Interim Results

Workspace Group PLC 21 November 2005 WORKSPACE POSITIVE ON PROSPECTS AS ACQUISITIONS PROMISE FUTURE GROWTH Workspace Group PLC ('Workspace') today announces its interim results for the six months to 30 September 2005. Workspace provides 5.92 million sq. ft of flexible business accommodation to over 4,000 small and medium size enterprises ('SMEs') in London and the South East. • Net Asset Value (NAV) per share at 30 September 2005 £1.94, up 9.6% over the six months and up 23% over twelve months (31 March 2005: £1.77; 30 September 2004: £1.58) • NAV per share (under former UK GAAP) at 30 September 2005 £2.49 (31 March 2005: £2.24; 30 September 2004: £1.99) • Valuation surplus for half year £40.2m (2004: £27.4m) • Pre-tax profits £45.8m (2004: £34.7m) • Pre-tax profits on trading operations £6.8m (2004: £6.9m) • Basic earnings per share 19.6p (2004: 15.2p) • Earnings per share on trading operations 2.9p (2004: 3.0p) • Turnover £29.2m for the half year up 8.6% on last year • Acquisitions £95.7m since 31 March 2005, with initial annual income of £6.1m • Interim dividend up 10% to 1.25p (30 September 2004: 1.13p) Commenting on the results, Harry Platt, Chief Executive, said, ' We have continued to make progress. Our strategy is to build a business with excellent potential for long-term growth in both asset values and earnings. We are delighted to report that we remain on track. Workspace is the market leader for SME business space in the Capital and South East. ' We have completed £95 million of acquisitions. These properties offer good scope for both rental and capital growth given our style of active management. Many of the sites complement our existing properties and will enable us to offer customers a much wider range of accommodation. ' Looking forward, the long term prospects for London and the SME community are very good. Our customers are at the heart of the London economy; as they and the London economy grow, so will Workspace. We remain confident that we are creating a platform from which we can drive future growth. We have a number of major refurbishment schemes approaching completion. These will support rental growth going forward.' -ends- Date: 21 November 2005 For further information: Workspace Group PLC cityPROFILE Harry Platt, Chief Executive Simon Courtenay Mark Taylor, Finance Director Jonathan Gillen 020-7247-7614 020-7448-3244 e-mail: info@workspacegroup.co.uk web: www.workspacegroup.co.uk Chairman's Statement Workspace's strategy remains to build long term sustainable growth in asset values and earnings from the provision of accommodation for small and medium sized businesses (SMEs), primarily in London. With our portfolio of over 100 estates with 5.9 million sq. ft and some 4,000 customers, we are the leading supplier of space for SMEs in this large and growing market-place. Our customers are at the heart of the London economy: as they and the London economy grow, so will the opportunities for Workspace. These results for the first half of 2005/06 again show good growth with Net Asset Value (NAV) per share up 9.6% over the half year and 23% over the last 12 months. Measured under the new International Financial Reporting Standards (IFRS), NAV per share has risen to £1.94 (31 March 2005: £1.77) (under former UK GAAP £2.49 at 30 September 2005 and £2.24 at 31 March 2005). A more detailed commentary of the impacts of IFRS is given in the Financial Review. Pre-tax profits during the period of £45.8m are up 32% on last year (30 September 2004: £34.7m). Pre-tax profits on trading operations of £6.76m are slightly behind last year at £6.92m largely due to higher year on year interest charges in the first quarter. During the half year five acquisitions totalling £95.7m were completed. Notable amongst these was the acquisition of Kennington Park for £56.0m, the largest single acquisition in the Group's history. This property comprises 11 buildings on a prominent island site. Although there is no immediate benefit to earnings due to the initial yield on acquisition, it offers considerable scope for improvement of returns as the Group brings its marketing and management formulae to bear. Over the last 5 years we have consistently increased annual dividends by 10% per year. It is anticipated that this year's dividend will again increase by 10% to 3.75 pence per share, and an interim dividend of 1.25 pence per share has been declared with these accounts. Shareholders will have received my recent letter concerning the notification of a possible interest in the Company. Publication of this interim report, as a result, falls within the regulatory requirements applicable in such circumstances. Your Board does not wish this to obstruct the customary reporting of the Company's activities to stakeholders. As such, full details of the briefings provided to analysts have been made available (as is customary) in the Company Presentations section of Financial Reporting within the Investors Home segment of its website. Should shareholders have difficulties accessing this information or require a hard copy please contact the Company Secretary at the Group's head office. Chief Executive's Statement Good progress has been made both in our acquisition programme and in the value of the portfolio. This progress has not, however, been matched in like-for-like rentals and occupancy which have not improved comparably over the period, the gains in the first quarter being diluted by a largely neutral second quarter. Two large tenancy departures arose during this period. However, good progress has already been made in the re-letting of this space. Net rental income increased by 8.3% to £21.48m for the half year (2004: £19.84m) with administration expenses (overheads) as a percentage of revenue (turnover) down marginally at 14.4% (2004: 14.5%). Earnings per share at 19.6p (2004: 15.2p) were up 29% on the first half last year. Trading earnings growth was impacted by increased interest charges and slower rental growth (as referred to above) with the result that earnings per share on trading operations were marginally down at 2.9p per share (2004: 3.0p). During the period the Group has acquired £95.7m of properties showing a combined initial yield of 6.4% and a yield on current market rental levels of 7.75% (rising to 8.22% on the completion of the refurbishment works at Power Road). These properties have good potential for future growth. There also continues to be good capacity for rental growth in our existing stock. Indeed, over the next six months our three key refurbishment schemes (at Clerkenwell, Enterprise and Southbank) will complete and lettings commence, whilst our initiatives for the change of use of certain sites continue. In this active investment market we have considered also the scope for disposals. With an increasing focus on the London market we have decided to offer for sale a portfolio of smaller properties (being 5% by value of the Group's total portfolio) located outside the M25. Our portfolio, as detailed in note 9 to the accounts, is now valued at £867m and with our planned investment programmes we are well on the way to meeting the target we set ourselves in September 2003 of doubling our assets and achieving a £1bn portfolio by September 2008 through the organic growth of the business. Portfolio The table below shows the acquisitions and disposals which have been made in the half year. Name of Property Description Acquisition/ Sale Price Initial/Exit Market rent at 30 September 2005 Income £000 pa £000 pa Acquisitions 111 Power Road Factory complex £7.50m 151.8 256.9* Chiswick, of 98,000 sq.ft London, W4 Marshgate Multi-let Business industrial Centre, estate of London, E15 93,400 sq.ft. £5.59m 347.3 471.0 Evelyn Court, 16,000 sq.ft., £2.64m 210.0 209.7 Deptford, 18 unit SE8 5AD offices Uplands 287,500 sq.ft. £24.0m 1,711.0 1,887.3 Business Park, industrial Walthamstow, estate with 45 E17 units Kennington 333,100 sq.ft. £56.0m 3,705.4 4,592.1 Park, business park Kennington, arranged over 11 SW9 buildings with 71 lettable units ---------------------------------------------------------- Yield £95.73m 6,125.5 7,417.0 6.40% 7.75% Disposals Site sold with £2.10m 97.4 Payne Road Studios consent for mixed and 5 Payne Road, residential and London, E3 commercial accommodation. Exit Yield 4.64% * On completion of the refurbishment works to this property the ERV will increase to £1.1m. Of these five acquisitions, four (i.e. all but Power Road) have been followed for some considerable time, being held on our database of target acquisitions in London. This database now comprises nearly 3,000 properties, of which 10% have been identified as key targets where we believe we can add value. The Power Road acquisition was identified during a detailed search in the vicinity of another of our other recent acquisitions. We are constantly developing our target database. Two of the recent acquisitions will be directly affected by the Olympics in 2012 (Marshgate and Uplands). Indeed, we believe many of our estates will benefit not just from the business relocations, brought about by the Olympics decision, and improved rentals, as infrastructure works proceed, but also from the growth that the Olympics will introduce to London. The most significant acquisition in the period was Kennington Park. In many respects this property mirrors our Leathermarket Centre. As with Bermondsey in the 1990's, we believe the Kennington area will improve over the medium term. This will be assisted by our proposed works to reinvigorate the site and create a centre for small businesses with ancillary facilities such as a cafe and reception. In due course the number of businesses on this estate will increase, become more diverse, and will be in high added value sectors. We see considerable long term potential in this acquisition. Following the acquisitions and disposals completed in the quarter, the portfolio statistics and progress through the year may be summarised as follows: 30 September 30 June 31 March 2005 2005 2005 Number of estates 107 105 104 Total floor space at end of period (million sq. ft.) 5.92 5.33 5.16 of which: Like for like portfolio (million sq.ft.) 4.94 4.94 Acquisitions (million sq.ft.) 0.80 0.21 Developments (million sq.ft.) 0.18 0.18 Lettable units (number) 4,885 4,748 4,717 Annual rent roll of occupied units (£m) 48.17 43.17 42.28 Average rent (£/sq.ft) 9.47 9.35 9.29 Average rent of like-for-like portfolio (£/sq.ft) 9.26 9.26 9.11 Occupancy overall 85.92% 86.65% 88.26% Occupancy of like-for-like portfolio 88.74% 89.40% 90.27% Comparisons of overall occupancy and rent roll are distorted by acquisitions, disposals and transfers. The 'like-for-like portfolio' is defined as those properties that have been held throughout the year to date and which are not subject to refurbishment/ redevelopment programmes. Like-for-like occupancy has declined from 90.3% to 88.7% over the first half. During the period there have been major vacations at Surrey House and Tower Bridge Business Complex. Lettings are in progress on both these estates which we expect to be completed in the current quarter. Overall at 86% we are running at occupancy levels only slightly short of effective full occupancy. Over the next six months we will complete refurbishment works at Southbank, Enterprise and Clerkenwell, following which lettings here will improve total occupancy. Average rents have remained static in the current quarter but have risen by 1.6% (from £9.11 to £9.26) in the half year. Progress on the Group's programme to add value to its properties continues. We are expecting a decision on our major mixed-use scheme at Thurston Road in Lewisham by the financial year end, are appealing the planning refusal on our scheme for Aberdeen Studios in Islington, and (following receipt of planning consent) hope to conclude the disposal of Wharf Road shortly. Valuation The interim valuation yielded a net surplus of £40.2m for the first 6 months an uplift of 4.9%, taking total investment property to £865m. This increase in the valuation has been driven mainly by yield movements, though improvements in rent levels particularly during the first quarter of the period have contributed approximately 15%. The Group has identified that in the longer term as much as 45% of the existing portfolio has potential for 'added value' activities such as refurbishment, extensions and re-development. Much of this is not immediately realisable but will mature as pressure on land in London increases. Little of the value arising from this is recognised in the Group's portfolio valuation, which continues to be based on existing use value except where consent for an improved use has been obtained. Further, the valuation does not recognise the accruing value of an increasingly focused portfolio built on localised clusters of properties Financial Review This is the first half yearly report to be prepared using International Financial Reporting Standards (IFRS). Under IFRS, the focus of the accounts has moved from the P & L Account (now called the Income Statement) to the Balance Sheet with this being prepared by reference to 'fair values' of certain assets and liabilities rather than their historic costs as formerly. This fair valuing of assets will cause greater volatility as the valuation differences pass through the Income Statement. We have decided therefore to preserve our practice of analysing our Income Statement between 'Trading Operations' and non trading 'Other Items'. The valuation adjustments have been classified under other items alongside profits/ losses on disposal of investment properties and other exceptional items. This approach has the advantage of presenting a trading performance which accords broadly with that presented previously under former UK GAAP in the 'Trading Operations' column. Consequently, a more consistent pattern should be preserved in the Trading Operations column with the higher volatility items focused in Other Items. This approach also serves to spotlight the impact that these adjustments have, with trading earnings per share of 2.9p increasing by 16.7p (575%) to 19.6p as a result of these adjustments. This Other Items total has arisen principally due to the valuation surplus of £40.21m in the half year (2004: £27.38m), less the difference arising from the revaluation of derivative financial instruments (the interest rate collars used to shelter the Group from the impact of excessive changes in interest rates) which in the comparative period contributed £1.07m but for the current period showed a cost of £0.68m. We propose reporting on this basis for the foreseeable future, whilst understanding of IFRS reporting develops. A reconciliation of the comparative results under IFRS to those under former UK GAAP may be found in note 24 to this statement. Profits before tax, at £45.83m are up 32.1% (2004: £34.69m). However, at a trading operations level, there was a reduction from £6.92m in 2004/05 to £6.76m in the current year. Interest charges for the half year were up £1.67m mainly due to increased borrowing levels, but due in part also to increased rates during the first quarter (year on year). The other significant impact of the implementation of IFRS is that on reported net worth and net asset value per share. Here the key influence is the full recognition of deferred tax liabilities on valuation surpluses. This deferred tax liability will only accrue if the related assets are sold. The deferred tax liability increased from £7.35m to £86.08m on restatement of the 31 March 2005 Balance Sheet (an adjustment of 48 pence per share), increasing to £98.22m at 30 September 2005 once the valuation surplus and other items in the quarter were accounted for (amounting to 7 pence per share). The impact of this adjustment has been exacerbated by the requirement under IFRS that indexation allowances, ordinarily allowable under UK tax law, be ignored in computing the deferred tax liability. As a result, the reported deferred tax liability overstates the tax liability estimated on the basis of gains measured at the reporting date by £16.55m (10 pence per share). The following table summarises the impacts of the changes to Net Asset Value per share: Net Assets per share 31 March 2005 Movements 30 September 2005 Under former UK GAAP £2.24 £0.25 £2.49 Adjustments £(0.47) £(0.08) £(0.55) Under IFRS £1.77 £0.17 £1.94 During the first half of the year acquisitions totalling £95.7m were made with costs and other additions of £14.6m. These acquisitions have been financed using the Group's existing facilities with NatWest and Bradford & Bingley. The latter of these has been increased by £70m to £270m, renewing the term to a fresh 5 year period maturing in July 2010. Negotiations are in hand for a further facility extension with Natwest to support acquisitions. In addition, following a review of the Group's portfolio, a number of properties have been offered for sale which, if completed, will lead to a receipt from disposal. The changes in the balance sheet under IFRS referred to earlier have a consequent impact on gearing. However, your Board, in common with the Group's bankers, considers that gearing measurement should continue to be monitored for the present under the former UK GAAP principles. As a result, both IFRS and former UK GAAP measures are incorporated in the following table of key financial statistics and indicators:- 6 months to 30 3 months to 30 Year to 31 6 months to 30 September 2005 June 2005 March 2005 September 2004 Net rental income: revenue 73% 72% 74% 74% Trading operating profit: revenue 59% 58% 60% 59% Trading PBT:revenue 23% 22% 26% 26% EPS per share (pence) 19.6 8.5 36.1 15.2 NAV per share (£) - IFRS 1.94 1.85 1.77 1.58 - UK GAAP 2.49 2.35 2.24 1.99 Trading interest cover 1.65 1.63 1.77 1.77 Gearing - IFRS 137% 112% 112% 120% - UK GAAP 105% 87% 88% 94% Available facilities (£m) *13.6 38.0 49.2 68.3 * Arrangements are in hand to increase facilities by a further £25.0m Prospects The long term prospects for London and the SME community in the capital remain good. Short term confidence levels reported of late remain positive too. However they are lower than last year, which may flatten general rental growth for a short period. Even so, the Group should still see growth overall with the contributions from the lettings of its refurbishment schemes at Clerkenwell, Southbank and Enterprise House next year. With the Olympic Games and other economic drivers on the London economy, the prospects are for a growing and ever-more vibrant SME community. This should underpin the Group's prospects going forward. Consolidated Income Statement (unaudited) for the 6 months ended 30 September 2005 Year ended 6 months ended 30 September 2005 6 months ended 31 march 2005 Trading Other Total 30 September (re-stated) Operations Items 2004 (restated) £000 Notes £000 £000 £000 £000 55,039 Revenue 1 29,229 - 29,229 26,911 (14,071) Direct costs 1 (7,777) 26 (7,751) (7,074) ------------------------------------------------------------------------------------------- 40,968 Net rental income 21,452 26 21,478 19,837 (7,643) Administrative expenses (4,248) 39 (4,209) (3,910) Gain from change in - 40,206 40,206 27,378 fair value of 67,923 investment property Profit/(loss) on disposal of investment (75) properties 2 - 27 27 (384) ------------------------------------------------------------------------------------------- 101,173 Operating profit 17,204 40,298 57,502 42,921 73 Finance income - 21 - 21 45 interest receivable (19,523) Finance costs - 3 (10,463) (557) (11,020) (9,350) interest payable 1,097 Change in fair value - (678) (678) 1,073 of derivative financial instruments ------------------------------------------------------------------------------------------- 82,820 Profit before tax 6,762 39,063 45,825 34,689 (24,342) Taxation 4 (2,048) (11,706) (13,754) (10,129) ------------------------------------------------------------------------------------------- 58,478 Profit for the period 4,714 27,357 32,071 24,560 after tax and attributable to equity shareholders ------------------------------------------------------------------------------------------- 36.1p Basic earnings per 6 2.9p 16.7p 19.6p 15.2p share 34.8p Diluted earnings per 6 2.8p 16.0p 18.8p 14.6p share Other Items above include items, such as profits and losses (together with their related taxation) on sales of investment properties, of a non trading nature together with valuation adjustments arising from the fair valuing of financial assets and liabilities. The adjustment to direct costs arises from the treatment of head lease payments as interest, with the adjustment to administrative expenses from the estimation under IFRS2 of the services cost arising from the grant of share options and other non-cash remuneration to staff. Consolidated Statement of Recognised Income and Expense (unaudited) for the 6 months ended 30 September 2005 Year ended 6 months ended 6 months ended 31 March 2005 30 September 2005 30 September 2004 (restated) (restated) £000 £000 £000 58,478 Profit for the financial period 32,071 24,560 (15) Convertible loan stock conversion - (17) 231 Value of employee services 185 102 ------------------------------------------------------------------------------ Total recognised income and 58,694 expense 32,256 24,645 for the period ------------------------------------------------------------------------------ Consolidated Balance Sheet (unaudited) As at 30 September 2005 31 March 2005 Notes 30 September 30 September (re-stated) 2005 2004 (restated) £000 £000 £000 Assets Non-current assets 716,537 Investment properties 8 865,100 653,204 143 Intangible assets 212 164 3,523 Property, plant and equipment 10 3,520 3,204 ------------------------------------------------------------------------------- 720,203 868,832 656,572 ------------------------------------------------------------------------------- Current assets 5,159 Trade and other receivables 11 8,163 7,897 187 Financial assets - derivative 85 124 financial instruments 1,251 Financial assets - tenant 12 1,773 1,206 deposits 3 Cash and cash equivalents 4 2,821 ------------------------------------------------------------------------------- 6,600 10,025 12,048 ------------------------------------------------------------------------------- Liabilities Current liabilities (817) Financial liabilities - 14 (1,918) (3) borrowings (24,816) Trade and other payables 13 (28,845) (26,321) (2,507) Current tax liabilities (413) (5,545) ------------------------------------------------------------------------------- (28,140) (31,176) (31,869) ------------------------------------------------------------------------------- (21,540) Net current liabilities (21,151) (19,821) ------------------------------------------------------------------------------- Non current liabilities (322,402) Financial liabilities - 14 (429,987) (306,969) borrowings (1,729) Financial liabilities - (2,305) (1,690) derivative financial instruments (86,075) Deferred tax liabilities 16 (98,224) (72,422) ------------------------------------------------------------------------------- (410,206) (530,516) (381,081) ------------------------------------------------------------------------------- 288,457 Net assets 317,165 255,670 ------------------------------------------------------------------------------- Shareholders' equity 16,884 Ordinary shares 17 16,891 1,688 28,388 Share premium 19 28,442 43,586 (5,519) Investment in own shares 19/20 (5,409) (6,096) 461 Other reserves 18 646 332 248,243 Retained earnings 19 276,595 216,160 ------------------------------------------------------------------------------- 288,457 Total shareholders' equity 19 317,165 255,670 ------------------------------------------------------------------------------- £1.77 Net asset value per share 7 £1.94 £1,58 (basic) £2.22 Adjusted net asset value per 7 £2.44 £1.95 share (diluted) Consolidated Cash Flow Statement (unaudited) for the 6 months ended 30 September 2005 Year ended Notes 6 months ended 6 months ended 31 March 2005 30 September 30 September (re-stated) 2005 2004 (restated) £000 £000 £000 Cash flows from operating activities 33,870 Cash generated from 15 17,185 16,217 operations 73 Interest received 21 45 (19,714) Interest paid (10,531) (9,365) (3,179) Tax paid (1,668) (1,534) ------------------------------------------------------------------------------ 11,050 Net cash from operating 5,007 5,363 activities Cash flows from investing activities (44,944) Purchase of investment (99,843) (28,886) property (9,543) Capital expenditure on (10,366) (3,699) investment property 35,362 Proceeds from sales of 2,353 34,219 investment property (2,745) Taxation on disposal of (2,032) (795) investment property (44) Purchase of intangible (37) (18) assets (823) Purchase of property, (309) (228) plant and equipment ------------------------------------------------------------------------------ (22,737) Net cash (used in)/from (110,234) 593 investing activities Cash flows from financing activities 287 Net proceeds from issue of 61 289 ordinary share capital 16,300 Net proceeds from issue of 107,700 1,000 new bank loan 687 Net distribution of own 110 110 shares (51) Finance lease principal (26) (26) payments (5,186) Dividend paid to 5 (3,719) (3,349) shareholders ------------------------------------------------------------------------------ 12,037 Net cash from/(used in) 104,126 (1,976) financing activities ------------------------------------------------------------------------------ 350 Net (decrease)/increase in (1,101) 3,980 cash and cash equivalents ============================================================================== (1,159) Cash and cash equivalents (809) (1,159) at start of period (809) Cash and cash equivalents 15 (1,910) 2,821 at end of period ============================================================================== Notes to the Half Year Interim Report 1. Analysis of net rental income Year ended 6 months ended 6 months ended 31 March 2005 (restated) 30 September 2005 30 September 2004(restated) Revenue Costs Net Rental Revenue Costs Net Rental Revenue Costs Net Rental Income Income Income £000 £000 £000 £000 £000 £000 £000 £000 £000 43,270 (278) 42,992 Rental income 23,110 (101) 23,009 21,417 (189) 21,228 9,865 (13,482) (3,617) Service charges and other recoveries 5,462 (7,480) (2,018) 4,838(6,871) (2,033) 1,904 (311) 1,593 Services, fees, commissions 657 (170) 487 656 (14) 642 and sundry ------ ------ ------ ------ ------ ------ ------ ----- ------ 55,039 (14,071) 40,968 29,229 (7,751) 21,478 26,911(7,074) 19,837 ------ ------ ------ ------ ------ ------ ------ ----- ------ The Group operates a single business segment providing business accommodation for rent in London and the South East of England, which is continuing. 2. Profit/(loss) on disposal of investment properties Year ended 31 March 2005 6 months ended 6 months ended (restated) 30 September 30 September 2005 2004 (restated) £000 £000 £000 34,721 Proceeds from sale of investment 2,150 34,421 properties Book value at time of sale plus sale (34,796) costs (2,123) (34,805) --------------------------------------------------------------------------------- (75) Profit /(loss) on sale 27 (384) --------------------------------------------------------------------------------- (4,007) Current tax (235) (3,800) 4,485 Deferred tax released on sale 278 4,286 --------------------------------------------------------------------------------- 478 Net tax 43 486 --------------------------------------------------------------------------------- 403 Net profit on disposal after tax 70 102 ================================================================================= On 27 May 2005 the Group disposed of Payne Road Studios and 5 Payne Road, London, E3 for £2.1m. 3. Finance costs - interest payable Year ended 6 months ended 6 months ended 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Interest expense: (16,806) Interest payable on bank borrowings (9,713) (8,091) Amortisation of issue costs of bank (391) loans (214) (186) Interest payable on finance (51) leases (26) (26) (1,391) Interest payable on 11.125% First Mortgage Debenture Stock 2007 (695) (695) Interest payable on 11.625% First (814) Mortgage Debenture Stock 2007 (407) (407) Interest payable on 11% Convertible (284) Loan Stock 2011 (142) (142) Interest capitalised on investment 177 197 214 property re-developments --------------------------------------------------------------------------------- (19,523) (11,020) (9,350) ================================================================================= 4. Taxation Year ended 6 months ended 6 months ended 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Analysis of charge in period: 6,190 Current tax 1,605 5,632 18,152 Deferred tax (see note 16) 12,149 4,497 --------------------------------------------------------------------------------- 24,342 Total taxation 13,754 10,129 ================================================================================= The tax on the Group's profit for the period differs from the standard applicable corporation tax rate in the UK (30%). The differences are explained below: - 82,820 Profit before taxation 45,825 34,689 Tax at standard rate of corporation 24,846 tax in the UK of 30% (2004/5: 30%) 13,748 10,407 14 Expenses not deductible for tax purposes 19 25 64 Other differences 40 81 Capital gains adjustments on property (408) disposals (53) (384) Reductions due to application of small (5) companies rate - - (169) Adjustment in respect of previous periods - - --------------------------------------------------------------------------------- 24,342 Tax expense 13,754 10,129 ================================================================================= 5. Dividends paid Year ended 6 months ended 6 months ended 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Final dividend for year ended 31 March 2005 of 2.28p per ordinary - share paid 2 August 2005 3,719 - Final dividend for year ended 31 - 3,349 March 2004 of 2.07p* per ordinary 3,349 share paid 2 August 2004 Interim dividend for year ended 31 March 2005 of 1.13p* per ordinary 1,837 share paid 1 February 2005 - - --------------------------------------------------------------------------------- Dividends paid out of retained 5,186 earnings (see note 19) 3,719 3,349 ================================================================================= *Figures adjusted to reflect bonus share issue made in March 2005. 6. Earnings per share a) Earnings used in calculating earnings per share Year ended 6 months ended 6 months ended 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 58,478 Earnings for basic earnings per share 32,071 24,560 Interest saving net of taxation on 11% 191 Convertible Loan Stock 101 84 --------------------------------------------------------------------------------- 58,669 Diluted earnings 32,172 24,644 (48,229) Less non trading other items (27,357) (20,116) --------------------------------------------------------------------------------- 10,440 Trading diluted earnings 4,815 4,528 ================================================================================= b) Weighted average number of shares used for calculating earnings per share Year ended 6 months ended 6 months ended 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) Number Number Number Weighted average number of shares 161,931,920 (excluding shares held in the ESOT) 163,375,024 16,128,828 Increase due to capitalisation - (March 2005) - 145,159,452 --------------------------------------------------------------------------------- Used for calculating basic earnings per share 161,931,920 (excluding shares held in the ESOT) 163,375,024 161,288,280 Dilution due to Share Option 1,682,780 Schemes 2,622,343 222,762 Dilution due to Convertible Loan 5,000,000 Stock 5,000,000 500,000 Increase due to capitalisation - (March 2005) - 6,504,858 --------------------------------------------------------------------------------- Used for calculating diluted 168,614,700 earnings per share 170,997,367 168,515,900 ================================================================================= 7. Net assets per share a) Net assets used in calculating net assets per share 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 288,457 Net assets at end of period 317,165 255,670 Dilution due to Convertible Loan 2,484 Stock 2,488 2,479 --------------------------------------------------------------------------------- 290,941 Diluted net assets 319,653 258,149 Deferred tax on accelerated tax 6,541 depreciation 7,031 4,935 Deferred tax on fair value change of 80,029 investment properties 91,866 68,058 Deferred tax on derivative financial (463) instruments (667) (469) --------------------------------------------------------------------------------- 377,048 Adjusted diluted net assets 417,883 330,673 ================================================================================= b) Number of shares used for calculating net assets per share 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) Number Number Number 168,839,660 Shares in issue at end of period 168,909,640 16,883,211 (5,620,370) Less ESOT shares (5,340,370) (667,066) - Increase due to capitalisation (March - 145,945,305 2005) --------------------------------------------------------------------------------- 163,219,290 Number of shares for calculating basic 163,569,270 162,161,450 net assets per share 1,682,780 Dilution due to Share Option Schemes 2,622,343 222,762 5,000,000 Dilution due to Convertible Loan 5,000,000 500,000 Stock - Increase due to capitalisation (March - 6,504,858 2005) --------------------------------------------------------------------------------- 169,902,070 Number of shares for calculating 171,191,613 169,389,070 diluted net assets per share ================================================================================= 8. Investment properties 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 626,817 Balance at beginning of period 716,537 626,817 55,973 Additions during the period 110,282 33,200 214 Capitalised interest on 177 197 re-developments (34,385) Disposals during the period (2,100) (34,385) 67,923 Gain from fair value adjustments on 40,206 27,378 investment property (5) Amortisation of finance leases (2) (3) --------------------------------------------------------------------------------- 716,537 Balance at end of period 865,100 653,204 ================================================================================= Capitalised interest is included as an addition in the period, the rate of capitalisation is 5.86% (31 March 2005: 5.79%; 30 September 2004: 5.68%). 9. Valuation The Group's investment properties were revalued at 30 September 2005 by CB Richard Ellis, Chartered Surveyors, a firm of independent qualified valuers. The valuations were undertaken in accordance with the Royal Institution of Chartered Surveyors Appraisal and Valuation Standards on the basis of market value. Market value is defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arm's length transaction. Included in the CB Richard Ellis valuations is an amount in respect of the Company's short leasehold interest (expiring 11 February 2011) in the Alpha Business Centre, Walthamstow. For accounts purposes, as the unexpired term of the leasehold interest in Alpha Business Centre is less than 20 years, the valuation of the property has been retained at a nominal £1. The adjustment from the valuation report total to the accounts total may be reconciled as follows: - 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 718,425 Total per CB Richard Ellis valuation 867,060 655,050 report (350) Alpha Business Centre (385) (400) (2,290) Owner occupied property (2,325) (2,200) 752 Head leases treated as finance 750 754 leases under IAS17 --------------------------------------------------------------------------------- 716,537 Total per accounts 865,100 653,204 ================================================================================= 10. Property, plant and equipment Owner occupied Owner occupied Motor Equipment Total land buildings Vehicles and Fixtures £000 £000 £000 £000 £000 Cost Balance at 1 April 2004 (restated) 500 1,525 25 4,165 6,215 Additions - 5 - 223 228 Disposals - - - (939) (939) ----------------------------------------------------------------------------------- Balance at 30 September 2004 (restated) 500 1,530 25 3,449 5,504 ----------------------------------------------------------------------------------- Balance at 1 April 2004 (restated) 500 1,525 25 4,165 6,215 Additions - 9 - 813 822 Disposals - - - (939) (939) ----------------------------------------------------------------------------------- Balance at 31 March 2005 (restated) 500 1,534 25 4,039 6,098 ----------------------------------------------------------------------------------- Balance at 1 April 2005 500 1,534 25 4,039 6,098 Additions - 23 7 281 311 Disposals - - - - - ----------------------------------------------------------------------------------- Balance at 30 September 2005 500 1,557 32 4,320 6,409 =================================================================================== Cumulative depreciation to 30 September 2004 (restated) - 15 13 2,272 2,300 ----------------------------------------------------------------------------------- Net book value at 30 September 2004 (restated) 500 1,515 12 1,177 3,204 ----------------------------------------------------------------------------------- Cumulative depreciation to 31 March 2005 (restated) - 30 15 2,530 2,575 ----------------------------------------------------------------------------------- Net book value at 31 March 2005 500 1,504 10 1,509 3,523 (restated) ----------------------------------------------------------------------------------- Cumulative depreciation to 30 September 2005 - 46 16 2,827 2,889 ----------------------------------------------------------------------------------- Net book value at 30 September 2005 500 1,511 16 1,493 3,520 =================================================================================== At 1 April 2004, the fair value of owner occupied land and buildings was adopted as the deemed cost of those assets. The fair value of owner occupied land and buildings was £2,025,000 and the carrying value at 1 April 2004 under UK GAAP was £2,036,401. 11. Trade and other receivables - current 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 -------------------------------------------------------------------------------- 3,484 Trade debtors 4,125 5,140 (385) Less: provision for impairment of (439) (447) receivables -------------------------------------------------------------------------------- 3,099 Trade debtors - net 3,686 4,693 - Taxation and social security - 4 2,060 Prepayments and accrued income 4,477 3,200 -------------------------------------------------------------------------------- 5,159 8,163 7,897 ================================================================================ 12. Tenant deposits Financial assets - tenant deposits represent returnable cash security deposits received from tenants. These deposit deeds are ring-fenced under the terms of the individual lease contracts and cannot be used to fund the working capital of the Group. They are accordingly held separately from other cash balances and excluded from cash and cash equivalents with a corresponding liability recorded in trade and other payables (note 13). 13. Trade and other payables - current 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 -------------------------------------------------------------------------------- 2,219 Trade payables 3,180 3,146 1,111 Taxation and social security 1,173 1,574 payable 1,251 Tenants' deposit deeds (see note 12) 1,773 1,206 4,869 Tenants' deposits 5,153 4,664 10,525 Accrued expenses 11,090 10,904 4,841 Deferred income-rent and service 6,476 4,827 charges -------------------------------------------------------------------------------- 24,816 28,845 26,321 ================================================================================ 14. Financial liabilities - borrowings a) Balances 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Current 812 Bank overdraft repayable on demand 1,914 - (secured) 5 Finance lease obligations 4 3 -------------------------------------------------------------------------------- 817 1,918 3 Non -current 2,484 11% Convertible Loan Stock 2011 2,488 2,479 (unsecured) 12,500 11.125% First Mortgage Debenture 12,500 12,500 Stock 2007 (secured) 7,000 11.625% First Mortgage Debenture 7,000 7,000 Stock 2007 (secured) 299,671 Other loans (secured) 407,253 284,239 747 Finance lease obligations 746 751 -------------------------------------------------------------------------------- 322,402 429,987 306,969 -------------------------------------------------------------------------------- 323,219 431,905 306,972 ================================================================================ b) Maturity 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 Secured 812 Less than one year 1,914 - - Between one year and two years 19,500 - 219,500 Between two years and three years - 219,500 - Between three years and four 148,100 - years 100,800 Between four years and five years 260,400 85,500 -------------------------------------------------------------------------------- 321,112 429,914 305,000 (1,129) Less cost of raising finance (1,247) (1,261) -------------------------------------------------------------------------------- 319,983 428,667 303,739 Unsecured 2,484 In five years and more 2,488 2,479 Finance Leases 752 In five years and more 750 754 -------------------------------------------------------------------------------- 323,219 431,905 306,972 ================================================================================ c) Financial instruments held at fair value The following interest rate caps and collars are held: Amount Interest Rate Interest Rate Expiry £000 Cap Floor Interest rate cap and collar (amortising amount) 102,370 8.00% 4.50% July 2009 Interest rate cap and collar 75,000 6.95% 4.05% July 2009 Interest rate cap and collar (increasing amount) 32,630 7.00% 2.99% Oct 2010 Both these instruments are treated as financial instruments at fair value with changes in value dealt with in the income statement at each reporting date. d) Fair values of financial instruments 31 March 2005 30 September 2005 30 September 2004 (restated) (restated) Book Value Fair Value Book Value Fair Value Book Value Fair Value £000 £000 £000 £000 £000 £000 Financial instruments not at fair value through profit and loss 812 812 Bank overdraft 1,914 1,914 - - 2,484 2,914 11% Convertible 2,488 2,932 2,479 2,930 Loan Stock 2011 12,500 13,474 11.125% First 12,500 13,369 12,500 13,637 Mortgage Debenture Stock 2007 7,000 7,601 11.625% First 7,000 7,532 7,000 7,703 Mortgage Debenture Stock 2007 299,671 299,671 Other loans 407,253 407,253 284,239 284,239 752 752 Finance lease 750 750 754 754 obligations ------------------------------------------------------------------------------------------- 323,219 325,224 431,905 433,750 306,972 309,263 Financial instruments at fair value through profit and loss Derivative financial instruments:- 1,729 1,729 Liabilities 2,305 2,305 1,690 1,690 (187) (187) Assets (85) (85) (124) (124) ------------------------------------------------------------------------------------------- 1,542 1,542 2,220 2,220 1,566 1,566 ------------------------------------------------------------------------------------------- 324,761 326,766 434,125 435,970 308,538 310,829 ------------------------------------------------------------------------------------------- The total loss recorded in the income statement was £678,000 (31 March 2005: £1,097,000 gain, 30 September 2004: £1,073,000 gain) for changes of fair value of derivative financial instruments. The fair value of the interest rate collars has been determined by reference to market prices and discounted expected cash flows at prevailing interest rates. All other fair values have been calculated by discounting expected cash flows at prevailing interest rates. The total fair value adjustment equates to 1.1p per share (31 March 2005: 1.2p, 30 September 2004: 1.4p). Comparatives have been restated for the bonus issue in March 2005. 15. Cash generated from operations Reconciliation of profit for the period to net cash flow from operations: 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 58,478 Profit for the period 32,071 24,560 24,342 Tax 13,754 10,129 567 Depreciation 314 292 96 Amortisation of intangible assets 43 49 (15) Share based payments (38) (17) 75 (Profit)/loss on disposals of (27) 384 investment property (67,923) Net gain from fair value (40,206) (27,378) adjustments on investment property (1,097) Fair value losses/(gains) on 678 (1,073) financial instruments (73) Interest income (21) (45) 19,523 Interest expense 11,020 9,350 Changes in working capital: 46 (Increase)/decrease in trade and (3,716) (1,813) other receivables (149) Increase/(decrease) in trade and 3,313 1,779 other payables -------------------------------------------------------------------------------- 33,870 Cash generated from operations 17,185 16,217 ================================================================================ For the purposes of the cash flow statement, the cash and cash equivalents comprise the following: 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 3 Cash and bank balances 4 2,821 (812) Bank overdrafts (note 14) (1,914) - -------------------------------------------------------------------------------- (809) (1,910) 2,821 ================================================================================ Total tax paid in the period was £3,700,000 (31 March 2005: £5,924,000; 30 September 2004 £2,329,000). 16. Deferred tax liabilities 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 67,934 Balance at start of period 86,075 67,934 18,152 Deferred tax charge to income 12,149 4,497 statement (11) Deferred tax credit to equity re: - (9) conversion of convertible loan stock -------------------------------------------------------------------------------- 86,075 Balance at end of period 98,224 72,422 ================================================================================ Deferred tax liability recognised in the balance sheet by each category of temporary timing difference is as follows: 31 March 2005 30 September 30 September (restated) 2005 2004 (restated) £000 £000 £000 80,029 Fair value gains on investment 91,866 68,058 properties 6,541 Accelerated tax depreciation 7,031 4,935 (463) Derivative financial instruments (667) (469) (32) Other (6) (102) -------------------------------------------------------------------------------- 86,075 98,224 72,422 ================================================================================ If the investment properties were sold for their revalued amount, there would be a potential liability to corporation tax of £74,922,000 (31 March 2005: £64,456,000, 30 September 2004: £54,130,000). Under IFRS no account is taken of indexation relief on capital gains resulting in the difference between expected corporation tax to be paid and the provision made for deferred tax. 17. Share capital 31 March 2005 30 September 30 September Number 2005 2004 Number Number 240,000,000 Authorised: ordinary shares of 10p 240,000,000 21,500,000 each ================================================================================ 168,839,660 Issued: fully paid ordinary shares 168,909,640 16,883,211 of 10p each ================================================================================ £ £ £ Issued: fully paid ordinary shares of 10p each 16,883,966 16,890,964 1,688,321 ================================================================================ Movements in share capital were as follows: 31 March 2005 30 September 30 September Number 2005 2004 Number Number 16,733,811 Number of shares at start of 168,839,660 16,733,811 period 151,955,694 Bonus issue - - 50,000 Executive Share Options - 50,000 exercised 20,155 Employee Share Options exercised 69,980 19,400 80,000 Convertible Loan Stock converted - 80,000 -------------------------------------------------------------------------------- 168,839,660 Number of shares at end of 168,909,640 16,883,211 period ================================================================================ 18. Other reserves 31 March 2005 Equity element Equity settled 30 September 30 September (restated) of convertible share based 2005 2004 (restated) Total loan stock payments Total Total £000 £000 £000 £000 £000 254 At start of 151 310 461 254 period (35) Convertible - - - (33) Loan Stock conversion 11 Deferred tax - - - 9 on conversion 231 Value of - 185 185 102 employee services ----------------------------------------------------------------------------------- 461 At end of 151 495 646 332 period ================================================================================== 19. Statement of changes in shareholders' equity 31 March 2005 30 September 2005 30 September (restated) Share Share Investment in Other Reserves Retained Total 2004 Total Capital Premium Own Shares Earnings Equity (restated) £000 £000 £000 £000 £000 £000 £000 £000 233,575 At start of 16,884 28,388 (5,519) 461 248,243 288,457 233,575 period 689 697 Share issues 7 57 - - - 64 - (10) Share issue - (3) - - - (3) transaction costs 687 Distribution of - - 110 - - 110 110 own shares (5,186) Dividends paid - - - - (3,719) (3,719) (3,349) (26) Convertible Loan - - - - - - (26) Stock conversion 11 Deferred tax on - - - - - - 9 conversion 231 Value of - - - 185 - 185 102 employee services 58,478 Profit for the - - - - 32,071 32,071 24,560 period -------------------------------------------------------------------------------------------------- 288,457 At end of 16,891 28,442 (5,409) 646 276,595 317,165 255,670 period ================================================================================================== 20. Investment in own shares The Company has established an Employee Share Ownership Trust (ESOT) to purchase shares in the market for distribution at a later date in accordance with the terms of the 1993 and 2000 Executive Share Option Schemes. The shares are held by an independent trustee and the rights to dividend on the shares have been waived. During the period the Trust transferred 280,000 shares to employees on exercise of options. At 30 September 2005, the number of shares held by the Trust totalled 5,340,370 (31 March 2005: 5,620,370, 30 September 2004: 6,670,660) with a book value of £5,409,100 (31 March 2005: £5,518,880, 30 September 2004: £6,096,157). The shares have been included in shareholders equity (see note 19). 5,329,010 shares held by the Trust are subject to option awards. 21. Capital commitments At the period end the estimated amounts of commitments for future capital expenditure not provided for were: 31 March 2005 30 September 30 September £000 2005 2004 £000 £000 8,859 Under contract 7,258 7,102 12,550 Authorised by directors but not 3,915 10,178 contracted ================================================================================ 22. Post balance sheet events There have been no post balance sheet events since the period end. 23. Basis of preparation This is the Group's first half yearly report prepared under International Financial Reporting Standards (IFRS). The financial information reflects the current versions of the standards of the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as currently endorsed by the European Union. IFRS will continue to evolve through development and adoption of new Standards and Interpretations as well as through practical experience gained from the application of IFRS by reporting entities and their auditors. For these reasons, the information contained in this document may be amended before its presentation in the audited financial statements of the Group for the year ended 31 March 2006. UK generally accepted accounting principles (GAAP) differs in certain respects from IFRS. The comparative figures used within this report have been restated accordingly. The Group has issued an explanation and reconciliation of the adjustments from UK GAAP to IFRS for 31 March 2004 and 31 March 2005 and a statement of its IFRS accounting policies in the document entitled 'Workspace Group PLC - Adoption of International Financial Reporting Standards (IFRS)' which is available from the Group's website or Company Secretary. An explanation and reconciliation of the adjustments from UK GAAP to IFRS for the period ended 30 September 2004 is shown in note 24 below. The accounting policies set out in the document 'Workspace Group PLC - Adoption of International Financial Reporting Standards (IFRS)' have been applied in preparing the financial information contained in this report. The Group has not adopted IAS 34 - Interim Financial Reporting. This interim report was approved by the Board on 18 November 2005. This report is unaudited and does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. The statutory accounts for the year to 31 March 2005, which were prepared under UK GAAP, and on which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. 24. Explanation and reconciliation of IFRS adjustments The principal differences between UK GAAP and IFRS as they affect the reported results and their presentation of Workspace Group are set out below: IAS 40 Investment property IAS 40 requires that the revaluation gains or losses on investment property held at fair value be recognised on the face of the Income Statement rather than in reserves in the Statement of Group Total Recognised Gains and Losses as is the case under UK GAAP. As a result the revaluation reserve is no longer shown as a separate component of equity in the Balance Sheet but is included within retained earnings, and is non distributable. Under UK GAAP, on disposal of properties the tax due on the realisation of gains previously recognised through the revaluation reserve was shown in the Statement of Group Total Recognised Gains and Losses. Under IFRS it is included in the Income Statement. The tax due on sale will comprise an element in the Income Statement current tax charge (based on the difference between the sales price and property's carrying value at the point of disposal) and a transfer from the deferred tax reserve of the deferred tax amount already provided in previous periods. IAS 12 Income taxes IAS 12 requires full provision to be made for the deferred tax on revaluation gains or losses of investment properties at the tax rate estimated at the point of realisation. A tax charge therefore arises in the Income Statement if a revaluation surplus occurs, the corresponding entry being a deferred tax liability in the balance sheet. Under IAS12 the provision for deferred tax will take no account of indexation allowances afforded under UK taxation law, the tax provided is not a calculation of potential Capital Gains Tax liability. Under UK GAAP the liability is an estimate of the Capital Gains Tax, but is not provided for, only disclosed in the notes (note 17 in the 31 March 2005 accounts). IAS 17 Leases IAS 17 requires leases, whether as the lessee or lessors to be examined to differentiate between finance and operating leases. Most property leases were recognised as operating leases under UK GAAP but under IFRS different criteria may mean some are considered as finance leases. Leases which extend for long periods and therefore under which a substantial portion of the asset life is consumed may be regarded as finance leases. a) Head leases. Some (or some parts) of the investment properties of the Group are held under long leases which under IFRS are classified as finance leases so requiring recognition of a liability based on the minimum lease payments and a corresponding increase in the carrying value of the investment property. Many of these head leases incur only a peppercorn rent hence creating no finance lease liability. For head leases with rental payments other than peppercorn the rent paid is split between interest payable and repayment of the lease liability. Any rent payable in excess of the minimum lease payments as identified at initial recognition of the lease is considered as contingent rent and is expensed immediately. Under UK GAAP leasehold investment properties were reported at the valuation of the legal interest owned. b) Tenant leases are subject to the same tests. Because of the multi tenanted nature of the Group's buildings and the short-term nature of most tenancies, no leases granted by the Group have been determined to be finance leases. SIC-15 Operating Lease - Incentives SIC-15 requires that any lease incentives offered to tenants, such as rent free periods or reduced initial rents are recognised over the lease term. An adjustment is therefore made to increase revenue in the Income Statement and create a financial asset. Under UK GAAP any incentive was spread to the shorter of the lease term or periods to the first rent review or lease break. The Group has granted no material operating lease incentives. IAS 10 Events after the Balance Sheet Date IAS 10 requires dividends only to be recognised when there is an irrevocable legal obligation to make payment. The final dividend does not become irrevocable until approved by the members at the Annual General Meeting. Under IFRS the final dividend is therefore not recognised until approved and interim dividend not recognised until paid. IAS 16 Property, Plant and Equipment IAS 16 requires owner occupied property to be shown as part of Property, Plant and Equipment. The Group's head office is defined as owner occupied property. As land has an indefinite life and buildings a finite life the land and building elements of the owner occupied property are shown separately, the latter being depreciated over the expected useful life and the former not being depreciated. Under UK GAAP the whole property was subject to depreciation. The valuation of the asset at the date of transition to IFRS is taken to be its deemed cost, any surplus or deficit being recognised in retained reserves. IAS 23 Borrowing costs IAS 23 allows the capitalisation of directly attributable borrowing costs on the creation or refurbishment of property by applying the weighted average borrowing costs to the expenditures on the asset. In the case of investment properties only the expenditure on the improvement costs may be subject to capitalisation of related borrowing costs and the underlying carrying cost of the property is excluded. Under UK GAAP interest capitalisation arose on both the original value of the investment property and on the improvement costs. IAS 38 Intangible Assets IAS 38 requires externally acquired computer software to be classified as an intangible asset. Under UK GAAP software was shown within fixtures and fittings amongst other tangible assets. IAS 32/39 Financial Instruments: Disclosure and Presentation, Recognition and Measurement a) IAS 32 requires the Convertible Loan Stock to be split into its equity and debt components. The debt element is carried at amortised cost, amortised over the life of the instrument, such that interest is charged at a constant effective interest rate compared to the liability outstanding at any given point in time. Under UK GAAP the instrument was considered wholly as debt. b) IAS 39 requires derivative financial instruments to be valued at fair value through the Income Statement and their carrying values shown in the Balance Sheet unless they meet the IFRS hedging criteria. Under UK GAAP the fair value of such items was disclosed by way of a note and any original cost amortised over the life of the item. c) IAS 39 requires the identification of any embedded derivatives in the Group's contractual arrangements. Embedded derivatives are derivative instruments that have been combined with other contractual arrangements to create a composite contract. The Group currently believes it has no material embedded derivatives. IAS 7 Cash Flow Statements IAS 7 defines cash and cash equivalents to include short-term, highly liquid investments, thus including short-term bank deposits. Cash equivalents were shown as investments under UK GAAP. IFRS 2 Share-based payment The Group operates an employee Save as You Earn Scheme, an Executive Share Option Scheme and a Long Term Incentive Plan (LTIP). IFRS 2 requires the cost of services provided where payment is made through a share based payment scheme to be recognised as an expense in the Income Statement over their vesting periods and requires that where there is no reliable estimate of the cost of these services then the fair value of the options granted should be recognised as the cost of services. The fair values have been estimated by use of the Black- Scholes option valuation model in the case of the SAYE and Executive Share Option Schemes which have non market related performance conditions and by use of Monte Carlo simulation in the case of the LTIP whose performance conditions are market related. Subsequent changes in fair value are shown as an expense in the Income Statement. Provision is also made for employer's National Insurance costs relating to share based payment schemes. Under UK GAAP the SAYE and Executive Share Option Schemes were not directly recognised as an expense (although the interest costs arising from borrowings made to finance the purchase of shares held in the Group's ESOT to satisfy option exercises were recognised, together with share dilution where new shares were issued). The purchase cost of the matching shares was recognised for the LTIP on a straight line basis over the vesting period. Employer's National Insurance costs were recognised on share options expected to meet their vesting criteria. IAS 7 Cash Flow statements Under IFRS the consolidated cash flow statement describes movements in cash and cash equivalents. Under UK GAAP the cash flow analyses movements in cash only. With that exception there are no material differences between the previously published and restated cash flow statements. Workspace Group PLC Reconciliation of consolidated profit for the 6 months ended 30 September 2004 IAS 40 IAS 12 IAS 17 IAS 16 IAS 23 IAS 32/39 Previous Investment Contingent Property Owner Capitalisation Convertible GAAP Property tax head Occupied of interest loan stock leases Property £000 £000 £000 £000 £000 £000 £000 Revenue - 26911 continuing operations Direct Costs (7100) 26 -------------------------------------------------------------------------------------------------- Net rental 19811 0 0 26 0 0 0 income Administrative (3928) expenses Gain from 0 27033 1 345 change in fair value of investment property Loss on disposal (384) of investment properties -------------------------------------------------------------------------------------------------- Operating profit 15499 27033 0 26 1 345 0 Interest (8960) (26) (345) 7 recievable and payable and similiar charges Change in fair 0 value of derivative financial instruments -------------------------------------------------------------------------------------------------- Profit before tax 6539 27033 0 0 1 0 7 Taxation (2095) 437 (8109) (5) -------------------------------------------------------------------------------------------------- Profit for the period 4444 27470 (8109) 0 0 0 2 ================================================================================================== Reconciliation of consolidated profit for the 6 months ended 30 September 2004 continued IAS 39 IFRS 2 Fair value of Share based Restated derivatives payments under IFRS £000 £000 £000 Revenue - 26911 continuing operations Direct Costs (7074) -------------------------------------------------------------------------------- Net rental 0 0 19837 income Administrative 17 (3910) expenses Gain from 27378 change in fair value of investment property Loss on disposal (384) of investment properties -------------------------------------------------------------------------------- Operating profit 0 17 42921 Interest (9305) recievable and payable and similiar charges Change in fair 19 1073 value of derivative 1073 financial instruments -------------------------------------------------------------------------------- Profit before tax 1092 17 34689 Taxation (328) (29) (10129) -------------------------------------------------------------------------------- Profit for the period 764 (12) 24560 ================================================================================ Reconciliation of equity at 30 September 2004 IAS 40 IAS 12 IAS 17 IAS 10 IAS 16 Previous Investment Contingent Property Owner GAAP Property tax head occupied leases Dividends property £000 £000 £000 £000 £000 £000 Non current assets Investment 652450 754 properties Intangible 0 assets Property, 3378 (510) plant and equipment - other Property, 0 500 plant and equipment - land -------------------------------------------------------------------------------- Total non 655828 0 0 754 0 10 current assets Current assets Trade and 8032 other receivables Financial 0 assets - derivative financial instruments Tenant 3831 deposits/other investments Cash and cash 196 equivalents -------------------------------------------------------------------------------- Total current 12059 0 0 0 0 0 assets Current Liabilities Financial 0 (3) liabilities - borrowings Trade and (28083) 1832 other payables Current tax (5539) liabilities -------------------------------------------------------------------------------- Total current (33622) 0 0 (3) 1832 0 liabilities Net current (21563) 0 0 (3) 1832 0 (liabilities)/ assets Non Current 0 Liabilities Financial (306239) (751) liabilities - borrowings Financial 0 liabilities - derivative financial instruments Deferred tax (5801) 4286 (71405) liabilities -------------------------------------------------------------------------------- Total non (312040) 4286 (71405) (751) 0 0 current liabilities -------------------------------------------------------------------------------- Net Assets 322225 4286 (71405) 0 1832 (10) ================================================================================ Equity Ordinary 1688 shares Investment in (6096) own shares Share 43586 premium Other reserves 0 Revaluation 222346 (222346) reserve Retained 60701 226632 (71405) 0 1832 (10) earnings -------------------------------------------------------------------------------- Total equity 322225 4286 (71405) 0 1832 (10) ================================================================================ Reconciliation of equity at 30 September 2004 continued IAS 38 IAS 32/39 IAS39 IAS 7 IFRS 2 Computer Fair value Cash and Share Restated software Covertible of cash based under intangible loan stock derivatives equivalents payments IFRS £000 £000 £000 £000 £000 £000 Non current 653204 assets Investment properties Intangible 164 164 assets Property, (164) 2704 plant and equipment - other Property, plant and equipment - land 500 -------------------------------------------------------------------------------- Total non 0 0 0 0 0 656572 current assets Current assets Trade and (186) 51 7897 other receivables Financial 124 124 assets - derivative financial instruments Tenant (2625) 1206 deposits/other investments Cash and cash 2625 2821 equivalents -------------------------------------------------------------------------------- Total current 0 0 (62) 0 51 12048 assets Current Liabilities Financial (3) liabilities - borrowings Trade and 69 (139) (26321) other payables Current tax liabilities (6) (5545) -------------------------------------------------------------------------------- Total current 0 69 (6) 0 (139) (31869) liabilities Net current 0 69 (68) 0 (88) (19821) (liabilities)/ assets Non Current Liabilities Financial 21 (306969) liabilities - borrowings Financial (1690) (1690) liabilities - derivative financial instruments Deferred tax liabilities (4) 469 33 (72422) -------------------------------------------------------------------------------- Total non 0 17 (1221) 0 33 (381081) current liabilities -------------------------------------------------------------------------------- Net Assets 0 86 (1289) 0 (55) 255670 ================================================================================ Equity Ordinary 1688 shares Investment in (6096) own shares Share 43586 premium Other reserves 151 181 332 Revaluation reserve 0 Retained (65) (1289) (236) 216160 earnings -------------------------------------------------------------------------------- Total equity 0 86 (1289) 0 (55) 255670 ================================================================================ 25. Interim Report Copies of this statement will be dispatched to shareholders on 21 November 2005 and will be available from the Group's registered office at Magenta House, 85 Whitechapel Road, London, E1 1DU from 9.00am on that day. . This information is provided by RNS The company news service from the London Stock Exchange

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