IFRS
Unite Group PLC
15 June 2005
Date: 15 June 2005
On behalf of: The UNITE Group plc ('UNITE' or 'the Company')
Embargoed until: 1630hrs
The UNITE Group plc
Unaudited results for the year ended 31 December 2004 restated in accordance
with International Financial Reporting Standards
The UNITE Group plc, in common with all other listed companies, will be
presenting its financial results for the year ended 31 December 2005 in
accordance with International Financial Reporting Standards ('IFRS'). As a
result of this change, the comparative results for 2004 will also be restated to
comply with IFRS. In order to provide transparency of the impact of this
restatement, UNITE has today released its results for the year to December 2004
restated as required to comply with these new accounting standards.
In summary, the new standards result in an increase in reported profits (from a
loss after tax of £3.8 million under UK GAAP to a profit after tax of £17.3
million under IFRS) and a reduction in reported net asset value (from £370
million under UK GAAP to £322 million under IFRS). These changes are summarised
as follows:
NAV NAV
Net asset value £m pps
31 December 2004
Per audited accounts - UK GAAP 369.6 332
Changes required to comply with IFRS:-
Full provision for deferred tax (50.8) (46)
Restatement of investment properties under development to
market value 0.7 1
Write back provision for 2004 final dividend 1.9 2
Other minor changes 0.4 -
Restated IFRS NAV at 31 Dec 2004 321.8 289
Profit after tax
Profit after tax £m
Per 2004 audited accounts - UK GAAP (3.8)
Changes required to comply with IFRS:-
Revaluation of investment properties 20.9
Full provision for deferred tax on investment properties recognised in income
statement 0.2
Add back goodwill amortisation 0.1
Accounting for share based payments (0.1)
Restated IFRS profit after tax 17.3
In addition to the above adjustments, IFRS requires all financial derivatives
(predominantly interest rate swaps in the case of UNITE) to be carried at fair
value with effect from 1 January 2005. Had such an adjustment been booked at
December 2004 it would have resulted in a further reduction in reported net
asset value of £6.5 million (6 pence per share).
With respect to financial derivatives, IFRS requires an assessment of interest
rate hedges to establish which are 'effective' and which are considered '
ineffective'. Movements in the fair value of effective hedges will be booked to
reserves whereas those of ineffective hedges are shown in the income statement.
The majority of UNITE's interest rates swaps are considered effective under IFRS
and, accordingly, any changes in market value are taken directly to reserves.
However, a small proportion of the Group's swaps, where the term of the swaps
exceeds the term of the underlying debt, are not considered to be effective and
movements in the value of these instruments will be reflected in the income
statement, thereby introducing an element of future volatility in this respect.
The above adjustments do not reflect any change in the underlying commercial
performance of the business. They arise from different accounting recognition,
timing or measurement criteria introduced under IFRS. Restated primary
statements and summarised notes for the year ended 31 December 2004 are set out
in this announcement; these will form the basis of the full year comparatives
for our results for the six months to 30 June 2005, which will be prepared and
presented under IFRS. The Group's revised accounting policies are also set out
in full in this statement.
An analysts' presentation will be held today at the City of London Club. A full
copy of the presentation can be found on UNITE's website: www.unite-group.co.uk
Enquiries:
The UNITE Group plc
Mark Allan, Group Finance Director Tel: 020 7902 5062
www.unite-group.co.uk
Redleaf Communications Ltd Tel: 020 7955 1410
Emma Kane/Wendy Timmons Mob: 07876 338339
IFRS CONSOLIDATED FINANCIAL STATEMENT EXTRACTS
Unaudited consolidated income statement
For the year ended 31 December 2004
Note UK GAAP (*) Effect of IFRS
transition to
IFRS
£'000 £'000 £'000
Gross rental income 66,808 - 66,808
Development sales 7,815 - 7,815
Revenue 2 74,623 - 74,623
Property operating expenses (18,024) - (18,024)
Development cost of sales (6,654) - (6,654)
Cost of sales (24,678) - (24,678)
Administrative expenses - goodwill impairment (2,665) 150 (2,515)
- other (14,154) (130) (14,284)
Administrative expenses (16,819) 20 (16,799)
Profit on disposal of investment property 23 - 23
Net valuation gains on investment property 4 - 20,869 20,869
Net operating profit before net financing 33,149 20,889 54,038
costs
Finance income 1,137 - 1,137
Finance costs (38,098) - (38,098)
Net financing costs (36,961) - (36,961)
Share of joint venture profit - 30 30
Profit before tax (3,812) 20,919 17,107
Tax credit 3 - 233 233
Profit for the period (3,812) 21,152 17,340
Earnings per share
Basic 7 (3.5)p 19.8p 15.8p
(* ) reformatted to reflect IFRS reporting requirements
The effects of transition to IFRS are explained further in note 9.
Unaudited consolidated statement of changes in shareholders equity
For the year ended 31 December 2004
Note 2004
£'000
Revaluation of investment property under development 5 17,052
Deferred tax relating to the above 3 (5,116)
Share of joint venture valuation gain (net of related tax) 787
Net gains recognised directly in equity 12,723
Profit for the period 17,340
Total recognised income and expense for the period 30,063
Dividends 6 (2,728)
Own shares acquired (178)
Shares issued 5,159
Fair value of share options expensed 302
32,618
At 1 January 2004 289,191
At 31 December 2004 321,809
Unaudited consolidated balance sheet
As at 31 December 2004 and 1 January 2005
Note UK GAAP Effect of IFRS Effect of 1
31 Dec transition 31 IAS39 Jan
2004 (*) to IFRS Dec 2004 2005
£'000 £'000 £'000 £'000 £'000
Assets
Investment property 4 991,460 - 991,460 - 991,460
Investment property under 5 118,990 742 119,732 - 119,732
development
Property, plant and equipment 18,099 (2,128) 15,971 - 15,971
Investment in joint venture 1,125 (308) 817 - 817
Intangible assets 2,475 2,278 4,753 - 4,753
Trade and other receivables - 6,079 6,079 - 6,079
Total non-current assets 1,132,149 6,663 1,138,812 - 1,138,812
Inventories 13,401 - 13,401 - 13,401
Trade and other receivables 32,325 (6,079) 26,246 - 26,246
Cash and cash equivalents 37,582 - 37,582 - 37,582
Total current assets 83,308 (6,079) 77,229 - 77,229
Total assets 1,215,457 584 1,216,041 - 1,216,041
Liabilities
Interest-bearing loans and 8 (106,153) - (106,153) - (106,153)
borrowings
Trade and other payables (76,777) 5,102 (71,675) - (71,675)
Total current liabilities (182,930) 5,102 (177,828) - (177,828)
Interest-bearing loans and 8 (662,906) (3,019) (665,925) (9,347) (675,272)
borrowings
Deferred tax liabilities - (50,479) (50,479) 2,804 (47,675)
Total non-current liabilities (662,906) (53,498) (716,404) (6,543) (722,947)
Total liabilities (845,836) (48,396) (894,232) (6,543) (900,775)
Net Assets 369,621 (47,812) 321,809 (6,543) 315,266
Equity
Issued share capital 27,825 - 27,825 - 27,825
Share premium 141,324 - 141,324 - 141,324
Merger reserve 40,177 - 40,177 - 40,177
Retained earnings (36,619) 132,732 96,113 (2,210) 93,903
Revaluation reserve 196,914 (180,544) 16,370 - 16,370
Hedging reserve - - - (4,333) (4,333)
Total equity 369,621 (47,812) 321,809 (6,543) 315,266
(* ) reformatted to reflect IFRS reporting requirements
The effects of transition to IFRS are explained further in note 9.
Unaudited consolidated statement of cash flows
For the year ended 31 December 2004
UK GAAP Effect of 2004
(*) transition
to IFRS
£'000 £'000 £'000
Operating activities
Profit for the period (3,812) 21,152 17,340
Adjustments for:
Depreciation 2,354 - 2,354
Equity-settled transactions - 302 302
Impairment of goodwill 2,665 (150) 2,515
Change in value of investment - (20,869) (20,869)
property
Net finance costs 36,961 - 36,961
Gain on sale of investment property (23) - (23)
Share of joint venture profit - (30) (30)
Tax credit - (233) (233)
------- ------- ------
Operating profit before changes in 38,145 172 38,317
working capital and provisions
Increase in trade and other (8,230) - (8,230)
receivables
Increase in inventories (10,632) - (10,632)
Increase in trade and other payables 3,680 6 3,686
------- ------- ------
Cash flows from operating activities 22,963 178 23,141
======= ======= ======
Investing activities
Proceeds from sale of investment 61,008 - 61,008
property
Interest received 1,137 - 1,137
Acquisition of property, plant and (1,208) - (1,208)
equipment
Acquisition and construction of (174,487) - (174,487)
investment property ------- ------- -------
Cash flows from investing activities (113,550) - (113,550)
======= ======= ========
Financing activities
Interest paid (47,768) - (47,768)
Gain on refinancing 1,012 - 1,012
Proceeds from the issue of share 900 - 900
capital
Payments to acquire own shares - (178) (178)
Proceeds from other non-current 423,267 - 423,267
borrowings
Repayment of borrowings (274,752) - (274,752)
Payment of finance lease liabilities (508) - (508)
Dividends paid (2,728) - (2,728)
------- ------- ------
Cash flows from financing activities 99,423 (178) 99,245
======= ======= =======
Net increase in cash and cash 8,836 8,836
equivalents
Cash and cash equivalents at 1 19,660 19,660
January ------- ------- ------
Cash and cash equivalents at 31 28,496 28,496
December ======= ======= ======
(* ) reformatted to reflect IFRS
reporting requirements
Notes to the unaudited consolidated financial statements
1. Significant accounting policies
The UNITE Group plc (the 'Company') is a company domiciled in The
United Kingdom. These special purpose consolidated financial
statements for the year ended 31 December 2004 comprise the
Company and its subsidiaries (together referred to as the 'Group')
and the Group's interest in its joint venture.
(a) Basis of preparation
EU law (IAS Regulation EC 1606/2002) requires that the next annual
consolidated financial statements of the company, for the year
ended 31 December 2005, be prepared in accordance with
International Financial Reporting Standards (IFRS) adopted for use
in the EU ('adopted IFRS').
These special purpose consolidated financial statements have been
prepared on the basis of the recognition and measurement
requirements of IFRS in issue that are either endorsed by the EU
and effective (or available for early adoption) at 31 December
2005 or are expected to be endorsed and effective (or available
for early adoption) at 31 December 2005, the Group's first annual
reporting date at which it is required to use adopted IFRS. Based
on these adopted and unadopted IFRS, the directors have made
assumptions about the accounting policies expected to be applied,
which are set out below, when the first IFRS financial statements
are prepared for the year ending 31 December 2005.
The adopted IFRS that will be effective (or available for early
adoption) in the financial statements are still subject to change
and to additional interpretations and therefore cannot be
determined with certainty. Accordingly the accounting policies for
the year ended 31 December 2005 will be determined finally only
when the financial statements for that year are prepared.
As permitted by IFRS 1, the following standards: IFRS 5 -
Non-current Assets Held for Sale and Discontinued Operations, IAS
32 - Financial Instruments: Disclosure and Presentation and IAS 39
- Financial Instruments: Recognition and Measurement are not
expected to be applied until 1 January 2005 and accordingly have
not been applied for the purposes of these special purpose
consolidated IFRS financial statements for the year ended 31
December 2004. (However, the effect of applying IAS 32 and IAS 39
on the balance sheet as at 1 January 2005 has been shown.)
These special purpose consolidated financial statements are not
the Group's first consolidated financial statements as defined by
IFRS 1. For this reason amounts are presented for the year to 31
December 2004 only and comparative information as would normally
be required under IFRS is not given.
The financial statements are prepared on the historical cost basis
except that the following asset and liabilities are stated at
their fair value:
• Investment property
• Investment property under development
• Interest rate swaps (from 1 January 2005)
In accordance with IFRS 1 the Group has taken advantage of the
following exemptions as at 1 January 2004, the date of transition
to IFRS:
• Business combinations occurring prior to transition have not been
restated
• Share options granted before 7 November 2002 or vested prior to
1 January 2005 have not been recognised in accordance with IFRS 2
Notes to the unaudited consolidated financial statements
1. Significant accounting policies continued
(b) Basis of consolidation
(i) Subsidiaries
Subsidiaries are those entities controlled by the Company.
Control exists when the Company has the power, directly or
indirectly, to govern the financial and operating policies of an
enterprise so as to obtain benefits from its activities. In
assessing control, potential voting rights that are presently
exercisable are taken into account. The financial statements of
subsidiaries are included in the consolidated financial
statements from the date that control commences until the date
that control ceases.
(ii) Joint ventures
Joint ventures are those entities over whose activities the Group
has joint control, established by contractual agreement. The
consolidated financial statements include the Group's share of
total recognised gains and losses of jointly controlled entities
on an equity accounted basis.
(iii) Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised gains
and losses arising from intra-group transaction, are eliminated
in preparing the consolidated financial statements. Unrealised
gains arising from transactions with joint ventures are
eliminated to the extent of the Group's retained interest in the
entity. Unrealised losses are eliminated in the same way as
unrealised gains.
(iv) Goodwill
Goodwill represents the difference between the cost of an
acquisition and the fair value of the Group's share of the
identifiable net assets of the acquired subsidiary, associate or
joint venture at the effective date of acquisition. Goodwill on
acquisitions is reported in the balance sheet as an intangible
asset or included within associates and joint ventures, as
appropriate, and is impairment tested annually. Where an
indication of impairment exists, the carrying amount of goodwill
is assessed and written down to its recoverable amount.
The profit or loss on disposal of subsidiaries and joint ventures
is calculated by reference to the net assets at the date of
disposal including the attributable amount of goodwill which
remains unimpaired.
Notes to the unaudited consolidated financial statements
1. Significant accounting policies continued
(c) Derivative financial instruments
The Group uses derivative financial instruments to hedge its
exposure to interest rate risks arising from operational, financing
and investment activities. In these special purpose accounts, IAS
39 has not been applied (as it comes into force 1 January 2005) and
derivatives are held at cost. Cash flows arising from these
instruments were recognised in the income statement when the hedged
transaction was recognised.
As from 1 January 2005, the following accounting policy will apply
and the effects of adoption at that date are illustrated on the
consolidated balance sheet :
Derivative financial instruments are recognised initially at cost.
Subsequent to initial recognition, derivative financial instruments
are stated at fair value, with movements recognised in the income
statement except where cash flow hedge accounting is applied (see
below).
The fair value of interest rate swaps is the estimated amount that
the Group would receive or pay to terminate the swap at the balance
sheet date, taking into account current interest rates and the
current creditworthiness of the swap counterparties.
In accordance with its treasury policy, the Group does not hold or
issue derivative financial instruments for trading purposes.
However, derivatives that do not qualify for hedge accounting are
accounted for as trading instruments.
Hedge accounting for interest rate swaps
Where an interest rate swap is designated as a hedge of the
variability in cash flows of an existing or a highly probable
forecast loan interest payment, the effective part of any gain or
loss on the swap instrument is recognised directly in equity in the
hedging reserve. The cumulative gain or loss is removed from equity
and recognised in the income statement at the same time as the
hedged transaction. The ineffective part of any gain or loss is
recognised in the income statement immediately.
When a hedging instrument or hedge relationship is terminated but
the hedged transaction is still expected to occur, the cumulative
gain or loss at that point remains in equity and is recognised in
accordance with the above policy when the transaction occurs. If
the hedged transaction is no longer probable, the cumulative
unrealised gain or loss recognised in equity is recognised in the
income statement immediately.
Notes to the unaudited consolidated financial statements
1. Significant accounting policies continued
(d) Investment Property
Investment properties are those held to earn rental income or for
capital appreciation or both. Investment properties are stated at
fair value. Two external, independent valuation companies, having
an appropriate recognised professional qualification, value the
portfolio every six months. The fair values are based on the market
values, being the estimated amount for which a property could be
exchanged on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction where the parties had
each acted knowledgeably, prudently and without compulsion.
The valuations are prepared by considering the aggregate of the net
annual rents receivable from the properties and where relevant,
associated costs. A yield which reflects the risks inherent in the
net cash flows is then applied to the net annual rentals to arrive
at the property valuation.
Valuations reflect, where appropriate; the type of tenants actually
in occupation or responsible for meeting lease commitments or
likely to be in occupation after letting of vacant accommodation
and the market's general perception of their credit-worthiness; the
allocation of maintenance and insurance responsibilities between
lessor and lessee; and the remaining economic life of the property.
It has been assumed that whenever rent reviews or lease renewals
are pending with anticipated reversionary increases, all notices
and where appropriate counter notices have been served validly and
within the appropriate time.
Any gain or loss arising from a change in fair value is recognised
in the income statement. Rental income is accounted for as
described in accounting policy (l).
(e) Investment property under development
Property that is being constructed or developed for future use as
investment property is stated at fair value. Two external,
independent valuation companies, having an appropriate recognised
professional qualification, value the portfolio every six months.
The fair values are on the same basis as those used for investment
properties but including adjustments to remove the fair value of
construction which has yet to take place and making reasonable
assumptions regarding expected rentals and costs.
Gains arising from changes in fair value are recognised directly in
equity (in the revaluation reserve) as are losses to the extent
that that they reverse amounts previously credited directly to
equity. Revaluation losses in excess of amounts previously credited
to equity are recognised in the income statement.
When construction or development is complete, the property is
reclassified and subsequently accounted for as investment property.
At the date of transfer, the difference between fair value and the
previous carrying amount is recognised in the consolidated income
statement and a transfer is made from revaluation reserve to
retained earnings for valuations and related deferred tax
previously recognised in relation to that property.
All costs directly associated with the purchase and construction of
a property, and all subsequent capital expenditures qualifying as
acquisition costs are capitalised.
Borrowing costs are capitalised if they are directly attributable
to the acquisition, construction or production of a qualifying
asset. Capitalisation of borrowing costs commences when the
activities to prepare the asset are in progress and expenditures
and borrowing costs are being incurred. Capitalisation of borrowing
costs continues until the assets are substantially ready for their
intended use. If the resulting carrying amount of the asset exceeds
its recoverable amount, an impairment loss is recognised. The
capitalisation rate is arrived at by reference to the actual rate
payable on borrowings for development purposes or, with regard to
that part of the development cost financed out of general funds, to
the average rate.
Notes to the unaudited consolidated financial statements
1. Significant accounting policies continued
(f) Property, plant & equipment and Computer software
(i) Owned assets
Property, plant & equipment and computer software are stated at
cost less accumulated depreciation or amortisation respectively
(see below) and impairment losses. The cost of self-constructed
assets includes the cost of materials, direct labour and an
appropriate proportion of production overheads. Computer software
is held as an intangible asset.
(ii) Leased assets
Leases under which the Group assumes substantially all the risks
and rewards of ownership are classified as finance leases. Property
held under finance leases and leased out under operating leases is
classified as investment property and carried at fair value (see
accounting policy (d)).
(iii) Depreciation and amortisation
Depreciation and amortisation is charged to the income statement on
a straight-line basis over the estimated useful lives of items of
property, plant and equipment and computer software. Freehold land
is not depreciated. The estimated useful lives are as follows:
• buildings 50 years
• leasehold improvements Life of lease
• fixtures and fittings 4 years
• Motor vehicles 4 years
• Plant & machinery 4-20 years
• Computer software 4-5 years
Assets held under finance leases which do not transfer title of the
assets to the Group at the end of the lease are depreciated over
the shorter of the estimated useful lives shown above and the term
of the lease. The residual value, if not insignificant , is
reassessed annually.
(g) Inventories
Inventories are shown at the lower of cost and net realisable
value.
(h) Cash and cash equivalents
Cash and cash equivalents comprises cash balances and call
deposits. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to an insignificant risk of changes in value.
Bank overdrafts that are repayable on demand and form an integral
part of the Group's cash management are included as a component of
cash and cash equivalents for the purpose of the statement of cash
flows.
(i) Share capital
(i) Ordinary share capital
Ordinary shares are classified as equity. External costs directly
attributable to the issue of new shares, other than on a business
combination, are shown as a deduction, net of tax, in equity from
the proceeds. Share issue costs incurred directly in connection
with a business combination are included in the cost of
acquisition.
(ii) Dividends
Dividends are recognised as a liability in the period in which they
are declared.
Notes to the unaudited consolidated financial statements
1. Significant accounting policies continued
(j) Interest-bearing borrowings
Interest-bearing borrowings are recognised initially at cost, less
attributable transaction costs. Subsequent to initial recognition,
interest-bearing borrowings are stated at amortised cost with any
difference between cost and redemption value being recognised in
the income statement over the period of the borrowings on an
effective interest basis.
(k) Employee benefits
(i) Defined contribution plans
Obligations for contributions to defined contribution pension plans
are recognised as an expense in the income statement as incurred.
(ii) Share based payment transactions
The Group's share option schemes allow employees to acquire shares
of the Company. The fair value is measured at grant date and spread
over the period during which employees become unconditionally
entitled to the options. The amount recognised as an expense is
adjusted to reflect the number of share options that are expected
to vest except where forfeiture is only due to share prices not
achieving the threshold for vesting. When the options are
exercised, equity is increased by the amount of the proceeds
received.
(l) Revenue
(i) Rental income
Rental income from investment property leased out under operating
leases is recognised in the income statement on a straight-line
basis over the term of the lease. Lease incentives granted are
recognised as an integral part of the total rental income and
spread over the period to the first break clause.
(ii) Development contracts
As soon as the outcome of a development contract can be estimated
reliably, contract revenue and expenses are recognised in the
income statement in proportion to the stage of completion of the
contract. The stage of completion is assessed by reference to
surveys of work performed. Any expected loss on a contract is
recognised immediately in the income statement.
(iii) Goods sold and services rendered
Revenue from the sale of goods is recognised in the income
statement when the significant risks and rewards of ownership have
been transferred to the buyer. Revenue from services rendered is
recognised in the income statement in proportion to the stage of
completion of the transaction at the balance sheet date.
No revenue is recognised if there are significant uncertainties
regarding recovery of the consideration due, associated costs or
the possible return of goods.
Notes to the unaudited consolidated financial statements
1. Significant accounting policies continued
(m) Expenses
(i) Lease payments
Payments made under operating leases are recognised in the income
statement on a straight-line basis over the term of the lease.
Lease incentives received are recognised in the income statement as
an integral part of the total lease expense.
Where the property interest under an operating lease is classified
as an investment property, the property interest is accounted for
as if it were a finance lease and the fair value model is used for
the asset recognised.
(ii) Net financing costs
Net financing costs comprise interest payable on borrowings
calculated using the effective interest rate method, interest
receivable on funds invested and gains and losses on hedging
instruments that are recognised in the income statement (refer
accounting policy (c)).
(n) Income tax
Income tax on the profit or loss for the year comprises current and
deferred tax. Income tax is recognised in the income statement
except to the extent that it relates to items recognised directly
to equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for
the year, using tax rates enacted or substantially enacted at the
balance sheet date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is provided using the balance sheet liability method,
providing for temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for taxation purposes. The following temporary
differences are not provided for: goodwill not deductible for tax
purposes and differences relating to investments in subsidiaries
and joint ventures to the extent that they will probably not
reverse in the foreseeable future. The amount of deferred tax
provided is based on the expected manner of realisation or
settlement of the carrying amount of assets and liabilities, using
tax rates enacted or substantially enacted at the balance sheet
date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to
the extent that it is no longer probable that the related tax
benefit will be realised.
Notes to the unaudited consolidated financial statements
2. Segment reporting
Segment information is presented in respect of the Group's business segments based
on the Group's management and internal reporting structure. The Directors do not
consider that the group has meaningful geographical segments as it operated
exclusively in the United Kingdom in the year.
Segment results, assets and liabilities include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. Unallocated
assets and liabilities consist of deferred tax and interest bearing loans and
borrowings.
Segment capital expenditure is the total cost incurred during the period to acquire
segment assets that are expected to be used for more than one period.
The group comprises the following main business segments:
• Investment
• Development
Investment Development Unallocated Consolidated
2004 2004 2004 2004
£'000 £'000 £'000 £'000
Segment revenues and
results
Revenue from external
customers:
Rental income 66,808 - - 66,808
Development sales - 6,523 - 6,523
--------- ---------- ---------- ----------
Total revenue from 66,808 6,523 - 73,331
external customers
Sales to joint ventures - 1,292 - 1,292
--------- ---------- ---------- ----------
Total revenue 66,808 7,815 - 74,623
========= ========== ========== ==========
Segment results 40,951 (1,215) (22,396) 17,340
========= ========== ========== ==========
Unallocated items consist:
Profit on sale of 23
investment property
Corporate costs (4,075)
Impairment of goodwill (2,515)
Net valuation gains on 20,869
investment property
Net financing costs (36,961)
Share of joint venture 30
profit
Tax credit 233
----------
(22,396)
==========
Segment assets & liabilities
Segment assets 1,068,582 146,642 - 1,215,224
Investment in joint - 817 - 817
venture --------- ---------- ---------- ----------
Total assets 1,068,582 147,459 - 1,216,041
========= ========== ========== ==========
Segment liabilities (37,262) (34,413) (822,557) (894,232)
========= ========== ========== ==========
Segment cashflows
Cash flows from operating 38,165 (11,257) (3,773) 23,135
activities ========= ========== ========== ==========
Cash flows from investing (1,403) (174,292) 62,145 (113,550)
activities ========= ========== ========== ==========
Cash flows from financing - - 99,251 99,251
activities ========= ========== ========== ==========
Capital expenditure 1,403 183,059 - 184,462
========= ========== ========== ==========
Notes to the unaudited consolidated financial statements
3. Tax expense / (credit)
Recognised in the income statement
2004
£'000
Current tax expense -
========
Deferred tax credit
Origination and reversal of temporary differences (998)
Adjustments for prior years 765
--------
(233)
========
Total tax credit in income statement (233)
========
Reconciliation of effective tax rate
Profit before tax 17,107
========
Income tax using the domestic corporation tax rate 30.0% 5,132
Non-deductible expenses 4.6% 792
Share of joint venture profit (0.1)% (9)
Effect of indexation on investment and development (40.4)% (6,913)
property
Adjustments for prior years 4.5% 765
-------- --------
(1.4)% (233)
======== ========
Deferred tax recognised directly in equity
Relating to net valuation gains recognised 5,116
directly in equity ========
4. Investment property
£'000 £'000
Balance at 1 January 2004 788,304
Acquisitions 827
Transfer from investment property 230,501
under development
Disposals (49,041)
Valuation gains 39,676
Valuation losses (18,807) 20,869
---------
Balance at 31 December 2004 991,460
=========
The carrying amount of investment property is the fair value of the property
as determined by CB Richard Ellis Ltd and Messrs King Sturge, Chartered
Surveyors as external valuers.
Notes to the unaudited consolidated financial statements
5. Investment property under development
£'000 £'000
Balance at 1 January 2004 166,446
Cost capitalised 171,133
Interest capitalised 11,294
Disposals (15,692)
Transfer to investment property (230,501)
Valuation gains 21,648
Valuation losses (4,596) 17,052
---------
Balance at 31 December 2004 119,732
=========
The carrying amount of investment property under development is the fair
value of the property as determined by CB Richard Ellis Ltd and Messrs King
Sturge, Chartered Surveyors as external valuers.
6. Dividends
The following dividends were declared and
paid during the year:
2004
£'000
2003 Final dividend of 1.67p per 25p 1,807
ordinary share
2004 Interim dividend of 0.83p per 25p 921
ordinary share ---------
2,728
=========
After the balance sheet date the following dividends were proposed by
the directors. These dividends have not been provided for.
2004
£'000
2004 Final dividend of 1.67p per 25p 1,859
ordinary share ==========
7. Earnings per share and net asset value per share
Earnings per share
The calculations of basic and adjusted earnings per share are as
follows:-
Earnings Weighted Earnings
average per
number of share
shares
£'000 Thousands Pence
Basic 17,340 109,478 15.8
Adjustments:
Net valuation gains (20,869) (19.0)
on investment
property
Deferred tax (233) (0.2)
--------- -------- --------
Adjusted (3,762) 109,478 (3.4)
========= ======== ========
Notes to the unaudited consolidated financial statements
7. Earnings per share and net asset value per share (continued)
Net asset value per share
The calculations of basic, diluted and adjusted net asset value per
share are as follows:-
Shareholders' Number of Net asset
funds shares value per
share
£'000 Thousands Pence
Basic 321,809 111,301 289
Outstanding share 6,584 4,321 (5)
options ------- -------- --------
Diluted 328,393 115,622 284
Deferred tax (inc JV) 50,787 - 44
------- -------- --------
Adjusted 379,180 115,622 328
======= ======== ========
8. Interest-bearing loans and borrowings
2004
£'000
Non-current
Bank and other loans 662,125
Finance lease liabilities 781
Interest rate swaps provision 3,019
------
Non-current liabilities at 31 December 2004 665,925
------
Adjust interest rate swaps to fair value 9,347
-------
Non-current liabilities at 1 January 2005 675,272
=======
Current
Bank loans and overdrafts 25,854
Build loans 79,924
Finance lease liabilities 375
------
106,153
======
9. Explanation of transition to IFRS
The accounting policies set out in note 1 have been applied in
preparing these financial statement extracts for the year ended 31
December 2004 and in the preparation of an opening IFRS balance sheet
at 1 January 2004 (the Group's transition date).
In preparing its opening IFRS balance sheet , the Group has adjusted
amounts reported previously in financial statements prepared under its
previous basis of accounting (UK GAAP). An explanation of how
transition from previous GAAP to IFRS has affected the Group's
financial position and financial performance is set out on the face of
the primary statements and in the following notes and table.
Notes to the unaudited consolidated
financial statements
9. Explanation of transition to IFRS (continued)
Reconciliation of Equity at 1
Jan 2004
Note UK GAAP Effect of IFRS
transition
to IFRS
£'000 £'000 £'000
Assets
Investment property (b) 788,304 - 788,304
Investment property under (b) 160,488 5,958 166,446
development
Property, plant and equipment (d) 19,726 (2,610) 17,116
Investment in joint venture (a) - - -
Intangible assets (d) 5,140 2,610 7,750
Trade & other receivables (d) - 1,850 1,850
-------- -------- --------
Total non-current assets 973,658 7,808 981,466
-------- -------- --------
Inventories 2,769 - 2,769
Trade & other receivables (d) 20,072 (1,850) 18,222
Cash and cash equivalents 24,980 - 24,980
-------- -------- --------
Total current assets 47,821 (1,850) 45,971
-------- -------- --------
Total assets 1,021,479 5,958 1,027,437
======== ======== ========
Liabilities
Interest-bearing loans and (107,664) - (107,664)
borrowings
Trade & other payables (d) (75,823) 5,056 (70,767)
-------- -------- --------
Total current liabilities (183,487) 5,056 (178,431)
-------- -------- --------
Interest-bearing loans and (511,200) (3,019) (514,219)
borrowings
Deferred tax liabilities (a) - (45,596) (45,596)
-------- -------- --------
Total non-current liabilities (511,200) (48,615) (559,815)
-------- -------- --------
Total liabilities (694,687) (43,559) (738,246)
======== ======== ========
-------- -------- --------
Net Assets 326,792 (37,601) 289,191
======== ======== ========
Equity 326,792 (37,601) 289,191
======== ======== ========
Notes to the unaudited consolidated financial statements
9. Explanation of transition to IFRS (continued)
Explanatory Notes
(a) Deferred tax
IAS 12 requires full provision of all taxable temporary
differences whereas an exemption to provision for potential
capital gains was available under UK GAAP. Hence under IFRS the
Group has to recognise the capital gains tax that would be payable
if it were to sell its property portfolio at book value. The
resultant deferred tax liabilities have been provided in both
restated balance sheets. This also affects the carrying value of
the Group's joint venture at 31 December 2004 which must now make
a provision for deferred tax in its balance sheet (hence reducing
the Group's share of its net assets).
The movements in the deferred tax liabilities are recognised
directly in equity to the extent that they relate to items
recognised directly in equity, otherwise being recognised in the
income statement. Revaluation of investment property under
development falls into the former category (referred to below) and
therefore the deferred tax movement relating to these revaluations
is also recognised directly in equity.
(b) Investment property and investment property under development
Under IFRS, completed investment property (accounted for under IAS
40) must be held separately from investment property under
development (accounted for under IAS 16). For ease of comparison,
the investment property under UK GAAP (in the reconciliation
above) has been divided into complete and under development
properties.
Completed investment property is carried at fair value under IAS
40 which equates to the market value previously applied under UK
GAAP. There is therefore no equity impact arising from the change
to IFRS in respect of these properties.
Investment property under development is carried at fair value
under IAS 16 which differs slightly from the directors' valuations
previously applied under UK GAAP. This has resulted in additional
value being recognised in both the opening and closing balance
sheets.
IFRS fair values for both the above classes of property have been
calculated by the Group's external valuers.
Under UK GAAP, all revaluations of property were made directly in
equity (unless values fell below cost). Under IFRS, investment
properties under development continue to be accounted for in this
way but completed property valuation movements are recognised in
the income statement. In addition, when a property under
development is completed and transferred to investment property
the difference between its fair value at that date and its
previous carrying amount is recognised in the income statement.
This has resulted in an increase in profit for the year of
£20.869m under IFRS.
Notes to the unaudited consolidated financial statements
9. Explanation of transition to IFRS (continued)
Explanatory Notes
(c) Interest rate swaps
Interest rate swaps have been carried at cost under UK GAAP and
IFRS up until 31 December 2004 but will be carried at fair value
with effect from 1 January 2005, the date of transition for the
purposes of IAS 39. The adjustments for IFRS do not reflect the
effects of IAS 39 as they show the impact on the 2003 & 2004
balance sheets but these effects have been shown on the face of
the balance sheet for illustrative purposes.
At 1 January 2005 the Group was required to recognise liabilities
totalling £9.347m and a related deferred tax asset of £2.804m in
relation to its interest rate swaps. The resulting movement in net
assets of £6.543m is split between swaps which do not qualify as
hedges (£2.210m), which must be debited to retained earnings and
those which do qualify, which must be debited to the hedging
reserve (refer accounting policy (c)). Under the transitional
provisions of IAS 39 this takes effect as an adjustment to the
opening reserves for 2005.
(d) Other changes
Under the transitional rules goodwill has been recognised at
'deemed cost' equivalent to its carrying value. Unlike UK GAAP,
goodwill is not amortised under IFRS but is subject to impairment
testing. The impact is that £2.665m of UK GAAP amortisation is
replaced by £2.515m of impairment in the profit for the year.
Dividends are not recognised until declared under IFRS. The 2003
and 2004 final proposed dividends are therefore added back to net
assets at the relevant balance sheet dates (£1.807m and £1.859m
for 2003 and 2004 respectively)
The Group's share based incentives for employees are recognised
through the income statement at fair value over the vesting period
(small adjustments to both income statement and balance sheets)
Computer software is held as an intangible asset under IFRS
resulting in a transfer between asset categories (no profit
impact).
Receivables due after more than one year are shown separately as
non-current under IFRS (previously included in current assets but
disclosed as recoverable in more than one year).
Under IFRS, the revaluation reserve represents cumulative
valuation gains and losses (less related deferred tax liabilities)
on properties classified as investment properties under
development at the balance sheet date.
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