Interim Results
Hammerson PLC
30 August 2005
Embargoed until 7.00 a.m. - Tuesday, 30 August 2005
HAMMERSON HALF YEAR RESULTS
Hammerson plc announces its unaudited results for the six months to 30 June
2005.
Six months to 30 June
Restated under
IFRS
2005 2004 Change
Net rental income £101.3m £96.2m +5.3%
Profit before tax(1) £247.3m £203.3m +21.6%
Adjusted profit before tax(2) £42.8m £42.0m +1.9%
Basic earnings per share(3) 72.2p 94.5p -23.6%
Adjusted earnings per share(4) 14.3p 14.3p no change
Dividend per share 5.80p 5.45p +6.4%
30 Jun 2005 31 Dec 2004
Restated under
IFRS
Equity shareholders' funds £2,615m £2,410m +8.5%
Adjusted net asset value per share(5) £10.36 £9.45 +9.6%
Loan to value ratio 42% 46%
Gearing 63% 72%
The group is reporting for the first time under International Financial
Reporting Standards (IFRS). Under IFRS, Hammerson is required to include
revaluation changes on investment properties in profit before tax, and to assume
that the full amount of tax would be payable in the event of a sale of all
properties.
Notes:
(1) In 2005 there was a gain on investment properties and interest rate swaps
of £205 million (2004: £161 million).
(2) Excluding gains on investment properties and changes in the fair value of
interest rate swaps.
(3) In 2005 there was a deferred tax charge of £42 million, principally
relating to property revaluations (2004: £139 million credit).
(4) Excluding the gains on investment properties, the gains on interest rate
swaps and related tax and deferred tax.
(5) Excluding deferred tax and the fair value of interest rate swaps.
Key points
• There was an underlying valuation increase of the portfolio overall of
5.1%, or 6.2% excluding the effect of the withdrawal of relief from UK
stamp duty land tax in disadvantaged areas.
• Adjusted net asset value per share increased by 9.6% to £10.36.
• Net rental income increased by 8.0% on a like-for-like basis. Property
disposals reduced income by £10.2 million compared with the first half of
2004.
• During the first half of the year, the group invested £183 million. The
disposal of properties raised £217 million, 15% in excess of their book
value at 31 December 2004.
• The loan to value ratio was 42% at 30 June 2005.
• Since 30 June 2005, the group has acquired its first retail park in France,
Villebon 2, near Paris, for £104 million.
• John Nelson will become Chairman on 1 October 2005, on the retirement of
Ronald Spinney.
The Chairman, Ronald Spinney, said today:
' I am pleased to report a further robust performance by Hammerson in 2005.
Adjusted net asset value per share increased by 9.6% to £10.36, whilst adjusted
earnings per share was maintained at 14.3 pence. The interim dividend has been
increased by 6.4%.
During the first six months of the year, the group concluded two major office
lettings in London and Paris and benefited from the first rent reviews at The
Oracle shopping centre in the UK and from indexation of rents from its French
assets. It expanded its retail parks business with the acquisition of a scheme
in Kirkcaldy, Fife and the completion of Cyfarthfa Retail Park in Merthyr
Tydfil. Several future development projects were advanced, including major
retail-led city centre regeneration schemes in Bristol and Leicester and the
redevelopment of the former Stock Exchange buildings in the City of London. Some
£217 million was raised from disposals, including £179 million from the sale of
14 boulevard Haussmann in Paris.
The group's balance sheet and financing structure remain sound. The group has
the resources to unlock the potential from the developments currently underway
and from the projects in the pipeline.
I believe Hammerson is well placed to achieve good income growth from its
reversionary retail portfolio, notwithstanding some uncertainties over trends in
consumer expenditure in the UK. In addition, there is an encouraging improvement
in demand for office accommodation, both in central London and Paris, and this
should enable the group to achieve further lettings in its office portfolio.'
Copies of the Chairman's statement, income statement, balance sheet, cash flow
statement and notes are attached. The terms used in the commentary that follows,
and in the key points above, are defined in the glossary of terms at the end of
the document.
Presentation
Hammerson is making a presentation to investors and analysts at 9.30 a.m. today
at New Broad Street House, 35 New Broad Street, London, EC2. A conference call
facility is available for those unable to attend the presentation by dialling +
44 (0)1296 317500 and stating 'Hammerson Interim Results 2005'. A copy of the
slide presentation will be posted simultaneously on the Company's website
(www.hammerson.co.uk).
Financial calendar
Ex dividend date 21 September 2005
Record date 23 September 2005
Interim dividend payable 21 October 2005
For further information:
John Richards Tel: 020 7887 1000
Chief Executive
Simon Melliss Tel: 020 7887 1000
Group Finance Director
Christopher Smith Tel: 020 7887 1019
Director of Corporate Affairs Email: csmith@hammerson.co.uk
CHAIRMAN'S STATEMENT
I am pleased to report a further robust performance by Hammerson in 2005.
Adjusted net asset value per share increased by 9.6% to £10.36, whilst adjusted
earnings per share was maintained at 14.3 pence. The interim dividend has been
increased by 6.4%.
During the first six months of the year, the group concluded two major office
lettings in London and Paris and benefited from the first rent reviews at The
Oracle shopping centre in the UK and from indexation of rents from its French
assets. It expanded its retail parks business with the acquisition of a scheme
in Kirkcaldy, Fife and the completion of Cyfarthfa Retail Park in Merthyr
Tydfil. Several future development projects were advanced, including major
retail-led city centre regeneration schemes in Bristol and Leicester and the
redevelopment of the former Stock Exchange buildings in the City of London. Some
£217 million was raised from disposals, including £179 million from the sale of
14 boulevard Haussmann in Paris.
The group's balance sheet and financing structure remain sound. The group has
the resources to unlock the potential from the developments currently underway
and from the projects in the pipeline.
The last few years have seen the introduction in many jurisdictions of tax
transparent vehicles for property ownership, commonly known as REITs. Recently,
successful REITs have been trading at premiums to their underlying net asset
values.
The UK Government is currently reviewing proposals for the introduction of a
REIT. If implemented, it should make property accessible to a wider range of
investors. At the same time, it should enable the Government to achieve its
stated objectives of encouraging long term savings provision, improving
liquidity and transparency in the property market, facilitate improvements to
the quality of the UK's stock of property and encourage urban regeneration.
In France, where Hammerson has expanded the size of its business in recent
years, the group continues to benefit from its entry at the beginning of 2004
into the tax transparent French SIIC regime.
Recent years have seen a resurgence of property as an important asset class to
investors. Indeed, returns from property investment have exceeded those from
equities and bonds over each of the last three, five and ten year periods.
Hammerson is well placed to take advantage of this environment. The group has an
investment portfolio of the highest quality which provides a secure and growing
income stream, together with the potential for capital growth. Furthermore, I
consider Hammerson to have the most attractive development programme of any of
Europe's major property companies.
I believe Hammerson is well placed to achieve good income growth from its
reversionary retail portfolio, notwithstanding some uncertainties over trends in
consumer expenditure in the UK. In addition, there is an encouraging improvement
in demand for office accommodation, both in central London and Paris, and this
should enable the group to achieve further lettings in its office portfolio.
I shall be standing down from the Board at the end of September having spent 12
years with the Company. It has been a privilege to serve first as Chief
Executive and latterly as Chairman, both of them exciting and stimulating roles.
I would like to place on record my appreciation to all those who have supported
Hammerson and me personally...our shareholders, bankers, partners, customers,
advisers, suppliers and especially, my Board colleagues and the team at
Hammerson. John Nelson, who succeeds me as Chairman, joined the Board as a
non-executive director in May 2004. He has had a distinguished career as a
senior investment banker and I am confident that Hammerson will continue to
prosper under his leadership.
Ronald Spinney, Chairman
30 August 2005
OPERATING AND FINANCIAL REVIEW
International Financial Reporting Standards
In common with all companies listed on European Union stock exchanges, Hammerson
adopted IFRS with effect from 1 January this year. The group issued its 2004
full year financial statements restated under IFRS on 26 April 2005. That
report, together with reconciliations to, and explanations of the differences
from, the figures as they were reported under UK GAAP, is available on the
Company's website, www.hammerson.co.uk. This interim report is prepared in
accordance with IFRS and further details relating to the transition to IFRS are
provided in the notes to the accounts.
The adoption of IFRS has changed the presentation and format of the interim
report. However, it has no impact on the cash flows of the business or its
underlying performance.
Results and dividend
Net rental income for the six months to 30 June 2005 was £101.3 million,
compared with £96.2 million for the corresponding period in 2004. On a
like-for-like basis, net rental income increased by 8%. An analysis of net
rental income is shown below.
Six months to Six months to)
30 June 2005 30 June 2004)
£m £m)
Properties owned throughout 91.4 84.6)
Acquisitions 6.9 0.8)
Developments 1.6 (0.6)
Properties sold - 10.2)
Exchange translation and other 1.4 1.2)
101.3 96.2)
Profit before tax was £247.3 million, compared with £203.3 million in the first
half of 2004. In 2005, there was a profit of £31.5 million on property sales,
which principally arose on the sale of Neo, 14 boulevard Haussmann, Paris 9eme.
Profit before tax also included gains on the revaluation of investment
properties of £169.2 million.
An analysis of profit before tax is shown below.
Six months to Six months to Year ended
30 June 2005 30 June 2004 31 December
2004
£m £m £m
Profit before tax 247.3 203.3 413.4
Less:
Profit on sale of investment properties 31.5 22.4 40.3
Revaluation gains on investment properties 169.2 138.9 283.7
Negative goodwill - - 6.2
Movement in fair value of interest rate swaps 3.8 - -
Adjusted profit before tax 42.8 42.0 83.2
Adjusted profit before tax rose by £0.8 million compared with the equivalent
period last year. Rent reviews in the UK, indexation in France and the receipt
of surrender premiums increased profits by £4.6 million, although this was
largely offset by income foregone in respect of properties sold in 2004 and
finance and void costs at recently completed developments.
Adjusted earnings per share was maintained at 14.3 pence reflecting the increase
in underlying profit discussed above, which was partly offset by a marginal
increase in the related tax charge.
There was a tax charge of £44.1 million for the six months to 30 June 2005,
compared with a £58.4 million tax credit for the equivalent period of 2004. The
tax credit in 2004 reflected the effects of entry to the SIIC regime in France,
resulting in a current tax charge of £70.6 million and a deferred tax credit of
£165.5 million. Excluding the effects of the SIIC regime, the current tax charge
has reduced from £10.0 million in 2004 to £1.9 million in 2005, principally due
to the inclusion of tax on disposals in the charge for 2004. On the same basis,
the deferred tax charge has increased from £26.5 million to £42.2 million,
reflecting the investment property revaluation surplus and future dividends
receivable from Hammerson France.
The directors have declared an interim dividend of 5.80 pence per share payable
on 21 October 2005, an increase of 6.4%.
Balance sheet and financing
At 30 June 2005, Hammerson's property portfolio was valued at £4,767 million,
compared with £4,603 million at the end of 2004. The increase arose from capital
additions of £187 million, a revaluation surplus of £231 million, partly offset
by the disposal of properties with a book value of £189 million and exchange
translation losses of £65 million.
Borrowings at the end of June stood at £1,884 million and cash and deposits at
£233 million so that net debt was £1,651 million compared with £1,746 million at
31 December 2004. The decrease in net debt over the period reflected cash
received from disposals.
The group's financing structure was strengthened further in May by the signing
of a £370 million five year revolving credit facility. The average maturity of
the group's debt is currently 10 years. Hammerson had cash, short term deposits
and unutilised committed bank facilities totalling £719 million at 30 June 2005.
The group's borrowings at 30 June 2005, excluding cash and deposits, but
including foreign currency swaps, were equivalent to 42% of the value of the
property portfolio.
Equity shareholders' funds increased by £205 million to £2,615 million in the
six months to 30 June 2005, mainly due to the property valuation uplift, partly
offset by a related provision for deferred tax. Since 30 June 2005, the company
has issued 7.1 million ordinary shares at a price of 858 pence per share in
consideration for the acquisition of the share capital of a private group of
companies owning the Villebon 2 Retail Park near Paris.
During the first half of the year, adjusted net asset value per share increased
by 91 pence, or 9.6%, to £10.36 and an analysis is shown below.
As at 30 June 2005 As at 31 December
£m 2004
£m
Basic net asset value 2,614.8 2,410.2
Effect of dilution:
On exercise of options 10.2 8.8
Diluted net asset value 2,625.0 2,419.0
Adjustments:
Fair value of derivative financial instruments (9.5) -
Deferred tax on revaluation surpluses and other items 242.6 187.9
Deferred tax on capital allowances 30.5 25.5
Adjusted net asset value 2,888.6 2,632.4
Basic net assets per share (pence) from IFRS balance 942.0 869.0
sheet
Adjusted net assets per share (pence) 1,036 .0 945.0
Basic shares in issue used for calculation (million) 277.6 277.3
Diluted shares used for calculation (million) 278.7 278.5
Cash flow
The cash flow from operating activities for the six months to 30 June 2005 was
£45 million compared with £12 million for the same period last year. The
increase principally reflected the timing of working capital receipts and
payments, and in particular the receipt of VAT on the disposal of Neo, 14
boulevard Haussmann, in Paris which was paid to the French tax authorities in
July. Capital expenditure of £183 million was more than offset by the proceeds
of property sales of £217 million, most of which arose from the sale of Neo, 14
boulevard Haussmann. Overall there was a net cash inflow, after financing, of
£180 million for the first six months of the year.
Portfolio
Hammerson's property portfolio was valued at £4.8 billion at 30 June 2005.
During the first six months, the retail weighting of the portfolio increased
from 69% to 71%, whilst the weighting in the UK increased from 69% to 73%.
A table of property valuations and movements for the six months to 30 June 2005
is shown below:
Shopping Centres Retail Parks Offices Total
Value £m % change Value £m % change Value £m % change Value £m % change
UK 1,868 4.1 621 7.7 1,004 6.2 3,493 5.3
France 757 5.5 - - 376 8.9 1,133 6.6
Germany 141 (10.6) - - - - 141 (10.6)
Total 2,766 3.6 621 7.7 1,380 6.9 4,767 5.1
There was an underlying valuation increase of the group's portfolio overall of
5.1%, with the valuation of the retail and office portfolios increasing by 4.4%
and 6.9% respectively. In the UK, the withdrawal of stamp duty relief in
disadvantaged areas reduced the portfolio valuation by £54 million. Without
this, the UK portfolio would have increased in value by 6.9% and the total
portfolio by 6.2%.
In the UK and France, the valuation uplifts reflected both growth in rental
income and an inward yield shift. The decline in value of the group's properties
in Germany reflected adverse conditions for German retailers and lower rental
values.
In April, Hammerson acquired the freehold interest in Fife Central Retail Park
in Kirkcaldy for £75 million. The 27,000 m(2) retail park has significant
reversionary potential, with further opportunities to add value through active
asset management and an extension.
Since 30 June 2005, the group has acquired, for £104 million, its first retail
park in France, Villebon 2, near Paris. The 40,300 m(2) scheme, which adjoins an
Auchan hypermarket, is one of the largest and most successful retail parks in
France. It offers good rental growth prospects and has planning approval for an
extension of 5,500 m(2).
During the first half of the year, Hammerson disposed of two properties. Neo, 14
boulevard Haussmann, Paris 9eme, a 26,700 m(2) office property, was sold in June
for £179 million, 19% above its value at 31 December 2004. Sittingbourne
Industrial Estate was sold for £34 million in March. This property was acquired
by Hammerson in February 2003 for £17 million. Terms have been agreed for the
group to undertake the management role for the proposed redevelopment of the
site as a mixed-use town centre scheme to be anchored by a major food
superstore.
In April, Hammerson's first retail park development was opened at Cyfarthfa in
Merthyr Tydfil at a total development cost of £35 million. With three remaining
units now in solicitors' hands, the park is anticipated to produce an annual
rental income of £4.1 million. At 30 June 2005, the scheme was valued at £33
million above cost.
During the first half of the year, there was an underlying increase in retail
rents in the UK of 15.3% compared with the first six months of 2004. At The
Oracle shopping centre in Reading, nearly all the rent reviews have now been
agreed, resulting in rents overall being approximately one third higher than the
previous passing rents. In France, rents are subject to annual indexation which
contributed to an increase in retail rents of £2.2 million, or 11%, over the
comparable figure for 2004.
During the first half of the year, seven units became vacant in the UK shopping
centre portfolio and a further 26 units were occupied by retailers which went
into administration. Of these 33 units, new leases have since been agreed in
respect of 27, giving rise to an increase in rents of £360,000 per annum. There
is good interest in the six remaining units.
In Germany, the group has recently commenced a substantial refurbishment at
Forum Steglitz, its shopping centre in Berlin. This will cost some £28 million
and will complete in the spring of 2006. A number of existing occupiers will be
relocating within the reconfigured space and there is good interest from new
retailers for representation in the centre. Currently, over 50% of the total
scheme is let, under offer, or in negotiation.
At Moorhouse, London EC2, a lease was signed in June with HVB Group, the
international bank, for 9,300 m(2) of office accommodation in the 30,100 m(2)
building. There is an encouraging level of interest from potential occupiers for
the remaining space.
Since 30 June, the group has agreed a lease of approximately 2,300 m(2) of
offices at One London Wall. Following this transaction the building is over 60%
let.
Hammerson has also signed a lease since 30 June in respect of 3,960 m(2) of
office space for its own occupation at 10 Grosvenor Street, London W1, a
building developed as a 50:50 joint venture with Grosvenor. Hammerson's
relocation will provide it with modern efficient space to meet both its
immediate and future requirements. Hammerson and Grosvenor, which owns the
freehold of 100 Park Lane, the group's current headquarters, will jointly market
the long leasehold interest in this building and share the proceeds from this
sale.
Developments at 30 June 2005
Estimated
total Amount let
Cost at development or under Anticipated
Current Projects Ownership Size 30/6/05 cost offer by completion
interest m(2) £m £m area date
Offices
Bishops Square, London E1 75% 75,900 221 * 285 * 98% July 2005
19 Hanover Square, London W1 100% 2,900 20 22 nil Aug 2005
9 place Vendome, Paris 1er 50% 27,700 68 * 86 * 66% Apr 2006
Retail parks
St Oswald's, Gloucester (Phase 100% 20,200 47 60 89% Sept 2005
1)
The Avenue Retail Park, Cardiff 100% 4,500 20 25 78% Jan 2006
B&Q, Dallow Road, Luton 100% 8,700 19 28 100% Mar 2006
Westwood & East Kent, Thanet 100% 8,400 9 17 81% Mar 2006
* Indicates Hammerson's share of the total costs
Seven developments, with an estimated total cost of £523 million, were in
progress at 30 June, the cumulative costs to Hammerson of which were £404
million. Hammerson's share of the future rental income from these schemes, for
which leases have already been signed or agreed, amounts to £39 million per
annum. A further £5 million of annual rental income is anticipated when the
properties are fully let. At 30 June 2005, these seven properties had produced a
valuation surplus of £142 million above their cost.
Since 30 June, Hammerson has reached practical completion of Bishops Square, a
75,900 m(2) scheme in the City of London, being carried out in a 75:25 joint
venture with The Corporation of London. The 71,900 m(2) office element has been
handed over for fitting out works to the occupier, Allen & Overy, a leading
international law firm. There has been an encouraging level of interest in the
4,000 m(2) of retail space, with 18 of the 21 retail and restaurant units now
let or under offer, representing 86% of the anticipated retail rental income.
Hammerson's share of the estimated total development cost, which includes a
fitting out contribution to Allen & Overy, is £285 million. The group's share of
the projected income at the end of rent free periods is just over £25 million
per annum. Practical completion of 19 Hanover Square has also been achieved
since 30 June and marketing of this small office building will commence during
September.
In central Paris, work is progressing well at 9 place Vendome, Paris 1er, a 50:
50 joint venture with AXA, to create 22,200 m(2) of high quality office
accommodation and 5,500 m(2) of prime retail space, with completion scheduled
for April 2006. In June of this year, a pre-let agreement was signed with
Clifford Chance, a major international firm of lawyers, in respect of 13,000 m
(2) of the new office accommodation and 1,800 m(2) of ancillary space.
Hammerson's share of the income from this lease, after the expiry of rent free
periods, will amount to £3.4 million per annum. With leases for five of the
eight retail units agreed, the scheme is now 66% let overall.
St Oswald's in Gloucester is a mixed-use scheme, involving a retail park,
leisure facilities and 450 residential units. The first phase of the scheme,
which provides 20,200 m(2) of retail space and leisure facilities, was 89% let
at 30 June and will officially open in September 2005. The estimated development
cost of this element of the scheme is £60 million. In respect of the residential
component, Hammerson has entered into a conditional contract to sell its
interest to Westbury Homes, the residential developer.
In March 2005, work started on the construction of a new 8,700 m(2) store for B&
Q at Dallow Road, Luton. In April, work began on a 4,500 m(2) extension and
refurbishment to the Avenue Retail Park in Cardiff, with completion scheduled
for early 2006. The majority of the new space has been let to Homebase.
At Westwood and East Kent Retail Parks in Thanet, Kent, work is now underway on
a 8,400 m(2) extension to Hammerson's existing 16,600 m(2) retail park at an
estimated total development cost of £17 million. Around 80% of the extension has
been let or is under offer to Homebase, Sportsworld and Argos.
Potential developments 2005/2006
Hammerson maintains an active development programme with the objectives of
achieving good returns and creating high quality properties of a type not
generally available in the open market. The group continues to build on its
excellent reputation for its approach to urban regeneration, its ability to
forge strong relationships with local authorities and its skills in delivering
complex development projects.
Six further development projects could start during the remainder of 2005 and
2006. These include major retail-led, mixed-use schemes in Bristol and
Leicester.
Indicative total
Project Ownership interest Size development costs
% m(2) £m
Retail schemes
Broadmead, Bristol 50 140,000 230 *
New Shires, Leicester 60 60,000 190 *
Union Square, Aberdeen 50 50,000 80 *
Offices
125 Old Broad Street, London EC2 100 32,000 160
60 Threadneedle Street, London EC2 100 20,600 110
Opera Capucines, Paris 2eme
50 10,200 35 *
Total
805
* Indicates Hammerson's share of the total costs
Broadmead in Bristol, a mixed-use retail-led scheme of around 140,000 m(2), is
being developed by the Bristol Alliance, a 50:50 joint venture between Hammerson
and Land Securities Group PLC. Earlier this year the department store was let to
House of Fraser. An unconditional development agreement with Bristol City
Council is now in place and a start on site is imminent. Hammerson's estimated
total development cost in respect of the Broadmead redevelopment is £230 million
and the group's share of the projected income is around £16 million per annum.
In Leicester, the group is working with Hermes in a 60:40 joint venture to carry
out a major expansion of the existing shopping centre, The Shires. The New
Shires scheme includes 60,000 m(2) of additional retail space, which is to be
anchored by John Lewis Partnership, leisure facilities, and residential units.
Demolition of existing buildings and enabling works are underway and it is
anticipated that construction will begin in early 2006, with completion in 2008.
Hammerson's 60% share of the estimated total development cost of New Shires is
£190 million and its share of the projected income is around £12 million per
annum.
Union Square, Aberdeen, which was part of the portfolio acquired by Hammerson
from the former Railtrack, is a 50:50 joint venture with Stannifer. The scheme
has planning consent for 50,000 m(2) of mixed-use space, incorporating a retail
park, retail mall and leisure facilities. Leasing is progressing well, with 39%
of the scheme let or under offer. Construction is anticipated to start next year
at an estimated total development cost to Hammerson of £80 million.
Since purchasing the freehold of the former London Stock Exchange buildings in
2004, which had planning consent for 45,500 m(2) of office and retail
accommodation, Hammerson has been successful in expanding and enhancing the
potential schemes. In April 2005, a resolution to grant a revised planning
consent was passed for the refurbishment of the 26-storey tower building at 125
Old Broad Street, to provide 31,400 m(2) of office accommodation and 600 m(2) of
retail space. In addition, at the end of July, a resolution to grant a revised
planning consent was passed for 60 Threadneedle Street, a 20,600 m(2)
nine-storey building, incorporating 870 m(2) of retail space. A decision will be
made shortly on the timing of the start on the first scheme, 125 Old Broad
Street.
Opera Capucines, Paris 2eme, is a 50:50 joint venture with MAAF to create 5,700
m(2) of office and 4,500 m(2) of retail accommodation in a prime central Paris
location. Esprit has agreed to occupy 2,500 m(2) of retail space. Construction
of the new development is due to begin in the first quarter of 2006.
Future developments
In addition to the schemes outlined above, Hammerson has invested approximately
£85 million to create and advance further development opportunities. The
projects currently generate an interim income of around £2 million per annum and
fall into four principal categories: major retail-led, mixed-use schemes;
extensions to existing shopping centres; retail parks; and offices.
Firstly, the group is working in partnership with local authorities and councils
to advance several major retail-led city centre schemes. These include
developments in Kingston-upon-Thames, Leeds, Peterborough and Sheffield.
Secondly, within Hammerson's retail portfolio there are several opportunities to
extend and enhance a number of its shopping centres, including Brent Cross in
north London, WestQuay in Southampton, The Oracle in Reading and four of the
group's French shopping centres. The extensions to these schemes could add a
substantial amount of retail and leisure space to the portfolio.
Thirdly, Hammerson has a number of opportunities to develop and expand its
existing retail parks portfolio, which include an 11,800 m(2) extension to Fife
Central Retail Park in Kirkcaldy, a 6,000 m(2) extension to Berkshire Retail
Park, Theale and a scheme in Nice, France.
Fourthly, through its acquisition of the Railtrack portfolio at the end of 2002,
Hammerson has the potential to expand its commercial portfolio in London by
around 325,000 m(2), including 200,000 m(2) of offices. Hammerson is currently
progressing a project in Bishopsgate, London EC1, having entered into an option
agreement with Hackney Council enabling it to acquire a development site
adjoining the group's existing Norton Folgate site. Hammerson intends to submit
a planning application at the end of 2005 for a mixed-use development of 79,000
m(2), incorporating 43,000 m(2) of offices. The group is also advancing major
mixed-use schemes at Shoreditch High Street, Bishopsgate Goodsyard and
Paddington.
Markets and outlook
Retail property
In the UK, many retailers experienced a marked slowdown in sales growth in the
first half of 2005. Despite this, prime retail assets continued to meet with a
good level of demand from tenants. With the environment likely to remain
competitive, retailers are expected to continue to focus on prime shopping
centres offering high turnovers and lower cost retail parks, in both instances
supporting continued rental growth.
In France, retail sales continued to grow in the first half of 2005, though the
rate of growth reduced during the second quarter of the year. Nonetheless, there
has been demand for space in shopping centres, leading to a modest increase in
rental values.
In Germany there are now signs of economic recovery, but this has not yet been
reflected in higher consumer spending. Demand from retailers for space remains
weak.
Office property
In central London, take-up of office space during the first six months of 2005
was maintained at similar levels to those seen in the second half of 2004.
Combined with only a limited amount of new space being added to the market, the
vacancy level fell from 12.3% at the end of 2004 to 10.5% by the middle of this
year. Although the level of vacancy remained higher in the City, this market
also saw a reduction in available space during the first half of the year.
Headline rents have so far remained stable during 2005, though there are some
signs that rent free periods required to secure tenants are shortening. Looking
ahead, a low level of new supply, particularly of large office buildings in the
City, and further falls in vacancy during the remainder of 2005 and in 2006, are
expected to lead to growth in headline rents during 2006.
In central Paris, the rate of office take-up was also similar to that seen
during 2004. Vacancy was stable at 5.5% and prime headline rents were unchanged
during the first half of the year. Additional take-up is projected to lead to a
reduction in vacancy and an increase in rents during 2006.
Investment market
Sentiment towards property investment in the UK and France has continued to be
favourable, with strong demand from a wide range of investors, whilst in Germany
there has been an awakening interest from investors. The UK market has seen a
large number of transactions involving both office and retail assets. In France,
the few assets that have been brought to the market have attracted strong
interest. As a result, yields for prime retail and office assets in both the UK
and France have fallen, leading to increased capital values.
Property Portfolio Information
For the six months ended
30 June 2005
Net Properties True Underlying Estimated
rental at equivalent valuation Vacancy Rents rental Reversionary/
income valuation yield change rate passing value (Over-rented)
£m £m % % % £m £m %
Notes (1) (2) (3) (4)
United Kingdom
Retail: Shopping 43.2 1,867.9 5.5 4.1 3.0 93.1 106.3 10.8
centres
Retail parks 12.3 620.6 5.4 7.7 5.4 23.5 28.6 11.4
55.5 2,488.5 5.5 5.0 3.6 116.6 134.9 10.9
Office: City 7.1 727.3 6.3 7.0 35.2 20.0 24.0 (20.2)
West End 0.6 99.0 5.9 12.3 65.0 1.9 5.5 -
Docklands & 4.5 178.3 7.2 - 13.6 11.3 11.5 (13.9)
other
12.2 1,004.6 6.5 6.2 26.9 33.2 41.0 (15.7)
Total United Kingdom 67.7 3,493.1 5.7 5.3 8.6 149.8 175.9 4.1
Continental Europe
France
Retail 21.9 757.0 6.2 5.5 2.5 45.2 51.6 12.5
Office 9.1 375.8 5.7 8.9 0.3 16.0 16.9 (0.2)
Total France 31.0 1,132.8 6.1 6.6 2.3 61.2 68.5 9.1
Germany
Retail 2.6 140.8 6.8 (10.6) 13.6 8.9 10.0 5.5
Total Continental Europe 33.6 1,273.6 6.2 4.4 5.8 70.1 78.5 8.6
Group
Retail 81.3 3,386.3 5.7 4.4 4.3 170.7 196.5 11.1
Office 20.0 1,380.4 6.3 6.9 23.7 49.2 57.9 (11.2)
Total Group 101.3 4,766.7 5.8 5.1 7.8 219.9 254.4 5.4
Selected information at 31 December 2004
Group
Retail 3,198.7 5.9 4.7 165.2 190.9 12.3
Office 1,404.3 6.5 28.3 54.9 68.9 (8.2)
Total Group 4,603.0 6.1 9.4 220.1 259.8 6.2
Notes
(1) True equivalent yield is based on rents passing and estimated rental
values. The calculation excludes properties in the course of development.
(2) Rents passing after deducting head and equity rents post any rent free
periods.
(3) Estimated rental value including vacant space and after deducting head and
equity rents.
(4) The amount by which the estimated rental value exceeds or falls short of
the rents passing, together with the estimated rental value of vacant
space.
Consolidated Income Statement
Six months *Six months
*Year ended ended ended
31 December 2004 30 June 2005 30 June 2004
Audited Unaudited Unaudited
£m Notes £m £m
219.6 Gross rental income 119.6 109.9
Operating profit before gain on
162.9 investment properties 2 87.1 82.8
330.2 Gain on investment properties 2 200.7 161.3
493.1 Operating profit 2 287.8 244.1
(97.7) Finance costs (50.8) (49.5)
18.0 Finance income 6.5 8.7
- Change in fair value of interest rate 3.8 -
swaps
(79.7) Net finance costs 4 (40.5) (40.8)
413.4 Profit before tax 247.3 203.3
(80.9) Current tax 5(a) (1.9) (80.6)
104.2 Deferred tax 5(a) (42.2) 139.0
23.3 Tax (charge)/credit (44.1) 58.4
436.7 Profit for the period 203.2 261.7
Attributable to:
431.4 Equity shareholders 199.7 260.8
5.3 Minority interests 3.5 0.9
436.7 Profit for the period 203.2 261.7
156.2p Basic earnings per share 7 72.2p 94.5p
155.9p Diluted earnings per share 7 72.0p 94.3p
Adjusted earnings per share are shown in note 7.
*Restated under IFRS (see note 19).
Consolidated Balance Sheet
*31 December
2004 30 June 2005 *30 June 2004
Audited Unaudited Unaudited
£m Notes £m £m
Non-current assets
4,603.0 Investment and development properties 8 4,766.7 4,003.9
32.6 Interests in leasehold properties 32.6 33.6
6.2 Plant, equipment and owner-occupied property 6.2 6.3
46.4 Investments 9 47.9 42.7
- Deferred tax 5(c) - 2.0
21.2 Loans receivable 10 20.3 27.5
2.1 Other receivables 2.5 -
4,711.5 4,876.2 4,116.0
Current assets
85.5 Receivables 11 71.9 89.6
53.7 Cash and deposits 12 233.6 230.4
139.2 305.5 320.0
4,850.7 Total assets 5,181.7 4,436.0
Current liabilities
209.4 Payables 13 190.3 205.7
63.0 Tax liabilities 61.6 63.9
0.7 Borrowings 14 1.9 156.2
273.1 253.8 425.8
Non-current liabilities
1,798.8 Borrowings 14 1,882.5 1,497.8
213.4 Deferred tax 5(c) 273.1 141.0
35.4 Tax liabilities 33.7 50.3
32.9 Obligations under finance leases 32.9 33.9
13.0 Pension deficit 17.1 10.3
32.2 Other payables 30.6 31.4
2,125.7 2,269.9 1,764.7
2,398.8 Total liabilities 2,523.7 2,190.5
2,451.9 Net assets 2,658.0 2,245.5
Equity
69.3 Called up share capital 69.4 69.2
597.8 Share premium account 16 599.5 595.6
89.4 Revaluation reserve 16 108.2 54.2
5.4 Translation reserve 16 (55.6) (61.7)
- Hedging reserve 16 53.7
-
7.2 Capital redemption reserve 16 7.2 7.2
4.4 Other reserves 16 4.9 3.8
1,638.6 Retained earnings 16 1,831.4 1,541.8
(1.9) Investment in own shares 17 (3.9) (1.7)
2,410.2 Equity shareholders' funds 2,614.8 2,208.4
41.7 Equity minority interests 43.2 37.1
2,451.9 Total equity 2,658.0 2,245.5
869p Diluted net asset value per share 7 942p 797p
945p Adjusted net asset value per share 7 1,036p 847p
*Restated under IFRS (see note 19).
Consolidated Statement of Recognised Income and Expense
*31 December
2004
30 June 2005 *30 June 2004
Audited Unaudited Unaudited
£m Notes £m £m
0.1 Foreign exchange translation differences (63.1) (12.2)
Net gain on hedge of net investment in foreign
subsidiaries
- 53.7 -
61.6 Revaluation gains on development properties 61.3 13.6
Revaluation gains on investments and
owner-occupied property
5.9 1.5 2.1
(4.2) Actuarial losses on pension schemes (3.5) (1.1)
1.1 Employee share options 0.5 0.5
(17.7) Tax on items taken directly to equity 5(b) (16.7) (2.2)
46.8 Net gain recognised directly in equity 33.7 0.7
436.7 Profit for the period 203.2 261.7
- Transition adjustment on adoption of IAS39 1 5.7 -
- Deferred tax thereon 1,5(b) (1.7) -
483.5 Total recognised income and expense 240.9 262.4
Attributable to:
478.2 Equity shareholders 239.3 263.4
5.3 Minority interests 1.6 (1.0)
483.5 Total recognised income and expense 240.9 262.4
Consolidated Statement of Changes in Equity
*31 December
2004
30 June 2005 *30 June 2004
Audited Unaudited Unaudited
£m Notes £m £m
Opening equity shareholders' funds
2,168.2 - as previously reported 2,410.2 2,168.2
(193.0) - effect of adopting IFRS 19 - (193.0)
1,975.2 Opening equity shareholders' funds restated 2,410.2 1,975.2
3.9 Issue of shares 1.8 1.6
- Acquisition of own shares (2.3) -
0.3 Amortisation of investment in own shares 0.3 0.5
1,979.4 2,410.0 1,977.3
478.2 Total recognised income and expense 239.3 263.4
2,457.6 2,649.3 2,240.7
(47.4) Dividends (34.5) (32.3)
2,410.2 Closing equity shareholders' funds 2,614.8 2,208.4
* Restated under IFRS (see note 19).
Consolidated Cash Flow Statement
*31 December 2004 30 June 2005 *30 June 2004
Audited Unaudited Unaudited
£m Notes £m £m
Operating activities
162.9 Operating profit before gain on investment 87.1 82.8
properties
1.8 Adjustment for non-cash items 18 0.9 0.5
14.3 Decrease in receivables 24.4 12.8
(17.4) Increase/(Decrease) in payables 16.6 (20.1)
161.6 Cash generated from operations 129.0 76.0
(100.1) Interest paid (89.0) (70.7)
21.0 Interest received 7.0 8.4
(22.0) Tax paid (1.8) (2.2)
60.5 Cash flows from operating activities 45.2 11.5
Investing activities
(99.7) Purchase of property (86.7) (7.9)
(223.5) Development of property (96.2) (109.8)
398.7 Sale of property 217.2 245.3
- Purchase of own shares 17 (2.3) -
Purchase of interests in joint ventures and
subsidiary companies
(221.1) - -
5.6 (Increase)/Decrease in other long term receivables (0.5) -
(140.0) Cash flows from investing activities 31.5 127.6
Financing activities
3.9 Issue of shares 1.8 1.6
239.8 Increase in medium and long term borrowings 120.4 16.5
(249.4) Increase/(Decrease) in short term borrowings 15.7 (80.7)
(1.7) Dividends paid to minorities - -
(47.4) Equity dividends paid (34.5) (32.3)
(54.8) Cash flows from financing activities 103.4 (94.9)
(134.3) Net increase/(decrease) in cash and deposits 180.1 44.2
187.0 Opening cash and deposits 53.7 187.0
1.0 Exchange translation movement (0.2) (0.8)
53.7 Closing cash and deposits 12 233.6 230.4
*Restated under IFRS (see note 19).
Notes to the Accounts
1. FINANCIAL INFORMATION
The financial information contained in this report does not constitute statutory
accounts within the meaning of section 240 of the Companies Act 1985. The full
accounts for the year ended 31 December 2004, which were prepared under UK GAAP
and which received an unqualified report from the auditors, and did not contain
a statement under s237(2) or (3) of the Companies Act 1985, have been filed with
the Registrar of Companies. The unaudited financial information contained in
this report has been prepared on the basis of the accounting policies set out in
note 19. Comparative figures for the year ended 31 December 2004 contained
within this report were published in a press release on 26 April 2005, and
further details and reconciliations explaining the transition to IFRS are
available on the group's website, www.hammerson.co.uk.
The principal exchange rate used to translate foreign currency
denominated amounts in the balance sheet is the rate at the end of the period,
£1 = €1.48. The principal exchange rate used for the income statement is the
average rate, £1 = €1.46.
Transitional adjustment on adoption of IAS 39
The group has taken advantage of the exemption in IFRS 1, which allows the
deferral of the accounting and disclosure requirements of IAS 32 'Financial
Instruments: Disclosure and Presentation' and IAS 39 'Financial Instruments:
Recognition and Measurement'. As such the effective date of transition to IFRS
in relation to these standards is 1 January 2005. The effect of the change is
to include the fair value of interest rate swaps in the balance sheet at fair
value and to recognise changes in their fair value in the income statement. As
at 1 January 2005, retained earnings and equity shareholders' funds are
increased by £5.7m, representing the fair value of interest rate swaps, at that
time, less the related deferred tax provision of £1.7m.
Notes to the Accounts
2. OPERATING PROFIT
Six months Six months
Year ended ended ended
31 December 2004 30 June 2005 30 June 2004
Audited Unaudited Unaudited
£m £m £m
219.6 Gross rental income 119.6 109.9
(4.1) Rents payable (2.4) (1.9)
215.5 Gross rental income, after rents payable 117.2 108.0
39.5 Service charge income 21.0 18.2
(47.6) Service charge expenses (25.3) (21.4)
(8.1) Net service charge expenses (4.3) (3.2)
(17.9) Other property outgoings (11.6) (8.6)
(26.0) Property outgoings (15.9) (11.8)
189.5 Net rental income 101.3 96.2
4.0 Management fees receivable 1.1 2.1
(16.3) Cost of property activities (7.8) (8.8)
(14.3) Corporate expenses (7.5) (6.7)
(26.6) Administration expenses (14.2) (13.4)
Operating profit before gain on investment
properties
162.9 87.1 82.8
40.3 Profit on the sale of investment properties 31.5 22.4
283.7 Revaluation gains on investment properties 169.2 138.9
6.2 Negative goodwill - -
330.2 Gain on investment properties 200.7 161.3
493.1 Operating profit 287.8 244.1
3. SEGMENTAL ANALYSIS
The group operates in three countries namely United Kingdom, France and Germany.
Year ended Six months Six months
31 December 2004 ended ended
30 June 2005 30 June 2004
£m £m £m
130.3 Net rental income UK 67.7 67.2
52.5 France 31.0 25.7
6.7 Germany 2.6 3.3
189.5 101.3 96.2
400.3 Segment result UK 201.9 240.8
148.4 France 106.7 45.7
(44.8) Germany (14.5) (37.8)
(10.8) Unallocated corporate costs (6.3) (4.6)
493.1 Operating profit 287.8 244.1
Notes to the Accounts
4. NET FINANCE COSTS
Six months Six months
Year ended ended ended
31 December 2004 30 June 2005 30 June 2004
£m £m £m
11.7 Interest on bank loans and overdrafts 7.6 7.5
98.6 Interest on other loans 50.6 46.1
3.2 Interest on obligations under finance leases 1.4 1.7
3.9 Other interest payable 1.2 2.7
117.4 Gross interest costs 60.8 58.0
Less:
(19.7) Interest capitalised (10.0) (8.5)
97.7 Finance costs 50.8 49.5
(18.0) Finance income (6.5) (8.7)
- Change in fair value of interest rate swaps (3.8) -
79.7 Net finance costs 40.5 40.8
5. TAX
(a) Tax charge
Six months Six months
Year ended ended ended
31 December 2004 30 June 2005 30 June 2004
£m £m £m
Current tax
8.9 UK corporation tax 0.7 9.2
1.2 Foreign tax 1.2 0.8
70.8 French exit tax payable on election for SIIC status - 70.6
80.9 1.9 80.6
Deferred tax
61.8 Deferred tax on income and revaluations 42.2 26.5
(166.0) Deferred tax released on election for SIIC status - (165.5)
(104.2) 42.2 (139.0)
(23.3) Tax charge/(credit) 44.1 (58.4)
(b) Tax recognised directly in equity
31 December 2004 30 June 2005 30 June 2004
£m £m £m
19.0 Deferred tax charge on revaluations 17.8 2.5
- Deferred tax charge on interest rate swaps 1.7 -
(1.3) Deferred tax credit on actuarial losses on pension (1.1) (0.3)
schemes
17.7 Tax recognised directly in equity 18.4 2.2
(c) Deferred tax
31 December 2004 30 June 2005 30 June 2004
£m £m £m
UK
185.5 Capital gains net of capital losses 220.8 125.4
25.5 Capital allowances 30.5 27.1
(2.3) Other timing differences (1.7) (3.8)
18.6 Dividends receivable from France 34.9 6.2
(16.6) Revenue tax losses (19.1) (18.9)
210.7 265.4 136.0
2.7 France 7.7 3.0
213.4 Net deferred tax provision 273.1 139.0
Notes to the Accounts
5. TAX (continued)
(d) Deferred tax movements
Recognised Recognised Foreign
1 Jan 2005 in income in equity exchange 30 June 2005
£m £m £m £m £m
UK
Capital gains net of capital losses 185.5 22.6 12.7 - 220.8
Capital allowances 25.5 5.0 - - 30.5
Other timing differences (2.3) - 0.6 - (1.7)
Dividends receivable from France 18.6 17.1 - (0.8) 34.9
Revenue tax losses (16.6) (2.5) - - (19.1)
210.7 42.2 13.3 (0.8) 265.4
France 2.7 - 5.1 (0.1) 7.7
Net deferred tax provision 213.4 42.2 18.4 (0.9) 273.1
(e) Commentary
Current tax is reduced by the French tax exemption and by capital allowances and
tax relief for capitalised interest.
Under IAS12, deferred tax provisions are made for the tax that would potentially
be payable on the realisation of investment properties and other assets at book
value. For UK investment properties, deferred tax is calculated on the basis
that properties will be realised predominantly through sale so that capital
gains are reduced by indexation.
Hammerson's French properties, with the exception of 9 place Vendome, were
elected into the SIIC tax exempt regime in 2004, when exit taxes totalling
£70.8m were incurred and deferred tax of £166.0m was written back. The SIIC
rules require Hammerson's French subsidiaries to distribute a proportion of
their profits to Hammerson plc and allowance is made within deferred tax for the
UK tax that may arise when dividends are received.
The tax on disposals may be reduced depending on how sales are structured. In
particular, if the group retains all capital allowances on UK disposals, the
liability would be reduced by £55m (31 December 2004: £45m).
Notes to the Accounts
6. DIVIDENDS
The proposed interim dividend of 5.80 pence per share (30 June 2004: 5.45 pence
per share) was approved by the Board on 30 August 2005 and is payable on 21
October 2005 to shareholders on the register at the close of business on 23
September 2005. The dividend has not been included as a liability as at 30 June
2005.
The 2004 final dividend of £34.5m, representing 12.47 pence per share, was paid
on 12 May 2005 and is included in the Consolidated Statement of Changes in
Equity.
7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE
The calculations for earnings per share, diluted earnings per share and adjusted
earnings per share, based on the weighted average number of shares, are shown in
the table below. The weighted average number of shares shown exclude those
shares held in the Hammerson Employee Share Ownership Plan (note 17), which are
treated as cancelled.
Year ended 31 December 2004 Six months ended 30 June 2005 Six months ended 30 June 2004
Pence Pence Pence
Earnings Shares per Earnings Shares per Earnings Shares per
£m million share £m million share £m million share
431.4 276.1 156.2 Basic 199.7 276.7 72.2 260.8 275.9 94.5
Adjustments:
Dilutive
- 0.6 (0.3) share options - 0.6 (0.2) - 0.6 (0.2)
431.4 276.7 155.9 Diluted 199.7 277.3 72.0 260.8 276.5 94.3
Adjustments:
Gain on
investment
properties -
(330.2) - (119.3) (200.7) - (72.4) (161.3) (58.3)
Minority
interest in
gain on
investment
properties
3.1 - 1.1 2.3 - 0.9 (0.2) - -
Change in
fair value of
interest rate
swaps
- - - (3.8) - (1.4) - - -
Tax on
property
8.4 - 3.0 disposals - - - 8.7 - 3.1
70.8 - 25.6 SIIC exit tax - - - 70.6 - 25.5
(104.2) - (37.6) Deferred tax 42.2 - 15.2 (139.0) - (50.3)
79.3 276.7 28.7 Adjusted 39.7 277.3 14.3 39.6 276.5 14.3
Notes to the Accounts
7. EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE (continued)
The calculations for basic, diluted and adjusted net asset value per share are
shown in the table below:
30 June
31 December 30 June 2004
2004 2005 Net asset
Net asset Equity Net asset value
value shareholders' value per
per share funds Shares per share share
pence £m million pence pence
869 Basic 2,614.8 277.6 942 798
Company's own shares held in Employee
Share Ownership Plan
n/a - (0.7) n/a n/a
n/a Unexercised share options 10.2 1.8 n/a n/a
869 Diluted 2,625.0 278.7 942 797
n/a Deferred tax 273.1 - n/a n/a
n/a Fair value of interest rate swaps (9.5) - n/a n/a
945 Adjusted 2,888.6 278.7 1,036 847
8. INVESTMENT AND DEVELOPMENT PROPERTIES
Investment properties Development properties Total
Valuation Cost Valuation Cost Valuation Cost
£m £m £m £m £m £m
Balance at 1 January
2005 4,082.5 3,085.7 520.5 420.5 4,603.0 3,506.2
Exchange adjustment
(62.1) (52.6) (3.3) (3.0) (65.4) (55.6)
Additions 116.4 116.4 60.8 60.8 177.2 177.2
Disposals (188.6) (210.5) - - (188.6) (210.5)
Transfers 55.7 29.5 (55.7) (29.5) - -
Capitalised interest 0.3 0.3 9.7 9.7 10.0 10.0
Revaluation
adjustment 169.2 - 61.3 - 230.5 -
Balance at 30 June
2005 4,173.4 2,968.8 593.3 458.5 4,766.7 3,427.3
All properties are stated at market value as at 30 June 2005, valued by
professionally qualified external valuers. In the United Kingdom, office
properties and the group's interests in the Birmingham Alliance properties were
valued by DTZ Debenham Tie Leung, Chartered Surveyors, and all other retail
properties were valued by Donaldsons, Chartered Surveyors. In France and
Germany, the group's properties were valued by Cushman & Wakefield Healey &
Baker, Chartered Surveyors. The valuations have been prepared in accordance
with the Appraisal and Valuation Standards of the Royal Institution of Chartered
Surveyors.
At 30 June 2005 the total amount of interest included in development properties
was £26.3m (31 December 2004: £17.9m) calculated using the group's average cost
of borrowings.
Notes to the Accounts
9. INVESTMENTS
31 December 2004 30 June 2005 30 June 2004
£m £m £m
31.4 Value Retail Investors Limited 33.1 27.5
Partnerships
Interests in Value Retail plc and related
companies
13.8 13.8 13.8
1.2 Other investments 1.0 1.4
46.4 47.9 42.7
10. LOANS RECEIVABLE
Loans receivable comprised a loan of €30.0m (31 December 2004: €30.0m) to Value
Retail plc bearing interest based on EURIBOR and maturing on 10 October 2006.
11. RECEIVABLES
31 December 2004 30 June 2005 30 June 2004
£m £m £m
27.8 Trade receivables 26.3 17.4
55.0 Other receivables 33.9 70.3
0.4 Corporation tax 0.3 0.4
2.3 Prepayments 1.9 1.5
- Fair value of interest rate swaps 9.5 -
85.5 71.9 89.6
12. CASH AND DEPOSITS
31 December 2004 30 June 2005 30 June 2004
£m £m £m
23.9 Cash at bank 225.4 37.1
29.8 Short term deposits 8.2 193.3
53.7 Cash and deposits 233.6 230.4
Analysis by currency
49.7 Sterling 189.3 220.1
4.0 Euro 44.3 10.3
53.7 233.6 230.4
Deposits mainly comprised funds placed on money markets with rates linked to
LIBOR.
13. PAYABLES
31 December 2004 30 June 2005 30 June 2004
£m £m £m
45.7 Trade payables 44.5 37.7
147.2 Other payables 132.7 153.5
16.5 Accruals 13.1 14.5
209.4 190.3 205.7
Notes to the Accounts
14. BORROWINGS
31 December 2004 30 June 2005 30 June 2004
£m £m £m
Bank loans and
overdrafts:
235.2 Unsecured 341.9 156.0
64.8 Secured 67.2 28.5
1,499.3 Other loans: Unsecured 1,473.9 1,469.2
1,799.3 1,883.0 1,653.7
0.2 Exchange difference on currency swaps 1.4 0.3
1,799.5 1,884.4 1,654.0
Analysis by currency
31 December 2004 30 June 2005 30 June 2004
£m £m £m
999.4 Sterling 1,001.6 962.9
800.1 Euro 882.8 691.1
1,799.5 1,884.4 1,654.0
As part of the group's foreign currency hedging programme, at 30 June 2005 the
group had also sold €165m forward against sterling for value on 29 July 2005, at
a spot rate of £1 = €1.50.
Undrawn committed facilities
31 December 2004 30 June 2005 30 June 2004
£m £m £m
250.0 Expiring within 1 year - 9.0
- Expiring within 1- 2 years 228.4 250.0
225.4 Expiring after more than 2 years 256.6 457.0
475.4 485.0 716.0
15. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES
31 December 2004 30 June 2005 30 June 2004
Book value Fair value Book value Fair value Book value Fair value
£m £m £m £m £m £m
Overdrafts and short term
borrowings
(0.5) (0.5) (0.5) (0.5) (157.6) (157.6)
(1,816.8) (1,997.0) Long term borrowings (1,900.2) (2,113.8) (1,514.8) (1,624.6)
18.0 18.0 Unamortised borrowing costs 17.7 17.7 18.7 18.7
(0.2) (0.2) Currency swaps (1.4) (1.4) (0.3) (0.3)
(1,799.5) (1,979.7) Total borrowings (1,884.4) (2,098.0) (1,654.0) (1,763.8)
- 5.7 Interest rate swaps 9.5 9.5 - 4.7
The fair values of the group's long-term borrowings have been estimated on the
basis of quoted market prices. The fair values of the group's outstanding
interest rate swaps have been estimated by calculating the present value of
future cash flows, using appropriate market discount rates.
Details of the group's cash and short term deposits are set out in note 12.
Their fair values and those of other debtors and creditors equate to their book
values.
At 30 June 2005, the fair value of financial liabilities exceeded their book
value by £213.6m (31 December 2004: £180.2m), equivalent to 77 pence per share
(31 December 2004: 65 pence per share) on an adjusted net asset value per share
basis. On a post tax basis, using a tax rate of 30%, the difference was
equivalent to 54 pence per share (31 December 2004: 46 pence per share).
Notes to the Accounts
16. RESERVES
Share Capital
premium redemption
account Revaluation Translation Hedging reserve Other
reserve reserve reserve reserves
£m £m £m £m £m £m
Balance at 1 January 2005 597.8 89.4 5.4 - 7.2 4.4
Exchange adjustment - - (61.0) 53.7 - -
Premium on issue of shares 1.7 - - - - -
Surplus arising on
revaluation of development
properties and investments - 62.8 - - - -
Employee share options - - - - - 0.5
Transfer on completion of
development properties - (26.2) - - - -
Deferred tax recognised
directly in equity - (17.8) - - - -
Balance at 30 June 2005 599.5 108.2 (55.6) 53.7 7.2 4.9
Retained earnings
£m
Balance at 1 January 2005 1,638.6
Transition adjustment on adoption of IAS 39 5.7
Deferred tax thereon (1.7)
Exchange adjustment (0.2)
Transfer on completion of development properties 26.2
Actuarial losses on pension schemes (3.5)
Dividends paid (34.5)
Deferred tax recognised directly in equity 1.1
Retained earnings for the period 199.7
Balance at 30 June 2005 1,831.4
17. INVESTMENT IN OWN SHARES
31 December 2004 30 June 2005 30 June 2004
£m £m £m
2.2 Opening balance 1.9 2.2
- Purchase of own shares 2.3 -
(0.3) Amortisation (0.3) (0.5)
1.9 Closing balance 3.9 1.7
18. ADJUSTMENTS FOR NON CASH ITEMS IN THE CASH FLOW STATEMENT
31 December 2004 30 June 2005 30 June 2004
£m £m £m
1.4 Depreciation and amortisation 1.3 1.2
1.1 Employee share options 0.5 0.5
2.2 Unrealised foreign exchange (gains)/losses (0.6) (0.1)
2.6 Amortisation of lease inducements and other direct 1.5 1.3
costs
(5.5) Increase in accrued rents receivable (1.8) (2.4)
1.8 0.9 0.5
Notes to the Accounts
19. EXPLANATION OF THE TRANSITION TO IFRS
2005 is the first year that the group has presented its financial statements
under IFRS. The last financial statements presented under UK GAAP were for the
year ended 31 December 2004. As IFRS comparative figures must be prepared for
the year ended 31 December 2004, the date of transition to IFRS was 1 January
2004, with the exception of the adoption of IAS 32 and IAS 39, as explained in
note 1. Reconciliations of equity at 31 December 2004 and profit for the year
ended 31 December 2004 reported under UK GAAP and IFRS have previously been
published and are available on the Company's website, www.hammerson.co.uk.
Reconciliations are presented in the following pages to enable a comparison of
the 2005 published interim figures with those published in the corresponding
period of the previous financial year and those published for the year ended
31 December 2004.
19.1 Significant accounting policies.
19.2 Reconciliation of equity reported under UK GAAP to equity under IFRS.
19.3 Reconciliation of the profit reported under UK GAAP to the profit under
IFRS.
IFRS 1 'First-time Adoption of International Financial Reporting Standards'
requires an explanation of major adjustments to cash flows under IFRS. Whilst
the format of the cash flow statement is different to UK GAAP, there are no
material changes to cash flows from operations, investment or financing.
19.1 Significant accounting policies
Introduction
As required for companies listed on European Union stock exchanges, Hammerson
has adopted IFRS for financial reporting years commencing on or after 1 January
2005.
The UK Financial Services Authority has indicated that, as interim statements
must be drawn up on the basis of the next annual accounts, 2005 interim reports
should be prepared on the basis of the recognition and measurement rules of
IFRS. However, companies are not required to adopt the requirements of IAS 34, '
Interim financial reporting' for their first IFRS interim report. The audited
financial statements for the year ended 31 December 2004, and previous annual
and interim reports, were prepared under UK GAAP. The full IFRS accounting
policies adopted by Hammerson are set out in the following pages.
A summary of the principal differences between the IFRS policies and the UK GAAP
policies is provided in the restatement of the group's 2004 results and balance
sheet previously published and available on the Company's website,
www.hammerson.co.uk.
Basis of preparation
The financial statements are presented in sterling. They are prepared on the
historical cost basis except that investment and development properties,
owner-occupied property, derivative financial instruments and financial
instruments classified as available-for-sale are stated at their fair value.
The accounting policies have been consistently applied to the results, other
gains and losses, assets, liabilities and cash flows of entities included in the
consolidated financial statements.
The preparation of financial statements requires management to make judgments,
estimates and assumptions that may affect the application of accounting policies
and the reported amounts of assets and liabilities, income and expenses.
Management believes that the estimates and associated assumptions used in the
preparation of the financial statements are reasonable. However, actual outcomes
may be different.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period. If the revision
affects both current and future periods, the change is recognised over those
periods.
Notes to the Accounts
19.1 Significant accounting policies (continued)
Basis of consolidation
Subsidiaries
Subsidiaries are those entities controlled by the group. Control is assumed when
the group has the power to govern the financial and operating policies of an
entity or business so as to obtain benefits from its activities. The financial
statements of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that control ceases.
Where properties are acquired through corporate acquisitions and there are no
significant assets or liabilities other than property, the acquisition is
treated as an asset acquisition, otherwise the acquisition method of accounting
is used.
Joint ventures
Joint ventures are those entities over whose activities the group has joint
control, established by contractual agreement. The consolidated financial
statements include the group's share of assets, liabilities, results and
cashflows of joint ventures on a proportionate consolidation basis.
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated into sterling at exchange
rates approximating to the exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the balance
sheet date are translated to sterling at the foreign exchange rate ruling at
that date and, unless they are part of the hedging of the net investment in
foreign operations, differences arising on translation are recognised in the
income statement.
Financial statements of foreign operations
The assets and liabilities of foreign operations, including goodwill and fair
value adjustments arising on consolidation, are translated to sterling at the
foreign exchange rates ruling at the balance sheet date. The operating income
and expenses of foreign operations are translated to sterling at quarterly
average exchange rates. Significant transactions, such as property sales, are
translated at the foreign exchange rates ruling at the date of each transaction.
Net investment in foreign operations
Exchange differences arising from the translation of the net investment in
foreign operations, including the effective portions of related hedges, are
taken to the translation reserve. They are released to the income statement
upon disposal of the foreign operation.
Borrowings, interest and derivatives
Borrowings
Borrowings are recognised initially at fair value, after taking account of any
discount on issue and attributable transaction costs. Subsequently, such
discounts and costs are charged to the income statement over the term of the
debt at a constant return on the carrying amount of the liability.
Derivative financial instruments
The group uses derivative financial instruments to hedge its exposure to foreign
currency movements and interest rate risks.
Derivative financial instruments are recognised initially at cost and
subsequently at fair value, with changes in fair value being included in the
income statement, except that a gain or loss on the portion of an instrument
that is an effective hedge for the net investment in a foreign operation is
recognised in equity.
Net finance costs
Net finance costs comprise interest payable on borrowings, net of interest
capitalised, interest receivable on funds invested, and changes in the fair
value of derivative financial instruments.
Interest income is recognised in the income statement in the period to which it
relates.
Notes to the Accounts
19.1 Significant accounting policies (continued)
Capitalisation of borrowing costs
Borrowing costs are capitalised if they are directly attributable to the
acquisition, construction or production of development properties or the
redevelopment of investment properties. Capitalisation commences when the
activities to develop the property start and continues until the property is
substantially ready for its intended use. Capitalised interest is calculated
with reference to the actual rate payable on borrowings for development purposes
or, for that part of the development cost financed out of general funds, to the
average rate.
Property portfolio
Development properties
Properties acquired with the intention of redevelopment are classified as
development properties and stated at fair value. Changes in fair value above
cost are recognised in equity, and changes in fair value below cost are
recognised in the income statement.
All costs directly associated with the purchase and construction of a
development property are capitalised. When development properties are completed,
they are reclassified as investment properties and any accumulated revaluation
surplus or deficit is transferred to retained earning.
Investment properties
Investment properties are stated at fair value, with changes in fair value being
included in the income statement.
Depreciation
In accordance with IAS 40 'Investment Property', no depreciation is provided in
respect of investment or development properties. This is a departure from the
requirements of the Companies Act 1985, which requires all properties to be
depreciated. Such properties are not held for consumption but for investment and
the directors consider that to depreciate them would not give a true and fair
view. Depreciation is only one of many factors reflected in the annual valuation
of properties and accordingly the amount of depreciation, which might otherwise
have been charged cannot be separately identified or quantified. The directors
consider that this policy results in the fair presentation of the accounts.
Leasehold properties
Leasehold properties that are leased out to tenants under operating leases are
classified as investment properties or development properties, as appropriate
and included in the balance sheet at fair value.
The obligation to the freeholder or superior leaseholder for the buildings
element of the leasehold is included in the balance sheet at the present value
of the minimum lease payments at inception. Payments to the freeholder or
superior leaseholder are apportioned between a finance charge and a reduction of
the outstanding liability. The finance charge is allocated to each period
during the lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability. Contingent rents are charged as an
expense in the periods in which they are incurred.
Net rental income
Rental income from investment property leased out under an operating lease is
recognised in the income statement on a straight-line basis over the term of the
lease.
Contingent rents, such as turnover rents, rent reviews and indexation, are
recorded as income in the periods in which they are earned. Rent reviews are
recognised when such reviews have been agreed with tenants.
Lease incentives and costs associated with entering into tenant leases are
amortised over the period to the first break option or, if the probability that
the break option will be exercised is considered low, over the lease term.
Property operating expenses are expensed as incurred and any property operating
expenditure not recovered from tenants through service charges is charged to the
income statement.
Profits on sale of properties
Profits on sale of properties are taken into account on the completion of
contract, and are calculated by reference to book value at the end of the
previous year, adjusted for subsequent capital expenditure.
Notes to the Accounts
19.1 Significant accounting policies (continued)
Plant, equipment and owner-occupied property
Owner-occupied property held under a finance lease is stated at fair value with
changes in fair value recognised directly in equity. The cost of owner-occupied
property is depreciated through the income statement over the period to the end
of the lease on a straight-line basis.
Plant and equipment are stated at cost less accumulated depreciation.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful life, which is generally between three and five years.
Investments
Investments for which the fair value can be reliably determined are classified
as 'available for sale' and carried at fair value with changes in fair value
recognised directly in equity. Other investments are carried at cost.
Employee benefits
Defined contribution plans
Obligations for contributions to defined contribution pension plans are charged
to the income statement as incurred.
Defined benefit plans
The group's net obligation in respect of defined benefit pension plans comprises
the amount of future benefit that employees have earned, discounted to determine
a present value, less the fair value of the pension plan assets. The discount
rate used is the yield on AAA credit rated bonds that have maturity dates
approximating to the terms of the group's obligations. The calculation is
performed by a qualified actuary using the projected unit credit method.
Actuarial gains and losses are recognised in equity. Where the assets of a plan
are greater than its obligation, the asset included in the balance sheet is
limited to the present value of any future refunds from the plan or reduction in
future contributions to the plan.
Equity and equity-related compensation benefits
Equity and equity-related employee remuneration is determined with reference to
the fair value of the equity instruments at the date at which they are granted
and charged to the income statement over the vesting period on a straight-line
basis.
Tax
Tax is included in the income statement except to the extent that it relates to
items recognised directly in equity, in which case the related tax is recognised
in equity.
Current tax is the expected tax payable on the taxable income for the year,
using tax rates applicable at the balance sheet date, together with any
adjustment in respect of previous years.
Deferred tax is provided using the balance sheet liability method, providing for
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for taxation purposes. The
following temporary differences are not provided for: goodwill not deductible
for tax purposes, the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit, and differences relating to investments
in subsidiaries to the extent that they will probably not reverse in the
foreseeable future. The amount of deferred tax provided is based on the
expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates applicable at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that
future taxable profits will be available against which the asset can be
utilised.
Notes to the Accounts
19.2 Reconciliation of equity reported under UK GAAP to equity under IFRS
Note 31 Dec 30 Jun 31 Dec 30 Jun
2003 2004 2004 2005
Equity shareholders' funds under UK GAAP 2,168.2 2,324.4 2,580.7 2,844.7
IFRS adjustments:
Obligations under finance leases a (37.9) (33.9) (32.9) (32.9)
Leasehold property interests a 37.9 33.9 32.9 32.9
Exclusion of dividend b 32.3 15.1 34.5 16.1
Change in pension deficit c (4.9) (6.0) (8.8) (12.7)
Deferred tax d (220.4) (125.1) (196.2) (242.8)
Fair value of interest rate swaps e - - - 9.5
Net IFRS adjustments (193.0) (116.0) (170.5) (229.9)
Equity shareholders' funds under IFRS 1,975.2 2,208.4 2,410.2 2,614.8
Notes:
'UK GAAP' referred to in the tables in notes 19.2 and 19.3 is that existing at
31 December 2004.
The principal reasons for the adjustments shown in the reconciliations between
UK GAAP and IFRS are set out below.
a. Interests in leasehold properties are accounted for as finance leases
under IFRS, and the obligation to the freeholder or superior leaseholder is
included within non-current liabilities, calculated as the present value
of the minimum lease payments at the inception of the lease. Investment
and development properties are valued net of this obligation, so an amount
equivalent to the obligation is included in the balance sheet as a
non-current asset. An element of the rent payable is treated as interest
and a part repayment of the obligation to the superior leaseholder or
freeholder.
b. Under IFRS, unapproved dividends, are not provided for. Accordingly, the UK
GAAP figures for equity shareholders' funds have increased to reflect the
exclusion of the proposed dividends.
c. The net liabilities arising from the group's defined benefit pension
schemes are included in the balance sheet under IFRS.
d. Under IFRS, deferred tax provisions are made for the tax that would
potentially be payable on the sale of investment or development properties
and other assets, whereas UK GAAP requires that this potential liability is
disclosed as contingent tax but not provided in the balance sheet.
e. As explained in note 1, the fair value of interest rate swaps is included
in the balance sheet with effect from 1 January 2005.
Notes to the Accounts
19.3 Reconciliation of profit reported under UK GAAP to profit under IFRS
Note 30 June 2004 30 June 2005
Profit for the period under UK GAAP 56.0 60.5
IFRS adjustments:
Revaluation gains on investment properties f 138.9 169.2
Deferred tax g 67.0 (29.2)
Allocation of rent free periods h 1.6 1.2
Amortisation of lease incentives and letting costs h (0.7) (1.8)
Marketing costs expensed h (0.6) 0.2
Capitalised interest adjustment h (0.1) (0.6)
Share options expense (0.5) (0.5)
Change in fair value of interest rate swaps e - 3.8
Other 0.1 0.4
Net IFRS adjustments 205.7 142.7
Profit for the period under IFRS 261.7 203.2
f. IFRS requires that valuation changes on investment properties are included
in the income statement.
g. Deferred tax arising on valuation changes and other items is included
in the IFRS income statement.
h. There are a number of other adjustments which affect profit for the
period:
• Under UK GAAP, rent free periods are allocated over the period to the
first rent review. Under IFRS, rent free periods are allocated over
the period to the first break option or, if the probability that the
break option will be exercised is considered low, over the full lease
term.
• Under UK GAAP, other lease incentives such as cash inducements and
contributions to tenant fit out are either written off, capitalised,
or capitalised and amortised, depending on their nature. Under IFRS,
all such costs are capitalised and amortised over the period to the
first break option or, if the probability that the break option will
be exercised is considered low, overthe full lease term.
• Letting costs are capitalised on developments and written off for
investment properties under UK GAAP. Under IFRS, all such costs are
capitalised and amortised over the period to the first break option
or, if the probability that the break option will be exercised is
considered low, over the full lease term.
• Under UK GAAP, marketing costs are capitalised for development
properties and expensed as incurred for investment properties. IFRS
requires that all marketing costs be expensed as incurred.
• Under UK GAAP, where an existing investment property is redeveloped,
interest is capitalised on the total cost of the property, including
its value prior to redevelopment. Under IFRS, interest is only
capitalised on the new expenditure incurred, resulting in an increase
in the net cost of finance and a reduction in interest capitalised.
Glossary of Terms
Adjusted net asset value (per Reported net asset value (per share) adjusted to
share) exclude deferred tax and the
fair value of interest rate swaps.
Adjusted earnings (per share) Reported earnings (per share) adjusted to
exclude deferred tax, the gain on revaluation of
investment properties, profits on disposal of
investment properties and related tax, and the
change in fair value of interest rate swaps.
Average cost of borrowing The cost of finance expressed as a percentage of
the weighted average of borrowings during the
period.
Earnings per share (or 'EPS') Profit for the period divided by the average
number of shares in issue during the period.
ERV The estimated market rental value of
accommodation in a property.
ESOP Employee share ownership plan
Gearing Net debt expressed as a percentage of equity
shareholders' funds.
IAS International Accounting Standards.
IFRS International Financial Reporting Standards.
Interest rate and currency swap An agreement with another party to exchange an
interest or currency rate obligation for a
pre-determined period of time.
Like-for-like / underlying net The percentage change in rental income for
rental income completed properties owned throughout both
current and prior periods, after taking account
of exchange translation movements.
Like-for-like / underlying The change in value during the period for
property valuations properties held at the balance sheet date, after
taking account of capital expenditure and
exchange translation movements.
Loan to value ratio Borrowings and foreign currency swaps expressed
as a percentage of the total value of investment
and development properties.
Net asset value per share Equity shareholders' funds divided by the number
(or 'NAV') of shares in issue at the balance sheet date.
Over-rented The amount by which the estimated rental value
falls short of the rents passing, together with
the estimated rental value of vacant space.
Pre-let A lease signed with a tenant prior to completion
of a development.
REITs Real estate investment trusts.
Rents passing The annual rental income receivable from a
property, after any rent free periods and after
deducting head and equity rents. This may be
more or less than the estimated rental value
(see over-rented and reversionary or
under-rented).
Reversionary or under-rented The amount by which the estimated rental value
exceeds the rents passing, together with the
estimated rental value of vacant space.
SIIC Societes d'Investissements Immobiliers Cotees. A
French tax exempt regime available to property
companies listed in France.
UK GAAP United Kingdom Generally Accepted Accounting
Practice.
Vacancy rate The area in a property, or portfolio, excluding
developments, which is currently available for
letting, expressed as a percentage of the total
area of the property or portfolio.
This information is provided by RNS
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