Interim Results

27th Jul 2006 07:01

Liberty International PLC27 July 2006 27 July 2006 LIBERTY INTERNATIONAL PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 Attached is the full Interim Report for the six months ended 30 June 2006: HighlightsSummary of Investment and Development PropertiesChairman's StatementOperating and Financial ReviewInterim Results 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 1210Public relations:UK: Michael Sandler, Hudson Sandler +44 (0)20 7796 4133SA: Matthew Gregorowski, +44 (0)20 7457 2020 College Hill Associates Nicholas Williams, +27 (0)11 447 3030 College Hill Associates Background on Liberty InternationalLiberty 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 owns Capital Shopping Centres ("CSC"), the premier UKregional shopping centre business, and Capital & Counties, a retail andcommercial property investment and development company concentrating on CentralLondon, non-shopping centre retail in the UK and California, USA. 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. LIBERTY INTERNATIONAL PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2006 HIGHLIGHTS Sir Robert Finch, Chairman of Liberty International, commented: "Liberty International has continued its dynamic track record of growth with an8.1 per cent total return in the six month period increasing net assets pershare to 1268p on the property industry standard measure, equivalent to 1361p ifadjusted for notional acquisition costs deducted from market values. The quality and resilience of our market-leading UK regional shopping centrebusiness conducted through Capital Shopping Centres was demonstrated at ourestablished centres by 7.3 per cent growth in like-for-like net rental incomeand an occupancy level which improved in the period to an impressive 98.8 percent. The recently opened regional shopping centre developments, Chapelfield, Norwich,and the Northern Extension of Manchester Arndale, represent outstandingadditions. Our £1.2 billion development programme continues to gather momentum, with thethree largest components, in Cardiff, Oxford and Newcastle, all in primelocations extending existing established high quality retail destinations. Our financial position is robust with a debt to assets ratio further reduced inthe period to 39 per cent." 27 July 2006 A conference call for investors and analysts will take place at 9.30 a.m. UKtime on 27 July. HIGHLIGHTS (Continued) ------------------------------------------------------------------------------- Six months Six months ended ended Year ended 30 June 2006 30 June 31 December 2005 2005 ------------------------------------------------------------------------------- Net rental income £161.7m £143.8m £300.1m Profit before tax, valuationand exceptional items* £59.0m £54.4m £120.9m Profit before tax £490.5m £130.1m £526.9m Gain on revaluation and sale ofinvestment properties £258m £195m £565m Total properties £7,271m £7,070m Net assets(diluted,adjusted**) £4,465m £4,180m Basic earningsper share 104.7p 28.8p 114.8p Earnings pershare(adjusted***) 14.0p 13.3p 29.8p Dividend perordinary share 13.75p 13.0p 28.25p Net assets pershare(diluted,adjusted**) 1268p 1188p------------------------------------------------------------------------------- * See Analysis of profit before tax in Financial Review ** Adjusted for deferred tax in respect of revaluation surpluses and capital allowances, fair value movements on interest rate hedges, net of tax, and valuation surpluses on trading properties (see Financial Review), in accordance with UK property industry practice. Net assets per share (diluted, adjusted) would increase by 93p per share at 30 June 2006 (31 December 2005 - 90p) to 1361p (31 December 2005 - 1278p) if adjusted for notional acquisition costs (see Financial Review). Net assets per share (diluted, adjusted) would reduce by 44p at 30 June 2006 (31 December 2005 - 82p) if adjusted for the fair value of all financial instruments (see Financial Review). *** Adjusted for valuation and exceptional items and their tax effect (see note 12 to Interim Results), in accordance with UK property industry practice Unless otherwise stated, references to net assets per share are to net assetsper share (diluted, adjusted) and references to earnings per share are toadjusted earnings per share. HIGHLIGHTS (continued) • Gains on revaluation of investment properties of £235 million, with like-for-like increases for the six month period as follows: - UK regional shopping centres + 2.7% - Capital & Counties UK + 8.9% - Capital & Counties USA + 4.8% • Overall revaluation gain on UK regional shopping centres of £163 million of which 56 per cent came from yield shift of 8 basis points and the balance of 44 per cent came from underlying rental growth • £126 million disposals of investment properties at £23 million over 31 December 2005 market values • Substantial progress with £1.2 billion development programme - St David's 2, Cardiff - Westgate, Oxford - extensions to and upgrades of existing shopping centres - other retail and commercial assets of Capital & Counties • 98.8 per cent occupancy in established UK regional shopping centres, 97.5 per cent overall including recently completed developments (31 December 2005 - 98.5 per cent) • 7.3 per cent like-for-like net rental income growth in UK regional shopping centres, 4.7 per cent for Capital & Counties UK • Strong financial position with debt to assets ratio of 39 per cent • 8.1 per cent total return for the six month period (increase in adjusted net asset value plus dividends) DIVIDENDS The Directors of Liberty International PLC have announced an increased interimordinary dividend per share of 13.75p (2005 - 13.0p). The following are the salient dates for the payment of the interim dividend: Wednesday, 2 August 2006 Sterling/Rand exchange rate struck. Monday, 14 August 2006 Ordinary shares listed ex-dividend on the JSE, Johannesburg Wednesday, 16 August 2006 Ordinary shares listed ex-dividend on the London Stock Exchange. Friday, 18 August 2006 Record date for interim dividend in London and Johannesburg. Tuesday, 5 September 2006 Dividend payment day for shareholders (Note: Payment to ADR holders will be made on 15 September 2006). South African shareholders should note that, in accordance with the requirementsof STRATE, the last day to trade cum-dividend will be Friday, 11 August 2006 andthat no dematerialisation or rematerialisation of shares will be possible fromMonday, 14 August to Friday, 18 August 2006 inclusive.No transfers between the UK and South African registers may take place fromWednesday, 2 August to Sunday, 20 August 2006 inclusive. SUMMARY OF INVESTMENT AND DEVELOPMENT PROPERTIES Market Value Revaluation surplus Net rental income ------------------------- ---------------------- ----------------- 31 December 30 June 30 June 30 June 2005 2006 2005 2006 £m £m £m Increase £m £m IncreaseUK regional shopping centresLakeside 1,155.9 1,208.6 50.4 4.4%MetroCentre 930.0 957.2 23.8 2.6%Braehead 671.0 692.9 22.6 3.4%Other M25 1,002.1 1,014.2 12.4 1.2%Other centres 695.8 719.9 23.7 3.4% ------- ------- ------- ---------------Like-for-likeincome 4,454.8 4,592.8 132.9 3.0% 96.5 103.5 7.3% Other centres 1,244.5 1,285.8 20.6 1.6% 11.1 23.0 ------- ------- ------- ---------------Like-for-likecapital 5,699.3 5,878.6 153.5 2.7% 107.6 126.5 17.6% Acquisitionsand completions - 35.9 2.3 6.9% - 0.3Redevelopments 113.7 125.6 9.6 8.3% 3.0 2.7Developments 24.2 27.8 (2.0) - - ------- ------- ------- --------------- Total UK regionalshopping centres 5,837.2 6,067.9 163.4 2.8% 110.6 129.5 17.1% ------- ------- ------- ------ ------ Other UK propertiesLike-for-like income 539.1 589.5 49.5 9.2% 14.8 15.5 4.7% 44.0 46.3 2.3 5.3% - 1.0 ------- ------- ------- ---------------Like-for-likecapital 583.1 635.8 51.8 8.9% 14.8 16.5 Redevelopments 86.0 102.0 4.6 5.0% 3.1 2.0Developments - 0.1 (0.4) - -Disposals 102.9 - - 5.0 2.5 ------- ------- ------- --------------- Total other UK properties 772.0 737.9 56.0 8.2% 22.9 21.0 (8.3)% ------- ------- ------- --------------- US properties Like-for-like income 303.9 295.4 14.4 4.9% 8.6 9.6 6.9% 24.7 23.9 0.8 3.5% - 0.8 ------- ------- ------- --------------- Like-for-likecapital 328.6 319.3 15.2 4.8% 8.6 10.4 15.7% ------- ------- ------- --------------- Total investmentproperties 6,937.8 7,125.1 234.6 3.4% 142.1 160.9 13.2% ======= ======= ======= Trading properties 1.7 0.8 ---------------Net rental income 143.8 161.7 12.4% =============== Like-for-like income - Properties which have been owned throughout both periodswithout significant capital expenditure in either period, so both income andcapital values can be compared on a like-for-like basis. Like-for-like capital - Properties included in like-for-like income above, plusthose which have been owned throughout the current period but not the whole ofthe prior period, without significant capital expenditure in the current period,so capital values but not income can be compared on a like-for-like basis. Redevelopments - Properties which have previously been held as completedinvestment properties which may have been owned throughout the period but whichare undergoing, or have been earmarked for, substantial redevelopment such thatcapital values or income may have been affected. Percentage increases for the US have been adjusted for the effect of exchangerates. Property analysis by use and type Market Value ---------------------- 31 December 30 June Revaluation 2005 2006 % of total surplus £m £m properties IncreaseRegional shopping centres & other retailUK regional shopping centres 5,837.2 6,067.9 85.2% 2.8%UK other retail 354.4 380.6 5.3% 6.6%US regional shopping centres 130.8 129.5 1.8% 7.4%US other retail 137.9 133.3 1.9% 3.7% -------------------- --------Total regional shopping centres &other retail 6,460.3 6,711.3 94.2% 3.1% -------------------- -------- OfficeUK business space 417.6 357.3 5.0% 10.0%US business space 59.9 56.5 0.8% 2.7% -------------------- --------Total office 477.5 413.8 5.8% 8.9% -------------------- -------- Total investment properties 6,937.8 7,125.1 100% 3.4% ==================== ======== Analysis of other UK and US properties by location and type Market Market Value Value Revaluation surplus Net rental income ------------------- ----------------- 31 December 30 June 30 June 30 June 30 June 2005 2006 2006 2005 2006 £m £m £m Increase £m £mOther UK propertiesCentral London 408.1 397.0 40.0 11.2% 13.2 11.9Retail outsideLondon 170.5 179.9 7.1 4.2% 4.8 3.9Business spaceoutside London 193.4 161.0 8.9 5.8% 4.9 5.2 ----------------------------- ------------------Total other UKproperties 772.0 737.9 56.0 8.2% 22.9 21.0 ----------------------------- ------------------ US propertiesUS retail 268.7 262.8 13.7 5.3% 6.6 8.3US business space 59.9 56.5 1.5 2.5% 2.0 2.1 ----------------------------- -----------------Total US properties 328.6 319.3 15.2 4.8% 8.6 10.4 ----------------------------- -----------------Total properties 1,100.6 1,057.2 71.2 7.2% 31.5 31.4 ----------------------------- ----------------- UK investment property valuation data Six months Market Passing Net rental Value True equivalent yield rent income ERV --------------------- 30 June 31 December 30 June 30 June 30 June 30 June 2006 2005 2006 2006 2006 2006 £m £m £m £mUK regional shopping centresLakeside 1,208.6 5.06% 5.01%MetroCentre 957.2 5.16% 5.06%Braehead 692.9 5.25% 5.16%Other M25 1,014.2 5.29% 5.23%Other centres 2,005.7 5.52% 5.44% -------Like-for-likecapital 5,878.6 5.30% 5.22% 247.6 126.5 310.7Other 189.3 6.0 3.0 8.8 ------- ----------------------------Total UK regional shopping centres 6,067.9 5.32% 5.24% 253.6 129.5 319.5 ------- ---------------------------- Other UK propertiesCentral London 335.0 5.55% 5.14%Retail outsideLondon 156.2 5.68% 5.39%Business spaceoutside London 144.6 5.17% 5.01% -------Like-for-likecapital 635.8 5.49% 5.17% 33.4 16.5 35.6Other 102.1 3.7 4.5 10.0 ------- ----------------------------Total Other UKproperties 737.9 5.76% 5.23% 37.1 21.0 45.6 ------- ---------------------------- Definitions: Like-for-like capital See Summary of Investment and Development Properties. True equivalent yield Effective annual yield to a purchaser of rent receivable quarterly in advancefrom the assets individually at market value after taking account of notionalacquisition costs. Passing rent The group's share of contracted annual rents receivable at the balance sheetdate. This takes no account of accounting adjustments made in respect of rentfree periods or tenant incentives, the reclassification of certain leasepayments as finance charges or any irrecoverable costs and expenses, and doesnot include excess turnover rent, additional rent in respect of unsettled rentreviews or sundry income such as from car parks etc. As such passing rent cannotbe directly compared with net rental income shown in the Income Statement. Net rental income The group's share of net rents receivable as shown in the Income Statement. ERV (Estimated Rental Value) The external valuers' estimates of the group's share of the current annualmarket rent of all lettable space. Turnover rent Rent partly or wholly linked to tenants' annual sales normally comprising aminimum or base rent plus excess turnover rent. Acquisitions Properties acquired during the current period. Developments Properties under development and land which have not previously been held ascompleted investment properties. Disposals Properties which have been sold during the period. Net rental income in 2005also includes income from properties sold in 2005. CHAIRMAN'S STATEMENT Introduction Liberty International is a major UK FTSE-100 ranking listed property companywith shareholders' funds of nearly £4.5 billion and property assets now over£7.2 billion of which prime UK regional shopping centres amount to some 85 percent. The half year ended 30 June 2006 has seen substantial progress with acontinuation of our dynamic track record of growth. We have reported an 8.1 percent total return with an increase in net assets per share from 1188p to 1268pand a 5.3 per cent increase in underlying earnings per share to 14.0p. The quality and resilience of our UK regional shopping centre business conductedthrough Capital Shopping Centres ('CSC') was demonstrated at CSC's establishedcentres by 7.3 per cent growth in like-for-like net rental income and anoccupancy level which improved in the period to an impressive 98.8 per cent. CSC's recently opened regional shopping centre developments, Chapelfield,Norwich, and the Northern Extension of Manchester Arndale represent outstandingadditions to our business. Development Programme Our £1.2 billion development programme continues to gather momentum. The largest three components are all in prime locations extending establishedhigh quality retail destinations. At St. David's 2, Cardiff, we expect the mainconstruction contract to start on site at the end of the year. At Westgate,Oxford, we have now submitted a detailed application for planning permissionwith an anticipated start on site at year end 2007. The major enlargement ofEldon Square, Newcastle, is already underway. Active management of our centres is a key component of their continuing success- as they change to reflect shopping habits and demands. Accordingly theprogramme includes a large number of smaller projects where we seek to addincremental value to existing centres. An example of such a project is the conversion to restaurant use of the Pavilionbuilding which overlooks the lake at Lakeside, Thurrock. We are now on site withpractical completion programmed for 2007. The restaurants have been pre-let to avery strong line-up of restaurateurs. The project will create a major additionalattraction to strengthen further the important evening trade at our flagshipcentre which already successfully trades on weekdays from 10 a.m. until 10 p.m. The overall programme includes substantial regeneration activities of some £150million at Capital & Counties, our non-shopping centre business, where severalassets are currently non-income producing while they undergo redevelopment orrefurbishment. The programme includes promising projects such as the mixed-useredevelopment of the former Allders department store in The Headrow, Leeds, andin aggregate involves around 700,000 sq.ft. to be brought back into incomeproduction over the next few years. Disposals We achieved £126 million of office disposals in the period at a surplus of £23million over their 2005 market values thus freeing up financial resources forour development programme. These disposals were in line with our overallstrategy to focus on retail property which constitutes 94 per cent of ourbusiness. Our remaining office component is mostly in London's West End, as partof mixed-use buildings in locations with significant constraints on furthersupply. Valuations Our assets are revalued every six months by independent external professionalvaluers. A revaluation surplus on our investment properties of £235 million arose for thehalf year, representing an overall 3.4 per cent increase. Our established UKregional shopping centres increased by 2.7 per cent while Capital & Countiesrecorded a like-for-like increase of 8.9 per cent in the UK and 4.8 per cent inthe USA. Our prime regional shopping centres were valued at an average true equivalentyield of 5.22 per cent at 30 June 2006, a relatively conservative yield comparedwith other retail asset classes. By comparison, prime high street shops are nowvalued on yields around 4 per cent and prime retail parks have moved below the 4per cent mark. As we consider the rental growth prospects from our centres to beas good or better than high street shops or retail parks, we believe that, on arelative basis, our centres represent excellent value. The equivalent yield used by our valuers for our UK regional shopping centresreduced in the period from an average of 5.30 per cent to 5.22 per cent, a yieldshift of 8 basis points. The gap between current net rental income and thevaluers' higher estimate of the rental value of the centres limited the scopefor downward yield shift in the period; but does imply scope for future growthin Liberty International's net rental income assuming this gap is closed in duecourse through our rolling programme of rent reviews. Furthermore andencouragingly, nearly half the period's valuation uplift from these assets camefrom underlying rental growth. The valuation of CSC's assets has been carried out with limited evidenceavailable to the valuers of recent actual market transactions for prime UKregional shopping centres. Also, each asset is valued individually and theresult therefore takes no account of any additional value were the portfolio tobe considered as a whole. Furthermore, investment properties are valued afterdeducting notional acquisition costs, particularly stamp duty land tax at 4 percent in the UK, amounting in aggregate to £330 million, equivalent to 93p perLiberty International share. Each of these factors is relevant and overall theyadd significantly to the value of Liberty International. UK investment property market We are firm believers in the importance of specialisation in the propertybusiness as a key factor in long term success. However, as a specialist, one hasat times to endure periods when investors' attention moves elsewhere and othersectors are more in favour. UK office markets, after a long period of underperformance compared with otherproperty asset classes, particularly retail, are currently experiencing a sharpcyclical recovery and significant re-rating, particularly in Central London. Inour case, Capital & Counties' Central London assets appreciated by 11 per centin the six month period ended 30 June 2006. A marked downward shift in yields has been an important component of theexceptional returns recorded from UK real estate in the last few years. Thisprocess had strong foundations in its early phases as investors adapted and grewto accept lower and more stable long term interest rates in the UK; lookingforward, however, the likelihood is a less benign inflationary environment,particularly as a result of increased commodity prices. The UK investmentproperty market has to date been relatively unperturbed by the change in theinterest rate environment in the first six months of 2006. We have always adopted a prudent approach to debt financing and, while the debtcomponent of the group's capital structure is predominantly floating rate, it isbacked by interest rate swaps thereby achieving long term fixed rate finance ona flexible basis and immunising the group against rising interest rates. Thisperiod's Income Statement shows a surplus of £175 million on the revaluation ofthese financial instruments, reflecting the sharp upward movement in UK interestrates in the period, with the UK 10 year gilt yield increasing from 4.1 per centto 4.7 per cent. Retail Market Conditions We consistently remind investors that as a retail property company, not aretailer, our cash flows are underpinned by long term rental contracts which inthe UK at the present time predominantly have rent reviews every 5 years. Theencouraging 7 per cent growth in like-for-like net rental income from ourestablished centres was the result of progress with our rent reviews in thisperiod, particularly at Lakeside, Thurrock, The MetroCentre, Gateshead, and TheChimes, Uxbridge, in the latter case the first rent reviews since opening inMarch 2001. Non-food retail sales in the UK, which showed an unprecedented absolutereduction of 0.6 per cent in 2005 compared with 2004, have recovered to someextent in 2006, particularly in the last three months. Trade appears to haveimproved overall at our centres this year, although as ever with winners andlosers among our retail customers as the process of dynamic change in UKretailing unfolds. Notwithstanding last year's difficult market, retailers are generally continuingwith selective expansion plans and the early indications of retailer enthusiasmfor our attractive major developments are encouraging. However, the lettingmarket is likely to be challenging for the next few years as a number of majorUK city centre development projects, few of which are however directly competingwith CSC centres, are scheduled to open between now and the end of 2008. Our immediate priorities are to maintain the high level of occupancy within ourestablished centres and to complete lettings at Chapelfield, Norwich, andManchester Arndale. Beyond that point, we have no material development lettingexposure until the opening of St. David's 2, Cardiff in Autumn 2009 and of thelast and largest phase of the Eldon Square, Newcastle extension, also scheduledfor 2009. Mixed-use One pervading theme in UK property development at present is the move tomixed-use and higher density development. Braehead, Glasgow, with 1.2 miles of river frontage to the Clyde, is of coursean excellent example of mixed-use regeneration. In addition to the major retailand leisure offer of some 2 million sq.ft., including the recently opened460,000 sq.ft. Xscape indoor leisure scheme, we are now engaged in transforminga further 165 acres of additional derelict industrial land into a newresidential community which is expected to grow to a population of around 4,500people, together with 750,000 sq.ft. of offices and two new hotels. Braeheadcurrently provides employment for 4,500 people and this number is expected togrow significantly over the next few years. Recent and proposed shopping centre developments such as Norwich, Cardiff andOxford all contain a substantial residential component including an affordablehousing quota. We now have significant experience of the residential aspect ofdevelopment activity and, particularly with the additional skills availablewithin Capital & Counties, are fully equipped to deal with complex mixed-useprojects and to prosper in the changing planning environment. Management I would like to compliment our management team on the achievements of the sixmonth period; especially our property management teams which have maintainedsuch a high level of occupancy at our established UK regional shopping centres. I would also particularly like to record our great appreciation for the 33 yearsservice of John Saggers, Managing Director of Capital & Counties and anexecutive Board Director of Liberty International, who retires in October thisyear. We are pleased to have announced the appointment of Ian Hawksworth,formerly an executive director of Hongkong Land, who is returning to the UK andtakes up his role as Managing Director of Capital & Counties in September thisyear. Dividends The directors are recommending an interim dividend of 13.75p per share payableon 5 September 2006, an increase of 5.8 per cent on 2005. The directors remaincommitted to a progressive and relatively full dividend policy which theybelieve represents a major attraction for long-term investors. UK Real Estate Investment Trusts ('UK-REITS') The 2006 Finance Act containing the new REIT legislation has now been passed. Itprovides the UK with a tax-transparent property investment vehicle, a modelwhich has been satisfactorily in operation in other major jurisdictions for manyyears. While some detailed regulations are still awaited, the directors consider itlikely that it will be in the best interests of shareholders for LibertyInternational to convert with effect from 1 January 2007. A circular on thesubject will be sent to shareholders in the latter part of this year; thecircular will, inter alia, set out our dividend policy as a REIT. In the case of Liberty International, the charge for entry into the UK-REITregime, which has been set at 2 per cent of investment properties, would amountto some £136 million (39p per share) on the basis of market values at 30 June2006. This compares with our current liability for tax on capital gains, if ourUK assets were sold at market value, of around £630 million (179p per share). Prospects Our financial position is robust with a debt to assets ratio further reduced inthe period to 39 per cent. We have a strong and experienced management team withimmense enthusiasm to seize attractive opportunities to enhance our propertyactivities. The sheer quality, the stability and the resilience of our assets is quiteevident. These fundamentals will allow us in the years ahead to continue todeliver strong results to our shareholders. Sir Robert Finch Chairman 27 July 2006 OPERATING AND FINANCIAL REVIEW FOR THE SIX MONTHS ENDED 30 JUNE 2006 OPERATING REVIEW CAPITAL SHOPPING CENTRES ('CSC') Significant events in the first half of 2006 have been the completion of Phase 2of the Northern Extension, Manchester Arndale and Xscape, Braehead,Renfrewshire, Glasgow, both opening on 6 April. UK retailing continues to be a challenging activity within an ever morecompetitive environment. Consumers have become more conservative in theirapproach to spending, and retailers are facing continuous downward pressure onprices and intense competition from other retail formats and channels. Thecurrent leaders are investing both in physical space and online. Our quality portfolio, with 50 per cent of the UK's population within 45 minutesdrive time of our centres, continues to experience satisfactory retailer demandfor well configured space with occupancy levels excluding recently completeddevelopments continuing to be high at 98.8 per cent. The weighted average lengthof CSC's leases is nearly 10 years. Our active management approach has effected 33 tenancy changes in the first sixmonths of 2006 adding £0.6 million to annual rental income on a like-for-likebasis. Progress continues to be made on the major rent review programmes, in particularat Lakeside where the majority of the 2005 reviews have now been settled. Further settlements since the year end have been effected at MetroCentre,Uxbridge and Watford, in line with our expectations. We continue to work closely with local authorities and other stakeholderswherever we are represented in the UK; promoting education, training and othercommunity issues. We estimate over 46,000 people are directly employed at our UKshopping centres. The development programme at both completed centres and new sites extendingexisting prime locations gives considerable momentum to the company's long-termgrowth profile. CSC's successful active management focus continually responds to new retail andleisure trends initiated by both our customer groups; the retailer and theconsumer. This approach strengthens the quality of our product in primelocations, extending catchments and creating more attractive and compellingdestinations. Development activities in respect of completed shopping centres At Lakeside, Thurrock, the final phase of refurbishment of the centre, theremodelling of the Pavilion to provide ten new restaurants and further retailand leisure space, commenced on site in April this year. 76 per cent of thespace is committed and the project is due to complete in Summer 2007. At MetroCentre, Gateshead, our ongoing refurbishment of the malls hassuccessfully continued with completion of this year's programme on target forpre-Christmas trading. At Braehead, Renfrew, Glasgow, significant progress has been made since the yearend on the Phase 2 development comprising 165 acres. Xscape, our joint venturewith Capital & Regional opened in April, strengthening the Braehead destinationoffering sport experiences and other leisure activities such as bowling andspecialist retail together with cafes and restaurants. 95 per cent of the Xscapespace is committed. A further 40 acres of residential land is now in conditionalmissives for sale and a two acre site has been sold for the development of an80-bedroom hotel. A new Scottish headquarters for Spanish ceramics companyPorcelanosa is under construction. In addition, detailed planning consent hasbeen granted for a 35,000 sq.ft. office development adjacent to Xscape andconstruction will start later this year. At Eldon Square, Newcastle, two of our three schemes to improve and extend thecentre to a total of 1.3 million sq.ft. have commenced on site. Eldon SquareWest will provide 22,000 sq.ft. of retail and restaurant space overlooking OldEldon Square and 58 per cent of the income is currently committed. Constructionworks are on programme for completion this Autumn. Eldon Square North, ourproject to relocate the current bus station and provide 48,000 sq.ft. ofadditional retail space started on site in April this year and is due tocomplete, in phases between 2007 and 2008. Progress has also been achieved on the third and largest of the schemes, EldonSquare South, which will provide 410,000 sq.ft. of retail space and an agreementfor lease is expected to be completed shortly for the 175,000 sq.ft. departmentstore. This store, together with units currently under active negotiation,amount to 54 per cent of the scheme's anticipated rental income. The second phase of the 550,000 sq.ft. Northern Extension at Manchester Arndaleopened in April providing big floor plates and well configured space to meetretailer requirements, including the opening of the largest Top Shop in the UKoutside London. The final phase of the new development is on programme to openfor pre-Christmas trade. 87 per cent of the total floorspace in the extension iseither let or committed. On opening of the final phase the centre will provide1.4 million sq.ft. of retail space, the largest city centre shopping centre inthe UK. The first phase of our project to provide an additional 38,000 sq.ft. of retailspace at The Glades, Bromley has commenced on site. H&M have contracted tooccupy a 30,000 sq.ft. unit and are due to open in 2008. Negotiations with Watford Council to remodel the Charter Place site, adjacent toThe Harlequin are gathering momentum following the publication of the planningbrief for the site. In partnership with Prudential, the refurbishment of the Cribbs Causeway,Bristol, retail park has commenced on site with completion scheduled for earlyNovember. These works will create the opportunity to introduce new retailers,refreshing the tenant mix at this successful location. Our portfolio of quality centres in good catchments continues to offeropportunities to improve rental income and tenant mix through remodelling suchas at The Potteries, Stoke-on-Trent, where plans to provide four units for largespace users are progressing well. Following the successful opening of Chapelfield, Norwich, the fit-out of theresidential apartments which flank the shopping centre is underway, providingphased completions from September 2006 until spring 2007. Of the 117 apartments,28 have been allocated and sold for affordable housing, 70 apartments are to besold privately on long leases, and 19 will be retained by CSC and let on assuredshorthold tenancies. Progress on new centres In Oxford, the Westgate Partnership, our joint venture with LaSalle InvestmentManagement, continues to progress following the submission of a detailedplanning application in June. The proposals include the refurbishment andextension of the existing centre to around 750,000 sq.ft. In addition to a JohnLewis Partnership department store and around 90 shops, there are 127 citycentre homes, 50 per cent of which will be designated as affordable housing.Significant improvements to the surrounding environment will also add to theincreased vitality of this part of Oxford. Our joint venture with Land Securities Group PLC for a substantial extension tothe existing St. David's Centre in Cardiff is progressing well. The retailprovision of some 967,500 sq. ft. will be anchored by a John Lewis Partnershipdepartment store and will provide around 125 shops and restaurants. In additionover 300 new apartments will be created together with a state of the art civiclibrary of around 55,000 sq. ft. The scheme has detailed planning consent and a public inquiry for the CompulsoryPurchase Order took place in May. Enabling works are now underway withconstruction of the main scheme due to start at the beginning of 2007. Oncompletion, the new St. David's Centre will provide around 1.4 million sq. ft.of space, ranking it amongst the UK's largest city centre regional shoppingcentres. CAPITAL & COUNTIES UK Capital & Counties' focus in the first half of 2006 has been threefold,concentrating on property regeneration, disposals and new initiatives. We have made substantial progress in the six months in bringing forward our widerange of refurbishment and redevelopment projects. We have also taken advantageof the strong property investment market to make further disposals at verysatisfactory prices. Efforts have intensified to identify further value-addingopportunities both within the existing core property investments and within newacquisitions. Residential use is becoming an increasingly evident theme inpotential projects. Investment property values continued to improve during the half year both as aresult of rental growth expectations and further positive yield shift,particularly within London's West End. UK properties increased in value by £56million to £737.9 million at 30 June 2006, an increase of 8.9 per cent on alike-for-like basis. Central London offices and retail The vacancy rate in our West End and Mid-Town offices continues to reduce; atthe end of June only 4,500 sq.ft. was vacant and available to let whichrepresents only one per cent of our total office space in those locations.Average passing office rents in our West End properties are still only £27 persquare foot, a modest figure bearing in mind some recently reported lettings. We also have significant exposure to West End and Covent Garden retail propertyand have been very encouraged by the current rate of growth in Central Londonretail sales reported by the London Retail Consortium; for example, an increaseof 10.1 per cent in the March-May period of 2006 compared with 2005. If thismomentum continues, it should have a very positive effect on rental values. In the half year, we mounted a selective sales campaign for King's Reach on theSouth Bank, prompted by a number of unsolicited approaches for the property. Asale was achieved at £80 million, well in excess of last year's valuation.Notwithstanding this opportunistic disposal, our strategy remains to increasethe critical mass of investment within the West End and Mid Town retail andoffice markets and we are currently considering a number of new opportunities. Meanwhile planning consent was received for a revised scheme for the 110,000sq.ft. Wapping Riverside workspace refurbishment, a scheme aimed at the creativeindustries. In Hammersmith, the 110,000 sq.ft. office refurbishment at the MetroBuilding will complete mid-August when it will be formally launched. At 190,Strand, WC2, we are progressing a joint venture agreement with Prudential toenable this exciting redevelopment scheme to proceed in 2007. The consentpermits 200,000 sq.ft. of office and retail space as well as 44 apartments. Alsoin Central London, a planning application has been made for the redevelopment ofoffices and garaging at Old Court Place, London W8 to provide 6 town houses. We have also exchanged contracts for the purchase of 1.5 acres of primedevelopment land adjacent to the retail heart of historic riverside Greenwich,South East London. A mixed use scheme including 30,000 sq.ft. of retail and 120apartments is envisaged and we are in discussion with a residential developer inrespect of a potential joint venture. Retail outside London In Leeds, at The Headrow, negotiations have been conditionally concluded toenable us to carry out the major retail, office and residential schemeoriginally envisaged. Substantial preparatory work has already been carried outand we anticipate that the main refurbishment and redevelopment work will startin the Autumn. The scheme has been renamed 'Broad Gate', a name drawn from theheritage of the location. Further progress has also been made in working up schemes for redundant spacewithin the department stores at Liverpool and Manchester where residentialconversions and the provision of creative workspace are envisaged. Following the sale of land in 2005 at Junction 15 of the M40 at Warwick planningconsent has been received for commercial development on the remaining 5 acres ofland. We intend to sell this land when appropriate. Offices outside London We are gradually reducing our exposure to this sector and in March sold threeproperties totalling 174,000 sq.ft. in Slough, Portsmouth and Cheshunt. Totalrealisation was £47 million, £2.6 million in excess of the 31 December 2005market value. Other disposals are envisaged in due course in order to recyclethe capital into Central London investments, retail property throughout the UKand development opportunities. USA The investment property valuation at the half year has resulted in a verysatisfactory increase of 4.8 per cent on a like-for-like basis compared with 31December 2005. Overall, initial yield on the US investment portfolio is anattractive 6.2 per cent. Asset management activities continue. Of particular interest is an initiative tocreate an overall master plan for Serramonte Shopping Center where substantialland area on the 80 acre site is underutilised. The purpose of the master planwill be to inform and assist discussion with the city planners as we movetowards creating further added value at this property. Construction projects are advancing on schedule at the Trio Apartmentsresidential development in Pasadena and the Willows Shopping Center in the SanFrancisco Bay area. Trio Apartments remains on schedule for completion in thesecond half of the year and the leasing of the initial phases continues on plan.The new retail building at the Willows is proceeding with completion scheduledin November of this year. Leasing progress during the first half of the year was excellent, the highlightsof which are new leases covering 14,000 sq.ft. on the top floor of 222 SutterStreet, San Francisco, 7,000 sq.ft. at the Willows, 7,000 sq.ft. at PlazaEscuela, Walnut Creek, and 16,000 sq.ft. of new tenancies at Serramonte. FINANCIAL REVIEW INCOME STATEMENT Analysis of profit before tax------------------------------- Increase Six months Six months ended ended 30 June 2006 30 June 2005 £m £m Underlying profit before tax 8.4% 58.3 53.8Property trading profits 0.7 0.6 ---------- --------- Profit before tax, valuationand exceptional items 8.5% 59.0 54.4 Gains on revaluation and saleof investment properties 258.0 195.2Movement in fair value of derivative financialinstruments 175.5 (114.3)Exceptional items (2.0) (5.2) --------- ---------Profit before tax 490.5 130.1 ---------- --------- Underlying profit before tax increased by 8.4 per cent to £58.3 million from£53.8 million reflecting rent reviews and interest savings, offset in part bythe impact of active management and disposals all of which are discussed in moredetail below. Trading profits of £0.7 million showed a small increase over the level achievedin 2005. Overall profit before tax, valuation and exceptional items thereforeincreased by 8.5 per cent from £54.4 million to £59.0 million. In addition to exceptional items, material items which need to be disclosed byvirtue of their size or incidence, reported profit before tax includes otheritems which are unpredictable by their nature, such as revaluation gains oninvestment properties and the movement in fair value of derivative financialinstruments. These items can have a significant impact on the presentation andinterpretation of the revenue results. In order to compare one period withanother, the results have been analysed above to show the effect of these items. Revaluation movements on investment properties, other than on first timedevelopments, are presented in the Income Statement rather than in therevaluation reserve. Commentary on this movement is dealt with below underInvestment Properties. Also the fair value of derivative financial instrumentsis included in the Balance Sheet and the movement in fair value of derivativefinancial instruments is included in the Income Statement. Inclusion of theseitems can create considerable volatility in the Income Statement and hasparticular significance for Liberty International because of our chosen methodof financing which employs a small proportion of fixed rate finance but usesderivative financial instruments to fix interest rates on the more flexiblefloating rate funding which forms the greater proportion of our debt. This gives the group the desired certainty over future cash flows combined witha debt structure which enables early repayment without necessarily incurring thesignificant penalties that can be associated with the early repayment of fixedrate debt. The separation of the fixed and floating elements in this way hasenabled us to benefit from reduced margins, through the early refinancing ofnon-recourse facilities secured on our major shopping centres, in a way whichwould not have been possible had the original financing been on a fixed ratebasis. Over the period to 30 June 2006, interest rates in general increased and inparticular the ten-year sterling interest rate swap, which represents a suitablebenchmark for the group's fixed rate obligations, increased from 4.45 per centto 5.05 per cent. As a result the fair value of the group's derivative financialinstruments, which are outlined in more detail below under Maturity and InterestRate Profile of Debt, improved by £175.5 million and this movement has beenreported in the Income Statement. Of this movement £12.7 million wasattributable to the £350 million of interest rate swaps contracted around andjust after the 2005 year end when rates were at historic lows. The fair value of financial instruments is extremely sensitive to movements ininterest rates. An increase of around 0.40 per cent in swap rates would besufficient to eliminate the £107 million negative fair value shown in thebalance sheet at 30 June 2006 while such a rise in interest rates would have aminimal impact on the group's financing cash flows. Exceptional items in the period to 30 June 2006 primarily comprised theunamortised costs of the original bank facility secured on The Glades, Bromleyand The Chimes, Uxbridge which were written off when this facility was repaidearlier in the period. Further commentary on the impact of financings isincluded below under the section net interest payable. Profit before tax increased to £490.5 million from £130.1 million, largely as aresult of the substantial increase in the revaluation gain on investmentproperties and the reversal in respect of the fair value of derivative financialinstruments. Net rental income increased to £161.7 million from £143.8 million. The increasehas two components, like-for-like growth and acquisitions and completions, netof disposals. Like-for-like growth, calculated in respect of 77 per cent ofproperties by value, was 6.9 per cent. UK regional shopping centres provided like-for-like growth of £7.0 million (7.3per cent) primarily from the favourable rent reviews at Lakeside, MetroCentre,Uxbridge and Watford. A further £11.9 million increase in net rental income camefrom the impact of acquisitions in 2005, where income had only been received forpart of the comparative period, and centres where there had been substantialcapital expenditure so again income in the two periods is not directlycomparable. Other UK properties contributed 4.7 per cent like-for-like growth. However,property sales and the effect of medium and longer-term refurbishment orredevelopment activity resulted in an overall reduction in net rental income of£1.9 million. The US properties showed like-for-like growth of 6.9 per cent. Interest payable increased to £90.7 million from £84.9 million and interestreceivable reduced to £2.9 million from £7.6 million. The increase of £10.5million in net interest payable reflects expenditure on property acquisitions;interests in Manchester Arndale and The Mall at Cribbs Causeway during the firsthalf of 2005 and the completion of Chapelfield, Norwich and an increasedinterest in Eldon Square, Newcastle in the second half. The interest charge benefited from savings generated by the three majornon-recourse refinancings undertaken in the first half of 2005 and from theconversion of £129 million of 3.95% convertible bonds into 16 million ordinaryshares at the end of 2005. In April 2006 the £208 million loan secured on The Glades, Bromley and TheChimes, Uxbridge was replaced with separate ten-year loans initially amountingto £252 million with a further £80 million available when the current round ofrent reviews are complete at The Chimes. This increased debt was achieved whileat the same time securing a saving in margin. In May 2006, we completed a £212million ten-year loan secured on Chapelfield, Norwich. The movement in net debt and available facilities is commented upon furtherunder Financial Management. The underlying tax charge, before valuation and exceptional items and beforedeferred tax on capital allowances amounted to 20.5 per cent (2005 - 22.4 percent). The low tax charge was primarily due to the benefit of capital allowancesand tax relief for capitalised interest. Provision for tax on valuation and exceptional items and deferred tax in respectof capital allowances increased the group's reported tax charge to 28.2 per cent(2005 - 29.5 per cent). Basic earnings per share increased to 104.7p from 28.8p. Earnings per share(adjusted) increased by 5.3 per cent to 14.0p from 13.3p. The interim dividend per share increased by 5.8 per cent to 13.75p per share. NET ASSETS Net assets per share ---------------------- As at As at 30 June 31 December 2006 2005 £m £mBasic net asset value 3,249.0 2,933.1Effect of dilution:On conversion of bonds 107.0 105.4On exercise of options 14.0 17.9 ---------------- -------------- Diluted net asset value 3,370.0 3,056.4Adjustments:Fair value of derivative financialinstruments (net of tax) 75.1 194.4 Deferred tax on revaluation surpluses 893.5 817.4Deferred tax on capital allowances 96.7 95.7Unrecognised surplus on trading properties(net of tax) 29.7 16.4 ----------------- -------------- Diluted adjusted net asset value 4,465.0 4,180.3 ------------------ ------------- Basic net assets per share from IFRSbalance sheet 966 p 875 p ------------------ ------------Net assets per share (diluted, adjusted) 1268 p 1188 p ------------------- ------------ Basic shares in issue used for calculation 336.4 m 335.4 mDiluted shares used for calculation 352.2 m 352.0 m Net assets increased to £3,249 million from £2,933 million. Net assets (diluted,adjusted) increased to £4,465 million from £4,180 million and net assets pershare (diluted, adjusted) increased to 1268p from 1188p, mostly as a result ofthe gains on revaluation and sale of investment properties arising during theperiod. Net assets per share (diluted, adjusted) is arrived at after adding back the IAS12 provision for deferred tax on property revaluation surpluses and theadjustment in respect of fair value of derivative financial instruments. Two further potential adjustments are often made in order to arrive at the UKindustry measure referred to as triple net assets per share. The first relatesto the fair value of financial instruments, which includes all financialinstruments and not just derivatives. The fair value adjustment fornon-derivative financial instruments (note 10) amounts to 23p per share aftertax (31 December 2005 - 27p) and the adjustment for derivative financialinstruments equates to 21p per share after tax (31 December 2005 - 55p). The sumof the above potential adjustments is a deduction from net assets per share(diluted, adjusted) of 44p (31 December 2005 - 82p). The second potential adjustment is the provision for deferred tax which,calculated on a disposal basis (note 5) rather than the basis reported underIFRS, would amount to £671 million (31 December 2005 - £642 million) or 191p pershare (31 December 2005 - 182p). However, this amount is undiscounted and takesno account of the savings that may be available depending on how sales arestructured. This potential adjustment would reduce to around 50p per share ifLiberty International becomes a REIT, taking into account overseas propertieswhich are not covered by the UK tax exemptions, and the expected entry charge ofaround £136 million (39p per share). Investment properties increased to £7,125 million from £6,938 million atDecember 2005. Additions amounted to £62 million, comprising primarilyexpenditure on development and refurbishment activity across the portfolio. Themovements during the period are summarised in the table below: Analysis of movement in investment properties----------------------------------------------- £mInvestment properties at 31 December 2005 6,938Additions 62Disposals (103)Foreign exchange and other movements (24)Valuation surplus on investment properties 237Valuation surplus on developments 15 --------Investment properties at 30 June 2006 7,125 -------- The aggregate valuation surplus arising in the period to 30 June 2006 amountedto £252 million. Investment properties are valued after deducting notional acquisition costsincluding stamp duty amounting in aggregate to £330 million (31 December 2005 -£318 million), equivalent to 93p per Liberty International share (31 December2005 - 90p). These notional costs assume each asset is sold individually on theopen market at that date and take no account of the structures through which theassets are held within the Liberty International group. In the case of Liberty International, the purchase and sale of shares is thepredominant mode of exchange of ownership and value for shareholders, not thesale of each underlying individual property. If these notional acquisition costswere added back, net assets (diluted, adjusted) would amount to £4,795 million(2005 - £4,498 million) and net assets per share (diluted, adjusted) wouldamount to 1361p (2005 - 1278p) compared with the reported figure of 1268p (2005- 1188p). FINANCIAL MANAGEMENT Movement in Net Debt and Bank Facilities Cash balances increased by £47 million from £71 million at 31 December 2005 to£118 million at 30 June 2006 while gross borrowings reduced by £7 million to£2,977 million. The resulting small movement in net debt during the period isbroadly explained by the table below: Analysis of movement in net debt---------------------------------- Net debt £mOpening net debt (note 9) 2,913Additions to investment properties 62Disposals of investment properties (126)Other 10 --------Closing net debt (note 9) 2,859 -------- At 30 June 2006 the group had committed undrawn medium-term bank facilities of£585 million. Financial Ratios The group's main internal constraints are that, at currently prevailing propertyyields and interest rates, interest cover, measured before valuation andexceptional items and adjusting for the amortisation of convertible debt, shouldbe maintained at a level in excess of 1.6 times and debt to assets at less than50 per cent. On these measures, interest cover for the period ended 30 June 2006remained at around 1.7 times and the ratio of net debt to assets reduced to 39per cent at 30 June 2006 from 40 per cent at 31 December 2005, in each casewithin the group's internal constraints. Maturity and Interest Rate Profile of Debt The group's policy is to eliminate substantially all exposure to short andmedium-term interest rate fluctuations in order to reduce the variability ofcash flows. During the period short-term interest rates in the UK remainedunchanged at 4.50 per cent. However, the market in longer-term sterling swapsreflected expectations for interest rates to rise and the ten-year sterlinginterest rate swap increased by over 0.60 per cent to 5.05 per cent over thesame period. The table below summarises the interest rate swaps in place at 30 June 2006compared with 31 December 2005. As reported at the year end, the level of fixedrate protection was increased early in 2006, extending protection beyond thecurrent maturity of existing floating rate facilities. Interest rate swap summary---------------------------- Notional principal Average rate ---------------------- ---------------------- 30 June 31 December 30 June 31 December 2006 2005 2006 2005 £m £mIn payment after:2006 2,501 2,462 5.33% 5.36%2011 2,907 3,125 5.20% 5.29%2016 1,800 1,780 4.78% 4.97%2021 1,475 1,175 4.65% 4.86%2026 1,475 1,175 4.65% 4.86% Over the next ten years substantially all interest payments, including those inrespect of debt which is expected to arise as a result of committed capitalexpenditure, are at fixed rates. However, as capital expenditure on potentialdevelopments becomes more probable the level of hedging will be addressed inline with the group's interest rate hedging policy. The weighted average maturity of debt is 8 years, the weighted average leasematurity 9 years and the weighted average interest cost of group debt at 30 June2006 was 6.1 per cent (5.8 per cent excluding the £230 million of Capital andCounties' First Mortgage Debenture Stocks 2021 and 2027 which were issued in adifferent interest rate environment in the late 1980s and early 1990s). 27 July 2006 Independent review report to Liberty International PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated interimbalance sheet as at 30 June 2006 and the related consolidated interim statementsof income, cash flows, statement of recognised income and expense and therelated notes for the six months then ended. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLP Chartered Accountants London 27 July 2006 Notes: (a) The maintenance and integrity of the Liberty International PLC website isthe responsibility of the directors; the work carried out by the auditors doesnot involve consideration of these matters and, accordingly, the auditors acceptno responsibility for any changes that may have occurred to the interim reportsince it was initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation anddissemination of financial information may differ from legislation in otherjurisdictions. CONSOLIDATED INCOME STATEMENT (Unaudited) For the six months ended 30 June 2006 Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 Notes £m £m £m Revenue 2 246.8 202.5 434.3 --------------------------------- Rental income 244.2 201.1 417.1Rental expenses (82.5) (57.3) (117.0) --------------------------------- Net rental income 161.7 143.8 300.1 Other income 0.3 1.3 14.2Gain on revaluation and sale ofinvestment properties 3 258.0 195.2 565.5 --------------------------------- 2 420.0 340.3 879.8 Administration expenses (15.2) (13.4) (29.2) ------------------------------- Operating profit 404.8 326.9 850.6 Interest payable 4 (90.7) (84.9) (171.7)Interest receivable 2.9 7.6 7.5Exceptional finance costs 4 (2.0) (5.2) (13.7)Change in fair value of derivativefinancial instruments 175.5 (114.3) (145.8) -------------------------------- Net finance costs 85.7 (196.8) (323.7) -------------------------------- Profit before tax 490.5 130.1 526.9 Current tax on ordinary items (18.6) (12.8) (25.5)Deferred tax on ordinary items 5 (120.3) (26.8) (139.8)Tax on exceptional items 0.5 1.2 4.7 -------------------------------- Taxation charge (138.4) (38.4) (160.6) -------------------------------- Profit for the period attributableto equity shareholders 352.1 91.7 366.3 -------------------------------- Ordinary dividends - paid and proposed 46.3 41.6 98.8 - pence per share 13.75p 13.00p 28.25p -------------------------------- Basic earnings per share 12 104.7p 28.8p 114.8pDiluted earnings per share 12 101.0p 27.8p 107.4p -------------------------------- Adjusted earnings per share are shown in note 12 CONSOLIDATED BALANCE SHEET (Unaudited) As at 30 June 2006 As at As at As at 30 June 31 December 30 June 2006 2005 2005 Notes £m £m £m Non-current assetsInvestment property 6 7,097.2 6,913.6 6,167.1Development property 6 27.9 24.2 56.7 ---------------------------------- 7,125.1 6,937.8 6,223.8Plant and equipment 0.7 0.6 1.0Trade and other receivables 8 61.0 65.7 57.8 ---------------------------------- 7,186.8 7,004.1 6,282.6Current assetsTrading property 7 146.4 132.6 128.1Trade and other receivables 8 70.7 78.7 84.3Investments 14.0 3.0 -Cash and cash equivalents 117.7 70.8 163.4 --------------------------------- 348.8 285.1 375.8 ---------------------------------Total assets 7,535.6 7,289.2 6,658.4 --------------------------------- Current liabilitiesTrade and other payables (186.4) (212.4) (181.7)Tax liabilities (17.1) (10.0) (13.8)Borrowings, including financeleases 9 (64.8) (173.5) (26.9)Derivative financial instruments (13.1) (21.6) (11.2) ---------------------------------- (281.4) (417.5) (233.6)Non-current liabilitiesBorrowings, including financeleases 9, 10 (2,911.7) (2,810.2) (2,830.1)Derivative financial instruments (94.2) (259.5) (236.5)Deferred tax provision 5 (981.1) (856.2) (745.6)Other provisions (7.7) (6.8) (19.8)Other payables (10.5) (5.9) (1.7) ---------------------------------- (4,005.2) (3,938.6) (3,833.7) ----------------------------------Total liabilities (4,286.6) (4,356.1) (4,067.3) ----------------------------------Net assets 3,249.0 2,933.1 2,591.1 ----------------------------------EquityCalled up share capital andreserves 13 3,249.0 2,933.1 2,591.1 ---------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE (Unaudited) For the six months ended 30 June 2006 Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Profit for the period 352.1 91.7 366.3Actuarial losses on defined benefit pensionschemes - - (2.6)Surplus/(deficit) on revaluation ofdevelopment properties 17.0 1.2 (15.7)Tax on items taken directly to equity (5.1) (0.4) 5.5Net exchange translation differences andother movements (2.2) 0.5 (0.1) -------------------------------- Total recognised income and expense for theperiod 361.8 93.0 353.4 -------------------------------- A summary of changes in group equity is shown in note 13. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Cash flows from operating activitiesOperating profit before exceptional items 404.8 326.9 850.6Adjustments for non-cash items:Unrealised net revaluation gains oninvestment properties (234.6) (195.2) (562.9)Profit on sale of investment properties (23.4) - (2.6)Depreciation and amortisation 0.2 0.3 0.8Amortisation of lease inducements and otherdirect costs (0.1) 2.5 (4.6) --------------------------------- Cash flows from operations before changesin working capital 146.9 134.5 281.3Change in trade and other receivables 5.5 (14.5) (24.2)Change in trading properties 8.4 (15.7) (18.1)Change in current asset investments (11.0) - (3.0)Change in trade and other payables 4.7 4.9 17.1 --------------------------------- Cash generated from operations 154.5 109.2 253.1Interest paid (113.7) (80.0) (168.2)Interest received 1.9 6.2 9.7Tax paid (8.4) (14.3) (24.5) --------------------------------- Cash flows from operating activities 34.3 21.1 70.1 --------------------------------- Cash flows from investing activitiesPurchase and development of property (66.1) (688.1) (1,081.5)Sale of property 126.0 - 43.7Purchase of interests in joint ventures andsubsidiary companies - (6.1) -Increase in long term loans receivable,before amortisation - (0.3) - --------------------------------- Cash flows from investing activities 59.9 (694.5) (1,037.8) --------------------------------- Cash flows from financing activitiesIssue and repurchase of shares 5.3 7.4 10.1Borrowings drawn 471.0 1,694.7 1,944.8Borrowings repaid (472.4) (1,259.4) (1,268.9)Equity dividends paid (51.2) (44.7) (86.3) --------------------------------- Cash flows from financing activities (47.3) 398.0 599.7 --------------------------------- Net increase/(decrease) in cash and cashequivalents 46.9 (275.4) (368.0)Cash and cash equivalents at 1 January 70.8 438.8 438.8 --------------------------------- Cash and cash equivalents at closing 117.7 163.4 70.8 --------------------------------- NOTES TO THE ACCOUNTS (Unaudited) 1. Basis of preparation The Interim Report is unaudited and does not constitute statutory accountswithin the meaning of s240 of the Companies Act 1985. The statutory accounts for2005, which were prepared in accordance with International Financial ReportingStandards, as endorsed by the European Union ("IFRS"), and with those parts ofthe Companies Act 1985 applicable to companies reporting under IFRS, have beendelivered to the Registrar of Companies. The auditors' opinion on these accountswas unqualified and did not contain a statement made under s237 (2) or s237(3)of the Companies Act 1985. The financial information comprises the consolidated balance sheets as at 30June 2006 and 30 June 2005 and 31 December 2005 and related consolidatedstatements of income, cash flow and recognised income and expense and therelated notes for periods then ended hereinafter referred to as 'financialinformation'. The financial information has been prepared in accordance with the Listing Rulesof the Financial Services Authority and the principal accounting policies setout on pages 34 and 35 of the Annual Report 2005 dated 15 February 2006 which isavailable on the company's website (www.liberty-international.co.uk). It hasbeen prepared under the historical cost convention as modified by therevaluation of properties, available for sale investments and financial assetsand liabilities held for trading. 2. Segmental analysis Six months ended 30 June 2006 --------------------------------------------- UK Other Other Group Shopping Commercial Activities Total Centres Properties £m £m £m £m --------------------------------------------Revenue 200.4 46.4 - 246.8 -------------------------------------------- Rental income 199.3 44.9 - 244.2 Rental expense (69.8) (12.7) - (82.5) -------------------------------------------- Net rental income 129.5 32.2 - 161.7 Property trading profits 0.3 0.4 - 0.7Other income - 0.2 (0.6) (0.4)Gain on revaluation and sale ofinvestment properties 163.5 94.5 - 258.0 --------------------------------------------Segment result 293.3 127.3 (0.6) 420.0 -------------------------------------------- Six months ended 30 June 2005 -------------------------------------------- UK Other Other Group Shopping Commercial Activities Total Centres Properties £m £m £m £m ------- -------- -------- -------- Revenue 154.4 47.3 0.8 202.5 -------------------------------------------- Rental income 154.4 46.7 - 201.1 Rental expense (43.9) (13.4) - (57.3) -------------------------------------------- Net rental income 110.5 33.3 - 143.8 Property trading profits - 0.6 - 0.6Other income - (0.1) 0.8 0.7Gain on revaluation and sale ofinvestment properties 159.7 35.5 - 195.2 --------------------------------------------Segment result 270.2 69.3 0.8 340.3 -------------------------------------------- Year ended 31 December 2005 -------------------------------------------- UK Other Other Group Shopping Commercial Activities Total Centres Properties £m £m £m £m -------------------------------------------- Revenue 328.7 103.4 2.2 434.3 -------------------------------------------- Rental income 327.2 89.9 - 417.1 Rental expense (91.6) (25.4) - (117.0) -------------------------------------------- Net rental income 235.6 64.5 - 300.1 Property trading profits 1.2 10.4 - 11.6Other income - 0.4 2.2 2.6Gain on revaluation and sale ofinvestment properties 459.4 106.1 - 565.5 --------------------------------------------Segment result 696.2 181.4 2.2 879.8 -------------------------------------------- The segmental result is shown before administrative expenses. 3. Gain on revaluation and sale of investment properties Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Gain on revaluation of investment properties 237.0 195.2 562.9Loss on revaluation of development properties (2.4) - - --------------------------------- 234.6 195.2 562.9Gain on sale of investment properties 23.4 - 2.6 ---------------------------------Income statement gain on revaluation andsale of investment properties 258.0 195.2 565.5 --------------------------------- 4. Finance costs Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Gross interest payable - recurring 95.2 88.2 180.3Interest capitalised on investmentproperties under development (4.5) (3.3) (8.6) ----------------------------------------Interest payable 90.7 84.9 171.7 ----------------------------------------Exceptional finance costs 2.0 5.2 13.7 ---------------------------------------- Exceptional finance costs of £2.0m represents unamortised issue costs writtenoff on redemption of loans (30 June 2005 - £4.5m, 31 December 2005 - £4.5m). Inthe year ended 31 December 2005, £8.4m was incurred in the early conversion of£128.7m of the 3.95% convertible bonds (30 June 2005 - nil) and £0.8m (30 June2005 - £0.7m) was incurred on the repurchase of CSC unsecured bonds. 5. Taxation Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £mDeferred tax:On investment property 72.5 61.8 183.3On derivative financial instruments 53.0 (34.4) (43.7)On other temporary differences (5.2) (0.6) 0.2 ---------------------------------------Deferred tax on ordinary items 120.3 26.8 139.8 --------------------------------------- Under IAS 12, provision is made for the deferred tax liability associated withthe revaluation of investment properties. The group does not provide fordeferred tax on investment properties by reference to the tax that would be dueon the sale of the investment properties as the group has no current intentionto dispose of these properties. Instead the group treats the value of theinvestment properties as being recovered through use, and so provides fordeferred tax on the revaluation of investment properties by applying thecorporation tax rate of 30% to the revaluation surplus without indexationallowance. The deferred tax provision on the revaluation of investment propertiescalculated under IAS 12 is £893.5m at 30 June 2006 (31 December 2005 - £817.4m,30 June 2005 - £712.6m). This IAS 12 calculation does not reflect the expectedamount of tax that would actually be payable if the assets were sold. On adisposal basis, the estimated liability is £671.4m at 30 June 2006 (31 December2005 - £642.5m, 30 June 2005 - £538.4m). If upon sale of the properties the group retained all the capital allowances,which is within the control of the group, the deferred tax provision in respectof capital allowances of £96.7m would also be released, and further capitalallowances of £26.0m would be available to reduce the amount of tax payable onsale. Under IFRS where gains, such as revaluation of development properties and otherassets, and actuarial movements on pension funds are dealt with in reserves thedeferred tax is also dealt with in reserves. Movements in the provision for deferred tax: As at As at 31 December Recognised in Recognised in 30 June 2005 income equity 2006 -------------------------------------------------------- £m £m £m £m Revaluation ofinvestment properties 817.4 71.4 4.7 893.5Capital allowances 95.7 1.1 (0.1) 96.7Derivative financialinstruments (83.4) 53.0 - (30.4)Other temporary differences 26.5 (5.2) - 21.3 -------------------------------------------------------Net deferred tax provision 856.2 120.3 4.6 981.1 ------------------------------------------------------- 6. Investment and development property Other UK shopping commercial centres properties Total £m £m £mInvestment property:At 31 December 2005 5,813.0 1,100.6 6,913.6Additions 28.1 11.3 39.4Disposals - (102.6) (102.6)Reclassification - from developments 33.6 - 33.6Foreign exchange fluctuations - (23.8) (23.8)Surplus on valuation 165.4 71.6 237.0 -------------------------------At 30 June 2006 6,040.1 1,057.1 7,097.2 ------------------------------- Development property:At 31 December 2005 24.2 - 24.2Additions 22.2 0.5 22.7Reclassification - to investment property (33.6) - (33.6)Surplus/(deficit) on valuation 15.0 (0.4) 14.6 -------------------------------At 30 June 2006 27.8 0.1 27.9 ------------------------------- The group's interests in investment properties were valued as at 30 June 2006 byexternal valuers in accordance with the Appraisal and Valuation Manual of RICS,on the basis of Market Value. Market Value represents the figure that wouldappear in a hypothetical contract of sale between a willing buyer and a willingseller. Regional shopping centres in the UK were valued by either DTZ Debenham TieLeung, Chartered Surveyors or CB Richard Ellis. Other commercial properties inthe UK were valued by either Knight Frank LLP or CB Richard Ellis. In the UnitedStates, properties were valued by Cushman and Wakefield California Inc. 7. Trading property The market value of trading properties was £188.8 million (31 December 2005 -£156.0 million, 30 June 2005 - £157.1 million). 8. Trade and other receivables As at As at As at 30 June 31 December 30 June 2006 2005 2005 £m £m £mAmounts falling due within one year:Rents receivable 18.1 20.8 20.3Other debtors 10.7 21.5 30.7Derivative financial instruments 2.7 0.9 0.6Prepayments and accrued income 39.2 35.5 32.7 ------------------------------ 70.7 78.7 84.3 ------------------------------Amounts falling due after more than one year:Other debtors 12.6 13.7 10.1Prepayments and accrued income 48.4 52.0 47.7 ------------------------------ 61.0 65.7 57.8 ------------------------------ 9. Borrowings, including finance leases As at As at As at 30 June 31 December 30 June 2006 2005 2005 £m £m £mAmounts falling due within one year: Bank loans and overdrafts 36.3 151.6 14.9Commercial Mortgage Backed Security ("CMBS")Notes 21.8 15.0 6.0Finance lease obligations 6.7 6.9 6.0 -------------------------------Total amounts falling due within one year 64.8 173.5 26.9 ------------------------------- Amounts falling due after more than one year: Secured borrowings - non recourseCMBS Notes 2015 1,133.3 1,141.9 1,158.8CMBS Notes 2011 544.9 547.5 548.8Bank loans 2016 460.1 - -Bank loans 2014 177.3 384.9 385.8Bank loan 2013 - 98.4 -Bank loan 2007 - 40.0 40.0 -------------------------------- 2,315.6 2,212.7 2,133.4Other secured borrowingsDebentures 2021 and 2027 230.0 230.0 230.0Other loans 144.3 147.0 124.3 -------------------------------- 2,689.9 2,589.7 2,487.7Unsecured borrowingsCSC bonds 2013 26.6 26.5 26.5CSC bonds 2009 41.2 41.0 40.9 -------------------------------- 2,757.7 2,657.2 2,555.1£111.3m 3.95% convertible bonds due 2010 (31December 2005 - £111.3m, 30 June 2005 - £240m) 107.0 105.4 224.0 -------------------------------- 2,864.7 2,762.6 2,779.1Finance lease obligations 47.0 47.6 51.0 --------------------------------Amounts falling due after more than one year 2,911.7 2,810.2 2,830.1 --------------------------------Total borrowings, including finance leases 2,976.5 2,983.7 2,857.0Cash and cash equivalents (117.7) (70.8) (163.4) --------------------------------Net borrowings 2,858.8 2,912.9 2,693.6 -------------------------------- 10. Fair value of financial instruments As at 30 June As at 31 December As at 30 June 2006 2005 2005 Balance Balance Balance sheet Fair sheet Fair sheet value value value value value Fair value £m £m £m £m £m £m Debentures and otherfixed rate loans SterlingC&C 9.875%debenture 2027 150.0 225.2 150.0 233.1 150.0 226.4C&C 11.25%debenture 2021 80.0 124.1 80.0 126.9 80.0 122.8CSC 6.875%unsecured bonds 2013 26.6 25.0 26.5 28.0 26.5 24.6CSC 5.75% unsecuredbonds 2009 41.2 41.2 41.0 41.0 40.9 40.5 US dollarsFixed rate loans 147.1 145.6 156.7 162.4 118.8 124.8 -------------------------------------------------------------- 444.9 561.1 454.2 591.4 416.2 539.1Bank loans andloan notes - 2,370.9 2,370.9 2,369.6 2,369.6 2,159.8 2,159.8LIBOR linkedFinance leaseobligations 53.7 53.7 54.5 54.5 57.0 57.0Derivativeinstruments 107.3 107.3 281.1 281.1 247.1 247.1 ---------------------------------------------------------------- 2,976.8 3,093.0 3,159.4 3,296.6 2,880.1 3,003.0 ----------------------------------------------------------------Convertible 107.0 150.9 105.4 141.0 224.0 233.2debt ---------------------------------------------------------------- The fair value adjustment in respect of financial instruments, after credit fortax relief, would amount to 23p per share diluted (31 December 2005 - 27p, 30June 2005 - 24p). All other financial assets and liabilities included in the balance sheet arestated at fair values. 11. Capital commitments At 30 June 2006 the group was contractually committed to £51.0 million of futureexpenditure for the purchase, construction, development and enhancement ofinvestment property (31 December 2005 - £69.9 million, 30 June 2005 - £311.1million). In addition the group's share of joint ventures' commitments at 30 June 2006 was£9.0 million (31 December 2005 - £13.6 million, 30 June 2005 - £23.9 million). 12. Per share details (a) Number of shares used in the calculation of earnings per share Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 millions millions millions Weighted average shares (basic) 336.2 318.0 319.0Effect of dilution 15.1 32.2 31.5 --------------------------------------Weighted average shares (diluted) 351.3 350.2 350.5 -------------------------------------- (b) Earnings used in the calculation of earnings per share Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £mEarnings used for calculation of basicearnings per share 352.1 91.7 366.3Effect of dilution 2.6 5.5 10.2 --------------------------------Earnings used for calculation of dilutedearnings per share 354.7 97.2 376.5 --------------------------------Basic earnings per share (pence) 104.7p 28.8p 114.8p --------------------------------Diluted earnings per share (pence) 101.0p 27.8p 107.4p -------------------------------- Earnings used for calculation of basicearnings per share 352.1 91.7 366.3 Less gain on revaluation and sale ofinvestment properties (258.0) (195.2) (565.5) (Less)/add back fair value movement onderivative financial instruments (175.5) 114.3 145.8Add back deferred tax in respect ofinvestment properties 72.5 61.8 183.3Add back/(less) deferred tax in respect ofderivative financial instruments 53.0 (34.4) (43.7)Add back exceptional items, net of tax 1.5 4.0 9.0Add back tax on sale of investment properties 1.3 - - -------------------------------- Earnings used for calculation of adjustedearnings per share 46.9 42.2 95.2 -------------------------------- Adjusted earnings per share (pence) 14.0p 13.3p 29.8p -------------------------------- Earnings used for calculation of adjustedearnings per share 46.9 42.2 95.2Effect of dilution 2.6 5.5 10.2 -------------------------------- Earnings used for calculation of adjusted,diluted earnings per share 49.5 47.7 105.4 -------------------------------- Adjusted, diluted earnings per share 14.1p 13.6p 30.1p(pence) -------------------------------- (c) Other share information (i) 3.95% convertible bonds due 2010 At 30 June 2006 and 31 December 2005 3.95% convertible bonds with a nominalvalue of £111.3m were in issue. The holders of the bonds have options to converttheir bonds into ordinary shares at 800p per share at any time until 23September 2010 or to redeem their bonds at par on 30 September 2007. The companyhas the option to redeem the bonds at par after 14 October 2008. Number(ii) Ordinary share capital millions At 30 June 2006 337.8 ----------- Of which, held by ESOP trust and treated as cancelled 1.4 ----------- (iii) Dividends Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Prior period final dividend paid of 15.25p(2005 - 14.1p) per share 51.2 44.7 44.7Interim dividend paid of 13.0p per share - - 41.6 --------------------------------- 51.2 44.7 86.3 --------------------------------- Proposed dividend of 13.75p (31 December2005 - 15.25p,30 June 2005 - 13.0p) per share(not provided for) 46.3 41.5 51.1 ---------------------------------- 13. Summary of changes in group equity Six months Six months ended ended Year ended 30 June 30 June 31 December 2006 2005 2005 £m £m £m Opening equity shareholders' funds 2,933.1 2,534.2 2,534.2Bond conversions - - 121.7Issue of shares 6.2 9.7 11.2Cancellation of shares (0.9) (1.1) (1.1) --------------------------------- 2,938.4 2,542.8 2,666.0Total recognised income and expense for theperiod 361.8 93.0 353.4 --------------------------------- 3,300.2 2,635.8 3,019.4Dividends paid (51.2) (44.7) (86.3) --------------------------------- Closing equity shareholders' funds 3,249.0 2,591.1 2,933.1 --------------------------------- This information is provided by RNS The company news service from the London Stock Exchange

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