Final Results - Year Ended 31 March 2000, Part 2

Quintain Estates & Development PLC 30 May 2000 PART II Note 1 Accounting policies The principal accounting policies, all of which have been applied consistently throughout the year and the preceding year, are set out below. 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. 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 joint ventures and associate. 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. The purchase consideration has been allocated to assets and liabilities on the basis of fair value at the date of acquisition. 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. Prior to the adoption of FRS 10, Goodwill and Intangible Assets, purchased goodwill was written off to reserves in the year of acquisition. When a subsequent disposal occurs, any related goodwill previously written off to reserves is included in the profit and loss account as part of the profit or loss on disposal. 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 year end were as follows: France £1 = Ffr 10.93 United States £1 = US$ 1.60 Differences arising from the translation of the net equity investment in overseas subsidiaries are dealt with through reserves. Turnover Turnover is stated net of VAT and comprises rental income, sales of trading stocks, commissions 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. 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 exceptional items while those arising from the sale of trading stocks are included in the profit and loss account as part of the operating profit of the Group. Depreciation In accordance with SSAP 19, Investment Properties, no depreciation is provided in respect of the Group's investment properties. 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 other fixed assets on a straight line basis having regard to their estimated useful lives of between three and eight years. 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 historic cost until practical completion. Trading stock is stated at the lower of cost and net realisable value. 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 the Group's 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. Other investments Fixed asset investments are stated at cost less any provision for permanent diminution in value. 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. Deferred taxation Deferred tax assets are recognised to the extent that they are considered recoverable. Provision is made for timing differences on the liability method to the extent that it is probable that a liability will crystallise in the foreseeable future. No provision for deferred tax is made in respect of the surplus arising on the revaluation of investment properties, except where it is anticipated that a property will be sold. Pensions The Group makes pre-defined contributions to employees' personal pension plans. Note 2 Turnover, cost of sales and gross profit These comprise: 2000 1999 Turnover Cost of Gross Turnover Cost of Gross sales profit sales profit £000 £000 £000 £000 £000 £000 Rents receivable 41,865 (7,181) 34,684 24,381 (1,575) 22,806 Sales of commercial trading properties 21,605 (19,161) 2,444 7,678 (6,781) 897 Sales of residential trading properties 7,106 (5,322) 1,784 - - - Other income 1,478 - 1,478 879 - 879 ______ ________ ______ ______ _______ ______ 72,054 (31,664) 40,390 32,938 (8,356) 24,582 ====== ======== ====== ====== ======= ====== Note 3 Segmental analysis a) Geographical segmental analysis The geographical split of the Group's business is as follows : 2000 1999 Turnover Operating Net Turnover Operating Net profit assets profit assets £000 £000 £000 £000 £000 £000 United Kingdom 69,859 30,278 608,421 32,938 19,898 296,785 France 819 470 6,112 - - - United States 1,376 798 16,089 - - - ______ ______ _______ ______ ______ _______ 72,054 31,546 630,622 32,938 19,898 296,785 ====== ====== ====== ====== Net Investment in joint ventures and associate 27,248 9,891 Net debt (Note 25c) (344,063) (116,714) ________ ________ 313,807 189,962 ======== ======== Turnover by geographic destination is the same as turnover by origin. All of the Group's profit on the sale of investment properties of £2,945,000 (1999 : £1,080,000) was realised in the United Kingdom with the exception of £302,000 (1999 : £nil) which arose in a joint venture within the United States. b) Business segmental analysis The Group operates in only one business segment. The following subdivision of the Group's operations is intended to assist an understanding by users of these financial statements of its performance in these sectors. Total return Total return Gross Net for year for year rents rents Valua- including excluding receiv- receiv- Book tion acquisitions acquisitions 2000 able able value uplift & disposals & disposals £000 £000 £000 £000 % % RPI properties - own properties 492 414 29,320 6,343 54.7 41.6 Short leasehold properties 2,045 1,922 20,705 596 12.4 12.0 High yielding properties 20,266 17,802 231,133 16,970 19.9 20.2 Properties held for their lease restruct- uring potential 5,878 5,257 88,050 2,163 10.4 18.4 Properties held for their reversion- ary potential 769 680 10,236 218 7.1 8.4 Special projects 6,569 3,992 147,956 20,588 17.7 20.9 Properties held for resale 5,846 4,617 74,970 1,214 9.6 6.6 _______ ______ _______ ______ Total - own 41,865 34,684 602,370 48,092 16.9 18.3 properties ======= ====== ======= ====== RPI properties - joint ventures 1,097 1,008 20,694 2,285 21.5 ====== ====== ====== ====== Total - RPI properties 1,589 1,422 50,014 8,628 36.3 ====== ====== ====== ====== Total return Total return Gross Net for year for year rents rents Valua including excluding receiv- receiv- Book -tion acquisitions acquisitions 1999 able able value uplift & disposals & disposals £000 £000 £000 £000 % % RPI properties - own properties 1,293 1,157 1,750 215 13.9 - Short leasehold properties 2,518 2,325 21,625 1,066 11.9 15.7 High yielding properties 10,008 9,559 101,695 4,383 14.2 14.6 Properties held for their lease restruct- uring potential 2,141 2,038 28,375 2,234 17.3 17.3 Properties held for their reversion- ary potential 886 844 11,419 414 13.9 11.4 Special projects 5,217 4,780 120,915 24,316 32.6 32.8 Properties held for resale 2,318 2,103 23,871 683 13.6 10.9 ______ ______ _______ ______ Total - own 24,381 22,806 309,650 33,311 19.9 20.9 properties ====== ====== ======= ====== RPI properties - joint ventures 97 97 9,891 1,734 37.0 ====== ====== ====== ====== Total - RPI properties 1,390 1,254 11,641 1,949 20.4 ====== ====== ====== ====== Definitions: RPI properties are those whose rents increase in line with the Retail Price Index - typically annually. Short leasehold are those leaseholds of 50 years or less. properties High yielding are those yielding more than the average properties of the CB Hillier Parker Rent Index. Properties held for are those where it is anticipated their lease additional income / value can be created restructuring through the reorganisation of their lease potential structure. Properties held for are those where the current market rent their reversionary exceeds the existing (or passing) rent. potential Special projects are those properties with large capital values and significant development potential. Properties held for are those whose income / value potential resale has been fully realised. The total return for the year takes account of net rental income, profits from disposal and revaluation surpluses and expresses this sum as a percentage of a capital base composed of opening valuations adjusted for acquisitions and disposals on a time apportioned basis. The return achieved excluding acquisitions and disposals is also shown. Note 4 Administrative expenses 2000 1999 £000 £000 a) These include : Depreciation of tangible fixed assets 135 138 Operating lease payments 275 83 Loss on sale of fixed assets 74 - ===== ==== Fees paid to auditors and their affiliates : Audit - Group 160 61 - Parent company only 25 20 Non-audit 1,054 240 ===== ==== £290,000 of non-audit fees in the year to 31 March 2000 has been capitalised as acquisition costs of the subsidiaries. In respect of the year to 31 March 1999, £180,000 was capitalised and charged to the merger reserve. The aggregate audit fees for the year to 31 March 1999 paid to the respective auditors of Quintain, Chesterfield and English & Overseas was £279,000. The Group has a relatively small number of employees and makes use of external advisers for specific non-property skills. KPMG and KPMG Audit Plc provide assistance to the Group in respect of taxation advice and compliance work and in respect of corporate acquisitions and disposals. During the year, in addition to the audit fees set out above, the Group paid fees to KPMG and KPMG Audit Plc for accounting and tax related services in respect of: £000 Acquisition of Chesterfield - Due diligence and reports in connection with the Circulars 220 - Tax advice in connection with Chesterfield 100 - Disposal of Theatre interests 67 Acquisition of English & Overseas - Due diligence and reports in connection with the Circulars 103 - Disposal of Tower Gate 34 General tax planning and compliance work - Quintain 296 - Chesterfield 156 Auditors' reports in connection with section 151, Companies Act 1985 58 Advice in respect of computer systems 20 1,054 ===== In addition, the Group has paid £94,000 to the former auditors of Chesterfield and English & Overseas for corporation tax services. b) Staff costs Total payroll costs were as follows: 2000 1999 £000 £000 Wages and salaries 3,024 1,979 Social security costs 362 193 Other pension costs 190 93 _____ _____ 3,576 2,265 ===== ===== c) Staff numbers The average number of persons, all engaged in property portfolio management and administration, employed by the Group during the year was 32 (1999 : 16). The increase has arisen following the acquisition in the year of Chesterfield and English & Overseas. The number of staff employed at the year end was 22 (1999 : 16). Note 5 Directors' emoluments, share options and interests in ordinary shares a) Emoluments Basic 2000 1999 2000 1999 salary Bonus Fees Benefits Total Total Pensions Pensions £000 £000 £000 £000 £000 £000 £000 £000 Executive N G Ellis (Chairman) 125 125 - 20 270 271 - - E S Dugdale 145 138 - 12 295 244 15 13 N S K Shattock 145 138 - 16 299 248 15 13 A R Wyatt 325 314 - 22 661 534 32 28 Non- executive C H Armon- Jones - - 22 1 23 20 - - R A Barfield - - 22 4 26 20 - - J B Evans - - 38 - 38 35 - - D J Kirkpatrick (resigned 31/10/1999) - - 13 - 13 20 - - B S Thomas (appointed 3/3/2000) - - 2 - 2 - - - ____ ____ ___ ___ _____ _____ ___ ___ Total 2000 740 715 97 75 1,627 1,392 62 54 ==== ==== === === ===== ===== === === Total 1999 660 570 95 67 - 1,392 - - ==== ==== === === ===== ===== === === In addition to the above fees to non-executive directors, an additional amount of £42,000 (1999:£28,000) was paid to D J Kirkpatrick under a consultancy agreement. Fees also include £22,000 (1999:£20,000) paid to Drivers Jonas under an agreement to provide the Group with the services of C H Armon-Jones as a non- executive director. In addition, fees of £340,000 (1999: £73,000) were paid to Drivers Jonas in respect of professional services rendered to the Group. b) Share options Date of Number of ordinary Exercise grant shares price per share Exercise period 31 March 31 March from to 2000 1999 E S Dugdale 26.07.94 130,000 130,000 110.0p 26.07.97 26.07.04 18.08.95 70,000 70,000 114.0p 18.08.98 18.08.05 23.07.96 70,000 70,000 113.0p 23.07.99 23.07.06 06.08.97 72,132 72,132 136.0p 06.08.00 06.08.07 22.02.99 66,007 66,007 151.5p 22.02.02 22.02.09 28.05.99 49,029 - 163.2p 28.05.02 28.05.09 N S K Shattock 18.08.95 200,000 200,000 114.0p 18.08.98 18.08.05 23.07.96 26,548 26,548 113.0p 23.07.99 23.07.06 23.07.96 61,946 61,946 113.0p 23.07.99 23.07.06 06.08.97 82,352 82,352 136.0p 06.08.00 06.08.07 22.02.99 39,604 39,604 151.5p 22.02.02 22.02.09 28.05.99 49,029 - 163.2p 28.05.02 28.05.09 A R Wyatt 22.02.99 752,474 752,474 151.5p 22.02.02 22.02.09 28.05.99 98,060 - 163.2p 28.05.02 28.05.09 _________ _________ 1,767,181 1,571,063 ========= ========= In addition to the above, an employee of the Company, Mrs Z A Wyatt, a Chartered Surveyor and wife of A R Wyatt, was granted options over 9,193 ordinary shares during the year. The range of closing middle market prices for the ordinary shares of the Company during the year was 125.5p to 208.5p.The price at year end was 125.5p. c) Interests in ordinary shares The interests of directors holding office at the end of the year in the ordinary shares of the Company were as follows : Shares Shares under option 2000 1999 2000 1999 N G Ellis 9,000 9,000 - - E S Dugdale 20,547 13,000 457,168 408,139 NSK Shattock 52,699 31,641 459,479 410,450 A R Wyatt 2,018,207 2,001,000 850,534 752,474 C H Armon-Jones - - - - R A Barfield 7,000 4,000 - - J B Evans 16,500 9,000 - - B S Thomas 10,000 - - - _________ _________ _________ ________ 2,133,953 2,067,641 1,767,181 1,571,063 ========= ========= ========= ========= There were no changes in directors' interests in ordinary shares between the year end and the date these accounts were signed. Note 6 Exceptional items Following the acquisition of Chesterfield and English & Overseas, the Group has incurred redundancy costs of £1,373,000 (1999 : £nil) as part of the process of restructuring the organisation. These costs were split across the two companies as follows : £000 Chesterfield 491 English & Overseas 882 _____ 1,373 ===== Note 7 Net interest payable 2000 1999 £000 £000 Interest payable on bank loans and overdrafts 21,886 11,718 Interest payable on other loans 1,494 931 Finance charges on hire purchase contracts 7 2 ______ ______ 23,387 12,651 Amortisation of financing costs 1,315 1,055 ______ ______ 24,702 13,706 Interest capitalised (1,409) (619) Interest receivable (1,713) (1,176) Profit on termination of hedging arrangements (1,599) - ______ ______ Group interest charge 19,981 11,911 Share of joint venture interest payable 874 - ______ ______ 20,855 11,911 ====== ====== Of the interest capitalised in the year of £1,409,000, the amount capitalised to investment properties was £947,000 (1999 : £619,000) and to stock £462,000 (1999 : £nil). The share of joint venture interest is shown after interest capitalised of £ 329,000 (1999 : £nil). Note 8 Tax on profit on ordinary activities 2000 1999 £000 £000 Corporation tax Current at 30% (1999: 31%) 2,407 (393) Deferred (188) 1,470 Overseas taxation 104 - Share of tax of joint ventures 522 30 _____ _____ 2,845 1,107 ===== ===== Reconciliation of the taxation charge : Profit on ordinary activities before taxation at 30% (1999 : 31%) 4,850 2,841 Accelerated capital allowances for which no tax has been provided (776) (1,650) Use of tax losses (1,875) (458) Disallowable expenditure 501 334 Other differences 145 40 _____ _____ 2,845 1,107 ===== ===== Note 9 Dividends 2000 1999 £000 £000 Final (paid): 2.5p 1998 dividend paid to new - 31 shareholders Interim (paid): 2.0p (1999: 1.5p) per share 2,634 1,366 Final (proposed) : 3.5p (1999: 3.0p) per share 4,610 2,763 _____ _____ 7,244 4,160 ===== ===== Note 10 Earnings per share and net asset value per share Earnings per share 2000 1999 Adjusted Adjusted for excep- Based on for excep- Based on tional underlying tional underlying Basic items profits Basic items profits £000 £000 £000 £000 £000 £000 Profit for the financial year 12,857 12,857 12,857 7,881 7,881 7,881 Exceptional items after tax - 961 961 - - - Profit on sale of invest- ment proper- ties after tax - - (2,427) - - (950) _____ ______ ______ _____ _____ _____ 12,857 13,818 11,391 7,881 7,881 6,931 ====== ====== ====== ===== ===== ===== Weighted average number of shares (000) 122,432 122,432 122,432 91,047 91,047 91,047 ======= ======= ======= ====== ====== ====== Earnings per share on a fully diluted basis have been calculated on an adjusted profit of £12,857,000 (1999 : £8,047,000) and the adjusted weighted average number of shares of 123,712,000 (1999 : 94,360,000). Undiluted net asset value per share has been based on net assets of £313,807,000 (1999 : £189,962,000) and 131,710,000 (1999 : 92,080,000) shares. Net asset value per share on a fully diluted basis has been calculated on adjusted net assets of £313,807,000 (1999 : £192,962,000) and 132,991,000 (1999 : 95,394,000) shares. Note 11 Investment properties The movements for the year in investment properties were as follows: Group Long Short leasehold Freehold leasehold Total £000 £000 £000 £000 Cost or valuation : Balance 1 April 1999 223,319 18,821 67,510 309,650 Reclassifications - 54,621 (54,621) - Properties acquired with subsidiaries 220,897 47,950 - 268,847 Exchange movement (927) - - (927) Additions 28,177 8,500 10,724 47,401 Disposals (66,813) (1,600) (2,250) (70,663) Revaluation 29,306 16,964 1,792 48,062 _______ _______ _______ ________ Balance 31 March 2000 433,959 145,256 23,155 602,370 ======= ======= ====== ======== The historical cost of the Group's investment properties as at 31 March 2000 was £503,492,000 (1999 : £252,911,000) and includes capitalised interest of £947,000 (£619,000). With the exception of those noted below, all investment properties in the United Kingdom and the United States were valued as at 31 March 2000 by Jones Lang LaSalle, Chartered Surveyors, and Matthews & Goodman, Chartered Surveyors, as external valuers, on the basis of open market value and in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. Northdale House, Wembley, an hotel investment property, has been valued by TRI Hospitality Consulting as external valuers, on a vacant possession basis. Chateau Rouge, Marcq en Baroeul, Lille, France has been valued by Bourdais Expertises s.a., Chartered Surveyors, as external valuers, in accordance with the French Valuation Charter adopted by the French Association of Chartered Surveyors, the principal difference from the basis adopted for the other properties referred to above being that net internal floor area is assessed in accordance with local market practice. Note 12 Other fixed assets Fixtures, Short Motor fittings & Group and Company leashold vehicles equipment Total £000 £000 £000 £000 Cost : Balance 1 April 1999 142 184 520 846 Acquisitions - 210 683 893 Additions 150 65 65 280 Disposals - (233) (926) (1,159) _____ _____ _____ _______ Balance 31 March 2000 292 226 342 860 ===== ===== ===== ====== Depreciation : Balance 1 April 1999 (31) (64) (382) (477) Charge for year (25) (75) (35) (135) Disposals - 31 204 235 ______ ______ ______ ______ Balance 31 March 2000 (56) (108) (213) (377) ====== ====== ====== ====== Net book value : 31 March 2000 236 118 129 483 ====== ====== ====== ====== 31 March 1999 111 120 138 369 ====== ====== ====== ====== MORE TO FOLLOW FR PUUMUAUPUPPB

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