Town Centre Regulatory News (TOWN)

9 Mar 2006 07:01

Town Centre Securities PLC09 March 2006 Town Centre Securities PLC Transition statement on the adoption of International Financial Reporting Standards Town Centre Securities PLC, "the Group", is today presenting information to showthe effect of reporting its financial results in accordance with IFRS"International Financial Reporting Standards" and IAS "International AccountingStandards" with effect from 1 July 2004. This unaudited statement presents theresults for the six months ended 31 December 2004 and year ended 30 June 2005restated to an IFRS basis, and outlines the Group's accounting policies underIFRS. This transition statement summarises: • The principal accounting policy differences between United Kingdom Generally Accepted Accounting Principles (UK GAAP) and IFRS as they affect Town Centre Securities PLC. • The effect of the adoption of IFRS on the income statement for the six months ended 31 December 2004 and the balance sheet as at 30 June 2005, and the income statement for the year then ended. • The Group's principal accounting policies under IFRS. 2005 full year - financial highlights £'000 UK GAAP IFRSNet revenue 22,780 22,714Profit before tax 8,484 51,501Underlying profit before tax* 6,297 6,334Net assets 240,468 205,321Net assets per share 430p 368pEarnings per share 15.9p 69.5pUnderlying earnings per share* 11.1p 11.1p In summary the most notable changes to the Group's financial statements are: • Revaluation surpluses and deficits on investment properties are recognised in the income statement (IAS 40). • Deferred tax is provided on the difference between the original cost of investment properties, with the addition of indexation allowances on the land portion and their carrying amounts. Deferred tax arising during the period is reported in the income statement (IAS 12). • The Group's share of the profit after tax and net assets of its joint ventures are shown on one line in the income statement and balance sheet respectively (IAS 31). • Final Dividends are not recognised until approval is obtained at the Annual General Meeting, interim dividends are not recognised until paid (IAS 10). The adoption of IFRS does not affect the reported cash flows of the Group, itsdividend policy and ability to pay dividends, its banking arrangements, or itsability to undertake share buy-backs. *Reconciliation of earnings per share between UK GAAP and IFRS Year ended Year ended 30 June 2005 30 June 2005 UK GAAP IFRS Earnings Earnings Earnings per share Earnings per share £000 Pence £000 PenceEarnings and earnings per share 9,026 15.9 39,549 69.5Post tax profit on disposal ofinvestment properties (4,129) (7.3) (4,129) (7.3)Post tax exceptional pensioncosts 1,400 2.5 1,400 2.5Revaluation movement oninvestment properties reportedin income statement - - (42,703) (75.1)Revaluation movement oninvestment properties in jointventures reported in incomestatement (290) (0.5)Deferred tax on revaluation ofinvestment properties reportedin income statement - - 12,507 22.0Underlying earnings andearnings per share 6,297 11.1 6,334 11.1 The weighted average number of shares used in the calculation of the earningsper share, is 56,934,000. For further information, please contact: Town Centre Securities PLC www.tcs-plc.comEdward Ziff, Chairman & Chief Executive 0113 222 1234John Sutcliffe, Finance Director Smithfield 0207 360 4900Reg Hoare / Katie Hunt Transition to International Financial Reporting Standards All listed companies on recognised exchanges in the European Union required toprepare consolidated financial statements are required to present theirfinancial statements for accounting periods beginning on or after 1 January 2005in accordance with IFRS. Therefore, Town Centre Securities PLC will present itsconsolidated interim and full year financial results for the year ending 30 June2006 in accordance with IFRS and comparative figures will be restatedaccordingly. This transition statement provides reconciliations of UK GAAP to IFRS asrequired by IFRS 1 "First-time adoption of International Financial ReportingStandards". Basis of Preparation This transition statement has been prepared in accordance with those IFRSstandards and International Financial Reporting Interpretations Committee(IFRIC) interpretations issued, endorsed by the EU either effective, or earlyadopted, as at the time of preparing this statement. The issue and endorsement of any new or revised standards, or the publishing offurther interpretation guidance, could result in changes in the informationpresented in this document. The Group's transition date for the adoption of IFRS is 1 July 2004. Significant differences between UK GAAP and IFRS 1. IAS 40 - Investment Property Under IAS 40, investment property will continue to be recognised in the balancesheet at fair value. Any revaluation gains or losses are taken directly to theincome statement rather than the revaluation reserve. Accumulated revaluationsurpluses relating to investment properties as at the transition date have beenreallocated to retained earnings, however, this reserve is not distributable asthe gains are unrealised. 2. IAS 12 - Income Taxes IAS 12 is conceptually different to UK GAAP and deferred tax is recognised on"temporary differences" rather than "timing differences". Timing differences, which focus on profit and loss movements, are the differencebetween the taxable amount and the pre-tax accounting profit that originate inone reporting period and reverse in one or more subsequent periods. Temporarydifferences, which focus on balance sheet movements, are the differences betweenthe carrying amount of an asset or liability in the balance sheet and its taxbase. In many cases, the deferred tax provision will be the same under IAS 12 as underFRS 19. IAS 12 requires deferred tax to be provided in full on revaluationdifferences. An assessment has been made of the future use of the assets, inaccordance with the criteria set out below, and a deferred tax provision hasbeen made accordingly. Movements in the deferred tax provision are chargedthrough the income statement. Deferred tax on investment properties is provided on the difference between theoriginal cost, with the addition of indexation allowances on the land portion,and their carrying amounts at the reporting date. Indexation allowances on thebuilding portion, which would only apply if the properties concerned were to besold, have not been accounted for; except where investment properties areclassified as held for disposal. The deferred tax liability arising on therevaluation of investment properties is therefore £24.3m greater at 30 June 2005than would be the case if full indexation allowances were accounted for. 3. IAS 31 - Interests in Joint Ventures Under UK GAAP, Town Centre Securities PLC was required to recognise its share ofthe joint ventures turnover, operating profit before interest and its share ofinterest and tax with the Group figures on the face of the profit and lossaccount. The Group's aggregate share of the gross assets and gross liabilitiesof the joint ventures were shown separately on the balance sheet. IAS 31 allows companies to make a one-time choice as to whether joint ventureswill be accounted for under the equity method or proportionally consolidated.The Group has opted to use the equity method and reports its joint ventures'profit after tax as a single line in the income statement and its share of thenet assets as a single line in the balance sheet. Additional disclosures will bemade of the underlying income, expenditure, assets and liabilities for the jointventures, together with supplemental notes. 4. SIC 15 - Operating Leases - Incentives The cost of rent free periods and other incentives given to tenants underoperating leases must be spread over the term of the lease rather than, as underUK GAAP, to the first rent review. Further, there are no transitional provisionsso that incentives granted before the UK standard came into effect have now beenbrought back into account. This will change the timing but not the aggregateamount recognised in relation to lease incentives. 5. IAS 10 - Events After the Balance Sheet Date IAS 10 requires that where dividends are declared after the balance sheet date,dividends are not recognised as a liability. In summary dividends are recognisedas follows: •Final dividends - when approved by shareholders at the Annual General Meeting; and •Interim dividends - when paid As a result the proposed final and special dividends for the year ended 30 June2005 of £3.52m are excluded from the IFRS balance sheet and written back toretained earnings. IFRS also requires that dividends and distributions are presented in a differentway to UK GAAP. Under IFRS, dividends are not considered to be an expense of theCompany so they are not included in the income statement. Dividends arepresented in the statement of changes in equity alongside other transactionswith shareholders. 6. IAS 39 - Bad Debt and Service Charge Provisions The Group has re-assessed its provisioning policies in accordance with IAS 39.In accordance with the standard, provisions are now calculated based onexperience which will be re-assessed as experience emerges. 7. IFRS 2 - Share Based Payment IFRS 2 requires that the fair value of share options granted to directors andemployees as part of their remuneration is charged to the income statement overthe vesting period of the options. The fair value has been calculated usingrecognised valuation models, and any change adjusted to reflect actual andexpected levels of vesting and for the expected achievement of any non-marketperformance conditions attached to each option. This results in a credit to theincome statement in the year of £3,000, which is net of provisions previouslymade by the Group in respect of the cost of certain of the share-basedcompensation arrangements. In accordance with IFRS 2, only share based awardsmade after 7 November 2002 that had not vested by 1 January 2005 have beenrestated. 8. IAS 32 and 39 - Financial Instruments The Group has taken the exemption permitted under IFRS 1 to defer the adoptionof IAS 32 and 39 until 1 July 2005. Listed investments will continue to be heldat market value with fair value movements being recognised directly in equity. 9. IAS 17 - Leases IAS 17 requires a lease to be classified as either a finance lease or anoperating lease. A finance lease exists if substantially all the risks andrewards are transferred to the tenant. Under IAS 17 the Group's investment properties held on long leases are accountedfor as finance leases. Town Centre Securities PLC has reviewed its leases andestablished that the adjustment arising from the application of the standard isnil. The Group has performed a review of all leases granted by the Group and hasconfirmed that all leases are operating leases. Town Centre Securities PLC - Unaudited reconciliation of reported profits for the six months ended 31 December 2004 As at Deferred Joint Operating Bad debt As at 31 tax IAS Venture lease and service 31 December 12 IAS 31 incentives charge December 2004 SIC-15 provision 2004 UK GAAP IAS 39 IFRS £'000 £'000 £'000 £'000 £'000 £'000 Gross 11,774 (71) 11 2 11,716revenuePropertyexpenses (707) 2 32 (673) ---------- --------- --------- --------- --------- ---------Net revenue 11,067 - (69) 11 34 11,043 Administrativeexpenses (1,742) (1,742) Other income 284 284 Profit ondisposal ofinvestmentproperty 348 348 ---------- --------- --------- --------- --------- ---------Operatingprofit 9,957 - (69) 11 34 9,933 Interestpayable andsimilarcharges (5,599) (5,599)Interestreceivable 5 (1) 4Share of posttax profits ofjoint venture - 70 70 ---------- --------- --------- --------- --------- ---------Profit beforetax 4,363 - - 11 34 4,408Taxation (1,156) 455 - (701) ---------- --------- --------- --------- --------- ---------Profit for theperiod 3,207 455 - 11 34 3,707 ========== ========= ========= ========= ========= =========Attributableto:Equityshareholdersof the parent 3,207 455 - 11 34 3,707 ========== ========= ========= ========= ========= ========= Town Centre Securities PLC-Unaudited reconciliation of reported profits for theyear ended 30 June 2005 As at Investment Deferred Joint Operating Bad debt Share As at 30 June property tax IAS Venture lease and based 30 June 2005 IAS 40 12 IAS 31 incentives service payments 2005 UK GAAP SIC-15 charge IFRS 2 IFRS provision IAS 39 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000 Gross 23,936 (123) 19 33 23,865revenuePropertyexpenses (1,156) 17 (12) (1,151) -------- -------- --------- ------- -------- -------- -------- --------Net revenue 22,780 - - (106) 19 21 - 22,714 Administrativeexpenses (5,704) (3) (5,707) Other income 411 411 Profit ondisposal ofinvestmentproperty 2,306 2,306 Valuationmovement oninvestmentproperties - 42,703 42,703 -------- -------- --------- ------- -------- -------- -------- --------Operatingprofit 19,793 42,703 - (106) 19 21 (3) 62,427 Interestpayable andsimilarcharges (11,360) 22 (11,338)Interestreceivable 51 (3) 48Share of posttax profits ofjoint venture - 290 74 364 -------- -------- --------- ------- -------- -------- -------- --------Profit beforetax 8,484 42,993 - (13) 19 21 (3) 51,501 Taxation 542 (12,507) 13 (11,952) -------- -------- --------- ------- -------- -------- -------- --------Profit for theyear 9,026 42,993 (12,507) - 19 21 (3) 39,549 ======== ======== ========= ======= ======== ======== ======== ========Attributableto:Equityshareholdersof the parent 9,026 42,993 (12,507) - 19 21 (3) 39,549 ======== ======== ========= ======= ======== ======== ======== ======== Town Centre Securities PLC - Unaudited group balance sheet as at 1 July 2004 As at 1 Deferred Operating Dividends Bad debt Share based As at 1 July 2004 tax lease IAS 10 and service payments July 2004 UK GAAP IAS 12 incentives charge IFRS 2 IFRS SIC-15 provision IAS 39 £'000 £'000 £'000 £'000 £'000 £'000 £'000AssetsNon-currentassetsInvestmentproperty 337,001 337,001Property,plant andequipment 14,736 14,736Investment injoint 1,133 1,133venturesPre paidoperatinglease - 283 283paymentsDeferred taxassets 48 48 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total noncurrent 352,918 - 283 - - - 353,201assets ----------- ----------- ----------- ----------- ----------- ----------- ----------- CurrentassetsInvestments 383 383Trade andotherreceivables 2,456 (213) 41 2,284 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total currentassets 2,839 - (213) - 41 - 2,667 ----------- ----------- ----------- ----------- ----------- ----------- -----------Total 355,757 - 70 - 41 - 355,868assets =========== =========== =========== =========== =========== =========== =========== LiabilitiesNon-currentliabilitiesBorrowings 126,257 126,257Deferred taxliabilities 7,204 26,396 33,600 ----------- ----------- ----------- ----------- ----------- ----------- -----------Totalnon-currentliabilities 133,461 26,396 - - - 159,857 ----------- ----------- ----------- ----------- ----------- ----------- ----------- CurrentliabilitiesBank 3,315 3,315overdraftTrade andother 15,314 (2,428) (84) 12,802payables ----------- ----------- ----------- ----------- ----------- ----------- -----------Total currentliabilities 18,629 - - (2,428) (84) - 16,117 ----------- ----------- ----------- ----------- ----------- ----------- -----------Totalliabilities 152,090 26,396 - (2,428) (84) - 175,974 ----------- ----------- ----------- ----------- ----------- ----------- -----------Net assets 203,667 (26,396) 70 2,428 125 - 179,894 =========== =========== =========== =========== =========== =========== =========== EquityShare 14,806 14,806capitalShare 510 510premiumOther 19,460 19,460reservesShare basedpaymentsreserves - (18) (18)Retainedearnings 168,891 (26,396) 70 2,428 125 18 145,136 ----------- ----------- ----------- ----------- ----------- ----------- -----------Equityshareholdersfunds 203,667 (26,396) 70 2,428 125 - 179,894 =========== =========== =========== =========== =========== =========== =========== Town Centre Securities PLC - Unaudited group balance sheet as at 31 December 2004 As at Deferred Operating Dividends Bad debt As at 31 tax IAS lease IAS10 and service 31 December 12 incentives charge December 2004 SIC-15 provision 2004 UK GAAP IAS 39 IFRS £'000 £'000 £'000 £'000 £'000 £'000AssetsNon-currentassetsInvestmentproperty 345,161 345,161Property,plant andequipment 18,009 18,009Investment injoint venture 1,203 1,203Pre paidoperatinglease 0 230 230paymentsDeferred taxassets 48 48 ------------ ---------- ---------- ---------- ---------- -------------Total noncurrent 364,421 - 230 - - 364,651assets ------------ ---------- ---------- ---------- ---------- ------------- CurrentassetsInvestments 549 549Trade andotherreceivables 3,410 (149) 43 3,304 ------------ ---------- ---------- ---------- ---------- -------------Total currentassets 3,959 - (149) - 43 3,853 ------------ ---------- ---------- ---------- ---------- -------------Total 368,380 - 81 - 43 368,504assets ============ ========== ========== ========== ========== ============= LiabilitiesNon-currentliabilitiesBorrowings 142,227 142,227Deferred taxliabilities 7,642 25,940 33,582 ------------ ---------- ---------- ---------- ---------- -------------Totalnon-currentliabilities 149,869 25,940 - - - 175,809 ------------ ---------- ---------- ---------- ---------- ------------- CurrentliabilitiesBank 6,528 6,528overdraftTrade andother 16,072 (1,068) (116) 14,888payables ------------ ---------- ---------- ---------- ---------- -------------Total currentliabilities 22,600 - - (1,068) (116) 21,416 ------------ ---------- ---------- ---------- ---------- -------------Totalliabilities 172,469 25,940 - (1,068) (116) 197,225 ------------ ---------- ---------- ---------- ---------- -------------Net assets 195,911 (25,940) 81 1,068 159 171,279 ============ ========== ========== ========== ========== ============= EquityShare 14,050 14,050capitalShare 718 718premiumOther 20,275 20,275reservesRetainedearnings 160,868 (25,940) 81 1,068 159 136,236 ------------ ---------- ---------- ---------- ---------- -------------Equityshareholdersfunds 195,911 (25,940) 81 1,068 159 171,279 ============ ========== ========== ========== ========== ============= Town Centre Securities PLC - Unaudited group balance sheet as at 30 June 2005 As at Deferred Operating Dividends Bad debt Share As at 30 June tax IAS lease IAS 10 and based 30 June 2005 12 incentives service payments 2005 UK GAAP SIC-15 charge IFRS 2 IFRS provision IAS 39 £'000 £'000 £'000 £'000 £'000 £'000 £'000AssetsNon-currentassetsInvestmentproperty 363,640 363,640Property,plant andequipment 29,100 29,100Investment injoint 2,815 2,815venturesPre paidoperatinglease - 255 255paymentsDeferred taxassets 717 717 ----------- ---------- ---------- ---------- ---------- ---------- ------------Total noncurrent 396,272 - 255 - - - 396,527assets ----------- ---------- ---------- ---------- ---------- ---------- ------------ CurrentassetsInvestments 4,902 4,902Trade andotherreceivables 4,887 (166) 74 4,795 ----------- ---------- ---------- ---------- ---------- ---------- ------------Total currentassets 9,789 - (166) - 74 - 9,697 ----------- ---------- ---------- ---------- ---------- ---------- ------------Total 406,061 - 89 - 74 - 406,224assets =========== ========== ========== ========== ========== ========= ============ LiabilitiesBorrowings 135,196 135,196Deferred taxliabilities 6,590 38,902 45,492 ----------- ---------- ---------- ---------- ---------- ---------- ------------Totalnon-currentliabilities 141,786 38,902 - - - - 180,688 =========== ========== ========== ========== ========== ========== ============ CurrentliabilitiesBank 5,579 5,579overdraftTrade andother 18,228 (3,520) (72) 14,636payables ----------- ---------- ---------- ---------- ---------- ---------- ------------Total currentliabilities 23,807 - - (3,520) (72) - 20,215 ----------- ---------- ---------- ---------- ---------- ---------- ------------Totalliabilities 165,593 38,902 - (3,520) (72) - 200,903 ----------- ---------- ---------- ---------- ---------- ---------- ------------Net assets 240,468 (38,902) 89 3,520 146 - 205,321 =========== ========== ========== ========== ========== ========== ============ EquityShare 13,963 13,963capitalShare 818 818premiumOther 20,393 20,393reservesShare basedpaymentsreserves - 3 3Retainedearnings 205,294 (38,902) 89 3,520 146 (3) 170,144 ----------- ---------- ---------- ---------- ---------- ---------- ------------Equityshareholdersfunds 240,468 (38,902) 89 3,520 146 - 205,321 =========== ========== ========== ========== ========== ========== ============ Town Centre Securities Plc - Unaudited consolidated statement of summarised cash flows year ended 30 June 2005 UK GAAP Investment Deferred Joint Operating Debtor Share IFRS property tax IAS venture lease provisioning based IAS 40 12 IAS 31 incentives IAS 39 payments SIC 15 IFRS 2 £'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000OperatingactivitiesProfit forthe year 9,026 42,993 (12,507) - 19 21 (3) 39,549Adjustmentsfor:Depreciationof property,plant andequipment 186 186Amortisationof prepaidoperatinglease - (19) (19)paymentsShare basedpayments - 3 3Profit ondisposal ofproperty,plant andequipment andinvestments (72) (72)Profit ondisposal ofinvestmentproperty (2,306) (2,306)Net gain fromfair valueadjustment ofinvestmentproperty - (42,703) (42,703)Interestreceived (51) 3 (48)Interestexpense 11,360 (22) 11,338Share ofjoint (106) (290) 32 (364)ventureIncomecredit/taxexpense (542) 12,507 (13) 11,952Movement inworkingcapital 159 (21) 138 -------- -------- -------- -------- -------- ------- ------- -------Cashgeneratedfrom 17,654 - - - - - - 17,654operations Interest (11,413) (11,413)paidInterestreceived 29 29Income taxespaid (1,463) (1,463) -------- -------- -------- -------- -------- ------- ------- -------Cashgeneratedfrom 4,807 - - - - - - 4,807operating ======== ======== ======== ======== ======== ======= ======= =======activities Cash flowsfrominvestingactivitiesPurchases ofinvestmentproperty (13,159) (13,159)Purchases ofproperty,plant andequipment (14,646) (14,646)Purchases ofinvestments (4,116) (4,116)Proceeds fromthe sale ofinvestmentproperty 31,529 31,529Proceeds fromsale ofproperty,plant andequipment 107 107Proceeds fromsale ofinvestments 238 238Loans tojointventure forpurchase ofinvestment (1,318) (1,318)property -------- -------- -------- -------- -------- ------- ------- -------Cashgeneratedfrom (1,365) - - - - - - (1,365)investing ======== ======== ======== ======== ======== ======= ======= =======activities Cash flowsfromfinancingactivitiesProceeds fromthe issue ofshare capital 398 398Proceeds fromothernon-currentborrowings 9,000 9,000Repurchase ofshare capital (11,699) (11,699)Considerationpaid forpurchase ofown shares (40) (40)Dividendspaidto (3,365) (3,365)shareholders -------- -------- -------- -------- -------- ------- ------- -------Cash flowfromfinancing (5,706) - - - - - - (5,706)activities ======== ======== ======== ======== ======== ======= ======= ======= Net increasein cash andcashequivalents (2,264) (2,264)Cash and cashequivalentsat (3,315) (3,315)1 July 2004 -------- -------- -------- -------- -------- ------- ------- -------Cash and cashequivalentsat (5,579) - - - - - - (5,579)30 June 2005 ======== ======== ======== ======== ======== ======= ======= ======= Town Centre Securities PLC Accounting Policies under IFRS The following is a list of the new Group accounting policies under IFRS whichwill be applied to: The opening IFRS balance sheet as at 1 July 2004, the Group's date of transitionto IFRS, and the IFRS balance sheet as at 30 June 2005 and income statement forthe year then ended, attached to this announcement and will be presented ascomparative information in the Group's first IFRS Financial Statements for theyear ending 30 June 2006. Consolidation (a) Subsidiaries Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of morethan one half of the voting rights. The existence and effect of potential votingrights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity. Intercompany transactions, balances and unrealised gains on transactions betweengroup companies are eliminated. Unrealised losses are also eliminated unless thetransaction provides evidence of an impairment of the asset transferred.Accounting policies of subsidiaries have been changed where necessary to ensureconsistency with the policies adopted by the Group. (b) Joint ventures A joint venture is a contractual arrangement whereby the Group and other partiesundertake an economic activity that is subject to joint control. Investments in jointly controlled entities are accounted for using the equitymethod of accounting and are initially recognised at cost. The Group's share of its jointly controlled entities post-acquisition profits orlosses are recognised in the income statement. Investments in joint ventures arecarried in the balance sheet at cost as adjusted by post-acquisition changes inthe Group's share of net assets of the jointly controlled entity less anyimpairment in the value of the investment. Unrealised gains on transactions between the Group and its jointly controlledentities are eliminated to the extent of the Group's interest in the jointventure. Accounting policies of joint ventures have been changed where necessaryto ensure consistency with the policies adopted by the Group. Segment Reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. A geographical segment is engaged in providing products or services within aparticular economic environment that are subject to risks and returns that aredifferent from those of segments operating in other economic environments. The Group's primary segment is business and the Group operates in one businesssegment; comprising property investment and development. The Group's operationsare performed wholly in the United Kingdom. Foreign Currency Translation Functional and Presentation Currency Items including in the financial statements of each of the Group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the "functional currency"). The consolidated financialstatements are presented in sterling, which is the Group's functional andpresentation currency. Investment properties Investment properties comprise mainly retail units and offices and are measuredinitially at cost, including related transaction costs. These are held asinvestments to earn rental income and for capital appreciation and are stated atfair value at the balance sheet date. Investment property comprises freehold land, freehold buildings, land held underoperating lease and buildings held under finance lease. After initial recognition investment property is carried at fair value, based onmarket values and is determined annually by independent external valuers. Thesurplus or deficit arising from these valuations is included in the incomestatement. When an existing investment property is redeveloped for continuedfuture use as an investment property it remains an investment property whilst indevelopment. The fair value of investment property reflects, among other things, rentalincome from current leases and assumptions about rental income from futureleases in light of current market conditions. Subsequent expenditure is charged to the asset's carrying amount only when it isprobable that future economic benefits associated with the item will flow to theGroup and the cost of the item can be measured reliably. All other repairs andmaintenance costs are charged to the income statement during the financialperiod in which they are incurred. Property that is being constructed or developed for future use as an investmentproperty is classified as property, plant and equipment and stated at cost untilconstruction or development is complete, at which time it is reclassified andsubsequently accounted for as investment property. The gain or loss arising on the disposal of investment properties is determinedas the difference between the net sale proceeds and the carrying value of theasset at the beginning of the period and is recognised in the income statement.Property, Plant and Equipment (a) Development Property Development properties are stated at cost. Cost includes expenditure that isdirectly attributable to the acquisition of the assets. Subsequent expenditure is included in the asset's carrying amount or recognisedas a separate asset, as appropriate, only when it is probable that futureeconomic benefits associated with the item will flow to the Group and the costof the item can be measured reliably. Other repair and maintenance expendituresare charged to the income statement during the financial period in which theyare incurred. Interest incurred on development projects is only capitalised on large new builddevelopments, rather than refurbishments, as specific borrowings are taken outto finance construction. A property ceases to be treated as being in the courseof development when substantially all the activities that are necessary toprepare the property for use are complete. Freehold land held for development is not depreciated. (b) Plant and Equipment Plant and equipment are shown at historical cost less depreciation and provisionfor impairment. Historic cost includes expenditure that is directly attributableto the acquisition of the items. Depreciation is calculated on a straight linebasis at rates appropriate to write off individual assets over their estimateduseful lives of between three and ten years. The assets' residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. An asset's carrying amount is writtendown immediately to its recoverable amount if the asset's carrying amount isgreater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceedswith the carrying amount and are included in the income statement. Impairment of assets Assets that are subject to depreciation are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognised for the amount by which theasset's carrying amount exceeds its recoverable amount. The recoverable amountis the higher of any asset's fair value less costs to sell and value in use. Forthe purposes of assessing impairment, assets are grouped at the lowest levelsfor which there are separately identifiable cash flows (cash generating units). Investments From 1 July 2004 to 30 June 2005 Listed investments are included at fair value based on current middle marketvalue. Revaluation gains and losses arising for this method of valuation arecredited or charged to the Group's other reserve. From 1 July 2005 The Group classifies its listed investments as available-for-sale financialassets. Available-for-sale financial assets are non-derivatives that are eitherdesignated in this category or not classified in any of the other categories.They are included in non-current assets unless management intends to dispose ofthe investment within 12 months of the balance sheet date. Purchases and sales of investments are recognised on trade-date - the date onwhich the Group commits to purchase or sell the asset. Investments are initiallyrecognised at fair value plus transaction costs. Investments are derecognisedwhen the rights to receive cash flows from the investments have expired or havebeen transferred and the Group has transferred substantially all risks andrewards of ownership. Available-for-sale financial assets are subsequentlycarried at fair value. The fair values of listed investments are based oncurrent bid prices. Realised and unrealised gains and losses arising fromchanges in the fair value of securities classified as available-for-sale arerecognised in equity. When securities classified as available-for-sale are soldor impaired, the accumulated fair value adjustments are included in the incomestatement as gains and losses from investment securities. Dividends on available-for-sale equity instruments are recognised in the incomestatement when the Group's right to receive payment is established. The Group assesses at each balance sheet date whether there is objectiveevidence that a financial asset or a group of financial assets is impaired. Inthe case of equity securities classified as available for sale, a significant orprolonged decline in the fair value of the security below its cost is consideredin determining whether the securities are impaired. If any such evidence existsfor available-for-sale financial assets, the cumulative loss - measured as thedifference between the acquisition cost and the current fair value, less anyimpairment loss on that financial asset previously recognised in profit or loss- is removed from equity and recognised in the income statement. Operating Leases (a) A Group company is the lessee Leases where the lessor retains a significant portion of the risks and rewardsof ownership are classified as operating leases. Payments made under operatingleases (net of any incentives received from the lessor) are charged to theincome statement on a straight-line basis over the period of the lease. (b) A Group company is the Lessor Properties leased to third parties under operating leases are included ininvestment property in the balance sheet. Trade receivables Trade receivables are recognised initially at fair value and are subsequentlymeasured less provision for impairment. A provision for impairment of tradereceivables is established when there is objective evidence that the Group willnot be able to collect all amounts due according to the original terms of thereceivables concerned. The amount of the provision is recognised in the incomestatement. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash andcash equivalents comprise cash in hand, deposits held at call with banks, othershort-term, highly liquid investments with original maturities of three monthsor less, and bank overdrafts. Bank overdrafts are included within borrowings incurrent liabilities on the balance sheet. Share capital Ordinary shares are classified as equity. Incremental costs directlyattributable to the issue of new shares or options are shown in equity as adeduction, net of tax, from the proceeds. Borrowings Borrowings are recognised initially at fair value, net of transaction costsincurred. Borrowings, including the debenture, are subsequently stated atamortised cost. Debt finance costs are amortised over the life of the debtagreement. Borrowings are classified as current liabilities unless the Group has anunconditional right to defer settlement of the liability for at least 12 monthsafter the balance sheet date. Taxation The tax charge in the income statement comprises tax currently payable anddeferred tax. (a) Deferred Income Tax Deferred income tax is provided in full, using the liability method, ontemporary differences arising between the tax bases of assets and liabilitiesand their carrying amounts in the consolidated financial statements. However, noprovision for deferred tax is made for temporary timing differences arising onthe initial recognition of assets or liabilities that affects neither accountingnor taxable profit or loss. Deferred tax is determined using tax rates (andlaws) that have been enacted or substantially enacted by the balance sheet dateand are expected to apply when the related deferred income tax asset is realisedor the deferred income tax liability is settled. Indexation on land is included in the calculation of the deferred tax liability,but indexation is not included on the buildings unless the properties aretreated as held for sale. Deferred income tax assets are recognised to the extent that it is probable thatfuture taxable profit will be available against which the temporary differencescan be utilised. Deferred tax assets and liabilities are offset when they relateto income taxes levied by the same taxation authority and the Group is entitledto settle its current tax assets and liabilities on a net basis. (b) Current Tax The charge for current tax is based on the results for the period as adjustedfor items which are non-assessable or disallowed. It is calculated using ratesof tax that have been enacted by the balance sheet date. Employee Benefits (a) Pension Arrangements The Group operates defined contribution arrangements for all eligible directorsand employees. A defined contribution plan is a pension plan under which theGroup pays contributions into a private or publicly administered pensioninsurance plan. Pension costs are charged to the income statement in the periodwhen they fall due. Prepaid contributions are recognised as an asset to theextent that a cash refund or a reduction in the future payments is available. (b) Share-based compensation Share options granted before 7 November 2002In accordance with IFRS2 no expense is recognised in respect of these options.The shares are recognised when the options are exercised and the proceedsreceived allocated between share capital and share premium. Share options granted after 7 November 2002 and vested after 1 July 2004The Group operates equity-settled, share-based compensation plans. The fairvalue of the employee services received in exchange for the grant of the optionsis recognised as an expense in the income statement over the vesting period ofthe options. The fair value of employee share option plans is calculated using the BlackScholes pricing model. At each balance sheet date, the Group revises itsestimate of the number of options that are expected to become exercisable. Itrecognises the impact of the revision of original estimates, if any, in theincome statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs arecredited to share capital (nominal value) and share premium when the options areexercised.Revenue recognition (a) Rental Income Revenue comprises the fair value of rental income, service charges andmanagement charges from properties (net of value-added-tax). Rental income is recognised as it falls due, in accordance with the lease towhich it relates. Any lease incentives are spread evenly across the period ofthe lease. Surrender premiums received from outgoing tenants prior to the expiryof their lease are included in rental income. (b) Interest Income Interest income on any short term deposits is recognised in the income statementas it accrues. (c) Other Income Other income includes dividend income, which is recognised when the right topayment is established. Dividend Distribution Dividend distribution to the Company's shareholders is recognised as a liabilityin the Group's financial statements in the period in which the dividends areapproved by the Company's shareholders. Interim dividends are recognised whenpaid. Financial Risk Management The Group's activities expose it to a variety of financial risks; credit risk,liquidity risk and cash flow interest rate risk. a) Credit risk The Group has no significant concentrations of credit risk. It has policies inplace to ensure that rental contracts are made with customers with anappropriate credit history. Cash transactions are limited to high-credit-qualityfinancial institutions. The Group has policies that limit the amount of creditexposure to any financial institution. b) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash andmarketable securities, the availability of funding through an adequate amount ofcommitted credit facilities and the ability to close out market positions. Dueto the dynamic nature of the underlying businesses, Group Treasury aims tomaintain flexibility in funding by keeping committed credit lines available. c) Cash flow and fair value interest rate risk The Group has no significant interest bearing assets. The Group's interest rate risk arises from long term borrowings. Borrowingsissued at variable rates expose the Group to cash flow interest rate risk. The Group takes on exposure to the effects of fluctuations in the prevailinglevels of market interest rates on its financial position and cash flows.Interest costs may increase as a result of such changes. They may reduce orcreate losses in the event that unexpected movements arise. Critical Accounting Estimates and Judgements The Group makes estimates and assumptions concerning the future. The resultingaccounting estimates will, by definition, seldom equal the related actualresults. The estimates and assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within thenext financial year are discussed below. a) Fair value of investment properties Investment properties are revalued at fair value by independent externalvaluers, Jones Lang LaSalle, each year at 30 June. b) Income taxes The Group is subject to income taxes in the United Kingdom. Significantestimates are required in determining the provision for income taxes. There aresome transactions and calculations for which the ultimate tax determination isuncertain. The Group recognises liabilities for anticipated queries by the taxauthorities based on estimates of whether additional taxes will be due. Wherethe final tax outcome of these matters is different for the amounts that wereinitially recorded, such differences will impact the income tax and deferred taxprovisions in the period in which such determination is made. This information is provided by RNS The company news service from the London Stock Exchange