9th Dec 2005 07:01
Warner Estate Holdings PLC09 December 2005 WARNER ESTATE LIFTS DIVIDEND 9% AS PROPERTY UNDER MANAGEMENT JUMPS TO OVER £2BILLION Warner Estate Holdings PLC ("Warner Estate") the property investment,development and fund management group has announced its interim results for thesix months to 30 September 2005. Financial Highlights • Adjusted net asset value per share up 11% to 658p(1)• Net asset value per share up 8% to 583p• Triple net asset value per share up 8% to 597p(2)• Property owned and under management up 95% to £2.1billion• Commercial rent roll under management £135m• Recurring earnings per share 9.5p (September 2004 10.3p restated)(3)• Earnings per share 52.3p (September 2004 48.7 restated)• Interim dividend up 9% to 9.5p Business Highlights • Successful acquisition and integration of Ashtenne Holdings PLC• Group share of goodwill on acquisition of Ashtenne substantially less than anticipated• Launch of £256m Apia Regional Office Fund with Morley Fund Management (1) Adjusted for deferred tax on revaluation gains and other items per TABLE 6(2) Adjusted as in 1 and for potential deferred tax and fair value of debt per TABLE 6(3) Adjusted for net gains on investment properties and other items per TABLE 4 Philip Warner, Chairman of Warner Estate commented: " Warner Estate is making very encouraging progress. The integration ofAshtenne has been completed and we now have over £2billion of property undermanagement. " Since the period end, we have accelerated our progress, buying and selling£657 million of property. We have established a fifth fund, the Agora Max Fund,which will focus on owning and adding value to sub regional shopping centres andmade its first acquisition, the £152 million Pallasades Shopping Centre incentral Birmingham. " I am confident we have the right team in place with the experience and flairto ensure further progress in the current year." -ends- Date: 9 December 2005 For further information contact: Warner Estate Holdings PLC cityProfilePhilip Warner, Chairman Simon CourtenayPeter Collins, Finance Director Tel: 020-7488-3244Richard Moore, Property DirectorMichael Stevens, Operations DirectorTel: 020-7907-5100Web: www.warnerestate.co.uk Chairman's Statement Growth and activity have continued unabated throughout the first six months to30 September 2005, producing a very respectable 11% rise in adjusted net assetvalue (8% rise in NAV). Property assets under management now exceed £2bn andthe like for like revaluation uplift on properties (including our share of jointventures) over the period was 5%. Since 30 September, a further £657m ofpurchases and sales have been made in respect of both our wholly owned Coreportfolio and funds under management. In June 2005, the £256m Apia regional office fund was established with MorleyFund Management and in the same month the purchase of Ashtenne Holdings PLC wascompleted by Industrial Funds Ltd (IFL), our joint venture with Anglo IrishBank. In October 2005, the Agora Max Jersey Property Unit Trust, a sub regionalshopping centre fund in partnership with Bank of Scotland, was established withthe purchase for £152m of The Pallasades shopping centre in Birmingham. InNovember 2005, as part of a £159m purchase from the Co-operative InsuranceSociety (CIS), a further seven properties were acquired for the Apia regionaloffice fund for £120m. Also in November 2005, The Square Shopping Centre in Salewas sold by our Agora shopping centre fund for £40m, generating both a profitfor the fund and a performance fee for the Group. I am particularly pleased toreport that earlier this month we bought Anglo Irish's 50% stake in IFL for£0.35m, thereby completing the integration of Ashtenne several months ahead ofplan. IFRS This is the first set of results prepared by the Group under InternationalFinancial Reporting Standards (IFRS), as adopted in the EU, and their appearanceis very different to those previously reported. This is mainly becauseunrealised revaluation gains and losses are now shown as profit and loss accountitems rather than reserve movements with only a balance sheet impact. However,this is purely presentational and has no impact on cash flow. This statementincludes a significant number of tables in order to show how these results wouldhave looked if reported as previously, and the section "Reconciliations betweenIFRS and UK GAAP" includes a description of the main changes. The Group has made a decision in presenting these results not to reconcile backto UK GAAP numbers because the results which management formerly concentrated onwere those where adjustments had been made to the UK GAAP figures. Theseadjusted numbers more accurately reflect management's view of the Group'sperformance. The results as required under IFRS for the period to 30 September 2005 alongwith the restatement of the comparatives for the periods to 30 September 2004and 31 March 2005 have been produced as one document. The restatement of theopening balance sheet for IFRS purposes as at 31 March 2004 and an explanationof the adjustments required under IFRS are also contained in this document. RESULTS In the six months to September, adjusted NAV per share increased by 11% from592p to 658p with the NAV by 8% from 540p to 583p. Triple net asset value(TNAV), on which the Group assesses its total return, also rose by 8% from 551pto 597p. Although the NAV under IFRS incorporates some of the adjustments wemade for previously reported TNAV, there are some fundamental differences. Thetreatment of deferred tax under IFRS on revaluation gains does not allowmitigation through tax planning. In addition, we have to treat an element ofour property portfolio as finance leases, which reduce net asset value. Alsodividends are only charged on payment and therefore are no longer accrued. It was reported in June that the post balance sheet effect of the purchase ofAshtenne would leave IFL owning a business costing circa £50m, of which at thetime £22m was estimated to be goodwill, being the value attributable to the fundmanagement business. However, we have been able to dispose of surplus Ashtenneassets in the period, which together with the fair valuing of the remainingassets has reduced the total goodwill to circa £7m. Nevertheless, the realvalue of this business to Warner Estate has been maintained, if not increased,following its successful integration. Pre-tax profits have increased by £5.4m to £35.8m (September 2004: £30.4m). Thereason for the large increase in these figures compared to previously reportedperiods is because under IFRS all unrealised revaluation gains or losses oninvestment properties and investments are included in the income statement; inaddition the change in fair value of derivative financial instruments isincluded. The share of profit from joint ventures includes their ownrevaluation gains or losses and fair value adjustments to derivatives, and theGroup share of the joint venture results is now shown post tax, whichincorporates deferred tax as explained further below. Recurring pre-tax profits, excluding unrealised gains, were £6.4m against £6.8m(as restated) for the comparable period last year; this decrease is mainly dueto a reduction in investment income where dividends have been received post 30September which have previously been received in the first half. Operating profit before net gain on investments which excludes the effect of netfinance expense which is broadly similar to the prior period, was £8.7m(September 2004: £11.0m). This fall in profits is mainly as a result of thecosts of setting up the Apia regional office fund (£2.4m). Since September transactions have generated capital profits of £4.9m, which havebeen recognised as unrealised profits in the September results, and some £2m ofperformance fees arising on certain of these transactions. The Board has increased the interim dividend to 9.50p against 8.75p last year, a9% increase which reflects our confidence in the underlying performance of theGroup and ignores the impact of the one-off items. The dividend is covered 1.0times by recurring earnings (September 2004: 1.15 times) and will be paid on 24February 2006 to shareholders on the register at close of business on 25 January2006. PROPERTY The considerable activity experienced throughout last year has continued acrosseach area of business. Our relationship with Bride Hall has seen developmentprojects commence in shopping centres at Middleton and Folkestone, where weanticipate generating increased income streams, complementing our ongoing activeasset management initiatives. We expect our shopping centre extensions atBirkenhead, Preston, Bolton and Middleton (Phase II) to follow. Key Statistics TABLE 1Total Total under management Wholly owned* 30 September 2005 31 March 2005 30 September 2005 31 March 2005 Capital Value £2,109m £1,077m £325m £327mAnnualised rent roll £135.5m £72.8m £21.4m £23.7mInitial Yield 6.1% 6.5% 6.2% 6.9%Average Unexpired 6.0yrs 9.4 yrs 10.3yrs 10.6 yrsLease TermVoid Rate 9% 3% 4% 4%Number of Properties 534 104 70 72Average Lot Size £3.95m £10.36m £4.64m £4.54m * Investment properties only The breakdown by sector at 30 September 2005 was as follows: TABLE 2 Annual Net No. of Rent initial Properties Value Roll ERV yield Weighting £m £m £mRetailRetail Warehouses 6 24.6 1.8High Street 10 63.7 3.7Retail sub total 16 88.3 5.5 5.8 5.27% 27%OfficesLondon 3 9.8 0.8South East 16 74.0 5.0Rest of UK 8 32.2 2.3Offices sub total 27 116.0 8.1 8.8 6.61% 36%Distribution and IndustrialLondon 4 13.4 0.9South East 9 42.2 3.1South West 2 7.3 0.6Midlands and North 11 46.9 3.2Distribution & Industrial 26 109.8 7.8 8.4 6.86% 34%sub totalDevelopment 1 11.0 - - - 3%Total 70 325.1 21.4 23.0 6.28% 100% Trading 4 5.4 0.4 0.8 3.88% Total directly held 74 330.5 21.8 23.8FundsAgora Shopping Centres 7 400.2 23.5 28.8 5.53%Radial Distribution 10 170.7 11.3 11.6 6.26%Bareway Industrial 4 28.8 2.0 2.1 6.66%Industrial Funds (Ashtenne) 27 39.8 1.7 1.7 4.04%Apia Regional Offices 13 261.4 17.3 19.9 6.21%t3 Trade Parks 32 94.6 5.4 6.3 6.29%Ashtenne Industrial 367 783.3 52.5 64.7 6.34%Total under management 534 2,109.3 135.5 158.9 PROPERTY FUNDS These funds are held as investments either directly by the Group or through theGroup's joint ventures. The Ashtenne Industrial Fund (AIF)Value - £783m (Valuers: King Sturge)Rental Income - £52.5m pa Under Mark Ovens' leadership, the AIF team moved into the Group's head office inJuly and has continued to expand and enhance this fund, which invests inmulti-let industrial estates across the country, from regional offices inGlasgow, Newcastle, Preston, Birmingham, Leeds and Cardiff. The Group directlypurchased a further £12m of units in this Fund in August. AIF, which runs on acalendar year, has recorded a return to September 2005 of 17.9% and over the 12months to September 2005 of 27.6%, both healthily over benchmark. In November,AIF purchased the assets in our Bareway industrial joint venture with Barclaysfor £28.9m and £51.1m of industrial property from our wholly owned Coreportfolio. t3 Trade Park FundValued at net disposal proceeds £95m Shortly after the acquisition in May of Ashtenne Holdings PLC, the t3 fund wasmarketed for disposal and in November, sold for £96m on a rent roll of £5.4m pa. APIA Regional Office FundValue - £261m (DTZ)Rental income - £17.3m pa The properties from our former joint venture with Royal Bank of Scotland (knownas the Skipper Fund) were combined with four assets from Morley Fund Managementto form the APIA Regional Office Fund which was launched in June as a fullyfledged £256m unitised fund. As part of our asset management role, a newletting of 20,000 sq ft was achieved at Norfolk House, Milton Keynes in August.At Kingston, the Night Club was re-geared, extinguishing the tenant's breakoption in 2010; the entire 16,000 sq ft 3rd floor of Surrey House was let inAugust to Inside Track; and the 5,140 sq ft Roundhouse redevelopment gainedplanning consent in August, subsequently starting on site after pre-letting thewhole to Singways Furniture in September. In November, £120m of new stock wasacquired, the first major step towards the Fund's target of £750m by 2008. PROPERTY JOINT VENTURES AGORA Shopping Centre FundValue - £400m (DTZ)Rental income - £23.5m pa Following an additional planning consent obtained in June for 17,500 sq ft atMiddleton for Phase II, the re-gear of Wilkinsons and Mark One occurred inAugust with an increase in rent of £265,000 pa. In October, the development ofthe 45,000 sq ft Phase I began, with three of the four new units pre-let. AtCavern Court, Liverpool, Direct Line's leases on their existing offices werere-geared with a simultaneous new letting of the last vacant floor of 16,032 sqft to them. Other notable events since 30 September include the disposal of The SquareShopping Centre, Sale, for £40m; and the acquisition into a new Agora Max Fundof the £152m Pallasades Shopping Centre in Birmingham. RADIAL Distribution FundValue - £171m; £163m (DTZ), £8m (Directors)Rental income - £11.3m pa After a simultaneous rent review and underletting to Morrison's of theSainsburys unit at Yate, this asset was sold for £18.5m in August. Further rentreviews were settled above our estimates at two of the units at DIRFT LogisticsPark, Daventry; and the 313,000 sq ft unit let to Tesco at Weybridge achieved arent review of over £8 per sq ft in July, again above our estimate. A 126,000sq ft modern warehouse, let to Panasonic until 2009 and adjacent to their mainfacility, was purchased at Brackmills Park, Northampton for £8m in July. BAREWAY Industrial FundValue - £29m (DTZ)Rental income - £2m pa Following the acquisition of Ashtenne and its principal business, the AshtenneIndustrial Fund, Bareway's similar assets were purchased by the fund in Novemberof this year for £28.9m, focusing our industrial investment and management teamon a single area. Industrial Funds Limited There remain two portfolios, owned by Ashtenne, which are being marketed forsale, as surplus stock:- • Ash UK - a portfolio of 11 predominantly development land sites, of which 9 have been sold post 30 September 2005. • Ash Europe - 3 industrial properties in Germany and Belgium, which have been sold post 30 September 2005. • Sundry joint venture properties in the UK, and 2 further industrial assets in Holland Wholly-Owned Core and Trading PortfoliosValue - Investment - £325m; £312m (C&W H&B), £13m (Directors)Trading - £5m (At cost) The Core portfolio has experienced excellent results. At Hale Leys ShoppingCentre, Aylesbury, Zone A rents have advanced from £80 to £91 per sq ft with newlettings to Clinton Cards and Julian Graves. A capital value uplift of £850,000was recorded at Swift Park, Rugby after a new letting to Volvo Trucks and withover 60% of St John's House, Leicester, now let to the Secretary of State anincrease in value of £800,000 was achieved. A retail warehouse at Ham Road, Worthing, let to MFI was sold in June for £8.6mand, as reported above, in November £51.1m of industrial investments were soldto the Ashtenne Industrial Fund. Work started on the new 200,000 sq ft BouveriePlace Shopping Centre in Folkestone with Bride Hall in November. Also inNovember, the Core acquired The Royals Shopping Centre, Southend, for £46m aspart of the purchase from the CIS along with a portfolio of 105 leasehold officeproperties across the UK formerly occupied by CIS as their local office network. FINANCE The Group measures its performance on a total return that incorporates bothrealised profits and net revaluation surpluses achieved on shareholders triplenet asset funds. Whilst a total return under IFRS is very similar to theGroup's previously reported total return calculation there is a fundamentaldifference in the treatment of deferred tax, finance lease assets and dividendspayable as outlined above. TABLE 3 Return: 30.9.2005 30.9.2004 31.3.2005 £m £m £m Profit for the period 27.7 24.5 45.0(Less) / add back effect of treating investment (0.3) 0.2 0.8properties as finance leasesAdd back deferred tax on revaluation gains 11.7 6.8 9.3(including JVs)Add back fair value adjustments on derivative 2.2 0.1 0.8financial instrumentsAdd other IFRS adjustments 0.1 0.3 0.2 41.4 31.9 56.1Deferred tax arising on unrealised gains (8.8) (3.6) (9.5)Change in fair value of debt, net of tax (2.8) 0.8 0.6Total return for the period 29.8 29.1 47.2Shareholders' triple net asset funds at start of period 277.7 239.7 239.7Annualised return on shareholders' triple net asset funds 21.6% 24.3% 19.7% This shows a small decline in total return in the comparable six months.However, as the analysis shows, the contribution from profits has fallensubstantially due mainly to the costs of establishing Apia. It should also benoted that the disposal of surplus assets at Ashtenne has reduced the overallpurchase cost of this business. The benefits arising from this more than offsetthe direct costs of integrating Ashtenne. Without these costs the total returnwould have been similar to the comparable period last year. Furthermore, forthe first time in a number of years the fair value of debt has reduced which isa reflection of the fact that LIBOR has come down over the last 12 months byapproximately 100 basis points. Results TABLE 4 Profit before tax reconciliation 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000 Recurring profit 6,384 6,789 14,618Non-recurring revenue (loss) / profit (including (1,570) 1,212 -trading)JV taxation (4,147) (2,868) (3,471)Profit on sale of investment properties & 286 913 7,675investments (Group & JV)Net gain from fair value adjustment on investment 38,201 24,675 37,798properties & investments (Group & JV)Change in fair value of derivative financial (3,143) (89) (1,088)instruments (Group & JV)Effect of investment properties treated as finance (143) (135) (274)leasesCost of employee share option schemes (57) (47) (95)Profit before income tax 35,811 30,450 55,163 The above table shows the results reconciled back to our view of recurringprofit. This recurring profitability is though somewhat distorted because thisyear all the investment income that the Group receives from its quotedinvestments will come in the second half of the year. In addition, theperformance fees expected to be earned on Agora which commenced last year willalso occur in the second half of the year. In addition, I draw your attentionto the unrealised profits now included in the Group's results of which some£4.9m has been realised since 30 September by disposals as described in the postbalance sheet events section below. In June of this year, the properties from the Skipper joint venture werecombined with four properties from Morley to form the Apia Regional Office Fund. Our units in this fund are treated as an investment on our balance sheet, andany income receivable is treated as distributions receivable from unlistedinvestments. Any revaluations are taken through the income statement as netgains from fair value adjustments on fixed asset investments. At the end of August we acquired units in the Ashtenne Industrial Fund (AIF),and our 2.86% directly held share is treated as an investment. A summary of the results is shown in the table below: TABLE 5 Unlisted investments Listed investments Apia AIF Total £'000 £'000 £'000 £'000 Income from fixed assets investment per note 6 25 313 53 391Net gain from fair value adjustment on fixed 3,695 2,617 31 6,343asset investments per income statement Earnings Per Share Earnings per share were 52p (September 2004 49p), and the recurring earningsper share excluding the unrealised surpluses and one-off profits or losses were9.5p (September 2004 10.3p restated). Balance Sheet The shareholders' funds of the Group under IFRS are substantially different fromUK GAAP although as previously advised not materially different from TNAV. Asat 30 September 2005, equity shareholders' funds were £309.0m (March 2005£272.1m) an increase of 8% in the half year, when the impact of the £13.6m ofadditional equity raised through the placing is excluded, whilst adjustedshareholders' funds on the same basis (shown in the table below) rose by 12% to£348.4m (March 2005 £298.3m). In terms of the adjusted shareholders' funds,this uplift is after deducting the proposed interim dividend of £5.1m (9.5p pershare) which, if included, gives an overall uplift of 13.9% in the half year.In IFRS terms the Group's NAV per share is 583p (March 2005 540p), whilstadjusted NAV per share is 658p (March 2005 592p) and TNAV is 597p (March 2005551p). TABLE 6 30 September 2005 30 September 2004 31 March 2005 Pence per Pence per Pence per £m share £m share £m share Shareholders' funds under IFRS 309.0 583.3 255.9 507.9 272.1 539.9Add back deferred tax on revaluation 39.3 74.1 25.1 49.6 27.6 54.7gains (including JVs)Add back effects of treating 3.3 6.2 3.0 6.0 3.6 7.1investment properties as financeleasesLess proposed dividend (5.1) (9.5) (4.4) (8.7) (4.8) (9.5)Add back / (less) fair value 1.2 2.3 (1.7) (3.4) (1.0) (2.0)adjustments on derivative financialinstrumentsAdd other IFRS adjustments 0.7 1.3 0.6 1.2 0.8 1.6Adjusted shareholders' funds 348.4 657.7 278.5 552.6 298.3 591.8Less potential deferred tax (24.5) (46.3) (9.8) (19.3) (15.7) (31.1)Less fair value adjustment net of tax (7.7) (14.5) (4.7) (9.4) (4.9) (9.8)on debtShareholders' triple net asset funds 316.2 596.9 264.0 523.9 277.7 550.9 The majority of the uplift in the period has arisen from revaluation surplusesin the Group and in the joint ventures totalling £38.2m, of which £31.1m relatesto investment property and £7.1m to investments. TABLE 7 Total under Share of joint management including Directly held ventures Total funds £m £m £m £m Investment property 326.6 371.2 697.8 1,069.0Trading property 8.2 - 8.2 8.2At 31 March 2005 334.8 371.2 706.0 1,077.2Investment property 314.1 313.8 627.9 2,092.9Properties under the course of 11.0 - 11.0 11.0developmentTrading property 5.4 - 5.4 5.4At 30 September 2005 330.5 313.8 644.3 2,109.3Movement in yearRevaluation 15.4 16.1 31.5Net disposals (19.7) (73.5) (93.2)Total (4.3) (57.4) (61.7) Borrowings The presentation of borrowings in the accounts as prepared under IFRS ismaterially different in that cash previously offset against borrowings is nowshown separately, although there has been no actual change in the Group's netdebt. The table below shows the breakdown of debt at 30 September 2005 comparedto that at 31 March 2005. The key change is that, as advised at March, we werein the process of restructuring the Group debt and so some £57.5m of debt thatwas shown as short term debt in March has now been restructured as long termdebt. In addition, the Group has negotiated a £60m 3-year revolving workingcapital facility in order to provide greater financial flexibility. TABLE 8 Share of joint On balance sheet ventures Total £m £m £m Net short-term debt 13.9 53.8 67.7Long-term debt 179.3 227.9 407.2Total net debt at 30 September 2005 193.2 281.7 474.9Of whichTotal net recourse debt 138.5 9.1 147.6Long-term non-recourse debt 54.7 272.6 327.3Gearing (on adjusted shareholder' funds) 55% 136%Recourse gearing 40% 43%Total net debt at 31 March 2005 153.0 323.1 476.1Gearing (on adjusted shareholders' funds) 51% 160%Recourse gearing 33% 35% Cash Flow The cash flow statement is the one area under IFRS which is not materiallydifferent, except presentationally, to that previously reported. During theperiod cash generated from operations was £4.4m (September 2004 £21.0mrestated). The reduction in the net cash inflow is largely due to theacquisition of a subsidiary which contained £10m in cash which was offset bymovements in debtors and creditors and a fall in receipts from the disposal oftrading properties of £5.1m. If this effect is adjusted, the Group generates anet inflow from operating activities during the period of £11.8m (September 2004£13.0m). This is cash generated excluding any property additions and disposals,to pay interest, tax and dividends. The main flows resulting in the net outflow of £61.8m arose through purchases ofinvestment properties of £11.1m, investments made in Apia and the AshtenneIndustrial Fund of £56.1m, investments in joint ventures of £46.7m offset bysales of investment properties of £28.0m and loans repaid and dividends receivedfrom joint ventures of £30.9m. In addition the placing of shares during theperiod raised £13.6m and restructuring of the Group's debt resulted in anoutflow of £22.1m. Since the end of September, the Group and its joint ventures have carried out aseries of transactions the net effect of which has been a net outflow of fundsto the Group of £30m. The impact of the post balance sheet events has been toincrease Group gearing on adjusted shareholders funds to 64%. Post Balance Sheet Events Since 30 September 2005 the Group has continued with its programme of realigningits assets and those of its funds and joint ventures, the most significant ofwhich have been: 1. The purchase of The Pallasades Shopping Centre for £152m in a Jersey Property Unit Trust (JPUT) in October and the transfer of the Agora properties in Birkenhead into JPUTs. 2. We have disposed of the Sale Shopping Centre from our Agora Shopping Centre joint venture for £40m, an uplift on the value at 31 March 2005 of £10m before costs. 3. As a result of the purchase of Ashtenne by IFL, there has been a programme of disposal of non-Core assets continuing after 30 September 2005 which has now largely concluded. This has allowed us to complete the integration of the Ashtenne fund management business into the Group and purchase the remaining half share in IFL not owned by the Group. Also as part of this process because of a non-compete clause in the Ashtenne Industrial Fund (AIF) the assets in the Bareway joint venture and some of the Group's industrial assets were sold for £80m to AIF in late November. 4. The Apia Regional Office Fund has recently exchanged contracts on a portfolio of properties with the Co-operative Insurance Society (CIS) which consists of seven regional office buildings valued at £120m. As a result of this purchase the Apia Fund now has a value of some £380m which is well on the way to its target of £750m of property assets under management by 2008. At the same time the Group purchased from CIS a £46m shopping centre in Southend, seven small freehold office assets for £6m and a leasehold liability portfolio with a value of £13.3m. The impact of these transactions in terms of the total property under managementand the mix of that portfolio are shown in the table below: TABLE 9 30 September Post Interim December 2005 Disposals Acquisitions Note 2005 £m £m £m £m Core 331 (51) 52 1 332Agora 400 (39) - 2 361Agora Max - - 152 3 152Apia 261 - 120 4 381AIF 783 (12) 80 5 851Ashtenne - t3 95 (95) - 6 -Radial 171 - - - 171Bareway 29 (29) - 7 -Ashtenne - non core 39 (23) 4 8 20Total 2,109 (249) 408 2,268 Notes: 1. Core - disposal of 12 industrial assets to AIF and the purchase of The Royals shopping centre, Southend, and 7 office properties from CIS. 2. Agora - disposal of The Square Shopping Centre, Sale. 3. Agora Max - purchase of The Pallasades Shopping Centre, Birmingham. 4. Apia - purchase of 7 office properties from CIS. 5. AIF - disposal of a portfolio of North West properties. Purchase of 12 industrial properties from Warner core and the 4 from the Bareway Industrial Fund. 6. Ashtenne t3 - disposal of all assets. 7. Bareway - disposal of all assets to AIF. 8. Ashtenne non core - purchase of Hazeldonk 6710, Breda. Disposal of 9 UK, 1 JV and 3 European properties. Prospects Property continues to perform well, doubtless aided by the quarter point cut ininterest rates in August. Demand from investors remains strong, as much forfunds as for direct property, and returns from property have maintained theirfavourable comparison with other asset classes. Although in June I sounded anote of caution about yields, they continue to harden and I now direct thatcaution towards 2006. The Chancellor's reference to Real Estate InvestmentTrusts (REITS) in his Pre-budget Statement was encouraging, although we continueto await further details, particularly of conversion costs. We seek to buildand to add value to our funds and our attention is directed at the U.K.However, although we are disposing of the European assets which we acquiredthrough the purchase of Ashtenne, a move towards Europe in the future has notbeen ruled out. Despite a weakening economy, I am confident that our focus onasset management combined with a positive property market will ensure furtherprogress in the current year. SIGNIFICANT EVENTS DURING SIX MONTH PERIOD TO 30 SEPTEMBER 2004 Warner Estate Holdings PLC Key Highlights Date Detail Category April 2005 5% placing of shares in Warner Estate Holdings PLC to part finance the Core acquisition of Ashtenne Holdings PLC April 2005 Purchase of Townsend Farm Industrial Estate, Dunstable by Bareway Joint venture Industrial joint venture for £5.5m May 2005 Offer to acquire Ashtenne Holdings PLC is declared unconditional Joint venture June 2005 £256m APIA Regional Office Fund established in conjunction with Morley Funds Asset Management which combined the Skipper Offices properties and Westgate, Bristol from the Core Portfolio with Morley's existing £63m portfolio of offices. Warner has 34.83% investment in the Fund. June 2005 Sale of 120 Ham Road, Worthing for £8.6m Core Investment Property July 2005 Completion of acquisition of Ashtenne Holdings PLC by Industrial Funds Joint venture Ltd August 2005 Purchase of "Immanis" at Brackmills Distribution Park, Northampton by Joint venture Radial Distribution joint venture for £8m August 2005 Purchase of 7,993,098 units in Ashtenne Industrial Fund for £12m, Core Investment representing 2.69% of the Fund to add to 5.168% owned by Ashtenne September 2005 Sale of Great Western Business Park, Yate by Radial Distribution joint Joint venture venture for £18.55m Post 30 September 2005 Date Details Category October 2005 Establishment of Agora Max Shopping Centre Fund and the purchase of Joint venture The Pallasades Shopping Centre via a Jersey Unit Trust for £152m October 2005 Sale of land at Pollards Lane, Leeds by Industrial Funds Ltd for £7.2m Joint venture November 2005 Sale of all industrial properties owned by t3, in which Industrial Joint venture Funds Ltd had a 17% stake, for £96m November 2005 Sale of The Square Shopping Centre, Sale by Agora Shopping Centres Joint venture joint venture for £40m November 2005 Consideration of £14m received in settlement of offer by Kellen Core Investment Acquisitions Ltd for shares in East Surrey Holdings plc November 2005 Sale of all industrial properties owned by Bareway Industrial joint Joint venture venture to Ashtenne Industrial Fund for £29m November 2005 Sale of industrial portfolio to Ashtenne Industrial Fund for £51m Core Investment Property November 2005 Purchase of The Royals Shopping Centre in Southend with lease Core Investment liabilities for a net £33m Property November 2005 Purchase of a portfolio of seven regional office buildings by APIA Funds Regional Office Fund for £120m November 2005 Sale of three industrial buildings in Europe by Industrial Funds Ltd Joint venture for £12.7m (€18.4m) December 2005 Sale of a portfolio of buildings and land by Industrial Funds Ltd for Joint venture £9.7m December 2005 Purchase of remaining 50% stake in Industrial Funds Ltd from Anglo Core Investment Irish Bank for £0.35m UNAUDITED CONSOLIDATED INCOME STATEMENT For the six months ended 30 September 2005 Notes 6 months 6 months Year ended ended ended 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000 Revenue 2 18,520 25,897 45,052Rental and similar income 12,176 13,285 26,521Turnover from property trading activities 3,424 10,575 12,446Cost of sales of property trading activities (2,969) (9,242) (10,788)Service charge and similar income 1,490 1,031 2,170Service charge expense and similar charges (1,723) (1,316) (2,773)Net rental and trading income 3 12,398 14,333 27,576Turnover from asset management activities 1,430 1,006 3,915Cost of sales of asset management activities (776) (519) (1,437)Net income from asset management activities 3 654 487 2,478Administrative expenses (1,099) (917) (1,755)Property expenses (3,225) (2,866) (4,453)Operating profit before net gains on investments 3 8,728 11,037 23,846Net gain from fair value adjustments on 15,301 15,006 21,871investment propertiesNet gain / (loss) from fair value adjustment on 6,343 (136) 2,397investmentsProfit on sale of investment properties 5 37 660 2,260Operating profit 30,409 26,567 50,374Finance income 6 3,091 3,554 6,698Finance expense 7 (6,665) (6,691) (14,948)Change in fair value of derivative financial (157) 251 315instrumentsShare of joint ventures' post tax profits 9,133 6,769 12,724Profit before income tax 35,811 30,450 55,163Taxation - current 8 (1,397) (1,941) (4,098)Taxation - deferred 8 (6,689) (3,992) (6,109)Profit for the period 27,725 24,517 44,956Attributable to:Equity holders 27,721 24,517 44,954Minority interests 4 - 2 p p pEarnings per share 9 52.34 48.73 89.20Fully diluted earnings per share 9 52.03 48.58 88.59 UNAUDITED CONSOLIDATED BALANCE SHEET Notes 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000ASSETSNon-current assetsInvestment properties 10 315,141 349,369 327,737Properties under the course of development 10 11,000 - -Plant and equipment 422 387 347Investments in joint ventures 11 127,490 110,866 102,517Investments in listed and unlisted shares 12 78,003 12,985 15,518Investments in associates 13 5,327 5,000 5,327Deferred income tax assets 14 509 510 450Derivative financial assets 1 83 11Trade and other receivables 496 272 350 538,389 479,472 452,257Current assetsInventories 5,363 9,525 8,235Trade and other receivables 12,106 9,880 9,051Cash and cash equivalents 98,240 85,987 109,366 115,709 105,392 126,652Total assets 654,098 584,864 578,909LIABILITIESNon-current liabilitiesBorrowings, including finance leases (270,230) (156,818) (195,638)Derivative financial liabilities (1,378) (1,229) (1,162)Deferred income tax liabilities 14 (26,864) (18,060) (20,112)Retirement benefit obligations 4 (321) (470) (336)Provisions for other liabilities and charges (185) (80) (128) (298,978) (176,657) (217,376)Current liabilitiesBorrowings, including finance leases (22,700) (132,260) (68,269)Trade and other payables (21,517) (16,841) (18,791)Current income tax liabilities (1,946) (3,206) (2,118) (46,163) (152,307) (89,178)Total liabilities (345,141) (328,964) (306,554)Net assets 308,957 255,900 272,355EQUITYCapital and reserves attributable to theCompany's equity holdersShare capital 16 2,675 2,548 2,548Reserves 16 307,345 255,105 271,222Investment in own shares 16 (1,063) (1,753) (1,667)Equity shareholders' funds 308,957 255,900 272,103Minority interest - - 252Total equity 308,957 255,900 272,355 UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE For the six months ended 30 September 2005 6 months 6 months ended ended Year ended 30.09.2005 30.09.2004 31.03.2005 £000 £000 £000 Profit for the period 27,721 24,517 44,954Actuarial (losses) / profits on retirement benefit obligations (21) (53) 50Deferred tax arising on retirement benefit obligations (5) 7 (33)Total recognised income and expense for the period 27,695 24,471 44,971 UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS For the six months ended 30 September 2005 6 months 6 months ended ended Year ended 30.09.2005 30.09.2004 31.03.2005 £000 £000 £000 Opening equity in shareholders' fundsAs previously reported 272,103 246,251 246,251Effect of adopting IFRS - (10,300) (10,300)As restated 272,103 235,951 235,951Shares issued 13,620 - -Acquisition of investment in own shares (76) (150) (169)Disposal of investment in own shares 680 86 191 286,327 235,887 235,973Total recognised income and expense for the period 27,695 24,471 44,971Dividend paid in period (5,065) (4,458) (8,841)Closing equity shareholders funds 308,957 255,900 272,103 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 September 2005 Notes 30 September 30 September 31 March 2005 2004 2005 £'000 £'000 £'000Cash flows from operating activitiesCash generated from operations 17 4,407 21,036 34,195Interest paid (6,559) (6,787) (14,097)Interest received 905 809 6,735UK Corporation tax paid (2,149) (1,408) (3,209)Net cash (outflow) / inflow from operating (3,396) 13,650 23,624activitiesCash flows from investing activitiesPurchase of investment properties and related (11,128) (30,470) (30,963)capital expenditureSale of investment properties 28,062 18,296 46,179Purchase of plant and equipment (137) (19) -Purchase of investments in listed and unlisted (56,142) - -sharesPurchase of investments in associates - (5,000) (5,327)Net cash acquired from purchase of shares in 9,815 - 250subsidiary companyPurchase of shares in joint ventures (275) - (4,175)Sale of shares in joint ventures 100 - 205Loans to joint ventures (46,708) (17,568) (22,440)Loans repaid by joint ventures 29,916 - 23,276Dividends received from listed investments 25 342 533Dividends received from joint ventures 1,000 - -Net cash (outflow) / inflow from investing (45,472) (34,419) 7,538activitiesCash flows from financing activitiesIssue of shares 13,620 - -Purchase of own shares for AESOP scheme (119) (64) (169)Disposal of own shares for share option scheme 681 - -Dividends paid (5,065) (4,418) (8,841)Increase in bank loans 36,390 - -Repayment of bank loans (1,125) (1,150) (2,250)Repayment of mortgages and other loans (57,346) (373) (794)Net cash outflow from financing activities (12,964) (6,005) (12,054)Net (decrease) / increase in cash and cash (61,832) (26,774) 19,108equivalents*Cash and cash equivalents at beginning of period 2,653 (16,455) (16,455)Cash and cash equivalents at end of period (59,179) (43,229) 2,653 * Includes overdraft facility balances shown in borrowings UNAUDITED NOTES TO THE FINANCIAL STATEMENTS 1. TRANSITION TO IFRS In previous periods, Warner Estate Holdings PLC ('Warner Estate' or the 'Group')has prepared its financial statements under UK Generally Accepted AccountingPrinciples ('UK GAAP'). Under European legislation, all companies listed in theEuropean Union ('EU') are required to prepare consolidated financial statementsunder International Financial Reporting Standards as adopted by the EU ('IFRS')for financial periods beginning on or after 1 January 2005. As a result theGroup is required to prepare its consolidated financial statements in accordancewith IFRS. The Group's first full financial statements under IFRS will be forthe year ending 31 March 2006. This report is prepared in accordance with the transitional provisions set outin IFRS 1 - 'First-time Adoption of International Financial Reporting Standards'in order to provide a starting point for reporting under IFRS. The date oftransition to IFRS is 1 April 2004 and all information in these financialstatements has been restated to reflect the Group's adoption of IFRS. The Group has also adopted International Accounting Standards (IAS) 32 "Financial Instruments: Disclosure and Presentation" and IAS 39 "FinancialInstruments: Recognition and Measurement" from 1 April 2004. Advantage has been taken of certain exemptions afforded by IFRS 1 "First-timeadoption of International Financial Reporting Standards" as follows: • Business combinations prior to 1 April 2004; and • The Group has applied IFRS 2 "Share-based Payment" retrospectively only to awards made after 23 June 2003 that had not vested at the balance sheet date. Details with respect to the Group's transition from UK GAAP to IFRS, includingaccounting policies used, reconciliations and descriptions of the effect of thetransition on the Group's net income, equity and cash flows are provided in thesection "Reconciliations between IFRS and UK GAAP". 2. ACCOUNTING POLICIES Basis of preparation The interim consolidated financial statements of the Group for the six months to30 September 2005 are prepared in accordance with the accounting policies setout below. At this stage in the development of IFRS, matters such as the interpretation andapplication of IFRS are continuing to evolve. Standards currently in issue andendorsed by the EU are subject to interpretation by the International FinancialReporting Interpretations Committee ('IFRIC') and further standards may beissued and endorsed by the EU before 31 March 2006. These uncertainties couldresult in the need to change the basis of accounting or presentation of certainfinancial information from that applied in the preparation of this document. Additionally, IFRS is being applied in the United Kingdom and in a large numberof countries simultaneously for the first time. Furthermore, due to a number ofnew and revised standards included within the body of standards that compriseIFRS, there is not yet a significant body of established practice on which todraw in forming options regarding interpretation and application. Accordingly,practice is continuing to evolve. At this preliminary stage, therefore, thefull effect of reporting under IFRS as it will be applied and reported on in theCompany's first IFRS Financial Statements for the year ended 31 March 2006 maybe subject to change. The consolidated financial statements have been prepared under the historicalcost convention, as modified by the revaluation of certain assets andliabilities, which are carried at fair value, and in accordance with those IFRSstandards and IFRIC interpretations issued and effective or issued and earlyadopted as at the time of preparing these accounts. These Interim Financial Statements do not comprise statutory accounts within themeaning of Section 240 of the Companies Act 1985. The statutory accounts for the year ended 31 March 2005 have been delivered tothe Registrar of Companies and include an audit report which was unqualified anddid not contain a statement under either Section 237(2) or 237(3) of theCompanies Act 1985. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates. It also requires management toexercise judgment in the process of applying the Group's accounting policies.Although these estimates are based on management's best knowledge of the amount,events or actions, actual results ultimately may differ from those estimates. Consolidation (a) Subsidiary undertakings Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. The existence and effect of potential voting rights that are currentlyexercisable or convertible are considered when assessing whether the Groupcontrols another entity. Subsidiaries are fully consolidated from the date onwhich control is transferred to the Group. They are de-consolidated from thedate control ceases. All inter-company transactions, balances and unrealisedgains on transactions between Group companies are eliminated upon consolidation. (b) Interests in joint ventures Interests in jointly controlled entities are recognised using the equity method.Unrealised gains and losses on transactions between the Group and its jointventures are eliminated to the extent of the Group's interest in the jointventures. The Group's share of profit of joint ventures represents the Group'sshare of the joint venture's profit after tax. (c) Associates Investments in associates are accounted for using the equity method. Associatesare all entities over which the Group has significant influence but not control,generally accompanying a shareholding of between 20% and 50% of the votingrights. The Group's share of profit of associates represents the Group's shareof the associates profit before tax. The above principles regarding jointventures are also applicable to associated undertakings. Segment reporting The Group's primary reporting format is business activity, being propertyinvestment and asset management. A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. Plant and equipment Plant and equipment is initially measured at cost less subsequent depreciationand impairment. Cost includes expenditure that is directly attributable to theacquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as aseparate asset, as appropriate, only when it is probable that the futureeconomic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. All other repairs and maintenance arecharged to the income statement during the financial period in which they areincurred. Other tangible assets are depreciated by equal annual instalments over theirestimated useful lives of between three and ten years and are carried athistoric cost less accumulated depreciation. Where the carrying amount of a fixed asset is greater than its estimatedrecoverable amount, it is written down immediately to its recoverable amount.Recoverable amount is the higher of fair value less costs to sell and value inuse and is determined for an individual asset. After initial recognition, theitem is carried at its cost less any accumulated depreciation and anyaccumulated impairment losses. Intangible assets (a) Goodwill Goodwill arising on acquisitions before 1 January 2004, the date of transitionto International Financial Reporting Standards, has been retained at theprevious UK GAAP amounts, subject to being tested for impairment at that date.The Group's policy up to and including 28 February 1998 was to eliminategoodwill arising upon acquisitions to reserves. Under IFRS 1 and IFRS 3, suchgoodwill will remain eliminated against reserves and is not included indetermining any subsequent profit or loss on disposal. Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiary /associate at date of acquisition. Goodwill on acquisitions of subsidiaries isincluded in intangible assets. Goodwill on acquisition of associates isincluded in investments in associates. Impairment of assets Assets that have an indefinite useful life are not subject to amortisation andare tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amountis the higher of an asset's fair value less costs to sell and value in use. Forthe purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash flows (cash-generating units).The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Investment property (a) Initial recognition Property that is held for long-term rental yields or for capital appreciation orboth, and that is not occupied by the Group, is classified as investmentproperty. Investment property comprises freehold land, freehold buildings, land held underoperating leases and buildings held under finance leases. When the Group beginsto redevelop an existing investment property for continued future use as aninvestment property, the property remains an investment property and isaccounted for as such. When the Group begins to redevelop an existing investment property with a viewto sale, the property is transferred to trading properties and held as a currentasset. The property is re-measured to fair value as at the date of the transferwith any gain or loss being taken to profit or loss. The re-measured amountbecomes the deemed cost at which the property is then carried in tradingproperties. Property that is being constructed or developed for future use as an investmentproperty, but which has not previously been classified as such, is classified asinvestment property under development within assets under course of development.This is recognised initially at cost but is subsequently re-measured to fairvalue at each reporting date. Any gain or loss on re-measurement is takendirect to equity unless any loss in the period exceeds any net cumulative gainpreviously recognised in equity. In the latter case, the amount by which theloss in the period exceeds the net cumulative gain previously recognised istaken to profit or loss. On completion, the property is transferred toinvestment property with any final difference on re-measurement accounted for inaccordance with the foregoing policy. Land held under operating leases is classified and accounted for as investmentproperty when the rest of the definition of investment property is met. In suchcases, the operating lease is accounted for as if it were a finance lease. Investment property is measured initially at its cost, including relatedtransaction costs. (b) Fair value After initial recognition, investment property is carried at fair value. Fairvalue is based on active market prices, adjusted, if necessary, for anydifference in the nature, location or condition of the specified asset. If thisinformation is not available, the Group uses alternate valuation methods such asrecent prices on less active markets or discounted cash flow projections. Thesevaluations are performed in accordance with the guidance issued by theInternational Valuation Standards Committee. These valuations are reviewed ateach financial reporting period end by external valuers. Investment propertythat is being redeveloped for continuing use as investment property, or forwhich the market has become less active, continues to be measured at fair value. The fair value of investment property reflects, among other things, rentalincome from current leases and assumptions about rental income from futureleases in the light of current market conditions. The fair value also reflects, on a similar basis, any cash outflows that couldbe expected in respect of the property. Some of those outflows are recognised as a liability, including finance leaseliabilities in respect of land classified as investment property; others,including contingent rent payments, are not recognised in the financialstatements. (c) Subsequent expenditure Subsequent expenditure is charged to the asset's carrying amount only when it isprobable that future economic benefit associated with the item will flow to theGroup and the cost of the item can be measured reliably. All repairs andmaintenance costs are charged to the income statement during the financialperiod in which they are incurred. Gross borrowing costs associated with directexpenditure on properties under development or undergoing major refurbishmentare capitalised. With specific developments, the amount capitalised is thegross interest incurred on those borrowings less any investment income arisingon their temporary investment. Interest is capitalised as from the commencementof the development work until the date of practical completion. Thecapitalisation of finance costs is suspended if there are prolonged periods whendevelopment activity is interrupted. Interest is also capitalised on thepurchase cost of a site or property acquired specifically for redevelopment inthe short term but only where activities necessary to prepare the asset forredevelopment are in progress. (d) Changes and transfers Changes in fair values are recorded in the income statement for investmentproperties. If an investment property becomes owner-occupied, it is reclassified asproperty, plant and equipment, and its fair value at the date ofreclassification becomes its cost for accounting purposes. Property that isbeing constructed or developed for future use as investment property isclassified as property, plant and equipment and stated at cost untilconstruction or development is complete, at which time it is reclassified andsubsequently accounted for as investment property. If an item of property, plant and equipment becomes an investment propertybecause its use has changed, any differences resulting between the carryingamount and the fair value of this item at the date of transfer is recognised inequity as a revaluation of property, plant and equipment under IAS 16. However,if a fair value gain reverses a previous impairment loss, the gain is recognisedin the income statement. Inventories Property inventories are stated at the lower of cost and estimated netrealisable value. No interest is capitalised within inventories. Propertiesthat are acquired and subsequently developed for future sales are reclassifiedas inventories at their deemed cost, which is the carrying amount at the date ofreclassification. They are subsequently carried at the lower of cost and netrealisable value. Net realisable value is the estimated selling price in theordinary course of business less cost to complete redevelopment and sellingexpenses. Cash and cash equivalents Cash and cash equivalents comprises cash balances, deposits held at call withbanks and other short-term highly liquid investments with original maturities ofthree months or less. Bank overdrafts that are repayable on demand and form anintegral part of the Group's cash management are included as a component of cashand cash equivalents for the purpose of the statement of cash flows. Employee benefits The Group accounts for pensions under IAS 19 'Employee Benefits'. In respect ofdefined benefit pension schemes, obligations are measured at discounted presentvalue while scheme assets are measured at their fair value. The operating and financing costs of such plans are recognised separately in theincome statement. Service costs are spread systematically over the workinglives of the employees concerned with the charge for the period included inoperating costs in the income statement. Financing costs are recognised in the periods in which they arise and areincluded in interest expense. Actuarial gains and losses arising from eitherexperience differing from previous actuarial assumptions or changes to thoseassumptions are recognised immediately in the statement of recognised income andexpense. Contributions to defined contribution schemes are expensed as incurred. Income tax Income tax on the profit for the year comprises current and deferred tax.Current tax is the tax payable on the taxable income for the year and anyadjustment in respect of previous years. Deferred income tax is provided using the balance sheet liability method.Provision is made for temporary differences between the carrying value of assetsand liabilities in the consolidated financial statements and the values used fortax purposes. Temporary differences are not provided for when they arise frominitial recognition of assets and liabilities that do not affect accounting ortaxable profit. The amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities andis calculated using rates enacted or substantially enacted at the balance sheetdate in the tax jurisdiction in which the temporary differences arise. Deferred income tax assets are recognised only to the extent that it is probablethat future taxable profits will be available against which the assets can beused. The deferred income tax assets and liabilities are only offset if thereis a legally enforceable right of set off. When distributions are controlled by the Group, and it is probable the temporarydifference will not reverse in the foreseeable future, deferred tax which wouldarise on the distribution of profits realised in subsidiaries, associates andjoint ventures is provided in the same period as the liability to pay thedistribution is recognised in the financial statements. Provisions Provisions for legal claims are recognised when the Group has a present legal orconstructive obligation as a result of past events, it is more likely than notthat an outflow of resources will be required to settle the obligation, and theamount has been reliably estimated. Where the Group, as lessee, is contractually required to restore a leasedproperty to an agreed condition, prior to release by a lessor, provision is madefor such costs as they are identified. Revenue recognition Revenue is measured at the fair value of the consideration received orreceivable and is stated net of sales taxes and value added taxes. Revenueincludes 'Rental and similar income', 'Service charge and similar income','Turnover from non-property activities'. Revenue is recognised as follows: (a) Rental and similar income Rental income from operating lease income is recognised on a straight-line basisover the lease term. When the Group provides incentives to its customers, thecost of incentives are recognised over the lease term, on a straight-line basis,as a reduction of rental income. (b) Service charge and similar income Service and management charge income is recognised on a gross basis in theaccounting period in which the services are rendered. Where the Group is actingas an agent, the commission rather than gross income is recorded as revenue. (c) Income from investments Dividend income from investments is recognised when the shareholders' rights toreceive payment have been established. (d) Income from property trading Profits or losses arising from the sale of trading and investment properties areincluded in the income statement of the Group where an exchange of contracts hastaken place under which any outstanding conditions are entirely within thecontrol of the Group. Profits or losses arising from the sale of trading andinvestment properties are calculated by reference to their carrying value andare included in operating profit. (e) Income from asset management activities Management fees earned are calculated on an accruals basis. (e) Income from asset management activities Asset management income is recognised in the accounting period in which theservices are rendered. Leases (a) A Group company is the lessee (i) Operating lease - leases in which substantially all risks and rewards ofownership are retained by another party, the lessor, are classified as operatingleases. Payments, including prepayments, made under operating leases (net ofany incentives received from the lessor) are charged to the income statement ona straight-line basis over the period of the lease. (ii) Finance lease - leases of assets where the Group has substantially all therisks and rewards of ownership are classified as finance leases. Finance leasesare capitalised at the lease commencement date at the lower of the fair value ofthe leased property and the present value of the minimum lease payments. Eachlease payment is allocated between the liability and finance charges so as toachieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included incurrent and non-current borrowings. The interest element of the finance cost ischarged to the income statement over the lease period so as to produce aconstant periodic rate of interest on the remaining balance of the liability foreach period. The investment properties acquired under finance leases arecarried at the fair value. (b) A Group company is the lessor (i) Operating lease - properties leased out under operating leasesare included in investment property in the balance sheet. (ii) Finance lease - when assets are leased out under a finance lease,the present value of the lease payments is recognised as a receivable. Thedifference between the gross receivable and the present value of the receivableaccrues as finance income. Lease income is recognised over the term of the lease using the net investmentmethod before tax, which reflects a constant periodic rate of return. Financial instruments and hedging activities Derivatives The Group uses derivatives to help manage its interest rate and foreign exchangerate risk. In accordance with its treasury policy, the Group does not hold orissue derivatives for trading purposes. Derivatives are recognised at fair value. The method of recognising theresulting gain or loss depends on whether the derivative is designated as ahedging instrument, and if so, the nature of the hedge relationship. Hedge accounting Where a financial instrument is designated as a hedge, the Group formallydocuments the relationship between the hedging instrument and the hedged item aswell as its risk management objectives and its strategy for undertaking thevarious hedging transactions. The Group also documents its assessment, both athedge inception and on an ongoing basis, of whether the derivatives that areused in the hedging transactions are highly effective in offsetting the changesin fair values or cash flows of the hedged items. Where hedge accounting requirements were not met, changes in fair value ofderivatives are recognised through the income statement. Investments The Group classifies its investments in the following categories: financialassets at fair value through profit or loss, loans and receivables,held-to-maturity investments, and available-for-sale financial assets. Theclassification depends on the purpose for which the investments were acquired.Management determines the classification of its investments at initialrecognition and reviews this designation at each reporting date. (a) Financial assets at fair value through profit or loss This category has two sub-categories: financial assets held for trading, andthose designated at fair value through profit or loss at inception. A financialasset is classified in this category if acquired principally for the purpose ofselling in the short term or if so designated by management. Derivatives arealso classified as held for trading unless they are designated as hedges.Assets in this category are classified as current assets if they are either heldfor trading or are expected to be realised within 12 months of the balance sheetdate. (b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed ordeterminable payments that are not quoted in an active market. They arise whenthe Group provides money, goods or services directly to a debtor with nointention of trading the receivable. They are included in current assets,except for maturities greater than 12 months after the balance sheet date.These are classified as non-current assets. Loans and receivables are includedin trade and other receivables in the balance sheet. Purchases and sales of investments are recognised on trade-date - the date onwhich the Group commits to purchase or sell the asset. Investments areinitially recognised at fair value plus transaction costs for all financialassets not carried at fair value through profit or loss. Investments arederecognised when the rights to receive cash flows from the investments haveexpired or have been transferred and the Group has transferred substantially allrisks and rewards of ownership. Available-for-sale financial assets andfinancial assets at fair value through profit and loss are subsequently carriedat fair value. Realised and unrealised gains and losses arising from changes in the fair valueof the 'financial assets at fair value through profit or loss' category areincluded in the income statement in the period in which they arise. The fair values of quoted investments are based on current bid prices. If themarket for a financial asset is not active (and for unlisted securities), theGroup establishes fair value by using valuation techniques. These include theuse of recent arm's length transactions, reference to other instruments that aresubstantially the same, discounted cash flow analysis, and option pricing modelsrefined to reflect the issuer's specific circumstances. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method, less provisionfor impairment. A provision for impairment in trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of receivables. The amount of theprovision is the difference between the asset's carrying amount and the presentvalue of estimated future cash flows, discounted at the effective interest rate.The amount of the provision is recognised in the income statement. Borrowings Borrowings are initially recognised at cost, being the fair value ofconsideration received, net of transaction costs incurred. Borrowings aresubsequently stated at amortised cost; any difference between the proceeds (netof transaction costs) and the redemption value is recognised in the incomestatement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or optionsare shown in equity as a deduction, net of tax, from the proceeds. Incrementalcosts directly attributable to the issue of new shares or options, or for theacquisition of a business, are included in the cost of acquisition as part ofthe purchase consideration. Where any Group company purchases the Company's equity share capital (treasuryshares), the consideration paid, including any directly attributable incrementalcosts (net of income taxes) is deducted from equity attributable to theCompany's equity holders until the shares are cancelled, reissued or disposedof. Where such shares are subsequently sold or reissued, any considerationreceived, net of any directly attributable incremental transaction costs and therelated income tax effects, is included in equity attributable to the Company'sequity holders. Share based payments The cost of granting share options and other share based remuneration toemployees and directors is recognised through the income statement. The Grouphas used the Black-Scholes option valuation model to establish the relevantcosts. The resulting values are amortised through the income statement over thevesting period of the options and other grants. The charge is reversed if itappears probable that applicable performance criteria will not be met. Own shares held in connection with employee share plans or other share basedpayment arrangements are treated as treasury shares and deducted from equity. Noprofit or loss is recognised in the income statement on their sale, re-issue orcancellation. 3. TURNOVER AND OPERATING PROFIT The Directors believe that the Group operates in two primary segments, namelyproperty investment and asset management. Property Investment Asset Management Group Total £'000 £'000 £'0006 months to 30 September 2005Rental and similar income 12,176 - 12,176Turnover from property trading activities 3,424 - 3,424Cost of sales of property trading activities (2,969) - (2,969)Service charge and similar income 1,490 - 1,490Service charge expense and similar charges (1,723) - (1,723)Net rental and trading income 12,398 - 12,398Turnover from asset management activities - 1,430 1,430Cost of sales of asset management activities - (776) (776)Administrative expenses (1,099) - (1,099)Property expenses (3,225) - (3,225)Operating profit before net gain on investments 8,074 654 8,728 3. TURNOVER AND OPERATING PROFIT (CONT.) Property Investment Asset Management Group Total £'000 £'000 £'0006 months to 30 September 2004Rental and similar income 13,285 - 13,285Turnover from property trading activities 10,575 - 10,575Costs of sales of property trading activities (9,242) - (9,242)Service charge and similar income 1,031 - 1,031Service charge expense and similar charges (1,316) - (1,316)Net rental and trading income 14,333 - 14,333Turnover from asset management activities - 1,006 1,006Cost of sales of asset management activities - (519) (519)Administrative expenses (917) - (917)Net property expenses (2,866) - (2,866)Operating profit before net gain on investments 10,550 487 11,037 Property Asset Investment Management Group Total £'000 £'000 £'000Year to 31 March 2005Rental and similar income 26,521 - 26,521Turnover from property trading activities 12,446 - 12,446Costs of sales of property trading activities (10,788) - (10,788)Service charge and similar income 2,170 - 2,170Service charge expense and similar charges (2,773) - (2,773)Net rental and trading income 27,576 - 27,576Turnover from asset management activities - 3,915 3,915Cost of sales of asset management activities - (1,437) (1,437)Administrative expenses (1,755) - (1,755)Net property expenses (4,453) - (4,453)Operating profit before net gain on investments 21,368 2,478 23,846 All turnover and operating profit has arisen from continuing operations. 4. RETIREMENT BENEFIT OBLIGATIONS The Group operates and contributes to pension schemes for certain Directors andemployees and makes some discretionary allowances. The costs charged to theprofit and loss account for the six months to 30 September 2005 in respect ofthese amounted to £149,000 (half year to 30.9.04: £154,000; year to 31.3.05:£298,000). Pension premiums paid in advance were £35,000 (half year to 30.9.04:£105,000; year to 31.3.05: £70,000). The Group operated a defined benefit scheme in the UK, The Warner Estate GroupRetirement Benefits Scheme. A full valuation was carried out at 31 March 2004.The values at and updated to 30 September 2005, and 31 March 2005 were updatesof the 31 March 2004 valuation carried out by a qualified independent actuary. It has been agreed with the Trustees that the Group contributes are 23% ofpensionable salary plus £67,000 per annum. The value of the assets and liabilities of the Scheme were as follows: Value at Value at Value at 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000Total market value of assets 5,369 4,966 5,061Present value of scheme liabilities (5,690) (5,436) (5,397)Retirement benefit obligations (321) (470) (336) Analysis of amount charged to operating profit 6 months 6 months Year ended ended ended 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000 Current service cost 22 21 42 5. PROFIT ON SALE OF INVESTMENT PROPERTIES 6 months 6 months Year ended ended ended 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000Surplus over book value:Investment properties 37 111 1,711Arising on disposal of properties into joint ventures - 549 549 37 660 2,260 6. FINANCE INCOME 6 months 6 months Year ended ended ended 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000Income from investmentsListed 25 342 533Unlisted 366 - - 391 342 533Interest receivable and similar income:From joint ventures 2,419 3,042 5,842Other interest 281 170 323 3,091 3,554 6,6987. FINANCE EXPENSE 6 months 6 months Year ended ended ended 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000 Interest payable on bank loans and overdrafts, mortgages 6,622 6,356 14,239and other loansCharges in respect of cost of raising finance 356 193 458 6,978 6,549 14,697Less: Interest capitalised (371) - - 6,607 6,549 14,697Interest payable under finance leases 59 137 242 6,666 6,686 14,939Other finance cost / (income)Expected return on pension scheme assets (146) (139) (279)Interest on pension scheme liabilities 145 144 288 (1) 5 9 6,665 6,691 14,9488. TAXATIONThe taxation charge for the period has been estimated from the expected taxableprofits of the Group after taking account of capital allowances available. 9. EARNINGS PER SHARE Earnings per share of 52.34p (half year to 30 September 2004: 48.73p; year to31 March 2005: 89.20p) are calculated on the profit for the period of£27,721,000 (half year to 30 September 2004: £24,517,000; year to 31 March2005: £44,954,000) and the weighted average of 52,970,778 (half year to 30September 2004: 50,387,275; year to 31 March 2005: 50,399,047) shares in issuethroughout the period. Diluted earnings per share are based on the profit for the period as abovedivided by the weighted average number of shares in issue, being 53,285,741(half year to 30 September 2004: 50,542,900; year to 31 March 2005:50,747,241) after the dilutive impact of share options granted. 10. INVESTMENT PROPERTIES AND PROPERTIES UNDER THE COURSE OF DEVELOPMENT Freehold Leasehold Properties with over Total Under the 50 years Investment Course of unexpired Properties Development £'000 £'000 £'000 £'000 At 31 March 2005 276,169 51,568 327,737 -Additions 12 116 128 11,000Disposals (28,025) - (28,025) -Net gain from fair value adjustments on investment 12,903 2,398 15,301 -propertyAt 30 September 2005 261,059 54,082 315,141 11,000 11. JOINT VENTURES At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000Share of joint venturesAt 31 March 2005 102,517 86,529 86,529Share of profit for the period 9,133 6,769 12,724Net equity movements (952) - 4,100Net loan movements 16,792 17,568 (836)At 30 September 2005 127,490 110,866 102,517Unlisted shares at cost less amounts written off 11,215 6,865 11,040Group's share of post acquisition retained profits and reserves 25,821 11,935 17,815 37,036 18,800 28,855Amounts owed by joint ventures 90,454 92,066 73,662 127,490 110,866 102,517 Included in share of joint ventures' gross assets and liabilitiesare: Bareway Agora Skipper Radial Industrial Industrial Shopping Offices Distribution Properties Funds Centres Limited Limited Limited Limited Others Total (a) (b) (c) (d) (e) £'000 £'000 £'000 £'000 £'000 £'000 £'000Period to 30 September 2005Group share of resultsRevenue 7,457 1,545 2,683 496 2,895 - 15,076Operating profit before net 4,838 996 2,453 422 989 - 9,698gains on investmentsNet gain from fair value 11,463 - 3,632 731 - - 15,826adjustments on investmentpropertiesNet gain from fair value - - - - 727 - 727adjustment on investmentsProfit / (loss) on sale of 22 (810) 918 - 116 - 246investmentpropertiesProfit on sale of fixed asset - - - - 3 - 3investmentsOperating profit 16,323 186 7,003 1,153 1,835 - 26,500Net finance expense (4,898) (1,486) (2,444) (438) (968) - (10,234)Change in fair value of (1,664) (305) (1,017) - - - (2,986)derivative financialinstrumentsProfit / (loss) before income 9,761 (1,605) 3,542 715 867 - 13,280taxTaxation - current 45 (375) (158) 5 (285) - (768)Taxation - deferred (3,078) 839 (677) (231) (232) - (3,379)Profit / (loss) for the period 6,728 (1,141) 2,707 489 350 - 9,133 Amounts receivable by GroupAsset management fees 570 150 292 50 41 - 1,103Interest receivable 337 537 275 278 992 - 2,419 Group share ofNon-current assetsIntangible assets - - - - 3,373 - 3,373Investment properties 204,066 - 77,597 14,460 - - 296,123Investments in unlisted shares - - - - 11,563 25 11,588Finance lease assets - - 4,210 - - - 4,210Deferred income tax assets - - 300 - - - 300Derivative financial assets 937 - - - - - 937Non-current assets held for - - - 18,779 - 18,779re-saleOther non-current assets 506 - - - - - 506 205,509 - 82,107 14,460 33,715 25 335,816Current assetsFinance lease assets - - 244 - - - 244Other current assets 3,525 - 11,871 1,057 17,919 - 34,372 3,525 - 12,115 1,057 17,919 - 34,616Total assets 209,034 - 94,222 15,517 51,634 25 370,432Non-current liabilitiesDeferred income tax (9,430) - (1,979) - (232) - (11,641)liabilitiesBorrowings, including finance (127,092) - (82,898) - - - (209,990)leasesDerivative financial - - (998) - - - (998)liabilities (136,522) - (85,875) - (232) - (222,629)Current liabilitiesDeferred income tax - - - (498) - - (498)liabilitiesBorrowings, including finance (35,811) - - (9,132) (20,872) - (65,815)leasesOther current liabilities (6,803) - (3,107) (4,614) (29,930) - (44,454) (42,614) - (3,107) (14,244) (50,802) - (110,767)Total liabilities (179,136) - (88,982) (14,244) (51,034) - (333,396)Share of net assets 29,898 - 5,240 1,273 600 25 37,036Effective Group share 50% 50% 50% 50% 50% 50% Potential recourse to the Nil Nil Nil 9,150 Nil NilGroup Bareway Agora Skipper Radial Industrial Shopping Offices Distribution Properties Centres Limited Limited Limited Others Total (a) (b) (c) (d) £'000 £'000 £'000 £'000 £'000 £'000Period to 30 September 2004Group share of resultsTurnover 6,710 3,328 1,804 408 20 12,270Operating profit before net gains on 4,557 2,319 1,626 352 35 8,889investmentsNet gain from fair value adjustments 7,306 1,296 779 313 - 9,694on investment propertiesProfit / (loss) on sale of investment - 263 - - (10) 253propertiesOperating profit 11,863 3,878 2,405 665 25 18,836Net finance expense (4,267) (2,131) (2,100) (337) (24) (8,859)Change in fair value of derivative 20 (360) - - - (340)financial instrumentsProfit before income tax 7,616 1,387 305 328 1 9,637Taxation - current (27) (99) 16 31 1 (78)Taxation - deferred (2,120) (266) (276) (128) - (2,790)Profit for the period 5,469 1,022 45 231 2 6,769 Amounts receivable by GroupAsset management fees 491 246 231 38 - 1,006Interest receivable 510 1,422 894 216 - 3,042 Group share ofNon-current assetsInvestment properties 204,889 86,855 74,735 10,215 - 376,694Finance lease assets - - 5,530 - - 5,530Derivative financial assets 3,385 603 - - - 3,988Other non-current assets 486 - - - - 486 208,760 87,458 80,265 10,215 - 386,698Current assetsFinance lease assets - - 281 - - 281Other current assets 4,435 2,049 3,132 608 270 10,494 4,435 2,049 3,413 608 270 10,775Total assets 213,195 89,507 83,678 10,823 270 397,473Non-current liabilitiesDeferred income tax liabilities (5,926) (1,970) (300) (94) - (8,290)Borrowings including finance leases (135,760) (82,763) (81,819) (9,799) - (310,141) (141,686) (84,733) (82,119) (9,893) - (318,431)Current liabilitiesBorrowings including finance leases (3) - - - - (3)Other current liabilities (52,247) (3,314) (4,060) (554) (64) (60,239) (52,250) (3,314) (4,060) (554) (64) (60,242)Total liabilities (193,936) (88,047) (86,179) (10,447) (64) (378,673)Share of net assets 19,259 1,460 (2,501) 376 206 18,800 Effective Group share 50% 50% 50% 50% 50% Potential recourse to the Group Nil Nil Nil 7,150 Nil Bareway Agora Skipper Radial Industrial Shopping Offices Distribution Properties Centres Limited Limited Limited Others Total (a) (b) (c) (d) £'000 £'000 £'000 £'000 £'000 £'000Year to 31 March 2005Group share of resultsTurnover 12,593 5,743 4,374 818 - 23,528Operating profit before net gains on 9,510 4,599 3,932 726 - 18,767investmentsNet gain from fair value adjustments 8,295 1,673 2,679 883 - 13,530on investment propertiesProfit on sale of investment 5,152 263 - - - 5,415propertiesOperating profit 22,957 6,535 6,611 1,609 - 37,712Net finance expense (9,724) (4,990) (4,724) (676) - (20,114)Change in fair value of derivative (764) (658) 19 - - (1,403)financial instrumentsProfit before income tax 12,469 887 1,906 933 - 16,195Taxation - current (544) 175 (36) (24) - (429)Taxation - deferred (2,546) 741 (970) (267) - (3,042)Profit for the period 9,379 1,803 900 642 - 12,724 Amounts receivable by GroupAsset management fees 2,766 551 520 78 - 3,915Interest receivable 1,031 2,875 1,503 433 - 5,842 Group share ofNon-current assetsInvestment properties 190,896 87,410 76,931 10,801 - 366,038Finance lease assets - - 5,384 - - 5,384Deferred income tax assets - - 11 - - 11Derivative financial assets 2,601 305 54 - - 2,960Other non-current assets 290 - - 11 - 301 193,787 87,715 82,380 10,812 - 374,694Current assetsFinance lease assets - - 289 - - 289Other current assets 5,461 1,965 2,563 693 - 10,682 5,461 1,965 2,852 693 - 10,971Total assets 199,248 89,680 85,232 11,505 - 385,665Non-current liabilitiesDeferred income tax liabilities (6,351) (839) (1,013) (267) - (8,470)Borrowing including finance leases (126,228) (83,054) (78,824) - - (288,106)Derivative financial liabilities - - (35) - - (35) (132,579) (83,893) (79,872) (267) - (296,611)Current liabilitiesBorrowings including finance leases (35,490) - - (9,823) - (45,313)Other current liabilities (8,008) (3,420) (2,827) (631) - (14,886) (43,498) (3,420) (2,827) (10,454) - (60,199)Total liabilities (176,077) (87,313) (82,699) (10,721) - (356,810)Share of net assets 23,171 2,367 2,533 784 - 28,855 Effective Group share 50% 50% 50% 50% 50% Potential recourse to the Group Nil Nil Nil 7,150 Nil (a) Agora Shopping Centres was set up on 5 March 2003 and subsequently acquired the Pyramids in Birkenhead on 25 June 2003 and The Grange Shopping Centre, Birkenhead on 30 September 2004. (b) Skipper Offices Limited was set up on 23 July 2003. In June 2005 the properties were disposed of into the Apia Regional Offices Fund and the Group subsequently acquired the remaining 50% interest. (c) Fairway Industrial Limited was set up on 29 August 2003 and changed its name to Radial Distribution Limited on 14 October 2004. (d) Bareway Industrial Properties Limited was set up on 29 August 2003. The venture was initially consolidated, for the half year. However, following changes in the nature of the relationship it was treated as a joint venture in the full year accounts to 31 March 2004 and continues to be so. (e) Industrial Funds Limited was set up in March 2005 and completed the acquisition of Ashtenne Holdings PLC on 13 July 2005. Amounts owed by joint ventures comprise: At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000 Agora Shopping Centres 25,687 32,528 25,687Skipper Offices Limited - 29,441 29,916Radial Distribution Limited 12,675 24,713 12,675Bareway Industrial Properties Limited 7,092 5,384 5,384Industrial Funds Limited 45,000 - - 90,454 92,066 73,662 12. INVESTMENTS IN LISTED AND UNLISTED SHARES At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000 Listed investments 19,213 12,985 15,518Unlisted investments 58,790 - - 78,003 12,985 15,518 13. INVESTMENTS IN ASSOCIATES This relates to an investment in Bride Hall Group Limited. At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000 Share of net assets acquired 1,491 1,491 1,491Goodwill 3,836 3,509 3,836 5,327 5,000 5,32714. DEFERRED TAXATION At At At 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000Deferred taxation assetsDeferred taxation arising from unrealised derivative 413 369 349financial instruments valuationsDeferred taxation arising from retirement benefit 96 141 101obligations 509 510 450Deferred taxation liabilitiesDeferred taxation arising from the temporarydifferences noted below:Short term temporary differences 58 22 (23)Capital and industrial buildings allowances claimed on (3,508) (3,752) (3,763)investment propertiesUnrealised property and investment valuations (23,414) (14,330) (16,326) (26,864) (18,060) (20,112) 15. FINANCIAL INSTRUMENTS Financial Liabilities The interest rate profile of the Group's financial liabilities at 30 September2005, after taking account of interest rate instruments taken out by the Groupwas: At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000 Floating financial rate liabilities - 21,554 -Capped rate financial liabilities 95,766 100,000 85,574Fixed rate financial liabilities 108,840 91,910 90,654 204,606 213,464 176,228 The benchmark rate for determining interest payments for the floating ratefinancial liabilities was LIBOR/base rate depending upon the facility. The weighted average interest rate on the fixed rate debt and the averagematurity of that debt was as follows: At 30.9.2005 At 30.9.2004 At 31.3.2005 % % %Weighted average interest rateGroup 7.35 7.99 8.01Joint Ventures 5.70 5.76 4.89 Weighted average period for which interest rate is fixed Years Years YearsGroup 4.96 5.56 5.16Joint Ventures 3.13 3.62 3.60 Maturity of financial liabilities At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000 Group Within one year or on demand 22,749 59,102 61,948 Between one and two years 12,798 23,044 22,000 Between two and five years 123,029 6,882 69,780 In five years or more 46,030 124,436 22,500 204,606 213,464 176,228 Borrowing facilities The Group has various borrowing facilities that were not fully utilised at theperiod end and for which the conditions for utilising those facilities were met. At 30.9.2005 At 30.9.2004 At 31.3.2005 £'000 £'000 £'000 Expiring in one year or less: Total facilities 120,000 72,442 73,073 Unutilised 50,327 16,384 52,842 Fair values of financial assets and liabilities The table below sets out by category the changes to the balance sheet values onfixed rate debt that would occur if "fair values" applied. At 30.9.2005 At 30.9.2004 At 31.3.2005 Fair value Fair value Fair value adjustment adjustment adjustment £'000 £'000 £'000Group Primary financial instruments Liabilities Long term debt (over one year) (9,299) (9,171) (8,500) Assets Long term loan notes (over one year) (428) (692) (990) Fixed rate loan 15 (68) (67) Joint Ventures Primary financial instruments Long term debt (over one year) Long term loan notes 428 692 990 Fixed rate loan (7) 33 34 Increase in fair value (9,291) (9,206) (8,533) The effect on net assets per share of the total fair value adjustment(£9,291,000 less tax £2,787,000) would be a decrease of 12.3 pence (31 March2005: 9.82 pence) The calculation of the fair values has been arrived at as follows: Debt has been calculated by discounting cash flows at prevailing rates ofinterest. The equity assets have been valued at the quoted share price based upon thestrategic nature of the holdings compensating for any discount. Interest rate swaps have been valued at the market rate for such swaps. 16. CAPITAL AND RESERVES Other reserves Group Share Investment premium in own Share Capital account Reserves shares Total £'000 £'000 £'000 £'000 £'000 At 31 March 2005 2,548 5,559 265,663 (1,667) 272,103Total recognised income and - - 27,695 - 27,695expense for the periodShares issued 127 13,493 - - 13,620Acquisition of investment in - - - (76) (76)own sharesDisposal of investment in own - - - 680 680sharesDividend paid - - (5,065) - (5,065)At 30 September 2005 2,675 19,052 288,293 (1,063) 308,957 17. RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW At At At 30.9.2005 30.9.2004 31.3.2005 £'000 £'000 £'000 Operating profit before net gains on investments 8,728 11,084 23,941Depreciation of plant and equipment 62 56 109Loss on sale of plant and equipment - - 1Decrease in inventories 2,872 7,952 9,242(Increase) / decrease in trade and other receivables (308) 1,417 (782)(Decrease) / increase in trade and other payables (6,947) 527 1,684Cash generated from operations 4,407 21,036 34,195 UNAUDITED RECONCILIATIONS BETWEEN IFRS AND UK GAAP RECONCILIATION OF CONSOLIDATED IFRS BALANCE SHEET AT 30 SEPTEMBER 2004 Previously Share Events Income Leases Lease Investments Financial Investment Total Restated reported base after taxes IAS 17 incentives in instruments property adjustments under under UK payments balance IAS 12 SIC 15 associates IAS 39 IAS 40 IFRS GAAP* IFRS 2 sheet IAS 28 date IAS 10 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 ASSETSNon-currentAssetsInvestment 346,619 - - - - (288) - - 3,038 2,750 349,369propertiesPlant and 387 - - - - - - - - - 387equipmentInvestments 116,605 - - (5,444) (3,003) (84) - 2,792 - (5,739) 110,866in joint venturesInvestments 18,291 - - - - - (5,000) (306) - (5,306) 12,985in listed and unlisted sharesInvestments in - - - - - - 5,000 - - 5,000 5,000associatesDeferred income 141 - - - - - - 369 - 369 510tax assetsDerivative - - - - - - - 83 - 83 83financial assetsTrade and other - - - - - 272 - - - 272 272receivables 482,043 - - (5,444) (3,003) (100) - 2,938 3,038 (2,571) 479,472 Current Assets Inventories 9,525 - - 9,525Trade and other 10,430 - - - - (170) - (380) - (550) 9,880receivablesCash and cash 12,829 - - - - - - 73,158 - 73,158 85,987equivalents 32,784 - - - - (170) - 72,778 - 72,608 105,392 Total Assets 514,827 - - (5,444) (3,003) (270) - 75,716 3,038 70,037 584,864 Liabilities Non-currentliabilities Borrowings, (153,780) - - - - - - - (3,038) (3,038) (156,818)includingfinance leasesDerivative - - - - - - - (1,229) - (1,229) (1,229)financialliabilitiesDeferred income (3,730) - - (14,330) - - - - - (14,330) (18,060)tax liabilitiesRetirement (470) - - - - - - - - - (470)benefitobligationsProvisions for - (80) - - - - - - - (80) (80)otherliabilities andcharges (157,980) (80) - (14,330) - - - (1,229) (3,038) (18,677) (176,657) Currentliabilities Borrowings, (59,102) - - - - - - (73,158) - (73,158) (132,260)includingfinance leasesTrade and other (21,299) - 4,458 - - - - - - 4,458 (16,841)payablesCurrent income (3,288) - - - - (7) - 89 - 82 (3,206)tax liabilities (83,689) - 4,458 - - (7) - (73,069) - (68,618) (152,307) Total (241,669) (80) 4,458 (14,330) - (7) - (74,298) (3,038) (87,295) (328,964)liabilities Net assets 273,158 (80) 4,458 (19,774) (3,003) (277) - 1,418 - (17,258) 255,900 EQUITYCapital andreservesattributable tothe Company'sequity holders Share capital 2,548 - - - - - - - - - 2,548Reserves 272,363 (80) 4,458 (19,774) (3,003) (277) - 1,418 - (17,258) 255,105Investment in (1,753) - - - - - - - - - (1,753)own shares Total equity 273,158 (80) 4,458 (19,774) (3,003) (277) - 1,418 - (17,258) 255,900 Notes a b c d e f g h*Reformatted toreflect IFRSreportingrequirements RECONCILIATION OF CONSOLIDATED IFRS INCOME STATEMENT FOR THE PERIOD ENDED30 SEPTEMBER 2004 Previously Share Events Income Leases Lease Investments Financial Investment Total Restated reported base after taxes IAS 17 incentives in instruments property adjustments under under UK payments balance IAS 12 SIC 15 associates IAS 39 IAS 40 IFRS GAAP* IFRS 2 sheet IAS 28 date IAS 10 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Rental and 13,184 - - - - 101 - - - 101 13,285similar incomeTurnover from 10,575 - - - - - - - - - 10,575property tradingactivitiesCost of sales (9,242) - - - - - - - - - (9,242)of property tradingactivitiesService charge 1,031 - - - - - - - - - 1,031and similarincomeService charge(1,316) - - - - - - - - - (1,316)expense andsimilar income Net rental 14,232 - - - - 101 - - - 101 14,333income and tradingincome Turnover from 1,006 - - - - - - - - - 1,006asset managementactivitiesCost of sales (519) - - - - - - - - - (519)of asset managementactivities Net income from 487 - - - - - - - - - 487asset managementactivities Administrative (870) (47) - - - - - - - (47) (917)expensesProperty (3,003) - - - - - - - 137 137 (2,866)expenses Operating 10,846 (47) - - - 101 - - 137 191 11,037profit before net gains on investments Net gain from - - - - - (170) - - 15,176 15,006 15,006fair valueadjustments oninvestmentpropertyNet gain from - - - - - - - (136) - (136) (136)fair valueadjustments onfixed assetinvestmentsProfit on sale 660 - - - - - - - - - 660of investmentproperty Operating 11,506 (47) - - - (69) - (136) 15,313 15,061 26,567profit Finance 3,554 - - - - - - - - - 3,554incomeFinance (6,554) - - - - - - - (137) (137) (6,691)expenseChange in fair - - - - - - - 251 - 251 251value ofderivativefinancialinstrumentsShare of joint 148 - - (2,883) (240) 70 - (238) 9,912 6,621 6,769ventures post taxprofits Profit before 8,654 (47) - (2,883) (240) 1 - (123) 25,088 21,796 30,450income taxTaxation - (1,962) - - - - (3) - 24 - 21 (1,941)currentTaxation - (190) - - (3,702) - - - (100) - (3,802) (3,992)deferred Profit for the 6,502 (47) - (6,585) (240) (2) - (199) 25,088 18,015 24,517period Notes a b c d e f g h*Reformatted toreflect IFRSreportingrequirements RECONCILIATION OF CONSOLIDATED IFRS BALANCE SHEET AT 31 MARCH 2005 Previously Share Events Income Leases Lease Investments Financial Investment Total Restated reported base after taxes IAS 17 incentives in instruments property adjustments under under UK payments balance IAS 12 SIC 15 associates IAS 39 IAS 40 IFRS GAAP* IFRS 2 sheet IAS 28 date IAS 10 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000ASSETS Non-currentAssets Investment 326,593 - - - - (371) - - 1,515 1,144 327,737propertyOther 347 - - - - - - - - - 347tangibleassetsInvest- 111,250 - - (7,023) (3,568) (190) - 2,048 - (8,733) 102,517ments injoint venturesInvestments 21,135 - - - - - (5,327) (290) - (5,617) 15,518in listed and unlisted sharesInvestment in - - - - - - 5,327 - - 5,327 5,327associatesDeferred 101 - - - - - - 349 - 349 450income tax assetsDerivative - - - - - - - 11 - 11 11financial assetsTrade and other - - - - - 350 - - - 350 350receivables 459,426 - - (7,023) (3,568) (211) - 2,118 1,515 (7,169) 452,257 Current Assets Inventory 8,235 - - - 8,235Trade and 9,597 - - - - (235) - (311) - (546) 9,051otherreceivablesCash and 22,884 - - - - - - 86,482 - 86,482 109,366cashequivalents 40,716 - - - - (235) - 86,171 - 85,936 126,652 Total 500,142 - - (7,023) (3,568) (446) - 88,289 1,515 78,767 578,909Assets LIABILITIES Non-currentliabilities Borrow- (114,008) - - - - - - (80,115) (1,515) (81,630) (195,638)ings,includingfinance leasesDerivative - - - - - - - (1,162) - (1,162) (1,162)financialliabilitiesDeferred (3,786) - - (16,326) - - - - - (16,326) (20,112)income tax liabilitiesRetirement (336) - - - - - - - - - (336)benefitobligationsProvisions for - (128) - - - - - - - (128) (128)otherliabilities and charges (118,130) (128) - (16,326) - - - (81,277) (1,515) (99,246) (217,376) Currentliabilities Borrowings,(61,902) - - - - - - (6,367) - (6,367) (68,269)includingfinance leasesTrade and (23,638) - 4,847 - - - - - - 4,847 (18,791)otherpayablesCurrent (2,197) - - - - (11) - 90 - 79 (2,118)incometax liabilities (87,737) - 4,847 - - (11) - (6,277) - (1,441) (89,178) Total (205,867) (128) 4,847 (16,326) - (11) - (87,554) (1,515) (100,687) (306,554)liabilities Net assets 294,275 (128) 4,847 (23,349)(3,568) (457) - 735 - (21,920) 272,355 EQUITY Capital andreservesattributable tothe Company'sequity holders Share 2,548 - - - - - - - - - 2,548capitalReserves 293,142 (128) 4,847 (23,349)(3,568) (457) - 735 - (21,920) 271,222Investment (1,667) - - - - - - - - - (1,667)in own shares Equity 294,023 (128) 4,847 (23,349)(3,568) (457) - 735 - (21,920) 272,103shareholders'fundsMinority 252 - - - - - - - - - 252interest Total 294,275 (128) 4,847 (23,349)(3,568) (457) - 735 - (21,920) 272,355equity Notes a b c d e f g h *Reformatted toreflect IFRSreportingrequirements RECONCILIATION OF CONSOLIDATED IFRS INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2005 Previously Share Events Income Leases Lease Investments Financial Investment Total Restated reported base after taxes IAS 17 incentives in instruments property adjustments under under UK payments balance IAS 12 SIC 15 associates IAS 39 IAS 40 IFRS GAAP* IFRS 2 sheet IAS 28 date IAS 10 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Rental and 26,387 - - - - 134 - - - 134 26,521similar incomeTurnover from 12,446 - - - - - - - - - 12,446property tradingactivitiesCost of (10,788) - - - - - - - - - (10,788)sales ofproperty tradingactivitiesService charge 2,170 - - - - - - - - - 2,170and similarincomeService (2,773) - - - - - - - - - (2,773)chargeexpense andsimilar income Net rental 27,442 - - - - 134 - - - 134 27,576andtrading incomeTurnover from 3,915 - - - - - - - - - 3,915asset managementactivitiesCost of (1,437) - - - - - - - - - (1,437)sales ofasset managementactivities Net income 2,478 - - - - - - - - - 2,478from asset managementactivitiesAdmin- (1,660) (95) - - - - - - - (95) (1,755)istrativeexpensesProperty (4,695) - - - - - - - 242 242 (4,453)expenses Operating 23,565 (95) - - - 134 - - 242 281 23,846profit before net gainson investmentsNet gain from - - - - - (273) - - 22,144 21,871 21,871fair valueadjustments oninvestmentpropertyNet gain from - - - - - - - 2,397 - 2,397 2,397fair valueadjustments onfixed assetinvestmentsProfit on sale 2,260 - - - - - - - - - 2,260of investmentproperty Operating 25,825 (95) - - - (139) - 2,397 22,386 24,549 50,374profitFinance income 6,698 - - - - - - - - - 6,698Finance (14,706) - - - - - - - (242) (242) (14,948)expenseChange in fair - - - - - - - 315 - 315 315value ofderivativefinancialinstrumentsShare of joint 4,723 - - (4,521) (805) (36) - (982) 14,345 8,001 12,724venture post taxprofits Profit before 22,540 (95) - (4,521) (805) (175) - 1,730 36,489 32,623 55,163income taxTaxation - (4,117) - - - - (7) - 26 - 19 (4,098)currentTaxation - (290) - - (5,698) - - - (121) - (5,819) (6,109)deferred Profit for 18,133 (95) - (10,219) (805) (182) - 1,635 36,489 26,823 44,956the year Attributable to:Equity 18,131 (95) - (10,219) (805) (182) - 1,635 36,489 26,823 44,954holdersMinority 2 - - - - - - - - - 2interests Notes a b c d e f g h *Reformatted toreflect IFRSreportingrequirements RECONCILIATION OF CONSOLIDATED IFRS BALANCE SHEET AT 31 MARCH 2004 Previously Share Events Income Leases Lease Investments Financial Investment Total Restated reported base after taxes IAS 17 incentives in instruments property adjustments under under UK payments balance IAS 12 SIC 15 associates IAS 39 IAS 40 IFRS GAAP* IFRS 2 sheet IAS 28 date IAS 10 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 ASSETSNon-currentAssetsInvestment 317,453 - - - - (208) - - 3,038 2,830 320,283propertiesPlant and 429 - - - - - - - - - 429equipmentInvestments 89,012 - - (2,596) (2,763) (154) - 3,030 - (2,483) 86,529in joint venturesInvestments 13,371 - - - - - - (250) - (250) 13,121in listed andunlisted sharesDeferred 134 - - - - - - 469 - 469 603incometax assetsDerivative - - - - - - - 234 - 234 234financial assetsTrade and - - - - - 191 - - - 191 191otherreceivables 420,399 - - (2,596) (2,763) (171) - 3,483 3,038 991 421,390 Current Assets Inventories 17,477 - - - - - - - - - 17,477Trade and 9,580 - - - - (100) - (449) - (549) 9,031otherreceivablesCash and 16,647 - - - - - - 72,406 - 72,406 89,053cashequivalents 43,704 - - - - (100) - 71,957 - 71,857 115,561 Total 464,103 - - (2,596) (2,763) (271) - 75,440 3,038 72,848 536,951Assets LIAIBILITIES Non-currentliabilities Borrowings, (155,061) - - - - - - (3,038) (3,038)(158,099)includingfinance leasesDerivative - - - - - - - (1,562) - (1,562) (1,562)financialliabilitiesDeferred (3,496) - -(10,628) - - - - - (10,628) (14,124)income tax liabilitiesRetirement (447) - - - - - - - - - (447)benefitobligationsProvisions for - (33) - - - - - - - (33) (33)otherliabilities andcharges (159,004) (33) -(10,628) - - - (1,562) (3,038) (15,261)(174,265) CurrentliabilitiesBorrowings, (36,146) - - - - - - (72,406) - (72,406)(108,552)includingfinance leasesTrade and (21,413) - 4,458 - - - - - - 4,458 (16,955)otherpayablesCurrent (1,289) - - - - (4) - 65 - 61 (1,228)incometax liabilities (58,848) - 4,458 - - (4) - (72,341) - (67,887)(126,735) Total (217,852) (33) 4,458(10,628) - (4) - (73,903) (3,038) (83,148)(301,000)liabilities Net assets 246,251 (33) 4,458(13,224) (2,763) (275) - 1,537 - (10,300) 235,951 EQUITY Capital andreservesattributable tothe Company'sequity holders Share capital 2,548 - - - - - - - - - 2,548Reserves 245,392 (33) 4,458(13,224) (2,763) (275) - 1,537 - (10,300) 235,092Investment in (1,689) - - - - - - - - - (1,689)own shares Total equity 246,251 (33) 4,458(13,224) (2,763) (275) - 1,537 - (10,300) 235,951 Notes a b c d e f g h*Reformatted toreflect IFRSreportingrequirements NOTES TO THE IFRS RECONCILIATIONS (a) IFRS 2 - Share based payments Share option plans are fair valued at the date of grant and costs taken to theincome statement over the vesting period. IFRS 1 transitional exemption hasbeen applied. A corresponding release from equity means that there is no effecton the balance sheet or NAV. (b) IAS 10 - Events after balance sheet date Only dividends actually declared at balance sheet date should be provided for,therefore proposed dividends have been reversed, and are reinstated on payment. (c) IAS 12 - Income taxes Provision is now made for the deferred tax liability associated with therevaluation of investment properties. This was not required under UK GAAP.Capital gains tax which was previously charged directly to reserves is nowincluded in the income statement, this has no impact on net assets. (d) IAS 17 - Leases This adjustment represents those leases that have been classified as financelease assets. (e) Statements of Investment Circular (SIC) 15 - Lease incentives Lease incentives are now amortised over the lease term rather than to the firstrent review. As the value of lease incentives is included within the propertyvaluation, investment property and reserves have been adjusted by the value ofthe lease incentive debtor to prevent double counting. (f) IAS 28 - Investments in associates Under IFRS an investment in associate is where the investor has the power toexercise significant influence. Previously under UK GAAP an investor had toactually exercise significant influence. Therefore the investment in Bride Hallwas previously treated as a fixed asset investment, and has now been equityaccounted. (g) IAS 32 & 39 - Financial instruments Financial assets and liabilities such as interest rate swaps and caps, have beenincluded in the balance sheet at fair value. Investments are carried at fairvalue on the balance sheet. (h) IAS 40 - Investment Property Investment property valuation movements and tax thereon has been taken throughthe income statement. Investment property head leases are capitalised and shown as a correspondingfinance lease creditor. Detailed transition to IFRS Basis of Preparation This financial information has been prepared on the basis of our interpretationof IFRS currently, and expected to be applicable at 31 March 2006 and isunaudited. It is possible that conventions which differ from our currentinterpretation will evolve within the property sector, and IFRS are subject toongoing amendment; accordingly, the amounts disclosed in this paper may besubject to revision. Presentation of financial statements under IFRS Under IFRS, with effect from 1 January 2005, the Group will prepare itsfinancial statements in accordance with IAS 1 - 'Presentation of financialstatements'. Where IAS 1 does not provide definitive guidance on presentation,for example in relation to aspects of the income statements, the Group proposesto adopt a format consistent, where possible, with UK GAAP. The presentation ofthe primary statements are likely to develop over time through industrypractice. Key changes include: • The 'profit and loss account' is renamed the 'income statement'. • All assets and liabilities are required to be analysed between current and non-current items. • Deferred tax assets to be presented separately from deferred tax liabilities. • A 'statement of recognised income and expense' will replace the 'statement of group total recognised gains and losses'. UK GAAP comparative information has been reformatted to reflect IFRS reportingrequirements. Overview of impact The principal changes arising from the adoption of IFRS for the financialstatements under review are: • Property revaluations - surpluses and deficits on investment properties are shown in the income statement, rather than as a movement in reserves. • Deferred tax - is provided in respect of property valuation surpluses and is accrued as a deferred tax liability. Under UK GAAP, no deferred tax provision was made in respect of property revaluation surpluses. • Joint ventures - are accounted for using the equity method as permitted by UK GAAP and IAS 31. • Share based payments - the fair value of share options and other share based payments is recognised as an expense through the income statement over the vesting period. • Goodwill - positive goodwill is no longer amortised, but is now subject to an impairment review. • Head leases - where the Group is the lessee of a finance lease arrangement, the rental obligations have been capitalised and shown as a liability on the balance sheet. • Lease incentives - are amortised over the term of the lease, in each case typically longer than under UK GAAP, which was to the first rent review. Main changes in accounting under IFRS IAS 40 - Investment property Under this standard, investment property will be recognised in the accounts atfair value, with revaluation gains and losses being taken directly to the incomestatement rather than to the revaluation reserve as was the case under UK GAAP. Accumulated revaluation surpluses relating to the investment properties at thedate of transition to IFRS have been reallocated to retained earnings. Thistreatment does not, however, have any impact on the distributable profits. Full provision for tax on the valuation surpluses has been provided under IAS12. IAS 12 - Income taxes This standard requires full provision to be made for deferred income tax ontemporary differences. The main difference compared to the deferred taxprovided under UK GAAP is that provision has been made in full for the deferredincome tax arising from the revaluation of investment properties. The deferredincome tax has been calculated on the basis that the gain (or loss) on theproperties will be realised through the income generated by holding theproperties. The tax base for each property has been compared to the valuationfor that property. Since the deferred income tax liabilities have been calculated on the basis ofcontinued use of the properties, no account has been taken of the way in whichproperties may be sold or of the tax which the Group would expect to be payablein practice on the sale of the properties. Indexation allowance which would beavailable to further reduce the taxable capital gains when properties subject toUK corporation tax are sold has similarly not been taken into account. Deferred income tax is provided as appropriate on the other adjustments whichhave been made to convert the UK GAAP accounts to IFRS. IAS 31 - Financial reporting of interests in joint ventures Under UK GAAP, the Group accounted for interests in joint ventures under theequity accounting method. Under IFRS, IAS 31 allows companies to make aone-time choice as to whether joint ventures will be accounted under the equitymethod or proportionally consolidated. The Group has opted for the equity accounting method of joint venture assets andliabilities as this is consistent with past treatment and, more closely reflectsthe substance of the Group's joint venture arrangements. Therefore, the Group'sshare of individual assets and liabilities of the joint venture are shown as oneline in the balance sheet income statement. Other changes in accounting under IFRS IFRS 2 - Share based payments Under IFRS 2, the fair value of share options and other share based payments isrecognised as an expense through the income statement over the vesting period. The Group has elected to apply the IFRS 1, share-based payment exemption,therefore the Group has applied IFRS 2 from 1 January 2004 to those options thatwere issued after 7 November 2002 but have not vested by 1 January 2005. IFRS 3 - Business combinations IFRS 3 uses a different term for 'negative goodwill' and requires it to be takento the income statement in the year of acquisition. Previously recognisednegative goodwill has been derecognised at the date of transitions, with acorresponding adjustment to opening retained earnings. Under IFRS, the acquisition of properties, whether by outright purchase of bycorporate acquisition, are carefully considered on a case by case basis todetermine whether they are, in substance, an acquisition of assets or abusiness. The Group has elected to apply the IFRS 1, business combination exemption,therefore the Group has not applied IFRS 3 retrospectively to past businesscombinations. IFRS 17 - Leases Under UK GAAP, leases to occupational tenants were almost invariably treated asoperating leases, because the risks and rewards in the underlying freehold wereusually assessed as remaining with the landlord. However, while IAS 17 is basedon a similar principle, it lists a number of situations that individually or incombination would require a lease to be classified as a finance lease and, inparticular, it requires an entity to consider land and buildings separately,even if the occupational lease is of the property as a whole and does not makesuch a distinction. This means that it is more likely that a lease term couldbe viewed as being for the major part of the economic life of an asset,resulting in finance lease classification of the building element. The Group has carefully reviewed each of its leases and has concluded that thelease classification and treatment under UK GAAP is consistent with IFRS. Where an investment property is itself subject to a head or ground lease, thathead lease must be treated as if it were a finance lease and accounted foraccordingly. In total only nine properties are affected, of which two are heldby joint ventures leading to the recognition of a finance lease liability and anincrease in the carrying value of the Group's investment properties. SIC 15 - Operating lease incentives Under SIC 15, the cost of rent free periods and other incentives given totenants under operating leases must be spread over the term of the lease ratherthan, as under UK GAAP, to the first review to market rents. Further, there are no transitional provisions, so that incentives granted beforethe UK standard came into effect have now been brought back into account. Thiswill therefore change the timing but not the aggregate amount recognised inrelation to lease incentives. For the investment property business, the changes amount to a minorreclassification between rent and revaluation surpluses in the income statementand, in the balance sheet, between investment properties and receivables. IAS 32 and IAS 39 Hedge accounting Where a financial instrument is designated as a hedge, the Group formallydocuments the relationship between the hedging instrument and the hedged item aswell as its risk management objectives and its strategy for undertaking thevarious hedging transactions. The Group also documents its assessment, both athedge inception and on an ongoing basis, of whether the derivatives that areused in the hedging transactions are highly effective in offsetting the changesin fair values or cash flows of the hedged items. Where hedge accounting requirements were not met, changes in fair value ofderivatives are recognised through the income statement. Investments Investments will be carried at fair value on the balance sheet, with changes inthe fair value being recognised either in the income statement or in equity andrecycled through the income statement when the investments are realised, asappropriate. Under UK GAAP these investments were carried at the lower of costand market value. Other financial instruments Movements in the fair value of those derivative financial instruments which arenot accounted for as hedging instruments are recognised in the income statementand not by way of a note, as is the case under UK GAAP. Borrowings The version of IAS 39 adopted by the European Union prohibits the option tocarry borrowings at their fair values, and consequently the Group will continueto include borrowings in the balance sheet at amortised cost. The fair value ofborrowings will be disclosed under IAS 32, as is the case under UK GAAP. Exemptions from full retrospective application The Group has applied the following optional exemptions from retrospectiveapplication: (a) Share based payment transaction exemption The Group has elected to apply this exemption. The Group has applied IFRS 2from 1 April 2004 to those options that were issued after 7 November 2002 butthat have not vested by 1 January 2005. (b) Designation of previously recognised financial instruments The Group has elected to apply this exemption. Therefore, financial instrumentswill be designated at the date of transition as at fair value through profit orloss or as available-for-sale. The following optional exemptions from retrospective application are notapplicable to the Group; (c) Fair value as deemed cost exemption (d) Cumulative translation difference exemption (e) Business combinations exemption (f) Employee benefits exemption (g) Compound financial instruments (h) Assets and liabilities of subsidiaries, associates and joint ventures exemption (i) Insurance contracts exemption (j) Decommissioning liabilities included in the cost of property, plant and equipment exemption (k) Fair value measurement of financial assets or liabilities at initial recognition Exceptions from full retrospective application The Group has applied the following mandatory exception from retrospectiveapplication: (a) Estimates exception Estimates under IFRS at 1 April 2004 should be consistent with estimates madefor the same date under previous GAAP, unless there is evidence that thoseestimates were in error. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Wt Wner Usd