Final Results

13th Feb 2008 07:00

Liberty International PLC13 February 2008 13 February 2008 LIBERTY INTERNATIONAL PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 Attached are the preliminary results for the year ended 31 December 2007: Highlights Summary of Investment and Development Properties Chairman's Statement Financial Review Unaudited Financial Information Sir Robert Finch, Chairman of Liberty International, commented: "Notwithstanding the challenging conditions which emerged in the UK propertymarket in the second half of 2007, Liberty International has fared extremelywell with record occupancy levels at our UK regional shopping centres and atremendous contribution from our non-shopping centre business which has beencompletely transformed over the last 18 months and now includes such primeassets as the Covent Garden Estate in London's West End. We have a business of exceptional quality; a high degree of specialisation onprime retail which constitutes nearly 90 per cent of our assets; the benefits ofscale; and financial strength, with a 42 per cent debt to assets ratio andlong-term fixed rate debt. The results for the year, including a 6 per cent increase in underlying profitbefore tax to £129 million, confirm the defensive merits of our UK regionalshopping centres with resilient income streams and relatively undemandingvaluation yields. We are well placed to continue the measured growth of this high qualitycompany." A presentation to analysts and investors will take place at 9:30 a.m. on 13February. The presentation will also be available to international analysts andinvestors through a live audio call. The presentation will be available on the group's websitewww.liberty-international.co.uk. This announcement includes statements that are forward-looking in nature.Forward-looking statements involve known and unknown risks, uncertainties andother factors which may cause the actual results, performance or achievements ofLiberty International PLC to be materially different from any future results,performance or achievements expressed or implied by such forward-lookingstatements. Any information contained in this announcement on the price atwhich shares or other securities in Liberty International PLC have been boughtor sold in the past, or on the yield on such shares or other securities, shouldnot be relied upon as a guide to future performance. Enquiries: Liberty International PLC: Sir Robert Finch Chairman +44 (0)20 7960 1273David Fischel Chief Executive +44 (0)20 7960 1207Aidan Smith Finance Director +44 (0)20 7960 1210 Public relations: UK: Michael Sandler, Hudson Sandler +44 (0)20 7796 4133 SA: Matthew Gregorowski, +44 (0)20 7457 2020 College Hill Associates Nicholas Williams, +27 (0)11 447 3030 College Hill Associates Background on Liberty International LIBERTY INTERNATIONAL PLC is the UK's third largest listed property company anda constituent of the FTSE-100 Index of the UK's leading listed companies.Liberty International converted into a UK Real Estate Investment Trust (REIT) on1 January 2007. Liberty International owns 100 per cent of Capital Shopping Centres ("CSC"), thepremier UK regional shopping centre business, and of Capital & Counties, aretail and commercial property investment and development company. At 31 December 2007, Liberty International owned £8.6 billion of properties ofwhich UK regional shopping centres comprised 75 per cent and retail property inaggregate 88 per cent. Shareholders' funds and minority interests amounted to£4.7 billion. Assets of the group under control or joint control amounted to£11.0 billion at that date. CAPITAL SHOPPING CENTRES has interests in 14 UK regional shopping centresamounting to 12.6 million sq.ft. in aggregate including 8 of the UK's top 21regional shopping centres with a market value of £6.5 billion at 31 December2007. CSC's largest centres are Lakeside, Thurrock; MetroCentre, Gateshead;Braehead, Renfrew, Glasgow; The Harlequin, Watford; and Manchester Arndale. Inaddition, CSC has three major development projects in progress or with planningpermission in Cardiff, Newcastle and Oxford. CAPITAL & COUNTIES owned assets of £2.2 billion at 31 December 2007 amounting to7.2 million sq.ft. in aggregate. Capital & Counties had £664 million invested inthe Covent Garden area including the historic Covent Garden Market, and £353million in Central London, primarily through the Great Capital Partnership, ajoint venture with Great Portland Estates plc. Capital & Counties acquired 50per cent of EC&O Venues (Earls Court and Olympia Group) in 2007 for a sum thatvalued the assets at approximately £375 million. In addition, Capital & Countieshas interests in the USA amounting to £381 million (2.7 million sq.ft.),predominantly comprising retail assets in California, including the 856,000sq.ft. Serramonte Shopping Centre, Daly City, San Francisco. LIBERTY INTERNATIONAL PLC HIGHLIGHTS -------------------------------------------------------------------------------- Year Year ended ended 31 December 31 December 2007 2006-------------------------------------------------------------------------------- Net rental income +10% £374m £341m Profit before tax (underlying)* +6% £129m £122m (Deficit)/gain on revaluation and sale ofinvestment properties £(279)m £587m (Loss)/profit before tax £(125)m £903m Total properties £8,666m £8,232mNet debt £3,668m £3,063mNet assets (diluted, adjusted) £4,757m £5,002m Adjusted earnings per share +6% 36.0p 33.9pDividend per share +10% 34.1p 31.0pNet assets per share (diluted, adjusted)** -5% 1264p 1327p-------------------------------------------------------------------------------- * Before property trading, valuation and exceptional items ** Net assets per share (diluted, adjusted) would increase by 104p per share to1368p at 31 December 2007 (31 December 2006 - by 98p to 1425p) if adjusted fornotional acquisition costs amounting to £390 million (31 December 2006 - £370million). HIGHLIGHTS • Stability and resilience of CSC's £6.5 billion prime UK regional shopping centres - like-for-like net rental income growth of 3.5 per cent - high occupancy level of 98.7 per cent - 138 tenancy changes in year increasing rent roll by £7 million per annum • Dynamic re-alignment of non-shopping centres and international business with £2.2 billion investment properties, including Central London ownership increased to £1.4 billion - consolidation of Covent Garden ownership to £664 million - formation of Great Capital Partnership, now with £654 million of assets (50% owned) - £375 million Earls Court and Olympia acquisition (50% owned) • Strong relative valuation performance of Liberty International on a like-for-like basis as set out below: Year ended Nine months Six months 31 December ended ended 2007 30 September 31 December 2007 2007 - UK regional shopping centres -3.9% +1.7% +2.6% - UK non-shopping centre properties -0.2% +3.1% +3.2% - USA +6.5% +6.5% +3.7% By comparison, IPD monthly index capital returns for 2007 were minus 10.0 percent All Property and minus 11.8 per cent Retail • Approximately 25 basis points upward shift in valuation yields (like-for-like assets) in final quarter of 2007: As at 31 As at 30 As at 30 As at 31 December September June December 2007 2007 2007 2006 - UK regional shopping 5.07% 4.82% 4.77% 4.84% centres - UK non-shopping 5.18% 4.94% 4.95% 4.89% centre properties • Net asset value per share (diluted, adjusted) reduced by 5 per cent from 1327p to 1264p, equivalent to 1368p (2006 - 1425p) adjusted for notional acquisition costs. • Total return for the year including dividends of minus 2.2 per cent. • Ten year total return (NAV increase plus dividends) of 12.4 per cent per annum compound (2006 - 15.1 per cent) • Committed expenditure to complete current development programme around £300 million, including - St David's 2, Cardiff, opening Autumn 2009 - Eldon Square South, Newcastle, opening Spring 2010 • Disposals of £340 million at £37 million surplus over 31 December 2006 book values; also, CSC's interest in MetroCentre, Gateshead reduced by 40 per cent for £426 million consideration, a £16 million surplus. • Robust financial position - 42 per cent debt to assets ratio - over £725 million cash and undrawn committed facilities - no significant debt maturities before 2011 - debt mostly fixed rate and asset specific DIVIDENDS The Directors of Liberty International PLC have proposed a final dividend perordinary share (ISIN GB0006834344) of 17.6p (2006 - 17.25p) to bring the totaldividend per ordinary share for the year to 34.1p (2006 - 31.0p). As a Real Estate Investment Trust ("REIT"), Liberty International is required todistribute part of its income as a Property Income Distribution ("PID"). The taxtreatment of a PID is different to that of a non-PID; PIDs are required to bepaid after deduction of withholding tax unless specific exemptions apply. The 2007 interim dividend paid on 4 September 2007 was paid wholly as a PID. The proposed final dividend will be paid wholly as a non-PID, and therefore willnot be subject to deduction of withholding tax. The following are the salient dates for the payment of the final dividend: Tuesday 22 April 2008 Sterling/Rand exchange rate struck. Monday 5 May 2008 Ordinary shares listed ex-dividend on the JSE, Johannesburg. Wednesday 7 May 2008 Ordinary shares listed ex-dividend on the London Stock Exchange. Friday 9 May 2008 Record date for 2007 final dividend in London and Johannesburg. Wednesday 28 May 2008 Dividend payment day for shareholders (Note: Payment to ADR holders will be made on 11 June 2008) South African shareholders should note that, in accordance with the requirementsof Strate, the last day to trade cum-dividend will be Friday 2 May 2008 and thatno dematerialisation or rematerialisation of shares will be possible from Monday5 May to Friday 9 May 2008 inclusive. No transfers between the UK and South African registers may take place fromWednesday 23 April to Sunday 11 May 2008 inclusive. SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES ----------------------------------------------------------------------------------------- Market value Revaluation surplus Net rental income ------------------------------------------------------------------------ 31 December 31 December 2006 2007 Increase/ 2006 2007 £m £m £m (Decrease) £m £m Increase----------------------------------------------------------------------------------------- UK regionalshopping centresLakeside, Thurrock 1,298.6 1,247.9 (56.5) (4.4)%MetroCentre,Gateshead 1,025.0 1,010.0 (43.7) (4.2)%Braehead, Glasgow 746.1 730.3 (15.9) (2.1)%The Harlequin, Watford 523.6 506.2 (17.0) (3.3)%Victoria Centre, Nottingham 441.1 444.8 3.5 0.8%Chapelfield, Norwich 354.0 324.5 (15.1) (4.5)%Cribbs Causeway, Bristol 311.6 296.3 (15.0) (4.8)%The Potteries, Stoke-on-Trent 307.5 278.3 (32.0) (10.4)%The Chimes, Uxbridge 275.0 261.8 (13.3) (4.9)%The Glades, Bromley 269.5 257.2 (16.1) (5.6)% ---------------------------- ----------------Like-for-like 5,552.0 5,357.3 (221.1) (4.0)% 239.2 247.5 3.5%capital and income Arndale, Manchester 428.3 418.5 (12.6) (2.9)%Eldon Square, Newcastle upon Tyne 240.1 258.0 (11.5) (4.2)%St. David's, Cardiff 104.3 101.2 (4.3) (4.1)%Xscape, Braehead 39.4 39.8 (2.4) (6.2)% ---------------------------- ----------------Like-for-likecapital 6,364.1 6,174.8 (251.9) (3.9)% 267.0 283.2 6.1% Acquisitions - 77.0 (9.4) (10.9)% - 1.9Redevelopments and developments 193.2 229.3 (28.2) (11.0)% 5.0 3.7 ---------------------------- ----------------Total UK regionalshopping centres 6,557.3 6,481.1 (289.5) (4.3)% 272.0 288.8 6.2% ---------------------------- ---------------- UK non-shoppingcentre propertiesLike-for-likecapital and income 380.0 383.3 1.5 0.4% 18.2 18.5 1.6%Like-for-like other 470.8 472.4 (2.7) (0.6)% 8.5 18.0 ---------------------------- ----------------Like-for-like capital 850.8 855.7 (1.2) (0.2)% 26.7 36.5 Acquisitions - 729.8 (26.5) (3.5)% - 18.9Redevelopmentsand developments 155.8 187.5 (22.2) (10.7)% 6.2 3.7Disposals 282.9 - - - 15.1 7.0 ---------------------------- ----------------Total UK non-shoppingcentre properties 1,289.5 1,773.0 (49.9) (2.7)% 48.0 66.1 37.7% ---------------------------- ---------------- US properties*Like-for-like capitaland income 308.8 327.7 21.5 7.1% 19.3 17.7 (2.6)%Like-for-like other 44.7 46.2 1.4 3.1% 0.9 1.7 ---------------------------- ----------------Like-for-like capital 353.5 373.9 22.9 6.5% 20.2 19.4 Acquisitions - 6.9 - - - -Disposals 5.7 - - - 0.4 - ---------------------------- ----------------Total US properties 359.2 380.8 22.9 6.5% 20.6 19.4 (5.8)% ---------------------------- ---------------- Total investmentproperties 8,206.0 8,634.9 (316.5) (3.5)% 340.6 374.3 9.9% ---------------------------- ---------------- *Like-for-like percentage increases are in local currency SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued) Property analysis by use and type-------------------------------------------------------------------------------- Revaluation Market value surplus ------------------------------------- ----------- 31 December 31 December 2006 2007 % of total Increase / £m £m properties (Decrease)--------------------------------------------------------------------------------Regional shopping centres andother retailUK regional shopping centres 6,557.3 6,481.1 75.1% (4.3)%UK other retail 780.8 807.7 9.4% (5.4)%US regional shopping centres 123.1 138.6 1.6% 11.8%US other retail 134.2 130.0 1.5% 2.7% ------------------------------------Total regional shopping centres and other retail 7,595.4 7,557.4 87.5% (4.0)% ------------------------------------ OfficeUK business space 508.7 583.8 6.8% (1.5)%US business space 67.9 78.6 0.9% 6.2% ------------------------------------Total office 576.6 662.4 7.7% (0.7)% ------------------------------------ExhibitionUK Exhibition - 381.4 4.4% 1.3% ------------------------------------ResidentialUS residential 34.0 33.7 0.4% 0.7% ------------------------------------Total investment properties 8,206.0 8,634.9 100.0% (3.5)% ------------------------------------ Analysis of UK non-shopping centres and US properties by location and type-------------------------------------------------------------------------------- Market value Revaluation surplus Net rental income ----------------- ------------------- ------------------ 31 31 31 31 31 December December December December December 2006 2007 2007 Increase / 2006 2007 £m £m £m (Decrease) £m £m-------------------------------------------------------------------------------- UK non-shoppingcentre propertiesCapco CoventGarden 491.5 663.6 (19.4) (2.8)% 9.7 23.2Capco Earls Court - 381.4 4.8 1.3% - 10.1Capco London (inc.Great CapitalPartnership) 323.2 353.2 (6.0) (1.6)% 16.5 14.2Capco Opportunities 276.1 220.5 (12.2) (5.3)% 14.1 12.2Capco Urban 198.7 154.3 (17.1) (10.1)% 7.7 6.4 --------------------------- --------------Total UK non-shoppingcentre properties 1,289.5 1,773.0 (49.9) (2.7)% 48.0 66.1 --------------------------- -------------- US propertiesUS retail 257.3 268.6 17.9 7.2% 15.9 14.1US business space 67.9 78.6 4.8 6.6% 4.2 4.0US residential 34.0 33.6 0.2 0.7% 0.5 1.3 --------------------------- --------------Total US properties 359.2 380.8 22.9 6.5% 20.6 19.4 --------------------------- -------------- 1,648.7 2,153.8 (27.0) (1.2)% 68.6 85.5 --------------------------- -------------- SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES (Continued) UK investment property valuation data-------------------------------------------------------------------------------- Market Nominal equivalent Passing Net rental value yield rent income ERV 31 31 31 31 December 31 31 December December December 2007 December December 2007 2007 2007 £m 2006 2007 £m £m £m-------------------------------------------------------------------------------- UK regional shoppingcentresLakeside, Thurrock 1,247.9 4.65% 4.90%MetroCentre,Gateshead 1,010.0 4.75% 4.99%Braehead, Glasgow 730.3 4.81% 5.02%The Harlequin,Watford 506.2 4.75% 4.95%Victoria Centre,Nottingham 444.8 4.95% 5.00%Arndale, Manchester 418.5 4.96% 5.13%Chapelfield, Norwich 324.5 5.00% 5.20%Cribbs Causeway,Bristol 296.3 4.74% 5.06%The Potteries,Stoke-on-Trent 278.3 5.00% 5.50%The Chimes, Uxbridge 261.8 5.00% 5.35%Eldon Square,Newcastle upon Tyne 258.0 5.20% 5.25%The Glades, Bromley 257.2 4.95% 5.40%St. David's, Cardiff 101.2 5.00% 5.26%Xscape, Braehead 39.8 6.04% 6.21% ------- Like-for-like capital 6,174.8 4.84% 5.07% 267.2 283.2 328.7Other 306.3 7.1 5.6 7.9 ------- ----------------------------Total UK regionalshopping centres 6,481.1 274.3 288.8 336.6 ------- ---------------------------- UK non-shoppingcentre propertiesCapco Covent Garden 494.2 4.47% 4.72%Capco London (inc.Great CapitalPartnership) 149.2 4.93% 5.49%Capco Opportunities 160.3 5.53% 6.20%Capco Urban 52.1 5.03% 5.64% -------Like-for-like capital 855.8 4.79% 5.18% 38.5 36.5 50.2Exhibition 381.4 10.1Other 535.8 18.1 19.5 36.6 ------- ----------------------------Total UK non-shoppingcentre properties 1,773.0 56.6 66.1 86.8 ------- ---------------------------- CHAIRMAN'S STATEMENT Introduction I am pleased to report that, notwithstanding the challenging conditions whichemerged in the UK property market in the second half of 2007, LibertyInternational has fared extremely well with record occupancy levels at our UKregional shopping centres and a tremendous contribution from our non-shoppingcentre business which has been completely transformed over the last 18 monthsand now includes such prime assets as the Covent Garden Estate in London's WestEnd. Four key attributes of Liberty International came very much into evidence in2007 - a business of exceptional quality, a high degree of specialisation onprime retail which constitutes nearly 90 per cent of our assets, the benefits ofscale and our financial strength. Looking forward, our experienced propertymanagement teams and our low debt to assets ratio position the group well toidentify and crystallise investment opportunities emanating from the currentmarket correction. February 2008 is too early to form a view on the length and the breadth of theturbulence now evident in the property market as a whole. 2007 was certainly atransitional year when, particularly in the second half, investor enthusiasm forUK property diminished rapidly with negative sentiment abounding as the USsub-prime mortgage market contagion spread across the Atlantic and credit marketconditions deteriorated rapidly. Under International Financial Reporting Standards ("IFRS"), we includerevaluation movements in our Income Statement which introduces a considerabledegree of volatility into our reported profits. After several years of buoyantmarket conditions, the second half of 2007 saw a more cautious view of UKproperty being reflected in valuations. While our Income Statement for 2007,after a revaluation deficit of £316 million reduced by £37 million of gains ondisposals, shows a loss before tax of £125 million, the underlying profit beforetax excluding valuation movements and one-off trading profits increased from£122 million to £129 million and adjusted earnings per share increased by 6 percent from 33.9p to 36.0p. Adjusted net assets per share reduced by 5 per cent from 1327p to 1264p, givinga total return for the year including dividends of minus 2.2 per cent. By way ofcomparison, the IPD monthly index for the year, an ungeared measure, showed a 10per cent fall in capital values and a negative total return of 5.5 per cent. Thesuccessful relative outcome delivered by Liberty International in 2007vindicates our focus over a long period on the highest quality real estate, inparticular on super-prime and prime regional shopping centres, which hasgenerated a compound per annum total return of 12.4 per cent for the last 10years. In order to address the requirements of investors for up-to-date information ona more frequent basis, we moved to quarterly reporting with effect from thefirst quarter of 2007, including external independent property valuations. Thishas given shareholders an excellent insight into the unfolding changes inproperty market conditions in 2007. We moved rapidly in 2007 to take advantage of conversion at the end of 2006 to atax transparent status as a UK real estate investment trust ('REIT'). Werecorded £340 million of disposals in 2007 at an aggregate surplus over bookvalues at 31 December 2006 of £37 million as well as £426 million from the 40per cent reduction in our interest in MetroCentre, Gateshead at £16 millionabove book value. These were matched by additions of £1,062 million in the year,comprising development expenditure and strategic acquisitions at our UK regionalshopping centres and in Central London including materially increasing ourownership in Covent Garden, purchases by the Great Capital Partnership and the£375 million Earls Court and Olympia transaction. Property valuations Evidence remained strong in 2007 that super-prime and prime regional shoppingcentres, which are well managed and properly marketed, attract considerableinvestor interest; such centres are noticeably outperforming secondary centreswith the gap in valuation yields widening as investors factor in the muchgreater risks of lower quality assets. Furthermore, the yields applied byvaluers to prime regional shopping centres have proved far less volatile thanother prime UK property asset classes. As an illustration of this point, indicative UK property market valuationyields, as provided by one of our valuers, CB Richard Ellis, are set out below,together with the notional impact of these changes on property values over theyear: ------------------------------------------------------- Notional impact on 31 December 31 December valuations of yield 2006 2007 shift in the year Retail---------Prime shops 4.00 4.75 (19)%Prime shopping centres 4.75 5.00 (5)%Secondary shopping centres 5.50 6.25 (14)%Prime retail parks 3.85 4.75 (23)% Offices---------Prime West End of London 3.75 4.75 (27)%Prime City of London 4.25 5.25 (24)% Valuation yields for CSC's UK regional shopping centres increased overall from4.84 per cent at 31 December 2006 to 5.07 per cent at 31 December 2007 and werethe main contributory factor to an overall like-for-like valuation deficit of3.9 per cent. This benign outcome in the circumstances confirms the defensivemerits of our UK regional shopping centres, with resilient income streams andrelatively undemanding valuation yields. Capital & Counties also performed particularly well in valuation terms in 2007in this environment, with an overall decrease in like-for-like valuations ofjust 0.2 per cent in our UK non-shopping centre properties and an increase of6.5 per cent in the USA. Successful property investment requires a long-term perspective. While theindications are that upward pressure on valuation yields in the UK has continuedinto 2008, we believe that many positive factors for real estate as an assetclass are still relevant; first, consistent economic growth; secondly, investordemand for long-term, stable, income producing and inflation-proofing assets tomeet retirement needs; thirdly, relatively benign long-term interest rates; andfinally, limited over-supply issues in the real estate industry. While credit market conditions have put upward pressure on lending margins andunsettled UK property investors, one favourable consequence has been a loweringof interest rate expectations. The 10 year UK interest rate swap fellsubstantially in the second half of the year from 5.92 per cent at 30 June 2007to 5.02 per cent at 31 December 2007, below its starting position for the yearof 5.11 per cent. Liberty International is relatively insensitive to interestrate movements in the short term as our borrowings are mostly long-termfixed-rate. However, the impact of lower interest rates on the wider UK economyand property market should be beneficial over time. We are confident that Liberty International's concentration on super-prime andprime large-scale and predominantly retail real estate will be advantageous inany overall flight to quality by UK property investors. Additionally, thevaluation process values each asset individually and takes no account of theextra portfolio value of our assets which could not now be assembledindividually on any sensible timescale. Furthermore, although shareholders buying our shares only pay stamp duty at 0.5per cent on share transactions, the assumption contained within the valuationsis that our assets would be sold individually to purchasers who would pay thefull 4 per cent stamp duty land tax applicable to large property transactionsand other notional acquisition costs. Adjusting for this factor would increaseour net asset value by £390 million, representing 104p per share over and aboveour published net asset value per share figure of 1264p producing a morerealistic number for shareholders of 1368p. Capital Shopping Centres CSC's business has continued to perform robustly. Like-for-like growth in netrental income amounted to 3.5 per cent for the year and the occupancy ratecontinued at the high level of 98.7 per cent (31 December 2006 - 97.7 per cent).In the year to date, we have recorded 138 tenancy changes, 7 per cent of 2,021total retail units, increasing the annual rents from these tenancies by £7million (2006 - 124 tenancy changes increasing rents by £1.5 million). Asset management initiatives are a constant feature of the business. Inparticular, the Boardwalk development at Lakeside, Thurrock, of 11 restaurantsoverlooking the lake and a refurbished cinema, has traded strongly since openingin June 2007, enhancing activity throughout the centre. At MetroCentre,Gateshead, we have, with our partners, GIC, acquired the adjoining 220,000sq.ft. Metro Retail Park for £82.5 million, increasing our overall ownership toover 2 million sq.ft.. We have obtained planning permission for the intendedupgrade of the leisure and dining facilities in the Yellow and Blue Quadrants,with a view to continuing our improvement programme, most notably delivered bythe successful 370,000 sq.ft. Red Mall extension which opened in Autumn 2004. CSC's development activities are progressing according to programme with twomajor projects under way, the 967,500 sq.ft. extension of St David's, Cardiff,opening in Autumn 2009, and the 480,000 sq.ft. extension of Eldon Square,Newcastle, where the largest phase opens in Spring 2010. In both cases, we haveentered into fixed price construction contracts to ensure control of costs, wehave secured anchor tenants and lettings are in line with expectations. Weanticipate ample retailer requirements for the attractive and well-configuredretail space. The compulsory purchase order inquiry for the 750,000 sq.ft. Westgate, Oxford,refurbishment and extension took place in December 2007 and, subject to asatisfactory outcome, we will be in a position to commit to the project in 2008for an opening in 2011. We are pleased to have satisfied the principalstakeholders that our proposals fit well in this unique andarchitecturally-sensitive city-centre location. In 2007, we restructured thearrangements with our investment partner, moving our potential ownership from 50per cent to an interest of not less than 75 per cent, the final percentagedependent on the amount our partner elects to contribute. CSC is a retail property business, not a retailer. Our net rental income growthis more correlated to rent reviews, typically on a five year cycle in the UK,and active asset management initiatives, than short term fluctuations in retailsales. In terms of rent reviews, 2007 was relatively quiet with 11 per cent ofCSC's net rental income coming up for review. These reviews are progressing inline with expectations. In terms of the overall retail environment, UK non-food retail sales, asmeasured by ONS, continued to grow steadily with year-on-year growth of 3.4 percent for the year ended 31 December 2007. The last quarter of 2007 saw somesigns of weakening in this measure but successful retailers are continuing tolook to expand and trade from high quality space such as CSC offers. Capital & Counties We have continued the dynamic re-alignment of the business of Capital &Counties, with gross assets now increased to £2.2 billion compared with £1.1billion as recently as 30 June 2006, the last quarter date before the majoracquisition of the Covent Garden Estate. Capital & Counties' activities are strongly focussed on Central London with over£1.4 billion invested at 31 December 2007. We continue to regard Central Londonas a long-term beneficiary of globalisation, with its world-class financialservices industry and historical, cultural and residential attractions. Threeimportant investments now form the core of our London holdings. First, theCovent Garden Estate, where we have substantially consolidated our ownershipduring the year. Covent Garden is now the group's fourth largest investment at£664 million and we are making good progress working closely with stakeholderson the strategic plan for the area. Second, our 50/50 partnership with GreatPortland Estates plc, The Great Capital Partnership, which has grown to £654million, of which some two-thirds is focussed on the Regent Street, London W1,area. Third, Earls Court and Olympia where we moved decisively in 2007 to secure50 per cent ownership and effective control. These globally recognised Londonlandmark venues offer over 1 million sq.ft. of exhibition and conference spacewith considerable opportunities to intensify use. The £381 million assets ofEarls Court and Olympia are fully consolidated at 31 December 2007 reflectingthe nature of the ownership arrangements. Through Capco Urban, our mixed-use development business, the group continues itsactivities in other important regional locations. International Capco USA is an established value-add developer of mixed-use properties with anemphasis on retail investment with total assets now amounting to £381 million.Our activities are focussed on California and the business has performed well in2007 with a 6.5 per cent revaluation gain driven by our flagship shoppingcentre, Serramonte, in the San Francisco bay area. This asset continues toprovide a number of active management and remodelling opportunities which we arepursuing. Capital & Counties USA has converted to a US REIT, as the company hasreached the stage in its development where US REIT status is consideredbeneficial. Capco International has been formed to support broader group initiatives in theinternational marketplace. In 2007, we subscribed for a 25 per cent interest inan Indian shopping centre development company, Prozone, a 75 per cent subsidiaryof the fast-growing Indian retailer, Provogue. In aggregate, we invested £39million in Capco International activities in 2007 on which we recorded arevaluation surplus of £8 million for the year. Corporate responsibility I am pleased to record that for many years Liberty International has had astrong commitment to Corporate Responsibility (CR), producing our first fullannual report on the subject in 2002. We have reviewed and developed our CRactivities year on year and our community programmes have grown with ongoingpartnerships with a number of charities including Crime Concern and theConservation Foundation. Our community programme working near our shopping centres focuses on youth,education and the prevention of crime and anti-social behaviour, with someexcellent local projects in hand. A growing strand of environmental awarenessinitiatives located on our Covent Garden estate complements our vision toregenerate and restore that unique urban area. Once again, in 2007 we havedevoted substantial time and financial support via our CR partnerships to thebenefit of all involved. Our development programme has always been focussed on brownfield land andBraehead near Renfrew, Scotland, formerly derelict industrial land by the Clyde,is a wonderful example of mixed-use urban regeneration. Overall we estimate thatour shopping centres have generated employment directly at the centres for some50,000 people, in addition to the indirect employment opportunities created. In our development activities, we continue to apply the highest constructionstandards; and operationally at the shopping centres we have made further majorstrides in energy efficiency and waste reduction, with 2007 seeing therealisation of our goal to measure the carbon footprint of all our directlymanaged UK shopping centres. Work is in hand to understand the factorsinfluencing that footprint so that we can take practical steps to reduce it andsave on costs as well. As an example of the external recognition of our activities in the CR field, weare rated as a BiTC top 100 company and sector leader in their EnvironmentalIndex. Dividends The Directors propose a final dividend of 17.6p per share bringing the fullyear's dividend to 34.1p (2006 - 31.0p), an increase of 10 per cent. LibertyInternational has always pursued a progressive dividend policy distributingsubstantially all of the group's recurring income. We have shown consistentgrowth over a long period from 4.5p per share in 1985 to 34.1p in 2007. Thisprogressive policy will continue under REIT status but additionally the 2007dividend includes an extra increase out of the net tax savings from conversionto a REIT. The group is an active developer and has a substantial pool of brought forwardcapital allowances. The required minimum Property Income Distribution ("PID")for the year is estimated at around 18p per share, substantially below thedividend proposed for the year. As the interim dividend of 16.5p was paidentirely as a PID, subject to withholding tax for certain shareholders, we havedecided that for administrative simplicity the final dividend will be paidentirely as a non-PID dividend not subject to any withholding tax and thebalance of the minimum PID requirement will, as permitted under REITregulations, be met from the current year's dividends. Financial position Liberty International's financial position is strong with gross property assetsof £8.6 billion and net debt of £3.6 billion providing a debt to assets ratio of42 per cent at 31 December 2007. Our debt structures are predominantly long-termin nature, asset specific and fixed-rate. The first material loan repayment isnot until 2011. Board and management Once again my thanks go to my Board colleagues for their active support during2007. Along with the non-executive directors, I would like to thank the group'sexecutive directors and staff both in the UK and the USA for their tremendouscommitment and effort. We are pleased to have substantially strengthened theoverall management team in 2007 with a number of senior level recruits to thegroup. Prospects Through our exceptional assets, financial strength and quality management, weare well placed to continue on behalf of shareholders the measured growth of ourhigh quality company. We look forward to opportunities emerging from the unsettled financial andproperty markets of 2008. Sir Robert Finch Chairman 13 February 2008 FINANCIAL REVIEW Liberty International recorded the following significant transactions in 2007: First quarter • Formation of a strategic partnership with GIC Real Estate through the creation of the MetroCentre Partnership realising £426 million (accounted for as the disposal of a part interest in a subsidiary with the creation of a minority interest).• Acquisition of the retail element of the Royal Opera House block in London's Covent Garden for £128 million. Second quarter • Formation of The Great Capital Partnership creating a £460 million joint venture with Great Portland Estates with Liberty International contributing £299 million of assets to the partnership and receiving a balancing payment of £68 million. Third quarter • Completion of the acquisition of a 50 per cent interest in the Earls Court and Olympia Group for a net consideration of £54 million (accounted for as a subsidiary).• Acquisition of the Metro Retail Park through the MetroCentre Partnership for £82.5 million (group's share £49.5 million).• Acquisition of further properties by The Great Capital Partnership for £140 million (group's share £70 million).• Acquisition of further properties in Covent Garden for £32 million. Fourth quarter • Acquisition of further properties by The Great Capital Partnership for £20 million (group's share £10 million).• Further investment in Covent Garden with the purchase of the Covent Garden Restaurants Group for £22 million and in Manchester with the purchase of properties for £25 million. And over the year as a whole: • Property disposals (excluding the MetroCentre transaction with GIC) realising £340 million at a surplus over 31 December 2006 values of £37 million. Further details of the major items are shown in the paragraph "Transactionsduring the year" at the end of this report. Results for the year ended 31 December 2007 The results for the year to 31 December 2007 include those of The MetroCentrePartnership from the date of its inception, 25 March 2007, and the Earls Courtand Olympia Group from the date of completion of the acquisition, 24 July 2007,on the basis of full consolidation as subsidiaries. The share of profits and netassets attributable to the other 40 per cent and 50 per cent interestsrespectively are shown under minority interests. The results for the period havetherefore been affected in several ways with the result that they are notdirectly comparable with 2006, both because of the inclusion of a new activityand because of the presentation of both transactions on a consolidated basis.Also there is a degree of seasonality in the Earls Court and Olympia businesswith a peak of activity towards the end of the first quarter, which is notreflected in the current year's results as it was pre-acquisition, and arelatively quiet period during the summer months, which is reflected in thegroup results. The Income Statement for the year ended 31 December 2007 shows continuingunderlying growth, with a 5.8 per cent increase in underlying profit before taxfrom £122.3 million to £129.4 million, and a 6.2 per cent increase in adjustedearnings per share: -------------------------------------------------------------------------------- Year Year ended ended 31 Dec 31 Dec 2007 2006 £m £m-------------------------------------------------------------------------------- Profit before tax (underlying)attributable to ordinary shareholders +5.8% 129.4 122.3 Trading profits 2.9 32.8Minority interests (before tax) (1.7) --------------------------------------------------------------------------------- Profit before tax, valuation and exceptional items 130.6 155.1(Deficit)/gains on revaluation and sale of investment property (279.1) 586.5Movement in the fair value of derivatives 27.0 163.5Exceptional items (3.3) (2.0)-------------------------------------------------------------------------------- (Loss)/profit before tax (124.8) 903.1-------------------------------------------------------------------------------- 2007 Quarterly 2007 2006 -------------------------------- Dec Dec Mar June Sept Dec Adjusted earnings per share 9.8p 9.0p 7.9p 9.3p 36.0p 33.9p-------------------------------------------------------------------------------- Like-for-like net rental income in the group's UK regional shopping centresincreased by 3.5 per cent. Like-for-like non-shopping centre net rental income increased by 1.6 per cent inthe UK, and fell by 2.6 per cent in the US. This reflects planned refurbishmentactivity, a lease expiry in the UK where the property has been subsequentlyre-let and a small number of tenant failures. Good progress has been made insecuring new tenants or with sales where appropriate and consequently the fullyear shows an improvement over the position reported at the end of the thirdquarter. Administration expenses increased from £34.2 million to £45.2 million, including£5.2 million from Earls Court and Olympia since acquisition and approximately £3million from fees related to investment and financing transactions during theyear. Valuations The overall deficit on revaluation and sale of investment properties for theyear ended 31 December 2007 amounted to £279.1 million, after a gain of £37.4million from disposals. Like-for-like percentage gains on revaluation of investment properties since thepreceding year end are summarised as follows: -------------------------------------------------------------------------------- Year Nine months Six months ended ended ended 31 Dec 30 Sept 30 June 2007 2007 2007-------------------------------------------------------------------------------- - UK regional shopping centres -3.9% +1.7% +2.6%- UK non-shopping centre properties -0.2% +3.1% +3.2%- USA +6.5% +6.5% +3.7% -------------------------------------------------------------------------------- The related weighted average nominal equivalent yields were as follows: -------------------------------------------------------------------------------- As at As at As at As at 31 Dec 30 Sept 30 June 31 Dec 2007 2007 2007 2006-------------------------------------------------------------------------------- UK regional shopping centres 5.07% 4.82% 4.77% 4.84%UK non-shopping centre properties 5.18% 4.94% 4.95% 4.89%-------------------------------------------------------------------------------- For UK regional shopping centres, the small increase in the average equivalentyield between 30 June 2007 and 30 September 2007 was confined to a few centreswith the majority of yields, principally the yields on the larger centres,unchanged from 30 June 2007. In the final quarter of the year these yieldsincreased by a quarter of a per cent on average across all centres. The overallrevaluation deficit on UK regional shopping centres over the whole year can beanalysed between a 0.7 per cent increase from underlying rental growth and a 4.6per cent deficit from yield shift. The percentage valuation movements on UK non-shopping centre properties follow asimilar pattern, with a similar movement in yields in the last quarter. However,growth in rental income, particularly in the West End of London and CoventGarden properties, compensated for the movement in yield such that the overalllike-for-like valuation movement for the year was a small negative. The overalloutcome for the year showed a fall of 2.7 per cent but this partly reflects therealisation of some substantial valuation gains recognised earlier in the yearthrough sales in the third and fourth quarter and the absorption of costsrelated to purchases made during the period. Sales by this business during theyear generated proceeds of £318.8 million and a surplus over December 2006values of £32.4 million. In the USA the revaluation surplus increased to 6.5 per cent at 30 September2007 from 3.7 per cent at 30 June 2007 and was maintained at that level in thelast quarter, still primarily driven by the retail properties and, inparticular, the Serramonte shopping centre which showed an increase of 11.8 percent for the year to 31 December 2007. Net assets per share Adjusted net assets per share at 31 December 2007 of 1264p declined by 105p from1369p at 30 September 2007 and by 63p from 1327p at 31 December 2006. Thisrepresents a total return for the year of minus 2.2 per cent, from 1327p at 31December 2006 (after taking into account the 2006 final dividend of 17.25p andthe interim dividend of 16.5p paid during 2007). Financial position The group raised £340 million from disposals during the year (in addition to£426 million raised from the creation of the MetroCentre Partnership) andpurchased £518 million of investment properties in addition to the £375 millionof property acquired through the Earls Court transaction. Total additions forthe year, including development expenditure of £169 million, amounted to £1,062million and proceeds from sales, including the creation of the MetroCentrePartnership, amounted to £766 million. Net debt increased from £3,063 million at31 December 2006 to £3,668 million at 31 December 2007 (£3,218 million ifminority interests and other IFRS adjustments are excluded). Liberty International's financial ratios, including a debt to assets ratio of 42per cent at 31 December 2007 (31 December 2006 - 36 per cent), remain robust. The group's debt is analysed below: ------------------------------------------------------------------------------- Consolidated Minorities' Underlying Balance Share Head Balance Sheet in JVs Leases Sheet £m £m £m £m-------------------------------------------------------------------------------- Investment properties 8,623 (641) (57) 7,925Other fixed assets 162 162-------------------------------------------------------------------------------- 8,785 (641) (57) 8,087-------------------------------------------------------------------------------- Net debt 3,668 (393) (57) 3,218-------------------------------------------------------------------------------- Debt to Assets Ratio 42% 40% The majority of the group's joint ventures are jointly controlled and thegroup's policy is to use proportional consolidation whereby only the group'sshare of assets and liabilities are consolidated in the group balance sheet.However, where the structure of the group's joint ventures is such that thegroup exercises effective control of the joint venture, as in the case of theMetroCentre Partnership and the Earls Court and Olympia Group, then all of theassets and liabilities of the joint venture are consolidated in the group'sbalance sheet with the joint venturer's share of the net assets shown as aminority interest. This, together with the presentation of fixed head leasepayments under International Financial Reporting Standards, can have the effectof exaggerating the group's exposure to debt as measured by the Debt to AssetsRatio. The table above re-presents the consolidated balance sheet showing onlythe group's share of assets and net debt and removing the adjustment in respectof head leases. As these joint ventures are more highly geared than the group asa whole the revised presentation shows an underlying Debt to Assets Ratio of 40per cent. A further analysis shows the split of the underlying balance sheet betweensecured and unsecured finance: ------------------------------------------------------------------------------ Underlying Balance Sheet Secured Unsecured £m £m £m------------------------------------------------------------------------------ Investment properties 7,925 6,212 1,713Other fixed assets 162 - 162---------------------------------------------- ----------------------- 8,087 6,212 1,875---------------------------------------------- ----------------------- Net debt 3,218 3,154 64---------------------------------------------- ----------------------- Debt to Assets Ratio 40% 51% 3% The analysis above is very important when assessing the risks associated withthe group's debt finance. The group has a relatively small amount of unsecureddebt with the vast majority of the group's debt being in the form of secured andlargely non-recourse debt. The Debt to Asset Ratio on the secured pool is around51 per cent with the result that the asset cover for the unsecured debt isconsiderably higher. This means that group still has considerable capacity toborrow on an unsecured basis and, based on typical initial loan to value andinterest coverage ratios, there is also further capacity in the secured pool.The first maturity in the secured pool does not arise until 2011. At 31 December 2007 the weighted average maturity of the group's debt was over6.7 years and the weighted average cost of debt was 6.0 per cent (7 years and5.9 per cent excluding Earls Court debt). The group had undrawn committedborrowing facilities of £540 million. Fair value of debt and financial instruments Long-term interest rates declined in the second half of the year having risenstrongly in the first half. The ten year UK interest rate swap, a reasonableproxy for our fixed rate hedging strategy, rose from 5.11 per cent at 31December 2006 to 5.92 per cent at 30 June 2007, falling back to 5.02 per cent at31 December 2007. We recorded a surplus of £27 million in the year ended 31December 2007 on revaluation of the derivative financial instruments used to fixour long-term debt. Compared to the surplus at 30 June 2007 of £251 million,this represents a reduction in the second half year of £224 million. The potential adjustment to net assets per share (diluted, adjusted) arisingfrom the fair value of the group's debt and financial instruments in recentyears, and quarters in 2007, is shown below: ------------------------------------------------------------------------------- Fair value Fair value adjustment 10 year adjustment (before tax) £swap (before tax) pence per % £m share------------------------------------------------------------------------------- 31 December 2005 4.51 (417.4) (119)p31 December 2006 5.11 (240.2) (64)p31 March 2007 5.35 (121.6) (32)p30 June 2007 5.92 47.1 13 p30 September 2007 5.45 (41.0) (11)p31 December 2007 5.02 (187.7) (50)p The group's net borrowings at 31 December 2007 amounted to £3,668 million with£556 million of fixed rate debt and the remainder fixed by way of derivativefinancial instruments. The structure of the group's hedging instruments meansthat on the fixed element of our borrowings the group has a declining interestrate profile (see table below): Interest Rate Swap Summary------------------------------------------------------------------------------ Notional amount Average rateIn effect after £m %------------------------------------------------------------------------------ 1 Year 3,319 5.275 Years 3,220 5.1610 Years 2,543 4.7215 Years 2,100 4.5820 Years 2,100 4.5825 Years 1,625 4.40------------------------------------------------------------------------------ Share buy-backs Liberty International has shareholder approval to buy-back on-market up to 10per cent of its shares. Although the current share price is at a discount topublished net asset value, we would expect only to use the buy-back power veryselectively given the scale of our development programme and the long-term timehorizon required to bring major shopping centre projects to fruition. During thethird quarter of 2007, Liberty International bought 700,000 shares at an averageprice of 1017 pence per share. Transactions during the year ended 31 December 2007 • Strategic partnership with GIC Real Estate realising £426 million. ------------------------------------------------------------------ Our wholly owned subsidiary, Capital Shopping Centres ("CSC"), entered into an agreement with GIC Real Estate ("GIC RE") for GIC RE to acquire a 40 per cent share in CSC's interest in the MetroCentre, Gateshead for a gross consideration of £426 million. GIC RE is the real estate investment arm of the Government of Singapore Investment Corporation and one of the world's leading global real estate investors. CSC continues to manage the MetroCentre. The transaction, which completed during the second quarter, released capital to enable Liberty International to continue to expand its overall business. The MetroCentre Partnership is accounted for as a subsidiary undertaking with the results, assets and liabilities fully consolidated in the year's results and GIC's participation shown as minority interests. • Formation of a £460 million Central London joint venture with Great Portland ---------------------------------------------------------------------------- Estates, increased to £654 million at 31 December 2007. ------------------------------------------------------- Our wholly owned subsidiary, Capital and Counties, announced the formation of The Great Capital Partnership, a 50:50 joint venture with Great Portland Estates plc ("GPE"), to own, manage and develop a number of Central London properties and to broaden both parties' exposure in Central London. The Great Capital Partnership had a starting value of around £460 million, with Capital & Counties contributing £299 million of investment properties and GPE contributing £162 million and making a balancing payment of £68 million in cash to Capital & Counties. The transaction completed during the second quarter. GPE is responsible for day-to-day asset management of the partnership properties. Taking into account subsequent acquisitions and revaluations, the partnership had increased to £654 million with no borrowings at 31 December 2007. • Acquisition of a 50 per cent interest in EC&O Venues (Earls Court and Olympia ----------------------------------------------------------------------------- Group) ------ Capital & Counties acquired a 50 per cent interest in EC&O for a sum that valued the assets at approximately £375 million. The consideration for the 50 per cent interest was £54 million taking into account all assets, debt and other liabilities of the business. The group owns and manages the Earls Court and Olympia Exhibition Centres in West London and the Brewery, Chiswell Street, London EC2, with the aim of establishing the venues as landmark leisure destinations, centred around the core businesses of exhibitions, conferences and special events whilst exploring opportunities to intensify use. The interest in EC&O has been accounted for as a subsidiary with the results, assets and liabilities fully consolidated in the year's results. • Acquisition of the Covent Garden Restaurants Group -------------------------------------------------- Capital & Counties acquired the Covent Garden Restaurants Group, owners of the Rock Garden and Tuttons restaurants in Covent Garden, for a net consideration of £22 million. This, together with the EC&O transaction, gave rise to goodwill carried in the group balance sheet at £27 million. Development Programme Details of the committed development projects are set out in the table below: -------------------------------------------------------------------------------- Cost toDevelopment Status complete as at 31 December 2007-------------------------------------------------------------------------------- Eldon Square, Newcastle (60% interest) £57m Eldon Square West - restaurants and Completed in October 2006.22,000 sq. ft. retail. Eldon Square North - bus station and Bus station completed48,000 sq. ft. retail. February 2007. Retail on site; expected opening February 2008. Eldon Square South - 410,000 sq. ft. On site July 2007.retail extensionincluding 175,000 sq. ft. Debenhams Expected opening Springdepartment store. 2010. ------------------------------------------------------------------- St David's, Cardiff (50% interest) £186m 967,500 sq. ft. extension. On site. Expected openingJoint venture with Land Securities Autumn 2009.Group PLC. ------------------------------------------------------------------- Other developments - CSC £34mOther developments - Capital and Counties £40m--------------------------------------------------------------------------------Total committed developments £317m-------------------------------------------------------------------------------- CONSOLIDATED INCOME STATEMENT (UNAUDITED)FOR THE YEAR ENDED 31 DECEMBER 2007 Notes 2007 2006 £m £m--------------------------------------------------------------------------------Revenue 2 574.6 562.8-------------------------------------------------------------------------------- Rental income 546.7 493.1Rental expenses (172.4) (152.5)--------------------------------------------------------------------------------Net rental income 2 374.3 340.6 Other income 2.0 34.8(Deficit)/gain on revaluation and sale of investmentand development property 3 (279.1) 586.5-------------------------------------------------------------------------------- 97.2 961.9Administration expenses (45.2) (34.2)--------------------------------------------------------------------------------Operating profit 52.0 927.7-------------------------------------------------------------------------------- Interest payable 4 (209.3) (190.0)Interest receivable 8.8 3.9Exceptional finance costs 4 (3.3) (2.0)Change in fair value of derivative financialinstruments 27.0 163.5--------------------------------------------------------------------------------Net finance costs (176.8) (24.6)-------------------------------------------------------------------------------- Profit/(loss) before tax (124.8) 903.1-------------------------------------------------------------------------------- Current tax (2.7) 0.8Deferred tax (23.8) 814.5REIT entry charge (3.9) (154.3)--------------------------------------------------------------------------------Taxation 5 (30.4) 661.0-------------------------------------------------------------------------------- Minority interests 50.2 ---------------------------------------------------------------------------------Profit/(loss) for the period attributable to equityshareholders (105.0) 1,564.1-------------------------------------------------------------------------------- Ordinary dividends - paid and proposed 123.3 108.7 - pence per share 34.1p 31.0p-------------------------------------------------------------------------------- Basic earnings per share 14 (29.0)p 462.1p--------------------------------------------------------------------------------Diluted earnings per share 14 (26.6)p 444.0p-------------------------------------------------------------------------------- Adjusted earnings per share are shown in note 14. CONSOLIDATED BALANCE SHEET (UNAUDITED) AS AT 31 DECEMBER 2007 Notes 2007 2006 £m £m--------------------------------------------------------------------------------Non-current assetsGoodwill 26.6 -Investment and development property 7 8,622.8 8,187.1Plant and equipment 1.2 0.9Trade and other receivables 9 83.5 81.4Investments 51.0 --------------------------------------------------------------------------------- 8,785.1 8,269.4--------------------------------------------------------------------------------Current assetsTrading property 8 43.7 45.2Trade and other receivables 9 155.3 113.8Cash and cash equivalents 188.4 321.8-------------------------------------------------------------------------------- 387.4 480.8-------------------------------------------------------------------------------- Total assets 9,172.5 8,750.2-------------------------------------------------------------------------------- Current liabilitiesTrade and other payables (341.7) (319.5)Tax liabilities (5.7) (2.1)Borrowings, including finance leases 10 (152.3) (43.5)Derivative financial instruments (3.8) (4.6)-------------------------------------------------------------------------------- (503.5) (369.7)--------------------------------------------------------------------------------Non-current liabilitiesBorrowings, including finance leases 10 (3,704.0) (3,341.3)Derivative financial instruments (94.0) (128.9)Deferred tax provision 5 (73.7) (40.8)Other provisions 12 (1.4) (4.9)Other payables (87.0) (132.2)-------------------------------------------------------------------------------- (3,960.1) (3,648.1)-------------------------------------------------------------------------------- Total liabilities (4,463.6) (4,017.8)-------------------------------------------------------------------------------- Net assets 4,708.9 4,732.4-------------------------------------------------------------------------------- EquityCalled up share capital and reservesattributable to equity shareholders 15 4,507.0 4,732.4Minority interests 201.9 ---------------------------------------------------------------------------------Total equity 4,708.9 4,732.4-------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (UNAUDITED) 2007 2006 £m £m--------------------------------------------------------------------------------Profit for the period (105.0) 1,564.1 Actuarial (losses)/gains on defined benefit pension schemes (2.0) 0.7Tax on items taken directly to equity 0.5 (4.9)Gains on revaluation of investments, net exchangetranslation differences and other movements 6.4 (4.6)--------------------------------------------------------------------------------Net gains/(losses) recognised in equity 4.9 (8.8) --------------------------------------------------------------------------------Total recognised income and expense for the period (100.1) 1,555.3-------------------------------------------------------------------------------- A summary of changes in group equity is shown in note 15. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) 2007 2006 £m £m--------------------------------------------------------------------------------Cash flows from operating activitiesOperating profit 52.0 927.7Adjustments for non-cash items:Unrealised net revaluation deficits/(gains) on investmentproperty 316.5 (558.5)Unrealised gains on transfer of trading property - (33.1)Profit on sale of investment property (37.4) (28.0)Depreciation and amortisation 0.3 0.2Amortisation of lease incentives and other direct costs (1.6) 10.3--------------------------------------------------------------------------------Cash flows from operations before changesin working capital 329.8 318.6Change in trade and other receivables (6.4) (10.9)Change in trading property 8.5 9.7Change in current asset investments (39.2) 3.0Change in trade and other payables (65.1) (0.5)--------------------------------------------------------------------------------Cash generated from operations 227.6 319.9Interest paid (222.0) (198.6)Interest received 9.8 2.9Tax paid (12.9) (6.6)--------------------------------------------------------------------------------Cash flows from operating activities 2.5 117.6--------------------------------------------------------------------------------Cash flows from investing activitiesPurchase and development of property (575.5) (653.9)Sale of property 459.2 127.3Purchase of subsidiary companies (80.0) ---------------------------------------------------------------------------------Cash flows from investing activities (196.3) (526.6)--------------------------------------------------------------------------------Cash flows from financing activitiesIssue and repurchase of shares (3.1) 341.4Borrowings drawn 382.6 902.0Borrowings repaid (197.0) (486.0)Equity dividends paid (122.1) (97.4)--------------------------------------------------------------------------------Cash flows from financing activities 60.4 660.0--------------------------------------------------------------------------------Net (decrease)/increase in cash and cash equivalents (133.4) 251.0Cash and cash equivalents at 1 January 321.8 70.8--------------------------------------------------------------------------------Cash and cash equivalents at 31 December 188.4 321.8-------------------------------------------------------------------------------- NOTES (UNAUDITED) 1 Basis of preparation The Preliminary Report is unaudited and does not constitute statutory accountswithin the meaning of Section 240 of the Companies Act 1985. The statutoryaccounts for the year ended 2006 have been delivered to the Registrar ofCompanies. The auditors' opinion on these accounts was unqualified and did notcontain a statement made under Section 237 (2) or Section 237 (3) of theCompanies Act 1985. The accounting policies set out in pages 42 and 43 of the2006 Annual Report have been consistently applied in the preparation of thisfinancial information. The financial information has been prepared in accordance with InternationalFinancial Reporting Standards, as adopted by the European Union ("IFRS"), IFRICinterpretations and with those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. It has been prepared under the historical costconvention as modified by the revaluation of properties, available for saleinvestments and financial assets and liabilities held for trading. 2 Segmental analysis 2007 ----------------------------------------------------- UK Other shopping commercial Other Group centres properties Exhibition activities Total £m £m £m £m £m--------------------------------------------------------------------------------Revenue 424.8 126.3 24.7 (1.2) 574.6--------------------------------------------------------------------------------Rent receivable 334.8 98.8 24.7 - 458.3Service charge income 57.6 9.3 - - 66.9Other income 19.3 2.2 - - 21.5-------------------------------------------------------------------------------- 411.7 110.3 24.7 - 546.7Rent payable (22.3) (3.1) - - (25.4)Service charge and othernon-recoverable costs (100.6) (31.8) (14.6) - (147.0)--------------------------------------------------------------------------------Net rental income 288.8 75.4 10.1 - 374.3Property tradingprofits/(losses) 1.5 1.4 - - 2.9Other income - 0.3 - (1.2) (0.9)(Deficit)/gain on revaluationand sale of investment anddevelopment property (284.5) 0.6 4.8 - (279.1)--------------------------------------------------------------------------------Segment result 5.8 77.7 14.9 (1.2) 97.2-------------------------------------------------------------------------------- 2006 ----------------------------------------------------- UK Other shopping commercial Other Group centres properties Exhibition activities Total £m £m £m £m £m--------------------------------------------------------------------------------Revenue 421.1 139.2 - 2.5 562.8--------------------------------------------------------------------------------Rent receivable 320.4 79.8 - - 400.2Service charge income 51.6 15.6 - - 67.2Other income 15.9 9.8 - - 25.7-------------------------------------------------------------------------------- 387.9 105.2 - - 493.1Rent payable (23.2) (3.8) - - (27.0)Service charge and othernon-recoverable costs (92.7) (32.8) - - (125.5)--------------------------------------------------------------------------------Net rental income 272.0 68.5 - - 340.6Property tradingprofits/(losses) (0.8) 32.6 - 1.0 32.8Other income - 0.5 - 1.5 2.0Gain on revaluation and sale of investment and developmentproperty 470.7 115.8 - - 586.5--------------------------------------------------------------------------------Segment result 741.9 217.5 - 2.5 961.9-------------------------------------------------------------------------------- 3 Deficit on revaluation and sale of investment anddevelopment property 2007 2006 £m £m-------------------------------------------------------------------------------- (Deficit)/gain on revaluation of investment and developmentproperty (316.5) 558.5Gain on sale of investment property 37.4 28.0--------------------------------------------------------------------------------(Deficit)/gain on revaluation and sale of investment anddevelopment property (279.1) 586.5-------------------------------------------------------------------------------- 4 Finance costs 2007 2006 £m £m--------------------------------------------------------------------------------Gross interest payable - recurring 224.4 198.6Interest capitalised on developments (15.1) (8.6)--------------------------------------------------------------------------------Interest payable 209.3 190.0-------------------------------------------------------------------------------- Issue costs written off on redemption of loans 2.0 2.0Early termination of loan agreements 1.3 2.0--------------------------------------------------------------------------------Exceptional finance costs 3.3 2.0-------------------------------------------------------------------------------- --------------------------------------------------------------------------------5 Taxation Current Deferred REIT entry 2007 £m £m charge £m £m--------------------------------------------------------------------------------Tax on non-exceptional items 2.7 (0.5) - 2.2Other exceptional tax - - 3.9 3.9Valuation items:Investment and development property - 8.7 - 8.7Derivative financial instruments - 15.6 - 15.6-------------------------------------------------------------------------------- 2.7 23.8 3.9 30.4-------------------------------------------------------------------------------- Taxation charge for the financial year 2007 2006 £m £m--------------------------------------------------------------------------------Current UK corporation tax at 30% (2006 - 30%) on profits 6.0 27.6Prior year items - UK corporation tax (3.4) 0.2-------------------------------------------------------------------------------- 2.6 27.8Overseas taxation (including £0.7m (2006 - £nil) of prioryear items) 0.1 1.8--------------------------------------------------------------------------------Current tax on profits excluding exceptional items andproperty disposals 2.7 29.6--------------------------------------------------------------------------------Deferred tax:On investment and development property 8.7 (848.1)On derivative financial instruments 15.6 51.2On other temporary differences (0.5) (17.6)--------------------------------------------------------------------------------Deferred tax on profits excluding exceptional items andproperty disposals 23.8 (814.5)--------------------------------------------------------------------------------Tax charge/(credit) on profits excluding exceptional itemsand property disposals 26.5 (784.9)--------------------------------------------------------------------------------REIT entry charge 3.9 154.3--------------------------------------------------------------------------------Exceptional current tax credit - (32.2)Tax on exceptional items and property disposals:- current tax - 1.8- deferred tax - ---------------------------------------------------------------------------------Exceptional tax and tax credit on exceptional items andproperty disposals - (30.4)--------------------------------------------------------------------------------Total tax charge/(credit) 30.4 (661.0)-------------------------------------------------------------------------------- 5 Taxation continued Under IAS 12 (Income Taxes), provision is made for the deferred tax liabilityassociated with the revaluation of investment properties at the corporate taxrate expected to apply to the group at the time of use. For those propertiesqualifying as REIT properties the relevant tax rate will be 0 per cent (2006 - 0per cent), for other UK properties the relevant tax rate will be 28 per cent(2006 - 30 per cent) and for overseas properties the relevant tax rate will bethe prevailing corporate tax rate in that country. The deferred tax provision on the revaluation of investment propertiescalculated under IAS 12 is £35.8 million at 31 December 2007 (2006 - £32.1million). This IAS 12 calculation does not reflect the expected amount of taxthat would be payable if the assets were sold. The group estimates thatcalculated on a disposal basis the liability is £86.8 million at 31 December2007 (2006 - £49.1 million). If upon sale the group retained all the capitalallowances, which is within the control of the group, the deferred tax provisionin respect of capital allowances of £49.9 million may also be released, andfurther capital allowances of £25.9 million may be available to reduce theamount of tax payable on sale. Where gains such as revaluation of development properties and other assets andactuarial movements on pension funds are dealt with in reserves, any deferredtax is also dealt with in reserves. Movements in the provision for deferred tax As at As at 31 December Recognised Acquisition of Recognised 31 December 2006 in income subsidiaries in equity 2007 £m £m £m £m £m--------------------------------------------------------------------------------Revaluation ofinvestment anddevelopmentproperty 32.1 4.2 - (0.5) 35.8Capital allowances 31.8 4.5 14.9 (1.3) 49.9Derivative financialinstruments (32.2) 15.6 1.9 - (14.7)Other temporarydifferences 9.1 (0.5) (5.2) (0.7) 2.7--------------------------------------------------------------------------------Net deferredtax provision 40.8 23.8 11.6 (2.5) 73.7-------------------------------------------------------------------------------- 6 Dividends 2007 2006 £m £m--------------------------------------------------------------------------------Ordinary sharesPrior period final dividend paid of 17.25p per share (2006 -15.25p) 62.4 51.1Interim dividend paid of 16.5 per share (2006 - 13.75p) 59.7 46.3--------------------------------------------------------------------------------Dividends paid 122.1 97.4--------------------------------------------------------------------------------Proposed dividend of 17.6p per share (2006 - 17.25p) 63.6 62.4-------------------------------------------------------------------------------- 7 Investment and development property UK Other shopping commercial centres properties Total £m £m £m --------------------------------------------------------------------------------At 31 December 2006 6,542.8 1,644.3 8,187.1Additions 226.8 835.0 1,061.8Disposals (14.2) (289.2) (303.4)Foreign exchange fluctuations - (6.2) (6.2)(Deficit)/gain on valuation (289.4) (27.1) (316.5)--------------------------------------------------------------------------------At 31 December 2007 6,466.0 2,156.8 8,622.8-------------------------------------------------------------------------------- As at As at 31 December 31 December 2007 2006 £m £m--------------------------------------------------------------------------------Balance sheet carrying value of investment anddevelopment properties 8,622.8 8,187.1Adjustment in respect of head leases and incentives 12.1 18.9--------------------------------------------------------------------------------Market value of investment and development properties 8,634.9 8,206.0-------------------------------------------------------------------------------- The group's interests in investment and development properties were valued as at31 December 2007 by independent external valuers in accordance with theAppraisal and Valuation Manual of RICS, on the basis of market value. Marketvalue represents the figure that would appear in a hypothetical contract of salebetween a willing buyer and a willing seller. 8 Trading property The estimated replacement cost of trading properties based on market valueamounted to £46.1 million (31 December 2006 - £49.9 million). 9 Trade and other receivables 2007 2006 £m £m--------------------------------------------------------------------------------Amounts falling due within one year:Rents receivable 27.3 26.1Derivative financial instruments 20.4 7.0Other receivables 60.4 42.3Prepayments and accrued income 47.2 38.4-------------------------------------------------------------------------------- 155.3 113.8--------------------------------------------------------------------------------Amounts falling due after more than one year:Other receivables 17.9 12.2Derivative financial instruments 5.0 14.0Prepayments and accrued income 60.6 55.2-------------------------------------------------------------------------------- 83.5 81.4-------------------------------------------------------------------------------- 10 Borrowings, including finance leases 2007 2006 £m £m--------------------------------------------------------------------------------Amounts falling due within one year:Secured borrowingsBank loans and overdrafts 118.8 12.9Commercial mortgage backed securities ("CMBS") notes 27.4 24.2Finance lease obligations 6.1 6.4--------------------------------------------------------------------------------Amounts falling due within one year 152.3 43.5--------------------------------------------------------------------------------Amounts falling due after more than one year:Secured borrowings - non recourseCMBS notes 2015 1,174.3 1,124.1CMBS notes 2011 633.7 639.7Bank loan 2017 117.2 -Bank loans 2016 652.2 512.9Bank loan 2014 - 175.6Bank loans 2013 251.2 251.0-------------------------------------------------------------------------------- 2,828.6 2,703.3Other secured borrowingsDebentures 2027 226.1 225.8Other loans 428.9 189.5-------------------------------------------------------------------------------- 3,483.6 3,118.6Unsecured borrowingsCSC bonds 2013 26.6 26.5CSC bonds 2009 31.4 41.3-------------------------------------------------------------------------------- 3,541.6 3,186.4£111.3 million (2006 - £111.3 million) 3.95% convertiblebonds due 2010 111.3 108.7Finance lease obligations 51.1 46.2--------------------------------------------------------------------------------Amounts falling due after more than one year 3,704.0 3,341.3-------------------------------------------------------------------------------- Total borrowings, including finance leases 3,856.3 3,384.8Cash and cash equivalents (188.4) (321.8)--------------------------------------------------------------------------------Net borrowings 3,667.9 3,063.0-------------------------------------------------------------------------------- 11 Fair values of financial instruments Financial assets and liabilities comprise long-term borrowings and otherpayables, derivative instruments, cash, receivables and investments. The fairvalues of financial assets and liabilities have been established using themarket value, where available. For those instruments without a market value, adiscounted cash flow approach has been used. Where no amount is disclosed in thetable below, there is no material difference between the balance sheet value andthe fair value. As at 31 December 2007 As at 31 December 2006 ---------------------------------------------- Balance Fair Balance Fair sheet value value sheet value value £m £m £m £m--------------------------------------------------------------------------------Debentures and other fixed rate loansSterlingC&C 5.562% debenture 2027 226.1 342.0 225.8 348.8CSC 6.875% unsecured bonds 2013 26.6 26.2 26.5 25.4CSC 5.75% unsecured bonds 2009 31.4 31.5 41.3 42.0US dollarsFixed rate loans 161.0 160.6 164.0 169.1-------------------------------------------------------------------------------- 445.1 560.3 457.6 585.3--------------------------------------------------------------------------------Convertible bonds - fixed rate 111.3 152.7 108.7 195.4-------------------------------------------------------------------------------- The adjustment in respect of the above, after credit for tax relief, to thediluted net assets per share (which does not require adjustment for the fairvalue of convertible bonds) would amount to 21p per share (2006 - 24p). All other financial assets and liabilities included in the balance sheet arestated at fair values. Derivative financial instruments 2007 2006 £m £m--------------------------------------------------------------------------------Non-current assets (note 9) 5.0 14.0Current assets (note 9) 20.4 7.0Current liabilities (3.8) (4.6)Non-current liabilities (94.0) (128.9)-------------------------------------------------------------------------------- (72.4) (112.5)-------------------------------------------------------------------------------- 12 Other provisions for liabilities and charges 2007 2006 £m £m--------------------------------------------------------------------------------At 31 December 2006 4.9 6.8Net charge for the year (3.2) 0.3Other movements (0.3) (2.2)--------------------------------------------------------------------------------At 31 December 2007 1.4 4.9-------------------------------------------------------------------------------- 13 Capital commitments At 31 December 2007, the group was contractually committed to £317 million (2006- £127.0 million) of future expenditure for the purchase, construction,development and enhancement of investment property. 14 Per share details 2007 2006(a) Earnings per share millions millions--------------------------------------------------------------------------------Weighted average ordinary shares in issue forcalculation of basic earnings per share 361.7 338.5Weighted average ordinary shares to be issued onconversion of bonds and under employee incentivearrangements 14.7 15.0--------------------------------------------------------------------------------Weighted average ordinary shares in issue forcalculation of diluted earnings per share 376.4 353.5-------------------------------------------------------------------------------- 14 Per share details 2007 2006(a) Earnings per share (continued) £m £m--------------------------------------------------------------------------------Earnings used for calculation of basic earnings per share (105.0) 1,564.1Reduction in interest charge from conversion of bonds, netof tax 5.0 5.3--------------------------------------------------------------------------------Earnings used for calculation of diluted earnings per share (100.0) 1,569.4-------------------------------------------------------------------------------- Basic earnings per share (pence) (29.0)p 462.1p--------------------------------------------------------------------------------Diluted earnings per share (pence) (26.6)p 444.0p-------------------------------------------------------------------------------- Earnings used for calculation of basic earnings per share (105.0) 1,564.1Add back exceptional finance costs 3.3 2.0Add back REIT entry charge 3.9 154.3Less other exceptional tax - (30.4)Add back/(less) gain on revaluation and sale of investmentand development properties 279.1 (586.5)Less fair value movement on derivative financialinstruments (27.0) (163.5)Add back/(less) deferred tax in respect of investment anddevelopment properties 4.2 (787.2)Add back deferred tax in respect of derivative financialinstruments 15.6 51.2Add back/(less) deferred tax on capital allowances 4.5 (60.9)Less gain on transfer of trading property to investment property, net of tax - (28.5)Less amounts above due to minority interests (48.3) ---------------------------------------------------------------------------------Earnings used for calculation of adjusted earnings pershare 130.3 114.6--------------------------------------------------------------------------------Adjusted earnings per share (pence) 36.0p 33.9p-------------------------------------------------------------------------------- Earnings used for calculation of adjusted earnings per share 130.3 114.6Reduction in interest charge from conversion of bonds, netof tax 5.0 5.3--------------------------------------------------------------------------------Earnings used for calculation of adjusted, diluted earningsper share 135.3 119.9--------------------------------------------------------------------------------Adjusted, diluted earnings per share (pence) 35.9p 33.9p-------------------------------------------------------------------------------- (b) Net assets 2007 2006 £m £m--------------------------------------------------------------------------------Basic net asset value 4,507.0 4,732.4Fair value of derivative financial instruments (net oftax) 57.7 80.4Deferred tax on revaluation surpluses 35.8 32.1Deferred tax on capital allowances 49.9 31.8Unrecognised surplus on trading properties (net of tax) 1.7 4.7Minority interests on the above (15.9) --------------------------------------------------------------------------------- 4,636.2 4,881.4Effect of dilution:On conversion of bonds 111.3 108.7On exercise of options 9.7 12.3--------------------------------------------------------------------------------Diluted, adjusted net asset value 4,757.2 5,002.4-------------------------------------------------------------------------------- (c) Shares in issue 2007 2006 millions millions--------------------------------------------------------------------------------Shares in issue, excluding treasury shares and sharesheld by ESOP trust and treated as cancelled 361.5 361.7Effect of dilution:On conversion of bonds 13.9 13.9On exercise of options 1.0 1.5--------------------------------------------------------------------------------Diluted, adjusted, number of shares 376.4 377.1-------------------------------------------------------------------------------- (d) Convertible debt 3.95 per cent convertible bonds due 2010 At 31 December 2007 and 31 December 2006 3.95 per cent convertible bonds with anominal value of £111.3 million were in issue. The holders of the 3.95 per cent bonds have the option to convert their bondsinto ordinary shares at any time on or up to 23 September 2010 at 800p perordinary share. The 3.95 per cent bonds may be redeemed at par at the company'soption after 14 October 2008. 2007 200615 Summary of changes in equity £m £m--------------------------------------------------------------------------------Opening equity shareholders' funds 4,732.4 2,933.1Issue of shares 4.7 342.4Cancellation of shares (7.9) (1.0)-------------------------------------------------------------------------------- 4,729.2 3,274.5Total recognised income and expense for the period (100.1) 1,555.3-------------------------------------------------------------------------------- 4,629.1 4,829.8Dividends paid (122.1) (97.4)--------------------------------------------------------------------------------Closing equity shareholders' funds 4,507.0 4,732.4-------------------------------------------------------------------------------- ---ENDS--- This information is provided by RNS The company news service from the London Stock Exchange

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