REG - Derwent London PLC - INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 JUNE <Origin Href="QuoteRef">DLN.L</Origin> - Part 2
29/10/2014 12:44
- Part 2: For the preceding part double click ID:nRSN0758Pa
Share-based payments - 0.4 0.5 2.5 3.4 - 3.4
Issue of convertible bonds - - 12.3 - 12.3 - 12.3
Dividends paid - - - (30.5) (30.5) - (30.5)
Scrip dividends - 4.7 - (4.7) - - -
At 31 December 2013 5.0 170.4 948.6 1,180.0 2,304.0 66.5 2,370.5
GROUP CONDENSED CASH FLOW STATEMENT (UNAUDITED)
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
Note £m £m £m
Operating activities
Property income 67.3 62.0 123.3
Property expenses (4.2) (5.5) (9.1)
Cash paid to and on behalf of employees (11.6) (10.6) (19.0)
Other administrative expenses (2.7) (2.7) (4.9)
Interest received - - 0.2
Interest paid 7 (14.4) (16.3) (32.3)
Other finance costs (1.4) (1.9) (3.4)
Other income 1.4 1.7 2.8
Distributions received from joint ventures 0.1 0.4 1.2
Tax paid in respect of operating activities (1.6) (0.7) (1.3)
Net cash from operating activities 32.9 26.4 57.5
Investing activities
Acquisition of investment properties (14.3) (29.7) (130.1)
Capital expenditure on properties 7 (55.5) (51.8) (108.4)
Disposal of investment properties 30.9 17.4 149.7
Disposal of investment in joint venture 4.9 - -
Repayment of loan by joint venture on disposal 1.9 - -
Purchase of property, plant and equipment (0.1) (0.2) (0.4)
Advances to minority interest holder - (1.5) (2.5)
REIT conversion charge - - (0.6)
Net cash used in investing activities (32.2) (65.8) (92.3)
Financing activities
Net proceeds of bond issue - - 146.2
Repayment of revolving bank loan - - (274.5)
Drawdown of new revolving bank loan - - 280.6
Net movement in revolving bank loans (81.0) 60.0 -
Repayment of non-revolving bank loans - - (65.0)
Drawdown of private placement notes 99.0 - -
Financial derivative termination costs (0.8) (0.3) (13.7)
Net proceeds of share issues 1.1 0.3 0.4
Dividends paid 20 (22.8) (19.5) (31.1)
Net cash (used in)/from financing activities (4.5) 40.5 42.9
(Decrease)/increase in cash and cash equivalents in the period (3.8) 1.1 8.1
Cash and cash equivalents at the beginning of the period 12.5 4.4 4.4
Cash and cash equivalents at the end of the period 23 8.7 5.5 12.5
NOTES TO THE FINANCIAL STATEMENTS
1. Basis of preparation
The financial information for the half year to 30 June 2014 was not subject to an audit but has, for the first time, been
subject to a review in accordance with the International Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity, issued by the Auditing Practices Board. The financial
information for the half year to 30 June 2013 was not subject to either an audit or a review.
The comparative financial information presented herein for the year to 31 December 2013 does not constitute full statutory
accounts within the meaning of Section 434 of the Companies Act 2006. The Group's annual report and accounts for the year
to 31 December 2013 have been delivered to the Registrar of Companies. The Group's independent auditor's report on those
accounts was unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis
without qualifying their report and did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
The financial information in these condensed financial statements is that of the holding company and all of its
subsidiaries (the "Group") together with the Group's share of its joint ventures. It has been prepared in accordance with
the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 Interim Financial Reporting and
should be read in conjunction with the annual report and accounts for the year to 31 December 2013 which have been prepared
in accordance with International Financial Reporting Standards as adopted by the EU.
Going concern
Under Provision C.1.3 of the UK Corporate Governance Code, the Board needs to report whether the business is a going
concern. In considering this requirement, the Directors have taken into account the following:
· The Group's latest rolling forecast for the next 18 months, in particular the cash flows, borrowings and undrawn
facilities. Sensitivity analysis is included within these forecasts.
· The headroom under the Group's financial covenants.
· The risks included on the Group's risk register that could impact on the Group's liquidity and solvency over the
next 12 months.
· The risks on the Group's risk register that could be a threat to the Group's business model and capital adequacy.
The Group's risks and risk management processes are set out in note 25.
Having due regard to these matters and after making appropriate enquiries, the Directors have reasonable expectation that
the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, the Board
continues to adopt the going concern basis in preparing these consolidated financial statements.
2. Changes in accounting policies
The accounting policies used by the Group in these condensed financial statements are consistent with those applied by the
Group in its financial statements for the year to 31 December 2013, as amended to reflect the adoption of new standards,
amendments and interpretations which became effective in the period as shown below.
New standards adopted during the period
The following standards, amendments and interpretations endorsed by the EU are effective for the Group's half year to 30
June 2014, and had no material impact on the financial statements:
IAS 27 (revised) - Separate Financial Statements;
IAS 28 (revised) - Investments in Associates and Joint Ventures;
IAS 32 (amended) - Offsetting Financial Assets and Financial Liabilities;
IAS 36 (amended) - Recoverable Amounts Disclosures for Non-Financial Assets;
IAS 39 (amended) - Novation of Derivatives and Continuation of Hedge Accounting;
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements; and
IFRS 12 Disclosure of Interests in Other Entities.
Standards in issue but not yet effective
The following standards, amendments and interpretations were in issue at the date of approval of the condensed consolidated
financial statements but were not yet effective for the current accounting period and have not been adopted early. The
directors do not anticipate that their adoption in future periods will have a material impact on the financial statements
of the Group.
IFRS 9 Financial Instruments;
IAS 19 (amended) - Defined Benefit Plans - Employee Contributions;
IFRS 11 (amended) - Acquisition of interests in joint operations;
IAS 16 (amended) - Clarification of acceptable methods of depreciation and amortisation;
IAS 38 (amended) - Clarification of acceptable methods of depreciation and amortisation;
IFRS 14 - Regulatory deferral accounts;
IFRS 15 - Revenue from contracts with customers;
IFRIC 21 - Levies;
Annual Improvements to IFRSs (2010 - 2012 Cycle); and
Annual Improvements to IFRSs (2011 - 2013 Cycle).
3. Significant judgments, key assumptions and estimates
Some of the significant accounting policies require management to make difficult, subjective or complex judgments or
estimates. The following is a summary of those policies which management consider critical because of the level of
complexity, judgment or estimation involved in their application and their impact on the financial statements. These are
the same policies identified at the previous year end and a full discussion of these policies is included in the 2013
financial statements.
· Trade receivables;
· Property portfolio valuation;
· Outstanding rent reviews;
· Compliance with the real estate investment trust (REIT) taxation regime; and
· Contingent consideration.
4. Segmental information
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal financial reports about
components of the Group that are regularly reviewed by the chief operating decision maker (which in the Group's case is the
Executive Committee comprising the six executive Directors and four senior managers) in order to allocate resources to the
segments and to assess their performance.
The internal financial reports received by the Group's Executive Committee contain financial information at a Group level
as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in
the financial statements. These internal financial reports include the IFRS figures but also report the non-IFRS figures
for the EPRA earnings per share, net asset value and profit figures. Reconciliations of each of these figures to their
statutory equivalents are detailed in note 11. Additionally, information is provided to the Executive Committee showing
the gross property income and investment property valuation by individual property. Therefore, for the purposes of IFRS 8,
each individual property is considered to be a separate operating segment in that its performance is monitored
individually.
The Group's property portfolio includes investment property, owner occupied property, assets held for sale and trading
property and comprises 93% office buildings* by value (30 June 2013: 94%; 31 December 2013: 93%). The Directors consider
that these properties have similar economic characteristics. Therefore, these individual properties have been aggregated
into a single operating segment. The remaining 7% (30 June 2013: 6%; 31 December 2013: 7%) represents a mixture of retail,
hotel, residential and light industrial properties, as well as land, each of which is de minimis in its own right.
Accordingly, the Directors are of the view that it is appropriate to disclose two reportable segments, 'office buildings'
and 'other', by reference to gross property income and property value.
No tenant accounted for more than 10% of gross property income and no individual property accounted for more than 10% of
the value of the property portfolio in either the half year to 30 June 2014, the half year to 30 June 2013, or the year to
31 December 2013.
All of the Group's properties are based in the UK. At 30 June 2013 and 31 December 2013, the Group also had a joint
venture investment in Prague which represented 0.1% of the Group's assets and is excluded from this analysis. This
investment was sold in April 2014. No geographical grouping is contained in any of the internal financial reports provided
to the Group's Executive Committee and, therefore, no geographical segmental analysis is required by IFRS 8. However,
geographical analysis is included in the tables below to provide users with additional information regarding the areas
contained in the business and finance review. The majority of the Group's properties are located in London (West End
central, West End borders and City borders), with the remainder in Scotland (Provincial).
* Some office buildings have an ancillary element such as retail or residential.
Gross property income
Office buildings Other Total
£m £m £m
Half year to 30 June 2014
West End central 39.0 1.8 40.8
West End borders 6.7 0.1 6.8
City borders 19.2 0.1 19.3
Provincial - 2.4 2.4
64.9 4.4 69.3
Half year to 30 June 2013
West End central 38.7 1.2 39.9
West End borders 6.7 0.1 6.8
City borders 14.7 0.1 14.8
Provincial - 2.5 2.5
60.1 3.9 64.0
Year to 31 December 2013
West End central 77.0 4.4 81.4
West End borders 13.5 0.2 13.7
City borders 31.4 0.2 31.6
Provincial - 4.9 4.9
121.9 9.7 131.6
A reconciliation of gross property income to gross property and other income is given in note 5.
Property portfolio
Carrying value Fair value
Office Office
buildings Other Total buildings Other Total
£m £m £m £m £m £m
30 June 2014
West End central 2,083.4 147.3 2,230.7 2,114.5 151.3 2,265.8
West End borders 299.4 15.5 314.9 319.8 15.5 335.3
City borders 1,025.4 5.2 1,030.6 1,038.4 5.2 1,043.6
Provincial - 93.1 93.1 - 97.4 97.4
3,408.2 261.1 3,669.3 3,472.7 269.4 3,742.1
30 June 2013
West End central 1,919.2 90.4 2,009.6 1,944.0 90.6 2,034.6
West End borders 254.2 10.5 264.7 270.6 10.5 281.1
City borders 680.8 4.5 685.3 690.5 4.5 695.0
Provincial - 88.4 88.4 - 93.0 93.0
2,854.2 193.8 3,048.0 2,905.1 198.6 3,103.7
31 December 2013
West End central 1,923.9 120.7 2,044.6 1,953.0 123.5 2,076.5
West End borders 270.3 13.1 283.4 289.9 13.1 303.0
City borders 863.4 4.6 868.0 875.3 4.6 879.9
Provincial - 89.2 89.2 - 93.7 93.7
3,057.6 227.6 3,285.2 3,118.2 234.9 3,353.1
A reconciliation between the fair value and carrying value of the portfolio is set out in note 12.
5. Property and other income
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Gross rental income 67.9 63.9 130.9
Surrender premiums - 0.2 1.6
Write-off of associated rents previously recognised in advance - (0.1) (0.9)
- 0.1 0.7
Other property income 1.4 - -
Gross property income 69.3 64.0 131.6
Service charge income 12.8 12.7 26.9
Other income 1.1 1.1 2.0
Gross property and other income 83.2 77.8 160.5
Gross rental income 67.9 63.9 130.9
Ground rent (0.2) (0.2) (0.4)
Service charge income 12.8 12.7 26.9
Service charge expenses (13.5) (13.9) (28.8)
(0.7) (1.2) (1.9)
Other property costs (3.3) (4.0) (6.9)
Net rental income 63.7 58.5 121.7
Other property income 1.4 - -
Other income 1.1 1.1 2.0
Net surrender premiums received - 0.1 0.7
Reverse surrender premiums (0.3) (0.3) (0.2)
Dilapidation receipts - 0.1 0.1
Net property and other income 65.9 59.5 124.3
Included within rental income is £0.9m (half year to 30 June 2013: £1.2m; year to 31 December 2013: £2.3m) of income which
was derived from a lease of one of its buildings where the Group entered into an arrangement to restructure the lease
arrangements such that the Group could obtain possession of the building whilst maintaining rental income. The Group has
included the income from this building within gross property income as, although similar to a lease surrender arrangement,
the Group's entitlement to this rental income is linked to its continued ownership of the property rather than being an
unconditional amount receivable (whether as an upfront payment or through a series of instalments). Additionally, rental
income includes £3.8m (half year to 30 June 2013: £2.1m; year to 31 December 2013: £5.6m) relating to rents recognised in
advance of the cash receipts.
Other property income relates to a rights of light settlement received during the period, while other income relates to
fees and commissions earned in relation to the management of the Group's properties and is recognised in the Group income
statement in accordance with the delivery of services.
6. Profit on disposal
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Investment property
Gross disposal proceeds 31.4 17.8 151.3
Costs of disposal (0.5) (0.4) (1.5)
Net disposal proceeds 30.9 17.4 149.8
Carrying value (23.6) (17.1) (96.4)
Adjustment for rents recognised in advance - - (0.7)
Movement in grossing up of headlease liability - - 0.8
Profit on disposal of investment property 7.3 0.3 53.5
Investment in joint venture
Gross disposal proceeds 5.4 - -
Costs of disposal (0.5) - -
Net disposal proceeds 4.9 - -
Carrying value (2.9) - -
Profit on disposal of investment in joint venture 2.0 - -
Total profit on disposal 9.3 0.3 53.5
In April 2014, the Group disposed of its 25% interest in the joint venture Euro Mall Sterboholy a.s. in Prague for £5.4m
before costs of £0.5m. Included within the tax charge is £0.9m relating to this disposal, resulting in a profit on
disposal net of tax of £1.1m. At the same time, a loan of £1.9m to the joint venture was repaid. The investment was held
within non-current assets held for sale at 31 December 2013.
Included in the 2013 profit on disposal figure was £53.0m relating to the Group's sale of its 50% interest in 1-5 Grosvenor
Place SW1 in July 2013. The property had a carrying value of £78.4m and was sold for £132.5m before costs of £1.1m. The
price achieved reflected the special nature of the purchaser combined with the unique location of this development site.
7. Finance income and costs
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Finance income
Other - - 0.2
- - 0.2
Finance costs
Bank loans and overdraft 6.1 10.6 17.4
Non-utilisation fees 1.2 1.3 2.8
Secured loan 1.6 1.6 3.3
Unsecured private placement notes 2.2 - -
Secured bonds 5.7 5.7 11.4
Unsecured convertible bonds 5.2 3.3 8.2
Amortisation of issue and arrangement costs 1.7 1.5 3.2
Amortisation of the fair value of the secured bonds (0.5) (0.4) (0.9)
Finance lease costs 0.2 0.3 0.5
Other - 0.2 0.3
Gross interest costs 23.4 24.1 46.2
Less: interest capitalised (2.3) (3.4) (4.8)
Finance costs 21.1 20.7 41.4
Loan arrangement costs written off - - 3.2
Total finance costs 21.1 20.7 44.6
As a result of the refinancing of the Group's bank facilities in September 2013, £3.2m of unamortised arrangement costs
associated with the previous facilities repaid were written off to the Group income statement in 2013. In accordance with
EPRA guidance, these costs were excluded from EPRA profit and earnings (see note 11).
Finance costs of £2.3m (half year to 30 June 2013: £3.4m; year to 31 December 2013: £4.8m) have been capitalised on
development projects, in accordance with IAS 23 Borrowing Costs, using the Group's average cost of borrowing during each
quarter. Total finance costs paid to 30 June 2014 were £16.7m (half year to 30 June 2013: £19.7m; year to 31 December 2013:
£37.1m) of which £2.3m (half year to 30 June 2013: £3.4m; year to 31 December 2013: £4.8m) was included in capital
expenditure on properties in the Group cash flow statement under investing activities.
8. Financial derivative termination costs
The Group incurred costs of £0.8m in the half year to 30 June 2014 deferring the start dates of two 'forward-start'
interest rate swaps.
In the year to 31 December 2013, the Group terminated, deferred and re-couponed interest rate swaps with a principal amount
of £190m at a cost of £12.9m (half year to 30 June 2013: £nil), and incurred costs of £0.8m (half year to 30 June 2013:
£0.3m) deferring to April 2014 the start date of an interest rate swap with a principal amount of £65m.
9. Share of results of joint ventures
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Revaluation surplus/(deficit) 0.2 (0.3) (0.3)
Other profit from operations after tax 0.3 1.0 1.1
0.5 0.7 0.8
10. Tax charge
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Corporation tax
UK corporation tax and income tax in respect of profit for the period 0.4 0.3 0.8
Other adjustments in respect of prior years' tax - 0.3 0.2
Corporation tax charge 0.4 0.6 1.0
Deferred tax
Origination and reversal of temporary differences 1.9 0.6 1.3
Adjustment for changes in estimates - - 0.1
Deferred tax charge 1.9 0.6 1.4
Tax charge 2.3 1.2 2.4
In addition to the tax charge of £2.3m (half year to 30 June 2013:£1.2m; year to 31 December 2013: £2.4m) that passed
through the Group income statement, a deferred tax charge of £0.5m (half year to 30 June 2013: £nil; year to 31 December
2013: £0.1m) was recognised in the Group statement of comprehensive income relating to the revaluation of the
owner-occupied property at 25 Savile Row W1.
The effective rate of tax for the half year to 30 June 2014 is lower (half year to 30 June 2013: lower; year to 31 December
2013: lower) than the standard rate of corporation tax in the UK. The differences are explained below:
Half year to 30.06.2014 Half year to 30.06.2013 Year to 31.12.2013
£m £m £m
Profit before tax 371.4 219.8 467.9
Expected tax charge based on the standard rate of
corporation tax in the UK of 21.50% (2013: 23.25%) 79.9 51.1 108.8
Difference between tax and accounting profit on disposals (2.3) (0.2) (15.0)
REIT exempt income (5.6) (3.5) (11.0)
Lease incentives and costs transition to FRS 101 2.9 - -
Expenses and fair value adjustments not allowable for
tax purposes (1.4) (5.5) (1.8)
Revaluation surplus attributable to REIT properties (70.9) (41.2) (78.0)
Capital allowances (1.7) (1.5) (3.9)
Origination and reversal of temporary differences 1.9 0.6 1.3
Other differences (0.5) 1.1 1.8
Tax charge on current period's profit 2.3 0.9 2.2
Adjustments in respect of prior years' tax - 0.3 0.2
2.3 1.2 2.4
11. EPRA performance measures
Number of shares
Earnings per share measures Net asset value per share measures
Weighted average for the
period ended At period ended
30.06.2014 30.06.2013 31.12.2013 30.06.2014 30.06.2013 31.12.2013
'000 '000 '000 '000 '000 '000
For use in basic measures 102,573 102,129 102,284 102,720 102,413 102,478
Dilutive effect of convertible bonds 12,373 7,876 9,848 7,876 - 7,876
Dilutive effect of share-based payments 463 481 486 462 488 500
For use in measures for which
bond conversion is dilutive 115,409 110,486 112,618 111,058 102,901 110,854
Less dilutive effect of convertible bonds (12,373) (7,876) (9,848) (7,876) - (7,876)
For use in other diluted measures 103,036 102,610 102,770 103,182 102,901 102,978
The £175m unsecured convertible bonds 2016 ('2016 bonds') and the £150m unsecured convertible bonds 2019 ('2019 bonds')
have initial conversion prices set at £22.22 and £33.35, respectively. In accordance with IAS 33 Earnings per Share, the
effect of the conversion of the bonds is required to be recognised if they are dilutive, and not recognised if they are
anti-dilutive.
For the half years to 30 June 2014 and 30 June 2013, and the year to 31 December 2013, the shares attributable to the
conversion of the 2016 bonds were dilutive for unadjusted earnings per share but anti-dilutive for EPRA earnings per share.
They were dilutive for net asset value (NAV) and EPRA NAV per share at 30 June 2014 and 31 December 2013 but anti-dilutive
for all NAV per share measures at 30 June 2013.
For the half year to 30 June 2014 and the year to 31 December 2013, the shares attributable to the conversion of the 2019
bonds, issued in July 2013, were dilutive for unadjusted earnings per share but anti-dilutive for EPRA earnings per share
and all NAV per share measures.
For consistency purposes, the Group has adopted the same approach for dilution due to convertible bonds for the calculation
of EPRA triple NAV per share as EPRA NAV per share.
The following tables set out reconciliations between the IFRS and EPRA figures for profit before tax, profit for the period
and earnings per share. The adjustments made between the figures are as follows:
A - Disposal of investment property and investment in joint venture and associated tax and minority interest
B - Revaluation surplus/(deficit) on investment property and in joint ventures and associated deferred tax and minority
interest
C - Fair value movement and termination costs relating to derivative financial instruments and associated minority
interest
D - Loan arrangement costs, movement in the valuation of cash-settled options and the dilutive effect of convertible bonds
Profit before tax and earnings per share
Adjustments
IFRS A B C D EPRA
£m £m £m £m £m £m
Half year to 30 June 2014
Net property and other income 65.9 - - - - 65.9
Total administrative expenses (13.2) - - - 0.1 (13.1)
Revaluation surplus 330.8 - (330.8) - - -
Profit on disposal of investment property 7.3 (7.3) - - - -
Profit on disposal of investment 2.0 (2.0) - - - -
Net finance costs (21.1) - - - - (21.1)
Financial derivative termination costs (0.8) - - 0.8 - -
Share of results of joint ventures 0.5 - (0.2) - - 0.3
Profit before tax 371.4 (9.3) (331.0) 0.8 0.1 32.0
Tax charge (2.3) 0.9 0.3 - - (1.1)
Profit for the period 369.1 (8.4) (330.7) 0.8 0.1 30.9
Minority interest (4.1) - 3.1 - - (1.0)
Profit for the period attributable to
equity shareholders 365.0 (8.4) (327.6)
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