Interim Results
Great Portland Estates PLC
20 November 2003
INTERIM RESULTS
20 November 2003
The Directors of Great Portland Estates plc announce the results for the Group
for the six months ended 30 September 2003.
Highlights:
• Property sales of £31.4 million, and £7.2 million since September, bringing
total to £254.2 million over past 20 months
• Portfolio rationalisation largely concluded
• Net gearing down to 32% from 62% twelve months earlier
• Void rate of 3.1% significantly below market average
• Since September, void rate fallen to 2.7% (1.9% in central London against a
market average of around 13%)
• Following property sales, adjusted earnings down from 6.6p to 5.3p
• Interim dividend up 2.3% to 3.5p per share (2002: 3.42p)
• Portfolio valuation down 3.8%
• Diluted NAV down 4.2% to 275p
• Current cash and undrawn facilities of £325 million
• Interest cover at 3.0 times
• Enhanced planning permission gained at Metropolis House
• Three further planning applications submitted
Toby Courtauld, Chief Executive, said:
'We continue to make solid progress. Over the last 18 months we have
restructured the Group's debt lowering our average cost of borrowing,
significantly strengthened the management team, largely completed the
rationalisation of our property portfolio, and embarked upon a new development
programme. Our asset management actions, including sales, have mitigated the
impact of continued turbulence in the central London property market, enabling
us to maintain void rates well below market level.
Looking ahead, while we remain cautious about the outlook for the City, recent
evidence has pointed to increasing demand in the West End office market. With
gearing at 32%, our attention has now shifted from strategic sales towards the
replenishment of the portfolio with new opportunities for future rental and
capital growth.'
Enquiries etc:
Great Portland Estates plc 020 7580 3040
Toby Courtauld, Chief Executive
John Whiteley, Finance Director
Finsbury Group 020 7251 3801
Edward Orlebar
Key Statistics
At 30 September 2003
• Investment property portfolio £740.1 million
• Rent roll £56.1 million
• Void rate 3.1%
• Adjusted+ diluted net assets per share 275p
• FRS13 adjustment per share (net of tax) 6p
• Contingent CGT per share 4p
• Interest cover 3.0 times
• Net gearing+ 32%
• £315 million of cash and undrawn bank facilities
+excluding deferred tax on capital allowances
CHAIRMAN'S STATEMENT
In my Statement to shareholders accompanying the finals last June, I commented
that the markets in which we operate were likely to remain challenging, and this
has proved to be the case. Rationalisation of the portfolio has continued,
albeit to a much lesser extent than in previous years, and, apart from the
purchase of Metropolis House, Tottenham Court Road, W1, we have deliberately
chosen to sit on the sidelines, as we have not seen investment opportunities
capable of being converted into acceptable shareholder returns. Our efforts,
therefore, have centred on the basic principles of asset management, the
preservation of income and the elimination of present and potential voids.
Turning to the main figures briefly, half year post-tax profits to 30 September
2003 amounted to £12.9 million and the Directors have declared an interim
dividend of 3.5p per share, 2.3% up on last year. Following a 3.8% drop in
value, of which 20% was attributable to four future West End development sites,
the investment properties stood at £740.1 million, and diluted net assets per
share were 275p.
Refurbishment work has started at our recent acquisition, Metropolis House,
where we took possession back in June and where over 100,000 sq ft will be
available in early 2005. This is the first development of a sensibly structured
programme, passing through this decade and beyond, and Toby Courtauld touches on
this in more detail in his Chief Executive's Review.
We have worked hard to reduce our risk exposure to the City and, for the time
being, we remain wary of this marketplace. However, in the West End, where
around three-quarters of the portfolio is situated, the imbalance of supply and
demand has started to readjust; without trying to be too upbeat at this
juncture, we are cautiously optimistic about our prospects here. A strong
management team has been assembled and has already tackled many of the immediate
issues. Looking forward, with over £300 million at our disposal, we have the
financial muscle to take advantage of opportunities as, and when, we discover
them. In the event that we do not see such opportunities to unlock real asset
enhancement, we shall review what is the most appropriate capital structure for
the Company in the circumstances which then prevail, with the goal of delivering
value to shareholders.
CHIEF EXECUTIVE'S REVIEW
The initial management challenges I set out in June 2002 have all been addressed
over the past 18 months: the Group's debt has been restructured; the weighted
average cost of borrowing lowered to 6.7%; the team has been significantly
strengthened; and the rationalisation of the property portfolio largely
concluded. Our attention has now shifted from strategic sales towards the
replenishment of the portfolio with new opportunities for future rental and
capital growth. Alongside this shift of emphasis, we have continued our policy
of proactive asset management, keeping voids within the portfolio at
significantly below market levels.
Our markets have continued to be challenging during the period, with the
portfolio declining in value by 3.8% in the six months to 30 September. As a
result, diluted net assets per share (adjusted to exclude deferred tax on
accelerated capital allowances) fell by 4.2% to 275p. The proceeds from our
sales programme have been used to repay debt or have been placed on deposit. The
negative yield impact of lower deposit rates than property yields has,
naturally, adversely affected the profit and loss account, and adjusted earnings
were 19.7% lower at 5.3p per share (2002: 6.6p).
Interim valuation
The portfolio was valued by CB Richard Ellis at £740.1 million as at 30
September, a like-for-like decline of £29.0 million, or 3.8% since March 2003.
At 30 September 2003, 71% of our portfolio was in the West End, 24% in the City
and Holborn, and 5% outside London.
The majority of the fall in the value of the portfolio to September was in the
City and North of Oxford Street office portfolios, largely reflecting a decline
in rental values of 4.7%. The positive effects of our asset management
initiatives during the year to 31 March 2003, which saw 24% of the rent roll
restructured, reviewed, renewed or let, have undoubtedly served to limit the
decline.
The West End portfolio fell in value by 3.5% whilst rental values dropped by
3.2%. These falls were largely accounted for by the North of Oxford Street
office portfolio, where values fell by 5.5% and rental values by 3.9%. Here, the
letting market remained relatively robust over the period and our void rate at
September was low at 1.5% by rent, representing approximately 18,000 sq ft of
office space available to let. As was the case in March, almost 50% of the fall
in the valuation of this sector was registered at those properties approaching
redevelopment, yet they accounted for only 30% of the North of Oxford Street
sub-portfolio's value. In each case, our redevelopment proposals will materially
improve the quality of the asset, and hence its growth prospects. Excluding
these holdings, the like-for-like fall was 3.6%. In the rest of the West End,
office values fell by 4.1% over the six months and their rental values by 5.5%.
The retail element of the West End portfolio held up well, with rental values
increasing by 0.7% and capital values by 1.3%.
In the City and Holborn portfolio, values fell by 4.5% with rental values
declining by 8.1%. This fall was limited by the restructuring of the
occupational lease to Willis at 88 Bishopsgate and 1 Camomile Street, EC2 in
March.
Outside London, we suffered a valuation fall of £2.8 million or 7.2% on a rental
value decline of 9.1%. The highest percentage decline was at the recently
refurbished 661 London Road, Hounslow, which had become vacant following the
liquidation of our tenant.
The valuation of £740.1 million reflected a net initial yield of 6.6% and a five
year reversionary yield of 7.0%. The total reversionary potential of the
portfolio has fallen from an overrented position of £1.1 million as at March
2003 to one of £4.0 million at the interim stage, reflecting a decline in rental
values of £2.9 million.
Acquisitions and disposals
During the past twelve months, we have appraised potential acquisitions with a
value approaching £3.7 billion. I commented in June that we were witnessing
unrealistic price expectations on the part of many vendors and this trend is
still very much in evidence - shorter leased or riskier properties are often
being withdrawn from sale reflecting the unwillingness of vendors to accept
market bids. At the other end of the risk spectrum, the sheer weight of private
and institutional capital searching for medium and long-dated income investments
has meant that prices for these types of assets have often been bid up to levels
that we feel are unjustifiable, particularly given the underlying state of
supply and demand for space in our main central London markets. We have,
therefore, been content to preserve our firepower in anticipation of a return to
a more rationally priced market.
Over the past 6 months we have incurred only £20.1 million of capital
expenditure, the majority of which was to complete our acquisition of Metropolis
House, a largely vacant 1960's tower at the junction of Tottenham Court Road and
Percy Street, W1. Here, we have begun a major refurbishment and extension to the
building, more details of which are provided below.
Since 31 March, we have sold five properties for £31.4 million (broadly in line
with their March 2003 values). The most significant of these was Drury House, 34
/43 Russell Street, WC2, which was sold to a private investor for £16.0 million
following the restructuring with the principal tenant of four of the
occupational leases, two of which had been due to expire in March 2003. A
further £7.2 million has been sold since September. With the exception of the
three properties remaining outside London, the strategic selling of properties
outlined this time last year is at an end.
Asset management
Against the background of surplus supply of central London office space, we have
continued to manage our impending lease expiries, keeping voids to a minimum in
the short-term, whilst working to deliver vacant possession of our potential
development sites in time for the next cycle.
The Group's void position remains both stable and healthy at 3.1% by rent (March
2003: 3.0%). The total void area was 113,000 sq ft, of which 37% was at 661
London Road, Hounslow. Since September, leasing transactions have reduced the
rate to 2.7% and discussions are ongoing to let a further 15,000 sq ft.
Of the 32 tenancies with expiries or break clauses operable during the six
months to September, we retained more than one-third. The net effect of our
expiries and relettings during the period was a reduction in the rent roll of
only £0.1 million, whilst rent reviews produced a further £0.7 million per
annum.
Of the 139,000 sq ft of space currently being refurbished, the majority is at
Metropolis House, Tottenham Court Road, W1 (103,000 sq ft) and 95 New Cavendish
Street, W1 (20,000 sq ft).
Developments
We continue to make satisfactory progress in bringing forward our development
programme. At Metropolis House, we obtained a new planning permission,
significantly improving upon that which we inherited. The strip-out programme
was completed during the summer and, with the main contract having started in
November, completion is scheduled for the first half of 2005, timed to coincide
with an anticipated shortage of high quality new office space in the West End.
Planning applications have also been submitted at 190 Great Portland Street, W1
and a site on Mortimer Street, Great Titchfield Street and Wells Street, W1,
both for significant redevelopments of existing office, retail and showroom
buildings, and at Bond Street House, 15/16 New Bond Street, W1 for the creation
of a new flagship retail store on three floors. Taken together, these projects
will add 130,000 sq ft of retail and office space to the existing area of
400,000 sq ft and will serve to upgrade the quality, and hence growth prospects,
of our North of Oxford Street portfolio in particular.
Outlook
I outlined in June that our markets would remain challenging for a while yet.
This has indeed been the case, particularly in the City. However, I am pleased
to report that many of our asset management actions, including sales, have
served to protect us from some of the turbulence we have witnessed in the market
recently.
We also reported in June that our analysis suggested that the West End market
would experience a shortage of new office space during 2005. Whilst the take up
for 2003 is forecast to be less than in 2002, recent evidence would point to
increasing demand in the West End office market, with the September monthly
figures recording the first fall in availability in over two years. Add to this
the increasing demands placed on developers by general planning policies which
will inevitably suppress the development pipeline, and our estimate of a 2005
West End recovery appears to be on track. In the City, where planning policy is
less restrictive and the demand base less diverse, we remain more cautious.
For the immediate future, we will continue to implement asset strategies that
strengthen our properties, weeding out those that become mature or ex-growth,
whilst working to maintain the lowest possible level of voids commensurate with
our development programme.
With gearing at 32% and £315 million of available firepower, we will continue to
search for profitable new investment and development opportunities to add to the
future growth of the business, always considering this strategy in the broader
context of delivering value for our shareholders.
FINANCIAL REVIEW
In the last 18 months, the Group has sold around £250 million of properties, the
proceeds of which have been used to repay debt or have been placed on deposit.
This has reduced both rent receivable and, to a lesser extent, net interest
payable, the effect of which largely explains why adjusted earnings per share
for the six months ended 30 September 2003 of 5.3p are lower than the 6.6p of
the corresponding period last year.
No new financial reporting standards required application for the first time in
the six months ended 30 September 2003.
The fall in rent receivable to £28.2 million (2002: £37.7 million) was primarily
due to the loss of income of £9.6 million from property sales. Investment
property disposals in the six months to 30 September 2003 generated proceeds of
£31.4 million, which were broadly in line with their March 2003 valuations.
Net interest payable for the six months ended 30 September 2003 was £7.8
million, after capitalising £0.2 million (2002: £nil) into the cost of
developments, and, largely through the use of property disposal proceeds, was
£5.5 million lower than the corresponding period last year. Last year's buy-in
of our high coupon debenture produced an exceptional interest cost in 2002 of
£66.6 million. Operating profit covered net interest 3.0 times (2002: 2.4
times).
The tax charge for the six months ended 30 September 2003 comprised three
elements: a charge of £4.7 million on adjusted profits before tax of £15.4
million; a charge of £0.4 million on historical gains made on property
disposals; and an offsetting release of a deferred tax provision of £2.4
million. The charge of £4.7 million reflects a tax rate on the underlying core
business of 30.7% (2002: 28.3%). In practice, by crystallising this year some of
the loss accounted for in 2002 on purchasing the high coupon debenture, we do
not anticipate paying any tax in the current financial year. The £2.4 million
was a release of a part of the deferred tax provision set up under FRS 19 to
reflect the potential liability were the tax relief on accelerated capital
allowances to reverse on the disposal of properties. After the release, which
related to the properties sold in the six months to 30 September 2003, £7.8
million of the provision remained, which is added back to arrive at 'adjusted
net assets' as defined in these financial statements.
An interim dividend of 3.5p per share (2002: 3.42p per share) will be paid on 6
January 2004 to shareholders on the register at 28 November 2003.
Diluted net assets per share, excluding deferred tax on accelerated capital
allowances, fell from 287p to 275p in the six months to 30 September 2003. The
fall of 12p per share comprised the deficit on revaluation of 14p per share,
off-set by retained earnings of 2p.
Net gearing at 30 September 2003, adjusted to exclude the capital allowances
element of the deferred tax provision, was unchanged from 31 March 2003 at 32%,
but had dropped from 62% in September 2002. The weighted average cost of
borrowing was 6.7%, and cash and undrawn committed bank facilities at 30
September 2003 comprised £315 million. Marking debt to market would have reduced
diluted net assets per share by 6p after tax, and there was a contingent
liability to taxation on capital gains of 4p per share. Accordingly, fully
diluted adjusted triple net asset value at 30 September 2003 was 265p, down 4.0%
from 276p in March.
Portfolio Statistics
Rental Income At 30 September 2003
Reversionary
Five Year Five Year Potential Total
Rent Reversionary Rental Over Five Rental
Roll Potential Values Years Values
£m £m £m £m £m
London North of Oxford Street Office 21.1 (0.8) 20.3 0.2 20.5
Retail 3.7 0.2 3.9 (0.1) 3.8
Other 0.2 - 0.2 - 0.2
Rest of West End Office 7.5 - 7.5 (1.0) 6.5
Retail 5.1 0.1 5.2 (0.1) 5.1
Total West End and Covent Garden 37.6 (0.5) 37.1 (1.0) 36.1
City and Holborn Office 15.3 (0.5) 14.8 (2.2) 12.6
Retail 0.4 - 0.4 0.5 0.9
Total London 53.3 (1.0) 52.3 (2.7) 49.6
Outside London 2.8 (0.2) 2.6 (0.1) 2.5
Total Let Portfolio 56.1 (1.2) 54.9 (2.8) 52.1
Voids 1.9 - 1.9
Premises under refurbishment 4.4 - 4.4
Total Portfolio 61.2 (2.8) 58.4
Rent Roll Weighted
Secure Average
For Over Lease
Five
Years Length Voids
% Years %
London North of Oxford Street Office 36.4 4.6 1.5
Retail 46.3 6.4 4.0
Other 61.8 1.5 4.5
Rest of West End Office 82.9 7.7 8.2
Retail 64.1 8.0 -
Total West End and Covent Garden 50.6 5.8 2.9
City and Holborn Office 78.1 7.5 0.6
Retail 41.4 10.4 -
Total London 58.4 6.3 2.3
Outside London 73.5 17.4 17.3
Total Let Portfolio 59.2 6.8 3.1
Let Portfolio Total portfolio*
Average Average Initial Equivalent
Rent ERV Yield Yield
£psf £psf % %
London North of Oxford Street Office 30 28 7.1 7.0
Retail 21 21 6.4 6.9
Other 21 13 8.4 7.8
Rest of West End Office 36 31 6.2 7.3
Retail 81 81 5.0 5.8
Total West End and Covent Garden 32 31 6.6 6.9
City and Holborn Office 34 28 6.9 7.3
Retail 9 22 4.3 6.8
Total London 32 30 6.6 7.0
Outside London 12 11 7.1 8.3
Total 30 28 6.6 7.0
*excluding
developments
Investment Property Portfolio Valuation Valuation
£m Movement
London North of Oxford Street Office 275.9 -5.5%
Retail 55.8 2.1%
Other 2.8 -7.1%
Rest of West End Office 93.6 -4.1%
Retail 79.6 0.8%
Total West End and Covent Garden 507.7 -3.5%
City and Holborn Office 170.4 -4.7%
Retail 8.3 0.4%
Total London 686.4 -3.8%
Outside London 35.7 -7.2%
Total excluding development properties 722.1 -4.0%
Development properties 18.0 3.2%
Total investment property portfolio 740.1 -3.8%
Five Year Rental Values Lease Expiries
£m %
Total let portfolio 54.9 Less than 5 years 40.8
Under refubishment 4.4 5 to 10 years 36.2
Voids 1.9 10 to 15 years 18.2
Over 15 years 4.8
61.2 100.0
Occupier
%
Retailers 24.9
Professional 22.3
Media & Marketing 20.9
Banking and Finance 18.2
Corporates 7.6
IT & Telecoms 3.4
Government 2.7
100.0
Unaudited Group Profit and Loss Account
For the six months ended 30 September 2003
Year to Six months to Six months to
31 March 30 September 30 September
2003 2003 2002
£m Notes £m £m
72.6 Rent receivable 2 28.2 37.7
(1.9) Ground rents (0.7) (1.0)
70.7 Net rental income 27.5 36.7
(1.9) Property and refurbishment costs (0.9) (1.4)
(6.7) Administration expenses 3 (3.4) (3.2)
62.1 23.2 32.1
(0.5) Trading losses - (0.2)
61.6 Operating profit 23.2 31.9
(2.4) Profit/(loss) on sale of investment properties 0.2 (1.7)
59.2 Profit on ordinary activities before interest 23.4 30.2
1.7 Interest receivable 4 2.0 0.3
(24.9) Interest payable 5 (9.8) (13.6)
(70.2) Exceptional interest costs 6 - (66.6)
(34.2) Profit/(loss) on ordinary activities before taxation 15.6 (49.7)
13.7 Tax on profit/(loss) on ordinary activities 7 (2.7) 14.7
(20.5) Profit/(loss) on ordinary activities after taxation 12.9 (35.0)
(20.8) Dividends (7.0) (6.9)
(41.3) Retained profit/(loss) for the period 18 5.9 (41.9)
(10.1)p Earnings/(loss) per share - basic 8 6.3p (17.2)p
13.3p Earnings per share - adjusted 8 5.3p 6.6p
10.25p Dividend per share 3.5p 3.42p
Unaudited Group Balance Sheet
At 30 September 2003
31 March 30 September 30 September
2003 2003 2002
£m Notes £m £m
Tangible fixed assets
779.4 Investment properties 9 738.4 992.8
1.7 Investments 3.4 -
781.1 741.8 992.8
Current assets
- Stock of trading properties - 0.8
26.4 Debtors 10 24.9 57.8
103.5 Cash at bank and short-term deposits 125.1 4.5
129.9 150.0 63.1
(41.6) Creditors: amounts falling due within one year 11 (34.4) (39.5)
88.3 Net current assets 115.6 23.6
869.4 Total assets less current liabilities 857.4 1,016.4
Creditors: amounts falling due after more than one year
(223.7) Debenture loans 12 (221.1) (223.7)
(57.1) Convertible loans 13 (57.2) (57.0)
(5.9) Bank and other loans 14 (24.4) (110.9)
(14.2) Provisions for liabilities and charges 16 (10.4) (15.2)
568.5 544.3 609.6
Capital and reserves
101.5 Called up share capital 17 101.5 101.5
24.8 Share premium account 24.8 24.8
255.4 Revaluation reserve 18 213.1 372.4
25.0 Other reserves 18 25.0 25.0
161.8 Profit and loss account 18 179.9 85.9
568.5 Equity shareholders' funds 544.3 609.6
The Interim Report was approved by the Board of Directors on 20 November 2003.
Unaudited Group Statement of Cash Flows
For the six months ended 30 September 2003
Year to Six months to Six months to
31 March 30 September 30 September
2003 2003 2002
£m Notes £m £m
59.2 Net cash inflow from operating activities 20 19.6 31.4
(23.0) Returns on investments and servicing of finance 21 (9.0) (13.1)
3.7 Taxation 21 - -
198.0 Net cash inflow from capital expenditure 21 7.6 7.9
(20.4) Equity dividends paid (13.9) (13.5)
Net cash inflow before management of liquid resources
and financing
217.5 4.3 12.7
(18.3) Management of liquid resources 21 (23.5) 80.0
(197.4) Net cash inflow/(outflow) from financing 21 17.3 (91.6)
1.8 (Decrease)/increase in cash 23 (1.9) 1.1
Unaudited Group Statement of Total Recognised Gains and Losses
For the six months ended 30 September 2003
Year to Six months to Six months to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
(20.5) Profit/(loss) for the period 12.9 (35.0)
(92.0) Unrealised deficit on revaluation of fixed (30.1) (50.3)
assets
(112.5) Total recognised gains and losses for the (17.2) (85.3)
period
Unaudited Note of Historical Cost Profits and Losses
For the six months ended 30 September 2003
Year to Six months to Six months to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
(34.2) Reported profit/(loss) on ordinary activities before taxation 15.6 (49.7)
98.5 Realisation of revaluation surpluses of previous years 12.2 23.2
64.3 Historical cost profit/(loss) on ordinary activities before taxation 27.8 (26.5)
57.2 Historical cost profit/(loss) for the period retained after taxation
and dividends 18.1 (18.7)
Notes forming part of the Interim Statement
1 Basis of Preparation of Interim Financial Information
The interim financial information has been prepared on the basis of the accounting policies set out in the
Group's 2003 statutory accounts. The financial information contained in this report does not constitute
statutory accounts within the meaning of section 240 of the Companies Act 1985. The abridged financial
statements for the year ended 31 March 2003 are an extract from the financial statements for that year which,
together with an unqualified audit report, have been delivered to the Registrar of Companies.
2 Turnover and Segmental Analysis
Rent receivable by location:
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
20.2 West End - Offices North of Oxford Street 10.5 9.2
12.5 - Other Offices 3.6 6.8
12.0 - Retail 4.5 6.4
0.5 - Other 0.1 0.3
16.7 City and Holborn - Offices 7.3 8.8
0.8 - Retail 0.2 0.5
9.9 Outside London 2.0 5.7
72.6 28.2 37.7
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 period.
3 Administration Expenses
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
Administration expenses
6.4 Other 3.4 2.9
Exceptional items
0.3 Costs of early repayment of debenture - 0.3
6.7 3.4 3.2
4 Interest Receivable
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
0.9 Short-term deposits 2.0 0.2
0.8 Other - 0.1
1.7 2.0 0.3
5 Interest Payable
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
5.6 Bank loans and overdrafts 0.1 3.7
19.3 Other 9.9 9.9
24.9 10.0 13.6
- Transferred to properties (0.2) -
24.9 9.8 13.6
6 Exceptional Interest Costs
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
66.6 Premium on purchase of debenture - 66.6
3.6 Provision for swap costs - -
70.2 - 66.6
7 Tax on Profit/(Loss) on Ordinary Activities
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
Current tax
- UK corporation tax - -
0.2 Tax underprovided in previous year - -
0.2 Total current tax - -
(13.9) Deferred tax 2.7 (14.7)
(13.7) Tax on profit/(loss) on ordinary activities 2.7 (14.7)
Taxation has been calculated using the estimated effective tax rate for the full year. The difference between
the standard rate of tax and the effective rate arises from the items set out below:
Year to Six months to Six months to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
(34.2) Profit/(loss) on ordinary activities before tax 15.6 (49.7)
(10.3) Tax on profit/(loss) on ordinary activities at standard rate 4.7 (14.9)
of 30%
- Accounting losses arising in previous years relievable
against current tax (5.1) -
Accounting losses arising in the year not relievable against
9.7 current tax - 14.7
0.2 Expenses not deductible for tax purposes 0.1 0.1
0.7 Tax on sale of investment properties 0.4 0.5
(0.2) Pension contributions in excess of pensions charge (0.1) -
- Capital allowances - (0.4)
(0.1) Income not taxable - -
0.2 Tax underpaid in previous years - -
0.2 UK corporation tax charge for the period - -
8 Earnings per Share
Earnings per share for the six months are based on the profit attributable to ordinary shareholders of £12.9
million (2002: loss of £35.0 million) and on the weighted average of 203,093,515 shares in issue (2002:
203,091,544 shares). There is no impact on earnings per share of conversion of the convertible bonds.
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:
Year to Six months to Six months to Six months Six months
to to
31 March 30 September 30 September 30 September 30 September
2003 2003 2003 2002 2002
Earnings Profit Earnings Profit Earnings
per share after tax per share after tax per share
pence £m pence £m pence
(10.1) Basic 12.9 6.3 (35.0) (17.2)
(2.3) Deferred tax (2.4) (1.1) - -
24.5 Exceptional items - - 46.8 23.0
Loss on sale of investment
properties
1.2 0.2 0.1 1.7 0.8
13.3 Adjusted 10.7 5.3 13.5 6.6
9 Investment Properties
Leasehold
over Leasehold
Freehold 900 years 50-250 years Total
£m £m £m £m
Book value at 1 April 2003 534.7 104.3 140.4 779.4
Add: Included in prepayments and accrued income 0.3 0.2 0.1 0.6
Market value at 1 April 2003 535.0 104.5 140.5 780.0
Additions at cost 19.7 - 0.4 20.1
Disposals (16.4) (10.5) (4.1) (31.0)
538.3 94.0 136.8 769.1
Deficit on revaluation (20.6) (7.3) (1.1) (29.0)
Market value at 30 September 2003 517.7 86.7 135.7 740.1
Less: Included in prepayments and accrued income (1.5) (0.1) (0.1) (1.7)
Book value at 30 September 2003 516.2 86.6 135.6 738.4
Movement in revaluation reserve
Deficit on revaluation (29.0)
Add: Included within prepayments and accrued income at 1 April 2003 0.6
Less: Included within prepayments and accrued income at 30 September 2003 (1.7)
Movement in revaluation reserve (note 18) (30.1)
The freehold and leasehold investment properties were valued on the basis of Open Market Value by CB Richard
Ellis as at 30 September 2003 in accordance with the Appraisal and Valuation Manual of the Royal Institution of
Chartered Surveyors.
At 30 September 2003, the cumulative interest capitalised in investment properties under development was £0.2
million (2002: £nil). Taxation on capital gains of approximately £9.8 million would have arisen if the Group's
investment properties had been sold for their book value at the balance sheet date.
10 Debtors
31 March 30 September 30 September
2003 2003 2002
£m £m £m
5.0 Rental debtors 5.6 7.4
2.8 Corporation tax 2.8 6.7
5.3 Other debtors 7.3 26.7
4.0 Prepayments 5.0 2.3
9.3 Deferred taxation 4.2 14.7
26.4 24.9 57.8
The deferred taxation asset has been recognised on the basis of future estimated taxable profits against which
it will be offset.
11 Creditors: Amounts Falling Due Within One Year
31 March 30 September 30 September
2003 2003 2002
£m £m £m
- Unsecured loan notes 2007 1.5 0.8
22.6 Accruals and rents in advance 21.0 27.2
1.6 Other taxes and social security costs 1.7 1.1
3.5 Other creditors 3.2 3.5
13.9 Proposed dividend 7.0 6.9
41.6 34.4 39.5
12 Debenture Loans
31 March 30 September 30 September
2003 2003 2002
£m £m £m
First mortgage debenture stock
27.1 £24 million 113/16 per cent. debenture stock 26.9 27.1
2009/14
97.7 £97.5 million 71/4 per cent. debenture stock 95.3 97.7
2027*
98.9 £100 million 55/8 per cent. debenture stock 2029 98.9 98.9
223.7 221.1 223.7
* At 30 September 2002 and at 31 March 2003, the nominal value outstanding of this debenture was £100 million.
During the six months to 30 September 2003, stock with a nominal value of £2.5 million was purchased by the
Company and cancelled.
Certain of the freehold and leasehold properties are charged to secure the first mortgage debenture stock.
13 Convertible Loans
31 March 30 September 30 September
2003 2003 2002
£m £m £m
58.0 51/4 per cent. convertible bonds 2008 58.0 58.0
(0.9) Costs of issue (0.8) (1.0)
57.1 57.2 57.0
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 at any time until 2008 at par.
14 Bank and Other Loans
31 March 30 September 30 September
2003 2003 2002
£m £m £m
- Bank loans 20.0 105.0
5.9 Unsecured loan notes 2007 5.9 6.7
5.9 25.9 111.7
- Falling due within one year (1.5) (0.8)
5.9 Falling due after one year 24.4 110.9
The bank loans are unsecured and expire in 2005. The Company has entered into swap arrangements to fix the rate
of interest on the bank loans, which has resulted in a weighted average rate of 6.7 per cent. 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.
15 Borrowings
Maturity of financial liabilities
The maturity profile of the financial liabilities of the Group at 30 September 2003 was as follows:
31 March 30 September 30 September
2003 2003 2002
£m £m £m
- In one year or less, or on demand 1.5 0.8
- In more than one year but not more than two years 20.0 -
63.0 In more than two years but not more than five years 61.6 110.9
223.7 In more than five years 221.1 280.7
286.7 304.2 392.4
Borrowing facilities
Undrawn committed borrowing facilities available to the Group at 30 September 2003 were as follows:
31 March 30 September 30 September
2003 2003 2002
£m £m £m
15.0 Expiring in one year or less 15.0 40.0
175.0 Expiring in more than one year but not more than two years 155.0 -
20.0 Expiring in more than two years 20.0 90.0
210.0 190.0 130.0
Fair values of financial assets and financial liabilities
31 March 31 March 30 September 30 September 30 September 30 September
2003 2003 2003 2003 2002 2002
Book Fair Book Fair Book Fair
Value Value Value Value Value Value
£m £m £m £m £m £m
- - Short-term borrowings 1.5 1.5 0.8 0.8
286.7 298.3 Long-term borrowings 302.7 320.3 391.6 412.5
3.6 5.1 Interest rate swaps 2.2 3.1 - 5.1
290.3 303.4 306.4 324.9 392.4 418.4
The fair values of the Group's cash and short-term deposits are not materially different from those at which
they are carried in the financial statements. 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
market values of all other items have been calculated by discounting the expected future cash flows at
prevailing interest rates.
16 Provisions for Liabilities and Charges
Provision
for
Deferred tax swap costs Total
£m £m £m
At 1 April 2003 10.6 3.6 14.2
Released during the period (2.4) (1.4) (3.8)
At 30 September 2003 8.2 2.2 10.4
The provision for deferred tax comprises £7.8 million in respect of capital allowances exceeding depreciation,
and £0.4 million of other timing differences.
17 Share Capital
Year to Year to Six months to Six months Six months Six months
to to to
31 March 31 March 30 September 30 September 30 September 30 September
2003 2003 2003 2003 2002 2002
Number £m Number £m Number £m
Ordinary shares of 50p each
Allotted, called up and fully
paid
203,041,984 101.5 At the beginning of the 203,093,515 101.5 203,041,984 101.5
period
51,531 - Exercise of share options - - 51,531 -
203,093,515 101.5 At the end of the period 203,093,515 101.5 203,093,515 101.5
18 Reserves
Other Reserves
Capital Profit and
Redemption Acquisition Revaluation Loss
Reserve Reserve Total Reserve Account
£m £m £m £m £m
At 1 April 2003 16.4 8.6 25.0 255.4 161.8
Realised on disposal of properties - - - (12.2) 12.2
Deficit on revaluation - - - (30.1) -
Retained profit for the period - - - - 5.9
At 30 September 2003 16.4 8.6 25.0 213.1 179.9
19 Reconciliation of Movements in Shareholders' Funds
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
(20.5) Profit/(loss) for the period 12.9 (35.0)
(20.8) Dividends (7.0) (6.9)
(41.3) 5.9 (41.9)
(92.0) Other recognised gains and losses relating to the (30.1) (50.3)
period
(133.3) Net decrease in shareholders' funds (24.2) (92.2)
701.8 Opening shareholders' funds 568.5 701.8
568.5 Closing shareholders' funds 544.3 609.6
20 Reconciliation of Operating Profit to Net Cash Inflow from Operating Activities
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
61.6 Operating profit 23.2 31.9
1.9 Decrease in stock of trading properties - 1.1
(0.4) Increase in debtors (1.8) (1.4)
(3.9) Decrease in creditors (1.8) (0.2)
59.2 Net cash inflow from operating activities 19.6 31.4
21 Analysis of Cash Flows
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
Returns on investments and servicing of finance
1.6 Interest received 2.1 0.4
(24.6) Interest paid (11.1) (13.5)
(23.0) (9.0) (13.1)
Taxation
(0.1) Corporation tax paid - -
3.8 Corporation tax refunded - -
3.7 - -
Net cash inflow from capital expenditure
(10.8) Payments to acquire investment properties (20.1) (4.6)
210.5 Receipts from sale of investment properties 29.4 12.5
(1.7) Payments to acquire investments (1.7) -
198.0 7.6 7.9
Management of liquid reserves
(18.3) Cash (placed on)/withdrawn from short-term deposit (23.5) 80.0
(18.3) (23.5) 80.0
Net cash inflow/(outflow) from financing
(130.8) Redemption of loans - nominal (2.5) (130.0)
(66.6) - premium on redemption (0.2) (66.6)
- Drawdown of bank loans 20.0 105.0
(197.4) 17.3 (91.6)
22 Reconciliation of Net Cash Flow to Movement in Net Debt
Year to Six months to Six months
to
31 March 30 September 30 September
2003 2003 2002
£m £m £m
1.8 (Decrease)/increase in cash in the period (1.9) 1.1
18.3 Cash placed on/(withdrawn from) short-term deposit 23.5 (80.0)
130.8 Cash outflow from redemption of loans 2.5 25.0
- Cash inflow from increase in loans (20.0) -
150.9 Change in net debt arising from cash flows 4.1 (53.9)
(0.1) Other non-cash movements - -
150.8 Movement in net debt in the period 4.1 (53.9)
(334.0) Net debt at the beginning of the period (183.2) (334.0)
(183.2) Net debt at the end of the period (179.1) (387.9)
23 Analysis of Net Debt
At At
1 April Cash Flow Non-cash 30 September
2003 Changes 2003
£m £m £m £m
Cash 1.8 (1.9) - (0.1)
Short-term deposits 101.7 23.5 - 125.2
Debt due within one year - - (1.5) (1.5)
Debt due after one year (286.7) (17.5) 1.5 (302.7)
(183.2) 4.1 - (179.1)
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