Interim Results
Slough Estates PLC
26 August 2004
26th August 2004
SLOUGH ESTATES plc
INTERIM RESULTS FOR THE SIX MONTHS ENDED 30TH JUNE 2004
Summary of Results
• Underlying 7% rise in pre-tax profits+
• Diluted NAV per share of 532p, up 5.3%+
• Interim dividend up 6%: 5 year compound growth of 6% p.a.
• 167 hectare strategic landbank key ingredient for future growth
Half year to 30 June
Results 2004 2003 % change
£m £m
Core property investment income* 73.8 71.9 + 2.6
Adjusted profit before tax+ 76.1 71.1 + 7.0
Profit before tax 76.2 71.8 + 6.1
Adjusted basic earnings per share+ 14.1p 13.9p + 1.4
Basic earnings per share ** 11.2p 11.6p - 3.5
Interim dividend 6.15p 5.8p + 6.0
Diluted net assets per share before FRS19 deferred tax up 5.3% from 505p at 31st
December 2003 to 532p
* Core property income comprises investment and joint venture property income
less administration and net interest costs.
+ Adjusted to exclude gains and losses on investment property sales and/or FRS19
deferred tax.
** Assumed underlying current tax rate was 15% (11% interim 2003), total tax
rate incl. deferred tax was 32.4% (24.9% interim 2003)
Commenting on the results, Chairman, Sir Nigel Mobbs, said: 'The Group has
produced good results in the first six months of the year. With key economic
indicators showing encouraging levels of growth and with an increasing number of
enquiries, we expect to see improving demand for our core business space product
in the coming months. In order to meet this growing demand in 2005 and beyond,
we will start a number of development projects in the second half of the year.
We believe the long term outlook for the business space market remains good and
our increasing focus on this market segment puts the company in a strong
position to develop out our extensive strategic landbank with a broad range of
core products.'
For further information contact:
Slough Estates plc Shared Value Limited
Ian Coull, Chief Executive Andrew Best
Dick Kingston, Finance Director Emily Bruning
Tel: 01753 537171 Tel: 020 7321 5022 / 5027
A meeting for analysts will be held at 9.30am on 26th August at The City
Presentation Centre, 4 Chiswell Street, London EC1 and will be audio streamed on
Slough Estates' website: www.sloughestates.com.
A conference call for international investors will be held at 4.00pm (UK time)
on 26th August. The dial-in numbers are: +44 (0)20 7019 9513 or +1 718 354 1153
and participants should quote Slough Estates. A recording of the conference call
will be available for 7 days, accessible on +44 (0)20 7984 7578 or +1 718 354
1112, passcode:307098.
Interim Statement 2004
The Group delivered a 7% rise in adjusted pre-tax profits to £76.1m, reflecting
a good performance across the businesses, despite the continuing challenges of
the markets. At the preliminary results in March we signalled that we expected
to see an increase in development activity in 2004; so far this year, we have
held back on development, waiting until we were more certain of occupier demand.
With more encouraging levels of enquiries seen to date, we will increase the
number of starts on site in the second half of the year, so ensuring that we
have sufficient business space to meet this growing demand in 2005 and beyond.
In the past eighteen months we have been obtaining the requisite consents to put
in the necessary infrastructure on our strategic landbank so we are now ready to
start developments quickly as the market strengthens. We are encouraged by the
continued resilience of the flexible business space market, which has protected
us from the worst of the downturn, and highlight in particular the strong
contribution of the Californian portfolio, which has been so successful in
supplying generic laboratory space to the health science sector. Overall core
property income was up by 2.6% in the first half at £73.8m and core income
should benefit from the fact that, with increased development activity, the
interest burden will be lower as it is capitalised in the normal way. The
diluted net assets per share excluding FRS19 deferred tax were up 5.3% at 532p.
Recent developments
At the interims last August, and more recently in March at the preliminary
results, we set out the strategic vision for the Group. Our objective over the
medium term is to re-focus the portfolio on the flexible business space market,
primarily in suburban business parks. Given our heritage, these business parks
offer us the greatest opportunity to achieve superior returns over the long
term. To achieve the best value for shareholders takes time to effect.
• We plan to grow our established position in Continental Europe, where
we see good opportunities for expanding our base in the industrial, logistics
and suburban office markets. To this end, we are bringing our Continental
European operations together under a single management structure, based in
Paris, and we will seek to hold these assets in the most tax efficient
structure.
• In North America our health science property portfolio is developing
extremely well and the prospects for the current pipeline are excellent. Slough
Estates has built up a leading position in the provision of space to the health
science community and today we are one of the first points of call for companies
with requirements for laboratory space in California. This success means that we
can expect to see a very positive contribution towards Group earnings, not only
from the completed laboratory space and our development pipeline, but also from
future opportunities that flow from these earlier successes. It is the company's
intention to focus on these health science buildings in the United States while
looking to sell selective assets. These sales will, from time to time, also
include biotech space when we believe that we have maximised our returns. The US
business is self financing and capital will be recycled to exploit future
opportunities.
• With a view to sharpening our focus, it is our intention to sell our
retail portfolio and we announced on Tuesday that we are in exclusive
negotiations with Land Securities to swap part of our retail portfolio for their
industrial portfolio. We are taking this opportunity to sell as, although it is
an excellent portfolio of shopping centres, we believe that we do not have
sufficient scale for investors to benefit fully from this diversification.
• We are also making encouraging progress in the sale of our non-core
activities. We have had a good response to the initial marketing of Quail West,
our residential leisure complex in Naples, Florida. This marketing has led to
several offers being received at prices well in excess of the written down book
cost of $12m. We are now progressing our negotiations for a sale.
In terms of geographical spread, we continue to believe that the opportunities
in selected markets outside the UK remain good. In particular we are attracted
to the opportunities in Continental Europe as well as the specialist health
science buildings in California.
Results
The Group's profit before tax for the first six months, excluding the profit on
sale of investment properties, rose by 7% to £76.1m. Core property investment
income grew by 2.6% to £73.8m, and non-core activities (trading property,
utilities and other activities) recorded a profit of £2.3m, against a first half
loss of £0.8m in 2003. This included strong performances from property trading
and other income. Investment property sales produced a profit over last year-end
book values of £0.1m compared with £0.7m in the first half of 2003.
Adjusted basic earnings per share increased by 1.4% to 14.1p. Basic earnings per
share were 11.2p, a 3.5% decrease from June 2003. The assumed underlying current
tax rate was 15% (11% in the corresponding period) whilst the total tax rate
including deferred tax was 32.4% compared with 24.9% in the previous year's
interim results.
Core property investment income increased by £1.9m. Rental income increased by
8.2% to £137.5m, which included income from new developments of £10.7m but was
partly offset by a loss of income of £0.4m resulting from the disposal of
properties. Core property income benefited from lease surrender premiums of
£9.1m, but was adversely affected by the expensing of £4.0m of interest on
development projects in the first half of 2004, which had been capitalised in
the corresponding period of 2003. Accounting rules require that, where work on
development is halted for extended periods, interest should be expensed on these
land holdings until the development process resumes. The resumption of
development at Farnborough will have a positive impact on core property income
and earnings in the second half of 2004.
The trading property gain of £3.9m (2003 loss of £0.9m) was partly due to the
improved performance from Quail West and the effect of last year's provisions
against this project. Profits from Candover and CHUSA investment realisations
were mainly responsible for the contribution of £3.2m to other income in the
half-year. The utilities operation reported losses of £2.9m but the operational
issues have been addressed and a better performance is consequently expected in
the second half.
Dividends
An interim dividend of 6.15p per share will be paid on 8 October 2004 to
shareholders on the register on 10 September 2004. This represents an increase
of 6% over the 2003 interim dividend of 5.8p per share.
Balance Sheet
An interim valuation of all the Group's investment properties was undertaken as
at 30th June by external valuers, with the exception of the Group's Canadian
assets, which were valued by directors at £31.2m based on anticipated sales
proceeds. The valuation, including construction in progress at cost, amounted to
£3,681m.
Overall the valuation of fully owned properties increased by £88.7m or 2.5%.
This, plus a surplus on property joint ventures' valuations of £17.5m or 7.1%,
retained earnings and other minor capital changes resulted in a 5.3% increase in
diluted net assets per share to 532p before application of FRS19 deferred tax,
or an increase of 5.4% to 489p per share after provision for deferred tax.
__________________________________________________________________________
Revaluation Movements June 2004 June 2004
£m % change from
Dec 2003
UK Industrial 36.1 2.1
Office 2.1 0.5
Retail 23.7 6.7
Land (5.9) (3.7)
_______________________________________________
Total UK 56.0 2.1
_______________________________________________
Overseas USA 25.4 4.0
Canada 3.4 12.2
Europe 3.9 1.4
_______________________________________________
Total Overseas 32.7 3.5
_______________________________________________
Total 88.7 2.5
__________________________________________________________________________
Joint ventures / Associates 17.5 7.1
Grand Total 106.2 2.8
__________________________________________________________________________
In the UK the revaluation surplus was £56.0m or 2.1%, an increase on last year
with some strength in the retail and industrial sectors. Industrial estimated
rental values were stable over the period and retail rents increased by 1.1%,
but South East office rents reduced across the portfolio by 0.9%, resulting in a
small average estimated rental decline of 0.1% for all properties.
The attraction of a secure income stream has meant that in recent uncertain
economic conditions there has still been strong investment demand for well-let
properties. This demand has continued to offset concerns about short-term rental
growth prospects and, as a result, yields are broadly unchanged from those
reported at this time last year. Development land reduced in value by 3.7%.
In the USA the valuation was up by £25.4m or 4.0%. The surplus recorded for
health science parks was partly offset by value reductions in Bay Area business
space, resulting from increased market vacancy and reduced rental growth
prospects.
In Belgium and France valuation increases of 1.4% reflected rent indexation.
The valuation gains made in recent times are still being driven by tightening
yields rather than improved rental growth, although the prospects for rental
growth are improving as general availability of space becomes more limited.
At 30th June the Group's debt totalled £1,652.7m or £1,516.0m net of cash
deposits. The Group's average interest rate on borrowed funds was 6.7%, with an
average maturity of 10.4 years.
The balance sheet remains very strong and conservatively geared with a net debt
to equity ratio of 61% (adjusted to exclude FRS19 deferred tax, 66% after
accounting for FRS19). Expenditure of £42m in the first half on investment
properties is expected to increase to some £120m for the full year 2004, lower
than previously projected as a result of the slowdown in bringing new
developments into construction. It remains essential to maintain a prudent level
of gearing in view of the Group's £1 billion projected development
opportunities.
Review of Activities
United Kingdom
The levels of enquiries, viewings and proposals made in the UK have all
increased from the levels recorded in the same period of 2003 and lettings
completed in the first half of 2004 totalled 51,459 sq.m., a 42.5% increase over
the first half of 2003 and a 7.8% increase over the second half of 2003.
We are confident that this increased activity points to an improving business
environment but at present the market for offices in the South East continues to
be weak, which is reflected by some downward pressure on rental levels. Our UK
occupancy is 89.2%, compared with 89.4% at December 2003.
Major Events - UK
•Formation of a new joint venture company, HelioSlough, with Helios
Properties. The 50/50 JV, which has £150m of funding available, aims to
develop a network of large scale strategic distribution parks throughout the
UK with each park having the potential for over 92,900 sq. m. of B8
(distribution warehousing) space.
•Acquisition from Royal Mail Group plc of remaining 2.86 hectares of land
at Winnersh Triangle, not already owned by Slough
•Letting of 2,827 sq. m. new office building at 240 Bath Road, Slough to
Fiat UK Limited at £269.10 per sq. m.
•Completion of new 3,372 sq.m. warehouse facility at Emerald Park,
Bristol, pre-leased to Knorr- Bremse at £72.70 per sq. m. This deal, plus an
additional letting of 704 sq.m., represented the final lettings in the
22,044 sq. m. built scheme.
•Letting of a further 44,556 sq. m. of space throughout the UK
North America
The overall occupancy rate in the US has risen to 92.3% as of 30th June 2004
from 87.3% as of 31st December 2003.
In the first half Slough Estates let a net 16,426 sq.m. of new and existing
space.
Major Events - North America
• Acquisition of 19.5 hectares of land at Parkway Business Centre,
Poway, San Diego to develop 77,574 sq.m of space
• Letting of two units of 6,193 sq.m and 2,693 sq.m to Alderwoods and
HSBC respectively at Willingdon Park, Canada
• Completion and letting of last two buildings (approximately 18,821
sq.m) of the Pfizer Global Research and Development Center in Torrey Pines
Science Center (totalling 71,367 sq. m.)
Continental Europe
Our European business has maintained occupancy since the year end which now
stands at 92.2%, including the lettings at Pegasus Park and in Germany, compared
with 92.8% at December 2003.
Slough Estates has had a successful half-year in Continental Europe in all three
countries.
Major Events - Continental Europe
Belgium
•Purchase of 10,100 sq.m. warehouse building leased to UPS with long-term
redevelopment potential for 50,000 sq.m. of offices, adjacent to Pegasus
Park
•Lettings of 5,917 sq.m. at Pegasus Park, bringing vacancy down to under
6% (surrounding market vacancy is close to 20%)
•Start on site of construction of 6,360 sq.m. speculative office building
at Pegasus Park (start: June 2004, delivery: July 2005)
France
•Delivery of 1st phase of 7,472 sq.m. of light industrial units close to
Le Bourget (48% leased on delivery)
Germany
•Pre-let of 3,921 sq.m. at Neuss to SIG - start in June 2004, for delivery
in January 2005
•Lettings of 11,000 sq.m. (including pre-lets) in first 6 months of the
year
Tax Transparent Property Trusts (PIFs/REITs)
We believe that the Government consultation on PIFs represents a real
opportunity for the whole UK property industry and Slough Estates, with largely
unsecured debt and relatively low gearing, should be very well placed to convert
to a PIF. However, the Government's consultation document suggests a very
restrictive PIF vehicle, with the possibility of high entry charges, effective
prohibitions against development and an insistence on an unrealistic level of
distribution to shareholders. Such a restrictive vehicle would not be attractive
to the sector and the Government needs to broaden its view and create a flexible
vehicle that encourages development. Slough Estates has made submissions with
regard to the consultation document.
Outlook
The Group has continued to produce good results in the first six months of the
year although initial uncertainty in our markets meant that there were fewer
development starts than we had originally anticipated. Occupancy rates have not
increased as fast as had been hoped but today there are some promising economic
indicators that show encouraging levels of growth in our key markets, and this
growth is expected to feed through to increased demand for our core business
space product by 2005. In order to meet this demand in 2005 and beyond we will
start more speculative developments in the second half of the year. We have also
been active in focusing the business, announcing that we are in the process of
selling our UK retail business, our Canadian properties and Quail West in the
US. Our increasing focus on business space puts the company in a strong position
to develop out our extensive landbank with a broad range of business space
products and the long-term outlook for this market segment remains good.
The Board is confident that the indications of stronger markets and the progress
that has been made in further focusing the company on flexible business space
will benefit shareholders in the medium and longer term and this is reflected in
an increase of 6% in the interim dividend.
The current state of the property cycle clearly confirms the strength of
property as an investment medium. Though offices still face some shortage in
occupier demand and industrial growth continues to be slow, there is today a
strong investor demand for well-located and well-let property. The investment
case is underpinned by low inflation, affordable interest rates and a lack of
funding to support speculative development excesses.
The Board believes that Slough Estates is today well positioned to take
advantage of the opportunities in the marketplace as the Group has excellent
properties and substantial land holdings with planning consents for development,
located in many of the prime international business centres. This will enable us
to start to build into the recovery in occupier demand and, having put in the
infrastructure for these new schemes, it will be possible to accelerate this
pipeline as demand requires.
Ian Coull
Chief Executive
Slough Estates is a leading provider of flexible business space in business
parks in Western Europe and North America, with over 1700 customers occupying
2.9 million square metres of business space, with a total value of £3.7 billion.
Slough Estates' properties are in suburban locations in close proximity to the
main business centres, where there is long term demand for business
accommodation to serve these key economic regions. The company's main activities
are currently based around London, Brussels, Paris, Dusseldorf, San Francisco
and San Diego and the company continues to develop new business parks with the
long term objective of building shareholder value and enhancing its reputation
for quality buildings offering excellent value to customers.
www.sloughestates.com
SLOUGH ESTATES plc
Group profit and loss account
For the six months ended 30 June 2004
Half year Half year Year to 31
to 30 June to 30 June December
2004 2003 2003
unaudited unaudited audited
Note £m £m £m
Turnover:
Group 2 159.6 149.1 325.9
Joint ventures 9.4 8.1 16.8
====== ====== =====
Operating income:
Property investment 119.7 111.4 223.1
Property trading - operating 3.9 (0.9) 7.1
Property trading - exceptional
provision - - (37.9)
Utilities (2.9) (1.5) (4.2)
Oil and gas (1.9) (1.1) (3.5)
Other income 3.2 2.7 4.8
Administration expenses (6.5) (7.5) (14.0)
______ ______ ______
Operating profit 2 115.5 103.1 175.4
Share of operating profit of property
joint ventures and associate 7.9 7.5 15.3
Profit on sale of investment
properties 0.1 0.7 1.6
______ ______ ______
Profit before interest and taxation 123.5 111.3 192.3
Interest (net) 3 (47.3) (39.5) (88.5)
______ ______ ______
Profit on ordinary activities before
taxation 76.2 71.8 103.8
Taxation - current 4 (11.4) (7.8) (14.7)
- deferred 4 (13.3) (10.1) 2.3
(24.7) (17.9) (12.4)
______ ______ ______
Profit on ordinary activities after
taxation 51.5 53.9 91.4
Minority interests - equity 0.9 0.2 1.8
Preference dividends (5.6) (5.7) (11.4)
______ ______ ______
Profit attributable to ordinary
shareholders 46.8 48.4 81.8
Ordinary dividends 5 (25.8) (24.1) (62.5)
______ ______ ______
Retained profit 9 21.0 24.3 19.3
______ ______ ______
Dividend per share 5 6.15p 5.8p 15.0p
______ ______ ______
Basic earnings per ordinary share 6 11.2p 11.6p 19.6p
Adjustment to exclude profits and
losses on sale of investment properties
net of tax and minority and exceptional
items 6 - (0.2p) 5.2p
Adjustment to exclude FRS19 Deferred Tax 6 2.9p 2.5p 2.8p
______ ______ ______
Adjusted basic earnings per ordinary
share 6 14.1p 13.9p 27.6p
______ ______ ______
Weighted average number of ordinary
shares in issue (millions) 6 416.8 414.9 415.2
The 2003 half year results of Tipperary Corporation Inc. (oil and gas)
operations have been reclassified from other income into a separate line item
'Oil and gas'.
SLOUGH ESTATES plc
Statement of Group total recognised gains and losses
For the six months ended 30 June 2004
Half year Half year Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited unaudited audited
£m £m £m
Profit attributable to ordinary
shareholders 46.8 48.4 81.8
Surplus/(deficit) on revaluation
of properties 88.7 (70.1) (97.7)
Surplus on revaluation of - Joint
ventures 17.5 1.7 10.5
- Associate - 0.2 0.3
_____ _____ _____
106.2 (68.2) (86.9)
Exchange differences (11.9) 9.0 (3.5)
Taxation - 1.2 4.0
Minority interests 0.1 0.3 (1.9)
_____ _____ _____
Total other recognised gains and
losses (11.8) 10.5 (1.4)
_____ _____ _____
Total recognised gains and losses
for the period 141.2 (9.3) (6.5)
_____ _____ _____
Reconciliation of movement in Group shareholders' funds
For the six months ended 30 June 2004
Half year Half year Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited unaudited audited
restated restated
£m £m £m
Profit attributable to ordinary
shareholders 46.8 48.4 81.8
Ordinary dividends (25.8) (24.1) (62.5)
_______ _______ _______
21.0 24.3 19.3
Revaluation surplus/(deficit) 106.2 (68.2) (86.9)
Other recognised gains and
losses (11.8) 10.5 (1.4)
Ordinary shares issued 0.8 1.6 5.2
Purchase of shares into ESOP (note 1) - (2.0) (2.0)
Issue of shares from ESOP (note 1) 0.8 1.1 1.1
_______ _______ _______
Net increase/(decrease) in
shareholders' funds 117.0 (32.7) (64.7)
Shareholders' funds at 1 January
(restated - note 1) 2,176.1 2,240.8 2,240.8
_______ _______ _______
Shareholders' funds at 30 June 2,293.1 2,208.1 2,176.1
_______ _______ _______
The opening shareholders' funds as at 1 January 2004 and 1 January 2003 as
previously reported amounted to £2,181.3m and £2,245.1m respectively before the
prior year adjustments of £5.2m and £4.3m respectively (see note 1).
SLOUGH ESTATES plc
Summarised Group balance sheet
As at 30 June 2004
Note 30 June 30 June 31 December
2004 2003 2003
unaudited unaudited audited
restated restated
£m £m £m
Fixed assets
Tangible assets - investment
properties 7 3,680.9 3,594.3 3,563.9
- other 43.4 38.9 41.8
Investments in joint ventures:
- share of gross assets 275.0 233.4 255.9
- share of gross liabilities (49.3) (45.8) (50.5)
8 225.7 187.6 205.4
Investment in associate 8 4.0 4.1 3.9
_______ _______ _______
3,954.0 3,824.9 3,815.0
_______ _______ _______
Current assets
Stocks 126.2 152.8 123.2
Debtors, prepayments and accrued
income 51.1 52.0 55.2
Trading investments 100.8 100.4 107.3
Cash and deposits 136.7 135.2 159.3
_______ _______ _______
414.8 440.4 445.0
_______ _______ _______
Total assets 4,368.8 4,265.3 4,260.0
_______ _______ _______
Capital and reserves
Called up share capital 9 138.7 138.6 138.9
Share premium account 9 337.0 332.7 336.0
Capital reserves 9 1,539.0 1,464.2 1,439.2
Own shares held 9 (4.4) (5.2) (5.2)
Profit and loss account 9 282.8 277.8 267.2
_______ _______ _______
Shareholders' funds 2,293.1 2,208.1 2,176.1
Minority interests 20.6 23.5 22.4
Provision for liabilities and
charges 10 215.7 199.4 205.6
Creditors falling due within one
year
Borrowings 11 8.0 46.3 40.5
Other 178.8 188.5 179.3
186.8 234.8 219.8
Creditors falling due after more
than one year
Borrowings 11 1,644.7 1,591.6 1,626.6
Other 7.9 7.9 9.5
1,652.6 1,599.5 1,636.1
_______ _______ _______
4,368.8 4,265.3 4,260.0
_______ _______ _______
Shareholders' funds attributable
to:
Equity shareholders - ordinary
shares 2,157.1 2,070.3 2,038.3
Non-equity shareholders -
preference shares 136.0 137.8 137.8
_______ _______ _______
2,293.1 2,208.1 2,176.1
_______ _______ _______
Net assets per ordinary share
- basic 6 517p 498p 490p
- basic excluding FRS19 Deferred Tax 6 566p 545p 536p
- diluted 6 489p 473p 464p
- diluted excluding FRS19 Deferred Tax6 532p 514p 505p
SLOUGH ESTATES plc
Summarised Group cash flow statement
For the six months ended 30 June 2004
Note Half year Half year Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited unaudited audited
restated restated
£m £m £m
Net cash inflow from operating
activities 12(1) 108.6 102.4 214.3
Dividends from joint ventures
and associate 4.3 4.4 8.8
Returns on investments and
servicing of finance
Interest received 2.5 2.3 3.5
Interest paid (51.9) (53.4) (113.9)
Dividends paid to preference and
minority shareholders (6.3) (6.2) (12.3)
_____ _____ ______
(55.7) (57.3) (122.7)
Taxation (5.9) (3.6) (14.1)
_____ _____ ______
Net cash inflow before investing
activities, financing and equity
dividends 51.3 45.9 86.3
Capital expenditure and
financial investment
Purchase and development of
investment properties (42.0) (62.1) (109.5)
Sales of investment properties 3.6 58.3 59.3
Other asset additions less sales (1.1) (17.7) (30.6)
_____ _____ _____
(39.5) (21.5) (80.8)
Acquisitions and disposals
Net movement on joint ventures,
associate and others (1.0) - (1.2)
Equity dividends paid (38.4) (35.5) (59.6)
_____ _____ _____
Net cash outflow before use of
liquid resources and financing (27.6) (11.1) (55.3)
Management of liquid resources
Investment in term deposits 3.7 53.1 (46.1)
_____ _____ _____
Net cash inflow/(outflow) from
the management of liquid resources 3.7 53.1 (46.1)
Financing
Issue of ordinary shares 0.8 0.9 5.2
Payment to acquire own shares - (2.0) (2.0)
Increase in debt 12(2) 4.9 51.8 118.3
_____ _____ _____
Cash inflow from financing 5.7 50.7 121.5
_____ _____ _____
(Decrease)/increase in cash (18.2) 92.7 20.1
===== ===== =====
Notes to the interim financial statements
1.
a) Basis of preparation
The accounting policies used for the audited financial statements at 31 December
2003 have been used in the preparation of the interim financial statements
except for the accounting policy change noted below. The interim financial
statements are unaudited and do not comprise full financial statements. The
auditors have carried out a review of the 30 June 2004 results. The results for
the year to 31 December 2003 are an abridged statement of the Group financial
statements for that year which have been delivered to the Registrar of
Companies, and on which the auditors' report was unqualified.
b) Change of accounting policy
In accordance with UITF 38 which became effective for accounting periods ending
on or after 22 June 2004, consideration paid by the ESOP trust for the company's
own shares is deducted from shareholders' equity. The shares held by the ESOP
trust are treated as if they were cancelled for the purposes of calculating
earnings and net assets per share. Previously all shares held by the ESOP trust
were held in prepayments at cost less amounts written off. Where appropriate,
previously reported figures have been restated to show the financial effect of
this change in accounting policy. There is no effect on the profits for the
current and prior periods. The effect on shareholders' funds is shown in note 6
of these interim statements.
_____________________________________________________________________________________________________________
2. Segmental information
Turnover Operating profit
____________________________________________ _________________________________________________
Half year to Half year to Year to Half year to Half year to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
unaudited unaudited audited unaudited unaudited audited
£m £m £m £m £m £m
Business
segments:
Property
investment 137.5 127.1 256.6 119.7 111.4 223.1
Property trading
- operating 6.3 8.1 40.6 3.9 (0.9) 7.1
- exceptional
provision - - - - - (37.9)
Utilities 14.3 12.1 25.2 (2.9) (1.5) (4.2)
Oil and gas 1.5 1.8 3.5 (1.9) (1.1) (3.5)
Other activities - - - 3.2 2.7 4.8
Common costs - - - (6.5) (7.5) (14.0)
______ ______ ______ ______ ______ ______
159.6 149.1 325.9 115.5 103.1 175.4
______ ______ ______ ______ ______ ______
Geographical
segments:
United Kingdom 105.9 96.5 197.2 75.1 69.9 141.1
Australia -
oil and gas 1.5 1.8 3.5 (1.9) (1.1) (3.5)
Canada 1.2 1.3 2.6 0.6 1.1 2.2
USA 37.6 30.4 60.9 29.4 21.5 4.6
Europe 13.4 19.1 61.7 12.3 11.7 31.0
______ ______ ______ ______ _____ ______
159.6 149.1 325.9 115.5 103.1 175.4
______ ______ ______ ______ _____ ______
Notes to the interim financial statements - continued
2. Segmental information Half year Half year Year to
(continued) to 30 to 30 31
June June December
2004 2003 2003
unaudited unaudited audited
Property investment turnover £m £m £m
comprises:
Rents
- UK 89.4 81.9 167.3
- Canada 0.9 1.0 2.1
- USA 30.4 24.6 49.6
- Europe 10.4 10.8 21.8
______ ______ ______
131.1 118.3 240.8
______ ______ ______
Tenant recharges and
other
- UK 2.2 2.4 4.7
- Canada 0.3 0.3 0.5
- USA 3.7 5.8 10.1
- Europe 0.2 0.3 0.5
______ ______ ______
6.4 8.8 15.8
______ ______ ______
Total property investment
turnover
- UK 91.6 84.3 172.0
- Canada 1.2 1.3 2.6
- USA 34.1 30.4 59.7
- Europe 10.6 11.1 22.3
______ ______ ______
137.5 127.1 256.6
______ ______ ______
3. Net interest Half year Half year Year to
to 30 to 30 31
June June December
2004 2003 2003
unaudited unaudited audited
£m £m £m
Interest paid 56.6 57.0 113.4
Less interest received (2.5) (2.7) (4.1)
Less amount charged to
- the development of trading properties (0.7) (1.8) (1.5)
- the development of investment properties (6.6) (13.8) (20.1)
- the development of other assets (0.8) (0.3) (1.5)
______ ______ ______
Charged to profit and
loss account - Group 46.0 38.4 86.2
- Joint ventures and
associate 1.3 1.1 2.3
______ ______ ______
47.3 39.5 88.5
______ ______ ______
Notes to the interim financial statements - continued
4. Taxation Half year Half year Year to 31
to 30 June to 30 June December
2004 2003 2003
unaudited unaudited audited
£m £m £m
Current
Revenue profit at the corporation tax rate
of 30% (2003 30%) 11.0 7.6 14.1
Tax in respect of property disposals in the
period - (0.1) (0.1)
Tax in joint venture 0.4 0.3 0.7
_____ _____ _____
11.4 7.8 14.7
_____ _____ _____
Deferred
Origination and reversal of timing
differences - FRS19 12.2 14.1 15.1
Released in respect of property disposals
during the period - (3.9) (3.5)
_____ _____ _____
Total charge in respect of investment
properties 12.2 10.2 11.6
Credit in respect of the exceptional
provision for Quail West - - (14.6)
Other deferred tax 1.1 (0.1) 0.7
_____ _____ ____
13.3 10.1 (2.3)
_____ _____ _____
Tax on profit on ordinary activities 24.7 17.9 12.4
_____ _____ _____
An effective tax rate of 32.4% (2003 half year 24.9%, 2003 full year 11.9%) of
profit on ordinary activities before tax has been included for the six months
and is based on the estimated full year rate.
5. Ordinary dividends Half year Half year Year to 31
to 30 June to 30 June December
2004 2003 2003
unaudited unaudited audited
£m £m £m
Interim dividend at 6.15p per share
(2003 5.8p) 25.8 24.1 24.1
Final 2003 dividend at 9.2p per share - - 38.4
_____ _____ _____
25.8 24.1 62.5
_____ _____ _____
6. Earnings and net assets per ordinary share
The Group has also presented alternative basic and diluted earnings per share
figures to exclude the impact of profits and losses on the sale of investment
properties (net of taxation and minority interests) and deferred tax relating to
investment properties. The directors consider that these adjusted figures give 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.
Adjusted net assets per share exclude the FRS 19 Deferred Tax liability of
£203.9 million (2003 half year £194.1million, 2003 full year £193.1 million)
relating to investment properties 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.
Notes to the interim financial statements - continued
6. Earnings and net assets per ordinary share (continued)
The weighted average number of shares used for the calculation of the earnings
per share is as follows:
Half year Half year Year to 31
to 30 June to 30 June December
2004 2003 2003
unaudited unaudited audited
restated restated
Weighted average number of shares in
issue Shares m 418.2 416.2 416.6
Less the weighted average shares held by
ESOP Shares m (1.4) (1.3) (1.4)
_____ _____ _____
Basic Shares m 416.8 414.9 415.2
Dilution adjustments - preference
shares Shares m 50.4 51.1 -
- share options and save as you earn
schemes Shares m 1.3 0.6 0.7
_____ _____ _____
Diluted weighted average number of
shares Shares m 468.5 466.6 415.9
_____ _____ _____
Earnings used for the calculation of the earnings
per share:
Attributable profit £m 46.8 48.4 81.8
Preference dividend £m 5.6 5.7 -
_____ _____ _____
52.4 54.1 81.8
Adjust for exceptional provision for
Quail West £m - - 23.3
Adjust for deferred tax relating to
investment properties £m 12.2 10.2 11.6
Adjust for profits and losses on the
sale of investment properties net of
tax and minorities £m (0.1) (0.8) (1.7)
_____ _____ _____
Adjusted earnings £m 64.5 63.5 115.0
_____ _____ _____
Diluted earnings per share 11.2p 11.6p 19.6p
Diluted earnings per share - adjusted 13.8p 13.6p 27.6p
The number of shares used for the calculation of the net assets per share is as
follows:
Number of shares in issue Shares m 418.7 416.7 417.8
Less shares held by ESOP Shares m (1.2) (1.4) (1.4)
_____ _____ _____
Basic number of shares Shares m 417.5 415.3 416.4
Dilution adjustment Shares m 51.8 51.7 52.5
_____ _____ _____
Diluted number of shares Shares m 469.3 467.0 468.9
_____ _____ _____
Total equity attributable to ordinary
shareholders £m 2,161.5 2,075.5 2,043.5
Less shares held by ESOP (note 1) £m (4.4) (5.2) (5.2)
______ ______ ______
Restated equity £m 2,157.1 2,070.3 2,038.3
Adjustment to exclude FRS19 provision for
deferred tax £m 203.9 194.1 193.1
_______ _______ _______
Adjusted equity attributable to ordinary
shareholders £m 2,361.0 2,264.4 2,231.4
Dilution adjustment £m 136.0 137.8 137.8
_______ _______ _______
Adjusted diluted equity attributable to
ordinary shareholders £m 2,497.0 2,402.2 2,369.2
_______ _______ _______
Net assets per ordinary share
- basic pence 517 498 490
- basic excluding FRS19 Deferred Tax pence 566 545 536
- diluted pence 489 473 464
- diluted excluding FRS19 Deferred Tax pence 532 514 505
Notes to the interim financial statements - continued
7. Tangible assets - investment UK Canada USA Europe Total
properties £m £m £m £m £m
At 1 January 2004 2,627.8 28.6 622.8 284.7 3,563.9
Exchange movement - (1.4) (6.9) (13.4) (21.7)
Additions 25.9 0.6 23.9 0.4 50.8
Disposals - - (0.8) - (0.8)
Surplus on valuation 56.0 3.4 25.4 3.9 88.7
______ ______ ______ ______ ______
At 30 June 2004 2,709.7 31.2 664.4 275.6 3,680.9
______ ______ ______ ______ ______
Completed properties 2,545.3 29.9 590.6 249.1 3,414.9
Properties for or under
development 164.4 1.3 73.8 26.5 266.0
______ ______ ______ ______ ______
2,709.7 31.2 664.4 275.6 3,680.9
______ ______ ______ ______ ______
The Group's completed investment properties and land held for or under
development were externally valued as at 30 June 2004, 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 Belgium by De Crombrugghe & Partners s.a. and in France by CB Richard Ellis
Bourdais. The half year valuation of the Canadian properties was carried out
internally (2003 full year was carried out by Altus Group).
8. Investments Joint Ventures Total
Associate Investment Loans 2004
£m £m £m £m
At 1 January 2004 3.9 201.2 4.2 209.3
Exchange movement - (0.4) (0.2) (0.6)
Additions - 1.3 0.3 1.6
Dividends received (0.1) (4.2) - (4.3)
Valuation surplus - 17.5 - 17.5
Share of profits net of taxation 0.2 6.0 - 6.2
______ ______ ______ ______
At 30 June 2004 4.0 221.4 4.3 229.7
______ ______ ______ ______
9. Capital and Share Share Own Capital Capital Profit Total
reserves capitalpremium shares reserve reserve and
account held unrealised realised loss
£m £m £m £m £m £m £m
At 1 January 2004 138.9 336.0 - 1,377.2 62.0 267.2 2,181.3
Prior year adjustment
(note 1) - - (5.2) - - - (5.2)
______ _____ _____ ______ ______ ______ ______
Restated balance 138.9 336.0 (5.2) 1,377.2 62.0 267.2 2,176.1
Revaluation surplus - - - 106.2 - - 106.2
Realisation of
revaluation gains and
losses of previous
years - - - (0.1) 0.1 - -
Other recognised
gains and losses - - - (8.5) 2.0 (5.3) (11.8)
Retained profit for
the period - - - - - 21.0 21.0
Shares issued 0.1 0.7 0.8 - - - 1.6
Conversion of
preference shares (0.3) 0.3 - - - - -
Reserve transfer - - - (0.6) 0.7 (0.1) -
______ ____ ____ ______ ______ ______ ______
At 30 June 2004 138.7 337.0 (4.4) 1,474.2 64.8 282.8 2,293.1
______ ____ ____ ______ ______ ______ ______
Notes to the interim financial statements - continued
10. Provision for liabilities Pensions Quail Deferred Other Total
and charges West tax Liabilities
£m £m £m £m £m
Balance at 1 January 2004 1.2 20.8 182.3 1.3 205.6
Exchange movement - (0.2) (1.4) - (1.6)
Charged/(credited) to profit
and loss account - - 13.3 (0.7) 12.6
Paid - (0.8) - (0.1) (0.9)
_____ _____ _____ ____ _____
Balance at 30 June 2004 1.2 19.8 194.2 0.5 215.7
_____ _____ _____ ____ _____
Half year Half year Year to
to 30 to 30 June 31
June 2004 2003 December
unaudited unaudited 2003
audited
£m £m £m
Deferred taxation is in
respect of:
Investment properties 203.9 194.1 193.1
Quail West provision (13.9) - (14.6)
Other 4.2 2.9 3.8
_____ _____ _____
194.2 197.0 182.3
_____ _____ _____
The provision for Quail West relates to a commitment to support the ongoing
activities at this residential leisure development until the overall activity
reaches a certain level, which is not expected to occur for a number of years.
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.
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 (2003 30 per cent) in the UK and at local rates overseas.
The other liabilities relate principally to provisions for onerous leases on
rented properties and represent the estimated liability of future costs for
lease rentals and dilapidation costs less the expected receipts from sub-letting
these properties which are surplus to business requirements.
The estimated amount of potential taxation, for which no provision has been made
and which would arise if the assets held as long term investments were sold at
the values at which they appear in the balance sheet, amounts to £165.5 million
(2003 half year £143.9 million, 2003 full year £129.5 million).
At 30 June 2004 Fibre Power (Slough) Limited, a wholly owned subsidiary of the
Group, was in commercial discussions with Amec Birwelco Limited regarding the
contract to build a renewable energy power station. Amec Birwelco have lodged an
£8.1 million claim for time delay and additional work they allege to have done
in respect of the project. The directors of Fibre Power (Slough) Limited, having
taken both legal and technical specialist's advice, do not accept this claim on
the basis that the work referred to in the claim was covered by the original
contract. It has also been rejected by the Independent Consulting Engineer who
supervised the project. Furthermore Fibre Power (Slough) Limited have lodged a
counter claim for £6.6 million in respect of liquidated damages and extra work
incurred because of the late delivery of the contract and poor initial fitness
for purpose of the installation. No provision has consequently been made in the
interim financial statements.
Notes to the interim financial statements - continued
11. Borrowings Half year Half year Year to
to 30 June to 30 June 31 December
2004 2003 2003
unaudited unaudited audited
£m £m £m
Maturity profile of Group debt
In one year or less 8.0 46.3 40.5
In more than one year but less than two 28.2 6.7 27.8
In more than two years but less than five 381.0 314.2 353.1
In more than five years but less than ten 488.9 505.5 488.7
In more than ten years 746.6 765.2 757.0
______ ______ ______
Total Group debt 1,652.7 1,637.9 1,667.1
______ ______ ______
Split between secured and unsecured
borrowings
Secured (on land and buildings) 183.0 172.0 151.4
Unsecured 1,469.7 1,465.9 1,515.7
______ ______ ______
1,652.7 1,637.9 1,667.1
______ ______ ______
Maturity profile of undrawn borrowing
facilities
In one year or less 41.2 66.2 67.5
In more than one year but less than two 11.5 - 8.6
In more than two years 348.4 375.5 288.1
______ ______ ______
Total available undrawn facilities 401.1 441.7 364.2
______ ______ ______
Fair value of borrowings and associated
derivatives
Book value 1,652.7 1,637.9 1,667.1
Net fair market value 1,810.0 1,874.4 1,878.1
______ ______ ______
Pre-tax mark to market adjustment 157.3 236.5 211.0
Tax relief due on early redemption/
termination (47.2) (71.0) (63.3)
______ ______ ______
After tax mark to market adjustment 110.1 165.5 147.7
______ ______ ______
Notes to the interim financial statements - continued
12. Notes to Group cash flow Half year Half year Year to 31
statement to 30 to 30 December
June 2004 June 2003 2003
unaudited unaudited audited
restated restated
£m £m £m
(1) Reconciliation of operating profit
to net cash inflow from operating
activities
Operating profit 115.5 103.1 175.4
Less other income reallocated (1.2) (0.6) (2.4)
Add back depreciation 1.8 0.9 3.2
Movement in exceptional provision for
Quail West (0.8) - 37.9
Adjust for other non-cash items 0.1 - 1.6
Net rental income from trading
properties - 2.0 -
______ ______ ______
115.4 105.4 215.7
Other movements arising from
operations:
(Increase)/decrease in stocks (7.2) (1.0) 3.0
Increase in debtors (1.0) (2.3) (1.8)
Increase/(decrease) in creditors 1.4 0.3 (2.6)
______ ______ ______
Net cash inflow from operating
activities 108.6 102.4 214.3
______ ______ ______
(2) Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash in the
period (18.2) 92.7 20.1
Increase in debt (4.9) (51.8) (118.3)
(Decrease)/increase in liquid
resources (3.7) (53.1) 46.1
______ ______ ______
Change in net debt resulting from cash
flows (26.8) (12.2) (52.1)
Non-cash adjustment ** (0.2) - 1.4
Translation difference 18.8 (0.9) 32.5
______ ______ ______
Movement in net debt in the period (8.2) (13.1) (18.2)
Net debt at 1 January 2004 (1,507.8) (1,489.6) (1,489.6)
______ ______ ______
Net debt at 30 June 2004 (1,516.0) (1,502.7) (1,507.8)
______ ______ ______
(3) Analysis of net debt At Cash **Non-cash Exchange At 30 June
1 Jan 2004 flow adjustment movement 2004
£m £m £m £m £m
Cash in hand and at bank * 48.3 (17.4) - (0.3) 30.6
Overdrafts (0.6) (0.8) - - (1.4)
______
(18.2)
Loan capital (1,666.5) (4.9) (0.2) 20.3 (1,651.3)
Term deposits * 111.0 (3.7) - (1.2) 106.1
______ ______ ______ ______ ______
(1,507.8) (26.8) (0.2) 18.8 (1,516.0)
______ ______ _____ ______ ______
* Cash and deposits per balance sheet
** The non-cash adjustment relates to borrowing costs which are deducted from
borrowings and amortised to the profit and loss account over the term of the
borrowings and debt acquired.
________________________________________________________________________________
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