Final Results Part 2

Quintain Estates & Development PLC 31 May 2006 Quintain Estates and Development PLC Preliminary Results for the year ended 31 March 2006 Part 2 Consolidated Income Statement for the year ended 31 March 2006 Notes 2006 2005 Â£000 Â£000 ______ _______ _______ Revenue from continuing operations 4 42,051 48,403 Cost of sales in respect of continuing operations 4 (15,295) (14,095) _______ _______ Gross profit from continuing operations 26,756 34,308 Administrative expenses 6 (22,660) (16,477) _______ _______ Operating profit before recognition of results from non-current asset property sales and revaluation 4,096 17,831 Profit from sale of properties held as non-current 14,188 5,068 assets Gains on revaluation of investment properties 23,911 24,083 Deficits on revaluation of investment properties (1,777) (3,315) Deficits on revaluation of development properties (1,834) (1,232) Reversal of deficits on revaluation of development 3,598 - properties _______ _______ Net operating profit before net finance expenses 42,182 42,435 Interest payable (9,041) (17,294) Change in fair value of derivative financial (2,994) - instruments _______ _______ Finance expenses (12,035) (17,294) Finance income 1,549 1,454 _______ _______ Net finance expenses 7 (10,486) (15,840) Share of profit from joint ventures 14i 32,864 7,363 Share of profit from associates 14ii 393 962 _______ _______ Profit before tax 64,953 34,920 Current tax (3,033) (1,490) Deferred tax (2,429) 6,667 _______ _______ Tax (charge) credit for the year 8 (5,462) 5,177 _______ _______ Profit after tax but before results from discontinued operations 59,491 40,097 (Loss) profit from discontinued operations, net of tax 9 (2,829) 1,637 _______ _______ Profit for the financial year 56,662 41,734 ====== ====== Attributable to: Equity shareholders of the parent 56,662 41,644 Minority shareholders - 90 _______ _______ Profit for the financial year 56,662 41,734 ====== ====== Earnings per share before discontinued operations 10i(a) (pence): - basic 46.1 31.0 ====== ====== - diluted 45.2 30.4 ====== ====== Earnings per share after discontinued operations 10i(b) (pence): - basic 43.9 32.3 ====== ====== - diluted 43.0 31.7 ====== ====== Dividends per share (pence): 11 - interim (paid) 3.25 2.75 - final (proposed) 7.25 6.75 _______ _______ Total 10.50 9.50 ====== ====== In accordance with IAS 10, 'Events after the Balance Sheet Date', these results reflect dividends which have been declared or paid in the year. Proposed dividends are shown for information purposes only. Consolidated Statement of Recognised Income and Expense for the year ended 31 March 2006 Notes 2006 2005 Â£000 Â£000 ______ _______ _______ Foreign currency translation differences 278 127 Gains on revaluation of development properties 100,798 93,261 Effective portion of changes in fair value of cash flow hedges, net of recycling (1,676) - Share of recognised income and expenses in joint ventures, net of tax 14i (102) - Tax on income and expenses recognised directly in 8 (31,435) (22,884) equity _______ _______ Net income recognised directly in equity 67,863 70,504 Profit for the financial year 56,662 41,734 _______ _______ Total recognised income and expense for the financial 124,525 112,238 year Effect of adoption of IAS 32, 'Financial Instruments: Disclosure and Presentation', and IAS 39, 'Financial Instruments: Recognition and Measurement', net of tax, on 1 April 2005 in relation to: Convertible loan stock reserve 20i 786 - Cash flow hedge reserve 20i (3,533) - Retained earnings 20i (2,701) - _______ _______ 119,077 112,238 ====== ====== The total recognised income and expense for the financial year is attributable to: Equity shareholders of the parent 124,525 112,148 Minority shareholders - 90 _______ _______ Total recognised income and expense for the financial 124,525 112,238 year ====== ====== Consolidated Balance Sheet as at 31 March 2006 Notes 2006 2005 Â£000 Â£000 ______ _______ _______ Non-current assets Investment properties 12 290,088 290,202 Development properties 12 599,455 463,893 Owner-occupied properties, plant and equipment 13 942 10,416 Investment in joint ventures 14i 120,076 64,137 Investment in associates 14ii 1,677 1,284 Other non-current investments 14iii 2,716 188 _______ _______ Total non-current assets 1,014,954 830,120 _______ _______ Current assets Trading properties 6,814 4,724 Trade and other receivables 15 72,312 29,271 Current investments 16 7 19 Cash and cash equivalents 20ii 7,954 11,090 _______ _______ Total current assets 87,087 45,104 _______ _______ Total assets 1,102,041 875,224 ======= ====== Current liabilities Bank loans and other borrowings 18 (4,432) (88) Trade and other payables 17 (49,104) (31,049) Current tax liability (1,521) (5,562) _______ _______ Total current liabilities (55,057) (36,699) _______ _______ Non-current liabilities Bank loans and other borrowings (including 18 (246,626) (174,890) convertible debt) Deferred tax liability 8 (106,800) (74,870) Obligations under finance leases 19 (12,213) (12,750) Other payables (4,670) (4,674) _______ _______ Total non-current liabilities (370,309) (267,184) _______ _______ Total liabilities (425,366) (303,883) ====== ====== Net assets 676,675 571,341 ====== ====== Equity Issued capital 23 32,324 32,298 Share premium account 22 47,265 46,575 Revaluation reserve 22 248,836 180,102 Other capital reserves 22 113,227 112,436 Cash flow hedge reserve 22 (4,808) - Translation reserve 22 405 127 Retained earnings 22 242,920 201,102 Investment in own shares 22 (3,494) (1,539) _______ _______ Equity shareholders' funds 676,675 571,101 Minority shareholders - 240 _______ _______ Total equity 676,675 571,341 ====== ====== Net asset value per share (pence): - basic 10ii 526 443 ===== ===== - diluted 10ii 516 436 ===== ===== Approved by the Board of Directors and signed on its behalf N G Ellis Director A R Wyatt Director 31 May 2006 Consolidated Cash Flow Statement for the year ended 31 March 2006 Notes 2006 2005 Â£000 Â£000 ______ _______ _______ Operating activities Profit for the financial year 56,662 41,734 Adjustments for: Short leasehold amortisation 408 389 Other property amortisation - 197 Depreciation of plant and equipment 441 441 Costs relating to share-based payment schemes 1,180 721 Net finance expenses 10,486 15,840 Profit on termination of hedging arrangement - 722 Profit on sale of properties held as fixed assets (14,188) (5,068) Gains on revaluation of investment properties (23,911) (24,083) Deficits on revaluation of investment properties 1,777 3,315 Deficits on revaluation of development properties 1,834 1,232 Reversal of deficits on revaluation of development (3,598) - properties Share of profit from joint ventures (32,864) (7,363) Share of profit from associates (393) (962) Loss from sale of plant and equipment 30 - Impairment of other investments 632 - Tax on continuing operations 5,462 (5,177) Tax on discontinued operations (1,213) 701 ________ ________ 2,745 22,639 Decrease in trade and other receivables 7,830 4,050 Increase (decrease) in trade and other payables 430 (4,676) Decrease (increase) in trading properties 3,313 (2,962) ________ ________ Cash generated from operations 14,318 19,051 Interest paid (15,395) (19,737) Interest received 1,526 1,106 Tax paid (231) (100) ________ ________ Net cash from operating activities 218 320 ======= ======= Investing activities Purchase and development of property assets (112,058) (110,615) Purchase of owner-occupied properties, plant and (2,365) (9,007) equipment Proceeds from property sales 88,390 287,486 Tax paid on property sales (5,486) (1,460) Proceeds from sale of current investments 12 - Acquisition of subsidiary companies 27 (7,335) (15,155) Acquisition of investment in joint ventures (553) (1) Loans to joint ventures and associates (24,474) (18,648) Distributions received from joint ventures 3,002 2,165 Acquisition of other investments (3,160) - ________ ________ Net cash from investing activities (64,027) 134,765 ======= ======= Financing activities Issue of shares 247 534 Purchase of own shares for cancellation (108) (2,243) Investment in own shares (1,955) (1,539) Proceeds from new borrowings 281,004 358,822 Repayment of borrowings (205,150) (507,814) Payment of loan issue costs (400) (2,858) Payment of finance lease liabilities (190) (1,663) Equity dividends paid (12,867) (11,318) ________ ________ Net cash from financing activities 60,581 (168,079) ======= ======= Net decrease in cash and cash equivalents (3,228) (32,994) Cash and cash equivalents at start of year 11,090 43,886 Effect of exchange rate fluctuations on cash held 92 198 ________ ________ Cash and cash equivalents at end of year 7,954 11,090 ======= ======= Net cash flow from discontinued operations included in net cash from operating activities 9 (2,374) 1,637 ======= ======= Quintain Estates and Development PLC Notes to the Accounts for the year ended 31 March 2006 1. Accounting policies i) Basis of preparation Quintain Estates and Development PLC is a company incorporated in the United Kingdom. The group financial statements consolidate those of the Company and its subsidiaries, together referred to as the Group, and equity account the Group's interest in joint ventures and associates. The parent company financial statements present information about the Company as a separate entity and not about its group. The group financial statements have been prepared and approved by the Board in accordance with International Financial Reporting Standards as adopted by the European Union ('Adopted IFRSs'). The Company has elected to prepare its company financial statements in accordance with UK GAAP. The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in the group financial statements and in preparing an opening IFRS balance sheet as at 1 April 2004 for the purposes of the transition to Adopted IFRSs. The principal exception is that, as more fully explained in note 20 below, financial instruments are accounted for on different bases in the current year and the comparative year owing to the transitional provisions of IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, 'Financial Instruments: Recognition and Measurement'. The preparation of financial statements in conformity with Adopted IFRSs requires the Board to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. IFRS 7, 'Financial Instruments: Disclosure', which has been adopted by the European Union and available for early application, has not been applied by the Group in these financial statements. ii) Transition to Adopted IFRSs The Group has prepared its financial statements in accordance with Adopted IFRSs for the first time and consequently has applied IFRS 1, 'First-time Adoption of International Financial Reporting Standards'. An explanation of how the transition to Adopted IFRSs has affected the reported financial performance and financial position is provided in notes 2 and 3 below. IFRS 1 also requires an explanation of major adjustments to cash flows under IFRS. However, while the format of the IFRS cash flow statement differs from that under UK GAAP, there are no material changes to cash flows from operations, investment or financing. The Group has taken advantage of the exemption permitted in IFRS 1 to set cumulative translation differences from foreign operations to nil from the commencement of the transition year. iii) Measurement convention The financial statements have been prepared on an historical cost basis except that investment and development properties and derivative financial instruments have been stated at fair value. The measurement of fair value constitutes the main area of judgement exercised by the Board in respect of the Group's results. In relation to the Group's investment and development properties, the Board has relied upon the external valuations carried out by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. Copies of the valuation reports of Savills Commercial Limited and Jones Lang LaSalle Limited, which together account for the valuation of 98.5% of these categories of non-current assets are contained in the annual report. In respect of financial instruments, the Board has relied on the valuation carried out by JC Rathbone Associates Limited, financial risk consultants, and the basis for this exercise is discussed below in section xviii of this note and in note 21. Other areas of judgement, risk and uncertainty which are relevant to an understanding of these results and the Group's financial position are referred to in the Operating and Financial Review. iv) Basis of consolidation Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. A joint venture is an undertaking in which the Group has a long term interest and over which it exercises joint control. An associate is an entity in which the Group has significant influence but not control over financial and operating policies. The Group equity accounts for its share of net profit after tax of joint ventures and associates, together with its share of fair value adjustments to their investment and development properties, through the income statement. The effective portion of changes in the fair value of cash flow hedges within joint ventures less any related tax is recognised directly in equity. All other changes are recognised in the income statement. The Group's interest in the net assets of joint ventures and associates is included in the consolidated balance sheet. v) Foreign currency Assets and liabilities of foreign operations are translated into Sterling at exchange rates ruling at the balance sheet date. Operating income and expenses are translated at average exchange rates. The year end and average rates used for these purposes were as follows: Year end Year end Average Average 2006 2005 2006 2005 France Â£1 = â‚¬ 1.44 â‚¬ 1.46 â‚¬ 1.47 â‚¬ 1.47 United States Â£1 = $ 1.74 $ 1.88 $ 1.79 $ 1.85 Exchange differences arising from the translation of the net investment in foreign operations are reflected in the translation reserve and released to the income statement upon disposal of the foreign operation. vi) Revenue and cost of sales Revenue is stated net of VAT and comprises rental income, proceeds from sales of trading properties, income from leisure operations, fees, commissions and other income. Rental income from investment and development properties leased out under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. Contingent rents such as turnover rents and indexed rents are recognised as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives are recognised as an integral part of the net consideration for the use of the property and amortised on a straight-line basis over the term of the lease, or the period to the first tenant break, if shorter. Property operating costs are expensed as incurred including any element of service charge expenditure not recovered from tenants. Sales of trading properties are recognised on the unconditional exchange of contracts by the balance sheet date. vii) Disposal of properties held as non-current assets Sales of properties are recognised in the accounts if an unconditional contract is exchanged by the balance sheet date. Profits or losses arising on disposal are calculated by reference to the carrying value of the asset at the beginning of the year, adjusted for subsequent capital expenditure. viii) Impairment The Group's assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication becomes evident, the asset's recoverable amount is estimated and an impairment loss recognised whenever the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its net selling price and its value-in-use. The value-in-use is determined as the net present value of the future cash flows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Any impairment of financial assets is based on the original effective interest rate attributable to the financial asset on acquisition. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount after the reversal does not exceed the amount that would have been determined, net of applicable depreciation, if no impairment loss had been recognised. ix) Employee benefits Pensions Contributions to employees' personal plans are charged to the income statement as incurred. Share-based payment schemes The fair value of equity rights is estimated using the Black Scholes and binomial models at the date of grant to directors and staff and is dependent on factors such as the exercise price, expected volatility, option price and risk free interest rate. The fair value is then amortised through the income statement on a straight-line basis over the vesting period. Expected volatility is determined based on the historic share price volatility (market price) for the Company on the grant date over a period matched to the expected life of the awards. x) Capitalisation of borrowing costs Net borrowing costs in respect of capital expenditure on properties under development or undergoing refurbishment are capitalised. Interest is capitalised using the Group's weighted average cost of borrowing from the commencement of development work until the date of practical completion. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. All other borrowing costs are recognised in the income statement in the period in which they are incurred. xi) Tax Tax is included in the income statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity. Current tax is the expected tax payable on the taxable income for the year using tax rates applicable at the balance sheet date. Tax payable upon the realisation of revaluation gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred taxation. Deferred tax is provided on all temporary differences, except in respect of investments in subsidiaries and joint ventures where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates applicable at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. xii) Discontinued operations In accordance with IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations', the loss from these discontinued operations is shown in the income statement, net of tax. xiii) Investment properties Investment properties are properties owned or leased by the Group which are held either for long term rental growth or for capital appreciation or both. Investment property is initially recognised at cost including related transaction costs and valued annually by professionally qualified external valuers. Additions to investment properties consist of costs of a capital nature and in the case of investment properties under development, capitalised interest. Investment properties are independently valued by external valuers at market value. The valuations are prepared by considering the aggregate of the net annual rents receivable from the properties and where relevant, associated costs. A yield which reflects the specific risks inherent in the net cash flows is then applied to the net annual rentals to arrive at the property valuation. Gains or losses arising from changes in the fair value of investment property are included in the income statement of the period in which they arise. When the Group redevelops an existing investment property for continued future use as an investment property, the property remains an investment property and is not reclassified. xiv) Development properties Properties acquired with the intention of redevelopment are classified as development properties and stated at fair value in accordance with IAS 16, ' Property, Plant and Equipment'. Changes in fair value are recognised through equity in the revaluation reserve. However, a deficit on revaluation of a development property is recognised in the income statement to the extent it exceeds any surplus held in the revaluation reserve relating to a previous revaluation of that property. Similarly, a surplus on revaluation is credited to the income statement to the extent of a deficit previously charged. All costs directly associated with the purchase and construction of a development property are capitalised. When developments are completed, they are reclassified as investment properties and any accumulated balance on revaluation is transferred to retained earnings. Development properties which are independently valued annually by external professional valuers are stated at estimated market value on completion less estimated costs to complete. xv) Leases The Group as lessor Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases. The Board has exercised judgement in considering the potential transfer of risks and rewards of ownership in accordance with IAS 17, 'Leases', for all properties leased to tenants and have determined that all such leases are operating leases. Accordingly, all the Group's leasehold properties are classified as investment or development properties, as appropriate, and included in the balance sheet at fair value. The Group as lessee The obligation to the freeholder or superior leaseholder for the buildings element of the leasehold is included in the balance sheet at the present value of the minimum lease payments at inception. Payments to the Group's landlords are apportioned between a finance charge and a reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Rent reviews are charged as an expense in the period in which they are incurred. xvi) Owner-occupied properties, plant and equipment Fixtures, fittings and equipment are carried at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the useful life of these assets estimated at between three to five years. xvii) Trading properties Trading properties are shown at the lower of cost and net realisable value. The cost of trading properties is determined on the basis of specific identification of their individual costs. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs to completion and the estimated costs necessary to make the sale. xviii) Financial instruments Other non-current investments Other non-current investments are non-derivative investments that are designated as available for sale. As these are unquoted investments, they are held at cost less any provision for impairment. Trade and other receivables Trade and other receivables are recognised at invoiced values less provisions for impairment. A provision for impairment of trade receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the agreed terms of the receivables concerned. Cash and cash equivalents Cash and cash equivalents consist of cash in hand, deposits with banks and other short term, highly liquid investments with original maturities of three months or less. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Borrowings are subsequently stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the income statement over the period of the borrowings on an effective interest rate basis. Trade and other payables Trade and other payables are non-interest bearing and are recognised at invoiced amount. Derivative financial instruments The Group uses interest rate swaps to help manage its interest rate risk. These derivative financial instruments are recognised initially at fair value and subsequently re-measured. The gain or loss on re-measurement to fair value is recognised immediately in the income statement, unless the derivatives qualify for hedge accounting in which case the effective element of the gain or loss is recognised directly through equity in a hedging reserve. The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking account of current interest rates and the current creditworthiness of the swap counterparties. The Group's interest rate swaps are shown in these accounts at fair value as derived by JC Rathbone Associates Limited, financial risk consultants, based on market prices, estimated future cash flows and forward rates as appropriate. The Group has taken advantage of the transitional arrangements of IFRS 1 not to restate corresponding amounts in accordance with IAS 32 and IAS 39. The corresponding amounts for the year ended 31 March 2005 are presented and disclosed in accordance with the requirements of the Companies Act 1985 and FRS 4, 'Capital Instruments'. Property index-linked total return swap The Group enters into property derivatives to mitigate or enhance its exposure to a particular class or a spectrum of property assets. Such instruments are accounted for initially in the balance sheet at fair value with subsequent re-measurement being reflected through the income statement. The swap was valued as at the year end by JC Rathbone Associates Limited at market value. xix) Own shares held by ESOP trust Transactions of the Group-sponsored ESOP trust are included in the Group's financial statements. In particular, the trust's purchases of shares in the Company are debited directly to equity. 2. Reconciliation of profit reported under UK GAAP to profit under IFRS Notes 2005 Â£000 _______ _______ Profit for the financial year as previously reported 13,409 IFRS adjustments: Cost of employee share-based payment schemes i (109) Reallocation of rent free periods ii 235 Treatment of leasehold interests as finance leases iii 516 Capitalised interest on jointly administered property iv (184) Gains on revaluation of investment properties in: v Group 20,259 Joint ventures 6,400 Associates 226 Reversal of impairment on investment property vi 425 Reversal of short leasehold amortisation on investment properties vii 61 Deficits on revaluation of development properties viii (1,232) Tax effect of differences 1,728 _______ Profit for the financial year under IFRS 41,734 ====== Notes: i) Under IFRS 2, 'Share-based Payment', the cost of all employee share-based payment schemes is recognised in the income statement. ii) Under SIC 15, 'Operating Leases: Incentives', rent free periods are allocated over the whole lease term or to tenant break if shorter, rather than the period to the first rent review as is the case under UK GAAP. iii) Under IAS 40, 'Investment Property', certain operating leases can be deemed finance leases. The liability under these leases is recognised as the present value of the minimum lease payments at the date of inception or acquisition of the lease. Part of the rent payable under the lease is treated as a finance charge based on the discount rate used in this calculation. iv) Under IAS 31, 'Interest in Joint Ventures', the Group accounts for jointly administered arrangements as joint ventures. As a result, interest capitalised under UK GAAP on the Group's share of the cost of development properties has been reversed. The effect of this has been to reduce the cost of disposal in respect of units sold, giving rise to a net positive adjustment in the current year and a net negative one in the comparative year. v) Under IAS 40, changes in the fair value of investment properties are recognised separately in the income statement. vi) As revaluation deficits on investment properties are included in the income statement, these deficits would also reflect any impairment charge previously recognised in property related costs under UK GAAP. vii) Under IAS 40, revaluation surpluses and deficits on investment properties are recognised in the income statement, thus measuring the amortisation in the value of the Group's short leasehold investment properties. viii) Under IAS 16, 'Property, Plant and Equipment', when the carrying amount of a development property is decreased as a result of a revaluation, the decrease should be recognised as an expense. However, a revaluation decrease is charged directly against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of the same asset. 3. Reconciliation of equity reported under UK GAAP to equity under IFRS Notes As at As at 31 March 1 April 2005 2004 Â£000 Â£000 _______ _______ _______ Equity shareholders' funds under UK GAAP 638,261 523,513 IFRS adjustments: Obligations under finance leases i 12,750 18,776 Leasehold property interests i (12,750) (18,776) Deferred tax on revaluation gains ii (75,453) (58,249) Interest capitalised on jointly administered property iii (407) (223) Exclusion of proposed dividend iv 8,700 7,757 _______ _______ Equity shareholders' funds under IFRS 571,101 472,798 ====== ====== Notes: i) Interests in leasehold properties are accounted for as finance leases under IAS 40, 'Investment Property', and the obligation to the lessor is included within non-current liabilities, calculated as the present value of the minimum lease payments at the inception of the lease. Investment and development properties are valued net of this obligation, so an amount equivalent to the obligation is included in the balance sheet as a non-current asset. An element of the rent payable is treated as interest and a part repayment of the obligation to the lessor. ii) Under IAS 12, 'Income Taxes', a deferred tax provision is made for the tax that would potentially be payable on the sale of investment and development properties and other assets where the carrying value is different from their cost for tax purposes. UK GAAP requires that this potential liability is disclosed in contingent tax but not provided for in the balance sheet. iii) Under IAS 31, 'Interests in Joint Ventures', jointly administered arrangements are accounted for as joint ventures. Accordingly, interest previously capitalised on development expenditure under the proportional basis of accounting adopted under UK GAAP has been reversed. iv) Under IAS 10, 'Events after the Balance Sheet Date', unapproved dividends are not provided for. Under UK GAAP prevailing as at 1 April 2004 and 31 March 2005, proposed dividends were shown as a liability in the balance sheet. 4. Revenue, cost of sales and gross profit 2006 2006 2006 2005 2005 2005 Revenue Cost of Gross Revenue Cost of Gross sales profit sales profit Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ ______ ______ Rental income 29,075 (7,580) 21,495 36,394 (6,597) 29,797 Income from sales of trading properties 4,065 (3,687) 378 6,336 (5,122) 1,214 Income from leisure operations 1,686 (833) 853 1,420 (326) 1,094 Fees, commissions and other income 7,225 (3,195) 4,030 4,253 (2,050) 2,203 ______ _______ ______ ______ ______ ______ Continuing operations 42,051 (15,295) 26,756 48,403 (14,095) 34,308 Discontinued operations (note 9) 5,848 (6,738) (890) 10,692 (5,545) 5,147 ______ ______ ______ ______ _______ ______ 47,899 (22,033) 25,866 59,095 (19,640) 39,455 ===== ====== ===== ===== ====== ===== The cost of sales in relation to rental income comprised: 2006 2005 Â£000 Â£000 _____ _____ Service charge expenditure 3,998 4,759 Service charge recovery (2,489) (3,154) _____ _____ Irrecoverable service charges 1,509 1,605 Rents payable 243 17 Property management fees 547 587 Legal and professional fees 787 804 Short leasehold amortisation 408 389 Other property costs 4,086 3,195 ______ ______ 7,580 6,597 ===== ===== 5. Segmental analysis i) Business segmental analysis The analysis of the Group's results by business segment, which are discussed in the Operating and Financial Review, was as follows: 2006 2005 2006 2005 2006 2005 2006 2005 Gross Gross Gross Gross Share of Share of Profit Profit revenue revenue profit profit profit profit before before from from tax tax joint joint ventures ventures and and associates associates Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ ______ ______ ______ ______ Investment portfolio 23,720 31,100 17,155 25,958 - - 46,840 46,514 Special projects 13,644 14,036 6,287 6,489 542 1,996 10,350 13,305 Fund management 4,687 3,267 3,314 1,861 32,715 6,329 40,909 7,418 ______ ______ ______ ______ ______ ______ ______ ______ 42,051 48,403 26,756 34,308 33,257 8,325 98,099 67,237 Administrative expenses (22,660) (16,477) Net finance expenses (10,486) (15,840) ______ ______ Profit before tax from continuing operations 64,953 34,920 (Loss) profit before tax from discontinued operations (note 9): Special projects (4,042) 2,338 ______ ______ 60,911 37,258 ===== ===== 2006 2006 2006 2006 2005 2005 2005 2005 Investment Development Joint Total Investment Development Joint Total properties properties ventures revaluation properties properties ventures revaluation at at and uplift at at and uplift valuation valuation associates valuation valuation associates Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ ______ _______ ______ _____ Investment 219,588 19,040 - 17,176 271,102 23,881 - 18,274 portfolio Special 42,100 575,415 30,409 102,259 - 436,012 21,214 93,885 projects Fund management 28,400 5,000 91,344 35,126 19,100 4,000 44,207 7,264 ______ ______ ______ _______ _______ ______ _______ _______ 290,088 599,455 121,753 154,561 290,202 463,893 65,421 119,423 ====== ====== ====== ====== ====== ====== ====== ====== Capital expenditure 2006 2005 Â£000 Â£000 _____ _____ Investment portfolio 42,775 80,322 Special projects 68,468 26,535 Fund management 5,839 4,317 _______ _______ 117,082 111,174 ====== ====== ii) Geographical segmental analysis The geographical split of the Group's business was as follows: 2006 2005 2006 2005 2006 2005 Gross Gross Gross Gross Profit Profit revenue revenue profit profit before before tax tax Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ ______ ______ United Kingdom and Channel Islands 40,388 46,079 25,864 32,703 63,341 34,010 France 1,628 1,509 857 918 1,612 1,778 United States 35 815 35 687 - (868) ______ ______ ______ ______ ______ ______ 42,051 48,403 26,756 34,308 64,953 34,920 (Loss) profit before tax from discontinued operations (note 9): United Kingdom (4,042) 2,338 ______ ______ 60,911 37,258 ===== ===== All joint ventures and associates are located in the United Kingdom and Channel Islands. 2006 2006 2005 2005 Net assets Capital Net assets Capital expenditure expenditure Â£000 Â£000 Â£000 Â£000 _____ ______ ______ ______ United Kingdom and Channel Islands 906,122 116,731 724,927 111,174 France 13,657 351 10,062 - ______ ______ ______ ______ 919,779 117,082 734,989 111,174 ====== ====== Cash and cash equivalents 7,954 11,090 Current liabilities: bank loans (4,432) (88) Non-current liabilities: bank loans (246,626) (174,890) ______ ______ 676,675 571,101 ====== ====== The Group's profit from the sale of non-current assets all arose in the United Kingdom. iii) Sector analysis The analysis of the Group's results by sector was as follows: 2006 2005 2006 2005 2006 2005 2006 2005 Gross Gross Gross Gross Share of Share of Profit Profit revenue revenue profit profit profit profit before before from joint from joint tax tax ventures ventures and and associates associates Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ ______ ______ ______ _____ Healthcare 4,625 2,779 3,251 1,740 32,322 5,367 39,365 7,747 Hotels 2,013 2,076 1,991 2,032 - - 5,120 1,232 Industrial 8,643 8,956 5,676 5,663 - - 11,670 12,257 Land 3,355 3,712 725 1,321 542 1,996 1,291 5,410 Leisure 847 1,187 497 508 - 736 596 660 Offices 16,727 18,144 13,553 14,055 - - 36,368 28,640 Retail 3,715 11,429 263 10,029 - - 2,047 12,166 Other 2,126 120 800 (1,040) 393 226 1,642 (875) ______ ______ ______ ______ ______ ______ ______ ______ 42,051 48,403 26,756 34,308 33,257 8,325 98,099 67,237 ===== ===== ===== ===== ===== ===== Administrative expenses (22,660) (16,477) Net finance expenses (10,486) (15,840) ______ ______ Profit before tax from continuing operations 64,953 34,920 (Loss) profit before tax from discontinued operations (note 9): Leisure (4,042) 2,338 _______ ______ 60,911 37,258 ====== ===== 2006 2006 2006 2006 2005 2005 2005 2005 Investment Development Joint Total Investment Development Joint Total properties properties ventures revaluation properties properties ventures revaluation at at and uplift at at and uplift valuation valuation associates valuation valuation associates Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ ______ _______ ______ _____ Healthcare 22,300 - 89,667 33,264 18,300 - 42,923 7,342 Hotels 4,698 22,742 - 7,285 16,947 16,492 - (944) Industrial 43,558 71,785 - 23,230 52,860 23,200 - 7,507 Land 75 421,866 30,409 74,302 375 336,583 21,214 86,705 Leisure 42,150 8,500 - 63 865 20,400 - (465) Offices 160,204 52,581 - 16,388 154,498 49,537 - 17,245 Retail 15,653 16,981 - (1,319) 45,307 13,681 - 2,061 Other 1,450 5,000 1,677 1,348 1,050 4,000 1,284 (28) _______ _______ _______ ________ _______ _______ _______ _______ 290,088 599,455 121,753 154,561 290,202 463,893 65,421 119,423 ====== ====== ====== ======= ====== ====== ====== ====== Capital expenditure 2006 2005 Â£000 Â£000 _____ _____ Healthcare 151 14 Hotels 433 144 Industrial 12,265 16,145 Land 65,589 18,624 Leisure 22 31 Offices 33,685 55,364 Retail 4,735 16,549 Other 202 4,303 _______ _______ 117,082 111,174 ====== ====== 6. Administrative expenses 2006 2005 Â£000 Â£000 _____ _____ Directors' remuneration 4,148 2,853 Staff costs 13,857 9,936 Cost relating to share-based payment schemes 1,180 721 ______ ______ Total staff costs 19,185 13,510 Reorganisation provision for discontinued operations 650 - Legal and other professional fees 1,817 2,258 Office costs 2,817 2,477 Loss on sale of plant and equipment 30 - Depreciation of tangible fixed assets 441 441 Operating lease payments 480 302 General expenses 392 298 _______ _______ Total administrative expenses 25,812 19,286 ====== ====== Continuing operations 22,660 16,477 Discontinued operations (note 9) 3,152 2,809 _______ _______ 25,812 19,286 ====== ====== In addition to the depreciation charge disclosed above, short leasehold amortisation of Â£408,000 (2005: Â£389,000) is charged under cost of sales and shown in note 4. i) Fees paid to auditors and their affiliates 2006 2005 Â£000 Â£000 _____ _____ Audit: Statutory audit: Group (including parent company) 260 238 ====== ====== Parent company only 32 30 ====== ====== Audit related regulatory reporting 25 22 ====== ====== Non-audit: Tax compliance 36 21 Tax advisory 8 47 Other 27 - _______ _______ 71 68 ====== ====== Fees paid to other accountancy firms amounted to Â£270,000 (2005: Â£538,000) of which Â£162,000 (2005: Â£376,000) was capitalised. These fees related mainly to tax advisory services. ii) Staff costs 2006 2005 Â£000 Â£000 _____ _____ Wages and salaries 14,390 10,072 Cost relating to Executive Directors' Performance Share Plan 566 380 Cost relating to other share-based payment schemes 614 341 Provision for national insurance on unexercised share options and 408 408 rights Social security costs 2,051 1,310 Pension costs 806 689 Other employment costs 350 310 _______ _______ 19,185 13,510 ====== ====== Details of directors' emoluments, pensions and entitlements to share options and rights are contained in the Remuneration Report. Details of directors' interests in the share capital of the Company are contained in the Report of the Directors. iii) Staff numbers The average number of persons employed by the Group during the year was as follows: 2006 2005 _____ _____ Property portfolio management and administration 72 61 Leisure operations 113 119 _______ _______ 185 180 ====== ====== 7. Net finance expenses 2006 2005 Â£000 Â£000 _____ _____ Interest payable on bank loans and overdrafts 15,328 18,472 Interest payable on other loans 1,307 3,092 Interest on obligations under finance leases 230 1,147 _______ _______ 16,865 22,711 Profit on termination of swap arrangements - (722) Interest capitalised (7,824) (4,695) _______ _______ Interest payable 9,041 17,294 Change in fair value of ineffective interest rate swaps 2,994 - Finance income (1,549) (1,454) _______ _______ 10,486 15,840 ====== ====== Interest payable on other loans in 2005 included an amount of Â£1,890,000 written-off in respect of previously capitalised borrowing costs. These loan facilities were terminated following their replacement by a new Â£475 million Syndicated facility. Of the interest capitalised in the year, the amount capitalised to development properties was Â£7,506,000 (2005: Â£4,060,000), investment properties Â£318,000 (2005: Â£nil) and trading properties Â£nil (2005: Â£635,000). Cumulative capitalised interest included within trading properties as at 31 March 2006 was Â£nil (2005: Â£434,000). The cumulative amount of capitalised interest included within investment and development properties at the year end is shown in note 12. In accordance with IAS 39, 'Financial Instruments: Recognition and Measurement', the Group has reviewed its interest rate hedges in existence as at 31 March 2006 along with those in its joint ventures. As assessed by JC Rathbone Associates Limited, financial risk consultants, movements in fair value since 31 March 2005 of the elements of those viewed as effective have been recognised through equity while all other movements, including those relating to the ineffective elements of effective hedges, are reflected in the income statement. 8. Tax i) Tax charge on profit 2006 2005 Â£000 Â£000 _____ _____ UK current tax at 30% (2005: 30%) 1,892 1,117 Adjustments to prior years' UK Corporation tax 900 287 _______ _______ 2,792 1,404 Overseas tax 241 86 _______ _______ Total current tax charge 3,033 1,490 _______ _______ Deferred tax: On investment properties 3,052 (7,101) On derivative financial instruments (898) - On other temporary differences 275 434 _______ _______ Total deferred tax charge (credit) 2,429 (6,667) _______ _______ Tax charge (credit) 5,462 (5,177) ====== ====== ii) Tax charge reconciliation 2006 2005 Â£000 Â£000 _____ _____ Profit before tax 64,953 34,920 ====== ====== Tax applied at UK corporation tax rate of 30% 19,486 10,476 Locked-in capital allowances (3,551) (3,801) ACT offset against chargeable gains - (9,498) Use of losses and differing tax rates in respect of overseas results (231) 351 Use of tax losses - (797) Indexation relief on UK investment properties (1,703) (1,607) Adjustments to prior years' current and deferred tax (534) 320 Tax charge taken to share of income from joint ventures and (9,205) (3,494) associates Other movements 1,200 2,873 _______ _______ Tax charge (credit) 5,462 (5,177) ====== ====== iii) Tax recognised directly in equity 2006 2005 Â£000 Â£000 _____ _____ Deferred tax charge on revaluation of development properties 31,938 22,884 Deferred tax credit on effective element of interest rate swaps (503) - _______ _______ 31,435 22,884 ====== ====== iv) Deferred tax movements 1 April Adjustment Acquired Recognised Recognised 31 March 2005 for IAS 39 balance in income in equity 2006 (note 27) Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ ______ ______ Capital gains less capital losses 69,718 - 549 3,052 31,938 105,257 Capital allowances 5,606 - - 170 - 5,776 Derivative financial instruments - (2,483) - - (503) (2,986) Other temporary differences 1,966 - - (793) - 1,173 Revenue tax losses (2,420) - - - - (2,420) ______ ______ ______ ______ ______ ______ Deferred tax provision 74,870 (2,483) 549 2,429 31,435 106,800 ===== ===== ===== ===== ===== ====== Deferred tax assets estimated at Â£21,360,000 (2005: Â£21,360,000) have not been recognised due to a degree of uncertainty over both the amount and timing of the utilisation of the underlying tax losses and deductions. Under current tax legislation, there is no expiry date associated with the unprovided deferred tax assets. v) Total tax charge The tax charge for the year recognised in these financial statements was as follows: 2006 2005 Â£000 Â£000 _____ _____ Tax charge (credit) on profit as above 5,462 (5,177) Tax (credit) charge on discontinued operations (note 9) (1,213) 701 Tax charge on share of profit in joint ventures (note 14i) 1,625 5,055 Tax charge on share of profit in associates 57 - Tax charge on income and expenses recognised directly in equity 31,435 22,884 Tax charge on share of income and expenses in joint ventures recognised directly in equity (44) - _______ _______ 37,322 23,463 ====== ====== 9. Discontinued operations The results from the Arena, Conference Hall and Exhibition Centres at Wembley have been classified in these financial statements as discontinued. The breakdown of the numbers disclosed in the income statement in relation to these activities was as follows: 2006 2005 Â£000 Â£000 _____ _____ Revenue 5,848 10,692 Cost of sales (6,738) (5,545) _____ _____ Gross (loss) profit (890) 5,147 Administrative expenses (3,152) (2,809) _____ _____ (Loss) profit before tax on discontinued operations (4,042) 2,338 Tax credit (charge) 1,213 (701) _____ _____ (2,829) 1,637 ===== ===== At the end of the current financial year, Wembley Arena which had previously been operated by the Group as an entertainment venue was leased to a third party, Live Nation. Throughout the year, to prepare for this transition, the Arena was closed for refurbishment but in order to preserve the goodwill associated with its business, was replaced by a temporary structure, known as the Pavilion. The decision taken by the Board to cease to be involved in the business of operating the Arena as well as to terminate its conference and exhibition activities at Wembley has led to the classification of the results from these operations, which together constitute the most significant part of the Group's leisure activities, as discontinued. In the Group's balance sheet, the Arena has been reclassified as an investment property while the sites currently occupied by the Conference Hall and the Exhibition Centres will revert to development land. The net cash flow from discontinued operations included in net cash from operating activities is based on the numbers disclosed above, adjusted in the current year for the reorganisation provision, less related tax, referred to in note 6 above. There were no other cash flows from investing and financing activities in relation to discontinued operations. The basic and diluted loss per share for discontinued operations was 2.2 pence (2005: earnings per share of 1.3 pence). 10. Earnings per share and net asset value per share i) Earnings per share a) Before discontinued operations 2006 2006 2006 2005 2005 2005 Profit after Weighted Earnings Profit after Weighted Earnings tax and average per share tax and average per share before number before number discontinued of shares discontinued of shares operations operations Â£000 000 pence Â£000 000 pence ______ _______ ______ ______ _______ ______ Basic 59,491 128,937 46.1 40,097 129,349 31.0 ===== ===== Adjustments: Interest on 8% Convertible unsecured loan stock 235 2,000 168 2,000 Employee share-based payment schemes - 1,237 - 1,031 ______ _______ ______ ______ Diluted 59,726 132,174 45.2 40,265 132,380 30.4 ===== ====== ===== ===== ====== ===== b) After discontinued operations 2006 2006 2006 2005 2005 2005 Profit after Weighted Earnings Profit after Weighted Earnings tax and average per share tax and average per share after number after number discontinued of shares discontinued of shares operations operations Â£000 000 pence Â£000 000 pence ______ _______ ______ ______ _______ ______ Basic 56,662 128,937 43.9 41,734 129,349 32.3 ===== ===== Adjustments: Interest on 8% Convertible unsecured loan stock 235 2,000 168 2,000 Employee share-based payment schemes - 1,237 - 1,031 ______ ______ ______ ______ Diluted 56,897 132,174 43.0 41,902 132,380 31.7 ===== ====== ===== ===== ====== ===== The weighted average number of shares excludes the weighted average number of shares held in the Quintain Group Employee Benefit Trust, which have been treated as cancelled. ii) Net asset value per share 2006 2006 2006 2005 2005 2005 Equity Number Net asset Equity Number Net asset shareholders' of shares value shareholders' of shares value funds per share funds per share Â£000 000 pence Â£000 000 pence ______ _______ ______ ______ _______ ______ Basic 676,675 128,635 526 571,101 128,891 443 ===== ===== Adjustments: 8% Convertible unsecured loan stock 2,893 2,000 3,000 2,000 Employee share-based payment schemes 9,766 2,925 9,310 2,919 ______ ______ ______ ______ Diluted 689,334 133,560 516 583,411 133,810 436 ====== ====== ===== ====== ====== ===== The number of shares in issue has been adjusted for the 659,596 (2005: 300,000) shares held by the Quintain Group Employee Benefit Trust. Although not required under International Financing Reporting Standards, net asset value per share is considered a key performance indicator in the sector in which the Group operates. Entitlements under the Executive Directors' Performance Share Plan have been excluded from the calculation in both i) and ii) above as the commitments relate to contingently issuable shares where the conditions had not been met at the balance sheet date. 11. Dividends The proposed final dividend of 7.25 pence per share (2005: 6.75 pence per share) was approved by the Board on 31 May 2006 and is payable on 8 September 2006 to shareholders on the register at the close of business on 4 August 2006. The dividend has not been included as a liability as at 31 March 2006. The total dividend for the year ended 31 March 2006 amounts to 10.50 pence per share (2005: 9.50 pence per share). The dividend of Â£12,867,000 included in the Reconciliation of movements in equity in note 22 comprises the 2005 final dividend of Â£8,700,000, which was paid on 8 September 2005, together with the interim dividend of Â£4,167,000 paid on 18 January 2006. 12. Investment and development properties The movements in investment and development properties were as follows: Investment Investment Investment Investment Development Development Development Development properties properties properties properties properties properties properties properties Freehold Long Short Total Freehold Long Short Total leasehold leasehold leasehold leasehold Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ ______ _______ ______ _____ Cost or valuation: Balance 1 April 257,280 140,906 13,227 411,413 357,379 36,171 4,194 397,744 2004 Transfer to (900) - - (900) - - - - trading properties Transfer to other - - - - 3,408 (3,408) - - categories Foreign exchange 68 - - 68 - - - - movement Additions 49,893 22,887 - 72,780 29,351 7,302 1,740 38,393 Interest - - - - 3,982 78 - 4,060 capitalised Disposals (126,535) (83,316) (4,076) (213,927) (67,747) - - (67,747) Short leasehold amortisation - - - - - - (389) (389) Other property amortisation - - - - (197) - - (197) Revaluation surplus (deficit) 12,857 6,992 919 20,768 93,742 (1,105) (608) 92,029 ______ _______ ______ ______ ______ _______ ______ _______ Balance 31 March 192,663 87,469 10,070 290,202 419,918 39,038 4,937 463,893 2005 Transfer to other categories 47,060 (4,960) - 42,100 (39,635) (2,465) - (42,100) Foreign exchange 164 - - 164 - - - - movement Additions 31,879 11,531 - 43,410 65,414 4,831 62 70,307 Interest 318 - - 318 7,074 432 - 7,506 capitalised Disposals (91,448) (15,843) (949) (108,240) (2,305) - - (2,305) Short leasehold amortisation - - - - - - (408) (408) Revaluation 10,224 10,968 942 22,134 93,871 7,353 1,338 102,562 surplus ______ _______ ______ _______ _______ ______ _______ _______ Balance 31 March 190,860 89,165 10,063 290,088 544,337 49,189 5,929 599,455 2006 ====== ====== ===== ====== ====== ===== ====== ====== Of the additions shown above, Â£41,437,000 (2005: Â£85,774,000) related to acquisitions. The historical cost of the Group's investment and development properties as at 31 March 2006 was Â£496,786,000 (2005: Â£531,278,000) and included capitalised interest of Â£16,729,000 (2005: Â£9,533,000). All of the Group's properties were externally valued as at 31 March 2006 on the basis of market value by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The Group's land holdings in Greenwich and the Wembley Complex have been valued by Savills Commercial Limited. The discount rates which have been applied to future cash flows in relation to these developments were 10.5% and 9.5% respectively. Other properties in the United Kingdom have been valued by Jones Lang LaSalle Limited and Christie & Co. Properties in the Channel Islands have been valued by Guy B Gothard and in France by Savills. A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the balance sheet was as follows: 2006 2005 Â£000 Â£000 _____ _____ Investment and development properties at market value as determined by valuers 878,295 743,518 Adjustment in respect of rent-free periods and other tenant incentives (965) (972) Adjustment in respect of minimum payments under head leases separately included as a liability in the balance sheet 12,213 11,549 _______ _______ As shown in the balance sheet 889,543 754,095 ====== ====== In addition to the commitment under head leases in respect of investment and development properties shown above, the comparative number in the Group's balance sheet as at 31 March 2005 includes Â£1,201,000 in respect of the long leasehold property which is shown under note 13 and was sold during the year. The proportion of investment and development properties valued by each valuer was as follows: 2006 2005 Â£000 % Â£000 % _______ _______ _______ _______ Savills Commercial Limited 542,500 61.8 376,150 50.6 Jones Lang LaSalle Limited 321,935 36.7 342,600 46.1 Other valuers 13,860 1.5 24,768 3.3 _______ _______ _______ _______ 878,295 100.0 743,518 100.0 ====== ====== ====== ====== Copies of the valuation reports of Jones Lang LaSalle Limited and Savills Commercial Limited are included in the annual report. The figures quoted in the reports of Savills and Jones Lang LaSalle are different from those disclosed above because they represent 100 percent of the external valuation of properties of which the Group owns a share as well as those held in associate undertakings. Savills, Jones Lang LaSalle and Christie & Co provide other professional and agency services to the Group. These organisations have confirmed that the total fees paid by the Group represent less than five percent of their total fee income in any year and that they adopted policies for the regular rotation of suitably qualified personnel to perform these valuations. 13. Owner-occupied properties, plant and equipment Long Short Fixtures, Total leasehold leasehold fittings & equipment Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ Cost: Balance 1 April 2004 - 825 1,093 1,918 Additions 10,039 12 157 10,208 _______ _______ _______ _______ Balance 31 March 2005 10,039 837 1,250 12,126 Additions 1,341 - 1,024 2,365 Disposals (11,380) (566) (528) (12,474) _______ _______ _______ _______ Balance 31 March 2006 - 271 1,746 2,017 ====== ====== ====== ====== Depreciation: Balance 1 April 2004 - (640) (629) (1,269) Charge for year - (183) (258) (441) _______ _______ _______ _______ Balance 31 March 2005 - (823) (887) (1,710) Charge for year - (2) (439) (441) Disposals - 554 522 1,076 _______ _______ _______ _______ Balance 31 March 2006 - (271) (804) (1,075) ====== ====== ====== ====== Net book value: 31 March 2006 - - 942 942 ====== ====== ====== ====== 31 March 2005 10,039 14 363 10,416 ====== ====== ====== ====== 1 April 2004 - 185 464 649 ====== ====== ====== ====== 14. Non-current investments i) Investment in joint ventures a) The movement in investment in joint ventures was as follows: Share of Advances Total net assets Â£000 Â£000 Â£000 _______ _______ _______ Balance 1 April 2004 7,740 30,000 37,740 Transfer from associates 1,293 - 1,293 Additions 1 - 1 Disposals (53) - (53) Amounts advanced - 23,121 23,121 Distributions (3,117) (2,211) (5,328) Share of profit 7,363 - 7,363 _______ _______ _______ Balance 31 March 2005 13,227 50,910 64,137 Restatement for IAS 39, net of tax (32) - (32) _______ _______ _______ 13,195 50,910 64,105 Additions 553 - 553 Acquisition of interest in joint venture 2,812 - 2,812 Acquisition of related deferred tax liability (note 27) (318) - (318) Amounts advanced - 24,474 24,474 Distributions (4,312) - (4,312) Share of profit 32,864 - 32,864 Share of effective portion of changes in fair value of cash flow (102) - (102) hedges, net of tax _______ _______ _______ Balance 31 March 2006 44,692 75,384 120,076 ====== ====== ====== b) The Group's interest in its principal joint ventures was as follows: % of share Country of Joint venture capital held incorporation partner _________ __________ __________ Meridian Delta Limited 49 United Kingdom Lend Lease Europe Limited Meridian Delta Dome Limited 49 United Kingdom Lend Lease Europe Limited Quercus Healthcare Property Unit Trust 28.31 Channel Islands Norwich Union Life & Pensions Limited Countryside Properties (Merton Abbey Mills) 50 United Kingdom Countryside Limited Properties PLC Bioregional Quintain Limited 49 United Kingdom Bioregional Properties Limited South East Properties (Redhill) Limited 50 United Kingdom South East Properties Limited c) The Group's share of the results of its principal joint venture operations was as follows: Quercus Meridian Merton Other Group share Delta Abbey joint in joint Mills ventures ventures Â£000 Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ Summarised income statements Rents receivable 7,838 - - - 7,838 Profit (loss) from sale of trading - - 1,469 (142) 1,327 properties Administrative expenses (1,031) (216) (122) (130) (1,499) _______ _______ _______ _______ _______ Operating profit (loss) 6,807 (216) 1,347 (272) 7,666 Share of gain on revaluation of 29,415 - - - 29,415 investment properties Loss on sale of investment properties (39) - - - (39) _______ _______ _______ _______ _______ Profit (loss) before net finance expenses 36,183 (216) 1,347 (272) 37,042 and taxation Finance expenses (2,519) (16) (21) (20) (2,576) Finance income - - 23 - 23 _______ _______ _______ _______ _______ Profit (loss) before taxation 33,664 (232) 1,349 (292) 34,489 Taxation (1,342) - (283) - (1,625) _______ _______ _______ _______ _______ Profit (loss) after taxation 32,322 (232) 1,066 (292) 32,864 ====== ====== ====== ====== ====== Summarised balance sheets Investment properties at valuation 147,831 - - - 147,831 Trading properties - 20,772 2,513 - 23,285 Other assets 4,873 1,288 2,790 5,379 14,330 _______ _______ _______ _______ _______ Gross assets 152,704 22,060 5,303 5,379 185,446 Current tax liability (1,100) - (115) - (1,215) Non-current liabilities: bank loans (51,479) - - - (51,479) Deferred tax liability (5,345) - - (318) (5,663) Other liabilities (5,113) (1,135) - (765) (7,013) _______ _______ _______ _______ _______ Net external assets 89,667 20,925 5,188 4,296 120,076 ====== ====== ====== ====== ====== Represented by: Joint venture partner's capital 37,803 1,056 3,050 2,783 44,692 Joint venture partner's loans 51,864 19,869 2,138 1,513 75,384 _______ _______ _______ _______ _______ Total investment 89,667 20,925 5,188 4,296 120,076 ====== ====== ====== ====== ====== Bank loans within Quercus are at floating rates and details of interest rate swaps entered into by the joint venture are given in note 21 below. The valuation of investment properties held within Quercus as at 31 March 2006 has been based on the exercise carried out by Christie & Co, Chartered Surveyors, as external valuers, on the basis of market value and in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The Quercus joint venture has an accounting period ending on 31 December. The Group's share of its results for the remainder of the financial year has been based on its management accounts. d) The summarised financial statements of the Group's principal joint venture operations were as follows: 2006 2006 2006 2005 2005 2005 Quercus Meridian Merton Quercus Meridian Merton Delta Abbey Delta Abbey Mills Mills Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ _______ ______ Income statements Revenue 135,750 - 48,842 48,583 - 45,435 Expenses (18,130) (474) (46,658) (26,415) - (40,793) ______ ______ ______ ______ ______ ______ Profit (loss) before taxation 117,620 (474) 2,184 22,168 - 4,642 ====== ===== ===== ===== ====== ===== Balance sheets Non-current assets 522,187 2,628 - 311,177 - - Current assets 17,214 42,392 10,606 15,234 30,778 31,980 ______ ______ ______ ______ ______ ______ Total assets 539,401 45,020 10,606 326,411 30,778 31,980 Current liabilities (21,946) (2,316) (230) (16,140) (2,486) (17,432) Non-current liabilities (200,721) - - (148,298) - - _______ ______ ______ _______ ______ ______ Net assets 316,734 42,704 10,376 161,973 28,292 14,548 ====== ===== ===== ====== ====== ===== ii) Investment in associates Â£000 _______ Balance 1 April 2004 4,951 Transfer to joint ventures (1,293) Disposals (1,074) Loan repayments (2,262) Share of profit 962 _______ Balance 31 March 2005 1,284 Share of profit 393 _______ Balance 31 March 2006 1,677 ====== The Group's interest in its principal associate was as follows: % of equity Other held member _____ _____ Aqua Trust 50 Norwich Union Annuity Limited iii) Other non-current investments Available for sale investments Â£000 ______ Unquoted investments: Balance 1 April 2004 and 2005 188 Additions 3,160 Impairment (632) _______ Balance 31 March 2006 2,716 ====== The Group has an investment in equity and loans in Cassel Hotel (Cambridge) Limited, a tenant, which operates an hotel on a ground lease from the Group. In the current year, the Group invested in convertible loan stock in Serrastone SA, a company based in France, which is researching and developing a substitute for natural stone for building purposes. The loan stock carries a coupon of 10% and is convertible into equity between 31 December 2008 and 31 December 2010 on the basis of the company's valuation at the conversion dates. During the year, the carrying value of the investment has been reviewed and an impairment charge as shown above recognised. 15. Trade and other receivables 2006 2005 Â£000 Â£000 _____ _____ Trade receivables 9,166 10,755 Amounts due under contracts for sale 54,635 8,419 Other receivables 5,424 4,747 Prepayments and accrued income 3,087 5,350 _______ _______ 72,312 29,271 ====== ====== 16. Current investments 2006 2005 Â£000 Â£000 _____ _____ Treasury stock 7 19 ====== ====== The nominal value of the Treasury stock as at 31 March 2006 was Â£7,000 (2005: Â£16,000). 17. Trade and other payables 2006 2005 Â£000 Â£000 _____ _____ Trade payables 8,802 4,469 Other payables 3,503 8,525 Accruals 23,854 18,055 Interest rate swaps 12,945 - _______ _______ 49,104 31,049 ====== ====== 18. Bank loans and other borrowings 2006 2005 Â£000 Â£000 _____ _____ Current liabilities: Bank and other loans (secured) 4,432 88 ===== ===== Non-current liabilities: Bank and other loans (secured) 238,863 167,020 8% Convertible unsecured loan stock 2,893 3,000 10% First mortgage debenture stock 2011 (secured) 4,870 4,870 _______ _______ 246,626 174,890 ====== ====== Total borrowings 251,058 174,978 ====== ====== The loans are secured by floating charges over assets owned by subsidiary undertakings. The unlisted 8% Convertible unsecured loan stock is repayable on 1 April 2007. The loan stock is convertible at any time at the option of the holder into ordinary shares of the Company at a conversion price of 150 pence per share. The 10% First mortgage debenture stock 2011 issued by Estates Property Investment Company Limited is secured by fixed and floating charges over the assets of the subsidiary undertaking and has a redemption value of Â£4,617,000. The premium over par arising from fair valuing the debenture on acquisition is amortised over its remaining life. 19. Obligations under finance leases Finance lease obligations in respect of rents payable on leasehold properties were payable as follows: 2006 2006 2006 2005 2005 2005 Principal Interest Present Principal Interest Present minimum value minimum value lease of minimum lease of minimum payments lease payments lease payments payments Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 _____ _____ _____ _____ _____ _____ Within one year 863 (855) 8 815 (808) 7 From two to five years 3,452 (3,410) 42 3,264 (3,226) 38 From five to 25 years 17,165 (16,772) 393 16,232 (15,860) 372 After 25 years 48,188 (36,418) 11,770 44,438 (32,105) 12,333 _______ _______ _______ _______ _______ _______ 69,668 (57,455) 12,213 64,749 (51,999) 12,750 ====== ====== ====== ====== ====== ====== 20. Financial assets and liabilities i) Transition to IAS 32, 'Financial Instruments: Disclosure and Presentation' and IAS 39, 'Financial Instruments: Recognition and Measurement'. The Group has taken advantage of the transitional arrangements of IFRS 1 not to restate corresponding amounts in accordance with IAS 32 and IAS 39. In the comparative period, all financial assets and liabilities were carried at cost, amortised as appropriate, less, in the case of financial assets, provision for any permanent diminution in value. Interest differentials arising from interest rate swaps were recognised by adjusting net interest payable over the period of the contract. The following adjustments necessary to implement the revised policy have been made as at 1 April 2005 with net adjustments to net assets, after tax, recognised directly in equity. Corresponding amounts for the year ended 31 March 2005 are presented and disclosed in accordance with the requirements of the Companies Act 1985 and FRS 4, 'Capital Instruments'. The main differences between the comparative year and the current year bases of accounting are shown and described below. The effect on the consolidated balance sheet as at 1 April 2005 was as follows: Â£000 _______ Investment in joint ventures (32) Trade and other payables (8,277) Current tax liability 175 Non-current liabilities: bank loans and other borrowings 203 Deferred tax liability 2,483 _______ (5,448) ====== Other capital reserves: Convertible loan stock reserve 786 Cash flow hedge reserve (3,533) Retained earnings (2,701) _______ (5,448) ====== The nature of the main effects upon the consolidated balance sheet at 1 April 2005 and upon the consolidated income statement and statement of recognised income and expenses in the current year was as follows: a) In the current year, hedging instruments and hedged items are accounted for separately in the balance sheet. Gains and losses in both are included in profit for the year when they arise or, in the case of the effective element of cash flow hedges, in equity. In prior periods, hedging instruments were not recognised and hedged items were held at cost, amortised as appropriate, without any adjustment in respect of the hedged risk. b) Of the previous carrying value of convertible debt, a portion has been treated as a share subscription option and has been transferred directly to equity on 1 April 2005. Thereafter, the finance cost of the debt is higher. The cash flow statement is unaffected by this change in accounting policy. ii) Financial assets As at 31 March 2006, the Group's cash and cash equivalents comprised: 2006 2005 Â£000 Â£000 _____ _____ Sterling 2,539 3,715 Euros 5,119 7,109 United States dollars 296 266 _______ _______ 7,954 11,090 ====== ====== Details of other financial assets are shown in the table in section iv) below. iii) Financial liabilities The Group's policy is to finance its activities with equity and long term debt, with a gearing target of 100%. The weighted average tenure of the Group's Sterling debt is five years (2005: five years) and the weighted average cost of debt was 6.6% (2005: 6.7%). The maturity profile of the Group's debt was as follows: 2006 2006 2006 2005 2006 2005 Bank loans Other Total debt Total debt Undrawn Undrawn and loans facilities facilities overdrafts Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ _______ ______ Within one year 4,432 - 4,432 88 - - Between one and two years - 2,893 2,893 102 - - Between two and five years 238,863 - 238,863 166,389 254,000 330,000 Over five years - 4,870 4,870 8,399 - - ______ ______ ______ ______ ______ ______ 243,295 7,763 251,058 174,978 254,000 330,000 ====== ===== ====== ====== ====== ====== After taking account of interest rate swap arrangements, the risk profile of the Group's borrowings as at 31 March 2006 was as follows: 2006 2006 2006 2005 2005 2005 Fixed Floating Total debt Fixed Floating Total debt Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ _______ ______ Sterling 164,770 81,856 246,626 154,877 15,630 170,507 Euros 4,432 - 4,432 4,471 - 4,471 ______ ______ ______ ______ ______ ______ 169,202 81,856 251,058 159,348 15,630 174,978 ====== ===== ====== ====== ===== ====== The interest rate profile of the Group's fixed rate debt was as follows: Percent 2006 2005 Â£000 Â£000 _____ _____ 4.0 - 5.0 4,432 4,471 5.0 - 6.0 157,007 147,007 7.0 - 8.0 2,893 3,000 9.0 - 10.0 4,870 4,870 _______ _______ 169,202 159,348 ====== ====== The weighted average rate and the weighted average period of the Group's fixed rate debt as at 31 March 2006 were as follows: 2006 2005 2006 2005 % % years years _______ _______ _______ _______ Sterling 5.5 5.6 7 9 Euros 4.7 4.7 - 1 Group 5.5 5.6 7 8 iv) The fair value of the Group's financial assets and liabilities was as follows: 2006 2006 2006 2005 2005 2005 Book value Fair value Fair value Book value Fair value Fair value adjustment adjustment Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ _______ ______ Other non-current investments 2,716 2,716 - 188 188 - Trade and other receivables 72,312 72,312 - 29,271 29,271 - Current investments 7 7 - 19 19 - Cash and cash equivalents 7,954 7,954 - 11,090 11,090 - ______ ______ ______ ______ ______ ______ 82,989 82,989 - 40,568 40,568 - Current liabilities: bank (4,432) (4,432) - (88) (88) - loans Trade and other payables (49,104) (49,104) - (31,049) (31,049) - Non-current liabilities: bank (246,626) (246,878) (252) (174,890) (183,541) (8,651) loans Obligations under finance (12,213) (12,213) - (12,750) (12,750) - leases Other payables (4,670) (4,670) - (4,674) (4,674) - ________ ________ _______ ________ ________ ______ Total net financial (234,056) (234,308) (252) (182,883) (191,534) (8,651) liabilities ======= ======= ====== ======= ======= ====== Fair value adjustment on a (176) (6,056) post-tax basis ===== ===== The fair values were calculated by JC Rathbone Associates Limited as at 31 March 2006 and reflect the replacement values of the financial instruments used to manage the Group's exposure as at that date. The maturity profile of the Group's share of floating rate debt held within its joint ventures as at 31 March 2006 was as follows: 2006 2005 Â£000 Â£000 ______ ______ Between two and five years 51,479 34,107 ====== ====== 21. Financial instruments The Group is subject to interest rate, liquidity, foreign currency and credit risks. The Group does not speculate in treasury products but uses these only to limit potential interest rate fluctuations. It usually borrows at floating rates of interest based on LIBOR and uses hedging mechanisms to achieve an interest rate profile where the majority of borrowings are fixed or capped. As at 31 March 2006, 69.6% (2005: 97.2%) of the Group's net debt was fixed or protected. The profile of the Group's interest swaps which were in existence as at 31 March 2006 and for the purpose of these financial statements were classified as effective cash flow hedges was as follows: Amount Maturity Swap Fair value Fair value Reflected date rate adjustment adjustment in equity 31.03.06 01.04.05 Â£000 % Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ 10,000 20.07.09 5.45 (186) (130) (56) 20,000 20.01.11 5.79 (845) (809) (36) 7,507 01.04.11 5.64 (280) (254) (26) 18,000 20.01.14 5.33 (665) (453) (212) 11,500 20.07.14 5.34 (467) (318) (149) 20,000 20.07.14 5.36 (833) (576) (257) 20,000 20.07.14 5.45 (963) (717) (246) 10,000 20.01.15 5.28 (393) (247) (146) 20,000 20.01.15 5.29 (797) (505) (292) 20,000 20.01.15 5.61 (1,248) (992) (256) _______ _______ _______ _______ 157,007 (6,677) (5,001) (1,676) ====== ====== ====== ====== These swaps were valued as at 31 March 2006 by JC Rathbone Associates Limited. In addition as at 31 March 2006, the Group has entered into the following forward start swaps which do not qualify as effective cash flow hedges for the purposes of IAS 39. These were also valued by JC Rathbone Associates Limited. Amount Start Maturity Swap Fair value Fair value Reflected in date date rate adjustment adjustment income 31.03.06 01.04.05 statement Â£000 % Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ _______ 10,000 20.01.15 20.01.35 5.28 (1,136) (550) (586) 20,000 20.01.15 20.01.35 5.29 (2,284) (1,111) (1,173) 20,000 20.01.15 20.01.35 5.61 (2,849) (1,614) (1,235) _______ _______ _______ _______ 50,000 (6,269) (3,275) (2,994) ====== ====== ====== ====== As at 31 March 2006, the following interest rate swaps shown at the full amount, were held within Quercus, a joint venture in which the Group has a 28.31% (2005: 26.50%) interest: Amount Maturity Swap Fair value Fair value Group share date rate adjustment adjustment reflected 31.03.06 01.04.05 in equity Â£000 % Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ 50,000 22.10.07 5.32 (432) (373) (28) 40,000 22.01.09 4.86 (50) 187 (59) 50,000 22.10.09 4.84 (43) - (12) 25,000 25.11.09 5.02 (173) - (47) _______ _______ _______ _______ 165,000 (698) (186) (146) ====== ====== ====== ====== These swaps were valued at the year end by JC Rathbone Associates Limited and classified as 100% effective cash flow hedges on similar grounds to those which applied to the Group's own cash flow hedges. The Group's policy is to minimise refinancing risk. As at 31 March 2006, the maturity profile of group debt showed an average maturity of five years (2005: five years). Subsequent to the balance sheet date, the Group's Syndicated loan facility has been extended for a further year. Efficient treasury management and strict credit control ensure that funds are available to meet the Group's financial commitments as these fall due. The Group borrows in the same currency as the assets being financed to minimise foreign currency risk. No currency derivatives are used. The Group's principal financial assets are cash and bank balances, trade and other receivables and investments. The Group's credit risk is primarily attributable to its trade and other receivables. These amounts are disclosed net of allowances for doubtful debts and allowances for impairment are made where appropriate. The Group has no significant concentration of credit risk with exposure spread over a number of counterparties and tenants. Creditworthiness evaluations are performed on all potential customers looking to enter into lease or pre-lease agreements with the Group. In certain cases, the Group will require collateral to support these lease obligations. This usually takes the form of a rent deposit, parent company guarantee or a bank guarantee. Where the Group places short term deposits, counterparties must have a short term credit rating of at least A1/P1. Transactions involving derivative financial instruments are with counterparties with whom the Group has a signed ISDA agreement as well as having good investment grade credit ratings. Given their high credit ratings, the Board does not expect any counterparty to fail to meet its obligations. During the year, the Group entered into a Â£15 million Property Index-linked Total Return Swap with an amended end date of 28 February 2007 under which the Group receives a return linked to the Investment Property Databank Annual Index and pays interest based on LIBOR plus a spread of 250 basis points. The credit risk on this instrument is limited as the counterparty is a bank with a credit rating assigned by an international credit rating agency. 22. Reconciliation of movements in equity Share Share Revaluation Other Cash Translation Retained Investment Equity capital premium reserve capital flow reserve earnings in own shareholders' reserves hedge shares funds reserve Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ _______ _______ _______ Balance 1 April 2004 32,323 45,076 110,200 112,330 - - 172,869 - 472,798 Recognised - - 70,377 - - 127 41,644 - 112,148 income and expense for the year Issue of shares less 81 1,499 - - - - (1,046) - 534 costs Purchase of own (106) - - 106 - - (2,243) - (2,243) shares for cancellation Purchase of own - - - - - - - (1,539) (1,539) shares as treasury shares Cost relating to - - - - - - 721 - 721 share-based payment schemes Short leasehold - - (120) - - - 120 - - amortisation Realisation of - - (355) - - - 355 - - revaluation gains on sale Dividends paid in year - - - - - - (11,318) - (11,318) _______ _______ _______ _______ _______ _______ _______ _______ _______ Balance 31 March 2005 32,298 46,575 180,102 112,436 - 127 201,102 (1,539) 571,101 Effect of - - - 786 (3,533) - (2,701) - (5,448) adoption of IAS 39 on 1 April 2005 _______ _______ _______ _______ _______ _______ _______ _______ _______ 32,298 46,575 180,102 113,222 (3,533) 127 198,401 (1,539) 565,653 Recognised income and expense for the year - - 68,860 - (1,275) 278 56,662 - 124,525 Issue of shares less 31 690 - - - - (474) - 247 costs Purchase of own (5) - - 5 - - (108) - (108) shares for cancellation Purchase of own - - - - - - - (1,955) (1,955) shares as treasury shares Cost relating to - - - - - - 1,180 - 1,180 share-based payment schemes Short leasehold - - (126) - - - 126 - - amortisation Dividends paid in year - - - - - - (12,867) - (12,867) _______ _______ _______ _______ _______ _______ _______ _______ _______ Balance 31 March 2006 32,324 47,265 248,836 113,227 (4,808) 405 242,920 (3,494) 676,675 ====== ====== ====== ====== ====== ====== ====== ====== ====== During the year to 31 March 2005, the Group purchased an equity minority interest which as at 31 March 2005 had a book value of Â£240,000 and as at 1 April 2004, Â£362,000. Part of the gain on the revaluation of investment and development properties is recognised in the income statement and part directly through equity. 2006 2005 Â£000 Â£000 _____ _____ Recognised in income statement: Gains on revaluation of investment properties in: Group 23,911 24,083 Joint ventures 29,415 6,400 Associates 450 226 Deficits on revaluation of investment properties (1,777) (3,315) Deficits on revaluation of development properties (1,834) (1,232) Reversal of deficits on revaluation of development properties 3,598 - Recognised directly in equity: Gains on revaluation of development properties 100,798 93,261 _______ _______ 154,561 119,423 ====== ====== The movements in the Group's Other capital reserves were as follows: Capital Convertible Merger Capital Total redemption loan stock reserve reserve other reserve reserve capital reserves Â£000 Â£000 Â£000 Â£000 Â£000 _______ ______ ______ ______ ______ Balance 1 April 2004 1,963 - 106,062 4,305 112,330 Purchase of own shares for cancellation 106 - - - 106 _______ ______ ______ ______ ______ Balance 31 March 2005 2,069 - 106,062 4,305 112,436 Effect of adoption of IAS 39 on 1 April 2005 - 786 - - 786 _______ ______ ______ ______ ______ 2,069 786 106,062 4,305 113,222 Purchase of own shares for cancellation 5 - - - 5 _______ ______ ______ ______ ______ Balance 31 March 2006 2,074 786 106,062 4,305 113,227 ====== ===== ====== ===== ====== As at 31 March 2006, the Quintain Group Employee Benefit Trust held 659,596 (2005: 300,000) shares in the Company which had been purchased in the market at a cost of Â£3,494,000 (2005: Â£1,539,000). The purpose of the Trust is to acquire and hold shares to be transferred to employees to meet future obligations under employee share-based payment schemes as set out in note 23 and share-based bonus entitlements. As at 31 March 2006, these shares had a market value of Â£4,485,000 (2005: Â£1,590,000). The Trustee has waived the right to receive dividends, except for a nominal amount. 23. Share capital 2006 2005 Â£000 Â£000 _______ ______ Authorised 200,000,000 shares of 25p each 50,000 50,000 ====== ====== Allotted, called up and fully paid In issue at 1 April 2005: 129,190,748 (2004: 129,291,457) ordinary shares of 25p each 32,298 32,323 Issue of 124,604 (2005: 324,291) shares under share-based payment schemes at between 155.3p and 271p. 31 81 Purchase and cancellation of 20,433 (2005: 425,000) shares at 525p (5) (106) ______ ______ In issue at 31 March 2006: 129,294,919 (2005: 129,190,748) ordinary shares of 25p each 32,324 32,298 ====== ====== As at 31 March 2006, Share capital included 659,596 (2005: 300,000) shares held by the Quintain Group Employee Benefit Trust. These shares had a nominal value of Â£164,899 (2005: Â£75,000). As at the year end, the following commitments to issue shares to employees under various share-based payment schemes remained outstanding: Date of grant Number of Exercise Exercise Exercise shares price period period per share from to pence __________ ________ _________ _________ _________ Executive Directors' Performance Share Plan ('LTIP') 26.09.03 1,000,000 - 26.09.12 27.09.12 12.07.05 375,000 - 12.07.14 13.07.14 ________ 1,375,000 ======= 1996 Approved Executive Share Option Scheme ('1996 Approved') 06.08.97 11,344 136.0 06.08.00 05.08.07 22.02.99 6,040 151.5 22.02.02 21.02.09 13.06.00 29,151 155.3 13.06.03 12.06.10 04.09.01 1,504 199.5 04.09.04 03.09.11 17.06.02 17,013 271.0 17.06.05 16.06.12 20.02.03 12,809 234.2 20.02.06 19.02.13 13.06.03 107,592 287.0 13.06.06 12.06.13 02.02.04 8,720 344.0 02.02.07 01.02.14 13.09.04 121,926 460.0 13.09.07 12.09.14 12.07.05 49,298 556.3 12.07.08 11.07.15 09.01.06 9,450 634.8 09.01.09 08.01.16 _________ 374,847 ======== 1996 Executive Share Option (No.2) Scheme ('1996 Unapproved') 13.06.00 220,681 155.3 13.06.03 12.06.07 04.09.01 79,845 155.3 04.09.04 03.09.08 04.09.01 230,575 199.5 04.09.04 03.09.08 17.06.02 90,580 155.3 17.06.05 16.06.09 17.06.02 10,359 199.5 17.06.05 16.06.09 17.06.02 892,741 271.0 17.06.05 16.06.09 20.02.03 31,946 234.2 20.02.06 19.02.10 13.06.03 18,045 199.5 13.06.06 12.06.10 13.06.03 19,373 271.0 13.06.06 12.06.10 13.06.03 537,047 287.0 13.06.06 12.06.10 13.09.04 93 460.0 13.09.07 12.09.11 _________ 2,131,285 ======== 2004 Unapproved Share Plan ('2004 Unapproved') 13.06.03 27,311 25.0 13.06.06 12.06.10 02.02.04 7,450 25.0 02.02.07 01.02.14 02.02.04 10,551 25.0 02.02.08 01.02.14 02.02.04 11,729 25.0 02.02.09 01.02.14 13.09.04 163,870 25.0 13.09.07 12.09.14 12.07.05 196,471 25.0 12.07.08 11.07.15 09.01.06 1,566 25.0 09.01.09 08.01.16 _________ 418,948 ======== Total 4,300,080 ======== The movement in the year in the number and weighted average exercise price of outstanding options was as follows: 2006 2006 2005 2005 Number Weighted Number Weighted of average of average shares exercise shares exercise price price pence pence _______ ______ _______ _______ In issue at 1 April 3,919,274 170.1 3,895,737 168.4 Options granted 740,562 59.8 400,665 172.3 Options exercised (124,604) (197.9) (324,291) (164.9) Options exchanged for rights - - (42,378) - Options lapsed (235,152) (70.1) (10,459) (360.1) ________ ________ In issue at 31 March 4,300,080 155.8 3,919,274 170.1 ======= ======= Options granted during the current and previous year have been valued using the Black Scholes and binomial models on the basis of the following main assumptions: 13.09.04 12.07.05 09.01.06 Approved 1996 2004 LTIP Approved 2004 Approved 2004 Unapproved Unapproved Unapproved Unapproved ______ ______ _______ _______ _______ ______ _______ _____ Number 135,712 93 264,860 375,000 55,310 299,236 9,450 1,566 Exercise price (pence) 460.0 460.0 25.0 - 556.3 25.0 634.8 25.0 Term of option (years) 10 7 7 9 10 7 3 3 Expected volatility 23 23 23 23 23 23 21 21 (%) Expected annual 3.0 3.0 3.0 1.7 1.7 1.7 1.8 1.8 dividend yield (%) Risk free rate (%) 4.9 4.8 4.9 4.3 4.3 4.3 4.2 4.2 Fair value (pence) 107.0 107.0 355.0 482.0 112.0 480.0 95.0 571.0 24. Capital commitments As at 31 March 2006, the Group had capital commitments of Â£30,570,000 (2005: Â£84,410,000) in relation to its own properties and Â£7,786,000 (2005: Â£17,690,000) in relation to its joint ventures. 25. Operating lease arrangements i) As lessee As at 31 March 2006, the future minimum lease payments payable by the Group under non-cancellable operating leases were as follows: 2006 2005 Â£000 Â£000 _______ _______ Operating leases which expire: From two to five years 545 1,177 Over five years 7,791 - _______ _______ 8,336 1,177 ====== ====== ii) As lessor As at 31 March 2006, the future minimum lease payments receivable by the Group under non-cancellable operating leases were as follows: 2006 2005 Â£000 Â£000 _______ _______ Within one year 20,957 24,685 From two to five years 50,197 69,935 Over five years 119,164 167,674 _______ _______ 190,318 262,294 ====== ====== In addition, the Group's share of minimum lease payments receivable under non-cancellable operating leases contained within the Group's joint venture, Quercus, were Â£296,665,000 (2005: Â£182,482,000). 26. Related party disclosures During the year, the Group received fees amounting to Â£3,143,000 (2005: Â£1,364,000) from Quercus Property Partnership, Â£42,000 (2005: Â£430,000) from Quart Limited Partnership and Â£16,000 (2005: Â£nil) from Bioregional Quintain Limited in respect of services provided. These fees are included in Other income as shown in note 4. The Group also received interest on loan notes amounting to Â£1,041,000 (2005: Â£326,000) from Meridian Delta Limited and Â£22,000 (2005: Â£nil) from Bioregional Quintain Limited, which are included in Finance income. Amounts due from joint venture undertakings as at 31 March 2006 are shown in note 14i. 27. Acquisition of subsidiary During the year, the Company purchased the whole of the share capital of Timberlaine Limited for a cash consideration of Â£7,335,000. The company had a trading property of Â£5,390,000 and an interest in a joint venture of Â£2,812,000, together with a deferred tax liability arising on these assets of Â£867,000, of which Â£549,000 related to the former and Â£318,000 to the latter. There were no fair value adjustments as the fair value of the assets and liability acquired were equal to their book value and no intangible assets were identified. No goodwill arose from the acquisition. In the Consolidated Cash Flow Statement, the comparative amount for the acquisition of subsidiary companies relates to the final instalment in the consideration for the purchase of the share of Wembley (London) Limited. This information is provided by RNS The company news service from the London Stock Exchange

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