Annual Report & Accounts 2002 British Land is proud to be a sponsor of the Royal Ballet School, renowned as one of the great academies of talent in the world of classical dance. The School has close links with choreographers, companies and directors from all corners of the globe. Sir Anthony Dowell, who recently retired after fifteen years as Director of the Royal Ballet, began his career here as a young pupil. Darcey Bussell and Jonathan Cope are two stars of the modern era who graduated from the Royal Ballet School and rose to become Principal Dancers at the Royal Ballet. In its present form, the Royal Ballet School is very much the vision of one remarkable woman. Dame Ninette de Valois (1898-2001). Within a decade of its establishment, the School was honoured by the granting of a Royal Charter and in 1997 it celebrated its Golden Jubilee. It now stands on the cusp of a new era, with the imminent opening of a new School in Floral Street, Covent Garden. Adjacent to the Royal Ballet’s headquarters at the ‘Royal Opera House’ to which it will be linked by a symbolic ‘Bridge of Aspirations’. The new building offers 45,000 sq ft of state-of-the-art facilities, including five studios and a suite of classrooms for academic study. In 2001,a record 85% of graduating students won contracts with leading national and international companies. They will have been well prepared for the arduous careers ahead of them. Performance is an integral part of the Royal Ballet School’s programme and, as a taste of things to come, there is an annual concert in front of a capacity audience at the Royal Opera House. ‘There are very few truly great institutions,’ says Gailene Stock, the present Director of the Royal Ballet School. ‘If a nation’s soul is its culture, and its art a defining part of that culture, then the responsibility for maintaining the best in art is a challenge to which only a few can genuinely aspire. This is our goal, and the reason why the Royal Ballet School continues to dedicate itself to the discovery of the finest talent. The photographs of the Royal Ballet School (and accompanying observations) are by Chris Nash, who covered the assignment. He has a rare ability to capture the crucial moments of a ballet, the climax of a sequence of steps, the precise and defining gesture. ‘The instant you see a Chris Nash photograph, you know an artist is at work’, said Allen Robertson writing in The Times. ‘As a photographer you become very aware of the physicality of dance, the thrill of it all, the energy. You hear them taking in their breath. It’s like a private performance for you alone’. Contents Highlights 3 Financial Statements 67 Consolidated profit and loss account 68 Introduction 5 Balance sheets 69 Other primary statements 70 Corporate Strategy 6 5 Consolidated cash flow statement 71 Chairman’s Statement 7 Notes to the Financial Statements Accounting policies 72 Operating profit 74 1 Directors’ emoluments and staff costs 74 Net interest payable 77 Financial Review 17 Ordinary dividends 77 Basic and diluted earnings per share 77 Parent company’s results 77 Profit on the disposal of fixed assets 78 2 Taxation 78 Investment, development Property Review 23 and trading properties 79 Joint ventures’ summary The property portfolio 24 financial statements 80 Property asset management 27 Other investments 83 Property development programme 28 3 Debtors 84 Principal investment properties 32 Creditors 84 Major investment properties summary 40 Net asset value per share 85 Joint ventures review 42 Net debt 86 Valuation certificate 49 Notes to the cash flow statement 89 Instruction to valuers 52 Share capital 90 Reserves 91 Management, Governance, Capital commitments 91 Corporate Social Responsibility 53 Contingent liabilities 91 Directors and officers 54 Disclosure of interests 4 Group executive and advisers 55 and related parties 91 The environment & corporate Pensions 92 social responsibility 56 Corporate governance 59 Shareholder information 93 Financing policy and financial Financial calendar 94 risk management 61 Ten year record 95 Report of the directors 62 Sponsorship 96 Remuneration report 64 Report of the auditors 66 Quick reference Net asset value per Earnings per share calculation 85 share calculation 77 Mark to market value Deferred taxation of debt (FRS13) 20, 88 (FRS19) 19, 21, 73, 85 Contingent tax 78 Interest cover 21 Dividends 3, 62, 77 Prior year adjustments 73 Mortgage ratio 21 Taxation 78 THE BRITISH LAND COMPANY PLC Highlights Net Asset Value* undiluted up 3.9% to Net Rents up 5.8% to £477 million, 833 pence per share (2001: 802 pence). including share of joint ventures (2001: £451 million). Net Asset Value* per share fully diluted up 3.7% to 803 pence (2001: 774 pence). Portfolio Valuation up 0.8% (on a like for like basis) to £9.3 billion. Net Asset Value* fully diluted, post expected redemption of £323 million Continued Portfolio Management and Convertible Bonds (announced on Development with profitable sales of 16 May 2002), rises a further 11 pence £378 million, purchases of £608 million to 814 pence per share. and development expenditure of £157 million. Profits before tax up 96% to £171.3 million (2001: £87.5 million post-exceptional). Rental Income 550 Earnings per share up 161% to 30.8 pence (2001: 11.8 pence 500 post-exceptional). 450 Final Dividend up 8.9% to 8.6 pence per share (2001: 7.9 pence). The total 400 distribution for the year is up 7. 8 % at 12.4 pence (2001: 11.5 pence). 350 300 *NAV adjusted to exclude the effects of the FRS 19 deferred tax provision relating to capital allowances, 250 but to include the external valuation surplus on development and trading properties. 200 98 99 00 01 02 British Land Group Net rents Gross rents Share of joint ventures Net rents Gross rents The Royal Ballet School has launched many a brilliant career, but is very much the vision of one remarkable woman. Dame Ninette de Valois (1898-2001) inspired her pupils to ‘respect the past, herald the future but concentrate on the present’. ‘Ballet students take direction every day of their lives so, for a photographer, they’re very easy to work with. You can be very specific about what you’re looking for, but they quickly take everything on board.’ Introduction The British Land Company PLC is registered in London and listed on the London Stock Exchange. The Group invests in prime properties and its portfolio is valued at £9.3 billion. The majority of the portfolio is directly owned and managed; the balance is held in joint ventures and partnerships, of which British Land’s share is valued at £1.7 billion. The portfolio continues to focus on areas where the principles of supply and demand are strong. Some 43% is in Central London offices, 35% in out of town retail property, and the current development programme provides significant investment opportunities in these areas; altogether 99% of the Group’s portfolio is in the UK. The principal revenue source for the Group is rental income. Current net annualised rents amount to £525 million, including British Land’s share of joint ventures. The Group has an efficient capital structure with optimal gearing to enhance returns on equity. The ratio of debt to assets is maintained at or around 50%, while preserving a strong financial position in terms of recurring interest cover and available liquidity. British Land’s financing is risk averse with a long debt maturity and low average cost of debt. The Group’s policy is to maintain around 85% of debt hedged against movement in interest rates. Away from the property market, the Group has many interests in the arts,sport and education. We are particularly pleased to provide support and facilities for young people and one of the many beneficiaries of sponsorship by British Land is the Royal Ballet School. The theme of the 2002 Annual Report is the tremendous work done by the School in training its students for a career in classical ballet. The Royal Ballet School has a global reputation as a teaching institution and centre of excellence. It attracts students from all over the world, and is the principal source of dancers for the Royal Ballet and Birmingham Royal Ballet. At any one moment the School will be training some 200 students for a career in classical ballet. ‘There’s a very fine level of detail in training – the angle of an arm, the way the head is held, the curve of the back, how a hand turns at the wrist. Everything is controlled, everything has a name.’ Corporate Strategy British Land’s opportunistic but risk-averse strategy seeks to achieve long-term growth in shareholder value by: • focusing on prime assets in the office and retail sectors; • creating exceptional long-term investments with strong covenants,long lease profiles and growth potential; • enhancing property returns through active management and development; and • maximising equity returns through optimal financing and joint ventures. The key to high returns is flexibility,both in terms of business organisation and financing to take advantage of shifts in the property market. ‘Dance, dance, dance little lady. Leave tomorrow behind.’ Noel Coward lyric Chairman’s Statement 1 THE BRITISH LAND COMPANY PLC 9 Chairman’s Statement Chairman’s Statement n the year to 31 March 2002, British Land earned Swindon Orbital Shopping Park was purchased for record pre-tax profits of £171.3 million and net assets an anticipated total of £53 million. Total property rose to the record level of 833p per share and 803p purchases were £608 million and property sales fully diluted.