Final Results - Part 2

Land Securities Group Plc 17 May 2005 PART 2 Consolidated profit and loss account for the year ended 31 March 2005 Notes Before Exceptional Total Before Exceptional Total exceptional items 2005 exceptional items 2004 items £m £m items £m £m £m £m Gross 2 1,641.4 - 1,641.4 1,285.8 - 1,285.8 property income - Group Plus 2 224.3 - 224.3 195.3 - 195.3 share of joint ventures -------------- -------------- -------------- -------------- -------------- -------------- Gross 2 1,865.7 - 1,865.7 1,481.1 - 1,481.1 property income - Total =============== =============== =============== ============== =============== ============== Operating 2 508.8 (14.8) 494.0 464.7 - 464.7 profit / (loss) - Group Share of 2 139.6 - 139.6 101.1 - 101.1 operating profits of joint ventures -------------- -------------- -------------- -------------- -------------- -------------- Operating 648.4 (14.8) 633.6 565.8 - 565.8 profit / (loss) Profit on 2 - 112.9 112.9 - 52.0 52.0 sales of fixed asset properties - Group Profit on 2 - 12.3 12.3 - 11.9 11.9 sales of fixed asset properties - joint ventures -------------- -------------- -------------- -------------- -------------- -------------- Profit / 2 648.4 110.4 758.8 565.8 63.9 629.7 (loss) on ordinary activities before interest and taxation Net 4 (176.4) (667.3) (843.7) (174.4) - (174.4) interest payable by Group Net 4 (70.9) - (70.9) (82.2) - (82.2) interest payable by joint ventures -------------- -------------- -------------- -------------- -------------- -------------- Profit / 401.1 (556.9) (155.8) 309.2 63.9 373.1 (loss) on ordinary activities before taxation Taxation 5 (95.0) 215.0 120.0 (103.1) 18.3 (84.8) -------------- -------------- -------------- -------------- -------------- -------------- Profit / 306.1 (341.9) (35.8) 206.1 82.2 288.3 (loss) on ordinary activities after taxation Dividends 6 (202.5) - (202.5) (173.2) - (173.2) -------------- -------------- -------------- -------------- -------------- -------------- Retained 13 103.6 (341.9) (238.3) 32.9 82.2 115.1 profit / (accumulated loss) for the financial year =============== =============== =============== ============== =============== ============== Notes 2005 2004 pence pence (Loss)/earnings per share Basic (loss)/earnings per share 7 (7.69) 61.84 Diluted basic (loss)/earnings per share 7 (7.66) 61.76 Adjusted earnings per share 7 68.67 47.86 Adjusted diluted earnings per share 7 68.41 47.80 Dividends per share 6 43.25 37.10 All income was derived from within the United Kingdom from continuing operations. No operations were discontinued during the year. Statement of total recognised gains and losses for the year ended 31 March 2005 2005 2004 £m £m (Loss) / profit on ordinary activities after taxation (35.8) 288.3 Unrealised surplus on revaluation of investment properties 842.2 400.7 Unrealised surplus on revaluation of joint venture's investment properties 29.3 6.2 Taxation on revaluation surpluses realised on sales of investment properties (40.3) (27.3) ------ ------ Total gains and losses recognised since the last financial statements 795.4 667.9 ====== ====== Note of historical cost profits and losses 2005 2004 £m £m (Loss) / profit before taxation (155.8) 373.1 Revaluation surplus arising in previous years now realised on sales of 280.7 333.0 investment properties ------ ------ Historical cost profit on ordinary activities before taxation 124.9 706.1 Taxation 120.0 (84.8) Taxation on revaluation surpluses realised on sales of investment properties (40.3) (27.3) ------ ------ Historical cost profit on ordinary activities after taxation 204.6 594.0 Dividends (202.5) (173.2) ------ ------ Historic cost retained profit for the financial year 2.1 420.8 ====== ====== Balance sheet at 31 March 2005 Group Group Notes 2005 2004 £m £m Fixed assets Intangible assets Goodwill 31.9 34.3 Negative goodwill (6.3) - 25.6 34.3 Tangible assets Investment portfolio properties 9 8,737.1 7,880.9 Outsourcing properties 9 546.3 769.2 Total properties 9 9,283.4 8,650.1 Other tangible fixed assets 57.9 51.0 9,341.3 8,701.1 Investment in joint ventures (excluding Telereal) Share of gross assets of joint ventures 10 634.3 257.2 Share of gross liabilities of joint ventures 10 (125.7) (5.1) 508.6 252.1 -------------- -------------- 9,875.5 8,987.5 -------------- -------------- Current assets Stocks 150.9 85.0 Debtors falling due within one year 496.2 339.7 Debtors falling due after one year 33.4 20.4 Investments: short term deposits 2.8 219.0 Cash at bank and in hand 8.3 22.8 -------------- -------------- 691.6 686.9 Creditors falling due within one year (822.1) (1,371.2) -------------- -------------- Net current liabilities (130.5) (684.3) -------------- -------------- Total assets less current liabilities 9,745.0 8,303.2 Creditors falling due after one year Debentures, bonds and loans 11 (2,856.9) (1,995.9) Other creditors (46.8) (35.9) Provision for liabilities and charges 12 (133.6) (185.0) Investment in joint venture (Telereal) Share of gross assets of joint venture 10 1,065.9 1,108.0 Share of gross liabilities of joint venture 10 (1,137.0) (1,155.9) (71.1) (47.9) -------------- -------------- 6,636.6 6,038.5 ============== ============== Capital and reserves Called up share capital 13 46.8 55.0 Own shares acquired 13 (2.1) - Share premium account 13 31.4 15.9 Capital redemption reserve 13 30.5 22.1 Revaluation reserve 13 3,703.6 3,112.8 Profit and loss account 13 2,826.4 2,832.7 -------------- -------------- Shareholders' funds (including non-equity interests) 13 6,636.6 6,038.5 ============== ============== Net assets per share (basic) 8 1419p 1294p Adjusted net assets per share (diluted) 8 1460p 1331p F W Salway A E Macfarlane Directors Consolidated cash flow statement for the year ended 31 March 2005 2005 2004 £m £m Net cash inflow from operating activities 506.4 456.4 Distributions received from joint venture 214.1 51.0 Interest (paid to) / received from joint venture (0.3) 7.6 Returns on investments and servicing of finance Interest received 10.0 16.1 Interest paid (221.5) (221.1) Cost of purchase and redemption of bonds and debenture debt (116.3) - Cost of cancellation of interest rate swaps (42.0) - Cost of debt refinancing (17.6) (21.1) Net cash outflow from investments and servicing of finance (387.4) (226.1) Taxation (Corporation tax received / (paid)) 3.6 (37.1) -------------- -------------- Net cash inflow from operating activities and investments after finance charges 336.4 251.8 Capital expenditure Development programme expenditure (215.3) (190.2) Acquisition of investment properties (387.6) (205.1) Other investment property related expenditure (primarily refurbishment costs) (37.8) (111.0) Capital expenditure associated with property outsourcing (122.5) (234.5) Capital expenditure on properties (763.2) (740.8) Sale of fixed asset investment properties 378.8 698.2 Sale of fixed asset operating properties 355.3 2.0 Net expenditure on properties (29.1) (40.6) Net expenditure on non-property related fixed assets (19.3) (8.2) Net cash outflow from capital expenditure (48.4) (48.8) Acquisitions Acquisition of Slough Estates retail property portfolio (Note 17) (5.4) - (Advances) / repayment of loan capital by joint ventures (105.0) 121.0 Equity dividends paid (175.5) (167.5) -------------- -------------- Cash inflow before use of liquid resources 2.1 156.5 Management of liquid resources (Investments: short term deposits) 216.2 (215.6) Financing Issue of shares 13.6 2.7 Purchase of own share capital (non-equity B shares) (8.4) (22.0) (Decrease) / increase in debt (238.0) 22.0 Net cash (outflow) / inflow from financing (232.8) 2.7 -------------- -------------- Decrease in cash in year (14.5) (56.4) ============== ============== Reconciliation of net cash flow to movements in net debt 2005 2004 £m £m Decrease in cash in year (14.5) (56.4) Cash outflow from increase in liquid resources (216.2) 215.6 Cash outflow / (inflow) from decrease / (increase) in debt 238.0 (22.0) -------------- -------------- Change in net debt resulting from cash flow 7.3 137.2 Non-cash changes in debt (494.6) 16.3 -------------- -------------- Movement in net debt in year (487.3) 153.5 Net debt at 1 April (2,435.8) (2,589.3) -------------- -------------- Net debt at 31 March (2,923.1) (2,435.8) ============== ============== Reconciliation of Group operating profit to net cash inflow from operating 2005 2004 activities £m £m Operating profit - Group 494.0 464.7 Depreciation and amortisation 37.1 31.5 Increase in stocks (33.2) (3.6) Increase in debtors (91.5) (91.9) Increase in creditors and provisions 100.0 55.7 -------------- -------------- Net cash inflow from operating activities 506.4 456.4 ============== ============== Notes to the financial statements for the year ended 31 March 2005 1. Basis of preparation The financial information is abridged and does not constitute the Group's full Financial Statements for the years ended 31 March 2004 and 31 March 2005. Full Financial Statements for the year ended 31 March 2004 (which received an unqualified audit report) have been filed with the Registrar of companies. Financial Statements for the year ended 31 March 2005 will be presented to the Members at the forthcoming Annual General meeting; the auditors have indicated that their report on these Financial Statements will be unqualified. 2. Segmental information An analysis of turnover, profit before interest and taxation, and net assets by business sector is set out below. The business sectors consist of property investment (which comprises the investment portfolio and development activities) and property outsourcing. Business Business Business Analy Analys Business Business Business Analysis Analysis of sectors sectors sectors sis of is of sectors sectors sectors of total total including including inclu total total incl including including results results the the ding re re uding the the between between results results the sults sults the results results Group and Group and of of results be be results of of joint share of share of joint joint of tween tween of joint ventures joint joint ventures ventures joint Group Group joint ventures ventures ventures ventures and and ventures share share of of joint joint ven ven tures tures (i) Property Property Total Group Share Property Property Total Group Share of Profit invest out 2005 2005 of invest out 2004 2004 joint and loss ment sourcing £m £m joint ment sourcing £m £m ventures account 2005 2005 ven 2004 2004 2004 £m £m tures £m £m £m 2005 £m Rental 518.5 - 518.5 492.6 25.9 515.1 - 515.1 514.5 0.6 income (Note (a)) Service 79.2 - 79.2 71.8 7.4 65.6 - 65.6 65.6 - charges and other recoveries Unitary - 730.2 730.2 593.2 137.0 - 572.6 572.6 436.3 136.3 charge Capital - 187.9 187.9 159.6 28.3 - 216.3 216.3 186.8 29.5 projects and other reimbursable costs Third - 10.5 10.5 10.5 - - 13.1 13.1 13.1 - party rents Property - 928.6 928.6 763.3 165.3 - 802.0 802.0 636.2 165.8 services income Long 191.2 - 191.2 191.2 - 49.6 - 49.6 49.6 - term contract income Proceeds 22.3 125.9 148.2 122.5 25.7 19.9 28.9 48.8 19.9 28.9 of sales of trading properties -------- -------- ------- ------ ------ -------- -------- -------- -------- -------- Gross 811.2 1,054.5 1,865.7 1,641.4 224.3 650.2 830.9 1,481.1 1,285.8 195.3 property income Rents (15.1) (215.0) (230.1) (193.4) (36.7) (14.9) (164.7) (179.6) (139.7) (39.9) payable Other (104.2) (446.5) (550.7) (542.0) (8.7) (87.1) (422.7) (509.8) (509.8) - direct property or contract expenditure (Note (b)) Indirect (49.4) (23.8) (73.2) (55.8) (17.4) (44.5) (30.4) (74.9) (56.8) (18.1) property or contract expenditure Long (179.6) - (179.6) (179.6) - (49.6) - (49.6) (49.6) - term contract expenditure Bid - (2.6) (2.6) (2.6) - - (6.2) (6.2) (6.2) - costs Costs of (15.9) (104.4) (120.3) (112.2) (8.1) (18.2) (23.3) (41.5) (18.2) (23.3) sales of trading properties -------- -------- ------- ------ ------ -------- -------- -------- -------- -------- Operating 447.0 262.2 709.2 555.8 153.4 435.9 183.6 619.5 505.5 114.0 profit before depreciat ion and amortis ation Depreciat (3.8) (42.8) (46.6) (32.8) (13.8) (4.1) (36.4) (40.5) (27.6) (12.9) ion Amortisat - (2.4) (2.4) (2.4) - - (2.4) (2.4) (2.4) - ion of goodwill -------- -------- ------- ------ ------ -------- -------- ----------- ----------- ------------ 443.2 217.0 660.2 520.6 139.6 431.8 144.8 576.6 475.5 101.1 Profit 82.4 42.8 125.2 112.9 12.3 52.1 11.8 63.9 52.0 11.9 on sale of fixed asset properties -------- --------- ------- ------ ------ -------- -------- -------- -------- -------- Segment 525.6 259.8 785.4 633.5 151.9 483.9 156.6 640.5 527.5 113.0 profit ======= ======== ======= ====== ====== ====== ======= ======= ====== ======= Common (11.8) (10.8) costs (Note (c)) Exceptional (14.8) - costs of debt restructuring ------- -------- Profit 758.8 629.7 on ordinary activities before interest and taxation ======= ======= Notes (a) Rental income includes £8.9m (2004: £9.3m) of rent receivable allocated to rent free periods. (b) Other direct property or contract expenditure includes pre-commitment costs written off of £3.4m (2004: £2.4m). (c) Common costs are costs associated with central Group management. 2. Segmental information continued (ii) Net Property Property Total Property Property Total assets investment outsourcing 2005 investment outsourcing 2004 £m £m £m £m £m £m Properties 745.0 - 745.0 732.2 - 732.2 in development programme (Note 9) Other 7,992.1 - 7,992.1 7,148.7 - 7,148.7 investment properties (within the investment property portfolio) Investment - 25.2 25.2 - - - properties relating to the Barclays contract (property outsourcing) Operating - 521.1 521.1 - 769.2 769.2 properties Goodwill and 3.3 80.2 83.5 9.1 76.2 85.3 other tangible fixed assets ------------- ------------- ------------- ------------- ------------- ------------- Fixed assets 8,740.4 626.5 9,366.9 7,890.0 845.4 8,735.4 Investment 508.6 (71.1) 437.5 252.1 (47.9) 204.2 in joint ventures Net current 79.5 18.2 97.7 (139.0) 44.2 (94.8) assets / (liabilities) (excluding financing and dividends) -------------- ------------ ----------- ------------- ------------- ------------ 9,328.5 573.6 9,902.1 8,003.1 841.7 8,844.8 -------------- ------------ ------------- ------------- Financing (3,085.1) (2,585.4) and dividends payable Long term (180.4) (220.9) liabilities and provisions --------------- -------------- Net assets 6,636.6 6,038.5 =============== ============== 3. Revenue profit Group Share of joint Total Group Share of joint Total £m ventures 2005 £m ventures 2004 £m £m £m £m (Loss) / (236.8) 81.0 (155.8) 342.3 30.8 373.1 profit on ordinary activities before taxation Profit on (112.9) (12.3) (125.2) (52.0) (11.9) (63.9) sale of fixed asset properties Exceptional 682.1 - 682.1 - - - costs of debt restructuring --------------- --------------- --------------- --------------- ---------------- ---------------- Revenue 332.4 68.7 401.1 290.3 18.9 309.2 profit before taxation =============== ================ =============== =============== ================ ================ 4. Net interest payable Group Share of joint Total Group Share of joint Total £m ventures 2005 £m ventures 2004 £m £m £m £m Interest payable Borrowings not wholly (149.9) (73.6) (223.5) (154.7) (76.9) (231.6) repayable within five years Borrowings wholly (55.5) - (55.5) (70.4) - (70.4) repayable within five years Other interest payable (0.9) - (0.9) (1.0) - (1.0) Loans from joint venture (0.3) - (0.3) - (7.6) (7.6) partners --------- --------- --------- --------- --------- --------- (206.6) (73.6) (280.2) (226.1) (84.5) (310.6) Interest capitalised in 20.2 - 20.2 35.6 - 35.6 relation to properties under development --------- --------- --------- --------- --------- --------- . (186.4) (73.6) (260.0) (190.5) (84.5) (275.0) Interest receivable Short term deposits 7.3 2.5 9.8 5.7 2.3 8.0 Other interest receivable 2.7 - 2.7 2.8 - 2.8 Loan to joint venture - 0.2 0.2 7.6 - 7.6 --------- --------- --------- --------- --------- --------- Net interest payable - (176.4) (70.9) (247.3) (174.4) (82.2) (256.6) ordinary ======= ======= ======= ======= ======= ======= Cost of purchase and (625.3) - (625.3) - - - redemption of bonds and debenture debt Cost of cancellation of (42.0) - (42.0) - - - interest rate swaps --------- --------- --------- --------- --------- --------- Net interest payable - (667.3) - (667.3) - - - exceptional ======= ======= ======= ======= ======= ======= Interest has been capitalised at the Group's pre-tax weighted average borrowing rate for non-specific borrowings for the year of 6.8% (2004: 7.7%). Non-specific borrowings exclude certain bank debt which is specific to the PRIME contract. Group interest payable on borrowings includes £3.2m (2004: £4.8m) in respect of the amortisation of bond discounts and issue expenses. 5. Taxation 2005 2004 £m £m Analysis of tax charge for the year Corporation tax on Group (loss) / profit for the period at 30% (2004: 30%) (60.8) 73.3 Adjustments to current tax in respect of prior periods (26.0) (1.5) Share of joint ventures' current tax 26.5 14.7 --------- --------- Total current tax (60.3) 86.5 --------- --------- Deferred tax on Group timing differences arising in the year (39.4) 31.5 Deferred tax released in respect of property disposals in the year (20.3) (31.6) Share of joint ventures' deferred tax - (1.6) --------- --------- Total deferred tax (59.7) (1.7) --------- --------- Tax (credit) / charge for the year (120.0) 84.8 ======= ======= 2005 2004 £m £m Factors affecting the tax charge for the year The tax assessed for the year is lower than the standard rate of corporation tax in the UK of 30% (2004: 30%) The differences are explained below: (Loss) / profit on ordinary activities before taxation (155.8) 373.1 ========= ========= Tax at 30% (46.7) 111.9 Effect of capital allowances (37.1) (26.8) Effect of depreciation of fixed assets qualifying for capital allowances 5.0 5.9 --------- --------- (78.8) 91.0 Tax relief on capitalised interest and other timing differences 49.4 (8.4) Reduced rate of tax on profit on disposal of assets (12.0) (5.9) Telereal depreciation and goodwill amortisation 4.6 4.7 Non-allowable expenses and non-taxable items 2.5 6.6 Prior year corporation tax adjustments (26.0) (1.5) --------- --------- Current tax (60.3) 86.5 ========= ========= The Group's share of Telereal's tax charge is stated after disallowing depreciation charges but without the availability of capital allowances which were retained by British Telecom plc. Included in the total tax charge is a net credit of £10.5m (2004: credit of £18.3m) attributable to property sales, including the release of deferred taxation. A tax credit of £204.5m (2004: £nil) was attributable to exceptional items (excluding property sales). 6. Dividends Dividends Dividends Profit and Profit and per ordinary per ordinary loss account loss account share share 2005 2004 2005 2004 pence pence £m £m Ordinary shares - interim 10.40 9.90 48.6 46.1 Ordinary shares - final 32.85 27.20 153.7 126.8 B shares 0.1 0.3 Additional prior year dividends - ordinary shares 0.1 - --------- --------- --------- --------- 43.25 37.10 202.5 173.2 ========= ========= ========= ========= B shares carry the right to a dividend of 70% of six month LIBOR paid twice yearly. The annualised dividend rates for the periods to 17 April 2003, 17 October 2003, 17 April 2004 and 15 October 2004 were 2.8%, 2.5%, 2.8% and 3.2% respectively of the nominal value of the shares. Additional prior year dividends relate to increases in share capital arising after the respective prior period ends but before their corresponding dividend record dates. 7. Earnings per share Earnings 2005 2004 £m £m (Loss) / profit after taxation (35.8) 288.3 B share dividends (0.1) (0.3) ------- ------- (Loss) / earnings (35.9) 288.0 Exceptional costs of debt restructuring after current and deferred tax 477.6 - Profits on fixed asset property disposals after current and deferred tax (135.7) (82.2) Deferred tax arising from capital allowances on investment properties 9.3 8.3 Deferred tax arising from capitalised interest on investment properties 5.2 8.8 ------- ------- Adjusted earnings 320.5 222.9 ======= ======= Weighted average number of ordinary shares No. m No. m Weighted average number of ordinary shares 466.9 465.7 Effect of owned shares (0.2) - ------- ------- Weighted average number of ordinary shares after adjusting for owned shares 466.7 465.7 Effect of dilutive share options 1.8 0.6 ------- ------- Weighted average number of ordinary shares adjusted for dilutive instruments 468.5 466.3 ======= ======= Earnings per share pence pence Basic earnings per share (7.69) 61.84 Diluted earnings per share (7.66) 61.76 Adjusted earnings per share 68.67 47.86 Adjusted diluted earnings per share 68.41 47.80 ======= ======= Adjusted earnings per share is based on revenue profits. In calculating the tax charge on revenue profits, the deferred tax arising on capital allowances in respect of investment properties has been eliminated because experience has shown that these allowances are not in practice repayable. Because capitalised interest is a permanent timing difference, the deferred taxation arising on capitalised interest is also eliminated when calculating adjusted earnings per share. 8. Net assets per share Equity shareholders' funds 2005 2004 £m £m Net assets 6,636.6 6,038.5 Non equity B shares - (8.4) ------- ------- Net assets attributable to equity shareholders 6,636.6 6,030.1 Deferred tax arising from capital allowances on investment properties 112.7 101.4 Deferred tax arising from capitalised interest on investment properties 32.3 30.0 Negative investment in Telereal which does not represent a liability of the Group 71.1 47.9 ------- ------- Adjusted net assets 6,852.7 6,209.4 ======= ======= Number of ordinary shares No. m No. m Number of ordinary shares 467.8 465.9 Effect of dilutive share options 1.7 0.6 ------- ------- Number of ordinary shares adjusted for dilutive instruments 469.5 466.5 ======= ======= Earnings per share pence pence Net assets per share 1419 1294 Diluted net assets per share 1414 1293 Adjusted net assets per share 1465 1333 Adjusted diluted net assets per share 1460 1331 ======= ======= The additional deferred tax liability arising from capital allowances on investment properties is excluded from the calculation of the adjusted net assets as the Group's experience is that deferred tax on capital allowances in relation to such properties is unlikely to crystallise in practice. In addition, the deferred tax on capitalised interest on these properties is added back as this is a permanent timing difference. 9. Fixed assets Property Property Property Property Property Investment Investment Outsourcing Outsourcing Outsourcing Investment Investment properties Properties Portfolio Development Total Operating Total management programme £m properties £m £m £m £m Market value at 1 April 7,172.6 734.1 7,906.7 2004 Less amount included in (23.9) (1.9) (25.8) prepayments in respect of UITF28 adjustments Net book value at 1 7,148.7 732.2 7,880.9 769.2 8,650.1 April 2004 Properties transferred from portfolio (151.0) 151.0 - - - management into the development programme during the year (at 1 April 2004 valuation) Developments completed, let and transferred from 485.4 (485.4) - - - the development programme into portfolio management during the year Property acquisitions 584.6 - 584.6 122.5 707.1 Capital expenditure 37.8 205.4 243.2 - 243.2 Capitalised interest - 17.5 17.5 - 17.5 Sales (580.6) (95.7) (676.3) (324.8) (1,001.1) Transfer to stock (30.0) - (30.0) - (30.0) Surrender premiums (20.7) - (20.7) - (20.7) received Net properties contributed to the Metro (102.6) - (102.6) - (102.6) Retail Limited Partnership and the Bristol Alliance Depreciation (1.7) - (1.7) (20.6) (22.3) -------------- -------------- -------------- -------------- --------------- 7,369.9 525.0 7,894.9 546.3 8,441.2 Unrealised surplus on 622.2 220.0 842.2 - 842.2 revaluation -------------- ------------- -------------- -------------- -------------- Net book value at 31 7,992.1 745.0 8,737.1 546.3 9,283.4 March 2005 -------------- -------------- -------------- -------------- -------------- Plus amount included in 33.8 2.6 36.4 prepayments in respect of UITF28 adjustments -------------- -------------- -------------- Market value at 31 March 8,025.9 747.6 8,773.5 2005 (Group) ============== ============== ============== Market value at 31 March 8,640.5 747.6 9,388.1 2005 (Group and share of joint ventures) ============== ============== ============== Fixed asset properties include capitalised interest of £120.9m (2004: £111.0m). Proposed developments are excluded from the development programme as experience has shown that these schemes can be subject to substantial revision. In addition to the development programme, investment properties include properties to the value of £220.1m (2004: £179.3m) in respect of proposed developments. Developments are transferred out of the development programme when physically complete and 95% let. Schemes completed during the year include 30 Gresham Street (London EC2), Empress State (London SW6) and The Gate (Newcastle upon Tyne). The total development profit earned on schemes completed in the year was £26.5m (2004: £82.7m). 10. Investment in joint ventures Summary Telereal Scottish Metro Buchanan Total Telereal Scottish Total financial 2005 Retail Retail Galleries 2005 2004 Retail 2004 information £m Property Limited Limited £m £m Property £m of Limited Partnership Partnership Limited Group's Partnership 2005 2005 Partnership share 2005 £m £m 2004 of £m £m joint ventures Profit and loss account Property 165.3 21.9 8.5 2.9 198.6 165.8 0.6 166.4 services and rental income Proceeds 25.7 - - - 25.7 28.9 - 28.9 of sales of trading properties ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Gross 191.0 21.9 8.5 2.9 224.3 194.7 0.6 195.3 property income Rents (35.9) (0.7) (0.1) - (36.7) (39.9) - (39.9) payable Indirect (15.7) (7.5) (2.3) (0.6) (26.1) (18.0) (0.1) (18.1) property or contract expenditure Costs (8.1) - - - (8.1) (23.3) - (23.3) of sales of trading properties Depre (13.8) - - - (13.8) (12.9) - (12.9) ciation ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Operating 117.5 13.7 6.1 2.3 139.6 100.6 0.5 101.1 profit Profit 12.3 - - - 12.3 11.9 - 11.9 on sale of fixed asset properties ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Profit 129.8 13.7 6.1 2.3 151.9 112.5 0.5 113.0 before interest and taxation Net (66.4) 0.2 (4.7) - (70.9) (82.2) - (82.2) interest (payable)/ receivable ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Profit 63.4 13.9 1.4 2.3 81.0 30.3 0.5 30.8 before taxation Taxation (21.2) (4.2) (0.4) (0.7) (26.5) (13.0) (0.1) (13.1) ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Profit 42.2 9.7 1.0 1.6 54.5 17.3 0.4 17.7 after taxation ========= ========= ========= ========= ========= ========= ========= ========= Balance Sheet Fixed - 302.3 149.8 162.5 614.6 - 243.5 243.5 assets - investment properties Fixed 1,015.4 - - - 1,015.4 1,033.5 - 1,033.5 assets - operating properties Current 50.5 10.8 4.4 4.5 70.2 74.5 13.7 88.2 assets 1,065.9 313.1 154.2 167.0 1,700.2 1,108.0 257.2 1,365.2 Liabi (50.6) (11.7) (4.7) (4.5) (71.5) (56.1) (5.1) (61.2) lities due within one year Liabi (1,086.4) - (104.8) - (1,191.2) (1,099.8) - (1,099.8) lities due after one year (1,137.0) (11.7) (109.5) (4.5) (1,262.7) (1,155.9) (5.1) (1,161.0) ----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Net (71.1) 301.4 44.7 162.5 437.5 (47.9) 252.1 204.2 investment in joint ventures ========= ========= ========= ========= ========= ========= ========= ========= Notional (1,053.5) 7.7 (103.8) 2.2 (1,147.4) (1,073.0) 4.9 (1,068.1) 50% share of non- recourse net (debt) / cash within joint ventures ========= ========= ========= ========= ========= ========= ========= ========= Net investment in Telereal Scottish Retail Metro Retail Buchanan Galleries Total joint ventures £m Property Limited Limited Partnership Limited Partnership £m Partnership £m £m £m At 1 April 2004 (47.9) 252.1 - - 204.2 Properties - - 92.1 - 92.1 contributed Cash contributed - 31.7 87.1 - 118.8 Cost of acquisition - - - 166.5 166.5 Share of post tax 42.2 9.7 1.0 1.6 54.5 profits Distributions (65.4) - (146.3) (2.4) (214.1) Loan advances - - 86.2 - 86.2 Loan repayments - (11.8) (88.2) - (100.0) Unrealised surplus / - 19.7 12.8 (3.2) 29.3 (deficit) on revaluation ------------ ------------ ------------ ------------ ------------ At 31 March 2005 (71.1) 301.4 44.7 162.5 437.5 ============ ============ ============ ============ ============ The Group has four joint ventures, all of which are 50% owned, as follows: • Telereal consists of two partnership agreements with the B-Pears Family Trust and three joint ventures with William Pears Family Holdings, all of which are owned 50:50 and which acquired the majority of the properties of British Telecommunications ('BT') on 13 December 2001. Telereal is responsible for providing accommodation and estate management services to BT in return for a total availability and service charge under a 30-year contract. • The Scottish Retail Property Limited Partnership is a joint venture between Land Securities Properties Limited and City Wall Holdings Limited (a British Land PLC company), which owns and manages shopping centres in Aberdeen and East Kilbride. The partnership was created on the 16 March 2004. • The Metro Retail Limited Partnership is a joint venture between Land Securities Properties Limited and Delancey, which owns and manages a portfolio of shopping centres in London. The partnership was created on the 8 June 2004. • The Buchanan Galleries Limited Partnership is a joint venture between Land Securities Properties Limited and Henderson Buchanan plc, which owns and manages the Buchanan Galleries shopping centre in Glasgow. Land Securities acquired its share in the partnership on the 15 December 2004, as part of the transaction with Slough Estates PLC. All the joint ventures prepare accounts to 31 March, with the exception of Buchanan Galleries Limited Partnership, which prepares accounts to 31 December. 11. Debentures, bonds and loans Nominal Nominal Unamortised Unamortised Book Book value value discount discount value value and and issue issue costs costs 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m Unsecured 10 3/4per cent Exchange Bonds due 2004 - 21.2 - - - 21.2 9 1/2 per cent Bonds due 2007 - 200.0 - - - 200.0 5 7/8 per cent Bonds due 2013 - 400.0 - (5.4) - 394.6 9 per cent Bonds due 2020 - 200.0 - (3.0) - 197.0 6 3/8 per cent Bonds due 2024 - 200.0 - (2.0) - 198.0 Syndicated bank debt 73.0 289.0 - (1.4) 73.0 287.6 Commercial paper - 358.1 - - - 358.1 -------- -------- -------- -------- -------- -------- 73.0 1,668.3 - (11.8) 73.0 1,656.5 -------- -------- -------- -------- -------- -------- Secured 5.016 per cent Notes due 2007 181.7 - (0.1) - 181.6 - 5.292 per cent Notes due 2015 393.3 - (0.9) - 392.4 - 5.425 per cent Notes due 2022 257.3 - (1.0) - 256.3 - 5.391 per cent Notes due 2026 210.7 - (1.1) - 209.6 - 5.391 per cent Notes due 2027 613.9 - (3.2) - 610.7 - 5.376 per cent Notes due 2029 318.0 - (1.9) - 316.1 - 5.396 per cent Notes due 2032 323.4 - (2.1) - 321.3 - 7 3/4 per cent Mortgage 2008 - 5.4 - - - 5.4 6 3/8 per cent First Mortgage Debenture Stock 2008/13 - 32.3 - - - 32.3 10 per cent First Mortgage Debenture Stock 2025 - 400.0 - - - 400.0 10 per cent First Mortgage Debenture Stock 2027 - 200.0 - - - 200.0 10 per cent First Mortgage Debenture Stock 2030 - 200.0 - - - 200.0 Syndicated bank debt 320.0 - (2.0) - 318.0 - PRIME term loan 268.1 193.1 (12.9) (9.7) 255.2 183.4 -------- -------- -------- -------- -------- -------- 2,886.4 1,030.8 (25.2) (9.7) 2,861.2 1,021.1 -------- -------- -------- -------- -------- -------- 2,959.4 2,699.1 (25.2) (21.5) 2,934.2 2,677.6 Falling due within one year (77.3) (691.4) - 9.7 (77.3) (681.7) -------- -------- -------- -------- -------- -------- Falling due after one year 2,882.1 2,007.7 (25.2) (11.8) 2,856.9 1,995.9 ======== ======= ======== ======== ======== ======== In accordance with FRS4 'Capital Instruments' where Notes or Bonds are issued at a discount or incur issue expenses they are stated net of those costs. On 3 November 2004, the Group completed a debt exchange whereby a predominately secured funding strategy was established. The debt exchange resulted in an exceptional charge of £682.1m. The exceptional charge has been calculated as follows: Bond Exceptional Exceptional debt costs interest £m £m £m Pre-exchange nominal value of Bonds 1,800.0 - - Payment to holders unable to accept the new Bonds - - 77.2 Net cost of redeeming the private debentures due in 2008 and 2008/13 - - 1.8 Incentive payments - - 27.5 Net increase in the nominal value of Bonds (being £575.5m less payments 498.3 - 498.3 to ineligible Bond holders) Transaction costs and commitment fees - 14.8 9.8 FRS4 costs on exchanged debt written off - - 10.7 ----------- ------------- ------------ 2,298.3 14.8 625.3 =========== ------------- ------------ Cost of cancellation of interest rate swaps - 42.0 ------------- ----------- Exceptional costs of debt restructuring 14.8 667.3 ============ =========== The Notes and the committed bank facilities are secured on a fixed and floating pool of assets ('the Security Group'). This grants the Group's debt investors security over a pool of investment properties valued at £7.4bn at 31 March 2005. The new secured debt structure has a tiered covenant regime which gives the Group substantial operational flexibility when loan to value and interest cover in the Security Group is less than 65% and more than 1.45 times, respectively. If these limits are exceeded, operational restrictions increase significantly and could act as an incentive to reduce gearing. In May 2004, the former PRIME portfolio was refinanced to include the TIES portfolio (a portfolio acquired in December 2003 from the Department for Work and Pensions). The combined portfolio was financed by a £280m syndicated term loan due to expire in December 2017 ('the PRIME term loan'). This loan is secured by the freehold and long leasehold properties of the combined portfolio. The PRIME term loan has been hedged by interest rate swaps. This was performed by acquiring an interest rate swap, and reprofiling an existing interest rate swap at a cost of £21.1m (this will be amortised over the life of the PRIME term loan). 12. Provision for liabilities and charges Dilapidations Deferred Total £m taxation £m £m At 1 April 2004 11.7 173.3 185.0 Net charge / (credit) for the year 6.0 (39.4) (33.4) Released in respect of property disposals during the year - (20.3) (20.3) Deferred taxation on acquisition of companies - 6.4 6.4 Deferred taxation on disposal of companies - (4.1) (4.1) --------- ---------- ----------- At 31 March 2005 17.7 115.9 133.6 ========= ========== =========== Deferred tax is provided as follows 2005 2004 £m £m Excess of capital allowances over depreciation - investment properties 112.7 101.4 Excess of capital allowances over depreciation - operating properties 22.9 34.8 Capitalised interest - investment properties 32.3 30.0 Capitalised interest - operating and trading properties 0.9 4.4 Tax losses (37.8) - Other timing differences (15.1) 2.7 ------ -------- 115.9 173.3 ====== ======== Estimated tax on contingent Group Share of joint Total Group Share of joint Total capital gains are as follows £m ventures 2005 £m ventures 2004 £m £m £m £m Tax on capital gains that would become payable by the Group, if it were to 626.0 64.0 690.0 490.0 19.0 509.0 dispose of all of its investment properties at the amount stated in the balance sheet Potential reduction in tax on contingent capital gains if (90.4) - (90.4) (75.0) - (75.0) properties were within their owning companies -------- -------- -------- -------- -------- -------- Tax on contingent capital gains 535.6 64.0 599.6 415.0 19.0 434.0 assuming no further mitigation ======== ======= ======== ======== ======== ======== The deferred taxation provision that would be released in the event of sales of investment properties, on the assumption that the proceeds of qualifying assets equate for tax purposes to the tax written down value, would be £112.7m (2004: £101.4m), and a further £32.3m (2004: £30.0m) would be released in respect of capitalised interest. 13. Shareholders' funds Ordinary Own Non equity Share Capital Revaluation Profit and Total shares shares B premium redemption reserve loss £m £m acquired shares account reserve £m account £m £m £m £m £m At 1 April 46.6 - 8.4 15.9 22.1 3,112.8 2,832.7 6,038.5 2004 Repayment of - - (8.4) - 8.4 - (8.4) (8.4) B shares Exercise 0.2 - - 15.5 - - - 15.7 of options Unrealised - - - - - 842.2 - 842.2 surplus on revaluation of investment properties Unrealised - - - - - 29.3 - 29.3 surplus on revaluation of investment properties within joint ventures Realised - - - - - (280.7) 280.7 - on disposals of investment properties Taxation on - - - - - - (40.3) (40.3) revaluation surpluses realised on disposals of investment properties Own - (2.1) - - - - - (2.1) shares acquired Accumulated - - - - - - (238.3) (238.3) loss for the financial year ---------- -------- ----------- ------------ -------------- ------------ ------------- ------------- At 31 46.8 (2.1) - 31.4 30.5 3,703.6 2,826.4 6,636.6 March 2005 ========== ======== =========== ============ ============== ============ ============= ============= 14. Analysis of net debt Cash Cash Cash Non-cash Non-cash movements movements movements movements movements At 1 Transfers Ordinary Cost of debt Amortisation Increase in At 31 March April £m cash flow re structuring of nominal value 2005 2004 £m £m discount of £m £m and issue debt costs £m £m Net 22.8 - (14.5) - - - 8.3 bank balance/ (overdraft) Liquid 219.0 - (216.2) - - - 2.8 resources Debt (681.7) 179.2 425.2 - - - (77.3) due within one year Debt (1,995.9) (179.2) (187.2) 17.6 (13.9) (498.3) (2,856.9) due after one year ---------- --------------- --------------- --------------- ----------- --------------- ------------- (2,435.8) - 7.3 17.6 (13.9) (498.3) (2,923.1) ========= =============== =============== =============== =========== =============== ============= Included within the £13.9m of discount and issue cost amortisation, is £10.7m which is the exceptional charge in respect of the discount and issue costs relating to the debt that was exchanged on 3 November 2004. The costs of debt restructuring include £12.5m arising from the debt exchange that took place on 3 November 2004. 15. Financial assets and liabilities This note should be read in conjunction with the comments set out in the Financial Review. The Group has defined financial assets and liabilities as those assets and liabilities of a financial nature, namely cash, investments, borrowings and interest rate swaps. All the Group's financial assets and liabilities are denominated in sterling and, with the exception of the committed bank facilities unsecured money market loans, are at fixed rates. The Group's financial assets and liabilities and their fair values are: Book Book Fair Fair Excess of fair Excess of fair value value value value value over value over book value book value 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m Financial assets Short 11.1 241.8 11.1 241.8 - - term investments and cash* Financial liabilities Debentures, (2,934.2) (2,677.6) (3,000.7) (3,249.1) (66.5) (571.5) bonds, other loans and overdrafts Non-equity B - (8.4) - (8.4) - - shares Financial instruments Interest - - (3.3) (44.5) (3.3) (44.5) rate swaps ----------------- ------------------ --------------- -------------- ---------------- --------------- (2,923.1) (2,444.2) (2,992.9) (3,060.2) (69.8) (616.0) ================ ================= =============== ============== ================ =============== *At 31 March 2004 short term investments and cash include £154.0m of short term deposits charged as temporary security for borrowings. As a consequence of the Group's debt restructuring, the use of short term deposits as temporary security is not currently required. Financial Financial liabilities liabilities 2005 2004 Weighted average period of fixed interest rates 17.5 years 12.4 years Weighted average fixed interest rate 5.3% 7.3% Fair value has been calculated by taking the market value, for those instruments which have a listing, or where one is not available, the fair value is calculated using a discounted cash flow approach. The difference between book value and fair value will not result in any change to the cash flows of the Group unless, at some stage in the future, fixed rate borrowings are purchased in the market, or repaid, at a price different to the nominal value. As at 31 March 2004 the Group (excluding Trillium) had a number of interest rate swaps with a net notional value of £600m. These swaps had the effect of fixing interest rates and were terminated during the financial year for a cost of £42.0m. Forward starting interest rate swaps (commencing January 2006) with a notional value of £250m and a term of five years were entered into in March 2005. On these swaps the Group pays fixed interest and receives floating interest. As the intention of the new interest rate swaps is to fix the interest rates on existing and new borrowings, their mark to market value has not been recognised in the financial statements, and instead net interest is accrued through the profit and loss account. Trillium currently has two interest rate swaps in place to hedge the interest rate risk on the PRIME term loan. Both swaps are amortising and their nominal amounts decrease in line with the repayment profile of the debt. Their notional values are currently £183.1m and £62.8m. 15. Financial assets and liabilities continued Unrecognised gains and losses on instruments used for hedging, and the movements therein Unrecognised are as follows: losses £m Unrecognised losses on hedges at 1 April 2004 (44.5) Losses arising in previous years that were recognised in the year ended 31 March 2005 42.0 Net losses arising in the year ended 31 March 2005 that were not recognised in the year (0.8) -------- Unrecognised losses on hedges at 31 March 2005 (3.3) ======== Of which: Gains and (losses) expected to be recognised in the year ending 31 March 2006 - Gains and (losses) expected to be recognised in the year ending 31 March 2007 or later (3.3) --------- (3.3) ========= Financial Financial Financial Financial Undrawn Undrawn assets assets liabilities liabilities committed committed borrowing borrowing facilities facilities 2005 2004 2005 2004 2005 2004 £m £m £m £m £m £m The maturity and repayment profiles of the Group's financial assets and liabilities, excluding the non-equity B shares, and the expiry periods of its undrawn committed borrowing facilities are: One year or less, 11.1 241.8 77.3 681.7 - - or on demand More than one year - - 191.1 - - 800.0 but no more than two years More than two - - 362.9 374.0 1,680.0 580.0 years but no more than five years More than five - - 2,302.9 1,621.9 - - years ---------- ------------- ----------- ----------- ------------- --------------- 11.1 241.8 2,934.2 2,677.6 1,680.0 1,380.0 ========== ============= =========== =========== ============= =============== 16. Associated undertakings During the year, the Group has been a member of the following limited partnerships, all of which are registered in England. The accounts of the partnerships, drawn up to 31 March (with the exception of the partnerships forming the Birmingham Alliance and the Bristol Alliance, which are prepared to 31 December), are dealt with in the Group's financial statements as 'joint arrangements'. The 100% results of the partnerships are set out below: Group Gross Gross Gross Gross Profit / Profit / assets assets liabilities liabilities (loss) (loss) before tax before tax Partnership share 2005 2004 2005 2004 2005 2004 % £m £m £m £m £m £m Martineau Limited 33 1/3 24.4 116.8 (3.1) (4.5) (1.3) 5.0 Partnership* Martineau Galleries Limited 331/3 129.4 112.4 (0.4) (1.3) 4.1 3.5 Partnership* Bullring Limited Partnership* 33 1/3 811.3 747.9 (282.1) (316.1) 36.4 18.4 Bristol Alliance 50 173.6 - (154.5) - 5.8 - Ebbsfleet Limited Partnership 50 26.3 39.1 (0.1) (0.1) - - *forming the Birmingham Alliance Advantage has been taken of the exemption conferred by Regulation 7 of The Partnership and Unlimited Companies (Accounts) Regulations 1993 in not delivering the financial statements of the partnerships to the Registrar of Companies. The gross liabilities of these partnerships consist generally of capital and revenue accruals and also, in the case of Bullring Limited Partnership and the Bristol Alliance, £272.1m (2004: £290.3m) and £151.0m respectively of loans from partners; at 31 March 2005 there was no third party debt in these partnerships (2004: £nil). 17. Acquisition of Slough Estates retail property portfolio The Group acquired a retail property portfolio from Slough Estates plc on 15 December 2004 for a consideration of £350.7m, including costs. This has been accounted for by the acquisition method of accounting. The companies acquired were Bredero Buchanan PLC, Lewisham Centre Management Limited, Lewisham Investment Partnership Limited, Howard Centre Properties Limited and The Bishop Centre Limited. Book Fair Fair value at value value acquisition adjustments acquired £m £m £m Fair value of assets acquired Investment properties 184.7 12.3 197.0 Investment in a joint venture 141.2 25.3 166.5 Debtors 5.0 - 5.0 Creditors falling due within one year (4.6) (0.5) (5.1) Deferred taxation - (6.4) (6.4) --------- ---------- ----------- Net assets acquired 326.3 30.7 357.0 ========= ========== =========== Fair value of consideration Investment properties 345.3 Cash 3.2 Costs 2.2 ---------- 350.7 Negative goodwill 6.3 --------- 357.0 ====== 18. Post Balance Sheet Event On 6 May 2005 Retail Property Holdings Trust Limited, a wholly-owned subsidiary of Land Securities Group PLC announced a recommended offer for the whole of the issued share capital of TOPS Estates PLC. At the offer price, the ordinary share capital and convertible loan stock of TOPS Estates PLC is valued at £302m, which will be satisfied in cash or, if TOPS Estates' shareholders so elect, loan notes. This information is provided by RNS The company news service from the London Stock Exchange

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