The Group’s loss before tax was £4.6m, compared to a loss of £1,621.2m for the six months ended 30 September 2008. Revenue profit, our measure of underlying profit before tax, reduced by 15.4% from £151.8m to £128.4m, mainly as a result of lower rental income due to the sale of properties.
Basic earnings per share was 1.58p compared to a loss per share of 314.39p last year, restated for the Rights Issue and the reclassification of Trillium to discontinued operations. Adjusted diluted earnings per share was 16.89p (2008: 29.51p), down 42.8% on the comparable period.
|£(1,621.2)m||Loss before tax(1)||£(4.6)m||n/a|
|29.51p||Adjusted diluted earnings per share(1)||16.89p||-42.8|
|593p(2)||Adjusted diluted NAV per share||565p||-4.7|
|29.80p||Dividend per share (3)||14.00p||-53.0|
- Continuing activities
- As at 31 March 2009
- Declared dividends, restated for impact of the Rights Issue
- Including share of joint ventures
Revenue profit is our measure of the underlying pre-tax profit of the Group, which we use internally to assess our performance. It includes the pre-tax results of our joint ventures but excludes capital and other one-off items.
Table 5 shows the composition of our revenue profit including the contributions from London and Retail.
Table 5: Revenue profit
|30 September 2009
|30 September 2009
|Gross rental income1||170.6||165.7||336.3||183.2||177.7||360.9|
|Direct property related income||4.6||10.9||15.5||4.5||12.0||16.5|
|Net service charge expense||(2.7)||(3.0)||(5.7)||(3.2)||(0.5)||(3.7)|
|Direct property expenditure||(16.5)||(24.3)||(40.8)||(16.8)||(20.5)||(37.3)|
|Underlying segment operating profit||130.3||127.9||258.2||141.2||146.2||287.4|
|Net interest – Group||(107.7)||(116.2)|
|Net interest – joint ventures||(16.0)||(11.4)|
- Includes finance lease interest.
Revenue profit declined to £128.4m for the six months to 30 September 2009 compared to £151.8m for the prior period, mainly due to a £24.6m reduction in gross rental income. Sales of investment properties accounted for £26.3m of this decline in income, partly offset by increased income of £14.1m from developments. Gross rental income was also affected by the failure of a number of retailers in late 2008 and early 2009, which led to a decline in income on our like-for-like investment portfolio of £14.3m.
Net service charge expense and direct property expenditure increased by £2.0m and £3.5m respectively, driven by increased levels of voids compared with the same period last year. These increases were partly offset by lower indirect costs because of reduced headcount and lower professional fees.
Earnings per share
Basic earnings per share was 1.58p compared to a loss per share from continuing operations of 314.39p in the prior period. The improvement was predominantly due to the significantly lower valuation deficit on the investment property portfolio together with an income tax credit of £17.8m this period, compared to a £2.7m credit in the first six months last year.
In the same way that we adjust profit before tax to remove capital and one-off items to give revenue profit, we also report an adjusted earnings per share figure. Adjusted diluted earnings per share from continuing operations reduced from 29.51p per share for the six months ended 30 September 2008 to 16.89p per share for the current period. This reduction was attributable to lower revenue profit for the reasons described above as well as an increase in the average number of issued shares following our Rights Issue in March 2009.
At 30 September 2009, net assets per share were 622p, a decrease of 17p or 2.7% compared with the year ended 31 March 2009. This reduction was primarily due to the valuation deficit.
In common with other property companies, we calculate an adjusted measure of net assets, which we believe better reflects the underlying net assets attributable to shareholders. Our adjusted net assets are lower than our reported net assets primarily due to an adjustment to our debt. Under IFRS we do not show our debt at its nominal value, although we believe it would be more appropriate to do so, and we therefore adjust our net assets accordingly. At 30 September 2009, adjusted diluted net assets per share were 565p per share, a decrease of 28p or 4.7% from 31 March 2009.
This decline was greater than the reduction in our net assets over the period due to the termination of interest-rate swaps. Adjusted net assets ignores the fair value movement on interest-rate swaps, only recognising the impact of realised gains or losses on these instruments. As explained in more detail below, during the period we terminated a number of interest-rate swaps, resulting in a cash payment of £74.5m. This realised loss is reflected in the reduction in adjusted net assets during the period.
Table 6 summarises the main differences between net assets and our adjusted measure together with the key movements over the period.
Table 6: Net assets attributable to owners of the Parent
|Net assets at the beginning of the period||4,823.5||9,582.9|
|Valuation deficits on investment properties||(117.8)||(4,743.7)|
|Impairment of development land and infrastructure||(12.2)||(104.3)|
|Losses on disposals of investment properties||(10.3)||(127.9)|
|Profit/(loss) after tax attributable to owners of the Parent||11.9||(4,770.4)|
|Loss on discontinued operations||-||(420.9)|
|Other reserve movements||(3.2)||(21.4)|
|Net assets at the end of the period||4,702.4||4,823.5|
|Mark-to-market on interest-rate swaps||60.9||150.2|
|Debt adjusted to nominal value||(493.4)||(499.8)|
|Adjusted net assets at the end of the period||4,269.9||4,473.9|
Net pension deficit
The Group operates a defined benefit pension scheme which is closed to new members. At 30 September 2009 the scheme was in a net deficit position of £7.5m compared to a net surplus of £3.0m at 31 March 2009. Although the scheme’s assets performed strongly over the period, a significant reduction in corporate bond yields reduced the discount rate from 7.0% to 5.5%, which in turn increased the scheme’s liabilities and resulted in the £10.5m change in the position since the beginning of the financial year.
Cash flow, net debt and gearing
Our net debt at 30 September 2009 was £3,428.6m, £495.0m lower than the position at 31 March 2009. This reduction was primarily due to proceeds received from the disposal of investment properties (£511.6m) and the sale of our joint venture interest in the Bullring, Birmingham (£209.8m). Capital expenditure during the period totalled £112.1m, of which £45.3m was spent on our development at One New Change, London EC4. We also invested a net £38.1m in our joint ventures, consisting mainly of capital expenditure of £66.6m on our major developments in Cardiff and Bristol, offset by drawings of £30.5m on a new stand-alone facility within our Cardiff joint venture.
Our interest cover, excluding our share of joint ventures, is virtually unchanged from 1.89 times for the year ended 31 March 2009 to 1.88 times for the six months ended 30 September 2009. Under the rules of the REIT regime, we need to maintain an interest cover in the exempt business of at least 1.25 times to avoid paying tax. As calculated under the REIT regulations, our interest cover of the exempt business for the six months ended 30 September 2009 was 1.82 times.
Table 7: Cash flow and net debt
|Operating cash inflow after interest and tax||83.4||367.2|
|Divestment of joint ventures||209.8||-|
|Net debt divested||-||48.6|
|Loans advanced to third parties||-||(50.0)|
|Receipts from the disposal group (part of Trillium’s PPP activities)||-||113.5|
|Joint ventures and associates||(38.1)||(117.0)|
|Proceeds from the Rights Issue||-||755.7|
|Fair value movement on interest-rate swaps||10.9||(105.6)|
|Decrease in net debt||495.0||1,460.9|
|Net debt at the beginning of the period||(3,923.6)||(5,384.5)|
|Net debt at the end of the period||(3,428.6)||(3,923.6)|
The reduction in net debt has contributed to the fall in gearing from 81.4% at 31 March 2009 to 72.9% at 30 September 2009. Details of the Group’s gearing are set out in Table 8, which also shows the impact of joint venture debt, although the lenders to our joint ventures have no recourse to the Group for repayment.
Adjusted gearing, which recognises the nominal value of our debt, reduced from 96.4% at 31 March 2009 to 91.3% at 30 September 2009. Adjusted gearing including our share of joint ventures also reduced, declining from 105.9% to 102.0% over the same period. In common with other property companies, we also show our Group LTV ratio.
Table 8: Gearing
|Adjusted gearing* – as above plus notional share of joint venture debt||102.0||105.9|
|Security Group LTV||54.9||76.7|
|Group LTV – including notional share of joint venture debt||50.8||52.0|
Financing and capital
Our financing strategy and the structure of our main funding vehicle, the Security Group, are described in detail on page 22 of our 2009 Annual Report. As a result of our decision in January 2009 to draw down £1.1bn of available credit facilities, the Security Group entered a more restrictive operating environment (Tier 3) following formal submission of our valuation report as at 31 March 2009. The priority for the period under review was to focus on cash flows, extending existing facilities and raising new finance. In this regard, we have had considerable success.
We raised £360.3m of long-term debt against a government lease on Queen Anne’s Gate, London SW1 and secured £290.0m of five year joint venture finance for the St David’s Centre, Cardiff. Since the end of September 2009, we have extended £650.0m of bank bilateral facilities which were anticipated to be repaid in 2010 to the financial year ending March 2015. We are also well advanced in discussions with other banks about entering into new agreements.
As a result of these achievements and the cash raised from investment property sales, we have repaid £1.8bn of bank facilities and the Security Group has returned to a normal operating environment. In addition, our debt structure has had its AA credit rating reaffirmed allowing us to raise finance at a competitive rate.
The Group still had £637.9m of cash investments (including restricted cash of £119.0m) at the end of September, £360.0m of which has subsequently been used to repay outstanding short-term bank debt.
We use derivative products to manage our interest-rate exposure, and have a hedging policy which requires at least 80% of our existing debt plus our net committed capital expenditure to be at fixed interest rates for the coming five years. Specific hedges are also used in geared developments or joint ventures to fix the interest exposure on limited-recourse debt.
Principal risks and uncertainties
The principal risks facing the Group for the remaining months of the financial year are broadly consistent with those outlined on pages 30 to 32 of the 2009 Annual Report. The risks include property investment risks (falling property values, illiquidity of assets and tenant failure) and financial risks (including liquidity risk due to unavailability of credit facilities).
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