Last checked at 29 Apr 2010 17:08
Brixton Limited
(formerly Brixton plc)
Financial Statements for the year ended 31 December 2009
Board of Directors
Directors
| D.J.R. Sleath | (appointed 25 August 2009) |
| I.C. Sutcliffe | (appointed 25 August 2009) |
| I.D. Coull | (appointed 25 August 2009) |
| T.C. Wheeler | (resigned 2 March 2009) |
| D. Scotland | (resigned 24 August 2009) |
| Lady L.A.V.C. Patten | (resigned 24 August 2009) |
| M. Moran | (resigned 24 August 2009) |
| N.R.L. Fry | (resigned 24 August 2009) |
| S.C. Harris | (resigned 24 August 2009) |
| P.A. Dawson | (resigned 25 August 2009) |
| S.J. Owen | (resigned 25 August 2009) |
| S.D. Lee | (resigned 25 August 2009) |
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|
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| Secretary |
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| E.A. Blease | (appointed 25 August 2009) |
| R. Howell | (resigned 25 August 2009) |
Registered Office
234 Bath Road
Slough
Berkshire SL1 4EE
Registered in England in Wales registered number 202342
Directors' Report
The directors submit their annual report together with the audited financial statements for the year ended 31 December 2009, which were approved by the board on 29 April 2010.
Brixton Limited is exempt from the corporate governance disclosure requirements of DTR 7.1 as it is a subsidiary of SEGRO plc which complies with this rule.
Business review and principal activities
The principal business of the Group, being Brixton Limited ("the Company") and its subsidiary undertakings, within the meaning given by the Companies Act 2006, is property investment and development, together with management of its properties. A list of the Company's principal subsidiary undertakings as at 31 December 2009 is given on page 36. During the year Brixton plc was acquired by SEGRO plc and subsequently shares in Brixton plc were delisted and the name reregistered as Brixton Limited.
Investment or underlying profit before tax decreased by £23.8 million to £18.7 million as highlighted in the table below.
| | 2009 £m | 2008 £m |
| Net rental income | 64.9 | 77.4 |
| Administration expenses (excluding exceptional costs) | (4.8) | (7.2) |
| Net interest payable | (46.7) | (31.8) |
| Share of joint ventures' investment profit | 5.3 | 4.1 |
| Investment profit | 18.7 | 42.5 |
The decrease in investment profit is due principally to the reduction in capitalised interest, income lost from tenant insolvencies, the effect of empty rates and the dilution arising from property sales where the income yield on the properties sold was greater than the interest earned on the sale proceeds.
Lettings in the twelve months ended 31 December 2009 totalled 55,000 sq m creating annualised income of £6.1 million compared with £7.1m created in 2008.
Our vacancy rate (by income) was 22.1 per cent at December 2009 compared with 17.3 per cent at December 2008. The decline reflects the impact of selling the well-let Great Western Industrial Estate, Southall, and the net takebacks of 97,000 sq m of which 37 per cent relate to insolvencies with 44 per cent of that as a consequence of the insolvency of Woolworth subsidiary, Entertainment UK Limited.
The reduction in Brixton's property values resulted in an adjusted net asset value per share falling by 17.3 per cent to 187p as at 31 December 2009. Since acquisition by SEGRO on 24 August 2009 the investment property values increased by 7.1 per cent, broadly in line with the wider market.
Total Group debt was £580.1 million (2008: £876.0 million). Having made enquiries, the Directors have a reasonable expectation that the Company and the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly they continue to adopt the going concern basis in preparing the Annual Report and Accounts.
The disclosure of principal risks and uncertainties relevant to the Group is set out below.
The results for the Group show a loss after tax of £311.2 million (2008: £767.7 million). A reconciliation of the Group's loss after tax to Investment profit is shown in the table below.
|
| 2009 £m | 2008 £m |
| Loss after tax | (311.2) | (767.7) |
| Deficit on revaluation of investment properties and properties in the course of construction | 260.1 | 602.8 |
| Net deficit on revaluation of joint venture properties | 16.5 | 70.6 |
| (Gain)/loss on fair value of derivative financial instruments | (39.2) | 138.5 |
| Loss/(gain) on sale of properties and subsidiary undertakings | 41.6 | (0.1) |
| Loss on sale of joint venture investment properties | 24.4 | - |
| Other interest income | (1.7) | (0.5) |
| Exceptional administration expenses | 22.8 | - |
| Deferred tax on investment properties | - | (1.1) |
| Current tax | 5.4 | - |
| Investment profit | 18.7 | 42.5 |
Future outlook
The occupier market remains challenging throughout the UK and is likely to recover only after we have seen a pick up in the wider UK economy. With significant levels of voids across the wider market, this in turn is likely to keep downward pressure on rents and incentives for some time to come. Staying close to our customers and maintaining retention levels, therefore, remains a priority. We expect new letting enquiries to remain depressed during 2010, but we also expect to maintain our high conversion rates by remaining both flexible and competitive on lease terms. As and when markets recover, our portfolio offers substantial upside potential.
We expect the investment market to remain active, at least through the first half of the year, but weakness in the occupier market may affect asset values further out, where the differential between fully-let prime stock and assets with vacancies may provide opportunities for selective investment. We remain well-placed to take advantage of investment opportunities and will continue to be selective about their quality and location.
The greatest near-term opportunity is from letting up vacant space. The current level of vacancy within the portfolio represents a potential of £23 million per annum of additional rent and whilst it is not realistic to expect all of this space to become occupied, there is an added incentive of avoiding empty property costs.
Principal risks and uncertainties
The Group, as a subsidiary of SEGRO plc, is managed on a unified basis as part of the SEGRO plc group. The principal risks faced by the Group reflect those of the SEGRO plc group and the table below outlines the principal risks and uncertainties faced by the SEGRO plc group in delivering its strategic priorities in 2010.
Strategic risks
- Changes in the macro-economic environment;
- Accurately evaluating and driving value from opportunities in new and existing territories;
- Recycling assets in a constantly changing economic environment; and
- Ability to innovate and adapt to changing customer needs.
Financial risks:
- Breaching of covenants leading to cancellation of credit facilities;
- Cost and availability of borrowing; and
- Tax risks and REIT compliance.
Real estate and development risks:
- Impact of customer default, reduced demand and oversupply;
- Property obsolescence;
- Inability to acquire or dispose of assets at attractive prices;
- Market conditions impacting valuation movements;
- Reduced returns from development projects; and
- Holding excess or insufficient development land to meet demand.
Operational risks:
- Health and safety incidents;
- Environmental damage or failure to meet sustainability targets;
- Business or IT system disruption;
- Failure to attract, retain and motivate key employees;
- Change or breach of regulatory requirements; and
- Supplier or business partner being unable or unwilling to support the Group.
These risks and uncertainties are described in greater detail together with mitigating factors on pages 35 to 38 of the SEGRO plc Annual Report and Accounts.
Key performance indicators ("KPIs")
| | 2009 | 2008 |
| Total property return (%) | (18.9) | (27.6) |
| Vacancy rate by rental value (%) | 22.1 | 17.3 |
| Investment profit (£m) | 18.7 | 42.5 |
| Loss before tax (£m) | 305.8 | 768.8 |
| Portfolio value (£m) | 1,212.5 | 1,788.2 |
| Adjusted diluted net asset value per share (p) | 187 | 226 |
Results and dividends
The results for the year ended 31 December 2009 are set out on page 8. No dividends were paid during the year (2008: £50.2 million).
Directors
The present directors of the Company all of whom served throughout the year, unless otherwise stated, are as shown on page 2.
Directors' indemnities
Directors of the Company are entitled to be indemnified by the Company against any liability, loss or expenditure incurred in connection with their duties, powers or office, to the extent permitted by statute.
The contracts of employment of the Directors of the Company do not provide for compensation for the loss of office that occurs because of takeover.
Charitable, political and other donations
During the year the Group made charitable contributions of £231,000 (2008: £157,000).
Payment of suppliers
The Group maintains a policy of paying suppliers promptly in accordance with the terms and conditions agreed with them. At year end its trade creditors represented 2 days (2008: 22 days purchase).
Auditors and disclosure of information to auditors
As a result of the acquisition Deloitte LLP were appointed as auditors of the Group, taking over from Ernst & Young LLP. Deloitte LLP have indicated their willingness to be reappointed for another term and appropriate arrangements have been put in place for them to be deemed reappointed as auditors in the absence of an Annual General Meeting.
So far as each director is aware, there is no relevant audit information (that is, information needed by the Company's auditors in connection with preparing their report) of which the Company's auditors are unaware. Each director has taken all the steps that he ought to have taken in his duty as a director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of S418 of the Companies Act 2006.
By order of the Board
Elizabeth Blease
General Council and Group Company Secretary
Directors' Responsibilities
The directors are responsible for preparing the Annual Report, Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each financial year. The directors are required by the IAS Regulation to prepare the group financial statements under IFRSs (IFRSs) as adopted by the European Union. The group financial statements are also required by law to be properly prepared in accordance with the Companies Act 1985 and Article 4 of the IAS Regulation.
International Accounting Standard 1 requires that IFRS financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, directors are also required to:
- properly select and apply accounting policies;
- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and
- provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance.
The directors have elected to prepare the parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). The parent company financial statements are required by law to give a true and fair view of the state of affairs of the company. In preparing these financial statements, the directors are required to:
- select suitable accounting policies and then apply them consistently:
- make judgements and estimates that are reasonable and prudent;
- state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
- prepare the financial statement on the going concern basis unless it is inappropriate to presume that the company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Responsibility statement
We confirm that to the best of our knowledge:
- the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; and
- the management report, which is incorporated into the directors' report, includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.
By order of the Board
ID Coull, DJR Sleath,
Chief Executive Finance Director
29 April 2010 29 April 2010
Independent Auditors' Report to the Members of Brixton Limited
We have audited the Group financial statements of Brixton Limited for the year ended 31 December 2009 which comprise the Group Income Statement, Group Statement of Comprehensive Income, Group Balance Sheet, Group Cash Flow Statement, Group Statement of Changes in Equity and the related notes 1 to 26. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group and company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the financial statements:
- give a true and fair view of the state of the Group's affairs as at 31 December 2009 and of the Group's loss for the year then ended;
- have been properly prepared in accordance with IFRSs as adopted by the European Union; and
- have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
- adequate accounting records have not been kept by the Group, or returns adequate for our audit have not been received from branches not visited by us; or
- the financial statements are not in agreement with the accounting records and returns; or
- certain disclosures of directors' remuneration specified by law are not made; or
- we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the parent company financial statements of Brixton Limited for the year ended 31 December 2009.
Mark Beddy (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
London, UK
29 April 2010
Group Income Statement
Year ended 31 December
|
| Notes | 2009 £m |
| 2008 £m |
| Gross rental income |
| 78.5 |
| 89.8 |
| Property outgoings |
| (13.6) |
| (12.4) |
| Net rental income | 2 | 64.9 |
| 77.4 |
| Administration expenses |
| (4.8) |
| (7.2) |
| Exceptional administration expenses | 5 | (22.8) |
| - |
| Operating profit before net loss on investment properties and investment properties in the course of construction |
| 37.3 |
| 70.2 |
| (Loss)/gain arising on sale of properties and subsidiary undertakings | 3 | (41.6) |
| 0.1 |
| Net deficit on valuation of investment properties and investment properties in the course of construction |
| (260.1) |
| (602.8) |
| Net loss on investment properties and investment properties in the course of construction |
| (301.7) |
| (602.7) |
| Operating loss | 4 | (264.4) |
| (532.5) |
| Interest receivable and other finance income | 6 | 0.2 |
| 0.6 |
| Other interest income | 6 | 1.7 |
| 0.5 |
| Interest payable and other finance costs | 7 | (46.9) |
| (32.4) |
| Change in fair value of derivative financial instruments | 6/7 | 38.9 |
| (138.3) |
| Share of losses of joint ventures | 13 | (35.3) |
| (66.7) |
|
|
|
|
|
|
|
|
|
|
|
|
| Loss before tax |
| (305.8) |
| (768.8) |
| Current tax |
| (5.4) |
| - |
| Deferred tax |
| - |
| 1.1 |
| Total tax (charge)/credit | 8 | (5.4) |
| 1.1 |
| Loss for the financial year attributable to equity shareholders |
| (311.2) |
| (767.7) |
|
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|
|
|
|
Group Statement of Comprehensive Income
Year ended 31 December
| | 2009 £m | 2008 £m |
| Loss for the year | (311.2) | (767.7) |
| Other comprehensive income |
|
|
| Actuarial gains/(losses) on defined benefit pension schemes | 2.5 | (8.4) |
| Net gain/(loss) recognised directly in equity | 2.5 | (8.4) |
| Total comprehensive loss for the financial year | (308.7) | (776.1) |
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Group Balance Sheet
As at 31 December
|
| Notes | 2009 £m | 2008 £m |
| Non-current assets |
|
|
|
| Goodwill | 10 | - | 1.5 |
| Investment properties and investment properties in the course of construction | 11 | 1,128.4 | 1,604.9 |
| Plant and equipment | 12 | 0.1 | 1.0 |
| Investments in joint ventures | 13 | 39.0 | 74.6 |
|
|
| 1,167.5 | 1,682.0 |
| Current assets |
|
|
|
| Trading properties | 14 | 1.8 | - |
| Trade and other receivables | 14 | 23.6 | 29.1 |
| Cash and cash equivalents | 15 | 5.4 | 13.8 |
|
|
| 30.8 | 42.9 |
| Total assets |
| 1,198.3 | 1,724.9 |
| Current liabilities |
|
|
|
| Trade and other payables | 16 | (41.5) | (43.1) |
| Borrowings | 17 | (17.3) | - |
| Corporation tax liabilities |
| (17.9) | (12.5) |
|
|
| (76.7) | (55.6) |
| Non-current liabilities |
|
|
|
| Borrowings | 17 | (562.8) | (876.0) |
| Derivative financial instruments | 18 | - | (173.2) |
| Deferred tax provision | 19 | (4.6) | (4.6) |
| Net retirement benefit obligation | 23 | (4.7) | (7.4) |
|
|
| (572.1) | (1,061.2) |
| Total liabilities |
| (648.8) | (1,116.8) |
| Net assets |
| 549.5 | 608.1 |
| Equity |
|
|
|
| Share capital | 20 | 74.2 | 67.9 |
| Share premium account |
| 337.2 | 93.4 |
| Capital redemption reserve |
| 0.1 | 0.1 |
| Retained earnings |
| 138.0 | 446.7 |
| Total equity |
| 549.5 | 608.1 |
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Approved by the Board of Directors and authorised for issue on 29 April 2010 and signed on its behalf by:
DJR Sleath Director
Group Cash Flow Statement
Year ended 31 December
|
| Notes | 2009 £m | 2008 £m |
| Cash flows from operating activities |
|
|
|
| Operating loss |
| (264.4) | (532.5) |
| Dividends received from joint ventures |
| 4.5 | 4.4 |
| Adjustments for non-cash items: |
|
|
|
| Revaluation deficit on investment properties and investment properties in the course of construction |
| 260.1 | 602.8 |
| Loss/(gain) on sale of investment properties and subsidiary undertakings |
| 41.6 | (0.1) |
| Depreciation, amortisation and other non-cash movements |
| (4.7) | 2.5 |
| Other movements arising from operations: |
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|
|
| Decrease/(increase) in trade and other receivables |
| 5.4 | (1.5) |
| (Decrease)/increase in trade and other payables |
| (2.2) | 1.4 |
| Net cash generated from operations |
| 40.3 | 77.0 |
| Interest received from third parties |
| 0.2 | 0.3 |
| Interest paid to third parties |
| (43.2) | (43.8) |
| Corporation tax paid on REIT entry charge |
| - | (21.2) |
| Net cash flows from operating activities |
| (2.7) | 12.3 |
| Cash flows from investing activities |
|
|
|
| Acquisition of property and property development |
| (6.9) | (20.0) |
| Sale of group undertakings |
| 58.1 | (0.2) |
| Sales of properties |
| 126.7 | 0.3 |
| Capital expenditure on plant and equipment |
| (0.2) | (0.4) |
| Proceeds from disposals of plant and equipment |
| 0.4 | 0.1 |
| Loans advanced to joint ventures |
| (4.2) | (0.5) |
| Net cash flows from investing activities |
| 173.9 | (20.7) |
| Cash flows from financing activities |
|
|
|
| Net proceeds from the issue of share capital |
| 250.1 | 0.3 |
| Repayment of derivatives |
| (134.3) | - |
| Repayments of borrowings |
| (765.7) | (95.2) |
| New bank loans raised |
| 470.3 | 161.0 |
| Equity dividends paid |
| - | (50.2) |
| Net cash flows from financing activities |
| (179.6) | 15.9 |
| Net (decrease)/increase in cash and short term deposits |
| (8.4) | 7.5 |
| Opening cash and short term deposits | 21 | 13.8 | 6.3 |
| Closing cash and short term deposits | 21 | 5.4 | 13.8 |
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Statement of Changes in Equity
Year ended 31 December
|
Group | Balance 1 January 2009 £m | Retained Loss £m | Items taken directly to reserves £m | Shares Issued £m | Other £m | Dividend Paid £m | Transfers £m | Balance 31 December 2009 £m |
| Ordinary share capital | 67.9 | - | - | 6.3 | - | - | - | 74.2 |
| Share premium | 93.4 | - | - | 243.8 | - | - | - | 337.2 |
| Capital redemption reserve | 0.1 | - | - | - | - | - | - | 0.1 |
| Retained earnings | 446.7 | (311.2) | 2.5 | - | - | - | - | 138.0 |
| Total equity attributable to equity shareholders | 608.1 | (311.2) | 2.5 | 250.1 | - | - | - | 549.5 |
| Group | Balance 1 January 2008 £m | Retained Loss £m | Items taken directly to reserves £m | Shares Issued £m | Other £m | Dividend Paid £m | Transfers £m | Balance 31 December 2008 £m |
| Ordinary share capital | 67.7 | - | - | 0.2 | - | - | - | 67.9 |
| Share premium | 153.9 | - | - | 0.4 | - | - | (60.9) | 93.4 |
| Capital redemption reserve | 0.1 | - | - | - | - | - | - | 0.1 |
| Retained earnings | 1,210.9 | (767.7) | (8.4) | - | 1.2 | (50.2) | 60.9 | 446.7 |
| Total equity attributable to equity shareholders | 1,432.6 | (767.7) | (8.4) | 0.6 | 1.2 | (50.2) | - | 608.1 |
Notes to the Accounts
1. Significant accounting policies
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), IFRIC Interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have also been prepared in accordance with IFRS adopted by the European Union and therefore the Group's financial statements comply with Article 4 of the EU IAS Regulations.
The financial statements have been prepared on a going concern basis.
The Directors have taken advantage of the exemption offered by Section 408 of the Companies Act 2006 not to present a separate income statement for the Parent Company. The financial statements have been prepared under the historical cost convention as modified by the revaluation of properties, available-for-sale investments and the financial assets and liabilities held for trading. These financial statements are presented in sterling since that is the currency in which the majority of the Group's transactions are denominated.
Management believes that the judgements, estimates and associated assumptions used in the preparation of the financial statements are reasonable, however actual results may differ from these estimates. Critical judgements, where made, are disclosed within the relevant section of the financial statements in which such judgements have been applied. The key estimates and assumptions relate to the property valuations applied by the Group's property valuers, the actuarial assumptions used in calculating the Group's retirement benefit obligations and valuation of share options granted under share-based payment schemes are described in more detail in the accounting policy notes below, or the applicable note to the financial statements.
During 2009 the Group has adopted the IASB's Annual Improvements of IFRSs as they relate to development properties, IFRS 8 'Operating Segments' and IAS 1 'Presentation of Financial Statements' (revised 2007).
IAS 1 (revised 2007) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and statement of comprehensive income. As a result, a statement of changes in equity for each period is presented.
The amendments to IFRS 7 'Financial Instruments: Disclosures' expand the disclosures required in respect of fair value measurements and liquidity risk.
The Group also adopted IAS 23 (revised 2007), Borrowing Costs, IFRS 8 Operating Segments and IFRIC 15, Agreements for the Construction of Real Estate, none of which materially impact the current or prior year reported results.
The following published standards and interpretations to existing standards that are not yet effective (and in some cases have not been adopted by the EU) have not been adopted early by the Group:
IFRS 1 (amended)/IAS 27 (amended), Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate;
IFRS 2 (amended), Share-based Payment - Vesting Conditions and Cancellations;
IFRS 3 (revised 2008), Business Combinations;
IAS 27 (revised 2008), Consolidated and Separate Financial Statements;
IAS 28 (revised 2008), Investments in Associates;
IAS 39 (amended), Financial Instruments: Recognition and Measured Eligible Hedged Items;
IFRIC 12, Service Concession Arrangements;
IFRIC 14, (amended), Prepayments of a Minimum Funding Requirement;
IFRIC 17, Distributions of Non-cash Assets to Owners;
IFRIC 18, Transfer of Assets from Customers;
IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments; and
Improvements to IFRSs (April 2009).
The Directors do not expect that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial statements of the Group except for the treatment of acquisition of subsidiaries and associates when IFRS 3 (revised 2008), IAS 27 (revised 2008) and IAS 28 (revised 2008) come into effect for business combinations for which the acquisition date is on or after 1 January 2010.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company and the Group, plus the Group's share of the results and net assets of the joint ventures. The Company holds investments in subsidiaries and joint ventures at cost. A joint venture is a contract under which the Group and other parties undertake an activity or invest in an entity, under joint control. The Group uses equity accounting for such entities, carrying its investment at cost plus the movement in the Group's share of net assets after acquisition, less impairment.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the income statement.
The interest of minority shareholders in the acquiree is initially measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
Investment properties
These properties comprise freehold and leasehold properties and are first measured at cost (including transaction costs), then revalued to market value at each reporting date by professional valuers. Leasehold properties are shown gross of the leasehold payables (which are accounted for as finance lease obligations). Valuation gains and losses in a period are taken to the income statement. As the Group uses the fair value model as per IAS 40, no depreciation is provided.
Development properties
These comprise properties acquired to be developed for future use as investment properties and are initially measured at cost including capitalised interest where applicable. Development properties are fair valued on the same basis as investment properties with revaluation movements being booked in the income statement.
Trading properties
These are properties developed and held for sale, and are shown at the lower of cost and net realisable value. Cost includes direct expenditure and capitalised interest.
Property purchases and sales
Property purchases and sales are recognised on the date of unconditional exchange, or, where exchange is conditional, on the date that the conditions have been satisfied.
Leases
Leases where substantially all of the risks and rewards of ownership are transferred to the lessee, are classified as finance leases. All others are deemed operating leases. Under operating leases, properties leased to tenants are accounted for as investment properties. In cases where only the buildings part of a property lease qualifies as a finance lease, the land is shown as an investment property.
Revenue
Revenue includes rent, income from service charges and proceeds from the sale of trading properties.
Rental Income
This includes rentals from properties let as operating leases are recognised on a straight-line basis over the lease term. Lease incentives and initial costs to arrange leases are capitalised, then amortised on a straight-line basis over the lease term. For properties let as finance leases, 'minimum lease receipts' are apportioned between finance income and principal repayment, but receipts that were not fixed at lease inception (e.g. rent review rises), are booked as income when earned. Surrender premiums received in the period are included in rental income.
Service charges and other recoveries from tenants
These include income in relation to service charges, directly recoverable expenditure and management fees. Revenue from services is recognised by reference to the state of completion of the relevant services provided at the reporting date.
Financial instruments
Borrowings
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the income statement over the period of the borrowings, using the effective interest rate method.
Gross borrowing costs relating to direct expenditure on properties under development or undergoing major refurbishment are capitalised. The interest capitalised is calculated using the Group's weighted average cost of borrowing. Interest is capitalised as from the commencement of the development work until the date of practical completion. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted.
Derivative financial instruments
The Group uses derivatives (especially interest rate swaps) in managing interest rate risk, and does not use them for trading. They are recorded, and subsequently revalued, at fair value, with revaluation gains or losses being immediately taken to the income statement. The exception is for derivatives qualifying as hedges, when the treatment of the gain/loss depends upon the item being hedged.
Trade and other receivables and payables
Trade and other receivables are booked at fair value. An impairment provision is created where there is objective evidence that the Group will not be able to collect in full. Trade and other payables are stated at cost, since cost is a reasonable approximation of fair value.
Pensions - Defined benefit schemes
The schemes' assets are measured at fair value, their obligations are calculated at discounted present value, and any net surplus or deficit is recognised in the balance sheet. Operating and financing costs are charged to the income statement, with service costs spread systematically over employees' working lives, and financing costs expensed in the period in which they arise. Actuarial gains and losses are recognised through equity in the statement of comprehensive income. Where the actuarial valuation of the scheme demonstrates that the scheme is in surplus, the recognisable asset is limited to that for which the Group can benefit in the future. Professional actuaries are used in relation to defined benefit schemes and the assumptions made are outlined in note 23.
Share-based payments
The cost of granting share options and other share-based remuneration is recognised in the income statement at their fair value at grant date. They are expensed straight-line over the vesting period, based on estimates of the shares or options that will eventually vest. Charges are reversed if it appears that performance will not be met. Options are valued using the Black-Scholes model.
2 Net rental income
The Group engages in only one class of business activity, being industrial property investment. All operations are continuing and are located in the UK. All properties are industrial in nature.
Net rental income
|
| 2009 £m | 2008 £m |
| Gross rental income | 78.5 | 89.8 |
| Service charge and other income | 13.9 | 9.8 |
| Gross property income | 92.4 | 99.6 |
| Property outgoings | (27.5) | (22.2) |
| Net rental income | 64.9 | 77.4 |
|
|
|
|
Property outgoings includes £nil (2008: £0.3m) in respect of investment properties that did not generate rental income during the year.
3 (Loss)/gain arising on sale of properties and subsidiary undertakings
The (loss)/gain arising on sale of properties and subsidiary undertakings is calculated by reference to book value at the date of sale. In 2009 the loss arising on sale included an exceptional goodwill impairment charge of £1.5m for goodwill attached to properties disposed (2008: £nil).
4 Operating loss
Operating loss is stated after charging/(crediting) the following:
|
| 2009 £m | 2008 £m |
| Staff costs (see note 5) | 7.8 | 10.2 |
| Less own work capitalised | (0.8) | (2.6) |
|
| 7.0 | 7.6 |
| Depreciation | 0.7 | 0.5 |
| Goodwill impairment | 1.5 | - |
| Operating lease payments | 0.8 | 0.8 |
| Auditors' remuneration for audit services - Group | - | 0.2 |
| - Subsidiaries | - | 0.2 |
| - Other | 1.0 | - |
|
|
|
|
As discussed in more detail in the Directors' Report the auditors changed in the year. Details of amounts paid to former auditors Ernst & Young LLP are given in the table above.
Amounts payable to Ernst & Young LLP during the year in respect of non-audit services totalled £1.0m (2008: £67,000), which related to services provided on capital raisings and the sale of the Brixton plc to SEGRO plc.
Audit fees payable to Deloitte LLP were paid by SEGRO plc, the fee attributable to the Group was £135,000 and subsidiaries £125,000. No other fees have been paid to Deloitte LLP since they became auditors.
5 Administration expenses
5(i) Total administration expenses
|
| 2009 £m | 2008 £m |
| Exceptional administration expenses | 22.8 | - |
| Other | 4.8 | 7.2 |
|
| 27.6 | 7.2 |
Exceptional administration expenses relate primarily to professional fees and staff costs incurred in connection with a variety of strategic options considered by the board to provide additional financial flexibility, including potential disposals, debt renegotiations, equity raise and the eventual acquisition by SEGRO.
5(ii) Staff costs
The average number of persons employed by the Group (including Executive Directors) during the year was as follows:
|
| 2009 | 2008 |
| Property management | 35 | 45 |
| Property development | 10 | 13 |
| Administration | 27 | 30 |
|
| 72 | 88 |
The aggregate payroll costs of these persons were as follows:
|
| 2009 £m | 2008 £m |
| Wages and salaries | 6.7 | 7.1 |
| Social security costs | 0.8 | 1.2 |
| Defined contribution pension costs | 0.3 | 0.4 |
| Charge for share based payments (see note 22) | - | 1.5 |
|
| 7.8 | 10.2 |
|
|
|
|
Of the total aggregate payroll costs, staff costs of £0.8m (2008: £2.6m) were capitalised into the cost of qualifying investment properties currently being redeveloped and investment properties in the course of construction, with the remaining £7.0m (2008: £7.6m) expensed directly in the income statement, £4.6m in exceptional administrative expenses and £2.4m in other administration expenses.
5(iii) Directors' emoluments
Directors' emoluments included in the above tables totalled £4.2m (2008: £2.6m), details per table below.
|
| Basic Salary £000 | Pension allowance/ contributions £000 | Additional payment (note 1) £000 | Taxable benefits (note 2) £000 | Total 2009 £000 | Total 2008 £000 |
| Executive |
|
|
|
|
|
|
| Tim Wheeler (resigned 2 March 2009) | 565 | 198 | - | 23 | 786 | 793 |
| Steven Owen (resigned 25 August 2009) | 373 | 94 | 598 | 15 | 1,080 | 552 |
| Peter Dawson (resigned 25 August 2009) | 310 | 41 | 573 | 16 | 940 | 335 |
| Steve Lee (resigned 25 August 2009) | 245 | 36 | 390 | 17 | 688 | 296 |
| Non-executive |
|
|
|
|
|
|
| Nicholas Fry (resigned 24 August 2009) | 30 | - | - | - | 30 | 40 |
| Stephen Harris (resigned 24 August 2009) | 25 | - | - | - | 25 | 38 |
| Mark Moran (resigned 24 August 2009) | 31 | - | - | - | 31 | 36 |
| Louise Patten (resigned 24 August 2009) | 96 | - | - | - | 96 | 143 |
| David Scotland (resigned 24 August 2009) | 34 | - | - | - | 34 | 51 |
| Total | 1,709 | 369 | 1,561 | 71 | 3,710 | 2,284 |
|
|
|
|
|
|
|
|
Note 1: Additional payments relate to the settlement paid to Executive Directors upon their resignation on 25 August 2009.
Note 2: The benefits comprise the provision of a car allowance and medical insurance
6 Interest receivable and other finance income
|
| 2009 £m | 2008 £m |
| Interest receivable | 0.2 | 0.2 |
| Net financing income arising from retirement benefit schemes | - | 0.4 |
| Interest receivable and other finance income | 0.2 | 0.6 |
| Change in fair value of derivative financial instruments: |
|
|
| Fair value gains on interest rate swaps | 38.9 | - |
| Total interest receivable and other finance income | 39.1 | 0.6 |
| Other interest income (see below) | 1.7 | 0.5 |
|
|
|
|
The other interest income in 2009 of £1.7m (2008: £0.5m) relates to the profit arising on the repurchase of £257.7m nominal of the 6% 2010 bond, £5.7m nominal of the 5.25% 2015 bond and £1.0m nominal of the 6% 2019 bond.
7 Interest payable and other finance costs
|
| 2009 £m | 2008 £m |
| Interest on bank loans and overdrafts | 11.1 | 10.6 |
| Interest paid to SEGRO plc | 6.5 | - |
| Interest on bonds | 31.4 | 31.1 |
| Net financing expense arising from retirement benefit schemes | 0.4 | - |
| Interest payable | 49.4 | 41.7 |
| Less: interest capitalised | (2.5) | (9.3) |
| Interest payable and other finance costs | 46.9 | 32.4 |
| Change in fair value of derivative financial instruments: |
|
|
| Fair value losses on interest rate swaps | - | 138.3 |
| Total interest payable and other finance costs | 46.9 | 170.7 |
|
|
|
|
Interest was capitalised to 31 December 2009 using the Group's average cost of debt of 4.5% (2008: full year 4.9%).
8 Tax
|
| 2009 £m | 2008 £m |
| Amounts (charged)/credited to the income statement: |
|
|
| Current tax (charge)/credit |
|
|
| Arising in the current period | (2.8) | - |
| Adjustments in respect of prior years | (2.6) | - |
|
| (5.4) | - |
| Deferred tax credit on revaluation of investment properties | - | 1.1 |
| Total tax (charge)/credit for the year | (5.4) | 1.1 |
Factors affecting the tax (charge)/credit for the year were as follows:
|
| 2009 £m | 2008 £m |
| Tax (charge)/credit on loss before tax at UK corporation tax rate of 28% (2008: 28.5%) | 85.6 | 219.1 |
| Effect of: |
|
|
| Differences arising from taxation of chargeable gains | - | 1.1 |
| REIT tax exemption | (88.4) | (219.1) |
| Adjustment in respect of prior years | (2.6) | - |
| Total tax (charge)/credit for the year | (5.4) | 1.1 |
|
|
|
|
9 Dividends
Amounts recognised as distributions to equity shareholders in the year are as follows:
|
| 2009 £m | 2008 £m |
| Ordinary dividends |
|
|
| 2007 interim dividend declared of 4.80p per share | - | 13.0 |
| 2007 final dividend declared of 8.80p per share | - | 23.9 |
| 2008 interim dividend declared of 4.90p per share | - | 13.3 |
|
| - | 50.2 |
| Proposed final dividend of nil per share for 2009 (2008: nil per share) | - | - |
|
|
|
|
10 Goodwill
|
| 2009 £m | 2008 £m |
| Cost |
|
|
| Opening and closing balance | 22.1 | 22.1 |
| Accumulated impairment losses |
|
|
| Opening balance | (20.6) | (20.6) |
| Impairment losses for the year | (1.5) | - |
| Closing balance | (22.1) | (20.6) |
| Net carrying amount |
|
|
| At end of year | - | 1.5 |
| At start of year | - | 1.5 |
|
|
|
|
The impairment loss for 2009 comprised £1.5m (2008: £nil) arising on the disposal of investment properties and subsidiary undertakings.
11 Investment properties and investment properties in the course of construction
|
| 2009
Investment properties £m | 2009 Investment properties in the course of construction £m | 2009
Total £m | 2008
Investment properties £m | 2008 Investment properties in the course of construction £m | 2008
Total £m |
| Opening balance | 1,531.9 | 73.0 | 1,604.9 | 2,051.6 | 133.1 | 2,184.7 |
| Additions | 8.9 | 1.5 | 10.4 | 17.1 | 6.0 | 23.1 |
| Reclassification | (1.7) | 1.7 | - | 41.1 | (41.1) | - |
| Transfer to trading properties | - | (1.8) | (1.8) | - | - | - |
| Disposals | (225.0) | - | (225.0) | (0.1) | - | (0.1) |
| Deficit on valuation | (224.9) | (35.2) | (260.1) | (577.8) | (25.0) | (602.8) |
| Closing balance | 1,089.2 | 39.2 | 1,128.4 | 1,531.9 | 73.0 | 1,604.9 |
|
|
|
|
|
|
|
|
Investment properties and investment properties in the course of construction are stated at market value as at 31 December 2009 based on external valuations performed by professionally qualified valuers. In prior periods, the Group's wholly owned property portfolio was valued by King Sturge and CB Richard Ellis, however DTZ were appointed as sole external valuer of portfolio for the 31 December 2009 valuations. The valuations conform to International Valuation Standards and were arrived at by reference to market evidence of the transaction prices paid for similar properties.
12 Plant and equipment
|
| 2009 £m | 2008 £m |
| Cost |
|
|
| Opening balance | 3.3 | 3.4 |
| Additions | 0.2 | 0.4 |
| Disposals | (2.8) | (0.5) |
| Closing balance | 0.7 | 3.3 |
| Accumulated depreciation |
|
|
| Opening balance | (2.3) | (2.2) |
| Charge for the year | (0.7) | (0.5) |
| Disposals | 2.4 | 0.4 |
| Closing balance | (0.6) | (2.3) |
| Net carrying amount |
|
|
| At end of year | 0.1 | 1.0 |
| At start of year | 1.0 | 1.2 |
|
|
|
|
Plant and equipment comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Group offices.
13 Investments in joint ventures
|
| 2009 £m | 2008 £m |
| Opening balance | 74.6 | 145.2 |
| Net investment in joint ventures | 4.2 | 0.5 |
| Share of losses | (35.3) | (66.7) |
| Dividends received | (4.5) | (4.4) |
| Closing balance | 39.0 | 74.6 |
|
|
|
|
At 31 December 2009 and 2008 the Group's investments in joint ventures comprised:
|
| Joint venture % holding |
| a) The Heathrow Big Box Industrial and Distribution Fund (a UK property investment partnership with |
|
| The Prudential Assurance Company Limited) | 50% |
| b) Equiton Industrial Partnership (a UK property investment partnership with SE Ind Unit Trust |
|
| and Edger Investments Limited, a wholly owned subsidiary of The Prudential Assurance |
|
| Company Limited) | 30% |
|
|
|
On 28 September 2009 the portfolio of properties held within the Equiton Industrial Partnership was sold for a loss of £24.4 million.
The properties owned by The Heathrow Big Box Industrial and Distribution Fund were externally valued as at 31 December 2009 by CB Richard Ellis.
The Group's share of income, expenses, assets and liabilities included in the Group results are as follows:
Income statement
|
| 2009 £m | 2008 £m |
| Net rental income | 10.0 | 11.5 |
| Administration expenses | (0.2) | (0.2) |
| Net deficit on valuation of investment properties | (16.5) | (70.6) |
| Operating loss | (6.7) | (59.3) |
| Net interest payable | (4.5) | (7.2) |
| Change in fair value of derivative financial instruments | 0.3 | (0.2) |
| Loss on sale of investment properties | (24.4) | - |
| Loss before and after tax | (35.3) | (66.7) |
|
|
|
|
Balance sheet
|
| 2009 m | 2008 £m |
| Investment properties | 84.1 | 183.3 |
| Current assets | 2.3 | 4.9 |
| Total assets | 86.4 | 188.2 |
| Current liabilities | (2.3) | (112.0) |
| Non-current liabilities | (45.1) | (1.6) |
| Total liabilities | (47.4) | (113.6) |
| Group share of joint venture net assets | 39.0 | 74.6 |
|
|
|
|
The Group's share of total assets as shown in the table above includes a reduction of £10.8m (2008: £12.4m), being the Group's share of unrealised profits arising in prior years on the sale of properties into The Heathrow Big Box Industrial and Distribution Fund.
Included within non-current liabilities for the two limited partnerships are external, non-recourse loans repayable in 2012. The Group's share of these loans at 31 December 2009 is £44.2m (2008: £105.2m included in current liabilities).
14 Trade and other receivables
|
| 2009 £m |
| 2008 £m |
| Current assets |
|
|
|
| Trading properties | 1.8 |
| - |
| Rent and sundry receivables | 7.0 |
| 8.7 |
| Prepayments and accrued income | 16.6 |
| 20.4 |
| Trade and other receivables | 23.6 |
| 29.1 |
|
| 25.4 |
| 29.1 |
|
|
|
|
|
The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management, based on prior experience and their assessment of the current economic environment.
|
| 2009 £m | 2008 £m |
| Analysis of rent and sundry receivables |
|
|
| Trade receivables | 7.8 | 9.2 |
| Provision for doubtful trade receivables | (0.8) | (0.5) |
|
| 7.0 | 8.7 |
|
|
|
|
|
| 2009 £m | 2008 £m |
| Rent and sundry receivables overdue are as follows: |
|
|
| Up to 30 days | 5.9 | 7.8 |
| 31 to 60 days | 0.2 | 0.2 |
| 61 to 90 days | - | - |
| Over 90 days | 0.7 | 0.7 |
| Total overdue | 6.8 | 8.7 |
| Amounts not yet due | 0.2 | - |
| Closing balance | 7.0 | 8.7 |
|
|
|
|
15 Cash and cash equivalents
|
| 2009 £m | 2008 £m |
| Cash at bank | 2.0 | 0.5 |
| Short term deposits | 3.4 | 13.3 |
|
| 5.4 | 13.8 |
|
|
|
|
As at 31 December 2009 £nil (2008: £13.0m) was held in a deposit account as collateral under the terms of certain derivative contracts. Interest was received on this account at overnight deposit rates.
16 Trade and other payables
|
| 2009 £m | 2008 £m |
| Current liabilities |
|
|
| Accruals and rent in advance | 36.0 | 31.8 |
| Other payables | 3.3 | 5.8 |
| Other taxes | 2.2 | 5.5 |
|
| 41.5 | 43.1 |
|
|
|
|
17 Borrowings
|
| 2009 £m | 2008 £m |
| Unsecured |
|
|
| 6% Bonds 2010 (nominal £17m) | 17.3 | 274.6 |
| 5.25% Bonds 2015 (nominal £139m) | 138.7 | 144.4 |
| 6% Bonds 2019 (nominal £209m) | 208.8 | 209.7 |
| Amounts owed to SEGRO plc | 215.3 | - |
| Sterling bank loans and overdrafts | - | 247.3 |
| Total unsecured | 580.1 | 876.0 |
| Total borrowings: |
|
|
| Falling due after more than one year | 562.8 | 876.0 |
|
| 2009 £m | 2008 £m |
| Repayment analysis |
|
|
| Within one year | 17.3 | - |
| One to two years | - | 376.9 |
| Two to three years | 215.3 | 30.0 |
| Three to four years | - | 115.0 |
| Four to five years | - | - |
| Five to ten years | 138.7 | 144.4 |
| Ten to fifteen years | 208.8 | 209.7 |
|
| 580.1 | 876.0 |
|
|
|
|
During the year the Group repurchased bonds in the market as detailed in note 6.
|
| 2009 £m | 2008 £m |
| Interest rate profile (all sterling) |
|
|
| Fixed/capped | 580.1 | 638.7 |
| Floating | - | 237.3 |
|
| 580.1 | 876.0 |
The weighted average interest rate on Group borrowings as at 31 December 2009 was as follows:
|
| 2009 % | 2008 % |
| Fixed/capped rate borrowings | 6.1 | 5.0 |
| On all borrowings | 6.1 | 4.5 |
As at 31 December 2009, the weighted average period for which fixed/capped rate borrowings were fixed/capped was 6 years (2008: 11 years).
The interest rate for variable rate borrowings is set by reference to LIBOR.
Following the take over of Brixton Limited by SEGRO plc all derivative contracts were closed out and all borrowing facilities were cancelled.
Capital disclosures
The Group's Capital Structure is defined as total equity (comprising called-up share capital, share premium, capital redemption reserve, revaluation reserve and retained earnings) and net borrowings.
Maturity of undrawn committed borrowing facilities
|
| 2009 £m | 2008 £m |
| Expiring: |
|
|
| Within one year | - | 60.0 |
| One to two years | - | 102.7 |
| More than two years | 134.7 | 5.0 |
|
| 134.7 | 167.7 |
Brixton has a revolving credit facility with SEGRO made available from 24 August 2009 for a period of 3 years at an annual fixed rate of interest at 6.75 per cent
18 Financial instruments and fair values
Financial assets and liabilities
Financial assets in the Group comprise trade and other receivables and cash and cash equivalents, which are all classified as other assets.
Financial liabilities in the Group comprise an unsecured loan from SEGRO plc and unsecured bond issues both of which are categorised as debt at amortised cost and trade and other payables, provisions and current tax liabilities, which are classified as other financial liabilities.
The carrying value of these financial assets and liabilities approximate their fair value, with the exception of unsecured bond issues. At 31 December 2009 the fair value of £364.8 million of unsecured bond issues was £350.9 million (2008: £628.7 million compared to £496.5 million fair value).
Capital risk management
The capital structure of the Group is managed by SEGRO Group Treasury as part of the overall SEGRO Group position, which is monitored on an ongoing basis by the Treasury Risk Committee and reported quarterly to the SEGRO Group Board. The SEGRO Group manages its capital to ensure that entities in the SEGRO Group will be able to continue as going concerns and as such it aims to maintain a prudent mix between debt and equity financing. The current capital structure of the SEGRO Group is considered appropriate.
The Group's gearing ratio at the year end was:
|
| 2009 £m | 2008 £m |
| Net debt | 574.7 | 862.2 |
| Equity | 549.5 | 608.1 |
| Debt to equity ratio | 104.6% | 141.8% |
|
|
|
|
Financial risk management objectives
The SEGRO Group's Treasury function procures all external funding required for the SEGRO Group's operations. It aggregates the total requirement and funds this from the capital markets or banks as and when necessary. Where necessary, it finances all UK subsidiary companies, including the Group, on inter-company current account and manages net financial exposures on an aggregated basis.
Foreign currency risk management
The Group does not have any foreign currency exposures or financial instruments denominated in a foreign currency.
Interest rate risk management
The Group's aggregate interest rate risk is managed by SEGRO Group Treasury. At 31 December 2009 there was no variable rate debt and therefore short term interest rate movements have little or no effect on the Group's profits. Fixed rate debt issues are held at amortised cost and are not re-valued in the balance sheet to reflect interest rate movements.
Interest Rate Swap Contracts
The Group has no interest rate swap contracts as at 31 December 2009 (2008: £173.2m). Following the acquisition of the Group by SEGRO plc the debt structure was rationalised and all outstanding interest rate swaps were cancelled, resulting in a loss in the year of £38.9 million as detailed in note 6.
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group and the SEGRO Group. Potential customers are evaluated for creditworthiness and where necessary collateral is secured, which might be in the form of a cash rental security deposit, parent company guarantee or a bank rental guarantee.
At SEGRO Group level, there is no concentration of credit risk within the lease portfolio as the SEGRO Group has a well spread diverse customer base. The directors are of the opinion that the quantum of outstanding debtors compared to the net assets and operating profit of the SEGRO Group is small and hence credit risk associated with unpaid rent is low. Generally, 95% of rent due is collected within 21 days of the due date.
Liquidity risk management
Liquidity risk is managed on an aggregate basis for all UK Group operations (including the Group) by SEGRO Group Treasury. The Group relies on the provision of credit through inter-company funding from its parent, SEGRO plc.
Contractual maturity analysis of financial liabilities
An analysis of contracted undiscounted payments in relation to financial liabilities outstanding at the year end is as follows:
|
| 2009
SEGRO loan £m | 2009
Bank loans £m | 2009
Eurosterling Bonds £m | 2009
Interest rate derivatives £m | 2009 Trade and other payables £m | 2009
Total £m |
| Undiscounted amounts payable in |
|
|
|
|
|
|
| Under one year | (14.5) | - | (38.2) | - | (41.5) | (94.2) |
| One to two years | (14.5) | - | (19.9) | - | - | (34.4) |
| Two to five years | (224.9) | - | (59.6) | - | - | (284.5) |
| Five to ten years | - | - | (413.6) | - | - | (413.6) |
|
| (253.9) | - | (531.3) | - | (41.5) | (826.7) |
|
| 2008
SEGRO loan £m | 2008
Bank loans £m | 2008
Eurosterling Bonds £m | 2008
Interest rate derivatives £m | 2008 Trade and other Payables £m | 2008
Total £m |
| Undiscounted amounts payable in |
|
|
|
|
|
|
| Under one year | - | (6.5) | (36.8) | 4.9 | (43.1) | (81.5) |
| One to two years | - | (108.1) | (311.6) | 2.0 | - | (417.7) |
| Two to five years | - | (149.2) | (60.6) | (5.1) | - | (214.9) |
| Five to ten years | - | - | (221.7) | 4.2 | - | (217.5) |
| Ten to fifteen years | - | - | (219.4) | (19.4) | - | (238.8) |
| After fifteen years | - | - | - | (20.0) | - | (20.0) |
|
| - | (263.8) | (850.1) | (33.4) | (43.1) | (1,190.4) |
|
|
|
|
|
|
|
|
19 Deferred tax provision
|
| 2009 £m | 2008 £m |
| Deferred tax |
|
|
| Opening balance | 4.6 | 5.7 |
| Net credit per income statement (see note 8) | - | (1.1) |
| Closing balance | 4.6 | 4.6 |
|
|
|
|
The deferred tax balance at the end of 2008 and 2009 comprises capital gains net of capital losses. The Group has an unrecognised deferred tax asset of £50.3m (2008: £4.1) relating to tax losses carried forward and uncrystallised capital losses, which has not been recognised as there is insufficient certainty that the losses can be relieved against future income and gains.
20 Share capital
|
| 2009 £m | 2008 £m |
| Authorised |
|
|
| 319.6m Ordinary shares of 25p each | 79.9 | 79.9 |
| Allotted and fully paid |
|
|
| Ordinary shares of 25p each | 74.2 | 67.9 |
|
|
|
|
|
| 2009
£m | 2009 Number of shares m | 2008
£m | 2008 Number of shares m |
| Ordinary shares in issue: |
|
|
|
|
| At 1 January | 67.9 | 271.7 | 67.7 | 270.7 |
| Share issue | 6.3 | 25.0 | - | - |
| Allotted under share option schemes | - | - | 0.2 | 1.0 |
| At 31 December | 74.2 | 296.7 | 67.9 | 271.7 |
|
|
|
|
|
|
During the year Brixton plc was acquired by SEGRO plc and subsequently shares in Brixton plc were delisted and reregistered as Brixton Limited.
On 24 August 2009, the Company issued 25 million new ordinary shares with nominal value of 25p for £10 per share resulting in an issued ordinary share capital of £6.3m and share premium of £243.8m.
21 Note to the Group cash flow statement
Analysis of net debt
|
| At 1 Jan 2009 £m | Cash Flow £m | Non-cash movements* £m | At 31 Dec 2009 £m |
| Cash and short term deposits | 13.8 | (8.4) | - | 5.4 |
| Borrowings | (876.0) | 295.4 | 0.5 | (580.1) |
| Total | (862.2) | 287.0 | 0.5 | (574.7) |
|
|
|
|
|
|
|
| At 1 Jan 2008 £m | Cash flow £m | Non-cash movements* £m | At 31 Dec 2008 £m |
| Cash and short term deposits | 6.3 | 7.5 | - | 13.8 |
| Borrowings | (810.4) | (65.8) | 0.2 | (876.0) |
| Total | (804.1) | (58.3) | 0.2 | (862.2) |
* The non-cash adjustment relates to the amortisation of issue costs offset against borrowings.
22 Share based payments
Brixton operated a number of employee share schemes prior to the acquisition by SEGRO. Brixton shares held in the Brixton share incentive plan were converted to SEGRO shares under the scheme of arrangement. As at 31 December 2010, 28,053 shares were held in trust for the Brixton share incentive plan. Under the executive share option scheme, outstanding options became exercisable on change of control on acquisition, all of which have subsequently lapsed. All the other Brixton share schemes ceased prior to or on acquisition on 24 August 2009. There are no ordinary shares under option in relation to the Brixton employee share schemes at 29 April 2010.
Equity settled share option schemes
The 2006 Share Matching Plan ('SMP')The Company previously made awards to participating employees.
The SMP had the following features:
• An individual may purchase shares in the Company ('Investment' shares) up to an amount equal to a maximum of 50% of their pre-tax base salary per annum for the financial year just ended. At present the qualifying group for the SMP is the Operations Board.
• Following the purchase of Investment shares, the Company will grant conditional awards of shares ('Matching' shares) on a gross of tax ratio of two Matching shares for every Investment share purchased by the individual (i.e. a maximum grant of Matching shares of 100% of salary per annum). The vesting of Matching shares will be subject to continued employment and the satisfaction of performance conditions (see below).
• Investment shares will remain registered in the name of the holder with full voting and dividend rights but if Investment shares are disposed of then the conditional Matching share awards will lapse on a proportionate basis.
• Dividends will accrue on Matching shares.
• Matching shares will vest if the following demanding performance targets are met:
| One third | One third | One third |
| TSR (Total Shareholder Return - share price plus dividends) | TSR (Total Shareholder Return - NAV plus dividends) against a comparator group of real estate companies | TPR (Total Property Return) v the Weighted Average Cost of Capital ('WACC')
|
| 0% of awards vest for TSR equal to 8% per annum increasing on a straight line to 100% of awards vesting for TSR equal to or greater than 16% per annum | 30% of awards vest for a median ranking TSR increasing on a straight line to 100% of awards vesting for an upper quartile ranking or above | 25% of awards vest for TPR equal to WACC, increasing on a straight line to 100% of awards vesting for TPR equal to or greater than WACC + 3% |
• The companies in the TSR (NAV plus dividends) comparator group are Land Securities, British Land, Liberty International, Hammerson and SEGRO.
Details of the awards outstanding under the SMP are set out below:
|
| 2009
Number of share awards | 2009 Weighted Average share price at grant date pence | 2008
Number of share awards | 2008 Weighted Average share price at grant date pence |
| Outstanding at 1 January | 1,401,247 | 411.23 | 802,765 | 471.15 |
| Granted during the year | - | - | 598,482 | 330.85 |
| Forfeited/lapsed during the year | (1,401,247) | 411.23 | - | - |
| Outstanding at 31 December | - | - | 1,401,247 | 411.23 |
| Exercisable at 31 December | - | - | - | - |
|
|
|
|
|
|
Long Term Incentive Plan ('LTIP') The Company made annual awards to participating employees over shares worth up to a maximum of 200% of base salary. The performance conditions for determining the vesting of the LTIP awards were the same as the SMP (see above).
Details of the awards outstanding under the LTIP scheme are as follows:
|
| 2009
Number of share awards | 2009 Weighted average share price at grant date pence | 2008
Number of share awards | 2008 Weighted Average share price at grant date pence |
| Outstanding at 1 January | 2,708,979 | 410.88 | 1,420,577 | 477.31 |
| Granted during the year | - | - | 1,460,082 | 330.85 |
| Forfeited/lapsed during the year | (2,708,979) | 410.68 | (171,680) | 456.85 |
| Outstanding at 31 December | - | - | 2,708,979 | 410.88 |
| Exercisable at 31 December | - | - | - | - |
|
|
|
|
|
|
The Executive Share Option Schemes ('ESOS') Under the ESOS, superseded by the LTIP, the Company made annual option grants to participating employees over shares worth up to 100% of base salary. These options will only become exercisable if a demanding performance condition, based on a comparison of the Company's Total Shareholder Return ('TSR') to those of other companies in the FTSE 350 index, is subsequently satisfied over a period of at least three years following the date of grant.
If the options remain unexercised after a period of 10 years from the date of grant, the options expire.
Details of the share options outstanding under the ESOS are as follows:
|
| 2009
Number of share options | 2009 Weighted Average Exercise Price pence | 2008
Number of share options | 2008 Weighted Average Exercise Price pence |
| Outstanding at 1 January | 102,397 | 244.59 | 1,518,171 | 252.65 |
| Exercised during the year | - | - | (102,940) | 196.99 |
| Forfeited/lapsed during the year | (102,397) | 244.59 | (1,312,834) | 257.64 |
| Outstanding at 31 December | - | - | 102,397 | 244.59 |
| Exercisable at 31 December | - | - | 102,397 | 244.59 |
The weighted average share price at the date of exercise for share options exercised during the year was nil (2008: 229.61).
The options outstanding at the end of the year have a weighted average remaining contractual life of nil years (2008: 2.7 years).
Save As You Earn Schemes ('SAYE') The Company operated Inland Revenue approved SAYE schemes in which all eligible employees may have participated. Each participant was able to save up to £250 a month to buy shares under option at the end of the option period. Savings contracts were for a three or a five year period.
Details of the share options outstanding under SAYE schemes are as follows:
|
| 2009
Number of share options | 2009 Weighted Average Exercise Price pence | 2008
Number of share options | 2008 Weighted Average Exercise Price pence |
| Outstanding at 1 January | 104,517 | 246.86 | 164,050 | 285.88 |
| Granted during the year | - | - | 107,184 | 245.26 |
| Exercised during the year | - | - | (55,661) | 159.00 |
| Forfeited/lapsed during the year | (104,517) | 246.86 | (111,056) | 347.10 |
| Outstanding at 31 December | - | - | 104,517 | 246.86 |
| Exercisable at 31 December | - | - | - | - |
|
|
|
|
|
|
The weighted average share price at the date of exercise for share options exercised during the year was nil (2008: 248.59p).
The options outstanding at the end of the year have a weighted average remaining contractual life of nil years (2008: 2.8 years).
The LTIP (pre 2006 awards) Executive Directors and other qualifying members were granted conditional awards over shares worth up to 200% of base salary per annum. These awards will only vest if the Company's Total Property Return ('TPR') outperforms the Investment Property Databank ('IPD') All Fund UK Industrial Benchmark over a fixed three-year period following grant.
|
| 2009
Number of share awards | 2009 Weighted Average share price at grant date pence | 2008
Number of share awards | 2008 Weighted average share price at grant date pence |
| Outstanding at 1 January | - | - | 797,128 | 319.25 |
| Exercised during the year | - | - | (797,128) | 319.25 |
| Forfeited/lapsed during the year | - | - | - | - |
| Outstanding at 31 December | - | - | - | - |
| Exercisable at 31 December | - | - | - | - |
During the year nil pre 2006 awards vested (2008: 797,128). The weighted average share price at the date of exercise for awards vesting during the year was nil (2008: 291.87p).
Share Incentive Plan ('SIP') The Company's SIP enabled all employees to acquire 'Partnership' shares in the Company in a tax efficient manner. If Partnership shares were offered, eligible employees were entitled to save up to £125 per month for a 12-month accumulation period, and then to purchase shares in the Company at the lower of the price at the beginning and the end of the accumulation period.
In addition, under the SIP scheme, 'Free' shares may have been awarded up to a maximum value of £3,000 per employee per annum. The cost to the Company of these awards was charged directly to the income statement in the period in which they were awarded.
Fair value of share based payments In 2009 and 2008, share based payments were awarded under the above schemes, and fair values calculated as follows:
|
| 2009
Grant date | 2009 Fair value of award pence | 2008
Grant date | 2008 Fair value of award pence |
| LTIP | - | - | 4 April 2008 | 240.21 |
| LTIP | - | - | 17 September 2008 | 142.86 |
| SMP | - | - | 21 April 2008 | 252.25 |
| SMP | - | - | 29 September 2008 | 160.60 |
| SAYE - 3 Year | - | - | 8 May 2008 | 73.48 |
| SAYE - 5 Year | - | - | 8 May 2008 | 74.41 |
| SIP Partnership shares | - | - | 19 May 2008 | 284.26 |
|
|
|
|
|
|
The estimated fair values of share based payments granted during the year have been calculated using the Stochastic model. Inputs to the model are summarised in the tables below:
|
| 2009
LTIP | 2009
SMP | 2009 3 year SAYE | 2009 5 year SAYE | 2009
SIP |
| Weighted average share price at grant (pence) | - | - | - | - | - |
| Weighted average exercise price (pence) | - | - | - | - | - |
| Expected volatility | - | - | - | - | - |
| Average expected life (years) | - | - | - | - | - |
| Risk free rate | - | - | - | - | - |
| Expected dividend yield | - | - | - | - | - |
|
|
|
|
|
|
|
|
| 2008
LTIP | 2008
SMP | 2008 3 year SAYE | 2008 5 year SAYE | 2008
SIP |
| Weighted average share price at grant (pence) | 273.84 | 246.12 | 308.75 | 308.75 | n/a |
| Weighted average exercise price (pence) | n/a | n/a | 245.26 | 245.26 | n/a |
| Expected volatility | 29% | 31% | 26% | 24% | 33% |
| Average expected life (years) | 3.00 | 3.00 | 3.25 | 5.25 | 1.00 |
| Risk free rate | 4.12% | 4.17% | 4.31% | 4.35% | 4.76% |
| Expected dividend yield | 5.20% | n/a | 4.40% | 4.40% | 4.78% |
|
|
|
|
|
|
|
Expected volatility was determined on the basis of historic share price movements prior to the date of grant over a period of time commensurate with the expected life for each award.
The Group and Company recognised total expenses of £nil (2008: £1.5m) in relation to equity settled share based payment transactions during the year, which included a charge of £nil (2008: £0.1m) in relation to SIP 'Free' shares issued.
23 Pension costs
Defined contribution schemes
The Group operates one defined contribution pension scheme for employees through which it pays contributions to personal pensions established with a specific provider. Assets of the pension scheme are held separately from those of Group companies, being invested with insurance companies.
Contributions payable to this scheme by the Group, at rates specified in the rules of the scheme, totalled £0.3m (2008: £0.4m).
Defined benefit schemes
The Group operates two funded defined benefit pension schemes. The main scheme, the 'Brixton Scheme', is non-contributory for members and provides benefits based on final pensionable salary. Contributions, payable by the Company, were invested in funds managed by Legal & General Investment Management Limited. The scheme was effectively closed to new entrants on 1 January 1998.
The most recent full actuarial valuation of scheme assets and of the present value of the defined benefit obligation for the Brixton Scheme was carried out as at 1 January 2006 by a qualified actuary. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit method. The valuation as at 31 December 2008 is still in progress.
The Group also operates a defined benefit pension scheme, the 'Industrious Scheme', in respect of employees who transferred with the Industrious Group in 2005. This scheme provides benefits based on final pensionable salary and was closed to new entrants on 2 July 1999. Contributions are invested in funds managed by Legal & General Investment Management Limited.
The most recent full actuarial valuation of scheme assets and of the present value of the defined benefit obligation for the Industrious Scheme was carried out as at 1 July 2007 by a qualified actuary. The present value of the defined benefit obligation, the related current service cost and past service cost were measured using the projected unit credit method.
The valuations for both schemes have been updated using the projected unit credit method to 31 December 2009 by a qualified independent actuary. The principal assumptions employed are included in the table below:
|
| Brixton Scheme 2009 % | Industrious Scheme 2009 % | Brixton Scheme 2008 % | Industrious Scheme 2008 % |
| Key assumptions: |
|
|
|
|
| Price inflation | 3.70 | 3.70 | 3.30 | 3.30 |
| Pension increase rate | 3.70 | 3.55 | 3.50 | 3.20 |
| Discount rate | 5.70 | 5.70 | 6.10 | 6.10 |
|
|
|
|
|
|
The mortality basis used was PCA00 with medium cohort adjustments subject to a minimum level of improvement of 1% p.a.
Life expectancies at age 65, are 22.1 years for males and 24.5 years for females.
Defined benefit schemes continued
The assets in the schemes and the expected rates of return were:
|
| Brixton Scheme Long term rate of return expected at 31 Dec 2009 % | Brixton Scheme Value at 31 Dec 2009 £m | Industrious Scheme Long term rate of return expected at 31 Dec 2009 % | Industrious Scheme Value at 31 Dec 2009 £m | Total Group Value at 31 Dec 2009 £m |
| Assets |
|
|
|
|
|
| Equities | 8.5 | 10.9 | 8.5 | 3.6 | 14.5 |
| Gilts | 4.5 | 2.1 | 4.5 | - | 2.1 |
| Bonds | 5.5 | 8.3 | 5.5 | 6.3 | 14.6 |
| Cash and other assets | 1.0 | 0.1 | 1.0 | 0.1 | 0.2 |
| Insured pensions | 5.7 | 1.3 | 5.7 | 0.7 | 2.0 |
| Total market value of assets |
| 22.7 |
| 10.7 | 33.4 |
| Present value of scheme liabilities |
| (25.6) |
| (12.5) | (38.1) |
| Funded status |
| (2.9) |
| (1.8) | (4.7) |
| Effect of asset ceiling |
| - |
| - | - |
| Net retirement benefit obligation |
| (2.9) |
| (1.8) | (4.7) |
|
|
|
|
|
|
|
The expected rate of return is determined by weighting the expected returns disclosed for each asset category by the proportion of assets held in each category. The 6.85% expected return on assets for 2010 assumes equities will return 8.5%, corporate bonds 5.5%, gilts 4.5%, cash 1.0% and insured pensions 5.7%. The expected return is calculated from the assets and cash flows using this rate.
|
| Brixton Scheme Long term rate of return expected at 31 Dec 2008 % | Brixton Scheme Value At 31 Dec 2008 £m | Industrious Scheme Long term rate of return expected at 31 Dec 2008 % | Industrious Scheme Value At 31 Dec 2008 £m | Total Group Value At 31 Dec 2008 £m |
| Assets |
|
|
|
|
|
| Equities | 7.4 | 11.6 | 7.4 | 3.3 | 14.9 |
| Gilts | 3.9 | 3.4 | 3.9 | - | 3.4 |
| Bonds | 6.1 | 7.5 | 6.1 | 5.5 | 13.0 |
| Cash and other assets | 2.0 | 0.1 | 2.0 | - | 0.1 |
| Insured pensions | 6.1 | 1.3 | 6.1 | 0.6 | 1.9 |
| Total market value of assets |
| 23.9 |
| 9.4 | 33.3 |
| Present value of scheme liabilities |
| (29.6) |
| (11.1) | (40.7) |
| Funded status |
| (5.7) |
| (1.7) | (7.4) |
| Effect of asset ceiling |
| - |
| - | - |
| Net retirement benefit obligation |
| (5.7) |
| (1.7) | (7.4) |
|
|
|
|
|
|
|
The amounts recognised in income are as follows:
|
| Brixton Scheme 2009 £m | Industrious Scheme 2009 £m | Total 2009 £m |
| Amounts charged to operating loss: |
|
|
|
| Current service cost | - | - | - |
| Past service cost | - | - | - |
| Charge to operating loss | - | - | - |
| Amounts charged/(credited) to other finance income |
|
|
|
| Expected return on pension scheme assets | (1.4) | (0.6) | (2.0) |
| Interest on pension scheme liabilities | 1.7 | 0.7 | 2.4 |
| Charge to other finance income | 0.3 | 0.1 | 0.4 |
| Net credit for the period | 0.3 | 0.1 | 0.4 |
Defined benefit schemes continued
|
| Brixton Scheme 2008 £m | Industrious Scheme 2008 £m | Total 2008 £m |
| Amounts charged to operating profit: |
|
|
|
| Current service cost | - | - | - |
| Past service cost | - | - | - |
| Charge to operating profit | - | - | - |
| Amounts charged/(credited) to other finance income |
|
|
|
| Expected return on pension scheme assets | (2.0) | (0.7) | (2.7) |
| Interest on pension scheme liabilities | 1.7 | 0.6 | 2.3 |
| Credit to other finance income | (0.3) | (0.1) | (0.4) |
| Net credit for the period | (0.3) | (0.1) | (0.4) |
|
|
|
|
|
The Group has adopted the amendment to IAS 19 published in December 2004 permitting the immediate recognition of actuarial gains and losses directly in equity. Amounts recognised directly in equity are as follows:
|
| Brixton Scheme 2009 £m | Industrious Scheme 2009 £m | Total 2009 £m |
| Amounts charged directly to equity |
|
|
|
| Gain on pension scheme assets | (1.9) | (1.1) | (3.0) |
| (Gain)/loss on change of assumptions underlying net scheme liabilities | (0.7) | 1.1 | 0.4 |
| Rounding | 0.1 | - | 0.1 |
| Credit to equity | (2.5) | - | (2.5) |
|
|
|
|
|
|
| Brixton Scheme 2008 £m | Industrious Scheme 2008 £m | Total 2008 £m |
| Amounts charged directly to equity |
|
|
|
| Loss on pension scheme assets | 7.6 | 2.3 | 9.9 |
| Gain on change of assumptions underlying net scheme liabilities | (0.9) | (0.2) | (1.1) |
| Loss arising due to limit on asset ceiling | (0.1) | (0.3) | (0.4) |
| Charge to equity | 6.6 | 1.8 | 8.4 |
The cumulative balance of amounts charged directly to equity is £6.1m (2008: £8.6m).
Changes in the fair value of scheme assets are as follows:
|
| Brixton Scheme 2009 £m | Industrious Scheme 2009 £m | Total 2009 £m |
| Fair value of scheme assets at 1 January | 22.2 | 8.8 | 31.0 |
| Allowance for insured pensions | 1.7 | 0.6 | 2.3 |
| Fair value of scheme assets at 1 January as previously reported | 23.9 | 9.4 | 33.3 |
| Expected return | 1.4 | 0.6 | 2.0 |
| Actuarial gain | 1.9 | 1.1 | 3.0 |
| Contributions by employer | 0.5 | - | 0.5 |
| Benefits paid | (5.0) | (0.4) | (5.4) |
| At 31 December | 22.7 | 10.7 | 33.4 |
|
|
|
|
|
|
| Brixton Scheme 2008 £m | Industrious Scheme 2008 £m | Total 2008 £m |
| Fair value of scheme assets at 1 January | 28.3 | 10.5 | 38.8 |
| Allowance for insured pensions | 1.5 | 0.7 | 2.2 |
| Expected return | 2.0 | 0.7 | 2.7 |
| Actuarial loss | (7.6) | (2.3) | (9.9) |
| Contributions by employer | 0.6 | - | 0.6 |
| Benefits paid | (0.9) | (0.2) | (1.1) |
| At 31 December | 23.9 | 9.4 | 33.3 |
|
|
|
|
|
Changes in the present value of the defined benefit obligation are as follows:
|
| Brixton Scheme 2009 £m | Industrious Scheme 2009 £m | Total 2009 £m |
| Present value of defined benefit pension obligation at 1 January | (27.9) | (10.5) | (38.4) |
| Allowance for insured pensions | (1.7) | (0.6) | (2.3) |
|
| (29.6) | (11.1) | (40.7) |
| Interest on pension scheme liabilities | (1.7) | (0.7) | (2.4) |
| Benefits paid | 5.0 | 0.4 | 5.4 |
| Actuarial gain/(loss) | 0.7 | (1.1) | (0.4) |
| At 31 December | (25.6) | (12.5) | (38.1) |
|
| Brixton Scheme 2008 £m | Industrious Scheme 2008 £m | Total 2008 £m |
| Present value of defined benefit pension obligation at 1 January | (28.2) | (10.2) | (38.4) |
| Allowance for insured pensions | (1.5) | (0.7) | (2.2) |
| Interest on pension scheme liabilities | (1.7) | (0.6) | (2.3) |
| Benefits paid | 0.9 | 0.2 | 1.1 |
| Actuarial gain | 0.9 | 0.2 | 1.1 |
| At 31 December | (29.6) | (11.1) | (40.7) |
|
|
|
|
|
Amounts for the current and previous four periods are as follows:
|
| 2009 £m | 2008 £m | 2007 £m | 2006 £m | 2005 £m |
| Total fair value of assets | 33.4 | 33.3 | 41.0 | 38.9 | 35.5 |
| Present value of scheme liabilities | (38.1) | (40.7) | (40.6) | (40.6) | (37.0) |
| Asset ceiling adjustment | - | - | (0.4) | - | - |
| Net retirement benefit obligation | (4.7) | (7.4) | - | (1.7) | (1.5) |
| Experience adjustments on scheme assets: |
|
|
|
|
|
| Actuarial gain/(loss) (£m) | 3.0 | (9.9) | (0.4) | 1.0 | 3.8 |
| As a percentage of scheme assets (%) | 9.0% | 29.7% | 1.0% | 2.6% | 10.7% |
| Experience adjustments on scheme liabilities: |
|
|
|
|
|
| Actuarial loss (£m) | 4.2 | - | (0.2) | (1.8) | (3.6) |
| Percentage of scheme liabilities (%) | 11.0% | - | 0.5% | 4.4% | 9.7% |
The estimated amount of contributions expected to be paid in 2010 totals £0.6m.
Reconciliation of the net retirement benefits obligation:
|
| Brixton Scheme 2009 £m | Industrious Scheme 2009 £m | Total 2009 £m |
| Net retirement benefit obligation at 1 January | (5.7) | (1.7) | (7.4) |
| Pension income | (0.3) | (0.1) | (0.4) |
| Contributions by employer | 0.5 | - | 0.5 |
| Actuarial loss recognised in SOCI | 2.5 | - | 2.5 |
| Rounding | 0.1 | - | 0.1 |
| At 31 December | (2.9) | (1.8) | (4.7) |
|
| Brixton Scheme 2008 £m | Industrious Scheme 2008 £m | Total 2008 £m |
| Net retirement benefit obligation at 1 January | - | - | - |
| Pension income | 0.3 | 0.1 | 0.4 |
| Contributions by employer | 0.6 | - | 0.6 |
| Actuarial gain recognised in SOCI | (6.6) | (1.8) | (8.4) |
| At 31 December | (5.7) | (1.7) | (7.4) |
24 Future capital commitments
|
| 2009 £m | 2008 £m |
| The contractual obligations to purchase, construct, develop, repair, maintain or enhance assets are as follows: |
|
|
| Properties | 1.0 | 2.8 |
|
| 1.0 | 2.8 |
|
|
|
|
25 Operating lease arrangements
The Group as lessee
At 31 December 2009 the future minimum lease payments payable under non-cancellable operating leases of land and buildings totalled £8.7m (2008: £9.4m) of which £0.8m (2008: £0.8m) is payable in less than one year, £3.0m (2008: £3.0m) is payable in the second to fifth years inclusive, and £4.9m (2008: £5.6m) is payable in more than five years.
The Group as lessor
Gross property rental income earned during the year totalled £78.5m (2008: £89.8m), (see note 2). At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:
|
| 2009 £m | 2008 £m |
| Amounts due: |
|
|
| Within one year | 69.4 | 104.9 |
| In the second to fifth years inclusive | 202.1 | 300.3 |
| In more than five years | 151.4 | 303.5 |
|
| 422.9 | 708.7 |
26 Related party transactions
Transactions between the Group and SEGRO plc group companies are shown below:
| Nature of transaction | 2009 £m | 2008 £m |
| Interest paid | 6.5 | - |
The outstanding balances between the Group and SEGRO plc group companies at 31 December 2009 related to an intercompany loan of £215.3m as detailed in note 17.
The parent company and ultimate holding company is SEGRO plc. SEGRO plc is also the smallest and the largest group of which the Group is member to prepare group accounts. Copies of the consolidated accounts for SEGRO plc can be obtained from 235 Bath Road, Slough SL1 4EE, England.
Joint Ventures
Transaction with joint ventures are detailed in note 13.
Directors' and Executives' Remuneration
Key management have been detailed as Directors of the Group whose remuneration is detailed in note 5.
Independent Auditors' Report to the Members of Brixton Limited
We have audited the parent company financial statements of Brixton Limited for the year ended 31 December 2009 which comprise the Balance Sheet and the related notes A to O. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements.
Opinion on financial statements
In our opinion the parent company financial statements:
·; give a true and fair view of the state of the parent company's affairs as at 31 December 2009;
·; have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
·; have been prepared in accordance with the requirements of the Companies Act 2006.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:
·; adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or
·; the financial statements are not in agreement with the accounting records and returns; or
·; certain disclosures of directors' remuneration specified by law are not made; or
·; we have not received all the information and explanations we require for our audit.
Other matter
We have reported separately on the Group financial statements of Brixton Limited for the year ended 31 December 2009.
Mark Beddy (Senior Statutory Auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditors
London, UK
29 April 2010
Company Balance Sheet
As at 31 December
|
| Notes | 2009 £m | 2008 £m |
| Fixed assets |
|
|
|
| Investment properties | D | 22.7 | 42.8 |
| Plant and equipment | E | 0.1 | 1.0 |
| Investments in subsidiary undertakings | F | 1,238.4 | 1,520.8 |
|
|
| 1,261.2 | 1,564.6 |
| Current assets |
|
|
|
| Debtors | G | 2.4 | 6.5 |
| Corporation tax debtor |
| 3.7 | 4.1 |
| Cash at bank and in hand |
| 4.3 | 13.6 |
|
|
| 10.4 | 24.2 |
| Total assets |
| 1,271.6 | 1,588.8 |
| Current liabilities |
|
|
|
| Creditors due within one year | H | (13.1) | (16.0) |
| Borrowings | I | (17.3) | - |
|
|
| (30.4) | (16.0) |
| Net current (liabilities)/assets |
| (20.0) | 8.2 |
| Creditors falling due after more than one year |
|
|
|
| Borrowings | I | (562.8) | (876.0) |
| Derivative financial instruments | J | - | (173.2) |
| Pension liabilities | O | (4.7) | (7.4) |
|
|
| (567.5) | (1,056.6) |
| Total liabilities |
| (597.9) | (1,072.6) |
| Net assets |
| 673.7 | 516.2 |
| Capital and reserves |
|
|
|
| Called-up share capital | L | 74.2 | 67.9 |
| Share premium account | L | 337.2 | 93.4 |
| Capital redemption reserve | M | 0.1 | 0.1 |
| Revaluation reserve | M | (3.1) | 3.8 |
| Realised capital reserve | M | 524.8 | 525.9 |
| Profit and loss account | M | (259.5) | (174.9) |
| Shareholders' funds |
| 673.7 | 516.2 |
The financial statements of Brixton Limited (registered number 202342) on pages 32 to 36 were approved by the Board of Directors and authorised for issue on 29 April 2010 and signed on its behalf by:
DJR Sleath Finance Director
Notes to the Company Accounts
A Accounting policies
(i) Accounting convention
The Company accounts have been prepared separately as permitted by Companies Act 2006 and in accordance with UK Generally Accepted Accounting Principles (UK GAAP) using the historical cost convention modified by the revaluation of properties and financial instruments.
The financial statements have been prepared on a going concern basis.
(ii) Investments in subsidiary undertakings
The Company's investment in subsidiaries is held at cost or provided against where the net worth of the investment falls below this balance.
(iii) Investment properties
Properties are valued at the balance sheet date by the Company's external valuers. The basis of valuation of properties is described in note D. Any surplus or deficit arising from revaluation is transferred to the revaluation reserve unless a deficit on an individual property is expected to become permanent in which case it is recognised in the profit and loss account for the year.
Interest and outgoings less rental income are capitalised on investment properties in the course of construction during the course of development. A property ceases to be treated as being in the course of development at the earliest of the date when the property is physically complete and becomes available for occupation or the date when the development becomes fully let and income producing.
Leasehold properties where the lease has more than 150 years to expiry are classified as freehold.
(iv) Depreciation
In accordance with SSAP 19 Accounting for Investment Properties, no depreciation or amortisation is provided in respect of freehold properties or leasehold properties with more than 20 years to run as the properties are held for investment and not for consumption. The directors consider that this accounting policy, which represents a departure from statutory accounting rules, is necessary to provide a true and fair view as required under SSAP19 Accounting for investment properties. The financial effect of the departure is not material.
(v) Deferred tax
This is the tax expected to be paid or recovered on differences between the reported value of assets and liabilities and their tax base. The company uses the balance sheet liability method, under which tax liabilities are usually recognised for all taxable temporary differences, but tax assets are recognised only to the extent taxable profits are expected to be available against which to utilise temporary differences.
The carrying amount of tax assets is reviewed each reporting date and reduced if full recoverability is not expected. Tax is calculated at rates expected to apply in the period the liability settles or the asset is realised, and is booked to the income statement. Where it relates to items accounted for in equity, however, the tax is also dealt with in equity. Tax assets and liabilities are offset when they are levied by the same tax authority and the Group is entitled to settle net.
(vi) Financial instruments
Trade and other receivables Trade and other receivables are booked at fair value. An impairment provision is created where there is objective evidence that the company will not be able to collect in full.
Cash at bank and in hand Cash at bank and in hand comprise cash balances.
Interest bearing borrowings Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the income statement over the period of the borrowings, using the effective interest method.
Trade and other payables Trade and other payables are stated at cost since cost is a reasonable approximation of fair value.
(vii) Pensions
The schemes' assets are measured at fair value, their obligations are calculated at discounted present value, and any net surplus or deficit is recognised in the balance sheet. Operating and financing costs are charged to the income statement, with service charge costs spread systematically over employees' working lives, and financing costs expensed in the year in which they arise. Actuarial gains and losses are recognised through equity in the Statement of recognised income and expense. Where the actuarial valuation of the scheme demonstrates that the scheme is in surplus, the recognisable asset is limited to that for which the Company can benefit in the future. Professional actuaries are used in relation to defined benefit scheme and the assumptions are outlined in note 23.
Contributions to defined contribution schemes are expensed as incurred.
(viii) Share and share based remuneration
The cost of granting share options and other share-based remuneration is recognised in the income statement at their fair value at grant date. They are expensed straight-line over the vesting period, based on estimates of the shares or options that eventually vest. Charges are reversed if it appears that performance will not be met. Options are valued using the Black-Scholes model. Own shares held in connection with employee share plans or other share based payment arrangements are treated as treasury shares and deducted from equity, and no profit or loss is recognised on their sale, issue or cancellation.
(ix) Plant and equipment
Plant and equipment comprise computers, motor vehicles, furniture, fixtures and fittings, and improvements to the Company's offices. These assets are stated at cost less accumulated depreciation and are depreciated on a straight-line basis over their estimated useful lives.
B Profit and loss
The Company has not presented its own profit and loss account as permitted by Section 408 of the Companies Act 2006. The loss for the year attributable to shareholders dealt with in the accounts of the Company was £87.1m (2008: £275.7m).
C Cash flow
The Company has taken advantage of the exemption available to it and has not prepared a statement of cash flows.
D Investment properties
|
| 2009 £m | 2008 £m |
| Opening balance | 42.8 | 61.7 |
| Disposals | (12.1) | - |
| Deficit on valuation | (8.0) | (18.9) |
| Closing balance | 22.7 | 42.8 |
|
|
|
|
The investment property was externally valued as at 31 December 2009 by DTZ in accordance with the Appraisal and Valuation Standards of RICS on the basis of market value. Market value represents the figure that would appear in a hypothetical contract of sale between a willing buyer and a willing seller. Market value is estimated without regard to costs of sale. DTZ is an accredited independent valuer and an industry specialist in valuing this type of investment property.
The historical cost of the property at 31 December 2009 was £30.6m (2008: £39.0m), the reduction was due to the sale of unit 3 Polar Park Industrial Estate on 12 May 2009.
E Plant and equipment
Other fixed assets comprise computers, motor vehicles, furniture, fixtures and fittings and improvements to Company offices. Movements to cost and depreciated book value are set out in note 12 of the Group accounts.
F Investments in subsidiary undertakings
|
| Shares £m | Loans £m | Total £m |
| Cost |
|
|
|
| Opening balance | 1,392.8 | 248.7 | 1,641.5 |
| Additions | - | - | - |
| Strike off / sales | (56.7) | - | (56.7) |
| Loans repaid in the year | - | (160.8) | (160.8) |
| Closing balance | 1,336.1 | 87.9 | 1,424.0 |
| Accumulated impairment losses |
|
|
|
| Opening balance | (82.2) | (38.5) | (120.7) |
| Impairment losses for the year | (64.9) | - | (64.9) |
| Closing balance | (147.1) | (38.5) | (185.6) |
| Net carrying amount |
|
|
|
| At end of year | 1,189.0 | 49.4 | 1,238.4 |
| At start of year | 1,310.6 | 210.2 | 1,520.8 |
|
|
|
|
|
The names and details of the Company's principal subsidiary undertakings are set out on page 36.
G Trade and other receivables
|
| 2009 £m | 2008 £m |
| Current assets |
|
|
| Rent and sundry receivables | - | 0.3 |
| Prepayments and accrued income | 1.9 | 6.2 |
| Other taxes | 0.5 | - |
| Total trade and other receivables | 2.4 | 6.5 |
|
|
|
|
H Trade and other payables
|
| 2009 £m | 2008 £m |
| Current liabilities |
|
|
| Accruals and rent in advance | 12.5 | 8.1 |
| Other payables | 0.6 | 3.0 |
| Other taxes | - | 4.9 |
|
| 13.1 | 16.0 |
|
|
|
|
I Borrowings
Details of the Company's borrowings are as given for the consolidated Group in note 17 to the Group accounts.
J Derivative financial instruments
Details of the Company's derivatives are as given for the consolidated Group in note 18 to the Group accounts.
K Financial instruments and fair values
Details of the Company's financial instruments and fair values are provided in note 18 to the Group accounts.
L Share capital and share premium account
Details of the Company's authorised and issued share capital and share premium account are laid out in note 20 and Statement of Changes in Equity in the Group accounts.
M Retained earnings and other reserves
|
| Capital Redemption Reserve £m | Revaluation Reserve £m | Realised Capital Reserve £m | Profit and loss account £m | Total £m |
| Balance at 1 January 2009 | 0.1 | 3.8 | 525.9 | (174.9) | 354.9 |
| Loss for the year attributable to equity shareholders | - | - | - | (87.1) | (87.1) |
| Transfer from share premium account | - | 1.1 | (1.1) | - | - |
| Deficit on revaluation of properties | - | (8.0) | - | - | (8.0) |
| Actuarial profit on defined benefit pension scheme | - | - | - | 2.5 | 2.5 |
| Balance at 31 December 2009 | 0.1 | (3.1) | 524.8 | (259.5) | 262.3 |
|
|
|
|
|
|
|
N Share based payments
Details of the Company's share based payments granted to Directors and employees are as laid out in note 22 to the Group accounts.
O Net retirement benefit obligation
Details of the Company's net retirement benefit obligation are as disclosed in note 23 to the Group accounts.
Principle Subsidiary Undertakings
All principal subsidiary and joint venture undertakings are engaged in property investment, development or investment holding. Unless otherwise stated, the undertakings are 100% owned subsidiaries of the Group and Company. As permitted by Section 231 of the Companies Act 1985, a complete listing of all the Group's undertakings has not been provided. A complete list of the Group's undertakings will be filed with the Annual Return.
Group undertakings are incorporated/registered and operating in the following countries:
England and Wales
Brixton (Acton Industrial Park) 1 Ltd *
Brixton (Enfield, Great Cambridge Industrial Estate) 1 Ltd *
Brixton (Feltham Corporate Centre) 1 Ltd *
Brixton Greenford Park Ltd *
Brixton (Hatton Cross) 1 Ltd *
Brixton (Heathrow Estate) Ltd *
Brixton (Heathrow International Trading Estate) Ltd *
Brixton (Metropolitan Park) 1 Ltd *
Brixton Northfields (Wembley 1) Ltd
Brixton (Origin) Ltd *
Brixton (Poyle 14) Ltd *
Brixton Premier Park Ltd *
Brixton (Radlett) Ltd *
Brixton (Rockware Avenue, Greenford) Ltd *
Brixton (Victoria Industrial Estate) 1 Ltd *
Brixton (West Cross) Ltd *
Brixton (Westway Estate) 1 Ltd *
Jersey
Brixton (Jersey) Ltd *
*Undertakings held directly by the Company