Preliminary Results 2004

Slough Estates PLC 23 March 2005 23rd March 2005 SLOUGH ESTATES plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31st DECEMBER 2004 Highlights â€¢ Underlying 4.8% rise in pre-tax profits+ â€¢ Diluted NAV per share of 564p, up 11.7%+ â€¢ Dividend up 6.7%: 5 year compound growth of 7.4% p.a. â€¢ Â£386m assets bought during the year and proceeds of Â£558m from sales Year to 31 December Results restated % change 2004 2003 ______________________________ Â£m Â£m Property investment income* 247.3 238.2 + 3.8 Profit before tax and exceptional items 146.8 140.1 + 4.8 Profit before tax after exceptional items 209.1 103.8 + 101.4 Adjusted basic earnings per share+ 29.0p 27.6p + 5.1 Basic earnings per share 37.8p 19.6p + 92.9 Final ordinary dividend 9.85p 9.2p + 7.1 Total ordinary dividend 16.0p 15.0p + 6.7 Basic net assets per share+ 601p 536p +12.1 Adjusted diluted net assets per share increased by 11.7% to 564p in 2004 ++ * Property investment income comprises investment and joint venture property income. + Adjusted to exclude exceptional items and FRS19 deferred tax. ++ Exceptional items are profits/ (losses) on the sale of investment properties and the provision for Quail West in 2003. Commenting on the results, Chairman, Sir Nigel Mobbs, said: 'The Group has delivered a good set of results for the year. It has been a very busy year in which the company has completed purchases and sales of over Â£900 million in value. The effective driver of this activity is our increased focus on flexible business space, at a time when we expect to see a cyclical upturn in this segment of the property market. Key economic indicators are showing encouraging levels of growth and, with an increasing number of enquiries, we expect to see improving demand for our core business space portfolio in 2005 and beyond. A key driver to future earnings growth is that our strong balance sheet will enable the company to develop out our extensive strategic landbank over the next few years.' Throughout this announcement adjusted net assets per share and adjusted earnings per share measures are adjusted to exclude exceptional items and FRS19 deferred tax. For further information contact: Slough Estates plc Shared Value Limited Ian Coull, Chief Executive Andrew Best Dick Kingston, Finance Director Emily Bruning Tel: 01753 537171 Tel: 020 7321 5022 / 5027 A meeting for analysts will be held at 9.30am on 23rd March at The Great Eastern Hotel, Liverpool Street, London EC2 and will be audio streamed on Slough Estates' website: www.sloughestates.com. A conference call for international investors will be held at 16.30 (UK time) on 23rd March. The dial-in numbers are: +44 (0)207 784 1018 or +1 718 354 1171 and participants should quote Slough Estates. A recording of the conference call will be available for 7 days, accessible on +44 (0)207 784 1024 or +1 718 354 1112, passcode 6806646# Preliminary Statement 2004 2004 has been a successful and active year for Slough Estates and we have made substantial property purchases and sales within the portfolio, including the further disposal of non-core assets. As a result of these acquisitions and disposals, Slough Estates is achieving a greater focus on its core business, which is the provision of 'edge of town' flexible business space to companies in the UK, Europe and California. In total, the Group received proceeds of Â£557.7m from investment property disposals and acquired a further Â£385.6m which represents a high turnover when compared to the year end property portfolio valuation of Â£3,887.9m. During 2004, while delivering these changes, adjusted diluted net assets per share have increased from 505p to 564p, a rise of 11.7%, and profit before tax grew by 101.4% to Â£209.1m. Diluted net assets per share increased from 464p to 521p. We are proposing a final dividend of 9.85p per share, up 7.1%, while the total distribution for the year of 16.0p rises by 6.7%. The dividend continues to grow at a rate considerably in excess of inflation and, over five years, has grown at a compound growth of 7.4% per annum. The final ordinary dividend, if approved, will be payable on 20th May 2005 and the record date is 22nd April 2005. Despite the good overall financial performance of the Group, the returns from the core UK property business were slightly disappointing. Overall property investment income was up by 3.8% at Â£247.3m including joint ventures. Property revenue benefited from additional lease surrender premiums of Â£6.1m, but was impacted by the expensing of Â£8.2m of interest on development projects in 2004. However, with increased development activity, particularly the re-start of development at Farnborough where interest is again being capitalised in the normal way, the overall net interest burden will be lower in 2005. Slough Estates' total return for 2004 was 14.9% on a diluted and adjusted basis, and on a five year basis we have produced a compound total return of 7.1% per annum. The total return for 2004 was 15.7% on an unadjusted diluted basis. These returns illustrate the long term attractions of developing and managing 'edge of town' flexible business space for a diverse customer base. It is an excellent business to be in, but one that is changing rapidly, and in today's markets we need to be more tightly focused in terms of property types and geography. We need to deliver a very flexible but generic product across all our markets so that we can adapt quickly to the requirements of the global companies that we serve. Last week we announced a new regional structure for the UK business which will now operate in six independent regions, each with its own management reporting to John Heawood, Head of UK Property. You will find the breakdown of these regions in our operating review with the key facts and recent developments for each region. Our objective is to provide more customer focus and market familiarity to our property management and development, in order to make our business more responsive to client needs so that we can achieve greater occupancy and identify more opportunities. Our businesses in Europe and North America already have devolved management. Major Property purchases and sales There were a number of major purchases and sales within the portfolio over the year. In the UK, the Group has sold the majority of its retail assets in exchange for business space properties. Slough Estates USA is now primarily focused on its health science real estate portfolio and has largely exited from its other North American property interests. Major purchases and sales in 2004: â€¢ Purchase of Land Securities' industrial portfolio for Â£340.4m. Slough Estates secured an excellent industrial portfolio in exchange for the major part of our retail portfolio. This transaction was a one-off opportunity to acquire a high quality south eastern England portfolio that had been built up over a number of years by Land Securities. â€¢ Sale of shopping centres in UK to Land Securities for Â£332.8m. In the UK, the ground breaking Â£673m property swap with Land Securities has enabled Slough to exit from the majority of its shopping centre portfolio. Slough Estates' retail portfolio was too small to be an effective hedge for the overall portfolio so there was a choice; either to grow this portfolio substantially, or to exit. We plan to exit our remaining shopping centre investments in due course. â€¢ Sale of 34,051 sq.m. of light industrial/warehouse space at Neuss, Germany for Â£21.4m. Part of Slough's holding at Neuss was sold to IVG for Â£21.4m in December 2004. â€¢ Sale of Pfizer Center in San Diego for Â£190.7m. The sale of the 71,709 sq.m. Pfizer Campus in San Diego is the first major disposal from the Slough Estates health science portfolio in the US. The development cost for the campus was Â£91.1m and the campus had been valued at Â£143.2m at the half year, which shows that Slough Estates has achieved an excellent price, and supports our positive view for the entire Slough health science portfolio. It is our intention to continue to recycle assets within the Californian portfolio so that Slough USA operates on a stand alone basis. â€¢ Acquisition of 32.5 hectares of land at Parkway Business Centre, Poway, San Diego for Â£24.6m. 14,492 sq.m. of space is currently under construction on a 19.5 hectare plot, which was acquired in the first half of 2004. A further 13.0 hectare plot was acquired in the second half. â€¢ Disposal of Willingdon Park, Vancouver for Â£33.4m. A quality 71,117 sq.m office development, well placed for Vancouver's city center, was sold to our partner Hospitals of Ontario Pension Plan. Willingdon Park had been developed over 15 years and had a rental income of Â£2.6m. The exit from Vancouver completes Slough Estates' withdrawal from the Canadian market. â€¢ Sale of Quail West for net Â£30.0m. Conditional contracts were exchanged for the sale of the leisure complex at Quail West in December 2004. The net book value of this project at the end of 2004 was Â£7.4m after deducting the provision against future costs, which was established in 2003 in reaction to the poor sales that were being achieved at that time. However, in 2004 the market for high-end leisure properties improved and we are very pleased to have agreed a price considerably over the written down value, receivable by instalments over four years. None of the gain has been recognised in 2004. Joint Venture - HelioSlough In April 2004 we announced a new joint venture with Helios Properties. The venture, called HelioSlough Ltd., is a 50/50 joint venture, which has the aim of developing a network of strategic distribution parks throughout the UK. Slough Estates has been very successful in developing distribution parks in France and Belgium but has not had a significant presence in the UK. We believe that, with the continuing changes in supply chain management in the UK, the market for distribution facilities will remain strong for the foreseeable future. The joint venture is a Â£150m project in the initial stages with joint equity, with Helios Properties injecting development land for some five million square feet of logistics space and Slough Estates arranging loan finance. By the year end there was one scheme under construction in Doncaster and infrastructure work had commenced at Thorne, South Yorkshire. Leasing A key objective in 2004 was to reduce the void space in our portfolio, with a particular emphasis on the UK business space sector. We have been successful in leasing 102,821 sq.m. of space in the year in the UK, up from 83,836 sq.m. in 2003, which is a very impressive result given the market conditions and close to our record level. However, a general improvement in occupancy remains elusive and, not withstanding our success in leasing a large amount of space, we also had 143,467 sq.m. of space returned to us in the UK, mainly as a result of corporate relocations and rationalisations, bringing UK occupancy at the year-end to 90.6%. However of the space returned, 35,997 sq.m. is deemed redundant space and the land is available for redevelopment. For occupancy data, vacant units which have the benefit of a rental guarantee, are considered occupied. The mix of occupancy has also changed as a result of the property swap with Land Securities where we exchanged nearly fully let shopping centres for UK industrial property with lower levels of occupancy. In cycles of stronger occupancy demand, the level of space surrendered could be regarded as a significant opportunity for redevelopment and portfolio modernization. Steps are being taken across the portfolio to upgrade customer retention and the marketing of space and improvements to individual estate environments. In Europe and in the US we have continued with our successful leasing programme but occupancy fell to 87.9% and 86.2% in Europe and the US respectively, due to construction completions, disposals of fully let space and space being returned. Of the space returned in Europe and the US, 13,652 sq.m. is deemed redundant. Group occupancy marginally improved to 89.6%. Leasing of space vs. space returned Slough Trading Other UK Europe US Estate sq.m. sq.m. sq.m. sq.m. Lettings 43,082 59,739 49,465 25,347 Pre-lets 1,444 7,644 31,601 72,464 New space completed and unlet 0 1,868 35,331 0 Space Returned 51,645 91,822 31,653 36,595 Major lettings have included: UK â€¢ Letting of 2,827 sq.m. new office building at 240 Bath Road, Slough to Fiat UK Limited at Â£269.10 per sq.m. â€¢ Letting of 1,444 sq.m. at 275 Leigh Road, Slough to Ferrari Maserati UK at Â£123.69 per sq.m. â€¢ Letting of two units of 1,247 sq.m. and 1,595 sq.m. at Southern Cross, Southampton at rents of Â£72.66 per sq.m. and Â£72.74 per sq.m. respectively, making Phase 100 fully let. â€¢ In early 2005, a letting of 11,189 sq.m. of existing business space on the Slough Trading Estate to a major financial institution for an IT backup centre, at a rent of Â£91.49 per sq.m. Europe â€¢ A total of 16,048 sq.m. was let at Pegasus Park. â€¢ 12,861 sq.m. let at Cergy-Pontoise in France. â€¢ Pre-let of 18,327sq.m. or 87% of a 21,000 sq.m. warehouse development, at Neuss, Germany to ASICS for delivery in October 2005. USA â€¢ Genentech agreed to lease 72,464 sq.m. (780,000 sq.ft.) of office and laboratory space in eight new buildings on Slough's Britannia East Grand site in South San Francisco in December 2004. This is one of the largest single projects undertaken by the company. This is a four year project, with the first phase of 41,805 sq.m currently under construction. It is estimated to cost over Â£169m and will be funded from the proceeds of selective asset sales by Slough Estates USA, which is now well established as a market leader in the provision of generic health science real estate in California. Development In 2004, we have continued to hold back on development activity, waiting until we were more certain of better occupier demand. In the second half of the year, with more encouraging levels of enquiries, we have increased the number of starts on site but we are still developing with caution. However, it is important that we continue to ensure that we have sufficient business space to meet the growth in demand in 2005 and beyond, and as at the year end we had 167,964 sq.m. under construction, of which 43% is pre-leased. During 2004, we completed 77,713 sq.m., of which 52% is now let. In what have been quieter markets we have continued to work hard in obtaining the requisite consents and to put in the necessary infrastructure on our strategic landbank so we are now ready to start developments quickly as the market strengthens. We are encouraged by the continued resilience of the flexible business space market and highlight in particular the strong contribution of the Californian portfolio, which has been so successful in supplying generic laboratory space to the health science sector. CURRENT DEVELOPMENTS sq.m. Spend Estimated Anticipated Seven Major Schemes to date development completion date Â£m cost to come Â£m ______________________________________________________________________________ Farnborough 153,000 109 267 2013 Cambridge 40,000 35 55 2014 Pegasus Park, Brussels 170,000 29 147 2010 333 Oyster Point, San Francisco 29,000 8 52 2010 East Grand, San Francisco 73,000 40 129 2007 Poway, San Diego 78,000 27 101 2011 Thorne, nr. Doncaster (50% JV HelioSlough) 79,000 8 36 2007 ______________________________________________________________________________ Excludes buildings already completed Valuation The year end valuation of all the Group's investment properties was undertaken as at 31st December by external valuers, apart from the properties acquired from Land Securities which are included at fair value. The valuation of Â£3,795.6m resulted in a surplus of Â£186.6m. This represented an increase of 5.2% or 5.7% excluding the ex-Land Securities' properties. With a UK revaluation surplus of Â£118.9m, we are encouraged that the prospects for UK business space are improving. Revaluation Movements December 2004 % Change from Â£m Dec 2003 UK Industrial 109.8 6.4 Office 13.0 3.1 Retail 17.3 10.1 Land (21.2) (11.9) __________________________________________________ Total UK 118.9 4.7 __________________________________________________ Overseas USA 60.5 12.4 Europe 7.2 2.4 __________________________________________________ Total Overseas 67.7 8.7 __________________________________________________ Total 186.6 5.2 ______________________________________________________________________________ Joint ventures / Associate 14.5 14.1 Other activities We have made good progress in the sale of our non-core activities. Agreement has been reached to sell Quail West. We have settled the outstanding litigation with regard to Tipperary Oil & Gas, which means that we expect to be able to exit this trade investment successfully at our own timing. We reduced our holding in Tipperary Oil & Gas to 54% in 2004. Slough Heat & Power has continued to improve its operating performance over the past six months. Major post year end event In the US, Slough USA has taken back surplus space from Pfizer in South San Francisco following the successful sale of its Torrey Pines Campus to Pfizer in San Diego for Â£190.7m. This termination resulted in a premium of Â£35.1 million for Slough Estates which will benefit 2005. The San Francisco campus consists of three modern buildings and of the total space of 20,665 sq.m. vacated by Pfizer, 6,287 sq.m. has already been let to Exelixis. Tax Transparent Property Trusts (REITs) We were very pleased that the Government decided last week to move forward with the introduction of UK REITs into the UK in 2006. The discussion paper is indicating a preference for a flexible format which has been strongly favoured by ourselves and virtually all of the UK real estate industry. There are still unresolved issues particularly in relation to the conversion charge and gearing. We will continue to cooperate with the UK industry groups during the consultation process and we are satisfied that our corporate structure means that we could convert if the overall legislative proposals and terms are favourable. Outlook There is increasing evidence from the market that occupier demand is continuing to improve although the pace of change has been slower than had generally been anticipated a year ago. The Group has made excellent progress in further focusing our activities on flexible business space at what is an early stage in the business cycle, and this will benefit shareholders in the medium and longer term. It is for this reason that the Board is confident in recommending an increase of 7.1% in the final dividend. The overall property market is in a robust state and there has been a revival in investment in property as there is a recognition of the attractions of property as a key component in investment portfolios. Though offices in the UK, and in particular in the Thames Valley, still face some shortage in occupier demand and industrial growth continues to be slower than expected, there is today a strong investor demand for well-located and well-let property business space. The investment case is underpinned by low inflation, affordable interest rates and a lack of funding to support speculative development excesses. The yield compression of the last two years looks set to continue in the first half of 2005. This structural change in yield reflects the changing sentiment towards real estate as an asset class, together with the current low inflationary environment. The weight of money seeking real estate is continuing the downward pressure on yields, but we do not believe that such downward pressure can continue into the second half of the year. â€¢ In the UK, Slough Estates' focus will be on flexible business space. Our portfolio has been enhanced by the newly acquired industrial properties and today 86% of our UK industrial portfolio is in the South East of England. We will continue to look to strengthen this position, both by acquisition and the development of our two major sites at Farnborough and Cambridge. â€¢ We plan to grow our established position in Continental Europe, where we see good opportunities for expanding our base in the industrial, logistics and suburban office markets. To this end, we have brought our Continental European operations together under a single management structure, based in Paris. â€¢ In North America, our health science property portfolio is developing extremely well and the prospects for the current pipeline are excellent. Slough Estates has built up a leading position in the provision of space to the health science community which means that we can expect to see a very positive contribution towards Group earnings from both our completed laboratory space and from our strong development pipeline. The US business is self-financing and capital will be recycled selectively to exploit future development opportunities. The Board believes that Slough Estates is today well positioned to take advantage of the opportunities in the marketplace as the Group has excellent properties and substantial land holdings with planning consents for development, located in many of the prime international business centres. This will enable us to start to build into the recovery in occupier demand and, having successfully put in the infrastructure for these new schemes in 2005, it will be possible to accelerate this development pipeline as demand requires. Ian Coull Chief Executive Slough Estates is a leading provider of flexible business space in business parks in Western Europe and North America, with over 1500 customers occupying 2,996,967 square metres of business space, with a total value of Â£3.9 billion. Slough Estates' properties are in suburban locations in close proximity to the main business centres, where there is long term demand for business accommodation to serve these key economic regions. The company's main activities are currently based around London, Brussels, Paris, Dusseldorf, San Francisco and San Diego and the company continues to develop new business parks with the long term objective of building shareholder value and enhancing its reputation for quality buildings offering excellent value to customers. www.sloughestates.com Operating Review Slough Trading Estate â€¢ Value Â£1.2bn â€¢ 673,000 sq.m. (7.2m sq. ft.) business space and 33,737 sq.m. (0.4m sq.ft.) retail space â€¢ 200 hectare (500 acre) site â€¢ 394 customers â€¢ Approximately 20,000 employees based on the Trading Estate â€¢ Website: www.sloughte.com â€¢ Customers include: Allied Carpets, B&Q, Black & Decker, Celltech R&D, Comet Group, Equant, Furniture Village, Ferrari Maserati UK, Fiat Auto (UK), Ipsen, John Menzies, Kingston Communications, L G Electronics UK, Lonza Biologics, Mars, NEC (UK), O2, Polycom (UK), Sun Chemical, Unatrac Limited, Xenova â€¢ 100% owned â€¢ Rent passing Â£69.0m pa â€¢ Average passing rent: Business space: - industrial Â£98.54 per sq.m - office Â£247.70 per sq.m Retail: Â£192.71 per sq.m â€¢ 2,394 sq.m. under construction â€¢ 89% occupancy by area The Slough Trading Estate is the largest business park in Europe and has been Slough Estates' core property asset since the company was founded over 80 years ago. Today the Estate is a modern business park in close proximity to London's Heathrow airport, which is the world's busiest international airport, and it has excellent access to the M4 and M40 motorways. In 2004 the levels of customer enquiries, viewings and proposals on the Slough Trading Estate made in the UK have all increased from the levels recorded in 2003 and lettings completed in 2004 totalled 51,645 sq.m., a 110% increase over 2003. We are confident that this increased activity points to an improving business environment but at present the market for offices in Slough continues to be weak, which is reflected by some downward pressure on rental levels for offices. Our occupancy is 89%, compared with 88% at December 2003. â€¢ Letting of 2,827 sq.m. new office building at 240 Bath Road, to Fiat UK Limited at Â£269.10 per sq.m. â€¢ Letting of 61 Whitby Road (WH Smith), and of 275 Leigh Road (Ferrari). â€¢ In early 2005, a letting of 11,189 sq.m. of existing business space to a major financial institution for an IT backup centre, at a rent of Â£91.49 per sq.m. showing return of demand for large deals and giving encouragement for 2005. Heathrow and West London â€¢ Value Â£489m â€¢ 332,712 sq.m. (3.6m sq.ft.) business space and 4,370 sq.m. (47,038 sq.ft.) retail in: Feltham, Hayes, Hounslow, Isleworth, Poyle, West Drayton, Park Royal, Uxbridge, Greenford, Ruislip, Heston â€¢ 82 hectares (203 acres) in total â€¢ 240 customers â€¢ Website: www.thelhr.com â€¢ Customers include: DFS Furniture Company, Federal Express Europe, Fujitsu, National Express Operations, Scottish & Newcastle, Thorn, TNT, Tristar Cars, VG Systems â€¢ 100% owned â€¢ Rent passing Â£29.1m pa â€¢ Average passing rent: Â£86.29 per sq.m. â€¢ 14,276 sq.m. under construction at West Drayton and Hounslow, 20% preleased â€¢ 92% occupancy by area This region includes Slough Estates' holdings in West London and those immediately adjacent to London's Heathrow airport, (not including the Slough Trading Estate). The properties have been managed as one estate since 2003 and this has brought great operating efficiencies in West London. The excellent communications to the West of London make this a premier location for business in the UK. â€¢ A total of 12,322 sq.m. of space let in 2004. â€¢ Letting of 1,010 sq.m. at Park Royal, NW10 at a rent of Â£99.02 per sq.m. â€¢ Purchase of 0.47 hectares of land and 3,422 sq.m. of space at Hounslow, adjacent to an existing holding. South London and Southern England â€¢ Value Â£336m â€¢ 269,545 sq.m. (2.9m sq.ft.) business space in: Basingstoke, Portsmouth, Camberley, Southampton, Epsom, Leatherhead, Farnborough, Coulsdon, Croydon, Fareham, Frimley, Guildford, SW19, Swanley, Crawley â€¢ 115 hectares (284 acres) in total â€¢ 129 customers â€¢ Customers include: Agustawestland International, Autodesk, Carlsberg UK, Siemens Real Estate, Thales Properties, The Big Yellow Self Storage Company, Oddbins, Pinnacle Entertainment, Volkswagen Group UK â€¢ 100% owned â€¢ Rent passing Â£13.8m pa â€¢ Average passing rent: Â£51.28 per sq.m â€¢ 5,434 sq.m. under construction at Camberley and Portsmouth, 46% presold or prelet â€¢ 82% occupancy by area, excl. rental guarantee. 95% occupancy incl. rental guarantee South London and Southern England is a newly designated region which covers south London, primarily between the M23 and the M3 motorways down to the south coast. It covers the counties of Surrey, Sussex, Kent and Hampshire which are affluent commuting areas. Slough Estates' holdings in this region have been substantially strengthened in 2004 by the acquisition of an industrial portfolio from Land Securities with assets in Coulsdon, Croydon, Fareham, Frimley, Guildford, London SW19 and Swanley â€¢ A total of 6,622 sq.m. let in 2004 â€¢ Letting of two units of 1,247 sq.m. and 1,595 sq.m. at Southern Cross, Southampton at rents of Â£72.66 per sq.m. and Â£72.74 per sq.m. respectively, making Phase 100 fully let. North London and East of England â€¢ Value Â£346m â€¢ 292,920 sq.m. (3.2m sq.ft.) business space in: Elstree, Welwyn Garden City, Chelmsford, Radlett, Luton, Basildon, Hatfield, Thurrock, Barking, Huntingdon, Cambridge â€¢ 124 hectares (309 acres) in total â€¢ 166 customers â€¢ Customers include: Blue Star Engineering, Ford Motor Company, NTL, Starbucks Coffee Company, Sheffield Insulations, Tibbett & Britten, Tesco, WH Smith â€¢ 100% owned â€¢ Rent passing Â£17.6m pa â€¢ Average passing rent: Â£59.90 per sq.m. â€¢ 9,454 sq.m. under construction at Radlett â€¢ 83% occupancy by area, excl. rental guarantee 88% occupancy incl. rental guarantee North London and East of England is a newly designated region which covers an area north of London but to the east of the M1 motorway and reaches out as far as Cambridge and along the M11 motorway. The Cambridge area has been identified by the Government as a major growth area for development and is the main home to the UK's biotech industry. â€¢ A total of 15,278 sq.m. let in 2004. â€¢ Letting of 1,575 sq.m. at Radlett to Phoenix Healthcare Distribution Ltd at a rent of Â£79.65 per sq.m. â€¢ Agreement to lease 2,152 sq.m at Waterhouse Lane in Chelmsford. Thames Valley and West of England â€¢ Value Â£410m â€¢ 289,942 sq.m. (3.1m sq.ft.) business space in: High Wycombe, Yate, Weston Super Mare, Swindon, Bristol, Wokingham, Winnersh, Ascot, Bracknell, Oxford, Haresfield â€¢ 98 hectares (242 acres) in total â€¢ 173 customers â€¢ Customers include: Agere Systems, Agilent Technologies UK, Business Express Network, Fujitsu, Intel Corporation, Knorr-Bremse, Mars, NTL, Rusch Manufacturing, Solaglas, The Post Office â€¢ 100% owned â€¢ Rent passing Â£25.5m pa â€¢ Average passing rent: Â£87.82 per sq.m. â€¢ 88% occupancy by area, excl. rental guarantee 92% occupancy, incl. rental guarantee This newly designated region (which excludes Slough and LHR) covers the area adjacent to the M4 motorway between London and Bristol in the west. The M4 Corridor has been the most successful business area in the south east of England in recent years and Slough has leading Business Parks across the region. â€¢ A total of 14,386 sq.m. let in 2004. â€¢ Letting of 1,712 sq.m. at Beeches Industrial Estate, Yate, at a rent of Â£51.13 per sq.m. â€¢ Letting of 1,577 sq.m. at Faraday Road, Swindon at Â£69.97 per sq.m. â€¢ Acquisition from Royal Mail Group plc of remaining 2.86 hectares of land at Winnersh Triangle, not already owned by Slough. â€¢ Completion of new 3,372 sq.m. warehouse facility at Emerald Park, Bristol, pre-leased to Knorr-Bremse at Â£72.70 per sq.m. This deal, plus an additional letting of 704 sq.m., represented the final lettings in the 22,044 sq.m. built scheme. Midlands â€¢ Value Â£186m â€¢ 168,371 sq.m. (1.8m sq.ft.) business space and 16,733 sq.m. (180,000 sq. ft.) of retail space in: Birmingham, Huddersfield, Chester, Derby, Northampton, Runcorn, Warrington, Oldbury â€¢ 54.0 hectares (133.5 acres) in total â€¢ 154 customers â€¢ Customers include: Aggregate Industries Management, British Midland, DSG, Newey & Eyre, Reid Furniture, Sec. of State for the Environment, Tesco, Wolseley UK â€¢ 100% owned â€¢ Rent passing Â£11.6m pa â€¢ Average passing rent: Â£62.80 per sq.m. â€¢ 89% occupancy by area The Midlands region is centred around Birmingham, the UK's second largest City, and its main industrial centre. The largest asset is the Kings Norton business park to the south of Birmingham. There are also a few properties in the North. â€¢ A total of 9,644 sq.m. let in 2004. â€¢ Letting of 2,157 sq.m. at Kings Norton Business Centre, at a rent of Â£60.74 per sq.m. â€¢ Letting of 1,861 sq. m. at Derby at an average rent of Â£43.07 per sq.m. over 5 years. Joint Ventures - HelioSlough â€¢ Trading book value Â£10m â€¢ 26.5 hectares (65.4 acres) owned in total â€¢ 50/50 JV with Helios Properties Formation of a new joint venture company, HelioSlough, with Helios Properties. The 50/50 JV, which has Â£150 million of funding available, aims to develop a network of large scale strategic distribution parks throughout the UK. â€¢ 11,148 sq.m. under construction at Trax Park, Doncaster. â€¢ Infrastructure work at Thorne, comprising formation of a new entrance roundabout, some off-site road realignment and new services. Belgium â€¢ Investment property value Â£189.1m Trading book value Â£11.5m â€¢ 177,955 sq.m. (1.9m sq.ft.) business/office space and 2,797 sq.m. (30,100 sq.ft.) of retail in: Brussels Pegasus Park (81,679 sq.m.), Woluwe, Relegem, Bornem, Nivelles, Zaventem, Horizon, Diegem, Rumst, Zellik, Sirius, Kortenberg â€¢ 67 hectares (168 acres) in total â€¢ 87 customers â€¢ Customers include: Cisco, Johnson Controls, Regus, DHL, Bornem, UPS, Telenet, Sungard, Emerson, Agilent, Ecolab (Henkel), Synstar â€¢ Rent passing Â£14.4m pa â€¢ Average passing rent: Â£80.71 per sq.m. â€¢ 85% occupancy by area Slough Estates has been operating in Belgium since 1963. Its Pegasus Park development is the largest office park in Brussels and is adjacent to Brussels International Airport. The Company is also a leading provider of distribution space within 'the golden triangle' between Brussels, Ghent and Antwerp. â€¢ A total of 20,348 sq.m. let in 2004. â€¢ Lettings of 5,917 sq.m. at Pegasus Park, bringing vacancy down to under 6% (surrounding market vacancy is close to 20%). â€¢ Start on site of construction of 6,360 sq.m. speculative office building at Pegasus Park (start: June 2004, delivery: July 2005). â€¢ Sale of 3,382 sq.m. at Kortijk and 2,302 sq.m. at Kortenberg. France â€¢ Investment property value Â£108.2m Trading book value Â£28.5m â€¢ 239,996 sq.m. (2.6m sq.ft.) business space and 17,812 sq.m. (190,000 sq.ft.) of retail in: Marly la Ville, Cergy Pontoise, Evry, Bures Orsay, Colombes, Le Blanc Mesnil, Aulnay sous Bois, Nanterre and Paris â€¢ 56 hectares (138 acres) in total â€¢ 20 customers â€¢ Customers include: Geodis, Daher, Deluxe, Staci, Conforama, Stockalliance, Gefco, Mory Team, Guilbert, UPS Patisfrance â€¢ Rent passing Â£10.3m pa â€¢ Average passing rent: Â£43.00 per sq.m. â€¢ 9,858 sq.m. under construction at Le Blanc Mesnil, 33% preleased â€¢ 96% occupancy by area Slough Estates has been operating in France since 1972. The business is centred on Paris. The main developments have been around Paris' orbital motorway, La Francilienne, where a number of distribution facilities have been developed. More recently there has been greater emphasis on business space at such sites as Le Blanc Mesnil. â€¢ A total of 20,160 sq.m. let in 2004. â€¢ Delivery of 1st phase of 7,472 sq.m. of light industrial units at Le Blanc Mesnil, close to Le Bourget (48% leased on delivery). Germany â€¢ Trading book value Â£52.8m â€¢ 60,224 sq.m. (650,000 sq.ft.) business space in: Neuss, Hamburg, Ratingen, Monchengladbach, Frankfurt, Kapellen, Krefeld â€¢ 27 hectares (67 acres) in total â€¢ 57 customers â€¢ Customers include: CC Bank, Qits, SATO, Listan, Phonet, Flashpoint, Spacelabs, ADCO, Bernd John, Junkers, Tholstrup, Robin (Europe) â€¢ 100% owned â€¢ Rent passing Â£2.5m pa â€¢ Average passing rent: Â£40.93 per sq.m. Slough Estates has been operating in Germany since 1974. The business is centred on the Ruhr which is the industrial heartland of western Germany. The business is focused on developing small industrial parks and then selling these developments to German institutions. â€¢ A total of 8,957 sq.m. let in 2004. â€¢ Pre-let of 87% of a 21,000 sq.m. warehouse at Neuss, to ASICS for delivery in October 2005. â€¢ Pre-let of 3,000 sq.m. unit at Krefeld. â€¢ Sale of 34,051 sq.m at Neuss. â€¢ 46,704 sq.m. under construction at Neuss, Kapellen and Krefeld, 46% preleased. California â€¢ Investment property Â£541.4m â€¢ 343,431 sq.m. (3.7m sq.ft.) business space in: San Francisco, San Diego â€¢ 129 hectares (319 acres) in total â€¢ 50 customers â€¢ Customers include: Amgen, Exelixis, Pfizer, Rigel, Robert Half International, FibroGen, Raven, SkyePharma, Aradigm, Millenium Pharmaceuticals, Syrrx, ProBusiness Services â€¢ Rent passing Â£45.0m pa â€¢ Average passing rent: Â£131.17 per sq.m. â€¢ 62,336 sq.m. under construction at South San Francisco and Poway, 67% preleased Slough Estates has been operating in North America since 1951 but today its operations are centred in the Bay Area of San Francisco and San Diego in California. In terms of product the business is focused on providing buildings to the healthscience industry. Occupancy has fallen to 86% at year end from 87% in 2003 but this reflects major sales within the portfolio as 25,347 sq.m. were let in 2004. â€¢ Genentech, Inc. agreed to terms to lease approx. 72,464 sq.m (780,000 sq.ft.) of office and laboratory space in eight new buildings on the Britannia East Grand site, South San Francisco. Construction will take place in two phases over 4 years and is estimated to cost over Â£169 million. â€¢ Acquisition of 32.5 ha of land at Parkway Business Centre, Poway, San Diego. â€¢ Purchase of 3 ha site in San Francisco containing a 15,128 sq.m. redundant building which will be redeveloped. â€¢ Completion and letting of last two buildings (approximately 18,821 sq.m.) of the Pfizer Global Research and Development Center in Torrey Pines Science Center (totalling 71,709 sq.m.). â€¢ Sale of Pfizer Center in San Diego for Â£190.7 million. Financial Highlights Profit and Loss Account Year ended Year ended 31 Dec 2004 31 Dec 2003 ______________________________________________________________________________ Rental income (UK) Â£174.4m Â£167.3m Rental income (Group) Â£252.1m Â£240.8m Net interest payable Â£94.7m Â£88.5m Profit / (loss) on property trading and Â£68.9m (Â£29.0m) disposal of fixed assets Underlying profit before taxation* Â£140.2m Â£132.8m Profit before taxation Â£209.1m Â£103.8m Tax charge Â£41.7m Â£12.4m Adjusted diluted earnings per share 28.2p 27.6p Diluted earnings per share 36.0p 19.6p Ordinary dividend per share 16.0p 15.0p ______________________________________________________________________________ * profit before taxation less profit on property trading and disposal of fixed assets Balance Sheet 31 Dec 2004 31 Dec 2003 ______________________________________________________________________________ Total properties Â£3,795.6 Â£3,563.9 Adjusted net assets Â£2,647.1 Â£2,369.2 Net assets Â£2,446.2 Â£2,176.1 Adjusted diluted net asset value per share 564p 505p Diluted net asset value per share 521p 464p Adjusted debt / equity ratio 50% 64% ______________________________________________________________________________ Total Return (adjusted diluted net asset value per share growth plus dividend) for the year 14.9%. Financing statistics (Group) 31 Dec 2004 31 Dec 2003 ______________________________________________________________________________ Net debt Â£1,325.3m Â£1,507.8m Weighted average debt maturity 9.7 years 10.8 years Weighted average interest rate 6.41% 6.68% % of net debt at fixed / capped interest rates 105% 95% Interest cover (net rents / net interest) 2.2 times 2.0 times Cash and available committed facilities Â£720.6m Â£523.5m Financial Review â€¢Dividend up 6.7 per cent in 2004 and up 7.4% compound over five years. â€¢Property investment income including joint ventures and associate up 3.8 per cent. â€¢Diluted adjusted net assets per share up 11.7 per cent. Results Pre-tax profit, excluding exceptional items, rose by Â£6.7 million or 4.8 per cent in 2004 from Â£140.1 million to Â£146.8 million. Earnings per share, adjusted on a similar basis, and excluding the effects of FRS19 deferred tax, were up by 5.1 per cent to 29.0 pence. Year end exchange rates reduced profit before tax, excluding exceptional items, by Â£2.2 million. Including the substantial effects of investment property sales and the 2003 Â£37.9 million Quail West write-down/provision, profit before tax of Â£209.1 million was 101 per cent ahead of 2003's Â£103.8 million. Property activities Investment properties Rental income excluding recharges rose by Â£11.3 million or 4.7 per cent from Â£240.8 million in 2003 to Â£252.1 million. The main factors behind this increase are as set out below: Â£m 2004 2003 ___ ______ _____ Properties owned throughout 231.4 224.2 Acquisitions 1.9 0.2 Developments 13.9 18.4 Properties sold (2.9) (3.9) Surrender premiums 11.7 5.6 Exchange translation (3.9) (3.7) ______ _____ 252.1 240.8 ______ _____ Rent lost from vacated properties exceeded rent gained from re-lets by Â£6.7 million during 2004. On a like-for-like basis, rental income increased by Â£3.1 million or 1.2 per cent, 1.4 per cent in the UK and 0.7 per cent overseas. After accounting for Â£13.1 million (2003 Â£15.8 million) of tenant recharges, property costs of Â£34.3 million (2003 Â£33.5 million) and our profit share of Â£16.4 million (2003 Â£15.1 million) from property investment joint ventures and an associate, property investment income was up by 3.8 per cent from Â£238.2 million to Â£247.3 million. As far as the future is concerned additional year on year rental income of Â£20.5 million has already been secured on recent project completions or properties currently under development, Â£1.8 million of which will fall into 2005. The UK portfolio of occupied space was 1.4 per cent reversionary at the end of 2004, which equates to Â£2.1 million of potential future rental income as rents are reviewed or properties re-let. The estimated rental value of vacant space at the year end was Â£32. 3 million (excluding the portfolio acquired from Land Securities which has rental guarantees), of which Â£21.8 million was in the UK. Sales of investment properties realised a surplus of Â£62.3 million over book value in 2004, compared to Â£1.6 million in 2003. The main contributors were the Pfizer campus (Â£52.1 million), the retail properties involved in the swap with Land Securities (Â£6.7 million), and Willingdon Park, Vancouver (Â£3.5 million). Property trading Property trading profits of Â£7.1 million were at the same level as those in 2003. Several projects in Belgium contributed, as did the sale of Neuss phase 5 in Germany. Net rental income from trading properties fell from Â£4.0 million in 2003 to Â£3.2 million. The inclusion of Â£0.5 million of losses (2003 profit Â£0.2 million) from property trading joint ventures brought the overall contribution from property trading in 2004 down to Â£6.6 million, against Â£7.3 million in 2003. The 2004 losses arose mainly from the set up costs of the HelioSlough joint venture. There are sufficient projects in the UK, Belgium, France and Germany to suggest a reasonable level of trading profits in 2005. The residential leisure development at Quail West in Florida had a much better year in 2004, with the sale of 11 lots. The net book value of this project at the end of 2004 was Â£7.4 million after deducting the provision against future costs which was established in 2003. The sale of Quail West is expected to complete during the first half of 2005 for a net $57.5 million (Â£30.0 million) to be received over a four year period. Non-property activities The return from the Group's utilities, oil and gas and other activities improved from a loss of Â£2.9 million in 2003 to a surplus of Â£2.8 million. Slough Heat & Power SH&P's losses of Â£4.1 million were only marginally lower than those of 2003 (Â£4.2 million) due to continuing plant availability problems, particularly in the first half of the year, and higher fuel costs. Greater plant reliability towards the end of the year, which has been sustained so far in 2005, points to a significantly improved SH&P performance in 2005. Tipperary Losses on the Group's investment in Tipperary fell from Â£3.5 million in 2003 to Â£3.1 million. The cost of developing the coal seam gas reserves in Queensland will enhance the returns from the eventual sale of the Group's investment, which had a market value of Â£57.7 million against a net book value of Â£11.7 million at the end of 2004. Other income The profit from other activities rose by Â£5.2 million to Â£10.0 million in 2004, thanks largely to a gain of Â£4.2 million on the sale of 1.5 million shares in Tipperary Corporation, which reduced the Group's interest in that company from 61 per cent to 54 per cent. The sale of warrants in Tularik, one of the Group's customers in California, generated a gain of Â£2.2 million. The contributions from Candover and Charterhouse USA fell from Â£4.7 million to Â£3.5 million, although there was a net cash inflow of Â£5.6 million from those investments. With an investment of Â£38.3 million remaining in these funds and uncalled commitments to them of Â£17.3 million, further profits can be expected in the future, although their timing and quantum are difficult to predict. The Group does not intend to invest in new funds of this nature. Financing costs Net interest costs rose by Â£6.2 million during 2004 to Â£94.7 million. Net interest payable (before capitalisation of interest) was unchanged at Â£111.6 million. Capitalised interest fell by Â£6.2 million to Â£16.9 million, partly due to the reduction in earlier years in the development programme, but also to the expensing of an additional Â£1.8 million of interest in 2004 that had previously been capitalised, mainly on projects such as Farnborough and Cambridge. Interest capitalisation ceased on both of those projects in mid-2003 following extended periods of development inactivity at the two sites. Capitalisation restarted at Farnborough during the first half of 2004 with the resumption of development there. Interest was expensed at Cambridge throughout 2004. Gross interest cover improved from 2.0 times in 2003 to 2.2 times in 2004, excluding exceptional items. Taxation The Group's effective current tax rate of 10.5 per cent excluding exceptional items was slightly lower than 2003's 11.1 per cent. This rate benefits from the effect of capital allowances, a deduction for interest that is capitalised in the profit and loss account, and the availability of capital losses to shelter lease surrender premiums. The effective current tax rate is expected to move up to circa 15 per cent in 2005. FRS19 deferred tax has had a considerable effect on earnings, with a charge of Â£5.6 million in 2004 compared to a credit of Â£3.0 million in 2003. This was largely due to 2003 benefiting in deferred tax terms from the Quail West write down/provision. This is the main factor giving rise to a higher overall effective tax rate in 2004 of 19.9 per cent against 11.9 per cent in 2003. The Group has an estimated potential capital gains tax liability of Â£176 million (2003 Â£129 million), assuming that all properties are sold at their current balance sheet carrying values. Security of income The Group has excellent income security. 56 per cent of the current Group annualised contracted rents of Â£245.7 million is secured on leases with at least ten years unexpired, or 46 per cent if all tenants exercise break clauses and vacate at the earliest opportunity. Over the last five years, 67 per cent of customers with the option to break leases have not exercised those options. The weighted average term of unexpired leases is 11.3 years excluding breaks or 9.8 years assuming all breaks are exercised. The Group is not dependent on any one customer for its principal revenues as it has over 1300 tenants in the UK and just under 1550 tenants in total worldwide. No tenant accounts for more than 4 per cent of Group rental income. Nor is the Group reliant on any one business sector. Its worldwide portfolio (by rent) is occupied by customers in manufacturing 18 per cent, logistics 10 per cent, health science research 29 per cent, TMT 22 per cent, service 14 per cent, retail 5 per cent and others 2 per cent. Dividend The Board has proposed a total dividend of 16.0 pence per share for 2004, an increase of 6.7 per cent on 2003. Dividend cover of 1.8 times, adjusted to exclude exceptional items and FRS19 deferred tax, remained at the same level as that of 2003. Cash Flow The net cash inflow from operations of Â£204.9 million was Â£9.4 million lower than in 2003, due largely to the proceeds of Â£20.5 million from a 2004 trading property sale being received in 2005. Without this timing difference, 2004 operating cash flow would have been Â£11.1 million higher than that of 2003. After the payment of all interest, dividends and tax, there was a free cash inflow of Â£17.3 million. Capital expenditure of Â£86.4 million on the investment property portfolio was more than offset by proceeds of Â£228.4 million from investment property sales. Overall, there was a net cash inflow of Â£146.4 million for the year. Balance Sheet and Capital Structure Shareholders' funds excluding FRS19 deferred tax rose by Â£277.9 million during the year to Â£2,647.1 million. There was consequently an 11.7 per cent increase in diluted net assets per share (NAPS) from 505 pence to 564 pence. The main influences behind these movements are shown on the table below: Net Diluted* Assets * NAPS Â£m Pence _______ _____ 2003 net asset value 2,369.2 505 Valuation surpluses/(deficits) - retail 55.6 12 - industrial 109.7 23 - office 14.1 3 - development land 7.2 2 - joint ventures 14.5 3 Retained earnings 96.4 21 Exchange differences (12.1) (3) Others (7.5) (2) _______ _____ 2004 net asset value 2,647.1 564 _______ _____ * Excludes deferred tax The total deferred tax liability rose from Â£182.3 million to Â£192.1 million during 2004. Diluted NAPS including deferred tax increased from 464 pence in 2003 to 521 pence. Year end net borrowings of Â£1,325.3 million fell by Â£182.5 million during the year. Gearing (the ratio of net borrowings to shareholders' funds, excluding FRS19 deferred tax) dropped from 64 per cent in 2003 to 50 per cent at the end of 2004, mainly due to the effect of the revaluation surplus and the high level of property sales. The exchange rate effect reduced net borrowings by Â£31.8 million. The Group has very little off-balance sheet debt. In addition to the Â£1,325.3 million of net borrowings disclosed as such in the balance sheet, Â£40.8 million of joint venture debt is included in the balance sheet as part of the Â£46.4 million 'Investments in joint ventures-share of gross liabilities'. Only Â£1.5 million, relating to the Group's share of debt in a property backed associate, is not carried on balance sheet. Treasury Policies and Financial Risk Management The Group operates a UK based centralised treasury function. Its objectives are to meet the financing requirements of the Group on a cost effective basis, whilst maintaining a prudent financial position. It is not a profit centre and speculative transactions are not permitted. Board policies are laid down covering the parameters of the department's operations including the interest rate mix of borrowings, net assets exposed to exchange rate movements and aggregate exposure limits to individual financial institutions. Derivative instruments are used to hedge real underlying debt, cash or asset positions and to convert one currency to another. The main financial risks facing the Group are liquidity risk, interest rate risk and foreign exchange translation exposure. Regarding liquidity, as property investment is a long term business, the Group's policy is to finance it primarily with equity and medium and long term borrowings. The weighted average maturity of borrowings at the year end was 9.7 years. Â£46.5 million of debt is due for repayment or rollover in 2005/2006. Â£1,202.5 million or 70 per cent of the Group's gross debt of Â£1,722.7 million matures in more than five years. At the year end, the Group had Â£397.4 million of cash balances on deposit and Â£323.2 million of undrawn bank facilities. This availability is more than adequate to cover the Group's development plans over the next two years or so. Spend on the development programme is expected to amount to some Â£200 million in 2005 and about Â£225 million in 2006. This will obviously depend on prevailing market conditions. Committed property expenditure amounted to Â£184.1 million at the end of 2004, 70 per cent of which relates to pre-let opportunities. There are no restrictions on the transfer of funds between the parent and subsidiary companies. All covenants in bank or loan agreements restricting the extent to which the Group may borrow leave substantial headroom for the Group to expand its operations. The Group's approach to interest rate risk is that a minimum of around 70 per cent of the gross debt portfolio must attract a fixed rate of interest or be variable rate debt hedged with a derivative instrument providing a maximum interest rate payable. At the year end, 81 per cent of the debt portfolio was at fixed rate. The weighted average cost of fixed rate debt was 7.08 per cent which falls to 6.41 per cent when variable rate debt is included. A number of the Group's historic fundings are at fixed interest rates which are high compared with current rates, but which reflect market conditions at the time they were completed. FRS 13 requires the disclosure of the 'fair value' of these loans and derivatives. The fair value at 31 December 2004 of the Group's borrowings was some Â£226.5 million higher than book value before tax or Â£158.5 million after tax. The main currency risk is translation exposure, i.e. the exchange rate effect of retranslating overseas currency denominated assets back into sterling at each balance sheet date. The Group's policy is that currency assets should be substantially hedged by maintaining liabilities (normally debt or currency swaps) in a similar currency. Net assets exposed to exchange rate fluctuations amounted to Â£430 million. A 10 per cent movement in the value of sterling against all currencies affects net assets per share by 9 pence or 1.6 per cent, although experience shows that sterling rarely moves in the same direction against the two main overseas currencies involved in the Group's operations. Accounting Policies The Group's two defined benefit pension schemes were actuarially valued as at 31 March and 5 April 2004, resulting in an overall past service deficit of Â£30 million. The company is currently in discussion with the trustees of the pension schemes to determine how the deficits in both schemes will be financed. However, had FRS17 'Retirement Benefits' been adopted in full, net assets at 31 December 2004 would have been reduced by Â£28.3 million (2003 Â£20.2 million) net of deferred tax to reflect the 'Net pension liability' calculated as specified by the standard. International Financial Reporting Standards ('IFRS') We will adopt IFRS, as required, with effect from 1 January 2005. Our first statements under IFRS will be for the six months to 30 June 2005, when we will restate the comparative figures for the corresponding period of 2004. IFRS will have a major impact on the Group's accounts, as they will on many other property companies' accounts. The areas that will be most significantly affected include property valuation movements, deferred tax, classification of leases, preference shares and our defined benefit pension schemes. Surpluses or deficits arising from the revaluation of investment properties will be taken through the profit and loss account rather than the Statement of Total Recognised Gains and Losses as at present. This will add considerably to the volatility of the Group's results. IFRS requires deferred tax to be provided for on asset revaluation movements, which is not required currently under UK GAAP. This will increase the volatility of deferred tax charges and add a significant liability to the Group's balance sheet. Those leases meeting IFRS's definition of finance leases will affect the profit and loss account to the extent that interest income will replace rental income, albeit with slightly different values. Although this is not expected to have much of an effect on income or net asset value, it has the potential to greatly confuse property companies' accounts. The accounting treatment of the Group's Â£136 million convertible preference shares will change significantly under IFRS. Under IFRS the shares are considered to be a form of debt with an embedded derivative in respect of the option for shareholders to convert. The value of the shares will have to be split between a financial liability shown within Creditors and an equity element shown within Shareholders' Funds. The apparent effect of this accounting will be to reduce the Group's net assets and increase finance charges. The Group's defined benefit pension schemes' deficits will also be included on the balance sheet, with movement thereon taken through the statement of recognised income and expenses. There are several other areas that will also be affected, but not to the same extent as those above. During the transition to IFRS, we will provide reconciliations between UK GAAP and IFRS to help with an understanding of the main changes. It is important to note that, although IFRS will significantly affect the presentation of the Group's financial statements, it will not affect cash flow or the Group's strategic direction. Dick Kingston Finance Director Portfolio Highlights VALUATION Value Revaluation Change Portfolio BY SECTOR Â£m Movement Â£m % % ______________________________________________________________________________ UK Business Space Industrial 2,088 107 5.4 53.5 Suburban Offices 451 13 3.0 11.5 R&D 80 2 2.6 2.0 Retail 263 28 11.9 6.7 Land 142 (21) (12.9) 3.6 ______________________________________________________________________________ Total UK 3,024 129 4.4 77.3 ______________________________________________________________________________ Overseas USA 588 64 12.2 15.0 Europe 301 8 2.7 7.7 ______________________________________________________________________________ Total Overseas 889 72 8.8 22.7 ______________________________________________________________________________ VALUATION Value Revaluation Change Portfolio BY LOCATION Â£m Movement Â£m % % ______________________________________________________________________________ UK Slough 1,168 55 4.9 29.8 Thames Valley 369 13 3.7 9.4 Other South 1,186 43 3.8 30.3 Midlands & North 301 18 6.4 7.7 ______________________________________________________________________________ Total UK 3,024 129 4.4 77.3 ______________________________________________________________________________ Continental Europe Belgium 193 3 1.6 4.9 France 108 5 4.9 2.8 ______________________________________________________________________________ Total Europe 301 8 2.7 7.7 ______________________________________________________________________________ Worldwide UK 3,024 129 4.4 77.3 Europe 301 8 2.7 7.7 USA 588 64 12.2 15.0 ______________________________________________________________________________ Total Worldwide 3,913 201 5.4 100.0 ______________________________________________________________________________ Excludes trading properties in Europe Includes share of joint ventures and associate LONG LEASE PROFILE Weighted average lease term, years to expiry to first break ______________________________________________________________________________ UK 9.5 7.8 Business Space Industrial 9.1 6.6 Suburban Offices 9.1 6.6 R&D 15.6 11.6 Retail 12.1 11.5 ______________________________________________________________________________ Overseas USA 19.8 19.8 Europe 6.6 3.9 Group 11.3 9.8 ______________________________________________________________________________ SECURITY OF INCOME % of income remaining at: expiry first break ______________________________________________________________________________ 5 years 91% 76% 10 years 56% 46% CURRENT YIELDS Current yield Reversionary yield % % ______________________________________________________________________________ UK Business Space Industrial 5.90 7.11 Suburban Offices 6.68 8.02 R&D 6.76 6.72 Retail 5.30 5.99 ______________________________________________________________________________ Total UK 5.99 7.19 ______________________________________________________________________________ Overseas USA 9.60 8.11 Europe* 7.59 7.92 ______________________________________________________________________________ Initial yield: current rent passing divided by current capital value Reversionary yield: current estimated rental value divided by current capital value * Excludes trading properties DEVELOPMENT PROGRAMME Location Type Practical Work in Anticipated Potential Completions Progress completion starts 2005 2004 Dec 2004 date* sq.m. sq.m _______________________________________________________________________________________________________________ UK Slough 275 Leigh Road Industrial 1,444 Let to Ferrari Maserati 61 Whitby Road Industrial 3,387 Let to WH Smith 381 Sykes Road Industrial 2,394 Q1 628-630 Ajax Avenue Industrial 6,310 2D-E Buckingham Avenue Retail 1,500 2F-L Buckingham Avenue Industrial 5,500 115-118 Buckingham Avenue Industrial 2,725 11A-D Buckingham Avenue Retail 2,440 91-94 Farnham Road Retail 2,322 505A, 803/813 Weston Road Industrial 3,800 Total Slough 4,831 2,394 24,597 Birmingham K800 Industrial 1,868 K600 Retail 1,115 Bristol Phase 400 Industrial 3,372 Let to Knorr-Bremse Portsmouth Site D Industrial 2,950 Q3 Radlett Phase 200 Industrial 9,454 Q2 Phase 300 Industrial 7,073 West Drayton Stone Close Phase 1 Car Showroom 2,926 Q1 Pre-let to HR Owen Stockley Close Phase 1 Industrial 6,032 Q3 Camberley Stanhope Road Industrial 2,484 Q1 Presold to Dolphin Head Phase 100 Industrial 9,638 Hounslow Pulborough Way Industrial 5,318 Q3 Farnborough 200/250 The Square Offices 6,677 Q134 Offices 4,245 Feltham Phase 1000 Industrial 2,257 Luton Phase 200 Industrial 3,829 Uxbridge Phase 300/400 Industrial 4,627 Weston Super Mare Phase 100 Industrial 1,768 Pre-let to Bradford & Sons HelioSlough Trax Park, Doncaster Industrial 11,148 Q2 _______________________________________________________________________________________________________________ UK TOTAL 10,071 42,706 65,826 _______________________________________________________________________________________________________________ * Applies to 2005, unless stated otherwise DEVELOPMENT PROGRAMME Cont. Location Type Practical Work in Anticipated Potential Completions Progress completion starts 2004 Dec date* 2005 sq.m 2004 sq.m. ________________________________________________________________________________________________________________________ Belgium Kortrijk Office 3,882 Sold to Deloitte & Touche Rumst Industrial 9,696 20,000 Pegasus Park Office 6,360 Q3 Kortenberg Industrial 2,302 Sold to DK Moves Nivelles Industrial 10,000 Zaventem III Industrial 5,000 Zellik Industrial 8,950 Bornem Industrial 33,000 15,880 6,360 76,950 ______ ______ ______ France Avenue Kleber Office 3,221 Nanterre Office 5,803 Le Blanc Mesnil Industrial 7,472 9,858 Q2 8,830 4,694 sq.m. let to Blindage de France, Ditac and 3,216 sq.m. prelet to Finemetal 16,496 9,858 8,830 ______ ______ ______ Germany Frankfurt Industrial 10,863 1,236 sq.m. let to Schulte Ratingen II Industrial 5,582 1,376 sq.m. let to Farbory Centres and MCE Computers Neuss V Industrial 5,802 Q1 and Q3 Neuss IV Asics Industrial 21,120 Q4 18,327 sq.m. prelet to ASICS Krefeld Industrial 7,596 Q4 3,021 sq.m. prelet to Nachi Kapellen, Phase III Logistics 12,186 Q2 Kapellen, Phase II Industrial 8,000 Neuss IV, Phase II Industrial 8,701 Frankfurt II Industrial 12,567 Hamburg III Industrial 5,410 16,445 46,704 34,678 ______ ______ ______ USA Torrey Pines Lot 21-22 & 23 R&D 18,821 Let to Pfizer Poway Industrial 14,492 Q2 17,837 East Grand R&D 41,805 2006 Prelet to Genentech Pointe Grand R&D 6,039 Q2 Britannia Oyster Point II 10,498 Britannia Oyster Point E 9,144 Prelet to Amgen 285 E Grand 6,968 18,821 62,336 44,447 ______ ______ ______ OVERSEAS TOTAL 67,642 125,258 164,905 GROUP TOTAL 77,713 167,964 230,731 Let or sold 52.1% 42.7% 4.7% ________________________________________________________________________________________________________________________ * Applies to 2005, unless stated otherwise SLOUGH ESTATES plc 2004 PRELIMINARY RESULTS Group profit and loss account 2004 2003 For the year ended 31 December 2004 Note Â£m Â£m Â£m Â£m _____ _____ ______ _____ _____ Turnover Group - continuing 323.7 312.4 - discontinued 13.3 13.5 _____ _____ Total group 3 337.0 325.9 _____ _____ Joint ventures - continuing 10.8 8.6 - discontinued 8.9 8.2 _____ _____ Total joint ventures 3 19.7 16.8 _____ _____ Group operating income Property investment - continuing 3 220.6 212.1 - discontinued 3 10.3 11.0 _____ _____ 230.9 223.1 Property trading - operating 3 7.1 7.1 Property trading - exceptional provision 3 - (37.9) _____ _____ 7.1 (30.8) Utilities 3 (4.1) (4.2) Oil and gas 3 (3.1) (3.5) Other income 10.0 4.8 Administration expenses 4 (15.2) (14.0) _____ _____ Group operating profit 225.6 175.4 ====== ====== Continuing 3 215.3 164.4 Discontinued 3 10.3 11.0 ====== ====== Share of operating profit/(loss) of property joint ventures and associate Property investment 16.4 15.1 Property trading (0.5) 0.2 _____ _____ 15.9 15.3 _____ _____ Total operating profit 241.5 190.7 Profit on sale of investment properties - continuing 55.5 1.6 - discontinued 6.8 - _____ _____ 62.3 1.6 _____ _____ Profit before interest and taxation 303.8 192.3 Interest (net) 5 (94.7) (88.5) _____ _____ Profit on ordinary activities before taxation 209.1 103.8 Taxation - current 6 (35.1) (14.7) - deferred 6 (6.6) 2.3 _____ _____ (41.7) (12.4) _____ _____ Profit on ordinary activities after taxation 167.4 91.4 Minority interests - equity 1.6 1.8 Preference dividends 7 (11.2) (11.4) _____ _____ Profit attributable to ordinary shareholders 157.8 81.8 Ordinary dividends 7 (67.0) (62.5) _____ _____ Retained profit 90.8 19.3 _____ _____ Basic earnings per ordinary share 8 37.8p 19.6p Adjustment to exclude profits and losses on sale of investment properties net of tax and minority and the exceptional provision for Quail West (10.1p) 5.2p Adjustment to exclude FRS19 Deferred Tax 1.3p 2.8p _____ _____ Adjusted basic earnings per ordinary share 8 29.0p 27.6p _____ _____ Diluted earnings per ordinary share 8 36.0p 19.6p _____ _____ Unless otherwise indicated all operations are continuing. The discontinued activity relates to retail shopping centres. STATEMENT OF GROUP TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2004 2004 2003 Â£m Â£m _____ _____ Profit attributable to ordinary shareholders 157.8 81.8 Surplus/(deficit) on revaluation of - properties 186.6 (97.7) - joint ventures and associate 14.5 10.8 Exchange differences (10.2) (3.5) Taxation (14.0) 4.0 Minority interests (0.6) (1.9) _____ _____ Total recognised gains and losses for the year 334.1 (6.5) _____ _____ RECONCILIATION OF MOVEMENT IN GROUP SHAREHOLDERS' FUNDS For the year ended 31 December 2004 2003 2004 restated Â£m Â£m ______ ______ Profit attributable to ordinary shareholders 157.8 81.8 Ordinary dividends (67.0) (62.5) ______ ______ 90.8 19.3 Revaluation surplus/(deficit) 201.1 (86.9) Other recognised gains and losses (24.8) (1.4) Ordinary shares issued 3.0 5.2 Purchase of shares into ESOP trust (note 2) (0.8) (2.0) Issue of shares from ESOP trust (note 2) 0.8 1.1 ______ ______ Net increase/(decrease) in shareholders' funds 270.1 (64.7) Shareholders' funds at 1 January 2,176.1 2,240.8 ______ ______ Shareholders' funds at 31 December 2,446.2 2,176.1 ===== ===== The opening shareholders' fund as at 1st January 2004 and 1st January 2003 as previously reported amounted to Â£2,181.3 million and Â£2,245.1 million before the prior year adjustments of Â£5.2 million and Â£4.3 million respectively (see note 2). GROUP BALANCE SHEET 2003 As at 31 December 2004 Note 2004 restated Â£m Â£m ____ _______ ________ Fixed assets Intangible asset- goodwill 9 (4.7) - Tangible assets - investment properties 10 3,795.6 3,563.9 - other 11 118.0 41.8 Investments in joint ventures: ======== ========= - share of gross assets 134.8 255.9 - share of gross liabilities (46.4) (50.5) ======== ========= 12 88.4 205.4 Investment in associate 12 3.9 3.9 _______ ________ 4,001.2 3,815.0 _______ ________ Current assets Stocks 13 127.2 123.2 Debtors 13 61.2 35.9 Trading investments 13 38.4 107.3 Cash and deposits 17 397.4 159.3 _______ ________ 624.2 425.7 _______ ________ Prepayments and accrued income 23.1 19.3 _______ ________ Total assets 4,648.5 4,260.0 _______ ________ Capital and reserves Called up share capital 138.8 138.9 Share premium account 14 339.1 336.0 Capital reserves 14 1,664.6 1,439.2 Own shares held 14 (5.2) (5.2) Profit and loss account 14 308.9 267.2 _______ ________ Shareholders' funds 2,446.2 2,176.1 Minority interests - equity 21.0 22.1 - non-equity 0.3 0.3 Provisions for liabilities and charges 16 211.6 205.6 Creditors falling due within one year ======= ======== Borrowings 17 39.2 40.5 Other 18 231.5 179.3 ======= ======== 270.7 219.8 Creditors falling due after more than one year ======= ======== Borrowings 17 1,683.5 1,626.6 Other 18 15.2 9.5 ======= ======== 1,698.7 1,636.1 _______ ________ 4,648.5 4,260.0 _______ ________ Shareholders' funds attributable to: Equity shareholders - ordinary shares 2,310.2 2,038.3 Non-equity shareholders - preference shares 136.0 137.8 _______ ________ 2,446.2 2,176.1 _______ ________ Net assets per ordinary share - basic 8 553p 490p - basic excluding FRS19 deferred tax 8 601p 536p - diluted 8 521p 464p - diluted excluding FRS19 deferred tax 8 564p 505p Approved by the Board on 22 March 2005 SUMMARISED GROUP CASH FLOW STATEMENT For the year ended 31 December 2004 2004 2003 Â£m restated Â£m _____ _____ Net cash inflow from operating activities - see (a) below 204.9 214.3 Dividends from joint ventures and associate 8.3 8.8 Net interest paid (105.6) (110.4) Dividends paid to preference and minority shareholders (12.1) (12.3) Taxation (14.1) (14.1) Equity dividends paid (64.1) (59.6) Purchase and development of investment properties (86.4) (109.5) Sales of investment properties 228.4 59.3 Other net investments (12.9) (31.8) _____ _____ Net cash inflow/(outflow) before use of liquid resources 146.4 (55.3) and financing Management of liquid resources Investment in term deposits (230.6) (46.1) Financing Issue of ordinary shares 3.0 5.2 Payment to acquire own shares (0.8) (2.0) Increase in debt 87.3 118.3 _____ _____ Increase in cash - see (b) below 5.3 20.1 ===== ===== (a) Reconciliation of Group operating profit to net cash inflow from operating activities 2004 2003 Â£m restated Â£m _____ _____ Operating profit 225.6 175.4 Less other income reallocated (5.1) (2.4) Add back depreciation 4.5 3.2 Add back exceptional provision against Quail West - 37.9 Adjust for other non-cash items 0.1 1.6 _____ _____ 225.1 215.7 Movement in stocks, debtors and creditors (18.3) (1.4) Decrease in provision for liabilities and charges (1.9) - _____ _____ Net cash inflow from operating activities 204.9 214.3 ===== ===== (b) Reconciliation of net cash flow to movement in net debt 2004 2003 Â£m Â£m _____ _____ Increase in cash in the year 5.3 20.1 Increase in debt (87.3) (118.3) Increase in liquid resources 230.6 46.1 _____ _____ Change in net debt resulting from cash flows 148.6 (52.1) Unamortised borrowing costs 2.1 2.2 Net debt acquired - (0.8) Translation difference 31.8 32.5 _____ _____ Movement in net debt in the year 182.5 (18.2) Net debt at 1 January 2004 (1,507.8) (1,489.6) _____ _____ Net debt at 31 December 2004 (1,325.3) (1,507.8) ===== ===== NOTES TO THE FINANCIAL STATEMENTS 1. Basis of preparation The financial information is prepared on the basis of the accounting policies set out in the Group's statutory accounts for the year ended 31 December 2004, all of which have been applied consistently throughout this and the preceding year, except for the restatement as explained in note 2 below. These accounts are abridged preliminary Group accounts for the year ended 31 December 2004, together with prior year comparatives. These are not statutory accounts and have been extracted from the full statutory accounts for 2004, which will be delivered to the Registrar of Companies in due course and on which the auditors' report is unqualified. The results for 2003 are an abridged statement of the Group accounts for that year, which have been delivered to the Registrar of Companies and on which the auditors' report was unqualified. 2. Restatement In accordance with UITF 38, which became effective for accounting periods ending on or after 22 June 2004, consideration paid by the Employee Share Ownership Plans (ESOPs) trust for the company's own shares is deducted from shareholders' equity. The shares held by the ESOPs trust are treated as if they were cancelled for the purposes of calculating earnings and net assets per ordinary share. Previously all shares held by the ESOPs trust were held in prepayments at cost less amounts written off. Where appropriate, previously reported figures have been restated to show the financial effect of this change in accounting policy. There is no effect on the profits for the current and prior periods. The effect on shareholders' funds is shown in note 14 of these preliminary results. 3. Turnover and Group operating Turnover Group operating profit profit _______________ ______________________ 2004 2003 2004 2003 Â£m Â£m Â£m Â£m _____ _____ _____ _____ Business segments: Property investment - continuing 251.9 243.1 220.6 212.1 - discontinued 13.3 13.5 10.3 11.0 Property trading - operating 36.7 40.6 7.1 7.1 - exceptional provision - - - (37.9) Utilities 30.7 25.2 (4.1) (4.2) Oil and gas 4.4 3.5 (3.1) (3.5) Other activities - - 10.0 4.8 Common costs - - (15.2) (14.0) _____ _____ _____ _____ 337.0 325.9 225.6 175.4 ===== ===== ===== ===== Geographical segments: United Kingdom - continuing 198.7 183.7 135.0 130.1 - discontinued 13.3 13.5 10.3 11.0 Australia - oil and gas 4.4 3.5 (3.1) (3.5) Canada 2.4 2.6 1.7 2.2 USA 65.1 60.9 55.1 4.6 Europe 53.1 61.7 26.6 31.0 _____ _____ _____ _____ 337.0 325.9 225.6 175.4 ===== ===== ===== ===== The 2003 exceptional provision above was in respect of the residential leisure development at Quail West in Florida. Property investment discontinued is in respect of the disposal of retail properties during the period. 3. Turnover and Group operating profit (continued) Joint ventures (Group share) Turnover ___________________________ 2004 2003 Â£m Â£m _____ _____ Geographical segments: United Kingdom 13.8 12.1 USA 3.9 4.4 Europe 2.0 0.3 _____ _____ 19.7 16.8 ==== ==== Property investment turnover comprises: Tenant recharges Rents and other Total ________________ ________________ ______________ 2004 2003 2004 2003 2004 2003 Â£m Â£m Â£m Â£m Â£m Â£m _____ _____ _____ _____ _____ _____ Rents and recharges - United Kingdom 174.4 167.3 4.4 4.7 178.8 172.0 - Canada 1.7 2.1 0.7 0.5 2.4 2.6 - USA 54.1 49.6 7.5 10.1 61.6 59.7 - Europe 21.9 21.8 0.5 0.5 22.4 22.3 _____ _____ _____ _____ _____ _____ 252.1 240.8 13.1 15.8 265.2 256.6 ===== ===== ===== ===== ===== ===== Property investment Property trading Utilities Oil and gas Total _________________ ________________ _____________ _______________ _______________ Net operating 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 income comprises: Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m _____ _____ _____ _____ _____ _____ _____ ______ _____ _____ Turnover 265.2 256.6 36.7 40.6 30.7 25.2 4.4 3.5 337.0 325.9 _____ _____ _____ _____ _____ _____ _____ ______ _____ _____ Ground rents payable (0.8) (1.7) - - - - - - (0.8) (1.7) Depreciation (0.5) (0.3) - - (2.1) (1.2) (1.1) (0.9) (3.7) (2.4) Exceptional provision - - - (37.9) - - - - - (37.9) Other property outgoings/cost of sales (33.0) (31.5) (29.6) (33.5) (32.7) (28.2) (6.4) (6.1) (101.7) (99.3) _____ _____ _____ _____ _____ _____ _____ ______ _____ _____ Total property outgoings/cost of sales (34.3) (33.5) (29.6) (71.4) (34.8) (29.4) (7.5) (7.0) (106.2) (141.3) _____ _____ _____ _____ _____ _____ _____ ______ _____ _____ Net operating income 230.9 223.1 7.1 (30.8) (4.1) (4.2) (3.1) (3.5) 230.8 184.6 ===== ===== ===== ===== ===== ===== ===== ====== ===== ===== 4. Administration expenses 2004 2003 Â£m Â£m _____ _____ Directors' remuneration 2.5 2.2 Depreciation of tangible fixed 0.8 0.8 assets Auditors' remuneration 0.7 0.7 Other administration costs 11.2 10.3 _____ _____ 15.2 14.0 ===== ===== 4. Administration expenses (continued) Property Utilities Oil Total Total management Â£m and gas 2004 2003 Â£m Â£m Â£m Â£m _____ _____ ______ ______ ______ Employees' staff costs were: Wages and salaries 15.5 5.8 1.4 22.7 22.1 Social security costs 1.6 0.5 0.1 2.2 2.1 Pension contributions 2.9 1.2 - 4.1 3.9 _____ _____ ______ ______ ______ 20.0 7.5 1.5 29.0 28.1 _____ _____ ______ ______ ______ 5. Interest (net) 2004 2003 Â£m Â£m ______ ______ On bank loans and overdrafts 20.6 20.4 On other loans 94.6 93.0 Unwinding of discount on provision 0.5 - ______ ______ 115.79 113.4 Less interest received (6.7) (4.1) Less amount charged to : the development of trading properties (0.8) (1.5) : the development of investment properties (14.9) (20.1) : the development of other assets (1.2) (1.5) ______ ______ Charged to profit and loss account: - Group 92.1 86.2 - Joint ventures 2.5 2.2 - Associate 0.1 0.1 _____ ______ 94.7 88.5 _____ ______ 6. Taxation 2004 2003 Â£m Â£m ______ ______ Current tax Provision for taxation based on profits for the year United Kingdom Corporation tax charged at 30 per cent (2003 30 per cent) 14.1 14.2 Over provision in earlier years (2.8) (2.5) Tax in joint venture 1.0 0.6 ______ ______ 12.3 12.3 Overseas Current tax charge 2.4 3.2 Over provision in earlier years 0.6 (0.8) Tax charge/(credit) on sale of investment properties 19.7 (0.1) Tax in joint venture 0.1 0.1 ______ ______ Total current tax 35.1 14.7 ______ ______ 6. Taxation (continued) 2004 2003 Â£m Â£m ______ ______ Deferred tax Origination and reversal of timing differences 32.1 17.3 Effect of changes in tax rates on opening timing differences - (2.2) Released in respect of property disposals (26.5) (3.5) Credit in respect of the exceptional provision for Quail West - (14.6) Other deferred tax 1.0 0.7 ______ ______ Total deferred tax charge/(credit) 6.6 (2.3) ______ ______ Total tax 41.7 12.4 ______ ______ 2004 2003 Â£m Â£m ______ ______ 7. Dividends Preference dividends Dividend paid to 1 September 7.5 7.6 Dividend accrued for period from 2 September to 31 December 3.7 3.8 _____ ______ 11.2 11.4 _____ ______ Ordinary dividends Interim dividend at 6.15p per share (2003 5.8p) 25.8 24.1 Proposed final dividend at 9.85p per share (2003 9.2p) 41.2 38.4 _____ ______ 67.0 62.5 _____ ______ 8. Earnings, capital surplus/(deficit) and net assets per ordinary share 2003 Earnings per share 2004 restated The weighted average number of shares used for the calculation of the earnings per share is as follows: Weighted average number of shares in issue Shares m 418.6 416.6 Less the weighted average number of shares held by the ESOP Shares m (1.4) (1.4) ______ ______ Weighted average number of shares used for the basic EPS calculation a Shares m 417.2 415.2 Dilution adjustments: Preference shares (2003 anti-dilutive) Shares m 50.4 - Share options and save as you earn schemes Shares m 1.3 0.7 ______ ______ Diluted weighted average number of shares b Shares m 468.9 415.9 ______ ______ Earnings used for the calculation of earning per share: Attributable profit c Â£m 157.8 81.8 Dividends on preference shares (2003 anti-dilutive) Â£m 11.2 - ______ ______ d Â£m 169.0 81.8 Exceptional provision on Quail West net of tax Â£m - 23.3 Deferred tax relating to investment properties Â£m 5.6 11.6 Profit and losses on sale of investment properties net of tax and minorities Â£m (42.6) (1.7) ______ ______ Diluted adjusted earnings e Â£m 132.0 115.0 ______ ______ Basic adjusted earnings f Â£m 120.8 115.0 ______ ______ Earnings per share: Basic c/a pence 37.8 19.6 Basic - adjusted f/a pence 29.0 27.6 Diluted d/b pence 36.0 19.6 Diluted - adjusted e/b pence 28.2 27.6 Capital surplus/(deficit) per ordinary share Capital surplus/(deficit) attributable to ordinary shareholders g Â£m 176.3 (88.3) Capital surplus/(deficit) per ordinary share - basic g/a pence 42.3 (21.3) - diluted g/b pence 37.6 (21.2) Net assets per ordinary share The number of shares used for the calculation of the net assets per ordinary share is as follows: Number of shares in issue Shares m 419.3 417.8 Less shares held by the ESOP (note 2) Shares m (1.4) (1.4) ______ ______ Basic number of shares h Shares m 417.9 416.4 Dilution adjustments: Preference shares Shares m 50.4 51.1 Share options and save as you earn schemes Shares m 1.3 1.4 ______ ______ Diluted number of shares I Shares m 469.6 468.9 ______ ______ Total equity attributable to ordinary shareholders Â£m 2,315.4 2,043.5 Less shares held by ESOP (note 2) Â£m (5.2) (5.2) ______ ______ Restated equity j Â£m 2,310.2 2,038.3 Adjustment to exclude FRS 19 deferred tax Â£m 200.9 193.1 ______ ______ Adjusted equity attributable to ordinary shareholders k Â£m 2,511.1 2,231.4 Dilution adjustment for the preference shares Â£m 136.0 137.8 ______ ______ Adjusted diluted equity attributable to ordinary shareholders m Â£m 2,647.1 2,369.2 ______ ______ Diluted equity attributable to ordinary shareholders n Â£m 2,446.2 2,176.1 ______ ______ Net assets per ordinary share Basic j/h pence 553 490 Basic - adjusted for FRS 19 deferred tax k/h pence 601 536 Diluted n/I pence 521 464 Diluted excluding FRS 19 deferred tax m/I pence 564 505 8. Earnings, capital surplus/(deficit) and net assets per ordinary share (continued) In 2004, the effect of the preference shares is dilutive and therefore they are included in the diluted earnings per share calculation. In 2003, the effect of the preference shares was anti-dilutive and therefore they were excluded from the diluted earnings per share calculation. The preference shares are dilutive in 2004 and 2003 for the purpose of the diluted net assets per share calculations and have been treated as such. The Group has also presented an adjusted basic earnings per share figure to exclude the impact of exceptional items, profits and losses on the sale of investment properties (net of taxation and minority interests) and deferred tax in respect of investment properties. The directors consider that this adjusted figure gives a more meaningful comparison for the periods shown in the consolidated financial statements. Deferred tax has been excluded from the adjusted calculation as the Group has no plans to sell a significant proportion of its investment properties, and in any case it is generally very unusual for UK capital allowances to be recaptured on the disposal of a property. Profits and losses on the sale of investment properties are excluded from adjusted earnings as these are non-recurring items. Net assets per share are calculated on the equity shareholders' funds of Â£2,310.2 million ( 2003 Â£2,038.3 million restated). Adjusted net assets per share have been calculated on the same number of shares but shareholders' funds exclude the deferred tax liability of Â£200.9 million (2003 Â£193.1 million) as it is the opinion of the directors that deferred tax on capital allowances in relation to investment properties is unlikely to crystallise materially in practice. 9. Goodwill The goodwill arises from the acquisition on 15th December 2004 of Ravenseft Industrial Estates Limited, formerly a subsidiary of Land Securities Group PLC. The negative goodwill amounting to Â£4.7 million is required to be shown as a negative balance on the balance sheet within fixed assets. The amount is not amortised and will only be released to profit and loss account on the eventual sale of the properties acquired. 10. Tangible assets - investment UK Canada USA Europe Total properties Â£m Â£m Â£m Â£m Â£m ______ ______ _____ _____ ______ At 1 January 2004 2,627.8 28.6 622.8 284.7 3,563.9 Exchange movement - 0.1 (42.1) 2.0 (40.0) Additions 60.0 1.2 47.9 3.3 112.4 Acquisition of Ravenseft 334.9 - - - 334.9 Disposals (184.5) (29.9) (140.2) - (354.6) Transfer to trading property (7.6) - - - (7.6) Surplus on valuation 118.9 - 60.5 7.2 186.6 ______ ______ _____ _____ ______ At 31 December 2004 2,949.5 - 548.9 297.2 3,795.6 ====== ====== ===== ===== ====== Completed properties 2,791.5 - 439.1 266.3 3,496.9 Properties for or under development 158.0 - 109.8 30.9 298.7 ______ ______ _____ _____ ______ 2,949.5 - 548.9 297.2 3,795.6 ====== ====== ===== ===== ======= The Group's completed investment properties and land held for or under development were externally valued as at 31 December 2004, in accordance with the accounting policies, by CB Richard Ellis or DTZ Debenham Tie Leung or Colliers Conrad Ritblat Erdman in the United Kingdom, in the USA by Walden-Marling, Inc., in Belgium by De Crombrugghe & Partners s.a. and in France by CB Richard Ellis Bourdais. The industrial properties acquired from Land Securities in December 2004 have been included at their fair values as at the date of acquisition. 11. Tangible assets - other Cost Deprec Net Â£m -iation Â£m Â£m _____ _____ _____ At 1 January 2004 51.9 (10.1) 41.8 Additions 4.9 (3.0) 1.9 Transfer from trade investments 75.7 (1.1) 74.6 Disposals (0.7) 0.4 (0.3) _____ _____ _____ At 31 December 2004 131.8 (13.8) 118.0 ==== ==== ==== The net book value includes Utilities plant and equipment amounting to Â£40.0 million (2003 Â£38.8 million) and Tipperary oil and gas assets of Â£74.6 million (2003 : Nil). 12. Investments Associate Joint Total Total Â£m ventures 2004 2003 Â£m Â£m Â£m _____ _____ _____ _____ Cost or valuation at 1 January 2004 3.9 205.4 209.3 188.7 Exchange movement (0.3) (1.1) (1.4) (2.3) Net additions - 7.2 7.2 2.0 Disposal - (141.2) (141.2) - Reclassified from trading property - - - 6.6 Dividends received (0.2) (8.1) (8.3) (8.8) Valuation surplus 0.1 14.4 14.5 10.8 Share of profits net of taxation 0.4 11.8 12.2 12.3 _____ _____ _____ _____ Cost or valuation at 31 December 2004 3.9 88.4 92.3 209.3 ===== ===== ==== ===== 13. Current assets 2004 2003 Â£m Â£m _____ ______ Stocks Trading properties - completed properties 88.7 75.5 - properties under development 36.6 46.1 _____ ______ 125.3 121.6 Utilities stock 1.9 1.6 _____ ______ 127.2 123.2 _____ ______ 13. Current assets (continued) 2004 2003 Â£m Â£m _____ _____ Debtors (receivable in less than one year) Trade debtors 47.1 19.5 Amounts recoverable under contracts 2.6 - Other debtors 9.6 12.2 Tax recoverable 1.3 3.4 _____ _____ 60.6 35.1 Debtors (receivable in more than one year) Other debtors 0.6 0.8 _____ _____ 61.2 35.9 _____ _____ Trading investments Shares - listed (market value Â£0.6 million) 0.2 0.2 - unlisted 38.2 40.6 Gas investments in USA and Australia * - 66.5 _____ _____ 38.4 107.3 _____ _____ * Gas investments in USA and Australia have been reclassified as other fixed asset investments in 2004. 14. Reserves Share Own Capital Capital Profit premium shares reserve reserve and Total account held unrealised realised loss restated Â£m Â£m Â£m Â£m Â£m Â£m ______ ______ ______ ______ ______ ______ Balance at 1 January 2004 336.0 - 1,377.2 62.0 267.2 2,042.4 Prior year adjustment (note 2) - (5.2) - - - (5.2) ______ ______ ______ ______ ______ ______ Restated balance 336.0 (5.2) 1,377.2 62.0 267.2 2,037.2 Realisation of revaluation gains and losses of previous years - - (150.5) 150.5 - - Revaluation surplus - - 201.1 - - 201.1 Other recognised gains and losses - - (17.5) (4.5) (2.8) (24.8) Retained profit for the year - - - - 90.8 90.8 Shares issued 3.1 - - - - 3.1 Reserve transfer - - 10.3 36.0 (46.3) - ______ ______ ______ ______ ______ ______ Balance at 31 December 2004 339.1 (5.2) 1,420.6 244.0 308.9 2,307.4 _______ ______ ______ ______ ______ ______ 15. Commitments 2004 2003 Â£m Â£m _____ _____ a) Capital expenditure commitments Property - United Kingdom 36.6 8.6 - Overseas 147.5 22.8 Utilities 0.6 0.3 Other activities 17.3 35.3 _____ _____ 202.0 67.0 _____ _____ b) Operating Leases 2004 2003 Â£m Â£m _____ _____ Leases which expire: Within two to five years - 1.4 After five years 0.4 0.4 _____ _____ 0.4 1.8 _____ _____ 16. Provisions for Pensions Quail Deferred Other Total liabilities and charges Â£m West tax liabilities Â£m Â£m Â£m Â£m _____ _____ _____ _____ ______ Balance at 1 January 2004 1.2 20.8 182.3 1.3 205.6 Exchange movement (0.1) (1.4) (1.1) - (2.6) Charged /(credited) to profit and loss account 0.1 - 6.6 (0.7) 6.0 Unwinding of discount - 0.5 - - 0.5 Deferred tax liability acquired on acquisition of Ravenseft - - 4.1 - 4.1 Other - - 0.2 (0.3) (0.1) Paid - (1.9) - - (1.9) _____ _____ _____ _____ ______ Balance at 31 December 2004 1.2 18.0 192.1 0.3 211.6 _____ _____ _____ _____ ______ Deferred tax relates to UK and overseas timing differences arising mainly from capital allowances on plant, industrial building allowances, overseas depreciation allowances on properties and interest capitalised and is provided at 30 per cent (2003 30 per cent) in the UK and at local rates overseas. 16. Provisions for liabilities and charges (continued) Deferred taxation consists of: 2004 2003 Â£m Â£m ______ ______ Accelerated capital allowances 59.7 63.6 Overseas depreciation allowances 52.9 53.7 Interest capitalised 69.5 75.3 Tax losses (5.0) (13.9) Deferred tax assets (0.5) (0.5) Acquired on acquisition 4.1 - Other timing differences 20.2 14.9 ______ ______ Total deferred tax in respect of investment properties 200.9 193.1 Deferred tax asset in respect of Quail West (13.1) (14.6) Other deferred tax 4.3 3.8 ______ ______ 192.1 182.3 ______ ______ The Group has a commitment to support the ongoing activities at the residential leisure development at Quail West until the overall activity reaches a certain level, which is not expected to occur for a number of years. In accordance with UK GAAP, the Group has therefore recognised a provision for the estimated net liability arising from this commitment. The balance of the provision at 31 December 2004 amounted to Â£18.0 million (2003: Â£20.8 million). The most significant assumption in the determination of the provision is the rate of membership sales and the consequent timing of the release of the Group's commitment. The Group board is satisfied that the assumptions used to compute the provision are appropriate and will review these at each balance sheet date. The provision is stated at present value. It will be amortised to the profit and loss account after allowing for the unwind of the discount used, on the basis of the actual losses incurred by the ongoing activities. The other liabilities relate principally to provisions for onerous leases on rented properties and represent the estimated liability of future costs for lease rentals and dilapidation costs less the expected receipts from sub-letting these properties which are surplus to business requirements. The estimated amount of potential taxation, for which no provision has been made and which would arise if the assets held as long term investments were sold at the values at which they appear in the balance sheet, amounts to Â£176.5 million (2003 Â£129.5 million). 17. Borrowings 2004 2003 Â£m Â£m ______ ______ Currency profile of Group debt Borrowings Sterling 964.1 899.0 Australian dollars 47.9 34.2 US dollars 459.8 492.6 Canadian dollars - 8.3 Euros 250.9 233.0 ______ ______ 1,722.7 1,667.1 ______ ______ Cash and deposits Sterling 200.4 120.2 US dollars 178.9 9.0 Canadian dollars 4.3 6.2 Euros 13.8 23.9 ______ ______ 397.4 159.3 ______ ______ Net borrowings 1,325.3 1,507.8 ______ ______ Maturity profile of Group debt In one year or less 39.2 40.5 In more than one year but less than two 7.3 27.8 In more than two years but less than five 473.7 353.1 In more than five years but less than ten 466.6 488.7 In more than ten years 735.9 757.0 ______ ______ Total Group debt 1,722.7 1,667.1 ______ ______ Fair value of borrowings Book Fair Book Fair value value value value 2004 2004 2003 2003 Â£m Â£m Â£m Â£m ______ ______ ______ ______ Short term fixed and variable rate borrowings (before swaps etc) 426.0 426.0 331.9 331.9 Long term fixed rate borrowings 1,299.3 1,520.5 1,340.5 1,545.3 Interest rate swaps - 1.7 - 2.0 Swaptions and caps - 4.3 - 4.5 Currency swaps (2.6) (3.3) (5.3) (5.6) ______ ______ ______ ______ 1,722.7 1,949.2 1,667.1 1,878.1 Tax relief due on early redemption/termination (68.0) (63.3) ______ ______ ______ ______ 1,722.7 1,881.2 1,667.1 1,814.8 ______ ______ ______ ______ After tax mark to market adjustment 158.5 147.7 ______ ______ The market value of the preference shares at 31 December 2004 was Â£282.2 million (2003: Â£233.6 million). 18. Creditors - other 2004 2003 Â£m Restated Â£m ______ ______ Creditors falling due within one year Rents in advance 38.8 37.1 Accruals and other deferred income 68.6 56.9 Trade creditors 10.6 7.7 Other creditors 22.3 21.1 Taxation 46.2 14.3 Proposed ordinary dividend 41.3 38.4 Accrued preference dividend 3.7 3.8 ______ ______ 231.5 179.3 ______ ______ Creditors falling due after more than one year Other creditors 15.2 9.5 ______ ______ This information is provided by RNS The company news service from the London Stock Exchange

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