Annual Report and Accounts

27th Mar 2007 07:03

Assura Group Limited27 March 2007 Assura Group Limited27 March 2007 ASSURA GROUP LIMITED Annual Report and Consolidated Financial Statements for the year ended 31 December 2006 Highlights • Group operating profit £12.9m (2005: loss of £10.6m) • Final dividend3 up 20% to 4p (making 6p in total) • £106m (net of expenses) of new equity raised in May 2006 • Net assets £267.5m equivalent to 114.3p per share • Net debt £28m (10% gearing) - significant additional debt capacity • £430m1 of capital committed over 118 sites at an estimated average net initial yield of circa 6.5% 2 • Ten pharmacies open2 • Five joint ventures with GPs have been formed to provide out-patient, diagnostics and day case procedures to a population of circa 600,000 in aggregate • Acquisition of Berrington completed, change of company name to Assura Group 1 As at 20 March 2007.2 Prior to accounting for revaluation surpluses.3 Ex-dividend date 4 April 2007, Record date 10 April 2007, Payment date 4 May 2007. Chairman's Statement I am delighted to introduce this report in respect of the year ended 31 December2006. During the year, the Group has transformed itself from being an externallymanaged investment company (as The Medical Property Investment Fund) to a fullyfledged asset-backed operating group with its own management and staff totallingover 200 people. During the year, there was strong growth in property rentals and values andexcellent progress is being made to generate income streams out of pharmacy and,in due course, clinical services. The Company raised £105.9m (net of expenses) in May 2006 and in October 2006changed its name to Assura Group. The Company now operates through threebusiness divisions: Assura Property, Assura Pharmacy and Assura Medical. TheCompany became a constituent of the FTSE All Share index during 2006 and is nowa constituent of the FTSE 250 index. The Group's objective is to become one of the major companies providing healthcare services to the National Health Service and to its patients. The Group'sstrategy is to develop and own modern facilities in primary care, establishintegrated pharmacies across the UK and to form joint venture Limited LiabilityPartnerships with groups of GPs to provide out-patient, diagnostics and day caseprocedures outside of hospitals in the community. Managing the expansion and delivery of services at the rate we are experiencingis a major challenge for all the management and staff and I am confident we havea strong and dynamic team in place to achieve this. The new financial period has started well and we look forward with optimism tothe rest of the year. Dr Mark JacksonNon-Executive Chairman26 March 2007 Chief Executive's Statement Overview 2006 was a very satisfactory year for the Group and I am pleased to reportstrong progress in acquiring and developing properties, the successfuldevelopment of the Group's pharmacy operating business and the launch of the newmedical provider business which has been developed to assist GP practices andrelated health professionals to meet many of the objectives of Practice BasedCommissioning by becoming providers themselves to enable the shift of outpatientand other services from hospitals into primary care. Operating Review During the year, total revenue amounted to £16.1m (2005: £7.0m) producing agroup operating profit of £12.9m (2005: loss of £10.6m). The property division earned a net profit of £17.6m (2005: £3.1m)); the pharmacydivision incurred a loss of £3.1m (2005: £0.7m); while the medical divisionearned no income prior to 31 December but start up costs have resulted in a netloss of £2.3m (2005: £nil). For the foreseeable future, the Group intends to continue financing the lossesin its pharmacy and medical businesses from the rental income received from itsproperty portfolio. Over the medium term, the Group's strategy is to blend thethree income streams from property rents, pharmacy branch profits and the shareof profits from medical joint ventures to achieve a Group return on capitalemployed before central costs, financing charges and tax of at least 10%. Market Overview The Department of Health published a White Paper in January 2006 which set outthe vision for the future of health care in the United Kingdom for the next fiveyears. The key areas of change are focused on an increased delivery of servicewithin primary and community care rather than in hospitals. In addition, coresupport services such as diagnostics are to be relocated next to traditionalgeneral practices. The key outcomes are designed to be an improvement in thequality and convenience of services making them the most compelling choiceoption available to patients. Subsequent Department of Health guidancepublished during 2006 further encourages all primary care providers to registerand be approved by local PCTs to become "willing providers" eligible to receivetariff payments for services that meet the quality standards. Strategic Health Authorities and Primary Care Trusts were reorganised during2006 and it has been the Group's aim to align its strategy very closely to theobjectives defined by the new management of these organisations. The Grouprecognises that if a significant number of services are to move from hospitalsinto the community, it will need to work closely with such organisations, aswell as the acute sector, to ensure that service reconfiguration towards primarycare can be profitable to provider organisations whilst at the same time notupsetting local health economies. Property DivisionAs at 20 March 2007, the Group's property division had committed £430m across118 sites including 16 which are currently in solicitors' hands. The netinitial yield on all capital commitments averages circa 6.5% and whilstrevaluation surpluses (see below) have been credited on completed properties,there remain, assuming current valuation yields, inbuilt ongoing revaluationsurpluses within the development pipeline. The Group's property assets were independently valued by Savills and, as at 31December 2006, the net average valuation yield on all purchased and completedproperty stood at 5.56%. During the year, the Group benefited from a surplus onrevaluation of its property portfolio of £17.0m (2005: £2.2m). This figure isafter the payment of all property acquisition costs which arose in the year. TheGroup's profitable development pipeline and rental growth should enablerevaluation surpluses to continue in 2007 notwithstanding any stabilisation ofproperty yields which have fallen steadily in recent years. The Group settled rent reviews on 11 properties during 2006 resulting in anaggregate increase of 17.6% on the passing rent relating to those properties.As at 31 December 2006, the portfolio had an average rent of £144.4 per squaremetre on General Medical space and an average weighted income un-expired term of19 years. =We are continuing our strategy of further property investment and developmentand continue to focus on expanding the Company's existing primary carefacilities and/or relocating them, if applicable, to larger, newer premisesdeveloped by the Group and its local developer partners. The Group intends todevelop and retain for long term investment: one-stop-shop primary care resourcecentres; community hospitals; and GP surgeries. The main focus has been thecreation of a pipeline of committed developments and good progress has been madeduring the year. Following the announcement of the reorganisation of PCTs at the end of 2005,2006 was characterised by a period of indecision and uncertainty amongst key PCTdecision makers especially relating to the rental commitments for newdevelopment projects. Now that the new management teams of PCTs have beenformed, we are beginning to see greater confidence and improved decision makinggenerally. To accelerate and facilitate this process, the Group is prepared to takecareful, measured development risk and build new premises where potentialtenants have yet to commit. On all of its larger developments, the Groupintends to incorporate integrated pharmacy facilities as well as buildadditional space to house its medical division activities. Pharmacy DivisionThe Group has made excellent progress during the year with the development ofits own pharmacy operating business, Assura Pharmacy Limited, which now has tenpharmacies trading within medical centres owned by the Group. The Group is ontarget to open 20 integrated pharmacies by the end of 2007 and has plans to haveat least 30 open by the end of 2008. Acquisitions of pharmacies for developmentpurposes is an important part of the Group's long term pharmacy strategy whichis to provide integrated pharmacy services across the UK. The Group's vision of integrated pharmacies is in line with new governmentpolicy which envisages closer alignment of pharmacy and primary care tofacilitate improved clinical outcomes and enhance the patient journey. TheGroup also sees significant commercial advantages to this integrated modelthrough the development of enhanced services in the communities which thepharmacies serve, making use of advances such as electronic transfer ofprescriptions as well as coordinated stock holding and seamless IT. The greatercooperation between health professionals and pharmacists should reduce theburden on GPs. This type of activity accords with the new pharmacy contract andthe Government's 'A Vision for Pharmacy in the new NHS.' The Group has initiated a business planning process to consider whether itshould extend its pharmacy activities into a direct to consumer offering. Medical Division The Group's medical division has been pursuing innovative and sustainable waysto work with larger GP practices and locality groups of GPs. By working inpartnership with existing GPs and health professionals, the Group can provide amuch wider range of facilities and services closer to patients, taking fulladvantage of the opportunities identified in the White Paper and made availablefrom the recent introduction of Practice Based Commissioning. Underpinning thisis the intention to ensure that Assura LLPs provide the highest quality servicesfor patients to choose. Furthermore, with the guidance published by theDepartment of Health in 2006 regarding eligibility of tariffs to any "willingprovider", it is the objective of the Group to ensure that all of its jointventures with GPs are recognised as "willing providers" allowing most servicesto be carried out to be eligible for payment at tariff. The encouragement to move secondary care services into the community createsmany new opportunities and accords with the Group's building designs that arefully flexible and engineered to support a wide range of care provision anddemand in a rapidly developing market that will inevitably continue to changeand evolve over the coming years. Five joint venture pilot projects are underway involving circa 600,000 patientsand heads of terms have been signed for a further three joint venturescomprising an additional 400,000 patients. In the majority of the pilotprojects we have found the number of GP practices joining the LLPs has increasedas the business model is better understood. As a result, the service potentialof the LLPs is significantly strengthened given the increased patientpopulations the LLPs are treating. The Group intends to continue with a nationalroll out of more joint ventures later this year. With each joint venture, the Group forms 50:50 LLPs with groups of GPs aiming toprovide out-patient, diagnostic and day-case procedures to patients in primarycare or community settings. The GPs core family doctor practices andpartnerships remain unaltered. The Group provides each joint venture withstart-up capital and working capital, property and property developmentresources (if required), integrated pharmacy (if possible), bidding expertisedetailing new models of care pathways developed specifically for primary care,and "informatics" to ensure high quality auditing of clinical data andprocesses, including unique localised patient record and referral data.Efficiencies in the operation should provide savings to the PCTs as well asprofits which can be shared between Assura and the GPs. Whilst it is very earlydays, this new business is proving attractive to large numbers of GPs andpractice partnerships throughout the UK. Assura intends to become a "willing provider" in each of the pilot joint ventureareas and it is anticipated that a number of out-patient services, proceduresand related diagnostics will commence during 2007. The Group is targeting thefollowing areas for out-patient services within its joint ventures:musculo-skeletal; minor surgery; ophthalmology; gynaecology; ENT; dermatology;rheumatology; urology; cardiology; GUM; endoscopy; and gastroenterology. Berrington Acquisition On 15 May 2006 the Group acquired the entire share capital of its former fundmanager, Assura Administration Limited (formerly Berrington Fund ManagementLimited) and related parties and thereby changed from being an externallymanaged fund to a Group with its own internal management team whose goals arenow firmly aligned with those of the shareholders of the Company. Subsequentlythe Group also internalised both its UK based property management team and itsadministration team in Guernsey to achieve enhanced communication and long termcost benefits. Following the acquisition of its former fund manager during the year, the Groupnow also benefits from fee income derived from the fund management contract withThe Westbury Property Fund Limited, a fully listed commercial property and portsbusiness which has enjoyed strong performance since its inception in 2002. Change of Name of the Company As a result of the expansion of the Group's activities to include both pharmacyand clinical services, the name of the Company was changed from The MedicalProperty Investment Fund Limited to Assura Group Limited on 27 October 2006.The Group now operates through three business divisions: Assura Property;Assura Pharmacy; and Assura Medical. Dividends When the Company floated in November 2003, it committed to a progressivedividend policy. The Board, having given due regard to the underlyingprofitability of the Company, has recommended a final dividend of 4p (2005:3.34p) per Ordinary Share making a total of 6p per Ordinary Share for the year(2005: 5p). Outlook The outlook for the Group is extremely positive and there is significantearnings potential supported by the favourable reforms taking place within theNHS. The Company has a strong pipeline of property developments, it hasestablished its integrated pharmacy model which is growing strongly and is nowexpanding its medical services businesses by working in joint venturepartnership with GPs. Richard Burrell Chief Executive Officer 26 March 2007 Chief Financial Officer's Statement Segmental Results The Group is engaged in three business segments, being primary care premisesinvestment and development, pharmacy, and medical services. Full details of theresults from each segment are disclosed in note 17 to the financial statements. Financing The Company successfully raised a further £105.9m (net of associated expenses)of equity capital from shareholders during the year to finance its futureexpansion. As at 31 December 2006, the Group had net assets of £267.5m and netdebt of £28.2m. Heads of Terms have been agreed with the Group's bank, NationalAustralia Bank, to increase the Group's bank facility from the current level of£100m to £250m, utilising its low cost securitisation conduit, the interest ratemargin on which is 0.35%. On 2 November 2006 the Company increased its interest rate swap which will risefrom £100m to £150m at 30 June 2007 and to £200m at 31 December 2007, all fixeduntil 31 December 2027 at a rate of 4.59%. The swap was revalued at 31 December2006 leading to a valuation gain in the year of £5.7m (2005: deficit of £3.5m). The Company was admitted to the FTSE All Share index on 15 December 2006 and tothe FTSE 250 index on 21 December 2006. Net Asset Value Including the property and swap revaluation, and after dividends paid toordinary shareholders of £9.4m (2005: £6.2m), the profit retained for the yearamounted to some £9.5m (2005: loss of £18.7m). This profit resulted in an increase in the diluted net asset value per sharefrom 82.81p as at 31 December 2005 to 114.3p as at 31 December 2006. Reserves On 2 June 2006, and following approval of both shareholders and the Royal Courtof Guernsey, the Company transferred £25m from share premium to distributablereserve. Subject to shareholder and Royal Court approval, it is intended that the balancestanding to the share premium account will be transferred to distributablereserves. Tax The Company's UK trading subsidiaries, primarily Assura Pharmacy Limited, AssuraMedical Limited and Assura Fund Management LLP, are all subject to CorporationTax in the UK. However, retention of the Group's property portfolio in AssuraProperty Limited, an offshore subsidiary of the Company, does protect the Groupfrom capital gains tax exposure and enable some tax to be sheltered throughintra group loans on arms length terms. The Group aims to achieve superior returns from integrated property, pharmacyand medical services, and does not intend to separate its property portfoliointo a Real Estate Investment Trust (REIT) in the near future. Assura Fund Management LLP Assura Fund Management LLP receives management fees and is entitled toperformance fees in due course from its management of The Westbury Property FundLimited. Assura Fund Management's 55% share of performance fees accrued in theaccounts of the latter fund, but not provided for in these accounts, amounts to£5.3m, £4.2m of which accrued in the year ended 31 December 2006. Local Improvement Finance Trusts (LIFTs) Local Improvement Finance Trusts were formed to develop primary care centres inpartnership between the public and private sectors. The Group has invested inthree LIFT companies through Assura LIFT Holdings Limited (formerly BHE HoldingsLimited), and has a further LIFT investment through its shareholding inInfracare (Midlands) Limited. Assura LIFT Holdings Limited has also beenappointed as preferred bidder on one additional LIFT and reached the finaltender stage (one of three bidders) on a further LIFT where the preferred bidderhas yet to be announced. The Group currently has £3.8m of capital committed toLIFT. Costs associated with LIFT and other major procurement bids which provedunsuccessful in 2006 amounting to £1.0m have been fully written off. No credithas been taken in these financial statements for success and other fees whichthe Group will benefit from in the future from the Group's successful bids. Change of Year End At the time of flotation in 2003, the Group adopted a 31 December year end.With the anticipated growth of both the pharmacy and medical businesses and withthe NHS becoming the Group's largest trading partner, the Board has concludedthat a 31 March year end would be more appropriate given that most organisationslinked to the NHS, including our medical joint venture partners, adopt a Marchyear end. Accordingly, and subject to shareholder approval, the Group willpublish 15 month figures to 31 March 2008, a nine month interim statement to 30September 2007 and quarterly trading statements in respect of the periods to 30June and 31 December. Nigel Rawlings Chief Financial Officer 26 March 2007 Assura Group Limited Consolidated Income Statement For the year from 1 January 2006 to 31 December 2006 2006 2005 Notes £ £ Revenue 5 16,123,418 7,015,903Cost of sales 6 (3,625,536) (480,056) Gross profit 12,497,882 6,535,847 Administrative expenses 7 13,843,128 6,241,364Other expenses 8 1,279,114 - 15,122,242 6,241,364Group trading (losses)/profit (2,624,360) 294,483 Other operating income 9 17,041,231 2,165,005Share of post tax losses of associates and joint ventures 10 (1,454,321) -accounted for using the equity methodExceptional pharmacy establishment cost 11 (1,105,000) -Movement in performance fee provision 4 1,010,000 (13,050,000) Group operating profit/(loss) from continuing operations 12,867,550 (10,590,512) Finance revenue 12 6,706,724 1,729,486Finance costs 13 (1,105,442) (3,691,649) 5,601,282 (1,962,163)Profit/(loss) before taxation 18,468,832 (12,552,675)Taxation 14 (39,646) (98,241) Profit/(loss) for the year 18,429,186 (12,650,916) Profit/(loss) for the year attributable to:Equity holders of the parent 18,900,446 (12,498,440)Minority interest (471,260) (152,476) 18,429,186 (12,650,916) Earnings per share (pence)Basic earnings per share on profit/(loss) for the year 15 9.68p (8.78)pDiluted earnings per share on profit/(loss) for the year 15 9.44p (8.78)p All items in the above statement are derived from continuing operations. The accompanying notes on form an integral part of the financial statements Assura Group Limited Consolidated Balance Sheet As at 31 December 2006 2006 2005 Notes £ £Non-current AssetsInvestment property 19 213,132,257 133,113,272Development property 20 35,230,758 15,789,299 Investments in associates 21 1,069,744 1,367,973Investments in joint ventures 21 868,805 - Intangible assets 22 36,997,920 5,928,478 Property, plant and equipment 23 5,973,572 35,133 Other investments 24 250,000 - Derivative financial instruments at fair value 12 2,202,305 - 295,725,361 156,234,155Current AssetsCash and cash equivalents 25 18,841,640 3,745,649Debtors 26 9,891,396 3,537,457Pharmacy inventories 567,290 -Property work in progress 3,239,193 731,387 32,539,519 8,014,493Total Assets 328,264,880 164,248,648 Current LiabilitiesBank overdraft 27 2,134,942 -Creditors 28 11,793,107 3,324,178Corporate tax and other taxes 599,003 161,834 14,527,052 3,486,012Non-current LiabilitiesLong term loan 29 44,948,569 24,929,710Payments due under finance leases 28 1,289,180 1,380,770Performance fee provision 4 - 13,050,000Derivative financial instruments at fair value 12 - 3,472,319 46,237,749 42,832,799Total Liabilities 60,764,801 46,318,811 Net Assets 267,500,079 117,929,837 Represented by:Capital and ReservesShare capital 30 22,593,170 14,240,385Share premium 31 226,678,243 122,239,453Distributable reserve 32 15,563,743 -Retained earnings 33 1,851,738 (18,327,822)Revaluation reserve 34 106,000 - Deferred consideration reserve 35 790,000 - 267,582,894 118,152,016 Minority interest (82,815) (222,179) Total Equity 267,500,079 117,929,837 Basic Net Asset Value per Ordinary Share 36 118.40p 82.81pDiluted Net Asset Value per Ordinary Share 36 114.32p 82.81p The financial statements were approved at a meeting of the Board of Directorsheld on 26 March 2007 and signed on its behalf by: Dr John Curran, Deputy Chairman Peter Pichler, Director The accompanying notes form an integral part of the financial statements. Assura Group Limited Consolidated Statement of Changes of Equity For the year from 1 January 2006 to 31 December 2006 Share Share Distributable Retained Revaluation Minority Deferred Total Premium Reserve Earnings Reserve Interest Consideration Capital Reserve £ £ £ £ £ £ £ £ 1 January 2006 14,240,385 122,239,453 - (18,327,822) - (222,179) - 117,929,837Issue of -Ordinary Shares 9,159,462 133,644,568 - - - - 142,804,030Treasury shares (806,677) - - - - - - (806,677)Issue costs on -issuance ofOrdinary Shares - (4,205,778) - - - - (4,205,778)Transfer from -share premium(1) - (25,000,000) 25,000,000 - - - -Minority -interestacquired in year - - - - - 610,624 610,624Dividends on -Ordinary Shares - - (9,436,257) - - - (9,436,257)Profit/(loss) -attributable toequity holders - - - 18,900,446 - (471,260) 18,429,186and mirnorityinterestCost of employee -share basedincentives - - - 1,279,114 - - 1,279,114Deferred share - - - - - - 790,000 790,000basedconsiderationRevaluation of -land & buildings - - - - 106,000 - 106,00031 December 2006 22,593,170 226,678,243 15,563,743 1,851,738 106,000 (82,815) 790,000 267,500,079 Share Share Distributable Retained Revaluation Minority Deferred Total Capital Premium Reserve Earnings Reserve Interest Consideration Reserve £ £ £ £ £ £ £ £ 1 January 2005 14,240,385 122,239,453 - 336,705 - (69,703) - 136,746,840Dividends on -Ordinary Shares - - - (6,166,087) - - (6,166,087)Loss - (12,650,916)attributable toequity holders - - - (12,498,440) - (152,476)and minorityinterest -31 December 2005 14,240,385 122,239,453 - (18,327,822) - (222,179) - 117,929,837 1. Following an application to the Royal Court of Guernsey, £25m was transferredfrom Share Premium account to Distributable Reserves on 2 June 2006. The accompanying notes form an integral part of the financial statements. Assura Group Limited Consolidated Cash Flow Statement For the year from 1 January 2006 to 31 December 2006 2006 2005 Note £ £Operating ActivitiesRent received 9,254,036 5,680,156Pharmacy sales 2,791,988 -Fees received 2,593,622 354,231Bank and other interest received 1,032,100 1,835,670Expenses paid (11,869,067) (5,274,400)Pharmacy purchases (2,099,193) -Interest paid and similar charges (1,554,796) - Net cash inflow from operating activities 37 148,690 2,595,657 Investing ActivitiesPurchase of development and investment property (68,398,821) (70,962,044)Purchase of investments in associated companies (200) (35)Purchase of other investments (250,000) -Purchase of fixed assets (3,498,136) (35,678)Pharmacy development costs (247,676) (36,458)Cash paid on acquisition of subsidiaries (14,269,405) -Costs incurred on acquisition of subsidiaries (1,377,215) -Acquisition of subsidiaries - cash acquired 3,433,264 (24,252)Cost of property work in progress (2,694,105) (12,722,648)Loans advanced to associated companies (1,118,697) (431,615)Loans advanced to joint ventures (906,000) - Net cash outflow from investing activities (89,326,991) (84,212,730) Financing ActivitiesIssue of Ordinary Shares for cash 110,039,336 -Issue costs paid on issuance of Ordinary Shares (4,205,778) -Dividends paid (9,436,257) (6,166,087)Repayment of term loan (64,000,000) -Drawdown of term loan 72,000,000 25,500,000Loan issue costs (123,009) (622,135) Net cash inflow from financing activities 104,274,292 18,711,778 Increase/(Decrease) in cash and cash equivalents 15,095,991 (62,905,295) Cash and cash equivalents at 1 January 3,745,649 66,650,944 Cash and cash equivalents at 31 December 18,841,640 3,745,649 The accompanying notes form an integral part of the financial statement. Notes to the Consolidated Financial Statements 1. Corporate Information and Operations Assura Group Limited is a closed-ended investment company incorporated inGuernsey whose investment objective is to achieve capital growth and risingrental income from the ownership and development of a diversified portfolio ofprimary health care properties and the provision of related services, includingpharmacy and medical services. 2. Principal Accounting Policies Basis of Preparation The financial statements of the Group and Company have been prepared inconformity with International Financial Reporting Standards (IFRS) issued by theInternational Accounting Standards Board, interpretations issued by theInternational Financial Reporting Interpretations Committee and applicable legaland regulatory requirements of Guernsey Law, and reflect the following policies. The Financial Statements are presented in pounds sterling. Consolidation The Group financial statements consolidate the financial statements of AssuraGroup Limited and its subsidiary undertakings drawn up to 31 December 2006. All intra-group balances, transactions, income and expenses and profits andlosses resulting from intra-group transactions that are recognised in assets,are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the dateon which the Group obtains control, and continue to be consolidated until thedate that such control ceases. Control comprises the power to govern thefinancial and operating policies of the investee so as to obtain benefit fromits activities and is achieved through direct or indirect ownership of votingrights; currently exercisable or convertible potential voting rights; or by wayof contractual agreement. The financial statements of subsidiaries used in thepreparation of the consolidated financial statements are prepared for the samereporting year as the parent company and are based on consistent accountingpolicies. All inter-company balances and transactions, including unrealisedprofits arising from them, are eliminated. Minority interests represent the portion of profit or loss and net assets notheld by the Group and are presented separately in the income statement andwithin equity in the consolidated balance sheet, separately from parentshareholders' equity. Acquisitions of minority interests are accounted for usingthe parent entity extension method, whereby the difference between theconsideration and the book value of the share of the net assets acquired isrecognised as goodwill. Segmental Reporting The Directors are of the opinion that the Group is engaged in three businesssegments, being primary care premises investment, development and associatedproperty related services including property fund management; pharmacy; andmedical services. All the Group's activities and investments in primary healthcare properties and related activities are situated in the United Kingdom and inGuernsey. Revenue recognition Revenue is recognised to the extent that it is probable that the economicbenefits will flow to the Group and the revenue can be reliably measured.Revenue is measured at the fair value of the consideration received, excludingdiscounts, rebates, and other sales taxes or duty. The following specificrecognition criteria must also be met before revenue is recognised: Pharmacy sales - Revenue from the sale of goods from the Group pharmacy businessis recognised when the significant risks and rewards of ownership of the goodshave passed to the buyer, on the date of sale. Interest income - Revenue is recognised as interest accrues using the effectiveinterest method. The effective interest method is the rate that exactlydiscounts estimated future cash receipts through the expected life of thefinancial instrument to the net carrying amount of the financial asset. Dividends - Revenue is recognised when the Company's right to receive thepayment is established. Rental Revenue - Rental income arising from operating leases on investmentproperties is accounted for on a straight line basis over the lease terms and isshown gross of any UK income tax. Property Management Fee Revenue - Property management fee income is accountedfor as services are performed and on an accruals basis. Performance Fee Revenue - Performance fee revenue is recognised once theprobability of receiving said revenue is greater than 90%. ExpensesAll expenses are accounted for on the accruals basis. Dividends In accordance with IAS 10 Events after the Balance Sheet Date, dividends onOrdinary Shares declared before the year end but remaining unpaid are notaccrued for. Exceptional items The Group presents as exceptional items on the face of the income statement,those material items of income and expense which, because of the nature andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison with priorperiods and to assess better trends in financial performance. Share Issue Costs The placing expenses incurred in relation to the Ordinary shares issued in theyear amounted to £4,205,778 and have been written off in full against the sharepremium account. Business Combinations and Goodwill Business combinations are accounted for using the purchase method. This involvesrecognising identifiable assets (including previously unrecognised intangibleassets) and liabilities (including contingent liabilities and excluding futurerestructuring) of the acquired business at fair value. Goodwill acquired in a business combination is initially measured at cost beingthe excess of the cost of the business combination over the Group's interest inthe net fair value of the acquiree's identifiable assets, liabilities andcontingent liabilities. Following initial recognition, goodwill is measured atcost less any accumulated impairment losses. For the purpose of impairmenttesting, goodwill acquired in a business combination is, from the acquisitiondate, allocated to each of the Group's cash generating units, or groups of cashgenerating units, that are expected to benefit from the synergies of thecombination, irrespective of whether other assets or liabilities of the Groupare assigned to those units or groups of units. Each unit or group of units towhich the goodwill is allocated: • represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and • is not larger than a segment based on either the Group's primary or the Group's secondary reporting format determined in accordance with IAS 14 Segment Reporting. Intangible assets Intangible assets acquired separately are measured on initial recognition atcost. The cost of intangible assets acquired in a business combination is fairvalue as at the date of acquisition. Following initial recognition, intangibleassets are carried at cost less any accumulated amortisation and any accumulatedimpairment losses. Costs incurred on development projects (relating to the development of pharmacylicenses) are recognised as intangible assets when it is probable that theproject will be a success considering its commercial and technical feasibilityand its costs can be measured reliably. Other development expenditures that donot meet these criteria are recognised as an expense as incurred. Developmentcosts previously recognised as an expense are not recognised as an asset in asubsequent period. The useful lives of intangible assets are assessed to be either finite orindefinite, and the costs are expensed over the life of the asset. Intangible assets with indefinite useful lives are tested for impairmentannually either individually or at the cash generating unit level. Suchintangibles are not amortised. The useful life of an intangible asset with anindefinite life is reviewed annually to determine whether indefinite lifeassessment continues to be supportable. If not, the change in the useful lifeassessment from indefinite to finite is made on a prospective basis. Both goodwill and capitalised development costs have indefinite useful lives andare tested for impairment annually as of 31 December either individually or atthe cash generating unit level, as appropriate. Goodwill is allocated to cash generating units for the purpose of impairmenttesting. This allocation is made to those cash generating units that areexpected to benefit from the business combination in which the goodwill arose. The recoverable amount of a cash generating unit is determined based onvalue-in-use calculations. These calculations use cash flow projections based ondetailed financial models prepared by management, with all anticipated futurecash flows discounted to current day values. Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that anasset may be impaired. If any such indication exists, or when annual impairmenttesting for an asset is required, the Group makes an estimate of the asset'srecoverable amount. An asset's recoverable amount is the higher of an asset's orcash-generating unit's fair value less costs to sell and its value in use and isdetermined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups ofassets. Where the carrying amount of an asset exceeds its recoverable amount,the asset is considered impaired and is written down to its recoverable amount.In assessing value in use, the estimated future cash flows are discounted totheir present value using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. Indetermining fair value less costs to sell, an appropriate valuation model isused. These calculations are corroborated by valuation multiples. Impairment losses of continuing operations are recognised in the incomestatement in those expense categories consistent with the function of theimpaired asset, except for property previously revalued where the revaluationwas taken to equity. In this case the impairment is also recognised in equity upto the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date asto whether there is any indication that previously recognised impairment lossesmay no longer exist or may have decreased. If such indication exists, the Groupmakes an estimate of recoverable amount. A previously recognised impairment lossis reversed only if there has been a change in the estimates used to determinethe asset's recoverable amount since the last impairment loss was recognised. Ifthat is the case the carrying amount of the asset is increased to itsrecoverable amount. That increased amount cannot ''exceed' the carrying amountthat would have been determined, net of depreciation, had no impairment lossbeen recognised for the asset in prior years. Such reversal is recognised in theincome statement unless the asset is carried at revalued amount, in which casethe reversal is treated as a revaluation increase. Impairment losses recognisedin relation to goodwill are not reversed for subsequent increases in itsrecoverable amount. Investments in Subsidiary Companies Investments in subsidiary companies are initially recognised and subsequentlycarried at cost in the Company Financial Statements, less any provisions fordiminution in value. Investments in Associates The Group's investments in associates are accounted for under the equity methodof accounting. An associate is an entity in which the Group has significantinfluence and which is neither a subsidiary nor a joint venture. Under the equity method, investments in the associates are carried in thebalance sheet at cost plus post-acquisition changes in the Group's share of netassets of the associates. After application of the equity method, the Groupdetermines whether it is necessary to recognise additional impairment loss withrespect to the Group's net investment in the associates. The consolidated incomestatement reflects the share of the results of operations of the associatesafter tax. Where there has been a change recognised directly in the equity ofthe associates, the Group recognises its share of any changes and disclosesthis, when applicable, in the Statement of Changes in Equity. Any goodwill arising on the acquisition of an associate, representing the excessof the cost of the investment compared to the Group's share of the net fairvalue of the associate's identifiable assets, liabilities and contingentliabilities, is included in the carrying amount of the associate and is notamortised. The financial statements of the associates are prepared for the same reportingyear as the Group or with a maximum difference of no more than three monthswherever possible, using consistent accounting policies. Investments in Joint Ventures The Group has interests in joint ventures which are jointly controlled entities.A joint venture is a contractual arrangement whereby two or more partiesundertake an economic activity that is subject to joint control, and a jointlycontrolled entity is a joint venture that involves the establishment of aseparate entity in which each venturer has an interest. The Group recognises itsinterest in joint ventures using equity accounting. The equity accounting methodis described in the 'Investments in Associates' accounting policy above. The financial statements of the joint ventures are prepared for the samereporting year as the Group or with a maximum difference of no more than threemonths. Other Investments Other investments are non-derivative financial assets that are not quoted in anactive market. After initial measurement at fair value, other investments aresubsequently carried at amortised cost using the effective interest method lessany allowance for impairment. Amortised cost is calculated taking into accountany discount or premium on acquisition and includes fees that are an integralpart of the effective interest rate and transaction costs. Gains and losses arerecognised in the Income Statement when the loans and receivables arederecognised or impaired, as well as through the amortisation process. Investment Property - Freehold Freehold properties are initially recognised at cost, being the fair value ofconsideration given, including transaction costs associated with the property. After initial recognition, freehold investment properties are measured at fairvalue, with unrealised gains and losses recognised in the Consolidated IncomeStatement. Fair value is based upon the open market valuations of theproperties as provided by Savills Commercial Limited, a firm of independentchartered surveyors, as at the balance sheet date. Investment Property - Long Leasehold Long leasehold properties are initially recognised as both an asset and leasecreditor at the present value of the ground rents payable over the term of thelease. Long leasehold property are subsequently revalued in accordance with IAS40 up to the fair value as advised by the independent valuer as noted above forfreehold properties. The lease creditor is amortised over the term of the leaseusing the effective interest method. The lease payments are apportioned between the reduction of the lease liabilityand finance charges in the income statement. Investment Property Transfers Transfers are made to investment property when there is a change in use,evidenced by the end of owner occupation, commencement of an operating lease toanother party or completion of construction or development. Transfers are madefrom work in progress to development property upon completion of the purchase ofthe land and upon commencement of the development or construction. Transfers are made from investment property when, and only when, there is achange in use, evidenced by commencement of owner occupation or commencement ofdevelopment with a view to sale. For a transfer from investment property to owner occupied property, the deemedcost of property for subsequent accounting is its fair value at the date ofchange in use. If the property occupied by the Group as an owner occupiedproperty becomes an investment property, the Group accounts for such property inaccordance with the policy stated under property, plant and equipment up to thedate of change in use. For a transfer from development to investment property,any difference between the fair value of the property at that date and itsprevious carrying amount is recognised in the income statement. When the Groupcompletes the construction or development of a self constructed investmentproperty, any difference between the fair value of the property at that date andits previous carrying amount is recognised in the income statement. Development Property Development property which comprises buildings under construction includescapitalised interest where applicable and is carried at cost or, if lower, netrealisable value. Cost includes all directly attributable third partyexpenditure incurred. Property, plant and equipment Plant and equipment is stated at cost, excluding the costs of day to dayservicing, less accumulated depreciation and accumulated impairment in value.Such cost includes the cost of replacing part of the plant and equipment whenthat cost is incurred, if the recognition criteria are met. Land and buildings are measured at fair value less depreciation on buildings andimpairment charged subsequent to the date of the revaluation. Fair value isbased on independent values of the property apportioned between that elementused for the business of the Group and that element rented to third parties. Depreciation is provided on a straight line basis at rates calculated to writeoff the cost less estimated residual value of each asset over its useful life,as follows: Building work and long leasehold improvements 25 yearsFixtures and fittings 4 yearsOffice and computer equipment 3 yearsMedical equipment 10 years Valuations are performed frequently enough to ensure that the fair value of arevalued asset does not differ materially from its carrying amount. Anyrevaluation surplus is credited to the asset revaluation reserve included in theequity section of the balance sheet, except to the extent that it reverses arevaluation decrease of the same asset previously recognised in profit or loss,in which case the increase is recognised in profit or loss. A revaluationdeficit is recognised in profit or loss, except that a deficit directlyoffsetting a previous surplus on the same asset is directly offset against thesurplus in the asset revaluation reserve. An annual transfer from the asset revaluation reserve to retained earnings ismade for the difference between depreciation based on the revalued carryingamount of the assets and depreciation based on the asset's original cost.Additionally, accumulated depreciation as at the revaluation date is eliminatedagainst the gross carrying amount of the asset and the net amount is restated tothe revalued amount of the asset. Upon disposal, any revaluation reserverelating to the particular asset being sold is transferred to retained earnings. When each major inspection is performed, its cost is recognised in the carryingamount of the plant and equipment as a replacement if the recognition criteriaare satisfied. An item of property, plant and equipment is derecognised upon disposal or whenno future economic benefits are expected from its use or disposal. Any gain orloss arising on derecognition of the asset (calculated as the difference betweenthe net disposal proceeds and the carrying amount of the asset) is included inthe income statement in the year the asset is derecognised. The assets' residual values, useful lives and methods of depreciation arereviewed, and adjusted if appropriate, at each financial year end. Financial assets Financial assets within the scope of IAS 39 are classified as either financialassets at fair value through profit or loss or loans and receivables, asappropriate. When financial assets are recognised initially, they are measuredat fair value, plus, in the case of investments not at fair value through profitor loss, directly attributable transaction costs. The Group considers whether acontract contains an embedded derivative when the entity first becomes a partyto it. The embedded derivatives are separated from the host contract which isnot measured at fair value through profit or loss when the analysis shows thatthe economic characteristics and risks of embedded derivatives are not closelyrelated to those of the host contract. The Group determines the classification of its financial assets after initialrecognition and, where allowed and appropriate, re-evaluates this designation ateach financial year end. Derivative Financial Instruments and Hedging Activities The Group uses derivative financial instruments, in the form of interest rateswaps, to hedge its risks associated with interest rate fluctuations. The grouphas classified its derivative instruments as financial assets at fair valuethrough profit or loss. Derivatives are initially recognised at fair value onthe date a derivative contract is entered into and are subsequently remeasuredat their fair value. Derivatives are carried as assets when the fair value is positive and asliabilities when the fair value is negative. The fair value of hedging derivatives are classified as a non-current asset orliability if the remaining maturity of the hedged item is more than 12 months,and as a current asset or liability if the remaining maturity of the hedged itemis less than 12 months. The fair value of interest rate swap contracts is determined by reference tomarket values for similar instruments. Changes in the fair value of any derivative instruments that do not qualify forhedge accounting are recognised immediately in the Income Statement. Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. After initialmeasurement loans and receivables are subsequently carried at amortised costusing the effective interest method less any allowance for impairment. Amortisedcost is calculated taking into account any discount or premium on acquisitionand includes fees that are an integral part of the effective interest rate andtransaction costs. Gains and losses are recognised in the income statement whenthe loans and receivables are derecognised or impaired, as well as through theamortisation process. Loans to Subsidiary Companies The unsecured subordinated loan to Assura Property Limited has been accountedfor as an originated loan under IFRS. This loan and other loans to subsidiarycompanies, have been accounted for on an amortised cost basis with intercompanyinterest being recognised under the effective interest rate method. The loansare reviewed regularly for impairment. Capitalisation of interest Finance costs which are directly attributable to the development of investmentproperty are capitalised as part of the cost of the investment property. Thecommencement of capitalisation begins when both finance costs and expenditurefor the property are being incurred and activities that are necessary to preparethe asset ready for use are in progress. Capitalisation ceases when all theactivities that are necessary to prepare the asset for use are complete. Inventories and Work in Progress Pharmacy inventories are valued at the lower of cost and net realisable value.Net realisable value is the estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. Cost is defined as average purchase price. Property work in progress comprises costs incurred on potential propertydevelopment and investment opportunities. Costs are written off to the IncomeStatement if the project becomes abortive. Costs are transferred to investmentproperty if the opportunity results in the purchase of an income generatingproperty. Costs are transferred to development property on acquisition of theland or development site. Cash and Cash Equivalents Cash and cash equivalents are defined as cash in hand, demand deposits, andhighly liquid investments readily convertible to known amounts of cash andsubject to insignificant risk of changes in value. For the purposes of theConsolidated Cash Flow Statement, cash and cash equivalents consist of cash inhand and deposits in banks. Bank Loans and Borrowings All bank loans and borrowings are initially recognised at fair value of theconsideration received, less issue costs where applicable. After initialrecognition, all interest-bearing loans and borrowings are subsequently measuredat amortised cost using the effective interest method. Amortised cost iscalculated by taking into account any discount or premium on settlement. Share-based payment transactions Employees (including senior executives) of the Group receive remuneration in theform of share-based payment transactions, whereby employees render services asconsideration for equity instruments ('equity settled transactions'). Employeesworking in the business development group are granted share appreciation rights,which can only be settled in cash ('cash-settled transactions'). In situations where some or all of the goods or services received by the entityas consideration for equity instruments cannot be specifically identified, theyare measured as the difference between the fair value of the share-based paymentand the fair value of any identifiable goods or services received at the grantdate. For cash-settled transactions, the liability is measured at each reportingdate until settlement. Equity-settled transactions The cost of equity-settled transactions with employees, for awards granted, ismeasured by reference to the fair value at the date on which they are granted.The fair value is determined by reference to market price on the date of grant. In valuing equity-settled transactions, no account is taken of any vestingconditions, other than conditions linked to the price of the shares of thecompany (market conditions). The cost of equity-settled transactions is recognised by a change in the IncomeStatement, together with a corresponding credit in retained earnings, over theperiod in which the performance and/or service conditions are fulfilled, endingon the date on which the relevant employees become fully entitled to the award('the vesting date'). The cumulative expense recognised for equity-settledtransactions at each reporting date until the vesting date reflects the extentto which the vesting period has expired and the Group's best estimate of thenumber of equity instruments that will ultimately vest. The income statementcharge or credit for a period represents the movement in cumulative expenserecognised as at the beginning and end of that period. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition, which are treatedas vesting irrespective of whether or not the market condition is satisfied,provided that all other performance conditions are satisfied. Where the terms of an equity-settled award are modified, the minimum expenserecognised is the expense if the terms had not been modified. An additionalexpense is recognised for any modification, which increases the total fair valueof the share based payment arrangement, or is otherwise beneficial to theemployee as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any cost not yet recognised in the incomestatement for the award is expensed immediately. Any compensation paid up to thefair value of the award at the cancellation or settlement date is deducted fromequity, with any excess over fair value being treated as an expense in theincome statement. Cash-settled transactions The cost of cash settled transactions is measured initially at fair value at thegrant date using a binomial model. This fair value is expensed over the perioduntil vesting with recognition of a corresponding liability. Treasury Shares Assura Group shares held by the company and the group are classified inshareholders' equity as 'treasury shares' and are recognised at cost.Consideration received for the sale of such shares is also recognised in equity,with any difference between the proceeds from sale and the original cost beingtaken to revenue reserves. No gain or loss is recognised in the income statementon the purchase, sale, issue or cancellation of equity shares. Impact of revisions to International Financial Reporting Standards IASB and IFRIC have issued the following standards and interpretations with aneffective date after the date of these financial statements: International Accounting Standards (IAS / IFRSs) Effective dateIFRS 7 Financial Instruments: Disclosures 1 January 2007IFRS 8 Operating Segments 1 January 2009IAS 1 Amendment - Presentation of Financial Statements: Capital 1 January 2007 Disclosures International Financial Reporting Interpretations Committee (IFRIC) Effective dateIFRIC 7 Applying the Restatement Approach under IAS 29 Financial 1 March 2006 Reporting in Hyperinflationary EconomiesIFRIC 8 Scope of IFRS 2 1 May 2006IFRIC 9 Reassessment of Embedded Derivatives 1 June 2006IFRIC 10 Interim Financial Reporting and Impairment 1 November 2006IFRIC 11 IFRS 2 - Group and Treasury Share Transactions 1 March 2007IFRIC 12 Service Concession Arrangements 1 January 2008 The Directors do not anticipate that the adoption of these standards andinterpretations will have a material impact on the Group's financial statementsin the period of initial application. Upon adoption of IFRS 7, the Group will have to disclose additional informationabout its financial instruments, their significance and the nature and extent ofrisks that they give rise to. More specifically the Group will need to disclosethe fair value of its financial instruments and its risk exposure in greaterdetail. There will be no effect on reported income or net assets. 3. Material Agreements (i) Under the terms of an appointment made by the Board on 18 November 2003,Assura Administration Limited (formerly Berrington Fund Management Limited)(AFML) was appointed as Investment Manager to the Company. With effect from 21November 2003 the Investment Manager was paid an aggregate +annual managementfee of 2.0% of the net asset value of the Company payable monthly in arrears.In addition, AFML was entitled to receive a performance fee in respect of theperiod from Admission to 31 December 2008 of 18% of the amount by which themarket value per share exceeds on 31 December 2008 the Placing Price (compoundedannually at 12% per annum) and, thereafter, 18% of the amount by which themarket value per share exceeds the higher of (1) the Placing Price (compoundedannually at 12% per annum) or (2) the highest previous market value per share asstated in the Prospectus dated 18 November 2003 (See also note 4). The Investment Management Agreement ceased following the acquisition of AFML byAssura Group Limited on 15 May 2006. The investment manager had delegated the bulk of its fund management to AssuraFund Management LLP (formerly Berrington Fund Management LLP) which was acquiredby Assura Property Limited on 15 May 2006. Assura Fund Management LLP is the fund manager for The Westbury Property FundLimited from which fees are earned amounting to 1.2% of the gross assets of thatCompany. Part of this work is sub contracted to third parties. The Investment Manager had delegated the management of the investment propertiesowned by Assura Property Limited to Barlows Asset Management Limited. Thiscontract was terminated on 7 August 2006 when the property management staff andsystems utilised by Barlows Asset Management Limited were transferred to AssuraProperty Limited. (ii) Under the terms of an Administration Agreement dated 18 November 2003, theCompany appointed Guernsey International Fund Managers Limited (GIFM) asAdministrator, Secretary and Registrar of the Company. This agreement wasterminated with effect from 27 April 2004. The Company then entered into an Administration Agreement dated 26 April 2004with Mourant Guernsey Limited (Mourant) under which Mourant agreed to provideservices to the Company as Administrator and Secretary to the Company. Mourantwas entitled to an annual fee of £85,000 per annum, such fees being invoicedmonthly in arrears. On 11 September 2006 the agreement was terminated and since that dateadministration and Company secretarial services have been managed internally byAssura Administration Limited from the Company's head office in Guernsey. (iii) Under the terms of a letter of appointment dated 17 November 2003, DrMark Jackson was entitled to an incentive fee in respect of the period from 21November 2003 to 31 December 2008, provided he was then still employed by theCompany, of 2% of the amount by which the market value per share exceeded, on 31December 2008, £1 compounded annually at 12% per annum and, thereafter, 2% ofthe amount by which the market value per share exceeds the higher of (1) £1compounded annually at 12% or (2) the higher previous market value per share. Following recommendations from the Remuneration Committee to the Board of theCompany and in order to bring the incentive and remuneration structure of MarkJackson, non-executive Chairman of the Company, in line with other members ofthe senior Assura team: (a) his existing bonus arrangement (as detailed and provided for in theGroup's 2005 financial statements) was cancelled on 29 December 2006 for a cashpayment of £500,000; and (b) he was awarded 500,000 units pursuant to the Assura Executive EquityIncentive Plan, under which he will become entitled on 31 December 2010 to anumber of shares held in the Assura employee benefit trust determined by theextent to which the total shareholder return performance conditions aresatisfied (see note 30). 4. Performance Fee Provision Based on an effective share price of 170.43p at 31 December 2005, and on theassumption that the performance fees had crystallised on that date, a provisionfor performance fees amounting to £13,050,000 was made in the 2005 financialstatements of which £550,000 was attributable to Dr Mark Jackson on a timeapportioned basis (see note 3). Following the acquisition of the former FundManager by the Company on 15 May 2006, the performance fee provision wasrevalued and a credit of £1,010,000 arose in the year, the balance of£11,490,000 has been eliminated in the consolidated accounts of the Group (seenote 22). Furthermore the performance fee entitlement of Dr Mark Jackson ceasedon 29 December 2006 (see note 3). 5. Revenue 2006 2005 £ £Rent receivable 10,737,808 6,001,041Pharmacy sales 2,791,988 -Fund management and other fees receivable 2,593,622 1,014,862 16,123,418 7,015,903 6. Cost of Sales 2006 2005 £ £Property management expenses 831,707 480,056Pharmacy purchases 2,099,193 -Fund management direct costs 694,636 - 3,625,536 480,056 7. Administrative expenses 2006 2005 £ £Investment Manager's fees 950,078 2,691,686Salaries and other staff costs (i) 6,949,709 1,721,775Legal and professional fees 1,479,451 258,137Audit fees 242,027 38,824Tax and accountancy fees 62,182 7,444Administration fee 74,642 92,584Directors' fees (ii) 274,509 220,370Insurance 101,117 28,471Advertising, PR and marketing 683,607 216,448Abortive transaction costs 983,215 418,820Premises costs 1,035,089 -Travel, accommodation, subsistence and other expenses 705,168 526,182Depreciation 302,334 20,623 13,843,128 6,241,364 (i). Salaries and other staff costs 2006 2005 £ £Wages and salaries 5,677,463 1,589,864Social security costs 643,066 104,467Recruitment costs 391,874 22,290Training costs 160,307 1,240Healthcare costs 38,737 -Temporary staff 24,416 -Pension costs 7,987 3,914Uniforms 5,859 - 6,949,709 1,721,775 The average monthly number of employees during the year was made up as follows: 2006 2005 Property 37 11Medical 13 -Pharmacy 33 - 83 11 Key management staff: 2006 2005 Salaries 1,102,648 -Cost of employee share based incentives 218,467 -Social security costs 132,916 - 1,454,031 - (ii). Directors' Fees 2006 2005During the year each of the Directors received the following fees: £ £ Dr Mark Jackson (Chairman) 100,000 100,000Dr John Curran (Deputy Chairman) 47,500 40,000Mr Graham Chase 27,500 20,000Mr Peter Pichler 27,500 13,945Mr Fred Porter 27,500 20,000Ms Serena Tremlett 17,009 6,425Mr Colin Vibert 27,500 20,000 274,509 220,370 See also Dr Mark Jackson's interest referred to in notes 3 and 4. In addition Dr John Curran, Messrs Pichler and Vibert and Ms Tremlett were paid an additional£10,000 each for consultancy work, the costs of which were capitalised as part of the acquisitioncosts of Assura Administration Limited and related parties. 8. Other Expenses 2006 2005 £ £ Cost of employee share based incentives 1,279,114 - 9. Other Operating Income 2006 2005 £ £ Unrealised surplus on revaluation of investment property 17,041,231 2,165,005 10. Share of post tax losses of associates and joint 2006 2005 ventures accounted for using the equity method £ £ Share of losses of associated companies 1,417,126 -Share of losses of joint ventures 37,195 - 1,454,321 - 11. Exceptional Pharmacy Establishment Cost 2006 2005 £ £ Pharmacy establishment cost 1,105,000 - The Company entered into an arrangement with Pharma-e Limited, of which JohnCurran is a Director and shareholder, to compensate Pharma-e Limited forconsultancy services provided to the Group in connection with establishment ofthe pharmacy business of Assura Pharmacy Limited. The consideration was met bythe issue of 650,000 Ordinary shares in the Company to Pharma-e Limited. 12. Finance revenue 2006 2005 £ £ Bank and other interest 1,032,100 1,729,486Unrealised profit on revaluation of derivative financialinstrument 2,202,305 -Realised profit on revaluation of derivative financial 3,472,319 -instrument 6,706,724 1,729,486 In 2005 the Company entered into a 20 year interest rate swap at a rate of4.5725%, on its full debt facility of £100m. Throughout the year, the swap ratewas below the three month LIBOR rate hence the Company benefited from incomearising from the swap. On 2 November 2006, the swap was increased to £200m(£150m effective from 30 June 2007 and £200m effective from 31 December 2007)all at a new rate of 4.59% expiring on 31 December 2027. Based on the actual 21year swap rate at 29 December 2006, the fair value of this swap was a surplus of£2,202,305 (2005 - deficit of £3,472,319). 13. Finance Costs 2006 2005 £ £ Unrealised loss on revaluation of derivative financial - 3,472,319instrument (see note 12)Long term loan interest payable 1,536,436 204,258Interest capitalised on developments (733,624) (83,592)Swap interest (see note 12) (197,072) (74,443)Non-utilisation fees 189,884 102,452Amortisation of loan issue costs 246,034 51,845Bank & other interest payable 32,580 6Bank charges 31,204 18,804 1,105,442 3,691,649 14. TaxationA reconciliation of the income tax charge applicable to the results from ordinary activities atthe statutory income tax rate to income tax expense at the Group's effective income tax rate(based on the Group's main revenue stream, rental revenue is therefore 22% for Schedule A incometax) for the year is as follows: 2006 2005 £ £ Net profit/(loss) before taxation 18,468,832 (12,552,675)UK Income tax at rate of 22% 4,063,143 (2,761,589)Effects of:Capital gains on revaluation of investment properties not taxable (3,749,071) (476,301)Income not taxable including interest receivable and share of profits (227,062) (380,487)of associates and joint ventures (Gain)/loss on revaluation of derivative financial instrument (1,248,417) 763,910not taxableNet effect of inter company loan interest (2,030,868) (1,150,425)Performance fee provision not tax deductible (222,200) 2,871,000Share based payments not tax deductible 524,505 -Losses arising not relievable against current tax 2,929,616 1,232,133 39,646 98,241 The Company and its Guernsey registered subsidiaries, Assura Property Limited,Assura Administration Limited and Assura Pharmacy Holdings Limited, haveobtained exempt company status in Guernsey under the terms of the Income Tax(Exempt Bodies) (Guernsey) Ordinance 1989 so that they are exempt from Guernseytaxation on income arising outside Guernsey and on bank interest receivable inGuernsey. Each Company is, therefore, only liable to a fixed fee of £600 perannum. The Directors intend to conduct these companies such that they continueto remain eligible for exemption. A taxation charge of £1,800 arose in Guernsey. Assura Property Limited is subject to United Kingdom income tax on incomearising on the investment properties, after deduction of its debt financingcosts, allowable expenses and capital allowances. Assura Property Limited alsohas a place of establishment in the UK and provides management, administrationand related services which are liable to corporation tax in the UK. The Company's UK subsidiaries are subject to United Kingdom corporation tax ontheir profits less losses. Assura LIFT Holdings Limited and its subsidiariesalong with BHE Bonnyrigg Limited, BHE Wand Limited, BHE Heartlands Limited,Assura Medical Limited, Strategis Limited and Assura Pharmacy Limited aresubject to UK taxation and a charge of £37,846 (2005 -£96,441) was incurred inthe year. 15. Profit/(Loss) per Ordinary Share The basic profit/(loss) per Ordinary Share is based on the profit attributableto equity holders of the parent for the year of £18,900,446 (2005 - loss of£12,498,440) and on 195,205,087 Ordinary Shares (2005: 142,403,847), being theweighted average number of Ordinary Shares in issue in the respective year,excluding treasury shares. The diluted profit/(loss) per Ordinary Share is based on the profit for the yearof £18,900,446 (2005 - loss of £12,498,440) and on 200,310,356 Ordinary Shares(2005: 142,403,847), being the weighted average number of Ordinary Shares inissue in the respective year. 2006 2005Weighted average number of shares - basic 195,205,087 142,403,847Weighted average number of treasury shares 5,105,269 -Weighted average number of shares - diluted 200,310,356 142,403,847 16. Dividends Paid on Ordinary Shares No. of Ordinary Rate 2006 Rate 2005 Shares pence £ pence £ Final dividend for 2005 142,403,847 3.34 4,756,288 2.67 3,802,183Interim dividend for 2006 233,998,471 2.00 4,679,969 1.66 2,363,904Dividends paid 5.34 9,436,257 4.33 6,166,087 The Companies (Guernsey) Law, 1994 permits dividends to be paid out of profitsavailable for the purpose and the Company's Articles of Association state thatsuch profits available for distribution do not include realised or unrealisedprofits on capital assets. A portion of the final 2004 dividend and the interim 2005 dividend paid during2005 were in excess of these distributable profits as defined above. In orderfor those dividends to comply with The Companies (Guernsey) Law, 1994, theDirectors sought approval from the shareholders and the Royal Court of Guernseyon 2 June 2006 to transfer £25m from the share premium account to distributablereserves. In order to ensure that future dividends can comply with The Companies(Guernsey) Law, 1994, the Directors intend to convert the entire share premiumreserve of £226,678,243 to a distributable reserve. This requires shareholders'approval at the Company's Annual General Meeting on 18 May 2007 and applicationto the Royal Court of Guernsey immediately thereafter. The Directors areconfident of obtaining the requisite approval and consent of the Royal Court ofGuernsey. The Directors intend to recommend a final dividend of 4.0p per Ordinary Share bepaid to shareholders on the Company's register on 10 April 2007. 17. Segment Information The primary segment reporting format is determined to be business segments asthe Group's risks and rates of return are affected predominantly by differencesin the products and services provided. There is no secondary information as theactivities of the Company are deemed to be in one geographical location, the UKand Guernsey. The operating businesses are organised and managed separatelyaccording to the nature of the products and services provided, with each segmentrepresenting a strategic business unit that offers different products and servesdifferent markets. The Property segment develops and invests in primary care premises andundertakes property related services including property fund management. The Pharmacy segment operates integrated pharmacies in medical centres. The Medical Services segment provides medical services, principally outpatientand other services traditionally undertaken in hospitals but now being relocatedinto GP surgeries, community hospitals and other facilities in the community, incollaboration with GP's. Transfer prices between business segments are set on an arm's length basis in amanner similar to transactions with third parties. Segment revenue, segmentexpense and segment result include transfers between business segments. Thosetransfers are eliminated on consolidation. The following table presents revenue, profit and certain assets and liabilityinformation regarding the Group's business segments: Year ended 31 December 2006: Property and Pharmacy Medical Eliminations Total Related Services Services and Unallocated items £ £ £ £ £Revenue from 13,331,430 2,791,988 - - 16,123,418external customersInter-segment sales 113,500 - - (113,500) -Segment revenue 13,444,930 2,791,988 - (113,500) 16,123,418 Segmental result 2,617,562 (1,970,375) (1,992,433) - (1,345,246)Cost of employeeshare basedincentives (664,057) (281,157) (241,263) (92,637) (1,279,114) Share of losses ofassociates & jointventures (1,417,126) - (37,195) - (1,454,321)Unrealised surplus on revaluation ofproperties 17,041,231 - - - 17,041,231Exceptional pharmacy - (1,105,000) - - (1,105,000) establishment costMovement in - - - 1,010,000 1,010,000performance feeprovisionNet finance revenue - - - 5,601,282 5,601,282Profit/(Loss) before 17,577,610 (3,356,532) (2,270,891) 6,518,645 18,468,832tax Taxation - - - (39,646) (39,646)Profit/(loss) for 17,577,610 (3,356,532) (2,270,891) 6,478,999 18,429,186the year Assets andliabilitiesFixed assets 291,797,992 1,806,958 181,862 - 293,786,812Equity accountedinvestments 1,069,744 - 868,805 - 1,938,549Current assets 10,299,710 2,005,819 1,392,350 - 13,697,879Segment assets 303,167,446 3,812,777 2,443,017 - 309,423,240Unallocated assets 18,841,640 18,841,640Total assets 328,264,880 Segment LiabilitiesCurrent liabilities (6,653,124) (4,440,578) (3,433,350) - (14,527,052) Unallocatedliabilities Non currentliabilities - - - (46,237,749) (46,237,749)Total liabilities (60,764,801) Year ended 31 December 2005: Property & Pharmacy Medical Eliminations & Total Related Services Services Unallocated items £ £ £ £ £Revenue from 7,015,903 - - - 7,015,903external customersSegment revenue 7,015,903 - - - 7,015,903 Segmental result 968,074 (673,591) - - 294,483 Unrealised surplus 2,165,005 - - - 2,165,005on revaluation ofpropertiesPerformance fee - - - (13,050,000) (13,050,000)provisionNet finance revenue - - - (1,962,163) (1,962,163)/(cost)Profit/(loss)before taxation 3,133,079 (673,591) - (15,012,163) (12,552,675)Taxation - - - (98,241) (98,241)Profit for the year 3,133,079 (673,591) - (15,110,404) (12,650,916) Assets andliabilitiesFixed assets 154,831,049 35,133 - - 154,866,182Equity accounted 1,367,973 - - - 1,367,973investmentsSegment assets 156,199,022 35,133 - - 156,234,155Unallocated assets - - - 8,014,493 8,014,493Total assets 164,248,648 Segment LiabilitiesCurrent liabilities (2,769,762) (716,250) - - (3,486,012)Unallocated - - - (42,832,799) (42,832,799)liabilities Non currentliabilitiesTotal liabilities (46,318,811) 18. Investments in Subsidiary Companies The Company owns the whole of the issued Ordinary Share capital of AssuraProperty Limited, specially formed to act as the property investment holdingcompany for the Group, which is incorporated and registered in Guernsey. TheCompany also owns the whole of the issued Ordinary Share capital of AssuraMedical Limited, which has been set up to provide outpatient and relatedclinical services to patients working in partnership with GPs. Assura Property Limited owns the whole of the issued Ordinary Share capital ofBHE (Heartlands) Limited, a property investment company, registered in England. The Company owns the whole of the issued Ordinary Share capital of AssuraPharmacy Holdings Limited, specially formed to act as the pharmacy investmentholding company for the Group, which is incorporated and registered in Guernsey.Assura Pharmacy Holdings Limited owns the whole of the issued Ordinary Sharecapital of Assura Pharmacy Limited which is registered in England and carries onits pharmacy trade in the United Kingdom. The Company also owns the entire issued Ordinary Share capital of Assura LIFTHoldings Limited. Assura LIFT Holdings Limited has two subsidiaries, BHEDevelopments Limited (70% shareholding) and BHE Management Services Limited,with all three subsidiaries being registered in England, and undertakingproperty development, health planning and related consultancy services. AssuraLIFT Holdings Limited, which has investments in four LIFT Companies via LIFTconsortia investments, was formerly 70% owned by the Company but the minorityinterest was acquired on 1 June 2006. During the year the Group acquired the entire share capital of AssuraAdministration Limited (formerly Berrington Fund Management Limited) and relatedparties, Strategis Limited and Assura Services Limited (formerly TarncourtLimited) and the Members' capital of Assura Fund Management LLP (formerlyBerrington Fund Management LLP), all of which are incorporated in England andcollectively undertook the external fund management of the Group. Other acquisitions in the year were of Stream Partners Limited, a company whichextracts, processes and reports on patient referrals and other data from both GPsurgeries and hospital data, and PCI Management Limited, an intermediate holdingcompany and its subsidiary, Primary Care Initiatives (Macclesfield) Limited,which owns a medical centre in Macclesfield, all of which are incorporated inEngland. A table listing all the subsidiaries, including other dormant subsidiaries, isbelow: Name of Subsidiary Place of Share-holding Share-holding Business Activity incorporation 2006 2005Assura Property Limited (formerly Guernsey 100% 100% Property investmentMPIF Holdings Limited)Assura Pharmacy Holdings Limited Guernsey 100% 100% Holding company(formerly MPF Pharmacies Limited)Assura Pharmacy Limited (formerly England 100% 100% PharmacyHealthcare Pharmacies Limited)Assura Medical Limited England 100% 100% Management of clinical servicesAssura Estates Limited Guernsey 100% - DormantAssura Medical Solutions Limited England 100% 100% DormantAssura Administration Limited Guernsey 100% - Company administration services(formerly Berrington Fund (formerly fund management)Management Limited)Assura LIFT Holdings Limited England 100% 70% Investment holding company(formerly BHE Holdings Limited)Stream Partners Limited England 100% - Medical data processing companyStrategis Limited England 100% - Dormant (formerly fund management consultancy)Assura Services Limited (formerly England 100% - Dormant (formerly businessTarncourt Limited) consultancy)Assura Fund Management LLP England 100% - Fund management(formerly Berrington FundManagement LLP)PCI Management Limited (formerly England 100% - Holding companyPrimary Care Initiatives Limited)Primary Care Initiatives England 100% - Property investment(Macclesfield) LimitedBHE (Heartlands) Limited England 100% 100% Property investmentBHE (Bonnyrigg) Limited England 100% 100% DormantBHE (Wand) Limited England 100% 100% DormantBHE (Developments) Limited England 70% 70% Dormant(formerly BHE (York) Limited)BHE Management Services Limited England 100% 70% Management servicesBHE (Scotland) Limited Scotland 100% 70% DormantBHE (St James) Limited England 70% 70% DormantBHE Properties Limited England 70% 70% DormantLink Homes Limited England 70% 70% DormantAssura Finance Limited England 100% - DormantAssura Nominees Limited Guernsey 100% - Nominee holding company 19. Investment PropertyProperties are stated at fair value, which has been determined based onvaluations performed by Savills Commercial Limited as at 31 December 2006, onthe basis of open market value, supported by market evidence, in accordance withInternational Valuation Standards. 2006 2005 £ £ Fair value of investment property at 1 January 131,642,729 51,739,136Acquisitions 22,272,553 75,615,590Acquired as part of a business combination 16,462,166 -Subsequent expenditure 2,434,627 2,122,998Transfers from development property 24,250,882 -Transfers from work in progress 186,299 -Transfers to land & buildings (2,539,000) -Unrealised profit on revaluation 17,041,231 2,165,005At market value at 31 December 211,751,487 131,642,729Add minimum payment under finance leases separatelyincluded as a creditor in the balance sheet 1,380,770 1,470,543Fair value of investment property at 31 December 213,132,257 133,113,272 During the year the Group has complied with Sections 21.27 (f) to 21.27 (i) ofthe FSA Listing Rules. Prior to a site being acquired, any site acquisition, investigation and thirdparty bid related costs are included in work in progress. Upon acquisition of asite, transfers are made from work in progress to development property wherefuture costs are subsequently included. Upon acquisition of an investmentproperty again any pre acquisition costs are transferred from work in progressto investment property. Finally costs are transferred to investment propertyfrom development property upon practical completion of the medical centre andwhen tenants have taken occupation or signed lease agreements. Transfers aremade to land and buildings in respect of the proportion of those medical centresused by the Group's own pharmacy or medical divisions. 20. Development Property 2006 2005 £ £ At 1 January 15,789,299 10,071,702Development costs incurred in year 42,958,017 5,634,005Capitalised interest 733,624 83,592Transfer from work in progress 700 -Transfers to investment property (24,250,882) -At 31 December 35,230,758 15,789,299 21. Investments in Associates and Joint Ventures The Group has the following investments in associates: Associates Year Shares held % held Place of BusinessName of Company Ended by the Group Incorporation ActivityInfracare (Midlands) 30 September 240 Ordinary 40% England Holds 60% of theLimited Shares of £1 share capital in the Dudley South LIFT CompanyGB Consortium 1 31 March 4,200 Ordinary 40% England Holds 60% of theLimited Shares of £1 share capital in the Barnet, Enfield and Haringey, and Liverpool and Sefton LIFT CompaniesGB Consortium 2 31 March 27 Ordinary 45% England Holds 60% of theLimited Shares of £1 share capital in the Coventry LIFT Company Where the year end of Associates is greater than three months before the yearend, management accounts are used at the Group's year end. The above investments comprise: 2006 2005 Group Group £ £Cost of shares 4,467 4,267Loans 2,482,403 1,363,706Share of accumulated losses (1,417,126) - 1,069,744 1,367,973 The above loans are unsecured, due after one year, and carry interest at 12%. The following information is given in respect of the Group's share of allassociates: 2006 2005 Group Group £ £ Investment property 22,098,221 464,103Current assets 8,006,029 545,070 30,104,250 1,009,173Liabilities due within one year 2,187,419 101,876Liabilities due after one year 29,333,957 1,185,133 31,521,376 1,287,009 Share of net liabilities (1,417,126) (277,836) Add back loans 2,482,403 1,363,706Other 4,467 282,103 Carrying amount of associates 1,069,744 1,367,973 Share of associates revenue and profit:Revenue 973,036 408,954(Loss)/profit (1,417,126) 166,277 In 2005 the Group took no credit for the Group's share of profits pending theassociates accumulating net surpluses. The movement on investments in associates during the year was as follows: 2006 2005 Group Group £ £Balance at 1 January 1,367,973 4,232Acquired in year 200 35Net loans advanced or transferred 1,118,697 1,363,706Share of losses for the year (1,417,126) - Balance at 31 December 1,069,744 1,367,973 Joint Ventures The Group has the following investments in joint ventures: Year Shares held % held Place of BusinessName of Entity Ended by the Group Incorporation ActivityGB Primary Care (4th 31 March 1 Ordinary Share 50% England Fourth waveWave Bids) Limited of £1 LIFT bidding vehicle and preferred bidder for SE Essex LIFTGB Primary Care 31 March 1 Ordinary Share 50% England DormantLimited of £1 Assura Liverpool LLP 31 March n/a 50% England Enhanced Medical servicesAssura Minerva LLP 31 March n/a 50% England Enhanced Medical servicesAssura Macclesfield 31 March n/a 50% England EnhancedLLP Medical servicesAssura East Riding 31 March n/a 50% England EnhancedLLP Medical services Where the year end of Associates is greater than three months before the yearend, management accounts are used at the Group's year end. The above investments comprise: 2006 2005 Group Group £ £Cost of shares or member's core capital 906,000 -Share of accumulated losses (37,195) - 868,805 - Members' capital is interest free. The following information is given in respect of the Group's share of all jointventures: 2006 2005 Group Group £ £ Current assets 453,000 - 453,000 -Liabilities due within one year (490,195) -Carrying amount of joint ventures (37,195) -Share of joint ventures revenue and profitRevenue - -Loss (37,195) - The movement on investments in joint ventures during the year was as follows: 2006 2005 Group Group £ £ Balance at 1 January - -Acquired in year 906,000 - Share of accumulated losses in year (37,195) -Balance at 31 December 868,805 - 22. Intangible assets Business Combinations and Goodwill On 6 February 2006 the Group acquired, for cash, the entire share capital of PCIManagement Limited, an intermediate holding company and its subsidiary, PrimaryCare Initiatives (Macclesfield) Limited. On 15 May 2006 the Group acquired the entire share capital of AssuraAdministration Limited (formerly Berrington Fund Management Limited) and relatedparties, Strategis Limited and Assura Services Limited (formerly TarncourtLimited) and the Member's capital of Assura Fund Management LLP (formerlyBerrington Fund Management LLP). The consideration for the acquisition was£11,483,546 paid in cash plus the issue of 16,826,359 ordinary shares to thevendors. On 1 June 2006 the Group contracted to acquire the 30% of Assura LIFT HoldingsLimited not then owned by the Group. The consideration for the acquisition wasmet by the issue of 1,322,476 ordinary shares to the vendors on completion.Included in the 30% stake being acquired are 11,093 shares of 0.1p each inAssura LIFT Holdings Limited which are still held by R Pesskin, representing7.8% of the share capital in that Company. The Group has consolidated 100% ofthe Company as the 11,093 shares are subject to a put and call option committingthe Group to the acquisition of those shares. The put option is exercisable anytime until 31 December 2008 and the call option exercisable between 1 January2009 and 31 December 2009. The consideration for these shares in Assura LIFTHoldings Limited is the issue of a further 464,666 Ordinary shares in theCompany, the cost of which has been provided for in a deferred considerationreserve. On 5 October 2006 the Group acquired the entire share capital of Stream PartnersLimited for £299,159 paid in cash. The acquisition of Stream Partners Limited issubject to conditional deferred consideration, payable in 2009, of shares inAssura Group. The number of shares to be issued to the vendors being the numberof patients processed by Stream Partners Limited's data processing service inthe calendar year 2008 divided by 1.7 and subject to a maximum of 441,176 sharesbeing granted, the cost of which is being expensed on a time apportioned basiswith the credit being added to retained earnings. The net assets acquired, fair value of consideration paid and goodwill arisingon these transactions are set out in the table below. Assura PCI Management Assura LIFT Stream Total Administration & Limited and Holdings Partners related parties subsidiary Limited Limited £ £ £ £ £Investment Property - 13,902,961 - - 13,902,961Fixed Assets 1,533,060 - - 767 1,533,827Cash 1,440,272 1,944,804 18,406 29,782 3,433,264Other Current Assets/(Liabilities) (234,940) (546,888) (139,184) 18,610 (902,402)Bank loan - Long term - (11,895,833) - - (11,895,833)Bank loan - Currentportion - (604,167) - - (604,167) Other long term liabilities - - (489,846) - (489,846) Net Assets Acquired atbook value 2,738,392 2,800,877 (610,624) 49,159 4,977,804Fair value ofperformance feeentitlement 11,490,000 - - - 11,490,000Net Assets Acquired at 14,228,392 2,800,877 (610,624) 49,159 16,467,804fair value Fair Value of shares inAssura Group Limited 28,604,810 - 2,248,208 - 30,853,018Cash paid 11,483,546 2,486,700 - 299,159 14,269,405Deferred consideration - - 789,932 - 789,932Attributable costs 953,189 314,177 69,007 40,842 1,377,215Total consideration 41,041,545 2,800,877 3,107,147 340,001 47,289,570Goodwill arising onacquisition 26,813,153 - 3,717,771 290,842 30,821,766 The Company tests annually whether goodwill has suffered any impairment. Thesecalculations use cash flow projections based on detailed financial modelsprepared by management covering a 20 year period, with all anticipated futurecash flows discounted at appropriate to current day values. Based on theCompany's assessment of the value of the pipeline of projects in Assura LIFTHoldings Limited, and fees and performance fees receivable and annual feesavings attributable to the acquisitions of Assura Administration Limited andrelated parties, and business prospects of Stream Partners Limited, noadjustment is considered necessary at 31 December 2006. The business acquired with Assura Administration Limited and related parties isanalysed into its constituent profit/cash streams: • The flows from the core fund management business comprising the management fees previously payable by Assura Group Limited and those which continue to be charged to The Westbury Property Fund Limited • The performance fee previously payable by Assura Group Limited (see note 4) • The performance fee receivable from The Westbury Property Fund Limited. The valuation is dependent on several key variables including: • The total shareholder return on the shares of Assura Group Limited • The net asset performance of The Westbury Property Fund Limited • Cost of capital. The valuation is based on a value in use model. Key assumptions made include adiscount rate of 10% and yields of 6% assumed from The Westbury Property FundLimited with an assumed rate of growth of the assets of that fund of 3%pa. Theactual growth rate experienced by The Westbury Property Fund Limited has beensignificantly higher in recent years and in particular in the period since theacquisition of Assura Administration Limited and related parties by the AssuraGroup. This valuation is consistent with management's previous experience. The valuation is based on a fair value less cost of sale model. The valuation ofAssura LIFT Holdings Limited has been estimated by reference to its underlyingLIFT medical centre assets and utilising a yield of 5% to its bare rental income(which is receivable from the Government, indexed linked and according to leasesof 25 years duration). Reference has also been made to the contracted fee incomeof Assura LIFT Holdings Limited and the loan stock income earned by thatsubsidiary from its LIFT investments. Other key assumptions include propertyyields ranging between 5.0% and 6.0%, net of purchaser's costs, and propertydevelopment profits of 7.5% on development costs, discounted to current dayvalues. This valuation is consistent with management's previous experience. The Group had the benefit of £216,100 of profit after taxation from the acquiredbusinesses since acquisition thereof and losses after taxation of £609,800 wouldhave been accounted for had the acquired businesses been part of the Group forthe full year. The valuation of Stream Partners Limited has taken account of the earnings ofthat Company and the flow of patient data collection into its data base. Goodwill 2006 2005 £ £At 1 January 5,892,020 5,867,768Goodwill arising in the year as above 30,821,766 24,252At 31 December 36,713,786 5,892,020 No impairment has been recognised during the year. Pharmacy Development Costs 2006 2005 £ £At 1 January 36,458 -Pharmacy licence development costs incurred during year 247,676 36,458At 31 December 284,134 36,458Total Intangibles 36,997,920 5,928,478 All of the above costs incurred in the year were third party costs incurred inrelation to the applications for pharmacy licences. 23. Property, Plant and Equipment 2006 2006 2006 2006 £ £ £ £ Land & Computer, Fixtures, Total Buildings Medical and Fittings & other Furniture EquipmentCostAt 1 January - 10,976 62,598 73,574At acquisition - 95,488 2,149 97,637Transfer from investment property 2,539,000 - - 2,539,000Additions at cost - 1,399,318 2,098,818 3,498,136Revaluation 106,000 - - 106,000At 31 December 2,645,000 1,505,782 2,163,565 6,314,347 DepreciationAt 1 January - 2,190 36,251 38,441Depreciation for the year - 172,314 130,020 302,334At 31 December - 174,504 166,271 340,775 Net book value at 31 December 2006 2,645,000 1,331,278 1,997,294 5,973,572 2005 2005 2005 2005 £ £ £ £ Land & Computer, Fixtures, Total Buildings Medical and Fittings & other Furniture EquipmentCostAt 1 January - - 37,896 37,896Additions at cost - 10,976 24,702 35,678At 31 December 10,976 62,598 73,574 DepreciationAt 1 January - - 17,818 17,818Depreciation for the year - 2,190 18,433 20,623At 31 December 2,190 36,251 38,441 Net book value at 31 December 2005 - 8,786 26,347 35,133 Land and buildings are stated at fair value which has been determined based onvaluations performed by Savills Commerical Limited as at 31 December 2006, onthe basis of open market value, supported by market evidence, in accordance withInternational Valuation Standards. 24. Other Investment 2006 2005 £ £Investment in Whitecote Limited (incorporated in Jersey) 250,000 - 250,000 - The investment in Whitecote Limited is made up of 10 Ordinary Shares of £1 each(being 4.3% of the total equity) plus 250,000 unsecured interest free loan notesof £1 each. Whitecote Limited owns the Banstead Estate comprising approximately526 acres of agricultural land in Surrey with prospects for added value throughselective planning gain in due course. 25. Cash and Cash Equivalents 2006 2005 £ £Petty cash 8,221 -Cash held in current account 18,468,122 3,005,649Cash held to bank's order 360,000 740,000Rent held on deposit 5,297 - 18,841,640 3,745,649 Cash is held to the bank's order as security for letters of credit issued by thebank to the debt funders for the three Local Improvement Finance Trusts (LIFTCompanies) to which the Group has pledged funding upon practical completion ofthe medical centres under development. Rent held on deposit is subject to the respective tenant's lease agreement andis not available for use by the Group. All interest earned on these deposits isdue to the respective tenant. 26. Debtors 2006 2005 £ £ Trade debtors 6,181,573 2,549,512VAT recoverable 1,105,361 154,283Prepayments & accrued income 1,526,485 321,928Other debtors 1,077,977 511,734 9,891,396 3,537,457 The Group has entered into commercial property leases on its investment propertyportfolio. These non cancellable leases have remaining terms of up to 25 yearswith an average lease length of 19 years. All leases are subject to revision ofrents according to various rent review clauses. Future minimum rentalsreceivable under non cancellable operating leases as at 31 December are asfollows: 2006 2005 £ £Within one year 12,354,000 7,520,000After one year but not more than five years 48,560,000 29,639,000More than five years 176,382,000 109,476,000 237,296,000 146,635,000 27. Bank Overdraft 2006 2005 £ £ Bank overdraft 2,134,942 - Assura Pharmacy Limited has a £5m overdraft arrangement with National Australia Bank Limited as partof the £100m loan facility agreement on which interest is charged at base rate plus a margin of 1%. 28. Creditors 2006 2005 £ £ Trade creditors 4,273,087 152,651Other creditors & accruals 4,148,738 1,054,913Payments due under finance leases 91,590 89,773Loan (see note 29) 604,167 -Interest payable and similar charges 123,858 306,710Rents received in advance 2,551,667 1,720,131 11,793,107 3,324,178 The total of future minimum lease payments payable under non cancellable financeleases is shown below: 2006 2005 £ £Within one year 91,590 89,773After one year but not more than five years 384,532 377,190More than five years 904,648 1,003,580 1,380,770 1,470,543 The above finance lease arrangements are in respect of investment property heldby the Group on leasehold rather than freehold terms. The amounts due abovethat are more than one year, which total £1,289,180 (2005: £1,380,770) have beendisclosed in non current liabilities on the consolidated balance sheet. 29. Long Term Loan 2006 2005 £ £ At 1 January 24,929,710 -Amount drawn down in year 72,000,000 25,500,000Acquired on acquisition of PCI Management Limited 11,895,833 -Amount repaid in year (64,000,000) -Loan issue costs (123,009) (622,135)Amortisation of loan issue costs 246,035 51,845 44,948,569 24,929,710 The Group has a loan agreement with National Australia Bank Limited for £95.0m,as part of the £100m loan facility and a £12.5m loan facility with The GeneralPractice Finance Corporation Limited. As at 31 December 2006, the Group haddrawn down £46.0m of the £107.5m under these agreements leaving an undrawnbalance of £61.5m. The National Australia Bank Limited loan is due forrepayment on 21 July 2008. The fair value of the loan at 31 December 2006 was£46m. The General Practice Finance Corporation Limited loan is due for repayment byquarterly instalments with the balance of £6.0m due on 28 May 2031. £604,167 isdue within a year (see note 28). These loans are secured by way of a debentureover the wholly owned property assets of the Group and a fixed charge overshares held in certain subsidiary companies. During the year, the loan facility with National Australia Bank Limited wassubject to the following financial covenants: (i) Loan to value ratio - the aggregate outstanding loan to current valuation ofinvestment properties should not exceed 75%. (ii) Projected net rental income receivable during the following 12 month periodmust cover 130% of projected finance costs. (iii) Financial indebtedness must be below 65% of Gross Asset Value. (iv) Average weighted lease length must exceed 121/2 years. The Group has been in compliance with the financial covenants throughout theperiod since issue. Interest is charged at a rate of 0.65% above the swap rate on the £95.0m loanfacility with National Australia Bank Limited and 6.45% on the £12.5m loanfacility with The General Practice Finance Corporation Limited.30. Share Capital 2006 2006 2005 2005Authorised £ £Ordinary Shares of 10p each 300,000,000 30,000,000 200,000,000 20,000,000Preference Shares of 10p each 20,000,000 2,000,000 20,000,000 2,000,000 32,000,000 22,000,000 Number of Share Number of Share Shares Capital Shares Capital 2006 2006 2005 2005Ordinary Shares issued and fully paid £ £At 1 January 142,403,847 14,240,385 142,403,847 14,240,385Issued for cash on 15 May 2006 64,729,021 - - -Issued on 15 May in exchange for shares inAssura Administration Limited (formerlyBerrington Fund Management Limited) and relatedparties 16,826,359 - - -Issued on 15 May for services provided byPharma-e Limited 650,000 - - -Issued on 1 June to acquire minority interestin Assura LIFT Holdings Limited (formerly BHEHoldings Limited) 1,322,476 - - -Issued to the Assura Executive Equity Incentive 8,066,768 - - -PlanTotal issued in year 91,594,624 9,159,462 - -At 31 December 233,998,471 23,399,847 142,403,847 14,240,385 Treasury Shares (8,066,768) (806,677) - -Total Share Capital 225,931,703 22,593,170 142,403,847 14,240,385 Voting Rights Ordinary shareholders are entitled to vote at all general meetings. On 15 May 2006 the Company formed the Assura Executive Equity Incentive Plan andissued and transferred 8,066,768 ordinary shares into the plan. Participantswill be allocated units each of which represent one ordinary share, 68.5% ofwhich will vest on 31 December 2008 and the balance on 31 December 2010. Theunits will vest at the end of the vesting periods if the compound growth intotal shareholder return in each period is 12.5% above a base reference price of£1.90. A sliding scale will apply if the total shareholder return is between 0%and 12.5% over the base reference price. Upon vesting, an appropriate number ofordinary shares will be transferred by the trustees of the plan to participantsless a deduction for the number of shares needed to recover any tax or nationalinsurance liabilities which arise for participants. During the year 3,130,000 units were granted to participants which vest on 31December 2008, and a further 500,000 units were granted to the Chairman of theCompany which vest on 31 December 2010 (see note 3) The fair value, assuming that the hurdle is reached in full, of the unitsgranted in the year, is £6,554,065 based on market price at the date the shareswere granted. This cost is allocated over the vesting period and cost allocationfor the year ended 31 December 2006 is £1,279,114. This amount which includes500,000 units issued to the Chairman (see notes 3 & 4), and share based deferredconsideration due to the former shareholders of Stream Partners Limited has beencredited to retained earnings. Dividends are paid to, and accumulate in, theAssura Executive Equity Incentive Plan. On 5 October 2006 the Group acquired the entire share capital of Stream PartnersLimited for cash and conditional deferred consideration payable in 2009, inshares in Assura Group. The number of shares to be issued to the vendors issubject to a maximum of 441,176, the cost of which is being expensed on a timeapportioned basis with the credit being added to retained earnings. The costincurred in 2006 was £91,176. On 1 June 2006, the Group acquired 30% of Assura LIFT Holdings Limited. Theconsideration included the issue of a further 464,666 Ordinary shares in AssuraGroup Limited, the cost of which has been provided for in a deferredconsideration reserve. 650,000 Ordinary Shares were issued in the year to Pharma-e Limited tocompensate for consultancy services provided to the Group described in note 11.31. Share Premium 2006 2005 £ £At 1 January 122,239,453 122,239,453Proceeds arising on issue of Ordinary Shares 129,438,790 -Transfer to Distributable Reserve (25,000,000) -Share premium at 31 December 226,678,243 122,239,453 On 2 June 2006, following both shareholders' approval and that of the Royal Court in Guernsey,£25,000,000 of share premium was transferred to distributable reserve. 32. Distributable Reserve 2006 2005 £ £At 1 January - -Transfer from Share Premium (see note 31) 25,000,000 -Dividends on Ordinary Shares (see note 16) (9,436,257) - 15,563,743 - 33. Retained Earnings 2006 2005 £ £ At 1 January (18,327,822) 336,705Profit/(loss) for the year attributable to equity holders 18,900,446 (12,498,440)Dividends on ordinary shares - (6,166,087)Cost of employee share based incentives 1,279,114 -At 31 December 1,851,738 (18,327,822) 34. Revaluation Reserve 2006 2005 £ £ At 1 January - -Revaluation of land & buildings in the year 106,000 -Reserve at 31 December 106,000 - 35. Deferred Consideration Reserve 2006 2005 £ £ At 1 January - -Deferred share based consideration arising in year 790,000 -Reserve at 31 December 790,000 - At 1 June 2006, the Group acquired 30% of Assura LIFT Holdings Limited. Theconsideration included the issue of a further 464,666 Ordinary shares in AssuraGroup Limited at a future date no later than 31 December 2009, the cost of whichis provided for in the deferred consideration reserve. When the shares areissued in due course, the deferred consideration reserve will be eliminated. 36. Net Asset Value per Ordinary Share The basic net asset value per Ordinary Share is based on the net assetsattributable to the ordinary shareholders of £267,500,079 (2005: £117,929,837)and on 225,931,703 (2005: 142,403,847) Ordinary Shares in issue at the balancesheet date excluding treasury shares. The diluted net asset value per Ordinary Share is based on the net assetsattributable to the ordinary shareholders of £267,500,079 (2005: £117,929,837)and on 233,998,470 (2005: 142,403,847) Ordinary Shares in issue at the balancesheet date. 37. Note to the Consolidated Cash Flow Statement 2006 2005 £ £Reconciliation of net profit before taxation to net cash inflow from operating activities: Net profit/(loss) before taxation 18,468,832 (12,552,675)Taxation (39,646) (98,241)Adjustment for non-cash items:Depreciation 302,334 20,623(Increase) in debtors (6,353,939) (357,032)Increase in creditors 8,558,702 2,644,366Increase in pharmacy inventories (567,290) -Surplus on revaluation of investment property (17,041,231) (2,165,005)(Profit)/loss on revaluation of financial instrument (5,674,624) 3,472,319Movement in performance fee provision (1,010,000) 13,050,000Share based pharmacy establishment cost 1,105,000 -Share of losses of associates and joint ventures 1,454,321 -Cost of employee share based incentives 1,279,114 -Other gains and losses (578,917) (1,470,543)Amortisation of loan issue costs 246,034 51,845Net cash inflow from operating activities 148,690 2,595,657 38. Financial Instruments The Group holds cash and liquid resources as well as having debtors andcreditors that arise directly from its operations. The Group has entered into aninterest rate swap during the year as disclosed in note 12. The main risks arising from the Group's financial instruments and properties aremarket price risk, credit risk, liquidity risk and interest rate risk. TheBoard regularly reviews and agrees policies for managing each of these risks andthese are summarised below. Market Price Risk The Group's exposure to market price risk is comprised mainly of movements inthe value of the Group's investment in property. Property and property relatedassets are inherently difficult to value due to the individual nature of eachproperty. As a result, valuations are subject to uncertainty. There is noassurance that the estimates resulting from the valuation process will reflectthe actual sales price even where a sale occurs shortly after the valuationdate. Rental income and the market value for properties are generally affected byoverall conditions in the local economy, such as growth in gross domesticproduct, employment trends, inflation and changes in interest rates. Changes ingross domestic product may also impact employment levels, which in turn mayimpact the demand for premises. Furthermore, movements in interest rates mayalso affect the cost of financing for real estate companies. Both rental income and property values may also be affected by other factorsspecific to the real estate market, such as competition from other propertyowners, the perceptions of prospective tenants of the attractiveness,convenience and safety of properties, the inability to collect rents because ofthe bankruptcy or the insolvency of tenants or otherwise, the periodic need torenovate, repair and release space and the costs thereof, the costs ofmaintenance and insurance, and increased operating costs. The Directors monitor market value by having independent valuations carried outquarterly by Savills Commercial Limited. Credit Risk Credit risk is the risk that an issuer or counterparty will be unable orunwilling to meet a commitment that it has entered into with the Group. In theevent of a default by an occupational tenant, the Group will suffer a rentalincome shortfall and incur additional costs, including legal expenses, inmaintaining, insuring and re-letting the property. Given the enhanced rights of landlords who can issue proceedings and enforcementby bailiffs, defaults are rare and potential defaults are managed carefully bythe credit control department. The maximum credit exposure in aggregate is onequarter's rent of circa £3.8m, however this amount derives from all the tenantsin the portfolio and such a scenario is hypothetical. The Group's credit risk iswell spread across circa 147 tenants at any one time. There are no significant concentrations of credit risk within the Group. Themaximum credit risk exposure relating to financial assets is represented bycarrying value as at the balance sheet date. Liquidity Risk Liquidity risk is the risk that the Group will encounter in realising assets orotherwise raising funds to meet financial commitments. Investments in propertyare relatively illiquid, however, the Group has tried to mitigate this risk byinvesting in desirable properties which are well let to General Practitionersand Primary Care Trusts. Interest Rate Risk The Group's exposure to market risk for changes in interest rates relatesprimarily to the Group's cash deposits and, as debt is utilised, long-term debtobligations. The Group's policy is to manage its interest cost using interestrate swaps (see note 12). The swap itself is revalued to its market value byreference to market interest rates at each balance sheet date. The interest rate profile of the financial assets and liabilities of the Groupat 31 December 2006 was as follows: Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 Total years £ £ £ £ £ £ £Floating rate Cash 18,841,640 - - - - - 18,841,640Interest rate - - - - - 2,202,305 2,202,305swapBank overdraft (2,134,942) - - - - - (2,134,942)Long term loan (604,167) (33,611,050) (118,388) (126,201) (134,551) (10,354,212) (44,948,569)Payments due (91,590) (93,371) (95,188) (97,041) (98,932) (904,648) (1,380,770)under financeleases The interest rate profile of the financial assets and liabilities of the Groupat 31 December 2005 was as follows: Within 1 year 1-2 years 2-3 years 3-4 years 4-5 years More than 5 Total years £ £ £ £ £ £ £Floating rate Cash 3,745,649 - - - - - 3,745,649Interest rateswap - - - - - (3,472,319) (3,472,319)Long term loan - - (24,929,710) - - - (24,929,710)Payments dueunder financeleases (89,773) (91,590) (93,371) (95,188) (97,041) (1,003,580) (1,470,543) The interest rate swap contract is adjusted to fair value at each balance sheetdate. For the other financial assets and liabilities, their book value equatesto their fair value, hence the above figures, for both 2005 and 2006 compriseboth book and fair values. On 2 November 2006 the company increased its interest rate swap which will risefrom £100m at 31 December 2005 and 31 December 2006 to £150m at 30 June 2007 and£200m at 31 December 2007, all fixed until 31 December 2027 at a rate of 4.59%.The interest rate swap was revalued to its fair value of £2,2020,305 at 31December 2006 compared with a negative value of £3,472,319 at 31 December 2005leading to a valuation gain in the year of £5,674,624 (2005 - deficit of£3,472,319) see note 12. The interest rate swap is intended to protect the Group against fluctuations ininterest rates given that the group's bank loan from National Australia BankLimited is at floating rate and was increased to £200m given the Group'scommitments see note 39. 39. Commitments At the year end the Group had commitments to invest a further £150,224,000(2005: £56,300,000) in its portfolio of investment property. The Company has given guarantees in favour of the General Practice FinanceCorporation (GPFC) amounting to £360,000 (2005: £740,000) to secure future LIFTinvestments by the Group. 40. Related Parties The Company was charged investment manager's fees totalling £1,023,537 (2005:£2,691,686) by Assura Administration Limited, none of which was outstanding atthe balance sheet date. During the year certain costs, amounting to £200,021 (2005 - £450,606) in total,relating to the Group's pharmacy company were supplied by Pharma-e Limited, acompany in which John Curran is a director and shareholder. No balance wasoutstanding at the year end. The Group was charged administration fees of £67,518 (2005: £92,584) by MourantGuernsey Limited, none of which (2005: £nil) was outstanding at the year end.Serena Tremlett was formerly both a director of the Company and an employee ofMourant Guernsey Limited. Assura Property Limited exchanged contracts in 2005 for the purchase of amedical centre at Argyle Court, Liverpool, which is being developed by RopewalksOne LLP. WPL Ventures Limited, a wholly owned subsidiary of the The WestburyProperty Fund Limited, which is managed by Assura Fund Management LLP, is amember of Ropewalks One LLP. Included in property management expenses is an amount of £170,015 (2005:£161,862) payable to Barlows Asset Management Limited, a subsidiary of BarlowsHoldings Limited, a shareholder in the Company, in accordance with theirproperty management agreement with Assura Property Limited (this agreement hasnow ceased). No balance was outstanding at the year end (2005: £nil). This information is provided by RNS The company news service from the London Stock Exchange

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