13th Feb 2006 07:01
Workspace Group PLC13 February 2006 WORKSPACE DELIVERS FURTHER STRONG VALUE GROWTH Workspace Group PLC ("Workspace"), the leading provider of flexible businessaccommodation to small and medium sized enterprises ("SMEs") in London and theSouth East today announces its financial results for the third quarter and ninemonths to 31 December 2005. Highlights: • Net Asset Value (NAV) per share at 31 December 2005 £2.10, up 18.6% over the nine months and up 22.8% over twelve months (31 March 2005: £1.77; 31 December 2004 £1.71).• NAV per share (under former UKGAAP) at 31 December 2005 £2.71, up 21.0% over the nine months and up 35.5% over twelve months (31 March 2005: £2.24; 31 December 2004: £2.00).• Valuation surplus for nine month period, £74.1m (2004: £55.4m).• Pre-tax profits £83.6m (2004: £66.3m).• Pre-tax profits on trading operations £10.7m (2004: £10.8m).• Basic earnings per share 35.8p (2004: 29.0p).• Acquisitions of £95.7m and disposals of £47.6m either under contract or completed over nine months.• Contracts exchanged for redevelopment of Wharf Road. Commenting on the results, Harry Platt, Chief Executive said, " I am delighted to report yet another quarter of progress by the Group. TheGroup's portfolio has now advanced to in excess of £900m following a valuationsurplus of £33.9m over the three months, an increase of 3.9%, taking the totalincrease over nine months to 9.0%. " In this nine month period we have contracted the purchase of £95.7m ofproperty and the sale of £47.6m. These sales included the majority of ourproperties outside the M25, increasing our focus on London where we believe thebest opportunities exist. " Our customers and market place continue to thrive with enquiry levels goodthroughout the period and increasing of late. I look forward to reportingcontinued progress at the full year stage." - ends- Date: 13 February 2006For further information contact: Workspace Group PLC cityPROFILEHarry Platt, Chief Executive Jonathan GillenMark Taylor, Finance Director Andrew Harris020-7247-7614 020-7448-3244e-mail: [email protected]: www.workspacegroup.co.uk Chairman's Statement These third quarter results show further excellent growth in asset values drivenprimarily by yield movements reflecting the continuing investor appetite forcommercial property. Following our latest external revaluation at 31 December2005, our total portfolio was valued at £903 million. Adjusted Net Asset Value(NAV) per share at £2.66 is up 19.8% over the nine month period, and 24.9% overthe last twelve months. Reported NAV per share has risen to £2.10 (31 March2005: £1.77). Since the quarter end we have completed the sale of a portfolio of 9 properties(with 2 others pending) within the South East, outside the M25, for a total of£41.7 million. Most of our portfolio of 95 estates, 5.8m sq feet, and 3,800customers is now focused within the M25. Furthermore, 68% of this portfolio byvalue is within six miles of the centre of London. In this market Workspace is by far the leading supplier of space for small andmedium sized enterprises (SMEs). Yet we have a small proportion of this largeand growing market place (comprising over 300,000 SMEs) and the opportunities tocontinue to expand our portfolio remain considerable as we track 2,000properties in our target area. Furthermore, with our focused intensivemanagement, marketing and branding, there is the prospect of future growth inrental values from the current low base of £9.58 per sq. ft. Your Board is committed to building long term shareholder value. During thethird quarter, I informed you of a possible interest in the Company, which wassubsequently withdrawn shortly before Christmas. This interest lay not only inthe core business outlined above, but also in the potential for change of use orintensification value of certain estates - the value of which we are well aware.We are developing clear strategies to release this hidden value and during thelast few months we have progressed individual "added value" initiatives (atWharf Road, Greenheath and Thurston Road). This report also gives some moredetail on our approach to this area going forward. Chief Executive's Statement Summary Pre-tax profits during the three quarter period of £83.6m are up 26.1% on lastyear (31 December 2004: £66.3m) due to the accelerated growth in the value ofthe portfolio. Pre-tax profits on trading operations of £10.7m are down £0.1m onlast year due mainly to higher year on year interest charges in the firstquarter, slower rental growth during the year and the level of refurbishment/redevelopment taking place in the Group's portfolio. Total Rent Roll has increased by £6.1m over the nine months to £48.3m, £5.6m ofwhich is from acquisitions net of disposals with the remaining £0.46m due togrowth in the core portfolio. Earnings per share for the nine month period, at 35.8p, are up 23% on last year.Trading earnings per share at 4.6p however are unchanged on the level for thesame period last year. Portfolio In the first half of the year the Group made acquisitions of £95.7m. Noacquisitions were made in the third quarter, although since the quarter end wehave completed the purchase of one property (value £5.15m) and have three othersin legal hands. During the quarter we made one disposal and, on 25 January 2006, completed thesale of a portfolio of properties outside the M25. Details are given below. Name of Property Description Exit Income Sale Price Alpine Park, Single warehouse of £0.35m £3.8mBeckton E6 35,036 sq. ft Magenta 11 small unit industrial £2.86m £41.7m Portfolio estates located outside the M25 totalling 321,142 sq. ft in 234 units (deferred completion on 2 properties) Alpine Park was sold to its occupier, Easy Managed Transport (EMT), a classiccase study of the Workspace model. It reflects the continuing success story ofone of our customers, who joined us in 1990 occupying a small industrial unit onBow Enterprise Park, E3. Following EMT's continued expansion on that estate, in2000 Workspace acquired land and financed the development of a warehouse atAlpine Park into which EMT moved on a long term lease with an option to acquirethe property. The Magenta Portfolio disposal consisted of the majority of the Group's holdingsoutside London. The properties have performed well for us in the past and haveshown pre-tax internal rates of return of between 13% and 31% and a combined IRRof 22%. A tax charge of £5.2m will arise from this disposal. We now have onlyfour properties outside the M25 at Luton, Basildon, Maidenhead and Harlow. It isour current intention in due course to dispose of the first three of these,whilst the fourth, which continues to fit well with our other ownerships, willbe retained. The funds released by these disposals will be used to further expand thebusiness within Greater London where we have recently completed the purchase ofSundial Court,Tolworth, Kingston-upon-Thames. Three other transactions are in legal hands. Further details will be announced shortly. We know London well and are tracking about 2,000 properties of whichapproximately 700 have been identified as prime acquisition targets. We areconfident that we will deliver superior returns by concentrating our managementand marketing skills, as well as our brand, on opportunities in this area. Following the disposal completed in the quarter, the portfolio statistics andprogress through the year may be summarised as follows:- 31 December 2005 30 September 2005 30 June 2005 31 March 2005 Number ofestates 106 107 105 104 Total floorspace at endof period(million sq. ft.) 5.89 5.92 5.33 5.16 of which:Like for like portfolio(million sq. ft.) 4.90 4.90 4.90Acquisitions(million sq.ft.) 0.80 0.80 0.21Developments(million sq.ft.) 0.18 0.18 0.18 Lettable units(number) 4,922 4,885 4,748 4,717 Annual rent roll ofoccupied units (£m) 48.34 48.17 43.17 42.28 Average rent(£/sq. ft) 9.58 9.47 9.35 9.29 Average rentof like-for-likeportfolio (£/sq. ft) 9.38 9.25 9.25 9.11 Occupancyoverall 85.70% 85.92% 86.65% 88.26% Occupancy oflike-for-like portfolio 88.55% 88.66% 89.32% 90.20% Comparisons of overall occupancy and rent roll are distorted by acquisitions,disposals and transfers. The "like-for-like" portfolio is defined as thoseproperties that have been held throughout the year to date and which are notsubject to refurbishment/ redevelopment programmes. Like-for-like occupancy in the quarter has remained in the 88.5% to 89% range,whilst average like-for-like rents have risen by 1.4% (from £9.25 to £9.38).Over the three quarter period like-for-like occupancy has declined from 90.2% to88.55%, whilst average rents have risen by 3% (from £9.11 to £9.38). Thisdecline in occupancy was caused mainly by the occurrence of several largervoids, some of which have now been re-let, notably the space vacated in thesecond quarter at Surrey House and that at Tower Bridge Business Complex.However, this has not yet compensated for the other vacancies elsewhere in ourportfolio. Furthermore, by the financial year end we anticipate two othersignificant vacancies will occur which will open up opportunities for the Groupto create more space for small businesses. In particular, this includes avacancy at the recently purchased Kennington Park where we always recognisedpotential for further refurbishment and subdivision to create small unit space.Aside from the vacation of these larger units, occupancy more generally has beenstable. Enquiry rates have been good throughout the nine months and appear to haveimproved further of late following the start of the new calendar year. Our refurbishment works at Southbank are now complete, and marketing/letting ofthe space is in progress. Meanwhile, refurbishment works at Enterprise andClerkenwell will complete in the next three months. Lettings here should improvetotal occupancy, currently 85.7%, through 2006. We estimate that these threeproperties alone afford the opportunity to increase the rent roll by £3.6m asthe vacant space is let up. Valuation The third quarter external property valuation yielded a net surplus of £74.1mfor the 9 months, an uplift of 9.0% (£33.9m for the quarter, an uplift of 3.9%),taking the total value of investment property to £903m. This increase in thevaluation has been driven mainly by yield movements (some 80%). The Group'sportfolio is valued on an "existing use" basis. This approach is, as described,based on the current use of the property but will recognise the extra value thatwill accrue to a property where planning approval has been obtained for a morevaluable use of the site. However, it does not recognise the latent potentialwithin the Group's portfolio associated with those sites for which such aconsent has not been obtained, irrespective of the opportunity for such. The Group has stated that in the longer term as much as 45% of the existingportfolio has potential for added value activity such as refurbishment,extension and redevelopment. At four estates (Aberdeen Studios, Thurston Rd.,Wharf Rd., and Greenheath) planning consents have been obtained or are inprogress. When these projects are completed, the density of the estates willincrease to almost three times the current levels through the creation of430,000 sq.ft. of extra space in addition to the replacement of the current220,000 sq.ft on the sites. This new space will provide both replacementworkspace as well as residential, retail and student accommodation. On anothereleven estates, we consider density may also be increased to create a further2.2m sq.ft over the existing 1.2m, again for a mixture of uses. In this way, theGroup can improve the quality of the accommodation offered to its customers,whilst achieving attractive financial returns from the redevelopment of itsproperty to provide further much needed accommodation in the Capital. This potential will take time to realise but will mature as work proceeds andpressure on land in London increases. The Group is clearly focused on unlockingthis value and ensuring that in addition to its skills of managing and drivingrentals from property it also has available to it the correct range of skillswhich will ensure effective value creation. Financial Review The third quarter valuation surplus of £33.9m followed the substantial surplusesrecorded in the first two quarters of £18.1m and £22.1m. This strong pattern ofsurpluses has impacted both upon Net Asset Value (NAV) per share and gearingwith Adjusted NAV up 19.8% to £2.66 and gearing (based on former UKGAAPprinciples) up just 10% to 97% despite net acquisitions of £90m over the ninemonth period. After the sale of the £41.7m portfolio referred to earlier,gearing will reduce further to 89%, only marginally above that at the start ofthe year. The following table summarises the impacts of the changes to Net Asset Value pershare: Net Assets per share 31 March 2005 Movements 31 December 2005 Under former UKGAAP £2.24 £0.47 £2.71 Adjustments £(0.47) £(0.14) £(0.61) Under IFRS £1.77 £0.33 £2.10 Earnings per share performance has mirrored the valuation result with EPS forthe nine months up 23% over last year at 35.8p. Trading earnings per share,however, were level with that reported last year at 4.6p. With 111, Power Roadbeing mainly vacant on purchase, acquisitions during the current period havebeen made at much tighter margins over the cost of money. Consequently, withlittle net contribution from these and with rents on the core portfolioincreasing by just £0.5m over the period, earnings growth has been lower. Goingforward, with the recent completion of the refurbishment works at SouthbankHouse followed soon by those at Enterprise House and Clerkenwell Studios, thereis substantial potential for growth in rents over the next year (with 90% marketrent (ERV), some £3.6m over current rents passing). Following this, on thecompletion of the works at 111 Power Road, there will be further increases(with, at 90% ERV, £0.9m over current rents). Banking facilities were unchanged during the quarter, with the proposed newfacility of £25m (referred to at the interim stage) deferred while cashrequirements following the recent significant disposal were reappraised. As noted above, the changes to the trading account and balance sheet under IFRShave had a substantial impact on financial ratios, with EPS and gearing affectedmost. Your Board, in common with the Group's bankers, considers that gearingmeasurement should continue to be monitored for the present under the formerUKGAAP principles. As a result, both IFRS and former UKGAAP measures areincorporated in the following table of key financial statistics and indicators: 9 months to 31 6 months to 30 3 months to 30 Year to 31 9 months to 31 December 2005 September 2005 June 2005 March 2005 December 2004 Net rental income:revenue 74% 73% 72% 74% 74%Trading operatingprofit: revenue 60% 59% 58% 60% 60%Trading PBT:revenue 24% 23% 22% 26% 26%EPS per share(pence) 35.8 19.6 8.5 36.1 29.0NAV per share(£) - IFRS 2.10 1.94 1.85 1.77 1.71 - UKGAAP 2.71 2.49 2.35 2.24 2.00Tradinginterest cover 1.66 1.65 1.63 1.77 1.77Gearing - IFRS 126% 137% 112% 112% 111% - UKGAAP 97% 105% 87% 88% 94%Availablefacilities (£m) *14.7 *13.6 38.0 49.2 62.6 * Arrangements are in hand to increase facilities by a further £25.0m and (at 31December 2005) contracts had been exchanged for the sale of property for a totalconsideration of £41.7m. Net cash flow from operating activities was £9.40m (2004: £9.33m). Followingexpenditures on investment property of £116.45m (2004: £38.23m) and other itemsthe net cash used in investing activities was £113.03m (2004: £5.83m), financedprincipally by increases in bank borrowings of £109.60m (2004: £1.6m). As notedabove, gearing at 31 December 2005, measured under former UKGAAP was 97% (31December 2004: 94%, 31 March 2005: 88%). Prospects With an active investment market, the potential for continued growth in assetvalues in the fourth quarter appears good. Whilst property held vacant forrefurbishment has slowed earnings growth of late, their reletting shouldcontribute to growth in the near future. We continue to search out opportunitiesfrom both within our current portfolio and through acquisition to provide growthboth to earnings and capital values. Consolidated Income Statement (unaudited)for the 9 months ended 31 December 2005 Year ended 9 months ended 31 December 2005 9 months ended31 March 2005 31 December (restated) 2004 (restated) Trading Other Items* Total Operations £000 Notes £000 £000 £000 £000 55,039 Revenue 1 45,443 - 45,443 41,052 (14,071) Direct costs 1 (11,947) 38 (11,909) (10,649)-------------------------------------------------------------------------------------------------- 40,968 Net rental income 33,496 38 33,534 30,403 (7,643) Administrative (6,452) 119 (6,333) (5,481) expenses 67,923 Gain from change in - 74,149 74,149 55,390 fair value of investment property (75) Profit/(loss) on 2 - 12 12 (377) disposal of investment properties-------------------------------------------------------------------------------------------------- 101,173 Operating profit 27,044 74,318 101,362 79,935 73 Finance income - 104 - 104 60 interest receivable (19,523) Finance costs - 3 (16,411) (1,015) (17,426) (14,569) interest payable 1,097 Change in fair value - (424) (424) 885 financial instruments-------------------------------------------------------------------------------------------------- 82,820 Profit before tax 10,737 72,879 83,616 66,311 (24,342) Taxation 4 (3,252) (21,870) (25,122) (19,406)-------------------------------------------------------------------------------------------------- 58,478 Profit for the period 7,485 51,009 58,494 46,905 after tax and attributable to equity shareholders================================================================================================== 36.1p Basic earnings per 6 4.6p 31.2p 35.8p 29.0p share 34.8p Diluted earnings per 6 4.5p 29.8p 34.3p 27.9p share *Other Items above include, profits and losses (together with their relatedtaxation) on sales of investment properties, items of a non trading nature,valuation adjustments arising from the fair valuing of financial assets andliabilities, adjustments to direct costs arising from the treatment of headlease payments as interest, adjustments to administrative expenses arising fromthe estimation under IFRS2 of the cost for the grant of share options and othernon-cash remuneration to staff. Consolidated Statement of Recognised Income and Expense (unaudited)for the 9 months ended 31 December 2005 Year ended 9 months ended 9 months ended 31 March 2005 31 December 31 December (restated) 2005 2004 58,478 Profit for the financial period 58,494 46,905 (15) Convertible loan stock conversion - (15) 231 Value of employee services 289 166-------------------------------------------------------------------------------------------------- 58,694 Total recognised income and expense 58,783 47,056 for the period ================================================================================================== Consolidated Balance Sheet (unaudited)As at 31 December 2005 31 March 2005 Notes 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000 Assets Non current assets 716,537 Investment properties 8 901,354 686,678 143 Intangible assets 185 146 3,523 Property, plant and equipment 10 3,455 3,491--------------------------------------------------------------------------------- 720,203 904,994 690,315--------------------------------------------------------------------------------- Current assets 5,159 Trade and other receivables 11 7,864 6,240 187 Financial assets - derivative 63 67 financial instruments 1,251 Financial assets - tenants' 12 1,744 1,258 deposits 3 Cash and cash equivalents 1,662 1,393--------------------------------------------------------------------------------- 6,600 11,333 8,958--------------------------------------------------------------------------------- Liabilities Current liabilities (817) Financial liabilities - borrowings 14 (78) (173) (24,816) Trade and other payables 13 (28,739) (25,925) (2,507) Current tax liabilities (979) (4,614) -------------------------------------------------------------------------------- (28,140) (29,796) (30,712) -------------------------------------------------------------------------------- (21,540) Net current liabilities (18,463) (21,754) --------------------------------------------------------------------------------- Non current liabilities (322,402) Financial liabilities - borrowings 14 (431,937) (307,562) (1,729) Financial liabilities - derivative (2,030) (1,822) financial instruments (86,075) Deferred tax liabilities 16 (108,852) (80,827)--------------------------------------------------------------------------------- (410,206) (542,819) (390,211)--------------------------------------------------------------------------------- 288,457 Net assets 343,712 278,350--------------------------------------------------------------------------------- Shareholders' equity 16,884 Ordinary shares 17 16,891 1,688 28,388 Share premium 19 28,442 43,586 (5,519) Investment in own shares 19/20 (5,389) (5,827) 461 Other reserves 18 750 396 248,243 Retained earnings 19 303,018 238,507--------------------------------------------------------------------------------- 288,457 Total shareholders' equity 19 343,712 278,350--------------------------------------------------------------------------------- £1.77 Net asset value per share (basic) 7 £2.10 £1.71 £2.22 Adjusted net asset value per share 7 £2.66 £2.13 (diluted) Consolidated Cash Flow Statement (unaudited)for the 9 months ended 31 December 200 Year ended Notes 9 months 9 months 31 March 2005 ended 31 ended 31 (restated) December December 2005 2004 (restated) £000 £000 £000 Cash flows from operating activities 33,870 Cash generated from 15 27,084 25,461 operations 73 Interest received 104 60 (19,714) Interest paid (16,117) (13,943) (3,179) Tax paid (1,676) (2,241)--------------------------------------------------------------------------------- 11,050 Net cash from operating 9,395 9,337 activities Cash flows from investing activities (44,944) Purchase of investment (99,956) (31,888) property (9,543) Capital expenditure on (16,490) ( 6,340) investment property 35,362 Proceeds from sales of 6,132 34,960 investment property (2,745) Taxation on disposal of (2,195) (1,888) investment property (44) Purchase of intangible (110) (25) assets (823) Purchase of property, plant (412) (654) and equipment --------------------------------------------------------------------------------- (22,737) Net cash used in investing (113,031) (5,835) activities Cash flows from financing activities 287 Net proceeds from issue of 61 289 ordinary share capital 16,300 Net proceeds from issue of 109,600 1,600 new bank loan 687 Net distribution of own 130 379 shares (51) Finance lease principal (38) (38) payments (5,186) Dividend paid to 5 (3,719) (3,349) shareholders --------------------------------------------------------------------------------- 12,037 Net cash from/(used in) 106,034 (1,119) financing activities --------------------------------------------------------------------------------- 350 Net increase in cash and 2,398 2,383 cash equivalents ================================================================================= (1,159) Cash and cash equivalents (809) (1,159) at start of period (809) Cash and cash equivalents 15 1,589 1,224 at end of period ================================================================================= Notes to the Quarterly Results 1. Analysis of net rental income Year ended 9 months ended 9 months ended 31 March 2005 (restated) 31 December 2005 31 December 2004 (restated)Revenue Costs Net Rental Revenue Costs Net Rental Revenue Costs Net Rental Income Income Income £000 £000 £000 £000 £000 £000 £000 £000 £000 43,270 (278) 42,992 Rental income 35,830 (146) 35,684 32,367 (247) 32,120 9,865 (13,482) (3,617) Service 8,344 (11,351) (3,007) 7,344 (10,265) (2,921) charges and other recoveries 1,904 (311) 1,593 Services, 1,269 (412) 857 1,341 (137) 1,204 fees, commissions and sundry income ------------------------------------------------------------------------------------------------------------- 55,039 (14,071) 40,968 45,443 (11,909) 33,534 41,052 (10,649) 30,403============================================================================================================== The Group operates a single business segment providing business accommodationfor rent in London and the South East of England, which is continuing. 2. Profit/(loss) on disposal of investment properties Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 34,721 Proceeds from sale of investment 5,900 34,421 properties (34,796) Book value at time of sale plus sale (5,888) (34,798) costs --------------------------------------------------------------------------------- (75) Profit /(loss) on sale 12 (377)--------------------------------------------------------------------------------- (4,007) Current tax (235) (3,791) 4,485 Deferred tax released on sale 310 4,487--------------------------------------------------------------------------------- 478 Net tax 75 696--------------------------------------------------------------------------------- 403 Net profit on disposal after tax 87 319--------------------------------------------------------------------------------- During the period to date the Group has disposed of Payne Road Studios and 5Payne Road, London, E3 for £2.1m and Alpine Park, London, E6 for £3.8m. 3. Finance costs - interest payable Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 Interest expense: (16,806) Interest payable on bank (15,547) (12,472) borrowings (391) Amortisation of issue costs of (332) (287) bank loans (51) Interest payable on finance leases (38) (38) (1,391) Interest payable on 11.125% First (1,043) (1,043) Mortgage Debenture Stock 2007 (814) Interest payable on 11.625% First (611) (611) Mortgage Debenture Stock 2007 (284) Interest payable on 11% (211) (211) Convertible Loan Stock 2011 214 Interest capitalised on investment 356 93 property re-developments --------------------------------------------------------------------------------- (19,523) (17,426) (14,569)================================================================================= 4. Taxation Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000 Analysis of charge in period: 6,190 Current tax 2,345 6,502 18,152 Deferred tax (see note 16) 22,777 12,904--------------------------------------------------------------------------------- 24,342 Total taxation 25,122 19,406================================================================================= The tax on the Group's profit for the period differs from the standardapplicable corporation tax rate in the UK (30%). The differences are explainedbelow: - 82,820 Profit before taxation 83,616 66,311 24,846 Tax at standard rate of corporation tax 25,085 19,893 in the UK of 30% (2004/5: 30%) 14 Expenses not deductible for tax purposes 30 30 64 Other differences 85 67 (408) Capital gains adjustments on property (78) (584) disposals (5) Reductions due to application of small - - companies rate (169) Adjustment in respect of previous periods - ---------------------------------------------------------------------------------- 24,342 Tax expense 25,122 19,406================================================================================= 5. Dividends paid Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000 - Final dividend for year ended 31 3,719 - March 2005 of 2.28p per ordinary share paid 2 August 2005 3,349 Final dividend for year ended 31 - 3,349 March 2004 of 2.07p* per ordinary share paid 2 August 2004 1,837 Interim dividend for year ended 31 - - March 2005 of 1.13p* per ordinary -------------------------------------------------------------------------------- 5,186 Dividends paid out of retained 3,719 3,349 earnings (see note 19)================================================================================= *Figures adjusted to reflect bonus share issue made in March 2005. In addition an interim dividend for the year ended 31 March 2006 of 1.25p perordinary share was payable on 1 February 2006. 6. Earnings per share a) Earnings used in calculating earnings per share Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 58,478 Earnings for basic earnings per share 58,494 46,905 191 Interest saving net of taxation on 11% 132 118 Convertible Loan Stock --------------------------------------------------------------------------------- 58,669 Diluted earnings 58,626 47,023 (48,229) Less non trading other items (51,009) (39,394)--------------------------------------------------------------------------------- 10,440 Trading diluted earnings 7,617 7,629================================================================================= b) Weighted average number of shares used for calculating earnings per share Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 (restated) Number Number Number 161,931,920 Weighted average number of shares 163,440,008 16,162,588 (excluding shares held in the ESOT) - Increase due to capitalisation - 145,463,292 (March 2005) --------------------------------------------------------------------------------- Used for calculating basic earnings per share 161,931,920 (excluding shares held in the ESOT) 163,440,008 161,625,880 1,682,780 Dilution due to Share Option 2,713,973 184,039 Schemes 5,000,000 Dilution due to Convertible Loan 5,000,000 500,000 Stock - Increase due to capitalisation - 6,156,351 (March 2005) --------------------------------------------------------------------------------- 168,614,700 Used for calculating diluted 171,153,981 168,466,270 earnings per share ================================================================================= 7. Net assets per share a) Net assets used in calculating net assets per share 31 March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000 288,457 Net assets at end of period 343,712 278,350 2,484 Dilution due to Convertible Loan Stock 2,422 2,409--------------------------------------------------------------------------------- 290,941 Diluted net assets 346,134 280,759 6,541 Deferred tax on accelerated tax 7,310 5,140 depreciation 80,029 Deferred tax on fair value change of 102,071 76,230 investment properties (463) Deferred tax on derivative financial (590) (527) instruments --------------------------------------------------------------------------------- 377,048 Adjusted diluted net assets 454,925 361,602================================================================================= Net asset value used to calculate NAV per share under former UKGAAP has beencalculated by adding back the adjustments made under IFRS (mainly deferred taxand valuation adjustments on debt instruments). b) Number of shares used for calculating net assets per share 31 March 2005 31 December 31 December (restated) 2005 2004 Number (restated) Number Number 168,839,660 Shares in issue at end of period 168,909,640 16,883,211 (5,620,370) Less ESOT shares (5,340,370) (612,321) - Increase due to capitalisation - 146,438,010 (March 2005) --------------------------------------------------------------------------------- 163,219,290 Number of shares for calculating 163,569,270 162,708,900 basic net assets per share 1,682,780 Dilution due to Share Option 2,713,973 184,039 Schemes 5,000,000 Dilution due to Convertible Loan 5,000,000 500,000 Stock - Increase due to capitalisation - 6,156,351 (March 2005) --------------------------------------------------------------------------------- 169,902,070 Number of shares for calculating 171,283,243 169,549,290 diluted net assets per share ================================================================================= 8. Investment properties 31 March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 626,817 Balance at beginning of period 716,537 626,817 55,973 Additions during the period 116,214 38,767 214 Capitalised interest on re-developments 356 93 (34,385) Disposals during the period (5,899) (34,385) 67,923 Gain from fair value adjustments on 74,149 55,390 investment property (5) Amortisation of finance leases (3) (4)--------------------------------------------------------------------------------- 716,537 Balance at end of period 901,354 686,678================================================================================= Capitalised interest is included as an addition in the period, the rate ofcapitalisation is 5.77% (31 March 2005: 5.79%; 31 December 2004: 5.76%). 9. Valuation The Group's investment properties were revalued at 31 December 2005 by CBRichard Ellis, Chartered Surveyors, a firm of independent qualified valuers. Thevaluations were undertaken in accordance with the Royal Institution of CharteredSurveyors Appraisal and Valuation Standards on the basis of market value. Marketvalue is defined as the estimated amount for which a property should exchange onthe date of valuation between a willing buyer and willing seller in an arm'slength transaction. A full valuation of the portfolio was not undertaken by CBRichard Ellis at 31 December 2004 and has not been undertaken retrospectively.The value for 31 December 2004 has been arrived at by CB Richard Ellis on apro-rata basis using the actual valuations that were undertaken by CB RichardEllis both at 30 September 2004 and 31 March 2005, taking into accountproperties purchased and sold, the actual change in total income andconsideration of the performance of the IPD Property Index over this period. Included in the CB Richard Ellis valuations is an amount in respect of theCompany's short leasehold interest (expiring 11 February 2011) in the AlphaBusiness Centre, Walthamstow. For accounts purposes, as the unexpired term ofthe leasehold interest in Alpha Business Centre is less than 20 years, thevaluation of the property has been retained at a nominal £1. The adjustment fromthe valuation report total to the accounts total may be reconciled as follows: - 31 March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 718,425 Total per CB Richard Ellis valuation 903,375 688,545 report (350) Alpha Business Centre (385) (375) (2,290) Owner occupied property (2,385) (2,245) 752 Head leases treated as finance leases 749 753 under IAS17 --------------------------------------------------------------------------------- 716,537 Total per accounts 901,354 686,678================================================================================= 10. Property, plant and equipment Owner occupied Owner occupied Motor Equipment Total land buildings Vehicles and Fixtures £000 £000 £000 £000 £000CostBalance at 1 April 2004(restated) 500 1,525 25 4,165 6,215Additions - 14 - 640 654Disposals - - - (939) (939)---------------------------------------------------------------------------------Balance at 31 December 2004(restated) 500 1,539 25 3,866 5,930---------------------------------------------------------------------------------Balance at 1 April 2004(restated) 500 1,525 25 4,165 6,215Additions - 9 - 813 822Disposals - - - (939) (939)---------------------------------------------------------------------------------Balance at 31 March 2005(restated) 500 1,534 25 4,039 6,098---------------------------------------------------------------------------------Balance at 1 April 2005 500 1,534 25 4,039 6,098Additions - 32 8 372 412Disposals - - - - ----------------------------------------------------------------------------------Balance at 31 December 2005 500 1,566 33 4,411 6,510=================================================================================Cumulative depreciation to 31December 2004 - 23 14 2,402 2,439(restated) ---------------------------------------------------------------------------------Net book value at 31 December 2004(restated) 500 1,516 11 1,464 3,491=================================================================================Cumulative depreciation to 31 March 2005 - 30 15 2,530 2,575(restated) ---------------------------------------------------------------------------------Net book value at 31 March 2005 500 1,504 10 1,509 3,523(restated)================================================================================= Cumulative depreciation to 31 - 54 18 2,983 3,055December 2005 ================================================================================= Net book value at 31 December 2005 500 1,512 15 1,428 3,455================================================================================= At 1 April 2004, the fair value of owner occupied land and buildings was adoptedas the deemed cost of those assets. The fair value of owner occupied land andbuildings was £2,025,000 and the carrying value at 1 April 2004 under UK GAAPwas £2,036,401. 11. Trade and other receivables - current 31 March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000--------------------------------------------------------------------------------- 3,484 Trade debtors 4,023 3,511 (385) Less: provision for impairment of (489) (518) receivables --------------------------------------------------------------------------------- 3,099 Trade debtors - net 3,534 2,993 2,060 Prepayments and accrued income 4,330 3,247--------------------------------------------------------------------------------- 5,159 7,864 6,240================================================================================= 12. Financial assets - Tenants' deposits Financial assets - tenant deposits represent returnable cash security depositsreceived from tenants. These deposit deeds are ring-fenced under the terms ofthe individual lease contracts and cannot be used to fund the working capital ofthe Group. They are accordingly held separately from other cash balances andexcluded from cash and cash equivalents with a corresponding liability recordedin trade and other payables (note 13). 13. Trade and other payables - current 31 March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000--------------------------------------------------------------------------------- 2,219 Trade payables 2,512 2,052 1,111 Taxation and social security payable 1,084 2,119 1,251 Tenants' deposit deeds (see note 12) 1,744 1,258 4,869 Tenants' deposits 5,307 4,771 10,525 Accrued expenses 11,872 11,095 4,841 Deferred income-rent and service charges 6,220 4,630--------------------------------------------------------------------------------- 24,816 28,739 25,925================================================================================= 14. Financial liabilities - borrowings a) Balances 31 March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000 Current 812 Bank overdraft repayable on demand 73 169 (secured) 5 Finance lease obligations 5 4--------------------------------------------------------------------------------- 817 78 173 Non current 2,484 11% Convertible Loan Stock 2011 2,422 2,409 (unsecured) 12,500 11.125% First Mortgage Debenture Stock 12,500 12,500 2007 (secured) 7,000 11.625% First Mortgage Debenture Stock 7,000 7,000 2007 (secured) 299,671 Other loans (secured) 409,271 284,904 747 Finance lease obligations 744 749--------------------------------------------------------------------------------- 322,402 431,937 307,562--------------------------------------------------------------------------------- 323,219 432,015 307,735================================================================================= b) Maturity 31 March 2005 31 December 31 December (restated) 2005 2004 £000 (restated) £000 £000 Secured 812 Less than one year 73 169 - Between one year and two years 19,500 - 219,500 Between two years and three years - 219,500 - Between three years and four years 140,400 - 100,800 Between four years and five years 270,000 86,100--------------------------------------------------------------------------------- 321,112 429,973 305,769 (1,129) Less cost of raising finance (1,129) (1,196)--------------------------------------------------------------------------------- 319,983 428,844 304,573 Unsecured 2,484 In five years and more 2,422 2,409 Finance Leases 752 In five years and more 749 753--------------------------------------------------------------------------------- 323,219 432,015 307,735================================================================================= c) Financial instruments held at fair value The following interest rate caps and collars are held: Amount Interest Rate Interest Rate Expiry £000 Cap Floor Interest rate capand collar(amortising amount) 102,370 8.00% 4.50% July 2009Interest rate capand collar 75,000 6.95% 4.05% July 2009Interest rate capand collar(increasingamount) 32,630 7.00% 2.99% Oct 2010 All these instruments are treated as financial instruments at fair value withchanges in value dealt with in the income statement at each reporting date. d) Fair values of financial instruments 31 March 2005 31 December 2005 31 December 2004 (restated) (restated)Book Value Fair Value Book Value Fair Value Book Value Fair Value £000 £000 £000 £000 £000 £000 Financial instruments not at fair value through profit and loss 812 812 Bank overdraft 73 73 169 169 2,484 2,914 11% Convertible 2,422 2,829 2,409 2,849 Loan Stock 2011 12,500 13,474 11.125% First 12,500 13,153 12,500 13,496 Mortgage Debenture Stock 2007 7,000 7,601 11.625% First 7,000 7,400 7,000 7,613 Mortgage Debenture Stock 2007 299,671 299,671 Other loans 409,271 409,271 284,904 284,904 752 752 Finance lease 749 749 753 753 obligations ------------------------------------------------------------------------------------------- 323,219 325,224 432,015 433,475 307,735 309,784 Financial instruments at fair value through profit and loss Derivative financial instruments:- 1,729 1,729 Liabilities 2,030 2,030 1,822 1,822 (187) (187) Assets (63) (63) (67) (67)------------------------------------------------------------------------------------------- 1,542 1,542 1,967 1,967 1,755 1,755------------------------------------------------------------------------------------------- 324,761 326,766 433,982 435,442 309,490 311,539------------------------------------------------------------------------------------------- The total loss recorded in the income statement was £424,000 (31 March 2005:£1,097,000 gain, 31 December 2004: £885,000 gain) for changes of fair value ofderivative financial instruments. The fair value of the interest rate collars has been determined by reference tomarket prices and discounted expected cash flows at prevailing interest rates.All other fair values have been calculated by discounting expected cash flows atprevailing interest rates. The total fair value adjustment equates to 0.9p pershare (31 March 2005: 1.2p, 31 December 2004: 1.3p). Comparatives have beenrestated for the bonus issue in March 2005. 15. Cash generated from operations Reconciliation of profit for the period to net cash flow from operations:Year ended 31 9 months ended 9 months ended March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 58,478 Profit for the period 58,494 46,905 24,342 Tax 25,122 19,406 567 Depreciation 479 429 96 Amortisation of intangible assets 67 74 (15) Share based payments (119) (174) 75 (Profit)/loss on disposals of (12) 377 investment property (67,923) Net gain from fair value (74,149) (55,390) adjustments on investment property (1,097) Fair value losses/(gains) on 424 (885) financial instruments (73) Interest income (104) (60) 19,523 Interest expense 17,427 14,569 Changes in working capital: 46 (Increase)/decrease in trade and (3,294) (1,054) other receivables (149) Increase/(decrease) in trade and 2,749 1,264 other payables --------------------------------------------------------------------------------- 33,870 Cash generated from operations 27,084 25,461================================================================================== For the purposes of the cash flow statement, the cash and cash equivalentscomprise the following: 31 March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 3 Cash and bank balances 1,662 1,393 (812) Bank overdrafts (note 14a) (73) (169)--------------------------------------------------------------------------------- (809) 1,589 1,224================================================================================= Total tax paid in the period was £3,871,000 (31 March 2005: £5,924,000; 31December 2004 £4,129,000). 16. Deferred tax liabilities 31 March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 67,934 Balance at start of period 86,075 67,934 18,152 Deferred tax charge to income statement 22,777 12,904 (11) Deferred tax credit to equity re: - (11) conversion of convertible loan stock --------------------------------------------------------------------------------- 86,075 Balance at end of period 108,852 80,827================================================================================= Deferred tax liability recognised in the balance sheet by each category oftemporary timing difference is as follows: 31 March 2005 31 December 31 December (restated) 2005 2004 (restated) £000 £000 £000 80,029 Fair value gains on investment 102,071 76,230 properties 6,541 Accelerated tax depreciation 7,310 5,140 (463) Derivative financial instruments (590) (527) (32) Other 61 (16)--------------------------------------------------------------------------------- 86,075 108,852 80,827================================================================================= If the investment properties were sold for their revalued amount, there would bea potential liability to corporation tax of £84,687,000 (31 March 2005:£64,456,000, 31 December 2004: £59,924,000). Under IFRS no account is taken ofindexation relief on capital gains resulting in the difference between expectedcorporation tax to be paid and the provision made for deferred tax. 17. Share capital 31 March 2005 31 December 31 December Number 2005 2004 Number Number 240,000,000 Authorised: ordinary shares of 10p 240,000,000 21,500,000 each ================================================================================= 168,839,660 Issued: fully paid ordinary shares of 168,909,640 16,883,211 10p each ================================================================================= £ Issued: fully paid ordinary shares of £ £ 10p each 16,883,966 16,890,964 1,688,321================================================================================= Movements in share capital were as follows: 31 March 2005 31 December 31 December Number 2005 2004 Number Number 16,733,811 Number of shares at start of period 168,839,660 16,733,811 151,955,694 Bonus issue - - 50,000 Executive Share Options exercised - 50,000 20,155 Employee Share Options exercised 69,980 19,400 80,000 Convertible Loan Stock converted - 80,000================================================================================= 168,839,660 Number of shares at end of period 168,909,640 16,883,211================================================================================= 18. Other reserves 31 March 2005 Equity element Equity settled 31 December 31 December 2005 (restated) of convertible share based 2005 2004 Total loan stock payments Total (restated) £000 Total £000 £000 £000 £000 254 At start of 151 310 461 254 period (35) Convertible - - - (35) Loan Stock conversion 11 Deferred tax - - - 11 on conversion 231 Value of - 185 289 166 employee services --------------------------------------------------------------------------------------- 461 At end of 151 495 750 396 period======================================================================================= 19. Statement of changes in shareholders' equity 31 March 31 December 2005 31 December 2005 Share Share Investment Others Retained Total 2004(restated) Capital Premium in Own Reserves Earnings Equity (restated) Total Shares Total £000 £000 £000 £000 £000 £000 £000 £000 233,575 At start of 16,884 28,388 (5,519) 461 248,243 288,457 233,575 period 697 Share issues 7 57 - - - 64 689 (10) Share issue - (3) - - - (3) - transaction costs 687 Distribution of - - 130 - - 130 379 own shares (5,186) Dividends paid - - - - (3,719) (3,719) (3,349) (26) Convertible Loan - - - - - - (26) Stock conversion 11 Deferred tax on - - - - - - 11 conversion 231 Value of - - - 289 - 289 166 employee services 58,478 Profit for the - - - - 58,494 58,494 46,905 period ------------------------------------------------------------------------------------------------ 288,457 At end of period 16,891 28,442 (5,389) 750 303,018 343,712 278,350================================================================================================ 20. Investment in own shares The Company has established an Employee Share Ownership Trust (ESOT) to purchaseshares in the market for distribution at a later date in accordance with theterms of the 1993 and 2000 Executive Share Option Schemes. The shares are heldby an independent trustee and the rights to dividend on the shares have beenwaived. During the period the Trust transferred 280,000 shares to employees onexercise of options. At 31 December 2005, the number of shares held by the Trusttotalled 5,340,370 (31 March 2005: 5,620,370, 31 December 2004: 6,123,210) witha book value of £5,389,100 (31 March 2005: £5,518,880, 31 December 2004:£5,827,000). The shares have been included in shareholders equity (see note 19).5,329,010 shares held by the Trust are subject to option awards. 21. Capital commitments At the period end the estimated amounts of commitments for future capitalexpenditure not provided for were: 31 March 2005 31 December 31 December £000 2005 2004 £000 £000 8,859 Under contract 5,228 10,474 12,550 Authorised by directors but not 3,598 5,059 contracted ============================================================================ 22. Post balance sheet events Following 31 December 2005 the Group completed on the sale of 9 out of the 11estates contracted for sale for a total cash consideration of £41.7 million.In addition, the Group has completed the purchase of Sundial Court, Kingstonupon Thames for £5.2 million. 23. Basis of preparation This is the Group's first third quarter report prepared under InternationalFinancial Reporting Standards (IFRS). The financial information reflects thecurrent versions of the standards of the International Accounting StandardsBoard (IASB) and interpretations of the International Financial ReportingInterpretations Committee (IFRIC) as currently endorsed by the European Union.IFRS will continue to evolve through development and adoption of new Standardsand Interpretations as well as through practical experience gained from theapplication of IFRS by reporting entities and their auditors. For these reasons,the information contained in this document may be amended before itspresentation in the audited financial statements of the Group for the year ended31 March 2006. UK generally accepted accounting principles (GAAP) differs in certain respectsfrom IFRS. The comparative figures used within this report have been restatedaccordingly. The Group has issued an explanation and reconciliation of theadjustments from UK GAAP to IFRS for 31 March 2004 and 31 March 2005 and astatement of its IFRS accounting policies in the document entitled "WorkspaceGroup PLC - Adoption of International Financial Reporting Standards (IFRS)"which is available from the Group's website or Company Secretary. An explanationand reconciliation of the adjustments from UK GAAP to IFRS for the period ended31 December 2004 is shown in note 24 below. The accounting policies set out in the document "Workspace Group PLC - Adoptionof International Financial Reporting Standards (IFRS)" have been applied inpreparing the financial information contained in this report. The Group has notadopted IAS 34 - Interim Financial Reporting. This report was approved by the Board on 10 February 2006. This report is unaudited and does not constitute statutory accounts within themeaning of Section 240 of the Companies Act 1985. The statutory accounts for theyear to 31 March 2005, which were prepared under UK GAAP, and on which theauditors issued an unqualified opinion, have been delivered to the Registrar ofCompanies. 24. Explanation and reconciliation of IFRS adjustments The principal differences between UK GAAP and IFRS as they affect the reportedresults and their presentation of Workspace Group are set out below: IAS 40 Investment property IAS 40 requires that the revaluation gains or losses on investment property heldat fair value be recognised on the face of the Income Statement rather than inreserves in the Statement of Group Total Recognised Gains and Losses as is thecase under UK GAAP. As a result the revaluation reserve is no longer shown as aseparate component of equity in the Balance Sheet but is included withinretained earnings, and is non distributable. Under UK GAAP, on disposal of properties the tax due on the realisation of gainspreviously recognised through the revaluation reserve was shown in the Statementof Group Total Recognised Gains and Losses. Under IFRS it is included in theIncome Statement. The tax due on sale will comprise an element in the IncomeStatement current tax charge (based on the difference between the sales priceand property's carrying value at the point of disposal) and a transfer from thedeferred tax reserve of the deferred tax amount already provided in previousperiods. IAS 12 Income taxes IAS 12 requires full provision to be made for the deferred tax on revaluationgains or losses of investment properties at the tax rate estimated at the pointof realisation. A tax charge therefore arises in the Income Statement if arevaluation surplus occurs, the corresponding entry being a deferred taxliability in the balance sheet. Under IAS12 the provision for deferred tax willtake no account of indexation allowances afforded under UK taxation law, the taxprovided is not a calculation of potential Capital Gains Tax liability. Under UKGAAP the liability is an estimate of the Capital Gains Tax, but is not providedfor, only disclosed in the notes (note 17 in the 31 March 2005 accounts). IAS 17 Leases IAS 17 requires leases, whether as the lessee or lessors to be examined todifferentiate between finance and operating leases. Most property leases wererecognised as operating leases under UK GAAP but under IFRS different criteriamay mean some are considered as finance leases. Leases which extend for longperiods and therefore under which a substantial portion of the asset life isconsumed may be regarded as finance leases. a) Head leases. Some (or some parts) of the investment properties of theGroup are held under long leases which under IFRS are classified as financeleases so requiring recognition of a liability based on the minimum leasepayments and a corresponding increase in the carrying value of the investmentproperty. Many of these head leases incur only a peppercorn rent hence creatingno finance lease liability. For head leases with rental payments other thanpeppercorn the rent paid is split between interest payable and repayment of thelease liability. Any rent payable in excess of the minimum lease payments asidentified at initial recognition of the lease is considered as contingent rentand is expensed immediately. Under UK GAAP leasehold investment properties were reported at the valuation ofthe legal interest owned. b) Tenant leases are subject to the same tests. Because of the multitenanted nature of the Group's buildings and the short-term nature of mosttenancies, no leases granted by the Group have been determined to be financeleases. SIC-15 Operating Lease - Incentives SIC-15 requires that any lease incentives offered to tenants, such as rent freeperiods or reduced initial rents are recognised over the lease term. Anadjustment is therefore made to increase revenue in the Income Statement andcreate a financial asset. Under UK GAAP any incentive was spread to the shorterof the lease term or periods to the first rent review or lease break. The Grouphas granted no material operating lease incentives. IAS 10 Events after the Balance Sheet Date IAS 10 requires dividends only to be recognised when there is an irrevocablelegal obligation to make payment. The final dividend does not become irrevocableuntil approved by the members at the Annual General Meeting. Under IFRS thefinal dividend is therefore not recognised until approved and interim dividendnot recognised until paid. IAS 16 Property, Plant and Equipment IAS 16 requires owner occupied property to be shown as part of Property, Plantand Equipment. The Group's head office is defined as owner occupied property. Asland has an indefinite life and buildings a finite life the land and buildingelements of the owner occupied property are shown separately, the latter beingdepreciated over the expected useful life and the former not being depreciated.Under UK GAAP the whole property was subject to depreciation. The valuation ofthe asset at the date of transition to IFRS is taken to be its deemed cost, anysurplus or deficit being recognised in retained reserves. IAS 23 Borrowing costs IAS 23 allows the capitalisation of directly attributable borrowing costs on thecreation or refurbishment of property by applying the weighted average borrowingcosts to the expenditures on the asset. In the case of investment propertiesonly the expenditure on the improvement costs may be subject to capitalisationof related borrowing costs and the underlying carrying cost of the property isexcluded. Under UK GAAP interest capitalisation arose on both the original valueof the investment property and on the improvement costs. IAS 38 Intangible Assets IAS 38 requires externally acquired computer software to be classified as anintangible asset. Under UK GAAP software was shown within fixtures and fittingsamongst other tangible assets. IAS 32/39 Financial Instruments: Disclosure and Presentation, Recognition andMeasurement a) IAS 32 requires the Convertible Loan Stock to be split into its equity anddebt components. The debt element is carried at amortised cost, amortised overthe life of the instrument, such that interest is charged at a constanteffective interest rate compared to the liability outstanding at any given pointin time. Under UK GAAP the instrument was considered wholly as debt. b) IAS 39 requires derivative financial instruments to be valued at fair valuethrough the Income Statement and their carrying values shown in the BalanceSheet unless they meet the IFRS hedging criteria. Under UK GAAP the fair valueof such items was disclosed by way of a note and any original cost amortisedover the life of the item. c) IAS 39 requires the identification of any embedded derivatives in the Group'scontractual arrangements. Embedded derivatives are derivative instruments thathave been combined with other contractual arrangements to create a compositecontract. The Group currently believes it has no material embedded derivatives. IAS 7 Cash Flow Statements IAS 7 defines cash and cash equivalents to include short-term, highly liquidinvestments, thus including short-term bank deposits. Cash equivalents wereshown as investments under UK GAAP. IFRS 2 Share-based payment The Group operates an employee Save as You Earn Scheme, an Executive ShareOption Scheme and a Long Term Incentive Plan (LTIP). IFRS 2 requires the cost ofservices provided where payment is made through a share based payment scheme tobe recognised as an expense in the Income Statement over their vesting periodsand requires that where there is no reliable estimate of the cost of theseservices then the fair value of the options granted should be recognised as the cost of services. The fair values have been estimated by use of the Black- Scholes option valuation model in the case of the SAYE and Executive Share Option Schemes which have non market related performance conditions and by use of Monte Carlosimulation in the case of the LTIP whose performance conditions are marketrelated. Subsequent changes in fair value are shown as an expense in the IncomeStatement. Provision is also made for employer's National Insurance costsrelating to share based payment schemes. Under UK GAAP the SAYE and Executive Share Option Schemes were not directlyrecognised as an expense (although the interest costs arising from borrowingsmade to finance the purchase of shares held in the Group's ESOT to satisfyoption exercises were recognised, together with share dilution where new shareswere issued). The purchase cost of the matching shares was recognised for theLTIP on a straight line basis over the vesting period. Employer's NationalInsurance costs were recognised on share options expected to meet their vestingcriteria. IAS 7 Cash Flow statements Under IFRS the consolidated cash flow statement describes movements in cash andcash equivalents. Under UK GAAP the cash flow analyses movements in cash only.With that exception there are no material differences between the previouslypublished and restated cash flow statements. Workspace Group PLCReconciliation of consolidated profit for the 9 months ended 31 December 2004 IAS 40 IAS 12 IAS 17 IAS 23 IAS 32/39 IAS 39 IFRS 2 Restated Previous Investment Contingent Property head Capitalisation Convertible Fair value Share based under IFRS GAAP Property tax leases of interest loan stock of payments derivatives £000 £000 £000 £000 £000 £000 £000 £000 £000 Revenue -continuingoperations 41,052 41,052Direct costs (10,687) 38 (10,649)------------------------------------------------------------------------------------------------------------------------Net rentalIncome 30,365 0 0 38 0 0 0 0 30,403 Administrativeexpenses (5,655) 174 (5,481) Gain fromchange in fairvalue ofinvestmentproperty 0 54,821 569 55,390 Loss ondisposal ofinvestmentproperties (377) (377)------------------------------------------------------------------------------------------------------------------------ Operatingprofit 24,333 54,821 0 38 569 0 0 174 79,935 Interestreceivable andpayable andsimilarcharges (13,937) (38) (569) 6 29 (14,509) Change in fairvalue ofderivativefinancialinstruments 0 885 885------------------------------------------------------------------------------------------------------------------------ Profit beforetax 10,396 54,821 0 0 0 6 914 174 66,311 Taxation (3,209) 643 (16,445) (28) (275) (92) (19,406)------------------------------------------------------------------------------------------------------------------------Profit for theperiod 7,187 55,464 (16,445) 0 0 (22) 639 82 46,905======================================================================================================================== Reconciliation of equity at 31 December 2004 IAS 40 IAS 12 IAS 17 IAS 10 IAS 16 IAS 38 IAS 32/39 IAS 39 IAS 7 IFRS 2 Previous Investment Contingent Property Dividends Owner Computer Convertible Fair Cash and Share Restated GAAP Property tax head occupied software loan stock value cash based under leases property intangible of equivalents payments IFRS derivatives £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Non current assetsInvestmentproperties 658,137 27,788 753 686,678 Intangibleassets 0 146 146Property,plant andequipment -other 3,648 (511) (146) 2,991Property,plant andequipment -land 0 500 500------------------------------------------------------------------------------------------------------------------------Total noncurrent assets 661,785 27,788 0 753 0 (11) 0 0 0 0 0 690,315 Current assetsTrade andotherreceivables 6,340 (177) 77 6,240 Financialassets -derivativefinancialinstruments 0 67 67Tenantdeposits/otherinvestments 2,647 (1,389) 1,258Cash and cashequivalents 4 1,389 1,393------------------------------------------------------------------------------------------------------------------------Total currentassets 8,991 0 0 0 0 0 0 0 (110) 0 77 8,958 Current LiabilitiesFinancialliabilities -borrowings (169) (4) (173)andother payables (27,813) 1,832 56 (25,925) Current taxliabilities (4,605) (9) (4,614)------------------------------------------------------------------------------------------------------------------------Total currentliabilities (32,587) 0 0 (4) 1,832 0 0 0 (9) 0 56 (30,712) Net current(liabilities)/assets (23,596) 0 0 (4) 1,832 0 0 0 (119) 0 133 (21,754) Non Current LiabilitiesFinancialliabilities -borrowings (306,904) (749) 91 (307,562) Financialliabilities -derivativefinancialinstruments 0 (1,822) (1,822) Deferred taxliabilities (5,842) 4,286 (79,741) (27) 527 (30) (80,827)------------------------------------------------------------------------------------------------------------------------Total noncurrentliabilities (312,746) 4,286 (79,741) (749) 0 0 0 64 (1,295) 0 (30) (390,211)------------------------------------------------------------------------------------------------------------------------Net Assets 325,443 32,074 (79,741) 0 1,832 (11) 0 64 (1,414) 0 103 278,350========================================================================================================================Ordinary shares 1,688 1,688 Investment in own shares (5,827) (5,827) Share premium 43,586 43,586 Other reserves 0 151 245 396 Revaluationreserve 222,346 (222,346) 0 Retainedearnings 63,650 254,420 (79,741) 0 1,832 (11) (87) (1,414) (142) 238,507------------------------------------------------------------------------------------------------------------------------Total equity 325,443 32,074 (79,741) 0 1,832 (11) 0 64 (1,414) 0 103 278,350 25. Quarterly Report Copies of this statement will be dispatched to shareholders on 13 February 2006and will be available from the Group's registered office at Magenta House, 85Whitechapel Road, London, E1 1DU from 9.00am on that day. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Workspace