British Land Company PLC

• Financial Calendar
• Shareholder Information
• Glossary of Terms
• Download Centre

Financial Performance

Introduction

The unprecedented financial turmoil over the past year has had a defining impact on the Group's financial results for the financial year ended 31 March 2009. The results have been dominated by a further significant decline in property values that have masked the relative stability of the Group's underlying profits.

During the past two years the Group has been an active seller of property, the proceeds of which have been used to pay down debt and reduce gearing. Initially these sales were at yields below our marginal borrowing cost thus increasing our underlying profits, while more recent sales have been at higher yields and have therefore had a dilutive effect.

A proportionally consolidated income statement and balance sheet are included in Table A to the financial statements for the benefit of Stakeholders who wish to see the results of British Land's interest in Funds and Joint Ventures on a 'look-through' basis. The following commentary refers to the financial information of the Group as reported under IFRS where the after tax results of Funds and Joint Ventures are shown as a single line on the Income Statement and the net investment in Funds and Joint Ventures is shown as a single line on the Balance Sheet, unless stated otherwise.

Rights Issue

At an extraordinary general meeting on 3 March 2009 the shareholders of British Land approved a pre-emptive 2 for 3 Rights Issue at an issue price of 225 pence per share. This Rights Issue raised £740 million (net of expenses). The proceeds were received just before the year end and have been used primarily to pay down bank debt.

As a result of the Rights Issue the prior year earnings per share, dividend per share and net asset per share calculations have been adjusted for the increased number of shares for the purpose of comparisons (see note 2 to the accounts).

Income statement

The Group's gross rental income for the year ended 31 March 2009 at £497 million was lower than a year ago (2008: £596 million), principally due to the Group's property sales programme (£127 million), partially offset by new lettings and rent reviews (£37 million).

Net rental and related income at £453 million is £108 million lower than the prior year, also reflecting the sales and lettings mentioned above and with property operating expenses higher than last year at £44 million compared to £35 million. This increase in property operating expenses was due to the Group recognising £17 million less income than required in respect of rent due under leases with contracted fixed uplifts in view of current credit conditions (2008: £8 million).

On a like-for-like basis, rental income has grown by 2.7% over the year across the portfolio.

Underlying fees and other income were £18 million, a reduction of £22 million on the previous year, principally due to the dividend from Songbird Estates plc of £16 million that was recognised in underlying profit last year; these dividends by their nature are variable in amount and timing. The remaining movements in fees and other income were due to a reduction in fund performance fees.

Performance fees recognised from our fund management business were £3 million compared to £9 million in the prior year. Though no new fees were earned in the latest performance period, the Group is still benefitting from receiving the deferred element of performance fees earned in prior periods in the HUT Fund. When a performance fee is earned only 50% is paid and recognised immediately, while the balance is released in future periods provided there is no significant underperformance against the benchmark therein.

Funds and Joint Ventures underlying profits for the financial year were £55 million (2008: profit £40 million). The increase reflected the establishment of the BL Sainsbury Superstores Joint Venture in March 2008 and the Meadowhall Joint Venture in February 2009. On an IFRS basis (being the net profit after taxation) the reported results for Funds and Joint Ventures were a loss of £767 million (2008: loss £306 million). The major element of the difference between this figure and the underlying profits of £55 million was the valuation write-downs of property and investments of £762 million.

A significant proportion of the Group's administration expenses is staff related costs (salary, benefits and performance related remuneration). The performance related element principally comprises awards of share incentives (performance shares and share options) that vest after a performance period (typically three years). The cost of the share incentives is recognised over the performance period and if the incentives are no longer expected to vest (or at a lower level than previously forecast) the over-accrued costs charged to date are released.

Administration expenses for the year ended 31 March 2009 were £51 million, a significant reduction from the prior year £67 million, principally due to a release of accruals for share based incentives; the property valuation decline over the past 18 months has resulted in the majority of the share incentives granted over the past three years becoming non-vesting.

Underlying net financing costs were £207 million compared to £290 million in the prior year, with lower interest accrued on our reduced level of debt following property disposals during the past two years.

Due to lower projected Group borrowings as a result of receipts from the Rights Issue and property disposals, as well as a lower financial commitment under the reduced development programme, certain interest rate swap arrangements were no longer required and have been closed out. On the close out of these swaps, amounts that have previously been charged to reserves have been 'recycled' through the income statement and a charge of £119 million has been recognised in the income statement this year.

Underlying pre-tax profits were £268 million. This compared to £284 million in the prior year which included the dividend of £16 million from Songbird Estates plc. Excluding this non-recurring dividend pre-tax profits were maintained over the year. A high level summary of the principal movements is set out below:

The valuation reduction of £3,241 million was the most significant item in the Group's IFRS income statement for the financial year to 31 March 2009, resulting in the IFRS loss on ordinary activities before taxation amounting to £3,928 million, compared to a loss of £1,609 million for last year (which was also the result of downward market valuation).

Taxation recognised in the income statement amounted to a credit of £47 million compared to a credit of £46 million in the prior year. Accordingly the IFRS loss for the year after taxation was £3,881 million (2008 loss: £1,563 million).

Earnings per share

Underlying earnings per share were 41 pence compared to 44 pence in the prior year (as adjusted for the Rights Issue) based on the movements in underlying pre-tax profit and taxation discussed above.

After adjusting for capital and other items, principally the valuation write-down, diluted earnings per share on an IFRS basis were a negative 614 pence, compared to a negative 251 pence in the year to 31 March 2008.

Net assets

The EPRA net assets shown in Table A to the financial statements were £3.4 billion (398 pence per share) compared with £6.9 billion (1114 pence per share) as at 31 March 2008. The principal factors of this reduction are as follows.

On a triple net asset basis (after adjusting debt and derivatives to market value and deducting deferred tax) EPRA net assets per share (NNNAV) amounted to 508 pence (2008: 1191 pence). The difference between the NNNAV and the NAV principally arises due to a favourable mark to market adjustment of debt and derivatives of £963 million (113 pence per share), reflecting the value of the debt structures that British Land established between 2005 and 2007.

The IFRS balance sheet shows our investment in Funds and Joint Ventures grouped together and shown net. On this basis our net investment at 31 March 2009 was £952 million (2008: £1,532 million) principally due to the write-down of property valuations in these entities of £762 million, partially offset by the establishment of the Meadowhall Joint Venture with a net equity of £163 million in February 2009.

Cash flows

The consolidated cash flow statement shows a reduction in net debt of £1,091 million. This movement in cash flow can be summarised as follows:

As shown above, net cash flow from operating activities has improved by £23 million to £205 million from £182 million in the prior year. The most significant cash flow movements that have resulted in the net repayment of borrowings are from the Rights Issue proceeds of £741 million and portfolio activities (sales and other income less purchases, development and other expenditure) producing a net disinvestment of £424 million, compared to a disinvestment of £1,148 million in the prior year.

Net debt in each year reduced further by the transfer into Joint Ventures of the securitisations in respect of Meadowhall and the Sainsbury's portfolio, in aggregate £1.6 billion.

Dividends

The Group pays dividends on a quarterly cycle, which mirrors the rental cash inflows. The proposed dividend for the fourth quarter is 6.5 pence per share, totalling £55 million, and will be payable on 14 August 2009 to shareholders on the register at the close of business on 10 July 2009.

An enhanced scrip alternative is to be offered to shareholders with the fourth quarter dividend. Shareholders will be able to choose between cash or shares. Further details will be available with the Annual General Meeting notice circular. The cash dividend (but not the share alternative) will be all Property Income Distribution (PID).

Together with the fourth quarter dividend, our total dividends paid for the year will amount to £199 million. Restated for the Rights Issue, the dividend is 29.8 pence per share, an increase of 3% on the previous year.

Total return

The Group's total return for the year was a negative 61.6% (compared with a negative 18.1% in the previous year), due to the fall in property values.

Accounting judgements

In preparing these accounts the carrying value of properties and investments are stated at Market Value. The Group uses external professional valuers to determine the relevant amounts.

The primary source of evidence for property valuations should be recent, comparable market transactions on arm's length terms. The current economic environment has meant that there have been fewer transactions in the market compared with recent years. In these circumstances, there is greater degree of judgement required from valuers in reporting Market Values.

Back to top