cent. The surplus recorded
for science parks was offset by value reductions in Bay Area business space, resulting
from increased market vacancy and reduced rental growth prospects.
In Belgium and France valuation increases of 0.4 per cent reflected rent indexation
together with limited development gains.
The balance sheet remains very strong and conservatively geared with a net debt to equity
ratio of 62 per cent (adjusted to exclude FRS19 deferred tax, 68 per cent after accounting
for FRS19). Expenditure of £62.1 million on investment properties is expected to increase
to circa £120 million for the full year 2003, lower than previously projected as a result
of a further slowdown in bringing new developments into construction. It remains essential
to maintain a prudent level of gearing in view of the Group's significant £1 billion
projected development opportunities, as although the development programme has been slowed
down in the short term it remains a medium term objective to develop these opportunities
as occupier demand increases.
At 30th June the Group's debt totalled £1,637.9 million or £1,502.7 million net of cash
deposits. The Group's average interest rate on borrowed funds was 6.61 per cent, with an
average maturity of 10.9 years.
Review of Activities
United Kingdom
The Group's UK portfolio as at June, including its share of partly owned properties, was
valued at £2,816 million. Flexible business space was £2,101 million (74 per cent)
comprising industrial space of £1,636 million (58 per cent) and offices of £465 million
(16 per cent). Retail was valued at £539 million (19 per cent) and land and developments
in progress at £176 million (7 per cent). These holdings are predominantly located in the
South East.
As part of the wider review of the business the contract for the biannual UK portfolio
valuation was retendered and CB Richard Ellis and DTZ Debenham Tie Leung have been
appointed as the Group's valuers from the year end (a role previously held since 1986 by
Insignia Richard Ellis and CB Hillier Parker who have now merged).
In terms of values industrial property has remained stable with a 0.2 per cent reduction
and retail values across the UK have risen by 4.2 per cent showing the continued strong
investment demand in the sector. The office market has been more difficult but the
occupancy is good and recent break options in this half-year, such as mmO2 have not been
taken, showing the benefit of well located and high quality offices in these more
difficult times. Over the last five years, 77.9 per cent of customers have not exercised
breaks in their leases and, in the first half of 2003, this percentage is 86.1 per cent.
The same factors that make new lettings harder to achieve also discourage companies from
taking breaks and looking to locate in new buildings and this underpins Slough's extensive
portfolio. Over the last five years 52.9 per cent of customers renewed their leases and
in the first half of this year the figure was 64 per cent.
The retail market has been strong with ERV growth increasing by 2.7 per cent during the
first half year. Capital values increased by 4.2 per cent over the same period. The most
significant event was the sale of the Chatham shopping centre for £54m at a gain of £1m
but also there has been a general improvement in our customer mix with a number of new
occupiers across the shopping centre portfolio, while retaining full occupancy.
The Group's UK occupancy has fallen slightly to 90.0 per cent. Demand for business space
has slowed but as occupiers are drawn from many sectors including distribution, services
as well as manufacturing, lettings continue to be made. Demand for offices in the South
East continues to be weak resulting in some downward pressure on rental levels. However,
encouraging for the long term, the increased availability of business space within the M25
is a result of lack of demand rather than of over-supply and so when business confidence
improves this will have an immediate impact on rental levels, the construction of new
space has not been at excessive levels for the past decade. Essentially occupier demand
seems to be "on hold" whilst companies try to determine their prospects.
Since the beginning of the year, the leasing function within Slough Estates has been
streamlined and the benefits of this change are now being seen. An example of this new
focus is the appointment of two specialist agents to work on the West London portfolio as
a whole rather than individual properties; it is a distinct area where local market
knowledge will enable the agents to work more effectively bringing synergies across the
portfolio. The letting market is currently slow. For the half year 31,371 sq. m. of
business space has been let which represents some £4.5 million per annum of new rental
income and in total some £2.4 million of new rent has been secured on a net basis after
allowance for leases that have fallen in. The levels of enquiries, viewings and proposals
made have all increased from the levels recorded in the same period of 2002.
The performance of Slough Heat & Power on the Slough Trading Estate has continued to
improve and in the first half it reported only a small loss of £1.5 million. It is
expected that the company will show continuing improvement in the second half and will be
profitable in 2004 when the new non-fossil fuel subsidised contracts come fully into
effect.
North America
The general property market in the US has seen demand stagnate as "corporate America"
continues to rationalise operations and to focus on productivity improvements. This has
meant that the supply of new development has declined significantly compared to the late
1990s. Within this generally quiet market, investor demand is still very strong for prime
projects in superior locations with good clients on longer term leases. Slough Estates'
portfolio of health science properties falls into this category and it is for this reason
that these properties continue to value well and that there will be continued development
opportunities on a pre-let basis.
The overall occupancy rate in the US has fallen from 94.1 per cent as of 31st December
2002 to 91.2 per cent as of 30th June 2003. New customers Rigel, Tularik and Raven have
occupied their buildings at Oyster Point in South San Francisco and the final, pre-leased
building in this business park is scheduled to start construction in early 2004.
The development programme continues and the 71,535 sq.m. Pfizer campus at San Diego is on
time and on budget. Also, the third Sugen building at Britannia Pointe Grand is also on
time and on budget. In terms of future development, planning permission was received from
the City of South San Francisco for the redevelopment of 285 East Grand and Allerton
Street, providing a further 20,902 sq.m of development potential.
Slough Estates has further reduced its property exposure in Canada with the sale of the
remaining land at Kirkland, Montreal, for $C5.5 million. The only remaining property
holding in Canada is the excellent office investment in Vancouver, which has good
prospects in the medium to long term.
One of the Group's non-core investments, the residential leisure development at Quail
West, has suffered a downturn over the last year following the continuing uncertainties in
the financial markets. If the business climate does not improve by the year end, we may
consider a significant write-down from our carrying cost of £48.3 million.
With regard to non-property investments CHUSA saw the first closing of its CEP IV Fund to
which Slough agreed a maximum subscription of $35 million towards the end of last year.
Tipperary Oil and Gas has seen excellent progress in drilling and production in Australia,
including commissioning of a new compressor facility plus associated gathering systems.
Also good progress has been made in gas marketing and the retention of a bank club to
finance future drilling and production.
Continental Europe
The European business has seen a strong increase in occupation since the year end, which
now stands at 93 per cent, including the letting of a 22,750 sq.m. distribution warehouse
at Kapellen, Germany, to DHL Solutions, part of Deutsche Post. A further 4,000 sq.m. of
business park units were let in Germany. Overall the occupancy in Germany has improved
from 57 per cent at the year end to 82 per cent today, a very considerable achievement.
Pegasus Park in Belgium continues to perform well and attract occupiers in a difficult
market. With the infrastructure and landscaping works complete, Pegasus has firmly
established itself as one of the premier office parks in Continental Europe. We are
hoping to conclude pre-let negotiations for a 24,000 sq.m. headquarters office building
that can be started before the end of the year and which will take the total area of
offices developed on the Park to 110,000 sq.m.
Currently we have two schemes under construction in Continental Europe; in Belgium, a
3,950 sq.m. office building on Pegasus Park II, pre-let to Deloitte & Touche and in
France, a 3,000 sq.m. speculative office building on Avenue Kleber, close to the Arc de
Triomphe, which is being refurbished. Both schemes are due for delivery at the end of the
year.
We have also secured sites for multi-let, light industrial schemes at Le Bourget, Paris
and Hochst, Frankfurt. First phases, comprising 7,500 sq.m. and 10,000 sq.m.
respectively, will be launched later this year.
During the period Slough sold to CGS a 20,500 sq.m. warehouse investment at Saint Fargeau,
France, let to ID Logistics.
Outlook
The Group has delivered a solid set of results for the six months to 30th June 2003, but
the caution that we have shown, particularly in terms of reducing the development
programme, has been fully justified by the recent market conditions. However, Slough
Estates has seen stable occupancy and with a very limited committed development pipeline
and gearing of only 62 per cent (adjusted to exclude FRS19 deferred tax), the Group is
well placed to exploit any opportunities that may emerge in the next year. Taking a
medium term view your Board believes the prospects for Business Parks providing flexible
business space are exciting and plans are in place to accelerate the development programme
when occupier demand increases. The Group has excellent properties and substantial land
holdings with planning consents for development, located in the best international
business centres, which will enable us to react quickly to build into a recovery in
business sentiment. The long-term outlook for property remains good.
The current state of the property cycle clearly confirms the strength of property as an
investment medium. Though offices face some shortage in occupier demand and industrial
growth is slow, the demand for retail space is healthy with strong investor demand for
well-located and well-let property. The investment case is underpinned by low inflation,
affordable interest rates and a lack of funding to support speculative development
excesses.
Your Board is confident that the actions that have been taken and are planned will benefit
shareholders in the medium and longer term and this is reflected in the dividend increase
of 6.4 per cent.
Ian Coull
Chief Executive
SLOUGH ESTATES plc
Group profit and loss account
For the six months ended 30 June 2003
Half year Half year Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
Note £m £m £m
Turnover:
Group 2 147.3 139.0 292.2
Joint ventures 8.1 7.9 15.9
====== ====== ======
Operating income:
Property investment 111.4 106.6 216.9
Property trading (0.9) 1.4 2.8
Utilites (1.5) (1.9) (4.5)
Other income 1.6 8.1 4.9
Administration expenses (7.5) (6.6) (14.9)
_______ _______ _______
Operating profit 2 103.1 107.6 205.2
Share of operating profit of property
joint ventures and associate 7.5 7.4 14.8
Profit/(loss) on sale of investment properties 0.7 0.1 (0.1)
_______ _______ _______
Profit before interest and taxation 111.3 115.1 219.9
Interest (net) 3 (39.5) (38.9) (76.5)
_______ _______ _______
Profit on ordinary activities before taxation 71.8 76.2 143.4
Taxation -current 4 (7.8) (7.5) (11.2)
-deferred 4 (10.1) (17.1) (33.4)
(17.9) (24.6) (44.6)
_______ _______ _______
Profit on ordinary activities after taxation 53.9 51.6 98.8
Minority interests - equity 0.2 (0.1) (0.6)
Preference dividends (5.7) (5.7) (11.4)
_______ _______ _______
Profit attributable to ordinary shareholders 48.4 45.8 86.8
Ordinary dividends 5 (24.1) (22.7) (58.2)
_______ _______ _______
Retained profit 9 24.3 23.1 28.6
_______ _______ _______
Basic earnings per ordinary share 6 11.6p 11.0p 20.9p
Adjustment to exclude profits and losses
on sale of investment properties net of tax
and minority (0.2p) - (0.1p)
Adjustment to exclude FRS19 Deferred Tax 2.5p 4.1p 8.0p
_______ _______ _______
Adjusted basic earnings per share 6 13.9p 15.1p 28.8p
_______ _______ _______
Weighted average number of ordinary shares
in issue (millions) 416.2 415.0 415.5
SLOUGH ESTATES plc
Statement of Group total recognised gains and losses
For the six months ended 30 June 2003
Half year Half year Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
£m £m £m
Profit attributable to ordinary shareholders 48.4 45.8 86.8
(Deficit)/surplus on revaluation of properties (70.1) 8.8 (20.3)
Surplus on revaluation of - Joint ventures 1.7 5.9 14.5
- Associate 0.2 - 0.1
_____ _____ _____
(68.2) 14.7 (5.7)
Exchange differences 9.0 (2.4) (15.3)
Other items - (0.3) (0.6)
Taxation 1.2 - 0.4
Minority interests 0.3 (0.3) (1.2)
_____ _____ _____
Total other recognised gains and losses 10.5 (3.0) (16.7)
_____ _____ _____
Total recognised gains and losses for the period (9.3) 57.5 64.4
Prior year adjustment - (151.6) (151.6)
_____ _____ _____
(9.3) (94.1) (87.2)
_____ _____ _____
Reconciliation of movement in Group shareholders' funds
For the six months ended 30 June 2003
Half year Half year Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
£m £m £m
Profit attributable to ordinary shareholders 48.4 45.8 86.8
Ordinary dividends (24.1) (22.7) (58.2)
_______ ______ _______
24.3 23.1 28.6
Revaluation (deficit)/surplus (68.2) 14.7 (5.7)
Other recognised gains and losses 10.5 (3.0) (16.7)
Ordinary shares issued 1.6 2.1 2.3
_______ ______ _______
Net (decrease)/increase in shareholders' funds (31.8) 36.9 8.5
Shareholders' funds at 1 January 2,245.1 2,236.6 2,236.6
_______ _______ _______
Shareholders' funds at 30 June 2,213.3 2,273.5 2,245.1
_______ _______ _______
SLOUGH ESTATES plc 30 June 30 June 31 December
Summarised Group balance sheet 2003 2002 2002
As at 30 June 2003 unaudited unaudited audited
Note £m £m £m
Fixed assets
Tangible assets- investment properties 7 3,594.3 3,601.2 3,632.6
- other 38.9 35.1 38.1
Investments in joint ventures:
- share of gross assets 233.4 221.8 231.3
- share of gross liabilities (45.8) (44.9) (46.5)
8 187.6 176.9 184.8
Investment in associate 8 4.1 4.0 3.9
________ _______ _______
3,824.9 3,817.2 3,859.4
________ _______ _______
Current assets
Stocks 152.8 144.2 146.8
Debtors, prepayments and accrued income 53.5 66.8 49.7
Trading investments 100.4 82.3 81.3
Cash and deposits 135.2 168.5 93.9
________ _______ _______
441.9 461.8 371.7
________ _______ _______
Total assets 4,266.8 4,279.0 4,231.1
________ _______ _______
Capital and reserves
Called up share capital 9 138.6 138.5 138.5
Share premium account 9 332.7 331.0 331.2
Capital reserves 9 1,464.2 1,554.9 1,525.6
Profit and loss account 9 277.8 249.1 249.8
________ _______ _______
Shareholders' funds 2,213.3 2,273.5 2,245.1
Minority interests 23.5 25.0 24.8
Provision for liabilities and charges 11 199.4 173.1 189.2
Creditors falling due within one year
Borrowings 10 46.3 91.0 27.8
Other 187.3 189.5 183.2
Creditors falling due after more than one year
Borrowings 10 1,591.6 1,522.8 1,555.7
Other 5.4 4.1 5.3
________ _______ _______
4,266.8 4,279.0 4,231.1
________ _______ _______
Shareholders' funds attributable to:
Equity shareholders - ordinary shares 2,075.5 2,135.7 2,107.3
Non-equity shareholders - preference shares 137.8 137.8 137.8
________ _______ _______
2,213.3 2,273.5 2,245.1
________ _______ _______
Net assets per ordinary share
- basic 6 498p 513p 506p
- basic excluding FRS19 Deferred Tax 6 545p 554p 551p
- fully diluted 6 473p 486p 480p
- fully diluted excluding FRS19 Deferred Tax 6 514p 522p 519p
SLOUGH ESTATES plc
Summarised Group cash flow statement
For the six months ended 30 June 2003
Half year Half year Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
Note £m £m £m
Net cash inflow from operating activities 12(1) 100.4 83.0 202.5
Dividends from joint ventures and associate 4.4 4.6 11.6
Returns on investments and servicing of finance
Interest received 2.3 2.4 6.1
Interest paid (53.4) (49.4) (116.1)
Dividends paid to preference and minority shareholders (6.2) (6.2) (12.5)
_____ _____ ______
(57.3) (53.2) (122.5)
Taxation (3.6) (12.9) (22.3)
_____ _____ ______
Net cash inflow before investing activities,
financing and equity dividends 43.9 21.5 69.3
Capital expenditure and financial investment
Purchase and development of investment properties (62.1) (77.0) (166.4)
Sales of investment properties 58.3 0.5 5.7
Other asset additions less sales (17.7) (1.2) (6.9)
_____ _____ _____
(21.5) (77.7) (167.6)
Acquisitions and disposals
Net movement on joint ventures, associate and - - (2.0)
others
Equity dividends paid (35.5) (33.2) (55.8)
_____ _____ _____
Net cash outflow before use of liquid resources
and financing (13.1) (89.4) (156.1)
Management of liquid resources
Investment in term deposits 53.1 8.7 19.5
_____ _____ _____
Net cash inflow from the management of liquid
resources 53.1 8.7 19.5
Financing
Issue of ordinary shares 0.9 2.1 2.3
Increase in debt 12(2) 51.8 78.6 72.7
_____ _____ _____
Cash inflow from financing 52.7 80.7 75.0
_____ _____ _____
Increase /(decrease) in cash 92.7 - (61.6)
==== ==== =====
Notes to the interim financial statements
___________________________________________________________________________________________________
1. Basis of preparation
The accounting policies used for the audited financial statements at 31 December 2002
have been used in the preparation of the interim financial statements. The interim
financial statements are unaudited and do not comprise full financial statements. The
auditors have carried out a review of the 30 June 2003 results. The results for the
year to 31 December 2002 are an abridged statement of the Group financial statements
for that year which have been delivered to the Registrar of Companies, and on which
the auditors' report was unqualified.
___________________________________________________________________________________________________
2. Segmental information Turnover Operating profit
________________________________ ________________________________
Half year Half year Year to Half year Half year Year to
to 30 June to 30 June 31 Dec to 30 June to 30 June 31 Dec
2003 2002 2002 2003 2002 2002
unaudited unaudited audited unaudited unaudited audited
£m £m £m £m £m £m
Business segments:
Property investment 127.1 119.5 242.3 111.4 106.6 216.9
Property trading 8.1 11.0 31.6 (0.9) 1.4 2.8
Utilities 12.1 8.5 18.3 (1.5) (1.9) (4.5)
Other activities - - - 1.6 8.1 4.9
Common costs - - - (7.5) (6.6) (14.9)
______ ____ ______ ______ ______ ______
147.3 139.0 292.2 103.1 107.6 205.2
______ ____ ______ ______ ______ ______
Geographical segments:
United Kingdom 96.5 90.0 183.9 69.9 73.5 142.2
Canada 1.3 1.4 2.4 1.1 0.5 1.0
USA 30.4 26.8 55.2 20.4 21.3 37.5
Europe 19.1 20.8 50.7 11.7 12.3 24.5
______ ____ ______ ______ ______ ______
147.3 139.0 292.2 103.1 107.6 205.2
______ ____ ______ ______ ______ ______
Half year Half year Year to
to 30 June to 30 June 31 Dec
2003 2002 2002
Property investment turnover comprises: unaudited unaudited audited
£m £m £m
Rents
- UK 81.9 79.5 161.6
- Canada 1.0 1.1 2.0
- USA 24.6 21.5 44.9
- Europe 10.8 9.6 19.6
______ ______ ______
118.3 111.7 228.1
______ ______ ______
Tenant recharges and other
- UK 2.4 2.0 4.0
- Canada 0.3 0.3 0.4
- USA 5.8 5.2 9.3
- Europe 0.3 0.3 0.5
______ ______ ______
8.8 7.8 14.2
______ ______ ______
Total property investment turnover
- UK 84.3 81.5 165.6
- Canada 1.3 1.4 2.4
- USA 30.4 26.7 54.2
- Europe 11.1 9.9 20.1
______ ______ ______
127.1 119.5 242.3
______ ______ ______
___________________________________________________________________________________________________
3. Net interest Half year Half year Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
£m £m £m
Interest paid 57.0 57.4 115.2
Less interest received (2.7) (2.6) (5.2)
Less amount charged to
- the development of trading properties (1.8) (1.9) (3.8)
- the development of investment properties (13.8) (14.1) (29.2)
- the development of other assets (0.3) (1.3) (3.1)
______ ______ ______
Charged to profit and loss account- Group 38.4 37.5 73.9
- joint ventures and associate 1.1 1.4 2.6
______ ______ ______
39.5 38.9 76.5
______ ______ ______
___________________________________________________________________________________________________
4. Taxation Half year Half year Year to
to 30 to 30 31
June June December
2003 2002 2002
unaudited unaudited audited
£m £m £m
Current
Revenue profit at the corporation tax rate of 30% (2002 30%) 7.6 7.2 10.8
Tax in respect of property disposals in the period (0.1) - (0.2)
Tax in joint venture 0.3 0.3 0.6
______ ______ ______
7.8 7.5 11.2
______ ______ ______
Deferred
Origination and reversal of timing differences - FRS19 14.1 17.0 33.2
Released in respect of property disposals during the period (3.9) - (0.1)
Other deferred tax (0.1) 0.1 0.3
______ ______ ______
10.1 17.1 33.4
______ ______ ______
Tax on profit on ordinary activities 17.9 24.6 44.6
______ ______ ______
An effective tax rate of 24.9% (2002 half year 32.3%, 2002 full year 31.1%) of profit on
ordinary activities before tax has been included for the six months and is based on the
estimated full year rate.
___________________________________________________________________________________________________
5. Ordinary dividends Half year Half year Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
£m £m £m
Interim dividend at 5.8p per share (2002 5.45p) 24.1 22.7 22.7
Final 2002 dividend at 8.55p per share - - 35.5
______ ______ ______
24.1 22.7 58.2
______ ______ ______
___________________________________________________________________________________________________
6. Earnings and net assets per ordinary share
The calculation of the basic earnings per ordinary share has been based on the profit
for the financial period of £48.4 million (2002 half year £45.8 million, 2002 full
year £86.8 million) and on the weighted average number of shares in issue during the
period of 416.2 million (2002 half year 415.0 million, 2002 full year 415.5 million).
The Group has also presented an adjusted basic earnings per share figure to exclude
the impact of profits and losses on the sale of investment properties (net of taxation
and minority interests) and FRS 19 Deferred Tax. The directors consider that this
adjusted figure gives a more meaningful comparison for the periods shown in the
consolidated financial statements. Deferred tax has been excluded from the adjusted
calculation as the Group has no plans to sell a significant proportion of its
investment properties, and in any case it is generally very unusual for UK capital
allowances to be recaptured on the disposal of a property. Profits and losses on the
sale of investment properties are excluded from adjusted earnings as these are non-
recurring items.
Net assets per share are calculated on the equity shareholders' funds of £2,075.5
million (2002 half year £2,135.7 million, 2002 full year £2,107.3 million). Adjusted
net assets per share have been calculated on the same number of shares but exclude the
FRS 19 Deferred Tax liability of £194.1 million (2002 half year £168.8 million, 2002
full year £183.5 million) as it is the opinion of the directors that deferred tax on
capital allowances in relation to investment properties is unlikely to crystallise
materially in practice.
The number of shares used for the calculation of the net assets per share is as
follows:
Half year to Half year to Year to
to 30 June to 30 June 31 December
2003 2002 2002
unaudited unaudited audited
Number of shares in issue Shares m 416.7 416.0 416.1
Dilution adjustment Shares m 51.7 51.5 51.4
_______ _______ _______
Diluted number of shares Shares m 468.4 467.5 467.5
_______ _______ _______
Total equity attributable to
ordinary shareholders £m 2,075.5 2,135.7 2,107.3
Adjustment to exclude FRS19
provision for deferred tax £m 194.1 168.8 183.5
_______ _______ _______
Adjusted equity attributable
to ordinary shareholders £m 2,269.6 2,304.5 2,290.8
Dilution adjustment £m 137.8 137.8 137.8
_______ _______ _______
Adjusted diluted equity
attributable to ordinary
shareholders £m 2,407.4 2,442.3 2,428.6
_______ _______ _______
Net assets per ordinary share
- basic pence 498 513 506
- basic excluding FRS19
Deferred Tax pence 545 554 551
- fully diluted pence 473 486 480
- fully diluted excluding
FRS19 Deferred Tax pence 514 522 519
___________________________________________________________________________________________________
7. Tangible assets - investment properties UK Canada USA Europe Total
£m £m £m £m £m
At 1 January 2003 2,706.6 26.0 635.8 264.2 3,632.6
Exchange movement - 3.5 (15.4) 16.5 4.6
Additions 27.3 0.3 56.4 0.3 84.3
Disposals (54.3) (2.8) - - (57.1)
(Deficit)/surplus on valuation (63.5) (0.2) (7.6) 1.2 (70.1)
_______ ______ ______ ______ _______
At 30 June 2003 2,616.1 26.8 669.2 282.2 3,594.3
_______ ______ ______ ______ _______
Completed properties 2,440.3 25.4 526.6 258.0 3,250.3
Properties for or under development 175.8 1.4 142.6 24.2 344.0
_______ ______ ______ ______ _______
2,616.1 26.8 669.2 282.2 3,594.3
_______ ______ ______ ______ _______
The Group's completed investment properties and land held for or under development
were externally valued as at 30 June 2003, by Insignia Richard Ellis or Colliers
Conrad Ritblat Erdman or C B Hillier Parker in the United Kingdom, in the USA by
Walden-Marling, Inc., in Belgium by De Crombrugghe & Partners s.a. and in France by
Insignia Bourdais Expertises s.a. The half-year valuation of the Canadian properties
was carried out internally (2002 full year was carried out by Altus Group).
___________________________________________________________________________________________________
8. Investments Joint Total Total
Associate Ventures 2003 2002
£m £m £m £m
At 1 January 2003 3.9 184.8 188.7 174.7
Exchange movement (0.1) (0.5) (0.6) (2.4)
Additions - - - 1.8
Dividends received (0.1) (4.3) (4.4) (11.6)
Valuation surplus 0.2 1.7 1.9 14.6
Share of profits net of taxation 0.2 5.9 6.1 11.6
______ ______ ______ ______
At 30 June 2003 4.1 187.6 191.7 188.7
______ ______ ______ ______
________________________________________________________________________________________
9. Capital and reserves
Share Capital Capital
Share premium reserve reserve Profit
capital account unrealised realised and loss Total
£m £m £m £m £m £m
At 1 January 2003 138.5 331.2 1,481.6 44.0 249.8 2,245.1
Revaluation deficit - - (68.2) - - (68.2)
Revalisation of
revaluation gain and
losses of previous years - - (10.4) 10.4 - -
Other recognised gains
and loses - - 5.7 0.3 4.5 10.5
Retained profit for the
period - - - - 24.3 24.3
Shares issued 0.1 1.5 - - - 1.6
Reserve transfer - - 2.9 (2.1) (0.8) -
______ ______ ______ ______ ______ ______
At 30 June 2003 138.6 332.7 1,411.6 52.6 277.8 2,213.3
______ ______ ______ ______ ______ ______
________________________________________________________________________________________
10. Borrowings Half year Half year Year to
to 30 June to 30 June 31 Dec
2003 2002 2002
unaudited unaudited audited
£m £m £m
Maturity profile of Group debt
In one year or less 46.3 91.0 27.8
In more than one year but less than two 6.7 123.2 42.7
In more than two years but less than five 314.2 91.0 155.2
In more than five years but less than ten 505.5 424.3 582.8
In more than ten years 765.2 884.3 775.0
______ ______ ______
Total Group debt 1,637.9 1,613.8 1,583.5
______ ______ ______
Split between secured and unsecured borrowings
Secured (on land and buildings) 172.0 176.5 172.4
Unsecured 1,465.9 1,437.3 1,411.1
______ ______ ______
1,637.9 1,613.8 1,583.5
______ ______ ______
Maturity profile of undrawn borrowing facilities
In one year or less 66.2 75.9 60.5
In more than one year but less than two - 359.9 20.7
In more than two years 375.5 36.5 419.4
______ ______ ______
Total available undrawn facilities 441.7 472.3 500.6
______ ______ ______
Fair value of borrowings and associated
derivatives
Book value 1,637.9 1,613.8 1,583.5
Net fair market value 1,874.4 1,778.3 1,775.3
______ ______ ______
Pre-tax mark to market adjustment 236.5 164.5 191.8
Tax relief due on early redemption/termination (71.0) (49.3) (57.6)
______ ______ ______
After tax mark to market adjustment 165.5 115.2 134.2
______ ______ ______
_________________________________________________________________________________________
11. Provision for liabilities and charges Deferred Other
tax liabilities Total
£m £m £m
Balance at 1 January 2003 186.4 2.8 189.2
Exchange movement 0.5 - 0.5
Charged to profit and loss account 10.1 (0.4) 9.7
______ ______ ______
Balance at 30 June 2003 197.0 2.4 199.4
______ ______ ______
Deferred tax relates to UK and overseas timing differences arising mainly from capital
allowances on plant, industrial building allowances, overseas depreciation allowances on
properties and interest capitalised and is provided at 30 per cent (2002 30 per cent) in
the UK and at local rates overseas.
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.
The estimated amount of potential taxation, for which no provision has been made and which
would arise if the assets held as long term investments were sold at the values at which
they appear in the balance sheet, amounts to £143.9 million (2002 half year £179.3
million, 2002 full year £176.5 million).
__________________________________________________________________________________________
12. Notes to Group Half year Half year Year to 31
cash flow statement to 30 June to 30 June December
2003 2002 2002
unaudited unaudited audited
£m £m £m
(1) Reconciliation of operating
profit to net cash inflow from
operating activities
Operating profit 103.1 107.6 205.2
Less other income reallocated (0.6) (8.1) (5.6)
Add back depreciation 0.9 0.4 0.9
Adjust for other non-cash items - - 0.3
Net rental income from trading
properties 2.0 1.5 3.1
______ ______ ______
105.4 101.4 203.9
Other movements arising
from operations:
Increase in stocks (1.0) (8.2) (12.0)
(Increase)/decrease
in debtors (4.3) (10.3) 3.3
Increase in creditors 0.3 0.1 7.3
______ ______ ______
Net cash inflow from
operating activities 100.4 83.0 202.5
______ ______ ______
(2) Reconciliation of net cash
flow to movement in net debt
Increase/(decrease)
in cash in the period 92.7 - (61.6)
Increase in debt (51.8) (78.6) (72.7)
Decrease in liquid
resources (53.1) (8.7) (19.5)
______ ______ ______
Change in net debt
resulting from cash
flows (12.2) (87.3) (153.8)
Translation difference (0.9) 7.2 29.4
______ ______ ______
Movement in net debt
in the period (13.1) (80.1) (124.4)
Net debt at 1 January 2003 (1,489.6) (1,365.2) (1,365.2)
______ ______ ______
Net debt at 30 June 2003 (1,502.7) (1,445.3) (1,489.6)
______ ______ ______
(3)Analysis of net debt
At Cash Exchange At 30 June
1 Jan 2003 flow movement 2003
£m £m £m £m
Cash in hand and at bank * 29.2 93.6 0.4 123.2
Overdrafts (1.7) (0.9) (0.1) (2.7)
______
92.7
Loan capital (1,581.8) (51.8) (1.6) (1,635.2)
Term deposits * 64.7 (53.1) 0.4 12.0
______ ______ ______ ______
(1,489.6) (12.2) (0.9) (1,502.7)
______ ______ ______ ______
* Cash per balance sheet
__________________________________________________________________________________________
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