Final Results

RNS Number : 2319W

Workspace Group PLC

09 June 2008

 



Workspace Group PLC

9 June 2008

WORKSPACE GROUP PLC

PRELIMINARY RESULTS FOR THE YEAR

ENDED 31 MARCH 2008

Workspace Group PLC ('Workspace') announces its preliminary results for the year ended 31 March 2008. Workspace provides 6.3 million sq. ft of flexible business accommodation to approximately 4,500 small and medium size enterprises ('SMEs') in London.

Operating

• Net Rental Income £47.1m up 13% 

• Total rent roll £52.6m up 11.5% 

• Like-for-like occupancy 88.8% (2007: 87.9%).  Overall occupancy at 85.8% (2007: 84.8%).  

Valuation

• Investment portfolio valued at £993m (31 March 2007: £1,001m)

• Valuation reduction of 4.6% for the year and 0.8% in the final quarter.  A significant outperformance against the overall commercial property market.

• Strong growth of 16.5% in rental values (12.2% growth like-for-like).  

          Reversionary yield out 120 bps to 7.7%  

• Diluted adjusted net asset value of 311p per share (down 7.4%) 

Financial

• Trading profits up 8.8% to £11.1m

• Net cash from operations up 12% to £41.6m

• Pre-tax loss of £37.0m reflecting valuation reduction (March 2007: profit before tax £112.5m)

• Final dividend of 3.04p per share - total distribution up 10% to 4.56p

Redevelopment     

• Major refurbishment scheme at Canterbury Court, Kennington Park, SW9 completed on schedule and good progress on lettings.

• Planning consents received at Aberdeen Studios, Thurston Road, Parmiter Industrial Estate and Linton House.

• Glebe JV progressing well with planning consent at Wandsworth and outline consent at Grand Union.

Commenting on the results, Harry Platt, Chief Executive, said,

'This is a strong set of trading results for the final quarter and for the full year with double digit growth in both income and rent roll and continuing high occupancy levels.  The challenge for the Group, as always, is to balance generating strong trading profits and cashflows in the short-term whilst investing for longer-term capital growth. 

Our valuation performance is well ahead of the property sector as a whole. Rental price increases achieved across the portfolio have largely offset the softening in property investment yields in the second half.  This performance once again demonstrates the robustness of our market positioning, the strength of the Workspace brand and our high level of customer service.

Since the year end enquiries have remained high, occupancy levels maintained and we have seen some further progress on rents.'

-ends-

Date: 9 June 2008

For further information:

Workspace Group PLC	City Profile
Harry Platt, Chief Executive	Simon Courtenay
Graham Clemett, Finance Director	William Attwell
020-7247-7614	020-7448-3244
e-mail: [e-mail]
web: www.workspacegroup.co.uk

You will be able to see and hear an audio presentation of these preliminary results by Harry Platt, Chief Executive, Graham Clemett, Finance Director, Patrick Marples, Property Director, Angus Boag, Development Director and Chris Pieroni, Operations Director is available at www.workspacegroup.co.uk/investors (under 'Recent Presentations') from 10.30 a.m. today.

Chairman's Statement

This has been a year of strong operational performance for the Group, both in absolute and comparative terms. This contrasts starkly with some of the reports in the finance and property sectors and indeed the economy as a whole. All parts of the business showed good progress and the performance demonstrates the robustness of our business model with its focus on the property needs of London as a Global City and in particular the needs of its small and medium sized business (SME) community.

Our strategy remains unchanged:-

• To be a hotelier of space to SMEs providing our customers with flexible, affordable leases;

• To deliver superior returns by active management and giving a high quality of service;

• To focus on the London region within the M25;

• To maximise the alternative use value of the portfolio; and

• To acquire properties where the Workspace brand and business model can make a difference.

Looking at the results for the year in more detail, the stand-out feature has been the success in growing like-for-like rental values by 12.2% while still maintaining occupancy at just under 90%. This was not achieved by chance; it brings together many aspects of the business model - the strength of the brand, a deep knowledge of the needs of our customers and the right properties in the right locations to meet those needs. 

The strong level of enquiries and conversion to lettings has continued since the year end. This bodes well for trading performance in the current year. We have to temper this with the knowledge that we cannot be immune to the effects of a serious economic downturn although our experience in past downturns has seen the resilience of the overall SME sector through the cycle.

Our focus on rental growth and occupancy has reduced the effects of the yield shift that has occurred in the year. We are always disappointed to see any reduction in the valuation, especially one of the order of 5% resulting from the market movement in yields. However, we have outperformed the market as a whole through our active management of rents and occupancy and repositioning of our portfolio. We target ourselves to continue to outperform the market in this way.

We remain very focused on identifying opportunities to intensify usage at our properties across London. We are actively progressing these opportunities across some 20% of our portfolio with planning consents received at four properties during the year. The Glebe joint venture sits comfortably alongside the redevelopment of our core portfolio. It has enabled us to pursue mixed use schemes across a broader range of properties. There is very little included in our current property valuation to reflect these opportunities.

It has been a quiet year for acquisitions with £29m spent buying six properties which we have tracked for some time and where we see real opportunity to add value. Pricing of properties has been largely unattractive, although vendors' expectations have become more realistic in recent months. We monitor long-term over £8bn of property across London and believe the forthcoming years will bring forward attractive buying opportunities for the Group.

The Group's operating cashflow has grown strongly over the year and accordingly, a final dividend of 3.04 pence per share is proposed, making a total dividend of 4.56 pence per share for the year up 10%, consistent with the 10% pa growth we have achieved over the last 15 years.

Lastly, on behalf of the Board, I would like to thank all our staff for their efforts during the year. 

Tony Hales

Chairman 

Chief Executive's Review 

We continue to build on the strength of our brand as the leading provider of space to small and medium sized businesses across London. In this huge, growing and fragmented market place we are by far the biggest supplier of space to small businesses. With 4,500 customers in a market place of over 180,000 SMEs there remains a significant growth opportunity. 

This year has seen double-digit increases in both rent roll and rental income.  We have achieved this from growth in rental pricing levels and the successful take-up of space at refurbishments. As always, the key has been to ensure that we do not compromise occupancy levels as we put through price increases. Occupancy levels have in fact improved slightly despite the level of price increases we have achieved.

Our brand recognition is high with our distinctive signage visible across London and our website successfully attracting a significant proportion of hits from businesses searching for space. This is underpinned by our reputation as a good landlord providing a high quality of service and an active commitment to sustainability, a key concern for many of our customers. Our model is simple, flexible and offers good value with minimal paperwork - aspects that are even more attractive to our customers when the economic outlook is uncertain. Indeed, our customers themselves provide a rich source of referrals and many have grown with us, moving internally as their space needs have evolved.

Our business model is simple but in many ways unique, bringing together three key elements:

The small business sector in London: The demand for space from the occupational market underpins everything we do. The small and medium sized business sector in London is a deep and liquid market which offers strong growth potential when the economy is doing well, and resilient qualities in a more challenging economic environment. A significant part of its strength is that many of our customers are knowledge-based rather than capital-based and therefore much less dependent upon credit. Rents are also a relatively small proportion of their cost base. 

The nature of our estates: Our properties are of a relatively small lot size with some 70% of the properties valued at £10m or less. The average rent is £250 per week for 1,000 sq ft of space with a capital value of £193 per sq. ft. These are at the low end of the size and value spectrum for London. As London grows it creates demand for all types of space, particularly in improving areas of London where Workspace is well represented. 

Intensification of use and regeneration: A growing London economy and increasing population increases the premium on land value. Workspace's portfolio of 147 acres of land with relatively low density mostly within six miles of central London is well positioned to benefit from this trend and to exploit value adding initiatives for intensification and/or change of use. Over time, at least half of the portfolio will benefit from these initiatives.

The model relies, of course, on the long-term durability of the London economy with its attributes of being:

• a world-class city acting as a global hub for business and culture;

• a diverse multi-cultural population with significant inward migration; and

• the primary engine of growth in the UK economy with our customers representing the highest concentration of the fastest growing small businesses.

The net reduction in the portfolio valuation of 4.6% over the year compares favourably with a fall of 12.5% in total ungeared capital returns reported by IPD (Investment Property Databank) for the UK property sector as a whole to 31 March 2008. It highlights the resilience of our business model which has consistently shown returns well ahead of the property sector. Our record of total returns over one, three, five and ten years is set out below:

Total Annualised  Return (ungeared)	One Year	Three Years	Five Years	Ten Years
Workspace	-0.5%	12.5%	14.2%	17.1%
IPD March Universe	-8.5%	8.6%	11.0%	10.5%
Workspace percentile rank	7th	10th	8th	1st

Even in more difficult economic conditions, we see no change in the fundamental attractions of our business model, which has consistently delivered superior levels of performance and returns to shareholders. 

Harry Platt

Chief Executive

Business Review

Valuation

The property portfolio is valued on a quarterly basis by our valuers C B Richard Ellis (CBRE).  This, together with our quarterly reporting to shareholders on enquiries, lettings and occupancy, gives transparency on underlying trends.  A summary of the movements in our wholly owned portfolio during the year is set out below:

	£m
Valuation at 31 March 2007	1,001
Property acquisitions (including fees)	31
Property disposals	(10)
Other expenditure on properties	19
Valuation surpluses/deficits:
-  quarter to June 2007	21
-  quarter to September 2007	(9)
-  quarter to December 2007	(51)
-  quarter to March 2008	(9)
Valuation at 31 March 2008	993

In total, our portfolio has been revalued down by 4.6% (£48m) during the year. There has been a significant softening in yields during the year, particularly in the second half, with the reversionary yield moving out by 120 bps over the year to 7.7% at 31 March 2008, a level of yield we last saw three years ago in March 2005.

	March	Outward Yield Movement
	2008	3 Months	6 Months	12 Months
Reversionary yield	7.7%	+50bps	+100bps	+120bps
Equivalent yield	6.9%	+40bps	+90bps	+100bps

The CBRE calculated equivalent yield is 6.9%, the same as the equivalent yield reported above, which assumes a 90% occupancy target across all properties. A summary of the scale of this softening in equivalent yields across the portfolio is set out below:

Increase in Equivalent Yield	Number of Properties
0 - 49 bps	16
50 - 99 bps	22
100 - 149 bps	51
150 - 200 bps	17
	106

Offsetting the softening in yields there has been strong growth in estimated rental values (ERVs), reflecting the significant rental price increases we have been able to achieve.

	March 2008	Growth 3 months	Growth 6 months	Growth 12 months
ERV     - like-for-like                 properties*	£57.5m	+4.2%	+7.0%	+12.2%
- total	£76.1m	+5.5%	+9.8%	+16.5%

*Like-for-like properties are those which have been owned for at least 12 months and where there has not been any major refurbishment over the last 24 months. As at 31 March 2008, 92 of our 106 properties in total were in this category.  

The portfolio covers some 147 acres and has a capital value of £193 per sq.ft.  79% of our portfolio by floorspace is located within six miles of Central London with the replacement value of the buildings alone at £765m.  These fundamentals restrict a ready supply of quality,  competitively priced space. 

Properties	Valuation £	Capital Value £ per sq.ft.	Acreage
North London	129	147	26
South London	202	189	31
West London	211	174	31
Central London	296	368	10
East London	138	141	38
Outside London	17	80	11
Total	993	193	147

The vast majority of our properties are valued purely on a current use basis. While we expect that over a 10 year period there will be significant potential for intensification and change of use at more than 50% of our sites, this alternative use value is only included at a limited number of sites where development plans are well advanced and planning consent is very likely. The 31 March 2008 valuation included £21m of alternative use value at seven properties.  

A more detailed analysis of the yields at our properties by type is set out below:

	Business Centres/ Offices	Industrial Estates	Total
Number of properties	65	41	106
Valuation	£719m	£274m	£993m
Alternative use value	£3m	£18m	£21m
Reversionary yield	7.9%	7.1%	7.7%
Equivalent yield*	7.1%	6.3%	6.9%
Initial yield#	5.3%	5.3%	5.3%
Reversionary income (at 90% occupancy)	£12.9m	£3.0m	£15.9m

*The equivalent yield assumes a 90% occupancy level.

#The initial yield is based on rent roll at March 2008.

A further breakdown of the £15.9m reversionary income is set out below:

	Number of Properties	Equivalent Yield	Initial  Yield	Reversionary Income
Like-for-like properties	92	6.8%	5.7%	£8.7m
Refurbishments	8	6.7%	4.1%	£5.5m
Acquisitions - current year	6	9.3%	3.6%	£1.7m
Total	106	6.9%	5.3%	£15.9m

It can be seen that our core like-for-like portfolio of 92 properties delivers stronger initial yields.  On these properties we aim to achieve this reversionary income of £8.7m from the natural churn of our customers' leases over the next 3-4 years.  

Achieving the reversionary potential at the 14 refurbishments and acquisitions will depend upon the nature of the asset and scale of refurbishment required. The estates with the most significant reversionary opportunity are set out below:

	Reversionary  Income
				Current Status
	£m
Kennington Park		£2.5m	Canterbury Court opened January 2008
Wharf Road		£0.7m	New building to open July 2008
Enterprise, Hayes		£0.8m	Acquired February 2008

At Kennington Park the bulk of the reversionary income should be achieved from increasing occupancy at the newly refurbished Canterbury Court building to the targeted occupancy level of 90%. We hope that this can be achieved within the next 12 months.

Key Performance Indicators

The demand for space from SME customers has been strong throughout the year. Our enquiry levels are up on prior year with queries averaging 800 per month and some 80 new deals signed each month. There has also been a high level of renewal activity with over 400 renewals completed in the year delivering significant uplifts in rents in line with current market prices. On the back of this demand, we have been able to achieve good growth in rents while still maintaining high occupancy levels.  

Rent roll at the end of March 2008 was £52.6m, up 11.5% in the year with average rent per square foot still at a very affordable £11.88, up 4.9% in the year, and let floorspace up 6.3% to 4.4m sq.ft.

		3 months	6 months	12 months
Rent Roll	- like-for-like properties  £43.0m	+2.4%	+4.2%	+8.7%
	- total                              £52.6m	+2.8%	+6.1%	+11.5%

Of the £3.4m (8.7%) growth in rent roll at our like-for-like properties, £1.0m (29%) came from renewals by existing customers and £2.4m (71%) came from new customers. 

High levels of occupancy have been maintained across the portfolio, with like-for-like occupancy of 88.8% at 31 March 2008, up from 87.9% last year. This level of occupancy allows sufficient customer churn to achieve rental increases, while still generating strong underlying rental income. An analysis of the trend in occupancy is set out below.

		Occupancy
	No. of Estates	March 2008	September 2007	March 2007
Like-for-like properties	92	88.8%	89.6%	87.9%
Refurbishments	8	72.2%	68.1%	66.9%
Acquisitions - current year	6	73.9%	76.6%	-
Total	106	85.8%	86.4%	84.8%

We typically expect to reach our target occupancy level of 90% within 18-24 months of completion of a refurbishment and achieve further increases in rental pricing once occupancy has reached these levels. The strength of demand for some of our newly refurbished space has been sufficiently strong that in many cases we have been able to accelerate these timescales.  

At Canterbury Court, Kennington, which was opened in January 2008, contracted lettings have now reached 40% with a further 15% agreed in principle. We are now achieving rents of £30 per sq. ft. for some of the smaller second and third storey units, well ahead of our original plans.

Profitability and Cashflow

There are very different trading and cashflow characteristics between:

• Like-for-like properties where there has been no significant refurbishment work in the  last 2 years and the focus is on growing rents while maintaining occupancy around the 90% target level.

• Properties recently acquired, generally off lower yields, that require repositioning and other properties where occupancy levels are managed down ahead of refurbishment or redevelopment.

A summary of the performance split between like-for-like (L4L) properties and other properties (comprising acquisitions and refurbishments/ redevelopments) is set out below:

		2008			2007
		L4L (1)	Other	Total	Total
No of properties		92	14	106	101
Trading		£m	£m	£m	£m
Net rental income		39.2	7.9	47.1	41.6
Administrative expenses	(2)	(8.1)	(1.6)	(9.7)	(9.9)
Other income		2.2	-	2.2	1.8
Trading profit before interest		33.3	6.3	39.6	33.5
Interest	(3)	(21.7)	(6.4)	(28.1)	(23.2)
Share of joint venture loss		-	(0.4)	(0.4)	(0.1)
Trading profit		11.6	(0.5)	11.1	10.2
Cash inflow/(outflow)		£m	£m	£m	£m
Cash from operations	(4)	35.0	6.6	41.6	37.1
Capital expenditure		(4.3)	(14.4)	(18.7)	(20.3)
Interest paid	(5)	(23.2)	(6.9)	(30.1)	(22.9)
Net cash inflow/(outflow) from		7.5	(14.7)	(7.2)	(6.1)
operations (after capex and interest)

(1)   L4L performance excludes all properties held for less than 12 months or where there has been significant refurbishment expenditure on all or part of the site in the last 24 months.

(2)   Administrative expenses have been apportioned on a pro-rata basis to net rental income.

(3)   Interest has been apportioned on a pro-rata basis to the valuation of properties at 31 March.

(4)   Cash flow from operations has been apportioned on a pro-rata basis to trading profit before interest.

(5)   Interest paid has been apportioned on a pro-rata basis to interest in the Trading statement.

The main features of operating performance in the current year are:

• Strong net rental income growth at our like-for-like properties of 13.6% from £34.5m to £39.2m
  
• A significant increase in interest costs reflecting the increase in LIBOR rates during the current year. The average interest cost during the current year was 6.7% compared to 6.3% in the prior year.

• A net trading loss of £0.5m from the lower income yielding acquisitions and refurbishments.  

• The strong correlation between operating profit and cashflow reflects the Group's operating model with some 70% of rents collected monthly (with the remainder quarterly).  In addition, 72% of rents are collected by direct debit on the due date and the Group has a track record of a low level of bad debts (running at less than 0.2% of revenue). The low level of bad debts reflects customer rent deposits held (typically 3 months) and active credit management of any arrears.

• Net cashflow generated by our like-for-like properties of £7.5m where capital expenditure is relatively low offset by a net cash outflow from acquisitions/ refurbishments where the income yields are lower and higher levels of capital expenditure are being incurred.

• We expect the high level of investment on acquisitions and refurbishment, which adversely impacts performance in the short-term, to deliver strong returns over the medium-term as occupancy levels reach 90%.  

At an overall Group PBT level the revaluation reductions during the year have resulted in a loss before tax of £37.0m.

	2008 £m	2007 £m
Total trading profit	11.1	10.2
Revaluation (reductions)/surpluses
- Wholly owned portfolio	(47.5)	95.3
- Glebe JV	(2.0)	1.4
Other non-trading items	1.4	5.6
Total (loss)/profit before tax	(37.0)	112.5

• The revaluation reduction for the wholly owned portfolio in the current year includes an outward movement in reversionary yield by 120 bps and strong growth of 16.5% in rental values. In the prior year, the revaluation surplus of £95.3m arose from a strengthening in the reversionary yield of 20 bps and a growth of 7% in rental values.

• Other non-trading items in 2008 includes a £0.8m surplus on the disposal of Parmiter Industrial Estate for £11.0m in February 2008.  2007 included the net profit from the disposal of 11 properties to the Glebe joint venture at a value of £146m (exit yield of 4.9%).  

The taxation credit of £2.3m in the current year reflects tax adjustments relating to prior periods. Trading profit during the year arose mostly from activities that fell within tax exempt categories and has not incurred a tax charge. In 2007 there was a tax credit of £80.9m arising principally from the elimination of deferred tax following the REIT conversion.

At an earnings per share (EPS) level the improved trading performance results in an increase in trading EPS from 6.4p to 6.5p but the impact of the revaluation reduction in the 2008 results in an overall loss per share of 20.2p compared to earnings of 115.1p in 2007.

Net Assets and Financing

Net assets have fallen in the current year by £45.8m to £536.8m largely as a result of the revaluation reduction of £47.5m. This translates to a basic net asset value (NAV) per share of £3.13 (down 7.9% in the year) and £3.11 at a diluted level (down 7.4% in the year).

The only other significant movement in the balance sheet is an increase in bank borrowings by £60.3m to £438.4m. The main elements of this increase are set out below:

	£m
Acquisitions	31.3
Disposals	(10.4)
REIT entry tax charge paid	18.8
Capital expenditure	18.7
Other	1.9
	60.3

At 31 March 2008 the Group had total facilities of £499m (2007: £444m) with unutilised borrowing capacity of £61m (2007: £65m). The maturity of the facilities is summarised below:

2008 £m 2007 £m Repayable between 4-5 years 150 - Repayable between 3-4 years - 270 Repayable between 2-3 years 270 150 Repayable in less than 1 year   79   24 499 444

The weighted average term of the Group's debt at March 2008 is 2.9 years (2007: 2.8 years).  In November 2007 £150m of existing debt previously falling due in 2010 was extended out in term to November 2012.  £270m of term facility falls due in August 2010.  Facilities of less than one year comprise a £75m 364 day revolver and £4m overdraft facility.  The 364 day revolver facility has been extended for a further year to June 2009.  As at March 2008, the Group had £152m of uncharged assets available for additional facilities.

The Group's hedging strategy is to progressively move towards at least 50% of its interest rate exposure being covered by fixed rate swaps to give more certainty on funding cost. A £150m fixed rate swap was taken out alongside the extension of the term facility in November 2007. 

A summary of the key ratios in relation to our current interest costs and debt are set out below:

	2008	2007
Average Interest Rate	6.7%	6.3%
Hedging:
- Fixed rate	34%	5%
- Collars	27%	55%
Interest cover (net rental income)	1.68x	1.79x
Interest Cover (trading profit)	1.41x	1.44x
Loan to Value (LTV)	44%	38%

At March 2008 the Group was well within all its banking covenant tests:

• At current debt levels (excluding uncharged assets), interest rates would need to increase by 300 bps for the interest covenants to be breached.

• The valuation of the property portfolio (excluding uncharged assets) would need to fall by 29% for the LTV covenants to be breached. At current ERVs, this would require a softening in reversionary yield of 300 bps.

Glebe Joint Venture

We are continuing to make good progress in our joint venture with Glebe that was established in June 2006 to promote the intensification and change of use at 11 estates. Planning consent was received at Wandsworth Business Village in September 2007 for a mixed use residential and commercial development and outline planning consent was received in December 2007 at Grand Union, Kensington for a mixed use residential and commercial development. Planning discussions for a mixed use development at Bow Enterprise Park are also well advanced and we would hope to make an application later this year.

Redevelopment plans at Wandsworth are progressing and we obtained vacant possession of the property at the end of March 2008. Excluding Wandsworth, the overall occupancy at the other properties was 86.8% at the year end, reflecting the strong demand for space.

The valuation of the properties in our Glebe joint venture conducted by CBRE is set out below: 

	£m
Valuation at 31 March 2007	163
Acquisitions/expenditure	10
Valuation deficit in year	(4)
Valuation at 31 March 2008	169

There has only been a small reduction of £4.0m (2.3%) in the value of the Glebe JV properties during the year. The valuation at 31 March 2008 includes £22m of alternative use value reflecting the good progress on planning that has been made.

The Glebe joint venture has standalone debt funding provided by HBOS who are also an equity shareholder in Glebe.  It comprises a £130m revolver facility which funds the purchase of properties and capital expenditure and a £14m pre-development facility. The term of the facilities run to June 2013 and December 2011 respectively. The facilities provide funding for the properties through planning up to the start of redevelopment. Funding of development activity is subject to separate funding arrangements, that may require additional equity investment by the joint venture partners. Key ratios in relation to the HBOS facility are set out below:

	2008
Facilities	£144m
Amount drawn	£127.4m
% of facilities drawn	88.5%
Fixed rate swap	£110m at 5.16%
LTV	75.3%

There are no interest covenants. If overall LTV exceeds 85%, then the joint venture partners are required to contribute additional equity. 

The plans for the joint venture to progress the planning and development programme envisage around £10m of additional equity being required over the next year, £5m from each partner.  

Dividend

A final dividend of 3.04p per share is proposed. Combined with the interim dividend of 1.52p, this gives a total dividend proposed for the year of 4.56p, an increase of 10% over last year. The full amount of the final dividend will be in the form of a Property Income Distribution (PID) which will be subject to a 22% withholding tax unless tax exemptions apply. 

Outlook

Our strong level of enquiries and conversions to lettings has continued since the year end driven by our successful marketing activity. Occupancy continues to be at consistent levels, with new refurbishments such as Canterbury Court letting well. In our rent review and lease renewal programmes we continue to see good progress. 

Of course, we have to temper this with the knowledge that we cannot be immune to a serious economic downturn; indeed we expect yields in the first quarter to soften further. However, our experience in past downturns has demonstrated the fundamental resilience of the overall SME sector and the continuing demand from small businesses for flexible, affordable space.

We believe the current investment market will present opportunities in the next couple of years to acquire and create value from properties in our sector.  

Our business model has delivered outperformance in economic circumstances similar to the present. We aim to continue to build a company which can continue delivering superior returns. 

           Key Statistics

	Quarter ending  31/03/2008	Quarter ending 31/12/2007	Quarter  ending  30/09/2007	Quarter ending  30/06/2007	Quarter ending  31/03/2007
Workspace Group directly owned portfolio
Number of estates	106	106	104	101	101
Lettable floorspace (million sq ft) ~	5.2	5.0	5.0	4.9	4.9
Number of lettable units	4,611	4,522	4,441	4,394	4,304
ERV	£76.1m	£72.1m	£69.3m	£66.5m	£65.3m
Reversionary Yield*	7.7%	7.2%	6.7%	6.5%	6.5%
Net annual rent roll of occupied units	£52.6m	£51.1m	£49.5m	£48.2m	£47.2m
Average annual rent per sq ft	£11.88	£11.80	£11.54	£11.47	£11.34
Overall occupancy	85.8%	86.2%	86.4%	85.8%	84.8%
Like-for-like lettable floor space (million sq ft)	4.2	4.2	4.2	4.2	4.2
Like-for-like net annual rent roll	£43.0m	£42.0m	£41.3m	£40.5m	£39.6m
Like-for-like average annual rent per sq ft	£11.55	£11.23	£10.98	£10.86	£10.73
Like-for-like occupancy	88.8%	89.1%	89.6%	88.8%	87.9%
Workspace Glebe joint venture portfolio
Number of estates	18	17	16	15	15
Lettable floorspace (million sq ft) ~	1.2	1.2	1.2	1.2	1.2
Number of lettable units	866	866	823	813	813
ERV	£11.2m	£10.7m	£10.4m	£10.3m	£10.3m
Reversionary Yield*	6.6%	6.6%	6.2%	6.3%	6.3%
Net annual rent roll of occupied units	£7.2m	£7.2m	£7.8m	£7.9m	£8.1m
Average annual rent per sq ft	£7.80	£7.64	£7.87	£7.77	£7.81
Overall occupancy	79.8%	81.7%	85.3%	87.7%	89.7%
Financial Performance (£m)
Net rental income	12.1	11.8	11.4	11.8	10.9
Trading operations - operating profit	9.2	9.7	11.0	9.7	10.2
Revaluation (reduction)/surplus	(8.9)	(50.8)	(8.8)	21.0	23.0
(Loss)/profit before taxation	(1.7)	(52.9)	(5.0)	24.9	27.3
Property valuation	993	1,002	1,035	1,028	1,001
Net assets	537	542	597	608	583
Net asset value per share (£)	£3.13	£3.16	£3.48	£3.54	£3.40
Diluted adjusted net asset value per share (£)	£3.11	£3.13	£3.43	£3.49	£3.36
Net rental income interest cover (cumulative)	1.68x	1.66x	1.71x	1.76x	1.79x
Trading interest cover (cumulative)	1.41x	1.44x	1.52x	1.45x	1.44x
Gearing (%)	82%	81%	71%	63%	65%
Loan to value (%)	44%	44%	41%	39%	38%
Available borrowing facilities (£m)	61	62	79	118	65

~ Excludes storage space * ERV dividend by valuation
* Based on
The like-for-like portfolio is defined as properties that have been held throughout a 12 month period and have not been subject to a refurbishment programme in the last 24 months.

Consolidated Income Statement 

For the year ended 31 March  

		2008	2008	2008	2007	2007	2007
	Notes	Trading operations* £m	Other items* £m	Total £m	Trading operations* £m	Other items* £m	Total (restated†) £m
Revenue	2	66.9	-	66.9	59.9	-	59.9
Direct costs	2	(19.8)	-	(19.8)	(18.3)	-	(18.3)
Net rental income	2	47.1	-	47.1	41.6	-	41.6
Administrative expenses	4	(9.7)	(0.4)	(10.1)	(9.9)	(0.1)	(10.0)
Change in fair value of investment property		-	(47.5)	(47.5)	-	95.3	95.3
Other income	3(a)	2.2	-	2.2	1.8	-	1.8
Profit on disposal of investment properties	3(b)	-	2.2	2.2	-	4.4	4.4
Operating (loss)/profit	4	39.6	(45.7)	(6.1)	33.5	99.6	133.1
Finance income - interest receivable	5	0.1	-	0.1	0.1	-	0.1
Finance costs - interest payable	5	(28.2)	-	(28.2)	(23.3)	-	(23.3)
Change in fair value of derivative financial instruments	5	-	-	-	-	0.9	0.9
Share in joint venture post tax (losses)/profits	21	(0.4)	(2.4)	(2.8)	(0.1)	1.8	1.7
(Loss)/profit before tax		11.1	(48.1)	(37.0)	10.2	102.3	112.5
Taxation	6	-	2.3	2.3	0.5	80.4	80.9
(Loss)/profit for the period after tax and attributable to equity shareholders		11.1	(45.8)	(34.7)	10.7	182.7	193.4
Basic earnings per share	8	6.5p	(26.7)p	(20.2)p	6.4p	108.7p	115.1p
Diluted earnings per share	8	6.5p	(26.7)p	(20.2)p	6.3p	106.2p	112.5p

* Trading operations and other items the definition of other items is consistent with that noted in the Annual Report and Accounts 2007.

† Refer to note 3(a)

Consolidated Statement of Recognised Income and Expense (SORIE)

For the year ended 31 March 

	2008 £m	2007 £m
(Loss)/profit for the financial year	(34.7)	193.4
Fair value movement on derivatives	(2.9)	-
Total recognised income and expense for the year	(37.6)	193.4

Consolidated Balance Sheet

As at 31 March 

	Notes	2008 £m	2007 £m
Non-current assets
Investment properties	10	994.3	1,001.6
Intangible assets		0.3	0.3
Property, plant and equipment		3.2	3.3
Investment in joint venture	21	15.7	18.5
		1,013.5	1,023.7
Current assets
Trade and other receivables		12.5	8.8
Financial assets - derivative financial instruments		-	0.1
Current tax asset	12	4.0	-
Cash and cash equivalents	11	2.5	2.4
		19.0	11.3
Current liabilities
Financial liabilities - borrowings	13(a)	(63.4)	(20.4)
Financial liabilities - derivative financial instruments		(3.1)	(0.3)
Trade and other payables		(31.5)	(32.3)
Current tax liabilities	12	-	(17.6)
		(98.0)	(70.6)
Net current liabilities		(79.0)	(59.3)
Non-current liabilities
Financial liabilities - borrowings	13(a)	(378.0)	(360.7)
Deferred tax liabilities	17(a)	(0.2)	(0.2)
Provisions	17(b)	(19.5)	(20.9)
		(397.7)	(381.8)
Net assets		536.8	582.6
Shareholders' equity
Ordinary shares	19	17.4	17.4
Share premium	19	30.8	30.7
Investment in own shares	20	(4.5)	(2.8)
Other reserves	18	(0.9)	1.3
Retained earnings	19	494.0	536.0
Total shareholders' equity		536.8	582.6
Net asset value per share (basic)	9	£3.13	£3.40
Diluted adjusted net asset value per share	9	£3.11	£3.36

Consolidated Cash Flow Statement 

For the year ended 31 March 

	Notes	2008 £m	2007 £m
Cash flows from operating activities
Cash generated from operations	14	41.6	37.1
Interest received		0.1	0.1
Interest paid		(30.2)	(23.0)
Tax (paid)/refunded	15	(18.9)	0.1
Net cash (outflow)/inflow from operating activities		(7.4)	14.3
Cash flows from investing activities
Purchase of investment properties		(31.3)	(74.6)
Capital expenditure on investment properties		(18.7)	(20.3)
Net proceeds from disposal of investment properties		10.4	160.3
Tax paid on disposal of investment properties	15	(0.4)	(4.8)
Purchase of intangible assets		(0.2)	(0.2)
Purchase of property, plant and equipment		(0.5)	(0.3)
Investment in and loan to joint venture		-	(19.5)
Movement in short-term funding balances with joint venture		(4.0)	-
Net cash (outflow)/inflow from investing activities		(44.7)	40.6
Cash flows from financing activities
Net proceeds from issue of ordinary share capital		0.1	0.3
Net proceeds from issue of bank borrowings		57.6	-
Net repayment of bank borrowings		-	(47.0)
ESOT shares net (purchase)/release		(0.8)	1.7
Finance lease principal payments		(0.1)	(0.1)
Dividends paid to shareholders	7	(7.3)	(6.4)
Net cash inflow/(outflow) from financing activities		49.5	(51.5)
Net (decrease)/increase in cash and cash equivalents		(2.6)	3.4
Cash and cash equivalents at start of year	14	1.5	(1.9)
Cash and cash equivalents at end of year	14	(1.1)	1.5

Notes to the Financial Statements

For the year ended 31 March 

1.   Basis of preparation

The financial information in this report is abridged and does not constitute the Group's full Financial Statements for the years ended 31 March 2008 and 31 March 2007, and has been prepared under International Financial Reporting Standards (IFRS).

Full Financial Statements for the year ended 31 March 2007, which were prepared under IFRS, received an unqualified auditors' report and did not contain a statement under Section 237 (2) or (3) of the Companies Act 1985, have been filed with the Registrar of Companies.

Financial Statements for the year ended 31 March 2008 will be presented to the Members at the forthcoming Annual General Meeting; the auditors' report on these Financial Statements is unqualified. 

2.   Analysis of net rental income    

	2008			2007 (restated†)
	Revenue £m	Direct Costs £m	Net rental income £m	Revenue £m	Direct Costs £m	Net rental income £m
Rental income	51.4	(0.5)	50.9	45.6	(0.2)	45.4
Service charges and other recoveries	13.5	(18.2)	(4.7)	12.3	(17.1)	(4.8)
Services, fees, commissions and  sundry income	2.0	(1.1)	0.9	2.0	(1.0)	1.0
	66.9	(19.8)	47.1	59.9	(18.3)	41.6

† Refer to note 3(a).

The Group operates a single business segment providing business accommodation for rent in London and the South East of England, which is continuing.

3(a) Other income

	2008 £m	2007 (restated†) £m
Non-refundable option fees for potential sale of property	2.2	1.1
Insurance proceeds less diminution in value at Westwood Business Centre	-	0.7
	2.2	1.8

†The March 2007 comparatives have been restated to include £1.1m non refundable option fees. These fees were formerly disclosed in Revenue - Services, fees, commissions and sundry income.

3(b) Profit on disposal of investment properties

	2008 £m	2007  £m
Gross proceeds from sale of investment properties	11.0	168.3
Book value at time of sale plus sale costs	(10.2)	(161.2)
	0.8	7.1
Unrealised profit on sale of properties to joint venture	-	(2.7)
Pre tax profit on sale	0.8	4.4
Movement in provision for tax indemnity (see note 17(b))	1.4	-
Pre-tax profit on sale	2.2	4.4

4. Operating (loss)/profit

The following items have been charged in arriving at operating (loss)/ profit. This analysis has been prepared by nature of expense.	2008 £m	2007 £m
Direct costs:
Depreciation of property, plant and equipment - owned assets	0.3	0.4
Staff costs	2.7	2.4
Repairs and maintenance expenditure on investment property	3.0	3.0
Trade receivables impairment	0.1	0.1
Administrative expenses:
Amortisation of intangibles	0.1	0.1
Depreciation of property, plant and equipment - owned assets	0.3	0.2
Staff costs	6.1	4.9
Other operating lease rentals payable:
- motor vehicles - minimum lease payments	0.1	0.1
Audit fees payable to the Company's auditors	0.2	0.2

Audit fees payable to the Company's auditors include £28,500 (2007: £26,000) of other services supplied pursuant to legislation, in respect of the half year review of the consolidated Group accounts and the statutory audits of the subsidiaries in the Group. Amounts payable to the Company's auditors for other non-audit services totalled £62,000 (2007 - £15,200).  

Depreciation in direct costs relates to that of fixtures and fittings installed within investment properties.

Total administrative expenses can be analysed as:
2008 £m 2007 £m Staff costs (as above) 6.1 4.9 Provision for cash settled share based payment (0.8) 1.2 Other 4.8 3.9 10.1 10.0

5. Finance income and costs
	2008	2007
	£m	£m
Interest income on bank deposits	0.1	0.1
Finance income	0.1	0.1
Interest payable on bank loans and overdrafts	(27.9)	(20.9)
Amortisation of issue costs of bank loans	(0.5)	(0.5)
Interest payable on finance leases	(0.1)	(0.1)
Interest payable on 11.125% First Mortgage Debenture Stock 2007	(0.3)	(1.4)
Interest payable on 11.625% First Mortgage Debenture Stock 2007	(0.2)	(0.8)
Interest payable on 11% Convertible Loan Stock 2011	-	(0.1)
Interest capitalised on property refurbishments	0.8	0.5
Finance expense	(28.2)	(23.3)
Change in fair value of financial instruments through the income statement	-	0.9
Net finance costs	(28.1)	(22.3)
The decrease in fair value on the cash flow hedge of £2.9m (2007: nil) has been recognised directly in equity within the Hedging reserve and is therefore not included in the above note.

6. Taxation

Analysis of charge in period:	2008 £m	2007 £m
Current tax	(2.3)	20.6
Deferred tax	-	(101.5)
Total taxation credit	(2.3)	(80.9)

The charge in the period is analysed as follows:	2008 £m	2007 £m
Current tax:
UK corporation tax	-	2.2
REIT conversion charge	-	18.8
Adjustments to tax in respect of previous periods	(2.3)	(0.4)
	(2.3)	20.6
Deferred tax:
On fair value gains of investment properties	-	(93.7)
On accelerated tax depreciation	-	(8.3)
On derivative financial instruments	-	0.4
Adjustments to tax in respect of previous periods	-	-
Others	-	0.1
	-	(101.5)
Total taxation credit	(2.3)	(80.9)

The tax on the Group's (loss)/profit for the period differs from the standard applicable corporation tax rate in the UK (30%). The differences are explained below:

	2008 £m	2007 £m
(Loss)/profit on ordinary activities before taxation	(37.0)	112.5
Add/(deduct) share of post tax (losses)/profits in joint venture	2.8	(1.7)
	(34.2)	110.8
Tax at standard rate of corporation tax in the UK of 30% (2007: 30%)	(10.3)	33.2
Effects of:
Accelerated capital allowances	-	(1.9)
Capitalised interest	-	(0.1)
Income taxed as capital gains	-	(0.4)
Contaminated land relief	-	(0.1)
Capital gains adjustments on property disposals	-	(0.7)
Sale of properties to joint venture	-	(3.7)
Share scheme deductions	(0.3)	-
Adjustments to tax in respect of previous periods	(2.3)	(0.4)
Losses carried forward	1.1	-
REIT conversion charge	-	18.8
REIT exempt income	(4.5)	(1.1)
Other items not subject to tax	(0.3)	0.1
Changes in fair value not subject to tax as a REIT	14.3	(28.3)
Deferred tax released on REIT conversion	-	(96.3)
Total taxation credit	(2.3)	(80.9)

On 1 January 2007, the Group converted to a REIT. A conversion charge of £18.8m was paid as a single instalment in July 2007. The Group's UK property rental business (both income and capital gains) is now exempt from tax. The Glebe joint venture does not form part of the REIT. The Group's 'residual' business (subject to tax) is small and consists mainly of ancillary services and commissions.

The Group currently has £2.4m of tax losses carried forward which have not been recognised as an asset as they are unlikely to be utilised in the foreseeable future.

7. Dividends 

	2008 £m	2007 £m
Final dividend 2006/7: 2.76p (2005/6: 2.51p) per ordinary share	4.7	4.1
Interim dividend 2007/8: 1.52p (2006/7: 1.38p) per ordinary share	2.6	2.3
Dividends paid	7.3	6.4

In addition the directors are proposing a final dividend in respect of the financial year ended 31 March 2008 of 3.04p per Ordinary Share which will absorb an estimated £5.2m of shareholders' funds. If approved by the shareholders at the AGM, it will be paid on 6 August 2008 to shareholders who are on the register of members on 11 July 2008. It is intended that the full amount of this dividend will be paid as a PID, net of withholding tax where appropriate.

8.   Earnings per share

Basic earnings per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held in the employee share ownership trust (ESOT). 

For diluted earnings per share the weighted average number of ordinary shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. The group now has a single class of instruments dilutive to ordinary shares: employee share options. All the remaining Convertible Loan Stock converted on 16 August 2006.  In accordance with IAS 33 'Earnings Per Share' no calculation of dilution is made where it would have an anti-dilutive effect of increasing the loss per share.

Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below.

	(Loss)/profit		Earnings per share
Earnings used for calculation of earnings per share	2008 £m	2007 £m	2008  pence	2007 pence
Earnings used for basic earnings per share	(34.7)	193.4	(20.2)	115.1
Interest saving net of taxation on 11% Convertible Loan Stock dilution	-	0.1	-	(1.1)
Share option scheme dilution	-	-	-	(1.5)
Total diluted earnings	(34.7)	193.5	(20.2)	112.5
Less non trading items	45.8	(182.7)	26.7	(106.2)
Trading diluted earnings	11.1	10.8	6.5	6.3

Weighted average number of shares used for calculating earnings per share	2008 Number	2007 Number
Weighted average number of shares (excluding shares held in the ESOT)	171,397,941	168,083,460
Dilution due to Share Option Schemes	2,318,044	2,179,100
Dilution due to Convertible Loan Stock	-	1,651,507
Used for calculating diluted earnings per share	173,715,985	171,914,067

9.    Net assets per share

Net assets used for calculation of net assets per share	2008	2007
	£m	£m
Net assets at end of year (basic)	536.8	582.6
Derivative financial instruments at fair value*	3.3	(0.9)
Deferred tax on fair value change of investment properties*	(0.2)	0.4
Deferred tax on derivative financial instruments*	(0.1)	0.3
Diluted adjusted net assets	539.8	582.4

* Including share of joint venture (comparatives have been restated).

Net assets have been adjusted to derive a diluted net assets measure as defined by the European Public Real Estate Association (EPRA).

Number of shares used for calculating net assets per share	2008 Number	2007 Number
Shares in issue at year-end	174,313,887	174,221,087
Less ESOT shares	(2,941,069)	(2,738,360)
Number of shares for calculating basic net assets per share	171,372,818	171,482,727
Dilution due to Share Option Schemes	2,161,114	2,179,100
Number of shares for calculating diluted adjusted net assets per share	173,533,932	173,661,827

10. Investment properties

	2008 £m	2007 £m
Balance at 1 April	1,001.6	954.0
Additions during the year	49.6	102.1
Capitalised interest on refurbishments	0.8	0.5
Disposals during the year	(10.2)	(149.5)
Diminution in value due to fire loss (see note 3(a))	-	(0.8)
Net (loss)/gain from change in fair value of investment property	(47.5)	95.3
Balance at 31 March	994.3	1,001.6

Within additions for the year are property purchases, including costs and IAS17 finance leases, of £31.5m (2007: £82.7m). The balance of additions is improvements made to properties.

Capitalised interest is included at a rate of capitalisation of 6.7% (2007: 6.0%). The total amount of capitalised interest included in investment properties is £2.8m (2007: £2.0m).

Valuation

The Group's investment properties were revalued at 31 March 2008 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. 

The reconciliation of the valuation report total to the amount shown in the Consolidated Balance Sheet as non-current assets, investment properties, is as follows:

	2008 £m	2007 £m
Total per CB Richard Ellis valuation report	993.2	1,000.9
Owner occupied property	(2.7)	(2.5)
Head leases treated as finance leases under IAS 17	4.1	3.6
Short leases valued as head leases	(0.3)	(0.4)
Total Investment Properties per balance sheet	994.3	1,001.6

11. Cash and cash equivalents

	2008 £m	2007 £m
Cash at bank and in hand	-	-
Restricted cash - tenants' deposit deeds	2.5	2.4
	2.5	2.4

Tenants' deposit deeds represent returnable cash security deposits received from tenants and are ring-fenced under the terms of the individual lease contracts.

Bank overdrafts are included within cash and cash equivalents for the purpose of the cash flow statement.

12.    Current taxes       

	2008 £m	2007 £m
Current tax asset	4.0	-
Current tax liabilities	-	17.6

The liabilities at 31 March 2007 included the REIT conversion charge of £18.8m which was paid in July 2007. The Group currently has a tax debtor of £4.0m which represents the recovery of tax paid.

13  Financial liabilities - borrowings
a) Balances	2008	2007
	£m	£m
Current
Bank loan and overdrafts due within one year or on demand (secured)	63.4	0.9
11.125% First Mortgage Debenture Stock 2007 (secured)	-	12.5
11.625% First Mortgage Debenture Stock 2007 (secured)	-	7.0
	63.4	20.4
Non -current
Other loans (secured)	373.9	357.1
Finance lease obligations (part secured)	4.1	3.6
	378.0	360.7
	441.4	381.1
The secured loans and overdraft facility are secured on properties with balance sheet values totalling £841.3m (2007: £739.4m).

b) Maturity	2008	2007
	£m	£m
Secured (excluding finance leases)
Repayable in less than one year	63.4	20.4
Repayable between one year and two years	-	-
Repayable between two years and three years	225.0	132.7
Repayable between three years and four years	-	225.0
Repayable between four years and five years	150.0	-
	438.4	378.1
Less cost of raising finance	(1.1)	(0.6)
	437.3	377.5
Finance leases (part secured)
Repayable in five years or more	4.1	3.6
	441.4	381.1

c) Interest rate and repayment profile	Principal	Interest	Interest payable	Repayable
	£m	rate
Current
Bank loan and overdrafts due within one year or on demand	3.6	Variable	Variable	On demand
Other loans	59.8	LIBOR +0.95%	Variable	June 2008
Non-current
Other loans	225.0	LIBOR +0.94%	Variable	August 2010
Hedged loan	150.0	5.4% + 0.95%	3 monthly	November 2012

d) Financial instruments held at fair value through profit and loss

The following interest rate collars are held:

	Amount hedged £m	Interest cap %	Interest floor %	Expiry
Interest rate collar	75.0	6.95%	4.05%	July 2009
Interest rate collar (increasing amount)	45.0	7.00%	2.99%	Oct 2010

The above instruments are treated as financial instruments at fair value with changes in value dealt with in the income statement during each reporting period. 

e) Financial instruments held at fair value taken to equity

The following cashflow hedge is held:

	Amount hedged	Rate payable	Rate receivable	Expiry
	£m	%	%
Hedged item	150.0	5.40%	3 month LIBOR	November 2012

A cashflow hedge was entered into on 19 November 2007 to match a £150m loan as part of the Group's policy to manage interest rate risk. 

It is treated as a cashflow hedge under IAS 39 hedge accounting as it meets all the relevant criteria. The hedge is deemed to be fully effective.

f) Fair values of financial instruments

	2008	2008	2007	2007
	Book Value	Fair Value	Book Value	Fair Value
	£m	£m	£m	£m
Financial liabilities not at fair value through profit or loss
Bank overdraft	3.6	3.6	0.9	0.9
11.125% First Mortgage Debenture Stock 2007	-	-	12.5	12.7
11.625% First Mortgage Debenture Stock 2007	-	-	7.0	7.1
Other loans	433.7	433.7	357.1	357.1
Finance lease obligations	4.1	4.1	3.6	3.6
	441.4	441.4	381.1	381.4
Financial liabilities at fair value through profit or loss
Derivative financial instruments:
Liabilities	0.2	0.2	0.3	0.3
Assets	-	-	(0.1)	(0.1)
	0.2	0.2	0.2	0.2
Financial liabilities at fair value through equity
Cashflow hedge	2.9	2.9	-	-

The total change recorded in the income statement was £nil (2007: £0.9m gain) for changes of fair value of derivative financial instruments.

The fair value of the interest rate collars and hedges 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 1.8p per share (31 March 2007: 0.2p).  

g) Finance leases

Finance lease liabilities are in respect of leased investment property.

Minimum lease payments under finance leases fall due as follows:	2008 £m	2007 £m
Within one year	0.4	0.4
Between two and five years	1.3	1.2
Beyond five years	23.4	21.0
	25.1	22.6
Future finance charges on finance leases	(21.0)	(19.0)
Present value of finance lease liabilities	4.1	3.6

14. Notes to cash flow statement

Reconciliation of profit for the period to cash generated from operations:

	2008 £m	2007 £m
(Loss)/profit for the period	(34.7)	193.4
Tax	(2.3)	(80.9)
Depreciation	0.6	0.6
Amortisation of intangibles	0.1	0.1
Profit on disposal of investment properties	(2.2)	(4.4)
Net (loss)/gain from change in fair value of investment property	47.5	(95.3)
Diminution in value due to fire loss	-	0.8
Share based payments	0.4	-
Change in fair value of financial instruments	-	(0.9)
Interest income	(0.1)	(0.1)
Interest expense	28.2	23.3
Share in joint venture post tax loss/(profit)	2.8	(1.7)
Changes in working capital:
Increase in trade and other receivables	(0.5)	(1.1)
Increase in trade and other payables	1.8	3.3
Cash generated from operations	41.6	37.1

For the purposes of the cash flow statement, the cash and cash equivalents comprise the following:

	2008 £m	2007 £m
Cash at bank and in hand	-	-
Restricted cash - tenants deposit deeds	2.5	2.4
Bank overdrafts	(3.6)	(0.9)
	(1.1)	1.5

15. Tax paid 

	2008 £m	2007 £m
Tax paid/(refunded) on operating activities	18.9	(0.1)
Tax paid on investing activities	0.4	4.8
Total tax paid	19.3	4.7

16. Analysis of net debt

	At 1 April 2007 £m	Cash Flow £m	Non-cash Items £m	At 31 March 2008 £m
Cash at bank and in hand	-	-	-	-
Restricted cash - tenants' deposit deeds	2.4	0.1	-	2.5
Bank overdrafts	(0.9)	(2.7)	-	(3.6)
	1.5	(2.6)	-	(1.1)
11.125% First Mortgage Debenture Stock	(12.5)	12.5	-	-
11.625% First Mortgage Debenture Stock	(7.0)	7.0	-	-
Bank loans	(357.7)	(77.1)	-	(434.8)
Less cost of raising finance	0.6	0.9	(0.4)	1.1
Finance lease obligations	(3.6)	(0.4)	(0.1)	(4.1)
	(380.2)	(57.1)	(0.5)	(437.8)
Total	(378.7)	(59.7)	(0.5)	(438.9)

17(a).    Deferred tax liabilities    

	2008 £m	2007 £m
Balance at 1 April	0.2	122.6
Deferred tax credit	-	(122.4)
Balance at 31 March	0.2	0.2

If the Group's directly owned investment properties were sold for their revalued amount there would be no potential liability to corporation tax following the Group's conversion to a REIT. The current year provision is based on the corporation tax rate of 28% effective from 1 April 2008.

17(b). Provisions 

	2008 £m	2007 £m
At 1 April	20.9	-
Provision for tax indemnity	(1.4)	20.9
At 31 March	19.5	20.9

On the formation of the joint venture with Glebe (which was created by a merger and so triggered no tax liabilities) the Group gave an indemnity that should a tax liability arise in the future on the disposal of any of the properties that have been transferred, then the Group would pay to the joint venture a proportion of the liability based on the pre-merger gain. An appropriate provision under current tax law has been made for this liability. The reduction in the year represents a recalculation at the corporation tax rate of 28% effective from 1 April 2008.

18.    Other reserves

	Hedging reserve £m	Equity element of convertible loan stock  £m	Equity settled share based payments £m	Total £m
Balance at 1 April 2006	-	0.2	0.6	0.8
Loan stock conversion	-	(0.2)	-	(0.2)
Value of employee services	-	-	0.7	0.7
Balance at 31 March 2007	-	-	1.3	1.3
Fair value movement on derivatives	(2.9)	-	-	(2.9)
Value of employee services	-	-	0.7	0.7
Balance at 31 March 2008	(2.9)	-	2.0	(0.9)

19.     Statement of changes in shareholders' equity

	Share capital	Share  premium	Investment in own shares	Other reserves	Retained  earnings	Total  equity
	£m	£m	£m	£m	£m	£m
Balance at 1 April 2006	16.9	28.7	(5.1)	0.8	349.0	390.3
Share issues	0.1	0.2	-	-	-	0.3
ESOT shares released	-	-	2.3	-	-	2.3
Dividends paid	-	-	-	-	(6.4)	(6.4)
Loan stock conversion	0.4	1.8	-	(0.2)	-	2.0
Value of employee services	-	-	-	0.7	-	0.7
Profit for the year	-	-	-	-	193.4	193.4
Balance at 31 March 2007	17.4	30.7	(2.8)	1.3	536.0	582.6
Share issues	-	0.1	-	-	-	0.1
ESOT shares net (purchase)/release	-	-	(1.7)	-	-	(1.7)
Dividends paid	-	-	-	-	(7.3)	(7.3)
Fair value movement on derivatives	-	-	-	(2.9)	-	(2.9)
Value of employee services	-	-	-	0.7	-	0.7
Loss for the year	-	-	-	-	(34.7)	(34.7)
Balance at 31 March 2008	17.4	30.8	(4.5)	(0.9)	494.0	536.8

            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 dividends on the shares have been waived except where the shares are beneficially owned by participants. On 18 July 2007, the Trust purchased 500,000 shares in the Company for a cash consideration of £1.9m. During the year the Trust transferred 370,500 shares to employees on exercise of options for a cash consideration of £0.4m. At 31 March 2008, the number of shares held by the Trust totalled 2,937,951 (2007: 2,738,360). The shares have been included at cost in shareholders' equity. At 31 March 2008 the market value of shares held in the ESOT was £8.1m (2007: £13.8m) compared to a nominal value of £0.3m (2007: £0.3m).

In addition, the ESOT holds 258,894 (2007: 504,565) shares earmarked for the provision of matching awards under the Company's Co-Investment Plan.

21. Joint Venture

Workspace Group plc holds 50% of the ordinary share capital of Workspace Glebe Limited. Its interest in this joint venture has been equity accounted for in the Group's consolidated financial statements. 

Investment in joint venture	31 March 2008 £m	31 March 2007 £m
Share of joint venture at start of year	18.5	-
Share of joint venture (loss)/profit after tax for the year	(2.8)	1.7
Net equity movements in joint venture	-	1.0
Net loan movements with joint venture	-	18.5
Unrealised profit on sale of properties to joint venture	-	(2.7)
Share of joint venture at end of year	15.7	18.5
Comprising:
Unlisted shares at cost	1.0	1.0
Group's share of post acquisition retained (loss)/profit after tax	(1.1)	1.7
Unrealised profit on sale of properties to joint venture	(2.7)	(2.7)
Loan to joint venture	18.5	18.5
	15.7	18.5

The Group's share of amounts of each of current assets, long term assets, current liabilities and long term liabilities, income and expenses are shown below:

Assets and liabilities:	31 March 2008 £m	31 March 2007 £m
Investment properties	81.9	78.8
Current assets	1.3	2.2
Total assets	83.2	81.0
Current liabilities	(2.7)	(1.8)
Non-current liabilities	(64.8)	(60.7)
Total liabilities	(67.5)	(62.5)
Group share of joint venture net assets	15.7	18.5

Income and expenses:	Year ended  31 March 2008 £m	Year ended  31 March 2007 £m
Revenue	5.0	4.2
Direct costs	(1.3)	(1.1)
Net rental income	3.7	3.1
Administrative expenses	(0.1)	(0.1)
Change in fair value of investment property	(2.0)	1.4
Finance costs - interest payable	(3.9)	(3.1)
Change in fair value of derivative financial instruments	(1.5)	1.2
(Loss)/profit before tax	(3.8)	2.5
Taxation	1.0	(0.8)
(Loss)/profit after tax	(2.8)	1.7

The Group's share of capital commitments of the Workspace Glebe joint venture were £2.2m (2007: £0.2m) for commitments under contract and £5.9m (2007: £5.0m) authorised by directors but not contracted.

Transactions between the Group and its joint venture are set out below. These are related party transactions as defined in IAS24.

	31 March 2008 £m	31 March 2007 £m
Transactions:
Sale of properties to joint venture	-	146.0
Recharges to joint venture	0.6	0.4
Recharges from joint venture	(0.1)	(0.2)
Balances with joint venture at 31 March:
Amounts receivable	3.3	-
Amounts payable	-	(0.7)

Workspace Group manages the funding of the joint venture, collecting rents and settling expenses. Amounts receivable and payable represent short-term funding balances between the Group's and the Joint Venture's bank accounts. 

22.     Capital commitments

At the year end the estimated amounts of contractual commitments for future capital expenditure not provided for were:

	2008	2007
	£m	£m
Under contract:
Purchases, construction or re-development of investment property	13.3	10.5
Repairs, maintenance or enhancement of investment property	0.2	0.1
	13.5	10.6
Authorised by directors but not contracted :
Property, plant and equipment	0.1	0.5
Intangible assets	0.1	-
Purchases, construction or re-development of investment property	12.9	6.4
Repairs, maintenance or enhancement of investment property	5.1	7.5
	18.2	14.4

 

END

 

 

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