14th Jul 2005 13:46
British Land Co PLC14 July 2005 14th July 2005 INTERNATIONAL FINANCIAL REPORTING STANDARDS British Land is presenting its unaudited accounts for the year ended 31st March2005 restated under International Financial Reporting Standards ('IFRS'). Thechange to the accounting basis arises from legislation requiring all EU listedcompanies to apply IFRS in their financial statements. The disclosures include guidance as to the effect of IFRS on the Group'sreported results and balance sheet and the comparative figures expected to beused in the interim statement and final accounts for the 6 months to 30thSeptember 2005 and 31st March 2006 respectively. There are no changes in interpretation or methodology from the advance guidancegiven by the Company in its presentation on 25th January 2005. In adopting IFRS no adjustments have been necessary in respect of therefinancing of Broadgate carried out in March 2005, nor for expensing share-based incentives, which were already expensed on the basis of their fair values under the Company's previous accounting policies. Good progress is being made with other European companies through the industrybody EPRA to define industry standard reporting measures for net assets andearnings. Contacts: The British Land Company PLCGraham Roberts 020 7467 2948Lucinda Bell 020 7467 2888 The British Land Company PLC ('British Land') Adoption of International Financial Reporting Standards ('IFRS') Results for the year ended 31 March 2005 presented under IFRS Introduction On 25 May 2005 British Land reported its financial results for the year ended31 March 2005, prepared for the last time under UK Generally AcceptedAccounting Practice ('UK GAAP'). Going forward the Group will prepare itsconsolidated financial statements in accordance with IFRS as required for allEuropean Union listed companies. British Land's first IFRS results will befor the six months to 30 September 2005 and the Group's first annual reportunder IFRS will be for the year to 31 March 2006. The following unaudited IFRS results include comparative information for thehalf year to 30 September 2004 and the year ended 31 March 2005. This announcement describes for investors: • the key impacts of the conversion from UK GAAP to IFRS on the Group's results for the year to 31 March 2005; • the key judgements in making the transition to IFRS; and • the restated results under IFRS for the half year to 30 September 2004 and the year to 31 March 2005, which are expected to form the comparative figures for both the interim six months to 30 September 2005 and the year to 31 March 2006 statements. Although the impact on the reporting of our results is significant, theunderlying performance of the business and its cash flows remainunaffected. The principal changes to British Land's previously reported UK GAAP financialinformation are: • to recognise investment property and other investment revaluation surpluses in the income statement; • to provide for deferred tax on property and investment revaluations; • to recognise certain financial instruments at fair value; and • to reflect on a single line within income, the Group's share of joint venture income after revaluation surpluses and current and deferred taxes. No adjustment is required on transition to IFRS for the accounting ofshare-based incentives or pension costs as the Group took advantage of theoption to adopt similar UK GAAP standards early and has reported its resultsfor the year to 31 March 2004 and 31 March 2005 in accordance with thesestandards. No adjustment is required to the accounting treatment of theBroadgate refinancing carried out in March 2005. To assist an understanding of the results, we include on pages 29 and 30summary financial statements which consolidate on a proportional basis theGroup's share of joint venture income, assets and liabilities. Key financial highlights The key financial highlights of adopting IFRS for our 31 March 2005 results are: IFRS Impact on results previously disclosed under UK GAAP £m Group and share of joint venturesNet rental income 584.7 Increased by £12.9mProfit before tax 779.2 Increased by £757.4mUnderlying profits before tax* 180.9 Increased by £6.1mBalance sheet net assets 4,782.6 Decreased by £796.7m - principally due to recognition of deferred taxationAdjusted diluted net assets** 5,913.2 Increased by £89.6mNet debt 6,563.1 Increased by £26.9mWeighted average debt maturity 13.5 yrs UnchangedLoan to value (debt /property & investments) 52% UnchangedWeighted average interest rate 6% Unchanged * Underlying profits are profits adjusted in line with the industry proposed earnings measure and adjusted for the exceptional refinancing of Broadgate. The industry proposed adjusted earnings measure excludes gains on asset revaluations and disposals and related taxation and the capital allowance effects of IAS 12 where applicable. ** Adjusted Net Asset Value (NAV) is based on the industry proposed net asset performance measure. It includes the external valuation surplus on trading and finance lease properties but excludes the contingent taxation provision, any related goodwill, the fair value adjustments for debt and derivatives and capital allowance effects of IAS12. Contents Page Overview of impact for the year ended 31 March 2005 3 - 4Key accounting judgements 5 - 6Consolidated Income Statement 7Consolidated Balance Sheet 8Consolidated Cash Flow Statement 9Consolidated Statement of Recognised Income and Expense 10Notes to the accounts 10 - 28Summary Income Statement and Balance Sheet(ProportionallyConsolidated) 29 - 30Reconciliations of UK GAAP to International FinancialReporting Standards 31 - 33 Overview of impact Income statement Under the industry proposed adjusted earnings measure (earnings before gains onasset revaluations and disposals), our IFRS diluted earnings per share are35.5p, as compared with an underlying 34.3p as previously reported under UKGAAP. Reconciliation of profit before tax and underlying profit before tax - 31 March 2005 Underlying PBT PBT* £m £m As previously reported - UK GAAP 31 March 2005 21.8 174.8 Revaluations on property and investments included inincome 753.2Deferred and current taxation of joint ventures nowrecognised in pre tax profits (41.6)Recognition of fair value adjustments on financialinstruments (5.9) (5.9)Adjustment for timing differences on recognition oflease incentives 11.0 11.0Other movements (0.9) 1.0 As restated - IFRS 31 March 2005 737.6 180.9 *Underlying profits are profits adjusted in line with the industry proposedearnings measure and adjusted for the exceptional refinancing of Broadgate. Theindustry proposed adjusted earnings measure excludes gains on asset revaluationsand disposals and related taxation and the capital allowance effects of IAS 12where applicable. Diluted earnings per share Diluted earnings per share and underlying diluted earning per share, which iscalculated after taking account of taxation, is as follows: EPS Underlying EPS pence pence ------- -------UK GAAP 11.3 34.3IFRS 125.9 35.5 Overview of impact (continued)Balance Sheet On an adjusted diluted basis the NAV per share of 1128p (industry proposedperformance measure) is slightly higher than the 1111p that was previouslyreported under UK GAAP. Reconciliation of diluted net assets - 31 March 2005 Adjusted NAV NAV £m £m ------- -------As previously reported - UK GAAP 31 March 2005 5,693.4 5,823.6 Recognition of contingent taxation on revaluation gains (963.5)Goodwill adjustments* 108.0 33.0Recognition of financial instruments at fair value netof deferred taxation (16.6)Deferred taxation on external surplus on trading &finance lease properties (17.0)Final dividend only recognised on approval 56.5 56.5Other movements (2.2) 0.1 As restated - IFRS 31 March 2005 4,858.6 5,913.2 Diluted NAV per share pence pence ------- -------UK GAAP 1087 1111IFRS 927 1128 Adjusted Net Asset Value (Adjusted NAV) is the industry proposed net assetperformance measure. It includes the external valuation surplus on trading andfinance lease properties but excludes the contingent taxation provision, anyrelated goodwill, the fair value adjustments for debt and derivatives andcapital allowance effects of IAS12 (see note 17). * The goodwill adjustment primarily relates to some £75 million of deferred taxation recognised on corporate acquisitions and £33 million of negative goodwill written back on transition to IFRS. Key accounting judgements As the understanding of the application of IFRS is still evolving it is possiblethat the treatment of items may change. The following key accounting judgementshave been made as part of the transition to IFRS. Deferred taxation - basis of calculation IFRS requires that deferred tax is recognised where assets are held at valuesgreater than their tax base cost (usually historical cost). This deferred taxprovision is reversed for the industry proposed performance measures of AdjustedNet Asset Value and underlying earnings per share. The basis of calculating this provision varies depending on whether value isexpected to be achieved through sales or retention in the business. As BritishLand has a proven record of portfolio recycling through sales and a committedstrategy to recycle its capital the deferred tax provision is calculated on thebasis that assets will be sold and takes account of available loss reliefincluding indexation, but does not assume any mitigation that could be achievedthrough tax structuring. Deferred taxation and goodwill Under IFRS corporate acquisitions are treated as either business combinations orasset acquisitions. Under business combinations the purchase consideration is compared to the fairvalue of the assets and liabilities of the company acquired and any excess isrecognised as goodwill. In property acquisitions it is from time to time commonfor less than a full deduction to be made in the purchase price for contingentCGT, in recognition that contingent CGT may not be crystallised for some time,if at all. IFRS prohibits any revision of the deferred tax to its fair value andtherefore goodwill may arise on acquisition accounting, equal to the amount ofdeferred tax provided and not discounted in the purchase price. Asset acquisitions arise when an asset, or a group of assets, that does notconstitute a business is acquired. Under the asset acquisition method the assetsand liabilities are treated as though acquired individually even if acquired ina corporate entity. There is no deferred tax relating to revaluations as theassets are treated as acquired at cost. Under this method there is no goodwill. All corporate acquisitions in prior years and in the year to 31 March 2005 havebeen treated as business combinations. Properties - classification as operating leases or finance leases Under IFRS, weare required to distinguish between properties let under operating leases andthose let under finance leases. This distinction is made at the inception of thelease and is not re-assessed over the life of the lease unless the lease termsare varied significantly. Operating leases continue to be shown as a propertyinterest in the balance sheet, but where a finance lease has been identified,IFRS requires the value of the cash flows related to the buildings to be shownas a debtor and the land as a property interest. Income is shown on the buildingelement on a financial rather than a rental basis. British Land has worked closely with the British Property Federation ('BPF') onguidance notes for the application of IFRS in a UK context (see www.bpf.org.uk/files/resdoc110494339418914-1.pdf). A comprehensive review of the terms of eachof our leases has been undertaken using the approach recommeded by the BPF, thisreview has identified only one material finance lease within one joint venture. British Land uses derivatives to manage its interest rate risk. Under IFRS allderivatives, including hedges, are held on the balance sheet at fair value. Thedefault treatment under this standard is for movements in the fair value to berecognised in the income statement, where they will impact reported profits.However, if an entity can demonstrate that its derivatives are effective hedgesof specific risks it can choose to adopt hedge accounting. The Group has chosento adopt hedge accounting. Under the transitional rules for IFRS, companies may elect to commenceapplication of IAS 39 with effect from 1 April 2005. British Land has chosen toapply IAS 39 in full retrospectively and not use this election. Derivatives which hedge the Group's floating rate bank debt are classified ascash flow hedges and movements in their fair value are recognised in the hedgingreserve, which is part of equity reserves.The mark to market adjustment on financial instruments and related taxationeffects are reversed in calculating Adjusted Net Asset Value. Consolidated income statement (unaudited) IFRS Restated Note Year Six months ended ended 31 March 30 September 2005 2004 £m £m ------- ------- Gross rental income - 2 557.5 256.7 Group Service charge income 2 2.8 2.1 less expenses Property operating 2 (43.3) (21.4) expenses ------- ------- Net rent and related 517.0 237.4 income Administrative expenses (48.8) (22.4) Other income 7.9 2.9 ------- ------- Profit from operations 476.1 217.9 Share of net profit of 10 157.9 82.6 joint ventures after ------- ------- tax Profit from operations including share 634.0 300.5 of joint ventures Net financing costs ------- ------- financing 26.7 6.8 income financing (352.4) (167.5) expenses ------- ------- 3 (325.7) (160.7) Net valuation gains on 4 609.3 306.5 property and investments Exceptional item refinancing 5 (180.0) of Broadgate ------- ------- Profit on ordinary 737.6 446.3 activities before tax Taxation credit (expense) ------- ------- current 45.5 (5.7) deferred (129.6) (68.9) ------- ------- 6 (84.1) (74.6) --------------------------------------------------------------------------- Profit for the year 653.5 371.7 --------------------------------------------------------------------------- Attributable to: --------------------------------------------------------------------------- Shareholders of the 653.5 371.7 Company --------------------------------------------------------------------------- Basic earnings per 7 128.3 p 74.3 p share ------- ------- Diluted earnings per 7 125.9 p 71.6 p share ------- ------- The results stated above relate to the continuing activities of the Group. Consolidated Balance Sheet (unaudited) IFRS Restated ----------------- Note 31 March 30 September 2005 2004 £m £m --------- ---------ASSETSPropertiesInvestment properties 8 10,876.7 9,578.5Development properties 8 212.4 196.2Trading properties (at cost,valuation: £92.6m; Sep 2004:£91.6m) 8 35.9 36.0 --------- --------- 11,125.0 9,810.7 Non-current assetsInvestments in joint ventures 10 700.0 671.6Other investments 9 153.1 113.9Goodwill 72.7 --------- --------- 12,050.8 10,596.2 --------- --------- Current assetsTrade and other debtors 12 76.5 54.8Cash and short-term deposits 15 150.8 128.3 --------- --------- 227.3 183.1 --------- --------- ---------------------------------------------------------------------------Total assets 12,278.1 10,779.3--------------------------------------------------------------------------- LIABILITIESCurrent liabilitiesShort-term borrowings andoverdrafts 15 (407.7) (152.8)Trade and other creditors 13 (351.5) (382.8) --------- --------- (759.2) (535.6) --------- --------- Non-current liabilitiesDebentures and loans 15 (5,753.7) (4,881.5)Other non-current liabilities 14 (37.0) (21.7)Deferred tax liabilities 18 (945.6) (816.7) --------- --------- (6,736.3) (5,719.9) --------- --------- Total liabilities (7,495.5) (6,255.5) --------- ------------------------------------------------------------------------------------Net Assets 4,782.6 4,523.8--------------------------------------------------------------------------- EQUITY Share capital 20 129.6 129.5Share premium 20 1,249.3 1,248.8Other reserves 21 12.2 8.7Retained earnings 21 3,391.5 3,136.8---------------------------------------------------------------------------Total equity attributable toshareholders of the Company 4,782.6 4,523.8--------------------------------------------------------------------------- Adjusted NAV per share: Basic 17 1135 p 1065 p --------- --------- Fully 17 1128 p 1060 p diluted --------- --------- The Adjusted Net Asset Value (Adjusted NAV) per share includes the externalvaluation surplus on trading and finance lease properties but excludes thecontingent taxation provision, any related goodwill, the fair value adjustmentsfor debt and derivatives and capital allowance effects of IAS12. Consolidated Cash Flow Statement (unaudited) IFRS Restated ---------------- Note Year Six months ended ended 31 March 30 September 2005 2004 £m £m Cash generated from operations 19 479.7 230.1Interest paid (350.7) (160.7)Interest received 9.8 2.8UK Corporation tax paid (10.0) (5.1)Foreign tax paid (3.6) (1.9)---------------------------------------------------------------------------Net cash inflow from operating activities 125.2 65.2--------------------------------------------------------------------------- Cash flows from investingactivitiesPurchase of investment propertiesand (508.9) (136.0)development expenditurePurchase of investments (97.9) (97.4)Sale of investment properties 81.3 16.4Sale of investments 3.7Investment in and loans to jointventures (23.4) (3.1)Sale of shares in and loans repaidby 54.8joint venturesPurchase of subsidiary companies (net ofcash acquired (note 11)) (36.1)---------------------------------------------------------------------------Net cash outflow from investingactivities (526.5) (220.1)--------------------------------------------------------------------------- Cash flows from financingactivitiesIssue of ordinary shares 1.2 0.6Purchase of ESOP shares (10.9) (7.6)Dividends paid (76.6) (51.7)Issue of Broadgate Estatesecuritised 2,080.7debtRedemption of Broadgate Funding PLCsecuritised debt (1,439.7)Redemption of 135 BishopsgateFinancing (138.4)Ltd securitised debtRepayment of debt acquired withsubsidiary companies (648.6)Increase in bank and other 614.3 175.4borrowings ---------------------------------------------------------------------------Net cash inflow from financingactivities 382.0 116.7--------------------------------------------------------------------------- Net decrease in cash and cash equivalents (19.3) (38.2)Cash and cash equivalents at 1 April 2004 166.4 166.4---------------------------------------------------------------------------Cash and cash equivalents at 31 March 2005 147.1 128.2--------------------------------------------------------------------------- Cash and cash equivalents consists of:Cash and short-term deposits 150.8 128.3Overdrafts (3.7) (0.1)--------------------------------------------------------------------------- 147.1 128.2--------------------------------------------------------------------------- Consolidated statement of recognised income andexpense (unaudited) IFRS Restated ------------- Year Six months ended ended 31 March 30 September 2005 2004 £m £m ---------- ----------Profit for the yearafter taxation 653.5 371.7 ---------- ---------- Exchange movements ontranslation of foreignsubsidiary (0.4) (0.4) Valuation movements: - on development 12.5 3.0 properties - attributable 2.9 5.3 to joint ventures - on foreign (14.6) (0.4) currency derivatives - on cash flow (9.9) (3.5) hedges Actuarialgains/(losses) ondefined benefitpension schemes (3.9) Tax on items takendirectly to equity 5.7 (0.5) ---------- ----------Net gain (loss)recognised directly inequity (7.7) 3.5 Transferred to the incomestatement: - foreign 4.6 (2.5) currency derivatives - cash flow 10.1 5.1 hedges ---------- ----------Transfers 14.7 2.6------------------------------------------------------------------------------Total recognised income and expense for the year 660.5 377.8------------------------------------------------------------------------------ Notes to the accounts (unaudited) 1 Basis of preparation The financial information presented in this document is unaudited and has beenprepared in accordance with International Financial Reporting Standards andInternational Accounting Standards ('IFRS' or as applicable 'IAS') andinterpretations adopted by the International Accounting Standards Board (the'IASB'). IFRS continues to evolve through the development and adoption of new Standardsand Interpretations as well as through the practical experience gained from theapplication of IFRS by companies and their auditors. As a result, the financialinformation contained in this release may be amended before it is finallypresented as comparative figures in the IFRS accounts to be issued by the Groupfor the six months ending 30 September 2005 as well as for the year ending 31March 2006. Furthermore, the financial information contained in these accountsdoes not constitute a complete set of financial statements (includingcomparative figures and all relevant and required notes) and therefore does notpurport to show a true and fair view of the Group's financial position andresults of operations in accordance with IFRS for the year to 31 March 2005. On 19 November 2004, the European Commission endorsed an amended version of IAS39, "Financial Instruments: Recognition and Measurement" rather than the fullversion as previously published by the IASB. In accordance with guidance issuedby the UK Accounting Standards Board, the full version of IAS 39, as issued bythe IASB, has been adopted in the preparation of this financial information. The financial information has been prepared under the historical costconvention, except for the revaluation of investment and development properties,fixed asset investments, certain financial instruments and deferred tax thereon.The principal accounting policies adopted are set out below. Consolidation of subsidiaries and joint ventures The consolidated accounts include the accounts of The British Land Company PLCand all subsidiaries (entities controlled by British Land). Control is assumedwhere British Land has the power to govern the financial and operating policiesof an investee entity so as to gain benefits from its activities. The results of subsidiaries or joint ventures acquired or disposed of during theyear are included from the effective date of acquisition or to the effectivedate of disposal. Accounting practices of subsidiaries and joint ventures whichdiffer from Group accounting policies are adjusted on consolidation. Business combinations are accounted for under the acquisition method. Any excessof the purchase price of business combinations over the fair value of theassets, liabilities and contingent liabilities acquired and resulting deferredtax thereon is recognised as goodwill. Any discount received is credited to theincome statement in the period of acquisition. All intra-group transactions,balances, income and expenses are eliminated on consolidation. Joint ventures are accounted for under the equity method, whereby theconsolidated Balance Sheet incorporates the Group's share of the net assets ofits joint ventures. The consolidated income statement incorporates the Group'sshare of joint venture profits after tax. Their profits include revaluationmovements on investment properties. Other investments Other investments are shown at fair value. Any surplus or deficit arising onrevaluation is recognised directly in the income statement. Properties Investment Properties Investment properties, including freehold and longleasehold properties, are independently valued each year on an open marketbasis. Any surplus or deficit arising is recognised in the income statement forthe period. Development properties Development properties which were not previously investment properties areindependently valued each year on an open market basis. A valuation in excess ofa property's historic cost is credited directly to equity within the revaluationreserve. Where the value of a property falls below its historic cost, thesurplus or deficit on valuation is recognised in the income statement. Where an investment property is being redeveloped the property is accounted foras if it were an investment property and any movement in valuation is recognisedin the income statement. The cost of properties in the course of developmentincludes attributable interest and other associated outgoings. Interest iscalculated on the development expenditure by reference to specific borrowingswhere relevant and otherwise on the average rate applicable to short-term loans.Interest is not capitalised where no development activity is taking place. Aproperty ceases to be treated as a development property on practical completion. Trading properties Trading properties are stated at the lower of cost and net realisable value. Property disposals and transfers Disposals are recognised on completion: profits and losses arising arerecognised through the income statement, the profit on disposal is determined asthe difference between the sales proceeds and the carrying amount of the asset. Head leases Where an investment property is held under a head lease it is initiallyrecognised as an asset as the sum of the premium paid on acquisition and thepresent value of minimum ground rent payments. The corresponding rent liabilityto the head leaseholder is included in the Balance Sheet as a finance leaseobligation. Financial instruments Trade debtors and creditors Trade debtors and creditors are stated at their nominal value. Trade debtors arereduced by appropriate allowances for estimated irrecoverable amounts. Financial Obligations Debt instruments are stated at their net proceeds on issue. Finance chargesincluding premiums payable on settlement or redemption and direct issue costsare spread over the period to redemption, using the effective interest method. Hedging instruments As defined by IAS39, cash flow hedges are carried at fair value in the BalanceSheet. Changes in the fair value of derivatives that are designated and qualifyas effective cash flow hedges are recognised directly in the hedging reserve andany ineffective portion is recognised in the income statement. Fair value hedges are carried at fair value in the Balance Sheet. Changes in thefair value of derivatives that are designated and qualify as effective fairvalue hedges, are recorded in the income statement, along with any changes inthe fair value of the hedged item that is attributable to the hedged risk. Anyineffective portion is also recognised in the income statement. The Group's use of financial derivatives is governed by the Group's financingpolicies, details of which are included in the Financing Policy and RiskManagement section of the Annual Report and Accounts. Net rental income Rental income is recognised on an accruals basis, exclusive of service chargerecoveries. Rental income from fixed and minimum guaranteed rent reviews isrecognised on a straight line basis over the shorter of the entire lease term orthe period to the first break option. Where rental income is recognised ahead ofthe related cash flow, an adjustment is made to ensure the carrying value of therelated property including the accrued rent does not exceed the externalvaluation. Initial direct costs incurred in negotiating and arranging a new lease areamortised on a straight-line basis over the period from the date of leasecommencement to the earliest termination date . Where a lease incentive payment does not enhance the property, it is amortisedon a straight-line basis over the period from the date of lease commencement tothe earliest termination date. Where a rent free period is included in a lease,the rental income forgone is allocated evenly over the period from the date oflease commencement to the earliest termination date . Service charges and other recoveries are credited directly against relevantexpenditure. Taxation The tax expense represents the sum of the tax currently arising and deferred taxfor the period. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from net profit as reported in the income statement because itexcludes items of income or expense that are taxable or deductible in otheryears, most notably revaluation movements, and it further excludes items thatare never taxable or deductible. The liability is calculated using tax ratesthat have been enacted or substantially enacted by the balance sheet date. Deferred tax assets and liabilities arise from differences between the carryingamounts of assets and liabilities in the balance sheet and their tax bases(known as 'temporary differences'), principally due to revaluation movements onproperties held for the long term. Deferred tax is provided in respect of alltaxable temporary differences at the balance sheet date that may give rise to anobligation to pay more or less tax in the future. Deferred tax is measured on anon-discounted basis. A deferred tax asset is regarded as recoverable and therefore recognised onlywhen, on the basis of all available evidence, it can be regarded as more likelythan not that there will be suitable taxable profits from which the futurereversal of the underlying temporary differences can be deducted. On business combinations, the deferred tax effect of fair value adjustments isincorporated in the consolidated balance sheet. Employee costs Defined benefit pension scheme assets are measured using fair values; pensionscheme liabilities are measured using the projected unit credit method anddiscounted at the rate of return of a high quality corporate bond of equivalentterm to the scheme liabilities. The net surplus or deficit is recognised in fullin the consolidated balance sheet. Any asset resulting from the calculation islimited to past service costs plus the present value of available refunds andreductions in future contributions to the plan. The current service cost and gains and losses on settlement and curtailments arecharged to operating profit. Past service costs are recognised in the incomestatement if the benefits have vested or, if they have not vested, are amortisedon a straight line basis over the period until vesting occurs. Actuarial gainsand losses are recognised in full in the period in which they occur and arepresented in the statement of recognised income and expense. Contributions to the Group's defined contribution schemes are expensed on thebasis of the contracted annual contribution. Share-based incentives The fair value of equity-settled share-based payments to employees is determinedat the date of grant and is expensed on a straight-line basis over the vestingperiod based on the Group's estimate of shares or options that will eventuallyvest. In the case of options granted, fair value is measured by a Black-Scholespricing model. IFRS transitional arrangements When preparing the Group's IFRS balance sheet at 1 April 2004, the date oftransition, the following material optional exemptions from full retrospectiveapplication of IFRS accounting policies have been adopted: (i) Business combinations - the provisions of IFRS 3 'Business combinations' have been applied prospectively from 1 April 2004. The Group has chosen to not restate business combinations that took place before the date of transition; and (ii) Employee benefits - the accumulated actuarial gains and losses in respect of employee defined benefit plans have been recognised in full through reserves. Financial Instruments - the Group has applied IAS 32 'Financial Instruments:Disclosure and Presentation' and IAS 39 'Financial Instruments: Recognition andMeasurement' for all periods presented and has therefore not taken advantage ofthe option that would enable the Group to only apply these standards from 1April 2005. 2. Revenue and property expenses IFRS Restated ------------- 31 March 30 September 2005 2004 £m £m ---------- ----------Gross rentalincome - Group 557.5 256.7Service chargeincome 47.1 21.1Other 7.9 2.9incomeInterestreceivable 12.6 3.0Proceeds onsale oftradingproperties 6.6 6.6Gains oninvestmentproperty sales 15.7 1.7Share of netprofit ofjoint venturesafter tax 157.9 82.6-------------------------------------------------------------------------------Total Revenue 805.3 374.6------------------------------------------------------------------------------- Service charge expense (44.3) (19.0)Property operating expenses (43.3) (21.4)-------------------------------------------------------------------------------Service charge expense and property operating expenses (87.6) (40.4)------------------------------------------------------------------------------- 3. Net financing costs IFRS Restated ------------- 31 March 30 September 2005 2004 £m £m ---------- ---------- Interest payableon: bank loans and overdrafts 83.6 35.2 other loans 261.0 130.2 obligations under finance leases 1.7 0.9 ---------- ---------- 346.3 166.3 Deduct development cost element (7.8) (2.5) ---------- ---------- 338.5 163.8 ---------- ---------- Interestreceivable on: deposits and securities (9.4) (2.7) loans to joint ventures (3.2) (0.3) ---------- ---------- (12.6) (3.0) ---------- ---------- Other finance (income) costs: Pension scheme: Expected return on pension scheme (2.7) (1.3) assets Interest on pension scheme 2.5 1.2 liabilities ---------- ---------- (0.2) (0.1) Fair value hedges: Valuation movements on fair value 6.8 debt Valuation movements on fair value (6.8) derivatives ---------- ---------- Foreign currency hedges: Valuation movements on translation (4.6) 2.5 of foreign currency debt Hedging reserve recycling 4.6 (2.5) ---------- ---------- -------------------------------------------------------------------------------Net financing costs 325.7 160.7------------------------------------------------------------------------------- 4. Net revaluation gains on property and investments IFRS Restated ------------- 31 March 30 September 2005 2004 £m £m ---------- ----------Revaluation ofinvestments (note 9) 43.1 (0.2)Revaluation ofproperties (note 8) 549.9 304.3Gains on propertydisposals 16.3 2.4------------------------------------------------------------------------------ 609.3 306.5------------------------------------------------------------------------------ 5. Exceptional financing item On 2 March 2005 the Group incurred an exceptionalcharge of £180m whilst redeeming the securitised debt of Broadgate (Funding) PLCand 135 Bishopsgate Financing Limited. On the same day Broadgate Financing PLCissued £2,080m of new securitised debt in respect of the Broadgate Estate (seenote 15). The pre tax exceptional item of £180m (post tax: £126m, after £54m taxcredit) relates mainly to the difference between the redemption value and thecarrying value of the redeemed debt. 6. Income tax expense IFRS Restated ------------- 31 March 30 September 2005 2004 £m £m ---------- ----------Current tax UK corporation tax(30%) (2.5) 10.0Foreign tax 2.1 1.3 ---------- ---------- (0.4) 11.3Adjustments inrespect of prioryears (45.1) (5.6) ---------- ----------Total current tax(credit) charge (45.5) 5.7 ---------- ---------- Deferred taxOrigination andreversal of timingdifferences 129.8 68.9Tax associated withpension movements (0.2) ---------- ----------Total deferred taxcharge 129.6 68.9 ---------- ---------- Group total taxation(net) 84.1 74.6 Tax reconciliationProfit on ordinaryactivities beforetaxation 737.6 446.3Less - Share ofprofit of jointventures (157.9) (82.6) ---------- ----------Group profit onordinary activitiesbefore taxation 579.7 363.7 ---------- ---------- Tax on group profit on ordinary activities atUK corporation taxrate of 30% (2004:30%) 173.9 109.1 Effects of:Valuation gains oninvestmentproperties (177.9) (91.2)Capital allowances (9.3) (3.4)Tax losses and othertiming differences 11.0 (5.4)Expenses notdeductible for taxpurposes 1.9 2.2Adjustments inrespect of prioryears (45.1) (5.6)------------------------------------------------------------------------------Group current tax (credit) charge (45.5) 5.7------------------------------------------------------------------------------ 7. Basic and diluted earnings per share IFRS Restated ------------- Weighted Underlying average number earnings per Earnings per of shares share* share m £m £m -------------- -------------- -------------- Basic earnings pershare Profit for theyear as shownon incomestatement 509.2 653.5 653.5 Exceptionalitem 180.0 Share of jointventures: Valuation gains (160.2) Property disposals (8.8) ----------- (169.0) Net valuationgains on: Investments (43.1) Property (549.9) Property disposals (16.3) ----------- (609.3) Taxation onthe above: Current (32.6) Deferred 161.5 ----------- 128.9--------------------------------------------------------------------------------------------------Earningsattributableto ordinaryshares 184.1 653.5--------------------------------------------------------------------------------------------------At 31 March2005 36.2 p 128.3 p-------------------------------------------------------------------------------------------------- Diluted earnings pershare Earningsattributableto ordinaryshares 509.2 184.1 653.5 Adjust todiluted onexercise ofshare options 10.0--------------------------------------------------------------------------------------------------Earningsattributableto ordinaryshares 519.2 184.1 653.5--------------------------------------------------------------------------------------------------At 31 March2005 35.5 p 125.9 p-------------------------------------------------------------------------------------------------- * Underlying profits are profits adjusted in line with the industry proposed earnings measure and adjusted for the exceptional refinancing of Broadgate. The industry proposed adjusted earnings measure excludes gains on asset revaluations and disposals and related taxation and the capital allowance effects of IAS 12 where applicable. 8. Investment, development and trading properties Investment, development and trading properties were valued, at the relevantcompanies year end, by external valuers on the basis of open market value,supported by market evidence, in accordance with the Appraisal and ValuationManual published by The Royal Institution of Chartered Surveyors: IFRS Restated ------------- 31 March 30 September 2005 2004 £m £m ---------- ---------- UnitedKingdom: ATIS REAL 10,801.7 9,547.1 Weatheralls FPD Savills 282.6 246.5Republic ofIreland: Jones Lang 68.6 49.8 LaSalleNetherlands: CB Richard 1.0 1.0 Ellis B.V.--------------------------------------------------------------------------------------------Total Group property portfolio valuation 11,153.9 9,844.4-------------------------------------------------------------------------------------------- Represented by:Investmentproperties 10,876.7 9,578.5Developmentproperties 212.4 196.2Tradingproperties atcost 35.9 36.0 ---------- ---------- Carrying valueof propertieson BalanceSheet 11,125.0 9,810.7Externalvaluationsurplus ontradingproperties 56.7 55.6Head leaseliabilities (27.8) (21.9)--------------------------------------------------------------------------------------------Total Group property portfolio valuation 11,153.9 9,844.4-------------------------------------------------------------------------------------------- Properties valued at £7,051.9m (September 2004: £6,513.3m) were subject to asecurity interest and other properties of non-recourse companies amounted to£41.9m (September 2004: £40.4m). Total property valuations includingshare of joint ventures £m £m --------- ---------British Land Group As disclosed 11,153.9 9,844.4 above Share of jointventures Investment 1,321.3 1,191.9 properties Development 3.6 0.3 properties Trading 25.3 26.5 properties at cost Finance lease 7.6 7.6 properties External valuation surplus on 2.4 2.7 trading properties External valuation surplus on 3.5 3.2 finance lease properties Head lease (10.7) (10.7)Related Shares:
British Land