Caleres Annual Report 2001

Plain-text annual report

Capital & Regional plc 10 Lower Grosvenor Place London SW1W 0EN T 020 7932 8000 F 020 7802 5600 www.capreg.com Capital & Regional plc Annual Report 2001 C a p i t a l & R e g o n a i l l p c A n n u a l R e p o r t 2 0 0 1 01 Chairman and Chief Executive’s Operating and Financial Review 10 Board of Directors 12 Five Year Record 13 Report on Directors’ Remuneration and Interests 17 Corporate Governance Statement 19 Independent Auditors’ Report 20 Consolidated Profit and Loss Account 21 Note of Historical Cost Profits and Losses 21 Statement of Total Recognised Gains and Losses 21 Reconciliation of Movements in Shareholders’ Funds 22 Consolidated Balance Sheet 23 Consolidated Cash Flow Statement 24 Company Balance Sheet 25 Notes to the Financial Statements 41 Directors’ Report 43 Notice of the Annual General Meeting 44 Advisers and Corporate Information 2002 Financial Calendar Capital & Regional plc is a co-investing real estate asset manager. The Group has established highly specialised management teams in selected sectors with the aim that each team should be the leader in its field, enabling them to create value for tenants, shareholders and investors in funds managed by the Group. 2002 Financial Calendar 2002 Financial Calendar Annual General Meeting – 10th May 2002 Final dividend record date – 5th April 2002 Final dividend payment – 31st May 2002 Interim results – September 2002 Interim dividend – October/November 2002 2002 Preliminary results announcement – March/April 2003 2002 Final Dividend timetable Record date – 5th April 2002 Last day to receive DRIP mandates – 10th May 2002 Dividend warrants posted – 30th May 2002 Payment date/shares purchased – 31st May 2002 Certificates/purchase statements despatched – 17th June 2002 CREST accounts credited – 18th June 2002 Designed and produced by Radley Yeldar (London) The Group has taken a signiﬁcant step towards becoming a co-investing real estate asset manager, rather than an investor reliant predominantly on its own balance sheet. 01 Chairman and Chief Executive’s Operating and Financial Review Strategy Through the creation of two funds, The Mall, a £670m fund focused on in-town, covered shopping centres, and The Junction, a £340m fund focused on major retail parks, the Group has taken a signiﬁcant step towards becoming a co-investing real estate asset manager, rather than an investor reliant predominantly on its own balance sheet. The Group has, in recent years, been building up highly specialised management teams in selected sectors, with the aim that each team should be the leader in its ﬁeld, enabling them to create value for tenants, the Group’s shareholders and investors in funds managed by the Group. The successful launch of the Mall and Junction funds conﬁrms the direction that the Group has taken. The initial investors in the funds are the Group and clients of Morley Fund Management Limited, the UK based asset management arm of CGNU. Our objective is a signiﬁcant expansion of both funds, through new investors contributing either cash or appropriate property assets. As the completion of both of these funds took place after the year end, your attention is drawn to the proforma balance sheet detailed in note 32 to the Financial Statements. A condensed summary is set out below. Property assets Investments in joint ventures: Share of assets Share of liabilities Other net liabilities Convertible loan stock Net assets Proforma Actual Dec 2001 Dec 2001 £m £m 82 717 612 (322) 290 (64) (24) 284 91 (62) 29 (433) (24) 289 Capital & Regional plc 02 Return of capital The Group announced on 25th January 2002 that, following the completion of The Mall Fund, it intended to return £50m of capital to shareholders. An announcement was made on 22nd March 2002 of a Tender Offer to buy back up to 22.2% of the Company’s shares at 285p per Ordinary share subject to shareholder approval. This approval will be sought at an Extraordinary General Meeting to be held on 18th April 2002. Financial results and position Proﬁt before tax of £11.4m (2000 (restated): £14.2m) includes gains of £1.4m on investment sales (2000: £4.1m). Earnings per share on revenue activities have increased by 31% to 12.4p from 9.5p (restated) in the previous year. The table below demonstrates how the effect of new accounting requirements (UITF 28 – Operating Lease Incentives) reduces proﬁt in the year by £1.7m compared to last year. Revenue proﬁt UITF 28 effect Revenue proﬁt restated Proﬁt on sale of investment properties and investments Proﬁt before tax 2001 £000 2000 £000 10,767 (843) 9,267 809 9,924 10,076 1,439 4,092 11,363 14,168 The directors have resolved to pay a ﬁnal dividend of 3.5p, making a total for the year of 6.0p per share, an increase of 9% (2000: 5.5p). The dividend will be paid on 31st May 2002 to shareholders on the register at the close of business on 5th April 2002. Our facility for dividend reinvestment by shareholders continues. Chairman and Chief Executive’s Operating and Financial Review Financial strategy The Group has a ﬁnancing strategy with banks that, in the opinion of the Directors, have experienced property teams and long-term commitment to the UK property market. The Group’s 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 parametres, and provide a cost-efﬁcient structure which allows for the addition and disposal of 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 for both protection against any sudden rise in interest rates and scope to take advantage of ﬂuctuating rates on expiring swaps and unhedged borrowings. The balance between borrowing on ﬂoating and hedged interest rates is continually reviewed in the light of market conditions and business requirements. Fixed and swapped interest rates at 25th December 2001 applied to borrowings of £198.6m (2000: £244.4m) with the balance of £267.1m (2000: £371.2m) being at variable interest rates based on three month LIBOR. The weighted average interest rate cost for ﬁxed and swapped borrowings at 25th December 2001, was 7.5% (2000: 7.6%) and for variable rates 5.4% (2000: 6.9%). The weighted average interest rate cost of total borrowings at the year end has reduced to 6.3% compared to 7.2% at the end of 2000. The weighted average period for which interest rates are ﬁxed on Group bank borrowings is 1.16 years (2000: 1.88 years) and 2.8 years including CULS (2000: 3.22 years). Capital & Regional plc Chairman and Chief Executive’s Operating and Financial Review 03 In the two years from December 1999 property sales of £286m were completed realising historic cost gains of £46.5m and since December 2001 property transfers to co-investment vehicles have been completed at December 2001 values of £649m at a surplus over historic cost of £74m. The Group’s borrowings at 25th December 2001 were £465.8m (2000: £615.6m) including £24.6m (2000: £24.6m) of Convertible Subordinated Unsecured Loan Stock (CULS). The Group’s share of non-recourse borrowings by joint ventures was an additional £44m (2000: £27.8m). Net cash balances were £8.6m (2000: £6.1m). As shown in the proforma balance sheet in note 32, disposals completed since the year end have reduced net debt to £87.4m with the Group’s share of joint venture borrowings increased to £304.5m. At December 2001 fully diluted gearing was 138% (2000: 159%). This has been signiﬁcantly reduced by these disposals since the year end to 20%, however, including the Group’s share of joint ventures borrowings, gearing would be 119% as per the proforma balance sheet. Set out below is the calculation of net asset value per share after contingent deferred tax on accumulated revaluation surpluses and fair value adjustment of ﬁxed rate debt instruments to market value. Diluted net assets per share Deferred tax Fair value adjustment of ﬁxed rate debt NAV per share 2001 pence 343.3 (11.7) 2000 pence 360.6 (34.4) (2.7) (2.4) 328.9 323.8 Fully diluted net assets per share, after adjustments for deferred tax and debt valuation increased to 329p compared to 324p last year. The fall in fully diluted net assets per share from 361p at December 2000 to 343p at December 2001 has been mitigated by the tax beneﬁt of capital allowances retained on the transfer of the shopping centres to The Mall Fund. The movement during the year in fully diluted shareholders’ funds, net asset value per share and net asset value per share after adjustment for deferred tax and debt valuation are summarised in the table below. 25th December 2000 UITF 28 adjustment 25th December 2000 – restated Retained proﬁt Tax on disposals Revaluation of properties and joint ventures Share repurchases 25th December 2001 Transfer to joint ventures Proforma Shareholders’ funds £m 339.6 1.0 340.6 6.4 (1.0) (33.6) (23.3) 289.1 (4.9) 284.2 Diluted NAV pence 359.6 1.0 360.6 7.1 (1.1) (36.9) 13.6 343.3 (5.4) Net net NAV pence 322.8 1.0 323.8 7.0 19.3 (30.9) 9.7 328.9 (2.6) 337.9 326.3 Capital & Regional plc Operating review Chairman and Chief Executive’s Operating and Financial Review 04 Shopping centres The year 2001 saw further positive development within our core shopping centre portfolio. We achieved a 7.2% increase in net passing rent level to £38.6m (2000: £36.0m). Estimated rental value increased by 4% to £44.9m (2000: £43.2m). The centres have continued to beneﬁt from our creative management and innovative marketing and promotions. Ancillary income has increased by 38% in 2001 and occupier demand remains strong; void levels continued to decline in 2001 to 3.0% of estimated rental value (2000: 3.8%). Our average weekly footfalls increased by 3% which equates to an additional 27,250 visits per week (excluding Birmingham and Romford where major adjacent redevelopment works have temporarily suppressed footfall). Across the portfolio we continue to provide a secure, clean and vibrant shopping environment for both our shoppers and retailers. This is achieved by working together with all our business partners, local communities and authorities. Our average budgeted 2002 service charge is currently 24% below the relevant JLL Oscar benchmark, excluding marketing where we plan to spend some 14% more on marketing than this peer group. Operational savings across the portfolio have seen an 18% reduction in electricity and gas consumption. Our efforts were recognised this year by the Jupiter Asset Management Environmental Research Group for Environmental Property Management, following a property industry-wide survey. We continue to focus ourselves as a ‘Community Mall business’ and to provide support to numerous local community groups, such as schools and charitable organisations. We combine this local support with portfolio-wide national initiatives such as The Giving Tree scheme and Breast Cancer Awareness fundraising promotions and we were delighted to raise £40,000 for this particular organisation over the year. The Mall Fund In February 2002, we announced that the Group had completed its negotiations with Morley to form The Mall Limited Partnership, a new property fund focused on in-town covered shopping centres which is initially owned jointly by the Group and clients of Morley Fund Management Limited. Morley acts as Fund Manager and Capital & Regional is the Property and Asset Manager. We have sold eight of our shopping centres to The Mall Fund for a total consideration of £467m. Clients of Morley Fund Management Limited have sold three shopping centres to The Mall Fund for a total consideration of £189m. From the respective proceeds, under the terms of the Fund Agreements, the Group and Clients of Morley Fund Management Limited have each paid £170m in return for a 50% stake each in The Mall Fund. The remaining consideration of £297m due to us has been received in cash and has been utilised to repay debt. Completion took place on 28th February 2002. The creation of The Mall Fund is in line with our stated strategy and is intended to enable us to leverage our equity and management expertise across a larger number of properties to generate greater value for our shareholders. We will, going forward, receive income both from management fees on all the properties within The Mall Fund and from distributions from The Mall Fund. We will also beneﬁt, although indirectly, from capital increases in the value of the properties within The Mall Fund, as such increases are expected to increase the value of our investment in that fund. Our strategic objective is to increase this shopping centre fund to approximately £2bn over the next three years. Capital & Regional plc Chairman and Chief Executive’s Operating and Financial Review The Mall Portfolio review Aberdeen, The Trinity Centre (200,000 sq ft) Continued strong trading performance from this fully let centre driven by a 4.5% increase in footfall. Barnsley, The Alhambra Centre (170,000 sq ft) New tenants, Adams, Body Care and Perfume Shop all commenced trading during 2001. The centre continues to improve with year-on-year footfall up 5.3%. Bexleyheath, Broadway Shopping Centre (395,000 sq ft) Acquired in The Mall Fund on 28th February 2002, this is a large centre with strong retailer demand. We plan to work with the Local Authority to improve the centre’s physical environment and to reconﬁgure large space users to satisfy this demand. Birmingham, The Pallasades (300,000 sq ft) Despite Railtrack’s well publicised problems, negotiations on tenure regearing continue. At the same time we continue to take the opportunity to improve income and rental value. This year additional rental area was created by remodelling the South Mall together with the introduction of new tenants. Edgware, Broadwalk Shopping Centre (195,000 sq ft) Acquired in The Mall Fund on 28th February 2002, a strong convenience centre with excellent public and private transport linkage with good extension and leisure opportunities. Epsom, The Ashley Centre (358,000 sq ft) The remodelling of West Square was completed with Hammicks the bookshop extending into a previously vacant space. The retailer, Next, also tripled the space it previously occupied. Footfall increased by approximately 5.5%. 05 Falkirk, The Howgate Centre (170,000 sq ft) Clinton Cards doubled its sales area and Scottish fashion multiple, Quiz, took representation. The completion of the car park refurbishment produced increased revenues of 3.6% year-on-year. Ilford, The Exchange Mall (355,000 sq ft) Acquired in The Mall Fund on 28th February 2002, this is a large, successful centre, again with signiﬁcant retailer demand to be satisﬁed by reconﬁguration. Romford, Liberty 2 (320,000 sq ft) Wilkinsons commenced trading from the former Sainsbury’s store. We assumed control of the centre car parks in advance of refurbishment. Planning consent was achieved on the adjacent Dolphin extension site. Walthamstow, Selborne Walk (281,000 sq ft) The reletting of the former Mothercare unit to First Sport and Thomas Cook was completed. The negotiations for surrender of KwikSave supermarket were also concluded and this space will be remodelled during 2002 together with the introduction of a branded catering offer. Wood Green, Shopping City (670,000 sq ft) Our major refurbishment programme was completed in 2001 with a new Woolworths store opening and year-on-year footfall increased by 4%. Our General Manager, Mike Thompson, was runner up ‘In-Town Manager of the Year’ at Shopping Centre Magazine’s 2001 SCEPTRE Awards. Capital & Regional plc Chairman and Chief Executive’s Operating and Financial Review The Capital Hill Partnership Our limited partnership with Hermes Property Unit Trust is progressing well. Planning consent has been obtained to extend the existing 160,000 sq ft retail park in Stratford upon Avon by 15,000 sq ft which has already been pre-let to Matalan. An agreement to lease for our second destination retailer, B&Q, has been exchanged for a 60,000 sq ft store. We are hopeful of obtaining planning consent to extend the park by a further 75,000 sq ft to 250,000 sq ft during 2002. The Auchinlea Partnership In January 2002, we announced the formation of the Auchinlea Partnership with Pillar to redevelop our existing Junction 10 retail park, Glasgow, together with an adjacent site of approximately 70 acres to create ‘The Glasgow Fort’, a 500,000 sq ft shopping and leisure park. Outline planning consent has already been granted for an Open A1 scheme and a detailed planning application submitted with consent anticipated during the ﬁrst half of the year. Tenant demand is very encouraging and we are looking forward to creating Scotland’s premier shopping park. Capital & Regional plc 06 Retail parks Tenant demand has remained buoyant throughout the year fuelled by continued consumer spending and institutional demand for retail parks remains strong. Our strategy of owning and developing retail parks through joint ownership is now well under way: The Junction Limited Partnership In November 2001 we exchanged contracts with Morley Fund Management to form a Retail Park Investment Fund. Initially, both Capital & Regional and clients of Morley each own 50% of the Fund’s equity. Morley is the Fund Manager and Capital & Regional is the Property and Asset Manager. We have transferred six of our retail parks into the Fund for a cash consideration of £165m, of which £13.7m is deferred, payable on the completion of development works under way. Of these proceeds, £85m has been reinvested in the Fund with the balance used to reduce Group debt. All of the assets that have been transferred into the Fund are retail parks, which are, or are capable of becoming, major anchored parks. Clients of Morley have transferred ﬁve of their retail parks into the Fund for £171m. Completion took place on 3rd January 2002. The Fund is responsible for all development costs associated with the portfolio. Royal Bank of Scotland has extended an initial facility of £170m with further development facilities available. We believe that by merging our portfolio of large scale retail parks with that of Morley, we have created a major opportunity to enhance value by branding and providing innovative additional attractions. The Junction Limited Partnership is intended to be the ﬁrst branded retail park portfolio focused on creating destination parks of over 120,000 sq ft. Our target is to increase this retail park fund to around £1.2bn over the next three years. The roll out of The Junction brand will commence in the summer of 2002 at Hull, and it is hoped that the entire portfolio will be rebranded within three years. Chairman and Chief Executive’s Operating and Financial Review Maidstone (160,000 sq ft) Acquired in The Junction Fund on 3rd January 2002. This scheme is already the major retail park within this prosperous town. Tenant engineering and extensions should commence this year. 07 Oldbury (37,000 sq ft) A detailed planning application has been submitted for the ﬁrst phase comprising 130,000 sq ft pre-let to Homebase and consent is anticipated during the ﬁrst half of 2002. Following the Local Planning inquiry, we are hopeful of a balance of the site currently under our control, comprising 30 acres, being reallocated for retail and leisure use. Oxford (138,000 sq ft) Acquired in The Junction Fund on 3rd January 2002. Our proposals for this Open A1 non-food retail park include provision of ﬁrst ﬂoor space to increase the size of the park to 190,000 sq ft, subject to planning and tenant restructuring. Shefﬁeld (160,000 sq ft) Acquired in The Junction Fund on 3rd January 2002. Our plans for this retail park include creating space for two destination retailers thereby signiﬁcantly increasing rental levels. The Junction Portfolio review Aylesbury (94,000 sq ft) A detailed planning application has been submitted for a scheme comprising 195,000 sq ft and consent is anticipated in June 2002. Beckton (192,000 sq ft) The redevelopment, including a new 90,000 sq ft Big W, is well under way for completion set for the summer. Further phases up to 120,000 sq ft of retail and leisure ﬂoor space are planned. Hull (272,000 sq ft) The new 100,000 sq ft destination B&Q store opened in October and is trading above expectations. Planning consent for a further phase of 100,000 sq ft, where terms have already been agreed for a new 40,000 sq ft destination anchor, is anticipated during the year. Leeds (140,000 sq ft) Acquired in The Junction Fund on 3rd January 2002. Our proposals for this retail park, located adjacent to the M1 motorway, include widening the current restricted planning consent to enable us to attract a destination retailer providing the catalyst to let vacant space at signiﬁcantly higher rents. Leicester (169,000 sq ft) Acquired in The Junction Fund on 3rd January 2002. This Open A1 non-food retail park is capable of extension by a further 64,000 sq ft subject to planning, land acquisition and tenant restructuring. A new letting has already been agreed at £20/sq ft, some £2.75/sq ft higher than the previous rent. Capital & Regional plc Chairman and Chief Executive’s Operating and Financial Review 08 Xscape Xscape, our innovative development concept where retail and food and beverage are successfully combined with leisure, has had an exciting year in 2001. The ﬁrst destination, in Milton Keynes, had its ﬁrst full year of trading and attracted 4.2 million visitors. The scheme is almost fully let and the success of the concept was recognised at the prestigious Property Week Leisure Property Awards where Xscape won two out of four awards, The Best Major Leisure Scheme and The Best Innovative Concept. Mid-year we realised the formidable value and expansion potential of combining the two worlds of leisure property development with entrepreneurial and business skills. Consequently, we appointed PY Gerbeau (Former CEO of the Millennium Dome and Vice President of Euro Disney) as Chief Executive of Xscape Ltd, together with a specialised management team, to help us build Xscape as an international brand and business. Under PY’s direction, the Xscape brand was launched at the end of November. It has received enthusiastic support from both the consumer and business communities. Following the implementation of the new focused business, brand and marketing strategies and product improvements, Xscape Milton Keynes is fulﬁlling its potential as a unique destination, successfully mixing retail and catering, with leisure, ‘Xtreme sports’ and entertainment. We believe the key to Xscape’s continued success is the combination of a good property performance and brand goodwill with additional cash ﬂow streams, including events and sponsorship, together with new target markets, including corporate hospitality, families and students. After four months of implementation the results are already validating our new strategy. We are achieving a 25% increased footfall year-on-year and substantially increased dwell times. We have targeted new market segments and introduced new brand partners and sponsors. To build on the Xscape Milton Keynes success, support Xscape as an international brand and capitalise on the ﬁrst mover advantage, Xscape has an immediate and aggressive expansion plan. In March 2002, we announced that the Group, together with PRICOA Property Investment Management (‘PRICOA’), had completed the purchase of a 20 acre site in Castleford, Leeds to develop the second Xscape destination. The £57m development is a joint venture between the Group and Hanover Property Unit Trust, which is managed by PRICOA. Many of our lead tenants at Milton Keynes, including Cine UK Limited, Snozone Limited (a Capital & Regional subsidiary), Ellis Brigham Limited and Silvertrek Limited, have entered into pre-commitments for this new centre in Castleford. The scheme is 66% pre-let and construction has already commenced with completion expected in autumn 2003. We continue our pre-planning of two further Xscape destinations in Braehead, Glasgow and Castrop Rauxel in the Ruhr, Germany. Capital & Regional plc Management The strength and diversity of our management teams continues to underpin the Group’s strong performance. Their innovative and unique approach to the management and marketing of these property assets enables us to continue to generate enhanced returns and future growth for our shareholders, tenants and investors in the funds. As mentioned above, our team was further strengthened this year, with the appointment of PY Gerbeau as Chief Executive of Xscape Ltd. His distinctive management approach has already had a very positive impact at Milton Keynes and, as we embark on the Xscape roll-out programme, his leadership has brought new and dynamic impetus to our plans. On behalf of the Board, we would like to express our sincere thanks to all our management and staff for their continued commitment to the Group during the year. Outlook We believe that there is an exciting opportunity for the Group over the next few years to deliver signiﬁcant value to our shareholders through the further development of our co-investing property asset management model. We are conﬁdent that the strength and depth of our management team, which has been recognised by Morley Fund Management, will attract further interest from additional investors. This would enable us to achieve our objectives to expand our funds under management signiﬁcantly, at the same time as maintaining a rigorous process of selection of the property assets acquired. Tom Chandos Chairman Martin Barber Chief Executive Chairman and Chief Executive’s Operating and Financial Review We believe that there is an exciting opportunity for the Group over the next few years to deliver signiﬁcant value to our shareholders through the further development of our co-investing property asset management model. 09 Capital & Regional plc Board of Directors 10 Executive Directors Martin Barber* age 57 Chief Executive 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, a real estate investment trust, listed on the New York Stock Exchange and formerly a subsidiary of Capital & Regional. He is non-executive Chairman of PRICOA Property Investment Management Ltd, a wholly owned subsidiary of The Prudential Insurance Company of America. Roger Boyland FCA age 57 Corporate Finance Director Roger Boyland is a chartered accountant and has been involved in commercial property for 27 years. He was a founder Director of the Company in 1979 and has responsibility for the Company’s ﬁnancing, including banking arrangements and corporate ﬁnance, risk management and portfolio performance analysis. Lynda Coral BSC FCA age 40 Financial Director Lynda Coral has been a chartered accountant for 17 years and a Director of the Company since 1990. Lynda has overall responsibility for accounting and corporate support, including ﬁnancial reporting, taxation, company secretarial and personnel. Kenneth Ford BSC FRICS age 48 Managing Director of Shopping Centres Ken Ford has been involved in commercial property for 28 years. Ken has worked with Capital & Regional since he founded the Easter Management Group Scotland in 1991. He was appointed a Director of the Company in 1997 and is responsible for the shopping centre portfolio. Andrew Lewis-Pratt BSC ARICS age 44 Managing Director of Retail Parks Andrew Lewis-Pratt has over 20 years’ experience within the retail and leisure sectors. Andrew was previously Chief Executive of Lanham plc, prior to its acquisition by Capital & Regional in 1997. He was appointed as a Director of the Company in 1997 and is responsible for the retail park portfolio. Xavier Pullen age 50 Deputy Chief Executive Xavier Pullen has been active in the property industry for over 30 years and was a founder Director of the Company in 1979. He focuses primarily on the supervision and coordination of all property matters. Capital & Regional plc Board of Directors Martin Barber Roger Boyland Lynda Coral Kenneth Ford Andrew Lewis-Pratt Xavier Pullen Viscout Chandos Martin Gruselle Peter Duffy David Cherry Non-Executive Directors 11 Tom Chandos#* age 49 Chairman Tom Chandos is Managing Director of Northbridge Ventures Limited, a London-based venture capital business backed by the South African group FirstRand Limited. He is a non-executive Director of Middlesex Holdings plc and a Director of a number of private companies, including Cine-UK Limited and Hudson Sandler Limited. He was appointed as a Director of the Company in 1993 and as Chairman in 2000. Martin Gruselle†# FCA age 64 Martin Gruselle is a chartered accountant with wide experience in corporate ﬁnance. He acts as Chairman of the Remuneration and Audit Committees. He is also a non-executive Director of Teesland Developments Group plc. He was appointed as a Director of the Company in 1989. Peter Duffy†* age 65 Peter Duffy was previously Managing Director of TR Property Investment Trust plc and Chairman of European City Estates N.V. He is a Director of Nightingale Square Properties plc. He was appointed as a Director of the Company in 1995. David Cherry†# BSC FRICS age 64 David Cherry is the 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. †Member of Audit Committee #Member of Remuneration Committee *Member of Nomination Committee Capital & Regional plc Five Year Record for the years ended 25th December 1997 to 25th December 2001 Number of shares in issue (million) Diluted number of shares in issue (million) Net assets per share‡ 2001 78.856 91.268 343.3p Restated 2000 88.735 101.147 360.6p 1999 1998 1997 98.266 110.678 376.4p 98.255 110.667 320.6p 76.399 88.668 272.0p Net assets per share growth (4.8%) (4.2%) 17.4% 17.9% 27.6%† 12 Equity shareholders’ funds Minority interests Non-equity funding by joint arrangement partners Capital employed Borrowings Cash at bank Net bank debt Convertible loan stock Net debt Net debt/capital employed‡ £000 £000 £000 £000 £000 289,111 – – 289,111 440,894 8,567 340,617 3,714 – 344,331 590,449 6,091 392,566 4,341 4,000 400,907 577,891 7,388 330,816 2,101 3,250 336,167 340,926 5,476 217,299 933 – 218,232 237,036 9,229 432,327 584,358 570,503 335,450 227,807 24,132 24,223 608,490 594,544 456,550 138.1% 158.7% 134.4% 24,041 23,950 23,840 359,400 251,647 93.3% 94.1% Rental income Net rental income Net interest payable*** Proﬁt on ordinary activities before taxation** Earnings per share* Dividend per share £000 £000 £000 £000 £000 57,084 49,032 32,009 11,363 13.6p 6.0p 67,618 57,931 41,027 14,168 13.7p 5.5p 53,597 45,512 32,018 12,838 12.2p 5.0p 44,910 38,507 24,057 11,481 12.1p 4.25p 28,857 23,728 16,788 11,083 15.4p 3.5p † 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 1997 is calculated after adjusting for the effect of this dilution on 1997. ‡ Assuming conversion of the convertible loan stock to equity. * Earnings per share for prior years have been adjusted to reﬂect 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. Capital & Regional plc Report on Directors’ Remuneration and Interests Remuneration Committee The Remuneration Committee (“the Committee”) 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 and discretionary bonus payments, as well as deciding on the grant of share options for the executive directors. The recommendations made by the Executive Directors 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. 13 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 UK Listing Authority including the provisions in Schedule B 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 by the Committee. No increases in the basic salaries of the executive directors were made on 1st January 2001. As stated in the 2000 Report, the Committee has been reviewing revised guidelines for incentive rewards to executive directors. This review has been extended to incorporate the effect of the establishment of the Mall and Junction Funds. The review is expected to be completed shortly and shareholders’ approval will be sought for the resulting new Long Term Bonus and Share Scheme. In the interim, the Committee has awarded cash bonuses to the executive directors based on the achievement of personal, divisional and corporate objectives set by the Committee at the commencement of the year. If all the objectives are achieved bonuses equal to 100% of basic salary may be paid. The Committee has determined that, for 2001, bonuses of 50% should be paid. Each of the executive directors has a service agreement which can be terminated on one year’s notice by either party; the terms of these 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 Directors Committee within the limits set by the Company’s Memorandum and Articles of Association and using external market research for guidance. The non-executive directors do not receive share options or any other form of remuneration from the Company. Capital & Regional plc Report on Directors’ Remuneration and Interests Remuneration The remuneration of the directors is analysed below: Salary and fees 2000 £000 2001 £000 Discretionary bonus 2000 £000 2001 £000 Pension contributions 2000 £000 2001 £000 Other beneﬁts† 2001 £000 2000 £000 14 M. Barber** X. Pullen K. Ford A. Lewis-Pratt R. Boyland L. Coral M. Gruselle D. Cherry T. Chandos* P. Duffy 103 103 100 100 80 80 566 – – – – – – – 205 205 200 200 160 160 205 205 200 200 160 160 1,130 1,130 32 22 70 22 32 22 48 22 146 124 40 41 30 30 32 24 41 41 30 30 32 24 22 21 21 21 22 17 22 19 21 21 20 16 2001 £000 370 370 351 351 294 281 Total 2000 £000 268 265 251 251 212 200 197 198 124 119 2,017 1,447 32 22 70 22 32 22 48 22 146 124 Total 1,276 1,254 566 – 197 198 124 119 2,163 1,571 * Including fees of £15,000 received (2000: £15,000) from Easter Holdings Limited and Easter Capital Investment Holdings Limited for services as a non-executive director. **£9,000 (2000: £nil) was paid to M Barber as salary in lieu of pension contributions since October 2001. † 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: Ordinary shares of 10p each at 25th December 6.75% convertible subordinated unsecured loan stock 2006/16 at 25th December M. Barber X. Pullen R. Boyland L. Coral K. Ford A. Lewis-Pratt M. Gruselle T. Chandos P. Duffy D. Cherry Total at 25th December 2001 2001 Shares 2,146,366 1,004,545 557,485 4,861 381,905 14,153 50,653 45,000 – 4,138 4,209,106 2000 Shares 2,727,186 1,004,545 557,485 4,861 383,805 114,153 50,653 45,000 – 4,138 4,891,826 2001 £ 35,394 23,693 13,000 25 – – 943 15,000 – – 88,055 2000 £ 35,394 23,693 13,000 25 – – 943 15,000 – – 88,055 Capital & Regional plc Report on Directors’ Remuneration and Interests 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. In 2001, no options were granted under the 1998 Discretionary Share Option Schemes. The table below gives details of the options granted to the executive directors in prior years: Director Date granted Exercise conditions met Exercise price At beginning of year At end of year Options over Ordinary shares of 10p each M. Barber R. Boyland X. Pullen L. Coral K. Ford 22nd December 1993 28th October 1994 18th June 1997 13th September 2000 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 13th September 2000 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 13th September 2000 22nd December 1993 28th October 1994 21st October 1996 18th June 1997 15th May 1998 23rd February 1999 13th September 2000 18th June 1997 15th May 1998 23rd February 1999 13th September 2000 A. Lewis-Pratt 18th June 1997 15th May 1998 23rd February 1999 13th September 2000 Yes Yes Yes Not yet Yes Yes Yes Yes Not yet Yes Yes Yes Yes Not yet Yes Yes Yes Yes Yes Not yet Not yet Yes Yes Not yet Not yet Yes Yes Not yet Not yet 168.9p* 131.4p* 226.4p* 211.5p 136,878 104,263 50,582 50,000 136,878 104,263 50,582 50,000 341,723 341,723 15 168.9p* 131.4p* 226.4p* 279.5p 211.5p 168.9p* 131.4p* 226.4p* 279.5p 211.5p 168.9p* 131.4p* 193.2p* 226.4p* 279.5p 191.5p 211.5p 226.4p* 279.5p 191.5p 211.5p 226.4p* 279.5p 191.5p 211.5p 136,878 104,263 50,582 100,000 50,000 441,723 136,878 104,263 50,582 100,000 50,000 136,878 104,263 50,582 100,000 50,000 441,723 136,878 104,263 50,582 100,000 50,000 441,723 441,723 50,180 26,066 78,197 50,582 100,000 25,000 50,000 50,180 26,066 78,197 50,582 100,000 25,000 50,000 380,025 380,025 151,747 175,000 75,000 50,000 451,747 151,747 175,000 75,000 50,000 151,747 175,000 75,000 50,000 451,747 151,747 175,000 75,000 50,000 451,747 451,747 *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. Capital & Regional plc Report on Directors’ Remuneration and Interests Share incentives (continued) The table below gives details of potential gains on the options granted to the executive directors: 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 Total at year end * Using a share price of 267.0p as at 25th March 2002. 16 M. Barber £000 R. Boyland £000 589 868 X. Pullen £000 868 L. Coral £000 818 K. Ford A. Lewis-Pratt £000 £000 1,082 1,082 296 28 324 296 28 324 296 28 324 163 46 209 62 84 146 62 84 146 The Company’s share price was 245.0p on 25th December 2001. During the year the share price ranged from 209.5p to 256.0p.There has been no change in directors’ interests in options since 25th December 2001. 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, 1999 and 2000 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 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 and subsequent years 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. Martin Gruselle Chairman Remuneration Committee 26th March 2002 Capital & Regional plc Corporate Governance Statement 17 Introduction The Company is required to comply, for the accounting period ended 25th December 2001, with “The Combined Code – Principles of Good Governance and Code of Best Practice” (“the Combined Code”). Governance: principles and procedures Details of how the Company has applied the Code are as follows for each of the Code’s four distinct areas: Directors The Company is controlled through the Board of Directors which is chaired by Tom Chandos and 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 Chairman is one of the non-executive directors, and there is a clear division of responsibility between the Chairman and the Chief Executive. 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 directors are set out on pages 10 to 11. 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 disposals 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 initially by the Nomination Committee and thereafter at a full Board meeting. The Board is given an opportunity to meet the individual concerned prior to any formal decision being taken. The Nomination Committee, which consists of the Chairman, the Chief Executive, and one non-executive director meets when necessary. 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 Directors Committee, whose members include the six executive directors, meets on a weekly basis and deals with all major decisions of the Group not requiring full Board approval or authorisation by other Board Committees. The Executive Directors Committee is quorate with four directors in attendance; if decisions are not unanimous the matter is referred to the Board for approval. Notes and action points from Executive Directors Committee meetings are circulated to the Board. 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 14 to 15. 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, 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. Capital & Regional plc Corporate Governance Statement 18 Internal control The Directors are responsible for the Company’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable, and not absolute, assurance against material misstatement or loss. There are ongoing processes and procedures for identifying, evaluating and managing the signiﬁcant risks faced by the Company, which have been in place during 2001 and up to the date of approval of the Annual Report and Accounts. The processes are regularly reviewed by the Board and accord with the Turnbull Committee guidance on internal control issued in September 2000. The procedures in place for ﬁnancial reporting to the executive directors and the Board include the preparation of budgets and forecasts, cash management, variance analysis, property, taxation and treasury reports and a report on ﬁnancing. 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 or individual directors. The directors carried out their review of the current system and updated the documentation of key risk, operational controls and procedures relating to different areas of the business. These included: environmental surveys; disaster recovery plans for all centres; review of strategy and changes in the economic environment; computer back-up (off-site) and recovery procedures; investment portfolio review and marketing. In this review, that is repeated at least once a year, the directors have considered the effectiveness of the internal 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 Financial Services Authority 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 report, circulars to shareholders and internal controls. The terms of reference were reviewed and updated in 2000 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 2001 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 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 2001. 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. 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. Compliance Statement The Company is committed to high standards of corporate governance and throughout the year ended 25th December 2001, 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 Financial Services Authority. By Order of the Board F. Desai Secretary 26th March 2002 Capital & Regional plc Independent Auditors’ Report to the members of Capital & Regional plc We have audited the ﬁnancial statements of Capital & Regional plc for the year ended 25th December 2001 which comprise the consolidated proﬁt and loss account, the balance sheets, the consolidated cash ﬂow statement, the statement of total recognised gains and losses, the note of historical cost proﬁt and losses, the reconciliation of movements in shareholders’ funds, and the related notes 1 to 34. These ﬁnancial statements have been prepared under the accounting policies set out therein. Respective responsibilities of directors and auditors As described in the statement of directors’ responsibilities, the company’s directors are responsible for the preparation of the ﬁnancial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibility is to audit the ﬁnancial statements in accordance with relevant United Kingdom legal and regulatory requirements, auditing standards, and the Listing Rules of the Financial Services Authority. 19 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 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 corporate governance statement reﬂects the Company’s compliance with the seven provisions of the Combined Code speciﬁed for our review by the Listing Rules and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the directors’ report and the other information contained in the Annual Report for the above year as described in the contents section and 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 United Kingdom 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 adequacy of the 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 2001 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 March 2002 Capital & Regional plc Consolidated Proﬁt and Loss Account for the year ended 25th December 2001 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 20 Administrative expenses Other operating income Group operating proﬁt Share of operating proﬁt in joint ventures and associates Proﬁt on sale of investment properties and investments Proﬁt on ordinary activities before interest Income from listed investments Interest receivable and similar income Interest payable and similar charges 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 2001 £000 72,704 (15,620) 57,084 (8,052) 49,032 183 49,215 (8,645) 40,570 679 41,249 3,068 44,317 1,439 45,756 – 1,587 (35,980) 11,363 (427) 10,936 250 11,186 (4,731) 6,455 13.6p 13.5p 12.4p Restated 2000 £000 79,495 (11,877) 67,618 (9,687) 57,931 306 58,237 (7,955) 50,282 502 50,784 476 51,260 4,092 55,352 659 824 (42,667) 14,168 (413) 13,755 (431) 13,324 (5,070) 8,254 13.7p 13.7p 9.5p Notes 2 16 3 16 3 4 5 6 9 26 10 11 25 12a 12b 12c The results of the Group for the year related entirely to continuing operations within the meaning of Financial Reporting Standard No. 3. Capital & Regional plc Note of Historical Cost Proﬁts and Losses for the year ended 25th December 2001 Reported proﬁt on ordinary activities before taxation Realisation of property revaluation surplus of previous years Realisation of other investment revaluation surplus of previous years Realisation of property revaluation 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 2001 Share of unrealised deﬁcit on valuation of investment properties Share of unrealised (deﬁcit)/surplus on valuation of other ﬁxed assets Share of unrealised deﬁcit on valuation of properties in joint ventures Share of tax on revaluation surpluses realised in year Deferred tax asset/(liability) provided on unrealised revaluation surpluses Exchange differences Proﬁt attributable to shareholders 2001 £000 11,363 22,157 – – 33,520 24,814 Restated 2000 £000 14,168 74 18,099 40 32,381 23,365 21 2001 £000 (33,003) (117) (537) (3,218) 2,205 – (34,670) 11,186 Restated 2000 £000 (32,852) 512 (561) (3,614) (2,952) 3 (39,464) 13,324 Total recognised gains and losses relating to the year (23,484) (26,140) Reconciliation of Movements in Shareholders’ Funds for the year ended 25th December 2001 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) Share capital purchased and cancelled in year (including expenses) Other recognised gains and losses relating to year (see above) Net reduction to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2001 £000 11,186 (4,731) 6,455 34 (23,325) (34,670) (51,506) 340,617 289,111 Restated 2000 £000 13,324 (5,070) 8,254 20 (20,759) (39,464) (51,949) 392,566 340,617 Capital & Regional plc Consolidated Balance Sheet as at 25th December 2001 Fixed assets Property assets Other ﬁxed assets Investment in joint ventures: share of gross assets share of gross liabilities 22 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) Provisions for liabilities and charges 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 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 Notes £000 2001 £000 £000 18,846 5,541 42,272 6,091 72,750 (129,705) 13 14 16 17 18 18 19 20 21 28 24 25 25 25 25 26 27 27 28,126 8,307 29,795 8,567 74,795 (70,655) 703,338 13,966 717,304 91,497 (62,014) 29,483 746,787 4,140 750,927 (461,816) – 289,111 7,886 161,927 82,988 2,535 33,775 289,111 – 289,111 366.6p 343.3p Restated 2000 £000 916,485 14,521 931,006 68,084 (38,270) 29,814 960,820 (56,955) 903,865 (556,582) (2,952) 344,331 8,874 161,895 130,770 1,545 37,533 340,617 3,714 344,331 383.9p 360.6p The ﬁnancial statements were approved by the Board of Directors and signed on their behalf on 26th March 2002 by: M. Barber L. Coral Capital & Regional plc Consolidated Cash Flow Statement for the year ended 25th December 2001 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 Dividend paid to minority interests Loan arrangement costs Taxation UK corporation tax paid UK corporation tax recovered 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 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 by joint ventures Acquisitions and disposals Additions to joint ventures Reclassiﬁcation of cash in joint arrangement Acquisition of minority interests in subsidiary Equity dividends paid Cash inﬂow/(outﬂow) before ﬁnancing Financing Issue of ordinary share capital Share capital purchased and cancelled in year Bank loans received Bank loans repaid Notes 30(a) £000 2001 £000 38,232 928 – £000 Restated 2000 £000 49,514 180 5 – 1,548 (35,352) (2) (89) (2,962) 115 70 (20,110) (18,407) (306) (4,820) 216,033 16,778 112 – 1,710 – – (2,929) 625 795 (44,063) – (317) 23 (33,895) 5,265 (42,960) 6,739 (622) – – (2,777) 2,488 (622) 6,117 (56,423) (20,746) (1,239) (2,433) 1,632 43,562 108 25,042 2,337 (18,025) (591) (100) (8,160) (2,043) (18,716) (20,759) (5,134) (25,893) 190,990 193,478 (2,929) 190,549 (4,855) 185,694 34 (33,491) 72,604 (222,365) 20 (10,593) 108,765 (73,596) (183,218) 2,476 24,596 (1,297) Increase/(decrease) in cash 30(b) Capital & Regional plc Company Balance Sheet as at 25th December 2001 Fixed assets Other investments 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 24 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 Notes £000 2001 £000 £000 2000 £000 15 17 18 18 20 21 24 25 25 25 108,768 153,017 2,775 197,050 426,293 5,902 632,020 (35,189) 1,594 239,550 543,497 3,089 787,730 (117,197) 596,831 705,599 (449,181) 256,418 7,886 161,987 2,535 84,010 256,418 670,533 823,550 (543,958) 279,592 8,874 161,955 1,545 107,218 279,592 The ﬁnancial statements were approved by the Board of Directors and signed on their behalf on 26th March 2002 by: M. Barber L. Coral Capital & Regional plc Notes to the Financial Statements for the year ended 25th December 2001 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: Basis of consolidation The consolidated ﬁnancial statements incorporate the ﬁnancial statements of Capital & Regional plc and its consolidated entities and associated companies and joint ventures for the year ended 25th December 2001. 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. Joint ventures, associates and joint arrangements In accordance with Financial Reporting Standard No. 9, joint ventures are included in the accounts under the gross equity method of accounting, and associates under the net equity method. 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. 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 and land, over their expected useful lives: 25 Buildings Fixtures and ﬁttings – over three to ﬁve years, on a straight line basis. Motor vehicles – over four years, on a straight line basis. – over 50 years, on a straight line basis. Investment properties Investment properties are included in the ﬁnancial statements at valuation less any unamortised capital contributions made to tenants. 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’s policy is to value investment properties twice a year. On realisation any gain or loss is calculated by reference to the carrying value at the last ﬁnancial year end balance sheet date 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. 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 when substantially all activities that are necessary to get the property ready for use are complete. Capital & Regional plc Notes to the Financial Statements 1. Accounting policies (continued) 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. 26 Tenant incentives Rent frees given to tenants are amortised over the earlier of either the period of the lease, or, to when the rent is adjusted to the prevailing market rate, usually the ﬁrst rent review. Capital contributions given to tenants are shown as a debtor, and amortised over the earlier of either the period of the lease, or, to when the rent is adjusted to the prevailing market rate, usually the ﬁrst rent review. The valuation of the properties is reduced by the unamortised capital contributions. On the disposal of properties, the unamortised rent incentives are charged against rental income and the balance of the unamortised capital contributions are charged to the disposal of investment properties. 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. 2. Segmental analysis Turnover, proﬁt on ordinary activities before taxation and net assets are attributable to property investment, development and management. Turnover, proﬁt on ordinary activities before taxation and operations arise wholly in the UK (2000: £659,000 of income from listed investments which originate from the US). 3. Asset sales Net sale proceeds Cost of sales Historical cost proﬁt Revaluation surplus Permanent diminution in value of ﬁxed property assets Share of joint ventures (see note 16) Fixed assets 2000 £000 2001 £000 Current assets 2000 £000 2001 £000 2001 £000 216,029 (192,433) 23,596 (22,157) 26,674 (4,273) 22,401 (18,173) 1,439 4,228 – – (225) 89 Total 2000 £000 62,027 (39,320) 22,707 (18,173) 8,047 (7,864) 35,353 (35,047) 224,076 (200,297) 183 – 183 – – 183 306 – 306 – – 23,779 (22,157) 1,622 4,534 – – (225) 89 306 1,622 4,398 Proﬁt recognised on sale of assets 1,439 4,092 Capital & Regional plc Notes to the Financial Statements 4. Interest receivable and similar income Bank interest Interest from joint ventures and associates Other interest Share of joint ventures (see note 16) 5. Interest payable and similar charges Bank loans and overdrafts wholly repayable within ﬁve years Other loans Capitalised during year Share of joint ventures (see note 16) 2001 £000 506 372 646 1,524 63 1,587 2001 £000 31,985 1,663 33,648 (115) 33,533 2,447 35,980 2000 £000 167 390 224 781 43 824 2000 £000 42,823 1,663 44,486 (2,678) 41,808 859 42,667 27 The interest relating to bank loans, overdrafts and other loans wholly repayable within ﬁve years included £nil (2000: £nil) in respect of loans repayable by instalments. The interest charge includes £384,000 (2000: £365,000) of loan arrangement costs amortised during the year. 6. Proﬁt on ordinary activities before taxation This is arrived at after charging: (Proﬁt) on disposal of other ﬁxed assets Depreciation Amortisation of short leasehold properties Amortisation of goodwill Auditors’ remuneration (see below) Directors’ emoluments (see note 8) Operating lease rentals for land and buildings Surrender premiums received The Group’s auditors also charged the following amounts for the provision of non-audit services during the year: General taxation advice Other 2001 £000 2000 £000 (74) 486 202 – 134 2,143 1,141 (477) 128 22 150 (52) 567 173 72 128 1,571 1,383 (2,270) 108 6 114 The auditors’ remuneration for the Group includes £8,000 (2000: £7,500) in respect of the parent company. Capital & Regional plc Notes to the Financial Statements 7. 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 28 Total salaries Social security costs Other pension costs 2001 £000 2000 £000 6,040 1,277 7,317 742 237 8,296 4,322 796 5,118 580 245 5,943 Included in the cost above is £1,380,000 (2000: £nil) relating to employee costs for Snozone Ltd. The operating proﬁt for Snozone is shown under other operating income. The average number of persons employed by the Group during the year was as follows: Average number of employees During 2000 During 2001 Direct property services Central management 13 215 228 In the current year the average number of employees included 129 (2000: nil) employed by Snozone Ltd. 33 79 112 2000 £000 227 41 268 2001 £000 330 40 370 1,966 197 2,163 1,373 198 1,571 8. Directors’ emoluments Emoluments of the highest paid director are as follows: Aggregate emoluments Pension contributions to deﬁned contribution scheme Total emoluments of all directors are as follows: Aggregate emoluments Pension contributions to deﬁned contribution schemes Company pension contributions to deﬁned contribution schemes were made in respect of six (2000: 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 13 to 16. 9. Taxation UK corporation tax: Current period Prior periods Share of tax of joint ventures (see note 16) The tax liability for the year has been reduced due to the beneﬁt of capital allowances. 2001 £000 Restated 2000 £000 1,335 (1,135) 227 427 349 30 34 413 Capital & Regional plc Notes to the Financial Statements 10. Proﬁt of the holding company Of the proﬁt for the year attributable to shareholders, a proﬁt of £4,848,000 (2000: loss £12,599,000) 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 2001 £000 57,708 (52,860) 4,848 2000 £000 22,074 (34,673) (12,599) 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. 29 11. Equity dividends paid and payable Interim of 2.5p per share paid on 18th October 2001 (2000: 2.25p per share) Proposed ﬁnal of 3.5p per share payable on 31st May 2002 (2000: 3.25p per share) 2001 £000 1,971 2,760 4,731 2000 £000 2,186 2,884 5,070 12. Earnings per share a) Earnings per share have been calculated on the weighted average number of Ordinary shares of 10p each in issue during the year 82,272,918 (2000: 97,042,680) and have been based on proﬁt on ordinary activities after taxation and minority interests of £11,186,000 (2000 (restated): £13,324,000). b) Diluted earnings per share have been calculated after allowing for the exercise of share options which have met the required exercise conditions. The calculation does not include 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 82,613,354 (2000: 97,256,996) and the relevant earnings are £11,186,000 (2000 (restated): £13,324,000). c) Earnings per share on revenue activities exclude the proﬁt on the sale of investment properties and investments, and associated tax charge and minority interests thereon, of £1,007,000 (2000: £4,101,000). Capital & Regional plc Notes to the Financial Statements 13. Property assets Group Cost or valuation: At beginning of year Less: UITF 28 adjustment 30 As at 25 December 2000 – restated Additions Amortisation of short leasehold properties Disposals Revaluation As at 25 December 2001 The year end balance is analysed as follows: Historical cost Revaluation surplus Investment properties Leasehold properties £000 Freehold properties £000 Total £000 578,868 (4,940) 573,928 27,009 – (195,262) (15,702) 342,813 (256) 342,557 7,451 (203) (18,808) (17,632) 921,681 (5,196) 916,485 34,460 (203) (214,070) (33,334) 389,973 313,365 703,338 323,627 66,346 301,443 11,922 625,070 78,268 A list of the valuers, and the basis of the valuations, are summarised in note 29. The year end balance for leasehold properties is analysed as follows: Leasehold with more than 50 years to run Leasehold with between 20 and 50 years to run Leasehold with less than 20 years to run 2001 £000 307,415 2,200 3,750 313,365 The net book value of property assets includes £3,065,000 (2000: £3,445,000) in respect of capitalised interest. 14. Other ﬁxed assets Group Cost or valuation At beginning of year Additions Disposals Revaluation At end of year Depreciation At beginning of year Provided for year Disposals At end of year Net book values: At 25th December 2001 At 25th December 2000 Long leasehold land and buildings £000 Fixtures and ﬁttings £000 Motor vehicles £000 Negative goodwill Total £000 13,780 (3) – (117) 13,660 80 80 – 1,576 304 – – 1,880 835 378 – 160 1,213 13,500 13,700 667 741 366 7 (284) – 89 286 32 (247) 71 18 80 – (223) – – (223) 15,722 85 (284) (117) 15,406 – (4) – (4) 1,201 486 (247) 1,440 (219) – 13,966 14,521 The negative goodwill arose from the acquisition of the minority interest in Easter Capital Investment Holdings Limited. A proportion of the negative goodwill will be credited to the proﬁt and loss account on the disposal of the non-monetary assets acquired. The long leasehold land and buildings represents the Group’s head ofﬁce, which was independently valued on 25th December 2001. A list of the valuers, and the basis of the valuations, are summarised in note 29. Capital & Regional plc Notes to the Financial Statements 15. Other investments Valuation At beginning of year Additions Disposals Write down in value of investments At end of year A list of principal subsidiaries and joint venture undertakings is given in note 33. 16. Investment in joint ventures At beginning of year UITF 28 adjustment At beginning of year – restated Subscription for partnership capital and advances Reclassiﬁcation of net investment in joint arrangement Dividends and capital distributions received Share of results (see below) Share of taxation (see below) Share of property revaluation deﬁcit At end of year – restated UITF 28 adjustment At end of year Company Shares in subsidiary and joint venture undertakings £000 153,017 27,973 (24,444) (47,778) 108,768 31 2001 £000 29,666 148 29,814 650 – (928) 703 (227) (529) 29,483 – 29,483 Restated 2000 £000 2,222 – 2,222 18,050 10,600 (180) (283) (34) (561) 29,814 (148) 29,666 Xscape Milton Keynes Partnership £000 The Capital Hill Partnership £000 Sauchiehall Centre Limited £000 Easter Exchange Court Properties Limited £000 Holdings Limited £000 Others £000 Total £000 Group share of results: Turnover Operating proﬁt Interest receivable and similar income Interest payable and similar charges Equity minority interests Proﬁt/(loss) before tax Taxation Proﬁt/(loss) 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 1,495 1,142 1,067 1,012 20 9 (1,671) – (509) – (509) 35,913 – 3,606 39,519 7,933 23,400 31,333 8,186 50% Nil Nil – – 1,021 – 1,021 18,750 – 670 19,420 461 – 461 18,959 50% Nil Nil 810 818 13 (461) – 370 (87) 283 11,773 618 18 (269) 19 386 (140) 246 20,674 – 1,325 21,999 1,815 19,775 21,590 409 50% Nil Nil 2,244 4,004 3,396 9,644 2,856 5,251 8,107 1,537 50% Nil Nil Capital & Regional plc 475 (522) 3 (46) – (565) – (565) – 686 20 706 7 500 507 199 50% 1,000 1,000 15,620 3,068 63 (2,447) 19 703 (227) 476 77,581 4,690 9,226 91,497 13,088 48,926 62,014 29,483 – – – – – – – – – 209 209 16 – 16 193 50% Nil Nil Notes to the Financial Statements 16. Investment in joint ventures (continued) The last year end for The Capital Hill Partnership was 25th March 2001. Its results for the period twelve months to 25th December 2001 have been incorporated. Easter Holdings Ltd has changed its year end and the next year end will be 25th March 2002. Its results for the period twelve months to 25th December 2001 have been incorporated. A list of valuers and the basis of the valuation are summarised in note 29. The joint ventures all operate in the UK. 32 17. Current property assets Properties held for disposal Properties under development 2001 £000 13,859 14,267 28,126 Group 2000 £000 7,625 11,221 18,846 2001 £000 – 2,775 2,775 Company 2000 £000 – 1,594 1,594 The net book value of current property assets includes £290,000 (2000: £nil) in respect of capitalised interest. 18. Debtors Amounts falling due after more than one year Amounts owed by subsidiaries Amounts owed by joint ventures Prepayments Amounts falling due within one year Trade debtors Amounts owed by subsidiaries Amounts owed by joint ventures Other debtors Tax recoverable Prepayments and accrued income 2001 £000 – 2,750 5,557 8,307 16,589 – 4,549 1,480 2,639 4,538 29,795 Group Restated 2000 £000 – – 5,541 5,541 16,645 – 4,873 2,989 255 17,510 Company 2001 £000 2000 £000 197,050 – – 239,550 – – 197,050 239,550 – 363,955 4,549 107 – 57,682 32 518,039 4,873 540 – 20,013 42,272 426,293 543,497 19. Cash at bank and in hand Cash at bank includes £5,679,000 (2000: £122,000) speciﬁcally held as security deposits and retained in rent accounts and not freely available to the Group for day to day commercial purposes. 20. Creditors: amounts falling due within one year Bank loans (secured) (see note 22) Amounts owed to subsidiaries Trade creditors Other creditors Taxation and social security Corporation tax Accruals and deferred income Proposed dividends Group Restated 2000 £000 57,999 – 7,802 11,746 2,903 4,186 42,185 2,884 129,705 2001 £000 3,300 – 4,631 2,384 3,085 7,952 46,543 2,760 70,655 Company 2000 £000 44,889 51,982 172 10,166 – – 7,104 2,884 117,197 2001 £000 12 27,424 9 31 – – 4,953 2,760 35,189 Capital & Regional plc Notes to the Financial Statements 21. Creditors: amounts falling due after more than one year Bank loans (secured) (see note 22) Unamortised issue costs Convertible loan stock (unsecured) (see note 23) Unamortised issue costs 2001 £000 Group 2000 £000 2001 £000 Company 2000 £000 437,650 (148) 532,600 (241) 424,900 (33) 519,850 (115) 437,502 532,359 424,867 519,735 24,642 (328) 24,314 24,642 (419) 24,223 24,642 (328) 24,314 24,642 (419) 24,223 33 461,816 556,582 449,181 543,958 22. Bank loans The Group’s interest rate proﬁle is after taking account of the effect of swaps, as follows: Fixed and swapped loans Variable rate loans Total £000 Weighted average interest rate Weighted average period – years 198,642 267,191 465,833 7.45% 5.38% 6.26% 2.8 n/a Variable rate loan interest rates are based on three month LIBOR. A valuation was carried out by JC Rathbone Associates Limited as at 25th December 2001 and 25th December 2000 to calculate the market value of the ﬁxed rate instruments on a replacement basis and the expiry proﬁle of the resulting fair value adjustment. 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 2001 and the rate historically committed; namely the fair value adjustment. Convertible unsecured loan stock Bank borrowings Interest rate swaps Minority interests Fair value adjustment attributable to Group Net of tax at 30% (2000: 30%) Book value Notional value £000 £000 24,642 – n/a n/a n/a 174,000 Fair value £000 24,642 – 177,570 24,642 174,000 202,212 Fair value adjustment 2001 £000 Fair value adjustment 2000 £000 – – (3,570) (3,570) – (3,570) (2,499) – (324) (3,164) (3,488) 81 (3,407) (2,385) The fair value adjustment represents approximately 0.77% (2000: 0.57%) of Group borrowings and has a notional adverse effect on fully diluted net asset value per share of 2.7p (2000: adverse 2.4p). 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 2001 and ending on the contracted expiry dates. The expiry proﬁle of the fair value adjustment is shown in the table below: 2001 2002 2003 Fair value adjustment 2001 £000 Fair value adjustment 2000 £000 – (3,191) (379) (3,570) (1,678) (1,541) (269) (3,488) Capital & Regional plc Notes to the Financial Statements 22. Bank loans (continued) The bank loans are repayable as follows: Aggregate amount repayable: Between one and two years Between two and ﬁve years Greater than ﬁve years 34 Total loans due after more than one year Loans due in one year or less or on demand Total loans Currency proﬁle All monetary assets and liabilities are denominated in sterling. 23. Convertible subordinated unsecured loan stock Convertible loan stock Unamortised loan issue costs due after one year Unamortised loan issue costs due within one year 2001 £000 2000 £000 277,700 151,350 8,600 437,650 3,540 200 523,600 8,800 532,600 58,351 441,190 590,951 Group and Company 2000 2001 £000 £000 24,642 (328) 24,314 (91) 24,223 24,642 (419) 24,233 (91) 24,132 The Convertible Subordinated Unsecured Loan 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, following the Tender Offer this price will be adjusted. 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 carry 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 are shown net of its unamortised loan issue costs. 24. Called up share capital Ordinary shares of 10p each At beginning of year Issued on exercise of share options Shares purchased and cancelled At end of year Number of shares issued and fully paid 2000 Number 2001 Number Nominal value of shares issued and fully paid 2000 £000 2001 £000 88,734,623 98,265,697 10,426 20,852 (9,541,500) (9,899,500) 78,855,975 88,734,623 8,874 2 (990) 7,886 9,827 1 (954) 8,874 Authorised Ordinary shares of 10p each 150,000,000 150,000,000 There have been no changes to the number of shares in issue since the year end. 2001 £000 2000 £000 Capital & Regional plc Notes to the Financial Statements 24. Called up share capital (continued) The options to subscribe for new Ordinary shares of 10p each under the share option schemes that were outstanding at 25th December 2001 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* 23rd February 2002 to 23rd February 2009* 22nd February 2003 to 22nd February 2010* 13th September 2003 to 13th September 2010* 35 25th December 2001 Subscription price Number of shares 460,814 338,855 10,426 151,180 699,045 105,208 1,098,000 51,880 25,000 572,900 160,000 325,000 3,998,308 168.9p 131.4p 132.4p 193.2p 226.4p 226.4p 279.5p 286.5p 196.5p 191.5p 201.5p 211.5p *Only exercisable if conditions relating to growth in net asset per share and total return for shareholders are met. 25. Reserves Group At beginning of year Prior year adjustment re Tenant incentives Revised balance as at 25th December 2000 Issue of share capital Shares purchased and cancelled Group share of revaluation deﬁcit of investment properties Group share of revaluation deﬁcit of other ﬁxed assets Share of unrealised revaluation deﬁcit in joint ventures Realisation of surplus on disposal of investment properties Corporation tax on capital gains charged to STRGL Deferred tax asset offset against revaluation reserve Transfer of historic deﬁcits on revaluation reserve Retained proﬁt for the year Minority interest adjustments Share premium account £000 Property revaluation reserve £000 Capital redemption reserve £000 Proﬁt and loss account £000 161,895 – 130,008 762 161,895 130,770 1,545 – 1,545 32 – – – – – – – – – – – – (33,334) (117) (537) (18,358) – 2,205 2,028 – 331 – 990 – – – – – – – – – 37,236 297 37,533 – (23,325) – – – 18,358 (3,218) – (2,028) 6,455 – At end of year 161,927 82,988 2,535 33,775 Group’s share of post acquisition reserves of joint ventures At beginning of year Prior year adjustment re tenant incentives Revised balance as at 25th December 2000 Unrealised reserves on transfer of property to joint ventures Movement in the year At end of year 5,855 253 6,108 (649) (537) 4,922 489 (107) 382 – (451) (69) Capital & Regional plc Notes to the Financial Statements 25. Reserves (continued) Company At beginning of year Proﬁt for year attributable to shareholders Equity dividends paid and payable Issue of share capital Shares purchased and cancelled At end of year 36 26. Equity minority interests Share premium account £000 Property revaluation reserve £000 Capital redemption reserve £000 Proﬁt and loss account £000 161,955 – – 32 – 161,987 – – – – – – 1,545 – – – 990 2,535 107,218 4,848 (4,731) – (23,325) 84,010 Restated Proﬁt and loss Balance sheet Proﬁt and loss Balance sheet 2000 £000 2000 £000 2001 £000 2001 £000 Restated Share of net assets attributable to minority shareholders: At beginning of year Prior year adjustments Share of results Share of joint ventures (see note 16) Share of tax on revaluation surpluses crystallised in year Share of movements in revaluation reserve Purchase of minority interests in subsidiary Negative goodwill on acquisition At end of year – – (231) (19) – – – – (250) 3,714 – (231) – – (331) (2,929) (223) – – 40 359 32 – – – – 431 4,341 40 359 – (511) (487) (28) – 3,714 Minority interests relate to participation in the net equity of subsidiary companies. 27. Net assets per share Net assets per share have been calculated on Ordinary shares of 10p each 78,855,975 (2000: 88,734,623) in issue at the year end and have been based on net assets attributable to shareholders of £289,111,000 (2000: (restated) £340,617,000). 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 91,268,146 (2000: 101,146,794) Ordinary shares of 10p each and have been based on adjusted net assets attributable to shareholders of £313,334,000 (2000: (restated) £364,749,000) by adding the £24,223,000 (2000: £24,132,000) balance sheet value of CULS (see note 23). 28. Provision for liabilities and charges Deferred taxation The amounts of deferred taxation provided and unprovided in the accounts are as follows: Tax on capital gains if investment assets were sold at their current valuation Accelerated capital allowances Provided 2001 £000 Provided 2000 £000 Not provided 2001 £000 Not provided 2000 £000 – – – 2,952 – 2,952 8,815 1,870 10,685 24,356 10,442 34,798 If a provision was made for deferred taxation that has not been provided it would have an adverse effect on net assets per share of 13.6p (2000: 39.2p) and on fully diluted net assets per share of 11.7p (2000: 34.4p). Capital & Regional plc Notes to the Financial Statements 29. Valuations The properties were valued at 25th December 2001, as follows: Valuer Basis of valuation £000 DTZ Debenham Tie Leung Insignia Richard Ellis Limited Directors Directors Open market value Open market value Net sale proceeds of properties sold after 25th December 2001 Open market value DTZ Debenham Tie Leung Open market value Group properties: Total ﬁxed property assets Other ﬁxed assets Total property assets Fixed property assets at 25th December 2001 as per balance sheet UITF 28 adjustment at 25th December 2001 included in debtors Total ﬁxed property assets as valued above 37 36,900 31,310 616,075 25,370 709,655 13,500 723,155 703,338 6,317 709,655 Valuer Basis of valuation £000 Properties held by joint ventures: Xscape Milton Keynes Partnership The Capital Hill Partnership Sauchiehall Centre Limited Easter Holdings Limited DTZ Debenham Tie Leung Knight Frank Montagu Evans Easter Holdings Limited Open market value Open market value Open market value Open market value 75,050 37,500 42,500 4,489 159,539 Valuations are at open market value as deﬁned in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors. 30. 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 of other ﬁxed assets Amortisation of short leasehold properties Amortisation of tenant incentives Amortisation of goodwill arising on acquisition of minority interests (Proﬁt) on disposal of ﬁxed assets Decrease/(increase) in trade debtors, other debtors and prepayments (Decrease)/increase in trade creditors, other creditors, taxation and social security and accruals Net cash inﬂow from operating activities 2001 £000 41,249 (183) 41,066 486 202 1,741 – (74) 3,564 Restated 2000 £000 49,870 (306) 49,564 567 173 914 72 (52) (11,794) (8,753) 38,232 10,070 49,514 Capital & Regional plc Notes to the Financial Statements 30. Notes to the cash ﬂow statement (continued) (b) Reconciliation of net cash ﬂow movement in net debt Increase/(decrease) in cash in year Cash inﬂow from increase in debt ﬁnancing Change in net debt resulting from cash ﬂows Reclassiﬁcation of debt in joint arrangement Net debt at beginning of year Net debt at end of year 38 (c) Analysis of net debt Cash in hand and at bank Debt due within one year Debt due after one year Total 2001 £000 2000 £000 2,476 149,760 152,236 – (609,501) (457,265) (1,297) (35,169) (36,466) 22,568 (595,603) (609,501) At 25th December 2000 £000 6,091 (58,350) (557,242) (609,501) At 25th December 2001 £000 8,567 (3,540) (462,292) (457,265) Cash ﬂows £000 2,476 54,810 94,950 152,236 31. Related party transactions 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 note 16. The Group has provided a £5,000,000 loan facility to Easter Holdings Limited which is repayable on or before 1st January 2002. At 25th December 2001 the loan outstanding was £4,549,000 (2000: £4,497,000). Interest was charged on this facility at rates ranging between 7% to 9% during the year. The interest receivable for year is £365,000 (2000: £373,000). The Group was charged £211,000 (2000: £865,000) by a subsidiary of Easter Holdings Limited in respect of property acquisition and management fees during the year, and £8,000 (2000: £96,000) in respect of project management fees. At the prior year end the Group had provided a £377,000 loan facility to Exchange Court Properties Limited which was repaid in full during the year. Interest was charged on this facility at rates ranging between 8.75% and 9.0% during this year. The interest receivable for the year is £7,000 (2000: £17,000). Other related party transactions On 22nd June 2001, the Group purchased the minority shareholding in Easter Capital Investment Holdings Limited held by ECI Investments Limited, a company controlled by Peter Taylor. Peter Taylor was a Director of a number of group companies prior to the transaction and owns 50% of Easter Holdings Limited, a joint venture with Capital & Regional plc. The fair value consideration of £2,907,000 was paid wholly in cash. The price was determined in accordance with a shareholders agreement. During 2001 the Group employed Hudson Sandler Limited for ﬁnancial PR and corporate communications advice on normal commercial terms. Tom Chandos is a Director of Hudson Sandler Limited. During 2001 the Group was in a partnership arrangement with funds managed by Pricoa Property Investment Management Limited of which Martin Barber is non-executive Chairman. During 2001 Cine UK Limited leased two of the Group’s properties on normal commercial terms. Tom Chandos is a Director and shareholder of Cine UK Limited Martin Barber is a shareholder of Cine UK. David Cherry is a former Senior Partner and currently a consultant to the ﬁrm Donaldsons, which has continued to act during 2001 as one of the Group’s property advisers and as such has received fees for its services on normal professional terms. Capital & Regional plc Notes to the Financial Statements 32. Post balance sheet events On 3rd January 2002 the Group transferred a portfolio of six retail parks into The Junction Limited Partnership, a joint venture with Morley Fund Management Limited, for a total consideration of £165,200,000 of which £13,700,000 was deferred. The Group simultaneously invested £85,000,000 in the new joint venture and repaid bank loans, due after one year, with the balance of the proceeds after sale costs. On 8th January 2002 the Group transferred the Auchinlea Retail Park into a joint venture with Pillar Property plc for a total consideration of £19,500,000. The Group simultaneously invested £5,200,000 in the new joint venture and repaid bank loans, due after one year, with the balance of the proceeds after sale costs. On 7th March 2002 the Group was reimbursed £1,130,000 of costs, held as current property assets, relating to the proposed redevelopment of the Auchinlea Retail Park. 39 On 28th February 2002 the Group transferred its portfolio of eight shopping centres and a trading property into The Mall Limited Partnership, a joint venture with Morley Fund Management Limited, for a total consideration of £467,300,000. The Group simultaneously invested £170,000,000 in the new joint venture and repaid bank loans, due after one year, with the balance of the proceeds after sale and transaction costs. The Group incurred exceptional loan breakage and transaction arising from the transaction, which will be recognised in the 2002 ﬁnancial statements. The effect of the above transactions on the Group balance sheet as at 25th December 2001 is as follows: Fixed assets Property assets Other ﬁxed assets Tangible assets Investment in joint ventures Share of gross assets Share of gross liabilities Current assets Property assets Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after one year Net assets Net assets per share adjusted for minority interests – diluted Net bank borrowings Gearing ratios: – including convertible unsecured loan stock – assuming conversion of convertible unsecured loan stock 25th December 2001 £000 The Junction Limited Partnership £000 Auchinlea Partnership £000 The Mall Limited Partnership £000 703,338 13,966 (161,002) – (19,500) – (454,587) – 717,304 (161,002) (19,500) (454,587) proforma £000 68,249 13,966 82,215 91,497 (62,014) 170,000 (85,000) 10,700 (5,500) 340,000 (170,000) 612,197 (322,514) 29,483 85,000 5,200 170,000 289,683 746,787 (76,002) (14,300) (284,587) 371,898 28,126 38,102 8,567 74,795 (70,655) 4,140 750,927 (461,816) 289,111 343.3p 457,266 158.2% 138.1% (2,875) 12,627 – 9,752 – 9,752 (1,130) – – (1,130) – (1,130) (3,400) (5,063) – (8,463) – (8,463) 20,721 45,666 8,567 74,954 (70,655) 4,299 (66,250) 66,250 (15,430) 15,430 (293,050) 288,155 376,197 (91,981) – – (4,895) 284,216 (66,250) (15,430) (5.4p) (288,155) 337.9p 87,431 30.8% 20.4% On 18th March 2002 a joint venture with Hanover Property Unit trust completed a £3.1m site purchase for the development of the second Xscape complex at Castleford, Leeds. The effect of this transaction has not been reﬂected in the proforma balance sheet. Capital & Regional plc Notes to the Financial Statements 33. Subsidiary, joint arrangement entities, joint venture and associated undertakings at 25th December 2001 Principal subsidiaries, joint arrangement entities, joint ventures and associated companies Nature of property business Group effective share of business 40 Capital & Regional Investments Limited** Capital & Regional Shopping Centres Limited** Capital and Lanham Retail Parks Limited** The Howgate Shopping Centre Limited* Capital & Regional (Pallasades Two) Limited Sauchiehall Centre Limited* Ashley Centre GP Limited Ashley Centre Limited Partnership Capital & Regional Retail (Northern) Limited** Exchange Court Properties Limited* Capital & Regional Estates Limited** Lancaster Shelf Eleven Limited* Capital & Regional (Milton Keynes) Limited Xscape Milton Keynes Partnership Capital & Regional Property Management Limited Capital & Regional (Out-of-town) Ashford Limited Capital & Regional (Victoria) Limited Cosmorole Limited Capital and Lanham Construction (Coventry) Limited Capital and Lanham Developments (Cannock) Limited Capital & Regional (Oldbury) Limited Capital & Regional (Yeovil) Limited Xscape Limited Snozone Limited Capital & Regional (Stratford) Limited Capital Hill Partnership Capital & Regional Retail Parks Ltd Realcap Investments Limited Applied Solutions (Projects) Limited Easter Capital Investment Holdings Limited Easter Capital Limited Easter Properties (North East) Limited Twelve Quays Limited Twelve Quays One Limited Easter Capital Investments (Nottingham) Limited Netherton Developments Limited* Easter Holdings Limited Capital and Lanham Limited The Junction Properties Limited Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Development and trading Development and trading Development and trading Investment and management Investment and management Management Development and trading Investment and management Investment and management Development and trading Development and trading Development and trading Development and trading Investment and holding Trading Investment and holding Investment and management Investment and management Investment and management Project Management Investment and holding Investment and management Investment and management Investment and management Investment and management Investment and management Development Development and trading Investment and management Investment and management 100% 100% 100% 100% 100% 50% 100% 100% 100% 50% 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 50% 100% 100% 100% 100% 100% 100% 50% 50% 100% 100% The subsidiary and joint ventures companies are registered in England and Wales, and Scotland. Except as identiﬁed these operate in England and Wales. Investment in joint ventures are dealt with in note 16. The Company has taken advantage of S231(5) and (6) Companies Act 1985 in not listing all of its subsidiary and joint venture undertakings. All of the above principal subsidiaries and joint ventures have been consolidated in the Group Financial Statements. All voting rights are in line with effective share of business. * Operates in Scotland **Operates in England and Wales, and Scotland 34. Future commitments At 25th December 2001 the Group was committed to £9,022,000 (2000: £17,589,000) of capital expenditure and £1,122,000 (2000: £1,333,000) of revenue expenditure in respect of leases which expire in ﬁve years or more on land and buildings. Capital & Regional plc Directors’ Report for the year ended 25th December 2001 The directors present their report together with the audited ﬁnancial statements for the year ended 25th December 2001. Details of options granted to the directors, under the same Schemes, are contained in the Report on Directors’ Remuneration and Interests on pages 13 to 16. Results and proposed dividends The consolidated proﬁt and loss account is set out on page 20 and shows a proﬁt on ordinary activities after taxation of £10.9m. The directors recommend the payment of a ﬁnal dividend of 3.5p per Ordinary share on 31st May 2002, to members on the register at the close of business on 5th April 2002, which together with an interim dividend of 2.5p per Ordinary share, paid in 2001, makes a total of 6.0p 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 and Chief Executive’s Statement and operating reviews on pages 1 to 9. Directors The directors of the Company at 25th December 2001, all of whom have been directors for the whole of the year, are as follows: M. Barber, R. Boyland, Viscount Chandos, D. Cherry, L. Coral, P. Duffy, K. Ford, M. Gruselle, A. Lewis-Pratt and X. Pullen. In accordance with the Articles of Association, Xavier Pullen, Lynda Coral, Kenneth Ford and Andrew Lewis-Pratt retire by rotation and, being eligible, offer themselves for re-appointment. All four directors have service contracts, which require notice of one year. 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 4,209,106 issued shares representing 5.34% of the issued Ordinary share capital of the Company as detailed in the Report on Directors’ Remuneration and Interests on pages 13 to 16. Save as set out in note 31 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 24 to the accounts. 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 March 2002: UBS Asset Management Ltd The Capital Group Companies, Inc Royal & Sun Alliance Investment Management Ltd Tarragona Investment Group Ltd Clerical Medical Investment Management Ltd Legal & General Investment Management Friends Ivory & Sime United Nations Pension Fund Dawnay, Day Properties Ltd Church Commissioners for England Total Shares % 41 8,240,635 10.45 5,120,000 5,018,370 4,990,045 4,348,665 4,312,295 3,980,935 3,963,120 2,736,743 6.49 6.36 6.33 5.51 5.47 5.05 5.03 3.47 2,538,570 45,249,378 3.22 57.38 Charitable donations During the year the Group contributed £12,888 (2000: £2,250) 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 22 days (2000: 29 days) purchases outstanding. Compliance with combined code A statement on Corporate Governance is set out on pages 17 and 18. 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. Capital & Regional plc 42 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. Stakeholder pensions As a result of the Government’s introduction of Stakeholder Pensions in April 2001, employers must provide their employees with access to a Stakeholder Pension scheme. The Company has appointed consultants who have put such a scheme in place and the Company has also nominated a Stakeholder Pension provider. Employees have had access to join this scheme since May 2001. Euro The Group is continuing to review the potential effect of the introduction of the single European currency on the administration of its business. Environmental policy The Company is committed to delivering the highest standards of environmental policy implementation in the management of its retail and leisure property portfolio. The Company consults employees, shareholders, suppliers and customers alike in order to maintain high standards. The Company strives to achieve compliance with current legislation, particularly in the areas of energy and its efﬁcient use and impact on the environment, and water including water management and minimisation of use. The Company also endeavours to include environmental considerations in the design and refurbishment of properties, applying and installing wherever practicable current best practice technology. The Company is committed to continuous monitoring and feedback in order to adopt a responsible and positive approach to environmental issues. Health & Safety in the Group The Group has a nationally co-ordinated Health & Safety initiative which is contracted out. Procedures are reviewed at monthly management meetings with centre management by the Asset Managers. All properties are adequately insured to cover potential risks and annual risk assessments are carried out by the Group in consultation with the Group contractor and insurers. Dividend reinvestment plan The Company introduced, for the 1999 Interim Dividend, and for subsequent dividends, a service whereby shareholders can use their cash dividends to buy more shares in the Company. The Plan was introduced for those shareholders preferring capital appreciation rather than income from their shareholding. Directors’ Report The timetable for the 2002 Final Dividend is set out on the inside back cover. Details of the terms and conditions of the Dividend Reinvestment Plan can be obtained by contacting the Company Secretary at the registered ofﬁce. Post balance sheet events Post balance sheet events are set out in note 32 to the accounts. 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 Pre-emption rights Shares allotted for cash must normally ﬁrst be offered to shareholders in proportion to their existing shareholdings. Under resolution 8, 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. Authority to purchase own shares At an Extraordinary General Meeting in 2001, the Company was granted authority to make purchases in the market of its own shares, subject to speciﬁed limits. This authority, none of which has yet been exercised, expires at the conclusion of the Company’s Annual General Meeting for this year and by resolution 9, which is proposed as a special resolution, the Company is seeking to renew this authority. The authority is sought until the conclusion of the 2003 Annual General Meeting, or for 15 months after the date on which the resolution is passed, whichever is the earlier. Details of the current issued share capital are set out in note 24 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. By Order of the Board F. Desai Secretary 26th March 2002 Capital & Regional plc Notice of the Annual General Meeting 43 Notice is hereby given that the twenty-third Annual General Meeting of the Company will be held at 10 Lower Grosvenor Place, London SW1W 0EN on 10th May 2002 at 10.30 am for the following purposes. Ordinary business 1. To consider and, if thought ﬁt, adopt the accounts for the year ended 25th December 2001, and the reports of the directors and auditors thereon. 2. To declare a ﬁnal dividend of 3.5p per Ordinary share. 3. To re-appoint X. Pullen as a director of the Company. 4. To re-appoint L. Coral 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: 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 the 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 2002 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. 9. 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 11,749,540 Ordinary shares of 10p in the Company or such number of Ordinary shares of 10p in the Company as represents 14.9% of the issued share capital of the Company at the close of business on the day on which this resolution is passed (whichever is the lesser). (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 2003 or 15 months after the date on which this resolution is passed (whichever is the earlier). By Order of the Board F. Desai Secretary 26th March 2002 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, Lloyds TSB Registrars Scotland, not later than 10:30 am on 8th May 2002. Capital & Regional plc Advisers and Corporate Information Principal valuers DTZ Debenham Tie Leung One Curzon Street London W1A 5PZ Registrars and transfer ofﬁce Lloyds TSB Registrars Scotland PO Box 28448 Finance House Orchard Brae Edinburgh EH4 1WQ Registered ofﬁce 10 Lower Grosvenor Place London SW1W 0EN Telephone: 020 7932 8000 Facsimile: 020 7802 5600 www.capreg.com Registered number 1399411 Lending banks Bank of Scotland 4th Floor New Uberior House 11 Earl Grey Street Edinburgh EH3 9BN Barclays Bank PLC Property Team Business Banking PO Box 544 1st Floor 54 Lombard Street London EC3V 9EX BHF–Bank 61 Queen Street London EC4R 1AF Fortis Bank SA/NV Camomile Court 23 Camomile Street London EC3A 7PP Royal Bank of Scotland plc 135 Bishopsgate London EC2N 3UR 44 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 UBS Warburg 1 and 2 Finsbury Avenue London EC2M 2PP Principal legal advisers D J Freeman 43 Fetter Lane London EC4A 1JU Olswang 90 Long Acre London WC2E 9TT Fladgate Fielder 25 North Row London W1R 1DJ Cole & Co. St Andrew House 141 West Nile Street Glasgow G1 2RN Berwin Leighton Paisner Adelaide House London Bridge London EC4R 9HA Capital & Regional plc 01 Chairman and Chief Executive’s Operating and Financial Review 10 Board of Directors 12 Five Year Record 13 Report on Directors’ Remuneration and Interests 17 Corporate Governance Statement 19 Independent Auditors’ Report 20 Consolidated Profit and Loss Account 21 Note of Historical Cost Profits and Losses 21 Statement of Total Recognised Gains and Losses 21 Reconciliation of Movements in Shareholders’ Funds 22 Consolidated Balance Sheet 23 Consolidated Cash Flow Statement 24 Company Balance Sheet 25 Notes to the Financial Statements 41 Directors’ Report 43 Notice of the Annual General Meeting 44 Advisers and Corporate Information 2002 Financial Calendar Capital & Regional plc is a co-investing real estate asset manager. The Group has established highly specialised management teams in selected sectors with the aim that each team should be the leader in its field, enabling them to create value for tenants, shareholders and investors in funds managed by the Group. 2002 Financial Calendar 2002 Financial Calendar Annual General Meeting – 10th May 2002 Final dividend record date – 5th April 2002 Final dividend payment – 31st May 2002 Interim results – September 2002 Interim dividend – October/November 2002 2002 Preliminary results announcement – March/April 2003 2002 Final Dividend timetable Record date – 5th April 2002 Last day to receive DRIP mandates – 10th May 2002 Dividend warrants posted – 30th May 2002 Payment date/shares purchased – 31st May 2002 Certificates/purchase statements despatched – 17th June 2002 CREST accounts credited – 18th June 2002 Designed and produced by Radley Yeldar (London) Capital & Regional plc 10 Lower Grosvenor Place London SW1W 0EN T 020 7932 8000 F 020 7802 5600 www.capreg.com Capital & Regional plc Annual Report 2001 C a p i t a l & R e g o n a i l l p c A n n u a l R e p o r t 2 0 0 1

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