Preliminary Results

10th Dec 2007 07:01

Wichford plc10 December 2007 10 December 2007 WICHFORD P.L.C. ("Wichford" or the "Group") Preliminary results Portfolio now worth £673 million - Increase of 48% Wichford P.L.C., the property investment company, is pleased to announce itspreliminary results for the year ended 30 September 2007. These results are thefirst to be issued by the Company under IFRS. Highlights • Total assets rise to £729 million (2006: £490 million) - up 49% • Trading operations profit after tax £11.3 million (2006: £7.8 million) - up 45% • Loss after tax £9.8 million (2006: profit of £52.8 million) • Trading operations earnings per share 9.70 pence (2006: 8.06 pence) - up 20% • Basic loss per share 8.40 pence (2006: earnings per share of 54.24 pence) • Recommended final dividend of 6.2pence per share, making a total dividend for the year of 10.2pence per share (2006: 9.5pence per share) • Net asset value per share 208.5 pence (2006: 217.2 pence) • Additional 13 properties in the UK (2006: 18) • Wichford moves into Continental Europe - 22% by value of total portfolio Philippe de Nicolay, Non-executive Chairman of Wichford, commented today: "These results demonstrate Wichford's continued progress and robust businessmodel. 45% of our rental income from high-quality portfolio of properties letto Government tenants is now index-linked and the interest rate for all UK debtis fixed for the next five years. I believe that Wichford remains well-placedto deliver long-term value for shareholders." Enquiries: Wichford P.L.C. Philippe de Nicolay 00 33 1 40 74 42 79David Harrel 020 7111 2222 Wichford Property Management LimitedJamie Hambro 020 7747 5678Richard Britten-Long 020 7016 6150Philip Cooper 020 7495 7111 Citigate Dewe Rogerson 020 7638 9571George CazenoveHannah Seward Evolution Securities Limited 020 7071 4300Nominated Adviser and Joint BrokerTim WorlledgeJeremy Ellis KBC Peel Hunt Ltd 020 7418 8900Joint BrokerNick MaslenDavid Anderson Notes to editors Wichford P.L.C. (AIM:WICH) is a property investment company with a portfoliofocused on UK and Continental European investment property primarily occupied byCentral and State Government bodies. Approximately a quarter of the portfoliocomprises public sector rented properties in France, Germany and theNetherlands. The Company currently owns 77 properties with a gross asset value of circa£663.9m (following a post year end disposal) generating a rental income of circa£39.6m per annum. The Company's portfolio of properties has unit values usuallybetween £2m and £30m. The Company's current core portfolio has a weightedaverage unexpired lease term of circa 11 years. In November 2007, the Company announced that it would be moving its listing fromAIM to the Official List of the UKLA subject to approval from the UKLA and theLondon Stock Exchange plc. Chairman's Statement On behalf of the board, I am pleased to announce the results for the year to 30September 2007 which are under International Financial Reporting Standards(IFRS). The profit from trading operations for the 12 months was £11.3millionup 44.6%. In line with market movement generally, the value of the Group'sportfolio fell in the second half of the year resulting in a valuation reductionof £22.6 million (2006: surplus of £35.4 million). The overall result for theyear is a loss of £9.8 million. Net assets at 30 September 2007 were £277million, having risen from £211 million from the previous year. The earnings per share (eps) from trading operations under IFRS was 9.7 pence.(2006: earnings 8.1 pence (restated)). The total basic eps for the year ended 30September 2007 is a loss of 8.4 pence per share (restated) compared to a profitof 54.2 pence per share (restated) the previous year. By comparison under UK GAAP, the profit after tax for the year would have been£12.4 million and the eps 10.6 pence per share. The Directors are recommending a final dividend of 6.2 pence per share, which,with the interim dividend of 4 pence per share, will make a total dividend of10.2 pence per share for the year. The final dividend, if approved byShareholders, will be paid on 18 February 2008 to Shareholders on the registerof members at the close of business on 8 February 2008. During the year, good progress was made in achieving Wichford's strategicobjectives to create a Continental European portfolio, raise the proportion ofrents that are index linked, and to sell UK properties where the prospect forrental growth or active management has reduced. The Group acquired 13 properties in the UK at a blended yield of 6.21%, disposedof two occupied properties at an average yield of 5.78% and one vacant property.As at 30 September 2007, it owned 72 properties in the UK. The Group alsopurchased five properties in Germany, one in France and entered into a forwardcommitment to purchase a building in the Netherlands. Total assets of the Groupat 30 September were £ 729 million (2006: £490 million). Continental Europeanproperties represented 22% by value. As at the date of this statement, approximately 45% of the rental income of theGroup is linked to an inflation index, up from 28% at the same time last year. Wichford's robust business model, with UK Central Government and Central orState Governments in Continental Europe as tenants, means that its income isvery secure. As at 30 September 2007 the interest rate on all UK debt was fixedfor over 5 years. During the second half of 2007 the outlook for property values in the UKdeteriorated. Yields on commercial properties started to rise for the firsttime in many years and short term interest rates rose following the liquidityproblems and the credit crunch in the US and UK. Whilst most listed companyshares, including Wichford, are now trading at significant discounts to netasset value (NAV), reflecting investor concern for the short term prospects forthe sector, the Board believes that Wichford is well placed to take advantage ofa market in which the fall in property values has begun to make yields moreattractive again. The Board has given serious consideration as to whether Shareholders' interestsmay be well served by effecting a buy-back of shares and, with this possibilityin mind, it has put a resolution to Shareholders at the Annual General Meetingto renew the authorisation for buy-backs at an increased level of10% of theissued share capital (currently 5%). As first announced in the Operating Statement on 28 September 2007, Wichford ismoving its listing from AIM to the main London market. This move should enablethe company to broaden its shareholder base and to include more private holdersand Self Invested Pension Plans (SIPPS). During the year, we welcomed three new directors onto the board. David Harrel,ex-senior partner of SJ Berwin LLP; Mark Taylor, recently finance director ofWorkspace Group plc, who will chair the audit committee , and Richard Melhuish,who has considerable experience in the property sector. Michael Sheehan retired as a director on 8 November 2007. He became Chairman ofWichford when it was incorporated and chaired the Company during its floatationon AIM in 2004. Under his chairmanship the Company grew rapidly and became thesuccessful property group that it is today. On behalf of the Board and theShareholders, I would like to thank him and wish him a happy retirement. The Board believes that the Group's business model continues to be soundlybased. The volatility in the financial markets will, in line with the market,more generally, have an impact on the valuation of the Group's portfolio in theshorter term. Meanwhile occupational demand appears robust and the marketvolatility may create some interesting investment opportunities during 2008. Assuch, the Board views the prospects for the Group as sound. Philippe de NicolayChairman10 December 2007 Consolidated Income Statementfor the year ending 30 September 2007 (Unaudited) Year ending 30 September 2007 Year ending 30 September 2006 Trading Other Total Trading Other Items Total Operations* Items** Operations* ** Notes £000 £000 £000 £000 £000 £000 Revenue 4 33,073 - 33,073 24,248 - 24,248(Deficit)/surplus on 11 - (22,562) (22,562) - 35,395 35,395revaluation of investmentpropertiesProfit on disposal of - 1,403 1,403 - 2,567 2,567investment propertiesAdministrative expenses (3,801) - (3,801) (4,627) - (4,627) Operating profit/(loss) 5 29,272 (21,159) 8,113 19,621 37,962 57,583 Finance revenue 7 1,950 - 1,950 2,216 6,984 9,200Finance cost 7 (19,655) - (19,655) (13,815) - (13,815) Profit/(loss) before tax 11,567 (21,159) (9,592) 8,022 44,946 52,968 Income tax expense 8 (230) - (230) (182) - (182) Profit/(loss) for the year 20 11,337 (21,159) (9,822) 7,840 44,946 52,786 Basic EPS from continuing 9 9.70 (18.10) (8.40) 8.06 46.18 54.24operations (pence) Consolidated Statement of Recognised Income and Expensefor the year ending 30 September 2007 (Unaudited) Year ending 30 September 2007 Year ending 30 September 2006 Trading Other Total Trading Other Total Operations* Items** Operations* Items** Notes £000 £000 £000 £000 £000 £000 Income and expense recogniseddirectly in equityGains on cash flow hedges 20 - 12,948 12,948 - - -Foreign currency translation 20 - 567 1,403 - - - Net income recognised directly in - 13,515 13,515 - - -equity Profit for the year 20 11,337 (21,159) (9,822) 7,840 44,946 52,786 Total recognised income and 20 11,337 (7,644) 3,693 7,840 44,946 52,786expense for the year All activities are continuing. * Trading Operations: This excludes the Other Items and reflects the trading activities of the Group. ** Other Items: Includes the profits and losses on the sales of investment properties and items of a non-trading nature such as valuation adjustments arising from the fair value of investment properties and derivative financial instruments. Consolidated balance sheetAs at 30 September 2007 30 September 30 September 2007 2006 Notes £000 £000 (Unaudited)Non-current assetsInvestment properties 11 663,569 451,398Derivative financial assets 17 15,117 2,169 ------ ------- 678,686 453,567 ------ ------- Current assetsTrade and other receivables 12 18,956 12,861Cash at bank 13 20,287 17,312 ------ ------ 39,243 30,173 ------ ------Assets held for sale 14 10,889 6,250 ------ ------Total assets 728,818 489,990 ------ ------Current liabilitiesTrade and other payables 15 (25,778) (13,293) ------ ------ (25,778) (13,293) ------ ------Non-current liabilitiesBorrowings 16 (424,614) (265,174)Deferred tax liabilities 8 (363) (125) ------ ------ (424,977) (265,299) ------ ------Liabilities associated with assets held for sale 14 (1,389) - ------ ------Total liabilities (452,144) (278,592) ------ ------Net assets 276,674 211,398 ------ ------EquityShare capital 19 13,270 9,733Share premium 20 168,670 148,882Retained earnings 20 81,219 52,783Cash flow hedges reserve 20 12,948 -Currency translation reserve 20 567 - ------ -------Total equity attributable to the ordinaryequity holders of the parent company 276,674 211,398 ------ ------ Consolidated cash flow statementfor the year ending 30 September 2007 Year Year Ending ending 30 September 30 September 2007 2006 £000 £000 (Unaudited) Operating profit for the year 8,113 57,583Adjust non-cash items:Decrease/(increase) in fair value of investment properties 22,562 (35,395)Profit on sale of investment properties (1,244) (2,567)Performance fee adjustment (1,522) 884Accrued rental income (388) (224)Rent incentives 225 139Working capital adjustments:Increase in trade and other receivables (5,677) (9,087)Increase in trade and other payables 12,228 3,849Finance costs paid (19,215) (13,318)Finance costs received 1,950 2,216Finance lease interest (182) (172)Taxation 8 (73) ------ ------Cash flows from operating activities 16,858 3,835 ------ ------Investing activitiesPurchase of investment properties (251,23) (164,105)Sale of investment properties 13,344 14,667 ------ ------Cash flows used in investing activities (237,99) (149,438) ------ ------Financing activitiesOrdinary shares issued (net of expenses) 73,325 -Increase in bank debt 160,960 79,182Share issue expense adjustment - 25Equity dividends paid (10,219) (6,404) ------ ------Cash flows from financing activities 224,066 72,803 ------ ------Increase / (decrease) in cash and cash equivalents 2,975 (72,800) ------ ------Cash and cash equivalents at beginning of year 17,312 90,112 ------ ------Cash and cash equivalents at year end 20,287 17,312 ------ ------ Notes to the annual financial statements 1. Basis of preparation The financial statements are prepared in accordance with the principalaccounting policies adopted by the Group as set out in note 2 and InternationalFinancial Reporting Standards ("IFRS") as issued by the International AccountingStandards Board. These accounting policies have been consistently applied to all the periodspresented. The policies have changed from the previous year when the financial statementswere prepared under applicable United Kingdom Generally Accepted AccountingPrinciples (UK GAAP). The comparative information has been restated inaccordance with IFRS. The changes to accounting policies are explained in note24, together with the reconciliation of opening balances. The date oftransition to IFRS was 1 October 2005 (transition date). The rules for first-time adoption of IFRS are set out in IFRS 1. IFRS 1 allowscertain exemptions in the application of particular standards to prior periodsin order to assist companies with the transition process; however, as the Grouphas transitioned with effect from the date of incorporation of the parent, noneof the exemptions have been applied. The financial statements are prepared on the historical cost basis, except forinvestment property and derivative financial instruments that are measured atfair value. The financial statements are presented in thousands of poundsterling (£000) except where otherwise indicated. 2. Significant accounting policies A summary of the significant accounting policies is set out below: Basis of consolidation The financial statements comprise the historical financial information ofWichford P.L.C. and its subsidiaries ("the Group") for the period ending 30September 2007. Wichford P.L.C. is a public listed company incorporated in theIsle of Man. Subsidiaries are consolidated from the date on which control istransferred to the Group and cease to be consolidated from the date on whichcontrol is transferred from the Group. Control comprises the power to govern thefinancial and operating policies of the investee so as to obtain benefit fromits activities and is achieved through direct or indirect ownership of votingrights; currently exercisable or convertible potential voting rights; or by wayof contractual agreement. The financial statements of the subsidiaries are prepared for the same reportingyear as the parent company, using consistent accounting policies. Allintra-group transactions are eliminated as part of the consolidation process. Revenue Revenue recognised in the income statement represents property rental income andinterest income, net of VAT and other sales-related taxes, as follows: Rental income receivable under operating leases Rental income receivable under operating leases is recognised on a straight-linebasis over the term of the lease, except for contingent rental income which isrecognised when it arises. Incentives for lessees to enter into lease agreements are spread evenly over thenon-cancellable period of the lease, even if the payments are not made on such abasis. Premiums received to terminate leases are recognised in the income statementwhen they arise. The lease term is the non-cancellable period of the lease together with anyfurther term for which the tenant has the option to continue the lease, where,at the inception of the lease, the Directors are reasonably certain that thetenant will not exercise that option. Service charges Where the Group invoices service charges, these amounts are not recognised asincome as the risks in relation to the provision of these goods and services areprimarily borne by the Group's customers. Any servicing expenses suffered by theGroup are included within direct costs. Interest income Interest income is recognised at it accrues using the effective interest ratebasis. Insurance Premiums Insurance premiums recharged to tenants are not reflected in either income orexpense. Property acquisitions Where properties are acquired through the acquisition of corporate interests theDirectors have regard to the substance of the assets and activities of theacquired entity in determining whether the acquisition represents theacquisition of a business. Where such acquisitions are not judged to be an acquisition of a business thetransactions are accounted for as if the Group had acquired the underlyingproperty directly. Accordingly, no goodwill arises, rather the cost of thecorporate entity is allocated between the identifiable assets and liabilities ofthe entity based on their relative fair values at the acquisition date. Otherwise corporate acquisitions are accounted for as business combinations. Business combinations and goodwill Business combinations are accounted for under IFRS 3 using the purchase methodof accounting. The cost of acquisition is the consideration given in exchangefor the identifiable net assets. This consideration includes any cash paid plusthe fair value at the date of exchange of assets given, liabilities incurred orassumed and equity instruments issued by the Group. The cost of acquisition alsoincludes directly attributable costs. The acquired net assets are initially recognised at fair value. Where the Groupdoes not acquire 100% ownership of the acquired company, a minority interest isrecorded as the minority's proportion of the fair value of the acquired netassets. Any adjustment to the fair values is recognised within twelve months ofthe acquisition date. Goodwill on acquisitions comprises the excess of the fair value of theconsideration plus any associated costs for investments in subsidiaries over thefair value of the identifiable net assets acquired. Any goodwill and fair valueadjustments are recorded as assets and liabilities of the acquired company forthe purposes of consolidation and are recorded in the local currency of thatcompany. The costs of integrating and reorganising acquired businesses arecharged to the post-acquisition income statement. Goodwill is carried at cost less accumulated impairment losses. The Group's goodwill is reviewed at each balance sheet date on an annual basis,or more frequently if there is an indication that the goodwill is impaired, todetermine whether events or changes in circumstances exist that indicate thattheir carrying amount may not be recoverable. If such an indication exists, theasset's recoverable amount is estimated. The recoverable amount is the higher ofan asset's fair value less costs to sell and value in use. An impairment loss isrecognised in the income statement for the amount by which the asset's carryingamount exceeds its recoverable amount. Investment property Property held to earn rent or for capital appreciation, or both, is classifiedas investment property and recognised initially at cost, including directlyattributable transaction costs. Property held under leases for the same purpose is also classified as investmentproperty, accounted for as held under a finance lease and initially recognisedat the sum of any premium paid on acquisition and the present value of anyfurther minimum lease payments. The corresponding liability to the superiorleaseholder is included in the balance sheet as a finance lease obligation. Thereafter investment property is measured at fair value, which reflects marketconditions at the balance sheet date. For the purposes of the historicalfinancial information the assessed fair value is: • reduced by the carrying amount of any accrued income resulting from the spreading of lease incentives and/or minimum lease payments; and • increased by the carrying amount of any liability to the superior leaseholder included in the balance sheet as a finance lease obligation. The annual valuations of investment property are based upon estimates andsubjective judgements that may vary from the actual values and sales prices thatmay be realised by the Group upon ultimate disposal. The critical assumptionsmade relating to valuations have been disclosed in note 11 to the financialstatements. Gains or losses arising from changes in the fair value of investment propertyare included in the income statement in the year in which they arise. Profits orlosses on the disposal of investment property are recognised at contractcompletion for the disposal. Non-current assets held for sale Investment property is transferred to non-current assets held for sale when itis expected that the carrying amount will be recovered principally through salerather than from continuing use due to advanced sale discussions. Onre-classification, investment property continues to be measured at fair value. Finance leases Finance leases are capitalised at the inception of the lease at the fair valueof the leased property or, if lower, at the present value of the minimum leasepayments. Lease payments are apportioned between the finance charges and thereduction of the lease liability so as to achieve a constant rate of interest onthe remaining balance of the liability. Finance charges are charged to theincome statement as they arise. Cash and short-term deposits Cash and short-term deposits in the balance sheet comprise cash at bank,short-term deposits held at call with banks and other short-term highly liquidinvestments with original maturities of three months or less. For the purpose of presenting the "Consolidated cash flow statement", cash andcash equivalents consist of cash and short term deposits as defined above, netof outstanding bank overdrafts. Trade and other receivables Trade and other receivables are recognised and carried at the lower of theiroriginal invoiced value and recoverable amount. A provision for impairment oftrade receivables is established where there is objective evidence that theGroup will not be able to collect all amounts due according to original terms ofthe receivables concerned. Balances are written off when the probability ofrecovery is assessed as being remote. Trade and other payables Trade and other payables are recognised at fair value and subsequently measuredat amortised cost. Loans and borrowings Loans and borrowings are initially recognised at fair value less directlyattributable transactions costs. After initial recognition, interest and non-interest bearing loans andborrowings are subsequently measured at amortised cost using the effectiveinterest rate method. Amortised cost is calculated by taking into account anyissue costs and any discount or premium on settlement. Borrowing costs are recognised in the income statement using the effectiveinterest rate method. Gains and losses arising on the repurchase, settlement or otherwise cancellationof liabilities are recognised in finance income and finance expenserespectively. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability isdischarged, cancelled or expires. Where an existing financial liability is replaced by another from the samelender on substantially different terms, or the terms of an existing liabilityare substantially modified, such an exchange or modification is treated as aderecognition of the original liability and recognition of new liability, andthe difference in the respective carrying amounts is recognised in the incomestatement. Derivative financial instruments The Group uses derivative financial instruments, such as interest rate swaps, tohedge its risks associated with interest rate fluctuations. The Group does nothold or issue derivatives for trading purposes. Such derivative financialinstruments are initially recognised at fair value on the date at which aderivative contract is entered into and are subsequently remeasured at fairvalue at each reporting date. For derivatives that do not qualify for hedge accounting, any gains or lossesarising from changes in fair value are taken directly to the income statementfor the year. For derivatives that qualify for hedge accounting, the effectiveportions of the gains or losses arising from changes in fair value arerecognised in equity as net unrealised gains or losses, while any ineffectiveportion is recognised immediately in profit or loss. For the purpose of hedge accounting, interest rate swaps are designated as cashflow hedges where they hedge exposure to variability in cash flows that iseither attributable to a particular risk associated with a recognised asset orliability or a forecast transaction. Hedge accounting is discontinued when the hedging instrument expires, is sold,terminated, exercised or no longer qualifies for hedge accounting. At that pointin time, any cumulative gain or loss on the hedging instrument recognised inequity is kept in equity until the forecast transaction occurs. At the time ofthe forecast transaction, the net cumulative gain or loss recognised in equityis transferred to the income statement for the year. Fair values of financial instruments The fair value of quoted instruments is determined by reference to bid prices atthe close of business on the balance sheet date. Where there is no activemarket, fair value is determined using valuation techniques. These include usingrecent arm's length market transactions; reference to the current market valueof another instrument which is substantially the same; discounted cash flowanalysis and pricing models. Share based payments A performance fee is payable as part of the contract with the Property Adviser,and this is to be satisfied by the issuance of new shares in the parent company.This performance fee is related to the total return to Shareholders, based onthe share price and dividends paid. The resulting performance fee for aparticular performance period will be settled by the issuance of shares to theProperty Adviser, subject to certain vesting conditions, at the end of thesubsequent two years. The performance fee is charged to the income statement using the intrinsicmethod over the vesting period in accordance with IFRS 2 "Share-based payment".Until the issuance of any shares under this contract, and in accordance withIFRS 2 guidance, the charge to income statement is added back to distributablereserves, as it does not result in cash leaving the Group. On the issuance of any shares under this contract, the full market value of theshares issued will be charged to the parent company's distributable reserves. Current taxation Current tax assets and liabilities for the current and prior periods aremeasured at the amount expected to be recovered from or paid to the taxauthorities. The tax rates and tax laws used to compute the amount are thosethat are enacted or substantially enacted by the balance sheet date. Deferred taxation Deferred income tax is provided using the liability method on all temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts for financial reporting purposes with thefollowing exceptions: • where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; • in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and • deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which deductible temporary differences, carried forward tax credits or tax losses can be utilised. The amount of deferred tax provided is based on the expected manner ofrealisation or settlement of the carrying amount of assets and liabilities.Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply to the year when the asset is realised or the liability issettled, based on tax rates and tax laws that have been enacted or substantivelyenacted at the balance sheet date. In determining the expected manner of realisation of an asset the Directorsconsider that the Group will recover the residual value of an asset through saleand the depreciable amount through use. Whilst investment property is measuredat fair value, it is intrinsically depreciable. Consequently deferred taxrelating to that portion of the carrying amount of the investment property thatwould be considered depreciable under IAS 16 is measured on an 'in use', not an'on sale' basis. The element of the total carrying amount of the investmentproperty represented by the land is considered non-depreciable and the Directorsestimate the depreciable amount and residual value of the building element on acase by case basis. Foreign currency translation Transactions in foreign currencies are initially recorded in the functionalcurrency by applying the spot exchange rate ruling at the date of thetransaction. Monetary assets and liabilities denominated in foreign currenciesare retranslated at the functional currency rate of exchange ruling at thebalance sheet date. All differences are taken to the income statement.Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rates as at the dates of the initialtransactions. Non-monetary items measured at fair value in a foreign currencyare translated using the exchange rates at the date when the fair value wasdetermined. Exchange differences arising on a monetary item that forms part of a reportingentity's net investment in a foreign operation shall be recognised in profit orloss in the separate financial statements of the reporting entity or theindividual financial statements as appropriate. In the financial statements thatinclude the foreign operations and the reporting entity (the Group accounts),such exchange differences shall be recognised initially in a separate componentof equity and recognised in profit or loss on disposal of the net investment. The assets and liabilities of foreign operations are translated into sterling atthe rate of exchange ruling at the balance sheet date. Income and expenses offoreign operations are translated at weighted average exchange rates for theaccounting period. The resulting exchange differences are taken directly to aseparate component of equity. Operating profit Operating profit is profit stated after profit/loss on disposal of investmentproperties and the revaluation of the property portfolio but before financeincome and costs. Exceptional items The Group presents as exceptional items on the face of the income statement,those material items of income and expense which, because of the nature andexpected infrequency of the events giving rise to them, merit separatepresentation to allow shareholders to understand better the elements offinancial performance in the year, so as to facilitate comparison with priorperiods and to assess better trends in financial performance. Equity Equity comprises the following: - "Share capital" represents the nominal value of equity shares. - "Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of share issues. - "Retained earnings" represents retained profits. - "Cashflow hedges reserve" represents changes in the carrying amount of cash flow hedges. - "Currency translation reserve" represents the differences arising from translation of investments in overseas subsidiaries. New standards and interpretations not applied The International Accounting Standards Board ("IASB") and InternationalFinancial Reporting Interpretations Committee ("IFRIC") have issued thefollowing standards and interpretations with effective dates after the date ofthese financial statements that have not yet been adopted by the Group. IASB Effective dateIAS 1 Revised Presentation of Financial Statements: Capital Disclosures 1 January 2007* IFRS 8 Operating Segments 1 January 2009 IAS 23 Revised - Borrowing Costs 1 January 2009* IFRIC IFRIC 11 Group and Treasury Share Transactions 1 March 2007 IFRIC 12 Service Concession Arrangements 1 January 2008* IFRIC 13 Customer Loyalty Programmes 1 July 2008* IFRIC 14 IAS 19-The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 1 January 2008* * - not yet endorsed by the EU. None of the above Standards or Interpretations is expected to have a materialimpact. The Company has adopted IFRS 7 "Financial Instruments: Disclosures" for thesefinancial statements. 3. Segment information The primary reporting of the Group is the entire business. The businessactivity of the Group is property investment in UK and Continental Europe whichthe Board consider to be the only business segment. Therefore informationprovided elsewhere in the historical financial information relates to thatsegment. Secondary reporting format - Geographic segments The following table presents revenue, expenditure and certain asset informationregarding the Group's geographical segments: Rest of UK Europe TotalYear ending 30 September 2007 £000 £000 £000 Segment revenue 31,275 1,798 33,073 ----- ---- -----Carrying amount of Segment assets 572,659 156,159 728,818 ----- ----- -----Segment assets Segment capital expenditure Acquisition of investment properties 110,390 149,633 260,023 ------ ------ ------ Rest of UK Europe Total £000 £000 £000 Year ending 30 September 2006Segment revenue 24,248 - 24,248 ------ ------ ------Carrying amount of Segment assets Segment assets 489,990 - 489,990 ------ ------ ------Segment capital expenditure Acquisition of investment properties 162,711 - 162,711 ------ ------ ------ 4. Revenue Year Year ending Ending 30 September 30 September 2007 2006 £000 £000 Rental income 33,018 24,189Other income 55 59 ------ ----- 33,073 24,248Finance revenue (note 7) 1,950 9,200 ------ ------ 35,023 33,448 ------ ------ 5. Operating profit The following items have been charged in arriving at operating profit: Year Year ending Ending 30 September 30 September 2007 2006Property advisor's fees £000 £000- for advisory services 3,384 2,535- for accrued performance fees (1,523) 884Property manager's fees 185 142 Auditor's remuneration- for interim review 27 25- for final audit 140 109- for review of tax provision 35 20- for tax compliance work 161 60Legal fees 417 275 ------ ------ In addition to the fees shown above as the auditor's remuneration, the auditoralso charged £53,000 (2006: £129,000) for due diligence and advisory services.These fees have been either capitalised as part of the cost of acquiringproperties or charged to the Share Premium account as an expense of raisingadditional share capital. The total fees payable to the auditor in the year were£416,000 (2006: £343,000). The performance fee is payable by Wichford P.L.C. to Wichford PropertyManagement Limited (WPML) and takes the form of a share incentive scheme, underwhich WPML will acquire ordinary shares in Wichford P.L.C. at no cost, by way ofan annual profit sharing participation. The amount of the annual award is calculated as 20% of the amount by which thetotal return on the ordinary shares in Wichford P.L.C. exceeds 10% for thepreceding financial year. A separate calculation of the amount of the annualaward is made in relation to each separate tranche of ordinary shares inWichford P.L.C. issued during the relevant financial year. The award of these shares will only vest if the annualised return over the threeyear period from the beginning of the relevant financial year to the end of theperiod two years later, is not less than 10% per annum and will only be issuedif Wichford P.L.C.'s net asset per share value is greater than or equal to itsnet asset per share value as at 5 August 2004. Wichford plc estimates the accrual for the performance fee for each interim andyear-end financial report. To this end, the amounts accrued in the past two years and the resultant chargesto the Income statement are £884,000 and £731,000 respectively. In the past year, the share price has fallen and therefore the amount in thefinancial statements has been adjusted accordingly to reflect the fact that theannualised return has not been achieved over the past three years. As a result,there has been a reduction in the performance fee accruals and a resultantcredit to the Income statement of £1,523,000. 6. Directors' emoluments There were no employees other than the Directors of the parent company.Directors' emoluments paid in the year were £175,250 (2006: £113,644) and allrelate to fees; there being no other benefits or payments. 7. Finance revenue and costs Year Year ending ending 30 September 30 September 2007 2006 £000 £000Finance revenueInterest receivable 1,950 2,216Fair value adjustment of interest rate swap - 6,984 ------ ------Total finance revenue 1,950 9,200 ------ ------Finance costsBank interest 19,023 13,288Amortisation of loan agreement fees 402 325Finance lease interest 182 172Other 48 30 ----- ------Total finance expense 19,655 13,815 ----- ------ 8. Income tax (a) Tax on profit/(loss) from ordinary activities Year Year ending ending 30 September 30 September 2007 2006 £000 £000 (Loss)/profit for the period not subject to UK income tax (9,592) 52,968 ------ ------(Loss)/profit before tax (9,592) 52,968 ------ ------Current income taxAdjustments in respect of previous year (8) 54Income tax on interest receivable - 19 ------ ------Total current income tax (8) 73 ------ ------ Deferred taxOrigination and reversal of temporary differences 238 109 ------ ------Income tax expense reported in the income statement 230 182 ------ ------ b) Deferred tax Deferred tax included in the balance sheet is as follows: 30 September 30 September 2007 2006 £000 £000Deferred tax liabilityLease accounting temporary differences 363 125 ------ ------Deferred tax liability 363 125 ------ ------ The deferred tax included in the income statement is as follows: Year ending Year ending 30 September 30 September 2007 2006 £000 £000 Lease accounting temporary differences 238 109 ------ ------Deferred income tax expense 238 109 ------ ------ 9. Earnings per share Basic earnings per share for the year ending 30 September 2007 is based on theloss attributable to equity shareholders of £9,822,000 (2006: profit of£52,786,000) and a weighted average number of ordinary shares outstanding duringthe year ending 30 September 2007 of 116,904,399 (2006: 97,325,697). There are no dilutive potential ordinary shares. Diluted earnings per share arethe same as basic earnings per share. Year Year ending ending 30 September 30 September 2007 2006 £000 £000 (Loss)/profit attributable to equity shareholders (9,822) 52,786 ------ ------Weighted average number of ordinary shares (000s) 116,904 97,326 Earnings per shareBasic (loss)/earnings per share (pence) (8.4) 54.2 ------ ------ 10. Net assets per share Net assets per share is calculated by dividing the net assets at 30 September2007 attributable to the equity holders of the parent of £276,674,000 (2006:£211,398,000) by the number of ordinary shares as at 30 September 2007 of132,703,055 (2006: 97,325,697) 30 September 30 September 2007 2006 £000 £000 Net assets attributable to equity holders of the parent 276,674 211,398(£000) Number of ordinary shares (000s) 132,703 97,326 Net assets per share (pence) 208.5 217.2 ------ ------ 11. Investment properties Freehold Freehold/ and long Long Feuhold leasehold Leasehold Total2007 £000 £000 £000 £000 At 30 September 2006 308,065 29,669 113,664 451,398Purchases during the year 245,870 14,153 - 260,023Disposals during the year (16,851) - - (16,851)Valuation gains/(losses) (24,519) (6,770) 8,727 (22,562)Transferred to assets held for sale (Note 14) - - (10,889) (10,889)Payment on account for asset in course ofconstruction 2,450 - - 2,450 ------ ------ ------ ------At 30 September 2007 515,015 37,052 111,502 663,569 ------ ------ ------ ------ During the year to 30 September 2007 the Group acquired 19 properties for atotal consideration of £260 million. In addition, the Group disposed of threeproperties, for £25.6 million producing a profit in excess of £1.4 million. As aresult of these transactions, at 30 September 2007, the Group owned 78properties throughout the UK, France and Germany. As part of this acquisitionprogramme the Group acquired eight investment properties through the acquisitionof the share capital of a number of UK, Luxembourg and German companies togetherwith a German limited partnership. The UK companies acquired were Amanikh Holdings Limited (renamed Wichford OldhamLimited) and Prologis (Coventry Road) Limited. The Luxembourg companies acquiredwere Concertine SA and Mirano SA. The German companies acquired were B. HoldingII GmbH and B. Holding III GmbH, these together with the Luxembourg companiesown two further German companies and two German limited partnerships. The Germanlimited partnership was Justizzentrum in Halle Dr. Ebertz KG (renamedJustizzentrum in Halle Wichford GmbH & Co. KG). Freehold Freehold/ and long Long Feuhold leasehold Leasehold Total2006 £000 £000 £000 £000 At 30 September 2005 186,047 26,420 57,070 269,537Purchases during the year 115,117 - 47,594 162,711Disposals during the year (12,100) - - (12,100)Valuation gains/(losses) 25,251 1,144 9,000 35,395Transferred to assets held for sale (Note (6,250) - - (6,250)14)Payment on account for asset in course ofconstruction - 2,105 - 2,105 ------ ------ ------ ------At 30 September 2006 308,065 29,669 113,664 451,398 ------ ------ ------ ----- In the year to 30 September 2006, the Group acquired a number of investmentproperties through the acquisition of the total share capital of six companiestogether with all the issued units of a Jersey unit trust. The companies acquired were Carlatona Enterprises Ltd (renamed WichfordEdgbaston Holdings Ltd), Grayville Holdings Ltd (renamed Wichford EdgbastonLtd), Blue Sea Shell Ltd (renamed Wichford Centenary Court Ltd), Tiger HarrowLtd (renamed Wichford Harrow Ltd), Silver Star Property Ltd (renamed WichfordIpswich Ltd) and Lapis Holdings Ltd (renamed Wichford Worthing Ltd), The unittrust units acquired were those of Exchange House Unit Trust. All the Group's investment properties were externally valued as at 30 September2007 and 30 September 2006 on the basis of open market value by professionallyqualified valuers in accordance with the Appraisal and Valuation Standards ofthe Royal Institution of Chartered Surveyors. The Group's valuer is AtisrealLimited in the UK and DTZ in France together with Savills and JLL in Germany. The value of each of the properties has been assessed in accordance with therelevant parts of the Red Book. In particular, the Market Value has beenassessed in accordance with PS 3.2. Under these provisions, the term "MarketValue" means "the estimated amount for which a property should exchange on thedate of valuation between a willing buyer and a willing seller in anarm's-length transaction after proper marketing wherein the parties have eachacted knowledgeably, prudently and without compulsion". In undertaking the valuations on the basis of Market Value the valuers haveapplied the interpretative commentary which has been settled by theInternational Valuation Standards Committee and which is included in PS 3.2. TheRICS considers that the application of the Market Value definition provides thesame result as Open Market Value, a basis of value supported by previouseditions of the Red Book. The valuation does not include any adjustments to reflect any liability totaxation that may arise on disposal, nor for any costs associated with disposalsincurred by the owner. No allowance has been made to reflect any liability torepay any government or other grants, or taxation allowance that may arise ondisposals. Deductions have been made to reflect purchasers' acquisition costs.These have been applied according to value on a sliding scale, representative ofthe typical costs that would be incurred in the market. A reconciliation of investment and development property valuations to thebalance sheet carrying value of property is shown below: 30 September 30 September 2007 2006 £000 £000 Investment property at market value as determined by external 673,458 455,760valuersAdd minimum payment under head leases separately included as a 3,414 3,236payable in the balance sheetLess accrued incentives separately included as a receivable in the (4,180) (3,156)balance sheetLess accrued rental income separately included as a receivable in (780) (354)the balance sheetAdd accrued rental income separately included as a payable in the 96 57balance sheet _______ _______ 672,008 455,543 Add payment on account for asset in the course of construction 2,450 2,105Less property transferred to assets held for sale (10,889) (6,250) _______ _______Balance sheet carrying value of investment property 663,569 451,398 ------- ------- 12. Trade and other receivables 30 September 30 September 2007 2007 £000 £000Trade receiveables 7,271 4,235VAT recoverable 131 57Accrued rental incentives 4,180 3,156Accrued rental income 780 354Other prepayments 6,197 4,879Service charge 397 180 _______ _______ 18,956 12,861 ------- ------- Trade receivables are non interest-bearing and generally have a 14 day term. Dueto their short maturities, the fair value of trade and other receivablesapproximates to their book value. As at 30 September 2007 nil trade receivables were impaired (2006: nil). As at30 September 2007, nil trade receivables were overdue but not impaired (2006:nil). 13. Cash and cash equivalents 30 Sepember 30 September 2007 2006 £000 £000 Cash at bank 20,287 17,312 ------- ------- Cash at bank earns interest at floating rates based on daily bank deposit rates.Short-term deposits are made for varying periods dependent on the immediate cashrequirements of the Group. The book value of cash and cash equivalentsapproximates their fair value. 14. Assets held for sale As at 30 September 2007 the long leasehold property at Archway, Islington, inLondon with an external valuation of £9,500,000, was classified as held forsale. The carrying value of the property (£10,889,000) and the present value ofthe Archway finance lease (£1,389,000) are presented separately on the balancesheet. The disposal of this property was completed on 11 October 2007. As at 30 September 2006 the Foundry House property in Sheffield with a carryingvalue of £6,250,000, was classified as held for sale. The disposal of theFoundry House was completed on 27 October 2006. 15. Trade and other payables 30 September 30 September 2007 2006 £000 £000Rents received in advance 8,272 6,230VAT payable 535 513Other payables and accruals 16,478 6,313Accrued rental income 96 57Service charge 397 180 _______ _______ 25,778 13,293 ------- ------- Trade and other payables are non-interest bearing and it is the Group's policyto pay within the stated terms which typically vary from 30 - 45 days. Due totheir short maturities, the fair value of trade payables approximates to theirbook value. 16. Borrowings 30 September 30 September 2007 2006 £000 £000Bank loans 425,281 264,286 Less: deferred finance costs (2,692) (2,348)Finance leases 3,414 3,236 Less: finance lease classified as held for sale (1,389) - _______ _______ 424,614 265,174 ====== ====== a) Bank Loans At 30 September 2007, the bank borrowings of £425,281,000 are secured by fixedand floating charges over the assets and income streams of the Group. Itcomprised of five separate borrowing facilities each secured on a number ofdiscrete assets with no common assets. There were also a number of propertiesthat were not pledged as security for any borrowing facility. These facilities are summarised as below: 30 September 30 September 2007 2006 £000 £000Gamma 199,678 199,678Delta 114,608 64,608VBG1 49,547 -VBG2 39,253 -Halle 22,195 - _______ _______ 425,281 264,286 ------- ------- The Gamma and Delta facilities are non-amortising and have final repayment datesin October 2012 and both have been put into securitisation conduits by thelender. The VBG facilities are amortising dependant upon expected rent rises with finalrepayment dates in January 2010 for VBG1 and April 2011 for VBG2. However, onacquisition, part of the purchase price was paid into escrow accounts such thatall expected amortisation of these bank loans will be funded by the escrowaccounts. These facilities have been put into securitisation conduits by thelender. The Halle facility is non-amortising and has a final repayment date in April2014. Since 30 September 2007 this facility has been increased and restated onmore favourable terms to the Group. All of the facilities are subject to the interest rate swaps detailed in note17. The book value of borrowings is not materially different to the fair value. b) Finance Leases Obligations under finance leases at the balance sheet dates are analysed asfollows: 30 September 30 September 2007 2006 £000 £000Gross finance lease liabilities repayable:In one year or less 198 170In more than one year, but not more than five years 792 681In more than five years 18,561 17,877 _______ _______ 19,551 18,728Less: finance charges allocated to future periods (16,137) (15,492) _______ _______Less: finance charges allocated to future periods 3,414 3,236 ------- ------- 30 September 30 September 2007 2006 £000 £000The present value of finance lease liabilities repayable:In one year or less 8 - In more than one year, but not more than five years 40 2In more than five years 3,366 3,234 _____ _____ Present value of minimum lease payments 3,414 3,236 ==== ==== The present values of minimum lease payments have been calculated by using themarket cost of external borrowings available to the Group at the inception ofthe lease. The Directors consider that the carrying amount of these financelease obligations approximate their fair value. 17. Derivative financial instruments The Group enters into interest rate swaps and forward currency contracts. Thepurpose is to manage the interest rate and currency risks arising from theGroup's operations and its sources of finance. It is the Group's policy that no trading in derivatives shall be undertaken. a) Interest rate swap agreements In accordance with the terms of the borrowing arrangements, the Group hasentered into interest swap agreements. The interest rate swaps are used to manage the interest rate profile offinancial liabilities. The Group has employed interest rate swaps to eliminatefuture exposure to interest rate fluctuations. As a result of the use ofinterest rate swaps the fixed rate profile of the Group was: 30 September 2007 30 September 2006Effective Date Maturity Date Swap Rate £000 £00029/06/2007 15/01/2010 3.17% 49,594 -29/06/2007 15/04/2011 3.93% 39,206 -27/09/2007 15/04/2014 4.11% 22,195 -30/09/2005 20/10/2012 4.57% 70,606 70,60620/01/2006 20/10/2012 4.66% 40,000 40,00015/07/2004 21/10/2008 4.70% 30,000 30,00011/11/2005 20/10/2012 4.79% 40,000 40,00015/07/2005 01/11/2011 4.90% 10,221 8,47319/03/2004 20/01/2009 4.93% 5,241 5,30030/01/2004 20/01/2009 4.97% 7,964 8,05415/07/2005 01/11/2011 5.07% 29,700 29,96021/01/2007 15/10/2012 5.14% 15,000 -21/01/2007 15/10/2012 5.19% 35,000 -28/04/2004 20/01/2009 5.21% 3,673 3,77301/12/2003 20/01/2009 5.22% 7,572 8,36701/07/2004 20/01/2009 5.43% 3,500 3,70224/06/2004 20/01/2009 5.49% 9,032 9,05329/07/2004 20/01/2009 5.57% 6,777 6,998 _______ _______ Total 425,281 264,286 ------- ------- The Group also has entered into the following additional interest rate swapcontract that commences after the year end as follows: 30 September 2007 30 September 2006Effective Date Maturity Date Swap Rate £000 £00001/11/2011 15/10/2012 4.90% 113,680 113,680 ------- ------- Since 30 September 2007 the Group has renegotiated the interest rate swap on theloan inherited on the acquisition of the Justizzentrum in Halle, Germany, inline with the negotiated increase in the borrowing facility secured on thisproperty. The new interest rate swap has a nominal value of €37.1 million and aswap rate of 4.195% effective from 15 October 2007. This replaces the interestrate swap with a swap rate of 4.11% shown in the table above. The overall effect of the derivatives in the above tables is to maintain aconstant total nominal value of the amount hedged. This is achieved by thenominal value of a number of the above derivatives reducing over time, offset bythe nominal value of another increasing over the total period of the borrowings. 30 September 30 September 2006 2007 £000 £000Fair value of the Group's derivative arrangements 15,117 2,169 ------- ------- Hedge accounting The gain of £12,948,000 in the 12 months to 30 September 2007 is reported in thereserves as the Group has applied hedge accounting to their swap agreementssince 1 October 2006. The cash flow hedges have been assessed as highlyeffective. The swap agreements are designated a cash flow hedge against interestrate fluctuations. b) Forward Exchange Agreements The Group has entered into short term foreign exchange sale and purchasecontracts for the purpose of mitigating the Group's exposure to foreign exchangerate movements on its equity investment in foreign property acquisitions. TheGroup chooses not to designate these contracts as hedging instruments. Due to the short term nature of these contracts the fair value approximates totheir book value. 18. Financial risk management objectives and policies The Group's principal financial instruments, other than derivatives (note 17),comprise bank loans, finance lease liabilities and cash. The main purpose ofthese financial instruments is to finance the Group's operations. The Group hasvarious other financial assets and liabilities such as trade receivables andtrade payables that arise directly from its operations. The main risks arising from the Group's financial instruments are interest raterisk, exchange rate risk, credit risk and liquidity risk. The Board of Directorsreviews and agrees policies for managing each of these risks which aresummarised below. The financial risks and the ways in which the Group manages them are listed asfollows: (a) Interest rate risk The Group finances its operations through equity, retained profits and bankborrowings. All of the Group's bank borrowings are charged at variable interestrates. The Group's exposure to the risk of changes in market interest rates relatesprimarily to the Group's long-term debt obligations with floating interestrates. The Group uses interest rate derivatives to fully mitigate its exposureto interest rate fluctuations. At the year end, as a result of the use ofinterest rate swaps, all of the Group's borrowings were at fixed interest rates. 30 September 2007 30 September 2006 £000 £000Fixed rate bank borrowings weighted average interest rate 5.36% 5.54%Weighted average period for which rate is fixed in years 7 years 6 years The Group's profit before tax therefore has no exposure to interest ratefluctuations. (b) Exchange rate risk As the Group acquires properties in Continental Europe, there is now theadditional risk of movements in • / £ exchange rates - the Group minimises theexposure to foreign currency exchange rate movements by matching, as much aspossible, the investment properties and associated loans in the same currency. The following table demonstrates the sensitivity to a reasonably possible changein the • / £ exchange rate, with all variables held constant, of the Group'sprofit before tax (due to changes in value of revenue and interest streams) andthe Group's equity (due to changes in the value of investment properties andassociated loans). In 2006 the group had no exchange rate risk. Increase / decrease Effect on profit Effect on equity in •/£ exchange rate Before tax £000 £0002007 +5% (21) (140) -5% 21 140 The •/£ exchange rate as at 30 September 2007 was 1.4359. (c) Credit risk The Group trades only with recognised, credit worthy third parties. It is theGroup's policy that all tenants who wish to trade on credit terms are subject tocredit verification procedures. In addition, the Group further manages thecredit risks by employing specialist property managers to monitor theproperties. The result is that the Group's exposure to bad debt is notsignificant. The maximum exposure is the carrying amount as disclosed in Note12. With respect to credit risk arising from the other financial assets of theGroup, which comprise cash and cash equivalents and certain derivativeinstruments, the Group's exposure to credit risk arises from default of thecounterparty, with a maximum exposure equal to the carrying amount of theseinstruments. (d) Liquidity risk The Group monitors its risk to a shortage of funds through the use of bothshort-term and long-term cash flow forecasts. The Group's objective is tomaintain a balance between continuity of funding and flexibility through the useof bank overdrafts and bank loans. The table below summarise the maturity profile of the Group's borrowings at 30September 2007 based on contractual undiscounted payments. At 30 September 2007 Bank loans Finance lease liabilities £000 £000In one year or less 362 198In more than one year, but not more than two years 1,077 198In more than two years, but not more than three years 49,048 198In more than three years, but not more than four years 38,313 198In more than three years, but not more than five years - 198 In more than five years 336,481 18,561 _______ _______ 425,281 19,551 ------- ------- At 30 September 2006 Bank loans Finance lease liabilities £000 £000In one year or less - 170In more than one year, but not more than two years - 170In more than two years, but not more than three years - 170In more than three years, but not more than four years - 170In more than three years, but not more than five years - 170In more than five years 264,286 17,878 _______ _______ 264,286 18,728 ------- ------- (e) Capital Management The Company's Articles of Association sets out the borrowing powers of theCompany. This defines a maximum amount that could be borrowed to be five timesthe issued share capital of the Company and the capital and revenue reserves ofthe Company. This gives a maximum borrowing power at 30 September 2007 of £1,383million. The Company expects to remain within this maximum for the foreseeablefuture. The borrowings at 30 September 2007 are shown in note 16. In addition, the Group is principally managed by reference to the loan to valueratios and expects to maintain this ratio between 60 per cent and a maximum of85 per cent. As a mechanism for managing the exposure to foreign currency exchange ratemovements the Group expects to borrow additional funds in the functionalcurrency relevant to the acquisition it funds. 19. Authorised and issued share capital 30 September 2007 30 September 2006AuthorisedOrdinary shares of 10p each- number 180,000,000 130,000,000- £000 18,000 13,000 _______ _______Issued, called up and fully paid- number 132,703,055 97,325,697- £000 13,270 9,733 ------- ------- Holders of the ordinary shares are entitled to receive dividends and otherdistributions and to attend and vote at any general meeting. The parent company made share placings of Ordinary shares on 13 March 2007whereby the shares issued at that time did not rank for any dividends related tothe financial period ending 31 March 2007 but rank pari passu with the remainingOrdinary shares for dividends for the financial periods beginning on or after 1April 2007. Ordinary shares of 10p each 30 September 2007 30 September 2006 Number - ranking for dividends for the current period 97,325,697 97,325,697- not ranking for interim dividend for the current period 35,377,358 - _______ _______ 132,703,055 97,325,697 ------- ------- Ordinary shares of 10p each£000s 30 September 2007 30 September 2006- ranking for dividends for the current period 9,733 9,733- not ranking for interim dividend for the current period 3,537 - _______ _______ 13,270 9,733 ------- ------- 20. Equity Share Share Retained Cashflow Currency Total capital premium earnings* hedges translation reserve reserve 2007 £000 £000 £000 £000 £000 £000 At 30 September 2006 9,733 148,882 52,783 - - 211,398Shares issued 3,537 71,463 - - - 75,000Share issue costs - (1,675) - - - (1,675)Transfer to distributable - (50,000) 50,000 - - -reservesTotal recognised income for the - - (9,822) 12,948 567 3,693yearCredit relating to performance - - (1,523) - - (1,523)fee of Property AdvisorDividends paid - - (10,219) - - (10,219) ------- ------- ------- ------- ------- -------At 30 September 2007 13,270 168.670 81,219 12,948 567 276,674 ------- ------- ------- ------- ------- ------- Share Share Retained Cashflow Currency Total capital premium earnings hedges translation reserve reserve 2006 £000 £000 £000 £000 £000 £000 At 30 September 2005 9,733 148,857 5,517 - - 164,107Share issue expense adjustment - 25 - - - 25Total recognised income for the - - 52,786 - - 52,786yearCredit relating to performance - - 884 - - 884fee of Property AdvisorDividends paid - - (6,404) - - (6,404) ------- ------- ------- ------- ------- -------At 30 September 2006 9,733 148,882 52,783 - - 211,398 ------- ------- ------- ------- ------- ------- * Retained earnings includes £22,004,000 of unrealised property revaluationsurplus. 21. Dividends 30 September 30 SeptemberOrdinary dividends paid 2007 2006 £000 £000 Final dividend for 2005 - 9 pence per share - 3,471Interim dividend for 2006 - 3 pence per share - 2,933Final dividend for 2006 - 6.5 pence per share 6,326 -Interim dividend for 2007 - 4 pence per share 3,893 - ------- ------- 10,219 6,404 ------- ------- The Directors are proposing a final dividend for the year of 6.2p per share(amounting to £8,228,000). Shareholders will be asked to approve this dividendat the forthcoming Annual General Meeting and, if approved, the dividend will bepaid on 18 February 2008 to all those Shareholders on the register as the closeof business on 8 February 2008. A final dividend for 2006 of 6.5p per share (amounting to £6,326,000) wasapproved by the Shareholders at the Annual General Meeting and was paid on 19February 2007 to all those Shareholders on the register at the close of businesson 9 February 2007. 22. Capital commitments As at 30 September 2007 the Group had a commitment to complete on the purchaseof one property in The Hague, The Netherlands, on which contracts had beenexchanged but the purchase had not been completed. It is expected that thisacquisition will be completed around July 2008. This commitment is forapproximately £21 million. As at 30 September 2006 the Group had commitments of £17,026,000 (2005£7,479,000) in relation to properties on which purchase contracts had beenexchanged but the purchase had not been completed. These purchases weresubsequently completed within three months of 30 September 2006. 23. Events after the balance sheet date Following the financial year ended 30 September 2007 the Group completed thesale of one property with a carrying value of £9,500,000. 24. Transition to IFRS For the periods up to and including the year ending 30 September 2006, the Groupprepared its financial statements in accordance with United Kingdom generallyaccepted accounting practice (UK GAAP). The Group has prepared financial statements which comply with IFRSs applicablefor periods from incorporation. As such, the Group has not taken any of theexemptions available under IFRS 1 First-time Adoption of International FinancialReporting Standards. This note explains the principal adjustments made by the Group in restating itspreviously reported UK GAAP balance sheets and income statements for each of theperiods since incorporation. The note also includes a reconciliation of the 30September 2007 position. The adjustments to IFRSs are classified below under twoheadings: 'reclassifications' and 'remeasurements'. Consolidated reconciliation of income statement for the 12 months ending 30September 2007 UK GAAP Reclassi- Remeasure-ments IFRS fications Notes £000 £000 £000 £000 Revenue a,b,c 32,409 - 664 33,073Surplus on revaluation on investment d - (22,562) - (22,562)propertiesProfit on disposal of investment 1,403 - - 1,403propertiesAdministrative expenses b,e (4,188) - 387 (3,801) ----- ----- ----- ----- Operating profit 29,624 (22,562) 1,051 8,113Net finance expense e,f,g (17,264) (567) 126 (17,705) ------- ------ ------- -----Profit/(loss) before tax 12,360 (23,129) 1,177 (9,592)Income tax expense h 8 - (238) (230) ------ ------ ------- -----Profit/(loss) for the year 12,368 (23,129) 939 (9,822) ------ ------ ------ -----Earnings per share (pence) 10.6 (19.8) 0.8 (8.4) ----- ----- ----- ----- Notes to the reconciliation of the income statement for the 12 months ending 30September 2007 (a) Lease incentives were reported under UK GAAP over the periodfrom conclusion of negotiations to the point at which rents are next adjusted tomarket rates. Under IFRS these are spread over the term of the lease, leading toan increase in net rental income of £481,000. (b) Under IFRS, upfront cash lease incentives should be recognisedas a reduction of rental income over the lease term. These were previouslyrecognised as an increase in administrative expenses. Therefore the adjustmentis a reduction in administrative expenses and a reduction in net rental incomeof £205,000. (c) A number of rental agreements have fixed increments, which underIFRS are spread over the term of the lease, as opposed to being recognised asthey fall due, leading to an increase in rental income of £388,000. (d) Under UK GAAP gains/losses on investment property revaluationare posted directly to the investment property revaluation reserve. Under IFRS,net losses on investment property valuations of £21,150,000 are reported through"Surplus on revaluation of investment properties" in the income statement. (e) Certain leases which were previously classified as "operating"are classified as "finance" under IFRS reducing administrative expenses by£182,000 and increasing net finance expense by the same amount. (f) Interest rate derivatives, previously unrecognised, are nowheld at fair value. The gain of £12,948,000 is reported in the reserves as theGroup has applied hedge accounting. Up front costs relating to derivatives areexpensed as incurred under IFRS whereas previously they were spread leading to areduction in finance costs of £308,000. (g) Exchange differences on the translation of foreign operationswill be taken directly to a separate component of equity. All exchangedifferences on the translation of monetary items will also be recognised as partof the separate component of equity. The exchange gain of £567,000 will be shownthrough the currency translation reserve instead of being part of net financeexpenses. (h) The basis of provision for deferred tax differs between UK GAAPand IFRS, with the result that the adjustments set out above in respect of leaseincentives and fixed rental increments lead to a related deferred tax charge of£238,000. Consolidated reconciliation of equity as at 30 September 2007 UK GAAP Reclassi- Remeasure-ments IFRS fications Notes £000 £000 £000 £000 Non-current assetsInvestment properties a,b 671,044 (10,889) 3,414 663,569Derivative financial assets f - - 15,117 15,117 Current assetsTrade and other receivables c,d,e 17,272 (397) 1,287 18,956Cash at bank 20,287 - - 20,287Assets held for sale a 10,889 - 10,889 ------ ------ ------- -----Total assets 708,603 397 19,818 728,818 ------ ------ ------ ----- Current liabilitiesTrade and other payables d,e (25,285) (397) (96) (25,778)Non-current liabilitiesBorrowings b,f (421,222) 1,389 (4,781) (424,614)Deferred tax liabilities g - - (363) (363)Liabilties of assets held for sale - (1,389) - (1,389) ------ ------ ------ -----Total liabilties (446,507) (397) (5,240) (453,144) ------ ------ ------ -----Net assets 262,096 - 14,578 276,674 ------ ------ ------ ----- EquityShare capital 13,270 - - 13,270Share premium 168,670 - - 168,670Retained earnings c,d,f,g,h,i 58,152 21,437 1,630 81,219Cash flow hedges reserve - - 12,948 12,948Investment p'perty revaluation reserve i 22,004 (22,004) - -Currency translation reserve h - 567 - 567 Total equity 262,096 - 14,578 276,674 ------ ------ ------ ----- Notes to the reconciliation of equity as at 30 September 2007 (a) Reclassification of investment property as asset held for sale. (b) Certain leases which were previously classified as "operating"are classified as "finance" under IFRS, increasing finance lease obligations andinvestment property by £3,414,000. (c) Lease incentives, which under UK GAAP are recorded over theperiod from conclusion of negotiation to the point at which rents are nextadjusted to market rates, are spread over the lease term under IFRS. The impactis to increase trade and other receivables by £507,000 and retained earnings by£507,000. (d) Where rental agreements have fixed increases or minimum floorsthe total minimum payments receivable under the lease are reported over thelease term as opposed to being recognised as they fall due. The impact is toincrease trade and other receivables, trade and other payables and retainedearnings by £780,000, £96,000 and £684,000 respectively. (e) A presentational adjustment has been made to trade and otherreceivables and trade and other payables of £397,000 in respect of servicecharge assets and liabilities. There is no impact on retained earnings or theincome statement. (f) Previously unrecognised interest rate derivatives are now heldat fair value. The current period gain of £12,948,000 is reported in thereserves as the Group has applied hedge accounting. The derivative financialasset at 30 September 2007 is £15,117,000. In addition, up-front costs relatingto derivatives are expensed as incurred under IFRS whereas previously they werespread. The expensing of the up-front costs increases borrowings by £1,367,000and reduces retained earnings by £1,367,000. (g) Provision for deferred tax as a result of the difference inmethodology between UK GAAP and IFRS leads to a deferred tax liability of£363,000 and a reduction in retained earnings of £363,000. (h) Exchange differences on the translation of foreign operationswill be taken directly to a separate component of equity. All exchangedifferences on the translation of monetary items will also be recognised as partof the separate component of equity. The exchange gain of £567,000 will be shownthrough the currency translation reserve instead of being part of net financeexpenses. (i) Cumulative unrealised gains on investment property valuationsof £26,868,000 are reported though the income statement under IFRS. Theassociated increase in revaluation reserve is now reported under retainedearnings. Consolidated reconciliation of income statement for the 12 months ending 30September 2006 UK GAAP Reclassi- Remeasure- IFRS fications ments Notes £000 £000 £000 £000 Revenue a,b,c 24,163 - 85 24,248Surplus on revaluation of investment d,e - 38,775 (3,380) 35,395propertiesProfit on disposal of investment 2,567 - - 2,567propertiesAdministrative expenses b,f (4,964) - 337 (4,627) ------- ------- -------- -----Operating profit 21,766 38,775 (2,958) 57,583Net finance expense f,g (11,784) - 7,169 (4,615) ------- ------- ------- -----Profit before tax 9,982 38,775 4,211 52,968Income tax expense (73) - (109) (182) ------- ------- ------- -----Profit for the year 9.909 38,775 4,102 52,786 ------- ------- -------- -----Earnings per share (pence) 10.2 39.8 4.2 54.2 ------- ------- ------- ----- Notes to the reconciliation of the income statement for the 12 months ending 30September 2006 (a) Lease incentives were reported under UK GAAP over the period fromconclusion of negotiations to the point at which rents are next adjusted tomarket rates. Under IFRS these are spread over the term of the lease, leading toan increase in net rental income of £26,000. (b) Under IFRS, upfront cash lease incentives should be recognised asa reduction of rental income over the lease term. These were previouslyrecognised as an increase in administrative expenses. Therefore the adjustmentis a reduction in administrative expenses and a reduction in net rental incomeof £165,000. (c) A number of rental agreements have fixed increments, which underIFRS are spread over the term of the lease, as opposed to being recognised asthey fall due, leading to an increase in rental income of £224,000. (d) Under UK GAAP gains on investment property revaluation are posteddirectly to the investment property revaluation reserve. Under IFRS, net gainson investment property valuations of £38,775,000 are reported through "Surpluson revaluation of investment properties" in the income statement. (e) The external investment property valuations reflect all year endinvestment property balance sheet items (see note 11). Therefore the previouslyreported UK GAAP surplus has been reduced by £3,380,000 to reflect itemsreported elsewhere in the balance sheet. This reconciles the externalinvestment property valuations to the balance sheet carrying value of investmentproperty. (f)Certain leases which were previously classified as "operating" are classifiedas "finance" under IFRS reducing administrative expenses by £172,000 andincreasing net finance expense by the same amount. (g) Interest rate derivatives, previously unrecognised, are now heldat fair value. The gain of £6,984,000 is reported in the income statement undernet finance expense as the Group has not applied hedge accounting. In additionup front costs relating to derivatives are expensed as incurred under IFRSwhereas previously they were spread leading to a reduction in finance costs of£357,000. (h) The basis of provision for deferred tax differs between UK GAAPand IFRS, with the result that the adjustments set out above in respect of leaseincentives and fixed rental increments lead to a related deferred tax charge of£109,000. Consolidated reconciliation of equity as at 30 September 2006 UK GAAP Reclassi- Remeasure- IFRS Fications ments Notes £000 £000 £000 £000 Non-current assetsInvestment properties a,b,c 457,865 (6,250) (217) 451,398Derivative financial assets g - - 2,169 2,169 Current assetsTrade and other receivables d,e,f 12,300 180 381 12,861Cash at bank 17,312 - - 17,312Assets held for sale a 6,250 - 6,250 ------ ------ ------- -----Total assets 487,477 180 2,333 489,990 ------ ------ ------- ----- Current liabilitiesTrade and other payables e,f (13,055) (180) (58) (13,293)Non-current liabilitiesBorrowings b,g (260,263) - (4,911) (265,174)Deferred tax liabilities h - - (125) (125) ------ ------ ------- -----Total liabilities (273,318) (180) (5,094) (278,592) ------ ------ ------- -----Net assets 214,159 - (2,761) 211,398 ------ ------ ------- ------ EquityShare capital 9,733 - - 9,733Share premium 148,882 - - 148,882Retained earnings c,d,e,g,h,i 7,526 48,018 (2,761) 52,783Investment p'perty revaluation reserve i 48,018 (48,018) - - ------ ------ ------- ------Total equity 214,159 - (2,761) 211,398 ------ ------ ------- ------ Notes to the reconciliation of equity as at 30 September 2006 (a) Reclassification of investment property as asset held for sale. (b) Certain leases which were previously classified as "operating" areclassified as "finance" under IFRS, increasing finance lease obligations andinvestment property by £3,236,000. (c) The external investment property valuations reflect all year endinvestment property balance sheet items (see note 11). Therefore additionaladjustments of £3,452,000 are made to investment property and retained earningsto reconcile the external investment property valuations to the items previouslyreported under UK GAAP elsewhere in the balance sheet. (d) Lease incentives, which under UK GAAP are recorded over the periodfrom conclusion of negotiation to the point at which rents are next adjusted tomarket rates, are spread over the lease term under IFRS. The impact is toincrease trade and other receivables by £25,000 and retained earnings by£25,000. (e) Where rental agreements have fixed increases or minimum floorsthe total minimum payments receivable under the lease are reported over thelease term as opposed to being recognised as they fall due. The impact is toincrease trade and other receivables, trade and other payables and retainedearnings by £355,000, £58,000 and £297,000 respectively. (f)A presentational adjustment has been made to trade and other receivables andtrade and other payables of £180,000 in respect of service charge assets andliabilities. There is no impact on retained earnings or the income statement. (g) Previously unrecognised interest rate derivatives are now held atfair value. The derivatives fair values are reported as derivative financialassets at an amount of £2,169,000 and increase retained earnings by £2,169,000.In addition, up-front costs relating to derivatives are expensed as incurredunder IFRS whereas previously they were spread. The expensing of the up-frontcosts increases borrowings by £1,675,000 and reduces retained earnings by£1,675,000. (h) Provision for deferred tax as a result of the difference inmethodology between UK GAAP and IFRS leads to a deferred tax liability of£125,000 and a reduction in retained earnings of £125,000. (i) Cumulative unrealised gains on investment property valuations of £48,018,000are reported though the income statement under IFRS. The associated increase inrevaluation reserve is now reported under retained earnings. Consolidated reconciliation of income statement for the 15 months ending 30September 2005 UK GAAP Reclassi- Remeasure- IFRS fications ments Notes £000 £000 £000 £000 Revenue a 15,968 - 73 16,041Surplus on revaluation of investment b,c - 9,243 (905) 8,338propertiesProfit on disposal of investment 1,785 - - 1,785propertiesAdministrative expenses d (3,490) - 92 (3,398) ------ ------ ------- -----Operating profit 14,263 9,243 (740) 22,766Net finance expense d,e (11,854) - (6,107) (17,961) ------ ------ ------- -----Profit before tax 2,409 9,243 (6,847) (4,805)Income tax expense f (4) - (16) (20) ------ ------ ------- -----Profit for the period 2,405 9,243 (6,863) 4,785 ------ ------ ------- -----Earnings per share (pence) 5.2 20.0 (14.8) (10.4) ------ ------ ------ ----- Notes to the reconciliation of the income statement for the 15 months ending 30September 2005 (a) A number of rental agreements have fixed increments, which underIFRS are spread over the term of the lease, as opposed to being recognised asthey fall due, leading to an increase in net rental income of £73,000. (b) Under UK GAAP gains on investment property revaluation are posteddirectly to the investment property revaluation reserve. Under IFRS, net gainson investment property valuations of £9,243,000 are reported through "Surplus onrevaluation of investment properties" in the income statement. (c) The external investment property valuations reflect all year endinvestment property balance sheet items. Therefore the previously reported UKGAAP surplus has been reduced by £905,000 to reflect items reported elsewhere in the balance sheet.. This reconciles the external investment propertyvaluations to the balance sheet carrying value of investment property (d) Certain leases which were previously classified as "operating"are classified as "finance" under IFRS reducing administrative expenses by£92,000 and increasing net finance expense by the same amount. (e) Interest rate derivatives, previously unrecognised, are now heldat fair value. The loss of £4,815,000 is reported in the income statement undernet finance expense as the Group has not applied hedge accounting. In additionup front costs relating to derivatives are expensed as incurred under IFRSwhereas previously they were spread leading to an increase in finance costs of£1,200,000. (f) The basis of provision for deferred tax differs between UK GAAPand IFRS, with the result that the adjustments set out above in respect of leaseincentives and fixed rental increments lead to a related deferred tax charge of£16,000. Consolidated reconciliation of equity as at 30 September 2005 UK GAAP Reclassi- Remeasure- IFRS Fications ments Notes £000 £000 £000 £000 Non-current assetsInvestment properties a,b 267,085 - 2,452 269,537 Current assetsTrade and other receivables c,d 3,378 73 92 3,543Cash at bank 90,112 - - 90,112Assets held for sale - - - - ------ ------ ------- -----Total assets 360,575 73 2,554 363,192 ------ ------ ------- ----- Current liabilitiesTrade and other payables c,d (9,206) (73) (190) (9,298)Non-current liabilitiesBorrowings a,e (180,399) - (4,557) (184,956)Derivative financial liabilities e - - (4,815) (4,815)Deferred tax liabilities f - - (16) (16) ------ ------ ------- -----Total liabilties (189,605) (73) (9,407) (199,085) ------ ------ ------- -----Net assets 170,970 - (6,863) 164,107 ------ ------ ------- ----- EquityShare capital 9,733 - - 9,733Share premium 148,857 - - 148,857Retained earnings b,c,e,f,g 3,137 9,243 (6,863) 5,517Investment p'perty revaluation reserve g 9,243 (9,243) - - ------ ------ ------ ------Total equity 170,970 - (6,863) 164,107 ------ ------ ------- ------ Notes to the reconciliation of equity as at 30 September 2005 (a) Certain leases which were previously classified as "operating"are classified as "finance" under IFRS, increasing finance lease obligations andinvestment property by £2,525,000. (b) The external investment property valuations reflect all year endinvestment property balance sheet items. Therefore additional adjustments of£73,000 are made to investment property and retained earnings to reconcile theexternal investment property valuations to the items previously reported underUK GAAP elsewhere in the balance sheet. (c) Where rental agreements have fixed increases or minimum floorsthe total minimum payments receivable under the lease are reported over thelease term as opposed to being recognised as they fall due. The impact is toincrease trade and other receivables, trade and other payables and retainedearnings by £92,000, £19,000 and £73,000 respectively. (d) A presentational adjustment has been made to trade and otherreceivables and trade and other payables of £73,000 in respect of service chargeassets and liabilities. There is no impact on retained earnings or the incomestatement. (e) Previously unrecognised interest rate derivatives are now held atfair value. In addition, up-front costs relating to derivatives are expensed asincurred under IFRS whereas previously they were spread. The derivatives fairvalues are reported as derivative financial liabilities at an amount of£4,815,000 and reduce retained earnings by £4,815,000. The expensing of theup-front costs increases borrowings by £2,032,000 and reduces retained earningsby £2,032,000. (f) Provision for deferred tax as a result of the difference inmethodology between UK GAAP and IFRS leads to a deferred tax liability of£16,000 and a reduction in retained earnings of £16,000. (g) Cumulative unrealised gains on investment property valuations of£9,243,000 are reported though the income statement under IFRS. The associatedincrease in revaluation reserve is now reported under retained earnings. This information is provided by RNS The company news service from the London Stock Exchange

---

Related Shares:

RDI.L