Interim Report 2005 > delivering our vision Delivering our vision Our vision is to be highly regarded Key statements 27 Independent review report to within the sector which means 01 Financial highlights Slough Estates plc we must strive towards a position 02 Highlights where investors understand us 03 Chairman’s statement Interim accounts 2005 and are keen to invest, customers 04 Chief Executive’s interim statement 28 Group income statement recommend us and expand with 10 Financial review 29 Statement of recognised income us, financiers, commentators and expense Property portfolio 29 Statement of changes in and governments prefer us, 16 UK portfolio analysis as at shareholders’ equity employees are proud to work 30 June 2005 30 Group balance sheet for the company and are actively 18 Overseas portfolio analysis 31 Summarised Group cash flow statement encouraged to develop their skill as at 30 June 2005 32 Notes to the interim financial statements set, competitors respect us and 20 Development programme suppliers want to work with us. as at 30 June 2005 Reference 56 Shareholder information 22 Operating review IBC Group information IBC Directors and Officers Front Cover: Ferrari Maserati UK headquarters, 275 Leigh Road, Slough Slough Estates plc | Interim Report 2005 01 Financial highlights Half year to 30 June Change 2005 2004 % Net rental income £136.9m £119.8m 14.3 Operating income £290.2m £199.8m 45.2 Profit before tax £119.0m £173.6m (31.5) Adjusted profit before tax £90.6m £66.2m 36.9 Earnings per share 17.1p 29.3p (41.6) Adjusted earnings per share 14.7p 13.7p 7.3 Dividends per ordinary share 6.5p 6.15p 5.7 30 June 31 December Change 2005 2004 % Net assets per share 501p 486p 3.1 Adjusted net assets per share 623p 595p 4.7 Diluted net assets per share 472p 461p 2.4 Adjusted diluted net assets per share 581p 558p 4.1 Combined portfolio valuation £4,154.2m £3,729.4m 11.4 Equity shareholders’ funds £2,111.8m £2,029.1m 4.1 Adjusted equity shareholders’s funds £2,625.0m £2,486.4m 5.6 Net borrowings £1,787.4m £1,325.3m 34.9 Gearing – net debt to equity 62% 51% (11.0) LTV – net debt to property assets 40% 36% (4.0) 02 Slough Estates plc | Interim Report 2005 Highlights > Diluted NAV per share up 2.4 per cent to 472 pence (31 December 2004: 461 pence). Adjusted diluted NAV per share up 4.1 per cent to 581 pence (31 December 2004: 558 pence). > Valuation of the investment portfolio up by 3.6 per cent to £4.2 billion. > Profit before tax of £119.0 million (H1 2004: £173.6 million), reflecting cost of the bond exchange, revaluation surpluses and other exceptional profits/losses. Adjusted profit before tax of £90.6 million (H1 2004 : £66.2 million) – up 37 per cent. > Basic earnings per share 17.1 pence per share (H1 2004 : 29.3 pence). Adjusted basic earnings per share up by 7.3 per cent to 14.7 pence per share. > Interim dividend of 6.5 pence, up 5.7 per cent. > 67,480 sq.m. of space leased in UK, a group record for a six month period, but overall occupancy rates held back by space returned. > Sale of non-core assets in US – Quail West (£32 million) and Tipperary (in July – £124 million). > Significant property purchases in the period in the UK (£28 million) and US (£191 million) and an initial foothold established in the Netherlands. > In July, the further acquisition of holding entities owning two major UK industrial estates; Woodside in Dunstable and Heywood in Manchester, for £276 million. > Successful £322 million debt refinancing leading to future interest cost savings of £11 million per annum. Slough Estates plc | Interim Report 2005 03 Chairman’s statement Paul Orchard-Lisle, Chairman We are driving the performance > of the portfolio forward. It has of course been a matter Results which if continued should lead towards of enormous concern to all in the The adjusted diluted net asset value per reduced voids in our portfolio and modest company that for the last few share has increased by 4.1 per cent to 581 levels of rental growth. pence (31 December 2004: 558 pence). weeks Sir Nigel Mobbs has been The valuation of the investment portfolio The economy unable to fulfil his role as Chairman increased by 3.6 per cent to £4.2 billion. The extent to which the world’s economy of the company. As I write, he Adjusted profit before tax of £90.6 million is dominated by the US cannot be continues to be ill and all our (H1 2004: £66.2 million) was up 37 per underestimated. Overall, and in spite of cent and adjusted earnings per share were high oil prices, recent news has been thoughts are with him. However, up by 7.3 per cent to 14.7 pence. The encouraging and the actions by the he would be the first to insist that interim dividend is 6.5 pence (H1 2004: Federal Reserve to initiate a series of the business was taken forward 6.15 pence) up 5.7 per cent. Dividend interest rate increases indicates a serious without him and it is in that sense growth continues to be at a rate level of confidence. considerable in excess of inflation. that I report to you. Even so, within the UK there are causes for Restructuring some concern. Spending levels look too The Group is firmly focused upon its Ian Coull, our Chief Executive, reports high in relation to earnings and levels of debt objective of being the prime providers of separately on the steps taken to sell our amongst consumers are at a worryingly flexible business space in selected non-core assets in the US. In line with the high level. The greatest concern, however, markets. It believes that by so doing it will Board’s expectations, we achieved returns is that the Government takes serious steps deliver superior shareholder returns over a well in excess of book value and this has to encourage private sector employment period of time. The extension of this been a first-class achievement. In parallel, and conversely does not stifle it by undue concept is that we will exit those of our new real estate acquisitions have been bureaucracy or taxation. Providing this current investments that are not seen as made in the UK, the US and on the pitfall can be avoided, there are grounds relevant to our mission. Continent. One of the most encouraging to support the Bank of England’s forecast features is that the volume of space let in of improved growth in 2006 and beyond. In the first six months of 2005 we the UK (approximately 67,000 sq.m.) is an have made important strides in the all-time record for any six-month period in Summary implementation of this intention. The Board the company’s history. The Group is close to completing the believes that group management has reshaping of the business that we signalled responded extremely well to the dual The property market two years ago. In the meantime, for the challenges of expanding its core business For over three years now we have enjoyed rest of this year, energies will be focused whilst withdrawing from other activities in an upsurge in institutional interest in real on driving the performance of the portfolio an orderly and profitable manner. estate as an investment media, and I forward and on the acquisition of suitable believe that current levels of asset new holdings for our core portfolios. In allocation are likely to continue. In the that sense I look forward to reporting at short-term, weight of money is likely to the end of the year not only worthwhile drive prices higher but the other overall returns but also increased activity components of performance clearly are the in the UK, the US and Europe. security of income and rental growth. It has only been in the last few months that we Paul Orchard-Lisle have seen any significant move forward in Chairman the occupational market 25 August 2005 04 Slough Estates plc | Interim Report 2005 Chief Executive’s interim statement The business is in good shape and there is continuing > evidence that occupier demand is improving in the business space markets we are serving. In the first half of 2005, the Group The Group has also been busy with core all other exceptional items. The adjusted has made important strides property transactions. In total, Slough profit before tax stated before these items towards its goal of focusing its Estates received £18.1 million from increased by 37 per cent to £90.6 million. investment property disposals and acquired This amount was, to some extent, enhanced business on ‘edge of town’ a further £267.8 million of assets in the first by an unusually large surrender premium of flexible business space. Since the half of the year. Since the end of June, the £36.6 million (2004: £7.5 million), but it was beginning of the year, we made Group has also acquired holding entities negatively impacted by the short-term loss two important disposals of non- owning two industrial estates in the UK of rental income associated with these for £276 million. We have also taken the surrenders and the sale of the Pfizer core assets with an exceptional opportunity to restructure our debt which campus in the second half of last year. gain of £98 million (to be recorded has provided us with less expensive It should also be noted that no income has in the second half of the year) long-term funding.