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Liberty International Plc
(Registration number UK3685527)
ISIN Code: GB0006834344
JSE Code: LBT
Issuer Code: LILI I
Liberty International PLC - Adoption of International Financial Reporting
Standards - Restatement of 2004 Income Statements and Balance Sheet
Introduction
Liberty International's Interim Report to be issued on 28th July 2005 will be
prepared in accordance with International Financial Reporting Standards
("IFRS"), which became mandatory for all listed companies within the European
Union from 1st January 2005.
This document provides unaudited information in relation to the group's
principal accounting policies under IFRS and outlines the principal changes
arising from the re-presentation of the 2004 results under IFRS.
The attached document sets out the restated 2004 results together with more
detail of the adjustments made and appropriate reconciliations and
explanations.
Conversion to IFRS has no effect on the underlying business or cash
flows of the group.
Key figures and ratios for the full year are affected as shown below:
UK GAAP IFRS
31 December 31 December
2004 2004
Diluted, adjusted* net asset value per share
(pence) 1017p 1025p
Ratio of net debt to assets 36% 36%
Net rental income (GBP, millions) GBP248.9m GBP256.3m
Operating profit before exceptional items
(GBP, millions) GBP245.2m GBP601.5m
Basic earnings per share (pence) 39.3p 104.8p
Adjusted* earnings per share (pence) 29.0p 27.1p
* Adjusted in accordance with industry practice (see notes 7 and 14 in
attached document)
Income statement
Under current UK GAAP the profit and loss account generally contained only
items which have either been realised in cash or are expected to be realised in
cash within a short period. Under IFRS, market value adjustments and other
estimates which bear less of a direct relationship to the underlying cash flow
are included in the Income Statement.
- IAS 40 Investment Property - Movements in the fair value of investment
properties are recognised in the Income Statement, and not in the
revaluation reserve, together with full provision for tax on the valuation
movements (IAS 12 Income Taxes).
- IAS 39 Financial Instruments: Recognition and Measurement - Movements in the
fair value of those derivative financial instruments which are not accounted
for as hedging instruments, are recognised in the Income Statement and not
by way of a note. Hedge accounting, where the movements in fair value are
not recognised in the Income Statement but are deferred and recognised over
the life of the hedged item, is permitted in certain circumstances. The
criteria applied under IAS 39 to determine whether hedging instruments
qualify for hedge accounting are complex and hedging relationships which may
work in commercial terms can fail to qualify for hedge accounting either at
inception or during the life of the hedging relationship. In order to ensure
consistency of treatment, the group does not apply hedge accounting for cash
flow hedging instruments such as interest rate swaps.
Liberty International's predominant financing strategy in recent years has been
to utilise the flexibility of floating rate debt combined with interest rate
swaps, rather than fixed rate debt, with the result that the greater proportion
of fair value movements in respect of financial instruments has been reflected
in the income statement and on the balance sheet rather than by way of
disclosure in the notes.
- SIC15 Operating Leases: incentives - The cost of any lease incentives are
spread over the life of the lease rather than the period to the first rent
review.
- IAS 17 Leases - Some rentals are reclassified as finance income or expense
where a lease is categorised as a finance lease with a corresponding
adjustment to the presentation of property assets and loans. The most
significant adjustment relates to the re-presentation of Liberty
International's investment in The Glades, Bromley reflecting the fixed
minimum rent in the lease.
- IAS 32 Financial Instruments: Disclosure and Presentation - There is an
additional finance charge in respect of the GBP240m 3.95 per cent convertible
bond 2010 issued by Liberty International in 2003 to reflect the "true" cost
of the liability element of this compound financial instrument while the
equity component has been added to shareholders' funds.
- IAS 31 Interests in Joint Ventures - The group has opted for proportional
consolidation of joint venture income and expenses as this more closely
reflects the substance of the group's joint venture arrangements.
Balance sheet and net assets
- IAS 40 Investment Property - Investment property under development and
redevelopment is included in the balance sheet at its fair value. In the
case of certain of Liberty International's major developments, particularly
those in the early stages of development, costs incurred have not been fully
reflected in the fair value of the developments at the balance sheet date.
However, the resulting valuation deficits are expected to be temporary and
would be expected to reverse over the life of the projects.
- IAS 12 Income Taxes - Provision is made in the balance sheet for tax on all
differences between tax and accounting values, including revaluation
surpluses. This represents a change in the basis of calculation of the tax
provision compared with UK GAAP where the calculation represented the tax
payable on disposal of the assets.
- IAS 32 Financial Instruments: Disclosure and Presentation - Compound
financial instruments, such as convertible bonds, are separated into equity
and liability components. The equity component of the group's convertible
debt is reclassified to reserves, reducing the initial carrying amount of
the liability component. The finance charge in the income statement is
increased so as to amortise the liability component back to the full
redemption amount over the life of the instrument.
- IAS 31 Interests in Joint Ventures - The group has opted for proportional
consolidation of joint venture assets and liabilities as this more closely
reflects the substance of the group's joint venture arrangements.
- IAS 10 Events after the Balance Sheet Date - No provision is made for
dividends declared after the balance sheet date.
Reporting performance
The changes affecting the income statement can be split broadly into two
categories: -
1. Those items which are expected to have a proportionate effect on each period
under review, hence no adjustment need be made for the purpose of
comparison. These are generally items where there is a change in underlying
accounting policy or estimation technique rather than just in presentation.
Such items include accounting for convertible bonds, lease incentives,
retirement benefits and share based payments.
2. Those items which are unpredictable by their nature such as movements in
fair values of investment properties and derivative financial instruments,
together with exceptional items.
These items will generally be excluded for the purpose of comparing revenue
performance over one period with another as the irregular nature of the
items may obscure any underlying trend.
Commentary on the group's revenue results will generally relate to amounts
which exclude the effect of valuation and exceptional items.
Net assets per share is derived from the net assets reported in the balance
sheet but will be adjusted in accordance with industry practice. The provision
for tax in respect of the revaluation surplus will be excluded, first because
the calculation prescribed by IFRS 12 does not represent the expected amount of
tax which would be paid if the assets were to be sold and secondly because the
group holds the property assets for the long-term and therefore has no
expectation of crystallising even the reduced liability, calculated on the
disposal basis, in the foreseeable future. The fair value of derivative
financial instruments will also be excluded from adjusted net assets per share.
A C Smith
FINANCE DIRECTOR
26 July 2005
Liberty International PLC - Unaudited results for the year ended 31 December
2004 prepared in accordance with International Financial Reporting Standards
(`IFRS')
This document presents Liberty International's unaudited 2004 Income
Statements, Balance Sheet, Statement of Recognised Income and Expense,
Statement of Changes in Equity, Cash Flow Statement and notes thereto prepared
in accordance with IFRS, together with, where appropriate, reconciliations
between the figures under UK GAAP and those under IFRS.
The principal accounting policies of the group under IFRS are set out on pages
21 to 24. The financial information provided here has been prepared under the
historical cost convention as modified by the revaluation of properties,
goodwill, available for sale investments and financial assets and liabilities
held for trading.
This financial information provided here reflects the current versions of the
standards and interpretations released to date and therefore should be regarded
as provisional. Accordingly, the financial information for 2004 actually used
for and presented as comparative figures with the 2005 final audited
consolidated financial statements may be different. In addition, the
information contained in this document does not reflect the format or content
of an interim statement or preliminary announcement under IFRS and does not
constitute statutory accounts within the meaning of s240 of the Companies Act
1985, but is intended to illustrate the adjustments made to the figures
prepared under UK Generally Accepted Accounting Practice ('GAAP').
The principal changes arising from the presentation of the 2004 results
under IFRS are:
(a) Profit before tax:
30 31
June December
2004 2004
GBPm GBPm
As previously reported UK GAAP 67.2 158.3
Deduct exceptional items (UK GAAP) (6.1) (42.6)
Profit before tax and exceptional items 61.1 115.7
Additional amortisation relating to convertible debt (2.2) (4.3)
Amortisation of letting costs previously written off (1.9) (4.0)
Longer amortisation of rent free periods and other lease
incentives 0.4 (0.4)
Adjustment in respect of finance leases 0.1 0.4
Defined benefit pension scheme net liability and other
employee benefits (0.1) (0.4)
Restated profit before tax, valuation and exceptional
items 57.4 107.0
Revaluation gains on investment properties reported as
income (note 1c) 171.2 357.3
Movement in fair value of derivative financial
instruments 46.8 (41.4)
Exceptional items (IFRS) 1.9 32.2
IFRS profit before tax 277.3 455.1
(b) Net assets
GBPm
Previously reported as at 31 December 2004 UK GAAP 3,244.0
Exclusion of provision for proposed dividend 44.7
Reallocation to equity of a portion of the convertible debt
liability 14.5
Longer amortisation period for lease incentives - long term debtor 50.6
Longer amortisation period for lease incentives - adjustment of
property
valuation (44.0)
Fair value of development properties (11.4)
Defined benefit pension scheme net liability and other employee
benefits (2.0)
Owner-occupied property held under finance lease (0.3)
Tax effect of the above (15.5)
Provision for contingent tax liability* (653.8)
Fair value of derivative financial instruments (132.3)
Tax effect of the fair value of derivative financial instruments 39.7
As at 31 December 2004 IFRS 2,534.2
* Includes impact of change in basis of calculation - see note 6b
(c) Adjusted earnings per share:
30 31
June December
2004 2004
pence pence
As previously reported 14.8 29.0
Additional amortisation relating to convertible debt (0.7) (1.3)
Amortisation of letting costs previously written off (0.6) (1.2)
Longer amortisation of rent free periods and other lease
incentives 0.1 (0.1)
Defined benefit pension scheme net liability and other
employee benefits - (0.1)
Tax effect of the above 0.3 0.8
Restated 13.9 27.1
(d) Adjusted net asset value per share:
31 December
2004
pence
As previously reported 1017
Exclusion of provision for proposed dividend 13
Longer amortisation period for lease incentives 2
Fair value of development properties (3)
Tax effect of the above (5)
Fair value of trading properties 1
Restated 1025
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2004
UK GAAP* Adjustments IFRS
Notes GBPm GBPm GBPm
Revenue 385.0 7.7 392.7
Rental income 1 359.8 7.7 367.5
Rental expenses 1 (110.9) (0.3) (111.2)
Net rental income 248.9 7.4 256.3
Other income 15.1 - 15.1
Gain on revaluation and sale
of investment properties 1 - 357.3 357.3
Share of operating profit of
joint ventures 9 7.7 (7.7) -
271.7 357.0 628.7
Administration expenses 2,3 (26.5) (0.7) (27.2)
Operating profit before
exceptional items 245.2 356.3 601.5
Exceptional profit on
disposal of fixed assets and
subsidiaries 4 46.0 (10.4) 35.6
Operating profit 291.2 345.9 637.1
Net interest cost - recurring 5 (129.5) (7.7) (137.2)
Net interest cost -
exceptional (3.4) - (3.4)
Change in fair value of
derivative financial
instruments 5 - (41.4) (41.4)
Profit before tax 158.3 296.8 455.1
Current tax on ordinary items 6 (24.4) - (24.4)
Deferred tax on ordinary
items:
- in respect of
investment property 6 (8.6) (103.9) (112.5)
- in respect of
derivative financial
instruments 6 - 12.9 12.9
- other 6 0.7 2.5 3.2
Tax on exceptional items 6 (1.4) (0.8) (2.2)
Taxation charge 6 (33.7) (89.3) (123.0)
Profit for the financial year 124.6 207.5 332.1
Basic earnings per share 7 39.3p 65.5p 104.8p
Diluted earnings per share 7 38.0p 60.3p 98.3p
Adjusted earnings per share are shown in note 7
* Reformatted to reflect IFRS reporting requirements
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the period ended 30 June 2004
UK GAAP* Adjustments IFRS
Notes GBPm GBPm GBPm
Revenue 192.2 4.3 196.5
Rental income 1 172.9 4.3 177.2
Rental expenses 1 (52.2) - (52.2)
Net rental income 120.7 4.3 125.0
Other income 12.6 - 12.6
Gain on revaluation and sale
of investment properties 1 - 171.2 171.2
Share of operating profit of
joint ventures 9 3.8 (3.8) -
137.1 171.7 308.8
Administration expenses 2,3 (11.7) (0.3) (12.0)
Operating profit before
exceptional items 125.4 171.4 296.8
Exceptional profit on
disposal of fixed assets and
subsidiaries 4 6.2 (4.2) 2.0
Operating profit 131.6 167.2 298.8
Net interest cost - recurring 5 (64.3) (3.9) (68.2)
Net interest cost -
exceptional (0.1) - (0.1)
Change in fair value of
derivative financial
instruments 5 - 46.8 46.8
Profit before tax 67.2 210.1 277.3
Current tax on ordinary items (14.2) - (14.2)
Deferred tax on ordinary
items:
- in respect of investment
property (2.7) (49.2) (51.9)
- in respect of derivative
financial
instruments - (13.9) (13.9)
- other (0.1) 1.0 0.9
Tax on exceptional items (0.2) (0.3) (0.5)
Taxation charge (17.2) (62.4) (79.6)
50.0 147.7 197.7
Profit for the financial
period
Basic earnings per share 7 15.8p 46.6p 62.4p
Diluted earnings per share 7 15.6p 43.0p 58.6p
Adjusted earnings per share are shown in note 7
* Reformatted to reflect IFRS reporting requirements
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 31 December 2004
UK GAAP* Adjustments IFRS
Notes GBPm GBPm GBPm
Non-current assets
Investment property 8 5,252.7 (2.3) 5,250.4
Development property 8 60.2 (13.0) 47.2
5,312.9 (15.3) 5,297.6
Plant and equipment 1.0 0.3 1.3
Share of joint venture
net assets 9 20.3 (20.3) -
Trade and other
receivables 10 11.5 47.8 59.3
5,345.7 12.5 5,358.2
Current assets
Trading properties 91.7 20.2 111.9
Trade and other
receivables 10 75.9 4.6 80.5
Cash and cash equivalents 438.4 0.4 438.8
606.0 25.2 631.2
Total assets 5,951.7 37.7 5,989.4
Current liabilities
Trade and other payables 11 (233.8) 43.5 (190.3)
Tax liabilities (23.8) - (23.8)
Borrowings, including
finance leases 12 (9.2) (4.0) (13.2)
(266.8) 39.5 (227.3)
Non-current liabilities
Borrowings, including
finance leases 12 (2,345.0) (21.3) (2,366.3)
Derivative financial
instruments 13 - (134.7) (134.7)
Deferred tax provision 6(b) (79.3) (629.6) (708.9)
Other provisions (16.6) (0.6) (17.2)
Other payables - (0.8) (0.8)
(2,440.9) (787.0) (3,227.9)
Total liabilities (2,707.7) (747.5) (3,455.2)
Net assets 3,244.0 (709.8) 2,534.2
Equity
Called up share capital
and reserves 3,244.0 (709.8) 2,534.2
* Reformatted to reflect IFRS reporting requirements
UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND
EXPENSE
for the year ended 31 December 2004
UK Adjustments IFRS
GAAP*
GBPm GBPm GBPm
Gains on revaluation of investment
properties
- Group 337.6 (337.6) -
- Joint ventures 5.6 (5.6) -
Net exchange translation differences and
other movements (1.5) (1.4) (2.9)
Actuarial losses on defined benefit pension
schemes - (0.4) (0.4)
Tax on items taken directly to equity - 0.1 0.1
Current tax relating to realisation of
gains recognised in prior periods (0.7) 0.7 -
Net income recognised directly in equity 341.0 (344.2) (3.2)
Transfers to income statement on disposal
of investments - (6.6) (6.6)
Tax on items transferred from equity - 1.1 1.1
Profit for the year 124.6 207.5 332.1
Total recognised income and expense for the
year 465.6 (142.2) 323.4
* Reformatted to reflect IFRS reporting requirements
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2004
UK GAAP* Adjustments IFRS
GBPm GBPm GBPm
Shareholders' funds at 1 January:
- as previously reported - 2,859.4
(570.5) (570.5)
- effect of adopting IFRS
- as restated 2,859.4 (570.5) 2,288.9
Bond conversions 0.1 - 0.1
Issue of shares 4.1 - 4.1
Cancellation of shares (1.2) - (1.2)
2,862.4 (570.5) 2,291.9
Total recognised income and expense
for the year 465.6 (142.2) 323.4
3,328.0 (712.7) 2,615.3
Dividends (84.0) 2.9 (81.1)
Shareholders' funds at 31 December 3,244.0 (709.8) 2,534.2
* Reformatted to reflect IFRS reporting requirements
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2004
UK IAS 31 December
GAAP* adjustment 2004
Cash flows from operating activities
Net operating profit before net
finance costs 237.5 364.0 601.5
Adjustments for non-cash items:
Unrealised net revaluation gains on
investment properties - (340.3) (340.3)
Profit on sale of investment
properties - (17.0) (17.0)
Depreciation and amortisation 0.5 - 0.5
Amortisation of lease inducements
and other direct costs - 4.3 4.3
Cash flows from operations before
changes in working capital 238.0 11.0 249.0
Change in trade and other receivables (8.6) - (8.6)
Change in trading properties (20.6) (9.5) (30.1)
Change in trade and other payables 11.0 4.9 15.9
Cash generated from operations 219.8 6.4 226.2
Interest paid (135.5) (5.3) (140.8)
Interest received 10.3 - 10.3
Tax paid (18.3) - (18.3)
Cash flows from operating activities 76.3 1.1 77.4
Cash flows from investing activities
Purchase and development of property (144.8) (0.4) (145.2)
Sale of property 93.3 - 93.3
Purchase of investments and other
fixed assets (0.8) - (0.8)
Sale of investments 189.6 0.5 190.1
Purchase of interests in joint
ventures and subsidiary companies (57.1) - (57.1)
Cash acquired with interests in
joint ventures and subsidiary
companies 11.6 (5.8) 5.8
Distributions received from joint
ventures 1.5 (1.5) -
Change in long term loans
receivable, before amortisation - (0.7) (0.7)
Cash flows from investing activities 93.3 (7.9) 85.4
Cash flows from financing activities
Issue and repurchase of shares 1.9 - 1.9
Borrowings drawn 640.7 4.1 644.8
Borrowings repaid (490.0) (0.4) (490.4)
Equity dividends paid (81.1) - (81.1)
Cash flows from financing activities 71.5 3.7 75.2
Net increase in cash and
cash equivalents 241.1 (3.1) 238.0
Cash and cash equivalents
at 1 January 197.3 3.5 200.8
Cash and cash equivalents
at closing 438.4 0.4 438.8
*Reformatted to reflect IFRS reporting requirements
NOTES
1 Operating income
30 31
June December
2004 2004
(a) Rental income
Notes GBPm GBPm
UK GAAP as previously stated 172.9 359.8
Adjustment in respect of rent free periods
and stepped rents i 0.7 1.6
Other lease incentives ii (0.3) (1.9)
Proportional consolidation of joint ventures iii 3.9 8.0
IFRS 177.2 367.5
30 31
June December
2004 2004
Notes GBPm GBPm
(b) Rental expenses
UK GAAP as previously stated (52.2) (110.9)
Treatment of leasehold interests as finance
leases iv 2.0 4.0
Amortisation of letting costs v (1.9) (4.0)
Proportional consolidation of joint ventures iii (0.1) (0.3)
IFRS (52.2) (111.2)
i Under IFRS, rent free periods and stepped rents are amortised over the
full lease term rather than the period to first open market rent review.
ii Under UK GAAP, other lease incentives such as cash inducements and
contributions to tenant fit out are either written off, capitalised or
capitalised and amortised, depending on their nature. Under IFRS, all such
costs are capitalised and amortised over the lease term.
iii Under UK GAAP, the results of joint ventures are reported on a single line
as "share of operating profit of joint ventures". Under IFRS, the group
has elected to proportionally consolidate joint ventures, showing each
income and expense item on the relevant line of the Income Statement.
iv The group's interests in leasehold investment properties are accounted for
as finance leases under IFRS. The minimum element of future head rental
payments are treated as if they relate to a loan which is financing an
increased interest in the property. An element of the rent payable is
treated as a finance cost and the remainder is treated as a capital
repayment to the head lessor.
v Under IFRS, letting costs of developments and investment properties are
capitalised and amortised over the lease term whereas under UK GAAP the
former were capitalised and the latter were written off as incurred.
(c) Gains on revaluation and sale of investment property
30 31
June December
2004 2004
GBPm GBPm
Previously dealt with in reserves:
- group 161.3 337.6
- share of joint ventures 5.0 5.6
Development property valuation movements (2.2) (5.5)
Change in amortisation period of lease incentives (0.5) (1.0)
Reclassifications within net profit:
- previously dealt with as exceptional gain on
disposal of investment properties 5.8 17.0
- property valuation surplus on amortised letting costs 1.9 4.0
- treatment of leasehold investment property as
finance-leased assets (0.1) (0.4)
IFRS 171.2 357.3
Year ended 31 December 2004
UK Other
Shopping Commercial Other Group
Centres Property Activities Total
GBPm GBPm GBPm GBPm
Revenue 289.5 93.4 9.8 392.7
Rental income 274.3 93.2 - 367.5
Rental expense (86.9) (24.3) - (111.2)
Net rental income 187.4 68.9 - 256.3
Other income 6.0 0.2 8.9 15.1
Gain on revaluation and
sale of investment
property 244.3 113.0 - 357.3
Segment result 437.7 182.1 8.9 628.7
Six months ended 30 June 2004
UK Other
Shopping Commercial Other Group
Centres Property Activities Total
GBPm GBPm GBPm GBPm
Revenue 148.1 42.6 5.8 196.5
Rental income 134.6 42.6 - 177.2
Rental expense (43.4) (8.8) - (52.2)
Net rental income 91.2 33.8 - 125.0
Other income 6.8 - 5.8 12.6
Gain on revaluation and
sale of investment
property 106.7 64.5 - 171.2
Segment result 204.7 98.3 5.8 308.8
2 Administration expenses
30 June 31 December
2004 2004
Notes GBPm GBPm
UK GAAP as previously stated (11.7) (26.5)
Share options i (0.2) (0.5)
Other (0.1) (0.2)
IFRS (12.0) (27.2)
i Under IFRS, employee share options are expensed at their fair value at the
grant date rather than intrinsic value at that date. The cost is spread
over the vesting period, usually three years, and is adjusted only to
reflect changes in the expected number of shares vesting.
3 Retirement benefits
UK GAAP Adjustments IFRS
Notes GBPm GBPm GBPm
Net retirement benefit
prepayment / (liability) at
1 January 2004 0.7 (1.0) (0.3)
Current service costs i -
(0.9) (0.9)
Other finance costs ii,5 - 0.2 0.2
Actuarial gains / (losses) - (0.4) (0.4)
Contributions 0.8 - 0.8
Net retirement benefit
prepayment / (liability) at
31 December 2004 iii 0.6 (1.2) (0.6)
i The retirement benefit adjustments reflect the application of IAS 19 as
opposed to SSAP 24. The group has adopted the amendment to IAS 19 published
in 31 December 2004 which permits the immediate recognition of actuarial
gains and losses in equity.
ii The net finance cost arising from the pension scheme reflects the expected
return on the assets of the scheme less the unwinding of the discount on
the scheme liabilities.
iii The net retirement benefit liability at 30 June 2004 was unchanged from
1 January 2004 at GBP(0.3)m.
4 Exceptional profit on disposal of fixed assets and subsidiaries
30 31
June December
2004 2004
Notes GBPm GBPm
UK GAAP as previously stated 6.2 46.0
Gain on disposal of investment properties i (5.8) (17.0)
Recycled gain on disposal of investments ii 1.6 6.6
IFRS 2.0 35.6
i Under IFRS, gains on disposal of investment properties are classified
within operating income.
ii Under IFRS, exceptional gains or losses on disposal of fixed asset
investments are calculated by reference to their historic cost. Any
previous revaluation surpluses are "recycled" into the profit on disposal
with a corresponding adjustment to the revaluation reserve.
5 Net finance costs
30 31
June December
2004 2004
Notes GBPm GBPm
UK GAAP as previously stated i (64.4) (132.9)
Additional amortisation relating to
convertible debt ii (2.2) (4.3)
Interest payable on finance leases iii (1.8) (3.6)
Net finance cost arising from retirement
benefit schemes 3 0.1 0.2
Net interest costs (68.3) (140.6)
Fair value gains / (losses) on derivative
financial instruments iv 46.8 (41.4)
IFRS (21.5) (182.0)
i Includes GBP(3.4)m exceptional net finance cost (30 June 2004 GBP(0.1)m).
ii Under IFRS, convertible debt is required to be allocated between debt and
equity. The debt element is initially less than the nominal value of the
bond and must therefore be amortised up to full nominal value over the term
of the instrument, resulting in an additional finance charge.
iii Under IFRS, leasehold investment property interests are accounted for as
finance leases. The minimum element of future head rental payments are
treated as if they relate to a loan which is financing an increased
interest in the property. An element of the rent payable is treated as a
finance cost and the remainder is treated as a capital repayment to the
head lessor.
iv Under IFRS, derivative financial instruments are carried in the balance
sheet at fair value with changes in fair value being recognised in the
Income Statement unless they are eligible to be accounted for as hedges.
This does not affect the underlying cash flows.
6 Tax
(a) Tax charge reconciliation for the year ended 31 December 2004
IFRS
GBPm
Profit before tax 455.1
Profit multiplied by UK corporation tax rate of 30% (136.5)
Effects of:
UK capital allowances which did not reverse on sale 2.2
Disposals of properties and investments 8.6
Prior year items 2.4
Expenses disallowed, net of capitalised interest (0.3)
Untaxed dividends 1.2
Overseas taxation, including joint ventures (0.6)
Tax charge for the year (123.0)
Comprising:
Current corporation tax * (24.8)
Deferred tax - investment property ** (114.3)
Deferred tax - derivative financial instruments 12.9
Deferred tax - other temporary timing differences 3.2
(123.0)
* includes tax on exceptional items (0.4)
** includes tax on exceptional items (1.8)
(2.2)
(b) Deferred tax provision as at 31 December 2004
UK GAAP Adjustments IFRS
Notes GBPm GBPm GBPm
Capital gains net of capital
losses i - 653.8 653.8
Capital allowances ii 76.2 - 76.2
Derivative financial
instruments - (39.7) (39.7)
3.1 15.5 18.6
Other temporary differences
Net deferred tax provision 79.3 629.6 708.9
i Under IAS 12, provision is made for the deferred tax liability associated
with the revaluation of investment properties. UK GAAP requires that the
contingent tax on capital gains that would be payable if all investment
properties were sold for their balance sheet value at 31 December 2004 is
disclosed but not provided for in the balance sheet.
IAS 12 states that there will be a deferred tax liability or asset on the
revaluation surplus of an asset "even if the enterprise does not intend to
dispose of the asset - in such cases, the revalued carrying amount of the
asset will be recovered through use and this will generate taxable income".
IAS 12 also states that the measurement of a deferred tax liability "should
reflect the tax consequences that would follow from the manner in which the
enterprise expects ... to recover ... the carrying amount of its assets".
The group holds its investment properties for the long term and has no
current intention to make disposals. As a result, under IAS 12, the group
does not provide for deferred tax on investment properties by reference to
the tax that would be due on the sale of the investment properties.
Instead the group treats the value of the investment properties as being
recovered through use, and so provides for deferred tax on the revaluation
of investment properties by applying the corporation tax rate of 30% to the
revaluation surplus.
The resulting deferred tax provision reduces net assets by GBP653.8m at 31
December 2004. This method of calculation takes no account of the actual
tax that would be due if all property assets were to be disposed of at
their balance sheet value. The provision calculated on a disposal basis, at
31 December 2004 was GBP505.0m.
ii If upon sale the group retained all the capital allowances, which is within
the control of the seller, the deferred tax provision in respect of capital
allowances of GBP76.2m would be released, and further capital allowances of
GBP13.3m would be available to reduce the amount of tax payable on sale.
(c) Deferred tax movements under IFRS
As at As at
1 Recognised Recognised 31
January in income in equity December
2004 2004
GBPm GBPm GBPm GBPm
Capital gains net
of capital losses 551.0 103.9 (1.1) 653.8
Capital allowances i 67.1 10.4 (1.3) 76.2
Derivative
financial
instruments (26.8) (12.9) - (39.7)
Other temporary
differences 21.9 (3.2) (0.1) 18.6
Net deferred tax
provision 613.2 98.2 (2.5) 708.9
Under IFRS, where gains such as revaluation of development properties and other
assets and actuarial movements on pension funds are dealt with in reserves, the
deferred tax is also dealt with in reserves.
i Includes GBP1.8m in respect of exceptional items.
7 Earnings per share
Year ended 31 December 2004 UK GAAP Adjustments IFRS
GBPm GBPm GBPm
Earnings used for calculation of basic
earnings per share 124.6 207.5 332.1
Less exceptional items, net of tax* (41.2) 11.2 (30.0)
Less gain on revaluation of investment
properties - (357.3) (357.3)
Add back fair value movement on
derivative financial instruments - 41.4 41.4
Add back deferred tax in respect of
investment properties 8.6 103.9 112.5
Less deferred tax in respect of
derivative financial instruments - (12.9) (12.9)
Earnings used for calculation of
adjusted earnings per share 92.0 (6.2) 85.8
Adjusted earnings per share (pence) 29.0p (1.9)p 27.1p
* Comprising: disposal of fixed assets GBP35.6m (note 4), finance costs
GBP(3.4)m (note 5), taxation GBP(2.2)m, (note 6).
Year ended 31 December 2004 UK GAAP Adjustments IFRS
GBPm GBPm GBPm
Earnings used for calculation of basic
earnings per share 124.6 207.5 332.1
Reduction in finance cost from
conversion of bonds, net of tax 7.8 3.0 10.8
Earnings used for calculation of
diluted earnings per share 132.4 210.5 342.9
Diluted earnings per share (pence) 38.0p 60.3p 98.3p
Period ended 30 June 2004 UK GAAP Adjustments IFRS
GBPm GBPm GBPm
Earnings used for calculation of basic
earnings per share 50.0 147.7 197.7
Less exceptional items, net of tax* (5.9) 4.5 (1.4)
Less gain on revaluation of investment
properties - (171.2) (171.2)
Less fair value movement on derivative
financial instruments - (46.8) (46.8)
Add back deferred tax in respect of
investment properties 2.7 49.2 51.9
Add back deferred tax in respect of
derivative financial
instruments - 13.9 13.9
Earnings used for calculation of
adjusted earnings per share 46.8 (2.7) 44.1
Adjusted earnings per share (pence) 14.8p (0.9)p 13.9p
* Comprising: disposal of fixed assets GBP2.0m (note 4),
finance costs GBP(0.1)m (note 5), taxation GBP(0.5)m.
Period ended 30 June 2004 UK GAAP Adjustments IFRS
GBPm GBPm GBPm
Earnings used for calculation of basic
earnings per share 50.0 147.7 197.7
Reduction in finance cost from conversion
of bonds, net of tax 4.0 1.5 5.5
Earnings used for calculation of diluted
earnings per share 54.0 149.2 203.2
Diluted earnings per share (pence) 15.6p 43.0p 58.6p
The number of shares used for calculation of earnings per share is unchanged
from UK GAAP, at 317.0 million shares (30 June 2004 316.8m) for basic and
adjusted earnings per share and 348.9 million shares (30 June 2004 346.8m) for
diluted earnings per share.
8 Investment and development properties
Investment Development Total
Notes property property properties
GBPm GBPm GBPm
As at 31 December 2004
UK GAAP 5,252.7 60.2 5,312.9
Reclassifications i (5.1) (1.6) (6.7)
Recalculation of
amortisation of rent
free periods and
stepped rents ii (44.0) - (44.0)
Gross up of leasehold
investment properties iii 31.9 - 31.9
Valuation of
development properties iv - (11.4) (11.4)
Proportional
consolidation of
group's share of assets
held by joint ventures 9 14.9 - 14.9
As at 31 December 2004
IFRS 5,250.4 47.2 5,297.6
i Under IFRS, investment properties under redevelopment remain classified as
investment properties subject to revaluation through the income statement
in accordance with IAS 40. Assets under development for immediate sale are
classified as trading properties.
ii Under IFRS, rent free periods and stepped rents are amortised over the
lease term rather than the period to the first market rent review. To the
extent that income is accrued before invoicing and recognised separately
on the balance sheet, it is excluded from the market valuation of the
property to avoid double-counting.
iii Under IFRS, the group's leasehold investment property interests are
accounted for as finance leases. As investment properties are valued net
of the leasehold obligation, an amount equal to the liability to the head
lessor is added back to the valuation.
iv Properties acquired with the intention of development are classified as
properties in the course of development and are accounted for at fair
value in accordance with IAS 16. Valuation changes for these properties
are recognised in equity rather than the income statement.
9 Joint ventures
Under UK GAAP the group was required to show its share of the gross assets and
gross liabilities of joint ventures separately on the balance sheet. Under IFRS
the group has opted to proportionally consolidate joint ventures, with the
group's share of individual assets and liabilities of the joint venture
included on the relevant line of the balance sheet. At 31 December 2004 this
increases investment property by GBP14.9m, trading properties by GBP13.5m, cash
by GBP0.4m, creditors due within one year by GBP1.2m and borrowings by GBP7.3m,
reallocating the GBP20.3m group's share of net assets of joint ventures.
Similarly, the group's share of operating profit of joint ventures is
reanalysed to the relevant lines of the income statement.
10 Trade and other receivables
Amounts
Amounts falling falling due
due in less than after more
one year than one
GBPm year
GBPm
As at 31 December 2004 UK GAAP 75.9 11.5
Change in amortisation period of rent
frees and other lease incentives 2.8 47.8
Derivative financial instruments 2.4 -
Restatement of defined benefit scheme
prepayment (note 3) (0.6) -
As at 31 December 2004 IFRS 80.5 59.3
11 Trade and other payables
Notes GBPm
As at 31 December 2004 UK GAAP 233.8
Exclusion of creditor for proposed dividend i (44.7)
Proportional consolidation of group's share of joint
venture liabilities 9 1.2
As at 31 December 2004 IFRS 190.3
i Under IFRS, proposed dividends are not recognised as liabilities at
the balance sheet date.
12 Borrowings, including finance leases
Amounts
falling due
Amounts
falling due after more
in less than than one
one year year
Notes GBPm GBPm
As at 31 December 2004 UK GAAP 9.2 2,345.0
Present value of minimum finance
lease payments i 4.0 28.5
Reallocation as equity of a portion
of the convertible debt liability - (14.5)
Proportional consolidation of
group's share of joint venture
liabilities 9 - 7.3
As at 31 December IFRS ii 13.2 2,366.3
i Comprises GBP31.9m in respect of investment property and GBP0.6m in
respect of owner-occupied property held under finance leases.
ii As IFRS has no option to carry borrowings at their fair values, borrowings
will continue to be included in the balance sheet at amortised cost. The
fair value of borrowings will continue to be disclosed by way of a note.
13 Derivative financial instruments
Under IFRS, interest rate swaps are included in the balance sheet at fair value
with changes in fair value being recognised in the income statement. This does
not affect the underlying cash flows.
Hedge accounting has been adopted for foreign currency derivatives used to
hedge the group's net investment in the US. The fair value of such instruments
is still recognised in the balance sheet, but gains and losses are recognised
in equity. To the extent that such derivatives are "ineffective" hedges,
changes in fair value are recognised in the income statement.
14 Net asset value per share
UK GAAP Adjustments IFRS
GBPm GBPm GBPm
Basic net asset value at 31 December
2004 3,244.0 (709.8) 2,534.2
Effect of dilution:
On conversion of bonds 235.4 (14.5) 220.9
On exercise of options 26.9 0.8 27.7
Diluted net asset value
3,506.3 (723.5) 2,782.8
Add back deferred tax on revaluation
surpluses - 653.8 653.8
Remove fair value movements on interest
rate hedges (net of tax
of GBP39.7m) - 92.6 92.6
Add back deferred tax in respect of
capital allowances 76.2 - 76.2
Add unrecognised valuation surplus on
trading properties - 2.0 2.0
Diluted, adjusted* net asset value
3,582.5 24.9 3,607.4
Diluted, adjusted* net assets per share
(pence) 1017p 8p 1025p
* Adjusted in accordance with industry practice.
The number of shares used for the calculation of net asset value per share is
unchanged from UK GAAP, at 317.3 million shares for basic and 352.1 million
shares for diluted and diluted, adjusted net asset value per share.
PRINCIPAL ACCOUNTING POLICIES
Basis of consolidation
The consolidated financial information includes financial information in
respect of the company and its subsidiary undertakings. Subsidiary undertakings
are those entities in which the group has the ability to govern the financial
and operating policies, whether through a majority of the voting rights or
otherwise.
The group's interest in jointly controlled entities are accounted for using
proportional consolidation. The group's share of the assets, liabilities,
income and expenses are combined with the equivalent items in the consolidated
financial statements on a line-by-line basis.
Goodwill
Goodwill arising on acquisition of group undertakings is carried as an
intangible asset at cost less accumulated impairment losses. Under the terms of
IFRS 1, First Time Adoption of International Reporting Standards, the company
has elected not to apply retrospectively IFRS3, Business Combinations.
Investment properties
Investment properties are properties owned or leased by the group which are
held for long-term rental income and for capital appreciation. Investment
property is initially recognised at cost and revalued at the balance sheet date
to fair value as determined by professionally qualified external valuers. In
accordance with IAS40, investment property held under leases is stated gross of
the recognised finance lease liability.
Gains or losses arising from changes in the fair value of investment property
are included in other operating income in the income statement of the period in
which they arise. In accordance with IAS 40, as the group uses the fair value
model, no depreciation is provided in respect of investment properties
including integral plant.
When the group redevelops an existing investment property for continued future
use as an investment property, the property remains an investment property
measured at fair value and is not reclassified. Interest is capitalised before
tax relief, on the basis of the average rate of interest paid on the relevant
debt outstanding until the date of practical completion.
Development properties
Properties under development and land are initially recognised at cost and
revalued at the balance sheet date to fair value as determined by
professionally qualified external valuers. Cost includes interest and other
directly attributable outgoings, except in the case of properties and land
where no development is imminent, in which case no interest is included. In
accordance with IAS 16, gains or losses arising from changes in the fair value
of development property are dealt with in reserves. Upon completion,
development properties to be held for long-term rental income and capital
appreciation are transferred to investment property.
Leases
Leases are classified according to the substance of the transaction. A lease
that transfers substantially all the risks and rewards of ownership to the
lessee is classified as a finance lease. All other leases are classified as
operating leases.
- group as lessee:
In accordance with IAS 40, finance and operating leases of investment property
are accounted for as finance leases and recognised as an asset and an
obligation to pay future minimum lease payments. The investment property asset
is included in the balance sheet at fair value, gross of the recognised finance
lease liability. Lease payments are allocated between the liability and finance
charges so as to achieve a constant financing rate.
Other finance-leased assets are capitalised at the lower of the fair value of
the leased asset or the present value of the minimum lease payments and
depreciated over the shorter of the lease term and the useful life of the
asset. Rentals payable under operating leases are charged to the income
statement on a straight-line basis over the lease term.
- group as lessor:
Assets leased out under finance leases are recognised as receivables at the
amount of the net investment in the leases.
Finance lease income is allocated to accounting periods so as to reflect a
constant rate of return on the net investment.
Assets leased out under operating leases are included in investment property,
with rental income recognised on a straight-line basis over the lease term.
Depreciation
Plant and equipment is depreciated to its residual value on a straight-line
basis over its expected useful life of up to five years.
Trading properties
Properties and land held for sale are included in the balance sheet at the
lower of cost and net realisable value. Cost consists of direct cost excluding
interest.
Investments
Investments are classified as available-for-sale investments or trading
investments dependent on the purpose for which they were acquired.
Available-for-sale investments, being investments intended to be held for an
indefinite period, are revalued to fair value at the balance sheet date. For
listed investments, fair value is the bid market listed value ruling at the
balance sheet date. Gains or losses arising from changes in fair value are
included in the revaluation reserve except to the extent that losses are
attributable to impairment, in which case they are recognised in the income
statement. Upon disposal, accumulated fair value adjustments are included in
the income statement.
Trading investments, acquired principally for the purpose of generating a
profit from short-term fluctuations in price, are included in current assets
and revalued to fair value. Realised and unrealised gains or losses arising
from changes in fair value are included in the income statement of the period
in which they arise.
Cash and cash equivalents
Cash and cash equivalents are carried in the balance sheet at cost. For the
purposes of the cash flow statement, cash and cash equivalents comprise cash on
hand, deposits with banks, other short-term, highly liquid investments with
original maturities of three months or less, net of bank overdrafts.
Revenue recognition
Property revenue consists of gross rental income calculated on an accruals
basis, together with sales and services as principal in the ordinary course of
business, excluding sales of investment properties. Rental income receivable in
the period from lease commencement to the earlier of lease expiry and any
tenant option to break is spread evenly over that period. Any incentive for
lessees to enter into a lease agreement is spread over the same period.
Revenue in respect of investment and other income represents investment income,
fees and commissions earned on an accruals basis and profits or losses
recognised on investments held for the short-term. Dividends are recognised
when the shareholders' right to receive payment has been established. Interest
income is accrued on a time basis, by reference to the principal outstanding
and the effective interest rate.
Income taxes
The charge for current taxation is based on the results for the year as
adjusted for items which are non-assessable or disallowed. It is calculated
using rates that have been enacted or substantively enacted by the balance
sheet date. Tax payable upon realisation of revaluation gains recognised in
prior periods is recorded as a current tax charge with a release of the
associated deferred taxation.
Deferred tax is provided using the balance sheet liability method in respect of
temporary differences between the carrying amount of assets and liabilities in
the financial statements and the corresponding tax bases used in computation of
taxable profit with the exception of deferred tax on revaluation surpluses
where the tax basis used is the accounts historic cost.
Deferred tax is provided on all temporary differences, except in respect of
investments in subsidiaries and joint ventures where the timing of the reversal
of the temporary difference is controlled by the Group and it is probable that
the temporary difference will not reverse in the foresee
