26th Jul 2005 10:35
Liberty International PLC26 July 2005 LIBERTY INTERNATIONAL PLC - ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS - RESTATEMENT OF 2004 INCOME STATEMENTS AND BALANCE SHEET INTRODUCTION Liberty International's Interim Report to be issued on 28th July 2005 will beprepared in accordance with International Financial Reporting Standards("IFRS"), which became mandatory for all listed companies within the EuropeanUnion from 1st January 2005. This document provides unaudited information in relation to the group'sprincipal accounting policies under IFRS and outlines the principal changesarising from the re-presentation of the 2004 results under IFRS. The attached document sets out the restated 2004 results together with moredetail of the adjustments made and appropriate reconciliations and explanations. Conversion to IFRS has no effect on the underlying business or cash flows of thegroup. Key figures and ratios for the full year are affected as shown below: UK GAAP IFRS 31 December 31 December 2004 2004------------------------------------------------------------------------------- Diluted, adjusted* net asset value pershare (pence) 1017p 1025pRatio of net debt to assets 36% 36%------------------------------------------------------------------------------- Net rental income (£, millions) £248.9m £256.3mOperating profit before exceptionalitems (£, millions) £245.2m £601.5mBasic earnings per share (pence) 39.3p 104.8pAdjusted* earnings per share (pence) 29.0p 27.1p-------------------------------------------------------------------------------* Adjusted in accordance with industry practice (see notes 7 and 14 in attacheddocument) INCOME STATEMENT Under current UK GAAP the profit and loss account generally contained only itemswhich have either been realised in cash or are expected to be realised in cashwithin a short period. Under IFRS, market value adjustments and other estimateswhich bear less of a direct relationship to the underlying cash flow areincluded in the Income Statement. • IAS 40 Investment Property - Movements in the fair value of investment properties are recognised in the Income Statement, and not in the revaluation reserve, together with full provision for tax on the valuation movements (IAS 12 Income Taxes). • IAS 39 Financial Instruments: Recognition and Measurement - Movements in the fair value of those derivative financial instruments which are not accounted for as hedging instruments, are recognised in the Income Statement and not by way of a note. Hedge accounting, where the movements in fair value are not recognised in the Income Statement but are deferred and recognised over the life of the hedged item, is permitted in certain circumstances. The criteria applied under IAS 39 to determine whether hedging instruments qualify for hedge accounting are complex and hedging relationships which may work in commercial terms can fail to qualify for hedge accounting either at inception or during the life of the hedging relationship. In order to ensure consistency of treatment, the group does not apply hedge accounting for cash flow hedging instruments such as interest rate swaps. Liberty International's predominant financing strategy in recent years has been to utilise the flexibility of floating rate debt combined with interest rate swaps, rather than fixed rate debt, with the result that the greater proportion of fair value movements in respect of financial instruments has been reflected in the income statement and on the balance sheet rather than by way of disclosure in the notes. • SIC15 Operating Leases: incentives - The cost of any lease incentives are spread over the life of the lease rather than the period to the first rent review. • IAS 17 Leases - Some rentals are reclassified as finance income or expense where a lease is categorised as a finance lease with a corresponding adjustment to the presentation of property assets and loans. The most significant adjustment relates to the re-presentation of Liberty International's investment in The Glades, Bromley reflecting the fixed minimum rent in the lease. • IAS 32 Financial Instruments: Disclosure and Presentation - There is an additional finance charge in respect of the £240m 3.95 per cent convertible bond 2010 issued by Liberty International in 2003 to reflect the "true" cost of the liability element of this compound financial instrument while the equity component has been added to shareholders' funds. • IAS 31 Interests in Joint Ventures - The group has opted for proportional consolidation of joint venture income and expenses as this more closely reflects the substance of the group's joint venture arrangements. BALANCE SHEET AND NET ASSETS • IAS 40 Investment Property - Investment property under development and redevelopment is included in the balance sheet at its fair value. In the case of certain of Liberty International's major developments, particularly those in the early stages of development, costs incurred have not been fully reflected in the fair value of the developments at the balance sheet date. However, the resulting valuation deficits are expected to be temporary and would be expected to reverse over the life of the projects. • IAS 12 Income Taxes - Provision is made in the balance sheet for tax on all differences between tax and accounting values, including revaluation surpluses. This represents a change in the basis of calculation of the tax provision compared with UK GAAP where the calculation represented the tax payable on disposal of the assets. • IAS 32 Financial Instruments: Disclosure and Presentation - Compound financial instruments, such as convertible bonds, are separated into equity and liability components. The equity component of the group's convertible debt is reclassified to reserves, reducing the initial carrying amount of the liability component. The finance charge in the income statement is increased so as to amortise the liability component back to the full redemption amount over the life of the instrument. • IAS 31 Interests in Joint Ventures - The group has opted for proportional consolidation of joint venture assets and liabilities as this more closely reflects the substance of the group's joint venture arrangements. • IAS 10 Events after the Balance Sheet Date - No provision is made for dividends declared after the balance sheet date. REPORTING PERFORMANCE The changes affecting the income statement can be split broadly into twocategories: - 1. Those items which are expected to have a proportionate effect on each period under review, hence no adjustment need be made for the purpose of comparison. These are generally items where there is a change in underlying accounting policy or estimation technique rather than just in presentation. Such items include accounting for convertible bonds, lease incentives, retirement benefits and share based payments. 2. Those items which are unpredictable by their nature such as movements in fair values of investment properties and derivative financial instruments, together with exceptional items. These items will generally be excluded for the purpose of comparing revenue performance over one period with another as the irregular nature of the items may obscure any underlying trend. Commentary on the group's revenue results will generally relate to amounts whichexclude the effect of valuation and exceptional items.Net assets per share is derived from the net assets reported in the balancesheet but will be adjusted in accordance with industry practice. The provisionfor tax in respect of the revaluation surplus will be excluded, first becausethe calculation prescribed by IFRS 12 does not represent the expected amount oftax which would be paid if the assets were to be sold and secondly because thegroup holds the property assets for the long-term and therefore has noexpectation of crystallising even the reduced liability, calculated on thedisposal basis, in the foreseeable future. The fair value of derivativefinancial instruments will also be excluded from adjusted net assets per share. A C SMITHFINANCE DIRECTOR26 July 2005 LIBERTY INTERNATIONAL PLC - UNAUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2004 PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS') This document presents Liberty International's unaudited 2004 Income Statements,Balance Sheet, Statement of Recognised Income and Expense, Statement of Changesin Equity, Cash Flow Statement and notes thereto prepared in accordance withIFRS, together with, where appropriate, reconciliations between the figuresunder UK GAAP and those under IFRS. The principal accounting policies of the group under IFRS are set out on pages21 to 24. The financial information provided here has been prepared under thehistorical cost convention as modified by the revaluation of properties,goodwill, available for sale investments and financial assets and liabilitiesheld for trading. This financial information provided here reflects the current versions of thestandards and interpretations released to date and therefore should be regardedas provisional. Accordingly, the financial information for 2004 actually usedfor and presented as comparative figures with the 2005 final auditedconsolidated financial statements may be different. In addition, the informationcontained in this document does not reflect the format or content of an interimstatement or preliminary announcement under IFRS and does not constitutestatutory accounts within the meaning of s240 of the Companies Act 1985, but isintended to illustrate the adjustments made to the figures prepared under UKGenerally Accepted Accounting Practice ('GAAP'). The principal changes arising from the presentation of the 2004 results underIFRS are:----------------------------------- --------- --------(a) Profit before tax: 30 June 31 December 2004 2004 £m £m----------------------------------- --------- --------As previously reported UK GAAP 67.2 158.3Deduct exceptional items (UK GAAP) (6.1) (42.6)----------------------------------- --------- -------- Profit before tax and exceptional items 61.1 115.7 Additional amortisation relating to convertible debt (2.2) (4.3)Amortisation of letting costs previously written off (1.9) (4.0)Longer amortisation of rent free periods and otherlease incentives 0.4 (0.4)Adjustment in respect of finance leases 0.1 0.4Defined benefit pension scheme net liability and otheremployee benefits (0.1) (0.4)----------------------------------- --------- --------Restated profit before tax, valuation and exceptionalitems 57.4 107.0Revaluation gains on investment properties reported asincome (note 1c) 171.2 357.3 Movement in fair value of derivative financialinstruments 46.8 (41.4)Exceptional items (IFRS) 1.9 32.2----------------------------------- --------- --------IFRS profit before tax 277.3 455.1----------------------------------- --------- -------- (b)Net assets £m----------------------------------- --------- Previously reported as at 31 December 2004 UK GAAP 3,244.0 Exclusion of provision for proposed dividend 44.7Reallocation to equity of a portion of the convertible debtliability 14.5Longer amortisation period for lease incentives - long term debtor 50.6Longer amortisation period for lease incentives - adjustment ofproperty valuation (44.0)Fair value of development properties (11.4)Defined benefit pension scheme net liability and other employeebenefits (2.0)Owner-occupied property held under finance lease (0.3)Tax effect of the above (15.5)Provision for contingent tax liability* (653.8)Fair value of derivative financial instruments (132.3)Tax effect of the fair value of derivative financial instruments 39.7----------------------------------- --------- As at 31 December 2004 IFRS 2,534.2----------------------------------- --------- * Includes impact of change in basis of calculation - see note 6b----------------------------------- --------- --------(c) Adjusted earnings per share: 30 June 31 December 2004 2004 pence pence----------------------------------- --------- --------As previously reported 14.8 29.0Additional amortisation relating to convertible debt (0.7) (1.3)Amortisation of letting costs previously written off (0.6) (1.2)Longer amortisation of rent free periods and otherlease incentives 0.1 (0.1)Defined benefit pension scheme net liability and otheremployee benefits - (0.1)Tax effect of the above 0.3 0.8----------------------------------- --------- --------Restated 13.9 27.1----------------------------------- --------- -------- ----------------------------------- ---------(d) Adjusted net asset value per share: 31 December 2004 pence----------------------------------- ---------As previously reported 1017Exclusion of provision for proposed dividend 13Longer amortisation period for lease incentives 2Fair value of development properties (3)Tax effect of the above (5)Fair value of trading properties 1----------------------------------- ---------Restated 1025----------------------------------- --------- CONTENTS---------- Income statement for the year ended 31 December 2004 Income statement for the period ended 30 June 2004 Balance sheet as at 31 December 2004 Statement of recognised income and expense for the year ended 31 December 2004 Statement of changes in equity for the year ended 31 December 2004 Cash flow statement for the year ended 31 December 2004 Notes Principal Accounting Policies This document is available on the Company's website,www.liberty-international.co.uk. UNAUDITED CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2004 UK GAAP* Adjustments IFRS Notes £m £m £m Revenue 385.0 7.7 392.7--------------------------- ----- -------- -------- -------- Rental income 1 359.8 7.7 367.5Rental expenses 1 (110.9) (0.3) (111.2)--------------------------- ----- -------- -------- --------Net rental income 248.9 7.4 256.3 Other income 15.1 - 15.1Gain on revaluation and saleof investment properties 1 - 357.3 357.3 Share of operating profit of 9 7.7 (7.7) -joint ventures ----- -------- -------- -------- 271.7 357.0 628.7 Administration expenses 2, 3 (26.5) (0.7) (27.2)--------------------------- ----- -------- -------- --------Operating profit before 245.2 356.3 601.5exceptional items Exceptional profit on disposalof fixed assets and subsidiaries 4 46.0 (10.4) 35.6 ----- -------- -------- --------Operating profit 291.2 345.9 637.1 Net interest cost - recurring 5 (129.5) (7.7) (137.2)Net interest cost - exceptional (3.4) - (3.4) Change in fair value ofderivative financial instruments 5 - (41.4) (41.4) ----- -------- -------- --------Profit before tax 158.3 296.8 455.1 Current tax on ordinary items 6 (24.4) - (24.4)Deferred tax on ordinary items: - in respect of 6 (8.6) (103.9) (112.5)investment property- in respect ofderivative financial 6 - 12.9 12.9instruments- other 6 0.7 2.5 3.2Tax on exceptional items 6 (1.4) (0.8) (2.2)--------------------------- ----- -------- -------- --------Taxation charge 6 (33.7) (89.3) (123.0)--------------------------- ----- -------- -------- --------Profit for the financial year 124.6 207.5 332.1--------------------------- ----- -------- -------- -------- Basic earnings per share 7 39.3p 65.5p 104.8pDiluted earnings per share 7 38.0p 60.3p 98.3p--------------------------- ----- -------- -------- -------- Adjusted earnings per share are shown in note 7* Reformatted to reflect IFRS reporting requirements UNAUDITED CONSOLIDATED INCOME STATEMENTfor the period ended 30 June 2004 UK GAAP* Adjustments IFRS Notes £m £m £m Revenue 192.2 4.3 196.5------------------------ ------ -------- -------- -------- Rental income 1 172.9 4.3 177.2Rental expenses 1 (52.2) - (52.2)------------------------ ------ -------- -------- --------Net rental income 120.7 4.3 125.0 Other income 12.6 - 12.6Gain on revaluation and sale ofinvestment properties 1 - 171.2 171.2 Share of operating profit of joint 9 3.8 (3.8) -ventures ------ -------- -------- -------------------------------- 137.1 171.7 308.8 Administration expenses 2, 3 (11.7) (0.3) (12.0)------------------------ ------ -------- -------- --------Operating profit before exceptional 125.4 171.4 296.8items Exceptional profit on disposal offixed assets andsubsidiaries 4 6.2 (4.2) 2.0------------------------ ------ -------- -------- --------Operating profit 131.6 167.2 298.8 Net interest cost - recurring 5 (64.3) (3.9) (68.2)Net interest cost - exceptional (0.1) - (0.1)Change in fair value of derivativefinancial 5 - 46.8 46.8instruments ------ -------- -------- --------------------------------Profit before tax 67.2 210.1 277.3 Current tax on ordinary items (14.2) - (14.2)Deferred tax on ordinary items: - in respect of investmentproperty (2.7) (49.2) (51.9)- in respect of derivativefinancial instruments - (13.9) (13.9)- other (0.1) 1.0 0.9Tax on exceptional items (0.2) (0.3) (0.5)------------------------ ------ -------- -------- --------Taxation charge (17.2) (62.4) (79.6)------------------------ ------ -------- -------- --------Profit for the financial period 50.0 147.7 197.7------------------------ ------ -------- -------- -------- Basic earnings per share 7 15.8p 46.6p 62.4pDiluted earnings per share 7 15.6p 43.0p 58.6p----------------------- ------ --------- --------- --------- Adjusted earnings per share are shown in note 7* Reformatted to reflect IFRS reporting requirements UNAUDITED CONSOLIDATED BALANCE SHEETas at 31 December 2004 UK GAAP* Adjustments IFRS Notes £m £m £m-------------------- ------ -------- -------- -------- Non-current assetsInvestment property 8 5,252.7 (2.3) 5,250.4Development property 8 60.2 (13.0) 47.2-------------------- ------ -------- -------- -------- 5,312.9 (15.3) 5,297.6Plant and equipment 1.0 0.3 1.3Share of joint venture net assets 9 20.3 (20.3) -Trade and other receivables 10 11.5 47.8 59.3-------------------- ------ -------- -------- -------- 5,345.7 12.5 5,358.2Current assetsTrading properties 91.7 20.2 111.9Trade and other receivables 10 75.9 4.6 80.5Cash and cash equivalents 438.4 0.4 438.8-------------------- ------ -------- -------- -------- 606.0 25.2 631.2-------------------- ------ -------- -------- --------Total assets 5,951.7 37.7 5,989.4-------------------- ------ -------- -------- -------- Current liabilitiesTrade and other payables 11 (233.8) 43.5 (190.3)Tax liabilities (23.8) - (23.8)Borrowings, including finance leases 12 (9.2) (4.0) (13.2)-------------------- ------ -------- -------- -------- (266.8) 39.5 (227.3)Non-current liabilitiesBorrowings, including finance leases 12 (2,345.0) (21.3) (2,366.3)Derivative financial instruments 13 - (134.7) (134.7)Deferred tax provision 6(b) (79.3) (629.6) (708.9)Other provisions (16.6) (0.6) (17.2)Other payables - (0.8) (0.8)-------------------- ------ -------- --------- --------- (2,440.9) (787.0) (3,227.9)-------------------- ------ -------- --------- ---------Total liabilities (2,707.7) (747.5) (3,455.2)-------------------- ------ -------- --------- --------- Net assets 3,244.0 (709.8) 2,534.2-------------------- ------ -------- --------- -------- EquityCalled up share capital and reserves 3,244.0 (709.8) 2,534.2-------------------- ------ -------- --------- -------- * Reformatted to reflect IFRS reporting requirements UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the year ended 31 December 2004 UK GAAP* Adjustments IFRS £m £m £m --------------------------- ---- ------- -------- -------- Gains on revaluation ofinvestment properties - Group 337.6 (337.6) - - Joint ventures 5.6 (5.6) - Net exchange translationdifferences and other movements (1.5) (1.4) (2.9)Actuarial losses on definedbenefit pension schemes - (0.4) (0.4)Tax on items taken directly toequity - 0.1 0.1Current tax relating torealisation of gains recognisedin prior periods (0.7) 0.7 ------------------------------ ------- -------- --------Net income recognised directlyin equity 341.0 (344.2) (3.2)Transfers to income statement ondisposal of investments - (6.6) (6.6)Tax on items transferred fromequity - 1.1 1.1Profit for the year 124.6 207.5 332.1--------------------------- ---- ------- -------- --------Total recognised income andexpense for the year 465.6 (142.2) 323.4--------------------------- ---- ------- -------- -------- * Reformatted to reflect IFRS reporting requirements UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2004 UK GAAP* Adjustments IFRS £m £m £m------------------------ -------- -------- -------- Shareholders' funds at 1 January:- as previously reported - 2,859.4- effect of adopting IFRS (570.5) (570.5)------------------------ -------- --------- as restated 2,859.4 (570.5) 2,288.9Bond conversions 0.1 - 0.1Issue of shares 4.1 - 4.1Cancellation of shares (1.2) - (1.2)------------------------ -------- -------- -------- 2,862.4 (570.5) 2,291.9Total recognised income and expense for theyear 465.6 (142.2) 323.4------------------------ -------- -------- -------- 3,328.0 (712.7) 2,615.3Dividends (84.0) 2.9 (81.1)------------------------ -------- -------- --------Shareholders' funds at 31 December 3,244.0 (709.8) 2,534.2------------------------ -------- -------- -------- * Reformatted to reflect IFRS reporting requirements UNAUDITED CONSOLIDATED CASH FLOW STATEMENTFor the year ended 31 December 2004 UK IAS 31 December GAAP* adjustment 2004 Cash flows from operating activitiesNet operating profit before net finance costs 237.5 364.0 601.5Adjustments for non-cash items:Unrealised net revaluation gains on investmentproperties - (340.3) (340.3)Profit on sale of investment properties - (17.0) (17.0)Depreciation and amortisation 0.5 - 0.5Amortisation of lease inducements and otherdirect costs - 4.3 4.3 -------- --------- --------------------------------------- Cash flows from operations before changes inworking capital 238.0 11.0 249.0Change in trade and other receivables (8.6) - (8.6)Change in trading properties (20.6) (9.5) (30.1)Change in trade and other payables 11.0 4.9 15.9------------------------------ --------- --------- -------- Cash generated from operations 219.8 6.4 226.2Interest paid (135.5) (5.3) (140.8)Interest received 10.3 - 10.3Tax paid (18.3) - (18.3)------------------------------ --------- --------- -------- Cash flows from operating activities 76.3 1.1 77.4------------------------------ --------- --------- -------- Cash flows from investing activitiesPurchase and development of property (144.8) (0.4) (145.2)Sale of property 93.3 - 93.3Purchase of investments and other fixed assets (0.8) - (0.8)Sale of investments 189.6 0.5 190.1Purchase of interests in joint ventures andsubsidiary companies (57.1) - (57.1)Cash acquired with interests in joint venturesand subsidiary companies 11.6 (5.8) 5.8Distributions received from joint ventures 1.5 (1.5) -Change in long term loans receivable, beforeamortisation - (0.7) (0.7)------------------------------ --------- --------- --------- Cash flows from investing activities 93.3 (7.9) 85.4------------------------------ --------- --------- --------- Cash flows from financing activitiesIssue and repurchase of shares 1.9 - 1.9Borrowings drawn 640.7 4.1 644.8Borrowings repaid (490.0) (0.4) (490.4)Equity dividends paid (81.1) - (81.1)------------------------------ --------- --------- -------- Cash flows from financing activities 71.5 3.7 75.2------------------------------ --------- --------- -------- Net increase in cash and cash equivalents 241.1 (3.1) 238.0Cash and cash equivalents at 1 January 197.3 3.5 200.8------------------------------ --------- --------- -------- Cash and cash equivalents at closing 438.4 0.4 438.8------------------------------ --------- --------- -------- *Reformatted to reflect IFRS reporting requirements NOTES1 Operating income 30 June 31 December(a) Rental income 2004 2004 Notes £m £m-------------------------- ------ --------- ------- UK GAAP as previously stated 172.9 359.8Adjustment in respect of rent free periods andstepped rents i 0.7 1.6Other lease incentives ii (0.3) (1.9)Proportional consolidation of joint ventures iii 3.9 8.0-------------------------- ------ --------- -------IFRS 177.2 367.5-------------------------- ------ --------- ------- 30 June 31 December 2004 2004 (b) Rental expenses Notes £m £m-------------------------- ------ --------- ------- UK GAAP as previously stated (52.2) (110.9) Treatment of leasehold interests as finance iv 2.0 4.0leases Amortisation of letting costs v (1.9) (4.0) Proportional consolidation of joint ventures iii (0.1) (0.3)-------------------------- ------ --------- -------IFRS (52.2) (111.2)-------------------------- ------ --------- ------- i Under IFRS, rent free periods and stepped rents are amortised over the full lease term rather than the period to first open market rent review.ii Under UK GAAP, other lease incentives such as cash inducements and contributions to tenant fit out are either written off, capitalised or capitalised and amortised, depending on their nature. Under IFRS, all such costs are capitalised and amortised over the lease term.iii Under UK GAAP, the results of joint ventures are reported on a single line as "share of operating profit of joint ventures". Under IFRS, the group has elected to proportionally consolidate joint ventures, showing each income and expense item on the relevant line of the Income Statement.iv The group's interests in leasehold investment properties are accounted for as finance leases under IFRS. The minimum element of future head rental payments are treated as if they relate to a loan which is financing an increased interest in the property. An element of the rent payable is treated as a finance cost and the remainder is treated as a capital repayment to the head lessor.v Under IFRS, letting costs of developments and investment properties are capitalised and amortised over the lease term whereas under UK GAAP the former were capitalised and the latter were written off as incurred. (c) Gains on revaluation and sale of investment property 30 June 31 December 2004 2004 £m £m --------------------------------- ------- ------- Previously dealt with in reserves:- group 161.3 337.6- share of joint ventures 5.0 5.6Development property valuation movements (2.2) (5.5)Change in amortisation period of lease incentives (0.5) (1.0)Reclassifications within net profit: - previously dealt with as exceptional gain ondisposal of investment properties 5.8 17.0 - property valuation surplus on amortised lettingcosts 1.9 4.0- treatment of leasehold investment property asfinance-leased assets (0.1) (0.4)--------------------------------- -------- -------- IFRS 171.2 357.3--------------------------------- -------- -------- Year ended 31 December 2004 --------------------------------------------------------- UK Shopping Other Other Group Centres Commercial Activities Total Property £m £m £m £mRevenue 289.5 93.4 9.8 392.7---------------------- ----------------------------------------------------- Rental income 274.3 93.2 - 367.5 Rental expense (86.9) (24.3) - (111.2)---------------------- -----------------------------------------------------Net rentalincome 187.4 68.9 - 256.3 Other income 6.0 0.2 8.9 15.1Gain on revaluationand sale of investmentproperty 244.3 113.0 - 357.3---------------------- -----------------------------------------------------Segment result 437.7 182.1 8.9 628.7---------------------- ----------------------------------------------------- Six months ended 30 June 2004 ------------------------------------------------------- UK Shopping Other Other Group Centres Commercial Activities Total Property £m £m £m £mRevenue 148.1 42.6 5.8 196.5---------------------- ---------------------------------------------------- Rental income 134.6 42.6 - 177.2 Rental expense (43.4) (8.8) - (52.2)---------------------- ----------------------------------------------------Net rentalincome 91.2 33.8 - 125.0 Other income 6.8 - 5.8 12.6Gain on revaluationand sale of investmentproperty 106.7 64.5 - 171.2---------------------- ----------------------------------------------------Segment result 204.7 98.3 5.8 308.8---------------------- ---------------------------------------------------- 2 Administration expenses 30 June 31 December 2004 2004 Notes £m £m ---------------------- --------- --------- -------- UK GAAP as previously stated (11.7) (26.5)Share options i (0.2) (0.5) Other (0.1) (0.2)---------------------- --------- --------- -------- IFRS (12.0) (27.2)---------------------- --------- --------- -------- i Under IFRS, employee share options are expensed at their fair value at the grant date rather than intrinsic value at that date. The cost is spread over the vesting period, usually three years, and is adjusted only to reflect changes in the expected number of shares vesting. 3 Retirement benefits UK GAAP Adjustments IFRS Notes £m £m £m---------------------- ----- ------- -------- ------- Net retirement benefit prepayment /(liability) at 1 January 2004 0.7 (1.0) (0.3)Current service costs i (0.9) - (0.9)Other finance costs (note 5) ii - 0.2 0.2Actuarial gains / (losses) - (0.4) (0.4)Contributions 0.8 - 0.8--------------------- ------ -------- -------- --------Net retirement benefit prepayment /(liability) at 31 December 2004 iii 0.6 (1.2) (0.6)--------------------- ------ -------- -------- -------- i The retirement benefit adjustments reflect the application of IAS 19 as opposed to SSAP 24. The group has adopted the amendment to IAS 19 published in 31 December 2004 which permits the immediate recognition of actuarial gains and losses in equity. ii The net finance cost arising from the pension scheme reflects the expected return on the assets of the scheme less the unwinding of the discount on the scheme liabilities. iii The net retirement benefit liability at 30 June 2004 was unchanged from 1 January 2004 at £(0.3)m. 4 Exceptional profit on disposal of fixed assets and subsidiaries 30 June 31 December 2004 2004 Notes £m £m------------------------------ ------ ------- ------- UK GAAP as previously stated 6.2 46.0Gain on disposal of investment properties i (5.8) (17.0)Recycled gain on disposal of investments ii 1.6 6.6------------------------------ ------ ------- -------IFRS 2.0 35.6------------------------------ ------ ------- ------- i Under IFRS, gains on disposal of investment properties are classified within operating income. ii Under IFRS, exceptional gains or losses on disposal of fixed asset investments are calculated by reference to their historic cost. Any previous revaluation surpluses are "recycled" into the profit on disposal with a corresponding adjustment to the revaluation reserve. 5 Net finance costs 30 June 31 December 2004 2004 Notes £m £m--------------------------- ------ ------- -------UK GAAP as previously stated i (64.4) (132.9)Additional amortisation relating to convertibledebt ii (2.2) (4.3)Interest payable on finance leases iii (1.8) (3.6)Net finance cost arising from retirement benefitschemes (note 3) 0.1 0.2--------------------------- ------ ------- -------Net interest costs (68.3) (140.6)Fair value gains / (losses) on derivative financialinstruments iv 46.8 (41.4)--------------------------- ------ ------- -------IFRS (21.5) (182.0)--------------------------- ------ ------- ------- i Includes £(3.4)m exceptional net finance cost (30 June 2004 £(0.1)m). ii Under IFRS, convertible debt is required to be allocated between debt and equity. The debt element is initially less than the nominal value of the bond and must therefore be amortised up to full nominal value over the term of the instrument, resulting in an additional finance charge. iii Under IFRS, leasehold investment property interests are accounted for as finance leases. The minimum element of future head rental payments are treated as if they relate to a loan which is financing an increased interest in the property. An element of the rent payable is treated as a finance cost and the remainder is treated as a capital repayment to the head lessor. iv Under IFRS, derivative financial instruments are carried in the balance sheet at fair value with changes in fair value being recognised in the Income Statement unless they are eligible to be accounted for as hedges. This does not affect the underlying cash flows. 6 Tax (a) Tax charge reconciliation for the year ended 31 December 2004 IFRS £m------------------------------------ -------Profit before tax 455.1------------------------------------ -------Profit multiplied by UK corporation tax rate of 30% (136.5)Effects of:UK capital allowances which did not reverse on sale 2.2Disposals of properties and investments 8.6Prior year items 2.4Expenses disallowed, net of capitalised interest (0.3)Untaxed dividends 1.2Overseas taxation, including joint ventures (0.6)------------------------------------ --------Tax charge for the year (123.0)------------------------------------ --------Comprising: (24.8)Current corporation tax *Deferred tax - investment property ** (114.3)Deferred tax - derivative financial instruments 12.9Deferred tax - other temporary timing differences 3.2------------------------------------ -------- (123.0)------------------------------------ -------- * includes tax on exceptional items (0.4)** includes tax on exceptional items (1.8)------------------------------------ -------- (2.2)------------------------------------ -------- (b) Deferred tax provision as at 31 December 2004 UK GAAP Adjustments IFRS Notes £m £m £m ------------------- ------- ------- -------- ------- Capital gains net of capital losses i - 653.8 653.8Capital allowances ii 76.2 - 76.2Derivative financial instruments - (39.7) (39.7)Other temporary differences 3.1 15.5 18.6------------------- ------- -------- -------- --------Net deferred tax provision 79.3 629.6 708.9------------------- ------- -------- -------- -------- i Under IAS 12, provision is made for the deferred tax liability associated with the revaluation of investment properties. UK GAAP requires that the contingent tax on capital gains that would be payable if all investment properties were sold for their balance sheet value at 31 December 2004 is disclosed but not provided for in the balance sheet. IAS 12 states that there will be a deferred tax liability or asset on the revaluation surplus of an asset "even if the enterprise does not intend to dispose of the asset - in such cases, the revalued carrying amount of the asset will be recovered through use and this will generate taxable income". IAS 12 also states that the measurement of a deferred tax liability "should reflect the tax consequences that would follow from the manner in which the enterprise expects ... to recover ... the carrying amount of its assets". The group holds its investment properties for the long term and has no current intention to make disposals. As a result, under IAS 12, the group does not provide for deferred tax on investment properties by reference to the tax that would be due on the sale of the investment properties. Instead the group treats the value of the investment properties as being recovered through use, and so provides for deferred tax on the revaluation of investment properties by applying the corporation tax rate of 30% to the revaluation surplus. The resulting deferred tax provision reduces net assets by £653.8m at 31 December 2004. This method of calculation takes no account of the actual tax that would be due if all property assets were to be disposed of at their balance sheet value. The provision calculated on a disposal basis, at 31 December 2004 was £505.0m. ii If upon sale the group retained all the capital allowances, which is within the control of the seller, the deferred tax provision in respect of capital allowances of £76.2m would be released, and further capital allowances of £13.3m would be available to reduce the amount of tax payable on sale. (c) Deferred tax movements under IFRS As at As at 1 January Recognised in Recognised in 31 December 2004 income equity 2004 £m £m £m £m ------------------ --- -------- -------- -------- --------Capital gainsnet of capital losses 551.0 103.9 (1.1) 653.8Capital allowances i 67.1 10.4 (1.3) 76.2 Derivative financialinstruments (26.8) (12.9) - (39.7) Other temporarydifferences 21.9 (3.2) (0.1) 18.6----------------- ---- -------- -------- -------- -------- Net deferredtax provision 613.2 98.2 (2.5) 708.9----------------- ---- -------- -------- -------- -------- Under IFRS, where gains such as revaluation of development properties and otherassets and actuarial movements on pension funds are dealt with in reserves, thedeferred tax is also dealt with in reserves. i Includes £1.8m in respect of exceptional items. 7 Earnings per share Year ended 31 December 2004 UK GAAP Adjustments IFRS £m £m £m--------------------------- ------- -------- ------- Earnings used for calculation of basicearnings per share 124.6 207.5 332.1Less exceptional items, net of tax* (41.2) 11.2 (30.0)Less gain on revaluation of investmentproperties - (357.3) (357.3) Add back fair value movement on derivativefinancial instruments - 41.4 41.4 Add back deferred tax in respect of investmentproperties 8.6 103.9 112.5 Less deferred tax in respect of derivativefinancial instruments - (12.9) (12.9)--------------------------- ------- -------- ------- Earnings used for calculation of adjustedearnings per share 92.0 (6.2) 85.8--------------------------- ------- -------- ------- Adjusted earnings per share (pence) 29.0p (1.9)p 27.1p--------------------------- ------- -------- ------- * Comprising: disposal of fixed assets £35.6m (note 4), finance costs £(3.4)m(note 5), taxation £(2.2)m, (note 6). Year ended 31 December 2004 UK GAAP Adjustments IFRS £m £m £m-------------------------- -------- -------- -------- Earnings used for calculation of basicearnings per share 124.6 207.5 332.1Reduction in finance cost from conversion ofbonds, net of tax 7.8 3.0 10.8-------------------------- -------- -------- --------Earnings used for calculation of dilutedearnings per share 132.4 210.5 342.9-------------------------- -------- -------- -------- Diluted earnings per share (pence) 38.0p 60.3p 98.3p-------------------------- -------- -------- -------- Period ended 30 June 2004 UK GAAP Adjustments IFRS £m £m £m-------------------------- -------- -------- ------- Earnings used for calculation of basicearnings per share 50.0 147.7 197.7Less exceptional items, net of tax* (5.9) 4.5 (1.4)Less gain on revaluation of investmentproperties - (171.2) (171.2) Less fair value movement on derivativefinancial instruments - (46.8) (46.8) Add back deferred tax in respect of investmentproperties 2.7 49.2 51.9 Add back deferred tax in respect of derivativefinancial instruments - 13.9 13.9-------------------------- -------- -------- ------- Earnings used for calculation of adjustedearnings per share 46.8 (2.7) 44.1-------------------------- -------- -------- ------- Adjusted earnings per share (pence) 14.8p (0.9)p 13.9p-------------------------- -------- -------- ------- * Comprising: disposal of fixed assets £2.0m (note 4), finance costs £(0.1)m(note 5), taxation £(0.5)m. Period ended 30 June 2004 UK GAAP Adjustments IFRS £m £m £m-------------------------- -------- -------- ------- Earnings used for calculation of basicearnings per share 50.0 147.7 197.7Reduction in finance cost from conversion ofbonds, net of tax 4.0 1.5 5.5-------------------------- -------- -------- -------Earnings used for calculation of dilutedearnings per share 54.0 149.2 203.2-------------------------- -------- -------- ------- Diluted earnings per share (pence) 15.6p 43.0p 58.6p-------------------------- -------- -------- ------- The number of shares used for calculation of earnings per share is unchangedfrom UK GAAP, at 317.0 million shares (30 June 2004 316.8m) for basic andadjusted earnings per share and 348.9 million shares (30 June 2004 346.8m) fordiluted earnings per share. 8 Investment and development properties Investment Development Total Notes property property properties £m £m £m----------------------- ------ ------- -------- -------Related Shares:
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