ANNUAL REVIEW AND SUMMARY FINANCIAL STATEMENTS 2004 THE HAMMERSON DIFFERENCE OUR OBJECTIVE IS TO ACHIEVE ATTRACTIVE RETURNS FOR OUR SHAREHOLDERS THROUGH A STRATEGY OF PROPERTY INVESTMENT AND DEVELOPMENT IN THE UK AND CONTINENTAL EUROPE. CONTENTS 1 The Hammerson Difference 27 Portfolio Review 41 Consolidated Cash Flow 3 Financial Highlights 35 Financial Review Statement 5 Business Highlights 37 Summary Directors’ Report 42 Five Year Financial Summary 7 Board of Directors 37 Summary Remuneration Report 43 Shareholder Information 9 Chairman’s Statement 39 Auditors’ Statement 44 Directors and Senior 13 Chief Executive’s 40 Summary Consolidated Profit Management Business Review and Loss Account 44 Principal Group Addresses 14 Objectives and Strategy 40 Statement of Total Recognised IBC Glossary of Terms 16 Market Overview Gains and Losses 19 Portfolio Allocation 40 Reconciliation of Movements 21 Asset Management in Shareholders’ Funds 23 Development 41 Summary Consolidated 25 Corporate Responsibility Balance Sheet THE HAMMERSON DIFFERENCE People At Hammerson, it is our people who make the difference. We value our teams and invest in them to maintain Hammerson’s position at the forefront of the European property industry. Europe Hammerson is following a strategy of property investment and development in the retail and office sectors in key European markets and continues to benefit from this diversification. Development Hammerson has a track record of carrying out successful major developments. Five schemes will be completed in 2005 and 2006. A further seven schemes are due to start over the same period. Our performance in 2004 Net rental income £188.4 million -0.6% Adjusted earnings per share 30.0 pence +0.7% Total dividend per share 17.92 pence +6.5% Adjusted net asset value per share 936 pence +16.6% Return on shareholders’ equity 22.1% Pages 40 and 41 contain summary financial statements for the year. Financial information relating to any large group is complex and the aim here is to present the key data on Hammerson’s financial performance. All the information has been extracted from the Directors’ Report and Financial Statements. The summary financial statements do not present the detail that is included in the Directors’ Report and Financial Statements and which would permit a comprehensive analysis of Hammerson’s performance. Copies of the Directors’ Report and Financial Statements are available from the Company Secretary, Hammerson plc, 100 Park Lane, London W1K 7AR and are also shown on the group’s website, www.hammerson.co.uk. 1 OVER THE LAST THREE YEARS THE GROUP HAS ACHIEVED AN AVERAGE ANNUAL RETURN ON SHAREHOLDERS’ EQUITY OF 11.9%. Financial Highlights 2004 2003 £m £m change Financial Highlights Net rental income 188.4 189.5 -0.6% Profit before tax 127.2 67.1 +89.6% Adjusted profit before tax1 86.9 85.9 +1.2% Property assets 4,608 3,956 +16.5% Shareholders’ funds 2,581 2,168 +19.0% 2004 2003 pence pence change Per Share Data Basic earnings per share 42.1 18.3 +130.1% Adjusted earnings per share2 30.0 29.8 +0.7% Total dividend per share 17.92 16.83 +6.5% Adjusted net asset value per share3 936 803 +16.6% 2004 2003 Return on shareholders’ equity4 22.1% 9.3% Gearing 68% 73% Interest cover 2.0x 1.8x Dividend cover 1.7x 1.8x Notes 1 Excluding exceptional profits of £40.3 million in 2004, and exceptional losses of £18.8 million in 2003, related primarily to the sale of properties. 2 Excluding exceptional profits, deferred tax and the one-off tax charge for entry into the Sociétés d’Investissements Immobiliers Côtées (“SIIC”) regime in France. 3 Excluding deferred tax. 4 Excluding deferred tax and the one-off tax charge for entry into the SIIC regime. 5 The 2004 results have been prepared under existing UK accounting rules. The group will be restating the 2004 results under IFRS before the announcement of its 2005 interim results. ADJUSTED NET ASSET VALUE ADJUSTED EARNINGS PER SHARE PER SHARE PENCE PENCE IN 2004 ADJUSTED NET ASSET VALUE PER SHARE INCREASED BY 1000 35 16.6% TO 936 PENCE. THE 900 30 800 RETURN ON SHAREHOLDERS’ 700 25 EQUITY WAS 22.1%. 600 20 500 15 400 300 0 00 01 02 03 04 00 01 02 03 04 3 THE RETAIL PARK PORTFOLIO IN THE UK SHOWED A PARTICULARLY STRONG PERFORMANCE WITH A TOTAL RETURN OF 29.3%. Business Highlights PORTFOLIO Capital expenditure totalled £544 million Additional 50% interest acquired in WestQuay shopping centre Retail weighting in portfolio increased to 69% Disposals raised £399 million Underlying valuation increase of 8.8% overall FINANCIAL ASSET MANAGEMENT Gained tax-exempt status for Signed 72 new leases with French subsidiaries annual rents of £17.5 million Issued £300 million unsecured Leased 37,700 m2 of office bonds maturing in 2026 space in London and Paris Gearing reduced to 68% Renewed nearly 200 expiring leases Achieved a return on shareholders’ equity of 22.1% Carried out over 50 rent reviews DEVELOPMENT Completed the Moorhouse office development Five developments are underway at an estimated total cost of £470 million Obtained planning consent for Shires West shopping centre in Leicester to be anchored by John Lewis Signed joint venture for 140,000 m2 Broadmead mixed-use scheme in Bristol Secured planning consent for a retail park in Thanet 5 Board of Directors R R SPINNEY CBE, FRICS, CHAIRMAN – Ronald Spinney (63), P W B COLE BSC, MRICS – Peter Cole (46), a Chartered a Chartered Surveyor, was appointed Chairman in 1999, Surveyor, joined the Company in 1989 as a senior having joined Hammerson as Chief Executive in 1993, development surveyor and was appointed to the board of and will be retiring on 30 September 2005. He is Chairman the Company’s UK business in 1993. He was appointed an of the Nomination Committee. He is a Crown Estate executive director of Hammerson in 1999 and is Managing Commissioner, Chairman of Hanover Property Unit Trust Director Group Investment & Development. He is President Investment Advisory Committee, Deputy Chairman of of the City Property Association. Rentokil Initial plc, a non-executive director of Fuller Smith G DEVAUX HEC, FRICS – Gerard Devaux (56) was & Turner plc and Homestyle Group plc and Chairman of appointed an executive director of Hammerson in 1999. Think London. He is Managing Director of Hammerson’s Continental G F PIMLOTT MA, DEPUTY CHAIRMAN – Graham Pimlott Europe Management Board. He joined the Company in (55) was appointed non-executive Deputy Chairman in 1986 as general manager and a director of the group’s 2000, having been appointed a non-executive director of operations in France, assuming responsibility for operations Hammerson in 1993. He will be retiring from the Board on in continental Europe in 1999. He is a director of the 31 December 2005. He is a member of the Remuneration National Council of Shopping Centres in France. and Nomination Committees. He is Chairman of the Export D A EDMONDS CBE, D.Litt, BA – David Edmonds (61) Credits Guarantee Department and a non-executive was appointed a non-executive director of Hammerson director of Tesco plc and Provident Financial plc. in 2003 and is a member of the Audit Committee. R J G RICHARDS BSC, FRICS, CHIEF EXECUTIVE – He is a non-executive director of Wincanton plc and John Richards (49), a Chartered Surveyor, joined the William Hill plc, Chairman of NHS Direct and a member Company in 1981 as a development surveyor and was of the Legal Services Commission. appointed a director of the UK business in 1987. He was J R HIRST BA, FCA, ACT, CCMI – John Hirst (52), appointed a director of the Company in 1990. He was a Chartered Accountant, joined the Board on 1 March 2004 responsible for Hammerson’s UK operations from 1993 to and is Chairman of the Audit Committee. He is Group Chief 1998 and then took responsibility for the group’s Executive of Premier Farnell plc and Chairman of the international operations, prior to being appointed Chief Trustees of the Fund for Epilepsy. Executive of Hammerson in 1999. He is a director and a past President of the British Council of Shopping Centres. S R MELLISS BA, FCA – Simon Melliss (52), a Chartered Accountant, joined the Company in 1991 as group financial R J O BARTON CA, MBA – John Barton (60) was appointed controller, having worked in various financial positions for a non-executive director of Hammerson in 1998. He is other companies. He was appointed Group Finance Director Chairman of the Remuneration Committee and a member in 1995. He is a member of the Committee of of the Nomination Committee. He is Chairman of Management of Hermes Property Unit Trust. Wellington Underwriting plc and a non-executive director of WH Smith Group plc, Next plc and the General Insurance J F NELSON FCA – John Nelson (57), a Chartered Standards Council. Accountant, joined the Board on 1 May 2004. He is currently a member of the Remuneration Committee. J A BYWATER FRICS – John Bywater (57), a Chartered He will become Chairman of Hammerson on 1 October Surveyor, joined Hammerson as an executive director in 1998 2005. He is Deputy Chairman of Kingfisher plc and a having previously been a partner of Donaldsons. He is non-executive director of BT Group plc. Chairman of Hammerson’s UK Management Board. In addition, he is responsible for insurance and Corporate Responsibility throughout the group. He is a non-executive director of Workspace Group plc and Land Management Limited. J C CLARE CBE, BSC – John Clare (54) was appointed a non-executive director of Hammerson in 1999. He is a member of the Audit and Remuneration Committees.