Caleres
Annual Report 1998

Plain-text annual report

Temp Cover 4/10/00 3:19 pm Page 1 Capital and Regional Properties plc 22 Grosvenor Gardens London SW1W ODH Telephone 0171-730 5565 Facsimile 0171-730 0151 Capital and Regional Properties plc Annual Report 1998 C&R Front 1998 4/10/00 2:44 pm Page ii Capital and Regional Properties is a specialist property investment company, owning some of the most exciting and distinctive retail and leisure properties throughout the UK. The current portfolio value is almost £750m of which around 90% is retail and leisure, totalling over four million sq ft. Capital and Regional’s objective is to use its in-house expertise to create value for tenants and shareholders through the innovative and dynamic management of property assets. Contents 1 Highlights 2 Chairman’s Statement 4 Property Overview 6 Shopping Centres 10 Retail and Leisure Parks 14 Easter Group 16 Principal Properties 18 Finance Review 20 Financial Statements Review 22 Directors 24 Ten Year Record 25 Report on Directors’ Remuneration and Interests 29 Corporate Governance Statement 32 Auditors’ Report 33 Consolidated Profit and Loss Account 34 Notes of Historical Cost Profits and Losses 34 Statement of Total Recognised Gains and Losses 34 Reconciliation of Movements in Shareholders’ Funds 35 Consolidated Balance Sheet 36 Consolidated Cash Flow Statement 37 Company Balance Sheet 38 Notes to the Financial Statements 56 Directors’ Report 59 Notice of the Annual General Meeting 60 Advisers and Corporate Information 1999 Financial Calendar C&R Front 1998 4/10/00 2:44 pm Page 1 Capital and Regional Properties plc 1 Highlights • Net assets per share fully diluted of 321p increased 18% (1997: 272p) • Profit on revenue activities up 89% to £11.5m (1997: £6.1m) • Total shareholder return of £58.6m • Earnings per ordinary share on revenue activities up 45% to 12.2p (1997: 8.4p) • Dividends per share up 21% to 4.25p (1997: 3.5p) • On a same store basis, that is property owned at the end of 1997 and retained during the whole of 1998, achieved capital growth of 9% overall compared to 4.2% for IPD • Acquisitions of £198m during year, including The Pallasades Shopping Centre, Birmingham for £93.8m, with rights issue raising £59m • Disposals of £56m during 1998 • Announced in September a partnership with two funds managed by PRICOA to develop the £57m ‘Sports Village’ in Milton Keynes City Centre Since the year end: • Acquisition of Westway Cross Shopping Park, Greenford for £33m • Easter Capital acquired industrial portfolio owned by Phillips & Drew Fund Management and Capital and Regional partnership for £28.2m Earnings per share on revenue activities pence Dividend per share pence Net assets per share (Diluted) pence Figures after 1996 assume conversion of the loan stock 14 12 10 8 6 4 2 0 94 95 96 97 98 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 94 95 96 97 98 350 300 250 200 150 100 50 0 94 95 96 97 98 C&R Front 1998 4/10/00 2:44 pm Page 2 2 Capital and Regional Properties plc Chairman’s Statement Capital and Regional has had an excellent year. We believe our approach and capability is unique in the UK quoted property sector. The Company has the property portfolio, the management team and strategy in place to be confident of continuing to achieve well above average growth over the next several years. Martin Barber Chairman 26th February 1999 1998 was an excellent year for Capital and Regional. During the first half of the the year we completed rationalisation of our portfolio, which commenced this realisations were exercise, approximately £120m, comprising £71m in 1997 and £49m during 1998. In addition, during the year some £7m was realised from trading properties. in 1997. From total In April, we acquired The Pallasades Shopping Centre in central Birmingham for £93.8m, financed partly by an equity issue, which raised £59.1m. We are already making good progress with this Centre and believe the opportunities exist for superb future returns. Further information is included later in Kenneth Ford’s report. In September, we announced one of our most exciting developments to date, Sports Village in Milton Keynes. This is a new concept, providing over 400,000 sq ft of leisure and retail space, including a ‘real snow’ indoor ski slope. Approximately 83% of the development was pre-let before we entered into our commitments. This project is a co-venture on a 50:50 basis with funds managed by PRICOA Property Investment Management Ltd, a wholly owned subsidiary of the Prudential Insurance Company of America. Results Our net assets per share fully diluted of 321p have increased 18% from 272p. revenue activities has Profit on increased 89% to £11.5m (1997: £6.1m). Earnings per share on revenue activities are up 45% to 12.2p (1997: 8.4p). A final dividend of 2.75p per share is proposed, making a total for the year of 4.25p per share (1997: 3.5p), an increase of 21%. We are arranging with our advisers, a facility for dividend reinvestment by shareholders and further details will be provided later this year. When one adds the increase in the balance sheet reserves to the dividend, the Company has delivered a total return to shareholders of £58.6m during this year. C&R Front 1998 4/10/00 2:44 pm Page 3 Customer care Security Marketing and promotion Strategy Capital and Regional recognised in early 1997 that the rate of growth in average rents in UK property was likely to slow. We are now entering a low inflation environment and over the long term rents can only grow in line with the economy as a whole. Our strategy to enable our properties to grow at a faster pace than the overall economy has been to add an additional dimension to normal activities. Over the past few years, Capital and Regional has sought to differentiate itself from other property companies, by developing additional skills at properties such as larger shopping centres and retail and leisure parks. We have developed the in-house expertise to assist the tenants by encouraging more consumers to visit the property, through an ongoing programme of events and excellent marketing and promotion. If footfall increases, our tenants are more profitable and the rental income potential of our properties increase. Our tenants have seen their sales in our Centres improve and welcome this style of management. We are also working closely with local authorities and the police to ensure that the shopper has a safe, secure and clean environment to visit. The success of the Capital and Regional approach is addressed in greater detail in Kenneth Ford’s and Andrew Lewis-Pratt’s reports. Easter Group Our exposure to the industrial property sector is through joint ventures with Peter Taylor and associates. This is implemented through two distinct and separate companies, Easter Capital Investment Holdings (75% Capital and Regional owned), an investment property company and Easter Holdings (50% Capital and Regional owned), a merchant developing and management company. This industrial investment portfolio is now approaching £100m and most of the returns are contributed through cash flow. This is extremely useful to counter balance the initially lower yielding retail investments that Capital and Regional makes. Since this is now Capital and Regional Properties plc 3 Capital and Regional NAV performance Compared Warburg Dillon Read NAV Index 500 400 300 200 100 0 90 91 92 93 94 95 96 97 98 year ended December Capital and Regional Warburg Dillon Read NAV Index Benchmark against IPD Monthly Index Same Store Growth % Annual IPD Capital Growth % Portfolio Growth % Weighted Average IPD Growth % Shopping Centres 4.7 0.6 5.4 0.4 Retail Parks 19.1 5.4 15.8 4.0 Industrials 14.4 4.1 7.1 2.0 Total Investment Portfolio 9.0 4.2 7.9 3.2 a significant part of our overall portfolio, I have asked Peter Taylor to include his report on activities within this statement. Employees These results reflect the strength of our professional team at all levels of the business. On behalf of the Board and all our shareholders, I would like to express my sincere thanks to all our management and their contribution to the continued success of Capital and Regional. staff for Outlook We see the economic environment as relatively stable for the next several years. Even though inflation may be low, we expect our growth to outperform the sector. Capital and Regional believes its approach and capability is unique in the UK quoted property sector. the property The Company has portfolio, the management team and strategy in place to be confident of continuing to achieve well above the next average growth over several years. C&R Front 1998 4/10/00 2:44 pm Page 4 4 Capital and Regional Properties plc Property Overview 1998 was again a very active year in terms of our property portfolio with acquisitions totalling almost £198m and sales of £56m. Our portfolio has performed extremely well. We enter 1999 with a very optimistic view of the prospects in our markets. We will take advantage of any weaknesses in the market which provide us with opportunities to add value. Xavier Pullen Joint Managing Director 26th February 1999 During 1998 tenant demand for our properties has been strong resulting in substantial rental and capital growth. This proves that management counts. We have carried out physical regeneration programmes comple- mented by excellent marketing and promotion initiatives within our retail properties. The tenant response has been good, as they know that they will be able to trade more profitably in a Capital and Regional managed property. The tone of negotiations and enquiries for 1999 is positive. investment markets remained The strong during 1998, aside from a slowdown during the third quarter when buyers were unsure of the economic outlook. We enter 1999 with a highly competitive market and see no reason to diminish, particularly with the trend towards significantly lower medium to long the interest rates. Although term economy has slowed slightly, we for demand C&R Front 1998 4/10/00 2:44 pm Page 5 Capital and Regional Properties plc 5 Analysis of investment property rental income by lease expiry as at 25th December 1998* Portfolio value by sector As at 25th December 1998 – £655m Current and estimated rental value £m 19% More than 20 years 31% 15-20 years 22% 10-15 years 12% 5-10 years 63% Shopping Centres 23% Retail and Leisure Parks 60 50 40 30 20 10 0 16% Less than 5 years *Assumes all tenant breaks clauses are exercised, no leases are renewed at expiry and no rental growth. 12% Industrial 2% Other Current Rent Passing Vacant Space at ERV Rent Uplift on Review to ERV would certainly not describe our market conditions as being recessionary and are highly confident of our ability to continue our growth record. Property portfolio 1998 was again a very active year in terms of our property portfolio with acquisitions totalling almost £198m and sales of £56m. Our portfolio has performed extremely well. On a same store basis, that is property that we owned at the end of 1997 and retained during the whole of 1998, we achieved capital growth of 9% overall compared to 4.2% for IPD. This is broken down as follows; shopping centres 4.7% (IPD 0.6%); retail and leisure parks 19.1% (IPD 5.4%) and industrials 14.4% (IPD 4.1%). Our portfolio now comprises 86% retail and leisure, 12% industrial and 2% other. It is worth noting that our portfolio is highly reversionary. The estimated rental value being about £12.4m higher than the £45.4m rents passing at the end of the year. This does not take into account the significant expansion and development opportunities within the portfolio which my co-directors describe in further detail on the following pages. The income from the investment portfolio is high quality, with 72% of leases passing rent derived expiring after more than ten years and over 80% of retail income receivable from recognised national or regional multiple traders. from Capital and Regional is bringing together the management, marketing and leasing activities of our retail and leisure teams both ‘in-town’ and ‘out-of-town’, as there is increasing crossover between tenants in either location. Trading portfolio We have acquired a number of opportunities for our trading portfolio to add short where we are using our management skills term value. The Company has purchased small shopping centres in Bicester and Dorchester, a leisure development opportunity in Grimsby and High Street retail development opportunities in Birmingham, Liverpool and Glasgow. With tenant the strength of our connections and the development expertise that we have built over the past few years, we are happy to use these skills to regenerate smaller properties which can provide good profits in the future, but would not be suitable as core long term holdings. Outlook We enter 1999 with a very optimistic view of the prospects in our markets. take advantage of any We will the market which weaknesses provide us with opportunities to add value. in C&R Front 1998 4/10/00 2:44 pm Page 6 6 Capital and Regional Properties plc Shopping Centres The shopping centre portfolio has had a very active year, with its value rising by 5.4%. From the Centres’ owned throughout the year, income increased by 6.6% and estimated rental value by 9.6%. With the Company’s energetic and committed management teams in London, Glasgow and at the Centres, we look forward to building on last year’s successes. Kenneth Ford Executive Director 26th February 1999 shopping centre The Company’s portfolio has had a very active year, with its value rising by 5.4%. From the Centres’ owned throughout the year, income increased by 6.6% and estimated rental value by 9.6%. Meaningful progress has been made in the implementation of the individual Centres’ business plans, the highlights of which are reviewed below. The acquisition of The Pallasades, Birmingham in April for £93.8m, the Company’s largest purchase to date, the expansion of our continued portfolio of centres which provide opportunities to add value through the application of the Company’s management philosophy. Effectively being part of New Street’s railway station and the main entry point to Birmingham city centre, we are in active dialogue with Railtrack, the station’s owners, to both extend and modernise the retail area as part of a greater integration with the station concourse. With footfalls in excess of one million people per week and a significant under supply of retail space in Birmingham, The Pallasades represents an outstanding opportunity. We completed the transition from outsourcing centre management to 100% in-house management with the establishment of Capital and Regional Facilities Management Limited (CRFM). This Company, headed by group asset manager, Mark Bourgeois, and technical director, Ronnie Maclean, provides support to our on-site managers, ensuring the Capital and Regional management brand is synonymous with the highest standards of security and mall cleanliness. At the same time, we deliver value for money to our tenants through economies derived from utility and supplier bulk purchasing. Development of staff loyalty and pride through employment by and direct communication with, the Company is already producing benefits of continuity and stability of personnel at the Centres. The Group Marketing and Promotion Unit, headed by Sarah-Jane Berry, has had another very successful year, devising and implementing imaginative campaigns which have resulted in our Centres welcoming approximately 120 million visitors during 1998. There was an increase of almost 5% on shopping centres owned throughout the year. This effort was acknowledged by the British Council of Shopping Centres who awarded the Company both a merit for Excellence in Marketing and the Best Exhibition Stand at their annual conference in Birmingham. In the coming year, the Company will embark on a Brand Partner Programme to provide additional benefits to the Company, tenants and shoppers. We intend to extend both our CRFM capabilities outlined earlier and these marketing skills to the retail and leisure park portfolio. the across These footfall figures and tenancy synergies portfolio, co-ordinated by leasing manager, John Wood, have contributed to a reduction in the portfolio void units of 10%. The widely reported difficult trading conditions retailers were not generally evident across our portfolio. for C&R Front 1998 4/10/00 2:44 pm Page 7 Capital and Regional Properties plc 7 Alhambra Centre Trinity Centre shoppers’ sophistication in The appreciating value is mirrored in our selection of centres – community value focused malls, established within local and loyal catchments. Our core tenancy base has generally maintained their sales levels, year on year against an exceptional 1997. The Company’s established tenancy relationships are now being further developed by the introduction of traditional High Street retailers to retail park format. The close working relationship in our management teams, enables the Company to also benefit from the leisure experiences of the retail park division as we introduce leisure components to our Centres, further enhancing their attractiveness to their communities. 1998 Highlights The Pallasades, Birmingham Since our acquisition in April, we have pursued various tenancy initiatives to satisfy tenant demand. This has income, whilst improved retaining the flexibility required to take rental advantage of the opportunity presented by the greater integration of the rail passenger function with an expanded retail offer. Agreement has been reached in principle with Railtrack, the owner of both New Street Station and the freeholder of The Pallasades; and concept schemes are in preparation. These plans include; the expansion of the retail area into the existing station concourse; the diffusion of pedestrian flows through the enlarged Centre; the to improvement in mall access Birmingham City Centre and the external the modernisation appearance of the property. of It is hoped that an agreed scheme will be launched towards the end of 1999. Integral to this exercise is a negotiation to leasehold re-gear our present arrangements with Railtrack. is now being We have completed the construction of the 27,500 sq ft unit pre-let to JJB Sports which fitted out. Negotiations are in hand, for a number of new lettings, which if successfully concluded, will establish rental levels substantially in excess of present estimated rental values. Creative marketing and promotion Strategic campaigns are developed for individual properties. These are constantly evaluated and repositioned to maximise success. C&R Front 1998 4/10/00 2:44 pm Page 8 8 Capital and Regional Properties plc Shopping Centres Trinity Centre The Trinity Centre, Aberdeen The benefits of our direct management programme over the five years of ownership are increasingly evident. Year on year footfall has increased by 13.3%, with a new benchmark Zone A rent of £65 per sq ft established. The Railtrack feuhold has also been acquired for £4.45m. The anchor store Debenhams completed their £5m refit and the new 12,000 sq ft HMV store has opened. The next phase of improvements to the Centre will be completed during 1999. The Howgate Centre, Falkirk The feuhold of the Centre has been acquired for £5.6m. Planning consent has been achieved for the new entrance canopy, branding and signage, which will be installed during Spring 1999. Negotiations continue to reconfigure the Marks & Spencer atrium to increase the retail area; improve shopper circulation and introduce a revitalised catering offer. Prime rental value continues to improve and £90 per sq ft Zone A is now being established. The Alhambra Centre, Barnsley The extension to the Wilkinson anchor store is now completed and trading successfully, together with the new ft Peacocks unit. The 6,000 sq is under remaining vacant space discussion with to Barnsley. Planning consent has also been achieved to rebrand the Centre’s identity and signage which will be completed during Spring 1999. retailers new Shopping City, Wood Green 1998 saw the launch of Shopping City 2000; a regeneration programme for the Centre, embracing the introduction of a 12 screen multiplex pre-let to Cine UK, which with the new restaurant catering uses complement the health club which opened last year. The popular market hall is being relocated to an extended ground floor and 30,000 sq ft on the first to Wilkinsons. The mall environment is being modernised. External and internal signage will be improved to complete the rebranding exercise. floor has been pre-let These proposals together with other initiatives will results in estimated capital expenditure of £21m. We expect this exercise to produce estimated additional income of £3m per annum. We are introducing new retailers to the Centre and early interest from both retailers and shoppers in the Shopping City 2000 concept is very encouraging. The ‘Zero Tolerance Crime Initiative’ which we have undertaken in association with the local authority, has been acknowledged by the Metropolitan Police with a Secure Car Park Award. Our success has also been recognised by the Home Office and British Retail Consortium who chose to launch their ‘Community Crime Reduction Partnership Guide’ at Shopping City. Sauchiehall Centre, Glasgow Negotiations continue on reconfigura- tion for and design proposals interest. A planning pre-letting application has been lodged for a health club, and the letting is currently the solicitors hands. Whilst in C&R Front 1998 4/10/00 2:44 pm Page 9 The Pallasades Selborne Walk Capital and Regional Properties plc 9 Selborne Walk Alhambra Centre Trinity Centre redevelopment initiatives are being explored, short term lettings are being introduced to reduce void costs whilst maintaining flexibility. Selborne Walk, Walthamstow During 1998, Selborne Walk celebrated its 10th Anniversary with the successful launch of a new identity. During the year, over 75% of the Centre was subject to a rent review and we secured new benchmark rents which are substantially above budget. Given the Centres dominant position in the community, we have applied for integrate a planning consent multiplex based leisure component as well as providing additional retail space to satisfy proven tenant demand. to Liberty 2, Romford The Centre has achieved key lettings to Allsports, Lunn Poly and Pilot. Tenancy demand is strong and we are presently appraising a reconfiguration design to improve customer flow, modernise the atrium catering unit and create more valuable space. We continue to monitor opportunities to improve the Centre’s critical mass. The footfall within this Centre has increased by 2.2%. Eldon Garden, Newcastle upon Tyne At Eldon Garden, we were presented with a Merit in the 1998 British Council of Shopping Centres Marketing Awards. Successful destination retailers within the scheme continue to prosper and expand, however, certain high fashion retailers have experienced difficult trading conditions during 1998. It is hoped this will stabilise during 1999, when a number of initiatives to improve the Centre’s critical mass will be finally appraised. In the interim, the successful marketing and promotional campaigns continue to improve footfall which increased by 6.5% during 1998. With the Company’s energetic and committed management in London, Glasgow and at the Centres, we look forward to building on last year’s successes. teams Building a brand identity Capital and Regional invests in re-branding its properties to ensure a strong position within the local retail hierarchy. C&R Front 1998 4/10/00 2:44 pm Page 10 10 Capital and Regional Properties plc Retail and Leisure Parks During 1998, the retail and leisure park portfolio rose in value by 15.8% which is an excellent result in this competitive retail environment. With our dynamic management team’s entrepreneurial flair, retailer knowledge coupled with shopping centre style marketing and promotion, we are confident of continuing our success. Andrew Lewis-Pratt Executive Director 26th February 1999 During 1998, the retail and leisure park portfolio rose in value by 15.8% which is an excellent result in this competitive retail environment. Since the emergence of retail parks during the 1980’s, we have witnessed numerous changes in the type, quality and quantity of both the supply of product and retailer demand. It is this dynamic environment which continues to create the opportunities for us to succeed in continually outperforming the property market, primarily as a result of our in-depth expertise and experience in this specialist sector. Retailer demand remains vibrant; although a number of traditional bulky goods retailers are experiencing trading difficulties, other retailers such as Dixons and Matalan are trading extremely well. Both these retailers are continuing their expansion plans for 1999 and beyond. We currently foresee less scope for enhancing and expansion for the furniture and carpet retailers, however, DIY retailers such as B&Q and Homebase continue to trade well and expand alongside the electrical retailers, such as PC World and Comet, who are upsizing their property requirements and continuing their expansion plans. Our leasing manager, Jim Adams, is constantly reviewing all requirements to ensure that we take early advantage of the changes in retailer’s strategy. The evolution of retail parks continues with the rapid expansion plans ‘out-of- town’ of major high street retailers such as Boots, Next and Woolworths. Independent research has shown that high street retailers have the ability to pay considerably higher rents than the traditional bulky goods operators. continuing and ever hardening clamp down on ‘out-of-town’ retailing. This will inevitably result in existing stock becoming more valuable. Over the past four years, we have acquired a number of older retail parks and transformed them into quality bulky goods retail parks, such as Wembley Retail Park, or into prime retail parks such as Blythswood, Glasgow. In the current economic climate, we see for upgrading older bulky goods parks, although there remains considerable scope for further improvements on our existing parks. Richard Gore, investment director and the rest of the retail park team are constantly seeking further opportunities where we can utilise our active management style. less scope Future supply of new retail parks, especially those which benefit from open A1 consent, is extremely limited, as a direct result of the Government’s In excess of 70% of our portfolio now has the benefit of either open A1 or restricted A1 non food planning consent; the average rent throughout C&R Front 1998 4/10/00 2:44 pm Page 11 Blythswood Retail Park Capital and Regional Properties plc 11 the retail park portfolio is only £9.77 per sq ft which provides considerable opportunity for further growth. portfolio Furthermore, we have identified the potential to increase the size of our existing the construction of additional floor space of over 210,000 sq ft. This represents approximately 18% of the total floor space. through Since the year end, we have acquired Westway Shopping Park, Greenford in Middlesex for £33m, which is substantially let to retailers such as Outfit, Boots and Holiday Hypermarket. 1998 Highlights Blythswood Retail Park, Glasgow the year construction of During 90,000 sq ft of new retail floor space was completed. This has been 95% let to MFI, Harveys, Carpetright, Landmark, JJB Sports, Texstyle World, Matalan and Allied Carpets. The latest letting was achieved at £16.50 per sq ft compared to approximately £9.00 per sq ft on acquisition in March 1997. We anticipate letting the final unit during the first half of 1999, at a new market rent. Further initiatives for 1999 include a major food store. The park has improved in value in less than two years by £21m, an 85% increase on the total cost of the investment. Beckton Retail Park, London, E6 consent was obtained Planning in February 1999 further for a 25,000 sq ft. A refurbishment of the entire park is now proposed, subject to certain pre-lettings currently in negotiation being completed. HMV NEXT MATALAN Strong relationship with retail partners Capital and Regional believes that close working relationships with tenants enables mutual success. C&R Front 1998 4/10/00 2:44 pm Page 12 12 Capital and Regional Properties plc Retail and Leisure Parks Bognor Regis Retail Park Blythswood Retail Park Bognor Regis Retail Park Since acquisition of this 69,000 sq ft park in January 1998, we have settled one rent review above expectations and let two further units, the latest one being at £12.00 per sq ft, some £3.00 per sq ft higher than previously obtained on the estate. Lancaster Retail Park This 101,000 sq ft investment was acquired in June 1998 and is the City’s only retail park. We have entered into a new agreement with MFI for a 20,000 sq ft unit at a rental of £12.00 per sq ft compared to the average rent on the estate of £9.00 per sq ft. Planning consent has been obtained to extend the estate by some 5,000 sq ft and negotiations are underway to secure further lettings and extensions. Wyrley Brook Retail Park, Cannock Planning consent has been granted for the redevelopment and refurbishment of this estate to comprise approximately 105,000 sq ft. Construction is shortly to commence for a new B&Q store of 44,000 sq ft and the latest letting to Kingsway at £12.00 per sq ft is against average rents for the estate of £6.00 per sq ft upon acquisition. We anticipate letting the remaining units during the construction process and completion is planned for the year end. Channons Hill Retail Park, Bristol Following the grant of planning consent for a discount food store, a new 12,000 sq ft unit has been let to Lidl at a rental of £10.00 per sq ft. Further lettings are under negotiation. Wembley Retail Park The next phase of the enhancement programme for Wembley is now under way, where we intend to relocate some of our existing tenants into newly created units, thereby providing a further 30,000 sq ft to re-let, subject to planning approval. We intend marketing and letting these units once consent is obtained for a restricted A1 use, which we believe will attract sports and lifestyle retailers. Due to the parks location being adjacent to the proposed new Wembley Stadium and the new access road from the North Circular, expectations for this property are high. Junction 10 Retail Park, Glasgow This 100,000 sq ft open A1 retail park has been substantially reconfigured with the latest unit being let to Landmark, at a new market rent for the estate at £15.00 per sq ft. Significant future proposals are planned which will substantially enhance the potential of the park. Ashford Leisure Park, Kent On acquisition of this leisure park site in August 1998, we had substantially pre-let the scheme to Cine UK, Pizza Hut, Burger King, KFC and City Centre Restaurants. We have since let a 28,000 sq ft healthclub to Stakis and terms have been agreed to lease a 60 bedroom hotel and 7,000 sq ft public house. Completion of this project is due in the Autumn. C&R Front 1998 4/10/00 2:45 pm Page 13 Capital and Regional Properties plc 13 Sports Village, Milton Keynes Construction of our most exciting development to date is currently on time and on budget and completion is due in May 2000. 83% of floor space was pre-let by Simon Berry, development director and his team prior to acquisition, which we consider to be a major achievement for such an innovative scheme and illustrates the confidence of retail operators in the concept. Our latest letting to JD Weatherspoons is above the rental level that we budgeted on acquisition. A branding initiative is currently underway and marketing for the remaining space will commence in April this year. leisure and With our dynamic management team’s entrepreneurial flair, retailer knowledge coupled with shopping centre style marketing and promotion, we are confident of continuing our success. Westway Cross Shopping Park Bringing retail and leisure together The integration of retail and leisure improves the overall consumer offer and retailer profitability. Sports Village, Milton Keynes (above), a new concept providing over 400,000 sq ft of retail and leisure space, including a ‘real snow’ indoor ski slope. C&R Front 1998 4/10/00 2:45 pm Page 14 14 Capital and Regional Properties plc Easter Group Easter looks forward to 1999 with confidence. The investment portfolio continues to grow and will be enhanced by the latest acquisitions. Further new development, both for trading and investment, will be carefully selected and in areas we know and where tenant demand exists. Peter Taylor Chief Executive Easter Group 26th February 1999 We have performed creditably in 1998. The investment company, Easter Capital Investment Holdings has seen gross assets rise from £21.6m at 1997 year end to £70.6m at the end of 1998. The properties owned for the full year produced a total return of over 21%. Easter Capital Investment Holdings During 1998, we continued to make progress with existing holdings: Wrexham Industrial Estate Wrexham Industrial Estate has seen considerable expansion over the last three years, mainly as a consequence of increased investment in manufacturing facilities by major corporate owner occupiers. Our holding on this estate is some 515,000 sq ft. On acquisition in 1996, approximately 36% of the floor space was vacant. This has now been reduced to approximately 7% as a result of active on-site management and by programmed refurbishment of units and improved management. We are shortly to start a speculative phase of some 40,000 sq ft, on part of the 30 acres that we hold for future development. Springvale, Cwmbran Acquired in January 1998, we are rebranding the 304,533 sq ft estate with the approach adopted at Wrexham. Improvements to external appearance, new signage, a programme of refur- bishment and improvements coupled with the opening of our on-site office has resulted in a substantial number of new lettings and rental growth. Three further acquisitions were made during the year to increase the holding and improve the quality of the investment. Court Road, Cwmbran A small 57,839 sq ft estate of 25 modern units purchased which are com- plementary to our existing holding at Springvale and approximately one mile away. C&R Front 1998 4/10/00 2:45 pm Page 15 South Wales Portfolio Three further holdings in South Wales totalling 313,000 sq ft were purchased to augment our existing properties in the region. The principal buildings are in Cardiff, Abercarn and an estate of eighteen units at Nine Mile Point, Cwmfelinfach. Deeside, near Chester This modern 174,450 sq ft estate is fully let apart small unit. from one The land acquired with this property is now in the course of development to provide a further 72,500 sq ft of floorspace. Kearsley, Bolton Half of the Europa Trading Estate was acquired comprising 125,908 sq ft in 14 units. Certain improvements will be carried out, including the possible development of surplus land. Hay Hall Works, Tyseley, Birmingham An old style estate of buildings comprising 347,222 sq ft on a site of some 13.4 acres close to Birmingham City Centre was acquired. The estate is fully let to good covenants on mainly long leases. Astmoor Industrial Estate, Runcorn Astmoor is the most important light industrial estate in Runcorn and we have acquired a large section of it. The property is 385,841 sq ft and of a size where active management, coupled with refurbishment the of some 57,400 sq ft will make a considerable impact on both cash flows and value. Since the year end the following properties have been acquired: Easter Industrial and Easter Runcorn Portfolios We have acquired from Phillips & Drew Fund Management their 75% share in these industrial portfolios comprising 794,638 sq ft that Easter have managed since 1993 and 1994 respectively and in which Capital and Regional has held a 25% interest. Capital and Regional Properties plc 15 Libra, Milton Keynes A development of four stand-alone, headquarter type warehouse/production units totalling 110,000 sq ft. Three units have been let and the scheme is funded by Norwich Union. Hemel Hempstead A bespoke building designed and developed by Easter and pre-sold to NGK Spark Plugs for their UK head office and distribution facility. Site F, Maidstone Road, Milton Keynes A bespoke factory of 38,500 sq ft pre-let to a local printing company and forward sold to MGM Assurance. Pisces, Trafford Park A development of two buildings totalling 62,500 sq ft, one of which has been let to Boots the Chemist whilst the other is still available. The scheme is funded by Scottish Provident. Leo, Trafford Park A development of 65,000 sq ft in three units. The project is forward funded by Xerox Pension Fund and will be completed in the Spring. Taurus, Oxford A joint development with Abacus. Three units on the ring road comprising 35,000 sq ft leased and sold to Abbey Life. Gemini 8, Warrington A 14 acre site to be developed in two phases with a total of 220,000 sq ft and forward funded by Standard Life. The first phase will be completed later this year. Easter looks forward to 1999 with confidence. The investment portfolio to grow and will be continues enhanced by the latest acquisitions. Further new development, both for trading and investment, will be carefully selected and in areas we know and where tenant demand exists. New developments Twelve Quays, Birkenhead We have a development agreement with English Partnerships covering some 20 acres. We are undertaking a business park development which so far comprises 87,252 sq ft and consists of one office building and five factory units of which 67% is let. Further phases are planned. North East England Three sites at Thornaby on Tees, Boldon and Cramlington have been acquired and developed with new factory units totalling 137,000 sq ft, half of which is now let. In 1999, we are expecting improved occupancy and cashflows as a result of programmes already put in place. We continue to look for existing industrial estates and sites in locations where we believe our management skills can be applied and where growth can be achieved. To this end, we are acquiring land at Stockton-on-Tees, Yate and Nottingham carry out new developments in areas of serious shortage of new space and have various investments under review. to Easter Holdings Our development trading company, Easter Holdings, has had another successful year, completing a number of developments and starting work on several new projects. The highlights of the development programme are as follows: Kingsway North, Team Valley We have completed the development of some 40,000 sq ft, which is let to three quality tenants on long leases and will be sold this year. West Acre, Willenhall We completed a 57,000 sq ft pre-let warehouse for A F Blakemore & Sons and sold the finished project in the summer to the Merchant Navy Pension Fund. store cold and C&R Front 2 1998 4/10/00 2:46 pm Page 16 16 Capital and Regional Properties plc Principal Properties Value in excess of £30m Property Pallasades Shopping Centre, Birmingham Sector Tenure Sq ft (Sq m) Principal Tenants Shopping Centre Leasehold 300,000 (27,781) 463,000 (41,821) Argos Austin Reed Boots JJB Sports Mothercare Woolworths Argos Boots C&A Evans Pearsons Dept Store Topshop/Topman Wilkinsons W H Smith Shopping City, Wood Green, London Shopping Centre Freehold Howgate Shopping Centre, Falkirk Shopping Centre Feuhold 190,000 (18,587) Blythswood Retail Park, Glasgow Retail Park Freehold 270,619 (25,150) Selborne Walk, Walthamstow Trinity Centre, Aberdeen Shopping Centre Leasehold 280,500 (26,487) Shopping Centre Feuhold 214,000 (19,880) Westway Cross Shopping Park, Greenford Retail Park Freehold 120,000 (11,152) Wembley Retail Park, Wembley Sauchiehall Centre, Glasgow Value £20m-£30m Property Liberty 2, Romford Retail Park Freehold Shopping Centre Feuhold 259,974 (24,161) 180,000 (16,728) Sector Tenure Sq ft (Sq m) Principal Tenants Shopping Centre Leasehold 82,000 (29,739) Alhambra Shopping Centre, Barnsley Shopping Centre Leasehold 165,000 (16,534) Superdrug Argos Burton Group USC Etam Marks & Spencer Woolworths New Look Wallis B&Q Carpetright Comet Currys Harveys Bhs Currys Dixons First Sport Argos Debenhams HMV Boots Carphone Warehouse Hobbycraft JJB Sports Matalan MFI Texstyle World Holland and Barratt Mothercare Our Price River Island Ottakers Signet Superdrug Holiday Hypermarket McDonalds The Outfit Allied Carpets Carpetright Comet Furnitureland Harveys MFI Argos Burtons Menswear Clinton Cards Dorothy Perkins John Menzies Superdrug TK Maxx Allsports Ciro Citterio Jeffrey Rogers McDonalds Odeon Cinema Peacocks Pilot Spoils Allsports Coop Living Mothercare Next Peacocks Wilkinsons Woolworths C&R Front 2 1998 4/10/00 2:46 pm Page 17 Capital and Regional Properties plc 17 Eldon Garden Shopping Centre, Newcastle Shopping Centre Leasehold 42,500 (4,087) Manor Park Estate, Runcorn Industrial Freehold 336,610 (31,283) 385,839 (35,858) Industrial Freehold Value £10m-£20m Property Beckton Retail Park, London Junction 10 Retail Park, Glasgow Wrexham Industrial Estate, Wrexham Lancaster Retail Park, Lancaster St Andrew House, Glasgow Astmoor Industrial Estate, Runcorn Wyrley Brook Retail Park, Cannock Value £4m-£10m Property Springvale Industrial Estate, Cwmbran Deeside Industrial Estate, Deeside Bognor Regis Retail Park, Bognor Regis Channons Hill Retail Park, Bristol Twelve Quays, Birkenhead Europa Trading Estate, Kearsley Sector Tenure Sq ft (Sq m) Principal Tenants Retail Park Retail Park Freehold 140,000 (13,005) Leasehold 99,557 Industrial Freehold Retail Park Retail Office Freehold Feuhold 515,000 (47,862) 102,544 (9,527) 92,500 (8,593) Homebase Kwik Save Landmark Carpetright Landmark Poundstretcher Sports Division MFI Top Rank Bingo Barlow Handling JCB Cookson Duracell Porvair Technology Carpetright Fads Harveys MFI Wickes Atlantic Telecom Thomas Cook Bodycare Burger King Granada Time Computer Systems TSB Austin Reed Morgan de Toi Wolford Sony Centre The Penshop Churchills Stairlifts Fresenius Paxar Europe Pourshins Warburtons Whitford Plastics Belfor Imbach Norton HealthCare Cheshire Folding P & W Printers Cartons Shandon Scientific Retail Park Freehold 105,570 (9,940) Allied Carpets B&Q Fashion Brokers Kingsway Sector Tenure Sq ft (Sq m) Principal Tenants Industrial Freehold 230,000 (21,375) Cyril Luff Kara Vale Rolls Royce Power Eng. plc Enterprises Siebe Gorman Industrial Freehold 247,500 (22,992) Hydro Coatings Kimberly Clark Retail Park Retail Park Freehold Freehold Industrial Freehold Industrial Freehold 62,165 (5,777) 59,204 (5,502) 87,252 (8,108) Landmark LIDL Halfords Harveys Currys Great Mills Burall Carwood Telescope LJMU Technologies 125,908 (11,701) Foseco (GB) Health & Diet The Co-operative Lansing Linde Food Company Bank C&R Front 2 1998 4/10/00 2:46 pm Page 18 18 Capital and Regional Properties plc Finance Review During the past three years the Group has implemented a financing strategy with six banks that have experienced property teams and long-term commitment to the UK property market. The Groups’ strategy is to enter into extendable secured revolving credit facilities with broadly similar terms and covenants. Roger Boyland Joint Managing Director 26th February 1999 £24.6m including Summary The Group’s borrowings at 25th Dec- ember 1998 were £366.1m (1997: £261.8m) of Convertible Subordinated Unsecured Loan Stock (CULS). Borrowings by associates and joint ventures were an additional £16.9m (1997: £26.4m). Net cash balances were £5.5m (1997: £9.2m) and the Group had approxi- mately £59.8m (1997: £17.3m) of undrawn facilities. The increase in borrowing during 1998 reflects the financing of acquisitions and the refurbishment of and improve- ments to our properties during the year net of property disposals. secured £59.1m was raised by way of an equity issue in April 1998 to part finance the acquisition of The Pallasades Shopping Centre, Birmingham. Financing strategy During the past three years the Group has implemented a financing strategy with six banks that, in the opinion of the Directors, have experienced long-term property teams and to the UK property commitment market. The Groups strategy is to enter into extendable secured revolving credit facilities with broadly similar terms and covenants. These facilities provide the group with the flexibility to draw down and repay borrowings within the covenant parameters, and provide a cost efficient structure, which allows the substitution and addition of new properties as security. Project loan finance is separately arranged as required for specific developments and joint ventures. Interest rate hedging strategy The Group’s strategy is to enter into mainly five year interest rate swaps on a rolling basis, which provides both protection against any sudden rise in interest rates and scope to take advantage of falling rates on expiring swaps and unhedged borrowings. The balance between borrowing on floating and hedged interest rates is continually reviewed in the light of capital market conditions and business requirements. C&R Front 2 1998 4/10/00 2:46 pm Page 19 Capital and Regional Properties plc 19 Table 1 Fixed rate debt instrument CULS Bank borrowings Interest rate swaps Book value £m 24.6 15.3 n/a 39.9 Notional principal £m n/a n/a 247.9 247.9 Market value £m 25.3 16.1 257.7 299.1 Minority Interests Fair Value Adjustment attributable to Group Net of tax at 31% Fair value adjustment £m Table 2 Repayment Drawn Earliest £m “Evergreen” £m Undrawn Earliest £m “Evergreen” £m 1999 2000 2001 2002 Bank borrowings 2006/16 Convertible loan stock 0.7 0.8 9.8 11.3 0.2 11.1 7.7 0.8 34.0 173.0 133.7 341.5 24.6 366.1 0.8 27.9 171.5 133.7 333.9 – 333.9 – 12.0 21.3 26.5 59.8 – 59.8 – – 21.3 26.5 47.8 – 47.8 The expiry profile of the fair value adjustment is as follows: 1999 2000 2001 2002 2003 2004-2016 Total Fair value adjustment £m 3.7 3.1 2.1 1.4 0.5 0.5 % of total 33 28 19 12 4 4 11.3 100 Fixed and swapped interest rates at 25th December 1998 applied to borrowings of £287.8m (1997: £197.6m) with the balance of £78.3m (1997: £64.2m) being at variable interest rates based on three month LIBOR. The weighted average interest rate cost for fixed and swapped borrowings at 25th December 1998, was 7.9% (1997: 8.4%) and for variable rates 7.5% (1997: 8.5%). The weighted average interest rate cost of total borrowings at the year end has reduced to 7.8% compared to 8.4% at the end of 1997. The weighted average period for which interest rates are fixed on Group bank borrowings is 3.39 years and 4.58 years including CULS. Debt valuation A valuation was carried out by J C Rathbone Associates Limited as at 25th December 1998, to calculate the market value of fixed rate debt instruments on a replacement basis and the expiry profile of the resulting fair value adjustment. Table 1 shows the market value of fixed rate debt instruments, and reflects the difference between the interest rate yield curve as at 25th December 1998 and the rates historically committed; namely the fair value adjustment. On 18th November 1998, Sports Village Milton Keynes Partnership, in which the Group has a 50% interest, entered into a five year interest rate swap for £25m, with a forward start date of 24th July 2000. The Group’s share of this financial instrument is not included in table 1, but if it had been, the fair value adjustment would be increased by £143,000. The fair value adjustment relating to fixed rate debt instruments in place at 25th December 1998 will be virtually eliminated by the end of 2002. The fair value adjustment represents approximately 3% of Group borrowings and has a notional adverse effect on net asset value per share of 7p at 25th December 1998. Debt maturity Table 2 shows the maturity profile of Group borrowings and undrawn secured facilities at 25th December 1998. Over 97% (1997: 87%) of bank the benefit of borrowings had “evergreen” arrangements which we expect will extend maturity dates beyond the earliest repayment date shown. The evergreen arrangements provide a minimum of two years’ notice of repayment. Gearing Net debt to capital employed has fallen to 107% at the year end (1997: 116%) and reduces to 93% (1997: 94%) assuming the conversion of the loan stock to equity. Rental income as a ratio to net interest payable including capitalised interest for 1998 is unchanged at 1.6 times when calculated excluding non- recurring income. The margin by which rental income exceeds total net interest payable has increased to over £20m in 1998 from £11m in 1997. C&R Front 2 1998 4/10/00 2:46 pm Page 20 20 Capital and Regional Properties plc Financial Statements Review Profit on revenue activities has increased from £6.1m to £11.5m reflecting the substantial increase in the portfolio and capital base during 1997 and 1998. Lynda Coral Financial Director 26th February 1999 that affect Accounting developments A number of new Financial Reporting Standards (“FRS”) are applicable or adopted voluntarily for the first time this year the presentation, classification and disclosures in the financial statements. The Group has adopted FRS 9 (Associates and Joint Ventures), FRS 10 (Goodwill), FRS 11 (Impairment), FRS 12 (Provisions), FRS 13 (Financial Instruments) and FRS 14 (Earnings per share). Any resulting changes financial statements have no impact on profit or net assets attributable to shareholders for the current or prior years. the in Profit and loss account Results for the year Profit on revenue activities has increased from £6.1m to £11.5m reflecting the substantial increase in the portfolio and capital base during 1997 and 1998. Profit before tax has increased to £11.5m. Profit last year of £11.1m included gains of almost £5m on the excess of sale proceeds of investment properties and investments over carrying value. Profit on revenue activities in the second half of the year is £7.9m compared to £3.6m reported for the first half. The includes non-recurring second half surrender premiums and provision for performance bonuses for the whole year, both of which are referred to below. Rental income Group rental income increased by 55% to £44.9m as shown in table 1. Also shown is the effect of the changes during 1998 on gross passing rent to arrive at £47.0m at the year end. The gross passing rent at the end of 1998 does not include additional rent of £2.2m (1997: £1.4m) under agreements for lease executed to date. Surrender premiums of £4.5m as shown in table 1 include £3m in respect of a retail warehouse unit that has been relet at a higher rent and £500,000 from the former tenant of a trading property sold at a profit. Net property costs The increase of £1.3m compared to the previous year is partly due to marketing, promotional and void costs relating to acquisitions in the last two years, particu- larly the shopping centres acquired in June 1997 and April 1998. Higher ground rents in 1998 of £918,000 include eight months for The Pallasades with the full year effect of three centres acquired during 1997 offset by the feuhold purchase of Howgate in February 1998. Professional fees relating to rent reviews and lettings in the year incurred a cost of approximately £1m as compared to £488,000 in the previous year. Administrative expenses General administrative costs reflect the support required for the substantial increase in the property portfolio since 1996 and include the effect for a full year of the retail and leisure park team following the purchase of Lanham PLC in April 1997. Underlying administrative costs represent under 0.75% of the total property portfolio. Performance related bonus payments to executive directors and employees, including an allocation for the profit sharing scheme, totalled £1.4m (1997: £1.2m). Net interest payable Net interest costs have increased by £6.5m during the year reflecting the financing of acquisitions by additional bank debt. Approximately £850,000 (1997: £900,000) of interest has been capitalised during the year, principally in relation to industrial properties under construction (£396,000) and development projects including Blythswood (£195,000) and the forward sold scheme at Croydon (£231,000). C&R Front 2 1998 4/10/00 2:46 pm Page 21 Capital and Regional Properties plc 21 Table 2 Properties Investment under properties construction £m £m Current property assets £m At 25th December 1997 438.0 Acquisitions 179.4 Refurbishments and development Disposals Revaluation surplus 22.3 (40.4) 47.6 At 25th December 1998 646.9 – – 5.4 – 2.3 7.7 Total £m 445.8 197.9 33.0 (47.6) 49.9 7.8 18.5 5.3 (7.2) – 24.4 679.0 Table 1 Year ended 25th December 1997 Full year effect of acquisitions and disposals in 1997 Properties acquired in 1998 Properties sold in 1998 Net new lettings Leases surrendered Surrender premiums Rent increases including reviews Year ended 25th December 1998 Table 3 Associates Joint ventures Investment £m 3.4 2.3 5.7 Debtors after 1 year £m – 3.9 3.9 1998 Rental income £m 28.9 3.4 8.0 (2.9) 2.1 (0.2) 4.5 1.1 44.9 1998 Total £m 3.4 6.2 9.6 1998 Rental level £m 33.6 – 14.0 (3.9) 2.1 (0.4) – 1.6 47.0 1997 Total £m 3.3 7.7 11.0 Taxation The taxation charge for the year has been substantially reduced to 3% of profit before tax by capital allowances. The Group has deferred the payment of its 1998 interim dividend until 7th April 1999 to take advantage of the abolition of Advance Corporation Tax. At the end of 1998 there is approximately £200,000 (1997: £200,000) remaining of advance corporation tax previously written off, the tax written down value of assets subject to capital allowance claims is estimated at approximately £28m (1997: £19m) and unutilised losses carried forward are approximately £4.3m (£6.5m). Earnings and dividends per share Earnings per share on revenue activities increased substantially from 8.4p to 12.2p. Although profit attributable to shareholders increased from £10.1m in 1997 to £11.1m this year earnings per share were reduced from 15.4p to 12.1p as a result of applying the weighting of shares issued in 1997 and 1998. The total dividend proposed of 4.25p per share is over one and a half times covered by profit on revenue activities after deducting non-recurring lease surrender premiums. Balance sheet Property assets Table 2 summaries the movement in the Group’s property portfolio during the year for including properties held disposal and under development. Associates and joint ventures Table 3 shows the movement during 1998 in the Group’s total investment in joint ventures and associates. In accordance with FRS 9, the Sports Village Milton Keynes Partnership is treated as a joint arrangement that is not an entity and the Group’s financial statements include its share of assets, liabilities and cash flows. Since the year end investment in associates has reduced as a result of buying in the industrial properties owned in partnership with Phillips & Drew Fund Management Limited. Minority interests Minority interests at the end of 1998 include a £2m participation by Peter Taylor and his associates in Easter Capital Investment Holdings. Year 2000 As reported with the interim results, a programme is underway to address the issues arising from the Millennium to ensure that date sensitive systems using two digits can recognise “00” as the Year 2000. The Group has reviewed its exposure to the risks arising from the “Millennium Bug” and is progressing any action required to ensure all our computer hardware and software is Year 2000 compliant. The Group has substantially completed detailed audit of systems that use microchips within our properties with the assistance of external consultants. The aim is to ensure that any problem the Year 2000 might otherwise create in the provision of services is identified and rectified. This includes liaison with our tenants to inform them of our action plan to deal with Year 2000 issues and ensure that they are taking appropriate action in respect of their equipment particularly where it is interfaced to our systems for common use. As the the effort associated with programme largely consists of the diversion of existing internal resources, the costs have not been separately identified and are written-off to the profit and loss account as they are incurred. The costs of modifications and remedial works specifically relating to the Year 2000 compliance are expected to be minimal. C&R Front 2 1998 4/10/00 2:46 pm Page 22 22 Capital and Regional Properties plc Directors Martin Barber Roger Boyland Kenneth Ford Xavier Pullen Lynda Coral Andrew Lewis-Pratt Executive Directors Martin Barber Chairman, age 54 Martin Barber has been involved in commercial property as a developer and investor for over 30 years. He was a founder Director of the Company in 1979. He is Chairman of CenterPoint Properties Trust, estate investment trust, listed on the New York Stock Exchange and formerly a subsidiary of Capital and Regional. He is Non-executive Chairman of PRICOA Property Investment Management Ltd, a wholly owned subsidiary of The Prudential Insurance Company of America. real a Xavier Pullen Joint Managing Director, age 47 Xavier Pullen has been active in the property industry for over 30 years and was a founder Director of the Company in 1979. He has overall responsibility for investment and development activities. Roger Boyland FCA Joint Managing Director, age 54 Roger Boyland is a chartered accountant and has been involved in commercial property for 24 years. He was a founder Director of the Company in 1979. He has responsibility for the Company’s financing strategy, including banking and corporate finance. Lynda Coral BSC FCA Financial Director and Company Secretary, age 37 Lynda Coral has been a chartered accountant for 14 years. She was appointed as Company Secretary in 1989 and a Director in 1990. Her responsibilities include accounting, tax and co-ordination of management and external reporting. Kenneth Ford BSC FRICS Executive Director, age 45 Ken Ford has been in commercial property for 25 years. He was appointed a Director of the Company in 1997 and is responsible for the shopping centre portfolio. involved Andrew Lewis-Pratt BSC ARICS Executive Director, age 41 Andrew Lewis-Pratt has over 16 years experience within the out-of-town retail and leisure sector. He was appointed as a Director of the Company in 1997 and is responsible for the retail and leisure park portfolio. C&R Front 2 1998 4/10/00 2:46 pm Page 23 Capital and Regional Properties plc 23 David Cherry Peter Duffy Viscount Chandos Martin Gruselle Peter Duffy†, age 62 Peter Duffy was appointed as a Director of the Company in 1995. He was previously Managing Director of TR Property Investment Trust PLC. He is also a Director of European City Estates N.V. and Chairman of Seafield plc. a is Martin Gruselle FCA†#, age 61 chartered Martin Gruselle accountant with wide experience in corporate finance. He was appointed as a Director of the Company in 1989 and acts as Chairman of the Remuneration and Audit Committees. He is also a non-executive Director of Scarborough Property Company plc. Non-executive Directors David Cherry BSC FRICS†#, age 61 David Cherry is a former Senior Partner of Donaldsons, a national firm of commercial Chartered Surveyors with a significant reputation in retail property. He has wide experience in both the UK property market and was head of the organisation for eight years. He was appointed as a Director of the Company in 1997. Viscount Chandos#, age 46 Tom Chandos is a former investment banker and currently Development Director of the broadband interactive television company, Video Networks Limited. He was appointed as a Director of the Company in 1993. He is also Chairman of Lopex PLC and of MediaKey plc. He is a non-executive Director of a number of private companies †Member of Audit Committee #Member of Remuneration Committee C&R Mid 1998 4/10/00 1:09 pm Page 24 24 Capital and Regional Properties plc Ten Year Record for the year ended 25th December 1989 to 25th December 1998 No of shares in issue (million) Diluted no. of shares in issue (million) Net assets per share‡ 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 98.255 76.399 45.595 45.595 45.595 30.296 17.239 17.239 12.144 12.044 110.667 88.668 58.181 320.6p ††272.0p 223.1p 186.2p 183.5p 163.8p #157.8p 153.5p †163.3p 201.7p Net assets per share growth 17.9% ††27.6% 19.8% 1.5% 12.0% #12.2% 2.8% †3.6% (19.1)% 22.1% £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Equity shareholders’ funds Minority interests Non-equity funding by joint arrangement partners Capital employed Borrowings Cash at bank Net bank debt 330,816 217,299 104,701 2,458 2,101 933 84,882 1,431 83,654 719 49,636 797 27,206 10,426 26,454 7,545 19,825 5,619 24,397 5,522 3,250 – – – – – – – – – 336,167 218,232 107,159 86,313 84,373 50,433 37,632 33,999 25,444 29,919 340,926 237,036 143,872 6,261 9,229 5,476 76,674 2,431 50,129 2,259 39,051 2,693 49,937 4,206 35,568 9,978 31,088 598 25,025 3,210 335,450 227,807 137,611 74,243 47,870 36,358 45,731 25,590 30,490 21,815 Convertible loan stock 23,950 23,840 25,108 – – – – – – – Net debt 359,400 251,647 162,719 74,243 47,870 36,358 45,731 25,590 30,490 21,815 Net debt/capital employed‡ 93.3% 94.1% 104.3% 86.0% 56.7% 72.1% 121.5% 75.3% 119.8% 72.9% Rental income Net rental income Net interest payable**** 44,910 38,507 24,057 28,857 23,728 16,788 17,834 14,158 9,153 10,129 8,040 4,552 8,172 6,556 3,180 8,896 7,487 4,460 6,939 6,028 3,838 5,245 4,659 3,086 4,618 3,966 2,885 3,571 3,390 1,430 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Profit/(loss) on ordinary activities before taxation*** Earnings per share** Dividend per share 11,481 11,083 6,051 4,743 4,145 1,170 422 *(533) 351 *474 12.1p 15.4p 11.9p 4.25p 3.5p 3.0p 8.7p 2.5p 8.6p 2.1p 2.8p 1.5p 0.4p *(4.2p) 1.1p 1.0p 0.9p 0.9p *1.0p 0.9p †† A Placing and Offer in May 1997 of 28,159,526 new Ordinary shares at 215p resulted in a dilution of 1997 diluted net assets per share to 213.1p. The growth in net assets per share for 1998 is calculated after adjusting for the effect of this dilution on 1997. # If adjusted to take into account the effect of the issue of 13,057,427 new Ordinary shares of 10p each during 1993 to raise £17,025,000 net of expenses 1992 net assets per share are reduced to 146.0p. The growth in net assets per share for 1993 is calculated after adjusting for the effect of this dilution on 1992. † ‡ * A Placing and Offer in May 1991 of 5,070,295 new Ordinary shares at 120p resulted in a dilution of 1990 net assets per share to 148.1p. The growth in net assets per share for 1991 is calculated after adjusting for the effect of this dilution on 1990. Assuming conversion of the convertible loan stock to equity. As adjusted for Financial Reporting Standard No. 3 where necessary. ** Earnings per share for prior years have been adjusted to reflect the one for two Rights Issue in April 1994 and the two for seven rights issue in April 1998. *** As adjusted for Financial Reporting Standard No. 9. ****Excludes share of net interest payable of Joint ventures and associates. C&R Mid 1998 4/10/00 1:09 pm Page 25 Report on Directors’ Remuneration and Interests Capital and Regional Properties plc 25 Remuneration Committee The Remuneration Committee (“the Committee”) has been constituted by the Board of the Company and consists of not less than three non-executive directors nominated by the full Board. The Committee meets at least twice a year, the quorum for a meeting being at least two members. The present members are Tom Chandos, David Cherry, and Martin Gruselle (Chairman). The Committee is responsible for setting the remuneration policy for the executive directors and senior employees and ensuring compliance with best practice provisions. The Committee determines the terms of the service agreements, salaries, discretionary bonus payments, as well as deciding on the grant of share options for the executive directors. The recommendations made by the Executive Committee for the grant of share options to other employees require the approval of the Committee. In preparing this annual report to shareholders on behalf of the Board, the Committee has complied with relevant provisions of the Combined Code including those set out in Schedule B thereof. Remuneration policy In setting the remuneration policies for the executive directors, the Committee has given full consideration to the requirements of the Combined Code appended to the Listing Rules of the London Stock Exchange including the provisions in Schedule A of the Combined Code relating to the design of performance-related remuneration. The Committee, using published data and market research, seeks to ensure that the total remuneration received by the executive directors under their contracts is competitive within the property industry and will motivate them to perform at the highest level. Basic salaries and benefits are reviewed annually. Following a review by the Committee at the end of 1997, the basic salaries of the executive directors were increased from 1st January 1998. The Company’s contributions to the personal pension schemes of M. Barber, R. Boyland and X. Pullen are 20% of basic salary, those of K. Ford, and A. Lewis-Pratt are 15% and that of L. Coral is 10%. In 1996, the Committee established guidelines for determining the level of discretionary bonus payable to the executive directors, linking outperformance of growth in net asset value per share to predetermined percentages of pre-tax profits. In 1998 the Committee introduced a further guideline linking outperformance of growth in net asset value per share to predetermined percentages of the increase in net shareholders funds generated in the year. The Committee currently uses the Monthly Index of All Properties Capital Value published by the Investment Property Databank as a benchmark against which to compare growth in net asset value per share. If the maximum level of outperformance in either case is achieved, the higher of 10% of pre-tax, pre-bonus profits or 2.2% of the increase in net shareholders’ funds may be allocated as discretionary bonus. The Committee will not necessarily allocate the whole of the amount determined under the criteria in any year. In 1998, net asset value per share has increased by 17.9% (year on year) compared with an increase of 4.2% in the benchmark index; this level of performance generates a discretionary bonus of 8.5% of profits. The Committee has decided to allocate £820,000 of discretionary bonus for 1998 (7.2% of pre-tax, pre-bonus profits). The allocation of the total amount of discretionary bonus between the executive directors has been made by the Committee. Each of the executive directors has a service agreement which can be terminated on one year’s notice by either party. The terms of the existing service agreements do not allow the executive directors to engage in any other business outside the Company except where prior written consent from the Committee is obtained. The fees of the non-executive directors are determined annually by the Board acting on the recommendations of the Executive Committee within the limits set by the Company’s Memorandum and Articles of Association and using external market research for guidance. The formal appointments of Tom Chandos and Martin Gruselle were renewed on 1st January 1997 and that of Peter Duffy on 26th May 1998 in each case for a further three year period. David Cherry was given a formal letter of appointment for a three year term from 4th April 1997. They do not receive share options or any other forms of remuneration from the Company. C&R Mid 1998 4/10/00 1:09 pm Page 26 26 Capital and Regional Properties plc Report on Directors’ Remuneration and Interests Remuneration The remuneration of the directors is analysed below: Salary and fees Discretionary bonus Pension contributions Other benefits† 1998 £ 1997 £ 1998 £ 1997 £ 1998 £ 1997 £ 1998 £ 1997 £ 1998 £ Total 1997 £ Executives M. Barber R. Boyland X. Pullen L. Coral K. Ford A. Lewis-Pratt 190,000 150,000 150,000 110,000 145,000 145,000 170,000 135,000 135,000 100,000 82,500 93,750 170,000 140,000 140,000 100,000 135,000 135,000 170,000 130,000 130,000 90,000 130,000 115,000 38,000 30,000 30,000 11,000 21,750 21,750 34,000 27,000 27,000 10,000 12,375 14,063 20,325 19,846 16,257 13,953 9,813 19,605 18,622 17,662 17,504 13,548 5,698 10,646 418,325 339,846 336,257 234,953 311,563 321,355 392,622 309,662 309,504 213,548 230,573 233,459 890,000 716,250 820,000 765,000 152,500 124,438 99,799 83,680 1,962,299 1,689,368 Non-executives Viscount Chandos* 26,875 20,000 D. Cherry 20,000 P. Duffy 30,000 M. Gruselle 20,000 15,000 20,000 30,000 96,875 85,000 26,875 20,000 20,000 30,000 20,000 15,000 20,000 30,000 96,875 85,000 Total 986,875 801,250 820,000 765,000 152,500 124,438 99,799 83,680 2,059,174 1,774,368 * Including fees of £6,875 received from subsidiary companies. Viscount Chandos was appointed as a non-executive director of Easter Holdings Limited on 3rd March 1998 and received fees of £6,875 in the year from the joint venture company that are not included in the figures above. † Other benefits include the taxable value of private medical insurance and company car, or if a director has opted out of the Company car scheme, a salary supplement in lieu of a company car. Directors’ interests The directors and, where relevant, their connected persons (within the meaning of Section 346 of the Companies Act 1985) are beneficially interested in the Ordinary share capital of the Company as follows: M. Barber X. Pullen R. Boyland L. Coral K. Ford A. Lewis-Pratt* M. Gruselle Viscount Chandos P. Duffy D. Cherry Ordinary shares of 10p each at 25th December 6.75% convertible subordinated unsecured loan stock 2006/16 at 25th December 1998 Shares 1997 Shares 2,343,701 981,060 504,000 1,335 368,998 286,634 50,653 7,926 – 3,363 2,288,992 907,303 500,000 1,039 356,034 681,035 46,136 6,698 – 2,225 4,547,670 4,789,462 1998 £ 35,394 23,693 13,000 25 – – 943 3,313 – – 76,368 1997 £ 35,394 23,693 13,000 25 – – 943 3,313 – – 76,368 * A. Lewis-Pratt is only himself beneficially interested in 110,668 Ordinary shares of 10p each. There have been no changes to the directors’ interests since 25th December 1998, except D. Cherry who purchased an additional 775 Ordinary shares of 10p each on 24th February 1999 and X. Pullen who purchased 20,000 Ordinary shares of 10p each on 25th February 1999. C&R Mid 1998 4/10/00 1:09 pm Page 27 Capital and Regional Properties plc 27 Share incentives From time to time the Committee has recommended to the Board that options should be granted to executive directors and other employees under the Executive Share Option Schemes introduced in 1988. The final options under this Scheme were granted on 18th June 1997. New Discretionary Share Option Schemes to replace the share option schemes which expired in May 1998 were approved by shareholders at the Annual General Meeting held on 7th May 1998. In 1998 options were granted over a total of 1,264,790 Ordinary shares under the 1998 Schemes, as follows: Date 15th May 1998 22nd May 1998 28th September 1998 Exercise price Directors Executives Total 279.5p 286.5p 196.5p 650,000 – – 506,500 83,290 25,000 1,156,500 83,290 25,000 650,000 614,790 1,264,790 The table below gives details of the options granted to the executive directors: Exercise conditions met Exercise price At beginning of year 1998 adjustment Issued in year Options over Ordinary shares of 10p each Director Date granted M. Barber 22nd December 1993 28th October 1994 18th June 1997 R. Boyland 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 X. Pullen 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 L. Coral 22nd December 1993 28th October 1994 21st October 1996 18th June 1997 15th May 1998 Yes Yes Not yet Yes Yes Not yet Not yet Yes Yes Not yet Not yet Yes Yes Yes Not yet Not yet 168.9p *131.4p *226.4p *168.9p *131.4p *226.4p 279.5p *168.9p *131.4p *226.4p 279.5p *168.9p *131.4p *193.2p *226.4p 279.5p K. Ford 18th June 1997 15th May 1998 Not yet Not yet *226.4p 279.5p A. Lewis-Pratt 18th June 1997 15th May 1998 Not yet Not yet *226.4p 279.5p 135,302 103,062 50,000 288,364 135,302 103,062 50,000 – 288,364 135,302 103,062 50,000 – 288,364 49,602 25,765 77,296 50,000 – 202,663 150,000 – 150,000 150,000 – 150,000 1,576 1,201 582 3,359 1,576 1,201 582 – 3,359 1,576 1,201 582 – 3,359 578 301 901 582 – 2,362 1,747 – 1,747 1,747 – 1,747 At end of year 136,878 104,263 50,582 291,723 136,878 104,263 50,582 100,000 – – – – – – – 100,000 100,000 391,723 – – – 100,000 136,878 104,263 50,582 100,000 100,000 391,723 – – – – 100,000 50,180 26,066 78,197 50,582 100,000 100,000 305,025 – 175,000 151,747 175,000 175,000 326,747 – 175,000 151,747 175,000 175,000 326,747 * Exercise price and number of options have been adjusted since being granted for subsequent share capital reorganisations, the Rights Issue in April 1994, the Placing and Open Offer in May 1997 and the Rights Issue in April 1998. C&R Mid 1998 4/10/00 1:09 pm Page 28 28 Capital and Regional Properties plc Report on Directors’ Remuneration and Interests Share incentives continued The table below gives details of gains on the options granted to the executive directors: M. Barber £ R. Boyland £ X. Pullen £ L. Coral £ K. Ford A. Lewis-Pratt £ £ 482,748 762,206 762,206 664,099 832,680 832,680 Options outstanding at the year end: Total subscription price Potential profit on exercise of options*: options where exercise condition has been met options where exercise condition has yet to be met 153,882 153,882 153,882 64,288 – – – – – – – – – – Total at year end 153,882 153,882 153,882 64,288 * Using a share price of 216.5p as at 24th February 1999. The Company’s share price was 167.5p on 25th December 1998. During the year the share price ranged from 318p to 154.5p. There has been no change in directors’ interests in options since 25th December 1998, except for K. Ford, A. Lewis-Pratt and L. Coral who were granted 75,000, 75,000 and 25,000 unapproved options respectively, on 23rd February 1999 at an exercise price of 191.5p. Options granted prior to 1997, 13,000 options granted to each of K. Ford and A. Lewis-Pratt in June 1997 and those granted in 1998 can only be exercised within the seven year period commencing three years after the date of grant. All other options granted in 1997 can only be exercised within a four year period commencing three years after the date of grant. All the options granted require the achievement of growth in net assets per share above predefined targets. Options granted in 1993 and subsequent years can only be exercised if growth in fully diluted net asset value per share during any three year period prior to the expiry date of the option exceeds the growth in the Monthly Index of Capital Values for All Properties published by the Investment Property Databank for the same period. An additional exercise criteria for options granted in 1998 requires the total return for shareholders over any three year period to exceed the increase over the same period in the Index of Total Returns for the Property Sector as shown in the FT-SE Actuaries Indices published in the Financial Times. A total of 27,684 shares at a cost of £78,484 were issued to eligible employees in April 1998 under the Capital and Regional Properties plc approved profit sharing scheme introduced in 1997. The Committee has set aside the sum of £149,000 out of the profits of the current year to be allocated under this scheme. Martin Gruselle Chairman Remuneration Committee 26th February 1999 C&R Mid 1998 4/10/00 1:09 pm Page 29 Corporate Governance Statement Capital and Regional Properties plc 29 Introduction In June 1998 the Combined Code (“the Code”) was issued in final form by the Committee on Corporate Governance. To demonstrate its support for the new corporate governance regime, the Board has determined to make full disclosure in this report, notwithstanding that it is not required by the Listing Rules of the London Stock Exchange to provide a disclosure statement on how it applies the principles in the Code and whether it has complied with the Code provisions during the period, as its accounting period ends before 31st December 1998. Governance: principles and procedures At a Board meeting held on 24th September 1998, the Board formally adopted the Principles of Good Governance set out in the Code. The Company’s governance policies already in place matched closely those set out in the Code. Details of how the Company has applied the Code, after making changes as described in the Compliance statement set out on page 31, are as follows for each of the Code’s four distinct areas: Directors The Company is controlled through the Board of Directors which consists of six executive and four non-executive directors, thus providing an appropriate balance of power and authority. The non-executive directors are all independent of the Group. The Board is chaired by Martin Barber. The joint managing directors are Xavier Pullen and Roger Boyland. The Board reviews the schedule of matters reserved to it for decision at least once a year. Board approval is required for all significant or strategic decisions including major acquisitions, disposals and financing transactions. A procedure for directors to take independent professional advice if necessary has been agreed by the Board and formally confirmed to all directors. Details of all the non-executive directors are set out on page 23. Martin Gruselle has been nominated as the senior independent director as required by the Code. The Board meets at least quarterly and each member receives up to date financial and commercial information prior to each meeting, in particular quarterly management accounts and schedules of property income and outgoings (each with comparisons against budget), schedules of acquisitions and disposal and relevant appraisals (prior Board approval being required for large transactions) and cash flow forecasts and details of funding availability. All members of the Board are subject to the re-election provisions of the Articles which requires them to offer themselves for re-election at least once every three years. Any proposal to appoint new directors to the Board is discussed at a full Board Meeting and all Board members are given an opportunity to meet the individual concerned prior to any formal decision being taken. As the Board is small, it is considered inappropriate to establish a nomination committee. The directors have delegated certain of their responsibilities to committees that operate within specified terms of reference and authority limits that are reviewed annually or in response to changed circumstances. An Executive Committee, whose members include the six executive directors, meets on a regular basis (normally monthly) and deals with all major decisions of the Group not requiring full Board approval or authorisation by other Board Committees. The Executive Committee is quorate with four directors in attendance; if decisions are not unanimous a matter is referred to the Board for approval. Notes and action points from Executive Committee meetings are circulated to the Board. The Executive Committee includes the Chairman of the Board. The directors believe that the process for making business decisions and the roles of the two joint managing directors provides sufficient division of responsibilities to meet the requirements of corporate governance best practice. The Audit and Remuneration Committees, which consist solely of non-executive directors, meet at least twice a year. Directors’ remuneration The Remuneration Committee makes recommendations to the Board, within existing terms of reference, on remuneration policy and determines, on behalf of the Board, specific remuneration packages for each executive director. A proportion of all executive directors’ remuneration consists of cash bonuses and share options (each linked to corporate and individual performance achievements) the levels of which are determined by the Remuneration Committee. The fees of the non-executive directors are reviewed by the Board at regular intervals. The statement of remuneration policy and details of each director’s remuneration is set out in the report on Directors Remuneration and Interests on pages 25 to 28. C&R Mid 1998 4/10/00 1:09 pm Page 30 30 Capital and Regional Properties plc Corporate Governance Statement Shareholder relations The Company has always encouraged regular dialogue with its institutional shareholders and private investors at the Annual General Meeting, through corporate functions and property visits. Update meetings are held with institutional shareholders following announcement of preliminary and interim results and as requested throughout the year. Directors are accessible to all shareholders and queries received verbally or in writing are immediately addressed. Directors are introduced to shareholders at the Annual General Meeting including the identification of non-executives and Committee Chairmen. Accountability and audit The Company’s annual report and accounts includes detailed reviews of the activity at each of the principal properties within the portfolio each year, together with a detailed review of its financial results and financing position. In this way the Board seeks to present a balanced and understandable assessment of the Company’s position and prospects. Statement on internal financial control The Group operates a system of internal financial control which is designed to provide reasonable but not absolute assurance against misstatement or loss. There is a comprehensive system of procedures in place for financial reporting to the executive directors and the Board. These procedures include the preparation of budgets and forecasts, variance analysis, property and treasury reports. Authority limits are clearly defined throughout the organisation including the schedule of matters reserved for the approval of the Board or a specified Committee of the Board. The Board has overall responsibility for the system of internal financial control. The directors carried out their annual review of the current system and updated the documentation of key risk, operational controls and procedures relating to different areas of the business. In this review, that is repeated at least once a year, the directors have considered the effectiveness of the internal financial control framework. The Group does not currently have an internal audit function but the need for one is reconsidered by the Audit Committee from time to time. Going concern In compliance with the Listing Rules of the London Stock Exchange the directors can report that based on the Group’s budgets and financial projections, they have satisfied themselves that the business is a going concern. The Board has a reasonable expectation that the Company and Group have adequate resources and facilities to continue in operational existence for the foreseeable future and therefore the accounts are prepared on a going concern basis. Audit Committee The Company’s Audit Committee, consisting of not less than three non-executive directors, has written terms of reference under which it is responsible for the relationship with the Group’s auditors and for reviewing in depth the Company’s financial reports, circulars to shareholders and internal controls. The terms of reference were reviewed and updated in 1999 to ensure the Audit Committee’s duties adequately cover all areas identified by the Code including review of cost effectiveness and the volume of non-audit services provided to the Group. The Audit Committee meets prior to Board meetings to consider the Interim and Annual results and on an ad hoc basis at other times during the year. In 1998 the Committee met twice. Directors’ responsibilities statement The directors are required by UK company law to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit and loss of the Group for that period. The directors confirm that suitable accounting policies have been used and applied consistently and reasonably and prudent judgements and estimates have been made in the preparation of the financial statements for the year ended 25th December 1998. The directors also confirm that applicable accounting standards and the Companies Act 1985 have been followed with the exception of the departures disclosed and explained in note 1 to the financial statements and that the financial statements have been prepared on the going concern basis. The directors are responsible for keeping proper accounting records, for taking reasonable steps to safeguard the assets of the Company and the Group and prevent and detect fraud and other irregularities. C&R Mid 1998 4/10/00 1:09 pm Page 31 Capital and Regional Properties plc 31 Compliance statement At a Board meeting held on 16th December 1998 the Board adopted a paper prepared by a sub-committee formed to review the Company’s compliance with the Code provisions during the accounting period. This review commenced in August 1998 and initially identified action required to ensure that the Company complied with certain provisions of the Code including amendments to the Articles of Association that were adopted by resolution of the shareholders on 4th November 1998. Changes to the Company’s corporate governance procedures implemented during the year to comply with specified Code provisions were as follows: A6.1 In November 1998 new letters of appointment were provided to the non-executive directors confirming their appointment for a term of three years subject to re-election by shareholders. A1.3 The new appointment letters for non-executive directors confirmed the procedure agreed by the Board for directors in furtherance of their duties to take independent professional advice if necessary, at the Company’s expense. A clause to the same effect was added to the service agreements of the executive directors by variation dated 6th November 1998. A2.1 Following discussion between the non-executive directors at a Board meeting on 24th September 1998 Martin Gruselle was formally identified as the senior non-executive director although, as chairman of both Audit and Remuneration Committees, he had effectively already been carrying out this role. A6.2 The new Articles of Association clarified the position on re-election of directors to ensure such office is not retained for more than three years without re-election by shareholder resolution. B3.5 At a Board meeting held on 16th December 1998 it was agreed that approval of the remuneration policy as set out in the annual report to shareholders would not be included on the agenda of the 1999 Annual General Meeting. This conclusion and the adoption of an annual review of the circumstances were noted in the minutes of the meeting. C2.4 The new Articles of Association require 20 working days’ notice to be given for Annual General Meetings. In the current year, the terms of reference of the Audit Committee have been reviewed and updated to comply with Code provision D3.2 and the Audit Committee has reviewed the need for an internal audit function as required by Code provision D2.2. As permitted by the London Stock Exchange, the Company has complied with Code provision D.2.1 on internal control by reporting on internal financial control in accordance with the guidance for directors on internal control and financial reporting that was issued in December 1994. Other than disclosed above, throughout the year ended 25th December 1998, the Company has been in compliance with the Code Provisions set out in Section 1 of the Combined Code on Corporate Governance issued by the London Stock Exchange. The exceptions arise from the fact that the London Stock Exchange Listing Rules incorporating the new Code provisions were published in June 1998 whilst the compliance statement relates to the whole year ended 25th December 1998. By Order of the Board L. Coral Secretary 26th February 1999 C&R Mid 1998 4/10/00 1:09 pm Page 32 32 Capital and Regional Properties plc Auditors’ Report to the members of Capital and Regional Properties plc We have audited the financial statements on pages 33 to 55 which have been prepared under the accounting policies set out on pages 38 and 39. Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report, including as described on page 30 the financial statements. Our responsibilities, as independent auditors, are established by statute, the Auditing Practices Board, the Listing Rules of the London Stock Exchange, and by our profession’s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions with the Company and other members of the Group is not disclosed. We review whether the statement on page 31 reflects the compliance with those provisions of the Combined Code specified for our review by the Stock Exchange, and we report if it does not. We are not required to form an opinion on the effectiveness of the corporate governance procedures or the Group’s internal controls. We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 25th December 1998 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche Chartered Accountants and Registered Auditors Hill House, 1 Little New Street, London EC4A 3TR 26th February 1999 C&R Mid 1998 4/10/00 1:09 pm Page 33 Consolidated Profit and Loss Account for the year ended 25th December 1998 Turnover: group rental income and share of joint ventures’ turnover Less: share of joint ventures’ turnover Group rental income Net property costs Net rental income Profit on the sale of trading and development properties Administrative expenses Other operating income Group operating profit Share of operating profit in joint ventures Share of operating profit in associates Income from listed investments Interest receivable and similar income Interest payable and similar charges Profit on revenue activities (Loss)/profit on sale of investment properties Profit on sale of investments Profit on ordinary activities before taxation Taxation Profit on ordinary activities after taxation Equity minority interests Profit attributable to the shareholders of the Company Equity dividends paid and payable Profit retained in the year Earnings per share Earnings per share – diluted Earnings per share on revenue activities Capital and Regional Properties plc 33 Notes 2 18 3 4 5 18 19 6 7 3 8 11 29 12 13 28 14 14 14 1998 £000 52,732 7,822 44,910 (6,403) 38,507 517 39,024 (6,259) 32,765 669 33,434 789 684 34,907 1,095 807 (25,290) 11,519 (38) – 11,481 (347) 11,134 (42) 11,092 (4,176) 1997 £000 33,275 4,418 28,857 (5,129) 23,728 1,326 25,054 (4,547) 20,507 449 20,956 1,639 495 23,090 1,039 1,043 (19,072) 6,100 4,828 155 11,083 (917) 10,166 (70) 10,096 (2,674) 6,916 7,422 12.1p 12.1p 12.2p 15.4p 14.9p 8.4p The results of the Group for the year related entirely to continuing operations within the meaning of Financial Reporting Standard No. 3. 1997 comparative amounts have been restated in accordance with Financial Reporting Standard No. 9 and Financial Reporting Standard No. 14. The notes on pages 38 to 55 form part of these financial statements. C&R Mid 1998 4/10/00 1:09 pm Page 34 34 Capital and Regional Properties plc Notes of Historical Cost Profits and Losses for the year ended 25th December 1998 Reported profit on ordinary activities before taxation Realisation of property revaluation surplus of previous years Realisation of property revaluation (deficit)/surplus of previous years in joint ventures Historical cost profit on ordinary activities before taxation Historical cost profit for year retained after taxation, minority interests and dividends Statement of Total Recognised Gains and Losses for the year ended 25th December 1998 1998 £000 11,481 1,313 (54) 12,740 8,010 1997 £000 11,083 2,276 562 13,921 10,037 Total 1998 £000 Total 1997 £000 Six months to Six months to 24th June 25th December 1998 £000 1998 £000 Share of unrealised surplus on valuation of investment properties Share of unrealised surplus/(deficit) on valuation of properties in joint ventures Share of unrealised surplus/(deficit) on valuation of properties in associates Revaluation (deficit)/surplus on other investments Tax on revaluation surpluses realised in year Exchange differences Notes 28 18 19 17 Profit attributable to shareholders Total recognised gains and losses relating to the year 20,422 28,272 48,694 42,546 – 168 (1,383) – – 19,207 3,367 22,574 87 (55) 404 (165) – 28,543 7,725 36,268 87 (288) 113 (979) (165) – 47,750 11,092 58,842 650 2,184 (223) 8 44,877 10,096 54,973 1997 comparative amounts have been restated in accordance with Financial Reporting No. 9. Reconciliation of Movements in Shareholders’ Funds for the year ended 25th December 1998 Profit for the year attributable to shareholders of the Company Equity dividends paid and payable Profit retained in the year Share capital and share premium issued in year (net of expenses) Goodwill written off Other recognised gains and losses relating to year (see above) Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds The notes on pages 38 to 55 form part of these financial statements. Notes 13 28 1998 £000 11,092 (4,176) 6,916 59,128 (277) 47,750 1997 £000 10,096 (2,674) 7,422 63,004 (2,705) 44,877 113,517 217,299 112,598 104,701 330,816 217,299 C&R Mid 1998 4/10/00 1:09 pm Page 35 Consolidated Balance Sheet as at 25th December 1998 Fixed assets Property assets Other fixed assets Other investments Investment in joint ventures Share of gross assets Share of gross liabilities Investment in associates Current assets Property assets Debtors: amounts falling due after more than one year amounts falling due within one year Cash at bank and in hand Creditors: amounts falling due within one year Net current assets/(liabilities) Total assets less current liabilities Creditors: amounts falling due after more than one year (including convertible unsecured loan stock) Net assets Capital and reserves Called up share capital Share premium account Revaluation reserve Other reserves Profit and loss account Equity shareholders’ funds Equity minority interests Non-Equity funding by joint arrangement partners Capital employed Net assets per share adjusted for minority interests and non-equity funding Net assets per share adjusted for minority interests and non-equity funding – diluted Capital and Regional Properties plc 35 Notes £000 1998 £000 £000 1997 £000 15 16 17 18 19 20 21 21 22 23 24 27 28 28 28 28 29 30 31 31 24,412 3,914 18,802 5,476 52,604 (35,120) 654,606 844 655,450 22,000 7,715 (5,448) 2,267 3,446 683,163 17,484 700,647 (364,480) 336,167 9,826 161,863 131,553 591 26,983 330,816 2,101 3,250 336,167 336.7p 320.6p 7,846 800 24,656 9,229 42,531 (53,391) 438,044 1,025 439,069 20,651 15,425 (10,942) 4,483 3,304 467,507 (10,860) 456,647 (238,415) 218,232 7,640 104,921 84,897 591 19,250 217,299 933 – 218,232 284.4p 272.0p 1997 comparative amounts have been restated in accordance with Financial Reporting Standard No. 9. The financial statements were approved by the board of directors and signed on their behalf on 26th February 1999 by: M. Barber L. Coral The notes on pages 38 to 55 form part of these financial statements. C&R Mid 1998 4/10/00 1:09 pm Page 36 36 Capital and Regional Properties plc Consolidated Cash Flow Statement for the year ended 25th December 1998 Net cash inflow from operating activities Dividends received from joint ventures Dividends received from associates Returns on investments and servicing of finance Dividends received from listed investments Interest received Interest paid Loan arrangement costs Taxation UK corporation tax paid UK advance corporation tax paid UK income tax deducted at source UK income tax recovered USA tax paid USA withholding tax recovered Net operating cash flow Capital expenditure and financial investment Payments for: Additions to investment properties Additions to properties held as current assets Additions to other tangible assets Additions to listed investments Purchase of minority interest Investment in associate Loans to joint ventures Receipts from: Sale of investment properties Sale of properties held as current assets Sale of other tangible assets Sale of investments Repayment of loans from associates Repayment of loan by joint venture Acquisitions and disposals Additions to joint ventures Acquisition of subsidiary Equity dividends paid Cash outflow before financing Financing Issue of ordinary share capital Expenses of share issue Bank loans received Bank loans repaid £000 Notes 36(a) 1998 £000 31,303 3,526 660 935 811 (24,065) (535) (315) (606) (90) 166 (35) – (202,465) (27,759) (738) (2,328) – (270) (5,109) 40,371 17,671 173 – – 4,250 (725) – 1997 £000 18,476 820 361 £000 1,039 326 (17,396) – (22,854) 12,635 (16,031) 3,626 – (338) (95) – (172) 82 (880) 11,755 (523) 3,103 (209,578) (6,850) (604) – (312) (30) (2,517) 51,331 18,719 63 155 274 4,850 (450) (887) (176,204) (164,449) (725) (165,174) (1,910) (167,084) (144,499) (141,396) (1,337) (142,733) (1,676) (144,409) 61,198 (2,070) 200,934 (96,731) 61,215 (2,679) 161,182 (72,341) 163,331 (3,753) 147,377 2,968 (Decrease)/increase in cash 36(b) 1997 comparative amounts have been restated in accordance with Financial Reporting Standard No. 9. The notes on pages 38 to 55 form part of these financial statements. C&R Mid 1998 4/10/00 1:09 pm Page 37 Company Balance Sheet as at 25th December 1998 Fixed assets Other investments Current assets Debtors: amounts falling due after more than one year amounts falling due within one year Cash at bank Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors Amounts falling due after more than one year (including convertible unsecured loan stock) Net assets Capital and reserves Called up share capital Share premium account Other reserves Profit and loss account Equity shareholders’ funds Capital and Regional Properties plc 37 1998 £000 39,018 £000 1997 £000 31,897 Notes £000 17 21 21 23 24 27 28 28 28 59,617 463,385 408 523,410 (21,592) 18,205 301,974 736 320,915 (14,398) 501,818 540,836 (329,044) 211,792 9,826 161,923 591 39,452 211,792 306,517 338,414 (198,382) 140,032 7,640 104,981 591 26,820 140,032 The financial statements were approved by the board of directors and signed on their behalf on 26th February 1999 by: M. Barber L. Coral The notes on pages 38 to 55 form part of these financial statements. C&R Back 1998 4/10/00 12:51 pm Page 38 38 Capital and Regional Properties plc Notes to the Financial Statements for the year ended 25th December 1998 1. Accounting policies The financial statements have been prepared in accordance with applicable UK accounting standards and, except for the non-depreciation of investment properties and the treatment of grants referred to below, with the Companies Act 1985. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of properties and investments, using the following principal accounting policies, which have been applied consistently: The Group has adopted FRS9 (Associates and Joint Ventures), FRS10 (Goodwill), FRS11 (Impairment), FRS12 (Provisions), FRS13 (Financial Instruments) and FRS14 (Earnings per share). 1997 comparative figures have been restated accordingly. Basis of consolidation The consolidated financial statements incorporate the financial statements of Capital and Regional Properties plc and its consolidated entities and associated companies and joint ventures for the year ended 25th December 1998. Where necessary, the financial statements of subsidiaries are adjusted to conform with the Group’s accounting policies. Subsidiaries have been consolidated under the acquisition method of accounting and the results of companies acquired during the year are included from the date of acquisition. Goodwill on consolidation represents the difference between the purchase consideration and the fair value of net assets acquired and is capitalised in the year in which it arises and is amortised over its useful economic life. This represents a change of accounting policy from previous years when the Group’s policy was to write off goodwill on acquisition immediately to reserves. In accordance with the transitional arrangements of FRS10, goodwill previously written off to reserves has not been reinstated. Details of accumulated goodwill previously written off to reserves are detailed in note 28. Joint ventures, associates and joint arrangements In accordance with FRS9, joint ventures are included in the accounts under the gross equity method of accounting, and associates under the net equity method. Comparative figures have been restated accordingly. Where the Group has entered into a joint arrangement with a third party where no separate entity exists, the Group includes its proportion of assets, liabilities, income and expenditure within the Group figures. Where necessary the financial statements of associates and joint ventures are adjusted to conform with the Group’s accounting policies. Foreign currency Balances in foreign undertakings and the results for the year are translated into sterling at the rate of exchange ruling at the balance sheet date of $1.67 to the £ (1997: $1.67 to the £). Exchange differences, which arise from the translation of the share capital and reserves of foreign subsidiaries, are taken to reserves. Foreign currency transactions of UK companies are translated at the rates ruling when they occurred. Their foreign currency monetary assets and liabilities are translated at the rate ruling at the balance sheet date. Any differences are taken to the profit and loss account. Depreciation Depreciation is provided on all tangible fixed assets, other than investment properties, over their expected useful lives: Fixtures and fittings – over three to five years, on a straight line basis. Motor vehicles – over four years, on a straight line basis. Investment properties Investment properties are included in the financial statements at valuation. The aggregate surplus or temporary deficit below cost arising from such valuations is transferred to a revaluation reserve. Deficits that are expected to be permanent are charged to the profit and loss account. The Group has now adopted a policy of valuing investment properties twice a year. On realisation any gain or loss is calculated by reference to the carrying value at the last valuation and is included in the profit and loss account. Any balance in the revaluation reserve is transferred to the profit and loss account reserve. In accordance with SSAP19 (Revised) “Accounting for investment properties” no depreciation or amortisation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years unexpired. The Companies Act 1985 requires all properties to be depreciated, but that requirement conflicts with the generally accepted principle set out in SSAP19 (Revised). Depreciation is only one of many factors reflected in the annual valuation of properties and the amount of depreciation or amortisation, which might otherwise have been charged, cannot be separately identified or quantified. C&R Back 1998 4/10/00 12:51 pm Page 39 Capital and Regional Properties plc 39 Properties under development Interest and directly attributable internal and external costs incurred during the period of development are capitalised. Interest is capitalised gross before deduction of related tax relief. A property ceases to be treated as being under development at the earlier of it being fully let or six months from practical completion. Refurbishment expenditure Refurbishment expenditure in respect of major works is capitalised. Renovation and refurbishment expenditure of a revenue nature is written off as incurred. Property transactions Acquisitions and disposals are accounted for at the date of legal completion. Properties are transferred between categories at the estimated market value on the transfer date. Current property assets Properties held with the intention of disposal and properties held for development are valued at the lower of cost and net realisable value. Investments The investment in shares held in CenterPoint Properties Trust is included in the financial statements at market value at the balance sheet date translated at the exchange rate ruling at that date. Investments in other quoted securities are also stated at market value. The aggregate surplus or temporary deficit arising from such valuations is transferred to a revaluation reserve. Deficits that are expected to be permanent are charged to the profit and loss account. Loan arrangement costs Costs relating to the raising of general corporate loan facilities and loan stock are amortised over the estimated life of the loan and charged to the profit and loss account as part of the interest expense. The bank loans and loan stock are disclosed net of unamortised loan issue costs. Operating leases Annual rentals under operating leases are charged to the profit and loss account as incurred. Deferred taxation Provision is made for timing differences between the treatment of certain items for taxation and accounting purposes to the extent that it is probable that a liability or asset will crystallise. Pension costs Pension liabilities, all of which relate to defined contribution schemes, are charged to the profit and loss account in the year in which they accrue. Grants Grants received relating to the construction or redevelopment of investment properties have been deducted from the cost of the property. The Companies Act 1985 requires assets to be shown at their purchase price or construction cost and hence grants to be presented as deferred income. The departure from the requirements of the Act is, in the opinion of the directors, not material to the financial statements. C&R Back 1998 4/10/00 12:51 pm Page 40 40 Capital and Regional Properties plc Notes to the Financial Statements 2. Segmental analysis Turnover: Rental income Surrender premiums Share of joint ventures’ Less: share of joint ventures’ Group rental income Net property costs Net rental income Profit on the sale of trading and development properties Administrative expenses Other operating income Group operating profit Share of operating profit in joint ventures Share of operating profit in associates Income from listed investments Interest receivable and similar income Interest payable and similar charges Profit on revenue activities Profit on ordinary activities before taxation Continuing Purchase of operations The Pallasades 1998 £000 1998 £000 Total 1998 £000 Continuing operations 1997 £000 35,536 4,535 7,822 47,893 7,822 40,071 (5,918) 34,153 517 34,670 (6,259) 28,411 669 29,080 789 684 30,553 1,095 807 (23,252) 9,203 9,165 4,839 – – 4,839 – 4,839 (485) 4,354 – 4,354 – 4,354 – 4,354 – – 4,354 – – (2,038) 2,316 2,316 40,375 4,535 7,822 52,732 7,822 44,910 (6,403) 38,507 517 39,024 (6,259) 32,765 669 33,434 789 684 34,907 1,095 807 (25,290) 11,519 11,481 27,889 968 4,418 33,275 4,418 28,857 (5,129) 23,728 1,326 25,054 (4,547) 20,507 449 20,956 1,639 495 23,090 1,039 1,043 (19,072) 6,100 11,083 Net assets adjusted for minority interests 225,316 105,500 330,816 217,299 The above segmental analysis of financial statements originates from the UK except, £1,070,000 (1997: £1,039,000) of income from listed investments which originate from the US. There would be a corresponding adjustment to profit on revenue activities and profit on ordinary activities before taxation. Net assets adjusted for minority interests originating from the US are £20,445,000 (1997: £20,650,000). The purchase of The Pallasades Shopping Centre is disclosed separately to provide additional information. The Group operates in one class of business, property investment, development and management. 3. Property sales Net sale proceeds Cost of sales Historical cost profit Revaluation surplus Share of joint ventures (see note 18) (Loss)/profit recognised on sale of properties Fixed property assets Current property assets 1998 £000 1997 £000 1998 £000 1997 £000 1998 £000 Total 1997 £000 40,371 (39,141) 51,331 (44,267) 7,126 (6,609) 25,308 (23,982) 47,497 (45,750) 76,639 (68,249) 1,230 1,313 (83) 45 (38) 7,064 2,276 4,788 40 4,828 517 – 517 – 517 1,326 – 1,326 – 1,326 1,747 1,313 434 45 479 8,390 2,276 6,114 40 6,154 C&R Back 1998 4/10/00 12:51 pm Page 41 Capital and Regional Properties plc 41 4. Administrative expenses General administrative costs Corporate and public company expenses 5. Other operating income Fee income from joint ventures and associates Other income 6. Interest receivable and similar income Bank interest Interest from joint ventures and associates Other interest Share of joint ventures’ (see note 18) Share of associates’ (see note 19) 7. Interest payable and similar charges Bank loans and overdrafts wholly repayable within five years Other loans Capitalised during the year Share of joint ventures’ (see note 18) Share of associates’ (see note 19) 1998 £000 5,249 1,010 6,259 1998 £000 282 387 669 1998 £000 233 375 119 727 76 4 807 1998 £000 23,888 1,752 25,640 (856) 24,784 237 269 25,290 1997 £000 3,925 622 4,547 1997 £000 228 221 449 1997 £000 276 557 36 869 168 6 1,043 1997 £000 16,770 1,806 18,576 (919) 17,657 1,119 296 19,072 The interest relating to bank loans, overdrafts and other loans wholly repayable within five years included £2,796,000 (1997: £4,530,000) in respect of loans repayable by instalments. The interest charge includes £285,000 (1997: £212,000) of loan arrangement costs amortised during the year. C&R Back 1998 4/10/00 12:52 pm Page 42 42 Capital and Regional Properties plc Notes to the Financial Statements 8. Profit on ordinary activities before taxation This is arrived at after charging: Loss on disposal of other fixed assets Depreciation Amortisation of goodwill Auditors’ remuneration (see below) Directors’ emoluments (see note 10) Operating lease rentals for land and buildings The Group’s auditors also charged the following amounts for the provision of non-audit services during the year: General taxation advice Fees in relation to share issues Other 1998 £000 113 569 5 89 2,059 918 85 92 18 195 1997 £000 31 342 – 98 1,774 770 119 144 2 265 The auditors’ remuneration for the Group includes £6,000 (1997: £6,000) in respect of the parent company. 9. Employee information The staff engaged directly in property management are employed by subsidiaries, which recharge their employment costs to the tenants of the shopping centres and properties owned by those companies. The aggregate payroll costs, excluding shopping centre and property specific employees, were as follows: Staff costs (including directors) consist of: Salaries Discretionary bonuses Total salaries Social security costs Other pension costs The average number of persons employed by the Group during the year was 74 (1997: 72). Direct property services Central management 1998 £000 2,564 1,107 3,671 380 166 4,217 1997 £000 1,886 1,077 2,963 306 143 3,412 Average number of employees during 1998 during 1997 20 54 74 22 50 72 C&R Back 1998 4/10/00 12:52 pm Page 43 10. Directors’ emoluments Emoluments of the highest paid director are as follows: Aggregate emoluments Pension contributions to defined contribution scheme Gains made on exercise of share options Total emoluments of all directors are as follows: Aggregate emoluments Pension contributions to defined contribution schemes Gains made on exercise of share options Capital and Regional Properties plc 43 1998 £000 380 38 418 – 418 1,907 152 2,059 – 2,059 1997 £000 359 34 393 217 610 1,650 124 1,774 805 2,579 Company pension contributions to defined contribution schemes are being made in respect of six directors. Details of directors’ remuneration by director and details of their interests in the share capital of the Company are set out in the report on Directors’ Remuneration and Interests on pages 25 to 28. 11. Taxation UK corporation tax: Current period Prior periods Advance corporation tax Share of tax of joint ventures (see note 18) Share of tax of associates (see note 19) Income tax suffered USA tax 1998 £000 351 (130) 1 125 – – – 347 1997 £000 1,557 (105) (708) 77 (16) 41 71 917 The tax liability for the year has been reduced due to the benefit of capital allowances. 12. Profit of the holding company Of the profit for the year attributable to shareholders, a profit of £16,808,000 (1997: £12,568,000) has been dealt with in the accounts of the holding company and is made up as follows: Dividends from subsidiaries Net operating costs including interest and tax 1998 £000 1997 £000 36,550 (19,742) 24,700 (12,132) 16,808 12,568 The Company has taken advantage of the exemption provided by Section 230 of the Companies Act 1985 from presenting its own profit and loss account. C&R Back 1998 4/10/00 12:52 pm Page 44 44 Capital and Regional Properties plc Notes to the Financial Statements 13. Equity dividends paid and payable Interim of 1.5p per share payable on 7th April 1999 (1997: 1.0p per share) Proposed final of 2.75p per share payable on 26th April 1999 (1997: 2.5p per share) 1998 £000 1,474 2,702 4,176 1997 £000 764 1,910 2,674 14. Earnings per share Earnings per share have been calculated on the weighted average number of Ordinary shares of 10p each in issue during the year 91,712,962 (1997: 65,402,068) and have been based on profit on ordinary activities after taxation and minority interests of £11,092,000 (1997: £10,096,000). The 1997 comparative weighted average number of shares in issue has been adjusted to reflect the bonus element of the 2 for 7 rights issue in 1998. Diluted earnings per share have been calculated after allowing for the exercise of share options which have met the required exercise conditions and the full conversion of the Convertible Unsecured Loan Stock, if the effect on earnings per share is dilutive. The weighted average number of Ordinary shares of 10p each is 92,048,812 (1997: 78,790,488) and the relevant earnings are £11,092,000 (1997: £11,752,000). Earnings per share on revenue activities exclude the loss on the sale of investment properties and investments, and associated tax charge and minority interest thereon, of £132,000 (1997 profit: £4,581,000). 15. Property assets Group Cost or valuation: At beginning of year Additions Reclassification on purchase of freehold Disposals Revaluation At end of year The year end balance is analysed as follows: Historical cost Revaluation surplus Investment properties Freehold properties £000 Leasehold properties £000 Properties under construction £000 278,122 94,218 80,918 (39,215) 37,552 159,922 107,537 (80,918) (1,240) 10,036 451,595 195,337 347,957 103,638 182,388 12,949 – 5,397 – – 2,277 7,674 5,397 2,277 A list of the valuers, and the basis of the valuations, are summarised in note 33. The year end balance for leasehold properties is analysed as follows: Leasehold with more than 50 years to run Leasehold with less than 50 years to run The net book value of property assets includes £623,000 (1997: £8,000) in respect of capitalised interest. Total £000 438,044 207,152 – (40,455) 49,865 654,606 535,742 118,864 1998 £000 190,137 5,200 195,337 C&R Back 1998 4/10/00 12:52 pm Page 45 16. Other fixed assets Group Cost At beginning of year Additions Disposals At end of year Depreciation At beginning of year Provided for year Disposals At end of year Net book values: At 25th December 1998 At 25th December 1997 17. Other investments At beginning of year Additions Transfers from Group companies Deficit on revaluation (see note 28) At end of year Capital and Regional Properties plc 45 Fixtures and fittings £000 Motor vehicles £000 1,145 481 (277) 1,349 527 393 (100) 820 529 618 664 193 (299) 558 257 176 (190) 243 315 407 Total £000 1,809 674 (576) 1,907 784 569 (290) 1,063 844 1,025 Investment in CenterPoint Properties Trust £000 Other listed investments £000 20,650 – – (205) 20,445 1 2,328 – (774) 1,555 Group Company Shares in subsidiary and joint venture undertakings £000 31,897 200 6,921 – 39,018 Total £000 20,651 2,328 – (979) 22,000 At 25th December 1998, the Group owned 5.0% of the common stock (4.9% on a fully diluted basis) of CenterPoint Properties Trust, a Maryland real estate investment trust operating in Chicago, Illinois, USA. The stock is listed on the New York Stock Exchange. A list of subsidiaries, joint venture and associated undertakings is given in note 39. 18. Investment in joint ventures At beginning of year Transfer from creditors Subscription for share capital Amortisation of goodwill arising on additions Disposals Dividends and capital distributions received Share of goodwill written off Share of results (see below) Share of taxation (see below) Share of property revaluation surplus/(deficit) Transfer to creditors (see note 23) At end of year 1998 £000 4,483 (26) 4,457 725 (5) 26 (3,526) – 628 (125) 87 2,267 – 2,267 1997 £000 4,472 (123) 4,349 450 – 68 (820) 59 716 (77) (288) 4,457 26 4,483 1997 comparative amounts have been restated in accordance with Financial Reporting Standard No. 9. C&R Back 1998 4/10/00 12:52 pm Page 46 46 Capital and Regional Properties plc Notes to the Financial Statements 18. Investment in joint ventures continued Group share of results: Turnover Operating profit Interest receivable and similar income Interest payable and similar charges Profit on the sale of investment properties Equity minority interests Profit before tax Taxation Profit after tax Group share of: Investment properties Development properties at cost Other current assets Gross assets Current liabilities Loans Gross liabilities Share of net assets Effective Group share Potential recourse to the Group Actual recourse at end of year Easter Holdings Ltd £000 Exchange Court Properties Ltd £000 Others £000 7,606 707 32 (96) – (45) 598 (127) 471 1,196 – 4,166 5,362 1,413 2,867 4,280 1,082 50% Nil Nil 83 7 1 (102) – – (94) 2 (92) – 2,062 8 2,070 118 1,050 1,168 902 133 75 43 (39) 45 – 124 – 124 78 70 135 283 – – – 283 50% 37.5% to 50% Nil Nil Nil Nil A list of valuers and the basis of the valuation are summarised in note 33. The joint ventures all operate in the UK. 19. Investment in associates At beginning of year Transfer from creditors Share of results (see below) Share of taxation (see below) Dividends and capital distributions received Disposals Investment in associates Share of property revaluation surplus At end of year 1998 £000 3,304 – 3,304 419 – (660) – 270 113 3,446 1997 comparative amounts have been restated in accordance with Financial Reporting Standard No. 9. Total £000 7,822 789 76 (237) 45 (45) 628 (125) 503 1,274 2,132 4,309 7,715 1,531 3,917 5,448 2,267 1997 £000 3,054 (33) 3,021 195 16 (361) (247) 30 650 3,304 C&R Back 1998 4/10/00 12:52 pm Page 47 19. Investment in associates continued Group share of results: Turnover Operating profit Interest receivable and similar income Interest payable and similar charges Profit before tax Taxation Profit after tax Group share of: Investment properties Other current assets Gross assets Current liabilities Loans Gross liabilities Share of net assets Effective Group share Potential recourse to the Group Actual recourse at end of year A list of valuers and the basis of the valuation are summarised in note 33. The associates both operate in the UK. 20. Current property assets Properties held for disposal Properties under development Capital and Regional Properties plc 47 Easter Industrial Partnership £000 Easter Runcorn Partnership £000 388 372 2 (163) 211 – 211 3,775 123 3,898 357 1,875 2,232 1,666 25% 7,500 Nil 338 312 2 (106) 208 – 208 3,150 91 3,241 99 1,362 1,461 1,780 25% 1,362 Nil 1998 £000 18,860 5,552 24,412 Total £000 726 684 4 (269) 419 – 419 6,925 214 7,139 456 3,237 3,693 3,446 8,862 Nil 1997 £000 6,521 1,325 7,846 The net book value of current property assets includes £10,000 (1997: £Nil) in respect of capitalised interest. 21. Debtors Amounts falling due after more than one year Trade debtors Amounts owed by subsidiaries Amounts owed by joint ventures Amounts falling due within one year Trade debtors Amounts owed by subsidiaries Amounts owed by joint ventures Other debtors Tax recoverable (including advance corporation tax) Prepayments and accrued income 1998 £000 – – 3,914 3,914 12,095 – – 2,712 461 3,534 18,802 Group 1997 £000 800 – – 800 8,010 – 3,240 1,719 785 10,902 1998 £000 – 55,703 3,914 59,617 53 423,255 – 358 703 39,016 Company 1997 £000 – 18,205 – 18,205 25 271,936 3,204 1,058 1,052 24,699 24,656 463,385 301,974 C&R Back 1998 4/10/00 12:52 pm Page 48 48 Capital and Regional Properties plc Notes to the Financial Statements 22. Cash at bank Cash at bank includes £36,000 (1997: £222,000) specifically held as security deposits and retained in rent accounts and not freely available to the Group for day to day commercial purposes. 23. Creditors: amounts falling due within one year Bank loans (secured) (see note 25) Amounts owed by subsidiaries Trade creditors Other creditors Taxation and social security Corporation tax (including advance corporation tax) Accruals and deferred income Proposed dividends Share of net liabilities of joint venture (see note 18) 24. Creditors: amounts falling due after more than one year Bank loans (secured) (see note 25) Convertible loan stock (unsecured) (see note 26) 25. Bank loans Aggregate amount repayable: Between one and two years Between two and five years Loans due after more than one year Loans due in one year or less or on demand 1998 £000 396 – 1,397 2,858 1,271 511 24,511 4,176 – 35,120 1998 £000 Group 1997 £000 22,461 – 1,122 4,404 1,474 1,487 20,507 1,910 26 53,391 Group 1997 £000 Company 1997 £000 (193) 8,824 9 1 – 668 3,179 1,910 – 1998 £000 (322) 13,262 7 – – – 4,469 4,176 – 21,592 14,398 Company 1997 £000 1998 £000 340,439 24,041 214,482 23,933 305,003 24,041 174,449 23,933 364,480 238,415 329,044 198,382 1998 £000 33,838 306,601 340,439 487 Group 1997 £000 61,745 152,737 214,482 22,554 1998 £000 (147) 305,150 305,003 (231) Company 1997 £000 (172) 174,621 174,449 (100) Total loans 340,926 237,036 304,772 174,349 Bank loans are secured on properties valued at £667,163,000. Bank loans are stated net of unamortised issue expenses totalling £499,000 (1997: £186,000). The following information has been produced in order to comply with Financial Reporting Standard No.13. A more detailed analysis is given in the finance review on pages 18 and 19. The Group’s interest rate profile is after taking account of the effect of swaps, as follows: Fixed and swapped loans Variable rate loans Variable rate loan interest rates are based on three month LIBOR. Weighted average interest rate Weighted average period-years 7.9% 7.5% 4.6 n/a Total £000 287,792 78,275 366,067 C&R Back 1998 4/10/00 12:52 pm Page 49 Capital and Regional Properties plc 49 25. Bank loans continued The table below shows the market value of fixed rate debt instruments, and reflects the difference between the interest rate yield curve as at 25th December 1998 and the rates historically committed; namely the fair value adjustment. Convertible unsecured loan stock Bank borrowings Interest rate swaps Book value £000 24,642 15,250 247,900 Fair value £000 Fair value adjustment £000 25,349 16,088 257,728 (707) (838) (9,828) 287,792 299,165 (11,373) Interest rate swaps and bank fixed rates have been valued on a replacement basis. They have been valued against the offered side of the zero coupon yield curve commencing on 25th December 1998 and ending on the contracted expiry dates. Undrawn loan facilities as at 25th December 1998 are as follows: Loans due to be repaid in: Less than one year Between one and two years Between two and five years £000 – 11,976 47,819 59,795 Financial assets The fair value adjustment to financial assets and liabilities is, in the opinion of the directors, not material to the balance sheet. Currency profile All monetary assets and liabilities are denominated in sterling. 1997 comparative information Comparatives have not been provided due to the impractical nature of obtaining the information and the early adoption of Financial Reporting Standard No. 13. 26. Convertible subordinated unsecured loan stock Convertible loan stock Unamortised loan issue costs due after one year Unamortised loan issue costs due within one year 1998 £000 24,642 (601) 24,041 (91) Group 1997 £000 24,642 (709) 23,933 (93) Company 1997 £000 24,642 (709) 23,933 (93) 1998 £000 24,642 (601) 24,041 (91) 23,950 23,840 23,950 23,840 The Convertible Subordinated Unsecured Stock (“CULS”) may be converted by the holders of the stock into 50.37 Ordinary shares per £100 nominal value CULS in any of the years 1997 to 2015 inclusive, representing a conversion price of 199p per Ordinary share. The Company has the right to redeem at par the CULS in any year from 2006 to 2016. The CULS are unsecured and are subordinated to all other forms of unsecured debt but rank in priority to the holders of the Ordinary shares in the Company. The CULS carries interest at an annual rate of 6.75%, payable in arrears on 30th June and 31st December in each year. In accordance with Financial Reporting Standard No. 4 “Capital Instruments”, the CULS is shown net of its unamortised loan issue costs. C&R Back 1998 4/10/00 12:52 pm Page 50 50 Capital and Regional Properties plc Notes to the Financial Statements 27. Called up share capital Ordinary shares of 10p each At beginning of year Issued in respect of rights issue Issued in respect of purchase of Lanham plc Issued in respect of minority interests Issued in respect of placing and open offer Issued in respect of conversion of convertible loan stock Issued on exercise of share options Issued in respect of profit sharing scheme At end of year Ordinary shares of 10p each Number of shares issued and fully paid Nominal value of shares issued and fully paid 1998 Number 1997 Number 76,399,235 21,828,352 – – – – – 27,684 45,594,600 – 960,906 356,034 28,159,526 703,068 600,986 24,115 98,255,271 76,399,235 1998 £000 7,640 2,183 – – – – – 3 9,826 1997 £000 4,560 – 96 36 2,816 70 60 2 7,640 Authorised 1998 1997 150,000,000 120,000,000 On 16th April 1998, the authorised Ordinary share capital increased by 30,000,000 to 150,000,000 Ordinary shares. The Ordinary share capital issued during the year was issued for a total consideration of £61,198,000. There have been no changes to the number of shares in issue since the year end. The options to subscribe for new Ordinary shares of 10p each under the share option schemes that were outstanding at 25th December 1998 are as follows: Period within which options are exercisable: 22nd December 1996 to 22nd December 2003 28th October 1997 to 28th October 2004 13th April 1998 to 13th April 2005 21st October 1999 to 21st October 2006 18th June 2000 to 18th June 2004* 18th June 2000 to 18th June 2007* 15th May 2001 to 15th May 2008** 22nd May 2001 to 22nd May 2008** 28th September 2001 to 28th September 2008** * Only exercisable if conditions relating to growth in net asset value per share are met. ** Only exercisable if conditions relating to growth in net asset per share and total return for shareholders are met. 25th December 1998 Number of shares Subscription price 460,814 349,281 20,852 182,458 709,869 109,558 1,156,500 83,290 25,000 3,097,622 168.9p 131.4p 132.4p 193.2p 226.4p 226.4p 279.5p 286.5p 196.5p C&R Back 1998 4/10/00 12:52 pm Page 51 Capital and Regional Properties plc 51 28. Reserves Revaluation reserves Other reserves Share premium account £000 Property revaluation reserve £000 Investment revaluation reserve £000 Capital redemption reserve £000 Profit and loss account £000 Group At beginning of year Issue of share capital Expenses of share issue Group share of revaluation of investment properties Realisation of surplus on disposal of investment properties Realisation of deficit on disposals in joint ventures Share of unrealised revaluation surplus in joint ventures Share of unrealised revaluation surplus in associates Additional goodwill written off Revaluation deficit on other investments Profit for the year Taxation in statement of recognised gains and losses 104,921 59,012 (2,070) – – – – – – – – – 67,268 – – 48,694 (1,313) 54 87 113 – – – – 17,629 – – – – – – – – (979) – – At end of year 161,863 114,903 16,650 Group’s share of post acquisition Reserves of joint ventures and associates At beginning of year Movement during year At end of year Company At beginning of year Movement during the year At end of year 475 254 729 104,981 56,942 161,923 591 – – – – – – – – – – – 591 591 – 591 19,250 – – – 1,313 (54) – – (277) – 6,916 (165) 26,983 3,613 (3,264) 349 26,820 12,632 39,452 The accumulated goodwill written off to reserves at end of year is £4,105,000 (1997: £3,828,000). Additional goodwill written off in the year to 25th December 1998 relates to an amendment to the fair value of an acquisition in the year ended 25th December 1997 when the Group’s accounting policy was to write off goodwill on acquisition immediately to reserves. Financial Reporting Standard No. 10 is now applicable and all future purchased goodwill will be capitalised and amortised over its useful economic life. 29. Equity minority interests Share of net assets attributable to minority shareholders: At beginning of year Acquired by the Group Minority interest in company acquired Share of results Share of joint ventures’ (see note 18) Share of movements in revaluation reserve At end of year Profit and loss Balance sheet Profit and loss Balance sheet 1997 £000 1998 £000 1997 £000 1998 £000 – – – (3) 45 – 42 933 – – (3) – 1,171 2,101 – – – 43 27 – 70 2,458 (2,514) 33 43 – 913 933 Minority interests relate to participation in the net equity of subsidiary companies. 30. Non-equity funding by joint arrangement partners This represents the additional non-equity funding in the 50:50 joint arrangement, named Sports Village Milton Keynes Partnership, by funds managed by PRICOA Property Investment Management Limited. 31. Net assets per share Net assets per share have been calculated on Ordinary shares of 10p each 98,255,271 (1997: 76,399,235) in issue at the year end and have been based on net assets attributable to shareholders of £330,816,000 (1997: £217,299,000). Diluted net assets per share assume that all the CULS had converted at the balance sheet date. Diluted net assets per share have been calculated on 110,667,442 Ordinary shares of 10p each and have been based on adjusted net assets attributable to shareholders of £354,766,000 by adding £23,950,000 balance sheet value of the CULS (see note 26). C&R Back 1998 4/10/00 12:52 pm Page 52 52 Capital and Regional Properties plc Notes to the Financial Statements 32. Deferred taxation No provision has been made for the tax liability that would arise if assets were sold at their balance sheet valuation, on the basis that no liability is expected to crystallise in the foreseeable future. The potential Group liability is as follows: Tax on capital gains if investment assets were sold at their current valuation Accelerated capital allowances Management expenses carried forward 1998 £000 31,985 5,182 (871) 1997 £000 20,506 3,197 (871) 36,296 22,832 33. Valuations The properties were valued at 25th December 1998, as follows: Valuer Basis of valuation Group properties: DTZ Debenham Thorpe St Quintin Directors Directors Open market value Open market value – properties under construction* Open market value Open market value Cost Properties held by joint ventures and associates: The Capital Properties Partnership Easter Holdings Limited Easter Runcorn and Easter Industrial Partnerships Valuer Basis of valuation Directors Easter Holdings Limited Open market value Open market value Hillier Parker Open market value** £000 571,525 7,674 70,610 4,670 127 654,606 £000 155 2,393 27,700 30,248 Valuations are at open market value as defined in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors. * The valuation reflects the Group’s effective interest in properties under construction. ** The freehold and leasehold properties were independently valued at 31st December 1998. 34. Contingent liabilities and guarantees At 25th December 1998, the Company or the Group had given guarantees in respect of: – bank borrowings and interest payable of certain associates; – the performance of certain subsidiaries in respect of their involvement in joint ventures; – rental and grant repayment obligations of certain joint ventures; – non-equity funding by joint arrangement partners No security has been provided against any of these guarantees. Recourse to the Group in respect of guarantees of the bank loans of joint ventures and associates not included in the consolidated balance sheet is set out in note 18 and 19. 35. Future commitments Capital expenditure commitments: Contracted, but not provided for Revenue expenditure commitments: Commitments for 1999 in respect of operating leases for land and buildings which expire: Between two and five years In five years or more 1998 £000 23,900 – 779 779 1997 £000 86 5 782 787 C&R Back 1998 4/10/00 12:52 pm Page 53 36. Notes to the cash flow statement (a) Net cash inflow from operating activities Group operating profit Profit on the sale of the trading and development properties Depreciation Loss on disposal of fixed assets Amortisation of goodwill arising on acquisition of joint venture Increase in trade debtors, other debtors and prepayments Increase in trade creditors, other creditors, taxation and social security and accruals Other non-cash movements Net cash inflow from operating activities (b) Reconciliation of net cash flow movement in net debt (Decrease)/increase in cash in year Cash inflow from increase in debt financing Change in net debt resulting from cash flows Loans and financing agreements acquired with subsidiary Conversion of convertible loan stock to equity ordinary shares of 10p each Other non-cash changes Movement in net debt in the year Net debt at beginning of year Net debt at end of year (c) Analysis of net debt Cash in hand and at bank Debt due within one year Debt due after one year Total 37. Related party transactions Capital and Regional Properties plc 53 1998 £000 33,434 (517) 32,917 569 113 5 (5,305) 3,004 – 1997 £000 20,956 (1,326) 19,630 342 31 – (1,931) 390 14 31,303 18,476 1998 £000 (3,753) (104,203) (107,956) – – – (107,956) (252,635) 1997 £000 2,968 (88,841) (85,873) (4,178) 1,412 (37) (88,676) (163,959) (360,591) (252,635) At 25th December 1997 £000 9,229 (22,658) (239,206) At 25th December 1998 £000 5,476 (760) (365,307) Cash flows £000 (3,753) 21,898 (126,101) (252,635) (107,956) (360,591) The Group’s principal transactions with related parties, as defined by Financial Reporting Standard No. 8, are summarised below: Joint ventures and associates Details of the Group’s principal joint ventures and associates, including recourse to the Group in respect of external borrowings, are set out in notes 18 and 19. The Group has provided a £5,000,000 loan facility to Easter Holdings Ltd which is repayable on or before 1st January 2001. At 25th December 1998 the loan outstanding was £3,914,000 (1997: £3,000,000). Interest was charged on this facility at rates ranging between 9.25% and 10.25% during the year. The interest receivable for the year is £364,000 (1997: £539,000). The Group was charged £171,000 by a subsidiary of Easter Holdings Ltd in respect of property acquisition and management fees during the year, and £270,000 to surrender a property it leased from the Group. The Group charged a £250,000 loan guarantee fee to Easter Holdings Group during the year. C&R Back 1998 4/10/00 12:52 pm Page 54 54 Capital and Regional Properties plc Notes to the Financial Statements 37. Related party transactions continued Directors David Cherry is a former Senior Partner and currently a consultant to the firm of Donaldsons, which has continued to act during 1998 as one of the Group’s property advisers and as such has received fees for its services on normal professional terms. During 1998 Primesight plc purchased one of the Group’s properties on normal commercial terms for a total consideration of £1,244,000. Martin Barber is a director and shareholder of Primesight plc. Roger Boyland, Xavier Pullen, Lynda Coral and Viscount Chandos are shareholders of Primesight plc. During 1998 the Company acquired from a third party a 50% share in a joint venture company, in which Kenneth Ford has the remaining 50% interest; which has option rights over land for development. The Company subsequently transferred its 50% interest in the joint venture company to its 75% subsidiary Easter Capital Investment Holdings Limited. During 1998 Cine UK Limited entered into agreements for lease at two of the Group’s properties on normal commercial terms. Viscount Chandos is a director and shareholder of Cine UK Limited. Martin Barber is a shareholder of Cine UK. During 1998 Lopex PLC leased one of the Group’s properties on normal commercial terms. At 25th December 1998 Lopex PLC agreed to surrender the lease for a premium, payable to the Group, of £68,000 which was paid after the year end. Viscount Chandos is a director and shareholder of Lopex PLC. During 1998 the Group entered into a partnership arrangement with funds managed by Pricoa Property Investment Management Limited of which Martin Barber is non-executive chairman. 38. Post balance sheet events On 4th January 1999 the Group purchased Bank House, Birmingham for a total consideration of £4,280,000. On 5th January 1999 the Group purchased Court Road Industrial Estate, Cwmbran for a total consideration of £1,950,000. On 29th January 1999 the Group purchased Imperial House, Grimsby for a total consideration of £1,586,000 and 36-38 Whitechapel and Williamson Street, Liverpool for a total consideration of £1,188,000. On 18th February 1999 the Group purchased Westway Crosshopping Park, Greenford for a total consideration of £33,250,000. On 18th February 1999 the Group purchased from Phillips & Drew Fund Management Limited the remaining 75% interest in the properties at Manor Park Industrial Estate, Runcorn and properties held by Easter Industrial Partnership for a total consideration of £9,750,000 and £11,381,000 respectively. 39. Subsidiary, joint arrangement entities, associated and joint venture undertakings at 25th December 1998 Principal subsidiaries, joint arrangement entities, associated companies and joint ventures Nature of property business Capital and Regional Shopping Centres Limited*** The Howgate Shopping Centre Limited** Capital and Regional (Norwich) Limited Capital and Regional (Out-of-Town) Ashford Limited Capital and Regional UK Holdings Limited Capital and Regional Property Investments Limited Capital and Regional Retail (Northern) Limited*** Capital and Regional Retail (York) Limited Exchange Court Properties Limited** Capital and Lanham Retail Parks Limited St Andrew House (Glasgow) Limited** Capital and Regional Limited*** Cosmorole Limited Capital and Regional (Sunderland) Limited Capital and Regional (Victoria) Limited Jearon Properties Limited Capital and Lanham Retail Parks (Wolverhampton) Limited Capital and Regional Property Management Limited Capital and Regional Land Holdings Limited Capital and Regional (Milton Keynes) Ltd Sports Village Milton Keynes Partnership Philcap One Limited* The Easter Industrial Partnership* Investment and management Investment and management Development Development Investment and holding Investment and holding Investment and management Development Development Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Development Management Investment and management Investment and management Investment and management Investment and management Investment and management Group effective share of business 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 25% C&R Back 1998 4/10/00 12:52 pm Page 55 Capital and Regional Properties plc 55 39. Subsidiary, joint arrangement entities, associated and joint venture undertakings at 25th December 1998 continued Principal subsidiaries, joint arrangement entities, associated companies and joint ventures Nature of property business Group effective Share of business Philcap Two Limited* The Easter Runcorn Partnership* Realcap Management Limited Realcap Investments Limited The Capital Properties Partnership Capital and Regional Green Holdings Limited R. Green Properties (Holdings) R. Green Properties Limited Capital and Regional Investments Limited*** Capital and Regional Estates Limited R. Green (Bedford) Limited R. Green (Brighton) Limited Green-Sinfield Limited Capital and Regional USA Holdings Limited Capital and Regional Out-of-Town Limited Sports Villages (Milton Keynes) Limited Sports Villages Developments Limited Sports Villages (Cardiff) Limited Applied Solutions (Projects) Limited Capital and Lanham PLC Capital and Lanham Holdings Limited Capital and Lanham Wembley Limited Capital and Lanham Developments (Pontefract) Limited Capital and Lanham Developments (Cannock) Limited Capital and Lanham Developments (Doncaster) Limited Capital and Lanham Developments (Telford) Limited Capital and Lanham Developments (Croydon) Limited Capital and Lanham Developments (Dagenham) Limited Capital and Lanham Developments (Orchard) Limited Capital and Lanham Construction (Coventry) Limited Easter Capital Investment Holdings Limited Easter Capital Investments Limited Easter Properties (North East) Limited Twelve Quays Limited Twelve Quays One Limited Netherton Developments Limited Easter Holdings Limited Easter Management Limited Easter Projects Limited Easter Development Group Limited Easter Properties Limited Easter Properties (Sunderland) Limited Easter Properties (Bredbury) Limited Easter Properties (Willenhall) Limited Easter Properties (Hemel Hempstead) Limited Easter Properties (Basingstoke) Limited Easter Properties (Trafford Park) Limited Easter Properties (Loudwater) Limited Easter Properties (Warrington) Limited Easter Properties (Milton Keynes) Limited Easter and Northern (Team Valley) Limited Easter and Cairn Property Developments (Aylesbury) Limited Hibiscus Properties Limited Easter & Arun (Oldbury) Limited Investment and management Investment and management Investment and management Investment and management Investment and management Investment and holding Investment and holding Investment and holding Investment and management Development and trading Investment and management Investment and management Investment and management Investment and holding Development Development Development Development Project management Investment and holding Investment and holding Investment and holding Development Development Development Development Development Development Development Development Investment and holding Investment and management Investment and management Investment and management Investment and management Development Investment and holding Management Project management Development Development Development Development Development Development Development Development Development Development Development Development Development Development Development 100% 25% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 75% 75% 75% 75% 75% 37.5% 50% 50% 25% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 37.5% 27.5% 25% 25% The subsidiary and associated companies and joint ventures are registered in England and Wales, and Scotland. Except as identified these operate in England and Wales. Investment in joint ventures and associates are dealt with in notes 18 and 19. All voting rights are in line with effective share of business. *Financial period ended 30th September. **Operates in Scotland. ***Operates in England and Wales, and Scotland. C&R Back 1998 4/10/00 12:52 pm Page 56 56 Capital and Regional Properties plc Directors’ Report for the year ended 25th December 1998 The directors present their report together with the audited financial statements for the year ended 25th December 1998. Results and proposed dividends The consolidated profit and loss account is set out on page 33 and shows a profit on ordinary activities after taxation of £11.134m. The directors recommend the payment of a final dividend of 2.75p per Ordinary share on 26th April 1999, to members on the register at the close of business on 6th April 1999, which together with an interim dividend of 1.5p per Ordinary share, payment deferred until 7th April 1999, makes a total of 4.25p for the year. Principal activities, trading review and future developments The principal activity of the Group is that of property investment, development and management. A review of the activities and prospects of the Group is given in the Chairman’s Statement and reviews on pages 2 to 21. Directors The directors of the Company at 25th December 1998, all of whom have been directors for the whole of the year are as follows: M. Barber, X. Pullen, R. Boyland, L. Coral, Viscount Chandos, M. Gruselle, P. Duffy, K. Ford, A. Lewis-Pratt and D. Cherry. In accordance with the Articles of Association, R. Boyland, Viscount Chandos (who is a member of the Remuneration Committee), K. Ford and A. Lewis-Pratt retire by rotation, and being eligible, offer themselves for re-appointment. R. Boyland, K. Ford and A. Lewis-Pratt have service contracts, which require notice of one year. Viscount Chandos has a letter of appointment for a period of three years expiring on 31st December 1999 under the terms of which he is required to vacate office without compensation if not re-appointed by shareholders on retirement by rotation. Biographies of the Directors of the Company are set out on pages 22 and 23. The Company maintains insurance for the directors in respect of liabilities arising from the performance of their duties. Directors’ interests The directors and, where relevant, their connected persons (within the meaning of Section 346 of the Companies Act 1985) are interested in 4,547,670 issued shares representing 4.6% of the issued Ordinary share capital of the Company as detailed in the Report on Directors’ Remuneration and Interests on pages 25 to 28. Save as set out in note 37 to the accounts there were no contracts of significance subsisting during or at the end of the year in which a director of the Company was materially interested. Share options Details of options to subscribe for new Ordinary shares of 10p each under the Executive Share Option Schemes and the Discretionary Share Option Schemes 1998 are set out in note 27 to the accounts. Details of options granted to the directors, under the same Schemes, are contained in the Report on Directors’ Remuneration and Interests on pages 25 to 28. C&R Back 1998 4/10/00 12:52 pm Page 57 Capital and Regional Properties plc 57 Substantial shareholdings In addition to the interests of the directors, the Company has been notified pursuant to Sections 198 to 202 of the Companies Act 1985, as amended, of the following notifiable interests in its issued share capital as at 25th February 1999: Phillips & Drew Fund Management Limited Royal & Sun Alliance Clerical Medical & General Life Assurance Society Legal & General United Nations Pension Fund Norwich Union Investment Management BAT Industries plc Total Charitable donations Shares 19,446,461 4,549,915 4,447,748 4,398,395 4,168,834 3,773,621 3,173,914 43,958,888 % 19.79 4.63 4.53 4.47 4.24 3.84 3.23 44.73 During the year the Group contributed £7,746 (1997: £5,073) to UK charities. Payment of suppliers The policy of the Company is to settle supplier invoices within the terms of trade agreed with individual suppliers. Where no specific terms have been agreed payment is usually made within one month of receipt of the goods or service. At the year end the Company had an average of 26 days purchases outstanding. Compliance with Combined Code A statement on Corporate Governance is set out on pages 29 to 31. Employee involvement The Group places considerable value upon the involvement of its employees, at all levels, in its affairs and has continued its practice of keeping them regularly and systematically informed on matters of concern affecting them as employees and on the financial and economic factors affecting the Group’s performance. Consultations with them or their representatives take place on a regular basis so that their views can be taken into account when decisions are made which are likely to affect their interests. This is achieved by regular meetings between management and employees at all levels. Disabled employees The Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Euro The Group is reviewing the potential effect of the introduction of the single European currency on the administration of its business. C&R Back 1998 4/10/00 12:52 pm Page 58 58 Capital and Regional Properties plc Directors’ Report Auditors Deloitte & Touche have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the Annual General Meeting. Special business of the Annual General Meeting Authority to purchase own shares At the 1998 Annual General Meeting, the Company was granted authority to make purchases in the market of its own shares subject to specified limits. This authority expires at the conclusion of the Company’s Annual General Meeting for this year and under resolution 8, which is proposed as a special resolution, the Company is seeking to renew such authority, until the conclusion of the 2000 Annual General Meeting, or for 15 months after the date on which the resolution is passed, whichever is the earlier. The authority relates to 5% of the current issued share capital, details of which are set out in note 27 to the accounts. The directors will only exercise this authority if they consider that it will result in an increase in asset value per share for the remaining shareholders and that it will be in the best interests of the Company to do so. Pre-emption rights Shares allotted for cash must normally first be offered to shareholders in proportion to their existing shareholdings. Under resolution 9, which is proposed as a special resolution, the directors seek to renew their annual authority to allot shares for cash as if the pre-emption rights contained in Section 89(1) of the Companies Act 1985 did not apply up to a maximum of 5% of the Company’s issued share capital. By Order of the Board L. Coral Secretary 26th February 1999 C&R Back 1998 4/10/00 12:52 pm Page 59 Notice of the Annual General Meeting Capital and Regional Properties plc 59 Notice is hereby given that the twentieth Annual General Meeting of the Company will be held at Mandarin Oriental Hyde Park hotel, 66 Knightsbridge, London SW1X 7LA in the Ballroom on 23rd April 1999 at 12 noon for the following purposes. Ordinary business 1. To consider and, if thought fit, adopt the accounts for the year ended 25th December 1998, and the reports of the directors and auditors thereon. 2. To declare a final dividend of 2.75p per Ordinary share. 3. To re-appoint R. Boyland as a director of the Company. 4. To re-appoint Viscount Chandos as a director of the Company. 5. To re-appoint K. Ford as a director of the Company. 6. To re-appoint A. Lewis-Pratt as a director of the Company. 7. To appoint Deloitte & Touche as auditors for the period prescribed by Section 385(2) of the Companies Act 1985 and to authorise the directors to determine their remuneration for the ensuing year. Special business 8. To consider and, if thought fit, pass the following resolution which will be proposed as a special resolution: In compliance with Section 166 of the Companies Act 1985, the Company is hereby generally and unconditionally authorised to make market purchases of its own shares provided always that: (a) this authority is limited to a maximum number of 4,912,764 Ordinary shares of 10p each in the Company; (b) the maximum price which may be paid for the shares shall not exceed 105% of the average of the prices at which business was done in the Ordinary shares of 10p each in the Company during the period of five business days immediately preceding the day on which the shares are contracted to be purchased, or, if no such business was done during that period, 105% of the price at which business was last done in the Ordinary shares of 10p in the Company prior to the day on which the shares are contracted to be purchased, in either case as derived from the London Stock Exchange Daily Official List and exclusive of expenses; and (c) the minimum price which may be paid for the shares shall not be less than 10p. This authority shall expire at the Company’s Annual General Meeting in 2000 or 15 months after the date on which this resolution is passed (whichever is the earlier). 9. To consider and, if thought fit, pass the following resolution which will be proposed as a special resolution: That: (a) the directors be and are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the said Act) for cash, in accordance with any authority conferred on them by any previous meeting of the members of the Company as if Section 89(1) of that Act did not apply to the allotment; and reference in this resolution to the allotment of equity securities includes reference to the grant of a right to subscribe for, or to convert any securities into, relevant shares (as so defined) in the Company; provided that the power conferred by this resolution shall be limited to: (i) the allotment of equity securities in connection with a rights issue in favour of holders of Ordinary shares of 10p each in the Company (notwithstanding that, by reason of such exclusion as the directors may deem necessary having regard to legal or procedural requirements in any overseas territory, or in connection with fractional entitlements or otherwise howsoever, the equity securities to be issued are not offered to all of such holders in proportion to the number of shares held by each of them) and (ii) the allotment (otherwise than pursuant to sub-paragraph (i) of this resolution) of equity securities up to an aggregate amount in nominal value equal to 5% of the issued Ordinary share capital of the Company immediately prior to the passing of this resolution; and (b) this power, unless renewed, shall expire at the Company’s Annual General Meeting in 2000 save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted in accordance with paragraph (a) of this resolution after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. By Order of the Board L. Coral Secretary 26th February 1999 Notes: 1. A member of the Company entitled to attend and vote at the Annual General Meeting may appoint one or more proxies to attend and, upon a poll, vote on his/her behalf. A proxy need not be a member of the Company. The Form of Proxy for use by shareholders is enclosed. 2. To be valid, the Form of Proxy, duly executed, together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy of such power or authority) must be received at the offices of the Company’s Registrars, Bank of Scotland, Registrar Services, Ground Floor, Apex House, 9 Haddington Place, Edinburgh EH7 0LA not later than 12 noon on 21st April 1999. C&R Back 1998 4/10/00 12:52 pm Page 60 60 Capital and Regional Properties plc Advisers and Corporate Information Auditors Deloitte & Touche Hill House 1 Little New Street London EC4A 3TR Investment bankers Credit Suisse First Boston 1 Cabot Square Canary Wharf London E14 4QJ Warburg Dillon Read 2 Finsbury Avenue London EC2M 2PA Principal legal advisers D J Freeman 43 Fetter Lane London EC4A 1JU Olswang 90 Long Acre London WC2E 9TT Cole & Co St. Andrew House 141 West Nile Street Glasgow G1 2RN Fladgate Fielder 25 North Row London W1R 1DJ Principal valuers DTZ Debenham Thorpe 3-5 Swallow Place London W1A 4NA St. Quintin 33 Cavendish Square London W1M 0LU Registrars and transfer office Bank of Scotland Registrars Department Ground Floor Apex House 9 Haddington Place Edinburgh EH7 4AL Registered office 22 Grosvenor Gardens London SW1W 0DH Telephone: 0171-730 5565 Facsimile: 0171-730 0151 Registered number 1399411 Principal lenders Bank of Scotland The Mound Edinburgh EH1 1YZ Barclays Bank PLC Luton Corporate Banking Centre 1 Capability Green Luton LU1 3US HSBC Property Finance Midland Bank plc Poultry London EC2P 2BX HypoVereinsbank Property Finance 29 Gresham Street London EC2V 7HN Société Générale S G House 41 Tower Hill London EC2N 4SG The Royal Bank of Scotland plc Waterhouse Square 138-142 Holborn London EC1N 2TH BHF – Bank BHF – Bank House 61 Queen Street London EC4R 1AE C&R Back 1998 4/10/00 12:52 pm Page 61 1999 Financial Calendar Annual General Meeting – 23rd April Final dividend record date – 6th April 1998 Interim dividend payment – 7th April Final dividend payment – 26th April Interim results – 13th July 1999 Interim dividend – August 1999 Preliminary results announcement – February/March 2000 Designed and printed by Radley Yeldar (London) Directors’ photography by Antoinette Eugster Locational photography by Antony Brien Temp Cover 4/10/00 3:19 pm Page 1 Capital and Regional Properties plc 22 Grosvenor Gardens London SW1W ODH Telephone 0171-730 5565 Facsimile 0171-730 0151 Capital and Regional Properties plc Annual Report 1998 

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