Final Results - Part 1

Quintain Estates & Development PLC
07 June 2005



7 June 2005



                      QUINTAIN ESTATES AND DEVELOPMENT PLC

                       ('Quintain' / 'Company' / 'Group')



               PRELIMINARY RESULTS FOR THE YEAR TO 31 MARCH 2005



Highlights



•  Net asset value per share increased by 22% to 495p (2004: 405p);
   diluted net asset value per share also rose by 22% to 486p (2004: 399p)

•  Group turnover rose 30% to £78.4m (2004: £60.5m)

•  Profit before tax decreased by 2% to £15.8m (2004: £16m)

•  Earnings per share of 10.3p (2004: 12.4p)

•  Total return of 24.6%, or 21.4% net of RPI inflation, substantially
   ahead of internal target of 10% real and total return of 18.9% in 2004

•  Total dividend increased by 9% to 9.5p per share (2004: 8.75p)

•  Sale of investment properties at an average exit yield of 6.1%
   generated proceeds of £294m and realised profits on cost of £82m; £86m of
   properties purchased at an initial yield of 8.1%

•  Significant progress made in the Company's key Special Projects:

   -  Construction has commenced at Wembley, having achieved an
      unconditional planning consent during the year for Phase 1 comprising 5.3m 
      sq ft of mixed-use development; a joint venture agreement has been signed 
      for the first residential plot; and the site has expanded with 740,000 
      sq ft of further planning consent at the southern end

   -  Following the deal at Greenwich Peninsula going unconditional, we
      have achieved a detailed planning consent for Millennium Square; 
      negotiations with residential developers are at an advanced stage; and 
      first land sales are envisaged in Spring 2006

•  £48m of properties acquired by Quercus Healthcare Property Partnership taking 
   funds under management to £289m

•  Syndication in July of a new corporate loan, raising £475m, combined
   with the current low level of gearing and circa £330m of undrawn facilities,
   ensures Quintain is in a strong financial position to acquire new assets,
   increase its fund management operations and fund its Special Project 
   activities.



Nigel Ellis, Chairman of Quintain, commented:



'The work undertaken in the year to 31 March 2005 has positioned Quintain well
to sustain its successful track record.  We have realised profits from the sale
of properties in the core investment portfolio, achieved excellent returns from
our fund management activities and made substantial progress with our major
projects.  We have also significantly enhanced the Group's financial fire-power
through the raising of new debt and a substantial reduction in our gearing.



'We look forward to continuing to develop the Group's business and to what
should be another exciting year.'



For further information, please contact:



Quintain Estates and Development
Rebecca Worthington
Tel: [phone]



Financial Dynamics
Stephanie Highett/Dido Laurimore
Tel: [phone]





FINANCIAL HIGHLIGHTS FOR THE YEAR TO 31 MARCH 2005





Profit and Loss Account


                                                    31 March           31 March            Change
                                                        2005               2004                 %

Group turnover (£m)                                     78.4               60.5                30

Profit before tax (£m)                                  15.8               16.0               (2)

Underlying profit before tax (£m)                       10.6               10.1                 5

Basic earnings per share (pence)                        10.3               12.4              (17)

Diluted earnings per share (pence)                      10.2               12.3              (17)

Total dividend per share (pence)                         9.5               8.75                 9

Final dividend per share (pence)                        6.75                6.0              12.5





Balance Sheet


                                                   31 March           31 March             Change
                                                       2005               2004                  %

Net asset value per share (pence)                       495                405                 22

Diluted net asset value per share
(pence)                                                 486                399                 22

'Triple net' net asset value per share
(pence)                                                 439                364                 21

Total return (%)                                       24.6               18.9

Gearing (%)                                              27                 56






                              Chairman's Statement





I am pleased to report that Quintain has had yet another successful year in
which further progress was made.  As a result of this year's strong performance,
the board is recommending an increase of 9%, or 0.75p in the dividend, giving a
total dividend for the year of 9.5p (2004: 8.75p).



During the year, we achieved a total return of 24.6%, or 21.4% net of inflation.
This is well ahead of our internal target of a 10% total return net of RPI
inflation, a target which we have exceeded every year since flotation in 1996.



We have also significantly outperformed the property market, as measured by the
Investment Property Databank ('IPD'), the industry benchmark.  Our total
ungeared return for the year to 31 March 2005 was 22%, compared with IPD's March
Universe of 17%.  This performance places us in the top decile for the year and
builds on an already strong historic track record. Over a twelve year period,
Quintain is the top performing fund in IPD March Universe and we have secured
first percentile rankings over five and ten years.



During the year, the net asset value per share rose by 22% from 405p to 495p,
and on a diluted basis by 22% to 486p from 399p.  As in past years, the main
driver of this uplift was the surplus on property revaluation.  The most
significant contributions arose from our investment in Wembley, the Meridian
Delta project in Greenwich and York House, Wembley.  Details of all these
projects and a full review of our operations follow in the Operating and
Financial Review.



Profit before tax fell by 2% from £16m to £15.8m and earnings decreased by 17%
to 10p per share, primarily due to the sales in the core investment portfolio,
and an effective tax rate of 15% compared with last year's nil charge.  However,
due to accounting policy, these results do not reflect the £76m of realised
profit on cost arising from the sale of investment properties, which is only
shown as a transfer to revenue reserves.  Of these sales, the disposal of Mount
Royal, Oxford Street made the largest individual profit contribution of £36m.



Improving trading sales more than offset the 20% increase in administration
expenses giving rise to a 5% increase in underlying earnings before the profit
on investment property sales and write off of loan costs on refinancing. The
contribution from the ongoing recruitment programme within the major special
projects' management team is clearly reflected in the Group's total return.



As indicated in previous reports to shareholders, the Company's earnings will
inevitably vary over time, particularly in light of the major special projects.
The value of these projects is shown as a capital value uplift on the Group's
balance sheet. Under International Financial Reporting Standards, the uplift on
investment properties will go through the income statement, but the treatment of
developments will be unchanged.



Borrowings have been reduced from £292m to £172m, with gearing reduced from 56%
to 27%.  This is a far lower figure than our normal target, and is due to our
decision to recycle the profits from our sales programme to support our
development projects, particularly Wembley.  As reported last year, we have also
organised a major new loan for the same reasons, as well as to increase
operational flexibility.  Further details are given in the Operating and
Financial Review.



Share Price



During the year, the share price continued to perform well.  At 555p at close of
business on 3 June 2005, the shares, over 12 months, have outperformed the FTSE
All Share Index by 19% and the FTSE Real Estate Index by 4%.



Dividend



As a result of the year's strong performance, the board is recommending an
increase of 9%, or 0.75p, giving a total dividend for the year of 9.5p.  It is
intended that the final dividend of 6.75p per share will be paid on 8 September
2005 to shareholders on the register as at 5 August 2005. The Company's
intention is to maintain a progressive dividend and this policy will continue
subject to cash requirements.



Corporate Governance



We continue to improve our corporate governance and confirm that we have
complied with the Combined Code during the period under review.  A detailed
review is contained in the Corporate Governance section within the Annual
Report.



People



Since the year-end, we were pleased to announce the appointment of Tom Cross
Brown as a non-executive director.  Tom brings with him considerable experience
of investment banking and fund management which will help to further strengthen
the Group. The only other management change is that James Hamilton Stubber has
now taken responsibility for the generation of new business, passing his
administration responsibility to Rebecca Worthington.  In the current somewhat
heated property market, we acknowledge the need to focus additional resources on
the creation of new business streams.



I would also like to take this opportunity to thank the entire Quintain team for
their contribution to the Group's ongoing success.



Outlook



The work undertaken in the year to 31 March 2005 has positioned Quintain well to
sustain its successful track record.  We have realised profits from the sale of
properties in the core investment portfolio, achieved excellent returns from our
fund management activities and made substantial progress with our major
projects.  We have also significantly enhanced the Group's financial fire-power
through the raising of new debt and a substantial reduction in our gearing.



We look forward to continuing to develop the Group's business and to what should
be another exciting year.



Nigel Ellis

Chairman

7 June 2005



                         Operating and Financial Review



During the year to 31 March 2005, Quintain successfully positioned itself to
create significant ongoing value for the Group and its shareholders, whilst
delivering another excellent set of results.



Objectives and Strategy



Quintain's two core objectives are to deliver upper quartile performance
relative to the IPD benchmark and to make a real total return, measured by the
increase in net asset value per share adding back the dividend, of at least 10%.




Since formation, our fundamental strategy has remained unchanged.  We apply a
rigorous stock-picking approach, focusing on the financial characteristics of
properties or landholdings, to identify assets and special situations where we
can use our skills and experience to create value.



Our approach to the ownership of assets in our core investment portfolio demands
that we sell assets that no longer offer opportunities to add significant value.
This resulted in our selling investment properties with a book value of £281m.




Over the last twelve months our strategy in relation to the urban regeneration
activities within Special Projects has continued to evolve. In our view, in
order to maximise our long-run returns to shareholders, the guiding principle
for the regeneration projects should be to invest in long-term community
infrastructure, whilst at the same time achieving our commercial objectives of
creating new locations and estate management businesses.



We believe that our projects at Greenwich Peninsula and Wembley alone have the
potential to transform the value of the Company. While the nature and scale of
these urban regeneration projects will inevitably have an impact on the absolute
level of the Group's profits during their roll-out, the Group will continue to
follow a cautious approach to their financing, focused always on the ongoing
creation and enhancement of value for our shareholders. Options already being
explored include joint venture partnerships; the exploitation of non-rental
commercial opportunities, such as advertising, naming rights, branding,
telecommunications and power; as well as more traditional routes such as
institutional forward-funding.



To ensure the successful delivery of our strategy, we have continued to invest
in people, recruiting a number of specialists during the year whose skills will
greatly benefit the Group's ability to capture and create value.



The market and the competitive environment



Property as an asset class has outperformed equities and gilts over 1, 3, 5 and
10 years.  This has attracted growing numbers of private investors and led to
the re-weighting of institutional portfolios.  The banks remain enthusiastic to
lend to investors and developers and so yield compression remains in place -
albeit at a declining rate -with a proliferation of new funds being formed,
ensuring ongoing appetite for assets. Positive features for the property
investment market include regulatory changes to SIPPS and the prospective
introduction of REITs.



At Wembley and Greenwich, our planning consents include provision for
approximately 14,500 residential units, of which 60% are private. Currently,
prices in London are closer to their historic norm than almost anywhere else in
the country and it is our belief that, with a growing population, demand in
London should remain reasonably resilient.  As a landowner and potential
developer, we have the ability to control the nature and timing of phasing.
Within the 40% affordable housing allocation, much of which is discounted for
sale, demand substantially outstrips supply.



Our current view in the market is that the performance of commercial property
will plateau, yielding total returns of 6%-8% real, a respectable figure in
historic terms.



Against this background, Quintain's continued outperformance will primarily be
secured through crystallising the value inherent in our special projects,
accessing new business and the continuing evolution of our fund management
business.



Business Review



The market conditions prevailing during the year have prompted active trading in
the portfolio. Proceeds of £294m were generated by investment properties that
were sold at an average exit yield of 6.1%, whilst £86m of properties were
purchased at an initial yield of 8.1%. The table below demonstrates activity
during the year.


                                                                                                     £m


Investment property at 31 March 2004                                                                798
Purchases                                                                                            86
Capital Expenditure                                                                                  25
Sales                                                                                             (281)
Valuation uplift                                                                                    113
Capitalised interest                                                                                  4
Other                                                                                               (2)

Investment property at 31 March 2005                                                                743



The Quintain business model has been designed to capture the growth inherent in
our existing and future asset base. For example, investment product created
through our regeneration projects could be held within the main portfolio or, if
of a specialist nature, in fund management (Q3P).



  • The main portfolio currently comprises secondary investment property with
    potential to create capital value uplift while delivering a strong flow of
    rent.  This cashflow supports the activities of the Group's other divisions



  • Special Projects comprise large complicated landholdings offering
    significant value upside from planning gain and development



  • Our fund management and structured finance division accesses third party
    funds, skill and opportunity and will de-risk our business through its
    activities in health, education and public sector housing.



The segmental analysis showing performance by division is in note 3 to the
accounts. A summary table below schedules the investment properties by division.


                                                         Directly held        Indirect         Total
                                                            properties      properties
                                                                    £m              £m            £m

Main portfolio                                                     284               -           284
Special Projects                                                   436              14           450
Q3P                                                                 23              50            73
Investment portfolio                                               743              64           807







Main Portfolio



The year was characterised by the sale of several low yielding properties and a
retrenchment from the retail sector.  This was opportunistic, influenced by our
concerns over consumer spending and rental values.  The major sales included
Mount Royal, Oxford Street and the shopping centres in Stockton and Scunthorpe,
giving a profit over valuation of £1m and a profit over cost of £57m.



The buoyant market conditions made buying more difficult but we managed to
acquire £86m of high yielding properties offering opportunities to enhance
value, whilst simultaneously  'spring cleaning' the portfolio through the sale
of a number of smaller management intensive properties.  Notable transactions
included the purchase of Sapphire House in Telford for £12.9m, which is sublet
to the Government and has potential to benefit from the government relocation
initiative outlined in the Lyons Report, and St Peter's and Belgrave House in
Sheffield, acquired for £7m, which we intend to refurbish on lease expiry.



We have continued our programme throughout the portfolio of refurbishing office
accommodation when it becomes vacant.  Schemes completed during the year include
Smallbrook Queensway, Birmingham (13,000 sq ft), Imperial Court, Leamington Spa
(18,700 sq ft) and The Forum, Exeter (21,000 sq ft).



We have commenced a major refurbishment of our speciality shopping centre at
Royal Exchange, Manchester. This follows our recent grant of planning consent
and agreement with the freeholders for a reconfigured unit scheme within the
Grade II listed landmark property. The table below sets out current and proposed
refurbishments.


Property                                  Scheme     Floor area sq           Cost £m               Timing
                                                                ft

Royal Exchange, Manchester                Retail            41,600               3.5            2005-2006
St Peter & Belgrave                       Office            69,000               2.3            2005-2006
Sheffield
Smallbrook Queensway                      Office            13,700               0.3              Ongoing
Birmingham                                                                                      2005-2008
Total                                                      124,300               6.1





Special Projects

The main Special Projects are listed below.


                                                                         Valuation as at
                                                                           31 March 2005
                                                                                      £m

Wembley complex                                                                      215
Greenwich                                                                            110
Emersons Green, Bristol                                                               22
York House, Wembley                                                                   22
Ramada Hotel, Manchester                                                              16
Other special projects                                                                51
Total Direct Investment property                                                     436
Greenwich, equity in MDL joint venture                                                14



As mentioned, we hope to play a long-term role in the communities we are
developing, enabling us to create long-term value from the transformation of
these areas.



At Greenwich, following the unconditional completion of the deal with English
Partnerships, Meridian Delta Ltd, our joint venture company with Lend Lease, has
commenced infrastructure works.  Negotiations with residential developers are at
an advanced stage and we envisage the first land sales in Spring 2006.



At Wembley, following an expedited consent, we are on site on a scheme of 6m sq
ft.

Construction has commenced on the 42 acre first phase of the Wembley site, in
particular on the transformation of Wembley Arena and the adjoining Square.  At
the southern end a new bridge linking the site to the High Street is being built
by the London Development Agency ('LDA') and by underwriting the acquisition of
land we have secured an additional consent for 0.74m sq ft.



We have signed a joint venture agreement with two housing associations for the
first residential development, comprising 285 apartments, 50% of which are
designated affordable housing.  The detailed planning application will be
submitted shortly with the intention of being on site by Spring 2006.  The 13
acre Palace of Industries site is the subject of a joint venture with Caesars
Entertainment Inc. for a regional casino.  We remain fully committed to the
project notwithstanding the continuing political debate.



At Silvertown, across the river from Greenwich, the 13 acre site including the
Carlsberg Tetley Distribution Depot is owned jointly by Quintain and the LDA.
Discussions are ongoing with adjoining and nearby landowners with the aim of
producing a masterplan for the Thameside West area. Development of the site is
currently restricted by safeguarded wharves and a reservation for the third
river crossing. A strategy is being developed to remove or manage these
constraints.



Phase 1 of the mixed-use development at Merton Abbey Mills, in joint venture
with Countryside Properties Plc, comprising 124 apartments and 104,000 sq ft of
retail and leisure space, has been successfully completed and sold.  Work has
commenced on Phase 2 which comprises 164 apartments, 50 of which are already
reserved or exchanged.



At Emersons Green near Bristol, the Local Plan Inspector has reported favourably
on the major mixed-use allocation of the 275 acre site of which Quintain owns 65
acres. This decision has, in turn, been endorsed by the Local Authority. A
decision on the associated planning application, made by ourselves in
partnership with JJ Gallager and Heron Land, is likely to be made by the end of
the year.



Regarding Croydon, our Valley Trade Park has now been sold for a profit over
valuation of £0.7m, representing a profit on valuation of 24%. At Valley Point,
10 of the 14 units have been sold for £4.1m, resulting in a profit of £0.9m.



Our ownership of sites for development is shown in the table below:


Project                    Sector        Share                 Area       GDV*          Planning          Timing
                                                                            £m

Wembley                    Mixed-         100%          6.17m sq ft      2,000           Outline      Now - 2015
Complex                       use
Greenwich                  Mixed-          49%          13.2m sq ft      5,000           Outline      Now - 2023
Peninsula                     use
Arrow Valley         Distribution         100%           240k sq ft         18    Part detailed,     2006 - 2010
Redditch                                                                            part outline
Merton Abbey          Residential          50%       164 units resi         46          Detailed      Now - 2006
Mills
Emersons                Mixed-use     65 acres    1800 units resi +          -         Submitted     2006 - 2008
Green, Bristol                          of 275          20 hectares
                                     acre site           employment
Arundel Gate            Mixed-use         100%    200k - 300k sq ft          -    Being prepared     2007 - 2010
Sheffield
Deansgate,              Mixed-use         100%                 180k          -    Being prepared     2006 - 2008
Manchester

* GDV is Gross Development Value. This is only shown where planning has been
received.



Quintain will only take on a proportion of the development, generally in joint
venture, and this will be combined with land sales. Typically our equity
contribution will be in the form of land.



Fund Management (Q3P)



The major contributor in the year was the Quercus Healthcare Property
Partnership which we agreed to expand in June 2004.  We have purchased £48.0m of
properties for the fund, taking funds under management to £289m, of which our
share is currently 26.5%.  The fund achieved a total return of 23.1% in its year
to December 2004, including a distribution yield of 9.7%, but excluding fees
paid to Quintain of £1.4m.  New equity is being raised, following recent
investments by the Norfolk and Essex County Council Pension Funds.  In addition
to the existing portfolio of 168 properties providing care for the elderly,
long-term ill and those with learning disabilities, the fund will shortly
commence development of an assisted living village.



Last summer, the decision was made to dissolve Quart, our licensed premises
fund, to take advantage of a strong market.  The liquidation is now complete,
generating £0.7m of profit in the year for Quintain along with a performance fee
of £0.4m.



We continue to examine opportunities to build funds in other specialist sectors
including Science Parks, Student Accommodation and Affordable Housing.



Outlook



We see the outlook for property as being reasonably benign, but remain cautious
of the more over-heated sectors. We will continue to seek opportunities where we
believe we can create value.



We have significantly enhanced our financial fire-power through the syndication
in July 2004 of a new £475m corporate loan. With gearing at 27% this gives £330m
of undrawn facilities.



We are confident we have the skills and experience to face the challenges that
lie ahead and we are well placed to continue our track record of outperformance
against the prospect of a performance plateau in the market generally.



Financial Review



Operating performance



Gross rental income for the year fell by 14% to £36.2m (2004: £42.0m). This was
a result of sales of £294m which were only partially offset by acquisitions of
£86m. Lost income from sales of £11.8m included £2.6m of back rent on Neathouse
Place. Rent from purchases coming on line added £7.5m. Rents passing at 31 March
2005 totalled £27.5m, with an estimated rental value (ERV) of £32.2m.



Voids have increased to 5.7% (2004: 5.1%) following the refurbishment of
Imperial Court, Leamington Spa and The Forum, Exeter where these properties are
now available for letting giving a combined ERV of £0.5m.



Quintain also holds a number of development properties where leases have
purposely been taken back from tenants. As at 31 March 2005, planned voids in
relation to these were in line with last year at 6.6% of ERV (2004: 6.6%). The
largest of these was £0.6m, or 1.8% of ERV at Royal Exchange, Manchester.



The average unexpired lease terms across the portfolio is 13 years (2004: 15
years). This has decreased due to the sale of properties with longer leases,
including Mount Royal, Oxford Street and Castlegate, Stockton with average lease
lengths of 16 years and 25 years respectively. This was reflected in the initial
yields on disposal of 4.4% and 6.2%. Armageddon, which is when rent equals
interest assuming no tenants renew and all breaks are exercised, is 2017.



Quintain's strategy is to have a diverse tenant base in order to manage risk.
Our tenant covenant strength has been measured by Investment Property Databank
(IPD) (using Dun and Bradstreet) and shows 66% of our rent roll is derived from
negligible, low and low/medium risk covenants. Our largest exposure to a
covenant is 5.5% and the largest 10 tenants in terms of our exposure make up
29.9% of the rent roll, of which 15.1% are negligible risk and 12.3% are low
risk.



Profit from the sale of trading properties was £3.8m (2004: £0.3m) on sale
proceeds of £25.9m. Historically trading profits have varied. This year's
results included £2.6m of profit from Phase I at Merton Abbey Mills and £0.9m
from the disposal of 10 of the 14 units at Valley Point in Croydon.



Income from leisure operations includes the contribution from Wembley
businesses, which delivered £6.2m for the year (2004: £6.6m). The slight fall
came from the closure of the arena in the last quarter whilst under
refurbishment. Next year's contribution will be significantly lower as the arena
will not reopen until the end of the financial year to 31 March 2006.



Other income fell from £3.6m to £2.2m, with surrender premiums significantly
lower at £1.4m (2004: £2.3m). This income varies over time depending on
opportunities acquired or existing within the portfolio.



Administration expenses increased by 19.9% to £19.1m (2004: £16.0m). £3.0m of
this related to additional staff costs, arising mainly from recruitment and
performance related bonuses. Whilst total staff costs are charged to the profit
and loss account the uplift in value they have created is reflected in the
balance sheet, particularly so with those working on development projects. We
have an active recruitment programme ensuring that we have the skill base to
deliver future performance.



Administration expenses include £0.3m of audit fees paid to KPMG and £0.07m for
non-audit work. The latter has fallen substantially following the recruitment of
in-house tax specialists and the appointment of Deloitte as tax advisors, in
line with corporate governance best practice of separating audit and non-audit
work. Further information is given in note 4b to the accounts.



Operating profit from joint ventures increased by £1.0m to £4.6m, reflecting the
growth and income performance of the Quercus fund.



The profit over valuation on the disposal of investment properties was £6.3m
(2004: £5.9m). Proceeds, including the sale of joint ventures and associates,
were £305.4m, with a profit on book cost of £81.9m.



Net interest payable is analysed below. Of the interest capitalised, £2.3m
related to the Wembley complex and £1.7m to Greenwich.


                                                                          31 March 2005       31 March 2004
                                                                                     £m                  £m

Interest payable                                                                   19.2                20.2
Amortisation of finance costs - current facility                                    0.5                 0.6
Finance costs written off against old facility                                      1.9                   -
Profit on termination of swap arrangements                                        (0.7)                   -
Interest capitalised                                                              (5.2)               (3.2)
Interest receivable                                                               (1.5)               (0.8)
Joint venture and associate interest                                                1.7                 1.4
Total net interest payable                                                         15.9                18.2



An additional £2m of interest was incurred in relation to development
properties. After deducting this interest payable fell by £3m, which was in line
with the fall in rental income before back rents.







Taxation



Quintain had an effective tax charge of 15% for the year (2004: 0%), arising
from a combination of factors. The tax charge in relation to the sale of
investment properties amounted to £17.7m, against which the Group was able to
use £13.3m of prior year losses, with £4.0m being allocated against the release
from the revaluation reserve in the year. The tax charge benefited from a net
£2.3m release of capital allowance credits arising on the disposal of investment
properties. A full reconciliation of the current tax charge is shown in note 6
to the accounts.



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
losses, should keep the effective tax rate, in the medium term, below the
standard 30%. This is subject to changes in tax legislation. 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 liability of £57.2m (2004: £40.1m). This
equates to 42.8p per share. The increase in the year arises from revaluation
surpluses.



Balance Sheet



At 31 March 2005, the investment portfolio was valued at £742.9m (2004:
£797.7m). A table analysing activity is included within the business review. Of
the £113.5m revaluation surplus, £75.2m related to the Wembley complex
reflecting the achievements during the year. In particular we gained a
resolution to grant planning for 5.3m sq ft of mixed use development on Phase 1,
followed by agreement of the S106 and notification from both the Government
Office for London and the Mayor of London that they would not exercise their
statutory powers. On expiry of the judicial review period in December 2004, the
consent was unconditional and construction of initial infrastructure works has
now commenced. Also during the year we agreed to indemnify the LDA for the
purchase of an 8 acre site in return for its development rights, with an
existing consent for 0.74m sq ft of mixed-use development.



Other tangible fixed assets include £8.8m paid during the year for a long
leasehold building at 16 Grosvenor Street, W1. We intend to use the building for
our own occupation and sub-let the remaining leases at our existing premises.
This move will give us more space to accommodate the increasing number of
employees. If we had held the property for investment purposes the revaluation
uplift in relation to it would have been £2.8m.



Capital commitments at the year-end totalled £102.1m, of which £68.4m related to
the Wembley complex. This included: £26.0m to complete the refurbishment of
Wembley Arena; £20.1m on Phase I infrastructure works together with delivery of
Arena Square; £9.0m for the indemnity on the LDA acquisition; and £11.6m to
cover our share of construction costs on the first residential development. At
Greenwich commitments included £4m for deferred land payments and £8.7m as our
share of Meridian Delta Limited costs mainly relating to infrastructure. We have
allocated £9m of capital for further equity purchases within the Quercus joint
venture.



During the year the Quintain Group Employee Benefit Trust purchased 300,000
shares at an average price of 508p to cover allocations under the Executive
Directors' Performance Share Plan. Quintain also purchased 425,000 shares at an
average price of 525p for cancellation.



Joint ventures



At 31 March 2005, Quintain had net investment in joint ventures totalling
£62.0m, of which our 26.5% share in Quercus, the healthcare fund, represented
£48.1m. Whilst our holding on the Greenwich Peninsula is included within
investment properties, Meridian Delta Limited, the company charged with
overseeing the redevelopment of the peninsula, owned 49% by Quintain and 51% by
Lend Lease, is treated as a joint venture. Our current investment in this joint
venture is £13.9m. A further analysis is shown in note 11a to the accounts.



Net Assets



The basic net asset value per share at 31 March 2005 was 495p, an uplift of
22.2% from the 405p for the prior year. On a diluted basis, the net asset value
per share rose 21.8% from 399p to 486p. The triple net asset value was up 20.6%
at 439p after taking into account 4.5p for marking to market of debt and 42.8p
for unprovided capital gains.



Financing strategy and capital structure



Our financial strategy is to maintain a level of debt that balances the risks to
the business with the higher returns on equity achieved by lower cost funding.
This translates into a long run gearing target of 100%. We have currently
positioned the company well below this at 27% geared (2004: 56%) partly to
ensure substantial financial resources for the next phase of delivery of the
major urban regeneration projects and partly reflecting current market
conditions.



During the year, we raised a £475m corporate loan underwritten by Bank of
Scotland, Barclays, HSBC and Lloyds as well as a £20m liquidity facility from
Bank of Scotland. The £475m facility was for five years with possible one year
extensions at the end of the first and second year. We have exercised the first
of these and removed the term element, so the facility is now fully 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 the margin to 1.35%. Interest cover must be 1.25 times covered by earnings
before interest and tax, 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 facility will increase liquidity and operational flexibility by enabling us
to move quickly when bidding for investment opportunities and will allow us to
fund more of the urban regeneration projects on our own balance sheet, so
capturing greater value.



As at 31 March 2005, Quintain was 92% hedged with swaps (2004: 76%). 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. Where there is less certainty of revenue, for example in the case
of properties under development, we will hedge using a combination of swaps and
caps.



The weighted average rate of interest of the Company's debt at the year-end was
7.1% (2004: 6.1%). The increase from the prior year is the impact of fees on
£330m of undrawn but committed facilities spread over a low level of drawn debt.
These resources are essential for our special projects and are already being
used to fund initial infrastructure works at Wembley. The cost should be viewed
in relation to the potential value that can be added by the flexibility to fund
these projects.


Financing Statistics                                                      31 March 2005       31 March 2004

Net debt                                                                        £172.4m             £292.2m
Gearing                                                                             27%                 56%
Gearing including share of joint ventures' debt                                     32%                 60%
Weighted average debt maturity                                                  5 years             5 years
% of debt hedged                                                                    92%                 76%
Interest cover                                                                      1.5                 1.6
Undrawn committed facilities                                                    £330.0m             £124.5m



The fair value deficit on fixed debt and interest rate hedging instruments was
£8.7m (2004: £8.4m), equivalent to a reduction in the Company's net assets per
share of 6.5p or 4.7p after deducting tax. Interest cover for the year ended
March was 1.5 times (2004: 1.6 times). After adding back realised revaluation
reserves to calculate the banking covenant definition, interest cover was 4.6
times (2004: 2.0 times).



Cashflow



Net cashflows from operating activities at £22.3m are significantly ahead of
last year's £6.7m. The largest factor in this was the increase in trading
properties in the prior year and related to investments made in Merton Abbey
Mills, our joint arrangement with Countryside Properties Plc. The sales
programme less investments released a £147.0m net cash surplus. Financing
creating cash outflows of £155.6m, driven by the net repayment of loans, with a
cash decrease in the year of £6.7m (2004: £0.6m).



Pensions



Quintain operates a defined contribution scheme and has no liabilities arising
under FRS17 Retirement Benefits.



International Financial Reporting Standards



As from 1 April 2005, Quintain's accounts will be prepared under International
Financial Reporting Standards (IFRS). The accounts for the year ended 31 March
2005 have been restated under IFRS and a reconciliation to UK GAAP provided.
These numbers are unaudited.



Under IFRS Investment properties are shown at fair value as was the case with UK
GAAP, however the revaluation surplus is taken directly to the income statement,
so increasing profit by £20.3m in relation to directly owned properties and
£6.6m for our share of joint ventures and associates. Offsetting this is a
deferred tax credit of £7.0m and charge of £4.1m respectively. This gives an
earnings per share of 32.2p compared with 10.3p under UK GAAP.



Within the balance sheet, investment and development properties are separately
identified and for development properties the revaluation surplus continues to
be posted to the revaluation reserve. This is offset by a deferred tax provision
of £75.4m relating to the unrealised capital gains. Under IFRS all joint
ventures must either be proportionally consolidated or equity accounted. We have
decided to adopt equity accounting and so entries for the proportionally
consolidated joint arrangement at Merton Abbey Mills have been reversed out and
incorporated within joint ventures.



Under IFRS, leasehold property interests held as investment property at fair
value are accounted for as finance leases. The liability under these leases is
recognised as the present value of minimum lease payments at the date of
inception or acquisition of the lease. The finance charge of £1.1m is
incorporated within the net finance expenses. In the balance sheet investment
properties are grossed up by £1.4m and development properties by £10.1m with the
liability disclosed separately.



The diluted NAV per share of 436p under IFRS and compares with a triple net NAV
of 439p based on UK GAAP.



Key risks and uncertainties



In delivering high long-run returns to shareholders the identification and
monitoring of risk is crucial. In addition to the detailed internal controls set
out in the Audit Committee Report, the Board has appointed a risk committee to,
at a high level, identify and assess risks to the business. In considering the
major risks to the business, some relate to economic and political uncertainties
whilst others are specific to Quintain.



  • In terms of planning consents Quintain has significant exposure to the
    residential market. Details of issues relating to this are set out in the
    section analysing the market.

  • The make-up of the portfolio has changed, with special projects being the
    largest constituent. These assets are capable of delivering significant
    value but often have little or no income attaching to them in the short term
    so having a negative impact on the profit and loss account. This can be
    mitigated by land sales and bringing in third party equity. This is also
    offset by growing income streams from Q3P.

  • In the current market there are few opportunities to find value in income
    producing assets.

  • Changes in legislation can impact the business, particularly in planning
    and taxation. Also at Wembley, in building a leisure destination, our
    preference for a casino is subject to changes in gaming legislation. This is
    not materially reflected in the current valuation but if successful will
    generate significant value in creating a sustainable development.

  • Loss of key personnel represents a risk to the business. Our ongoing
    recruitment programme seeks to mitigate this by bringing in highly skilled
    employees. Key personnel are encouraged to remain by long-term incentive and
    remuneration packages.



Corporate Social Responsibility ('CSR')



We endeavour to take our social responsibilities seriously and a full CSR report
is included in the Annual Report and Accounts.   Areas of focus for the Group
include its commitment to environmental and social issues, its health and safety
record and the motivation and retention of its employees.  The Group recognises
the potential impact of its activities on the wider community.



The Group views its staff as one of its most important resources since a highly
motivated employee base is essential to its continued success.  The Group's
policy is to recruit both directors and staff of the highest quality and to
remunerate them accordingly.  The aim is to produce competitive remuneration in
relation to other major property companies.  A significant proportion of
remuneration is performance related.  Further details are shown in the Report of
the Remuneration Committee contained in the Report and Accounts.



The Group considers staff retention to be one of its key performance indicators.
Staff turnover during the year for head office was 9.9% with an average length
of service of three years.  The comparatively short average length of service
for head office staff reflects the relative youth of the Company and the recent
expansion in staff numbers.  For our Wembley operation, turnover during the year
was 20.1% with an average length of service of eight years.



As previously explained, it is the Company's policy to recruit staff of the
highest calibre and motivate them appropriately.  Since the year end, the
Group's head office  carried out a staff survey which showed that every member
of staff who responded rated the Company's culture either as 'positive' or '
extremely positive'.  A small number of action points were identified and are
being dealt with.



The Group's commitment to sustainability and social issues is illustrated by its
work at our two major urban regeneration sites at Wembley and Greenwich.  Here
we are working to meet the needs of future tenants, communities, and local and
central government by creating sustainable mixed-use projects. Further details
of how we are developing these sustainable communities are given in the CSR
report.



As far as environmental issues are concerned, the Group is very aware of the
importance of maintaining the environment and encourages continuous
environmental awareness. In general terms, we aim to minimise risk of causing
harm through careful consideration of construction techniques, the specification
and use of sustainable materials and the reduction of waste.  Once again,
further information evidencing our commitment to good environmental practice is
shown in the CSR report.



The Group is committed to the highest standards of performance in the provision
of a safe and healthy environment for its employees, tenants, contractors and
visitors and considers its performance in this field to be a key performance
indicator. Further details of the Group's health and safety policy and
objectives are shown in the CSR Report.



During the year under review there were eight minor accidents across the Group's
premises which resulted in insurers being notified and no RIDDOR reportable
incidents.  Most of the minor accidents occurred in the Group's Castlegate
Shopping Centre which was sold during the year. The Group monitors the position
constantly.



Key Performance Indicators (KPIs)



The Group's KPIs are outlined in various sections of this review and comprise
both specific financial and stakeholder related measures.



Whilst there are many financial measures which the Group monitors on a regular
basis, details of which are set out elsewhere in this Review, our core financial
objectives are, as previously stated:



I    to deliver upper quartile performance relative to the IPD benchmark;
     and

II   to make a real total return of at least 10% each year.



Since listing in 1996, the Group has achieved both objectives every year



As a listed property company, it is also appropriate to measure our performance
in ways other than financial, thus recognising the impact of our activities on
our stakeholders.  As such, the Group has, during the year, identified two
further key measures being:-



I    our health and safety record; and

II   staff motivation and retention.



We will, in future, report on our performance in these areas on a comparative
basis.



                      This information is provided by RNS
            The company news service from the London Stock Exchange
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