Final Results

Quintain Estates & Development PLC 21 June 2004 21 June 2004 QUINTAIN ESTATES AND DEVELOPMENT PLC ('Quintain' / 'Company' / 'Group') PRELIMINARY ANNOUNCEMENT OF RESULTS FOR THE YEAR ENDED 31 MARCH 2004 Highlights â€¢ Profit before tax up 14.8% to Â£16m (2003: Â£14m) â€¢ Earnings per share up 31.9% to 12.4p (2003: 9.4p) â€¢ Net asset value per share up 16.4% to 405p (2003: 348p) â€¢ 'Triple net' net asset value per share up 20.9% to 364p (2003: 301p) â€¢ Final dividend up 14.3% to 6.00p (2003: 5.25p), giving a total dividend for the year of 8.75p (2003: 8.00p), up 9.4% â€¢ Total return of 18.9%, or 16.3% net of RPI inflation â€¢ Strong performance by Company's investment portfolio, with 9.5% uplift in valuation to Â£797.7m â€¢ Significant progress made in the Company's key Special Projects: o Following the resolution to grant for 14 million sq ft of development on the Greenwich Peninsula in April 2003, fast-track planning culminated in an unconditional planning consent on 18 June 2004 o Planning application for 5.3 million sq ft of mixed use development at Wembley submitted in October 2003; resolution to grant planning consent obtained following the year-end o Outline planning application submitted on 15 June 2004 for a 280 acre mixed use development at Emersons Green, Bristol, incorporating the Group's own 65 acre holding â€¢ New Â£400m corporate borrowing facility secured since the year-end. Nigel Ellis, Chairman of Quintain, commented: 'The Company made considerable progress in the year to 31 March 2004 across all its areas of operation. This has continued since the year-end, with the achievement of full planning consent for the Greenwich Peninsula, the resolution to grant consent at Wembley and the profitable sales of Neathouse Place and The Parishes, Scunthorpe. 'With the backing and enthusiasm of our management teams, our financial strength and the exciting prospects for the Company's three operating divisions, the board is confident of future growth and success.' For further information, please contact: Quintain Estates and Development 020 7495 8968 Rebecca Worthington Financial Dynamics 020 7831 3113 Stephanie Highett / Dido Laurimore FINANCIAL HIGHLIGHTS FOR THE YEAR TO 31 MARCH 2004 Profit and Loss Account 31 March 31 March 2004 2003 Change Turnover (Â£000) 60,484 57,605 5.0% Profit before tax (Â£000) 16,037 13,968 14.8% Earnings per share (pence) 12.4p 9.4p 31.9% Dividends per share (pence) Final 6.00p 5.25p 14.3% Total for year 8.75p 8.00p 9.4% Balance Sheet 31 March 31 March 2004 2003 Change Net asset value per share (pence) 405p 348p 16.4% Diluted net asset value per share (pence) 399p 342p 16.7% Gearing (%) 56% 63% - Total Return 31 March 31 March 2004 2003 Total return for the year (%) 18.9% 16.0% CHAIRMAN'S STATEMENT I am pleased to report that Quintain has yet again had a successful year in which considerable progress was made. These achievements have continued since the year-end, with the full completion of the commercial contracts relating to the Greenwich Peninsula and a resolution to grant consent decision from the London Borough of Brent for our Wembley planning application. We have achieved this year a total return of 19% or 16% net of inflation. This is well ahead of our internal target of 10% total return net of inflation, a target which we have exceeded every year since flotation in 1996. We have also significantly outperformed the property market as measured by Investment Property Databank (IPD), the industry benchmark. Our total ungeared return was 16.3% compared with IPD's March Universe of 12.6%. This places us in the top decile. In the year to 31 March 2004, the net asset value per share rose by 16%, from 348p to 405p, and by 17% to 399p from 342p on a diluted basis. As in past years, the main driver of this uplift was the surplus on property revaluation. The most significant contributions arose from our Meridian Delta Project on the Greenwich Peninsula; our investment in Wembley; Neathouse Place, London; Emersons Green, near Bristol; and the shopping centres. Details of all these projects and a full review of our operations follow in the Chief Executive's Review. Profit before tax rose 14.8% from Â£14m to Â£16m and earnings increased by 32% to 12p per share. The rise in earnings was primarily due to a number of sales in the core investment portfolio, a surrender premium of Â£2.2m at our property in Gracechurch Street and an effective tax rate of 0% arising mainly through unwinding deferred tax provisions for capital allowances previously made on properties acquired within Chesterfield. However, as predicted, underlying profits have fallen marginally, with the growth in income being more than offset by a predicted increase of 50% in administration expenses. This rise was due to a combination of factors, including the incorporation of a full year of the Wembley costs and the impact of the recruitment of a substantial number of senior staff to deliver the next phase of growth. This has enabled us to generate significant value, as demonstrated by the record time in which we applied for planning and obtained a resolution for 5.3m sq ft of development at Wembley. The Company's earnings will inevitably vary over time, particularly in light of the major special projects, where most of the early value comes through in the form of capital value uplifts. Our progress has been reflected in the ability to refinance the Company on a corporate basis. Following the year-end, we have repaid most of our existing facilities, having taken out a Â£400m loan fully underwritten by Barclays, Bank of Scotland, HSBC and Lloyds. Further details on all of these are to be found in the Finance Director's Review. Share Price During the year the share price has continued to perform well. At 427p at close of business on 18 June 2004, the shares have outperformed the FTSE All Share Index by 48% and the FTSE Real Estate Index by 16% since 1 April 2003. Dividend As a result of this year's strong performance, the Board is recommending an increase of 9%, or 0.75p giving a total dividend for the year of 8.75p. It is intended that the final dividend will be paid on 10 September 2004 to shareholders on the register as at 13 August 2004. It remains the Company's intention to maintain a progressive dividend and this will continue subject to cash requirements. Corporate Governance We have made progress on Governance issues during the period under review and we continue to strive to achieve best practice. A detailed review will be contained in the Corporate Governance section of the Annual Report & Accounts which will be circulated to shareholders in July. People As mentioned in the half year results, Pam Alexander who joined us as a Non-Executive Director in July had to leave in November because of conflicts of interest which arose on her subsequent appointment as Chief Executive of the South East England Development Agency. Joan MacNaughton joined us as Non-Executive Director in January of this year. We believe there is clear benefit to having a Non-Executive Director with public sector experience on the Board and Joan's experience as a career civil servant and as the Director General of Energy within the DTI leaves her ideally placed to provide wise counsel. During the year, we have also made a number of senior appointments, particularly within the Company's special projects and structured finance divisions. Their skills and experience complement and strengthen the existing teams and ensure we are well positioned for the next stage of growth. Once again, I must stress how much we benefit from our enthusiastic and hard working staff, including my fellow directors, all of whom have enabled us to have another good year. Outlook The Company made considerable progress in the year to 31 March 2004 across all its areas of operation. This has continued since the year-end, with the achievement of full planning consent for the Greenwich Peninsula, the resolution to grant consent at Wembley and the profitable sales of Neathouse Place and The Parishes, Scunthorpe. With the backing and enthusiasm of our management teams, our financial strength and the exciting prospects for the Company's three operating divisions, the Board is confident of future growth and success. Nigel Ellis Chairman CHIEF EXECUTIVE'S REVIEW The standing and reputation of the Company is further enhanced by another record year of outperformance, in which we have made excellent progress across all areas of our operations. We remain adamant that, with good stock-picking, high returns neither necessitate nor connote high risk. We have a well-financed reversionary portfolio with upside potential from rent reviews, planning gain, marriage value and development. Our current low level of gearing, combined with intended sales, should give us substantial financial resources for our Special Projects, the development of our Q3P business and reinvestment in the Main Portfolio. The business opportunities ahead exemplified by the Greenwich Peninsula, Wembley and fund management, are exciting, challenging and potentially very profitable. To realise the potential, we have invested in recruiting additional highly qualified and talented staff. Whilst we are ever cognisant that our success is primarily measured by total return, underlying profits must be carefully monitored as we strive to sustain a progressive and covered dividend. Special Projects Highlights of the year are many and varied. The major events at Wembley during the year included the acquisition of York House - an office block adjacent to our existing holdings yielding 8% - and the delisting of the 13 acre Palace of Arts and Industries sites which will be included in our Phase II planning application. Subsequent to the year-end, a resolution to grant 5.3 million sq ft of mixed use development was granted by the London Borough of Brent on 3 June - a significant achievement particularly given the timescale. Significant advances have been made with the pre-letting of buildings allied to the hotel and leisure industries. We expect to be on site this year, with significant progress expected by the Stadium opening in 2006. This augurs well for the future. At Greenwich, the safe-guarded wharf status has been lifted and the whole transaction went unconditional on 18 June 2004. We hope to commence infrastructure works this calendar year, with the intention of drawing down on options over the 190 acres from 2005. The combination of land sales and equity participation in joint ventures will generate substantial profits over this 15 year project. During the year, we also acquired a 12 acre strategic site on the other side of the river in partnership with the London Development Agency. In May 2004, we made an outline planning application at Emersons Green for another major mixed use development. We own 65 acres of the 280 acre site. On our site, the development will be predominantly residential. With our major mixed use consents, the vagaries of the residential market are not a fundamental concern, as we have control over the timing and financing of development. In the City of London, the office building at 36 Gracechurch Street was let while the tenant of 37 - 41 Gracechurch Street surrendered the lease for a premium equivalent to five years' rent. The combined sites will be available for a consented development in three years' time comprising 113,000 sq ft of offices. At Neathouse Place, the litigation over the fenestration has been satisfactorily resolved and the rent review positively concluded. Shortly after the year-end, terms were agreed for a sale at Â£67.8m, representing a profit of Â£20m since it was acquired as part of Chesterfield. Another notable event was the formation of a joint venture company with Countryside Properties PLC to develop an Â£89m, 9.4 acre mixed use site at Colliers Wood in South West London. Sales of the apartments are in line with expectations and the pre-let leisure, retail and hotel development has been forward sold to a UK institution. Main Portfolio The Main Portfolio currently holds about half the property assets which contribute approximately three quarters of the Company's rental income whilst also contributing to the uplift in NAV. We continue to recycle our capital, selling properties where we can see no further opportunity to add value. In total, we sold Â£80m worth of properties during the reporting period, realising FRS3 profits of Â£6m. Since the year-end, we sold The Parishes, Scunthorpe, at a price of Â£43.1m, a profit on cost of Â£8.2m. Turning to acquisitions, we continue to be highly selective in search for properties with higher yield and potential for active management and/or reversionary uplift. For example, in November, we acquired a 57,000 sq ft office building in Bracknell yielding 9%. We believe that this property will benefit from an improving South East office market. In Central Manchester we acquired Royal Exchange, a 37,000 sq ft shopping mall. We plan to refurbish the centre to provide better quality retail units. In Leamington Spa, we purchased a 38,000 sq ft office building in October for a yield of more than 9%, with opportunities to improve the yield still further through refurbishment and re-gearing of leases. Our larger retail assets, originally acquired through Chesterfield, have continued to make major contributions to the performance of the portfolio. Castlegate, Stockton remains one of the North East's most successful shopping centres. We continue to maximise the reversionary potential and are working with the local council on plans to extend the centre to assist in the regeneration of the town. At Anglia Square, on the edge of Norwich city, we are looking at an urban regeneration project centred around our existing shopping centre investment. We continue to reduce our exposure overseas and have sold the Hanford Mall shopping centre in California. The property was sold in excess of book value, realising a FRS3 profit of Â£2.2m. Elsewhere within the portfolio, we have concluded the rent review on Fountain Street, Manchester, and are in active negotiations to re-gear the NHS Trust's PFI agreement on our APU unit at Dartford. Our rolling refurbishment and rebranding of our multi-let office/retail property at Smallbrook Queensway, Birmingham, continues apace. This property continues to benefit from the transformation of Central Birmingham. Quintain 3rd Party (Q3P) We are expanding our Q3P business with the intention of building a high income stream with a low capital base using structured finance, joint ventures and fees from fund management. In order to fulfil our ambition, the Q3P team has been strengthened. Since the year-end, we have agreed with Morley to expand the Quercus health care fund from Â£245m up to Â£450m. The fund is structured to give us investment income, fees and a performance related bonus. We have widened the investment remit to include small hospitals, assisted living villages and diagnostic treatment centres in addition to nursing homes, specialist care homes and learning disability homes. Also following the year-end, we commenced discussions to create a joint venture with University Partnerships Programme, to design, build, finance and operate a 1,400 bed student residence for the University of East London. We will act solely as a developer and financier, with facilities management being provided by a third party. Outlook With inflation subdued and interest rates still relatively low, debt driven buyers remain active and competition is increasing with the return of institutional interest. Although it is difficult to find value in the market, we have made purchases of Â£55m during the year and Â£27m since the year-end. We have a robust balance sheet with a majority of our borrowings at fixed rates. Our development and regeneration activities are supported by the income stream from the main investment portfolio and Q3P revenues. Through a flexible approach to these projects we anticipate delivering exceptional returns. We will continue to recycle our capital actively and the expansion of Q3P will contribute to a stable and significant revenue stream in the years ahead. Last, but by no means least, our 20 million sq ft development programme in Special Projects is exciting and challenging but we are more than up to the tasks that lie ahead. FINANCE DIRECTOR'S REVIEW Returns on Shareholders' Equity Quintain's total return, as measured by dividend plus increase in net asset value, was 18.9% (2003: 16.0%). The largest contributor to this increase was the surplus arising from revaluation of the portfolios of 57.6p per share. Profits added 12.4p per share before deducting 8.8p for the full year dividend. Profit and Loss Account Reported profit before tax for the year increased by 14.8% to Â£16.0m (2003: Â£14.0m). Turnover was 5.0% ahead at Â£60.5m, with gross profit up 10.5% at Â£40.4m. Rent coming on stream of Â£3.5m from purchases more than offset rent of Â£3.2m lost from sales. A further Â£2.2m of rent was generated in relation to new leases. Net rents included back rent of Â£2.6m less exceptional repair costs of Â£3.0m in relation to Neathouse Place. Rents passing as at 31 March 2004 were Â£40.2m, with an estimated rental value (ERV) of Â£51.3m. Voids have increased in the year and now stand at 5.1% of ERV (2003: 2.6%). Of this movement the purchase of York House adds 0.6%, lease expiries add 1.2% and the practical completion of development at Croydon Valley Trading Estate adds 0.4%. We also have development properties where we have taken leases back from tenants. As at 31 March 2004, voids in relation to these made up 6.6% of ERV (2003: 5.7%), the largest increase coming from the purchase of Royal Exchange, Manchester, where major refurbishment is currently underway. The letting of 36 Gracechurch Street offset the surrender at 37-41 Gracechurch Street. The average unexpired lease term is 15 years. Armageddon, which is when rent equals interest assuming no tenants renew and all breaks are exercised, is 2020. Profit from the sale of trading properties was Â£0.3m (2003: Â£2.5m). This reflects the lower level of trading disposals with the opening balance sheet including only Â£1.8m of stock (2002: Â£7.7m). The increased level of stock during 2004 reflects the acquisition and build costs in relation to Merton Abbey Mills, the mixed use development carried out in joint venture with Countryside Properties PLC. Income from leisure operations of Â£6.6m includes a full year of operating income at Wembley. The Â£2.8m for the previous year related to eight months of trading following the acquisition of Wembley (London) Ltd in August 2002. The increase in other income of Â£1.7m to Â£3.7m was driven by surrender premiums of Â£2.3m (2003: Â£0.5m). The largest of these was Â£2.2m in respect of 37-41 Gracechurch Street where, in conjunction with 36 Gracechurch Street, we have a 120,000 sq ft development consent. Administration expenses increased by Â£5.6m to Â£16.0m. Incorporating a full year of operations at Wembley resulted in their share of administration expenses going up by Â£1.9m to Â£4.3m. Of the remaining increase, Â£2.4m related to staff costs. Over the last two years, we have recruited staff to increase the Company's skills base and internal resources to give us the right platform from which to grow the business. Administration expenses include Â£0.8m of fees paid to our auditors, KPMG for non-audit work. Of this, Â£0.4m related to tax advice and compliance. In line with corporate governance best practice, we have transferred this work to Deloitte with effect from the new financial year. In addition, Â£0.4m of fees were paid for due diligence and legal work for the acquisition of Power Securities (Manchester) Ltd. Fees paid to other accountancy firms amounted to Â£0.3m (2003: Â£0.3m). Operating profit from joint ventures fell by Â£0.8m to Â£3.6m as the result of the sale of our interest in Hanford Mall, a shopping centre in California. Net interest payable amounted to Â£18.2m compared to Â£17.8m in the prior year. Notional interest of Â£1.5m (2003: Â£0.9m) was charged in relation to the deferred payment for the Wembley complex. Interest capitalised in the year was Â£3.2m (2003: Â£2.3m), of which Â£1.6m related to development sites at the Wembley Complex and Â£1.2m to Meridian Delta. Interest receivable in the year was Â£0.8m (2003: Â£0.7m). Taxation Quintain has an effective tax charge of 0% for the year (2003: 11.8%). This results from a combination of factors. Â£1.8m net of prior year UK tax losses were utilised in addition to Â£1.1m net of overseas losses, the latter covering all the profit made on the disposal of Hanford Mall. Capital allowances of Â£2.0m net were accumulated with crystallization of allowances on disposals more than offsetting the deferred tax provision. A full reconciliation of the current tax charge is shown in note 6 to the accounts. Tax has a material impact on total returns. The Group's policy has always been to seek to retain the benefit of capital allowances on the disposal of properties and this together with brought forward tax losses should keep the effective tax rate below the standard 30%. Because the timing of sales has a material impact on taxation, it is difficult to give precise estimates of future rates at this time. Assuming all properties are sold at the revalued amounts, the Company has an estimated potential capital gains tax liability of Â£40.1m (2003: Â£42.4m). This equates to 30.9p per share. Balance Sheet At 31 March 2004, the investment portfolio was valued at Â£797.7m (2003: Â£722.5m). The movement in value of the portfolio reflected purchases of Â£55.3m, capital expenditure of Â£14.9m, disposals of Â£61.5m, transfers to stock of Â£3m and a revaluation uplift of Â£69.3m. Major revaluation movements include an uplift of Â£24.9m on the Wembley complex. During the year, with the London Borough of Brent having adopted our master planning framework, we submitted a planning application for 5.3m sq ft of mixed use development over 42 acres. Delisting was obtained for the 13 acre Palace of Arts and Industries sites opening the way for a further planning application. After the year-end, a resolution to grant planning was given by Brent Council. The Meridian Delta joint venture for the redevelopment of the Greenwich Peninsula increased in value by Â£14.4m. During the year, a resolution to grant planning for 14.1m sq ft of mixed use development was obtained and we received approval from the Mayor of London and notice from the Secretary of State that the application would not be called in. In addition, the legal agreement setting out the conduct of development on the Peninsula and the package of community benefits was signed with the London Borough of Greenwich. Following the year-end, the final legal agreements between all parties were signed which represented the last formal hurdle before starting on site. The value of Neathouse Place, London, rose by Â£5.4m to Â£65m after settlement of the outstanding litigation and agreement being reached on the June 2002 rent review. The property has been sold since the year-end for Â£67.8m. Other strong performers were the retail assets, with Castle Gate Shopping Centre in Stockton showing a 13.8% uplift to Â£40.8m and Anglia Square, Norwich, up 13.2% at Â£19.5m. Net Asset Value The basic net asset value per share at 31 March 2004 was 405p, an uplift of 16.4% from the 348p for the prior year. On a diluted basis, the net asset value per share rose 16.7% from 342p to 399p. The triple net asset value per share was up 20.9% at 364p after taking into account 4p for marking to market of debt and 31p for unprovided capital gains. Joint Ventures At 31 March 2004, Quintain had net investment in joint ventures totalling Â£31.3m. Having sold our interest in Hanford Mall in California during the year, the only remaining joint venture is with Morley Asset Management, the asset management arm of Aviva. We have a 23% equity interest in Quercus, a nursing home fund, and as property manager are entitled to basic, transaction and performance fees. Finance Gearing at 31 March 04 was 56% (2003: 63%). Transactions post year-end bring this down to circa 40%, giving us ample scope for funding existing projects and new deals. At the year-end, there were Â£124.5m of committed facilities undrawn. Since the year-end, we have refinanced the Company, taking out a Â£400m corporate loan fully underwritten by Bank of Scotland, Barclays, HSBC and Lloyds. The facility is for 5 years with possible one year extensions at the end of the first and second years. Of the Â£400m, Â£125m is a term facility with the remaining Â£275m being revolving. The margin is 0.95% with a 0.375% commitment fee. The main financial covenants are a maximum gearing of 130% of net assets excluding joint ventures, with the possibility of extending it to 150% with the banks' permission and an increase in margin to 1.35%. Interest cover must be 1.25 times covered by earnings before tax and interest, plus surpluses or deficits over cost on the disposal of properties. A maximum of 30% of net worth can be invested in separately financed joint ventures. This agreement marks a step-change in our funding arrangements from secured to corporate borrowing and is powerful endorsement of Quintain's management by these first-class banks. The facility will increase liquidity and operational flexibility and provide a competitive advantage in bidding for investment assets. The new structure is expandable and will provide a robust platform for our next stage of growth. Drawings have initially been used to repay existing debt, with remaining capacity available to fund our future expansion, and, in particular, our Special Projects. The facility is currently being syndicated to a wide group of banks. As at 31 March 2004, Quintain was 76% hedged with swaps. With post year-end sales, we are currently fully hedged. Company policy is to be between two thirds and fully hedged as, given the nature of its income, it seeks to match the revenue profile with certainty in relation to finance costs. The weighted average rate of interest of the Company's debt at the year-end was 6.1% (2003: 6.2%) and the weighted average maturity of borrowing was approximately 5 years. The fair value deficit on fixed debt and interest rate hedging instruments as disclosed in accordance with FRS 13 was Â£8.4m, equivalent to a reduction in the Company's net asset value per share of 6p, compared with 13p at the previous year-end. After taking into account tax relief, these figures would be 4p and 9p respectively. Interest cover for the year ended 31 March 2004 was 1.6 times (2003: 1.6 times). Cashflow Net cash outflow before management of liquid resources and financing was Â£17.4m (2003: Â£40.3m). This was funded by a net draw down of loans of Â£14.6m. Of the Â£24.8m purchase of shares in subsidiary companies, Â£18m related to a deferred payment for Wembley (London) Ltd. Pensions Quintain operates a defined contribution scheme and has no liabilities arising under FRS 17 Retirement Benefits. Financial Reporting As from 1 April 2005, Quintain's accounts, in line with all listed companies in the European Union, will be prepared under International Accounting Standards (' IAS'). The Company has adopted systems to prepare for this and has identified the following areas where there will be major variations between existing accounting under UK GAAP and IAS. â€¢ Under UK GAAP, there is no requirement to provide for deferred tax on timing differences relating to the revaluation of investment properties unless there is a binding contract to sell the property at the balance sheet date. IAS requires deferred tax to be provided on all temporary differences, which includes differences between the carrying value of investment properties and their tax bases. The deferred tax liability will be reduced to the extent that there are suitable tax losses available. The area where this will have the most significant impact is in providing for the capital gains tax on the difference between the asset valuation and tax base cost. This change is expected to reduce net assets by the amount set out as unprovided for in note 17 to the accounts, however it will have no material impact on triple net NAV (being diluted NAV after deducting capital gains tax and marking to market of debt). â€¢ Investment properties will continue to be revalued each year. However, this movement will be included within the current year profit and loss account. This change will have no impact on net assets. â€¢ Under UK GAAP, interests in leasehold properties are valued on a net basis, that is to say, head leases payments are deducted in valuing the assets. A recent change to IAS allows leasehold interests to be recognised as investment properties with any associate cash outflows recognised separately in the balance sheet, resulting in a grossing up of assets and liabilities. â€¢ IAS require derivatives to be fair valued with the movement in the year taken to the profit and loss account unless it can be demonstrated that they are effective hedges. â€¢ Currently the final dividend is provided for, although approval is only given at the AGM after the results are announced. Post balance sheet items where there is no commitment, such as a final dividend, should not be provided for under IAS. Quintain Estates and Development PLC Consolidated Profit and Loss Account for the year ended 31 March 2004 Notes 2004 2003 Â£000 Â£000 ______ _______ _______ Turnover 65,200 62,660 Less - share of joint ventures' turnover 11a (4,716) (5,055) _______ _______ Group turnover 2 60,484 57,605 Cost of sales 2 (20,079) (21,030) _______ _______ Gross profit 2 40,405 36,575 Administrative expenses 4 (15,959) (10,377) _______ _______ Group operating profit 24,446 26,198 Share of operating profit in joint ventures 11a 3,601 4,421 Share of operating profit in associates 274 278 Profit on sale of investment properties 3a 5,898 841 _______ _______ Profit on ordinary activities before interest and tax 34,219 31,738 Net interest payable 5 (18,182) (17,770) _______ _______ Profit on ordinary activities before taxation 16,037 13,968 Tax on profit on ordinary activities 6 - (1,647) _______ _______ Profit on ordinary activities after taxation 16,037 12,321 Equity minority interests (150) (288) _______ _______ Profit for the financial year 15,887 12,033 Dividends 7 (11,338) (10,183) _______ _______ Retained profit for the financial year 4,549 1,850 ====== ====== Earnings per share 8a - basic 12.4p 9.4p ====== ====== - diluted 12.3p 9.3p ====== ====== Dividends per share 7 - interim 2.75p 2.75p ===== ===== - final 6.00p 5.25p ===== ===== Quintain Estates and Development PLC Consolidated Statement of Total Recognised Gains and Losses for the year ended 31 March 2004 Notes 2004 2003 Â£000 Â£000 ______ _______ _______ Profit for the financial year: Group 11,383 9,210 Joint ventures 11a 4,504 2,823 _______ _______ 15,887 12,033 Unrealised surplus on revaluation of investment properties 19 69,327 48,218 Share of unrealised surplus on revaluation of investment properties held in: Joint ventures 19 4,286 884 Associates 19 822 45 Tax on realisation of revaluation surplus 19 (471) - Foreign exchange movements 19 (798) 190 _______ _______ 89,053 61,370 ====== ====== Consolidated Note of Historical Cost Profits and Losses for the year ended 31 March 2004 Notes 2004 2003 Â£000 Â£000 _______ _______ _______ Profit on ordinary activities before taxation 16,037 13,968 Revaluation element of short leasehold amortisation 19 159 122 Realisation of property revaluation gains of previous 19 8,349 2,325 years _______ _______ Historical cost profit on ordinary activities before 24,545 16,415 taxation ====== ====== Historical cost profit for the year retained after taxation, minority interests and dividends 12,586 4,297 ====== ====== Quintain Estates and Development PLC Reconciliation of Movements in Equity Shareholders' Funds for the year ended 31 March 2004 Notes 2004 2003 Â£000 Â£000 ______ _______ _______ Profit for the financial year 15,887 12,033 Dividends 7 (11,338) (10,183) _______ _______ 4,549 1,850 Other recognised gains and losses relating to the 73,166 49,337 year Negative goodwill - 1,555 Issue of shares less costs 18/19 2,287 2,377 Cost relating to Executive Directors' Performance Share Plan 19 195 - Purchase of own shares - (6,166) _______ _______ Net addition to equity shareholders' funds 80,197 48,953 Opening shareholders' funds 443,316 394,363 _______ _______ Closing shareholders' funds 523,513 443,316 ====== ====== Quintain Estates and Development PLC Balance Sheets as at 31 March 2004 Notes Group Group Company Company 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 ______ _______ _______ _______ _______ Fixed assets Investment properties 9 797,696 722,545 - - Other tangible fixed assets 10 649 430 510 430 Investment in joint ventures - share of gross assets 11a 56,999 61,589 - - - share of gross liabilities (25,708) (31,055) - - _______ _______ _______ _______ 31,291 30,534 - - Investment in associates 11b 5,467 4,512 1,368 1,191 Other fixed asset investments 11c 188 188 311,195 304,198 _______ _______ _______ _______ 835,291 758,209 313,073 305,819 Current assets Stocks: trading properties 21,707 1,750 - - Debtors 12 28,843 48,729 8,256 12,137 Short term investments 13 19 14 - - Cash at bank and in hand 16a 44,168 22,119 7,313 15,471 _______ _______ _______ _______ 94,737 72,612 15,569 27,608 Creditors: amounts falling due within one year 14 (61,587) (63,149) (80,015) (84,127) ______ _______ _______ _______ Net current assets (liabilities) 33,150 9,463 (64,446) (56,519) Total assets less current liabilities 868,441 767,672 248,627 249,300 Creditors: amounts falling due after more than one 15 (338,811) (314,346) (33,729) (37,907) year Provisions for liabilities and charges 17 (4,671) (8,659) - - Equity minority interests (1,446) (1,351) - - _______ _______ _______ _______ Net assets 523,513 443,316 214,898 211,393 ====== ====== ====== ====== Capital and reserves Called up share capital 18 32,323 31,825 32,323 31,825 Share premium account 19 45,076 42,623 45,076 42,623 Revaluation reserve 19 267,604 202,148 - - Other capital reserves 19 112,330 112,330 108,025 108,025 Profit and loss account 19 66,180 54,390 29,474 28,920 _______ _______ _______ _______ Equity shareholders' funds 523,513 443,316 214,898 211,393 ====== ====== ====== ====== Net asset value per share basic 8b 405p 348p ====== ====== diluted 8b 399p 342p ====== ====== Approved by the Board of Directors N G Ellis Director and signed on its behalf 18 June 2004 A R Wyatt Director Quintain Estates and Development PLC Consolidated Cash Flow Statement for the year ended 31 March 2004 Notes Restated 2004 2003 Â£000 Â£000 ______ _______ _______ Net cash inflow from operating activities 25a 6,656 39,514 ====== ====== Dividends from joint ventures and associates 7,871 1,381 ====== ====== Returns on investments and servicing of finance Interest received 911 748 Interest paid (19,239) (17,800) Issue costs of loans (389) (431) ________ ________ Net cash outflow from returns on investments and servicing of finance (18,717) (17,483) ======= ======= Corporation tax paid (66) (1,193) ======= ======= Capital expenditure and financial investment Purchase of tangible fixed assets (63,760) (90,663) Proceeds from disposal of tangible fixed assets 82,639 66,401 Loans to joint ventures and associates - (2,261) ________ ________ Net cash inflow (outflow) from capital expenditure and financial investment 18,879 (26,523) ======= ======= Acquisitions and disposals Purchase of shares in subsidiary companies (24,786) (27,335) (Note) Settlement of debt due from vendor 2,978 - Net cash acquired with subsidiary companies 4 956 ________ ________ Net cash outflow from acquisitions and disposals (21,804) (26,379) ======= ======= Equity dividends paid (10,264) (9,599) ======= ======= Net cash outflow before management of liquid resources and financing (17,445) (40,282) ======= ======= Management of liquid resources 25c (22,703) 18,953 ======= ======= Financing Proceeds from share issue 2,287 2,376 Purchase of own shares - (6,166) Loans drawn down 105,588 161,088 Loan repayments (68,376) (132,548) ________ ________ Net cash inflow from financing 39,499 24,750 ======= ======= (Decrease) increase in cash in the year 25b (649) 3,421 ======= ====== Note: The figure for the purchase of shares in subsidiaries includes a further instalment of Â£18,000,000 of the deferred consideration in respect of the acquisition of Wembley (London) Limited, which occurred in August 2002. On 9 January 2004, Quintain acquired the whole of the share capital of Power Securities (Manchester) Limited, now called Quintain (Manchester) Limited, a company which owns a single property and which did not make a significant contribution to the results for the financial year. A summary of the assets acquired together with the fair value adjustments and the consideration for the transaction is shown in Note 11c. A restatement of the 2003 comparatives in relation to the Proceeds from share issue and Purchase of own shares has been made to clarify the nature of the transactions which occurred in that year. This had no impact on the subtotal for Net cash inflow from financing. Quintain Estates and Development PLC Notes to the Accounts for the year ended 31 March 2004 1. Accounting policies The principal accounting policies, which have been applied consistently throughout the year and the preceding year, are as follows: a) Basis of accounting The accounts have been prepared under the historical cost convention as modified by the revaluation of investment properties and in accordance with all applicable accounting standards and the requirements of the Companies Act 1985, except as explained below. b) Basis of consolidation The group accounts consolidate the accounts of the Company and all its subsidiaries and include the Group's share of the results of its joint ventures and associates. No profit and loss account is presented for the Company, as permitted by section 230 of the Companies Act 1985. The results of newly acquired entities are included in the consolidated accounts from the effective date of acquisition. c) Goodwill Goodwill arising on consolidation is capitalised and amortised through the profit and loss account over a period of 20 years or less in line with the Directors' view of its useful economic life. Negative goodwill, which arises as a result of the fair value of all assets (including property assets) less liabilities acquired exceeding the related purchase consideration, is credited to other capital reserves in the balance sheet. This represents a departure from FRS 10, Goodwill and Intangible Assets, which requires that negative goodwill be treated as a fixed asset. Given that the negative goodwill relates principally to the investment properties acquired, which are neither depreciated nor held for re-sale, the Directors consider that to retain it as a negative asset on the face of the balance sheet indefinitely would not properly reflect the substance of such a transaction nor result in the financial statements giving a true and fair view of the state of affairs of the Group. The treatment is not inconsistent with the requirements of the Companies Act 1985. d) Foreign currencies All assets, liabilities and results denominated in foreign currencies are translated into sterling at rates of exchange ruling at the year end. The rates ruling at the current and previous year ends were as follows: 2004 2003 _______ _______ France Â£1 = â‚¬ 1.50 â‚¬ 1.45 United States Â£1 = US $ 1.83 US $ 1.58 Differences arising from the translation of the net equity investment in overseas subsidiaries are dealt with through reserves. e) Turnover Turnover is stated net of VAT and comprises rental income, proceeds from sales of trading properties, income from leisure operations, and commission and fees receivable. Rent increases arising from rent reviews due during the year are taken into account only to the extent that such reviews are agreed with tenants at the accounting date. When rent free periods are granted with new leases, rental income is allocated evenly over the period from the commencement of the lease to the date of the first rent review. Where a tenant inducement does not enhance the value of the property, it is amortised over the period to the earlier of the first rent review, the first tenant break option or the end of the lease term. f) Disposal of properties Sales of properties are recognised in the accounts if an unconditional contract is exchanged by the balance sheet date and the sale is completed before the accounts are approved by the Board. Profits or losses arising from the sale of investment properties are calculated by reference to book value and treated as non-operating items. Those arising from the sale of trading properties are included in the profit and loss account as part of the operating profit of the Group with, if applicable, a transfer between revaluation and revenue reserves. g) Depreciation In accordance with SSAP 19, Accounting for Investment Properties, no depreciation is provided in respect of the Group's freehold investment properties and leasehold investment properties with over 20 years to run. This represents a departure from the provisions of the Companies Act 1985 which requires all properties to be depreciated. Such properties are held not for consumption but for investment and the Directors consider that to depreciate them would not give a true and fair view. Depreciation is only one of the many factors reflected in the annual valuation of properties and accordingly the amount of depreciation which might otherwise have been charged cannot be separately identified or quantified. Depreciation is provided on leasehold investment properties with less than 20 years to run, over the remaining life of the lease and on an operational property included within freehold investment properties, over a period of 50 years. In relation to other fixed assets, depreciation is provided on a straight line basis over the life of the lease for the short leasehold interest and over their estimated useful life, usually between three and eight years, in the case of fixtures, fittings and equipment. h) Valuation of properties Investment properties are independently valued annually by external professional valuers on an open market basis. Investment properties under development are stated at estimated market value on completion, supported by independent valuation, less estimated costs to complete. Any surplus or deficit on revaluation is transferred to the revaluation reserve except that deficits below original cost which are expected to be permanent are charged to the profit and loss account. Finance charges incurred on investment properties under development are capitalised within the historical cost until practical completion. Trading properties are included in current assets at the lower of cost and net realisable value except for properties previously held for investment which the Directors have decided to redevelop and sell. These properties are reclassified as trading properties and cost is considered to be the latest valuation prior to their reclassification. This treatment is a departure from the Companies Act 1985 which would normally require current assets to be carried at the lower of cost and net realisable value. The Directors consider that compliance with this requirement would fail to give a true and fair view of historical revaluation surpluses, which remain unrealised by the Group until disposal. In the current financial year, a property with a revaluation surplus of Â£960,000 was transferred from investment properties to trading properties. At the balance sheet date, this was the only such property held within current assets. i) Other fixed assets Other fixed assets comprising the Group's leasehold interest in its head office premises together with fixtures, fittings and equipment are carried at cost less accumulated depreciation. j) Investments in joint ventures and associates In accordance with FRS 9, Associates and Joint Ventures, joint ventures are included under the gross equity method. As a result, the Group's balance sheet discloses its share of the gross assets and gross liabilities of the joint ventures. Associates are shown at the Group's share of their net assets. In both cases, the Group's share of operating profit, net interest payable and taxation are included in the Group's profit and loss account. k) Other fixed asset investments Fixed asset investments are stated at cost less any provision for permanent impairment in value. l) Financial instruments The Group uses interest rate swaps for hedging purposes in line with its risk management policies to alter the risk profile of existing underlying exposure in respect of floating rate debt. Amounts payable and receivable in respect of interest rate swaps are recognised as adjustments to interest expense over the period of the contracts. m) Deferred taxation Deferred taxation is recognised, without discounting, in respect of all timing differences between the treatment of certain items for taxation and accounting purposes which have arisen but not reversed by the balance sheet date, except as otherwise required by FRS 19, Deferred Taxation. Deferred tax assets are recognised to the extent that they are considered recoverable. n) Pensions The Group makes pre-defined contributions to employees' personal pension plans. 2. Turnover, cost of sales and gross profit These comprised: 2004 2004 2004 2003 2003 2003 Turnover Cost of Gross Turnover Cost of Gross sales profit sales profit Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ _______ ______ ______ ______ ______ Rents receivable 41,993 (12,133) 29,860 37,367 (7,995) 29,372 Proceeds from sales of trading properties 1,863 (1,565) 298 12,115 (9,657) 2,458 Income from leisure operations 12,154 (5,562) 6,592 5,950 (3,163) 2,787 Other income 4,474 (819) 3,655 2,173 (215) 1,958 ______ _______ ______ ______ _______ ______ 60,484 (20,079) 40,405 57,605 (21,030) 36,575 ===== ====== ===== ===== ====== ===== Other income includes a surrender premium of Â£2,191,000 in respect of one of the Group's properties. This has been treated as a part disposal of the property for taxation purposes. The cost of sales in relation to rents receivable consisted of: 2004 2003 Â£000 Â£000 _____ _____ Rents payable 1,312 1,437 Property management fees 667 923 Legal and professional fees 1,327 816 Irrecoverable service charges 1,835 1,802 Property amortisation 1,137 871 Other property costs 5,855 2,146 _____ _____ 12,133 7,995 ===== ==== Other property costs include Â£3,640,000 in respect of exceptional repairs carried out to two investment properties in the Group's portfolio, Neathouse Place, London SW1 and 36 Gracechurch Street, London EC3. These costs have been treated as fully deductible for corporation tax purposes. 3. Segmental analysis a) Geographical segmental analysis The geographical split of the Group's business was as follows: 2004 2004 2004 2003 2003 2003 Turnover Operating Net assets Turnover Operating Net assets profit profit Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ ______ ______ United Kingdom 57,985 22,687 759,962 55,023 24,764 667,208 France 1,496 937 8,706 1,516 813 7,981 United States 1,003 822 8,354 1,066 621 8,955 ______ ______ _______ ______ ______ _______ 60,484 24,446 777,022 57,605 26,198 684,144 ===== ===== ===== ===== Net investment in joint ventures and 36,758 35,046 associates (note 11) Net debt (note 25b) (290,267) (275,874) _______ _______ 523,513 443,316 ====== ====== Turnover by geographical destination is the same as turnover by origin. The Group's profit from the sale of investment properties, either held directly or through its joint ventures and associates, was as follows: 2004 2004 2004 2003 2003 2003 Own Joint Total Own Joint Total properties venture and properties venture and associate associate properties properties Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ _____ _____ _____ United Kingdom 3,895 (230) 3,665 807 34 841 United States - 2,233 2,233 - - - _____ _____ _____ ____ ____ ____ 3,895 2,003 5,898 807 34 841 ==== ==== ==== ==== ==== === b) Business segmental analysis The returns from the Group's property assets, whether held directly or through its joint ventures and associates, were as follows: Gross Net Book Valuation Ungeared Ungeared rents rents value uplift return return receivable receivable 2004 2003 Â£000 Â£000 Â£000 Â£000 % % ______ ______ ______ ______ ______ ______ RPI properties 1,635 1,489 22,495 2,220 18.5 13.7 Short leasehold properties 1,221 717 8,150 895 23.1 10.4 High yielding properties 18,039 15,649 235,100 12,323 14.2 17.4 Properties held for their lease restructuring potential 1,413 1,319 24,750 2,372 18.4 0.1 Properties held for their reversionary potential 7,804 6,072 116,927 679 5.8 16.4 Special projects 5,418 2,514 316,368 45,384 23.1 14.0 Properties held for resale 6,463 2,100 73,906 5,454 9.7 2.6 ______ ______ _______ ______ Total - own properties 41,993 29,860 797,696 69,327 15.7 12.5 ===== ===== ====== ===== === === Joint ventures and associates 30.9 14.4 === === Total 16.3 12.6 === === Definitions: RPI properties are those whose rents increase in line with the Retail Price Index - typically annually. Short leasehold properties are those leaseholds of 50 years or less. High yielding properties are those yielding more than the All Property yield within the CB Richard Ellis UK Prime Rent and Yield Index. Properties held for their lease are those where it is anticipated additional restructuring potential income / value can be created through the reorganisation of their lease structure. Properties held for their are those where the current market rent exceeds reversionary potential the existing (or passing) rent. Special projects are those properties with large capital values and significant development potential. Properties held for resale are those whose income / value potential has been fully realised. The ungeared return for the year takes account of property income, profits from disposal and revaluation surpluses and expresses this sum as a percentage of a capital base consisting of opening book values adjusted for acquisitions and disposals on a time apportioned basis. 4. Administrative expenses a) These comprised: 2004 2003 Â£000 Â£000 ______ ______ Directors' remuneration 2,289 2,066 Staff costs 8,195 4,520 Legal and other professional fees 2,225 1,298 Office costs 2,448 1,851 Profit on sale of fixed assets (18) (40) Depreciation of tangible fixed assets 333 253 Operating lease payments 312 278 General expenses 175 151 ______ ______ 15,959 10,377 ===== ===== Legal and other professional fees in 2003 were shown net of a recovery of Â£763,000 in respect of costs previously charged. In addition to the depreciation charge disclosed above, property amortisation of Â£1,137,000 (2003: Â£871,000) is charged under cost of sales and shown in note 2. b) Fees paid to the auditors and their affiliates: 2004 2003 Â£000 Â£000 _____ _____ Audit: Statutory audit: Group including parent company 246 200 Parent company only 30 28 Audit-related regulatory reporting 19 18 ==== ==== Non-audit: Tax due diligence and legal work 400 75 Tax compliance 241 209 Tax advisory 121 177 Other services - 23 ______ ______ 762 484 ===== ===== The amounts relating to tax due diligence and legal work have been capitalised. The charge under this heading for 2004 related to the acquisition of Power Securities (Manchester) Limited (note 11c). Fees paid to other accountancy firms amounted to Â£255,000 (2003: Â£340,000) and related mainly to tax advisory services. c) Staff costs 2004 2003 Â£000 Â£000 ______ ______ Wages and salaries 7,577 5,579 Cost relating to Executive Directors' Performance Share 195 - Plan Provision for national insurance on unexercised share 354 - options Social security costs 895 602 Other pension costs 457 294 ______ ______ 9,478 6,475 ===== ===== Staff costs include Â£211,000 (2003: Â£316,000) which are charged through rents payable and other property outgoings. d) Staff numbers The average number of persons employed by the Group during the year was as follows: 2004 2003 Number Number ______ ______ Property portfolio management and administration 57 43 Leisure operations 113 105 ______ ______ 170 148 ===== ===== 5. Net interest payable 2004 2003 Â£000 Â£000 ______ ______ Interest payable on bank loans and overdrafts 19,537 18,015 Interest payable on other loans 702 309 ______ ______ 20,239 18,324 Amortisation of financing costs 647 704 ______ ______ 20,886 19,028 Interest capitalised (3,249) (2,337) Interest receivable (830) (748) ______ ______ Group interest charge 16,807 15,943 Share of joint venture and associate interest payable 1,375 1,827 ______ ______ 18,182 17,770 ===== ===== Of the interest capitalised in the year, the amount capitalised to investment properties was Â£2,815,000 (2003: Â£2,261,000) and to trading properties Â£434,000 (2003: Â£76,000). Capitalised interest included within trading properties at the balance sheet date was Â£434,000 (2003: Â£44,000). The amount of capitalised interest relating to investment properties is shown in note 9. 6. Tax on profit on ordinary activities 2004 2003 Â£000 Â£000 ______ ______ UK Corporation tax on revenue profit for the year at 30% 1,261 362 (2003: 30%) Overseas taxation 100 100 ______ ______ Tax on current year revenue profit 1,361 462 Adjustments to prior years' UK Corporation tax (307) (1,080) ______ ______ 1,054 (618) Deferred tax on origination and reversal of timing differences (1,054) 2,265 (note 17) ______ ______ - 1,647 ===== ===== Reconciliation of the taxation charge: Tax on revenue profit for the year at 30% (2003: 30%) 4,811 4,190 Capital allowances (2,023) (2,071) Use of prior year UK tax losses (1,786) (1,008) Capitalised interest (911) (698) Use of losses and differing tax rates in respect of overseas (1,077) (421) results Disallowable expenditure 1,336 1,386 Profit on sale of investment properties 613 (254) Other non-taxable income - (223) Capitalised expenses and other timing differences 398 (439) Adjustments to prior years' UK Corporation tax (307) (1,080) ______ ______ 1,054 (618) ===== ===== The current year Corporation tax charge includes tax payable by the Group on its share of joint venture profits. 7. Dividends 2004 2003 Â£000 Â£000 ______ ______ 2003 final dividend on staff share options exercised after 25 - year end Interim (paid): 2.75p (2003: 2.75p) per share 3,556 3,500 Final (proposed): 6.00p (2003: 5.25p) per share 7,757 6,683 ______ ______ Total: 8.75p (2003: 8.00p) per share 11,338 10,183 ===== ===== 8. Earnings per share and net asset value per share a) Earnings per share 2004 2004 2004 2003 2003 2003 Profit for Average Earnings Profit for Average Earnings the weighted per share the weighted per share financial number financial number year of shares year of shares Â£000 000 pence Â£000 000 pence _______ _______ ______ ______ ______ _____ Basic 15,887 128,182 12.4 12,033 127,660 9.4 ===== ==== Adjustment in respect of 8% Convertible unsecured loan stock (note 15) 168 2,000 168 2,000 Adjustment in respect of employee share option arrangements - - - 1,344 ______ _______ ______ _______ Diluted 16,055 130,182 12.3 12,201 131,004 9.3 ===== ====== ===== ===== ====== ==== In 2004, employee share options did not have a dilutive effect on earnings per share. b) Net asset value per share 2004 2004 2004 2003 2003 2003 Net Number Net asset Net Number Net asset assets of shares value assets of value per share shares per share Â£000 000 pence Â£000 000 pence _______ _______ ______ ______ ______ ______ Basic 523,513 129,291 405 443,316 127,301 348 ===== ===== Adjustment in respect of 8% Convertible unsecured loan stock (note 15) 3,000 2,000 3,000 2,000 Adjustment in respect of employee share option arrangements 8,458 2,915 5,365 2,674 ______ _______ ______ _______ Diluted 534,971 134,206 399 451,681 131,975 342 ===== ====== ===== ===== ====== ==== Entitlements under the Executive Directors' Performance Share Plan have been excluded from the calculation in both a and b above as the commitments relate to contingently issuable shares where the conditions had not been met at the balance sheet date. 9. Investment properties The movements in the year in investment properties were as follows: Group Freehold Long Short Total leasehold leasehold Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ Cost or valuation: Balance 1 April 2003 544,197 159,208 19,140 722,545 Transfer to trading stock (3,000) - - (3,000) Foreign exchange movement (1,560) - - (1,560) Additions 62,116 8,039 - 70,155 Interest capitalised 2,551 264 - 2,815 Disposals (55,177) (4,025) (2,293) (61,495) Short leasehold amortisation - - (915) (915) Other property amortisation (222) - - (222) Revaluation surplus attributable to Group 65,686 2,172 1,469 69,327 Revaluation surplus attributable to minority 46 - - 46 interest _______ _______ _______ _______ Balance 31 March 2004 614,637 165,658 17,401 797,696 ====== ====== ====== ====== Included within investment properties is an operational property which is valued at Â£12,000,000 (2003: Â£8,000,000) having regard to its trading potential and which is subject to annual depreciation. Of the additions shown above, Â£54,966,000 (2003: Â£135,190,000) related to acquisitions. The historical cost of the Group's investment properties as at 31 March 2004 was Â£531,278,000 (2003: Â£518,422,000) and included capitalised interest of Â£8,502,000 (2003: Â£5,687,000). All the Group's properties were externally valued as at 31 March 2004 on the basis of market value by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The Group's land holding in Greenwich and the Wembley Complex have been valued by FPD Savills Commercial Limited. All other properties in the United Kingdom have been valued by Jones Lang LaSalle, Matthews & Goodman and Tri Hospitality Consulting. Chateau Rouge, Lille, France has been valued by CB Richard Ellis Bourdais while the Group's interest in Westland Promenade, Miami, Florida has been valued by Cushman & Wakefield of Florida, Inc. The proportion of investment properties valued by each valuer was as follows: 2004 2003 Â£000 % Â£000 % _______ _______ _______ _______ Jones Lang LaSalle 540,088 67.7 517,761 71.7 FPD Savills Commercial Limited 216,400 27.1 167,000 23.1 Other valuers 41,208 5.2 37,784 5.2 _______ _______ _______ _______ 797,696 100.0 722,545 100.0 ====== ====== ====== ====== FPD Savills Commercial Limited, Jones Lang LaSalle and Matthews & Goodman provide other professional and agency services to the Group. These organisations have confirmed that the total fees paid by the Group represent less than five per cent of their total fee income in any year and that they have adopted policies for the regular rotation of suitably qualified personnel to perform these valuations. 10. Other fixed assets Group Short Fixtures, Total leasehold fittings & equipment Â£000 Â£000 Â£000 _______ _______ _______ Cost: Balance 1 April 2003 775 593 1,368 Additions 52 500 552 Disposals (2) - (2) _______ _______ _______ Balance 31 March 2004 825 1,093 1,918 ====== ====== ====== Depreciation: Balance 1 April 2003 (501) (437) (938) Charge for the year (141) (192) (333) Disposals 2 - 2 _______ _______ _______ Balance 31 March 2004 (640) (629) (1,269) ====== ====== ====== Net book value: 31 March 2004 185 464 649 ====== ====== ====== 31 March 2003 274 156 430 ====== ====== ====== Company Short Fixtures, Total leasehold fittings & equipment Â£000 Â£000 Â£000 _______ _______ _______ Cost: Balance 1 April 2003 775 593 1,368 Additions 52 318 370 Disposals (2) - (2) _______ _______ _______ Balance 31 March 2004 825 911 1,736 ====== ====== ====== Depreciation: Balance 1 April 2003 (501) (437) (938) Charge for the year (141) (149) (290) Disposals 2 - 2 _______ _______ _______ Balance 31 March 2004 (640) (586) (1,226) ====== ====== ====== Net book value: 31 March 2004 185 325 510 ====== ====== ====== 31 March 2003 274 156 430 ====== ====== ====== 11. Fixed asset investments a) Investment in joint ventures Group Share of Advances Total net assets Â£000 Â£000 Â£000 _______ _______ _______ Balance 1 April 2003 8,034 22,500 30,534 Foreign exchange movement (320) - (320) Share of profit 4,504 - 4,504 Distributions (7,713) - (7,713) Share of revaluation surplus 4,286 - 4,286 _______ _______ _______ Balance 31 March 2004 8,791 22,500 31,291 ====== ====== ====== The Group's interest in its principal joint ventures, all of which were formed and operate in the United Kingdom and which are held through subsidiaries, was as follows: Holding % of equity Nature of Joint venture held activity partner ___________ ___________ ___________ ___________ Quercus (General Partner) Limited 500 'A' 50 General Norwich Union ordinary partner for Life & Pensions shares of Â£1 limited Limited each partnership Quercus Property Partnership 19.8 Property Norwich Union investment Life & Pensions and Limited and development Quercus (General Partner) Limited a) Investment in joint ventures The Group's share of the results of its principal joint venture operations was as follows: Quercus Hanford Mall Other Group (Note) Partners joint share in Limited ventures joint Partnership ventures Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ Summarised profit and loss accounts Rents receivable 3,964 752 - 4,716 Cost of sales (24) (108) (18) (150) _______ _______ _______ _______ Net rental income 3,940 644 (18) 4,566 Administrative expenses (911) (54) - (965) _______ _______ _______ _______ Group operating profit (loss) 3,029 590 (18) 3,601 (Loss) profit from sale of investment (144) 2,233 - 2,089 properties _______ _______ _______ _______ Profit (loss) before interest and 2,885 2,823 (18) 5,690 taxation Net interest payable (1,024) (162) - (1,186) _______ _______ _______ _______ Profit (loss) before taxation 1,861 2,661 (18) 4,504 ====== ====== ====== ====== Summarised statements of recognised gains and losses Profit (loss) retained for the year 1,861 2,661 (18) 4,504 Share of unrealised surplus on investment properties 4,286 - - 4,286 _______ _______ _______ _______ Total gain (loss) 6,147 2,661 (18) 8,790 ====== ====== ====== ====== Summarised balance sheets Investment properties at valuation 53,287 - - 53,287 Other assets 3,246 82 384 3,712 _______ _______ _______ _______ Gross assets 56,533 82 384 56,999 Bank loans falling due after more than one (23,195) - - (23,195) year Other liabilities (2,133) (36) (344) (2,513) _______ _______ _______ _______ Net external assets 31,205 46 40 31,291 ====== ====== ====== ====== Represented by: Joint venture partners' capital 8,705 46 40 8,791 Joint venture partners' loans 22,500 - - 22,500 _______ _______ _______ _______ Total investment 31,205 46 40 31,291 ====== ====== ====== ====== Note : The figures for Quercus include both Quercus Property Partnership and Quercus (General Partner) Limited. Investment properties held in Quercus were valued as at 31 March 2004 by Matthews & Goodman, as professionally qualified valuers, on the basis of market value and in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The Quercus joint venture has an accounting period ending on 31 December. The Group's share of its results for the remainder of the financial period has been based on its management accounts. b) Investment in associates Group Company Â£000 Â£000 _______ _______ Share of net assets: Balance 1 April 2003 4,512 1,191 Additions in year 380 369 Impairment (123) (192) Distributions (243) - Share of net profit 119 - Share of revaluation surplus 822 - _______ _______ Balance 31 March 2004 5,467 1,368 ====== ====== Property interests in associate undertakings were valued by Jones Lang LaSalle for Aqua Trust and Humberts for Quart Limited Partnership as professionally qualified valuers on the basis of market value and in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The Group's interest in its principal associate undertakings, all of which were formed and operate in the United Kingdom and which are held through subsidiaries, was as follows: Holding % of equity Nature of Other members held activity ________________ __________ _____________ ___________________________________ Aqua Trust 50 Property Norwich Union Annuity Limited investment Dome General Partner 245 Ordinary 24.5 General Ansco Dome Management Limited Limited shares of 10p partner and Lend Lease Europe Limited each for limited partnership Dome Limited Partnership 24.5 Property AEG Dome Waterfront Number One LLC, Investment Lend Lease Europe Limited and and Dome GP Limited development Meridian Delta Limited 49 'O' Ordinary 49 Property Lend Lease Europe Limited shares of Â£1 each trading Meridian Delta Dome 49 'O' Ordinary 49 Property Lend Lease Europe Limited Limited shares of Â£1 each investment and development Quart (General Partner) 25 'A' Ordinary 25 General Britel Fund Nominees Limited and Limited shares of Â£1 each partner Possfund Nominees Limited for limited partnership Quart Limited 12.375 Property Britel Fund Trustees Limited, Partnership investment Possfund Custodian Trustee Limited, and Uberior Investments PLC and Quart development (General Partner) Limited c) Other fixed asset investments Group Company Â£000 Â£000 ______ ______ Unquoted investment: Balance 1 April 2003 and 31 March 2004 188 - ===== ====== Subsidiaries: Balance 1 April 2003 - 304,198 Additions - 6,997 ______ _______ Balance 31 March 2004 - 311,195 ===== ====== Total 31 March 2004 188 311,195 ===== ====== Total 31 March 2003 188 304,198 ===== ====== The unquoted investment is shown at a directors' valuation. c) Other fixed asset investments Principal subsidiaries (whose results are included in the Group financial statements): Principal activity % of equity % of equity capital held capital held by by Company Subsidiary _________________ ____________ ____________ Incorporated in the United Kingdom: Albion Properties Colchester Limited Property investment 100% Albion Properties Norwich Limited Property investment 100% Cadmus Investments Limited Property investment 100% Chesterfield Investments (No.1) Limited Property investment 100% Chesterfield Investments (No.5) Limited Property investment 100% Chesterfield (Neathouse) Limited Property investment 100% Chesterfield (No.9) Limited Property investment 100% Chesterfield Properties Limited Property investment 100% Comchester Properties Limited Property investment 100% Comgrove Properties Limited Property investment 100% Croydon Land Limited Property investment 100% Croydon Land (No.2) Limited Property investment 100% Croydon Properties Limited Property trading 100% The Crystal Peaks Investment Company Property investment 100% Limited English & Overseas Investments plc Property investment 100% English & Overseas Properties plc Property investment 100% Estates Property Investment Company Property investment 100% Limited Listed Offices Limited Property investment 100% Permitobtain Limited Property investment 100% Qhere Limited Property investment 100% Qoin Limited Property investment 100% Quaystone Properties Limited Property investment 100% Quintain (Manchester) Limited Property investment 100% Quintain Meridian Limited Property investment 100% Quintain (No.1) Limited Property investment 100% Quintain (No.8) Limited Property investment 100% Quintain Services Limited Management 100% Quintain (Wembley) Limited Property investment 100% Quocumque Limited Property investment 100% Quondam Estates Investment Limited Property investment 100% Quondam Estates No.2 Limited Property investment 100% Tenstall Limited Property investment 100% Wembley (London) Limited Property investment 100% and provision of leisure facilities Incorporated in France: Continental Investment Development s.a. Holding company 100% SCI Bureaux Du Chateau Rouge Property investment 80% Incorporated in the United States: Chesterfield Holdings Inc. Holding company 100% Chesterfield Investments Inc. Property investment 100% In France, the minority stake in SCI Bureaux Du Chateau Rouge is held by Zamara Corporation (15%) and Lille Gestion (5%). The French subsidiaries have accounting periods ending on 31 December. The Group's share of their results for the period 1 January 2004 to 31 March 2004 has been based on their management accounts. All companies operate principally in their countries of incorporation. A complete list of subsidiaries will be annexed to the next annual return delivered to the Registrar of Companies. c) Other fixed asset investments Acquisition of subsidiary undertaking On 9 January 2004, the Company acquired the whole of the issued share capital of Power Securities (Manchester) Limited, now named Quintain (Manchester) Limited, for a total consideration of Â£6,250,000 before costs. A summary of the assets acquired together with the fair value adjustments and the consideration for the transaction is shown below: Fair value Fair value Balance adjustments: adjustments: Fair value sheet Market Recognition balance at value of of deferred sheet acquisition property tax asset Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ Investment properties 4,600 (250) - 4,350 Debtors 290 - - 290 Cash 4 - - 4 Creditors: amounts falling due within one year (279) - - (279) Deferred tax asset - - 2,421 2,421 ______ _____ _____ ______ 4,615 (250) 2,421 6,786 ===== ===== ==== ===== Consideration: Â£000 ______ Cash 6,250 Costs 536 ______ 6,786 ===== The property was valued at acquisition by Jones Lang LaSalle. Operating results of Power Securities (Manchester) Limited 1 April 2003 1 April 2002 to 8 January to 31 March 2004 2003 Â£000 Â£000 ______ ______ Turnover 603 926 Cost of sales (767) (1,557) ______ ______ Gross loss (164) (631) Administrative expenses (141) (40) ______ ______ Operating loss (305) (671) ===== ===== This acquisition did not make a significant contribution to the results for the financial year. 12. Debtors Group Group Company Company 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ Trade debtors 13,091 12,938 67 521 Amounts due under contracts for sale 4,306 21,539 - - Other debtors 8,553 11,389 7,510 11,286 Other taxation and social security - - 408 - Prepayments and accrued income 2,893 2,863 271 330 ______ ______ ______ ______ 28,843 48,729 8,256 12,137 ===== ===== ===== ===== 13. Short term investments Group Group Company Company 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 ______ ______ ______ ______ Treasury stock 19 14 - - ===== ===== ===== ===== The nominal value of the Treasury stock as at 31 March 2004 was Â£16,000 (2003: Â£12,000). 14. Creditors: amounts falling due within one year Group Group Company Company 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ Bank and other loans (secured) 60 188 - - Trade creditors 5,375 3,608 3,643 - Other creditors 27,974 41,212 428 265 Amounts due to subsidiary undertakings - - 66,817 76,610 Dividend proposed 7,757 6,683 7,757 6,683 Corporation tax payable 2,191 214 - - Other taxation and social security 2,665 1,301 199 14 Accruals and deferred income 15,565 9,943 1,171 555 _______ _______ _______ _______ 61,587 63,149 80,015 84,127 ====== ====== ====== ====== Other creditors include Â£13,523,000 secured on property assets (2003: Â£14,032,000). 15. Creditors: amounts falling due after more than one year Group Group Company Company 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 _______ ______ ______ ______ Bank and other loans (secured) 328,398 292,081 31,000 35,000 8% Convertible unsecured loan stock 3,000 3,000 3,000 3,000 10% First Mortgage debenture stock 2011 4,870 4,870 - - (secured) _______ ______ ______ ______ 336,268 299,951 34,000 38,000 Deferred finance costs (1,874) (2,132) (271) (93) _______ _______ ______ ______ 334,394 297,819 33,729 37,907 Other creditors 4,417 16,527 - - _______ _______ ______ ______ 338,811 314,346 33,729 37,907 ====== ====== ===== ===== The loans are secured by fixed and floating charges over assets owned by subsidiary undertakings. In addition, the Company has guaranteed the bank loans, undertaking a minimum net worth covenant for the Group of Â£225,000,000 (2003: Â£225,000,000). The unlisted 8% Convertible unsecured loan stock is repayable on 1 April 2007. The loan stock is convertible at any time at the option of the holder into ordinary shares of the Company at a conversion price of 150p per share. The 10% First Mortgage debenture stock 2011 issued by Estates Property Investment Company Limited has a redemption value of Â£4,617,000. The premium over par arising from fair valuing the debenture on acquisition is amortised over its remaining life. Other creditors include an amount of Â£4,169,000 (2003: Â£16,527,000) which is secured on a property asset. 16. Borrowings a) Financial assets As at 31 March 2004, the financial assets of the Group and Company comprised cash balances as set out below: Group Group Company Company 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 _______ ______ ______ ______ Sterling 36,426 20,451 7,313 15,471 Euros 7,384 1,310 - - United States dollars 358 358 - - _______ ______ ______ ______ 44,168 22,119 7,313 15,471 ====== ====== ===== ===== b) Financial liabilities The Group is subject to interest rate, liquidity and foreign currency risks. The Group does not speculate in treasury products but uses these only to limit potential interest rate fluctuations. It usually borrows at floating rates of interest based on LIBOR and uses hedging mechanisms to achieve an interest rate profile where the majority of borrowings are fixed or capped. As at 31 March 2004, 75.8% (2003: 100%) of the Group's net debt was fixed or protected and the weighted average rate of debt was 6.1% (2003: 6.2%). The Group's policy is to finance its activities with equity and long term debt, with a gearing target of 100%. The weighted average tenure of the Group's Sterling debt is 5 years (2003: 6 years). The Group borrows in the same currency as the assets being financed to minimise foreign currency risk. No currency derivatives are used. b) Financial liabilities The maturity profile of the Group's debt was as follows: 2004 2003 2004 2003 Bank loans Other Total Total Undrawn Undrawn and loans debt debt facilities facilities overdrafts Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ Up to one year 60 - 60 188 - - Between one and two years 53,952 - 53,952 211 635 - Between two and five years 174,690 3,000 177,690 144,470 123,868 16,000 Over five years 99,756 4,870 104,626 155,270 - 59,500 _______ _______ _______ _______ _______ _______ 328,458 7,870 336,328 300,139 124,503 75,500 ====== ====== ====== ====== ====== ====== After taking account of interest rate swap arrangements, the risk profile of the Group's borrowings as at 31 March 2004 was as follows: 2004 2003 Fixed Capped Floating Total Fixed Capped Floating Total Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ _______ _______ Sterling 211,377 - 114,845 326,222 203,870 85,099 - 288,969 Euros 4,483 - - 4,483 4,670 - - 4,670 United States dollars 5,623 - - 5,623 6,500 - - 6,500 _______ _______ _______ _______ _______ _______ ______ _______ 221,483 - 114,845 336,328 215,040 85,099 - 300,139 ====== ====== ====== ====== ====== ====== ===== ====== The interest rate profile of the Group's fixed rate debt was as follows: Percent 2004 2003 Â£000 Â£000 _______ _______ 4.0 - 5.0 98,983 99,170 5.0 - 6.0 67,007 59,500 6.0 - 7.0 42,000 42,000 7.0 - 8.0 13,493 14,370 _______ _______ 221,483 215,040 ====== ====== The weighted average rate and the weighted average period of the Group's fixed rate debt as at 31 March 2004 were as follows: Weighted Weighted Weighted Weighted average average average average rate rate period period 2004 2003 2004 2003 % % years years _____ _____ _____ _____ Sterling 5.4 5.4 5 6 Euros 4.7 4.7 2 3 United States dollars 7.7 7.7 5 6 Group 5.5 5.5 5 6 ==== ==== ==== ==== b) Financial liabilities The fair value of the Group's financial liabilities as at 31 March 2004 is set out below: Book value Fair Difference Difference / notional value 2004 2003 principal Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ Fixed rate debt 17,975 18,962 (987) (1,729) Interest rate swaps 203,508 209,556 (6,048) (13,160) _______ _______ _______ _______ 221,483 228,518 (7,035) (14,889) Forward rate swaps 50,000 51,340 (1,340) (2,195) _______ _______ _______ _______ 271,483 279,858 (8,375) (17,084) ====== ====== ====== ====== The fair values were calculated by J C Rathbone Associates as at 31 March 2004 and reflect the replacement values of the financial instruments used to manage the Group's exposure as at that date. The Group has taken advantage of the exemption under FRS 13 to exclude short term debtors and creditors from these disclosures. Its policies relating to financial instruments are set out in the accounting policies as described in note 1. The maturity profile of the Group's share of floating rate debt held within its joint ventures at the current and previous year ends was as follows: 2004 2003 Â£000 Â£000 ______ ______ Between one and two years - 7,858 Between two and five years 23,195 19,868 ______ ______ 23,195 27,726 ===== ===== 17. Provisions for liabilities and charges The movement in the year in provisions for liabilities and charges was as follows: Â£000 _____ Balance 1 April 2003 8,659 Deferred tax asset in relation to short term timing differences (513) Deferred tax asset recognised on acquisition (note 11c) (2,421) Amount credited to profit and loss account in year (note 6) (1,054) ______ Balance 31 March 2004 4,671 ===== The provisions represent deferred tax comprising: Group Provided Provided Not provided Not provided 2004 2003 2004 2003 Â£000 Â£000 Â£000 Â£000 _____ ______ _____ ______ Timing differences 4,671 8,659 - - Revaluation surplus - - 40,069 42,455 _____ ______ _____ ______ 4,671 8,659 40,069 42,455 ==== ===== ===== ===== 18. Called up share capital Â£000 ______ Authorised: 200,000,000 shares of 25p each 50,000 ===== Allotted, called up and fully paid: In issue at 1 April 2003: 127,300,608 ordinary shares of 25p each 31,825 Issue of 1,500,000 shares under option granted in 1993 to Scottish Equitable at 110p per share 375 Issue of 490,849 shares under Staff Share Option Schemes at between 113p and 163.2p 123 ______ In issue at 31 March 2004: 129,291,457 ordinary shares of 25p each 32,323 ===== The options exercised in the year were granted at a price which reflected their full market value. As at the year end, the following commitments to issue shares to employees under various arrangements remained outstanding: Date of grant Number of Exercise Exercise Exercise ordinary price period period shares per share from to ________ _________ _________ ________ Executive Directors' Performance Share Plan 26.09.03 1,000,000 - 26.09.12 27.09.12 ======= Staff Share Option Schemes Approved 06.08.97 11,344 136.0p 06.08.00 05.08.07 22.02.99 6,040 151.5p 22.02.02 21.02.09 13.06.00 48,468 155.3p 13.06.03 12.06.10 04.09.01 19,960 155.3p 04.09.04 03.09.11 04.09.01 39,933 199.5p 04.09.04 03.09.11 17.06.02 22,387 199.5p 17.06.05 16.06.12 17.06.02 31,398 271.0p 17.06.05 16.06.12 20.02.03 12,809 234.2p 20.02.06 19.02.13 13.06.03 117,523 287.0p 13.06.06 12.06.13 02.02.04 8,720 344.0p 02.04.07 01.04.14 _________ 318,582 ======== Unapproved 06.08.97 82,352 136.0p 06.08.00 05.08.04 22.02.99 39,604 151.5p 22.02.02 21.02.06 28.05.99 49,029 163.2p 28.05.02 27.05.06 13.06.00 230,168 155.3p 13.06.03 12.06.07 04.09.01 115,046 155.3p 04.09.04 03.09.08 04.09.01 290,811 199.5p 04.09.04 03.09.08 17.06.02 135,006 155.3p 17.06.05 16.06.09 17.06.02 15,374 199.5p 17.06.05 16.06.09 17.06.02 911,445 271.0p 17.06.05 16.06.09 20.02.03 31,946 234.2p 20.02.06 19.02.10 13.06.03 37,761 199.5p 13.06.06 12.06.10 13.06.03 19,373 271.0p 13.06.06 12.06.10 13.06.03 608,827 287.0p 13.06.06 12.06.10 _________ 2,566,742 ======== 2004 Unapproved Share Plan 02.02.04 7,450 25.0p 02.02.07 01.02.14 02.02.04 10,551 25.0p 02.02.08 01.02.14 02.02.04 11,729 25.0p 02.02.09 01.02.14 _________ 29,730 ======== Total 3,915,054 ======== 19. Reserves Group Other capital Other Other reserves capital capital Share Capital reserves reserves premium Revaluation redemption Merger Capital Profit and account reserve reserve reserve reserve loss account Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ _______ _______ Balance 1 April 2003 42,623 202,148 1,963 106,062 4,305 54,390 Premium on issue of shares less 2,453 - - - - (664) costs Cost relating to Executive Directors' Performance Share Plan - - - - - 195 Surplus on revaluation of: investment properties - 69,327 - - - - joint ventures - 4,286 - - - - associates - 822 - - - - Realisation of property revaluation gains of previous years - (8,349) - - - 8,349 Tax on realisation of revaluation - (471) - - - - surplus Foreign exchange movement - - - - - (798) Short leasehold amortisation - (159) - - - 159 Retained profit for the financial - - - - - 4,549 year ______ _______ _______ _______ _______ _______ Balance 31 March 2004 45,076 267,604 1,963 106,062 4,305 66,180 ====== ====== ====== ====== ====== ====== Company Other capital Other reserves capital Share Capital reserves premium redemption Merger Profit and account reserve reserve loss account Â£000 Â£000 Â£000 Â£000 _______ _______ _______ _______ Balance 1 April 2003 42,623 1,963 106,062 28,920 Premium on issue of shares less costs 2,453 - - - Retained profit for the financial year - - - 554 ______ ______ _______ _______ Balance 31 March 2004 45,076 1,963 106,062 29,474 ====== ====== ====== ====== As permitted by section 230 of the Companies Act 1985, the profit and loss of the Company is not presented as part of these financial statements. The profit for the year attributable to shareholders dealt with in the financial statements of the Company was Â£11,892,000 (2003: Â£17,741,000). 20. Capital commitments As at 31 March 2004, the Group had capital commitments of Â£33,587,000 (2003: Â£44,350,000). The Company had no capital commitments (2003: Â£nil). 21. Commitments under operating leases As at 31 March 2004, the Group and Company had annual commitments under non-cancellable operating leases as set out below: Land and buildings Land and buildings 2004 2003 Â£000 Â£000 ______ _____ Operating leases which expire: Within one year 30 13 In two to five years - 265 Over five years 235 - ______ ______ 265 278 ===== ===== 22. Contingent liabilities The Company has guaranteed the obligations of a jointly administered company, Countryside Properties (Merton Abbey Mills) Limited, in respect of cost and interest overruns arising in connection with a secured bank facility up to a limit of Â£4,575,000. As at 31 March 2004, the Company had guaranteed the external borrowings of some of its subsidiaries amounting to Â£293,235,000 (2003: Â£246,099,000). 23. Related party disclosure During the year, the Group received fees amounting to Â£1,151,000 (2003: Â£580,000) from Quercus Property Partnership and Â£114,000 (2003: Â£87,000) from Quart Limited Partnership in respect of services provided. These fees are included in Other income as shown in note 2. Amounts due from joint venture undertakings as at 31 March 2004 are shown in note 11a. 24. Post balance sheet event Following the year end, the Group has completed the sale of two of its investment properties, 1 Neathouse Place, London SW1 and The Parishes Shopping Centre, Scunthorpe for a total consideration of Â£110,950,000 which was in excess of book value. In relation to the sale of Neathouse Place, the Group has undertaken as part of the contract of sale to indemnify the purchaser for a shortfall in any claim against the contractors in respect of latent defects to the repair of the glass curtain walling on the west facade of the building for a maximum sum of Â£4,000,000 and for a maximum period up to September 2013. The Group intends to cover this potential liability by insurance. 25. Notes to the Consolidated Cash Flow Statement a) Reconciliation of operating profit to net cash inflow from operating activities 2004 2003 Â£000 Â£000 _______ _______ Operating profit 24,446 26,198 Depreciation charge 1,470 1,124 Profit on sale of fixed assets (18) (40) Cost relating to Executive Directors' Performance Share Plan 195 - Increase in debtors (734) (2,646) (Decrease) increase in creditors (1,746) 7,438 (Increase) decrease in trading properties (16,957) 7,379 Write-down of trading properties - 61 _______ _______ Net cash inflow from operating activities 6,656 39,514 ====== ====== b) Reconciliation of net cash flow movement to net debt 2004 2003 Â£000 Â£000 _______ ________ (Decrease) increase in cash during year (649) 3,421 Cash inflow from debt and lease financing (37,212) (28,540) Cash outflow (inflow) from movement in liquid resources 22,703 (18,953) _______ ________ Change in net debt resulting from cash flows (15,158) (44,072) Costs of issue of non-equity finance 389 431 Amortisation of issue costs (647) (743) Other non-cash movements 1,023 290 _______ ________ Movement in net debt during year (14,393) (44,094) Net debt, beginning of year (275,874) (231,780) _______ ________ Net debt, end of the year (290,267) (275,874) ====== ======= c) Analysis of net debt As at Cash flow Other As at 1 April 31 March 2003 2004 Â£000 Â£000 Â£000 Â£000 ________ ______ _____ ________ Liquid resources 3,371 22,703 - 26,074 Cash 18,762 (649) - 18,113 Debt due after more than one year (297,819) (37,340) 765 (334,394) Debt due within one year (188) 128 - (60) ________ _______ ______ ________ (275,874) (15,158) 765 (290,267) ======= ====== ===== ======= Liquid resources consist of short term investments and cash which is not available on demand. Basis of Preparation of Preliminary Announcement The preliminary announcement includes extracts from the statutory accounts for the year to 31 March 2004 on which the auditors have expressed an unqualified opinion. The comparative figures relating to the year to 31 March 2003 are taken from the audited statutory accounts for that year. This information is provided by RNS The company news service from the London Stock Exchange DPLEAE

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