Final Results - Part 2
Land Securities Group Plc
17 May 2006
17 May 2006
Land Securities Group PLC
Preliminary Results for the year ended 31 March 2006- Part 2
Income statement for the year ended 31 March 2006
2006 2006 2006 2005 2005 2005
Unaudited Unaudited Unaudited
Notes Before Exceptional Total Before Exceptional Total
exceptional Items £m exceptional Items £m
items £m items £m
£m £m
Income: Group and share of
joint ventures 1,988.2 - 1,988.2 1,876.2 - 1,876.2
Less: share of joint ventures
income 10 (159.5) - (159.5) (249.1) - (249.1)
------------ ------------ ------------ ------------ ------------ ----------
Group revenue 2 1,828.7 - 1,828.7 1,627.1 - 1,627.1
Costs 2 (1,267.8) - (1,267.8) (1,134.7) (14.8) (1,149.5)
------------ ------------ ------------ ------------ ------------ ----------
560.9 - 560.9 492.4 (14.8) 477.6
Profit on disposal of fixed
asset properties 2, 4 74.5 - 74.5 112.0 - 112.0
Net surplus on revaluation of
investment properties 2, 4 1,579.5 - 1,579.5 827.9 - 827.9
Goodwill impairment 2, 4 - (64.5) (64.5) - (12.7) (12.7)
Profit on disposal of joint
venture 2, 4 - 293.0 293.0 - - -
------------ ------------ ------------ ------------ ------------ ----------
Operating profit 2,214.9 228.5 2,443.4 1,432.3 (27.5) 1,404.8
Interest expense 3 (201.8) - (201.8) (198.8) (49.8) (248.6)
Interest income 3 7.3 - 7.3 9.8 - 9.8
------------ ------------- -------------- ------------ -------------- -----------
2,020.4 228.5 2,248.9 1,243.3 (77.3) 1,166.0
Share of the profit of joint
ventures
(post-tax) 10 98.6 - 98.6 76.1 - 76.1
Distribution received from
joint venture (Telereal) 10 11.7 - 11.7 65.4 - 65.4
------------ ------------ ------------ ------------ ------------ ----------
Profit / (loss) before tax 2 2,130.7 228.5 2,359.2 1,384.8 (77.3) 1,307.5
Income tax (expense) / credit 5 (593.3) (90.0) (683.3) (265.8) 19.2 (246.6)
------------ ------------ ------------ ------------ ------------ ----------
Profit / (loss) for the
financial year 13 1,537.4 138.5 1,675.9 1,119.0 (58.1) 1,060.9
============= ============ ============ ============ ============ ==========
Dividends per share
Dividend per share 6 46.70p 43.25p
Earnings per share
Basic earnings per share * 7 357.95p 227.32p
Diluted earnings per share * 7 356.50p 226.45p
* adjusted earnings per share is given in note 7
Statement of recognised income and expense for the year ended 31 March 2006
2006 2005
Unaudited
£m £m
Profit for the financial year 1,675.9 1,060.9
Actuarial losses on defined benefit pension schemes (5.0) (4.9)
Deferred tax on actuarial losses on defined benefit pension schemes 1.5 1.5
Fair value movement on cash flow hedges taken to equity - Group (2.2) -
- joint ventures (2.7) -
Deferred tax on fair value movement on cash flow hedges taken to equity - Group 0.6 -
- joint ventures 0.8 -
----------- -----------
Net losses not recognised in income statement (7.0) (3.4)
----------- -----------
Total recognised income and expense since the last financial statements 1,668.9 1,057.5
=========== ===========
Balance sheet at 31 March 2006
Notes 2006 2005
Unaudited £m
£m
Non-current assets
Investment properties 9 11,440.5 8,240.1
Property, plant and equipment
Property outsourcing properties 9 563.2 546.3
Other property, plant and equipment 9 73.6 57.9
----------- -----------
9 12,077.3 8,844.3
Net investment in finance leases 233.9 163.4
Goodwill 34.3 34.3
Investment in joint ventures 10 829.5 854.9
----------- -----------
Total non-current assets 13,175.0 9,896.9
----------- -----------
Current assets
Trading properties and long-term development contracts 255.9 164.0
Trade and other receivables 578.9 513.5
Cash and cash equivalents 15.6 5.0
----------- -----------
Total current assets 850.4 682.5
----------- -----------
Total assets 14,025.4 10,579.4
----------- -----------
Current liabilities
Short-term borrowings and overdrafts (46.7) (50.8)
Trade and other payables (585.0) (577.2)
Current tax liabilities (212.5) (37.9)
----------- -----------
Total current liabilities (844.2) (665.9)
----------- -----------
Non-current liabilities
Provisions (58.2) (42.0)
Borrowings 11 (3,654.8) (2,392.3)
Pension deficit (6.5) (10.9)
Deferred tax liabilities 12 (1,967.8) (1,418.0)
----------- -----------
Total non-current liabilities (5,687.3) (3,863.2)
----------- -----------
Total liabilities (6,531.5) (4,529.1)
----------- -----------
Net assets 7,493.9 6,050.3
=========== ===========
Equity
Ordinary shares 13 46.9 46.8
Treasury shares 13 (3.4) (2.1)
Share based payments 13 6.3 3.3
Share premium 13 43.2 31.4
Capital redemption reserve 13 30.5 30.5
Retained earnings 13 7,370.4 5,940.4
----------- -----------
Total shareholders' equity 7,493.9 6,050.3
=========== ===========
Cash flow statement for the year ended 31 March 2006
Notes 2006 2006 2005 2005
Unaudited Unaudited
£m £m £m £m
Net cash generated from operations
Cash generated from operations 14 591.5 523.4
Interest paid (187.7) (313.5)
Interest received 7.3 18.3
Funding pension scheme deficit (4.9) (15.2)
Taxation (corporation tax (paid) / received) (30.3) 3.6
----------- -----------
Net cash inflow from operations 375.9 216.6
Cash flows from investing activities
Investment property development expenditure (236.6) (215.3)
Acquisition of investment properties (1,429.2) (309.8)
Other investment property related expenditure (78.8) (40.6)
Capital expenditure associated with property outsourcing (29.7) (122.5)
----------- -----------
Capital expenditure on properties (1,774.3) (688.2)
Disposal of fixed asset investment properties 675.5 335.1
Disposal of fixed asset operating properties 4.1 355.3
----------- -----------
Net expenditure on properties (1,094.7) 2.2
Net expenditure on non-property related fixed assets (26.9) (19.3)
----------- -----------
Net cash outflow from capital expenditure (1,121.6) (17.1)
Receivable finance leases acquired (84.8) (92.6)
Receipts in respect of receivable finance leases 2.3 2.3
Net loans made to joint ventures (72.8) (88.8)
Distributions from joint ventures 206.6 245.8
Proceeds from disposal of joint venture 293.0 -
Acquisitions of Group undertakings (net of cash
acquired) (321.2) (5.4)
----------- -----------
Net cash (used in) / from investing activities (1,098.5) 44.2
Cash flows from financing activities
Issue of shares 11.9 15.7
Purchase of own share capital (1.9) (2.1)
Increase / (decrease) in debt 1,221.2 (322.2)
Debt repaid on acquisition of Tops Estates (257.9) -
Decrease in finance leases payable (1.2) (1.0)
Repayment of B shares - (8.4)
Dividend paid to ordinary shareholders (238.9) (175.5)
----------- -----------
Net cash from / (used in) financing activities 733.2 (493.5)
----------- -----------
Increase / (decrease) in cash and cash equivalents at
end of the year 10.6 (232.7)
=========== ===========
1. Basis of preparation
The financial information is abridged and does not constitute the Group's full
Financial Statements for the years ended 31 March 2006 and 31 March 2005, and
has been prepared under International Financial Reporting Standards ('IFRS').
Prior year comparatives have been restated for IFRS conversion adjustments.
Further explanations of the IFRS adjustments are disclosed in Note 16 and the
Interim Report issued on 30 November 2005.
Full Financial Statements for the year ended 31 March 2005, which were prepared
under UK GAAP, received an unqualified auditors' report and did not contain a
statement under Section 237(2) or (3) of the Companies Act 1985, have been filed
with the Registrar of Companies.
Financial Statements for the year ended 31 March 2006 will be presented to the
Members at the forthcoming Annual General Meeting; the auditors have indicated
that their report on these Financial Statements will be unqualified.
2. Segmental information
2006 2006 2006 2006 2006
Income statements Retail London Other Property Total
Portfolio Investment Outsourcing
Portfolio
£m £m £m £m £m
Rental income 255.9 278.5 4.3 - 538.7
Service charge income 38.3 40.0 0.2 - 78.5
Property services income - - - 924.8 924.8
Trading property sale proceeds - 93.8 5.9 - 99.7
Long-term development contract income - 95.7 78.4 - 174.1
Finance lease interest 4.4 6.0 - 2.5 12.9
----------- ----------- ----------- ----------- -----------
Revenue 298.6 514.0 88.8 927.3 1,828.7
Rents payable (12.0) (4.1) - (183.9) (200.0)
Other direct property or contract
expenditure (59.7) (47.9) (0.9) (610.1) (718.6)
Indirect property or contract expenditure (32.7) (28.7) (4.8) (8.8) (75.0)
Long-term development contract
expenditure - (74.7) (77.5) - (152.2)
Bid costs - - - (7.4) (7.4)
Cost of sales of trading properties - (78.0) (4.2) - (82.2)
Depreciation (1.0) (4.1) (0.1) (20.5) (25.7)
----------- ----------- ----------- ----------- -----------
193.2 276.5 1.3 96.6 567.6
Profit on disposal of fixed asset
properties 40.1 33.2 0.2 1.0 74.5
Net surplus on revaluation of investment
properties 636.9 935.5 5.2 1.9 1,579.5
Goodwill impairment (64.5) - - - (64.5)
Profit on disposal of joint venture (Telereal) - - - 293.0 293.0
----------- ----------- ----------- ----------- -----------
Segment result 805.7 1,245.2 6.7 392.5 2,450.1
=========== =========== =========== ===========
Credit arising from change in pension
scheme benefits 8.3
Unallocated expenses (15.0)
Exceptional costs -
-----------
Operating profit 2,443.4
Net financing costs
- ordinary (194.5)
- exceptional -
----------
2,248.9
Share of the profit of joint ventures
(post-tax) 98.6
Distribution received from joint venture
(Telereal) 11.7
----------
Profit before tax 2,359.2
==========
2. Segmental information continued...
2005 2005 2005 2005 2005
Income statements Retail London Other Property Total
Portfolio Investment Outsourcing
Portfolio
£m £m £m £m £m
Rental income 204.0 252.1 15.8 - 471.9
Service charge income 33.9 34.2 1.3 - 69.4
Property services income - - - 763.6 763.6
Trading property sale proceeds - 1.0 21.3 100.2 122.5
Long-term development contract income - 64.4 126.8 - 191.2
Finance lease interest 2.1 6.4 - - 8.5
----------- ----------- ----------- ----------- -----------
Revenue 240.0 358.1 165.2 863.8 1,627.1
Rents payable (9.7) (3.8) - (183.6) (197.1)
Other direct property or contract
expenditure (41.6) (46.1) (3.8) (446.5) (538.0)
Indirect property or contract expenditure (22.7) (22.0) (1.7) (8.1) (54.5)
Long-term development contract
expenditure - (53.2) (126.4) - (179.6)
Bid costs - - - (2.6) (2.6)
Cost of sales of trading properties - (0.8) (15.1) (96.3) (112.2)
Depreciation (1.9) (4.5) (0.2) (29.0) (35.6)
----------- ----------- ----------- ----------- -----------
164.1 227.7 18.0 97.7 507.5
Profit on disposal of fixed asset
properties 14.1 29.8 37.6 30.5 112.0
Net surplus on revaluation of investment
properties 397.4 412.1 18.4 - 827.9
Goodwill impairment (12.7) - - - (12.7)
Profit on disposal of joint venture
(Telereal) - - - - -
----------- ----------- ----------- ----------- -----------
Segment result 562.9 669.6 74.0 128.2 1,434.7
=========== =========== =========== ===========
Credit arising from change in
pension scheme benefits -
Unallocated expenses (15.1)
Exceptional costs (14.8)
-----------
Operating profit 1,404.8
Net financing costs
- ordinary (189.0)
- exceptional (49.8)
-----------
1,166.0
Share of the profit of joint ventures
(post-tax) 76.1
Distribution received from joint venture
(Telereal) 65.4
-----------
Profit before tax 1,307.5
===========
Included within rent payable is finance lease interest payable of £1.8m (2005:
£2.0m) and £2.8m (2005: £2.4m) respectively for Retail and London Portfolio.
2006 2006 2006 2006 2006
Balance sheets Retail London Other Property Total
Portfolio Investment Outsourcing
Portfolio
£m £m £m £m £m
Investment properties 5,514.6 5,856.5 69.4 - 11,440.5
Operating properties - - - 563.2 563.2
Other property, plant and equipment 7.3 6.5 4.7 55.1 73.6
Net investment in finance leases 73.8 107.1 - 53.0 233.9
Goodwill - - - 34.3 34.3
Investment in equity accounted joint
ventures 768.5 - 41.2 19.8 829.5
Trading properties and long-term
development contracts - 150.5 104.3 1.1 255.9
Trade and other receivables 158.7 207.5 9.7 202.7 578.6
----------- ----------- ----------- ----------- -----------
Segment assets 6,522.9 6,328.1 229.3 929.2 14,009.5
=========== =========== =========== =========== -----------
Unallocated assets 15.9
-----------
Total assets 14,025.4
===========
Trade and other payables (153.4) (135.0) (31.5) (235.6) (555.5)
Non-current payables - - - (58.2) (58.2)
----------- ----------- ----------- ----------- -----------
Segment liabilities (153.4) (135.0) (31.5) (293.8) (613.7)
=========== =========== ============ ===========
Unallocated liabilities (5,917.8)
-----------
Total liabilities (6,531.5)
===========
Other segment items
Capital expenditure 121.3 207.8 0.6 45.5 375.2
=========== =========== ============ =========== ===========
Continued...
2005 2005 2005 2005 2005
Balance sheets Retail London Other Property Total
Portfolio Investment Outsourcing
Portfolio
£m £m £m £m £m
Investment properties 3,678.3 4,418.3 143.5 - 8,240.1
Operating properties - - - 546.3 546.3
Other property, plant and equipment 4.8 4.3 0.5 48.3 57.9
Net investment in finance leases 39.7 108.9 - 14.8 163.4
Goodwill - - - 34.3 34.3
Investment in equity accounted joint
ventures 841.9 - 13.0 - 854.9
Trading properties and long-term
development contracts - 125.3 36.9 1.8 164.0
Trade and other receivables 181.4 53.8 11.2 267.1 513.5
----------- ----------- ----------- ----------- -----------
Segment assets 4,746.1 4,710.6 205.1 912.6 10,574.4
=========== =========== =========== ===========
Unallocated assets 5.0
-----------
Total assets 10,579.4
===========
Trade and other payables (135.4) (143.3) (19.6) (256.9) (555.2)
Non-current payables - - - (42.0) (42.0)
----------- ----------- ----------- ----------- -----------
Segment liabilities (135.4) (143.3) (19.6) (298.9) (597.2)
=========== =========== =========== ===========
Unallocated liabilities (3,931.9)
-----------
Total liabilities (4,529.1)
===========
Other segment items
Capital expenditure 89.7 160.2 5.8 33.7 289.4
=========== =========== =========== =========== ===========
The Group has organised its operations into four main business segments upon
which the Group reports its primary segment information:
• Retail
• London Portfolio
• Other Investment Portfolio
• Property Outsourcing
All operations are in the UK.
3. Net finance costs
2006 2005
£m £m
Interest expense
Bond and debenture debt (143.1) (149.9)
Bank borrowings (56.8) (55.5)
Other interest payable (1.3) (0.9)
Loans from joint ventures - (0.3)
Fair value losses on interest rate swaps (2.2) (0.8)
Amortisation of bond exchange de-recognition (note 11) (26.6) (11.2)
Bond exchange de-recognition adjustment written off on redemption of bonds (note 11) (1.5) -
------------- -------------
Expected return on pension scheme assets 7.3 6.4
Interest on pension scheme liabilities (7.2) (6.7)
------------- -------------
Net financing income / (expense) on pension scheme 0.1 (0.3)
B share dividends - (0.1)
------------- -------------
(231.4) (219.0)
Interest capitalised in relation to properties under development 29.6 20.2
------------- -------------
Total interest and similar charges payable - ordinary (201.8) (198.8)
============= =============
Cost of purchase and redemption of bonds and debenture debt - (49.8)
------------- -------------
Total interest and similar charges payable - exceptional - (49.8)
============= =============
Interest income
Short-term deposits 1.0 7.1
Other interest receivable 1.7 2.7
Interest receivable from joint ventures 4.6 -
------------- -------------
Total interest receivable 7.3 9.8
============= =============
Net finance costs (194.5) (238.8)
============= =============
Included within rents payable (note 2) is finance lease interest payable of £4.6m
(2005: £4.4m).
4. Exceptional items
2006 2005
£m £m
Profit on disposal of joint venture (Telereal) (293.0) -
Goodwill impairment 64.5 12.7
Debt restructuring - charged to costs - 14.8
- charged to interest - 49.8
======== ========
On 30 September 2005 the Group sold its interest in the Telereal joint venture
for £293.0m (net of costs), resulting in an exceptional profit of £293.0m, as
the book value of the joint venture was £nil. The tax charge arising on the
disposal was £90.0m.
Where goodwill arises as a result of recognising deferred tax on a business
combination, the goodwill is written off immediately to the income statement.
The goodwill impaired arose on the acquisition of Tops Estates PLC on 10 June
2005 and on the assets acquired from Slough Estates PLC on 15 December 2004.
On 3 November 2004, the Group completed a debt exchange whereby a predominately
secured funding strategy was established. The costs of this debt restructuring
have been treated as exceptional.
5. Income tax expense
2006 2005
£m £m
Current tax
Corporation tax charge / (credit) for the year 181.6 (66.8)
Adjustment in respect of prior years (14.7) (26.0)
Corporation tax in respect of property disposals 38.0 46.7
------------- -------------
Total current tax charge / (credit) 204.9 (46.1)
------------- -------------
Deferred tax
Origination and reversal of timing differences 34.6 149.4
Released in respect of property disposals (30.1) (105.0)
On valuation surplus 473.9 248.3
------------- -------------
Total deferred tax charge 478.4 292.7
------------- -------------
Total income tax charge in the income statement 683.3 246.6
============= =============
The tax for the year is lower than the standard rate of corporation tax in the UK
(30%). The differences are explained below:
Profit on activities before taxation 2,359.2 1,307.5
------------- -------------
Profit on activities multiplied by rate of corporation tax in the UK of 30% 707.8 392.2
Effects of:
Deferred tax released in respect of property disposals (34.7) (105.0)
Corporation tax on disposal of fixed assets 23.0 13.6
Goodwill impairment 19.4 3.8
Joint venture accounting adjustments (26.5) (37.7)
Prior year corporation tax adjustments (14.7) (26.0)
Prior year deferred tax adjustments 0.8 (3.4)
Non-allowable expenses and non-taxable items 8.2 9.1
------------- -------------
Total income tax expense in the income statement (as above) 683.3 246.6
============= =============
The calculation of the Group's tax charge necessarily involves a degree of
estimation and judgement in respect of certain items whose tax treatment cannot
be finally determined until a formal resolution has been reached with the
relevant tax authorities. In such cases the Group has reserved on the basis
that these provisions will be required. If all such issues are resolved in the
Group's favour provisions of up to £225 million could be released in the future.
6. Dividends
2006 2005
£m £m
Ordinary dividends paid
Final dividend for the year ended 31 March 2005 (32.85p per share) 153.8 -
Final dividend for the year ended 31 March 2004 (27.20p per share) - 126.9
Interim dividend for the year ended 31 March 2006 (18.15p per share) 85.1 -
Interim dividend for the year ended 31 March 2005 (10.40p per share) - 48.6
------------- -------------
238.9 175.5
============= =============
The Board has proposed a final dividend of 28.55p per share (final dividend for
the year ended 31 March 2005: 32.85p) which will result in a further
distribution of £134.0m. It will be paid on 24 July 2006 to shareholders who
are on the register of members on 23 June 2006.
7. Earnings per share
Earnings 2006 2005
£m £m
Profit for the financial year 1,675.9 1,060.9
Revaluation surpluses net of deferred taxation - Group (1,105.6) (579.6)
Revaluation surpluses net of deferred taxation - joint ventures (73.8) (48.7)
Fixed asset property disposals after current and deferred tax (66.5) (178.4)
Goodwill impairment 64.5 12.7
Deferred tax arising from capital allowances on investment properties 12.2 9.3
Mark-to-market adjustment on interest rate swaps (net of deferred tax) 1.5 1.9
Eliminate effect of bond exchange de-recognition (net of deferred tax) 19.7 7.8
Deferred tax arising from capitalised interest on investment properties 7.2 5.2
Exceptional costs of debt restructuring - 45.4
Credit arising from change in pension scheme benefits (net of deferred tax) (5.8) -
Profit on disposal of joint venture (net of taxation) (203.0) -
Adjustment to restate the Group's share of Telereal's earnings from a distribution to
an equity basis 5.0 (23.2)
------------- -------------
Adjusted earnings 331.3 313.3
============= =============
Weighted average number of ordinary shares No.m No.m
Weighted average number of ordinary shares 468.5 466.9
Effect of own shares (0.3) (0.2)
------------- -------------
Weighted average number of ordinary shares after adjusting for own shares 468.2 466.7
Effect of dilutive share options 1.9 1.8
------------- -------------
Weighted average number of ordinary shares adjusted for dilutive instruments 470.1 468.5
============= =============
Earnings per share pence pence
Basic earnings per share 357.95 227.32
Diluted earnings per share 356.50 226.45
Adjusted earnings per share 70.76 67.13
Adjusted diluted earnings per share 70.47 66.87
============= =============
Management have chosen to disclose the adjusted earnings per share in order to
provide a better indication of the Group's underlying business performance.
Accordingly, it excludes the effect of all exceptional items, the one-off
benefit from the pension scheme changes (as explained in the Operating and
Financial Review) and other items of a capital nature (excluding trading
properties and long-term contract profits) as indicated above. In addition, the
deferred tax arising on capital allowances in respect of investment properties
has been eliminated as experience has shown that these allowances are not in
practice repayable. Deferred tax on capitalised interest is also added back as
this is effectively a permanent timing difference.
8. Net assets per share
Shareholders' equity 2006 2005
£m £m
Net assets attributable to equity shareholders 7,493.9 6,050.3
Deferred tax arising on revaluation surpluses - Group 1,580.9 1,117.9
Deferred tax arising on revaluation surpluses - joint ventures 75.5 43.8
Deferred tax arising on revaluation surpluses - acquired 83.3 19.0
Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - Group 5.4 2.3
Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - joint
ventures 3.2 1.3
Deferred tax arising from capital allowances on investment properties 116.8 112.7
Deferred tax arising from capitalised interest on investment properties 28.2 32.3
Reverse bond exchange de-recognition adjustment (net of deferred tax) (note 11) (375.3) (395.0)
------------ -------------
Adjusted net assets attributable to equity shareholders 9,011.9 6,984.6
============ =============
Number of ordinary shares No. m No. m
Number of ordinary shares 469.3 467.8
Effect of dilutive share options 2.1 1.7
------------- -------------
Number of ordinary shares adjusted for dilutive instruments 471.4 469.5
============ =============
Net assets per share pence pence
Net assets per share 1597 1293
Diluted net assets per share 1590 1289
Adjusted net assets per share 1920 1493
Adjusted diluted net assets per share 1912 1488
============ =============
Adjusted net assets per share excludes the deferred tax arising on revaluation
surpluses, mark-to-market adjustments on financial instruments used for hedging
purposes and the bond exchange de-recognition adjustment as management consider
that this better represents the expected future cash flows of the Group. In
addition, the deferred tax arising on capital allowances in respect of
investment properties is excluded as experience has shown that these allowances
do not in practice crystallise. Deferred tax on capitalised interest is also
added back as this is effectively a permanent timing difference. The adjusted
net asset value per share does not take into account management's estimate of
the tax on property disposals as referred to in Note 12.
9. Non-current assets
Property Property Property Property Other
Investment Investment Investment outsourcing
Investment Investment Investment Operating Other
properties properties properties and property,
investment plant
properties and
£m equipment
£m
Portfolio Development Total Total
management programme
£m £m £m £m
Net book value at 1
April 2004 6,763.1 731.1 7,494.2 769.2 51.0 8,314.4
Properties transferred
from portfolio
management into the
development programme
during the year (at 1
April 2004 valuation) (151.0) 151.0 - - - -
Developments completed,
let and transferred from
the development
programme into portfolio
management during the
year 485.4 (485.4) - - - -
Property acquisitions 311.9 - 311.9 103.6 - 415.5
Acquisitions through
business combinations 197.0 - 197.0 - - 197.0
Capital expenditure 40.6 205.4 246.0 18.9 24.5 289.4
Transfer from investment
leases 29.1 - 29.1 - - 29.1
Capitalised interest - 17.5 17.5 - - 17.5
Disposals (558.6) (95.7) (654.3) (324.8) (5.2) (984.3)
Transfer to trading
properties (30.0) - (30.0) - - (30.0)
Surrender premiums
received (20.7) - (20.7) - - (20.7)
Properties contributed
to the Metro Shopping
Fund LP and the Bristol
Alliance (175.9) - (175.9) - - (175.9)
Depreciation (2.6) - (2.6) (20.6) (12.4) (35.6)
------------- ------------- ------------- ------------- ------------- -------------
6,888.3 523.9 7,412.2 546.3 57.9 8,016.4
Surplus on revaluation 596.2 231.7 827.9 - - 827.9
------------- ------------- ------------- ------------- ------------- -------------
Net book value at 31
March 2005 7,484.5 755.6 8,240.1 546.3 57.9 8,844.3
Properties transferred
from portfolio
management into the
development programme
during the year (at 1
April 2005 valuation) (102.4) 102.4 - - - -
Developments completed,
let and transferred from
the development
programme into portfolio
management during the
year 271.6 (271.6) - - - -
Property acquisitions 1,414.1 24.7 1,438.8 - - 1,438.8
Acquisitions through
business combinations 592.6 - 592.6 - - 592.6
Capital expenditure 78.8 239.3 318.1 29.7 27.4 375.2
Capitalised interest - 24.5 24.5 - - 24.5
Disposals (641.8) (7.8) (649.6) (3.1) (0.5) (653.2)
Transfer to trading
properties (84.7) - (84.7) - - (84.7)
Surrender premiums
received (14.0) - (14.0) - - (14.0)
Depreciation (2.9) - (2.9) (11.6) (11.2) (25.7)
------------- ------------- ------------- ------------- ------------- -------------
8,995.8 867.1 9,862.9 561.3 73.6 10,497.8
Surplus on revaluation 1,215.4 362.2 1,577.6 1.9 - 1,579.5
------------- ------------- ------------- ------------- ------------- -------------
Net book value at 31
March 2006 10,211.2 1,229.3 11,440.5 563.2 73.6 12,077.3
============= ============= ============= ============= ============= =============
Net book value at 31
March 2005 7,484.5 755.6 8,240.1
Plus: amount included in
prepayments in respect
of lease incentives 59.1 3.7 62.8
Less: head leases
capitalised (58.2) (11.7) (69.9)
Plus: properties treated
as finance leases 138.9 - 138.9
------------- ------------- -------------
Market value at 31 March
2005 - Group 7,624.3 747.6 8,371.9
Market value at 31 March
2005 - plus: share of
joint ventures (note 10) ============= ============= 993.9
-------------
Market value at 31 March
2005 - Group and share
of joint ventures 9,365.8
=============
Net book value at 31
March 2006 10,211.2 1,229.3 11,440.5
Plus: amount included in
prepayments in respect
of lease incentives 76.8 4.6 81.4
Less: head leases
capitalised (66.1) (8.5) (74.6)
Plus: properties treated
as finance leases 171.7 - 171.7
------------- ------------- -------------
Market value at 31 March
2006 - Group 10,393.6 1,225.4 11,619.0
Market value at 31 March
2006 - plus: share of
joint ventures (note 10) ============= ============= 1,273.9
------------
Market value at 31 March
2006 - Group and share
of joint ventures 12,892.9
============
Included in investment properties are leasehold properties with a net book value
of £1,419.8m (2005: £1,283.2m).
In accordance with IFRS1 'First time adoption of International Reporting
Standards' and IAS 17 'Leases', the Group has reviewed the classification of all
leases at the opening balance sheet date of 1 April 2004. In reviewing leases
of land and buildings in accordance with IAS 17 the land and buildings elements
of the lease need to be considered separately. On this basis, leases on 43
properties entered into between 1923 and 2003 were reclassified as finance
leases in these accounts. This resulted in an increase in fixed assets of
£77.2m and a finance lease creditor of the same amount at first time adoption on
1 April 2004. At 31 March 2006 leases on 34 properties entered into between
1936 and 2005 were classified as finance leases. The corresponding increase in
fixed assets and finance lease creditor was £74.6m (2005: £69.6m). Operating
lease expense has reduced by £5.8m (2005: £5.4m).
The fair value of the Group's investment properties at 31 March 2006 has been
arrived at on the basis of a valuation carried out at that date by Knight Frank
LLP, independent valuers. The valuation, which conforms to International
Valuation Standards, was arrived at by reference to market evidence of
transaction prices for similar properties. Included within the property
outsourcing operating and investment properties are investment properties with a
market value of £27.1m (2005: £24.4m). Fixed asset properties include
capitalised interest of £115.8m (2005: £120.9m). The average rate of
capitalisation is 5.5% (2005: 6.8%). The historical cost of investment
properties is £6,265.5m (2005: £4,594.7m).
The current value of investment properties in respect of proposed developments
is £383.8m (2005: £189.2m).
Developments are transferred out of the development programme when physically
complete and 95% let. Schemes completed during the year were Bexhill Retail
Park; Whitefriars, Canterbury; Eastbourne Terrace, W2; and Summerland Gate,
Exeter.
10. Investment in joint ventures
Year ended 31/03/06 and at 31/03/06
Scottish Metro Buchanan
Retail Shopping Galleries
Property Fund Limited
Summary financial information Limited LP Partnership Parc
of Group's share of joint Partnership Tawe
ventures
£m £m £m £m
Income statement
Rental income 20.8 11.8 9.1 0.5
Service charges income 4.8 2.3 1.5 -
Property services income - - - -
Trading property sale proceeds - - - -
--------------- --------------- --------------- ----------
Revenue 25.6 14.1 10.6 0.5
Rents payable - - - -
Other direct property or
contract
expenditure (8.8) (3.2) (2.5) (0.1)
Indirect property or contract
expenditure (1.0) (0.6) (0.1) -
Cost of sales of trading
properties - - - -
Depreciation - - - -
--------------- --------------- --------------- ----------
15.8 10.3 8.0 0.4
Profit on disposal of fixed
asset properties - - - -
Net surplus / (deficit) on
revaluation of
investment properties 20.7 23.2 14.4 0.1
--------------- --------------- --------------- ----------
Operating profit 36.5 33.5 22.4 0.5
Net finance costs (10.8) (9.4) (4.3) -
--------------- --------------- --------------- ----------
25.7 24.1 18.1 0.5
Taxation (6.5) (7.8) (4.3) -
--------------- --------------- --------------- ----------
19.2 16.3 13.8 0.5
Adjustment due to net
liabilities - - - -
--------------- --------------- --------------- ----------
Share of profits of joint
ventures
after tax 19.2 16.3 13.8 0.5
=============== =============== =============== ==========
Distribution received from
Telereal
Balance sheet
Investment properties ** 345.3 275.9 173.9 21.4
Operating properties - - - -
Current assets 12.0 7.8 6.6 3.9
--------------- ------------- --------------- ----------
357.3 283.7 180.5 25.3
--------------- --------------- --------------- ----------
Current liabilities (17.7) (8.5) (4.2) (0.4)
Non-current liabilities (221.2) (184.0) - -
Deferred tax (13.2) (10.2) (3.3) -
--------------- --------------- --------------- ----------
(252.1) (202.7) (7.5) (0.4)
Adjustment due to net
liabilities - - - -
--------------- --------------- --------------- ----------
Net assets 105.2 81.0 173.0 24.9
=============== =============== =============== ==========
Capital commitments - - - -
=============== =============== =============== ==========
Contingent liabilities - - - -
=============== =============== =============== ==========
Market value of investment
properties ** 339.2 274.1 177.5 21.4
=============== =============== =============== ==========
Net investment
At 1 April 2005 293.6 39.6 163.5 -
Properties contributed - - - -
Cash contributed - 24.7 - 24.8
Cost of acquisition - - - -
Share of post-tax results 19.2 16.3 13.8 0.5
Adjustment to restate the
Group's
share of Telereal's earnings
from an
equity to a distribution basis - - - -
Distributions (185.9) (1.5) (4.3) (0.4)
Fair value movement on cash
flow hedges taken to equity (1.8) (0.1) - -
Loan advances - 2.0 - -
Loan repayments (19.9) - - -
--------------- --------------- --------------- ----------
At 31 March 2006 105.2 81.0 173.0 24.9
=============== =============== =============== ==========
10. Investment in joint ventures
Year ended 31/03/06 and at 31/03/06 - continued...
Summary financial Martineau
information of Galleries Bullring
Group's share of Limited Limited Bristol
joint ventures Partnership Partnership Alliance Other* Telereal Total
£m £m £m £m £m £m
Income statement
Rental income 1.3 14.6 3.5 0.5 - 62.1
Service charges
income 0.4 2.1 - - - 11.1
Property services
income - - - - 80.8 80.8
Trading property
sale proceeds - - - - 5.5 5.5
--------------- --------------- ------------- ---------- ------------- ------------
Revenue 1.7 16.7 3.5 0.5 86.3 159.5
Rents payable (0.1) - - - (17.1) (17.2)
Other direct
property or contract
expenditure (1.2) (4.0) (0.5) - - (20.3)
Indirect property or
contract expenditure - (0.3) (0.3) - (7.6) (9.9)
Cost of sales of
trading properties - - - - (1.3) (1.3)
Depreciation - - - - (7.1) (7.1)
--------------- --------------- ------------- ---------- ------------- ------------
0.4 12.4 2.7 0.5 53.2 103.7
Profit on disposal
of fixed asset
properties - (0.2) - 0.1 0.9 0.8
Net surplus / (deficit)
on revaluation of
investment
properties (0.3) 31.3 15.7 0.4 - 105.5
--------------- --------------- ------------- ---------- ------------- ------------
Operating profit 0.1 43.5 18.4 1.0 54.1 210.0
Net finance costs 0.1 0.1 0.3 (0.3) (32.9) (57.2)
--------------- --------------- ------------- ---------- ------------- ------------
0.2 43.6 18.7 0.7 21.2 152.8
Taxation 0.1 (9.7) (4.7) (0.1) (4.5) (37.5)
--------------- --------------- ------------- ---------- ------------- ------------
0.3 33.9 14.0 0.6 16.7 115.3
Adjustment due to
net liabilities - - - - (16.7) (16.7)
--------------- --------------- ------------- ---------- ------------- ------------
Share of profits of
joint ventures after
tax 0.3 33.9 14.0 0.6 - 98.6
=============== =============== ============= ========== ============= ============
Distribution received
from
Telereal 11.7 11.7
======= =======
Balance sheet
Investment
properties ** 22.8 297.2 120.7 11.2 - 1,268.4
Operating properties - - - - - -
Current assets 2.0 10.6 16.3 39.0 - 98.2
--------------- --------------- --------------- ------------- ---------- -------------
24.8 307.8 137.0 50.2 - 1,366.6
--------------- --------------- --------------- ------------- ---------- -------------
Current liabilities (0.4) (4.9) (9.2) (5.6) - (50.9)
Non-current liabilities - - (2.4) - - (407.6)
Deferred tax (1.3) (43.6) (6.9) (0.1) - (78.6)
--------------- --------------- --------------- ------------- ---------- -------------
(1.7) (48.5) (18.5) (5.7) - (537.1)
Adjustment due to
net liabilities - - - - - -
--------------- --------------- --------------- ------------- ---------- -------------
Net assets 23.1 259.3 118.5 44.5 - 829.5
=============== =============== ============= ========== ============= ============
Capital commitments - - 153.2 - - 153.2
=============== =============== ============= ========== ============= ============
Contingent liabilities - - - - - -
=============== =============== ============= ========== ============= ============
Market value of
investment
properties ** 23.8 303.0 123.7 11.2 - 1,273.9
=============== =============== ============= ========== ============= ============
Net investment
At 1 April 2005 23.5 238.2 82.0 14.5 - 854.9
Properties contributed - - - 6.4 - 6.4
Cash contributed - - - 0.8 - 50.3
Cost of acquisition - - - 26.5 - 26.5
Share of post-tax
results 0.3 33.9 14.0 0.6 16.7 115.3
Adjustment to restate
the
Group's share of
Telereal's
earnings from an equity
to a
distribution basis - - - - (5.0) (5.0)
Distributions (1.5) - - (1.3) (11.7) (206.6)
Fair value movement on
cash flow hedges taken
to equity - - - - - (1.9)
Loan advances 0.8 - 27.5 - - 30.3
Loan repayments - (12.8) (5.0) (3.0) - (40.7)
--------------- --------------- --------------- ------------- ---------- -------------
At 31 March 2006 23.1 259.3 118.5 44.5 - 829.5
=============== =============== ============= ========== ============= ============
* Other principally includes the Martineau Limited Partnership, the Ebbsfleet
Limited Partnership, the A2 Limited Partnership and the Mill Group.
** The difference between the book value and the market value is the amount
included in prepayments in respect of lease incentives, head leases capitalised
and properties treated as finance leases.
10. Investment in joint ventures
Year ended 31/03/05 and at 31/03/05
Summary financial information of Scottish
Group's share of joint ventures Retail
Property Buchanan
Limited Metro Galleries Limited
Partnership Shopping Fund LP Partnership Parc Tawe
£m £m £m £m
Income statement
Rental income 16.3 7.2 2.4 -
Service charges income 5.6 1.3 0.6 -
Property services income - - - -
Trading property sale proceeds - - - -
--------------- --------------- --------------- ---------------
Revenue 21.9 8.5 3.0 -
Rents payable (0.2) - - -
Other direct property or
contract expenditure (6.4) (1.7) (0.7) -
Indirect property or contract
expenditure (1.1) (0.6) - -
Cost of sales of trading
properties - - - -
Depreciation - - - -
--------------- --------------- --------------- ---------------
14.2 6.2 2.3 -
Profit on disposal of fixed
asset
properties - - - -
Net surplus / (deficit) on
revaluation of
investment properties 19.7 12.8 (3.2) -
--------------- --------------- --------------- ---------------
Operating profit / (loss) 33.9 19.0 (0.9) -
Net finance costs (0.3) (6.7) - -
--------------- --------------- --------------- ---------------
33.6 12.3 (0.9) -
Taxation (10.1) (3.6) 0.3 -
--------------- --------------- --------------- ---------------
23.5 8.7 (0.6) -
Adjustment due to net
liabilities - - - -
--------------- --------------- --------------- ---------------
Share of profits / (losses) of
joint
ventures after tax 23.5 8.7 (0.6) -
=============== =============== =============== ===============
Distribution received from
Telereal
Balance sheet
Investment properties ** 311.1 151.7 159.3 -
Operating properties - - - -
Current assets 10.9 4.4 7.7 -
--------------- --------------- --------------- ---------------
322.0 156.1 167.0 -
--------------- --------------- --------------- ---------------
Current liabilities (12.2) (4.8) (4.5) -
Non-current liabilities (8.4) (108.4) - -
Deferred tax (7.8) (3.3) 1.0 -
--------------- --------------- --------------- ---------------
(28.4) (116.5) (3.5) -
Adjustment due to net
liabilities - - - -
--------------- --------------- --------------- ---------------
Net assets 293.6 39.6 163.5 -
=============== =============== =============== ===============
Capital commitments 0.2 - - -
=============== =============== =============== ===============
Contingent liabilities - - - -
=============== =============== =============== ===============
Market value of investment
properties ** 302.7 149.8 162.8 -
=============== =============== =============== ===============
Net investment
At 1 April 2004 250.2 - - -
Properties contributed - 92.1 - -
Cash contributed 31.7 87.1 - -
Cost of acquisition - - 166.5 -
Share of post-tax results 23.5 8.7 (0.6) -
Adjustment to restate the
Group's share of
Telereal's earnings from an
equity to a
distribution basis - - - -
Distributions - (146.3) (2.4) -
Loan advances - 86.2 - -
Loan repayments (11.8) (88.2) - -
--------------- --------------- --------------- ---------------
At 31 March 2005 293.6 39.6 163.5 -
=============== =============== =============== ===============
10. Investment in joint ventures
Year ended 31/03/05 and at 31/03/05 continued...
Summary financial Martineau
information of Galleries
Group's share of Limited Bullring Limited
joint ventures Partnership Partnership Bristol Alliance Other * Telereal Total
£m £m £m £m £m £m
Income statement
Rental income 1.6 12.8 3.1 0.9 - 44.3
Service charges
income 0.6 5.5 - 0.2 - 13.8
Property services
income - - - - 165.3 165.3
Trading property
sale
proceeds - - - - 25.7 25.7
-------------------- ------------------ ---------------- --------------- ---------------- ----------
Revenue 2.2 18.3 3.1 1.1 191.0 249.1
Rents payable (0.1) - - (0.3) (35.9) (36.5)
Other direct
property
or contract
expenditure (0.9) (6.1) (0.1) - - (15.9)
Indirect property
or
contract
expenditure - (0.2) - - (15.7) (17.6)
Cost of sales of
trading
properties - - - - (8.1) (8.1)
Depreciation - - - - (13.8) (13.8)
-------------------- ------------------ ---------------- --------------- ---------------- ----------
1.2 12.0 3.0 0.8 117.5 157.2
Profit on disposal
of fixed
asset properties - - - (1.8) 12.3 10.5
Net surplus /
(deficit) on
revaluation of
investment
properties 0.9 31.9 7.4 - - 69.5
-------------------- ------------------ ---------------- --------------- ---------------- ----------
Operating profit /
(loss) 2.1 43.9 10.4 (1.0) 129.8 237.2
Net finance costs - 0.1 - 0.1 (66.4) (73.2)
-------------------- ------------------ ---------------- --------------- ---------------- ----------
2.1 44.0 10.4 (0.9) 63.4 164.0
Taxation (0.3) (9.6) (2.2) 1.0 (21.2) (45.7)
-------------------- ------------------ ---------------- --------------- ---------------- ----------
1.8 34.4 8.2 0.1 42.2 118.3
Adjustment due to
net
liabilities - - - - (42.2) (42.2)
-------------------- ------------------ ---------------- --------------- ---------------- ----------
Share of profits /
(losses)
of joint ventures
after tax 1.8 34.4 8.2 0.1 - 76.1
==================== ================== ================ =============== =============== =========
Distribution
received
from Telereal 65.4 65.4
========== =========
Balance sheet
Investment
properties ** 22.6 264.8 81.2 13.0 - 1,003.7
Operating
properties - - - - 1,015.4 1,015.4
Current assets 2.5 11.0 8.0 2.7 50.5 97.7
-------------------- ------------------ ---------------- --------------- ---------------- ----------
25.1 275.8 89.2 15.7 1,065.9 2,116.8
-------------------- ------------------ ---------------- --------------- ---------------- ----------
Current liabilities (0.2) (3.7) (5.0) (1.2) (50.6) (82.2)
Non-current
liabilities - - - - (1,086.4) (1,203.2)
Deferred tax (1.4) (33.9) (2.2) - - (47.6)
-------------------- ------------------ ---------------- --------------- ---------------- ----------
(1.6) (37.6) (7.2) (1.2) (1,137.0) (1,333.0)
Adjustment due to
net liabilities - - - - 71.1 71.1
-------------------- ------------------ ---------------- --------------- ---------------- ----------
Net assets 23.5 238.2 82.0 14.5 - 854.9
==================== ================== ================ =============== =============== =========
Capital commitments - 3.4 0.7 - - 4.3
==================== ================== ================ =============== =============== =========
Contingent
liabilities - - - - - -
==================== ================== ================ =============== =============== =========
Market value of
investment
properties ** 23.7 271.0 83.9 - - 993.9
==================== ================== ================ =============== =============== =========
Net investment
At 1 April 2004 21.7 209.9 - 44.4 - 526.2
Properties
contributed - - 85.6 - - 177.7
Cash contributed - - - - - 118.8
Cost of acquisition - - - - - 166.5
Share of post-tax
results 1.8 34.4 8.2 0.1 42.2 118.3
Adjustment to
restate the
Group's share of
Telereal's
earnings from an
equity to
a distribution
basis - - - - 23.2 23.2
Distributions - - (1.7) (30.0) (65.4) (245.8)
Loan advances - 5.8 14.9 - - 106.9
Loan repayments - (11.9) (25.0) - - (136.9)
-------------------- ------------------ ---------------- --------------- ---------------- ----------
At 31 March 2005 23.5 238.2 82.0 14.5 - 854.9
==================== ================== ================ =============== =============== =========
* Other includes the Martineau Limited Partnership and the Ebbsfleet Limited
Partnership.
** The difference between the book value and the market value is the amount
included in prepayments in respect of lease incentives, head leases capitalised
and properties treated as finance leases.
11. Borrowings
Unamortised Unamortised
discount discount
Nominal Nominal and and Book Book
value value issue costs issue costs value value
2006 2005 2006 2005 2006 2005
£m £m £m £m £m £m
Unsecured
Amounts payable under
finance leases 74.6 69.9 - - 74.6 69.9
Acquisition loan notes 2015 122.8 - - - 122.8 -
Money market borrowings 43.6 73.0 - - 43.6 73.0
----------------- -------------- -------------- --------------- ---------------- -----------
241.0 142.9 - - 241.0 142.9
----------------- -------------- -------------- --------------- ---------------- -----------
Secured
5.016 per cent Notes due
2007 181.7 181.7 (0.1) (0.1) 181.6 181.6
4.625 per cent Notes due
2013 300.0 - (0.5) - 299.5 -
5.292 per cent Notes due
2015 391.5 393.3 (0.9) (0.9) 390.6 392.4
4.875 per cent Notes due
2019 400.0 - (4.6) - 395.4 -
5.425 per cent Notes due
2022 255.3 257.3 (1.0) (1.0) 254.3 256.3
5.391 per cent Notes due
2026 210.7 210.7 (1.0) (1.1) 209.7 209.6
5.391 per cent Notes due
2027 611.3 613.9 (3.1) (3.2) 608.2 610.7
5.376 per cent Notes due
2029 317.9 318.0 (1.7) (1.9) 316.2 316.1
5.396 per cent Notes due
2032 322.9 323.4 (2.0) (2.1) 320.9 321.3
Bank facility due 2010 15.5 - (0.1) - 15.4 -
Syndicated bank debt 750.0 320.0 (1.6) (2.0) 748.4 318.0
DWP term loan 260.0 268.1 (11.2) (12.9) 248.8 255.2
----------------- -------------- -------------- --------------- ---------------- -----------
4,016.8 2,886.4 (27.8) (25.2) 3,989.0 2,861.2
----------------- -------------- -------------- --------------- ---------------- -----------
4,257.8 3,029.3 (27.8) (25.2) 4,230.0 3,004.1
Bond exchange
de-recognition adjustment (527.6) (554.9) (8.6) (9.4) (536.2) (564.3)
Fair value of interest rate
swaps - qualifying hedges 4.3 2.1 - - 4.3 2.1
Fair value of interest rate
swaps - non-qualifying
hedges 3.4 1.2 - - 3.4 1.2
----------------- -------------- -------------- --------------- ---------------- -----------
Total borrowings 3,737.9 2,477.7 (36.4) (34.6) 3,701.5 2,443.1
Less: borrowings falling
due within one year (62.3) (79.0) 3.1 2.7 (59.2) (76.3)
Plus: bond exchange
de-recognition falling due
within one year 14.8 25.7 0.8 0.8 15.6 26.5
Less: amounts payable under
finance leases falling due
within one year (3.1) (1.0) - - (3.1) (1.0)
----------------- -------------- -------------- --------------- ---------------- -----------
Falling due after one year 3,687.3 2,423.4 (32.5) (31.1) 3,654.8 2,392.3
================= ============== ============== =============== ================ ===========
All borrowings are denominated in Sterling.
On 3 November 2004 a debt refinancing was completed resulting in the Group
exchanging all of its outstanding bond and debenture debt for new Notes. The
new Notes do not meet the IAS 39 requirement to be substantially different from
the debt that it replaced. Consequently the book value of the new Notes is
reduced to the book value of the original debt ('the bond exchange
de-recognition adjustment'). The adjustment will be amortised to zero over the
life of the new Notes.
The Notes and the committed bank facilities are secured on a fixed and floating
pool of assets ('the Security Group'). This grants the Group's investors
security over a pool of investment properties valued at £9.4bn at 31 March 2006
(2005: £7.4bn). The secured debt structure has a tiered covenant regime which
gives the Group substantial operational flexibility when the loan to value and
interest rate cover in the Security Group are less than 65% and more than 1.45
times respectively. If these limits are exceeded, operational restrictions
increase significantly and could act as an incentive to reduce gearing.
The acquisition loan notes were issued by Retail Property Holdings Trust
Limited, a subsidiary of the Group, as partial consideration for the purchase of
the Tops Estates PLC and LxB Portfolios. The notes are unsecured, however, have
the benefit of a commercial bank guarantee. Interest is calculated with
reference to 6 month LIBOR.
The DWP term loan is a syndicated term loan due to expire in December 2017 and
is secured on the freehold and long leasehold properties acquired from the
Department of Work and Pensions. The carrying amount of the properties
concerned was £388.1m at 31 March 2006 (2005: £389.4m).
The Group had interest rate swaps outstanding with a notional principal of
£615.0m (2005: £250.0m) which do not qualify for hedge accounting and which
terminate over the period 2007 to 2011. The contracts have fixed interest
payments at an average rate of 4.9% and have floating interest receipts at
LIBOR. In addition, there were interest rate swaps outstanding with a notional
principal of £243.2m (2005: £245.9m) which qualify for hedge accounting and
which terminate over the period 2009 to 2017. The contracts have fixed interest
payments at an average rate of 5.1% and have floating interest receipts at
LIBOR.
Fair value has been calculated by taking the market value, for those instruments
which have a listing, or where one is not available, the fair value is
calculated using a discounted cash flow approach.
Borrowings Borrowings Undrawn Undrawn
committed committed
facilities facilities
2006 2005 2006 2005
£m £m £m £m
The maturity profiles of the Group's borrowings and the expiry
periods
of its undrawn committed borrowing facilities are:
One year or less, or on demand 46.7 50.8 - -
More than one year but no more than two years 185.7 - - -
More than two years but no more than five years 780.8 505.9 1,252.0 1,680.0
More than five years 2,688.3 1,886.4 - -
------------- ------------ ----------- ----------
3,701.5 2,443.1 1,252.0 1,680.0
============= ============ =========== ==========
2006 2005
£m £m
The fair value of the Group's borrowings are:
Book value 3,701.5 2,443.1
Fair value 4,426.0 3,074.1
---------- -----------
Excess of fair value over book value (724.5) (631.0)
========== ===========
Of the excess of fair value over book value £536.2m (2005: £564.3m) is the bond
exchange de-recognition adjustment.
12. Deferred taxation
Deferred tax is provided as follows: 2006 2005
£m £m
Excess of capital allowances over depreciation - investment properties 116.8 112.7
- operating properties 31.1 22.9
Capitalised interest - investment properties 23.9 28.0
- operating properties 2.6 0.9
Revaluation surpluses - own 1,580.9 1,117.9
- acquired 83.3 19.0
Tax losses (12.2) (37.8)
Other temporary timing differences 141.4 154.4
------------- ---------------
Total deferred tax 1,967.8 1,418.0
============= ===============
Tax on capital gains that would become payable by the Group if it were to
dispose of all of its
investment properties at the amount stated in the balance sheet 991.2 586.5
Potential reduction in tax on contingent capital gains if properties were sold
within their owning companies (28.3) (90.4)
------------- ---------------
Tax on contingent capital gains assuming no further mitigation 962.9 496.1
============= ===============
It has not been possible to determine the amounts that will crystallise within
one year as required under IFRS as it is not possible to determine which
properties, if any, will be sold within the next financial year.
13. Total shareholders' equity
Ordinary Treasury Share Share Capital Retained Total
shares shares based premium redemption earnings
acquired payments reserve *
£m £m £m £m £m £m £m
At 1 April 2004 46.6 - 0.8 15.9 22.1 5,066.8 5,152.2
Repayment of B shares - - - - 8.4 (8.4) -
Exercise of options 0.2 - - 15.5 - - 15.7
Fair value of share based
payments - - 2.5 - - - 2.5
Treasury shares acquired - (2.1) - - - - (2.1)
Actuarial losses on defined
benefit pension schemes - - - - - (3.4) (3.4)
Dividend paid (note 6) - - - - - (175.5) (175.5)
Profit for the financial year - - - - - 1,060.9 1,060.9
------------ ---------- ---------- ------------ -------------- ---------- ------------
At 31 March 2005 46.8 (2.1) 3.3 31.4 30.5 5,940.4 6,050.3
Exercise of options 0.1 - - 11.8 - - 11.9
Fair value movement on cash - - - - - (1.6) (1.6)
flow hedges - Group
Fair value movement on cash
flow hedges - joint ventures - - - - - (1.9) (1.9)
Fair value of share based
payments - - 3.6 - - - 3.6
Treasury shares acquired - (1.9) - - - - (1.9)
Cost of shares awarded to
employees - 0.6 (0.6) - - - -
Actuarial losses on defined
benefit pension schemes - - - - - (3.5) (3.5)
Dividend paid (note 6) - - - - - (238.9) (238.9)
Profit for the financial year - - - - - 1,675.9 1,675.9
------------ ---------- ---------- ------------ -------------- ---------- ------------
At 31 March 2006 46.9 (3.4) 6.3 43.2 30.5 7,370.4 7,493.9
============ ========== ========== ============ ============== ========== ============
* Included within retained earnings is £3.5m (2005: £Nil; 2004: £Nil) of losses
in respect of cash flow hedges.
Treasury shares represent the cost of shares purchased in Land Securities Group
PLC by the Employee Share Ownership Plan (ESOP) which is operated by the Group
in respect of its commitment to the Deferred Bonus scheme. The number of shares
held by the ESOP at 31 March 2006 was 292,703 (2005: 194,139).
14. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
Group Group
2006 2005
£m £m
Cash generated from operations
Profit for the financial year 1,675.9 1,060.9
Income tax expense 683.3 246.6
----------------- ----------------
Profit before tax 2,359.2 1,307.5
Distribution received from joint venture (Telereal) (11.7) (65.4)
Share of the profits of joint ventures (post-tax) (98.6) (76.1)
----------------- ----------------
2,248.9 1,166.0
Interest income (7.3) (18.3)
Interest expense 201.8 248.6
----------------- ----------------
Operating profit 2,443.4 1,396.3
Adjustments for:
Depreciation 25.7 35.7
Profit on disposal of fixed asset properties (74.5) (112.0)
Profit on disposal of joint venture (293.0) -
Net surplus on revaluation of investment properties (1,579.5) (827.9)
Goodwill impairment 64.5 12.7
Pension scheme (credit) / charge (4.4) 3.7
Changes in working capital
Increase in trading properties and long-term development contracts (2.1) (31.2)
Decrease / (increase) in receivables 23.0 (49.1)
(Decrease) / increase in payables (11.6) 95.2
--------------- ----------------
Net cash generated from operations 591.5 523.4
=============== ================
15. Acquisition of Tops Estates PLC
The Group acquired 100% of the voting rights of Tops Estates PLC on 10 June 2005
for a consideration of £334.1m, including costs. This has been accounted for as
a business combination.
Book value Fair value Fair value
at acquisition adjustments acquired
£m £m £m
Fair value of assets acquired
Investment properties 573.0 19.6 592.6
Debtors 21.9 (7.0) 14.9
Cash and cash equivalents 12.9 - 12.9
Current liabilities (19.4) - (19.4)
Non-current liabilities (230.6) (27.3) (257.9)
Deferred taxation (9.2) (64.3) (73.5)
--------------- --------------- --------------
Net assets acquired 348.6 (79.0) 269.6
--------------- --------------- --------------
Fair value of consideration
Cash 325.3
Costs 8.8
--------------
334.1
Goodwill (64.5)
-------------
269.6
=============
16. Reconciliation of UK GAAP to IFRS
The Group's transition date for the adoption of IFRS is 1 April 2004. This
transition date has been selected in accordance with IFRS 1 'First-time adoption
of International Financial Reporting Standards'. The Group has also adopted IAS
32 'Financial Instruments: Disclosure and Presentation' and IAS 39 'Financial
Instruments: Recognition and Measurement' from 1 April 2004.
The principal differences for the Group between reporting under IFRS as compared
to UK GAAP as at 31 March 2005 are:
(i) Recognising revaluation surpluses and deficits in the
income statement;
(ii) Providing in full for deferred tax on revaluations and
charging movements on this provision through the income statement;
(iii) Restating the financial effects of the November 2004 debt
refinancing;
(iv) Showing the Group's share of the profit after tax and net
assets of all its joint ventures and joint arrangements as single lines in the
income statement and balance sheet respectively;
(v) Ceasing to amortise goodwill but instead testing for
impairment; and
(vi) No longer recognising dividends payable to shareholders
prior to their approval by the Annual General Meeting in the case of the final
dividend and by the Board in the case of the interim dividend.
The application of IFRS has also changed the presentation of the cash flow
statement which now shows cash flows derived from three types of activities -
operating, investing and financing. In addition, under IFRS, the cash flow
statement includes all cash flows in respect of cash and cash equivalents. This
is a broader definition of cash than under UK GAAP.
As a general rule, the Group is required to establish its IFRS accounting
policies for the year ending 31 March 2006 and apply these retrospectively to
determine its opening IFRS balance sheet at the transition date of 1 April 2004
and the comparative information for the year ended 31 March 2005. However,
advantage has been taken of certain exemptions afforded by IFRS 1 'First-time
adoption of International Financial Reporting Standards' as follows:
• Business combinations prior to 1 April 2004; and
• The Group has applied IFRS 2 'Share-based Payment' retrospectively
only to awards made after 7 November 2002 that had not vested at 1 January 2005.
In preparing the IFRS accounts, the Group has adjusted amounts reported
previously in the financial statements prepared in accordance with UK GAAP. An
explanation of how the transition has affected the Group's financial performance
and position is set out in the following tables and accompanying narrative.
Reconciliation of equity
Notes 2006 2005 2004
£m £m £m
Equity shareholders' funds under UK GAAP * 8,750.2 6,636.6 6,030.1
IFRS adjustments
Deferred tax on revaluations - Group (i) (1,580.9) (1,117.9) (953.5)
- joint ventures (i) (75.5) (43.8) (24.0)
- on acquisitions (i) (83.3) (19.0) -
Dividend ** (ii) 134.0 153.7 126.8
Finance leases - Group (iv) 4.3 8.5 (9.2)
- joint ventures (iv) (0.2) (0.3) (0.2)
Pension deficit (net of deferred tax) ** (iii) (13.6) (17.7) (16.2)
Tenant lease incentives (v) (23.0) (16.5) (13.6)
Fair value of interest rate swaps - Group (net of deferred tax) (vi) (5.4) (2.3) (31.1)
- joint ventures (net of deferred tax) (vi) (3.2) (1.3) -
Non-amortisation of goodwill (Land Securities Trillium) (vii) 4.8 2.4 -
Share based payments (viii) 4.1 3.0 1.4
Write off negative goodwill arising 6.3 6.3 -
Adjustment to restate the Group's share of Telereal's earnings from
an equity to
a distribution basis - investment (ix) - 71.1 47.9
- taxation (ix) - (10.6) (10.6)
Bond exchange de-recognition (net of deferred tax) (x) 375.3 395.0 -
Other - 3.1 4.4
---------- ---------- -----------
Equity shareholders' funds under IFRS 7,493.9 6,050.3 5,152.2
========== ========== ===========
* UK GAAP referred to in these reconciliations is that existing as at 31 March
2005.
** Adjustment to UK GAAP as at 31 March 2005, most of which would no longer be
required under UK GAAP following the adoption of FRS 17 and FRS 21
Notes
(i) Deferred tax is required to be provided in full on all
differences between carrying values for accounts purposes and those for
taxation. In particular, deferred tax is now provided on revaluation surpluses.
(ii) Dividends are now only provided when finally approved,
either by the Annual General Meeting in the case of final dividends or by the
Board for interim dividends.
(iii) The actuarial deficit in the Group's defined benefit
pension schemes is now recognised as a liability in the consolidated balance
sheet.
(iv) Tenant leases which transfer substantially all of the risks
and rewards of ownership to the tenant are treated as finance leases. The
property is de-recognised from the balance sheet and a receivable recognised in
its place.
(v) The cost of tenant lease incentives, such as rent free
periods, are now amortised over the term of the leases concerned rather than
over the period to the first review to market rents.
(vi) The fair value of all derivatives such as interest rate
swaps is now recognised in the Group balance sheet at each reporting date.
(vii) Goodwill arising on acquisition is no longer amortised but
kept on the balance sheet and reviewed regularly for impairment.
(viii) The cost of share based payments is now recognised through
the income statement.
(ix) Joint ventures cease to be consolidated once their net
assets become negative. This is the case with Telereal during the year under
review.
(x) The bond exchange which took place in November 2004
qualified as an extinguishment of the existing debt and an issue of new debt
under UK GAAP. Under IFRS, this is not the case and the existing debt is
reinstated with the difference in redemption amounts being amortised over the
life of the new debt.
Reconciliation of profit
Notes 2006 2005
£m £m
Profit / (loss) attributable to ordinary shareholders under UK GAAP * 658.5 (35.8)
IFRS adjustments
Revaluation surplus on investment properties - Group (xi) 1,579.5 827.9
- joint ventures (xi) 105.5 69.5
Deferred tax on revaluations - Group (xii) (463.0) (164.4)
- joint ventures (xii) (31.7) (19.8)
Taxation on revaluation surpluses realised on disposal of investment
properties (xiii) (43.3) (40.3)
Finance leases - Group (iv) 9.1 (9.4)
- joint ventures (iv) 0.1 (0.1)
Pension deficit (net of deferred tax) ** (iii) 7.6 1.9
Tenant lease incentives (v) (0.1) (3.0)
Fair value of non-qualifying interest rate swaps (net of deferred tax) (vi) (1.5) 27.5
Non-amortisation of goodwill (Land Securities Trillium) (vii) 2.4 2.4
Share based payments (viii) (2.5) (0.9)
Goodwill impairment on the acquisition of businesses (64.5) (12.7)
Adjustment to restate the Group's share of Telereal's earnings from an
equity to a distribution basis (ix) (60.5) 23.2
B share dividends - (0.1)
Bond exchange de-recognition - originating adjustment (net of deferred tax) - 402.8
- adjustment in year (net of deferred tax) (19.7) (7.8)
------------ -----------
Profit attributable to ordinary shareholders under IFRS 1,675.9 1,060.9
============ ===========
* UK GAAP referred to in these reconciliations is that existing as at 31 March
2005.
** Adjustment to UK GAAP as at 31 March 2005, most of which would no longer be
required under UK GAAP following the adoption of FRS 17 and FRS 21
(xi) The surpluses and deficits arising on the periodic
revaluation of the investment property portfolio are now taken through the
income statement.
(xii) Deferred tax is provided in full on the revaluation
surpluses and deficits and taken through the income statement.
(xiii) Deferred tax provided on revaluation surpluses does not
become payable on disposal of the properties concerned and so has to be written
back through the income statement.
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