British Land Company PLC · LSE:BLND
British Land — Investor Presentation (January 2005)
62 slides from British Land's investor presentation, Jan 25, 2005
Slide 1: International Accounting Standards Workshop
INTERNATIONAL ACCOUNTING STANDARDS WORKSHOP 25 JANUARY 2005 IAS Workshop 25 January 2005
Slide 2: Welcome to the IAS Workshop
WELCOME TO THE IAS WORKSHOP GRAHAM ROBERTS, FINANCE DIRECTOR IAS Workshop 25 January 2005 2
Slide 3: Overview
OVERVIEW British Land will commence reporting under IAS in the year ended 31 March 2006 Cash Flows unaffected Dividend policy unaffected Banking arrangements unaffected IAS and its interpretation is subject to change IAS Workshop 25 January 2005 3
Slide 4: Communication Timetable
COMMUNICATION TIMETABLE MAY 2005 2005 UK GAAP Preliminary Results JULY 2005 2005 IAS Annual Results NOV 2005 2006 H1 IAS Interim Results MAY 2006 2006 IAS Preliminary Results IAS Workshop 25 January 2005 4
Slide 5: Agenda
AGENDA THE MOVE TO IAS ISOBEL SHARP, DELOITTE BRITISH LAND AND IAS LUCINDA BELL, HEAD OF TAX & ACCOUNTING SIMON CARTER, TREASURY EXECUTIVE MARC FURLONGER, SENIOR ACCOUNTANT INDICATIVE EFFECTS OF IAS LUCINDA BELL, HEAD OF TAX & ACCOUNTING Q&A IAS Workshop 25 January 2005 5
Slide 6: Agenda
AGENDA THE MOVE TO IAS ISOBEL SHARP, DELOITTE BRITISH LAND AND IAS Lucinda Bell, Head of Tax & Accounting Simon Carter, Treasury Executive Marc Furlonger, Senior Accountant INDICATIVE EFFECTS OF IAS Lucinda Bell, Head of Tax & Accounting Q&A IAS Workshop 25 January 2005 6
Slide 7: Standard Setting Circa 2000
STANDARD SETTING CIRCA 2000 Asia crisis – blame on accounting The old International Accounting Standards Committee under review The creation of a single European market IAS Workshop 25 January 2005 7
Slide 8: European Moves
EUROPEAN MOVES ECOFIN meeting – Lisbon 2000 EC Council of Ministers – IAS Regulation 2002 Applies directly to listed groups for periods beginning on or after 1 January 2005 British Land’s 1 April 2005 to 31 March 2006 period IASB standards as adopted by Europe IAS Workshop 25 January 2005
Slide 9: The Reasons
THE REASONS Part of Financial Services Action Plan Better functioning of the internal market, efficient and cost-effective capital markets, investor protection, maintenance of confidence Standards accepted internationally and truly global Hope – acceptable to SEC by 2008 IAS Workshop 25 Janu
Slide 10: The New Improved IASB
THE NEW IMPROVED IASB Began work in 2001 From 70 unpaid part-timers to 14 full-time 2005 created real pressure on work programme Big prize is movement in US post Enron, etc IASB / FASB in step (almost) Real work now starting, e.g. leasing, reporting performance, financial instruments IAS
Slide 11: Agenda
AGENDA THE MOVE TO IAS Isobel Sharp, Deloitte & Touche BRITISH LAND AND IAS LUCINDA BELL, HEAD OF TAX & ACCOUNTING Simon Carter, Treasury Executive Marc Furlonger, Senior Accountant INDICATIVE EFFECTS OF IAS Lucinda Bell, Head of Tax & Accounting Q&A Graham Roberts, Finance Director IAS Workshop 25
Slide 12: British Land Before and After IAS
BRITISH LAND BEFORE AND AFTER IAS CURRENT TREATMENT IAS TREATMENT Efficient Balance Sheet Efficient Balance Sheet Strong Cash Flows Strong Cash Flows Growing Dividend Growing Dividend IAS Workshop 25 January 2005 12
Slide 13: Key Message
KEY MESSAGE Business - Unchanged Reporting – Significant changes IAS Workshop 25 January 2005 13
Slide 14: British Land and IAS
BRITISH LAND AND IAS Key areas of change Summarise impact Reporting measures IAS Workshop 25 January 2005 14
Slide 15: Template
TEMPLATE CURRENT TREATMENT Current Balance Sheet and Profit & Loss treatment IAS TREATMENT IAS Balance Sheet and Income Statement treatment IAS Workshop 25 January 2005 15
Slide 16: Template (continued)
TEMPLATE (CONTINUED) INDICATIVE IMPACT ON HALF YEAR TO SEPT 2004 All figures are indicative and unaudited All figures include share of Joint Ventures Income Statement and Balance Sheet figures are to the nearest £5m IAS Workshop 25 January 2005 16
Slide 17: Areas of Particular Focus
AREAS OF PARTICULAR FOCUS Contingent Tax Debt and Derivatives Property and Leasing Other issues IAS Workshop 25 January 2005 17
Slide 18: Areas of Particular Focus
AREAS OF PARTICULAR FOCUS Contingent Tax Debt and Derivatives Property and Leasing Other issues IAS Workshop 25 January 2005 18
Slide 19: Contingent Tax
CONTINGENT TAX CURRENT TREATMENT Contingent tax disclosed, but not recognised IAS TREATMENT Recognise contingent tax on property and other valuations The deferred tax recognised in the period is charged or credited to the Income Statement IAS Workshop 25 January 2005 19
Slide 20: Contingent Tax: Impact
CONTINGENT TAX: IMPACT INDICATIVE IMPACT ON HALF YEAR TO SEPT 2004 Reduce net assets – 2004/5 H1 £810m increased deferred tax provision Reduce profits – 2004/5 H1 £85m increased deferred tax charge See Appendix page 57 for reconciliation of IAS to UK GAAP contingent tax at 30 Sept 2004 IAS Works
Slide 21: Example: Sale of the Swiss Centre
EXAMPLE: SALE OF THE SWISS CENTRE Accounting impact will not be what we pay Capital gain ¼ of 30 Sept 2004 provision IAS Workshop 25 January 2005 21
Slide 22: Agenda
AGENDA THE MOVE TO IAS Isobel Sharp, Deloitte & Touche BRITISH LAND AND IAS Lucinda Bell, Head of Tax & Accounting SIMON CARTER, TREASURY EXECUTIVE Marc Furlonger, Senior Accountant INDICATIVE EFFECTS OF IAS Lucinda Bell, Head of Tax & Accounting Q&A Graham Roberts, Finance Director IAS Workshop 25
Slide 23: Areas of Particular Focus
AREAS OF PARTICULAR FOCUS Contingent Tax Debt and Derivatives Property and Leasing Other issues IAS Workshop 25 January 2005 23
Slide 24: Debt and Derivatives
DEBT AND DERIVATIVES IAS SUMMARY Minimal impact on profits All British Land derivatives qualify as “effective” hedges Majority of debt held at nominal value rather than market value IAS Workshop 25 January 2005 24
Slide 25: Interest Rate Management
INTEREST RATE MANAGEMENT British Land maintains around 85% of debt at fixed rates Fixed and floating debt raised from variety of sources Interest rate swaps used to hedge floating rate debt IAS Workshop 25 January 2005 25
Slide 26: Example: £100m 5 Year Facility Swapped to Fix
EXAMPLE: £100M 5 YR FACILITY SWAPPED TO FIX Cash flow £m 10 8 6 Swap 4 2 0 Year (2) (4) Loan (6) (8) (10) 1 2 3 4 5 IAS Workshop 25 January 2005 26
Slide 27: Accounting for Derivatives
ACCOUNTING FOR DERIVATIVES All derivatives at fair value on Balance Sheet under IAS All British Land derivatives qualify as “effective” hedges Movements in fair value through Reserves not Income Statement IAS Workshop 25 January 2005 27
Slide 28: Changes in Interest Rates
CHANGES IN INTEREST RATES When RATES DERIVATIVE VALUE NET ASSETS RATES DERIVATIVE VALUE NET ASSETS But … No impact on profits IAS Workshop 25 January 2005 28
Slide 29: Debt and Derivatives
DEBT AND DERIVATIVES CURRENT TREATMENT Effective derivatives not recorded on Balance Sheet All debt at nominal value rather than market value NB: Market value of debt and derivatives disclosed IAS TREATMENT Mark to market for derivatives on Balance Sheet Majority of debt at nominal value rat
Slide 30: Debt and Derivatives: Impact
DEBT AND DERIVATIVES: IMPACT INDICATIVE IMPACT ON HALF YEAR TO SEPT 2004 Minimal impact on profits Impacts net assets – 2004/5 H1 £15m decrease See Appendix page 58 for reconciliation of derivative net asset impact IAS Workshop 25 January 2005 30
Slide 31: Agenda
AGENDA THE MOVE TO IAS Isobel Sharp, Deloitte & Touche BRITISH LAND AND IAS Lucinda Bell, Head of Tax & Accounting Simon Carter, Treasury Executive MARC FURLONGER, SENIOR ACCOUNTANT INDICATIVE EFFECTS OF IAS Lucinda Bell, Head of Tax & Accounting Q&A Graham Roberts, Finance Director IAS Workshop 25
Slide 32: Areas of Particular Focus
AREAS OF PARTICULAR FOCUS Contingent Tax Debt and Derivatives Property and Leasing Other issues IAS Workshop 25 January 2005 32
Slide 33: Investment Properties
INVESTMENT PROPERTIES CURRENT TREATMENT Held at market value Revaluation gains/(losses) shown as a reserve movement¹ IAS TREATMENT Held at market value Revaluation gains/(losses) shown in Income Statement ¹ Also shown in the Statement of Total Recognised Gains and Losses (STRGL) IAS Workshop
Slide 34: Investment Properties: Impact
INVESTMENT PROPERTIES: IMPACT INDICATIVE IMPACT ON HALF YEAR TO SEPT 2004 Revaluation gains/(losses) shown in Income Statement – 2004/5 H1 £385m gain reallocated to income from reserves No impact on net assets IAS Workshop 25 January 2005 34
Slide 35: Development Properties
DEVELOPMENT PROPERTIES CURRENT TREATMENT Held at cost (or market value, if lower) NB: Revaluation gains added back for “adjusted NAV” per share IAS TREATMENT Held at market value Investment properties being redeveloped still treated as investment properties Other development properties reval
Slide 36: Development Properties: Impact
DEVELOPMENT PROPERTIES: IMPACT INDICATIVE IMPACT ON HALF YEAR TO SEPT 2004 Increase profits – 2004/5 H1 £10m Small impact on net assets – 2004/5 H1 £25m increase in book value of development properties British Land’s “adjusted NAV” already includes developments at market value IAS Workshop 25
Slide 37: Tenant Incentives
TENANT INCENTIVES CURRENT TREATMENT Tenant incentives amortised to first open market rent review IAS TREATMENT Tenant incentives amortised over lease term (or tenant’s first right to break) IAS Workshop 25 January 2005 37
Slide 38: Tenant Incentives: Impact
TENANT INCENTIVES: IMPACT INDICATIVE IMPACT ON HALF YEAR TO SEPT 2004 Net rents – 2004/5 H1 £5m increase Revaluation surplus – 2004/5 H1 £5m decrease No net impact on profits or net assets IAS Workshop 25 January 2005 38
Slide 39: Other Issues
OTHER ISSUES Tenant leases Head leases Joint Ventures Dividends Negative goodwill IAS Workshop 25 January 2005 39
Slide 40: Other Issues: Leases
OTHER ISSUES: LEASES All leases reviewed for requirements of IAS TENANT All British Land properties will be treated as operating leases LEASES No impact on Balance Sheet or Income Statement Ground rents on leasehold properties capitalised as financial liability HEAD Increases 2004/5 H1 inv
Slide 41: Other Issues: Joint Ventures
OTHER ISSUES: JOINT VENTURES No change in consolidation method under IAS BALANCE SHEET Consolidated using equity method JV profit after tax shown in British Land’s pre-tax profit as one line INCOME STATEMENT On conversion to IAS - the amounts currently included separately in the profit & los
Slide 42: Other Issues: First-Time Adoption
OTHER ISSUES: FIRST-TIME ADOPTION Proposed dividend not recognised until approved DIVIDENDS Net assets increase by £25m for half year Negative Goodwill not recognised under IAS NEGATIVE GOODWILL One-off increase to net assets of £35m IAS Workshop 25 January 2005 42
Slide 43: Agenda
AGENDA THE MOVE TO IAS Isobel Sharp, Deloitte & Touche BRITISH LAND AND IAS Lucinda Bell, Head of Tax & Accounting Simon Carter, Treasury Executive Marc Furlonger, Senior Accountant INDICATIVE EFFECTS OF IAS LUCINDA BELL, HEAD OF TAX & ACCOUNTING Q&A Graham Roberts, Finance Director IAS Workshop 25
Slide 44: Profit After Tax: Net Indicative Effects
PROFIT AFTER TAX: NET INDICATIVE EFFECTS Half year to 30 Sept 2004 £m Current treatment 66 Revaluations gains 395 Contingent tax (85) Other (5) 305 IAS treatment 371 IAS Workshop 25 January 2005 44
Slide 45: Income Statement: Detailed Indicative Effects
INCOME STATEMENT: DETAILED INDICATIVE EFFECTS 30 Sept 2004 Indicative effect of IAS on profit UK GAAP Increase/(Decrease) £m £m 213 Profit from operations + 5 34 Share of the profit of joint ventures + 50 (172) Net interest payable + 10 5 Profit on property trading and fixed assets - (5) - Net valua
Slide 46: Reporting: Earnings Measure
REPORTING: EARNINGS MEASURE Industry discussion on earnings performance measures Earnings Before Gains on Asset Revaluations and Disposals (EBGARD) Strip out related tax effects Similar to current underlying profit measure IAS Workshop 25 January 2005 46
Slide 47: Earnings Measures: Indicative Effects
EARNINGS MEASURES: INDICATIVE EFFECTS 30 Sept 2004 Indicative effect of IAS UK GAAP Increase/(Decrease) p p 12.7 Earnings per share¹ + 59 12.1 Underlying/EBGARD earnings per share¹ Minimal change ¹ Diluted IAS Workshop 25 January 2005 47
Slide 48: Net Assets: Net Indicative Effects
NET ASSETS: NET INDICATIVE EFFECTS As at 30 Sept 2004 £m Current treatment 5,265 Contingent tax (810) Mark to market on interest rate swaps (15) Revaluation surplus on development properties 25 Write back of – Proposed dividend 25 Write back of – Negative goodwill 35 (740) IAS treatment 4,525 IAS Wo
Slide 49: Balance Sheet: Detailed Indicative Effects
BALANCE SHEET: DETAILED INDICATIVE EFFECTS 30 Sept 2004 Indicative effect of IAS on net assets UK GAAP Increase/(Decrease) £m £m 9,730 Properties & lease incentives + 45 756 Investments in joint ventures - (85) (4,936) Net debt - (30) (106) Provisions - (710) (179) Other net assets/(liabilities) + 4
Slide 50: Reporting: Balance Sheet Measure
REPORTING: BALANCE SHEET MEASURE “Adjusted NAV” Net assets Including: • Revaluation on trading properties Excluding: • Contingent taxes and “FRS 19” provision • Fair value adjustments of debt and derivatives Similar to current adjusted NAV IAS Workshop 25 January 2005 50
Slide 51: Indicative Effects on Net Asset Value
INDICATIVE EFFECTS ON NET ASSET VALUE 30 Sept 2004 Indicative effect of IAS UK GAAP Increase/(Decrease) p p 1027 Net asset value per share¹ - (149) 1049 Adjusted net asset value per share¹ + 12 ¹ Diluted IAS Workshop 25 January 2005 51
Slide 52: Reporting Measures: Conclusion
REPORTING MEASURES: CONCLUSION Reporting – Significant changes Performance Measures – Minimal effect Business - unchanged IAS Workshop 25 January 2005 52
Slide 53: Q&A
INTERNATIONAL ACCOUNTING STANDARDS WORKSHOP Q&A IAS Workshop 25 January 2005 53
Slide 54: Appendix
APPENDIX IAS Workshop 25 January 2005 54
Slide 55: Income Statement: Indicative Effects
INCOME STATEMENT: INDICATIVE EFFECTS Contingent Debt & Investment Development Tenant JV One-off Total £m Tax Derivatives Properties Properties Incentives Reclassification items Profit from operations - - - - 5 - - 5 Share of the profit of joint (20) - 85 - - (15) - 50 ventures Net interest payable -
Slide 56: Balance Sheet: Indicative Effects
BALANCE SHEET: INDICATIVE EFFECTS Contingent Debt & Investment Development Head Dividends Negative Total £m Tax Derivatives Properties Properties Leases Goodwill Properties & lease - - - 25 20 - - 45 incentives Investments in joint (100) (5) - - - - 20 (85) ventures Net debt - (10) - - (20) - - (30)
Slide 57: Reconciliation of Contingent Tax
RECONCILIATION OF CONTINGENT TAX As at 30 Sept 2004 £m Current treatment 770 NOTES ¹ Trading properties are carried at cost in the Balance Sheet and thus to be consistent the contingent tax recognised does Tax on revaluation of trading properties (15)¹ not reflect any tax arising on the revaluation
Slide 58: Reconciliation of Derivative Net Asset Impact
RECONCILIATION OF DERIVATIVE NET ASSET IMPACT As at 30 Sept 2004 £m Group derivative market value (40) NOTES Share of Joint Venture derivative market (5) value ¹ British Land uses cross currency swaps to eliminate foreign exchange risk on US denominated debt. Under IAS, these effective swaps have mi
Slide 59: Balance Sheet: Valuation Basis
BALANCE SHEET: VALUATION BASIS UK GAAP IAS Investment properties MV MV Development properties HC1 MV Investments in joint ventures BV BV Other investments MV MV MV – Market Value Negative goodwill HC NR HC – Lower of Historic Trading properties HC1 HC1 Cost or Net Realisable Value (for Net Debt = No
Slide 60: Other Areas of IAS Not Covered
OTHER AREAS OF IAS NOT COVERED Areas of IAS impact that are not covered in this Workshop due their immateriality to British Land: Accounting for share-based payments and share schemes Accounting for employees benefits and defined benefit pensions schemes Accounting for properties subject to a
Slide 61: Broadgate Refinancing
BROADGATE REFINANCING 30 Sept Effect of Annual interest saving of £12m pa £m 2004 transaction (£8m post tax) Properties 9,730 - Exceptional accounting charge against March Investments in JVs 756 - 2005 pre-tax profits estimated of £178m (£125m post tax) Net debt (4,936) (178) Virtually no effe
Slide 62: The workshop and accompanying presentation have been written in general terms and therefore cannot
The workshop and accompanying presentation have been written in general terms and therefore cannot be relied on to cover specific situations. Furthermore this presentation may contain certain “forward-looking” statements. By their nature, forward- looking statements involve risk and uncertainty beca
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