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Half Yearly Report 2008
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(Loss) / profit before tax

The main drivers of our loss before tax are the change in value of our investment portfolio (including any profits or losses on disposal of properties), our net rental income, the performance of our Trillium business, and the amount of interest we incurred. The degree to which movement on these and other items led to the reduction in our profit before tax from £365.2m last year to a loss of £1,737.2m this period, is explained in Table 4 below. During the current period, we took the decision to impair the goodwill associated with Trillium, resulting in an exceptional charge of £147.6m. A number of Trillium’s new business prospects rely on the availability of long-term debt funding at reasonable cost. Given current credit markets, we have taken a more cautious view on the value of Trillium’s discounted cash flows including new business with the result that we have impaired its goodwill.


Table 4: Principal changes in profit / (loss) before tax and revenue profit

  Profit / (loss)
before tax
£m		 Revenue
profit
£m
Six months ended 30 September 2007 365.2 172.8
Valuation deficit    (1,891.1) –
Goodwill impairment (147.6) –
Profit on disposal of non-current properties (68.3) –
Profit on sale of trading properties     (7.6) –
Decrease in capitalised interest 1 (3.1) (3.1)
Amortisation of bond de-recognition2 (3.6) –
Long-term development contract profits 0.7 –
Trillium operating profit (including joint ventures)3 2.8 2.8
Interest related to PPP investments4 18.9 18.9
Other Trillium interest5 (1.3) (1.3)
Net rental and service charge income6 14.0 14.0
Indirect costs (2.2) (2.2)
Other interest7 (6.1) (6.1)
Demerger costs8 (16.4) –
Debt restructuring charges 1.3 –
Other 7.2 –
Six months ended 30 September 2008 (1,737.2) 195.8

Notes:

  • 1. Lower development activity, with several developments completing since 1 October 2007 (New Street Square, Princesshay and Bankside 2&3).
  • 2. The debt instruments issued as part of the refinancing in November 2004 do not meet the recognition requirements of IAS39 as they are not deemed to be substantially different from the debt they replaced. As a result, the book value of the new instruments is reduced to the book value of the debt it replaced and the difference is amortised over the life of the new instruments. The increase in amortisation over the comparable period is a reflection of the maturity profile of debt replaced.
  • 3. Increase is mainly due to DWP (£14.3m) and Accor hotels (£2.8m) offset by higher bid costs. See Table 3 on page 16 for details.
  • 4. Lower interest cost associated with ownership of PPP investments (on which no revenue is recognised) following the sale of a number of PPP assets to the Trillium Investment Partners fund in the second half of 2007/08.
  • 5. Increased cost due to higher average capital employed, principally Accor hotels.
  • 6. Increase in net rental and service charge income is largely driven by completed developments.
  • 7. Other interest includes a full six months interest on the REIT conversion charge paid in July 2007 (£316.2m), which amounted to £4.3m.
  • 8. All costs related to the proposed demerger were expensed in the six months and do not form part of the calculation of revenue profit.