Annual Report and Accounts

Assura Group Limited 27 March 2007 Assura Group Limited 27 March 2007 ASSURA GROUP LIMITED Annual Report and Consolidated Financial Statements for the year ended 31 December 2006 Highlights â€¢ Group operating profit Â£12.9m (2005: loss of Â£10.6m) â€¢ Final dividend3 up 20% to 4p (making 6p in total) â€¢ Â£106m (net of expenses) of new equity raised in May 2006 â€¢ Net assets Â£267.5m equivalent to 114.3p per share â€¢ Net debt Â£28m (10% gearing) - significant additional debt capacity â€¢ Â£430m1 of capital committed over 118 sites at an estimated average net initial yield of circa 6.5% 2 â€¢ Ten pharmacies open2 â€¢ Five joint ventures with GPs have been formed to provide out-patient, diagnostics and day case procedures to a population of circa 600,000 in aggregate â€¢ Acquisition of Berrington completed, change of company name to Assura Group 1 As at 20 March 2007. 2 Prior to accounting for revaluation surpluses. 3 Ex-dividend date 4 April 2007, Record date 10 April 2007, Payment date 4 May 2007. Chairman's Statement I am delighted to introduce this report in respect of the year ended 31 December 2006. During the year, the Group has transformed itself from being an externally managed investment company (as The Medical Property Investment Fund) to a fully fledged asset-backed operating group with its own management and staff totalling over 200 people. During the year, there was strong growth in property rentals and values and excellent progress is being made to generate income streams out of pharmacy and, in due course, clinical services. The Company raised Â£105.9m (net of expenses) in May 2006 and in October 2006 changed its name to Assura Group. The Company now operates through three business divisions: Assura Property, Assura Pharmacy and Assura Medical. The Company became a constituent of the FTSE All Share index during 2006 and is now a constituent of the FTSE 250 index. The Group's objective is to become one of the major companies providing health care services to the National Health Service and to its patients. The Group's strategy is to develop and own modern facilities in primary care, establish integrated pharmacies across the UK and to form joint venture Limited Liability Partnerships with groups of GPs to provide out-patient, diagnostics and day case procedures outside of hospitals in the community. Managing the expansion and delivery of services at the rate we are experiencing is a major challenge for all the management and staff and I am confident we have a strong and dynamic team in place to achieve this. The new financial period has started well and we look forward with optimism to the rest of the year. Dr Mark Jackson Non-Executive Chairman 26 March 2007 Chief Executive's Statement Overview 2006 was a very satisfactory year for the Group and I am pleased to report strong progress in acquiring and developing properties, the successful development of the Group's pharmacy operating business and the launch of the new medical provider business which has been developed to assist GP practices and related health professionals to meet many of the objectives of Practice Based Commissioning by becoming providers themselves to enable the shift of outpatient and other services from hospitals into primary care. Operating Review During the year, total revenue amounted to Â£16.1m (2005: Â£7.0m) producing a group operating profit of Â£12.9m (2005: loss of Â£10.6m). The property division earned a net profit of Â£17.6m (2005: Â£3.1m)); the pharmacy division incurred a loss of Â£3.1m (2005: Â£0.7m); while the medical division earned no income prior to 31 December but start up costs have resulted in a net loss of Â£2.3m (2005: Â£nil). For the foreseeable future, the Group intends to continue financing the losses in its pharmacy and medical businesses from the rental income received from its property portfolio. Over the medium term, the Group's strategy is to blend the three income streams from property rents, pharmacy branch profits and the share of profits from medical joint ventures to achieve a Group return on capital employed before central costs, financing charges and tax of at least 10%. Market Overview The Department of Health published a White Paper in January 2006 which set out the vision for the future of health care in the United Kingdom for the next five years. The key areas of change are focused on an increased delivery of service within primary and community care rather than in hospitals. In addition, core support services such as diagnostics are to be relocated next to traditional general practices. The key outcomes are designed to be an improvement in the quality and convenience of services making them the most compelling choice option available to patients. Subsequent Department of Health guidance published during 2006 further encourages all primary care providers to register and be approved by local PCTs to become "willing providers" eligible to receive tariff payments for services that meet the quality standards. Strategic Health Authorities and Primary Care Trusts were reorganised during 2006 and it has been the Group's aim to align its strategy very closely to the objectives defined by the new management of these organisations. The Group recognises that if a significant number of services are to move from hospitals into the community, it will need to work closely with such organisations, as well as the acute sector, to ensure that service reconfiguration towards primary care can be profitable to provider organisations whilst at the same time not upsetting local health economies. Property Division As at 20 March 2007, the Group's property division had committed Â£430m across 118 sites including 16 which are currently in solicitors' hands. The net initial yield on all capital commitments averages circa 6.5% and whilst revaluation surpluses (see below) have been credited on completed properties, there remain, assuming current valuation yields, inbuilt ongoing revaluation surpluses within the development pipeline. The Group's property assets were independently valued by Savills and, as at 31 December 2006, the net average valuation yield on all purchased and completed property stood at 5.56%. During the year, the Group benefited from a surplus on revaluation of its property portfolio of Â£17.0m (2005: Â£2.2m). This figure is after the payment of all property acquisition costs which arose in the year. The Group's profitable development pipeline and rental growth should enable revaluation surpluses to continue in 2007 notwithstanding any stabilisation of property yields which have fallen steadily in recent years. The Group settled rent reviews on 11 properties during 2006 resulting in an aggregate increase of 17.6% on the passing rent relating to those properties. As at 31 December 2006, the portfolio had an average rent of Â£144.4 per square metre on General Medical space and an average weighted income un-expired term of 19 years. =We are continuing our strategy of further property investment and development and continue to focus on expanding the Company's existing primary care facilities and/or relocating them, if applicable, to larger, newer premises developed by the Group and its local developer partners. The Group intends to develop and retain for long term investment: one-stop-shop primary care resource centres; community hospitals; and GP surgeries. The main focus has been the creation of a pipeline of committed developments and good progress has been made during the year. Following the announcement of the reorganisation of PCTs at the end of 2005, 2006 was characterised by a period of indecision and uncertainty amongst key PCT decision makers especially relating to the rental commitments for new development projects. Now that the new management teams of PCTs have been formed, we are beginning to see greater confidence and improved decision making generally. To accelerate and facilitate this process, the Group is prepared to take careful, measured development risk and build new premises where potential tenants have yet to commit. On all of its larger developments, the Group intends to incorporate integrated pharmacy facilities as well as build additional space to house its medical division activities. Pharmacy Division The Group has made excellent progress during the year with the development of its own pharmacy operating business, Assura Pharmacy Limited, which now has ten pharmacies trading within medical centres owned by the Group. The Group is on target to open 20 integrated pharmacies by the end of 2007 and has plans to have at least 30 open by the end of 2008. Acquisitions of pharmacies for development purposes is an important part of the Group's long term pharmacy strategy which is to provide integrated pharmacy services across the UK. The Group's vision of integrated pharmacies is in line with new government policy which envisages closer alignment of pharmacy and primary care to facilitate improved clinical outcomes and enhance the patient journey. The Group also sees significant commercial advantages to this integrated model through the development of enhanced services in the communities which the pharmacies serve, making use of advances such as electronic transfer of prescriptions as well as coordinated stock holding and seamless IT. The greater cooperation between health professionals and pharmacists should reduce the burden on GPs. This type of activity accords with the new pharmacy contract and the Government's 'A Vision for Pharmacy in the new NHS.' The Group has initiated a business planning process to consider whether it should extend its pharmacy activities into a direct to consumer offering. Medical Division The Group's medical division has been pursuing innovative and sustainable ways to work with larger GP practices and locality groups of GPs. By working in partnership with existing GPs and health professionals, the Group can provide a much wider range of facilities and services closer to patients, taking full advantage of the opportunities identified in the White Paper and made available from the recent introduction of Practice Based Commissioning. Underpinning this is the intention to ensure that Assura LLPs provide the highest quality services for patients to choose. Furthermore, with the guidance published by the Department of Health in 2006 regarding eligibility of tariffs to any "willing provider", it is the objective of the Group to ensure that all of its joint ventures with GPs are recognised as "willing providers" allowing most services to be carried out to be eligible for payment at tariff. The encouragement to move secondary care services into the community creates many new opportunities and accords with the Group's building designs that are fully flexible and engineered to support a wide range of care provision and demand in a rapidly developing market that will inevitably continue to change and evolve over the coming years. Five joint venture pilot projects are underway involving circa 600,000 patients and heads of terms have been signed for a further three joint ventures comprising an additional 400,000 patients. In the majority of the pilot projects we have found the number of GP practices joining the LLPs has increased as the business model is better understood. As a result, the service potential of the LLPs is significantly strengthened given the increased patient populations the LLPs are treating. The Group intends to continue with a national roll out of more joint ventures later this year. With each joint venture, the Group forms 50:50 LLPs with groups of GPs aiming to provide out-patient, diagnostic and day-case procedures to patients in primary care or community settings. The GPs core family doctor practices and partnerships remain unaltered. The Group provides each joint venture with start-up capital and working capital, property and property development resources (if required), integrated pharmacy (if possible), bidding expertise detailing new models of care pathways developed specifically for primary care, and "informatics" to ensure high quality auditing of clinical data and processes, including unique localised patient record and referral data. Efficiencies in the operation should provide savings to the PCTs as well as profits which can be shared between Assura and the GPs. Whilst it is very early days, this new business is proving attractive to large numbers of GPs and practice partnerships throughout the UK. Assura intends to become a "willing provider" in each of the pilot joint venture areas and it is anticipated that a number of out-patient services, procedures and related diagnostics will commence during 2007. The Group is targeting the following areas for out-patient services within its joint ventures: musculo-skeletal; minor surgery; ophthalmology; gynaecology; ENT; dermatology; rheumatology; urology; cardiology; GUM; endoscopy; and gastroenterology. Berrington Acquisition On 15 May 2006 the Group acquired the entire share capital of its former fund manager, Assura Administration Limited (formerly Berrington Fund Management Limited) and related parties and thereby changed from being an externally managed fund to a Group with its own internal management team whose goals are now firmly aligned with those of the shareholders of the Company. Subsequently the Group also internalised both its UK based property management team and its administration team in Guernsey to achieve enhanced communication and long term cost benefits. Following the acquisition of its former fund manager during the year, the Group now also benefits from fee income derived from the fund management contract with The Westbury Property Fund Limited, a fully listed commercial property and ports business which has enjoyed strong performance since its inception in 2002. Change of Name of the Company As a result of the expansion of the Group's activities to include both pharmacy and clinical services, the name of the Company was changed from The Medical Property Investment Fund Limited to Assura Group Limited on 27 October 2006. The Group now operates through three business divisions: Assura Property; Assura Pharmacy; and Assura Medical. Dividends When the Company floated in November 2003, it committed to a progressive dividend policy. The Board, having given due regard to the underlying profitability of the Company, has recommended a final dividend of 4p (2005: 3.34p) per Ordinary Share making a total of 6p per Ordinary Share for the year (2005: 5p). Outlook The outlook for the Group is extremely positive and there is significant earnings potential supported by the favourable reforms taking place within the NHS. The Company has a strong pipeline of property developments, it has established its integrated pharmacy model which is growing strongly and is now expanding its medical services businesses by working in joint venture partnership with GPs. Richard Burrell Chief Executive Officer 26 March 2007 Chief Financial Officer's Statement Segmental Results The Group is engaged in three business segments, being primary care premises investment and development, pharmacy, and medical services. Full details of the results from each segment are disclosed in note 17 to the financial statements. Financing The Company successfully raised a further Â£105.9m (net of associated expenses) of equity capital from shareholders during the year to finance its future expansion. As at 31 December 2006, the Group had net assets of Â£267.5m and net debt of Â£28.2m. Heads of Terms have been agreed with the Group's bank, National Australia Bank, to increase the Group's bank facility from the current level of Â£100m to Â£250m, utilising its low cost securitisation conduit, the interest rate margin on which is 0.35%. On 2 November 2006 the Company increased its interest rate swap which will rise from Â£100m to Â£150m at 30 June 2007 and to Â£200m at 31 December 2007, all fixed until 31 December 2027 at a rate of 4.59%. The swap was revalued at 31 December 2006 leading to a valuation gain in the year of Â£5.7m (2005: deficit of Â£3.5m). The Company was admitted to the FTSE All Share index on 15 December 2006 and to the FTSE 250 index on 21 December 2006. Net Asset Value Including the property and swap revaluation, and after dividends paid to ordinary shareholders of Â£9.4m (2005: Â£6.2m), the profit retained for the year amounted to some Â£9.5m (2005: loss of Â£18.7m). This profit resulted in an increase in the diluted net asset value per share from 82.81p as at 31 December 2005 to 114.3p as at 31 December 2006. Reserves On 2 June 2006, and following approval of both shareholders and the Royal Court of Guernsey, the Company transferred Â£25m from share premium to distributable reserve. Subject to shareholder and Royal Court approval, it is intended that the balance standing to the share premium account will be transferred to distributable reserves. Tax The Company's UK trading subsidiaries, primarily Assura Pharmacy Limited, Assura Medical Limited and Assura Fund Management LLP, are all subject to Corporation Tax in the UK. However, retention of the Group's property portfolio in Assura Property Limited, an offshore subsidiary of the Company, does protect the Group from capital gains tax exposure and enable some tax to be sheltered through intra group loans on arms length terms. The Group aims to achieve superior returns from integrated property, pharmacy and medical services, and does not intend to separate its property portfolio into a Real Estate Investment Trust (REIT) in the near future. Assura Fund Management LLP Assura Fund Management LLP receives management fees and is entitled to performance fees in due course from its management of The Westbury Property Fund Limited. Assura Fund Management's 55% share of performance fees accrued in the accounts of the latter fund, but not provided for in these accounts, amounts to Â£5.3m, Â£4.2m of which accrued in the year ended 31 December 2006. Local Improvement Finance Trusts (LIFTs) Local Improvement Finance Trusts were formed to develop primary care centres in partnership between the public and private sectors. The Group has invested in three LIFT companies through Assura LIFT Holdings Limited (formerly BHE Holdings Limited), and has a further LIFT investment through its shareholding in Infracare (Midlands) Limited. Assura LIFT Holdings Limited has also been appointed as preferred bidder on one additional LIFT and reached the final tender stage (one of three bidders) on a further LIFT where the preferred bidder has yet to be announced. The Group currently has Â£3.8m of capital committed to LIFT. Costs associated with LIFT and other major procurement bids which proved unsuccessful in 2006 amounting to Â£1.0m have been fully written off. No credit has been taken in these financial statements for success and other fees which the Group will benefit from in the future from the Group's successful bids. Change of Year End At the time of flotation in 2003, the Group adopted a 31 December year end. With the anticipated growth of both the pharmacy and medical businesses and with the NHS becoming the Group's largest trading partner, the Board has concluded that a 31 March year end would be more appropriate given that most organisations linked to the NHS, including our medical joint venture partners, adopt a March year end. Accordingly, and subject to shareholder approval, the Group will publish 15 month figures to 31 March 2008, a nine month interim statement to 30 September 2007 and quarterly trading statements in respect of the periods to 30 June and 31 December. Nigel Rawlings Chief Financial Officer 26 March 2007 Assura Group Limited Consolidated Income Statement For the year from 1 January 2006 to 31 December 2006 2006 2005 Notes Â£ Â£ Revenue 5 16,123,418 7,015,903 Cost of sales 6 (3,625,536) (480,056) Gross profit 12,497,882 6,535,847 Administrative expenses 7 13,843,128 6,241,364 Other expenses 8 1,279,114 - 15,122,242 6,241,364 Group trading (losses)/profit (2,624,360) 294,483 Other operating income 9 17,041,231 2,165,005 Share of post tax losses of associates and joint ventures 10 (1,454,321) - accounted for using the equity method Exceptional pharmacy establishment cost 11 (1,105,000) - Movement in performance fee provision 4 1,010,000 (13,050,000) Group operating profit/(loss) from continuing operations 12,867,550 (10,590,512) Finance revenue 12 6,706,724 1,729,486 Finance costs 13 (1,105,442) (3,691,649) 5,601,282 (1,962,163) Profit/(loss) before taxation 18,468,832 (12,552,675) Taxation 14 (39,646) (98,241) Profit/(loss) for the year 18,429,186 (12,650,916) Profit/(loss) for the year attributable to: Equity holders of the parent 18,900,446 (12,498,440) Minority interest (471,260) (152,476) 18,429,186 (12,650,916) Earnings per share (pence) Basic earnings per share on profit/(loss) for the year 15 9.68p (8.78)p Diluted earnings per share on profit/(loss) for the year 15 9.44p (8.78)p All items in the above statement are derived from continuing operations. The accompanying notes on form an integral part of the financial statements Assura Group Limited Consolidated Balance Sheet As at 31 December 2006 2006 2005 Notes Â£ Â£ Non-current Assets Investment property 19 213,132,257 133,113,272 Development property 20 35,230,758 15,789,299 Investments in associates 21 1,069,744 1,367,973 Investments in joint ventures 21 868,805 - Intangible assets 22 36,997,920 5,928,478 Property, plant and equipment 23 5,973,572 35,133 Other investments 24 250,000 - Derivative financial instruments at fair value 12 2,202,305 - 295,725,361 156,234,155 Current Assets Cash and cash equivalents 25 18,841,640 3,745,649 Debtors 26 9,891,396 3,537,457 Pharmacy inventories 567,290 - Property work in progress 3,239,193 731,387 32,539,519 8,014,493 Total Assets 328,264,880 164,248,648 Current Liabilities Bank overdraft 27 2,134,942 - Creditors 28 11,793,107 3,324,178 Corporate tax and other taxes 599,003 161,834 14,527,052 3,486,012 Non-current Liabilities Long term loan 29 44,948,569 24,929,710 Payments due under finance leases 28 1,289,180 1,380,770 Performance fee provision 4 - 13,050,000 Derivative financial instruments at fair value 12 - 3,472,319 46,237,749 42,832,799 Total Liabilities 60,764,801 46,318,811 Net Assets 267,500,079 117,929,837 Represented by: Capital and Reserves Share capital 30 22,593,170 14,240,385 Share premium 31 226,678,243 122,239,453 Distributable reserve 32 15,563,743 - Retained earnings 33 1,851,738 (18,327,822) Revaluation reserve 34 106,000 - Deferred consideration reserve 35 790,000 - 267,582,894 118,152,016 Minority interest (82,815) (222,179) Total Equity 267,500,079 117,929,837 Basic Net Asset Value per Ordinary Share 36 118.40p 82.81p Diluted Net Asset Value per Ordinary Share 36 114.32p 82.81p The financial statements were approved at a meeting of the Board of Directors held on 26 March 2007 and signed on its behalf by: Dr John Curran, Deputy Chairman Peter Pichler, Director The accompanying notes form an integral part of the financial statements. Assura Group Limited Consolidated Statement of Changes of Equity For the year from 1 January 2006 to 31 December 2006 Share Share Distributable Retained Revaluation Minority Deferred Total Premium Reserve Earnings Reserve Interest Consideration Capital Reserve Â£ Â£ Â£ Â£ Â£ Â£ Â£ Â£ 1 January 2006 14,240,385 122,239,453 - (18,327,822) - (222,179) - 117,929,837 Issue of - Ordinary Shares 9,159,462 133,644,568 - - - - 142,804,030 Treasury shares (806,677) - - - - - - (806,677) Issue costs on - issuance of Ordinary Shares - (4,205,778) - - - - (4,205,778) Transfer from - share premium(1) - (25,000,000) 25,000,000 - - - - Minority - interest acquired in year - - - - - 610,624 610,624 Dividends on - Ordinary Shares - - (9,436,257) - - - (9,436,257) Profit/(loss) - attributable to equity holders - - - 18,900,446 - (471,260) 18,429,186 and mirnority interest Cost of employee - share based incentives - - - 1,279,114 - - 1,279,114 Deferred share - - - - - - 790,000 790,000 based consideration Revaluation of - land & buildings - - - - 106,000 - 106,000 31 December 2006 22,593,170 226,678,243 15,563,743 1,851,738 106,000 (82,815) 790,000 267,500,079 Share Share Distributable Retained Revaluation Minority Deferred Total Capital Premium Reserve Earnings Reserve Interest Consideration Reserve Â£ Â£ Â£ Â£ Â£ Â£ Â£ Â£ 1 January 2005 14,240,385 122,239,453 - 336,705 - (69,703) - 136,746,840 Dividends on - Ordinary Shares - - - (6,166,087) - - (6,166,087) Loss - (12,650,916) attributable to equity holders - - - (12,498,440) - (152,476) and minority interest - 31 December 2005 14,240,385 122,239,453 - (18,327,822) - (222,179) - 117,929,837 1. Following an application to the Royal Court of Guernsey, Â£25m was transferred from Share Premium account to Distributable Reserves on 2 June 2006. The accompanying notes form an integral part of the financial statements. Assura Group Limited Consolidated Cash Flow Statement For the year from 1 January 2006 to 31 December 2006 2006 2005 Note Â£ Â£ Operating Activities Rent received 9,254,036 5,680,156 Pharmacy sales 2,791,988 - Fees received 2,593,622 354,231 Bank and other interest received 1,032,100 1,835,670 Expenses paid (11,869,067) (5,274,400) Pharmacy purchases (2,099,193) - Interest paid and similar charges (1,554,796) - Net cash inflow from operating activities 37 148,690 2,595,657 Investing Activities Purchase of development and investment property (68,398,821) (70,962,044) Purchase of investments in associated companies (200) (35) Purchase of other investments (250,000) - Purchase of fixed assets (3,498,136) (35,678) Pharmacy development costs (247,676) (36,458) Cash paid on acquisition of subsidiaries (14,269,405) - Costs incurred on acquisition of subsidiaries (1,377,215) - Acquisition of subsidiaries - cash acquired 3,433,264 (24,252) Cost of property work in progress (2,694,105) (12,722,648) Loans advanced to associated companies (1,118,697) (431,615) Loans advanced to joint ventures (906,000) - Net cash outflow from investing activities (89,326,991) (84,212,730) Financing Activities Issue of Ordinary Shares for cash 110,039,336 - Issue costs paid on issuance of Ordinary Shares (4,205,778) - Dividends paid (9,436,257) (6,166,087) Repayment of term loan (64,000,000) - Drawdown of term loan 72,000,000 25,500,000 Loan issue costs (123,009) (622,135) Net cash inflow from financing activities 104,274,292 18,711,778 Increase/(Decrease) in cash and cash equivalents 15,095,991 (62,905,295) Cash and cash equivalents at 1 January 3,745,649 66,650,944 Cash and cash equivalents at 31 December 18,841,640 3,745,649 The accompanying notes form an integral part of the financial statement. Notes to the Consolidated Financial Statements 1. Corporate Information and Operations Assura Group Limited is a closed-ended investment company incorporated in Guernsey whose investment objective is to achieve capital growth and rising rental income from the ownership and development of a diversified portfolio of primary health care properties and the provision of related services, including pharmacy and medical services. 2. Principal Accounting Policies Basis of Preparation The financial statements of the Group and Company have been prepared in conformity with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board, interpretations issued by the International Financial Reporting Interpretations Committee and applicable legal and regulatory requirements of Guernsey Law, and reflect the following policies. The Financial Statements are presented in pounds sterling. Consolidation The Group financial statements consolidate the financial statements of Assura Group Limited and its subsidiary undertakings drawn up to 31 December 2006. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Control comprises the power to govern the financial and operating policies of the investee so as to obtain benefit from its activities and is achieved through direct or indirect ownership of voting rights; currently exercisable or convertible potential voting rights; or by way of contractual agreement. The financial statements of subsidiaries used in the preparation of the consolidated financial statements are prepared for the same reporting year as the parent company and are based on consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from them, are eliminated. Minority interests represent the portion of profit or loss and net assets not held by the Group and are presented separately in the income statement and within equity in the consolidated balance sheet, separately from parent shareholders' equity. Acquisitions of minority interests are accounted for using the parent entity extension method, whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as goodwill. Segmental Reporting The Directors are of the opinion that the Group is engaged in three business segments, being primary care premises investment, development and associated property related services including property fund management; pharmacy; and medical services. All the Group's activities and investments in primary health care properties and related activities are situated in the United Kingdom and in Guernsey. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding discounts, rebates, and other sales taxes or duty. The following specific recognition criteria must also be met before revenue is recognised: Pharmacy sales - Revenue from the sale of goods from the Group pharmacy business is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, on the date of sale. Interest income - Revenue is recognised as interest accrues using the effective interest method. The effective interest method is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset. Dividends - Revenue is recognised when the Company's right to receive the payment is established. Rental Revenue - Rental income arising from operating leases on investment properties is accounted for on a straight line basis over the lease terms and is shown gross of any UK income tax. Property Management Fee Revenue - Property management fee income is accounted for as services are performed and on an accruals basis. Performance Fee Revenue - Performance fee revenue is recognised once the probability of receiving said revenue is greater than 90%. Expenses All expenses are accounted for on the accruals basis. Dividends In accordance with IAS 10 Events after the Balance Sheet Date, dividends on Ordinary Shares declared before the year end but remaining unpaid are not accrued for. Exceptional items The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance. Share Issue Costs The placing expenses incurred in relation to the Ordinary shares issued in the year amounted to Â£4,205,778 and have been written off in full against the share premium account. Business Combinations and Goodwill Business combinations are accounted for using the purchase method. This involves recognising identifiable assets (including previously unrecognised intangible assets) and liabilities (including contingent liabilities and excluding future restructuring) of the acquired business at fair value. Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group's interest in the net fair value of the acquiree's identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash generating units, or groups of cash generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated: â€¢ represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and â€¢ is not larger than a segment based on either the Group's primary or the Group's secondary reporting format determined in accordance with IAS 14 Segment Reporting. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Costs incurred on development projects (relating to the development of pharmacy licenses) are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. The useful lives of intangible assets are assessed to be either finite or indefinite, and the costs are expensed over the life of the asset. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis. Both goodwill and capitalised development costs have indefinite useful lives and are tested for impairment annually as of 31 December either individually or at the cash generating unit level, as appropriate. Goodwill is allocated to cash generating units for the purpose of impairment testing. This allocation is made to those cash generating units that are expected to benefit from the business combination in which the goodwill arose. The recoverable amount of a cash generating unit is determined based on value-in-use calculations. These calculations use cash flow projections based on detailed financial models prepared by management, with all anticipated future cash flows discounted to current day values. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples. Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. In this case the impairment is also recognised in equity up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot ''exceed' the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in the income statement unless the asset is carried at revalued amount, in which case the reversal is treated as a revaluation increase. Impairment losses recognised in relation to goodwill are not reversed for subsequent increases in its recoverable amount. Investments in Subsidiary Companies Investments in subsidiary companies are initially recognised and subsequently carried at cost in the Company Financial Statements, less any provisions for diminution in value. Investments in Associates The Group's investments in associates are accounted for under the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in the associates are carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the associates. After application of the equity method, the Group determines whether it is necessary to recognise additional impairment loss with respect to the Group's net investment in the associates. The consolidated income statement reflects the share of the results of operations of the associates after tax. Where there has been a change recognised directly in the equity of the associates, the Group recognises its share of any changes and discloses this, when applicable, in the Statement of Changes in Equity. Any goodwill arising on the acquisition of an associate, representing the excess of the cost of the investment compared to the Group's share of the net fair value of the associate's identifiable assets, liabilities and contingent liabilities, is included in the carrying amount of the associate and is not amortised. The financial statements of the associates are prepared for the same reporting year as the Group or with a maximum difference of no more than three months wherever possible, using consistent accounting policies. Investments in Joint Ventures The Group has interests in joint ventures which are jointly controlled entities. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venturer has an interest. The Group recognises its interest in joint ventures using equity accounting. The equity accounting method is described in the 'Investments in Associates' accounting policy above. The financial statements of the joint ventures are prepared for the same reporting year as the Group or with a maximum difference of no more than three months. Other Investments Other investments are non-derivative financial assets that are not quoted in an active market. After initial measurement at fair value, other investments are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the Income Statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Investment Property - Freehold Freehold properties are initially recognised at cost, being the fair value of consideration given, including transaction costs associated with the property. After initial recognition, freehold investment properties are measured at fair value, with unrealised gains and losses recognised in the Consolidated Income Statement. Fair value is based upon the open market valuations of the properties as provided by Savills Commercial Limited, a firm of independent chartered surveyors, as at the balance sheet date. Investment Property - Long Leasehold Long leasehold properties are initially recognised as both an asset and lease creditor at the present value of the ground rents payable over the term of the lease. Long leasehold property are subsequently revalued in accordance with IAS 40 up to the fair value as advised by the independent valuer as noted above for freehold properties. The lease creditor is amortised over the term of the lease using the effective interest method. The lease payments are apportioned between the reduction of the lease liability and finance charges in the income statement. Investment Property Transfers Transfers are made to investment property when there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from work in progress to development property upon completion of the purchase of the land and upon commencement of the development or construction. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. For a transfer from investment property to owner occupied property, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Group as an owner occupied property becomes an investment property, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. For a transfer from development to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the income statement. When the Group completes the construction or development of a self constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the income statement. Development Property Development property which comprises buildings under construction includes capitalised interest where applicable and is carried at cost or, if lower, net realisable value. Cost includes all directly attributable third party expenditure incurred. Property, plant and equipment Plant and equipment is stated at cost, excluding the costs of day to day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Land and buildings are measured at fair value less depreciation on buildings and impairment charged subsequent to the date of the revaluation. Fair value is based on independent values of the property apportioned between that element used for the business of the Group and that element rented to third parties. Depreciation is provided on a straight line basis at rates calculated to write off the cost less estimated residual value of each asset over its useful life, as follows: Building work and long leasehold improvements 25 years Fixtures and fittings 4 years Office and computer equipment 3 years Medical equipment 10 years Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is credited to the asset revaluation reserve included in the equity section of the balance sheet, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except that a deficit directly offsetting a previous surplus on the same asset is directly offset against the surplus in the asset revaluation reserve. An annual transfer from the asset revaluation reserve to retained earnings is made for the difference between depreciation based on the revalued carrying amount of the assets and depreciation based on the asset's original cost. Additionally, accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. When each major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognised. The assets' residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Financial assets Financial assets within the scope of IAS 39 are classified as either financial assets at fair value through profit or loss or loans and receivables, as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group considers whether a contract contains an embedded derivative when the entity first becomes a party to it. The embedded derivatives are separated from the host contract which is not measured at fair value through profit or loss when the analysis shows that the economic characteristics and risks of embedded derivatives are not closely related to those of the host contract. The Group determines the classification of its financial assets after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year end. Derivative Financial Instruments and Hedging Activities The Group uses derivative financial instruments, in the form of interest rate swaps, to hedge its risks associated with interest rate fluctuations. The group has classified its derivative instruments as financial assets at fair value through profit or loss. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. The fair value of hedging derivatives are classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability if the remaining maturity of the hedged item is less than 12 months. The fair value of interest rate swap contracts is determined by reference to market values for similar instruments. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognised immediately in the Income Statement. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement loans and receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that are an integral part of the effective interest rate and transaction costs. Gains and losses are recognised in the income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Loans to Subsidiary Companies The unsecured subordinated loan to Assura Property Limited has been accounted for as an originated loan under IFRS. This loan and other loans to subsidiary companies, have been accounted for on an amortised cost basis with intercompany interest being recognised under the effective interest rate method. The loans are reviewed regularly for impairment. Capitalisation of interest Finance costs which are directly attributable to the development of investment property are capitalised as part of the cost of the investment property. The commencement of capitalisation begins when both finance costs and expenditure for the property are being incurred and activities that are necessary to prepare the asset ready for use are in progress. Capitalisation ceases when all the activities that are necessary to prepare the asset for use are complete. Inventories and Work in Progress Pharmacy inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Cost is defined as average purchase price. Property work in progress comprises costs incurred on potential property development and investment opportunities. Costs are written off to the Income Statement if the project becomes abortive. Costs are transferred to investment property if the opportunity results in the purchase of an income generating property. Costs are transferred to development property on acquisition of the land or development site. Cash and Cash Equivalents Cash and cash equivalents are defined as cash in hand, demand deposits, and highly liquid investments readily convertible to known amounts of cash and subject to insignificant risk of changes in value. For the purposes of the Consolidated Cash Flow Statement, cash and cash equivalents consist of cash in hand and deposits in banks. Bank Loans and Borrowings All bank loans and borrowings are initially recognised at fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on settlement. Share-based payment transactions Employees (including senior executives) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity instruments ('equity settled transactions'). Employees working in the business development group are granted share appreciation rights, which can only be settled in cash ('cash-settled transactions'). In situations where some or all of the goods or services received by the entity as consideration for equity instruments cannot be specifically identified, they are measured as the difference between the fair value of the share-based payment and the fair value of any identifiable goods or services received at the grant date. For cash-settled transactions, the liability is measured at each reporting date until settlement. Equity-settled transactions The cost of equity-settled transactions with employees, for awards granted, is measured by reference to the fair value at the date on which they are granted. The fair value is determined by reference to market price on the date of grant. In valuing equity-settled transactions, no account is taken of any vesting conditions, other than conditions linked to the price of the shares of the company (market conditions). The cost of equity-settled transactions is recognised by a change in the Income Statement, together with a corresponding credit in retained earnings, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award ('the vesting date'). The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expense recognised is the expense if the terms had not been modified. An additional expense is recognised for any modification, which increases the total fair value of the share based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any cost not yet recognised in the income statement for the award is expensed immediately. Any compensation paid up to the fair value of the award at the cancellation or settlement date is deducted from equity, with any excess over fair value being treated as an expense in the income statement. Cash-settled transactions The cost of cash settled transactions is measured initially at fair value at the grant date using a binomial model. This fair value is expensed over the period until vesting with recognition of a corresponding liability. Treasury Shares Assura Group shares held by the company and the group are classified in shareholders' equity as 'treasury shares' and are recognised at cost. Consideration received for the sale of such shares is also recognised in equity, with any difference between the proceeds from sale and the original cost being taken to revenue reserves. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of equity shares. Impact of revisions to International Financial Reporting Standards IASB and IFRIC have issued the following standards and interpretations with an effective date after the date of these financial statements: International Accounting Standards (IAS / IFRSs) Effective date IFRS 7 Financial Instruments: Disclosures 1 January 2007 IFRS 8 Operating Segments 1 January 2009 IAS 1 Amendment - Presentation of Financial Statements: Capital 1 January 2007 Disclosures International Financial Reporting Interpretations Committee (IFRIC) Effective date IFRIC 7 Applying the Restatement Approach under IAS 29 Financial 1 March 2006 Reporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 1 May 2006 IFRIC 9 Reassessment of Embedded Derivatives 1 June 2006 IFRIC 10 Interim Financial Reporting and Impairment 1 November 2006 IFRIC 11 IFRS 2 - Group and Treasury Share Transactions 1 March 2007 IFRIC 12 Service Concession Arrangements 1 January 2008 The Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group's financial statements in the period of initial application. Upon adoption of IFRS 7, the Group will have to disclose additional information about its financial instruments, their significance and the nature and extent of risks that they give rise to. More specifically the Group will need to disclose the fair value of its financial instruments and its risk exposure in greater detail. There will be no effect on reported income or net assets. 3. Material Agreements (i) Under the terms of an appointment made by the Board on 18 November 2003, Assura Administration Limited (formerly Berrington Fund Management Limited) (AFML) was appointed as Investment Manager to the Company. With effect from 21 November 2003 the Investment Manager was paid an aggregate +annual management fee of 2.0% of the net asset value of the Company payable monthly in arrears. In addition, AFML was entitled to receive a performance fee in respect of the period from Admission to 31 December 2008 of 18% of the amount by which the market value per share exceeds on 31 December 2008 the Placing Price (compounded annually at 12% per annum) and, thereafter, 18% of the amount by which the market value per share exceeds the higher of (1) the Placing Price (compounded annually at 12% per annum) or (2) the highest previous market value per share as stated in the Prospectus dated 18 November 2003 (See also note 4). The Investment Management Agreement ceased following the acquisition of AFML by Assura Group Limited on 15 May 2006. The investment manager had delegated the bulk of its fund management to Assura Fund Management LLP (formerly Berrington Fund Management LLP) which was acquired by Assura Property Limited on 15 May 2006. Assura Fund Management LLP is the fund manager for The Westbury Property Fund Limited from which fees are earned amounting to 1.2% of the gross assets of that Company. Part of this work is sub contracted to third parties. The Investment Manager had delegated the management of the investment properties owned by Assura Property Limited to Barlows Asset Management Limited. This contract was terminated on 7 August 2006 when the property management staff and systems utilised by Barlows Asset Management Limited were transferred to Assura Property Limited. (ii) Under the terms of an Administration Agreement dated 18 November 2003, the Company appointed Guernsey International Fund Managers Limited (GIFM) as Administrator, Secretary and Registrar of the Company. This agreement was terminated with effect from 27 April 2004. The Company then entered into an Administration Agreement dated 26 April 2004 with Mourant Guernsey Limited (Mourant) under which Mourant agreed to provide services to the Company as Administrator and Secretary to the Company. Mourant was entitled to an annual fee of Â£85,000 per annum, such fees being invoiced monthly in arrears. On 11 September 2006 the agreement was terminated and since that date administration and Company secretarial services have been managed internally by Assura Administration Limited from the Company's head office in Guernsey. (iii) Under the terms of a letter of appointment dated 17 November 2003, Dr Mark Jackson was entitled to an incentive fee in respect of the period from 21 November 2003 to 31 December 2008, provided he was then still employed by the Company, of 2% of the amount by which the market value per share exceeded, on 31 December 2008, Â£1 compounded annually at 12% per annum and, thereafter, 2% of the amount by which the market value per share exceeds the higher of (1) Â£1 compounded annually at 12% or (2) the higher previous market value per share. Following recommendations from the Remuneration Committee to the Board of the Company and in order to bring the incentive and remuneration structure of Mark Jackson, non-executive Chairman of the Company, in line with other members of the senior Assura team: (a) his existing bonus arrangement (as detailed and provided for in the Group's 2005 financial statements) was cancelled on 29 December 2006 for a cash payment of Â£500,000; and (b) he was awarded 500,000 units pursuant to the Assura Executive Equity Incentive Plan, under which he will become entitled on 31 December 2010 to a number of shares held in the Assura employee benefit trust determined by the extent to which the total shareholder return performance conditions are satisfied (see note 30). 4. Performance Fee Provision Based on an effective share price of 170.43p at 31 December 2005, and on the assumption that the performance fees had crystallised on that date, a provision for performance fees amounting to Â£13,050,000 was made in the 2005 financial statements of which Â£550,000 was attributable to Dr Mark Jackson on a time apportioned basis (see note 3). Following the acquisition of the former Fund Manager by the Company on 15 May 2006, the performance fee provision was revalued and a credit of Â£1,010,000 arose in the year, the balance of Â£11,490,000 has been eliminated in the consolidated accounts of the Group (see note 22). Furthermore the performance fee entitlement of Dr Mark Jackson ceased on 29 December 2006 (see note 3). 5. Revenue 2006 2005 Â£ Â£ Rent receivable 10,737,808 6,001,041 Pharmacy sales 2,791,988 - Fund management and other fees receivable 2,593,622 1,014,862 16,123,418 7,015,903 6. Cost of Sales 2006 2005 Â£ Â£ Property management expenses 831,707 480,056 Pharmacy purchases 2,099,193 - Fund management direct costs 694,636 - 3,625,536 480,056 7. Administrative expenses 2006 2005 Â£ Â£ Investment Manager's fees 950,078 2,691,686 Salaries and other staff costs (i) 6,949,709 1,721,775 Legal and professional fees 1,479,451 258,137 Audit fees 242,027 38,824 Tax and accountancy fees 62,182 7,444 Administration fee 74,642 92,584 Directors' fees (ii) 274,509 220,370 Insurance 101,117 28,471 Advertising, PR and marketing 683,607 216,448 Abortive transaction costs 983,215 418,820 Premises costs 1,035,089 - Travel, accommodation, subsistence and other expenses 705,168 526,182 Depreciation 302,334 20,623 13,843,128 6,241,364 (i). Salaries and other staff costs 2006 2005 Â£ Â£ Wages and salaries 5,677,463 1,589,864 Social security costs 643,066 104,467 Recruitment costs 391,874 22,290 Training costs 160,307 1,240 Healthcare costs 38,737 - Temporary staff 24,416 - Pension costs 7,987 3,914 Uniforms 5,859 - 6,949,709 1,721,775 The average monthly number of employees during the year was made up as follows: 2006 2005 Property 37 11 Medical 13 - Pharmacy 33 - 83 11 Key management staff: 2006 2005 Salaries 1,102,648 - Cost of employee share based incentives 218,467 - Social security costs 132,916 - 1,454,031 - (ii). Directors' Fees 2006 2005 During the year each of the Directors received the following fees: Â£ Â£ Dr Mark Jackson (Chairman) 100,000 100,000 Dr John Curran (Deputy Chairman) 47,500 40,000 Mr Graham Chase 27,500 20,000 Mr Peter Pichler 27,500 13,945 Mr Fred Porter 27,500 20,000 Ms Serena Tremlett 17,009 6,425 Mr Colin Vibert 27,500 20,000 274,509 220,370 See also Dr Mark Jackson's interest referred to in notes 3 and 4. In addition Dr John Curran, Messrs Pichler and Vibert and Ms Tremlett were paid an additional Â£10,000 each for consultancy work, the costs of which were capitalised as part of the acquisition costs of Assura Administration Limited and related parties. 8. Other Expenses 2006 2005 Â£ Â£ Cost of employee share based incentives 1,279,114 - 9. Other Operating Income 2006 2005 Â£ Â£ Unrealised surplus on revaluation of investment property 17,041,231 2,165,005 10. Share of post tax losses of associates and joint 2006 2005 ventures accounted for using the equity method Â£ Â£ Share of losses of associated companies 1,417,126 - Share of losses of joint ventures 37,195 - 1,454,321 - 11. Exceptional Pharmacy Establishment Cost 2006 2005 Â£ Â£ Pharmacy establishment cost 1,105,000 - The Company entered into an arrangement with Pharma-e Limited, of which John Curran is a Director and shareholder, to compensate Pharma-e Limited for consultancy services provided to the Group in connection with establishment of the pharmacy business of Assura Pharmacy Limited. The consideration was met by the issue of 650,000 Ordinary shares in the Company to Pharma-e Limited. 12. Finance revenue 2006 2005 Â£ Â£ Bank and other interest 1,032,100 1,729,486 Unrealised profit on revaluation of derivative financial instrument 2,202,305 - Realised profit on revaluation of derivative financial 3,472,319 - instrument 6,706,724 1,729,486 In 2005 the Company entered into a 20 year interest rate swap at a rate of 4.5725%, on its full debt facility of Â£100m. Throughout the year, the swap rate was below the three month LIBOR rate hence the Company benefited from income arising from the swap. On 2 November 2006, the swap was increased to Â£200m (Â£150m effective from 30 June 2007 and Â£200m effective from 31 December 2007) all at a new rate of 4.59% expiring on 31 December 2027. Based on the actual 21 year swap rate at 29 December 2006, the fair value of this swap was a surplus of Â£2,202,305 (2005 - deficit of Â£3,472,319). 13. Finance Costs 2006 2005 Â£ Â£ Unrealised loss on revaluation of derivative financial - 3,472,319 instrument (see note 12) Long term loan interest payable 1,536,436 204,258 Interest capitalised on developments (733,624) (83,592) Swap interest (see note 12) (197,072) (74,443) Non-utilisation fees 189,884 102,452 Amortisation of loan issue costs 246,034 51,845 Bank & other interest payable 32,580 6 Bank charges 31,204 18,804 1,105,442 3,691,649 14. Taxation A reconciliation of the income tax charge applicable to the results from ordinary activities at the statutory income tax rate to income tax expense at the Group's effective income tax rate (based on the Group's main revenue stream, rental revenue is therefore 22% for Schedule A income tax) for the year is as follows: 2006 2005 Â£ Â£ Net profit/(loss) before taxation 18,468,832 (12,552,675) UK Income tax at rate of 22% 4,063,143 (2,761,589) Effects of: Capital gains on revaluation of investment properties not taxable (3,749,071) (476,301) Income not taxable including interest receivable and share of profits (227,062) (380,487) of associates and joint ventures (Gain)/loss on revaluation of derivative financial instrument (1,248,417) 763,910 not taxable Net effect of inter company loan interest (2,030,868) (1,150,425) Performance fee provision not tax deductible (222,200) 2,871,000 Share based payments not tax deductible 524,505 - Losses arising not relievable against current tax 2,929,616 1,232,133 39,646 98,241 The Company and its Guernsey registered subsidiaries, Assura Property Limited, Assura Administration Limited and Assura Pharmacy Holdings Limited, have obtained exempt company status in Guernsey under the terms of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 so that they are exempt from Guernsey taxation on income arising outside Guernsey and on bank interest receivable in Guernsey. Each Company is, therefore, only liable to a fixed fee of Â£600 per annum. The Directors intend to conduct these companies such that they continue to remain eligible for exemption. A taxation charge of Â£1,800 arose in Guernsey. Assura Property Limited is subject to United Kingdom income tax on income arising on the investment properties, after deduction of its debt financing costs, allowable expenses and capital allowances. Assura Property Limited also has a place of establishment in the UK and provides management, administration and related services which are liable to corporation tax in the UK. The Company's UK subsidiaries are subject to United Kingdom corporation tax on their profits less losses. Assura LIFT Holdings Limited and its subsidiaries along with BHE Bonnyrigg Limited, BHE Wand Limited, BHE Heartlands Limited, Assura Medical Limited, Strategis Limited and Assura Pharmacy Limited are subject to UK taxation and a charge of Â£37,846 (2005 -Â£96,441) was incurred in the year. 15. Profit/(Loss) per Ordinary Share The basic profit/(loss) per Ordinary Share is based on the profit attributable to equity holders of the parent for the year of Â£18,900,446 (2005 - loss of Â£12,498,440) and on 195,205,087 Ordinary Shares (2005: 142,403,847), being the weighted average number of Ordinary Shares in issue in the respective year, excluding treasury shares. The diluted profit/(loss) per Ordinary Share is based on the profit for the year of Â£18,900,446 (2005 - loss of Â£12,498,440) and on 200,310,356 Ordinary Shares (2005: 142,403,847), being the weighted average number of Ordinary Shares in issue in the respective year. 2006 2005 Weighted average number of shares - basic 195,205,087 142,403,847 Weighted average number of treasury shares 5,105,269 - Weighted average number of shares - diluted 200,310,356 142,403,847 16. Dividends Paid on Ordinary Shares No. of Ordinary Rate 2006 Rate 2005 Shares pence Â£ pence Â£ Final dividend for 2005 142,403,847 3.34 4,756,288 2.67 3,802,183 Interim dividend for 2006 233,998,471 2.00 4,679,969 1.66 2,363,904 Dividends paid 5.34 9,436,257 4.33 6,166,087 The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profits available for the purpose and the Company's Articles of Association state that such profits available for distribution do not include realised or unrealised profits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid during 2005 were in excess of these distributable profits as defined above. In order for those dividends to comply with The Companies (Guernsey) Law, 1994, the Directors sought approval from the shareholders and the Royal Court of Guernsey on 2 June 2006 to transfer Â£25m from the share premium account to distributable reserves. In order to ensure that future dividends can comply with The Companies (Guernsey) Law, 1994, the Directors intend to convert the entire share premium reserve of Â£226,678,243 to a distributable reserve. This requires shareholders' approval at the Company's Annual General Meeting on 18 May 2007 and application to the Royal Court of Guernsey immediately thereafter. The Directors are confident of obtaining the requisite approval and consent of the Royal Court of Guernsey. The Directors intend to recommend a final dividend of 4.0p per Ordinary Share be paid to shareholders on the Company's register on 10 April 2007. 17. Segment Information The primary segment reporting format is determined to be business segments as the Group's risks and rates of return are affected predominantly by differences in the products and services provided. There is no secondary information as the activities of the Company are deemed to be in one geographical location, the UK and Guernsey. The operating businesses are organised and managed separately according to the nature of the products and services provided, with each segment representing a strategic business unit that offers different products and serves different markets. The Property segment develops and invests in primary care premises and undertakes property related services including property fund management. The Pharmacy segment operates integrated pharmacies in medical centres. The Medical Services segment provides medical services, principally outpatient and other services traditionally undertaken in hospitals but now being relocated into GP surgeries, community hospitals and other facilities in the community, in collaboration with GP's. Transfer prices between business segments are set on an arm's length basis in a manner similar to transactions with third parties. Segment revenue, segment expense and segment result include transfers between business segments. Those transfers are eliminated on consolidation. The following table presents revenue, profit and certain assets and liability information regarding the Group's business segments: Year ended 31 December 2006: Property and Pharmacy Medical Eliminations Total Related Services Services and Unallocated items Â£ Â£ Â£ Â£ Â£ Revenue from 13,331,430 2,791,988 - - 16,123,418 external customers Inter-segment sales 113,500 - - (113,500) - Segment revenue 13,444,930 2,791,988 - (113,500) 16,123,418 Segmental result 2,617,562 (1,970,375) (1,992,433) - (1,345,246) Cost of employee share based incentives (664,057) (281,157) (241,263) (92,637) (1,279,114) Share of losses of associates & joint ventures (1,417,126) - (37,195) - (1,454,321) Unrealised surplus on revaluation of properties 17,041,231 - - - 17,041,231 Exceptional pharmacy - (1,105,000) - - (1,105,000) establishment cost Movement in - - - 1,010,000 1,010,000 performance fee provision Net finance revenue - - - 5,601,282 5,601,282 Profit/(Loss) before 17,577,610 (3,356,532) (2,270,891) 6,518,645 18,468,832 tax Taxation - - - (39,646) (39,646) Profit/(loss) for 17,577,610 (3,356,532) (2,270,891) 6,478,999 18,429,186 the year Assets and liabilities Fixed assets 291,797,992 1,806,958 181,862 - 293,786,812 Equity accounted investments 1,069,744 - 868,805 - 1,938,549 Current assets 10,299,710 2,005,819 1,392,350 - 13,697,879 Segment assets 303,167,446 3,812,777 2,443,017 - 309,423,240 Unallocated assets 18,841,640 18,841,640 Total assets 328,264,880 Segment Liabilities Current liabilities (6,653,124) (4,440,578) (3,433,350) - (14,527,052) Unallocated liabilities Non current liabilities - - - (46,237,749) (46,237,749) Total liabilities (60,764,801) Year ended 31 December 2005: Property & Pharmacy Medical Eliminations & Total Related Services Services Unallocated items Â£ Â£ Â£ Â£ Â£ Revenue from 7,015,903 - - - 7,015,903 external customers Segment revenue 7,015,903 - - - 7,015,903 Segmental result 968,074 (673,591) - - 294,483 Unrealised surplus 2,165,005 - - - 2,165,005 on revaluation of properties Performance fee - - - (13,050,000) (13,050,000) provision Net finance revenue - - - (1,962,163) (1,962,163) /(cost) Profit/(loss) before taxation 3,133,079 (673,591) - (15,012,163) (12,552,675) Taxation - - - (98,241) (98,241) Profit for the year 3,133,079 (673,591) - (15,110,404) (12,650,916) Assets and liabilities Fixed assets 154,831,049 35,133 - - 154,866,182 Equity accounted 1,367,973 - - - 1,367,973 investments Segment assets 156,199,022 35,133 - - 156,234,155 Unallocated assets - - - 8,014,493 8,014,493 Total assets 164,248,648 Segment Liabilities Current liabilities (2,769,762) (716,250) - - (3,486,012) Unallocated - - - (42,832,799) (42,832,799) liabilities Non current liabilities Total liabilities (46,318,811) 18. Investments in Subsidiary Companies The Company owns the whole of the issued Ordinary Share capital of Assura Property Limited, specially formed to act as the property investment holding company for the Group, which is incorporated and registered in Guernsey. The Company also owns the whole of the issued Ordinary Share capital of Assura Medical Limited, which has been set up to provide outpatient and related clinical services to patients working in partnership with GPs. Assura Property Limited owns the whole of the issued Ordinary Share capital of BHE (Heartlands) Limited, a property investment company, registered in England. The Company owns the whole of the issued Ordinary Share capital of Assura Pharmacy Holdings Limited, specially formed to act as the pharmacy investment holding company for the Group, which is incorporated and registered in Guernsey. Assura Pharmacy Holdings Limited owns the whole of the issued Ordinary Share capital of Assura Pharmacy Limited which is registered in England and carries on its pharmacy trade in the United Kingdom. The Company also owns the entire issued Ordinary Share capital of Assura LIFT Holdings Limited. Assura LIFT Holdings Limited has two subsidiaries, BHE Developments Limited (70% shareholding) and BHE Management Services Limited, with all three subsidiaries being registered in England, and undertaking property development, health planning and related consultancy services. Assura LIFT Holdings Limited, which has investments in four LIFT Companies via LIFT consortia investments, was formerly 70% owned by the Company but the minority interest was acquired on 1 June 2006. During the year the Group acquired the entire share capital of Assura Administration Limited (formerly Berrington Fund Management Limited) and related parties, Strategis Limited and Assura Services Limited (formerly Tarncourt Limited) and the Members' capital of Assura Fund Management LLP (formerly Berrington Fund Management LLP), all of which are incorporated in England and collectively undertook the external fund management of the Group. Other acquisitions in the year were of Stream Partners Limited, a company which extracts, processes and reports on patient referrals and other data from both GP surgeries and hospital data, and PCI Management Limited, an intermediate holding company and its subsidiary, Primary Care Initiatives (Macclesfield) Limited, which owns a medical centre in Macclesfield, all of which are incorporated in England. A table listing all the subsidiaries, including other dormant subsidiaries, is below: Name of Subsidiary Place of Share-holding Share-holding Business Activity incorporation 2006 2005 Assura Property Limited (formerly Guernsey 100% 100% Property investment MPIF Holdings Limited) Assura Pharmacy Holdings Limited Guernsey 100% 100% Holding company (formerly MPF Pharmacies Limited) Assura Pharmacy Limited (formerly England 100% 100% Pharmacy Healthcare Pharmacies Limited) Assura Medical Limited England 100% 100% Management of clinical services Assura Estates Limited Guernsey 100% - Dormant Assura Medical Solutions Limited England 100% 100% Dormant Assura Administration Limited Guernsey 100% - Company administration services (formerly Berrington Fund (formerly fund management) Management Limited) Assura LIFT Holdings Limited England 100% 70% Investment holding company (formerly BHE Holdings Limited) Stream Partners Limited England 100% - Medical data processing company Strategis Limited England 100% - Dormant (formerly fund management consultancy) Assura Services Limited (formerly England 100% - Dormant (formerly business Tarncourt Limited) consultancy) Assura Fund Management LLP England 100% - Fund management (formerly Berrington Fund Management LLP) PCI Management Limited (formerly England 100% - Holding company Primary Care Initiatives Limited) Primary Care Initiatives England 100% - Property investment (Macclesfield) Limited BHE (Heartlands) Limited England 100% 100% Property investment BHE (Bonnyrigg) Limited England 100% 100% Dormant BHE (Wand) Limited England 100% 100% Dormant BHE (Developments) Limited England 70% 70% Dormant (formerly BHE (York) Limited) BHE Management Services Limited England 100% 70% Management services BHE (Scotland) Limited Scotland 100% 70% Dormant BHE (St James) Limited England 70% 70% Dormant BHE Properties Limited England 70% 70% Dormant Link Homes Limited England 70% 70% Dormant Assura Finance Limited England 100% - Dormant Assura Nominees Limited Guernsey 100% - Nominee holding company 19. Investment Property Properties are stated at fair value, which has been determined based on valuations performed by Savills Commercial Limited as at 31 December 2006, on the basis of open market value, supported by market evidence, in accordance with International Valuation Standards. 2006 2005 Â£ Â£ Fair value of investment property at 1 January 131,642,729 51,739,136 Acquisitions 22,272,553 75,615,590 Acquired as part of a business combination 16,462,166 - Subsequent expenditure 2,434,627 2,122,998 Transfers from development property 24,250,882 - Transfers from work in progress 186,299 - Transfers to land & buildings (2,539,000) - Unrealised profit on revaluation 17,041,231 2,165,005 At market value at 31 December 211,751,487 131,642,729 Add minimum payment under finance leases separately included as a creditor in the balance sheet 1,380,770 1,470,543 Fair value of investment property at 31 December 213,132,257 133,113,272 During the year the Group has complied with Sections 21.27 (f) to 21.27 (i) of the FSA Listing Rules. Prior to a site being acquired, any site acquisition, investigation and third party bid related costs are included in work in progress. Upon acquisition of a site, transfers are made from work in progress to development property where future costs are subsequently included. Upon acquisition of an investment property again any pre acquisition costs are transferred from work in progress to investment property. Finally costs are transferred to investment property from development property upon practical completion of the medical centre and when tenants have taken occupation or signed lease agreements. Transfers are made to land and buildings in respect of the proportion of those medical centres used by the Group's own pharmacy or medical divisions. 20. Development Property 2006 2005 Â£ Â£ At 1 January 15,789,299 10,071,702 Development costs incurred in year 42,958,017 5,634,005 Capitalised interest 733,624 83,592 Transfer from work in progress 700 - Transfers to investment property (24,250,882) - At 31 December 35,230,758 15,789,299 21. Investments in Associates and Joint Ventures The Group has the following investments in associates: Associates Year Shares held % held Place of Business Name of Company Ended by the Group Incorporation Activity Infracare (Midlands) 30 September 240 Ordinary 40% England Holds 60% of the Limited Shares of Â£1 share capital in the Dudley South LIFT Company GB Consortium 1 31 March 4,200 Ordinary 40% England Holds 60% of the Limited Shares of Â£1 share capital in the Barnet, Enfield and Haringey, and Liverpool and Sefton LIFT Companies GB Consortium 2 31 March 27 Ordinary 45% England Holds 60% of the Limited Shares of Â£1 share capital in the Coventry LIFT Company Where the year end of Associates is greater than three months before the year end, management accounts are used at the Group's year end. The above investments comprise: 2006 2005 Group Group Â£ Â£ Cost of shares 4,467 4,267 Loans 2,482,403 1,363,706 Share of accumulated losses (1,417,126) - 1,069,744 1,367,973 The above loans are unsecured, due after one year, and carry interest at 12%. The following information is given in respect of the Group's share of all associates: 2006 2005 Group Group Â£ Â£ Investment property 22,098,221 464,103 Current assets 8,006,029 545,070 30,104,250 1,009,173 Liabilities due within one year 2,187,419 101,876 Liabilities due after one year 29,333,957 1,185,133 31,521,376 1,287,009 Share of net liabilities (1,417,126) (277,836) Add back loans 2,482,403 1,363,706 Other 4,467 282,103 Carrying amount of associates 1,069,744 1,367,973 Share of associates revenue and profit: Revenue 973,036 408,954 (Loss)/profit (1,417,126) 166,277 In 2005 the Group took no credit for the Group's share of profits pending the associates accumulating net surpluses. The movement on investments in associates during the year was as follows: 2006 2005 Group Group Â£ Â£ Balance at 1 January 1,367,973 4,232 Acquired in year 200 35 Net loans advanced or transferred 1,118,697 1,363,706 Share of losses for the year (1,417,126) - Balance at 31 December 1,069,744 1,367,973 Joint Ventures The Group has the following investments in joint ventures: Year Shares held % held Place of Business Name of Entity Ended by the Group Incorporation Activity GB Primary Care (4th 31 March 1 Ordinary Share 50% England Fourth wave Wave Bids) Limited of Â£1 LIFT bidding vehicle and preferred bidder for SE Essex LIFT GB Primary Care 31 March 1 Ordinary Share 50% England Dormant Limited of Â£1 Assura Liverpool LLP 31 March n/a 50% England Enhanced Medical services Assura Minerva LLP 31 March n/a 50% England Enhanced Medical services Assura Macclesfield 31 March n/a 50% England Enhanced LLP Medical services Assura East Riding 31 March n/a 50% England Enhanced LLP Medical services Where the year end of Associates is greater than three months before the year end, management accounts are used at the Group's year end. The above investments comprise: 2006 2005 Group Group Â£ Â£ Cost of shares or member's core capital 906,000 - Share of accumulated losses (37,195) - 868,805 - Members' capital is interest free. The following information is given in respect of the Group's share of all joint ventures: 2006 2005 Group Group Â£ Â£ Current assets 453,000 - 453,000 - Liabilities due within one year (490,195) - Carrying amount of joint ventures (37,195) - Share of joint ventures revenue and profit Revenue - - Loss (37,195) - The movement on investments in joint ventures during the year was as follows: 2006 2005 Group Group Â£ Â£ Balance at 1 January - - Acquired in year 906,000 - Share of accumulated losses in year (37,195) - Balance at 31 December 868,805 - 22. Intangible assets Business Combinations and Goodwill On 6 February 2006 the Group acquired, for cash, the entire share capital of PCI Management Limited, an intermediate holding company and its subsidiary, Primary Care Initiatives (Macclesfield) Limited. On 15 May 2006 the Group acquired the entire share capital of Assura Administration Limited (formerly Berrington Fund Management Limited) and related parties, Strategis Limited and Assura Services Limited (formerly Tarncourt Limited) and the Member's capital of Assura Fund Management LLP (formerly Berrington Fund Management LLP). The consideration for the acquisition was Â£11,483,546 paid in cash plus the issue of 16,826,359 ordinary shares to the vendors. On 1 June 2006 the Group contracted to acquire the 30% of Assura LIFT Holdings Limited not then owned by the Group. The consideration for the acquisition was met by the issue of 1,322,476 ordinary shares to the vendors on completion. Included in the 30% stake being acquired are 11,093 shares of 0.1p each in Assura LIFT Holdings Limited which are still held by R Pesskin, representing 7.8% of the share capital in that Company. The Group has consolidated 100% of the Company as the 11,093 shares are subject to a put and call option committing the Group to the acquisition of those shares. The put option is exercisable any time until 31 December 2008 and the call option exercisable between 1 January 2009 and 31 December 2009. The consideration for these shares in Assura LIFT Holdings Limited is the issue of a further 464,666 Ordinary shares in the Company, the cost of which has been provided for in a deferred consideration reserve. On 5 October 2006 the Group acquired the entire share capital of Stream Partners Limited for Â£299,159 paid in cash. The acquisition of Stream Partners Limited is subject to conditional deferred consideration, payable in 2009, of shares in Assura Group. The number of shares to be issued to the vendors being the number of patients processed by Stream Partners Limited's data processing service in the calendar year 2008 divided by 1.7 and subject to a maximum of 441,176 shares being granted, the cost of which is being expensed on a time apportioned basis with the credit being added to retained earnings. The net assets acquired, fair value of consideration paid and goodwill arising on these transactions are set out in the table below. Assura PCI Management Assura LIFT Stream Total Administration & Limited and Holdings Partners related parties subsidiary Limited Limited Â£ Â£ Â£ Â£ Â£ Investment Property - 13,902,961 - - 13,902,961 Fixed Assets 1,533,060 - - 767 1,533,827 Cash 1,440,272 1,944,804 18,406 29,782 3,433,264 Other Current Assets/ (Liabilities) (234,940) (546,888) (139,184) 18,610 (902,402) Bank loan - Long term - (11,895,833) - - (11,895,833) Bank loan - Current portion - (604,167) - - (604,167) Other long term liabilities - - (489,846) - (489,846) Net Assets Acquired at book value 2,738,392 2,800,877 (610,624) 49,159 4,977,804 Fair value of performance fee entitlement 11,490,000 - - - 11,490,000 Net Assets Acquired at 14,228,392 2,800,877 (610,624) 49,159 16,467,804 fair value Fair Value of shares in Assura Group Limited 28,604,810 - 2,248,208 - 30,853,018 Cash paid 11,483,546 2,486,700 - 299,159 14,269,405 Deferred consideration - - 789,932 - 789,932 Attributable costs 953,189 314,177 69,007 40,842 1,377,215 Total consideration 41,041,545 2,800,877 3,107,147 340,001 47,289,570 Goodwill arising on acquisition 26,813,153 - 3,717,771 290,842 30,821,766 The Company tests annually whether goodwill has suffered any impairment. These calculations use cash flow projections based on detailed financial models prepared by management covering a 20 year period, with all anticipated future cash flows discounted at appropriate to current day values. Based on the Company's assessment of the value of the pipeline of projects in Assura LIFT Holdings Limited, and fees and performance fees receivable and annual fee savings attributable to the acquisitions of Assura Administration Limited and related parties, and business prospects of Stream Partners Limited, no adjustment is considered necessary at 31 December 2006. The business acquired with Assura Administration Limited and related parties is analysed into its constituent profit/cash streams: â€¢ The flows from the core fund management business comprising the management fees previously payable by Assura Group Limited and those which continue to be charged to The Westbury Property Fund Limited â€¢ The performance fee previously payable by Assura Group Limited (see note 4) â€¢ The performance fee receivable from The Westbury Property Fund Limited. The valuation is dependent on several key variables including: â€¢ The total shareholder return on the shares of Assura Group Limited â€¢ The net asset performance of The Westbury Property Fund Limited â€¢ Cost of capital. The valuation is based on a value in use model. Key assumptions made include a discount rate of 10% and yields of 6% assumed from The Westbury Property Fund Limited with an assumed rate of growth of the assets of that fund of 3%pa. The actual growth rate experienced by The Westbury Property Fund Limited has been significantly higher in recent years and in particular in the period since the acquisition of Assura Administration Limited and related parties by the Assura Group. This valuation is consistent with management's previous experience. The valuation is based on a fair value less cost of sale model. The valuation of Assura LIFT Holdings Limited has been estimated by reference to its underlying LIFT medical centre assets and utilising a yield of 5% to its bare rental income (which is receivable from the Government, indexed linked and according to leases of 25 years duration). Reference has also been made to the contracted fee income of Assura LIFT Holdings Limited and the loan stock income earned by that subsidiary from its LIFT investments. Other key assumptions include property yields ranging between 5.0% and 6.0%, net of purchaser's costs, and property development profits of 7.5% on development costs, discounted to current day values. This valuation is consistent with management's previous experience. The Group had the benefit of Â£216,100 of profit after taxation from the acquired businesses since acquisition thereof and losses after taxation of Â£609,800 would have been accounted for had the acquired businesses been part of the Group for the full year. The valuation of Stream Partners Limited has taken account of the earnings of that Company and the flow of patient data collection into its data base. Goodwill 2006 2005 Â£ Â£ At 1 January 5,892,020 5,867,768 Goodwill arising in the year as above 30,821,766 24,252 At 31 December 36,713,786 5,892,020 No impairment has been recognised during the year. Pharmacy Development Costs 2006 2005 Â£ Â£ At 1 January 36,458 - Pharmacy licence development costs incurred during year 247,676 36,458 At 31 December 284,134 36,458 Total Intangibles 36,997,920 5,928,478 All of the above costs incurred in the year were third party costs incurred in relation to the applications for pharmacy licences. 23. Property, Plant and Equipment 2006 2006 2006 2006 Â£ Â£ Â£ Â£ Land & Computer, Fixtures, Total Buildings Medical and Fittings & other Furniture Equipment Cost At 1 January - 10,976 62,598 73,574 At acquisition - 95,488 2,149 97,637 Transfer from investment property 2,539,000 - - 2,539,000 Additions at cost - 1,399,318 2,098,818 3,498,136 Revaluation 106,000 - - 106,000 At 31 December 2,645,000 1,505,782 2,163,565 6,314,347 Depreciation At 1 January - 2,190 36,251 38,441 Depreciation for the year - 172,314 130,020 302,334 At 31 December - 174,504 166,271 340,775 Net book value at 31 December 2006 2,645,000 1,331,278 1,997,294 5,973,572 2005 2005 2005 2005 Â£ Â£ Â£ Â£ Land & Computer, Fixtures, Total Buildings Medical and Fittings & other Furniture Equipment Cost At 1 January - - 37,896 37,896 Additions at cost - 10,976 24,702 35,678 At 31 December 10,976 62,598 73,574 Depreciation At 1 January - - 17,818 17,818 Depreciation for the year - 2,190 18,433 20,623 At 31 December 2,190 36,251 38,441 Net book value at 31 December 2005 - 8,786 26,347 35,133 Land and buildings are stated at fair value which has been determined based on valuations performed by Savills Commerical Limited as at 31 December 2006, on the basis of open market value, supported by market evidence, in accordance with International Valuation Standards. 24. Other Investment 2006 2005 Â£ Â£ Investment in Whitecote Limited (incorporated in Jersey) 250,000 - 250,000 - The investment in Whitecote Limited is made up of 10 Ordinary Shares of Â£1 each (being 4.3% of the total equity) plus 250,000 unsecured interest free loan notes of Â£1 each. Whitecote Limited owns the Banstead Estate comprising approximately 526 acres of agricultural land in Surrey with prospects for added value through selective planning gain in due course. 25. Cash and Cash Equivalents 2006 2005 Â£ Â£ Petty cash 8,221 - Cash held in current account 18,468,122 3,005,649 Cash held to bank's order 360,000 740,000 Rent held on deposit 5,297 - 18,841,640 3,745,649 Cash is held to the bank's order as security for letters of credit issued by the bank to the debt funders for the three Local Improvement Finance Trusts (LIFT Companies) to which the Group has pledged funding upon practical completion of the medical centres under development. Rent held on deposit is subject to the respective tenant's lease agreement and is not available for use by the Group. All interest earned on these deposits is due to the respective tenant. 26. Debtors 2006 2005 Â£ Â£ Trade debtors 6,181,573 2,549,512 VAT recoverable 1,105,361 154,283 Prepayments & accrued income 1,526,485 321,928 Other debtors 1,077,977 511,734 9,891,396 3,537,457 The Group has entered into commercial property leases on its investment property portfolio. These non cancellable leases have remaining terms of up to 25 years with an average lease length of 19 years. All leases are subject to revision of rents according to various rent review clauses. Future minimum rentals receivable under non cancellable operating leases as at 31 December are as follows: 2006 2005 Â£ Â£ Within one year 12,354,000 7,520,000 After one year but not more than five years 48,560,000 29,639,000 More than five years 176,382,000 109,476,000 237,296,000 146,635,000 27. Bank Overdraft 2006 2005 Â£ Â£ Bank overdraft 2,134,942 - Assura Pharmacy Limited has a Â£5m overdraft arrangement with National Australia Bank Limited as part of the Â£100m loan facility agreement on which interest is charged at base rate plus a margin of 1%. 28. Creditors 2006 2005 Â£ Â£ Trade creditors 4,273,087 152,651 Other creditors & accruals 4,148,738 1,054,913 Payments due under finance leases 91,590 89,773 Loan (see note 29) 604,167 - Interest payable and similar charges 123,858 306,710 Rents received in advance 2,551,667 1,720,131 11,793,107 3,324,178 The total of future minimum lease payments payable under non cancellable finance leases is shown below: 2006 2005 Â£ Â£ Within one year 91,590 89,773 After one year but not more than five years 384,532 377,190 More than five years 904,648 1,003,580 1,380,770 1,470,543 The above finance lease arrangements are in respect of investment property held by the Group on leasehold rather than freehold terms. The amounts due above that are more than one year, which total Â£1,289,180 (2005: Â£1,380,770) have been disclosed in non current liabilities on the consolidated balance sheet. 29. Long Term Loan 2006 2005 Â£ Â£ At 1 January 24,929,710 - Amount drawn down in year 72,000,000 25,500,000 Acquired on acquisition of PCI Management Limited 11,895,833 - Amount repaid in year (64,000,000) - Loan issue costs (123,009) (622,135) Amortisation of loan issue costs 246,035 51,845 44,948,569 24,929,710 The Group has a loan agreement with National Australia Bank Limited for Â£95.0m, as part of the Â£100m loan facility and a Â£12.5m loan facility with The General Practice Finance Corporation Limited. As at 31 December 2006, the Group had drawn down Â£46.0m of the Â£107.5m under these agreements leaving an undrawn balance of Â£61.5m. The National Australia Bank Limited loan is due for repayment on 21 July 2008. The fair value of the loan at 31 December 2006 was Â£46m. The General Practice Finance Corporation Limited loan is due for repayment by quarterly instalments with the balance of Â£6.0m due on 28 May 2031. Â£604,167 is due within a year (see note 28). These loans are secured by way of a debenture over the wholly owned property assets of the Group and a fixed charge over shares held in certain subsidiary companies. During the year, the loan facility with National Australia Bank Limited was subject to the following financial covenants: (i) Loan to value ratio - the aggregate outstanding loan to current valuation of investment properties should not exceed 75%. (ii) Projected net rental income receivable during the following 12 month period must cover 130% of projected finance costs. (iii) Financial indebtedness must be below 65% of Gross Asset Value. (iv) Average weighted lease length must exceed 121/2 years. The Group has been in compliance with the financial covenants throughout the period since issue. Interest is charged at a rate of 0.65% above the swap rate on the Â£95.0m loan facility with National Australia Bank Limited and 6.45% on the Â£12.5m loan facility with The General Practice Finance Corporation Limited. 30. Share Capital 2006 2006 2005 2005 Authorised Â£ Â£ Ordinary Shares of 10p each 300,000,000 30,000,000 200,000,000 20,000,000 Preference Shares of 10p each 20,000,000 2,000,000 20,000,000 2,000,000 32,000,000 22,000,000 Number of Share Number of Share Shares Capital Shares Capital 2006 2006 2005 2005 Ordinary Shares issued and fully paid Â£ Â£ At 1 January 142,403,847 14,240,385 142,403,847 14,240,385 Issued for cash on 15 May 2006 64,729,021 - - - Issued on 15 May in exchange for shares in Assura Administration Limited (formerly Berrington Fund Management Limited) and related parties 16,826,359 - - - Issued on 15 May for services provided by Pharma-e Limited 650,000 - - - Issued on 1 June to acquire minority interest in Assura LIFT Holdings Limited (formerly BHE Holdings Limited) 1,322,476 - - - Issued to the Assura Executive Equity Incentive 8,066,768 - - - Plan Total issued in year 91,594,624 9,159,462 - - At 31 December 233,998,471 23,399,847 142,403,847 14,240,385 Treasury Shares (8,066,768) (806,677) - - Total Share Capital 225,931,703 22,593,170 142,403,847 14,240,385 Voting Rights Ordinary shareholders are entitled to vote at all general meetings. On 15 May 2006 the Company formed the Assura Executive Equity Incentive Plan and issued and transferred 8,066,768 ordinary shares into the plan. Participants will be allocated units each of which represent one ordinary share, 68.5% of which will vest on 31 December 2008 and the balance on 31 December 2010. The units will vest at the end of the vesting periods if the compound growth in total shareholder return in each period is 12.5% above a base reference price of Â£1.90. A sliding scale will apply if the total shareholder return is between 0% and 12.5% over the base reference price. Upon vesting, an appropriate number of ordinary shares will be transferred by the trustees of the plan to participants less a deduction for the number of shares needed to recover any tax or national insurance liabilities which arise for participants. During the year 3,130,000 units were granted to participants which vest on 31 December 2008, and a further 500,000 units were granted to the Chairman of the Company which vest on 31 December 2010 (see note 3) The fair value, assuming that the hurdle is reached in full, of the units granted in the year, is Â£6,554,065 based on market price at the date the shares were granted. This cost is allocated over the vesting period and cost allocation for the year ended 31 December 2006 is Â£1,279,114. This amount which includes 500,000 units issued to the Chairman (see notes 3 & 4), and share based deferred consideration due to the former shareholders of Stream Partners Limited has been credited to retained earnings. Dividends are paid to, and accumulate in, the Assura Executive Equity Incentive Plan. On 5 October 2006 the Group acquired the entire share capital of Stream Partners Limited for cash and conditional deferred consideration payable in 2009, in shares in Assura Group. The number of shares to be issued to the vendors is subject to a maximum of 441,176, the cost of which is being expensed on a time apportioned basis with the credit being added to retained earnings. The cost incurred in 2006 was Â£91,176. On 1 June 2006, the Group acquired 30% of Assura LIFT Holdings Limited. The consideration included the issue of a further 464,666 Ordinary shares in Assura Group Limited, the cost of which has been provided for in a deferred consideration reserve. 650,000 Ordinary Shares were issued in the year to Pharma-e Limited to compensate for consultancy services provided to the Group described in note 11. 31. Share Premium 2006 2005 Â£ Â£ At 1 January 122,239,453 122,239,453 Proceeds arising on issue of Ordinary Shares 129,438,790 - Transfer to Distributable Reserve (25,000,000) - Share premium at 31 December 226,678,243 122,239,453 On 2 June 2006, following both shareholders' approval and that of the Royal Court in Guernsey, Â£25,000,000 of share premium was transferred to distributable reserve. 32. Distributable Reserve 2006 2005 Â£ Â£ At 1 January - - Transfer from Share Premium (see note 31) 25,000,000 - Dividends on Ordinary Shares (see note 16) (9,436,257) - 15,563,743 - 33. Retained Earnings 2006 2005 Â£ Â£ At 1 January (18,327,822) 336,705 Profit/(loss) for the year attributable to equity holders 18,900,446 (12,498,440) Dividends on ordinary shares - (6,166,087) Cost of employee share based incentives 1,279,114 - At 31 December 1,851,738 (18,327,822) 34. Revaluation Reserve 2006 2005 Â£ Â£ At 1 January - - Revaluation of land & buildings in the year 106,000 - Reserve at 31 December 106,000 - 35. Deferred Consideration Reserve 2006 2005 Â£ Â£ At 1 January - - Deferred share based consideration arising in year 790,000 - Reserve at 31 December 790,000 - At 1 June 2006, the Group acquired 30% of Assura LIFT Holdings Limited. The consideration included the issue of a further 464,666 Ordinary shares in Assura Group Limited at a future date no later than 31 December 2009, the cost of which is provided for in the deferred consideration reserve. When the shares are issued in due course, the deferred consideration reserve will be eliminated. 36. Net Asset Value per Ordinary Share The basic net asset value per Ordinary Share is based on the net assets attributable to the ordinary shareholders of Â£267,500,079 (2005: Â£117,929,837) and on 225,931,703 (2005: 142,403,847) Ordinary Shares in issue at the balance sheet date excluding treasury shares. The diluted net asset value per Ordinary Share is based on the net assets attributable to the ordinary shareholders of Â£267,500,079 (2005: Â£117,929,837) and on 233,998,470 (2005: 142,403,847) Ordinary Shares in issue at the balance sheet date. 37. Note to the Consolidated Cash Flow Statement 2006 2005 Â£ Â£ Reconciliation of net profit before taxation to net cash inflow from operating activities: Net profit/(loss) before taxation 18,468,832 (12,552,675) Taxation (39,646) (98,241) Adjustment for non-cash items: Depreciation 302,334 20,623 (Increase) in debtors (6,353,939) (357,032) Increase in creditors 8,558,702 2,644,366 Increase in pharmacy inventories (567,290) - Surplus on revaluation of investment property (17,041,231) (2,165,005) (Profit)/loss on revaluation of financial instrument (5,674,624) 3,472,319 Movement in performance fee provision (1,010,000) 13,050,000 Share based pharmacy establishment cost 1,105,000 - Share of losses of associates and joint ventures 1,454,321 - Cost of employee share based incentives 1,279,114 - Other gains and losses (578,917) (1,470,543) Amortisation of loan issue costs 246,034 51,845 Net cash inflow from operating activities 148,690 2,595,657 38. Financial Instruments The Group holds cash and liquid resources as well as having debtors and creditors that arise directly from its operations. The Group has entered into an interest rate swap during the year as disclosed in note 12. The main risks arising from the Group's financial instruments and properties are market price risk, credit risk, liquidity risk and interest rate risk. The Board regularly reviews and agrees policies for managing each of these risks and these are summarised below. Market Price Risk The Group's exposure to market price risk is comprised mainly of movements in the value of the Group's investment in property. Property and property related assets are inherently difficult to value due to the individual nature of each property. As a result, valuations are subject to uncertainty. There is no assurance that the estimates resulting from the valuation process will reflect the actual sales price even where a sale occurs shortly after the valuation date. Rental income and the market value for properties are generally affected by overall conditions in the local economy, such as growth in gross domestic product, employment trends, inflation and changes in interest rates. Changes in gross domestic product may also impact employment levels, which in turn may impact the demand for premises. Furthermore, movements in interest rates may also affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factors specific to the real estate market, such as competition from other property owners, the perceptions of prospective tenants of the attractiveness, convenience and safety of properties, the inability to collect rents because of the bankruptcy or the insolvency of tenants or otherwise, the periodic need to renovate, repair and release space and the costs thereof, the costs of maintenance and insurance, and increased operating costs. The Directors monitor market value by having independent valuations carried out quarterly by Savills Commercial Limited. Credit Risk Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. In the event of a default by an occupational tenant, the Group will suffer a rental income shortfall and incur additional costs, including legal expenses, in maintaining, insuring and re-letting the property. Given the enhanced rights of landlords who can issue proceedings and enforcement by bailiffs, defaults are rare and potential defaults are managed carefully by the credit control department. The maximum credit exposure in aggregate is one quarter's rent of circa Â£3.8m, however this amount derives from all the tenants in the portfolio and such a scenario is hypothetical. The Group's credit risk is well spread across circa 147 tenants at any one time. There are no significant concentrations of credit risk within the Group. The maximum credit risk exposure relating to financial assets is represented by carrying value as at the balance sheet date. Liquidity Risk Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. Investments in property are relatively illiquid, however, the Group has tried to mitigate this risk by investing in desirable properties which are well let to General Practitioners and Primary Care Trusts. Interest Rate Risk The Group's exposure to market risk for changes in interest rates relates primarily to the Group's cash deposits and, as debt is utilised, long-term debt obligations. The Group's policy is to manage its interest cost using interest rate swaps (see note 12). The swap itself is revalued to its market value by reference to market interest rates at each balance sheet date. The interest rate profile of the financial assets and liabilities of the Group at 31 December 2006 was as follows: Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 Total years Â£ Â£ Â£ Â£ Â£ Â£ Â£ Floating rate Cash 18,841,640 - - - - - 18,841,640 Interest rate - - - - - 2,202,305 2,202,305 swap Bank overdraft (2,134,942) - - - - - (2,134,942) Long term loan (604,167) (33,611,050) (118,388) (126,201) (134,551) (10,354,212) (44,948,569) Payments due (91,590) (93,371) (95,188) (97,041) (98,932) (904,648) (1,380,770) under finance leases The interest rate profile of the financial assets and liabilities of the Group at 31 December 2005 was as follows: Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 Total years Â£ Â£ Â£ Â£ Â£ Â£ Â£ Floating rate Cash 3,745,649 - - - - - 3,745,649 Interest rate swap - - - - - (3,472,319) (3,472,319) Long term loan - - (24,929,710) - - - (24,929,710) Payments due under finance leases (89,773) (91,590) (93,371) (95,188) (97,041) (1,003,580) (1,470,543) The interest rate swap contract is adjusted to fair value at each balance sheet date. For the other financial assets and liabilities, their book value equates to their fair value, hence the above figures, for both 2005 and 2006 comprise both book and fair values. On 2 November 2006 the company increased its interest rate swap which will rise from Â£100m at 31 December 2005 and 31 December 2006 to Â£150m at 30 June 2007 and Â£200m at 31 December 2007, all fixed until 31 December 2027 at a rate of 4.59%. The interest rate swap was revalued to its fair value of Â£2,2020,305 at 31 December 2006 compared with a negative value of Â£3,472,319 at 31 December 2005 leading to a valuation gain in the year of Â£5,674,624 (2005 - deficit of Â£3,472,319) see note 12. The interest rate swap is intended to protect the Group against fluctuations in interest rates given that the group's bank loan from National Australia Bank Limited is at floating rate and was increased to Â£200m given the Group's commitments see note 39. 39. Commitments At the year end the Group had commitments to invest a further Â£150,224,000 (2005: Â£56,300,000) in its portfolio of investment property. The Company has given guarantees in favour of the General Practice Finance Corporation (GPFC) amounting to Â£360,000 (2005: Â£740,000) to secure future LIFT investments by the Group. 40. Related Parties The Company was charged investment manager's fees totalling Â£1,023,537 (2005: Â£2,691,686) by Assura Administration Limited, none of which was outstanding at the balance sheet date. During the year certain costs, amounting to Â£200,021 (2005 - Â£450,606) in total, relating to the Group's pharmacy company were supplied by Pharma-e Limited, a company in which John Curran is a director and shareholder. No balance was outstanding at the year end. The Group was charged administration fees of Â£67,518 (2005: Â£92,584) by Mourant Guernsey Limited, none of which (2005: Â£nil) was outstanding at the year end. Serena Tremlett was formerly both a director of the Company and an employee of Mourant Guernsey Limited. Assura Property Limited exchanged contracts in 2005 for the purchase of a medical centre at Argyle Court, Liverpool, which is being developed by Ropewalks One LLP. WPL Ventures Limited, a wholly owned subsidiary of the The Westbury Property Fund Limited, which is managed by Assura Fund Management LLP, is a member of Ropewalks One LLP. Included in property management expenses is an amount of Â£170,015 (2005: Â£161,862) payable to Barlows Asset Management Limited, a subsidiary of Barlows Holdings Limited, a shareholder in the Company, in accordance with their property management agreement with Assura Property Limited (this agreement has now ceased). No balance was outstanding at the year end (2005: Â£nil). This information is provided by RNS The company news service from the London Stock Exchange

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