Canary Wharf Group - Final Results
RNS Number:0815B
Canary Wharf Group PLC
12 September 2002
CANARY WHARF GROUP PLC
12 September 2002
PRELIMINARY ANNOUNCEMENT OF RESULTS YEAR ENDED 30 JUNE 2002
FINANCIAL HIGHLIGHTS
Restated*
Notes Year ended Year ended
30 June 30 June
2002 2001 Change
__________ __________
£m £m %
Turnover - rents and service charges 206.8 159.2 29.9
Gross profit 167.6 126.4 32.6
Operating profit before exceptional item 130.2 91.7 42.0
Exceptional item: net profit on sale of 169.5 -
completed properties
---------- ----------
Operating profit 299.7 91.7
Profit before interest and taxation 310.7 91.3
Net interest payable (107.6) (48.8)
Profit on ordinary activities before taxation 203.1 42.5
Profit on ordinary activities before taxation excluding 22.6 42.5
exceptional items
Basic earnings per share 30.0p 6.3p
Diluted earnings per share 29.7p 6.2p
Basic earnings per share before exceptional items 1.9p 6.3p
Diluted earnings per share before exceptional items 1.9p 6.2p
Restated
At 30 June At 30 June
2002 2001 Change
__________ __________ _________
£m £m %
Investment properties (1) 3,268.1 2,300.5
Properties under construction and
properties held for development (2) 1,115.3 1,119.1
Net debt (2,622.8) (1,191.7)
Deferred income relating to building sales - (467.0)
Other net assets/(liabilities) 99.7 (164.5)
Net assets at net book value 1,860.3 1,596.4 16.5
At 30 June At 30 June
2002 2001
__________ __________
£m £m
Properties under construction and
properties held for development (3)
- at Open Market Value 2,305.9 2,580.5
- at present value of Net Realisable Value 3,490.4 4,264.5
Net Asset Value per share based on Net £7.05 £6.97 1.1
Realisable Value
Diluted Net Asset Value per share based on
Net Realisable Value £6.83 £6.74 1.3
* Restated for UITF 28 and FRS 19
1. Investment properties stated at Open Market Value
2. Properties under construction and properties held for development stated
at cost
3. Refer to Operating and Financial Review - Valuations of the
preliminary announcement for an explanation of the basis of valuation.
AT 30 JUNE 2002:
* The group's investment portfolio totalling 6.0 million sq ft was 98.7%
let.
* Properties under construction totalled 5.5 million sq ft of which 4.9
million sq ft was pre-let.
DURING THE YEAR:
* Construction was completed on five properties, four of which were retained
as investment properties and one of which was sold.
* The four properties retained as investment properties generated surpluses
on revaluation of £430.3 million.
* 8 Canada Square was completed and sold to HSBC resulting in an exceptional
profit on disposal of £169.5 million.
* Barclays PLC leased a new 1 million sq ft building (parcel BP1), of which
650,000 sq ft is expected to be occupied initially.
* Skadden, Arps, Slate, Meagher & Flom LLP exchanged contracts for 133,300
sq ft in a 600,000 sq ft building which is scheduled for completion in
mid-2003. Allen & Overy also exchanged contracts for 78,200 sq ft in the
same building.
* The Northern Trust Company exercised an option over 18,000 sq ft in 50
Bank Street, bringing their total occupation to 151,400 sq ft.
* EMEA exercised an option over 15,700 sq ft in 7 Westferry Circus, bringing
their total occupancy on the estate to approximately 100,000 sq ft.
* Clifford Chance exercised their option over 209,000 sq ft being the
remainder of 10 Upper Bank Street.
* Waitrose increased their space requirement by 20,000 sq ft to 100,000 sq
ft in the Canada Place retail extension.
* Over 95% of the space was committed in the new Jubilee Place Mall, which
is scheduled to open in September 2003.
* Agreement was reached with British Waterways Board relating to the removal
of a restrictive covenant over 1.7 million sq ft of potential development.
* 80.3 million shares were bought back at a cost of £392.4 million.
* The group tapped an existing securitisation raising £1,340 million
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 annual report will be sent to shareholders and copies will be made
available to the public on request to the Group Company Secretary at the
registered office, One Canada Square, Canary Wharf, London E14 5AB.
The information in this announcement, which was approved by the board of
directors on 11 September 2002, does not comprise statutory accounts within the
meaning of the Companies Act 1985.
CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT
We are pleased to report another year of strong progress in the development of
Canary Wharf. Despite a challenging market, during the year we have secured a
higher level of rental commitments, 1.45 million sq ft, and also achieved a
higher level of rent than in the previous year against a backdrop of a lettings
slowdown and rental falls elsewhere in the London market. The Canary Wharf
estate currently has more than 14 million sq ft of space completed or under
construction, which is more than was anticipated at the time of flotation in
1999, with only 0.6 million sq ft of office space uncommitted. We have also
acquired a further 1.7 million sq ft of density which will bring the total
development on the original Canary Wharf estate to 15.7 million sq ft and which,
together with recently acquired adjacent sites, will enable us to continue the
development of Canary Wharf. We now have the potential to lift the development
to around 20 million sq ft and the ability to respond to client needs over the
foreseeable future.
At the start of 2002 we were running the largest building programme in London
with 8.2 million sq ft underway, of which 91.7% is now committed. We completed
five buildings on time and on budget during the year, totalling approximately
2.7 million sq ft. We currently have ten buildings totalling 5.5 million sq ft
of office and retail underway complemented by significant public spaces such as
parks and winter gardens.
The strong performance of the group during the year, as explained below in the
financial review, will enable us to accelerate our return of capital programme.
In March 2002 we outlined plans to return £2.0 billion to shareholders through a
balanced combination of £750 million of share buy-backs and structured returns
of £250 million in each of 2003, 2004 and 2005. The final £500 million will
follow on development of the four remaining sites on the original Canary Wharf
estate. In the 14 month period since June 2001, £501 million has been returned
to shareholders through share buy-backs. The rapid pace of development has also
enabled us to bring forward our financing so that half of the £750m structured
returns are intended to be paid by a £375m special dividend payable in December
2002. We will also be continuing our share buy-back programme this year. At this
stage the balance of the return of capital programme remains unaltered.
This progress would not have been possible without the continuing commitment and
dedication of staff at all levels, to whom the board express their appreciation
and thanks.
Financial Review
________________
The results for the year ended 30 June 2002 demonstrate the group's continuing
strong performance. Turnover increased from £159.2 million in 2001 to £206.8
million for 2002 , an increase of 29.9%. The increase in turnover fed through to
an increase of £38.5 million in operating profit for the year, before
exceptional items, to £130.2 million. In addition the group recognised a profit
of £169.5 million on the planned disposal of 8 Canada Square to HSBC, which was
completed in April 2002, and realised deferred consideration of £13.4 million
relating to the disposal of an undertaking in 1996. Consequently profit before
interest and tax was £310.7 million, £130.2 million excluding exceptional items,
against £91.3 million for the previous year.
Profit before tax for 2002 was £203.1 million, or £22.6m before exceptional
items, in comparison with £42.5 million for the previous year. This was
attributable to the increase in net interest payable (from £48.8 million to
£107.6 million) as a result of the securitisations completed in June 2001 and
February 2002. These debt issues funded the share buy-back programme, as well as
completion of the seven properties totalling 4.6 million sq ft included in the
securitisations. These innovative long-term financings were drawn down ahead of
practical completion of the related properties, so enabling the acceleration of
the return of capital programme whilst also releasing the group's construction
facilities for other projects.
Net assets increased to £1,860.3 million at 30 June 2002, an increase of £263.9
million over the year. Before share buy-backs the increase in the year in net
assets was £656.3 million. 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 net asset value per
share increased from £6.97 per share at 30 June 2001 to £7.05 per share at 30
June 2002 (before dilution). We continue to believe that this is the best means
of evaluating the long-term value of the business. The increase in net asset
value reflected in the group's statutory balance sheet demonstrates the progress
made in realising that long term value, whilst the share buy-back programme
evidences our commitment to the return of capital to shareholders.
Capital Structure
_________________
Further to the securitisation and issue of Notes in May 2000 and the £875
million tap issue in June 2001, £1,257 million of additional Notes were issued
in February 2002. This was our largest issue to date. Four new office buildings
were added to the asset pool and out of the £1,257 million raised 88% was rated
AAA. These new properties have been completed or are at various stages of
construction and are due to be completed between May 2003 and August 2003, and
have been pre-let to Morgan Stanley, Lehman Brothers, Northern Trust and
Clifford Chance LLP.
An important part of the £2 billion return of capital is our share buy-back
programme. During the period share buy-backs totalled £392 million which,
together with buy-backs executed in the previous year and following the year
end, brings the total return of capital to £501m with a total of 104.6 million
shares cancelled to date. Notwithstanding the proposed accelerated structured
return of £375m, the share buy-back programme will continue and is projected to
return a further £250 million.
Leasing Activity
________________
The last twelve months have been challenging for the Central London Office
market with a take up of just over 10.4 million sq ft. During the same period
the Canary Wharf district accounted for approximately 1.8 million sq ft of this
take up, out of which the Canary Wharf Group lettings outlined below totalled
1.45 million sq ft.
* Barclays signed an agreement to lease 1 million sq ft in a single building
in November 2001. It is anticipated that they will initially occupy
approximately 650,000 sq ft.
* Skadden, Arps, Slate, Meagher & Flom leased approximately 133,300 sq ft at
40 Bank Street in December 2001.
* The Northern Trust Company exercised an option over 18,000 sq ft in 50
Bank Street in January 2002 bringing their total occupation to 151,400 sq ft
* EMEA exercised an option in January 2002 over 15,700 sq ft in 7 Westferry
Circus in January 2002 bringing their total occupation to approximately
100,000 sq ft
* Waitrose increased their space requirement by 20,000 sq ft in February
2002 taking their occupation to 100,000 sq ft
* Clifford Chance exercised their option over 209,000 sq ft on the remainder
of 10 Upper Bank Street in April 2002 bringing their total long term
occupation to 1 million sq ft
* Allen & Overy exchanged contracts to lease 78,200 sq ft in 40 Bank Street
in June 2002.
During the period we have continued to secure long term tenancies on pre-lets.
Including the above tenancies, the average length of unexpired tenancies at
Canary Wharf excluding break clauses is 23.6 years and 20.9 years including
break clauses.
In addition, we have seen positive sub-letting activity within the estate which
has brought new tenants to Canary Wharf in space which could be delivered to
match the timeframe required by the tenant. In particular, CSFB agreed in April
to sub-let approximately 275,000 sq ft to Bank of America in 5 Canada Square.
Leasing on Jubilee Place, the 89,500 sq ft next phase of retail development, has
also been very strong with 24 units committed, representing 66% of the total
square footage, with the other remaining 14 units under offer. This is an
excellent achievement given the expected opening date of September 2003 and
reflects the success of Canary Wharf as a thriving retail area serving the
estate and wider area. New retail tenants next year will include, Marks &
Spencer, French Connection, Karen Millen and Molton Brown
Whilst overall vacancy rates in Central London increased to 9.2 % only 15% of
the available space is classified as new and a large proportion of overall
supply (40%) is in small fragmented units. The Canary Wharf district has the
highest proportion of grade A new accommodation and the lowest current vacancy
rate for space completed and available for occupation of any Central London
submarket at 4.5%, of which only 80,000 sq ft of space is attributable to Canary
Wharf Group and 360,000 sq ft are tenant disposals.
As take up has reduced and supply increased there has been a reduction in and
continuing downward pressure on rents in most of the Central London sub-markets
particularly in the fragmented second hand sector. The reduction in prime rents
in both the West End and City largely occurred in the latter part of 2001.
Whilst prime rents remain under pressure they are reported to have maintained
their level in the last two quarters, although this may also be due to a lack of
transactional evidence. The rents achieved at Canary Wharf in open market
lettings have been up to approximately £45 psf on accommodation due for
completion by the middle of next year.
Future supply of offices is another important factor. There is currently 6.8
million sq ft of speculative construction underway across Central London with
delivery spanning from 2002 to 2005 The majority of speculative development is
focused on the City accounting for 56% of the Central London total. Our policy
has been to control the amount of speculative space which we have available at
any one time. Although we have ten buildings totalling 5.5 million sq ft under
construction, only 0.6 million sq ft is new speculative Grade A office space
which will be available in the second quarter of next year. In accordance with
our stated policy of only having one speculative building underway at any time,
it would not be our intention to commence another building until this space has
been substantially let and the market has improved meaningfully.
Demand has reduced across Central London in the last 12 months by approximately
one third and currently stands at approximately 11.75 million sq ft. However, in
the last quarter we were able to report an improvement of viewing levels
compared with earlier in the year. These levels of viewing have been maintained
during the course of the summer. There is, we believe, a greater focus by
occupiers on cost and value for money whilst retaining a preference for high
quality office accommodation. This value orientated demand will, we believe, be
attracted to locations such as Canary Wharf that offer the best quality new
accommodation and an attractive working environment on competitive financial
terms.
Construction
____________
During the year the group completed the construction of five properties, four of
which were retained as investment properties and one of which was sold. The
aggregate area of these buildings was approximately 2.7 m sq ft. The investment
properties include 25 Canada Square (leased to Citigroup), 15 Westferry Circus
(leased to Morgan Stanley) and 50 Bank Street (part let to The Northern Trust
Company). 8 Canada Square is a building which was sold on completion, in April
2002, to HSBC under terms entered into in October 1998.
There are currently ten buildings under construction at Canary Wharf, 5 Canada
Square (let to CSFB and part sublet to Bank of America), 1 Churchill Place (let
to Barclays), 20 Canada Square (part let to The McGraw-Hill Companies), 20 Bank
Street (let to Morgan Stanley), 25-30 Bank Street (let to Lehman Brothers), 40
Bank Street (part let to Skadden Arps and Allen & Overy), 10 Upper Bank Street
(let to Clifford Chance LLP), Canada Place Retail extension (predominantly let
to Waitrose and Reebok), the Jubilee Place Retail Centre (38 units) and the
Churchill Place Retail Centre.
Future Development
__________________
In December an agreement was reached with British Waterways Board to remove a
restrictive covenant affecting the remaining development sites within Canary
Wharf. This agreement increases the area of potential development by 1.7 million
sq.ft and brings the total permitted development on the original Canary Wharf
estate to 15.7 million sq.ft.
We have been working on the infrastructure works and pre-staging to street level
for 850,000 sq.ft of development on two sites adjacent to the new Barclays
building. Once this work is completed it will be possible to deliver a pre-let
to a new tenant in a much reduced timeframe. This reflects our policy of
controlling the amount of speculative building underway whilst positioning
ourselves to be able to respond rapidly to client needs.
As a developer we believe it necessary to maintain focus on our core skill of
providing the high quality, cost efficient space that both national and
international businesses require. To that end we will be submitting detailed
planning applications on three sites within the next few months. On Riverside
the Rogers Partnership has designed a family of 3 buildings totalling 1.8m net
sq ft. On North Quay a composition of three buildings designed by Cesar Pelli
will provide up to 2.4m sq ft of commercial space together with the commitment
to quality retail and open spaces that our clients demand. This will be
integrated with a proposed station for Crossrail. Both compositions will be of
the highest architectural merit which we always aim to achieve. We are also
undertaking detailed design work on a further site which lies between Riverside
and Heron Quays in which we already have a significant interest.
During the year the Mayor of London, Ken Livingstone, produced the Draft London
Plan, his Spatial Development Strategy for Greater London. The plan emphasises
the underlying growth of London's population and employment and reinforces the
importance of East London and the Canary Wharf district in meeting anticipated
growth both for housing and commercial space. The Mayor forecasts that, over the
next 15 years, employment in financial and business services will grow by over
440,000 people, which indicates a need for net incremental office space of
between 7m and 9.2m sq. metres (75 to 100 million sq ft). More than 50% of this
incremental space is forecast for the eastern sub region which encapsulates
Stratford and, critically, the corridor from east of the City through Canary
Wharf and the Isle of Dogs to the Greenwich peninsula and the Royal Docks. The
Canary Wharf District is seen as a focal point for growth.
Transport
_________
Both the Mayor and the Government recognise that the continued growth of London,
and in particular East London, is critically dependent on enhanced transport
provision. We believe that Crossrail, when approved, will stimulate the next
wave of investment in East London in which our developments will be pivotal.
We have continued to work closely with all the relevant bodies to ensure there
is a phased programme of transport investment to meet future needs. In that
respect we are delighted that the Government, Mayor and Transport for London
(TfL) have recently announced the extension of the Dockland Light Railway (DLR)
to London City Airport and that the Mayor has re-emphasised that further river
crossings to the east of Canary Wharf are a key priority.
We maintain a close working relationship with the DLR which has recently
increased both its fleet of trains and its service levels. The new station at
Heron Quay which opens this November is a significant example of the public and
private sector working together. The project was jointly financed by Canary
Wharf and the DLR and constructed by Canary Wharf while the DLR continued to run
normally. We are also working with the DLR on its plan to provide 3 car working
on the line. This is now within the DLR and TfL's corporate plan.
The Jubilee Line is working at improved levels of efficiency. The critical issue
being addressed now is increasing the capacity. There is, in principle,
agreement on the works to be carried out over the short, medium and long term
which will provide for increased capacity including a more robust service,
longer trains, extended peak hours and increased train frequency which will
provide for the expected and future population at Canary Wharf.
Prospects
_________
We have previously referred to the take up of space at Canary Wharf in the past
year and the list of new tenants, which when combined with the existing tenant
list, indicate that Canary Wharf is now clearly established as a business centre
on a par with the City and West End. It is the combination of tenants,
facilities and services which set these three districts apart and provide for
London a critical commercial advantage as a world class centre.
Although market conditions have undoubtedly worsened over the last 12 months
there is a greater focus from occupiers on cost, value for money and
professional service in these more demanding and stringent economic times. We
believe, that the high specification of our buildings coupled with savings
provided by technological and spatial efficiency and highly competitive
financial terms continue to make Canary Wharf a compelling location.
The growth of London and the focus by the Government and the Mayor on East
London reinforces Canary Wharf's position as a focal point for growth.
We remain cautiously optimistic about the near term but highly optimistic about
the longer term future of Canary Wharf and this area. Accordingly, we look
forward to consolidating the position of the company and exploiting the
opportunities which will undoubtedly lie ahead.
OPERATING AND FINANCIAL REVIEW
Property portfolio
The activities of the group are focused on the Canary Wharf development
(including Heron Quays and the adjacent sites at Canary Riverside and North
Quay). The group has two principal business streams: property investment and
property development. The investment arm comprises fifteen completed properties
(out of the twenty constructed at Canary Wharf) totalling 6.0 million sq ft of
net internal area ('NIA'). The properties included in this total are shown in
the table below.
External
Approx.NIA % Valuation
Property Address (sq ft) Leased £m Principal Tenants
____________________________________________________________________________________________________________________
1 Westferry Circus 219,000 100.0 108.0 Chevron Texaco, CSFB
7 Westferry Circus 179,300 100.0 82.5 EDS, EMEA, Edward S Jones
15 Westferry Circus 171,300 100.0 105.5 Morgan Stanley
17 Columbus Courtyard 199,500 100.0 105.0 CSFB
10 Cabot Square 636,600 100.0 260.0 Barclays Capital, WPP Group
20 Cabot Square 558,400 100.0 250.0 Morgan Stanley, Barclays Capital
One Canada Square 1,246,600 98.3 710.0 Daily Telegraph, KPMG, Mirror Group
Newspapers, State Street Bank, Bear Stearns,
Bank of New York
25 Canada Square 1,223,500 100.0 720.0 Citigroup
33 Canada Square 562,700 100.0 320.0 Citigroup
25 North Colonnade 363,200 100.0 185.0 Financial Services Authority
30 South Colonnade 296,100 100.0 141.5 London Underground
50 Bank Street 213,800 72.2 120.0 The Northern Trust Company
Cabot Place Retail 98,400 100.0 60.0 Various retail tenants
Canada Place Retail 66,800 100.0 47.5 Various retail tenants
Nash Court 8,900 100.0 3.8 Smollensky's, Carluccio's
Car Parks - - 60.0
------------- -------- ----------
Total 6,044,100 98.7 3,278.8
------------- -------- ----------
During the year ended 30 June 2002 the group completed the construction of five
properties, four of which were retained as investment properties (25 Canada
Square, 15 Westferry Circus, 50 Bank Street and Nash Court) and one of which was
sold (8 Canada Square).
* 25 Canada Square is a 1.2 million sq ft office building which has been
leased to Citigroup.
* 15 Westferry Circus is a 171,300 sq ft property which has been leased by
Morgan Stanley.
* 50 Bank Street is a 213,800 sq ft building of which 151,400 sq ft has been
leased to The Northern Trust Company.
* Nash Court is a 8,900 sq ft retail building which has been let to
Smollensky's and Carluccio's.
* 8 Canada Square is a 1.1 million sq ft building which was, on completion
in April 2002, sold to HSBC under the terms of an agreement entered into in
October 1998.
Office lettings totalling 1.45 million sq ft were achieved at Canary Wharf
during the year, of which the most significant were:
* 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 133,300 sq ft with Skadden,
Arps, Slate, Meagher & Flom LLP in a 607,400 sq ft building (parcel HQ3)
which is scheduled for completion in mid-2003.
* In January 2002, the Northern Trust Company exercised an option over
18,000 sq ft in 50 Bank Street, bringing their total occupation to 151,400
sq ft.
* Also in January 2002, EMEA exercised an option over 15,700 sq ft in 7
Westferry Circus, bringing their total occupancy on the estate to
approximately 100,000 sq ft.
* In April 2002, Clifford Chance exercised their option over 209,000 sq ft
being the remainder of 10 Upper Bank Street.
* In June 2002 the group exchanged contracts with Allen & Overy to lease
78,200 sq ft in parcel HQ3.
On the retail front, Waitrose increased their space requirement by 20,000 sq ft
to 100,000 sq ft in the Canada Place retail extension and over 95% of the space
was committed or under offer in the new Jubilee Place Mall, which is scheduled
to open in September 2003.
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 14.0 million sq ft, raises the total development of 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 permissions 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.
There were ten properties under construction at 30 June 2002 totalling 5.5
million sq ft net, of which 88.0% is subject to agreements for lease. Upon
completion it is intended that all of these properties will be held as
investments.
Properties under construction at 30 June 2002 comprised the following:
Approx. Expected
Property Address NIA (sq ft) Completion Date Status
____________________________ _______________ _________________________________________________________
5 Canada Square (DS1) 516,600 September 2002 Agreed to be leased to CSFB.
1 Churchill Place (BP1) 1,000,000 July 2004 Agreed to be leased to Barclays PLC of
which 650,000 sq ft expected to be
occupied immediately
20 Canada Square (DS4) 529,000 December 2002 310,000 sq ft agreed to be leased to The
McGraw-Hill Companies
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
40 Bank Street (HQ3) 607,400 March 2003 133,300 sq ft agreed to be leased to
Skadden, Arps, Slate, Meagher & Flom
LLP; 78,200 sq ft agreed to be leased to
Allen & Overy
10 Upper Bank Street (HQ5) 1,000,000 July 2003 Agreed to be leased to Clifford Chance
LLP
Canada Place Retail extension 201,000 September 2002 100,000 sq ft pre-let to Waitrose Food &
(DS8) Home; 92,000 sq ft pre-let to Reebok
Jubilee Place Retail Centre 89,500 September 2003 86,625 sq ft pre-let or in solicitor's
(RT3) hands
Churchill Place Retail Centre 40,000 July 2004 Unlet
(RT4)
---------------
5,527,000
===============
As well as the properties under construction referred to above, the group is
continuing substructure works on the remaining sites on Canary Wharf. In
connection with this work, buildings DS3 (650,000 sq ft) and BP2 (200,000 sq ft)
are being constructed up to street level.
As well as the rental income generated from the fifteen completed properties, of
which 98.7% of NIA has been leased, the group generates income from managing the
entire Canary Wharf estate which, in addition to the completed properties in the
ownership of the group, includes five properties totalling 2.5 million sq ft
which are in other ownerships.
The properties of the group are under lease to high quality tenants which
provide a diversified income stream. At 30 June 2002 the weighted average
unexpired lease term for the office portfolio was 23.6 years (or 20.9 years
after taking account tenant of break options). Only 18% of the square footage
under lease will expire or be capable of being terminated by tenants during the
next ten years. As a result of the expiry of rent free periods, stepped rents,
rent reviews and the completion of new buildings, the group's aggregate rental
income is expected to increase significantly over the next three years.
Valuations
The net assets of the group, as stated in its consolidated balance sheet as at
30 June 2002, were £1,860.3 million. In arriving at this total:
(i) properties held as investments were carried at £3,268.1 million,
which represents the Open Market Value of those properties of £3,278.8
million at that date as determined by the group's external valuers,
FPDSavills or CB Hillier Parker, adjusted by £10.7 million for tenant
incentives as required by Urgent Issues Task Force Abstract 28
(Operating Lease Incentives) ('UITF 28'); and
(ii) properties under construction and properties held for development, shown
as fixed assets, were carried at £936.6million and £178.7million
respectively, representing their cost to the group.
The valuation of the investment portfolio includes those properties which were
completed during the year. For those properties held throughout the year the
valuation increased from £2,300.5 million at 30 June 2001 to £2,329.5 million at
30 June 2002, an increase of £28.1 million net of additions, or 1.2%. Properties
completed during the period were also revalued resulting in a revaluation
surplus over their cost of £430.3 million.
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 above.
The Open Market Value of properties under construction at 30 June 2002 was
£1,915.1 million in comparison with a carrying value for accounts purposes of
£936.6 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 and financing costs.
As regards properties held for development, the valuers have provided joint
opinions as at 30 June 2002 that the Open Market Value was £390.8 million in
comparison with a carrying value for accounts purposes of £178.7 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.
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
Open Market Value in the properties' existing state.
The approach adopted by the valuers in arriving at the present value of the Net
Realisable Value at 30 June 2002 is consistent with that adopted for the
previous year end. In summary this involves the following six steps:
Step One - Consider a phased development programme for the
remaining sites on the Estate, taking into
account the amount of space to be developed and the
rate of take-up.
Step Two - Estimate the completed development value, with growth,
of the buildings, but excluding EZAs.
Step Three - Estimate the value enhancement resulting from EZAs.
Step Four - Estimate the cost of development, with inflation.
Step Five - Calculate the Net Realisable Value on completion of
development by deducting the cost of the development,
with inflation, from the total value with growth of the
completed buildings.
Step Six - Discount the Net Realisable Value at completion back to
the date of assessment in recognition of the time cost
of money, in order to arrive at the present value of
the Net Realisable Value. At 30 June 2002 the valuers
adopted a discount rate of 7.76%, 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 30 June 2002 was
£2,586.6 million. Their joint opinion of the present value of the Net Realisable
Value of properties held for development at that date was £903.8 million.
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:
30 June 2002 Restated 30 June 2001
______________________________________________ _______________________________________________
Present Present
Value Value
Open Market of Net Open Market of Net
Carrying Value in Realisable Carrying Value in Realisable
Value Existing State Value Value Existing State Value
__________ ______________ __________ _________ ______________ __________
£m £m £m £m £m £m
Investment 3,268.1 3,268.1 3,268.1 2,300.5 2,300.5 2,300.5
properties (Note) (Note)
Properties under 936.6 1,915.1 2,586.6 994.3 2,142.5 3,074.5
construction
Properties held for 178.7 390.8 903.8 124.8 438.0 1,190.0
development
-------- -------- -------- -------- -------- --------
Total 4,383.4 5,574.0 6,758.5 3,419.6 4,881.0 6,565.0
======== ======== ======== ======== ======== ========
Note: Investment properties are stated at Open Market Value.
Operating results
In the following review of operating results, references to 2002 and 2001 should
be read as references to the years ended 30 June 2002 and 30 June 2001
respectively.
The results for 2002 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 2001 have been restated
accordingly.
The group's turnover is generated primarily by the rents and service charges
earned from its property interests at Canary Wharf. Turnover increased from
£159.2 million in 2001 to £206.8 million in 2002, an increase of £47.6 million
or 29.9% of which £15.5 million was attributable to the adoption of UITF 28
(Note 1). Rental income increased from £121.7 million to £164.6 million, an
increase of £42.9 million or 35.3%, due primarily to rent reviews and the
commencement of rent on recently completed properties. Service charge income
increased from £28.4 million to £32.8 million, an increase of £4.4 million or
15.5%, due primarily to the increased level of occupancy on the estate.
Miscellaneous income, comprising ground rents, insurance recoveries and tenant
service income increased from £9.1 million to £9.4 million, reflecting the
increased provision of tenant services (outside of the standard service charge)
as occupancy on the estate increases.
Rents payable and property management costs increased from £32.8 million to
£39.2 million, an increase of £6.4 million or 19.5%, due primarily to the
increase in occupancy on the estate. After allowing for service charge and other
recoveries included within turnover, there was a full service charge recovery
for 2002.
Gross profits increased from £126.4 million in 2001 to £167.6 million in 2002,
an increase of £41.2 million or 32.6% over the previous year, attributable to
the increase in rental income.
During 2001, the lease of a vacant leasehold property was assigned to a third
party. As a result of this assignment, the surplus provision relating to vacant
leaseholds of £2.6 million was released to the profit and loss account and shown
within cost of sales.
Administrative expenses for 2002 were £38.1 million in comparison with £36.6
million for the previous year. During 2002 costs of £2.4 million were also
incurred in association with the group's restructuring which have been treated
as an exceptional item (Note1).
The directors estimate that administrative expenses of £23.2 million (or
approximately 61% of the total for 2002) were attributable to the group's
corporate and property investment activities. For the previous year
administrative expenses attributable to these activities were estimated at £16.4
million, or 44.8% of the total.
The remainder of the 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 construction of particular buildings). For
2002 such unallocated development overheads totalled £14.9 million representing
approximately 39% of administrative expenses. For the previous year development
overheads totalled £20.2 million or 55.2% of the total. The reduction in
development overheads over the previous year is largely attributable to letting
costs. The current year included letting costs of £5.3 million whereas for the
previous year such costs totalled £10.9 million. This was partially offset by an
increase in development overheads associated with the increased pace of
development on the estate. The directors consider that these development
overheads will in due course reduce to an insignificant level upon completion of
the development programme.
For 2002 operating profit was £299.7 million, in comparison with a profit of
£91.7 million for 2001. Included within the total for 2002 was a net profit of
£169.5 million on the disposal of 8 Canada Square which was sold under the terms
of an agreement with HSBC entered into in October 1998. Before this exceptional
item the operating profit for the year of £130.2 million compares with £91.7
million for the previous year, an increase of £38.5 million or 42.0%. The
improvement in underlying profit earned by the group is primarily attributable
to the increase in turnover.
Net interest payable increased from £48.8 million in 2001 to £107.6 million in
2002. 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 year (Note 5). In addition, net interest payable
for the year to June 2002 included costs of £4.1 million attributable to the
restructuring of certain of the group's finance leases (Note 6). After allowing
for these items the increase in net interest payable was attributable to the
securitisations completed in June 2001 and February 2002. The long-term
financing of the seven properties in the securitisations 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 year was £203.1
million, in comparison with £42.5 million for 2001, an increase of £160.6
million, because of the inclusion in the current year of the net profit on the
sale of 8 Canada Square of £169.5 million and deferred consideration on disposal
of subsidiary undertakings of £13.4 million, partially offset by costs
associated with the group's restructuring. Before these exceptional items the
profit on ordinary activities for the year of £22.6 million compares with £42.5
million for the previous year, a decrease of £19.9 million as a result of higher
interest payable.
The profit on ordinary activities for the six months to 30 June 2002 was £176.9
million including the exceptional profit of £169.5 million on disposal of 8
Canada Square. This compares with £26.2 million for the six months to 31
December 2001 which included the net cost of restructuring certain finance
leases of £4.1 million, £13.4 million of deferred consideration on disposal of
subsidiary undertakings and the £2.4 million cost of the group restructuring
referred to above. Operating profit increased in the second half of the year
from £54.5 million to £75.7 million, excluding the exceptional profit on
disposal, but this was offset by a higher net interest charge.
For 2002 (and 2001 as restated) taxation was entirely attributable to deferred
tax following the adoption of FRS19. 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 2002 was £193.0 million in
comparison with £43.6 million (restated) for the previous year, an increase of
£149.4 million, largely attributable to the exceptional items referred to above.
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 increased by £263.9 million from £1,596.4 million at 30 June 2001 (as
restated) to £1,860.3 million at 30 June 2002. The increase in net asset value
was attributable to a revaluation surplus of £458.4 million together with the
profit for the year of £193.0 million, partially offset by share buy-backs in
the year totalling £392.4 million.
Net asset value per share at 30 June 2002 was £3.06 in comparison with £2.33 at
30 June 2001. Allowing for the revaluation of properties under construction or
held for development on the basis of the present value of Net Realisable Value
summarised above, net asset value per share at 30 June 2002 was as set out in
the table below.
Restated
At 30 June At 30 June
2002 2001
__________ __________
£m £m
Net assets per statutory balance sheet 1,860.3 1,596.4
Revaluation of properties under construction to NRV 1,650.0 2,080.2
Revaluation of properties held for development to NRV 725.1 1,065.2
---------- ----------
4,235.4 4,741.8
Add: Discounted deferred tax provision 51.6 41.5
---------- ----------
Adjusted net assets 4,287.0 4,783.3
Adjusted net assets per share £7.05 £6.97
Fully diluted adjusted net assets per share £6.83 £6.74
In arriving at adjusted net asset value per share, the provision recognised in
accordance with FRS19 (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 February 2002 a further tap issue on the June 2000 (second) securitisation
was completed, involving the issue of £1,257 million of AAA and AA rated notes
at a premium of £83.1 million. The proceeds were used to repay £280.7 million
drawn down under the group's £1 billion construction loan facility at that time
and in addition £348.8 million was set aside in certain reserves required to
fund the completion of the four additional properties included in the tap issue.
The remainder of the proceeds was retained for general corporate purposes. The
combined pool of notes for the second securitisation is now £2,607.0 million, of
which £2,517.0 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 30 June 2002 £22.7 million had been drawn down under the group's £1 billion
construction loan facility. In addition, £34.2 million had been drawn down under
a separate £125 million loan facility. The remainder of these facilities are
available to fund future construction.
An analysis of net debt is given below. The increase in gross borrowings from
£2,650.1 million to £3,950.0 million reflects the tap issue of the second
securitisation. The increase in gross borrowings was accompanied by a reduction
in cash and term deposits to £1,327.2 million from £1,458.4 million primarily as
a result of development costs totalling £1,033.2 million and share buy-backs of
£392.4 million. At 30 June 2002 the group's weighted average cost of debt was
6.3% (2001 - 6.7 %).
The group expects initially to fund its future construction activities either
from existing resources or from its construction facilities.
At 30 June 2002 net debt (after allowing for cash in hand and cash collateral)
stood at £2,622.8 million, up from £1,191.7 million at the previous year end,
comprising:
At 30 June At 30 June
2002 2001
__________ __________
£m £m
Securitised debt 3,317.9 1,973.3
Loans 55.1 -
Finance lease obligations 577.0 676.8
---------- ----------
Total borrowings 3,950.0 2,650.1
Less: cash collateral for borrowings (899.8) (707.2)
Less: other cash collateral excluding prepayments (5.9) (2.3)
(see below)
---------- ----------
3,044.3 1,940.6
Less: cash deposits (421.5) (703.0)
---------- ----------
Net debt excluding prepayments 2,622.8 1,237.6
Cash deposits arising from prepayments in respect of buildings
contracted to be sold - (45.9)
---------- ----------
Net debt 2,622.8 1,191.7
========== ==========
Cashflow
Net cashflow from operating activities increased from £71.1 million in 2001 to
£81.2 million in 2002, an increase of £10.1 million, driven primarily by the
increase in rental income, offset by movements in working capital. Capital
expenditure increased from £611.5 million in 2001 to £987.2 million in 2002.
Expenditure in 2002 included development expenditure of £957.2 million and land
purchases of £28.0 million, whilst expenditure in 2001 included development
expenditure of £511.1 million and land purchases of £92.1 million.
Financing cashflows reduced from £1,018.7 million in 2001 to £902.5 million in
2002, a reduction of £116.2 million. In 2002, financing cash flows reflected the
second tap of the group's second securitisation. This was partially offset by
repayments under the group's construction loan facilities and £392.4 million of
share buy-backs. For 2001, financing cash flows reflected tap issues on two
securitisations. This increase in borrowings has also impacted the net cash
expended on debt service which rose from £70.6 million in 2001 to £173.6 million
in 2002.
Segmental reporting
The financial statements now incorporate 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 30
June 2002 was as follows:
Net Internal Area
million
sq ft %
_________________ __________
Completed and let 6.0 46
Under construction and pre-let 4.8 36
Under construction and available to let 0.7 5
Uncommitted development sites 1.7 13
----------------- ----------
Total owned by group 13.2 100
Owned by third parties 2.5 ==========
-----------------
Canary Wharf estate following removal of density cap 15.7
=================
Canary II - Those properties outside of the original estate which, at 30 June
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 2.0
Potential future development (assuming successful -----------------
application to increase planning density) 4.1
=================
Taking the valuations set out earlier in this section, the net asset value
attributable to each segment at 30 June 2002 was as follows:
Canary I Canary II
___________________________________ ____________________________________
Book Book
Value OMV NRV Value OMV NRV
£m £m £m £m £m £m
_________ ________ _________ _________ _________ _________
Investment properties 3,268.1 3,268.1 3,268.1 - - -
Properties under construction 936.6 1,915.1 2,586.6 - - -
Properties held for development 47.7 187.0 435.0 131.0 203.8 468.8
--------- -------- --------- --------- --------- ---------
4,252.4 5,370.2 6,289.7 131.0 203.8 468.8
Other net assets/(liabilities) 108.7 108.7 108.7 (9.0) (9.0) (9.0)
prior to funding
--------- -------- --------- --------- --------- ---------
Net assets prior to funding 4,361.1 5,478.9 6,398.4 122.0 194.8 459.8
Net debt (external) (2,622.8) (2,622.8) (2,622.8) - - -
Intragroup funding 122.0 122.0 122.0 (122.0) (122.0) (122.0)
--------- -------- --------- --------- --------- ---------
Net assets 1,860.3 2,978.1 3,897.6 - 72.8 337.8
========= ======== ========= ========= ========= =========
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 2002 is set out in Note 3.
For 2002, Canary I recorded a profit before tax of £207.7 million, including
exceptional items totalling £180.5 million.
Canary II recorded a loss before tax of £4.6 million for 2002, attributable
entirely to administrative expenses associated with working up proposals for its
development sites. The directors estimate that of the total development
overheads of £14.9 million for 2002, £10.3 million was attributable to Canary I
and the remaining £4.6 million was 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 2002 Canary II was funded by way of an interest free inter-company
loan.
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2002
*Restated
Year ended Year ended
30 June 30 June
Notes 2002 2001
_____ __________ __________
£m £m
Turnover - rents and service charges 206.8 159.2
Cost of sales (39.2) (32.8)
- rents and property management costs
---------- ----------
GROSS PROFIT 167.6 126.4
Administrative expenses (38.1) (36.6)
Other operating income
- before exceptional item 0.7 1.9
- exceptional item: net profit on sale of completed property 10 169.5 -
---------- ----------
OPERATING PROFIT 4 299.7 91.7
Exceptional items:
- deferred consideration on disposal of subsidiary undertaking 12 13.4 -
- costs of group restructuring 1 (2.4) -
Share of operating loss in associates - (0.4)
Interest receivable - group 5 48.8 50.7
Interest payable - group 6 (156.4) (99.5)
---------- ----------
PROFIT FOR THE FINANCIAL YEAR BEFORE TAXATION 203.1 42.5
Taxation 7 (10.1) 1.1
---------- ----------
PROFIT FOR THE FINANCIAL YEAR 19 193.0 43.6
AFTER TAXATION
========== ==========
TRANSFERRED TO RESERVES 19 193.0 43.6
========== ==========
Basic earnings per share 9 30.0p 6.3p
Diluted earnings per share 9 29.7p 6.2p
Before exceptional items:
Basic earnings per share 9 1.9p 6.3p
Diluted earnings per share 9 1.9p 6.2p
The above results relate to the continuing activities of the group and its share
of associates attributable to the group to the date of disposal.
*Restated as set out in Note 1
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED
30 JUNE 2002
*Restated
Year ended Year ended
30 June 30 June
Notes 2002 2001
_____ __________ __________
£m £m
Profit/(loss) for the financial year of the group and its
share of associates
- group 193.0 44.0
- share of associates - (0.4)
Unrealised surplus on revaluation of investment properties
- group 10 458.4 84.4
---------- ----------
TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE YEAR 651.4 128.0
Prior year adjustments (as explained in Note 1) (41.5) -
---------- ----------
TOTAL RECOGNISED GAINS AND LOSSES SINCE LAST ANNUAL REPORT 609.9 128.0
========== ==========
* Restated as set out in Note 1.
CONSOLIDATED BALANCE SHEET AT 30 JUNE 2002
*Restated
30 June 30 June
Notes 2002 2001
_____ __________ __________
£m £m
FIXED ASSETS
Investment properties 10 3,268.1 2,300.5
Properties under construction 10 936.6 744.7
Properties held for development 10 178.7 124.8
Other tangible fixed assets 11 8.1 9.6
Investments 12 24.0 15.8
---------- ----------
4,415.5 3,195.4
---------- ----------
CURRENT ASSETS
Properties under construction and properties held for 10 - 249.6
development
Debtors: due in more than one year 13 26.2 10.7
Debtors: due within one year 13 355.2 86.5
Cash at bank and in hand 14 1,327.2 1,458.4
---------- ----------
1,708.6 1,805.2
CREDITORS: Amounts falling due within one year 15 (341.7) (742.0)
---------- ----------
NET CURRENT ASSETS 1,366.9 1,063.2
---------- ----------
TOTAL ASSETS LESS CURRENT LIABILITIES 5,782.4 4,258.6
CREDITORS: Amounts falling due after more than one year 16 (3,870.5) (2,620.4)
Provisions for liabilities and charges 17 (51.6) (41.8)
---------- ----------
NET ASSETS 1,860.3 1,596.4
========== ==========
CAPITAL AND RESERVES
Called up share capital 18 6.1 6.9
Reserves:
- Share premium 19 2.6 -
- Revaluation reserve 19 1,513.9 1,055.5
- Capital redemption reserve 19 0.4 0.1
- Special reserve 19 637.6 636.8
- Profit and loss account 19 (300.3) (102.9)
---------- ----------
SHAREHOLDERS' FUNDS - EQUITY 20 1,860.3 1,596.4
========== ==========
* Restated as set out in Note 1.
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2002
Year ended Year ended
30 June 30 June
Notes 2002 2001
_____ __________ __________
£m £m
NET CASH INFLOW FROM
OPERATING ACTIVITIES 22 81.2 71.1
---------- ----------
Returns on investments and servicing of finance 23 (173.6) (70.6)
Capital expenditure and financial investment 23 (941.3) (579.3)
Acquisitions 23 - (2.1)
---------- ----------
(1,114.9) (652.0)
---------- ----------
Cash outflow before management of liquid resources and (1,033.7) (580.9)
financing
Management of liquid resources 23 (150.3) 28.7
Financing 23 902.5 1,018.7
---------- ----------
(DECREASE)/INCREASE IN CASH IN THE YEAR 24 (281.5) 466.5
========== ==========
The above cash flows relate to the continuing activities of the group.
Notes 22 to 24 form an integral part of this consolidated cash flow statement.
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2002
1 BASIS OF PREPARATION
The financial information is prepared on the basis of the accounting policies
set out in the group's statutory accounts for the year ended 30 June 2001, all
of which have been applied consistently throughout this and the preceding year
save for the adoption of Financial Reporting Standard 19 (Deferred Tax) (FRS 19)
and Urgent Issues Task Force Abstract 28 (Operating Lease Incentives) (UITF 28)
which now have effect. The comparatives for the year ended 30 June 2001 have
been restated to comply with FRS 19 and UITF 28.
The financial information is abridged and does not constitute the group's full
financial statements for the year ended 30 June 2001 or 30 June 2002. Full
financial statements for the year ended 30 June 2001 (which received an
unqualified audit report) have been filed with the Registrar of Companies.
(1) Basis of consolidation
______________________
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. The new holding
company was incorporated on 30 March 2001 as a public company, Dolphincove
plc. On 15 October 2001 it changed its name to New Canary Wharf plc. In
order to maintain continuity following implementation of the scheme, New
Canary Wharf plc changed its name to Canary Wharf Group plc on 4 December
2001, whilst the previous company of that name has been re-incorporated as
a private limited company and changed its name to Canary Wharf Estate
Limited.
The financial statements include consolidated accounts for New Canary Wharf
plc and its subsidiaries at 30 June 2002. The combination of New Canary
Wharf plc with Canary Wharf Group plc has been accounted for using merger
accounting in accordance with the group reconstruction provisions of
Financial Reporting Standard 6 (Acquisitions and Mergers). Consequently,
although the combination did not become effective until 4 December 2001,
the financial statements of the combined group are presented as if the
merged businesses had always been part of the same group. Accordingly, the
results of the group for the entire year ended 30 June 2002 are shown in
the consolidated profit and loss account and the comparative figures for
the year ended 30 June 2001 are also prepared on this basis.
The directors have adopted the basis of preparation set out above because
they consider that it is necessary in order to give a true and fair view of
the results of the group for the period to 30 June 2001 consistent with the
financial period adopted by the group previously. The effect of not doing
so would have been to present only the results for the period since the
combination became effective on 4 December 2001.
Group restructuring expenses have been treated as an exceptional item in
accordance with Financial Reporting Standard 3 (Reporting Financial
Performance). This transaction did not give rise to deferred tax in the
period.
(2) Lease incentives
________________
Lease incentives include rent-free periods and other incentives given to
lessees on entering into lease agreements. The group's policy for accounting
for lease incentives has changed to comply with UITF 28. Previously rental
income was recognised only on expiry of rent-free periods and other lease
incentives were capitalised as part of the cost of the property. 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
open 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 new accounting policy applies to all lease incentives relating to
leases commencing subsequent to 1 July 2000. The effects of the change in
policy are summarised below:
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Profit and loss:
Increase in rental income 15.5 -
Balance sheet:
Decrease in investment properties (10.7) -
Decrease in properties under construction - (10.7)
Increase in prepayments and accrued income 26.2 10.7
========== ==========
(3) Deferred taxation
_________________
Deferred tax assets and liabilities arise from timing differences between
the recognition of gains and losses in the financial statements and their
recognition in the corporation tax return. The group's policy for
accounting for deferred tax has also been changed to comply with FRS 19.
Previously the group's policy was to provide for deferred tax only to the
extent that liabilities or assets were expected to crystallise in the
foreseeable future.
Under FRS 19 deferred tax is recognised in respect of all timing
differences that have originated but not reversed at the balance sheet date
where transactions or events that result in an obligation to pay more tax
in the future or a right to pay less tax in the future have occurred at the
balance sheet date. A net deferred tax asset is regarded as recoverable and
therefore recognised only when, on the basis of all available evidence, it
can be regarded as more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing differences
can be deducted.
Deferred tax is not recognised when fixed assets are revalued unless by the
balance sheet date there is a binding agreement to sell the revalued assets
and the gain or loss expected to arise on sale has been recognised in the
financial statements.
Deferred tax is measured on a discounted basis to reflect the time value of
money over the period between the balance sheet date and the dates on which
it is estimated that the underlying timing differences will reverse or,
where the timing differences are not expected to reverse, a period not
exceeding 50 years. Discount rates of 3.2% to 3.5% have been adopted
reflecting the post-tax yield to maturity that can be obtained on
government bonds with similar maturity dates and currencies to those of the
deferred tax assets or liabilities.
The effects of the change in policy are summarised below:
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Profit and loss account:
Increase in deferred tax (charge)/credit (10.1) 1.1
========== ===========
Balance sheet:
Deferred tax liability (51.6) (41.5)
========== ===========
2 RESTATEMENT
The effects of adopting UITF 28 and FRS 19 for the current and prior
years are as follows:
Profit
after Earnings per share Shareholders'
Turnover Taxation taxation Basic Diluted Funds
£m £m £m p p £m
___________________________________________________________________________
Year ended 30 June 2001
As previously reported 159.2 - 42.5 6.2 6.1 1,637.9
Effect of adopting UITF 28 - - - - - -
Effect of adopting FRS 19 - 1.1 1.1 0.1 0.1 (41.5)
-------- -------- -------- -------- -------- --------
As restated 159.2 1.1 43.6 6.3 6.2 1,596.4
-------- -------- -------- -------- -------- --------
Year ended 30 June 2002
Results without adopting UITF 28 191.3 - 187.6 29.2 28.9 1,854.9
and FRS 19
Effect of adopting UITF 28 15.5 - 15.5 2.4 2.4 15.5
Effect of adopting FRS 19 - (10.1) (10.1) (1.6) (1.6) (10.1)
-------- -------- -------- -------- -------- --------
As reported 206.8 (10.1) 193.0 30.0 29.7 1,860.3
-------- -------- -------- -------- -------- --------
3 SEGMENTAL REPORTING
The Operating and Financial 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, 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
At 30 June 2002
________________________________________________
Total
Canary I Canary II Group
£m £m £m
__________ ___________ __________
Properties 4,252.4 131.0 4,383.4
Other net assets/(liabilities) excluding
net debt and intragroup funding 108.7 (9.0) 99.7
---------- ---------- ----------
Net assets prior to funding 4,361.1 122.0 4,483.1
Net debt (external) (2,622.8) - (2,622.8)
Intragroup funding 122.0 (122.0) -
---------- ---------- ----------
Net assets 1,860.3 - 1,860.3
========== ========== ==========
Profit and loss account
The group's turnover for the year ended 30 June 2002 was attributable entirely
to Canary I.
Administrative expenses for that period were £38.1 million of which £33.5
million was attributable to Canary I and £4.6 million to Canary II.
Canary I recorded a profit before tax of £207.7 million including exceptional
items for the year ended 30 June 2002, whilst Canary II recorded a loss before
tax of £4.6 million, attributable entirely to administrative expenses.
4 OPERATING PROFIT
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£000 £000
The operating profit is stated after charging:
-Depreciation (Note 11) 990 334
-Directors' emoluments 2,482 1,886
-Operating lease rentals:
Land and buildings 16,714 5,271
-Remuneration of the auditors:
Audit fees 303 278
Fees for other services 404 316
Fees include £70,000 (2001 - £278,000) and £290,000 (2001 - £316,000), in
respect of audit and other fees respectively, paid to the previous auditors,
Arthur Andersen.
For the year ended 30 June 2002, fees of £64,000 (year ended 30 June 2001 -
£116,000) were also paid to the previous auditors, Arthur Andersen, in
connection with the group's securitisations. These fees are deferred and
amortised over the life of the debt in accordance with FRS 4 (Capital
Instruments). Further fees were also paid to Arthur Andersen of £409,000
relating to the group's corporate restructuring (Note 1).
For the year ended 30 June 2002, depreciation of £2,431,000 (year ended 30
June 2001 - £2,222,000) relating to fixtures and fittings in offices
occupied by the group's construction personnel has been treated as a
development expense and capitalised within the cost of properties under
construction.
The operating lease rental costs are fully recovered through a sub-letting
contract.
5 INTEREST RECEIVABLE
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Bank interest receivable 48.8 50.7
========== ==========
During the year ended 30 June 2001, security over cash deposits totalling
£94.3 million held by the group's finance lessors was released and at the
same time interest rate swaps relating to these deposits were unwound
resulting in a net gain to the group of £4.5 million. This amount is
included within interest receivable.
6 INTEREST PAYABLE
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Notes and debentures 173.1 71.7
Bank loans and overdrafts 18.2 9.3
Finance lease charges 41.1 46.0
---------- ----------
232.4 127.0
Less:
Interest at 6.1% (year ended 30 June 2001 -
6.5%) on development financings transferred to
development properties (76.0) (27.5)
---------- ----------
156.4 99.5
========== ==========
Interest payable of £76.0 million (year ended 30 June 2001 - £27.5 million) has
been transferred to development properties (Note 10). The amount transferred in
respect of the year ended 30 June 2002 includes £33.0 million (year ended 30
June 2001 - £8.1 million) attributable to funds borrowed and expenses incurred
specifically for the purpose of financing the construction of development
properties. In addition, the amount transferred includes £43.0 million (year
ended 30 June 2001 - £19.4 million) attributable to the cost of funds forming
part of the group's general borrowings which were utilised in financing
construction.
For the year ended 30 June 2002, finance lease charges of £41.1 million include
£4.1 million relating to the acquisition of Indural Holdings Limited ('Indural')
(see Note 16 (8)).
7 TAXATION
Restated
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Current tax:
UK corporation tax (see below) - -
Deferred tax:
Origination and reversal of timing differences (6.3) (0.6)
Net effect of discount (3.8) 1.7
---------- ----------
Total deferred tax (Note 17) (10.1) 1.1
---------- ----------
Total tax on profit on ordinary activities (10.1) 1.1
========== ==========
Tax reconciliation:
Profit on ordinary activities before tax 203.1 42.9
Less: share of associates' loss before tax - (0.4)
---------- ----------
Group profit on ordinary activities before tax 203.1 42.5
========== ==========
Tax on profit on ordinary activities at UK corporation tax rate of 30% 60.9 12.8
Effects of:
Tax losses and other timing differences (77.5) (22.0)
Chargeable gains 16.2 -
Expenses not deductible for tax purposes 0.4 9.2
---------- ----------
Current tax charge for the year - -
========== ==========
No provision for corporation tax has been made in the consolidated results of
the group for the year to 30 June 2002 or the previous year 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.
8 EMPLOYEE INFORMATION
Staff costs for all employees of the group, including directors:
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Wages and salaries 51.7 38.0
Social security costs 4.9 3.9
Other pension costs (Note 21) 2.8 2.1
---------- ----------
59.4 44.0
========== ==========
The average monthly number of employees, including directors, of the group
during the year to 30 June 2002 was 1,177 (year ended 30 June 2001 - 972).
The average monthly number of employees, including directors, was made up as
follows:
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Construction 567 423
Property management 449 411
Administration 161 138
---------- ----------
1,177 972
========== ==========
9 EARNINGS PER SHARE
Basic earnings per share is calculated by reference to the profit attributable
to ordinary shareholders of £193.0 million (June 2001 (restated) - £43.6
million) and on the weighted average of 642.9 million shares in issue (June 2001
- 688.0 million).
The calculation of diluted earnings per share for the year ended 30 June 2002 is
based on profit attributable to ordinary shareholders of £193.0 million (year
ended 30 June 2001 (restated) - £43.6 million) and the diluted weighted average
of 649.8 million shares (2001 - 700.4 million). The difference between the basic
weighted average number of shares and the diluted weighted average comprises the
following:
Shares
million
_______
Warrants 3.9
Share options 2.8
Long Term Incentive Plan 0.2
-------
Total 6.9
=======
The calculation of the number of shares which are dilutive is based on the
number of each instrument outstanding (Note 18) as adjusted for the difference
between the exercise price and the weighted average share price for the relevant
year.
The basic earnings per share before exceptional items and diluted earnings per
share before exceptional items for the year ended 30 June 2002 have been
calculated on the profit for that year of £12.5 million, excluding exceptional
items totalling £180.5 million.
10. INVESTMENT PROPERTIES AND PROPERTIES UNDER CONSTRUCTION AND HELD
FOR DEVELOPMENT
Freehold properties held as tangible fixed assets:
Investment Properties Properties
Properties under held for
construction development
__________ ____________ ___________
£m £m £m
As at 1 July 2001 2,300.5 755.4 124.8
Adjustment for UITF 28 (Note 1) - (10.7) -
-------- -------- --------
Restated as at 1 July 2001 2,300.5 744.7 124.8
Additions including interest 0.9 694.8 59.3
Transfer of completed properties 508.3 (508.3) -
Transfer to properties under construction - 5.4 (5.4)
Revaluation 458.4 - -
-------- -------- --------
As at 30 June 2002 3,268.1 936.6 178.7
Adjustment for UITF 28 (Note 1) 10.7 - -
-------- ------- --------
Open market value 3,278.8 936.6 178.7
======== ======= ========
Of which, subject to lease and
finance leaseback arrangements 1,046.7
========
Historical cost 1,522.6 936.6 178.7
======== ======= ========
Freehold properties held as current assets:
£m
As at 1 July 2001 249.6
Additions 92.9
Disposal of completed property (342.5)
--------
As at 30 June 2002 -
========
Properties under construction or held for development where the group has
entered into an agreement for the sale of the property, subject to the
satisfaction of certain conditions and, where relevant, completion of
construction, are categorised as current assets being held for sale.
During the year ended 30 June 2002 the group completed construction of four
buildings at Canary Wharf that were retained as investment properties, 50 Bank
Street, 25 Canada Square, 15 Westferry Circus and Nash Court. These properties
have been revalued externally at 30 June 2002 on the basis of Open Market Value
in accordance with the Appraisal and Valuation Manual published by the Royal
Institution of Chartered Surveyors ('Open Market Value'). This resulted in
surpluses upon revaluation of £430.3 million which have been taken to the
revaluation reserve.
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.
The group's investment properties have been valued as at 30 June 2002 by either
FPDSavills Commercial Limited, Chartered Surveyors, or CB Hillier Parker
Limited, Surveyors and Valuers, on the basis of Open Market Value. 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 loans or arrangements.
No allowance has been made for any seller's expenses of realisation nor for any
taxation which may arise in the event of disposal (see Note 17). The surplus
arising on the year end valuations, including that on properties completed
during the year (£458.4 million), has been transferred to the revaluation
reserve.
Properties under construction and properties held for development at 30 June
2002 which are to be retained are carried at their fair value at the time of the
acquisition of the CWHL group in December 1995, less subsequent disposals plus
additions at cost, subject to any provision for impairment.
At 30 June 2002 properties under construction held as fixed assets included
£67.2 million (30 June 2001 - £33.8 million) in respect of financing costs.
11 OTHER TANGIBLE FIXED ASSETS
Fixtures and Computer Total
equipment equipment
____________ _________ __________
£m £m £m
Cost:
At 1 July 2001 13.6 0.4 14.0
Additions 1.7 0.2 1.9
--------- ---------- ----------
At 30 June 2002 15.3 0.6 15.9
========= ========== ==========
Depreciation:
At 1 July 2001 (4.1) (0.3) (4.4)
Charge for the year (Note 4) (3.3) (0.1) (3.4)
---------- ---------- ---------
At 30 June 2002 (7.4) (0.4) (7.8)
========= ========== ==========
Net book amount:
At 30 June 2002 7.9 0.2 8.1
========= ========== ==========
At 30 June 2001 9.5 0.1 9.6
========= ========== ==========
12 INVESTMENTS
At June 2002 At June 2001
____________ ____________
Group Group
£m £m
Investments 1.6 2.1
Own shares 22.4 13.7
---------- ----------
24.0 15.8
========== ==========
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 on the satisfaction of certain conditions. During the year to 30 June
2002 these conditions were confirmed as having been satisfied and the group
received £13.4 million net of expenses. This amount, which did not give rise to
deferred tax in the year, is recognised in the profit and loss account as an
exceptional item.
In March 2001, the group acquired 52,079 £1 ordinary shares and 2,604
convertible shares in HighSpeed Office Limited ('HSO'), an unlisted company
registered in England and Wales, being approximately 13% of its nominal share
capital. The principal activity of HSO is the provision of broadband
telecommunications services. The consideration paid was £2.1 million
representing the historical cost to the group including fees. At 30 June 2002
the carrying value of the investment was written down by £460,000 to £1.6
million, representing the net asset value of HSO at that date.
Investment in own shares:
Group
________
£m
Cost:
At 1 July 2001 13.9
Additions 13.0
Transferred to participants (0.6)
--------
At 30 June 2002 26.3
========
Amounts written off:
At 1 July 2001 (0.2)
Written off (3.8)
Transferred to participants 0.1
--------
At 30 June 2002 (3.9)
========
Net book amount:
At 30 June 2002 22.4
--------
At 30 June 2001 13.7
========
13 DEBTORS
At June 2002 At June 2001
____________ ____________
Group Group
£m £m
Due within one year:
Trade debtors 4.1 3.4
Other debtors 66.7 57.5
Prepayments and accrued income 284.4 25.6
-------- -------
355.2 86.5
======== =======
At June 2002 At June 2001
____________ ____________
Group Group
£m £m
Due after one year:
Prepayments and accrued income 26.2 10.7
===================================
Prepayments and accrued income due after one year relates to lease incentives
(Note 1 (2)).
14 FINANCIAL ASSETS
The group's financial assets comprise short term trade debtors (Note 13) and
cash deposits. Cash deposits totalled £1,327.2 million at 30 June 2002 (30 June
2001 - £1,458.4 million), comprising deposits placed on money market at call and
term rates. Total cash deposits include £899.8 million (30 June 2001 - £707.2
million) held by third parties as cash collateral for the group's borrowings,
deposits arising from prepayments in respect of buildings sold of £Nil (30 June
2001 - £45.9 million) and a further £5.9 million (30 June 2001 - £2.3 million)
charged to third parties as security for the group's obligations.
Of the total cash deposits, £1.9 million (30 June 2001 - £46.9 million) was
invested at fixed rates and the remainder was at floating rates. The weighted
average rate of interest on fixed rate deposits at 30 June 2002 was 7.8% (30
June 2001 - 6.4%). The weighted average period remaining on fixed deposits was
7.5 years at 30 June 2002 (30 June 2001 - 8 months).
15 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
At June 2002 At June 2001
____________ ____________
Group Group
£m £m
Borrowings (Note 16) 79.5 29.7
Trade creditors 62.8 61.7
Taxation and social security costs 1.6 1.4
Other creditors 3.4 30.4
Accruals 130.7 132.8
Deferred income 63.7 486.0
-------- --------
341.7 742.0
======== ========
At 30 June 2002 deferred income included £Nil (30 June 2001 - £467.0 million) in
connection with agreements for the sale, upon completion, of buildings under
construction at Canary Wharf.
16 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Creditors due after more than one year comprise:
At June 2002 At June 2001
____________ ____________
Group Group
£m £m
Securitised debt 3,272.2 1,943.6
Loans 21.3 -
Finance lease obligations 577.0 676.8
--------- ---------
3,870.5 2,620.4
========= =========
The amounts at which borrowings are stated comprise:
Finance
Securitised Construction lease
debt loans obligations Total
£m £m £m £m
___________ ____________ ___________ _________
At 30 June 2001 1,973.3 - 676.8 2,650.1
Drawn down in year 1,340.1 336.0 - 1,676.1
Deferred financing expenses (11.4) (1.8) 0.1 (13.1)
Accrued finance charges 15.9 1.6 2.2 19.7
Repaid in year - (280.7) (102.1) (382.8)
--------- --------- --------- -----------
At 30 June 2002 3,317.9 55.1 577.0 3,950.0
========= ========= ========= ===========
Payable within one year or on demand 45.7 33.8 - 79.5
Payable in more than one year 3,272.2 21.3 577.0 3,870.5
-------- -------- --------- ----------
3,317.9 55.1 577.0 3,950.0
======== ======== ========= =========
(1) In December 1997 the company's subsidiary, Canary Wharf Finance plc
('CWF'), issued £555m of first mortgage debentures, the principal terms
of which are:
Tranche £m Interest Repayment
__________________________________________________________________________
A 270 7.230% By instalment 2004 to 2027
B 80 7.425% By instalment 2004 to 2027
C 120 Stepped By instalment 2006 to 2027
D 85 Floating By instalment 2007 to 2020
-----
555
-----
The debentures are secured on certain property interests of the group and
the rental income stream therefrom.
Interest on Tranche C increases in steps from 5% payable until October
1999, to 9.535% payable from October 2006. Interest on Tranche D is
payable at LIBOR plus 1.1% until January 2003 and thereafter 3.1%, but
the company has entered into an interest rate cap arrangement so as to
cap the portion of interest linked to LIBOR at 8.5%.
(2) In February 2001, CWF issued an additional £120 million of first mortgage
debentures at a premium of £14.7 million. The tap issue comprised a
further issue of £105 million of A and £15 million of B notes which are
subject to the same conditions as the original notes issued in December
1997.
Including the original notes, the weighted average maturity of the
debentures at 30 June 2002 was 13.5 years. The debentures 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 ratings of
the debentures not being adversely affected and certain other conditions
affecting the amount to be redeemed.
(3) In June 2000 a group company, Canary Wharf Finance II plc ('CWFII'),
issued £975 million of first mortgage debentures. The notes comprised:
(a) £475 million term notes
The term notes consist of five tranches, two of which, totalling £90
million were immediately re-purchased and are held by a group company.
The principal terms of the tranches are:
Tranche £m Interest Repayment
_______ ____ ________ __________________________
Issued:
A1 240 6.455% By instalment 2009 to 2033
A2 60 Floating By instalment 2003 to 2012
B 85 6.800% By instalment 2005 to 2033
----
385
Re-acquired:
C 45 6.966% By instalment 2011 to 2033
D 45 Floating By instalment 2011 to 2033
----
475
====
The notes are secured on certain property interests of the group and
the rental income stream therefrom.
The class A2 notes were issued in a principal amount of Euro100 million,
with interest payable at three month EURIBOR plus a margin of 0.3%.
The A2 notes are fully hedged via a currency swap, whereby all
principal and interest liabilities are swapped into sterling
providing an initial principal of £60 million and interest payable
fixed at 6.995%.
Interest on the D notes is payable at a rate of three month LIBOR
plus a margin of 1.75% until July 2005, and thereafter 4.375%. The D
notes are fully hedged using an interest rate collar, with a cap of
9% and a floor of 5%.
(b) £500 million revolving notes
The securitisation allows for £500 million of 'AAA' and 'AA' rated
fully revolving short term notes, of which £250 million was
underwritten for 5 years from June 2000 by a banking syndicate. There
were no immediate proceeds from the revolving notes as they were
repurchased by the issuer. Drawings will commence
once further fully constructed and leased properties are added to the
securitisation pool. The pricing is based on three month LIBOR with a
margin of 0.40% for the 'AAA' notes and 0.50% for the 'AA' notes. The
commitment fee is 0.25% of the £250 million underwritten. Hedging is
not required until first drawdown.
(4) In June 2001, CWFII raised an additional £875 million of first mortgage
debentures at a premium of £19.8 million. The notes comprise further
issues of A1 and A2 notes together with three new tranches. The principal
terms of the notes issued are:
Tranche £m Interest Repayment
_______ _____ ________ __________________________
A1 475 6.455% By instalment 2009 to 2033
A2 50 Floating By instalment 2003 to 2012
A3 200 5.952% By instalment 2032 to 2037
A4 90 Floating By instalment 2004 to 2028
B1 60 Floating By instalment 2005 to 2024
-----
875
=====
The notes are secured on certain property interests of the group and the
rental income stream therefrom.
The class A1 notes were issued at a premium of £20.2 million on a
principal amount of £475 million.
The class A2 notes were issued in a principal amount of Euro83 million, with
interest payable at three month EURIBOR plus a margin of 0.3%. These
notes are fully hedged via a currency swap, whereby all principal and
interest liabilities are swapped into sterling providing an initial
principal of £50.0 million plus a premium of £0.2 million and interest
payable fixed at 6.0775%.
The class A3 notes were issued at par in a principal amount of £200
million.
Interest on the class A4 notes is payable at three month LIBOR plus
0.375% stepping up to LIBOR plus 0.95% in July 2011. These notes are
fully hedged at a fixed rate of 6.155% to July 2011 and 6.73% thereafter.
The class B1 notes were issued in a principal amount of Euro100 million with
interest payable at three month EURIBOR plus a margin of 0.45%. These
notes are fully hedged via a currency swap, whereby all principal and
interest liabilities are swapped into sterling providing an initial
principal of £60 million less a discount of £0.6 million and interest
payable fixed at 6.265%.
(5) In February 2002, CWFII raised an additional £1,257 million of first
mortgage debentures at a premium of £83.1 million. The notes comprise
further issues of A1, A3, and B notes together with a new US Dollar
denominated tranche. The principal items of the notes issued are:
Tranche £m Interest Repayment
_______ ______ ________ __________________________
A1 500 6.455% By instalment 2009 to 2033
A3 200 5.952% By instalment 2032 to 2037
A5 407 6.002% By instalment 2012 to 2033
B 150 6.800% By instalment 2005 to 2033
------
1,257
======
The notes are secured on certain property interests of the group and the
rental income stream therefrom.
The class A1 notes were issued at a premium of £48.6 million on a
principal amount of £500.0 million and the class A3 notes were issued at
a premium of £17.2 million on a principal amount of £200.0 million.
The class A5 notes were issued in a principal amount of US$579.0 million
with interest payable at three month US$ LIBOR plus a margin of 0.39% to
July 2010 and thereafter 0.975%. These notes are hedged via currency
swaps, whereby principal and interest liabilities are swapped into
sterling providing an initial principal of £407.0 million and interest
payable fixed at 6.002% to July 2010 and 6.2187% thereafter. The step up
of 0.975% is not hedged.
The class B notes were issued at a premium of £17.2 million on a
principal amount of £150.0 million.
Including the notes issued in February 2002, the weighted average
maturity of the debentures at 30 June 2002 was 19.7 years. The debentures
may be redeemed at the option of the issuer in an aggregate amount of not
less than £1 million (except classes A2 and B1 which may not be less than
Euro1 million and Class A5 which may not be 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.
(6) On 3 November 2000 the group concluded a seven year, £1 billion revolving
construction loan facility of which £22.7 million of a £407.0 million
commitment had been drawn down at 30 June 2002 leaving £593.0 million of
the facility available to fund future construction. 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.
(7) In October 2001 the group entered into a further £125 million
construction loan facility, of which £34.3 million was drawn down prior
to the year end, in connection with construction of the property at 20
Canada Square. Drawings under the facility are secured by first-ranking
fixed and floating charges over that property 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. At 30 June 2002 £90.7 million of
the £125 million facility was available to fund future construction.
(8) On 1 October 2001 the group concluded the acquisition from HSBC of
Indural for a consideration of £3.1 million. In December 1997 Indural
entered into agreements for lease in respect of two properties owned by
the then group which were subsequently leased back to the group from the
date of acquisition on finance lease terms. As a result of the
acquisition cash deposits totalling £111.9 million held by Indural as
security for the group's finance leases were released from charge.
Indural has been consolidated in the accounts of the group
from the date of acquisition, the effect of which has been that finance
lease receivables and payables totalling £102.1 million have been offset.
The consideration payable on acquisition, together with an adjustment to
the carrying value of the finance lease obligation, have been treated as
a charge required to restructure the finance leases and shown as a
component within interest payable (finance lease charges), totalling £4.1
million (Note 6).
(9) The group's obligations under certain finance leases are secured by
first-ranking fixed and floating charges over the property which is the
subject of those finance leases and over certain cash deposits (Note 25).
The weighted average rate of interest implicit in the group's finance
leases is 6.5%.
(10) Loans and finance lease obligations (excluding accrued interest payable):
Finance Finance
Loans leases Loans leases
2002 2002 2001 2001
_________ _________ ________ _________
£m £m £m £m
In less than one year or on demand 33.8 - - -
In more than one year but less than two years 57.9 - - -
In more than two years but not more than five years 162.4 - 140.4 -
In more than five years 3,073.2 577.0 1,803.2 676.8
--------- --------- -------- ---------
3,327.3 577.0 1,943.6 676.8
========= ========= ======== =========
(11) After taking into account interest rate hedging entered into by the
group, the interest rate profile of the group's financial liabilities at
30 June 2002 (excluding accrued interest payable) was:
At 30 June 2002 At 30 June 2001
_________________________________________ _________________________________________
Floating Fixed rate Total Floating Fixed rate Total
rate financial rate financial
financial liabilities financial liabilities
liabilities liabilities
_________________________________________ _________________________________________
£m £m £m £m £m £m
Securitised debt 84.5 3,233.4 3,317.9 84.7 1,888.6 1,973.3
Construction loans 55.1 - 55.1 - - -
Finance leases 343.6 233.4 577.0 446.7 230.1 676.8
_________________________________________ _________________________________________
483.2 3,466.8 3,950.0 531.4 2,118.7 2,650.1
Less: Cash collateral for
borrowings (Note 14) (316.3) (583.5) (899.8) (426.8) (280.4) (707.2)
_________________________________________ _________________________________________
166.9 2,883.3 3,050.2 104.6 1,838.3 1,942.9
========================================= =========================================
The group's floating rate liabilities comprise sterling denominated bank
borrowings, debentures and finance leases which bear interest at rates
linked to LIBOR.
In respect of the group's fixed rate financial liabilities:
30 June 2002 30 June 2001
_________________________________________ _________________________________________
Weighted Weighted Weighted Weighted
average average average average
interest period interest period
rate fixed rate fixed
_________________________________________ _________________________________________
% Years % Years
Securitised debt 6.3 18.6 6.6 18.0
Finance leases 10.0 13.9 10.0 14.7
(12) In accordance with FRS 13 (Derivatives and other Financial Instruments:
Disclosures) the group is required to disclose the fair values of its
financial assets and liabilities (excluding debtors and creditors falling
due within one year) and at 30 June 2002 these were as follows:
30 June 2002 30 June 2001
_____________________ _______________________
Book Fair Book Fair
value value value value
_____________________ _______________________
£m £m £m £m
Primary financial instruments held or issued to
finance the group's operations:
Cash on deposit earning
- floating rates of interest 1,325.3 1,325.3 1,411.5 1,411.5
- fixed rates of interest 1.9 4.1 46.9 55.8
Short term financial liabilities and current
portion of long term borrowings (79.5) (79.5) (29.7) (29.7)
Long term borrowings (3,293.5) (3,445.4) (1,943.6) (2,023.4)
Finance leases (577.0) (603.8) (676.8) (711.2)
Derivative financial instruments held to manage
interest rate and exchange rate profile:
- interest rate swaps - (3.9) - 6.7
- interest rate caps/collars 2.3 (2.4) 2.4 (0.1)
- currency swaps - (43.1) - (1.0)
The fair value of the interest rate swaps and sterling denominated fixed
rate debt and deposits have been determined by reference to prices
available on the markets on which they are traded. All other fair values
shown have been calculated by discounting cash flows at the relevant zero
coupon LIBOR interest rates prevailing at the balance sheet date.
During the year to June 2001 £2.5 million was realised on certain
interest rate hedges. These hedges were entered into in anticipation of
the tap issue completed in June 2001 and the gains were therefore
deferred and will be recognised over the term of the debt. In addition,
security over certain cash deposits was released and at the same time
interest rate swaps relating to these deposits were unwound resulting in
a net gain to the group of £4.5 million which was included in interest
receivable (see Note 5). In anticipation of the tap issue in February
2002, the group entered into certain interest hedges, which
were subsequently closed out realising a net loss of £0.6m. These losses
have been deferred and will be recognised over the term of the debt. In
addition, the group realised a £0.1m gain on closing out certain interest
rate hedges related to its construction facility. This amount has been
netted against the financing cost attributable to the relevant building.
Other than the above no gains or losses on derivative financial
instruments have been recognised in the year.
Unrecognised gains and losses on instruments used for hedging, and the
movements therein, are as follows:
2002 2001
_______________________________ _____________________________
Total net Total net
gains/ gains/
Gains (Losses) (losses) Gains (Losses) (losses)
£m £m £m £m £m £m
_______________________________ _____________________________
Unrecognised gains and losses on hedges at 6.7 (3.5) 3.2 2.7 (1.2) 1.5
1 July
Gains and losses arising
in previous years that were
recognised in the year - - - - - -
------------------------------ -----------------------------
Gains and losses arising
before 1 July that were not recognised in 6.7 (3.5) 3.2 2.7 (1.2) 1.5
the year
Gains and losses arising in
the year that were not
recognised in the year - (54.9) (54.9) 4.0 (2.3) 1.7
------------------------------ -----------------------------
Unrecognised gains and
losses on hedges at
30 June 6.7 (58.4) (51.7) 6.7 (3.5) 3.2
------------------------------ -----------------------------
Of which:
Gains and losses expected
to be recognised in the
following year - - - - - -
Gains and losses expected
to be recognised after the
following year 6.7 (58.4) (51.7) 6.7 (3.5) 3.2
(13) The group has no material monetary assets or liabilities in
currencies other than pounds sterling.
17 PROVISION FOR LIABILITIES AND CHARGES
£m
Provision for amounts payable in relation to partially vacant leasehold properties:
As at 1 July 2001 0.3
Release to profit and loss account (0.3)
---------
As at 30 June 2002 -
=========
During the year to 30 June 2002, the group exercised its option to surrender an
interest in a leasehold property. The surplus arising as a result of this
surrender was therefore released to the profit and loss account.
Deferred taxation:
Restated
Year ended Year ended
30 June 2002 30 June 2001
____________ ____________
£m £m
Accelerated capital allowances claimed (89.4) (89.4)
Other timing differences (35.4) 1.7
------------ ------------
Undiscounted deferred tax liability (124.8) (87.7)
Discount 73.2 46.2
------------ ------------
Discounted deferred tax liability (51.6) (41.5)
============ ============
At 1 July (41.5) (42.6)
Deferred tax (charge)/credit in profit and loss account (10.1) 1.1
for the period
------------ ------------
At 30 June (51.6) (41.5)
============ ============
As the group has no intention to sell its investment properties it is not
expected that the deferred tax liability will crystallise in the foreseeable
future.
In accordance with FRS 19, 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 approximately £314.2 million would arise
(30 June 2001 - £218.9 million). As the group has no 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.
18 SHARE CAPITAL
Authorised Issued, allotted and fully paid
30 June On incorporation 30 June On incorporation
2002 2002
_______ ________________ ________ ________________
£m £m £m £m
Ordinary shares of 1p each 10.0 0.1 6.1 -
======= ================ ======== ================
Movements in issued ordinary share capital:
Number
____________
On incorporation 200
Issued in connection with scheme of arrangement (Note 1) 651,778,064
Issue on exercise of options (see footnote (2)) 1,422,960
Issue to Employee Share Ownership Trust (see footnote (3)) 420,000
Cancelled under share buy back scheme (see footnote (4)) (45,271,548)
____________
Number of ordinary shares in issue at 30 June 2002 608,349,676
============
(1) Warrants:
Warrants over 26,867,000 and 8,925,233 ordinary shares are held by IPC
Advisors Limited, a company owned by a trust for the benefit of (amongst
others) the Paul Reichmann family. These warrants are exercisable until 31
December 2005 at a price of 450 pence per share and 1 April 2006 at a
price of 330 pence per share respectively.
The subscription price for, and the number of shares of both issues of
warrants are subject to adjustment in certain circumstances, such as
capitalisation or rights issues.
(2) Share Options:
At 30 June 2002 options had been granted and remained outstanding over
13,762,575 ordinary shares under the company's share incentive plans.
The normal exercise period for options granted under the Canary Wharf
Group plc 1997 Executive Share Option Plan, Company Share Option Plan and
Long Term Incentive Plan is between 3 and 10 years. The awards of options
granted on or after 31 March 1999 are subject to performance criteria.
1997 Canary Wharf Group plc Executive Share Option Plan and Canary Wharf
Company Share Option Plan
As at 30 June 2002 there were options outstanding under the unapproved
Canary Wharf Group plc 1997 Executive Share Option Scheme over 12,156,068
ordinary shares and under the approved Canary Wharf Group plc Company
Share Option Scheme over 115,626 ordinary shares.
Number of Shares on Exercise price per Share
which options outstanding (pence) Exercise period
__________________________________________________________________________
3,173,500 79.5 03.03.98 to 02.03.08
20,417 330 01.04.99 to 31.03.04
115,626 400 01.04.02 to 31.03.09
5,062,151 400 01.04.02 to 31.03.09
3,900,000 400 01.01.06 to 31.03.09
Canary Wharf Group plc Long Term Incentive Plan
As at 30 June 2002 there were options outstanding over 1,490,881 ordinary
shares under the Long Term Incentive Plan.
Number of shares Exercise period
outstanding
_______________ _____________________
174,953 01.04.02 to 31.03.09
14,285 25.10.02 to 24.10.09
1,301,643 31.10.03 to 30.10.10
(3) Canary Wharf Employee Share Ownership Plan Trust:
In December 2000 a loan facility agreement was executed between the
company and the Trustees of the Canary Wharf Employee Share Ownership Plan
Trust ("the Trust") whereby shares in the company were purchased by the
Trustees to cover the prospective exercise of options by employees. Since
December 2000 5,593,505 ordinary shares have been acquired by the Trustees.
Following the exercise of executive share options during the year 590,372
were transferred from the Trust to meet the obligations arising therefrom.
(4) Share buy backs and share cancellations:
Ordinary shares
From June 2001 to October 2001 37,467,865 ordinary shares were bought back
by the company's predecessor. From December 2001 to June 2002 a further
45,271,548 ordinary shares were bought back. Together with the 21,907,000
ordinary shares bought back from July 2002, the total number of ordinary
shares cancelled under the company's share buy-back programme amounts to
104,646,413 shares.
The revised issued share capital of the company (at the date of issue of
these financial statements) is 586,751,725 ordinary shares.
Deferred Shares
In connection with the scheme of arrangement detailed in Note 1, on 4
December 2001, 297,862,666,648 deferred shares of 1p each were issued and
on 5 December 2001 bought back and cancelled. On 5 December 2001 the total
authorised deferred share capital of 400,000,000,000 shares of 1p was
cancelled.
19 RESERVES
Group
Share Capital Profit
Premium Revaluation Capital Redemption Special & Loss
Account reserve Reserve Reserve Reserve Account Total
___________________________________________________________________________________
£m £m £m £m £m £m £m
Equity reserves:
At 1 July 2001 - as previously 575.5 1,055.5 61.3 0.1 - (61.4) 1,631.0
stated
Prior year adjustments (as (575.5) - (61.3) - 636.8 (41.5) (41.5)
explained in Note 1)
___________________________________________________________________________________
At 1 July 2001 - as restated - 1,055.5 - 0.1 636.8 (102.9) 1,589.5
Issue of shares under share 2.6 - - - - - 2.6
option schemes
Reserve movements in respect of - - - - - 2.0 2.0
share option schemes
Acquisition and cancellation of - - - 0.3 0.5 (392.4) (391.6)
own shares
Revaluation of investment - 458.4 - - - - 458.4
properties
Reserve movements relating to - - - - 0.3 - 0.3
scheme of arrangement
Profit for the financial year - - - - - 193.0 193.0
___________________________________________________________________________________
At 30 June 2002 2.6 1,513.9 - 0.4 637.6 (300.3) 1,854.2
===================================================================================
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 capital reserve arose on the acquisition of the Canary Wharf Holdings
Limited ('CWHL') group on 27 December 1995 by the then Canary Wharf Group
plc which was renamed Canary Wharf Estate Limited following the group
reconstruction.
The capital redemption reserve arises from the cancellation of own shares
acquired in connection with the group's share re-purchase programme.
20 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Group
________
£m
Shareholders' funds at 1 July 2001 as previously stated 1,637.9
Prior year adjustments (as explained in Note 1) (41.5)
--------
Shareholders' funds at 1 July 2001 - as restated 1,596.4
Reserve movements relating to scheme of arrangement 0.3
Profit for the financial year 193.0
Revaluation surplus 458.4
Allocation of new shares -
New shares issued under the group's share option schemes 2.6
Credit in respect of share option schemes 2.0
Cancellation of shares (392.4)
--------
Shareholders' funds at 30 June 2002 1,860.3
========
21 PENSION SCHEMES
The group operates two defined contribution pension schemes. The
assets of these schemes are held in independently administered funds.
The pension cost charge, which amounted to £2,824,281 in the year (year
ended 30 June 2001 - £2,054,165) represents contributions payable by the
group to the schemes.
22 RECONCILIATION OF OPERATING PROFIT TO OPERATING CASH FLOWS
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Operating profit 299.7 91.7
Net profit on disposal of properties (169.5) -
Depreciation charges 1.0 0.3
Provision against investment 0.5 -
Amortisation of share option costs 4.6 0.7
Increase in debtors (13.6) (53.4)
(Decrease)/increase in creditors (23.3) 34.4
Cost of group restructuring (2.4) -
Decrease in provisions (0.3) (2.6)
Amortisation of tenant lease incentives (15.5) -
---------- ----------
Net cash inflow from operating activities 81.2 71.1
========== ==========
23 ANALYSIS OF CASH FLOWS
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Returns on investments and servicing of finance
Interest received 49.2 53.4
Interest paid (174.5) (66.7)
Interest element of finance lease rentals (33.7) (44.2)
Financing expenses (14.6) (13.1)
----------- -----------
Net cash outflow (173.6) (70.6)
=========== ===========
Capital expenditure and financial investment
Year ended Year ended
30 June 30 June
2002 2001
__________ __________
£m £m
Additions to properties (957.2) (511.1)
Purchase of tangible fixed assets (2.0) (8.3)
Acquisition of development properties (28.0) (92.1)
Acquisition of own shares to support share
option schemes (12.5) (8.1)
Deferred consideration on disposal of subsidiary undertaking 13.4 -
Settlement of deferred acquisition costs (see note below) - (2.1)
Deferred income relating to agreements for sale of property 45.0 42.4
----------- -----------
Net cash outflow (941.3) (579.3)
=========== ===========
In accordance with the arrangements agreed for the acquisition of the
CWHL Group in December 1995, further deferred payments of £2.1 million
were made during the year ended 30 June 2001 to the vendor (the selling
bank group) from funds set aside for this purpose at the time of
acquisition.
Acquisitions
Year ended Year ended
30 June 30 June
2002 2001
_________ _________
£m £m
Acquisition of investment - (2.1)
--------- ---------
Net cash outflow - (2.1)
========= =========
Management of liquid resources
Year ended Year ended
30 June 30 June
2002 2001
_________ _________
£m £m
Cash placed on deposit not available on demand (395.0) (224.3)
Cash withdrawn from deposit accounts 244.7 253.0
--------- ---------
Net cash (outflow)/inflow (150.3) 28.7
========= =========
Financing Year ended Year ended
30 June 30 June
2002 2001
_________ _________
£m £m
Issue of shares 1.6 2.9
Purchase of own shares for cancellation (392.4) (13.7)
Repayment of secured loans (382.8) (161.7)
Issue of securitised debt 1,340.1 1,029.5
Drawdown of secured loans 336.0 161.7
--------- ---------
Net cash inflow 902.5 1,018.7
========= =========
24 ANALYSIS AND RECONCILIATION OF NET DEBT
Other non-
1 July cash 30 June
2001 Cash flow changes 2002
_________ __________ __________ ________
£m £m £m £m
Cash at bank 1,458.4 (131.2) - 1,327.2
Amounts on deposit not available on demand (755.4) (150.3) - (905.7)
--------- ---------- ---------- --------
703.0 (281.5) - 421.5
--------- ---------- ---------- --------
Debt due after 1 year (1,943.6) (1,361.5) 11.6 (3,293.5)
Debt due within 1 year (29.7) (33.8) (16.0) (79.5)
Finance leases (676.8) 135.8 (36.0) (577.0)
--------- ---------- ---------- --------
(2,650.1) (1,259.5) (40.4) (3,950.0)
--------- ---------- ---------- --------
Amounts on deposit not available on demand 755.4 150.3 - 905.7
--------- ---------- ---------- --------
Net debt (1,191.7) (1,390.7) (40.4) (2,622.8)
======== ========== ========== ========
Year ended
30 June
2002
__________
£m
Increase in cash in the year (131.2)
Increase in debt and lease financing (1,259.5)
----------
Change in net debt resulting from cash flows (1,390.7)
Non-cash movement in net debt (40.4)
----------
Movement in net debt in year (1,431.1)
Net debt at 1 July 2001 (1,191.7)
----------
Net debt at 30 June 2002 (2,622.8)
==========
25 CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS
As at 30 June 2002 certain members of the group had given fixed and floating
charges over substantially all of their assets as security for certain of the
group's borrowings and finance lease obligations as referred to in Note 16. In
particular, various members of the group had, at 30 June 2002, given fixed first
ranking charges over cash deposits totalling £899.8 million and may be called
upon to make a further cash deposit of up to £9.0 million.
As security for the issue of £675 million of securitised debt (see Note 16)
Canary Wharf Group plc has granted a first fixed charge over the shares of CWF
and a first floating charge has been given over all of the assets of CWF.
As security for the issue of up to £3,107 million of securitised debt (see Note
16) a group company, Canary Wharf Finance Holdings Limited, has granted a first
fixed charge over the shares of CWFII and a first floating charge has been given
over all of the assets of CWFII.
Commitments of the group for future expenditure:
30 June 30 June
2002 2001
_______ _______
£m £m
Under contract 726.1 1,165.8
======= =======
The commitments for future expenditure relate to the completion of development
properties where construction was committed at 30 June 2002.
Commitments of the group for the next financial year in respect of operating
leases are analysed as follows:
Land Land
and buildings and buildings
30 June 30 June
2002 2001
_____________ _____________
£m £m
Annual commitment for which the leases expire:
Within one year - 0.1
Between two and five years - -
After five years 16.7 16.7
============= =============
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The company news service from the London Stock Exchange
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