Final Results - Part 2

Peel Hldgs PLC
29 June 2001

Part 2

Extract from the Chairman's Statement

Despite the slowdown in the rate of growth in property values, the year ended
31st March 2001 was a period of further progress for the Peel Group with the
underlying businesses performing satisfactorily. The results for the financial
year saw a material increase in profit before taxation, earnings per share and
net asset value per share, although a significant part of the profit
improvement came from property sales, most of which had been reported at the
half year.

Before taking into account the profit on the sale of fixed assets and also
before exceptional items, pre-tax profit for the year totalled £15.99m
compared with £21.12m the previous year. Beyond this, profit on fixed asset
disposals produced an unusually high £22.51m compared with £1.65m in the
previous year. There was also an exceptional charge of £4.60m during the year
relating to expenditure on an aborted scheme at Liverpool Airport, compared
with a charge the previous year of £60.69m in respect of pre-payment and loan
breakage costs on the refinancing of The Trafford Centre. Overall and after
exceptional items, profit before tax for the year under review came out at £
33.91m (2000: £37.92m loss) which, after a tax credit of £1.99m, produced
basic earnings per ordinary share of 55.47p (2000: 54.53p loss). It is
expected that the Group's effective rate of corporation tax will move back
more towards the standard rate in future years. The Board recommends a final
dividend of 10.2p per ordinary share, an increase of 30.8% over that for the
previous year and which would make a total distribution for the year of 15.0p
per ordinary share (2000: 11.5p).

The most significant trading feature of the year was the £22.37m profit from
property sales. Of this, £11.42m profit related to land sales, for which the
net sale proceeds were £14.18m. Whilst the Group's well established strategy
is to invest and seek long term value out of its strategic landholdings, by
any measure the results from this source were beyond normal expectation.

The aim of the Group is to increase net asset value per share. However, in the
financial year under review, the trend in property values was mixed and,
indeed, following a revaluation of the Group's property investment assets at
31st March 2001, there was only an uplift this time of £15.47m. However,
largely assisted by the tender offers and share buyback scheme undertaken in
June 2000 at a discount to net assets and also by the retained profits for the
financial year, net asset value per ordinary share rose by 14.2% to 1,128p
(2000: 988p). The Board's strategy to deliver increased net asset growth
continues to be based on investment in a selective and outperforming property
portfolio creating value through active management and, quite separately, on
investing in and developing other assets and opportunities, both property and
transport, which have substantial growth prospects in the medium term.

At the heart of the Group lies its investment property portfolio where
conditions in the UK during the year remained sound if unspectacular with most
sectors showing modest rental growth and tenant demand remaining reasonable.
Total net rental income from the UK investment portfolio for the year totalled
£92.74m with The Trafford Centre remaining the dominant investment with annual
net rental income of £51.59m.

Alongside its property investment income are the Group's development
activities, where, during the last financial year, five projects were
completed, producing realised and unrealised profits of £3.90m, nearly always
on a non-speculative basis. The port operations of the Manchester Ship Canal
Company, another steady income stream, produced an operating profit of £2.88m
which whilst similar to the previous year was satisfactory in challenging
conditions. Supplementing these activities are the Group's waste and minerals
interests and its recently established advertising business, both of which
make use of existing Group land assets and last year contributed respectively
gross income of £1.80m and £2.03m.

A report on each of the Group's operations during the financial year is set
out in the Operating and Financial Review which appears later.

Given that inflation remains subdued and that rental increases are likely to
be modest, net asset increases from conventional property investment will be
harder to achieve. Against these prevailing conditions, more than three years
ago it was decided that the Group should increase its activities in land
investment, especially that with the potential for major strategic schemes in
the Manchester Ship Canal Corridor from Manchester to Liverpool where the need
to address social deprivation and the opportunity for success co-exist. Allied
to this, the Board decided to maintain and, where appropriate, increase its
successful rolling development programme and also invest in airports which it
sees as a growth sector and where schemes are backed by real assets. Liverpool
Airport, purchased in 1997 and where the outstanding 24% minority
shareholdings were acquired in May 2001, made good progress in terms of
increased passenger numbers, but has some way to go before it becomes
profitable at the after-interest level. The Group's 1999 purchase of the
former RAF base at Finningley marks a further push into the airport sector,
but progress has been checked and much expense will be incurred because of a
public planning inquiry called for later this year to consider the Group's
application for a commercial airport at Finningley.

The arguments for pursuing these land, planning, airport and other transport
opportunities are strong as future rates of growth from property investment in
the current economic climate are expected to be more modest. Your Board
believes that this broader strategy, whilst often involving substantial cash
and upfront outlays in land, infrastructure and fees, will, in conjunction
with the Group's on-going property investments, development projects and other
value enhancing and income producing operations, continue to deliver
satisfactory growth in net asset value per share.

John Whittaker
Chairman
29th June 2001

Extract from the Operating and Financial Review

Earnings

Operating profit (before exceptional items) decreased by £1.01m (1.2%) to £
85.89m (2000: £86.90m). This was largely attributable to a decrease of £6.09m
in property trading profit to a loss of £2.15m (2000: £3.94m profit), which
included a year end stock write-off of £2.77m. This decrease was largely
offset by an increase of £1.23m in Liverpool Airport's operating profit to £
0.80m (2000: £0.43m loss), an increase of £3.31m in property investment profit
to £81.31m (2000: £78.00m), an increase of £1.07m from waste and minerals to £
1.80m (2000: £0.73m) and an increase of £0.64m from other income to £3.04m
(2000: £2.40m).

The Group incurred an exceptional item of £4.60m relating to expenditure on an
aborted scheme at Liverpool Airport. This led to an operating profit, after
the exceptional item, of £81.29m (2000: £86.90m).

Profit on disposal of fixed assets increased from £1.65m in the previous
financial year to £22.51m mainly due to an increased profit of £22.37m on the
disposal of investment properties (2000: £1.67m) from total sale proceeds of £
75.73m compared with £30.88m for the previous financial year.

The net interest charge (before exceptional items) increased by £4.13m (6.3%)
to £69.90m (2000: £65.77m), which led to a small decrease in the cover of net
rental income to total net interest to 137.9% (2000: 139.5%). Capitalised
interest in the year was negligible.

In the previous year, the Group incurred an exceptional interest charge of £
60.69m following the repayment of The Trafford Centre £340m loan facility.

The above factors contributed to an increase of £15.74m (69.1%) in pre-tax
profit (before exceptional items) to £38.51m (2000: £22.77m). After the
exceptional item, there was a profit on ordinary activities before taxation of
£33.91m (2000:£37.92m loss).

The tax credit of £1.99m (2000: £2.40m charge) is mainly due to the
utilisation of tax losses, an advance corporation tax refund of £1.23m and
corporation tax adjustments relating to prior years.

Basic earnings per share (before exceptional items) increased by 36.52p
(150.3%) to 60.81p (2000: 24.29p) as a result of the increased pre-tax profit
and the tax credit. After the exceptional item, the basic earnings per
ordinary share was 55.47p (2000: 54.53p basic loss).

After minority interests and preference dividends, the profit attributable to
ordinary shareholders for the year amounted to £36.38m (2000: £41.99m loss).
The directors propose an increased final dividend of 10.2p per ordinary share
(2000: 7.8p) which, if approved at the Annual General Meeting on 26th
September 2001, will be paid on 1st October 2001 to ordinary shareholders on
the register at the close of business on 7th September 2001. This would make a
total distribution for the year of 15.0p per ordinary share (2000: 11.5p)
which is covered by earnings (before exceptional items) 4.7 times (2000: 2.2
times).

Balance Sheet

Consolidated shareholders' funds decreased by £63.19m (7.7%) to £758.19m
(2000: £821.38m) producing fully diluted net assets per ordinary share of
1,128p (2000: 988p), an increase of 140p (14.2%).

The reduction in shareholders' funds was chiefly due to the purchase by the
Company of its own shares at a total cost of £112.01m. During the financial
year, the Company bought for cancellation 12,688,000 of its own ordinary
shares for a total cost of £88.97m, at an average price of £6.96 per share
(excluding costs). It also bought for cancellation 9,039,000 of its own 5.25%
convertible cumulative non-voting preference shares for a total cost of £
23.04m at an average price of £2.50 per share (excluding costs). This
reduction in shareholders' funds was partially offset by the retained profit
in the year of £27.94m and a £15.47m uplift from the revaluation at the year
end of all investment properties. The valuation resulted in an uplift of £
26.30m in respect of The Trafford Centre to £900.00m, an increase of £4.67m on
overseas investments, offset by a reduction of £15.50m on UK investment
properties and land. Other movements in shareholders' funds included a foreign
exchange gain of £5.38m.

The investment property portfolio of the Group at 31st March 2001 totalled £
1,567.30m and is analysed over the various property sectors as follows:


                                  Undeveloped    Sq.       Sq.  Capital Capital
                                         Land    Ft.    Metres    Value   Value
                                        Acres   '000      '000    £'000       %
The Trafford Centre                         -  1,308       122  900,000    57.4
Out-of-town retail                          5  1,626       151  283,270    18.1
Town centre retail                          -    342        32   37,720     2.4
Offices                                     -    885        82   85,685     5.5
Industrial                                 44  1,428       133   51,920     3.3
Sports and leisure                        427    348        32   19,834     1.3
Land                                   10,837    288        27  136,732     8.7
Waste and minerals                      1,998      -         -    7,583     0.5
Overseas land and property                 32    212        20   44,555     2.8
investment
                                       13,343  6,437       599 1,567,299   100.0

The Group's portfolio of stock properties increased to £10.90m compared with £
9.88m at 31st March 2000 as a result of the increase in the amount of land
being held for development.

Cash Flow

The Group's net debt increased by £101.83m (13.7%) to £845.01m (2000: £
743.18m) at the financial year end. This resulted from the purchase of own
shares, interest paid and capital expenditure, which was partially offset by a
positive cash flow from operating activities and proceeds from the sale of
fixed assets.

Borrowings and Financial Resources

The Group's net borrowings at 31st March 2001 of £845.01m produced an
increased gearing ratio of net debt to shareholders' funds of 111.5% (2000:
90.5%), resulting from both the increase in borrowings and the reduction in
shareholders' funds.

The amount of fixed long term debt held by the Group at the financial year end
was £866.93m (2000: £867.36m) representing 85.1% of total gross borrowings
(2000: 85.1%) and was held at a fixed annual borrowing cost of 7.9% (2000:
7.9%).

During the year, the Group continued to comply with all its borrowing
covenants. The principal covenants relate to net worth, gearing, asset cover
and interest cover, all of which were satisfied by a substantial margin at the
financial year end. At 31st March 2001, the Group had spare bank facilities of
£130.62m (2000: £207.03m).

In November 2000, the Group replaced its existing £110m revolving credit
facility with a new three year £150m revolving credit facility, with a
syndicate of five UK clearing banks. In addition, the Group completed a £6m
loan facility to fund the development of an office complex at Salford Quays.

During the year, the Group did not enter into any further interest rate swaps,
currency swaps, forward contracts or any other derivative financial
instruments.

The present market value of the Group's fixed rate debt shows a post-tax
''marking to market value'' of £86.05m in excess of book value (2000: £65.79m)
(or £122.92m pre-tax (2000: £93.99m)). If these adjustments were incorporated
into the balance sheet at the year end, it would deduct 128p and 183p
respectively from the fully diluted net asset value of each ordinary share
(2000: 79p and 113p).

Accounting Standards and Policies

The financial statements comply with all accounting standards issued by the
Accounting Standards Board applicable to financial statements at 31st March
2001. The Group's accounting policies are consistent with previous years.

The Trafford Centre

The Group is able to report another year of steady growth with footfall being
over 5% higher than for the previous twelve months and the average spend per
visitor group increasing by 20%.

Market research supports the view that this trend should continue. Awareness
remains high, market penetration is increasing and visit frequencies have been
maintained. There is, however, a constant need to maintain that awareness
amongst existing customers and to target promotions where research indicates
an opportunity.

Income from base rents produced £49.21m during the year (2000: £47.88m). This
will increase by £1.2m upon expiry of some rent free arrangements and
completion of lettings currently with solicitors. Turnover rents contributed
an additional income of £2.38m (2000: £1.80m).

There have been a number of changes to the tenant line-up during the course of
the year, the most notable being the departure of C&A and their replacement by
Marks and Spencer at an increased rent. Their presence has led to increased
letting activity in this part of the Centre.

Where tenants have had to be replaced, the Group has invariably secured an
operator that has more to contribute to the overall success of the Centre than
the outgoing business. Retailers which may have been previously apprehensive
about joining a new scheme are now keen to be part of the success. The problem
is increasingly one of matching demand with suitable and available space.

Operationally, the Centre is running efficiently and continues to set shopping
centre benchmarks for standards generally and customer services in particular.

There has been some progress with the Group's interests in land close to The
Trafford Centre, although it is frustratingly slow. The re-opened Giants Field
Inquiry took place in November 2000 and a decision is awaited. A new Metrolink
line to the Centre will be put out to tender later this year, along with three
other proposed extensions, although the Trafford Park line alone will be
entirely dependent upon private sector finance. The Group's ability to
contribute to the cost will hinge on the outcome of the Giants Field
application.

UK Commercial Property Investment Portfolio

Falling world stock markets had a negative effect on property investment
values, largely brought about by the retreat of institutional investors as
they sought to re-balance the weighting of their property holdings. However,
the intervention of other factors meant that these effects were not uniform
across property sectors. Strong rental growth in the office market,
particularly in London and the South East, produced impressive overall
performance. Conversely, the retail sector was badly damaged in the early part
of the year by the perceived threat of e-commerce and mixed trading figures
but did recover some of its credibility and thus some lost ground towards the
year end. Both the industrial and leisure markets cooled by comparison with
the previous year's strong performance. Overall, the effect on the value of
the Group's UK commercial property investment portfolio was fairly neutral.

At 31st March 2001, the whole of the Group's UK commercial property investment
portfolio, excluding The Trafford Centre, was externally revalued by King
Sturge. The total valuation figure of £478.43m represents an initial yield,
net of costs, of 7.1%, compared with 6.4% in 2000 and 7.1% in 1998. Overall on
the valuation of the UK commercial properties there was a decrease of 2.1%
which is analysed by sector as follows:

Out-of-town retail                -2.7%

Town centre retail                -7.5%

Offices                           +6.4%

Industrial                        -9.2%

Sports and leisure                +4.8%


The recovery in retail investment demand was not sufficient to offset the
earlier downturn and both out-of-town retail parks and town centre stores
recorded falls against the previous year's values.

Capital receipts from sales totalled £60.90m before costs and included the
sale of a non-food out-of-town retail park to Tesco. £18.06m was reinvested by
way of property purchases and a further £10.40m invested in development
schemes undertaken by the Group for retention. The policy on sales remained
one of targeting poorer performing properties and seizing opportunities to
exploit special purchaser situations.

The completion of rent reviews and lease renewals increased rental income by £
0.58m per annum on an annualised basis, compared with £0.71m per annum in the
previous year. Additional income of up to £1.80m per annum was forecast from
outstanding rent reviews at the year end, largely from the retail warehouse
portfolio. This was a much more volatile year in terms of tenant movements and
more successful in terms of vacant space let than the previous year. The rent
roll benefited from new lettings of £3.58m per annum (2000: £2.91m per annum),
against rent lost, as a consequence of tenants vacating, of £2.22m per annum
(2000: £1.95m per annum). Properties developed by the Group and retained
within the portfolio brought in rent of £1.04m per annum. The substantial
level of sales during the year removed £3.81m per annum from the rent roll and
that was after allowance for rent gained from purchases. Overall, there was a
relatively small reduction in annualised rental income to £33.23m when
compared with the previous year.

Ignoring properties held for future development, the amount of void property
in the UK portfolio reduced from 285,000 sq. ft. to 188,000 sq. ft.,
representing 4.7% of the total floor space or 4.1% of the portfolio in terms
of rental value. Two of the largest contributors to the year's void property
figures were office buildings at Epsom and Cheltenham where leases expired and
were not renewed.

Poor past trading figures dented retailers' appetite for new space in the
out-of-town retail park and food superstore sector. There were also a number
of corporate failures which had a damaging effect on capital growth. Although
towards the year end, there were indications of trade picking up for a number
of tenants.

The investment market for shopping centres and high street shops remained
nervous as negative sentiment continued to weaken yields. However, in the
latter part of the year there were signs of a number of counter-cyclical
purchasers moving into the market, suggesting that the worst may be over,
although the forecast for future growth remains doubtful. The more secondary
market fared best with its greater attraction to the income driven investor,
which undoubtedly aided the Group's success in completing the sales of its
shopping centres at Worksop and Newport in excess of their holding value.

With the Group's limited exposure to the London office market, growth was not
as great as it might have been but nevertheless, much of the provincial office
investments fared well and the sector produced good overall results.

The early part of the year saw strong capital growth in the industrial and
warehouse sector on the back of rising income streams but this was thrown into
reverse in the second half of the year as investors turned their backs and
yields weakened. The size of the industrial element of the portfolio was
increased significantly with the purchase of a modern 368,000 sq. ft. building
close to The Trafford Centre. This unit was acquired with vacant possession
but almost immediately let to Argos.

In the sports and leisure sector, two newly developed sports/golf facilities
were brought in as investments, one at Worsley, Manchester and the other
adjacent to The Trafford Centre.

Overseas

The Group's overseas properties include a 138,000 sq. ft. shopping mall and
offices at Hamilton, Bermuda and in Nassau, Bahamas, two office buildings
totalling 73,000 sq. ft. These overseas properties generate income of £3.72m
per annum.

Property Development

The restrictive nature of present planning legislation means that it is more
productive to concentrate the Group's development activities on land adjacent
to existing properties, particularly retail warehouse developments or to
promote development on the Group's own brownfield land, much of which is
located in or around the Manchester Ship Canal Corridor. Following planning
approval, developments are mainly carried out by the Group itself. However,
occasionally, sites have been sold to generate cashflow. This is more likely
on sites where planning approval has been received for residential development.

Developments completed during the year included a fully let 58,000 sq. ft.
non-food retail warehouse park at Yeovil, a 10,000 sq. ft. office building at
Castlefield, Manchester, the provision of canalside facilities for Blue Circle
to allow the bulk movement of cement by canal and rail, the sale of a nine
acre industrial development site at Irlam, near Salford, with planning
approval and the sale of a 60 dwelling residential development site at
Banstead.

Developments underway at the year end include the construction of a 60,000 sq.
ft. office building known as the Alexandra on land at Salford Quays and,
additionally at the Quays, the sale of a 200 dwelling residential development
site with planning approval.

At Wakefield, planning approval was received on a three acre site adjacent to
the Group's proposed business park which has been sold to Bass for a public
house and hotel. At Altrincham, construction commenced on a 30,000 sq. ft.
non-food retail warehouse and a 4,000 sq. ft. fast food restaurant
development, which has been forward sold to the Crown Estate Commissioners. On
land adjacent to The Trafford Centre, construction of a 120 bed hotel is
underway for which a lease with an operator has been agreed.

At Eccles, near Salford, the Group has agreed a lease for a park-and-ride
facility which is under construction for the Metrolink System, with 45 car
parking spaces. At Castlefield, Manchester, the Group obtained planning
approval and agreed the sale of an 84 unit residential development. Planning
approval was received and terms agreed with operators for two fast food
restaurants on the Group's retail warehouse parks at Washington and Edinburgh.
The construction and sale of a small district shopping centre at Monsall
Street, Manchester was completed after the year end. Planning approval has
also been received for a pre-let 5,000 sq. ft. non-food retail warehouse unit
on the Group's retail park at Stockport.

The Group's development strategy has resulted in a mixed and varied
development programme, which has generated cashflow and valuation increases,
mainly from land and property assets already within the Group.

Advertising

Advertising income for the financial year was £2.03m compared with £1.09m the
previous year. The growth in income was due to additional poster sites built
at Liverpool Airport, The Trafford Centre and poster hoardings around the
Group's construction sites. New permanent poster schemes were also built at
Partington, Greater Manchester, and at Speke near Liverpool Airport. There was
generally a good increase both in direct sales of advertising space and mall
promotion space at The Trafford Centre.

Land and Planning

The strength of the land market and particularly that for residential
development land was reflected in profits for the year of £11.42m on land
sales of £14.18m. Much of this profit was generated from one site in the North
West where obtaining planning approval on a greenfield site in a prime
location substantially increased values and allowed the Group to sell the site
for over £1m per acre. New planning guidelines are very likely to restrict the
flow of these schemes in the future. Other land sold included the last of the
East Anglian housing sites at Norwich.

The Group made a strong appearance at the Public Examination into Regional
Planning Guidance for the North West held in February 2001. The case was made
to promote both the Manchester Ship Canal as a sustainable mode for freight
transfer and the corridor of land adjoining. The Manchester Ship Canal
Corridor lies at the heart of the North West and links the two great cities of
Manchester and Liverpool. It has a legacy of assets that gave the North West
pre-eminence as a leading industrial region. That inheritance however is mixed.
There are concentrations of brownfield land and areas of social deprivation
alongside recent success stories such as Salford Quays. It is in the Corridor
that need and opportunity are intertwined with a chance to capitalise on the
potential and tackle the challenge of economic and physical decline.

Significant effort continues to be focused upon planning applications for
major projects but progress is often slow when faced with a cumbersome
planning process. Submission of the Salford Forest Park proposal mentioned in
last year's report was held up, in part due to the foot and mouth restrictions
delaying some environmental survey work, but will be submitted shortly. A
scheme for houses, apartments and a marina adjoining the Bridgewater Canal at
Stretford is due to be considered by Trafford Borough Council shortly. This
scheme is expected to improve facilities on the Cheshire Ring of Canals.

The Group has also appeared at a Public Inquiry with its proposals for a
Motorway Service Area at Woolston, Warrington in competition with other sites
on the M6. The inquiry which commenced in February lasted five months and a
decision is anticipated later in the year.

Work is proceeding on the planning application for Phase 2 of the successful
Estuary Commerce Park on the old Northern Airfield at Liverpool. Over £5m has
been invested in site infrastructure works in association with Speke Garston
Development Company and will deliver a site for development of 240 acres which
will be developed over a number of years subject to demand. The Group is an
active partner with the local agencies, Liverpool City Council and the North
West Regional Development Agency and is contributing to what is undoubtedly
one of the most successful regeneration projects in the country.

Waste and Minerals

Financially, the year was dominated by two litigation claims. A claim at two
of the Group's sites for overtipping was settled in favour of the Group at £
0.98m plus costs. Provisional terms have also been agreed on another claim
against Viridor Waste Management where High Court proceedings have been
adjourned pending the conclusion of a final settlement in the Group's favour.

A new waste recycling centre at Warrington came into operation and planning
applications were submitted for two more, one in Trafford and one in Wirral on
Merseyside. These projects demonstrate the changing nature of waste
management. The political, environmental and legislative emphasis is now on
recycling, recovering and re-using waste which will increasingly lead to
reductions in inputs at landfill sites.

Major operational and regulatory problems emerged at the Arpley landfill site.
These are being monitored and investigated, but one of the consequences is a
significant reduction in both inputs and revenue.

It remains difficult to secure planning permission for schemes that are widely
viewed as bad neighbour developments by local residents and local politicians.
This is reflected at Fletcher Bank Quarry in Bury where the planning
application for a landfill site submitted by Biffa still remains undetermined
years after submission.

After a three year moratorium on new gas fired power stations, the Government
approved the proposal for the AES project at Carrington. The new power station
should be commissioned in late 2003/4 and will generate additional revenues
for the Group.

Total revenue for the financial year was £1.80m which compares with £0.73m for
the previous year.

Port

The traffic handled through the port on the Manchester Ship Canal for the
financial year was 7.80m tonnes (2000: 7.80m tonnes). This generated income of
£19.28m (2000: £18.37m) and an operating profit of £2.88m (2000: £2.84m).

Tonnage through the specialist oil dock located at Eastham decreased by 0.19m
tonnes against the previous year. Imports of bulk oil fell again, but imports
of chemicals through the dock remained strong and this remains an important
sector for the port operation.

Elsewhere, there was further growth in bulk liquids imported or exported with
Shell UK remaining the port's largest single customer. Tonnage to and from the
Shell refinery fell slightly on the previous year's level, but the encouraging
growth in traffic from a berth in Runcorn continued. Following a number of
disappointing years, tonnage over the berth servicing the Associated Octel
plant at Ellesmere Port increased in the year.

The total amount of dry cargo handled through the port increased again, this
time by 0.12m tonnes. The dock operation at Runcorn recovered tonnage lost in
the previous year and investment is continuing with additional covered storage
space on the docks. Unfortunately the facility at Ellesmere Port had a more
difficult year and tonnage handled fell by 0.06m tonnes. This operation,
however, had a strong last quarter and the prospects for the coming year look
brighter.

The section of Canal between Runcorn and Manchester, the Upper Canal, handled
the highest level of tonnage since 1985, 1.08m tonnes (2000: 0.94m tonnes).
There was growth in traffic to all but one location and tonnage was boosted by
much higher levels of maize imports to the canalside starch production
facility in Trafford Park. This increase in traffic, in conjunction with a
reduction in total costs, helped to reduce the operating deficit in the Upper
Canal from £1.59m last year to £1.17m.

Maintenance and upgrading of the infrastructure of the Canal continued with
major works being carried out on flood sluices, cranes and also on the deposit
grounds used to accommodate the dredgings removed from the Canal. The overall
cost of dredging increased from the level incurred in the previous year,
although less work was required in the buoyed approach channel which has been
a problem area in recent years.

Airports

Liverpool

In an increasingly competitive industry, Liverpool Airport recorded
considerable progress during the year by focusing on the niche low cost
market. Passenger throughput was 2.07m an increase of 36.7% over the record of
the previous financial year, making Liverpool Airport one of the fastest
growing European Airports. The signing of a long-term contract with easyJet,
following its successful Stock Exchange flotation in November 2000, commits
easyJet to operating seven Boeing 737 aircraft from its North West base by
2003, ensuring further growth in the medium term. This important strategic
agreement will act as the catalyst for the future expansion of Liverpool
Airport. A disappointment during the year was the loss for the Airport of
easyJet's London Luton service. This was, however, offset by the use of the
aircraft on European destinations from Liverpool.

Although charter flights and freight movements were similar to the previous
year, efforts continue to widen the customer base. Recent agreements with the
main tour operators will see an increase in holiday flights for Summer 2002.

To meet the expectation of the airlines (and their passengers) and to
strengthen Liverpool's position in the industry, a major capital expenditure
programme is underway. This investment, partly supported by a grant from the
European Regional Development Fund, will see the opening of a new £32m
terminal building by early Summer 2002, for which planning consent was
received in the Autumn. As passenger forecasts increase, work has commenced to
prepare an application to extend the terminal facilities to accommodate 4.50m
passengers by 2005/6. The recent acquisition of the 24% minority shareholding
of the five Merseyside Local Authorities will assist financing for this
ongoing investment programme.

In the financial year, the Airport generated income of £12.50m (2000: £10.14m)
and a net operating loss after interest of £0.76m (2000: £1.25m loss). An
exceptional charge of £4.60m, being abortive costs incurred on an earlier
terminal project, was also incurred during the year.

Finningley

In November 1999, the Group submitted a planning application to Doncaster
Metropolitan Borough Council for the re- development of the former RAF
Finningley into a commercial airport. Following detailed consideration, the
Local Authority resolved in January 2001 to support the application subject to
planning conditions and to refer it to the Secretary of State for the
Environment, Transport and the Regions. In March this year, the scheme was
called in for a public inquiry which is due to commence in September 2001.
This delay is a disappointment but the Group remains committed to the project,
which will deliver significant sustainable economic regeneration benefits for
South Yorkshire and North Nottinghamshire.

The Group has also agreed with the Local Authority a comprehensive package of
environmental measures including a Quiet Operations Policy for noise which
will be incorporated within a Section 106 Planning Agreement.

The scheme has received considerable support from aviation operators,
businesses at local and regional level, Chambers of Commerce and not least the
local community. A total of 50,000 expressions of support were submitted to
the local planning authority, as against objections totalling approximately
500. The Group is grateful for this support and remains confident of a
successful outcome to the planning inquiry.

For further information on this document contact Mr P A Scott on 0161 629 8200.