Canary Wharf Group - Interim Results
RNS Number:6059I
Canary Wharf Group PLC
12 March 2003
12 March 2003 -
ANNOUNCEMENT OF RESULTS
SIX MONTHS ENDED 31 DECEMBER 2002
FINANCIAL HIGHLIGHTS
Notes Unaudited Unaudited Change
Six months Six months
ended 31 ended 31
December December
2002 2001
£m £m %
Turnover - rents and service charges 120.8 94.2 28.2
Exceptional item:
- amortisation of investment in own shares (2.8) -
Operating profit 78.4 54.5 43.9
Exceptional items:
- deferred consideration on sale of
subsidiary undertaking 2.9 13.4
- costs of group restructuring - (2.4)
Profit before interest after exceptional items 81.3 65.5
Net interest payable (76.3) (39.3)
Profit for the financial period before taxation 5.0 26.2 (80.9)
Profit for the financial period before taxation excluding 4.9 15.2 (67.8)
exceptional items
Profit for the financial period after taxation 4.9 24.2
Special dividend (372.8) -
Basic earnings per share 0.8p 3.7p
Diluted earnings per share 0.8p 3.6p
Unaudited Audited Change
at 31 December at 30 June
2002 2002
£m £m %
Investment properties (1) 3,700.4 3,268.1
Properties under construction and
properties held for development (2) 1,171.6 1,115.3
Net debt (3,424.3) (2,622.8)
Other net (liabilities)/assets (53.7) 99.7
---------- ----------
Net assets 1,394.0 1,860.3 (25.1)
Net assets at net book value after adding back deferred 1,445.7 1,911.9
tax provision
Properties under construction and
properties held for development (3)
- at Market Value 1,891.9 2,305.9
- at present value of Net Realisable Value 3,022.1 3,490.4
Net Asset Value per share based on Net (4) £5.63 £7.05 (20.1)
Realisable Value excluding deferred tax
Fully diluted Net Asset Value per share based
on Net Realisable Value excluding deferred tax (4) £5.51 £6.83 (19.3)
Cumulative return of capital
* share repurchases 514.2 406.1
* special dividend 372.8 -
---------- ----------
887.0 406.1
---------- ----------
(1) The interim results include adjustment for revaluation of investment
properties. This resulted in a revaluation surplus of £12.0 million including
£188.1 million surplus attributable to properties 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
(4) Refer to 'Business Review - Balance Sheet' of the announcement for an
explanation of the basis of calculation
AT 31 DECEMBER 2002:
* The group's investment portfolio totalling 7.3 million sq ft was 93.3% let
* Surplus on revaluation of the three investment properties completed in the
period of £188.1 million
* Decrease on revaluation of the investment properties held throughout the
period of £176.1 million (or 5.4%)
* Present value of Net Realisable Value of property portfolio £6,763.9
million against £6,769.2 million at 30 June 2002, a reduction of 6.7%
disregarding additions in the period *
* Seven buildings under construction totalling 4.3 million sq ft of which
87.7% is covered by agreements for lease
* During the period 25.2 million shares bought back at a cost of £108.1
million
* Special dividend paid of £372.8 million bringing the total return of
capital to date to £887.0 million
* Adjusted net asset value per share (based on net realisable value) £5.63
against £7.05 at 30 June 2002, net of the special dividend**
* Refer to 'Business Review - Valuations' of the announcement for an
explanation of the basis of valuation
** Refer to 'Business Review - Balance Sheet' of the announcement for an
explanation of the basis of calculation
DURING THE PERIOD:
* Construction was completed on three properties, comprising 5 Canada Square
(515,100 sq ft fully let to CSFB), 20 Canada Square (527,200 sq ft of which
266,200 sq ft has been let to The Mc-Graw Hill Companies) and the Canada
Place retail extension (201,000 sq ft fully let to Waitrose, Reebok and
Conran Restaurants)
* In October 2002 the group completed a securitisation tap issue raising
£510 million
RECENT EVENTS:
* In January 2003 the group redeemed £85.0 million of Class D Notes (BBB
rated) issued in 1997. Redemption was financed by a new £85.0 million bank
facility.
CONTACTS:
George Iacobescu
Chief Executive
Peter Anderson
Managing Director, Finance
Wendy Timmons
Head of Corporate Communications
Canary Wharf Group plc
Telephone: 020 7418 2000
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.
The information in this announcement was approved by the board of directors on
11 March 2003.
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
Against a backdrop of global political and economic uncertainty and reduced
levels of confidence, reflected in the current difficult market conditions, we
are pleased to be able to report to shareholders on further progress at Canary
Wharf. The original 1987 master plan for Canary Wharf envisaged 13.5 million sq
ft of office and retail development. At the time we went public in 1999, the
planned development still totalled 13.5 million sq ft of which 4.7 million sq ft
had been completed, with 8.8 million sq ft under development or awaiting future
development, out of which 3.6 million sq ft was under construction.
Today we have reached a point where, with the completion of the Barclays PLC
headquarters building by mid 2004, we will have completed 9.4 million sq ft
since flotation and Canary Wharf will comprise 14.1 million sq ft. During the
period between 1999 and 2003 the Canary Wharf estate has achieved true critical
mass. Creating a new integrated business district is not only a function of
major buildings but also requires new parks, retail shops and the amenities
tenants and the neighbourhood require for daily life. The investment we have
made in these facilities will not only underpin the long term investment value
but will also attract further development and services for the area which in
turn will create further value.
During the period since flotation we have also taken several steps to expand the
estate. We have acquired an additional 1.7 million sq ft for development on
Canary Wharf through an increase of density. We expect there to be development
opportunities arising out of this increase over the next two to three years.
Adjacent development sites at North Quay and Riverside have been acquired where
we are in the process of seeking planning permission to increase potential
development to 4.2 million sq ft and which we anticipate will be developed in
five to seven years. We also have interests in land at the western edge of Heron
Quays where the development of a further 1.5 million sq ft is currently being
planned. This development will link the Clifford Chance, Lehman Brothers,
Northern Trust Company and Morgan Stanley buildings on Heron Quays with the
planned development at Riverside. In aggregate we expect the Canary Wharf estate
overall to be well in excess of 20 million sq ft.
Now that the Canary Wharf project, as originally conceived, has largely been
built we believe that it is in the best interests of our shareholders to now
focus on enhancing shareholder value by capturing the values that have already
been created, whilst also preparing for the future phases of development. To
this end, we are continuing to explore various options for maximising and
realising value for our shareholders.
Financial
Profit before taxation for the six months ended 31 December 2002 was £4.9
million before exceptional items in comparison with £15.2 million for the
equivalent period in 2001. The reduction in profit before taxation was primarily
attributable to net interest payable, which increased from £39.3 million to
£76.3 million as a result of the securitisations completed in February and
October 2002. These debt issues have funded the share buy-back programme and a
special dividend, which to date have resulted in a total return of capital of
£887 million. The increase in net interest payable was partially offset by an
increase in turnover from £94.2 million for the six months ended 31 December
2001 to £120.8 million in the six months ended 31 December 2002, an increase of
28.2%.
As a result of the return of capital programme, net assets fell from £1,860.3
million at 30 June 2002 to £1,394.0 million at 31 December 2002, a reduction of
£466.3 million. £480.9 million was attributable to share buy-backs in the period
together with the special dividend which was paid in November.
The group's investment properties were revalued at 31 December 2002 resulting in
a reduction of £176.1 million in the valuation of properties held throughout the
period, representing a fall of 5.4%. This was offset by a surplus of £188.1
million on the revaluation of the three properties which were completed in the
period.
On the adjusted net asset value basis, which revalues properties under
construction and held for development to their Net Realisable Value and adds
back the provision for deferred tax, the adjusted net asset value per share
reduced from £7.05 per share at 30 June 2002 to £5.63 per share at 31 December
2002 (before dilution), a reduction of £1.42 per share. The reduction in
adjusted net asset value in part reflects the special dividend of 64.27 pence
per share and in part a reduction in the Net Realisable Value of the property
portfolio totalling £481.9 million (or 6.7%) after additions in the period,
equivalent to 82 pence per share.
Capital Structure
In October 2002 we completed a £510 million tap issue taking the total
securitised debt issued by Canary Wharf Finance II plc to £3,117 million. One
new office building (40 Bank Street) and the new retail properties at Jubilee
Place and 16-19 Canada Square were added to the asset pool and of the £510
million raised, £450 million was rated AAA.
Part of the proceeds of this tap issue were set aside to fund completion of the
new properties added to the securitisation. The remainder of the proceeds was
used to fund payment of the special dividend totalling £372.8 million. This
special dividend was part of our return of capital programme of which just under
half has already been completed through a combination of share buy-backs and the
special dividend.
Subsequent to the period end, in January 2003, the £85 million Class D (BBB
rated) Notes issued by Canary Wharf Finance plc in 1997 were redeemed.
Redemption of the Notes was funded by an 18 month bank facility.
In December 2002 we entered into a loan facility secured on 1 Churchill Place
(BP1) which enables us, at our option, to draw down between £529 million and
£600 million when the property reaches practical completion in July 2004 and the
related construction financing is repaid. In March 2003 we also entered into a
£225 million facility to be secured on 20 Canada Square (DS4) when drawn down.
With the completion of these two facilities, permanent financing in excess of
that required to complete all remaining buildings under construction has been
put in place.
Construction
Our extensive construction programme is making excellent progress. In September
we opened a new retail building, the 201,000 sq ft Canada Place retail extension
with our anchor tenant Waitrose Food & Home. The customer response has been
overwhelming and weekend trading in the malls has increased markedly. We look
forward to opening the new 89,800 sq ft Jubilee Place mall in September this
year anchored by Marks & Spencer which will further enhance our weekend
destination mall offering. This new mall will bring the total retail offering at
Canary Wharf to approximately 550,000 sq ft.
In October 2002 we reached practical completion of the 515,100 sq ft CSFB
building at 5 Canada Square now partially sublet to Bank of America. In January
2003 we reached practical completion of the 527,200 sq ft 20 Canada Square, of
which McGraw Hill will be leasing 266,200 sq ft. During the course of 2003 we
will complete four additional major buildings totalling 3.2 million sq ft; 10
Upper Bank Street, a 1,000,000 sq ft building let to Clifford Chance; 20 Bank
Street, a 535,000 sq ft building let to Morgan Stanley; 25-30 Bank Street, a
1,008,500 sq ft building let to Lehman Brothers; and our 607,400 sq ft
speculative building at 40 Bank Street, of which 211,500 sq ft has been let to
Skadden Arps Slate Meagher & Flom and Allen & Overy. We have previously
announced that we would suspend further speculative development whilst we
continue to work on the single speculative building which is currently underway
and already partially let. This policy will be maintained to ensure that
speculative development is controlled. The final building under construction, is
the Barclays PLC 1,000,000 sq ft headquarters building which will be completed
in mid 2004. When completed the Barclays building will bring the entire Canary
Wharf estate to a total of 14.1 million sq ft of which we will own 11.6 million
sq ft.
In respect of completed investment properties 487,000 sq ft is currently
available to let and with properties due for completion in 2003 available space
will increase to 986,000 sq ft. In addition certain tenants have options to put
back space exercisable over the next two years totalling 625,000 sq ft, of which
237,000 sq ft relates to properties due for completion in 2003 and 330,000 sq ft
relates to properties due for completion in 2004. The majority of the space
which could be put back relating to properties completing in 2003 would be for
terms of 5 to 10 years, after which the space reverts to the tenant. If all of
these put options were exercised, the available space would increase to 1.25
million sq ft by the end of 2003 and to 1.6 million sq ft by the end of 2004,
less the amount of space which may be leased during the period. Furthermore,
tenants in the existing investment properties have break options over 312,500 sq
ft which are exercisable over the period to the end of 2004.
Leasing Market
The Central London leasing market has continued to experience difficult trading
conditions over the 6 months to December 2002 as global economic conditions and
political uncertainty continue to constrain transactional activity. The annual
take up for the whole of Central London amounted to 9.6 million sq ft in 2002,
the lowest level since 1992.
Overall vacancy rates across Central London increased to 10.1% by the year end,
although this is still significantly below those levels experienced in the early
1990s. Additionally, it is important to note that there are significant levels
of fragmentation and second hand accommodation within this supply dynamic.
The vacancy rate at Canary Wharf for the group's investment portfolio has
increased in the 6 months to 31 December 2002 to 6.7%. The majority of this
accommodation is brand new as a result of the completion of 20 Canada Square,
with approximately 249,000 sq ft available. The impending completion of 40 Bank
Street will provide a further 396,000 sq ft of office accommodation upon its
completion in the second half of the year. In addition certain tenants are known
to be seeking to sub-let, of which Citigroup with 270,000 sq ft in 25 Canada
Square and CSFB with 250,000 sq ft in 5 Canada Square are the most significant.
In addition to the existing vacant accommodation, the further supply of offices
remains a key dynamic of the Central London market. There is currently
approximately 6.4 million sq ft of speculative office development underway
across Central London for delivery from now until 2005, with the peak in 2003,
largely focused on the City. However, it is important to note that, unlike in
the early 1990s, the landlord developers are generally well funded and therefore
arguably under less pressure to transact immediately on completion. Importantly,
at present there is limited new product planned to be delivered during and
beyond 2005.
It is also important to note that even in today's subdued market, active demand
currently stands at almost 5 million sq ft, with professional services,
financial services, government and media the key sectors in similar proportions.
In addition potential demand stands at around 6 million sq ft. An important
characteristic of the active demand is that much of it is of a structural
nature, i.e. driven by issues such as lease expiries, breaks and physical
obsolescence which is likely to be more resilient than expansion led demand.
Nevertheless occupiers remain cautious and transactions protracted.
Notwithstanding that, the increased levels of viewings initially experienced at
Canary Wharf in early summer have largely been sustained during the remainder of
the year and overall are significantly above levels achieved in the latter part
of 2001 and early 2002.
The focus of many occupiers remains cost and value for money, but retaining a
preference for new, efficient, high quality office accommodation. Whilst 2003
will be another challenging year for the Central London market, Canary Wharf has
and will, we believe, continue to attract these and other occupiers, providing
as it does enhanced value in its buildings, high quality accommodation and
environment on competitive financial terms and at a discount to prime West End
and City rents.
Transport
The Government has recently announced its programme for Sustainable Communities
which provides for significant new public investment in the Thames Gateway. We
believe that this initiative enhances the business case for Crossrail, in
particular the branch running through the Isle of Dogs. It also underscores the
importance that both national and London Government places on the need to
accommodate much of London's anticipated population and employment growth in
this quadrant of London.
We have continued to work closely with all relevant bodies on the policy
implications of this initiative including the funding implications, which we
believe must be equitable and allocated between all those who will benefit from
new infrastructure.
Progress continues to be made on near term initiatives. The DLR station at Heron
Quays, partly funded by Canary Wharf, has opened and provides enhanced passenger
facilities for people working at Heron Quays which will see significant
increases in employment levels as buildings are occupied this year.
We continue to work with LUL on delivering the programme of enhancements which
will secure the increased Jubilee Line capacity required to meet future demand.
Conclusion
As the current phase moves towards completion we are looking towards the future
phases of development with confidence. Although the challenges facing your
Company in today's market place are not without their difficulties, we believe
our focus will achieve further progress for our shareholders.
Our continued ability to meet development, construction and leasing targets has
only been possible through the exceptional sustained commitment of staff
throughout the Company. Our thanks are due to them.
BUSINESS REVIEW
Property Portfolio
At the time of approving this Interim Statement, the investment properties in
the group's ownership (totalling 7.3 million sq ft net in eighteen buildings)
were 93.3% let and a further seven buildings (totalling 4.3 million sq ft net)
were under construction, of which 87.7% is covered by agreements for lease.
The group's properties are under lease to high quality tenants which provide a
diversified income stream. At 31 December 2002 the weighted average unexpired
lease term for the total office portfolio (built and under construction) was
approximately 23.2 years (or 19.4 years disregarding tenant break options). Of
the square footage under lease, 22.2% will expire or is capable of being
terminated during the next ten years.
In addition, space totalling 197,800 sq ft (or 1.7% of the total portfolio), is
subject to put options which enable the relevant tenants to sub-let space back
to the group for periods between 5 and 10 years at the end of which the space
reverts to the tenant to the end of the lease term. Of this total, 108,300 sq ft
is for a maximum period of 5 years and 89,500 sq ft is for a maximum period of
10 years. All such options expire prior to the end of 2003.
Properties under construction at 31 December 2002 which upon completion it is
intended will be held as investment properties comprised the following:
Property Address Approx. Net Expected Completion Status
Internal Area Date
(sq ft)
1 Churchill Place (BP1) 1,000,000 July 2004 Agreed to be leased to Barclays subject to
option to put back up to 330,000 sq ft and a
call option over the adjacent BP2
20 Bank Street (HQ1) 535,000 May 2003 Agreed to be leased to Morgan Stanley
25-30 Bank Street (HQ2) 1,008,500 August 2003 Agreed to be leased to Lehman Brothers,
subject to put option over 89,500 sq ft for a
period up to 5 years and 89,500 sq ft for a
period of up to 10 years
40 Bank Street (HQ3) 607,400 March 2003 133,300 sq ft agreed to be leased to Skadden
Arps Slate Meagher & Flom, subject to put
option over 58,000 sq ft of which 18,800 sq
ft is for a period up to 5 years; 78,200 sq
ft agreed to be leased to Allen & Overy with
an option to lease a further 39,000 sq ft
10 Upper Bank Street (HQ5) 1,000,000 July 2003 Agreed to be leased to Clifford Chance
subject to lease back of 51,000 sq ft for 5
years and 52,000 sq ft for 10 years
Jubilee Place Retail Centre 89,800 September 2003 94% pre-let with the remainder in solicitors'
(RT3) hands
24,400 July 2004 Unlet
---------------
4,265,100
===============
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 street level.
During the six month period to 31 December 2002 the group completed construction
of three properties all of which were retained as investment properties (5
Canada Square, 20 Canada Square and the Canada Place Retail Extension).
* 5 Canada Square is a 515,100 sq ft building which has been leased to CSFB.
* 20 Canada Square is a 527,200 sq ft building of which 266,200 sq ft has
been leased to the McGraw-Hill Companies. This tenant had previously agreed
to lease 313,200 sq ft but exercised an option during the period to omit one
floor of 47,000 sq ft from the lease.
* Canada Place Retail Extension is a 201,000 sq ft retail building of which
100,000 sq ft has been leased to Waitrose, 92,000 sq ft has been leased to
Reebok and 9,000 sq ft has been leased to Conran Restaurants.
Uncommitted development sites on the original Canary Wharf total 1.5 million sq
ft. In addition the development sites at North Quay and Riverside allow
development of 2.1 million sq ft net based on existing planning applications and
applications have been made to modify and increase the permitted density to 4.2
million sq ft. Construction of new buildings will commence as and when market
conditions allow.
Valuations
The net assets of the group, as stated in its consolidated balance sheet as at
31 December 2002, were £1,394.0 million. In arriving at this total:
(i) properties held as investments were valued at £3,741.8 million,
which represents the Market Value (MV) of those properties at that date as
determined by the group's external valuers, FPDSavills or CB Hillier Parker.
In arriving at Market Value the valuers have ignored any potential value
attributable to Enterprise Zone Allowances (EZAs) in the value of the
property. Having consulted with the valuers, the directors estimate that the
uplift in value attributable to EZAs would be approximately £320 million.
The valuation has been adjusted by £41.4 million for tenant incentives as
required by Urgent Issues Task Force Abstract 28 (Operating Lease
Incentives) ('UITF 28') resulting in a carrying value of £3,700.4 million.
ii. properties under construction and properties held for development, shown as
fixed assets, were carried at £959.1 million and £212.5 million
respectively, representing their cost to the group.
The valuation of the investment portfolio includes those properties which were
completed during the period. These properties were revalued resulting in a
revaluation surplus over their cost of £188.1 million. For those properties held
throughout the period the carrying value reduced from £3,278.8 million to
£3,103.8 million, a reduction of £176.1 million or 5.4% net of additions and
adjustments for UITF 28. The net revaluation surplus of £12.0 million has been
taken to the revaluation reserve.
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 under Property Portfolio above. The Market Value of properties
under construction at 31 December 2002 was £1,602.0 million in comparison with a
carrying value for accounts purposes of £959.1 million. In valuing the
properties under construction, the valuers have allowed for estimated costs to
complete including fit-out. In addition they have allowed for letting, disposal
and marketing costs.
As regards properties held for development, the valuers have provided a joint
opinion as at 31 December 2002 that the Market Value was £289.9 million in
comparison with a carrying value for accounts purposes of £212.5 million. In
valuing the properties held for development, the valuers have allowed for
estimated costs to complete, including an allowance for fit-out. In addition
they have allowed for letting, disposal and marketing costs and financing costs.
The Market Value of £289.9 million represents a reduction of 34.4% after
additions from that at 30 June 2002, which reflects a reduction in assumed
rental growth, a longer development horizon and consequently a larger allowance
for developer's profit.
At the same time as providing their opinion of the 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 (NRV) 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 Market Value of the land;
(b) developer's profit;
(c) the effect on value of 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 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 2002 was consistent with that adopted at 30 June
2002. At 31 December 2002 the valuers adopted a discount rate of 6.38%, 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 7.15%.
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 2002
was £2,192.2 million. Their joint opinion of the present value of the Net
Realisable Value of properties held for development at that date was £829.9
million in comparison with £903.8 million at 30 June 2002, a reduction of 11.9%
after additions.
After total additions in the period of £476.6 million, the valuation of the
property portfolio on the basis of the present value of Net Realisable Value
reduced by £481.9 million to £6,763.9 million or 6.7%.
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:
31 December 2002 30 June 2002
Carrying Market Present Value Carrying Market Present Value
Value Value in of Net Value Value in of Net
Existing State Realisable Existing Realisable
Value State Value
£m £m £m £m £m £m
Investment properties 3,700.4* 3,741.8 3,741.8** 3,268.1* 3,278.8 3,278.8**
Properties under 959.1 1,602.0 2,192.2 936.6 1,915.1 2,586.6
construction
Properties held for 212.5 289.9 829.9 178.7 390.8 903.8
development
---------- ---------- ---------- ---------- ---------- ----------
Total 4,872.0 5,633.7 6,763.9 4,383.4 5,584.7 6,769.2
====== ====== ======= ====== ====== ======
Notes:
* The carrying value of investment properties represents Market Value
less an adjustment for UITF 28. This adjustment has not been made to the
Market Value in existing state or the present value of Net Realisable Value.
** Investment properties are stated at Market Value which excludes any
potential value attributable to EZAs.
Operating results
Turnover for the six months ended 31 December 2002 was £120.8 million, against
£94.2 million for the six months ended 31 December 2001. Rental income increased
from £73.4 million to £95.7 million, an increase of 30.4%. The impact of UITF 28
was to increase rental income by £9.5 million in the six months ended 31
December 2002 (six months ended 31 December 2001 - £2.6 million). Excluding the
impact of UITF 28, rental income increased from £70.8 million to £86.2 million,
an increase of 21.8%. This was attributable to the expiry of rent free or rent
reduced periods and the commencement of rent on recently completed properties.
Service charge income increased from £16.2 million to £18.6 million, an increase
of 14.8%, due to the increased level of occupancy on the estate. Miscellaneous
income increased from £4.6 million to £6.5 million over the period, reflecting
increased insurance rents and the increased provision of tenant specific
services (outside of the standard service charge) as occupancy on the estate
increased.
Lease incentives include rent-free periods and other incentives given to lessees
on entering into lease arrangements. Under UITF 28, the aggregate cost of lease
incentives is recognised as an adjustment to rental income, allocated evenly
over the lease term or the term to the first market rent review if earlier. The
cost of other lease incentives is included within prepayments and spread on a
straight line basis over a similar period. Accordingly the external valuation of
investment properties is reduced for these incentives.
The effects of UITF 28 are summarised below:
Year ended Six months Six months
30 June 2002 ended ended
31 December 31 December
2002 2001
£m £m £m
15.5 Profit and loss account: 9.5 2.6
Increase in rental income
========== ========== ==========
At At At
30 June 31 December 31 December
2002 2002 2001
£m £m £m
Balance sheet:
(10.7) Decrease in investment properties (41.4) -
- Decrease in properties under construction - (10.7)
26.2 Increase in prepayments and accrued income 66.4 13.3
========== ========== ==========
Rents payable and property management costs for the six months ended 31 December
2002 were £23.3 million, in comparison with £20.1 million for the same period in
2001. The underlying increase in property management costs is the result of
increased occupancy on the estate and the increase in insurance costs.
For the six months ended 31 December 2002 gross profits were £97.5 million, an
increase of £23.4 million over the previous period, attributable to the factors
referred to above.
Administrative expenses for the six months ended 31 December 2002 were £17.1
million excluding pre-operating exceptional items, whilst for the six months to
31 December 2001 they were £19.8 million. During the six months ended 31
December 2002, a charge of £2.8 million was also incurred in writing down the
carrying value of the group's investment in own shares which has been treated as
an exceptional item (Note 1).
The directors estimate that administrative expenses of £12.8 million (or
approximately 74.9% of the total excluding exceptional items) for the six months
ended 31 December 2002 were attributable to the group's corporate and property
investment activities. For the period ended 31 December 2001 administrative
expenses attributable to these activities were estimated at £11.2 million, or
56.6% of the total.
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 2002 such unallocated development overheads totalled £4.3
million, representing approximately 25.1% of administrative expenses excluding
exceptional items. For the six months to 31 December 2001 development overheads
totalled £8.6 million or 43.4% of the total. The reduction in development
overheads is largely attributable to letting costs which for the six months to
31 December 2001 were £3.2 million whereas for the period ended 31 December 2002
such costs totalled only £0.1 million.
For the six months ended 31 December 2002 operating profit was £78.4 million, in
comparison with a profit of £54.5 million for the six months ended 31 December
2001. The improvement in the operating profit earned by the group is primarily
attributable to the increase in turnover.
Net interest payable for the period to 31 December 2002 was £76.3 million,
against £39.3 million for the period to 31 December 2001. The increase in net
interest payable was attributable to the tap issues completed in February 2002
and October 2002 and the group's return of capital programme. The long term
financing of the ten properties which were added to the group's securitisation
vehicles ahead of completion enabled the return of capital programme to be
accelerated whilst also providing funding for the completion of these
properties.
The profit on ordinary activities after interest for the period was £5.0 million
in comparison with a profit of £26.2 million for the equivalent period in 2001.
The result for the period included £2.9 million (2001 - £13.4 million) of
deferred consideration relating to the disposal of certain subsidiary
undertakings in 1996. This income has been treated as an exceptional item. Prior
to all exceptional items, the profit on ordinary activities after interest for
the period was £4.9 million in comparison with £15.2 million for the previous
period, a reduction of £10.3 million as a result of the higher net interest
payable.
Taxation for the period to 31 December 2002, which has been calculated by
reference to the anticipated effective tax rate for the year to 30 June 2003,
was £0.1 million, in comparison with a charge of £2.0 million for 2001. These
amounts were entirely attributable to deferred tax following the adoption of
Financial Reporting Standard 19 (Deferred Tax) (FRS 19). This accounting
standard has no effect on cash flow. Moreover, the directors believe it does not
reflect the actual tax which may become payable in the future.
The profit for the financial period after taxation for the six months to 31
December 2002 was £4.9 million in comparison with a profit of £24.2 million for
the previous period. The reduction in profit was attributable to the increased
interest charge and the change in deferred consideration referred to above,
partly offset by the increase in turnover in the period.
On 22 October 2002 the directors declared a special dividend of 64.27p per
share, totalling £372.8 million, which was paid on 29 November 2002 as part of
the ongoing return of capital programme.
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 assets
at 31 December 2002 were £1,394.0 million in comparison with £1,860.3 million at
30 June 2002. The reduction in net assets was largely attributable to the return
of capital during the period, comprising the special dividend of £372.8 million
and share buy-backs of £108.1 million. This was offset by a revaluation surplus
of £12.0 million and the profit for the period of £4.9 million. Net asset value
per share at 31 December 2002 was £2.38 (30 June 2002 - £3.06), the reduction of
68p per share being attributable to the factors referred to above.
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, and adjusting for deferred taxation, the adjusted
net asset value per share at 31 December 2002 was as set out in the table below.
31 December 2002 30 June 2002
£m £m
Net assets per statutory balance sheet 1,394.0 1,860.3
Revaluation of properties under construction to NRV 1,233.1 1,650.0
Revaluation of properties held for development to NRV 617.4 725.1
-------------- --------------
Net assets after revaluation 3,244.5 4,235.4
Add: Discounted deferred taxation provision 51.7 51.6
-------------- --------------
Adjusted net assets 3,296.2 4,287.0
======== ========
Adjusted net assets per share £5.63 £7.05
======== ========
Fully diluted adjusted net assets per share £5.51 £6.83
======== ========
The reduction in fully diluted adjusted net assets per share from £6.83 at 30
June 2002 to £5.51 at 31 December 2002 is partly attributable to the special
dividend of £372.8 million, equivalent to 64p per share. In addition, the
reduction in the value of the property portfolio on a Net Realisable Value
basis, after allowing for additions, was £481.9 million or 82p per share based
on the closing number of shares.
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.
Borrowings
In October 2002 a further tap issue on the June 2000 (second) securitisation was
completed, involving the issue of £510 million of AAA and AA rated notes. The
proceeds were used to fund a special dividend totalling £372.8 million (see Note
5) and in addition £39.8 million was set aside in certain reserves required to
fund the completion of the three additional properties included in the tap
issue. The combined pool of notes for the second securitisation is now £3,117.0
million of which £3,027.0 million (97%) is rated AAA or AA. The balance of £90
million, rated A or BBB, has been repurchased by the group but will be available
for resale following completion of the buildings on Heron Quays in mid 2003.
At 31 December 2002, £44.3 million had been drawn down under the group's £1
billion construction loan facility. In addition, £77.4 million had been drawn
under a separate £125 million loan facility. The remainder of these facilities
are available to fund future construction.
In December 2002 the group entered into a £529.0 million facility which is to be
secured against a property that is currently under construction. The facility
may be drawn down when the property has reached practical completion, which is
expected in July 2004, and the related construction facility has been repaid.
The loan will bear interest at a hedged rate of 5.82% and has a final maturity
in July 2034.
Also in December 2002, the group entered into a facility to borrow £85.0 million
in January 2003 to fund the redemption of the Tranche D Notes (BBB rated) of the
December 1997 securitisation. The term of the facility is 18 months from first
drawing and the loan will carry an interest charge of LIBOR plus 2.1%. The group
has entered into an interest collar arrangement which serves to cap the portion
linked to LIBOR to 5.5%.
An analysis of net debt is given below. The increase in total borrowings from
£3,950.0 million to £4,523.4 million reflects the £510 million tap issue of the
second securitisation and draw-downs under the construction loan facilities. The
increase in total borrowings was accompanied by a reduction in cash and term
deposits to £1,099.1 million from £1,327.2 million, primarily as a result of
development expenditure of £286.0 million, the special dividend of £372.8
million and share buy-backs of £108.1 million.
At 31 December 2002, the group's weighted average cost of debt was 6.2% (30 June
2002 - 6.3%).
At 31 December 2002, net debt (after cash in hand and cash collateral) stood at
£3,424.3 million, up from £2,622.8 million at 30 June 2002 comprising:
At 31 December At 30 June
2002 2002
£m £m
Securitised debt 3,825.6 3,317.9
Loans 119.1 55.1
Finance lease obligations 578.7 577.0
------------ ------------
Total borrowings 4,523.4 3,950.0
Less: cash collateral for borrowings (854.4) (899.8)
Less: other cash collateral (3.0) (5.9)
------------ ------------
3,666.0 3,044.3
Less: cash deposits (241.7) (421.5)
------------ ------------
Net debt 3,424.3 2,622.8
============ ============
Cash flow
Net cash inflow from operating activities for the six months ended 31 December
2002 was £87.6 million in comparison with £39.0 million for the six months to 31
December 2001. This increase was partly attributable to the increase in rental
income and partly to working capital movements.
Capital expenditure and financial investment for the six months ended 31
December 2002 was £283.5 million, compared with £422.4 million for the six
months to 31 December 2001. For the period ended 31 December 2002 capital
expenditure largely comprised development expenditure of £286.0 million in
comparison with £430.5 million for the six months ended 31 December 2001. In
November 2002 a special dividend totalling £372.8 million was paid.
The financing cash inflow for the six months ended 31 December 2002 was £465.5
million compared with an outflow of £47.4 million for the six months ended 31
December 2001. The period to 31 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 2002 reflected drawings under construction loan
facilities and the tap issue on the second securitisation, offset by share
buy-backs of £108.1 million.
Segmental reporting
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 the British Waterways Board concerning the removal of the
density cap. The status of these properties at 31 December 2002 was as follows:
Net Internal Area %
million
sq ft
Completed and let 6.8 52
Completed and available to let 0.5 4
Under construction and pre-let 3.8 30
Under construction and available to let 0.5 3
Uncommitted development sites 1.5 11
---------- ----------
Total owned by group 13.1 100
======
Owned by third parties 2.5
----------
Canary Wharf estate following removal of density cap 15.6
======
Canary II
Those properties outside of the original estate which, at 31 December 2002, 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 2.1
----------
Potential future development (assuming successful application to 4.2
increase planning density)
=========
Taking the valuations set out earlier in this section, the net asset value
attributable to each segment at 31 December 2002 was as follows:
Canary I Canary II
Book Value MV NRV Book Value MV NRV
£m £m £m £m £m £m
Investment properties (Note) 3,700.4 3,741.8 3,741.8 - - -
Properties under construction 959.1 1,602.0 2,192.2 - - -
Properties held for development 65.9 135.0 395.0 146.6 154.9 434.9
-------- -------- -------- -------- -------- --------
4,725.4 5,478.8 6,329.0 146.6 154.9 434.9
Other net liabilities prior to (52.3) (52.3) (52.3) (1.4) (1.4) (1.4)
funding
-------- -------- -------- -------- -------- --------
Net assets prior to funding 4,673.1 5,426.5 6,276.7 145.2 153.5 433.5
Net debt (external) (3,424.3) (3,424.3) (3,424.3) - - -
Intragroup funding 145.2 145.2 145.2 (145.2) (145.2) (145.2)
-------- -------- -------- -------- -------- --------
Net assets 1,394.0 2,147.4 2,997.6 - 8.3 288.3
======== ======== ======== ======== ======== ========
Note: The book value of investment properties is Market Value less an adjustment
for UITF 28. This adjustment has been reversed when disclosing Market Value and
Net Realisable Value in the above table.
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 2002 is set out in Note 2.
For the six months ended 31 December 2002, Canary I recorded a profit before tax
of £7.0 million (2001 - £28.6 million).
Canary II recorded a loss before tax of £2.0 million for the six months ended 31
December 2002 (2001 - £2.4 million) attributable entirely to administrative
expenses associated with working up proposals for its development sites. Of the
total development overheads of £4.3 million for the six months ended 31 December
2002, the directors estimate that £2.3 million was attributable to Canary I and
the remaining £2.0 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 2002 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 2002
Notes Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
206.8 Turnover - rents and service charges 120.8 94.2
Cost of sales
(39.2) - rents and property management costs (23.3) (20.1)
---------- ---------- ----------
167.6 GROSS PROFIT 97.5 74.1
Administrative expenses
(38.1) - before exceptional item (17.1) (19.8)
- - exceptional item: amortisation of 8 (2.8) -
investment in own shares
Other operating income
0.7 - before exceptional item 0.8 0.2
169.5 -exceptional item: net profit on sale of 7 - -
completed property
---------- ---------- ----------
299.7 OPERATING PROFIT 78.4 54.5
Exceptional items:
13.4 - deferred consideration on disposal of 8 2.9 13.4
subsidiary undertaking
(2.4) -costs of group restructuring 1 - (2.4)
48.8 Interest receivable 3 24.7 26.2
(156.4) Interest payable 3 (101.0) (65.5)
---------- ---------- ----------
203.1 PROFIT FOR THE FINANCIAL PERIOD 5.0 26.2
BEFORE TAXATION
(10.1) Taxation 4 (0.1) (2.0)
193.0 PROFIT FOR THE FINANCIAL PERIOD AFTER 12 4.9 24.2
TAXATION
- Dividend 5 (372.8) -
---------- ---------- ----------
193.0 TRANSFERRED TO RESERVES 11 (367.9) 24.2
========== ========== ==========
Earnings per share:
30.0p Basic 6 0.8p 3.7p
29.7p Diluted 6 0.8p 3.6p
Adjusted - before exceptional items:
1.9p Basic 6 0.8p 2.0p
1.9p Diluted 6 0.8p 2.0p
The above results relate to the continuing activities of the group.
The interim results for the six months ended 31 December 2002 were approved by
the Board of Directors on 11 March 2003.
UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE
SIX MONTHS ENDED 31 DECEMBER 2002
Notes Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
193.0 Profit for the financial period after 4.9 24.2
taxation
Unrealised surplus on revaluation of
458.4 investment properties 7 12.0 66.1
---------- ---------- ----------
651.4 TOTAL RECOGNISED GAINS AND LOSSES RELATING 16.9 90.3
TO THE PERIOD
========== ==========
UNAUDITED CONSOLIDATED BALANCE SHEET AT 31 DECEMBER 2002
Audited Notes Unaudited Unaudited
30 June 31 December 31 December
2002 2002 2001
£m £m £m
FIXED ASSETS
3,268.1 Investment properties 7 3,700.4 2,425.0
936.6 Properties under construction 7 959.1 995.6
178.7 Properties held for development 7 212.5 168.7
8.1 Other tangible fixed assets 6.8 9.4
24.0 Investments 8 14.3 26.6
---------- ---------- ----------
4,415.5 4,893.1 3,625.3
---------- ---------- ----------
CURRENT ASSETS
- Properties under construction and 7 - 281.9
properties held for development
26.2 Debtors: due in more than one year 66.4 13.3
355.2 Debtors: due within one year 183.4 161.9
1,327.2 Cash at bank and in hand 9 1,099.1 991.1
---------- ---------- ----------
1,708.6 1,348.9 1,448.2
(341.7) CREDITORS: Amounts falling due within (491.4) (774.2)
one year
---------- ---------- ----------
1,366.9 NET CURRENT ASSETS 857.5 674.0
---------- ---------- ----------
5,782.4 TOTAL ASSETS LESS CURRENT LIABILITIES 5,750.6 4,299.3
(3,870.5) CREDITORS: Amounts falling due after 9 (4,304.9) (2,756.9)
more than one year
(51.6) Provisions for liabilities and charges 10 (51.7) (43.5)
---------- ---------- ----------
1,860.3 NET ASSETS 1,394.0 1,498.9
========== ========== ==========
CAPITAL AND RESERVES
6.1 Called up share capital 5.9 6.5
Reserves
2.6 Share premium 11 4.1 0.6
1,513.9 Revaluation reserve 11 1,525.9 1,121.6
0.4 Capital redemption reserve 11 0.7 0.5
637.6 Special reserve 11 264.8 637.1
(300.3) Profit and loss account 11 (407.4) (267.4)
---------- ---------- ----------
1,860.3 SHAREHOLDERS' FUNDS - EQUITY 12 1,394.0 1,498.9
========== ========== ==========
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
2002
Notes Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
NET CASH INFLOW FROM
81.2 OPERATING ACTIVITIES 87.6 39.0
---------- ---------- ----------
(173.6) Returns on investments and servicing of (124.9) (36.5)
finance
(941.3) Capital expenditure and financial (283.5) (422.4)
investment
- Equity dividend paid (372.8) -
---------- ---------- ----------
(1,114.9) (781.2) (458.9)
---------- ---------- ----------
(1,033.7) Cash outflow before management of liquid (693.6) (419.9)
resources and financing
(150.3) Management of liquid resources 48.3 182.9
902.5 Financing 465.5 (47.4)
---------- ---------- ----------
(281.5) DECREASE IN CASH IN THE PERIOD 9 (179.8) (284.4)
========== ========== ==========
Reconciliation of operating profit to operating cash flows
Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
299.7 Operating profit 78.4 54.5
(169.5) Net profit on disposal of properties - -
1.0 Depreciation charges 0.4 0.4
0.5 Provision against investment 0.3 -
4.6 Amortisation of share option costs 4.0 2.5
(13.6) Decrease/(increase) in debtors 0.2 12.9
(23.3) Increase/(decrease) in creditors 13.8 (26.0)
(0.3) Decrease in provision - (0.3)
(15.5) Amortisation of lease incentives (9.5) (2.6)
(2.4) Costs of group restructuring - (2.4)
---------- ---------- ----------
81.2 Net cash inflow from operating activities 87.6 39.0
========== ========== ==========
Capital expenditure and financial investment
Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
(957.2) Additions to properties (236.7) (420.0)
(28.0) Acquisition of development properties (49.3) (10.5)
(12.5) Acquisition of own shares to support share option - (12.9)
schemes
13.4 Deferred consideration on disposal of subsidiary 2.9 9.5
undertaking
(2.0) Purchase of tangible fixed assets (0.4) (1.5)
45.0 Deferred income relating to agreements for sale of - 13.0
property
---------- ---------- ----------
(941.3) Net cash outflow (283.5) (422.4)
========== ========== ==========
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER
2002
Financing
Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
1.6 Issue of shares 1.5 0.9
(392.4) Purchase of own shares for cancellation (108.1) (189.9)
(382.8) Repayment of secured loans - (102.1)
1,340.1 Issue of securitised debt 510.0 -
336.0 Drawdown of secured loans 62.1 243.7
---------- ---------- ----------
902.5 Net cash inflow/(outflow) 465.5 (47.4)
========== ========== ==========
The above cash flows relate to the continuing activities of the group.
NOTES TO THE INTERIM STATEMENT FOR THE SIX MONTHS ENDED 31 DECEMBER 2002
1 BASIS OF PREPARATION
The Interim Statement has been prepared having regard to the guidance in the
non-mandatory statement issued by the Accounting Standards Board, 'Interim
Reports', and on the basis of the accounting policies set out in the group's
financial statements for the year ended 30 June 2002.
The financial information relating to the six month periods ended 31 December
2002 and 31 December 2001 is unaudited. The financial information for the year
ended 30 June 2002 has been extracted from the group's financial statements to
that date. These financial statements received an unqualified auditors' report
and have been filed with the Registrar of Companies. The financial information
does not constitute statutory accounts within the meaning of Section 240 of the
Companies Act 1985.
Group restructuring
On 4 December 2001 a restructuring of the group was completed and a new ultimate
holding company was introduced by way of a scheme of arrangement in accordance
with Section 425 of the Companies Act 1985. Group restructuring expenses of £2.4
million were treated as an exceptional item in accordance with Financial
Reporting Standard 3 (Reporting Financial Performance) in the six months ended
31 December 2001.
2. SEGMENTAL REPORTING
The Business Review includes a discussion of segmental information, including a
summary of the properties in each segment. For the purposes of the segmental
information which follows, the carrying values of properties are stated on the
basis adopted for statutory reporting purposes, which does not reflect any
revaluation of properties under construction or held for development.
Balance sheet
Unaudited Audited
At 31 December 2002 At 30 June 2002
Total Total
Canary I Canary II Group Canary I Canary II Group
£m £m £m £m £m £m
Properties 4,725.4 146.6 4,872.0 4,252.4 131.0 4,383.4
Other net (liabilities)/ assets
excluding net debt and
intragroup funding (52.3) (1.4) (53.7) 108.7 (9.0) 99.7
---------- ---------- ---------- ---------- ---------- ---------
Net assets prior to funding 4,673.1 145.2 4,818.3 4,361.1 122.0 4,483.1
Net debt (external) (3,424.3) - (3,424.3) (2,622.8) - (2,822.8)
Intragroup funding 145.2 (145.2) - 122.0 (122.0) -
---------- ---------- ---------- ---------- ---------- ----------
Net assets 1,394.0 - 1,394.0 1,860.3 - 1,860.3
========== ========== ========== ========== ========== ==========
Profit and loss account
The group's turnover for the six months ended 31 December 2002 and the six
months ended 31 December 2001 was attributable entirely to Canary I.
Administrative expenses for the six month period ended 31 December 2002 were
£19.9 million including an exceptional charge relating to the amortisation of
the investment in own shares of £2.8 million, compared with administrative
expenses of £19.8 million for the six months ended 31 December 2001, of which
£17.9 million (2001 - £17.4 million) was attributable to Canary I and £2.0
million (2001 - £2.4 million) to Canary II.
Canary I recorded a profit before taxation of £7.0 million for the six months
ended 31 December 2002 (2001 - £28.6 million), whilst Canary II recorded a loss
before taxation of £2.0 million (2001 - £2.4 million), attributable entirely to
administrative expenses.
3 INTEREST
Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended 31
30 June December December
2002 2002 2001
£m £m £m
Receivable:
48.8 Bank interest receivable 24.7 26.2
---------- ---------- ----------
48.8 Total 24.7 26.2
========== ========== ==========
Payable:
173.1 Notes and debentures 118.7 70.9
18.2 Bank loans and overdrafts 4.6 3.7
41.1 Finance lease charges 17.6 24.2
---------- ---------- ----------
232.4 140.9 98.8
Less:
Interest at 6.0% (year ended 30 June 2002 - 6.1%, six
months ended 31 December 2001 - 6.2 %) on development
financings transferred to
(76.0) development properties (Note 7) (39.9) (33.3)
---------- ---------- ----------
156.4 Total 101.0 65.5
========== ========== ==========
Interest payable of £39.9 million (year ended 30 June 2002 - £76.0 million, six
months ended 31 December 2001 - £33.3 million) has been transferred to
development properties (Note 7). The amount transferred includes £27.2 million
attributable to the cost of funds forming part of the group's general borrowings
which are utilised in financing construction (year ended 30 June 2002 - £43.0
million, six months ended 31 December 2001 - £29.6 million). For the six months
ended 31 December 2001, finance lease charges of £24.2 million include £4.1
million relating to the acquisition of Indural Holdings Limited. The
consideration payable on acquisition was treated as a charge required to
restructure certain finance leases and accordingly shown as a component within
interest payable.
4 TAX ON PROFIT ON ORDINARY ACTIVITIES
Unaudited Unaudited
Audited Six months Six months
Year ended ended ended
30 June 31 December 31 December
2002 2002 2001
£m £m £m
Current tax:
- UK corporation tax (see below) - -
Deferred tax:
(6.3) Origination and reversal of timing differences 0.8 0.3
(3.8) Net effect of discount (0.9) (2.3)
---------- ---------- ----------
(10.1) Total deferred tax (Note 10) (0.1) (2.0)
---------- ---------- ----------
(10.1) Total tax on profit on ordinary activities (0.1) (2.0)
========== ========== ==========
No provision for corporation tax has been made in the consolidated results of
the group for the six months to 31 December 2002 (six months to 31 December 2001
- £Nil) due to the availability of tax losses brought forward from previous
periods and other tax reliefs available to offset the profit for the period. It
is anticipated that these tax losses brought forward and other tax reliefs will
impact on future tax charges.
5 DIVIDENDS
Unaudited Unaudited
Audited Six months Six months
Year ended ended 31 ended
30 June December 31 December
2002 2002 2001
£m £m £m
- Dividend at 64.27p per share 372.8 -
======= =======
On 22 October 2002 the company declared the return of £375 million of capital to
shareholders by way of a special dividend which was paid on 29 November 2002.
Payment of dividends totalling £2.2 million was waived by the Trustee for 3.4
million shares held on behalf of the group's various share option plans.
As a result of the special dividend, the exercise price for certain of the
group's share option schemes was reduced giving rise to an exceptional charge of
£2.8 million (see Note 8).
6 EARNINGS PER SHARE
Basic earnings per share is calculated by reference to the profit for the
financial period after taxation attributable to ordinary shareholders of £4.9
million (year ended 30 June 2002 - £193.0 million, six months ended 31 December
2001 - £24.2 million) and on the weighted average of 586.0 million shares in
issue (June 2002 - 642.9 million, December 2001 - 658.9 million).
The calculation of diluted earnings per share for the six months ended 31
December 2002 is based on the profit for the financial period after taxation
attributable to ordinary shareholders of £4.9 million (year ended 30 June 2002 -
£193.0 million, six months ended 31 December 2001 - £24.2 million) and the
diluted weighted average of 587.9 million shares (June 2002 - 649.8 million,
December 2001 - 667.4 million). The calculation of the number of shares which
are dilutive is based on the number of potential shares outstanding as adjusted
for the difference between the exercise price and the weighted average share
price for the period. The difference between the basic weighted average number
of shares and the diluted weighted average comprises the following:
Shares
million
Warrants 0.4
Share options 1.5
----------
Total 1.9
==========
The earnings per share before exceptional items for the period ended 31 December
2002 have been calculated on the profit after taxation excluding exceptional
items for the period of £4.8 million (year ended 30 June 2002 - £12.5 million,
period ended 31 December 2001 - £13.2 million).
7. INVESTMENT PROPERTIES AND PROPERTIES UNDER CONSTRUCTION AND HELD FOR
DEVELOPMENT
Properties Properties
Investment under held for
properties construction development
Freehold properties held as tangible fixed assets: £m £m £m
At 1 July 2002 pre-adjustment for UITF 28 3,278.8 936.6 178.7
Adjustment for UITF 28 (10.7) - -
----------- ----------- -----------
As at 1 July 2002 3,268.1 936.6 178.7
Additions including interest 0.4 442.4 33.8
Transfer of completed properties 419.9 (419.9) -
Revaluation 12.0 - -
----------- ----------- -----------
As at 31 December 2002 3,700.4 959.1 212.5
=========== ===========
Adjustment for UITF 28 41.4
-----------
Market Value at 31 December 2002 3,741.8
===========
Of which, subject to lease and finance leaseback 1,003.4
arrangements
===========
Historical cost 1,942.9
===========
Investment properties are recorded at valuation less the cost of unamortised
tenant incentives incurred at the balance sheet date in accordance with UITF 28.
The remaining unamortised tenant incentives are held within prepayments in the
balance sheet.
During the period ended 31 December 2002 the group completed construction of
three buildings at Canary Wharf that were retained as investment properties, 5
Canada Square, 20 Canada Square and the Canada Place Retail Extension. These
properties have been revalued externally at 31 December 2002 on the basis of
Market Value in accordance with the Appraisal and Valuation Manual published by
the Royal Institution of Chartered Surveyors ('Market Value'). This resulted in
a surplus upon revaluation of £188.1 million which has been taken to the
revaluation reserve.
The group's other investment properties have also been revalued externally as at
31 December 2002 on the basis of Market Value. These valuations were undertaken
by either FPDSavills Commercial Limited, Chartered Surveyors, or CB Hillier
Parker Limited, Surveyors and Valuers. Each property has been valued
individually on a free and clear basis and not as part of a portfolio and no
account has been taken of any intragroup leases or arrangements. No allowance
has been made for any seller's expenses of realisation nor for any taxation
which might arise in the event of disposal. The surplus arising on the
valuations at 31 December 2002 including that on properties completed during the
period (£12.0 million) has been transferred to the revaluation reserve.
Properties under construction and properties held for development at 31 December
2002 which are to be retained are carried at their fair value at the time of
acquisition of the Canary Wharf Holdings Limited group in December 1995, less
subsequent disposals plus additions at cost, subject to any provision for
impairment.
At 31 December 2002 properties under construction held as fixed assets included
£78.9 million (30 June 2002 - £67.2 million) in respect of financing costs.
In April 2002, 8 Canada Square achieved practical completion and the building
was sold under the terms of a development agreement entered into in October
1998. The sale of this property resulted in a profit on disposal of £169.5
million in the year ended 30 June 2002.
On 6 November 2000, the group entered into an Agreement for Lease with Clifford
Chance for the lease of 785,000 sq ft in a new 1 million sq ft building under
construction on Heron Quays (parcel HQ5). The group has acquired the
sub-leasehold interest (with approximately 14.5 years now unexpired) in 200/202
Aldersgate Street, a 437,000 sq ft office building in the City of London, and
has underlet the premises to Clifford Chance for a term of approximately 5 years
at the same rent as that under the sublease. Clifford Chance have the right to
terminate their lease on giving not less than three months notice following
practical completion of HQ5, in which event the group will sublet the premises
or dispose of its interest on the open market.
8 INVESTMENTS
Own Other
shares investments Total
Cost: £m £m £m
At 1 July 2002 26.3 2.1 28.4
Transferred to participants (0.4) - (0.4)
Received from participants 0.2 - 0.2
---------- ---------- ----------
At 31 December 2002 26.1 2.1 28.2
---------- ---------- ----------
Amounts written off:
At 1 July 2002 (3.9) (0.5) (4.4)
Written off (9.3) (0.3) (9.6)
Transferred to participants 0.1 - 0.1
---------- ---------- ----------
At 31 December 2002 (13.1) (0.8) (13.9)
---------- ---------- ----------
Net book amount:
At 31 December 2002 13.0 1.3 14.3
---------- ---------- ----------
At 1 July 2002 22.4 1.6 24.0
---------- ---------- ----------
During 2001 the company acquired 5.2 million of its own shares at a cost of
£26.8 million in connection with certain of the group's share option schemes.
Such shares are initially recorded at cost and written down to the exercise
price over the period to vesting. Prior to the payment of the special dividend
on 29 November 2002 the exercise price for the relevant schemes was £4.00 per
share. As a result of the special dividend, the amount payable by employees on
exercise was reduced from £4.00 to £3.3117. The carrying value of the group's
investment in own shares has accordingly been reduced in order to reflect the
reduction in amount recoverable. This has resulted in an exceptional charge to
operating profit of £2.8 million.
In October 1996 the group sold its interest in the limited partner companies of
the First Tower Limited Partnership, subject to payment of deferred
consideration contingent upon the satisfaction of certain conditions. During the
period to 31 December 2001 these conditions were confirmed as having been
satisfied and the group became entitled to receive £13.4 million net of
expenses. In the period to 31 December 2002, the group became entitled to
receive an additional £2.9 million net of expenses. These amounts are recognised
in the profit and loss account for the relevant period as an exceptional item.
This did not give rise to deferred tax in the period.
9 NET DEBT
The amounts at which borrowings are stated comprise:
Securitised Construction Finance lease Total
debt loans obligations
£m £m £m £m
At 1 July 2002 3,317.9 55.1 577.0 3,950.0
Drawn down in period 510.0 62.1 - 572.1
Deferred financing expenses (4.9) (0.8) 0.2 (5.5)
Accrued finance charges 2.6 2.7 1.5 6.8
---------- ---------- ---------- ----------
At 31 December 2002 3,825.6 119.1 578.7 4,523.4
========== ========== ========== ==========
Payable within one year or on demand 141.1 77.4 - 218.5
Payable in more than one year 3,684.5 41.7 578.7 4,304.9
---------- ---------- ---------- ----------
3,825.6 119.1 578.7 4,523.4
========== ========== ========== ==========
In November 2000 the group concluded a seven year £1 billion revolving
construction loan facility of which £44.3 million had been drawn down prior to
31 December 2002. Drawings under the facility are secured by first-ranking fixed
and floating charges over the properties which are subject to the financing and
by the guarantee of the parent company. Drawings bear interest at a margin of 1%
over LIBOR and are repayable on the date falling three months after the
scheduled completion date for the property being financed, subject to the
group's ability to extend on certain conditions.
In October 2001 the group entered into a further £125 million construction loan
facility of which £77.4 million was drawn down prior to 31 December 2002.
In October 2002 a further tap issue on the June 2000 (second) securitisation was
completed, raising £510 million. The notes issued comprise a new A6 Tranche
issued in a principal amount of £325.0 million with interest payable at three
month LIBOR plus 0.45% stepping up to LIBOR plus 1.125% in October 2005. These
notes are fully hedged at 5.49925% to October 2005 and 6.17425% thereafter. The
notes are repayable in instalments from October 2005 with a final maturity date
of October 2033. A further £185.0 million was raised by the re-issue of £125.0
million 'AAA' rated and £60.0 million 'AA' rated fully revolving short-term
notes. Interest is payable at three month LIBOR with a margin of 0.40% for the '
AAA' notes and 0.5% for the 'AA' notes. These notes were fully hedged at 5.4242%
for the 'AAA' and 5.4589% for the 'AA' notes. The notes have a final maturity
date of October 2033. The new notes issued may be redeemed at the option of the
issuer in an aggregate amount of not less than £1 million on any interest
payment date subject to the current rating of the debentures not being adversely
affected and certain other conditions affecting the amount to be redeemed.
In December 2002, the group entered into a £529.0 million facility secured
against a property that is currently under construction. The loan facility may
be drawn when the property has reached practical completion and the related
construction funding has been repaid. The loan will bear interest at hedged rate
of 5.82% and has a final maturity in July 2034.
Also in December 2002, a group company entered into a facility to borrow £85.0
million in January 2003 to fund the redemption of the Tranche D Notes (BBB
rated) of the December 1997 securitisation. The term of the facility is one year
from first drawing with a six month extension option, and the loan will carry an
interest charge of LIBOR plus 2.1%. The group has entered into an interest
collar arrangement which serves to cap the portion linked to LIBOR to 5.5%.
At 31 December 2002 the group held sterling cash deposits totalling £1,099.1
million (30 June 2002 - £1,327.2 million), comprising deposits placed on money
market at call and term rates. Total cash deposits included £854.4 million (30
June 2002 - £899.8 million) held by third parties as cash collateral for the
group's borrowings, and £3.0 million (30 June 2002 - £5.9 million) charged to
third parties as security for the group's obligations. Unsecured cash deposits
totalled £241.7 million at 31 December 2002 (30 June 2002 - £421.5 million).
The movement in net debt for the six months ended 31 December 2002 was as
follows:
Other 31 December
1 July non-cash
2002 Cash flow changes 2002
£m £m £m £m
Cash at bank 1,327.2 (228.1) - 1,099.1
Amounts on deposit not available on (905.7) 48.3 - (857.4)
demand
---------- ---------- ---------- ----------
421.5 (179.8) - 241.7
---------- ---------- ---------- ----------
Debt due after 1 year (3,293.5) (530.5) 97.8 (3,726.2)
Debt due within 1 year (79.5) (41.6) (97.4) (218.5)
Finance leases (577.0) 15.9 (17.6) (578.7)
---------- ---------- ---------- ----------
(3,950.0) (556.2) (17.2) (4,523.4)
---------- ---------- ---------- ----------
Amounts on deposit not available on 905.7 (48.3) - 857.4
demand
---------- ---------- ---------- ----------
Net debt (2,622.8) (784.3) (17.2) (3,424.3)
========== ========== ========== ==========
Six months
ended
31 December
2002
£m
Decrease in cash in the six months (228.1)
Increase in debt and lease financing (556.2)
----------
Change in net debt resulting from cash flows (784.3)
Non-cash movement in net debt (17.2)
----------
Movement in net debt in the six months (801.5)
Net debt at 1 July 2002 (2,622.8)
----------
Net debt at 31 December 2002 (3,424.3)
==========
10 PROVISIONS FOR LIABILITIES AND CHARGES
31 December 30 June
2002 2002
Deferred taxation: £m £m
Accelerated capital allowances claimed (89.6) (89.4)
Other timing differences (34.4) (35.4)
---------- ----------
Undiscounted deferred tax liability (124.0) (124.8)
Discount 72.3 73.2
---------- ----------
Discounted deferred tax liability (51.7) (51.6)
========== ==========
Six months Six months
ended ended
31 December 31 December
2002 2001
£m £m
At 1 July (51.6) (41.5)
Deferred tax charge in profit and loss account for the
period (0.1) (2.0)
---------- ----------
At 31 December (51.7) (43.5)
========== ==========
As the group has no current intention to sell its investment properties, it is
not expected that the deferred tax liability will crystallise in the foreseeable
future.
In accordance with FRS19, no provision has been made for deferred tax on gains
on property revalued to its market value. If the group's properties were sold at
their market value, a tax liability of no more than £272 million would arise.
However, in the light of an ongoing review based on current legal advice, this
figure may be reduced. As the group has no present intention to sell its
investment properties, it is not expected that any liability will arise in the
foreseeable future and no provision for this contingent liability has been made.
11 RESERVES
Share Capital Profit and
premium Revaluation redemption Special loss
account reserve reserve reserve account Total
£m £m £m £m £m £m
At 1 July 2002 2.6 1,513.9 0.4 637.6 (300.3) 1,854.2
Issue of shares under share option 1.5 - - - - 1.5
schemes
Reserve movements in respect of - - - - (3.9) (3.9)
share option schemes
Acquisition and cancellation of own - - 0.3 - (108.1) (107.8)
shares
Revaluation of investment - 12.0 - - - 12.0
properties
Transfer to profit and loss account - - - (372.8) 372.8 -
Retained loss for the financial - - - - (367.9) (367.9)
period
---------- ---------- ---------- ---------- ---------- ----------
At 31 December 2002 4.1 1,525.9 0.7 264.8 (407.4) 1,388.1
========== ========== ========== ========== ========== ==========
The special reserve arose from a restructuring of the group which was completed
on 4 December 2001 involving the introduction of a new holding company for the
group by way of a scheme of arrangement in accordance with Section 425 of the
Companies Act 1985. The transfer to profit and loss account is equivalent to the
dividend paid in the period.
12 RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS
Six months ended 31 December 2002
£m
Profit for the financial period before dividends 4.9
Dividends (372.8)
Revaluation surplus 12.0
New shares issued under the group's share option schemes 1.6
Movement in respect of share option schemes (3.9)
Cancellation of shares (108.1)
------------
Net movement on shareholders' funds (466.3)
Opening shareholders' funds 1,860.3
------------
Closing shareholders' funds
1,394.0
============
This information is provided by RNS
The company news service from the London Stock Exchange
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