Preliminary Results

Slough Estates PLC 20 March 2002 20th March 2002 SLOUGH ESTATES plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31st DECEMBER 2001 Percentage Results Changes Core investment property earnings £135.1m (2000 : £119.6m) +13.0% Profit before tax and exceptional items £137.3m (2000 : £128.3m) +7.0% Earnings per share before exceptional items 27.6p (2000 : 25.7p) +7.4% Profit before tax after exceptional items £67.3m (2000 : £128.9m) Earnings per share after exceptional items 9.0p (2000 : 25.8p) Recommended final dividend 8.0p (2000 : 7.4p) Total dividend for year 13.1p (2000 : 12.1p) +8.3% Diluted net assets per share before exceptional items 529p (2000 : 520p) +1.7% Diluted net assets per share 512p (2000 : 520p) -1.5% Sir Nigel Mobbs, Chairman, said. 'Despite the generally difficult business environment in 2001 the Group's long term strategy of developing new income streams through targeted development in prime business centres has produced strong core income growth, both for the year and for the future.' Summary Earnings Slough Estates announced today an increase in pre-tax profits before exceptional items of 7.0 per cent to £137.3 million. Earnings per share before exceptional items increased 7.4 per cent to 27.6p. Exceptional charges of £70.0 million included a £60.2 million write down of the Group's power station plant at Slough, brought about by the introduction of the New Electricity Trading Arrangements by Ofgem in March 2001, as forewarned at the interim announcement, and a £9.8 million pre-tax, £16.8 million post-tax, deficit on investment property disposals being mainly the strategic sale of the Toronto portfolio, the costs of closing the Toronto office and the cost of early settlement of Canadian loans. Dividends A final dividend of 8.0p is recommended, which would represent a total dividend of 13.1p per share, an increase of 8.3 per cent. The final dividend will be paid on 17th May 2002 to those shareholders on the register on 26th April 2002. Valuation The Group's investment property portfolio valuation at 31st December 2001 amounted to £3,514 million after a £6.0 million or 0.2 per cent revaluation deficit. The UK portfolio decreased by 2.0 per cent whilst the overseas assets increased by 6.0 per cent. Diluted net assets per share declined by 8p, from 520p to 512p per share after the exceptional charges of 17p per share. Significant achievements 2001 was an extremely active and strategically significant year: * at Farnborough Business Park the infrastructure has been largely completed and one of the first two office developments leased. * at Cambridge Research Park the infrastructure has been completed and the first phases of 10,900 sq.m. are near completion. * at Pegasus Park, Brussels, of the 49,700 sq.m. under construction during the year all but 14,300 sq.m. has been let. * at Oyster Point, South San Francisco, the entire 53,600 sq.m. development has been pre-let and is under construction to generate a new £21 million rent roll. * at Torrey Pines Science Centre, San Diego, Pfizer has committed to extend their campus to include the last remaining plots increasing its size to 70,100 sq.m. and its prospective rent roll to £15 million. * The 524,000 sq.m. Toronto industrial portfolio was sold for £139 million, as were the Elk Grove, Chicago industrial assets for £28 million. Total investment asset disposals realised a net £233 million. Expenditures on investment properties were £276 million. * Construction completed amounted to 256,000 sq.m. (73 per cent let or sold). Construction work in progress amounts to 168,000 sq.m. (40 per cent let). Construction starts likely in 2002 are 196,000 sq.m. (39 per cent let). * Lettings of new and existing space amounted to 223,000 sq.m. The Group's development potential on land already owned (including that currently under construction) extends to 973,000 sq.m. (10.5 million sq.ft.) which would cost some £950 million to build over the medium term. Commenting on the future, Sir Nigel Mobbs, Chairman said: 'The Group's earnings growth potential from its existing portfolio and the contributions which will come from our extensive development programme give me confidence in the Group's current prospects.' For further information contact: Sir Nigel Mobbs, Chairman Derek Wilson, Chief Executive Dick Kingston, Finance Director Tel: 01753 537171 (On 20 March only, after 2.00pm telephone 0207 491 0177) John Probert, Company Secretary Tel: 01753 537171 Andrew Best/Emily Bruning Shared Value Limited Tel: 0207 321 5010 email: abest@sharedvalue.net Slough Estates web site: www.sloughestates.com EXTRACTS FROM THE CHAIRMAN'S STATEMENT TO SHAREHOLDERS FOR THE YEAR ENDED 31ST DECEMBER 2001 In 2001 Slough Estates increased investment property earnings by 13.0 per cent and made notable progress with its major development projects in the UK, Belgium and the USA. The portfolio was further rationalised by the sales of lower-performing properties in the UK, USA and Canada which released funds for more profitable new development. All this was achieved against the backdrop of a particularly challenging year for many businesses, the tragic events of September 11th further aggravating already declining economic prospects. Summary of the Year The main achievements of an active year included:- * the completion of 256,260 sq.m. (2,750,000 sq.ft.) of new construction in the UK, Europe and North America with a further 168,110 sq.m. (1,800,000 sq.ft.) currently in progress of which 40 per cent is pre- leased. * the leasing of 223,440 sq.m. (2,400,000 sq.ft.) of new and existing space. * at Oyster Point South San Francisco 53,600 sq.m. (575,000 sq.ft.) of pre- leased laboratory space has commenced construction for four health science research businesses which will when completed in 2005 contribute an additional £21 million to gross rental income. * the sale of the under-performing Toronto portfolio of 524,300 sq.m. (5,640,000 sq.ft.) at £2.5 million above book value, together with a further 162,500 sq.m. (1,750,000 sq.ft.) located elsewhere in the Group. In total £233 million was realised from these sales. The Chief Executive's Review of the Year and the Financial Review provide more detail of these and other activities. Results The profit before tax and exceptional items was £137.3 million, an increase of 7.0 per cent over the prior year. As forewarned in the interim statement, it has been decided to provide for an exceptional write-down of £60.2 million in the book value of the utilities plant at Slough. The utilities operation is an integral part of activities on the Slough Trading Estate and has been in existence since the inception of the company. As a consequence of the introduction of the New Electricity Trading Arrangements by the Government in March 2001, the business has been unable to sell supplies of electricity into the Grid system at reasonable prices - consequently the need for a full write-down which is a once and for all adjustment. We are actively lobbying to Government , along with other small CHP and 'green' energy producers, over the unfair elements of the New Electricity Trading Arrangements. Looking to the future, the new plant which is coming on line provides for guaranteed electricity sales under special contract arrangements and we expect the utilities operation to return to profitability by 2003. The exceptional loss of £9.8 million on disposal of investment properties was mainly from the strategic sale of the Toronto industrial estates and related office closure and early debt redemption costs. As a consequence, the pre-tax profit after exceptional items for 2001 was £67.3 million. Earnings per share excluding exceptional items were 27.6p per share compared with 25.7p per share in 2000. Diluted net assets per share were 512p compared with 520p at the year end 2000. Excluding the 17p per share impact of the utilities plant write-down and costs associated with the exit from Toronto, net assets per share actually increased by 1.7 per cent. Dividend Your Board recommends the payment of a final dividend of 8.0p per share which, together with the interim dividend of 5.1p per share, represents an aggregate distribution of 13.1p per share, an increase of 8.3 per cent for the year. Valuation The value of investment properties, taking into account the annual revaluation, construction in progress at cost and prevailing exchange rates at 31st December 2001, amounted to £3,514 million (2000 £3,464 million). The Group's investment property portfolio was valued externally on the basis of open market value in accordance with the requirements of the professional bodies in each country. In aggregate, the revaluation gave rise to a very small deficit for the year of £6 million or 0.2 per cent. In the United Kingdom, the valuation deficit of £54.5 million (2.0 per cent) reflects general increases in investment yields, limited growth in rental rates of 1.7 per cent and weaker customer demand for offices in the M4 and M25 corridors. Completed development projects valued for the first time showed a 15.3 per cent increase over cost. The underlying negative portfolio value movements were 1.4 per cent industrial, 6.5 per cent offices and 1.1 per cent retail. The UK occupied portfolio is reversionary by £17.7 million or 11.5 per cent. In Europe portfolios have maintained growth in values with positive movements of 4.5 per cent in Belgium and 3.2 per cent in France. The German portfolio is held for resale and is therefore carried at cost. In aggregate, the value of the Belgian and French properties increased by £8.3 million. In the USA the substantial development programme in California is delivering positive value benefits. The overall value of our US interests increased by £45.8 million or 8.5 per cent. In Canada, following the disposal of the Toronto portfolio, the value of the residual Vancouver properties declined by £5.6 million reflecting vacancies in recently completed buildings and the difficult economic climate in this market. The underlying assets of property joint ventures and associates were also valued externally and resulted in a deficit of £10 million. Despite the small reduction in net assets per share, which resulted largely from the exceptional charges and related tax of 17p per share, the Group's total return compounded over a five year period has been approximately 16 per cent per annum. The Group's Strategy The Group continues to follow the strategic principles set out below:- * We should own and develop a selection of business parks, industrial and distribution estates and retail centres in international prime business centres that will be adaptable to changing conditions. * The accommodation we create must be flexible and economic, responding to occupation requirements. There will be an active programme of construction and renovation in response to market demand. * We will tailor our property management to provide the best possible support for those who occupy our properties and, where possible, work with our customers to help them expand their businesses. * We will aim to maximize occupancy, cashflows and earnings from good property management. * We will dispose of any properties that appear not to be able to add material value to our portfolio. * For the foreseeable future we will concentrate on the Group's portfolios centred on prime business centres in the UK, continental Europe and the USA. We believe that these principles, together with an emphasis on strong financial and management disciplines, will deliver shareholder rewards. The Group is focused on managing risks and benefits from a diversity of quality locations, sectors and customers. Market Conditions The year 2001 was one of mixed fortunes. As the year developed, recessionary pressures were mounting on manufacturing businesses and the telephone and communications sectors were particularly affected by over capacity and loss of orders. Conversely other sectors, notably pharmaceutical and bio-technology research, proved to be more resilient. The tragic events of September 11th further aggravated deteriorating business conditions and severely damaged business confidence to invest. These factors have generally dampened occupancy demand, slowed rental growth, inhibited property investment sentiment and, as a consequence, values have been slightly lower. Investment yields have weakened despite significant cuts in interest rates. Nevertheless, over the past 12 months property investment has out-performed the total returns from equities and bonds, demonstrating the defensive investment qualities of the property sector. On a more positive note, with a few notable exceptions, there is no great imbalance of supply and demand for quality locations and buildings and the banking system is not funding additional speculative supply. As business conditions improve, so vacancies will be absorbed and improved rental growth will return. The Way Forward We are cautiously optimistic that current business prospects will improve as lower interest rates and other fiscal stimuli encourage consumption and structural readjustment for many enterprises. We will continue to monitor individual markets and respond to opportunities in those locations. We will concentrate on increasing portfolio occupancy and constructing pre-committed buildings. The Group owns a well diversified portfolio of quality buildings in prime locations. No single business sector dominates and as a consequence the Group is insulated against many portfolio ownership risks. We also own a valuable land bank for further development in the future. This land bank, together with the significant opportunities for regenerating and improving the built portfolio, is an encouragement that we can maintain our forward momentum. Modern businesses need good, well located buildings to improve productivity, competitiveness and efficiency. Contemporary buildings are more economic in use and are more environmentally sustainable. In all the markets in which the Group operates, the regulatory regimes are becoming more intrusive and interventionist. In the UK, the Government has published proposals to radically change the legislative principles of the Town Planning system. Whilst their objectives are to simplify the system and to ease the situation for business, the detail of their ideas is in many respects the opposite. They are also proposing to overhaul the principles of planning gain and to possibly introduce tariff based levies on new development; in other words a stealth betterment tax. These new ideas are unlikely to be enacted before about 2005 but in the interim local planning policies and new land release will be confused. Such conditions will limit new supply and create scarcity of product in the best located markets and will ensure that rental rates and values of both new and existing stocks will grow faster than underlying inflation. The Group is very well positioned to take full advantage of these factors and its forward development programme will generate significant benefits in the years ahead. In particular our health science laboratory development in California is expected to make an increasingly significant contribution to profits over the next 3 years. In Europe we are developing a number of good locations in Belgium, France and Germany which are already attracting interest and will be valuable additions to the portfolio. Here in the UK new developments at Farnborough, Cambridge and the continuing regeneration of the Slough Trading Estate will all ensure further growth in core rental income and added value. The Year Ahead Recent economic data and authoritative forecasts indicate that the worst effects of recession may have been avoided or at worst be short lived in North America. The UK economy still tends to be heavily influenced by the US and, though growth in property occupancy tends to lag the general economic cycles, the prospects for property are now looking more promising than late last year. The Group's earnings growth potential from its existing portfolio and the contributions which will come from our extensive development programme give me confidence in the Group's current prospects. EXTRACTS FROM THE CHIEF EXECUTIVE'S REVIEW The early 2001 predictions for a slow down in economic growth for each of the countries in which the Group operates proved correct in terms of direction, though few forecasters predicted how sharp the US downturn would be. Continental Europe, particularly Germany, has been less responsive to interest rate stimulus and the UK has been the strongest performer amongst the G7 nations. In this setting the Group achieved most of its objectives for the year, increasing its core income, making good leasing and development progress and disposing of under-performing assets. The progress in development of the Farnborough Business Park has been substantial with most of its infrastructure now in place and the first two buildings completed construction in February 2002, one of which is let. The development of the Cambridge Research Park is at a similar stage. During the year strategic sales of City and provincial offices were completed, raising £55 million. Until such time as the economy and occupier demand for property shows clear signs of strengthening, the Group's UK development balance will favour pre-let developments rather than speculative. In North America the portfolio structure has changed as a result of strategic initiatives. The whole of the 524,000 sq.m. Toronto portfolio of primarily industrial buildings on nine estates was successfully sold in October, for a gross sum of C$328 million, which exceeded book value by C$6 million. Earlier in the year the 91,000 sq.m. Elk Grove, Chicago portfolio of industrial properties was sold, raising US$42 million. Both of these had been under- performing other Group locations in financial terms for several years, a situation which was likely to continue. The Group's remaining Canadian assets in Vancouver will be sold on completion of the letting of the new developments. In contrast, exceptional progress has been made in California. With an increased commitment from Pfizer for their research campus the whole Torrey Pines Science Centre, San Diego, is now built or prelet for phased occupation. The Group's interest in the park will ultimately comprise approximately 100,000 sq.m. and have a rent roll of over $33 million. At Oyster Point, South San Francisco, the whole of the 53,600 sq.m. development was prelet during the year. This park will have a rent roll of $31 million on completion in 2005 and will have cost approximately $235 million. The Pegasus Park development close to Brussels airport, which will ultimately extend to 275,000 sq.m. of office space, continues its transformation, with the completion of 26,700 sq.m. of offices, all of which is let, and the opening of a 234 bed, four star hotel. Elsewhere in Europe the successful logistics warehouse strategy followed in the Paris area has been extended to two locations in the Antwerp/Brussels corridor and to one at Kapellen near Dusseldorf. The Group's strategy for earnings and cashflow growth through development in prime business centres has been closely followed in 2001. Expenditures in the year on both investment and trading properties aggregated £316 million. On land in the Group's control and including buildings currently under construction, development opportunities aggregate some 970,000 sq.m. To complete these developments approximately £950 million would need to be spent. Though the current economic environment may result in these developments being phased over a longer period than originally envisaged, the Group is not committed or obligated to develop at a rate faster than occupier demand will allow. These development opportunities bring new income streams to enhance the earnings growth potential of the current standing portfolio as well as development capital gains. Development may be the higher profile side of real estate, but good asset management is the bedrock on which to base a consistent earnings achievement. The recognition of customer needs in terms of the quality of our estate management, our flexibility towards negotiation of contractual arrangements, services offered and rapidity of response to solving customers' problems all contribute ultimately to the reliability of the rental income and the optimisation of cashflow. Occupancy and rental rates are the prime measures of success in this respect. Occupancy in the UK has marginally improved year on year but worldwide has reduced to 91.6 per cent. As at 31 December 2001 Total Space Occupancy 000's sq.m. 2001 2000 UK 1866 92.7% 92.2% Europe 493 88.6% 98.3% Canada 85 66.2% 93.9% USA 363 96.4% 94.7% Worldwide 2807 91.6% 93.6% The increase in European vacancy is due largely to the completion of large industrial/logistics units in Belgium and Germany close to the year end which account for eight percentage points of the vacancy. The Paris properties are all fully let. The high Canadian vacancy is due to the recently completed but unlet Vancouver developments. The USA vacancy is mainly in industrial units acquired in California as future expansion land for health science customers. All laboratory space is fully let. Overall the Group's income quality and growth potential is very strong. In the UK the portfolio is reversionary by £17.7 million or 11.5 per cent, excluding the rental value of vacancies, and additional rental income from developments in progress will far exceed the financing costs of those developments. For the future, the potential new rent roll on completion of the six major park developments, Farnborough, Cambridge, Pegasus Park, Torrey Pines, Oyster Point and East Grand, should amount to over £125 million at current rent levels within possibly six to seven years. Of this, rents already contracted under pre-let agreements in California aggregate £35 million. UK PROPERTY The Group's strategic focus for the UK continues to be industrial and business space, particularly in the South East and predominantly in the Thames Valley, supported by a significant investment in retail centres which can provide a strong cyclical counter-balance. Despite business confidence generally declining in the course of 2001, the leasing of 101,000 sq.m. to new tenants was only 14,000 sq.m. down on the exceptionally good year enjoyed in 2000 and occupancy at 92.7 per cent was up by 0.5 per cent. Though the effects of the worldwide decline in TMT business activity has been particularly significant with respect to demand for office accommodation in the South East and the Thames Valley in particular, the Group's standing office space in this area, valued at £380 million or 12 percent of the total portfolio remains well occupied with only two buildings available to let. Its impact on industrial and warehouse space has been small. Including the Group's share of rent from retail joint ventures, rents passing at year end 2001 amounted to £166 million, paid by 1500 tenants. The Slough Trading Estate, the Group's largest asset, continues to perform well. Rent passing now runs at £70.3 million per annum compared with £66.2 million at December 2000 and occupancy remains high at 93.1 per cent. Development completions of 15,300 sq.m. were lower than in recent years but all have been let or agreed for lease. One office building of 6,440 sq.m. remains under construction. Construction on the Group's last major office site on the Bath Road will commence in 2002 where two of three buildings totalling 7,500 sq.m. net have been prelet, one for health science purposes. Currently several further prelet opportunities are being negotiated and a start on construction of a 'trade park' on Farnham Road is likely to be made in Spring 2002. No acquisitions of new sites or standing investments were made in the UK in 2001. Farnborough Business Park and Cambridge Research Park, both acquired in recent years, were transformed by construction of infrastructure and landscaping and the start of first phases of building. Farnborough Business Park, which has consent for 155,000 sq.m. of office and R&D space, is being provided with two miles of spine roads and related utilities. Two office buildings of 3,600 sq.m. and 8,000 sq.m. were completed in February 2002, the former having been recently leased to Autodesk. Further new construction is expected in 2002. The whole project is likely to take seven years or more to fully develop. At Cambridge Research Park the infrastructure is now complete and an exceptional working environment has been created. A first phase of 10,900 sq.m. in five buildings completes in March 2002. The rate of build out of this park will be determined by letting and prelet activity. Elsewhere in the UK 15,000 sq.m. of industrial space was completed, 84 per cent of which has been let. Developments under construction include 7,000 sq.m. of prelet distribution space at Feltham, a 6,900 sq.m. building trade centre for St. Gobain at Birmingham, a 1,100 sq.m. prelet office at Elstree together with a 10,700 sq.m. industrial phase, and a 8,100 sq.m. industrial park at Radlett. The Group's retail team manages 190,000 sq.m. of shopping centres valued at £559 million, of which £385 million is in Slough's ownership. Customer visits at all of the seven locations has increased year on year and all have shared in the consumers' spending confidence. The Buchanan Galleries in Glasgow, opened in March 1999, has seen car park usage increase by 24 per cent year on year. Although shopping centres as an investment medium have been unpopular in recent years, their stability of underlying income in periods of economic stress justify their presence in a portfolio, an attribute which is currently being better appreciated in the investment market. Sales of buildings in London and Bournemouth during the year raised £55 million. OVERSEAS Overseas property accounts for 24 per cent of the total investment portfolio by value, being 18 per cent in North America and 6 per cent in Europe. The contribution from non-UK operations towards Group performance has continued to grow, contributing £40.8 million or 29.7 per cent of Group pre- tax profits before exceptional items. A strategic review of the Group's overseas prime business centres resulted in the decisions to sell the Toronto and Elk Grove, Chicago assets and to exit Vancouver when leasing of current developments is completed. Though these locations have resulted in profitable development in the past, they were under-performing the level of returns that the Group had achieved elsewhere in recent years. By the same process Paris, Brussels, the Rhine/Ruhr region and California were confirmed as preferred locations for investment. USA The Group's achievements in 2001 were outstanding, derived from the purchase in recent years of exceptional sites for the development of health science research facilities in the two leading Californian locations for such activity, Torrey Pines in San Diego and South San Francisco. Health science research is a long term business backed by major pharmaceutical companies, venture capital, charitable foundations and Government and as such has escaped the cyclical downturn which burst the TMT balloon. At the Group's Torrey Pines Science Centre, the campus being developed for Pfizer has been expanded from the 57,600 sq.m. agreed in 2000 to one of 70,100 sq.m., by including a 4,600 sq.m. office built speculatively and the last remaining lots which will provide 7,900 sq.m. of research space. To date 31,200 sq.m. are occupied and the balance will be built and occupied in stages through to March 2004. The initial rent roll on the total campus will approximate $22 million and will have cost $185 million to complete. The other speculative laboratory space of 7,900 sq.m. built in 2001 has been occupied by Syrxx. As all of the land at the science centre is now committed, the Torrey Pines Science Park nearby has been purchased for $72 million. This four building park of 27,400 sq.m. is fully let, reversionary and with possibilities to add further value in due course. In South San Francisco, the Group's established research parks at Pointe Grand and Gateway remain fully let. The completion of two buildings for Exelixis and Fibrogen during the year and the exercise by Pharmacia of its option for 6,300 sq.m. on the last site available means the parks are now fully committed. In late 2000 a new site at Oyster Point, South San Francisco was granted planning consent for 53,000 sq.m. of research space. The whole of this space in seven buildings has been prelet, the largest letting being to Tularik for 26,000 sq.m. in three buildings. Currently the whole of the infrastructure is under construction as are four buildings. All of the lettings are for fifteen years with renewal options, and rental increases contracted at three to four per cent per annum. Occupancy dates range from October 2002 to January 2003 for those under construction and from May 2003 to November 2005 for the Tularik space. A further site in San Francisco at East Grand, on the Bay and adjacent to the Genentech campus, was granted planning consent in February 2002 for 72,500 sq.m. of health science or office space. Development of this site will start this year, and could take five years to complete. Over the past two years industrial buildings adjacent to Pointe Grand and Oyster Point have been acquired to provide for the future expansion requirements of customers. Though currently income earning, these buildings could be demolished to provide land for a further 40,000 sq.m. in due course. Also in the Bay area, properties at Pleasanton and Point Eden, Hayward continue to thrive with virtually full occupancy. Canada The sale of the group's nine Toronto industrial parks was completed in October along with the transfer of 38 employees to the new owners' management company. The gross sale proceeds of C$328 million exceeded the prior valuation but after transaction costs, office closure costs and debt close out costs, an exceptional pre-tax loss of £8.1 million has been recorded. There remains to be sold a building and some land in Montreal at a book value of £2.9 million. In Vancouver, the Group's share of the Willingdon Park joint venture will be sold when the new development is let. The last phase of 27,200 sq.m. completed shell construction in the year of which 10,000 sq.m. was prelet to Nortel. The Coquitlam industrial development will likewise be sold. The book value of the Vancouver assets is £27 million. Continental Europe The economies of Belgium, France and Germany all showed reduced but positive growth in 2001. Relatively high unemployment rates, low inflation and steady interest rates can be expected to continue in those countries throughout the introduction of the Euro, though that alone is not expected to stimulate extra growth in the short term. Property markets have remained firm for investment demand though there are signs that occupier demand has eased from the exceptional highs at the end of 2000. Belgium The focus of activity in the Brussels region has been at Pegasus Park, where, following the acquisition of additional land in 2000, the planning consent should allow for the development of 275,000 sq.m. of office space. To the 44,900 sq.m. built in prior years a further 18,600 sq.m. has been built and occupied by Cisco Systems and a further 8,100 sq.m. built for Deloitte & Touche. Under construction is a 6,900 sq.m. headquarters for Johnson Controls and a 16,100 sq.m. speculative office completed recently. Being very close to Brussels airport, the attractions of this location to international business occupiers are clear and the retention of a significant part of this development for the long term is planned. The success of the French logistics activity has prompted the migration of that strategy to Belgium. Planning consents have been granted on two sites, at Bornem for 50,000 sq.m. and at Rumst for 80,000 sq.m., both in the Antwerp/Brussels corridor. A first phase of 16,500 sq.m. has been completed at Bornem. Further phases will be started when this is let. France Following the rapid development and letting of the 100,000 sq.m. Marly la Ville logistics park during 2000, which became fully income producing for 2001, our stock of logistics land was significantly reduced. Development completions were limited to 23,900 sq.m. at St. Fargeau, south of Paris, and work commenced on a second unit there of 20,400 sq.m. The former was let during construction. Since the Group started its extremely successful logistics strategy in France in 1995 not only has developer competition for sites increased but local authorities have become increasingly reluctant to grant consents for big distribution sheds for fear of traffic congestion linked with the low employment generation they bring. The huge growth in this sector over recent years, in which the Group has played a major part, has resulted in a dramatic reduction in land zoned for logistics though occupier demand has continued to absorb new development. Following the success of the Rue Vineuse office redevelopment in Paris, a further building at Place d'Iena, also in the 16th arrondissement, has been acquired for substantial refurbishment, letting and sale. The building will be available for occupation in April 2002. Germany In Germany the focus for some years has been the development, leasing and subsequent sale of small industrial developments to institutional buyers. With limited rental rate growth to be expected and investment yields static, holding developments for the long term can only dilute the initial development rate of return. Consequently the Group has been taking a trading stance in this market. Following the purchase of several sites in prior years, activity in Germany was significantly higher in 2001. Completed industrial space totalled 30,600 sq.m. at Neuss, Ratingen, Monchengladbach, Kapellen and Hamburg, together with a 22,750 sq.m. logistics unit at Kapellen. A further 20,000 sq.m. industrial space is under construction. 2001 was also a good year for sales, with 35,000 sq.m. sold for some £22.1 million. German contributions to profit amounted to £3.4 million. Depending on the ultimate success of the logistics project at Kapellen, this activity may be extended further in Germany. NON PROPERTY ACTIVITIES Slough Heat & Power Slough Heat & Power is an integral part of the Slough Trading Estate. Half of its electricity generating capacity of 100 MW is typically used by Trading Estate customers with the balance available for export to the Grid. It also provides steam and water to estate customers, as well as utilities expertise and installation services to the Group and tenants. The generating plant is capable of burning gas, coal, waste derived fuel, wood, paper and plastic commercial waste and, in reserve, oil, giving it unique fuel flexibility. This Combined Heat and Power (CHP), environmentally friendly power station is just the sort of plant being encouraged by environmentalists and by Government. However, in March 2001 the Regulator (Ofgem) introduced the New Electricity Trading Arrangements (NETA) to supersede the former Pool system with the aim of creating a more competitive market. A consequence of NETA, a system based on a commodity trading model, is that small generators can no longer sell equitably into the Grid system because the effective prices available to them are significantly lower than those which can be achieved by the big producers. The rules of trading also result in the commercial risks being too great. There is no longer a level playing field between the major producers/suppliers and the small CHP or 'green' energy producers. Since September the Government has recognised that this is a serious regulatory and trading problem for small generators, but no meaningful solution has been proposed or implemented. The losses reported for the year are a result of having to abandon almost all sales into the Grid and the consequent loss of net generating revenues. This has been compounded by the squeeze on margins caused by high fuel prices not yet being reflected in consumer electricity prices. In view of this significant change in operating prospects, the Board has reluctantly decided to write down the book value of plant by £60.2 million. In March this year the commissioning began of SH&P's new 11MW plant to produce electricity from paper and plastic waste. This stand alone plant benefits from a Non Fossil Fuel Obligation No.4 contract which guarantees the sale of electricity output from the plant for fifteen years at an RPI indexed price. With the benefit of receiving gate fees for taking in non-recyclable fibrous waste which would otherwise be sent to landfill, this new, environmentally friendly plant is a prime example of sustainability. The full year profit should be in the order of £4 to £5 million. Part of the older plant qualifies for the new Renewables Obligation from 1st April 2002 which will attract a premium price for green energy output. As a consequence of these developments, it is expected that the loss reported by utilities operations in 2001 will move to a modest profit in 2003 but it is also dependent on additional Government action to put its energy and environmental policies back on track by amending the NETA trading rules for small generators. Management Buy out Investments Through its participation in funds managed by Candover Investments plc in the UK and Charterhouse Group International Inc in the USA, the Group has investments in over 50 businesses. The year end book value of investments in these funds was £40.6 million compared with the fund managers' valuations of £49.3 million and uncalled commitments to both funds amount to £30.9 million. Equity Interest in Californian Tenants The Group's property developments in California are home to many start up companies, particularly in the field of health science. As part of pre- letting agreements, but not to the detriment of the basic property deal, Slough has been granted equity warrants over a total of 2,418,000 shares in 19 different companies, which include 1,426,000 warrants for shares of companies yet to seek a listing and 992,000 in listed companies. The ultimate redeemable value of these warrants carried in the books at nil value is impossible to determine. Tipperary Tipperary Corporation is an independent energy company headquartered in Denver Colorado and quoted on the American Stock Exchange. It is focused primarily on exploration for and production of coalbed methane. It owns Tipperary Oil and Gas (Australia) Pty Ltd which holds a 65 per cent interest in south eastern Queensland's 1.1 million acre Comet Ridge coalbed methane project. In its recent report to shareholders it has stated that its 'proved' gas reserves were valued at approximately US$100 million before taxes together with significantly larger probable gas reserves. The Group has held an equity interest in Tipperary since 1986 and now owns 61 per cent with a book value of £23.3 million and a market value of £26.4 million. The Group will continue to hold Tipperary stock until the full value of Comet Ridge is realisable. EXTRACTS FROM THE FINANCIAL REVIEW Results Growth in core property income was yet again the main factor behind the 7 per cent improvement in pre-tax profit, excluding exceptional items. The latter rose to £137.3 million in 2001. Core property income, comprising investment and joint venture property income less administration and net interest costs, increased by 13 per cent from £119.6 million in 2000 to £135.1 million in 2001. These core, or maintainable earnings, have had a compound annual growth rate of 14.9 per cent over the last five years. Such a sustained high level of growth has been achieved through the continuing commitment to the strategy of concentrating development and investment in prime business centres in the UK and overseas. Property investment income of £212.3 million was up by £15.6 million or 7.9 per cent, despite the adverse effect of property disposals over the last two years, which reduced 2001 net rental income by £9.8 million. Some £275.5 million of investment properties have been sold during this period, including the Toronto and Chicago industrial property portfolios during 2001. New developments and acquisitions added £20.5 million to rental income, emphasizing the significant contribution that the development programme continues to make to earnings growth. On a like for like basis, rental income increased by £7.5 million or 3.5 per cent. Property joint ventures contributed £13.9 million. Looking ahead, the main variables affecting rental revenue are likely to be new development and the realisation of reversionary income offset by property sales. The development programme will continue to substantially enhance core earnings as additional year on year rental income of £52 million has already been secured on recent completions or pre-lets, although circa 69 per cent of this income is not expected to flow until 2003 and thereafter. The UK portfolio of occupied space was 11.5 per cent reversionary at the end of 2001, which equates to £17.7 million of potential future rental income as leases are reviewed or properties re-let. Rental income in the current year will suffer by some £12.0 million from the effect of the high level of property disposals during 2001. There is considerable security of income in that 63 per cent of the current Group rent roll is secured on leases with at least ten years unexpired, or 49 per cent if all tenants exercise break clauses and vacate at the earliest opportunity. Security is strongest in the UK at 64 per cent (or 46 per cent including breaks) and the USA at 87 per cent (or 84 per cent including breaks). In Europe the customary length of lease is for shorter periods, but any resultant reduced level of income security is compensated by the greater mobility of businesses. The Group is not dependent on any one customer for its principal revenues as it has over 1500 tenants in the UK and more than 1750 tenants in total worldwide. No tenant accounts for more than 3.0 per cent of Group rental income. Nor is the Group over-reliant on any one business sector. Its worldwide portfolio (by value) is occupied by customers in manufacturing 24.1 per cent, logistics 14.4 per cent, health science 15.6 per cent, TMT 17.9 per cent, service 9.0 per cent, retail 18.5 per cent and other sectors 0.5 per cent. Net interest costs fell by £0.3 million during 2001 to £77.9 million. Net interest payable (before capitalisation of interest) was up by £7.9 million from £100.5 million to £108.4 million. The increase was largely due to the effects of recently completed properties (£13.4 million), partly offset by 2000/2001 property sales (£7.2 million). Capitalised interest increased by £8.2 million to £30.5 million, of which 32 per cent related to developments that were either pre-sold or covered by agreed lettings. Gross interest cover of 2.0 times was down a little from 2000's 2.1 times. Returns of £2.2 million from the Group's non core activities were £6.5 million down on last year. The factors that caused the £3.5 million deterioration in utilities' results are dealt with in the Chief Executive's Review. Property trading had another good year, with profits increasing from £6.7 million to £8.7 million. A number of projects in Belgium and Germany contributed. There are sufficient developments underway to suggest a reasonable level of trading profits in 2002. Income of £0.6 million from other activities was £5.0 million lower than last year. The Candover and CHUSA contributions were down due to few realisations being achieved in an unresponsive market. With an investment of £40.6 million remaining in these funds and uncalled commitments to them of £30.9 million, further profits can be expected in the future, although their timing and quantum are difficult to predict. The Group's effective tax rate of 9.2 per cent excluding exceptional items was higher than 2000's 8.0 per cent, as the benefits arising from the measures that were taken in 1998 to alleviate the Group's surplus advance corporation tax position became fully utilised during 2001. The effective tax rate is therefore expected to move up to circa 15 per cent in 2002, excluding the effects of the implementation of FRS19 (Deferred Tax). Earnings per share, excluding exceptional items, rose by 7.4 per cent from 25.7 pence to 27.6 pence per share in 2001. Exceptional losses of £70.0 million before tax had a significant effect on this year's results. The reasons for the £60.2 million write down in the book value of utilities plant are given in the Chief Executive's Review. Of the £9.8 million deficit against book value on the sale of investment properties and the associated tax charge of £7.0 million, £8.1 million and £6.6 million respectively relate to the sale of the Toronto property portfolio and the subsequent withdrawal from Toronto. The Toronto property sale showed a surplus on book value of £2.5 million. The loss arose after the inclusion of Toronto closure costs of £6.9 million and associated debt close-out costs of £3.7 million. Exceptional losses of 18.6 pence per share reduced overall earnings per share to 9.0 pence. The Board has proposed a total dividend of 13.1 pence per share for 2001, an increase of 8.3 per cent on 2000. Dividend cover, adjusted to exclude exceptional items, remained at the same level as that of 2000, 2.1 times, as did core income dividend cover at 1.9 times. Cash Flow The net cash inflow from operations of £174.3 million was £5.3 million lower than in 2000, due largely to a £29m build up in property trading stock during 2001, mainly in France and Germany. After the payment of all interest, dividends and tax, there was a free cash inflow of £4.0 million. Capital expenditure of £275.6 million on the investment property portfolio exceeded proceeds of £225.9 million from investment property sales. Overall, there was a net cash outflow of £59.4 million for the year. Balance Sheet Shareholders' funds fell by £38.9 million during the year to £2388.2 million due largely to retained losses of £16.9 million after exceptional items of £77.0 million, and the £16.0 million revaluation deficit. There was consequently a 1.5 per cent reduction in diluted net assets per share (NAPS) from 520 pence to 512 pence. The adverse impact of the utilities asset write down and withdrawal from Toronto was 17 pence per share, without which NAPS would have increased by 1.7 per cent to 529 pence per share. Year end net borrowings amounted to £1365.2 million, a rise of £57.6 million during the year. Exchange rates had a positive effect of £0.3 million. Gearing (the ratio of net borrowings to shareholders' funds) increased from 54 per cent in 2000 to 57 per cent at the end of 2001, mainly due to the effect of the exceptional items and the increase in net borrowings resulting from the development programme. The Group has very little off-balance sheet debt. In addition to the £1365.2 million of net borrowings disclosed as such in the balance sheet, £40.2 million of joint venture gross debt is included in the balance sheet as part of the £46.3 million 'Investments in joint ventures-share of gross liabilities'. Only £9.8 million, relating to the Group's share of debt in property backed associate and short term partnerships, is not carried on balance sheet. The Group's debt profile has been enhanced by three new financings during 2001. In February, an unsecured Eurobond issue raised £150 million for 21 years at a coupon of 7 per cent. Two private placements were arranged for Euro 50 million and $200 million at average interest rates of 6.42 per cent and 6.77 per cent respectively. The Euro issue matures in 10 years, while $100 million of the US dollar issue is for 10 years and the other $100 million for 15 years. The proceeds are being used to help finance the ongoing development programme. Treasury Policies and Financial Risk Management The Group operates a UK based centralized treasury function. Its objectives are to meet the financing requirements of the Group on a cost effective basis, whilst maintaining a prudent financial position. It is not a profit centre and speculative transactions are not permitted. Board policies are laid down covering the parameters of the department's operations including the interest rate mix of borrowings, net assets exposed to exchange rate movements and aggregate exposure limits to individual financial institutions. Derivative instruments are used to hedge real underlying debt, cash or asset positions and to convert one currency to another. Approval to enter into derivative instruments which affect the Group's exposure is required from two of the Group Chairman, Chief Executive or Finance Director prior to transacting. The main financial risks facing the Group are liquidity risk, interest rate risk and foreign exchange translation exposure. As regards liquidity, as property investment is a long term business, the Group's policy is to finance it primarily with equity and medium and long term borrowings. The weighted average maturity of borrowings at the year end was 13 years. £107.6 million of debt is due for repayment or rollover in 2002/2003. £1379.7 million or 89 per cent of the Group's gross debt of £1541.1 million has a maturity date beyond the year 2006. At the year end the Group had £175.9 million of cash balances on deposit and £538.4 million of undrawn committed bank facilities. This availability is more than adequate to cover the Group's development plans over the next two years or so. Spend on the development programme is expected to amount to some £250 million in 2002 and about £200 million in 2003. This will obviously depend on prevailing market conditions. Until economic indicators and occupier demand for property show clear signs of strengthening, emphasis will remain on pre-let developments rather than speculative. Committed property expenditure amounted to £189.4 million at the end of 2001, 78.2 per cent of which relates to pre-let opportunities. There are no restrictions on the transfer of funds between the parent and subsidiary companies. All covenants in bank or loan agreements restricting the extent to which the Group may borrow leave substantial headroom for the Group to expand its operations. The Group's approach to interest rate risk is that a minimum of around 70 per cent of the gross debt portfolio must attract a fixed rate of interest or be variable rate debt hedged with a derivative instrument providing a maximum interest rate payable. At the year end 82 per cent of the debt portfolio was at fixed rate. The weighted average cost of fixed rate debt was 7.85 per cent which falls to 7.25 per cent when variable rate debt is included. This is analysed in detail by currency and duration in note 17 to the accounts. A number of the Group's historic fundings are at fixed interest rates which are high compared with current rates, but which reflect market conditions at the time they were completed. FRS 13 requires the disclosure of the 'fair value' of these loans and derivatives. The fair value at 31 December 2001 of the Group's borrowings, as analysed in note 17 to these accounts, was some £128.3 million higher than book value before tax or £89.8 million after tax. It is important to realise that the Group is under no obligation to repay these loans at anything other than their nominal value at the original maturity dates. The main currency risk is translation exposure, i.e. the exchange rate effect of retranslating overseas currency denominated assets back into sterling at each balance sheet date. The Group's policy is that currency assets should be substantially hedged by maintaining liabilities (normally debt or currency swaps) in a similar currency. Net assets exposed to exchange rate fluctuations amounted to £383 million. A 10 per cent movement in the value of sterling against all currencies affects net assets per share by 1.6 per cent although experience shows that sterling rarely moves in the same direction against all currencies. Accounting Policies The Group has adopted UITF 28 'Operating Lease Incentives' and the transitional arrangements permitted under FRS17 'Retirement Benefits'. UITF 28 has an immaterial effect on the Group's results. The Group's two defined benefit pension schemes were actuarially valued as at 31st March and 5th April 2001, resulting in an overall past service surplus of £0.9 million. However, had FRS17 been adopted in full, net assets at 31st December would have been reduced by £5.2 million net of deferred tax to reflect the 'Net pension liability' calculated as specified by the standard. FRS 19 (Deferred Tax) will have a material impact on the Group's financial statements. FRS 19 requires that deferred tax should be provided in full on all timing differences that are not permanent, but does not apply to revaluation surpluses. FRS 19 has not been adopted this year as it will give a misleading impression of the Group's financial position, but will be applied next year when it becomes mandatory. Had it been introduced in 2001, it would have reduced the Group's 2001 tax charge by £5.6 million from £19.6 million to £14.0 million, comprising a pre-exceptional items charge of £38.9 million, partly offset by a tax credit on exceptional items of £24.9 million. A provision for liabilities of £151.6 million, (UK £111.7 million, overseas £39.9 million), which has been calculated on an undiscounted basis, would have been included in the Group's 2001 balance sheet. Our current accounting policy recognises deferred tax only to the extent that a liability or asset is expected to crystallize, which potentially only arises on the sale or demolition of a property. The FRS 19 full provision for UK capital allowances does not reflect a true underlying liability as, in reality, capital allowance clawbacks do not normally arise and cause tax to be paid when properties are sold or demolished in property investment companies such as ours. Furthermore, overseas depreciation allowance tax clawbacks can be avoided to some extent through the appropriate structuring of sales' transactions. In practice then, the FRS 19 provision of £151.6 million would be greatly over-stated in that only a relatively small liability is likely to crystallize eventually. Abridged preliminary Group accounts for the year ended 31st December 2001, together with prior year comparatives, are shown below. These are not statutory accounts and have been extracted from the full statutory accounts for 2001, which will be delivered to the Registrar of Companies in due course and on which the auditors' report is unqualified. The results for 2000 are an abridged statement of the Group accounts for that year, which have been delivered to the Registrar of Companies and on which the auditors' report was unqualified. GROUP PROFIT AND LOSS ACCOUNT For the year ended 31st December 2001 Pre-exceptional Exceptional items items 2001 2000 Note £m £m £m £m ----- ----- ----- ----- ----- Turnover: Group 1 281.5 - 281.5 281.3 Joint ventures 1 15.6 - 15.6 14.9 ----- ----- ----- ----- Operating income: Property investment 212.3 - 212.3 196.7 Property trading 8.7 - 8.7 6.7 Utilities - operating loss and exceptional write down (7.1) (60.2) (67.3) (3.6) Other income 0.6 - 0.6 5.4 Administration expenses (13.2) - (13.2) (12.9) ----- ----- ----- ----- Operating profit 1 201.3 (60.2) 141.1 192.3 Share of operating profit Of joint ventures and associate ----- ----- ----- ----- - property 13.9 - 13.9 14.0 - other - - - 0.2 ----- ----- ----- ----- 13.9 - 13.9 14.2 (Loss)/profit on sale of investment properties - (9.8) (9.8) 0.6 ----- ----- ----- ----- Profit before interest and 215.2 (70.0) 145.2 207.1 taxation Interest (net) 2 (77.9) - (77.9) (78.2) ----- ----- ----- ----- Profit on ordinary activities before taxation 137.3 (70.0) 67.3 128.9 Taxation ----- ----- ----- ----- - current tax (12.6) - (12.6) (10.2) - tax on sale of investment properties - (7.0) (7.0) (0.1) ----- ----- ----- ----- 3 (12.6) (7.0) (19.6) (10.3) ----- ----- ----- ----- Profit on ordinary activities after taxation 124.7 (77.0) 47.7 118.6 Minority interests - equity 1.2 - 1.2 (0.5) Preference dividends 4 (11.6) - (11.6) (11.6) ----- ----- ----- ----- Profit attributable to ordinary shareholders 114.3 (77.0) 37.3 106.5 Ordinary dividends 4 (54.2) - (54.2) (50.0) ----- ----- ----- ----- Retained profit/(deficit) 60.1 (77.0) (16.9) 56.5 ----- ----- ----- ----- Basic earnings per ordinary share Excluding exceptional items 5 27.6p - 27.6p 25.7p Basic earnings per ordinary share on exceptional items - (18.6p) (18.6p) 0.1p ----- ----- ----- ----- Basic earnings per ordinary share 5 27.6p (18.6p) 9.0p 25.8p ----- ----- ----- ----- Diluted earnings per ordinary share 5 27.6p (18.6p) 9.0p 25.3p ----- ----- ----- ----- Exceptional items comprise profits and losses on sale of investment properties and related tax and the write down of the Utilities plant. The results in the Group profit and loss account relate to continuing operations. STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2001 2001 2000 £m £m ----- ----- Profit attributable to ordinary shareholders 37.3 106.5 (Deficit)/surplus on revaluation - of properties (6.0) 247.5 - of joint ventures and associate (10.0) 6.8 Exchange differences (1.0) 12.5 Other items (0.7) (0.5) Taxation (6.1) (0.5) Minority interests 0.3 (4.2) ----- ----- Total recognised gains and losses for the year 13.8 368.1 ===== ===== RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS For the year ended 31 December 2001 2001 2000 £m £m ----- ----- Profit attributable to ordinary shareholders 37.3 106.5 Ordinary dividends (54.2) (50.0) ----- ----- (16.9) 56.5 Revaluation (deficit)/surplus (16.0) 254.3 Other recognised gains and losses (7.5) 7.3 Ordinary shares issued 1.5 2.1 ------ ----- Net (decrease)/increase in shareholders' funds (38.9) 320.2 Shareholders' funds at 1 January 2,427.1 2,106.9 ----- ----- Shareholders' funds at 31 December 2,388.2 2,427.1 ======= ======= SUMMARISED GROUP CASH FLOW STATEMENT For the year ended 31 December 2001 2001 2000 Note £m £m ---- ----- ----- Net cash inflow from operating activities 9 174.3 179.6 Dividends from joint ventures and associate 9.7 8.3 Net interest paid (107.9) (94.3) Dividends paid to preference and minority shareholders (12.3) (12.1) Taxation (8.1) (4.3) Equity dividends paid (51.7) (47.5) Purchase and development of investment properties (275.6) (264.4) Purchase of subsidiary undertakings - (0.1) Sales of investment properties 225.9 49.6 Other net investments (13.7) (14.4) ----- ----- Net cash outflow before use of liquid resources and financing (59.4) (199.6) Management of liquid resources Investment in term deposits (63.3) 14.0 Financing Issue of ordinary shares 1.5 2.1 Increase in debt 199.3 174.3 ----- ----- Increase/(decrease) in cash 78.1 (9.2) ===== ===== GROUP BALANCE SHEET As at 31 December 2001 2001 2000 Note £m £m ---- ----- ----- Fixed assets Tangible assets - properties 6 3,514.2 3,463.8 - other 31.7 79.7 Investments in joint ventures: ----- ----- - share of gross assets 217.0 229.9 - share of gross liabilities (46.3) (42.2) ----- ----- 170.7 187.7 Investment in associate 4.0 4.1 ----- ----- 3,720.6 3,735.3 ------- ------- Current assets Stocks 135.3 106.4 Debtors 39.2 41.3 Trading investments 78.0 68.2 Cash and deposits 8 175.9 36.9 ----- ----- 428.4 252.8 ----- ----- Prepayments and accrued income 16.4 12.4 ----- ----- Total assets 4,165.4 4,000.5 ------- ------ Capital and reserves Called up share capital 138.7 138.6 Share premium account 328.7 327.3 Capital reserves 1,542.8 1,642.5 Profit and loss account 378.0 318.7 ----- ----- Shareholders' funds 2,388.2 2,427.1 Minority interests - equity 25.1 21.1 - non-equity 0.3 0.3 Provisions for liabilities and charges 4.2 6.2 Creditors falling due within one year Borrowings 8 47.5 54.6 Other 202.6 197.9 Creditors falling due after more than one year Borrowings 8 1,493.6 1,289.9 Other 3.9 3.4 ----- ----- 4,165.4 4,000.5 ------ ------- Shareholders' funds attributable to: Equity shareholders - ordinary shares 2,248.0 2,286.8 Non-equity shareholders - preference shares 140.2 140.3 ----- ----- 2,388.2 2,427.1 ------- ------- Net assets per ordinary share - basic 5 542p 553p Net assets per ordinary share - fully diluted 5 512p 520p NOTES TO THE FINANCIAL STATEMENTS 1. Turnover and operating profit Turnover Operating Profit 2001 2000 2001 2000 £m £m £m £m ---- ---- ---- ---- Business segments: Property investment 234.4 216.4 212.3 196.7 Property trading 30.1 42.9 8.7 6.7 Utilities - operating loss 17.0 22.0 (7.1) (3.6) - exceptional write down - - (60.2) - Other activities - - 0.6 5.4 Common costs - - (13.2) (12.9) ----- ----- ----- ----- 281.5 281.3 141.1 192.3 ===== ===== ===== ===== Geographical segments: United Kingdom 179.5 179.6 79.9 137.8 Canada 12.7 14.5 9.8 10.1 USA 50.2 37.2 25.7 23.9 Europe 39.1 50.0 25.7 20.5 ----- ----- ----- ----- 281.5 281.3 141.1 192.3 ===== ===== ===== ===== Turnover Joint ventures (Group share) 2001 2000 £m £m ----- ----- Geographical segments - investment property: United Kingdom 10.9 10.9 USA 4.7 4.0 ------ ----- 15.6 14.9 ===== ===== Property investment turnover Tenant comprises: Rents recharges Total and Other 2001 2000 2001 2000 2001 2000 £m £m £m £m £m £m Rents and recharges - UK 159.8 154.7 2.7 2.7 162.5 157.4 - Canada 11.3 12.7 1.4 1.8 12.7 14.5 - USA 35.3 25.0 6.5 5.7 41.8 30.7 - Europe 16.9 13.3 0.5 0.5 17.4 13.8 ----- ----- ------ ----- ----- ----- 223.3 205.7 11.1 10.7 234.4 216.4 ----- ----- ----- ----- ----- ----- Turnover comprises : rents and recharges charged to tenants; the net realised value of trading properties and the value of work, including attributable profit, carried out during the year on pre-sold trading property developments; and the amounts invoiced to utilities customers. 1. Turnover and operating profit (continued) Property Property Investment Trading Net operating income comprises: 2001 2000 2001 2000 £m £m £m £m ---- ---- ---- ---- Turnover 234.4 216.4 30.1 42.9 Ground rents payable (0.5) (0.9) - - Depreciation - - - - Exceptional write down - - - - Other property outgoings/cost of sales (21.6) (18.8) (21.4) (36.2) ------ ------ ------ ------ Total property outgoings/cost of sales (22.1) (19.7) (21.4) (36.2) ----- ----- ----- ----- Net operating income 212.3 196.7 8.7 6.7 ----- ----- ----- ----- 1. Turnover and operating profit Utilities Total (continued) Net operating income comprises: 2001 2000 2001 2000 £m £m £m £m ---- ---- ---- ---- Turnover 17.0 22.0 281.5 281.3 Ground rents payable - - (0.5) (0.9) Depreciation (2.5) (4.9) (2.5) (4.9) Exceptional write down (60.2) - (60.2) - Other property outgoings/cost of sales (21.6) (20.7) (64.6) (75.7) ------ ------ ------ ------ Total property outgoings/cost of sales (84.3) (25.6) (127.8) (81.5) ------ ------ ------ ------ Net operating income (67.3) (3.6) 153.7 199.8 ------ ------ ------ ------ 2. Interest (net) 2001 2000 £m £m ----- ----- Interest payable 113.6 103.1 Interest receivable (8.0) (5.9) ----- ----- Interest payable net 105.6 97.2 Less amount charged to development of: - trading properties (2.9) (1.3) - investment properties (25.6) (20.5) - utilities plant (2.0) (0.5) ----- ----- Charged to profit and loss account - Group 75.1 74.9 - Joint ventures 2.6 3.1 - Associate 0.2 0.2 ----- ----- 77.9 78.2 ----- ----- 3. Taxation 2001 2000 ----- ----- £m £m ----- ----- Provision for taxation based on profits for the year United Kingdom Corporation tax charge at 30 per cent (2000 30 per cent) 18.7 15.4 Advance corporation tax written back (5.0) (5.5) Over provision in earlier years (1.3) (8.2) Deferred tax (credit)/charge (1.1) 1.2 Tax in joint venture 0.2 - ----- ----- 11.5 2.9 Overseas Current tax charge 0.2 6.6 Tax on sale of investment properties 7.0 0.1 Deferred tax charge 0.9 0.7 ----- ----- 19.6 10.3 ----- ----- The current tax charge has been increased by the exceptional write down in the UK, with the impact of that mitigated by relief for capital allowances and capitalised interest. 4. Dividends 2001 2000 £m £m ----- ----- Preference dividends Dividend paid to 1 September 7.7 7.7 Dividend accrued for period from 2 September to 31 December 3.9 3.9 ------ ----- 11.6 11.6 ----- ----- Ordinary dividends Interim dividend at 5.1p per share (2000 4.7p) 21.1 19.4 Proposed final dividend at 8.0p per share (2000 7.4p) 33.1 30.6 ----- ----- 54.2 50.0 ----- ----- 5. Earnings, capital (deficit)/surplus and net assets per ordinary share Basic 2001 2000 ---- ---- The earnings, capital (deficit)/surplus and net assets per ordinary share have been calculated as follows: Profit attributable to ordinary shareholders (a) £m 37.3 106.5 Profit attributable to ordinary shareholders excluding profits and losses on sale of investment properties and exceptional write down (b) £m 114.3 106.0 Capital (deficit)/surplus (c) £m (23.5) 261.6 Average of shares in issue during the year (d) shares m 414.2 413.3 Earnings per share (a)/(d) Pence 9.0 25.8 Earnings per share excluding profits and losses on sale of investment properties and exceptional write down (b)/(d) Pence 27.6 25.7 Capital (deficit)/surplus per share (c)/(d) Pence (5.7) 63.3 Equity attributable to ordinary shareholders (e) £m 2,248.0 2,286.8 Shares in issue at the end of the year (f) shares m 414.5 413.9 Net assets per share (e)/(f) pence 542 553 5. Earnings, capital (deficit)/surplus and net assets per ordinary share (continued) Fully diluted 2001 2000 ---- ---- The earnings, capital (deficit)/surplus and net assets per ordinary share have been calculated as follows: Profit attributable to ordinary shareholders (a) £m 37.3 118.1 Profit attributable to ordinary shareholders excluding profits and losses on sale of investment properties and exceptional write down (b) £m 114.3 117.6 Capital (deficit)/surplus (c) £m (23.5) 261.6 Average of shares in issue during the year (d) shares m 414.5 466.3 Earnings per share (a)/(d) Pence 9.0 25.3 Earnings per share excluding profits and losses on sale of investment properties and Pence 27.6 25.2 exceptional write down (b)/(d) Capital (deficit)/surplus per share (c)/(d) Pence (5.7) 56.1 Equity attributable to ordinary shareholders (e) £m 2,388.2 2,427.1 Shares in issue at the end of the year (f) shares m 466.8 466.9 Net assets per share (e)/(f) pence 512 520 2001 2000 m m ----- ----- Average of shares in issue during the year 414.2 413.3 Adjustment for the dilutive effect of employee share options, save as you earn schemes and preference shares 0.3 53.0 ----- ----- Average of shares in issue during the year diluted 414.5 466.3 ----- ------ In 2001 the effect of the preference shares is anti-dilutive and therefore they are excluded from the diluted earnings per share calculation. In 2000 the effect was dilutive and therefore they were included in the 2000 diluted earnings per share calculation. The earnings per share and fully diluted earnings per share excluding profits and losses (net of tax and minority) on sale of investment properties and exceptional write down have been calculated in addition to the disclosures required by FRS3, since in the opinion of the directors this gives shareholders a more meaningful measure of performance. 6. Investment Properties UK Canada USA Europe Total £m £m £m £m £m ----- ----- ----- ----- ----- At 1.1.2001 2,653.9 173.5 425.4 211.0 3,463.8 Exchange movement - (6.2) 8.7 (5.1) (2.6) Additions 118.0 10.4 133.5 29.3 291.2 Disposals (53.7) (136.9) (31.8) (9.8) (232.2) (Deficit)/surplus on valuation (54.5) (5.6) 45.8 8.3 (6.0) ----- ----- ----- ----- ----- At 31.12.2001 2,663.7 35.2 581.6 233.7 3,514.2 ===== ===== ===== ===== ===== Completed properties 2,325.8 29.4 423.7 192.7 2,971.6 Properties for or under 337.9 5.8 157.9 41.0 542.6 development ----- ----- ----- ----- ----- 2,663.7 35.2 581.6 233.7 3,514.2 ===== ===== ===== ===== ===== 7. Contingent tax on valuation surpluses No provision has been made for taxation estimated at £332.0 million (2000 £329.0 million) which might become payable if the Group's properties and plant were sold at their book value. Had FRS19 (deferred tax) been adopted in 2001, taxation of £100.0 million on potential clawbacks of capital allowances included in the above figure of £332.0 million would instead have been included in the FRS19 deferred tax provision. 8. Borrowings 2001 2000 £m £m ----- ----- Currency profile of Group debt Borrowings Sterling 866.7 736.2 US dollars 471.6 351.1 Canadian dollars 8.6 116.1 Euros 194.2 141.1 ----- ----- 1,541.1 1,344.5 ------ ------ Cash and deposits Sterling 123.8 21.4 US dollars 22.2 6.2 Canadian dollars 16.3 - Euros 13.6 9.3 ----- ----- 175.9 36.9 ----- ----- Net borrowings 1,365.2 1,307.6 ----- ----- Maturity profile of Group debt In one year or less 47.5 54.6 In more than one year but less than two 60.1 46.2 In more than two years but less than five 53.8 186.5 In more than five years but less than ten 460.4 356.4 In more than ten years 919.3 700.8 ----- ----- Total Group debt 1,541.1 1,344.5 ----- ----- 8. Borrowings (continued) Book Fair Book Fair value value value value Fair value of borrowings 2001 2001 2000 2000 £m £m £m £m ---- ---- ---- ---- Short term fixed and variable rate borrowings 106.2 106.2 210.4 210.4 (before swaps etc) Long term fixed rate borrowings 1,430.1 1,555.9 1,128.9 1,245.3 Interest rate swaps - (0.8) - (1.4) Swaptions - 2.2 - - Currency swaps 4.8 5.9 5.2 3.5 ----- ----- ----- ----- 1,541.1 1,669.4 1,344.5 1,457.8 ----- ----- ------ ----- Tax relief due on early (38.5) (34.0) redemption/termination ----- ----- Net fair value 1,541.1 1,630.9 1,344.5 1,423.8 ------- ------- ------- ------- After tax mark to market adjustment 89.8 79.3 ----- ----- 9. Reconciliation of operating profit to net cash 2001 2000 inflow from operating activities £m £m ----- ----- Operating profit 141.1 192.3 Less other income reallocated (2.7) (5.1) Add back depreciation 3.2 5.6 Add back exceptional Utilities write down 60.2 - Adjust for other non-cash items 0.1 (0.5) Net rental income from trading properties 2.0 1.1 ----- ----- 203.9 193.4 Movement in stocks, debtors and creditors (29.6) (13.8) ----- ----- Net cash inflow from operating activities 174.3 179.6 ===== ===== 10. Reconciliation of net cash flow to movement in 2001 2000 net debt ----- ----- £m £m ----- ----- Increase/(decrease) in cash in the year 78.1 (9.2) Increase in debt (199.3) (174.3) Increase/(decrease) in liquid resources 63.3 (14.0) ----- ----- Change in net debt resulting from cash flows (57.9) (197.5) Reduction of debt due to disposal of subsidiary - 4.0 Translation difference 0.3 (24.2) ----- ----- Movement in net debt in the year (57.6) (217.7) Net debt at 1 January 2001 (1,307.6) (1,089.9) -------- -------- Net debt at 31 December 2001 (1,365.2) (1,307.6) -------- -------- This information is provided by RNS The company news service from the London Stock Exchange

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