10th Mar 2006 07:15
Mapeley Limited10 March 2006 PART 2 18. Interest and non-interest bearing loans and borrowings The table below sets out the Group's interest and non-interest bearing loans andborrowings as at 31 December 2005 and 2004: Effective Maturity 2005 2004 interest rate % £000 £000Non-currentObligations under finance leases 8.3% 2007-2021 6,160 4,492Bank loans: Term loan under the HMRC portfolio facility 6.88% Mar 2021 170,767 172,979 Term loan under the Abbey portfolio facility 5.69% Jul 2012 451,027 459,919 Investment facility 5.91% Jul 2015 169,838 - Acquisition facility 6.40% Nov 2007 - 24,763Loans from shareholders (note 27) - 6,100Interest due to shareholders (note 27) - 158 --------- --------- 797,792 668,411 ========= =========CurrentObligations under finance leases 8.3% 2006 120 174Bank loans: Term loan under the HMRC portfolio facility 6.88% 2006 2,103 1,999 Revolving acquisition facility 6.00% 2006 283,199 -Loans from shareholders (note 27) 7.00% - 1,000Interest due to shareholders (note 27) - 299 --------- --------- 285,422 3,472 ========= ========= The acquisition facility of £24,763,000 at 31 December 2004 was fully repaid andterminated during 2005 before its maturity date of November 2007. Bank loans The table below sets out the Group's bank loans together with unamortisedfinancing costs and accrued interest as at 31 December 2005 and 2004: £000 £000 Unamortised £000 £000 £000 Principal financing Net Accrued Total amount cost loan interest At 1 January 2004 646,137 (9,954) 636,183 - 636,183Receipt of bank loans 25,694 (1,015) 24,679 - 24,679Repayment of bank loans (1,873) 671 (1,202) - (1,202)Interest - - - 9,447 9,447 --------- ---------- --------- -------- --------At 31 December 2004 669,958 (10,298) 659,660 9,447 669,107 --------- ---------- --------- -------- -------- At 31 December 2004 669,958 (10,298) 659,660 9,447 669,107Receipt of bank loans 1,059,595 (8,185) 1,051,410 - 1,051,410Repayment of bank loans (642,940) 8,804 (634,136) - (634,136)Interest - - - 2,344 2,344 --------- ---------- ---------- -------- ----------At 31 December 2005 1,086,613 (9,679) 1,076,934 11,791 1,088,725 ========= ========== ========== ======== ========== All of the Group's properties, as valued by Savills and CBRE (see note 10 and11), have been secured against the Group's loan facilities The loan balancesabove represent the amounts outstanding at 31 December on the followingfacilities: Term loan under the HMRC portfolio facility The HMRC portfolio has an existing 20 year, £190.0 million loan facility inplace. Of this amount, £177.3 million was drawn down at 31 December 2005 (2004:£179.3 million). The amount drawn down is divided into two categories, Tranche"A" and Tranche "B". Interest on Tranche "A" is set at LIBOR plus 0.85% plusmandatory costs (if any) and on Tranche "B" at LIBOR plus 1.0% plus mandatorycosts (if any). Interest on both tranches is paid twice a year. The Tranche "A" capitalrepayments are made twice a year at rates calculated to repay the whole of theoriginal loan by 2021. The Tranche "B" loan is only repaid when propertieswithin the portfolio are sold. Any unpaid loan outstanding at expiry in 2021will be repaid in full at that time. This bank loan is secured against allfreehold and long leasehold properties held in the HMRC portfolio and by acharge over the investments of Mapeley STEPS Holdings Limited. New term loan under the Abbey portfolio facility The Group refinanced its existing loan facility in relation to the Abbeyportfolio on 30 June 2005, replacing its 18 year, £465.0 million loan with a 7year, £455.0 million fully drawn down loan facility. This bank loan is securedagainst all investment property held in the Abbey portfolio and by a charge overthe investments of Mapeley Columbus Holdings Limited. Interest on the loan ispaid quarterly at a rate of LIBOR plus 0.95% plus mandatory costs (if any). Theborrowers have entered into separate fixed interest rate agreements to fix theinterest payable. The loan is only partly repaid when properties within theportfolio are sold. Any unpaid loan balance outstanding at expiry will be repaidin full at that time. Acquisition facility During the year, the Group terminated its 3 year, £200.0 million acquisitionfacility replacing it with a 10 year, £175.0 million investment facility (setout below). The amount drawn down as at 31 December 2004 was £25.7 million. Investment facility A 10 year, £175.0 million investment facility was arranged during the year torefinance the Group's acquisition facility secured on certain of the Groupproperties. At 31 December 2005, £170.9 million was drawn down under thisFacility. The interest rate payable on the facility is fixed at 4.95% plus 0.75%plus mandatory costs (if any). When the assets funded by the facility wereinitially purchased, the Directors entered into swap arrangements to fix therate of interest payable. Once all assets had been purchased, the acquisitionfacility and related SWAP arrangements were terminated and the rate payableunder the investment facility which replaced it, determined by the weightedaverage rate payable under the Group's matching SWAP contracts which were alsoterminated at that date. Each borrower under this facility has granted securityover all its assets in favour of the lender. The loan is partly repaid whenproperties within the portfolio are sold. Any unpaid loan balance outstanding atexpiry will be repaid in full at that time. Revolving acquisition facility During the year, a 3 year, £300.0 million revolving acquisition facility wasarranged to finance the acquisition of investment property. Of this amount,£283.4 million was drawn down at 31 December 2005. The remainder of thisfacility will be drawn down as further investment property is acquired. Theinterest rate payable on the facility is LIBOR plus 1.5 % plus mandatory costs(if any). As a condition precedent to drawing any advances, each borrower isrequired to grant security over all its assets and shares in favour of asecurity trustee. The borrower's obligations are guaranteed by the Company andcertain subsidiaries. The loan is repayable in full at the end of the term. All of the Group's floating-rate loans have been hedged using interest rateswaps, to make them equivalent to fixed-rate loans in substance. Not allinterest rate swaps have been hedge accounted. See note 25 Hedging activities. Working capital facility A 1 year, £25.0 million working capital facility was arranged during the yearwith an option to extend the term for 2 years. At 31 December 2005, £nil wasdrawn down. The interest rate payable on the facility is LIBOR plus 2.0% plusmandatory costs (if any). The loan is guaranteed by Mapeley Limited. A £30.0million (2004: £30.0 million) working capital facility with respect to the HMRCportfolio is available to the Group for drawdown until 7 April 2021. At 31December 2005, £nil was drawn down (2004: £nil). The interest rate payable onthe facility is LIBOR plus 0.85% plus mandatory costs (if any). Shareholder loans Information on shareholder loans is set out in note 27. Finance leases Certain of the Group's investment properties, properties held within property,plant and equipment and properties held under short-term leases are accountedfor as finance leases. These leases have no terms of renewal or purchase optionsor escalation clauses other than periodic reviews to increase rents payable tomarket rates as required. Future minimum lease payments under finance leases together with the presentvalue of the net minimum lease payments are as follows: 2005 2005 2004 2004 Minimum PV of Minimum PV of payments payments payments payments £000 £000 £000 £000 Within one year 607 578 558 529After one year but not more than five years 2,271 1,767 1,844 1,410More than five years 29,072 3,935 16,735 2,727 --------- --------- --------- ---------Total minimum lease payments 31,950 6,280 19,137 4,666 ========= =========Less: amounts representing finance charges (25,670) (14,471) --------- ---------Present value of minimumlease payments 6,280 4,666 ========= ========= Rental payments on finance leases in excess of these minimum payments('Contingent rents') are expensed in the year in which they are incurred andamounted to £40,000 in the year ended 31 December 2005 (2004: £25,000). 19. Provisions Group Provision for onerous leases £000At 31 December 2004 - current 9,030 - non-current 29,822 ---------Total provision 38,852 New provisions in the year 12,848Utilised (9,029)Released unutilised (6,043)Unwinding of discount 1,973 --------- At 31 December 2005 - current 10,366 - non-current 28,235 ---------Total provision 38,601 ========= The onerous lease provision is made in relation to onerous leases on propertieswhich are vacant or sublet at a level which renders the properties loss-makingover the remaining life of the lease. The provision represents the Directors'estimate of the net cash flows on the properties over the shorter of the periodover which the property is expected to remain vacant and the remaining leaseterm, discounted at a rate of 5.5% (2004: 5.5%), being the yield of a highquality real estate backed bond with similar maturity to the Group's Abbey andHMRC portfolios. 20. Deferred asset management receipts Group £000 At 31 December 2004 - current 4,071 - non-current 64,016 ---------Total deferred asset management receipts 68,087 Movement in yearReceived in year 15,694Released to income statement in year (4,586) ---------At 31 December 2005 - current 5,184 - non-current 74,011 ---------Total deferred asset management receipts 79,195 ========= Asset management receipts, which represent premiums given by lessors in returnfor the Group extending its existing lease terms or removing break clauses fromexisting leases, are deferred and released as a credit to property operatingexpenses evenly over the shorter of the lease term or the period to the firstbreak, even if the payments are not made on such a basis. 21. Trade and other payables 2005 2004Non current £000 £000 Other payables 986 574Accruals 4,427 6,581 ------------- ------------- 5,413 7,155 ============= ============= 2005 2004Current £000 £000 Trade payables 6,128 2,581Other payables 3,739 2,058Net sales tax and social security 5,805 6,182Accruals and deferred income 93,092 86,989 ------------- ------------- 108,764 97,810 ============= ============= Trade payables are non-interest bearing and are generally divided into twocategories; lease obligations, which in most cases are payable one quarter inadvance; and all other trade creditors which are payable on average within 31days at 31 December 2005 (2004: 35 days). Accruals and deferred income includean amount of £33,907,000 (2004: £30,913,000) in respect of deferred income 22. Pension costs The Group operates a defined contribution pension scheme. The pension charge forthe year amounted to £199,000 (2004: £243,000). The assets of the scheme areheld separately from those of the Group in an independently administered fund.The Group does not operate any defined benefit schemes. 23. Commitments and contingencies Operating lease commitments - Group as lessee The Group leases a number of commercial properties under operating leases.Typically the leases provide for upwards-only rent reviews during the lease termand last 20 years from inception. Future minimum rentals payable undernon-cancellable operating leases as at 31 December analysed by the period inwhich they fall due are as follows: 2005 2004 £000 £000 Less than one year 162,492 166,081Between one and five years 573,916 587,833More than five years 776,559 836,820 ------------- ------------- 1,512,967 1,590,734 ============= ============= Operating lease commitments - Group as lessor The Group's portfolio of receivable operating leases comprises a block of leasespurchased in December 2000, together with another block of leases, embeddedwithin outsourcing contracts purchased in 2001, (which also provide for thesupply of other property-related services), and some subsequent additions. These leases are non-cancellable and have remaining lease terms of up to 20years. The Group's leases typically include a clause either to enable upwardrevision of the rental charge on an annual basis based on prevailing marketconditions or a fixed annual uplift of 3% or RPI and provide for the lessee topay all insurance, maintenance and repair costs. Future minimum rentals receivable under other non-cancellable operating leasesas at 31 December, analysed by the period in which they fall due are as follows: 2005 2004 £000 £000 Less than one year 135,543 99,116Between one and five years 474,152 379,287More than five years 828,179 858,346 ------------- ------------- 1,437,874 1,336,749 ============= ============= Income from operating leases embedded in the Group's outsourcing contractsentered into under the UK government's PFI scheme are not included in the abovetable. Minimum payments cannot be established with certainty under the terms ofthe contract as the contract provides for flexibility for the government torelinquish space and consequently demand and revenue are uncertain. Total future minimum sub-lease payments expected to be received undernon-cancellable sub-leases in respect of properties acquired under financeleases at 31 December 2005 were £46,328,000 (2004: £13,336,000). Where a premium was paid on properties held under operating leases, the premiumsare carried at their purchase cost and amortised on a straight-line basis overthe remaining minimum lease term within "premiums on operating leases" - seenote 12. Capital commitments 2005 2004 £000 £000 At 31 December, the Group had the following commitments:Contracted but not provided 366 600 ========== ========== On 20 December 2005, M Fascitelli was appointed a Non-executive Director of theCompany and was awarded 5,000 shares which will be issued in 2006. The Companyis also committed to issue a further 5,000 shares to each independentNon-executive Director still holding office at the conclusion of the first andsecond AGMs following their dates of appointment. 24. Financial risk management objectives and policies The Group's principal financial instruments comprise bank loans, finance leasesand cash. The main purpose of these financial instruments is to finance theGroup's property portfolio. The Group has various other financial instrumentssuch as trade receivables and trade payables, which arise directly from itsoperations. The Group has also entered into interest rate swap agreements in accordance withthe terms of the loan agreements with its principal providers of finance. Thepurpose is to manage the interest rate risks arising from the Group's sources offinance. It is, and has been throughout the year under review, the Group's policy that notrading in financial instruments shall be undertaken. The main risks arising from the Group's financial instruments are interest raterisk, liquidity risk and credit risk. The Board reviews and agrees policies formanaging each of these risks and they are summarised below. The Group's accounting policies in relation to derivatives are set out in note 2.1. The Group also monitors the market price risk arising from all financial instruments. Interest rate risk The Group's policy is to manage its interest cost using a mix of fixed andvariable rate debt. The Group's policy is to keep 100% of its long-termborrowings at fixed rates of interest except for debt raised for direct propertyinvestment, where property acquired is initially funded on a short term basisbefore being refinanced through long-term borrowing facilities. A target gearingratio of 70%-75% has been set for these long-term borrowings on direct propertyinvestments. To manage this mix in a cost-efficient manner, the Group entersinto interest rate swaps on the date an asset is purchased under which the Groupagrees to exchange, at specified intervals, the difference between fixed andvariable interest amounts calculated by reference to an agreed-upon notionalprincipal amount expected to be equivalent to the related long-term borrowingsto be used to finance the asset on its refinancing. These swaps are designatedto hedge underlying debt obligations. At 31 December 2005, after taking intoaccount the effect of interest rate swaps, substantially all of the Group'snon-current borrowings were at a fixed rate of interest. Credit risk The Group trades only with recognised, creditworthy third parties. It is theGroup's policy that all customers who wish to trade on credit terms are subjectto credit verification procedures. In addition, receivable balances aremonitored on an ongoing basis with the result that the Group's exposure to baddebt is not significant. With respect to credit risk arising from the other financial assets of theGroup, which comprise cash and cash equivalents, available-for-sale financialassets and certain derivative instruments, the Group's exposure to credit riskarises from any default of the counterparty, with a maximum exposure equal tothe carrying amount of these instruments. A significant proportion of the Group's total income is earned from the Group'stwo contracts. The contractual parties have either AAA or A+ credit ratings andno major credit risk is currently considered to exist. Liquidity risk The Group's objective is to maintain a balance between continuity of funding andflexibility through the use of its overdraft facilities. Short term flexibilityis achieved by working capital facilities totalling £55.0 million (2004: £30.0million) of which £30.0 million is available to the Group for drawdown until 7April 2021 and £25.0 million is available until 30 June 2006 with an option toextend for a further 2 years. In addition, at 31 December 2005, the Group had a £300.0 million (2004: £nil)capital expenditure facility of which £283.4 million (2004: £nil) was drawndown. In addition, the Group has drawn, long-term secured facilities totalling£803.2 million (2004: £670.0 million). 25. Financial instruments Certain of the Group's bank debt is subject to floating interest rates, themajority of which has been exchanged for fixed interest rates under interestrate exchange agreements. The Group's criteria for an interest rate swap are that the instrument must berelated to an asset or a liability and that it must change the character of theinterest rate by converting a floating rate to a fixed rate or vice versa. Interest rate swaps are revalued to fair value and shown on the Group balancesheet at the year end. The fair value for a swap is market value, estimatedusing a break cost quote from an experienced, independent broker, which isestimated by applying current yields to anticipated future cash flows. The keyassumptions used in the swap valuations are listed below: - The mid-market rate is used for the valuations; - The valuations represent the Net Present Value of the cash flows from the valuation date until expiry of the instrument at the contracted rate and at the valuation rate; and - The valuation rate is compiled from prevailing market futures rates and swap rates on the date of the valuation. Fair values Set out below is a comparison by category of carrying amounts and fair values ofall of the Group's financial instruments that are carried in the financialstatements. The fair value of financial derivatives and borrowings has beencalculated by discounting the future cash flows at prevailing market interestrates. Carrying amount Fair value 2005 2004 2005 2004 £000 £000 £000 £000 Financial assetsCash 81,156 74,844 81,156 74,844Trade & other receivables (see note 15) 39,237 60,524 48,889 69,665Amounts owed by shareholders - 29,000 - 29,000 ========= ========= ========= ========= Financial liabilitiesNon-currentTrade and other payables (see note 21) 5,413 7,155 5,413 7,155Interest rate swaps 26,561 63,623 26,561 63,623 CurrentTrade and other payables (see note 21) 74,857 66,897 74,857 66,897Interest rate swaps 1,439 29 1,439 29 ========= ========= ========= ========= Interest andnon-interest-bearingloans and borrowings Variable rate borrowingsObligations under finance leases 6,280 4,666 6,280 4,666Borrowings under the effective interest rate method 907,095 659,660 907,095 659,660Fixed rate borrowingsBorrowings under the effective interest rate method 169,839 - 169,839 -Loans & interest due from shareholders - 7,557 - 6,815 ========= ========= ========= ========= Interest rate risk The following table sets out the carrying amount, by maturity, of the Group'sfinancial instruments that are exposed to interest rate risk. At 31 December 2005Fixed rate More Effective Within 1-2 2-3 3-4 4-5 than interest 1 year years years years years 5 years Total rate £000 £000 £000 £000 £000 £000 £000 Obligations under finance leases 8.3% (91) (74) (51) (51) (51) (5,962) (6,280) Bank loans under the effective interest rate method 5.91% 79 90 95 101 106 (170,310) (169,839) Floating rate More Effective Within 1-2 2-3 3-4 4-5 than interest 1 year years years years years 5 years Total rate £000 £000 £000 £000 £000 £000 £000 Cash assets 4.4% 81,156 - - - - - 81,156Bank loans under the effective interest rate method 6.0% (284,775) (1,643) (1,762) (1,896) (2,037) (614,982) (907,095) At 31 December 2004Fixed rate More Effective Within 1-2 2-3 3-4 4-5 than interest 1 year years years years years 5 years Total rate £000 £000 £000 £000 £000 £000 £000 Obligations under finance leases 9.0% (153) (63) (67) (69) (75) (4,239) (4,666)Loans from shareholders - - (6,100) - - - - (6,100) Floating rate More Effective Within 1-2 2-3 3-4 4-5 than interest 1 year years years years years 5 years Total rate £000 £000 £000 £000 £000 £000 £000 Cash assets 4.7% 74,844 - - - - - 74,844Bank loans under the effective interest rate method 5.8% (934) (26,732) (1,615) (1,765) (1,925) (626,689) (659,660) Loans fromshareholders 7.0% (1,000) - - - - - (1,000) Interest on financial instruments, classified as floating rate, is re-priced atintervals of less than one year. Interest on financial instruments classifiedas fixed rate is fixed until the maturity of the instrument. The otherfinancial instruments of the Group not included in the above tables arenon-interest bearing and are therefore not subject to interest rate risk. Credit risk In the year ended 31 December 2005, 86% of the Groups total turnover was derivedfrom contractual payments made to the Group by HMRC, rated AAA (by Standard &Poor's) and Abbey, rated A+ (by Standard & Poor's). Except for these contracts,there are no significant concentrations of credit risk within the Group. Hedging activities Cash flow hedges At 31 December 2005, the Group held three interest-rate swap contracts whichhave been designated as hedges of floating rate loans with the purpose ofreducing the exposure to interest rate risk. The terms of these contracts are asfollows: Trade date Fixed rate Hedged amount Swap start Swap end £000 date date 7 March 2001 5.650% 182,456 03/03/01 30/03/2120 April 2001 5.864% 1,132 07/10/02 30/03/2129 June 2005 4.500% 92,359 30/06/05 20/07/1329 June 2005 4.500% 2,641 30/06/05 20/07/1329 June 2005 4.500% 349,991 30/06/05 20/01/2129 June 2005 4.500% 10,009 30/06/05 20/01/21 Other derivatives The Group also holds the following interest rate swap contracts. Under IFRS,these swaps cannot be designated as hedges for accounting purposes as thearrangements will not meet the hedge effectiveness criteria set out in IAS 39until such time as the Group's short term borrowings are refinanced. Trade date Fixed rate Notional amount Swap start Swap end £000 date date 01/09/2005 4.463% 3,031 01/09/2005 20/10/201522/08/2005 4.573% 2,731 20/10/2005 20/10/201522/09/2005 4.493% 69,300 20/10/2005 20/10/201506/10/2005 4.567% 2,495 20/10/2005 20/10/201506/10/2005 4.567% 2,606 20/10/2005 20/10/201517/10/2005 4.725% 12,110 20/10/2005 20/10/201531/10/2005 4.685% 3,168 20/01/2006 20/10/201524/11/2005 4.559% 2,584 30/11/2005 20/10/201502/12/2005 4.574% 71,575 02/12/2005 20/10/201522/12/2005 4.570% 10,325 22/12/2005 20/10/201523/12/2005 4.570% 8,960 23/12/2005 20/10/2015 26. Main subsidiaries The main subsidiaries of the Group are as follows: Principal Country of activity incorporation Holding % Intermediate Mapeley UK Co. Limited holding company Bermuda 100% Management & United Mapeley Estates Limited services company Kingdom 100% Mapeley STEPS Holdings Limited Holding company Bermuda 100% Mapeley STEPS Property and United Contractor Limited services company Kingdom 100% Mapeley STEPS Limited Property company Bermuda 100% Mapeley Columbus Holdings Limited Holding company Bermuda 100% Mapeley Columbus Limited Property investment Bermuda 100% Mapeley Columbus II United Limited Property management Kingdom 100% Mapeley Acquisition Holding Company Holding company Bermuda 100% Mapeley BETA Acquisition Holding Company Holding company Bermuda 100% Mapeley Acquisition Company (Hercules) Limited Property investment Bermuda 100% Mapeley Acquisition Company (2) Limited Property investment Bermuda 100% Mapeley Acquisition Company (3) Limited Property investment Bermuda 100% Mapeley Acquisition Company (4) Limited Property investment Bermuda 100% Mapeley Acquisition Company (5) Limited Property investment Bermuda 100% Mapeley Acquisition Company (6) Limited Property investment Bermuda 100% Mapeley Acquisition Company (7) Limited Property investment Bermuda 100% Mapeley BETA Acquisition Company (1) Limited Property investment Bermuda 100% Mapeley BETA Acquisition Company (2) Limited Property investment Bermuda 100% Mapeley BETA Acquisition Company (3) Limited Property investment Bermuda 100% Mapeley BETA Acquisition Company (4) Limited Property investment Bermuda 100% Mapeley BETA Acquisition Company (5) Limited Property investment Bermuda 100% Mapeley BETA Acquisition Company (6) Limited Property investment Bermuda 100% Churchbay Trust Trust Bermuda 100% 27. Related party disclosures Identity of related parties Transactions between the parent company and its subsidiaries are eliminated inthese consolidated financial statements. A list of the main subsidiaries isprovided in note 26. Transactions with shareholders and Directors are shown separately below. Parent and control The Directors regard Fortress Investment Trust II and Fortress RegisteredInvestment Trust, both registered in the USA, as the company's ultimatecontrolling parties. Compensation of key management personnel Emoluments for key UK management employed by a subsidiary, Mapeley EstatesLimited, are set out below: 2005 2004 £000 £000 Short-term employee benefits 822 1,328Post-employment benefits 42 52Termination benefits - 421Share-based payment 337 - ------------- ------------- 1,201 1,801 ============= ============= Directors Compensation Emoluments for Directors of the Group are set out below: 2005 2004 £000 £000 Short-term employee benefits 466 402Post-employment benefits 18 18Share-based payment 1,075 - ------------- ------------- 1,559 420 ============= ============= Group reorganisation During the year and prior to its acquisition by Mapeley Limited, MUKCO, sold theshares of three subsidiaries, Mapeley Milton Keynes Limited, Willen Lake Limitedand Mapeley Services Limited to Mapeley Holding Company Limited, a companyoutside the Group owned by Fortress Investment Group LLC and the former parentof MUKCO. The shares were sold at book value. However, the amounts have beensubsequently written off as they are considered irrecoverable by the Company'sDirectors. As a consequence, £599,000 has been charged to the current year'sincome statement to write of amounts owing from Mapeley Milton Keynes Limited.This is offset by a credit to the current year's income statement for £129,000written off owing to Willen Lake Limited. Amounts owed by shareholders The Group has entered into an agreement to provide property management servicesin respect of 135 property interests owned by Pinnacle Towers Limited, a companywholly-owned by Fortress Acquisition Group. In return for the provision of theseservices, the Group receives £100,000 per annum evenly spread across the yearand receivable one month in arrears. During 2005, £94,000 had been received andat 31 December 2005, £6,000 was outstanding. The Group previously provided property management and consultancy services inrespect of 36 property interests owned by BC Services (UK) Limited and BCAcquisition (UK) Limited, companies wholly-owned by Fortress Acquisition GroupLLC. This agreement was terminated during the year ended 31 December 2005.During 2005, £13,000 had been received and with £nil outstanding at 31 December2005. Amounts were receivable one month in arrears. Balances owed to shareholders During the year £29.0 million of contributed surplus was repaid to shareholdersand at the time of the Group's reorganisation a capital contribution of £29.0million was called upon and received from the shareholders during the year. Thecapital contribution was irrevocable offer to contribute capital on demand madeby the shareholders of MUKCO in 2002. The capital contribution was payable within twelve working days once demanded by MUKCO. 2005 2004 £000 £000 Fortress UK Acquisition Company LLC - 3,017FIT Mapeley Holdings Limited - 4,083Interest due to shareholders - 457 ------------- ------------- - 7,557 ============= ============= As part of the Group restructuring, accrued interest charges on shareholderloans of £0.2 million were transferred to Mapeley Holding Company Limited. Shareholder loans from FIT Mapeley Holding Limited and Fortress UK AcquisitionCompany Limited with a total book value of £8.1 million, of which £0.7millionwas received in 2005 and £0.3 million related to accrued interest, wereconverted into 654,998 ordinary shares on 1 June 2005. Both these entities havesignificant influence over the Group at 31 December 2005 and owned a combined70.5% of the ordinary shares in Mapeley Limited (2004: 98.9%). Interest on the shareholder loans was paid quarterly at a rate of LIBOR plus 2%for the first year and converted to non-interest bearing for the remaining 2years of the term. Shares to Non-executive Directors The Company issued 5,000 shares each to J W Harris, R W Carey and C N KParkinson in their capacity as Non-executive Directors of the Company for £nilconsideration. The market value of the shares at the time of issue was £23.00per share. The Company also awarded 5,000 shares to M Fascitelli who wasappointed as a Non-executive Director on 20 December 2005. The Company intendsto issue these shares to M Fascitelli during 2006. During the year, £805,000 hasbeen charged to the income statement relating to share benefits expense for theNon-executive Directors. 28. Subsequent events Since 31 December 2005, the Group has exchanged and completed contracts toacquire three properties for consideration of £17.0 million. These propertiesare to be funded by the Group's cash resources, the investment facility and theRevolving gamma facility, a new facility arranged since 31 December 2005, details of which are set out below. The Group is currently in negotiations to refinance the loan facility enteredinto by Mapeley STEPS Limited and Mapeley STEPS Contractor Limited. If thesenegotiations are successfully concluded, it is currently anticipated that thiswill involve the repayment of the current 20 year, £178.0 million loan andreplacing it with a 7 year, £200.0 million term facility. It is also currentlyanticipated that the Group would enter fixed interest rate agreements at thestart of the loan to fix the interest payable and that it would be required towrite off unamortised loan finance costs on the borrowings. If the transactionhad occurred on 31 December 2005, the loan finance costs to be written off andthe swap breakage costs would have been £4.3 million and £20.8 million,respectively. Dividend declared The Board of the Company declared a dividend of £8.3 million (31 December 2004:£nil) representing £0.37 per share based on the number of shares in issue on 11January 2006, at a board meeting held on 5 January 2006. Secondary issue of shares On 27 January 2006, the Company issued a further 4,036,697 ordinary shares at anoffer price of £27.25 per share and raised proceeds of £106.5 million net ofissue costs. The proceeds were used to repay a portion of the revolvingacquisition facility which will result in a reduction in interest costs and willalso allow the Group to draw funds under the revolving acquisition facility forfuture acquisitions. UK Passport Service Mapeley has recently signed a contract for a term of between 3 and 5 years withthe UK Passport Service ("UKPS"), an executive agency of the Home Office. Thepurpose of the contract is to acquire, fit out and deliver servicedaccommodation for 69 interview offices throughout the UK. Mapeley will acquireand fit out the approximately 17,500 sqm of office space during 2006 in a phasedroll-out programme. Thereafter, Mapeley will provide property management andfacilities management services to the network of offices, which will be used bythe UKPS to interview first-time passport applicants and to perform biometrictesting as part of their continuing efforts to crack down on identity fraud. Revolving acquisition facility In January 2006, the Group revised the terms and converted the revolvingacquisition facility into a 10 year, £208.6 million, 4.55% fixed rate facility.The rate of interest payable reflects the cost of the underlying swap agreementsin place which were terminated at no cost to the Group on the same date. Revolving gamma facility In January 2006, the Group also arranged the 2 year, £300.0 million revolvinggamma facility to finance the future acquisition of investment property. Theinterest rate payable on the facility is LIBOR plus 1.5 % plus mandatory costs(if any). The Group has also put in place a 10 year, 4.3725% £200.0 million swapto fix its anticipated long-term exposure to interest rate risk on theseproperty acquisitions. Facility management contract Mapeley has awarded a contract to Alfred McAlpine Business Services ("AMBS"), asubsidiary of Alfred McAlpine Plc, to deliver Facilities Management ("FM")services required under the HMRC contract. The contract was awarded to AMBS on 3February 2006 and it will run until Spring 2021. Since the inception of the HMRCcontract in April 2001, FM services have been provided by three sub-contractors.AMBS will initially provide Mapeley with management services and over the firsttwo years of the contract will expand their delivery to include a totalfacilities management service across the HMRC estate, including health andsafety compliance. During this period, there will be a managed handover of FMservices between the current sub-contractors and AMBS. 29. Earnings before interest, tax, depreciation and amortisation Earnings before interest, tax, depreciation and amortisation or "EBITDA" isdefined by the Group as profit before tax, finance costs, depreciation andamortisation, valuation surplus / deficit on investment property, gain on disposal of subsidiaries and impairment / impairment reversal of non-investment property. EBITDA for the year is computed as follows: 2005 2004 £000 £000 (Loss) / profit before tax (56,475) 43,294Add back: Net finance cost 125,913 45,897 Depreciation and amortisation 13,420 14,712 Net valuation surplus on investment properties (18,037) (48,072) Impairment of non-investment properties 589 - Reversal of impairment of non- investment properties - (4,645) Gain on disposal of subsidiaries (599) - ------------- ------------EBITDA 64,811 51,186 ============= ============ 30. Funds from operations Funds from operations or "FFO" is a management measure used to demonstrate theunderlying operating performance of real estate businesses such as the Company.It provides investors with information regarding the Group's ability to servicedebt and make capital expenditure. FFO does not represent cash generated fromoperating activities in accordance with IFRS, therefore it should not beconsidered an alternative to cash flow as a measure of liquidity, and is notnecessarily indicative of cash funds available. This calculation of FFO may bedifferent from the calculation used by other companies and, therefore,comparability may be limited. The Group defines "FFO" as Group "EBITDA" less "net finance costs" less the"movement in the onerous lease provision" less the "movement in work inprogress" plus the movement in "net asset management receipts" plus the chargein respect of "employee shares". More detailed definitions of these adjustmentsto EBITDA are given below: "Net finance costs" comprise finance costs less finance income as set out in theGroup income statement, adjusted to exclude amortisation of loan finance fees,gains or losses on interest rate swaps, loan termination costs and the unwindingof discounts on provisions. The "Movement in the onerous lease provision" - This is the net release (orcharge) to the Group income statement as a result of the change in the Grouponerous lease provisions, excluding interest charged on the unwinding of theprovision. Although these amounts offset rental costs in the income statement,they do not represent cash movements and are therefore excluded from thecomputation of FFO. The "Movement in work in progress"- This is the year on year change in Groupwork in progress or if negative, accrued cost. The amount represents theincrease or decrease in lifecycle costs deferred by the Group so as to matchcosts with revenue. "Net asset management receipts" - These are the total cash receipts in the yearless amounts amortised in the financial period. The accounting treatment ofasset management receipts is set out in the accounting policies. "Employee shares" - Under IFRS 2, costs are charged to the Group incomestatement when share based payments are made. This is a non cash expense and istherefore excluded from the measure. 2005 2004 £000 £000 EBITDA 64,811 51,186Net finance costs (47,795) (41,092)Movement in the onerous lease provision (2,227) (5,830)Movement in work in progress (2,146) (15,541)Asset management receipts 11,108 21,748Share benefit expense 1,704 - ------------- ------------FFO 25,455 10,471 ------------- ------------ FFO per share 130 pence 69 pence ------------- ------------ The calculation of FFO per share is based on the following:- FFO for the year of £25.5 million (2004: £10.5 million)- Weighted average number of ordinary shares of 19,510,770 (2004: 15,100,000) The weighted average number of ordinary shares for the year ended 31 December2004 has been restated to reflect the share for share exchange that took placeon 2 June 2005, in which existing shareholders were offered 100 ordinary sharesin the Company for each share held in MUKCO. The effect of this was to reduceFFO per share from £69.33 per share to £0.69 per share. 31. Gearing ratio Gearing is defined as Group net debt (total debt less cash and short-termdeposits) as a proportion of total consolidated equity attributable to theequity holders of the parent. "Total debt" is defined as actual current andnon-current loan balances together with any overdrafts owed to lenders andexcludes any unamortised finance costs or adjustments to apply the effectiveinterest rate method. Equity is as set out in the consolidated balance sheet.Gearing is computed as follows: 2005 2004 £000 £000 "Total debt" 1,086,613 669,958Less: Cash and short-term deposits (81,156) (74,844) ------------- ------------Net debt 1,005,457 595,114Equity 456,954 354,188 ============= ============ Gearing ratio 220% 168% ============= ============ 32. Net assets per share 2005 2004Basic net assets per share £20.34 £23.00 ------------- ------------Diluted net assets pershare £20.34 £23.00 ------------- ------------ The calculation of basic and diluted net asset value per share figures is basedon the following: - Consolidated net assets (equity) attributable to the equity holders of the Company as at 31 December 2005 of £457.0 million (as at 31 December 2004: net assets of £354.2 million) - Number of ordinary shares for basic net asset value per share 22,463,687 (2004: 15,382,100) - Number of ordinary shares for diluted net asset value per share 22,480,166 (2004: 15,382,100) The number of ordinary shares at 31 December 2004 has been restated to reflectthe share for share exchange that took place on 2 June 2005, in which existingshareholders were offered 100 ordinary shares in the Company for each share heldin MUKCO. 33. Company balance sheet The balance sheet below has been extracted from the Company's financialstatements for the period ended 31 December 2005. These statements have receivedan unqualified audit opinion from the Company's auditors. Basis of preparation The Company has prepared its balance sheet in accordance with IFRS and theCompanies (Guernsey) Law 1994 as set out in note 2.1 of these Group financialstatements. Summary of significant accounting policies The Company has applied the accounting policies set out in note 2.2 of theseGroup financial statements and additionally has applied the following policy inrespect of its investment in subsidiaries. On initial recognition, an investment in subsidiaries is measured at fair value,recognised within share premium. Where consideration is paid by way of shares,the excess of fair value over nominal value of those shares is recorded in sharepremium. Investment in subsidiaries is reviewed for impairment at each balancesheet date with any impairment charged in the income statement. Impairment isreported in the Income statement. 2005 £000 ASSETSNon-current assetsInvestments 516,698 -------------Total non-current assets 516,698 -------------Current assetsTrade and other receivables 5,325 -------------Cash and short-term deposits - for operational purposes 9,716 -------------Total current assets 15,041 ------------- TOTAL ASSETS 531,739 ============= EQUITY AND LIABILITIESEquity attributable to equity holders of Mapeley LimitedIssued capital -Share premium 522,096Retained earnings 7,874Other reserves 1,704 -------------Total equity 531,674 ------------- Current liabilitiesTrade and other payables 65 -------------Total liabilities 65 ------------- TOTAL EQUITY AND LIABILITIES 531,739 ============= 34. Quarterly results Quarterly information for the consolidated income statement and consolidatedbalance sheet are set out on the following page. Information for the quarterended 31 March 2005, 30 June 2005 and 30 September 2005 have been extracted fromthe Group's interim financial statements. These amounts are unadjusted, exceptas noted below. The balance sheet and income statement for the quarter ended 31 March 2005 has not changed from that published in the listing particulars on the Group's admission to the Official List of the London Stock Exchange on 21 June 2005, except within the equity section of the balance sheet in which share capital, contributed surplus and capital contribution have been reclassified as other reserves, in accordance with the merger method of accounting adopted by the Group as set out in note 1, and in the presentation of provisions, trade and other receivables, trade and other payables and financial instruments, now analysed between current and non-current liabilities at 31 December 2005. The reclassifications have no impact on total equity or reserves. The IFRS 2 charge regarding Non-executive directors' shares was recognised in the fourth quarter of 2005 and no charge was made in the second and third quarters. Consolidated income statement Quarter Quarter Quarter Quarter ended ended ended ended 31 December 30 September 30 June 31 March 2005 2005 2005 2005 Unaudited Unaudited Unaudited Unaudited £000 £000 £000 £000 Revenue 94,191 84,248 81,872 79,091Property operating expenses (74,958) (67,033) (64,291) (62,021) ------------ ------------ ------------ ------------ Net contract, rental & related income 19,233 17,215 17,581 17,070 Net valuation surplus / (deficit) on investment property 18,891 4,199 (2,007) (3,046)Impairment of non-investment property (599) 80 (70) -Gain on disposal of subsidiaries 599 - - -Administrative and other expenses (6,143) (4,297) (5,513) (3,755) ------------ ------------ ------------ ------------ Operating profit 31,981 17,197 9,991 10,269 Finance costs (18,374) (12,485) (82,146) (16,713)Finance income 706 803 1,210 1,086 ------------ ------------ ------------ ------------ Profit / (loss) before tax 14,313 5,515 (70,945) (5,358) Income tax expense - Guernsey - - - - - UK - - - - - Overseas - - - - ============ ============ ============ ============Profit / (loss) for the period attributable to shareholders 14,313 5,515 (70,945) (5,358) ============ ============ ============ ============ Dividends - paid 7,414 748 4,275 4,615 - proposed 8,312 7,414 748 - ============ ============ ============ ============ £/share £/share £/share £/share restatedEarnings / (loss) per share - basic 0.64 0.25 (3.41) (0.35) - diluted 0.64 0.25 (3.41) (0.35) ============ ============ ============ ============ Consolidated balance sheet 31 Dec 2005 30 Sept 2005 30 June 2005 31 March 2005 Unaudited Unaudited Unaudited UnauditedASSETS £000 £000 £000 £000Non-current assetsProperty, plant and equipment 527,945 524,199 514,131 512,224Investment property 1,077,429 845,133 752,018 666,775Premiums on operating leases 38,432 39,261 40,174 41,122Trade and other receivables 6,405 6,906 6,774 6,537 ------------ ------------ ------------ ------------Total non-current assets 1,650,211 1,415,499 1,313,097 1,226,658 ------------ ------------ ------------ ------------Current assetsInventories 18,509 21,833 19,680 18,617Trade and other receivables 48,889 58,296 51,664 104,443Cash and short-term deposits - in controlled accounts 25,704 18,795 19,817 67,628 - for operational purposes 55,452 55,439 51,606 9,895 ------------ ------------ ------------ ------------Total current assets 148,554 154,363 142,767 200,583 ------------ ------------ ------------ ------------ Non-current assets held for sale 1,376 - - - ------------ ------------ ------------ ------------TOTAL ASSETS 1,800,141 1,569,862 1,455,864 1,427,241 ============ ============ ============ ============ EQUITY AND LIABILITIESEquity attributable to equity holders of Mapeley LimitedIssued capital - - - -Share premium 132,389 132,389 133,142 -Net unrealised losses (26,561) (21,508) (27,460) (55,979)Retained earnings (69,094) (76,758) (83,488) (5,757)Asset revaluation reserve 318,622 311,711 301,422 299,082Other reserves 101,598 100,710 100,310 120,808 ------------ ------------ ------------ ------------Total equity 456,954 446,544 423,926 358,154 ------------ ------------ ------------ ------------Non-current liabilitiesTrade and other payables 5,413 5,360 5,230 4,864Interest and non-interest bearing loans and borrowings 797,792 872,328 785,223 793,331Provisions 28,235 29,582 27,440 27,805Deferred asset management receipts 74,011 71,165 68,847 65,477Current liabilitiesTrade and other payables 108,764 107,670 101,767 103,784Interest and non-interest bearing loans and borrowings 285,422 2,128 2,128 3,138Provisions 10,366 8,674 9,300 9,328Financial instruments 28,000 21,509 27,460 57,114Deferred asset management receipts 5,184 4,902 4,543 4,246 ------------ ------------ ------------ ------------Total liabilities 1,343,187 1,123,318 1,031,938 1,069,087 ------------ ------------ ------------ ------------ TOTAL EQUITY AND LIABILITIES 1,800,141 1,569,862 1,455,864 1,427,241 ============ ============ ============ ============ 35. Explanation of transition to IFRS The 2004 consolidated financial statements of MUKCO, prepared under UK GAAP,have been restated under IFRS. These special purpose consolidated IFRS FinancialStatements were reported in 2005 and form the basis for the comparativeinformation set out in these financial statements. Following the Groupreorganisation on 3 June 2005, the special purpose consolidated IFRS FinancialStatements have been updated to reflect the merger method of accounting adoptedby the Company to account for the group reorganisation. A reconciliation of the UK GAAP consolidated balance sheets at 1 January 2004and 31 December 2004 for the Group, together with the income statement for 2004,is shown below, together with a separate note of the effects of applying themerger method of accounting for the group reorganisation. Group Balance Sheet as at 1 January 2004 Effect of UK transition Notes GAAP to IFRS IFRSASSETS £000 £000 £000Non-current assetsProperty, plant and equipment a 527,650 (37,166) 490,484Investment property a 477,280 668 477,948Premiums on operating leases a 23,633 22,922 46,555 ---------- ---------- ----------Total non-current assets 1,028,563 (13,576) 1,014,987 ---------- ---------- ----------Current assetsInventories 2,693 - 2,693Trade and other receivables 83,544 - 83,544Cash and short-term deposits - in controlled accounts 53,239 - 53,239 - for operational purposes 14,084 - 14,084 ---------- ---------- ----------Total current assets 153,560 - 153,560 ---------- ---------- ---------- TOTAL ASSETS 1,182,123 (13,576) 1,168,547 ========== ========== ========== EQUITY AND LIABILITIESEquity attributable to equity holders of the parentIssued capital - - -Other reserves g 119,437 - 119,437Net unrealised losses b - (56,023) (56,023)Retained earnings a,c,d,e,f (76,541) 25,591 (50,950)Asset revaluation reserve - Property, plant & equipment a,d,e 287,777 (10,530) 277,247 - Investment property c 61,460 (61,460) - ---------- ---------- ----------Total equity 392,133 (102,422) 289,711 ---------- ---------- ---------- Non-current liabilitiesInterest and non-interest-bearing loans and borrowings a 637,908 4,666 642,574 Provisions 40,580 - 40,580Deferred asset management receipts f 17,389 26,376 43,765 Current liabilitiesTrade and other payables 87,197 - 87,197Deferred asset management receipts f 955 1,622 2,577Interest and non-interest-bearing loans and borrowings a 5,961 159 6,120Financial instruments b - 56,023 56,023 ---------- ---------- ----------Total liabilities 789,990 88,846 878,836 ---------- ---------- ---------- Total equity and liabilities 1,182,123 (13,576) 1,168,547 ========== ========== ========== Notes to the reconciliation of equity at 1 January 2004: a) Certain leases which were previously classified as 'operating' are classified as 'finance' under IFRS, increasing Finance lease obligations by £4,825,000, Property, plant and equipment by £3,868,000 and Investment property by £668,000 and reducing Retained earnings by £289,000. Certain other leases previously classified as Property, plant and equipment do not classify as finance leases under IFRS and are stated at cost less accumulated depreciation in Premiums for operating leases. The effect of this reclassification is to reduce Property, plant and equipment by £41,034,000, increase Premium for operating leases by £22,922,000, reduce Revaluation reserve by £18,197,000 and increase Retained earnings by £85,000. b) Interest rate swaps which form part of a previously unrecognised cash flow hedge are now held at fair value. The associated losses of £56,023,000 are accumulated in the Net unrealised gains reserve and increase Current liabilities. c) Gains on Investment property valuations of £61,460,000 are reported through the income statement under IFRS. The associated increase in the Revaluation reserve is now reported under Retained earnings. d) A new depreciation policy has been adopted in respect of Property, plant and equipment following IFRS guidance. Land and buildings are now treated as separate components of property value and buildings have been reclassified, shortening the useful economic lives of some buildings. Properties are carried at valuation, so the impact is to reduce Retained earnings and increase the Revaluation reserve by £2,085,000. e) Individual properties valued below depreciated historical cost are written down through the income statement under IFRS. Under UK GAAP, they were written down through the Revaluation reserve on the basis that the reduction in value was expected to be temporary. Retained earnings are reduced and the Revaluation reserve increased, by £5,582,000. f) Receipts from landlords relating to lease renegotiations were reported under UK GAAP over the period from conclusion of negotiations to the point at which rent was expected to be next adjusted to market rates. Under IFRS, these receipts must be deferred and spread over the shorter of the term of the leases or the period to the first break. A balance of £27,998,000 of Deferred asset management receipts remains at 1 January 2004, of which £1,622,000 is current. Retained earnings were reduced by corresponding amounts. g) Following the Group reorganisation on 3 June 2005, the opening UK GAAP consolidated balance sheet at 1 January 2004 has been updated to reflect the merger method of accounting adopted by the Mapeley Limited Group to account for the Group reorganisation. This has resulted in reclassifying issued capital of £20,000, contributed surplus of £90,417,000 and capital contribution of £29,000,000 to other reserves. Group balance sheet at 31 December 2004 Effect of UK transition Notes GAAP to IFRS IFRSASSETS £000 £000 £000 Non-current assetsProperty, plant and equipment a 548,284 (35,361) 512,923Investment property a 548,671 653 549,324Premiums on operating leases a 20,463 21,928 42,391 ---------- ---------- ----------Total non-current assets 1,117,418 (12,780) 1,104,638 ---------- ---------- ----------Current assetsInventories 17,273 - 17,273Trade and other receivables 104,872 - 104,872Cash and short-term deposits - in controlled accounts 57,438 - 57,438 - for operational purposes 17,406 - 17,406 ---------- ---------- ----------Total current assets 196,989 - 196,989 ---------- ---------- ---------- TOTAL ASSETS 1,314,407 (12,780) 1,301,627 ========== ========== ========== EQUITY AND LIABILITIESEquity attributable to equity holders of the parentIssued capital - - -Other reserves g 120,808 - 120,808Net unrealised losses b - (63,623) (63,623)Retained earnings a,c,d,e,f,g (56,584) 54,673 (1,911)Asset revaluation reserve - Property, plant & equipment a,d,e 312,192 (13,278) 298,914 - Investment property c 109,487 (109,487) - ---------- ---------- ----------Total equity 485,903 (131,715) 354,188 ---------- ---------- ---------- Non-current liabilitiesInterest and non-interest-bearing loans and borrowings a 663,919 4,492 668,411Provisions 38,852 - 38,852 Deferred asset management receipts g 16,512 47,504 64,016Financial instruments b,f - 63,623 63,623 Current liabilitiesTrade and other payables 104,965 - 104,965Deferred asset management receipts g 958 3,113 4,071Interest and non-interest-bearing loans and borrowings a 3,298 174 3,472Financial instruments b,f - 29 29 ---------- ---------- ----------Total liabilities 828,504 118,935 947,439 ---------- ---------- ---------- TOTAL EQUITY ANDLIABILITIES 1,314,407 (12,780) 1,301,627 ========== ========== ========== Notes to the reconciliation of equity at 31 December 2004: a) Certain leases which were previously classified as 'operating' are classified as 'finance' under IFRS, increasing Finance lease obligations by £4,666,000, Property, plant and equipment by £3,645,000 and Investment property by £653,000 and reducing Retained earnings by £368,000. Certain other leases classified as Property, plant and equipment do not classify as finance leases under IFRS and are stated at cost less accumulated depreciation in Premiums on operating leases. The effect of this reclassification is to reduce Property, plant and equipment by £39,006,000, increase Premiums on operating leases by £21,928,000, reduce the Revaluation reserve by £16,956,000 and Retained earnings by £122,000. b) Interest rate swaps which form part of a previously unrecognised cash flow hedge are now held at fair value. The associated losses of £63,623,000 are accumulated in the Net unrealised gains reserve and increase Current liabilities. c) Cumulative unrealised gains on Investment property valuations of £109,487,000 are reported through the income statement under IFRS. The associated increase in Revaluation reserve is now reported under Retained earnings. Under UK GAAP, £60,000 was transferred from Investment property revaluation reserve to the profit and loss reserve in 2004 following disposal of a property in that year. d) A new depreciation policy has been adopted in respect of Property, plant and equipment following IFRS guidance. Land and buildings are now treated as separate components of property value, and buildings have been reclassified shortening the useful economic lives of some buildings. Properties are carried at valuation, so the impact is to reduce Retained earnings and increase the Revaluation reserve by £2,741,000. e) Individual properties valued below depreciated historical cost are written down through the income statement under IFRS. Under UK GAAP, they were written down through the Revaluation reserve on the basis that the reduction in value was expected to be temporary. Retained earnings are reduced and the Revaluation reserve increased by £937,000. f) An interest rate swap not classified as a hedge and also previously unrecognised, is now held at fair value. The loss on the swap of £29,000 is reported as a current liability under IFRS and reduces Retained earnings by £29,000. g) Receipts from landlords relating to lease renegotiations were reported under UK GAAP over the period from conclusion of negotiations to the point at which rent was expected to be next adjusted to market rates. Under IFRS, these receipts must be deferred and spread over the term of the lease or the period to the first break. A balance of £50,617,000 of Deferred asset management receipts remains at 31 December 2004 of which £3,113,000 is current. Retained earnings were reduced by corresponding amounts. h) Following the Group reorganisation on 3 June 2005, the UK GAAP Group balance sheet at 31 December 2004 has been updated to reflect the merger method of accounting adopted by the Mapeley Limited group to account for the Group reorganisation. This has resulted in reclassifying issued capital of £20,000, contributed surplus of £91,788,000 and capital contribution of £29,000,000 to other reserves. Group income statement for the year ended 31 December 2004 Effect of UK transition Notes GAAP to IFRS IFRS £000 £000 £000Gross contract and rental income 310,143 - 310,143Property trading (and other income) 3,950 - 3,950 ---------- ---------- ----------Total revenue 314,093 - 314,093Property operating expenses c,e,f (235,973) (24,249) (260,222) ---------- ---------- ----------Net contract, rental & related income 78,120 (24,249) 53,871Reversal of impairment of non-investment property d - 4,645 4,645 Net valuation surplus on investment property a,c - 48,072 48,072Profit on disposal of investment property 204 - 204Administrative & other expenses (17,601) - (17,601) ---------- ---------- ----------Profit before tax and finance costs 60,723 28,468 89,191Finance costs b,c (48,965) (428) (49,393)Finance income 3,496 - 3,496 ---------- ---------- ----------Profit before tax 15,254 28,040 43,294Income tax expense - - - ---------- ---------- ----------Profit for the year 15,254 28,040 43,294 ========== ========== ========== Earnings per share £/share £/share £/share - basic for profit for the year 1.0 1.9 2.9 - diluted for profit for the year 1.0 1.8 2.8 ========== ========== ========== Notes to the reconciliation of the income statement for the year ended 31December 2004: a) Under UK GAAP, gains on investment property valuations are credited directly to the investment property revaluation reserve. Under IFRS, net gains on investment property valuations of £48,087,000 are reported through Net valuation surplus on investment property in the income statement. b) An interest rate swap, previously unrecognised, is now held at fair value. The loss, £29,000, is reported in the income statement under Finance costs. The swap was taken for a ten-year period against a two-year loan, because the Group planned to replace that loan with a ten-year loan. This swap is not permitted to be classified as a hedge under IFRS. c) Certain leases which were previously classified as 'operating' are classified as 'finance' under IFRS, reducing Property operating expenses by £335,000 and Net valuation surplus on investment property by £15,000, and increasing Finance costs by £399,000. d) Under UK GAAP, the increase in the value of properties, which had previously been valued below historical cost, was credited to the Revaluation reserve. Under IFRS, this increase in valuation of £4,645,000 was shown in the income statement in Reversal of impairment of non-investment property. e) A new depreciation policy has been adopted following IFRS guidance. Land and buildings are now treated as separate components of property value and buildings have been reclassified, shortening the useful economic lives of some buildings. Depreciation, recorded within Property operating expenses in the income statement, has increased by £1,965,000. f) Receipts from landlords relating to lease renegotiations were reported under UK GAAP over the period from conclusion of negotiations to the point at which rent was expected to be next adjusted to market rates. Under IFRS, these are required to be deferred and spread over the term of the leases. An additional £24,944,000 was deferred in the year, and £2,325,000 of deferral from previous years was utilised with a net increase in Property operating costs of £22,619,000. The merger method of accounting adopted by Mapeley Limited has had no effect onthe consolidated income statement as originally reported in the special purposeconsolidated IFRS Financial Statements. Reconciliation of the UK GAAP cash flow statement for the year ended 31 December2004 The increase in cash and short-term deposits under IFRS is the same as theincrease in cash in the UK GAAP cash flow statement. The cash flow statement isprepared using the indirect method. The changes in the income statementdescribed above are therefore reflected in the cash flow statement and with oneexception (described below) reversed in the adjustments for non-cash items orworking capital. The only change to cash generated from operations relates to reclassified leases(note c above) where rental payments totalling £558,000 under UK GAAP becomepayments of interest of £399,000 (still part of net cash from operations) andrepayments of principal of £159,000 (reported within net cash from financing). The merger method of accounting adopted by Mapeley Limited has had no effect onthe consolidated cash flow statement as originally reported in the specialpurpose consolidated IFRS Financial Statements. END This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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