Final Results - Part 1

Slough Estates PLC 17 March 2004 17th March 2004 SLOUGH ESTATES plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31st DECEMBER 2003 Highlights • Stability of property income and occupancy reflects balance in core business space market • Underlying 2% rise in pre-tax profits before expensing interest on vacant land and exceptionals • Increased speculative starts in 2004 reflect increasing business confidence for 2005/2006 • 147 hectare landbank forms a solid platform for future growth • Dividend up 7.1%: 5 year compound growth of 7.6% p.a. Results 2003 2002 % change £m £m Core property income* 135.7 140.3 -3.3 Profit before tax and exceptional items 140.1 143.5 -2.4 Profit before tax after exceptional items 103.8 143.4 -27.6 Adjusted basic earnings per share+ 27.6p 28.8p -4.2 Basic earnings per share 19.6p 20.9p -6.2 Recommended final dividend 9.2p 8.55p +7.6 Total dividend for year 15.0p 14.0p +7.1 Diluted net assets per share before FRS19 deferred tax 505p 519p -2.7 Basic net assets per share 489p 506p -3.4 *Core property income comprises investment and joint venture property income less administration and net interest cost +Adjusted to exclude exceptional items and FRS19 deferred tax Sir Nigel Mobbs, Chairman, said: '2003 has been a year of consolidation for the Group in what has been a challenging year for property both at home and overseas. However, in these quieter markets Slough has seen the benefits of investing in prime locations especially those overseas, which have maintained strong occupancy, such as Brussels and Paris, and show the importance of a well-distributed and balanced portfolio. Slough is now well positioned for the upturn and will look to increase development activity as occupier demand recovers, by selectively building out our extensive land bank with a full range of flexible business space. With relatively long lead times in development, we now need to increase our speculative building programme in order to have product available for customers for the expected upturn in demand in 2005 and beyond.' For further information contact: Slough Estates plc Shared Value Limited Sir Nigel Mobbs, Chairman Andrew Best Ian Coull, Chief Executive Emily Bruning Dick Kingston, Finance Director Tel: 020 7321 5022 / 5027 Tel: 01753 537171 A meeting will be held at 9.30am on 17 March 2004 for analysts and this meeting will be audio streamed on Slough Estates' web site: www.sloughestates.com Preliminary Statement 2003 The preliminary results reflect a robust performance for the year across the Group's portfolio in what have been challenging market conditions. At both the preliminary results last March and the interim results in August we indicated that 2003 would be a slow year in terms of demand and, therefore, we would continue to hold back on development. This has been a continuation of our policy started in 2002, when we cut back on most speculative development anticipating these more difficult markets. In these markets we can take a great deal of encouragement from the resilience of our core property income as our strategic bias towards flexible business space has protected us from the worst of the downturn and in recent months there has been an encouraging increase in the number of occupier enquiries. At the interim results in August we reported on the completion of a strategic review of the business, which has been approved by the Board. It is perhaps worth restating the conclusions of this review as they will form the basis of Slough Estates' strategy going forward. Our focus will be on flexible business space, which today accounts for over 80 per cent by value of our property portfolio, as these well located blocks of property offer the greatest opportunity for superior returns over time. Our intention will be to increase the Group's exposure to such modern multi-use Business Parks maximising returns for each location by providing the most appropriate mix of buildings for a wide range of customer demand. In terms of geographical spread we concluded that the opportunities in selected markets outside the UK remain as good or better, and that the Group will continue to invest in business centres on the basis of investing in the locations that offer the most attractive returns for new money. The review also confirmed the value of the small portfolio of retail shopping centres in the UK, which have a limited place in the portfolio. It is also the intention of the Group to find, over time, the most advantageous exit from its non-property investments, which make up just 3 per cent of the assets of the Group. Results Profit before tax and exceptional items fell by £3.4 million to £140.1 million. While core property income was down 3.3 per cent at £135.7 million, on a like for like basis, rental income increased by £4.7 million or 2 per cent. Following our decision to slow development in 2002, we temporarily halted work on site at our major land holdings at Farnborough and Cambridge and, in accordance with the accounting rules, have ceased capitalising interest in respect of these sites until the development process resumes, which we expect to be in the next few months at Farnborough. The interest so expensed reduced profit before taxation by £6.2 million. Without this factor, profit before tax (and exceptional items) would have been 2 per cent higher than that of 2002. Profit before tax of £103.8 million after exceptional items was £39.6 million down on last year due mainly to a provision of £37.9 million on our residential leisure development at Quail West in Florida, which reflected the downturn that this business has suffered in the last two years. Adjusted basic earnings per share decreased by 4.2 per cent to 27.6p. Basic earnings per share were 19.6p, a 6.2 per cent fall. The underlying effective tax rate (before exceptional items and FRS19 deferred tax) was 11.1 per cent (8.2 per cent in the prior period). Dividends A final dividend of 9.2p per share is recommended which, together with the interim dividend of 5.8p per share, represents an aggregate distribution of 15.0p per share, an increase of 7.1 per cent for the year and a five year compound return of 7.6 per cent per annum. Balance Sheet An external valuation of the Group's UK investment properties was undertaken, as at 31 December 2003, by our newly appointed valuers, CB Richard Ellis and DTZ Debenham Tie Leung, both of whom were appointed in 2003. The 2003 valuation reconfirmed the consistency of the valuation process of previous years. The valuation fall of £97.7 million or 2.7 per cent to £3,563.9 million on the Group's fully owned worldwide properties was partly offset by a surplus on property joint ventures and associate of £10.8 million or 4.7 per cent. This, combined with the benefit of retained earnings and other minor capital changes resulted in a 2.7 per cent reduction in diluted net assets per share to 505p before application of FRS19 deferred tax, or a decrease of 3.3 per cent to 464p per share after provision for deferred tax. In the UK, the revaluation deficit was £89.7 million, 3.3 per cent down on last year's valuation. Surpluses in the retail (7.8 per cent) and industrial (1.8 per cent) sectors were more than offset by the 19.1 per cent and 25.5 per cent deficits on offices and development land respectively. The attraction of a secure income stream means that in the current uncertain economic conditions there is still strong investment demand for well-let properties. This demand has continued to offset concerns about short-term rental growth prospects and, as a result, yields are broadly unchanged from those reported at this time last year. In the USA, the valuation was down by £8.2 million or 1.3 per cent. The health science laboratory portfolio was more resilient than the multi-tenanted mixed-use product in the San Francisco area, the latter suffering from increased vacancy. In Belgium and France there was an overall deficit of 0.6 per cent. A 1.0 per cent surplus in France, reflecting rent indexation, was offset by a 1.5 per cent deficit in Belgium due mainly to declines in rental and occupancy levels. The balance sheet remains very strong and conservatively geared with a net debt to equity ratio of 64 per cent adjusted to exclude FRS19 deferred tax, or 69 per cent after accounting for FRS19. At the end of 2003 the Group's debt totalled £1,667.1 million or £1,507.8 million net of cash deposits. The Group's average interest rate on borrowed funds was 6.68 per cent, with an average maturity of 10.8 years. Review To date the area of greatest change as a result of the Strategic Review has been the internal structure of the business, in terms of reporting and the overall management regime. Such changes are not obvious to the outside world but are fundamental to the success of the business. In 2003, we have streamlined the reporting structure and in particular in the UK leasing area we have centralised the management into one team, which has helped us to step up our efforts in leasing and to improve the process. The UK Retail business is now under new leadership and the team will review some extensions in existing centres but will also explore how to manage assets more actively. In the area of human resources, a new Director of Human Resources was appointed in the Spring. A new rewards package has been introduced which sets out clear targets for performance based remuneration across the business. We firmly believe that these changes will be a strong force for motivating our people and will maximise the contributions from the most talented individuals in what is a strong team of people. 2003 has shown the defensive attributes of Slough Estates' portfolio, with strong cashflow generation and low gearing. Our leased portfolio reflects strong covenants from our largest customers, such quality names as Fiat, Masterfoods, Microsoft, O2, Centrica, Pfizer, DHL, Deloitte & Touche, McDonalds and Cisco. Overall, our top twenty customers provide some 31 per cent of Group income. The wide spread of businesses from our total customer base, which amounts to 1720 names worldwide, and covering a wide range of market sectors, is a further source of strength. The diversity of business and strength of covenant is reinforced by long leases, with a worldwide average of 11.5 years to run, excluding breaks, so giving us a high degree of income security. The contracted income stream for the next five and ten years of 73 per cent and 50 per cent respectively when compared to our current income is excellent. This calculation is made on the most pessimistic and improbable assumption of no new lettings being made and every tenant break clause being exercised in the intervening period, when in reality we can expect a continued flow of lettings. In the last five years, 78 per cent of our customers have not exercised their lease breaks and a majority of customers in fact renewed their leases on expiry. It remains the case that new lettings for larger buildings have been more difficult to achieve. However, new leases for existing space increased by 37 per cent from 2002 and leases of new space increased by 31 per cent. We expect to increase the number of speculative developments in 2004. It is important with the lead times involved in bringing product to the market that we are prepared for stronger markets a year to eighteen months away, and with a strong balance sheet and an excellent supply of well located land with planning consents across all our markets, Slough Estates is well placed for the expected upturn in the market. We have a total future development programme of some £1 billion on 147 hectares of land for the next five to eight years. Occupancy by rent for 2003 is marginally down on 2002 but overall there is a high level of stability in these figures, which we believe to have levelled off at around 90 per cent. In 2004, we are gaining confidence about the outlook in property markets as global economic prospects improve but it may be next year before we see a strong upturn in customer demand. We currently have only 67,000 sq.m. of space under construction, 40 per cent down on 2002 levels and with 45 per cent pre-leased, but we expect the space under construction to increase significantly during 2004. Review of Activities United Kingdom It has been a year of consolidation with a reduced development programme reflecting the quieter market conditions. In 2003, there were only two speculative and two pre-let project starts as our focus has been on preparation, in terms of planning, and on leasing our existing buildings. We have submitted over 30 planning applications during the year for various developments, refurbishments and changes of use. In terms of leasing, the new restructured leasing team has successfully let 84,000 sq.m., a notable achievement in a difficult year. One change that has helped the management of our West London properties has been the creation of a new virtual estate, theLHR.com, which brings together 16 West London properties into one integrated estate with common estate management and leasing. With a more encouraging economic and market outlook for 2004 and beyond, a number of new development projects are being brought forward. Work is under way on two more pre-lets for HR Owen and WH Smith for starts in the first quarter 2004 and, in January, work started on two smaller projects, a business unit in Slough and an office courtyard scheme in Kings Norton. In early 2004, we will review the prospects for speculative developments at Farnborough, Slough, West Drayton and Portsmouth. On the Slough Trading Estate, the company has been working with Slough Borough Council on the replacement of the current Trading Estate Simplified Planning Zone (SPZ) to follow on from the expiry of the existing SPZ in January 2005. The SPZ has allowed the company to develop business space more quickly as it avoids the need to take each redevelopment through the planning process. Also a new integrated transport strategy is being introduced to the Trading Estate. It will comprise a new bus service which is funded by Slough Estates, Slough Borough Council and First Group. This Public Private Partnership will significantly improve local transport. Significant progress has been made in 2003 on the Development Brief Area (DBA) at Farnborough Business Park, working with the regulatory bodies concerned as well as other stakeholders, to ensure the key heritage buildings are drawn into the planning process in a sensitive but economic fashion. On the Cambridge Research Park, the on site team is adding to the amenities and will operate a Cafe/Bar on site. Major Events - UK • Sale of the Pentagon Shopping Centre in Chatham, Kent for £54 million (at an initial yield of 6.89 per cent) - January • Letting of Building 7400 (1,776 sq. m.) at Cambridge Research Park to Drake Electronics - the largest commercial letting in Cambridge in twelve months - April • Letting to Agusta Westland, the helicopter manufacturer of part of 25 Templer Avenue at Farnborough, a 10 year lease is for 941 sq. m. at a rent of £275 per sq. m. - April • Completion and letting of new 2,210 sq.m. purpose built distribution centre to UPS and pre-let to Knorr-Bremse of 3,372 sq. m., both at Emerald Park, Bristol- August • Acquisition of nine hectares of land at Manor Royal, Crawley, Sussex for £25 million. - November • Six lettings completed at newly re-branded West London portfolio, theLHR.com, totalling 2,549 sq. m. of warehousing/ manufacturing space - December • New 4,293 sq. m. speculative development warehouse scheme completed at theLHR.com - December North America The North American business has had a successful year with underlying occupancy of 91.7 per cent. Two buildings, 333 Oyster Point and Allerton, have however caused occupancy temporarily to fall to 87.3 per cent, but the first building is scheduled for demolition and the second for redevelopment, so both buildings will only be in the statistics for a short period and so vacancy rates will drop back to its real underlying level. In 2003 Slough Estates leased 67,000sq.m. of new and existing space. During this period clients vacated some 31,500 sq.m. and there were total client renewals of 14,000 sq.m. Major Events - North America • Five buildings were completed at Britannia Oyster Point, South San Francisco, a total of 45,000 sq.m. • The third phase of the Pfizer (Sugen) campus at Pointe Grand, South San Francisco of 6,300 sq.m. was completed • Two buildings comprising 17,000 sq.m. were completed on the Pfizer campus at Torrey Pines Science Center • Slough Estates sold land and buildings at Elgin, Illinois for $6.7 million Continental Europe Slough Estates has had a successful trading year in Continental Europe in all three countries. There were property sales in Belgium at Pegasus II, Strombeek and Kortrijk, in France at St Fargeau and in Germany at Kapellen. In terms of new developments, we are constructing another light industrial park in Frankfurt of some 9,000 sq.m. of which some 14 per cent is pre-let. A new office development at Kortrijk, in Belgium, of 4,000 sq.m. is being built which has been pre-let and forward sold. Perhaps the most exciting development is at Le Bourget near Paris where a 7,500 sq.m. first phase of a light industrial park is under construction which is 38 per cent pre-let. Major Events - Continental Europe • Letting to DHL Solutions of a 22,750 m(2) distribution warehouse at Kapellen, just outside Dusseldorf • 31,000 sq.m. let in France • 32,000 sq.m. let in Germany Post December year-end events Slough Estates has agreed to purchase 2.8 hectares of land at Winnersh with existing industrial use and a 13 hectare site at Portsmouth. The latter scheme benefits from an outline planning permission for 60,000 sq. m. of industrial space. Tax Transparent Property Trusts (REITs) The whole debate on REITs will come to a head with the publication, later today, of the consultation document. At present we do not know what structure these vehicles will take and so we cannot say at this stage whether it would be in Slough Estates' interest to convert into such a new vehicle. What is clear is that the anticipation of REITs in the UK has ensured a strong interest in how institutional and other investors should hold their property investments and whether a more liquid holding structure will lead to greater weightings in property as a percentage of their total portfolios. The discussions about REITs have far reaching implications for Slough Estates as it has led us to examine more closely the best structure to hold property assets both at home and abroad. In particular we had already been looking at our substantial health science assets in California, as there may be attractions in the medium term to monetise these assets, in whole or in part, and a U.S. REIT structure may be the best way to hold these assets. In the UK, the major factor will be whether the Government's new REIT structure will give us the ability to continue the development programme, which is some £1 billion worldwide, as it is from such development that we earn our best returns. Outlook In 2003 the Group has delivered a good set of results in what have been challenging markets for property companies. The slower growth in 2003 was inevitable following our decision in 2002 to cut back on the development programme as we believed that we faced a tougher business environment. This earlier caution has been shown to be fully justified by subsequent events with weaker demand for our products in 2003. Today we look forward with a greater degree of optimism than at any time in the last eighteen months and believe that demand will recover in 2005. Therefore it is important that we ensure that we have sufficient product available to meet this rising demand and this will mean increasing development activity in 2004, so preparing for the upturn in the market. Returning to the general Group prospects, the upturn in the property cycle confirms our belief in the strength of property as an investment medium. Slough Estates has avoided the worst of the downturn by its focus on flexible business space. Within the business space segment, Slough does not have any exposure to city centre properties, and although the suburban business space market is still slow, demand is stable and we have recently seen a rise in enquiries. Slough Estates' investment in retail property remains healthy with strong investor demand for well-located and well-let shopping centres. Your Board is confident that the company is well placed to meet what is expected to be better market conditions in the next few years and believes that the long-term outlook for property remains good. This view means that we are confident about the prospects for the company and this is reflected in the proposed dividend increase of 7.1 per cent, which is underpinned by a secure and growing rental stream. Ian Coull Chief Executive SLOUGH ESTATES plc 2003 PRELIMINARY RESULTS GROUP PROFIT AND LOSS ACCOUNT Note 2003 2002 For the year ended 31 December 2003 £m £m Turnover: Group 2 325.9 295.3 Joint ventures 2 16.8 15.9 ======== ======== Operating income: Property investment 2 223.1 216.9 Property trading - operating 2 7.1 2.8 Property trading - exceptional provision 2 (37.9) - (30.8) 2.8 Utilities 2 (4.2) (4.5) Oil and gas 2 (3.5) (1.2) Other income 2 4.8 6.1 Administration expenses 3 (14.0) (14.9) ________ ________ Group operating profit 175.4 205.2 Share of operating profit of property joint ventures and associate Property investment 15.1 14.8 Property trading 0.2 - 15.3 14.8 ________ ________ Total operating profit 190.7 220.0 Profit/(loss) on sale of investment properties 1.6 (0.1) ________ ________ Profit before interest and taxation 192.3 219.9 Interest (net) 4 (88.5) (76.5) ________ ________ Profit on ordinary activities before taxation 103.8 143.4 Taxation - current 5 (14.7) (11.2) - deferred 5 2.3 (33.4) (12.4) (44.6) ________ ________ Profit on ordinary activities after taxation 91.4 98.8 Minority interests - equity 1.8 (0.6) Preference dividends 6 (11.4) (11.4) ________ ________ Profit attributable to ordinary shareholders 81.8 86.8 Ordinary dividends 6 (62.5) (58.2) ________ ________ Retained profit 19.3 28.6 ________ ________ Basic earnings per ordinary share 7 19.6p 20.9p Adjustment to exclude profits and losses on sale of investment properties net of tax and minority and the exceptional provision for Quail West 5.2p (0.1p) Adjustment to exclude FRS19 Deferred Tax 2.8p 8.0p ________ ________ Adjusted basic earnings per ordinary share 7 27.6p 28.8p ________ ________ Fully diluted earnings per ordinary share 7 19.6p 20.9p ________ ________ The results in the Group profit and loss account relate to continuing operations. The 2002 results of Tipperary Corporation Inc. (oil and gas) operations have been reclassified from other income into a separate line item 'Oil and gas'. STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2003 2003 2002 £m £m Profit attributable to ordinary shareholders 81.8 86.8 (Deficit)/surplus on revaluation of - properties (97.7) (20.3) - joint ventures and associate 10.8 14.6 Exchange differences (3.5) (15.3) Other items - (0.6) Taxation 4.0 0.4 Minority interests (1.9) (1.2) _____ _____ Total recognised gains and losses for the year (6.5) 64.4 _____ _____ RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS For the year ended 31 December 2003 2003 2002 £m £m Profit attributable to ordinary shareholders 81.8 86.8 Ordinary dividends (62.5) (58.2) _______ _______ 19.3 28.6 Revaluation deficit (86.9) (5.7) Other recognised gains and losses (1.4) (16.7) Ordinary shares issued 5.2 2.3 _______ _______ Net (decrease)/increase in shareholders' funds (63.8) 8.5 Shareholders' funds at 1 January 2,245.1 2,236.6 _______ _______ Shareholders' funds at 31 December 2,181.3 2,245.1 ======= ======= GROUP BALANCE SHEET As at 31 December 2003 Note 2003 2002 £m £m Fixed assets Tangible assets - investment properties 8 3,563.9 3,632.6 - other 41.8 38.1 Investments in joint ventures: - share of gross assets 255.9 231.3 - share of gross liabilities (50.5) (46.5) 9 205.4 184.8 Investment in associate 9 3.9 3.9 _______ _______ 3,815.0 3,859.4 _______ _______ Current assets Stocks 10 123.2 146.8 Debtors 10 35.9 31.8 Trading investments 10 107.3 81.3 Cash and deposits 14 159.3 93.9 _______ _______ 425.7 353.8 _______ _______ Prepayments and accrued income 20.3 17.9 _______ _______ Total assets 4,261.0 4,231.1 _______ _______ Capital and reserves Called up share capital 138.9 138.5 Share premium account 11 336.0 331.2 Capital reserves 11 1,439.2 1,525.6 Profit and loss account 11 267.2 249.8 _______ _______ Shareholders' funds 2,181.3 2,245.1 Minority interests - equity 22.1 24.5 - non-equity 0.3 0.3 Provisions for liabilities and charges 13 205.6 189.2 Creditors falling due within one year Borrowings 14 40.5 27.8 Other 15 177.9 183.2 218.4 211.0 Creditors falling due after more than one year Borrowings 14 1,626.6 1,555.7 Other 15 6.7 5.3 1,633.3 1,561.0 _______ _______ 4,261.0 4,231.1 _______ _______ Shareholders' funds attributable to: Equity shareholders - ordinary shares 2,043.5 2,107.3 Non-equity shareholders - preference shares 137.8 137.8 _______ _______ 2,181.3 2,245.1 _______ _______ Net assets per ordinary share - basic 7 489p 506p - basic excluding FRS19 deferred tax 7 535p 551p - fully diluted 7 464p 480p - fully diluted excluding FRS19 deferred tax 7 505p 519p Approved by the Board on 16 March 2004. SUMMARISED GROUP CASH FLOW STATEMENT For the year ended 31 December 2003 2003 2002 £m £m Net cash inflow from operating activities - see (a) below 212.3 202.5 Dividends from joint ventures and associate 8.8 11.6 Net interest paid (110.4) (110.0) Dividends paid to preference and minority shareholders (12.3) (12.5) Taxation (14.1) (22.3) Equity dividends paid (59.6) (55.8) Purchase and development of investment properties (109.5) (166.4) Sales of investment properties 59.3 5.7 Other net investments (31.8) (8.9) ______ ______ Net cash outflow before use of liquid resources and financing (57.3) (156.1) Management of liquid resources Investment in term deposits (46.1) 19.5 Financing Issue of ordinary shares 5.2 2.3 Increase in debt 118.3 72.7 ______ ______ Increase/(decrease) in cash - see (b) below 20.1 (61.6) ====== ====== (a) Reconciliation of operating profit to net cash 2003 2002 inflow from operating activities £m £m Operating profit 175.4 205.2 Less other income reallocated (2.4) (5.6) Add back depreciation 3.2 0.9 Add back exceptional provision against Quail West 37.9 - Adjust for other non-cash items 1.6 0.3 Net rental income from trading properties - 3.1 ______ ______ 215.7 203.9 Movement in stocks, debtors and creditors (3.4) (1.4) ______ ______ Net cash inflow from operating activities 212.3 202.5 ====== ====== (b) Reconciliation of net cash flow to movement in net debt 2003 2002 £m £m Increase/(decrease) in cash in the year 20.1 (61.6) Increase in debt (118.3) (72.7) Increase/(decrease) in liquid resources 46.1 (19.5) ________ ________ Change in net debt resulting from cash flows (52.1) (153.8) Unamortised borrowing costs 2.2 - Net debt acquired (0.8) - Translation difference 32.5 29.4 ________ ________ Movement in net debt in the year (18.2) (124.4) Net debt at 1 January 2003 (1,489.6) (1,365.2) ________ ________ Net debt at 31 December 2003 (1,507.8) (1,489.6) ======== ======== NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation The financial information is prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 2002, all of which have been applied consistently throughout this and the preceding year. These accounts are abridged preliminary Group accounts for the year ended 31 December 2003, together with prior year comparatives. These are not statutory accounts and have been extracted from the full statutory accounts for 2003, which will be delivered to the Registrar of Companies in due course and on which the auditors' report is unqualified. The results for 2002 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. 2. Turnover and Group operating profit Turnover Group operating profit 2002 2003 restated 2003 2002 £m £m £m £m Business segments: Property investment 256.6 242.3 223.1 216.9 Property trading - operating 40.6 31.6 7.1 2.8 - exceptional provision - - (37.9) - Utilities 25.2 18.3 (4.2) (4.5) Oil and gas 3.5 3.1 (3.5) (1.2) Other activities - - 4.8 6.1 Common costs - - (14.0) (14.9) _____ _____ _____ _____ 325.9 295.3 175.4 205.2 ===== ===== ===== ===== Geographical segments: United Kingdom 197.2 183.9 141.1 142.2 Australia - oil and gas 3.5 3.1 (3.5) (1.2) Canada 2.6 2.4 2.2 1.0 USA 60.9 55.2 4.6 38.7 Europe 61.7 50.7 31.0 24.5 _____ _____ _____ _____ 325.9 295.3 175.4 205.2 ===== ===== ===== ===== Oil and gas results are shown separately above for the first time in 2003. Previously these were shown in other income. The exceptional provision above is in respect of the residential leisure development at Quail West in Florida, and comprises a £17.1 million write down of the investment and a £20.8 million provision for future costs (Note 13). Joint ventures (Group share) Turnover 2003 2002 £m £m Geographical segments: United Kingdom 12.1 11.3 Europe 0.3 - USA 4.4 4.6 _____ _____ 16.8 15.9 ===== ===== 2. Turnover and Group operating profit (continued) Property investment turnover comprises: Tenant recharges Rents and other Total 2003 2002 2003 2002 2003 2002 £m £m £m £m £m £m Rents and recharges - United Kingdom 167.3 161.6 4.7 4.0 172.0 165.6 - Canada 2.1 2.0 0.5 0.4 2.6 2.4 - USA 49.6 44.9 10.1 9.3 59.7 54.2 - Europe 21.8 19.6 0.5 0.5 22.3 20.1 _____ _____ _____ _____ _____ _____ 240.8 228.1 15.8 14.2 256.6 242.3 ===== ===== ===== ===== ===== ===== Turnover comprises: (1) rents and recharges charged to tenants; (2) 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; (3) the amounts invoiced to utilities customers for electricity, water and steam; and (4) Tipperary customers for oil and gas. Property Property investment trading Utilities Oil and gas Total Net operating income 2002 2002 comprises: 2003 2002 2003 2002 2003 2002 2003 Restated 2003 Restated £m £m £m £m £m £m £m £m £m £m Turnover 256.6 242.3 40.6 31.6 25.2 18.3 3.5 3.1 325.9 295.3 _____ _____ _____ _____ _____ _____ _____ ______ ______ _____ Ground rents payable (1.7) (0.3) - - - - - - (1.7) (0.3) Depreciation (0.3) - - - (1.2) (0.1) (0.9) (0.9) (2.4) (1.0) Exceptional provision - - (37.9) - - - - - (37.9) - Other property outgoings/cost of sales (31.5) (25.1) (33.5) (28.8) (28.2) (22.7) (6.1) (3.4) (99.3) (80.0) _____ _____ _____ _____ _____ _____ _____ ______ ______ _____ Total property outgoings/cost of sales (33.5) (25.4) (71.4) (28.8) (29.4) (22.8) (7.0) (4.3) (141.3) (81.3) _____ _____ _____ _____ _____ _____ _____ ______ ______ _____ Net operating income 223.1 216.9 (30.8) 2.8 (4.2) (4.5) (3.5) (1.2) 184.6 214.0 ===== ===== ===== ===== ===== ===== ===== ====== ====== ===== 3. Administration expenses 2003 2002 £m £m Directors' remuneration 2.2 2.0 Compensation to director for loss of office - 1.2 Depreciation of tangible fixed assets 0.8 0.8 Auditors' remuneration 0.7 0.7 Other administration costs 10.3 10.2 _____ _____ 14.0 14.9 _____ _____ 3. Administration expenses (continued) Property Utilities Oil Total Total management and gas 2003 2002 £m £m £m £m £m Employees' staff costs were: Wages and salaries 14.8 6.1 1.2 22.1 19.7 Social security costs 1.5 0.5 0.1 2.1 1.9 Pension contributions 2.7 1.2 - 3.9 4.6 _____ _____ ______ ______ ______ 19.0 7.8 1.3 28.1 26.2 _____ _____ ______ ______ ______ 4. Interest (net) 2003 2002 £m £m On bank loans and overdrafts 20.4 19.3 On other loans 93.0 95.9 ______ ______ 113.4 115.2 Less interest received (4.1) (5.2) Less amount charged to : the development of trading properties (1.5) (3.8) the development of investment properties (20.1) (29.2) the development of other assets (1.5) (3.1) ______ ______ Charged to profit and loss account: - Group 86.2 73.9 - Joint ventures 2.2 2.4 - Associate 0.1 0.2 ______ ______ 88.5 76.5 ______ ______ 5. Taxation 2003 2002 £m £m Current tax Provision for taxation based on profits for the year United Kingdom Corporation tax charge at 30 per cent (2002 30 per cent) 14.2 7.1 Over provision in earlier years (2.5) (0.2) Tax in joint venture 0.6 0.6 ______ ______ 12.3 7.5 Overseas Current tax charge 3.2 3.9 Over provision in earlier years (0.8) - Tax credit on sale of investment properties (0.1) (0.2) Tax in joint venture 0.1 - ______ ______ Total current tax 14.7 11.2 ______ ______ 5. Taxation (continued) 2003 2002 £m £m Deferred tax Origination and reversal of timing differences 17.3 35.4 Effect of changes in tax rates on opening timing differences (2.2) (2.2) Released in respect of property disposals (3.5) (0.1) Credit in respect of the exceptional provision for Quail West (14.6) - Other deferred tax 0.7 0.3 _____ ______ Total deferred tax (credit)/charge (2.3) 33.4 _____ ______ Total tax 12.4 44.6 _____ ______ 6. Dividends 2003 2002 £m £m Preference dividends Dividend paid to 1 September 7.6 7.6 Dividend accrued for period from 2 September to 31 December 3.8 3.8 _____ ______ 11.4 11.4 _____ ______ Ordinary dividends Interim dividend at 5.8p per share (2002 5.45p) 24.1 22.7 Proposed final dividend at 9.2p per share (2002 8.55p) 38.4 35.5 _____ ______ 62.5 58.2 _____ ______ 7. Earnings, capital deficit and net assets per ordinary share Basic Fully diluted The earnings, capital deficit and net assets per ordinary share 2003 2002 2003 2002 have been calculated as follows: Profit attributable to ordinary shareholders (a) £m 81.8 86.8 81.8 86.8 Profit attributable to ordinary shareholders excluding profits and losses on sale of investment properties, exceptional provision and FRS19 deferred tax (b) £m 115.0 119.8 115.0 119.8 Capital deficit (c) £m (88.3) (22.4) (88.3) (22.4) Weighted average number of shares in issue (d) shares m 416.6 415.5 417.3 415.8 Earnings per share (a)/(d) pence 19.6 20.9 19.6 20.9 Earnings per share excluding profits and losses on sale of investment properties, exceptional provision and FRS19 deferred tax (b)/(d) pence 27.6 28.8 27.6 28.8 Capital deficit per share (c)/(d) pence (21.2) (5.4) (21.2) (5.4) Equity attributable to ordinary shareholders (e) £m 2,043.5 2,107.3 2,181.3 2,245.1 Equity attributable to ordinary shareholders excluding FRS19 deferred tax (f) £m 2,236.6 2,290.8 2,374.4 2,428.6 Number of shares in issue at the end of the year (g) shares m 417.8 416.1 470.3 467.5 Net assets per share (e)/(g) pence 489 506 464 480 Net assets per share excluding FRS19 deferred tax (f)/(g) pence 535 551 505 519 2003 2002 m m Weighted average number of shares in issue during the year 416.6 415.5 Adjustment for the dilutive effect of employee share options and save as you earn schemes 0.7 0.3 ______ ______ Weighted average number of shares in issue during the year - fully diluted 417.3 415.8 ______ ______ In 2003 and 2002 the effect of the preference shares is anti-dilutive and therefore they are excluded from the diluted earnings per share calculation. The preference shares are dilutive for the purpose of the diluted net assets per share calculation and have been treated as such. The Group has also presented an adjusted basic earnings per share figure to exclude the impact of exceptional items, profits and losses on the sale of investment properties (net of taxation and minority interests) and deferred tax in respect of investment properties. The directors consider that this adjusted figure gives a more meaningful comparison for the periods shown in the consolidated financial statements. Deferred tax has been excluded from the adjusted calculation as the Group has no plans to sell a significant proportion of its investment properties, and in any case it is generally very unusual for UK capital allowances to be recaptured on the disposal of a property. Profits and losses on the sale of investment properties are excluded from adjusted earnings as these are non-recurring items. Net assets per share are calculated on the equity shareholders' funds of £2,043.5 million (2002 £2,107.3 million). Adjusted net assets per share have been calculated on the same number of shares but shareholders' funds exclude the deferred tax liability of £193.1 million (2002 £183.5 million) as it is the opinion of the directors that deferred tax on capital allowances in relation to investment properties is unlikely to crystallise materially in practice. 8. Tangible assets - investment properties UK Canada USA Europe Total £m £m £m £m £m At 1 January 2003 2,706.6 26.0 635.8 264.2 3,632.6 Exchange movement - 2.6 (63.9) 20.5 (40.8) Additions 65.3 0.7 62.1 1.8 129.9 Disposals (54.4) (2.7) (3.0) - (60.1) (Deficit)/surplus on valuation (89.7) 2.0 (8.2) (1.8) (97.7) _______ ______ _____ _____ _______ At 31 December 2003 2,627.8 28.6 622.8 284.7 3,563.9 ======= ====== ===== ===== ======= Completed properties 2,481.6 27.2 534.4 260.2 3,303.4 Properties for or under development 146.2 1.4 88.4 24.5 260.5 _______ ______ _____ _____ _______ 2,627.8 28.6 622.8 284.7 3,563.9 ======= ====== ===== ===== ======= The Group's completed investment properties and land held for or under development were externally valued as at 31 December 2003, in accordance with the accounting policies, by CB Richard Ellis or DTZ Debenham Tie Leung or Colliers Conrad Ritblat Erdman in the United Kingdom, in the USA by Walden-Marling, Inc., in Canada by Altus Group, in Belgium by De Crombrugghe & Partners s.a. and in France by CB Richard Ellis Bourdais (previously known as Insignia Bourdais Expertises s.a). 9. Investments Joint Total Total Associate ventures 2003 2002 £m £m £m £m Cost or valuation at 1 January 2003 3.9 184.8 188.7 174.7 Exchange movement (0.4) (1.9) (2.3) (2.4) Net additions - 2.0 2.0 1.8 Reclassified from trading property - 6.6 6.6 - Dividends received (0.3) (8.5) (8.8) (11.6) Valuation surplus 0.3 10.5 10.8 14.6 Share of profits net of taxation 0.4 11.9 12.3 11.6 _____ _____ _____ _____ Cost or valuation at 31 December 2003 3.9 205.4 209.3 188.7 ===== ===== ===== ===== 10. Current assets 2003 2002 £m £m Stocks Trading properties - completed properties 75.5 120.5 - properties under development 46.1 24.4 ______ ______ 121.6 144.9 Utilities stock 1.6 1.9 ______ ______ 123.2 146.8 ______ ______ 10. Current assets (continued) 2003 2002 £m £m Debtors (receivable in less than one year) Trade debtors 19.5 19.4 Other debtors 12.2 10.3 Tax recoverable 3.4 1.4 _____ _____ 35.1 31.1 Debtors (receivable in more than one year) Other debtors 0.8 0.7 _____ _____ 35.9 31.8 _____ _____ Trading investments Shares - listed (market value £1.6 million) 0.2 0.1 - unlisted 40.6 35.6 Gas investments in USA and Australia 66.5 45.6 _____ _____ 107.3 81.3 _____ _____ 11. Reserves Share Capital Capital Profit premium reserve reserve and account unrealised realised loss Total £m £m £m £m £m Balance at 1 January 2003 331.2 1,481.6 44.0 249.8 2,106.6 Realisation of revaluation gains and losses of previous years - (9.1) 9.1 - - Revaluation deficit - (86.9) - - (86.9) Other recognised gains and losses - (11.3) 10.1 (0.2) (1.4) Retained profit for the year - - - 19.3 19.3 Shares issued 4.8 - - - 4.8 Reserve transfer - 2.9 (1.2) (1.7) - _____ _______ _____ _____ _______ Balance at 31 December 2003 336.0 1,377.2 62.0 267.2 2,042.4 _____ _______ _____ _____ _______ 12. Commitments 2003 2002 £m £m a) Capital expenditure commitments Property - United Kingdom 8.6 15.2 - Overseas 22.8 101.1 Utilities 0.3 0.1 Other activities 35.3 26.7 _____ _____ 67.0 143.1 _____ _____ b) Operating Leases At 31 December 2003, the Group had annual commitments in respect of operating leases relating to land and buildings as follows: 2003 2002 £m £m Leases which expire: Within two to five years 1.4 1.4 After five years 0.4 0.4 _____ _____ 1.8 1.8 _____ _____ 13. Provisions for liabilities and charges Quail Deferred Other Pensions West tax liabilities Total £m £m £m £m £m Balance at 1 January 2003 0.7 - 186.4 2.1 189.2 Exchange movement (0.1) - (1.8) - (1.9) Charged /(credited) to profit and loss account 0.6 20.8 (2.3) (0.7) 18.4 Paid - - - (0.1) (0.1) _____ _____ _____ _____ ______ Balance at 31 December 2003 1.2 20.8 182.3 1.3 205.6 _____ _____ _____ _____ ______ Deferred tax relates to UK and overseas timing differences arising mainly from capital allowances on plant, industrial building allowances, overseas depreciation allowances on properties and interest capitalised and is provided at 30 per cent (2002 30 per cent) in the UK and at local rates overseas. 13. Provisions for liabilities and charges (continued) Deferred taxation consists of: 2003 2002 £m £m Accelerated capital allowances 63.6 69.5 Overseas depreciation allowances 53.7 43.8 Interest capitalised 75.3 69.7 Tax losses (13.9) (8.9) Deferred tax asset (0.5) (4.1) Other timing differences 14.9 13.5 ______ ______ Total deferred tax in respect of investment properties 193.1 183.5 Deferred tax asset in respect of Quail West (14.6) - Other deferred tax 3.8 2.9 ______ ______ 182.3 186.4 ______ ______ The Group has a commitment to support the ongoing activities at the residential leisure development at Quail West until the overall activity reaches a certain level, which is not expected to occur for a number of years. In accordance with UK GAAP the Group has therefore recognised a provision of £20.8 million for the estimated net liability arising from this commitment. The most significant assumption in the determination of the provision is the rate of membership sales and the consequent timing of the release of the Group's commitment. The Group board is satisfied that the assumptions used to compute the provision are appropriate and will review these at each subsequent balance sheet date. The provision is stated at present value. It will be amortised to the profit and loss account after allowing for the unwind of the discount used, on the basis of the actual losses incurred by the ongoing activities. The other liabilities relate principally to provisions for onerous leases on rented properties and represent the estimated liability of future costs for lease rentals and dilapidation costs less the expected receipts from sub-letting these properties which are surplus to business requirements. The estimated amount of potential taxation, for which no provision has been made and which would arise if the assets held as long term investments were sold at the values at which they appear in the balance sheet, amounts to £129.5 million (2002 £176.5 million). 14. Borrowings 2003 2002 £m £m Currency profile of Group debt Borrowings Sterling 899.0 859.8 Australian dollars 34.2 - US dollars 492.6 512.5 Canadian dollars 8.3 7.7 Euros 233.0 203.5 _______ _______ 1,667.1 1,583.5 _______ _______ Cash and deposits Sterling 120.2 76.6 US dollars 9.0 5.8 Canadian dollars 6.2 4.3 Euros 23.9 7.2 _______ _______ 159.3 93.9 _______ _______ Net borrowings 1,507.8 1,489.6 _______ _______ Maturity profile of Group debt In one year or less 40.5 27.8 In more than one year but less than two 27.8 42.7 In more than two years but less than five 353.1 155.2 In more than five years but less than ten 488.7 582.8 In more than ten years 757.0 775.0 _______ _______ Total Group debt 1,667.1 1,583.5 _______ _______ Fair value of borrowings Book Fair Book Fair value value value value 2003 2003 2002 2002 £m £m £m £m Short term fixed and variable rate borrowings (before swaps etc) 331.9 331.9 189.0 189.0 Long term fixed rate borrowings 1,340.5 1,545.3 1,392.8 1,580.5 Interest rate swaps - 2.0 - 1.6 Swaptions and caps - 4.5 - 1.6 Currency swaps (5.3) (5.6) 1.7 2.6 _______ _______ _______ _______ 1,667.1 1,878.1 1,583.5 1,775.3 Tax relief due on early redemption/termination (63.3) (57.6) _______ _______ _______ _______ 1,667.1 1,814.8 1,583.5 1,717.7 _______ _______ _______ _______ After tax mark to market adjustment 147.7 134.2 ______ _______ The market value of the preference shares at 31 December 2003 was £233.6 million (2002: £199.5 million). This has already been included in the diluted net assets per share calculation in Note 7. 15. Creditors - other 2003 2002 £m £m Creditors falling due within one year Rents in advance 37.1 37.4 Accruals and other deferred income 56.9 59.6 Trade creditors 7.7 7.5 Other creditors 19.7 23.2 Taxation 14.3 16.2 Proposed ordinary dividend 38.4 35.5 Accrued preference dividend 3.8 3.8 ______ ______ 177.9 183.2 ______ ______ Creditors falling due after more than one year Other creditors 6.7 5.3 ______ ______ This information is provided by RNS The company news service from the London Stock Exchange MLTMMBBBMI

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