Final Results - Part 2

Alpha Pyrenees Trust Limited 18 March 2008 Consolidated statement of changes in equity For the period from Share Share Special Warrant Translation Capital Revenue Minority Total 16 November 2005 to capital premium reserve reserve reserve reserve reserve interest reserves 31 December 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Changes in equity for the period Foreign exchange losses - - - - (1,614) - - - (1,614) on translation of foreign operations Loss for the period - - - - - (6,607) 4,499 (607) (2,715) Total recognised income - - - - (1,614) (6,607) 4,499 (607) (4,329) and expense for the period Dividends - - - - - - (3,188) - (3,188) Issue of share capital - 127,500 - - - - - - 127,500 Share issue costs - (5,508) - - - - - - (5,508) Transfer to special - (119,362) 119,362 - - - - - - reserve Share based payments - (130) - 130 - - - - - Net liabilities - - - - - - - 5,399 5,399 attributable to minority interest At 31 December 2006 - 2,500 119,362 130 (1,614) (6,607) 1,311 4,792 119,874 Note 20, 21 For the year ended 31 Share Share Special Warrant TranslationCapital Revenue Minority Total December 2007 capital premium reserve reserve reserve reserve reserve interest reserves Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2007 - 2,500 119,362 130 (1,614) (6,607) 1,311 4,792 119,874 Foreign exchange losses - - - - 9,555 - - - 9,555 on translation of foreign operations (Loss)/ profit for the - - - - (1,672) 7,717 - 6,045 year Total recognised income - - - - 9,555 (1,672) 7,717 - 15,600 and expense for the year Dividends - - (711) - - - (6,302) - (7,013) Share buy back - - (400) - - - - - (400) Acquisition of minority - - - - - - - (4,792) (4,792) interest At 31 December 2007 - 2,500 118,251 130 7,941 (8,279) 2,726 - 123,269 Note 20, 21 The accompanying notes are an integral part of this statement. Company income statement For the year ended For the period 16 November 31 December 2007 2005 to 31 December 2006 Revenue Capital Total Revenue Capital Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Notes Income Revenue 3 5,272 - 5,272 2,328 - 2,328 Total income 5,272 - 5,272 2,328 - 2,328 Expenses Administration costs 6 (2,129) (262) (2,391) (2,039) (269) (2,308) Total expenses (2,129) (262) (2,391) (2,039) (269) (2,308) Operating profit 3,143 (262) 2,881 289 (269) 20 Finance income 4 2,008 8,950 10,958 4,100 - 4,100 Finance costs 7 (3) - (3) (47) (1,663) (1,710) Profit/(loss) before taxation 5,148 8,688 13,836 4,342 (1,932) 2,410 Taxation 8 - - - - - - Profit (loss) for the year/ 5,148 8,688 13,836 4,342 (1,932) 2.410 period The total column of this statement represents the Company's income statement, prepared in accordance with IFRS. The revenue and capital columns are supplied as supplementary information permitted under IFRS. All items in the above statement derive from continuing operations. The accompanying notes are an integral part of this statement. Company balance sheet As at 31 December 2007 Notes For the year ended For the period 16 31 December 2007 November 2005 to 31 December 2006 Â£'000 Â£'000 Non-current assets Investments in subsidiary undertakings 12 141 77 Property, plant and equipment 16 21 Amounts receivable from subsidiary undertakings 12 103,457 90,023 103,614 90,121 Current Assets Trade and other receivables 17 1,754 34 Amounts receivable from subsidiary undertakings 12 12,331 25,490 Cash and cash equivalents 10,726 6,941 24,811 32,465 Total assets 128,426 122,586 Current liabilities Trade and other payables 18 (788) (1,372) Total liabilities (788) (1,372) Net assets 127,637 121,214 Equity Share capital 20 - - Share premium account 21 2,500 2,500 Special reserve 21 118,251 119,362 Warrant reserve 21 130 130 Capital reserve 21 6,756 (1,932) Revenue reserve 21 - 1,154 Total equity 127,637 121,214 The Financial Statements were approved by the board of directors and authorised for issue on 17 March 2008. The accompanying notes are an integral part of this statement. David Jeffreys Serena Tremlett Director Director Company cash flow statement Notes For the year ended For the period from 31 December 2007 16 November 2005 to 31 December 2006 Cash flows from operating activities Profit for the year/period 13,836 2,410 Adjustments for : Finance costs 3 1,710 Finance income (10,958) (4,100) Interest from subsidiary companies (5,272) (2,328) Operating cash flows before movements in (2,391) (2,308) working capital (Increase)/decrease in operating trade and (1,757) 457 other receivables Increase in operating trade and other payables 66 1,238 Cash generated from operations (4,082) (613) Interest paid - (2) Interest received 5,134 4,100 Taxation - - Cash-flows from operating activities 1,052 3,485 Investing activities Investment in subsidiaries (63) (77) Purchase of property, plant and equipment - (21) Loans repaid/(advanced) 8,226 (115,350) Cash-flows from investing activities 8,163 (115,448) Financing activities Proceeds from issue of ordinary share capital - 127,500 Issue costs - (5,408) Dividend payments (7,013) (3,188) Cash-flows from financing activities (7,013) 118,904 Net increase in cash and cash equivalents 2,202 6,941 Cash and cash equivalents at beginning of year/period 6,941 - Exchange translation movement 1,583 - Cash and cash equivalents at end of year/period 10,726 6,941 The accompanying notes are an integral part of this statement. Company statement of changes in equity For the period from Share Share Special Warrant Capital Revenue Total 16 November 2005 to capital premium reserve reserve reserve reserve reserves 31 December 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 16 November 2005 - - - - - - - Profit for the period - - - - (1,932) 4,342 2,410 Total recognised - - - - (1,932) 4,342 2,410 income and expense for the period Dividends - - - - - (3,188) (3,188) Issue of share capital - 127,500 - - - - 127,500 Share issue costs - (5,508) - - - - (5,508) Transfer to special - (119,362) 119,362 - - - - reserve Share based payments - (130) - 130 - - - At 31 December 2006 - 2,500 119,362 130 (1,932) 1,154 121,214 Note 20,21 For the period ending Share Share Special Warrant Capital Revenue Total 31 December 2007 capital premium reserve reserve reserve reserve reserves Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 1 January 2007 - 2,500 119,362 130 (1,932) 1,154 121,214 Profit for the year - - - - 8,688 5,148 13,836 Total recognised income - - - - 8,688 5,148 13,836 and expense for the year Dividends - - (711) - - (6,302) (7,013) Share buy-back - - (400) - - - (400) At 31 December 2007 - 2,500 118,251 130 6,756 - 127,637 Note 20,21 The accompanying notes are an integral part of this statement. Notes to the financial statements 1. General information The Company is a limited liability, closed-ended investment company incorporated in Guernsey. The address of the registered office is given below. The nature of the Group's operations and its principal activities are set out in the Chairman's statement. The Financial Statements were approved and authorised for issue on 18 March 2008 and signed by David Jeffreys and Serena Tremlett on behalf of the Board. 2. Significant accounting policies A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below. Basis of preparation The Financial Statements of the Group have been prepared in accordance with IFRS, which comprise standards and interpretations approved by the International Accounting Standards Board ('IASB'), and International Accounting Standards and Standards Interpretations Committee interpretations approved by the International Accounting Standards Committee ('IASC') that remain in effect, and to the extent that they have been adopted by the European Union. a) Adoption of new and revised Standards In the current year, the Group has adopted IFRS7 Financial Instruments: Disclosures which is effective for annual reporting periods beginning on or after 1 January 2007, and the related amendment to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital (see note 25). Four Interpretations issued by the International Financial Reporting Interpretations Committee are effective for the current year. These are : IFRIC 7 Applying the Restatement Approach under IAS29, Financial Reporting in Hyperinflationary Economies: IFRIC 8 Scope of IFRS 2: IFRIC 9 Reassessment of Embedded Derivatives; and IFRIC 10 Interim Financial Reporting and Impairment. The adoption of these Interpretations has not led to any changes in the Groups accounting policies. b) Standards and Interpretations in issue and not yet effective At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective:- New Standards IFRS 8: Operating segments - for accounting periods commencing on or after 1 January 2009. Revised and amended standards IFRS 2: Share based payments - for accounting periods commencing on or after 1 January 2009. IFRS 3: Business Combinations - for accounting periods commencing on or after 1 July 2009. IAS 1: Presentation of Financial Statements - for accounting periods commencing on or after 1 January 2009. IAS 23: Borrowing costs - for accounting periods commencing on or after 1 January 2009. IAS 27: Consolidated and Separate Financial Statements - for accounting periods commencing on or after 1 July 2009. IAS 32: Financial Instruments:Presentation - for accounting periods commencing on or after 1 January 2009. Interpretations IFRIC 11: IFRS 2 - Group and Treasury Share Transactions - for accounting periods commencing on or after 1 March 2007. IFRIC 12: Service Concession Arrangements - for accounting periods commencing on or after 1 January 2008. IFRIC 13: Customer Loyalty Programmes - for accounting periods commencing on or after 1 July 2008. IFRIC 14: IAS 19- The limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction - for accounting periods commencing on or after 1 January 2008. The Directors anticipate that the adoption of these standards and interpretations in future periods will not have material impact on the financial statements of the Group. The principal accounting policies adopted are set out below. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and the special purpose vehicles (SPVs) controlled by the company, made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefit from its activities. Investment properties have been acquired through SPVs. In the opinion of the Directors, these transactions did not meet the definition of a business combination as set out in IFRS 3 'Business Combinations'. Accordingly the transactions have not been accounted for as business acquisitions and instead the financial statements reflect the substance of the transactions, which is considered to be the purchases of investment properties and associated net assets. The results of SPVs acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisitions or up to the effective date of disposal as appropriate. When necessary, adjustments are made to the financial statements of SPVs to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Presentation of income statement In order to better reflect the activities of an investment company and in accordance with guidance issued by the Association of Investment Companies ('AIC '), supplementary information which analyses the income statement between items of a revenue and capital nature has been presented alongside the income statement. Revenue recognition Rental income from investment property leased out under an operating lease is recognised in the income statement on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the net consideration for the use of the property and are therefore also recognised on the same straight line basis. Rental revenues are accounted for on an accruals basis. Therefore, deferred revenue generally represents advance payments from tenants. Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the Group and the amount of revenue can be measured reliably. When property is let out under a finance lease, the Group recognises a receivable at an amount equal to net investment in the lease at inception of the lease. Rentals received are accounted for as payments of principal and finance income as appropriate. Minimum lease payments receivable on finance leases are apportioned between finance income and reduction of the outstanding receivable. Finance income is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining net investment in the finance lease. Contingent rents, being those lease payments that are not fixed at the inception of a lease, for example turnover rents, are recorded as income in the periods in which they are earned. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable. Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Foreign currencies a) Functional and presentation currency Items included in the financial statements of each of the Group entities are measured in the currency of the primary economic environment in which the entity operates (the 'functional currency'). The consolidated financial statements are presented in pounds Sterling, which is the Company's functional and presentational currency b) Transactions and balances Transactions in currencies other than pounds Sterling are recorded at the rates of exchange prevailing on the dates of the transactions. At each Balance Sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the Balance Sheet date. Non-monetary assets and liabilities are carried at fair value that are denominated in foreign currencies and translated at the rates prevailing at the date when the fair value was determined. Gains and losses arisprofiting on retranslation are included in net profit or loss for the year, except for exchange differences arising on non-monetary assets and liabilities where the changes in fair value are recognised directly to equity. c) Group companies The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; (ii) income and expenses for each income statement are translated at the average exchange rate prevailing in the period; and; (iii) all resulting exchange differences are recognised as a separate component of equity. On consolidation, the exchange differences arising from the translation of the net investment in foreign entities are taken to shareholders' equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. The year-end exchange rate used is Â£1:â‚¬1.357 (2006: Â£1:â‚¬1.484) and the average rate for the year used is Â£1:â‚¬1.462 (2006: Â£1:â‚¬1.466) Operating a) Company Operating profit includes interest income from subsidiary entities, as reduced by administrative expenses and excludes finance costs and finance income. b) Group Operating profit includes net gains or losses on revaluation of investment properties, as reduced by administrative expenses and property operating costs and excludes finance costs and income. Expenses All expenses are accounted for on an accruals basis and include those of the Administrators, the Investment Manager and the Directors. In respect of the analysis between revenue and capital items, presented within the income statement, all expenses have been presented as revenue items except as follows: Expenses which are incidental to the acquisition of an investment property are included within the cost of that investment property and; a proportion of the Investment Manager's fee is charged to the capital column in the Income Statement in order to reflect the Directors' estimated long-term view of the nature of the investment return of the Group. Borrowing costs Borrowing costs directly attributable to the acquisition or construction of property are added to the costs of those assets until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognised in the income statement in the period in which they are incurred. Taxation The Company is exempt from Guernsey taxation on income derived outside of Guernsey and bank interest earned in Guernsey under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of Â£600 is payable to the States of Guernsey in respect of this exemption. No charge to Guernsey taxation arises on capital gains. The Group is liable to foreign tax arising on activities in the overseas subsidiaries. The company has subsidiary operations in Luxembourg, Belgium, France and Spain. The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using prevailing tax rates. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the Balance Sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible timing differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt within equity. Dividends Dividends are recognised as a liability in the group's financial statements in the period in which they become obligations of the Company. Investment property Investment property, which is property held to earn rentals and/or for capital appreciation, is initially recognised at cost being the fair value of consideration given including related transaction costs. After initial recognition at cost, investment properties are carried at their fair values based on quarterly professional valuations made by Knight Frank LLP. The valuations are in accordance with standards complying with the Royal Institution of Chartered Surveyors Approval and Valuation manual and the International Valuation Standards Committee. Gains or losses arising from changes in fair value of investment property are included in the income statement for the period in which they arise. Properties are treated as acquired when the Group assumes the significant risks and returns of ownership and as disposed of when these are transferred to the buyer. When the Group redevelops an existing investment property for continued future use as an investment property, the property remains an investment property and is not reclassified. Transfers are made to investment property when there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale. For a transfer from investment property to owner occupied property, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Group as an owner occupied property becomes an investment property, the Group accounts for such property in accordance with the treatment under IAS 16 Property, Plant and Equipment up to the date of change in use. For a transfer from development to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the income statement. When the Group completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the income statement. Rental Guarantees Rental guarantees received for vacant space acquired in a property acquisition are shown as debtors from the date of the acquisition of the relevant property and are excluded from the acquisition cost. Income received in relation to the guarantees is credited against the debtor. The debtor is impaired for any subsequent letting of the vacant space during the rental guarantee period. Development Property Development property which comprises buildings under construction includes capitalised interest where applicable and is carried at cost or, if lower, net realisable value. Cost includes all directly attributable third party expenditure incurred. Segmental reporting The Directors are of the opinion that the Group is engaged in a single segment of business being property investment business. It operates in a single geographical segment (Europe) and the properties are let to commercial entities. Share-based payments The Group makes equity-settled share-based payments to certain advisers and service providers. Equity-settled share-based payments are measured at fair value as at the date of grant. The fair value determined at grant date is expensed on a straight line basis over the vesting period, based on the Group's estimate of the number of instruments that will eventually vest. Investment in subsidiaries Investments in subsidiaries are initially recognised and subsequently carried at cost in the Company's financial statements less, where appropriate, provisions for impairment. Financial instruments Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. The Group shall offset financial assets and financial liabilities if the Group has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis. (a)Financial assets The Group's financial assets fall into the categories discussed below, with the allocation depending to an extent on the purpose for which the asset was acquired. Although the Group uses derivative financial instruments in economic hedges of currency and interest rate risk, it does not hedge account for these transactions. The Group has not classified any of its financial assets as held to maturity or as available for sale. Unless otherwise indicated, the carrying amounts of the Group's financial assets are a reasonable approximation of their fair values. (a)(i) Loans and receivables These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through rental leases with tenants (e.g. trade receivables and cash and cash equivalents), but also incorporate other types of contractual monetary assets. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the Group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such impairments directly reduce the carrying amount of the impaired asset and are recognised against the relevant income category in the income statement. Cash in banks and short term deposits are carried at cost and consist of cash in hand and short term deposits in banks with an original maturity of three months or less. (a)(ii) Fair value through profit or loss This category comprises only 'in the money' interest rate derivatives. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other than these derivative financial instruments, the Group does not have any assets held for trading nor has it designated any other financial assets as being at fair value through profit or loss. The fair value of the Group's interest rate derivatives is based on valuations as described in note 16. (a) (iii) De-recognition of financial assets A financial asset (in whole or in part) is derecognised either: â€¢ when the group has transferred substantially all the risks and rewards of ownership; or â€¢ when it has transferred nor retained substantially all the risks and rewards and when it no longer has control over the asset or a portion of the asset; or â€¢ when the contractual right to receive cash flow has expired. (b) Financial liabilities The Group classifies its financial liabilities into one of two categories, depending on the purpose for which the liability was issued and its characteristics. Although the Group uses derivative financial instruments in economic hedges of currency and interest rate risk, it does not hedge account for these transactions. Unless otherwise indicated, the carrying amounts of the Group's financial liabilities are a reasonable approximation of their fair values. (b)(i)Fair value through profit or loss This category comprises only 'out-of-the-money currency swap derivatives'. They are carried in the balance sheet at fair value with changes in fair value recognised in the income statement. Other than currency swap derivative financial instruments, the Group does not have any liabilities held for trading nor has it designated any other financial liabilities as being at fair value through profit or loss. (b)(ii) Financial liabilities measured at amortised cost Other financial liabilities include the following items: â€¢ Trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. â€¢ Bank borrowings are initially recognised at fair value net of attributable transaction costs incurred. Such interest bearing liabilities are subsequently measured at amortised cost using the effective interest rate method. (b) (iii) De-recognition of financial liabilities A financial liability (in whole or in part) is derecognised when the Company or Group has extinguished its contractual obligations, it expires or is cancelled. Any gain or loss on de-recognition is taken to the income statement. (c) Share Capital Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability. The Company's ordinary shares are classified as equity instruments. For the purposes of the disclosures given in Note 25 the Group considers all its share capital, share premium and all other reserves as equity. The Company is not subject to any externally imposed capital requirements. (d) Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset or liability, or, where appropriate, a shorter period. Significant accounting estimates and judgements The Group makes estimates and assumptions concerning the future. The resulting accounting estimate will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (a) Investment property The gross property value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction without deduction for any associated transfer taxes, sales taxes, or other costs normally borne by the seller. Transaction costs normally borne by the seller are not deducted in arriving at gross property value, in accordance with IAS 40. The fair value is calculated by deducting the costs normally borne by the purchaser from the gross property value. Fair value is not intended to represent the liquidation value of the property, which would be dependent upon the price negotiated at the time of sale less any associated selling costs. The fair value is largely based on estimates using property appraisal techniques and other valuation methods as outlined below. Such estimates are inherently subjective and actual values can only be determined in a sales transaction. The Group's valuers derive the fair value by applying the methodology and valuation guidelines as set out by the Royal Institution of Chartered Surveyors in the United Kingdom in accordance with IAS 40. This approach is based on discounting the future net income receivable from properties to arrive at the net present value of that future income stream. Future net income comprises the rent secured under existing leases, less any known or expected non-recoverable costs and the current market rent attributable to future vacancy years. The consideration basis for this calculation excludes the effects of any taxes. The discount factors used to calculate fair value are consistent with those used to value similar properties, with comparable leases in each of the respective markets. (b) Business combinations Significant judgement is required when determining the appropriate method of accounting for acquisitions of shares of a company owning property. During the year the Group acquired 100% of the issued share capital of FTI SCI. In the opinion of the Directors, the special purpose vehicle which itself owns the investment property (the property at Nimes) does not qualify as a business combination under the definition of IFRS 3 as the acquired entity did not carry out any trade other than the ownership/operation of the property. Accordingly this has been accounted for as a direct purchase of investment property and associated net assets. It is possible that an alternative interpretation would result in goodwill arising on the acquisition of the investment property owning company. (c) Income and deferred taxes The Group is subject to income and capital gains taxes in numerous jurisdictions. Significant judgement is required in determining the total provision for income and deferred taxes. There are many transactions and calculations for which the ultimate tax determination and timing of payment is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded such differences will impact the income and deferred tax provisions in the period in which the determination is made. (d) Fair value of derivative contracts The Group estimates fair values of derivative contracts by reference to current market conditions compared to the terms of the contracts using the results of an appraisal process carried out by the contract counterparty. 3. Revenue Group Company Group Company 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Rental Income 13,681 - 2,405 - Service and management charges 2,428 - 411 - Interest from subsidiary companies - 5,272 - 2,328 Total 16,109 5,272 2,816 2,328 The above interest income arises from financial assets classified as loans and receivables and has been calculated using the effective interest rate method. The Group leases out all of its investment property under operating leases. Leases are typically for terms of standard institutional 3/6/9 years in France and 5 + 5 years in Spain. At the Balance Sheet date, using the exchange rate prevailing at the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments: 2007 2006 Â£'000 Â£'000 Within one year 17,944 11,974 In the second to fifth years inclusive 51,981 38,140 After five years 32,875 39,136 Total 102,800 89,250 4. Finance Income 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Group Company Group Company Bank interest 1,128 425 4,324 4,100 Foreign exchange gains 1,500 10,533 - - Net gains on financial assets held at 754 - - - fair value through profit and loss (note 5) Total 3,382 10,958 4,324 4,100 The above interest income arises from financial assets classified as loans and receivables (including cash and cash equivalents) and has been calculated using the effective interest rate method. 5. Net gains and losses on financial assets and liabilities at fair value through profit and loss 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Group Company Group Company Net change in unrealised appreciation on financial assets held at fair value though profit or loss Interest rate swap 754 - - - Net change in unrealised depreciations on financial liabilities held at fair value through profit or loss Currency swaps (8,251) - (1,668) - Net realised gains on financial liabilities held at fair value through profit or loss Currency swaps - interest received 7,597 - - - Currency swaps - interest paid (6,818) - - - Net income from currency swaps 779 - - - Net loss on financial assets and (6,718) - (1,668) - liabilities at fair value through profit or loss 6. Administration costs 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Group Company Group Company Investment manager fees 2,610 875 1,557 996 Accounts and administrative fees 199 115 195 121 Non-executive Directors fees 110 110 127 127 Auditors' remuneration for audit services 78 58 62 37 Other professional fees 908 1,233 315 1,027 Staff costs 11 - 11 - Depreciation 4 - 4 - Total 3,920 2,391 2,271 2,308 The Group has one employee. The Directors are the only key management personnel of the Group. 7. Finance costs 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Group Company Group Company Bank loan interest (gross) 5,541 - 106 - Interest capitalised (141) - - - Loan fee amortisation 270 - 3 - Foreign exchange loss - - 45 1,708 Net losses on financial liabilities at 7,472 - 1,668 - fair value through the profit and loss (note 5) Other charges 38 3 11 2 Total 13,180 3 1,833 1,710 The above finance costs arise on financial liabilities measured at amortised cost using the effective interest rate method. In accordance with the Group's accounting policies certain borrowing costs have been capitalised, as disclosed in note 14. 8. Taxation (a) Taxation on profit on ordinary activities Company The Company is exempt from taxation under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989. Group The Group's tax expense for the year comprises: 2007 2006 Â£'000 Â£'000 Group Group Deferred taxation France 5,623 - Spain - - 5,623 - Tax expense reconciliation Profit/(loss) for the year/period 11,668 (2,715) Less: Income not taxable (6,669) (6,613) Add: Expenditure not taxable 13,749 2,513 Add: Un-provided deferred tax asset movement (2,210) 6,815 Total 16,538 - Tax at domestic rates applicable to profits in the country concerned 2007 2006 Â£'000 Â£'000 Group Group French taxation at 34% 5,623 - Spanish taxation at 35% - - (b) Deferred taxation The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon. Revaluation of Accelerated tax Tax Losses Interest rate Total Investment depreciation swap Properties Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 16 November 2005 - - - - - Charge to Income (1,561) 3,201 (1,640) - - At 31 December 2006 (1,561) 3,201 (1,640) - - Charge to Income 4,376 4,142 (3,165) 270 5,623 At 31 December 2007 2,815 7,343 (4,805) 270 5,623 Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes available for offset against future profits. 2007 2006 Â£'000 Â£'000 Deferred tax liabilities 10,428 3,200 Deferred tax assets (4,805) (3,200) 5,623 - At the balance sheet date the company has unused tax losses of Â£17.5 million (2006:Â£10.9 million) .A deferred tax asset has been recognised in respect of Â£14.1 million of such losses (2006: Â£4.8 million). Due to the unpredictability of future taxable profits the Directors believe it is not prudent to recognise deferred tax assets in respect of the remaining losses. 9. Dividends The Company now pays dividends quarterly. Dividends paid during the year were Â£3,187,500 (2.5 pence per share) in relation to the period ended 31 December 2006 and Â£3,825,000 (3 pence per share) in relation to the six months to June 2007. A quarterly dividend of Â£1,905,000 (1.5 pence per share) for the quarter ended 30 September 2007 was paid in January 2008; this dividend has not been included in these Financial Statements. It is intended to distribute another dividend of 1.5 pence per share for the final quarter of 2007 taking the total dividend for the year to 6 pence per share for 2007; this dividend has not been included in these Financial Statements. In December 2007, 500,000 shares were bought back by the Company with an additional tranche of 9.5 million purchased in January 2008. 10. Earnings per share The calculation of the basic and diluted earnings per share is based on the following data: 1 January 2007 1 January 2007 16 November 2005 16 November 2005 to to to to 30 June 2006 31 December 30 June 2007 31 December 2006 2007 Earnings per income statement 6,045 9,487 (2,108) 2,106 Basic earnings per share 4.7p 7.4p (1.7p) 1.7p Earnings per income statement 6,045 9,487 (2, 108) 2,106 Revaluation gains/(losses) in (12,231) (8,313) 5,250 - investment properties Mark to market of currency swaps 8,251 1,813 1,668 - Mark to market of interest (754) (2,756) - - rate swaps Deferred taxation 5,623 2,640 - - Investment Manager's fee (capital) 783 346 269 19 Rental guarantee income 292 - - - Minority interest (capital) - - (580) - Adjusted earnings 8,009 3,217 4,499 2,125 Adjusted earnings per share 6.3p 2.5p 3.7p 1.7p Weighted average number of 127,486 127,500 122,098 125,000 ordinary shares The adjusted earnings are presented to provide what the Company believes is a more appropriate assessment of the operational income accruing to the Group's activities. Hence, the Company adjusts basic earnings for income and costs which are not of a recurrent nature or which may be more of a capital nature. The Group has the following instruments which could potentially dilute basic earnings per share in the future: 31 December 2007 31 December 2006 Warrants 6,375,000 6,375,000 Options 3,825,000 3,825,000 The Company purchased 500,000 ordinary shares for cancellation on 20 December 2007. In January 2008, a further 9,500,000 shares were bought back for cancellation. 11. Net asset value per share 31 December 30 June 2007 31 December 2006 30 June 2006 2007 Net asset value (Â£'000) 123,269 121,300 115,082 121,846 Net asset value per share 97.1p 95.1p 90.3p 97.5p Net asset value (Â£'000) 123,269 121,300 115,082 121,846 Mark to market of currency hedge* (994) 3,496 1,668 - Mark to market of interest rate swaps (813) (2,756) - - Deferred taxation 5,623 2,640 - - Adjusted net asset value 127,085 124,680 116,750 121,846 Net asset value per share (adjusted) 100.1p 97.8p 91.6p 97.5p Number of ordinary shares (000's) 127,000 127,500 127,500 125,000 * The mark to market of the currency hedge necessarily includes both a movement in relation to currency fluctuation and also a movement due to relative future interest rates. For the purpose of providing an adjusted net asset value the element of valuation in relation to the interest rates is included as an adjustment; the intention is to hold the instruments to maturity at which point this element will have unwound. The adjusted net assets are presented to provide what the Company believes is a more relevant assessment of the Group's net asset position. The Company has determined that certain fair value and accounting requirements may not be realisable in the longer term. 12. Investment in subsidiary undertakings A list of the significant investments in subsidiaries, including the name, country of incorporation and the proportion of ownership interest is given below. Name of subsidiary undertaking Class of share % of class Country of Principal held with incorporation activity voting rights Alpha Pyrenees Luxembourg SARL Ordinary 100% Luxembourg Holding company Alpha Pyrenees Luxembourg No 2 SARL Ordinary 100% Luxembourg Holding company Alpha Pyrenees Belgium SA Ordinary 100% Belgium Holding company Alpha Pyrenees Trust Finance Ordinary 100% Guernsey Finance Company Limited company Alpha Pyrenees Evreux SARL Ordinary 100% France Holding company Alpha Pyrenees Evreux SCI Ordinary 100% France Property investment Alpha Pyrenees Athis Mons SARL Ordinary 100% France Holding company Alpha Pyrenees Athis Mons SCI Ordinary 100% France Property investment Alpha Pyrenees Offices SARL Ordinary 100% France Holding company Alpha Pyrenees Offices SCI Ordinary 100% France Property investment Alpha Pyrenees Spain SLU Ordinary 100% Spain Property investment Alpha Pyrenees Alcala SLU Ordinary 100% Spain Property investment Alpha Pyrenees Ecija SLU Ordinary 100% Spain Property investment Alpha Pyrenees Nozay SARL Ordinary 100% France Holding company Alpha Pyrenees Nozay SCI Ordinary 100% France Property investment Alpha Pyrenees Aubergenville SARL Ordinary 100% France Property investment FTI SCI Ordinary 100% France Property investment On 15 February 2007, the Company exercised a call option to acquire the minority interest in Alpha Pyrenees Nozay LP from IPGL. The Company now owns 100% of a 77,180 square metre business park on the outskirts of Paris. The Group's investment properties are held by its subsidiary undertakings and the Company has made loans to the following as at 31 December 2007. 2007 2007 2007 2006 2006 2006 Interest Non-interest Total Interest Non-interest Total bearing bearing Â£'000 bearing bearing Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Current 2,625 9,706 12,331 10,091 15,399 25,490 Non-current 103,457 - 103,457 90,023 - 90,023 Total 106,082 9,706 115,788 100,114 15,399 115,513 The loans are denominated in Euros, unsecured and are subject to a range of interest rates, fixed for the term of the relevant loan. At 31 December 2007 the weighted average interest rate was 5.23% (2006:5.23%). Loans amounting to Â£39.2m (2006:Â£16.6m), in addition to bearing interest, carry a profit share entitlement of 20% of the EBITDA in the relevant subsidiary. 13. Investment properties 2007 2006 Â£'000 Â£'000 Market value of investment properties at 1 January 176,509 - Acquisitions during the year/period at cost 62,158 181,699 Adjustment for rental guarantees recognised as debtors (2,082) - Fair value adjustment in the year/period 12,231 (5,250) Effect of foreign exchange 22,130 60 Market value of investment properties at 31 December 270,946 176,509 Valuation per Knight Frank LLP of investment properties 271,897 176,509 Adjustment for rental guarantees (951) - Market value of investment properties at 31 270,946 176,509 December The fair value of the Group's investment properties at 31 December 2007 and 31 December 2006 has been arrived at on the basis of valuations carried out at that date by Knight Frank LLP, independent valuers not connected to the Group. The valuation basis has been market value as defined by the Royal Institution of Chartered Surveyors Approval and Valuations Standards. The approved RICS definition of market value is the 'estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.' The Group has pledged a number of its investment properties to secure banking facilities granted to the Group (note 19). 14. Development Property 2007 2006 Â£'000 Â£'000 At 1 January - - Development costs incurred in year/period 2,233 - Borrowing cost capitalised 33 - Effect of foreign exchange 175 - At 31 December 2,441 - 15. Categories of financial assets and liabilities Financial assets at fair value Loans and receivables through P/L Notes Group Company Group Company Group Company Group Company 2007 2007 2006 2006 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Current financial assets Trade and other 17 - - - - 17,623 1,754 27,084 34 receivables Cash and cash - - - - 34,430 10,726 18,575 6,941 equivalents Amounts 12 - - - - - 12,331 - 25,490 receivable from subsidiary undertakings Total current - - - - 52,053 24,811 45,659 32,465 financial assets Non-current financial assets Interest rate 16 813 - - - - - - - swap Amounts 12 - - - - - 103,457 - 90,023 receivable from subsidiary undertakings Total non-current 813 - - - - 103,457 - 90,023 financial assets Total financial 813 - - - 52,053 128,268 45,659 122,488 assets Financial liabilities at fair value Financial liabilities measured at through P/L amortised cost Notes Group Company Group Company Group Company Group Company 2007 2007 2006 2006 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Current financial liabilities Trade and other 18 - - - - 5,722 788 17,761 1,372 payables (excluding deferred income) Bank borrowings 19 1,073 - 124 - Total current - - - - 6,795 788 17,885 1,372 financial liabilities Non-current financial liabilities Currency swaps 16 9,919 - 1,668 - - - - - Bank borrowings 19 - - - - 176,033 - 81,808 - Rent Deposits - - - - 2,292 - 1,285 - Total 9,919 - 1,668 - 178,325 - 83,093 - non-current financial liabilities Total financial 9,919 - 1,668 - 185,120 788 100,978 1,372 liabilities The Company has pledged, as part of the security package on the bank borrowings, a number of subsidiary bank accounts and shares. 16. Financial assets and liabilities held at fair value through the profit or loss Group Company Group Company 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Non-current assets Interest rate swaps 813 - - - Non-current liabilities Currency swap - a (7,412) - (1,668) - Currency swap - b (2,507) - - - (9,919) - (1,668) - Total (9,106) - (1,668) - Interest rate swap The Company is required under the financing agreements with Barclays to fix the rate at which it borrows over the duration of each loan. The Company has agreed a fixed interest rate with Barclays Bank plc at each loan draw-down. The bank has undertaken a variable to fixed rate swap with a third party. The Company is not party to the swap agreement but via the financing agreement the Company has all the risks and rewards of the swap as should the loan be repaid early the company would be required to pay the swap break costs or, alternatively accrue a swap benefit as a capital reduction depending on the value of the underlying swap at that point in time. The interest rate swap is valued by reference to the bank's redemption notice of amounts due if the Company repaid it's borrowings at the balance sheet date; the Directors consider this to represent fair value. Currency swap The Group uses currency derivatives to hedge significant future foreign currency transactions and cash flows to safeguard the equity investments of shareholders against significant adverse movements between Sterling and Euros. a) On 13 October 2006, Alpha Pyrenees Trust Finance Company Limited ('Alpha Finance'), a wholly owned subsidiary of the Company, entered into a currency swap with Barclays Bank Plc. Under the terms of this agreement, Alpha Finance will pay Barclays Bank Plc â‚¬130.1 million and Barclays Bank Plc will pay Alpha Finance Â£87.6 million on 16 October 2013. ln addition, there are quarterly periodic payments in February, May, August and October of each year starting on 16 February 2007 and ending 16 October 2013. On these dates Barclays Bank Plc will pay Alpha Finance an amount equal to 7 per cent per annum on Â£87.6 million and Alpha Finance will pay Barclays Bank Plc an amount equal to 6 per cent per annum on â‚¬130.1 million. b) On 18 January 2007, Alpha Finance entered into a further currency swap with Barclays Bank Plc. Under the terms of this swap, Alpha Finance will pay Barclays Bank Plc â‚¬33 million and Barclays Bank Plc will pay Alpha Finance Â£21.6 million on 16 October 2013. In addition, there are quarterly periodic payments in February, May, August and November of each year starting on 16 February 2007 and ending on 16 October 2013. On these dates Barclays Bank Plc will pay Alpha Finance an amount equal to 7 per cent per annum on Â£21.6 million and Alpha Finance will pay Barclays Bank Plc an amount equal to 5.9725 per cent per annum on â‚¬33 million. A total amount of â‚¬7.5 million has been pledged as collateral to Barclays Bank Plc to support both the 13 October 2006 and 18 January 2007 swaps. The fair value of the currency swap contracts is determined by reference to the valuation process carried out by the contractual counterparty. 17. Trade and other receivables Group Company Group Company 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Trade receivables 5,132 - 612 - Bank interest receivable 50 - 185 - Prepayments 231 19 127 34 Rental guarantees 1,929 - - - Other debtors 10,281 1,735 17,712 - VAT recoverable - - 8,448 - Total 17,623 1,754 27,084 34 During the year trade receivables over six months old of Â£163k have been provided against. The provision is recognised in the income statement. The directors consider that the carrying amount of trade and other receivables approximates to their fair value. Note 25 on credit risks provides an ageing of trade receivables. Rental guarantees are contractual agreements specifically referred to in the relevant property sale and purchase agreements under which the vendor provides a guarantee (normally by way of an escrowed bank account deposit) for units within the acquired property which are currently vacant. During the year the Group booked a total of Â£2.2m of guarantees against which Â£0.3m of income has been received. Included in other debtors is collateral of Â£5.5 million (2006: Â£2.1 million) held with Barclays Bank plc in relation to the currency swap (note 16). 18. Trade and other payables Group Company Group Company 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Trade creditors 2,343 196 49 44 Deferred income 2,339 - 37 Property acquisition costs payable 1,535 - 6,155 - Investment Manager's fee payable 134 - 520 - VAT Payable 672 - - - Share buy back 400 - - - Accruals 638 592 1,664 1,328 Deferred property acquisition costs - - 9,373 - Total 8,061 788 17,798 1,372 Trade creditors and accruals primarily comprise amounts outstanding for trade purchases and ongoing costs. The group has financial risk management policies in place to ensure that all payables are paid within the credit time frame. The directors consider that the carrying amount of trade payables approximates to their fair value. 19. Bank borrowings Group Company Group Company 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Current liabilities: Interest payable 1,073 - 124 - Non-current liabilities - Bank 176,033 - 81,808 - borrowing Total liabilities 177,106 - 81,932 - The borrowings are repayable as follows: Interest payable 1,073 - 124 - On demand or within one year - - - - In the second to fifth years inclusive - - - - After five years 176,033 - 81,808 - 177,106 - 81,932 - Further loans of â‚¬120.1 million have been drawn-down during the year against the French loan facility (which was entered into on 21 December 2006). Borrowings are secured over the shares in the Company's operating subsidiaries and mortgages over properties with a total value of â‚¬321.7 million representing a loan to value of 68.7%. The loan facility is to be repaid on 10 February 2015. On 21 December 2007, the Group entered into a new loan facility for financing Spanish properties totalling â‚¬22.7m. The total facility was drawn-down before year end. Loans drawn down on the facility are secured over the shares in the Company's operating subsidiaries and mortgages over properties with a total value of â‚¬30.7 million representing a loan to value of 74%. The loan facility is to be repaid on 10 February 2013. The interest rates on the loans drawn to date are fixed rates for the duration of each loan. The weighted average interest rate at the balance sheet date was 5.24% (2006:5.05%). 20. Share capital Number of shares At 1 January 2007 127,500,000 Shares cancelled during the year (500,000) At 31 December 2007 127,000,000 The authorised share capital is unlimited. The Company carries one class of shares which carry no right to fixed income. All ordinary shares have nil par value. There have been no shares issued during the year. The company purchased 500,000 shares on 21 December 2007 for cancellation at an average price of 80 pence per share. The cost of the share buy-back has been taken against reserves. In January 2008 a further 9.5m shares were purchased by the Company for cancellation at an average price of 82 pence per share. 21. Reserves The movements in the reserves for the Group and the Company are shown in the statements of changes in equity above. Share premium account On 10 July 2006 the Company issued 2,500,000 ordinary shares of no par value at a premium of Â£1 per share. Special reserve On 9 December 2005, the Royal Court of Guernsey confirmed the reduction of capital by way of cancellation of the amount standing to the credit of its share premium account on that date. The amount was transferred to the special reserve. The special reserve is a distributable reserve to be used for all purposes permitted under Guernsey company law, including the buy- back of shares and payment of dividends. Warrant reserve The warrant reserve contains the fair value of share-based payments in respect of the warrants issued to the Investment Manager but not exercised. Translation reserve The translation reserve contains exchange differences arising on consolidation of the Group's overseas operations. Capital reserve The capital reserve contains gains and losses on the disposal of investment properties, and increases and decreases in the fair value of the Group's investment properties and currency swap derivative financial instruments, together with expenses allocated to capital. Revenue reserve Any surplus arising from net profit after tax is taken to this reserve, which may be utilised for the buy-back of shares and payment of dividends. 22. Share based payments a) Warrants > During 2005, the Company issued warrants to the Investment Manager pursuant to which it has been granted the right to subscribe for 6,375,000 ordinary shares in the company at an exercise price of Â£1 per share. Such warrants can be exercised at any time up to and including 29 November 2010. The warrant instrument provides that the holder of the warrant may from time to time transfer all or some of its warrants to third parties. No warrants have been exercised during the year. The weighted average exercise price of outstanding warrants at 31 December 2007 was Â£1 (2006: Â£1) with a weighted average remaining contractual life of 3 years. The fair value of the warrants at grant date was measured as Â£130,043. b) Incentive options In order to incentivise the Investment Manager, the Company has granted options to it to acquire up to 3,825,000 ordinary shares. The options vest in three tranches of equal amounts over a three year period ending on the third, fourth and fifth anniversaries of admission of the shares to the Official List of the UKLA subject to a cumulative shareholder return performance criteria of 10% per annum (50% vesting) and 12% per annum (100% vesting) having been met over a period of the preceding three years for each tranche respectively. Once vested the options are exercisable during the subsequent seven year period. Number of options Expiry Price 1,275,000 29 November 2015 100p 1,275,000 29 November 2016 100p 1,275,000 29 November 2017 100p The directors have assessed the fair value of the option granted and consider it to be immaterial in relation to the activities of the Company and its Group. The weighted average exercise price of outstanding options at 31 December 2007 was Â£1 (2006: Â£1) with a weighted average remaining contractual life of 9 years. c) Share based payments The Company recognised no sare basehd payment expenses for the year end 2007 (2006: Â£130,043). As noted above the Company recognised a charge in 2006 for the warrants issued to the Investment Manager; this charge was taken to the Share premium account. 23. Events after the balance sheet date In January 2008 the Company bought back a further 9,500,000 shares for cancellation at an average price of 82 pence per share; this taking the total to 10,000,000 in all. There is no current intention to buy-back further shares. 24. Related party transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Alpha Real Capital LLP is the Investment Manager to the Company under the terms of the Investment Manager Agreement and is thus considered a related party of the Company. Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The Investment Manager is entitled to receive a fee from the Group at an annual rate of 1 per cent of the gross assets of the Group, payable quarterly in arrears. The Investment Manager is also entitled to receive an annual performance fee calculated with reference to total shareholder return ('TSR'), whereby the fee is 20 per cent of any excess over an annualised TSR of 12 per cent and then a further 15 per cent of any excess over 20 per cent. Details of the investment management fees for the current accounting period are shown in note 6 and any balances outstanding are disclosed separately in note 18. The Directors of the Company received fees for their services and further details are provided in the Directors' Report. The total charge fees are shown in note 6 and separately disclosed in the Director's report. Alpha Real Capital Singapore Pte Limited, being a wholly owned subsidiary of the Investment Manager, held 1,490,000 shares at year end in the Company. The following, being partners of the Investment Manager holds the following shares in the Company at 31 December 2007. Number of shares held Sir John Beckwith 2,143,600 P. Rose 375,000 B. Bauman 50,000 M. Johnson 26,400 S. Wilson 5,000 Phillip Rose is the CEO and a partner of the Investment Manager. Paul Cable, being the Investment Manager's Fund Manager responsible for the Trust's investments, holds 20,000 shares in Alpha Pyrenees Trust Limited. 25. Financial instruments risk exposure and management In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks of the methods used to measure them from previous periods unless otherwise stated in this note. Principal financial instruments The principal financial instruments used by the Group and Company, from which financial instrument risk arises, are as follows: â€¢ Amounts receivable from subsidiary undertakings â€¢ Trade and other receivables â€¢ Cash and cash equivalents â€¢ Trade and other payables â€¢ Rental deposits â€¢ Derivative financial instruments â€¢ Bank borrowings General objectives, policies and processes The Board has overall responsibility for the determination of the Group's risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Group's finance function. The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group's competitiveness and flexibility. The above financial risk management policies apply equally to the Group and the Company. Further details regarding these policies are set out below: Credit risk Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date. a) Group The Group's credit risk principally arises from cash and cash equivalents as well as credit exposures with respect to tenants including other receivables. In the event of a default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, including legal expenses in maintaining, insuring and re-letting the property until it is re-let. General economic conditions may affect the financial stability of tenants and prospective tenants and/or demand for and value of real estate assets. A property advisor monitors the tenants in order to anticipate, and minimise the impact of, default by occupational tenants. Where possible, tenants risk is mitigated through rental guarantees. The Group policy is to maintain its cash and cash equivalent balances with a reasonable diversity of banks. The Group monitors the placement of cash balances on an ongoing basis and has policies to limit the amount of credit exposure to any financial institution. Trade receivables that are less than six months past due are not considered impaired. The ageing of trade receivables is as follows: 2007 2006 Â£'000 Â£'000 0 to 6 months 5,132 612 Over 6 months - - 5,132 612 A significant element of the debt is owed by third party managing agents (CBRE/ Cushman and Wakefield) as part of the regular cycle of collecting debts from tenants; these amounts represent cash received by the agent not yet remitted to the relevant companies and are in this respect very secure and remitted just after the year end. b) Company The Company's credit risk principally arises from cash and cash equivalents and amounts receivable from subsidiaries. The Company follows the same Group policy with regards to diversification of banking arrangements. Amounts receivable from subsidiaries are of mainly a long term nature and the loans are monitored on a regular basis. c) Maximum exposure The Group's and Company's maximum exposure to credit risk by class of financial instrument is shown below: Group Group Company Company Group Group Company Company 2007 2007 2007 2007 2006 2006 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Carrying Maximum Carrying Maximum Carrying Maximum Carrying Maximum Value Exposure Value Exposure Value Exposure Value Exposure Amounts owed by - - 115,788 115,788 - - 115,513 115,513 subsidiary undertakings Trade and other 17,623 15,331 1,754 1,754 27,084 25,799 34 34 receivables Cash and cash equivalents 34,430 34,430 10,726 10,726 18,575 18,575 6,941 6,941 Financial assets at fair 813 813 - - - - - - value through profit or loss Total 52,866 50,574 128,268 128,268 45,659 44,374 122,488 122,488 Liquidity risk Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group and Company has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities. Cash and cash equivalents are placed with financial institutions on a short term basis reflecting the Group's and Company's desire to maintain a high level of liquidity in order to enable timely completion of investment transactions. a) Group The following table illustrates the contractual maturity analysis of the Group's financial liabilities and derivative financial assets and liabilities that must be settled gross based, where relevant, on balance sheet interest rates and exchange rates prevailing at the balance sheet date. Within 1 year 1-2 years 2-5 years 5-10 years Over 10 years Total 2007 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Trade and other 5,722 - - - - 5,722 payables (excluding deferred income) Rent Deposits 435 229 504 1,124 - 2,292 Bank Borrowings 1,073 - - 176,033 - 177,106 Derivative financial instruments at fair value through the profit or loss - Cash Outflows 7,172 6,847 18,849 98,356 - 131,224 - Cash Inflows (7,482) (7,097) (19,325) (87,401) - (121,305) 6,920 (21) 28 188,112 - 195,039 2006 Trade and other 17,761 - - - - 17,761 payables( excluding deferred income) Rent Deposits 244 129 282 630 - 1,285 Bank Borrowings 124 - - 81,808 - 81,932 Derivative financial instruments at fair value through the profit or loss - Cash Outflows 2,595 5,087 14,043 76,267 97,992 - Cash Inflows (2,960) (5,745) (15,465) (72,154) (96,324) 17,764 (529) (1,140) 86,551 - 102,646 b) Company The Company only has trade payables and other payables which are payable within one year. Market risk a) Foreign exchange risk The Group operates in Europe and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Sterling and Euros. Foreign exchange risk arises from future commercial transactions, recognised monetary assets and liabilities and net investments in foreign operations. The group has entered into currency swaps to safeguard the equity investments of shareholders against significant adverse movements between Sterling and Euros. Details of the currency swap are as disclosed in note 16. The tables below summarise the Group's and Company's exposure to foreign currency risk at 31 December 2007 and 31 December 2006. The Group's and Company's assets and liabilities at carrying amounts are included in the table, categorised by the currency at their carrying amount. Notes Group Group Group Company Company Company 2007 2007 2007 2007 2007 2007 Total Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 â‚¬ Â£ â‚¬ Â£ Current financial assets Trade and other 17 15,869 1,754 17,623 - 1,754 1,754 receivables Cash and cash 28,920 5,510 34,430 5,758 4,968 10,726 equivalents Amounts receivable 12 - - - 12,331 - 12,331 from subsidiary undertakings Non-current financial assets Interest rate swaps 16 813 - 813 - - - Amounts receivable 12 - - - 103,457 - 103,457 from subsidiary undertakings Total financial 45,602 7,264 52,866 121,546 6,722 128,268 assets Current financial liabilities Trade and other 18 5,074 648 5,722 268 520 788 payables (excluding deferred income) Bank borrowings 19 1,073 - 1,073 - - - Non-current financial liabilities Currency swaps 16 9,919 - 9,919 - - - Bank borrowings 19 176,033 - 176,033 - - - Rent deposits 2,292 - 2,292 - - - Total financial 194,391 648 195,039 268 520 788 liabilities Net balance sheet (148,789) 6,616 (142,173) 121,278 6,202 127,480 currency position Notes Group Group Group Company Company Company 2006 2006 2006 2006 2006 2006 Total Total Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 â‚¬ Â£ â‚¬ Â£ Current financial assets Trade and other 17 27,050 34 27,084 - 34 34 receivables Cash and cash 12,166 6,409 18,575 532 6,409 6,941 equivalents Amounts receivable 12 - - - 25,490 25,490 from subsidiary undertakings Non-current financial assets Amounts receivable 12 - - - 90,023 - 90,023 from subsidiary undertakings Total financial 39,216 6,443 45,659 116,045 6,443 122,488 assets Current financial liabilities Trade and other 18 15,430 2,331 17,761 - 1,372 1,372 payables (excluding deferred income) Bank borrowings 19 124 - 124 - - - Non-current financial liabilities Currency swaps 16 1,668 - 1,668 - - - Bank borrowings 19 81,808 - 81,808 - - - Rent deposits 1,285 - 1,285 - - - Total financial 100,315 2,331 102,646 - 1,372 1,372 liabilities Net balance sheet (61,099) 4,112 (56,987) 116,045 5,071 121,116 currency position The Group's policy is, where possible, to allow group entities to settle liabilities denominated in their functional currency (primarily Euros or Sterling) with the cash generated from their own operations in that currency. As described in Note 16, a currency swap derivative has been entered into to protect, to an extent, the sterling equity invested from fluctuations in the Euro exchange rate. As the property portfolio is acquired and mortgaged in Euros the swap is designed to provide some certainty on the net equity invested and also provide some hedge on the Euro income generated on these properties. The Group, therefore, considers it appropriate from a risk perspective to review an exposure on the net current assets and cash not forming part of the invested equity. For illustrative purposes, therefore, the effect of a strengthening of the Euro by 5 cents would increase Group net current assets by Â£1.5 million (2006: Â£0.8 million). A weakening of the Euro by 5 cents would decrease net Group assets by Â£1.4 million (2006: Â£0.8 million). On a Company only level the foreign exchange sensitivities are necessarily greater given the large intercompany loan book. For illustrative purposes, a strengthening of the Euro by 5 cents would increase the Company net assets by Â£4.6m (2006: Â£4m). A weakening of the Euro by 5 cents would decrease the Company net assets by Â£4.3 million (2006:Â£3.8 million). b)Cash flow and fair value interest rate risk The Group's and Company's interest rate risk arises from the following financial assets and liabilities. Interest Rate Profile Weighted average interest rate Group Group Company Company As at 31 December 2007 2007 2007 2007 2007 % Â£'000 % Â£'000 Financial assets at fair value through profit or loss Derivative financial assets Non-interest bearing - 813 - - Loans and receivables Trade and other receivables Non-interest bearing - 9,223 - 1,754 Variable 4.36% 8,400 - Cash and cash equivalents Non-interest bearing - 1,249 - Variable 3.88% 33,181 4.50% 10,726 Amounts receivable from subsidiaries Non-interest bearing - 13,439 Fixed 5.23% 103,457 Financial liabilities at fair value through profit or loss Derivative financial liabilities Fixed -payable 5.99% 120,192 - - Fixed - receivable 7.00% 109,200 - - Financial liabilities carried at amortised cost Bank borrowings Non-interest bearing 1,073 Fixed 5.24% 176,033 - - Financial liabilities carried at amortised cost Trade and other payables Non-interest bearing - 5,722 - 788 Rent deposits Non-interest bearing - 2,292 Interest Rate Profile Weighted average interest rate Group Group Company Company As at 31 December 2006 2006 2006 2006 2006 % Â£'000 % Â£'000 Loans and receivables Trade and other receivables Non-interest bearing - 15,526 - 34 Variable 4.00% 11,558 Cash and cash equivalents Non-interest bearing - 1,549 - Variable 4.21% 17,026 5.32% 6,941 Amounts receivable from subsidiaries Non-interest bearing - 16,358 Fixed 5.23% 100,114 Financial liabilities at fair value through profit or loss Derivative financial liabilities Fixed -payable 6.00% 87,668 - - Fixed - receivable 7.00% 87,600 Financial liabilities carried at amortised cost Bank borrowings Non-interest bearing 124 - - Fixed 5.05% 81,808 - - Financial liabilities carried at amortised cost Trade and other payables Non-interest bearing - 17,761 - 1,372 Rent deposits Non-interest bearing - 1,285 The Group irest rate risknte arises from long-term borrowings; the group has an interest rate swap as disclosed in note 16. Further details concerning the derivative financial liabilities (currency swaps) are detailed in note 16. The Group's cash flow is periodically monitored by the Group's management. For the Group, an increase in 100 basis points in interest yields would result in a post-tax profit of Â£0.4 million (2006: Â£0.3 million). A decrease in 100 basis points in interest yields would result in a post tax loss for the period of Â£0.4 million (2006:Â£0.3 million). For the Company, an increase in 100 basis points in interest yields would result in a post-tax profit of Â£0.1 million (2006: Â£0.1 million). A decrease in 100 basis points in interest yields would result in a post tax loss for the period of Â£0.1 million (2006:Â£0.1 million). The sensitivity analyses above are based on a change in an assumption while holding all other assumptions constant, In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated - for example, change in interest rate and change in market values. Growth in rental income and defaults Income growth may not continue at a consistent rate. Future income is dependent on, amongst other things, the Group negotiating suitable rent levels when compared to associated financing costs. c)Capital risk management The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings as shown in the consolidated balance sheet less cash and cash equivalents. Total capital is calculated as equity, as shown in the consolidated balance sheet, plus net debt. During 2007, the Group's strategy, which was unchanged from 2006, was to maintain a gearing ratio at around or below 70%. The gearing ratios at 31 December 2007 and at 31 December 2006 were as follows: Group Group 2007 2006 Â£'000 Â£'000 Total borrowings 176,033 81,808 Less: cash and cash (34,430) (18,575) equivalents Net debt 141,603 63,233 Total equity 123,269 119,874 Total capital 264,872 183,107 Gearing ratio 53.5% 34.5% The Company has no borrowings; all borrowings are within the Group. Directors and Trust information Directors: Broker: Legal advisors in Guernsey: Dick Kingston (Chairman) Cenkos Securities Limited Carey Olsen Christopher Bennett 6.7.8. Tokenhouse Yard 7 New Street David Jeffreys London EC2R 7AS St Peter Port Phillip Rose Guernsey GY1 4BZ Serena Tremlett KBC Peel Hunt Limited Legal advisors in the UK: Registered office: 111 Old Broad Street Norton Rose Second Floor London EC2U 1PH 3 More London Riverside Albert House Independent valuers: London SE1 2AQ South Esplanade Knight Frank LLP 20 Hanover Square St Peter Port London W1S 1HZ Bankers in Guernsey: Guernsey Corporate advisors: Royal Bank of Scotland International Limited Kinmont Limited Royal Bank Place 6 Arlington Street 1 Glategny Esplanade Prior to 1 March 2008: London SW1A 1RE St Peter Port Guernsey GY1 4BQ First Floor Auditors: Bankers in London: Dorey Court BDO Novus Limited PO Box 180 Barclays Capital Admiral Park Elizabeth House 5 The North Colonnade Ruette Braye Canary Wharf St Peter Port St Peter Port London E14 4BB Guernsey GY1 3LL Guernsey Registrar: Tax advisers: Investment Manager: Computershare Investor Services (Channel Islands) Limited Deloitte & Touche LLP Ordnance House Alpha Real Capital LLP Hill House 31 Pier Road 124 Sloane Street 1 Little New Street St Helier London SW1X 9BW London EC4A 3TR Jersey JE4 8PW Administrator and Secretary: BDO Stoy Hayward LLP 55 Baker Street Assura Administration Ltd London W1U 7EU Second Floor Albert House South Esplanade St Peter Port Guernsey GY1 3TX Prior to 1 March 2008: Mourant Guernsey Limited First Floor Dorey Court Admiral Park St Peter Port Guernsey GY1 6HJ Shareholder information Dividends Ordinary dividends are paid quarterly. Shareholders who wish to have dividends paid directly into a bank account rather than by cheque to their registered address can complete a mandate form for this purpose. Mandates may be obtained from the Group's Registrar. Where dividends are paid directly to shareholders' bank accounts, dividend vouchers are sent directly to shareholders' registered addresses. Share Price The Trust's Ordinary Shares are listed on the London Stock Exchange. Change of address Communications with shareholders are mailed to the addresses held on the share register. In the event of a change of address or other amendment, please notify the Trust's Registrar under the signature of the registered holder. Investment Manager The Company is advised by Alpha Real Capital LLP which is authorised and regulated by the Financial Services Authority in the United Kingdom. Financial Calendar Financial reporting Other key dates Dividend period Ex-dividend date Record date Payment date Preliminary 18 March 2008 1 October - 26 March 2008 28 March 2008 21 April 2008 announcement and 31 December 2007 dividend declared Publication of annual 4 April 2008 report Annual General Meeting 30 April 2008 First Interim 15 May 2008 1 January - 18 June 2008 20 June 2008 14 July 2008 Management Statement 31 March 2008 (quarter 1) Half Yearly Report 15 August 2008 1 April - 17 September 2008 19 September 2008 13 October 2008 30 June 2008 This information is provided by RNS The company news service from the London Stock Exchange

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