Caleres, Inc. Annual Report 2002

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FY2002 Annual Report · Caleres, Inc.

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Capital & Regional plc
10 Lower Grosvenor Place
London SW1W 0EN
T 020 7932 8000
F 020 7802 5600
www.capreg.com

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Capital & Regional plc
Annual Report 2002

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Highlights

Increase in properties under management
to £1.5bn at the period end (December 2001:
£886m) and to £2.4bn at 31 March 2003;

Net asset value per share up15.5% to 388p
on a fully diluted basis (December 2001:336p);

Return of £50m to shareholders in April 2002,
reducing shares outstanding by 22.1%;

Profit before tax and exceptional items of £10.8m
(2001: £11.4m) on reduced capital base;

A final dividend of 4.0p to be paid in
June 2003 (December 2001: 3.5p), making a
total dividend for the year 7.0p, an increase of 17%
(2001: 6.0p);

The Mall Fund produced an annualised return to
investors, after management fees, of 21.6%;

The Junction Fund produced an annualised return
to investors, after management fees, of 17.8%;

Acquisition of MWB Group plc leisure fund
management business in January 2003.

Contents
02 Chairman and Chief Executive’s overview
04 Group Finance Director’s overview
07 Operating review
10 Board of Directors
12 Five Year Record
13 Directors’ Remuneration report
19 Corporate Governance Statement
21 Independent Auditors’ Report
22 Consolidated Profit and Loss Account
22 Note of Historical Cost Profits and Losses
23 Statement of Total Recognised Gains

and Losses

23 Reconciliation of Movements in

Shareholders’ Funds

24 Consolidated Balance Sheet
25 Consolidated Cash Flow Statement
26 Company Balance Sheet
27 Notes to the Financial Statements
45 Directors’ Report
47 Notice of the Annual General Meeting
48 Advisers and Corporate Information
IBC 2003 Financial Calendar

01 Capital & Regional
Annual Report & Accounts 2002

2002 has been a very successful year.
Reshaping of the group is now complete
and significant expansion of the funds
has already taken place with investors of
the highest quality.

> Management expertise

leveraged over a larger portfolio

> Tax efficient investment

for institutions

> Higher returns for shareholders
> Rapid fund expansion
> Capital recycled into new funds
> Drive value through intense

management

> Rental and capital growth

02 Capital & Regional
Annual Report & Accounts 2002

Chairman’s and Chief Executive’s overview
2002 was a year of major activity.

Tom Chandos Chairman

Martin Barber Chief Executive

Strategy 2002 has been a very successful year. We have
achieved our objective of transforming Capital & Regional
from being a traditional property company investing solely
on its own behalf to becoming a co-investing asset manager.
This innovative approach enables the Group to leverage its
equity and management expertise across a much larger
property portfolio with a view to providing significantly higher
returns for its shareholders. The management teams now
have responsibility for £2.4bn of property assets.

Over the years, the Group has produced good underlying
returns through its direct investments. It has recognised,
however, that in a low inflation environment stock market
equity requires returns which cannot be achieved
on a sustainable basis solely from direct investment.
Capital & Regional is now a co-investing real estate asset
manager. This enables the Group not only to receive returns
from its co-investments, which should be no different to those
it would have expected from wholly owned property activities,
but also to receive fees for managing the funds which it
has created.

2002 was a year of major activity. We are very pleased with
the growth of the net assets per share of 15.5% after a
dividend of 7.0p per share and exceptional costs of £8.7m.

We highlight below some key events:
On 3 January 2002 we formed The Junction Limited
Partnership, a fund focused on dominant retail parks.
This fund, initially a 50:50 joint venture between the Group
and clients of Morley Fund Management Limited, at launch
had a value of £336m and comprised 11 retail parks.
During its first year of operation the fund made significant
progress through a series of acquisitions. The investors in this
fund now comprise the Group, Norwich Union, Commercial
Union and Hermes, on behalf of The British Telecom Pension
Scheme. This expansion of the investor base provided
the additional equity needed to make acquisitions as the
opportunities arose. The fund now has a portfolio of 18 retail
parks and 4 development sites with a gross asset value of
£705m and our share of the fund is currently 27.6%.

On 28 February 2002, a second fund called The Mall
Limited Partnership was created, focusing on in-town,
covered shopping centres. This fund, initially a 50:50 joint

03 Capital & Regional
Annual Report & Accounts 2002

venture between the Group and clients of Morley Fund
Management Limited, at launch had a value of £656m and
comprised 11 shopping centres. The investors in this fund
now comprise the Group, Norwich Union, The Hanson Trust
Pension Fund and the Prudential. Two significant recent
acquisitions have increased the portfolio to 13 centres with a
gross asset value of £939m as at 28 February 2003, the first
anniversary of the fund’s completion. Our share of the fund is
currently 45.8%.

In April 2002 £50m of cash was returned to shareholders by
way of a tender offer for shares, reducing shares outstanding
by 22.1%.

Since the year end we have also acquired a leisure fund
business from MWB Group plc, which had three funds under
management focused on leisure properties. They are being
managed by our Xscape management team, together with the
personnel who we were pleased to welcome from MWB.
This division is now known as X-Leisure and currently has
approximately £608m of assets under management.

We intend to expand our funds through new investors
contributing either cash or appropriate property assets and
to increase rental income by further capital investment and
active tenant mix management. We believe our funds will
outperform the relevant benchmarks and the effectiveness
of our management skills will enhance the value of
our assets under management through innovation,
marketing, promotion and investment.

Another major venture, in which we have a 50% interest, is
the development of The Fort, Glasgow in partnership with
Pillar Property PLC where construction has commenced
on a major shopping park. The remaining Group properties
amounting to approximately £63m (excluding our head
office building in Lower Grosvenor Place) will be sold
when appropriate.

Management and Board The substantial changes to the way
that the Group has pursued its business over the past year
have been reflected in corresponding changes to the Board
and management.

Following the retirement of Roger Boyland from the position of
Corporate Finance Director and the decision to appoint
Financial Director Lynda Coral to a new role coordinating the
funds development, William Sunnucks was appointed to the
Board as Group Finance Director in October 2002.

PY Gerbeau, who joined the Group in September 2001 to run
the Xscape operations and has responsibility for the X-Leisure
division following the MWB deal, will be appointed to the
Board in April 2003.

Martin Gruselle, the senior non-executive director, indicated
during the course of the year that he wished to retire at the
next Annual General Meeting. As the Group has grown over
the past 13 years, he has made an enormous contribution,
with his penetrating insight and independent eye. We record
our gratitude and extend our warmest wishes to him for
the future.

Within the past 15 months, the value of the properties
for which the Group is responsible has increased nearly
threefold, to £2.4bn. The Capital & Regional team has worked
tirelessly to build this enlarged base of activity and to lay the
foundations for the Group’s future performance. This year,
even more than in others, we would like to express our
appreciation of this effort and achievement.

Outlook Reshaping of the Group is now complete and
significant expansion of the funds has already taken place
with leading institutional investors. We have three divisions
specialising in the management of assets where generating
higher footfall and quality tenants are the key drivers to
building value. The effectiveness of our approach to achieve
this has proved itself over recent years and reflects the
strength of the management teams we have assembled.
The community based shopping centres and high quality retail
parks we manage are very well placed to make progress,
even if there is a general downturn in consumer confidence,
as value and convenience become even more important.
We look forward to the coming year with optimism.

Tom Chandos Chairman

Martin Barber Chief Executive

04 Capital & Regional
Annual Report & Accounts 2002

Group Finance Director’s overview
We are pleased with the growth of the net
assets per share of 15.5% after a dividend of
7.0p per share and exceptional costs of £8.7m.

William Sunnucks Group Finance Director

Total returns

Table 1 – Total returns

During 2002 the Group earned a total return
of £37.1m made up as follows:

Profit before exceptionals and tax (see note 4)
Exceptional items (see note 4)
Gains put through reserves

Tax

Total return
Total return on equity

2002

£m

10.8
(8.7)
40.2

42.3
(5.2)

37.1
14.6%

2001
Restated
£m

11.4

(33.4)

(22.0)
7.1

(14.9)
(4.5%)

Table 1 summarises the Statement of Total Recognised
Gains and Losses (“STRGL”). Much Group activity is directed
towards creating an uplift in property value. The benefits of
this activity flow through reserves, while the costs are all set
against profit. Only tax is allocated between the two. For these
reasons we consider the STRGL to be important for assessing
performance.

Total return on equity, post tax, is calculated on opening
shareholders’ funds, reduced on a time weighted basis for
the £50m share buy back in April 2002.

The exceptional items relate to costs incurred in repositioning
the Group (see note 4 for details).

Growth in NAV per share
pence per share

388p after dividend

394.23

347.15

348.24

336.10

At 26 December 2001
Impact of share transactions

Impact of profit after tax
Impact of reserves movements

Dividend

05 Capital & Regional
Annual Report & Accounts 2002

£37.1m

Total return

388p

Net asset value per share

£2.4bn

Properties currently under management

Profit and loss account

Table 2 – Profit and loss account

The Group’s profit can be broken down as follows:
Segmental profits

Asset
Management
£000

Snow slope
business
£000

Share of
JVs and
associates
£000

Wholly
owned
properties
£000

Asset management fees
Performance fees
Snow slope income
Rental and other income

Group turnover

Share of joint ventures and associates
Snow slope expenses
Property costs
Net interest payable
– on non-recourse borrowings
– on own borrowings

Contribution

Property management overhead
Profit on disposals (net)

Profit before exceptionals
Exceptional items (see note 4)

Profit before taxation

7,262
2,781

4,044

10,043

4,044

(3,777)

10,043

267

12,123

(1,986)

(6,603)

3,534

27,298

(14,956)
(3,465)

8,877

Total for
2002
£000

7,262
2,781
4,044
12,123

26,210

27,298
(3,777)
(1,986)

Total for
2001
£000

1,509
–
3,522
57,084

62,115

3,068
(3,433)
(8,052)

(14,956)
(10,068)

(2,447)
(31,946)

22,721

19,305

(14,261)
2,319

10,779
(8,706)

2,073

(9,564)
1,622

11,363
–

11,363

Asset management The Group charges fees for the asset
management of the Mall and Junction portfolios and joint
ventures. Fees earned in 2002 covered 70% of the Group’s
overhead. These include performance fees which enable the
Group to share in the upside when fund returns exceed the
relevant hurdles. Performance fees are accumulated over a
three year period, so estimates made in any one year may
be subject to adjustment in future years.

Snow slope business The snow slope business operates
the ski business at Xscape Milton Keynes. It charges for
the use of the real snow indoor ski slope, and for tuition.
It employs174 people including casual and part time employees.
It pays an arm’s length rent to the partnership which owns
the property. It has committed to open a similar business at
the new Xscape being built at Castleford near Leeds.

Investments in joint ventures and associates The Xscape
developments at Milton Keynes and Castleford are treated
as joint ventures, along with the Glasgow Fort development.

The Mall and Junction Funds are treated as associates.
The relevant figures in table 2 reflect our share of the rental
income and interest expense, plus interest on Group
borrowings secured on our interest in the funds.

Wholly owned properties These include a number of retail,
office and industrial properties which have not been put into
the funds. They produce rental income and incur direct
management and interest expense.

Property management overhead This covers the cost of
running the London and Glasgow offices. It has increased
by 50% since 2001, while property under management
has increased by 67%. Out of the £14.3m cost, £3.8m
is performance related.

Change of accounting policy The comparatives have been
restated because the Group has adopted FRS 19 which
requires full provision to be made for deferred tax on all short
term timing differences (see note 1).

Table 3 – Property under management

Total property under management
is currently estimated at £2.4bn built
up as follows:

31 December 25 December
2001
£m

2002
£m

Increase

Investment properties
Trading properties
Joint ventures
Mall Fund
Junction Fund
Other properties under management

55.5
7.8
133.3
724.4
535.6
39.8

Total at 31 December 2002

1,496.4

Three retail parks
acquired by the Junction Fund
Two shopping centres
acquired by the Mall Fund
Leisure funds ex MWB Group

142.7

213.6
504.0

703.3
28.1
155.2
–
–
–

886.6

–

–
–

1.69

Estimated total at 31 March 2003

2,356.7

886.6

2.66

Post balance sheet events The principal post balance sheet
events have been:
> the acquisition of the Leisure Fund management division of
MWB Group plc, which completed on 24 January 2003 at
a price of £30.2m. The purchase included equity interests in
the three funds, together with the rights to deferred fund
management fees and carried interests together valued at
£16.9m;

> the acquisition of two shopping centres by The Mall Fund,

at Chester and Sutton Coldfield;

> the acquisition of three retail parks by The Junction Fund,

at Bristol, Glasgow and Worcester.

Total property under management is currently estimated
at £2.4bn as set out in table 3.

William Sunnucks Group Finance Director

06 Capital & Regional
Annual Report & Accounts 2002

Funding strategy
Group borrowings These have fallen during the year from
£441m to £95m. We continue to borrow from banks which
have demonstrated a commitment to property lending and have
experienced property teams. All bank borrowings are secured.

Joint ventures Our main joint ventures – Xscape, Milton
Keynes, Xscape, Castleford and Glasgow Fort – are funded
with limited recourse bank debt. Group guarantees are
carefully limited to specific events, principally cost over runs
and interest shortfalls.

Associates The Mall and Junction properties are funded
with approximately 50% equity and 50% bank debt. There
is no recourse to the Group for these borrowings.

Hedging The Group’s main exposure is to interest rate
movements. During the year much of the bank debt was
repaid, and new bank debt was raised within the funds. Loan
breakage costs of £3.9m are included in exceptional items.

The Group’s exposure is now partially hedged by interest
rate swaps within the funds and joint ventures. Interest on
the Group’s CULS is fixed at 6.75%. Interest on the £95m
borrowed from the banks was at a floating rate at the year
end. The balance between borrowing at floating and fixed
interest rates is continually reviewed in the light of market
conditions and business requirements.

Dividend The Directors are recommending a final dividend of
4.0p making a total for the year of 7.0p per share, an increase
of 17% (2001: 6.0p). The dividend will be paid on 16 June
2003 to shareholders on the register at the close of business
on 25 April 2003. Our facility for dividend reinvestment by
shareholders continues.

07 Capital & Regional
Annual Report & Accounts 2002

Operating review
Return to investors, on an
annualised basis, after fees:
The Junction Fund -–17.8%
The Mall Fund -– 21.6%

Shopping centres
2002 was a record year for UK shopping centre transactions;
over 100 centres changed hands for £4.5bn. This is twice the
2001 level and 40% up on a four-year average. In our segment
of the market, community shopping centres, positive cash
flows relative to cost of debt means there remains an active
investment market, particularly among property companies.
Consumer spending slowed a little during the year, but was
still quite strong. We saw a late, but positive, critical Christmas
season with strong post-Christmas sales. We continue to see
selective but healthy retailer requirements.

The Mall Fund This fund was launched at the end of February
2002. For the ten month period to the end of December 2002
it showed, on an annualised basis, a return to investors after
fees, of 21.6%; a very strong performance. The ungeared
property returns were 14.7% on the same basis.

The key drivers to this performance were as follows:

A yield shift of 50 basis points across the portfolio as a whole,
about half of which we estimate is attributable to an
improvement in the “quality” (i.e. reduced risk) of income
streams, and the balance is a result of general improvement
in market sentiment towards the sector over the period.
Active management initiatives resulted in a 6.9% increase
in net income over the nine months since the end of March.
At the period end, the average net initial yield from the portfolio
was 7.12% and an equivalent yield of 7.63%.

Since the period end there has been positive development of
our stated expansion strategy. The Gracechurch Centre in
Sutton Coldfield was purchased for £104m and the Grosvenor
Centre in Chester was purchased for £106m.

The Mall Fund outlook During 2002 pedestrian flows to
shopping centres as a whole in the UK decreased by 1.7%
(Source: Footfall National Index). After eliminating footfall
returns from the Pallasades in Birmingham and Liberty II in
Romford because of massive redevelopment in the town
centres affecting consumer visits, as a whole our centres
showed a 5.1% footfall increase. Looking forward, our
management efforts to increase consumer visits and to take
market share from the rest of the catchment will continue, but
no business is totally immune from the current world events.
We are seeing, nonetheless, as a result of increasing trade by
our occupiers in our centres, significant but affordable rental
value growth.

Retail parks

Demand from retailers for quality retail park floor space
remained strong throughout the year. Retail warehouse
investment became increasingly popular amongst institutions
throughout the year, resulting in yield shifts which often did not
correspond to the type and quality of investment and the
ongoing demand from retailers.

The Junction Fund The Junction Limited Partnership was
launched in January 2002. For the 12 month period to the end
of December 2002 it showed, on an annualised basis, a return
to investors after fees, of 17.8%. The ungeared property
returns were 13.3% on the same basis. This is a highly
satisfactory result.

Since the creation of the fund, we have made significant
progress with our stated expansion strategy:

In July 2002 we acquired a portfolio of four parks for £145m
from Burford Holdings Ltd. The retail parks are The Octagon
Retail Park in Stoke, Lakeside Extra Retail Park in Thurrock,
Euro Retail Park in Ipswich and Cockhedge Shopping Park
in Warrington. Simultaneous to this acquisition, Commercial
Union Life Fund invested £71m in to the fund. One of the
smaller retail parks in this portfolio has since been sold for
£20m. In September 2002, Hermes, on behalf of British
Telecom Pension Scheme, became an investor in the fund
through the injection of two retail parks valued at £67m.
The parks are Reading Retail Park in Reading and the
Ocean Retail Park in Portsmouth, together with an adjoining
industrial estate.

Since the period end we have continued with the growth
phase of the funds that we have under management:

In January 2003 we created a limited partnership called
The Junction Thurrock Limited Partnership – 65% owned by
The Junction Limited Partnership and 35% owned by clients
of Aberdeen Property Investors (“API”). The new partnership
acquired Lakeside Extra for £45m from The Junction Limited
Partnership, the Tunnel Retail Park from clients of API for
£21m and the West Thurrock Retail Park from AXA Real
Estate Investment Managers on behalf of AXA Sun Life plc for
£35m. All of these parks are adjoining and are in Thurrock,
Essex. The objective is to create the dominant destination park
in Thurrock with its excellent profile to the M25.

Fund statistics

Net rental income (£m)

Properties at valuation (£m)

Underlying valuation change

Total fund return (geared)

Initial yield

Equivalent yield

The Mall

The Junction

22.1
42.9
724.4
535.6
8.0% 5.5%
21.6% 17.8%
7.1% 5.5%
7.6% 6.7%

The Junction Fund outlook We are continuing to see a
healthy level of demand from retailers for quality destination
retail park floor space. We believe that retailer demand for
secondary floor space will diminish. We now manage a
largely prime portfolio of destination retail parks well suited
to the more stringent demands of quality retailers. Good and
prime retail warehouse investments remain top of “the
shopping list” for investors, thereby continuing the downward
pressure on yields.

Other Joint Ventures
Glasgow Fort Since the period end, in a joint venture
between the Group and Pillar Property PLC, we have
successfully completed the acquisition of a prominent
90 acre site east of Glasgow and adjacent to Junction 10 of
the M8 motorway. Construction of the scheme, comprising
some 350,000 sq ft of open A1 retail and leisure space,
commenced in March 2003 and will provide Glasgow with its
first shopping park. Completion is due in autumn 2004, when
the ultimate value is projected to be in excess of £140m.

The Capital Hill Partnership In December 2002, the
Group announced that we had sold our 50% interest in the
Capital Hill Partnership to Hermes Property Unit Trust for
£20m. The Partnership had one asset, The Maybird Centre
in Stratford-upon-Avon which we continue to manage.

08 Capital & Regional
Annual Report & Accounts 2002

In February 2003, the Group, on behalf of The Junction
Limited Partnership, was part of a consortium comprising
Pillar Property PLC, the Hercules Unit Trust and Morley Fund
Management that acquired a substantial portfolio of retail
parks and development sites from Chartwell, a subsidiary of
Kingfisher plc, for a total consideration of £696m. Pursuant to
this transaction, The Junction Limited Partnership acquired
three prime destination retail parks in Bristol, Glasgow and
Worcester, together with a development opportunity in
Stoke-on-Trent with a gross asset value of £143m. A smaller
retail park in Bristol was sub-sold before completion at a profit.

Following these acquisitions, the Junction portfolio now
comprises 18 destination retail parks totalling over 3.3 million
sq ft together with 4 development sites offering the potential
of 600,000 sq ft of additional floor space. On completion of
our business plans for these properties there is the potential
to create 22 destination retail parks comprising approximately
5 million sq ft. Our success in attracting new investors has
provided us with a larger asset base over which to gear our
expertise to create value. We believe that we have the
potential to achieve exceptional rental growth by actively
managing these retail warehouse parks to exploit the footfall
of category killer destination stores.

We are nearing completion of the first phase of our
re-branding programme. The first branded Junction retail
park opens in Hull in April 2003 together with our first
pre-let “Pod” development.

The government’s attitude to out-of-town retailing continues
to harden with planning consents for new schemes becoming
increasingly difficult to obtain. This has led to our planning
application at Aylesbury, which was supported by the local
authority and in accordance with the draft local plan, being
“called in”. A public enquiry will be held in April 2003 and a
formal planning decision is anticipated by the year-end.

Significant progress has been made on our proposed 400,000
sq ft scheme at Oldbury with the government’s planning
inspector having approved our proposals. A detailed planning
application has been submitted to the local authority and we
anticipate obtaining consent in May 2003, subject again to
final ratification by central government.

09 Capital & Regional
Annual Report & Accounts 2002

Shopping Centres

Mall Fund

Asset management

Retail Parks

Junction Fund

Leisure

X-Leisure
and Xscape

Wholly owned
property

Asset ownership
and co-investments

Fund co-investments

Joint ventures

Leisure

X-Leisure The purchase of the MWB Group plc leisure fund
business was a natural development given the platforms we
have created in this sector. Xscape, Milton Keynes is making
excellent progress and Xscape, Castleford is being completed
to plan. The management team we have assembled, led
by PY Gerbeau, is amongst the most capable in the leisure
property sector today. We are well placed to transform
the performance of the MWB Group plc leisure assets.
The business has now been branded X-Leisure.

We have some expansion and rather different ideas on how
to manage and deal with the properties in the funds and
are talking to investors about these and will report further to
shareholders in due course.

Xscape Our first Xscape in Milton Keynes has had a very
good second year. The footfall has increased by 22%
compared to the first year despite it no longer being a
“novelty” attraction; one might have expected it to have fallen.
The length of time that people stay in the building has also
increased significantly. The occupiers report that they are
trading well and new revenue streams from corporate
hospitality, sponsorship and events have been developed.

At Milton Keynes we are seeing good evidence of rental
growth with leases being sold at significant premiums.

The second Xscape at Castleford, Leeds will open in
September 2003. We hope to commence construction of
Xscape, Glasgow in Braehead at the beginning of 2004.
Within Xscape, our wholly owned subsidiary that operates the
real snow indoor ski slope made a profit of £270,000 in 2002
and will also lease the snow operation at Xscape, Castleford.

Due to the acquisition of the MWB leisure funds business we
have decided to withdraw from expansion in to continental
Europe so that management can focus its efforts 100% on the
UK market. Therefore the projects in Germany and Belgium
have been terminated.

10 Capital & Regional
Annual Report & Accounts 2002

0303

Board of Directors

01 Martin Barber, Chief Executive Age 58 Martin was a
founder director of the Company in 1979 and has been
involved in commercial property as a developer and investor
for over 30 years. Martin is also Chairman of CenterPoint
Properties Trust, a real estate investment trust, listed on the
New York Stock Exchange and formerly a subsidiary of
Capital & Regional.

02 Xavier Pullen, Deputy Chief Executive Age 51 Xavier
was a founder director of the Company in 1979 and has
been active in the property industry for over 30 years. Xavier
focuses primarily on the supervision of the Group’s fund
management business together with the coordination of
all property matters.

03 William Sunnucks, Group Finance Director Age 46
William Sunnucks was appointed Group Finance Director in
October 2002. He has been Finance Director of a number of
large companies, including Securum International and English
Welsh and Scottish Railways. He is a chartered accountant,
and has an MBA from the London Business School.
William has responsibility for the Group’s finances, including
funding, reporting and financial control.

11 Capital & Regional
Annual Report & Accounts 2002

08 Peter Duffy, Age 66 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.

09 David Cherry, Age 65 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.

04 Kenneth Ford, BSc FRICS Managing Director of
Shopping Centres Age 49 Ken has been a director of Capital
& Regional since 1997 and, as Chief Executive of The Mall, is
responsible for the fund’s shopping centre portfolio. Ken has
been involved in commercial property for 27 years. He founded
the Easter Management Group Scotland in 1991 prior to
joining Capital & Regional.

05 Andrew Lewis-Pratt, BSc ARICS Managing Director of
Retail Parks Age 45 Andrew Lewis-Pratt has been a director
of Capital & Regional since 1997 and, as Chief Executive of
The Junction, is responsible for the fund’s retail park portfolio.
Andrew has over 20 years’ experience within the
retail and leisure sector and was previously Chief Executive
of Lanham plc, prior to its acquisition by Capital & Regional
in 1997.

06 Tom Chandos, Chairman Age 50 Tom Chandos is
Managing Director of Northbridge Ventures Limited, a
London-based venture capital business. He is a non-executive
director of Global Natural Energy 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.

07 Martin Gruselle, Age 65 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
Scarborough Development Group plc. He was appointed
as a director of the Company in 1989.

12 Capital & Regional
Annual Report & Accounts 2002

Five Year Record
for the periods ended 25 December 1998
to 31 December 2002

Number of shares in issue (million)
Diluted number of shares in issue (million)
Net assets per share*
Net assets per share growth*

Capital employed*
Borrowings
Cash at bank
Net bank debt
Convertible loan stock
Net debt
Net debt/capital employed†*

Proﬁt on ordinary activities before taxation
Earnings per share*
Dividend per share

†Assuming conversion of the convertible loan stock to equity.

*As adjusted for Financial Reporting Standard No. 19 “Deferred Tax”.

2002

61.746
74.347
388.4p
15.5%

(Restated)
2001

78.856
91.268
336.1p
(4.1%)

(Restated)
2000

88.735
101.147
350.3p
(5.4%)

(Restated)
1999

98.266
110.678
370.3p
16.9%

(Restated)
1998

98.255
110.667
316.7p
16.4%

£000

270,003
95,136
4,159
90,977
24,314
115,291
30.9%

£000

2,073
1.3p
7.0p

287,241
440,894
8,567
432,327
24,223
456,550
138.8%

£000

11,363
24.0p
6.0p

333,889
590,449
6,091
584,358
24,132
608,490
163.2%

£000

14,168
9.7p
5.5p

394,089
577,891
7,388
570,503
24,041
594,544
136.4%

£000

12,838
9.7p
5.0p

331,856
340,926
5,476
335,450
23,950
359,400
94.3%

£000

11,481
9.9p
4.25p

13 Capital & Regional
Annual Report & Accounts 2002

Directors’ Remuneration report

Introduction This report has been prepared in accordance with the Directors’ Remuneration Report Regulations 2002 which introduced
new statutory requirements for the disclosure of directors’ remuneration in respect of periods ending on or after 31 December 2002.
The report also meets the relevant requirements of the Listing Rules of the Financial Services Authority and describes how the Board
has applied the Principles of Good Governance set out in the Regulations relating to directors’ remuneration. As required by the
Regulations, a resolution to approve the report will be proposed at the Annual General Meeting of the Company at which the annual
report and accounts will be approved.

The Regulations require the auditors to report to the Company’s members on the “auditable part” of the Directors’ Remuneration Report
and to state whether in their opinion that part of the report has been properly prepared in accordance with the Companies Act 1985
(as amended by the Regulations). The report has therefore been divided into separate sections for audited and unaudited information.

Unaudited information
Remuneration Committee The present members of the Committee, all of whom are non-executive directors, are T. Chandos,
D. Cherry and M. Gruselle (Chairman).

The Committee is responsible for setting the remuneration policy for the executive directors and senior employees. The Committee
determines the terms of the service agreements, salaries and discretionary bonus payments, as well as deciding on the awards to be
made to all participants in the Long Term Incentive Plan (“LTIP”) and Capital Appreciation Plan (“CAP”) approved by shareholders on
18 December 2002. In determining the directors’ remuneration for the year, the Committee consulted M. Barber (Chief Executive) about
its proposals. Advice from independent external advisers is obtained when required. During 2002, it appointed and received advice on
the structuring of the LTIP and CAP from Deloitte & Touche. Deloitte & Touche did not advise on the level of remuneration to be paid to
the executive directors. Deloitte & Touche are the Company’s auditors and have also provided a range of non-audit services (including
acting as reporting accountants and providing tax advice) during the year.

Remuneration policy 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.

In order to align the interests of executive directors with the interests of shareholders, a signiﬁcant proportion of directors’ remuneration
is performance-related through the use of annual bonus and incentive schemes.

Basic salaries The Committee’s policy is to set the basic salaries of each executive director at levels which reﬂect their roles,
experience and the practices in the employment market. The Committee has determined that there should be no increase in basic
salaries for 2003.

Annual Bonus Scheme For 2002 and future years, the Committee will award cash bonuses to the executive directors based on an
assessment of their individual achievements during the year.

Incentive Schemes The Company has four incentive schemes under which awards currently subsist:

• The 1988 Share Option Schemes (“the Closed Schemes”)

• The 1998 Share Option Schemes (“the 1998 Schemes”)

• The LTIP

• The CAP

Shareholder approval for the Closed Schemes expired in May 1998 and no further options may be granted under those Schemes.
No further awards will be made under the 1998 Schemes to participants in the LTIP.

All the present executive directors (and L. Coral) are participants in the LTIP. In addition, three other key executives are also participants
in the LTIP. The terms of the LTIP permit the Committee to make conditional awards of shares annually to key executives with a market
value not exceeding 100% of the participants’ basic salary. In 2002, a total of 523,189 shares were conditionally awarded to the
executive directors (and L. Coral) and three other key executives. The conditions of exercise of the LTIP are designed to motivate the
key executives and retain them in the Company’s employment. Details of the awards made in 2002 and a summary of the exercise
conditions are set out under the Audited Information – Long Term Incentive Plan below.

All the present executive directors (and L. Coral) are participants in the CAP. In addition, three other key executives are also participants
in the CAP. The terms of the CAP permit the Committee to make awards annually to key executives which will entitle them to receive
payments in aggregate of up to 30% of the Performance Fees received by the Company from the Mall and Junction Funds. A total of
£834,300 has been awarded to the executive directors (and L. Coral) and three other key executives in respect of the performance fees
earned in 2002; the individual entitlements for 2002 will be reduced by 80% of the value of the shares awarded under the LTIP – to the
extent that the awards vest. Details of the awards made in respect of 2002, and a summary of the conditions affecting payment, are set
out under the Audited Information – Capital Appreciation Plan below.

14 Capital & Regional
Annual Report & Accounts 2002

Directors’ Remuneration report

Pension arrangements The Company makes contributions (at differing rates of basic salary) to deﬁned contribution pension schemes
of each executive director’s choice except that in the cases of M. Barber and X. Pullen £49,000 and £18,500 salary in lieu of pension
contributions were paid to them respectively.

Other beneﬁts Beneﬁts comprise private medical insurance cover, permanent health insurance cover, critical illness cover and additional
salary in lieu of a company car.

Service contracts Each of the present executive directors has a service agreement which can be terminated on one year’s notice by
either party except in the case of W. Sunnucks who can terminate his service agreement by giving six months’ notice.

In the event of early termination of an executive director’s agreement, the Committee determines the amount of compensation (if any) to
be paid by reference to the circumstances of the case at the time. It is the Committee’s policy not to reward for poor performance and
to take account of the executive directors’ duty to mitigate loss.

The dates of the executive directors’ agreements are as follows:
M. Barber
X. Pullen
K. Ford
A. Lewis-Pratt
W. Sunnucks
R. Boyland
L. Coral

28 October 1993
28 October 1993
17 May 1996
20 January 1998
15 October 2002
(resigned 30 September 2002)
(resigned 31 December 2002)

Non-executive directors – remuneration Each non-executive director currently receives fees of £27,000 per annum. The Chairman
receives additional fees of £63,000 per annum and the Chairman of each of the Audit and Remuneration Committees receives an
additional fee of £5,000 per annum.

The non-executive directors are not entitled to bonuses, beneﬁts, pension contributions or to participate in any incentive schemes.
None has a service agreement and all are appointed for three year ﬁxed terms.

Performance Graph: The new regulations require this report to contain a graph illustrating the Company’s performance compared to a
broad equity market index. As the Company is a constituent of the FTSE Real Estate index, this index is considered to be the appropriate
comparator for this purpose. Performance is measured by Total Shareholder Return (share price growth plus dividends paid).

Total Shareholder Return for period 31 December 1997 to 31 December 2002

Capital & Regional
FTSE Real Estate Index

0
0
1
=
7
9
.
2
1
.
1
3

t
a

x
e
d
n

R
S
T

140

130

120

110

100

1997

1998

1999

2000

2001

2002

Financial year-end 31 December

15 Capital & Regional
Annual Report & Accounts 2002

Directors’ Remuneration report

Audited information:

Long Term Incentive Plan The plan was approved by shareholders on 18 December 2002. The directors have interests in the plan as
set out below:

M. Barber
X. Pullen
K. Ford
A. Lewis-Pratt
R. Boyland
L. Coral
W. Sunnucks

Shares Market price
on date of
award
(pence)

conditionally
awarded
in year

End of
qualifying
period

Conditional
award held at
31 December
2002

84,138
79,549
76,490
76,490
–
56,602
30,596

310.5
310.5
310.5
310.5
–
310.5
310.5

31 Dec 04
31 Dec 04
31 Dec 04
31 Dec 04
–
31 Dec 04
31 Dec 04

84,138
79,549
76,490
76,490
–
56,602
30,596

In addition, 119,324 shares were awarded to three key employees at 310.5p.

The qualifying (“vesting”) conditions for all awards under the plan can be summarised as follows:

The extent to which shares conditionally awarded in 2002 will vest is determined by reference to the level of the Group’s average post tax
return on equity (ROE) for the ﬁnancial years ended 31 December 2002, 2003 and 2004. None of the shares will vest if the ROE is less
than 10%; 20% of the shares will vest if the ROE is 10%; 100% of the shares will vest if the ROE is 18% or above. If ROE falls between
10% and 18% the percentage of shares which will vest can be determined from the graph which is for illustrative purposes only.

%
100

s
t
s
e
v

t
a
h
t
d
r
a
w
a

f
o
e
g
a
t
n
e
c
r
e
P

Return on equity

ROE is calculated by dividing the the total of proﬁt attributable to shareholders and all gains and losses included in the statement of total
recognised gains and losses for the relevant year by the amount of the equity shareholders’ funds on the ﬁrst day of the relevant year,
adding the results for the three years, dividing by three and multiplying the result by 100. Adjustments to the amount of equity
shareholders’ funds will be made to reﬂect changes in the amount of the issued share capital, share premium account or capital
reserves occurring during the relevant ﬁnancial year.

16 Capital & Regional
Annual Report & Accounts 2002

Directors’ Remuneration report

Capital Appreciation Plan The plan was approved by shareholders on 18 December 2002.

In accordance with the terms of the plan, the directors have been awarded the following interests in the performance fees receivable by
the Group in respect of the ﬁnancial year 2002.

The interests awarded will only be paid in full if none of the shares conditionally awarded under the LTIP in 2002 vest in 2005. The value
of the initial award will be reduced pro rata to the extent that any part of the performance fees received by the Group in respect of 2002
are clawed back as a result of under-performance of the Funds in 2003 or 2004. Consequently, no payments will be made in respect of
the 2002 awards until 2005, when this right lapses.

Interest awarded
in respect of

Value of
initial award in
2002 respect of 2002
£

M. Barber
X. Pullen
K. Ford
A. Lewis-Pratt
R. Boyland
L. Coral
W. Sunnucks

5.50
6.00
7.25
3.25
–
3.00
0.75
25.75

152,955
166,860
201,623
90,382
–
83,430
20,858
716,108

Maximum
amount
of offset
Note 1

208,999
197,600
190,001
190,001
–
140,599
76,000

Maximum
offset carried
forward
Note 2

56,444
30,740
Nil
99,619
–
57,169
55,142

In addition, 4.25% interests with a value of £118,192 were awarded in respect of 2002 to three key executives who were not directors.
The same key executives received LTIP awards whose maximum gross aggregate offset amounted to £296,401.

Note 1. The amount of the offset represents 80% of the LTIP award made in 2002; it will be reduced pro rata to the extent that the shares conditionally awarded under the
LTIP in 2002 do not vest in full.

Note 2. If the ﬁnally determined amount of the offset exceeds the value of the CAP award, the excess will be carried forward to be offset against future awards under the CAP.

Directors’ remuneration The remuneration of the directors who served in the year ended 31 December 2002 is analysed below:

M. Barber*
X. Pullen**
K. Ford
A. Lewis-Pratt
R. Boyland***
L. Coral****
W. Sunnucks

T. Chandos*****
M. Gruselle
D. Cherry
P. Duffy

Total

Salary Discretionary
bonus
£000

and fees
£000

Pension
contributions
£000

Other

beneﬁts Compensation
£000

£000

275
260
250
250
139
183
38
1,395
98
35
25
25
183
1,578

260
260
240
240

175
45
1,220

49
50
38
38
24
28
4
231

28
21
21
21
17
20
5
133

360
75

435

1,220

231

133

435

2002

Total
£000

612
591
549
549
540
481
92
3,414
98
35
25
25
183
3,597

2001

Total
£000

370
370
351
351
294
281
–
2,017
70
32
22
22
146
2,163

*£49,000 was paid to M. Barber as salary in lieu of pension contributions in 2002 (October 2001 – December 2001: £9,000).

**£18,500 was paid to X. Pullen as salary in lieu of pension contributions since October 2002 (2001: £nil).

***R. Boyland received £360,000 as compensation for the early termination of his service contract. He ceased to be a director on 30 September 2002.

****L. Coral ceased to be a director on 31 December 2002. The payment of £75,000 was made in consideration for L. Coral entering into a new service agreement which,
inter alia, has a six months’ notice period on either side.

*****Including fees of £7,500 received (2001: £15,000) from Easter Holdings Limited and Easter Capital Investment Holdings Limited for services as a non-executive director for
the period until the Group disposed of its interest in Easter Holdings Limited.

17 Capital & Regional
Annual Report & Accounts 2002

Directors’ Remuneration report

Interests in shares The directors and, where relevant, their connected persons (within the meaning of Section 346 of the Companies
Act 1985) were beneﬁcially interested in the Ordinary share capital of the Company at the date shown as follows:

M. Barber
X. Pullen
R. Boyland
L. Coral
K. Ford
A. Lewis-Pratt
M. Gruselle
T. Chandos
P. Duffy
D. Cherry
Total at 31 December 2002

Ordinary shares of 10p each

6.75% convertible subordinated
unsecured loan stock 2006/16

25 December
2001
Shares

31 December
2002
£

25 December
2001
£

2,146,366
1,004,545
557,485
4,861
381,905
14,153
50,653
45,000
–
4,138
4,209,106

35,394
23,693
13,000
25
–
–
943
15,000
–
–
88,055

31 December
2002
Shares

2,146,366
809,545
397,485
4,861
381,951
14,153
50,653
45,000
–
4,138
3,854,152

There have been no changes to the directors’ interests since 31 December 2002, except W. Sunnucks who purchased 9,185
Ordinary shares of 10p each on 31 March 2003 and D. Cherry who purchased an additional 1,442 Ordinary shares of 10p each
on 31 March 2003.

Interests in share options

As at
25 December
2001

Granted

Exercised

As at
31 December
2002

Exercise
price
(pence)

Market price
at date of
exercise
(pence)

Director

M. Barber

R. Boyland

X. PuIlen

L. Coral

136,878
104,263
50,582
50,000
341,723
136,878
104,263
50,582
100,000
50,000
441,723
136,878
104,263
50,582
100,000
50,000
441,723
50,180
26,066
78,197
50,582
100,000
25,000
50,000
380,025

136,878
104,263
50,582
50,000
341,723
136,878
104,263
50,582
100,000
50,000
441,723*
136,878
104,263
50,582
100,000
50,000
441,723
–
–
–
50,582
100,000
25,000
50,000
225,582

168.9
131.4
226.4
211.5

168.9
131.4
226.4
279.5
211.5

168.9
131.4
193.2
226.4
279.5
191.5
211.5

50,180
26,066
78,197

Earliest
exercise
date

Latest
exercise
date

Exercise
condition
met

22 December 1996
28 October 1997
18 June 2000
13 September 2003

22 December 2003
22 October 2004
18 June 2004

Yes
Yes
Yes
13 September 2010 Not yet

22 December 1996
28 October 1997
18 June 2000
18 May 2001
13 September 2003

Yes
31 March 2003
Yes
31 March 2003
Yes
31 March 2003
Yes
30 September 2003
30 September 2003 Not yet

22 December 1996
28 October 1997
18 June 2000
18 May 2001
13 September 2003

22 December 2003
22 October 2004
18 June 2004
18 May 2008

Yes
Yes
Yes
Yes
13 September 2010 Not yet

266.0
266.0
266.0

22 December 1996
28 October 1997
21 October 2000
18 June 2000
18 May 2001
18 February 2002
13 September 2003

22 December 2003
22 October 2004
21 October 2007
18 June 2004
18 May 2008

Yes
Yes
Yes
Yes
Yes
18 February 2009 Not yet
13 September 2010 Not yet

18 Capital & Regional
Annual Report & Accounts 2002

Directors’ Remuneration report

Interests in share options (continued)

As at
25 December
2001

Granted

Exercised

As at
31 December
2002

Exercise
price
(pence)

Market price
at date of
exercise
(pence)

Director

K. Ford

A. Lewis-Pratt

13,000
138,747
175,000
75,000
50,000
451,747
13,000
138,747
175,000
75,000
50,000
451,747

226.4
226.4
279.5
191.5
211.5

Earliest
exercise
date

Latest
exercise
date

Exercise
condition
met

18 June 2000
18 June 2000
18 May 2001
18 February 2002
13 September 2003

18 June 2007
18 June 2004
18 May 2008

Yes
Yes
Yes
18 February 2007 Not yet
18 September 2010 Not yet

18 June 2000
18 June 2000
18 May 2001
18 February 2002
13 September 2003

18 June 2007
18 June 2004
18 May 2008

Yes
Yes
Yes
18 February 2007 Not yet
18 September 2010 Not yet

*R. Boyland ceased to be a director on 30 September 2002. This interest is shown at the date when he ceased to be a director.

During the year, the share price ranged from a high of 318.5p to a low of 245.0p. The share price as at 31 December 2002 was 318.5p.

No share options were granted during 2002 and no further awards will be made under these schemes to participants of the
Long Term Incentive Plan.

Approval This report was approved by the Board of Directors and signed on its behalf by

F Desai Company Secretary

11 April 2003

19 Capital & Regional
Annual Report & Accounts 2002

Corporate Governance Statement

Introduction The Company is required to comply, for the accounting period ended 31 December 2002, with “The Combined Code –
Principles of Good Governance and Code of Best Practice” (“the Combined Code”).

In January 2003 the report entitled “Review of the role and effectiveness of non-executive directors” (the Higgs report) and the
report entitled “Audit Committees – Combined Code guidance” (the Smith report) were published. The Board is giving due regard to
these reports.

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 ﬁve 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 and 11. Martin Gruselle was nominated as the senior independent director as required
by the Code for the year ended 31 December 2002. As Martin Gruselle retires at the AGM on 30 May 2003, Peter Duffy will be
nominated as the senior independent director.

The Board meets at least quarterly and each member receives up to date ﬁnancial and commercial information in respect of the
three divisions 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
seven executives (two of whom are not main Board 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 executive directors are also eligible to
participate in the Long term Incentive Plan (LTIP) and Capital appreciation Plan (CAP) which were both established on 18 December
2002. Details of the plans are set out in the Directors’ Remuneration report on pages 13 to 18.

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 Directors’ Remuneration report on pages 13 to 18.

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 in relation to each division,
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.

20 Capital & Regional
Annual Report & Accounts 2002

Corporate Governance Statement

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 2002 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. Following the
change in the Group’s activities, the directors carried out their review of the effectiveness of the current system of internal control and
updated the documentation of controls in place. Such a review is carried out at least once a year. The risks for each of the divisions in
the Group (Mall division, Junction division, Xscape/X-Leisure division and Corporate division) are classiﬁed into ﬁnancial/administration
risks, property risks and operational risks. There are control documents for each area of risk, with clear procedures. Authority limits are
clearly deﬁned throughout the Group, including matters reserved for the approval of the Board or a speciﬁed committee or individual
directors. The procedures in place for ﬁnancial reporting to the executive directors and the Board include quarterly reports from the
Fund Manager of the two Funds and for the Group as a whole, including the preparation of budgets and forecasts, cash management,
variance analysis, property, taxation and treasury reports and a report on ﬁnancing.

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 2002 the Committee met three times.

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 or
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 period ended 31 December 2002.
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 the system of internal control, and 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 period ended
31 December 2002, 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 Company Secretary

11 April 2003

21 Capital & Regional
Annual Report & Accounts 2002

Independent Auditors’ Report
to the members of Capital & Regional plc

We have audited the ﬁnancial statements of Capital & Regional plc for the period from 26 December 2001 to 31 December 2002 which
comprise the proﬁt and loss account, the balance sheets, the 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. We have also audited the information in
the part of the directors’ remuneration report that is described as having been audited.

This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985.
Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to
them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we
have formed.

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. They are also responsible for the preparation of the other information contained in the annual report including the
directors’ remuneration report. Our responsibility is to audit the ﬁnancial statements and the part of the directors’ remuneration report
described as having been audited in accordance with relevant United Kingdom legal and regulatory requirements and auditing standards.

We report to you our opinion as to whether the ﬁnancial statements give a true and fair view and whether the ﬁnancial statements and
the part of the directors’ remuneration report described as having been audited have been properly prepared in accordance with the
Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the ﬁnancial statements, if the
Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit,
or if information speciﬁed by law 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 of the Financial Services Authority, 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 period as described in the contents
section including the unaudited part of the directors’ remuneration report 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 and part of the directors’ remuneration report described as having been audited. 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 and the part of the directors’ remuneration
report described as having been audited 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 and the part
of the directors’ remuneration report described as having been audited.

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 31 December 2002 and

•
of the proﬁt of the Group for the period from 26 December 2001 to 31 December 2002; and

the ﬁnancial statements and part of the directors’ remuneration report described as having been audited have been properly

•
prepared in accordance with the Companies Act 1985.

Deloitte & Touche Chartered Accountants and Registered Auditors
London

11 April 2003

22 Capital & Regional
Annual Report & Accounts 2002

Consolidated Proﬁt and Loss Account
for the period ended 31 December 2002

Turnover: Group income and share of joint ventures’ turnover
Less: share of joint ventures’ turnover
Group turnover
Cost of sales
Gross proﬁt
Proﬁt on sale of trading and development properties
Exceptional loss on write off of European development properties
Total (loss)/proﬁt on disposal of trading and development properties
Administrative expenses
Group operating proﬁt
Share of operating proﬁt in joint ventures and associates
Total operating proﬁt
Exceptional costs of a fundamental reorganisation
(Loss)/proﬁt on sale of investment properties and investments
Proﬁt on sale of investment properties in associates and joint ventures
Proﬁt on ordinary activities before interest
Interest receivable and similar income
Interest payable and similar charges

Group
Share of associates
Share of joint ventures

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
(Loss)/proﬁt retained in the period/year
Earnings per share
Earnings per share – diluted

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

Notes

34,998
(8,788)
26,210
(5,763)
20,447
499
(1,522)
(1,023)
(14,261)
5,163
27,298
32,461
(7,184)
(789)
2,609
27,097
1,043

(10,649)
(12,451)
(2,967)
(26,067)
2,073
(1,220)
853
(8)
845
(4,333)
(3,488)
1.3p
1.2p

77,735
(15,620)
62,115
(11,485)
50,630
183
–
183
(9,564)
41,249
3,068
44,317
–
1,439
–
45,756
1,587

(33,533)
–
(2,447)
(35,980)
11,363
8,145
19,508
250
19,758
(4,731)
15,027
24.0p
22.6p

4
3

4
3
3

6
6
6

7
10

13a
13b

The results of the Group for the period and preceding year related entirely to continuing operations within the meaning of Financial
Reporting Standard No. 3.

Note of Historical Cost Proﬁts and Losses for the period ended 31 December 2002

Reported proﬁt on ordinary activities before taxation
Realisation of property 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 period retained after taxation, minority interests and dividends

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

2,073
46,762
1,111
49,946
40,829

11,363
22,157
–
33,520
33,966

23 Capital & Regional
Annual Report & Accounts 2002

Statement of Total Recognised Gains and Losses
for the period ended 31 December 2002

Proﬁt before tax
Movements in revaluation reserve

on investment properties
on other ﬁxed assets
on properties held in joint ventures and associates

Gains on deemed disposals
Minority interests
Total gains/(losses) before tax
Tax shown in proﬁt and loss account
Tax on revaluation surplus realised
Deferred tax
Total tax (charge)/credit
Total recognised gains and losses for the period
Prior year adjustment (see note 1)
Total recognised gains and losses since last annual report

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

2,073

11,363

(33,003)
(117)
(537)
–
250
(22,044)
8,145
(3,218)
2,205
7,132
(14,912)

509
(920)
38,302
2,377
(8)
42,333
(1,220)
(3,556)
(485)
(5,261)
37,072
(1,870)
35,202

Return on equity for the period

14.6%

(4.5)%

Reconciliation of Movements in Shareholders’ Funds
for the period ended 31 December 2002

Proﬁt for the year attributable to shareholders of the Company
Equity dividends paid and payable
(Loss)/proﬁt retained in the period
Share capital and share premium issued in period (net of expenses)
Share capital purchased and cancelled in period (including expenses)
Other recognised gains and losses relating to period
Net reduction in shareholders’ funds

Opening shareholders’ funds as previously stated
Prior year adjustment (see note 1)

Opening shareholders’ funds as restated
Closing shareholders’ funds

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

845
(4,333)
(3,488)
868
(50,845)
36,227
(17,238)

19,758
(4,731)
15,027
34
(23,325)
(34,670)
(42,934)

289,111
(1,870)

340,617
(10,442)

287,241
270,003

330,175
287,241

24 Capital & Regional
Annual Report & Accounts 2002

Consolidated Balance Sheet
as at 31 December 2002

Fixed assets
Property assets
Other ﬁxed assets

Investment in joint ventures:
share of gross assets
share of gross liabilities

Investment in associates

Current assets
Property assets
Debtors:

amounts falling due after more than one year
amounts falling due within one year

Cash at bank and in hand

Creditors: amounts falling due within one year
Net current assets
Total assets less current liabilities

Creditors: amounts falling due after more than one year
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
Net assets per share
Net assets per share – fully diluted

Notes

£000

2002
£000

£000

28,126

8,307
27,925
8,567
72,925
(70,655)

14
15

18
17

20
20
21

23
26

27
28
28
28
28

29
29

7,773

84
27,241
4,159
39,257
(29,281)

55,475
12,934
68,409

77,857
(53,168)
24,689
286,367
379,465

9,976
389,441

(117,041)
(2,397)
270,003

6,175
162,752
74,006
4,289
22,781
270,003
437p
388p

(Restated)
2001
£000

703,338
13,966
717,304

91,497
(62,014)
29,483
–
746,787

2,270
749,057

(461,816)
–
287,241

7,886
161,927
82,988
2,535
31,905
287,241
364p
336p

The ﬁnancial statements were approved by the Board of Directors and signed on their behalf on 11 April 2003 by:

M. Barber

W. Sunnucks

25 Capital & Regional
Annual Report & Accounts 2002

Consolidated Cash Flow Statement
for the period ended 31 December 2002

Net cash inﬂow from operating activities
Dividends received from joint ventures
Dividends received from associates

Returns on investments and servicing of ﬁnance
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

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 and exceptional item
Additions to joint ventures and associates
Costs of fundamental reorganisation
Acquisition of minority interests in subsidiary

Equity dividends paid
Cash inﬂow before ﬁnancing

Financing
Issue of ordinary share capital
Share capital purchased and cancelled in year
Bank loans received
Bank loans repaid

(Decrease)/increase in cash

Notes

31a

Period to
31 December
2002
£000

2,031

(Restated)
Year to
25 December
2001
£000

38,232

£000

928
–

12,773

928

(15,085)
(281)

1,548
(35,352)
(2)
(89)

(2,962)
115
70

(33,895)
5,265

(7,606)
(7,887)

(2,777)
2,488

(20,110)
(18,407)
(306)
(4,820)

216,033
16,778
112
–
1,710

673,039
665,152

190,990
193,478

–
–
(2,929)

(269,219)
395,933
(4,623)
391,310

(2,929)
190,549
(4,855)
185,694

34
(33,491)
72,604
(222,365)

£000

3,355
9,418

447
(15,158)
–
(374)

(7,679)
73
–

(18,510)
(9,544)
(280)
(850)

645,842
28,122
6
20,203
8,050

(262,203)
(7,016)
–

868
(50,845)
118,800
(464,541)

31b

(395,718)
(4,408)

(183,218)
2,476

26 Capital & Regional
Annual Report & Accounts 2002

Company Balance Sheet
as at 31 December 2002

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

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

2002
£000

£000

2001
£000

20
20

27
28
28
28

121,596

108,768

–

13,500
249,220
348
263,068
(116,745)

2,775

197,050
426,293
5,902
632,020
(35,189)

146,323
267,919

(50,401)
217,518

6,175
162,812
4,289
44,242
217,518

596,831
705,599

(449,181)
256,418

7,886
161,987
2,535
84,010
256,418

The ﬁnancial statements were approved by the Board of Directors and signed on their behalf on 11 April 2003 by:

M. Barber

W. Sunnucks

27 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements
for the period ended 31 December 2002

1. Accounting policies

The ﬁnancial statements have been prepared for the 53 week period ending 31 December 2002 (52 week period ending 25 December
2001). The change in the period end has not had a material impact on the ﬁnancial information presented. Certain comparatives have
been reclassiﬁed to be consistent with presentation in the current period.

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 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, its
consolidated entities, associated companies and joint ventures for the period ended 31 December 2002. 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 period 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.

Turnover The turnover of the Group comprises rental income from wholly owned properties, income from the snow slope business and
management and performance fees generated from the Group’s role as a property manager. Performance fees are accumulated over a
three year period, so estimates of performance fees receivable made in one year may be subject to adjustment in future year.

Joint ventures and associates In accordance with Financial Reporting Standard No. 9, entities that are jointly controlled by virtue of
deadlock arrangements are treated as joint ventures and are included in the accounts under the gross equity method of accounting.
Associates are included under the net equity method. Where necessary the ﬁnancial statements of associates and joint ventures are
adjusted to conform with the Group’s accounting policies.

Depreciation Depreciation is provided on all tangible ﬁxed assets, other than investment properties and land, over their expected
useful lives:

Buildings

– over 50 years, on a straight line basis.

Fixtures and ﬁttings

– over three to ﬁve years, on a straight line basis.

Motor vehicles

– over four years, on a straight line basis.

Investment properties Investment properties are included in the ﬁnancial statements at valuation 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.

Investments Investments are carried at cost less any provision for impairment.

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.

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.

28 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

1. Accounting policies (continued)

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.

Tenant incentives Rent frees given to tenants have been credited to the proﬁt and loss account 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.

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.

Valuation of the properties, at the balance sheet date, 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 is 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 Deferred tax is provided in accordance with FRS 19 (“Deferred Tax”) on all timing differences which have originated
but not reversed at the balance sheet date. Deferred tax is measured on a non-discounted basis. The Group previously only provided
for deferred tax to the extent that liabilities or assets were expected to reverse in the foreseeable future.

On disposal of a property, any provision for deferred tax no longer required will be released to the proﬁt and loss account.

Deferred tax is not provided on revaluation gains unless by the balance sheet date there is a binding agreement to sell the assets, and
the gain or loss arising on sale has been recognised in the ﬁnancial statements.

The comparative ﬁgures for the year ended 25 December 2001 have been restated to comply with FRS 19. The effect of this
restatement, together with the impact on the current period’s results are summarised below:

Proﬁt and loss account
Increase/(decrease) in deferred tax charge
Balance sheet
Reduction in net assets

Period to
31 December
2002
£000

Year to
25 December
2001
£000

527

(8,572)

2,397

1,870

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.

Long term incentive plan For share schemes that contingently award shares at no cost to the participant, a charge is recognised
systematically in the proﬁt and loss account based on the directors’ estimate of the extent the related performance criteria will be met.

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.

29 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

2. Segmental analysis

Asset management fees
Performance fees
Snow slope income
Rental and other income
Group turnover
Share of joint ventures and associates operating proﬁt
Direct expenses
Net interest payable
non recourse
own borrowings (net)

Contribution
Indirect expenses
Proﬁt on disposals (net)
Proﬁt before exceptionals
Exceptional items (see note 4)
Proﬁt before taxation

Asset
management
£000

Snow slope
business
£000

Share of joint
ventures and
associates
£000

Wholly
owned
properties
£000

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

7,262
2,781

4,044

10,043

4,044

(3,777)

10,043

267

12,123
12,123

(1,986)

(6,603)
3,534

27,298

(14,956)
(3,465)
8,877

7,262
2,781
4,044
12,123
26,210
27,298
(5,763)

(14,956)
(10,068)
22,721
(14,261)
2,319
10,779
(8,706)
2,073

1,509
–
3,522
57,084
62,115
3,068
(11,485)

(2,447)
(31,946)
19,305
(9,564)
1,622
11,363
–
11,363

Net assets

5,781

253

245,056

18,913

270,003

287,241

Turnover, proﬁt on ordinary activities before taxation and net assets all arise in the UK with the exception of a £1,522,000 write off of
development properties (see note 4) which relates to continental Europe. (2001: £nil)

3. Asset sales

Net sale proceeds
Cost of sales
Historical cost proﬁt/(loss)
Revaluation surplus
(Loss)/proﬁt on disposal
Proﬁt on disposal of investment

Share of associates and joint ventures (see note 17 and 18)
Proﬁt/(loss) recognised on sale of assets

Period to
31 December
2002
£000

Fixed assets
Year to
25 December
2001
£000

Period to
31 December
2002
£000

Current assets
Year to
25 December
2001
£000

Total
Period to
31 December
2002
£000

Total
Year to
25 December
2001
£000

655,442
(618,431)
37,011
(39,061)
(2,050)
1,261
(789)
2,609
1,820

216,029
(192,433)
23,596
(22,157)
1,439
–
1,439
–
1,439

34,229
(35,252)
(1,023)
–
(1,023)
–
(1,023)
–
(1,023)

8,047
(7,864)
183
–
183
–
183
–
183

689,671
(653,683)
35,988
(39,061)
(3,073)
1,261
(1,812)
2,609
797

224,076
(200,297)
23,779
(22,157)
1,622
–
1,622
–
1,622

30 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

4. Proﬁt before tax and exceptional items

Exceptional loss on write off of European development properties
Exceptional costs of a fundamental reorganisation

Loan breakage costs
Transaction costs
Group reorganisation costs

Total exceptional costs
Proﬁt before tax
Proﬁt before tax and exceptional items

Group reorganisation costs include the redundancy costs of seven members of staff.

5. Interest receivable and similar income

Bank interest
Interest from joint ventures and associates
Other interest

Share of joint ventures and associates
Total

6. Interest payable and similar charges

Bank loans and overdrafts wholly repayable within ﬁve years
Other loans

Capitalised during period/year

Share of joint ventures
Share of associates

The interest charge includes £378,000 (2001: £384,000) of loan arrangement costs amortised during the period.

Period to
31 December
2002
£000

1,522

(Restated)
Year to
25 December
2001
£000

–

3,949
2,150
1,085
7,184
8,706
2,073
10,779

–
–
–
–
–
11,363
11,363

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

342
132
106
580
463
1,043

506
372
646
1,524
63
1,587

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

9,498
1,684
11,182
(533)
10,649
2,967
12,451
26,067

31,985
1,663
33,648
(115)
33,533
2,447
–
35,980

31 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

7. Proﬁt on ordinary activities before taxation

This is arrived at after charging/(crediting):
Proﬁt on disposal of other ﬁxed assets
Depreciation
Amortisation of short leasehold properties
Amortisation of negative goodwill
Auditors’ remuneration (see below)
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 period:
General taxation advice
Other

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

(6)
482
203
(90)
148
543
–

83
372
455

(74)
486
202
–
134
1,141
(477)

128
22
150

Other fees paid to auditors relate mainly to services provided as reporting accountants during the Group’s reorganisation in the period.

The auditors’ remuneration for the Group includes £8,000 (2001: £8,000) in respect of the parent company.

Operating lease commitments for land and buildings (all expiring in more than ﬁve years) are £80,000 (25 December 2001: £1,122,000).

8. Employee information

The average number of persons employed by the Group during the period was as follows:

Direct property services
Snow slope business
Central management

Average number Average number

of employees
during
2002

of employees
during
2001

4
100
88
192

13
128
87
228

In addition 134 people were employed at the shopping centres (2001: 106). Their costs are recharged directly to tenants and excluded
from the ﬁgures above.

Staff costs (including directors) consist of:
Wages and salaries
Discretionary bonuses
Total salaries
Social security costs
Other pension costs

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

6,654
2,407
9,061
1,012
197
10,270

6,040
1,277
7,317
742
237
8,296

32 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

9. Directors’ remuneration

Details of directors’ remuneration by director and details of their interests in the share capital of the Company are set out in the
Directors’ Remuneration report on pages 13 to 18.

10. Taxation

Current tax
UK corporation tax (at 30%)
Tax credit in respect of exceptional items
Adjustment in respect of prior years
Share of joint ventures tax
Total current tax
Deferred tax
Origination and reversal of timing differences
Total taxation
Tax reconciliation
Group proﬁt on ordinary activities
Tax on proﬁt on ordinary activities at UK corporation tax rate of 30%
Effects of:

Capital allowances
Tax losses and other timing differences
Expenses not deductible for tax purposes
Adjustment in respect of prior years

Total current tax

Period to
31 December
2002
£000

(Restated)
Year to
25 December
2001
£000

580
(1,510)
(274)
177
(1,027)

2,247
1,220

2,073
622

(2,776)
(503)
1,904
(274)
(1,027)

1,335
–
(1,135)
227
427

(8,572)
(8,145)

11,363
3,409

(2,469)
–
622
(1,135)
427

Taxation recognised in the STRGL (see page 23) The tax on revaluation surplus recognised of £3,556,000 is in respect of capital
gains on dilution of the Group’s interest in the Junction Fund and gains arising in respect of prior year revaluations realised on disposals
to third parties.

Factors affecting future tax rate

The Group expects to be able to claim capital allowances in future periods in excess of depreciation but at a lower level than in the
current period.

No provision has been made for deferred tax on gains recognised on revaluing property to its market value. The total amount
unprovided is £13,996,000 (2001: £8,815,000).

11. Proﬁt of the holding company

Of the proﬁt for the period attributable to shareholders, a proﬁt of £15,410,000 (2001: £4,848,000) has been dealt within the accounts
of the holding company and is made up as follows:

Dividends from subsidiaries
Net operating costs including interest and tax

Period to
31 December
2002
£000

Year to
25 December
2001
£000

29,556
(14,146)
15,410

57,708
(52,860)
4,848

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.

33 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

12. Equity dividends paid and payable

Interim of 3p per share paid on 18 October 2002 (2001: 2.5p per share)
Proposed ﬁnal of 4p per share payable on 16 June 2003 (2001: 3.5p per share)

Period to
31 December
2002
£000

Year to
25 December
2001
£000

1,863
2,470
4,333

1,971
2,760
4,731

13. 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 period
67,339,312 (2001: 82,272,918) and have been based on proﬁt on ordinary activities after taxation and minority interests of £845,000
(2001 (restated): £19,758,000).

(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 includes conversion of the Convertible Unsecured Loan Stock where the effect on earnings per share is
dilutive. In 2002 the effect of the Convertible Unsecured Loan Stock was not dilutive (2001: dilutive). The weighted average number of
Ordinary shares of 10p each is 67,947,236 (2001: 95,025,530) and the relevant earnings are £845,000 (2001 (restated): £21,446,000).

14. Property assets

Group
Cost or valuation:
As at 26 December 2001
Unamortised capital contribution

Additions
Amortisation of short leasehold properties
Disposals
Revaluation
As at 31 December 2002
The period end balance is analysed as follows:
Historical cost
Revaluation surplus

A list of the valuers, and the basis of the valuations, are summarised in note 30.

The period 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

Investment properties

Freehold
properties
£000

Leasehold
properties
£000

Total
£000

394,540
(4,567)
389,973
1,200
–
(352,720)
727
39,180

315,115
(1,750)
313,365
(227)
(203)
(296,422)
(218)
16,295

709,655
(6,317)
703,338
973
(203)
(649,142)
509
55,475

36,848
2,332

16,215
80

53,063
2,412

2002
£000

10,805
1,900
3,590
16,295

The net book value of property assets includes £206,000 (2001: £3,065,000) in respect of capitalised interest.

34 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

15. Other ﬁxed assets

Group
Cost or valuation
As at 26 December 2001
Additions
Disposals
Revaluation
As at 31 December 2002

Depreciation
As at 26 December 2001
Provided for period
Disposals
As at 31 December 2002
Net book values:
As at 31 December 2002
As at 26 December 2001

Long leasehold
land and buildings
£000

Fixtures
and ﬁttings
£000

Motor
vehicles
£000

Negative
goodwill

Total
£000

13,660
–
–
(920)
12,740

160
80
–
240

12,500
13,500

1,880
280
(333)
–
1,827

1,213
394
(333)
1,274

553
667

89
–
(57)
–
32

71
8
(57)
22

10
18

(223)
–
–
–
(223)

(4)
(90)
–
(94)

15,406
280
(390)
(920)
14,376

1,440
392
(390)
1,442

(129)
(219)

12,934
13,966

The negative goodwill arose from the acquisition of the minority interest in Easter Capital Investment Holdings Limited. A proportion of
the negative goodwill has been 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 at 31 December 2002.
A list of the valuers, and the basis of the valuations, are summarised in note 30.

The historical cost of the long leasehold land and buildings is £13,620,000 and the revaluation deﬁcit is £1,120,000.

16. Other investments

Cost
As at 26 December 2001
Additions
Disposals
Write down in value of investments
As at 31 December 2002

A list of principal subsidiaries and joint venture undertakings is given in note 34.

Company
Shares in subsidiary and
joint venture undertakings
£000

108,768
17,622
(2)
(4,792)
121,596

35 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

17. Associates

As at 26 December 2001
Subscription for partnership capital and advances
Dividends and capital distributions received
Share of results (see below)
Share of property revaluation surplus (see below)
Unrealised proﬁt on disposals to associates (see below)
Unrealised gain on deemed disposal
As at 31 December 2002

Analysis of investment in associates:

Proﬁt and loss account (100%)
Turnover
Net rental income

Operating proﬁt
Sale of investment properties
Net interest payable
Proﬁt before and after tax
Balance sheet (100%)
Investment properties
Current assets
Current liabilities
Borrowing due in more than one year
Net assets (100%)

Group
Interest at period end
Group share of
Operating proﬁt
Sale of investment properties
Net interest payable
Proﬁt for the period
Revaluation surplus for the period

Investment properties
Current assets
Current liabilities
Borrowing due in more than one year
Associate net assets
Unrealised proﬁt on sale of property to associate
Group share of associate net assets

The associates both operate in the UK.

2002
£000

–
250,050
(11,946)
11,993
34,315
(422)
2,377
286,367

The Mall
Partnership
£000

The Junction
Partnership
£000

Total to
31 December
2002
£000

Total to
25 December
2001
£000

51,999
42,942

33,955
–
(15,600)
18,355

23,143
22,073

17,888
477
(10,722)
7,643

75,142
65,015

51,843
477
(26,322)
25,998

724,386
35,480
(32,757)
(328,667)
398,442

535,632
19,111
(17,835)
(211,181)
325,727

1,260,018
54,591
(50,592)
(539,848)
724,169

49.39%

27.63%

16,927
–
(7,770)
9,157
26,641

357,774
17,524
(16,178)
(162,329)
196,791
(422)
196,369

6,967
174
(4,305)
2,836
7,674

147,995
5,280
(4,928)
(58,349)
89,998
–
89,998

23,894
174
(12,075)
11,993
34,315

505,769
22,804
(21,106)
(220,678)
286,789
(422)
286,367

–
–

–
–
–
–

–
–
–
–
–

–

–
–
–
–
–

–
–
–
–
–
–
–

36 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

18. Investment in joint ventures

As at 26 December 2001 (2001 adjusted for UITF28)
Subscription for partnership capital and advances
Dividends and capital distributions received
Share of results (see below)
Share of taxation and minority interests (see below)
Share of property revaluation surplus/(deﬁcit) (see below)
Disposal of investment
As at 31 December 2002

Analysis of investment in joint ventures:

Proﬁt and loss account (100%)
Turnover
Net rental income
Operating proﬁt/(loss)
Sale of investment properties
Net interest payable
(Loss)/proﬁt before tax
Taxation and minority interests
(Loss)/proﬁt after tax
Balance sheet (100%)
Investment properties
Current assets
Current liabilities
Borrowing due in more than one year
Net assets (100%)
Group
Interest at period end
Group share of
Turnover
Operating proﬁt/(loss)
Sale of investment properties
Net interest payable
(Loss)/proﬁt before tax
Taxation and minority interests
(Loss)/proﬁt after tax
Revaluation surplus/(deﬁcit) for the period

Investment properties
Current assets
Current liabilities
Borrowing more than one year
Joint venture net assets

2002
£000

29,483
12,153
(3,312)
2,960
(185)
3,987
(20,397)
24,689

2001
£000

29,814
650
(928)
703
(227)
(529)
–
29,483

Xscape
Milton Keynes
Partnership
£000

Xscape
Castleford
Partnership
£000

Auchinlea
Partnership
£000

Total to
31 December
2002
£000

Total to
25 December
2001
£000

Others
£000

3,493
2,614
2,614
–
(3,287)
(673)
–
(673)

73,050
6,138
(3,045)
(46,800)
29,343

–
–
(53)
–
–
(53)
–
(53)

804
662
644
–
(602)
42
–
42

30,940
1,336
(4,078)
(19,650)
8,548

29,350
1,298
(529)
(11,000)
19,119

13,280
2,921
3,625
4,871
(1,872)
6,624
(370)
6,254

–
2,545
(1,447)
–
1,098

17,577
6,197
6,830
4,871
(5,761)
5,940
(370)
5,570

31,241
6,277
6,136
–
(4,766)
1,370
(415)
955

133,340
11,317
(9,099)
(77,450)
58,108

155,162
27,832
(25,098)
(87,902)
69,994

50.0%

66.7%

50.0%

–

1,747
1,307
–
(1,643)
(336)
–
(336)
48

36,525
3,069
(7,459)
(23,400)
8,735

–
(35)
–
–
(35)
–
(35)
–

20,628
891
(2,719)
(13,101)
5,699

402
322
–
(301)
21
–
21
3,939

14,675
649
(265)
(5,500)
9,559

6,639
1,810
2,435
(935)
3,310
(185)
3,125
–

–
1,423
(727)
–
696

8,788
3,404
2,435
(2,879)
2,960
(185)
2,775
3,987

71,828
6,031
(11,169)
(42,001)
24,689

15,620
3,068
–
(2,384)
684
(208)
476
(529)

77,581
13,916
(13,088)
(48,926)
29,483

A list of valuers and the basis of the valuation are summarised in note 30.

The joint ventures all operate in the UK.

The year end of the Auchinlea Partnership is 31 March.

37 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

19. Current property assets

Properties held for disposal
Properties under development

2002
£000

7,726
47
7,773

Group

2001
£000

13,859
14,267
28,126

2002
£000

–
–
–

Company

2001
£000

–
2,775
2,775

The net book value of current property assets includes £295,000 (2001: £290,000) in respect of capitalised interest.

20. 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
Amounts owed by associates
Other debtors
Tax recoverable
Prepayments and accrued income

21. Cash at bank and in hand

2002
£000

–
–
84
84

3,079
–
42
17,385
3,228
645
2,862
27,241

Group

2001
£000

–
2,750
5,557
8,307

16,589
–
4,549
–
1,480
769
4,538
27,925

2002
£000

13,500
–
–
13,500

–
247,437
–
–
–
–
1,783
249,220

Company

2001
£000

197,050
–
–
197,050

–
421,635
4,549
–
107
–
2
426,293

Cash at bank includes £166,000 (2001: £5,679,000) speciﬁcally held as security deposits and retained in rent accounts and not freely
available to the Group for day to day commercial purposes.

38 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

22. Creditors: amounts falling due within one year

Bank loans (secured)
Amounts owed to subsidiaries
Trade creditors
Other creditors
Taxation and social security
Corporation tax
Accruals and deferred income
Proposed dividends

23. Creditors: amounts falling due after more than one year

Bank loans (secured) (see note 25)
Unamortised issue costs

Convertible loan stock (unsecured) (see note 24)
Unamortised issue costs

Other creditors

24. Convertible Subordinated Unsecured Loan Stock

Convertible Subordinated Unsecured Loan Stock
Unamortised loan issue costs due after one year

Unamortised loan issue costs due within one year

2002
£000

3,285
–
1,167
3,322
1,010
2,906
15,121
2,470
29,281

2002
£000

92,000
(241)
91,759
24,642
(237)
24,405
877
117,041

Group

2001
£000

3,300
–
4,631
2,384
3,085
7,952
46,543
2,760
70,655

Group

2001
£000

437,650
(148)
437,502
24,642
(328)
24,314
–
461,816

2002
£000

94
113,825
–
30
77
–
249
2,470
116,745

2002
£000

26,000
(4)
25,996
24,642
(237)
24,405
–
50,401

Company

2001
£000

12
27,424
9
31
–
–
4,953
2,760
35,189

Company

2001
£000

424,900
(33)
424,867
24,642
(328)
24,314
–
449,181

Group and Company

2002
£000

24,642
(237)
24,405
(91)
24,314

2001
£000

24,642
(328)
24,314
(91)
24,223

The Convertible Subordinated Unsecured Loan Stock (“CULS”) may be converted by the holders of the stock into 51.42 (2001: 50.37)
Ordinary shares per £100 nominal value CULS in any of the years 1997 to 2015 inclusive, representing a conversion price of 194p
(2001: 199p) per Ordinary share. The Company has the right to redeem at par the CULS in any year from 2006 to 2016. The CULS are
unsecured and are subordinated to all other forms of unsecured debt but rank in priority to the holders of the Ordinary shares in the
Company. The CULS carry interest at an annual rate of 6.75%, payable in arrears on 30 June and 31 December in each year.

In accordance with Financial Reporting Standard No. 4 “Capital Instruments”, the CULS are shown net of unamortised loan issue costs.

39 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

25. Financial Instruments

The Group’s interest rate proﬁle is as follows:

Fixed loans
Variable rate loans

Total
£000

24,642
95,450
120,092

Weighted
average

Weighted
average
interest rate period – years

6.75%
5.12%
5.45%

13.3
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 31 December 2002 and 25 December 2001 to calculate the
market value of the ﬁxed rate instruments on a replacement basis and the expiry proﬁle of the resulting fair value adjustment. There is no
difference between the book value and fair value of the Group’s ﬁxed rate debt. The table below shows the difference between the book
value and notional value of the Group’s share of ﬁxed rate debt within associates and joint ventures.

Interest rate swaps

Net of tax at 30% (2001: 30%)

Book
value
£000

Notional
value
£000

Fair value
adjustment
2002
£000

Fair value
adjustment
2001
£000

255,237

261,814

(6,577)

(4,604)

–

The fair value adjustment has a notional adverse effect on fully diluted net asset value per share of 6.0p (2001: 2.7p).

The Group’s interest rate policy is to enter into interest rate swaps where appropriate which provides protection against any sudden rise
in interest rates. The balance between borrowing on ﬂoating and hedged interest rates is continually reviewed in the light of market
conditions and business requirements.

Interest rate swaps and bank ﬁxed rates were valued on a replacement basis. They were valued against the offered side of the zero
coupon yield curve commencing on 31 December 2002 and ended on the contracted expiry dates.

The bank loans are repayable as follows:

Aggregate amount repayable:
Between one and two years
Between two and ﬁve years
Greater than ﬁve years
Total loans due after more than one year
Loans due in one year or less or on demand
Total loans

2002
£000

2001
£000

9,000
34,300
48,700
92,000
3,450
95,450

277,700
151,350
8,600
437,650
3,540
441,190

Currency proﬁle: All monetary assets and liabilities are denominated in sterling.

26. 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 and other timing differences

Provided
2002
£000

–
2,397
2,397

(Restated)
Provided
2001
£000

–
–
–

Not
provided
2002
£000

13,996
–
13,996

(Restated)
Not
provided
2001
£000

8,815
–
8,815

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
22.7p (2001: 13.6p) and on fully diluted net assets per share of 18.1p (2001: 9.6p).

40 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

27. Called up share capital

Ordinary shares of 10p each
As at 26 December 2001
Issued on exercise of share options
Shares purchased and cancelled
As at 31 December 2002

Ordinary shares of 10p each

Number of shares
issued and fully paid

Nominal value of shares
issued and fully paid

2002
Number

2001
Number

2002
£000

2001
£000

78,855,975 88,734,623
20,852
434,210
(17,543,744)
(9,899,500)
61,746,441 78,855,975

7,886
43
(1,754)
6,175

8,874
2
(990)
7,886

Authorised

2002

2001

150,000,000 150,000,000

After the year end 291,723 share options were exercised. This increased the number of shares issued and fully paid to 62,038,164.

As at 31 December 2002 the Group had purchased 70,000 of its own Ordinary shares at a cost of £219,580. These shares were
purchased for the Long Term Incentive Plan as described in the Directors’ remuneration report (pages 13 to 18).

The options to subscribe for new Ordinary shares of 10p each under the share option schemes that were outstanding at
31 December 2002 are as follows:

Period within which options are exercisable:
22 December 1996 to 22 December 2003
28 October 1997 to 28 October 2004
21 October 1999 to 21 October 2006
18 June 2000 to 18 June 2004
18 June 2000 to 18 June 2007
15 May 2001 to 15 May 2008
22 May 2001 to 22 May 2008
23 February 2002 to 23 February 2009*
22 February 2003 to 22 February 2010*
13 September 2003 to 13 September 2010*

*Only exercisable if conditions relating to growth in net asset per share and total return for shareholders are met.

31 December 2002

Number
of shares

Subscription
price

410,634
312,789
20,852
506,835
105,208
924,000
30,940
428,950
95,200
325,000
3,160,408

168.9p
131.4p
193.2p
226.4p
226.4p
279.5p
286.5p
191.5p
201.5p
211.5p

41 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

28. Reserves

Group
As at 26 December 2001
Prior year adjustment – Deferred Tax
Revised balance as at 26 December 2001
Issue of share capital
Shares purchased and cancelled
Group share of revaluation deﬁcit of investment properties
Share of unrealised revaluation surplus in joint ventures and associates
Realisation of surplus on disposal of investment properties
Transfer of historical deﬁcits on revaluation reserve
Corporation tax on capital gains charged to STRGL
Gain on deemed disposal
Retained loss for the period
As at 31 December 2002
Company
As at 26 December 2001
Proﬁt for year attributable to shareholders
Equity dividends paid and payable
Issue of share capital
Shares purchased and cancelled
As at 31 December 2002

29. Net assets per share

Consolidated balance sheet
Conversion of Convertible Subordinated Unsecured Loan Stock (“CULS”)
(net of unamortised issue costs)
Exercise of share options
Fully diluted

Share
premium
account
£000

Property
revaluation
reserve
£000

Capital
redemption
reserve
£000

Proﬁt and
loss account
£000

161,927
–
161,927
825
–
–
–
–
–
–
–
–
162,752

161,987
–
–
825
–
162,812

82,988
–
82,988
–
–
(411)
38,302
(47,873)
1,000
–
–
–
74,006

–
–
–
–
–
–

2,535
–
2,535
–
1,754
–
–
–
–
–
–
–
4,289

2,535
–
–
–
1,754
4,289

33,775
(1,870)
31,905
–
(50,845)
–
–
47,873
(1,000)
(4,041)
2,377
(3,488)
22,781

84,010
15,410
(4,333)
–
(50,845)
44,242

As at 31 December 2002

Net assets
£000

Number
of shares

Net assets
per share

270,003 61,746,441

437

24,314 12,670,912
3,160,408
301,218 77,577,761

6,901

388

As at 25 December 2001 (Restated)

Net assets
£000

Number
of shares

Net assets
per share

287,241 78,855,975

364

24,223 12,412,171
3,998,308
320,188 95,266,454

8,724

336

Triple net assets per share as at 31 December 2002 were 364p (25 December 2001: 324p). This is calculated after adjusting for
unprovided deferred tax and the Group’s share of the loan fair value adjustment within associates and joint ventures.

42 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

30. Valuations

The properties were valued at 31 December 2002, as follows:

Group properties

Total investment property assets
Other ﬁxed assets
Total property assets

Investment property assets at 31 December 2002
as per balance sheet
UITF 28 adjustment at 31 December 2002
included in debtors
Total investment property assets as valued above

Properties held by joint ventures
Xscape Milton Keynes Partnership
Auchinlea Partnership
Xscape Castleford Partnership

Valuer

Basis of valuation

DTZ Debenham Tie Leung
Insignia Richard Ellis Limited
Directors

Directors

Open market value
Open market value
Net sale proceeds of
properties sold after
31 December 2002
Open market value

DTZ Debenham Tie Leung

Open market value

£000

35,850
6,065

13,800
220
55,935
12,500
68,435

55,475

460
55,935

Valuer

Basis of valuation

£000

DTZ Debenham Tie Leung
Montagu Evans
Directors

Open market value
Open market value
Cost

75,400
29,350
30,940
135,690

Valuations are at open market value as deﬁned in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors.

31. Notes to the cash ﬂow statement

(a) Net cash inﬂow from operating activities

Group operating proﬁt
Loss/(proﬁt) on the sale of the trading and development properties

Depreciation of other ﬁxed assets
Amortisation of short leasehold properties
Amortisation of tenant incentives
Proﬁt on disposal of ﬁxed assets
Decrease in trade debtors, other debtors and prepayments
Decrease in trade creditors, other creditors, taxation and social security and accruals
Net cash inﬂow from operating activities

2002
£000

5,163
1,023
6,186
482
203
308
(6)
8,708
(13,850)
2,031

2001
£000

41,249
(183)
41,066
486
202
1,741
(74)
3,564
(8,753)
38,232

43 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

31. Notes to the cash ﬂow statement (continued)

(b) Reconciliation of net cash ﬂow movement in net debt

(Decrease)/increase in cash in year
Cash inﬂow from increase in debt ﬁnancing
Change in net debt resulting from cash ﬂows
Net debt at beginning of year
Net debt at end of year

Cash in hand and at bank
Debt due within one year
Debt due after one year
Total

32. Related party transactions

2002
£000

(4,408)
345,740
341,332
(457,265)
(115,933)

2001
£000

2,476
149,760
152,236
(609,501)
(457,265)

At
25 December
2001
£000

8,567
(3,540)
(462,292)
(457,265)

At
31 December
2002
£000

4,159
(3,450)
(116,642)
(115,933)

Cash ﬂows
£000

(4,408)
90
345,650
341,332

The Group’s principal transactions with related parties, as deﬁned by Financial Reporting Standard No. 8, are summarised below:

Joint ventures and associates On 3 January 2002 the Group sold six retail parks to The Junction Limited Partnership, an associate,
for a total consideration of £165,200,000. £9,600,000 was outstanding in respect of this sale as at 31 December 2002. The Group
simultaneously invested £85,000,000 in the Partnership.

During 2002 the Group received management and performance fees totalling £2,600,000 from The Junction Limited Partnership
(2001: £nil). As at 31 December 2002 £1,306,000 was outstanding in respect of these fees. These transactions occurred at normal
commercial rates.

On 8 January 2002 the Group sold the Auchinlea Retail Park into the Auchinlea Partnership, a joint venture, for a total consideration of
£19,500,000. The Group simultaneously invested £5,200,000 into the Partnership. The Partnership reimbursed the Group £1,130,000
of costs relating to the proposed redevelopment of the Auchinlea Retail Park.

The Group received management fees from Auchinlea Partnership of £120,000 (2001: £nil) during 2002. As at 31 December 2002 there
were no fees outstanding. These transactions occurred at normal commercial rates.

On 28 February 2002 the Group sold eight shopping centres and one trading property to The Mall Limited Partnership, an associate, for
£467,300,000 after costs. The Group simultaneously invested £170,000,000 in the Partnership.

During 2002 the Group received management and performance fees totalling £6,900,000 from The Mall Limited Partnership (2001: £nil).
As at 31 December 2002 £3,952,000 was outstanding in respect of these fees. These transactions occurred at normal commercial rates.

The Group received management fees from Xscape Milton Keynes Partnership of £186,000 (2001: £nil) and Xscape Castleford
Partnership of £175,000 (2001: £nil) during 2002.

Other related party transactions The Group is in a partnership arrangement with Xscape Milton Keynes Partnership and Xscape
Castleford Partnership managed by Pricoa Property Investment Management Limited of which Martin Barber is non-executive Chairman.

During 2002 Cine UK Limited leased two of the Group’s properties under management and had entered into agreements for lease
at two other Group properties under management 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 2002 as
one of the Group’s property advisers and as such has received fees for its services on normal professional terms.

During 2002 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.

44 Capital & Regional
Annual Report & Accounts 2002

Notes to the Financial Statements

33. Post balance sheet events

On 24 January 2003 the Group acquired the fund management business of MWB Group plc. The fund management business manages
three separate funds that own commercial leisure properties with a total value of £504m.

The Group also acquired MWB Group plc’s related equity interest in the three funds. The total consideration was £30.2m.

On 6 January 2003 The Mall Limited Partnership purchased the Grosvenor Centre, Chester for £105.75m.

On 5 February 2003 The Mall Limited Partnership purchased a 50% interest in the Gracechurch Centre, Sutton Coldﬁeld for £52m.
The remaining 50% was purchased on 28 March 2003 for £52m. In connection with this purchase on 28 March 2003 the Prudential
injected £31m equity into The Mall Limited Partnership.

On 24 January 2003 The Junction (Thurrock) Limited Partnership was formed and acquired three retail parks for a total of £101m.
The Junction Limited Partnership has a 65% stake in The Junction (Thurrock) Limited Partnership.

On 26 February 2003 The Junction Limited Partnership acquired £174m of property from Chartwell Land.

34. Subsidiary joint venture and associated undertakings at 31 December 2002

Principal subsidiaries, joint ventures and associated companies

Nature of property business

Capital & Regional Investments Limited
Capital & Regional Shopping Centres Limited
The Mall Limited Partnership
The Junction Limited Partnership
Xscape Castleford Partnership
Xscape Milton Keynes Partnership
Capital & Regional Property Management Limited
Snozone Limited

Investment and management
Investment and management
Investment
Investment
Investment
Investment and management
Management
Trading

Group effective share
of business
100%
100%
49.39%
27.63%
66.7%
50%
100%
100%

The subsidiary and joint ventures companies are incorporated in, and operate in, Great Britain. Investment in joint ventures and
associates are dealt with in notes 17 and 18.

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.

45 Capital & Regional
Annual Report & Accounts 2002

Directors’ Report
for the period ended 31 December 2002

The directors present their report together with the audited ﬁnancial statements for the period ended 31 December 2002.

Results and proposed dividends The consolidated proﬁt and loss account is set out on page 22 and shows a proﬁt on ordinary
activities after taxation of £853,000.

The directors recommend the payment of a ﬁnal dividend of 4.0p per Ordinary share on 16 June 2003, to members on the register at
the close of business on 25 April 2003, which together with an interim dividend of 3.0p per Ordinary share, paid in 2002, makes a total
of 7.0p for the year.

Principal activities, trading review and future developments The principal activity of the Group is that of a co-investing property
manager. A review of the activities and prospects of the Group is given in the Chairman’s and Chief Executive’s overview and Group
Finance Director’s overview on pages 2 to 6.

Directors The directors of the Company at 31 December 2002, were as follows:

M. Barber, T. Chandos, D. Cherry, L. Coral, P. Duffy, K. Ford, M. Gruselle, A. Lewis-Pratt, X. Pullen and W. Sunnucks.

R. Boyland resigned from the main Board of Directors on 30 September 2002.

L. Coral resigned from the main Board of Directors on 31 December 2002 and remains an executive director.

M. Gruselle will retire from the Board at the Annual General Meeting.

It is the Board’s intention to appoint PY Gerbeau to the Board on 14 April 2003.

All directors served throughout the year with the exception of R. Boyland and W. Sunnucks (who was appointed to the Board on
15 October 2002.)

In accordance with the Articles of Association, D. Cherry, W. Sunnucks and PY Gerbeau will retire by rotation and, being eligible, offer
themselves for re-appointment.

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 3,456,667 issued shares representing 5.60% of the issued Ordinary share capital of the Company as
detailed in the Directors’ Remuneration Report on pages 13 to 18.

Save as set out in note 32 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 26 to the accounts.

Details of options granted to the directors, under the same Schemes, are contained in the Directors’ Remuneration Report on pages
13 to 18.

Long Term Incentive Plan (LTIP) and Capital Appreciation Plan (CAP) The Company established the plans on 18th December 2002
for the beneﬁt of the executive directors and key executives. Details of the plans and awards made are contained in the Directors’
Remuneration Report on pages 13 to 18.

Change of period end The period end has changed from 25 December to 31 December.

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 4 April 2003:

Isis Asset Management plc
Fidelity Investments
The Capital Group Companies Inc.
United Nations Pension Fund
Neuberger & Berman, LLC
Legal & General Investment Management
Morley Fund Management
UBS Global Asset Management

5,557,405
5,188,391
5,120,000
3,936,120
3,446,099
3,108,410
2,719,978
2,363,059

9.00
8.40
8.29
6.42
5.58
5.03
4.41
3.83

Charitable donations During the year the Group contributed £6,296 (2001: £12,888) 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 28 days (2001: 22 days) purchases outstanding.

Compliance with combined code A statement on Corporate Governance is set out on pages 17 and 18.

46 Capital & Regional
Annual Report & Accounts 2002

Directors’ Report

Employee involvement The Group places considerable value upon the involvement of its employees, at all levels, in its affairs and has
continued its practice of keeping them regularly and systematically informed on matters of concern affecting them as employees and on
the ﬁnancial and economic factors affecting the Group’s performance. Consultations with them or their representatives take place on a
regular basis so that their views can be taken into account when decisions are made which are likely to affect their interests. This is
achieved by regular meetings between management and employees at all levels.

Disabled employees The Group gives full consideration to applications for employment from disabled persons where the requirements
of the job can be adequately fulﬁlled by a handicapped or disabled person.

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.

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.

For example, during 2002, the Mall division achieved portfolio-wide reductions in the consumption of electricity, gas and water
compared to the previous year. In each area, the actual reduction was greater than the target set, and was achieved by reﬁning
measures already in place, for example, setting mall space temperatures to reasonable levels and the installation of water saving
devices. The Mall division also recycles cardboard/paper generated by retailers, which has produced many ﬁnancial beneﬁts – mainly
less waste to landﬁll sites and a return for tonnage in cardboard recycled.

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.

The timetable for the 2003 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 33 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 the Annual General Meeting in 2002, 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 2004 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 27 to the accounts. The directors will
only exercise this authority if they consider that it will result in an increase in asset value per share for the remaining shareholders and
that it will be in the best interests of the Company to do so.

By Order of the Board

F. Desai Company Secretary

11 April 2003

47 Capital & Regional
Annual Report & Accounts 2002

Notice of the Annual General Meeting

Notice is hereby given that the twenty-fourth Annual General Meeting of the Company will be held at The Goring Hotel,
15 Beeston Place, Grosvenor Gardens, London SW1W 0JW on 30 May 2003 at 10.00 am for the following purposes.

Ordinary business

1. To consider and, if thought ﬁt, adopt the accounts for the period ended 31 December 2002, and the reports of the directors and

auditors thereon.

2. To declare a ﬁnal dividend of 4.0p per Ordinary share.
3. To re-appoint D. Cherry as a director of the Company.
4. To re-appoint W. Sunnucks as a director of the Company.
5. To re-appoint PY Gerbeau as a director of the Company.
6. To re-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.

7. To approve the Directors’ Remuneration Report.

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)

(ii)

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

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 2004 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:

That: 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 9,200,219 Ordinary shares of 10p in the Company;

(b) the maximum price which may be paid for the shares shall not exceed 105% of the average of the prices at which business was

done in the Ordinary shares of 10p each in the Company during the period of ﬁve business days immediately preceding the day on
which the shares are contracted to be purchased, or, if no such business was done during that period, 105% of the price at which
business was last done in the Ordinary shares of 10p in the Company prior to the day on which the shares are contracted to be
purchased, in either case as derived from the London Stock Exchange Daily Ofﬁcial List and exclusive of expenses; and

This authority shall expire at the Company’s Annual General Meeting in 2004 or 15 months after the date on which this resolution is
passed (whichever is the earlier).

By Order of the Board

F. Desai Company Secretary

11 April 2003

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 10.00 am on 28 May 2003.

48 Capital & Regional
Annual Report & Accounts 2002

Advisers and Corporate Information

Barclays Bank PLC
Property Team, Business Banking,
PO Box 544, 1st Floor,
54 Lombard Street, London EC3V 9EX

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

Auditors
Deloitte & Touche
180 Strand, London WC2R 1BL

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
Olswang
90 High Holborn, London WC1V 6XX

Berwin Leighton Paisner
Adelaide House, London Bridge,
London EC4R 9HA

Maclay Murray & Spens
151 St Vincent Street, Glasgow G2 5NJ

Fladgate Fielder
25 North Row, London W1R 1DJ

Principal lending banks
Bank of Scotland
4th Floor, New Uberior House,
11 Earl Grey Street, Edinburgh EH3 9BN

Royal Bank of Scotland plc
135 Bishopsgate, London EC2N 3UR

49 Capital & Regional
Annual Report & Accounts 2002

2003 Financial Calendar
Annual General Meeting – 30 May 2003
Final dividend record date – 25 April 2003
Final dividend payment – 16 June 2003
Interim results – September 2003
Interim dividend – October/November 2003
2003 Preliminary results announcement –
March/April 2004

2003 Final Dividend timetable
Record date – 25 April 2003
Last day to receive DRIP mandates –
2 June 2003
Dividend warrants posted – 14 June 2003
Payment date/shares purchased –
16 June 2003
Certiﬁcates/purchase statements
despatched – 27 June 2003
CREST accounts credited – 30 June 2003

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

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Annual Report 2002

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