Final Results

11 December 2012

Terrace Hill Group PLC

("Terrace Hill" or the "group")

FULL YEAR RESULTS SHOW INCREASED PROFITABILITY

AND STRONG PROGRESS WITH DEVELOPMENT PIPELINE

Terrace Hill Group plc (AIM: THG), a leading UK property investment and development group, today announces its results for the year to 30 September 2012.

Financial Highlights:

§ EPRA Net Asset Value (NAV) per share increased by 0.7% to 28.3p (30 September 2011: 28.1p) while EPRA Triple NAV per share increased by 1.1% to 26.8p (30 September 2011: 26.6p)

§ Revenue profit increased 110% to £11.8 million(1) (2011: £5.6 million)

§ IFRS Profit before tax of £1.8 million (30 September 2011: loss of £10.2 million)

§ IFRS net assets increased to £50.2 million at 30 September 2012, up from £48.1 million at 30 September 2011

§ Good progress on strategy of reducing the group's level of debt:

- Net debt reduced by £4.2 million to £47.2 million during the period

- EPRA gearing percentage of 78.2% at 30 September 2012, down from 86.0% at 30 September 2011

Operational highlights:

§ Foodstore business continues to perform strongly - three new stores pre-let, forward funded and under construction. Four sites in the planning process and nine further sites are under consideration

§ Completion of central London office-led mixed use scheme at Howick Place in Victoria

§ Targeting a start on site at 29,000 sq ft retail and office development in Savile Row / Conduit Street, London W1 in Q1 2013

§ Planned sale of residential portfolio progressing ahead of schedule, with £97.1 million of disposals during the period, and strategies in place to divest the balance of properties over the coming 12-18 month period

§ 1,100 bed student accommodation scheme in Southampton fully pre-let to the University of Southampton and conditional forward funding agreement exchanged with Legal & General. The development is due for completion in August 2014

§ Exchanged contracts with Darlington Borough Council to develop a new 134,000 sq ft, £30.0 million, leisure complex in the town centre which is to be anchored by a nine screen Vue cinema and an 80-bedroom Whitbread hotel

§ Good progress with the letting and disposal of non-core regional assets including office units at Filton, Farnborough and Teesside as well as industrial units at Christchurch.

(1) Profit before tax and valuation movements on investment and development properties and before contributions from our joint venture and associated undertakings.

Commenting, Robert Adair, Chairman of Terrace Hill, said: "The past year has seen good progress on all operational and financial fronts. I am increasingly confident that the combination of the strength of our development business and our skill at dealing with non-core assets will continue to drive further growth in shareholder value."

Philip Leech, Chief Executive of Terrace Hill, added: "2012 has been a very active year for Terrace Hill during which we have progressed numerous foodstore developments, as well as new opportunities in the student accommodation, leisure and central London office sectors. This activity has translated into a good financial performance and we are confident of maintaining this positive momentum going forward."

For further information, please visit www.terracehill.co.uk, or contact:

Chairman's statement

I am very pleased to report our financial results for the 12 months ended 30 September 2012 where we have made good progress on all operational and financial fronts as well as in fulfilling our strategy of focusing the business on opportunities where we can better leverage our core development expertise in order to improve value and earnings for shareholders.

The group made a pre-tax revenue profit in the year (which is profit before valuation movements and contributions from associates) of £11.8 million compared with a revenue profit of £5.6 million for the 12 months ended 30 September 2011. This increase is largely due to the recognition of profits at four foodstore projects in the year. The group's IFRS profit before tax also showed a strong improvement to £1.8 million compared with a loss of £10.2 million in the preceding 12 months. Our EPRA Net Asset Value (NAV) has increased by 0.7% to 28.3 pence per share (28.1 pence per share at 30 September 2011) and our EPRA Triple NAV has risen by 1.1% to 26.8 pence per share (26.6 pence per share at 30 September 2011). The EPRA NAV includes adjustments to reflect the market value of the group's development properties where the value is above cost.

The backbone of our business is now clearly focused on our core commercial property development skills and this has never been more evident than in our highly successful foodstore development programme. Over the past three and a half years we have either developed or are currently developing new foodstores or have obtained planning consents and sold sites to retailers in seven locations across the UK. In total, this represents 510,000 sq ft of new foodstores with a capital value of £121.0 million. 

During the period under review we have commenced the construction of two new foodstores for Sainsbury's which are located in Sunderland and Sedgefield and one for Asda in Skelton, East Cleveland. All of these have been forward funded by investment purchasers or the retailer themselves, thus minimising residual risks for the group. We have also secured new sites for foodstores in Midsomer Norton and St. Austell and have submitted a planning application at our site in Herne Bay for a 99,653 sq ft Sainsbury's foodstore. Our EPRA NAV reflects substantially all the profits from the foodstore projects at Sunderland, Sedgefield and Skelton but does not include any contribution from the schemes at Midsomer Norton, St. Austell and Herne Bay, nor from others mentioned in the business review. We expect these to contribute materially to our NAV. 

There has been some slackening in the pace of expansion from some retailers in this sector. Our recent experience is that they are still acquisitive for sites which fill gaps in their portfolios and their size requirement has reduced somewhat to reflect a lower emphasis on non-food sales. Despite this, our team of dedicated site finders and development executives, throughout our regional office network, is continuing to find new and exciting opportunities for us to grow our foodstore development pipeline and we currently have nine new sites under consideration. 

Elsewhere in the regions we have unearthed two exceptional development opportunities including a 1,100 bed student accommodation scheme in Southampton. This project has been pre-let in its entirety to the University of Southampton and we obtained detailed planning in July 2012. A conditional contract for the forward funding of the development has been exchanged with Legal & General and completion of the development is scheduled for the middle of 2014. 

Additionally, I am delighted that we have exchanged contracts with Darlington Borough Council to develop a leisure complex on land they own in the centre of the town. Plans for the development include a nine screen cinema and an 80-bedroom hotel where terms have been agreed with Vue Cinemas and Whitbread respectively. These will be complemented by nine restaurant units bringing the total size of the scheme to 134,000 sq ft with an end value of approximately £30.0 million. We have also seen good progress with the letting and disposal of non-core regional assets including office units at Filton, Farnborough and Teesside and industrial units at Christchurch.

In central London we have completed our £160.0 million office and residential joint venture development at Howick Place in Victoria where occupational interest has been strong in the short period since handover from the contractor. At Conduit Street in Mayfair, where we are acting as development manager on a 29,000 sq ft retail and office development, we obtained planning consent in the summer and are targeting a start on site early next year. We are incentivised on this scheme by performance returns.

Our planned exit from the residential property investment sector has continued ahead of programme with the disposal during the reporting period of £97.1 million of property (both wholly owned properties and through our associate Terrace Hill Residential PLC and we have strategies in place for the disposal of the balance of the portfolios over the next 12-18 months. This carefully managed process is allowing us to maximise potential value from the disposals.

I am very pleased with the reduction in the level of our debt. Our net debt has reduced to £47.2 million, representing an EPRA gearing percentage of 78.2%, down from 86.0% at 30 September 2011, with a loan to value ratio of 49.2% (48.5% at 30 September 2011). As a consequence of the disposal of properties by our associated company, Terrace Hill Residential PLC, our net debt, including our share of joint venture and associated undertakings, has fallen sharply to £85.7 million from £148.6 million at 30 September 2011 with our EPRA total see-through net gearing percentage falling to 142.1% from 248.6%. The loan to value ratio including our share of joint venture and associated undertakings was 66.2% at 30 September 2012, compared with 66.9% at 30 September 2011. Gearing will continue to fall substantially as the remaining assets in Terrace Hill Residential PLC are sold.

We successfully completed a capital reduction in the second half of the year which has had the effect of eliminating a deficit of distributable reserves and removing an obstacle to the resumption of dividend payments. As I have previously stated we wish to resume a progressive dividend policy as soon as sensible, however, for the moment we are focused on reducing our debt.

Outlook

I am increasingly confident that the combination of the strength of our development business and our skill at dealing with non-core assets will continue to drive further growth in shareholder value. As a result I would hope to see a narrowing of our share price discount to our EPRA NAV over the coming months.

Finally I would like to take this opportunity to thank the group's directors and staff for their continued hard work which is very much reflected in these results.

Robert F M Adair

Chairman

11 December 2012

Business review

Our business is now clearly focused on our core skills of commercial property development which we pursue in a carefully risk managed and opportunistic way. Our model has proved to be resilient and profitable over the past 20 years, through a number of financial cycles, and we continue to generate excellent returns from the development business. Our main areas of development activity are concentrated in the three distinct sectors of: foodstores, central London offices and regional opportunities. Each of these is described in more detail below.

Foodstores

We are now one of the market leaders in large format foodstore development. This is a sector where we have site finders and development executives dedicated to the business in each of our offices which gives us a unique advantage in terms of sourcing sites on a national basis, whilst understanding the local idiosyncrasies of planning and politics. Our focus has been rewarded with an impressive track record; over the past three and a half years we have developed or are in the process of developing new foodstores or have obtained planning consent and sold sites to retailers in seven locations across the UK. This represents 510,000 sq ft of new foodstores with a capital value of £121.0 million.

We are constantly evaluating new sites and maintain very close contacts with the retailers, which allows us to pursue opportunities that are largely off-market. This gives us a competitive advantage and minimises our risk. Highlights from our foodstore development programme during the period under review include the following:

Wessington Way, Sunderland

This 98,679 sq ft development pre-let to Sainsbury's on a 25 year lease was forward funded by Osprey Equity Partners in April for a total consideration of £35.0 million. Construction is proceeding well on site and completion is scheduled for March 2013.

Skelton, East Cleveland

Planning consent for this 41,800 sq ft Asda foodstore was confirmed in the spring following an unsuccessful judicial review by the Coop. Asda subsequently entered into a forward funding and purchase agreement and construction started in June with completion programmed for March 2013.

Sedgefield, Co Durham

The forward funding agreement for this development was concluded in September 2012 with The Eyre Estate Investment Fund for a total consideration of £16.1 million. Construction of the development is now well advanced with completion scheduled for May 2013. The 48,786 sq ft scheme has been pre-let to Sainsbury's for a 25 year term with RPI linked rent reviews and includes a petrol filling station.

Altira Park, Herne Bay

We have recently submitted a detailed planning application for a 99,653 sq ft Sainsbury's foodstore on a 6.84 acre site on the edge of the town. The development has been pre-let, subject to planning, for a 25 year term with RPI linked rental uplifts. We expect to start construction towards the middle of 2013.

St. Austell, Cornwall

We are working with Cornwall Council to promote a 5 acre Council-owned site on the edge of the town centre for a foodstore development. We submitted a detailed planning application in October 2012 and we expect the application to be determined in March 2013. Both Morrisons and Sainsbury's have requirements for the town.

Midsomer Norton, Somerset

We have recently entered into a conditional contract to acquire a 12.2 acre former industrial site on the edge of Midsomer Norton for the development of a foodstore and 6.5 acres of residential. We are currently in pre-planning application consultation with the Local Authority and detailed pre-letting negotiations with a retailer. We intend to sell the residential element of the site to a house builder following the grant of planning consent. Sainsbury's, Morrisons and Asda have requirements for the town.

Gateway Middlehaven, Teesside

Progress with the planning application process on this 16 acre site has been slower than anticipated, however matters are now moving forward more satisfactorily and we expect to make a full planning application for a 125,000 sq ft foodstore, a public house and a number of restaurants, in the spring next year. The foodstore has been pre-let, subject to planning, to Sainsbury's.

Whitchurch, Shropshire

We completed the sale of this site to Sainsbury's for £9.8 million in April this year following the grant of planning consent for a 55,000 sq ft retail unit and a petrol filling station. 

Prestwich, Greater Manchester

We continue to work with the landowner and retailer on a re-configured arrangement for this development and anticipate being able to submit a planning application by the middle of 2013.

Hyde, Greater Manchester

The retailer with whom we had agreed terms has now decided not to purchase this site. We do not consider we can reasonably pursue any alternative strategy on this site and it is therefore no longer being progressed.

Other sites

We currently have nine further foodstore deals under consideration which we expect will contribute strongly to profits over the next two to three years. Our experience with the food store operators is that they are now focused on store sizes ranging from 30,000 to 70,000 sq ft as they reduce their exposure to non-food. We believe our expertise and the food store operators' requirements are well matched and that we will be successful in developing more foodstores for them in the future.

Central London offices

We have been very active in the central London office and mixed use development sector for a number of years. Over the past 12 years we have developed nine schemes in the West End, representing 350,000 sq ft and a capital value of £290.0 million. Our current activity comprises the following two schemes:

Howick Place, Victoria

The construction of this development has recently completed and comprises 135,000 sq ft of offices along with 25,300 sq ft of residential apartments. There has already been a strong level of interest in both the office space and apartments and we expect the lettings to progress well in an area which has become increasingly attractive but where rents are still at a meaningful discount to Mayfair and St. James's. The development has been carried out in joint venture with Doughty Hanson.

Savile Row/Conduit St W1

We act as the Development Manager on this office and retail development which is due to start on site in early 2013. We obtained detailed planning consent for this 29,000 sq ft scheme in March 2012 and the strength of the occupational market in this prime Mayfair location points towards premium lettings when the building completes in July 2014. We are rewarded through management and investment performance fees.

Regional opportunities

Our regional office network gives us a unique insight into local development opportunities in areas often overlooked by national companies. A number of these schemes are progressing well as follows:

Mayflower Plaza Southampton

In July 2012 we obtained detailed planning consent for a 1,100 bed student residential scheme on our site in the centre of Southampton and at the same time pre-let the development in its entirety to Southampton University. Since then we have entered into a conditional agreement with Legal & General, who propose to forward fund and purchase the completed development. We expect this contract to become unconditional in January 2013 and the scheme is scheduled for completion in August 2014. This development is being carried out in a joint venture with Osborne Group which is also the selected building contractor.

Feethams Leisure Development, Darlington

We entered into a conditional contract with the town centre site's landowners, Darlington Borough Council, to develop a leisure complex which will include a nine-screen cinema, an 80-bedroom hotel and nine restaurant units. Terms have already been agreed with Vue Cinemas and Whitbread and we intend to submit a planning application in early 2013, with anticipated completion of the £30.0 million development towards the end of 2014.

Christchurch

The sale of units in the first phase of small industrial units at our site in Christchurch is proceeding very well with the sale of 12 out of the 17 units now completed. There is strong interest in subsequent phases.

Terrace Hill Development Partnership

Over the past 12 months we have seen improved letting activity within this closed ended development fund in which the group has a 20% interest. At Teesside we have recently let the whole of a 10,000 sq ft building to GSE, a design engineering business, at £106,000 p.a. and also a further floor of the last building to URS, also an engineering business. This leaves only two floors comprising 6,800 sq ft available to let out of the initial 33,000 sq ft three office building development. In addition, at Filton, we have seen rental growth with new lettings at £19.00 per sq ft and lease terms of seven to ten years, while at Farnborough, we have sold one building and let another, leaving three buildings to let and sell comprising 7,300 sq ft in total.

Non-core assets

We have a number of non-core assets which we have held for some time. These largely comprise development sites where we have been progressing planning and exploring development options. They will be developed or sold over time to maximise returns. Examples of our success in this strategy include our sites at Southampton and Christchurch mentioned above.

Residential investment

We are making good progress with our strategy of disposing of our residential assets in a controlled process over a period of time. Over the past 12 months we have sold (both wholly owned and through our associate Terrace Hill Residential PLC) 766 units for a consideration of £97.1 million and we are in an advanced position over the sale of the balance of our portfolios. We expect this process to be completed within the next 12-18 months which will leave our business free to focus on our core strength of commercial development.

Business review - Finance

Financial results and Net Asset Value

The group's IFRS NAV increased by 4.3% in the year ended 30 September 2012 to £50.2 million (23.7 pence per share) from £48.1 million (22.7 pence per share) at 30 September 2011 and our EPRA NAV also increased by 0.7% to £60.3 million (28.3 pence per share) from £59.8 million (28.1 pence per share) at 30 September 2011. 

The group regards the EPRA NAV as a key performance indicator as it includes the market value adjustments of our commercial properties and is therefore a better indicator of the true value of the group, whereas the IFRS NAV includes our development properties at the lower of cost and net realisable value. As the majority of our activity is concerned with the development of commercial properties which undergo changes in value as we bring projects to fruition, the IFRS NAV cannot recognise the market value of such properties if their value is above cost. 

During the year, the increase in our EPRA NAV was caused principally by the following:

The group's EPRA Triple NAV, which takes into account any tax payable on profits arising if all the group's properties were sold at the values used for EPRA NAV, the write off of goodwill and any other fair value adjustments, increased by 1.1% to £57.1 million (26.8 pence per share) from £56.5 million (26.6 pence per share) at 30 September 2011.

Calculation of EPRA NAV and EPRA Triple NAV (unaudited)

Statement of comprehensive income

Revenue for the year ended 30 September 2012 includes:

Rental income of £1.0 million and related costs of £1.5 million are included in revenue and direct costs respectively in respect of the group's head office in London, where it owns a head lease.

Direct costs include directly attributable costs in respect of those revenue items mentioned above and a net charge of £0.6 million relating to the movement in provisions for various properties. In particular, we have released a provision of £4.4 million made in previous years relating to our site at Southampton following the substantial progress we have made to date on that scheme, and made further provisions of £5.0 million in respect of certain non-core properties where the group believes that net realisable value has fallen. Direct costs also include full provision of £2.8 million against the group's advances to Achadonn Limited, a joint venture which owns land in Scotland, following the decision by the shareholders in January 2012 not to support a bank loan to the joint venture. The balance of the group's investment in Achadonn of £0.4 million has been written off as an impairment of £0.2 million and share of post tax loss of £0.2 million.

Administrative expenses for the year ended 30 September 2012 amounted to £4.9 million (2011: £4.3 million). The increase is largely due to the inclusion of an impairment charge in relation to goodwill, higher professional fees and a higher share scheme charge (which is credited to retained earnings and so has no impact on NAV).

The group incurred a loss of £0.6 million on the disposal of certain wholly owned residential investment properties which were disposed of in advance of a bank re-financing. The group continues to dispose of its residential properties in pursuit of its strategic decision to exit the residential sector as announced in last year's results.

The group has also increased its provision against its investment in Terrace Hill Residential PLC by a further £5.1 million such that the total amount provided at 30 September 2012 is now £6.0 million. Of this, £4.4 million had been included in the results for the six month period ended 31 March 2012. Terrace Hill Residential PLC is in the process of an orderly disposal of its property portfolio and in the period realised £91.4 million from its sales programme, reflecting a 3% discount on its 30 September 2011 carrying values. 

Finance income less finance costs amounted to £1.5 million (2011: £4.6 million). The group paid £4.4 million of interest in the year of which £0.6 million was in respect of projects where work is currently underway and which has been capitalised and £1.6 million which was paid under an interest shortfall guarantee that was fully provided in previous years. The 2011 comparative includes a provision of £2.0 million in respect of this interest shortfall guarantee which has now been fully settled. There are no abnormal items in the current period.

The post tax loss of £0.2 million (2011: £1.7 million) arising from our share of joint venture and associated undertakings is represented by the group's share of the results of Achadonn Limited before the group provided for its investment as noted above.

The group's tax charge for the period of £0.1 million (2011: £0.2 million) reflects principally the restatement of our deferred tax asset to current rates of corporation tax and utilisation of losses reflected in the deferred tax asset to shelter tax profits arising on the property sales noted above.

Balance sheet

The group's IFRS net assets at 30 September 2012 were £50.2 million, an increase of 4.3% on the amount reported at 30 September 2011 of £48.1 million. Investment properties fell from £21.4 million at 30 September 2011 to £15.2 million at 30 September 2012 due principally to the sale of £5.3 million of wholly owned residential investment properties. Trade and other receivables have increased by £7.3 million to £17.3 million at 30 September 2012 due principally to the inclusion in the results of the sales of three foodstores (Sunderland, Skelton and Sedgefield) where under IFRS substantially all of the overall profit is recognised ahead of the receipt of cash, the balance sheet reflecting amounts still owed under those contracts. These projects are expected to reach practical completion in the first half of 2013 when the outstanding amounts due under the sales contracts will be received. Other payables have increased from £0.9 million at 30 September 2011 to £6.0 million at 30 September 2012, reflecting the provision the group has made for its investment in Terrace Hill Residential PLC referred to above.

The group's gearing has continued to improve and net debt as a percentage of EPRA net assets was 78.2% at 30 September 2012 compared with 86.0% at 30 September 2011 and 93.1% at 31 March 2012. The amount of net debt has also reduced to £47.2 million at 30 September 2012 from £51.4 million at 30 September 2011. The group's look through net gearing, which includes its share of the net debt in those joint venture and associated undertakings in which it has on-going liabilities, fell substantially from 248.6% at 30 September 2011 to 142.1% at 30 September 2012. The group's net debt, including its share of joint venture and associated undertakings as above, also fell sharply, from £148.6 million at 30 September 2011 to £85.7 million at 30 September 2012.

Financial resources and capital management

The group funds itself through its fixed capital, cash and debt facilities. As the group has not raised new fixed capital for some time, the group focuses its attention on the management of its cash and debt position. The group is not subject to externally imposed capital requirements and meets its objectives for managing its capital by ensuring that it operates within the constraints imposed by the availability of cash and debt and by ensuring that it meets the various financial covenants that apply to its debt. The group regards its gearing ratios as key ratios for the purposes of managing its financial resources and the 24 month cash forecast as a key management tool. Comments on both these items are elsewhere in this review.

Our net debt reduced in the period by £4.2 million. This was largely due to the completion of forward funding agreements on our Sunderland, Skelton and Sedgefield foodstore projects and the sale of the Whitchurch site all of which generated strong cash inflows for the group. The most significant cash outflows were in relation to development expenditure on our active development projects and our administrative expenses. Our gross debt reduced by £9.8 million funded by property sales and cash resources.

As reported in the interim statement, the group has been successful in re-financing a number of bank loans in the period. The group's two residential bank loans have been re-financed with new maturities of March 2014 and March 2015 and the maturity of the debt within Terrace Hill Residential PLC has also been extended. These extended maturities greatly help the group's orderly withdrawal from the residential sector.

The group has £4.8 million of outstanding loan re-financings to complete where we are in discussion with the lender and the group expects to achieve a satisfactory refinancing.

The group has a number of loan facilities maturing in 2013. We have opened discussions with the relevant lenders and are confident that we shall negotiate new, extended maturities in the same way that we have been successful in the past. After the year end we have agreed new terms on one bank loan and as a result £3.0 million of debt shown as short term on the balance sheet is now repayable between 2014 and 2017 as shown in the narrative of note 18 to the accounts.

The average maturity of group debt is now 12.5 months with a weighted average margin of 3.3%, with the weighted maturity extending to 16.2 months if we take into account loans where terms have been commercially agreed but not yet documented. The average maturity of joint venture and associated undertaking debt is now 19.9 months with a weighted average margin of 2.9%.

The group continues to monitor interest rates closely and continues to believe that the risk on the upside is limited. The group therefore has no interest rate hedging in place and consequently benefits from the very low current LIBOR rates. 72% of joint venture and associated undertaking debt is hedged with an average interest rate of 2.9%.

The group also monitors its cash resources and future cash flows very closely through its comprehensive 24 month rolling cash forecast. The group regularly updates the cash forecast and stress tests the underlying assumptions to ensure that the group has sufficient resources to execute its strategy for the foreseeable future.

As noted in the Chairman's statement, the group carried out a reduction of capital during the year, during which the Scottish Court of Session confirmed the group's transfer of £25.0 million from its share premium account to distributable reserves. This exercise has eliminated the deficit on the distributable reserves account and has put the company in a position so that, should it decide to do so, it can now pay dividends.

Summary of debt position

The net gearing and loan to value percentages shown above are in relation to our adjusted NAV. The majority of joint venture and associated undertaking debt is of limited recourse to the group.

Debt expiry profile

*Group share

Summary of loan to value ratios of group property

Consolidated statement of comprehensive income

for the year ended 30 September 2012

* See note 1 Restatement of prior years.

The notes form part of these financial statements.

Consolidated balance sheet

at 30 September 2012

* See note 1 Restatement of prior years.

The financial statements were approved by the board and authorised for issue on 11 December 2012 and were signed on its behalf by:

Consolidated statement of changes in equity

at 30 September 2012

Consolidated cash flow statement

for the year ended 30 September 2012

* See note 1 Restatement of prior years.

1 Accounting policies

Basis of preparation

The financial information set out in this announcement does not constitute the group's statutory accounts for the year ended 30 September 2012 under the meaning of s434 Companies Act 2006, but is derived from those accounts. Statutory accounts for the year ended 30 September 2012 have been reported on by the Independent Auditors. Their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. The statutory accounts for the year ended 30 September 2012, prepared under IFRS, will be delivered to the Registrar in due course.

The financial information set out in this announcement does not constitute the group's statutory accounts for the period ended 30 September 2011 under the meaning of s434 Companies Act 2006, but is derived from those accounts, subject to audited restatement as disclosed in note 1. Accounts for the period ended 30 September 2011 have been reported on by the Independent Auditors. Their report was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under s498(2) or s498(3) of the Companies Act 2006. Statutory accounts for the period ended 30 September 2011 have been filed with the Registrar of Companies.

Changes in accounting policies

The group has adopted the following new or amended IFRS and IFRIC interpretations in the year.

New standards and interpretations not applied

IASB and IFRIC have issued the following standards and interpretations relevant to the group. These standards and interpretations are mandatory for accounting periods beginning on or after the date of these financial statements and will become effective for future reporting periods:

None of the new standards and interpretations noted above, which are effective for accounting periods beginning on or after 1 October 2012 and which have not been adopted early, are expected to have a material effect on the group's future financial statements.

Going concern

The directors are required to make an assessment of the group's ability to continue to trade as a going concern. The directors have given this matter due consideration and have concluded that it is appropriate to prepare the group financial statements on a going concern basis. The two main considerations were as follows:

Cash flow - the group maintains a rolling 24 month cash forecast that takes account of all known inflows and outflows. The cash flow is regularly stress tested to ensure that the group can withstand reasonable changes in circumstances that could adversely affect its cash flow. The key potential changes that the group has considered include: the timing of planned property sales and possible reductions in anticipated cash flows from re-financing properties after planning permission has been obtained.

Bank facilities - the group maintains a regular dialogue with its lenders and keeps them informed of how the group is trading. A consequence of the nature of the group's business is that it has a number of discrete bank facilities, each secured on the project they finance. Consequently, the group always has some debt to re-finance and during the year re-financed £13.5 million of group debt, which includes a new £2.5 million working capital facility, agreed terms on a further £3.6 million and re-financed £43.3 million (group share) of joint venture and associated undertaking debt. The group has a further £4.8 million loan where we are in discussions with the lender and expect to achieve a satisfactory refinancing. The group has £30.3 million of debt facilities to be re-financed by 30 September 2013 which will diminish as developments complete and assets are disposed of. Discussions with regards these re-financings will be commenced closer to their maturities. The group maintains a good dialogue with a sizeable number of banks and believes that the remaining loans that require re-financing will be re-financed on acceptable terms. Terrace Hill Residential PLC, an associate company, has £77.8 million of bank debt with a maturity of June 2014 which can be accelerated to September 2013 under certain circumstances. Terrace Hill Residential PLC has to date exceeded all bank loan amortisation requirements and has a close relationship with its lender. As a consequence the group believes that it is likely the June 2014 maturity will remain but the impact on the group of an acceleration of the maturity to September 2013 is not expected to be material.

Having considered the headroom in the group's cash forecasts and its previous success in extending finance terms when required, the group believes that it has sufficient resources to continue trading for the foreseeable future.

Investment property and inventory

In relation to the investment and development properties, the directors have relied upon the external valuations and advice provided by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors.

The group uses the valuation performed by its independent valuers as the fair value of its investment properties and in assessing the net realisable values of its development properties. The valuation is based upon assumptions including future rental income, anticipated maintenance costs, future development costs and the appropriate discount rate. The valuers also make reference to market evidence of transaction prices for similar properties.

Restatement of prior years

Cash flow statement

The cash flow has been restated from that published in the 30 September 2011 accounts for the period then ended to correct mis-classifications in the "cash flow from operating activities" segment of the cash flow statement. The impact on 30 September 2011 cash flow has been to decrease the depreciation and impairment charge by £3,738,000, reduce the share of joint venture and associated undertakings post tax loss by £917,000, increase the provision for financial guarantee over debts of associate by £917,000, increase the decrease in property inventories by £4,226,000, reduce the decrease in trade and other receivables by £2,864,000 and to reduce the increase in trade and other payables by £2,376,000. There was no change to cash generated from operations as previously reported.

Statement of comprehensive income

The statement of comprehensive income has been restated from that published in the 2011 accounts to correct a mis-classification. The impact has been to reduce the share of joint venture and associated undertakings post tax loss by £917,000 and to increase the provision for financial guarantee over debts of the associate by £917,000. There has been no impact on the loss reported for the year then ended 30 September 2011.

Investments

The balance sheets at 30 September 2011 and 30 September 2010 have been restated to correct the mis-classification of an amount of £4,273,000 previously disclosed as a receivable within current assets. It is considered more appropriate to include the amount in "other investments" under the heading of non-current assets. The impact of the restatement is to increase other investments by £4,273,000 and reduce trade and other receivables by the same amount. The restatement has no impact on net assets for both balance sheet dates.

Non-current liabilities

The balance sheet at 30 September 2011 has been restated to correct the mis-classification of an amount of £917,000 previously disclosed within current liabilities under other payables. It is considered more appropriate to include the amount in 'other payables' under the heading of non-current liabilities. The impact of the restatement is to increase non-current other payables by £917,000 and to reduce trade and other payables by the same amount. There was no equivalent amount for reclassification in the 2010 financial statements. The restatement has no impact on the net assets at the balance sheet date.

2 Revenue

Construction contracts

Construction contract revenue is recognised in the accounts in line with contract stage of completion determined as the proportion of total estimated development costs incurred at the reporting date. No advances or retentions have been received for construction contracts.

Development sales

3 Segmental information

The operating segments are identified on the basis of internal financial reports about components of the group that are regularly reviewed by the chief operating decision maker (which in the group's case is its Executive board comprising the three Executive directors) in order to allocate resources to the segments and to assess their performance. The internal financial reports received by the group's executive board contain financial information at a group level as a whole and there are no reconciling items between the results contained in these reports and the amounts reported in the financial statements.

The group operates in two principal segments, being commercial property development and investment and residential property investment. The commercial segment includes the foodstores and central London office developments. The group does not operate outside the UK.

The segmental results that are monitored by the board include all the separate lines making up the segmental IFRS operating profit. This excludes central overheads and taxation which are not allocated to operating segments.

During the year, four major customers generated £54,751,000 of revenue. Each of these represented 10% or more of the total revenues. The amounts were £9,826,000, £26,256,000, £8,896,000 and £9,773,000.

In the year ended 30 September 2011, there were also four major customers that generated £50,680,000 of revenue. Each of these represented 10% or more of the total revenues. The amounts were £7,187,000, £8,843,000, £26,750,000 and £7,900,000.

4 Finance costs and finance income

Interest is capitalised at the same rate as the group is charged on the respective borrowings. There were no interest rate swaps during the year. In the prior year £177,000 of gains were included in finance income, representing the reversal of fair value adjustments on interest rate swaps that expired during the year.

5 Administrative expenses

Is arrived at after charging/(crediting):

6 Tax on profit/(loss) on ordinary activities

(a) Analysis of charge in the year

(b) Factors affecting the tax charge for the year

The tax assessed for the period is lower than the standard rate of corporation tax in the UK of 25% (2011: 27%). The differences are explained below:

(c) Associates and joint venture

The group's share of tax on the associates and joint venture is £Nil (2011: £Nil).

7 Earnings per ordinary share

The calculation of basic earnings per ordinary share is based on a profit of £1,742,000 (2011 loss: £10,423,000) and on 210,951,299 (2011: 210,951,299) ordinary shares, being the weighted average number of shares in issue during the year.

The calculation of diluted earnings per ordinary share for 2012 is based on earnings of £1,742,000 and on 211,426,546 ordinary shares being the weighted average number of shares in issue during the period adjusted to allow for the issue of ordinary shares in connection with a share award. The calculation of diluted earnings per share for 2011 is the same as that for basic earnings per share.

8 Intangible fixed assets - goodwill

Impairment tests for goodwill

Goodwill arising on acquisition is allocated to the group's cash-generating units identified according to business activity.

The value of goodwill allocated to the investment activity is directly related to a number of residential units held. As these units are disposed of an impairment charge is made. During the period 32 properties were sold and an amount of £148,000 was charged to the Consolidated statement of comprehensive income.

The recoverable amount of goodwill allocated to commercial property activities has been determined from value-in-use calculations based on cash flow projections of the cash-generating unit. These are reviewed to ensure that the cash-generating units in respect of which the goodwill arose continue to generate cash flows in excess of the carrying value of the goodwill. The cash flow period considered is 24 months and is based on forecast asset sales which take into consideration management's assessment of past experience and future economic benefits in light of anticipated economic and market conditions. As the period considered is greater than 12 months discounting is applied. The discount rate applied is 15%, which takes into account not only the time value of money but also management's assessment of the specific risks related to the cash-generating unit. If this recoverable amount is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Any impairment loss is recognised as an expense.

The carrying value of the group's goodwill is reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

9 Property, plant and equipment

At the year end there were no assets held under finance leases.

10 Investment properties

The commercial investment properties situated in England owned by the group have been valued as at 30 September 2012 by qualified valuers from CB Richard Ellis, an independent firm of Chartered Surveyors, on the basis of open market value. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.

Residential investment properties owned by the group have been valued as at 30 September 2012 by qualified valuers from Allsop LLP, an independent firm of Chartered Surveyors, on an investment value basis. The valuations were carried out in accordance with guidance issued by the Royal Institution of Chartered Surveyors.

The group did not incur any direct operating expenses arising from investment property that did not generate rental income.

11 Investments

Associates and joint venture

The group's interests in its associates which have been equity accounted in the consolidated financial statements were as follows:

Terrace Hill Residential PLC is incorporated in Scotland.

Summarised information 2012

Terrace Hill Group plc has no legal or constructive obligations to fund the losses of Terrace Hill Development Partnership, Devcap 2 Partnership and Castlegate House Partnership. Terrace Hill Development Partnership has not been equity accounted for as the entity has preferential investors that will receive their return before Terrace Hill Group plc. When the entity can satisfy the obligations to those investors equity accounting will resume. Terrace Hill Development Partnership is classified as an associate due to significant influence over its operating activities.

In the case of Terrace Hill Residential PLC the group has given a guarantee to the bank as part of its security arrangements and has recognised its share of this obligation. See note 21 for further details.

Summarised information 2011

Two Orchards Limited was placed into administration on 19 May 2011. The group has fully provided for its investment in this company. Provision of £1.0 million was made against the group's investment in Terrace Hill Development Partnership based on a net liability position of that entity.

The group's interest in its joint venture which has been equity accounted in the consolidated financial statements was as follows:

The group has provided in full for its investment in and loan to Achadonn Limited, following the decision by the shareholders not to support a bank loan to the joint venture. Subsequently, the joint venture reached agreement with the bank whereby the bank will continue its support, with the joint venture mandated to dispose of its assets within a three year timescale. There is uncertainty whether sufficient proceeds will be realised to repay the bank and to provide any surplus funds to shareholders. The group considers full provision against its investment and its loan to the joint venture to be the most prudent position and will only release any of this provision when surplus proceeds are remitted to the shareholders.

Other investments

Included in other investments is a balance due from Howick Place JV S.a.r.l. totalling £4,273,000 (2011 and 2010: £4,273,000) that has a final maturity date of 31 December 2014.

12 Development properties

No amounts are held in development properties in respect of construction contracts and retentions on such contracts are £Nil.

One property has been written back to cost by an amount of £4,410,000 where the directors have assessed that the net realisable value of the property exceeds the cost, following the conclusion of an agreement for lease on the future development of the site and the grant of planning permission.

13 Trade and other receivables

At 30 September 2011, trade and other receivables of £14,191,000 have been restated to £9,918,000 being a reclassification of £4,273,000 to 'other investments'.

Amounts recoverable under construction contracts

The ageing of trade and other receivables was as follows:

No amounts were overdue at the year end.

The movement in the allowance for impairment in respect of amounts due from associates and joint venture during the year was as follows:

The allowance is based on falling asset values in the associates and joint venture.

The group has provided in full for the loan to its joint venture, following uncertainty whether sufficient proceeds will be realised on property sales to repay the bank and to provide any surplus funds to shareholders. The group considers full provision against its loan to the joint venture to be the most prudent position. The investment in the joint venture has also been written down as shown in note 11.

The IAS 39 categories of financial asset included in the balance sheet and the headings in which they are included are as follows:

14 Trade and other payables

The group has given a guarantee of £15.0 million (2011: £15.0 million) as part of the security arrangements for the bank facilities of Terrace Hill Residential PLC, one of its associated undertakings. The group has fully provided for its share of net liabilities in its associate. An amount of £6,011,000 (2011: £917,000 included in non-current other payables) is included in other payables in respect of the guarantee and the charge for the year was £5,094,000.

15 Other payables (non-current)

The IAS 39 categories of financial liabilities included in the balance sheet and the headings in which they are included are as follows:

16 Bank overdrafts and loans

An analysis of interest rates and information on fair value and security is given in note 18.

17 Deferred tax

Details of the deferred tax charged/(credited) to the Consolidated statement of comprehensive income are as follows:

The Consolidated balance sheet deferred tax assets and liabilities are as follows:

Under IAS 12, deferred tax is recognised for tax potentially payable on the realisation of investment properties at fair values at the balance sheet date. No deferred tax asset is recognised in respect of losses if there is uncertainty over future recoverability.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. In assessing the future recoverability of the deferred tax asset an asset sales forecast covering a three year period is prepared and the assessment of available taxable profits takes into account the group's overheads and finance costs. Sales are included where the group assess the sale as probable. The group has a history of utilising tax losses brought forward from prior periods and has a policy of utilising prior period losses in priority to any current year losses.

A deferred tax asset has not been recognised for unused tax losses of £17,813,000 (2011: £9,140,000).

18 Financial instruments

The group's principal financial instruments comprise loans, overdrafts, cash and short-term deposits. The main purpose of these financial instruments is to provide finance for the group's operations. Further information on the group's financial resources and capital management is given in the financial review.

The group has various other financial instruments such as trade receivables and trade payables that arise directly from its operations and unlisted investments.

The main risks arising from the group's financial instruments are interest rate risk, credit risk and liquidity risk. The board reviews and agrees policies for managing each of these risks and they are summarised below. The magnitude of the risk that has arisen over the year is detailed below.

Interest rate risk

The group holds cash balances on short-term deposit. The group's policy is to monitor the level of these balances to ensure that funds are available as required, recognising that interest earnings will be subject to interest rate fluctuations.

The group borrows cash in the form of loans and overdrafts, which are subject to interest at floating rates, recognising that rates will fluctuate according to changes in LIBOR and the bank base rate. The group is cognisant at all times of movements in interest rates and will, as appropriate, enter into interest rate swaps to maintain a balance between borrowings that are subject to floating and fixed rates.

Credit risk

The group's principal financial assets are cash, trade receivables, amounts recoverable under construction contracts and other investments. Our cash deposits are placed with a range of banks to minimise the risk to the group. The principal risk therefore arises from trade receivables and amounts recoverable under construction contracts. Trade receivables from the sale of properties are secured against those properties until the proceeds are received. Rental receivables are unsecured but the group's exposure to tenant default is limited as no tenant accounts for more than 10% of total rent. Rental cash deposits and third party guarantees are obtained as a means of mitigating financial loss from defaults. Amounts recoverable under construction contracts are funded by the ultimate purchaser of the development, on whom extensive financial due diligence is carried out. Other investments represent amounts advanced to an entity undertaking a property development in central London. The group is entitled to a priority return and the board annually reviews the business plan of that entity.

Liquidity risk

The group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank balances and loans. Cash flow and funding needs are regularly monitored. Further information is given in note 1.

Categories of financial assets and financial liabilities

Financial assets measured at fair value amount to £6,000 (2011: £6,000).

The maximum exposure to credit risk in financial assets is £16,560,000 (2011: £12,378,000). The maximum amount due from any single party is £4,279,000 (2011: £4,279,000) included in other investments.

Financial liabilities measured at amortised cost

There are no financial liabilities designated at fair value (2011: £Nil).

Interest rate risk profile of financial assets and liabilities

The interest rate profile of financial assets and liabilities of the group at 30 September 2012 was as follows:

Floating rate financial liabilities bear interest at LIBOR or base rate plus margins of between 1% and 4%.

There are no amounts included in floating rate financial liabilities that are subject to interest rate swaps (2011: £Nil).

The interest rate profile of financial assets and liabilities of the group at 30 September 2011 was as follows:

The floating rate financial assets comprise:

The floating rate financial liabilities comprise:

The fair value of the financial assets and liabilities is equal to the book value.

Borrowings

The group's bank borrowings and overdrafts are repayable as follows:

The bank overdraft is secured by way of debenture and cross guarantee from certain subsidiaries and legal charges over properties.

The bank loans are secured by legal charges over the group's investment and development properties together with guarantees from certain subsidiary undertakings with a limited guarantee from the parent company and in one case a floating charge from the parent company.

After the year end bank loan terms were renegotiated and as a result an amount of £3,646,000 classified as due within one year of the balance sheet date is now due as follows: £285,000 due within one year, £315,000 due between one and two years and £3,046,000 due in more than two but less than five years.

Borrowing facilities

The group has the following undrawn committed bank borrowing facilities available to it at the year end:

Guarantees

Refer to note 21 for details.

Market rate sensitivity analysis

Financial instruments affected by market risk include borrowings, deposits and derivative financial instruments. The analysis below shows the sensitivity of the statement of comprehensive income and net assets to a 0.5% change in interest rates on the group's financial instruments.

The sensitivity analysis is based on the sensitivity of interest to movements in interest rates and is calculated on net floating rate exposures on debt and deposits.

The analysis below shows the sensitivity of the statement of comprehensive income and net assets to a 0.5% change in interest rates on the group's financial instruments for 2011.

19 Called up share capital

20 Reserves

The following describes the nature and purpose of each reserve within owners' equity:

Share premium - represents the excess of value of shares issued over their nominal amount. A special resolution was passed during the year at a general meeting to reduce the share premium account, which was later confirmed by the Scottish Court of Session.

Own shares - represents amount paid to purchase issued shares for the employee share-based payment plan.

Capital redemption reserve - represents amount paid to purchase issued shares for cancellation at their nominal value.

Merger reserve - the merger reserve has arisen following acquisitions where the group's entity has formed all or part of the consideration and represents the premium on the issued shares less costs.

Retained earnings - represents cumulative net gains and losses recognised in the Consolidated statement of comprehensive income.

21 Contingent liabilities, capital commitments and guarantees

The group has given a guarantee of £15.0 million (2011: £15.0 million) as part of the security arrangements for the bank facilities of Terrace Hill Residential PLC, one of its associated undertakings. In the 2012 financial statements the group has included within payables an amount of £6,011,000 (2011: £917,000), being its share of net liabilities in its associate.

The group has given a guarantee of £600,000 (2011: £600,000) as part of the development obligations of another of its associated undertakings.

On the acquisition by Terrace Hill Group plc of a subsidiary company, amounts were repayable in the event of:

The directors are of the opinion that neither of these contingencies will crystallise, since the principal activity of the subsidiary concerned is the letting of the properties for rental income and it is not anticipated that the properties will be disposed of within the timeframe of (a) above. In the event of crystallisation of (a) and/or (b), the subsidiary concerned will be obligated to pay an amount calculated with reference to the properties disposed of/not let out. The maximum sum repayable is £247,000 (2011: £278,000).

Capital commitments relating to development sites are as follows: