Interim Results

RNS Number : 0504J
Quintain Estates & Development PLC
27 November 2008
 



Quintain Estates and Development PLC

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


Interim results for the six months to 30 September 2008


Ongoing Progress with Cash Repatriation Programme



Highlights


  • Focus on cash repatriation

    • £80m cash repatriated since 1 April 2008 against target of £100m for current financial year

    • 20% reduction in administration costs


  • Tight control of capital expenditure

    • Construction in Special Projects limited to three sites 

    • Facilities in place to cover all capital commitments


  • Special Projects - management initiatives

    • Planning gains at Wembley, Greenwich, City Park Gate, Birmingham and Beverley

    • Reduced construction costs through supply chain management

    • Key focus on increasing revenue from Wembley's income-producing activities


  • Progress in Quintain Fund Management

    • 6% rise in funds under management to £1.06 billion (March 2008: £1 billion) 

    • Strong income generation and resilient performance by the underlying assets of each fund

    • Two new revenue generating schemes and 99% occupancy at iQ 


  • Results 

    • Total assets of £1.2bn (March 2008: £1.4bn)

    • Basic NAV per share of 443p (March 2008: 584p)

    • Operating profit before recognition of non-current asset sales and revaluation of £2.14m (September 2007: loss of £2.13m)

    • Loss before tax of £51.6m (September 2007: loss of £3.9m; March 2008: loss of £54.7m)

    • Gearing of 90% at the half-year, resulting in headroom of £127m against banking covenants.


John Plender, Chairman of Quintain commented:-


'In line with the programme set out in our August Interim Management Statement, we have taken decisive action to protect and enhance our financial position by cutting overheads, repatriating cash, creating headroom and repositioning the development programme. In addition, we are actively pursing management initiatives to enhance the value of the assets across our portfolio and generate increasingly diversified revenue streams.


'The focus of Quintain's Board throughout this downturn has been, and will remain, cash preservation and the firm management of risk, progressively reinforcing the business against the continued impact of the current market conditions.'



  For further information, please contact:


Quintain Estates and Development PLC

Rebecca Worthington

Tel: +44 (0)20 7495 8968


Financial Dynamics

Stephanie Highett/Dido Laurimore

Tel: +44 (0)20 7831 3113



   FINANCIAL HIGHLIGHTS



Six months to

30 Sept

2008

Six months to

30 Sept

2007


Change

(%)

Year to

31 March 2008


Change

(%)

Balance Sheet












Investment and development properties (£000)


869,073


1,140,080


(23.8)


1,064,160


(18.3)







Net asset value per share (pence):







  basic

443

700

(36.7)

584

(24.1)

  diluted 

439

693

(36.7)

578

(24.0)







Adjusted diluted (EPRA) net asset value per share (pence):


485


829


(41.5)


676


(28.3)







Total return (%)

(22.7)

7.3


(9.7)








Gearing (%) (Note)

90

33


60








Income Statement












Group turnover (£000)

20,719

24,018

(13.7)

46,676








Gross profit (£000)

15,076

16,584

(9.1)

32,690








Operating profit (loss) before recognition of results of non-current asset sales and 

revaluation (£000)





2,140




(2,126)








3,233


Loss before tax (£000)

(51,595)

(3,858)


(54,740)








Earnings per share (pence):






  basic

(34.3)

0.5


(31.3)


  diluted

(34.3)

0.5


(31.3)




Note:


Gearing is calculated in accordance with the Group's banking covenants which require shareholders' funds to be adjusted for deferred tax.




  Chairman's Statement

Quintain's results for the six months to 30 September 2008 reflect the rapid deterioration of global economic conditions and the emergence of recession in the UKIn the August interim management statement ('IMS'), the Company announced its strategy for managing the impact of these conditions. The key priority of strengthening focus on cash has been evidenced by the 20% reduction in costs against budget and repatriation of £80m to date. Capital expenditure is being tightly controlled in line with the Company's risk management strategy.


These are the most difficult conditions the Company and many of its peers have faced, and the impact is clearly seen in yields moving out in the wider market, which is in turn reflected by the marked increase of the discount factor applied by the valuers to our schemes at Wembley and Greenwich. Whilst we expect to see further pressure on valuations, the Board is committed to taking decisive action to protect and enhance its financial position.


Position

The Group has gross property assets, including the Group's share of those within joint ventures, valued at 30 September 2008 at £1.3bn. Special Projects, our regeneration business, constitutes 59% of the Group by value, Investment Portfolio 12% and Fund Management 29%, and together they produce a gross annual income of £64.8m, excluding income from trading property sales


The urban regeneration business is complex and requires proven specialist management skills. However, our capital investment can be accelerated or decelerated according to market conditions. This business generated an income of £21.3m over the last year from items such as hotel operations, rent from retail parks and commercialisation of areas with very high footfall, such as those around Wembley Stadium and Arena. The Investment Portfolio remains the smallest element of Quintain, but nonetheless contributed £13.8of income over the last yearThe Fund Management business has grown its funds under management from £245m to £1.06bn in five years, focusing on less cyclical sectors with, in the majority, RPI-linked rents. It now generates income of £29.7m per annum. 


Finance

In line with the wider property sector, the valuation of the Group's directly held properties decreased 19.9% during the period to £869m. We have now seen a 30% fall in valuations across our urban regeneration schemes at Greenwich and Wembley since 30 September 2007By contrast the less cyclical qualities of Quintain Fund Management led to more resilient valuations for this business, with the iQ student accommodation assets declining by 7and Quintain's share of the Quercus healthcare portfolio by 5.5from March 2008.


The decrease in Group valuations was the most significant factor in increasing gearing from 60% at the year end to 90% at 30 September 2008. This compares with our banking covenant of 110% of shareholders' funds adding back deferred tax, implying headroom in terms of potential increase in debt of £127m. We will continue to manage headroom through a programme of disposals to reduce debt and active management of assets to minimise falls in valuation. This should more than offset capital expenditure and we will continue to pay down debt as cash is progressively repatriated. Interest cover at 30 September 2008 was 1.5 times, or 2.1 times before exceptional items (31 March 2008: 1.8 times), against a banking requirement of 1.25 times(Interest cover, per our banking covenants, is defined as operating profit before net finance expenses plus realised surpluses on disposals divided by net finance costs excluding marking to market adjustments.)


Strategy

Although the primary objective of the Company since flotation has been long term value creation, the focus of Quintain's Board throughout this downturn has been, and will remain, on cash repatriation and the firm management of risk, progressively reinforcing the business against the continued impact of the current market conditions.


Firm Management of Risk

There are four key areas:

  • The cash repatriation programme announced in August and detailed in the next section is assisting gearing. We continue to bring significant sums of cash into the business through asset sales and, as planned, are in early discussions with potential equity partners regarding Wembley.

  • Whilst the assets at Wembley and Greenwich have substantial residential consents, the Group's total exposure in terms of residential sales remains marginal, with £10m of receipts from further completions due to Quintain this financial year. During 2009 only £6.0m of completions are due. 

  • The Group's covenant base is intentionally diverse: with the exception of Wembley Arena no single tenant represents more than 3% of the Group's combined rent roll. 

  • The development pipeline is being re-sequenced to align the arrival of product to market with the ability of tenants and purchasers to commit to contracts. Although there are numerous development opportunities ready for constructionwe are committed to building only the three sites that are currently active together with supporting infrastructure for these plots and the Bellway site at Greenwich. Two of the sites are co-funded with our joint venture partners. Full details of these commitments can be found in the Finance Review.


Cash repatriation

Progress has been achieved regarding the cash repatriation programme announced in August:

  • With the sale of £17.5m of Quercus units after the period end, £80m has been raised to date against our target for the financial year of £100m and sales continue.

  • To date, overheads have been reduced by £3.8m and a consultation period with staff is underway that is likely to result in a reduction of up to 28 posts subject to consultation with those affected. This equates to further annualised savings of £1.7m. The 20% reduction in our costs since March leaves Quintain interest cover compliant before taking account of sales.

  • As previously announced, there will be no dividend payment for up to two years. (2007/8: £15.4m).


Business Delivery

Against the backdrop of a troubled market, the 6% increase in funds under management during the period and corresponding rise in income from this business is pleasingas is the resilience of demand we are experiencing in the funds' underlying sectors. The launch of two new schemes within iQ at the start of the academic year delivered 902 more student beds to the portfolio. Strong income growth within Quercus led the fund to make a good return at property level, relative to the market, before the impact of gearing and fees at fund level.


Construction at Wembley, Greenwich and Brighton continues on time and budget and, although there has been a slowdown of development activity during the period, we have continued to enhance the value of our major assets through design, planning and commercialisation. At Greenwich the achievement of detailed consent for 550 homes within M0116 and N0602 since April has taken the total number of apartments ready for construction when the market recovers to 1,062In October we achieved a unanimous vote from Birmingham City Council in favour of detailed consent for our 250,000 sq ft City Park Gate scheme, and at Wembley we have during the period opened our first residential building and concurrently started operating our telecoms service, Velocity1. This is a key element of our Running Towns as Businesses philosophy and scaleable from the Wembley hub to 120,000 homes across the UK.


Board 

In line with best practice, after almost nine years of service as a director Barbara Judge retired from the Board on 26 November 2008. The Company is sincerely grateful for her immense contribution over the years and in order to continue to benefit from her advice and judgement has appointed her as an adviser to the Group. David Pangbourne has been appointed as Senior Independent Director with immediate effect.


Outlook

In the context of severe market contraction, the relative performance of Quintain Fund Management is a notable achievement and the Company expects this business to continue to deliver a meaningful and increasing income for the Group. A significant rise in the number of students entering higher education and continued undersupply of accommodation create a positive context for the launch of our next three iQ schemes in September 2009, which will deliver an estimated £2.1m in additional annualised net rental income to Quintain.


Within the Special Projects business, construction has been decelerated in line with market conditions and the pipeline is being re-sequencedAgainst this backdropwe are actively securing new revenue streams from this business through focus on the commercialisation of assets, primarily through our telecoms product, advertising and event packages for major brands and estate management services. Further work will also take place during the second half of the financial year towards adding value through planning consents in readiness for an improvement in market conditions, and specifically on the application for outline consent regarding our holdings at Wembley known as the North West Lands.


Despite the significant downward impact on our valuations, we continue to operate within our banking covenants. We recognise that the market remains challenging and the Board has all options under review to maintain compliance with all our covenants


John Plender

Chairman

27 November 2008

  Business Review

Special Projects

We continue to take a cautious approach to the build-out of the urban regeneration schemes, with our only construction commitments being three live sites at Wembley CityGreenwich Peninsula and One Brighton, alongside infrastructure for these plots and the Bellway site at Greenwich.


Wembley City

The long term objective for our 85 acre holding at Wembley is the creation of a business generating substantial revenue from 10,000 residents, 4,000 employees and 21 million visitors a year. In the short term, in line with the Group programme of risk management and cash repatriation, we are sharply focused on the income-producing characteristics of these holdings, which already generate an income in excess of £17m per annum. 


As reported in the pre-close statement on 30 September, the first residential building at Wembley was completed on budget and schedule in August, as liquidity constraints in the mortgage market reached their peak. Following the handover of the affordable apartments to our housing association partners, sales to date have been completed on 46 of the 145 private apartments already under contract for sale, each at the full price agreed at the time of reservation. The recent lowering of the Bank of England's base rate by 1.5% supports our view that a substantial level of further unit sales are likely to be completed in this financial year. 


Construction of the second residential building (W04), the affordable housing element of which is funded by two housing associations, continues on time and on budget and is scheduled to complete in March 2010On the site of W05, the development of the central station for Wembley City's underground waste removal system (Envac) is nearing completion


In June we announced the granting of detailed planning consent for W07, comprising a 10 screen cinema, residential units and 80,000 sq ft of retail. This is the last of the four blocks within our retail core (W04, W05, W07 and York House) to receive detailed consent and positions the Company well for swift delivery of this key element of the scheme when the market returns. 


As announced in Juneconditional contracts were exchanged during the period with the London Borough of Brent regarding the sale of 2.25 acres for £10m on the north side of Engineers Way to enable the creation of a new Civic Centre. This agreement is conditional on obtaining detailed planning consent, but is also likely to require the granting of outline consent for Quintain'North West Lands, the application for which we expect to submit next summer. 


Following our acquisition of 5.7 acres at Second Way in January 2008, a lease to Euro Storage Ltd has this month been agreed for the entire site for an annual rent, after a one month rent free period, of £220,000, increasing to £250,000 at the start of the third year. 


Good progress has been achieved during the period regarding the commercialisation of our assets at Wembley, and income from these activities is expected to increase over the second half:

  • We have now introduced rental management services for property owners in Forum House. To date the properties let by Quintain have achieved rents approximately 15% above those in the immediately surrounding area.

  • Quintain's telecommunications service, Velocity1, became operational at Wembley City in NovemberThe product, which has been developed in joint venture with fibre network specialistIndustria, offers IP telecoms, digital TV and high speed broadband internet access. The business is easily scaleable, with the infrastructure created at Wembley designed to support the provision of services to up to 120,000 new-build homes across the UK, including all of Quintain's own sites. 

  • A structure has been created to drive the targeted exploitation of our assets through advertising rights, location hire and minor initiatives such as the introduction of Streetcar to the site. £1.3m was generated through this structure over the six months to 30 September 2008. 


Greenwich Peninsula

Construction of the first commercial buildings at Greenwich Peninsula continues on time and budget, with the completion of Transport for London's ('TfL') new office scheduled for April 2009. Ravensbourne College has also begun construction of their new facility adjacent to TfL's office and The O2The College will relocate to the Peninsula in September 2010, bringing early animation to the scheme.


With 1,500 people starting work in TfL's new office next summer and 1,500 students based on the Peninsula from 2010, marketing of the retail units, comprising 21,000 sq ft within the buildings under construction, will soon begin.


Further to the announcement in June that detailed planning consent has been achieved for 153 more homes, the first apartments at Peninsula Quays received detailed planning consent in October 2008. The total number of homes now consented at Greenwich Peninsula is 1,291, with 229 apartments currently under construction by Bellway


Discussions with AEG during the period resulted in their agreement to extend the lease on The O2 to 100 years in return for variations regarding their proposed hotel scheme on the North West of the Peninsula. After 16 months of operation, The O2 has attracted in excess of 10 million visitors and generated annual rent of £1.6m for Quintain and our joint venture partner, Lend Lease (Europe).



  Progress on Other Schemes

Amongst Quintain's smaller schemes, only One Brighton is under construction. Work continues on time and on budget and 11 apartments have been reserved to date.


Regarding planning progress, the securing of a variation of condition (Section 73) for City Park Gate during the period transformed the focus of this scheme from residential to commercial. Birmingham City Council subsequently delivered a unanimous vote to grant detailed planning consent for the first phase in October. Comprising two buildings and new public realm, this first phase allows for 201,388 sq ft of commercial space adjacent to Moor Street Station in the Eastside regeneration scheme. It will be delivered only when a pre-let and forward funding have been secured.


As reported in the August IMS, our scheme at Beverley was called in for determination by the Secretary of State along with a competing edge-of-town retail scheme from another developer. The latter scheme has now been withdrawn. The anticipated inquiry was subsequently relegated to written representations only and a decision is expected in March 2009.


The jointly-owned Silvertown site saw leases agreed during the period, as announced in the pre-close statement, that take the annual rental income generated from the site to approximately £918,000 after a rent free period of one year for Laing O'Rourke


Outlook

Although we continue to add value across our urban regeneration portfolio, we have no legal commitment to build any plot beyond the three already under construction. In the current economic climate we are taking a highly pragmatic approach to our schemes and action will only be taken when it is prudent in the wider context of the Group's overall position.


 


  Investment Portfolio


At 30 September 2008 the Investment Portfolio was valued at £159.1m against a March valuation of £178.8m, representing a reduction in value of 11%. In line with the market, both initial and reversionary yields have moved out by at least 100 basis points. 


Over the period we have seen an increase in contracted annualised income from £11.1m to £11.8 m whilst voids have remained stable at £3.3m. An increase in voids in Warwick House and Geldard Point, Leeds were offset by positive lettings in Jersey, Tolworth, Leamington Spa and Hemel Hempstead equating to £200,000. Banctec re-geared a ten year lease at £173,000 in Sandringham House, Harlow. During the period Phase III, Arrow ValleyRedditch was successfully let on a 15 year lease to Toolstation at £736,000 per annum, contributing to total lettings during the period in excess of £1m. Since the period end an additional £85,000 of lettings have been agreed in Southampton and Jersey.


In line with our focus on cash preservation, terms have been agreed regarding the sale of three assets in at an aggregate value of £14.2m. Discussions are underway regarding the sale of two additional assets at an aggregate value of £8.3m.


Prior to the September quarter date total rent arrears amounted to 0.67% of total rent demanded relative to 1.39% at the equivalent point last year. Over the six month period we have had to increase bad debt provision to £0.2m with the default of a serviced office operator in LeedsIn the current economic climate an increase in rent arrears and bad debt position should be expected, particularly regarding industrial assets.  

  Quintain Fund Management


Our income-producing funds continue to demonstrate resilience to the impact of the global economic slowdown. Funds under management remained stable during the period at £1.06bn (March 2008: £1bn) with a fall in valuations within the funds of £50m offset principally by acquisitions and completions of £99m. Fee and investment income remain robust. 


Quercus

Quercus, our healthcare fund, returned a relatively robust performance for the six months. At property level, an outward movement in yields was compensated by strong income growth, producing a total return of (1.4)% against its IPD benchmark for the period of (7.8)%. The impact of gearing, at 45.7% against a covenant of 60%, and fees reduced fund level returns to (5.8)%. 


At operating level, the healthcare sector remains relatively sound with receding wage and cost inflation and demographic pressure continuing to support occupancy rates of over 90%. However, demands on local authority budgets and the slowing housing market could impact fee rates.


Within the Quercus portfolio, most tenants report stable operating profits and adequate levels of rent cover. Although the rent collection rate has improved marginally during the period, we continue to monitor the performance of our tenants closely and to work to find satisfactory outcomes with those that are experiencing difficulties. In one case this was achieved by closing a home and transferring the occupants to another home. During the period one operator was placed into administration but the leases have been reassigned to another Quercus tenant.


At investment level, the sector experienced further outward movement in yields during the period driven principally by concerns about the capital structures of the major operators, Southern Cross and Four Seasons. Although these operators account for only 10% of Quercus by value, the knock-on impact on yields across the sector resulted in the net initial yield on the fund moving out by 40 basis points over the period to 7%. Due to the link to RPI, average rent reviews were strong at 4.5%.


Looking forward, although investment values are underpinned by going concern values, we expect to see some movement in investment yields as the sector moves with the wider investment market. Rental growth will reduce, as RPI falls, to the contractual minimum in the care home leases of 3%. 


During the period the fund completed on £42.5m of acquisitions at an average net initial yield of 7.4% and is committed to buy one further property for £4m.  No further purchases will be made until gearing has been reduced to 40% through disposals or by raising new equity. In pursuit of this objective, the fund is currently negotiating the sale of £25m of properties at prices in line with their valuations.


At 30 September 2008 the fund had gross property assets of £853m and comprised 270 properties let to 43 tenants. The fund now has 27 investors. 


Since the period end Quintain has sold £17.5m of units in the fund as part of the Company's cash repatriation programme. 


iQ

Strong demand and rising numbers in higher education continue to support performance in our student accommodation fund.


A 9.7% (40,000) year-on-year rise in the number of people starting on courses in 2008 augments the 5.4% rise experienced in 2007, putting further pressure on an already undersupplied market. iQ opened two new schemes during the period, taking the total number of operational beds to 2,436 of which 99% are now let. All of our schemes are relatively immature but delivered like for like annual rental growth of an average of 5.5% for those schemes operational in September 2007.


The completed value of schemes within the portfolio fell by 2.1% between 31 March and 30 September 2008 with operating schemes now valued on an average net initial yield of 5.6% (March 2008: 5.5%) This outward movement reflected concern in the wider property sector but demonstrated the fund's relative resilience which is due to strong occupier demand, continuing rental growth and transactional evidence. Going forward, we expect to see a further softening of yields as the sentiment prevailing in the wider property investment market affects investor interest. At the period end, iQ had gross property assets of £168.7m. 


Five schemes are currently under construction. Three of these, delivering 1,182 additional beds, are scheduled for completion in time for the 2009 academic year. iQ's additional funding commitments across these five schemes total £78m and will largely be funded from the fund's debt facility.  At the period end the loan to value was 58.3% against a covenant of 65%. We monitor this covenant carefully with our partner, The Wellcome Trust.


The management of three schemes was brought in-house prior to the start of the academic year, resulting in a better service for tenants.


Quantum

Funds under management within Quantum have risen to £12m (March 2008: £10m) due to the acquisition of a building on Cambridge Science Park for £1.9m during the period, augmenting our existing portfolio.


With the continuing support of the South West RDA, we expect shortly to finalise our preparations for the Bristol and Bath Science Park enabling us to start on site. 



Finance Review


Headline Results

The basic net asset value per share at 30 September 2008 was 443p, a decrease of 24.1% from 584p at 31 March 2008. On a diluted basis, the net asset value per share fell 24.0% from 578p to 439p. Adjusted diluted net asset value per share, the measure recommended by The European Public Real Estate Association ('EPRA'), fell by 28.3% to 485p per share (31 March 2008: 676p).




30 September 2008


31 March 

2008


% change

NAV per share basic

443p

584p

(24.1)

NAV per share diluted

439p

578p

(24.0)

NAV per share EPRA¹

485p

676p

(28.3)

Total return per share²

(22.7)%

(9.7)%


¹ The EPRA NAV per share excludes the fair value adjustments for debt and related derivatives and deferred taxation on revaluations and is calculated on a fully diluted basis.

² The total return is calculated by the increase in net assets per the Consolidated Balance Sheet adding back the dividend paid.


Operating Performance

Gross profit for the six months fell by 9.1% to £15.1m (30 September 2007: £16.6m). Within this, gross rental income on directly owned properties fell to £10.8m, down 7.1% from £11.7m in the same period last year. Despite this, cost of sales rose marginally from £1.9m to £2.2m reflecting increased void costs, particularly arising from the new rules relating to void rates. 



30 September 2008

£m


31 March 2008

£m


Directly owned properties

Within joint ventures

Total

Directly owned properties

Within joint ventures

Total

Gross rental income

10.8

10.9

21.7

23.8

17.3

41.1

Contracted annualised rent

21.6

21.8

43.4

21.6

19.1

40.7

ERV*

29.3

25.5

54.8

29.2

20.1

49.3

*ERV is the estimated rental value


There were no disposals of directly owned trading properties during the period. In the same period last year the sale of Westholme Caravan Park gave rise to a £1.5m profit. 


Income from hotel operations relates to the Plaza hotel at Wembley. Gross profit for the period was £2.2m (30 September 2007: £1.9m) before charging administration expenses of £1.3m (30 September 2007: £1.2m). 


Net fees from fund management for the period grew to £3.2m (30 September 2007: £3.0m) reflecting higher levels of funds under management.


Other income rose by £0.6m to £1.0m for the period, with increased income from estate management and service charges and lower abortive project costs.


Administration expenses fell by 25% to £12.9m for the six months. The difference arose in staff costs where in particular the bonus costs in the period were substantially reduced.


Revaluation Surpluses and Deficits

The net revaluation deficit arising from directly held investment properties was £32.2m compared with a deficit of £14.2m for the same period last year. The revaluation movements on joint venture investments are incorporated within the share of profit from joint ventures which is discussed in more detail below. Development property movements are reflected in equity except where deficits arise below cost, in which case the charge and any write-back are included within the Income Statement. In the six months to 30 September 2008 the deficit on development properties reflected in the Income Statement was £1.2m (30 September 2007: deficit £1.1m). Deficits of £182.1m (30 September 2007: gain £69.6m) were reflected in equity.


Profit or Loss from Joint Ventures

The loss from joint ventures in the six months was £8.9m (30 September 2007: profit £14.5m). Before revaluation movements and tax this would have been a profit of £4.3m (30 September 2007: profit £2.3m). This excludes net fees receivable of £3.2m (30 September 2007: £3.0m) in relation to managing the funds. A summarised income statement split by joint venture is included in note 10i to the accounts.


Impairment of Other Non-Current Investments

A full impairment charge of £7.8m has been made against the Group's investment in Serrastone SA. The key factors resulting in this charge are that the product is not yet revenue generating and the future funding of the business is uncertain. There were no equivalent charges for the same period last year.


Finance Expenses

Net finance expenses for the period were £3.5m (30 September 2007: £0.9m). Interest payable has increased to £19.3m (30 September 2007: £13.0m) reflecting higher levels of drawn debt. This is discussed in more detail in the section on financing strategy and capital structure. Interest capitalised in the period of £7.4m (30 September 2007: £5.5m) relates mainly to Wembley (£6.1m) and Greenwich Peninsula (£1.0m). Interest receivable of £5.4m included £1.7m from a loan to a third party which has now been repaid in full and £2.7m from loan notes to joint ventures. The average cost of debt in the period was 6.3% (30 September 2007: 6.9%). This rate continues to fall with the reduction in interest rates after the period end. At 30 September 2008, whilst 100% of our debt was hedged, 45% was floating with caps so benefiting from reduced rates.



30 September 

2008

£m

30 September

2007

£m

Interest payable

(19.3)

(13.0)

Interest capitalised

7.4

5.5

Interest receivable

5.4

4.5

Change in fair value of ineffective interest rate swaps and caps

Foreign currency transfers

(0.1)

(0.2)

0.1

 -

Profit on termination of interest rate swaps

3.3

2.0

Total net finance expenses

(3.5)

(0.9)

 

Taxation

A tax credit of £7.8m has been reflected in the Income Statement (30 September 2007: £4.5m). This arises because of the revaluation deficits in relation to the Company's investment properties.


Balance Sheet

At 30 September 2008, investment properties were valued at £189.0m after a net revaluation deficit of £32.2m. Development properties were valued at £680.0m after a revaluation deficit of £183.3m. Market conditions were very challenging during the period and have remained so after the period end.


For Wembley and Greenwich, the two largest assets in the portfolio, a greater analysis of the valuations and sensitivities is set out below.


Wembley City


£m

As at 1 April 2008

620.0

Capital expenditure

36.7

Capitalised interest

6.1

Valuation deficit

(130.8)

As at 30 September 2008

532.0


The valuation deficit for the six months of £130.8m was driven by a 400 basis point outward movement in the discount rate to 14%. Other factors that caused a reduction in the valuation were falling residential prices and growth rates, with weighted average prices per square foot of £558 down from £606 at 31 March 2008. Near term residential growth rates fell with a further 15% reduction in house prices built in to the end of 2009 on top of the 8% fall to date. Yields on the commercial space moved out over 100 basis points to between 6.25% and 7.75% initial yield. In part mitigating these movements were a 1% reduction in building cost inflation to 4% and a series of management initiatives to add value. These include the exchange of contracts with Brent to build their offices on the North West Lands and positive progress following on from this made in planning terms, supply chain management that has reduced cost, and other revenue initiatives.


Whilst the valuation is a view of what the market may pay at any point in time, it is supported by a discounted cashflow model. This model is based on many assumptions and the table below is included to provide shareholders with a better understanding of the dynamics relating to some of these assumptions. It is a sensitivity analysis and is not necessarily an indication of the Company's view.


Valuation £m


Discount Rate



12.5%

14%

15.5%

Amendment to forecast 

+2%

722

632

556

residential growth rates

  0%

610

532

464


-2%

509

441

381


It is important to note that there is a strong correlation over time between growth rates and construction cost inflation so the impact of movements in growth rates may be materially offset by changes in cost inflation.


Greenwich Peninsula

The valuation below relates to Quintain's interests at Greenwich Peninsula as developer and landowner.


£m

As at 1 April 2008

254.0

Capital expenditure

16.6

Capitalised interest

1.0

Valuation deficit

(49.6)

As at 30 September 2008

222.0


The valuation of Greenwich after a revaluation deficit of £49.6m was £222.0m. This is shown partly in development properties and partly within joint ventures. Residential prices fell from between £550 and £810 per sq ft to £410 to £690 per sq ft. In addition to the 20% fall in house prices to date, the cashflow builds in a further 15% fall to the end of 2009. The discount rate moved out 220 basis points to 14.7%. Commercial yields have moved out 50 basis points to around 7.5%. In part mitigating these movements were a 1% reduction in build cost inflation to 4% and initiatives on supply chain management and deal restructuring. The value of our interests in The O2 rose with the establishment of performance levels and associated income. As for Wembley, varying the discount and growth rates gives the following sensitivities:


Valuation £m


Discount Rate



13.2%

14.7%

16.2%

Amendment to forecast 

+2%

323

285

254

residential growth rates

  0%

249

222

197


-2%

185

166

147


Joint Ventures

As at 30 September 2008, Quintain had net investment in joint ventures totalling £288.9m. More detail is available in note 10i to the accounts.


Capital Commitments

The table below sets out Quintain's contractual capital commitments including our share of any commitments within joint ventures. All these commitments will be funded from existing facilities: £47.1m from Quintain's corporate facility and £67.3m from facilities within joint ventures.



30 September 2008

£m

Group:


  Wembley

26.6

  Others

1.1

Joint ventures:


  iQ

38.0

  BioRegional Quintain

2.8

  Wembley - Quintessential

0.4

  Quercus

4.4

  Quantum

0.2

   Greenwich - N0204 / GPRL

40.9


114.4


Financing Strategy 

Our financing strategy in the medium term is to manage a level of debt that balances the risks to the business with the higher returns on equity achieved through gearing. As described in the Chairman's statement, a30 September 2008 our gearing as defined in our banking covenants stood at 90%. The Company has implemented a programme of asset sales to manage the level of gearing, which in isolation will otherwise rise further due to the Group's committed expenditure. In the near term the impact of sales may well be offset by further falls in asset values.


The weighted average rate of interest of the Group's debt at 30 September 2008 was 6.3% (31 March 2008: 7%). Since the period end base rates were reduced by 200 basis points. This has reduced our projected cost of debt to around 5% as 45% of our debt was not fixed.

  


Covenant

30 September 2008


31 March 2008


Net borrowings


£555.9m

£516.3m

Weighted average debt maturity


5 years

5.5 years

% of net debt hedged


100%

84%

Undrawn committed facilities 




  Group


£154m

£81m

  Joint ventures


£130m

£101m

Banking covenants




Gearing per banking covenants 

110%

90%

60%

Interest cover*

1.25 times

1.5 times

1.7 times

Interest cover pre exceptionals


2.1 times

1.8 times

*Interest cover, per our banking covenants, is defined as operating profit before net finance expenses plus realised surpluses on disposals divided by net finance costs excluding marking to market adjustments.


Interest cover before exceptionals was 2.1 times (31 March 2008: 1.8 times). After providing in full for the investment in Serrastone interest cover was 1.5 times.


Hedging

At 30 September 2008, Quintain's interest rate was 100% hedged (31 March 2008: 84%). The fair value adjustment on these interest rate hedging instruments was a surplus of £2.4m (31 March 2008: deficit £0.5m). Of the movement during the period £0.1m was debited to the Income Statement, being the element relating to non-cashflow hedges and £2.5m credited directly to equity.


Quintain manages its risk in relation to interest rate movements by hedging at least 50% of the exposure and managing these positions to shareholders' benefit whilst not taking market risk. Following the reduction in base rates, in November we fixed a further £100m of debt at 3.0% in order to give us greater certainty of interest costs.


Cashflow

Net cash inflow from operating activities was £7.5m (30 September 2007: outflow £15.4m), with working capital contributing positively for the period.


The purchase and development of property assets of £20.8m and loans to joint ventures and associates of £61.0m more than offset proceeds of £43.1m from the repayment of a non-current receivable. This resulted in a net cash outflow from investing activity of £35.5m.


Key Performance Indicators

Our key performance indicators are as set out in the Group's annual report and accounts for the year ended 31 March 2008. 


Financial Outlook

Conditions within the financial markets remain challenging. Although there is headroom on our gearing covenant that would allow a rise in borrowing of £127m at 30 September 2008 this would be reduced by falling property values and committed capital expenditure. Where possible this impact is being offset by asset disposals resulting in a net cash repatriation since the half year. The Group remains alert to the issue and will keep all options under review. The Group has firmly controlled costs delivering a £5.5m cut to annualised administration expenses. This, alongside our ability to take some advantage of the downward shift in base rates, means that our interest covenant remains well covered.


Risk Management

In addition to those general economic, security and regulatory risks faced by a wide range of companies that are part of the general commercial environment, we consider there to be the following specific risks faced by our Company.


Market conditions 

The income from, and value of, a property will be affected by conditions in the real estate market and wider economy. Factors such as the availability of credit, consumer and corporate confidence, interest rates, planning policy, taxation and other legislation have an impact. As we are currently experiencing, the lack of availability of debt funding is impacting both the pricing and quantum of transactions in the real estate market. For the residential market, availability and pricing of mortgages is a key factor in the current weakness.


Debt funding

Lack of availability of debt generally in the market can reduce the number of purchasers making it more difficult to sell assets, potentially resulting in a reduction in the price that the buyer would be willing to pay. Lack of availability of funds for the regeneration projects could give rise to delays with a follow-on impact on values.


The debt within the Group means that falling property values have a geared impact on shareholders' funds. Property values may decline further. Our headroom over the 110% of net worth covenant (as defined in our loan agreements) was £127m at 30 September 2008. To avoid a breach mitigating action includes a programme of disposals to reduce debt, active management of assets to minimise falls in valuation and dialogue with key stakeholders as to additional courses of action.


Key judgements 

Properties are externally valued twice a year by independent valuers. There is currently less direct evidence of property values because of a lower level of transactions than usual, giving rise to an increased level of uncertainty with respect to the values. This uncertainty is more acute in the case of our large scale urban regeneration projects where there are no direct comparables. 


Valuation risk

In addition to the inherent difficulty in valuing real estate investments and consequent uncertainty, values are subject to short term fluctuations. This is more acute in development properties. As the Group's debt facilities include a corporate gearing covenant, falls in value could lead to potential banking default. In addition the estimates resulting from the valuation process may not reflect actual sales prices, even were such sales to occur shortly after the valuation date.


Development risks

The Group is on site with three developments (and associated infrastructure), two of which are in joint venture. Property development involves certain risks including construction cost inflation, cost overruns and delays to the completion of projects. These and other factors could give rise to losses on individual development projects. To control these risks, Quintain's in-house project management team transfers risk to contractors where possible. The supply chain management programme is creating increased visibility into costs and opportunities for cost reduction, whilst standardisation across Quintain's projects is increasing predictability. The economic recession is reducing pressure on construction costs and we may see construction cost deflation in the near term.


Whilst the Group has a substantial pipeline, we have effectively no further obligations, and will only enter into future commitments where in the judgement of the Board it is financially prudent to do so. 


Counterparty risk

The Group engages in contractual relationships with third parties in the ordinary course of business. The failure of third parties to fulfil their contractual responsibilities, for example, a bank or purchasers defaulting, could place the Group, or its projects at risk. Current exposures are purchasers of investment properties and residential units at Wembley. In addition, if one of the Group's major counterparties defaulted on its obligations to members of the Group, this could have a material effect on the Group. 


Tenant default

Tenants are likely to be facing more difficult operating conditions and there is therefore an increased risk that some may default on their rent payments. However, the large number of tenants and the diversity of their businesses and geographical spread reduces the impact on the Group.


Dependence on key personnel

The Group's future success is substantially dependent on the continued services and contributions of its Directors, senior management and other key personnel. The loss of service of any of the Group's executive officers or other key employees could have a material adverse effect on the business.


  Forward looking statements 

This document includes statements that are, or may be deemed to be, 'forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes'', 'estimates'', 'plans'', 'anticipates'', 'targets'', 'aims'', 'continues'', 'projects'', 'assumes'', 'expects'', 'intends'', 'may'', 'will'', 'would'' or 'should'', or in each case, their negative or other variations or comparable terminology. 

These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this document and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, the Group's result of operations, financial condition, liquidity, prospects, growth strategies and the sectors in which the Group operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements, including without limitation: conditions in the market, market position of the Group, earnings, financial position, cash flows, return on capital, anticipated investments and capital expenditures, changing business or other market conditions and general economic conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein. Forward-looking statements contained in this document based on past trends or activities should not be taken as a representation that such trends or activities will continue in the future.  Subject to the Company's continuing obligations under the Listing Rules, the Disclosure and Transparency Rules and the Prospectus Rules, the Company undertakes no obligation to update publicly or revise any forward looking statements, whether as a result of new information, future events or otherwise.  


  Consolidated Income Statement

for the six months ended 30 September 2008







Notes

Unaudited

Six months ended

30 Sept 2008


£000

Unaudited

Six months ended

30 Sept 2007


£000

Audited

Year ended

31 March 2008


£000



_______

_______

_______






Revenue 

2

20,719

24,018

46,676

Cost of sales

2

(5,643)

_______

(7,434)

_______

(13,986)

_______

Gross profit 


15,076

16,584

32,690






Administrative expenses

4

(12,936)

(17,231)

(27,972)

Exceptional administrative expenses

4

-

(1,479)

(1,485)



_______

_______

_______

Operating profit (loss) before recognition of

  results from non-current asset sales and

  revaluation





2,140



(2,126)



3,233






Profit (loss) from sale of non-current property assets


19

(76)

(3,289)

Gain on revaluation of investment properties


-

3,848

338

Deficit on revaluation of investment properties


(32,181)

(18,030)

(44,661)

Deficit on revaluation of development properties


(1,199)

(1,071)

(5,265)

Share of (loss) profit from joint ventures

10i

(8,944)

14,546

5,532

Share of loss from associate


(107)

-

(65)

Impairment of other non-current investments

10ii

(7,790)

-

-



________

_______

_______

Operating loss before net finance

   expenses



(48,062)


(2,909)


(44,177)






Finance expenses


(8,895)

(5,407)

(20,484)

Finance income


5,362

4,458

9,921



________

_______

_______

Net finance expenses

5

(3,533)

(949)

(10,563)



________

_______

_______

Loss before tax


(51,595)

(3,858)

(54,740)






Current tax


(83)

(134)

2,105

Deferred tax


7,837

4,663

12,511



________

_______

_______

Tax credit for the period 

6i

7,754

4,529

14,616



________

_______

_______

(Loss) profit for the financial period attributable to  

  equity shareholders



(43,841)


671


(40,124)



=======

======

======

Earnings per share (pence):

7i




  basic


(34.3)

0.5

(31.3)



=======

======

======

  diluted


(34.3)

0.5

(31.3)



=======

======

======





























  

Consolidated Statement of Recognised Income and Expense

for the six months ended 30 September 2008








Notes

Unaudited

Six months ended

30 Sept 2008


£000

Unaudited

Six months ended

30 Sept 2007


£000

Audited

Year ended

31 March 2008


£000



________

________

________






Foreign currency translation differences


(4)

184

232

Gain on revaluation of development properties


-

69,574

1,838

Deficit on revaluation of development properties


(182,083)

-

(79,006)

(Deficit) gain on revaluation of other non-current  

  investments


(175)

295

757

Recycling of revaluation movement on other non-current  

  investments

10ii

2,159

-

-

Effective portion of changes in fair value of cashflow  

  hedges, net of recycling


2,522

(259)

(416)

Share of recognised income and expense in joint ventures, 

  net of tax

10i

321

(101)

(702)

Tax on income and expense recognised directly in equity

6ii

53,493

(11,843)

33,082



________

_______

_______

Net (expense) income recognised directly in equity 


(123,767)

57,850

(44,215)

(Loss) profit for the financial period 


(43,841)

671

(40,124)



________

_______

_______

Total recognised income and expense for the financial 

  period


(167,608)

58,521

(84,339)



=======

=======

=======


  Consolidated Balance Sheet

as at 30 September 2008







Notes

Unaudited

As at

30 Sept 2008


£000

Unaudited

As at

30 Sept 2007


£000

Audited

As at

31 March 2008


£000



_______

________

________

Non-current assets





Investment properties

9

189,043

280,768

220,624

Development properties

9

680,030

859,312

843,536

Owner-occupied properties, plant

  and equipment



2,667


1,753


2,757

Investment in joint ventures

10i

288,884

218,075

239,340

Investment in associate


1,050

1,222

1,157

Other non-current investments

10ii

11,008

13,624

15,196

Non-current receivable


-

42,987

42,987



________

________

________

Total non-current assets


1,172,682

1,417,741

1,365,597



________

________

________

Current assets





Trading properties


30,280

14,239

15,518

Trade and other receivables

11

26,192

31,723

39,617

Current investments


4

4

4

Cash and cash equivalents


7,677

30,307

27,982



________

________

________

Total current assets


64,153

76,273

83,121



________

________

________

Total assets


1,236,835

1,494,014

1,448,718



=======

=======

=======

Current liabilities





Trade and other payables

12

(37,822)

(40,727)

(36,308)

Current tax liability


(7,373)

(9,267)

(7,269)



________

________

________

Total current liabilities


(45,195)

(49,994)

(43,577)



________

________

________

Non-current liabilities





Bank loans and other borrowings

13

(560,647)

(378,888)

(541,637)

Deferred tax liability

6iii

(42,308)

(156,341)

(103,638)

Obligations under finance leases


(11,723)

(11,731)

(11,727)

Other payables


(8,849)

-

(2,438)



________

________

________

Total non-current liabilities


(623,527)

(546,960)

(659,440)



________

________

________

Total liabilities


(668,722)

(596,954)

(703,017)



________

________

________

Net assets


568,113

897,060

745,701



=======

=======

=======

Equity





Issued capital

16

32,511

32,460

32,483

Share premium account

15

51,518

50,895

51,343

Revaluation reserve

15

201,460

424,370

327,360

Other capital reserves

15

108,136

108,136

108,136

Cashflow hedge reserve

15

1,815

311

(322)

Translation reserve

15

314

270

318

Retained earnings

15

184,299

289,962

238,805

Own shares held reserve

15

(11,940)

(9,344)

(12,422)



________

________

________

Equity shareholders' funds


568,113

897,060

745,701



=======

=======

=======

Net asset value per share (pence):

7ii




  basic


443

700

584



=======

=======

=======

  diluted


439

693

578



=======

=======

=======


  

Consolidated Cashflow Statement 

for the six months ended 30 September 2008






Unaudited

Six months ended

30 Sept 2008


£000

Unaudited

Six months ended

30 Sept 2007


£000

Audited

Year ended

31 March 2008


£000



_______

________

_______

Operating activities





(Loss) profit for the financial period


(43,841)

671

(40,124)

Adjustments for:





Depreciation of plant and equipment


399

306

622

Cost relating to share-based payment schemes


760

2,958

2,147

Net finance expenses


3,533

949

10,563

(Profit) loss on sale of properties held as non-current assets 


(19)

76

3,289

Profit on sale of trading properties


-

-

(1,558)

Gain on revaluation of investment properties 


-

(3,848)

(338)

Deficit on revaluation of investment properties


32,181

18,030

44,661

Deficit on revaluation of development properties


1,199

1,071

5,265

Share of loss (profit) from joint ventures 


8,944

(14,546)

(5,532)

Share of loss from associate


107

-

65

(Profit) loss from sale of plant and equipment


(4)

2

2

Impairment of other investments


7,790

-

-

Tax on continuing operations


(7,754)

(4,529)

(14,616)



______

________

________



3,295

1,140

4,446

Decrease (increase) in trade and other receivables


9,203

(4,248)

(8,352)

Increase in trade and other payables


10,946

3,094

1,915

Increase in trading properties


(8,925)

(3,963)

(3,417)



­­_______

________

________

Cash generated from operations


14,519

(3,977)

(5,408)

Interest paid


(14,045)

(15,742)

(36,753)

Interest received


2,990

4,472

8,527

Tax recovered (paid)


3,986

(162)

(310)



_______

________

________

Net cashflow from operating activities


7,450

======

(15,409)

=======

(33,944)

=======

Investing activities





Purchase and development of property assets


(20,753)

(36,102)

(168,362)

Purchase of plant and equipment


(387)

(557)

(1,911)

Proceeds from sales of non-current assets


6,519

53,999

81,403

Tax paid on sales of non-current assets


(4,048)

-

-

Loans to joint ventures and associate


(61,010)

(33,225)

(64,718)

Distributions received from joint ventures


2,751

2,283

3,130

Acquisition of other investments


(1,618)

(10,284)

(11,398)

Proceeds from non-current receivable


43,081

2,461

2,362



________

________

________

Net cashflow from investing activities


(35,465)

=======

(21,425)

=======

(159,494)

=======

Financing activities





Issue of shares


132

59

239

Investment in own shares


-

-

(3,078)

Proceeds from new borrowings


217,000

183,000

980,769

Repayment of borrowings


(197,600)

(141,000)

(775,269)

Payment of loan issue costs


(537)

(248)

(3,276)

Payment of finance lease liabilities


(409)

(410)

(819)

Equity dividends paid 


(10,872)

(10,576)

(15,366)



________

________

________

Net cashflow from financing activities



7,714

=======

30,825

=======

183,200

=======


Net decrease in cash and cash equivalents



(20,301)


(6,009)


(10,238)

Cash and cash equivalents at start of period


27,982

36,048

36,048

Effect of exchange rate fluctuations on cash held


(4)

268

2,172



________

________

________

Cash and cash equivalents at end of period



7,677

=======

30,307

=======

27,982

=======

  

Notes to the accounts

for the six months ended 30 September 2008


1. Accounting policies


The comparative figures for the financial year ended 31 March 2008 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 237(2) or (3) of the Companies Act 1985. These accounts are available on the Company's website (www.quintain-estates.com). 


The statements have been prepared in accordance with IAS 34, 'Interim Financial Reporting' with the significant accounting policies set out on pages 102 to 106 of the 2008 Annual Report and Accounts. The interim results have been prepared on a going concern basis and the assumptions regarding estimates and uncertainties are disclosed under the Risk Management section in the Financial Review. 


The Group's financial performance does not suffer materially from seasonal fluctuations.  As the Group's investment and development properties are measured at market value, the current prolonged decline in the real estate market has had a material effect on these values.  The changes in the market value of properties are disclosed in notes 9 and 10 and discussed under the Risk Management section in the Financial Review. In addition, the investment in Serrastone SA has been fully impaired in the period - see note 10ii. There have been no other changes in estimates of amounts reported in prior periods which have a material impact on these interim results. There have been no material changes in reportable contingent liabilities since 31 March 2008.


The preparation of the condensed interim financial statements under IFRS requires the Board to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities as at the date of the financial statements and the reported amount of revenue and expense during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements that are not readily apparent from other sources. However, the actual results may differ from these estimates.  

     

The measurement of fair value constitutes the main area of judgement exercised by the Board in respect of the Group's results. In relation to the Group's investment and development properties, the Board has relied upon the external valuations carried out by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The principal valuers of the Group's investment and development properties are Savills Commercial Limited and Jones Lang LaSalle Limited, while Christie + Co have valued the investment properties within Quercus, the Group's largest joint venture.  


The Board has also exercised its judgement in relation to the recognition of deferred tax assets, the estimation of the tax rate for the six month period using the tax rate expected to be applicable to the full year's results, the measurement of the fair value of derivative financial instruments, for which the Board has relied on the valuation carried out by JC Rathbone Associates Limited and in assessing the recoverability of trade receivables by reference to their age and the ability of debtors to pay. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.     


These condensed consolidated Interim Financial Statements were approved by the Board of Directors on 27 November 2008.


The following new standards, amendments to standards and interpretations have been issued but are not effective for the financial period beginning 1 April 2008 and have not been adopted early:  


- IFRS 8 'Operating Segments', effective for annual periods beginning on or after 1 January 2009. 

  IFRS 8 replaces IAS 14,'Segment Reporting' and requires that segment information is presented on the same basis as that used for internal 

   management reporting. The directors are assessing the expected impact in detail but it appears unlikely that this will have a significant impact on

   the Group's disclosures.


 IAS (amendment), 'Presentation of Financial Statements', effective for annual periods beginning on or after 1 January 2009.  

  The Board will prepare proforma accounts under the revised disclosure requirements of this standard for the period beginning 1 April 2009. 


 IFRIC 15, 'Agreements for the Construction of Real Estate', effective for annual periods beginning on or after 1 January 2009. 

  The Board is evaluating the effect of this interpretation on the revenue recognition of certain sales contracts.








2. Revenue, cost of sales and gross profit



Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Revenue


£000

Cost of

sales

£000

Gross 

profit

£000

Revenue


£000

Cost of

sales

£000

Gross

profit

£000

Revenue


£000

Cost of

sales

£000

Gross

profit

£000


_______

_______

_______

_______

_______

_______

_______

_______

_______











Rental income 

10,828

(2,221)

8,607

11,659

(1,878)

9,781

23,843

(4,804)

19,039

Income from 

  sale of trading 

  properties



-



-



-



3,000



(1,546)



1,454



3,000



(1,580)



1,420

Income from

  hotel

  operations



3,975



(1,773)



2,202



3,546



(1,634)



1,912



6,926



(3,350)



3,576

Fees from fund

  management and

  other services

  provided to

  related parties





4,062





(827)





3,235





3,959





(984)





2,975





10,120





(1,910)





8,210

Other income

1,854

(822)

1,032

1,854

(1,392)

462

2,787

(2,342)

445


_______

_______

_______

_______

_______

_______

_______

_______

_______


20,719

======

(5,643)

======

15,076

======

24,018

======

(7,434)

======

16,584

======

46,676

======

(13,986)

======

32,690

======


There were no contingent rents in the current period or the comparative period though £344,000 arose in the second half of the year ended 31 March 2008 and was recognised in the accounts for that year.


The analysis of rental income and the related cost of sales (direct operating expenses) between investment and development properties was as follows: 



Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Revenue


£000

Cost of

sales

£000

Gross

profit

£000

Revenue


£000

Cost of

sales

£000

Gross

profit

£000

Revenue


£000

Cost of

sales

£000

Gross

profit

£000


_______

_______

_______

_______

_______

_______

_______

_______

_______











Investment  

  properties


7,073


(934)


6,139


9,117


(1,032)


8,085


17,584


(2,232)


15,352

Development 

  properties 


3,755


(1,287)


2,468


2,542


(846)


1,696


6,259


(2,572)


3,687


_______

________

_______

_______

_______

_______

_______

_______

_______


10,828

(2,221)

8,607

11,659

(1,878)

9,781

23,843

(4,804)

19,039


======

=======

======

======

======

======

======

======

======


Other income related to:



Unaudited

Six

months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2007


 Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Revenue


£000

Cost of

sales

£000

Gross

profit

£000

Revenue


£000

Cost of

sales

£000

Gross

profit

£000

Revenue


£000

Cost of

sales

£000

Gross

profit

£000


_______

_______

_______

_______

_______

_______

_______

_______

_______











Surrender

  premiums


119


-

119


92


-


92


356


-


356

Management

  fees and 

  commissions



1,164



(275)



889



1,114



(758)



356



1,378



(942)



436

Car parking 

  income


449


(133)


316


386


(105)


281


731


(202)


529

Abortive project

  costs


-


(258)


(258)


-


(419)


(419)


-


(826)


(826)

Sundry income

122

(156)

(34)

262

(110)

152

322

(372)

(50)


_______

_______

_______

_______

_______

_______

_______

_______

_______


1,854

======

(822)

======

1,032

 ======

1,854

======

(1,392)

======

462

======

2,787

======

(2,342)

======

445

======

  3. Segmental analysis


The Group's primary segments are its business segments, the results of which were as follows:



Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2008

Unaudited

Six months

ended

30 Sept

2008


Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Unaudited

Six months

ended

30 Sept

2007


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Audited

Year 

ended

31 March

2008


Revenue


Gross

           profit

Loss

before

tax

Revenue


Gross 

profit

Loss before

tax

Revenue


Gross

profit

Loss

before 

tax


£000

£000

£000

£000

£000

£000

£000

£000

£000


_______

_______

_______

_______

_______

_______

_______

_______

_______

Investment 

  portfolio


6,748


5,422


(14,850)


7,497


5,846


(12,305)


14,555


11,232


(36,422)

Special projects

10,259

6,833

(8,125)

9,447

6,595

15,410

19,222

12,909

16,847

Fund

  management


3,712


2,821


(12,151)


7,074


4,143


12,696


12,899


8,549


4,855


_______

_______

_______

_______

_______

_______

_______

_______

_______


20,719

======

15,076

======

(35,126)


24,018

======

16,584

======

15,801


46,676

======

32,690

======

(14,720)


Administrative

  expenses



(12,936)



(17,231)



(27,972)

Exceptional 

  administrative

  expenses



-



(1,479)



(1,485)




_______



_______



_______

Operating loss

  before net

  finance  

  expenses



(48,062)



(2,909)



(44,177)

Net finance

  expenses



(3,533)



(949)



(10,563)




_______



______



_______

Loss before tax



(51,595)



(3,858)



(54,740)




======



=====



======


 
Unaudited
As at
30 Sept
2008
Unaudited
As at
30 Sept
2008
Unaudited
As at
30 Sept
2008
Unaudited
As at
30 Sept
2007
Unaudited
As at
30 Sept
2007
Unaudited
As at
30 Sept
2007
Audited
As at
31 March
2008
Audited
As at
31 March
2008
Audited
As at
31 March
2008
 
Investment
and
development
properties
£000
Joint
ventures
and
associate
£000
Total
revaluation
movement
 
£000
Investment
and
development
properties
£000
Joint
ventures
and
associate
£000
Total
revaluation
movement
 
£000
Investment
and
development
properties
£000
Joint
ventures
and
associate
£000
Total
revaluation
movement
 
£000
 
_______
_______
_______
_______
_______
_______
_______
_______
_______
Investment
   portfolio
159,159
 
-
(20,296)
 
244,039
 
-
 
(18,473)
 
178,855
 
-
 
(44,425)
Special projects
691,979
99,578
(188,854)
880,556
58,952
80,157
864,780
79,254
(69,667)
Fund
   management
 
17,935
 
190,356
 
(23,764)
 
15,485
 
160,345
 
8,391
 
20,525
 
161,243
 
(11,855)
 
_________
________
________
_________
_______
_______
_________
_______
_______
 
869,073
========
289,934
=======
(232,914)
=======
1,140,080
========
219,297
======
70,075
======
1,064,160
========
240,497
======
(125,947)
======

 

4. Administrative expenses 



Unaudited

Six months ended

30 Sept 2008

£000

Unaudited

Six months ended

30 Sept 2007

£000

Audited

Year ended

31 March 2008

£000



_______

_______

_______






Directors' remuneration


1,853

3,556

3,829

Other staff costs


5,858

8,856

13,784



_______

_______

_______

Total staff costs


7,711

12,412

17,613

Legal and other professional fees


2,099

1,532

3,632

Office costs


1,912

2,282

4,645

(Profit) loss on sale of plant and equipment


(4)

2

2

Depreciation of tangible fixed assets 


399

306

622

Operating lease payments


535

429

944

General expenses


284

268

514



_______

_______

_______

Total administrative expenses


12,936

17,231

27,972



======

======

======

The exceptional administrative expenses incurred in the prior periods (30 September 2007: £1,479,000, 31 March 2008: £1,485,000) related to bid defence fees and fees in relation to advice on the valuation of the Group's assets in addition to its normal valuation fees.  



5. Net finance expenses 



Unaudited

Six months ended

30 Sept 2008

£000

Unaudited

Six months ended

30 Sept 2007

£000

Audited

Year ended

31 March 2008

£000



_______

_______

_______






Interest payable on bank loans and overdrafts


18,679

12,296

30,205

Interest payable on other loans


257

284

542

Loan costs written-off on refinancing


-

-

2,798

Interest on obligations under finance leases


406

410

812



_______

_______

_______



19,342

12,990

34,357

Interest capitalised


(7,427)

(5,457)

(12,022)



_______

_______

_______



11,915

7,533

22,335

Profit realised on termination of interest rate swaps and caps


(3,297)

(1,986)

(1,779)

Change in fair value of interest rate swaps and caps


132

(140)

(72)

Loss on foreign currency transfers


145

-

-



_______

_______

_______

Finance expenses


8,895

5,407

20,484

Finance income: interest receivable 


(5,362)

(4,458)

(9,921)



_______

_______

_______

Net finance expenses


3,533

949

10,563



======

======

======






Of interest capitalised in the period, the amount capitalised to development properties was £7,110,000 (30 September 2007: £5,457,000, 31 March 2008: £11,592,000) and trading properties £317,000 (30 September 2007: £nil, 31 March 2008: £430,000). The average interest rate used for capitalisation was 6.3% (30 September 2007: 6.9%, 31 March 2008: 7.0%).


In accordance with IAS 39, 'Financial Instruments: Recognition and Measurement', the Group has reviewed its interest rate caps together with the interest rate hedges within its joint ventures in existence as at 30 September 2008. As assessed by JC Rathbone Associates Limited, movements in fair value of the elements of those viewed as effective have been recognised through equity while all other movements, including those relating to the ineffective elements of effective hedges, are reflected in the Income Statement.


6. Tax


i) Tax charge on profit




Unaudited

Six months ended

30 Sept 2008

£000

Unaudited 

Six months ended

30 Sept 2007

£000

Audited 

Year ended

31 March 2008

£000



_______

_______

_______






UK current tax at 28% (30 September 2007 and 31 March 2008: 30%)


-

-

-

Adjustments to prior years' UK corporation tax


-

-

(2,439)



_______

_______

_______



-

-

(2,439)

Overseas tax


83

134

334



_______

_______

_______

Total current tax charge (credit)


83

134

(2,105)



_______

_______

_______






Deferred tax (note 6 iii)


(7,837)

(4,663)

(12,511)



_______

_______

_______

Tax credit


(7,754)

(4,529)

(14,616)



======

======

======


ii) Tax recognised directly in equity 




Unaudited

Six months ended

30 Sept  2008

£000

_______

Unaudited

Six months ended

30 Sept 2007

£000

_______

Audited

Year ended

31 March 2008

£000

_______






Deferred tax (credit) charge on revaluation of development

  properties


(54,199)

11,843

(32,957)

Deferred tax charge (credit) on effective element of interest rate    

  swaps



706


-


(125)



_______

_______

_______



(53,493)

11,843

(33,082)



======

======

======



iii) Deferred tax movements



Audited



Unaudited

Unaudited


1 April

2008

£000

Recognised

in income

£000

Recognised

in equity

£000

30 Sept 

2008

£000

30 Sept

2007

£000


______

_________

_________

_________

_________







Capital gains less capital losses

104,859

(7,488)

(54,199)

43,172

155,330

Capital allowances

6,200

538

-

6,738

4,577

Derivative financial instruments

(63)

22

706

665

(89)

Other temporary differences

245

157

-

402

273

Revenue tax losses

(7,603)

(1,066)

-

(8,669)

(3,750)


_______

_______

_______

________

_______

Deferred tax provision

103,638

(7,837)

(53,493)

42,308

156,341


======

======

======

=======

======


7. Earnings per share and net asset value per share


i) Earnings per share



Unaudited

Six months

ended

30 Sept 

2008

Loss after 

tax



£000

Unaudited

Six months

ended

30 Sept 2008

Weighted

average

number

of shares

000

Unaudited

Six months

ended

30 Sept

2008

Earnings

per share



pence

Unaudited

Six months

ended

30 Sept 

2007

Profit after

tax 



£000

Unaudited

Six months

ended 

30 Sept 

2007

Weighted 

average

number

of shares

000

Unaudited

Six months

ended

30 Sept 

2007

Earnings 

per share



pence

Audited

Year 

ended

31 March 

2008

Loss after 

tax



£000

Audited

Year

ended

31 March 2008

Weighted 

average

number

of shares

000

Audited

Year

ended

31 March 2008

Earnings

per share



pence


_______

_______

_______

_______

_______

_______

_______

_______

_______











Basic

(43,841)

127,871

(34.3)

671

128,200

0.5

(40,124)

128,184

(31.3)




=====



===



=====

Adjustments:










  Employee 

  share-based 

  payment

  schemes




-




-








-




1,287








-




-



_______

_______


____

_______


_______

_______


Diluted

(43,841)

127,871

(34.3)

671

129,487

0.5

(40,124)

128,184

(31.3)


======

======

=====

====

======

===

======

======

=====













ii) Net asset value per share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unaudited
As at
30 Sept
2008
 
Unaudited
As at
30 Sept
2008
 
Unaudited
As at
30 Sept
2008
 
Unaudited
As at
30 Sept
2007
 
Unaudited
As at
30 Sept
2007
 
Unaudited
As at
30 Sept
2007
 
Audited
As at
31 March
2008
 
Audited
As at
31 March
2008
 
Audited
As at
31 March
2008
 
Equity
shareholders’
funds
£000
Number
of shares
 
000
Net asset
value
per share
pence
Equity
shareholders’
funds
£000
Number
of shares
 
000
Net asset
value
per share
pence
Equity
shareholders
funds
£000
Number
of shares
 
000
Net asset
value
per share
pence
 
_______
_______
____
_______
_______
____
_______
_______
____
 
 
 
 
 
 
 
 
 
 
Basic
568,113
128,212
443
897,060
128,212
700
745,701
127,790
584
 
 
 
===
 
 
===
 
 
===
Adjustments:
 
 
 
 
 
 
 
 
 
   Employee
     share-based
     payment
     schemes
3,474
1,878
 
 
10,418
2,646
 
 
 
 
9,156
 
2,807
 
 
 
_______
_______
 
_______
_______
 
_______
_______
 
Diluted
571,587
======
130,090
======
439
===
907,478
======
130,858
======
693
===
754,857
======
130,597
======
578
===


The number of shares in issue has been adjusted for the 2,059,388 (30 September 2007: 1,627,414, 31 March 2008: 2,139,973) shares held by ESOP Trusts and by the Group as treasury shares.


Entitlements under the Executive Directors' Performance Share Plan have been excluded from the calculation in both i) and ii) above as the commitments relate to contingently issuable shares where the conditions had not been met at the Balance Sheet date.





8Dividends


The Board does not propose to pay an interim dividend (2007: 3.75p). The 2007 interim dividend was not included as a liability as at 30 September 2007.

The final dividend of £10,872,000 for the year ended 31 March 2008, representing 8.50p per share, was paid on 8 September 2008 and is included in the reconciliation of movements in equity. 


9Investment and development properties


The movements in the period in investment and development properties were as follows:





Investment

properties

£000 


Development 

properties

£000

Unaudited

Total


£000



_________

_______

_______

Cost or valuation:





Balance 1 April 2008


220,624

843,536

1,064,160

Transfer to trading properties


-

(5,812)

(5,812)

Additions


600

18,478

19,078

Interest capitalised


-

7,110

7,110

Revaluation deficit


(32,181)

(183,282)

(215,463)



________

_______

_______

Balance 30 September 2008


189,043

680,030

869,073



=======

======

======


All of the Group's properties were externally valued as at 30 September 2008 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 holdings at Greenwich and Wembley have been valued by Savills Commercial Limited. The discount rates which have been applied in relation to these developments were 14.7% for the Greenwich interests and 14% for the Wembley development. Other properties in the United Kingdom have been valued by Jones Lang LaSalle Limited and Christie + Co. Properties in the Channel Islands have been valued by Guy Gothard & Co.



A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the Balance Sheet was as follows:



 

As at 

30 Sept 2008 

Investment 

properties

£000


As at

30 Sept 2008 

Development

properties

£000

Unaudited

As at 

30 Sept 2008 

Total


£000


As at 

31 March 2008 

Investment 

properties

£000


As at

31 March 2008

Development 

properties

£000

Audited 

As at 

31 March 2008

Total


£000


__________

___________

__________

___________

___________

___________

Investment and development  

  properties at market value as

  determined by valuers



187,615



670,427



858,042



219,144



833,860



1,053,004

Adjustment in respect of rent-  

  free periods and other tenant

  incentives



(538)



(178)



(716)



(486)



(105)



(591)

Adjustment in respect of  

  minimum payments under  

  head leases separately included

  as a liability in the Balance Sheet




1,966




9,781




11,747




1,966




9,781




11,747


_______

_______

_______

________

_______

________


189,043

680,030

869,073

220,624

843,536

1,064,160


======

======

======

=======

======

=======


10. Non-current investments


i) Investment in joint ventures


a) The movement in investment in joint ventures was as follows:




Share of 

net assets

£000


Advances


£000

Unaudited

Total


£000



_______

_______

_______






Balance 1 April 2008


71,974

167,366

239,340

Amounts advanced


-

61,010

61,010

Distributions


(2,843)

-

(2,843)

Share of loss, net of tax


(8,944)

-

(8,944)

Share of effective portion of changes in fair value of cashflow hedges,

  net of tax  



321


-


321



_______

_______

_______

Balance 30 September 2008


60,508

228,376

288,884



======

======

======





b) The Group's interest in its principal joint ventures was as follows:



% of share capital held

Country of incorporation

Principal joint venture partners



_________

___________

_________________________






Quercus Healthcare Property Unit Trust (Quercus) 


29.74

Channel Islands

Norwich Union Life & Pensions Limited

Greenwich Peninsula Regeneration Limited (GPRL)


50.00

United Kingdom

Lend Lease Europe Limited

Meridian Delta Dome Limited (MDDL)


49.00

United Kingdom

Lend Lease Europe Limited

Greenwich Peninsula N0204 Block A&B Unit Trusts

  (Greenwich Peninsula N0204) 


50.00

Channel Islands

Lend Lease N0204 Block A Limited/

Lend Lease N0204 Block B Limited

iQ Unit Trust (iQ) 


50.00

Channel Islands 

Wellcome Trust Investment 

Limited Partnership

Quantum Unit Trust (Quantum)


50.00

Channel Islands

CGNU Life Assurance Limited

Quintessential Homes (Wembley) LLP (Quintessential) 


50.02

United Kingdom

Geninvest Limited/

Family Housing Development

Company Limited  

BioRegional Quintain Limited (BioRegional)


49.90

United Kingdom

BioRegional Properties Limited

South East Properties (Redhill) Limited


50.00

United Kingdom

South East Properties Limited


c) The Group's share of the results of its joint venture operations was as follows:


Summarised income statements 

  for the six months ended 30 September 2008










Quercus



£000


GPRL/

MDDL


£000


Greenwich 

Peninsula

N0204

£000


iQ



£000


Quantum



£000


Quint-

essential


£000


BioRegional



£000


Other

joint

ventures

£000

Unaudited

Group share

in joint

ventures

£000


_______

_______

________

_______

_______

_______

_______

_______

_______











Rental income

8,982

427

-

1,314

160

-

-

-

10,883

Proceeds from sale of

  trading properties


-


-


-


-


-


15,724


-


-


15,724

Other income

-

244

-

-

-

-

41

-

285


_______

_______

______

______

_______

_______

_______

_______

_______


8,982

671

-

1,314

160

15,724

41

-

26,892

Cost of sales 

-

(165)

-

(608)

(61)

(15,062)

-

-

(15,896)


______

______

______

______

_______

_______

_______

_______

_______

Gross profit

8,982

506

-

706

99

662

41

-

10,996

Administrative expenses

(1,374)

(308)

(12)

(808)

(32)

(18)

(174)

-

(2,726)


______

_______

______

______

_______

_______

_______

_______

_______

Operating profit (loss)  

  before

  recognition of results from

  non-current asset sales and

  revaluation  

7,608

198

(12)

(102)

67

644

(133)

-

8,270

Loss from sale of non-

  current 

  property assets  



(155)



-



-



-



-



-



-



-



(155)

(Deficit) gain on revaluation 

  of investment properties  


(14,551)


3,724


-


(6,396)


(85)


-


-


-


(17,308)

Share of loss from joint

  ventures


-


-


-


-


-


-


(117)


-


(117)


_______

_______

______

_______

_______

_______

_______

_______

_______

Operating (loss) profit

(7,098)

3,922

(12)

(6,498)

(18)

644

(250)

-

(9,310)

Finance expenses

(3,523)

-

-

(863)

-

(73)

(192)

(972)

(5,623)

Finance income

362

9

-

73

50

32

16

1,380

1,922


_______

_______

______

______

_______

_______

_______

_______

_______

(Loss) profit before 

  taxation


(10,259)


3,931


(12)


(7,288)


32


603


(426)


408


(13,011)

Taxation

3,598

(1,137) 

-

1,581

21

-

-

4

4,067


_______

_______

______

_______

_______

_______

_______

_______

_______

(Loss) profit after

  taxation


(6,661)


2,794


(12)


(5,707)


53


603


(426)


412


(8,944)


======

======

======

=====

======

======

======

======

======

  

Summarised balance sheets

  as at 30 September 2008




















Quercus



£000


GPRL/

MDDL


£000


Greenwich 

Peninsula

N0204

£000


iQ



£000


Quantum



£000


Quint-

essential


£000


BioRegional



£000


Other

joint

ventures

£000

Unaudited

Group share

in joint

ventures

£000


_______

_______

________

_______

_______

_______

_______

_______

_______











Investment properties

251,359

-

-

64,975

3,520

-

-

-

319,854

Development properties

2,400

19,600

29,275

19,388

2,415

-

-

-

73,078

Investment in joint 

  ventures


-


922


-


-


-


-


2,261


-


3,183

Trading properties

-

42,407

-

-

-

15,311

2,318

-

60,036

Other assets

13,398

24,129

-

5,836

439

1,915

6,205

3,646

55,568


______

______

______

_____

______

______

_____

_____

______

Gross assets 

267,157

87,058

29,275

90,199

6,374

17,226

10,784

3,646

511,719

Current liabilities:










Bank loans and other

  borrowings


-


-


-


-


-


(4,219)


-


(444)


(4,663)

Current tax liability

(1,338)

(163)

-

-

(28)

-

-

(299)

(1,828)

Non-current liabilities:










Bank loans and other

  borrowings


(115,151)


-


-


(49,542)


-


-


-


-


(164,693)

Deferred tax (liability)

  asset


(5,830)


(5,566)


34


1,200


62


-


-


(16)


(10,116)

Other liabilities

(735)

(16,842)

(12,689)

(2,720)

(342)

(6,213)

(1,994)

-

(41,535)


______

_______

_______

______

______

_______

______

______

_______

Net external assets

144,103

64,487

16,620

39,137

6,066

6,794

8,790

2,887

288,884


======

======

======

=====

======

======

======

======

======

Represented by:










  Capital

40,546

15,145

(96)

(2,341)

(260)

6,254

(1,251)

2,511

60,508

  Loans

103,557

49,342

16,716

41,478

6,326

540

10,041

376

228,376


_______

______

______

______

______

______

______

______

_______

Total investment

144,103

64,487

16,620

39,137

6,066

6,794

8,790

2,887

288,884


======

======

======

======

======

======

======

======

======












The valuation of investment properties held within Quercus as at 30 September 2008 was performed by Christie + Co, Chartered Surveyors, as external valuers, on the basis of open market value and in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. Properties within the Greenwich joint ventures and the iQ Unit Trust were valued by Savills Commercial Limited and those within the Quantum Unit Trust by CBRE Richard Ellis.


  

Summarised income statements 

  for the six months ended 30 September 2007











Quercus



£000


GPRL/

MDDL


£000


iQ



£000


Quantum



£000


Quint-

essential



£000


BioRegional



£000


Other

joint 

ventures

£000

Unaudited

Group share

in joint

ventures

£000



______

______

______

______

_____

_____

______

______











Rental income


6,595

95

542

-

-

-

-

7,232

Other income


-

-

-

-

-

5

-

5



______

______

______

______

_____

_____

______

______



6,595

95

542

-

-

5

-

7,237

Cost of sales


-

(96)

(293)

(4)

-

-

(2)

(395)



______

______

______

______

_____

_____

______

______

Gross profit (loss)


6,595

(1)

249

(4)

-

5

(2)

6,842

Administrative expenses


(782)

(65)

(691)

(2)

(34)

(138)

(167)

(1,879)



______

______

______

______

_____

_____

______

______

Operating profit (loss) before 

  recognition of results from  

  non-current asset sales and

  revaluation 


5,813

(66)

(442)

(6)

(34)

(133)

(169)

4,963

Profit from sale of non-

  current property assets



185


-


-


-


-


-


-


185

Gain on revaluation

  of investment properties



8,355


6,763


636


-


-


-


-


15,754



______

______

______

______

______

______

______

______

Operating profit (loss) 


14,353

6,697

194

(6)

(34)

(133)

(169)

20,902

Finance expenses


(2,675)

-

(383)

-

-

(63)

(2)

(3,123)

Finance income


129

-

49

10

42

4

-

234



______

______

______

______

______

______

______

______

Profit (loss) before taxation


11,807

6,697

(140)

4

8

(192)

(171)

18,013

Taxation


(1,839)

(1,488)

(140)

-

-

-

-

(3,467)



______

______

______

______

______

______

______

______

Profit (loss) after taxation


9,968

5,209

(280)

4

8

(192)

(171)

14,546



======

=====

=====

=====

======

=====

=====

=====











Summarised balance sheets

  as at 30 September 2007





















Quercus



£000


GPRL/

MDDL


£000


iQ



£000


Quantum



£000


Quint-

essential


£000


BioRegional



£000


Other

joint 

ventures

£000

Unaudited

Group share

in joint

ventures

£000



_______

_______

_______

_______

_______

_______

_______

_______











Investment properties


237,520

-

40,075

-

-

-

-

277,595

Development properties


559

13,013

19,667

1,216

-

-

-

34,455

Trading properties


-

34,472

-

-

17,352

2,735

-

54,559

Other assets


13,262

3,810

4,325

371

-

4,691

3,094

29,553



______

______

_____

______

______

_____

_____

______

Gross assets 


251,341

51,295

64,067

1,587

17,352

7,426

3,094

396,162

Current liabilities:










Current tax liability


(1,353)

-

-

-

-

-

-

(1,353)

Non-current liabilities:










Bank loans and other  

  borrowings



(98,569)


-


(30,905)


-


-


(602)


-


(130,076)

Deferred tax liability 


(13,735)

(3,308)

(1,973)

-

-

-

(318)

(19,334)

Other liabilities


(7,159)

(3,272)

(3,939)

(239)

(11,809)

(787)

(119)

(27,324)



______

______

______

_____

_______

_____

_____

_______

Net external assets


130,525

44,715

27,250

1,348

5,543

6,037

2,657

218,075



======

=====

=====

======

======

=====

=====

======

Represented by:










  Capital


59,988

10,602

4,079

28

5,543

(517)

2,479

82,202

   Loans


70,537

34,113

23,171

1,320

-

6,554

178

135,873



______

_____

_____

_____

_____

______

_____

_______

Total investment


130,525

44,715

27,250

1,348

5,543

6,037

2,657

218,075



======

=====

=====

=====

=====

======

=====

======


  

ii) Other non-current investments


The movement in other non-current investments, all of which have been classified as available for sale, was as follows:







Unaudited

£000





_______

Unquoted investments:





Balance 1 April 2008




15,196

Additions




1,618

Impairment as charged in the Income Statement




(7,790)

Recycling of revaluation movement from earlier periods




2,159

Revaluation deficit




(175)





_______

Balance 30 September 2008




11,008





======

An impairment loss of £7,790,000 was recognised in the Income Statement in relation to the Special projects business segment against the Group's investment in Serrastone SA following a revision of cashflow forecasts as a result of current economic conditions.



11. Trade and other receivables




Unaudited

30 Sept 2008

£000

Unaudited

30 Sept 2007

£000

Audited

31 March 2008

£000



_______

_______

_______






Trade receivables


14,133

14,562

20,660

Amounts due under contracts for sale


-

6,500

6,898

Other receivables


7,831

6,676

6,500



_______

_______

_______

Trade and other receivables


21,964

27,738

34,058

Prepayments and accrued income


4,228

3,985

5,559



_______

_______

_______



26,192

31,723

39,617



======

======

======


12Trade and other payables




Unaudited

30 Sept 2008

£000

Unaudited

30 Sept 2007

£000

Audited

31 March 2008

£000



_______

_______

_______






Trade payables


3,208

6,433

2,809

Other payables


13,107

11,864

10,963

Accruals


21,507

22,430

22,536



_______

_______

_______



37,822

40,727

36,308



======

======

======


13. Bank loans and other borrowings




Unaudited

30 Sept 2008

£000

Unaudited

30 Sept 2007

£000

Audited

31 March 2008

£000



_______

_______

_______

Non-current liabilities:





Bank loans  


558,554

374,050

536,830

10% first mortgage debenture stock 2011 (secured)


2,093

4,838

4,807



_______

_______

_______



560,647

378,888

541,637



======

======

======


The weighted average tenure of the Group's debt is five years (31 March 2008: 5.5 years) and the weighted average cost of debt was 6.3%

(31 March 2008: 7.0%). The loans are secured by floating charges over assets owned by subsidiary undertakings.


The 10% first mortgage debenture stock 2011 issued by Estates Property Investment Company Limited is secured by a cash deposit of £3,276,000 and has a redemption value of £1,971,000. The premium over par arising from fair valuing the debenture on acquisition is amortised over its remaining life.




  a) The maturity profile of the Group's debt was as follows:




Unaudited

Unaudited

Audited

Unaudited

Unaudited

Audited


30 Sept

2008

Bank loans

and overdrafts

30 Sept

2008

Other loans

30 Sept

2008

Total debt

30 Sept 

2007

Total debt

31 March

2008

Total debt


30 Sept 

2008

Undrawn 

facilities

30 Sept

2007

Undrawn 

facilities

31 March

2008

Undrawn

facilities


£000

£000

£000

£000

£000

£000

£000

£000


_______

_______

_______

_______

_______

_______

_______

_______










From one to two years

74,609

-

74,609

-

-

20,000

-

-

From two to five years

174,073

2,093

176,166

378,888

223,838

50,000

119,000

5,000

From five to 25 years

309,872

-

309,872

-

317,799

83,500

-

75,500


_______

_______

_______

_______

_______

_______

_______

_______


558,554

2,093

560,647

378,888

541,637

153,500

119,000

80,500


======

======

======

======

======

======

======

======


b) After taking account of interest rate swaps and caps, the risk profile of the Group's borrowings was as follows:






Unaudited

30 Sept 

2008

£000


Unaudited

30 Sept 

2007

£000


Audited

31 March 2008

£000



_______

_______

_______






Fixed or capped


549,207

229,838

429,807

Floating


11,440

149,050

111,830



_______

_______

_______



560,647

378,888

541,637



======

======

======


c) The interest rate profile of the Group's fixed or capped rate debt was as follows:

Percent




Unaudited

30 Sept 

2008

£000


Unaudited

30 Sept 

2007

£000


Audited

31 March 2008

£000

_______


_______

_______

_______






4.0 - 5.0 


248,688

-

100,000

5.0 - 6.0


99,475

-

100,000

6.0 - 7.0


49,738

225,000

225,000

7.0 - 8.0


149,213

-

-

9.0 - 10.0


2,093

4,838

4,807



_______

_______

_______



549,207

229,838

429,807



======

======

======


d) The weighted average rate and the weighted average period of the Group's fixed or capped rate debt were as follows:



Unaudited

30 Sept

2008

%

Unaudited

30 Sept

2007

%

Audited

31 March

2008

%

Unaudited

30 Sept

2008

years

Unaudited

30 Sept

2007

years

Audited

31 March

2008

years


_______

_______

_______

_______

_______

_______









6.3

6.5

6.0

5

5

5


======

======

======

======

======

======




  

14. Financial instruments


The Group's policy is to finance its activities with equity and long term debt, the proportions depending on the profile of the operational and financial risks to the business. 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 to achieve an interest rate profile where the majority of borrowings are fixed or capped. As at 30 September 2008, 99.8% (31 March 2008: 83.7%) of the Group's net debt was fixed or capped.


i) Effective cashflow hedges


As at 30 September 2008, the profile of the Group's interest rate swaps, which for the purposes of these financial statements have been classified as effective cashflow hedges with fair value adjustments reflected in equity, was as follows: 






Unaudited

30 Sept 2008 

Audited

31 March 2008

Amount


Maturity date


Swap rate


Fair value

adjustment

Fair value

adjustment 

  £000 


%

£000

£000

______

_______

_____

_____

______






 50,000

03.01.13

4.97

426

(11)

 50,000

03.01.13

4.94

421

50

 50,000

03.01.13

5.01

434

(85)

 75,000

22.04.13

4.99

582

-

 75,000

22.04.13

4.96

659

-

_______



______

_______

300,000



2,522

(46)

======



======

======


ii) Ineffective cashflow hedges   


As at 30 September 2008, the profile of the Group's interest rate caps, which for the purpose of these financial statements have been classified as ineffective with fair value adjustments reflected in the Income Statement, was as follows:  






Unaudited

30 Sept 2008 

Audited

31 March 2008

Amount


Maturity date


Swap rate


Fair value

adjustment

Fair value

adjustment

   £000


%

£000

£000

______

_______

_____

_____

_____






 25,000

03.01.13

5.50

149

314

 25,000

03.01.13

5.75

149

236

 25,000

22.04.13

7.50

(100)

-

 25,000

22.04.13

7.50

(100)

-

 25,000

22.04.13

7.50

(100)

-

 75,000

22.04.13

7.50

(267)

-

 50,000

03.07.13

6.50

(23)

-

_______



_____

_____

250,000



(292)

550

======



=====

=====


As at 30 September 2008, the Group also held £450,000,000 basis swaps entered into within the current period with maturity dates prior to 

31 March 2009 and positive fair value adjustments totalling £160,000 reflected in the Income Statement.









  iii) Financial instruments held in joint ventures


As at 30 September 2008, the following interest rate swaps shown at their full amount were held within Quercus, a joint venture in which the Group has a 29.74% interest (31 March 2008: 26.92%):


   





Unaudited

30 Sept 2008 

Audited

31 March 2008

Amount


Maturity date


Swap rate


Group's share of

fair value

adjustment

Group's share of

fair value

adjustment

  £000


%

£000

£000

______

_______

____

____

_____






  40,000

22.01.09

4.86

-

(112)

  50,000

22.10.09

4.84

21

(216)

  25,000

25.11.09

5.02

(136)

41

  80,000

22.01.13

5.11

224

(143)

100,000

22.01.13

4.99

266

(31)

_______



____

_____

295,000



375

(461)

=======



====

=====


All the swaps held within Quercus were classified as effective and the Group's share of the fair value adjustments reflected in equity.



As at 30 September 2008, the following interest rate caps and collars shown at their full amount were held within iQ, a joint venture in which the Group has a 50.00% interest (31 March 2008: 50.00%):







Unaudited

30 Sept 2008


Unaudited

30 Sept 2008


Audited 

31 March 2008


Audited 

31 March 2008

 Amount

Maturity date

Strike rate

Floor

Strike rate

Cap

Group's share of

fair value 

adjustment

Group's share of

fair value 

adjustment

Group's share of

fair value 

adjustment

Group's share of fair value adjustment





Income 

Statement

Equity

Income

Statement

Equity


  £000


%

%

£000

£000

£000

£000

 ______

_______

______

_____

______

_____

______

______









  12,951

04.10.12

5.08

6.00

112

-

(392)

-

  12,951

04.10.12

5.28

5.75

-

190

-

(484)

  12,951

04.10.12

4.89

6.25

87

-

(355)

-

  12,952

04.10.12

4.69

6.50

62

-

(295)

-

  ______




_____

_____

_____

_____

  51,805




261

190

(1,042)

(484)

  ======




=====

=====

======

=====



As at 30 September 2008, the following interest rate swap shown at its full amount was held within Greenwich Peninsula N0204, a joint venture in which the Group has a 50.00% interest (31 March 2008: 50.00%):





Amount

   



Maturity date



Swap rate

Unaudited

30 Sept 2008

Group's share of 

fair value

adjustment

  £000


%

£000

  _____

_______

____

_______





  29,301

30.12.11

5.28

(120)

  =====



======


The swap was entered into during the period and has been classified as effective with the fair value adjustment reflected in equity.






  

15. Reconciliation of movements in equity

  

 
 
Share
capital
 
£000
 
Share
premium
account
£000
 
Revaluation
reserve
 
£000
 
Other
capital
reserves
£000
 
Cashflow
hedge
reserve
£000
 
Translation
reserve
 
£000
 
Retained
earnings
 
£000
 
Own shares
held
reserve
£000
Unaudited
Equity
shareholders’
funds
£000
 
 
_____
_______
________
_______
_______
______
_______
_______
_________
 
 
 
 
 
 
 
 
 
 
 
 
Balance 1 April
 2008
 
32,483
 
51,343
 
327,360
 
108,136
 
(322)
 
318
 
238,805
 
(12,422)
 
745,701
 
Recognised income
 and expense for
 the period
 
 
-
 
 
-
 
 
(125,900)
 
 
-
 
 
2,137
 
 
(4)
 
 
(43,841)
 
 
-
 
 
(167,608)
 
Issue of shares less
 cost
 
28
 
175
 
-
 
-
 
-
 
-
 
(71)
 
-
 
132
 
Cost relating to
 share-based
 payment schemes
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
760
 
 
-
 
 
760
 
Shares awarded to
 employees under
 share-based bonus
 scheme
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
-
 
 
 
(482)
 
 
 
482
 
 
 
-
 
Dividends paid in
 period
 
-
 
-
 
-
 
-
 
-
 
-
 
(10,872)
 
-
 
(10,872)
 
 
______
______
________
________
_______
_______
________
________
_________
 
 
32,511
51,518
201,460
108,136
1,815
314
184,299
(11,940)
568,113
 
 
=====
=====
=======
=======
======
======
=======
=======
========


Part of the movement on the revaluation of investment and development properties is recognised in the Income Statement and part directly through equity.






Unaudited

Six months ended

30 Sept 2008

£000


Unaudited

Six months ended

30 Sept 2007

£000


Audited

Year ended

31 March 2008

£000



_______

_______

_______

Recognised in Income Statement:





  Gains on revaluation of investment properties:





  Group


-

3,848

338

  Joint ventures


-

15,754

934

  Deficits on revaluation of investment properties:





  Group


(32,181)

(18,030)

(44,661)

  Joint ventures


(17,308)

-

-

  Associate 


(143)

-

(125)

  Deficits on revaluation of development properties


(1,199)

(1,071)

(5,265)

Recognised directly in equity:





  Gains on revaluation of development properties


-

69,574

1,838

  Deficits on revaluation of development properties


(182,083)

-

(79,006)



_______

_______

_______



(232,914)

70,075

(125,947)



======

======

======

As at 30 September 2008, ESOP Trusts held 2,054,154    (31 March 2008: 2,134,739) shares in the Company which had been purchased in the market at a cost of £11,908,000 (31 March 2008: £12,390,000). The purpose of the Trusts is to acquire and hold shares which will be transferred to employees to meet future obligations under the Group employee share-based payment schemes and share-based bonus entitlements. As at 30 September 2008, these shares had a market value of £4,134,000 (31 March 2008: £9,622,000). The Quintain Group Employee Benefit Trust has waived the right to receive dividends.


As at 30 September 2008, the Company also held 5,234 (31 March 2008: 5,234) of its own shares which had been purchased in the market at a cost of £32,000 (31 March 2008: £32,000). As at that date, these shares had a market value of £11,000 (31 March 2008: £24,000).


16Share capital





Unaudited

Number of 

shares

000

Unaudited 

Nominal

value

£000




_______

_______

  Authorised as at 30 September 2008





  Ordinary shares of 25p each



200,000

50,000




======

======

 Allotted, called up and fully paid





  In issue as at 1 April 2008



129,826

32,483

  Issue of shares under share-based payment schemes at  

  between 25p and 155.3p




112


28




_______

_______

  In issue as at 30 September 2008



129,938

32,511




======

======



As at 30 September 2008, Share capital included 2,054,154 (31 March 2008: 2,134,739) shares held by ESOP Trusts. These shares had a nominal value of £513,539 (31 March 2008: £533,685). The Company also held 5,234 (31 March 2008: 5,234) of its own shares with a nominal value of £1,309

(31 March 2008: £1,309).


17. Capital commitments


As at 30 September 2008, the Group had capital commitments of £27,734,000 (31 March 2008: £16,475,000) in relation to its own development properties and £63,000 (31 March 2008: £130,000) in respect of contractual commitments for repairs, maintenance and enhancement in relation to its investment properties. The Group's share of capital commitments in relation to its joint ventures was £86,625,000 (31 March 2008: £63,939.000). 


18. Related party disclosures


During the period, the Group received the following fees in respect of services provided to its joint ventures:




Unaudited

Six months ended

30 Sept 2008

£000

Unaudited

Six months ended

30 Sept 2007

£000

Audited

Year ended

31 March 2008

£000



_______

_______

_______






   Quercus Healthcare Property Partnership


2,084

2,235

6,416

  iProperty Partnership


1,263

1,086

2,188

  Greenwich Peninsula Regeneration Limited


421

402

944

   BioRegional Quintain Limited


154

96

277

   Quintessential Homes (Wembley) LLP


130

130

260

   Quart Property Partnership


-

-

15

   Quantum Property Partnership


10

10

20



_______

_______

_______



4,062

3,959

10,120

   


======

======

======


The Group also received interest on loan notes amounting to £1,757,000 (30 Sept 2007: £1,218,000, 31 March 2008: £2,733,000) from Greenwich Peninsula Regeneration Limited, £472,000 (30 Sept 2007: £nil, 31 March 2008: £nil) from Greenwich Peninsula N0204 Limited Partnerships and £520,000 (30 Sept 2007: £206,000, 31 March 2008: £691,000) from BioRegional Quintain Limited, which are included in finance income.


The following amounts due from related parties are included in Trade and Other receivables in note 11:

 



Unaudited

30 Sept 2008

£000

Unaudited

30 Sept 2007

£000

Audited

31 March 2008

£000



_______

_______

_______






 Quercus Healthcare Property Partnership


3,175

2,851

11,447

 South East Properties (Redhill) Limited


2,023

-

-

 BioRegional Quintain Limited


1,209

762

1,278

 iProperty Partnership


813

589

589

 Greenwich Peninsula Regeneration Limited


726

551

303

 Quintessential Homes (Wembley) LLP


201

176

-

 Quart Property Partnership


-

-

29

 Quantum Property Partnership


89

5

73



_______

_______

_______



8,236

4,934

13,719



======

======

======






 




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