| Wed 15 Feb 2006, 12:12 | | Customer service |
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Customer service
Consumers have become more selective demanding "added value"; convenience and a
broad range of shops have become priorities in the choice of shopping
destination. Our focus on improvements to customer service and amenities is
relentless, aiming to provide the consumer with a hassle-free shopping trip,
offering something special and different.
Through our close working relationships with retailers, we can plan ahead to
provide their store size requirements to enable them to meet consumer demand
for choice. We continue to invest in customer service - creating clean, safe
and bright environments to welcome each member of the public.
Our partnership approach extends beyond retailers and consumers to the wider
catchment areas in which we invest, working closely with local authorities and
consumer organisations to incorporate their requirements. These relationships
are important in ensuring our centres provide full benefit to their
communities, including for example in certain locations educational support
through the sponsorship of retail management and apprenticeship schemes.
Embracing local authorities" wider vision for their towns and cities assists in
providing more attractive destinations, differentiating them from competing
locations.
Our CSC Enterprises" business, building on the powerful marketing opportunity
of an estimated 210 million customer visits each year to our centres, made a
meaningful contribution to revenue in 2005 of GBP6 million.
Development activities in respect of completed shopping centres
In order to anticipate and respond to both retailer and consumer requirements,
management constantly focus on selecting and implementing opportunities to
further improve CSC"s centres; 2005 saw much activity.
At Lakeside, Thurrock, we have continued to enhance the customer offer. The
provision of a roof box has provided Next with a 63,000 sq.ft. store now
trading on three levels, while taking back the former Allders store has
afforded the opportunity to provide Primark, previously not represented at
Lakeside, with a 60,000 sq.ft. store, soon to be extended to 90,000 sq.ft.
Full planning consent has now been granted for the final phase of Lakeside"s
refurbishment, the remodelling of the Pavilion building, which will provide
nine new restaurants, overlooking Alexandra Lake together with additional
retail and leisure uses. All the restaurant space is under offer and
construction is due to commence in the Spring for completion in Summer 2007.
Our rolling programme of refurbishment at MetroCentre, Gateshead, has continued
successfully, providing new flooring and improved vertical circulation through
the majority of the malls, due to complete in Autumn 2006.
At Braehead, Renfrew, Glasgow the phase two development which involves 165
acres of land adjacent to the shopping centre made substantial progress in
2005. Major infrastructure works, including new roads, a riverside walkway and
a public park were completed. Construction of the 460,000 sq.ft. Xscape leisure
scheme, a joint venture with Capital & Regional plc, is progressing well for
opening in Spring 2006. The scheme includes an indoor ski slope, a multi-screen
cinema, bowling and an excellent line-up of restaurants, cafes and speciality
retailers. 71 per cent of the projected annual income is now committed with a
further 20 per cent under negotiation. We sold 4.3 acres for showroom and
offices in the second half of the year, recording a trading profit of GBP1.2
million. In addition, conditional contracts have been exchanged to sell a
further 40 acres of residential land and 2 acres of commercial land for anhotel.
Construction of Riverside, Braehead, a 35,000 sq.ft. office scheme
providing small units for sale or rent, will commence in Summer 2006.
At Eldon Square, Newcastle, enabling works have been completed for construction
to commence this Spring on the new bus station and 48,000 sq.ft. of retail
space in the north of Eldon Square (`ES North"), due to complete in 2008.
Construction work for the second phase, providing bigger units on
Blackettbridge and restaurants overlooking Old Eldon Square (`ES West"), has
commenced on site, with the new occupiers expected to open for Christmas trade
in 2006. 64 per cent of the 22,000 sq.ft. of new space in ES West is currently
under offer. Good progress continues to be made on the third and largest
development, to the south of the centre (`ES South"), providing 410,000 sq.ft.
of retail space including a new department store. Subject to site assembly,
works are due to commence on site in Autumn 2006 and retailer interest is very
encouraging. Eldon Square, currently comprising 961,000 sq.ft., will provide
1.3 million sq.ft. of city centre retail space on completion of the three
phases.
At The Glades, Bromley, our project to provide an additional 38,000 sq.ft. of
retail space through the re-configuration and integration of recent High Street
acquisitions, is programmed to commence on site in Spring 2006. The first phase
will also provide new and improved customer facilities for the centre. 60 per
cent of the new space is under offer.
In Watford, we continue to make good progress on our mixed use plans for the
Charter Place site adjacent to The Harlequin, where the planning brief has been
finalised and an initial public consultation programme completed.
At the Victoria Centre, Nottingham, the 40,000 sq.ft. remodelling project
converting the lower level of the former market to prime retail space is
complete and fully let. The new retailers - Top Shop, Monsoon and Republic -
opened ahead of the Christmas trading period.
Following our acquisition in March 2005 of 50 per cent of the Prudential"s
interest in properties at Manchester Arndale and Cribbs Causeway, initial
performance has been very encouraging with scope for additional initiatives to
add further value to these premium assets. In partnership with the Prudential,
we will commence works to refurbish and modernise the retail park at Cribbs
Causeway in March 2006 with completion programmed for the Autumn prior to
pre-Christmas trading.
At Manchester Arndale, where Prudential is responsible for delivery of the
Northern Extension, works for phases 2 and 3 are on programme which will enable
openings in April and October 2006 respectively. This will complete the 550,000
sq.ft. extension increasing the whole centre to 1.4 million sq.ft. in total.
Some 80 per cent of the new space is currently committed, reflecting strong
retailer demand for this prime location in the city.
Progress on New Projects
Significant progress has been made in Cardiff, where the St David"s
Partnership, our joint venture with Land Securities Group PLC, has secured
detailed planning consent for a 957,000 sq.ft. retail-led mixed-use extension
to the existing St David"s Centre.
A Conditional Development Agreement has been exchanged with Cardiff County
Council and the Compulsory Purchase Order has been published. Enabling works
are underway and a construction start is anticipated in Winter 2006 for
completion in Autumn 2009. An agreement for lease has been exchanged with the
John Lewis Partnership for a 260,000 sq.ft. department store and discussions
are underway with other major space users.
In Oxford, the Westgate Partnership, our joint venture partnership with La
Salle Investment Management, continues to make progress with agreement now
reached with both Oxford City and County Councils on a transport solution for
our proposed scheme and the wider West End regeneration area of which Westgate
is a vital ingredient. The detailed design of the proposed retail-led mixed-use
extension to the Westgate Centre is now underway. A further round of public
consultation on the emerging designs has proved very positive and a detailed
planning application for 750,000 sq.ft. of retail anchored by a department
store for the John Lewis Partnership, together with 124 residential units, is
expected to be submitted in Spring 2006.
CAPITAL & COUNTIES
Key information on Capital & Counties
complementary to regional shopping centre business
Central London and non-shopping centre retail
a window to the US market with regional shopping centres and other retail
in California
mixed-use development skills
over 6 million sq.ft. of retail and business space
investment properties at 31 December 2005 GBP1.1 billion; 30 per cent in USA
GBP102 million revaluation surplus in 2005 (11.1 per cent)
by value, 57 per cent retail, 43 per cent business space
like-for-like net rental income growth in 2005 of 5.2 per cent
2005 trading profits of GBP10.4 million
GBP200 million development programme with 1.6 million sq.ft. of development
and refurbishment under way or planned
UK
2005 has been dominated by preparation for a number of major refurbishment and
redevelopment projects. We have also taken advantage of strong investment
markets to make a number of disposals from both the investment and trading
portfolios. Where we have perceived opportunity to add value, we have been
prepared to make purchases, but without pursuing an aggressive policy in
current market conditions.
Central London
GBP400 million market value
We have seen West End office rental growth of up to 18 per cent over the year
in St James"s and Piccadilly where we have significant holdings. A rolling
programme of upgrading continued within the multi-let West End and Mid Town
office buildings with work planned in 2006 for 23,000 sq.ft. of space. Retail
rental values have been stable or showed some marginal growth.
At the year end, offices available to let within our Central London properties
excluding redevelopments or refurbishments planned or underway amounted to 2
per cent of total floorspace.
Purchasing investments in a very competitive marketplace within the West End
market has become increasingly difficult. Yields have continued to fall over
the year as investors became convinced of the likelihood of strong office
rental growth. We did however acquire Kendal House, a 10,150 sq.ft. office and
retail building strategically located at the junction of Regent Street and
Conduit Street, for GBP8 million.
Significant progress has been made with the refurbishment and redevelopment
programme outside the core West End. At Hammersmith, regeneration and re-
imaging is underway of the 110,000 sq.ft. office building currently known as
Commonwealth House and to be rebranded as the Metro Building. Completion of a
show suite is expected in May 2006. At Wapping, E1 architects are drawing up
creative plans for contemporary loft-style workspace within the 170,000 sq.ft.
riverside Metropolitan Wharf. A planning application will be made in February
2006.
As reported at the half year, the London Borough of Southwark has resolved to
grant consent for partial redevelopment and extension of the King"s Reach
complex. The scheme envisages complete reorganisation of the office, retail and
public realm elements and gross floorspace will increase by nearly half to
almost 400,000 sq.ft. We have also gained consent from Westminster City Council
for the major redevelopment with our partner, Prudential, of 190 Strand, WC2.
This outstanding design by architects Kohn Pederson Fox will provide 200,000
sq.ft. of office and retail floorspace together with 44 apartments. Vacant
possession of King"s Reach and 190 Strand is anticipated within two years.
Business space outside London
GBP197 million market value
In the M25 West area, office market conditions are improving in Uxbridge where
our property, Capital Court, is now fully let at rents of up to GBP24 per
sq.ft. Slough and Heathrow markets continue to experience oversupply, though we
have let over 4,000 sq.ft. at Capital Place, Hillingdon for around GBP20 per
sq.ft.
At Capital Park, Cambridge, an additional 39,000 sq.ft. office phase has
started and is due for completion in the second half of 2006. As reported at
the half year, we continue to plan for the substantial upgrading of 54 Hagley
Road, Birmingham. Planning consent has now been received for a major
`statement" entrance to the building and we are currently seeking consent for
enlargement of the car park.
We also completed refurbishment of 36,000 sq.ft. offices at Port Solent,
Hampshire, following negotiation of a prelet of the entire building.
Retail outside London
GBP174 million market value
Asset management activities at the Braintree and Stafford retail parks have
continued. We added to our retail warehouse investments by the acquisition of
the 38,000 sq.ft. Riverside Retail Park in Canterbury for GBP10.7 million. Let
to Staples, Pets at Home and Land of Leather, this park benefits from being
part of a major cluster of retail warehousing at the A2/A28 Junction, half a
mile south west of the city centre. A retail warehouse was also acquired in
Rotherham; let to B&Q but with an open A1 retail consent and expansion
potential.
No other retail acquisitions were made and we took advantage of investment
market conditions to sell the long leasehold interest in the 110,000 sq.ft.
Swansea Market retail scheme for GBP42.6 million, above book value.
As in Central London, current and prospective projects continue to dominate.
Planning consent was received in December 2005 for a major conversion and
extension of the mainly vacant former Allders store on the Headrow, Leeds. The
consented scheme includes 120,000 sq.ft. of prime retail and 150,000 sq.ft. of
new offices. An alternative and equally financially attractive scheme is also
being prepared which would enable us to proceed without gaining possession of
currently occupied offices.
In addition to this, we have started to look at the potential for unutilised
space over retailing areas at the Lewis" Liverpool and Primark Manchester
department stores. A total of 300,000 sq.ft. could be brought into use. At
Manchester, a scheme is being drawn up to provide about 100,000 sq.ft. of
loft-style workspaces whilst at Liverpool various possibilities are under
consideration including residential and hotel use.
Trading
GBP54 million market value (UK)
We continue to maintain a UK trading portfolio and the principal sale in 2005
was of an 8 acre site at Junction 15 of the M40, following the receipt of a
residential planning consent, creating a trading profit of GBP6.4 million. 5.5
acres of potential commercial development land have been retained.
US
2005 has been a very active year for Capital & Counties USA Inc.
At Mission Village, Fairfield, planning consent was obtained for a major
superstore in place of the remaining unoccupied retail units on this 18 acre
site, and a sale to WalMart was concluded. We also sold a parcel of land in
central Pasadena adjacent to our residential and retail development. Together,
these sales created substantial trading profits of GBP4.5 million ($8.1
million).
The proceeds of the sales were recycled into the purchase for $42 million of a
127,000 sq.ft. retail and office building at Sutter Street, downtown San
Francisco. The Senator office building in Sacramento was refinanced with a new
$38 million loan at 5.3 per cent, effectively repaying our original equity in
the purchase.
In Pasadena, two of the proposed five phases of the `Trio" apartment
developments have been completed together with the pool, gym and amenity areas.
We have also leased further vacant space at the adjoining Sanwa office
building, bringing it to 96 per cent occupancy.
At Serramonte Shopping Centre, improvements and enhancements continued
throughout the year. The development of areas adjacent to the North entrance to
the scheme was completed and the new `gateway" dining facility - the `Elephant
Bar" - was opened. We continue to work on upgrading tenant mix and completed an
important amendment to an anchor store lease, thus opening the way to further
development of the site.
At the Willows Shopping Centre, Concord we secured planning approval for the
redevelopment of 6,800 sq.ft. of awkwardly arranged vacant space. The resulting
10,800 sq.ft. unit has been preleased to Pier One.
In 2005, the US company has once again demonstrated the success of its
consistent focus on
- capital recycling through strategic sales and opportunistic purchases
- value adding activities
- timely use of leverage
- trading and development
In the US, the focus on retail will continue but will not preclude
consideration of other opportunities in 2006.
FINANCIAL REVIEW
ACCOUNTING ISSUES
International Financial Reporting Standards ("IFRS") became mandatory for all
listed companies within the European Union from 1 January 2005 and the
Preliminary Report for 2005 has been prepared in compliance with IFRS. The
comparative figures for 2004 have been restated accordingly and the notes to
the Preliminary Results contain summary reconciliations to the previously
reported figures. A more extensive commentary and explanation of the changes
brought about by the transition to IFRS is contained in a separate document
published on 26 July 2005 which is available in the Report and Accounts section
on the company"s website (www.liberty-international.co.uk).
INCOME STATEMENTAnalysis of profit before tax
Increase Year ended Year ended
31 December 31 December
2005 2004
Restated
GBPm GBPm
Underlying profit before tax 8.4% 109.3 100.8
Property trading profits 11.6 6.2
Profit before tax, valuation and
exceptional items 13.0% 120.9 107.0
Gains on revaluation and sale of
investment properties 565.5 357.3
Movement in fair value of
derivative financial instruments (145.8) (41.4)
Exceptional items (13.7) 32.2
Profit before tax 526.9 455.1
Underlying profit before tax increased by 8.4 per cent to GBP109.3 million from
GBP100.8 million reflecting rent reviews and interest savings, offset in part
by the impact of active management and acquisitions all of which are discussed
in more detail below.
Trading profits of GBP11.6 million were almost twice the level achieved in 2004.
Overall profit before tax, valuation and exceptional items therefore increased
by 13.0 per cent from GBP107.0 million to GBP120.9 million.
In addition to exceptional items, material items which need to be disclosed by
virtue of their size or incidence, profit before tax, under IFRS, includes
other items which are unpredictable by their nature, such as revaluation gains
on investment properties and the movement in fair value of derivative financial
instruments. These items can have a significant impact on the presentation and
interpretation of the revenue results. In order to compare one period with
another, the results have been analysed above to show the effect of these
items.
Under IFRS, the revaluation movements on investment properties, other than on
first time developments, are presented in the Income Statement rather than in
the revaluation reserve. Commentary on this movement is dealt with below under
the section, investment properties. Also, under IFRS, the fair value of
derivative financial instruments is now included in the balance sheet and the
movement in fair value of derivative financial instruments is included in the
Income Statement. This change creates considerable volatility in the Income
Statement and has particular significance for Liberty International because of
our chosen method of financing which employs a small proportion of fixed rate
finance but uses derivative financial instruments to fix interest rates on the
more flexible floating rate funding which forms the greater proportion of our
debt.
This gives the group the desired certainty over future cash flows combined with
a debt structure which enables early repayment without necessarily incurring
the significant penalties that can be associated with the early repayment of
fixed rate debt. For example, the separation of the fixed and floating elements
in this way enabled us to benefit from reduced margins, through the early
refinancing of non-recourse facilities secured on our major shopping centres,
in a way which would not have been possible had the original financing been on
a fixed rate basis.
We have not adopted the hedge accounting treatment for interest rate
derivatives with the result that these derivative financial instruments are
accounted for at fair value with movements in fair value shown in the Income
Statement. This differs from the treatment of fixed rate debt where fair value
has no impact on the Balance Sheet or the Income Statement even though the cash
flows from both types of financing should be broadly similar.
Over the period to 31 December 2005, interest rates in general fell and in
particular the ten-year sterling interest rate swap, which represents a
suitable benchmark for the group"s fixed rate obligations, decreased from 4.86
per cent to 4.45 per cent. As a result the fair value of the group"s derivative
financial instruments, which are outlined in more detail below under Maturity
and Interest Rate Profile of Debt, declined by GBP145.8 million and this
movement has been reported in the Income Statement.
The fair value of financial instruments is extremely sensitive to movements in
interest rates. An increase of around 0.80 per cent in swap rates would be
sufficient to eliminate the GBP281 million negative fair value shown in the
balance sheet at 31 December 2005 while such a rise in interest rates would
have a minimal impact on the group"s financing cash flows.
Exceptional items in the period to 31 December 2005 primarily comprised the
costs associated with the early conversion of GBP129 million convertible bonds
into 16 million ordinary shares plus the unamortised costs of the original
MetroCentre and Braehead bank facilities which were written off when these
facilities were repaid earlier in the period. Further commentary on the impact
of the financings is included below under the section net interest payable.
Profit before tax increased to GBP526.9 million from GBP455.1 million, largely
as a result of the substantial increase in the revaluation gain on investment
properties.
Net rental income increased to GBP300.1 million from GBP256.3 million. The
increase has two components, like-for-like growth and acquisitions net of
disposals. Overall the like-for-like growth, calculated in respect of 58 per
cent of properties by value, amounted to GBP13.2 million (7.7 per cent).
UK regional shopping centres provided like-for-like growth of GBP11.1 million
(8.5 per cent) primarily from the favourable rent reviews at Braehead. A
further GBP14.1 million increase in net rental income came from centres where
there had been substantial capital expenditure in 2004, notably the addition of
the Red Mall at MetroCentre and the increased interest in The Potteries,
Stoke-on-Trent. Acquisitions in 2005 accounted for a further GBP23.5 million of
the total increase.
Other UK properties contributed 5.2 per cent like-for-like growth. However, the
effect of property sales and management decisions to forgo short-term revenue
for medium and longer-term refurbishment or redevelopment opportunities led to
an overall reduction in net rental income of GBP6.5 million.
The US properties also showed like-for-like growth of 5.2 per cent with capital
expenditure in the previous period, net of disposals, resulting in an overall
19.0 per cent increase in net rental income.
Other income decreased marginally to GBP14.2 million from GBP15.1 million
reflecting a near doubling of property trading profits to GBP11.6 million but a
reduced level of investment income as a result of the disposal of the interest
in Great Portland Estates and other investments during 2004.
Interest payable increased to GBP171.7 million from GBP147.5 million. Together
with a reduction in interest receivable from GBP10.3 million to GBP7.5 million,
this reflects the increase in net debt during the period less the benefit from
the savings resulting from the refinancings referred to below. The increase in
interest payable reflects expenditure on property acquisitions both in the
latter part of 2004, and more significantly in 2005 the acquisition from
Prudential of interests in Manchester Arndale and The Mall at Cribbs Causeway
and more recently the completion of Chapelfield, Norwich and an increased
interest in Eldon Square, Newcastle.
In the second half of 2004 and the first half of 2005, Liberty International
undertook three major non-recourse refinancings, effectively replacing secured
bank loans with commercial mortgage backed securities, gaining the advantage of
capital markets pricing while retaining the flexibility of a bank loan. The
combined savings from the GBP650 million seven-year Lakeside facility in August
2004 and the GBP532 million ten-year facility secured on MetroCentre in
February 2005, amounted to around GBP6 million per annum.
The third major financing, in May 2005, involved Braehead and The Harlequin,
Watford raising on a ten-year basis a combined GBP640 million excluding the
higher coupon bonds retained by Liberty International. The net proceeds of this
financing, after repaying other facilities, amounted to GBP468 million and
provided the bulk of the resources for the GBP653 million purchases from
Prudential, with the balance of the purchase price satisfied from cash
resources. The rate achieved on the Braehead and Harlequin financing of 5.30
per cent before costs, but including hedging arrangements, is marginally above
the initial running yield of around 5 per cent on the properties acquired.
The movement in net debt and available facilities is commented upon further
under the Financial Management heading.
The underlying tax charge, before valuation and exceptional items and before
deferred tax on capital allowances amounted to 21.3 per cent (2004 - 19.8 per
cent).
The low tax charge was primarily attributable to the benefit of capital
allowances and tax relief for capitalised interest, both of which should
continue to be of benefit in 2006 as a result of the active development
programme.
Provision for tax on valuation and exceptional items and deferred tax in
respect of capital allowances increased the group"s reported tax charge to 30.5
per cent (2004 - 27.0 per cent).
Basic earnings per share increased to 114.8p from 104.8p. Earnings per share
(adjusted) increased by 10 per cent to 29.8p from 27.1p.
The final dividend per share increased to 15.25p per share making a total
dividend for the period of 28.25p, an increase of 6.6 per cent in line with our
policy of distributing substantially all of the group"s underlying net income.
Under IFRS no provision is made for dividends declared after the balance sheet
date.
BALANCE SHEET
Net assets per share
As at As at
31 December 31 December
2005 2004
Restated
GBPm GBPm
Basic net asset value 2,933.1 2,534.2
Effect of dilution:
On conversion of bonds 105.4 220.9
On exercise of options 17.9 27.7
Diluted net asset value 3,056.4 2,782.8
Adjustments:
Fair value of derivative financial instruments
(net of tax) 194.4 92.6
Deferred tax on revaluation surpluses 817.4 653.8
Deferred tax on capital allowances 95.7 76.2
Unrecognised surplus on trading properties (net
of tax) 16.4 2.0
Diluted adjusted net asset value 4,180.3 3,607.4
Basic net assets per share (pence) from IFRS
balance sheet 875 p 799 p
Net assets per share (diluted, adjusted) (pence) 1188 p 1025 p
Basic shares in issue used for calculation 335.4 m 317.3 m
Diluted shares used for calculation 352.0 m 352.1 m
Net assets per share (diluted, adjusted) is arrived at after adding back the
IAS 12 provision for deferred tax on property revaluation surpluses and the
adjustment in respect of fair value of derivative financial instruments.
Two further potential adjustments are often made in order to arrive at the UK
industry measure referred to as triple net assets per share. First is the
adjustment for the fair value of all financial instruments, not just
derivatives. The fair value adjustment for non-derivative financial instruments
(note 11) amounts to 27p per share after tax (31 December 2004 - 23p) and the
adjustment for derivative financial instruments equates to 55p per share after
tax (31 December 2004 - 26p). This number is of course extremely sensitive to
interest rates and, as referred to above, would be eliminated by a rise of
around 0.80 per cent in the ten-year interest rate swap.
The second potential adjustment is the provision for deferred tax which,
calculated on a disposal basis (note 6) rather than the basis reported under
IFRS, would amount to GBP642 million (31 December 2004 - GBP505 million) or
182p per share (31 December 2004 - 143p). However, this amount is undiscounted
and takes no account of the savings that may be available depending on how
sales are structured.
The sum of the above potential adjustments is 264p at 31 December 2005 (31
December 2004 - 192p).
Investment properties increased to GBP6,938 million from GBP5,298 million at
December 2004. Additions amounted to GBP1,102 million, comprising primarily the
acquisition of Manchester Arndale, The Mall at Cribbs Causeway and Chapelfield,
Norwich together with expenditure on development and refurbishment activity
across the portfolio. The movements during the period are summarised in the
table below.
Analysis of movement in investment properties
GBPm
Investment properties at 31 December 2004 5,298
Additions 1,102
Disposals (40)
Foreign exchange and other movements 30
Valuation surplus on investment properties 563
Valuation deficit on new developments (15)
Investment properties at 31 December 2005 6,938
The net valuation surplus arising in the period to 31 December 2005 amounted to
GBP547.2 million, of which a GBP562.9 million surplus was dealt with in the
Income Statement together with the GBP2.6 million gain on sales and the GBP15.7
million deficit on valuation of developments was dealt with in the revaluation
reserve. Under IFRS, investment properties under development or redevelopment
are revalued to fair value.
Net assets increased to GBP2,933 million from GBP2,534 million. Net assets
(diluted, adjusted) increased to GBP4,180 million from GBP3,607 million and net
assets per share (diluted, adjusted) increased to 1188p from 1025p, mostly as a
result of the valuation surpluses arising during the period and the underlying
profit for the period.
Investment properties are valued after deducting notional acquisition costs
including stamp duty amounting in aggregate to GBP318 million (31 December 2004
- GBP170 million), equivalent to 90p per Liberty International share (31
December 2004 - 48p). These notional costs assume each asset is sold
individually on the open market at that date and take no account of the
structures through which the assets are held within the Liberty International
group.
In the case of Liberty International, the purchase and sale of shares is the
predominant mode of exchange of ownership and value for shareholders, not the
sale of each underlying individual property. If these notional acquisition
costs were added back, net assets (diluted, adjusted) would amount to GBP4,498
million (2004 - GBP3,777 million) and net assets per share (diluted, adjusted)
would amount to 1278p (2004 - 1073p) compared with the reported figure of 1188p
(2004 - 1025p).
FINANCIAL MANAGEMENT
Movement in Net Debt and Bank Facilities
Cash balances reduced by GBP368 million from GBP439 million at 31 December 2004
to GBP71 million at 31 December 2005 while gross borrowings increased by GBP604
million to GBP2,984 million. The increase in gross borrowings is largely
explained by the GBP640 million net proceeds of the new Braehead and Harlequin
facilities. The resulting movement in net debt during the period is broadly
explained by the table below.
Analysis of movement in net debt
Net debt
GBPm
Opening net debt (note 10) 1,941
Additions to investment properties 1,102
Disposals of investment properties (43)
Conversion of bonds (116)
Other 29
Closing net debt (note 10) 2,913
At 31 December 2005 the group had committed undrawn medium-term bank facilities
of GBP405 million which in part provide standby cover for short-term loans of
GBP152 million. Available facilities have been increased by a further GBP90
million since the year end.
On 8 December 2005 Liberty International announced an offer of GBP60 per
GBP1,000 to holders of 3.95% Convertible Bonds who exercised their option to
convert into the ordinary shares of Liberty International at the rate of 125
shares per GBP1,000 of bonds. Acceptances were received in respect of GBP128.7
million of bonds resulting in the issue of 16.1 million ordinary shares and a
reduction in net debt of GBP108 million (after costs and expenses of GBP8.4
million). The early conversion brought an improvement in the group"s financial
ratios, reduced the risk associated with the potential early repayment of the
bonds in 2007, albeit that in current circumstances this possibility seems
remote, and the premium paid represented only a small proportion of the premium
received from the original issue. The additional permanent share capital and
reduced debt provide an improved capital structure from which to pursue the
development programme.
Financial Ratios
The group"s main internal constraints are that, at currently prevailing
property yields and interest rates, interest cover, measured before valuation
and exceptional items and adjusting for the amortisation of convertible debt,
should be maintained at a level in excess of 1.6 times and debt to assets at
less than 50 per cent. On these measures, interest cover reduced to around 1.7
times (2004 - 1.8 times) and the ratio of net debt to assets increased to 40
per cent from 36 per cent, in each case within the group"s internal
constraints.
Maturity and Interest Rate Profile of Debt
The group"s policy is to eliminate substantially all exposure to short and
medium-term interest rate fluctuations in order to reduce the variability of
cash flows. During the period short-term interest rates in the UK reduced from
4.75 per cent to 4.50 per cent.
However, the market in longer-term sterling swaps reflected expectations for
interest rates to fall further and the ten-year sterling interest rate swap
declined by over 0.40 per cent to 4.45 per cent over the same period.
The table below summarises the interest rate swaps in place at 15 February 2006
compared with 31 December 2005 and 31 December 2004. The level of fixed rate
protection was increased during 2005 and in early 2006, across all maturities
including extending protection beyond the current maturity of existing floating
rate facilities . The larger part of the increase resulted from the hedging
undertaken to cover the debt incurred for the GBP653 million acquisition of
shopping centre interests from Prudential, with further hedging undertaken in
respect of the committed element of the development programme. The average swap
rate across all periods was reduced.
Interest rate swap summary
Notional principal
15 February 31 December 31 December
2006 2005 2004
GBPm GBPm GBPm
Outstanding after:
1 year 2,462 2,462 1,744
5 years 2,909 3,125 2,111
10 years 1,950 1,780 1,235
15 years 1,475 1,175 900
20 years or more 1,475 1,175 900
Average rate
15 February 31 December 31 December
2006 2005 2004
Outstanding after:
1 year 5.36% 5.36% 5.64%
5 years 5.22% 5.29% 5.68%
10 years 4.76% 4.97% 5.22%
15 years 4.65% 4.86% 5.00%
20 years or more 4.65% 4.86% 5.00%
Over the next ten years substantially all interest payments, including those in
respect of debt which is expected to arise as a result of committed capital
expenditure, are at fixed rates. However, as the potential developments become
more probable capital commitments, the level of hedging will be addressed in
line with the group"s interest rate hedging policy.
The weighted average maturity of debt is 8 years, the weighted average lease
maturity 9 years and the weighted average interest cost of group debt at 31
December 2005 was 6.1 per cent (5.8 per cent excluding the GBP230 million of
Capital and Counties" First Mortgage Debenture Stocks 2021 and 2027 which were
issued in a different interest rate environment in the late 1980s and early
1990s).
15 February 2006
CONSOLIDATED INCOME STATEMENT (Unaudited)
For the year ended 31 December 2005
Year ended
Year ended 31 December
31 December
2005 2004
Restated*
GBPm GBPm
Notes
Revenue 2 434.3 392.7
Rental income 417.1 367.5
Rental expenses (117.0) (111.2)
Net rental income 300.1 256.3
Other income 14.2 15.1
Gain on revaluation and sale of
investment properties 3 565.5 357.3
2 879.8 628.7
Administration expenses (29.2) (27.2)
Operating profit before exceptional
items 850.6 601.5
Exceptional profit on disposal of
fixed asset investments 4 - 35.6
Operating profit 850.6 637.1
Interest payable 5 (171.7) (147.5)
Interest receivable 7.5 10.3
Exceptional finance costs 5 (13.7) (3.4)
Change in fair value of derivative
financial instruments (145.8) (41.4)
Net finance costs (323.7) (182.0)
Profit before tax 526.9 455.1
Current tax on ordinary items 6 (25.5) (24.4)
Deferred tax on ordinary items 6 (139.8) (96.4)
Tax on exceptional items 4.7 (2.2)
Taxation charge (160.6) (123.0)
Profit for the period attributable to
equity shareholders 366.3 332.1
Basic earnings per share 14 114.8p 104.8p
Diluted earnings per share 14 107.4p 98.3p
* Restated for the effect of adopting IFRS (see note 1)
Adjusted earnings per share are shown in note 14
CONSOLIDATED BALANCE SHEET (Unaudited)
As at 31 December 2005
As at As at
31 December 31 December
2005 2004*
Restated
Notes GBPm GBPm
Non-current assets
Investment property 7 6,913.6 5,250.4
Development property 7 24.2 47.2
6,937.8 5,297.6
Plant and equipment 0.6 1.3
Trade and other receivables 9 65.7 59.3
7,004.1 5,358.2
Current assets
Trading properties 8 132.6 111.9
Trade and other receivables 9 78.7 80.5
Investments 3.0 -
Cash and cash equivalents 70.8 438.8
285.1 631.2
7,289.2 5,989.4
Total assets
Current liabilities
Trade and other payables (212.4) (190.3)
Tax liabilities (10.0) (23.8)
Borrowings, including finance leases 10 (173.5) (13.2)
Derivative financial instruments (21.6) (12.9)
(417.5) (240.2)
Non-current liabilities
Borrowings, including finance leases 10 (2,810.2) (2,366.3)
Derivative financial instruments (259.5) (121.8)
Deferred tax provision 6, 12 (856.2) (708.9)
Other provisions 12 (6.8) (17.2)
Other payables (5.9) (0.8)
(3,938.6) (3,215.0)
Total liabilities (4,356.1) (3,455.2)
Net assets 2,933.1 2,534.2
Equity
Called up share capital and reserves 15 2,933.1 2,534.2
* Restated for the effect of adopting IFRS (see note 1)
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
(Unaudited)
For the year ended 31 December 2005
Year ended Year ended
31 December 31 December
2005 2004*
Restated
GBPm GBPm
Profit for the period 366.3 332.1
Net exchange translation differences and other (0.1) (2.9)
Actuarial losses on defined benefit pension
schemes (2.6) (0.4)
Deficit on revaluation of development properties (15.7) -
Tax on items taken directly to equity 5.5 0.1
Transfers to income statement on disposal of
investments - (6.6)
Tax on items transferred from equity - 1.1
Total recognised income and expense for the
period 353.4 323.4
* Restated for the effect of adopting IFRS (see note 1)
A summary of changes in group equity is shown in note 15
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
Year ended Year ended
31 December 31 December
2005 2004*
Restated
GBPm GBPm
Cash flows from operating activities
Operating profit before exceptional items 850.6 601.5
Adjustments for non-cash items:
Unrealised net revaluation gains on investment
properties (562.9) (340.3)
Profit on sale of investment properties (2.6) (17.0)
Depreciation and amortisation 0.8 0.5
Amortisation of lease inducements and other
direct costs (4.6) 4.3
Cash flows from operations before changes in
working capital 281.3 249.0
Change in trade and other receivables (24.2) (8.6)
Change in trading properties (18.1) (30.1)
Change in current asset investments (3.0) -
Change in trade and other payables 17.1 15.9
Cash generated from operations 253.1 226.2
Interest paid (168.2) (140.8)
Interest received 9.7 10.3
Tax paid (24.5) (18.3)
Cash flows from operating activities 70.1 77.4
Cash flows from investing activities
Purchase and development of property (1,081.5) (145.2)
Sale of property 43.7 93.3
Purchase of investments and other fixed assets - (0.8)
Sale of investments - 190.1
Purchase of interests in joint ventures and
subsidiary companies - (51.3)
Increase in long term loans receivable, before
amortisation - (0.7)
Cash flows from investing activities (1,037.4) 85.4
Cash flows from financing activities
Issue and repurchase of shares 10.1 1.9
Borrowings drawn 1,944.8 644.8
Borrowings repaid (1,268.9) (490.4)
Equity dividends paid (86.3) (81.1)
Cash flows from financing activities 599.7 75.2
Net (decrease)/increase in cash and cash
equivalents (368.0) 238.0
Cash and cash equivalents at 1 January 438.8 200.8
Cash and cash equivalents at closing 70.8 438.8
* Restated for the effect of adopting IFRS (see note 1)
NOTES TO THE ACCOUNTS (Unaudited)
1. Basis of preparation
The Preliminary Report is unaudited and does not constitute statutory accounts
within the meaning of s240 of the Companies Act 1985. The statutory accounts
for 2004, which were prepared under UK GAAP, have been delivered to the
Register of Companies. The auditors" opinion on these accounts was unqualified
and did not contain a statement made under s237 (2) or s237(3) of the Companies
Act 1985.
The financial information has been prepared in accordance with the accounting
policies set out in the document entitled "Adoption of IFRS - Restatement of
2004 Income Statements and Balance Sheet" (the "release") dated 26 July 2005
which is available on the company"s website (www.liberty-international.co.uk).
The Group has applied these policies for the year ended 31 December 2005 in the
financial statements in accordance with International Financial Reporting
Standards, as adopted by the European Union ("IFRS") for the first time and
with those parts of the Companies Act 1985 applicable to companies reporting
under IFRS. It has been prepared under the historical cost convention as
modified by the revaluation of properties, available for sale investments and
financial assets and liabilities held for trading.
Change of accounting policies
Prior to the adoption of IFRS the financial statements of Liberty International
had been prepared in accordance with United Kingdom accounting standards (UK
GAAP). UK GAAP differs in certain respects from IFRS and certain accounting,
valuation and consolidation methods have been amended, when preparing these
financial statements, to comply with IFRS. The comparative figures in respect
of 2004 have been restated to reflect these amendments. Reconciliation and
description of the effect of the transition from UK GAAP to IFRS on the group"s
reported financial position, financial performance and cash flows is set out in
note 16.
2. Segmental analysis
Year ended 31 December 2005
UK Other
Shopping Commercial Other Group
Centres Properties Activities Total
GBPm GBPm GBPm GBPm
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 - 11.6
Other income - 0.4 2.2 2.6
Gain on revaluation and
sale of investment
properties 459.4 106.1 - 565.5
Segment result 696.2 181.4 2.2 879.8
Year ended 31 December 2004 (restated)
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
Property trading
profits 6.0 0.2 - 6.2
Other income - - 8.9 8.9
Gain on revaluation
and sale of investment
properties 244.3 113.0 - 357.3
Segment result 437.7 182.1 8.9 628.7
The segmental result is shown before administrative expenses and exceptional
profit/losses.
3. Gain on revaluation and sale of investment properties
A reconciliation of the investment and development property revaluation
surplus to the gain on revaluation of investment properties in the income
statement is set out below:
Year ended
Year ended 31 December
31 December 2004
2005 Restated
GBPm GBPm
Investment and development property revaluation
surplus per external valuers 552.9 337.7
Less valuation movement in respect of head
lease payments (0.4) (0.4)
Less valuation movement in respect of lease
incentives (5.3) 3.0
Gain on sale of investment property 2.6 17.0
Development property revaluatio
