Final Results - Part 2

THE BRITISH LAND COMPANY PLC

PRELIMINARY ANNOUNCEMENT OF FINANCIAL RESULTS

For the year ended 31 March 2008

2008

2007

Underlying

Capital

Underlying

Capital

pre tax *

and other

Total

pre tax *

and other

Total

Note

£m

£m

£m

£m

£m

£m

3

645 

645 

649 

649 

Net rental and related income

3

561 

561 

561 

561 

Fees and other income

4

40 

30 

70 

50 

33 

83 

(15)

(15)

(15)

(15)

9

40 

(346)

(306)

37 

422 

459 

Administrative expenses

(67)

(67)

(78)

(13)

(91)

Net valuation movement (includes profits and losses on disposals)

5

(1,562)

(1,562)

1,167 

1,167 

Goodwill impairment

(106)

(106)

Net financing costs

financing income

26 

26 

41 

41 

financing charges

(316)

(316)

(354)

(354)

refinancing charges

(305)

(305)

6

(290)

(290)

(313)

(305)

(618)

284 

(1,893)

(1,609)

257 

1,183 

1,440 

Taxation

REIT conversion charge

(277)

current tax income 

1 

deferred tax income

46 

1,289 

7

46 

1,013 

(1,563)

2,453 

(Loss) earnings per share: basic

2

(305)

472 

p

diluted

2

(303)

470 

p

Underlying profit pre-tax

40 

40 

37 

37 

Net valuation movement (includes profits and losses on disposals)

(354)

(354)

257 

257 

Goodwill impairment 

(3)

(3)

(5)

(5)

9 

9 

(48)

(48)

Current tax

1 

1 

(19)

(19)

Deferred tax

1 

1 

237 

237 

9

40 

(346)

(306)

37 

422 

459 

*

As defined in note 2.

2008

2007

Note

£m

£m

Assets

Non-current assets

Investment properties

8

9,389 

12,891 

Development properties

8

1,062 

1,106 

Owner-occupied property

8

53 

50 

10,504 

14,047 

Other non-current assets

Investments in funds and joint ventures

9

1,532 

1,610 

Other investments

10

196 

267 

Intangible assets

10

39 

50 

12,271 

15,974 

Current assets

Debtors

11

133 

208 

Cash and short-term deposits

14

244 

198 

377 

406 

Total assets

12,648 

16,380 

Liabilities

Current liabilities

Short-term borrowings and overdrafts

14

(111)

(54)

Creditors

12

(450)

(746)

(561)

(800)

Non-current liabilities

Debentures and loans

14

(5,151)

(6,617)

Other non-current liabilities

13

(38)

(37)

Deferred tax liabilities

7

(108)

(179)

(5,297)

(6,833)

Total liabilities

(5,858)

(7,633)

Net assets

6,790 

8,747 

Equity

Share capital

17

131 

130 

Share premium

17

1,269 

1,263 

Other reserves

17

335 

532 

Retained earnings

17

5,055 

6,822 

6,790 

8,747 

EPRA NAV per share*

2

1344 

p

1682 

p

* As defined in note 2.

Income and Expense for the year ended 31 March 2008

2008

2007

Note

£m

£m

(Loss) profit for the year after taxation

(1,563)

2,453 

Valuation movements

- on development properties

5

57 

184 

- on owner occupied property

5

3 

- on other investments

5

(70)

22 

(10)

206 

- Group

(53)

93 

- Funds and joint ventures

(20)

21 

Actuarial (loss) gain on pension scheme

(10)

8 

of former joint venture

(7)

Tax on items taken directly to equity

25 

16 

(68)

337 

- foreign currency derivatives

1 

21 

- interest rate derivatives

(28)

(1)

(27)

20 

Total recognised income and expense for the year

(1,658)

2,810 

2008

2007

£m

£m

Capital items

- Shares issued

7 

10 

- Purchase of own shares

(151)

(16)

- Adjustment for share and share option awards

11 

18 

- Dividends paid in the year

(166)

(91)

(299)

(79)

Total recognised income and expense for the year

(1,658)

2,810 

Movement in shareholders' funds for the year

(1,957)

2,731 

Opening equity shareholders' funds

8,747 

6,016 

Closing equity shareholders' funds

6,790 

8,747 

for the year ended 31 March 2008

2008

2007

+

Note

£m

£m

Rental income received from tenants

536 

568 

Fees and other income received

32 

36 

Operating expenses paid to suppliers and employees

(91)

(110)

Cash generated from operations

477 

494 

Interest paid

(373)

(334)

Interest received

19 

11 

UK corporation tax paid

(3)

Foreign tax paid

(1)

(2)

Distributions received:

funds and joint ventures

47 

32 

Songbird Estates

16 

18 

Net cash inflow from operating activities

182 

219 

Cash flows from investing activities

Purchase of investment properties

(119)

(309)

Development and other capital expenditure

(523)

(346)

Sale of investment properties

1,460 

711 

REIT conversion charge paid

(291)

Purchase of investments

(8)

Sale of investments

2 

10 

Indirect taxes in respect of investing activities

32 

(15)

Establishment of BL Sainsbury Superstores Joint Venture

272 

Investment in and loans to funds and joint ventures

(90)

(203)

Capital distributions received:

funds and joint ventures

88 

80 

Songbird Estates

30 

33 

Sale of shares and loans repaid by funds and joint ventures

6 

Purchase of subsidiary companies (net of cash acquired)

(4)

(13)

Net cash inflow (outflow) from investing activities

857 

(54)

Cash flows from financing activities

Issue of ordinary shares

7 

10 

Purchase of own shares

(151)

(16)

Dividends paid

(161)

(91)

Issue of Meadowhall Finance PLC securitised debt

840 

Redemption of MSC (Funding) PLC securitised debt

(897)

Issue of British Land debentures

263 

Amounts paid on exchange of British Land debentures

(240)

Redemption of British Land debentures

(20)

Repayment of debt acquired with subsidiary companies

(305)

(Decrease) increase in bank and other borrowings

(686)

354 

Net cash outflow from financing activities

(991)

(102)

Net increase in cash and cash equivalents

48 

63 

Opening cash and cash equivalents

191 

128 

Closing cash and cash equivalents

239 

191 

Cash and cash equivalents consists of:

Cash and short-term deposits

244 

198 

Overdrafts

(5)

(7)

239 

191 

+ Re-presented under the direct method (see Note 1)

Notes to the accounts for the year ended 31 March 2008

1. Basis of preparation

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2008 or 2007, but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies and those for 2008 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; their reports were unqualified, did not draw attention to any matters by way of emphasis and did not contain statements under s237(2) or (3) of the Companies Act 1985.

The financial statements for the year ended 31 March 2008 have been prepared on the historical cost basis, except for the revaluation of properties, investments and derivatives. The financial statements have also been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation.

The accounting policies used are consistent with those contained in the Group's last annual report and accounts for the year ended 31 March 2007, with the exception of the adoption of IFRS 7: Financial Instruments: Disclosures; the early adoption of IFRS 8: Operating Segments and the presentation of the cash flow under the direct method. These changes have no impact on the Group's net assets or profits before tax and the comparative results have been restated on a consistent basis.

2008

2007

(Loss) earnings per share (diluted)

(Loss) earnings

Pence per share

(Loss) earnings

Pence per share

£m

£m

Underlying pre tax profit - income statement

284 

257 

Tax charge relating to underlying profit

(8)

(31)

276 

53 

p

226 

43

p

Refinancing charges

(305)

Tax and other items

13 

58 

289 

56 

p

(21)

(4)

p

(Loss) profit for the period after taxation 

(1,563)

(303)

p

2,453 

470

p

The European Public Real Estate Association (EPRA) issued Best Practices Policy Recommendations in November 2006, which gives guidelines for performance measures. The EPRA earnings measure excludes investment property revaluations and gains or losses on disposals, intangible asset movements and their related taxation and the REIT conversion charge.

Underlying earnings consists of the EPRA earnings measure, with additional company adjustments. Adjustments include reversal of refinancing charges, realisation of cash flow hedges and REIT-related transactions, none of which occurred in the current year.

The weighted average number of shares in issue for the year was: basic: 512m (2007: 520m); diluted for the effect of share options: 516m (2007: 522m). Basic undiluted (loss) earnings per share for the year was (305)p (2007: 472p).

Net asset value (NAV)

2008

2007

£m

£m

Balance sheet net assets

6,790 

8,747 

102 

168 

(3)

(99)

Dilution effect of share options

47 

46 

EPRA NAV

6,936 

8,862 

EPRA NAV per share

1344 

p

1682 

p

The EPRA NAV per share excludes the mark to market on effective cash flow hedges and related debt adjustments, deferred taxation on revaluations and is calculated on a fully diluted basis.

At 31 March 2008, the number of shares in issue was: basic: 509m (2007: 521m); diluted for the effect of share options: 516m (2007: 527m).

Total return per share of minus 18.1% represents a reduction in EPRA NAV per share of 338p net of dividends paid of 32.25p (see note 15). Total return per share (before charges for REIT conversion and refinancings) for the year ended 31 March 2007 was 21.3%.

3. Gross and net rental income

2008

2007

£m

£m

Rent receivable

547 

551 

46 

37 

Surrender premiums

3 

9 

Gross rental income

596 

597 

Service charge income

49 

52 

Gross rental and related income

645 

649 

Service charge expenses

(49)

(52)

Property operating expenses

(35)

(36)

Net rental and related income

561 

561 

Net rental income for the year ended 31 March 2008 from properties which were subject to a security interest or held by non recourse companies was £409m (2007: £409m). Property operating expenses relating to investment properties that did not generate any rental income were £1m (2007: £3m).

4. Fees and other income

2008

2007

£m

£m

Performance and management fees (from funds and joint ventures)

21 

30 

Dividend received from Songbird Estates

16 

18 

Other fees and commission

3 

2 

Underlying

40 

50 

Capital dividend received from Songbird Estates

30 

33 

70 

83 

The £21m (2007: £30m) performance and management fees comprise £9m (2007: £17m) performance fees and £12m (2007: £13m) management fees from funds and joint ventures.

The performance fee receivable from HUT for the year ended 31 December 2007 is £nil. In the year ended 31 December 2006 the fee was £27m, of which the third party element available to the Group was £17m. 50% of the undistributed performance fee is payable each year provided there is no clawback. In the current year fees of £7m (2007: £16m) have been recognised and £6m (2007: £13m) is deferred to later years. The net performance fee receivable from HIF for the year ended 31 December 2007 is £nil (2006: £1m).

Following the capital restructuring of Songbird Estates plc a capital dividend of £30m (2007: £33m) was received in the year.

2008

2007

£m

£m

Income statement

Revaluation of properties

(1,588)

1,053 

Gains on property disposals

26 

115 

Other revaluations and gains

(1)

(1,562)

1,167 

Share of (losses) gains of funds and joint ventures (note 9)

(354)

257 

(1,916)

1,424 

Revaluation of development properties

57 

184 

Revaluation of owner-occupied property

3 

Revaluation of investments

(70)

22 

(1,926)

1,630 

6. Net financing costs

2008

2007

£m

£m

Interest payable on:

Bank loans and overdrafts

71 

75 

Other loans

280 

284 

Loans from joint ventures

1 

Obligations under finance leases

2 

2 

354 

361 

Development interest capitalised

(43)

(37)

311 

324 

Interest receivable on:

Deposits and securities

(20)

(11)

Other finance (income) costs:

Expected return on pension scheme assets

(5)

(4)

Interest on pension scheme liabilities

4 

4 

Valuation movements on fair value debt

(5)

Valuation movements on translation of foreign currency debt

(21)

Hedging reserve recycling

1 

21 

Net financing expenses

290 

313 

Refinancing charges

Debenture refinancings

266

Meadowhall Shopping Centre securitisation

39

305 

Net financing costs

290 

618 

Total financing income

(26)

(41)

Total financing expenses

316 

659 

Net financing costs

290 

618 

Interest on development expenditure is capitalised at a rate of 6% (2007: 5.5%), with current year tax relief of £nil (2007: £8m).

7. Taxation

2008

2007

£m

£m

Tax expense (income)

Current tax

UK corporation tax (30%)

3 

(8)

Foreign tax

1 

3 

4 

(5)

Adjustments in respect of prior years

(4)

4 

Total current tax (income)

(1)

REIT conversion charge

277 

Deferred tax on income and revaluations

(46)

(1,289)

Group total taxation (net)

(46)

(1,013)

Tax reconciliation

(Loss) profit on ordinary activities before taxation

tax rate of 30% (2007: 30%)

294 

Effects of: 

REIT conversion charge

277 

REIT conversion on investment gains

(1,458)

REIT conversion on capital allowance provisions

(134)

REIT exempt income and gains

390 

(10)

Goodwill impairment and amortisation of intangibles

4 

31 

Tax losses and other timing differences

(45)

19 

Expenses not deductible for tax purposes

(36)

Adjustments in respect of prior years

(4)

4 

Group total taxation

(46)

(1,013)

Corporation tax payable at 31 March 2008 was £25m (2007: £283m) as shown in note 12. Deferred tax is calculated on temporary differences under the liability method using a tax rate of 28% (2007: 30%). The movement on deferred tax is as shown below:

Deferred taxation

1 April

Charged (credited)

31 March

2007

to income

to reserves

2008

£m

£m

£m

£m

Property and investment revaluations

160 

(42)

(25)

93 

Other timing differences

4 

4 

Intangible assets

15 

(4)

11 

179 

(46)

(25)

108 

Under the REIT regime development properties which are sold within three years of completion do not benefit from tax exemption. At 31 March 2008 the value of properties under development is £1,806m (2007: £1,220m) and if these properties were to be sold and tax exemption was not available the tax arising would be £73m (2007: £100m). No provision is made for this amount as the Group has no current plans to sell these properties.