21st Nov 2005 07:02
Workspace Group PLC21 November 2005 WORKSPACE POSITIVE ON PROSPECTS AS ACQUISITIONS PROMISE FUTURE GROWTH Workspace Group PLC ("Workspace") today announces its interim results for thesix months to 30 September 2005. Workspace provides 5.92 million sq. ft offlexible business accommodation to over 4,000 small and medium size enterprises("SMEs") in London and the South East. • Net Asset Value (NAV) per share at 30 September 2005 £1.94, up 9.6% over the six months and up 23% over twelve months (31 March 2005: £1.77; 30 September 2004: £1.58) • NAV per share (under former UK GAAP) at 30 September 2005 £2.49 (31 March 2005: £2.24; 30 September 2004: £1.99) • Valuation surplus for half year £40.2m (2004: £27.4m) • Pre-tax profits £45.8m (2004: £34.7m) • Pre-tax profits on trading operations £6.8m (2004: £6.9m) • Basic earnings per share 19.6p (2004: 15.2p) • Earnings per share on trading operations 2.9p (2004: 3.0p) • Turnover £29.2m for the half year up 8.6% on last year • Acquisitions £95.7m since 31 March 2005, with initial annual income of £6.1m • Interim dividend up 10% to 1.25p (30 September 2004: 1.13p) Commenting on the results, Harry Platt, Chief Executive, said, " We have continued to make progress. Our strategy is to build a business withexcellent potential for long-term growth in both asset values and earnings. Weare delighted to report that we remain on track. Workspace is the market leaderfor SME business space in the Capital and South East. " We have completed £95 million of acquisitions. These properties offer goodscope for both rental and capital growth given our style of active management.Many of the sites complement our existing properties and will enable us to offercustomers a much wider range of accommodation. " Looking forward, the long term prospects for London and the SME community arevery good. Our customers are at the heart of the London economy; as they and theLondon economy grow, so will Workspace. We remain confident that we are creatinga platform from which we can drive future growth. We have a number of majorrefurbishment schemes approaching completion. These will support rental growthgoing forward." -ends-Date: 21 November 2005For further information: Workspace Group PLC cityPROFILEHarry Platt, Chief Executive Simon CourtenayMark Taylor, Finance Director Jonathan Gillen020-7247-7614 020-7448-3244e-mail: [email protected]: www.workspacegroup.co.uk Chairman's Statement Workspace's strategy remains to build long term sustainable growth in assetvalues and earnings from the provision of accommodation for small and mediumsized businesses (SMEs), primarily in London. With our portfolio of over 100estates with 5.9 million sq. ft and some 4,000 customers, we are the leadingsupplier of space for SMEs in this large and growing market-place. Our customersare at the heart of the London economy: as they and the London economy grow, sowill the opportunities for Workspace. These results for the first half of 2005/06 again show good growth with NetAsset Value (NAV) per share up 9.6% over the half year and 23% over the last 12months. Measured under the new International Financial Reporting Standards(IFRS), NAV per share has risen to £1.94 (31 March 2005: £1.77) (under former UKGAAP £2.49 at 30 September 2005 and £2.24 at 31 March 2005). A more detailedcommentary of the impacts of IFRS is given in the Financial Review. Pre-taxprofits during the period of £45.8m are up 32% on last year (30 September 2004:£34.7m). Pre-tax profits on trading operations of £6.76m are slightly behindlast year at £6.92m largely due to higher year on year interest charges in thefirst quarter. During the half year five acquisitions totalling £95.7m were completed. Notableamongst these was the acquisition of Kennington Park for £56.0m, the largestsingle acquisition in the Group's history. This property comprises 11 buildingson a prominent island site. Although there is no immediate benefit to earningsdue to the initial yield on acquisition, it offers considerable scope forimprovement of returns as the Group brings its marketing and management formulaeto bear. Over the last 5 years we have consistently increased annual dividends by 10% peryear. It is anticipated that this year's dividend will again increase by 10% to3.75 pence per share, and an interim dividend of 1.25 pence per share has beendeclared with these accounts. Shareholders will have received my recent letter concerning the notification ofa possible interest in the Company. Publication of this interim report, as aresult, falls within the regulatory requirements applicable in suchcircumstances. Your Board does not wish this to obstruct the customary reportingof the Company's activities to stakeholders. As such, full details of thebriefings provided to analysts have been made available (as is customary) in theCompany Presentations section of Financial Reporting within the Investors Homesegment of its website. Should shareholders have difficulties accessing thisinformation or require a hard copy please contact the Company Secretary at theGroup's head office. Chief Executive's Statement Good progress has been made both in our acquisition programme and in the valueof the portfolio. This progress has not, however, been matched in like-for-likerentals and occupancy which have not improved comparably over the period, thegains in the first quarter being diluted by a largely neutral second quarter.Two large tenancy departures arose during this period. However, good progresshas already been made in the re-letting of this space. Net rental income increased by 8.3% to £21.48m for the half year (2004: £19.84m)with administration expenses (overheads) as a percentage of revenue (turnover)down marginally at 14.4% (2004: 14.5%). Earnings per share at 19.6p (2004:15.2p) were up 29% on the first half last year. Trading earnings growth wasimpacted by increased interest charges and slower rental growth (as referred toabove) with the result that earnings per share on trading operations weremarginally down at 2.9p per share (2004: 3.0p). During the period the Group has acquired £95.7m of properties showing a combinedinitial yield of 6.4% and a yield on current market rental levels of 7.75%(rising to 8.22% on the completion of the refurbishment works at Power Road).These properties have good potential for future growth. There also continues tobe good capacity for rental growth in our existing stock. Indeed, over the nextsix months our three key refurbishment schemes (at Clerkenwell, Enterprise andSouthbank) will complete and lettings commence, whilst our initiatives for thechange of use of certain sites continue. In this active investment market wehave considered also the scope for disposals. With an increasing focus on theLondon market we have decided to offer for sale a portfolio of smallerproperties (being 5% by value of the Group's total portfolio) located outsidethe M25. Our portfolio, as detailed in note 9 to the accounts, is now valued at£867m and with our planned investment programmes we are well on the way tomeeting the target we set ourselves in September 2003 of doubling our assets andachieving a £1bn portfolio by September 2008 through the organic growth of thebusiness. Portfolio The table below shows the acquisitions and disposals which have been made in thehalf year. Name of Property Description Acquisition/ Sale Price Initial/Exit Market rent at 30 September 2005 Income £000 pa £000 paAcquisitions 111 Power Road Factory complex £7.50m 151.8 256.9*Chiswick, of 98,000 sq.ftLondon, W4 Marshgate Multi-letBusiness industrialCentre, estate of London, E15 93,400 sq.ft. £5.59m 347.3 471.0 Evelyn Court, 16,000 sq.ft., £2.64m 210.0 209.7Deptford, 18 unitSE8 5AD offices Uplands 287,500 sq.ft. £24.0m 1,711.0 1,887.3Business Park, industrialWalthamstow, estate with 45E17 units Kennington 333,100 sq.ft. £56.0m 3,705.4 4,592.1Park, business parkKennington, arranged over 11SW9 buildings with 71 lettable units ---------------------------------------------------------- Yield £95.73m 6,125.5 7,417.0 6.40% 7.75% Disposals Site sold with £2.10m 97.4 Payne Road Studios consent for mixedand 5 Payne Road, residential andLondon, E3 commercial accommodation. Exit Yield 4.64% * On completion of the refurbishment works to this property the ERV willincrease to £1.1m. Of these five acquisitions, four (i.e. all but Power Road) have been followedfor some considerable time, being held on our database of target acquisitions inLondon. This database now comprises nearly 3,000 properties, of which 10% havebeen identified as key targets where we believe we can add value. The Power Roadacquisition was identified during a detailed search in the vicinity of anotherof our other recent acquisitions. We are constantly developing our targetdatabase. Two of the recent acquisitions will be directly affected by the Olympics in 2012(Marshgate and Uplands). Indeed, we believe many of our estates will benefit notjust from the business relocations, brought about by the Olympics decision, andimproved rentals, as infrastructure works proceed, but also from the growth thatthe Olympics will introduce to London. The most significant acquisition in the period was Kennington Park. In manyrespects this property mirrors our Leathermarket Centre. As with Bermondsey inthe 1990's, we believe the Kennington area will improve over the medium term.This will be assisted by our proposed works to reinvigorate the site and createa centre for small businesses with ancillary facilities such as a cafe andreception. In due course the number of businesses on this estate will increase,become more diverse, and will be in high added value sectors. We seeconsiderable long term potential in this acquisition. Following the acquisitions and disposals completed in the quarter, the portfoliostatistics and progress through the year may be summarised as follows: 30 September 30 June 31 March 2005 2005 2005 Number of estates 107 105 104 Total floor space at end ofperiod (million sq. ft.) 5.92 5.33 5.16 of which: Like for like portfolio (million sq.ft.) 4.94 4.94Acquisitions (million sq.ft.) 0.80 0.21Developments (million sq.ft.) 0.18 0.18Lettable units (number) 4,885 4,748 4,717Annual rent roll of occupied units (£m) 48.17 43.17 42.28Average rent (£/sq.ft) 9.47 9.35 9.29Average rent of like-for-like portfolio (£/sq.ft) 9.26 9.26 9.11Occupancy overall 85.92% 86.65% 88.26%Occupancy of like-for-like portfolio 88.74% 89.40% 90.27% Comparisons of overall occupancy and rent roll are distorted by acquisitions,disposals and transfers. The "like-for-like portfolio" is defined as thoseproperties that have been held throughout the year to date and which are notsubject to refurbishment/ redevelopment programmes. Like-for-like occupancy has declined from 90.3% to 88.7% over the first half.During the period there have been major vacations at Surrey House and TowerBridge Business Complex. Lettings are in progress on both these estates which weexpect to be completed in the current quarter. Overall at 86% we are running atoccupancy levels only slightly short of effective full occupancy. Over the nextsix months we will complete refurbishment works at Southbank, Enterprise andClerkenwell, following which lettings here will improve total occupancy. Average rents have remained static in the current quarter but have risen by 1.6%(from £9.11 to £9.26) in the half year. Progress on the Group's programme to add value to its properties continues. Weare expecting a decision on our major mixed-use scheme at Thurston Road inLewisham by the financial year end, are appealing the planning refusal on ourscheme for Aberdeen Studios in Islington, and (following receipt of planningconsent) hope to conclude the disposal of Wharf Road shortly. Valuation The interim valuation yielded a net surplus of £40.2m for the first 6 months anuplift of 4.9%, taking total investment property to £865m. This increase in thevaluation has been driven mainly by yield movements, though improvements in rentlevels particularly during the first quarter of the period have contributedapproximately 15%. The Group has identified that in the longer term as much as45% of the existing portfolio has potential for "added value" activities such asrefurbishment, extensions and re-development. Much of this is not immediatelyrealisable but will mature as pressure on land in London increases. Little ofthe value arising from this is recognised in the Group's portfolio valuation,which continues to be based on existing use value except where consent for animproved use has been obtained. Further, the valuation does not recognise theaccruing value of an increasingly focused portfolio built on localised clustersof properties Financial Review This is the first half yearly report to be prepared using InternationalFinancial Reporting Standards (IFRS). Under IFRS, the focus of the accounts has moved from the P & L Account (nowcalled the Income Statement) to the Balance Sheet with this being prepared byreference to "fair values" of certain assets and liabilities rather than theirhistoric costs as formerly. This fair valuing of assets will cause greatervolatility as the valuation differences pass through the Income Statement. Wehave decided therefore to preserve our practice of analysing our IncomeStatement between "Trading Operations" and non trading "Other Items". Thevaluation adjustments have been classified under other items alongside profits/losses on disposal of investment properties and other exceptional items. Thisapproach has the advantage of presenting a trading performance which accordsbroadly with that presented previously under former UK GAAP in the "TradingOperations" column. Consequently, a more consistent pattern should be preservedin the Trading Operations column with the higher volatility items focused inOther Items. This approach also serves to spotlight the impact that these adjustments have,with trading earnings per share of 2.9p increasing by 16.7p (575%) to 19.6p as aresult of these adjustments. This Other Items total has arisen principally dueto the valuation surplus of £40.21m in the half year (2004: £27.38m), less thedifference arising from the revaluation of derivative financial instruments (theinterest rate collars used to shelter the Group from the impact of excessivechanges in interest rates) which in the comparative period contributed £1.07mbut for the current period showed a cost of £0.68m. We propose reporting on this basis for the foreseeable future, whilstunderstanding of IFRS reporting develops. A reconciliation of the comparativeresults under IFRS to those under former UK GAAP may be found in note 24 to thisstatement. Profits before tax, at £45.83m are up 32.1% (2004: £34.69m). However, at atrading operations level, there was a reduction from £6.92m in 2004/05 to £6.76min the current year. Interest charges for the half year were up £1.67m mainlydue to increased borrowing levels, but due in part also to increased ratesduring the first quarter (year on year). The other significant impact of the implementation of IFRS is that on reportednet worth and net asset value per share. Here the key influence is the fullrecognition of deferred tax liabilities on valuation surpluses. This deferredtax liability will only accrue if the related assets are sold. The deferred taxliability increased from £7.35m to £86.08m on restatement of the 31 March 2005Balance Sheet (an adjustment of 48 pence per share), increasing to £98.22m at 30September 2005 once the valuation surplus and other items in the quarter wereaccounted for (amounting to 7 pence per share). The impact of this adjustmenthas been exacerbated by the requirement under IFRS that indexation allowances,ordinarily allowable under UK tax law, be ignored in computing the deferred taxliability. As a result, the reported deferred tax liability overstates the taxliability estimated on the basis of gains measured at the reporting date by£16.55m (10 pence per share). The following table summarises the impacts of the changes to Net Asset Value pershare: Net Assets per share 31 March 2005 Movements 30 September 2005 Under former UK GAAP £2.24 £0.25 £2.49 Adjustments £(0.47) £(0.08) £(0.55) Under IFRS £1.77 £0.17 £1.94 During the first half of the year acquisitions totalling £95.7m were made withcosts and other additions of £14.6m. These acquisitions have been financed usingthe Group's existing facilities with NatWest and Bradford & Bingley. The latterof these has been increased by £70m to £270m, renewing the term to a fresh 5year period maturing in July 2010. Negotiations are in hand for a furtherfacility extension with Natwest to support acquisitions. In addition, followinga review of the Group's portfolio, a number of properties have been offered forsale which, if completed, will lead to a receipt from disposal.The changes in the balance sheet under IFRS referred to earlier have aconsequent impact on gearing. However, your Board, in common with the Group'sbankers, considers that gearing measurement should continue to be monitored forthe present under the former UK GAAP principles. As a result, both IFRS andformer UK GAAP measures are incorporated in the following table of key financialstatistics and indicators:- 6 months to 30 3 months to 30 Year to 31 6 months to 30 September 2005 June 2005 March 2005 September 2004 Net rentalincome: revenue 73% 72% 74% 74% Tradingoperatingprofit: revenue 59% 58% 60% 59% Trading PBT:revenue 23% 22% 26% 26% EPS per share(pence) 19.6 8.5 36.1 15.2 NAV per share (£) - IFRS 1.94 1.85 1.77 1.58 - UK GAAP 2.49 2.35 2.24 1.99Tradinginterest cover 1.65 1.63 1.77 1.77Gearing - IFRS 137% 112% 112% 120% - UK GAAP 105% 87% 88% 94%Availablefacilities (£m) *13.6 38.0 49.2 68.3 * Arrangements are in hand to increase facilities by a further £25.0m Prospects The long term prospects for London and the SME community in the capital remaingood. Short term confidence levels reported of late remain positive too. Howeverthey are lower than last year, which may flatten general rental growth for ashort period. Even so, the Group should still see growth overall with thecontributions from the lettings of its refurbishment schemes at Clerkenwell,Southbank and Enterprise House next year. With the Olympic Games and othereconomic drivers on the London economy, the prospects are for a growing andever-more vibrant SME community. This should underpin the Group's prospectsgoing forward. Consolidated Income Statement (unaudited)for the 6 months ended 30 September 2005 Year ended 6 months ended 30 September 2005 6 months ended31 march 2005 Trading Other Total 30 September (re-stated) Operations Items 2004 (restated) £000 Notes £000 £000 £000 £000 55,039 Revenue 1 29,229 - 29,229 26,911 (14,071) Direct costs 1 (7,777) 26 (7,751) (7,074) ------------------------------------------------------------------------------------------- 40,968 Net rental income 21,452 26 21,478 19,837 (7,643) Administrative expenses (4,248) 39 (4,209) (3,910) Gain from change in - 40,206 40,206 27,378 fair value of 67,923 investment property Profit/(loss) on disposal of investment (75) properties 2 - 27 27 (384) ------------------------------------------------------------------------------------------- 101,173 Operating profit 17,204 40,298 57,502 42,921 73 Finance income - 21 - 21 45 interest receivable (19,523) Finance costs - 3 (10,463) (557) (11,020) (9,350) interest payable 1,097 Change in fair value - (678) (678) 1,073 of derivative financial instruments ------------------------------------------------------------------------------------------- 82,820 Profit before tax 6,762 39,063 45,825 34,689 (24,342) Taxation 4 (2,048) (11,706) (13,754) (10,129) ------------------------------------------------------------------------------------------- 58,478 Profit for the period 4,714 27,357 32,071 24,560 after tax and attributable to equity shareholders ------------------------------------------------------------------------------------------- 36.1p Basic earnings per 6 2.9p 16.7p 19.6p 15.2p share 34.8p Diluted earnings per 6 2.8p 16.0p 18.8p 14.6p share Other Items above include items, such as profits and losses (together with theirrelated taxation) on sales of investment properties, of a non trading naturetogether with valuation adjustments arising from the fair valuing of financialassets and liabilities. The adjustment to direct costs arises from the treatmentof head lease payments as interest, with the adjustment to administrativeexpenses from the estimation under IFRS2 of the services cost arising from thegrant of share options and other non-cash remuneration to staff. Consolidated Statement of Recognised Income and Expense (unaudited)for the 6 months ended 30 September 2005 Year ended 6 months ended 6 months ended31 March 2005 30 September 2005 30 September 2004 (restated) (restated) £000 £000 £000 58,478 Profit for the financial period 32,071 24,560 (15) Convertible loan stock conversion - (17) 231 Value of employee services 185 102------------------------------------------------------------------------------ Total recognised income and 58,694 expense 32,256 24,645 for the period ------------------------------------------------------------------------------ Consolidated Balance Sheet (unaudited)As at 30 September 2005 31 March 2005 Notes 30 September 30 September (re-stated) 2005 2004 (restated) £000 £000 £000 Assets Non-current assets 716,537 Investment properties 8 865,100 653,204 143 Intangible assets 212 164 3,523 Property, plant and equipment 10 3,520 3,204------------------------------------------------------------------------------- 720,203 868,832 656,572------------------------------------------------------------------------------- Current assets 5,159 Trade and other receivables 11 8,163 7,897 187 Financial assets - derivative 85 124 financial instruments 1,251 Financial assets - tenant 12 1,773 1,206 deposits 3 Cash and cash equivalents 4 2,821------------------------------------------------------------------------------- 6,600 10,025 12,048------------------------------------------------------------------------------- Liabilities Current liabilities (817) Financial liabilities - 14 (1,918) (3) borrowings (24,816) Trade and other payables 13 (28,845) (26,321) (2,507) Current tax liabilities (413) (5,545)------------------------------------------------------------------------------- (28,140) (31,176) (31,869)------------------------------------------------------------------------------- (21,540) Net current liabilities (21,151) (19,821)------------------------------------------------------------------------------- Non current liabilities (322,402) Financial liabilities - 14 (429,987) (306,969) borrowings (1,729) Financial liabilities - (2,305) (1,690) derivative financial instruments (86,075) Deferred tax liabilities 16 (98,224) (72,422)------------------------------------------------------------------------------- (410,206) (530,516) (381,081)------------------------------------------------------------------------------- 288,457 Net assets 317,165 255,670------------------------------------------------------------------------------- Shareholders' equity 16,884 Ordinary shares 17 16,891 1,688 28,388 Share premium 19 28,442 43,586 (5,519) Investment in own shares 19/20 (5,409) (6,096) 461 Other reserves 18 646 332 248,243 Retained earnings 19 276,595 216,160------------------------------------------------------------------------------- 288,457 Total shareholders' equity 19 317,165 255,670------------------------------------------------------------------------------- £1.77 Net asset value per share 7 £1.94 £1,58 (basic) £2.22 Adjusted net asset value per 7 £2.44 £1.95 share (diluted) Consolidated Cash Flow Statement (unaudited)for the 6 months ended 30 September 2005 Year ended Notes 6 months ended 6 months ended31 March 2005 30 September 30 September (re-stated) 2005 2004 (restated) £000 £000 £000 Cash flows from operating activities 33,870 Cash generated from 15 17,185 16,217 operations 73 Interest received 21 45 (19,714) Interest paid (10,531) (9,365) (3,179) Tax paid (1,668) (1,534)------------------------------------------------------------------------------ 11,050 Net cash from operating 5,007 5,363 activities Cash flows from investing activities (44,944) Purchase of investment (99,843) (28,886) property (9,543) Capital expenditure on (10,366) (3,699) investment property 35,362 Proceeds from sales of 2,353 34,219 investment property (2,745) Taxation on disposal of (2,032) (795) investment property (44) Purchase of intangible (37) (18) assets (823) Purchase of property, (309) (228) plant and equipment ------------------------------------------------------------------------------ (22,737) Net cash (used in)/from (110,234) 593 investing activities Cash flows from financing activities 287 Net proceeds from issue of 61 289 ordinary share capital 16,300 Net proceeds from issue of 107,700 1,000 new bank loan 687 Net distribution of own 110 110 shares (51) Finance lease principal (26) (26) payments (5,186) Dividend paid to 5 (3,719) (3,349) shareholders ------------------------------------------------------------------------------ 12,037 Net cash from/(used in) 104,126 (1,976) financing activities ------------------------------------------------------------------------------ 350 Net (decrease)/increase in (1,101) 3,980 cash and cash equivalents============================================================================== (1,159) Cash and cash equivalents (809) (1,159) at start of period (809) Cash and cash equivalents 15 (1,910) 2,821 at end of period ============================================================================== Notes to the Half Year Interim Report 1. Analysis of net rental income Year ended 6 months ended 6 months ended31 March 2005 (restated) 30 September 2005 30 September 2004(restated)Revenue Costs Net Rental Revenue Costs Net Rental Revenue Costs Net Rental Income Income Income £000 £000 £000 £000 £000 £000 £000 £000 £000 43,270 (278) 42,992 Rental income 23,110 (101) 23,009 21,417 (189) 21,228 9,865 (13,482) (3,617) Service charges and other recoveries 5,462 (7,480) (2,018) 4,838(6,871) (2,033) 1,904 (311) 1,593 Services, fees, commissions 657 (170) 487 656 (14) 642 and sundry ------ ------ ------ ------ ------ ------ ------ ----- ------ 55,039 (14,071) 40,968 29,229 (7,751) 21,478 26,911(7,074) 19,837 ------ ------ ------ ------ ------ ------ ------ ----- ------ The Group operates a single business segment providing business accommodationfor rent in London and the South East of England, which is continuing. 2. Profit/(loss) on disposal of investment properties Year ended 31 March 2005 6 months ended 6 months ended (restated) 30 September 30 September 2005 2004 (restated) £000 £000 £000 34,721 Proceeds from sale of investment 2,150 34,421 properties Book value at time of sale plus sale (34,796) costs (2,123) (34,805)--------------------------------------------------------------------------------- (75) Profit /(loss) on sale 27 (384)--------------------------------------------------------------------------------- (4,007) Current tax (235) (3,800) 4,485 Deferred tax released on sale 278 4,286--------------------------------------------------------------------------------- 478 Net tax 43 486--------------------------------------------------------------------------------- 403 Net profit on disposal after tax 70 102================================================================================= On 27 May 2005 the Group disposed of Payne Road Studios and 5 Payne Road,London, E3 for £2.1m. 3. Finance costs - interest payable Year ended 6 months ended 6 months ended31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Interest expense: (16,806) Interest payable on bank borrowings (9,713) (8,091) Amortisation of issue costs of bank (391) loans (214) (186) Interest payable on finance (51) leases (26) (26) (1,391) Interest payable on 11.125% First Mortgage Debenture Stock 2007 (695) (695) Interest payable on 11.625% First (814) Mortgage Debenture Stock 2007 (407) (407) Interest payable on 11% Convertible (284) Loan Stock 2011 (142) (142) Interest capitalised on investment 177 197 214 property re-developments --------------------------------------------------------------------------------- (19,523) (11,020) (9,350)================================================================================= 4. Taxation Year ended 6 months ended 6 months ended31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Analysis of charge in period: 6,190 Current tax 1,605 5,632 18,152 Deferred tax (see note 16) 12,149 4,497--------------------------------------------------------------------------------- 24,342 Total taxation 13,754 10,129================================================================================= The tax on the Group's profit for the period differs from the standardapplicable corporation tax rate in the UK (30%). The differences are explainedbelow: - 82,820 Profit before taxation 45,825 34,689 Tax at standard rate of corporation 24,846 tax in the UK of 30% (2004/5: 30%) 13,748 10,407 14 Expenses not deductible for tax purposes 19 25 64 Other differences 40 81 Capital gains adjustments on property (408) disposals (53) (384) Reductions due to application of small (5) companies rate - - (169) Adjustment in respect of previous periods - - --------------------------------------------------------------------------------- 24,342 Tax expense 13,754 10,129================================================================================= 5. Dividends paid Year ended 6 months ended 6 months ended31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Final dividend for year ended 31 March 2005 of 2.28p per ordinary - share paid 2 August 2005 3,719 - Final dividend for year ended 31 - 3,349 March 2004 of 2.07p* per ordinary 3,349 share paid 2 August 2004 Interim dividend for year ended 31 March 2005 of 1.13p* per ordinary 1,837 share paid 1 February 2005 - - --------------------------------------------------------------------------------- Dividends paid out of retained 5,186 earnings (see note 19) 3,719 3,349=================================================================================*Figures adjusted to reflect bonus share issue made in March 2005. 6. Earnings per share a) Earnings used in calculating earnings per share Year ended 6 months ended 6 months ended31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 58,478 Earnings for basic earnings per share 32,071 24,560 Interest saving net of taxation on 11% 191 Convertible Loan Stock 101 84 --------------------------------------------------------------------------------- 58,669 Diluted earnings 32,172 24,644 (48,229) Less non trading other items (27,357) (20,116)--------------------------------------------------------------------------------- 10,440 Trading diluted earnings 4,815 4,528================================================================================= b) Weighted average number of shares used for calculating earnings per share Year ended 6 months ended 6 months ended31 March 2005 30 September 30 September (restated) 2005 2004 (restated) Number Number Number Weighted average number of shares 161,931,920 (excluding shares held in the ESOT) 163,375,024 16,128,828 Increase due to capitalisation - (March 2005) - 145,159,452--------------------------------------------------------------------------------- Used for calculating basic earnings per share 161,931,920 (excluding shares held in the ESOT) 163,375,024 161,288,280 Dilution due to Share Option 1,682,780 Schemes 2,622,343 222,762 Dilution due to Convertible Loan 5,000,000 Stock 5,000,000 500,000 Increase due to capitalisation - (March 2005) - 6,504,858--------------------------------------------------------------------------------- Used for calculating diluted 168,614,700 earnings per share 170,997,367 168,515,900 ================================================================================= 7. Net assets per share a) Net assets used in calculating net assets per share 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 288,457 Net assets at end of period 317,165 255,670 Dilution due to Convertible Loan 2,484 Stock 2,488 2,479--------------------------------------------------------------------------------- 290,941 Diluted net assets 319,653 258,149 Deferred tax on accelerated tax 6,541 depreciation 7,031 4,935 Deferred tax on fair value change of 80,029 investment properties 91,866 68,058 Deferred tax on derivative financial (463) instruments (667) (469)--------------------------------------------------------------------------------- 377,048 Adjusted diluted net assets 417,883 330,673================================================================================= b) Number of shares used for calculating net assets per share 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) Number Number Number 168,839,660 Shares in issue at end of period 168,909,640 16,883,211 (5,620,370) Less ESOT shares (5,340,370) (667,066) - Increase due to capitalisation (March - 145,945,305 2005)--------------------------------------------------------------------------------- 163,219,290 Number of shares for calculating basic 163,569,270 162,161,450 net assets per share 1,682,780 Dilution due to Share Option Schemes 2,622,343 222,762 5,000,000 Dilution due to Convertible Loan 5,000,000 500,000 Stock - Increase due to capitalisation (March - 6,504,858 2005) --------------------------------------------------------------------------------- 169,902,070 Number of shares for calculating 171,191,613 169,389,070 diluted net assets per share ================================================================================= 8. Investment properties 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 626,817 Balance at beginning of period 716,537 626,817 55,973 Additions during the period 110,282 33,200 214 Capitalised interest on 177 197 re-developments (34,385) Disposals during the period (2,100) (34,385) 67,923 Gain from fair value adjustments on 40,206 27,378 investment property (5) Amortisation of finance leases (2) (3)--------------------------------------------------------------------------------- 716,537 Balance at end of period 865,100 653,204================================================================================= Capitalised interest is included as an addition in the period, the rate ofcapitalisation is 5.86% (31 March 2005: 5.79%; 30 September 2004: 5.68%). 9. Valuation The Group's investment properties were revalued at 30 September 2005 by CBRichard Ellis, Chartered Surveyors, a firm of independent qualified valuers. Thevaluations were undertaken in accordance with the Royal Institution of CharteredSurveyors Appraisal and Valuation Standards on the basis of market value. Marketvalue is defined as the estimated amount for which a property should exchange onthe date of valuation between a willing buyer and willing seller in an arm'slength transaction. Included in the CB Richard Ellis valuations is an amount in respect of theCompany's short leasehold interest (expiring 11 February 2011) in the AlphaBusiness Centre, Walthamstow. For accounts purposes, as the unexpired term ofthe leasehold interest in Alpha Business Centre is less than 20 years, thevaluation of the property has been retained at a nominal £1. The adjustment fromthe valuation report total to the accounts total may be reconciled as follows: - 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 718,425 Total per CB Richard Ellis valuation 867,060 655,050 report (350) Alpha Business Centre (385) (400) (2,290) Owner occupied property (2,325) (2,200) 752 Head leases treated as finance 750 754 leases under IAS17 --------------------------------------------------------------------------------- 716,537 Total per accounts 865,100 653,204================================================================================= 10. Property, plant and equipment Owner occupied Owner occupied Motor Equipment Total land buildings Vehicles and Fixtures £000 £000 £000 £000 £000CostBalance at 1April 2004(restated) 500 1,525 25 4,165 6,215Additions - 5 - 223 228Disposals - - - (939) (939)-----------------------------------------------------------------------------------Balance at 30September 2004(restated) 500 1,530 25 3,449 5,504-----------------------------------------------------------------------------------Balance at 1April 2004(restated) 500 1,525 25 4,165 6,215Additions - 9 - 813 822Disposals - - - (939) (939)-----------------------------------------------------------------------------------Balance at 31March 2005(restated) 500 1,534 25 4,039 6,098-----------------------------------------------------------------------------------Balance at 1April 2005 500 1,534 25 4,039 6,098Additions - 23 7 281 311Disposals - - - - ------------------------------------------------------------------------------------Balance at 30September 2005 500 1,557 32 4,320 6,409=================================================================================== Cumulative depreciation to 30 September2004 (restated) - 15 13 2,272 2,300-----------------------------------------------------------------------------------Net book value at 30 September 2004(restated) 500 1,515 12 1,177 3,204-----------------------------------------------------------------------------------Cumulative depreciation to 31 March 2005(restated) - 30 15 2,530 2,575-----------------------------------------------------------------------------------Net book value at 31 March 2005 500 1,504 10 1,509 3,523(restated)----------------------------------------------------------------------------------- Cumulative depreciation to 30 September2005 - 46 16 2,827 2,889-----------------------------------------------------------------------------------Net book value at 30 September 2005 500 1,511 16 1,493 3,520=================================================================================== At 1 April 2004, the fair value of owner occupied land and buildings was adoptedas the deemed cost of those assets. The fair value of owner occupied land andbuildings was £2,025,000 and the carrying value at 1 April 2004 under UK GAAPwas £2,036,401. 11. Trade and other receivables - current 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000-------------------------------------------------------------------------------- 3,484 Trade debtors 4,125 5,140 (385) Less: provision for impairment of (439) (447) receivables -------------------------------------------------------------------------------- 3,099 Trade debtors - net 3,686 4,693 - Taxation and social security - 4 2,060 Prepayments and accrued income 4,477 3,200-------------------------------------------------------------------------------- 5,159 8,163 7,897================================================================================ 12. Tenant deposits Financial assets - tenant deposits represent returnable cash security depositsreceived from tenants. These deposit deeds are ring-fenced under the terms ofthe individual lease contracts and cannot be used to fund the working capital ofthe Group. They are accordingly held separately from other cash balances andexcluded from cash and cash equivalents with a corresponding liability recordedin trade and other payables (note 13). 13. Trade and other payables - current 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000-------------------------------------------------------------------------------- 2,219 Trade payables 3,180 3,146 1,111 Taxation and social security 1,173 1,574 payable 1,251 Tenants' deposit deeds (see note 12) 1,773 1,206 4,869 Tenants' deposits 5,153 4,664 10,525 Accrued expenses 11,090 10,904 4,841 Deferred income-rent and service 6,476 4,827 charges -------------------------------------------------------------------------------- 24,816 28,845 26,321================================================================================ 14. Financial liabilities - borrowings a) Balances 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Current 812 Bank overdraft repayable on demand 1,914 - (secured) 5 Finance lease obligations 4 3-------------------------------------------------------------------------------- 817 1,918 3 Non -current 2,484 11% Convertible Loan Stock 2011 2,488 2,479 (unsecured) 12,500 11.125% First Mortgage Debenture 12,500 12,500 Stock 2007 (secured) 7,000 11.625% First Mortgage Debenture 7,000 7,000 Stock 2007 (secured) 299,671 Other loans (secured) 407,253 284,239 747 Finance lease obligations 746 751-------------------------------------------------------------------------------- 322,402 429,987 306,969-------------------------------------------------------------------------------- 323,219 431,905 306,972================================================================================ b) Maturity 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Secured 812 Less than one year 1,914 - - Between one year and two years 19,500 - 219,500 Between two years and three years - 219,500 - Between three years and four 148,100 - years 100,800 Between four years and five years 260,400 85,500-------------------------------------------------------------------------------- 321,112 429,914 305,000 (1,129) Less cost of raising finance (1,247) (1,261)-------------------------------------------------------------------------------- 319,983 428,667 303,739 Unsecured 2,484 In five years and more 2,488 2,479 Finance Leases 752 In five years and more 750 754-------------------------------------------------------------------------------- 323,219 431,905 306,972================================================================================ c) Financial instruments held at fair value The following interest rate caps and collars are held: Amount Interest Rate Interest Rate Expiry £000 Cap Floor Interest rate capand collar(amortisingamount) 102,370 8.00% 4.50% July 2009Interest rate capand collar 75,000 6.95% 4.05% July 2009Interest rate capand collar(increasingamount) 32,630 7.00% 2.99% Oct 2010 Both these instruments are treated as financial instruments at fair value withchanges in value dealt with in the income statement at each reporting date. d) Fair values of financial instruments 31 March 2005 30 September 2005 30 September 2004 (restated) (restated)Book Value Fair Value Book Value Fair Value Book Value Fair Value £000 £000 £000 £000 £000 £000 Financial instruments not at fair value through profit and loss 812 812 Bank overdraft 1,914 1,914 - - 2,484 2,914 11% Convertible 2,488 2,932 2,479 2,930 Loan Stock 2011 12,500 13,474 11.125% First 12,500 13,369 12,500 13,637 Mortgage Debenture Stock 2007 7,000 7,601 11.625% First 7,000 7,532 7,000 7,703 Mortgage Debenture Stock 2007 299,671 299,671 Other loans 407,253 407,253 284,239 284,239 752 752 Finance lease 750 750 754 754 obligations ------------------------------------------------------------------------------------------- 323,219 325,224 431,905 433,750 306,972 309,263 Financial instruments at fair value through profit and loss Derivative financial instruments:- 1,729 1,729 Liabilities 2,305 2,305 1,690 1,690 (187) (187) Assets (85) (85) (124) (124)------------------------------------------------------------------------------------------- 1,542 1,542 2,220 2,220 1,566 1,566------------------------------------------------------------------------------------------- 324,761 326,766 434,125 435,970 308,538 310,829------------------------------------------------------------------------------------------- The total loss recorded in the income statement was £678,000 (31 March 2005:£1,097,000 gain, 30 September 2004: £1,073,000 gain) for changes of fair valueof derivative financial instruments. The fair value of the interest rate collars has been determined by reference tomarket prices and discounted expected cash flows at prevailing interest rates.All other fair values have been calculated by discounting expected cash flows atprevailing interest rates. The total fair value adjustment equates to 1.1p pershare (31 March 2005: 1.2p, 30 September 2004: 1.4p). Comparatives have beenrestated for the bonus issue in March 2005. 15. Cash generated from operations Reconciliation of profit for the period to net cash flow from operations:31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 58,478 Profit for the period 32,071 24,560 24,342 Tax 13,754 10,129 567 Depreciation 314 292 96 Amortisation of intangible assets 43 49 (15) Share based payments (38) (17) 75 (Profit)/loss on disposals of (27) 384 investment property (67,923) Net gain from fair value (40,206) (27,378) adjustments on investment property (1,097) Fair value losses/(gains) on 678 (1,073) financial instruments (73) Interest income (21) (45) 19,523 Interest expense 11,020 9,350 Changes in working capital: 46 (Increase)/decrease in trade and (3,716) (1,813) other receivables (149) Increase/(decrease) in trade and 3,313 1,779 other payables -------------------------------------------------------------------------------- 33,870 Cash generated from operations 17,185 16,217================================================================================ For the purposes of the cash flow statement, the cash and cash equivalentscomprise the following: 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 3 Cash and bank balances 4 2,821 (812) Bank overdrafts (note 14) (1,914) --------------------------------------------------------------------------------- (809) (1,910) 2,821================================================================================ Total tax paid in the period was £3,700,000 (31 March 2005: £5,924,000; 30September 2004 £2,329,000). 16. Deferred tax liabilities 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 67,934 Balance at start of period 86,075 67,934 18,152 Deferred tax charge to income 12,149 4,497 statement (11) Deferred tax credit to equity re: - (9) conversion of convertible loan stock-------------------------------------------------------------------------------- 86,075 Balance at end of period 98,224 72,422================================================================================ Deferred tax liability recognised in the balance sheet by each category oftemporary timing difference is as follows: 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 80,029 Fair value gains on investment 91,866 68,058 properties 6,541 Accelerated tax depreciation 7,031 4,935 (463) Derivative financial instruments (667) (469) (32) Other (6) (102)-------------------------------------------------------------------------------- 86,075 98,224 72,422================================================================================ If the investment properties were sold for their revalued amount, there would bea potential liability to corporation tax of £74,922,000 (31 March 2005:£64,456,000, 30 September 2004: £54,130,000). Under IFRS no account is taken ofindexation relief on capital gains resulting in the difference between expectedcorporation tax to be paid and the provision made for deferred tax. 17. Share capital 31 March 2005 30 September 30 September Number 2005 2004 Number Number 240,000,000 Authorised: ordinary shares of 10p 240,000,000 21,500,000 each ================================================================================ 168,839,660 Issued: fully paid ordinary shares 168,909,640 16,883,211 of 10p each ================================================================================ £ £ £ Issued: fully paid ordinary shares of 10p each 16,883,966 16,890,964 1,688,321================================================================================ Movements in share capital were as follows: 31 March 2005 30 September 30 September Number 2005 2004 Number Number 16,733,811 Number of shares at start of 168,839,660 16,733,811 period 151,955,694 Bonus issue - - 50,000 Executive Share Options - 50,000 exercised 20,155 Employee Share Options exercised 69,980 19,400 80,000 Convertible Loan Stock converted - 80,000-------------------------------------------------------------------------------- 168,839,660 Number of shares at end of 168,909,640 16,883,211 period ================================================================================ 18. Other reserves 31 March 2005 Equity element Equity settled 30 September 30 September (restated) of convertible share based 2005 2004 (restated) Total loan stock payments Total Total £000 £000 £000 £000 £000 254 At start of 151 310 461 254 period (35) Convertible - - - (33) Loan Stock conversion 11 Deferred tax - - - 9 on conversion 231 Value of - 185 185 102 employee services----------------------------------------------------------------------------------- 461 At end of 151 495 646 332 period ================================================================================== 19. Statement of changes in shareholders' equity 31 March 2005 30 September 2005 30 September (restated) Share Share Investment in Other Reserves Retained Total 2004 Total Capital Premium Own Shares Earnings Equity (restated) £000 £000 £000 £000 £000 £000 £000 £000 233,575 At start of 16,884 28,388 (5,519) 461 248,243 288,457 233,575 period 689 697 Share issues 7 57 - - - 64 - (10) Share issue - (3) - - - (3) transaction costs 687 Distribution of - - 110 - - 110 110 own shares (5,186) Dividends paid - - - - (3,719) (3,719) (3,349) (26) Convertible Loan - - - - - - (26) Stock conversion 11 Deferred tax on - - - - - - 9 conversion 231 Value of - - - 185 - 185 102 employee services 58,478 Profit for the - - - - 32,071 32,071 24,560 period -------------------------------------------------------------------------------------------------- 288,457 At end of 16,891 28,442 (5,409) 646 276,595 317,165 255,670 period ================================================================================================== 20. Investment in own shares The Company has established an Employee Share Ownership Trust (ESOT) to purchaseshares in the market for distribution at a later date in accordance with theterms of the 1993 and 2000 Executive Share Option Schemes. The shares are heldby an independent trustee and the rights to dividend on the shares have beenwaived. During the period the Trust transferred 280,000 shares to employees onexercise of options. At 30 September 2005, the number of shares held by theTrust totalled 5,340,370 (31 March 2005: 5,620,370, 30 September 2004:6,670,660) with a book value of £5,409,100 (31 March 2005: £5,518,880, 30September 2004: £6,096,157). The shares have been included in shareholdersequity (see note 19). 5,329,010 shares held by the Trust are subject to optionawards. 21. Capital commitments At the period end the estimated amounts of commitments for future capitalexpenditure not provided for were: 31 March 2005 30 September 30 September £000 2005 2004 £000 £000 8,859 Under contract 7,258 7,102 12,550 Authorised by directors but not 3,915 10,178 contracted ================================================================================ 22. Post balance sheet events There have been no post balance sheet events since the period end. 23. Basis of preparation This is the Group's first half yearly report prepared under InternationalFinancial Reporting Standards (IFRS). The financial information reflects thecurrent versions of the standards of the International Accounting StandardsBoard (IASB) and interpretations of the International Financial ReportingInterpretations Committee (IFRIC) as currently endorsed by the European Union.IFRS will continue to evolve through development and adoption of new Standardsand Interpretations as well as through practical experience gained from theapplication of IFRS by reporting entities and their auditors. For these reasons,the information contained in this document may be amended before itspresentation in the audited financial statements of the Group for the year ended31 March 2006. UK generally accepted accounting principles (GAAP) differs in certain respectsfrom IFRS. The comparative figures used within this report have been restatedaccordingly. The Group has issued an explanation and reconciliation of theadjustments from UK GAAP to IFRS for 31 March 2004 and 31 March 2005 and astatement of its IFRS accounting policies in the document entitled "WorkspaceGroup PLC - Adoption of International Financial Reporting Standards (IFRS)"which is available from the Group's website or Company Secretary. An explanationand reconciliation of the adjustments from UK GAAP to IFRS for the period ended30 September 2004 is shown in note 24 below. The accounting policies set out in the document "Workspace Group PLC - Adoptionof International Financial Reporting Standards (IFRS)" have been applied inpreparing the financial information contained in this report. The Group has notadopted IAS 34 - Interim Financial Reporting. This interim report was approved by the Board on 18 November 2005. This report is unaudited and does not constitute statutory accounts within themeaning of Section 240 of the Companies Act 1985. The statutory accounts for theyear to 31 March 2005, which were prepared under UK GAAP, and on which theauditors issued an unqualified opinion, have been delivered to the Registrar ofCompanies. 24. Explanation and reconciliation of IFRS adjustments The principal differences between UK GAAP and IFRS as they affect the reportedresults and their presentation of Workspace Group are set out below: IAS 40 Investment property IAS 40 requires that the revaluation gains or losses on investment property heldat fair value be recognised on the face of the Income Statement rather than inreserves in the Statement of Group Total Recognised Gains and Losses as is thecase under UK GAAP. As a result the revaluation reserve is no longer shown as aseparate component of equity in the Balance Sheet but is included withinretained earnings, and is non distributable. Under UK GAAP, on disposal of properties the tax due on the realisation of gainspreviously recognised through the revaluation reserve was shown in the Statementof Group Total Recognised Gains and Losses. Under IFRS it is included in theIncome Statement. The tax due on sale will comprise an element in the IncomeStatement current tax charge (based on the difference between the sales priceand property's carrying value at the point of disposal) and a transfer from thedeferred tax reserve of the deferred tax amount already provided in previousperiods. IAS 12 Income taxesIAS 12 requires full provision to be made for the deferred tax on revaluationgains or losses of investment properties at the tax rate estimated at the pointof realisation. A tax charge therefore arises in the Income Statement if arevaluation surplus occurs, the corresponding entry being a deferred taxliability in the balance sheet. Under IAS12 the provision for deferred tax willtake no account of indexation allowances afforded under UK taxation law, the taxprovided is not a calculation of potential Capital Gains Tax liability. Under UKGAAP the liability is an estimate of the Capital Gains Tax, but is not providedfor, only disclosed in the notes (note 17 in the 31 March 2005 accounts). IAS 17 LeasesIAS 17 requires leases, whether as the lessee or lessors to be examined todifferentiate between finance and operating leases. Most property leases wererecognised as operating leases under UK GAAP but under IFRS different criteriamay mean some are considered as finance leases. Leases which extend for longperiods and therefore under which a substantial portion of the asset life isconsumed may be regarded as finance leases. a) Head leases. Some (or some parts) of the investment properties of theGroup are held under long leases which under IFRS are classified as financeleases so requiring recognition of a liability based on the minimum leasepayments and a corresponding increase in the carrying value of the investmentproperty. Many of these head leases incur only a peppercorn rent hence creatingno finance lease liability. For head leases with rental payments other thanpeppercorn the rent paid is split between interest payable and repayment of thelease liability. Any rent payable in excess of the minimum lease payments asidentified at initial recognition of the lease is considered as contingent rentand is expensed immediately. Under UK GAAP leasehold investment properties were reported at the valuation ofthe legal interest owned. b) Tenant leases are subject to the same tests. Because of the multitenanted nature of the Group's buildings and the short-term nature of mosttenancies, no leases granted by the Group have been determined to be financeleases. SIC-15 Operating Lease - IncentivesSIC-15 requires that any lease incentives offered to tenants, such as rent freeperiods or reduced initial rents are recognised over the lease term. Anadjustment is therefore made to increase revenue in the Income Statement andcreate a financial asset. Under UK GAAP any incentive was spread to the shorterof the lease term or periods to the first rent review or lease break. The Grouphas granted no material operating lease incentives.IAS 10 Events after the Balance Sheet DateIAS 10 requires dividends only to be recognised when there is an irrevocablelegal obligation to make payment. The final dividend does not become irrevocableuntil approved by the members at the Annual General Meeting. Under IFRS thefinal dividend is therefore not recognised until approved and interim dividendnot recognised until paid.IAS 16 Property, Plant and EquipmentIAS 16 requires owner occupied property to be shown as part of Property, Plantand Equipment. The Group's head office is defined as owner occupied property. Asland has an indefinite life and buildings a finite life the land and buildingelements of the owner occupied property are shown separately, the latter beingdepreciated over the expected useful life and the former not being depreciated.Under UK GAAP the whole property was subject to depreciation. The valuation ofthe asset at the date of transition to IFRS is taken to be its deemed cost, anysurplus or deficit being recognised in retained reserves.IAS 23 Borrowing costsIAS 23 allows the capitalisation of directly attributable borrowing costs on thecreation or refurbishment of property by applying the weighted average borrowingcosts to the expenditures on the asset. In the case of investment propertiesonly the expenditure on the improvement costs may be subject to capitalisationof related borrowing costs and the underlying carrying cost of the property isexcluded. Under UK GAAP interest capitalisation arose on both the original valueof the investment property and on the improvement costs. IAS 38 Intangible AssetsIAS 38 requires externally acquired computer software to be classified as anintangible asset. Under UK GAAP software was shown within fixtures and fittingsamongst other tangible assets. IAS 32/39 Financial Instruments: Disclosure and Presentation, Recognition andMeasurementa) IAS 32 requires the Convertible Loan Stock to be split into its equity anddebt components. The debt element is carried at amortised cost, amortised overthe life of the instrument, such that interest is charged at a constanteffective interest rate compared to the liability outstanding at any given pointin time. Under UK GAAP the instrument was considered wholly as debt.b) IAS 39 requires derivative financial instruments to be valued at fair valuethrough the Income Statement and their carrying values shown in the BalanceSheet unless they meet the IFRS hedging criteria. Under UK GAAP the fair valueof such items was disclosed by way of a note and any original cost amortisedover the life of the item. c) IAS 39 requires the identification of any embedded derivatives in the Group'scontractual arrangements. Embedded derivatives are derivative instruments thathave been combined with other contractual arrangements to create a compositecontract. The Group currently believes it has no material embedded derivatives. IAS 7 Cash Flow StatementsIAS 7 defines cash and cash equivalents to include short-term, highly liquidinvestments, thus including short-term bank deposits. Cash equivalents wereshown as investments under UK GAAP. IFRS 2 Share-based paymentThe Group operates an employee Save as You Earn Scheme, an Executive ShareOption Scheme and a Long Term Incentive Plan (LTIP). IFRS 2 requires the cost ofservices provided where payment is made through a share based payment scheme tobe recognised as an expense in the Income Statement over their vesting periodsand requires that where there is no reliable estimate of the cost of theseservices then the fair value of the options granted should be recognised as thecost of services. The fair values have been estimated by use of the Black-Scholes option valuation model in the case of the SAYE and Executive ShareOption Schemes which have non market related performance conditions and by useof Monte Carlo simulation in the case of the LTIP whose performance conditionsare market related. Subsequent changes in fair value are shown as an expense inthe Income Statement. Provision is also made for employer's National Insurancecosts relating to share based payment schemes. Under UK GAAP the SAYE and Executive Share Option Schemes were not directlyrecognised as an expense (although the interest costs arising from borrowingsmade to finance the purchase of shares held in the Group's ESOT to satisfyoption exercises were recognised, together with share dilution where new shareswere issued). The purchase cost of the matching shares was recognised for theLTIP on a straight line basis over the vesting period. Employer's NationalInsurance costs were recognised on share options expected to meet their vestingcriteria. IAS 7 Cash Flow statementsUnder IFRS the consolidated cash flow statement describes movements in cash andcash equivalents. Under UK GAAP the cash flow analyses movements in cash only.With that exception there are no material differences between the previouslypublished and restated cash flow statements. WorkspaceGroup PLC Reconciliation of consolidated profit for the 6 months ended 30 September 2004 IAS 40 IAS 12 IAS 17 IAS 16 IAS 23 IAS 32/39 Previous Investment Contingent Property Owner Capitalisation Convertible GAAP Property tax head Occupied of interest loan stock leases Property £000 £000 £000 £000 £000 £000 £000Revenue - 26911 continuingoperations Direct Costs (7100) 26 -------------------------------------------------------------------------------------------------- Net rental 19811 0 0 26 0 0 0income Administrative (3928)expenses Gain from 0 27033 1 345change in fair value ofinvestment property Loss on disposal (384)of investment properties -------------------------------------------------------------------------------------------------- Operating profit 15499 27033 0 26 1 345 0 Interest (8960) (26) (345) 7recievable and payable andsimiliar charges Change in fair 0value of derivativefinancial instruments-------------------------------------------------------------------------------------------------- Profit before tax 6539 27033 0 0 1 0 7Taxation (2095) 437 (8109) (5)-------------------------------------------------------------------------------------------------- Profit for the period 4444 27470 (8109) 0 0 0 2================================================================================================== Reconciliation of consolidated profit for the 6 months ended 30 September 2004 continued IAS 39 IFRS 2 Fair value of Share based Restated derivatives payments under IFRS £000 £000 £000Revenue - 26911continuingoperations Direct Costs (7074) --------------------------------------------------------------------------------Net rental 0 0 19837income Administrative 17 (3910)expenses Gain from 27378change in fair value ofinvestment property Loss on disposal (384)of investment properties -------------------------------------------------------------------------------- Operating profit 0 17 42921 Interest (9305)recievable and payable andsimiliar charges Change in fair 19 1073value of derivative 1073financial instruments--------------------------------------------------------------------------------Profit before tax 1092 17 34689Taxation (328) (29) (10129)--------------------------------------------------------------------------------Profit for the period 764 (12) 24560================================================================================ Reconciliation of equity at 30 September 2004 IAS 40 IAS 12 IAS 17 IAS 10 IAS 16 Previous Investment Contingent Property Owner GAAP Property tax head occupied leases Dividends property £000 £000 £000 £000 £000 £000 Non current assets Investment 652450 754properties Intangible 0assets Property, 3378 (510)plant andequipment -other Property, 0 500plant andequipment -land --------------------------------------------------------------------------------Total non 655828 0 0 754 0 10current assets Currentassets Trade and 8032otherreceivables Financial 0assets -derivativefinancialinstruments Tenant 3831deposits/otherinvestments Cash and cash 196equivalents--------------------------------------------------------------------------------Total current 12059 0 0 0 0 0assets CurrentLiabilities Financial 0 (3) liabilities -borrowings Trade and (28083) 1832 other payables Current tax (5539)liabilities --------------------------------------------------------------------------------Total current (33622) 0 0 (3) 1832 0liabilities Net current (21563) 0 0 (3) 1832 0 (liabilities)/assets Non Current 0Liabilities Financial (306239) (751)liabilities -borrowings Financial 0liabilities -derivativefinancialinstruments Deferred tax (5801) 4286 (71405)liabilities -------------------------------------------------------------------------------- Total non (312040) 4286 (71405) (751) 0 0currentliabilities --------------------------------------------------------------------------------Net Assets 322225 4286 (71405) 0 1832 (10)================================================================================Equity Ordinary 1688shares Investment in (6096)own shares Share 43586 premium Other reserves 0 Revaluation 222346 (222346)reserve Retained 60701 226632 (71405) 0 1832 (10)earnings --------------------------------------------------------------------------------Total equity 322225 4286 (71405) 0 1832 (10)================================================================================ Reconciliation of equity at 30 September 2004 continued IAS 38 IAS 32/39 IAS39 IAS 7 IFRS 2 Computer Fair value Cash and Share Restated software Covertible of cash based under intangible loan stock derivatives equivalents payments IFRS £000 £000 £000 £000 £000 £000Non current 653204assets Investment properties Intangible 164 164 assets Property, (164) 2704plant andequipment -other Property, plant andequipment -land 500--------------------------------------------------------------------------------Total non 0 0 0 0 0 656572current assets Currentassets Trade and (186) 51 7897 otherreceivables Financial 124 124assets -derivativefinancialinstruments Tenant (2625) 1206 deposits/otherinvestments Cash and cash 2625 2821equivalents --------------------------------------------------------------------------------Total current 0 0 (62) 0 51 12048assets CurrentLiabilities Financial (3)liabilities - borrowings Trade and 69 (139) (26321) other payables Current tax liabilities (6) (5545)--------------------------------------------------------------------------------Total current 0 69 (6) 0 (139) (31869)liabilities Net current 0 69 (68) 0 (88) (19821)(liabilities)/assets Non Current Liabilities Financial 21 (306969)liabilities -borrowings Financial (1690) (1690)liabilities -derivativefinancialinstruments Deferred tax liabilities (4) 469 33 (72422)-------------------------------------------------------------------------------- Total non 0 17 (1221) 0 33 (381081)currentliabilities --------------------------------------------------------------------------------Net Assets 0 86 (1289) 0 (55) 255670================================================================================Equity Ordinary 1688shares Investment in (6096) own shares Share 43586 premium Other reserves 151 181 332 Revaluation reserve 0 Retained (65) (1289) (236) 216160 earnings --------------------------------------------------------------------------------Total equity 0 86 (1289) 0 (55) 255670================================================================================ 25. Interim Report Copies of this statement will be dispatched to shareholders on 21 November 2005and will be available from the Group's registered office at Magenta House, 85Whitechapel Road, London, E1 1DU from 9.00am on that day. . This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Workspace