Interim Results - Part 2
Slough Estates PLC
24 August 2005
Part 2
Slough Estates plc
Group income statement
For the half year to 30 June 2005
Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
Note £m £m £m
-------------------------- ----- ---------- --------- ----------
Revenue 5 232.5 161.6 342.7
-------------------------- ----- ---------- --------- ----------
Gross rental income from rental
properties 153.0 132.6 257.4
Interest received on finance lease
assets 0.4 0.4 0.9
Other property related income 5.9 6.5 13.4
Property outgoings (22.4) (19.7) (39.2)
-------------------------- ----- ---------- --------- ----------
Net rental income 136.9 119.8 232.5
-------------------------- ----- ---------- --------- ----------
Proceeds on sale of trading
properties 49.0 4.3 31.4
Carrying value of trading
properties sold (26.1) (2.1) (27.7)
Trading property rental income 1.6 2.0 4.2
Property outgoings relating to
trading properties (0.4) (0.3) (1.1)
-------------------------- ----- ---------- --------- ----------
Net income from trading properties 24.1 3.9 6.8
-------------------------- ----- ---------- --------- ----------
Income from sale of utilities and
gas 22.6 15.8 35.4
Cost of sales (23.6) (20.7) (42.8)
-------------------------- ----- ---------- --------- ----------
Net income from utilities and gas (1.0) (4.9) (7.4)
-------------------------- ----- ---------- --------- ----------
Other investment income 3.3 3.2 10.5
Administration expenses (7.7) (6.3) (14.7)
(Loss)/gain on disposal of property
assets (3.0) 0.1 64.7
Net valuation gains 6 137.6 84.0 166.7
-------------------------- ----- ---------- --------- ----------
Operating income 290.2 199.8 459.1
Finance costs 7 (58.3) (49.6) (101.9)
Exceptional loss on repayment of
bonds 7 (125.6) - -
-------------------------- ----- ---------- --------- ----------
(183.9) (49.6) (101.9)
-------------------------- ----- ---------- --------- ----------
Finance income 8 7.7 2.6 6.7
Share of profit from joint ventures
and associate after tax 9 5.0 20.8 24.1
-------------------------- ----- ---------- --------- ----------
Profit before tax 119.0 173.6 388.0
Taxation - current 10 (13.5) (11.0) (49.4)
- deferred 10 (32.1) (35.7) (42.8)
-------------------------- ----- ---------- --------- ----------
(45.6) (46.7) (92.2)
-------------------------- ----- ---------- --------- ----------
Profit after tax 73.4 126.9 295.8
Preference dividends 11 - (5.6) (11.2)
-------------------------- ----- ---------- --------- ----------
Profit for the period 73.4 121.3 284.6
-------------------------- ----- ---------- --------- ----------
Attributable to minority interests 1.8 (0.7) (1.2)
Attributable to equity shareholders 19 71.6 122.0 285.8
-------------------------- ----- ---------- --------- ----------
73.4 121.3 284.6
-------------------------- ----- ---------- --------- ----------
Basic earnings per ordinary share 12 17.1p 29.3p 68.5p
Diluted earnings per ordinary share 12 16.7p 27.2p 63.4p
Slough Estates plc
Statement of recognised income and
expense
For the half year to 30 June 2005
Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
Note £m £m £m
------------------------------- ----- -------- ------- --------
Revaluation gains and
losses on properties in
course of development 6 7.5 3.2 24.1
Exchange differences
arising on translation of
overseas operations 14.7 (6.3) (12.5)
Actuarial losses on
defined benefit pension
schemes (3.0) (3.2) (10.6)
Deferred tax liability
arising on items taken
directly to equity (5.7) (1.3) (3.3)
------------------------------- ----- -------- ------- --------
Net gain/(loss)
recognised directly in
equity 13.5 (7.6) (2.3)
Profit for the period 73.4 121.3 284.6
------------------------------- ----- -------- ------- --------
Total recognised income
and expense for the
period 86.9 113.7 282.3
------------------------------- ----- -------- ------- --------
Attributable - equity shareholders 85.1 114.4 283.6
to
- minority interests 1.8 (0.7) (1.3)
--------- ------------------------ ----- -------- ------- --------
86.9 113.7 282.3
------------------------------- ----- -------- ------- --------
Statement of changes in shareholder equity
For the half year to 30 June 2005
Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
Note £m £m £m
------------------------------- ----- -------- ------- --------
Shareholders' funds at 1
January 2,165.1 1,942.4 1,942.4
Effect of adopting IAS 32
and 39 (103.6) - -
------------------------------- ----- -------- ------- --------
As restated 2,061.5 1,942.4 1,942.4
Preference share
conversions 7.1 - -
Issue of ordinary shares 1.4 0.8 3.0
Fair value of share based
payments - 0.2 0.2
Purchase of shares in
ESOP (2.6) - (0.8)
Issue of shares in ESOP 0.9 0.8 0.8
------------------------------- ----- -------- ------- --------
2,068.3 1,944.2 1,945.6
Total recognised income
and expense for the
period 85.1 114.4 283.6
Ordinary dividend paid 11 (41.6) (38.4) (64.1)
------------------------------- ----- -------- ------- --------
Shareholders' funds at
end of period 19 2,111.8 2,020.2 2,165.1
------------------------------- ----- -------- ------- --------
Slough Estates plc
Group balance sheet 30 June 30 June 31 December
As at 30 June 2005 2005 2004 2004
Note £m £m £m
-------------------------- ----- -------- -------- ---------
Non-current assets
Goodwill 13 0.6 - -
Investment properties 14 3,816.8 3,370.5 3,452.7
Property, plant and equipment 15 381.6 353.8 394.8
Finance lease receivables 10.8 11.0 10.9
Available-for-sale investments 44.5 34.5 38.4
Investments in joint ventures and
associate 16 94.1 220.8 84.1
Deferred tax asset 0.3 - 0.2
-------------------------- ----- -------- -------- ---------
Total non-current assets 4,348.7 3,990.6 3,981.1
-------------------------- ----- -------- -------- ---------
Current assets
Inventories 1.8 1.7 1.9
Trading properties 104.7 124.5 125.3
Finance lease receivables 0.1 0.1 0.1
Trade and other receivables 121.9 90.9 115.0
Non-current assets classified as
held-for-sale 87.3 - -
Cash and cash equivalents 178.3 136.7 397.4
-------------------------- ----- -------- -------- ---------
Total current assets 494.1 353.9 639.7
-------------------------- ----- -------- -------- ---------
Total assets 4,842.8 4,344.5 4,620.8
-------------------------- ----- -------- -------- ---------
Non-current liabilities
Borrowings 17 1,634.6 1,644.7 1,683.5
Obligations under finance leases 0.5 0.5 0.5
Pension scheme deficit 18 30.2 27.3 41.5
Deferred tax provision 18 488.6 441.1 448.4
Provisions for liabilities and charges 18 0.3 20.4 18.3
Other payables 14.8 9.1 15.8
-------------------------- ----- -------- -------- ---------
Total non-current liabilities 2,169.0 2,143.1 2,208.0
-------------------------- ----- -------- -------- ---------
Current liabilities
Borrowings 17 331.1 8.0 39.2
Liabilities relating to non-current
assets 55.0 - -
held-for-sale
Tax liabilities 9.4 20.2 47.4
Trade and other payables 148.0 134.5 141.7
-------------------------- ----- -------- -------- ---------
Total current liabilities 543.5 162.7 228.3
-------------------------- ----- -------- -------- ---------
Total liabilities 2,712.5 2,305.8 2,436.3
-------------------------- ----- -------- -------- ---------
-------------------------- ----- -------- -------- ---------
Net assets 2,130.3 2,038.7 2,184.5
-------------------------- ----- -------- -------- ---------
Equity
Called up ordinary share capital 105.7 138.7 138.8
Share premium account 250.3 337.0 339.1
Own shares held (6.9) (4.4) (5.2)
Other reserves 1,283.2 1,172.1 1,127.2
Retained earnings 479.5 376.8 565.2
-------------------------- ----- -------- -------- ---------
19 2,111.8 2,020.2 2,165.1
Minority interests 18.5 18.5 19.4
-------------------------- ----- -------- -------- ---------
Total equity 2,130.3 2,038.7 2,184.5
-------------------------- ----- -------- -------- ---------
Net assets per ordinary share:
Basic 12 501p 451p 486p
Diluted 12 472p 430p 461p
Slough Estates plc
Summarised group cash flow statement
For the half year to 30 June 2005
Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
Note £m £m £m
-------------------------- ----- -------- -------- ---------
Cash inflow generated from operations 22 154.1 104.5 202.4
Interest received on deposits 6.2 2.5 7.4
Dividends received from joint ventures
and associate 2.8 4.3 8.4
Dividends received from
available-for-sale investments 0.7 2.7 3.1
Interest paid (including penalty on
bond repayment) (99.9) (51.9) (115.0)
Dividend paid to preference
shareholders (5.6) (5.7) (11.3)
Minority dividends paid (3.9) (0.5) (0.9)
Tax paid (49.8) (5.9) (15.3)
Funding pension scheme deficit (15.0) - -
-------------------------- ----- -------- -------- ---------
Net cash (outflow)/inflow from
operating activities (10.4) 50.0 78.8
-------------------------- ----- -------- -------- ---------
Cash Flows from investing activities
Purchase and development of investment
properties (189.8) (21.5) (68.1)
Sales of investment properties 14.2 2.7 237.1
Amount received from property swaps - - 3.4
Legal costs paid in relation to
property swap (0.6) - (2.2)
Purchase of property, plant and
equipment (66.6) (27.5) (35.8)
Sale of property, plant and equipment 3.7 0.9 0.9
Purchase of available-for-sale
investments (2.7) (4.6) (16.2)
Proceeds from disposal of
available-for-sale investment 4.7 11.6 20.5
Proceeds from reduction in holding of
subsidiary - - 3.3
Investment and loans to associate and
joint ventures (5.3) (1.2) (3.8)
Investment in longer term deposits 180.6 - (184.5)
Acquisition of minority interests - - (4.0)
Contribution from minorities - 0.2 4.6
-------------------------- ----- -------- -------- ---------
Net cash used in investing activities (61.8) (39.4) (44.8)
-------------------------- ----- -------- -------- ---------
Cash flows from financing activities
Dividend paid to ordinary shareholders (41.6) (38.4) (64.1)
Net increase in borrowings 71.2 4.9 88.2
Proceeds from issue of ordinary shares 0.7 0.8 3.0
Purchase of own shares (1.0) - (0.8)
-------------------------- ----- -------- -------- ---------
Net cash used in financing activities 29.3 (32.7) 26.3
-------------------------- ----- -------- -------- ---------
Net (decrease)/increase in cash and
cash equivalents (42.9) (22.1) 60.3
Cash and cash equivalents at the
beginning of the year 218.1 158.6 158.6
Effect of foreign exchange rate
changes (0.1) (1.4) (0.8)
-------------------------- ----- -------- -------- ---------
Cash and cash equivalents at the end
of the year 175.1 135.1 218.1
-------------------------- ----- -------- -------- ---------
Cash and cash equivalents per balance
sheet 178.3 136.7 397.4
Less restricted deposits - - (176.0)
-------------------------- ----- -------- -------- ---------
178.3 136.7 221.4
Bank overdrafts (3.2) (1.6) (3.3)
-------------------------- ----- -------- -------- ---------
Cash and cash equivalents per cash
flow 175.1 135.1 218.1
-------------------------- ----- -------- -------- ---------
Independent review report to Slough Estates plc
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2005 which comprises the consolidated interim
balance sheet as at 30 June 2005 and the related consolidated interim statements
of income, cash flows, recognised income and expense, changes in equity and the
related notes for the six months then ended. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in note 2, the next annual financial statements of the group will
be prepared in accordance with accounting standards adopted for use in the
European Union. This interim report has been prepared in accordance with the
basis set out in note 2 and 24.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in note 2, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 December 2005, are not known with certainty
at the time of preparing this interim financial information.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
PricewaterhouseCoopers LLP, Chartered Accountants
London
24 August 2005
Notes:
a) The maintenance and integrity of the Slough Estates plc website is the
responsibility of the directors; the work carried out by the auditors does
not involve consideration of these matters and, accordingly, the auditors
accept no responsibility for any changes that may have occurred to the
interim report since it was initially presented on the website.
b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
SLOUGH ESTATES plc
NOTES TO THE FINANCIAL STATEMENTS
1. GENERAL
Slough Estates plc ('the group') is a limited company incorporated in England.
These financial statements are presented in millions and in sterling since that
is the currency in which the majority of the group's transactions are
denominated.
The results for the year ended 31 December 2004 have been audited whilst the
results for the six months ended 30 June 2004 and 30 June 2005 are unaudited.
The Interim Report is unaudited and does not constitute statutory accounts
within the meaning of s240 of the Companies Act 1985. The statutory accounts for
2004, which were prepared under UK Generally Accepted Accounting Principles
('GAAP'), have been delivered to the Registrar of Companies. The auditors'
opinion on these accounts was unqualified and did not contain a statement made
under s237(2) or s237(3) of the Companies Act 1985.
The income statement and balance sheet have been prepared, in accordance with
applicable International Accounting Standards (IAS) and International Financial
Reporting Standards (IFRS) issued by the International Accounting Standards
Board (IASB) and on the basis that all such standards will be endorsed by the
European Union ('the EU').
These standards are also collectively referred to as 'IFRS'.
2. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
All listed companies in the EU are required to present their consolidated
financial statements for accounting periods beginning on or after 1 January 2005
in accordance with IFRS as adopted by the EU. Therefore, the group's
consolidated financial statements for the year ending 31 December 2005 will be
presented on this basis with IFRS comparatives. These interim financial
statements have been prepared on the basis of the IFRS accounting policies
expected to be adopted in the year end consolidated financial statements.
Reconciliations have been provided of certain key figures to UK GAAP and these,
together with an explanation of the resulting changes in accounting policies,
are set out in note 24.
The group's transition date for the adoption of IFRS is 1 January 2004 and its
transition date for the implementation of IAS 32 and IAS 39 dealing with
financial instruments is 1 January 2005. These transition dates have been
selected in accordance with IFRS 1, 'First-time adoption of International
Financial Reporting Standards'.
Although there is now a fairly stable platform, standards continue to evolve and
those currently in issue and endorsed by the EU are subject to interpretation by
the International Financial Reporting Interpretations Committee (IFRIC) and
further standards may be issued and endorsed by the EU before 31 December 2005.
These uncertainties could result in the need to change the basis of accounting
or presentation of certain financial information from that applied in the
preparation of this document.
The group is required to apply its IFRS accounting policies retrospectively to
determine its opening IFRS balance sheet at the transition date of 1 January
2004 and the comparative information for the year ending 31 December 2005.
Business combinations prior to 1 January 2004 have not been restated to comply
with IFRS 3, 'Business Combinations'. The group has applied IFRS 2, 'Share-based
payment', retrospectively only to awards made after 7 November 2002 that had not
vested at 1 January 2005.
The preparation of financial statements in conformity with IFRS requires the use
of estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Although these estimates are
based on management's best knowledge of the amount, event or actions, actual
results may ultimately differ from those estimates.
3. ACCOUNTING POLICY CHANGES
An explanation of the changes in accounting policies as a result of adopting
IFRS, together with a full list of the revised accounting policies are shown in
note 24.
Notes to the financial statements
(continued)
4. Segmental analysis
Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
--------------------- -------- -------- -------- ---------
Primary segments
Investment property
Turnover 159.3 139.5 271.7
Operating costs (22.4) (19.7) (39.2)
---------------------------- -------- -------- ---------
Operating profit 136.9 119.8 232.5
(Loss)/gain on disposal of property
assets (3.0) 0.1 64.7
Net valuation gains 137.6 84.0 166.7
Share of profit from joint ventures
and associate after tax 5.3 20.9 24.9
---------------------------- -------- -------- ---------
Operating result 276.8 224.8 488.8
--------------------- -------- -------- -------- ---------
Trading property
Turnover 50.6 6.3 35.6
Operating costs/cost of sale (26.5) (2.4) (28.8)
---------------------------- -------- -------- ---------
Operating profit 24.1 3.9 6.8
Share of loss from joint ventures
after tax (0.3) (0.1) (0.8)
---------------------------- -------- -------- ---------
Operating result 23.8 3.8 6.0
--------------------- -------- -------- -------- ---------
Utilities and gas
Turnover 22.6 15.8 35.4
Cost of sales (23.6) (20.7) (42.8)
--------------------- -------- -------- -------- ---------
Operating result (1.0) (4.9) (7.4)
--------------------- -------- -------- -------- ---------
Operating result of 299.6 223.7 487.4
segments
Other investment income 3.3 3.2 10.5
Administration expenses (7.7) (6.3) (14.7)
Net finance costs (176.2) (47.0) (95.2)
Taxation (45.6) (46.7) (92.2)
--------------------- -------- -------- -------- ---------
Net profit for period 73.4 126.9 295.8
--------------------- -------- -------- -------- ---------
Geographic segments
Turnover
United Kingdom 106.2 106.3 211.7
Australia - Gas 3.5 1.5 4.7
Canada - 1.2 2.3
USA 89.1 39.2 73.1
Europe 33.7 13.4 50.9
--------------------- -------- -------- -------- ---------
232.5 161.6 342.7
--------------------- -------- -------- -------- ---------
Operating result of
segments
United Kingdom 193.4 150.6 301.4
Australia - Gas (1.8) (1.9) (3.3)
Canada - 4.2 5.0
USA 87.1 54.1 150.4
Europe 20.9 16.7 33.9
--------------------- -------- -------- -------- ---------
299.6 223.7 487.4
--------------------- -------- -------- -------- ---------
Notes to the financial statements
(continued)
4. Segmental analysis (continued) Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
----------------------------- -------- -------- --------
Property investment turnover
comprises
Rents
United Kingdom 83.9 89.7 174.1
Canada - 0.9 1.7
USA 58.9 32.0 61.5
Europe 10.6 10.4 21.0
----------------------------- -------- -------- --------
153.4 133.0 258.3
----------------------------- -------- -------- --------
Tenant recharges and other
United Kingdom 2.2 2.3 4.4
Canada - 0.3 0.7
USA 3.4 3.7 7.8
Europe 0.3 0.2 0.5
----------------------------- -------- -------- --------
5.9 6.5 13.4
----------------------------- -------- -------- --------
Total property investment revenue
United Kingdom 86.1 92.0 178.5
Canada - 1.2 2.4
USA 62.3 35.7 69.3
Europe 10.9 10.6 21.5
----------------------------- -------- -------- --------
159.3 139.5 271.7
----------------------------- -------- -------- --------
Rents include a significant surrender premium of £36.6m (half year 2004 £7.5m :
year 2004 £7.5m).
5. Revenue Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
----------------------------- -------- -------- --------
Rental income from investment
properties 153.0 132.6 257.4
Interest received on finance lease
assets 0.4 0.4 0.9
Service charge income 5.6 6.1 12.6
Miscellaneous property income 0.3 0.4 0.8
----------------------------- -------- -------- --------
Total property investment revenue 159.3 139.5 271.7
Proceeds on sale of trading properties 49.0 4.3 31.4
Trading property rental income 1.6 2.0 4.2
Sale of electricity, water and steam 19.1 14.3 30.7
Sale of oil and gas 3.5 1.5 4.7
----------------------------- -------- -------- --------
Total revenue 232.5 161.6 342.7
----------------------------- -------- -------- --------
6. Net valuation gains
The total valuation gains and losses for the period are shown in the financial
statements as follows:
Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
----------------------------- -------- -------- --------
Income statement 137.6 84.0 166.7
Statement of recognised income and
expense 7.5 3.2 24.1
----------------------------- -------- -------- --------
Total valuation gains of group
companies 145.1 87.2 190.8
----------------------------- -------- -------- --------
The valuation gains and losses of joint ventures and associate are included
within their results shown on the face of the income statement and are excluded
from the above figures.
Notes to the financial statements
(continued)
7. Finance costs Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
-------------------------------- -------- -------- --------
Interest on bank loans and overdrafts 11.6 9.7 20.5
Interest on other loans 46.6 46.9 95.9
Interest on convertible redeemable
preference shares 6.6 - -
Unwinding of discount on the pensions
liability less return on assets 0.7 0.4 0.9
Unwinding of discount on provisions 0.2 0.2 0.5
-------------------------------- -------- -------- --------
Total borrowing costs 65.7 57.2 117.8
Less amount charged to : the
development of trading properties (0.4) (0.7) (0.8)
: the development of investment
properties (8.5) (6.1) (14.0)
: the development of other assets (0.5) (0.8) (1.2)
-------------------------------- -------- -------- --------
Net borrowing cost 56.3 49.6 101.8
Fair value losses on interest rate
swaps and other derivatives 2.0 - -
Exchange differences - - 0.1
-------------------------------- -------- -------- --------
Total finance costs 58.3 49.6 101.9
-------------------------------- -------- -------- --------
-------------------------------- -------- -------- --------
Exceptional loss on exchange of bonds
(see explanation below) 125.6 - -
-------------------------------- -------- -------- --------
On 10 May 2005 the group announced a debt exchange programme whereby holders of
the following bonds were offered the chance to exchange the bonds at market
value plus an incentive into new longer dated current coupon bonds:
£50m 10% Euro Bond 2007
£31.8m 12.375% Unsecured Loan Stock 2009
£100m 11.625% Euro Bond 2012
£100m 10% Euro Bond 2017
£40m 11.25% 1st Mortgage Debenture 2019
The three shorter dated bonds were exchanged into a new unsecured issue bearing
a coupon of 5.5% with a maturity date of 2018. The two longer dated bonds were
exchanged into a new unsecured issue bearing a coupon of 5.75% with a maturity
date of 2035. Those investors unable to hold the new bonds because of duration
mismatches or because of the unsecured nature of the new bonds were offered a
cash-out alternative whereby the company bought back the new bonds for
redemption.
The proposals were voted on at bondholders' EGMs on 8 June 2005 and as over 75%
of all holders of each issue voted in favour of the proposals, they were adopted
in full and the old bonds were effectively redeemed on 21 June 2005 and were
replaced with the following new debt.
£200m 5.5% Euro Bond 2018
£100m 5.75% Euro Bond 2035
£146m of new bank line drawings at circa 5%
The cost of the exchange reflecting the mark-to-market fair value of the old
bonds plus the £4.9m incentive fee results in a once-off tax deductible finance
charge of £125.6m to the half year income statement. However, future cash
interest charges should be reduced by circa £11.0m per annum.
-------------------------------- -------- -------- --------
8. Finance income Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
-------------------------------- -------- -------- --------
Interest received on bank deposits 6.4 2.5 6.7
Fair value gains on interest rate
swaps and other derivatives 0.7 - -
Exchange differences 0.6 0.1 -
-------------------------------- -------- -------- --------
7.7 2.6 6.7
-------------------------------- -------- -------- --------
Notes to the financial statements
(continued)
9. Share of profit from joint Half year to Half year to Year to
ventures and associate after tax
30 June 30 June 31 December
2005 2004 2004
£m £m £m
---------------------------------- -------- -------- --------
Group share of :
Operating profit before finance and
valuation gains 4.3 7.6 15.4
Finance cost (1.3) (1.3) (2.7)
Valuation gains 2.4 17.7 15.4
---------------------------------- -------- -------- --------
Profit before tax 5.4 24.0 28.1
Current taxation (0.5) (0.4) (1.1)
Deferred taxation 0.1 (2.8) (2.9)
---------------------------------- -------- -------- --------
Profit after tax 5.0 20.8 24.1
---------------------------------- -------- -------- --------
10. Taxation Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
---------------------------------- -------- -------- --------
Current tax
Corporation tax charge at 30 per
cent 13.5 11.0 15.0
(2004 30 per cent)
Tax in respect of property disposals - - 34.4
---------------------------------- -------- -------- --------
13.5 11.0 49.4
---------------------------------- -------- -------- --------
Deferred tax
Origination and reversal of timing
differences 10.9 10.7 30.1
Released in respect of property
disposals in the period (0.9) - (51.6)
On valuation surplus 38.8 21.8 58.2
---------------------------------- -------- -------- --------
Total deferred tax in respect of
investment properties 48.8 32.5 36.7
Released in respect of Quail West 12.7 - -
Other deferred tax (29.4) 3.2 6.1
---------------------------------- -------- -------- --------
Total deferred tax 32.1 35.7 42.8
---------------------------------- -------- -------- --------
Total tax on profit on ordinary
activities 45.6 46.7 92.2
---------------------------------- -------- -------- --------
A contingent tax asset of £93.9m relating to unused indexation allowances has
not been recognised in the financial statements due to the restrictions in IFRS
(see note 24(a)).
11. Dividends Half year to Half year to Year to
30 June 30 June 31 December
2005 2004 2004
£m £m £m
---------------------------------- -------- -------- --------
Ordinary dividends paid
Final dividend for the year ended 31
December 2004 @ 9.85p per share 41.6 - -
Final dividend for the year ended 31
December 2003 @ 9.2p per share - 38.4 38.4
Interim dividend for the year ended
31 - - 25.7
December 2004 @ 6.15p per share -------- -------- --------
----------------------------------
41.6 38.4 64.1
---------------------------------- -------- -------- --------
The board have proposed an interim dividend of 6.5p per share (2004 6.15p). As
required by IFRS this dividend is not recognised in the financial statements
until paid.
The preference dividend paid during the period of £5.6m (2004 half year £5.6m;
year 2004 £11.2m) is included in 2005 within finance costs.
Notes to the financial
statements (continued)
12. Earnings and net assets Half year to Half year to Year to
per ordinary share
30 June 30 June 31 December
2005 2004 2004
--------------------------- ---- --- ------- -------- -------- --------
Earnings per ordinary
share
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 420.7 418.2 418.6
Less weighted average
number
of shares held by ESOP Shares m (1.7) (1.4) (1.4)
--------------------------- ------- -------- -------- --------
Basic weighted average
number
of shares a Shares m 419.0 416.8 417.2
Dilution adjustments:
Preference shares Shares m 47.1 50.4 50.4
Share options and
save-as-you-earn schemes Shares m 1.5 1.3 1.3
--------------------------- --- ------- -------- -------- --------
Diluted weighted average
number of shares b Shares m 467.6 468.5 468.9
--------------------------- ---- ------- -------- -------- --------
Earnings used for the calculation of earnings per share is
as follows:
Attributable profit c £m 71.6 122.0 285.8
Dividends on preference
shares £m 6.6 5.6 11.2
--------------------------- ---- ------- -------- -------- --------
d £m 78.2 127.6 297.0
Deferred tax relating to
investment properties £m 10.9 12.2 30.1
Revaluation surpluses
including joint ventures
and associate
net of deferred tax and
minority £m (101.7) (76.8) (146.3)
Add back exceptional losses
on repayment of bonds net
of tax £m 88.0 - -
Profits and losses on sale
of investment properties net
of tax and minorities £m 2.1 (0.1) (54.6)
Add back profit on the sale
of Quail West net of tax £m (9.5) - -
--------------------------- ---- ------- -------- -------- --------
Adjusted diluted earnings e £m 68.0 62.9 126.2
--------------------------- ---- ------- -------- -------- --------
Adjusted basic earnings f £m 61.4 57.3 115.0
--------------------------- ---- ------- -------- -------- --------
Earnings per ordinary
share
Basic c/a pence 17.1 29.3 68.5
Basic adjusted f/a pence 14.7 13.7 27.6
Diluted d/b pence 16.7 27.2 63.4
Diluted adjusted e/b pence 14.5 13.4 26.9
Net assets per ordinary
share
The number of ordinary shares used for the calculation of net assets per
share is as follows:
Number of shares in issue Shares m 422.9 418.7 419.3
Less number of shares held
by
ESOP Shares m (1.7) (1.2) (1.4)
--------------------------- ----- ------- -------- -------- --------
Basic number of shares h Shares m 421.2 417.5 417.9
Dilution adjustments:
Preference shares Shares m 47.1 50.4 50.4
Share options and
save-as-you-earn schemes Shares m 1.5 1.4 1.3
--------------------------- ----- ------- -------- -------- --------
Diluted number of shares l Shares m 469.8 469.3 469.6
--------------------------- ----- ------- -------- -------- --------
Equity used for the calculation of net assets
per ordinary share is as follows:
Total equity attributable
to ordinary shareholders £m 2,118.7 1,888.6 2,034.3
Less shares held by ESOP £m (6.9) (4.4) (5.2)
--------------------------- ----- ------- -------- -------- --------
Restated equity j £m 2,111.8 1,884.2 2,029.1
Adjustment to exclude
deferred tax on investment
properties
and latent CGT on
revaluation surpluses £m 513.2 460.2 457.3
--------------------------- ----- ------- -------- -------- --------
Adjusted equity
attributable k £m 2,625.0 2,344.4 2,486.4
to ordinary shareholders
Dilution adjustment for
preference shares £m 106.4 136.0 136.0
--------------------------- ----- ------- -------- -------- --------
Adjusted diluted equity
attributable to ordinary
shareholders m £m 2,731.4 2,480.4 2,622.4
--------------------------- ----- ------- -------- -------- --------
Diluted equity attributable
to ordinary shareholders n £m 2,218.2 2,020.2 2,165.1
--------------------------- ----- ------- -------- -------- --------
Net assets per ordinary
share
Basic j/h pence 501 451 486
Basic adjusted for deferred
tax on investment property k/h pence 623 562 595
Diluted n/l pence 472 430 461
Diluted adjusted for
deferred tax on investment
property m/l pence 581 529 558
Notes to the financial statements (continued)
12. Earnings and net assets per ordinary share (continued)
The group has also presented an adjusted basic earnings per share figure to
exclude the impact of profits and losses on the sale of investment properties
(net of taxation and minority interests), profit from the sale of Quail West,
loss on the refinancing of bonds, revaluation surpluses on investment properties
and deferred tax that would arise on the sale of investment properties. Adjusted
profit before tax for the six months to 30 June 2004 and the year to 31 December
2004 have also been reduced for comparative purposes, by a notional finance
charge in respect of the preference shares. This is the approximate charge that
would have applied for the periods had the group elected to apply IAS 32 and 39
with effect from 1 January 2004. 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 and the loss on the bond
repayment are excluded from adjusted earnings as these are non-recurring items.
Net assets per share are calculated using the equity shareholders' funds of
£2,111.8 million (2004 half year £1,884.2 million: year 2004 £2,029.1 million).
Adjusted net assets per share have been calculated on the same number of shares
but shareholders' funds exclude the deferred tax liability of £513.2 million
(2004 half year £460.2 million; year 2004 £457.3 million) as it is the opinion
of the directors that deferred tax on capital allowances and valuation surplus
in relation to investment properties is unlikely to crystallise materially in
practice.
13. Goodwill
The goodwill arising in the period relates to the acquisition of Mainland BV, a
company incorporated in the Netherlands. The main activity of this company is
the development and sale of trading properties.
14. Investment properties
Investment properties consist of completed land and buildings and properties in
the course of redevelopment. They exclude properties occupied by group companies
and land held for development and developments in the course of construction.
These are classified as property, plant and equipment in accordance with IAS 16
and are shown in note 15.
UK North America Europe Total
£m £m £m £m
--------------------- ------- -------- --------- --------- --------
At 1 January 2005 2,776.8 411.1 264.8 3,452.7
Exchange movement - 37.8 (12.5 ) 25.3
Additions 27.6 171.7 (1.7 ) 197.6
Disposals (13.5) (3.7) - (17.2)
Transfer from property, plant
and equipment 11.5 3.0 - 14.5
Surplus on valuation 127.3 11.0 5.6 143.9
------------------- ------- -------- --------- --------- --------
At 30 June 2005 2,929.7 630.9 256.2 3,816.8
------------------- ------- -------- --------- --------- --------
At 30 June 2004 2,525.5 595.0 250.0 3,370.5
------------------- ------- -------- --------- --------- --------
The group's properties were externally valued as at 30 June 2005 by CB Richard
Ellis, 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 valuation basis is
fair value, conforms to international valuation standards and was arrived at by
reference to market evidence of the transaction prices for similar properties.
All the valuers listed above are qualified valuers who hold a recognised and
relevant professional qualification and have recent experience in the relevant
location and category of the properties being valued.
CB Richard Ellis and DTZ Debenham Tie Leung also undertake some professional and
letting work on behalf of the group, although this activity is limited in
relation to the activities of the group as a whole. Both companies advise us
that the total fees paid by the group represent less than 5 per cent of their
total revenue in any year and have adopted policies for the regular rotation of
the responsible valuer.
Notes to the financial statements
(continued)
14. Investment properties
(continued)
The external valuation is included on the balance sheet
under the following headings:
30 June 30 June 31 December
2005 2004 2004
£m £m £m
------------------ --------- --------- -------- --------- --------
Investment property 3,816.8 3,370.5 3,452.7
Property included in
property, plant and
equipment 337.4 244.2 276.7
------------------ --------- --------- --------- --------
Total assets
externally valued 4,154.2 3,614.7 3,729.4
------------------ --------- --------- -------- --------- --------
15. Property, plant and equipment
Properties in Property Gas & Other plant
the course of held for utilities fixtures
development own use plant and fittings Total
£m £m £m £m £m
------------------ --------- --------- -------- --------- --------
Cost or valuation
At 1 January 2005 259.2 17.7 121.1 10.8 408.8
Exchange 8.0 - 2.0 - 10.0
Additions 70.2 - 7.6 0.9 78.7
Disposals (3.9) - - (0.2) (4.1)
Transfer to
investment property (14.5) - - - (14.5)
Revaluation surplus
during period 0.7 0.5 - - 1.2
Transfer to
assets-for-sale - - (83.6) - (83.6)
------------------ --------- --------- -------- --------- --------
At 30 June 2005 319.7 18.2 47.1 11.5 396.5
------------------ --------- --------- -------- --------- --------
Depreciation and
impairment
At 1 January 2005 - 0.2 6.3 7.5 14.0
Exchange - - 0.1 - 0.1
Additions - 0.3 2.1 0.5 2.9
Disposals - - - (0.1) (0.1)
Transfer to
assets-for-sale - - (2.0) - (2.0)
------------------ --------- --------- -------- --------- --------
At 30 June 2005 - 0.5 6.5 7.9 14.9
------------------ --------- --------- -------- --------- --------
Net book value at
30 June 2005 319.7 17.7 40.6 3.6 381.6
------------------ --------- --------- -------- --------- --------
Net book value at
31 December 2004 259.2 17.5 114.8 3.3 394.8
------------------ --------- --------- -------- --------- --------
Net book value at
30 June 2004 226.7 17.5 106.3 3.3 353.8
------------------ --------- --------- -------- --------- --------
Notes to the financial statements (continued)
16. Investments in joint ventures and associate
30 June 30 June 31 December
2005 2004 2004
£m £m £m
--------------------------- -------- -------- ---------
Joint ventures
At 1 January 80.2 199.4 199.4
Exchange movement 1.4 (0.7) (1.5)
Additions 6.1 1.7 7.3
Disposal - - (140.4)
Dividends received (2.5) (4.2) (8.2)
Share of profits after tax 4.6 20.6 23.6
--------------------------- -------- -------- ---------
At 30 June 89.8 216.8 80.2
--------------------------- -------- -------- ---------
Associate
At 1 January 3.9 3.9 3.9
Exchange movement 0.3 - (0.3)
Dividends received (0.3) (0.1) (0.2)
Share of profits after tax 0.4 0.2 0.5
--------------------------- -------- -------- ---------
At 30 June 4.3 4.0 3.9
--------------------------- -------- -------- ---------
Total investments in joint ventures and
associate 94.1 220.8 84.1
--------------------------- -------- -------- ---------
17. Borrowings 30 June 30 June 31 December
2005 2004 2004
£m £m £m
--------------------------- -------- -------- ---------
Maturity profile of group debt
In one year or less 331.1 8.0 39.2
In more than one year but less than two 35.7 28.2 7.3
In more than two years but less than five 271.9 381.0 473.7
In more than five years but less than ten 438.1 488.9 466.6
In more than ten years 888.9 746.6 735.9
--------------------------- -------- -------- ---------
Total group debt 1,965.7 1,652.7 1,722.7
--------------------------- -------- -------- ---------
Split between secured and unsecured
borrowings
Secured (on land and buildings) 92.0 183.0 175.5
Unsecured 1,873.7 1,469.7 1,547.2
--------------------------- -------- -------- ---------
1,965.7 1,652.7 1,722.7
--------------------------- -------- -------- ---------
Maturity profile of undrawn borrowing
facilities
In one year or less 54.5 41.2 47.3
In more than one year but less than two 20.4 11.5 -
In more than two years 334.6 348.4 275.9
--------------------------- -------- -------- ---------
Total available undrawn facilities 409.5 401.1 323.2
--------------------------- -------- -------- ---------
Fair value of borrowings
Book value 1,965.7 1,652.7 1,722.7
Net fair value 2,111.7 1,810.0 1,949.2
--------------------------- -------- -------- ---------
Pre-tax mark to market adjustment 146.0 157.3 226.5
Tax relief due on early
redemption/termination (43.8) (47.2) (68.0)
--------------------------- -------- -------- ---------
After tax mark to market adjustment 102.2 110.1 158.5
--------------------------- -------- -------- ---------
The borrowings as at 30 June 2005 include preference shares reclassified out of
equity amounting to £106.4m.
Notes to the financial statements (continued)
18. Provisions for liabilities and charges, pension deficit and deferred tax
Pension deficit Deferred tax Quail West Other Total
liabilities
£m £m £m £m £m
------------------------- ------- ------- ------- ------- -------
Balance at 1 January 2005 41.5 448.4 18.0 0.3 508.2
Exchange movement (0.1) 2.4 0.5 - 2.8
Charge/(credit) to income
statement 1.7 32.1 (18.7) - 15.1
Charge to SORIE 3.1 5.7 - - 8.8
Unwinding of the discounted
balance brought forward 0.7 - 0.2 - 0.9
Paid (16.7) - - - (16.7)
------------------------- ------- ------- ------- ------- -------
Balance at 30 June 2005 30.2 488.6 - 0.3 519.1
------------------------- ------- ------- ------- ------- -------
Balance at 30 June 2004 27.3 441.1 19.8 0.6 488.8
------------------------- ------- ------- ------- ------- -------
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.
30 June 30 June 31 December
2005 2004 2004
Deferred taxation in respect of : £m £m £m
---------------------------------- ------- ------ --------
Investment properties 513.2 460.2 457.3
Quail West provision - (13.9) (13.1)
Pension scheme deficit (10.0) (8.2) (11.9)
Other reserves (14.6) 3.0 16.1
---------------------------------- ------- ------ --------
488.6 441.1 448.4
---------------------------------- ------- ------ --------
Notes to the financial statements (continued)
19. Statement of movement in equity
Balance Restate Retained
1st January for IAS profit for Shares
2005 39 Exchange period SORIE issued
£m £m £m £m £m £m
------------------- -------- ------- -------- -------- ------ -------
Revaluation reserve
net of deferred tax 1,090.8 - 1.7 - 4.2 -
Equity reserve - 41.2 - - - -
Share based payments
reserve 0.3 - - - - -
Fair value reserve - 4.1 0.3 - - -
Unrealised surplus
reserve 47.4 - - - - -
Translation reserve
net of deferred tax (11.3) 2.0 0.2 - 3.9 -
------------------- -------- ------- -------- -------- ------ -------
Total other reserves 1,127.2 47.3 2.2 - 8.1 -
Revenue reserve 565.2 (18.7) 8.5 71.6 (5.4) -
Ordinary share capital 104.8 - - - - 0.1
Preference shares 34.0 (34.0) - - - -
Share premium 339.1 (98.2) - - - 1.3
Own shares held (5.2) - - - - -
------------------- -------- ------- -------- -------- ------ -------
Total equity
attributable
to equity
shareholders 2,165.1 (103.6) 10.7 71.6 2.7 1.4
------------------- -------- ------- -------- -------- ------ -------
Minority interests 19.4 - 0.8 1.8 - -
------------------- -------- ------- -------- -------- ------ -------
Total equity 2,184.5 (103.6) 11.5 73.4 2.7 1.4
------------------- -------- ------- -------- -------- ------ -------
Preference Balance
Dividend Reserve share 30 June
Other paid transfers conversions 2005
£m £m £m £m £m
------------------- -------- -------- -------- -------- ------ -------
Revaluation reserve net of
deferred tax - - 100.6 - 1,197.3
Equity reserve - - - (1.8) 39.4
Share based payments
reserve 0.1 - - - 0.4
Fair value reserve - - (1.3) - 3.1
Unrealised surplus
reserve - - - - 47.4
Translation reserve net of
deferred tax - - 0.8 - (4.4)
------------------- -------- -------- -------- -------- ------ -------
Total other reserves 0.1 - 100.1 (1.8) 1,283.2
Revenue reserve - (41.6) (100.1) - 479.5
Ordinary share capital - - - 0.8 105.7
Preference shares - - - - -
Share premium - - - 8.1 250.3
Own shares held (1.7) - - - (6.9)
------------------------ -------- -------- -------- ------ -------
Total equity attributable
to equity shareholders (1.6) (41.6) - 7.1 2,111.8
------------------------ -------- -------- ------ -------
Minority interests 0.6 (4.1) - - 18.5
------------------- -------- -------- -------- -------- ------ -------
Total equity (1.0) (45.7) - 7.1 2,130.3
------------------- -------- -------- -------- -------- ------ -------
SORIE is the term used for the Statement of Recognised Income and Expense.
---------------------------------------------------
Notes to the financial statements (continued)
20. Post balance sheet events
The group owns 54% of the common stock of Tipperary Corporation, an independent
oil and gas company based in Denver that owns 90% of the TOGA operations in
Queensland, Australia. The group has agreed to vote its shares in favour of the
merger agreement under which Australia-based Santos Limited will acquire 100% of
Tipperary Corporation's common stock at a price of US$7.39 per share. The group
has also agreed to sell its 10% direct holding in Tipperary Oil and Gas
Australia Pty Limited ('TOGA'). The group will receive US$222 million gross
including US$23 million debt it has outstanding with the company. After expenses
it is expected that the sale will produce in excess of US$175 million
(approximately £98 million) profit for the group. The transaction was completed
on 13 July 2005.
The group entered into an option agreement with WB Woodside II, L.P. and WB
Heywood L.P., two limited partnerships managed by a subsidiary of Moorfield
Group Limited, to acquire a controlling interest in a Unit Trust owning two
industrial estates for a consideration of £276 million in cash. These estates
are situated in Dunstable and Manchester. The option was exercised on 18 July
2005 and the purchase was completed on 26 July 2005.
21. Capital commitments 30 June 31 December
2005 2004
£m £m
------------------------------ -------- -------- --------
Property
- United Kingdom 55.1 36.6
- Overseas 153.3 147.5
Utilities 0.5 0.6
Other 0.2 17.3
------------------------------ -------- -------- --------
Total capital commitments 209.1 202.0
------------------------------ -------- -------- --------
22. Reconciliation of cash generated Half year to Half year to Year to
from operations
30 June 30 June 31 December
2005 2004 2004
£m £m £m
------------------------------ -------- -------- --------
Net operating income 290.2 199.8 459.1
Adjustments for:
Depreciation of property, plant and
equipment 2.9 1.8 4.5
Loss/(profit) on sale of properties 3.0 (0.1) (64.7)
Revaluations surplus on investment
properties (137.6) (84.0) (166.7)
Other provisions (18.7) (0.9) (1.7)
Other income re-allocated (3.3) (3.9) (11.0)
Changes in working capital:
Decrease/(increase) in trading
properties 26.4 (7.2) 6.9
Decrease/(Increase) in inventories 0.1 (0.1) (0.3)
Increase in debtors (10.5) (1.8) (33.6)
Increase in creditors 1.6 0.9 9.9
------------------------------ -------- -------- --------
Net cash inflow generated from
operations 154.1 104.5 202.4
------------------------------ -------- -------- --------
Notes to the financial statements (continued)
23. Acquisitions
On 28 June 2005, Anglo French Industrial Developments Limited, a group company,
incorporated a subsidiary, Slough BV, with issued share capital of 30,000
ordinary shares of €100.00 each. This company acquired 60% of the voting equity
in Mainland BV, a Kuiper Group company, on 28 June 2005 for £1.7 million cash.
Mainland BV specialises in the development of offices and industrial
accommodation in the Randstad region of the Netherlands. Based in Hoofdorp,
close to Schiphol airport, Mainland BV has an established and experienced
management team as well as a development pipeline comprising six sites located
around Schiphol and elsewhere in the Randstad which will enable the development
of 130,000 m(2) of office and industrial accommodation.
The acquisition has been accounted for using the purchase method of accounting.
Details of the book value and the fair value of the assets and liabilities at
the date of acquisition, after making the necessary adjustments, are summarised
as follows:
Book Fair value
value adjustment* Fair value
£m £m £m
-------------------------------- ------- -------- --------
Non-current assets - plant and office
equipment 0.1 - 0.1
Non-current assets - investment property 6.5 3.3 9.8
Receivables 1.2 - 1.2
Non-current liabilities falling due after
more than one year - Borrowings (4.0) - (4.0)
Non-current liabilities falling due after
more than one year - Other (0.8) - (0.8)
Current liabilities falling due within one
year - Borrowings (0.8) - (0.8)
Current liabilities falling due within one
year - Other (0.5) (3.3) (3.8)
-------------------------------- ------- -------- --------
Net assets of Mainland BV at date of
acquisition 1.7 - 1.7
Minority interests (0.6) - (0.6)
-------------------------------- ------- -------- --------
Group share of net assets 1.1 - 1.1
-------------------------------- ------- -------- --------
Goodwill 0.6
-------------------------------- ------- -------- --------
Total consideration 1.7
-------------------------------- ------- -------- --------
* Fair value of contractual liability to purchase investment property.
The group believes the premium paid over its share of the net assets of Mainland
BV represents the additional value of a strong local management team; a fully
established office in the Netherlands; a good network of contacts in the
Netherlands including local and regional authorities, agents, possible tenants,
and suppliers; and a well-known brand in the Dutch real estate market with a
proven history of successfully completing new developments.
Neither the group nor Mainland BV decided to dispose of any operations as a
result of the business combination.
The summary results of Mainland BV from the beginning of its financial year to
the date of acquisition are as follows:
1 January 2005 Year to
to 28 June 31 December
2005 2004
£m £m
------------------------------------ --------- ----------
Turnover - 2.2
------------------------------------ --------- ----------
Operating profit (0.3) (0.3)
Taxation 0.1 0.1
------------------------------------ --------- ----------
Profit after tax attributable to shareholders 0.2 0.2
------------------------------------ --------- ----------
There were no recognised gains or losses in the period other than the profit
attributable to shareholders.
Mainland BV had no turnover and incurred no costs during the period between the
date of acquisition and 30 June 2005.
Notes to the financial statements (continued)
24. Transition to International Financial Reporting Standards
24(a) Significant differences between UK GAAP and IFRS as at 31 December 2004
are summarised as follows:-
IAS 40 - Investment property
Under IAS 40, an investment property is recognised in the accounts at fair
value, with revaluation gains being taken directly to the group income statement
rather than the revaluation reserve. Accumulated revaluation surpluses relating
to investment properties as at the transition date have been reallocated to
retained earnings. This treatment does not, however, have any impact on the
distributable profits. As at 31 December 2004 valuation gains relating to
development properties amounting to £36.3m are held within revaluation reserves
under IAS 16 until the developments are completed, at which point the surplus
will be transferred to retained earnings.
IAS 12 - Income taxes
Under IAS 12, deferred tax is recognised on 'temporary differences' rather than
timing differences, which has been the basis in the UK under SSAP 15.
Timing differences, which focus on profit and loss movements, are the difference
between the taxable amount and the pre-tax accounting profit that originate in
one reporting period and reverse in one or more subsequent periods. Temporary
differences, which focus on balance sheet movements, are the differences between
the carrying amount of an asset or liability in the balance sheet and its tax
base.
In many cases, the deferred tax provision is the same under IAS 12 as under FRS
19. However, under FRS 19, deferred tax is not provided on the revaluation
surplus when a fixed asset is revalued without there being any commitment or
intention to sell the asset. IAS 12 requires deferred tax to be provided in
these circumstances. Where the revaluation has been reflected directly in
reserves, the deferred tax is also charged directly to reserves, with no impact
on earnings.
The tax provision has been mitigated by recognising indexation allowances on the
land element of the investment properties. As the group has no intention to sell
its investment properties, it cannot recognise the indexation relating to the
building element. The amount remains as a contingent asset and is disclosed in
note 10 of these financial statements.
IAS 19 - Employee benefits
This standard continues the measurement requirements of FRS 17 for defined
benefit pension schemes. In the group's 2004 financial statements these
measurement bases were disclosures whilst the accounts were drawn up under SSAP
24. The net effect for the year ended 31 December 2004 is to reduce profit
before tax by £0.7m. In addition, the prepayment recognised under UK GAAP in
respect of additional contributions (£0.5m at 31 December 2004) is not
recognised under IAS 19, while the net actuarial deficit of £41.5m is recognised
in full. Service costs, the expected return on pension scheme assets and
interest on pension scheme liabilities are charged in arriving at profit before
tax, while experience gains and losses flow through the Statement of Recognised
Income and Expense, broadly equivalent to UK GAAP's Statement of Recognised
Gains and Losses.
The group has decided to take advantage of the exemption in IAS 19 in relation
to defined benefit schemes not to adopt the corridor approach and has recognised
in full the pension scheme deficit on the balance sheet. The group is expecting
that the revised IAS 19 which permits this policy will receive EU endorsement.
IAS 31 - Interests in joint ventures and associate
Under UK GAAP, the group was required to recognise its share of the joint
ventures' and associate's profit before interest and its share of interest and
tax with the group figures on the face of the profit and loss account. The
group's aggregate share of the gross assets and gross liabilities of the joint
ventures and associate were shown separately on the balance sheet.
IAS 31 allows companies to make a one-time choice as to whether joint ventures
will be accounted under the equity method or proportionally consolidated. The
group has opted to use the equity method and report its joint ventures' and
associate's profit after tax as a single line in the income statement and its
share of the net assets as a single line in the balance sheet. Additional
disclosures will be made of the underlying income, expenditure, assets and
liabilities for the joint ventures, together with supplemental notes.
IAS 17 - Leases
IAS 17 requires a lease to be classified as either a finance lease or an
operating lease. A finance lease exists if substantially all the risks and
rewards are transferred to the tenant. The classification test is done
separately for the land and buildings elements of a lease whereas under UK GAAP
the test is done on the lease itself.
The group has tested all of its leases and has established that the majority are
operating leases. Some twelve finance leases have been identified and these are
accounted for as such.
Notes to the financial statements (continued)
24(a). Transition to International Financial Statements (continued)
The accounting treatment of a finance lease under IFRS is to assume that the
building has been effectively sold to the tenant. A receivable is recognised in
the balance sheet at the inception of the lease at an amount equal to the net
present value of the minimum lease payments. The impact on the balance sheet at
31 December 2004 is to reduce investment properties by £21.7m, increase
receivables by £11.0m and reduce retained earnings by £10.7m.
Under IFRS the rental income for the whole property is split into three
elements:
Rental income on the land;
Interest income on the debtor balance due from the tenant; and
Repayment of the debtor.
The impact on the previously reported 2004 UK GAAP net rental income is minimal.
Since the carrying value of the finance lease is not reassessed at each
reporting date, the open market value of the building may differ significantly
from the value of the finance lease receivable at that date.
Where an investment property is itself subject to a head or groundlease, that
headlease is treated as if it were a finance lease. In total four properties are
affected, leading to the recognition of a finance lease liability of £0.5m at 31
December 2004 and an increase in the carrying value of the group's properties by
£0.5m.
IAS 10 - Events after the balance sheet date
IAS 10 requires that a liability should not be recognised in respect of a
dividend until the paying company has an obligation to make the payment. This
would normally be when it was declared or approved at the annual general meeting
in the case of the final dividend for the year. As a result the 2004 proposed
final dividend of £41.3m is excluded from the IFRS balance sheet and written
back to retained earnings
IFRS also requires that dividends and distributions are presented in a different
way to current UK GAAP. Under IFRS, dividends are not considered to be an
expense of the paying company so they are not included in the income statement.
Instead, dividends are treated as a reserve item and are, therefore, presented
in the statement of changes in equity alongside other transactions with
shareholders.
IAS 32 and 39 - Financial instruments
The group has chosen to take the exemption permitted under IFRS from applying
IAS 32 and 39 in the year ended 31 December 2004. However, there are a number of
effects on the group's financial statements which will apply from 1 January
2005.
a) Preference shares
Under UK GAAP the group's cumulative redeemable convertible preference shares
were shown within share capital on the group's balance sheet. Under IFRS the
shares are considered to be a form of debt with an embedded derivative (known as
an equity instrument) in respect of the option for shareholders to convert.
The group has therefore split the value of the shares between a financial
liability (which is shown within liabilities) and an equity instrument (which is
shown within equity). Interest costs increase as a charge will arise in relation
to the financial liability shown within liabilities. The effect of this
accounting is to reduce the group's net assets, reduce profits and increase
liabilities.
There is no effect on the 2004 amounts as we have decided to apply IAS 32 and 39
with effect from 1 January 2005 as allowed by the standards. However, finance
charges increase by £13.8m in 2005, as a result of this change in accounting
policy.
b) Interest rate hedges and other derivatives
Under IFRS and as from 1 January 2005 the group is required to recognise the
fair value of its derivatives including interest rate hedges and currency swaps
on the balance sheet and movements in those values within the income statement.
Previously these were disclosed but not recognised in the group's accounts. The
group's interest rate hedges and currency swaps do not meet the strict criteria
set out in the standard for hedge accounting. Although the group is satisfied
that, economically, all of its interest rate hedges do indeed offset interest
rate exposures, the practical difficulty in forecasting accurately the amount
and timing of cash receipts and payments associated with investment portfolio
transactions means that the IAS 39 tests on hedge effectiveness may not be met.
In addition, in many cases, the length of the hedge could exceed the remaining
term of the group's committed bank facilities. As a result shareholders' funds
have been reduced by £2.9m at 1 January 2005.
Notes to the financial statements (continued)
24(a). Transition to International Financial Reporting Standards (continued)
c) Available-for-sale investments
Under UK GAAP, the group accounted for its available-for-sale investments at the
lower of cost and market value and these were shown in current assets on the
balance sheet. Profits and losses arising from their disposal were taken to
income.
Under IAS 39, these investments are carried at fair value and classified in the
balance sheet as available-for-sale investments under non-current assets.
Movements in fair value are taken directly to equity and recycled through the
income statement when the investments are realised.
SIC-15 - Operating leases - incentives
The cost of rent free periods and other incentives given to tenants under
operating leases are spread over the term of the lease rather than, as under UK
GAAP, to the first review to market rents. Further, there are no transitional
provisions so that incentives granted before IFRS came into effect have now been
brought back into account. This will change the timing but not the aggregate
amount recognised in relation to lease incentives.
IFRS 3 - Business combinations
Goodwill arising on acquisitions is not amortised under IFRS, but is subject to
impairment review at each reporting date.
The group's property acquisition arising from the exchange of properties with
Land Securities Group plc has been treated as an acquisition of assets rather
than a business combination. Adjustments have therefore been made in 2004 to
remove the negative goodwill of £4.7m and deferred tax of £4.1m created under UK
GAAP.
IFRS 2 - Share-based payment
IFRS 2 requires the cost of granting share options and other share-based
remuneration to employees and directors to be recognised through the income
statement. The group has used the Black-Scholes option valuation model and the
resulting fair value is being charged through the income statement over the
vesting period of the options. Fair value takes account of the likelihood of the
options becoming 'in the money' in the future. This results in a credit to the
income statement in the year of £0.4m, which is net of provisions previously
made by the group in respect of the cost of certain of the share-based
compensation arrangements. Only share based transactions after 7 November 2002
that had not vested by 1 January 2005 have been restated, as permitted by the
Standard.
24(b) Summary of significant accounting policies under IFRS
Basis of consolidation
Prior to the introduction of IFRS, the group had prepared its financial
statements under United Kingdom accounting standards. As a result of adopting
IFRS it has been necessary to change many of the group's accounting policies and
these are shown below.
The consolidated financial statements of the group include the financial
statements of Slough Estates plc ('the Company') its subsidiaries(collectively
referred to as 'the group') and the group's share of profits and losses and net
assets of joint ventures and associate made up to 30 June 2005.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
other members of the group.
Intra-group balances and any unrealised gains and losses arising from
intra-group transactions 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 interest in the joint venture concerned.
Unrealised losses are eliminated in the same way, but only to the extent that
there is no evidence of impairment.
Investments in associates
An associate is an entity over which the group is in a position to exercise
significant influence, but not control, through participation in the financial
and operating policy decisions of the investee.
The results and assets and liabilities of associates are incorporated in these
financial statements using the equity method of accounting. Investments in
associates are carried in the balance sheet at cost, adjusted by
post-acquisition changes in the group's share of the net assets of the
associates, less any impairment in the value of individual investments of the
associates.
Where a group entity transacts with an associate of the group, unrealised
profits and losses are eliminated to the extent of the group's interest in the
relevant associate, except to the extent that unrealised losses provide evidence
of an impairment of the asset transferred.
Interests in joint ventures
A joint venture is a contractual arrangement whereby the group and other parties
undertake an economic activity that is subject to joint control.
Notes to the financial statements (continued)
24(b). Summary of significant accounting policies under IFRS (continued)
Where a group company undertakes its activities under joint venture arrangements
directly, the group's share of jointly controlled assets and any liabilities
incurred jointly with other venturers are recognised in the financial statements
of the group and classified according to their nature. Liabilities and expenses
incurred directly in respect of interests in jointly controlled assets are
accounted for on an accrual basis.
Joint venture arrangements which involve the establishment of a separate entity
in which each venturer has an interest are referred to as jointly controlled
entities. The group reports its interests in jointly controlled entities using
the equity method of accounting. Investments in joint ventures are carried in
the balance sheet at cost as adjusted by post-acquisition changes in the group's
share of the net assets of the joint ventures, less any impairment in the value
of individual investments of the joint ventures.
Where the group transacts with its jointly controlled entities, unrealised
profits and losses are eliminated to the extent of the group's interest in the
relevant joint venture, except to the extent that unrealised losses provide
evidence of an impairment of the asset transferred.
On disposal of a subsidiary, associate or jointly controlled entity, the
attributable amount of goodwill is included in the determination of the profit
or loss on disposal.
Goodwill
On acquisition, the assets and liabilities of a subsidiary, joint venture or
associate that are accounted for as business combinations are measured at their
fair value at the date of acquisition. Any excess (deficiency) of the joint
venture's or associate's cost of acquisition over (below) the fair value of the
identifiable net assets acquired is recognised as goodwill (negative goodwill).
Goodwill is carried in the balance sheet at cost less any accumulated
impairment. Negative goodwill is immediately recognised in the income statement.
Derivative financial instruments (derivatives)
The group uses derivatives, particularly interest rate swaps, to help manage its
interest rate risk. The group does not hold or issue derivatives for trading
purposes.
Derivatives are recognised initially at cost. Subsequent to initial recognition,
derivatives are stated at fair value. The gain or loss on re-measurement to fair
value is recognised immediately in the income statement, unless the derivatives
qualify for hedge accounting, in which case recognition depends on the nature of
the item being hedged. Currently none of the group's derivatives qualify for
hedge accounting.
Foreign currencies
Transactions in currencies other than sterling are initially recorded at the
rates of exchange prevailing on the dates of the transactions. Monetary assets
and liabilities denominated in such currencies are retranslated at the rates
prevailing on the balance sheet date. Profits and losses arising on
retranslation are included in the income statement, except where foreign
currency denominated loans are designated as a hedge of the group's investment
in its overseas subsidiaries. In this case the exchange difference is taken to
equity until the realisation of the overseas investment and then it is
transferred to the income statement as part of the profit or loss on
realisation.
On consolidation, the assets and liabilities of the group's overseas operations
are translated into sterling at exchange rates prevailing on the balance sheet
date. Exchange differences arising, if any, are classified as equity and
transferred to the group's translation reserve. Such translation differences are
recognised as income or expenses in the period in which the operation is
disposed of. Income and expense items are translated at the average exchange
rates for the period.
Investment property
Investment properties are those properties that are held either to earn rental
income or for capital appreciation or both. Investment properties may be
freehold properties or leasehold properties. For leasehold properties that are
classified as investment properties, the associated leasehold obligations are
accounted for as finance lease obligations.
Valuation surpluses and deficits arising in the period are included in the
income statement.
Existing investment properties undergoing redevelopment, for the purpose of
earning future rental income, continue to be accounted for as investment
properties.
Investment properties are measured initially at cost, including related
transaction costs. After initial recognition at cost, investment properties are
carried at their fair values based on a professional valuation made as of each
reporting date. Properties are treated as acquired at the point when the group
assumes the significant risks and returns of ownership and as disposed when
these are transferred to the buyer. Additions to investment properties consist
of costs of a capital nature and, in the case of investment properties under
development, capitalised interest. Certain internal staff and associated costs
directly attributable to the management of developments under construction are
also capitalised.
When the group begins to redevelop an existing investment property with a view
to sale, the property is transferred to trading properties and held as a current
asset. The property is re-stated to fair value as at the date of the transfer,
with any gain or loss being taken to the group income statement. The re-stated
amount becomes the deemed cost at which the property is then carried in trading
properties.
Notes to the financial statements (continued)
24(b). Summary of significant accounting policies under IFRS (continued)
Property that is being constructed or developed for future use as an investment
property, but which has not previously been classified as such, is classified as
investment property under development within property, plant and equipment. This
is recognised initially at cost but is subsequently re-stated to fair value at
each reporting date. Any gain or loss on re-statement is taken direct to equity
unless a loss in the period exceeds the net cumulative gain previously
recognised in equity. In the latter case, the amount by which the loss in the
period exceeds the net cumulative gain previously recognised is taken to the
income statement. On completion, the property is transferred to investment
property with any final difference on re-measurement accounted for in accordance
with the foregoing policy.
The gain or loss arising on the disposal of a property is determined as the
difference between the sales proceeds and the carrying amount of the asset at
the beginning of the period and is recognised in the group income statement.
Property, plant and equipment
Properties under this heading comprise those properties acquired for development
and completed properties occupied by group companies. They are fair valued on
the same basis as investment properties.
Surpluses and deficits arising on the revaluation of such land and buildings is
credited to the revaluation reserve, except to the extent that it reverses a
revaluation deficit for the same asset previously recognised in income, in which
case the increase is credited to the income statement to the extent of the
deficit previously charged. A decrease in carrying amount arising on the
revaluation of such land and buildings is charged as an expense to the extent
that it exceeds the balance, if any, held in the revaluation reserve relating to
a previous revaluation of that asset.
On the subsequent sale or retirement of a revalued property, the attributable
revaluation surplus remaining in the revaluation reserve is transferred directly
to accumulated profits.
The gain or loss arising on the disposal or retirement of an asset is determined
as the difference between the sales proceeds and the carrying amount of the
asset at the beginning of the period and is recognised in the income statement.
Owner-occupied properties are depreciated over their estimated useful lives,
normally 30 years.
Plant and equipment comprise the power station assets, oil and gas plant and
equipment of Tipperary Corporation, computers, motor vehicles, furniture,
fixtures and fittings, and improvements to group offices. These assets are
stated at cost less accumulated depreciation and are depreciated on a
straight-line basis over their estimated useful lives.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
Group company as lessee
a) Operating leases - leases in which the group does not have substantially all
risks and rewards of ownership are classified as operating leases. Payments,
including prepayments, made under operating leases (net of any incentives
received from the lessor) are charged to the income statement on a straight-line
basis over the period of the lease.
b) Finance leases - leases of assets where the group has substantially all the
risks and rewards of ownership are classified as finance leases. Finance leases
are capitalised at the lease commencement at the lower of the fair value of the
asset and the present value of the minimum lease payments. Each lease payment is
allocated between the liability and finance charges so as to achieve a constant
rate on the finance balance outstanding. The corresponding rental obligations,
net of finance charges, are included in current and non-current borrowings. The
finance charges are charged to the income statement over the lease period so as
to produce a constant periodic rate of interest on the remaining balance of the
liability for each period. Investment properties acquired under finance leases
are carried at their fair value.
Group company as lessor
a) Operating leases - properties leased out to tenants under operating leases
are included in investment properties in the balance sheet.
b) Finance leases - when assets are leased out under a finance lease, the
present value of the minimum lease payments is recognised as a receivable. The
difference between the gross receivable and the present value of the receivable
is recognised as unearned finance income. Lease income is recognised over the
term of the lease using the net investment method before tax, which reflects a
constant periodic rate of return. Where only the buildings element of a property
lease is classified as a finance lease, the land element is shown within
investment properties.
Trading properties
Properties developed and held for sale are classified as trading properties and
are shown at the lower of cost and net realisable value. Cost includes direct
expenditure and interest capitalised during the development period. The
development period ends on practical completion.
Notes to the financial statements (continued)
24(b). Summary of significant accounting policies under IFRS (continued)
Profit from pre-sold trading developments is recognised according to the stage
reached in the contract by reference to the value of work completed using the
percentage of completion method. An appropriate estimate of the profit
attributable to work completed is recognised once the outcome of the contract
can be estimated reliably. The amount due from customers for contract work is
shown as a receivable. The amount due comprises costs incurred plus recognised
profits, less the sum of recognised losses and progress billings. Where the sum
of recognised losses and progress billings exceeds costs incurred plus
recognised profits, the amount is shown as a liability.
Inventories
Inventories (utilities and oil and gas) are stated at the lower of cost and net
realisable value. Cost comprises direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition. Cost is calculated on a
first in, first out basis. Net realisable value represents the estimated selling
price less all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
Trade and other receivables
Trade and other receivables are recognised initially at fair value. A provision
for impairment of trade receivables is established where there is objective
evidence that the group will not be able to collect all amounts due according to
the original terms of the receivables concerned.
Available-for-sale investments
Available-for-sale investments are non-derivative financial assets that are
designated as available-for-sale. These represent mainly the investments in
Charterhouse USA, Candover and certain warrants in US companies who are tenants
of the group.
The investments are held at fair value with gains and losses taken to equity.
The gains and losses taken to equity are recycled through the income statement
on realisation. If there is objective evidence that the asset is impaired the
cumulative loss that had been recognised directly in equity is removed from
equity and recognised in the income statement. The amount removed from equity
and recognised in the income statement, is the difference between the
acquisition cost (net of any principal repayment and amortisation) and current
fair value, less any impairment loss on that financial asset previously
recognised in income.
Impairment losses recognised in the income statement are not reversed through
income.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, deposits held at call with
banks and other short-term highly liquid investments with original maturities of
three months or less. Bank overdrafts that are repayable on demand and which
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.
Impairment
The group's assets are, other than investment properties, reviewed at each
reporting date to determine whether there is any indication of impairment. If
any such indication exists, the asset's recoverable amount is estimated (see
below). An impairment loss is recognised in income whenever the carrying amount
of an asset exceeds its recoverable amount. For the purposes of assessing
impairment, assets are grouped together at the lowest levels for which there are
separately identifiable cash flows.
The recoverable amount of an asset is the greater of its net selling price and
its value-in-use. The value-in-use is determined as the net present value of the
future cash flows expected to be derived from the asset, discounted using a
pre-tax discount rate that reflects current market assessments of the time value
of money and the risks specific to the asset. Any impairment of financial assets
is based on the original effective interest rate attributable to the financial
asset on acquisition.
An impairment loss is reversed if there has been a change in the estimates used
to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset's carrying amount after the reversal does not exceed the
amount that would have been determined, net of applicable depreciation, if no
impairment loss had been recognised.
Share capital
Ordinary shares are classed as equity. External costs directly attributable to
the issue of new shares are shown in equity as a deduction, net of tax, from the
proceeds.
Where any group company purchases the company's equity share capital, the
consideration paid, including any directly attributable incremental costs (net
of income taxes), is deducted from equity attributable to the company's equity
holder until the shares are cancelled, reissued or disposed of. Where such
shares are subsequently sold or reissued, any consideration received, net of any
directly attributable incremental transaction costs and the related income tax
effects is included in equity attributable to the company's equity holders.
Notes to the financial statements (continued)
24(b). Summary of significant accounting policies under IFRS (continued)
Borrowings
Borrowings other than bank overdrafts are recognised initially at fair value
less attributable transaction costs. Subsequent to initial recognition,
borrowings are stated at amortised cost with any difference between the amount
initially recognised and redemption value being recognised in the income
statement over the period of the borrowings, using the effective interest
method.
Convertible redeemable preference shares
The convertible redeemable preference shares are regarded as compound
instruments, consisting of a liability component and an equity component. At the
date of issue, the fair value of the liability component is estimated using the
prevailing market interest rate at the time of issue for similar non-convertible
debt. The difference between the net proceeds of issue of the convertible
redeemable preference shares and the fair value assigned to the liability
component, representing the embedded option to convert the liability into equity
of the group, is included in equity (capital reserves).
Issue costs are apportioned between the liability and equity components of the
convertible redeemable preference shares based on their relative carrying
amounts at the date of issue. The portion relating to the equity component is
charged directly against equity.
The interest expense on the liability component is calculated by applying the
prevailing market interest rate at the time of issue for similar non-convertible
debt to the liability component of the instrument. The difference between this
amount and the interest paid is added to the carrying amount of the convertible
loan note.
Pensions
The obligations of defined benefit pension schemes are measured at discounted
present value while scheme assets are measured at their fair value. The
operating and financing costs of such plans are recognised separately in the
income statement; service costs are spread systematically over the working lives
of the employees concerned and financing costs are recognised in the periods in
which they arise. Actuarial gains and losses arising from either experience
differing from previous actuarial assumptions or changes to those assumptions
are recognised immediately in the statement of recognised income and expense.
Contributions to defined contribution schemes are expensed as incurred. The
retirement benefit obligation recognised in the balance sheet represents the
present value of the defined benefit obligation.
Provisions
A provision is recognised in the balance sheet when the group has a constructive
or legal obligation as a result of a past event and it is probable that an
outflow of economic benefits will be required to settle the obligation. If the
effect is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be
derived by the group from a contract are lower than the unavoidable cost of
meeting its obligations under the contract.
Provision is made for dilapidations that will crystallise in the future where,
on the basis of the present condition of the property, an obligation exists at
the reporting date and can be reliably measured. The estimate is revised over
the remaining period of the lease to reflect changes in the condition of the
building or other changes in circumstances. The estimate of the obligation takes
account of relevant external advice.
Trade and other payables
Trade and other payables are stated at cost.
Revenue
Revenue comprises rental income, service charges and other recoveries from
tenants of the group's investment and trading properties and proceeds of sales
of its trading properties. Rental income includes the net income from managed
operations such as car parks, food courts and serviced offices. Service charges
and other recoveries include income in relation to service charges and directly
recoverable expenditure together with any chargeable management fees. Where
revenue is obtained from the rendering of services, it is recognised by
reference to the stage of completion of the relevant transactions at the
reporting date.
Rental income from investment property leased out under operating lease 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 net
consideration for the use of the property and are therefore also recognised on
the same, straight-line basis.
When property is let out under a finance lease, the group recognises a
receivable at an amount equal to the net investment in the lease at inception of
the lease. Rentals received are accounted for as repayments of principal and
finance income as appropriate.
Notes to the financial statements (continued)
24(b). Summary of significant accounting policies under IFRS (continued)
Minimum lease payments receivable on finance leases are apportioned between
finance income and reduction of the outstanding receivable. Finance income is
allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining net investment in the finance lease.
Contingent rents, being those lease payments that are not fixed at the inception
of a lease, for example increases arising on rent reviews, are recorded as
income in the periods in which they are earned. Rent reviews are recognised as
income when it is reasonable to assume that they will be received. Rent reviews
are recognised as income based on estimates to be received or amounts received.
Surrender premiums received in the period from tenants vacating the property
before the end of the lease are included in rental income.
A property is regarded as sold when the significant risks and returns have been
transferred to the buyer. For conditional exchanges, sales are recognised as the
conditions are satisfied.
Share-based payments
The cost of granting share options and other share-based remuneration to
employees and directors is recognised through the income statement. The group
has used the Black-Scholes option valuation model and the resulting value is
amortised through the income statement over the vesting period of the options.
The charge is reversed if it appears likely that the performance criteria will
not be met.
Own shares held in connection with employee share plans or other share based
payment arrangements are treated as treasury shares and deducted from equity,
and no profit or loss is recognised on their sale, issue or cancellation.
Borrowing costs
Gross borrowing costs relating to direct expenditure on properties under
development or undergoing major refurbishment are capitalised. The interest
capitalised is calculated using the group's weighted average cost of borrowings.
Interest is capitalised as from the commencement of the development work until
the date of practical completion. The capitalisation of finance costs is
suspended if there are prolonged periods when development activity is
interrupted.
All other borrowing costs are recognised in the group income statement in the
period in which they are incurred.
Income tax
Income tax expense represents the sum of the tax currently payable and deferred
tax.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax basis used in the computation of taxable
profit, and is accounted for using the balance sheet liability method. Deferred
tax liabilities are generally recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary differences
can be utilised. Such assets are not recognised if the temporary differences
arise from goodwill (or negative goodwill) or from the initial recognition
(other than in a business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting profit.
No provision is made for temporary differences arising on the initial
recognition of assets or liabilities that affect neither accounting nor taxable
profit.
Indexation relief on land is recognised as a reduction of the deferred tax
liability but not on the buildings unless the properties are in the process of
being sold.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profit will be available to allow all or part of the asset to be
recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the group is entitled to settle its
current tax assets and liabilities on a net basis.
Segment reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that is
subject to risks and returns that are different from those of segments operating
in other economic environments.
The group's primary reporting segments are investment properties and trading
properties.
Notes to the financial statements (continued)
24(b). Summary of significant accounting policies under IFRS (continued)
Dividend distribution
Dividend distribution to the Company's shareholders is recognised as a liability
in the group's financial statements in the period in which the dividends are
approved.
Interim measurement note
Current income tax
Current income tax expense is recognised in these interim consolidated financial
statements based on management's best estimates of the weighted average annual
income tax rate expected for the full financial year.
Costs
Costs that incur unevenly during the financial year are anticipated or deferred
in the interim report only if it would also be appropriate to anticipate or
defer such costs at the end of the financial year.
Notes to the financial statements (continued)
24(c) Restatement for International Financial Reporting Standards
Reconciliation of opening shareholders' equity as previously reported under UK
GAAP to International Financial Reporting Standards
Year to Half year to Year to
31 December 30 June 31 December
Note 2004 2004 2003
£m £m £m
---------------------------- ----- -------- ------- --------
Shareholders' equity previously
reported under UK GAAP 2,446.2 2,293.1 2,176.1
Effects of adopting IAS
Proposed dividends 1 41.3 25.7 38.4
Business combinations 2 7.4 - -
Operating lease incentives 3 (9.4) (6.4) (4.7)
Joint ventures and associate 4 (8.2) (8.9) (6.1)
Finance leases as lessor 5 (10.7) (8.8) (8.5)
Deferred tax 6 (260.3) (247.0) (225.0)
Pension scheme deficit 7 (41.0) (26.7) (29.5)
Fair value of share based payments 8 1.3 0.9 0.8
Other (1.5) (1.7) 0.9
---------------------------- ----- -------- ------- --------
Shareholders' equity restated
under IAS 2,165.1 2,020.2 1,942.4
---------------------------- ----- -------- ------- --------
Notes
1. IAS 10 - Ordinary dividend excluded from the income statement. Recognised on
the balance sheet when approved.
2. IFRS 3 - The acquisition of Ravenseft has been treated as a property
acquisition. Goodwill and deferred tax on acquisition have been eliminated.
Opted to apply this standard with effect from 1 January 2004.
3. SIC 15 - Lease incentives amortised over period of lease or to the
first break whichever is the shorter.
4. IAS 28 & 31 - Equity account for the results of joint ventures and
associate's profits, including its share of valuation surpluses and
deficits, interest and taxation as a one line entry in profit before tax.
The reduction in shareholders' funds arises principally from deferred
taxation provided on revaluation surpluses.
5. IAS 17 - Finance leases included on the balance sheet as a debtor. No
revaluation. Previously accounted for as investment property.
6. IAS 12 - Mainly deferred tax on investment property valuation surpluses,
with movements in the income statement. Previously disclosed in the notes.
7. IAS 19 - Recognise in full the cumulative deficits at the transition date
1 January 2004 - corridor approach not adopted.
8. IFRS 2 - Share option plans fair valued at the date of grant and costs taken
to the income statement over the vesting period. Transitional exemption
used.
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group income statement - Reconciliation of reported profits between UK GAAP and
IFRS for the twelve months ended 31 December 2004
Investments
Year Events after in associate
31 December the balance Income Employee & joint
2004 sheet date taxes Leases benefits ventures
UK GAAP IAS 10 IAS 12 IAS 17 IAS 19 IAS 28 & 31
£m £m £m £m £m £m
--------------------- ------- ------- ------- ------ ------- -------
Gross rental income from
investment properties 252.1 (0.9)
Interest received
on finance lease
assets - 0.9
Other property
related income 13.1
Property outgoings (34.3)
--------------------- ------- ------- ------- ------ ------- -------
Net rental income 230.9 - - - - -
--------------------- ------- ------- ------- ------ ------- -------
Proceeds on sale
of trading properties 32.3
Carrying value of
trading properties
sold (28.4)
Trading property
rental income 4.4
Property outgoings
relating to trading
properties (1.2)
--------------------- ------- ------- ------- ------ ------- -------
Net income from
trading properties 7.1 - - - - -
--------------------- ------- ------- ------- ------ ------- -------
Income from sale
of utilities and
gas 35.1
Cost of sales (42.3)
--------------------- ------- ------- ------- ------ ------- -------
Net income from
utilities and gas (7.2) - - - - -
--------------------- ------- ------- ------- ------ ------- -------
Other investment
income 10.0
Administration
expenses (15.2) 0.2
Gain on disposal
of property assets 62.3
Valuation gains
and losses - (2.1)
--------------------- ------- ------- ------- ------ ------- -------
Operating income 287.9 - - (2.1) 0.2 -
--------------------- ------- ------- ------- ------ ------- -------
Finance costs (101.4) (0.9) 2.7
Finance income 6.7
Share of profit
from associate and
joint ventures
after tax 15.9 8.0
--------------------- ------- ------- ------- ------ ------- -------
Profit before tax 209.1 - - (2.1) (0.7) 10.7
--------------------- ------- ------- ------- ------ ------- -------
Taxation - current
and deferred (41.7) (35.8) 1.1
--------------------- ------- ------- ------- ------ ------- -------
167.4 - (35.8) (2.1) (0.7) 11.8
Preference
dividends (11.2)
--------------------- ------- ------- ------- ------ ------- -------
156.2 - (35.8) (2.1) (0.7) 11.8
Ordinary dividends (67.0) 67.0
--------------------- ------- ------- ------- ------ ------- -------
Profit for the
year 89.2 67.0 (35.8) (2.1) (0.7) 11.8
--------------------- ------- ------- ------- ------ ------- -------
Attributable to
minority interests (1.6)
Attributable to
equity
shareholders 90.8 67.0 (35.8) (2.1) (0.7) 11.8
--------------------- ------- ------- ------- ------ ------- -------
89.2 67.0 (35.8) (2.1) (0.7) 11.8
--------------------- ------- ------- ------- ------ ------- -------
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group income statement - Reconciliation of reported profits between UK GAAP and
IFRS for the twelve months ended 31 December 2004 (continued)
Effects of
changes in
Share- Operating foreign Year
Investment based Business lease exchange 31 December
property payments combinations incentives rates and 2004
IAS 40 IFRS 2 IFRS 3 SIC-15 other IFRS
£m £m £m £m £m £m
-------------------- ------- ------- -------- ------- ------- --------
Gross rental income
from investment
properties 4.7 1.5 257.4
Interest received
on finance lease
assets - 0.9
Other property
related income 0.3 13.4
Property outgoings (4.9) (39.2)
-------------------- ------- ------- -------- ------- ------- --------
Net rental income - - - 4.7 (3.1) 232.5
-------------------- ------- ------- -------- ------- ------- --------
Proceeds on sale of
trading
properties (0.9) 31.4
Carrying value
of trading
properties
sold 0.7 (27.7)
Trading
property
rental income (0.2) 4.2
Property
outgoings
relating to
trading
properties 0.1 (1.1)
-------------------- ------- ------- -------- ------- ------- --------
Net income
from trading
properties - - - - (0.3) 6.8
-------------------- ------- ------- -------- ------- ------- --------
Income from
sale of
utilities and
gas 0.3 35.4
Cost of sales (0.5) (42.8)
-------------------- ------- ------- -------- ------- ------- --------
Net income
from utilities
and gas - - - - (0.2) (7.4)
-------------------- ------- ------- -------- ------- ------- --------
Other
investment
income 0.5 10.5
Administration
expenses 0.4 (0.1) (14.7)
Gain on
disposal of
property
assets 2.4 64.7
Valuation
gains and
losses 164.0 7.4 (8.6) 6.0 166.7
-------------------- ------- ------- -------- ------- ------- --------
Operating
income 164.0 0.4 7.4 (3.9) 5.2 459.1
-------------------- ------- ------- -------- ------- ------- --------
Finance costs (2.3) (101.9)
Finance income - 6.7
Share of
profit from
associate and
joint ventures
after tax 0.2 24.1
-------------------- ------- ------- -------- ------- ------- --------
Profit before
tax 164.0 0.4 7.4 (3.9) 3.1 388.0
-------------------- ------- ------- -------- ------- ------- --------
Taxation -
current and
deferred (14.7) (1.1) (92.2)
-------------------- ------- ------- -------- ------- ------- --------
149.3 0.4 7.4 (3.9) 2.0 295.8
Preference
dividends (11.2)
-------------------- ------- ------- -------- ------- ------- --------
149.3 0.4 7.4 (3.9) 2.0 284.6
Ordinary dividends - -
-------------------- ------- ------- -------- ------- ------- --------
Profit for the
year 149.3 0.4 7.4 (3.9) 2.0 284.6
-------------------- ------- ------- -------- ------- ------- --------
Attributable
to minority
interests 0.4 - (1.2)
Attributable
to equity
shareholders 148.9 0.4 7.4 (3.9) 2.0 285.8
-------------------- ------- ------- -------- ------- ------- --------
149.3 0.4 7.4 (3.9) 2.0 284.6
-------------------- ------- ------- -------- ------- ------- --------
IAS 10 Ordinary dividend excluded from the income statement. Recognised on the
balance sheet when approved.
IAS 12 Mainly deferred tax on investment property valuation surpluses, with
movements in the income statement. Previously disclosed in the notes.
IAS 40 Investment property valuation surpluses taken to the income statement.
IAS 17 Finance leases included on the balance sheet as a debtor. No revaluation.
Previously accounted for as investment property.
IAS 19 Recognise in full the cumulative deficits at the transition date 1
January 2004 - corridor approach not adopted.
IAS 28&31 Equity account for the results of joint ventures' and associate's
profits, including its share of valuation surpluses and deficits, interest and
taxation as a one line entry in PBT.
IFRS 2 Share option plans fair valued at the date of grant and costs taken to
the income statement over the vesting period. Transitional exemption used.
IFRS 3 The acquisition of Ravenseft has been treated as a property acquisition.
Goodwill and deferred tax on acquisition is eliminated. Opted to apply this
standard with effect from 1 January 2004.
SIC 15 Lease incentives amortised over period of lease or to the first break
whichever is the shorter.
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group balance sheet - Reconciliation of assets, liabilities and equity between
UK GAAP and IFRS as at 31 December 2004
As at Events after Property,
31 December the balance Income plant &
2004 sheet date taxes equipment Leases
UK GAAP IAS 10 IAS 12 IAS 16 IAS 17
£m £m £m £m £m
------------------------ -------- ------- ------ ------- -------
Non-current assets
Investment properties 3,795.6 (276.8) (21.2)
Property, plant and
equipment 118.0 276.8
Negative goodwill (4.7)
Finance lease
receivables - 10.9
Available-for-sale
investments 38.4
Investments in joint
ventures
and associate 92.3
Deferred taxation asset 0.3
------------------------ -------- ------- ------ ------- -------
Total non-current assets 4,039.9 - - - (10.3)
------------------------ -------- ------- ------ ------- -------
Current assets
Inventories 1.9
Trading properties 125.3
Finance lease - 0.1
receivables
Trade and other
receivables 84.0
Derivative assets -
Cash and cash
equivalents 397.4
------------------------ -------- ------- ------ ------- -------
Total current assets 608.6 - - - 0.1
------------------------ -------- ------- ------ ------- -------
------------------------ -------- ------- ------ ------- -------
Total assets 4,648.5 - - - (10.2)
------------------------ -------- ------- ------ ------- -------
Non-current
liabilities
Borrowings 1,683.5
Obligations under
finance leases - 0.5
Pension scheme deficit 1.2
Deferred tax provision 192.1 260.3
Provisions for
liabilities 18.3
and charges
Other creditors 15.2
------------------------ -------- ------- ------ ------- -------
Total non-current 1,910.3 - 260.3 - 0.5
liabilities -------- ------- ------ ------- -------
------------------------
Current liabilities
Borrowings 39.2
Tax liabilities 46.2 1.2
Trade and other payables 185.3 (41.3)
Derivative liabilities -
------------------------ -------- ------- ------ ------- -------
Total current
liabilities 270.7 (41.3) 1.2 - -
------------------------ -------- ------- ------ ------- -------
------------------------ -------- ------- ------ ------- -------
Total liabilities 2,181.0 (41.3) 261.5 - 0.5
------------------------ -------- ------- ------ ------- -------
------------------------ -------- ------- ------ ------- -------
Net assets 2,467.5 41.3 (261.5) - (10.7)
------------------------ -------- ------- ------ ------- -------
Equity
Called up ordinary share
capital 138.8
Share premium account 339.1
Own shares held (5.2)
Other reserves 1,664.6 (14.0)
Retained earnings 308.9 41.3 (245.6) - (10.7)
------------------------ -------- ------- ------ ------- -------
2,446.2 41.3 (259.6) - (10.7)
------------------------ -------- ------- ------ ------- -------
Minority interests 21.3 (1.9)
------------------------ -------- ------- ------ ------- -------
Total equity 2,467.5 41.3 (261.5) - (10.7)
------------------------ -------- ------- ------ ------- -------
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group balance sheet - Reconciliation of assets, liabilities and equity between
UK GAAP and IFRS as at 31 December 2004 (continued)
Lettings Investments Share-
fees Employee in associate & based Business
& other benefits joint ventures payments combinations
IAS 17 IAS 19 IAS 28 & 31 IFRS 2 IFRS 3
£m £m £m £m £m
---------------------- ------- ------- --------- -------- --------
Non-current assets
Investment properties (9.9)
Property, plant and
equipment
Negative goodwill 4.7
Finance lease
receivables
Available-for-sale
investments
Investments in
joint ventures
and associate (8.2)
Deferred taxation
asset
---------------------- ------- ------- --------- -------- --------
Total
non-current
assets (9.9) - (8.2) - 4.7
---------------------- ------- ------- --------- -------- --------
Current assets
Inventories
Trading properties
Finance lease
receivables
Trade and
other receivables 9.8 (0.5) (1.4)
Derivative assets
Cash and cash
equivalents ------- ------- --------- -------- --------
----------------------
Total current
assets 9.8 (0.5) - - (1.4)
---------------------- ------- ------- --------- -------- --------
---------------------- ------- ------- --------- -------- --------
Total assets (0.1) (0.5) (8.2) - 3.3
---------------------- ------- ------- --------- -------- --------
Non-current
liabilities
Borrowings
Obligations under
finance leases
Pension scheme
deficit 40.3
Deferred tax
provision (4.1)
Provisions for
liabilities and
charges
Other
creditors 1.9 (1.3)
---------------------- ------- ------- --------- -------- --------
Total
non-current
liabilities 1.9 40.3 - (1.3) (4.1)
---------------------- ------- ------- --------- -------- --------
Current liabilities
Borrowings
Tax liabilities
Trade and
other payables 0.2 0.2
Derivative
liabilities
---------------------- ------- ------- --------- -------- --------
Total current
liabilities 0.2 0.2 - - -
---------------------- ------- ------- --------- -------- --------
---------------------- ------- ------- --------- -------- --------
Total
liabilities 2.1 40.5 - (1.3) (4.1)
---------------------- ------- ------- --------- -------- --------
---------------------- ------- ------- --------- -------- --------
Net assets (2.2) (41.0) (8.2) 1.3 7.4
---------------------- ------- ------- --------- -------- --------
Equity
Called up ordinary
share capital
Share premium
account
Own shares held
Other reserves 0.2
Retained
earnings (2.2) (41.0) (8.2) 1.1 7.4
---------------------- ------- ------- --------- -------- --------
(2.2) (41.0) (8.2) 1.3 7.4
---------------------- ------- ------- --------- -------- --------
Minority interests
---------------------- ------- ------- --------- -------- --------
Total equity (2.2) (41.0) (8.2) 1.3 7.4
---------------------- ------- ------- --------- -------- --------
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group balance sheet - Reconciliation of assets, liabilities and equity between
UK GAAP and IFRS as at 31 December 2004 (continued)
Operating As at As at
lease 31 December Financial 1 January
incentives Reserve 2004 instruments 2005
SIC-15 transfers IFRS IAS 39 IFRS
£m £m £m £m £m
---------------------- ------- ------- --------- -------- -------
Non-current assets
Investment properties (35.0) 3,452.7 - 3,452.7
Property, plant and
equipment 394.8 - 394.8
Negative goodwill - - -
Finance lease
receivables 10.9 - 10.9
Available-for-sale
investments 38.4 4.1 42.5
Investments in joint
ventures and associate 84.1 - 84.1
Deferred taxation
asset (0.1) 0.2 - 0.2
---------------------- ------- ------- --------- -------- -------
Total non-current
assets (35.1) - 3,981.1 4.1 3,985.2
---------------------- ------- ------- --------- -------- -------
Current assets
Inventories 1.9 - 1.9
Trading properties 125.3 - 125.3
Finance lease 0.1 - 0.1
receivables
Trade and other
receivables 23.1 115.0 (0.3) 114.7
Derivative assets - 3.8 3.8
Cash and cash
equivalents 397.4 - 397.4
---------------------- ------- ------- --------- -------- -------
Total current assets 23.1 - 639.7 3.5 643.2
---------------------- ------- ------- --------- -------- -------
---------------------- ------- ------- --------- -------- -------
Total assets (12.0) - 4,620.8 7.6 4,628.4
---------------------- ------- ------- --------- -------- -------
Non-current
liabilities
Borrowings 1,683.5 110.1 1,793.6
Obligations under
finance leases 0.5 - 0.5
Pension scheme deficit 41.5 - 41.5
Deferred tax provision 0.1 448.4 - 448.4
Provisions for
liabilities and charges 18.3 - 18.3
Other creditors 15.8 - 15.8
---------------------- ------- ------- --------- -------- -------
Total non-current
liabilities 0.1 - 2,208.0 110.1 2,318.1
---------------------- ------- ------- --------- -------- -------
Current liabilities
Borrowings 39.2 (0.1) 39.1
Tax liabilities 47.4 (1.0) 46.4
Trade and other (2.7) 141.7 (4.2) 137.5
payables
Derivative liabilities - 6.7 6.7
---------------------- ------- ------- --------- -------- -------
Total current
liabilities (2.7) 228.3 1.4 229.7
---------------------- ------- ------- --------- -------- -------
---------------------- ------- ------- --------- -------- -------
Total liabilities (2.6) - 2,436.3 111.5 2,547.8
---------------------- ------- ------- --------- -------- -------
---------------------- ------- ------- --------- -------- -------
Net assets (9.4) - 2,184.5 (103.9) 2,080.6
---------------------- ------- ------- --------- -------- -------
Equity
Called up ordinary
share capital 138.8 (34.0) 104.8
Share premium account 339.1 (98.2) 240.9
Own shares held (5.2) - (5.2)
Other reserves (523.6) 1,127.2 43.1 1,170.3
Retained earnings (9.4) 523.6 565.2 (14.5) 550.7
---------------------- ------- ------- --------- -------- -------
(9.4) - 2,165.1 (103.6) 2,061.5
---------------------- ------- ------- --------- -------- -------
Minority interests 19.4 (0.3) 19.1
---------------------- ------- ------- --------- -------- -------
Total equity (9.4) - 2,184.5 (103.9) 2,080.6
---------------------- ------- ------- --------- -------- -------
IAS39 Convertible preference shares are treated as debt with accrued interest
and an equity element. Derivatives and available-for-sale investments are stated
at fair value. Previously preference shares were treated as share capital,
derivatives were hedge accounted and available-for-sale investments were held at
the lower of cost and realisable value.
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group income statement - reconciliation of reported profits between UK GAAP and
IFRS for the six months ended 30 June 2004
Events Investments
after the in associate
30 June balance Income Employee & joint
2004 sheet date taxes Leases benefits ventures
UK GAAP IAS 10 IAS 12 IAS 17 IAS 19 IAS 28 & 31
£m £m £m £m £m £m
--------------------- ------- -------- ------- ------- ------- --------
Gross rental
income from
investment
properties 131.0 (0.5)
Interest received
on finance lease
assets - 0.4
Other property
related income 6.5
Property outgoings (17.8)
--------------------- ------- -------- ------- ------- ------- --------
Net rental income 119.7 - - (0.1) - -
--------------------- ------- -------- ------- ------- ------- --------
Proceeds on sale
of trading
properties 4.3
Carrying value of
trading properties
sold (2.1)
Trading property
rental income 2.0
Property outgoings
relating to
trading properties (0.3)
--------------------- ------- -------- ------- ------- ------- --------
Net income from
trading properties 3.9 - - - - -
--------------------- ------- -------- ------- ------- ------- --------
Income from sale
of utilities and
gas 15.8
Cost of sales (20.6)
--------------------- ------- -------- ------- ------- ------- --------
Net income from
utilities and gas (4.8) - - - - -
--------------------- ------- -------- ------- ------- ------- --------
Other investment
income 3.2
Administration
expenses (6.5) 0.1
Gain on disposal
of property assets 0.1
Valuation gains
and losses - (0.3)
--------------------- ------- -------- ------- ------- ------- --------
Operating income 115.6 - - (0.4) 0.1 -
--------------------- ------- -------- ------- ------- ------- --------
Finance costs (49.8) (0.4) 1.3
Finance income 2.5
Share of profit
from associate and
joint ventures
after tax 7.9 13.0
--------------------- ------- -------- ------- ------- ------- --------
Profit before tax 76.2 - - (0.4) (0.3) 14.3
--------------------- ------- -------- ------- ------- ------- --------
Taxation - current
and deferred (24.7) (22.5) 0.4
--------------------- ------- -------- ------- ------- ------- --------
51.5 - (22.5) (0.4) (0.3) 14.7
Preference
dividends (5.6)
--------------------- ------- -------- ------- ------- ------- --------
45.9 - (22.5) (0.4) (0.3) 14.7
Ordinary dividends (25.8) 25.8
--------------------- ------- -------- ------- ------- ------- --------
Profit for the
year 20.1 25.8 (22.5) (0.4) (0.3) 14.7
--------------------- ------- -------- ------- ------- ------- --------
Attributable to
minority interests (0.9)
Attributable to
equity
shareholders 21.0 25.8 (22.5) (0.4) (0.3) 14.7
--------------------- ------- -------- ------- ------- ------- --------
20.1 25.8 (22.5) (0.4) (0.3) 14.7
--------------------- ------- -------- ------- ------- ------- --------
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group income statement - reconciliation of reported profits between UK GAAP and
IFRS for the six months ended 30 June 2004 (continued)
Effects of
changes in
Share- Operating foreign
Investment based lease exchange 30 June
property payments incentives rates and 2004
IAS 40 IFRS 2 SIC-15 other IFRS
£m £m £m £m £m
--------------------- -------- -------- ------- -------- --------
Gross rental income
from
investment properties 2.1 132.6
Interest received on
finance lease assets 0.4
Other property
related 6.5
income
Property outgoings (1.9) (19.7)
--------------------- -------- -------- ------- -------- --------
Net rental income - - 2.1 (1.9) 119.8
--------------------- -------- -------- ------- -------- --------
Proceeds on sale of
trading properties 4.3
Carrying value of
trading properties
sold (2.1)
Trading property
rental 2.0
income
Property outgoings
relating to trading
properties (0.3)
--------------------- -------- -------- ------- -------- --------
Net income from
trading
properties - - - - 3.9
--------------------- -------- -------- ------- -------- --------
Income from sale of
utilities and gas 15.8
Cost of sales (0.1) (20.7)
--------------------- -------- -------- ------- -------- --------
Net income from
utilities and gas - - - (0.1) (4.9)
--------------------- -------- -------- ------- -------- --------
Other investment 3.2
income
Administration
expenses 0.1 (6.3)
Gain on disposal of
property assets 0.1
Valuation gains and
losses 85.4 (3.8) 2.7 84.0
--------------------- -------- -------- ------- -------- --------
Operating income 85.4 0.1 (1.7) 0.7 199.8
--------------------- -------- -------- ------- -------- --------
Finance costs (0.6) (49.5)
Finance income 2.5
Share of profit from
associate and joint
ventures after tax (0.1) 20.8
--------------------- -------- -------- ------- -------- --------
Profit before tax 85.4 0.1 (1.7) - 173.6
--------------------- -------- -------- ------- -------- --------
Taxation - current
and deferred - 0.1 (46.7)
--------------------- -------- -------- ------- -------- --------
85.4 0.1 (1.7) 0.1 126.9
Preference dividends (5.6)
--------------------- -------- -------- ------- -------- --------
85.4 0.1 (1.7) 0.1 121.3
Ordinary dividends -
--------------------- -------- -------- ------- -------- --------
Profit for the year 85.4 0.1 (1.7) 0.1 121.3
--------------------- -------- -------- ------- -------- --------
Attributable to
minority
interests 0.2 (0.7)
Attributable to
equity
shareholders 85.2 0.1 (1.7) 0.1 122.0
--------------------- -------- -------- ------- -------- --------
85.4 0.1 (1.7) 0.1 121.3
--------------------- -------- -------- ------- -------- --------
IAS 10 Ordinary dividend excluded from the income statement. Recognised on the
balance sheet when approved.
IAS 12 Mainly deferred tax on investment property valuation surpluses, with
movements in the income statement. Previously disclosed in the notes.
IAS 40 Investment property valuation surpluses taken to the income statement.
IAS 17 Finance leases included on the balance sheet as a debtor. No revaluation.
Previously accounted for as investment property.
IAS 19 Recognise in full the cumulative deficits at the transition date 1
January 2004 - corridor approach not adopted.
IAS 28&31 Equity account for the results of joint ventures' and associate's
profits, including its share of valuation surpluses and deficits, interest and
taxation as a one line entry in PBT.
IFRS 2 Share option plans fair valued at the date of grant and costs taken to
the income statement over the vesting period. Transitional exemption used.
SIC 15 Lease incentives amortised over period of lease or to the first break
whichever is the shorter.
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group balance sheet - Reconciliation of equity between UK GAAP and IFRS as at 30
June 2004
As at Events after Property, Letting
30 June the balance Income plant & fees
2004 sheet date taxes equipment Leases & other
UK GAAP IAS 10 IAS 12 IAS 16 IAS 17 IAS 17
£m £m £m £m £m £m
--------------------- -------- -------- ------ ------- ------- ------
Non-current assets
Investment
properties 3,680.9 (244.1) (19.4) (11.1)
Property, plant and
equipment 43.4 310.4
Finance lease
receivables - 11.0
Available-for-sale
investments 100.8 (66.3)
Investments in
joint ventures and
associate 229.7
--------------------- -------- -------- ------ ------- ------- ------
Total non-current
assets 4,054.8 - - - (8.4) (11.1)
--------------------- -------- -------- ------ ------- ------- ------
Current assets
Inventories 1.7
Trading properties 124.5
Finance lease
receivables - 0.1
Trade and other
receivables 51.1 11.1
Cash and cash
equivalents 136.7
--------------------- -------- -------- ------ ------- ------- ------
Total current
assets 314.0 - - - 0.1 11.1
--------------------- -------- -------- ------ ------- ------- ------
--------------------- -------- -------- ------ ------- ------- ------
Total assets 4,368.8 - - - (8.3) -
--------------------- -------- -------- ------ ------- ------- ------
Non-current
liabilities
Borrowings 1,644.7
Obligations under
finance leases - 0.5
Pension scheme
deficit 1.2
Deferred tax
provision 194.2 246.9
Provisions for
liabilities and
charges 20.3 0.1
Other creditors 7.9 2.3
--------------------- -------- -------- ------ ------- ------- ------
Total non-current
liabilities 1,868.3 - 246.9 - 0.5 2.4
--------------------- -------- -------- ------ ------- ------- ------
Current liabilities
Borrowings 8.0
Tax liabilities 19.0 1.2
Trade and other
payables 159.8 (25.7) 0.3
--------------------- -------- -------- ------ ------- ------- ------
Total current
liabilities 186.8 (25.7) 1.2 - - 0.3
--------------------- -------- -------- ------ ------- ------- ------
--------------------- -------- -------- ------ ------- ------- ------
Total liabilities 2,055.1 (25.7) 248.1 - 0.5 2.7
--------------------- -------- -------- ------ ------- ------- ------
--------------------- -------- -------- ------ ------- ------- ------
Net assets 2,313.7 25.7 (248.1) - (8.8) (2.7)
--------------------- -------- -------- ------ ------- ------- ------
Equity
Called up ordinary
share capital 138.7
Share premium
account 337.0
Own shares held (4.4)
Other reserves 1,539.0 (5.0) 0.5
Retained earnings 282.8 25.7 (241.0) - (8.8) (3.2)
--------------------- -------- -------- ------ ------- ------- ------
2,293.1 25.7 (246.0) - (8.8) (2.7)
--------------------- -------- -------- ------ ------- ------- ------
Minority interests 20.6 (2.1)
--------------------- -------- -------- ------ ------- ------- ------
Total equity 2,313.7 25.7 (248.1) - (8.8) (2.7)
--------------------- -------- -------- ------ ------- ------- ------
Notes to the financial statements (continued)
24(c). Restatement for International Financial Reporting Standards (continued)
Group balance sheet - Reconciliation of equity between UK GAAP and IFRS as at 30
June 2004 (continued)
Investments in Share- Operating As at
Employee associate & based lease 30 June
benefits joint ventures payments incentives Reserve 2004
IAS 19 IAS 28 & 31 IFRS 2 SIC-15 transfers IFRS
£m £m £m £m £m £m
-------------------- -------- --------- ------- ------- ------- ------
Non-current assets
Investment
properties (35.8) 3,370.5
Property,
plant and
equipment 353.8
Finance lease
receivables 11.0
Available-for-sale
investments 34.5
Investments in
joint ventures
and associate (8.9) 220.8
-------------------- -------- --------- ------- ------- ------- ------
Total
non-current
assets - (8.9) - (35.8) - 3,990.6
-------------------- -------- --------- ------- ------- ------- ------
Current assets
Inventories 1.7
Trading
properties 124.5
Finance lease
receivables 0.1
Trade and
other
receivables (0.6) 29.3 90.9
Cash and cash
equivalents 136.7
-------------------- -------- --------- ------- ------- ------- ------
Total current
assets (0.6) - - 29.3 - 353.9
-------------------- -------- --------- ------- ------- ------- ------
-------------------- -------- --------- ------- ------- ------- ------
Total assets (0.6) (8.9) - (6.5) - 4,344.5
-------------------- -------- --------- ------- ------- ------- ------
Non-current
liabilities
Borrowings 1,644.7
Obligations
under finance
leases 0.5
Pension scheme
deficit 26.1 27.3
Deferred tax
provision 441.1
Provisions for
liabilities
and charges 20.4
Other
creditors (1.1) 9.1
-------------------- -------- --------- ------- ------- ------- ------
Total
non-current
liabilities 26.1 - (1.1) - - 2,143.1
-------------------- -------- --------- ------- ------- ------- ------
Current
liabilities
Borrowings 8.0
Tax
liabilities 20.2
Trade and
other payables - 0.2 (0.1) 134.5
-------------------- -------- --------- ------- ------- ------- ------
Total current
liabilities - - 0.2 (0.1) 162.7
-------------------- -------- --------- ------- ------- ------- ------
-------------------- -------- --------- ------- ------- ------- ------
Total
liabilities 26.1 - (0.9) (0.1) - 2,305.8
-------------------- -------- --------- ------- ------- ------- ------
-------------------- -------- --------- ------- ------- ------- ------
Net assets (26.7) (8.9) 0.9 (6.4) - 2,038.7
-------------------- -------- --------- ------- ------- ------- ------
Equity
Called up
ordinary share
capital 138.7
Share premium
account 337.0
Own shares
held (4.4)
Other reserves (362.4) 1,172.1
Retained
earnings (26.7) (8.9) 0.9 (6.4) 362.4 376.8
-------------------- -------- --------- ------- ------- ------- ------
(26.7) (8.9) 0.9 (6.4) - 2,020.2
-------------------- -------- --------- ------- ------- ------- ------
Minority
interests 18.5
-------------------- -------- --------- ------- ------- ------- ------
Total equity (26.7) (8.9) 0.9 (6.4) - 2,038.7
-------------------- -------- --------- ------- ------- ------- ------
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The company news service from the London Stock Exchange
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