Canary Wharf Group - Interim Results
RNS Number:4762S
Canary Wharf Group PLC
6 March 2002
CANARY WHARF GROUP PLC
6 March 2002
ANNOUNCEMENT OF RESULTS
SIX MONTHS ENDED 31 DECEMBER 2001
FINANCIAL HIGHLIGHTS
Six months Six months
ended 31 ended 31 Change
Notes December December %
2001 2000
£m £m
Turnover - rents and service charges 94.2 74.2 27.0
Operating profit 54.5 42.0 29.8
Exceptional items:
- deferred consideration on sale of
subsidiary undertaking 13.4 -
- costs of group restructuring (2.4) -
Profit before interest after exceptional items 65.5 42.0
Net interest payable (39.3) (19.1)
Profit on ordinary activities before tax 26.2 22.5 16.4
Profit on ordinary activities after deferred tax 24.2 23.1
Basic earnings per share 3.7p 3.4p
Diluted earnings per share 3.6p 3.3p
At 31 At 30 June Change
December 2001
2001
£m £m %
Investment properties (1) 2,425.0 2,300.5 5.4
Properties under construction and
properties held for development (2) 1,446.2 1,119.1
Net debt (1,799.7) (1,191.7)
Deferred income relating to building sales (480.0) (467.0)
Other net liabilities iii (92.6) (164.5)
Net assets at net book value 1,498.9 1,596.4 (6.1)
Net assets at net book value after adding back deferred tax 1,542.4 1,637.9 (5.8)
provision
Share repurchases (cumulative) 203.6 13.7
Properties under construction and
properties held for development (3)
- at Open Market Value 3,018.3 2,580.5
- at present value of Net Realisable Value 4,508.3 4,264.5
Net Asset Value per share based on Net £7.09 £6.97 1.7
Realisable Value excluding deferred tax
Fully diluted Net Asset Value per share based
on Net Realisable Value excluding deferred tax £6.86 £6.74 1.8
1. The interim results include adjustment for revaluation of investment
properties. This resulted in a revaluation surplus of £66.1 million of which
£48.0 million was attributable to 15 Westferry Circus which was completed in
the period.
2. Properties under construction and properties held for development stated at
cost
3. Refer to Business Review - Valuations of the announcement for an explanation
of the basis of valuation
AT 31 DECEMBER 2001:
• The group's investment portfolio totalling 4.6 million sq ft was fully
let.
• Properties under construction totalled 8.0 million sq ft of which 6.9
million sq ft was pre-let or subject to agreements to be sold upon
completion. A further 0.7 million sq ft was subject to option.
DURING THE PERIOD:
• The group exchanged contracts with Barclays PLC to lease a new 1 million
sq ft building (BP1) of which 650,000 sq ft is expected to be occupied
initially.
• Contracts were exchanged for 131,400 sq ft with Skadden Arps Slate Meagher
and Flom LLP in HQ3, a new 600,000 sq ft building.
• Agreement was reached with British Waterways Board relating to the removal
of a restrictive covenant over 1.7 million sq ft of potential development.
• Construction was completed of a 171,300 sq ft property at 15 Westferry
Circus which has been leased by Morgan Stanley generating a revaluation
surplus of £48.0 million.
• 40 floors out of the 42 in the 1.2 million sq ft building at 25 Canada
Square, let in its entirety to Citigroup, were completed, of which
approximately 400,000 sq ft became rent producing in the period.
RECENT EVENTS:
• In February 2002 the group competed a securitisation tap issue raising
£1.34 billion including premium and accrued interest (par value £1.26
billion).
CONTACTS
George Iacobescu
Chief Executive
Peter Anderson
Managing Director, Finance
Canary Wharf Group plc
Telephone: 020 7418 2000
Wendy Timmons or
Emma Kent
Bell Pottinger Financial
Telephone: 020 7861 3232
A copy of the Interim Statement will be sent to shareholders and copies will be
made available to the public on request to the Company Secretary at the
registered office, One Canada Square, Canary Wharf, London E14 5AB.
Chairman's and Chief Executive's Statement
We are pleased to report that Canary Wharf continues to make excellent progress
in all its activities - leasing, construction, finance, and development. It is
now three years since our flotation and it seems an appropriate point to review
progress in relation to the strategy which we set out at that time. We have
substantially completed the core elements of our business plan well ahead of
schedule. We are in the process of building over 8 million sq ft and we have
acquired additional development capacity in excess of the sites held for future
development at the time of flotation. Leasing of the development is at least two
years ahead of schedule and our financing programme has employed innovative
techniques which have brought forward permanent financing, accelerating our
ability to return capital to shareholders. We are now in a position to outline
our intentions on the return of capital programme and the future direction of
the company.
The results for the six months ended 31 December 2001 were in line with
expectations. Turnover increased from £74.2 million for the six months ended 31
December 2000 to £94.2 million for the subsequent period, an increase of 27.0%.
The increase in turnover resulted in an operating profit of £54.5 million in
comparison with £42.0 million previously, an increase of 29.8%. After
exceptional items and interest , the profit before tax for the period increased
from £22.5 million to £26.2 million, an increase of 16.4%.
Net asset value per share based on the net realisable value of the property
portfolio, after adding back the provision for deferred tax, increased from
£6.97 per share at 30 June 2001 to £7.09 per share at 31 December 2001, an
increase of 1.7%. We continue to believe that this is the best method of
evaluating the long term value of the business.
Leasing activity has been strong during the period. Barclays Bank and Skadden
Arps, the US law firm, both signed major pre-lets post the tragic events of
September 11. Barclays Bank plc have contracted to lease a building of 1 million
sq ft which will become their global headquarters in 2004 and Skadden Arps Slate
Meagher & Flom have agreed to lease 132,000 sq ft in our 600,000 sq ft
multi-tenant building, 40 Bank Street, located on Heron Quays. Allen & Overy
have also announced their intention to lease 60,000 sq ft at Canary Wharf, and
Bank of America have announced that they intend to move their UK banking and
capital markets operations into 250,000 sq ft sublet from CSFB. We believe this
underscores the long term nature of real estate decisions and the attractions of
the high quality of our buildings and of Canary Wharf as a prime business
district.
Of the 8 million sq ft under construction and due for completion over the next 3
years, Canary Wharf Group currently has 975,000 sq ft of office space that is
available for letting of which 475,000 sq ft is under option to certain tenants
in the buildings in which they have pre-let space. All of our pre-lets are on
long term 20 to 30 year leases. Some tenants have taken space, in excess of
their immediate requirements, which eventually they intend to occupy but which,
in the meantime, they will sublet on shorter lease terms. From that perspective
the availability of sublet space will enable smaller tenants to consider Canary
Wharf on shorter lease terms, which will further diversify the tenant mix.
Retail leasing has also remained strong. Waitrose have extended their
requirement in the 205,000 sq ft Canada Place building from 80,000 sq ft to
100,000 sq ft, which will open in the summer of 2002. In addition, over 66% of
the units in the new retail mall under construction located at Jubilee Place,
which is due to open in mid 2003, are either let or are under negotiation.
Our current construction programme of 8 million sq ft is approximately equal to
the amount of office construction in the rest of Central London. Our projects
are within budget in aggregate and we expect them to be completed on time. The 8
million sq ft underway represents 10 office buildings and three retail
complexes. Since we last reported in September, 15 Westferry Circus, a 172,000
sq ft building for Morgan Stanley has been completed, and in January 2002 we
reached completion of the base building of 25 Canada Square, a 1.2 million sq ft
building for Citigroup.
Shortly after the end of the period we successfully completed a £1.257 billion
securitisation of four buildings still in the course of construction. This is
our largest fund raising to date and comprised the Lehman Brothers, Clifford
Chance, Morgan Stanley and Northern Trust buildings on Heron Quays. Out of the
total £1.257 billion issued, £1.1 billion or 88% of the issue was rated AAA, the
highest credit rating available. The average weighted cost of debt across all
tranches was 5.7%. We also achieved 75% loan to value, which exceeds our
leverage target. Overall, our target loan to value ratio remains at 70%. The
proceeds will be used to fund construction of the buildings and have generated
additional cash to enable us to continue our planned return of capital
programme. These four buildings were previously funded by the £1 billion
construction loan facility. The refinancing of these assets means that we now
have £1 billion in undrawn lines of credit to finance the construction of
committed projects such as the Barclays Bank building, as well as future
developments.
We continue to work diligently on our future development programme. In December
we reached agreement with British Waterways Board to remove a restrictive
covenant affecting the remaining development sites within Canary Wharf. The
agreement increases the area of potential development for the near term, within
the existing planning approvals, by 1.7 million sq ft on four sites (DS3 and
BP2, BP3 and BP4) bringing the total permitted development to 15.7 million sq
ft. at Canary Wharf. We have begun the infrastructure works and pre-staging to
street level for 850,000 sq ft of development on the DS3 and BP2 sites adjacent
to the new Barclays building. In the longer term we are working on the detailed
architectural designs for expanded office and retail development on the North
Quay and Riverside sites. Together these sites will, subject to planning
permission, represent around 4 million sq ft of future development. In total we
have land available on which, subject to planning and other consents where
necessary, it is possible to build in the order of 5.7 million sq ft.
The last six months has seen significant activity within those bodies
responsible for co-ordinating transport policy in London. We have continued to
contribute to the policy debates with the Mayor's office, the Greater London
Authority, the London Development Agency and Transport for London; with relevant
Government departments and with other involved parties such as the Thames
Gateway London Partnership and transport providers.
During this period Cross London Rail Links Ltd, a joint venture between
Transport for London and the Strategic Rail Authority, announced a new core
alignment for the proposed Crossrail line which includes a branch to Canary
Wharf. The objective is to create direct rail linkage from Heathrow via the West
End and City to both Canary Wharf and Stratford. We have warmly endorsed this
approach, which was agreed by the Mayor, Ken Livingstone, the Minister of
Transport and the Chairman of the Strategic Rail Authority and we are continuing
to work with Cross London Rail Links and others on the project. This indicates
the continued commitment of all relevant bodies to increase investment in
infrastructure in London. We are active on many of these initiatives, working
with the relevant bodies and we are encouraged by the determination of all to
commit to new programmes.
We have also maintained our commitment to a broad range of community initiatives
with focus maintained on education, training and sport activities. Increasing
numbers of local people are working at Canary Wharf with some 3000 from Tower
Hamlets working within the built estate, up from 670 in 1997, and with a further
560 Tower Hamlets residents involved in construction. The Canary Wharf
employment impact is spread across East London and the Thames Gateway.
At the time of our flotation in 1999 we set out a business plan that focussed on
the leasing, construction and financing of the 3.6 million sq ft under
construction and the 5.2 million sq ft held for development at that time This
business plan, sets out a 7 year time horizon for the leasing and completion of
the 13.5 million sq ft estate, a time schedule which was also adopted by our
valuers. Central to the business plan was a financial strategy aimed at creating
an efficient capital structure by securitising our completed buildings to a
target level of 70% loan to value and returning capital to shareholders once
development was well advanced.
Since flotation in 1999 we have pre-let 5.4 million sq ft, completed 3.6 million
sq ft and commenced a further 5.7 million sq ft of new construction. When
completed these buildings will take the total square footage on the estate to
14.0 million sq ft of which 11.5 million sq ft is owned by Canary Wharf Group
and 2.5 million sq ft is primarily owner occupied. Current pre-let rentals are
in the mid £40s, which is above the valuers' projections at the time of
flotation.
Since 1999 the increase in the value of our assets based on Net Realisable Value
has been over £2.0 billion, or an annualised increase of 23% compound.
The fact that we have exceeded projections on all of the core elements of our
plan, reinforces our confidence to bring forward the plans for return of
capital. We said in 1999 that we intended to return capital to shareholders and
we embarked on this in 2001 through a share buyback programme, totalling £203.6
million to date. The corporate restructuring that was carried out last year
created the distributable reserves to enable us to continue to implement our
plan and we stated last October that approximately £2 billion of capital could
be returned over the next four years. This can be compared to the market
capitalisation of £2.2 billion at flotation in 1999.
As a consequence, we are now in a position to outline a programme of capital
return which is consistent with our strategy at the time of the flotation, while
maintaining an efficient capital structure. We have carefully examined the means
by which we can efficiently return capital to shareholders and intend to balance
the programme equally between share buybacks and structured cash returns.
The planned return of capital will, in the absence of significant unforseen
events, be achieved in the following manner. By the end of 2005, including the
£203.6 million of share buybacks, £1.5 billion will be returned of which £750
million will be in three annual £250 million tranches in 2003, 2004 and 2005. We
intend this will be through structured returns designed to optimise proceeds for
shareholders. Consideration is being given to the best means of achieving this
objective and further details will be given to shareholders in due course. These
tranches will be complemented by a continuation of the share buyback programme
which will clearly be influenced by market conditions. We intend, however, to
allocate £300 million during 2002 for share buybacks, in addition to the £200
million that has already been achieved. We will then allocate an additional £250
million to be spent over the following two years bringing the targeted total for
share buybacks to £750 million.
The final £500 million of the £2 billion will be returned to shareholders when
the last four sites adjacent to the Barclays building are being developed.
Infrastructure works and pre-staging have commenced on these sites where
additional development opportunities have been created by the lifting of the
density cap.
Following completion of our return of capital it is our intention to implement a
programme paying regular dividends out of income derived from the Canary Wharf
estate.
The Canary Wharf Group in its present form is in an ideal position to respond to
future opportunities now that construction or infrastructure works have
commenced on all original sites, we have substantially leased and permanently
financed the development according to our original plan and have crystallised
and accelerated our return of capital programme. Our success in achieving our
goals earlier than expected has created the base from which the management team
believes it can use its human and capital resources to create development and
corporate opportunities in addition to Canary Wharf thereby continuing to create
shareholder value.
On behalf of the Board we would like to thank our entire staff for their
exceptional daily efforts which have resulted in exceptional achievements.
BUSINESS REVIEW
Property Portfolio
At the time of approving this Interim Statement the properties in the group's
ownership (totalling 4.6 million sq ft net in twelve buildings) were fully let
and a further thirteen buildings (totalling 8.0 million sq ft net) were under
construction, of which 86.3% is subject to agreements for lease or sale.
The group's investment properties are under lease to high quality tenants which
provide a diversified income stream. At 31 December 2001 the weighted average
unexpired lease term for the office portfolio was approximately 23.7 years (or
20.8 years after taking account of tenant break options). Only 19.6% of the
square footage under lease will expire or is capable of being terminated during
the next ten years.
Properties under construction at 31 December 2001 included 8 Canada Square, a
1.1 million sq ft building which upon completion in April 2002 will be sold to
HSBC. Those properties under construction at 31 December 2001 which upon
completion it is intended will be held as investments comprised the following:
Approx. Net Expected Completion
Internal Area Date Status
(sq ft)
Property Address
5 Canada Square (DS1) 516,600 May/June 2002 Agreed to be leased to CSFB
25 Canada Square (DS5) 1,193,600 Completed January Agreed to be leased to Citigroup
2002
1 Churchill Place (BP1) 1,000,000 July 2004 Agreed to be leased to Barclays PLC
of which 650,000 sq ft to be
occupied initially
20 Canada Square (DS4) 535,500 December 2002 310,000 sq ft agreed to be leased
to The McGraw Hill Companies
20 Bank Street (HQ1) 506,000 August 2003 Agreed to be leased to Morgan
Stanley
25-30 Bank Street (HQ2) 1,000,000 August 2003 Agreed to be leased to Lehman
Brothers
40 Bank Street (HQ3) 600,000 April 2003 131,400 sq ft agreed to be leased
to Skadden Arps Slate Meagher &
Flom LLP
50 Bank Street (HQ4) 217,400 June 2002 151,500 sq ft agreed to be leased
to The Northern Trust Company
10 Upper Bank Street (HQ5) 1,000,000 July 2003 785,000 sq ft agreed to be
leased to Clifford Chance LLP
Canada Place Retail 205,000 September 2002 100,000 sq ft prelet to Waitrose
Centre extension (DS8) Food & Home; 92,000 sq ft pre-let
to Reebok
Jubilee Place Retail Centre (RT3) 80,000 July 2003 10,675 sq ft agreed to be leased to
various retail tenants
Churchill Place Retail Centre 40,000 July 2004 Unlet
(RT4)
6,894,100
As well as the properties under construction referred to above, the group is
continuing substructure works on the remaining sites on Canary Wharf as a
preliminary to the development of those parts of the estate. In connection with
this work, buildings DS3 (650,000 sq ft) and BP2 (200,000 sq ft) are being
constructed to grade.
During the six month period to 31 December 2001 the group completed construction
of a 171,300 sq ft property at 15 Westferry Circus which has been leased by
Morgan Stanley. In addition 40 floors out of 42 in the 1.2 million sq ft
building at 25 Canada Square were completed, of which approximately 400,000 sq
ft became rent-producing in the period. Practical completion of the remainder of
the building, let in its entirety to Citigroup, occurred in January 2002 and it
will therefore be transferred to investment properties during the second half of
the year.
Significant letting progress was made during the six month period:
• In November 2001 the group exchanged contracts with Barclays PLC to lease
a new 1 million sq ft building (parcel BP1), of which 650,000 sq ft is
expected to be occupied initially.
• In December 2001 contracts were exchanged for 131,400 sq ft with Skadden
Arps Slate Meagher & Flom LLP in a 600,000 sq ft building (parcel HQ3) which
is scheduled for completion in mid-2003.
BUSINESS REVIEW (CONTINUED)
In November 2001 the group announced that it had reached agreement with British
Waterways Board ('BWB') relating to the removal of a restrictive covenant
affecting the remaining development sites within Canary Wharf. The agreement
with BWB relates to 1.7 million sq ft of potential development with existing
planning permission and, when added to the total space already built or under
construction of 14 million sq ft, raises the total development at Canary Wharf
to 15.7 million sq ft. In addition, the development sites which were acquired
during 2000 at North Quay and Riverside allow development of 2.1 million sq ft
net based on existing planning permissions. Application will be made in due
course to modify and increase the existing planning permission applicable to
these sites by up to a further 2 million sq ft. Construction of new buildings
will commence as and when market conditions allow and subject to planning.
Valuation
The net assets of the group, as stated in its consolidated balance sheet as at
31 December 2001, were £1,498.9 million. In arriving at this total:
(i) properties held as investments were carried at £2,425.0 million,
which represents the Open Market Value of those properties at that date as
determined by the group's external valuers, FPDSavills or CB Hillier Parker.
(ii) properties under construction and properties held for development,
shown as fixed assets, were carried at £995.6 million and £168.7 million
respectively, representing their cost to the group; and
(iii) properties under construction shown as current assets, were
carried at £281.9 million representing their cost to the group.
The valuation of the investment portfolio increased from £2,300.5 million at 30
June 2001 to £2,425.0 million at 31 December 2001, an increase of £66.1 million
net of additions. Of this amount £48.0 million was attributable to 15 Westferry
Circus which was completed during the period.
As well as valuing the investment properties, FPDSavills or CB Hillier Parker
have valued all properties under construction, comprising those properties set
out in the table earlier in this section. Including 8 Canada Square, which upon
completion is contracted to be sold to HSBC and is held as a current asset, the
Open Market Value of properties under construction at 31 December 2001 was
£2,697.6 million in comparison with a carrying value for accounts purposes of
£1,277.5 million.
As regards properties held for development throughout the period, the valuers
have provided joint opinions as at 31 December 2001 that the Open Market Value
was £320.7 million in comparison with a carrying value for accounts purposes of
£168.7 million.
At the same time as providing their opinion of the Open Market Value of
properties under construction or held for development, the valuers were also
instructed to give their opinion of the present value of the Net Realisable
Value of such properties. Net Realisable Value is defined in SSAP 9 (Stocks and
Long-term Contracts) as 'the actual or estimated selling price (net of trade but
before settlement discounts) less: (a) all further costs to completion; and (b)
all costs to be incurred in marketing, selling and distributing'. This same
definition of Net Realisable Value is reproduced in Practice Statement 21 of the
RICS Manual 'Valuations of Trading Stock and Work in Progress, including Land
and Buildings'. The Net Realisable Value of the group's properties under
construction and properties held for development comprises an assessment of the
total value to the group, arising from owning and developing those properties,
being the aggregate of:
a. the Open Market Value of the land;
b. developer's profit;
c. the effect on value of Enterprise Zone Allowances (EZAs); and
d. finance holding costs on the site value (and other minor items) arising from
the fact that the land is already in the ownership of the group.
Thus, Net Realisable Value allows consideration to be given to the enhancement
in value to the group arising from (b), (c) and (d) which do not form part of
the Open Market Value of the properties' existing state.
The approach adopted by the valuers in arriving at the present value of the Net
Realisable Value at 31 December 2001 was consistent with that adopted at 30 June
2001. At 31 December 2001 the valuers adopted a discount rate of 7.13%, which
represents a notional cost of borrowing equal to 2% above the 10-year gilt rate.
This compares with a rate adopted at the previous year end of 7.25%.
On the basis outlined above, the valuers' opinion of the present value of the
Net Realisable Value of the properties under construction at 31 December 2001
was £3,694.6 million. Their joint opinion of the present value of the Net
Realisable Value of properties held for development at that date was £813.7
million.
BUSINESS REVIEW (CONTINUED)
The carrying value of the group's properties for accounts purposes in comparison
with the supplementary valuations provided by the external valuers is summarised
in the table below:
Restated
31 December 2001 30 June 2001
Carrying Open Market Present Value Carrying Open Market Present Value
Value Value in of Net Value Value in of Net Realisable
Existing Realisable Existing Value
State Value State
£m £m £m £m £m £m
Investment properties 2,425.0 2,425.0 2,425.0 2,300.5 2,300.5 2,300.5
(Note)
Properties under 1,277.5 2,697.6 3,694.6 994.3 2,142.5 3,074.5
construction
Properties held for 168.7 320.7 813.7 124.8 438.0 1,190.0
Development
Total 3,871.2 5,443.3 6,933.3 3,419.6 4,881.0 6,565.0
Note:
Investment properties are stated at Open Market Value.
Operating results
The interim results for the six months ended 31 December 2001 reflect the
implementation of Financial Reporting Standard 19 (Deferred Tax) (FRS 19) and
Urgent Issues Task Force Abstract 28 (Operating Lease Incentives) (UITF 28) and
the comparatives for the six months ended 31 December 2000 and year ended 30
June 2001 have been restated accordingly.
Turnover for the six months ended 31 December 2001 was £94.2 million, against
£74.2 million for the six months ended 31 December 2000. Rental income increased
from £56.9 million to £73.4 million, an increase of 29.0%, of which £2.6 million
was attributable to the adoption of UITF 28 (Note 1). The remainder relates to
the expiry of rent free or rent reduced periods, rent reviews and the
commencement of rent on recently completed or partially completed properties.
Service charge income increased from £13.8 million to £16.2 million, an increase
of 17.4%, due to the increased level of occupancy on the estate. Miscellaneous
income increased from £3.5 million to £4.6 million over the period, reflecting
the increased provision of tenant specific services (outside of the standard
service charge) as occupancy on the estate increases.
Rents payable and property management costs for the six months ended 31 December
2001 were £20.1 million, in comparison with £14.6 million for the same period in
2000. However, during the six months to 31 December 2000, the lease of a vacant
leasehold property was assigned to a third party and as a result a surplus
provision of £2.2 million was released to the profit and loss account and
included within cost of sales. The underlying increase in property management
costs is the result of the increased occupancy on the estate and the increased
cost of security.
For the six months ended 31 December 2001 gross profit was £74.1 million, an
increase of £14.5 million over the previous period. The increase in gross profit
was attributable to the increase in turnover.
Administrative expenses for the six months ended 31 December 2001 were £19.8
million, whilst for the six months to 31 December 2000 they were £18.4 million.
During the six month period ended 31 December 2001 costs of £2.4 million were
also incurred in association with the group's restructuring which have been
treated as an exceptional item (Note 1).
The directors estimate that administrative expenses of £11.2 million (or
approximately 56.6% of the total for the six months ended 31 December 2001) were
attributable to the group's corporate and property investment activities. For
the period ended 31 December 2000 administrative expenses attributable to these
activities were estimated at £8.3 million, or 45.1% of the total. The increase
is primarily attributable to the amortisation of the cost of shares acquired to
satisfy the group's share option schemes.
The remainder of administrative expenses are attributable to unallocated
overheads associated with the group's development programme which are expensed
to the profit and loss account (as opposed to costs directly attributable to and
capitalised as part of the cost of particular buildings). For the six months
ended 31 December 2001 such unallocated development overheads totalled £8.6
million, representing approximately 43.4% of administrative expenses. For the
six months to December 2000 development overheads totalled £10.1 million or
54.9% of the total. The reduction in development overheads is largely
attributable to letting costs which for the six months to December 2000 were
£5.8 million whereas for the period ended December 2001 such costs totalled only
£3.2 million.
For the six months ended 31 December 2001 operating profit was £54.5 million, in
comparison with a profit of £42.0 million for the six months ended 31 December
2000. The improvement in the operating profit earned by the group is primarily
attributable to the increase in turnover.
BUSINESS REVIEW (CONTINUED)
Net interest payable for the period to December 2001 was £39.3 million, against
£19.1 million for 2000. The increase in net interest payable is partly
attributable to the fact that the previous year included a net gain to the group
of £4.5 million derived from the unwind of interest rate swaps relating to
certain deposits that were released from security in the period (Note 4). In
addition, net interest payable for the period to December 2001 included costs of
£4.1 million attributable to the restructuring of certain of the group's finance
leases (Note 9).
The profit on ordinary activities after interest for the period was £26.2
million in comparison with £22.5 million for the equivalent period in 2000. The
tax charge for the period to December 2001 which was calculated by reference to
the anticipated effective tax rate for the year to June 2002, adjusted for
anticipated exceptional items, was £2.0 million, in comparison with a credit of
£0.6 million for 2000 (as restated). These amounts were entirely attributable to
deferred tax following the adoption of FRS 19. This accounting standard has no
effect on cashflow. Moreover, the directors believe it does not reflect the
actual tax which may become payable in the future.
The profit on ordinary activities after tax for 2001 was £24.2 million in
comparison with £23.1 million for the previous period, an increase of £1.1
million.
Balance sheet
On the basis of the group's statutory balance sheet, which does not reflect any
revaluation of properties under construction or held for development, net asset
value at 31 December 2001 was £1,498.9 million in comparison with £1,596.4
million at 30 June 2001 (as restated). The reduction in net asset value is
attributable to share buy-backs during the period totalling £189.9 million,
offset by the profit for the period of £24.2 million and a revaluation surplus
of £66.1 million.
Net asset value per share at 31 December 2001 was £2.31 (30 June 2001 - £2.33).
Allowing for the revaluation of properties under construction or held for
development on the basis of the present value of the Net Realisable Value
summarised in the table above, net asset value per share at 31 December 2001 was
as set out in the table below.
In arriving at adjusted net asset value per share the provision recognised in
accordance with FRS 19 (Deferred Tax) has been added back. FRS 19 requires,
inter alia, provision for deferred tax on capital allowances claimed
notwithstanding that no tax would become payable unless the related properties
were disposed of. In contrast no provision is required for the tax which would
become payable if the group were to dispose of its properties at their revalued
amount. This inconsistency in the standard has therefore been reversed in
calculating the adjusted net asset value per share.
31 December 2001 30 June 2001
£m £m
Net assets per statutory balance sheet 1,498.9 1,596.4
Revaluation of properties under construction to NRV 2,417.1 2,080.2
Revaluation of properties held for development to NRV 645.0 1,065.2
Net assets after revaluation 4,561.0 4,741.8
Add: Discounted deferred tax provision 43.5 41.5
Adjusted net assets 4,604.5 4,783.3
Adjusted net assets per share £7.09 £6.97
Fully diluted adjusted net assets per share £6.86 £6.74
BUSINESS REVIEW (CONTINUED)
Borrowings
At 31 December 2001, net debt (after allowing for cash in hand and cash
collateral) stood at £1,799.7 million, up from £1,191.7 million at 30 June 2001
comprising:
At 31 At 30 June
December 2001
2001
£m £m
Securitised debt 1,977.5 1973.3
Loans 237.4 -
Finance lease obligations 575.9 676.8
Total borrowings 2,790.8 2,650.1
Less: cash collateral for borrowings (566.0) (707.2)
Less: other cash collateral excluding prepayments (see below) (2.6) (2.3)
2,222.2 1,940.6
Less: cash deposits (418.6) (703.0)
Net debt excluding prepayments 1,803.6 1,237.6
Cash deposits arising from prepayments in respect of buildings (3.9) (45.9)
contracted to be sold
Net debt 1,799.7 1,191.7
The increase in gross borrowings from £2,650.1 million to £2,790.8 million is
attributable primarily to drawings under the group's £1 billion revolving
construction loan facility, partially offset by the restructuring of certain of
the group's finance leases (Note 9). The increase in gross borrowings was
accompanied by a reduction in cash and term deposits from £1,458.4 million at 30
June 2001 to £991.1 million at 31 December 2001 primarily as a result of the
requirement to fund development costs and share buy-backs totalling £189.9
million. At 31 December 2001 the group had undrawn committed facilities of
£878.8 million. At that date the weighted average cost of the group's debt was
6.4% (30 June 2001 - 6.7%).
Cash flow
Net cash inflow from operating activities for the six months ended 31 December
2001 was £39.0 million in comparison with £53.2 million for the six months to
December 2000. This reduction was attributable to movements in working capital.
Capital expenditure and financial investment for the six months ended 31
December 2001 was £422.4 million, as compared with £288.0 million for the six
months to 31 December 2000. Capital expenditure for the six months ended 31
December 2000 included land purchases of £91.7 million and development
expenditure of £220.0 million. For the period ended 31 December 2001 capital
expenditure largely comprised development expenditure of £420.0 million.
The financing cash outflow for the six months ended 31 December 2001 was £47.4
million compared with an inflow for the six months ended 31 December 2000 of
£100.0 million. The period to December 2001 included expenditure of £189.9
million on the purchase for cancellation of the company's own shares and the
repayment of certain finance leases of £102.1 million. This was partially offset
by drawings under the group's construction loan facilities. The cash inflow for
the six months ended 31 December 2000 reflected drawings under a construction
loan facility.
Segmental reporting
For the first time, the Interim Statement incorporates disclosure concerning the
results and net assets of two segments. The properties in each segment comprise:
Canary I - Those properties in the group's ownership
within the original Canary Wharf estate identified at the time
of the group's flotation, including the benefit of the agreement
with BWB concerning the removal of the density cap. The status
of these properties at 31 December 2001 was as follows:
BUSINESS REVIEW (CONTINUED)
Net Internal Area %
million
sq ft
Completed and let 4.6 35
Under construction and pre-let 5.8 44
Under construction and available to let 1.1 9
Uncommitted development site 1.7 12
Total owned by group 13.2 100
Owned by third parties 1.4
Under construction and pre-sold 1.1
Canary Wharf estate following removal of density cap 15.7
Canary II - Those properties outside of the original
estate which, at 31 December 2001, and subject to obtaining
planning consent to increase the approved density, comprised:
Net Internal Area
million
sq ft
Uncommitted (based on existing planning permission):
North Quay 1.4
Riverside South 0.7
2.1
Applications for increased planning density 2.0
Potential future development (assuming successful application to 4.1
increase planning density)
Taking the valuations set out earlier in this section, the net asset value
attributable to each segment at 31 December 2001 was as follows:
Canary I Canary II
Book Value OMV NRV Book Value OMV NRV
£m £m £m £m £m £m
Investment properties 2,425.0 2,425.0 2,425.0 - - -
Properties under 1,277.5 2,697.6 3,694.6 - - -
construction
Properties held for 42.7 167.0 455.0 126.0 153.7 358.7
development
3,745.2 5,289.6 6,574.6 126.0 153.7 358.7
Other net liabilities prior (563.4) (563.4) (563.4) (9.2) (9.2) (9.2)
to funding
Net assets prior to funding 3,181.8 4,726.2 6,011.2 116.8 144.5 349.5
Net debt (external) (1,799.7) (1,799.7) (1,799.7) - - -
Intragroup funding 116.8 116.8 116.8 (116.8) (116.8) (116.8)
Net assets 1,498.9 3,043.3 4,328.3 - 27.7 232.7
The segmental analysis of the group's profit and loss account and balance sheet
prior to revaluation of properties under construction and held for development
for the period ended 31 December 2001 is set out in Note 3.
For the six months ended 31 December 2001, Canary I recorded a profit before tax
of £28.6 million.
Canary II recorded a loss before tax of £2.4 million for the six months ended 31
December 2001, attributable entirely to administrative expenses associated with
working up proposals for its development sites. Of the total development
overheads of £8.6 million for the six months ended 31 December 2001, the
directors estimate that £6.2 million was attributable to Canary I and the
remaining £2.4 million attributable to Canary II. The directors consider that
development overheads attributable to Canary I will in due course reduce to an
insignificant level upon completion of the development programme.
Throughout the six month period to 31 December 2001 Canary II was funded by way
of an interest free inter-company loan.
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED 31
DECEMBER 2001
Unaudited *Restated
*Restated Six months Unaudited
ended 31 Six months
Audited December ended 31
2001 December
Year ended Notes 2000
30 June
2001
£m £m £m
159.2 Turnover - rents and service charges 94.2 74.2
(32.8) Cost of sales (20.1) (14.6)
- rents and property management costs
126.4 GROSS PROFIT 74.1 59.6
(36.6) Administrative expenses (19.8) (18.4)
1.9 Other operating income 0.2 0.8
91.7 OPERATING PROFIT 54.5 42.0
Exceptional items:
- - deferred consideration on disposal of 8 13.4 -
subsidiary undertaking
- - costs of group restructuring 1 (2.4) -
(0.4) Share of operating loss of associates - (0.4)
50.7 Interest receivable - group 4 26.2 30.1
(99.5) Interest payable - group 4 (65.5) (49.2)
42.5 PROFIT FOR THE FINANCIAL PERIOD 26.2 22.5
BEFORE TAX
1.1 Taxation 5 (2.0) 0.6
43.6 PROFIT FOR THE FINANCIAL PERIOD AFTER TAX 11 24.2 23.1
43.6 TRANSFERRED TO RESERVES 11 24.2 23.1
6.3p Basic earnings per share 6 3.7p 3.4p
6.2p Diluted earnings per share 6 3.6p 3.3p
Before exceptional items:
6.3p Basic earnings per share 6 2.0p 3.4p
6.2p Diluted earnings per share 6 2.0p 3.3p
The above results relate to the continuing activities of the group and the share
of associates attributable to the group prior to the date of their disposal.
The interim results for the six months ended 31 December 2001 were approved by
the Board of Directors on 5 March 2002.
*Restated as set out in Note 1.
UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE
SIX MONTHS ENDED 31 DECEMBER 2001
*Restated
*Restated Unaudited Unaudited
Audited Six months Six months ended
ended 31 31 December
Year ended December
Notes 2001 2000
30 June
2001
£m £m £m
Profit/(loss) for the financial period of the
group and its share of associates
44.0 - group 24.2 23.5
(0.4) • share of associates - (0.4)
84.4 Unrealised surplus on revaluation of investment
properties - group 7 66.1 79.7
128.0 TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE 90.3 102.8
PERIOD
- Prior year adjustments (as explained in Note 1) (41.5) -
128.0 TOTAL RECOGNISED GAINS AND LOSSES SINCE LAST 48.8 102.8
ANNUAL REPORT
*Restated as set out in Note 1.
UNAUDITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2001
Restated Unaudited *Restated
Audited 31 December Unaudited
30 June Notes 2001 31 December
2001 2000
£m £m £m
FIXED ASSETS
2,300.5 Investment properties 7 2,425.0 2,292.7
744.7 Properties under construction 7 995.6 430.9
124.8 Properties held for development 7 168.7 161.2
9.6 Other tangible fixed assets 9.4 5.7
15.8 Investments 8 26.6 -
3,195.4 3,625.3 2,890.5
CURRENT ASSETS
249.6 Properties under construction and 7 281.9 188.1
properties held for development
10.7 Debtors: due in more than one year 13.3 10.7
86.5 Debtors: due within one year 161.9 32.0
1,458.4 Cash at bank and in hand 9 991.1 858.3
1,805.2 1,448.2 1,089.1
(742.0) CREDITORS: Amounts falling due within (774.2) (208.8)
one year
1,063.2 NET CURRENT ASSETS 674.0 880.3
4,258.6 TOTAL ASSETS LESS CURRENT LIABILITIES 4,299.3 3,770.8
(2,620.4) CREDITORS: Amounts falling due after 9 (2,756.9) (2,145.6)
more than one year
(41.8) Provisions for liabilities and charges (43.5) (42.7)
1,596.4 NET ASSETS 1,498.9 1,582.5
CAPITAL AND RESERVES
6.9 Called up share capital 6.5 6.9
Reserves
- Share premium 11 0.6 -
1,055.5 Revaluation reserve 11 1,121.6 1,050.8
0.1 Capital redemption reserve 11 0.5 -
636.8 Special reserve 11 637.1 636.1
(102.9) Profit and loss account 11 (267.4) (111.3)
1,596.4 SHAREHOLDERS' FUNDS - EQUITY 12 1,498.9 1,582.5
*Restated as set out in Note 1.
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
2001
Unaudited Unaudited
Audited Six months ended Six months ended
Year ended 31 December 31 December
30 June Notes 2001 2000
2001
£m £m £m
NET CASH INFLOW FROM
71.1 OPERATING ACTIVITIES 39.0 53.2
(70.6) Returns on investments and (36.5) (27.5)
servicing of finance
(579.3) Capital expenditure and financial (422.4) (288.0)
investment
(2.1) Acquisitions - -
(652.0) (458.9) (315.5)
Cash outflow before management of
(580.9) liquid resources and financing (419.9) (262.3)
28.7 Management of liquid resources 182.9 192.4
1,018.7 Financing (47.4) 100.0
466.5 (DECREASE)/ INCREASE IN CASH 9 (284.4) 30.1
Reconciliation of operating profit to operating cash flows
Unaudited Unaudited
Audited Six months ended Six months ended
Year ended 31 December 2001 31 December 2000
30 June
2001
£m £m £m
91.7 Operating profit 54.5 42.0
0.3 Depreciation charges 0.4 0.1
0.7 Amortisation of share option costs 2.5 -
(53.4) Decrease/(increase) in debtors 12.9 0.2
34.4 (Decrease)/increase in creditors (26.0) 13.1
(2.6) Decrease in provision (0.3) (2.2)
- UITF 28 adjustment (2.6) -
- Costs of group restructuring (2.4) -
71.1 Net cash inflow from operating activities 39.0 53.2
Capital expenditure and financial investment
Audited Unaudited Unaudited
Year Six months ended Six months ended
ended 31 December 2001 31 December
30 June 2000
2001
£m £m £m
(511.1) Additions to properties (420.0) (220.0)
(92.1) Acquisition of development properties (10.5) (91.7)
(8.1) Acquisition of own shares to support share (12.9) -
option schemes
- Deferred consideration on disposal of 9.5 -
subsidiary undertaking
(2.1) Settlement of deferred acquisition cost - -
(8.3) Purchase of tangible fixed assets (1.5) (3.0)
42.4 Deferred income relating to agreements for 13.0 26.7
sale of property
(579.3) Net cash outflow (422.4) (288.0)
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