Interim Results

GRESHAM HOUSE plc CHAIRMAN'S INTERIM STATEMENT Dear Shareholder, For the first time the interim accounts have been prepared in accordance with International Financial Reporting Standards ("IFRS"). This has resulted in additional information being required and has necessitated a number of changes in the traditional format of the statements which shareholders have received in the past. The comparative figures have also been revised to comply with IFRS and the disclosures required by IFRS 1 concerning the transition from UK Generally Accepted Accounting Principles to IFRS can be found in notes 8, 9 and 10 of these interim accounts. As a result this interim statement is significantly longer than in the past and, as might be expected, has incurred a much higher cost. The results for the half year ended 30th June 2005 show a profit on the revenue account of £30,000 compared with a profit of £385,000 for the comparable period last year and a profit of £1,737,000 for the capital account as against a loss of £254,000 for the same period last year. Overall this has resulted in basic earnings per ordinary share of 36.3p against 2.7p for the comparable period last year. The rental income stream has decreased significantly when compared with the similar period last year as a result of the previously announced sale of property units at Knowsley in October 2004. Whilst the Group acquired property units at Speke at the same time, these units remained vacant during this interim period and have not therefore contributed towards revenue streams. Since 30th June 2005 agreement has been reached with 3 potential tenants and a further number of enquiries are being actively pursued. The associated property loans were repaid at that time and this has been reflected by the reduction in finance costs from £844,000 to £519,000. The increase in the capital account is mainly due to the increase in the value of our investment in Hallin Marine Subsea International plc. At 31st December 2004 this investment was valued at £562,000 and has subsequently been admitted to the AIM market. As at 30th June 2005 the investment value of Hallin has risen to £2,220,000. Consequently the Group's basic net asset value has risen from 626.6p as at 1st January 2005 to 657.0p as at 30th June 2005, an increase of 30.4p or 4.9%. Your Board continues with its strategy of seeking innovative early stage investments in companies that have a real prospect of high growth whilst at the same time seeking the progressive development of the Group's property portfolio. A P Stirling Chairman 28th September 2005. GRESHAM HOUSE plc INTERIM RESULTS 2005 UNAUDITED CONSOLIDATED INCOME STATEMENT for the half year ended 30th June 2005 Six months to Six months to Year ended 30th June 2005 30th June 2004 31st December 2004 Restated Restated Revenue Capital Total Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Income: Dividend and Interest income 142 - 142 84 - 84 224 - 224 Rental income 959 - 959 1,811 - 1,811 3,266 - 3,266 Other operating income (Note 5) 179 3,000 3,179 71 - 71 370 - 370 Total revenue 1,280 3,000 4,280 1,966 - 1,966 3,860 - 3,860 Gains/(losses) on investments held at fair value - (1,336)(1,336) - (229) (229) - (174) (174) (Note 5) Movement in fair value of property investments - - - - (195) (195) - 1,854 1,854 1,280 1,664 2,944 1,966 (424) 1,542 3,860 1,680 5,540 Expenses Other operating expenses (697) - (697) (703) - (703) (1,635) - (1,635) Finance costs (519) - (519) (844) - (844) (1,459) - (1,216) -(1,216) (1,547) - (1,547) (3,094) - Profit before taxation 64 1,664 1,728 419 (424) (5) 766 1,680 2,446 Taxation - 73 73 - 170 170 550 (113) 437 Return on ordinary activities after taxation 64 1,737 1,801 419 (254) 165 1,316 1,567 2,883 Minority interests (34) - (34) (34) - (34) (59) 444 385 Profit/(loss) for the period 30 1,737 1,767 385 (254) 131 1,257 2,011 3,268 Basic earnings per 36.3p 2.7p 67.9p Ordinary Share (Note 3) Diluted earnings per 36.3p 2.7p 67.8p Ordinary Share (Note 3) The total column of this statement represents the Group's Income Statement, prepared in accordance with IFRS. The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Trust Companies. All revenue and capital items in the above statement derive from continuing operations. GRESHAM HOUSE plc INTERIM RESULTS 2005 UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the half year ended 30th June 2005 Half year ended 30th June 2005. Ordinary share Share Capital Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 Balance as at 31st December 2004 1,212 761 36,756 (8,346) 30,383 Profit for the period - - 1,737 30 1,767 Ordinary dividend paid (Note 4) - - - (195) (195) Issue of shares 6 61 - - 67 Balance at 30th June 2005 1,218 822 38,493 (8,511) 32,022 Half year ended 30th June 2004 (Restated - see note 9) Ordinary share Share Capital Retained capital premium reserve earnings Total £'000 £'000 £'000 £'000 £'000 Balance as at 31st December 2003 1,189 554 34,745 (9,455) 27,033 Profit for the period - - (254) 385 131 Ordinary dividend paid (Note 4) - - - (148) (148) Issue of shares 13 105 - - 118 Balance at 30th June 2004 1,202 659 34,491 (9,218) 27,134 Year ended 31st December 2004 (Restated - see note 8) Ordin ary share Share Capital Retai ned capit premi reserve earni Total al um ngs £'000 £'000 £'000 £'000 £'000 Balance as at 31st December 2003 1,189 554 34,745 (9,455) 27,033( Profit for the period - - 2,218 1,257 3,475 Ordinary dividend paid (Note 4) - - - (148) (148) Issue of 23 207 - shares 230 Balance at 31st December 2004 1,212 761 36,756 (8,346) 30,383 GRESHAM HOUSE plc INTERIM RESULTS 2005 UNAUDITED CONSOLIDATED BALANCE SHEET as at 30th June 2005 30th 30th 31st June June December 2005 2004 2004 Restated Restated (see note 9) (see note 8) Assets £'000 £'000 £'000 Non current assets Investments held at fair value 11,263 6,687 8,761 Property investments 25,728 37,200 28,600 Property 517 531 525 Total non current assets 37,508 44,418 37,886 Current assets Trade and other receivables 3,310 905 426 Developments in hand 5,622 5,164 5,336 Other accrued income and prepaid expenses 1,029 72 1,209 Other current assets 764 877 753 Cash and cash equivalents 2,605 598 7,230 13,330 7,616 14,954 Total assets 50,838 52,034 52,840 Current liabilities Trade and other payables 1,918 1,790 2,150 Short term borrowings 5,530 3,645 3,516 Current tax payable 17 158 102 Total current liabilities 7,465 5,593 5,768 Total assets less current liabilities 43,373 46,441 47,072 Non current liabilities Long term borrowings 10,326 17,554 15,625 Deferred taxation 317 657 390 10,643 18,211 16,015 Net assets 32,730 28,230 31,057 Capital and reserves Ordinary share capital 1,218 1,202 1,212 Share premium 822 659 761 Capital reserve 38,493 34,491 36,756 Retained earnings (8,511) (9,218) (8,346) Earnings attributable to equity shareholders 32,022 27,134 30,383 Minority interest 708 1,096 674 Total equity 32,730 28,230 31,057 Basic net asset value per 657.0p 564.2p 626.6p ordinary share (Note 7) Diluted net asset value 656.3p 562.4p 625.7p per ordinary share (Note 7) GRESHAM HOUSE plc INTERIM RESULTS 2005 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT for the Half Year to 30th June 2005 6 months 6 months 12 months to 30th to 30th to 31st June June December 2005 2004 2004 £'000 £'000 £'000 Cashflow from operating activities Investment income received 47 61 129 Interest received 95 23 95 Rental income received 904 1,663 3,234 Other cash payments (445) (745) (1,859) Net cash generated from operations 601 1,002 1,599 Interest paid on 8% Secured Redeemable Loan Stock 2006 (146) (146) (293) Interest paid on property loans (425) (795) (1,201) Net cash flows from operating activities 30 61 105 Cash flows from investing activities Purchase of investments (1,186) (1,060) (2,504) Sale of investments 307 1,178 2,493 Purchase of investment properties (128) (195) (7,011) Disposal of investment properties - - 15,698 Purchase of developments in hand (286) (145) (280) (1,293) (222) 8,396 Cash flows from financing activities Repayment of loans (3,234) (457) (7,613) Receipt of loans - 74 5,088 Share capital issued 67 118 230 Equity dividends paid (195) (148) (148) (3,362) (413) (2,443) (Decrease)/increase in cash and cash equivalents (4,625) (574) 6,058 Cash and cash equivalents at start of period 7,230 1,172 1,172 Cash and cash equivalents at end of period 2,605 598 7,230 Notes to the Financial Statements 1. Accounting policies. The financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. These comprise standards and interpretations approved by the International Accounting Standards Board ("IASB"), together with interpretations of the International Accounting Standards and Standing Interpretations Committee approved by the International Accounting Standards Committee ("IASC") that remain in effect, to the extent that IFRS have been adopted by the European Union. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in notes 8, 9 and 10. These financial statements are presented in pounds sterling because that is the currency of the primary economic environment in which the Group operates. The financial statements of the Group for the year ending 31st December 2005 will also be prepared in accordance with IFRS as adopted by the European Union. Basis of preparation The financial statements have been prepared under the historical cost convention, as modified by the revaluation of investments and properties. The principal accounting policies adopted are set out below. Where presentational guidance set out in the Statement of Recommended Practice ("the SORP") for investment trusts issued by the Association of Investment Trust Companies ("the AITC") in January 2003 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and its subsidiary undertakings made up to 30th June 2005. All intra-group transactions, balances, income and expenses are eliminated on consolidation. Presentation of Income Statement In order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AITC, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. Net capital returns may not be distributed by way of a dividend. The net revenue is the measure the directors believe appropriate in assessing the Group's compliance with certain requirements set out in section 842 of the Income and Corporation Taxes Act 1988. Investments in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the entity. The Group's associates are accounted for in accordance with IAS39 Financial Instruments: Recognition and Measurement ("IAS 39") as investments designated at fair value through profit and loss, and therefore, in accordance with paragraph 1 of IAS 28 Investments in Associates ("IAS 28"), equity accounting is not required. Segmental reporting A business segment is a group of assets and operations that are subject to risks and returns that are different from those of other business segments. The group comprises of two business segments: the Investment Trust; and Property Investment. This is consistent with internal reporting. All revenues are derived from operations within the United Kingdom and consequently no separate geographical segment information is provided. Income (i) Dividend and interest income Income from listed securities and interest receivable on bank deposits is accounted for on a receivable basis. Interest receivable on loans is accounted for on an accruals basis. (ii) Rental income Rental income comprises property rental income receivable net of VAT. (iii)Construction income The group recognises turnover and profit in respect of its performance under a long term contract when, and to the extent that, it obtains the right to consideration for work completed. This is derived from an assessment of the fair value of goods and services provided to the period end date as a proportion of the fair value of the contract. Amounts recoverable on contracts which are included as debtors are stated at cost plus attributable profit less any foreseeable losses. Payments received on account of contracts are deducted from accounts recoverable on contracts in debtors or long term contract balances in stock. Where such amounts have been received and exceed amounts recoverable, the net amounts are included in creditors. Expenses All expenses and interest payable are accounted for on an accruals basis. All expenses are allocated to revenue except as follows: - the expenses which are incidental to the disposal of an investment are deducted from the disposal proceeds of the investment. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the income statement is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue column of the income statement, then no tax relief is transferred to the capital return column. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval under section 842 of the Income Corporation Taxes Act 1988 are not liable for taxation on capital gains. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred tax is calculated at the rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Property, plant and equipment All property, plant and equipment with the exception of freehold property is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the asset. The freehold property is held at revalued amount less deprecation. Depreciation on property, plant and equipment is provided principally on a straight line basis at varying rates of between 2% and 25% in order to write off the cost of assets over their expected useful lives. Freehold property is depreciated at the rate of 2% per annum. Operating lease rentals Amounts payable under operating leases are charged directly to the Income Statement on a straight line basis over the period of the lease. Investments (i) Securities Purchases and sales of listed investments are recognised on the trade date, the date on which the Group commit to purchase or sell the investment. All investments are designated upon initial recognition as held at fair value, and are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted. Fair values for unquoted investments, or for investments for which there is only an inactive market, are established by taking into account the guidelines issued by the British Venture Capital Association as follows: (i) Investments which have been made in the last 12 months are valued at cost in the absence of overriding factors; (ii) Investments in companies at an early stage of development are also valued at cost in the absence of overriding factors; (iii) Where investments have gone beyond the stage in their development in (ii) above, the shares may be valued by having regard to a suitable price-earnings ratio to that company's historic post-tax earnings or the net asset value of the investment; and (iv) Where a value is indicated by a material arm's length market transaction by a third party in the shares of a company, that value may be used. (ii) Properties Investment properties are included in the balance sheet at fair value and are not depreciated. (iii)Loan Stock Loan stock is valued at fair value, being the net present value of future cash flows using an appropriate interest rate. Gains and losses on investments are analysed within the income statement as capital. Developments in hand Developments in hand are valued at the lower of cost and net realisable value. Interest which relates to properties held for, or in the course of, development is charged to the Income Statement as incurred. Profits and losses arising from the sale of developments are dealt with through the Income Statement. Trade and other receivables Other receivables do not carry any interest and are short term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash comprises cash on hand and demand 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. Dividends payable All dividends are recognised in the period in which they are approved by shareholders. Bank borrowings All bank loans are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest-bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on settlement. The costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan. Convertible Loan Notes Convertible loan notes issued by the Group are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using the prevailing market rate for similar non-convertible debt. The difference between the proceeds of the issue of the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group, is included in equity. Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the date of issue. The portion relating to the equity component is charged directly against equity. The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note. Trade and other payables Other payables are not interest-bearing and are stated at their nominal value. 2. Comparative information The financial information contained in this interim report does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The financial information for the half years ended 30th June 2005 and 30th June 2004 has not been audited. The information for the year ended 31st December 2004 has been extracted from the latest published audited financial statements, as restated to comply with IFRS (see note 8). The audited financial statements for the year ended 31st December 2004 have been filed with the Registrar of Companies. The report of the auditors on those financial statements contained no qualification or statement under section 237(2) or (3) of the Companies Act 1985. 3 Earnings per share. The Basic earnings per share figure is based on the net gain for the half year of £1,767,000 (half year ended 30th June 2004: £131,000; year ended 31st December 2004: £3,268,000) and on 4,867,499 (half year ended 30th June 2004: 4,792,019; year ended 31st December 2004: 4,812,498) ordinary shares, being the weighted average number of ordinary shares in issue during the period. The Diluted earnings per share figure is based on the net gain for the half year of £1,767,000 (half year ended 30th June 2004: £131,000; year ended 31st December 2004: £3,268,000) and on 4,872,488 (half year ended 30th June 2004: 4,806,519; year ended 31st December 2004: 4,819,227) ordinary shares, being the weighted average number of ordinary shares in issue during the period together with 4,989 (half year ended 30th June 2004: 14,500; year ended 31st December 2004: 6,728) shares deemed to been issued at nil consideration as a result of options granted or pursuant to the terms of the 8% secured loan stock issued by Gresham House Finance plc. The earnings per ordinary share figures detailed above can be further analysed between revenue and capital as follows:- Half year ended Half year ended Year ended 30th June 2005 30th June 2004 31st December 2004 Restated Restated (see note 9) (see note 8) £'000 £'000 £'000 Net revenue profit 30 385 1,257 Net capital profit 1,737 (254) 2,011 Net total profit 1,767 131 3,268 Weighted average number of ordinary shares in issue during the period Basic 4,867,499 4,792,019 4,812,498 Diluted 4,872,488 4,806,519 4,819,227 Basic earnings per share Pence Pence Pence Revenue 0.6 8.0 26.1 Capital 35.7 (5.3) 41.8 Total basic earnings per share 36.3 2.7 67.9 Diluted per share Pence Pence Pence Revenue 0.6 8.0 26.1 Capital 35.7 (5.3) 41.7 Total diluted earnings per share 36.3 2.7 67.8 4. Dividends. Half year Half year Year ended 31st ended 30th ended 30th December 2004 June 2005 June 2004 £'000 £'000 £'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2004 195 148 148 of 4p (2003: 3.1p) per share 195 148 148 5. Investment property impairment. During the period a property unit which was valued at £3,500,000 was destroyed by fire. The property was fully insured and, in accordance with IFRS, an impairment loss of £3,000,000 is reflected in the Income Statement within gains/(losses) on investments held at fair value. This impairment is offset by a similar sum being shown in other operating income to reflect the insurance monies due. 6. Ordinary share capital. At 30th June 2005 there were 4,873,880 ordinary shares in issue (30th June 2004: 4,809,531; 31st December 2004: 4,848,919). During the half year ended 30th June 2005 20,630 and 4,331 ordinary shares were issued at 276p and 230p respectively under the terms of the 8% Secured Redeemable Loan Stock 2006 (half year to 30th June 2004 19,784 and 25,106 at 284p and 236p respectively and on 3rd May 2005 the company granted share options at a total of 35,600 ordinary shares exercisable between 3rd May 2005 and 3rd May 2012 at an excercise price of 337.5p. In addition, 10,000 share options were exercised at par). 7. Net asset value per ordinary share. The basic net asset value per ordinary share is based on the net assets attributable to the equity shareholders of £32,022,000 (half year ended 30th June 2004: £27,134,000 as restated; year ended 31st December 2004: £30,383,000 as restated) and on 4,873,880 (half year ended 30th June 2004: 4,809,531; year ended 31st December 2004: 4,848,919) ordinary shares, being the number of ordinary shares in issue at the period end. The diluted net asset value per ordinary share is based on the net assets attributable to the equity shareholders at each respective period end and on 4,878,869 (half year to 30th June 2004: 4,824,031; year ended 31st December 2004: 4,855,647) ordinary shares. The number of shares is based upon the number of shares in issue at the period end together with those number of shares deemed to have been issued at nil consideration pursuant to either share options granted or under the terms of the 8% secured loan stock issued by Gresham House Finance plc. 8. (a) Restatement of balances as at and for the year ended 31 December 2004. At 1st January 2005 the Company adopted International Financial Reporting Standards. In accordance with IFRS 1 (First Time Adoption of International Financial Reporting Standards) the following is a reconciliation of the results as at and for the year ended 31st December 2004, previously reported under the applicable UK Accounting Standards and the SORP, to the restated IFRS results. (Audited) Effect of Restated 31st Previously transition to December 2004 reported 31st IFRS December 2004 Notes £'000 £'000 £'000 Investments and property 1 37,887 (1) 37,886 Current assets 14,955 14,955 Creditors: amounts falling due within one year 2 (5,962) 195 (5,768) Total assets less current liabilities 46,880 47,072 Creditors: amounts falling due after more than one year 3,4,5 (15,890) (125) (16,015) Capital and reserves 30,990 31,057 Called up share capital 1,212 1,212 Share premium 761 761 Revaluation reserve 6 10,614 (10,614) - Capital reserve 1,4,5,6 26,291 10,465 36,756 Revenue reserve / Retained earnings 2,3 (8,562) 216 (8,346) Equity shareholders' funds 30,316 30,383 Minority interests 674 674 30,990 31,057 Notes to the reconciliation 1. Investments are designated as held at fair value under IFRS and are carried at bid prices which total their fair value at £8,761,000. Previously under UK GAAP they were carried at mid prices with liquidity discounts as appropriate. The aggregate differences, being a downward revaluation of £1,000, also decrease retained earnings. 2. No provision has been made for the dividend on the ordinary shares for the year ended 31 December 2004 of £195,000. Under IFRS the dividend is not recognised until approved by the shareholders. 3. Under IFRS borrowings are calculated on an amortised cost basis. Under UK GAAP this was not required. As a result the balance as at 31st December 2004 has been reduced by £20,000. 4. Under IFRS provision has to be made for the potential capital gains tax that would arise in the event that the investment properties were sold at the relevant period end with any movement being reflected through the Income Statement. As at 31st December 2004 this provision amounted to £390,000. 5. As permitted by IFRS 20 the Group has offset government grants received of £245,000 against the cost of the relevant property with the resultant increase in the fair value of that property of the same amount being credited to capital reserves. 6. Movements in the fair value of investment properties are required to be shown through the income statement under IFRS and are now included within capital reserves. Under UK GAAP these movements were reflected through the revaluation reserve. (b) Reconciliation of the Statement of Total Return to the Income Statement for the year ended 31st December 2004. Under IFRS the Income Statement is the equivalent of the Statement of Total Return reported previously. 2004 Notes £'000 Total transfer to reserves per the Statement of Total Return 1,224 Add back dividends proposed 1 195 Investments held at fair value changed from mid to bid basis at December 2003 and 31st December 2004 2 (27) Movement in fair value of investment properties 3 1,854 Restatement of property loans at amortised historic cost 4 (208) Movement in deferred taxation 5 437 Minority interest in fair value movement of investment property 3 (207) Net profit per the Income Statement 3,268 Notes to the reconciliation 1. Ordinary dividends declared and paid during the period are dealt with through the Statement of Changes in Equity. 2. The portfolio valuations at 31st December 2003 and 31st December 2004 are required to be valued at bid-price under IFRS. These values differ from the previous valuations by £26,000 and £1,000 respectively. 3. Movements in the fair value of investment properties are required to be shown through the Income Statement under IFRS. Under UK GAAP these movements were reflected through the revaluation reserve. The minority interest share of this movement is also shown in the income statement. 4. Under IFRS borrowings are calculated on an amortised cost basis with any resultant variance being dealt with through finance costs in the Income Statement. Under UK GAAP this was not required. in the year ended 31st December 2004 this variance amounted to £208,000. 5. Under IFRS provision has to be made for the potential capital gains tax that would arise in the event that the investment properties were sold at the relevant period end with any movement being reflected through the Income Statement. In the year ended 31st December 2004 this movement amounted to £437,000. 9. (a) Restatement of balances as at and for the period ended 30th June 2004. At 1st January 2005 the Company adopted International Financial Reporting Standards. In accordance with IFRS 1 (First Time Adoption of International Financial Reporting Standards) the following is a reconciliation of the results as at and for the period ended 30th June 2004, previously reported under the applicable UK Accounting Standards and the SORP, to the restated IFRS results. (Unaudited) Effect of Restated 30th Previously transition to June 2004 reported 30th June IFRS 2004 Notes £'000 £'000 £'000 Investments and property 1 44,618 (200) 44,418 Current assets 7,616 7,616 Creditors: amounts falling due within one year (5,593) (5,593) Total assets less current liabilities 46,641 46,441 Creditors: amounts falling due after more than one year 2,3,4 (17,903) (308) (18,211) 28,738 28,230 Capital and reserves Called up share capital 1,202 1,202 Share premium 659 659 Revaluation reserve 5 12,605 (12,605) - Capital reserve 1,3,4,5 22,499 11,992 34,491 Revenue reserve / Retained earnings 2 (9,323) 105 (9,218) Equity shareholders' funds 27,642 27,134 Minority interests 1,096 1,096 28,738 28,230 Notes to the reconciliation 1. Investments are designated as held at fair value under IFRS and are carried at bid prices which total their fair value at £6,687,000. Previously under UK GAAP they were carried at mid prices with liquidity discounts as appropriate. The aggregate differences, being a downward revaluation of £200,000, also decrease capital reserves. 2. Under IFRS borrowings are calculated on an amortised cost basis. Under UK GAAP this was not required. As a result the balance as at 31st December 2004 has been reduced by £104,000. 3 Under IFRS provision has to be made for the potential capital gains tax that would arise in the event that the investment properties were sold at the relevant period end with any movement being reflected through the Income Statement. As at 31st December 2004 this provision amounted to £657,000. 4 As permitted by IFRS 20 the Group has offset government grants received of £245,000 against the cost of the relevant property with the resultant increase in the fair value of that property of the same amount being credited to capital reserves. 5 Movements in the fair value of investment properties are required to be shown through the income statement under IFRS and are also included within capital reserves. Under UK GAAP these movements were reflected through the revaluation reserve. 9. (b) Reconciliation of the Statement of Total Return to the Income Statement for the period ended 30 June 2004. Under IFRS the Income Statement is the equivalent of the Statement of Total Return reported previously. 2004 Notes £'000 Total transfer to reserves per the Statement of Total Return 507 Add back dividends proposed 1 - Investments held at fair value changed from mid to bid basis at 31st December 2003 and 30th June 2004 2 (226) Movement in fair value of investment properties 3 (195) Restatement of property loans at amortised historic cost 4 (124) Movement in deferred taxation 5 169 Net profit per the Income Statement 131 Notes to the reconciliation 1 Ordinary dividends declared and paid during the period are dealt with through the Statement of Changes in Equity. 2 The portfolio valuations at 31st December 2003 and 30th June 2004 are required to be valued at bid-price under IFRS. These values differ from the previous valuations by £26,000 and £200,000 respectively. 3 Movements in the fair value of investment properties are required to be shown through the Income Statement under IFRS. Under UK GAAP these movements were reflected through the revaluation reserve. 4 Under IFRS borrowings are calculated on an amortised cost basis with any resultant variance being dealt with through finance costs in the Income Statement. Under UK GAAP this was not required. For the period ended 30th June 2004 this variance amounted to £124,000. 5 Under IFRS provision has to be made for the potential capital gains tax that would arise in the event that the investment properties were sold at the relevant period end with any movement being reflected through the Income Statement. For the period ended 30th June 2004 this movement amounted to £169,000. 10. Restatement of opening balances as at 31st December 2003. In accordance with IFRS 1 (First Time Adoption of International Financial Reporting Standards) the following is a reconciliation of the balance sheet as at 31st December 2003, previously reported under the applicable UK Accounting Standards and the SORP, to the restated IFRS balance sheet. (Audited) Effect of Restated 31st Previously reported transition to December 2003 31st December 2003 IFRS Notes £'000 £'000 £'000 Investments and property 1 44,485 26 44,511 Current assets 8,397 8,397 Creditors: amounts falling due within one year 2 (6,350) 148 (6,202) Total assets less current liabilities 46,532 46,706 Creditors: amounts falling due after more than one year 3,4,5 (18,258) (353) (18,611) 28,274 28,095 Capital and reserves Called up share capital 1,189 1,189 Share premium 554 554 Revaluation reserve 6 12,800 (12,800) - Capital reserve 1,4,5,6 22,501 12,244 34,745 Revenue reserve / Retained earnings 2,3 (9,832) 377 (9,455) Equity shareholders' funds 27,212 27,033 Minority interests 1,062 1,062 28,274 28,095 Notes to the reconciliation 1. Investments are designated as held at fair value under IFRS and are carried at bid prices which total their fair value at £6,773,000. They were carried at mid prices previously under UK GAAP with liquidity discounts as appropriate. The aggregate differences, being a revaluation upwards of £26,000, also increase capital reserves. 2. No provision has been made for the dividend on the ordinary shares for the year ended 31st December 2003 of £148,000. Under IFRS this is not recognised until approved by shareholders. 3. Under IFRS borrowings are calculated on an amortised cost basis. Under UK GAAP this was not required. As a result the balance as at 31st December 2004 has been reduced by £229,000. 4 Under IFRS provision has to be made for the potential capital gains tax that would arise in the event that the investment properties were sold at the relevant period end with any movement being reflected through the Income Statement. As at 31st December 2004 this provision amounted to £827,000. 5 As permitted by IFRS 20 the Group has offset government grants received of £245,000 against the cost of the relevant property with the resultant increase in the fair value of that property of the same amount being credited to capital reserves. 6 Movements in the fair value of investment properties are required to be shown through the income statement under IFRS and are now included within capital reserves. Under UK GAAP these movements were reflected through the revaluation reserve. 11. Cash Flow Statement. The impact of IFRS on the Cash Flow Statement is not significant other than in presentational changes. 12. Segmental reporting. Property Other Investment Investment Activities Consolidated £'000 £'000 £'000 £'000 Period ended 30th June 2005 Revenue 317 959 - 1,276 Result 1,869 547 - 2,416 Unallocated corporate expenses (173) Operating profit 2,243 Interest expense (all relating to property loans) (519) Interest income 4 Profit before taxation 1,728 Period ended 30th June 2004 Revenue 128 1,811 20 1,959 Result (305) 1,303 - 998 Unallocated corporate expenses (166) Operating profit 832 Interest expense (all relating to property loans) (844) Interest income 7 Loss before taxation (5) Year ended 31st December 2004 Revenue 325 3,266 253 3,844 Result 1,677 2,434 110 4,221 Unallocated corporate expenses (332) Operating profit 3,889 Interest expense (all relating to property loans) (1,459) Interest income 16 Profit before taxation 2,446 All revenue is derived from operations within the United Kingdom.

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