Final Results -Part 2

19th Jun 2007 07:02

Warner Estate Holdings PLC19 June 2007 Part 2 of 2 NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES Basis of preparation The Financial Statements comprise the consolidated financial statements of theGroup for the year ended 31 March 2007 and have been prepared in accordance withInternational Financial Reporting Standards and IFRIC interpretations endorsedby the European Union ("EU") and with those parts of the Companies Act 1985applicable to companies reporting under IFRS. The basis of accounting and format of presentation is subject to changefollowing any further interpretative guidance that may be issued by theInternational Accounting Standards Board ("IASB") and the InternationalFinancial Reporting Interpretation Committee ("IFRIC") from time to time. The consolidated financial statements have been prepared under the historicalcost convention, as modified by the revaluation of certain assets andliabilities, which are carried at fair value, and in accordance with those IFRSstandards and IFRIC interpretations issued and effective or issued and earlyadopted as at the time of preparing these accounts. The parent company's financial statements have also been prepared in accordancewith IFRS, as applied in accordance with the provisions of the Companies Act1985. The Directors' have taken advantage of the exemption offered by Section230 of the Companies Act not to present a separate income statement for theparent company. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise judgment in the process of applying the Group's accounting policies.Although these estimates are based on management's best knowledge of the amount,events or actions, actual results ultimately may differ from those estimates. Standards, interpretations and amendments to published standards that are notyet effective The accounting policies are consistent with those applied in the year ended 31March 2006, as amended to reflect the adoption of the new Standards, Amendmentsto Standards and Interpretations which are mandatory for the year ended 31 March2007. In most cases, these new requirements are not relevant for the Group. Thisis the case for the Amendments to IAS 39, IAS 21 and IFRS 4, to the new StandardIFRS 6, and to the new Interpretations IFRIC 5 and IFRIC 6. In accordance with the requirements of IFRIC 4 'Determining whether anarrangement contains a lease', the Group has reviewed its sales and purchasearrangements to ascertain whether any of them effectively contain a lease withthe Group acting as either lessor or lessee. No changes to the accountingtreatments of the Group's sales and purchase arrangements have been necessary. The following new Standards and Interpretations have been issued but are noteffective for the year ended 31 March 2007, and have not been adopted early,IFRS 7 'Financial Instruments: Disclosures' and the related amendment to IAS 1on capital disclosures, IFRS 8 'Operating Segments', IFRIC 7 'Applying theRestatement Approach under IAS 29 Financial Reporting in HyperinflationaryEconomies', IFRIC 8 'Scope of IFRS 2', IFRIC 9 'Reassessment of EmbeddedDerivatives', IFRIC 10 'Interim Financial Reporting and Impairment', IFRIC 11 'IFRS 2 - Group and Treasury Share Transactions', and IFRIC 12 'ServiceConcession Arrangements'. It is anticipated that the adoption of these newStandards and Interpretations in future periods will not have a material impacton the measurement of assets and liabilities included in the financialstatements or the Group's income and expenses. IFRS 7 is expected to result inadditional disclosure about the Group's financial instruments. Consolidation (a) Subsidiary undertakings Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. The existence and effect of potential voting rights that are currentlyexercisable or convertible are considered when assessing whether the Groupcontrols another entity. Subsidiaries are fully consolidated from the date onwhich control is transferred to the Group. They are de-consolidated from thedate control ceases. All inter-company transactions, balances and unrealisedgains on transactions between Group companies are eliminated upon consolidation. (b) Interests in joint ventures Interests in jointly controlled entities are accounted for using the equitymethod. Unrealised gains and losses on transactions between the Group and itsjoint ventures are eliminated to the extent of the Group's interest in the jointventures. The Group's share of profit of joint ventures represents the Group'sshare of the joint venture's profit after tax. (c) Associates Investments in associates are accounted for using the equity method. Associatesare all entities over which the Group is in the position to exercise significantinfluence but not control, generally accompanying a shareholding of between 20%and 50% of the voting rights. The Group's share of profit of associatesrepresents the Group's share of the associates profit before tax. The aboveprinciples regarding joint ventures are also applicable to associatedundertakings. Segment reporting The Group's primary reporting format is business activity, being propertyinvestment and asset management. A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. Plant and equipment Plant and equipment is initially measured at cost. After initial recognition,the fixed assets are carried at cost less subsequent depreciation andimpairment. Cost includes expenditure that is directly attributable to theacquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that the futureeconomic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. All other repairs and maintenance arecharged to the income statement during the financial period in which they areincurred. Plant and equipment is depreciated by equal annual instalments over theirestimated useful lives of between three and ten years and are carried athistoric cost less accumulated depreciation. Where the carrying amount of a fixed asset is greater than its estimatedrecoverable amount, it is written down immediately to its recoverable amount.Recoverable amount is the higher of fair value less costs to sell and value inuse and is determined for an individual asset. After initial recognition, theitem is carried at its cost less any accumulated depreciation and anyaccumulated impairment losses. Goodwill Business combinations are accounted for by applying the purchase method. Theexcess of the cost of the business combination over the acquirer's interest inthe net fair value of the identifiable assets, liabilities and contingentliabilities, recognised in accordance with IFRS 3, Business Combinations,constitutes goodwill, and is recognised as an asset. Goodwill on acquisition ofsubsidiaries is included in "Goodwill". Goodwill on acquisition of associatesis included in "Investments in associates". After initial recognition, goodwillis measured at cost less any accumulated impairment losses, until disposal ortermination of the previously acquired business (including planned disposal ortermination where there are indications that the value of the goodwill has beenpermanently impaired), when the profit or loss on disposal or termination willbe calculated after charging the book amount of any such goodwill through theincome statement. Goodwill arising on acquisitions before 1 April 2004, thedate of transition to International Financial Reporting Standards, has beenretained at the previous UK GAAP amounts, subject to being tested for impairmentat that date. Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation arereviewed for impairment whenever events or changes in circumstances indicatethat the carrying amount may not be recoverable. To the extent that the carryingamount exceeds the recoverable amount, which is the higher of net realisablevalue and value in use, the asset is written down to its recoverable amount. Netrealisable value is the estimated amount at which an asset can be disposed of,less any direct selling costs. Value in use is the estimate of the discounted future cash flows generated fromthe asset's continued use, including those resulting from its ultimate disposal.For the purposes of assessing value in use, assets are grouped at the lowestlevels for which there are separately identifiable cash flows. The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Investment property (a) Initial recognition Property that is held for long-term rental yields or for capital appreciation orboth, and that is not occupied by the Group, is classified as investmentproperty. Investment property comprises freehold land, freehold buildings, land held underoperating leases and buildings held under finance leases. When the Group beginsto redevelop an existing investment property for continued future use as aninvestment property, the property remains an investment property and isaccounted for as such. When the Group begins to redevelop an existing investment property with a viewto sale, the property is transferred to trading properties and held as a currentasset. The property is re-measured to fair value as at the date of the transferwith any gain or loss being taken to profit or loss. The re-measured amountbecomes the deemed cost at which the property is then carried in tradingproperties. Property that is being constructed or developed for future use as an investmentproperty, but which has not previously been classified as such, is classified asproperties under the course of development within assets under course ofdevelopment. This is recognised initially at cost but is subsequentlyre-measured to fair value at each reporting date. Any gain or loss onre-measurement is taken direct to equity unless any loss in the period exceedsany net cumulative gain previously recognised in equity. In the latter case, theamount by which the loss in the period exceeds the net cumulative gainpreviously recognised is taken to profit or loss. On completion, the property istransferred to investment property with any final difference on re-measurementaccounted for in accordance with the foregoing policy. Land held under operating leases is classified and accounted for as investmentproperty when the rest of the definition of investment property is met. In suchcases, the operating lease is accounted for as if it were a finance lease. Investment property is measured initially at its cost, including relatedtransaction costs. (b) Fair value After initial recognition, investment property is carried at fair value. Fairvalue is based on active market prices, adjusted, if necessary, for anydifference in the nature, location or condition of the specified asset. If thisinformation is not available, the Group uses alternate valuation methods such asrecent prices on less active markets or discounted cash flow projections. Thesevaluations are performed in accordance with the guidance issued by theInternational Valuation Standards Committee. These valuations are reviewed ateach financial reporting period end by external valuers. Investment propertythat is being redeveloped for continuing use as investment property, or forwhich the market has become less active, continues to be measured at fair value. The fair value of investment property reflects, among other things, rentalincome from current leases and assumptions about rental income from futureleases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that couldbe expected in respect of the property. Some of those outflows are recognised as a liability, including finance leaseliabilities in respect of land classified as investment property; others,including contingent rent payments, are not recognised in the financialstatements. (c) Subsequent expenditure Subsequent expenditure is charged to the asset's carrying amount only when it isprobable that future economic benefit associated with the item will flow to theGroup and the cost of the item can be measured reliably. All repairs andmaintenance costs are charged to the income statement during the financialperiod in which they are incurred. Gross borrowing costs associated with directexpenditure on properties under development or undergoing major refurbishmentare capitalised. With specific developments, the amount capitalised is thegross interest incurred on those borrowings less any investment income arisingon their temporary investment. Interest is capitalised as from the commencementof the development work until the date of practical completion. Thecapitalisation of finance costs is suspended if there are prolonged periods whendevelopment activity is interrupted. Interest is also capitalised on thepurchase cost of a site or property acquired specifically for redevelopment inthe short term but only where activities necessary to prepare the asset forredevelopment are in progress. (d) Changes and transfers Changes in fair values are recorded in the income statement for investmentproperties. If an investment property becomes owner-occupied, it is reclassified asproperty, plant and equipment, and its fair value at the date ofreclassification becomes its cost for accounting purposes. Property that isbeing constructed or developed for future use as investment property isclassified as properties under the course of development and stated at costuntil construction or development is complete, at which time it is reclassifiedand subsequently accounted for as investment property. Inventories Property inventories are stated at the lower of cost and estimated netrealisable value. No interest is capitalised within inventories. Propertiesthat are acquired and subsequently developed for future sales are reclassifiedas inventories at their deemed cost, which is the carrying amount at the date ofreclassification. They are subsequently carried at the lower of cost and netrealisable value. Net realisable value is the estimated selling price in theordinary course of business less cost to complete redevelopment and sellingexpenses. Cash and cash equivalents Cash and cash equivalents comprises cash balances, deposits held at call withbanks and other short-term highly liquid investments with original maturities ofthree months or less. Bank overdrafts that are repayable on demand and form anintegral part of the Group's cash management are included as a component of cashand cash equivalents for the purpose of the statement of cash flows. Bankoverdrafts are disclosed in current and non-current liabilities. Employee benefits The Group accounts for pensions under IAS 19 'Employee Benefits'. In respect ofdefined benefit pension schemes, obligations are measured at discounted presentvalue while scheme assets are measured at their fair value. The operating and financing costs of such plans are recognised separately in theincome statement. Service costs are spread systematically over the working livesof the employees concerned with the charge for the period included in operatingcosts in the income statement. Financing costs are recognised in the periods in which they arise and areincluded in interest expense. Actuarial gains and losses arising from eitherexperience differing from previous actuarial assumptions or changes to thoseassumptions are recognised immediately in the statement of recognised income andexpense. Contributions to defined contribution schemes are expensed as incurred. Income taxes The charge for current taxation is based on the results for the year as adjustedfor items which are non-assessable or disallowed. It is calculated using ratesthat have been enacted or substantively enacted by the balance sheet date. Taxpayable upon realisation of fair value gains recognised in prior periods isrecorded as a current tax charge with a release of the associated deferred tax. Deferred tax is provided using the balance sheet liability method in respect oftemporary differences between the carrying amount of assets and liabilities inthe financial statements and the corresponding tax bases used in computation oftaxable profit with the exception of deferred tax on fair value gains where thetax basis used is the accounts historic cost. Provision is made for temporarydifferences between the carrying value of assets and liabilities in theconsolidated financial statements and the values used for tax purposes.Temporary differences are not provided for when they arise from initialrecognition of assets and liabilities that do not affect accounting or taxableprofit. When distributions are controlled by the Group, and it is probable the temporarydifference will not reverse in the foreseeable future, deferred tax which wouldarise on the distribution of profits realised in subsidiaries, associates andjoint ventures is provided in the same period as the liability to pay thedistribution is recognised in the financial statements. Deferred tax is determined using tax rates that have been enacted orsubstantially enacted by the balance sheet date and are expected to apply whenthe related deferred tax asset is realised or the deferred tax liability issettled. It is recognised in the income statement except when it relates toitems credited or charged directly to equity, in which case the deferred tax isalso dealt with in equity. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. Deferred tax assets and liabilities are offset only when they relate to taxeslevied by the same authority, with a legal right to set off and when the groupintends to settle them on a net basis. Provisions Provisions are recognised when the Group has a present legal or constructiveobligation as a result of past events, it is more likely than not that anoutflow of resources will be required to settle the obligation, and the amounthas been reliably estimated. Where the Group, as lessee, is contractually required to restore a leasedproperty to an agreed condition, prior to release by a lessor, provision is madefor such dilapidation costs as they are identified. (a) Onerous contracts Provision is made in respect of costs incurred on vacant leasehold properties orfor leasehold properties sublet at a level which renders the propertiesloss-making over the length of the lease, being the net cash outflow committedto be incurred over the lives of the leases. Any increase or decrease in theprovision is taken to the income statement each financial period. The provisionis assessed on a property by property basis taking account of individual cashflows. Cash flows are discounted using the risk free rate. (b) Share-based payments The cost of granting share options and other share based remuneration toemployees and directors is recognised through the income statement withreference to the fair value at the date of the grant. The Group has used theBlack-Scholes option valuation model and a stochastic model to establish therelevant costs. The resulting values are amortised through the income statementover the vesting period of the options and other grants. The charge is reversedif it appears probable that applicable performance criteria will not be met. Own shares held in connection with employee share plans or other share basedpayment arrangements are treated as treasury shares and deducted from equity.No profit or loss is recognised in the income statement on their sale, re-issueor cancellation. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and is stated net of sales taxes and value added taxes. Revenueincludes 'Rental and similar income', 'Turnover from property tradingactivities', 'Service charge and similar income' and 'Turnover from assetmanagement activities'. Revenue is recognised as follows: (a) Rental and similar income Rental income from operating lease income is recognised on a straight-line basisover the lease term. When the Group provides incentives to its customers, the cost of incentives arerecognised over the lease term, on a straight-line basis, as a reduction ofrental income. (b) Service charge and similar income Service and management charge income is recognised on a gross basis in theaccounting period in which the services are rendered. Where the Group is actingas an agent, the commission rather than gross income is recorded as revenue. (c) Income from investments Dividend income from investments is recognised when the shareholders' rights toreceive payment have been established. (d) Income from property trading Profits or losses arising from the sale of trading and investment properties areincluded in the income statement of the Group where an exchange of contracts hastaken place under which any outstanding conditions are entirely within thecontrol of the Group. Profits or losses arising from the sale of trading andinvestment properties are calculated by reference to their carrying value andare included in operating profit. (e) Income from asset management activities Management fees earned are calculated on an accruals basis. Asset managementincome is recognised in the accounting period in which the services arerendered. Leases (a) A Group company is the lessee (i) Operating lease - leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. (ii) Finance lease - leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease commencement date at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included incurrent and non-current borrowings. The interest element of the finance cost ischarged to the income statement over the lease period so as to produce aconstant periodic rate of interest on the remaining balance of the liability foreach period. The investment properties acquired under finance leases are carriedat the fair value. (b) A Group company is the lessor (i) Operating lease - properties leased out under operating leases are included in investment property in the balance sheet. (ii) Finance lease - when assets are leased out under a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable accrues as finance income. Lease income is recognised over the term of the lease using the net investment method before tax, which reflects a constant periodic rate of return. Financial instruments and hedging activities Derivatives IAS 32 and IAS 39 have been adopted as at 1 April 2004. The Group uses derivatives to help manage its interest rate and foreign exchangerate risk. In accordance with its treasury policy, the Group does not hold orissue derivatives for trading purposes. Derivatives are recognised at fair value. The method of recognising theresulting gain or loss depends on whether the derivative is designated as ahedging instrument, and if so, the nature of the hedge relationship. Hedge accounting Where a financial instrument is designated as a hedge, the Group formallydocuments the relationship between the hedging instrument and the hedged item aswell as its risk management objectives and its strategy for undertaking thevarious hedging transactions. The Group also documents its assessment, both athedge inception and on an ongoing basis, of whether the derivatives that areused in the hedging transactions are highly effective in offsetting the changesin fair values or cash flows of the hedged items. Where hedge accounting requirements were not met, changes in fair value ofderivatives are recognised through the income statement. Investments The Group classifies its investments in the following categories: financialassets at fair value through the income statement, loans and receivables,held-to-maturity investments, and available-for-sale financial assets. Theclassification depends on the purpose for which the investments were acquired.Management determines the classification of its investments at initialrecognition and reviews this designation at each reporting date. (a) Financial assets at fair value through the income statement This category has two sub-categories: financial assets held for trading, andthose designated at fair value through the income statement at inception. Afinancial asset is classified in this category if acquired principally for thepurpose of selling in the short term or if so designated by management.Derivatives are also classified as held for trading unless they are designatedas hedges. Assets in this category are classified as current assets if they areeither held for trading or are expected to be realised within 12 months of thebalance sheet date. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides money, goods or services directly to a debtor with nointention of trading the receivable. They are included in current assets, exceptfor maturities greater than 12 months after the balance sheet date. These areclassified as non-current assets. Loans and receivables are included in tradeand other receivables in the balance sheet. Purchases and sales of investments are recognised on trade-date - the date onwhich the Group commits to purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs for all financial assets notcarried at fair value through profit or loss. Investments are derecognised whenthe rights to receive cash flows from the investments have expired or have beentransferred and the Group has transferred substantially all risks and rewards ofownership. Available-for-sale financial assets and financial assets at fairvalue through the income statement are subsequently carried at fair value. Realised and unrealised gains and losses arising from changes in the fair valueof the 'financial assets at fair value through the income statement' categoryare included in the income statement in the period in which they arise. The fair values of quoted investments are based on current bid prices. If themarket for a financial asset is not active (and for unlisted securities), theGroup establishes fair value by using valuation techniques. These include theuse of recent arm's length transactions, reference to other instruments that aresubstantially the same, discounted cash flow analysis, and option pricing modelsrefined to reflect the issuer's specific circumstances. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. Trade and other receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment in trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. The amount of theprovision is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows, discounted at the effective interest rate.The changes to the provision are recognised in the income statement. Borrowings Borrowings are initially recognised at the fair value of consideration received,net of transaction costs incurred. Borrowings are subsequently stated atamortised cost; any difference between the proceeds (net of transaction costs)and the redemption value is recognised in the income statement over the periodof the borrowings using the effective interest method. Transaction costs are capitalised on the balance sheet and are amortised overthe life of the associated borrowing instrument. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Incrementalcosts directly attributable to the issue of new shares or options, or for theacquisition of a business, are included in the cost of acquisition as part ofthe purchase consideration. Where any Group company purchases the Company's equity share capital (treasuryshares), the consideration paid, including any directly attributable incrementalcosts (net of income taxes) is deducted from equity attributable to theCompany's equity holders until the shares are cancelled, reissued or disposedof. Where such shares are subsequently sold or reissued, any considerationreceived, net of any directly attributable incremental transaction costs and therelated income tax effects, is included in equity attributable to the Company'sequity holders. Critical accounting policies and judgements The preparation of the Consolidated Financial Statements requires management tomake estimates and assumptions that affect the reported amounts of revenues,expenses, assets and liabilities, and disclosure of contingencies at the date ofthe Consolidated Financial Statements. If in the future such estimates andassumptions, which are based on management's best judgement at the date of theConsolidated Financial Statements, deviate from the actual circumstances, theoriginal estimates and assumptions will be modified, as appropriate, in theperiod in which the circumstances change. The following policies are consideredto be of greater complexity and / or particularly subject to the exercise ofjudgement. (a) Goodwill As required by IAS 36, Impairment of Assets, the Group regularly monitors thecarrying value of its assets, including goodwill. Impairment reviews comparethe carrying values to the present value of future cash flows that are derivedfrom the relevant asset or cash-generating unit. These reviews therefore dependon management estimates and judgements, in particular in relation to theforecasting of future cash flows and the discount rate applied to the cashflows. (b) Post-employment benefits Application of IAS 19, Employee Benefits, requires the exercise of judgement inrelation to setting the assumptions used by the actuaries in assessing thefinancial position of each scheme. The Group determines the assumptions to beadopted in discussion with its actuaries, and believe these assumptions to be inline with IAS generally accepted practice. (c) Provisions The Group carries balance sheet provisions in respect of onerous contracts anddilapidations amongst other exposures. Judgement is involved in assessing theexposure in these area and hence in setting the level of the requiredprovisions. (d) Estimate of fair value of investment properties The best evidence of fair value is current prices in an active market forsimilar lease and other contracts. In the absence of such information, theGroup determines the amount within a range of reasonable fair value estimates.In making its judgement, the Group considers information from a variety ofsources including: i) current prices in an active market for properties of a different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences; ii) recent prices of similar properties in less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices; and iii) discounted cash flow projections based on reliable estimates of future cash flows, derived from the terms of any existing lease and other contracts, and (where possible) from external evidence such as current market rents for similar properties in the same location and condition, and using discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. (e) Principal assumptions for management's estimation of fair value of investment properties If information on current or recent prices of assumptions underlying thediscounted cash flow approach investment properties are not available, the fairvalues of investment properties are determined using discounted cash flowvaluation techniques. The Group uses assumptions that are mainly based onmarket conditions existing at each balance sheet date. The principal assumptions underlying management's estimation of fair value arethose related to: the receipt of contractual rentals; expected future marketrentals; void periods; maintenance requirements; and appropriate discount rates. These valuations are regularly compared to actual market yield data, andactual transactions by the Group and those reported by the market. The expected future market rentals are determined on the basis of current marketrentals for similar properties in the same location and condition. (f) Investments in unlisted shares As required by IAS 36, Impairment of Assets, the Group regularly monitors thecarrying value of its assets. Impairment reviews compare the carrying values tothe present value of future cash flows that are derived from the relevant assetor cash-generating unit. These reviews therefore depend on management estimatesand judgements, in particular in relation to the forecasting of future cashflows and the discount rate applied to the cash flows. 2. Segmental Reporting Business Segments For management purposes the Group is organised into two operating divisions,Property Investment and Asset Management: Property Asset Management Unallocated and Group Total Investment other activities £'000 £'000 £'000 £'000Year ended 31 March 2007Rental and similar income 21,604 - - 21,604Turnover from property trading activities 5,225 - - 5,225Cost of sales of property trading activities (4,170) - - (4,170)Service charge and similar income 4,172 - - 4,172Service charge expense and similar charges (4,703) - - (4,703) Net rental and trading income 22,128 - - 22,128Turnover from asset management activities Management fee income - 13,939 - 13,939 Performance fee income - 8,484 - 8,484 - 22,423 - 22,423Asset management expenses - (12,215) - (12,215)Administrative expenses (3,757) - - (3,757)Property management expenses (3,778) - - (3,778) Operating profit before net gain on investments 14,593 10,208 - 24,801Net gain from fair value adjustments on investment 11,198 - - 11,198propertiesNet gain from fair value adjustments on investments - - 14,124 14,124Profit on sale of investment properties 1,751 - - 1,751Profit on sale of investments - - 987 987 Operating profit 27,542 10,208 15,111 52,861 Total assets 469,078 20,617 337,036 826,731 Total liabilities (29,817) (1,620) (47,532) (78,969) Borrowing, including finance leases (1,500) - (311,028) (312,528) Net assets 437,761 18,997 (21,524) 435,234 Other segment items:Capital expenditure 7,988 - - 7,988Depreciation - - 151 151 Property Asset Management Unallocated and Group Total Investment other activities £'000 £'000 £'000 £'000Year ended 31 March 2006Rental and similar income 24,003 - - 24,003Turnover from property trading activities 31,167 - - 31,167Cost of sales of property trading activities (24,584) - - (24,584)Service charge and similar income 2,972 - - 2,972Service charge expense and similar charges (3,591) - - (3,591) Net rental and trading income 29,967 - - 29,967Turnover from asset management activities Management fee income - 6,065 - 6,065 Performance fee income - 3,271 - 3,271 - 9,336 - 9,336Asset management expenses - (3,512) - (3,512)Administrative expenses (2,390) - - (2,390)Property management expenses (7,517) - - (7,517) Operating profit before net gain on investments 20,060 5,824 - 25,884Net gain from fair value adjustments on investment 27,101 - - 27,101propertiesNet gain from fair value adjustments on investments - - 16,050 16,050Profit on sale of investment properties 3,102 - - 3,102Profit on sale of investments - - 3,024 3,024 Operating profit 50,263 5,824 19,074 75,161 Total assets 361,886 223,477 133,160 718,523Total liabilities (26,799) (24,577) (27,709) (79,085)Borrowing, including finance leases (1,514) - (284,004) (285,518) Net assets 333,573 198,900 (178,553) 353,920 Other segment items:Capital expenditure 9,255 - - 9,255Depreciation - - 139 139 All turnover and operating profit has arisen from continuing operations. (a) Rents receivable includes a charge of £367,000 (2006 : £25,000 income) which represents the net effect of rent allocated to rent free periods and the write off of previous adjustments due to the sale of investment properties. (b) Service charge and similar income includes monies received from tenants in respect of service charge costs the tenants bear on their properties. Service charge costs not recovered ("void costs") are included within service charge expense and similar charges of £531,000 (2006 : £348,000). The parent company is a holding company and does not operate in any segments. 2007 2006 £'000 £'000Operating profit is stated after charging:Depreciation - owned assets 151 139Loss on disposal of plant and equipment - 1Operating lease charges - properties 643 478Employee benefits 11,366 7,782 During the year the following amounts were charged to the income statement inrespect of auditors' remuneration: 2007 2006 £'000 £'000Remuneration to the principal auditor in respect of audit fees:Statutory audit of the company and consolidated accounts 100 95Remuneration to the principal auditor in respect of other services:Statutory audit of subsidiary accounts(1) 372 137Audit related services(2) 114 181Non-audit services: Taxation(3) 443 131 1,029 544 (1) These include £132,000 relating to 2006. (2) These include the cost of the interim audit, audit certifications for debt covenant purposes and IFRS transition work, of which £50,000 is relating to 2006. (3) These include £368,000 relating to the conversion to a REIT. In addition £147,000 was charged by the Auditors for audit services to the jointventures (2006: £138,000) and £76,000 for tax work (2006: £135,000). In 2006£150,000 was charged by the Auditors for tax and accounting work to the jointventures in connection with the setting up of the new unit trusts. 3. EMPLOYEES 2007 2006 £'000 £'000Staff costsWages and salaries 10,377 7,010Social security costs 1,118 781Other pension costs 824 397 12,319 8,188 2007 2006 Number NumberThe average number of persons employed during the year was:Management and administrative 145 73Repairs and service 53 30 198 103 The parent company had no employees during the year (2006: Nil). RETIREMENT BENEFIT OBLIGATIONS The Group operates and contributes to pension schemes for certain Directors andemployees and makes some discretionary allowances. The costs charged to theincome statement for the year to 31 March 2007 in respect of these amounted to£762,000 (2006: £353,000). Pension premiums paid in advance were £181,000(2006: £70,000). The Group operated a defined benefit scheme in the UK, The Warner Estate GroupRetirement Benefits Scheme. The costs charged to the income statement for theyear to 31 March 2007 in respect of these amounted to £62,000 (2006: £44,000).A full valuation was carried out at 1 April 2005. The values at 31 March 2007were updates of the 1 April 2005 valuation carried out by a qualified independent actuary. It has been agreed with the Trustees that the Group contributes 26.8% ofpensionable salary plus £68,000 per annum. The discount rate used to calculate the funding target is equal to the yield onfixed interest gilts of appropriate term at the valuation date plus 2% per annumfor active and deferred members over the period to retirement. The inflationassumption is derived from the difference between the yield on fixed interestgilts and the yield on indexed-linked gilts at the valuation date. Warner Estate PLC employs a building block approach in determining the long termrate of return on pension plan assets. Historical markets are studied and assetswith higher volatility are assumed to generate higher returns consistent withwidely accepted capital market principles. The assumed long-term rate of returnon each asset class is set out within this note. The overall expected rate ofreturn on assets is then derived by aggregating the expected return for eachasset class over the actual asset allocation for the Scheme at the 31 March2007. The following assumptions were made by the Company: 2007 2006 % per annum % per annum Discount rate 5.4 4.9Rate of increase in pensionable salaries 3.7 3.5Rate of increases to pensions in payment 3.2 2.9Price inflation 3.2 3.0 Mortality assumptions are based on standard mortality tables which allow forfuture mortality improvements. The assumptions are that a member who retires in2025 at age 65 will live on average for a further 21 years after retirement ifthey are male and for a further 24 years after retirement if they are female. The market value of the assets of the Scheme together with the expected rates ofreturn at the beginning and end of the year were as follows: Long-term Value at 31 Long-term Value at rate of March 2007 rate of return return 31 March expected at expected at 31 March 2007 31 March 2006 2006 % £'000 % £'000 Equities 8.0 1,449 7.5 1,338Fixed interest 5.4 4,199 4.9 4,357Cash 5.5 197 4.8 125Total market value of assets 5,845 5,820 Reconciliation of funded status to balance sheet Value at Value at 31 March 2007 31 March 2006 £'000 £'000 Fair value of Scheme assets 5,845 5,820Present value of non-insured defined benefit of (2,155) (2,025)obligationsLiability in respect of insured pensioners (4,068) (4,276) Liability recognised on the balance sheet (378) (481)Related deferred tax asset 113 144 Net pension liability (265) (337) Changes to the present value of the defined benefit obligation 2007 2006 £'000 £'000 Opening defined benefit obligation 6,301 5,397Current service cost 62 44Interest cost 302 290Contributions by plan participants 14 12Actuarial (profits) / losses on Scheme liabilities* (103) 890Net benefits paid out (353) (332) Closing defined benefit obligation 6,223 6,301 *Includes changes to the actuarial assumptions. Changes to the fair value of Scheme assets 2007 2006 £'000 £'000 Opening fair value of Scheme assets 5,820 5,061Expected return on assets 316 294Actuarial (losses) / gains on Scheme assets (81) 671Contributions by the employer 129 114Contributions by plan participants 14 12Net benefits paid out (353) (332) Closing fair value of Scheme assets 5,845 5,820 Actual return on Scheme assets 2007 2006 £'000 £'000 Expected return on Scheme assets 316 294Actuarial (losses) / gains on Scheme assets (81) 671 Actual return on Scheme assets 235 965 Analysis of income statement charge 2007 2006 £'000 £'000 Current service cost 62 44Interest cost 302 290Expected return on plan assets (316) (294) Expense recognised in income statement 48 40 Analysis of amounts recognised in statement of recognised income and expense 2007 2006 £'000 £'000 Total actuarial gains / (losses) 22 (219)Related deferred tax (31) 43Total loss in statement of recognised income and expense (9) (176) Cumulative amount of losses recognised in statement of recognised income and expense (168) (159) History of asset values, defined benefit obligation, surplus / (deficit) inScheme and experience gains and losses 2007 2006 2005 £'000 £'000 £'000 Fair value of Scheme assets 5,845 5,820 5,061Defined benefit obligation (6,223) (6,301) (5,397)Deficit in Scheme (378) (481) (336)Experience (losses) /gains on Scheme assets (81) 671 54Experience (gains) / losses on Scheme liabilities 50 103 4 The estimated amounts of contributions expected to be paid to the Scheme during2008 are £130,000. 4. DIRECTORS' REMUNERATION A summary of Directors' remuneration, including disclosures required by theCompanies Act 1985 and those specified by the Financial Services Authority, iscontained in the Report and Accounts which will be published in due course. 5. PROFIT ON SALE OF INVESTMENT PROPERTIES 2007 2006 £'000 £'000Surplus over book value and fair value gains:Investment properties 1,751 3,102 6. PROFIT ON SALE OF INVESTMENTS 2007 2006 £'000 £'000Surplus over book value:Listed investments 959 2,975Unlisted investments 28 98Other - (49) 987 3,024 7. FINANCE INCOME 2007 2006 £'000 £'000Income from investmentsDividends from listed investments 123 422Dividend from unlisted investment 87 -Distributions from funds (see note 17) 5,989 3,363 6,199 3,785 Interest receivable and similar income:From joint ventures 1,466 3,540Other interest 506 977Other finance income Expected return on pension scheme assets 316 294 Interest on pension scheme liabilities (302) (290) 14 4 8,185 8,306 8. FINANCE EXPENSE 2007 2006 £'000 £'000 Interest payable on loans and overdrafts 14,002 13,575Charges in respect of cost of raising finance 8,626 1,732 22,628 15,307 Less: Interest capitalised (1,300) (991) 21,328 14,316 Interest payable under finance leases 132 129 21,460 14,445 Included within interest payable is £645,000 (2006: £222,000) in respect ofamortisation of the fair value adjustment to the debt acquired from the formerWinglaw Group Limited on 1 March 2000, and £8,046,000 relating to debtreorganisation costs (2006: £46,000). Interest is capitalised at an average interest rate of 6.72% which is equal tothe average cost of borrowing on the development work at Folkestone. 9. TAXATION 2007 2006 £'000 £'000Taxation on profit on ordinary activitiesUK corporation tax: Current at 30 % (2006: 30%) 8,047 13,755 (Over) / under provision in respect of prior (2,865) (913)year's tax charge 5,182 12,842 REIT conversion charge 10,917 - Deferred taxation (17,787) 3,659 (1,688) 16,501 Reconciliation of taxation charge 2007 2006 Profit on ordinary activities before taxation 67,754 90,956 Tax @ 30% 20,326 27,287Share of joint ventures' post tax profits (8,147) (6,387)Share of associates post tax profits - (215)Net tax on assets sold during the year (1,516) (421)Dividends received not taxable (37) (127)Net capital allowances on asset disposals (1,903) (4,290)Disallowable expenses 845 289Other differences 24 (39)Share Scheme timing difference (311) 669Release of deferred tax in respect of conversion to a REIT (18,250) -REIT conversion charge 10,917 -Tax on properties appropriated to investment properties 1,755 -Net tax on fair value gains of assets (2,528) 648Adjustment in respect of prior years (2,863) (913) (1,688) 16,501 10. PROFIT OF WARNER ESTATE HOLDINGS PLC The Company has taken advantage of the exemption provided by Section 230 of theCompanies Act 1985 from presenting its own income statement. Profit attributableto members includes £2,835,000 (2006: £8,438,000) which has been dealt with inthe accounts of the Company. 11. DIVIDENDS Group and Company 2007 2006 £'000 £'000On Ordinary 5p sharesFinal 10.0p at 31 March 2006 paid 15 September 2006 5,343 5,065(Final at 31 March 2005: 9.5p)Interim 10.0p at 30 September 2006 paid 23 February 2007 5,348 5,069(Interim at 30 September 2005: 9.5p) 10,691 10,134 A final dividend of 11p per share amounting to a total of £6,172,000 is proposedby the Board. The dividend proposed is not accounted for until it has beenapproved at the Annual General Meeting. The amount will be accounted for as anappropriation of revenue reserves in the year ending 31 March 2008. 12. EARNINGS PER SHARE Earnings per share of 129.26p (2006: 140.17p) are calculated on the profit forthe year of £69,425,000 (2006: £74,432,000) and the weighted average of53,709,342 (2006: 53,100,390) shares in issue throughout the year. Diluted earnings per share of 127.69p (2006: 138.79p) are calculated on theprofit for the year as above divided by the weighted average number of shares inissue, being 54,369,516 (2006: 53,628,509) after the dilutive impact of shareoptions granted. A reconciliation of the weighted average number of shares used to calculateearnings per share and to that used to calculate diluted earnings per share isshown below: 2007 2006 Earnings per share: weighted average number of shares 53,709,342 53,100,390Weighted average ordinary shares to be issued under employee 660,174 528,119incentive arrangementsDiluted earnings per share: weighted average number of shares 54,369,516 53,628,509 13. GOODWILL £'000GroupCostAt 31 March 2006 11,205Additions 74At 31 March 2007 11,279Impairments -At 31 March 2006 and 31 March 2007 -Net book value at 31 March 2007 11,279Net book value at 31 March 2006 11,205 Goodwill is not amortised but is subject to an annual impairment test. Theaddition to goodwill during the year of £74,000 was as a result of theacquisition of JS Real Estate Plc on 14 March 2007. This goodwill is allocatedto the cash generating unit ("CGU") defined as the property investment businessowned by JS Real Estate Plc. The original goodwill of £11,205,000 is allocatedto the CGU defined as the fund management business owned by Industrial FundsLimited. The recoverable amount of the CGU has been calculated based on thevalue-in-use calculations. These calculations use cash flow projections basedon financial projections approved by management covering a five year period. 14. INVESTMENT PROPERTIES AND PROPERTIES UNDER THE COURSE OF DEVELOPMENT Freehold Leasehold Total Properties Investment Under the with over Properties Course of 50 years Development unexpired £'000 £'000 £'000 £'000GroupAt 31 March 2006 279,533 53,665 333,198 12,261Acquired during the year from business 117,871 6,645 124,516 -combinationsAdditions 18,500 - 18,500 -Capital expenditure 517 74 591 7,397Disposals (30,773) (19,288) (50,061) -Exchange differences (110) - (110) -Net gain from fair value adjustments on 11,668 (470) 11,198 -investment property AT 31 MARCH 2007 397,206 40,626 437,832 19,658 Additions include £7,425,000 of properties appropriated from inventories duringthe year, the balance of inventories were sold during the year. The propertiesunder the course of development relate to the Group's investment in a shoppingcentre development at Folkestone. Properties purchased within twelve months of the balance sheet date are includedat Directors' valuation. The remainder of the Group's investment portfolio wasvalued externally principally by Cushman & Wakefield Healey & Baker on an openmarket basis in accordance with the recommended guidelines of the RoyalInstitution of Chartered Surveyors as at 31 March 2007. Investment properties were valued as follows: £'000 Cushman & Wakefield Healey & Baker 434,844King Sturge 2,745Directors' valuation 4,076 441,665 A reconciliation of investment property valuations to the balance sheet carryingvalue of property is shown below: 2007 2006 £'000 £'000 Investment property at market value as determined by external valuers and 441,665 332,092Directors' valuationAdd minimum payment under head leases separately included as a creditor in the 1,501 1,515balance sheetLess accrued lease incentives separately accrued as a debtor in the balance (42) (409)sheetLess properties treated as finance lease assets (5,292) -Balance sheet carrying value of investment property 437,832 333,198 Included within investment properties is interest capitalised of £2,291,000 at31 March 2007 (2006: £991,000). All repairs and maintenance costs are charged to the income statement during thefinancial period in which they are incurred. Therefore, no costs in respect ofrepairs and maintenance are included within the above figures (2006: £Nil) On an historical cost basis the investment properties which have been includedabove at valuation would have been shown at cost as £399,660,000 (2006:£288,435,000). Investment properties and properties under the course of development valued at£451,134,000 are used as security for Group loans. 15. PLANT AND EQUIPMENT £'000GroupCostAt 31 March 2006 1,253Acquired during the year from business combinations -Additions 225Disposals (97) At 31 March 2007 1,381 DepreciationAt 31 March 2006 788Charge for year 151Disposals (97) At 31 March 2007 842 Net book value at 31 March 2007 539 Net book value at 31 March 2006 465 Plant and equipment include plant, machinery, fixtures, fittings, motor vehiclesand equipment. 16. Investments in joint ventures Group £'000Share of joint venturesAt 31 March 2006 103,372Share of post-tax profits for the year 27,157Net equity movements 39,910Net loan movements (18,871) At 31 March 2007 151,568 2007 2006 £'000 £'000 Unlisted shares at cost 72,834 27,632Group's share of post acquisition retained profits and 59,794 37,929reserves 132,628 65,561Amounts owed by joint ventures 18,940 37,811 151,568 103,372 Included in share of joint ventures' gross assets and liabilitiesare: Agora Radial Bareway Agora Greater Others Total Shopping Distribution Industrial Max London (h) Limited Properties Limited Offices Centres Limited (a) (c) (d) (f) Limited (g) £'000 £'000 £'000 £'000 £'000 £'000 £'000Year to 31 March 2007Group share of resultsRevenue 8,497 7,017 - 11,307 1,454 - 28,275 Operating profit before net gains on investments 3,626 6,312 (5) 5,330 1,179 16 16,458Net gain from fair value adjustments on 3,621 7,155 - 6,558 373 - 17,707investment propertiesProfit / (loss) on sale of investment - 374 - - - - 374properties Operating profit 7,247 13,841 (5) 11,888 1,552 16 34,539Net finance expense (4,967) (6,354) - (7,049) (1,247) 92 (19,525)Change in fair value of derivative financial 10 1,490 - 6,502 711 - 8,713instruments Profit / (loss) before income tax 2,290 8,977 (5) 11,341 1,016 108 23,727Taxation - current 567 8 - - - (92) 483Taxation - deferred 7,722 3,053 - (4,722) (325) - 5,728 Profit / (loss) after income tax 10,579 12,038 (5) 6,619 691 16 29,938REIT conversion charge (1,281) (1,515) - - - - (2,796)Minority interests - - - 15 - - 15 Profit / (loss) for the year 9,298 10,523 (5) 6,634 691 16 27,157 Amounts receivable by GroupAsset management fees 692 758 - 974 34 - 2,458Performance fees 2,986 - - 3,722 - - 6,708Interest receivable 543 649 - - 274 - 1,466 Group share ofNon-current assetsInvestment properties 132,143 143,742 - 179,029 49,445 - 504,359Investments in unlisted shares - - - - - 25 25Finance lease assets - 3,408 - - - - 3,408Derivative financial assets 1,157 1,200 - 6,554 711 - 9,622Other non-current assets 402 - - - - - 402 133,702 148,350 - 185,583 50,156 25 517,816 Current assetsFinance lease assets - 243 - - - - 243Other current assets 5,244 7,337 - 4,845 1,222 3,048 21,696 5,244 7,580 - 4,845 1,222 3,048 21,939 Total assets 138,946 155,930 - 190,428 51,378 3,073 539,755Non-current liabilitiesDeferred income tax liabilities (366) (378) - (6,902) (324) - (7,970)Borrowings, including finance leases (4,515) (109,975) - (131,907) (39,391) - (285,788)Other non-current liabilities (1,121) (1,326) - - - - (2,447) (6,002) (111,679) - (138,809) (39,715) - (296,205) Current liabilitiesBorrowings, including finance leases (72,861) - - - - - (72,861)Other current liabilities (6,140) (3,626) - (24,538) (1,486) (2,271) (38,061) (79,001) (3,626) - (24,538) (1,486) (2,271) (110,922) Total liabilities (85,003) (115,305) - (163,347) (41,201) (2,271) (407,127)Share of net assets / (liabilities) 53,943 40,625 - 27,081 10,177 802 132,628 Agora Skipper Radial Bareway Industrial Agora Max Others Total Shopping Distribution Industrial Funds Limited Offices Limited Properties (f) (h) Centres Limited Limited Limited (a) (b) (c) (d) (e) £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000Year to 31 March 2006Group share of resultsRevenue 14,178 2,086 5,372 686 3,962 2,863 1,261 30,408 Operating profit before net gains on 8,153 996 4,896 564 284 1,582 (361) 16,114investmentsNet gain from fair value adjustments on 13,936 - 7,856 - - 7,123 - 28,915investment propertiesNet gain from fair value adjustments on - - - - 1,063 - - 1,063investmentsProfit / (loss) on sale of investment 4,023 (810) 892 664 (80) 11 - 4,700properties Profit on sale of fixed asset investments - - - - 77 - - 77Operating profit 26,112 186 13,644 1,228 1,344 8,716 (361) 50,869Net finance expense (10,110) (1,486) (4,731) (584) (832) (1,796) 18 (19,521)Change in fair value of derivative (1,454) (305) (308) - - 51 - (2,016)financial instrumentsShare of associate's post tax loss - - - - (200) - - (200) Profit / (loss) before income tax 14,548 (1,605) 8,605 644 312 6,971 (343) 29,132Taxation - current (1,067) (375) (321) (320) (421) (262) (6) (2,772)Taxation - deferred (1,735) 839 (2,429) 267 - (2,180) - (5,238) Profit / (loss) after income tax 11,746 (1,141) 5,855 591 (109) 4,529 (349) 21,122Minority interests (4) - - - 185 (12) - 169 Profit / (loss) for the year 11,742 (1,141) 5,855 591 76 4,517 (349) 21,291 Amounts receivable by GroupAsset management fees 1,082 150 596 68 57 208 840 3,001Performance fees 1,947 - - - - - - 1,947Interest receivable 674 537 516 370 1,443 - - 3,540 Group share ofNon-current assetsInvestment properties 122,561 - 81,802 - - 171,179 - 375,542Investments in unlisted shares - - - - - - 25 25Finance lease assets - - 4,085 - - - - 4,085Deferred income tax assets - - 87 - - - - 87Derivative financial assets 1,147 - - - - 51 - 1,198Other non-current assets 272 - - - - - - 272 123,980 - 85,974 - - 171,230 25 381,209Current assetsFinance lease assets - - 250 - - - - 250Other current assets 25,812 - 4,245 2,000 - 9,449 4,063 45,569 25,812 - 4,495 2,000 - 9,449 4,063 45,819Total assets 149,792 - 90,469 2,000 - 180,679 4,088 427,028Non-current liabilitiesDeferred income tax liabilities (8,087) - (3,518) - - (2,180) - (13,785)Borrowings, including finance leases (86,181) - (73,731) - - (131,024) - (290,936)Derivative financial liabilities - - (289) - - - - (289) (94,268) - (77,538) - - (133,204) - (305,010)Current liabilitiesDeferred income tax liabilities - - - - - - - -Borrowings, including finance leases (4,704) - - (108) - (7) - (4,819)Other current liabilities (15,412) - (4,543) (512) - (27,049) (4,122) (51,638) (20,116) - (4,543) (620) - (27,056) (4,122) (56,457)Total liabilities (114,384) - (82,081) (620) - (160,260) (4,122) (361,467)Share of net assets / (liabilities) 35,408 - 8,388 1,380 - 20,419 (34) 65,561 (a) Agora Shopping Centres was set up on 5 March 2003 and subsequently acquired the Pyramids, Birkenhead on 25 June 2003 and The Grange, Birkenhead on 30 September 2004. On 7 March 2006, The Pyramids, Birkenhead and The Grange, Birkenhead were disposed of into the Agora Max joint venture group. (b) Skipper Offices Limited was set up on 23 July 2003. In June 2005, the properties were disposed of into the Apia Regional Offices Fund and the Group subsequently acquired the remaining 50% interest in Skipper Offices Limited. (c) Fairway Industrial Limited was set up on 29 August 2003 and changed its name to Radial Distribution Limited on 14 October 2004. (d) Bareway Industrial Properties Limited was set up on 29 August 2003. In November 2005, the properties were disposed of into the Ashtenne Industrial Fund and the Group subsequently acquired the remaining 50% interest in Bareway Industrial Properties Limited. (e) Industrial Funds Limited was set up in March 2005 and completed the acquisition of Ashtenne Holdings PLC on 13 July 2005. On 1 December 2005, the Group acquired the remaining 50% interest. (f) Agora Max Limited was set up on 16 September 2005 and subsequently acquired The Pallasades, Birmingham on 25 October 2005. The Pyramids and The Grange, both in Birkenhead, were acquired from Agora Shopping Centres on 7 March 2006. (g) Greater London Offices Limited was set up on 28 September 2006 and subsequently acquired Old Broad Street and Central House, London. (h) Net assets relate to £25k investment in the general partner of Apia Regional Office Fund and net asset of £777k which is the investment in smaller joint ventures acquired through Ashtenne. Joint venture investment properties are valued by DTZ Debenham Tie Leung and CBRichard Ellis. All joint ventures are incorporated in the United Kingdom. Amounts owed by joint ventures comprise: 2007 2006Group £'000 £'000Agora Shopping Centres Limited (1,088) 25,687Radial Distribution Limited - 12,016Greater London Offices Limited 3,600 -Bareway Industrial Properties Limited - 108Agora Max Limited 17,502 -Others (1,074) - 18,940 37,811 During the year the transactions on the loan accounts between the Group and thejoint ventures were as follows: Repaid Loaned Total £'000 £'000 £'000 Agora Shopping Centres Limited (25,687) (1,088) (26,775) Agora Max Limited - 17,502 17,502 Radial Distribution Limited (21,715) 9,699 (12,016) Bareway Industrial Properties Limited (108) - (108) Greater London Offices Limited - 3,600 3,600 Others - (1,074) (1,074) (47,510) 28,639 (18,871) 17. INVESTMENTS IN FUNDS Group £'000 As at 1 April 2006 104,081Acquired during the year from business combinations -Additions -Disposals (472)Net gain from fair value adjustments 17,013At 31 March 2007 120,622 Fund Information: AIF Apia Others Total (a) (b) (c) £'000 £'000 £'000 £'000Year to 31 March 2007 Distributions receivable 2,838 3,130 21 5,989 Net assets at 31 March 2007 687,546 266,537 -Percentage share at 31 March 2007 6.52% 28.07% -Group share of net assets 44,828 74,817 977 120,622 Fund Information: AIF Apia Others Total (a) (b) (c) £'000 £'000 £'000 £'000Year to 31 March 2006 Distributions receivable 1,468 1,886 9 3,363 Net assets at 31 March 2006 546,780 223,774 -Percentage share at 31 March 2006 7.09% 28.77% -Group share of net assets 38,752 64,374 955 104,081 (a) The Group invested £12,000,000 in the Ashtenne Industrial Fund in August 2005; a £23,105,000 investment was acquired on the purchase of the remaining 50% of Industrial Funds Limited. (b) Apia was set-up on 7 June 2005 and the Group invested an initial £44,088,000. A further £10,000,000 was invested in December 2005, of which £902,000 was disposed of in March 2006, and £418,000 in May 2006. It is treated as an investment rather than an associate as the Group does not have the power to exert significant control as a Trustee which is independent of the Group is responsible for the strategic decisions of the unit trust and the Group's investment holding in the unit trust will continue to reduce over the short-term. (c) This relates to minority interest holdings in Apia IV Unit Trust, Agora Max Unit Trust, Agora Max Birkenhead Unit Trust and The Pallasades Birmingham Unit Trust. The holding in Apia IV Unit Trust was disposed of in September 2006. The units held in AIF valued at £25,675,000 and the units in Apia valued at£44,471,000 are used as security for Group loans. 18. INVESTMENTS IN LISTED AND UNLISTED SHARES Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Subsidiary undertakings (a) - - 249,965 113,476Listed investments (b) 1,045 5,115 - -Unlisted investments 12,215 - 12,009 - 13,260 5,115 261,974 113,476 (a) SUBSIDIARY UNDERTAKINGS Shares in Loans to subsidiary subsidiary Company undertakings undertakings total £'000 £'000 £'000CostAt 31 March 2006 61,876 51,600 113,476Additions 136,521 - 136,521Disposals (32) - (32) At 31 March 2007 198,365 51,600 249,965 (b) LISTED INVESTMENTS Group Company £'000 £'000Listed on the London Stock ExchangeAt 31 March 2006 5,115 -Additions 209 -Disposals (4,283) -Net gain from fair value adjustments 4 - At 31 March 2007 1,045 - Group Company £'000 £'000Historic cost of listed investments At 31 March 2007 3,900 - At 31 March 2006 6,740 - (c) UNLISTED INVESTMENTS Group Company £'000 £'000 At 31 March 2006 - -Reclassified from Investment in Associates 15,108 15,009Net movements (2,893) (3,000) At 31 March 2007 12,215 12,009 19. INVESTMENTS IN ASSOCIATES Group Company Bride Hall Other Total Bride Hall Group Limited Group Limited £'000 £'000 £'000 £'000CostAt 1 April 2006 1,173 509 1,682 1,173Reclassified as unlisted investment (1,173) (99) (1,272) (1,173)Share of profits - - - -Equity movements - (386) (386) - At 31 March 2007 - 24 24 - Goodwill arising on acquisitionAt 1 April 2006 13,836 - 13,836 13,836Reclassified as unlisted investment (13,836) - (13,836) (13,836) At 31 March 2007 - - - - At 31 March 2007 - 24 24 - At 1 April 2006 15,009 509 15,518 15,009 20. TRADE AND OTHER RECEIVABLES Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000Amounts falling due within oneyear:Trade receivables 17,141 2,558 - -Amounts owed by Group - - 350,390 247,724undertakingsOther debtors 6,873 12,364 215 167Lease incentive debtors 9 68 - -Prepayments and accrued income 5,731 8,106 1,197 1,212 29,754 23,096 351,802 249,103 Amounts falling due after morethan one year:Lease incentive debtors 33 363 - - Total trade and other receivables 29,787 23,459 351,802 249,103 21. NET INVESTMENT IN FINANCE LEASES Group 2007 2006 Gross Unearned Net investment Gross Unearned finance Net investment in finance income in finance investment in income investment finance lease lease finance lease in finance lease £'000 £'000 £'000 £'000 £'000 £'000 Within one year 292 (283) 9 - - -Between two 1,168 (915) 253 - - -and five yearsLater than five 20,520 (15,490) 5,030 - - -years Total 21,980 (16,688) 5,292 - - - The Group has leased out an investment property under a finance lease of 64years in duration. This is accounted for as a finance lease receivable ratherthan an investment property and is equal to the total of the discounted futurelease payments and the discounted unguaranteed residual value of the property.The unguaranteed residual value of the building is £3,059,000. The fair valueof the Group's finance lease receivables approximates to the carrying value. 22. BORROWINGS, INCLUDING FINANCE LEASES Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000Amounts falling due after morethan one year:Bank overdrafts 254,991 176,021 119,614 75,915Bank and other loans 30,234 106,090 - -Finance lease obligations (see 1,500 1,514 - -note 23) 286,725 283,625 119,614 75,915 Amounts falling due within oneyear:Bank overdrafts 7 9 - -Bank and other loans 25,796 1,884 - -Finance lease obligations (see - - - -note 23) 25,803 1,893 - - Total borrowings, including 312,528 285,518 119,614 75,915finance leasesCash and cash equivalents (34,333) (98,358) - - Net borrowings 278,195 187,160 119,614 75,915 Bank loans and overdrafts are secured on properties and listed and unlistedinvestments owned by the Group. Other loans are all secured on certainproperties owned by the Group and by floating charges on assets of certainsubsidiary companies. Group 2007 2006 £'000 £'000Repayable otherwise than by instalments between two and five yearsLoan repayable in 2009 at an interest rate of 1.0% over LIBOR(a) - 22,351Repayable otherwise than by instalments in more than five years11.655% First Mortgage Debenture Stock 2015 (reducing to 9.75% from - 10,0002009)(a)9.635% First Mortgage Debenture Stock 2015(a) - 12,471Redeemable in quarterly instalments of £150,000 maturing 2009:At an interest rate of 6.29%(a) - 20,000At an interest rate of 6.89%(a) - 6,229Redeemable in quarterly instalments maturing 2011 at an interest 25,641 25,983rate of 1.3% over GILT rate 25,641 97,034 (a) These loans were terminated early due to refinancing and have all been repaid. Summary of borrowings Loans and overdrafts 2007 2006 £'000 £'000GroupWithin one year or on demand 25,824 1,893Between one and two years 429 13,768Between two and five years 285,972 222,438In five years or more - 46,556 312,225 284,655 Future finance costs (1,197) (651) 311,028 284,004CompanyWithin one year on demand - -Between two and five years 119,614 75,915 119,614 75,915 Of the borrowings at 31 March 2007 £25,641,000 were non-recourse loans (2006:£48,700,000). 23. FINANCE LEASE OBLIGATIONS Group 2007 2006 £'000 £'000(a) Minimum lease payments under finance leases fall due:Not later than one year 120 121Later than one year and not later than five years 481 484Later than five years 12,287 12,490 12,888 13,095Future finance charges on finance leases (11,388) (11,581) Present value of finance lease liabilities 1,500 1,514 (b) Present value of minimum finance lease obligations:Not later than one year - -Later than one year and not later than five years 70 70Later than five years 1,430 1,444 1,500 1,514 The fair value of the Group's finance lease obligations approximate to thecarrying value. Finance lease obligations are in respect of leased investment properties. Finance lease liabilities are effectively secured as the rights to the leasedasset revert to the lessor in the event of default. 24. DERIVATIVE FINANCIAL INSTRUMENTS TREASURY POLICY The Group enters into derivative transactions such as interest rate swaps andcaps in order to manage the financial risks arising from the Group's activities. The main financial risks arising from the Group's financing structure areinterest rate risk, liquidity risk and market price risk. The policies formanaging each of these risks and the principal effects of these policies on theresults for the year are set out below. INTEREST RATE RISK One quarter of the Group's debt is fixed and the remainder is floating. Thefloating debt is either linked to LIBOR or the Base Rate. The Group's policy isto eliminate substantially all the exposure to interest rate fluctuations inorder to provide certainty over the amount of interest payable both in theshort-term and the long-term, given the current level of borrowings. LIQUIDITY RISK The Group's policy is to ensure that there are always sufficient working capitalfacilities available to meet the requirements of the business. At 31 March2007, the maturity profile of Group debt showed that the fixed rate debt has amaturity of more than four years and the floating rate debt will mature betweentwo to five years. The revolving credit facilities are for three years each,the intention being to renew these facilities and extend them for a furtherthree years before they mature. The effect is to minimise any refinancing risk. Capital expenditure to be incurred by the Group is funded through the revolvingcredit facilities. In the Joint Ventures, capital expenditure is funded throughdedicated capital expenditure facilities. This policy ensures that adequatefunds are always available to meet any capital expenditure commitments as andwhen they fall due. MARKET PRICE RISK The Group is exposed to market price risk through interest rate movements. Asdemonstrated in the section on Hedging in the Finance Review, the Group's policyis to substantially eliminate the risk arising from changes in interest rates byhedging the floating rate debt to provide certainty as to how much the interestcost will be, such that in the long term any fluctuations in interest rates willhave little or no impact on reported profits. The Group is, however, exposed tomarket price risk in respect of the fair value of its fixed rate financialinstruments. FOREIGN CURRENCY RISK The Group had no material foreign currency exposure. CREDIT RISK The Group has no significant concentration of credit risk as exposure is spreadover a large number of counterparties. The credit risk in liquid funds and derivative financial instruments is limiteddue to the counterparties being banks with high credit ratings assigned byinternational credit rating agencies. As at the balance sheet date the bookvalue of loans (see note 22) and the fair values of swaps and caps approximatesthe maximum credit risk the Group is exposed to. FINANCIAL LIABILITIES The interest rate profile of the Group's financial liabilities at 31 March aftertaking account of interest rate instruments taken out by the Group was: 2007 2006 £'000 £'000 Capped rate financial liabilities 100,000 13,669Fixed rate financial liabilities 85,643 194,968Floating rate financial liabilities 110,975 - 296,618 208,637 The above balances are net of cash balances of £14,410,000 (2006: £79,018,000)which can be offset under the Group's borrowing arrangements. The benchmark rate for determining interest payments for the floating ratefinancial liabilities was LIBOR/base rate depending upon the facility. The weighted average interest rate on the fixed rate debt and the averagematurity of that debt was as follows: 2007 2006 % %Weighted average interest rateGroup 6.52 7.37Joint Ventures 5.74 5.66 Weighted average period for which interest rate is fixed Years YearsGroup 4.50 7.08Joint Ventures 1.24 2.75 Maturity of financial liabilities 2007 2006 £'000 £'000 Group Within one year or on demand 25,824 1,893Between one and two years 429 13,768Between two and five years 285,972 222,438In five years or more - 46,556 312,225 284,655 CompanyWithin one year or on demand - -Between two and five years 119,614 75,915 119,614 75,915 Borrowing facilities The Group has various borrowing facilities that were not fully utilised at theyear end in which the conditions for utilising those facilities were met. 2007 2006 £'000 £'000 Expiring in one year or less:Total facilities - - Unutilised - - Expiring between two and five years:Total facilities 263,400 137,741 Unutilised 54,383 43,691 Fair values of financial assets and liabilities Financial assets and liabilities comprise long-term borrowings and otherpayables, derivative instruments, cash, receivables and investments. The table below sets out by category the changes to the balance sheet values onfixed rate debt that would occur if fair values applied. Where no amount isdisclosed in the table below, there is no material difference between the bookvalue and the fair value. 2007 2007 2007 2006 Book Value Fair Value Difference Difference between book and between book and fair values fair values £'000 £'000 £'000 £'000GroupPrimary Financial InstrumentsLiabilitiesFixed long-term debt (over one year) 25,824 24,813 1,011 (7,286)AssetsLong-term loan notes (over one year) (3,600) (3,373) (227) (535) Joint venturesPrimary Financial InstrumentsLong-term loan notes 3,600 3,373 227 535 The effect on net assets per share of the total fair value adjustment(£1,011,000 less tax of £303,000) would be an increase of 1.3p pence (2006: 9.6 pence). The calculation of the fair values has been arrived at as follows: Debt has been calculated by discounting cash flows at prevailing rates ofinterest. The equity assets have been valued at bid price. Interest rate swaps have been valued at the relevant current active market ratefor such swaps. Interest rate derivatives to manage interest rate profile are analysed asfollows: Group: £19,350,000 swapped at 5.965% fixed to June 2009 (1)£1,561,000 swapped at 5.88% fixed to March2009 (1)£100,000,000 capped at 7.25% to June 2007£150,000,000 capped at 6.25% from June 2007 to June 2012£25,000,000 callable swap at 4.34% to March 2032 (2)£25,000,000 callable swap at 4.16% from March 2008 to March 2033 (3) Joint Ventures: £175,000,000 swapped at 4.1% to April 2008 (1)£109,505,000 swapped at 4.5775% to February 2021 (1)£124,160,000 capped at 5.00% to November 2008 (4)£124,160,000 swapped at 4.54% from November 2008 to February 2021 (1)£94,640,000 swapped at 4.96% to December 2009 (1)£27,040,000 capped at 5.5% to December 2009 (1) & (5)£72,200,000 swapped at 4.49% to October 2023 (1) & (6) Note (1) The quarterly payment / receipt is the difference between 3 monthLIBOR and the rate quoted Note (2) Barclays Capital has the right to call the SWAP on 31 March 2009 andeach two year interval thereafter Note (3) Barclays Capital has the right to call the SWAP on 31 December 2009and each two year interval thereafter Note (4) Should LIBOR fall below 4.45% the fixed rate of 4.7% will be charged Note (5) Should LIBOR fall below 4.18% the fixed rate of 4.68% will be charged Note (6) Barclays Capital has the right to call the SWAP on 15 October 2011 andeach five year interval thereafter Gains and Losses on Derivatives held to Manage Debt The Group uses interest rate derivatives to manage its interest rate profile.Changes in the fair value of these derivatives are recognised in the incomestatement. An analysis of these derivatives and gains / (losses) thereon is asfollows: Derivative Derivative financial financial assets liabilities £'000 £'000 Fair value at 31 March 2006 - 1,361Net additions (709) -Change in fair value of derivative financial instruments during the year (101) (910) Fair value at 31 March 2007 (810) 451 25. DEFERRED INCOME TAX Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000Deferred taxation assetsDeferred taxation arising from unrealised derivative financial 135 408 - -instruments valuationsDeferred taxation arising from retirement benefit obligations 113 144 - -Deferred taxation arising from share based payments 1,095 - 1,095 - 1,343 552 1,095 - Deferred taxation liabilitiesDeferred taxation arising from the temporary differences noted below:Short term temporary differences (31) (108) - -Capital and industrial buildings allowances claimed on investment - (2,107) - -propertiesUnrealised property and investment valuations (11,783) (27,348) - - (11,814) (29,563) - - The movement in deferred tax assets and liabilities during the year is asfollows: Group Company Derivative Retirement Share Share financial benefit Based Based instruments obligations Payments Total Payments Total £'000 £'000 £,000 £'000 £,000 £'000 Deferred tax assets at 31 March 2006 408 144 - 552 - -Charged to income statement (273) - 311 38 311 311Charged to reserves - (31) 784 753 784 784Total impact (273) (31) 1,095 791 1,095 1,095Deferred tax assets at 31 March 2007 135 113 1,095 1,343 1,095 1,095 Unrealised Capital Short-term Group fair value allowances timing Total gains differences £'000 £'000 £'000 £'000 Deferred tax liabilities at 31 March 2006 (27,348) (2,107) (108) (29,563)Charged to income statement 15,565 2,107 77 17,749Total impact 15,565 2,107 77 17,749Deferred tax liabilities at 31 March 2007 (11,783) - (31) (11,814) 26. OTHER PROVISIONS Share-based Onerous Total payments contracts £'000 £'000 £'000GroupAt 31 March 2006 503 12,000 12,503Charged to consolidated income statement: - - -Additions during the year - - -Released during the year (503) (6,666) (7,169)At 31 March 2007 - 5,334 5,334 Share-based Total payments £'000 £'000CompanyAt 31 March 2006 503 503Charged to consolidated income statement: (503) (503) At 31 March 2007 - - Provisions have been analysed between current and non-current as follows: Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Non-current 5,334 12,503 - 503Current - - - - 5,334 12,503 - 503 The provision for share-based payments has now been reversed and is accountedfor through movements in equity. The onerous lease provision is made in relation to onerous leases on propertieswhich are vacant or sublet at a level which renders the properties loss-makingover the remaining life of the lease. The remaining lease lengths range between1 and 13 years. The provision represents the Directors' estimate of the net cash flows on theproperties. The key assumptions used are:Rental growth rate 3.51% per annumInflation rate 2.50% per annumDiscount rate 6.50% 27. TRADE AND OTHER PAYABLES Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Amounts falling due within one year:Trade payables 1,266 2,480 316 97Amounts owed to Group undertakings - - 250,671 97,462Amounts owed to joint ventures - 4,969 - -Other taxation and social security 1,805 467 - 35Other payables 22,930 6,758 20,271 5,000Accruals and deferred income 20,753 14,895 6,371 1,563 46,754 29,569 277,629 104,157Amounts falling due after more than oneyear:Other payables 14,238 - - -Total trade and other payables 60,992 29,569 277,629 104,157 28. SHARE CAPITAL 2007 2006Group and Company £'000 £'000Authorised60,000,000 Ordinary shares of 5p 3,000 3,000Allotted, called up and fully paidOrdinary shares of 5pAt 1 April 2,675 2,548Allotted through placing of shares (2007: 3,605,702 shares, 2006: 130 127 2,547,738 shares)At 31 March (2007: 56,108,210 shares, 2006: 53,502,508 shares) 2,805 2,675 During the year 2,517,648 new Ordinary shares of 5p each were allotted for acash consideration of £21,400,000 through a placing of shares at 850p per shareon 31 January 2007. 88,054 new Ordinary shares of 5p each were allotted for acash consideration of £275,000 on the exercise of share options; 37,895 at303.5p per share and 50,159 at 319p per share on 21 February 2007. At 31 March 2007 there were share options to subscribe for Ordinary shares underthe Warner Estate Holdings 1995 Share Option Scheme as follows: At 303.5p per share between 16 August 2004 and 15 August 2011 89,510 sharesAt 319p per share between 17 July 2005 and 16 July 2012 100,910 sharesAt 367.5p per share between 27 June 2006 and 26 June 2013 182,054 sharesAt 495p per share between 8 July 2007 and 7 July 2014 234,055 shares At 31 March 2007 there were share options to subscribe for Ordinary shares atnil cost under the Warner Estate Holdings Performance Share Plan as follows: Between 4 October 2005 and 3 October 2008 142,057 sharesBetween 19 January 2006 and 18 January 2009 31,726 sharesBetween 26 June 2006 and 25 June 2009 181,681 sharesBetween 1 August 2006 and 31 July 2009 4,703 sharesBetween 21 February 2007 and 20 February 2010 4,589 shares 29. OTHER RESERVES Non-distributable Reserves Distributable Reserves Share Share Based Revaluation Other *Retained Premium Payments Reserve Reserve Earnings Total £'000 £'000 £'000 £'000 £'000 £'000GroupAt 31 March 2006 19,052 - 112,338 7,996 209,451 348,837Premium on shares issued 21,311 - - - - 21,311Retained profit for the year - - - - 69,425 69,425Realised on disposal of investment properties - - (12,042) - 12,042 -Realised on disposal of investments - - (1,286) - 1,286 -Realised on disposal of joint ventures' - - (805) - 805 -investment propertiesNet gain from fair value adjustment on - - 11,198 - (11,198) -investment propertiesShare of joint ventures' net gain from fair - 17,707 (17,707)value adjustment on investment properties - - -Net gain from fair value adjustment on listed - - 4 - (4) -investmentsNet gain from fair value adjustment on unlisted - - 14,120 - (14,120) -investmentsChange in fair value of derivative financial - - 1,011 - (1,011) -instrumentsChange in fair value of joint ventures' - - 8,713 - (8,713) -derivative financial instrumentsDividends paid - - - - (10,691) (10,691)Actuarial gains on pension scheme assets - - - - 22 22Deferred tax movement on pension assets - - - - (31) (31)Cost of share based payments - 1,004 - - - 1,004Deferred tax movement on share based payments - 784 - - - 784 At 31 MARCH 2007 40,363 1,788 150,958 7,996 229,556 430,661 \* The closing balance on retained earnings reserve includes £265,000 liability (2006: £337,000) statedafter a deferred tax asset of £113,000 (2006: £144,000) in respect of the Group's defined benefitpension scheme as set out in note 3 to the accounts, and a £1,004,000 liability (2006: £503,000)stated after a deferred tax asset of £784,000 (2006: £nil) in respect of share based payments. The key assumptions used in valuing the fair value of share based payments areas follows Exercise price £nil Share price Price at date of grant Expected term 3 years Expected volatility(1) 22% for awards granted on 21 February 2007, 19% for all other awards Expected dividend yield Dividends paid in the 12 months prior to grant calculated as a percentage of the share price on the date of grant Risk free interest rate Not applicable as exercise price is £nil (1) Volatility is calculated by looking at the historical share price movementsprior to the date of grant over a period of time commensurate with the expectedterm for each award (i.e. 3 years). The formula calculates the ratio of eachday's price to the preceding value, which gives a "dimensionless" figure. Thefinal step is to calculate the standard deviation of the logs of these ratiosand to annualise this figure. Non-distributable Reserves Distributable Reserves Share Share Based Revaluation Other *Retained Premium Payments Reserve Reserve Earnings TotalCompany £'000 £'000 £'000 £'000 £'000 £'000 At 31 March 2006 19,052 - 1,023 7,078 174,743 201,896Premium on shares issued 21,311 - - - - 21,311Retained loss for the year - - - - 2,835 2,835Change in fair value of derivative financial - - 121 - (121) -instrumentsNet gain from fair value adjustment on unlisted - - (3,000) - 3,000 -investmentsDividends paid - - - - (10,691) (10,691)Cost of share based payments - 1,004 - - - 1,004Deferred tax movement on share based payments - 784 - - - 784 At 31 MARCH 2007 40,363 1,788 (1,856) 7,078 169,766 217,139 30. INVESTMENT IN OWN SHARES Group and Company Number Cost £'000 At 31 March 2006 278,012 926Additions 65,074 386Disposals (155,699) (572) At 31 March 2007 187,387 740 Additions relate to the Inland Revenue Approved All-Employee Share OwnershipPlan. Included in investment in own shares are shares relating to the Inland RevenueApproved All-Employee Share Ownership Plan, as follows: 2007 2006 Number Cost Market Number Cost Market value value £'000 £'000 £'000 £'000 Partnership shares purchased by employees, not 29,368 - 250 26,830 - 204yet vestedMatching and Free shares not yet vested 137,697 740 1,174 104,812 470 796 167,065 740 1,424 131,642 470 1,000 The vesting of Matching and Free shares is conditional on meeting the conditionsof the scheme which are summarised on in the Report and Accounts which will bepublished in due course. 31. DIRECTORS' INTERESTS AND RELATED PARTY TRANSACTIONS Transactions between the company and subsidiaries, which are related parties,have been eliminated on consolidation for the Group. Compensation of key management personnel is disclosed in the Report and Accountswhich will be published in due course. Transactions between the parent company and its subsidiaries are shown below: 2007 2006Subsidiary Nature of £'000 £'000 transaction Cardiff and Provincial Properties Dividend 2,300 500LimitedClay Estates Limited Dividend 832 76Clay Group Limited Dividend - 2,900Lancaster Holdings Limited Dividend 1,000 2,400Lancaster Investments Limited Dividend 500 800Lotkeep Limited Dividend 3,000 3,000Warner Estate, Limited Dividend 3,000 2,000Warner Investments Limited Dividend 2,000 324 Balances outstanding between the parent company and its subsidiaries are shownbelow: Amounts owed by Amounts owed to subsidiaries subsidiaries 2007 2006 2007 2006Subsidiary £'000 £'000 £'000 £'000 Alliance Holdings Limited - 10 - -Apia Asset Management Limited 103 130 - -Ashtenne Holdings Limited - - (16,696) -Birkby Limited - - (97) -Cardiff and Provincial Properties - - (15,045) (16,447)LimitedClay Estates Limited - - (29,414) (1,781)Clay Group Limited - 8,843 (1,610) -Clay Investments Limited - 22 (8,843) -Clay Property Limited - - (20,459) (25,542)Industrial Funds Limited - 836 - -Lancaster Holdings Limited 55,659 61,504 - -Lancaster Investments (West Bromwich) 2,186 132 - -LimitedLancaster Investments Limited 3,321 144 - -Lotkeep Limited - - (25,713) (25,794)Mainscene Limited - - (21,314) (13,665)Market Place (Jersey) Limited - 8 - -Market Place Holdings (Jersey) Limited - 9 - -Middleton Jersey One Limited 9 9 - -Middleton Jersey Two Limited - 8 - -Park Street Properties Limited 15,094 7 - -Principal Leasehold Properties Limited 3,015 3,002 - -Skipper Offices Limited - 1,685 (689) -Skipper Regional Office Holdings Limited - 5 - -Vere Street Investments Limited 5,199 5,499 -Vere Street (Jersey) Limited 438 167 - -Warner Active Management No 2 Limited - - (3,595) (3,806)Warner Active Management No 3 Limited 104 - - -Warner Active Management No 4 Limited 7 - - -Warner Alliance (Jersey) Limited - 47 - (176)Warner Estate (AIF) Limited - - (675) -Warner Estate (Apia) Limited 9,485 - - -Warner Estate Development (Folkestone) 26 - - -LimitedWarner Estate (Folkestone) Limited - - (285) -Warner Estate Investments Limited 34,395 10,304 - -Warner Estate (Jersey) Limited 8,688 1,646 - -Warner Estate (Joint Ventures) Limited 92,464 - - -Warner Estate, Limited 73,946 10,304 - -Warner Estate Management Limited 13,220 78,828 - -Warner Estate Property Limited - - (24,006) -Warner Funds Limited - 14,505 (34,650) -Warner Industrial Acquisition Limited 33,031 60,257 - -Warner Industrial Investments Limited - 115 (38,018) (5,608)Warner Investments Limited - - (9,562) (4,643)Warner Regional Offices Holdings Limited - 2 - - No fees were paid in respect of contracts, which provided services in theordinary course of business to the Group, and in which Directors have or hadinterests. During the year there were loan transactions between the Group and jointventures, as set out in note 16. Interest payable on these loans andmanagement charges, payable by the joint ventures, are also set out in note 16. 32. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Operating profit before net gains on investments 24,801 25,884 (3,114) (1,921)Depreciation of plant and equipment 151 139 - -Loss on sale of plant and equipment - 1 - (49)Decrease in inventories 3,514 19,292 - -Decrease / (increase) in trade and other receivables (8,284) 2,682 (212,070) (67,765)(Decrease) / increase in trade and other payables (14,077) (23,295) 179,280 47,319Cash generated from operations 6,105 24,703 (35,904) (22,416) 33. CONTINGENT ASSETS 2007 2006 £'000 £'000Potential performance fees arising under joint ventureagreementsAgora Shopping Centres - 5,000Radial Distribution - 1,000 - 6,000 These assets have not been recognised on the balance sheet. 34. CONTINGENT LIABILITIES 2007 2006 £'000 £'000Contingent liabilities in respect of guarantees given bythe Company in respect of borrowings of its subsidiariesas follows:Bank overdrafts 136,081 100,108Other loans - 22,500 136,081 122,608 These liabilities have not been recognised on the balance sheet. 35. OPERATING LEASE COMMITMENTS 2007 2006 £'000 £'000GroupAnnual commitments in respect of operating leases on propertiesare as follows:Within one year 168 -Expiring between two and five years 791 45Expiring after five years 1,702 435 2,661 480 36. OPERATING LEASES GRANTED 2007 2006 £'000 £'000GroupAnnual rentals receivable in respect of operating leases onproperties are as follows:Within one year 80 -Expiring between two and five years 15 -Expiring after five years - - 95 - These relate to the onerous leases in note 26. 37. MINORITY INTEREST This represents investments held by The FI5 Partnership in Balmcrest EstatesLimited. 38. ACQUISITIONS The entire share capital of JS Real Estate Plc was acquired on 14 March 2007.JS Real Estate is principally involved in property investment. Acquisition of JS Real Estate Plc Fair value Book value adjustments Fair value £'000 £'000 £'000 Net assets / (liabilities) acquired Investment property 106,277 23,531 129,808Plant and equipment 24 (24) -Inventories 1,121 (1,121) -Trade and other receivables 852 - 852Cash and cash equivalents 9,743 - 9,743Borrowings including finance leases (14,091) - (14,091)Trade and other payables (4,915) (4,408) (9,323)Current income tax liabilities (137) (269) (406) 98,874 17,709 116,583 Goodwill 74 Consideration 116,657 Satisfied by 100% Cash consideration 94,684Directly attributable acquisition costs 2,104Loan notes payable 19,869Cash consideration 116,657 JS Real Estate Plc contributed £354,000 to revenue and £259,000 to the Group'sprofit before taxation for the period between the date of acquisition and 31March 2007. If JS Real Estate Plc had been acquired at 1 April 2006 it would havecontributed £8,199,000 to revenue and £4,540,000 to the Group's profit beforetaxation. On 18 September 2006, the Group acquired the remaining 50% of ordinary sharecapital in Bareway Industrial Properties Limited (and its subsidiaries), whichhad previously been accounted for as a joint venture. On the acquisition date100% of the net liabilities were brought on to the balance sheet. Bareway Industrial Properties Limited was set up as a 50-50 joint venture withBarclays Bank and disposed of its properties on 30 November 2005. Acquisition of remaining 50% of Bareway Industrial Properties Limited Fair value Book value adjustments Fair value £'000 £'000 £'000 Net assets / (liabilities) acquired Trade and other receivables 51 - 51Cash and cash equivalents 237 - 237Trade and other payables (88) - (88) 200 - 200 50% acquired 100 Goodwill - Consideration 100 Satisfied by Cash consideration 100 Bareway Industrial Properties Limited contributed £nil to revenue and a profitof £29,000 to the Group's profit before tax for the period between the date ofacquisition and 31 March 2007. Cash acquired £'000 £'000 JS Real Estate Plc 9,743 Bareway Industrial Properties 237 Limited 9,980 Cash paid on acquisition: JS Real Estate Plc (92,864) Bareway Industrial Properties (100) Limited (92,964) Net cash acquired (82,984) This information is provided by RNS The company news service from the London Stock Exchange

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