24th May 2005 07:00
Shaftesbury PLC24 May 2005 SHAFTESBURY REPORTS FURTHER PROGRESS AT INTERIM RESULTS Shaftesbury PLC ("Shaftesbury") today announces its preliminary results for thesix months ended 31st March 2005. Shaftesbury owns and manages a portfolio ofproperty in London's West End focused in Carnaby, Covent Garden and Chinatown. Financial Highlights Six months ended Year ended 31.3.2005 31.3.2004 30.9.2004 Net property revenue £'000 21,261 19,618 40,178Adjusted profit before taxation* £'000 8,003 7,550 14,708Profit on ordinary activities before taxation £'000 7,255 7,550 15,324Profit on ordinary activities after taxation £'000 4,980 5,225 10,804 Adjusted basic earnings per share before pence 6.06 5.73 11.15taxation*Basic earnings per share after taxation pence 3.77 3.96 8.19Interim dividend per share pence 1.70 1.513 1.513Final dividend per share pence - - 2.90Property assets at book value £'000 833,432** 732,170** 825,580Shareholders' funds £'000 467,794** 388,507** 464,645Basic net asset value per share pence 354** 294** 352 * Adjusted to exclude exceptional costs and property disposal - see Note 9. ** Based on market value of investment properties at the previous year end - seeNote 1. Jonathan Lane, Chief Executive commented: "London remains in good health. It is the world's top city destination foroverseas visitors. The West End offers an unrivalled cluster of theatres,cinemas, world class galleries, historic sites, museums, shops and restaurantswhich together provide a unique experience for Londoners and domestic andoverseas tourists. Our three principal villages of Carnaby, Covent Garden and Chinatown have becomedestinations in their own right and together contribute to the West End's manyand diverse attractions. In contrast to the widely reported concerns of a slowdown in consumer spending,we are still seeing strong demand for our shops and restaurants and currentlettings are achieving rents higher than those reported at our last year end." For further information: Shaftesbury PLC City Profile Jonathan Lane, Chief Executive James Cooper Brian Bickell, Finance Director 020 7448 3244 020 7333 8118 Index 2 Chairman's Statement 8 Abridged Unaudited Group Cash Flow Statement6 Unaudited Group Profit and Loss Account 9 Notes to the Interim Results7 Abridged Unaudited Group Balance Sheet 13 International Financial Reporting Standards Chairman's Statement I am pleased to report an increase in underlying profits (profit on ordinaryactivities adjusted to exclude exceptional costs and property disposals) for thesix months to 31st March 2005 to £8.00 million, an increase of £0.45 million or6% over the profit of £7.55 million reported for the same period last year. After a surplus on a property disposal of £0.10 million and exceptional costsincurred in restructuring the Group's activities into four village subsidiariesin October 2004 (£0.29 million) and a loss realised on the purchase of £2.1million of debenture stock in March 2005 (£0.55 million), profit on ordinaryactivities before taxation amounted to £7.26 million (2004 - £7.55 million). After provision for current and deferred taxation of £2.28 million (2004 - £2.32million), profit after tax amounted to £4.98 million (2004 - £5.23 million). Your Directors have declared an interim dividend of 1.70 pence per Ordinaryshare (2004 - 1.513 pence), an increase of 12.4%, which will be paid on 24thJune 2005 to shareholders on the register at 3rd June 2005. Strategy Shaftesbury's clearly defined strategy is to invest only in the liveliestdistricts in the centre of London's West End. London is the world's top city destination for overseas visitors. It is Europe'slargest city and has a rising and multi-cultural population. London's West Endoffers an unrivalled cluster of theatres, cinemas, world class galleries,historic sites, museums, shops and restaurants which together provide a uniqueexperience for Londoners and domestic and overseas tourists. Our three principalvillages of Carnaby, Chinatown and Seven Dials Covent Garden have becomedestinations in their own right and together they contribute much to the WestEnd's many and diverse attractions. London generally is now benefiting from much increased investment in itsinfrastructure. Greater funding for street improvements, combined with areduction in weekday traffic, is enhancing the environment for visitors.Investment in public transport is providing better access to the West Endparticularly in the evenings and during weekends. Our investments offer significant opportunities to unlock potential, generatehigher rental income and increase capital values through careful andco-ordinated estate management. Our strategy is to foster and promote thecolourful palette of uses which is the essence of the West End's vibrancy. We have completed and let most of the shops, restaurants and offices which wererefurbished last year. Lettings of commercial space in the six months to 31stMarch 2005 totalled £2.87 million per annum. Whilst the current rental value ofour un-let commercial property is £3.00 million per annum, our emphasis in thefirst half of 2005 has been to prepare and start new refurbishments which, withan estimated rental value of £1.45 million, represent nearly 50% of these un-letproperties. In contrast to the widely reported concerns regarding a slowdown in consumerspending, demand for our shops and restaurants remains buoyant. At 30thSeptember 2004 these uses accounted for 69% of our income and current lettingsare achieving rents higher than those reported at our last year end. At 31stMarch 2005 the estimated rental value of vacant shop and restaurant space was£1.60 million per annum. This was divided between units under offer (£0.50million), under refurbishment (£0.50 million) and available to let (£0.60million). The latter included ten shops and one restaurant which, with theexception of two shops have now been either let or are under offer. Chairman's Statement (continued) The increase in office lettings noted in December has not continued into 2005.Whilst offices represent only 27% of our income, the estimated rental value ofour vacant space at 31st March 2005 was £1.40 million per annum. Of this, £0.45million (19,000 sq. ft.) was available to let, of which 20% was under offer.The balance of £0.95 million per annum (27,000 sq. ft.) is currently underrefurbishment or reconstruction and is due for completion within the next twelvemonths. Our experience is that the market for offices is more cyclical than for any ofour other uses. Offices are prone to periods of oversupply and the trend towardsshorter leases has increased risks for the landlord. Consequently, with theadded flexibility of smaller buildings, we continue to take every opportunity toconvert offices to shops, restaurants and other leisure uses as well as toresidential. Traditionally supply of these uses within the West End is limited,demand consistently stronger and obsolescence much reduced. Currently we haveseven such conversions in hand and we expect this trend to continue. In addition in October 2004 we sold 9,000 sq. ft. of unrefurbished upper flooroffices in Covent Garden to a residential developer realising proceeds of £3.37million producing a small surplus over the year end valuation. Carnaby Carnaby represents 43% by value of our property assets and includes almost 50%of our shops and 60% of our offices. In May 2005 we agreed the purchase of Lasenby House at £14.10 million. Thispredominantly freehold building, which currently comprises 25,000 sq.ft. offully let offices, fronts Kingly Street and Little Marlborough Street andadjoins seven of our shops on Fouberts Place and Carnaby Street. We see a numberof interesting opportunities for value enhancement in the medium term. Carnaby is now established with both retailers and shoppers as the leadinglocation in the West End for sports and fashion wear, particularly for thelaunch of new concepts and brands. Careful and targeted promotion has encouragedmany overseas retailers to choose Carnaby as their preferred location to launchin the UK. Our new projects for this year and next are focussed in two very distinct areas. Having secured vacant possession of a number of shops and cafes in BroadwickStreet between Marshall Street and Carnaby Street, we plan, over the next 18months, to reconstruct and extend those units and then to carry outenvironmental enhancements so that for the first time this area becomes fullyincorporated within the Carnaby village. The initial phase to extend the shopsand offices at the corner of Carnaby Street is under way. The first shops areexpected to be available in early 2006. In addition we are now refurbishing 25,000 sq. ft. of offices principallyfronting Kingly Street and Beak Street, which have become vacant followingcompletion of our retail projects on the lower floors. These office schemesrepresent over 90% of the Group's office refurbishments. We have always viewed physical regeneration as only the first and most costlyphase of our investment in Carnaby village. Now, through pro-active estatemanagement, we are stimulating changes to tenant mix and the range of brandsavailable to the shopper. In 2006 we will begin to see the benefits from thefirst rent reviews this year of the larger shops we created in the early phasesof our regeneration. Chairman's Statement (continued) Covent Garden Covent Garden represents 29% by value of our portfolio. We have successfullycompleted and let our recent retail refurbishments. Our largest project thisyear is to provide support and finance for an important initiative by CamdenCouncil and The Seven Dials Monument Charity to up-grade the whole of MonmouthStreet through widening of pavements, resurfacing the street with raised tablesfor pedestrian access and a new street lighting scheme. This will greatlyenhance the local environment and improve the flow and numbers of visitorsattracted to the area. We continue to explore in detail potentially interesting opportunities for alarger scheme centred on our Wellington House freeholds with a view tocrystallising our plans during this year and commencing work in 2006. We haveobtained further planning consents fronting both Mercer Street and Upper StMartin's Lane to increase retail areas by 4,300 sq. ft. and create an additional20 flats. Chinatown Chinatown represents 26% by value of our assets and includes 43% of ourrestaurants. Our restaurant project at 48 Gerrard Street is now fully let at above ourbudgets, reflecting the return of confidence by operators in the area. In co-operation with Westminster City Council, we are making good progresstowards implementing the improvements envisaged in the Chinatown Action AreaPlan of 2003. Westminster City Council is now taking a welcome initiative toprepare detailed designs for street improvements to Gerrard Street and LisleStreet. These should greatly enhance access and the environment for visitors toChinatown. We have also been granted further planning consents to extend andmodernise parts of our Estate. These include an extension to a prominentrestaurant at the corner of Gerrard Street and Macclesfield Street and alsoconsent to create an entirely new shopping courtyard in Horse and Dolphin Yardwhich until now has been a service area. This scheme will also enable us toopen access into neighbouring streets which in turn will offer furtheropportunities to improve our adjoining properties both in Gerrard Street andShaftesbury Avenue. Finance Reflecting the Board's active and flexible policy on finance, in March 2005 werefinanced part of the Group's long term debenture debt from existing resources.The purchase on beneficial terms of £2.10 million of debenture stock at a costof £2.74 million gave rise to a book loss of £0.55 million before tax relief butwill allow us to benefit from lower interest rates in the future. In May 2005 we purchased a further £10.26 million of debenture stock at a costof £13.94 million. This will result in a book loss in the second half of theyear of £3.21 million before tax relief. The Board will consider further refinancing of its debenture debt if both theterms of purchase and the cost of alternative finance offer a clear long termbenefit to the Group. We continue to monitor developments in the Government's proposals fortax-efficient vehicles for property ownership although it remains unclear atpresent the level of charges that would be levied on companies wishing to takeadvantage of any new tax structure. The restructuring of our portfolio into fourvillage subsidiaries completed in October 2004 will provide us with greaterflexibility for the future development of our business and in considering futureownership structures. Chairman's Statement (continued) Board appointment I am pleased to welcome Gordon McQueen to the Board as a non-executive Director.Gordon was formerly finance director of Bank of Scotland until its merger withHalifax, when he assumed responsibility for the banks' combined treasuryoperations until his retirement in 2003. His financial and banking experiencewill be a great advantage to the Board as structures for property ownershipscontinue to undergo change and development. Gordon has now assumed chairmanshipof the Audit Committee and will serve on the Remuneration and NominationCommittees. Outlook Although the occupational market for offices remains subdued, we are encouragedby the continuing strong demand we are seeing for our shops and restaurants.This buoyancy is underpinned by the growing numbers of visitors to the WestEnd's many and varied attractions. In addition to our recent purchases we have identified a number of interestingopportunities to add to our villages. Investment demand, particularly in ourlocations, continues to be strong and, if maintained, will clearly benefit thevaluation of our properties at the year end. We are confident that over the longterm the value our portfolio, with its exceptionally broad mix of uses, isunderwritten by its ability to continue to deliver rental growth. P John ManserChairman24th May 2005 Unaudited Group Profit and Loss AccountFor the six months ended 31st March 2005 Six months ended Year ended Note 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Turnover 2 26,156 23,823 48,707 Rents payable (16) (16) (31)Other property charges 3 (4,879) (4,189) (8,498) Net Property Revenue 21,261 19,618 40,178 Administrative expenses (1,868) (1,720) (4,375)Exceptional administrative expenses 4 (292) - - Operating Profit 19,101 17,898 35,803 Surplus on disposal of investment property 5 93 - 616 Profit Before Interest and Taxation 19,194 17,898 36,419 Net interest payable (11,390) (10,348) (21,095)Loss on purchase of debenture stock 6 (549) - - 7,255 7,550 15,324 Profit on Ordinary Activities Before TaxationTaxation 7 (2,275) (2,325) (4,520) Profit on Ordinary Activities After Taxation 4,980 5,225 10,804 Dividends 8 (2,240) (1,996) (5,816) Retained Profit for the Period 14 2,740 3,229 4,988 Earnings Per Ordinary Share based on: 9Adjusted profit before taxation - basic 6.06p 5.73p 11.15p - diluted 6.05p 5.72p 11.13p Profit before taxation - basic 5.49p 5.73p 11.62p - diluted 5.48p 5.72p 11.60p Profit after taxation - basic 3.77p 3.96p 8.19p - diluted 3.76p 3.96p 8.18p All operations relate to continuing activities. Abridged Unaudited Group Balance SheetAs at 31st March 2005 Note 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Fixed AssetsTangible assetsFreehold investment properties 10 833,432 732,170 825,580 Premises, equipment and vehicles 281 247 296 833,713 732,417 825,876 Current AssetsDebtors 11 11,635 9,411 13,040 Creditors falling due within one year 12 (27,760) (21,778) (26,794) Net Current Liabilities (16,125) (12,367) (13,754) Total Assets Less Current Liabilities 817,588 720,050 812,122 Creditors falling due after more than one yearBorrowings 13 (345,324) (327,393) (343,282) Provisions for liabilities and chargesDeferred taxation (4,470) (4,150) (4,195) 467,794 388,507 464,645 Share Capital and Reserves 14 467,794 388,507 464,645 Abridged Unaudited Group Cash Flow StatementFor the six months ended 31st March 2005 Six months ended Year ended Note 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Net Cash Inflow from Operating Activities 15 20,902 18,372 34,135 Returns on Investments and Servicing of FinanceInterest received 17 21 50Interest paid (10,606) (11,291) (22,016)Bank loan arrangement costs (102) (120) (122) Net cash outflow (10,691) (11,390) (22,088) TaxationCorporation tax paid (2,012) (1,281) (3,282) Capital Expenditure and Financial InvestmentAcquisition of investment properties (4,783) (1,808) (15,823)Expenditure on investment properties (4,728) (6,650) (11,120)Net proceeds of sale of investment property 3,373 - 1,387Net purchase of premises, equipment and vehicles (15) (46) (143) Net cash outflow (6,153) (8,504) (25,699) Equity Dividends Paid (3,823) (3,340) (5,333) Cash Outflow before use of Cash Resources and Financing (1,777) (6,143) (22,267) FinancingNet proceeds of shares issued for cash 64 434 548Drawdown of secured bank loans 4,460 5,709 21,719Purchase of debenture stock (2,747) - - Movement in Cash Balances - - - Notes to the Interim Results 1 Basis of Accounting The unaudited interim financial statements have been prepared on a basisconsistent with the statutory financial statements for the year ended 30thSeptember 2004. Investment properties are stated at their market value at 30th September 2004together with the cost of expenditure incurred during the period less thecumulative amount of rents recognised in advance in accordance with UITF28.Investment properties acquired during the period are stated at cost. The financial information for the periods ended 31st March 2005 and 2004 has notbeen audited or reviewed by the Company's auditors. The financial information inrespect of the year ended 30th September 2004 has been extracted from the fullGroup financial statements which have been delivered to the Registrar ofCompanies, and on which the report of the auditors was unqualified. 2 Turnover Six months ended Year ended 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Rents invoiced 24,123 20,235 42,067 Adjustment in respect of lease incentives in accordance (345) 1,576 2,361with UITF 28 Rents receivable 23,778 21,811 44,428Recoverable property expenses 2,378 2,012 4,479 26,156 23,823 48,707 3 Other property charges Property outgoings 2,501 2,177 4,219Recoverable property expenses 2,378 2,012 4,279 4,879 4,189 8,698 4 Exceptional administrative expenses Costs incurred in group restructure to create village 292 - -subsidiaries 5 Surplus on disposal of investment property Net proceeds of sales of property 3,373 - 1,387Book value at date of sale (3,280) - (771) 93 - 616 Notes to the Interim Results (continued) 6 Loss arising on purchase of debenture stock Six months ended Year ended 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Loss arising on the purchase and cancellation of £2.1 647 - -million (nominal) of 8.5% Mortgage Debenture Stock 2024Unamortised net premium written off (98) - - 549 - - 7 Taxation UK Corporation tax on revenue profit at 30% 2,000 2,000 4,150Deferred taxation:Provision in respect of timing differences 275 325 570 2,275 2,325 4,720Over provision in prior years:Deferred taxation - - (200) 2,275 2,325 4,520 8 Dividends Interim dividend of 1.70p (2004 - 1.513p) per share to be 2,240 1,996 1,993paid on 24th June 2005 Final dividend of 2.90p per share - - 3,823 2,240 1,996 5,816 The interim will be paid on 24th June 2005 to shareholders on the register atclose of business on 3rd June 2005 (ex-dividend date 1st June 2005). 9 Earnings Per Share The calculations of earnings per Ordinary Shareare based on: Adjusted profit on ordinary activities before 8,003 7,550 14,708taxationExceptional administrative expenses (292) - -Loss on purchase of debenture stock (549) - -Surplus on disposal of investment property 93 - 616 Profit on ordinary activities before taxation 7,255 7,550 15,324Taxation (2,275) (2,325) (4,520) Profit on ordinary activities after taxation 4,980 5,225 10,804 Weighted number of Ordinary Shares in issue '000 132,130 131,848 131,931Diluted number of Ordinary Shares in issue '000 132,332 132,076 132,146 Notes to the Interim Results (continued) 10 Freehold Investment Properties 31.3.2005 £'000 At 1st October 2004 - book value 825,580Acquisitions 4,783Expenditure on investment properties 6,004Disposal (3,280)At 31st March 2005 833,087 Movement in rents recognised in advance in period 345in accordance with UITF 28 At 31st March 2005 - book value 833,432 Comprises:Properties at market value at 30th September 2004 838,077plus additions and expenditure at costLess: Cumulative rents recognised in advance in (4,645)accordance with UITF 28 833,432 11 Debtors 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Amounts due from tenants 6,534 4,709 7,617Rents not yet due but recognised in advance in 4,645 4,205 4,990accordance with UITF 28Other debtors and prepayments 456 497 433 11,635 9,411 13,040 12 Creditors Falling Due Within One Year Rents invoiced in advance 10,060 8,858 9,948Dividend payable 2,240 1,996 3,823Corporation tax 2,508 2,371 2,520Capital expenditure accruals 5,600 2,661 4,359Other creditors and accruals 7,352 5,892 6,144 27,760 21,778 26,794 13 Borrowings Nominal Unamortised 31.3.2005 31.3.2004 30.9.2004 Value premium and issue costs £'000 £'000 £'000 £'000 £'000 8.5% Mortgage Debenture Stock 129,900 5,952 135,852 138,368 138,2092024Secured bank loans 210,183 (711) 209,472 189,025 205,073 340,083 5,241 345,324 327,393 343,282 Notes to the Interim Results (continued) 14 Share Capital and Reserves Share Profit and Premium Revaluation Loss Account Share Capital Account Reserve Total £'000 £'000 £'000 £'000 £'000 At 1st October 2004 33,022 119,575 259,175 52,873 464,645Ordinary shares issued during 17 47 - - 64periodInvestment property revaluation - - (161) 161 -surplus realised in periodAdjustment in respect of income - - 345 - 345recognised during the period inaccordance with UITF28 Retained profit for the period - - - 2,740 2,740 At 31st March 2005 33,039 119,622 259,359 55,774 467,794 During the period 69,274 Ordinary Shares of 25p each were issued fully paid inthe range £0.77 to £2.42 on the exercise of options granted under the Company's1987 and 1997 Share Option Schemes. 15 Net Cash Flow from Operating Activities Six months ended Year ended 31.3.2005 31.3.2004 30.9.2004 £'000 £'000 £'000 Net revenue from properties 21,261 19,618 40,178Administrative expenses (2,160) (1,720) (4,375)Depreciation (adjusted for profit/losses on disposal) 48 61 109Decrease/(increase) in debtors 1,405 (730) (4,366)Increase in creditors 348 1,143 2,589 20,902 18,372 34,135 16 Analysis of Changes in Net Debt Cash Non-cash items 1.10.2004 flows 31.3.2005 £'000 £'000 £'000 £'000 8.5% Mortgage Debenture Stock 2024 (138,209) 2,747 (390) (135,852)Secured bank loans (205,073) (4,358) (41) (209,472) (343,282) (1,611) (431) (345,324) 17 Interim Report The Interim Report will be posted to shareholders on 3rd June 2005. International Financial Reporting Standards All groups with capital listed on a stock exchange in the European Union arerequired to adopt International Financial Reporting Standards ("IFRS") foraccounting periods commencing on or after 1st January 2005. Shaftesbury'sresults for the year commencing on 1st October 2005 will be its first to beprepared under IFRS rather than UK Financial Reporting Standards (UK GAAP). The significant aspects of financial reporting that will be affected as a resultof adopting IFRS are summarised below together with a table setting outadjustments to reported net assets that would arise if IFRS were to be appliedat 31st March 2005. The principles underlying the changes have been discussedand agreed with the Group's advisors. However at this stage the detailedcalculations have not been audited. Further guidance, including changes in theformat of financial reporting required under IFRS will be provided with the 2005Annual Report. The changes identified below are based on the current interpretation of existingIFRS. It is possible that before the Group first prepares results under IFRS thestandards may be subject to changes or the basis on which they are applied tothe real estate sector will develop differently from current understanding. Revaluation surpluses and deficits reported in the Income Statement IAS 40, Investment Property, requires that the surplus or deficit arising on therevaluation of investment properties is reported in the Income Statement. UnderUK GAAP these surpluses or deficits are reported as a movement in revaluationreserve in the Statement of Recognised Gains and Losses unless any deficit beloworiginal cost is considered to be permanent. This change will have no impact on reported net assets. However the annualrevaluation movement will be reported in the Income Statement as part of theGroup's profit for the year. The cumulative surplus on revaluation will not bedistributable. Contingent tax on revaluation surpluses reported as part of the taxation charge IAS 12, Income Taxes, requires a provision to be made for the tax on capitalgains that would become payable if investment properties were sold at the valuesstated in the Balance Sheet. UK GAAP specifically prohibits this provision beingmade. In the situation where there is no present intention to sell the Group'sinvestment properties, the current interpretation of IAS 12 is that theprovision should be calculated at the basic rate of Corporation Tax ignoring anyindexation relief which is available under UK tax legislation or accumulatedcapital losses. Applying this interpretation, the provision required under IAS12is greater that the contingent liability previously disclosed (but not provided)under UK GAAP. The provision calculated under IAS 12, based on the investment propertyvaluations at 30th September 2004, would be £85 million. This compares with anestimated liability calculated under UK GAAP of £57.5 million after allowing forindexation relief and capital losses. The provision will not affectdistributable reserves. Accrual for costs to complete projects Under IFRS, costs in respect to projects in progress at a period end can beaccrued only to the extent of work actually completed to that date. Thiscontrasts with the Group's policy of accruing costs expected to be incurred inphysically completing projects. The effect of applying this basis of accounting is to reduce accruals toeliminate provision for the cost of works incurred after the period end up tocompletion. A similar amount will be deducted from the valuation of investmentproperties to reflect the costs to be incurred to complete projects in hand atthe valuation date, so that there will be no net effect on the Group'srevaluation surplus or net assets. International Financial Reporting Standards (continued) Lease incentives amortised over period to lease expiry SIC 15, Operating Leases - Incentives, requires lease incentives granted totenants at any time in the past to be spread over the term of the lease or tothe date of the first right to break the lease. Under UK GAAP, incentivesarising after 1st October 1999 are written off to the earlier of the first rentreview or expiry of the lease. The effect of spreading lease incentives over the longer period to the date ofthe first break under the tenant's lease is to increase the amount of incomerecognised in advance at 31st March 2005 by £2.10 million. The same adjustmentis deducted from the book value of investment properties, so there is no neteffect on reported net assets. A deferred tax liability of £0.63 million will arise in respect of theadditional income recognised. Property marketing and letting costs reported in the Income Statement IAS 40, Investment Property, classifies such costs as start-up costs and doesnot permit them to be capitalised. Currently the Group's accounting policy is tocapitalise such costs where they relate to the first letting of a propertyfollowing a major refurbishment. At 31st March 2005, the cumulative amount of such costs capitalised was £4.26million. Charging these costs in the Income Statement will reduce the historiccost of investment properties and increase the cumulative revaluation surplus byan equivalent amount, with no overall effect on reported net assets. Share option expense IFRS 2, Share-based Payment, requires an expense to be recognised in respect ofshare options granted after 7th November 2002. The charge is based on the fairvalue of the options granted and is spread over their vesting period. Accordingly, a provision is required in respect of options granted up to 31stMarch 2005 of £0.59 million. A deferred tax asset of £0.80 million arises as aresult of the basis on which tax relief will be available in respect of expensedshare options. Dividends not declared at the period end IAS 10, Events after the Balance Sheet Date, requires that dividends notdeclared at the balance sheet date are not recognised. Currently, dividendsproposed in respect of a reporting period are recognised as a liability at theend of that period. Eliminating the provision for the 2005 interim dividend which was not declareduntil 24th May 2005 increases reported net assets at 31st March 2005 by £2.24million. Recognition and measurement of financial instruments IAS 39, Financial Instruments: Recognition and Measurement, will require; i) a change in the basis on which the net premium on the issue of £132 million 8.5% Mortgage Debenture Stock is amortised from a straight line basis to a "yield to maturity" basis; ii) The inclusion in the financial statements of the fair value of the Group's financial instruments used to hedge interest rate exposure. The effect of a change in the basis of debenture premium amortisation is toincrease the book value of the outstanding debenture stock liability by £1.2million at 31st March 2005. A deferred tax asset of £0.36 million will arise asa result of reducing the amortised net premium credited to date in the profitand loss account. International Financial Reporting Standards (continued) Recognition and measurement of financial instruments (continued) In accordance with IAS 39, the 8.5% Mortgage Debenture Stock will continue to bereported at amortised historic cost rather than fair value. The current fairvalue will continue to be disclosed by way of note. The nature of the Group's interest rate hedging arrangements is such that theydo not qualify for hedge accounting under IAS 39 and therefore they will berecorded in the Balance Sheet at fair value and changes in fair value will berecorded in the Income Statement. The fair value of financial instruments at 31st March 2005 has been calculatedby external advisors at £6.13 million. The provision will give rise to adeferred tax asset amounting to £1.84 million. Summary of effects of IFRS on Reported Net Assets The effects on the Group's reported net assets at 31st March 2005 of applyingthe IFRS adjustments referred to above is as follows: Increase/(reduction) £'000 Reported net assets at 31st March 2005 calculated under UK GAAP 467,794Revaluation surpluses and deficits reported in the Income Statement No effectContingent tax on revaluation surpluses reported as part of the taxation charge (85,000)(based on valuations at 30th September 2004)Accrual for costs to complete projects No effectLease incentives amortised over period to lease expiry 2,100Less: Deferred tax liability (630)Property marketing and letting costs reported in the Income Statement No effectShare option expense (590)Deferred tax asset arising in respect of expensed share options 800Dividends not declared at the period end 2,240Recognition and measurement of financial instruments: (1,200)Adjustment to debenture stock amortisation 360Add: Deferred tax asset (6,130)Fair value of interest rate hedges at 31st March 2005 1,840Add: Deferred tax asset Net assets at 31st March 2005 calculated under IFRS 381,584 Other changes not affecting Shaftesbury Finance leases Under IFRS, leases granted which transfer substantially all the risks andrewards of ownership to tenants cannot be categorised as investment property andshould therefore be accounted for as finance leases. Leases in the Group'sportfolio have been reviewed and it has been concluded that none of leasesgranted to date by Shaftesbury fall within the definition of finance leases. Head lease liabilities IAS 17, Leases, requires that the liability to pay rent in respect of investmentleasehold properties is provided in full, based on the present value of minimumrental obligations. The liability calculated on this basis in respect ofShaftesbury's current leasehold investment properties is immaterial. International Financial Reporting Standards (continued) Cash flows and distribution policy The adoption of IFRS will have no impact on the underlying cash flows of theGroup although there will be changes in the presentation of the cash flowstatement prepared under IFRS. Changes in accounting under IFRS will not affect the Group's ability to continuewith its current progressive dividend policy. Taxation The Group taxation charge will reflect profits calculated and reported underIFRS. The tax effects arising from the conversion of the Group accounts to anIFRS basis will be recorded principally as deferred tax adjustments and will notsignificantly affect current tax liabilities. At present the parent andsubsidiary companies are expected to continue to prepare their accounts under UKGAAP and their actual tax liabilities will be calculated by reference to thoseaccounts. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SHB.L