Canary Wharf Group - Final Results - Part 2
RNS No 6218c
CANARY WHARF GROUP PLC
17 September 1999
Part 2
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE 1999
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 1998,
consistently applied in all material respects.
The financial information is abridged and does not constitute the
group's full financial statements for the years ended 30 June 1998 or 30 June
1999. Full financial statements for the year ended 30 June 1998 (which
received an unqualified audit report) have been filed with the Registrar of
Companies.
2 OPERATING PROFIT
Year Year ended
ended 30 June
30 June 1998
1999
The operating profit is after £000 £000
charging:
- Depreciation (Note 10) 249 57
- Directors' emoluments 1,397 2,295
- Operating lease rentals:
Land and buildings 934 934
- Remuneration of the auditors:
Audit fees 225 120
Fees for other services 302 452
For the year ended 30 June 1999, fees of £1,773,000 were paid to the
auditors in connection with the company's flotation and this amount has been
charged to the share premium account as part of the share issue expenses.
3 INTEREST RECEIVABLE
Year Year
ended ended
30 June 30 June
1999 1998
£m £m
Bank interest receivable 35.6 35.3
Interest relating to
development financing
transferred to development
properties (Note 4) - (6.3)
------- -------
35.6 29.0
======= =======
4 INTEREST PAYABLE
Year Year
ended ended
30 June 30 June
1999 1998
£m £m
Notes and debentures 65.8 58.1
Bank loans and overdrafts 9.2 43.1
Finance lease charges 35.0 40.2
------- -------
110.0 141.4
Less:
Interest at 6.7% (year ended
30 June 1998 - 7.8%) on
development financings
transferred to development
properties (6.8) (7.7)
------- -------
103.2 133.7
======= =======
During the year ended 30 June 1998 certain of the group's indebtedness was
prepaid resulting in an exceptional charge of £27.1m.
Interest payable on development financings of £6.8 million (year ended
30 June 1998 - £7.7 million), net of interest receivable of nil (year ended 30
June 1998 - £6.3 million) on funding drawn down in advance (Note 3), has been
transferred to development properties (Note 9).
5 TAXATION
No provision for corporation tax has been made on the consolidated results
of the group in view of the loss for the year.
Certain companies in the group have carried forward tax losses and
allowances which when claimed will have an impact on the group's future tax
charges.
6 EMPLOYEE INFORMATION
Staff costs of all employees of the group, including directors, were:
Year ended Year
30 June ended
1999 30 June
1998
£m £m
Wages and salaries 19.2 15.2
Social Security costs 1.9 1.5
Other pension costs (Note 20) 1.0 0.9
------- -------
22.1 17.6
======= =======
The average monthly number of employees, including directors, of the
group during the year to 30 June 1999 was 574 (year ended 30 June 1998 - 471).
7 DIVIDEND
Year ended Year
30 June ended
1999 30 June
1998
£m £m
Interim dividend of 17.8 pence per
ordinary share 44.6 -
======= =======
On 29 January 1999 the directors declared an interim dividend of £44.6
million to ordinary shareholders on the register at the close of business on
31 December 1998 which was paid on 6 April 1999. The directors have not
declared a final dividend (year ended 30 June 1998 - Nil).
8 LOSS PER SHARE
The calculation of loss per share is based on the loss for the financial
year of £42.8 million (year ended 30 June 1998 - £96.3 million) and on
544,338,132 (year ended 30 June 1998 - 185,863,014) ordinary shares, being
the weighted average number of shares in issue and ranking for dividend
during the period.
The diluted loss per share is prepared in accordance with Financial Reporting
Standard Number 14 (Earnings per share) which requires that only instruments
which dilute loss per share are recognised. As a result, the ordinary shares
arising on conversion of warrants and the exercise of share options have been
excluded.
9 INVESTMENT PROPERTIES AND PROPERTIES UNDER CONSTRUCTION
AND HELD FOR DEVELOPMENT
Properties
Freehold properties held as Properties held for
tangible fixed assets: Investment under develop-
Properties construction ment
£m £m £m
As at 1 July 1998 1,341.6 20.6 66.7
Additions 9.4 61.7 85.9
Interest on development
financing - 2.5 -
Transfer to current assets - - (12.0)
Revaluation of investment
properties 128.0 - -
-------- -------- --------
As at 30 June 1999 1,479.0 84.8 140.6
======== ======== ========
Of which, subject to lease
and finance leaseback
arrangements
799.4
========
Historical cost
533.2 84.8 140.6
======== ======== ========
Freehold properties held as current assets:
£m
As at 1 July 1998 83.6
Additions 210.1
Transfer in year 12.0
Interest on development financing 4.3
------
As at 30 June 1999 310.0
======
The categorisation of properties as 'Investment Properties' or
'Properties Under Development' reflected in the previous year's accounts has
been amended so as to analyse the latter category between 'Properties Under
Construction' and 'Properties Held For Development'. The prior year
comparatives as at 30 June 1998 have been reanalysed accordingly.
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.
At 30 June 1999 properties under construction held as fixed assets included
£2.5 million (30 June 1998 Nil) in respect of financing costs. At that date
properties under construction held as current assets included £5.7 million (30
June 1998 - £1.4 million) in respect of financing costs.
Additions during the year ended 30 June 1999 included the group's remaining
contributions to the Jubilee Line Extension. During the year the company
procured the release from the mortgage in favour of London Underground Limited
('LUL') of two building sites. On 26 April 1999 the company entered into an
agreement with LUL under which all remaining land and other security
mortgaged to secure the monies due to LUL were released from the mortgage
and the company agreed to pay LUL, in full and final satisfaction of all monies
due or to become due to it, the sum of £50.2 million on 1 November 2000.
This final contribution has been reflected in the accounts as at 30 June
1999. LUL has the right on 3 months' notice to call for earlier payment in
which case the amount due will be discounted at the contractual rate.
During the year ended 30 June 1998, the group granted long leases in
certain properties at Canary Wharf. An inferior interest in these properties
was subsequently granted back and the leasebacks have been accounted for as
finance leases. The property interests were valued externally and the
resulting valuations have been treated as the fair value of the assets at the
inception of the leases. At 30 June 1999 the property interests granted back
to the group were valued in conjunction with the group's other investment
properties as explained below.
The group's investment properties have been valued as at 30 June 1999 by
either FPDSavills Commercial Limited, Chartered Surveyors, or CB Hillier
Parker Limited, Surveyors and Valuers, on the basis of Open Market Value in
accordance with the Appraisal and Valuation Manual published by the
Royal Institution of Chartered Surveyors. Each property has been valued
individually on a free and clear basis and not as part of a portfolio and no
account has been taken of any intragroup leases or arrangements. Also, no
allowance has been made for any seller's expenses of realisation nor for
any taxation which might arise in the event of disposal (see Note 16). The
surplus arising on the year end valuations (£128.0 million) has been
transferred to the revaluation reserve.
Properties under construction and properties held for development at 30
June 1999 which are to be retained are carried at their fair value at the
time of the acquisition of the Canary Wharf Holdings Limited ('CWHL') group
in December 1995, less subsequent disposals plus additions at cost,
subject to any provision for impairment. Properties under construction and
properties held for development which are contracted to be sold are carried at
the lower of cost (namely fair value at date of acquisition plus additions at
cost) and net realisable value.
10 OTHER TANGIBLE FIXED ASSETS
Fixtures Computer
and equipment Total
equipment
£m £m £m
Cost:
At 1 July 1998 0.2 0.1 0.3
Additions 0.7 0.1 0.8
Disposals (0.1) - (0.1)
------- ------- -------
At 30 June 1999 0.8 0.2 1.0
======= ======= =======
Depreciation:
At 1 July 1998 (0.2) (0.1) (0.3)
Charge for the year (0.2) - (0.2)
Disposals 0.1 - 0.1
------- ------- -------
At 30 June 1999 (0.3) (0.1) (0.4)
======= ======= =======
Net book amount
30 June 1999 0.5 0.1 0.6
======= ======= =======
1 July 1998 - - -
======= ======= =======
11 INVESTMENTS
Group
Investments: Investments
in associated
undertakings
Cost: £m
At 1 July 1998 10.1
Share of post acquisition loss after tax (0.2)
--------
At 30 June 1999 9.9
Provision against unrealised profit on sale
of land at 30 June 1999 and 30 June 1998 (3.2)
--------
At 30 June 1999 6.7
========
At 30 June 1998 6.9
========
On 21 July 1998 the group acquired the 50% interest in Heron Quays
Developments Partnership ('HQDP') held by Regalian Homes Limited in addition
to the 50% already held by the group and with effect from that date HQDP
became wholly owned by the group.
HQDP is engaged in the development of Phase I of the site formerly known as
Heron Quays and which is now part of the Canary Wharf development. The
consideration for the 50% interest not previously held by the group was £7
million in cash, equating to the book value of the identifiable assets
and liabilities acquired, which reflected their fair value to the
company. The combination of the group with HQDP has been accounted for as
an acquisition.
In May 1997 the group sold an undeveloped plot of land at Canary Wharf to
Canary Riverside Holdings Pte Limited ('CRH') in which it acquired a 20%
equity interest in the 'A' ordinary shares of that company. CRH is engaged in
the development of the Riverside site at Canary Wharf and the other
shareholders comprise two companies registered in Singapore, Hotel
Properties Limited ('HPL') and Pidemco Land Limited. CRH is incorporated in
Singapore and its accounting reference date is 31 December. During the year
ended 30 June 1998 the group invested a further £2.4 million in CRH.
In February 1997 the group acquired a 50% interest in the shares of Canary
Riverside Management (UK) Limited (Manco), a company registered in England.
Upon formation Manco was 50:50 jointly owned with HPL and was
established to manage the development of the Riverside site. Manco's
accounting reference date is 31 December.
The results of the above associates attributable to the group have been
derived from the associates' management accounts for the year to 30 June 1999.
The group's share of the post acquisition results and net assets of its
associates is as follows:
CRH Manco Total
£000 £000 £000
Loss before interest and (44) (417)
tax
Interest 139 6
Taxation (28) 42
------- ------
Profit/(loss) after tax 67 (369)
======= ======
Group share: (20%) (50%)
Year ended 30 June
1999 13 (185) (172)
======= ====== ======
Year ended 30 June
1998 18 (95) (77)
======= ====== ======
Net assets/(liabilities) 50,198 (266)
======= ======
Group share: (20%) (50%)
At 30 June 1999 10,040 (133) 9,907
======= ====== ======
At 30 June 1998 10,024 54 10,078
======= ====== ======
12 DEBTORS
30 June 30
1999 June
1998
Due within one year: £m £m
Trade debtors 1.8 2.2
Other debtors 7.4 7.1
Prepayments and accrued income 22.8 24.3
====== ======
32.0 33.6
====== ======
13 FINANCIAL ASSETS
The group's financial assets comprise short term trade debtors (Note 12)
and sterling cash deposits. Sterling cash deposits totalled £1,016.9 million
at 30 June 1999 (30 June 1998 - £602.9 million), comprising deposits
placed on money market at call and term rates. Total cash deposits
include £405.9 million (30 June 1998 - £408.1 million) held by third parties
as cash collateral for the group's borrowings, deposits arising from
prepayments in respect of buildings contracted to be sold of £320.2 million (30
June 1998 - £77.2 million) and a further £18.0 million (30 June 1998 -
£20.1 million) charged to third parties as security for the group's
obligations.
14 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
30 30
June June
1999 1998
£m £m
Bank loans (Note 15) 107.2 66.8
Trade creditors 26.0 19.1
Taxation and Social Security costs 0.7 0.4
Other creditors 0.9 3.8
Accruals 120.5 50.5
Deferred income 133.9 109.2
------ ------
389.2 249.8
====== ======
At 30 June 1999 deferred income included £127.0 million (30 June 1998 -
£99.1 million) in connection with agreements for the sale, upon completion,
of buildings presently under construction at Canary Wharf. The income deferred
will be recognised upon completion of construction.
In accordance with the arrangements agreed for the acquisition of the
CWHL Group in December 1995, elements of the CWHL Group's then existing
indebtedness were prepaid early. A further deferred payment in relation to
this indebtedness will be made from funds set aside for this purpose once
certain conditions have been satisfied. At 30 June 1999 the total accrued in
respect of the deferred payment was £17.8 million (30 June 1998 £16.7
million), and this amount is included within accruals, shown as due within
one year.
15 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Creditors due after more than one year comprise:
30 June 30 June
1999 1998
£m £m
Securitised debt 543.7 543.3
Senior Secured Notes and Capital
Notes - 285.4
Construction loan - 7.5
Term loan 49.5 -
Finance lease obligations 471.8 471.9
Deferred income 405.4 -
------- -------
1,470.4 1,308.1
======= =======
At 30 June 1999 deferred income of £405.4 million (30 June 1998 Nil) was
held in connection with an agreement for the sale, upon completion, of a
building presently under construction at Canary Wharf. The income deferred
will be recognised upon completion of construction.
The amounts at which borrowings are stated comprise:
Senior Securit Construc- Term Finance
Secured ised tion Loan lease
/ debt Loans £m obliga-
Capital £m £m tions Total
Notes £m £m
£m
At 30 June
1998 342.7 552.8 7.5 - 471.9 1,374.9
Drawn down in
year - - 82.4 50.0 - 132.4
Deferred
financing
expenses (0.2) 0.4 0.4 (0.5) 0.1 0.2
Accrued
finance
charges 24.1 2.7 4.1 0.6 - 31.5
------ ----- ------ ---- ------ -------
Repaid in year (366.6) - - - (0.2) (366.8)
======= ===== ====== ==== ====== =======
At 30 June
1999 - 555.9 94.4 50.1 471.8 1,172.2
====== ====== ====== ==== ====== ======
Payable within
one year or on
demand - 12.2 94.4 0.6 - 107.2
Payable in
more than
one year - 543.7 - 49.5 471.8 1,065.0
------ ------ ------ ---- ------ -------
- 555.9 94.4 50.1 471.8 1,172.2
====== ====== ====== ==== ====== =======
(1) The Senior Secured and the Capital Notes were issued
on 27 December 1995 to finance the investment by the
company in the CWHL Group. The notes comprised:
£202.5 million 7% Senior Secured Notes due 2005
The Senior Secured Notes were secured on the company's
investment in the CWHL group and were
redeemable on 27 December 2005 or earlier at the
option of the company. On 12 December 1997 £116.9
million of the Senior Secured Notes were repaid and
on 29 December 1998 a further £24.6 million of the
Notes were repaid. The balance of the Notes were
repaid, together with accrued interest, on 6 April 1999.
£202.5 million Undated Floating Rate Capital Notes
The Capital Notes were non-redeemable save that
redemption was permitted at the election of the
company. On 2 March 1998 £2,450,000 of the Capital
Notes were converted into ordinary share capital.
Interest accrued on the Capital Notes at 3% over
LIBOR but could be deferred by the company, subject
to certain conditions, with interest accruing at the
contractual rate on the amount deferred. The
balance of the Notes were repaid, together with
deferred interest, on 6 April 1999.
(2) In December 1997 the company's subsidiary, CWF,
issued £555m of first mortgage debentures the
principal terms of which are:
Tranche £m Interest Repayment
A 270 7.230% By instalment
B 80 7.425% By instalment
C 120 Stepped fixed By instalment
D 85 Floating By instalment
---------
555
---------
The debentures are secured on certain property interests of the CWHL Group and
the rental income stream therefrom.
Interest on the Tranche C loan increases in steps from 5% payable until
October 1999, to 9.535% payable from October 2006. Interest on the Tranche
D loan 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%.
Repayment of the fixed and stepped rate debentures is due in more than
one year, being by instalments over the period 2004 - 2027. Repayment of
the floating rate debentures is by instalments over the period 2007 - 2020.
The weighted average maturity of the debentures at 30 June 1999 was 16.7
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 (or
in the case of the Class D debentures on any interest date after January
1999), subject to the current ratings of the debentures not being adversely
affected and certain other conditions affecting the amount to be
redeemed.
(3) At 30 June 1999 £94.4 million (30 June 1998 - £8.2 million) of a
construction loan facility of £200 million had been drawn down. The
construction loan bears interest at a margin of 0.95% over LIBOR and is
secured by first ranking fixed and floating charges over the
properties which are subject to the financing, by second ranking charges
over certain other assets of the CWHL Group and by a guarantee from
CWHL. The facility expires on 1 March 2000. The group does not have any
other undrawn committed banking facilities.
(4) During the year a £50 million five year loan was arranged, secured
by first ranking fixed and floating charges over the retail and
parking facilities within the first phase of Canary Wharf. The loan
bears interest at a margin of 0.85% over LIBOR.
(5) The group's obligations under finance leases are secured by first
ranking fixed and floating charges over the property which is the
subject of the finance leases and over certain cash deposits (Note 24).
The weighted average rate of interest implicit in the group's finance
leases is 7.9%.
(6) Loans and finance obligations falling due after more than one year are
repayable as follows:
Finance Finance
Loans Leases Loans leases
1999 1999 1998 1998
£m £m £m £m
In more than one year
but less than two
years - - 7.5 -
In more than two years
but not more than
five years 49.5 - - -
In more than five
years 543.7 471.8 828.7 471.9
------ ------ ------ ------
593.2 471.8 836.2 471.9
====== ====== ====== ======
(7) After taking into account interest rate swaps entered into by the
group, the interest rate profile of the group's financial liabilities at 30
June 1999 was:
At 30 June 1999
Floating rate Fixed rate
financial financial
liabilities liabilities Total
£m £m £m
Securitised debt
and Notes 86.0 469.9 555.9
Construction loans 94.4 - 94.4
Term loan 50.1 - 50.1
Finance leases 248.6 223.2 471.8
-------- -------- --------
479.1 693.1 1,172.2
Less: Cash
collateral for
borrowings (Note
13) (269.3) (136.6) (405.9)
-------- -------- --------
209.8 556.5 766.3
======== ======== ========
As at 30 June 1998
Floating rate Fixed rate
financial financial
liabilities liabilities
Total
£m £m £m
Securitised debt
and Notes 285.1 543.6 828.7
Construction loans 7.5 - 7.5
Term loan - - -
Finance leases 254.2 217.7 471.9
--------- -------- ---------
546.8 761.3 1,308.1
Less: Cash
collateral for
borrowings (Note
13) (260.2) (147.9) (408.1)
--------- --------- --------
286.6 613.4 900.0
========= ========= ========
The group's floating rate liabilities comprise
sterling denominated bank borrowings, debentures and
Notes which bear interest at rates linked to LIBOR.
In respect of the group's fixed rate financial
liabilities:
30 June 1999 30 June 1998
Weighted Weighted Weighted Weighted
average average average average
interest period interest period
rate fixed rate fixed
% Years % Years
Securitised debt and
Senior Secured Notes 7.4 17.3 7.4 16.9
Finance leases 10.0 16.3 10.0 17.0
(8) 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 and at 30 June 1999
these were as follows:
30 June 1999 30 June 1998
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 930.1 930.1 534.7 534.7
- fixed rates of
interest 86.8 136.4 68.2 70.7
Short term financial
liabilities and
current portion of
long term
borrowings (107.2) (107.4) (66.8) (66.4)
Long term borrowings (593.2) (664.1) (836.2) (841.5)
Finance leases (471.8) (540.6) (471.9) (506.7)
Derivative financial
instruments held to
manage the interest
rate profile:
- interest rate
swaps - 49.6 - 18.6
- interest rate
caps 2.6 2.3 2.6 1.5
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.
16 PROVISION FOR LIABILITIES AND CHARGES
£m
Provision for amounts payable in
relation to partially vacant
leasehold properties:
As at 1 July 1998 4.0
Release to profit and loss account (0.7)
-------
As at 30 June 1999 3.3
=======
At 30 June 1999 the directors reassessed the requirement for a provision in
respect of partially vacant leasehold properties and as a result of this
assessment the provision was reduced by £0.7 million.
Deferred taxation:
There was no potential or unprovided deferred taxation at 30 June 1999 or 30
June 1998.
If the group's investment properties were sold at their market value, a
tax liability of approximately £165.8 million (30 June 1998 - £130.6 million)
would arise. As the group has no intention to sell its investment
properties and it is not expected that any liability will arise in the
foreseeable future, no provision for this contingent liability has been made.
17 SHARE CAPITAL
Authorised Issued, allotted
and fully paid
1999 1998 1999 1998
£m £m £m £m
Ordinary shares of
1p each 10.0 3.0 6.8 2.5
==== ==== ==== ====
Movements in issued share capital:
Number
Number of ordinary shares in issue at 30 June 1998 250,000,000
Bonus issue (see below (3)) 250,000,000
Issue on flotation (see below (7)) 167,000,000
Issue on exercise of over-allotment option
(see below (7)) 16,700,000
Issue re Canary Wharf Employee Share Participation
Plan 176,129
(see below (8))
Issue on exercise of options (see below (9)) 184,000
-----------
Number of ordinary shares in issue at 30 June 1999 684,060,129
===========
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