17th May 2006 07:02
Land Securities Group Plc17 May 2006 17 May 2006 Land Securities Group PLCPreliminary Results for the year ended 31 March 2006- Part 2 Income statement for the year ended 31 March 2006 2006 2006 2006 2005 2005 2005 Unaudited Unaudited Unaudited Notes Before Exceptional Total Before Exceptional Total exceptional Items £m exceptional Items £m items £m items £m £m £m Income: Group and share of joint ventures 1,988.2 - 1,988.2 1,876.2 - 1,876.2Less: share of joint ventures income 10 (159.5) - (159.5) (249.1) - (249.1) ------------ ------------ ------------ ------------ ------------ ----------Group revenue 2 1,828.7 - 1,828.7 1,627.1 - 1,627.1Costs 2 (1,267.8) - (1,267.8) (1,134.7) (14.8) (1,149.5) ------------ ------------ ------------ ------------ ------------ ---------- 560.9 - 560.9 492.4 (14.8) 477.6Profit on disposal of fixed asset properties 2, 4 74.5 - 74.5 112.0 - 112.0Net surplus on revaluation of investment properties 2, 4 1,579.5 - 1,579.5 827.9 - 827.9Goodwill impairment 2, 4 - (64.5) (64.5) - (12.7) (12.7)Profit on disposal of joint venture 2, 4 - 293.0 293.0 - - - ------------ ------------ ------------ ------------ ------------ ----------Operating profit 2,214.9 228.5 2,443.4 1,432.3 (27.5) 1,404.8Interest expense 3 (201.8) - (201.8) (198.8) (49.8) (248.6)Interest income 3 7.3 - 7.3 9.8 - 9.8 ------------ ------------- -------------- ------------ -------------- ----------- 2,020.4 228.5 2,248.9 1,243.3 (77.3) 1,166.0Share of the profit of joint ventures(post-tax) 10 98.6 - 98.6 76.1 - 76.1Distribution received from joint venture (Telereal) 10 11.7 - 11.7 65.4 - 65.4 ------------ ------------ ------------ ------------ ------------ ----------Profit / (loss) before tax 2 2,130.7 228.5 2,359.2 1,384.8 (77.3) 1,307.5Income tax (expense) / credit 5 (593.3) (90.0) (683.3) (265.8) 19.2 (246.6) ------------ ------------ ------------ ------------ ------------ ----------Profit / (loss) for the financial year 13 1,537.4 138.5 1,675.9 1,119.0 (58.1) 1,060.9 ============= ============ ============ ============ ============ ==========Dividends per shareDividend per share 6 46.70p 43.25p Earnings per shareBasic earnings per share * 7 357.95p 227.32pDiluted earnings per share * 7 356.50p 226.45p * adjusted earnings per share is given in note 7 Statement of recognised income and expense for the year ended 31 March 2006 2006 2005 Unaudited £m £m Profit for the financial year 1,675.9 1,060.9 Actuarial losses on defined benefit pension schemes (5.0) (4.9)Deferred tax on actuarial losses on defined benefit pension schemes 1.5 1.5Fair value movement on cash flow hedges taken to equity - Group (2.2) - - joint ventures (2.7) -Deferred tax on fair value movement on cash flow hedges taken to equity - Group 0.6 - - joint ventures 0.8 - ----------- -----------Net losses not recognised in income statement (7.0) (3.4) ----------- -----------Total recognised income and expense since the last financial statements 1,668.9 1,057.5 =========== =========== Balance sheet at 31 March 2006 Notes 2006 2005 Unaudited £m £mNon-current assetsInvestment properties 9 11,440.5 8,240.1Property, plant and equipmentProperty outsourcing properties 9 563.2 546.3Other property, plant and equipment 9 73.6 57.9 ----------- ----------- 9 12,077.3 8,844.3Net investment in finance leases 233.9 163.4Goodwill 34.3 34.3Investment in joint ventures 10 829.5 854.9 ----------- -----------Total non-current assets 13,175.0 9,896.9 ----------- -----------Current assetsTrading properties and long-term development contracts 255.9 164.0Trade and other receivables 578.9 513.5Cash and cash equivalents 15.6 5.0 ----------- -----------Total current assets 850.4 682.5 ----------- -----------Total assets 14,025.4 10,579.4 ----------- -----------Current liabilitiesShort-term borrowings and overdrafts (46.7) (50.8)Trade and other payables (585.0) (577.2)Current tax liabilities (212.5) (37.9) ----------- -----------Total current liabilities (844.2) (665.9) ----------- -----------Non-current liabilitiesProvisions (58.2) (42.0)Borrowings 11 (3,654.8) (2,392.3)Pension deficit (6.5) (10.9)Deferred tax liabilities 12 (1,967.8) (1,418.0) ----------- -----------Total non-current liabilities (5,687.3) (3,863.2) ----------- -----------Total liabilities (6,531.5) (4,529.1) ----------- -----------Net assets 7,493.9 6,050.3 =========== ===========EquityOrdinary shares 13 46.9 46.8Treasury shares 13 (3.4) (2.1)Share based payments 13 6.3 3.3Share premium 13 43.2 31.4Capital redemption reserve 13 30.5 30.5Retained earnings 13 7,370.4 5,940.4 ----------- -----------Total shareholders' equity 7,493.9 6,050.3 =========== =========== Cash flow statement for the year ended 31 March 2006 Notes 2006 2006 2005 2005 Unaudited Unaudited £m £m £m £mNet cash generated from operationsCash generated from operations 14 591.5 523.4Interest paid (187.7) (313.5)Interest received 7.3 18.3Funding pension scheme deficit (4.9) (15.2)Taxation (corporation tax (paid) / received) (30.3) 3.6 ----------- -----------Net cash inflow from operations 375.9 216.6Cash flows from investing activitiesInvestment property development expenditure (236.6) (215.3)Acquisition of investment properties (1,429.2) (309.8)Other investment property related expenditure (78.8) (40.6)Capital expenditure associated with property outsourcing (29.7) (122.5) ----------- -----------Capital expenditure on properties (1,774.3) (688.2)Disposal of fixed asset investment properties 675.5 335.1Disposal of fixed asset operating properties 4.1 355.3 ----------- -----------Net expenditure on properties (1,094.7) 2.2Net expenditure on non-property related fixed assets (26.9) (19.3) ----------- -----------Net cash outflow from capital expenditure (1,121.6) (17.1)Receivable finance leases acquired (84.8) (92.6)Receipts in respect of receivable finance leases 2.3 2.3Net loans made to joint ventures (72.8) (88.8)Distributions from joint ventures 206.6 245.8Proceeds from disposal of joint venture 293.0 -Acquisitions of Group undertakings (net of cash acquired) (321.2) (5.4) ----------- -----------Net cash (used in) / from investing activities (1,098.5) 44.2 Cash flows from financing activitiesIssue of shares 11.9 15.7Purchase of own share capital (1.9) (2.1)Increase / (decrease) in debt 1,221.2 (322.2)Debt repaid on acquisition of Tops Estates (257.9) -Decrease in finance leases payable (1.2) (1.0)Repayment of B shares - (8.4)Dividend paid to ordinary shareholders (238.9) (175.5) ----------- -----------Net cash from / (used in) financing activities 733.2 (493.5) ----------- -----------Increase / (decrease) in cash and cash equivalents at end of the year 10.6 (232.7) =========== =========== 1. Basis of preparation The financial information is abridged and does not constitute the Group's fullFinancial Statements for the years ended 31 March 2006 and 31 March 2005, andhas been prepared under International Financial Reporting Standards ("IFRS").Prior year comparatives have been restated for IFRS conversion adjustments.Further explanations of the IFRS adjustments are disclosed in Note 16 and theInterim Report issued on 30 November 2005. Full Financial Statements for the year ended 31 March 2005, which were preparedunder UK GAAP, received an unqualified auditors' report and did not contain astatement under Section 237(2) or (3) of the Companies Act 1985, have been filedwith the Registrar of Companies. Financial Statements for the year ended 31 March 2006 will be presented to theMembers at the forthcoming Annual General Meeting; the auditors have indicatedthat their report on these Financial Statements will be unqualified. 2. Segmental information 2006 2006 2006 2006 2006Income statements Retail London Other Property Total Portfolio Investment Outsourcing Portfolio £m £m £m £m £m Rental income 255.9 278.5 4.3 - 538.7Service charge income 38.3 40.0 0.2 - 78.5Property services income - - - 924.8 924.8Trading property sale proceeds - 93.8 5.9 - 99.7Long-term development contract income - 95.7 78.4 - 174.1Finance lease interest 4.4 6.0 - 2.5 12.9 ----------- ----------- ----------- ----------- -----------Revenue 298.6 514.0 88.8 927.3 1,828.7Rents payable (12.0) (4.1) - (183.9) (200.0)Other direct property or contract expenditure (59.7) (47.9) (0.9) (610.1) (718.6)Indirect property or contract expenditure (32.7) (28.7) (4.8) (8.8) (75.0)Long-term development contract expenditure - (74.7) (77.5) - (152.2)Bid costs - - - (7.4) (7.4)Cost of sales of trading properties - (78.0) (4.2) - (82.2)Depreciation (1.0) (4.1) (0.1) (20.5) (25.7) ----------- ----------- ----------- ----------- ----------- 193.2 276.5 1.3 96.6 567.6Profit on disposal of fixed asset properties 40.1 33.2 0.2 1.0 74.5Net surplus on revaluation of investment properties 636.9 935.5 5.2 1.9 1,579.5Goodwill impairment (64.5) - - - (64.5)Profit on disposal of joint venture (Telereal) - - - 293.0 293.0 ----------- ----------- ----------- ----------- -----------Segment result 805.7 1,245.2 6.7 392.5 2,450.1 =========== =========== =========== ===========Credit arising from change in pension scheme benefits 8.3Unallocated expenses (15.0)Exceptional costs - -----------Operating profit 2,443.4Net financing costs - ordinary (194.5) - exceptional - ---------- 2,248.9Share of the profit of joint ventures (post-tax) 98.6Distribution received from joint venture (Telereal) 11.7 ----------Profit before tax 2,359.2 ========== 2. Segmental information continued... 2005 2005 2005 2005 2005Income statements Retail London Other Property Total Portfolio Investment Outsourcing Portfolio £m £m £m £m £m Rental income 204.0 252.1 15.8 - 471.9Service charge income 33.9 34.2 1.3 - 69.4Property services income - - - 763.6 763.6Trading property sale proceeds - 1.0 21.3 100.2 122.5Long-term development contract income - 64.4 126.8 - 191.2Finance lease interest 2.1 6.4 - - 8.5 ----------- ----------- ----------- ----------- -----------Revenue 240.0 358.1 165.2 863.8 1,627.1Rents payable (9.7) (3.8) - (183.6) (197.1)Other direct property or contract expenditure (41.6) (46.1) (3.8) (446.5) (538.0)Indirect property or contract expenditure (22.7) (22.0) (1.7) (8.1) (54.5)Long-term development contract expenditure - (53.2) (126.4) - (179.6)Bid costs - - - (2.6) (2.6)Cost of sales of trading properties - (0.8) (15.1) (96.3) (112.2)Depreciation (1.9) (4.5) (0.2) (29.0) (35.6) ----------- ----------- ----------- ----------- ----------- 164.1 227.7 18.0 97.7 507.5Profit on disposal of fixed asset properties 14.1 29.8 37.6 30.5 112.0Net surplus on revaluation of investment properties 397.4 412.1 18.4 - 827.9Goodwill impairment (12.7) - - - (12.7)Profit on disposal of joint venture (Telereal) - - - - - ----------- ----------- ----------- ----------- -----------Segment result 562.9 669.6 74.0 128.2 1,434.7 =========== =========== =========== ===========Credit arising from change in pension scheme benefits -Unallocated expenses (15.1)Exceptional costs (14.8) -----------Operating profit 1,404.8Net financing costs - ordinary (189.0) - exceptional (49.8) ----------- 1,166.0Share of the profit of joint ventures (post-tax) 76.1Distribution received from joint venture (Telereal) 65.4 -----------Profit before tax 1,307.5 =========== Included within rent payable is finance lease interest payable of £1.8m (2005:£2.0m) and £2.8m (2005: £2.4m) respectively for Retail and London Portfolio. 2006 2006 2006 2006 2006Balance sheets Retail London Other Property Total Portfolio Investment Outsourcing Portfolio £m £m £m £m £mInvestment properties 5,514.6 5,856.5 69.4 - 11,440.5Operating properties - - - 563.2 563.2Other property, plant and equipment 7.3 6.5 4.7 55.1 73.6Net investment in finance leases 73.8 107.1 - 53.0 233.9Goodwill - - - 34.3 34.3Investment in equity accounted joint ventures 768.5 - 41.2 19.8 829.5Trading properties and long-term development contracts - 150.5 104.3 1.1 255.9Trade and other receivables 158.7 207.5 9.7 202.7 578.6 ----------- ----------- ----------- ----------- ----------- Segment assets 6,522.9 6,328.1 229.3 929.2 14,009.5 =========== =========== =========== =========== -----------Unallocated assets 15.9 -----------Total assets 14,025.4 =========== Trade and other payables (153.4) (135.0) (31.5) (235.6) (555.5)Non-current payables - - - (58.2) (58.2) ----------- ----------- ----------- ----------- ----------- Segment liabilities (153.4) (135.0) (31.5) (293.8) (613.7) =========== =========== ============ ===========Unallocated liabilities (5,917.8) ----------- Total liabilities (6,531.5) =========== Other segment itemsCapital expenditure 121.3 207.8 0.6 45.5 375.2 =========== =========== ============ =========== =========== Continued... 2005 2005 2005 2005 2005Balance sheets Retail London Other Property Total Portfolio Investment Outsourcing Portfolio £m £m £m £m £mInvestment properties 3,678.3 4,418.3 143.5 - 8,240.1Operating properties - - - 546.3 546.3Other property, plant and equipment 4.8 4.3 0.5 48.3 57.9Net investment in finance leases 39.7 108.9 - 14.8 163.4Goodwill - - - 34.3 34.3Investment in equity accounted joint ventures 841.9 - 13.0 - 854.9Trading properties and long-term development contracts - 125.3 36.9 1.8 164.0Trade and other receivables 181.4 53.8 11.2 267.1 513.5 ----------- ----------- ----------- ----------- ----------- Segment assets 4,746.1 4,710.6 205.1 912.6 10,574.4 =========== =========== =========== ===========Unallocated assets 5.0 ----------- Total assets 10,579.4 =========== Trade and other payables (135.4) (143.3) (19.6) (256.9) (555.2)Non-current payables - - - (42.0) (42.0) ----------- ----------- ----------- ----------- ----------- Segment liabilities (135.4) (143.3) (19.6) (298.9) (597.2) =========== =========== =========== ===========Unallocated liabilities (3,931.9) ----------- Total liabilities (4,529.1) =========== Other segment itemsCapital expenditure 89.7 160.2 5.8 33.7 289.4 =========== =========== =========== =========== =========== The Group has organised its operations into four main business segments uponwhich the Group reports its primary segment information: • Retail• London Portfolio• Other Investment Portfolio• Property Outsourcing All operations are in the UK. 3. Net finance costs 2006 2005 £m £mInterest expense Bond and debenture debt (143.1) (149.9) Bank borrowings (56.8) (55.5) Other interest payable (1.3) (0.9) Loans from joint ventures - (0.3)Fair value losses on interest rate swaps (2.2) (0.8)Amortisation of bond exchange de-recognition (note 11) (26.6) (11.2)Bond exchange de-recognition adjustment written off on redemption of bonds (note 11) (1.5) - ------------- -------------Expected return on pension scheme assets 7.3 6.4Interest on pension scheme liabilities (7.2) (6.7) ------------- -------------Net financing income / (expense) on pension scheme 0.1 (0.3)B share dividends - (0.1) ------------- ------------- (231.4) (219.0)Interest capitalised in relation to properties under development 29.6 20.2 ------------- -------------Total interest and similar charges payable - ordinary (201.8) (198.8) ============= =============Cost of purchase and redemption of bonds and debenture debt - (49.8) ------------- -------------Total interest and similar charges payable - exceptional - (49.8) ============= =============Interest income Short-term deposits 1.0 7.1 Other interest receivable 1.7 2.7 Interest receivable from joint ventures 4.6 - ------------- -------------Total interest receivable 7.3 9.8 ============= ============= Net finance costs (194.5) (238.8) ============= ============= Included within rents payable (note 2) is finance lease interest payable of £4.6m(2005: £4.4m). 4. Exceptional items 2006 2005 £m £m Profit on disposal of joint venture (Telereal) (293.0) -Goodwill impairment 64.5 12.7Debt restructuring - charged to costs - 14.8 - charged to interest - 49.8 ======== ======== On 30 September 2005 the Group sold its interest in the Telereal joint venturefor £293.0m (net of costs), resulting in an exceptional profit of £293.0m, asthe book value of the joint venture was £nil. The tax charge arising on thedisposal was £90.0m. Where goodwill arises as a result of recognising deferred tax on a businesscombination, the goodwill is written off immediately to the income statement.The goodwill impaired arose on the acquisition of Tops Estates PLC on 10 June2005 and on the assets acquired from Slough Estates PLC on 15 December 2004. On 3 November 2004, the Group completed a debt exchange whereby a predominatelysecured funding strategy was established. The costs of this debt restructuringhave been treated as exceptional. 5. Income tax expense 2006 2005 £m £mCurrent taxCorporation tax charge / (credit) for the year 181.6 (66.8)Adjustment in respect of prior years (14.7) (26.0)Corporation tax in respect of property disposals 38.0 46.7 ------------- -------------Total current tax charge / (credit) 204.9 (46.1) ------------- -------------Deferred taxOrigination and reversal of timing differences 34.6 149.4Released in respect of property disposals (30.1) (105.0)On valuation surplus 473.9 248.3 ------------- -------------Total deferred tax charge 478.4 292.7 ------------- -------------Total income tax charge in the income statement 683.3 246.6 ============= =============The tax for the year is lower than the standard rate of corporation tax in the UK(30%). The differences are explained below:Profit on activities before taxation 2,359.2 1,307.5 ------------- -------------Profit on activities multiplied by rate of corporation tax in the UK of 30% 707.8 392.2Effects of:Deferred tax released in respect of property disposals (34.7) (105.0)Corporation tax on disposal of fixed assets 23.0 13.6Goodwill impairment 19.4 3.8Joint venture accounting adjustments (26.5) (37.7)Prior year corporation tax adjustments (14.7) (26.0)Prior year deferred tax adjustments 0.8 (3.4)Non-allowable expenses and non-taxable items 8.2 9.1 ------------- -------------Total income tax expense in the income statement (as above) 683.3 246.6 ============= ============= The calculation of the Group's tax charge necessarily involves a degree ofestimation and judgement in respect of certain items whose tax treatment cannotbe finally determined until a formal resolution has been reached with therelevant tax authorities. In such cases the Group has reserved on the basisthat these provisions will be required. If all such issues are resolved in theGroup's favour provisions of up to £225 million could be released in the future. 6. Dividends 2006 2005 £m £mOrdinary dividends paidFinal dividend for the year ended 31 March 2005 (32.85p per share) 153.8 -Final dividend for the year ended 31 March 2004 (27.20p per share) - 126.9Interim dividend for the year ended 31 March 2006 (18.15p per share) 85.1 -Interim dividend for the year ended 31 March 2005 (10.40p per share) - 48.6 ------------- ------------- 238.9 175.5 ============= ============= The Board has proposed a final dividend of 28.55p per share (final dividend forthe year ended 31 March 2005: 32.85p) which will result in a furtherdistribution of £134.0m. It will be paid on 24 July 2006 to shareholders whoare on the register of members on 23 June 2006. 7. Earnings per shareEarnings 2006 2005 £m £m Profit for the financial year 1,675.9 1,060.9Revaluation surpluses net of deferred taxation - Group (1,105.6) (579.6)Revaluation surpluses net of deferred taxation - joint ventures (73.8) (48.7)Fixed asset property disposals after current and deferred tax (66.5) (178.4)Goodwill impairment 64.5 12.7Deferred tax arising from capital allowances on investment properties 12.2 9.3Mark-to-market adjustment on interest rate swaps (net of deferred tax) 1.5 1.9Eliminate effect of bond exchange de-recognition (net of deferred tax) 19.7 7.8Deferred tax arising from capitalised interest on investment properties 7.2 5.2Exceptional costs of debt restructuring - 45.4Credit arising from change in pension scheme benefits (net of deferred tax) (5.8) -Profit on disposal of joint venture (net of taxation) (203.0) -Adjustment to restate the Group's share of Telereal's earnings from a distribution to an equity basis 5.0 (23.2) ------------- -------------Adjusted earnings 331.3 313.3 ============= ============= Weighted average number of ordinary shares No.m No.mWeighted average number of ordinary shares 468.5 466.9Effect of own shares (0.3) (0.2) ------------- -------------Weighted average number of ordinary shares after adjusting for own shares 468.2 466.7Effect of dilutive share options 1.9 1.8 ------------- ------------- Weighted average number of ordinary shares adjusted for dilutive instruments 470.1 468.5 ============= ============= Earnings per share pence penceBasic earnings per share 357.95 227.32Diluted earnings per share 356.50 226.45Adjusted earnings per share 70.76 67.13Adjusted diluted earnings per share 70.47 66.87 ============= ============= Management have chosen to disclose the adjusted earnings per share in order toprovide a better indication of the Group's underlying business performance.Accordingly, it excludes the effect of all exceptional items, the one-offbenefit from the pension scheme changes (as explained in the Operating andFinancial Review) and other items of a capital nature (excluding tradingproperties and long-term contract profits) as indicated above. In addition, thedeferred tax arising on capital allowances in respect of investment propertieshas been eliminated as experience has shown that these allowances are not inpractice repayable. Deferred tax on capitalised interest is also added back asthis is effectively a permanent timing difference. 8. Net assets per shareShareholders' equity 2006 2005 £m £mNet assets attributable to equity shareholders 7,493.9 6,050.3Deferred tax arising on revaluation surpluses - Group 1,580.9 1,117.9Deferred tax arising on revaluation surpluses - joint ventures 75.5 43.8Deferred tax arising on revaluation surpluses - acquired 83.3 19.0Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - Group 5.4 2.3Cumulative mark-to-market adjustment on interest rate swaps (net of deferred tax) - joint ventures 3.2 1.3Deferred tax arising from capital allowances on investment properties 116.8 112.7Deferred tax arising from capitalised interest on investment properties 28.2 32.3Reverse bond exchange de-recognition adjustment (net of deferred tax) (note 11) (375.3) (395.0) ------------ -------------Adjusted net assets attributable to equity shareholders 9,011.9 6,984.6 ============ ============= Number of ordinary shares No. m No. mNumber of ordinary shares 469.3 467.8Effect of dilutive share options 2.1 1.7 ------------- -------------Number of ordinary shares adjusted for dilutive instruments 471.4 469.5 ============ ============= Net assets per share pence penceNet assets per share 1597 1293Diluted net assets per share 1590 1289Adjusted net assets per share 1920 1493Adjusted diluted net assets per share 1912 1488 ============ ============= Adjusted net assets per share excludes the deferred tax arising on revaluationsurpluses, mark-to-market adjustments on financial instruments used for hedgingpurposes and the bond exchange de-recognition adjustment as management considerthat this better represents the expected future cash flows of the Group. Inaddition, the deferred tax arising on capital allowances in respect ofinvestment properties is excluded as experience has shown that these allowancesdo not in practice crystallise. Deferred tax on capitalised interest is alsoadded back as this is effectively a permanent timing difference. The adjustednet asset value per share does not take into account management's estimate ofthe tax on property disposals as referred to in Note 12. 9. Non-current assets Property Property Property Property Other Investment Investment Investment outsourcing Investment Investment Investment Operating Other properties properties properties and property, investment plant properties and £m equipment £m Portfolio Development Total Total management programme £m £m £m £m Net book value at 1April 2004 6,763.1 731.1 7,494.2 769.2 51.0 8,314.4Properties transferredfrom portfoliomanagement into thedevelopment programmeduring the year (at 1April 2004 valuation) (151.0) 151.0 - - - -Developments completed,let and transferred fromthe developmentprogramme into portfoliomanagement during theyear 485.4 (485.4) - - - -Property acquisitions 311.9 - 311.9 103.6 - 415.5Acquisitions throughbusiness combinations 197.0 - 197.0 - - 197.0Capital expenditure 40.6 205.4 246.0 18.9 24.5 289.4Transfer from investmentleases 29.1 - 29.1 - - 29.1Capitalised interest - 17.5 17.5 - - 17.5Disposals (558.6) (95.7) (654.3) (324.8) (5.2) (984.3)Transfer to trading properties (30.0) - (30.0) - - (30.0)Surrender premiums received (20.7) - (20.7) - - (20.7)Properties contributedto the Metro ShoppingFund LP and the BristolAlliance (175.9) - (175.9) - - (175.9)Depreciation (2.6) - (2.6) (20.6) (12.4) (35.6) ------------- ------------- ------------- ------------- ------------- ------------- 6,888.3 523.9 7,412.2 546.3 57.9 8,016.4Surplus on revaluation 596.2 231.7 827.9 - - 827.9 ------------- ------------- ------------- ------------- ------------- -------------Net book value at 31March 2005 7,484.5 755.6 8,240.1 546.3 57.9 8,844.3Properties transferredfrom portfoliomanagement into thedevelopment programmeduring the year (at 1April 2005 valuation) (102.4) 102.4 - - - -Developments completed,let and transferred fromthe developmentprogramme into portfoliomanagement during theyear 271.6 (271.6) - - - -Property acquisitions 1,414.1 24.7 1,438.8 - - 1,438.8Acquisitions throughbusiness combinations 592.6 - 592.6 - - 592.6Capital expenditure 78.8 239.3 318.1 29.7 27.4 375.2Capitalised interest - 24.5 24.5 - - 24.5Disposals (641.8) (7.8) (649.6) (3.1) (0.5) (653.2)Transfer to trading properties (84.7) - (84.7) - - (84.7)Surrender premiums received (14.0) - (14.0) - - (14.0)Depreciation (2.9) - (2.9) (11.6) (11.2) (25.7) ------------- ------------- ------------- ------------- ------------- ------------- 8,995.8 867.1 9,862.9 561.3 73.6 10,497.8Surplus on revaluation 1,215.4 362.2 1,577.6 1.9 - 1,579.5 ------------- ------------- ------------- ------------- ------------- -------------Net book value at 31 March 2006 10,211.2 1,229.3 11,440.5 563.2 73.6 12,077.3 ============= ============= ============= ============= ============= ============= Net book value at 31March 2005 7,484.5 755.6 8,240.1Plus: amount included inprepayments in respectof lease incentives 59.1 3.7 62.8Less: head leases capitalised (58.2) (11.7) (69.9)Plus: properties treatedas finance leases 138.9 - 138.9 ------------- ------------- -------------Market value at 31 March2005 - Group 7,624.3 747.6 8,371.9Market value at 31 March2005 - plus: share ofjoint ventures (note 10) ============= ============= 993.9 -------------Market value at 31 March2005 - Group and shareof joint ventures 9,365.8 =============Net book value at 31March 2006 10,211.2 1,229.3 11,440.5 Plus: amount included inprepayments in respectof lease incentives 76.8 4.6 81.4Less: head leases capitalised (66.1) (8.5) (74.6)Plus: properties treatedas finance leases 171.7 - 171.7 ------------- ------------- -------------Market value at 31 March2006 - Group 10,393.6 1,225.4 11,619.0Market value at 31 March2006 - plus: share ofjoint ventures (note 10) ============= ============= 1,273.9 ------------Market value at 31 March2006 - Group and shareof joint ventures 12,892.9 ============ Included in investment properties are leasehold properties with a net book valueof £1,419.8m (2005: £1,283.2m). In accordance with IFRS1 "First time adoption of International ReportingStandards" and IAS 17 "Leases", the Group has reviewed the classification of allleases at the opening balance sheet date of 1 April 2004. In reviewing leasesof land and buildings in accordance with IAS 17 the land and buildings elementsof the lease need to be considered separately. On this basis, leases on 43properties entered into between 1923 and 2003 were reclassified as financeleases in these accounts. This resulted in an increase in fixed assets of£77.2m and a finance lease creditor of the same amount at first time adoption on1 April 2004. At 31 March 2006 leases on 34 properties entered into between1936 and 2005 were classified as finance leases. The corresponding increase infixed assets and finance lease creditor was £74.6m (2005: £69.6m). Operatinglease expense has reduced by £5.8m (2005: £5.4m). The fair value of the Group's investment properties at 31 March 2006 has beenarrived at on the basis of a valuation carried out at that date by Knight FrankLLP, independent valuers. The valuation, which conforms to InternationalValuation Standards, was arrived at by reference to market evidence oftransaction prices for similar properties. Included within the propertyoutsourcing operating and investment properties are investment properties with amarket value of £27.1m (2005: £24.4m). Fixed asset properties includecapitalised interest of £115.8m (2005: £120.9m). The average rate ofcapitalisation is 5.5% (2005: 6.8%). The historical cost of investmentproperties is £6,265.5m (2005: £4,594.7m). The current value of investment properties in respect of proposed developmentsis £383.8m (2005: £189.2m). Developments are transferred out of the development programme when physicallycomplete and 95% let. Schemes completed during the year were Bexhill RetailPark; Whitefriars, Canterbury; Eastbourne Terrace, W2; and Summerland Gate,Exeter. 10. Investment in joint venturesYear ended 31/03/06 and at 31/03/06 Scottish Metro Buchanan Retail Shopping Galleries Property Fund LimitedSummary financial information Limited LP Partnership Parcof Group's share of joint Partnership Taweventures £m £m £m £mIncome statementRental income 20.8 11.8 9.1 0.5Service charges income 4.8 2.3 1.5 -Property services income - - - -Trading property sale proceeds - - - - --------------- --------------- --------------- ----------Revenue 25.6 14.1 10.6 0.5Rents payable - - - -Other direct property orcontractexpenditure (8.8) (3.2) (2.5) (0.1)Indirect property or contractexpenditure (1.0) (0.6) (0.1) -Cost of sales of trading properties - - - -Depreciation - - - - --------------- --------------- --------------- ---------- 15.8 10.3 8.0 0.4Profit on disposal of fixedasset properties - - - -Net surplus / (deficit) onrevaluation ofinvestment properties 20.7 23.2 14.4 0.1 --------------- --------------- --------------- ----------Operating profit 36.5 33.5 22.4 0.5 Net finance costs (10.8) (9.4) (4.3) - --------------- --------------- --------------- ---------- 25.7 24.1 18.1 0.5Taxation (6.5) (7.8) (4.3) - --------------- --------------- --------------- ---------- 19.2 16.3 13.8 0.5Adjustment due to net liabilities - - - - --------------- --------------- --------------- ----------Share of profits of jointventuresafter tax 19.2 16.3 13.8 0.5 =============== =============== =============== ========== Distribution received fromTelereal Balance sheet Investment properties ** 345.3 275.9 173.9 21.4Operating properties - - - -Current assets 12.0 7.8 6.6 3.9 --------------- ------------- --------------- ---------- 357.3 283.7 180.5 25.3 --------------- --------------- --------------- ----------Current liabilities (17.7) (8.5) (4.2) (0.4)Non-current liabilities (221.2) (184.0) - -Deferred tax (13.2) (10.2) (3.3) - --------------- --------------- --------------- ---------- (252.1) (202.7) (7.5) (0.4)Adjustment due to net liabilities - - - - --------------- --------------- --------------- ---------- Net assets 105.2 81.0 173.0 24.9 =============== =============== =============== ========== Capital commitments - - - - =============== =============== =============== ========== Contingent liabilities - - - - =============== =============== =============== ========== Market value of investmentproperties ** 339.2 274.1 177.5 21.4 =============== =============== =============== ========== Net investment At 1 April 2005 293.6 39.6 163.5 -Properties contributed - - - -Cash contributed - 24.7 - 24.8Cost of acquisition - - - -Share of post-tax results 19.2 16.3 13.8 0.5Adjustment to restate theGroup'sshare of Telereal's earningsfrom an equity to a distribution basis - - - -Distributions (185.9) (1.5) (4.3) (0.4)Fair value movement on cashflow hedges taken to equity (1.8) (0.1) - -Loan advances - 2.0 - -Loan repayments (19.9) - - - --------------- --------------- --------------- ---------- At 31 March 2006 105.2 81.0 173.0 24.9 =============== =============== =============== ========== 10. Investment in joint ventures Year ended 31/03/06 and at 31/03/06 - continued... Summary financial Martineauinformation of Galleries BullringGroup's share of Limited Limited Bristoljoint ventures Partnership Partnership Alliance Other* Telereal Total £m £m £m £m £m £mIncome statementRental income 1.3 14.6 3.5 0.5 - 62.1Service chargesincome 0.4 2.1 - - - 11.1Property servicesincome - - - - 80.8 80.8Trading propertysale proceeds - - - - 5.5 5.5 --------------- --------------- ------------- ---------- ------------- ------------Revenue 1.7 16.7 3.5 0.5 86.3 159.5Rents payable (0.1) - - - (17.1) (17.2)Other direct property or contractexpenditure (1.2) (4.0) (0.5) - - (20.3)Indirect property orcontract expenditure - (0.3) (0.3) - (7.6) (9.9)Cost of sales oftrading properties - - - - (1.3) (1.3)Depreciation - - - - (7.1) (7.1) --------------- --------------- ------------- ---------- ------------- ------------ 0.4 12.4 2.7 0.5 53.2 103.7Profit on disposalof fixed assetproperties - (0.2) - 0.1 0.9 0.8Net surplus / (deficit)on revaluation ofinvestmentproperties (0.3) 31.3 15.7 0.4 - 105.5 --------------- --------------- ------------- ---------- ------------- ------------Operating profit 0.1 43.5 18.4 1.0 54.1 210.0 Net finance costs 0.1 0.1 0.3 (0.3) (32.9) (57.2) --------------- --------------- ------------- ---------- ------------- ------------ 0.2 43.6 18.7 0.7 21.2 152.8Taxation 0.1 (9.7) (4.7) (0.1) (4.5) (37.5) --------------- --------------- ------------- ---------- ------------- ------------ 0.3 33.9 14.0 0.6 16.7 115.3Adjustment due tonet liabilities - - - - (16.7) (16.7) --------------- --------------- ------------- ---------- ------------- ------------Share of profits ofjoint ventures aftertax 0.3 33.9 14.0 0.6 - 98.6 =============== =============== ============= ========== ============= ============ Distribution receivedfromTelereal 11.7 11.7 ======= =======Balance sheet Investmentproperties ** 22.8 297.2 120.7 11.2 - 1,268.4Operating properties - - - - - -Current assets 2.0 10.6 16.3 39.0 - 98.2 --------------- --------------- --------------- ------------- ---------- ------------- 24.8 307.8 137.0 50.2 - 1,366.6 --------------- --------------- --------------- ------------- ---------- -------------Current liabilities (0.4) (4.9) (9.2) (5.6) - (50.9)Non-current liabilities - - (2.4) - - (407.6)Deferred tax (1.3) (43.6) (6.9) (0.1) - (78.6) --------------- --------------- --------------- ------------- ---------- ------------- (1.7) (48.5) (18.5) (5.7) - (537.1)Adjustment due tonet liabilities - - - - - - --------------- --------------- --------------- ------------- ---------- -------------Net assets 23.1 259.3 118.5 44.5 - 829.5 =============== =============== ============= ========== ============= ============ Capital commitments - - 153.2 - - 153.2 =============== =============== ============= ========== ============= ============Contingent liabilities - - - - - - =============== =============== ============= ========== ============= ============Market value ofinvestmentproperties ** 23.8 303.0 123.7 11.2 - 1,273.9 =============== =============== ============= ========== ============= ============ Net investment At 1 April 2005 23.5 238.2 82.0 14.5 - 854.9Properties contributed - - - 6.4 - 6.4Cash contributed - - - 0.8 - 50.3Cost of acquisition - - - 26.5 - 26.5Share of post-tax results 0.3 33.9 14.0 0.6 16.7 115.3Adjustment to restatetheGroup's share ofTelereal'searnings from an equity to adistribution basis - - - - (5.0) (5.0)Distributions (1.5) - - (1.3) (11.7) (206.6)Fair value movement oncash flow hedges takento equity - - - - - (1.9)Loan advances 0.8 - 27.5 - - 30.3Loan repayments - (12.8) (5.0) (3.0) - (40.7) --------------- --------------- --------------- ------------- ---------- -------------At 31 March 2006 23.1 259.3 118.5 44.5 - 829.5 =============== =============== ============= ========== ============= ============ * Other principally includes the Martineau Limited Partnership, the EbbsfleetLimited Partnership, the A2 Limited Partnership and the Mill Group. ** The difference between the book value and the market value is the amountincluded in prepayments in respect of lease incentives, head leases capitalisedand properties treated as finance leases. 10. Investment in joint venturesYear ended 31/03/05 and at 31/03/05 Summary financial information of ScottishGroup's share of joint ventures Retail Property Buchanan Limited Metro Galleries Limited Partnership Shopping Fund LP Partnership Parc Tawe £m £m £m £mIncome statementRental income 16.3 7.2 2.4 -Service charges income 5.6 1.3 0.6 -Property services income - - - -Trading property sale proceeds - - - - --------------- --------------- --------------- --------------- Revenue 21.9 8.5 3.0 -Rents payable (0.2) - - -Other direct property or contract expenditure (6.4) (1.7) (0.7) -Indirect property or contract expenditure (1.1) (0.6) - -Cost of sales of trading properties - - - -Depreciation - - - - --------------- --------------- --------------- --------------- 14.2 6.2 2.3 -Profit on disposal of fixedassetproperties - - - -Net surplus / (deficit) onrevaluation ofinvestment properties 19.7 12.8 (3.2) - --------------- --------------- --------------- ---------------Operating profit / (loss) 33.9 19.0 (0.9) - Net finance costs (0.3) (6.7) - - --------------- --------------- --------------- --------------- 33.6 12.3 (0.9) -Taxation (10.1) (3.6) 0.3 - --------------- --------------- --------------- --------------- 23.5 8.7 (0.6) -Adjustment due to net liabilities - - - - --------------- --------------- --------------- --------------- Share of profits / (losses) of jointventures after tax 23.5 8.7 (0.6) - =============== =============== =============== ===============Distribution received fromTelereal Balance sheet Investment properties ** 311.1 151.7 159.3 -Operating properties - - - -Current assets 10.9 4.4 7.7 - --------------- --------------- --------------- --------------- 322.0 156.1 167.0 - --------------- --------------- --------------- ---------------Current liabilities (12.2) (4.8) (4.5) -Non-current liabilities (8.4) (108.4) - -Deferred tax (7.8) (3.3) 1.0 - --------------- --------------- --------------- --------------- (28.4) (116.5) (3.5) -Adjustment due to net liabilities - - - - --------------- --------------- --------------- ---------------Net assets 293.6 39.6 163.5 - =============== =============== =============== ===============Capital commitments 0.2 - - - =============== =============== =============== =============== Contingent liabilities - - - - =============== =============== =============== =============== Market value of investment properties ** 302.7 149.8 162.8 - =============== =============== =============== =============== Net investmentAt 1 April 2004 250.2 - - -Properties contributed - 92.1 - -Cash contributed 31.7 87.1 - -Cost of acquisition - - 166.5 -Share of post-tax results 23.5 8.7 (0.6) -Adjustment to restate theGroup's share ofTelereal's earnings from anequity to a distribution basis - - - -Distributions - (146.3) (2.4) -Loan advances - 86.2 - -Loan repayments (11.8) (88.2) - - --------------- --------------- --------------- --------------- At 31 March 2005 293.6 39.6 163.5 - =============== =============== =============== =============== 10. Investment in joint venturesYear ended 31/03/05 and at 31/03/05 continued... Summary financial Martineauinformation of GalleriesGroup's share of Limited Bullring Limitedjoint ventures Partnership Partnership Bristol Alliance Other * Telereal Total £m £m £m £m £m £m Income statementRental income 1.6 12.8 3.1 0.9 - 44.3Service charges income 0.6 5.5 - 0.2 - 13.8Property services income - - - - 165.3 165.3Trading propertysaleproceeds - - - - 25.7 25.7 -------------------- ------------------ ---------------- --------------- ---------------- ---------- Revenue 2.2 18.3 3.1 1.1 191.0 249.1Rents payable (0.1) - - (0.3) (35.9) (36.5)Other directpropertyor contractexpenditure (0.9) (6.1) (0.1) - - (15.9)Indirect propertyorcontractexpenditure - (0.2) - - (15.7) (17.6)Cost of sales oftradingproperties - - - - (8.1) (8.1)Depreciation - - - - (13.8) (13.8) -------------------- ------------------ ---------------- --------------- ---------------- ---------- 1.2 12.0 3.0 0.8 117.5 157.2Profit on disposalof fixedasset properties - - - (1.8) 12.3 10.5Net surplus /(deficit) onrevaluation ofinvestment properties 0.9 31.9 7.4 - - 69.5 -------------------- ------------------ ---------------- --------------- ---------------- ---------- Operating profit / (loss) 2.1 43.9 10.4 (1.0) 129.8 237.2 Net finance costs - 0.1 - 0.1 (66.4) (73.2) -------------------- ------------------ ---------------- --------------- ---------------- ---------- 2.1 44.0 10.4 (0.9) 63.4 164.0Taxation (0.3) (9.6) (2.2) 1.0 (21.2) (45.7) -------------------- ------------------ ---------------- --------------- ---------------- ---------- 1.8 34.4 8.2 0.1 42.2 118.3Adjustment due tonetliabilities - - - - (42.2) (42.2) -------------------- ------------------ ---------------- --------------- ---------------- ----------Share of profits /(losses)of joint venturesafter tax 1.8 34.4 8.2 0.1 - 76.1 ==================== ================== ================ =============== =============== ========= Distributionreceivedfrom Telereal 65.4 65.4 ========== =========Balance sheet Investment properties ** 22.6 264.8 81.2 13.0 - 1,003.7Operating properties - - - - 1,015.4 1,015.4Current assets 2.5 11.0 8.0 2.7 50.5 97.7 -------------------- ------------------ ---------------- --------------- ---------------- ---------- 25.1 275.8 89.2 15.7 1,065.9 2,116.8 -------------------- ------------------ ---------------- --------------- ---------------- ----------Current liabilities (0.2) (3.7) (5.0) (1.2) (50.6) (82.2) Non-current liabilities - - - - (1,086.4) (1,203.2)Deferred tax (1.4) (33.9) (2.2) - - (47.6) -------------------- ------------------ ---------------- --------------- ---------------- ---------- (1.6) (37.6) (7.2) (1.2) (1,137.0) (1,333.0)Adjustment due to net liabilities - - - - 71.1 71.1 -------------------- ------------------ ---------------- --------------- ---------------- ----------Net assets 23.5 238.2 82.0 14.5 - 854.9 ==================== ================== ================ =============== =============== ========= Capital commitments - 3.4 0.7 - - 4.3 ==================== ================== ================ =============== =============== =========Contingent liabilities - - - - - - ==================== ================== ================ =============== =============== ========= Market value ofinvestment properties ** 23.7 271.0 83.9 - - 993.9 ==================== ================== ================ =============== =============== ========= Net investmentAt 1 April 2004 21.7 209.9 - 44.4 - 526.2Properties contributed - - 85.6 - - 177.7Cash contributed - - - - - 118.8Cost of acquisition - - - - - 166.5Share of post-tax results 1.8 34.4 8.2 0.1 42.2 118.3Adjustment torestate theGroup's share ofTelereal'searnings from an equity toa distributionbasis - - - - 23.2 23.2Distributions - - (1.7) (30.0) (65.4) (245.8)Loan advances - 5.8 14.9 - - 106.9Loan repayments - (11.9) (25.0) - - (136.9) -------------------- ------------------ ---------------- --------------- ---------------- ----------At 31 March 2005 23.5 238.2 82.0 14.5 - 854.9 ==================== ================== ================ =============== =============== ========= * Other includes the Martineau Limited Partnership and the Ebbsfleet LimitedPartnership. ** The difference between the book value and the market value is the amountincluded in prepayments in respect of lease incentives, head leases capitalisedand properties treated as finance leases. 11. Borrowings Unamortised Unamortised discount discount Nominal Nominal and and Book Book value value issue costs issue costs value value 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £mUnsecuredAmounts payable under finance leases 74.6 69.9 - - 74.6 69.9Acquisition loan notes 2015 122.8 - - - 122.8 -Money market borrowings 43.6 73.0 - - 43.6 73.0 ----------------- -------------- -------------- --------------- ---------------- ----------- 241.0 142.9 - - 241.0 142.9 ----------------- -------------- -------------- --------------- ---------------- ----------- Secured 5.016 per cent Notes due 2007 181.7 181.7 (0.1) (0.1) 181.6 181.64.625 per cent Notes due 2013 300.0 - (0.5) - 299.5 -5.292 per cent Notes due 2015 391.5 393.3 (0.9) (0.9) 390.6 392.44.875 per cent Notes due 2019 400.0 - (4.6) - 395.4 -5.425 per cent Notes due 2022 255.3 257.3 (1.0) (1.0) 254.3 256.35.391 per cent Notes due 2026 210.7 210.7 (1.0) (1.1) 209.7 209.65.391 per cent Notes due 2027 611.3 613.9 (3.1) (3.2) 608.2 610.75.376 per cent Notes due 2029 317.9 318.0 (1.7) (1.9) 316.2 316.15.396 per cent Notes due 2032 322.9 323.4 (2.0) (2.1) 320.9 321.3Bank facility due 2010 15.5 - (0.1) - 15.4 -Syndicated bank debt 750.0 320.0 (1.6) (2.0) 748.4 318.0DWP term loan 260.0 268.1 (11.2) (12.9) 248.8 255.2 ----------------- -------------- -------------- --------------- ---------------- ----------- 4,016.8 2,886.4 (27.8) (25.2) 3,989.0 2,861.2 ----------------- -------------- -------------- --------------- ---------------- ----------- 4,257.8 3,029.3 (27.8) (25.2) 4,230.0 3,004.1Bond exchange de-recognition adjustment (527.6) (554.9) (8.6) (9.4) (536.2) (564.3)Fair value of interest rate swaps - qualifying hedges 4.3 2.1 - - 4.3 2.1Fair value of interest rate swaps - non-qualifyinghedges 3.4 1.2 - - 3.4 1.2 ----------------- -------------- -------------- --------------- ---------------- ----------- Total borrowings 3,737.9 2,477.7 (36.4) (34.6) 3,701.5 2,443.1Less: borrowings falling due within one year (62.3) (79.0) 3.1 2.7 (59.2) (76.3)Plus: bond exchange de-recognition falling duewithin one year 14.8 25.7 0.8 0.8 15.6 26.5Less: amounts payable under finance leases falling duewithin one year (3.1) (1.0) - - (3.1) (1.0) ----------------- -------------- -------------- --------------- ---------------- ----------- Falling due after one year 3,687.3 2,423.4 (32.5) (31.1) 3,654.8 2,392.3 ================= ============== ============== =============== ================ =========== All borrowings are denominated in Sterling. On 3 November 2004 a debt refinancing was completed resulting in the Groupexchanging all of its outstanding bond and debenture debt for new Notes. Thenew Notes do not meet the IAS 39 requirement to be substantially different fromthe debt that it replaced. Consequently the book value of the new Notes isreduced to the book value of the original debt ('the bond exchangede-recognition adjustment'). The adjustment will be amortised to zero over thelife of the new Notes. The Notes and the committed bank facilities are secured on a fixed and floatingpool of assets ("the Security Group"). This grants the Group's investorssecurity over a pool of investment properties valued at £9.4bn at 31 March 2006(2005: £7.4bn). The secured debt structure has a tiered covenant regime whichgives the Group substantial operational flexibility when the loan to value andinterest rate cover in the Security Group are less than 65% and more than 1.45times respectively. If these limits are exceeded, operational restrictionsincrease significantly and could act as an incentive to reduce gearing. The acquisition loan notes were issued by Retail Property Holdings TrustLimited, a subsidiary of the Group, as partial consideration for the purchase ofthe Tops Estates PLC and LxB Portfolios. The notes are unsecured, however, havethe benefit of a commercial bank guarantee. Interest is calculated withreference to 6 month LIBOR. The DWP term loan is a syndicated term loan due to expire in December 2017 andis secured on the freehold and long leasehold properties acquired from theDepartment of Work and Pensions. The carrying amount of the propertiesconcerned was £388.1m at 31 March 2006 (2005: £389.4m). The Group had interest rate swaps outstanding with a notional principal of£615.0m (2005: £250.0m) which do not qualify for hedge accounting and whichterminate over the period 2007 to 2011. The contracts have fixed interestpayments at an average rate of 4.9% and have floating interest receipts atLIBOR. In addition, there were interest rate swaps outstanding with a notionalprincipal of £243.2m (2005: £245.9m) which qualify for hedge accounting andwhich terminate over the period 2009 to 2017. The contracts have fixed interestpayments at an average rate of 5.1% and have floating interest receipts atLIBOR. Fair value has been calculated by taking the market value, for those instrumentswhich have a listing, or where one is not available, the fair value iscalculated using a discounted cash flow approach. Borrowings Borrowings Undrawn Undrawn committed committed facilities facilities 2006 2005 2006 2005 £m £m £m £mThe maturity profiles of the Group's borrowings and the expiryperiodsof its undrawn committed borrowing facilities are:One year or less, or on demand 46.7 50.8 - -More than one year but no more than two years 185.7 - - -More than two years but no more than five years 780.8 505.9 1,252.0 1,680.0More than five years 2,688.3 1,886.4 - - ------------- ------------ ----------- ---------- 3,701.5 2,443.1 1,252.0 1,680.0 ============= ============ =========== ========== 2006 2005 £m £mThe fair value of the Group's borrowings are:Book value 3,701.5 2,443.1Fair value 4,426.0 3,074.1 ---------- -----------Excess of fair value over book value (724.5) (631.0) ========== =========== Of the excess of fair value over book value £536.2m (2005: £564.3m) is the bondexchange de-recognition adjustment. 12. Deferred taxation Deferred tax is provided as follows: 2006 2005 £m £m Excess of capital allowances over depreciation - investment properties 116.8 112.7 - operating properties 31.1 22.9 Capitalised interest - investment properties 23.9 28.0 - operating properties 2.6 0.9Revaluation surpluses - own 1,580.9 1,117.9 - acquired 83.3 19.0Tax losses (12.2) (37.8)Other temporary timing differences 141.4 154.4 ------------- ---------------Total deferred tax 1,967.8 1,418.0 ============= =============== Tax on capital gains that would become payable by the Group if it were to dispose of all of its investment properties at the amount stated in the balance sheet 991.2 586.5Potential reduction in tax on contingent capital gains if properties were sold within their owning companies (28.3) (90.4) ------------- ---------------Tax on contingent capital gains assuming no further mitigation 962.9 496.1 ============= =============== It has not been possible to determine the amounts that will crystallise withinone year as required under IFRS as it is not possible to determine whichproperties, if any, will be sold within the next financial year. 13. Total shareholders' equity Ordinary Treasury Share Share Capital Retained Total shares shares based premium redemption earnings acquired payments reserve * £m £m £m £m £m £m £m At 1 April 2004 46.6 - 0.8 15.9 22.1 5,066.8 5,152.2Repayment of B shares - - - - 8.4 (8.4) -Exercise of options 0.2 - - 15.5 - - 15.7Fair value of share based payments - - 2.5 - - - 2.5Treasury shares acquired - (2.1) - - - - (2.1)Actuarial losses on defined benefit pension schemes - - - - - (3.4) (3.4)Dividend paid (note 6) - - - - - (175.5) (175.5)Profit for the financial year - - - - - 1,060.9 1,060.9 ------------ ---------- ---------- ------------ -------------- ---------- ------------At 31 March 2005 46.8 (2.1) 3.3 31.4 30.5 5,940.4 6,050.3Exercise of options 0.1 - - 11.8 - - 11.9Fair value movement on cash - - - - - (1.6) (1.6)flow hedges - GroupFair value movement on cash flow hedges - joint ventures - - - - - (1.9) (1.9)Fair value of share based payments - - 3.6 - - - 3.6Treasury shares acquired - (1.9) - - - - (1.9)Cost of shares awarded to employees - 0.6 (0.6) - - - -Actuarial losses on defined benefit pension schemes - - - - - (3.5) (3.5)Dividend paid (note 6) - - - - - (238.9) (238.9)Profit for the financial year - - - - - 1,675.9 1,675.9 ------------ ---------- ---------- ------------ -------------- ---------- ------------At 31 March 2006 46.9 (3.4) 6.3 43.2 30.5 7,370.4 7,493.9 ============ ========== ========== ============ ============== ========== ============ * Included within retained earnings is £3.5m (2005: £Nil; 2004: £Nil) of lossesin respect of cash flow hedges. Treasury shares represent the cost of shares purchased in Land Securities GroupPLC by the Employee Share Ownership Plan (ESOP) which is operated by the Groupin respect of its commitment to the Deferred Bonus scheme. The number of sharesheld by the ESOP at 31 March 2006 was 292,703 (2005: 194,139). 14. Cash flow from operating activities Reconciliation of operating profit to net cash inflow from operating activities: Group Group 2006 2005 £m £mCash generated from operationsProfit for the financial year 1,675.9 1,060.9Income tax expense 683.3 246.6 ----------------- ----------------Profit before tax 2,359.2 1,307.5Distribution received from joint venture (Telereal) (11.7) (65.4)Share of the profits of joint ventures (post-tax) (98.6) (76.1) ----------------- ---------------- 2,248.9 1,166.0Interest income (7.3) (18.3)Interest expense 201.8 248.6 ----------------- ----------------Operating profit 2,443.4 1,396.3 Adjustments for: Depreciation 25.7 35.7 Profit on disposal of fixed asset properties (74.5) (112.0) Profit on disposal of joint venture (293.0) - Net surplus on revaluation of investment properties (1,579.5) (827.9) Goodwill impairment 64.5 12.7 Pension scheme (credit) / charge (4.4) 3.7 Changes in working capital Increase in trading properties and long-term development contracts (2.1) (31.2) Decrease / (increase) in receivables 23.0 (49.1) (Decrease) / increase in payables (11.6) 95.2 --------------- ----------------Net cash generated from operations 591.5 523.4 =============== ================ 15. Acquisition of Tops Estates PLC The Group acquired 100% of the voting rights of Tops Estates PLC on 10 June 2005for a consideration of £334.1m, including costs. This has been accounted for asa business combination. Book value Fair value Fair value at acquisition adjustments acquired £m £m £mFair value of assets acquired Investment properties 573.0 19.6 592.6Debtors 21.9 (7.0) 14.9Cash and cash equivalents 12.9 - 12.9Current liabilities (19.4) - (19.4)Non-current liabilities (230.6) (27.3) (257.9)Deferred taxation (9.2) (64.3) (73.5) --------------- --------------- --------------Net assets acquired 348.6 (79.0) 269.6 --------------- --------------- --------------Fair value of consideration Cash 325.3Costs 8.8 -------------- 334.1Goodwill (64.5) ------------- 269.6 ============= 16. Reconciliation of UK GAAP to IFRS The Group's transition date for the adoption of IFRS is 1 April 2004. Thistransition date has been selected in accordance with IFRS 1 "First-time adoptionof International Financial Reporting Standards". The Group has also adopted IAS32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "FinancialInstruments: Recognition and Measurement" from 1 April 2004. The principal differences for the Group between reporting under IFRS as comparedto UK GAAP as at 31 March 2005 are: (i) Recognising revaluation surpluses and deficits in theincome statement; (ii) Providing in full for deferred tax on revaluations andcharging movements on this provision through the income statement; (iii) Restating the financial effects of the November 2004 debtrefinancing; (iv) Showing the Group's share of the profit after tax and netassets of all its joint ventures and joint arrangements as single lines in theincome statement and balance sheet respectively; (v) Ceasing to amortise goodwill but instead testing forimpairment; and (vi) No longer recognising dividends payable to shareholdersprior to their approval by the Annual General Meeting in the case of the finaldividend and by the Board in the case of the interim dividend. The application of IFRS has also changed the presentation of the cash flowstatement which now shows cash flows derived from three types of activities -operating, investing and financing. In addition, under IFRS, the cash flowstatement includes all cash flows in respect of cash and cash equivalents. Thisis a broader definition of cash than under UK GAAP. As a general rule, the Group is required to establish its IFRS accountingpolicies for the year ending 31 March 2006 and apply these retrospectively todetermine its opening IFRS balance sheet at the transition date of 1 April 2004and the comparative information for the year ended 31 March 2005. However,advantage has been taken of certain exemptions afforded by IFRS 1 "First-timeadoption of International Financial Reporting Standards" as follows: • Business combinations prior to 1 April 2004; and • The Group has applied IFRS 2 "Share-based Payment" retrospectivelyonly to awards made after 7 November 2002 that had not vested at 1 January 2005. In preparing the IFRS accounts, the Group has adjusted amounts reportedpreviously in the financial statements prepared in accordance with UK GAAP. Anexplanation of how the transition has affected the Group's financial performanceand position is set out in the following tables and accompanying narrative. Reconciliation of equity Notes 2006 2005 2004 £m £m £m Equity shareholders' funds under UK GAAP * 8,750.2 6,636.6 6,030.1 IFRS adjustmentsDeferred tax on revaluations - Group (i) (1,580.9) (1,117.9) (953.5) - joint ventures (i) (75.5) (43.8) (24.0) - on acquisitions (i) (83.3) (19.0) -Dividend ** (ii) 134.0 153.7 126.8Finance leases - Group (iv) 4.3 8.5 (9.2) - joint ventures (iv) (0.2) (0.3) (0.2)Pension deficit (net of deferred tax) ** (iii) (13.6) (17.7) (16.2)Tenant lease incentives (v) (23.0) (16.5) (13.6)Fair value of interest rate swaps - Group (net of deferred tax) (vi) (5.4) (2.3) (31.1) - joint ventures (net of deferred tax) (vi) (3.2) (1.3) -Non-amortisation of goodwill (Land Securities Trillium) (vii) 4.8 2.4 -Share based payments (viii) 4.1 3.0 1.4Write off negative goodwill arising 6.3 6.3 -Adjustment to restate the Group's share of Telereal's earnings froman equity to a distribution basis - investment (ix) - 71.1 47.9 - taxation (ix) - (10.6) (10.6)Bond exchange de-recognition (net of deferred tax) (x) 375.3 395.0 - Other - 3.1 4.4 ---------- ---------- -----------Equity shareholders' funds under IFRS 7,493.9 6,050.3 5,152.2 ========== ========== =========== * UK GAAP referred to in these reconciliations is that existing as at 31 March2005. ** Adjustment to UK GAAP as at 31 March 2005, most of which would no longer berequired under UK GAAP following the adoption of FRS 17 and FRS 21 Notes (i) Deferred tax is required to be provided in full on alldifferences between carrying values for accounts purposes and those fortaxation. In particular, deferred tax is now provided on revaluation surpluses. (ii) Dividends are now only provided when finally approved,either by the Annual General Meeting in the case of final dividends or by theBoard for interim dividends. (iii) The actuarial deficit in the Group's defined benefitpension schemes is now recognised as a liability in the consolidated balancesheet. (iv) Tenant leases which transfer substantially all of the risksand rewards of ownership to the tenant are treated as finance leases. Theproperty is de-recognised from the balance sheet and a receivable recognised inits place. (v) The cost of tenant lease incentives, such as rent freeperiods, are now amortised over the term of the leases concerned rather thanover the period to the first review to market rents. (vi) The fair value of all derivatives such as interest rateswaps is now recognised in the Group balance sheet at each reporting date. (vii) Goodwill arising on acquisition is no longer amortised butkept on the balance sheet and reviewed regularly for impairment. (viii) The cost of share based payments is now recognised throughthe income statement. (ix) Joint ventures cease to be consolidated once their netassets become negative. This is the case with Telereal during the year underreview. (x) The bond exchange which took place in November 2004qualified as an extinguishment of the existing debt and an issue of new debtunder UK GAAP. Under IFRS, this is not the case and the existing debt isreinstated with the difference in redemption amounts being amortised over thelife of the new debt. Reconciliation of profit Notes 2006 2005 £m £m Profit / (loss) attributable to ordinary shareholders under UK GAAP * 658.5 (35.8) IFRS adjustmentsRevaluation surplus on investment properties - Group (xi) 1,579.5 827.9 - joint ventures (xi) 105.5 69.5 Deferred tax on revaluations - Group (xii) (463.0) (164.4) - joint ventures (xii) (31.7) (19.8)Taxation on revaluation surpluses realised on disposal of investment properties (xiii) (43.3) (40.3)Finance leases - Group (iv) 9.1 (9.4) - joint ventures (iv) 0.1 (0.1)Pension deficit (net of deferred tax) ** (iii) 7.6 1.9Tenant lease incentives (v) (0.1) (3.0)Fair value of non-qualifying interest rate swaps (net of deferred tax) (vi) (1.5) 27.5Non-amortisation of goodwill (Land Securities Trillium) (vii) 2.4 2.4Share based payments (viii) (2.5) (0.9)Goodwill impairment on the acquisition of businesses (64.5) (12.7)Adjustment to restate the Group's share of Telereal's earnings from an equity to a distribution basis (ix) (60.5) 23.2B share dividends - (0.1)Bond exchange de-recognition - originating adjustment (net of deferred tax) - 402.8 - adjustment in year (net of deferred tax) (19.7) (7.8) ------------ -----------Profit attributable to ordinary shareholders under IFRS 1,675.9 1,060.9 ============ =========== * UK GAAP referred to in these reconciliations is that existing as at 31 March2005. ** Adjustment to UK GAAP as at 31 March 2005, most of which would no longer berequired under UK GAAP following the adoption of FRS 17 and FRS 21 (xi) The surpluses and deficits arising on the periodicrevaluation of the investment property portfolio are now taken through theincome statement. (xii) Deferred tax is provided in full on the revaluationsurpluses and deficits and taken through the income statement. (xiii) Deferred tax provided on revaluation surpluses does notbecome payable on disposal of the properties concerned and so has to be writtenback through the income statement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Land Securities