6th Dec 2005 07:02
Quintain Estates & Development PLC06 December 2005 6 December 2005 QUINTAIN ESTATES AND DEVELOPMENT PLC ("Quintain" / "Company" / "Group") INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2005 Highlights • Good progress made in positioning the business to deliver the Company's major Special Projects • Interim dividend increased by 18% to 3.25p (2004: 2.75p) reflecting the Board's confidence in the prospects of the Company • Profit before tax reduced to £2.1m (2004: £4.8m) after charge of £2.7m for discontinued operations at Wembley and £1.6m for marking to market of debt • Earnings per share up 74% to 3.3p before discontinued activities (2004: 1.9p); earnings per share after discontinued activities down 52% to 1.4p (2004: 2.9p) • Directors' interim valuation, not incorporated into the 30 September 2005 figures, indicates 10.2% uplift in adjusted diluted NAV to 542p per share (31/03/05: 492p) • Directors' valuation of Wembley and Greenwich Peninsula assets reveal approximate uplifts of £35m (13%) at Wembley and £8m (7%) at Greenwich • Asset disposals totalling £45.6m during the period, generating profits of £6.9m, including the completion of the Company's shopping centre disposal programme • Signing of 15 year contract with world class promoter to manage events at Wembley Arena, thereby removing operational risk • Heads of terms agreed with Hilton for a 400 room hotel at Wembley • Meridian Delta entered into exclusive negotiations with two major housebuilders at Greenwich • Joint ventures agreed with BioRegional and long standing partner, Countryside Properties plc to develop large mixed use developments; Quintain now one of the UK's leading urban regeneration experts with 21m sq ft of consented schemes • Significant progress in Q3P, the Group's Fund Management division; Quercus now approaching £400m of assets under management and new funds planned. Nigel Ellis, Chairman of Quintain, commented: "The outlook remains exciting, with the scale and breadth of opportunitiescapable of delivering substantial rewards. We believe we have the managementskills, disciplines and contacts to continue to deliver a track record ofsustained outperformance, with as always our measure being the generation oftotal return for shareholders." For further information, please contact: Quintain Estates and DevelopmentRebecca Worthington020 7495 8968 Financial DynamicsStephanie Highett / Dido Laurimore020 7831 3113 FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2005 Profit and Loss Account 30 Sept 30 Sept Annual Year to 31 2005 2004 change March % 2005 Group turnover (£000) 23,403 27,855 (16.0) 59,095 Profit before tax (£000) 2,100 4,766 (55.9) 37,173 Earnings per share (pence) After discontinued activities 1.4 2.9 (51.7) 32.1 Before discontinued activities 3.3 1.9 73.7 30.4 Dividend per share (pence) 3.25 2.75 18.2 9.50 Balance Sheet 30 Sept 30 Sept Annual As at 31 2005 2004 change March % 2005 Net asset value per share(pence) 431 363 18.7 443 Diluted net asset value pershare (pence) 424 358 18.4 436 Gearing (%) 39 54 29 Chairman's Statement I am pleased to report that Quintain has continued to make good progress in thesix months to 30 September 2005, during which time it has positioned itself todeliver the Company's major Special Projects. The Board's confidence in the prospects of the Company is reflected in thedecision to increase the interim dividend by 18% to 3.25p (2004: 2.75p). The creation of sustainable shareholder value remains Quintain's primaryobjective. We have decided not to compete in a fully priced investment marketwhich we believe would in the longer term reduce our total return as well asmaking us more vulnerable to a downturn in the market. We have, therefore, beennet sellers of assets, although we have made selective purchases where we canadd value, more details of which are included in the portfolio review. Inparticular we have been sellers of retail and, with the sale of Anglia Square,Norwich during the period, have now sold all of our secondary and tertiaryshopping centres acquired in 1999 as part of the Chesterfield acquisition,realising proceeds of £149m and a profit over acquisition cost of £42m. The Company's strategy has been refined in light of the major Special Projects,where we intend to own the freehold estates, whilst creating joint venturedevelopments and potentially selling long leases on individual plots. Thisallows us to capture additional revenue streams from telecommunications, mediaand estate management and, in a market where product is increasingly hard tofind, we have ensured access to a pipeline of assets as a result of SpecialProjects securing consents of 21m sq ft. In order to capture this longer termvalue, we have increased headcount, the cost of which is charged againstrevenue, with as yet no associated income, giving rise to a short term decreasein underlying earnings. We are also focusing resources on fund management in order to deliveropportunities in non-traditional sectors, where we believe the market currentlyoffers better value. Over time this will create a significant stream of fees, ashare of profits and further opportunities. Results The good progress in the six months, as shown by the 10.2% increase in adjusteddiluted net assets after incorporating director's valuations, is not reflectedin the income statement with one-off items reducing profit before tax to £2.1m(2004: £4.8m). The excitement and scale of Special Projects and the commitment to the long-termdevelopment of communities must be tempered by thorough risk and financialmanagement disciplines - processes which are firmly and rigorously imposed.Mindful of the need to keep music alive at Wembley, so protecting theoperational business and enabling us to deliver the deal set out below, theBoard took a difficult decision to open and maintain the temporary Pavilion,despite a challenging year when many high profile stars cancelled tours, Thecost of the building was fully provided for at the half year giving rise to a£2.7m loss. This compares with a profit of £1.5m for the time the arena was openin the previous period. This business is classified as discontinued, as we arepleased to announce today that we have signed a 15 year management agreementwith a world class promoter. The signing of this contract immediately removesthe operational risk in relation to the Arena, giving Quintain guaranteedrevenues and a performance related profit share, and allows us to concentrate ondelivering value from developing the surrounding property. However, we are alsopleased to report strong interest in the re-opening of the Arena in April 2006,with 172 provisional or confirmed bookings in place, a record for the Arena. As in previous years, we have not undertaken a formal valuation of the propertyportfolio for the half year. However the Directors have carried out, inconjunction with our valuers, an informal review of the portfolio, which shows acapital uplift of 8.2%. The largest uplifts were at Wembley, £35m (13%), and atGreenwich, £8m (7%). We are encouraged by these results at perhaps one of themost difficult stages of major development schemes, where infrastructure isbeing installed and the first phase of deals being negotiated, but before anyprofits can be realised on land sales or development. In this context, we wouldanticipate the Company's profits remaining subdued over the next 18 monthsalthough, subject to market conditions, we would expect to see continued robustgrowth in NAV, and therefore strong total returns. Portfolio review Special Projects With Quintain increasingly recognised as one of the UK's leading urbanregenerators, we are pleased to report good progress with the Special Projectsdivision. With Heads of Terms now signed for a management agreement with Hilton for a 400room hotel, the development of the central core of the site is now unlocked,giving the potential for simultaneous delivery of a substantial housingdevelopment and retail scheme. Our joint venture with the Genesis and FamilyHousing Associations for 286 units behind the Arena is progressing well with aview to starting on site in late Spring 2006. The Arena is on target for the first event on 2 April 2006. The heart of thedevelopment, incorporating the world class public realm of Arena Square and theSpanish Steps that link it to the Stadium, is taking shape and will be completedin good time for the Arena opening. We are advancing demolition works of the 370,000 sq ft, 13 acre Palace ofIndustry following on from its delisting. This will enhance the sense of placeat Wembley, giving strong sightlines into our development and providingadditional income opportunities whilst we work with local and nationalgovernment to demonstrate the case for delivering a regional casino to supportthe regeneration of the wider Wembley area. The Conference Centre and Exhibition Halls will close in August 2006 to allowdemolition works take place before starting on site with the hotel, retail andresidential core mentioned above. At Greenwich we are in exclusive negotiations with a major housebuilder inrelation to one plot, and negotiating a joint venture on a further plot withanother housebuilder on the South East section. In order to maximise returns onthe most valuable land in the North West, facing Canary Wharf, we are proposinga wider development joint venture with our partner Lend Lease of the 2.5m sq ftMeridian Gardens area. At Abbey Mills, Merton, SW19, our joint venture with Countryside Properties Plc,phase 2 progresses well with 79 of the 164 units sold and a further 26 exchangedor reserved. The Speciality Market was sold in the period, taking advantage ofcurrent investor demand. Since the half year, we have signed a further joint venture with Countryside todevelop City Park Gate in Birmingham. The outline consented scheme comprises 608residential units, 115,000 sq ft of offices and 100,000 sq ft of retaildevelopment. We are refining the masterplan and anticipate being on site withintwo years. We formed a joint venture with BioRegional in the period, a company thatundertakes sustainable development. This will give us a competitive advantagewhen presenting the environmental impact of our proposals for futureregeneration projects. Our first development will be in conjunction with CrestNicholson to build 168 units and 24,000 sq ft of commercial space in Brighton.We have a further scheme in the Thames Corridor in solicitors' hands and havealso secured preferred bidder status on a project in Middlesborough, comprising500 apartments, 200,000 sq ft of offices and 77,000 sq ft of retail.Considerable work will have to be undertaken pending exchange of developmentagreements with Tees Valley Regeneration and English Partnerships. Main Portfolio With institutions and property companies lowering their IRR targets in order toremain competitive, it continues to be difficult to buy properties where we seevalue. However, we have made selective purchases totalling £31.1m, of mainlyregional offices, as we believe this sector offers the best opportunities foradding value. Within the Company's Main Portfolio, sales of £45.6m included the completion ofour shopping centre disposal programme with the £23.8m sale of Anglia Square,Norwich delivering a surplus over cost of £12.9m. We completed a sale andleaseback of our head office at 16 Grosvenor Street that we bought last year andrefurbished. Proceeds of £14.6m gave a profit of £4.3m. Market conditions for sales could not be better and we have decided to take thisopportunity to undertake further sales which will impact in early 2006. Q3P We are pleased with the strong progress in our Fund Management Division, Q3P.Quercus, our specialist healthcare fund, has grown to £379m of gross assetsinvested in 184 properties in the nursing home, learning disability andspecialist care markets. During the period, the fund made its first investmentinto the independent private hospital market with the £32m acquisition andleaseback of three hospitals as part of the financing for the buyout of BUPA'sClassic Hospitals Group by Legal and General Ventures. As part of a recentfundraising, we opted to invest a further £10 million to maintain our share ataround 27%, taking advantage of the strong performance of the fund, which is nowalso delivering a material fee income. Other fund management opportunities are being progressed and, in particular, wehope to launch a student accommodation fund in the New Year. We are bidding fora pipeline of properties to be warehoused on our balance sheet and have reachedagreement with University Partnership Programme to bid jointly for Universitybacked student accommodation projects. At Oxford we have acquired a site for 290beds with a planning application to be submitted in early 2006. Financial Review Turnover fell by 16% in the period to £23.4m reflecting, as mentioned above, thenet disposal programme and the negative contribution from leisure operations asa result of Wembley Arena being closed for refurbishment. The £3.3m increase in administrative expenses relates to staff costs. Ourrecruitment programme has continued in order to augment our existing resource todeliver our major projects and this has resulted in an increased averageheadcount of 62 compared with 57 in the same period last year. In addition tothis bonuses agreed and paid in the period, calculated on the prior year totalreturn of 24.6%, were up £2.3m to £4.5m. Net finance expenses have fallen by £3.3m to £6.1m reflecting the disposalprogramme mentioned above. Within this was a £1.6m charge under IAS 39,Financial Instruments: Recognition and Measurement, which is discussed in moredetail below. Gearing rose to 39%, reflecting the capital cost of developmentsand the impact of International Financial Reporting Standards (IFRS). This isstill significantly below our long run target, but reflects current marketconditions and the future cash requirements for our significant projects. At thehalf year, all banking covenants were well covered. The effective tax rate, based on estimates for the full year, of 15% remainsbelow the standard 30% owing to the continuing availability of tax losses fromprevious acquisitions, balancing allowances on properties sold and capitalisedinterest. These financial statements are prepared under IFRS and reconciled to UK GAAP.They include the first time application of IAS 39, Financial Instruments andIFRS 2, Share-based payments, the latter of which has a negligible impact. UnderIAS 39, the marking to market of financial instruments is included on thebalance sheet under current liabilities. We have adopted cashflow hedging,allowing us to take movements in effective hedges through reserves. Thelonger-term swaps, taken out in view of our long term projects, are under thisstandard considered ineffective and so movements are taken through the incomestatement. Outlook The outlook remains exciting, with the scale and breadth of opportunitiescapable of delivering substantial rewards. We believe we have the managementskills, disciplines and contacts to continue to deliver a track record ofsustained outperformance, with as always our measure being the generation oftotal return for shareholders. Nigel Ellis 6 December 2005 Independent Review Report Introduction We have been engaged by the Company to review the attached financial informationand we have read the other information contained in the interim report andconsidered whether it contains any apparent misstatements or materialinconsistencies with the financial information. Our review has been undertaken so that we might state to the Company thosematters we are required to state to it in this report and for no other purpose.To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company for our review work, for thisreport, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with bestpractice which require that the accounting policies and presentation applied tothe interim figures should be consistent with those applied in preparing thepreceding annual accounts except where they are to be changed in the next annualaccounts in which case any changes, and the reasons for them, are to bedisclosed. International Financial Reporting Standards As disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards asadopted for use in the EU. Accordingly, the interim report has been prepared inaccordance with the recognition and measurement criteria of IFRS and thedisclosure requirements of the Listing Rules. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4: Review of interim financial information issued by the Auditing PracticesBoard for use in the United Kingdom. A review consists principally of makingenquiries of Group management and applying analytical procedures to thefinancial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review is substantially lessin scope than an audit performed in accordance with Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 September 2005. KPMG Audit PlcChartered AccountantsSalisbury SquareLondonEC4Y 8BB 6 December 2005 Consolidated Income StatementFor the six months ended 30 September 2005 Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £000 £000 £000 _______ _______ _______ Gross rental income 14,809 18,427 36,394 Property related costs (2,792) (2,533) (6,597) _______ _______ _______Net rental income 12,017 15,894 29,797 _______ _______ _______Proceeds from sale of trading properties 2,245 2,391 6,336Carrying value of trading properties sold (2,048) (1,944) (5,122) _______ _______ _______Profit from sale of trading properties 197 447 1,214 _______ _______ _______Income from leisure activities 2,809 2,188 6,178Outgoings in relation to leisure activities (1,365) (597) (2,500) _______ _______ _______Profit from leisure activities 1,444 1,591 3,678 _______ _______ _______Other income receivable 2,368 1,350 4,253Outgoings in relation to other income (872) (749) (2,050) _______ _______ _______Profit from other income 1,496 601 2,203 _______ _______ _______Total revenue from continuing activities 22,231 24,356 53,161Total cost of sales from continuing (7,077) (5,823) (16,269)activities _______ _______ _______Gross profit from continuing activities 15,154 18,533 36,892 _______ _______ _______Total revenue from discontinued activities 1,172 3,499 5,934Total cost of sales from discontinued (3,916) (1,965) (3,371)activities _______ _______ _______Gross (loss) profit from discontinued 5 (2,744) 1,534 2,563activities _______ _______ _______Gross profit 12,410 20,067 39,455Administrative expenses 6 (13,880) (10,607) (19,286) _______ _______ _______Operating (loss) profit before recognitionof results from fixed asset property sales (1,470) 9,460 20,169Profit from sale of properties held as fixed 6,933 2,230 5,577assetsGains on revaluation of investment - - 23,574propertiesDeficits on revaluation of investment (58) (107) (3,315)propertiesDeficits on revaluation of development - - (1,232)properties _______ _______ _______Net operating profit before net finance 5,405 11,583 44,773expenses Finance income 197 1,325 1,454Finance expenses (4,726) (10,778) (17,379)Change in fair value of cash flow hedges (1,590) - -Net finance expenses 7 (6,119) (9,453) (15,925)Share of profit from joint ventures and 2,814 2,636 8,325associates _______ _______ _______Profit before tax 2,100 4,766 37,173 Current tax (169) (988) (2,191)Deferred tax (154) - 6,667Tax (charge) credit for the period 8 (323) (988) 4,476 _______ _______ _______Profit for the financial period 3 1,777 3,778 41,649 ====== ====== ======Attributable to:Equity shareholders of the parent 1,777 3,709 41,559Minority shareholders - 69 90 _______ _______ _______Profit for the financial period 3 1,777 3,778 41,649 ====== ====== ======Earnings per share 9 basic 1.4p 2.9p 32.1p ====== ====== ====== diluted 1.4p 2.9p 31.5p ====== ====== ======Dividend per share 10 3.25p 2.75p 9.50p ====== ====== ====== Consolidated Statement of Recognised Income and ExpenseFor the six months ended 30 September 2005 Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £000 £000 £000 _______ _______ _______ Foreign exchange movements (6) 347 127Unrealised (deficit) surplus on development (5) 12 93,261propertiesChange in fair value of effective cash flow 7 (4,499) - -hedgesTax on items taken directly to equity 1,350 - (22,884) _______ _______ _______Net income recognised directly in equity (3,160) 359 70,504Profit for the financial period 3 1,777 3,778 41,649 _______ _______ _______Total recognised income and expense for the (1,383) 4,137 112,153period ====== ====== ======Attributable to:Equity shareholders (1,383) 4,068 112,063Minority shareholders - 69 90 _______ _______ _______Total recognised income and expense for the (1,383) 4,137 112,153period ====== ====== ====== Consolidated Statement of Changes in EquityFor the six months ended 30 September 2005 Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £000 £000 £000 _______ _______ _______Opening equity shareholders' funds as previously reported 638,261 523,513 523,513Effect of adopting IFRS (66,957) (50,427) (50,427) _______ _______ _______Opening equity shareholders' funds restated 571,304 473,086 473,086Opening adjustment for change in accountingpolicy:Fair value of cash flow hedges (net of tax) 2 (i) & (xv) (5,825) - - _______ _______ _______Adjusted opening equity shareholders' funds 565,479 473,086 473,086Issue of shares less costs 178 350 534Purchase of own shares for cancellation (107) - (2,243)Credits relating to directors' and 629 274 721employees' share plansInvestment in own shares (1,063) (443) (1,539) _______ _______ _______ 565,116 473,267 470,559Total recognised income and expense (1,383) 4,068 112,063 _______ _______ _______ 563,733 477,335 582,622Dividends 10 (8,683) (7,763) (11,318) _______ _______ _______Closing equity shareholders' funds 4 555,050 469,572 571,304 ====== ====== ====== Consolidated Balance SheetAs at 30 September 2005 Unaudited Unaudited Unaudited As at As at As at 30 Sept 2005 30 Sept 2004 31 March 2005 Notes £000 £000 £000 ________ ________ ________Non-current assets Investment properties 11 296,604 411,495 290,202Development properties 11 489,366 346,051 463,893Owner occupied properties, plant and 8,658 554 10,416equipmentInvestment in joint ventures 82,809 44,858 70,232Investment in associates 1,800 1,575 1,800 Other investments 188 188 188 ________ ________ ________Total non-current assets 879,425 804,721 836,731 ________ ________ ________Current assetsTrading properties 8,796 4,119 4,724Trade and other receivables 36,309 38,086 29,271 Short-term investments 19 19 19Cash and cash equivalents 17,494 13,305 11,090 ________ ________ ________ Total current assets 62,618 55,529 45,104 ________ ________ ________Total assets 942,043 860,250 881,835 ======= ======= =======Current liabilitiesBank loans 12 (48) (49) (88)Trade and other payables (49,080) (37,527) (31,049)Tax liabilities (978) (2,830) (6,497) ________ ________ ________Total current liabilities (50,106) (40,406) (37,634) ________ ________ ________Non-current liabilitiesBank loans 12 (225,986) (255,889) (167,020)Other borrowings 12 (7,715) (7,625) (7,667)Deferred tax liability 8 (77,789) (60,685) (80,546)Obligations under finance leases 11 (20,587) (18,481) (12,750)Other payables (4,810) (6,039) (4,674) ________ ________ ________Total non-current liabilities (336,887) (348,719) (272,657) ________ ________ ________ Total liabilities (386,993) (389,125) (310,291) ======= ======= =======Net assets 555,050 471,125 571,544 ======= ======= =======EquityIssued capital 13 32,316 32,377 32,298Share premium account 47,065 46,000 46,575Convertible loan stock (equity element) 786 786 786Revaluation reserve 168,618 88,477 180,102Other capital reserves 112,439 112,330 112,436Translation reserve 121 347 127Retained earnings 196,307 189,698 200,519Investment in own shares (2,602) (443) (1,539) ________ ________ ________Equity shareholders' funds 4 555,050 469,572 571,304Minority shareholders - 1,553 240 ________ ________ ________Total equity 555,050 471,125 571,544 ======= ======= =======Net asset value per share 14 basic 431p 363p 443p ====== ====== ====== diluted 424p 358p 436p ====== ====== ====== Consolidated Cash Flow StatementFor the six months ended 30 September 2005 Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 Sept 2005 30 Sept 2004 31 March 2005 £000 £000 £000 ________ ________ ________Operating activities Profit before tax 2,100 4,766 37,173Adjustments for:Depreciation 363 674 1,027Costs relating to share plans 629 274 721Net finance expenses 6,119 9,453 15,925Unrealised net revaluation losses(gains) on investment properties 58 107 (20,259)Deficits on revaluation of development - - 1,232propertiesShare of profit from joint ventures and (2,814) (2,636) (8,325)associatesProfit from sale of properties held as (6,933) (2,230) (5,577)fixed assetsLoss (profit) from sale of fixtures and 6 (5) -fittings ________ ________ ________ (472) 10,403 21,917Decrease (increase) in trade and other 5,785 (4,823) 4,050receivablesIncrease (decrease) in trade and other 1,106 (4,497) (4,676)payablesDecrease (increase) in trading 1,487 (1,992) (2,962)properties ________ ________ ________ 7,906 (909) 18,329Interest paid (6,778) (11,221) (19,737)Profit on termination of hedging - 630 722arrangementInterest received 207 1,338 1,106Tax paid (2,003) (101) (100) ________ ________ ________Cash flows from operating activities (668) (10,263) 320 ======= ======= =======Investing activitiesPurchase and development of property (57,247) (65,243) (110,615)assetsPurchase of property, plant and (1,093) (256) (9,007)equipmentProceeds from property sales 35,914 135,628 287,486Tax paid on property sales (2,750) - (1,460)Acquisition of subsidiary companies (7,232) (13,875) (15,155)Loans to joint ventures and associates (11,325) (7,411) (18,648)Distributions received from jointventures and associates 1,933 614 2,165 ________ ________ ________Cash flows from investing activities (41,800) 49,457 134,766 ======= ======= =======Financing activitiesIssue of shares 178 352 534Purchase of own shares for cancellation (107) - (2,243)Investment in own shares (1,063) (443) (1,539)Increase (decrease) in borrowings 58,951 (58,261) (148,992)Payment of loan issue costs (273) (2,751) (2,858)Payment of finance lease liabilities (149) (909) (1,663)Equity dividends paid (8,683) (7,763) (11,318) ________ ________ ________Cash flows from financing activities 48,854 (69,775) (168,079) ======= ======= ======= Net increase (decrease) in cash and cash equivalents 6,386 (30,581) (32,993)Cash and cash equivalents at start of 11,109 43,905 43,905periodEffect of exchange rate fluctuations on 18 - 197cash held ________ ________ ________Cash and cash equivalents at end of 17,513 13,324 11,109period ======= ======= ======= Cash and cash equivalents here include short-term investments. Notes to the accountsFor the six months ended 30 September 2005 1. Basis of preparation The financial information contained in this report is not audited and does notcomply with the meaning of statutory accounts as defined by section 240 of theCompanies Act 1985. The comparative figures for the financial year ended 31March 2005 are not the Company's statutory accounts for that financial year.Those accounts, which were prepared under UK Generally Accepted AccountingPractice (UK GAAP), have been reported on by the Company's auditors anddelivered to the registrar of companies. The report of the auditors wasunqualified and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidatedfinancial statements of the Company, for the year ending 31 March 2006, beprepared in accordance with International Financial Reporting Standards (IFRSs)as adopted for use in the EU ('adopted IFRSs'). This interim financial information has been prepared on the basis of therecognition and measurement requirements of adopted IFRSs as at 30 September2005 that are effective (or available for early adoption) at 31 March 2006, theGroup's first annual reporting date at which it is required to use adoptedIFRSs. Based on these adopted IFRSs, the directors have applied the accountingpolicies, as set out below, which they expect to apply when the first annualIFRS financial statements are prepared for the year ending 31 March 2006. However, the adopted IFRSs that will be effective (or available for earlyadoption) in the annual financial statements for the year ending 31 March 2006are still subject to change and to additional interpretations and thereforecannot be determined with certainty. Accordingly, the accounting policies forthat annual period will be determined finally only when the annual financialstatements are prepared for the year ending 31 March 2006. As permitted, IAS 34,'Interim Financial Reporting' has not been adopted. The audited financial statements for the year ended 31 March 2005 were preparedunder UK GAAP as were previous annual and interim reports. Reconciliations ofequity as at 1 April 2004 and 31 March 2005 and profit for the year ended 31March 2005 reported under UK GAAP and IFRS have been distributed to recipientsof the 2005 Annual Report and Accounts. Reconciliations are presented in thefollowing notes to facilitate a comparison of these interim results with thosepublished in the corresponding period of the previous financial year and thoserelating to the year ended 31 March 2005. IFRS 1, 'First-time Adoption of International Financial Reporting Standards',requires an explanation of major adjustments to cash flows under IFRS. Whilethe format of the IFRS cash flow statement differs from that under UK GAAP,there are no material changes to cash flows from operations, investment orfinancing. 2. Accounting policies The principal accounting policies which the Group has applied to its resultsfollowing the adoption of IFRS are as follows: (i) Basis of accounting The accounts have been prepared under the historical cost convention as modifiedby the annual revaluation of investment and development properties either helddirectly or through joint ventures and associates, and by the valuation ofderivative financial instruments. The accounting policies have been applied consistently to the results, othergains and losses, assets and liabilities, and cash flows of entities included inthe consolidated financial statements except for the first time application ofIFRS 2, 'Share-based Payment'; IAS 32, 'Financial Instruments: Disclosure andPresentation' and IAS 39, 'Financial Instruments: Recognition and Measurement'. IFRS 2 applies to accounting periods commencing on or after 1 January 2005 andrequires the Group to account through the income statement for the fair value ofshares, share options and share rights granted on or after 7 November 2002 todirectors and staff which had not vested as at 1 April 2005. The impact on thecurrent and earlier periods has been negligible as the Group already recognisedcharges in respect of grant of shares under the Executive Directors' PerformanceShare Plan and share rights under the 2004 Unapproved Share Plan. The Group has taken advantage of the exemption in IFRS 1 which allows thedeferral of the accounting and disclosure requirements of IAS 32 and IAS 39. Assuch, the effective date of transition to IFRS in relation to these standards is1 April 2005. The effect of the change is to include interest rate swaps in the balance sheetat fair value and to recognise changes in their fair value in respect of theeffective portion of cash flow hedges through equity and in relation to allother movements in the income statement. As at 1 April 2005, equityshareholders' funds have been decreased by £5,825,000 relating to the fair valueadjustment of £8,321,000 less the related deferred tax provision of £2,496,000. The preparation of financial statements requires management to make judgments,estimates and assumptions that may affect the application of accounting policiesand the reported amounts of assets and liabilities, income and expenses. Thoughmanagement believes that the estimates and the assumptions upon which these arebased and are used in the preparation of the financial statements are reasonablein the light of available information, actual outcomes may be different. A revision to accounting estimates is recognised in the period in which theestimate is revised if the revision affects only that period. If the revisionaffects both current and future periods, the change is recognised over thoseperiods. (ii) Basis of consolidation The Group's accounts include the results, assets and liabilities of the Companyand its subsidiaries. Subsidiaries are those entities controlled by the Group.Control is established when the Group has the power to determine the financialand operating policies of an entity or business so as to obtain benefits fromits activities. The financial statements of subsidiaries are included in theconsolidated financial statements from the date that control commences until thedate it ceases. The acquisition method of accounting is adopted unless there are no significantassets or liabilities other than property within the acquired company, in whichcase the acquisition is treated as an asset acquisition. A joint venture is an undertaking in which the Group has a long-term interestand over which it exercises joint control. An associate is an undertaking inwhich the Group has a long-term interest, usually from 20% to 50%, of the equityvoting rights and over which it exercises significant influence. The Groupequity accounts for its share of net profit after tax of joint ventures andassociates, together with its share of any revaluation movement on theirinvestment properties less the related deferred tax, through the incomestatement. Its interest in their net assets is included in the consolidatedbalance sheet. (iii) Foreign currency Assets and liabilities of foreign operations are translated into sterling atexchange rates ruling at the balance sheet date. Operating income and expenses of foreign operations are translated into sterlingat average exchange rates. Exchange differences arising from the translation of the net investment inforeign operations, including the effective portion of related hedges, are takento the translation reserve. They are released to the income statement upondisposal of the foreign operation. (iv) Revenue and cost of sales Revenue is stated net of VAT and comprises rental income, proceeds from sales oftrading properties, income from leisure operations, commission and feesreceivable. Rental income from investment property leased out under an operating lease isrecognised in the income statement on a straight-line basis over the term of thelease. Contingent rents such as turnover rents and indexed rents are recognisedas income in the periods in which they are earned. Rent reviews are recognisedwhen such reviews have been agreed with tenants. Lease incentives are recognised as an integral part of the net consideration forthe use of the property and amortised on a straight-line basis over the term ofthe lease. Property operating costs are expensed as incurred including any element ofservice charge expenditure not recovered from tenants. (v) Disposal of properties Sales of properties are recognised in the accounts if an unconditional contractis exchanged by the balance sheet date and the sale is completed before theaccounts are approved by the Board. Profits or losses arising from the sale ofinvestment and trading properties are calculated by reference to book value atthe end of the previous year, adjusted for subsequent capital expenditure. (vi) Depreciation No depreciation is provided in respect of the Group's freehold investment anddevelopment properties and leasehold investment and development properties withover 20 years to run. This represents a departure from the provisions of theCompanies Act 1985 which requires all properties to be depreciated.Depreciation is only one of many factors reflected in the annual valuation ofproperties and accordingly, the amount of depreciation which might otherwisehave been charged cannot be separately identified or quantified. Depreciation is provided on leasehold investment and development properties withless than 20 years to run, over the remaining life of the lease. In relation to other tangible fixed assets, depreciation is provided over thelife of the lease in respect of group occupied properties and over theirestimated useful life, in the case of fixtures, fittings and equipment. (vii) Employee benefits Pensions Contributions to employees' personal pension plans are charged to the incomestatement as incurred. Share-based payment The Group uses the Black Scholes model to estimate the fair value of equityrights at the date of grant to directors and staff and this amount is thenamortised through the income statement on a straight-line basis over the vestingperiod. (viii) Capitalisation of borrowing costs Borrowing costs associated with direct expenditure on properties underdevelopment or undergoing major refurbishment are capitalised. Capitalisationis initiated when the activities to develop a property commence and continuesuntil the property is substantially ready for its intended use. Interest iscapitalised at the actual rate payable on borrowings for development purposes orfor that part of the development cost financed out of general funds, at anaverage rate. The capitalisation of finance costs is suspended if there areprolonged periods when development activity is suspended. (ix) Tax Tax is included in the income statement except to the extent that it relates toitems recognised directly in equity, in which case the related tax is recognisedin equity. Current tax is the expected tax payable on the taxable income forthe year using tax rates applicable at the balance sheet date. Tax payable uponthe realisation of revaluation gains recognised in prior years is recorded as acurrent tax charge with a release of the associated deferred taxation. Deferred tax is provided on all temporary differences, except in respect ofinvestments in subsidiaries and joint ventures where the timing of the reversalof the temporary difference is controlled by the Group and it is probable thatthe temporary difference will not reverse in the foreseeable future. Deferred tax is provided using the balance sheet liability method in respect oftemporary differences between the carrying amount of assets and liabilities forfinancial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities,using tax rates applicable at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable thatfuture taxable profits will be available against which the asset can beutilised. (x) Investment properties Investment properties are properties owned or leased by the Group which are heldeither for long-term rental growth or for capital appreciation or both.Investment property is initially recognised at cost including relatedtransaction costs and valued annually by professionally qualified externalvaluers. In accordance with IAS 40, 'Investment Property', property held underlease is shown gross of the recognised finance lease liability. Gains or losses arising from changes in the fair value of investment propertyare included in the income statement of the period in which they arise. When the Group redevelops an existing investment property for continued futureuse as an investment property, the property remains an investment property andis not reclassified. (xi) Development properties Properties acquired with the intention of redevelopment are classified asdevelopment properties and stated at fair value in accordance with IAS 16, 'Property, Plant and Equipment'. Changes in fair value above cost are recognisedin equity and changes in fair value below cost are recognised in the incomestatement. All costs directly associated with the purchase and construction of adevelopment property are capitalised. When development properties arecompleted, they are reclassified as investment properties and any accumulatedbalance on revaluation is transferred to retained earnings. (xii) Owner occupied property, plant and equipment The Group's leasehold office premises together with fixtures, fittings andequipment are carried at cost less accumulated depreciation. (xiii) Other investments Fixed asset investments are stated at cost less any provision for impairment invalue. (xiv) Borrowings Borrowings are recognised initially at fair value after taking account of anydiscount on issue and attributable transaction costs. Subsequently, suchdiscounts and costs are charged to the income statement over the term of thedebt at a constant return on the carrying amount of the liability. (xv) Derivative financial instruments The Group uses interest rate swaps for hedging purposes in line with its riskmanagement policies to alter the risk profile of existing underlying exposure inrespect of floating rate debt. These derivative financial instruments are recognised initially at cost andsubsequently at fair value with changes in fair value being recognised in equityfor effective cash flow hedges and through the income statement for ineffectivehedges. (xvi) Property derivatives The Group enters into property derivatives to mitigate or enhance its exposureto a particular class or a spectrum of property assets. Such instruments areaccounted for initially at cost with subsequent recognition in the balance sheetat fair value and with changes in fair value being reflected through the incomestatement. 3. Reconciliation of profit reported under UK GAAP to profit under IFRS Unaudited Unaudited Six months ended Six months ended 30 Sept 2005 30 Sept 2004 Notes £000 £000 _____ _____ Profit for the period under UK GAAP 1,682 4,201 IFRS adjustments:Reallocation of rent smoothing adjustment i (15) (15)Capitalised interest ii 184 (104)Additional interest on convertible loan stock iii (48) (43)Treatment of leasehold interests as finance leases iv - 3Tax effect of differences (26) (264) _____ _____Profit for the period under IFRS 1,777 3,778 ==== ==== Notes: i Under IFRS, rent free periods are allocated over the whole lease term orto a tenant break if appropriate rather than the period to the first rent reviewas is the case under UK GAAP. ii Under UK GAAP, the Group accounts for jointly administered arrangements ona proportional basis and capitalises interest on its share of the cost ofproperties in the course of development. Under IFRS, all such arrangements withthird parties are included in the financial statements on an equity accountedbasis. As a result, interest previously capitalised under UK GAAP in thetransitional period was reversed, giving rise to a higher profit on sale underIFRS in the current period but a lower comparative figure. iii As noted above, the present value of the liability element of the Group'sconvertible loan stock is deemed to have been estimated at the date of issueusing an appropriate rate of discount. Interest is charged at this rate to theincome statement during the life of the obligation. iv Under IFRS, leasehold property interests are accounted for as financeleases. The liability under these leases is recognised as the present value ofthe minimum lease payments at the date of inception or acquisition of the lease. Part of the rent payable under the lease is treated as a finance charge basedon the discount rate used in this calculation. 4. Reconciliation of equity reported under UK GAAP to equity under IFRS Unaudited Unaudited Unaudited Unaudited As at As at As at As at 30 Sept 2005 30 Sept 2004 31 March 31 March 2005 2004 Notes £000 £000 £000 £000 ________ ________ ________ ________Equity shareholders' funds under UK GAAP 626,252 524,606 638,261 523,513IFRS adjustments:Obligations under finance leases i 20,587 18,481 11,549 18,776Leasehold property interests i (20,587) (18,481) (11,549) (18,776)Deferred tax on revaluation gains ii (75,318) (58,513) (75,453) (58,249)Equity element of convertible loan iii 786 786 786 786stockAdditional interest on convertible loan iii (631) (541) (583) (498)stockAdjustment to interest capitalised iv (223) (327) (407) (223)Exclusion of dividend v 4,184 3,561 8,700 7,757 _______ _______ _______ ________Equity shareholders' funds under IFRS 555,050 469,572 571,304 473,086 ====== ====== ====== ======= Notes: i Interests in leasehold properties are accounted for as finance leasesunder IFRS and the obligation to the freeholder or superior leaseholder isincluded within non-current liabilities, calculated as the present value of theminimum lease payments at the inception of the lease. Investment anddevelopment properties are valued net of this obligation, so an amountequivalent to the obligation is included in the balance sheet as a non-currentasset. An element of the rent payable is treated as interest and a partrepayment of the obligation to the freeholder or superior leaseholder. ii Under IFRS, deferred tax provisions are made for the tax that wouldpotentially be payable on the sale of investment and development properties andother assets where the carrying value is different from their cost for taxpurposes. UK GAAP requires that this potential liability is disclosed ascontingent tax but not provided for in the balance sheet. iii Under IFRS, the present value of the Group's convertible loan stock isregarded as having been estimated at the date of issue using an appropriate rateof discount and this amount is reflected in the balance sheet under non-currentliabilities with the equity included in the equity section. Interest is chargedat this rate to the income statement during the life of the obligation. UnderUK GAAP, convertible loan stock is included under non-current liabilities. iv Under IFRS, the Group has elected to account for jointly administeredarrangements as joint ventures and accordingly, interest previously capitalisedon development expenditure under the proportional basis of accounting adoptedunder UK GAAP has been reversed. v Under IFRS, unapproved dividends are not provided for. Under UK GAAP,proposed dividends are shown as a liability in the balance sheet. 5. Discontinued activity The discontinued activity relates to the operation of Wembley Arena, which hasbeen subject to a reconstruction programme, and its temporary replacement, thePavilion. Agreement has now been reached with Clear Channel Entertainment whichwill undertake the management of the Arena on its re-opening in April 2006. 6. Administrative expenses Unaudited Unaudited Unaudited Six months ended Six months ended Year ended 30 Sept 2005 30 Sept 2004 31 March 2005 £000 £000 £000 _______ _______ _______ Directors' remuneration 2,979 2,138 2,853Staff costs 8,564 5,415 10,657Legal and professional fees 977 1,333 2,258Office costs 941 1,332 2,477Depreciation 166 171 441Loss (profit) on disposal of fixed 6 (5) -assetsOperating lease payments 102 - 302General expenses 145 223 298 _______ _______ _______ 13,880 10,607 19,286 ====== ====== ====== 7. Net finance expenses The 2004 interest charge included an amount written off on re-financing of£1,969,000 in respect of borrowing costs previously capitalised and a profit of£630,000 which arose on the termination of certain swap arrangements. In accordance with IAS 39, 'Financial Instruments: Recognition and Measurement',the Group has reviewed its interest rate hedges in existence as at 30 September2005 along with those in its joint ventures. As assessed by J C RathboneAssociates, movements in fair value since 31 March 2005 of the elements of thoseviewed as effective have been recognised through equity while all othermovements are reflected in the income statement. The impact of the adoption of IAS 39 on these numbers as at 30 September 2005has been as follows: £000 _______ Restatement of opening equity 8,321 Recognised in income statement in period 1,590Recognised in equity in period 4,499 _______ 14,410Tax credit (4,022) _______ 10,388 ====== Interest rate hedges within joint ventures are viewed as effective and somovements in fair value have been recognised through equity. These totalled£440,000 before tax at 30 September 2005 (£308,000 after tax) and are includedwithin the above total. 8. Tax 31 March 2005 Opening Payments Recognised Recognised 30 Sept 2005 adjustment in period in income in equity £000 £000 £000 £000 £000 £000 _______ _______ _______ _______ _______ _______ Current tax 6,497 - (4,753) 169 (935) 978 ====== ====== ====== ====== ====== ====== Deferred tax:Revaluation gains on investment 17,984 - - (308) - 17,676propertiesRevaluation gains ondevelopment properties 57,410 - - - 935 58,345Other items 5,152 - - 638 - 5,790 _______ _______ _______ _______ _______ _______ 80,546 - - 330 935 81,811 Fair value adjustments to - (2,496) - (176) (1,350) (4,022)interest rate swaps _______ _______ _______ _______ _______ _______ 80,546 (2,496) - 154 (415) 77,789 ====== ====== ====== ====== ====== ====== The tax charge in the period reflects the benefit of available losses,capitalised interest and balancing allowances arising on disposals. 9. Earnings per share Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Six months Six months Six months Six months Six months Six months Year Year Year ended ended ended ended ended ended ended ended ended 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 31 March 31 March 31 March 2005 2005 2005 2004 2004 2004 2005 2005 2005 Profit Average Earnings Profit Average Earnings Profit Average Earnings for the weighted per for the weighted per for the weighted per financial number share financial number share financial number share period of shares period of shares year of shares £000 000 pence £000 000 pence £000 000 pence ______ _______ _____ ______ _______ _____ ______ _______ _____ (i)Afterdiscontinuedactivities Basic 1,777 128,903 1.4 3,709 129,332 2.9 41,559 129,349 32.1 === === ====Adjustments:8%Convertible 84 2,000 84 2,000 168 2,000 loan stockEmployeeshare - 1,121 - - - 1,031 plans ______ _______ _____ _______ ______ _______Diluted 1,861 132,024 1.4 3,793 131,332 2.9 41,727 132,380 31.5 ===== ====== === ===== ====== === ===== ====== ====(ii)Beforediscontinuedactivities Basic 4,299 128,903 3.3 2,493 129,332 1.9 39,305 129,349 30.4 === === ====Adjustments:8%Convertible 84 2,000 84 2,000 168 2,000 loan stockEmployeeshare - 1,121 - - - 1,031 plans ______ _______ _____ _______ ______ _______Diluted 4,383 132,024 3.3 2,577 131,332 2.0 39,473 132,380 29.8 ===== ====== === ===== ====== === ===== ====== ==== Profit before discontinued activities shown above excludes the gross (loss)profit in respect of the operation of Wembley Arena, and its temporaryreplacement the Pavilion, net of tax at the Group's effective current tax rate. 10. Dividends The proposed interim dividend of 3.25p (2004: 2.75p) per ordinary share wasapproved by the Board on 29 November 2005 and is payable on 18 January 2006 toshareholders on the register at the close of business on 16 December 2005. Thedividend has not been included as a liability as at 30 September 2005. The final dividend of £8,683,000 for the year ended 31 March 2005, representing6.75p per share, was paid on 8 September 2005 and is included in theconsolidated statement of changes in equity. 11. Investment and development properties Investment and development properties are valued annually at the end of eachfinancial year and are shown in the balance sheet as at 30 September 2005 at theprevious year end valuations adjusted for subsequent expenditure and disposals. In the case of leasehold properties, book values have been grossed up for theliabilities to superior landlords and a corresponding adjustment, shown asobligations under finance leases, has been included in the balance sheet withinnon-current liabilities. 12. Fair value of financial assets and liabilities Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited As at As at As at As at As at As at 30 Sept 2005 30 Sept 2005 30 Sept 2004 30 Sept 2004 31 March 31 March 2005 2005 Book value Fair value Book value Fair value Book value Fair value £000 £000 £000 £000 £000 £000 _______ _______ _______ _______ _______ _______Current liabilities: Bank loans 48 49 88Non-current liabilities:Bank loans 228,375 258,434 169,383Other borrowings 7,715 7,625 7,667 _______ _______ _______ _______ _______ _______ 236,138 236,545 266,108 266,950 177,138 177,513Unamortised borrowing costs (2,389) (2,389) (2,545) (2,545) (2,363) (2,363) _______ _______ _______ _______ _______ _______Total borrowings 233,749 234,156 263,563 264,405 174,775 175,150 ====== ====== ====== ====== ====== ====== Current liabilities:Interest rate swaps 13,970 13,970 - - - - ====== ====== ====== ====== ====== ====== The fair value of the Group's borrowings has been estimated by J C RathboneAssociates on the basis of quoted market prices. The fair values of the Group'soutstanding interest rate swaps have been estimated by calculating the presentvalues of future cash flows, using appropriate market discount rates. The fair value of the Group's cash balances and those of other debtors andcreditors equate to their book values. 13. Issued capital Number Nominal of shares value 000 £000 _______ _______ Shares in issue as at 1 April 2005 129,191 32,298Issue of shares under Staff Share Option Schemes 93 23Purchase and cancellation of own shares (20) (5) _______ _______Shares in issue as at 30 September 2005 129,264 32,316 ====== ====== During the period, 200,000 of Quintain's own shares were purchased and heldthrough The Quintain Group Employee Benefit Trust making a total of 500,000 ofthe Company's shares held by the Trust. 14. Net asset value per share Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited As at As at As at As at As at As at As at As at As at 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 30 Sept 31 March 31 March 31 March 2005 2005 2005 2004 2004 2004 2005 2005 2005 Net Number Net asset Net Number Net asset Net Number Net asset assets of shares value assets of shares value assets of shares value per share per share per share £000 000 pence £000 000 pence £000 000 pence _______ _______ ____ _______ _______ ____ _______ _______ ____ Basic 555,050 128,764 431 469,572 129,507 363 571,304 128,891 443 === === ===Adjustments: 8%Convertible 3,000 2,000 3,000 2,000 3,000 2,000 loan stockEmployeeshare 10,364 3,180 8,777 2,799 9,310 2,919 plans _______ _______ _______ _______ _______ _______Diluted 568,414 133,944 424 481,349 134,306 358 583,614 133,810 436 ====== ====== === ====== ====== === ====== ====== === The number of shares excludes those held in The Quintain Group Employee BenefitTrust. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Quadrise