Final Results
Great Portland Estates PLC
6 June 2002
6 June 2002
PRELIMINARY RESULTS
The Directors of Great Portland Estates P.L.C. announce the results of the Group
for the year ended 31 March 2002.
Highlights:
• Toby Courtauld appointed Chief Executive
• Robert Noel appointed Property Director
• Disposal of £353 million of non-core properties to focus portfolio on
central London
• £30 million of share buy backs in the year
• Cost of borrowing lowered to 6.6% following redemption and purchase of
long-term, high-coupon debentures
• Adjusted earnings up 7.6% to 12.7p per share (2001: 11.8p)
• Dividend up 2.6% to 10.0p per share (2001: 9.75p)
• Adjusted diluted net assets per share down 11.9% to 349p (2001: 396p).
Toby Courtauld, Chief Executive said:
'I join Great Portland at a key point in the Company's evolution. We are now a
focused central London property company with the foundations laid for the
management team to execute a strategy for growth. Despite their recent
downturn, I believe the Central London markets to be fundamentally healthy and
we are well placed to take advantage of opportunities within them.'
Enquiries etc:
Great Portland Estates P.L.C. 020 7580 3040
Toby Courtauld, Chief Executive
John Whiteley, Finance Director
Finsbury Group 020 7251 3801
Edward Orlebar
Charlotte Festing
Gordon Simpson
Key Statistics
At 31st March 2002
• Rent roll £71.4m
• Reversionary potential over the next five years £13.2m
• Average length of lease 7.6 years
• Over £1bn of assets in central London
• Adjusted++ net assets per share 353p
• Adjusted++ diluted net assets per share 349p
• FRS 13 adjustment per share (net of tax) 22p
• Contingent CGT per share 13p
• Interest cover (pre-exceptionals) 1.9 times
• Dividend cover + 1.27 times
• Net gearing++ 47%
• Average length of debt 20 years
• Average cost of debt 7.8%
Since 31st March 2002
• £130m Debenture 2021 purchased
Pro forma effect thereof:
• Average cost of debt 6.6%
• Net gearing++ 60%
• Adjusted++ net assets per share* 330p
• Adjusted++ diluted net assets per share* 328p
• FRS 13 adjustment per share (net of tax) 2p
++ excluding deferred tax on capital allowances
+ excluding exceptional items, profits or losses on sales of investment
properties, and deferred tax on capital allowances
*assumes full tax relief
CHAIRMAN'S STATEMENT
Three years ago in my Statement to shareholders I said - and I quote - 'your
Directors believe that they should aim to be architects of change'. In that
period, your Company has been repositioned into a focused, central London
investment and development business with an appropriate debt and gearing
structure. The implementation of this strategy, much of which has occurred since
last June, has involved the disposal of more than £850 million of non-core
properties, the payment of £350 million through a return of capital and share
buy-backs, and the redemptions and purchase of the 2002 Convertible Loan Stock
and the two major long-term, high coupon debentures. These initiatives have
contributed to reducing the Company's weighted average cost of borrowing to 6.6%
(as compared to 9.5% five years ago), have given greater flexibility for active
portfolio management and should assist in the continuance of dividend growth.
Moreover, our determination to deliver enhanced shareholder value has been
demonstrated by a 32% total return in the two years ended 31st March 2002,
comfortably outperforming the main FTSE indices.
These radical moves have inevitably had a distorting impact on both the face of
the profit and loss account and the balance sheet. A full explanation of the
figures for the year under review is set out by our Finance Director but,
suffice it to say that adjusted, or what I prefer to call core, earnings per
share have advanced to 12.7p and your Directors are recommending a final
dividend of 6.67p, making a total for the year of 10.0p.
The investment portfolio, comprising 90% in central London, was valued at the
year end at £1.08 billion and adjusted net assets stood at £717 million,
representing 353p per share; the fall in net assets per share largely reflected
the redemption of the £100 million 9.5% Debenture 2016 and a downturn in the
property portfolio. Tenant demand in our core areas slowed considerably in the
relevant period and we were not alone in experiencing the combined effects of
softening rental values and a slight easing of investment yields. Whilst this
has clearly been something of a disappointment, it was not totally unexpected,
as I have been suggesting to shareholders for some time that the strong growth
of recent years was unlikely to prove sustainable. However, on the positive
side, the investment market does appear to be picking up and planning policies,
particularly in the West End, continue to ensure a restriction on new
development, especially of offices, thereby reducing the consequences of lower
demand.
The evolution of the Group has also included several Board changes. Peter Shaw,
who played an important role in the implementation of our strategy, stood down
as Managing Director in March and Paul Gittens, after nearly 32 years with us,
will be retiring at the Annual General Meeting in July, although he is being
retained for one year in a consultative capacity to assist the new management
team. I wish them both well and thank them for their tremendous contribution and
personal loyalty. Toby Courtauld, who was appointed as Chief Executive in April,
brings us the benefit of his wide corporate and property expertise and the Board
has already been encouraged with his thoughts for the future direction of the
Company. In August Robert Noel, who has an established track record of
delivering value through active asset management, is to be appointed as Property
Director. As always, it is a pleasure for me to express my annual appreciation
to the hard working employees of the Group, who have demonstrated their usual
enthusiasm in a changing scenario.
Despite the recent economic slowdown, your Board remains committed to London, a
key financial centre and the preferred location of many companies for their
European or global headquarters with activities supported by a wide range of
both small and medium-sized firms. With our restructuring of the business
complete and the focus on London established, a new management team is being put
in place in order to build on the achievements of the past and to implement a
strategy for the next stage of development. With property as an asset class
returning to favour as compared to other forms of investment, these are
interesting and challenging markets, which will provide opportunities for those
who have the resources to exploit them. I believe your Company is now well
equipped to face the challenges ahead, and your Directors remain determined that
enhanced shareholder value will continue to be delivered.
Richard Peskin
Chairman
CHIEF EXECUTIVE'S REVIEW
I join Great Portland at a key point in the Company's evolution. As the Chairman
has explained, the portfolio repositioning and balance sheet restructuring are
largely complete and we are now a focused, central London property investment
and development company. 90% of the portfolio is in central London as compared
to 51% in 1999 and, following the retirement of the expensive debt, two thirds
of the portfolio is unencumbered, presenting us with greater portfolio
flexibility. With the average cost of debt sharply lower and the FRS13
adjustment virtually zero we are in a good position to look to the future.
Clearly, the Group has seen significant change during the last few years.
Inevitably, however, if we are to build upon these solid foundations, this
process of change will need to continue and, in some areas of our business,
accelerate.
In thinking about the future shape of our business, we have three key areas to
address: first, the Capital Structure of the Group; second, our Asset Strategy;
and third, our People and Processes.
Capital Structure
The structure of the Group's balance sheet must reflect the market conditions in
which we operate and provide us with sufficient flexibility to exploit new
opportunities. The repositioning mentioned earlier has patently delivered this
and, for the time being, I am confident that, from a financial perspective, we
are well placed.
Asset Strategy
The detail behind our asset strategy for the future will take shape over the
coming weeks and months. It will, however, be defined by a number of central
principles:
We are a central London property investment and development company
The London property market is the largest, most diverse and most liquid in the
UK, with the Central area alone accounting for a quarter of all office stock in
England and Wales by value and in excess of 200 million square feet. I believe
it will present us with ample opportunity for growth.
We will focus the portfolio on large assets, or clusters of property with
critical mass
We already have a number of such holdings accounting for approximately 50% of
the total portfolio by value. As a result of their critical mass, these
holdings will consistently deliver us opportunities for active management
through, for example, relocating tenants within our ownership thereby releasing
space for us to refurbish. For example, we consider the Great Portland Street
Estate as one such cluster. Given its scale and our close working relationship
with our occupiers, we regularly generate opportunities to take back space,
refurbish it and offer it back to the market as an improved product.
We intend to sell assets that neither form part of a cluster nor demonstrate a
sufficient prospective performance.
We will explore new markets within central London
Currently, we operate in three distinct areas within London: first, the West End
north of Oxford Street; second, the rest of the West End; and third, Mid Town
and the City. The portfolio is split broadly between these sectors, thereby
giving us a balanced exposure to the different market characteristics inherent
within each. However, London is ever changing and we must not ignore
possibilities to expose the Group to new locations within the Capital.
Income profile
The portfolio is characterised by a well-diversified tenant base and, generally,
low average rents (£27 per sq. ft.) although there is limited reversionary
upside in these rents (18% by 2007). Vacancy rates are negligible (1.3% by rent
at the year end) with a relatively short average lease length of 7.6 years. This
short-term nature of our leases, particularly in our office portfolio north of
Oxford Street, provides us with our bread and butter of regular refurbishment
projects to improve office suites. We will continue to pursue a policy of
limiting the risks of over exposure to any one sector of the economy, and,
through our active management efforts, continue our focus on generating a
consistent and steady growth in our income stream.
Developments and major refurbishments
The portfolio does not have within it any immediate development prospects.
However, there do exist a significant number of quality medium-term prospects,
some of which are addressed in the Portfolio Review. A company of our scale and
strength must be prepared to accept a significantly higher degree of development
risk - prudently assessed and appropriately resourced - both on our own balance
sheet, and in partnership with others. We will, therefore, pursue a development
strategy grounded in a detailed understanding of our markets and which avoids
excessive risk.
People & Process
The most important ingredient in the success of any business is its people.
Great Portland is in the enviable position of having a loyal and hardworking
team. However, in order to exploit fully the opportunities that I believe the
markets will present as we move into the next cycle, we will need to strengthen
our resource in a number of areas. We have already begun this process and I am
delighted to be able to welcome Robert Noel to the senior management team. He
will join the Board as Property Director on 1st August, bringing with him 15
years of experience dealing in commercial property, much of it in central London
and, for the last ten years, as a director of the Investment Consulting Group at
Nelson Bakewell.
I would like to pay tribute to Paul Gittens who will retire from the Board at
the Annual General Meeting. For 32 years, the last 13 as a director, Paul has
played an important part in Great Portland's successes and he will be missed by
his many friends and colleagues.
In tandem with strengthening our teams, we have begun to update some of our
business processes. For us to be sure that the property decisions we take are
always based upon the best possible information, I have initiated a property
business planning exercise. Building up from every lease in every unit, each
property will have its own business plan projecting the returns we expect to
receive over the following five years. This process will be carried out at least
annually and reviewed more frequently. This work will allow us to benchmark
every asset against required hurdle rates of return and enable us to forecast
with a greater degree of certainty.
At the same time, we will be looking at the ways in which we evaluate, monitor
and report on the risks that we take within the portfolio and the opportunities
that we consider outside it. I am a firm believer in rigorous financial analysis
carried out in a consistent and clear fashion.
Outlook
We face some significant challenges both within Great Portland and in our
markets generally. We must address the underperformance of the existing
portfolio this year and continue its repositioning into properties that will
deliver higher rates of growth for the future. I believe our core markets are
fundamentally healthy despite their recent downturn. We are not witnessing the
oversupplied conditions of the early 1990's and the potential medium term
shortage of new stock in the West End will present us with opportunities we must
grasp.
We will concentrate on large assets and clusters of property where critical mass
will allow us to create value through our management efforts. We will
investigate new subsectors within London which we believe will offer exciting
opportunities for growth. We will accept a greater level of prudently assessed
development and refurbishment risk to improve the quality of our existing
portfolio and to introduce higher growth opportunities to the Group. We will
recycle capital out of mature properties and into higher growth prospects, but
always with a keen eye to the quality and security of our rental stream.
To achieve these broad aims, we must be willing to innovate in the ways we do
business and we must attract and motivate the best people, encouraging within
them a culture of success.
I look forward to facing these challenges and reporting to you on our progress.
Toby Courtauld
Chief Executive
FINANCIAL REVIEW
The major transactions to affect the results for the year ended 31st March 2002
were property disposals of £353.1 million, share buy-backs of £30.3 million and
the redemption of an expensive debenture for £128.2 million. Following these
transactions, and the purchase of a further debenture shortly after the year
end, restructuring of the Group's balance sheet is largely complete.
For the year ended 31st March 2002, three new financial reporting standards have
applied for the first time: FRS 17 Retirement Benefits, which requires extra
disclosures as set out in note 28 to the accounts; FRS 18 Accounting Policies,
which has no material effect; and FRS 19 Deferred Tax. Under FRS 19, we are
required to provide for the potential tax payable on the reversal of all capital
allowances claimed to date on properties owned by the Group, and to charge the
full rate of tax to the profit and loss account, as if no capital allowances had
been claimed in the period. In practice, in a property investment company such
as ours, capital allowances do not reverse, even on property disposals, and so
the Board believes that applying this standard produces inappropriate figures
for earnings and net assets. Accordingly, adjusted earnings and adjusted net
assets, as referred to in this report and accounts, are stated after reversing
the effects of FRS 19 on capital allowances.
Results
The profit and loss account for the year ended 31st March 2002 is an amalgam of
four distinct elements: the underlying core business, which generated profits
before tax of £36.2 million (2001:£44.1 million) and earnings of 12.7p (2001:
11.8p); the disposal of properties; exceptional finance costs; and the deferred
tax adjustment for accelerated capital allowances under FRS 19.
Rent receivable of £85.3 million was £21.5 million, or 20%, lower than last
year. Property disposals reduced rents by
£26.9 million and expiries by £0.9 million, against which new lettings
contributed £3.0 million and rent reviews a further £3.3 million.
The fall in property costs and administration expenses, before exceptional
items, largely mirrored the reduction in the size of the property portfolio, and
trading profits of £0.4 million were made on the disposal of eleven residential
flats in Chelsea. The sales of investment properties of £353.1 million were in
line with the valuation at 31st March 2001, and the loss on their sale of £3.2
million was made net of selling costs of £3.8 million. Net interest payable of
£70.6 million was distorted by the premium of £28.2 million paid on the early
redemption of the £100 million 9.5% First Mortgage Debenture Stock 2016, and the
£2.1 million cost of cancelling an interest rate swap. Net interest payable in
2001 of £57.8 million also contained an exceptional cost of £5.0 million on the
early redemption of the £52.4 million 9.5% Convertible Unsecured Loan Stock
2002. Excluding these exceptional items, net interest payable fell by £12.5
million, largely reflecting the use of disposal proceeds to reduce net debt
during the year.
Adjusted profits before tax of £36.2 million attracted a tax charge of £9.8
million, representing a tax rate on the underlying, core business of 27.1%
(2001: 25.6%), which was less than the standard rate of corporation tax
primarily due to the benefit of capital allowances available on plant and
equipment within the investment property portfolio. The exceptional cost of the
repayment of expensive debt attracted a tax credit of £9.1 million, the loss on
disposal of investment properties attracted no immediate tax relief, and the
vagaries of FRS 19 produced a tax charge of £0.7 million for the current year,
and a tax credit of £3.5 million relating to previous years. The aggregate of
these disparate elements is a tax credit on the face of the profit and loss
account of £2.1 million.
The final dividend will be paid, subject to shareholders' approval, on 20th July
2002 to shareholders on the register at 14th June; the total dividend for the
year of 10.0p (2001: 9.75p) was covered 1.27 times by adjusted earnings (2001:
1.21 times).
Financing
The early redemption of the Debenture 2016 in May 2001 and the cancellation of
an interest rate swap with a nominal value of £75 million in January 2002
reduced the weighted average cost of borrowing during the year, but the use of
proceeds from the disposal of investment properties temporarily to repay
low-cost bank borrowings resulted in a weighted average cost of debt at 31st
March 2002 unchanged from twelve months earlier at 7.8%. Gearing at 31st March
2002, adjusted to exclude the capital allowances element of the deferred tax
provision, was 47% (2001: 69%), net of cash balances of £83.4 million, and the
Group had in place undrawn bank facilities of £235 million. Under FRS 13, the
market value of the Group's financial instruments at 31st March 2002 exceeded
the amount at which they were shown in the consolidated balance sheet by £70.9
million, representing a potential reduction in net assets per share of 35p,
before tax relief.
Between July and September 2001, 11,207,130 ordinary shares were bought by the
Company, at an average cost of 269p per share, and cancelled. The effect was to
increase diluted net assets per share by 6p. At the Annual General Meeting on
17th July 2002, the Board will seek to renew shareholders' authority to be able
to buy up to 15% of the Company's issued share capital.
Following consultation with the Association of British Insurers, who approved
the Company's proposal on 12th April 2002, a subsidiary of the Company purchased
in full the £130 million 10.75% First Mortgage Debenture Stock 2021 at a premium
of £67.0 million. This debenture accounted for £64.9 million of the £70.9
million potential excess liability at 31st March 2002 calculated in accordance
with FRS 13. The premium will be charged as an exceptional cost in the profit
and loss account for the year ending 31st March 2003. The repurchase of this
debenture is the final major initiative in the strategy pursued by the Board to
make Great Portland a focused, more appropriately financed business. In addition
to reducing the potential FRS 13 liability of the Group to virtually zero, the
purchase lowers the weighted average cost of borrowing from 7.8% to 6.6% - it
was 9.5% in 1997 - and our post-tax weighted average cost of capital to around
6.4%. It will also enhance future earnings, and will increase pro forma interest
cover to 2.3 times (2002: 1.9 times), based on the current rent roll. Repaying
this debenture will also provide far more flexibility for the future by
releasing from charge around 20% of the Group's property portfolio, increasing
the unsecured element from 44% to 64%.
Cash Flow
Net cash from operating activities, after the payment of interest and tax, was
£12.1 million, which contributed towards the payment of £20.7 million in
dividends, leaving a shortfall of £8.6 million. Proceeds from the disposal of
investment properties of £358.3 million were used to repay loans of £304.2
million, to buy-back shares of £30.3 million and to finance capital expenditure
of £27.8 million, resulting in a small shortfall of £4.0 million. These two
shortfalls were financed by £11.8 million withdrawn from short-term deposit, and
a reduction in the cash balance of £0.8 million.
Net Assets
Shareholders' funds at 31st March 2002 were £701.8 million (2001: £847.4
million) or £716.7 million (2001: £865.1 million) excluding the capital
allowances effect of FRS 19. The fall in adjusted net assets of £148.4 million
comprised a reduction in the value of the property portfolio of £99.5 million,
whilst share buy-backs, which enhanced net assets per share, reduced net assets
by £30.3 million; exceptional items, which will be earnings-enhancing in the
future, reduced net assets by £21.5 million and retained profits of £6.1
million, before exceptional items, offset capital losses of £3.2 million.
Excluding the effect of FRS 19, net assets per share fell from 404p to 353p, and
diluted net assets per share from 396p to 349p. Had the Group's investment
properties been sold for their book value at the balance sheet date, the
contingent liability to taxation on capital gains would have been approximately
£28 million, or 14p per share.
Financial Instruments
The Group raises finance through equity and borrowings, and places surplus cash
on short-term deposit. The primary sources of borrowing are debenture loans,
convertible loans and bank and other loans. The Group also enters into interest
rate swaps, collars and caps, but solely as a way of managing the interest rate
risks arising from some of the Group's sources of finance, primarily bank loans.
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and credit risk. The policies for managing these are
reviewed by the Board, and have been in place throughout the year ended 31st
March 2002.
Interest Rate
Borrowings are made either at fixed rates of interest, or at floating rates,
which can be fixed simultaneously, and co-terminously, by means of interest rate
swaps. The Group's policy has been to ensure that most of its borrowings were at
fixed rates; at 31st March 2002, 98% of borrowings were at fixed rates after
taking account of interest rate swaps.
Liquidity
The Group operates a long-term business, and its policy is to finance it
primarily with equity, and medium-term and long-term borrowings. Accordingly, at
the year end 79% of the Group's borrowings were due to mature in more than 15
years. Short-term flexibility is achieved by cash balances and overdraft
facilities.
Credit
At 31st March 2002, the Group had £83.4 million on short-term deposit with
financial institutions. It is the Board's policy that deposits and derivative
contracts are placed only after consideration of the current credit worthiness
of the counter-party.
John Whiteley
Finance Director
PORTFOLIO REVIEW
The portfolio repositioning gathered pace during the year. We sold £353.1
million of investment properties, comprising all our shopping centres, our two
remaining offices outside London and the South East, and some peripheral London
stock. As a consequence, at the year end 90% of the portfolio was located in
central London, with the remainder comprising office properties in the South
East and a leisure development in central Northampton.
The valuation result for the year was disappointing. Like for like, the value of
the portfolio dropped by 8.5% or £99.5 million overall. Of this, £73.0 million
was in the West End, a fall of 9.3%. The City properties fell in value by 2.5%
(£6.3 million) and the rest of the portfolio by 15.3% or £20.2 million. There
are two main reasons for the fall. First, the reversionary potential within the
portfolio reduced during the year due to falling rental values in our markets;
and second, investment yields moved against us reflecting investors' nervousness
over the prospects for short-term rental growth.
With a deficit on revaluation of £99.5 million and net rental income for the
year of £83.6 million, total property returns were negative to the tune of 1%.
In London, the deficit was 1.5% made up from the negative West End contribution
of 3.6%, mitigated by a positive return of 4.9% from the City portfolio.
CB Hillier Parker's independent valuation at £1.076 billion reflected a net
initial yield of 6.1% and a reversionary yield of 7.4%. The total reversionary
potential of the portfolio over the next five years was £13.2 million, on a rent
roll at the year end of £71.4 million.
West End and Covent Garden
During the year, the West End market as a whole saw demand for space fall, the
amount of available space rise and, as a result, rental values fall. Vacancy
rates, the best measure of the balance between supply and demand, rose from
approximately 3% to in excess of 5% of the total stock of West End offices. The
rental value of our own West End voids represented only 1% of our total West End
rents (1.7% north of Oxford Street and 0.1% in the remainder of the West End).
Take up of space for the year was significantly down on 2001 with the first
quarter of 2002 being some 50% lower than the comparable period twelve months
earlier. However, there are signs that occupier demand has picked up recently,
with agents reporting a rise in viewings and an increase of almost a quarter,
compared to December 2001, in the number of companies actively searching for new
space.
The amount of space available to let in the West End roughly doubled during the
year from 4 million to 8 million sq. ft. The majority of this space was not new,
but second-hand, as tenants sought to offload space and reduce their cost base
given the general uncertainty surrounding the economic outlook. Encouragingly,
however, there are signs that a number of companies are withdrawing second-hand
space from the market in anticipation of an economic recovery and an increase in
their own occupational requirements. Also, the pipeline of new space in the West
End remains limited and, with the restrictive planning regime acting as a
constraint on new development, we expect the balance between demand and supply
to improve during 2002. Indeed, a number of forecasters are suggesting a
shortage of new, top quality West End office stock into 2003 and 2004.
Increased supply and declining demand apply downward pressure to rental values.
Headline rents for the best space are believed to have fallen by at least 10%
and rent-free periods and other incentives granted to tenants also increased
during the year. The performance of our West End portfolio for the year reflects
many of these market characteristics.
Our West End portfolio (which includes our Covent Garden portfolio) at 31st
March 2002 was valued at £715.5 million, representing 66.5% of the Group's total
portfolio. Of this, £332.6 million was in offices north of Oxford Street, with
£210.2 million in offices in the rest of the West End, and £172.7 million in
West End retail.
North of Oxford Street, average office rents passing as at 31st March 2002 were
£25 per sq. ft., up from £23 last year.
With average office rental values at £32 per sq. ft., the portfolio in this area
was reversionary to the tune of £5.2 million over the next five years. However,
the reduction in demand from tenants resulted in rental values falling by 5.3%.
This negative movement was compounded by a rise in the investment yield of 50
basis points resulting in a capital value reduction of 11.0%.
In the rest of the West End and Covent Garden portfolio, average office rents
passing increased from £33 to 35 per sq. ft.. However, office rental values
declined slightly over the year to £40 per sq. ft.; this £5 per sq. ft.
reversion equates to a potential rise in the rent roll of £1.8 million. As with
the portfolio north of Oxford Street, investment yields have moved against us
reducing the capital value by 8.0%.
The most notable rent review in the West End during the period was at 17/18 New
Bond Street, W1 where the rent of £1.1m was reviewed to £1.8m against our
estimate of £1.5m as at 31st March 2001. Despite this result, softening
investment yields caused a fall in the capital value of the West End retail
portfolio of 7.4%.
In October 2001 we sold, with planning permission, the empty building at 22/25
Northumberland Avenue, WC2 for £5 million, £2 million above its March 2001
valuation, and, in December, 29/30 Fitzroy Square, W1 at slightly over its 2001
value of £3 million. Eleven of the twelve flats comprising our residential
development at Ranelagh House, Chelsea, SW3 were sold in the year for £7.3
million, realising a trading profit of £0.4 million.
During the year we achieved two significant planning consents. In August we
gained detailed planning permission for a 118,000 sq. ft. (net) development of
190 Great Portland Street, W1, designed to complement our successful 1995
development of the southern half of the island block (160 Great Portland
Street). In March, we secured detailed permission for a 193,000 sq. ft. (net)
development of mainly offices and retail fronting onto Great Titchfield Street,
Mortimer Street and Wells Street, W1. Both of these sites remain fully
income-producing until 2004 and 2007 respectively, and we will continue to
monitor their viability in the intervening period.
Other potential development sites within the West End portfolio are currently
under detailed review, but they are likely to remain pure investments for the
foreseeable future. It is a feature not just of our West End business, but of
the portfolio as a whole, that it contains no near-term development
opportunities. We intend to address this as and when we identify appropriate
opportunities.
City and Holborn
In the City, take up fell and availability rose during the year, resulting in a
vacancy rate of 8.5% by the end of the first quarter 2002, up from approximately
5% at the same point last year. Despite the high headline vacancy rate, less
than 3% was grade A space. However, speculative development in the City has
risen sharply during the year and the pipeline of new projects is greater than
in the West End. Agents are reporting that active demand has picked up during
the first quarter of 2002 and rents for the best space have held up well. We
have no voids in our City portfolio.
Valued at £248.8 million at 31st March 2002, our City and Holborn portfolio made
up 23.1% of the Group's properties. It comprises principally a significant
holding at the junction of Bishopsgate and Camomile Street, two properties on
Moorgate, and a sizeable block at the junction of Holborn and Fetter Lane.
Rental values in the twelve months to 31st March 2002 rose by 1%, but a small
rise in yields caused an overall fall in values of 2.5%. Average rents passing
were £34 per sq. ft. at the year end with the rental value at £42 per sq. ft.
implying a reversion of £4.2 million per annum by 2007.
Progress continues to be made with a consortium of landowners over the appraisal
of our Bishopsgate site for a large-scale redevelopment and a detailed review of
our options is under way.
During the year we sold a peripheral City fringe building at 4/5 Bonhill Street,
EC1 for £7.75 million, over £1 million in excess of its March 2001 valuation,
and there will be further opportunities for tidying up our City holdings in the
months ahead.
Other Properties
The remaining 10% of the portfolio comprised offices in the South East, and a
leisure development at Sol Central, Northampton. Rental values in the South
East office properties fell by 1.2% in the year to 31st March 2002, but a slight
increase in yields and the valuation write down of our leisure development at
Sol Central in Northampton led to a fall in capital values of 15.3%.
The development at Sol Central, comprising a ten screen cinema, a 150 room
hotel, a health club, a night club, and several bars and restaurants, reached
practical completion during the year and opened in February 2002. It is now 75%
let, with discussions ongoing for the balance. The project, which was initiated
when 60% pre-let, suffered severe delays when the US cinema operator pulled out
of its commitments in Europe, and then the hotel operator went into liquidation.
Consequently, the Board prudently has written off to the profit and loss
reserve £15 million of the accumulated revaluation deficit as a permanent
diminution in value.
The shopping centre portfolio was sold in two transactions with total receipts
of £301 million at or around its March 2001 valuation. The potential £90 million
funding commitment for a retail development in High Wycombe was also terminated
during the year for no financial penalty. We realised £12 million for the sale
of Key Point, Bristol in October 2001 and in January this year £15 million from
the sale of Freemans' Call Centre, Sheffield, both at March 2001 values.
Portfolio Statistics
Rental income At 31st March 2002
Rent Five Year Five Year
Roll Reversionary Rental
£m Potential Values
£m £m
London West End and Covent Garden
North of Oxford Street Offices 18.1 5.2 23.3
Other Offices 14.0 1.8 15.8
Retail 11.5 1.7 13.2
Total West End and Covent Garden 43.6 8.7 52.3
City and Holborn Offices 17.5 4.2 21.7
Total London 61.1 12.9 74.0
South East Offices 8.8 0.2 9.0
Other 1.5 0.1 1.6
Total Let Portfolio 71.4 13.2 84.6
Voids - - 1.0
Premises under refurbishment - - 1.5
Total Portfolio - - 87.1
Rent Roll Weighted
Secure Average
For Five Lease
Years Length Voids
% Years %
London West End and Covent Garden
North of Oxford Street Offices 60.9 6.0 1.5
Other Offices 68.7 7.3 0.2
Retail 65.2 8.6 1.0
Total West End and Covent Garden 64.6 7.1 1.0
City and Holborn Offices 73.1 8.4 -
Total London 67.0 7.5 0.7
South East Offices 54.1 5.7 1.2
Other 100.0 25.7 22.6
Total Let Portfolio 66.1 7.6 1.3
Average Average Initial Equivalent
Rent ERV Yield Yield
£psf £psf % %
London West End and Covent Garden
North of Oxford Street Offices 25 32 5.3 7.3
Other Offices 35 40 6.3 7.2
Retail 38 43 5.9 6.6
Total West End and Covent Garden 30 36 5.7 7.2
City and Holborn Offices 34 42 6.8 7.4
Total London 31 38 6.0 7.2
South East Offices 17 17 8.3 8.8
Other 10 10 7.3 8.2
Total Let Portfolio 27 32 6.1 7.4
Analysis of Rental Values Lease Expiries
£m %
Rent roll 71.4 Less than 5 years 33.9
Rent reviews 9.0 5 to 10 years 36.1
Lease renewals 4.2 10 to 15 years 26.8
Under refurbishment 1.5 Over 15 years 3.2
Voids 1.0
87.1 100.0
Occupier Portfolio Breakdown
London (%) Other (%)
% 1999 51 49
Banking and Finance 19.7 2000 53 47
Media & Marketing 15.8 2001 70 30
Professional 19.4 2002 90 10
IT & Telecoms 7.5
Corporates 6.7
Government 9.8
Retailers 21.1
100.0
Investment property portfolio At 31st March 2002
Offices Retail Total
£m £m £m
London West End and Covent Garden
North of Oxford Street 332.6 55.5 388.1
Other 210.2 117.2 327.4
Total West End and Covent Garden 542.8 172.7 715.5
City and Holborn 248.8 - 248.8
Total London 791.6 172.7 964.3
South East Offices 92.3 - 92.3
Other - 19.5 19.5
Total 883.9 192.2 1,076.1
Portfolio performance At 31st March 2002
Valuation Proportion Valuation Total Return Total Return Total Return
of portfolio Movement 12 months 24 months 36 months
2002
£m % % % % %
London West End and Covent Garden
North of Oxford St 332.6 30.9 (11.0) (5.9) 11.8 43.5
Offices
Other Offices 210.2 19.5 (8.0) (1.2) 10.7 27.3
Retail 172.7 16.1 (7.4) (1.8) 5.8 20.1
Total West End 715.5 66.5 (9.3) (3.6) 9.5 31.9
City and Holborn Offices 248.8 23.1 (2.5) 4.9 22.3 23.1
Total London 964.3 89.6 (7.6) (1.5) 12.8 29.2
South East Offices 92.3 8.6 (7.3) 1.8 10.6 16.5
Other 19.5 1.8 (39.9) 2.1 (2.6) 4.9
Total 1,076.1 100.0 (8.5) (0.4) 6.6 18.0
By user At 31st March 2002
Valuation Proportion Valuation Total Return Total Return Total Return
of portfolio Movement 12 months 24 months 36 months
2002
£m % % % % %
Offices 883.9 82.1 (7.6) (0.9) 12.6 27.5
Retail 192.2 17.9 (12.2) 0.4 (1.8) 9.2
Total 1,076.1 100.0 (8.5) (0.4) 6.6 18.0
Group Profit and Loss Account
For the year ended 31st March 2002
Notes 2002 2001
as restated
£m £m
Rent receivable 2 85.3 106.8
Ground rents (1.7) (1.9)
Net rental income 83.6 104.9
Property and refurbishment costs (2.1) (2.8)
Administration expenses 3 (5.7) (7.1)
75.8 95.0
Trading profits 0.4 -
Operating profit 76.2 95.0
Loss on sale of investment properties (3.2) (12.8)
Profit on ordinary activities before 73.0 82.2
interest
Interest receivable 5 1.8 2.8
Interest payable 6 (42.1) (55.6)
Exceptional interest costs 7 (30.3) (5.0)
Profit on ordinary activities before 2.4 24.4
taxation
Tax credit/(charge) on profit on ordinary 8 2.1 (8.2)
activities
Profit on ordinary activities after taxation 4.5 16.2
Dividends 9 (20.3) (20.9)
Retained loss for the year (15.8) (4.7)
Earnings per share - basic 10 2.1p 5.9p
Earnings per share - adjusted 10 12.7p 11.8p
A statement of the movement on reserves is given in note 21.
The group Profit and Loss Account for the year ended 31st March 2001 has been
restated for the adoption of FRS 19 (see note 18).
Group Balance Sheet
As at 31st March 2002
Notes 2002 2001
as restated
£m £m
Tangible fixed assets
Investment properties 11 1,076.1 1,502.6
Current assets
Stock of trading properties 1.9 6.9
Debtors 12 24.5 24.9
Cash at bank and short-term deposits 83.4 96.0
109.8 127.8
Creditors: amounts falling due within one year 13 (51.5) (72.2)
Net current assets 58.3 55.6
Total assets less current liabilities 1,134.4 1,558.2
Creditors: amounts falling due after more than one year
Debenture loans 14 (353.8) (454.0)
Convertible loans 15 (56.9) (56.8)
Bank and other loans 16 (6.7) (182.3)
Provisions for liabilities and charges 18 (15.2) (17.7)
701.8 847.4
Capital and reserves
Called up share capital 19 101.5 107.1
Share premium account 20 24.8 24.8
Revaluation reserve 21 445.9 570.9
Other reserves 21 25.0 19.4
Profit and loss account 21 104.6 125.2
Equity shareholders' funds 701.8 847.4
The Group Balance Sheet as at 31st March 2001 has been restated for the adoption
of FRS 19 (see note 18).
Group Statement of Cash Flows
For the year ended 31st March 2002
2002 2001
Notes £m £m
Net cash inflow from operating activities 23 72.5 81.6
Returns on investments and servicing of finance 24 (55.2) (45.7)
Taxation 24 (5.2) (13.5)
Net cash inflow from capital expenditure 24 330.5 377.5
Equity dividends paid (20.7) (29.7)
Net cash inflow before use of liquid resources and 321.9 370.2
financing
Management of liquid resources 24 11.8 (9.8)
Net cash outflow from financing 24 (334.5) (358.1)
(Decrease)/increase in cash (0.8) 2.3
Group Statement of Total Recognised Gains and Losses
For the year ended 31st March 2002
2002 2001
as restated
Notes £m £m
Profit for the year 4.5 16.2
Unrealised (deficit)/surplus on revaluation of fixed (99.5) 28.2
assets
Total recognised gains and losses for the year (95.0) 44.4
Prior year adjustment 18 (17.7) -
Total recognised gains and losses since last annual report (112.7) 44.4
The Group Statement of Total Recognised Gains and Losses for the year ended 31st
March 2001 has been restated for the adoption of FRS 19 (see note 18).
Note of Historical Cost Profits and Losses
For the year ended 31st March 2002
2002 2001
as restated
£m £m
Reported profit on ordinary activities before taxation 2.4 24.4
Realisation of fixed asset revaluation surpluses of 40.5 64.6
previous years
Historical cost profit on ordinary activities before 42.9 89.0
taxation
Historical cost profit for the year retained after 24.7 59.9
taxation and dividends
The Note of Historical Cost Profits and Losses for the year ended 31st March
2001 has been restated for the adoption of FRS 19 (see note 18).
Notes Forming Part of the Accounts
1 Accounting Policies
Accounting Convention The accounts are prepared under the historical cost
convention as modified by the revaluation of tangible fixed assets and
investments in subsidiary undertakings, and on the basis of the accounting
policies set out in the Group's audited accounts for the year ended 31st March
2001, as amended by the introduction of FRS 17 to FRS 19. The comparative
financial information has only had to be restated to reflect FRS 19, which
relates to deferred tax, and the effect of the restatement is set out in note
18. As the accounts are prepared in accordance with applicable accounting
standards, certain fixed assets are not depreciated in accordance with the
Companies Act 1985, as explained below.
Basis of Consolidation The Group accounts consolidate the accounts of the
Company and all its subsidiary undertakings for the year ended 31st March.
Rent Receivable This comprises rental income on investment and trading
properties for the year, exclusive of service charges receivable. Service
charges are credited against relevant expenditure.
Property and Refurbishment Costs Irrecoverable running costs directly
attributable to specific properties within the Group's portfolio are charged to
the profit and loss account as property expenses. Costs incurred in the
improvement of the portfolio which, in the opinion of the directors, are not of
a capital nature are written off to the profit and loss account as incurred.
Administration Expenses Costs not directly attributable to individual properties
are treated as administration expenses.
Properties Trading properties are included at the lower of cost and net
realisable value. Investment properties, including those in the course of
development, are professionally valued each year, on an open market basis, and
any surpluses or deficits arising are taken to revaluation reserve. Disposals of
investment and trading properties are recognised where contracts have been
exchanged during the accounting period and completion has taken place before or
shortly after the year end.
Depreciation In accordance with Statement of Standard Accounting Practice No.
19, no depreciation is provided in respect of freehold investment properties and
leasehold investment properties with over 20 years to run. Although the
Companies Act 1985 would normally require the systematic annual depreciation of
fixed assets, the directors believe that this policy of not providing
depreciation is necessary in order for the accounts to give a true and fair
view, since the current value of investment properties, and changes in that
current value, are of prime importance rather than a calculation of systematic
annual depreciation. Depreciation is only one of the many factors reflected in
the annual valuation, and the amount which might otherwise have been shown
cannot be separately identified or quantified.
Deferred Taxation Deferred tax is provided in full on timing differences which
result in an obligation at the balance sheet date to pay more tax, or a right to
pay less tax, at a future date, at rates expected to apply when they crystallise
based on current tax rates and law. Timing differences arise from the inclusion
of items of income and expenditure in taxation computations in periods different
from those in which they are included in the accounts. Deferred tax is not
provided on timing differences arising from the revaluation of tangible fixed
assets where there is no commitment to sell the asset. Deferred tax assets are
recognised to the extent that it is regarded as more likely than not that they
will be recovered. Deferred tax assets and liabilities are not discounted.
Subsidiary Undertakings Shares in subsidiary undertakings are valued at amounts
equal to their original cost and any subsequent movement in the capital reserves
of those subsidiaries, thus reflecting in the Company's balance sheet the
surplus arising from the revaluation and the sale of investments and investment
properties of those subsidiaries.
Pensions The Company contributes to a defined benefit pension plan which is
funded with assets held separately from those of the Company. Contributions are
charged to the profit and loss account so as to spread the cost of pensions over
the employees' working lives with the Company. The regular cost is attributed to
individual years using the projected unit method. Variations in pension cost,
which are identified as a result of actuarial valuations, are amortised over the
average expected remaining working lives of employees in proportion to their
expected payroll costs. Differences between the amounts funded and the amounts
charged to the profit and loss account are treated as either provisions or
prepayments in the balance sheet.
Interest Interest attributable to properties in the course of development is
written off to the profit and loss account as incurred.
Financial Instruments An interest rate swap is accounted for as a hedge when it
alters the risk profile of an existing underlying exposure, typically a floating
rate bank loan.
2 Turnover and Segmental Analysis
Rent receivable by location:
2002 2001
£m £m
West End - North of Oxford Street Offices 17.8 16.3
Other West End and Covent Garden Offices 13.9 13.5
West End and Covent Garden Retail 12.3 11.2
City and Holborn 17.9 18.0
South East Offices 9.6 11.3
Shopping Centres 12.4 23.0
Rest of United Kingdom 1.4 13.5
85.3 106.8
Rent receivable is stated exclusive of value added tax, and arose wholly from
continuing operations in the United Kingdom. No operations were discontinued
during the year.
3 Administration Expenses 2002 2001
£m £m
Administration expenses
Other 5.4 5.2
Exceptional items
Costs of early repayment of debenture 0.3 -
Capital reduction - 1.9
5.7 7.1
Included within administration expenses are fees charged by the auditors
comprising audit fees of £0.1 million (2001: £0.1 million), taxation fees of
£0.2 million (2001: £0.2 million), and other fees of £nil (2001: £0.2 million)
relating to the capital reduction.
4 Employee Information
The average number of employees of the Group, including
directors, was:
2002 2001
Number Number
Head office and administration 49 54
On-site property management 15 23
64 77
Included within administration expenses are staff costs, including those of
directors, comprising:
2002 2001
£m £m
Wages and salaries 3.6 3.8
Social security costs 0.4 0.4
Other pension costs 0.7 0.8
4.7 5.0
Less: recovered through service charges (0.4) (0.7)
4.3 4.3
The directors received fees of £265,000 (2001: £202,000) and other emoluments of
£1,116,000 (2001: £1,184,000), and pension contributions have been made for
directors of £102,000 (2001: £129,000).
5 2002 2001
Interest Receivable Number Number
Short-term deposits 1.5 2.3
Other 0.3 0.5
1.8 2.8
6 Interest Payable 2002 2001
£m £m
Bank loans and overdrafts 8.0 12.2
Other 34.1 43.4
42.1 55.6
7 Exceptional Interest Costs
2002 2001
£m £m
Premium on early repayment of debenture 28.2 -
Cost of swap cancellation 2.1 -
Premium on early redemption of loan stock - 5.0
30.3 5.0
8 Tax on Profit on Ordinary Activities 2002 2001
as restated
£m £m
UK corporation tax charged for the year 0.4 9.2
Deferred tax - current year 1.0 2.3
- relating to prior years (3.5) (3.3)
(2.1) 8.2
Adoption of FRS 19 has required a change in the method of accounting for
deferred tax. As a result the comparative figure for tax on profit on ordinary
activities for the year ended 31st March 2001 has been restated from the
previously reported amount of £9.2 million to £8.2 million. The impact of
adopting FRS 19 on the results for the year ended 31st March 2002 is a reduction
to the tax charge of £2.5 million.
The difference between the standard rate of tax and the effective rate arises
from the items set out below:
2002 2001
as restated
£m £m
Profit on ordinary activities before tax 2.4 24.4
Tax on profit on ordinary activities at 0.7 7.3
standard rate
Expenses not deductible for tax purposes 0.2 0.3
Capital allowances (1.2) (2.3)
Other timing differences (0.3) -
Sale of investment properties covered by capital 1.0 3.9
losses
0.4 9.2
Taxation on capital gains of approximately £28 million would have arisen if the
Group's investment properties had been sold for their book value at the balance
sheet date.
9 Dividends 2002 2001
£m £m
Interim at 3.33p on 203,041,984 shares
(2001: 3.25p on 213,985,048 shares) 6.8 7.0
Proposed final at 6.67p on 203,041,984
shares
(2001: 6.5p on 214,249,114 shares) 13.5 13.9
20.3 20.9
The final dividend will be payable on 20th July 2002 to shareholders on the
register at 14th June 2002.
10 Earnings per Share
Earnings per share are based on income attributable to ordinary shareholders of
£4.5 million (2001: £16.2 million) and on the weighted average of 207,994,455
shares in issue (2001: 277,831,412 shares). There is no impact on earnings per
share of conversion of the convertible bonds, or share options.
The directors believe that earnings per share before deferred tax arising on
capital allowances exceeding depreciation, exceptional items and profits or
losses on sales of investment properties provide a more meaningful measure of
the Group's performance. Accordingly, earnings per share on that adjusted basis
have been disclosed on the face of the profit and loss account and calculated as
follows:
2002 2002 2001 2001
Profit Earnings Profit Earnings
After Tax Per Share After Tax Per Share
as restated as restated
£m Pence £m Pence
Basic 4.5 2.1 16.2 5.9
Deferred tax (2.8) (1.3) (1.0) (0.4)
Exceptional items 21.5 10.3 4.8 1.7
Loss on sale of investment properties 3.2 1.6 12.8 4.6
Adjusted 26.4 12.7 32.8 11.8
11 Investment Properties Freehold Leasehold Leasehold Total
over 900 50-250 Years
Years
£m £m £m £m
At 1st April 2001 1,101.9 126.2 274.5 1,502.6
Additions at cost 22.2 0.1 3.8 26.1
Transfer 31.7 - (31.7) -
Disposals (261.0) - (92.1) (353.1)
894.8 126.3 154.5 1,175.6
Deficit on revaluation (80.9) (11.5) (7.1) (99.5)
At 31st March 2002 813.9 114.8 147.4 1,076.1
The freehold and leasehold investment properties were valued on the basis of
Open Market Value by CB Hillier Parker as at 31st March 2002 in accordance with
the Appraisal and Valuation Manual of The Royal Institution of Chartered
Surveyors. The historical cost of investment properties at 31st March 2002 was
£645.2 million (2001: £931.7 million).
12 Debtors 2002 2001
£m £m
Rental debtors 5.6 6.0
Corporation tax 13.4 7.6
Other debtors 3.9 11.0
Prepayments 1.6 0.3
24.5 24.9
13 Creditors: Amounts Falling Due Within One Year 2002 2001
£m £m
Unsecured loan notes 2007 - 0.4
Accruals and rents in advance 26.4 44.0
Corporation tax 6.7 5.7
Other taxes and social security costs 1.9 3.1
Other creditors 3.0 5.1
Proposed dividend 13.5 13.9
51.5 72.2
14 Debenture Loans
2002 2001
£m £m
First mortgage debenture stock
£24 million 113/16 per cent. debenture 27.2 27.4
stock 2009/14
£100 million 91/2 per cent. debenture - 100.0
stock 2016
£130 million 103/4 per cent. debenture 130.0 130.0
stock 2021
£100 million 71/4 per cent. debenture 97.7 97.7
stock 2027
£100 million 55/8 per cent. debenture 98.9 98.9
stock 2029
353.8 454.0
Certain of the freehold and leasehold properties are charged to secure the first
mortgage debenture stock.
15 Convertible Loans
2002 2001
£m £m
51/4 per cent convertible bonds 2008 58.0 58.0
Costs of issue (1.1) (1.2)
56.9 56.8
The bonds, which are unsecured, are convertible by the bondholder at any time
until 2008 at a price of £3.10 per share, and redeemable by the Company in 2008
at par.
16 Bank and Other Loans
2002 2001
£m £m
Bank loans - 175.0
Unsecured loan notes 2007 6.7 7.7
6.7 182.7
Falling due within one year - (0.4)
Falling due after one year 6.7 182.3
The unsecured loan notes, which together with an associated guarantee attract a
floating rate of interest of 0.275 per cent. in aggregate above LIBOR, are
redeemable at the option of the noteholder until 2007, and by the Company in
2007.
17 Derivatives and Other Financial Instruments
An explanation of the Group's objectives, policies and strategies for the role
of derivatives and other financial instruments in creating and changing the
risks of the Group in its activities can be found in the Financial Review. The
disclosures below exclude short-term debtors and creditors.
Interest rate profile of financial liabilities
The interest rate profile of the financial liabilities of the Group as at 31st
March 2002 was as follows:
2002 2001
£m £m
Fixed rate financial liabilities 410.7 685.8
Floating rate financial liabilities 6.7 7.7
417.4 693.5
All financial liabilities were in sterling. The fixed rate financial liabilities
carried a weighted average interest rate of 7.8 per cent. (2001: 7.8 per cent.),
and the weighted average period for which the rate was fixed was 20.3 years
(2001: 15.9 years). The floating rate financial liabilities comprised unsecured
loan notes, details of which are given in note 16.
Interest rate profile of financial assets
The Group held the following financial assets as at 31st March 2002:
2002 2001
£m £m
Sterling cash deposits 83.4 96.0
The sterling cash deposits were all held as part of the financing arrangements
of the Group, and comprised deposits placed on money markets for up to three
months at fixed rates and cash. The weighted average interest rate on the
deposits was 4.0 per cent. (2001: 5.9 per cent.).
Maturity of financial liabilities
The maturity profile of the Group's financial liabilities at 31st March 2002 was
as follows:
2002 2001
£m £m
In one year or less, or on demand - 0.4
In more than two years but not more than - 175.0
five years
In more than five years 417.4 518.1
417.4 693.5
Borrowing facilities
Undrawn committed borrowing facilities available to the Group at 31st March 2002
were as follows:
2002 2001
£m £m
Expiring in one year or less 40.0 15.0
Expiring in more than two years 195.0 45.0
235.0 60.0
Fair values of financial assets and financial liabilities
2002 2002 2001 2001
Book Value Fair Value Book Value Fair Value
£m £m £m £m
Short-term borrowings - - 0.4 0.4
Long-term borrowings 417.4 485.8 693.1 785.5
Interest rate swaps - 2.5 - 6.3
The fair values of the Group's fixed asset investments and cash and short-term
deposits are not materially different from those at which they are carried in
the accounts.
Market values have been used to determine the fair value of listed long-term
borrowings, and interest rate swaps have been valued by reference to market
rates of interest. The fair values of all other items have been calculated by
discounting the expected future cash flows at prevailing interest rates.
The cumulative aggregate losses on financial instruments for which hedge
accounting has been used that are unrecognised at the balance sheet date are
£2.5 million (2001: losses of £6.3 million). Changes in the fair value of
hedging instruments are not recognised in the accounts until the hedged position
matures. The movement in these unrecognised gains and losses is as follows:
Net (gains)/losses
£m
Unrecognised losses on hedging instruments at 1st 6.3
April 2001
Losses recognised in the year (4.2)
Losses arising that were not recognised in the year 0.4
Unrecognised losses on hedging instruments at 31st 2.5
March 2002
Of which:
Losses expected to be recognised in the year to 31st 2.2
March 2003
Losses expected to be recognised in the year to 31st March 2004 0.3
or later
18 Provisions for Liabilities and Charges 2002 2001
as restated
£m £m
Deferred tax
At 1st April 2001 17.7 18.7
Profit and loss account credit (2.5) (1.0)
At 31 March 2002 15.2 17.7
The provision for deferred tax arises
from:
2002 2001
£m £m
Capital allowances exceeding depreciation 14.9 17.7
Sundry timing differences 0.3 -
15.2 17.7
The adoption of FRS 19 Deferred Tax has required changes in the method of
accounting for deferred tax assets and liabilities. As a result of these changes
in accounting policy the comparatives have been restated as follows:
Provisions Profit and
for
Liabilities Loss Shareholders'
and
Charges Reserve Funds
£m £m £m
31st March 2001 as previously reported - 142.9 865.1
Adoption of FRS 19 at 1st April 2000 18.7 (18.7) (18.7)
During year ended 31st March 2001 (1.0) 1.0 1.0
Adoption of FRS 19 at 31st March 2001 17.7 (17.7) (17.7)
31st March 2001 as restated 17.7 125.2 847.4
19 Share Capital 2002 2002 2001 2001
Number £m Number £m
Ordinary shares of 50p each
Authorised 300,000,000 150.0 300,000,000 150.0
Allotted, called up and fully paid
At 1st April 2001 214,249,114 107.1 356,830,258 178.4
Purchased (11,207,130) (5.6) (150,000) (0.1)
Capital reduction - - (142,732,104) (71.3)
Exercise of share options - - 300,960 0.1
At 31st March 2002 203,041,984 101.5 214,249,114 107.1
On 11th September 2000, as part of a Court confirmed capital reduction, the
ordinary shares of the Company were consolidated on the basis of three new
shares for every five existing ones, and the authorised share capital was
reduced pro rata.
Options to subscribe for shares in the Company under the 1988 Executive Share
Option Scheme are held by directors and employees and are exercisable between
three years and ten years from the date of grant. At 31st March 2002, there were
51,531 existing options (2001: 51,531) all of which were originally granted on
23rd June 1995 and were exercisable at a price of 164.95p. There were no changes
in share options in the year ended 31st March 2002.
20 Share Premium Account 2002 2001
£m £m
At 1st April 2001 24.8 238.4
Capital reduction - (214.1)
Premium on exercise of share options - 0.5
At 31st March 2002 24.8 24.8
Other Reserves
21 Reserves Profit and
Capital Loss
Redemption Acquisition Revaluation Account
Reserve Reserve Total Reserve as restated
£m £m £m £m £m
At 1st April 2001 10.8 8.6 19.4 570.9 125.2
Realised on disposal of properties - - - (40.5) 40.5
Purchase of shares 5.6 - 5.6 - (30.3)
Deficit on revaluation - - - (99.5) -
Permanent diminution in value of - - - 15.0 (15.0)
investment property
Retained loss for the year - - - - (15.8)
At 31st March 2002 16.4 8.6 25.0 445.9 104.6
The balance of the profit and loss account reserve for the Group at 1st April
2001 has been restated for the adoption of FRS 19 (see note 18).
22 Reconciliation of Movements in Shareholders' Funds 2002 2001
as restated
£m £m
Profit for the financial year 4.5 16.2
Dividends (20.3) (20.9)
(15.8) (4.7)
Capital reduction - (285.4)
New share capital issued - 0.6
Purchase of shares (30.3) (0.4)
Other recognised gains and losses
relating to
the year (net) (99.5) 28.2
Net decrease in shareholders' funds (145.6) (261.7)
Opening shareholders' funds 847.4 1,109.1
Closing shareholders' funds 701.8 847.4
The opening shareholders' funds at 1st April 2001 as previously reported
amounted to £865.1 million before the prior year adjustment of £17.7 million,
and at 1st April 2000 as previously reported amounted to £1,127.8 million before
the prior year adjustment of £18.7 million (see note 18).
23 Reconciliation of Operating Profit to Net Cash Inflow from Operating 2002 2001
Activities £m £m
Operating profit 76.2 95.0
Decrease/(increase) in stock of trading 5.0 (5.5)
properties
(Increase)/decrease in debtors (2.2) 1.1
Decrease in creditors (6.5) (9.0)
Net cash inflow from operating 72.5 81.6
activities
24 Analysis of Cash Flows 2002 2001
£m £m
Returns on investments and servicing of
finance
Interest received 1.8 3.0
Interest paid (57.0) (48.7)
(55.2) (45.7)
Taxation
Corporation tax paid (5.7) (13.5)
Corporation tax refunded 0.5 -
(5.2) (13.5)
Net cash inflow from capital expenditure
Payments to acquire investment (27.8) (23.3)
properties
Receipts from sales of investment 358.3 385.9
properties
Receipts from sales of investments - 14.9
330.5 377.5
Management of liquid resources
Cash withdrawn from/(placed on) short-term deposit 11.8 (9.8)
11.8 (9.8)
Net cash outflow from financing
Issue of share capital - 0.6
Return of capital - (285.4)
Redemption of loans (129.2) (57.9)
Repayment of bank loans (175.0) (15.0)
Purchase of shares (30.3) (0.4)
(334.5) (358.1)
25 Reconciliation of Net Cash Flow to Movement in Net Debt 2002 2001
£m £m
(Decrease)/increase in cash in the year (0.8) 2.3
Cash (withdrawn from)/placed on short-term deposit (11.8) 9.8
Cash outflow from redemption of loans 276.0 72.9
Change in net debt arising from cash flows 263.4 85.0
Other non-cash movements 0.1 (5.0)
Movement in net debt in the year 263.5 80.0
Net debt at 1st April 2001 (597.5) (677.5)
Net debt at 31st March 2002 (334.0) (597.5)
26 Analysis of Net Debt At 31st
At 1st April Non-cash March
2001 Cash Flow Changes 2002
£m £m £m £m
Cash 0.8 (0.8) - -
Short-term deposits 95.2 (11.8) - 83.4
Debt due within one year (0.4) 0.4 - -
Debt due after one year (693.1) 275.6 0.1 (417.4)
(597.5) 263.4 0.1 (334.0)
27 Capital Commitments
At 31st March 2002 there were outstanding contracts of Group undertakings for
capital expenditure amounting to £10.0 million (2001: £10.0 million).
28 Pension Commitments
The Group contributes to a defined benefit pension plan. The contributions
relating to the Plan are determined with the advice of an independent qualified
actuary on the basis of triennial valuations using the projected unit method.
The most recent valuation of the Plan was conducted as at 1st April 2000, using
the following main assumptions:
• rate of return on investments - 5.5 per cent. to 7.0 per cent. per annum;
• rate of salary increases - 5 per cent. per annum; and
• rate of pension increases - 2.75 per cent. per annum.
These assumptions have been used to determine the pension cost, and have been
revised from last year by a reduction in the assumed rate of salary increases
from 7 per cent. to 5 per cent. per annum.
The valuation showed that the market value of the Plan's assets at 1st April
2000 amounted to £8.0 million and the actuarial value of the accumulated fund
was sufficient to cover 89 per cent. of the benefits which had accrued to the
members of the Plan at that date, allowing for expected future increases in
earnings. Following the valuation, the Group's contributions have been paid at
an overall rate equivalent to around 40 per cent. of pensionable salaries. In
addition, a special lump sum was paid in the year of £0.9 million (2001: £nil)
to accelerate the improvement in the Plan's funding level.
The total normal cost for the Group of £0.7 million (2001: £0.8 million),
including amounts payable to personal pensions, is included in administration
expenses. A prepayment of £1.2 million (2001: £nil), representing the excess of
employer contributions over accumulated pension costs, is included within
current assets.
The acturarial valuation conducted as at 1st April 2000 was updated to 31st
March 2002 by an independent qualified actuary, using the following main
assumptions:
• rate of salary increases - 5 per cent. per annum;
• rate of increase in deferred pensions - 2.75 per cent. per annum;
• rate of increase in pensions in payment, subject to indexation at the lower of RPI and 5 per cent. per annum
- 2.75 per cent. per annum;
• discount rate - 6 per cent.; and
• inflation - 2.75 per cent. per annum.
The assets of the Plan and their expected rates of return were:
Value at
Long-term 31st March
rate of 2002
return
% p.a. £m
Equities 6.25 to 8.25 6.8
Bonds 5.25 2.3
Total market value of assets 9.1
Present value of Plan liabilities (10.2)
Shortfall in the Plan (1.1)
Related deferred tax asset 0.3
Net pension liability (0.8)
If this net pension liability were to be recognised in the group accounts, the
effect on net assets and profit and loss reserve as at 31st March 2002 would be
as follows:
Profit and
Net Assets Loss Reserve
£m £m
As currently stated 701.8 104.6
Net pension liability (0.8) (0.8)
Net reversal of prepaid pension (0.9) (0.9)
contribution
As restated 700.1 102.9
Note:
These are not the Company's statutory accounts. The Company's auditors have
given an unqualified report under section 235 of the Companies Act 1985, on the
statutory accounts for the year ended 31st March 2002.
This information is provided by RNS
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