IFRS

Unite Group PLC 15 June 2005 Date: 15 June 2005 On behalf of: The UNITE Group plc ('UNITE' or 'the Company') Embargoed until: 1630hrs The UNITE Group plc Unaudited results for the year ended 31 December 2004 restated in accordance with International Financial Reporting Standards The UNITE Group plc, in common with all other listed companies, will be presenting its financial results for the year ended 31 December 2005 in accordance with International Financial Reporting Standards ('IFRS'). As a result of this change, the comparative results for 2004 will also be restated to comply with IFRS. In order to provide transparency of the impact of this restatement, UNITE has today released its results for the year to December 2004 restated as required to comply with these new accounting standards. In summary, the new standards result in an increase in reported profits (from a loss after tax of Â£3.8 million under UK GAAP to a profit after tax of Â£17.3 million under IFRS) and a reduction in reported net asset value (from Â£370 million under UK GAAP to Â£322 million under IFRS). These changes are summarised as follows: NAV NAV Net asset value Â£m pps 31 December 2004 Per audited accounts - UK GAAP 369.6 332 Changes required to comply with IFRS:- Full provision for deferred tax (50.8) (46) Restatement of investment properties under development to market value 0.7 1 Write back provision for 2004 final dividend 1.9 2 Other minor changes 0.4 - Restated IFRS NAV at 31 Dec 2004 321.8 289 Profit after tax Profit after tax Â£m Per 2004 audited accounts - UK GAAP (3.8) Changes required to comply with IFRS:- Revaluation of investment properties 20.9 Full provision for deferred tax on investment properties recognised in income statement 0.2 Add back goodwill amortisation 0.1 Accounting for share based payments (0.1) Restated IFRS profit after tax 17.3 In addition to the above adjustments, IFRS requires all financial derivatives (predominantly interest rate swaps in the case of UNITE) to be carried at fair value with effect from 1 January 2005. Had such an adjustment been booked at December 2004 it would have resulted in a further reduction in reported net asset value of Â£6.5 million (6 pence per share). With respect to financial derivatives, IFRS requires an assessment of interest rate hedges to establish which are 'effective' and which are considered ' ineffective'. Movements in the fair value of effective hedges will be booked to reserves whereas those of ineffective hedges are shown in the income statement. The majority of UNITE's interest rates swaps are considered effective under IFRS and, accordingly, any changes in market value are taken directly to reserves. However, a small proportion of the Group's swaps, where the term of the swaps exceeds the term of the underlying debt, are not considered to be effective and movements in the value of these instruments will be reflected in the income statement, thereby introducing an element of future volatility in this respect. The above adjustments do not reflect any change in the underlying commercial performance of the business. They arise from different accounting recognition, timing or measurement criteria introduced under IFRS. Restated primary statements and summarised notes for the year ended 31 December 2004 are set out in this announcement; these will form the basis of the full year comparatives for our results for the six months to 30 June 2005, which will be prepared and presented under IFRS. The Group's revised accounting policies are also set out in full in this statement. An analysts' presentation will be held today at the City of London Club. A full copy of the presentation can be found on UNITE's website: www.unite-group.co.uk Enquiries: The UNITE Group plc Mark Allan, Group Finance Director Tel: 020 7902 5062 www.unite-group.co.uk Redleaf Communications Ltd Tel: 020 7955 1410 Emma Kane/Wendy Timmons Mob: 07876 338339 IFRS CONSOLIDATED FINANCIAL STATEMENT EXTRACTS Unaudited consolidated income statement For the year ended 31 December 2004 Note UK GAAP (*) Effect of IFRS transition to IFRS Â£'000 Â£'000 Â£'000 Gross rental income 66,808 - 66,808 Development sales 7,815 - 7,815 Revenue 2 74,623 - 74,623 Property operating expenses (18,024) - (18,024) Development cost of sales (6,654) - (6,654) Cost of sales (24,678) - (24,678) Administrative expenses - goodwill impairment (2,665) 150 (2,515) - other (14,154) (130) (14,284) Administrative expenses (16,819) 20 (16,799) Profit on disposal of investment property 23 - 23 Net valuation gains on investment property 4 - 20,869 20,869 Net operating profit before net financing 33,149 20,889 54,038 costs Finance income 1,137 - 1,137 Finance costs (38,098) - (38,098) Net financing costs (36,961) - (36,961) Share of joint venture profit - 30 30 Profit before tax (3,812) 20,919 17,107 Tax credit 3 - 233 233 Profit for the period (3,812) 21,152 17,340 Earnings per share Basic 7 (3.5)p 19.8p 15.8p (* ) reformatted to reflect IFRS reporting requirements The effects of transition to IFRS are explained further in note 9. Unaudited consolidated statement of changes in shareholders equity For the year ended 31 December 2004 Note 2004 Â£'000 Revaluation of investment property under development 5 17,052 Deferred tax relating to the above 3 (5,116) Share of joint venture valuation gain (net of related tax) 787 Net gains recognised directly in equity 12,723 Profit for the period 17,340 Total recognised income and expense for the period 30,063 Dividends 6 (2,728) Own shares acquired (178) Shares issued 5,159 Fair value of share options expensed 302 32,618 At 1 January 2004 289,191 At 31 December 2004 321,809 Unaudited consolidated balance sheet As at 31 December 2004 and 1 January 2005 Note UK GAAP Effect of IFRS Effect of 1 31 Dec transition 31 IAS39 Jan 2004 (*) to IFRS Dec 2004 2005 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Assets Investment property 4 991,460 - 991,460 - 991,460 Investment property under 5 118,990 742 119,732 - 119,732 development Property, plant and equipment 18,099 (2,128) 15,971 - 15,971 Investment in joint venture 1,125 (308) 817 - 817 Intangible assets 2,475 2,278 4,753 - 4,753 Trade and other receivables - 6,079 6,079 - 6,079 Total non-current assets 1,132,149 6,663 1,138,812 - 1,138,812 Inventories 13,401 - 13,401 - 13,401 Trade and other receivables 32,325 (6,079) 26,246 - 26,246 Cash and cash equivalents 37,582 - 37,582 - 37,582 Total current assets 83,308 (6,079) 77,229 - 77,229 Total assets 1,215,457 584 1,216,041 - 1,216,041 Liabilities Interest-bearing loans and 8 (106,153) - (106,153) - (106,153) borrowings Trade and other payables (76,777) 5,102 (71,675) - (71,675) Total current liabilities (182,930) 5,102 (177,828) - (177,828) Interest-bearing loans and 8 (662,906) (3,019) (665,925) (9,347) (675,272) borrowings Deferred tax liabilities - (50,479) (50,479) 2,804 (47,675) Total non-current liabilities (662,906) (53,498) (716,404) (6,543) (722,947) Total liabilities (845,836) (48,396) (894,232) (6,543) (900,775) Net Assets 369,621 (47,812) 321,809 (6,543) 315,266 Equity Issued share capital 27,825 - 27,825 - 27,825 Share premium 141,324 - 141,324 - 141,324 Merger reserve 40,177 - 40,177 - 40,177 Retained earnings (36,619) 132,732 96,113 (2,210) 93,903 Revaluation reserve 196,914 (180,544) 16,370 - 16,370 Hedging reserve - - - (4,333) (4,333) Total equity 369,621 (47,812) 321,809 (6,543) 315,266 (* ) reformatted to reflect IFRS reporting requirements The effects of transition to IFRS are explained further in note 9. Unaudited consolidated statement of cash flows For the year ended 31 December 2004 UK GAAP Effect of 2004 (*) transition to IFRS Â£'000 Â£'000 Â£'000 Operating activities Profit for the period (3,812) 21,152 17,340 Adjustments for: Depreciation 2,354 - 2,354 Equity-settled transactions - 302 302 Impairment of goodwill 2,665 (150) 2,515 Change in value of investment - (20,869) (20,869) property Net finance costs 36,961 - 36,961 Gain on sale of investment property (23) - (23) Share of joint venture profit - (30) (30) Tax credit - (233) (233) ------- ------- ------ Operating profit before changes in 38,145 172 38,317 working capital and provisions Increase in trade and other (8,230) - (8,230) receivables Increase in inventories (10,632) - (10,632) Increase in trade and other payables 3,680 6 3,686 ------- ------- ------ Cash flows from operating activities 22,963 178 23,141 ======= ======= ====== Investing activities Proceeds from sale of investment 61,008 - 61,008 property Interest received 1,137 - 1,137 Acquisition of property, plant and (1,208) - (1,208) equipment Acquisition and construction of (174,487) - (174,487) investment property ------- ------- ------- Cash flows from investing activities (113,550) - (113,550) ======= ======= ======== Financing activities Interest paid (47,768) - (47,768) Gain on refinancing 1,012 - 1,012 Proceeds from the issue of share 900 - 900 capital Payments to acquire own shares - (178) (178) Proceeds from other non-current 423,267 - 423,267 borrowings Repayment of borrowings (274,752) - (274,752) Payment of finance lease liabilities (508) - (508) Dividends paid (2,728) - (2,728) ------- ------- ------ Cash flows from financing activities 99,423 (178) 99,245 ======= ======= ======= Net increase in cash and cash 8,836 8,836 equivalents Cash and cash equivalents at 1 19,660 19,660 January ------- ------- ------ Cash and cash equivalents at 31 28,496 28,496 December ======= ======= ====== (* ) reformatted to reflect IFRS reporting requirements Notes to the unaudited consolidated financial statements 1. Significant accounting policies The UNITE Group plc (the 'Company') is a company domiciled in The United Kingdom. These special purpose consolidated financial statements for the year ended 31 December 2004 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in its joint venture. (a) Basis of preparation EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated financial statements of the company, for the year ended 31 December 2005, be prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the EU ('adopted IFRS'). These special purpose consolidated financial statements have been prepared on the basis of the recognition and measurement requirements of IFRS in issue that are either endorsed by the EU and effective (or available for early adoption) at 31 December 2005 or are expected to be endorsed and effective (or available for early adoption) at 31 December 2005, the Group's first annual reporting date at which it is required to use adopted IFRS. Based on these adopted and unadopted IFRS, the directors have made assumptions about the accounting policies expected to be applied, which are set out below, when the first IFRS financial statements are prepared for the year ending 31 December 2005. The adopted IFRS that will be effective (or available for early adoption) in the financial statements are still subject to change and to additional interpretations and therefore cannot be determined with certainty. Accordingly the accounting policies for the year ended 31 December 2005 will be determined finally only when the financial statements for that year are prepared. As permitted by IFRS 1, the following standards: IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, IAS 32 - Financial Instruments: Disclosure and Presentation and IAS 39 - Financial Instruments: Recognition and Measurement are not expected to be applied until 1 January 2005 and accordingly have not been applied for the purposes of these special purpose consolidated IFRS financial statements for the year ended 31 December 2004. (However, the effect of applying IAS 32 and IAS 39 on the balance sheet as at 1 January 2005 has been shown.) These special purpose consolidated financial statements are not the Group's first consolidated financial statements as defined by IFRS 1. For this reason amounts are presented for the year to 31 December 2004 only and comparative information as would normally be required under IFRS is not given. The financial statements are prepared on the historical cost basis except that the following asset and liabilities are stated at their fair value: â€¢ Investment property â€¢ Investment property under development â€¢ Interest rate swaps (from 1 January 2005) In accordance with IFRS 1 the Group has taken advantage of the following exemptions as at 1 January 2004, the date of transition to IFRS: â€¢ Business combinations occurring prior to transition have not been restated â€¢ Share options granted before 7 November 2002 or vested prior to 1 January 2005 have not been recognised in accordance with IFRS 2 Notes to the unaudited consolidated financial statements 1. Significant accounting policies continued (b) Basis of consolidation (i) Subsidiaries Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. In assessing control, potential voting rights that are presently exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. (ii) Joint ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement. The consolidated financial statements include the Group's share of total recognised gains and losses of jointly controlled entities on an equity accounted basis. (iii) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains and losses arising from intra-group transaction, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with joint ventures are eliminated to the extent of the Group's retained interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains. (iv) Goodwill Goodwill represents the difference between the cost of an acquisition and the fair value of the Group's share of the identifiable net assets of the acquired subsidiary, associate or joint venture at the effective date of acquisition. Goodwill on acquisitions is reported in the balance sheet as an intangible asset or included within associates and joint ventures, as appropriate, and is impairment tested annually. Where an indication of impairment exists, the carrying amount of goodwill is assessed and written down to its recoverable amount. The profit or loss on disposal of subsidiaries and joint ventures is calculated by reference to the net assets at the date of disposal including the attributable amount of goodwill which remains unimpaired. Notes to the unaudited consolidated financial statements 1. Significant accounting policies continued (c) Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities. In these special purpose accounts, IAS 39 has not been applied (as it comes into force 1 January 2005) and derivatives are held at cost. Cash flows arising from these instruments were recognised in the income statement when the hedged transaction was recognised. As from 1 January 2005, the following accounting policy will apply and the effects of adoption at that date are illustrated on the consolidated balance sheet : Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, derivative financial instruments are stated at fair value, with movements recognised in the income statement except where cash flow hedge accounting is applied (see below). The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Hedge accounting for interest rate swaps Where an interest rate swap is designated as a hedge of the variability in cash flows of an existing or a highly probable forecast loan interest payment, the effective part of any gain or loss on the swap instrument is recognised directly in equity in the hedging reserve. The cumulative gain or loss is removed from equity and recognised in the income statement at the same time as the hedged transaction. The ineffective part of any gain or loss is recognised in the income statement immediately. When a hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is recognised in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer probable, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately. Notes to the unaudited consolidated financial statements 1. Significant accounting policies continued (d) Investment Property Investment properties are those held to earn rental income or for capital appreciation or both. Investment properties are stated at fair value. Two external, independent valuation companies, having an appropriate recognised professional qualification, value the portfolio every six months. The fair values are based on the market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm's length transaction where the parties had each acted knowledgeably, prudently and without compulsion. The valuations are prepared by considering the aggregate of the net annual rents receivable from the properties and where relevant, associated costs. A yield which reflects the risks inherent in the net cash flows is then applied to the net annual rentals to arrive at the property valuation. Valuations reflect, where appropriate; the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting of vacant accommodation and the market's general perception of their credit-worthiness; the allocation of maintenance and insurance responsibilities between lessor and lessee; and the remaining economic life of the property. It has been assumed that whenever rent reviews or lease renewals are pending with anticipated reversionary increases, all notices and where appropriate counter notices have been served validly and within the appropriate time. Any gain or loss arising from a change in fair value is recognised in the income statement. Rental income is accounted for as described in accounting policy (l). (e) Investment property under development Property that is being constructed or developed for future use as investment property is stated at fair value. Two external, independent valuation companies, having an appropriate recognised professional qualification, value the portfolio every six months. The fair values are on the same basis as those used for investment properties but including adjustments to remove the fair value of construction which has yet to take place and making reasonable assumptions regarding expected rentals and costs. Gains arising from changes in fair value are recognised directly in equity (in the revaluation reserve) as are losses to the extent that that they reverse amounts previously credited directly to equity. Revaluation losses in excess of amounts previously credited to equity are recognised in the income statement. When construction or development is complete, the property is reclassified and subsequently accounted for as investment property. At the date of transfer, the difference between fair value and the previous carrying amount is recognised in the consolidated income statement and a transfer is made from revaluation reserve to retained earnings for valuations and related deferred tax previously recognised in relation to that property. All costs directly associated with the purchase and construction of a property, and all subsequent capital expenditures qualifying as acquisition costs are capitalised. Borrowing costs are capitalised if they are directly attributable to the acquisition, construction or production of a qualifying asset. Capitalisation of borrowing costs commences when the activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Capitalisation of borrowing costs continues until the assets are substantially ready for their intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognised. The capitalisation rate is arrived at by reference to the actual rate payable on borrowings for development purposes or, with regard to that part of the development cost financed out of general funds, to the average rate. Notes to the unaudited consolidated financial statements 1. Significant accounting policies continued (f) Property, plant & equipment and Computer software (i) Owned assets Property, plant & equipment and computer software are stated at cost less accumulated depreciation or amortisation respectively (see below) and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Computer software is held as an intangible asset. (ii) Leased assets Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Property held under finance leases and leased out under operating leases is classified as investment property and carried at fair value (see accounting policy (d)). (iii) Depreciation and amortisation Depreciation and amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of items of property, plant and equipment and computer software. Freehold land is not depreciated. The estimated useful lives are as follows: â€¢ buildings 50 years â€¢ leasehold improvements Life of lease â€¢ fixtures and fittings 4 years â€¢ Motor vehicles 4 years â€¢ Plant & machinery 4-20 years â€¢ Computer software 4-5 years Assets held under finance leases which do not transfer title of the assets to the Group at the end of the lease are depreciated over the shorter of the estimated useful lives shown above and the term of the lease. The residual value, if not insignificant , is reassessed annually. (g) Inventories Inventories are shown at the lower of cost and net realisable value. (h) Cash and cash equivalents Cash and cash equivalents comprises cash balances and call deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Group's cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. (i) Share capital (i) Ordinary share capital Ordinary shares are classified as equity. External costs directly attributable to the issue of new shares, other than on a business combination, are shown as a deduction, net of tax, in equity from the proceeds. Share issue costs incurred directly in connection with a business combination are included in the cost of acquisition. (ii) Dividends Dividends are recognised as a liability in the period in which they are declared. Notes to the unaudited consolidated financial statements 1. Significant accounting policies continued (j) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at cost, less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. (k) Employee benefits (i) Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred. (ii) Share based payment transactions The Group's share option schemes allow employees to acquire shares of the Company. The fair value is measured at grant date and spread over the period during which employees become unconditionally entitled to the options. The amount recognised as an expense is adjusted to reflect the number of share options that are expected to vest except where forfeiture is only due to share prices not achieving the threshold for vesting. When the options are exercised, equity is increased by the amount of the proceeds received. (l) Revenue (i) Rental income Rental income from investment property leased out under operating leases is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income and spread over the period to the first break clause. (ii) Development contracts As soon as the outcome of a development contract can be estimated reliably, contract revenue and expenses are recognised in the income statement in proportion to the stage of completion of the contract. The stage of completion is assessed by reference to surveys of work performed. Any expected loss on a contract is recognised immediately in the income statement. (iii) Goods sold and services rendered Revenue from the sale of goods is recognised in the income statement when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognised in the income statement in proportion to the stage of completion of the transaction at the balance sheet date. No revenue is recognised if there are significant uncertainties regarding recovery of the consideration due, associated costs or the possible return of goods. Notes to the unaudited consolidated financial statements 1. Significant accounting policies continued (m) Expenses (i) Lease payments Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense. Where the property interest under an operating lease is classified as an investment property, the property interest is accounted for as if it were a finance lease and the fair value model is used for the asset recognised. (ii) Net financing costs Net financing costs comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested and gains and losses on hedging instruments that are recognised in the income statement (refer accounting policy (c)). (n) Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: goodwill not deductible for tax purposes and differences relating to investments in subsidiaries and joint ventures to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Notes to the unaudited consolidated financial statements 2. Segment reporting Segment information is presented in respect of the Group's business segments based on the Group's management and internal reporting structure. The Directors do not consider that the group has meaningful geographical segments as it operated exclusively in the United Kingdom in the year. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated assets and liabilities consist of deferred tax and interest bearing loans and borrowings. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period. The group comprises the following main business segments: â€¢ Investment â€¢ Development Investment Development Unallocated Consolidated 2004 2004 2004 2004 Â£'000 Â£'000 Â£'000 Â£'000 Segment revenues and results Revenue from external customers: Rental income 66,808 - - 66,808 Development sales - 6,523 - 6,523 --------- ---------- ---------- ---------- Total revenue from 66,808 6,523 - 73,331 external customers Sales to joint ventures - 1,292 - 1,292 --------- ---------- ---------- ---------- Total revenue 66,808 7,815 - 74,623 ========= ========== ========== ========== Segment results 40,951 (1,215) (22,396) 17,340 ========= ========== ========== ========== Unallocated items consist: Profit on sale of 23 investment property Corporate costs (4,075) Impairment of goodwill (2,515) Net valuation gains on 20,869 investment property Net financing costs (36,961) Share of joint venture 30 profit Tax credit 233 ---------- (22,396) ========== Segment assets & liabilities Segment assets 1,068,582 146,642 - 1,215,224 Investment in joint - 817 - 817 venture --------- ---------- ---------- ---------- Total assets 1,068,582 147,459 - 1,216,041 ========= ========== ========== ========== Segment liabilities (37,262) (34,413) (822,557) (894,232) ========= ========== ========== ========== Segment cashflows Cash flows from operating 38,165 (11,257) (3,773) 23,135 activities ========= ========== ========== ========== Cash flows from investing (1,403) (174,292) 62,145 (113,550) activities ========= ========== ========== ========== Cash flows from financing - - 99,251 99,251 activities ========= ========== ========== ========== Capital expenditure 1,403 183,059 - 184,462 ========= ========== ========== ========== Notes to the unaudited consolidated financial statements 3. Tax expense / (credit) Recognised in the income statement 2004 Â£'000 Current tax expense - ======== Deferred tax credit Origination and reversal of temporary differences (998) Adjustments for prior years 765 -------- (233) ======== Total tax credit in income statement (233) ======== Reconciliation of effective tax rate Profit before tax 17,107 ======== Income tax using the domestic corporation tax rate 30.0% 5,132 Non-deductible expenses 4.6% 792 Share of joint venture profit (0.1)% (9) Effect of indexation on investment and development (40.4)% (6,913) property Adjustments for prior years 4.5% 765 -------- -------- (1.4)% (233) ======== ======== Deferred tax recognised directly in equity Relating to net valuation gains recognised 5,116 directly in equity ======== 4. Investment property Â£'000 Â£'000 Balance at 1 January 2004 788,304 Acquisitions 827 Transfer from investment property 230,501 under development Disposals (49,041) Valuation gains 39,676 Valuation losses (18,807) 20,869 --------- Balance at 31 December 2004 991,460 ========= The carrying amount of investment property is the fair value of the property as determined by CB Richard Ellis Ltd and Messrs King Sturge, Chartered Surveyors as external valuers. Notes to the unaudited consolidated financial statements 5. Investment property under development Â£'000 Â£'000 Balance at 1 January 2004 166,446 Cost capitalised 171,133 Interest capitalised 11,294 Disposals (15,692) Transfer to investment property (230,501) Valuation gains 21,648 Valuation losses (4,596) 17,052 --------- Balance at 31 December 2004 119,732 ========= The carrying amount of investment property under development is the fair value of the property as determined by CB Richard Ellis Ltd and Messrs King Sturge, Chartered Surveyors as external valuers. 6. Dividends The following dividends were declared and paid during the year: 2004 Â£'000 2003 Final dividend of 1.67p per 25p 1,807 ordinary share 2004 Interim dividend of 0.83p per 25p 921 ordinary share --------- 2,728 ========= After the balance sheet date the following dividends were proposed by the directors. These dividends have not been provided for. 2004 Â£'000 2004 Final dividend of 1.67p per 25p 1,859 ordinary share ========== 7. Earnings per share and net asset value per share Earnings per share The calculations of basic and adjusted earnings per share are as follows:- Earnings Weighted Earnings average per number of share shares Â£'000 Thousands Pence Basic 17,340 109,478 15.8 Adjustments: Net valuation gains (20,869) (19.0) on investment property Deferred tax (233) (0.2) --------- -------- -------- Adjusted (3,762) 109,478 (3.4) ========= ======== ======== Notes to the unaudited consolidated financial statements 7. Earnings per share and net asset value per share (continued) Net asset value per share The calculations of basic, diluted and adjusted net asset value per share are as follows:- Shareholders' Number of Net asset funds shares value per share Â£'000 Thousands Pence Basic 321,809 111,301 289 Outstanding share 6,584 4,321 (5) options ------- -------- -------- Diluted 328,393 115,622 284 Deferred tax (inc JV) 50,787 - 44 ------- -------- -------- Adjusted 379,180 115,622 328 ======= ======== ======== 8. Interest-bearing loans and borrowings 2004 Â£'000 Non-current Bank and other loans 662,125 Finance lease liabilities 781 Interest rate swaps provision 3,019 ------ Non-current liabilities at 31 December 2004 665,925 ------ Adjust interest rate swaps to fair value 9,347 ------- Non-current liabilities at 1 January 2005 675,272 ======= Current Bank loans and overdrafts 25,854 Build loans 79,924 Finance lease liabilities 375 ------ 106,153 ====== 9. Explanation of transition to IFRS The accounting policies set out in note 1 have been applied in preparing these financial statement extracts for the year ended 31 December 2004 and in the preparation of an opening IFRS balance sheet at 1 January 2004 (the Group's transition date). In preparing its opening IFRS balance sheet , the Group has adjusted amounts reported previously in financial statements prepared under its previous basis of accounting (UK GAAP). An explanation of how transition from previous GAAP to IFRS has affected the Group's financial position and financial performance is set out on the face of the primary statements and in the following notes and table. Notes to the unaudited consolidated financial statements 9. Explanation of transition to IFRS (continued) Reconciliation of Equity at 1 Jan 2004 Note UK GAAP Effect of IFRS transition to IFRS Â£'000 Â£'000 Â£'000 Assets Investment property (b) 788,304 - 788,304 Investment property under (b) 160,488 5,958 166,446 development Property, plant and equipment (d) 19,726 (2,610) 17,116 Investment in joint venture (a) - - - Intangible assets (d) 5,140 2,610 7,750 Trade & other receivables (d) - 1,850 1,850 -------- -------- -------- Total non-current assets 973,658 7,808 981,466 -------- -------- -------- Inventories 2,769 - 2,769 Trade & other receivables (d) 20,072 (1,850) 18,222 Cash and cash equivalents 24,980 - 24,980 -------- -------- -------- Total current assets 47,821 (1,850) 45,971 -------- -------- -------- Total assets 1,021,479 5,958 1,027,437 ======== ======== ======== Liabilities Interest-bearing loans and (107,664) - (107,664) borrowings Trade & other payables (d) (75,823) 5,056 (70,767) -------- -------- -------- Total current liabilities (183,487) 5,056 (178,431) -------- -------- -------- Interest-bearing loans and (511,200) (3,019) (514,219) borrowings Deferred tax liabilities (a) - (45,596) (45,596) -------- -------- -------- Total non-current liabilities (511,200) (48,615) (559,815) -------- -------- -------- Total liabilities (694,687) (43,559) (738,246) ======== ======== ======== -------- -------- -------- Net Assets 326,792 (37,601) 289,191 ======== ======== ======== Equity 326,792 (37,601) 289,191 ======== ======== ======== Notes to the unaudited consolidated financial statements 9. Explanation of transition to IFRS (continued) Explanatory Notes (a) Deferred tax IAS 12 requires full provision of all taxable temporary differences whereas an exemption to provision for potential capital gains was available under UK GAAP. Hence under IFRS the Group has to recognise the capital gains tax that would be payable if it were to sell its property portfolio at book value. The resultant deferred tax liabilities have been provided in both restated balance sheets. This also affects the carrying value of the Group's joint venture at 31 December 2004 which must now make a provision for deferred tax in its balance sheet (hence reducing the Group's share of its net assets). The movements in the deferred tax liabilities are recognised directly in equity to the extent that they relate to items recognised directly in equity, otherwise being recognised in the income statement. Revaluation of investment property under development falls into the former category (referred to below) and therefore the deferred tax movement relating to these revaluations is also recognised directly in equity. (b) Investment property and investment property under development Under IFRS, completed investment property (accounted for under IAS 40) must be held separately from investment property under development (accounted for under IAS 16). For ease of comparison, the investment property under UK GAAP (in the reconciliation above) has been divided into complete and under development properties. Completed investment property is carried at fair value under IAS 40 which equates to the market value previously applied under UK GAAP. There is therefore no equity impact arising from the change to IFRS in respect of these properties. Investment property under development is carried at fair value under IAS 16 which differs slightly from the directors' valuations previously applied under UK GAAP. This has resulted in additional value being recognised in both the opening and closing balance sheets. IFRS fair values for both the above classes of property have been calculated by the Group's external valuers. Under UK GAAP, all revaluations of property were made directly in equity (unless values fell below cost). Under IFRS, investment properties under development continue to be accounted for in this way but completed property valuation movements are recognised in the income statement. In addition, when a property under development is completed and transferred to investment property the difference between its fair value at that date and its previous carrying amount is recognised in the income statement. This has resulted in an increase in profit for the year of Â£20.869m under IFRS. Notes to the unaudited consolidated financial statements 9. Explanation of transition to IFRS (continued) Explanatory Notes (c) Interest rate swaps Interest rate swaps have been carried at cost under UK GAAP and IFRS up until 31 December 2004 but will be carried at fair value with effect from 1 January 2005, the date of transition for the purposes of IAS 39. The adjustments for IFRS do not reflect the effects of IAS 39 as they show the impact on the 2003 & 2004 balance sheets but these effects have been shown on the face of the balance sheet for illustrative purposes. At 1 January 2005 the Group was required to recognise liabilities totalling Â£9.347m and a related deferred tax asset of Â£2.804m in relation to its interest rate swaps. The resulting movement in net assets of Â£6.543m is split between swaps which do not qualify as hedges (Â£2.210m), which must be debited to retained earnings and those which do qualify, which must be debited to the hedging reserve (refer accounting policy (c)). Under the transitional provisions of IAS 39 this takes effect as an adjustment to the opening reserves for 2005. (d) Other changes Under the transitional rules goodwill has been recognised at 'deemed cost' equivalent to its carrying value. Unlike UK GAAP, goodwill is not amortised under IFRS but is subject to impairment testing. The impact is that Â£2.665m of UK GAAP amortisation is replaced by Â£2.515m of impairment in the profit for the year. Dividends are not recognised until declared under IFRS. The 2003 and 2004 final proposed dividends are therefore added back to net assets at the relevant balance sheet dates (Â£1.807m and Â£1.859m for 2003 and 2004 respectively) The Group's share based incentives for employees are recognised through the income statement at fair value over the vesting period (small adjustments to both income statement and balance sheets) Computer software is held as an intangible asset under IFRS resulting in a transfer between asset categories (no profit impact). Receivables due after more than one year are shown separately as non-current under IFRS (previously included in current assets but disclosed as recoverable in more than one year). Under IFRS, the revaluation reserve represents cumulative valuation gains and losses (less related deferred tax liabilities) on properties classified as investment properties under development at the balance sheet date. This information is provided by RNS The company news service from the London Stock Exchange

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