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RNS
Intu Properties PLC  -  INTU   

AUDITED RESULTS FOR YEAR ENDED 31 DECEMBER 2017

Released 07:00 22-Feb-2018

RNS Number : 5578F
Intu Properties PLC
22 February 2018
 

 

 

 

 

22 FEBRUARY 2018

 

INTU PROPERTIES PLC
AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2017

 

STRONG RESULTS IN A CHALLENGING RETAIL ENVIRONMENT

 

David Fischel, intu Chief Executive, commented:

 "The underlying strengths of the intu business were much in evidence in 2017 as we recorded a robust overall performance, confounding the external gloom and negativity in pre-Brexit UK about retail and retail property.

We recorded a strong year of leasing activity, signing 217 long-term leases in the UK and Spain, at rents in aggregate 7 per cent ahead of previous rents, as retailers continue to focus on increasing their space in prime, high footfall retail and leisure destinations such as our shopping centres.

During the year, major flagship brands upsized and optimised their presence, with the likes of Primark, Next and River Island taking additional space in our centres, and Inditex and H&M expanding their brand portfolios with us. Major international brands have also continued to recognise the attraction of our centres, including Victoria's Secret (US), Lovisa (Australia), Colette (Australia) and Inglot (Poland) adding new stores.

This successful leasing performance has driven our third successive year of like for like net rental income growth, a key strategic priority for us. Following increases of 1.8 per cent in 2015 and 3.6 per cent in 2016, we have delivered a 0.5 per cent increase for the year overall, with a strong second half recovery with growth of 2.4%. Consequently, we reiterate our medium-term guidance, over the next three to five years, of 2 to 3 per cent like-for-like net rental income growth per annum and expect to be in the range of 1.5 to 2.5 per cent like-for-like net rental income growth in 2018.

Our asset performance was resilient in the UK and buoyant in Spain, resulting in a revaluation surplus of £47 million, which in turn drove an increased profit for the year of £203 million (2016: £172 million) and took net asset value per share from 404 pence to 411 pence. Other key performance indicators, such as 96 per cent occupancy and increased footfall for the year, also demonstrated that intu is in good shape.

We moved on at pace with our investment plans, with significant projects underway at intu Watford, intu Lakeside and a number of other centres. In the UK, we spent £184 million during the year and have plans to invest a further £562 million over the next three years, with plenty of opportunity beyond that period, at returns we anticipate to deliver significant enhancement to shareholder value. 

Our successful asset recycling initiatives have continued as we concluded terms for the £148 million disposal of 50 per cent interest in intu Chapelfield, following our disposals of intu Bromley and part of intu Uxbridge in previous years, all on terms confirming the market values of these assets.

We continued to seize the substantial growth opportunity we see in Spain and acquired Madrid Xanadú in the year, a centre full of potential and an ideal fit for our shopping resort model in Spain. With three top 10 shopping centres in the country, our Spanish business, which we embarked upon in 2013 at an opportune moment in the cycle, delivered a tremendous performance during the year with continued high occupancy, increased footfall and valuations of intu Asturias and Puerto Venecia, Zaragoza increasing 11 per cent and 4 per cent respectively. We also welcomed new names to our centres, including Quiz, Levis, Pandora, Alcott and Xiaomi, signing 38 new leases at an average 25% ahead of previous passing rent. 

Five years on from launch, the importance of the intu brand has continued to grow with customer awareness increasing considerably. The transaction between Hammerson and intu is expected to complete later this year and, as announced in December, the enlarged group will be using the intu name within its shopping centre business.

These results are an endorsement of the underlying strength of the intu business. Our active asset management, repositioning of the portfolio, investment in our centres and brand in recent years have put intu in a strong position to mitigate the continuing challenging business environment. Because of this, we remain confident in our future prospects and our ability to deliver further like-for-like rental growth in the year ahead."

 

Enquiries:

intu properties plc

David Fischel

Chief Executive

+44 (0)20 7960 1207

Matthew Roberts

Chief Financial Officer

+44 (0)20 7960 1353

Adrian Croft

Head of Investor Relations

+44 (0)20 7960 1212


Public relations

UK:

Justin Griffiths, Powerscourt

+44 (0)20 7250 1446

SA:

Frédéric Cornet, Instinctif Partners

+27 (0)11 447 3030

 

 

 

 

Contents:             


 



 

Highlights of 2017


 

Chief Executive's review


 

Operating review


 

Market review


 

Top properties


 

Financial review


 

Principal risks and uncertainties


 

Statement of Directors' responsibilities


 

Financial information


 

Other information:


 

Investment and development property


 

Financial covenants


 

Financial information including share of joint ventures


 

Underlying profit statement


 

ERPA performance measures


 

Glossary


 

Dividends


 

 

Investor presentation

A presentation to analysts and investors will take place at UBS, 5 Broadgate, London EC2 at 9.30GMT on 22 February 2018.  The presentation will also be available to international analysts and investors through a live audio call and webcast. 

The presentation and a copy of this announcement will be available on the Group's website intugroup.co.uk

 

About intu

intu owns and manages some of the best shopping centres, in some of the strongest locations, in the UK and Spain.

Our UK portfolio is made up of 17 centres, including ten of the top 25, and in Spain we own three of the country's top 10 centres, with advanced plans to build a fourth.

We are passionate about creating compelling experiences, in centre and online, that make our customers smile and help our retailers flourish.

We attract over 400 million customer visits and 26 million website visits a year offering a multichannel approach that truly supports retail strategies. In 2017, we launched the UK's first tailor-made promotional services model to help brands as they look to optimise their portfolio or expand their UK coverage.

Our strategic focus on prime, high-footfall flagship destinations, combined with the strength and popularity of our brand, means that intu offers enhanced footfall, dwell time and loyalty. This helps our retailers flourish, driving occupancy and income growth.

We are committed to our local communities, with our centres supporting over 120,000 jobs (representing about 3 per cent of the total UK retail workforce), and to operating with environmental responsibility. We have already met or exceeded a significant number of our 2020 environmental targets.

 

Presentation of information

We account for our interests in joint ventures using the equity method as required by IFRS 11 Joint Arrangements. This means that the income statement and the balance sheet include single lines for the Group's total share of post-tax profit and the net investment in joint ventures respectively.

Management review and monitor performance as well as determine the strategy of the business primarily on a proportionately consolidated basis. This includes the Group's share of joint ventures on an individual line-by-line basis rather than a post-tax profit or net investment basis. The figures and commentary presented are consistent with our management approach as we believe this provides a more meaningful analysis of the Group's performance. The other information section provides reconciliations of the income statement and balance sheet between the two bases.

See financial review for more details on the presentation of information and alternative performance measures used.

 

 

 

 

 

This press release contains "forward-looking statements" regarding the belief or current expectations of intu properties plc, its Directors and other members of its senior management about intu properties plc's businesses, financial performance and results of operations. These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of intu properties plc and are difficult to predict, that may cause actual results, performance or developments to differ materially from any future results, performance or developments expressed or implied by the forward-looking statements. These forward-looking statements speak only as at the date of this press release. Except as required by applicable law, intu properties plc makes no representation or warranty in relation to them and expressly disclaims any obligation to update or revise any forward-looking statements contained herein to reflect any change in intu properties plc's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

Any information contained in this press release on the price at which shares or other securities in intu properties plc have been bought or sold in the past, or on the yield on such shares or other securities, should not be relied upon as a guide to future performance.



HIGHLIGHTS OF 2017

Optimising asset performance

Delivering attractive long-term total property returns from strong, stable income streams

·      increase in like-for-like net rental income of 0.5 per cent, a third successive year of growth. Former BHS stores substantially relet with excellent lettings to quality retailers such as Next, Primark and Uniqlo

·      signed 217 long-term leases (2016: 214) - 179 in the UK and 38 in Spain - delivering £38 million of annual rent at an average of 7 per cent above the previous passing rent (2016: 4 per cent) and in line with valuers' assumptions

·      rent reviews settled in the year on average 9 per cent above previous passing rent (2016: 8 per cent)

·      occupancy stable at 96.1 per cent (December 2016: 96.0 per cent)

·      footfall increased by 0.1 per cent outperforming the national ShopperTrak retail average which fell by 2.8 per cent

 

Delivering UK developments

Extending and enhancing our existing locations to deliver superior returns

·      capital expenditure of £184 million in the year including £63 million on the extension of intu Watford and £58 million on the acquisition of income generating properties which will form part of future capital projects

·      the £180 million intu Watford extension is on target and on budget to open in October 2018 with pre-lets well advanced

·      commenced the £72 million Nickelodeon-anchored leisure scheme at intu Lakeside; completed the leisure line-up by signing Hollywood Bowl, Puttshack and Flip Out

·      near-term committed and pipeline capital expenditure for the next three years of £562 million, with intention to start intu Trafford Centre (Barton Square - £72 million) and intu Broadmarsh, Nottingham (£81 million) projects in 2018

 

Making the brand count

Using our respected brand to create compelling experiences for our customers

·      unprompted awareness of the intu brand increased to 26 per cent (2016: 22 per cent), with prompted awareness increasing to 71 per cent (2016: 63 per cent)

·      net promoter score, our measure of customer service, consistent at around 70 throughout the year

·      intu Experiences, our dedicated promotions business, generated income of £22 million, equivalent to the rental income of our seventh largest centre

·      intu.co.uk, our premium content publisher and shopping platform, delivered sales for retailers of £9 million, a 50 per cent increase on 2016

·      achieved our 2020 target of a 50 per cent intensity reduction in carbon emissions three years ahead of plan

 

Seizing the growth opportunity in Spain

Creating a business of scale through acquisitions and development projects

·      acquired Madrid Xanadú, one of Spain's top-10 shopping centres, for a headline price of €530 million, and introduced TH Real Estate as a 50 per cent joint venture partner

·      signed 38 long-term leases delivering £2 million of annual rent at an average of 25 per cent above previous passing rent

·      occupancy stable at 97 per cent and footfall up 1 per cent, which includes the disruption from the intu Asturias mall redevelopment in the year which has now successfully completed

·      revaluation surplus of £98 million in Spain from intu Costa del Sol land (£74 million) and existing centres (£24 million) with intu Asturias up 11 per cent and Puerto Venecia up 4 per cent, driven by growth in rental values

·      at intu Costa del Sol, our proposed 230,000 sq m shopping resort development, approval of the General Plan of Torremolinos was a major step forward. The remaining consents are expected in the coming months



 

HIGHLIGHTS OF 2017

 

Financial highlights 1





Year ended 31 December


2017

2016




Net rental income (£m) 2 3

460

447

Underlying earnings (£m)

201

200

Property revaluation surplus/(deficit) (£m) 2 3

47

(64)

IFRS profit for the year (£m)

203

172




Underlying EPS (pence)

15.0

15.0

Dividend per share (pence)

14.0

14.0








                       At 31 December


2017

2016




Market value of investment properties (£m) 2 3 4 5

10,529

9,985

IFRS net assets attributable to owners of intu properties plc (£m)

5,075

4,979




NAV per share (diluted, adjusted) (pence)

411

404

Debt to assets ratio (per cent) 2 3 6

45.2

43.7




1 Please refer to glossary for definition of terms.

2 Including Group's share of joint ventures.

3 See other information section for reconciliations between presented figures and International Financial Reporting Standards (IFRS) figures.

4 Including intu Chapelfield which is classified as an asset held for sale.

5 Market value of investment properties is based on third party valuations as at 31 December 2017. For the purposes of the Takeover Code the scheme document to be issued in connection with the proposed transaction with Hammerson will contain valuation reports in accordance with Rule 29 of the Code.

6 Pro forma for the £148 million disposal of 50 per cent of intu Chapelfield which completed on 31 January 2018.

 

Highlights for the year:

·      increase in net rental income of £13 million includes strong like-for-like recovery in the second half of the year with growth of 2.4 per cent, delivering full year like-for-like growth of 0.5 per cent

·      growth in the second half of the year taking full year underlying earnings to £201 million, ahead of 2016

·      increase in Spanish valuations, partially offset by a small fall in UK values, delivers a property revaluation surplus of £47 million

·      increased profit for the year by £31 million to £203 million primarily from the property revaluation surplus (movement of £111 million against the deficit in 2016), partially offset by one-off £74 million gain on disposal in 2016

·      underlying earnings per share in line with 2016 at 15.0 pence with full year dividend unchanged at
14.0 pence

·      net asset value per share (diluted, adjusted) of 411 pence, an increase of 7 pence, delivering a total financial return for the year of 5.2 per cent

·      substantial cash and available facilities of £833 million on a pro forma basis (31 December 2016: £922 million), reflecting the £148 million disposal of 50 per cent of intu Chapelfield, Norwich

 

Presentation of information

Amounts are presented including the Group's share of joint ventures.

Underlying earnings is used by management to assess the underlying performance of the business and is based on an industry standard comparable measure. It excludes valuation movements, exceptional items and related tax.

See financial review for more details on the presentation of information and alternative performance measures used.



 

 

CHIEF EXECUTIVE'S REVIEW

Our performance in 2017

The underlying strengths of the intu business were much in evidence in 2017 as we have recorded a robust overall performance, confounding the external gloom and negativity in pre-Brexit UK about retail and retail property, and showing the success of our asset management initiatives and strategic positioning.

Our underlying earnings per share were steady at 15.0 pence; we grew like-for-like net rental income by 0.5 per cent, within our original guidance 12 months ago; and net asset value per share, helped by a tremendous performance from the Spanish business, increased from 404 pence to 411 pence.

We delivered on each of our four core objectives for 2017:

·      asset performance was resilient in the UK and buoyant in Spain, with the clear message from key performance indicators, such as lettings, occupancy, footfall and dwell time, that intu is in fine shape

·      the investment programme in the UK moved on at pace with expenditure in the year of £184 million. The pipeline for the next three years amounts to £562 million, with plenty of opportunity beyond that date. In addition to the £180 million intu Watford extension, opening in 2018, significant projects are underway at major centres, such as intu Lakeside, intu Trafford Centre and intu Merry Hill

·      the awareness and importance of the intu brand has continued to grow. Five years on from launch, we can clearly see the advantages of a strong brand for a shopping centre business such as ours. Among these advantages we would include superior customer service, refreshing changes to the centres' physical and digital environments and new and innovative sources of revenue

·      we continued to seize the growth opportunity in Spain. We acquired Madrid Xanadú in the year, a centre full of growth opportunities and an ideal fit for our shopping resort model in Spain, with a Nickelodeon theme park attraction and aquarium under construction, to add to the existing indoor ski slope

 

Outlook and 2018 strategic objectives

The environment for the business is likely to remain challenging as the UK continues through the Brexit negotiations. Our shopping centres have not been immune to the UK's relatively sluggish economic performance. Decision-making about investing in the UK has inevitably been impacted in the pre-Brexit period and domestic consumers have been adapting to fluctuations in their discretionary spending capacity.

The 2017 results are, however, a considerable endorsement of the underlying strength of the intu business and our strategic objectives for 2018 build on those we have pursued in the last few years. They are:

·      growing like-for-like net rental income

·      optimising our flagship destinations

·      delivering operational excellence

·      making smart use of capital

Front of mind for investors is the changing mix of online and in-store sales and how that might affect demand for physical space, hence our particular focus on the basic measure of growing like-for-like net rental income. At intu, we are still seeing key retailers taking more space, and investing for the long term in our centres, as they recognise the footfall we deliver and our ability to create more reasons for customers to visit and stay longer.

Our energies are also concentrated on ensuring all our centres evolve with consumer and retailer needs, so that they deliver sustainable growth. Keeping our centres at the forefront of people's minds requires continual focus on bringing in new attractions, be it a key retailer or restaurant or a compelling leisure attraction. In addition to delivering our target return hurdles, our projects innovate what we offer our customers and keep us at the leading edge of the shopping centre industry.

Nowhere will this be more obvious than at our ground-up scheme in Spain, intu Costa del Sol, where we have the opportunity to create a world-class centre, delivering our signature shopping resort product and showcasing our expertise.

Operational excellence is a clear differentiator in both the UK and Spain.  Our knowledge and insight are important, as is our culture and living our values - bold, creative and genuine -- which underpin everything that we do. Our culture is embodied by our brand which has become recognised throughout the shopping centre industry, with intu a byword for fantastic customer service, motivated and enthusiastic staff, expert mall operations and good corporate citizenship.

Our skill in this area is recognised by the partners we have brought in to the business in the last few years, including CPPIB, LaSalle Investment Management and TH Real Estate. The ability to partner on assets allows us to astutely recycle and allocate capital to deliver superior returns. With over £800 million of cash and committed facilities, our financial position is very sound.



 

STRATEGIC REVIEW

OPERATING REVIEW

Our operating review analyses how we have performed in the year and sets out our strategy.

 

Optimising asset performance

We focus on creating vibrant environments where customers and retailers want to be. This increases the value of our centres and provides strong, stable income streams and positive operating metrics. These elements ensure we deliver attractive long-term total property returns.

 

Valuation







Market Value

              Like-for-like


31 December

31 December

Surplus/

Surplus/


2017

2016

(deficit)

(deficit)


£m

£m

£m

%






UK super-regional centres

6,373.7

6,315.8

(17.7)

(0.3)

UK major city centres

2,559.3

2,544.3

(15.0)

(0.6)

Spanish centres

371.6

331.0

22.4

6.4












9,304.6

9,191.1

(10.3)

(0.1)

Acquisition: Madrid Xanadú

235.2

-

1.7

0.7

Spanish developments

212.8

76.7

74.5

53.8

Other

470.1

419.2

(28.2)

(5.1)












10,222.7

9,687.0

37.7

0.4

intu Chapelfield (asset held for sale at 31 December 2017)

306.5

297.7

9.6

3.3











Total

10,529.2

9,984.7

47.3

0.5






The table above shows the main components of the £47.3 million revaluation surplus:

·      UK super-regional centres and major city centres: stable values recognising the continuing attraction of this asset class which remains key to retailers' requirements. The small overall deficits relate to investment on the existing intu Watford centre and tenant repositioning at intu Merry Hill not yet reflected in rental values

·      Spanish centres: strong rental growth and continued strong demand for top-quality Spanish centres has driven valuations up at both intu Asturias and Puerto Venecia

·      Spanish developments: with most of the planning requirements in place at intu Costa del Sol, the first independent valuation of the site, which was previously carried at cost, delivered a £74 million surplus over cost

·      other: represents valuation movements on assets valued below £200 million each

The weighted average nominal equivalent yield at 31 December 2017 remained stable at 5.03 per cent, an increase of one basis point in the year.

On a like-for-like basis, ERV increased by 1.0 per cent in the year, compared with the IPD index which indicated a 0.4 per cent increase.

The overall quality of our portfolio is illustrated by our long-term outperformance of the IPD capital growth monthly retail index, as shown in the chart below.

 

 Chart 1

 

Click on, or paste the following link into your web browser, to view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/5578F_-2018-2-21.pdf



 

Group like-for-like net rental income





2017

2016







Rent reviews, improved letting and turnover income

+2.2%

+2.3%

Capital investment

+0.4%

+0.8%

Vacancy impact

-0.4%

+1.7%

Units closed for redevelopment and/or repositioning

-1.4%

-0.6%

Other letting activity (eg bad debt; surrender premiums)

-0.3%

-0.6%







Increase in like-for-like net rental income

+0.5%

+3.6%




Rent from lettings and rent reviews delivered 2.2 per cent rental growth. Against previous passing rent, lettings were on average up 7 per cent and rent reviews up 9 per cent.

This growth was partially offset by the 1.4 per cent impact of units closed for redevelopment and/or repositioning, mainly from the former BHS stores which are now substantially relet with excellent lettings to quality retailers such as Next, Primark and Uniqlo. These were not income producing in 2017, but will come back on stream in 2018.

As previously stated, we expect to deliver medium term like-for-like net rental income growth of 2 to 3 per cent per annum, over the next three to five years, and in 2018 we expect this to be in the range of 1.5 to 2.5 per cent, subject to no material tenant failures.

 

UK operating metrics





2017

2016




Occupancy

96.1%

96.0%

- of which, occupied by tenants trading in administration

0.6%

0.5%

Leasing activity - number, new rent

179, £35m

187, £35m

- new rent relative to previous passing rent

+6%

+4%

Footfall

+0.1%

+1.3%

Retailer sales (like-for-like centres)

-2.1%

+0.2%

Rent to estimated sales (exc. anchors and major space users)

12.1%

12.2%




Occupancy is 96.1 per cent, in line with 31 December 2016 and 30 June 2017. This is equivalent to 97.0 per cent on the industry standard EPRA calculation (December 2016: 97.0 per cent).

We agreed 179 long-term leases in the year, amounting to £35 million annual rent, at an average of 6 per cent above previous passing rent (like-for-like units) and in line with valuers' assumptions.  Retailers continue to focus on increasing their space in prime, high footfall retail destinations.  Significant activity in the year includes:

·      new retail anchors, in the shape of key fashion brands, upsizing to optimise their offering and configuration. This includes Primark, Next and River Island upsizing at intu Merry Hill, as well as Inditex and H&M expanding their brand portfolios with Stradivarius at St David's and Monki at Manchester Arndale

·      international brands' ongoing recognition of the attraction of intu's destination shopping centres. Victoria's Secret, the US lingerie brand, and Lovisa, an Australian accessories store, have both added three stores. Colette, the Australian handbag retailer, has opened its second UK store at Manchester Arndale and Inglot, a Polish cosmetics brand, opened its first store outside London at intu Eldon Square

·      brands recognising the benefit of stores as part of their customer acquisition, with Paul Smith opening their first store in Manchester at Manchester Arndale and Tesla continuing their roll-out of stores at intu Milton Keynes

·      leisure operators continuing to grow in flagship destinations with Puttshack, Flip Out and Hollywood Bowl joining Nickelodeon at the intu Lakeside leisure extension and Gravity at the refurbished Soar at intu Braehead

259 shops opened or refitted in our UK centres in 2017 (2016: 225 stores), around 9 per cent of our 2,800 units.  Tenants have invested around £89 million in these stores, a significant demonstration of their commitment to our centres.

We settled 218 rent reviews in the year for new rents totalling £47 million, an average uplift of 9 per cent on the previous rents.

Footfall improved by 0.1 per cent in the year, significantly outperforming the ShopperTrak measure of UK national retail footfall which was down by 2.8 per cent, highlighting the attraction of our compelling destinations against the wider market.

Estimated retailer sales in our centres were down 2.1 per cent predominantly driven by some clothing retailers who had a challenging year in 2017. In-store sales figures take no account of the benefit of the store to retailers' online sales and are further impacted by returns of online sales. The ratio of rents to estimated sales for standard units remained stable in the year at 12.1 per cent.

Catering and leisure units now comprise over 500 of our overall 2,800 leases and have increased steadily in recent years in a growing market. Reflecting changing customer preferences, over the last five years, this market has increased to around 13 per cent of total rental income. Over the same period, we have seen a reduction in rental income from fashion outlets to around 25 per cent.

The difference between annual property income (see glossary) of £462 million and ERV of £544 million represents £37 million from vacant and development units and reversion of £45 million, 8 per cent, from rent reviews and lease expiry.  Of the 8 per cent reversion, 1 per cent is only realisable on expiry of leases with over 10 years remaining (eg anchor units), leaving 7 per cent realisable from other lease expiries and rent reviews.

The weighted average unexpired lease term is 7.5 years (31 December 2016: 7.7 years) illustrating the longevity of our income streams.

 

Delivering UK developments

In 2017, we invested £184 million in the UK.  This included £63 million on the intu Watford extension, £58 million on the acquisition of additional properties (all currently income-generating) which will be integral to future development projects, £12 million on the leisure extension at intu Lakeside and £51 million on other active asset management projects, including the new Travelodge hotel at intu Lakeside and the Next flagship store at intu Metrocentre.

 

Near-term pipeline

Looking ahead, we are progressing our near-term pipeline of £562 million over the next three years, reinforcing our existing assets and delivering value-enhancing returns. Our development team continues to progress these projects on budget and on time, with major developments on site at intu Watford and intu Lakeside and soon to start at intu Trafford Centre (Barton Square) and intu Broadmarsh, Nottingham.




Cost to completion (£m)









Total

2018

2019

2020











intu Watford

80

77

3

-

intu Lakeside

57

52

5

-

intu Trafford Centre

72

25

47

-

Active asset management

55

50

5

-











Total committed

264

204

60

-











intu Broadmarsh, Nottingham

81

11

40

30

intu Merry Hill (leisure)

70

-

-

70

intu Milton Keynes (phase 1)

15

-

-

15

Active asset management

132

45

45

42











Total pipeline

298

56

85

157


























Total UK

562

260

145

157

Spain1

397

23

157

217











Total

959

283

302

374






1 See below - Seizing the growth opportunity in Spain - for more details.

We are committed to investing £264 million, most of which is on key ongoing projects:

·      at intu Watford we remain on target with our £180 million extension expected to open in October 2018. The development has topped out, with the feature roof now installed and anchor tenants due to start fitting out in the next few months. The 380,000 sq ft project, anchored by Debenhams and Cineworld, is two-thirds let by space with Superdry and Hollywood Bowl exchanged in the year. The cost to completion of this project is £80 million, and as previously stated, the project is expected to deliver a return on cost of 6 to 7 per cent, including 1 to 2 per cent from the existing centre

·      at intu Lakeside we have commenced construction of the £72 million leisure extension, with £57 million of cost remaining to completion. This 175,000 sq ft project is expected to deliver a return on cost of 6.5 per cent and has the four leisure attractions Nickelodeon, Flip Out, Puttshack and Hollywood Bowl exchanged

·      at intu Trafford Centre, we have signed Primark to anchor the expansion and transformation of Barton Square. The £72 million project will enclose the courtyard, enhance interiors, allow trading from two levels and provide a fashion offer for the first time at Barton Square. We are progressing the procurement of the construction works and expect the project, delivering a return of 6 to 7 per cent, to be completed by mid-2019

·      active asset management projects total £55 million and include the Halle Place restaurant redevelopment at Manchester Arndale, the creation of flagship stores for Next at intu Metrocentre and intu Merry Hill and the redevelopment of former BHS units for Uniqlo and Primark at Manchester Arndale and intu Merry Hill respectively. These projects are expected to deliver a range of returns between 6 and 10 per cent dependent on the nature of the individual project

Our pipeline of planned projects amounts to £298 million, with a focus on extension and redevelopments:

·      at intu Broadmarsh we have a planned redevelopment which is expected to cost £81 million and deliver a stabilised initial yield of around 7 per cent. We have signed The Light cinema and Hollywood Bowl to anchor the scheme and we would expect to have the required level of pre-lets and completed detailed design to enable us to commit to this by the second half of 2018

·      at intu Merry Hill we are planning to increase the catering and leisure to bring it in line with other super-regional centres. In total, we expect to invest around £100 million, of which £70 million will be spent in the period to 2020, delivering a return at a similar level to that of the leisure extension at intu Lakeside

·      at intu Milton Keynes we expect to invest £15 million commencing phase one of the redevelopment of under-utilised space

·      other active asset management projects are smaller in nature, across all centres and at various stages of feasibility. We have the flexibility to start these projects when we have the required level of pre-lets and expect them to deliver similar returns to those that we have committed to

 

Future opportunities

Beyond 2020, we continue to work on securing the required planning approvals and tenant demand to start £1.4 billion of further projects which we would expect to deliver stabilised initial yields of around 7 per cent. We have planning approvals for extensions to intu Braehead, intu Lakeside, intu Victoria Centre and intu Milton Keynes and are at earlier stages of the planning process for the extension of Cribbs Causeway.

 

Funding

We will fund our near-term pipeline from cash and available facilities and from recycling capital to deliver superior returns. Cash and available facilities at 31 December 2017 were £833 million on a pro forma basis including the £148 million disposal of 50 per cent of intu Chapelfield. Further recycling potential lies in the introduction of partners into some of our centres, although this would have a short-term negative earnings impact until the proceeds are reinvested.

In addition, we expect to raise finance on near-term projects, such as the intu Watford extension, as they complete, to fund future opportunities.

 

Making the brand count

The intu brand has positioned us well, as the role of the shopping centre operator has changed, to ensure our centres remain relevant for both customers and retailers. The unprompted awareness of the intu brand increased to 26 per cent, a threefold increase since 2015 when we started monitoring, highlighting its increasing recognition and value. Additionally, our prompted awareness has increased to 71 per cent in 2017, from 63 per cent in 2016.

The combination of our national presence, attractive digital offering and in-house experiences team offers retailers and brands promotional opportunities, which in turn gives us a multidisciplinary opportunity to help retailers flourish within our centres.

The importance of identifying new ideas and services emerging in the UK retail market cannot be underestimated. In 2017 we launched intu Accelerate, an incubator for these technologies and services, identifying start-ups to pilot new concepts in centre and online, including what is believed to be Europe's first customer services robot in a shopping centre.

 

Customer service

Putting the customer first is embedded in our culture. Our net promoter score, a measure of customer service, ran consistently high throughout the year averaging 70 and demonstrating our in-centre operational excellence.

 

intu Experiences

Curation of the customer experience is a key element of our role in managing shopping centres. Our in-house team, intu Experiences, which generated income of £22 million, is crucial in delivering immersive brand partnerships, mall commercialisation and advertising which is complementary to the asset strategy of each centre and meets our quality standards.

An example of this end-to-end control is the large format digital screen we have introduced to each of our out-of-town centres, providing new income streams from global brands. We own all these screens and, in many instances, produce the content in-house - an area of growth for us.

Similarly, choosing the brands we work with promotionally is important in delivering the right messages. Through the Easter holidays we furthered our collaboration with Nick Jr., Nickelodeon's pre-school television channel, adding augmented reality functionality to our in-centre app to deliver a new family experience to our customers.

 

intu Digital

Our attractive digital offering through our premium content publisher and shopping platform, intu.co.uk, continued to grow strongly and delivered online sales for retailers of £9 million in the year, an increase of 50 per cent against 2016.

We continue to develop the site, with image recognition to assist product search added in 2017. 'Shop Insider', the premium content section of the site, saw traffic up nearly 200 per cent in the year to 1.5 million visits, leading to a 50 per cent increase in visits to the shopping pages. This highlights the power of quality content to drive both physical and digital sales, as shoppers continue to be ever more considered in their purchases, researching heavily online before planned visits.

Key to this growth is our online marketing expertise with over two million individuals on our active marketing database and a social media audience of over one million.

 

Seizing the growth opportunity in Spain

Our Spanish strategy has been to create a business of scale through acquisitions and our pipeline of development projects, concentrating on the top-10 key catchments, where we now own and manage three of Spain's top-10 shopping centres, with the acquisition of Madrid Xanadú in 2017 (see Acquisitions and disposals). In addition, we have three development sites with the most advanced project being intu Costa del Sol, near Málaga.

 

Operational performance

The occupancy of our Spanish centres is 97 per cent. We agreed 38 long-term lettings in the year, amounting to over £2 million annual rent, at an average of 25 per cent above previous passing rent (like-for-like units). New names to our centres included Quiz, Levis, Pandora, Alcott and Xiaomi.

Footfall increased by 1.0 per cent in the year and this includes the disruption in the first half of 2017 from the redevelopment work at intu Asturias where we developed a previously underutilised area to introduce a supermarket and new retail units. This opened in July with a strong uplift in footfall.

We have increased the value of the centres owned throughout the year with growth in rental values being the main driver. Our share of Puerto Venecia, Zaragoza was valued at £231 million, an increase of 4 per cent, and our share of intu Asturias increased by 11 per cent, to £141 million.

In 2018, we plan to roll out the intu brand to Puerto Venecia and Madrid Xanadú.

 

Near-term pipeline

Our Spanish development pipeline through to the end of 2020 amounts to £397 million.

We have active asset management projects of £57 million through to the end of 2020 across all three centres with a focus on enhancing the resort content of each centre.

Our world class project at intu Costa del Sol will create a shopping resort of around 230,000 sq m. In 2017, the approval of the General Plan of Torremolinos was a major step forward, with the remaining consents expected in the coming months. We have very strong interest from tenants and would anticipate being on site in the next 12 months.

The land, with planning mostly approved, was independently valued at the end of 2017, delivering a surplus of £74 million.

The total cost to completion of the development is expected to be around £600 million (£340 million through to 2020), excluding the land, and deliver a stabilised initial yield of around 7 per cent. We expect to fund the project through bank and other finance, and introduce a partner at a later stage.

 

Future opportunities

We continue to develop plans at the two other sites in Valencia and Vigo, having decided not to progress with our development option in Palma. At this point, intu Valencia, where we have renewed support from the regional government, is the most likely to follow intu Costa del Sol.

 

Acquisitions and disposals

In line with our strategy, we continue to recycle capital to focus on our flagship destinations where we have the opportunity to deliver superior returns.

 

Acquisitions

In March 2017, we acquired Madrid Xanadú, one of Spain's top-10 shopping centres, for an agreed headline price of €530 million. The centre has many of the key retailers, including El Corte Inglés, all the Inditex fascias, Primark and Apple, along with a strong leisure offering of Spain's only indoor ski slope, cinema, bowling and soon-to-open aquarium and Nickelodeon theme park. Footfall is 13 million, with a potential catchment of four million people living within a 30-minute drive time. Over the medium term, we see good reversionary potential, with further growth opportunities from key asset management initiatives which will enhance the centre's status as a truly regional retail and leisure resort, drawing visitors from a wider catchment.

In July 2017, we formed a joint venture with TH Real Estate for them to take ownership of 50 per cent of Madrid Xanadú based on the original acquisition price.

 

Disposals

In November 2017, we announced the formation of a joint venture with LaSalle Investment Management for them to take ownership of 50 per cent of intu Chapelfield, Norwich for a net consideration of £148 million, in line with the December 2016 valuation. The transaction completed in January 2018.

 



 

Corporate responsibility

We have had a successful year in both our work with communities and our efforts to reduce our environmental impact, having met many of our 2020 environmental targets three years early.

We have surpassed our ambitious target of a 50 per cent reduction in carbon intensity by 2020 based on our 2010 levels. Using a mix of technology and behaviour change interventions we are proud this year to have reached a total carbon reduction of 58 per cent from 2010 emissions. This has saved 144,000 tonnes of carbon and reduced our energy costs by £25 million.

We also maintained our 'zero waste to landfill' status for the second year, meaning we diverted 28,000 tonnes of waste from landfill and saved £2.4 million in associated landfill costs.  However, due to market factors including China's ban on the importing of waste for recycling, our recycling rate has fallen by 11 per cent to 63 per cent. Recycling rates will continue to fall until new markets are found as there is insufficient provision in the UK to handle the quantity we produce.

Last year we set up the Green Lab, our sustainability innovation group, to drive forward a range of sustainability initiatives across the business. Following the introduction of renewable energy generation and food waste trials last year, this year we have focused on working with sustainability consultants Bioregional to test new innovations that can be rolled out across the business. We are trialling some of these ideas on the upcoming intu Broadmarsh redevelopment. Next year we plan to explore further innovations in our operations.

Our strong and open relationships with our stakeholders means we have delivered real and lasting change in our communities. This year our wide-ranging community investment - which focuses on skills and employment, health and wellbeing, and social inclusion - benefited 3,645 people. Feedback showed 71 per cent of responders reported experiencing a positive change in their quality of life. 

Jobs in our centres continue to form a significant proportion of the UK's retail sector employment - we are responsible for about 3 per cent of all jobs in the sector. The majority of these are locally employed, meaning the wealth we create is captured locally.

This year we are reporting on our sustainability performance in Spain in our CR report and plan to include our Spanish assets in our future commitments.



 

MARKET REVIEW

UK investment market

Prime shopping centres continue to attract interest from both international and domestic investors. While activity was limited in 2017, good levels of demand remain for quality assets in the UK's liquid and transparent market for large shopping centres.

A flight to quality has ensured prime yields on assets with simple ownership structures remain stable as investors look at the quality and longevity of income streams coupled with rental growth potential in a market where new supply, by way of development, remains low. Against this, the depth of investor demand for secondary assets has diminished.

 

UK consumer market

Uncertainty regarding the final terms of the UK's exit from the EU is creating a mixed picture on the state of the UK consumer. Unemployment continues at record low levels which should in turn drive growth in personal income. However, the increase in inflation from the weakening of sterling after the EU referendum vote is causing prices to rise faster than wages at the moment which impacts consumers' disposable income. The Asda benchmark index of household disposable income has remained level since December 2016.

Looking further ahead, the Bank of England's forecasts suggest that wage growth will overtake inflation as we go into 2018.

Consumer confidence, as measured by GfK, has reduced slightly in 2017, reflecting the negative sentiment on the expectations for the economy, although consumers' view on their personal finance situation over the next 12 months is stable.

These mixed messages have not had a material effect on total non-food retail spending, which remained unchanged in 2017 against the previous year (British Retail Consortium total non-food retail index), although, with the continued growth in online,
in-store sales were down by around 2 per cent in the year.

 

Occupier market

Retail is a dynamic industry, and retailers the world over are used to dealing with an ever-changing environment. Right now they are facing economic and structural challenges which are speeding up the rate of change of their online and instore strategies.

The store, and its value, is still integral to these strategies. Retailers are continuing to invest in flagship stores in locations that offer a compelling mix of retail, catering, leisure and experience and deliver high footfall. That is why we continue to be a key landlord for our retailers:

·      New retail anchors: The retailers that attract customers to a centre are changing. Super retailers, such as Primark and Next, are increasing their store size, while the likes of Inditex and H&M are taking additional stores for their portfolios of brands. Customers are drawn to these retailers because they offer their full ranges in our flagship destinations

·      International: Despite the challenging headwinds facing retailers, the UK is still an attractive market for international retailers who focus their expansion plans on high footfall, experience-based locations. Demand is truly global, with Victoria's Secret from the US, Australian accessories brand Lovisa and Polish cosmetics store Inglot all expanding

·      Brands: As direct access to new customers becomes harder, brands are considering different routes, with shopping centres an attractive option as they offer high levels of footfall and long dwell times. Global brands such as Nespresso, Mercedes and Tesla are following this route and we are having conversations with fast-moving consumer goods companies

·      Leisure: From trampolining and mini-golf to skiing and aquariums, brands such as Puttshack, Flip Out and Gravity are increasingly taking space in our flagship centres, to reach the leisure-hungry customer. Leisure and experience play a key role in what people decide to do with their free time and they want to enjoy such attractions at a place convenient to them

 

Spanish market

The Spanish economy is still one of Europe's fastest growing economies and this should continue in 2018 with its GDP growth expected to be one of the highest of the major European economies. For the consumer, unemployment is at its lowest level for several years and consumer confidence at its highest. This in turn benefits retail sales which are further enhanced by record levels of tourists which have increased by 20 per cent over the last two years.

The investment market remains strong with continuing investor confidence in Spanish real estate supported by an economy that is growing. With banks willing to lend against Spanish assets, the weight of money in the market looking to invest in quality assets has continued to strengthen the market. Partly due to the lack of development in recent years, prime regional shopping centres are scarce which is reflected in good demand.

 



 

TOP PROPERTIES















Annual

Headline




Market

Size


Number

property

rent

ABC1



value

(sq ft 000)

Ownership

of stores

income

ITZA

customers

Key tenants


Super-regional centres


intu Trafford Centre

£2,324m

2,018

100%

227

£93.7m

£450

67%

Debenhams, Topshop, Selfridges, John Lewis, Next, Apple, Ted Baker, Victoria's Secret, Odeon, Legoland Discovery Centre, H&M, Hamleys, Marks & Spencer, Zara, Sea Life

intu Lakeside

£1,417m

1,435

100%

250

£53.2m

£360

69%

House of Fraser, Debenhams, Marks & Spencer, Topshop, Zara, Primark, Vue, Victoria's Secret, H&M, Next

intu Merry Hill

£931m

1,671

100%

217

£42.4m

£200

48%

Marks & Spencer, Debenhams, Primark, Next, Topshop, Asda, Boots, H&M, Odeon

intu Metrocentre

£929m

2,086

90%

307

£48.1m

£280

55%

House of Fraser, Marks & Spencer, Debenhams, Apple, H&M, Topshop, Zara, Primark, River Island, Odeon

intu Braehead

£533m

1,123

100%

123

£28.1m

£250*

64%

Marks & Spencer, Primark, Apple, Next, H&M, Topshop, Hollister, Superdry, Sainsbury's

Cribbs Causeway

£240m

1,075

33%

153

£12.9m

£305

80%

John Lewis, Marks & Spencer, Apple, Next, Topshop, Timberland, Hobbs, Hugo Boss, H&M, Tesla



Major city centres


intu Derby

£458m

1,300

100%

212

£28.9m

£110

46%

Marks & Spencer, Debenhams, Sainsbury's, Next, Boots, Topshop, Cinema de Lux, Zara, H&M

Manchester Arndale

£456m

1,790

48%

254

£21.3m

£285

57%

Harvey Nichols, Apple, Burberry, Topshop, Next, Ugg, Hugo Boss, Superdry, Zara, Hollister, Victoria's Secret, Paul Smith

intu Victoria Centre

£356m

976

100%

115

£19.5m

£250

57%

John Lewis, House of Fraser, Next, Topshop, River Island, Boots, Urban Outfitters, Superdry

St David's, Cardiff

£346m

1,391

50%

203

£17.0m

£212

71%

John Lewis, Debenhams, Marks & Spencer, Apple, Hugo Boss, H&M, River Island, Hamleys, Primark, Victoria's Secret

intu Watford

£336m

728

93%

140

£15.8m

£220

81%

John Lewis, Marks & Spencer, Apple, Zara, Primark, Next, Lakeland, Lego, H&M, Topshop, New Look

intu Eldon Square

£323m

1,385

60%

142

£16.1m

£308

60%

John Lewis, Fenwick, Debenhams, Waitrose, Apple, Hollister, Topshop, Boots, River Island, Next
























Annual





Market

Size


Number

Property





value

(sq m 000)

Ownership

of stores

Income



Key tenants


Spanish centres


Madrid Xanadú

€265m

120**

50%

208

€12.7m



El Corte Inglés, Zara, Primark, Apple, H&M, Mango, SnowZone, Cinesa, Bricor, Decathlon

Puerto Venecia, Zaragoza

€260m

120**

50%

206

€12.2m



El Corte Inglés, Primark, Ikea, Apple, Decathlon, Cinesa, H&M, Mediamarkt, Zara, Hollister,

Toys R Us

intu Asturias

€159m

74**

50%

144

€8.1m



Primark, Zara, H&M, Cinesa, Eroski, Mango, Springfield, Fnac, Mediamarkt, Desigual










 

* The amount presented is on the Scottish ITZA basis; the English equivalent is £335.

** Excludes owner occupied space.

 



 

FINANCIAL REVIEW

Presentation of information

We account for our interests in joint ventures using the equity method as required by IFRS 11 Joint Arrangements. This means that the income statement and the balance sheet include single lines for the Group's total share of post-tax profit and the net investment in joint ventures respectively.

Management review and monitor performance as well as determine the strategy of the business primarily on a proportionately consolidated basis. This includes the Group's share of joint ventures on an individual line-by-line basis rather than a post-tax profit or net investment basis. The figures and commentary presented are consistent with our management approach as we believe this provides a more meaningful analysis of the Group's performance. The other information section provides reconciliations of the income statement and balance sheet between the two bases.

Alternative performance measures are also used to assess the Group's performance. The significant measures are summarised as follows:



Alternative performance


measure used

Rationale



Like-for-like amounts

Like-for-like amounts are presented as they indicate operating performance as distinct from the impact of acquisitions or disposals. In respect of property, the like-for-like measure relates to property which has been owned throughout both periods without significant capital expenditure in either period, so that income can be compared on a like-for-like basis. For the purposes of comparison of capital values, this will also include assets owned at the previous reporting period end but not throughout the prior period. Further analysis is presented in the other information section and in the operating review.



Net asset value (NAV) (diluted, adjusted)

NAV (diluted, adjusted) is presented as it is considered to be a key measure of the Group's performance. The key difference from EPRA NAV, an industry standard comparable measure, is the exclusion of interest rate swaps not currently used for economic hedges of debt as, in our view, this better allows management to review and monitor the Group's performance. A reconciliation of NAV (diluted, adjusted) to NAV attributable to owners of intu properties plc is provided in note 9(a) as well as below and to EPRA NAV within the other information section.





Underlying earnings

Underlying earnings is presented as it is considered to be a key measure of the Group's recurring income performance and an indication of the extent to which dividend payments are supported by underlying operations (see underlying profit statement in the other information section). It excludes property and derivative valuation movements, exceptional items and related tax. The key difference from EPRA earnings, an industry standard comparable measure, relates to adjustments in respect of exceptional items where EPRA is prescriptive about the adjustments that can be made. A reconciliation of underlying earnings to profit for the year attributable to owners of intu properties plc is provided in note 8(c) as well as below and to EPRA earnings within the other information section.



 

Overview

We have recorded underlying earnings of £201.0 million for the year ended 31 December 2017, slightly higher than the £200.0 million recorded in 2016. This reflects 0.5 per cent growth in like-for-like net rental income as well as the impact of 2017 and 2016 acquisitions and disposals. Underlying earnings per share of 15.0 pence is unchanged from 2016.

Profit for the year attributable to owners of intu properties plc of £216.7 million has increased by £34.0 million, driven by a surplus on property revaluations of £47.3 million (2016: deficit of £63.8 million), as well as the change in fair value of financial instruments, a surplus of £23.0 million (2016: charge of £16.9 million), partially offset by 2016 gains of £74.1 million on the sale of our interest in Equity One and £34.6 million on the acquisition of the remaining 50 per cent of intu Merry Hill.

NAV per share of 411 pence has increased 7 pence from 2016, which when taking account of the dividend paid in the period of 14.0 pence delivers a total financial return for the year of 5.2 per cent. NAV per share includes a timing impact within retained earnings of 4 pence in relation to our Spanish development partner Eurofund's expected future interest in the share capital of the intu Costa del Sol development company. The positive impact on retained earnings is expected to reverse, once these arrangements are concluded, with the Eurofund interest to be included in non-controlling interests during 2018. In this event NAV per share would be 407 pence.

In March we continued to increase our presence in Spain and strengthen our quality portfolio, acquiring 100 per cent of Madrid Xanadú for €517.3 million (£453.9 million). As part of this we arranged a €263 million loan facility, with a 2022 maturity. In July we disposed of 50 per cent of Madrid Xanadú to TH Real Estate based on the original acquisition price, retaining a 50 per cent interest. Further, in November we announced the formation of a joint venture with LaSalle Investment Management (acting on behalf of Greater Manchester Pension Fund and West Yorkshire Pension Fund) for them to take ownership of 50 per cent of intu Chapelfield for initial net proceeds of £148.0 million. This transaction has now completed following the receipt of EU merger approval in January 2018. As a result, in accordance with IFRS, the net assets of intu Chapelfield have been classified as held for sale at 31 December 2017 in the balance sheet.

Our financing metrics remain strong mainly due to our continued refinancing activity. During the year we refinanced over £1.1 billion of debt, including the refinancing of intu Milton Keynes and intu Merry Hill, securing financing on Madrid Xanadú and additional financing on intu Trafford Centre. Our interest cover ratio of 1.94x is broadly unchanged in the year (31 December 2016: 1.97x) with satisfactory headroom above our target minimum level of 1.60x.



 

At 31 December 2017, pro forma for the 50 per cent part disposal of intu Chapelfield for initial net proceeds of £148.0 million, our debt to assets ratio has increased to 45.2 per cent (31 December 2016: 43.7 per cent), remaining below our target maximum level of 50 per cent. Also on a pro forma basis, we had cash and available facilities of £833.1 million (31 December 2016: £922.3 million) which have decreased in the year due to the acquisition and part disposal of Madrid Xanadú as well as buying back and cancelling £139.6 million of the £300 million 2.5 per cent convertible bonds, maturing Autumn 2018, partially offset by the net proceeds on the part disposal of intu Chapelfield.

Income statement





2017

2016










Group

Group



Share of

including

including



joint

share of joint

share of joint


Group

ventures

ventures

ventures


£m

£m

£m

£m






Underlying earnings

201.0

n/a

201.0

200.0

Adjusted for:





Revaluation of investment and development property

30.8

16.5

47.3

(63.8)

Gain on acquisition of businesses

-

-

-

34.6

Loss on disposal of subsidiaries

(1.8)

-

(1.8)

(0.3)

(Loss)/gain on sale of other investments

-

(0.3)

(0.3)

74.1

Administration expenses - exceptional

(5.9)

(0.7)

(6.6)

(2.9)

Exceptional finance costs

(33.0)

-

(33.0)

(32.9)

Change in fair value of financial instruments

22.0

1.0

23.0

(16.9)

Tax on the above

(24.0)

1.3

(22.7)

(16.5)

Share of joint ventures' items

17.2

(17.2)

-

-

Share of associates' items

0.4

-

0.4

1.1

Non-controlling interests in respect of the above

10.0

(0.6)

9.4

6.2











Profit for the year attributable to owners of





intu properties plc

216.7

n/a

216.7

182.7











Underlying earnings per share (pence)

15.0p

n/a

15.0p

15.0p






Underlying earnings increased to £201.0 million from £200.0 million at 31 December 2016. The key movements are shown in the chart below. Underlying earnings per share is consistent with prior year at 15.0 pence.

Underlying earnings (£m) - Chart 2

 

Click on, or paste the following link into your web browser, to view the associated PDF document.

 

 http://www.rns-pdf.londonstockexchange.com/rns/5578F_-2018-2-21.pdf

 

Net rental income increased £13.0 million in 2017 to £460.0 million due to the acquisition of Madrid Xanadú in March 2017, the acquisition of the remaining 50 per cent of intu Merry Hill in June 2016 and 0.5 per cent growth in like-for-like net rental income, partially offset by the impact of the disposal of intu Bromley in December 2016.

Like-for-like net rental income increased by £2.1 million, 0.5 per cent, driven by rental growth from new lettings and rent reviews, partially offset by the impact of the redevelopment and reletting of the former BHS units which were fully income producing in the first half of 2016 (see operating review).



 

Administration expenses increased by £3.0 million in 2017 to £41.6 million, primarily due to increased headcount in Spain partially offset by a cost reduction programme in the second half of the year from which we will benefit in 2018.

Net finance costs have increased by £9.6 million in 2017 to £222.5 million primarily due to the increase in net external debt for the acquisition of Madrid Xanadú and capital expenditure in the year.

As discussed in the overview, profit attributable to owners of intu properties plc is £216.7 million, an increase from the £182.7 million reported for the year ended 31 December 2016.

Our investment in joint ventures contributed £35.5 million to the profit of the Group (2016: £32.1 million) including £18.3 million to underlying earnings (2016: £19.8 million) and a gain on property valuations of £15.9 million (2016: £14.2 million).

As detailed in the table below, our net rental income margin has reduced to 87.5 per cent primarily due to higher void costs from the former BHS units. Property operating expenses largely comprise car park operating costs and the Group's contribution to shopping centre marketing programmes. Our ratio of total costs to income, as calculated in accordance with EPRA guidelines, remains low at 15.1 per cent (see other information section).





Year ended

Year ended


31 December

 2017

31 December

2016


£m

£m




Gross rental income

546.2

532.6

Head rent payable

(20.5)

(25.4)




 




525.7

507.2

Net service charge expense and void rates

(29.1)

(26.0)

Bad debt and lease incentive write-offs

(3.2)

(2.5)

Property operating expense

(33.4)

(31.7)







Net rental income

460.0

447.0







Net rental income margin

87.5%

88.1%







EPRA cost ratio (excluding direct vacancy costs)

15.1%

15.0%




 

Balance sheet





2017

2016










Group

Group


Group

Share of

Including

including


balance

joint

share of joint

share of joint


sheet

ventures

ventures

ventures


£m

£m

£m

£m






Investment and development property

9,179.4

1,013.1

10,192.5

9,944.5

Investment in joint ventures

735.5

(735.5)

-

-

Assets and associated liabilities classified as held for sale

302.9

-

302.9

-

Investment in associates and other investments

81.6

-

81.6

80.7

Net external debt

(4,585.6)

(249.9)

(4,835.5)

(4,364.1)

Derivative financial instruments

(347.5)

(2.3)

(349.8)

(380.0)

Other assets and liabilities

(237.1)

(22.2)

(259.3)

(234.7)











Net assets

5,129.2

3.2

5,132.4

5,046.4

Non-controlling interest

(54.2)

(3.2)

(57.4)

(67.6)











Attributable to shareholders

5,075.0

n/a

5,075.0

4,978.8

Fair value of derivative financial instruments

347.5

2.3

349.8

380.0

Other adjustments

100.2

(2.3)

97.9

76.3

Effect of dilution

-

-

-

2.6











Net assets (diluted, adjusted)

5,522.7

n/a

5,522.7

5,437.7











NAV per share (diluted, adjusted) (pence)

411p

n/a

411p

404p






The Group's net assets attributable to shareholders have increased by £96.2 million to £5,075.0 million at 31 December 2017, while net assets (diluted, adjusted) have increased by £85.0 million to £5,522.7 million at 31 December 2017.

NAV per share (diluted, adjusted) at 31 December 2017 has increased 7 pence from the prior year to 411 pence, the key movements are shown in the chart below. This was driven principally by the revaluation surplus in the year of 4 pence and the timing impact within retained earnings of 4 pence in relation to our Spanish development partner Eurofund's expected future interest in the share capital of the intu Costa del Sol development company. The positive impact on retained earnings is expected to reverse, once these arrangements are concluded, with the Eurofund interest to be included in non-controlling interests during 2018. In this event NAV per share would be 407 pence.



 

Net asset value per share (pence) - Chart 3

 

Click on, or paste the following link into your web browser, to view the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/5578F_-2018-2-21.pdf 

 

Investment and development property has increased by £248.0 million primarily due to capital expenditure of £246.7 million, the impact of the acquisition and subsequent 50 per cent disposal of Madrid Xanadú of £225.3 million and a surplus on revaluation of £47.3 million, partially offset by the £302.0 million transfer of intu Chapelfield to assets held for sale.

Our net investment in joint ventures is £735.5 million at 31 December 2017 (31 December 2016: £587.6 million), which includes the Group's share of net assets, on an equity accounted basis, of £452.6 million (31 December 2016: £355.4 million) and loans to joint ventures of £282.9 million (31 December 2016: £232.2 million). The movement in the year primarily reflects the addition of Madrid Xanadú from 31 July, when 50 per cent was sold to TH Real Estate, which is accounted for as a joint venture rather than as a 100 per cent owned subsidiary.

Investments in associates of £64.8 million represent our interests in India, which comprise a 32 per cent interest in Prozone (£45.1 million), a shopping centre developer listed on the Indian stock market, and a direct interest in Empire (£19.7 million). Prozone and Empire own and operate shopping centres in Coimbatore and Aurangabad, with Coimbatore recently opened in 2017.

Net external debt of £4,835.5 million has increased by £471.4 million primarily from funding our acquisition of Madrid Xanadú as well as capital expenditure in the year. Cash including the Group's share of joint ventures has reduced slightly by £13.4 million to £278.2 million and gross debt has increased by £458.0 million to £5,113.7 million.

Derivative financial instruments comprise the fair value of the Group's interest rate swaps. The net liability at 31 December 2017 is £349.8 million, a decrease of £30.2 million from 2016, primarily due to cash payments in the year and the increases in sterling swap rates, with the five-year and 10-year rates increasing by 17bps and 4bps respectively. Cash payments in the year totalled £47.1 million, £26.1 million of which has been classified as an exceptional finance cost as it relates to payments in respect of unallocated interest rate swaps. The balance of the payments has been included as underlying finance costs as it relates to ongoing interest rate swaps used to hedge debt.

As previously detailed, we have a number of interest rate swaps, entered into some years ago, which are unallocated due to a change in lenders' practice. At 31 December 2017 these interest rate swaps have a market value liability of £235.4 million (31 December 2016: £253.2 million). It is estimated that we will be required to make cash payments on these interest rate swaps of around £28.5 million in 2018, reducing to around £19 million per annum in 2021.

Assets and associated liabilities classified as held for sale of £302.9 million relate to intu Chapelfield.

The non-controlling interest at 31 December 2017 relates primarily to our partner's 40 per cent stake in intu Metrocentre.

We are exposed to foreign exchange movements on our overseas investments. At 31 December 2017 the exposure is 10.6 per cent of net assets attributable to shareholders. Once the Eurofund expected future interest in the share capital of the intu Costa del Sol development company concludes, we expect this to reduce to 9.7 per cent, below the Group's policy of a maximum of 10 per cent.



 

Cash flow





Year ended

Year ended


31 December

2017

31 December

2016


£m

£m




Group cash flow as reported



Cash flows from operating activities

140.9

131.4

Cash flows from investing activities

(518.1)

(243.4)

Cash flows from financing activities

350.2

88.7

Foreign currency movements

0.4

1.4







Net decrease in Group cash and cash equivalents

(26.6)

(21.9)




During 2017 cash and cash equivalents decreased by £26.6 million.

Cash flows from operating activities of £140.9 million is £9.5 million higher than 2016, primarily due to the acquisitions in the year.

Cash flows from investing activities reflect the net cash outflow for our acquisition and then subsequent 50 per cent part disposal of Madrid Xanadú as well as cash outflows related to capital expenditure during the year.

Cash flows from financing activities include net debt drawdowns of £539.2 million primarily to fund our acquisition of Madrid Xanadú as well as development spend. We paid cash dividends during the year of £188.0 million.

 

Financing

Debt structure

We have carried out significant refinancing activity in recent years which has resulted in diversified sources of funding, including secured bonds plus syndicated bank debt secured on individual or pools of assets, with limited or no recourse from the borrowing entities to other Group companies outside of these arrangements. Our corporate-level debt remains limited to the Revolving Credit Facility (RCF) as well as the £375 million 2.875 per cent convertible bonds 2022 and £160.4 million outstanding in respect of the 2.5 per cent convertible bonds 2018.

During 2017 we undertook the following financing activities:

·      agreed a new £140 million facility secured against intu Milton Keynes, replacing the previous £125 million loan, maturing in 2019

·      agreed a €263 million (£231 million) facility in connection with the acquisition of Madrid Xanadú, maturing in 2022; intu's share is €131.5 million

·      agreed a new £488 million facility secured on intu Merry Hill, replacing the previous £500 million short-term facility put in place in 2016 on acquisition of the remaining 50 per cent, maturing in 2024

·      agreed a £250 million loan secured on intu Trafford Centre, maturing in 2022

·      purchased and subsequently cancelled £139.6 million of the £300 million 2.5 per cent convertible bonds 2018. £160.4 million of these convertible bonds remain outstanding at 31 December 2017

Since the year end, we have agreed a new £74 million facility secured on our interest in intu Chapelfield, maturing in 2023.

Debt maturity (£m) - Chart 4

 

Click on, or paste the following link into your web browser, to view the associated PDF document.

 

http://www.rns-pdf.londonstockexchange.com/rns/5578F_-2018-2-21.pdf 

 

The chart above illustrates that we have no major refinancing requirement due until 2021.



 

Debt measures





31 December 2017

31 December 2016







Debt to assets

45.2%1

43.7%

Interest cover

1.94x

1.97x

Weighted average debt maturity

6.6 years

7.1 years2

Weighted average cost of gross debt

4.2%

4.3%

Proportion of gross debt with interest rate protection

95%

88%

Cash and available facilities

£833.1m1

£922.3m




1 Pro forma for the £148 million disposal of 50 per cent part of intu Chapelfield.

2 Pro forma for the refinancing of intu Milton Keynes, completed February 2017.

On a pro forma basis, our debt to assets ratio has increased to 45.2 per cent since 31 December 2016 due to the acquisition and part disposal of Madrid Xanadú and remains below our target maximum level of 50 per cent. Our weighted average debt maturity has decreased to 6.6 years and the weighted average cost of debt has decreased slightly to 4.2 per cent (excluding the RCF).

Interest cover of 1.94x is broadly unchanged in the year and remains above our targeted minimum level of 1.60x.

We use interest rate swaps to fix interest obligations, reducing any cash flow volatility caused by changes in interest rates. The proportion of debt with interest rate protection on a pro forma basis has increased in the year to 95 per cent within our policy range of between 75 per cent and 100 per cent.

 

Covenants

Full details of the debt financial covenants are included in the other information section of this report. We are in compliance with all of our covenants and regularly stress test them for changes in capital values and income. A 25 per cent fall in property values and a 10 per cent reduction in income would only require a £6 million equity cure.

 

Capital commitments

We have an aggregate commitment to capital projects of £267.6 million at 31 December 2017 (31 December 2016: £257.0 million).

In addition to the committed expenditure, we have an identified uncommitted pipeline of active management projects, major extensions and developments that may become committed over the next three years (see operating review).

 

Other information

Tax policy position

The Group has tax exempt status in the UK (REIT) and for certain investments in Spain (SOCIMI) which provide exemption from corporation tax on rental income and gains arising on property sales, with tax instead being paid at shareholder level. See glossary for further information on REITs and SOCIMIs.

The Group's principle of good governance extends to our responsible approach to tax. We look to minimise the level of tax risk and at all times seek to comply fully with our regulatory and other tax obligations and to act in a way which upholds intu's reputation as a responsible corporate citizen by regularly carrying out risk reviews, seeking pre-clearance from HMRC in complex areas and actively engaging in discussions regarding proposed changes in the taxation system that might affect the Group. It remains important to our stakeholders that our approach to tax is aligned to the long-term values and strategy of the Group.

We have published 'intu's Approach to Tax' in respect of the year ending 31 December 2017 on the Group's website intugroup.co.uk which provides further information about the Group's tax strategy.

We pay tax directly on overseas earnings, any UK non-property income under the REIT rules, business rates and transaction taxes such as stamp duty land tax. In the year ended 31 December 2017 the total of such payments to tax authorities was £28.5 million (2016: £20.6 million), of which £26.0 million (2016: £20.0 million) was in the UK and £2.5 million (2016: £0.6 million) in Spain. In addition, we also collect VAT, employment taxes and withholding tax on dividends for HMRC and the Spanish tax authorities. Business rates, principally paid by tenants, in respect of the Group's UK properties amounted to around £280.6 million in 2017 (2016: £292.2 million).

 

Dividends

The Directors are recommending a final dividend of 9.4 pence per share bringing the amount paid and payable in respect of 2017 to 14.0 pence, unchanged from 2016. A scrip dividend alternative may be offered. Details of the apportionment between the PID and non-PID elements per share will be confirmed in due course.

At 31 December 2017, the Company has distributable reserves of £977 million, sufficient to cover around five years of dividends at the 2017 level. The Company typically pays dividends which are covered by the current year earnings of the Group and does not anticipate that the Group's level of distributable reserves will create any restrictions on this approach in the foreseeable future.



PRINCIPAL RISKS AND UNCERTAINTIES

Fully integrated and thorough risk analysis underpins the ability to achieve our strategic objectives. The Board and Executive Committee have undertaken a robust assessment of the principal risks we face, including those that would impact the business model, future performance, solvency and liquidity. This assessment is not limited to purely financial metrics but spans the whole business model, including environmental, social and employee matters, respect for human rights and anti-corruption and anti-bribery matters.

We have identified principal risks and uncertainties under five key headings: property market; operations; financing; developments and acquisitions; and brand. These are discussed in detail on the following pages. A principal risk is one which has the potential to significantly affect our strategic objectives, financial position or future performance and includes both internal and external factors. We monitor movements in likelihood and severity such that the risks are appropriately managed in line with the Group's risk appetite.

The risk profile for 2017 has remained broadly in line with 2016 with no significant new principal risks identified nor substantial changes in existing principal risks. Where the likelihood for certain risks has increased additional risk mitigation strategies have been put in place. We have also assessed the impact of the proposed transaction with Hammerson plc on our principal risks.

The main impact from the UK's decision to exit the EU on the risks that the Group faces is the potential negative impact on the macro-economic environment as a result of the continuing uncertainty around transitional and post-Brexit arrangements. Specifically, the risks we face are affected by any changes in sentiment in the investment and occupier markets in which we operate, in our ability to execute our recycling and investment plans and in broader consumer confidence and expenditure.

 

Key to strategic objectives:                                                                                           Change in level of risk:

 

1)

Optimising asset performance

+

Increased

2)

Delivering UK developments

3)

Making the brand count

=

Remained the same

4)

Seizing the growth opportunity in Spain

 





Risk and impact

Mitigation


2017 commentary







Property market

Strategic objectives affected: 1,2,3,4







 


Macro-economic

Weakness in the macro-economic environment could undermine rental income levels and property values, reducing return on investment and covenant headroom

·  focus on high-quality shopping centres together with their upgrading

·  covenant headroom monitored and stress-tested

·  make representation on key policies, for example business rates

·  company-wide marketing events across centres to attract footfall

·  use our respected brand to attract and retain aspirational retailers

·  continue geographic diversification by increasing Spanish presence

=

Likelihood of macro-economic weakness continues to be a risk with political uncertainty in the UK and Brexit arrangements not yet detailed, which has increased investor caution with lower transaction volumes in the year

·  like-for-like property values broadly holding up, but under pressure at the lower end of the market

·  substantial covenant headroom

·  no significant near-term debt maturities and average unexpired term of 6.6 years

·  long-term lease structures with average unexpired term of 7.5 years

·  €517m acquisition of Madrid Xanadú and subsequent 50 per cent sale to joint venture partner at the same price

·  sale of 50 per cent interest in intu Chapelfield at £148m, ahead of the December 2016 valuation



 




 


Retail environment

Failure to react to changes in the retail environment could undermine intu's ability to attract customers and tenants

·  active management of tenant mix including letting of former BHS units

·  regular monitoring of tenant strength and diversity

·  upgrading assets to meet market demand

·  Tell intu customer feedback programme helps identify changes in customer preferences

·  work closely with retailers

·  digital strategy that embraces technology and digital customer engagement. This enables intu to engage in and support multichannel retailing, and to take the opportunities offered by ecommerce

=

Likelihood and severity of potential impact was monitored closely in 2017 with intu's strategy continuing to deliver solid footfall numbers and occupancy

·  significant progress on planning and pre-letting of near-term pipeline with a focus on leisure

·  continuing digital investment to improve relevance as shopping habits change

·  occupancy remains strong at 96 per cent

·  footfall growth continues to beat the benchmark

·  on site with the £72m intu Lakeside leisure extension





 



PRINCIPAL RISKS AND UNCERTAINTIES (continued)





Risk and impact

Mitigation


2017 commentary







Operations

Strategic objectives affected: 1,3









Health and safety

Accidents or system failure leading to financial and/or reputational loss

·  strong business process and procedures, including compliance with OHSAS 18001, supported by regular training and exercises

·  annual audits of operational standards carried out internally and by external consultants

·  culture of visitor, staff and contractor safety

·  crisis management and business continuity plans in place and tested

·  retailer liaison and briefings

·  appropriate levels of insurance

·  staff succession planning and development in place to ensure continued delivery of world class service

·  health and safety managers or coordinators in all centres

=

Likelihood of potential impact has not changed significantly during 2017, however severity impacted by new enforcement structure

·  retained OHSAS 18001, demonstrating consistent health and safety management process and procedures across the portfolio

·  work continuing towards achieving additional accreditations with focus on ISO 14001

·  gold award from RoSPA

·  full review undertaken of each centre's fire strategy and building specifications post-Grenfell has provided appropriate assurance across the portfolio



 




 


Cybersecurity

Loss of data and information or failure of key systems resulting in financial and/or reputational loss

·  data and cybersecurity strategies

·  regular testing programme and cyber scenario exercise and benchmarking

·  appropriate levels of insurance

·  crisis management and business continuity plans in place and tested

·  data committee and data protection officer in place

·  monitoring of regulatory environment and best practice

·  cybersecurity assessment performed by external consultancy and full action plan in place (programme of works)

·  managing of supply chain and service providers who hold intu data

+

Likelihood has increased with greater reliance on operational and third party systems and data, and with the number of recent high-profile hacks. Severity of potential impact has reduced by significant development of tools and controls. Hacking attempts have not resulted in data loss or major operational impacts

·  ongoing Group-wide cybersecurity project with investment in tools, consultancy and staff to mitigate impact of threats from evolving cybersecurity landscape

·  implementing updated GDPR policies and procedures



 




 


Terrorism

Terrorist incident at an intu centre or another major shopping centre resulting in loss of consumer confidence with consequent impact on lettings and rental growth

·  strong business process and procedures, supported by regular training and exercises, designed to adapt and respond to changes in risk levels

·  extraordinary pre-planned operational responses to changes in national threat level

·  annual audits of operational standards carried out internally and by external agencies

·  culture of visitor, staff and contractor safety

·  crisis management and business continuity plans in place and tested with involvement of multiple external agencies

·  retailer liaison and briefings

·  appropriate levels of insurance

·  strong relationships and frequent liaison with police, NaCTSO and other agencies

·  NaCTSO approved to train staff in counter-terrorism awareness programme

·  internal head of security appointed

=

Overall likelihood and severity of potential impact unchanged. In May 2017 we enacted our operational plan for the period of increased threat level. The threat level was subsequently reduced to the prior threat level

·  there have been five terrorist-related incidents in the UK in 2017

·  national threat level remains at Severe

·  major multi-agency security exercises held at all five super-regional intu shopping centres

·  operating procedures in place for the introduction of further security measures if required

 



 


 



 

PRINCIPAL RISKS AND UNCERTAINTIES (continued)





Risk and impact

Mitigation


2017 commentary







Financing

Strategic objectives affected: 2,4







 


Availability of funds
Reduced availability of funds could limit liquidity, leading to restriction of investing and operating activities and/or increase in funding cost

·  funding strategy regularly reported to the Board with current and projected funding position

·  effective treasury management aimed at balancing the length of the debt maturity profile and diversification of sources of finance

·  consideration of financing plans including potential for recycling of capital before commitment to transactions and developments

·  strong relationships with lenders, shareholders and partners

·  focus on high-quality shopping centres

=

Macro-economic events during 2017, and the uncertainty caused by them, mean the increased risk of reduced availability remains. However, severity of potential impact unchanged from 2016. Regular refinancing activity continuing to evidence the availability of funding

·  new €263m loan to finance acquisition of Madrid Xanadú

·  introduction of joint venture partner into Madrid Xanadú

·  £140m refinancing of intu Milton Keynes

·  £488m refinancing of intu Merry Hill

·  £250m additional financing on intu Trafford Centre








Developments and acquisitions


Strategic objectives affected: 2,4









Developments

Developments fail to create shareholder value

·  Capital Projects Committee reviews detailed appraisals before and monitors progress during significant projects

·  fixed price construction contracts for developments agreed with clear apportionment of risk

·  significant levels of pre-lets exchanged prior to scheme development

=

Likelihood and severity of potential impact have remained unchanged in 2017 as the Group has progressed work on its development pipeline

·  at intu Watford works are on schedule to hit all key milestones

·  on site with intu Lakeside leisure development

·  detailed appraisal work and significant pre-lets ahead of starting major development projects

·  key anchor letting to Primark secured prior to proposed start on site in 2018 at Barton Square for intu Trafford Centre transformation









Acquisitions

Acquisitions fail to create shareholder value

·  research and third party due diligence undertaken for transactions

·  local partner, advisors and experienced staff in Spain with specialist market knowledge

·  where appropriate, investment risk reduced through financing and joint venture investments

=

Likelihood and severity of potential impact have remained unchanged in 2017

·  substantial due diligence process undertaken before acquisition of Madrid Xanadú

 



 




Brand

Strategic objectives affected: 1,2,3,4





 


Integrity of the brand

The integrity of the brand is damaged leading to financial and/or reputational loss

·  intellectual property protection

·  strong guidelines for use of brand

·  strong underlying operational controls and crisis management procedures

·  ongoing training programme and reward and recognition schemes designed to embed brand values and culture throughout the organisation

·  traditional and digital media monitoring and analysis

·  Tell intu and Shopper View customer feedback programmes

· 

=

Likelihood and severity of potential impact unchanged in 2017

·  continuing media interest in intu and our commentary and opinions on the business and wider landscape

·  ongoing development of brand in Spain

·  net promoter score consistently high at around 70 in 2017



 


 



 

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Group's annual report for the year ended 31 December 2017 contains the following statement of Directors' responsibilities.  Certain parts of the annual report are not included within this announcement.

The Directors are responsible for preparing the annual report, the 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. Under that law the Directors have prepared the Group and Company financial statements in accordance with International Financial Reporting Standards ('IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group and Company for that period. In preparing these financial statements, the Directors are required to:

(a)           select suitable accounting policies and then apply them consistently

(b)           make judgements and accounting estimates that are reasonable and prudent

(c)           state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements

(d)           prepare the financial statements 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 the Group and enable them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's and the Group's position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the governance section of the annual report confirm that, to the best of their knowledge:

(a)           the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group

(b)           the strategic report within the annual report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces

Signed on behalf of the Board on 22 February 2018

 

David Fischel
Chief Executive

 

Matthew Roberts
Chief Financial Officer



CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2017







2017

2016


Notes

£m

£m





Revenue

2

616.0

594.3









Net rental income

2

423.4

406.1

Net other income


3.0

0.6

Revaluation of investment and development property

10

30.8

(78.0)

Gain on acquisition of businesses


-

34.6

Loss on disposal of subsidiaries

3

(1.8)

(0.3)

Gain on sale of other investments


-

74.1

Administration expenses - ongoing


(40.9)

(37.8)

Administration expenses - exceptional

4

(5.9)

(2.5)









Operating profit


408.6

396.8









Finance costs

5

(213.9)

(202.9)

Finance income

5

12.6

14.9

Other finance costs

5

(38.9)

(37.9)

Change in fair value of financial instruments

5

22.0

(16.3)









Net finance costs

5

(218.2)

(242.2)









Profit before tax, joint ventures and associates


190.4

154.6

Share of post-tax profit of joint ventures

11

35.5

32.1

Share of post-tax profit of associates

12

1.3

1.6









Profit before tax


227.2

188.3









Current tax

6

0.1

-

Deferred tax

6

(24.0)

(16.5)









Taxation

6

(23.9)

(16.5)









Profit for the year


203.3

171.8













Attributable to:




Owners of intu properties plc


216.7

182.7

Non-controlling interests


(13.4)

(10.9)











203.3

171.8













Basic earnings per share

8

16.1p

13.7p

Diluted earnings per share

8

15.0p

11.2p





Details of underlying earnings are presented in the underlying profit statement in the other information section. Underlying earnings per share are shown in note 8(c).



CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

for the year ended 31 December 2017







2017

2016


Notes

£m

£m





Profit for the year


203.3

171.8









Other comprehensive income




Items that may be reclassified subsequently to the income statement:




Revaluation of other investments


(0.2)

0.4

Exchange differences


16.9

31.6

Tax relating to components of other comprehensive income

6

0.1

(0.2)









Total items that may be reclassified subsequently to the income statement


16.8

31.8









Transferred to the income statement:




On sale of other investments


-

(77.0)

Tax on sale of other investments

6

-

16.7









Total transferred to the income statement


-

(60.3)









Other comprehensive income/(loss) for the year


16.8

(28.5)









Total comprehensive income for the year


220.1

143.3













Attributable to:




Owners of intu properties plc


233.5

154.2

Non-controlling interests


(13.4)

(10.9)











220.1

143.3





 



CONSOLIDATED BALANCE SHEET

at 31 December 2017







2017

2016


Notes

£m

£m





Non-current assets




Investment and development property

10

9,179.4

9,212.1

Plant and equipment


12.2

7.6

Investment in joint ventures

11

735.5

587.6

Investment in associates

12

64.8

65.2

Other investments


16.8

15.5

Goodwill


4.0

4.0

Derivative financial instruments


0.3

-

Trade and other receivables

13

102.5

99.1











10,115.5

9,991.1









Current assets




Assets classified as held for sale

23

309.1

-

Trade and other receivables

13

141.9

123.4

Cash and cash equivalents

14

228.0

254.7











679.0

378.1









Total assets


10,794.5

10,369.2













Current liabilities




Liabilities associated with assets classified as held for sale

23

(6.2)

-

Trade and other payables

15

(288.5)

(281.0)

Current tax liabilities


(0.1)

(0.3)

Borrowings

16

(186.7)

(142.4)

Derivative financial instruments


(8.0)

(37.0)











(489.5)

(460.7)









Non-current liabilities




Borrowings

16

(4,811.1)

(4,520.2)

Derivative financial instruments


(339.8)

(340.7)

Deferred tax liabilities

18

(23.7)

-

Other payables


(1.2)

(1.2)











(5,175.8)

(4,862.1)













Total liabilities


(5,665.3)

(5,322.8)













Net assets


5,129.2

5,046.4













Equity
















Share capital

19

677.5

677.5

Share premium

19

1,327.4

1,327.4

Treasury shares

20

(39.1)

(40.8)

Other reserves


361.1

344.3

Retained earnings


2,748.1

2,670.4













Attributable to owners of intu properties plc


5,075.0

4,978.8

Non-controlling interests


54.2

67.6









Total equity


5,129.2

5,046.4





 



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

for the year ended 31 December 2017






Attributable to owners of intu properties plc









Non-



Share

Share

Treasury

Other

Retained


controlling

Total


capital

premium

shares

reserves

earnings

Total

interests

equity


£m

£m

£m

£m

£m

£m

£m

£m










At 1 January 2017

677.5

1,327.4

(40.8)

344.3

2,670.4

4,978.8

67.6

5,046.4



















Profit/(loss) for the year

-

-

-

-

216.7

216.7

(13.4)

203.3

Other comprehensive income:









Revaluation of other









investments

-

-

-

(0.2)

-

(0.2)

-

(0.2)

Exchange differences

-

-

-

16.9

-

16.9

-

16.9

Tax relating to components









of other comprehensive









income (note 6)

-

-

-

0.1

-

0.1

-

0.1



















Total comprehensive









income for the year

-

-

-

16.8

216.7

233.5

(13.4)

220.1



















Dividends (note 7)

-

-

-

-

(187.9)

(187.9)

-

(187.9)

Share-based payments

-

-

-

-

2.3

2.3

-

2.3

Other share related transaction

-

-

-

-

49.4

49.4

-

49.4

Acquisition of treasury shares

-

-

(1.3)

-

-

(1.3)

-

(1.3)

Disposal of treasury shares

-

-

3.0

-

(2.8)

0.2

-

0.2




















-

-

1.7

-

(139.0)

(137.3)

-

(137.3)



















At 31 December 2017

677.5

1,327.4

(39.1)

361.1

2,748.1

5,075.0

54.2

5,129.2










 



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

for the year ended 31 December 2017






Attributable to owners of intu properties plc









Non-



Share

Share

Treasury

Other

Retained


controlling

Total


capital

premium

shares

reserves

earnings

Total

interests

equity


£m

£m

£m

£m

£m

£m

£m

£m










At 1 January 2016

672.3

1,303.1

(43.3)

372.8

2,671.5

4,976.4

78.5

5,054.9



















Profit/(loss) for the year

-

-

-

-

182.7

182.7

(10.9)

171.8

Other comprehensive income:









Revaluation of other investments

-

-

-

0.4

-

0.4

-

0.4

Exchange differences

-

-

-

31.6

-

31.6

-

31.6

Tax relating to components









of other comprehensive









income (note 6)

-

-

-

16.5

-

16.5

-

16.5

Transferred to income statement









on sale of other investments

-

-

-

(77.0)

-

(77.0)

-

(77.0)



















Total comprehensive









income for the year

-

-

-

(28.5)

182.7

154.2

(10.9)

143.3



















Ordinary shares issued

5.2

24.3

-

-

-

29.5

-

29.5

Dividends (note 7)

-

-

-

-

(182.5)

(182.5)

-

(182.5)

Share-based payments

-

-

-

-

1.9

1.9

-

1.9

Acquisition of treasury shares

-

-

(0.7)

-

-

(0.7)

-

(0.7)

Disposal of treasury shares

-

-

3.2

-

(3.2)

-

-

-




















5.2

24.3

2.5

-

(183.8)

(151.8)

-

(151.8)



















At 31 December 2016

677.5

1,327.4

(40.8)

344.3

2,670.4

4,978.8

67.6

5,046.4










 



CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2017







2017

2016


Notes

£m

£m





Cash generated from operations

25

365.6

355.9

Interest paid


(232.4)

(233.0)

Interest received


7.6

8.5

Taxation


0.1

-









Cash flows from operating activities


140.9

131.4









Cash flows from investing activities




Purchase and development of property, plant and equipment


(189.5)

(120.9)

Sale of property


3.7

-

Acquisition of businesses net of cash acquired

21

(446.7)

(405.5)

Cash transferred to assets classified as held for sale

23

(0.5)

-

Sale of other investments


-

201.9

Additions to other investments


(1.5)

(14.1)

Disposal of subsidiaries net of cash sold

22

104.1

80.5

Investment of capital in joint ventures

11

(0.7)

-

Loan advances to joint ventures

11

(3.0)

(1.2)

Loan repayments by joint ventures

11

14.8

12.7

Distributions from joint ventures

11

1.2

3.2









Cash flows from investing activities


(518.1)

(243.4)









Cash flows from financing activities




Issue of ordinary shares


-

0.3

Acquisition of treasury shares


(1.3)

(0.7)

Sale of treasury shares


0.2

-

Cash transferred from/(to) restricted accounts


0.1

(0.8)

Borrowings drawn


1,199.2

962.9

Borrowings repaid


(660.0)

(720.4)

Equity dividends paid


(188.0)

(152.6)









Cash flows from financing activities


350.2

88.7









Effects of exchange rate changes on cash and cash equivalents


0.4

1.4









Net decrease in cash and cash equivalents


(26.6)

(21.9)









Cash and cash equivalents at 1 January

14

251.7

273.6









Cash and cash equivalents at 31 December

14

225.1

251.7





 

 


NOTES

1 Accounting convention and basis of preparation

The financial information presented does not constitute the Group's annual report and financial statements for either the year ended 31 December 2017 or the year ended 31 December 2016, but is derived from those financial statements. The Group's statutory financial statements for 2016 have been delivered to the Registrar of Companies and those for 2017 will be delivered following the Company's annual general meeting. The auditors' reports on both the 2016 and 2017 financial statements were not qualified or modified; did not draw attention to any matters by way of an emphasis of matter; and did not contain any statement under Section 498 of the Companies Act 2006.

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), interpretations issued by the International Financial Reporting Standards Interpretations Committee and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of property, available-for-sale investments and certain other assets and liabilities that have been measured at fair value. A summary of the significant accounting policies applied is set out in note 2 of the Group's annual report and financial statements.

These accounting policies are consistent with those applied in the last annual financial statements, as amended when relevant to reflect the adoption of new standards, amendments and interpretations which became effective in the year. These amendments have resulted in changes to financial statement disclosures.

A number of standards and amendments to standards have been issued but are not yet effective for the current year. The most significant of these are IFRS 9, IFRS 15 and IFRS 16, all of which are not expected to have a material impact on the financial statements. See note 1 of the Group's annual report and financial statements for further details.

 

Significant estimates and judgements

The preparation of financial statements in conformity with the Group's accounting policies requires management to make judgements and use estimates that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these judgements and estimates are based on management's best knowledge of the amount, event or action, the actual result ultimately may differ from those judgements and estimates. See note 1 of the Group's annual report and financial statements for details on significant judgements and estimates.

 

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the strategic review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the financial review. In addition, note 28 of the Group's annual report and financial statements includes the Group's risk management objectives, details of its financial instruments and hedging activities, its exposure to liquidity risk and details of its capital structure.

The Group prepares regular forecasts and projections which include sensitivity analysis taking into account a number of downside risks to the forecast including reasonably possible changes in trading performance and asset values and assesses the potential impact of these on the Group's liquidity position and available resources.

In preparing the most recent projections, factors taken into account include £278.2 million of cash (including the Group's share of cash in joint ventures of £50.2 million) and £406.9 million of undrawn facilities at 31 December 2017. The Group's weighted-average debt maturity of 6.6 years and the relatively long-term and stable nature of the cash flows receivable under tenant leases were also factored into the forecasts.

After reviewing the most recent projections and the sensitivity analysis, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the Group's financial statements.



 

NOTES (continued)

2 Segmental reporting

Operating segments are determined based on the strategic and operational management of the Group. The Group is primarily a shopping centre-focused business and has two reportable operating segments being the UK and Spain. Although certain areas of business performance are reviewed and monitored on a centre-by-centre basis, the operating segments are consistent with the strategic and operational management of the Group by the Executive Committee (the chief operating decision makers of the Group).

As mentioned in the financial review, management review and monitor the business primarily on a proportionately consolidated basis. As such, the segmental analysis has been prepared on a proportionately consolidated basis.

The key driver of underlying earnings which is used to measure performance is net rental income. An analysis of net rental income is provided below:





2017








Group including share of joint ventures

Less share of

Group


UK

Spain

Total

joint ventures

total


£m

£m

£m

£m

£m







Rent receivable

513.5

32.7

546.2

(42.8)

503.4

Service charge income

109.7

8.1

117.8

(8.7)

109.1

Facilities management income from joint ventures

2.8

-

2.8

0.7

3.5













Revenue

626.0

40.8

666.8

(50.8)

616.0

Rent payable

(20.5)

-

(20.5)

1.0

(19.5)

Service charge costs

(128.1)

(8.8)

(136.9)

9.6

(127.3)

Facilities management costs recharged to joint ventures

(2.8)

-

(2.8)

(0.7)

(3.5)

Other non-recoverable costs

(43.4)

(3.2)

(46.6)

4.3

(42.3)













Net rental income

431.2

28.8

460.0

(36.6)

423.4













Profit for the year

140.4

63.5

203.9

(0.6)1

203.3







 





2016








Group including share of joint ventures

Less share of

Group


UK

Spain

Total

joint ventures

total


£m

£m

£m

£m

£m







Rent receivable

516.7

15.9

532.6

(48.1)

484.5

Service charge income

107.6

3.5

111.1

(9.5)

101.6

Facilities management income from joint ventures

5.1

-

5.1

3.1

8.2













Revenue

629.4

19.4

648.8

(54.5)

594.3

Rent payable

(25.4)

-

(25.4)

1.1

(24.3)

Service charge costs

(123.5)

(3.7)

(127.2)

10.6

(116.6)

Facilities management costs recharged to joint ventures

(5.1)

-

(5.1)

(3.1)

(8.2)

Other non-recoverable costs

(42.3)

(1.8)

(44.1)

5.0

(39.1)













Net rental income

433.1

13.9

447.0

(40.9)

406.1













Profit for the year

150.7

21.1

171.8

-

171.8







1 The adjustment to profit for the year relates to the profit attributable to non-controlling interests within the Group's investment in joint ventures.

There were no significant transactions within net rental income between operating segments.

The Group's geographical analysis of non-current assets is presented below. This represents where the Group's assets reside and, where relevant, where revenues are generated. In the case of investments this reflects where the investee is located.


2017

2016


£m

£m




UK

9,484.1

9,648.6

Spain

565.5

276.7

India

65.9

65.8








10,115.5

9,991.1




 



 

NOTES (continued)

2 Segmental reporting (continued)

An analysis of investment and development property, capital expenditure and revaluation surplus/(deficit) is presented below:


Investment and



Revaluation


development property

Capital expenditure

surplus/(deficit)


2017

2016

2017

2016

2017

2016


£m

£m

£m

£m

£m

£m








UK

9,373.8

9,537.5

184.1

92.5

(51.2)

(97.4)

Spain

818.7

407.0

62.6

22.3

98.5

33.6















Group including share of joint ventures

10,192.5

9,944.5

246.7

114.8

47.3

(63.8)

Less share of joint ventures

(1,013.1)

(732.4)

(7.3)

(1.2)

(16.5)

(14.2)















Group

9,179.4

9,212.1

239.4

113.6

30.8

(78.0)








 

3 Loss on disposal of subsidiaries

The loss on disposal of subsidiaries of £1.8 million includes a loss in respect of the final net asset value adjustment of intu Bromley of £0.8 million as well as a loss in respect of the disposal of Madrid Xanadú to a joint venture of £1.0 million (see note 22). The 2016 loss of £0.3 million related to the disposal of intu Bromley.

 

4 Administration expenses - exceptional

Exceptional administration expenses (see glossary for definition of exceptional items) in the year totalled £5.9 million (2016: £2.5 million) and relate principally to corporate transactions, being the acquisition of Madrid Xanadú as well as costs associated with the recommended all-share offer made by Hammerson plc in 2017. The 2016 costs related to the acquisition of the remaining 50 per cent of intu Merry Hill. These costs have been classified as exceptional based on their incidence.

 

5 Net finance costs


2017

2016


£m

£m




On bank loans and overdrafts

192.0

189.2

On convertible bonds (note 17)

17.5

9.3

On obligations under finance leases

4.4

4.4







Finance costs1

213.9

202.9







Finance income

(12.6)

(14.9)







Amortisation of Metrocentre compound financial instrument

5.9

5.9

Payments on unallocated interest rate swaps and other costs2

34.6

34.7

Foreign currency movements2

(1.6)

(2.7)







Other finance costs

38.9

37.9







(Gain)/loss on derivative financial instruments

(28.3)

47.2

Loss/(gain) on convertible bonds designated as at fair value through profit or loss (note 17)

6.3

(30.9)







Change in fair value of financial instruments3

(22.0)

16.3







Net finance costs

218.2

242.2




1   Finance costs of £4.9 million were capitalised in the year ended 31 December 2017 (2016: £2.1 million).

2   Amounts totalling £33.0 million in the year ended 31 December 2017 (2016: £32.0 million) are treated as exceptional items, as defined in the glossary, due to their nature and are therefore excluded from underlying earnings (see note 8(c)). These finance costs include payments on unallocated interest rate swaps, foreign currency movements and other fees.

3   Included within the change in fair value of derivative financial instruments are gains totalling £47.1 million (2016: £41.8 million) resulting from the payment of obligations under derivative financial instruments during the year. Of these £26.1 million related to unallocated swaps (2016: £27.1 million).



 

NOTES (continued)

6 Taxation

Taxation for the year:


2017

2016


£m

£m




Overseas taxation

0.2

0.1

Overseas taxation - adjustment in respect of prior years

(0.1)

-

UK taxation - adjustment in respect of prior years

(0.2)

(0.1)







Current tax

(0.1)

-







Deferred tax:



    On investment and development property

24.8

-

    On other investments

-

(2.3)

    On derivative financial instruments

-

16.4

    On other temporary differences

(0.8)

2.4







Deferred tax

24.0

16.5







Total tax charge

23.9

16.5




Tax relating to components of other comprehensive income of £0.1 million (2016: £16.5 million) relates entirely to deferred tax in respect of other investments.

The tax charge for 2017 and 2016 are lower than the standard rate of corporation tax in the UK. The differences are explained below:


2017

2016


£m

£m




Profit before tax, joint ventures and associates

190.4

154.6







Profit before tax multiplied by the standard rate in the UK of 19.25% (2016: 20%)

36.7

30.9

Exempt property rental profits and revaluations

(32.8)

(20.1)








3.9

10.8

Additions and disposals of property and investments

6.2

(6.8)

Prior year corporation tax items

(0.3)

(0.1)

Non-deductible and other items

2.8

0.5

Overseas taxation

4.3

(0.6)

Unprovided deferred tax

7.0

12.7







Total tax charge

23.9

16.5




Details of deferred tax balances are given in note 18.

 

7 Dividends


2017

2016


£m

£m




Ordinary shares:



Prior year final dividend paid of 9.4 pence per share (2016: 9.1 pence per share)  

126.2

121.1

Interim dividend paid of 4.6 pence per share (2016: 4.6 pence per share)

61.7

61.4







Dividends paid

187.9

182.5







Proposed final dividend of 9.4 pence per share

127.4




Details of the shares in issue and dividends waived are given in notes 19 and 20 respectively.

As a REIT, dividends are declared and paid in accordance with REIT legislation. See glossary for further information as well as the financial review for information on distributable reserves.



 

NOTES (continued)

8 Earnings per share

(a) Earnings per share

Basic and diluted earnings per share as calculated in accordance with IAS 33 Earnings Per Share.


2017

2016


Earnings

Shares

Pence per

Earnings

Shares

Pence per


£m

million

share

£m

million

share








Profit for the year attributable to owners







of intu properties plc

216.7



182.7

















Basic earnings per share1

216.7

1,343.2

16.1p

182.7

1,333.5

13.7p

Dilutive convertible bonds, share options and share awards

(1.9)

84.4


(21.6)

107.9
















Diluted earnings per share

214.8

1,427.6

15.0p

161.1

1,441.4

11.2p








1 The weighted average number of shares used has been adjusted to remove shares held in the Employee Share Ownership Plan (ESOP).

(b) Headline earnings per share

Headline earnings per share has been calculated and presented as required by the Johannesburg Stock Exchange listing requirements.


2017

2016


Gross

Net1

Gross

Net1


£m

£m

£m

£m






Basic earnings


216.7


182.7

Adjusted for:





Revaluation of investment and development property (note 10)

(30.8)

(16.1)

78.0

71.8

Gain on acquisition of businesses

-

-

(34.6)

(34.6)

Loss on disposal of subsidiaries (note 3)

1.8

1.8

0.3

0.3

Gain on sale of other investments

-

-

(74.1)

(74.1)

Share of joint ventures' items

(15.9)

(17.2)

(14.2)

(14.2)

Share of associates' items

(1.1)

(1.1)

(1.1)

(1.1)











Headline earnings


184.1


130.8

Dilution2


(1.9)


(21.6)











Diluted headline earnings


182.2


109.2











Weighted average number of shares (million)


1,343.2


1,333.5

Dilution2


84.4


107.9











Diluted weighted average number of shares (million)


1,427.6


1,441.4











Headline earnings per share (pence)


13.7p


9.8p











Diluted headline earnings per share (pence)


12.8p


7.6p






1 Net of tax and non-controlling interests.

2 The dilution impact is required to be included as calculated in note 8(a) even where this is not dilutive for headline earnings per share.



 

NOTES (continued)

8 Earnings per share (continued)

(c) Underlying earnings per share

Underlying earnings per share is a non-GAAP measure but has been presented as it is considered to be a key measure of the Group's recurring performance and an indication of the extent to which dividend payments are supported by underlying operations (see underlying profit statement in the other information section). It excludes property and derivative movements, exceptional items and related tax. The key difference from EPRA earnings, an industry standard comparable measure, relates to adjustments in respect of exceptional items where EPRA is prescriptive about the adjustments that can be made. Underlying earnings is defined as an alternative performance measure in the financial review. A reconciliation to EPRA earnings per share is provided within the other information section.


2017

2016


Earnings

Shares

Pence per

Earnings

Shares

Pence per


£m

million

share

£m

million

share








Basic earnings per share (per note 8(a))

216.7

1,343.2

16.1p

182.7

1,333.5

13.7p

Adjusted for:







Revaluation of investment and development property







(note 10)

(30.8)


(2.3)p

78.0


5.9p

Gain on acquisition of businesses

-


-

(34.6)


(2.6)p

Loss on disposal of subsidiaries (note 3)

1.8


0.1p

0.3


-

Gain on sale of other investments

-


-

(74.1)


(5.6)p

Administration expenses - exceptional (note 4)

5.9


0.4p

2.5


0.2p

Exceptional finance costs (note 5)

33.0


2.5p

32.0


2.4p

Change in fair value of financial instruments (note 5)

(22.0)


(1.6)p

16.3


1.2p

Tax on the above

24.0


1.8p

16.5


1.3p

Share of joint ventures' items

(17.2)


(1.3)p

(12.3)


(0.9)p

Share of associates' items

(0.4)


-

(1.1)


(0.1)p

Non-controlling interests in respect of the above

(10.0)


(0.7)p

(6.2)


(0.5)p















Underlying earnings per share

201.0

1,343.2

15.0p

200.0

1,333.5

15.0p

Dilutive convertible bonds, share options and share awards

6.7

84.4


9.3

107.9
















Underlying, diluted earnings per share

207.7

1,427.6

14.5p

209.3

1,441.4

14.5p








 

9 Net asset value per share

(a) NAV per share (diluted, adjusted)

NAV per share (diluted, adjusted) is a non-GAAP measure but has been presented as it is considered to be a key measure of the Group's performance. The key difference from EPRA NAV per share, an industry standard comparable measure, is the exclusion of interest rate swaps not currently used for economic hedges of debt as, in our view, this better allows management to review and monitor the Group's performance. NAV (diluted, adjusted) is defined as an alternative performance measure in the financial review. A reconciliation to EPRA NAV per share is provided within the other information section.


2017

2016


Net


NAV per

Net


NAV per


assets

Shares

share

assets

Shares

share


£m

million

pence

£m

million

pence








NAV per share attributable to owners of







intu properties plc 1

5,075.0

1,343.4

378p

4,978.8

1,343.0

371p

Dilutive convertible bonds, share options and awards

-

1.8


2.6

3.5
















Diluted NAV per share

5,075.0

1,345.2

377p

4,981.4

1,346.5

370p

Adjusted for:







Fair value of derivative financial instruments

347.5


26p

377.7


28p

Deferred tax on investment and development







property and other investments

23.7


2p

0.1


-

Share of joint ventures' items

5.2


1p

7.2


1p

Non-controlling interest recoverable balance not







recognised

71.3


5p

71.3


5p















NAV per share (diluted, adjusted)

5,522.7

1,345.2

411p

5,437.7

1,346.5

404p








1 The number of shares used has been adjusted to remove shares held in the ESOP.



 

NOTES (continued)

9 Net asset value per share (continued)

(b) NNNAV per share (diluted, adjusted)

NNNAV per share (diluted, adjusted) is a non-GAAP measure but has been included as it is considered to be an industry standard comparable measure and is equal to EPRA NNNAV per share presented in the other information section.


2017

2016


Net


NAV per

Net


NAV per


assets

Shares

share

assets

Shares

share


£m

million

pence

£m

million

pence








NAV per share (diluted, adjusted)

5,522.7

1,345.2

411p

5,437.7

1,346.5

404p

Fair value of derivative financial instruments

(347.5)


(26)p

(377.7)


(28)p

Excess of fair value of borrowings over carrying value

(430.8)


(32)p

(375.0)


(28)p

Deferred tax on investment and development







property and other investments

(23.7)


(2)p

(0.1)


-

Share of joint ventures' items

(47.8)


(4)p

(9.4)


(1)p

Non-controlling interests in respect of the above

22.9


2p

23.4


2p















NNNAV per share (diluted, adjusted)

4,695.8

1,345.2

349p

4,698.9

1,346.5

349p








 

10 Investment and development property



Investment

Development




property

property

Total



£m

£m

£m






At 1 January 2016


8,259.7

144.2

8,403.9

Acquisition of intu Merry Hill


889.3

-

889.3

Additions


52.6

61.0

113.6

Recognition of leasehold on Charter Place


-

55.9

55.9

Disposals


(2.0)

-

(2.0)

Disposal of intu Bromley


(179.4)

-

(179.4)

Deficit on revaluation


(17.2)

(60.8)

(78.0)

Foreign exchange movements


-

8.8

8.8











At 31 December 2016


9,003.0

209.1

9,212.1

Acquisition of Madrid Xanadú (note 21)


461.4

-

461.4

Additions


109.6

129.8

239.4

Disposals


(3.1)

(0.3)

(3.4)

Disposal of Madrid Xanadú to joint venture (note 22)


(472.3)

-

(472.3)

Transfer of intu Chapelfield to assets held for sale (note 23)


(302.0)

-

(302.0)

Surplus/(deficit) on revaluation


(59.0)

89.8

30.8

Foreign exchange movements


9.4

4.0

13.4











At 31 December 2017


8,747.0

432.4

9,179.4






A reconciliation to market value is given in the table below:


2017

2016


£m

£m




Balance sheet carrying value of investment and development property

9,179.4

9,212.1

Tenant incentives included within trade and other receivables (note 13)

109.2

109.9

Head leases included within finance leases in borrowings (note 16)

(80.2)

(80.2)







Market value of investment and development property

9,208.4

9,241.8




The market value of investment and development property at 31 December 2017 includes £8,831.9 million (31 December 2016: £9,088.6 million) in respect of investment property and £376.5 million (31 December 2016: £153.2 million) in respect of development property.

In respect of the intu Costa del Sol development site near Málaga, Spain, as the General Plan of Torremolinos was approved in the year, with the remaining consents expected in the coming months, the Group obtained an independent external valuation at 31 December 2017 as cost is no longer an appropriate approximation of fair value. The valuation is based on the assumption that planning approval is in place at the valuation date.

 



 

NOTES (continued)

10 Investment and development property (continued)

The fair value of the Group's investment and development property at 31 December 2017 was determined by independent external valuers at that date other than certain development land. The valuations are in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation - Global Standards 2017 and were arrived at by reference to market transactions for similar properties and rent profiles. Fair values for investment properties are calculated using the present value income approach. The main assumptions underlying the valuations are in relation to rent profile and yields.

In respect of development valuations, deductions are then made for anticipated costs, including an allowance for developer's profit and any other assumptions before arriving at a valuation.

 

11 Investment in joint ventures

The Group's principal joint ventures own and manage investment and development property.







2017


St David's,

Puerto

Madrid

intu




Cardiff

Venecia

Xanadú

Asturias

Other

Total


£m

£m

£m

£m

£m

£m








At 1 January 2017

355.2

119.4

-

76.0

37.0

587.6

Acquisition of joint venture interest (note 22)

-

-

117.1

-

-

117.1















Group's share of underlying profit

13.4

0.6

1.4

2.0

0.9

18.3

Group's share of other net profit/(loss)

(6.8)

8.9

0.4

14.7

-

17.2















Group's share of profit

6.6

9.5

1.8

16.7

0.9

35.5

Investment of capital

-

-

0.7

-

-

0.7

Distributions

-

-

-

-

(1.2)

(1.2)

Loan advances

-

-

-

-

3.0

3.0

Loan repayments

(14.8)

-

-

-

-

(14.8)

Foreign exchange movements

-

5.0

(0.2)

2.9

(0.1)

7.6















At 31 December 2017

347.0

133.9

119.4

95.6

39.6

735.5















Represented by:







Loans to joint ventures

83.6

99.1

57.7

35.0

7.5

282.9

Group's share of net assets

263.4

34.8

61.7

60.6

32.1

452.6








 







2016


intu

St David's,

Puerto

intu




Merry Hill

Cardiff

Venecia

Asturias

Other

Total


£m

£m

£m

£m

£m

£m








At 1 January 2016

447.0

368.5

85.9

53.4

37.1

991.9















Group's share of underlying profit

3.3

13.7

0.7

0.8

1.3

19.8

Group's share of other net profit/(loss)

(4.3)

(14.3)

19.4

12.9

(1.4)

12.3















Group's share of profit/(loss)

(1.0)

(0.6)

20.1

13.7

(0.1)

32.1

Distributions

(1.0)

-

-

-

(2.2)

(3.2)

Loan advances

-

-

-

-

1.2

1.2

Loan repayments

-

(12.7)

-

-

-

(12.7)

Disposal of joint venture interest

(445.0)

-

-

-

-

(445.0)

Foreign exchange movements

-

-

13.4

8.9

1.0

23.3















At 31 December 2016

-

355.2

119.4

76.0

37.0

587.6















Represented by:







Loans to joint ventures

-

98.4

95.3

33.9

4.6

232.2

Group's share of net assets

-

256.8

24.1

42.1

32.4

355.4








At 31 December 2017, the boards of joint ventures had approved £13.8 million (2016: £15.7 million) of future expenditure for the purchase, construction, development and enhancement of investment property. Of this, £12.7 million (2016: nil) is contractually committed. These amounts represent the Group's share.



 

NOTES (continued)

11 Investment in joint ventures (continued)

Set out below is the summarised information of the Group's joint ventures with financial information presented at 100 per cent. The 2017 summary information and the summarised income statement of Madrid Xanadú is presented for the period from 31 July 2017, the date which it ceased being a 100 per cent owned subsidiary of the Group.




2017


St David's,

Puerto

Madrid

intu




Cardiff

Venecia

Xanadú

Asturias

Other

Total


£m

£m

£m

£m

£m

£m








Summary information







Group's interest

50%

50%

50%

50%



Principal place of business

Wales

Spain

Spain

Spain

















Summarised income statement







Revenue

39.6

25.1

13.0

17.0

18.8

113.5















Net rental income

26.7

19.2

8.6

12.5

12.9

79.9

Revaluation of investment and development







property

(13.6)

18.1

2.0

26.6

-

33.1

Loss on sale of other investments

-

(0.4)

-

(0.3)

-

(0.7)

Administration expenses - underlying

-

(1.9)

(1.1)

(1.0)

(2.3)

(6.3)

Administration expenses - exceptional

-

-

(1.0)

-

-

(1.0)

Finance costs

-

(15.9)

(4.4)

(7.5)

(5.0)

(32.8)

Change in fair value of financial instruments

-

0.6

0.4

0.6

0.7

2.3

Taxation

-

(0.1)

(0.9)

3.2

-

2.2















Profit

13.1

19.6

3.6

34.1

6.3

76.7

Attributable to non-controlling interests

-

(0.6)

-

(0.7)

-

(1.3)















Profit attributable to owners

13.1

19.0

3.6

33.4

6.3

75.4















Group's share of profit

6.6

9.5

1.8

16.7

0.9

35.5















Summarised balance sheet







Investment and development property

692.0

460.4

470.5

281.0

265.3

2,169.2

Other non-current assets

14.0

0.8

81.2

5.3

3.7

105.0















Total non-current assets

706.0

461.2

551.7

286.3

269.0

2,274.2















Cash and cash equivalents

8.9

38.2

18.9

31.2

6.0

103.2

Other current assets

7.7

2.5

-

1.5

9.4

21.1















Total current assets

16.6

40.7

18.9

32.7

15.4

124.3















Current financial liabilities

-

(17.0)

(6.1)

(6.2)

(0.5)

(29.8)

Other current liabilities

(12.6)

(13.9)

(15.2)

(1.9)

(5.8)

(49.4)















Total current liabilities

(12.6)

(30.9)

(21.3)

(8.1)

(6.3)

(79.2)















Partners' loans

(167.2)

(198.3)

(115.4)

(70.0)

(15.0)

(565.9)

Non-current financial liabilities

-

(199.6)

(230.9)

(105.2)

(131.6)

(667.3)

Other non-current liabilities

(16.1)

-

(79.7)

(11.4)

-

(107.2)















Total non-current liabilities

(183.3)

(397.9)

(426.0)

(186.6)

(146.6)

(1,340.4)















Net assets

526.7

73.1

123.3

124.3

131.5

978.9

Non-controlling interests

-

(3.4)

-

(3.1)

-

(6.5)















Net assets attributable to owners

526.7

69.7

123.3

121.2

131.5

972.4















Group's share of net assets

263.4

34.8

61.7

60.6

32.1

452.6








 



 

NOTES (continued)

11 Investment in joint ventures (continued)

The 2016 summary information and the summarised income statement of intu Merry Hill is presented for the period to 22 June 2016, after which it became a 100 per cent owned subsidiary of the Group.




2016


intu

St David's,

Puerto

intu




Merry Hill

Cardiff

Venecia

Asturias

Other

Total


£m

£m

£m

£m

£m

£m








Summary information







Group's interest

50%

50%

50%

50%



Principal place of business

England

Wales

Spain

Spain

















Summarised income statement







Revenue

27.0

40.4

24.2

15.0

19.1

125.7















Net rental income

20.2

27.4

17.8

10.1

13.3

88.8

Revaluation of investment and development property

(8.5)

(28.6)

38.6

28.6

1.7

31.8

Administration expenses - underlying

(0.5)

(0.1)

(1.4)

(1.0)

(1.9)

(4.9)

Administration expenses - exceptional

-

-

-

(0.8)

-

(0.8)

Finance costs

(13.1)

-

(14.9)

(9.3)

(4.3)

(41.6)

Change in fair value of financial instruments

-

-

0.2

(0.2)

(3.2)

(3.2)

Taxation - underlying

-

-

(0.1)

-

-

(0.1)















Profit/(loss)

(1.9)

(1.3)

40.2

27.4

5.6

70.0















Group's share of profit/(loss)

(1.0)

(0.6)

20.1

13.7

(0.1)

32.1















Summarised balance sheet







Investment and development property

-

689.5

424.0

236.6

254.5

1,604.6

Other non-current assets

-

13.5

0.5

4.8

8.6

27.4















Total non-current assets

-

703.0

424.5

241.4

263.1

1,632.0















Cash and cash equivalents

-

9.4

25.2

35.4

5.9

75.9

Other current assets

-

11.5

2.9

1.7

2.4

18.5















Total current assets

-

20.9

28.1

37.1

8.3

94.4















Current financial liabilities

-

(0.2)

(12.1)

(6.0)

(0.5)

(18.8)

Other current liabilities

-

(13.3)

(9.9)

(4.6)

(5.4)

(33.2)















Total current liabilities

-

(13.5)

(22.0)

(10.6)

(5.9)

(52.0)















Partners' loans

-

(196.8)

(190.6)

(67.8)

(4.6)

(459.8)

Non-current financial liabilities

-

-

(191.8)

(101.5)

(131.8)

(425.1)

Other non-current liabilities

-

-

-

(14.4)

-

(14.4)















Total non-current liabilities

-

(196.8)

(382.4)

(183.7)

(136.4)

(899.3)















Net assets

-

513.6

48.2

84.2

129.1

775.1















Group's share of net assets

-

256.8

24.1

42.1

32.4

355.4








 



 

NOTES (continued)

12 Investment in associates


2017

2016


£m

£m




At 1 January

65.2

54.7

Share of profit of associates

1.3

1.6

Foreign exchange movements

(1.7)

8.9







At 31 December

64.8

65.2




Investment in associates comprises a 32.4 per cent holding in the ordinary shares of Prozone Intu Properties Limited ('Prozone'), a listed Indian shopping centre developer, and a 26.8 per cent holding in the ordinary shares of Empire Mall Private Limited ('Empire'). Both companies are incorporated in India.

 

13 Trade and other receivables


2017

2016


£m

£m




Current



Trade receivables

26.4

22.1

Amounts owed by joint ventures

13.6

9.9

Other receivables

17.2

15.4

Net investment in finance leases

0.4

0.5

Prepayments and accrued income

84.3

75.5







Trade and other receivables - current

141.9

123.4







Non-current



Amounts owed by associates

4.7

-

Net investment in finance leases

1.2

1.5

Prepayments and accrued income

96.6

97.6







Trade and other receivables - non-current

102.5

99.1




Included within prepayments and accrued income for the Group of £180.9 million (2016: £173.1 million) are tenant lease incentives of £109.2 million (2016: £109.9 million), of which £12.6 million are classified as current (2016: £12.3 million) and £96.6 million as non-current (2016: £97.6 million).

 

14 Cash and cash equivalents


2017

2016


£m

£m




Unrestricted cash

225.1

251.7

Restricted cash

2.9

3.0







Cash and cash equivalents

228.0

254.7




A number of the Group's borrowing arrangements place certain restrictions on the rent received each quarter. These do not prevent access to or use of this funding within the borrowing entities, however they do place certain restrictions on moving those funds around the wider group, typically requiring debt servicing costs to be paid before restrictions are lifted.

 

15 Trade and other payables


2017

2016


£m

£m




Current



Rents received in advance

102.1

105.2

Trade payables

6.1

6.9

Amounts owed to joint ventures

0.3

0.1

Accruals and deferred income

137.9

128.8

Other payables

10.9

10.3

Other taxes and social security

31.2

29.7







Trade and other payables

288.5

281.0






 

NOTES (continued)

16 Borrowings


2017


Carrying



Fixed

Floating

Fair


value

Secured

Unsecured

rate

rate

value


£m

£m

£m

£m

£m

£m








Current







Commercial mortgage backed securities







(CMBS) notes

23.3

23.3

-

23.3

-

28.1

2.5% convertible bonds 2018 (note 17)

161.0

-

161.0

161.0

-

161.0















Current borrowings, excluding finance leases

184.3

23.3

161.0

184.3

-

189.1

Finance lease obligations

2.4

2.4

-

2.4

-

2.4
















186.7

25.7

161.0

186.7

-

191.5















Non-current







Revolving credit facility 2021 (including £88.8 million







drawn in euros)

233.8

233.8

-

-

233.8

233.8

CMBS notes 2019

19.9

19.9

-

19.9

-

20.4

CMBS notes 2022

43.0

43.0

-

43.0

-

49.5

CMBS notes 2024

88.0

88.0

-

88.0

-

98.6

CMBS notes 2029

73.2

73.2

-

73.2

-

85.9

CMBS notes 2033

311.2

311.2

-

311.2

-

393.1

CMBS notes 2035

192.8

192.8

-

-

192.8

212.1

Bank loan 2019

139.7

139.7

-

-

139.7

139.7

Bank loan 2020

32.9

32.9

-

-

32.9

32.9

Bank loans 2021

470.2

470.2

-

-

470.2

470.2

Bank loan 2022

246.8

246.8

-

246.8

-

277.3

Bank loan 2024

482.7

482.7

-

-

482.7

482.7

3.875% bonds 2023

443.5

443.5

-

443.5

-

486.2

4.125% bonds 2023

478.5

478.5

-

478.5

-

535.7

4.625% bonds 2028

342.3

342.3

-

342.3

-

410.0

4.250% bonds 2030

345.0

345.0

-

345.0

-

402.3

Debenture 2027

228.8

228.8

-

228.8

-

267.9

2.875% convertible bonds 2022 (note 17)

377.3

-

377.3

377.3

-

377.3















Non-current borrowings, excluding finance leases







and Metrocentre compound financial instrument

4,549.6

4,172.3

377.3

2,997.5

1,552.1

4,975.6

Metrocentre compound financial instrument

183.7

-

183.7

183.7

-

183.7

Finance lease obligations

77.8

77.8

-

77.8

-

77.8
















4,811.1

4,250.1

561.0

3,259.0

1,552.1

5,237.1















Total borrowings

4,997.8

4,275.8

722.0

3,445.7

1,552.1

5,428.6















Cash and cash equivalents (note 14)

(228.0)




















Net debt

4,769.8













Analysis of the Group's net external debt is provided in the other information section.

The fair values of fixed rate borrowings and CMBS are assessed based on quoted market prices, and as such are categorised as Level 1 in the fair value hierarchy (see note 28 of the Group's annual report and financial statements for definition). The fair values of unlisted floating rate borrowings are equal to their carrying values.



 

NOTES (continued)

16 Borrowings (continued)


2016


Carrying



Fixed

Floating

Fair


value

Secured

Unsecured

rate

rate

value


£m

£m

£m

£m

£m

£m








Current







Bank loans and overdrafts

125.1

125.1

-

-

125.1

125.1

CMBS notes

14.9

14.9

-

14.9

-

18.3















Current borrowings, excluding finance leases

140.0

140.0

-

14.9

125.1

143.4

Finance lease obligations

2.4

2.4

-

2.4

-

2.4
















142.4

142.4

-

17.3

125.1

145.8















Non-current







Revolving credit facility 2021 (including nil







drawn in euros)

10.0

10.0

-

-

10.0

10.0

CMBS notes 2019

19.8

19.8

-

19.8

-

20.8

CMBS notes 2022

50.5

50.5

-

50.5

-

60.6

CMBS notes 2024

87.8

87.8

-

87.8

-

98.6

CMBS notes 2029

78.7

78.7

-

78.7

-

92.3

CMBS notes 2033

325.4

325.4

-

325.4

-

406.4

CMBS notes 2035

190.6

190.6

-

-

190.6

196.5

Bank loan 2018

494.8

494.8

-

-

494.8

494.8

Bank loan 2020

32.8

32.8

-

-

32.8

32.8

Bank loans 2021

468.9

468.9

-

-

468.9

468.9

3.875% bonds 2023

442.4

442.4

-

442.4

-

486.8

4.125% bonds 2023

477.5

477.5

-

477.5

-

536.1

4.625% bonds 2028

341.7

341.7

-

341.7

-

402.4

4.250% bonds 2030

344.8

344.8

-

344.8

-

389.4

Debenture 2027

228.4

228.4

-

228.4

-

269.3

2.5% convertible bonds 2018 (note 17)

308.1

-

308.1

308.1

-

308.1

2.875% convertible bonds 2022 (note 17)

362.4

-

362.4

362.4

-

362.4















Non-current borrowings, excluding finance leases







and Metrocentre compound financial instrument

4,264.6

3,594.1

670.5

3,067.5

1,197.1

4,636.2

Metrocentre compound financial instrument

177.8

-

177.8

177.8

-

177.8

Finance lease obligations

77.8

77.8

-

77.8

-

77.8
















4,520.2

3,671.9

848.3

3,323.1

1,197.1

4,891.8















Total borrowings

4,662.6

3,814.3

848.3

3,340.4

1,322.2

5,037.6















Cash and cash equivalents (note 14)

(254.7)




















Net debt

4,407.9













The maturity profile of debt (excluding finance leases) is as follows:


2017

2016


£m

£m




Repayable within one year

184.3

140.0

Repayable in more than one year but not more than two years

175.5

804.8

Repayable in more than two years but not more than five years

1,445.9

620.6

Repayable in more than five years

3,111.9

3,017.0








4,917.6

4,582.4




Certain borrowing agreements contain financial and other conditions that, if contravened, could alter the repayment profile. During the year there were no breaches of these conditions (see financial covenants in the other information section).

At 31 December 2017 the Group had committed borrowing facilities of £640.7 million, expiring in 2021, £406.9 million of which was undrawn (2016: facilities £640.7 million, undrawn £630.7 million).

 



 

NOTES (continued)

16 Borrowings (continued)

Finance lease disclosures:



2017

2016



£m

£m





Minimum lease payments under finance leases fall due:




Not later than one year


2.4

2.4

Later than one year and not later than five years


9.5

9.5

Later than five years


115.1

112.7











127.0

124.6

Future finance charges on finance leases


(46.8)

(44.4)









Present value of finance lease liabilities


80.2

80.2









Present value of finance lease liabilities:




Not later than one year


2.4

2.4

Later than one year and not later than five years


9.5

9.5

Later than five years


68.3

68.3











80.2

80.2





Finance lease liabilities are in respect of head leases on investment and development property. A number of these leases provide for payment of contingent rent, usually a proportion of net rental income, in addition to the rents above.

 

17 Convertible bonds

2.875 per cent convertible bonds ('the 2.875 per cent bonds')

On 1 November 2016 Intu (Jersey) 2 Limited (the 'Issuer') issued £375.0 million 2.875 per cent Guaranteed Convertible Bonds due 2022 at par, all of which remain outstanding at 31 December 2017. At 31 December 2017 the exchange price was £3.7506 per ordinary share. intu properties plc has unconditionally and irrevocably guaranteed the due and punctual performance by the Issuer of all of its obligations (including payments) in respect of the 2.875 per cent bonds and the obligations of the Company, as guarantor, constitute direct, unsubordinated and unsecured obligations of the Company.

Subject to certain conditions, the 2.875 per cent bonds are convertible into preference shares of the Issuer which are automatically transferred to the Company in exchange for ordinary shares in the Company or (at the Company's election) any combination of ordinary shares and cash. The 2.875 per cent bonds can be converted at any time from the date which is 180 days prior to the Final Maturity Date of 1 November 2022, to the 20th dealing date prior to the Final Maturity Date.

The initial exchange price was £3.7506 per ordinary share, a conversion rate of approximately 26,662 ordinary shares for every £100,000 nominal of the 2.875 per cent bonds. Under the terms of the 2.875 per cent bonds, the exchange price is adjusted upon certain events including the payment of dividends by the Company over a certain threshold. 

The 2.875 per cent bonds may be redeemed at par at the Company's option subject to the Company's ordinary share price having traded at 30 per cent above the conversion price for a specified period, or at any time once 85 per cent by nominal value of the 2.875 per cent bonds originally issued have been converted or cancelled. If not previously converted, redeemed or purchased and cancelled, the 2.875 per cent bonds will be redeemed at par on 1 November 2022.

The 2.875 per cent bonds are designated as at fair value through profit or loss and so are presented on the balance sheet at fair value with all gains and losses taken to the income statement through the change in fair value of financial instruments line. At 31 December 2017, the fair value of the 2.875 per cent bonds was £377.3 million (2016: £362.4 million), with the change in fair value reflected in note 5. The 2.875 per cent bonds are listed on the Channel Islands Securities Exchange and the Open Market (Freiverkehr) of the Frankfurt Stock Exchange.

During the year interest of £10.8 million (2016: £1.8 million) in respect of these bonds has been recognised within finance costs.

2.5 per cent convertible bonds ('the 2.5 per cent bonds')

On 4 October 2012 Intu (Jersey) Limited (the 'Issuer') issued £300.0 million 2.5 per cent Guaranteed Convertible Bonds due 2018 at par, £160.4 million of which remains outstanding at 31 December 2017. At 31 December 2017 the exchange price was £3.1164 per ordinary share. intu properties plc has unconditionally and irrevocably guaranteed the due and punctual performance by the Issuer of all of its obligations (including payments) in respect of the 2.5 per cent bonds and the obligations of the Company, as guarantor, constitute direct, unsubordinated and unsecured obligations of the Company.

During the year the Group purchased and subsequently cancelled £139.6 million of 2.5 per cent bonds.

Subject to certain conditions, the 2.5 per cent bonds are convertible into preference shares of the Issuer which are automatically transferred to the Company in exchange for ordinary shares in the Company or (at the Company's election) any combination of ordinary shares and cash. The 2.5 per cent bonds can be converted at any time from 14 November 2012 up to the 20th dealing day before the Final Maturity Date of 4 October 2018.

The initial exchange price was £4.3752 per ordinary share, a conversion rate of approximately 22,856 ordinary shares for every £100,000 nominal of the 2.5 per cent bonds. Under the terms of the 2.5 per cent bonds, the exchange price is adjusted upon certain events including the payment of dividends by the Company.



 

NOTES (continued)

17 Convertible bonds (continued)

The 2.5 per cent bonds may be redeemed at par at the Company's option subject to the Company's ordinary share price having traded at 30 per cent above the conversion price for a specified period, or at any time once 85 per cent by nominal value of the 2.5 per cent bonds originally issued have been converted or cancelled. If not previously converted, redeemed or purchased and cancelled, the 2.5 per cent bonds will be redeemed at par on 4 October 2018.

The 2.5 per cent bonds are designated as at fair value through profit or loss and so are presented on the balance sheet at fair value with all gains and losses taken to the income statement through the change in fair value of financial instruments line. At 31 December 2017, the fair value of the 2.5 per cent bonds was £161.0 million (2016: £308.1 million), with the change in fair value reflected in note 5. The 2.5 per cent bonds are listed on the Professional Securities Market of the London Stock Exchange.

During the year interest of £6.7 million (2016: £7.5 million) in respect of these bonds has been recognised within finance costs.

 

18 Deferred tax

Under IAS 12 Income Taxes, provision is made for the deferred tax assets and liabilities associated with the revaluation of assets and liabilities at the corporate tax rate expected to apply to the Group at the time the temporary differences are expected to reverse.  For those UK assets and liabilities benefitting from REIT exemption the relevant tax rate will be 0 per cent (2016: 0 per cent), and for other UK assets and liabilities the relevant rate will be 19 per cent if the temporary difference is expected to be realised before 1 April 2020 and 17 per cent if it is expected to be realised on or after 1 April 2020 (2016: 20 per cent before 1 April 2017, 19 per cent before 1 April 2020 and 17 per cent thereafter). For Spanish assets and liabilities the relevant tax rate will be 25 per cent (2016: 25 per cent).

Movements in the provision for deferred tax:


Investment






and


Derivative

Other



development

Other

financial

temporary



property

investments

instruments

differences

Total


£m

£m

£m

£m

£m







Provided deferred tax provision/(asset):






At 1 January 2016

-

18.9

(16.4)

(2.5)

-

Recognised in the income statement

-

(2.3)

16.4

2.4

16.5

Recognised in other comprehensive income

-

(16.5)

-

-

(16.5)













At 31 December 2016

-

0.1

-

(0.1)

-

Acquisition of Madrid Xanadú (note 21)

84.5

-

-

(6.8)

77.7

Recognised in the income statement

24.8

-

-

(0.8)

24.0

Recognised in other comprehensive income

-

(0.1)

-

-

(0.1)

Foreign exchange movements

1.8

-

-

(0.1)

1.7

Disposal of subsidiaries (note 22)

(86.5)

-

-

6.9

(79.6)













At 31 December 2017

24.6

-

-

(0.9)

23.7







The net deferred tax provision of £23.7 million arises in respect of the revaluation of development property at intu Costa del Sol, partially offset by tax losses in the same company.

At 31 December 2017, the Group had unrecognised deferred tax assets calculated at a tax rate of 17 per cent (2016: 17 per cent) of £43.1 million (2016: £39.7 million) for surplus UK revenue tax losses carried forward, £45.6 million (2016: £45.5 million) for temporary differences on derivative financial instruments, £0.5 million (2016: £0.6 million) for temporary differences on capital allowances and £5.8 million (2016: £3.4 million) for capital losses.

On its sale in 2016, the deferred tax provision in respect of the Group's investment in Equity One was reduced to nil. The revaluation of this investment was recognised in reserves and so the deferred tax movements related to it were also recognised in other comprehensive income. With the provision reduced to nil, the deferred tax asset on derivative financial instruments and other temporary differences could no longer be recognised, and £18.9 million was therefore released to the income statement.

In accordance with the requirements of IAS 12 Income Taxes, the deferred tax asset has not been recognised on the Group's balance sheet due to uncertainty over the level of profits that will be available in the non-REIT elements of the Group in future periods.

 

19 Share capital and share premium


Share

Share


capital

premium


£m

£m




Issued and fully paid:






At 31 December 2017 and 31 December 2016: 1,355,040,243 ordinary shares of 50 pence each

677.5

1,327.4




 



 

NOTES (continued)

19 Share capital and share premium (continued)

At 22 February 2018 the Company had an unexpired authority to repurchase shares up to a maximum of 135,504,024 shares with a nominal value of £67.8 million, and the Directors have an unexpired authority to allot up to a maximum of 451,680,081 shares with a nominal value of £225.8 million.

Included within the issued share capital at 31 December 2017 are 11,633,680 ordinary shares (2016: 12,069,559) held by the Trustee of the ESOP which is operated by the Company (see note 20). The nominal value of these shares at 31 December 2017 is £5.8 million (2016: £6.0 million).

 

20 Employee Share Ownership Plan (ESOP)

The cost of shares in intu properties plc held by the Trustee of the Employee Share Ownership Plan operated by the Company is accounted for as a deduction from equity. 

The purpose of the ESOP is to acquire and hold shares which will be transferred to employees in the future under the Group's employee incentive arrangements, including joint ownership of shares in its role as Trustee of the Joint Share Ownership Plan.  Dividends of £1.7 million (2016: £1.0 million) in respect of these shares have been waived by agreement.


2017

2016


Shares


Shares



million

£m

million

£m






At 1 January

12.1

40.8

12.7

43.3

Acquisitions

0.4

1.3

0.3

0.7

Disposals

(0.9)

(3.0)

(0.9)

(3.2)











At 31 December

11.6

39.1

12.1

40.8






 

21 Acquisition of Madrid Xanadú

On 10 March 2017 the Group acquired 100 per cent interests in three entities, which together own and manage Madrid Xanadú shopping centre, for total cash consideration of €517.3 million (£453.9 million). The cash flow statement outflow of £446.7 million reflects the £453.9 million less the unrestricted cash acquired of £7.2 million. Acquisition related costs of £1.3 million were incurred and recognised in the income statement in exceptional administration expenses during the year.

The fair value of assets and liabilities acquired, at 100 per cent, are set out in the table below:




Fair value




£m





Assets




Investment and development property



461.4

Cash and cash equivalents (including restricted cash of £3.1 million)



10.3

Trade and other receivables



0.1









Total assets



471.8









Liabilities




Trade and other payables



(21.3)

Deferred tax



(77.7)









Total liabilities



(99.0)









Net assets



372.8









Fair value of consideration paid



453.9









Goodwill on acquisition of business



81.1





The fair value of the consideration is greater than the fair value of the assets and liabilities acquired, resulting in goodwill of £81.1 million being recognised on acquisition. The goodwill balance is primarily attributable to the recognition of a deferred tax balance which is required to be recorded in accordance with IAS 12 Income Taxes but has not been taken into account as part of the purchase price as it is not expected to be realised.

From the date of acquisition to the end of the year, the acquired subsidiaries and subsequent joint venture interest (see note 22) contributed £13.2 million of revenue and £3.1 million of profit to the Group.

Had the entities been acquired on 1 January 2017, the Group would have reported revenue of £622.9 million and profit of £206.0 million for the year.



 

NOTES (continued)

22 Part disposal of Madrid Xanadú

On 31 July 2017 the Group sold 50 per cent of its interest in Xanadú Retail and Leisure S.L.U., a wholly owned subsidiary, to TH Real Estate for total consideration of €131.7 million (£117.9 million) before expenses of £1.0 million. Xanadú Retail and Leisure S.L.U. owns, through its wholly owned subsidiaries, Madrid Xanadú. Following this transaction Madrid Xanadú has ceased to be accounted for as a subsidiary and is now a joint venture. Therefore the assets and liabilities of Madrid Xanadú are no longer recorded at 100 per cent in the Group's balance sheet but the remaining 50 per cent interest is included in investment in joint ventures at an initial value of £117.1 million. As a result of this transaction the Group has recorded a loss on disposal of £1.0 million in the income statement. The cash flow statement inflow of £104.1 million represents the net consideration received of £116.9 million net of unrestricted cash in the business of £12.8 million.

The assets and liabilities of the subsidiaries disposed of, at 100 per cent, are set out below:




£m





Assets




Investment and development property



472.3

Goodwill



81.1

Cash and cash equivalents (including restricted cash of £3.2 million)



16.0

Trade and other receivables



7.3









Total assets



576.7









Liabilities




Trade and other payables



(28.4)

Deferred tax



(79.6)

Derivative financial instruments



(1.6)

Borrowings



(231.4)









Total liabilities