Quintain Estates and Development PLC (“Quintain”/“Company .../media/Files/Q/Quinta... · The...

Preliminary Results for the year to 31 March 2008

Quintain Estates and Development plc - 1 -

5 June 2008

Quintain Estates and Development PLC (“Quintain”/“Company”/“Group”)

Preliminary results for the year ended 31 March 2008

QUINTAIN WELL PLACED FOR LONG-TERM VALUE CREATION

Financial Highlights

• Total return at property level of -3.9%, as measured by IPD vs March Universe of -8.5%

• EPRA Net Asset Value (NAV) down 13.8% to 676p (2007: 784p)

• NAV per share down 11.5% to 584p (2007: 660p)

• EPRA earnings per share up to 2.5p (2007: -3.4p)

• Gross profit up 5.8% to £32.7m (2007: £30.9m)

• Gearing of 69% at the year-end

• Successful refinancing in March 2008, securing £620m of bank facilities; additional £95m raised post year-end

• Final dividend increased 0.25p to 8.5p o Total dividend for the year 12.25p (2006: 11.75p).

Operational Highlights

• Wembley o Contracts exchanged with the London Borough of Brent for the sale of 1.75 acres, enabling the

creation of a new Civic Centre, located in the Northern part of Wembley City o Acquisition of 21.4 acres during the year, taking the total scheme to 90 acres o 96% of available private residential apartments already sold, with the first residents expected to

move in this August o Detailed planning consents obtained for Hilton Hotel and student scheme o Sixth consecutive unanimous consent received for W07, including 150,000 sq ft of retail and

leisure

• Greenwich o 135,000 sq ft of office space pre-let to Transport for London, with further option on 60,000 sq ft:

construction now underway o Detailed planning consent achieved for 894 homes o International success of The O2 driving footfall and generating good rental income for Quintain

• Fund Management o Funds under management increased from £711m to £1 billion o Fee income rose by 105% o Maintained focus on highly specialised and largely RPI linked income proving a major contributor

to outperformance in a more challenging property market

• Investment Portfolio o Ongoing sales and lettings programmes during the year.



John Plender, Chairman of Quintain, commented: “Quintain’s focus on generating long term value for shareholders has this year been demonstrated by the significant increase in the potential of its unique urban regeneration schemes and the robust growth of fund management. “While we will not be immune from a further deteriorating property market, our exposure to less cyclical sectors, such as healthcare and student accommodation, will continue to stand us in good stead. They have shown greater resilience to the property market downturn and enjoy returns linked to the RPI index, which is a huge advantage in a period when the cost of living is rising rapidly. With regard to our major schemes, the timing of the build-out is under our control and can be managed opportunistically to suit our balance sheet and prevailing market conditions. “With a business model that has excellent defensive characteristics and improved liquidity, we have positioned the business well. With many rich opportunities before us and significant flexibility, the team at Quintain is nailing its colours firmly to the mast of a prudent but entrepreneurial approach to long-term value creation.” Adrian Wyatt, Chief Executive, added: “The Quintain team has exercised skill and judgement over the past year, resulting once again in a top quartile performance against the IPD. “The strength of our business model is being proved in the current bear market. Our outperformance of 500 basis points relative to the IPD benchmark clearly demonstrates the synergistic, robust and defensive nature of our model and our ability to consistently deliver good results relative to the market.” For further information, please contact: Quintain Estates and Development PLC Rebecca Worthington 020 7495 8968 Financial Dynamics Stephanie Highett/Dido Laurimore 020 7831 3113



FINANCIAL HIGHLIGHTS 31 March

2008 31 March

2007 Change

% BALANCE SHEET Net asset value per share (pence) 584 660 (11.5) Diluted net asset value per share (pence)

578

655

(11.8)

EPRA net asset value per share (pence)

676

784

(13.8)

Total return (%) (9.7) 27.5 - EPRA total return (%) (12.2) 29.9 - DIVIDENDS Total dividend per share (pence) 12.25 11.75 4.3 Final dividend per share (pence) 8.50 8.25 3.0 INCOME STATEMENT Gross profit 32.7 30.9 5.8 (Loss) profit before tax (£m) (54.7) 48.6 Earnings per share (pence)

Basic (31.3) 33.3 Diluted (31.3) 32.7

Earnings per share (EPRA) (pence) 2.5 (3.4)



Chairman’s Statement Quintain’s focus on generating long-term value for shareholders has this year been demonstrated by the significant increase in the potential of its unique urban regeneration schemes and the robust growth of fund management. Results During the year, the Company consolidated its strong operational and financial position in order to manage the impact of challenging market conditions. As a result it achieved a total return for the year, as measured by the Investment Property Databank, of -3.9%, substantially outperforming the March Universe of -8.5%. During the reporting period the total return, measured by the movement in net assets per share and adding back the dividend, declined by 9.7% or 13.5% net of Retail Price Index (RPI) inflation. However, the average annualised nominal total return for the 12 years since the Company’s flotation remains high at 17.9%. Inevitably, the book values of our major schemes in London were affected by the adverse market conditions. Wembley declined 11% against the value reported at 31 March 2007, but we recorded a small valuation increase at Greenwich Peninsula of 2.5%. The Group successfully refinanced its debt with £620m of bank facilities in March to extend the maturity of its borrowings, adding a further £95m after the year end, with only a relatively small increase in interest cost. In current circumstances this is a tribute to Quintain’s standing in the credit markets. Our confidence in the Company’s positioning and ability to deliver strong medium-term performance supports our dividend. The Board is recommending an increase in the final dividend of 0.25p to 8.5p, giving a total dividend for the year of 12.25p (2007: 11.75p), representing an increase of 4.3%. The final dividend will be paid on 8 September 2008. Business Delivery

A key highlight of the year was the strong growth and resilience of Quintain Fund Management, where fee income rose by 105% and funds under management grew from £711m to £1 billion. Wembley City and Greenwich Peninsula also saw good progress, with six detailed planning applications receiving approval. Particularly pleasing was the animation of Greenwich Peninsula created by the immediate success of The O2 at Greenwich (where, as landlords, we receive a turnover rent), and confirmation of the Peninsula’s attractiveness as a new commercial centre with the 136,000 sq ft pre-let to Transport for London. People In a notably tougher climate, Quintain’s management team has continued to deliver opportunities for long-term value creation and to retain a sharp focus on risk management. As the business has grown, important additions have been made to augment the Company’s expertise and resources at all levels. Growth has been achieved without any perceptible loss of the entrepreneurial energy or innovative flair that make this Company unique. I would like to thank all our staff for their impressive performance. We have recently added a further non-executive director to the Board through an independent external search process. Simon Laffin is an adviser to a leading private equity firm and was formerly finance director of a major food retailer. His financial background and wide commercial experience will be particularly valuable as the scale and scope of the Group’s operations continue to expand. Sustainability

The environmental leadership shown by Quintain in seeking to create sustainable communities is a growing source of pride. Our understanding of how to deploy the experience gained in our zero carbon schemes has grown significantly and we play an increasingly influential role in this area through the Sustainable Environment Foundation, a charity launched by Quintain in 2007. Leading and being seen to lead our peer group in sustainable urban development is a key component of our business strategy and a goal to which we are all personally committed. Corporate Governance

Quintain takes its corporate governance responsibilities very seriously and is compliant with the Combined Code, except in relation to bonus arrangements where, under exceptional circumstances, there is no upper limit in the aggregate for share awards. The Board’s explanation for this is given in the Corporate Governance Report of the



Annual Report and Accounts. This year for the first time we sought external advice on board appraisal. Further details are included in the Corporate Governance Report. Outlook Market conditions remain challenging. Investors and bankers are conspicuously risk averse and in the current macro-economic climate this is unlikely to change in the near future. However, with a business model that has excellent defensive characteristics and improved liquidity, we have positioned the business well. While we will not be immune from a further deteriorating property market, our exposure to less cyclical sectors, such as healthcare and student accommodation, will continue to stand us in good stead. They have shown greater resilience to the property market downturn and enjoy returns linked to the RPI index, which is a huge advantage in a period when the cost of living is rising rapidly. With regard to our major schemes, the timing of the build-out is under our control and can be managed opportunistically to suit our balance sheet and prevailing market conditions. With many rich opportunities before us and significant flexibility, the team at Quintain is nailing its colours firmly to the mast of a prudent but entrepreneurial approach to long-term value creation. Our enthusiasm for the task remains very much intact and we look to the future with confidence. John Plender Chairman 5 June 2008



Chief Executive’s Statement

The Quintain team has exercised skill and judgement over the past year, resulting once again in a top quartile performance against the Investment Property Databank (IPD) Index. The strength of our business model is being proved in the current bear market. Our outperformance of 500 basis points relative to the IPD benchmark* clearly demonstrates the synergistic, robust and defensive nature of our model and our ability to consistently deliver good results relative to the market. (*The relative return is calculated: ((1+fund return)/(1+benchmark

return)) – 1. Our primary purpose is to optimise returns for shareholders in the medium and long term, evidenced by our position in the top decile of the IPD index over three and five year periods, and in the top percentile over ten and fifteen years. As designed, the Group’s growing success in fund management is proving a major contributor to outperformance in difficult markets. High barriers to entry, strong cashflow, long leases, RPI linkage, first class partners and a deep knowledge of the operational side of our tenants’ business: all augur well for this division’s ongoing growth and success. We now have almost £1 billion of funds under management and in the next few years we will continue to grow this side of our business as swiftly as circumstances permit. The concept is to balance strong and rising cashflow from fund management, which has both opportunistic and defensive qualities, with building and running towns as businesses, exemplified in Greenwich and Wembley. Turning to these major schemes, the success of The O2, the 135,000 sq ft let to Transport for London and occupier interest from telecoms, media, internet, public sector and banking organisations underpin Greenwich Peninsula’s future as a dynamic new leisure, retail and commercial centre for London. At Wembley City, the decision of the London Borough of Brent to locate their new Civic Centre in the heart of this scheme signifies that the regeneration is well underway, a fact that will be further emphasised when the first residents move in to W01 this autumn. Some three years ago we foresaw a fundamental shift in the commercial property sector and controlled risk through a strategic campaign of asset disposals as the market reached its peak. The proceeds were invested in expanding the fund management business and our major regeneration schemes, where we can generate exceptional value over the long term. While the remaining investment properties are not prime and we anticipate further near-term outward yield shift, material upside potential exists from new lettings, and hence improved cashflow. The extended level of consumer borrowing reached last year suggested prices would have to fall at some point and, having exchanged contracts on 96% of the available private residential apartments at Wembley City, we decided not to commit to further development of other residential opportunities in the short term. High deposits were secured for every apartment sold and prices have remained buoyant, offering robust protection against non-completions. Of the 20 million sq ft of outline consent we currently hold, 92% of this is secured in London. The City’s continued dominance as a world-class financial centre, net immigration and the 2012 Olympics combine to underpin its medium to long-term future and our confidence in the exceptional value our Greenwich and Wembley schemes will release remains strong. The Group’s portfolio includes numerous opportunities, but those which we are obliged to construct over the next two years are limited. As a result, our development exposure to the downturn in the commercial and residential markets is minimal. We will continue to add value to our assets through planning, design and commercial development during this period and will direct funds towards the opportunities that offer the best risk-adjusted returns. Transforming the potential within our asset base into tangible value for shareholders can only be achieved by an extraordinary team. Quintain is a tightly run organisation populated by experts in key fields and it is through their



commitment to our entrepreneurial culture of challenging traditional concepts that we have once again delivered a good performance relative to the market. My personal thanks go to them all. Adrian Wyatt Chief Executive 5 June 2008



OPERATING REVIEW

Business Review - Special Projects Our urban regeneration business creates and delivers a vision that has the power to transform a location. Scale and the right balance of retail, leisure and employment are the keys to achieving superior returns when allied to residential in the medium term, and, in maturity, revenue streams from service delivery. At Wembley City and Greenwich Peninsula we are creating near-towns, whilst owning, operating or influencing key motivational aspects, such as The O2 and Wembley Arena, that drive the transformational sense of place. Strategy Quintain schemes are mixed use and typically delivered over five to fifteen years, enabling us to switch financial resources into sectors where the greatest returns can be delivered in the prevailing market. Exceptional value is delivered in two ways:

• A leap in residential price performance, commonly referred to as the “Regeneration Effect” (see below), is created from the delivery of critical mass in leisure, retail and employment serviced by excellent public transport facilities.

• The scale of our schemes, which range from 500,000 to 13.3 million sq ft, delivers the capacity to drive significant non-property revenues from an integrated estate management business, including utilities, telecoms and media. We call this “Running Towns as Businesses”.

Our propensity is to sell land or develop residential plots in joint venture or as principals, having first achieved a level of pre-sales. This minimises exposure to falls in residential prices. The same principle of achieving a level of pre-lets protects Quintain from over-exposure in the commercial property sector. Quantifying the Regeneration Effect A report commissioned by the Company estimates that the Regeneration Effect mentioned above can be in excess of 10% once the retail element of such a scheme is launched, and add an additional 2% to local residential prices in each successive year during the scheme build-out. These numbers are borne out by Canary Wharf and Gunwharf Quays in Portsmouth, where prices rose quickly once critical mass was achieved. Our Towns as Business model pushes the Regeneration Effect to a new level by embedding within each scheme the mechanics of future revenue generation such as optic fibre, triple-play services and prime advertising sites, and positions Quintain to deliver, and therefore create revenue from, the services offered to millions of visitors, residents and businesses. Releasing the full potential of our schemes through the Regeneration Effect and our Towns as Businesses model remains our paramount objective. Performance The current malaise in the residential markets caused by a prevailing absence of liquidity has tested our model. However, the robust nature it has displayed as we switched emphasis to promote the delivery of the commercial elements of our projects underpins our confidence. An example is City Park Gate in Birmingham where, on acquiring control of the scheme in September, we responded quickly to changing conditions by increasing the commercial element of the scheme, incorporating a hotel and more offices, and increasing the total developable area by 40% to 1 million sq ft. This also delivered the scale appropriate for our Towns as Businesses model. This re-focus on commercial property has been actioned across the portfolio. At Greenwich Peninsula, the pre-let of 135,000 sq ft to Transport for London (TfL) in November confirmed the location’s attractiveness as a new commercial hub for London and construction is now underway. At Wembley City, detailed consent was secured in August for a major student accommodation scheme, which will be owned by Quintain’s iQ Fund and service a sector largely isolated from the economic downturn, and a Hilton Hotel into which the business from the existing Plaza Hotel will be transferred.



Priorities While delivery success has been achieved during the year and the structure of the development pipeline affords flexibility for the duration of the current downturn, the adverse tide in the property market impacted the book value of Wembley, which fell 11.0%, and Greenwich where the uplift was limited to 2.5%, respective to their 31 March 2007 valuations. Detailed explanations of these valuation movements are provided in the Finance Review. The launch of critical mass retail, leisure and employment, leading up to the 2012 Olympics – for which both Greenwich and Wembley are official venues - has the capacity to drive higher demand for residential units from wider areas and outperformance of the Central London Index. Sustainability is at the heart of our regeneration business and our schemes support a greener lifestyle. Whilst we do not yet expect to see a premium for a lower carbon footprint, we have no doubt that in today’s market sustainability will be a key driver of the decision to buy or lease by both businesses and consumers. Although the next two to three years will undoubtedly be challenging, assets with the quality and environmental performance found within our major schemes are in short supply. As the market recovers we expect companies and consumers with foresight to identify the value opportunity on offer. Valuations of Special Projects

Valuations as at 31 March 2008 £m

Wembley Complex 620.0 Greenwich Peninsula (see joint ventures below for total value) 187.6 Emerson’s Green 31.0 Silvertown 17.5 Other Special Projects 8.7

Total direct property 864.8 Joint Ventures Valuations as at 31

March 2008 £m

Greenwich Peninsula joint ventures 66.4 Deferred tax (4.5) Other joint ventures 17.4

Total 79.3



- Wembley City

Our flagship Wembley City scheme now covers 90 acres around the National Stadium. Strategy Our method is to deliver plots within joint ventures or as principals after achieving a level of pre-sales, minimising exposure to falls in residential prices and aiding funding. 100% of homes within our first residential block, W01, and 90% within the second, W04, were sold ahead of valuations and largely prior to construction, with sizeable deposits funding interest. Nearly 1 million sq ft of the Phase 1 consented scheme will form a unique leisure, entertainment and retail core around the Stadium, offering London’s only designer outlet, bars, cafes and restaurants, Wembley Arena and a multi-screen cinema. Footfall is core to its success, and this in turn plays a major role in stimulating the Regeneration Effect and returns from Running Towns as Businesses. Wembley Stadium and Arena already draw in approximately six million visitors a year and thousands will occupy the 4,200 homes and 900,000 sq ft of commercial space which will be created. In addition, Wembley’s position as a 2012 Olympic venue will further increase footfall and provide an international showcase for Wembley City. Phase 2, amounting to as much as 4 million sq ft, will add to this. Performance We completed our strategic land assembly of the site during the year, increasing our holdings to 90 acres with the acquisition of Wembley Retail Park, Stadium Retail Park and a site at Second Way. The average price of these acquisitions was £5.7m an acre. After the year end we sold Fulton and Malcolm Houses, which cover half an acre, on the periphery of our holdings for £7.5m. The new scale provided by these deals enhances the value creation opportunity, and the masterplanning of the second stage, which we refer to as the Northern Lands and incorporates much of this area, has begun. This has the potential to increase the size of the overall scheme to more than 10 million sq ft. During the year detailed consent was secured for a 656 bed student accommodation scheme to be funded and operated by Quintain’s iQ Fund, and a 441 bed Hilton Hotel. The buildings will be located next to Wembley Arena, increasing the animation at the heart of the scheme. Construction of W01 remains on budget and on schedule for completion this August and work began during the year on W04 and the “Envac” underground waste removal system. The sheer scale of the overall scheme will enable us to secure significant economies of scale in our baseline building cost and achieve consistently high quality and levels of sustainability, not least by securing satisfactory and visible terms for many years’ work from contractors. A super-contract comprising the Hilton Hotel, student block, cinema and residential elements of these buildings is now under consideration, with several majors competing. Breaks will protect the Company, but exclusivity will encourage commitment and innovation from construction partners. Exclusive negotiations regarding a retail joint venture are being progressed, but have not reached documentation stage. We have also augmented our in-house expertise with the appointment of Phil Cottingham, formerly Portfolio Director for Designer Outlets at Land Securities, as Managing Director of Retail, bringing expertise to a core experiential aspect of Wembley City. We have today announced the exchange of contracts with the London Borough of Brent for the sale of 1.75 acres enabling the creation of their new Civic Centre on the north side of Engineers Way, together with 0.5 acres of public realm. This £10m deal is an endorsement of our vision for Wembley City. The transaction is conditional upon planning consent for a 250,000 sq ft building, which will form part of the Northern Lands masterplanning, with a 125 year leaseback of the retail to Quintain. Details of the financial performance of Wembley City can be found in the Finance Review. Priorities Our focus now is to build our bank of detailed consents, pending a return of liquidity to the residential market. A planning application for W07 comprising a 10 screen cinema, residential units and 80,000 sq ft of retail received consent after the year end. Consent for W03 has been granted and a parallel exercise encompassing E01 to facilitate the replacement of the pedway leading up to the National Stadium with the Olympic Steps has received support from



CABE. Applications for W06, W08 and W10, are in preparation. On consent, these plots will increase our bank to in excess of 2,360 residential units. - Greenwich Peninsula Greenwich Peninsula Regeneration Limited, our 50:50 joint venture with Lend Lease (Europe), is creating a new district for London at Greenwich Peninsula. Crowned by The O2, this 194 acre site is one stop from Canary Wharf on the Jubilee Line and a 20 minute journey from London’s West End. Our strategy is to sell individual plots, develop many in joint venture, and to pre-let or pre-sell a percentage of space to investors within these buildings before construction as principals starts. This aligns delivery of each plot with market conditions and mitigates risk across the scheme. Performance During the year major milestones were achieved at Greenwich Peninsula. At the commercial district, Peninsula Central, the pre-let of 136,000 sq ft of space to regulatory authority Transport for London launched the scheme’s 3.5m sq ft commercial district and preceded the start of construction in the fourth quarter. Transport for London will take occupation next year and retains an option on a further 60,000 sq ft of space. The 150,000 sq ft building for Ravensbourne College of Design and Communication received detailed planning consent in July 2007, securing its relocation from Kent in 2010. This will bring 1,700 students per day to the Peninsula, providing additional animation to the scheme and a new academic resource for the local community. Significant progress has also been achieved on the residential element of the project. Three plots comprising 741 homes received detailed consent during the year, with consent for a further 153 homes received in May 2008. Of these plots, one has been purchased by Bellway Homes, two are being developed in new joint ventures with Crest Nicholson and two Registered Social Landlords, and the fourth has been 50% pre-sold to English Partnerships’ First Time Buyers Initiative. In April 2008, a planning application for the first homes at Peninsula Quays was also submitted. This 22 acre site, 18.5 acres of which are owned by Quintain, on the Greenwich Meridian Line to the west of the Peninsula overlooks Canary Wharf and will command premium residential prices. Operating through the directly owned vehicle, Peninsula Quays Ltd, GPRL will only develop and market this landmark building when propitious conditions return. The July 2007 launch of The O2, of which Quintain and Lend Lease are landlords and receive a turnover rent, won international acclaim. The music and entertainment venue has played host to high calibre acts such as Justin Timberlake, Take That, the Spice Girls and Prince, drawing an estimated 4 million people to the Peninsula in its first six months of operation. Subsequent success at the Pollstar and Music Week awards, at which it won the Best International Arena and Venue of the Year categories respectively, reinforce the superiority of the venue and its popularity with performers. Details of the financial performance of Greenwich Peninsula can be found in the Finance Review. Priorities The business model supporting this 20 year scheme has in-built flexibility, enabling us to align delivery with market conditions. Our focus on pre-lets, pre-sales and delivery in joint venture will continue to cement the prospects for individual plots prior to construction. The substantial pre-let to Transport for London, current scarcity of highly sustainable space in the London office market and environmental credentials of the district support our confidence in the unique commercial offering at Peninsula Central.



- BioRegional Quintain

Strategy Leading and being seen to lead the development community’s environmental evolution is a key component of Quintain’s business strategy. Our joint venture with BioRegional Properties combines our development experience, financial expertise and entrepreneurial approach with the best knowledge and practical experience of environmentally friendly construction in the UK today, placing the Company at the forefront of zero carbon development. BioRegional Quintain is the only UK company building zero carbon developments based on the One Planet Living principles. These communities will enable those who live and work within them to lead sustainable lifestyles, greatly reducing their use of the Earth’s natural resources and production of carbon emissions. Performance In joint venture with Crest Nicholson, construction has started on the Brighton scheme which will create 172 apartments and 24,000 sq ft of commercial space. Early reservations have been achieved at an average selling price above the construction start appraisal. The RiversideOne scheme at Middlesbrough is the UK’s largest zero carbon development, covering 40 acres on completion. Construction was completed on the unique marketing suite that clearly demonstrates the iconic design route being taken at the development. The scheme was launched directly after the year end and attracted sufficient attention to secure reservations on all available plots at prices slightly higher than forecast. The One Gallions scheme in London is being developed in partnership with Crest Nicholson and Southern Housing Group, pursuant to a development agreement with the London Development Agency. The scheme will be a flagship development for the Thames Gateway. We anticipate submitting a planning application in late summer 2008. Priorities The year saw a marked alteration in Government and corporate attitudes towards the environment, reflecting growing pressure from consumers for evidence of sustainable operations and increased interest in associated products. BioRegional Quintain is already established as the UK’s pre-eminent zero carbon developer and the reservations achieved at OneBrighton and RiversideOne in challenging market conditions clearly demonstrate that consumers will pay a premium for a high quality, sustainable product. Signs of a residential market slowdown have emerged and we expect this reaction to the lack of liquidity to last longer than in the commercial property sector, making this a challenging time to seek sales. However, the above-expected prices already achieved at Brighton and Middlesbrough, their truly unique nature and proximity to public transport and vibrant city centres place both in strong positions to attract homebuyers.



- Regions

In 2006/2007 we exited our Manchester and Sheffield schemes, where prices achieved reflected their upside potential. We have now replaced these prospects with 1 million sq ft of mixed use space in Birmingham and 500,000 sq ft in Yorkshire. These are supplemented by our existing holdings at Emerson’s Green, Bristol and Silvertown, London. City Park Gate, Birmingham In September we acquired the outstanding 50% of the equity in our joint venture with Countryside Properties, giving Quintain sole control of this scheme. Since then we have moved quickly to reconfigure the scheme, which is located at the gateway to Birmingham’s Eastside quarter and a stone’s throw from Selfridges and the Bullring shopping centre. Our intention is to deliver it as 575,000 sq ft of offices, 250 apartments and a hotel, with a detailed application for the first 253,000 sq ft of offices being submitted next month. Beverley, Yorkshire With our partners, Wykeland Group, with whom we built the 300,000 sq ft Parishes Scheme, Scunthorpe in 2001, we obtained resolution to grant consent for this scheme in March. The development covers 485,000 sq ft, including 250,000 sq ft of retail, 184 homes, a hotel, cinema and facilities for East Riding College. This town centre scheme has flexibility and the scale for running our Towns as Businesses model in one of Yorkshire’s most prosperous towns and the new leisure facilities that we have proposed will enhance the high quality attractions currently found. Emersons Green, Bristol In alliance with Heron and Gallagher Estates, we have applied for up to 2,550 residential units and 1 million sq ft of employment space on this 300 acre site, of which we own 65 acres. Another 56 acres of this wider scheme are being developed by our science park fund, Quantum, into an 829,000 sq ft facility, demonstrating the synergistic nature of our business model and taking Quintain’s total delivery area on this scheme to approximately 1.5 million sq ft. Silvertown, London

Our 12.9 acre site sits directly across the River Thames from Greenwich Peninsula. It lies at the mouth of the River Lea, which will provide the proposed access point to the water link to the 2012 Olympic site in Stratford and is a strategic play on residential, logistics, waste and power solutions. The site was purchased uniquely in joint venture with the London Development Agency.



Business Review – Investment Portfolio Strategy Predominantly comprising secondary commercial assets across the UK, the Investment Portfolio fulfils three roles:

• To generate rental income and revenue from sales to support activity with higher long-term potential elsewhere in Quintain

• To identify, acquire and incubate assets with high regeneration potential, securing a viable revenue stream pending transformation

• To augment the skill sets within Fund Management and Special Projects to maximise returns for the Group Offices constitute two thirds of the portfolio, with the remainder mainly comprising industrial and retail properties. Assets where we identify latent value that can be unlocked through major refurbishment, leasing or marriage value are acquired by this business. Performance In anticipation of challenging market conditions, this business remained a net seller over the last year, releasing reserves to fund opportunities with higher potential value in the Group and reducing Quintain’s overall exposure to the commercial property sector. Whilst sales over the last three years have reduced the impact, the Investment Portfolio inevitably was not immune from falling commercial property prices and declined in value by £44.4m (20.8%) over the year to £178.8m. Financial pressures are reflected in the sector, where occupiers are finding conditions difficult and require support. However, we have successfully limited rent arrears to their historic norm of 1% and kept bad debts to £0.2m, representing less than 1% of the rent roll. The aggressive stance towards voids has resulted in over £1.8 million of voids being removed from the void schedule either through lettings or sales over the last 12 months. Most notable was the sale of First National House in Harrow to Avanta. Other material transactions include The Forum Exeter where a programme of major refurbishment and marketing was undertaken, resulting in the letting of all the remaining refurbished void space to Parsons Brinkerhoff, Savills and Kitson Hutchings. The Investment Team is currently in active discussions regarding the leasing of an additional £1.2m of voids within the Portfolio. We continued to exit locations where further asset upside could not be identified, securing increased value wherever possible prior to sale. At Smallbrook Queensway, a 22,000 sq ft pre-let to Virgin Rail was sourced at a record rent for the building and a £1.2m refurbishment programme successfully completed prior to agreeing the sale price and disposal of the entire asset to reduce the Company’s exposure and deliver £8.0m of profit over cost. Increasingly, the property management skills held within this business are being used by the Group to create additional value for the Company’s other divisions, particularly on the major Wembley City and Greenwich Peninsula schemes. At Wembley, the two retail parks and eight industrial units acquired during the year by Special Projects are being actively managed by this team until the regeneration scheme reaches the required stage of development. Rent uplifts ranging from 21% to 68% have been achieved within these assets since they were acquired. At Greenwich Peninsula, the Investment Portfolio team played a fundamental role in sourcing and executing the pre-let of 136,000 sq ft of commercial space to Transport for London. Minor assets within the science park fund, Quantum, are also being managed until the fund reaches a critical mass. Priorities We expect the current malaise in the financial sector to continue to be felt during the year to March 2009. With few near-term opportunities to create significant value expected to emerge, Quintain’s focus will remain on more attractive opportunities elsewhere in the Group. An aggressive approach to voids will continue throughout the current downturn. Driving cross-business collaboration to secure maximum value from the Group’s wider assets will be an increasing focus for the Investment Portfolio team during the year and we remain well positioned to respond to opportunities when value emerges in the commercial property sector.



Business Review - Quintain Fund Management Strategy In our fund management business we leverage our skills and opportunities, recycle our equity and diversify our income base, delivering sustainable fund management fees alongside attractive investment returns. We deliberately focus on specialist property sectors where there are higher barriers to entry and that offer resilient returns in countercyclical areas of the market. This creates a strong, separate source of income for the Group. We expect to invest in the funds we create, typically at a level between 20 and 40 percent, creating a strong alignment of our interests with those of our co-investors. Fund management, performance and transaction fees supplement our investment returns and enable us to operate in areas of the market where the base return might fall at the margins of the levels we would seek to target on our own account. We currently have three funds: Quercus, our healthcare fund; Quantum, which invests in science parks; and iQ, our student accommodation fund. Through these we manage investments for a growing list of institutions including The Wellcome Trust and funds managed by Morley. Performance At 31 March 2008, overall funds under management were up 41% to £1.0 billion (2007: £711m), with contractual commitments and ‘agreed terms’ transactions of a further £400m demonstrating forward momentum. The funds delivered strong returns. Quercus produced a total return of 14.2% at fund level, although the reduction in the portfolio premium reduced this to 4.1% in our accounts. iQ, which is in its second year of operation, produced an IPD total return of 1.1%. Our third fund, Quantum, only made its first investment in October and we will be reporting on financial performance next year. With Quintain’s share of gross assets in our funds at £327m, QFM is rapidly becoming a substantial business in its own right and making a significant contribution to the Group’s income statement. In the year to 31 March 2008 QFM accounted for 50% of gross profit including fee income of £8.6m, up 105% from last year. Priorities The excellent relationships we are developing with some of the market’s leading investors position us well to support Quintain’s wider business: creating funds seeded from the investment product being developed by our regeneration business and opportunities emerging from our Investment Portfolio and the wider market. The synergies between the three businesses are now bearing fruit, most notably through the student accommodation scheme that iQ will fund at Wembley City. Whilst markets are challenging, the combination of skills, experience and focus positions us well to continue to produce attractive returns both for our own shareholders and for our partners and investors.



- Quantum Strategy Quantum, a 50:50 joint venture with Morley, is a specialist science park fund. It seeks to exploit the opportunity created by the Government’s sharpening focus on research and development as a key contributor to economic growth against the background of under-investment in facilities appropriate to this community. There is no typical science park tenant. The community ranges from lone entrepreneurs with the kernel of a concept through to some of the world’s most established brands, but they have similar needs: flexible space on flexible terms, excellent technology, good transport links and access to a deep pool of highly skilled staff. Quantum seeks to lead the market by developing and applying best practice in the science park industry to undermanaged parks and new developments. Performance Significant progress was achieved during the year at our major development, SPark, The Bristol and Bath Science Park, in terms of design and planning. In December, South Gloucestershire Council voted unanimously to accept amendments to the £300m masterplan for the development, and the scheme was formally launched at Bristol’s inaugural Science City event after the year end. The enhanced scheme is focused on acting as a catalyst for the regional science and technology industries and achieving excellence in environmental sustainability. Subject to receiving reserved matters consent, expected shortly, and satisfying outstanding conditions, we expect to be on site late in the summer. Away from SPark we also made investment purchases during the year, creating the beginnings of an income-producing portfolio. In October we acquired a small estate on Heriot Watt Science Park near Edinburgh for £5.5m. Since taking over we have improved the external features by upgrading the landscaping and access and have agreed terms on a new five year lease that moves the ERV from £13.00 psf to £14.50 psf. Since the year end we completed a £1.9m acquisition of a building on Cambridge Science Park. These investments demonstrate our credentials with the relevant universities and provide a platform for expansion. Priorities Demand for R&D facilities is driven by different factors to the mainstream commercial property market. The Government’s R&D agenda, encapsulated in the March 2008 white paper “Innovation Nation” spells out the Legislature’s commitment to driving R&D at every level across Britain. Among its stated objectives is the commitment to make Britain the best place in the world to run an innovative business and for R&D companies to invest. The support programme is extensive and addresses every level, from entrepreneurs seeking to turn their ideas into commercial propositions through to global brands looking for a supportive environment to create a new base. The shortfall between the facilities on offer and the level of growth the Government wishes to stimulate through investment in R&D is significant and augurs well for Quantum.



- iQ

Strategy A year after bringing The Wellcome Trust into our student accommodation business we are delighted to report healthy growth, excellent occupancy rates and an active pipeline against the backdrop of continued and increasing demand. There are now 1.4m full-time higher education students in the UK. This figure continues to rise, underpinned by a positive Government agenda. The strength of iQ’s product, which provides a variety of room types within each scheme with an emphasis on giving the accommodation a “residential” feel, marks it out from competitors in an undersupplied market. Performance iQ this year reported a total return, as measured by IPD, of 1.1%, significantly outperforming the wider commercial property sector. The student accommodation market has continued to grow. The emergence of weaker economic conditions has reduced the competition from those that are less well financed, but has stimulated interest from new investors seeking better returns away from their traditional markets. The timing of iQ’s entry into this sector and swift assembly of strong core relationships stands the Fund in good stead. Following the successful launch of schemes in Sheffield and Nottingham, two further schemes were opened during the year in Birmingham and Salford, taking the total number of beds to 1,534. The Fund achieved lettings in excess of 97% across the four schemes. At 31 March 2008 the operational schemes were valued at £80.1m. iQ typically contracts with developers to buy accommodation blocks on practical completion, subject to delivery on time and to agreed quality. The end value of schemes currently contracted is £147.3m. Of these, three schemes will be completed for the start of the 2008 academic year and three further schemes will be opened in 2009. In addition to the contracted pipeline, further deals worth up to £127.8m are under consideration or being negotiated. Yields in the ‘direct-let’ sector have remained robust, supported by continued investor interest and strong rental growth. Our operational schemes were valued at 31 March 2008 on an average net initial yield of 5.5%. On iQ’s existing schemes, we expect to see year on year rental growth of approximately 5% based on rent levels being marketed. The three schemes opening in September 2008 are being marketed at rents above appraised levels and two will benefit from university leases. Take-up to date is in line with expectations. In March, Quintain entered into an agreement to purchase an attractive London student accommodation scheme in Corsham Street, EC1. The transaction is subject to planning and financing and the developer expects to submit an application for planning consent shortly. We elected to warehouse it on our own balance sheet pending the discharge of conditions, following which we have a number of options for its longer-term funding, including transferring it into iQ. Priorities The priority this year is to get the new schemes operational with high occupancy levels, and it is therefore pleasing to note that our Kingston development has been 100% pre-let for the whole academic year to Kingston University. Construction is well underway on two of the 2009 schemes and the third will commence shortly. We expect that by the end of the decade there will be over 5,000 beds available to students through iQ.



- Quercus

Strategy Quercus operates in the long-term healthcare sector, providing sale and leaseback finance to operators of elderly care homes, specialist nursing facilities, private hospitals and homes for those with learning disabilities. The demographics underpinning these sectors strongly support the long-term prospects of the Fund. The level of the population aged 80 and over is projected to rise from 4 to 7 percent over the next two decades. Concurrently, a decreasing infant mortality rate means life expectancy for people with severe learning disabilities is expected to rise by 1% per annum for the next eight years, leading to increased demand for specialist care. Performance During the year Quercus grew funds under management by 31.0% to £850.6m (2007: £648.1m) and delivered a fund level return for the 12 months of 14.2% (2007: £26.2%). Gearing in the fund was 45.8% at 31 March 2008. The fund’s debt facility contains an LTV covenant of 60%. Valuations remained robust. Properties managed by the larger operators offering investment grade covenants have seen some upward yield shift; however, in the mid-market - Quercus’ core focus - yields have been supported by the strength of the occupational market and strong rent covers. At 31 March 2008 the net initial yield in the fund was 6.9%. In our accounts the return from Quercus was impacted by the reduction by our external valuers to 5% of the ‘portfolio premium’ that we have historically added to the underlying sum of the parts valuation. This reduced the revaluation reserve by £8.4m. However, even after this downward adjustment Quercus delivered Quintain an IPD total return of 4.1%: a significant outperformance of the market. The portfolio remains balanced with a diversified tenant base – no single operator accounts for more than 7% of rent. Over the period, 41 properties worth £129.7m were acquired at an average net initial yield of 7.13%, taking the portfolio to 261 properties in total. At the year end Quintain held a 26.9% interest in Quercus. Asset management fees received during the year were £4.6m net, including performance fees from prior years. In line with our conservative accounting policy, the performance fee for 2007 of £7.1m has not been recognised in this year’s accounts as it is subject to clawback until December 2009. The continued robust performance of Quercus has led to £85m of a £120m target being raised from new and existing investors, with several more currently undertaking due diligence. Quintain has subscribed for £30m. Priorities The continuing strength of the underlying trading environment means the sector will remain attractive for investors. Demand for places in this sector is driven primarily by the need for care and therefore Quercus is shielded from the full effect of the current financial uncertainty. Some operators are finding debt more difficult to obtain encouraging them to seek alternative sources of funding such as sale and leaseback.



Finance Review Headline Results The basic net asset value per share at 31 March 2008 was 584p, a decrease of 11.5% from 660p in the prior year. On a diluted basis, the net asset value per share fell 11.7% from 655p to 578p. Adjusted diluted net asset value per share, the measure recommended by The European Public Real Estate Association (“EPRA”), fell by 13.8% to 676p per share (2007: 784p).

31 March 2008

31 March 2007 %

change

NAV per share basic 584p 660p (11.5)%

NAV per share diluted 578p 655p (11.7)%

NAV per share EPRA¹ 676p 784p (13.8)%

Dividend per share 12.25p 11.75p 4.3%

Total return per share² (9.7)% 27.5%

Total return per share EPRA³

(12.2)% 29.9%

¹ The EPRA NAV per share excludes the fair value adjustments for debt and related derivatives and deferred taxation on revaluations and is calculated on a fully diluted basis as set out in the table below. ² The total return is calculated by the increase in net assets per the Consolidated Balance Sheet adding back the dividend paid. ³ This uses the net assets per EPRA as shown in the table below.

The table below reconciles net assets as shown in the consolidated accounts to the definition of net assets set out by EPRA. 31 March 2008

£m 31 March 2007

£m

Balance sheet net assets 745.7 846.1 Deferred tax arising on revaluation movements, capital allowances and derivatives

Group 111.0 151.0 Joint ventures 14.5 14.1 Associates 0.3 0.4 Fair value adjustment on interest rate swaps Group 0.5 4.4 Joint ventures 1.4 (0.6)

873.4 1,015.4 Dilutive effect of options 9.1 9.6

EPRA net assets 882.5 1,025.0 Total Return Quintain’s objective is to maximise long-term total return to shareholders. In the year to 31 March 2008 the Company delivered a total return of minus 9.7%. This was set against a backdrop of very challenging market conditions. The total return at property level, as measured by IPD, was minus 3.9%, compared with a benchmark for the March Universe of minus 8.5%. This result would have placed us within the top 15% of funds in the benchmark. Operating Performance EPRA earnings per share for the 12 months to 31 March 2008 were a profit of 2.5p (2007: loss 3.4p). The table below reconciles these numbers to the reported diluted earnings per share of a loss of 31.3p (2007: profit 32.7p). The main reconciling item is the impact of unrealised revaluation surpluses and deficits in relation to investment properties and reflects the impact of challenging market conditions as set out in the Chief Executive’s Statement.



31 March 2008

pence 31 March 2007

pence

IFRS fully diluted earnings per share (31.3) 32.7 Revaluation movements Group 38.6 (9.7) Joint ventures (0.6) (20.8) Loss on disposals 2.4 (11.6) Deferred tax arising on revaluation movements, capital allowances and derivatives

Group (5.1) 1.0 Joint ventures (0.9) 6.1 Fair value adjustment on interest rate swaps Group (1.4) (1.1) Joint ventures 0.8 -

EPRA earnings per share fully diluted 2.5 (3.4) Gross rental income, including our share of joint ventures, rose to £41.1m (2007: £40.4m) with the increased contribution from joint ventures more than compensating for the lower income within directly owned properties. The gross contractual annualised rent at 31 March 2008 of £40.7m (2007: £34.4m) is nearer to gross rental income as net disposals in the current year have been significantly lower than the prior year. Within the directly owned portfolio, rent from acquisitions contributed £3.2m in the period, with new leases adding £0.9m. This was more than offset by the £5.7m of revenue lost as a result of disposals. Within joint ventures, net acquisitions contributed an additional £5.7m of income in the period. 31 March 2008

31 March 2007

Directly

owned properties

£m

Within joint

ventures £m

Total £m

Directly owned

properties £m

Within joint

ventures £m

Total £m

Gross rental income 23.8 17.3 41.1 29.7 10.7 40.4

Gross contracted annualised rent

21.6 19.1 40.7 21.0 13.4 34.4

Gross ERV* 29.2 20.1 49.3 27.4 13.7 41.1 *Estimated Rental Value

Voids, as a proportion of ERV, remained constant at 23.4%. Of the £6.8m of potential rent only £1.3m, or 19%, remains intentional (2007: £0.6m, 9.4%). Those properties where short term lettings are being sought prior to development or where further refurbishment is being considered have been included within unintended voids and make up approximately 31% (2007: 45%) of the total. A table of voids is set out below: ERV £m

Royal Exchange, Manchester 1.0 York House, Wembley 0.8 Docklands Depot, Silvertown, EC3 0.8 54 Claybrook Drive, Redditch 0.7 The Synergy Building, Sheffield 0.6 Greenwich Peninsula, SE10 0.6 Wembley Retail Park, Wembley 0.4 Kansas Building, Liverpool 0.3 Hudson House, York 0.3 The Forum, Exeter 0.2 10 Farfield Park, Rotherham 0.2 Other 0.9 Total 6.8



The average unexpired lease term across the portfolio remained constant at 16 years and is supported by our share of nursing home income within the Quercus fund. These homes are typically let on 35 year RPI linked leases. The table below sets out the lease expiries by gross contracted annualised rent, including our share of joint ventures across the Group: £m

Less than 1 year 6.2

1 to 2 years 2.9

2 to 5 years 4.4

5 to 15 years 2.6

Greater than 15 years 24.6

Total 40.7

Quintain aims to create a diverse tenant base in order to manage risk. Our tenant covenant strength has been measured by IPD using Experian and shows 66.6% of our rent roll (2007: 65.6%) is delivered from negligible, low and low/medium risk covenants. Live Nation, operating Wembley Arena, is by far the largest tenant, comprising 7.1% of contracted annualised rent. This exposure is reduced by receipts equating to approximately two thirds of the rent being received in Quintain controlled bank accounts before being passed on and also by Quintain’s ability to step in to the business. Gross profits rose by 5.8% to £32.7m (2007: £30.9m). This is analysed in note 2 to the accounts and, in addition to rental income from directly owned properties, comprises:

• Income from the sale of trading properties of £1.4m in relation to the sale of a caravan park. There was no equivalent income in the prior year.

• Income from hotel operations of £3.6m (2007: £1.4m) which reflects a full year of operations at the Plaza Hotel at Wembley following its acquisition in August 2006.

• Other income of £0.4m (2007: £3.7m). The previous period benefited from a £1.5m surrender premium and £1.2m from a property derivative contract that has now expired

• Fees from fund management and other related services of £8.2m (2007: £3.0m). The main contributors are highlighted in the table below. Quercus benefited from increasing asset management fees and performance fees. In addition to the £1.6m recognised in the period, performance fees of £7.1m were received but the net impact was not recognised in the Income Statement as they remain subject to claw-back if the fund materially underperforms IPD in the period to December 2009. Following the formation of iQ in March 2007 we have received the first full year of asset management fees.

31 March 2008

£m 31 March 2007

£m

Quercus Property Partnership 4.6 2.7 iQ Property Partnership 2.2 0.2 Greenwich Peninsula Regeneration Ltd 0.9 - Other 0.5 0.1 Total 8.2 3.0 Administrative expenses before exceptional costs were £28.0m (2007: £25.8m). Of the increase, £1.2m reflected a full year’s operations of the Plaza Hotel at Wembley, with the remainder arising from higher legal, professional and office costs. Further information is given in note 4 to the accounts. Administrative expenses include £0.3m of audit fees paid to KPMG and £0.1m for other services, the latter reflecting our policy of following best practice in corporate governance which recommends that non-audit fees should not be in excess of audit fees. The exceptional costs of £1.5m relate to bid defence fees and a one-off valuation exercise performed separately from the normal valuation process.



Sale of Non-Current Assets

Sales in the period with proceeds of £37.4m (2007: £138.7m) gave rise to a profit on historic cost of £13.3m (2007: £48.8m) and a loss against valuation of £3.3m (2007: profit £15.2m). The market conditions referred to in the Chief Executive’s Statement resulted in significantly lower volumes being traded and, with values falling, the sales prices achieved were below historic valuation. The most significant disposal in the year was investment property, Smallbrook Queensway, Birmingham, for £28.0m. Revaluation Surpluses and Deficits

The net revaluation deficit arising from directly held investment properties was £44.3m (2007: surplus £11.7m). The revaluation movements on joint venture investments are incorporated within the share of profit from joint ventures which is discussed in more detail below. Development property surpluses are credited to equity except where deficits arise below cost, in which case the charge and any write back are included within the Income Statement. In the year to 31 March 2008 the deficit on development properties reflected in the Income Statement was £5.3m (2007: surplus £1.1m). Deficits of £77.2m (2007: surplus £182.3m) were reflected in equity. Profit from Joint Ventures The profit from joint ventures in the year was £5.5m (2007: £23.0m). The major variance in the two years is in revaluation, with a £0.9m surplus for the year to 31 March 2008 compared with £27.9m in the previous year. In challenging market conditions it is testament to the robust nature of these portfolios that net valuation surpluses were achieved. The table below analyses the components of profit. The major increases in rental income arise from the iQ joint venture that was formed in March 2007 and the growth in assets within Quercus. Administrative expenses include our equity share of fees payable to Quintain in relation to asset management, transactions and performance. £8.2m (2007: £3.0m) of fees are accounted for separately within gross profit. Net finance costs have risen in line with the growth in funds and include a mark-to-market adjustment for hedges within iQ of £1.1m. A tax credit of £1.0m arises on the JV profit before tax of £4.5m. The significant factors that give rise to a net tax credit are that the current tax charge in Quercus and iQ has benefited from the availability of Quintain group losses for no consideration, and deferred tax on revaluation surpluses has been reduced by indexation allowances and the reduction in the UK corporate tax rate from 30% to 28%. A detailed breakdown of profit by joint venture is set out in note 12i to these accounts. An explanation of the activities of each joint venture is given below within the balance sheet section and a full analysis of key joint ventures is provided in the operating review. 31 March 2008

£m 31 March 2007 £m

Net rent receivable 16.5 10.7 Administration expenses (4.9) (2.3) Revaluation surplus Profit on disposals

0.9 0.2

27.9 -

Net finance costs (8.2) (3.6)

Profit before tax 4.5 32.7 Taxation 1.0 (9.7)

Profit after tax 5.5 23.0 Finance Expenses Net finance expenses were £10.6m (2007: £6.9m). Of the increase, £2.8m was a write-off of loan costs on refinancing. Interest payable rose by £10.2 m with higher levels of drawn debt. This was partly offset by a £6.1m increase in interest receivable. In addition to interest on cash deposits, this included interest on loan notes to joint ventures and on a third party loan. Of the interest capitalised in the year, £9.4m related to the Wembley development and £2.1m to Greenwich.



31 March 2008

£m 31 March 2007 £m

Interest payable 31.6 21.4 Interest capitalised (12.0) (9.2) Interest receivable (9.9) (3.8) Write-off of fees on refinancing 2.8 - Profit on termination of interest swaps (2.2) - Change in fair value of financial instruments 0.3 (1.5) Total net finance expenses 10.6 6.9 Taxation The Income Statement shows a tax credit for the year of £14.6m (2007: tax charge £5.9m). In addition to this a further £33.1m has been credited to reserves (2007: tax charge £45.2m) reflecting a reduction in the deferred tax provision in line with the valuation deficit for the year and the reduction in the Corporation Tax rate to 28% from 30% as of 1 April 2008. Balance Sheet The Company comprises three divisions, the Investment Portfolio, Special Projects and Quintain Fund Management. Each of these divisions holds investment and development properties. Revaluation surpluses and deficits in relation to investment properties are charged to the Income Statement, whilst those for development properties are reflected in equity. Properties shown on the Balance Sheet are those held directly by the Group and are split between investment and development. In addition the Group owns a share of properties held by joint ventures which are included within the Group’s share of the joint venture net assets. A small number of properties are held for trading and are valued at the lower of cost and net realisable value. The table below analyses the gross value of assets split between investment, development and trading as at 31 March 2008 and the net assets within joint ventures by division. Value on balance sheet:

Investment Portfolio

£m

Special Projects

£m

Fund Management

£m

Total

£m

Investment 163.3 40.5 16.8 220.6

Development 15.5 824.3 3.7 843.5 Trading - 15.5 - 15.5

Total 178.8 880.3 20.5 1,079.6

Net assets in joint venture - 79.2 160.1 239.3

Total revaluation movements in the 12 months to 31 March 2008 gave rise to a deficit of £125.8m (2007: surplus £222.5m). Whilst market conditions were challenging for the whole period, there was a significant deterioration in the second six months of the year. The directly owned investment properties fell in value by £44.3m of which £30.1m related to the second half of the year. Development properties fell in value by £82.4m, although in the first six months they rose in value with strong performances from the Greenwich and Wembley schemes. The movement for the second six months was a decline of £150.9m. The total revaluation of properties in joint ventures gave rise to a small surplus of £0.9m (2007: £27.9m). This strong performance compared with the market is indicative of the defensive qualities within these portfolios. For Wembley and Greenwich, the two largest assets in the portfolio, a greater analysis of the valuations and sensitivities is set out below.



Wembley City

£m As at 1 April 2007 524.0 Acquisitions: Wembley Retail Park 89.0 Stadium Retail Park 22.9 Wembley Trading Estate 15.9 Capital expenditure 35.6 Capitalised interest 9.4 Valuation deficit (76.8) As at 31 March 2008 620.0 The valuation deficit for the 12 months of £76.8m was driven by upward yield shift on the commercial elements of the scheme and reduced expectations in the near term for residential prices. At the previous year end, growth rates for the subsequent three years had been 7.5% nominal or 1.5% real (net of 6% cost inflation). As this asset is not matur, the valuers anticipate achieving in excess of market growth rates albeit at a lower level than previously assumed. Growth rates are now incorporated at 5% nominal for the next three years or minus 0.5% real. The valuation methodology is explained below and the valuers’ reports will be included in the Company’s report and accounts. Savills, who have produced the year end valuation, used a discount rate of 10%. This is unchanged from last year end and reflects the balance of risks in the assumptions used in the valuation. Whilst the valuation is a view of what the market may pay at any point in time, it is supported by a discounted cashflow model. This model is based on many assumptions and the table below is included to provide shareholders with a better understanding of the dynamics relating to some of these assumptions. It is a sensitivity analysis and is not necessarily an indication of the Company’s view. Valuation £m Discount Rate 11% 10% 9% 8%

Amendment to model -3% 493 529 568 613 growth rates -1% 550 590 633 681 0% 579 620 665 715 +1% 609 652 698 750 +3% 674 720 770 826 Our internal model reflects current prices for residential units at £550 to £620 per sq ft. In the creation of a regeneration impact there is the possibility of shifting these base prices. If the starting price was £100 per sq ft higher, the matrix set out above would then look as follows: Valuation £m Discount Rate 11% 10% 9% 8%

Amendment to model -3% 576 616 660 709 growth rates -1% 636 680 728 781 0% 669 714 764 819 +1% 702 749 801 859 +3% 773 825 881 943 Greenwich Peninsula The valuation below relates to Quintain’s interests at Greenwich Peninsula as developer and landowner. £m

As at 1 April 2007 225.0 Capital expenditure 20.6 Capitalised interest 2.1 Valuation surplus 6.3 As at 31 March 2008 254.0 The valuation of Greenwich, which is shown partly in development properties and partly within joint ventures, held up very well in the period relative to the market, showing a £6.3m surplus for the 12 months. The 0.5% upward yield shift



in the commercial elements and reduction in the growth rates, as per Wembley, were offset by growth in residential base prices, the office letting to TfL, which added credibility and sector diversification to the area as an office location, and improved income from The O2. The discount rate was unchanged at 12%. As for Wembley, varying the discount and growth rates gives the following sensitivities: Valuation £m Discount Rate 12% 11% 10% 9%

Amendment to model -3% 142 158 169 180 growth rates -1% 216 234 250 267 0% 254 273 292 312 +1% 294 315 336 359 +3% 384 406 434 465 Our internal model reflects current prices for residential units at £495 to £810 per sq ft. If the regeneration impact increased current prices by £100 per sq ft the matrix above would then look as follows: Valuation £m Discount Rate 12% 11% 10% 9%

Amendment to model -3% 220 239 255 271 growth rates -1% 300 321 342 364 0% 343 365 389 415 +1% 389 413 440 469 +3% 492 518 553 590

Capital Commitments

The table below sets out capital commitments including our share of any commitments within joint ventures. The largest, which is £44.6m in respect of iQ, is 50% of the forward funding agreements in relation to development pipelines. We anticipate 65% of this cost being met by undrawn debt facilities within iQ. 31 March 2008

£m

Group:

Wembley 16.3 Others 0.4

Joint ventures: iQ 44.6 BioRegional Quintain 6.4

Wembley – W01 5.6 Quercus 4.4 Quantum 2.1 Greenwich – MDL 0.7

80.5 In addition to the above, we are progressing projects that are directly owned and unconditional which will require capital of £33.5m. We are also progressing joint venture projects with uncommitted capital requirements of £56.0m.

Joint Ventures

As at 31 March 2008, Quintain had net investment in joint ventures totalling £239.3m. A breakdown of this is included in the table below and more financial details are available in note 12i to these accounts. Joint venture Share of equity Net investment £m

Quercus 26.9% 123.1 GPRL 49.0% 49.6 iQ 50.0% 32.3 Greenwich Peninsula N0204 50.0% 12.3 BioRegional Quintain 49.9% 9.2 Quintessential Homes 50.0% 5.6 Quantum 50.0% 4.7



Other joint ventures N/A 2.5

239.3 Quercus This is a healthcare property fund, of which Quintain owns 26.9% of the equity and acts as asset manager. For this role Quintain receives asset management, transaction and performance fees. Details of the operations and activities of this Fund are set out in the QFM business review. Greenwich Peninsula Regeneration Ltd (GPRL) This vehicle has a development agreement to draw down 194 acres at Greenwich Peninsula, for which it has gained a 13.2 m sq ft mixed use planning consent. It can either develop the land directly or sell it on to third party developers. The remaining 50% is owned by Lend Lease Europe Limited. iQ iQ is a 50/50 joint venture with The Wellcome Trust to invest in student accommodation. Quintain is the asset manager, a role for which it receives fees. Details of the Fund’s strategy and activities are set out in the QFM business review. Greenwich Peninsula N0204 This is a 50/50 joint venture with Lend Lease Europe Limited to build the first commercial buildings at Greenwich Peninsula. The buildings comprise 308,000 sq ft of commercial space, of which TfL have leased 135,000 sq ft for 20 years. They have an option over the remaining office space in the first building, an additional 60,000 sq ft. The building also has 15,400 sq ft of retail space. Building work has commenced and is due to complete in the second half of 2009. Quintessential Homes Forum House is the first residential block at Wembley, also known as W01. The building contains 145 private apartments which are being funded 50% by Quintain and 25% by each of Genesis and Family Housing Associations. The housing associations are funding 100% of the 141 affordable housing units. All private apartments are pre-sold. Quintain receives development management fees. BioRegional Quintain This is a 50/50 joint venture between Quintain and BioRegional Properties Ltd. BioRegional is a private company that has a formal collaboration agreement with the World Wildlife Fund to promote ‘One Planet Living’. The joint venture is aiming to be the leading sustainable property developer in the UK. It has schemes at various stages of progress, including a 172 apartment building in Brighton where development is on site (this in turn is owned in a 50/50 JV with Crest Nicholson); Middlehaven, where we have a development agreement for a 1m sq ft mixed use consent and have commenced initial infrastructure works and built a marketing suite; and Gallions Park, the Mayor’s exemplar green development for London, where we are working up a detailed planning application. Quantum Quantum is a science park fund owned 50/50 with CGNU Life Assurance, managed by Morley. It has signed its first development agreement to build an 829,000 sq ft science and technology park, SPark at Emersons Green, Bristol and will look to acquire further investment and development opportunities. Details of this agreement and the plans for the Fund are set out in the QFM business review. Financing Strategy and Capital Structure

Our financial strategy in the medium term is to manage a level of debt that balances the risks to the business with the higher returns on equity that, over time, will accrue due to the lower cost of debt. Gearing levels, being the proportion of debt compared with equity, will vary depending on the profile of operational risks, the capital that is currently committed or expected to be committed in the future and the cyclical high or low of property valuations. Last year we stated that our gearing level was below our long-run expected level due to significant anticipated expenditure. Capital expenditure over the last 12 months was £167.2m and this, together with a deficit on valuation, has increased gearing to 69% (2007: 36%). If deferred tax and marking to market of debt are removed, as per the definition within our banking covenants, gearing was 60% (2007: 30%) compared with a covenant limit of 110%. The Company therefore has significant headroom. The financing structure we adopt needs to be flexible and cost effective. This has been achieved through securing funding at the corporate level, giving us the scope to efficiently fund all areas of the portfolio which otherwise would be



more challenging, such as infrastructure works at Wembley and Greenwich. It also provides us with liquidity and operational flexibility, enabling us to move quickly when bidding for deals. Towards the end of the year we refinanced all of the corporate debt. The key elements were an increase in maturity, the removal of the covenant limiting investment in joint ventures to 50% of net assets and an amendment to the 1.25 times interest cover covenant allowing capitalised interest to be deducted from interest payable in calculating cover, so recognising the nature of the business with a significant development programme and limited near-term income. Given the timing of the refinancing, and reflecting the improved facilities, the margin increased by 20 basis points to an average of 115 basis points. The Company initially raised £620m and since the year end has increased this to £715m. The weighted average rate of interest of the Group’s debt at the year end was 7% (2007: 6.6%). Since the year end as noted below we switched some of our hedging into swaps bringing the average rate of interest down to 6.4%. In measuring the cost effectiveness criteria, whilst this rate is slightly ahead of the market, we believe this is a price worth paying for the flexibility we now have in our financing structure. 31 March 2008

31 March 2007

Net borrowings £516.3m £302.8m

Gearing 69% 36%

Gearing per banking covenants 60% 30%

Weighted average debt maturity 5.5 years 5 years

% of net debt hedged 84% 55%

Interest cover** 1.7 times 6.6 times

Undrawn committed facilities

Group £81m* £164m

Joint ventures £101m £1m

Capital commitments

Group £16.7m £15.7m

Joint ventures £63.8m £81.5m

* Since the year end this has increased with the raising of a further £95m of debt facilities **Interest cover, per our banking covenants, is defined as operating profit before net finance expenses plus realised surpluses on disposals divided by net finance costs excluding marking to market adjustments.

Interest cover for the year ended 31 March 2008 was 1.7 times (2007: 6.6 times). The significant difference in the two years was the realised revaluation surplus. In the prior year, sales of £138.7m achieved profits over historic cost of £48.8m compared with sales of £37.4m and a historic cost profit of £13.3m for the current period. This arose because of the timing of our projects, where no developments were completed during the year, and the low level of investment sales due to market conditions. Hedging As at 31 March 2008, Quintain’s interest rate risk was 83.7% hedged (2007: 54.8%). The fair value adjustment on these interest rate hedging instruments was a deficit of £0.5m (2007: deficit £4.4m). Of the movement during the year, £0.4m was debited to the Income Statement, being the element relating to non-cashflow hedges and £0.1m directly to equity. Quintain manages its risk in relation to interest rate movements by hedging at least 50% of the exposure and managing these positions to shareholders’ benefit whilst not taking market risk. In April 2007 we took out £225m of six year caps at 6.5%, cancelling the outstanding £157m of swaps and £50m of forward start swaps, recognising a profit of £2.1m. As we drew down debt during the year we added a further £50m of five year caps at average rates of 5.6% and £150m of five year swaps at average rates of 4.97%. Since the year end, as the five year swap rate reduced, we cancelled £225m of caps and replaced them with five year swaps at an average rate of 4.96%. The length of the positions reflects the length of the loans outstanding.



A 50 basis point increase or decrease during the year would have changed interest payable by £1.8m. Whilst at this level it is symmetric, when interest rates reach a level where the caps become effective then increasing rates have a lesser impact on the cost than reducing rates do on cost savings. The Quercus fund has floating rate non-recourse debt of which 76% was hedged by swaps at 31 March 2008. Quintain’s share of the fair value deficit was £0.5m. This is reflected in equity. The iQ joint venture also has floating rate non-recourse debt of which 80% was hedged with caps and floors at 31 March 2008. Of the fair value deficit, Quintain recognised £1.0m in the Income Statement and £0.5m in equity. Details of these are set out in note 21iii to the accounts. Cashflow

Net cash outflow from operating activities was £33.9m (2007: £11.5m). The major reconciling differences in the two years were net interest paid which increased by £12.9m reflecting higher levels of drawn debt being used to fund development opportunities and the purchase of the remaining interest in City Park Gate, a trading property, for £5.5m. The former is reflected in the cash outflow from investment activities of £159.5m. The major constituent of the purchases and development of property activities of £168.4m was acquisitions at Wembley and a table of these and the capital expenditure on site is included in the finance section under the heading Wembley City. £64.7m of funding was provided to joint ventures, the largest being £18.3m to our student accommodation fund iQ, £13.3m to Quercus, the healthcare fund, and £7.0m to GPRL, the vehicle managing the development of the Greenwich Peninsula. Partly offsetting these were receipts of £81.4m from sales. These proceeds are split between sales in the current year of £30.1m and sales relating to the previous year where cash was received post year end of £51.3m. Accounting These accounts include the first time adoption of IFRS 7. The only impact is on the provision of additional disclosure. The year to 31 March 2008 was the first year in which a formal revaluation was carried out at the interim stage and reflected in the interim accounts. The comparative numbers have been restated to incorporate a Directors’ valuation for the prior interim period. Key Performance Indicators We measure our performance both financially and in terms of the service we provide our stakeholders. The leading indicators measuring our performance against the key elements of our objectives and strategy are: Financial Performance Indicator Target One year Five years

Total return* 10% Real -9.7% 16.0%

IPD Performance** Top quartile 13th percentile 2

nd percentile

* Total return is the movement in net asset value per share adjusted for the dividends paid in the year as a percentage of the opening net asset value per share ** The IPD performance is measured in comparison with the March Universe As a listed property company, it is also appropriate to measure our performance in ways other than financial, thus recognising the impact of our activities on stakeholders. We have set two key measures against which we will now report: 2008 2007 Staff retention and motivation % of staff that feel “very happy at work” 81% 81%

Environmental Sustainability: A cumulative saving of 50,000 tonnes of carbon over 10 years, assuming current build out rate



Risk Management

In addition to those general economic, security and regulatory risks faced by a wide range of companies that are part of the general commercial environment, we consider there to be a number of specific risks that are faced by our Company. In delivering high long-run returns to shareholders, the identification and monitoring of risk is crucial. A detailed risk register is updated regularly and those responsible for managing areas of risk are required to report on them every six months and by exception. Our internal audit function reviews the risk register for completeness and accuracy. In addition, the risk register is considered by the Audit Committee. The Risk Committee debates key risks and mitigation on a regular basis. Those risks judged to be critical to the business, as shown by the risk scores attributed by a combination of likelihood and impact, are set out below. Descriptions and implications of risk Mitigation

Reputation Good stakeholder relationships are important in winning new business, funding and favourable planning consents.

Ongoing senior management engagement with stakeholders. High level, market leading focus on environmental, social and economic sustainability. Employment of highly skilled teams with a track record of delivery and communication skills.

Personnel The quality of Quintain’s team is crucial to the Company’s success. Failure to retain existing talent or recruit the right personnel for key positions could affect delivery of the business strategy.

Focus on nurturing Quintain’s culture of empowerment, support and accountability. Annual employee survey to identify issues which are then openly addressed. Engagement of employees through regular formal staff meetings, fortnightly informal events and weekly transmission of news. Introduction of a share incentive plan and enhanced pension scheme, and long-term incentive and remuneration packages for key employees.

Succession planning is required to guard against the sudden emergence of skill gaps.

Given the impact of a few key individuals this is challenging, however we have a continuous programme of recruiting high performers directly below board level.

Development With a strong development pipeline, visibility into and control of construction costs is vital to prevent overspend or delays.

Quintain’s in-house project management team transfers risk to contractors where possible and encourages a culture of no changes once the design is agreed. The supply chain management initiative is creating increasing visibility into opportunities for cost control and reduction, whilst standardisation across Quintain’s projects will increase predictability and provide economies of scale.

Financial Financial overtrading resulting in insufficient liquidity or a breach of banking covenants.

Tight control over expenditure through budgeting and capital approval process. Regular monitoring of banking covenants and scenario testing including cashflows. Strong relationships with banks.

Inadequate financial information and forecasting for decision making, resulting in inappropriate decisions.

Employment of a high quality financial team who provide comprehensive budgeting and historical financial information to understand impact of decision making. Rigorous development appraisal and development control process

Market Risk A deterioration in the key markets of residential and commercial property will adversely impact the Balance Sheet.

Whilst we have a considerable quantity of planning consents we have few development obligations. The majority of the on-site development is either pre-let or pre-sold. Significant sales of commercial property over the last three years have materially reduced the impact of an adverse movement in commercial yields.

The detailed assessment of financial risk management covering credit, liquidity and market risk is set out in note 20 to the accounts.



Developments on site:

Development Ownership Content GDV (1) Practical Completion

N0204 50% 308,000 sq ft commercial £174.6m July-December 2009

W01 50% 145 apartments, retail & commercial

£46.7m August 2008

W04 100% 233 apartments, retail & community

£52.0m December 2009

Brighton 25% 172 apartments + 24,000 sq ft commercial

£28.9m December 2009

(1)Gross Development Value excludes affordable housing element and reflects 100% of the scheme

Development Pipeline:

Project Sector Share Area GDV £m (1) Planning Proposed Timing

Wembley (Phase 1)

Mixed use 100% 6.3m sq ft 2,500 Outline Now-2017

Greenwich Peninsula (2)

Mixed use 50% 13.2m sq ft 5,000 Outline Now-2023

Bristol and Bath Science Park (2)

Science Park 50% 829,000 sq ft 222 Outline 2008-2020

Middlehaven, Phase 1 (2)

Mixed use 50% 1.0m sq ft 200 Outline 2008-2015

City Park Gate, Birmingham (2)

Mixed use 100% 1.0m sq ft 230 Resolution to grant

2009-2017

Beverley Mixed use 19% 485,000 sq ft 102 Resolution to grant

2009-2014

Emersons Green, Bristol

Mixed use. 65 acres of 275 acre site

25% 2,550 units Submitted 2008 onwards

Wembley (Phase 2)

Mixed use 100% 39 acres Being prepared 2010-2025

Dorset House, Oxford

Student scheme

100% 82,000 sq ft Being prepared 2009-2011

Gallions Park Residential 25% 3 acres Being prepared 2008-2010

Docklands Depot, Silvertown

Mixed use 66.7% 12.6 acres 2012 onwards

(1) Gross Development Value is only shown where planning has been received and reflects 100% of the scheme. (2) These properties are subject to a development agreement



QUINTAIN ESTATES AND DEVELOPMENT PLC Consolidated Income Statement for the year ended 31 March 2008

Notes

2008

£000

2007 restated

£000

Revenue from continuing operations 2 46,676 43,426 Cost of sales in respect of continuing operations 2 (13,986) (12,542)

Gross profit from continuing operations 32,690 30,884 Administrative expenses (before exceptional administrative expenses) 4 (27,972) (25,819) Exceptional administrative expenses 4 (1,485) -

Operating profit before recognition of results from non-current asset sales and revaluation 3,233 5,065 (Loss) profit from the sale of non-current property assets (3,289) 8,383 Profit from the sale of shares in subsidiaries 28 - 6,786 Gain on revaluation of investment properties 338 12,616 Deficit on revaluation of investment properties (44,661) (924) Deficit on revaluation of development properties (5,265) (182) Reversal of deficit on revaluation of development properties - 1,255 Share of profit from joint ventures 12i 5,532 23,011 Share of loss from associate 12ii (65) (455)

Operating (loss) profit (44,177) 55,555 Interest payable (22,335) (12,174)

Change in fair value of derivative financial instruments 1,851 1,493

Finance expenses (20,484) (10,681)

Finance income 9,921 3,759

Net finance expenses 5 (10,563) (6,922)

(Loss) profit before tax from continuing operations (54,740) 48,633 Current tax 2,105 (8,347)

Deferred tax 12,511 2,410

Tax credit (charge) for the year 6i 14,616 (5,937)

(Loss) profit after tax but before result from discontinued operations (40,124) 42,696 Loss from discontinued operations, net of tax 7 - (34)

(Loss) profit for the financial year attributable to equity shareholders (40,124) 42,662

Earnings per share from continuing operations (pence): 8i(a) Basic (31.3) 33.3

Diluted (31.3) 32.7

Earnings per share from total operations (pence): 8i(b) Basic (31.3) 33.3

Diluted (31.3) 32.7

Dividends per share (pence): 9 Interim (paid) 3.75 3.50 Final (proposed) 8.50 8.25

Total 12.25 11.75

In accordance with IAS 10, ‘Events after the Balance Sheet Date’, the Consolidated Balance Sheet reflects dividends which have been paid in the year. Proposed dividends are shown for information purposes only. Consolidated Statement of Recognised Income and Expense for the year ended 31 March 2008

Notes

2008

£000

2007 restated

£000

Foreign currency translation differences 232 (319) Gain on revaluation of development properties 1,838 182,289 Deficit on revaluation of development properties (79,006) - Gain (deficit) on revaluation of other non-current investments 757 (882) Effective portion of changes in fair value of cashflow hedges, net of recycling (416) 7,047 Share of recognised income and expense in joint ventures, net of tax 12i (702) 546 Tax recognised on income and expense recognised directly in equity 6iii 33,082 (45,230)

Net (expense) income recognised directly in equity (44,215) 143,451 (Loss) profit for the financial year (40,124) 42,662

Total recognised income and expense for the financial year (84,339) 186,113



Consolidated Balance Sheet as at 31 March 2008

Notes

2008 £000

2007 £000

Non-current assets Investment properties 10 220,624 288,938 Development properties 10 843,536 769,305 Owner-occupied properties, plant and equipment 11 2,757 1,470 Investment in joint ventures 12i 239,340 170,099 Investment in associate 12ii 1,157 1,222 Other non-current investments 12iii 15,196 3,044 Non-current receivable 13 42,987 45,349

Total non-current assets 1,365,597 1,279,427

Current assets Trading properties 14 15,518 6,831 Trade and other receivables 15 39,617 73,667 Current investments 16 4 4 Cash and cash equivalents 20iii 27,982 36,048

Total current assets 83,121 116,550

Total assets 1,448,718 1,395,977

Current liabilities Bank loans and other borrowings 18 - (3,000) Trade and other payables 17 (36,354) (37,466) Current tax liability (7,269) (9,216)

Total current liabilities (43,623) (49,682)

Non-current liabilities Bank loans and other borrowings 18 (541,637) (333,924) Deferred tax liability 6iv (103,638) (149,620) Obligations under finance leases 19 (11,727) (11,734) Other payables (2,392) (4,919)

Total non-current liabilities (659,394) (500,197)

Total liabilities (703,017) (549,879)

Net assets 745,701 846,098

Equity Issued capital 23 32,483 32,457 Share premium account 22 51,343 50,797 Revaluation reserve 22 327,360 370,814 Other capital reserves 22 108,136 108,136 Cashflow hedge reserve 22 (322) 671 Translation reserve 22 318 86 Retained earnings 22 238,805 292,481 Own shares held reserve 22 (12,422) (9,344)

Equity shareholders’ funds 745,701 846,098

Net asset value per share (pence): 8ii Basic 584 660

Diluted 578 655

Approved by the Board of Directors and signed on its behalf by: ADRIAN WYATT REBECCA WORTHINGTON Director Director



Consolidated Cashflow Statement for the year ended 31 March 2008

Notes

2008

£000

2007 restated

£000

Operating activities (Loss) profit for the financial year (40,124) 42,662 Adjustments for: Short leasehold amortisation - 248 Depreciation of plant and equipment 622 472 Cost relating to share-based payment schemes 2,147 3,718 Net finance expenses 10,563 6,922 Loss (profit) on sale of properties held as non-current assets 3,289 (8,383) Profit on sale of trading property (1,558) - Profit on sale of shares in subsidiaries - (6,786) Gain on revaluation of investment properties (338) (12,616) Deficit on revaluation of investment properties 44,661 924 Deficit on revaluation of development properties 5,265 182 Reversal of deficit on revaluation of development properties - (1,255) Share of profit from joint ventures (5,532) (23,011) Share of loss from associate 65 455 Loss on sale of plant and equipment 2 61 Impairment of other investments - 69 Tax on continuing operations (14,616) 5,937 Tax on discontinued operations - (14)

4,446 9,585 (Increase) decrease in trade and other receivables (8,352) 1,870 Increase (decrease) in trade and other payables 1,915 (7,061) Increase in trading properties (3,417) (17)

Cash generated from operations (5,408) 4,377 Interest paid (36,753) (18,930) Interest received 8,527 3,587 Tax paid (310) (520)

Net cashflow from operating activities (33,944) (11,486)

Investing activities Purchase and development of property assets (168,362) (133,096) Purchase of owner-occupied properties, plant and equipment (1,911) (1,010) Proceeds from sales of non-current assets 81,403 117,595 Tax paid on sales of non-current assets - (3,230) Proceeds from sales of current investments - 3 Proceeds from sales of shares in subsidiary companies - 20,476 Acquisition of investment in joint ventures - (2,335) Loans to joint ventures (64,718) (17,588) Distributions received from joint ventures 3,130 8,400 Acquisition of other investments (11,398) (54,962) Repayment of non-current receivable 2,362 7,851

Net cashflow from investing activities (159,494) (57,896)

Financing activities Issue of shares 239 1,120 Investment in own shares (3,078) (6,060) Proceeds from new borrowings 980,769 315,000 Repayment of borrowings (775,269) (197,432) Payment of loan issue costs (3,276) (431) Payment of finance lease liabilities (819) (873) Equity dividends paid (15,366) (13,744)

Net cashflow from financing activities 183,200 97,580

Net (decrease) increase in cash and cash equivalents (10,238) 28,198 Cash and cash equivalents at start of year 36,048 7,954 Effect of exchange rate fluctuations on cash held 2,172 (104)

Cash and cash equivalents at end of year 27,982 36,048

Net cashflow from discontinued operations included in net cashflow from operating activities 7 - (489)

A cash outflow of £5,451,000 included in Increase in trading properties represents the purchase of shares in a single purpose vehicle which holds a trading property. This transaction is outlined in more detail in note 27.



1 ACCOUNTING POLICIES i) BASIS OF PREPARATION The Group’s financial statements have been prepared and approved by the Board in accordance with International Financial Reporting Standards and interpretations issued by the International Financial Reporting Interpretations Committee as adopted by the European Union (‘IFRS’) and those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The financial statements are presented in Sterling and have been prepared on an historical cost basis except that investment and development properties, other non-current investments and certain financial instruments as described in section xvii below, have been stated at fair value.

The interim report presented by the Group during the year was the first to be prepared in accordance with IAS 34 ‘Interim Financial Reporting’ and included a full revaluation of the property portfolio as at 30 September 2007. The report also included a restatement of the Balance Sheet as at 30 September 2006 using a directors’ valuation as at that date, though this was based upon the valuation exercises conducted by external valuers. As a result of increased valuations being incorporated at 30 September 2007, gains previously calculated as at 31 March 2007 were in part incorporated as part of that valuation. Therefore the comparatives for the year ended 31 March 2007 have been restated to reclassify a gain on disposal of £3,440,000 previously presented in the Income Statement to the Statement of Recognised Income and Expense.

The effect of the restatement was as follows:

Income Statement Year ended

31 March 2007 £000

Profit before tax before restatement 51,638 Effect of restatement (3,005)

Restated profit before tax 48,633

The restatement may be analysed as follows: Profit from sale of non-current property assets (3,440) Gain on revaluation of investment properties 435

Effect of restatement on profit before tax (3,005) Effect of restatement on deferred tax 902

Effect of restatement on profit for the financial year (2,103)

Effect of restatement on earnings per share from continuing operations (pence): Basic (1.7)

Diluted (1.6)

Effect of restatement on earnings per share from total operations (pence): Basic (1.6)

Diluted (1.6)

Consolidated Statement of Recognised Income and Expense Year ended

31 March 2007 £000

Total recognised income and expense for the financial year before restatement 186,113 Effect of restatement -

Restated total income and expense for the financial year 186,113

The restatement may be analysed as follows: Gain on revaluation of development properties 3,005 Tax on income and expense recognised directly in equity (902)

Effect of restatement on net income recognised directly in equity 2,103 Effect of restatement on profit for the financial year (2,103)

Effect of restatement on total recognised income and expense for the financial year -

Consolidated Balance Sheet There was no impact upon the Group’s Balance Sheet and basic and diluted net asset value per share as at 31 March 2007. Consolidated Cashflow Statement The change affected the reconciliation of profit for the financial year to net cashflow from operating activities, but had no impact on the main subtotals and totals presented in the Cashflow Statement. IFRS 7,’Financial Instruments: Disclosure’ and the complementary amendments to IAS 1, ‘Presentation of Financial Statements – Capital Disclosures’ have been adopted for the first time in these accounts, introducing new disclosures relating to financial instruments but having no impact on the classification or valuation of these instruments.



At the date of approval of these financial statements, it is not anticipated that any standards or interpretations in issue but not yet effective will have a material impact on the accounts. ii) SIGNIFICANT JUDGEMENTS, ESTIMATES AND ASSUMPTIONS The preparation of financial statements under IFRS requires the Board to make judgements, estimates and assumptions that affect the application of accounting policies, the reported amounts of assets and liabilities as at the date of the financial statements and the reported amount of revenue and expense during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgements that are not readily apparent from other sources. However, the actual results may differ from these estimates. The measurement of fair value constitutes the main area of judgement exercised by the Board in respect of the Group’s results. In relation to the Group’s investment and development properties, the Board has relied upon the external valuations carried out by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. Copies of the valuation reports of Savills Commercial Limited and Jones Lang LaSalle Limited, which together account for 98.4% of these categories of non-current assets, and of Christie + Co, which values the investment properties within Quercus, currently the Group’s principal joint venture, are in the annual report. In relation to the Group’s investment properties, the key assumptions relate to the amount and timing of future income streams, anticipated maintenance costs and other landlord’s liabilities and an appropriate yield. Valuers also have regard to market evidence generated by transactions involving similar properties. In relation to development properties, the valuers have regard to the relevant legal rights and synergies, the discount rate appropriate to the current stage of the masterplan, the implementation strategy, the timing and conditions of planning consent, future development costs, the likely completed sales values, cost and value inflation and current market dynamics. In respect of derivative financial instruments, the Board has relied on the valuation carried out by JC Rathbone Associates Limited, financial risk consultants, and the basis for this exercise is referred to below in section xvii of this note and in note 21.

The Board has also exercised its judgement in relation to the recognition of certain deferred tax assets, which is discussed in further detail in note 6iv, and in assessing the recoverability of trade receivables by reference to their age and the ability of debtors to pay.

Other areas of judgement, risk and uncertainty which are relevant to an understanding of these results and the Group’s financial position are referred to in the Operating and Financial Review.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

iii) BASIS OF CONSOLIDATION The Group’s financial statements consolidate those of the Company and its subsidiaries, together referred to as the Group, and equity account the Group’s interest in its joint ventures and associate. The parent company financial statements present information about the Company as a separate entity and not about its Group. The Company has elected to prepare its parent company financial statements in accordance with UK GAAP.

Subsidiaries are those entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date it ceases.

A joint venture is an undertaking in which the Group has a long term interest and over which it exercises joint control. An associate is an entity in which the Group has significant influence but not control over financial and operating policies. The Group equity accounts for its share of net profit after tax of its joint ventures and associate through the Income Statement. Movements in the fair value of development properties within joint ventures are shown within equity. The effective portion of changes in the fair value of cashflow hedges within joint ventures less any related tax is also recognised directly in equity. All other changes, which include the Group’s share of adjustments to the fair value of its joint venture and associate investment properties, are recognised in the Income Statement. The Group’s interest in the net assets of joint ventures and the associate is included in the Consolidated Balance Sheet. Where an asset is transferred to an existing joint venture or the Group disposes of an interest in a subsidiary, the Group recognises a share of the profit equivalent to the interest it has sold to an external party. All such transactions occur at fair value. iv) FOREIGN CURRENCY Assets and liabilities of foreign operations are translated into Sterling at exchange rates ruling at the balance sheet date. Operating income and expenses are translated at average exchange rates. The year end and average rates used for these purposes were as follows: £1= Year end

2008 Year end

2007 Average

2008 Average

2007

France €1.26 €1.47 €1.42 €1.48 United States $1.99 $1.96 $2.01 $1.89

Exchange differences arising from the translation of the net investment in foreign operations are reflected in the translation reserve and released to the Income Statement upon the disposal of the foreign operation.



v) REVENUE AND COST OF SALES Revenue is stated net of VAT and comprises rental income, proceeds from sales of trading properties, income from hotel operations, fees, commissions and other income. Rental income from investment and development properties leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease. Contingent rents which comprise turnover rents are recognised as income in the periods in which they are earned. Rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives are recognised as an integral part of the net consideration for the use of the property and amortised on a straight-line basis over the term of the lease, or the period to the first tenant break, if shorter. Property operating costs are expensed as incurred including any element of service charge expenditure not recovered from tenants. Sales of trading properties are recognised on the unconditional exchange of contracts by the balance sheet date. Income from hotel operations represents income receivable from the Plaza Hotel, Wembley, prior to the redevelopment of the site, for which outline planning permission has been obtained. Fees from fund management relate to base and performance fees receivable in respect of asset management together with property procurement fees. Performance fees are recognised when it is likely that performance criteria have been met. All other fees are recognised on a receivable basis. Other income comprises income receivable from property derivative instruments entered into by the Group, tenant lease surrender premiums, insurance commission, car parking receipts, property management fees and miscellaneous income. vi) PURCHASE AND DISPOSAL OF PROPERTIES HELD AS NON-CURRENT ASSETS Property purchases and sales are recognised in the accounts on the date of unconditional exchange or where an exchange is conditional, on the date that conditions have been satisfied. Profits or losses arising on disposal are calculated by reference to the carrying value of the asset at the date of the last revaluation, adjusted for subsequent capital expenditure. The acquisition or disposal of shares in subsidiaries and interests in joint ventures where properties constitute the only or main asset are accounted for as property transactions unless the fair values attributed to other assets and liabilities within the entity differ from their carrying value. vii) IMPAIRMENT The Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication becomes evident, the asset’s recoverable amount is estimated and an impairment loss recognised whenever the carrying amount of the asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its net selling price and its value-in-use. The value-in-use is determined as the net present value of the future cashflows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Any impairment of financial assets is based on the original effective interest rate attributable to the financial asset on acquisition. viii) EMPLOYEE BENEFITS Pensions Contributions to employees’ personal plans are charged to the Income Statement as incurred. Share-based payment schemes The fair value of equity rights is estimated using the Black-Scholes and binomial models at the date of grant to directors and staff and is dependent on factors such as the exercise price, expected volatility, option price and risk free interest rate. The fair value is then amortised through the Income Statement on a straight-line basis over the vesting period. Expected volatility is determined based on the historic share price volatility (market price) for the Company on the grant date over a period matched to the expected life of the awards. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest, except where forfeiture is only due to the share price not achieving the threshold for vesting. ix) CAPITALISATION OF BORROWING COSTS Net borrowing costs in respect of capital expenditure on properties under development or undergoing refurbishment are capitalised. Interest is capitalised using the Group’s weighted average cost of borrowing from the commencement of development work until the date of practical completion. The capitalisation of finance costs is suspended if there are prolonged periods when development activity is interrupted. All other borrowing costs are recognised in the Income Statement in the period in which they are incurred. x) TAX Tax is included in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case the related tax is recognised in equity. Current tax is the expected tax payable on the taxable income for the year using tax rates applicable at the balance sheet date. Tax payable upon the realisation of revaluation gains recognised in prior periods is recorded as a current tax charge with a release of the associated deferred taxation. Deferred tax is provided on all temporary differences, except in respect of investments in subsidiaries and joint ventures where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is provided using the balance sheet liability method in respect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amount used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates applicable at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.



xi) DISCONTINUED OPERATIONS In accordance with IFRS 5, ‘Non-current Assets Held for Sale and Discontinued Operations’, the loss from these discontinued operations is shown in the Income Statement net of tax. xii) INVESTMENT PROPERTIES Investment properties are properties owned or leased by the Group which are held either for long term rental growth or for capital appreciation or both. Investment properties are initially recognised at cost including related transaction costs and valued bi-annually by professionally qualified external valuers. Properties held under operating leases are accounted for as investment properties where the other criteria for recognition are met. Such operating leases are accounted for as if they are finance leases. Additions to investment properties consist of costs of a capital nature and in the case of investment properties under development, capitalised interest. Investment properties are independently valued bi-annually by external valuers at market value. The valuations are prepared by considering the aggregate of the net annual rents receivable from the properties and where relevant, associated costs. A yield which reflects the specific risks inherent in the net cashflows is then applied to the net annual rentals to arrive at the property valuation. Gains or losses arising from changes in the fair value of investment properties are included in the Income Statement of the year in which they arise. When the Group redevelops an existing investment property for continued future use as an investment property, the property remains an investment property and is not reclassified. xiii) DEVELOPMENT PROPERTIES Properties acquired with the intention of redevelopment are classified as development properties and stated at fair value in accordance with IAS 16, ‘Property, Plant and Equipment’. Changes in fair value are recognised through equity in the revaluation reserve. However, a deficit on revaluation of a development property is recognised in the Income Statement to the extent it exceeds the surplus in the revaluation reserve relating to a previous revaluation of that property. Similarly, a surplus on revaluation is credited to the Income Statement to the extent of a deficit previously charged. All costs directly associated with the purchase and construction of a development property are capitalised. When development properties are completed, they are reclassified as investment and any accumulated balance on revaluation is transferred to retained earnings. Development properties, which are independently valued bi-annually by external professional valuers, are stated at estimated market value on completion less estimated costs to complete. xiv) LEASES a) Group company is the lessee 1) Operating lease - leases of assets where substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight-line basis over the period of the lease. 2) Finance lease – leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease commencement at the lower of the fair value of the property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in current and non-current borrowings. The finance charges are charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Investment properties acquired under finance leases are subsequently carried at their fair value. b) Group company is the lessor 1) Operating lease - properties leased out to tenants under operating leases are included in investment properties in the Balance Sheet with rental income recognised on a straight line basis over the lease term. 2) Finance lease – when assets are leased out under a finance lease, the present value of the minimum lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method before tax which reflects a constant periodic rate of return. Where only the buildings element of a property lease is classified as a finance lease, the land element is shown within operating leases. xv) OWNER-OCCUPIED PROPERTIES, PLANT AND EQUIPMENT Fixtures, fittings and equipment are carried at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the useful life of these assets estimated at between three and five years. xvi) TRADING PROPERTIES Trading properties are properties acquired or developed and held for sale and are shown at the lower of cost and net realisable value. The cost of trading properties is determined on the basis of specific identification of their individual costs. Net realisable value is the estimated selling price in the ordinary course of business less estimated costs to completion and the estimated costs necessary to make the sale. xvii) FINANCIAL INSTRUMENTS Non-current receivables Non-current receivables are held at amortised cost. Other non-current investments Other non-current investments are non-derivative investments that are designated as available for sale and are shown at fair value. Trade and other receivables Trade and other receivables are recognised at amortised cost. A provision for impairment of trade receivables is established where there is objective evidence that the Group will not be able to collect all amounts due according to the agreed terms of the receivables concerned. Cash and cash equivalents



Cash and cash equivalents consist of cash in hand, deposits with banks and other short term highly liquid investments with original maturities of three months or less. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Borrowings are subsequently stated at amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the Income Statement over the period of the borrowings on an effective interest rate basis. Trade and other payables Trade and other payables are non-interest bearing and are recognised at amortised cost. Derivative financial instruments The Group uses derivative financial instruments to manage its interest rate risk. These financial instruments are recognised initially at fair value and subsequently re-measured. The gain or loss on re-measurement to fair value is recognised immediately in the Income Statement, unless the derivatives qualify for hedge accounting as cashflow hedges, in which case the effective element of the gain or loss is recognised directly through equity in a hedging reserve. The Group’s derivative financial instruments are shown in these accounts at fair value as derived by JC Rathbone Associates Limited, financial risk consultants, based on market prices, estimated future cashflows and forward rates as appropriate. Other derivative instruments From time to time, the Group invests in derivatives to mitigate or enhance its exposure to a particular class or a spectrum of property assets and related businesses. Such instruments are accounted for initially at fair value with subsequent adjustments to fair value being reflected through the Income Statement. xviii) OWN SHARES HELD BY ESOP TRUSTS AND TREASURY SHARES Transactions of the Group-sponsored ESOP trusts, The Quintain Group Employee Benefit Trust and the Quintain Estates and Development Deferred Bonus Plan Trust, are included in the Group financial statements. In particular, the Trusts’ purchases of shares in the Company and shares acquired as treasury shares are debited directly to equity. 2 REVENUE, COST OF SALES AND GROSS PROFIT

2008 Revenue

£000

2008 Cost of

sales £000

2008 Gross profit £000

2007 Revenue

£000

2007 Cost of

sales £000


Rental income 23,843 (4,804) 19,039 29,661 (6,821) 22,840 Income from sales of trading properties 3,000 (1,580) 1,420 28 - 28 Income from hotel operations 6,926 (3,350) 3,576 3,376 (2,019) 1,357 Fees from fund management and other services provided to related parties 10,120 (1,910) 8,210 4,650 (1,661) 2,989 Other income 2,787 (2,342) 445 5,711 (2,041) 3,670

Continuing operations 46,676 (13,986) 32,690 43,426 (12,542) 30,884 Discontinued leisure operations (note 7) - - - 1,295 (716) 579

46,676 (13,986) 32,690 44,721 (13,258) 31,463

Rental income included contingent rents of £344,000 (2007: £1,574,000). The cost of sales in relation to rental income comprised:

2008 £000

2007 £000

Service charge expenditure 3,331 3,613 Service charge recovery (2,187) (2,224)

Irrecoverable service charges 1,144 1,389 Rents payable 43 223 Property management fees 586 632 Legal and professional fees 658 883 Short leasehold amortisation - 248 Allowance for impairment in respect of trade receivables 518 142 Other property costs 1,855 3,304

4,804 6,821



The analysis of rental income and the related cost of sales (direct operating expenses) between investment and development properties was as follows:

2008

Revenue

£000

2008 Cost of

sales £000


2007 Revenue

£000

2007 Cost of

sales £000


Investment properties 17,584 (2,232) 15,352 21,867 (3,451) 18,416 Development properties 6,259 (2,572) 3,687 7,794 (3,370) 4,424 23,843 (4,804) 19,039 29,661 (6,821) 22,840

Direct operating expenses relating to investment properties which are not income producing amounted to £334,000 (2007: £174,000). Other income related to: 2008

Revenue

£000

2008 Cost of

sales £000


2007 Revenue

£000

2007 Cost of

sales £000


Income from property derivatives - - - 2,056 (826) 1,230 Surrender premiums 356 - 356 1,608 (108) 1,500 Management fees and commissions 1,378 (942) 436 1,175 (410) 765 Car parking income 731 (202) 529 724 (255) 469 Abortive project costs - (826) (826) - (325) (325) Sundry income 322 (372) (50) 148 (117) 31

2,787 (2,342) 445 5,711 (2,041) 3,670

The split of the Group’s revenue and cost of sales by sector was as follows:

2008 Revenue

£000

2008 Cost of

sales £000


2007 Revenue

£000

2007 Cost of

sales £000


Healthcare 7,013 (1,899) 5,114 5,016 (1,658) 3,358 Hotels 7,285 (3,394) 3,891 4,735 (2,146) 2,589 Industrial 3,544 (473) 3,071 4,144 (476) 3,668 Land 3,173 (2,438) 735 4,474 (2,469) 2,005 Leisure 6,300 (1,661) 4,639 6,172 (81) 6,091 Offices 12,554 (2,656) 9,898 14,464 (3,696) 10,768 Retail 4,417 (544) 3,873 1,369 (451) 918 Student accommodation 2,189 (277) 1,912 1,313 (285) 1,028 Other 201 (644) (443) 1,739 (1,280) 459

Total 46,676 (13,986) 32,690 43,426 (12,542) 30,884

This analysis is provided for information only as it does not form part of the disclosure for the purposes of segmental reporting. 3 SEGMENTAL ANALYSIS The analysis of the Group’s results by business segment for the year ended 31 March 2008, which are discussed in the Operating and Financial Review, was as follows: Investment

portfolio £000

Special projects

£000

Fund management

£000

Unallocated

£000

Total

£000

Revenue from continuing operations 14,555 19,222 12,899 - 46,676 Cost of sales in respect of continuing operations (3,323) (6,313) (4,350) - (13,986)

Gross profit from continuing operations 11,232 12,909 8,549 - 32,690 Administrative expenses (before exceptional administrative expenses)

- - - (27,972) (27,972)

Exceptional administrative expenses - - - (1,485) (1,485)

Operating profit (loss) before recognition of results from non-current asset sales and revaluation

11,232 12,909 8,549 (29,457) 3,233

(Loss) profit from the sale of non-current property assets

(3,229) 54 (114) - (3,289)

Gain on revaluation of investment properties 121 - 217 - 338 Deficit on revaluation of investment properties (41,858) (2,000) (803) - (44,661) Deficit on revaluation of development properties (2,688) - (2,577) - (5,265) Share of profit (loss) from joint ventures - 5,884 (352) - 5,532 Share of loss from associate - (65) - - (65)

Operating (loss) profit (36,422) 16,782 4,920 (29,457) (44,177) Net finance expenses - - - (10,563) (10,563)

(Loss) profit before tax from continuing operations (36,422) 16,782 4,920 (40,020) (54,740)



The segmental analysis of the Group’s results for the year ended 31 March 2007 was as follows:

Investment portfolio

£000

Special projects

£000

Fund management

£000

Unallocated

£000

Total

£000

Revenue from continuing operations 16,690 19,800 6,936 - 43,426 Cost of sales in respect of continuing operations (4,240) (6,203) (2,099) - (12,542)

Gross profit from continuing operations 12,450 13,597 4,837 - 30,884 Administrative expenses (before exceptional administrative expenses)

- - - (25,819) (25,819)

Exceptional administrative expenses - - - - -

Operating profit (loss) before recognition of results from non-current asset sales and revaluation

12,450 13,597 4,837 (25,819) 5,065

Profit from the sale of non-current property assets 3,461 2,970 1,952 - 8,383 Profit from the sale of shares in subsidiaries - 2,946 3,840 - 6,786 Gain on revaluation of investment properties 10,674 400 1,542 - 12,616 Deficit on revaluation of investment properties (564) - (360) - (924) Deficit on revaluation of development properties - - (182) - (182) Reversal of deficit on revaluation of development properties

87 1,168 - - 1,255

Share of (loss) profit from joint ventures - (803) 23,814 - 23,011 Share of loss from associate - (455) - - (455)

Operating profit (loss) 26,108 19,823 35,443 (25,819) 55,555 Net finance expenses - - - (6,922) (6,922)

Profit (loss) before tax from continuing operations 26,108 19,823 35,443 (32,741) 48,633 Loss from discontinued operations - (48) - - (48)

Profit (loss) before tax attributable to equity shareholders

26,108 19,775 35,443 (32,741) 48,585

The (deficit) gain on revaluation of development properties included in equity was as follows: 2008


£000

2007 Investment

portfolio £000

2008 Special

projects £000

2007 Special projects

£000

2008 Fund

management £000

2007 Fund

management £000

2008 Total

£000

2007 Total

£000

- (1,760) (77,168) 184,543 - (494) (77,168) 182,289

Short leasehold amortisation of £248,000 included in cost of sales (note 2) in 2007 arose in the Special Projects segment in relation to a property which was sold in that year. There was no amortisation in the current year. Depreciation of £622,000 (2007: £472,000) is included in administrative expenses (before exceptional administrative expenses) (note 4) and has not been allocated. The segmental analysis of the Group’s Balance Sheet as at 31 March 2008, which is discussed in the Operating and Financial Review, was as follows: Investment

portfolio £000

Special projects

£000

Fund management

£000

Unallocated

£000

Total

£000

Non-current assets Investment properties 163,349 40,500 16,775 - 220,624 Development properties 15,506 824,280 3,750 - 843,536 Owner-occupied properties, plant and equipment - - - 2,757 2,757 Investment in joint ventures - 79,254 160,086 - 239,340 Investment in associate - - 1,157 - 1,157 Other non-current investments - 15,196 - - 15,196 Non-current receivable - 42,987 - - 42,987

Total non-current assets 178,855 1,002,217 181,768 2,757 1,365,597

Current assets Trading properties - 15,518 - - 15,518 Trade and other receivables 9,955 9,714 17,514 2,434 39,617 Current investments - - - 4 4 Cash and cash equivalents - - - 27,982 27,982

Total current assets 9,955 25,232 17,514 30,420 83,121

Total assets 188,810 1,027,449 199,282 33,177 1,448,718

Current liabilities Trade and other payables (5,808) (18,193) (8,095) (4,258) (36,354) Current tax liability - - - (7,269) (7,269)

Total current liabilities (5,808) (18,193) (8,095) (11,527) (43,623)

Non-current liabilities Bank loans and other borrowings - - - (541,637) (541,637) Deferred tax liability - - - (103,638) (103,638)



Obligations under finance leases (11,727) - - - (11,727) Other payables - (2,392) - - (2,392)

Total non-current liabilities (11,727) (2,392) - (645,275) (659,394)

Total liabilities (17,535) (20,585) (8,095) (656,802) (703,017)

Net assets 171,275 1,006,864 191,187 (623,625) 745,701

Capital expenditure 1,105 166,037 25 - 167,167

The segmental analysis of the Group’s Balance Sheet as at 31 March 2007 was as follows:


£000

Special projects

£000

Fund management

£000

Unallocated

£000

Total

£000

Non-current assets Investment properties 228,053 51,150 9,735 - 288,938 Development properties 24,481 738,524 6,300 - 769,305 Owner-occupied properties, plant and equipment - - - 1,470 1,470 Investment in joint ventures - 42,758 127,341 - 170,099 Investment in associate - - 1,222 - 1,222 Other non-current investments - 3,044 - - 3,044 Non-current receivable - 45,349 - - 45,349

Total non-current assets 252,534 880,825 144,598 1,470 1,279,427

Current assets Trading properties - 5,389 1,442 - 6,831 Trade and other receivables 31,092 31,951 8,417 2,207 73,667 Current investments - - - 4 4 Cash and cash equivalents - - - 36,048 36,048

Total current assets 31,092 37,340 9,859 38,259 116,550

Total assets 283,626 918,165 154,457 39,729 1,395,977

Current liabilities Bank loans and other borrowings - - - (3,000) (3,000) Trade and other payables (10,386) (13,539) (2,950) (10,591) (37,466) Current tax liability - - - (9,216) (9,216)

Total current liabilities (10,386) (13,539) (2,950) (22,807) (49,682)

Non-current liabilities Bank loans and other borrowings - - - (333,924) (333,924) Deferred tax liability - - - (149,620) (149,620) Obligations under finance leases (11,734) - - - (11,734) Other payables - (4,919) - - (4,919) Total non-current liabilities (11,734) (4,919) - (483,544) (500,197)

Total liabilities (22,120) (18,458) (2,950) (506,351) (549,879)

Net assets 261,506 899,707 151,507 (466,622) 846,098

Capital expenditure 27,217 46,714 55,698 - 129,629

4 ADMINISTRATIVE EXPENSES The analysis of the Group’s ongoing administrative expenses was as follows:

2008 £000

2007 £000

Directors’ remuneration 3,829 3,792 Other staff costs 13,784 14,585

Total staff costs 17,613 18,377 Legal and other professional fees 3,632 2,615 Office costs 4,645 3,548 Loss on sale of plant and equipment 2 61 Depreciation of tangible fixed assets 622 472 Operating lease payments 944 880 General expenses 514 493

Total administrative expenses (before exceptional administrative expenses) 27,972 26,446

Continuing operations 27,972 25,819 Discontinued operations (note 7) - 627

27,972 26,446

In addition to the depreciation charge disclosed above, short leasehold amortisation of £nil (2007: £248,000) was charged under cost of sales and shown in note 2. The exceptional expenses of £1,485,000 shown in the Income Statement relate to bid defence fees and fees in relation to advice on the valuation of the Group’s assets in addition to its normal valuation fees.



i) FEES PAID TO AUDITORS AND THEIR AFFILIATES 2008

£000 2007 £000

Fees payable to the Company’s auditor for the audit of the Company’s annual accounts 240 240 Fees payable to the Company’s auditor and its associates for other services: The audit of the Company’s subsidiaries pursuant to legislation 52 64 Other services pursuant to legislation 5 32 Tax services 14 8 Other services 92 40

Fees paid to other accountancy firms, mainly for tax advisory and internal audit services, amounted to £638,000 (2007: £431,000) of which £246,000 of the advisory fees (2007: £140,000) were capitalised. ii) STAFF COSTS Staff costs are included in both cost of sales and administrative expenses. Gross staff costs were as follows:

2008 £000

2007 £000

Wages and salaries 14,272 11,138 Cost relating to share-based payment schemes 2,147 3,718 Movement in provision for national insurance on unexercised share options and rights (1,095) 628 Social security costs 1,442 2,044 Pension costs 1,073 830 Other employment costs 1,224 778

19,063 19,136

Cost of sales 1,450 759 Administrative expenses 17,613 18,377

19,063 19,136

Of the total cost relating to share-based payment schemes, £742,000 (2007: £641,000) related to the Executive Directors’ Performance Share Plan and £1,405,000 (2007: £3,077,000) related to other share-based incentive schemes. Details of directors’ emoluments, pensions and entitlements to share options and rights are contained in the Remuneration Report. Details of directors’ interests in the share capital of the Company are contained in the Report of the Directors. This information forms part of these financial statements. iii) STAFF NUMBERS The average number of persons employed by the Group during the year was as follows:

2008 2007

Property portfolio management and administration 126 120 Leisure operations - 11 Hotel operations 113 68

239 199

Staff are allocated between cost of sales and administrative expenses as follows:

2008 2007

Cost of sales 98 59 Administrative expenses 141 140

239 199

5 NET FINANCE EXPENSES

2008 £000

2007 £000

Interest payable on bank loans and overdrafts 30,205 19,661 Interest payable on other loans 542 857 Loan costs written-off on refinancing 2,798 - Interest on obligations under finance leases 812 865 34,357 21,383 Interest capitalised (12,022) (9,209)

22,335 12,174 Change in fair value of derivative financial instruments (2,221) (1,493) Recycling of swap adjustment 370 -

Finance expenses 20,484 10,681 Finance income: interest receivable (9,921) (3,759)

Net finance expenses 10,563 6,922

The change in the fair value of the Group’s financial instruments in the current year included a gain of £2,149,000 realised on the termination of interest rate swaps (2007: £nil). This amount has been realised as the borrowings on which these interest rate swaps were designated were subject to refinancing during the year. Of interest capitalised in the year, the amount capitalised to development properties was £11,592,000 (2007: £8,980,000), investment properties £nil



(2007: £229,000) and trading properties £430,000 (2007: £nil). The average interest rate used for capitalisation was 7.0% (2007: 6.6%). In accordance with IAS 39, ‘Financial Instruments: Recognition and Measurement’, the Group has reviewed its interest rate hedges in existence as at 31 March 2008 along with those in its joint ventures. As assessed by JC Rathbone Associates Limited, movements in fair value of the elements of those viewed as effective have been recognised through equity while all other movements, including those relating to the ineffective elements of effective hedges, are reflected in the Income Statement. 6 TAX i) TAX (CREDIT) CHARGE ON (LOSS) PROFIT

2008 £000

2007 £000

UK current tax at 30% (2007: 30%) - 3,207 Adjustment to prior years’ UK corporation tax (2,439) 1,382

(2,439) 4,589 Overseas tax 334 3,758

Total current tax (credit) charge (2,105) 8,347

Deferred tax: On investment properties (10,211) 44 On derivative financial instruments 1,384 (450) On other temporary differences (3,684) (2,004)

Total deferred tax credit (12,511) (2,410)

Tax (credit) charge (14,616) 5,937

ii) TAX RECONCILIATION

2008 £000

2007 £000

(Loss) profit before tax (54,740) 48,633 Tax applied at UK corporation tax rate of 30% (16,422) 14,590 Locked-in capital allowances (543) (1,984) Use of losses and differing tax rates in respect of overseas results 321 83 Use of tax losses - (1,265) Indexation relief on UK investment properties (1,012) (2,194) Adjustment to prior years’ current and deferred tax (1,527) 1,883 Tax charge taken to share of income from joint ventures and associate 1,100 (6,643) Effect of rate change on deferred tax (1,024) - Other movements 4,491 1,467

Tax (credit) charge (14,616) 5,937

iii) TAX RECOGNISED DIRECTLY IN EQUITY

2008 £000

2007 £000

Deferred tax (credit) charge on revaluation of development properties (32,957) 43,116 Deferred tax (credit) charge on effective element of interest rate swaps (125) 2,114

(33,082) 45,230

iv) DEFERRED TAX MOVEMENTS

1 April 2007 £000

Transfer to joint venture

£000

Acquired balance

£000

Recognised in income

£000

Recognised in equity

£000

31 March 2008 £000

Capital gains less capital losses 148,417 (1,750) 1,361 (10,212) (32,957) 104,859 Capital allowances 3,886 - - 2,314 - 6,200 Derivative financial instruments (1,322) - - 1,384 (125) (63) Other temporary differences 1,059 - - (814) - 245 Revenue tax losses (2,420) - - (5,183) - (7,603) Deferred tax provision 149,620 (1,750) 1,361 (12,511) (33,082) 103,638

Deferred tax assets estimated at £10,759,000 (2007: £11,528,000) have not been recognised due to a higher degree of uncertainty over both the amount and timing of the utilisation of the underlying tax losses, which amounted to £38,425,000 (2007: £38,427,000). Under current tax legislation, there is no expiry date associated with the unprovided deferred tax assets. There were no temporary differences associated with investments in subsidiaries and interests in joint ventures and the associate for which deferred tax liabilities have not been recognised. v) TOTAL TAX (CREDIT) CHARGE The tax (credit) charge recognised in these financial statements was as follows:



2008£000

2007 £000

Tax (credit) charge on profit as above (14,616) 5,937 Tax credit on discontinued operations - (14) Tax (credit) charge on share of profit in joint ventures (note 12i(c)) (1,027) 9,686 Tax credit on share of profit in associate (60) (195) Tax (credit) charge on income and expenses recognised directly in equity (33,082) 45,230 Tax (credit) charge on share of income and expenses in joint ventures recognised directly in equity (273) 234

(49,058) 60,878

7 DISCONTINUED OPERATIONS In 2005, the decision taken by the Board to cease to be involved in the business of operating the Arena as well as to terminate its conference and exhibition activities at Wembley led to the classification of the results from these operations, which together constituted the Group’s leisure activities, as discontinued. The Arena has been leased to a third party as from April 2006 with the income generated being shown as rent while the Conference Hall and Exhibition Centres, which ceased to trade by July 2006, have been demolished prior to the redevelopment of the sites. As a consequence, the results from the Arena, Conference Hall and Exhibition Centres at Wembley were classified in the 2007 financial statements as discontinued. The breakdown of the numbers disclosed in the Income Statement in relation to these activities was as follows:

2007 £000

Revenue 1,295 Cost of sales (716)

Gross profit 579 Administrative expenses (627)

Loss before tax on discontinued operations (48) Tax credit 14

Loss after tax on discontinued operations (34)

The impact upon cashflow of discontinued operations was as follows:

2007 £000

Loss after tax on discontinued operations as above (34) Decrease in provision for reorganisation costs, net of tax (455)

Net cashflow from discontinued operations included in net cashflow from operating activities (489)

There was no impact on earnings per share in either year. 8 EARNINGS PER SHARE AND NET ASSET VALUE PER SHARE i) EARNINGS PER SHARE a) From continuing operations

2008 Loss after tax

and before discontinued

operations £000

2008 Weighted

average number of

shares 000

2008 Earnings per share

pence

2007 Profit after tax

and before discontinued

operations £000

2007 Weighted

average number of

shares 000

2007 Earnings per

share

pence

Basic (40,124) 128,184 (31.3) 42,696 128,169 33.3

Adjustments: Interest on 8% convertible unsecured loan stock - - 243 2,000 Employee share-based payment schemes - - - 1,225

Diluted (40,124) 128,184 (31.3) 42,939 131,394 32.7



b) From total operations 2008

Loss after tax and after

discontinued operations

£000

2008 Weighted

average number of

shares 000

2008 Earnings per share

pence

2007 Profit after tax

and after discontinued

operations £000

2007 Weighted

average number of

shares 000

2007 Earnings per

share

pence

Basic (40,124) 128,184 (31.3) 42,662 128,169 33.3

Adjustments: Interest on 8% convertible unsecured loan stock - - 243 2,000 Employee share-based payment schemes - - - 1,225

Diluted (40,124) 128,184 (31.3) 42,905 131,394 32.7

ii) NET ASSET VALUE PER SHARE

2008 Equity

shareholders’ funds £000

2008 Number of

shares

000

2008 Net asset

value per share

pence

2007 Equity

shareholders’ funds £000

2007 Number

of shares

000

2007 Net asset value per

share pence

Basic 745,701 127,790 584 846,098 128,199 660

Adjustments: Employee share-based payment schemes 9,156 2,807 9,642 2,520

Diluted 754,857 130,597 578 855,740 130,719 655

The number of shares in issue has been adjusted for the 2,139,973 (2007: 1,627,414) shares held by ESOP Trusts and by the Group as treasury shares. Although not required under IFRS, net asset value per share is considered a key performance indicator in the sector in which the Group operates. Entitlements under the Executive Directors’ Performance Share Plan have been excluded from the calculation in both i) and ii) above as the commitments relate to contingently issuable shares where the conditions had not been met at the balance sheet date. 9 DIVIDENDS The proposed final dividend of 8.50 pence per share (2007: 8.25 pence per share) was approved by the Board on 5 June 2008 and is payable on 8 September 2008 to shareholders on the register at the close of business on 25 July 2008. The dividend has not been included as a liability as at 31 March 2008. The total dividend for the year ended 31 March 2008 amounts to 12.25 pence per share (2007: 11.75 pence per share). The dividend of £15,366,000 included in the Reconciliation of Equity in note 22 comprises the 2007 final dividend of £10,576,000, which was paid on 7 September 2007, together with the interim dividend of £4,790,000 paid on 18 January 2008. 10 INVESTMENT AND DEVELOPMENT PROPERTIES The movements in the year in investment and development properties were as follows: Investment

properties Freehold

£000

Investment properties

Long leasehold

£000


Short leasehold

£000


Total

£000

Development properties Freehold

£000

Development properties

Long leasehold

£000


Short leasehold

£000


Total

£000

Cost or valuation: Balance 1 April 2006 190,860 89,165 10,063 290,088 544,337 49,189 5,929 599,455 Transfer between categories 18,804 2,899 - 21,703 (16,338) (5,365) - (21,703) Foreign exchange movement (259) - - (259) - - - - Transfer to joint ventures (10,154) (2,899) - (13,053) (16,672) - - (16,672) Additions 26,877 3,912 - 30,789 97,650 1,023 167 98,840 Interest capitalised 229 - - 229 8,865 115 - 8,980 Disposals (34,560) (17,256) - (51,816) (56,885) (19,976) (5,848) (82,709) Short leasehold amortisation - - - - - - (248) (248) Revaluation surplus (deficit) 6,504 4,601 152 11,257 183,867 (505) - 183,362

Balance 31 March 2007 198,301 80,422 10,215 288,938 744,824 24,481 - 769,305 Transfers between categories 8,479 - - 8,479 (8,479) - - (8,479) Transfer to joint venture - - - - (6,250) - - (6,250) Additions 369 621 - 990 166,090 87 - 166,177 Interest capitalised - - - - 11,592 - - 11,592 Disposals - (33,461) - (33,461) - (6,375) - (6,375) Revaluation deficit (30,239) (11,568) (2,515) (44,322) (79,747) (2,687) - (82,434)

Balance 31 March 2008 176,910 36,014 7,700 220,624 828,030 15,506 - 843,536



Of the additions shown above, £128,640,000 (2007: £92,388,000) related to acquisition of properties with £39,331,000 (2007: £37,241,000) representing expenditure on improvements to existing properties. During the year, the Group through its joint venture Meridian Delta Dome Limited, was granted a lease over the Millennium Dome at Greenwich and transferred its share of the interest in this asset previously shown as part of the overall valuation of its Greenwich property to its investment in joint ventures (note 12ia). Under the cost model, the historical cost of the Group’s investment properties as at 31 March 2008 was £213,391,000 (2007: £234,322,000) and included capitalised interest of £1,050,000 (2007: £933,000). Under the cost model, the historical cost of the Group’s development properties as at 31 March 2008 representing the cost of assets in the course of construction was £424,758,000 (2007: £256,354,000) and included capitalised interest of £34,308,000 (2007: £22,833,000). The average rate used for capitalisation is shown in note 5. All of the Group’s properties were externally valued as at 31 March 2008 on the basis of market value by professionally qualified valuers in accordance with the Appraisal and Valuation Standards of the Royal Institution of Chartered Surveyors. The Group’s land holdings in Greenwich and the Wembley development have been valued by Savills Commercial Limited. The discount rates which have been applied in relation to these developments were 12% and 10% respectively. Savills have also valued the Group’s property at Silvertown. Other properties in the United Kingdom have been valued by Jones Lang LaSalle Limited and Christie + Co. The Group’s properties in the Channel Islands have been valued by Guy Gothard & Co. A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the Balance Sheet was as follows: 2008


£000

2008 Development

properties £000

2008 Total

£000

2007 Investment properties

£000

2007 Development

properties £000

2007 Total

£000

Investment and development properties at market value as determined by valuers 219,144 833,860 1,053,004 287,374 759,588 1,046,962 Adjustment in respect of rent-free periods and other tenant incentives (486) (105) (591) (402) (64) (466) Adjustment in respect of minimum payment under head leases separately included as a liability in the Balance Sheet 1,966 9,781 11,747 1,966 9,781 11,747

As shown in the Balance Sheet 220,624 843,536 1,064,160 288,938 769,305 1,058,243

The percentage of investment and development properties valued by each of the principal valuers was as follows:

2008 Per valuers’

reports

£000

2008 Adjustment for

properties held in joint ventures

and the associate £000

2008 Properties held as

investment and development properties

£000

2008 Percentage

valued by each valuer

%

2007 Percentage valued by

each valuer

%

Savills Commercial Limited 891,650 (66,721) 824,929 78.3 70.3 Jones Lang LaSalle Limited 213,100 (1,475) 211,625 20.1 28.2 Other valuers 16,450 - 16,450 1.6 1.5

1,121,200 (68,196) 1,053,004 100.0 100.0

Copies of the valuation reports of Savills Commercial Limited and Jones Lang LaSalle Limited are included in the annual report. The split of the valuation of the Group’s investment and development properties by sector was as follows:


£000

2008 Development

properties £000

2008 Total

£000


£000

2007 Development

properties £000

2007 Total

£000

Healthcare 9,975 - 9,975 9,735 - 9,735 Hotels 4,202 10,582 14,784 4,700 10,580 15,280 Industrial 50,032 115,895 165,927 46,059 81,223 127,282 Land 40,500 568,085 608,585 - 615,088 615,088 Leisure 726 - 726 43,316 - 43,316 Offices 101,509 28,504 130,013 167,493 33,633 201,126 Retail 12,495 116,720 129,215 16,035 22,481 38,516 Other 1,185 3,750 4,935 1,600 6,300 7,900 Total 220,624 843,536 1,064,160 288,938 769,305 1,058,243

This analysis is provided for information only as it does not form part of the disclosure for purposes of segmental reporting. 11 OWNER-OCCUPIED PROPERTIES, PLANT AND EQUIPMENT



Long leasehold

£000

Short leasehold

£000

Fixtures, fittings & equipment

£000

Total

£000

Cost: Balance 1 April 2006 - 271 1,746 2,017 Additions - - 1,010 1,010 Disposals - (271) (1,007) (1,278)

Balance 31 March 2007 - - 1,749 1,749 Additions 727 - 1,182 1,909 Disposals - - (69) (69)

Balance 31 March 2008 727 - 2,862 3,589

Depreciation: Balance 1 April 2006 - (271) (804) (1,075) Charge for year - - (472) (472) Disposals - 271 997 1,268

Balance 31 March 2007 - - (279) (279) Charge for year - - (622) (622) Disposals - - 69 69

Balance 31 March 2008 - - (832) (832)

Net book value: 31 March 2008 727 - 2,030 2,757

31 March 2007 - - 1,470 1,470 31 March 2006 - - 942 942 12 NON-CURRENT INVESTMENTS i) INVESTMENT IN JOINT VENTURES a) The movement in investment in joint ventures was as follows:

Share of net assets £000

Advances

£000

Total

£000

Balance 1 April 2006 44,692 75,384 120,076 Additions 1,179 - 1,179 Transfer of interests from subsidiaries (note 28) 4,573 10,426 14,999 Amounts advanced - 18,688 18,688 Distributions (8,400) - (8,400) Share of profit, net of tax 23,011 - 23,011 Share of effective portion of changes in fair value of cashflow hedges, net of tax 546 - 546

Balance 31 March 2007 65,601 104,498 170,099 Transfer from development properties (note 10) 6,250 - 6,250 Deferred tax on transfer (1,750) - (1,750) Transfer to trading properties (159) (1,850) (2,009) Additions 500 - 500 Amounts advanced - 64,718 64,718 Amount written-off (168) - (168) Distributions (3,130) - (3,130) Share of profit, net of tax 5,532 - 5,532 Share of effective portion of changes in fair value of cashflow hedges, net of tax (702) - (702)

Balance 31 March 2008 71,974 167,366 239,340

b) The Group’s interest in its joint ventures was as follows: % of

share capital held Country of

incorporation Joint venture partner

Quercus Healthcare Property Unit Trust (Quercus) 26.92 Channel Islands Norwich Union Life & Pensions Limited Greenwich Peninsula Regeneration Limited (GPRL) 50.00 United Kingdom Lend Lease Europe Limited Meridian Delta Dome Limited (MDDL) 49.00 United Kingdom Lend Lease Europe Limited Greenwich Peninsula N0204 Blocks A&B Unit Trusts (Greenwich Peninsula N0204)

50.00 Channel Islands Lend Lease N0204 Block A Limited/ Lend Lease N0204 Block B Limited

iQ Unit Trust (iQ) 50.00 Channel Islands Wellcome Trust Investment Limited Partnership

Quantum Unit Trust (Quantum) 50.00 Channel Islands CGNU Life Assurance Limited Quintessential Homes (Wembley) LLP (Quintessential) 50.02 United Kingdom Geninvest Limited

Family Housing Development Company Limited

BioRegional Quintain Limited (BioRegional Quintain) 49.90 United Kingdom BioRegional Properties Limited South East Properties (Redhill) Limited 50.00 United Kingdom South East Properties Limited

c) The Group’s share of the results of its joint venture operations was as follows:



Summarised income statements for the year ended 31 March 2008

Quercus

£000

GPRL/ MDDL

£000

Greenwich Peninsula

N0204

£000

iQ

£000

Quantum

£000

Quintessential

£000

BioRegionalQuintain

£000

Other joint

ventures

£000

Group share

in joint ventures

£000

Rents receivable 14,426 479 - 2,341 82 - - - 17,328 Other income - 70 - - - - 54 - 124

Revenue 14,426 549 - 2,341 82 - 54 - 17,452 Cost of sales - (64) - (795) (10) - (26) (76) (971)

Gross profit 14,426 485 - 1,546 72 - 28 (76) 16,481 Administrative expenses (2,355) (482) (13) (1,344) (43) (74) (315) (270) (4,896)

Operating profit (loss) 12,071 3 (13) 202 29 (74) (287) (346) 11,585 Profit from sale of non- current property assets 185 - - - - - - - 185 (Deficit) gain on revaluation of investment properties (8,360) 9,626 - (55) (277) - - - 934

Profit (loss) before net finance expenses and taxation 3,896 9,629 (13) 147 (248) (74) (287) (346) 12,704 Finance expenses (6,021) - - (2,501) - (50) (222) (2) (8,796) Finance income 304 2 - 135 63 84 8 1 597

(Loss) profit before taxation (1,821) 9,631 (13) (2,219) (185) (40) (501) (347) 4,505 Taxation 2,490 (2,846) - 1,370 13 - - - 1,027

Profit (loss) after taxation 669 6,785 (13) (849) (172) (40) (501) (347) 5,532

Share of recognised income and expense recognised directly in equity

353

-

- 349

- - -

-

702

Summarised balance sheets as at 31 March 2008

Quercus

£000

GPRL/MDDL

£000

Greenwich Peninsula

N0204

£000

iQ

£000

Quantum

£000

Quintessential

£000

BioRegionalQuintain

£000

Other joint

ventures

£000

Group share

in joint ventures

£000

Investment properties 235,285 15,876 12,337 66,617 4,548 - - - 334,663 Other non-current assets - 260 - - - - 1,457 - 1,717 Trading properties - 32,193 - - - 25,169 1,717 - 59,079 Other assets 10,873 10,300 - 2,183 470 2,461 7,197 3,358 36,842

Gross assets 246,158 58,629 12,337 68,800 5,018 27,630 10,371 3,358 432,301 Current liabilities: Bank loans and other borrowings - - - - - (5,584) - - (5,584) Current tax (1,338) (74) - - (28) - - - (1,440) Non-current liabilities: Bank loans and other borrowings (103,567) - - (34,159) - - - - (137,726) Deferred tax liability (9,324) (4,523) - (328) 41 - - (318) (14,452) Other liabilities (8,773) (4,468) - (2,037) (377) (16,426) (1,213) (465) (33,759)

Net external assets 123,156 49,564 12,337 32,276 4,654 5,620 9,158 2,575 239,340

Represented by: Capital 49,614 12,345 3 3,230 (196) 5,620 (826) 2,184 71,974Loans 73,542 37,219 12,334 29,046 4,850 - 9,984 391 167,366

Total investment 123,156 49,564 12,337 32,276 4,654 5,620 9,158 2,575 239,340



Summarised income statements for the year ended 31 March 2007

Quercus

£000

Meridian Delta

£000

iQ

£000

Quantum

£000

Quintessential

£000

BioRegional Quintain

£000

Quintain Birmingham

£000

Other joint

ventures

£000

Group share

in joint ventures

£000

Rents receivable 10,669 - 38 - - - - - 10,707 Other income - - - - - - - (6) (6)

Revenue 10,669 - 38 - - - - (6) 10,701 Cost of sales - - (11) - - - - - (11)

Gross profit 10,669 - 27 - - - - (6) 10,690 Administrative expenses (1,608) (235) (88) (32) (85) (271) (23) 9 (2,333)

Operating profit (loss) 9,061 (235) (61) (32) (85) (271) (23) 3 8,357 Share of gain on revaluation of investment properties

21,717

-

6,199

-

-

-

-

-

27,916

Profit (loss) before net finance expenses and taxation 30,778 (235) 6,138 (32) (85) (271) (23) 3 36,273 Finance expenses (3,674) (16) (9) - - (93) - (13) (3,805) Finance income 171 - - - 34 2 - 22 229

Profit (loss) before taxation 27,275 (251) 6,129 (32) (51) (362) (23) 12 32,697 Taxation (7,725) - (1,833) - - - - (128) (9,686)

Profit (loss) after taxation 19,550 (251) 4,296 (32) (51) (362) (23) (116) 23,011

Share of recognised income and expense recognised directly in equity 546 - - - - - - - 546

Summarised balance sheets as at 31 March 2007

Quercus

£000

Meridian Delta

£000

iQ

£000

Quantum

£000

Quintessential

£000

BioRegional Quintain

£000

Quintain Birmingham

£000

Other joint

ventures

£000

Group share in

joint ventures

£000

Investment properties 203,051 - 31,600 - - - - - 234,651 Other non-current assets - - - - - - - 2,812 2,812 Trading properties - 30,686 - - 10,470 952 1,655 102 43,865 Other assets 7,112 2,438 1,537 449 - 1,403 271 667 13,877

Gross assets 210,163 33,124 33,137 449 10,470 2,355 1,926 3,581 295,205 Current liabilities: Bank loans and other borrowings - - (16,000) - - - - - (16,000) Current tax liability (1,353) - - - - - - - (1,353) Non-current liabilities: Bank loans and other borrowings (76,366) - - - - - - - (76,366) Deferred tax liability (11,951) - (1,833) - - - - (318) (14,102) Other liabilities (7,864) (2,057) (581) (460) (4,835) (834) (66) (588) (17,285)

Net external assets 112,629 31,067 14,723 (11) 5,635 1,521 1,860 2,675 170,099

Represented by: Capital 52,349 825 4,297 (11) 5,635 (332) 163 2,675 65,601 Loans 60,280 30,242 10,426 - - 1,853 1,697 - 104,498

Total investment 112,629 31,067 14,723 (11) 5,635 1,521 1,860 2,675 170,099

During the year, the remaining 50% of the shares in Countryside Quintain Birmingham Limited (Quintain Birmingham) were acquired by the Group (note 27) and the Group’s investment in Meridian Delta Limited was exchanged for an investment in Greenwich Peninsula Regeneration Limited (GPRL). Details of the floating rate debt within Quercus and iQ and of interest rate swaps entered into by the former are given in note 21iii.



The valuation of properties held within Quercus as at 31 March 2008 has been based on the exercise carried out by Christie + Co, Chartered Surveyors, as external valuers, on the basis of market value and in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. Properties within the Greenwich joint ventures and the iQ Unit Trust were valued by Savills Commercial Limited and within the Quantum Unit Trust by CBRE Richard Ellis. The Quercus and Quantum joint ventures have accounting periods ending on 31 December. The Group’s share of their results for the remainder of the financial year has been based on their management accounts. d) The summarised financial statements of the Group’s principal joint venture operations were as follows:

2008 Quercus

£000

2007 Quercus

£000

2008 GPRL/ MDDL

£000

2007 Meridian

Delta

£000

2008 Greenwich

Peninsula N0204

£000

2008 iQ

£000

2007 iQ

£000

Income statements Revenue 51,812 116,433 20,765 - - 4,682 12,475 Expenses (58,270) (18,039) (1,110) (511) (26) (9,120) (217)

Loss (profit) before taxation (6,458) 98,394 19,655 (511) (26) (4,438) 12,258

Balance sheets Non-current assets 874,015 726,220 32,931 - 34,948 133,234 63,201 Current assets 40,390 25,436 86,719 67,600 5,424 4,366 3,073

Total assets 914,405 751,656 119,650 67,600 40,372 137,600 66,274 Current liabilities (37,555) (75,708) (9,269) (4,198) (15,698) (4,074) (36,828) Non-current liabilities (419,361) (273,126) (9,230) - - (68,975) -

Net external assets 457,489 402,822 101,151 63,402 24,674 64,551 29,446

Percentage share held by Group 26.92% 27.96% 49.00% 49.00% 50.00% 50.00% 50.00%

Group share of net external assets 123,156 112,629 49,564 31,067 12,337 32,276 14,723

2008 Quantum

£000

2007 Quantum

£000

2008 Quintessential

£000

2007 Quintessential

£000

2008 BioRegional

Quintain £000

2007 BioRegional

Quintain £000

2007 Quintain

Birmingham £000

Income statements Revenue 164 - - 67 108 100 - Expenses (534) (63) (79) (169) (1,112) (825) (45)

Loss before taxation (370) (63) (79) (102) (1,004) (725) (45)

Balance sheets Non-current assets 9,096 - - - 2,920 - - Current assets 940 898 55,239 16,302 17,863 4,720 3,852

Total assets 10,036 898 55,239 16,302 20,783 4,720 3,852 Current liabilities (810) (920) (44,003) (5,037) (2,430) (1,671) (132) Non-current liabilities 82 - - - - - -

9,308 (22) 11,236 11,265 18,353 3,049 3,720

Percentage share held by the Group 50.00% 50.00% 50.02% 50.02% 49.90% 49.90% 50.00%

Group share of net external assets 4,654 (11) 5,620 5,635 9,158 1,521 1,860

ii) INVESTMENT IN ASSOCIATE a) The movement in the investment in the associate was as follows: £000

Balance 1 April 2006 1,677 Share of loss, net of tax (455)

Balance 31 March 2007 1,222 Share of loss, net of tax (65)

Balance 31 March 2008 1,157



b) The Group’s interest in its associate undertaking was as follows: % of equity held Other member

Aqua Trust 50 Norwich Union

Annuity Limited

The principal asset of the associate consists of a reversionary interest in three properties, which has been valued as at 31 March 2008 by Jones Lang LaSalle Limited. c) The Group’s share of the summarised income statement for the associate for the year ended 31 March 2008 was as follows: 2008

£000 2007 £000

Share of loss on revaluation of investment properties (125) (650) Deferred tax credit for the year 60 195

Loss after taxation (65) (455)

d) The Group’s share of the summarised balance sheet for the associate as at 31 March 2008 was as follows: 2008

£000 2007 £000

Investment properties 1,475 1,600 Deferred tax liability (318) (378)

Net external assets 1,157 1,222

Represented by: Capital 1,157 1,222

iii) The movement in other non-current investments, all of which have been classified as available for sale, was as follows: £000

Cost 1 April 2006 3,348 Impairment (632)

Net book value 1 April 2006 2,716 Additions 1,248 Disposals (38) Deficit on revaluation (882)

Fair value 31 March 2007 3,044 Additions 11,395 Gain on revaluation 757

Fair value 31 March 2008 15,196

During the year, the Group invested in the Iceberg Alternative Real Estate II Fund, which is listed on the Irish Stock Exchange, and in the Ludgate Environmental Fund, which is listed on AIM. The Group added to its investment in Serrastone SA, a company based in France, which is researching and developing a substitute for natural stone for building purposes. The investment in Serrastone SA is shown at a directors’ valuation. 13 NON-CURRENT RECEIVABLE The non-current receivable, which is secured, carries a coupon of LIBOR plus 2.5% and has a maximum term of 16 years. This receivable is shown in the Balance Sheet at amortised cost. Further details are given in note 20. 14 TRADING PROPERTIES As at 31 March 2008, two properties are held for resale and are shown at the lower of cost and net realisable value and include capitalised interest of £430,000 (2007: £nil). As at that date, trading properties were fair valued by the Directors at £15,518,000 (2007: £10,300,000). 15 TRADE AND OTHER RECEIVABLES

2008 £000

2007 £000

Trade receivables 20,660 12,175 Other receivables 6,898 7,047 Amounts due under contracts for sale 6,500 51,275

Trade and other receivables 34,058 70,497 Prepayments and accrued income 5,559 3,170

39,617 73,667



The aging of trade and other receivables was as follows: 2008

Gross £000

2008 Impairment

£000

2008 Net

£000

2007 Gross £000

2007 Impairment

£000

2007 Net

£000

Not past due 32,755 (250) 32,505 66,402 - 66,402 Past due less than one month 280 - 280 3,576 - 3,576 Past due one month to three months 1,068 (68) 1,000 232 (21) 211 Past due three to six months 264 (161) 103 159 - 159 Past due over six months 225 (55) 170 168 (19) 149

34,592 (534) 34,058 70,537 (40) 70,497

The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows: £000 Balance as at 1 April 2007 40 Amounts written-off in year (24) Increase in allowance 518 Balance 31 March 2008 534

16 CURRENT INVESTMENTS

2008 £000

2007 £000

Treasury stock 4 4

The nominal value of the Treasury stock as at 31 March 2008 was £4,000 (2007: £4,000). 17 TRADE AND OTHER PAYABLES 2008

£000 2007 £000

Trade payables 2,809 6,751 Other payables 10,963 7,535 Accruals 22,536 18,774 Interest rate swaps 46 4,406

36,354 37,466

18 BANK LOANS AND OTHER BORROWINGS

2008 £000

2007 £000

Current liabilities: Other loan - 3,000

Non-current liabilities: Bank loans 536,830 329,054 10% First Mortgage Debenture Stock 2011 (secured) 4,807 4,870

541,637 333,924

Total borrowings 541,637 336,924

The loans are secured by floating charges over assets owned by subsidiary undertakings. The 10% First Mortgage Debenture Stock 2011 issued by Estates Property Investment Company Limited is secured by a cash deposit of £9,234,000 and has a redemption value of £4,617,000. The premium over par arising from fair valuing the debenture on acquisition is amortised over its remaining life. The maturity profile of the Group’s debt was as follows:

2008 Bank loans

and overdrafts

£000

2008 Other loans

£000

2008 Total debt

£000

2007 Total debt

£000

2008 Undrawn

facilities

£000

2007 Undrawn

facilities

£000

Within one year - - - 3,000 - - From two to five years 219,031 4,807 223,838 333,924 5,000 164,000 After five years 317,799 - 317,799 - 75,500 -

536,830 4,807 541,637 336,924 80,500 164,000



After taking account of interest rate swap arrangements, the risk profile of the Group’s borrowings was as follows: 2008

Fixed or capped

£000

2008 Floating

£000

2008 Total debt £000

2007 Fixed

£000

2007 Floating

£000

2007 Total debt

£000

Sterling 429,807 111,830 541,637 164,877 172,047 336,924

The interest rate profile of the Group’s fixed or capped rate debt was as follows: Percent 2008

£000 2007 £000

4.0 – 5.0 100,000 - 5.0 – 6.0 100,000 157,007 6.0 – 7.0 225,000 - 7.0 – 8.0 - 3,000 9.0 – 10.0 4,807 4,870

429,807 164,877

The weighted average rate and the weighted average period of the Group’s fixed rate debt were as follows: 2008

% 2007

% 2008

years 2007 years

Sterling 6.0 5.6 5 6

The maturity profile of the Group’s share of floating rate debt held within its joint ventures as at 31 March 2008 was as follows:

2008 £000

2007 £000

Within one year 5,584 16,000 From two to five years 34,159 - After five years 103,567 76,366

143,310 92,366

19 OBLIGATIONS UNDER FINANCE LEASES The Group has entered into a number of leases in relation to its investment and development properties, the carrying amounts of which are disclosed in note 10. These leases are for fixed terms and subject to regular rent reviews. They contain no material provisions for contingent rents, renewal or purchase options and escalation clauses or any restrictions outside of the normal lease terms. Finance lease obligations in respect of rents payable on leasehold properties were payable as follows: 2008

Minimum lease

payments £000

2008 Interest

£000

2008 Present value

of minimum lease payments

£000

2007 Minimum

lease payments

£000

2007 Interest

£000

2007 Present value of minimum

lease payments £000

Within one year 819 (812) 7 815 (809) 6 From two to five years 3,277 (3,243) 34 3,277 (3,245) 32 From five to 25 years 16,387 (15,974) 413 16,387 (16,002) 385 After 25 years 42,751 (31,478) 11,273 43,628 (32,317) 11,311

63,234 (51,507) 11,727 64,107 (52,373) 11,734

20 FINANCIAL ASSETS AND LIABILITIES OVERVIEW The Group is exposed to the following types of risk from its use of financial instruments: Credit risk Liquidity risk Market risk This note presents information about the nature of the Group’s exposure, its objectives, policies and processes for measuring and managing risk and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. The Board of Directors has overall responsibility for the establishment and overview of the Group’s risk management framework. The Board has established a Risk Committee which meets four times a year and is responsible for developing and monitoring the Group’s risk management policies. The Committee reports regularly to the Board in relation to its activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risks limits and controls and to monitor risks and adherence to limits. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.



The Group’s Audit Committee oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group. The Group Audit Committee is assisted in its oversight role by Internal Audit. This function is currently outsourced to Grant Thornton UK LLP. Internal Audit undertakes both regular and ad hoc reviews of risk management control and procedures, the results of which are reported to the Audit Committee. Credit risk The Group’s exposure to credit risk arises from the potential financial loss if a tenant or counterparty to a financial instrument fails to meet its contractual obligations. It relates principally to the Group’s receivables from tenants and other third parties. Counterparties to financial instruments all have at least an AA- rating by Standard & Poor’s. Non-current receivable In 2007, the Company took the strategic decision to invest in a corporate loan to a private company in order to advance the strength of the Group’s position in relation to one of its own properties. The Company paid £53.2 million plus legal costs and arrangement fees for the loan which has a maximum term of 16 years but can be repaid in full or in part at the issuer’s option at any time. Interest is payable on the roll-over dates at Libor plus 2.5%. The borrower has met all its interest payments to date and has repaid capital of £7,851,000 in 2006/07 and £2,362,000 in 2007/08. The loan is secured on a property asset with a commercially acceptable loan to value ratio. Whilst the loan represents a concentration of risk in a single counterparty, the Group has no reason to believe that it will not be repaid in full. Trade and other receivables The Group’s activities are focused exclusively in Great Britain and the Channel Islands and within this geographical area, its exposure to credit risk arising from trade and other receivables is influenced by the individual characteristics of each tenant. As at 31 March 2008, the Group’s 20 largest tenants within its directly held properties and its joint ventures account for 36.0% (2007: 41.5%) of the passing rents from these properties. The Group operates a policy whereby the creditworthiness of each tenant is assessed prior to lease or pre-lease terms being agreed. The process includes seeking external ratings where available and reviewing financial information in the public domain. In certain cases, the Group will require collateral to support these lease obligations. This usually takes the form of a rent deposit, parent company guarantee or a bank guarantee. Rent collection is outsourced to managing agents who report regularly on payment performance and provide the Group with intelligence on the continuing financial viability of tenants. Arrears are monitored internally on a weekly basis by the internal property management teams and a strategy for dealing with significant potential defaults is presented on a timely basis by the Head of the Investment Portfolio or the property managers of the Group’s various joint ventures to the weekly meeting of the Executive Directors. Outstanding tenant balances are reviewed on a quarterly basis for impairment with an allowance of £518,000 being made in the current year (2007: £142,000) as shown in note 2. In addition to input from its managing agents, the Quercus fund uses an external organisation for monitoring the credit strength of its healthcare tenants. In relation to iQ, the Student Accommodation Fund in which the Group has a 50% interest, rents are either guaranteed by the universities or collected in advance of each term from students. Guarantees Where Group companies enter into financial guarantee contracts to guarantee the indebtedness of obligations of other companies within the Group, the guarantee contract is treated as a contingent liability until such time as it becomes probable that the guarantor will be required to make a payment under the guarantee. In the current and comparative periods, such guarantees did not have any impact on the financial statements. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. Cash levels are monitored to ensure sufficient resources are available to meet the Group’s operational requirements. The Group has a £20 million working capital facility to manage day-to-day cash movements. Surplus cash is used to reduce debt. The Group’s policy is to finance its activities using equity and medium term debt, the proportions depending on the profile of the operational and financial risks to the business. The Group generally borrows on an unsecured basis on the strength of its convenant but with floating charges over the shares of its subsidiaries. During the year, the Group terminated its existing bank facilities and refinanced these with a new £620 million facility with a number of relationship banks with an average maturity of 5.5 years and an interest rate of LIBOR plus a margin of 115 basis points, an increase of 20 basis points over the original facility. Since the year end, available facilities have increased to £715 million. The key elements of the refinancing were the removal of a covenant limiting investment in joint ventures to 50% of net assets, an amendment to the interest cover covenant allowing a deduction for capitalised interest in arriving at the amount of interest to be covered and a ceiling of 110% to gearing based on net assets as shown on the Group’s Balance Sheet as adjusted by deferred tax on revaluation and on the marking-to-market of financial instruments. Interest cover is reviewed by the Board on a regular basis to monitor compliance with banking covenants. To ensure compliance, the Board would identify property sales in order to release historic revaluation surpluses and in addition, identify and manage discretionary expenditure. Market risk In relation to the Group, market risk arises mainly from the impact that changes in interest rates might have on the Group’s cost of borrowing. The weighted average rate of interest of the Group’s debt as at 31 March 2008 was 7.0% (2007: 6.6%). The Group does not speculate in treasury products but uses these only to limit potential interest rate fluctuations. It usually borrows at floating rates of interest and uses hedging instruments to achieve an interest rate profile where the majority of borrowings are fixed or capped. As at 31 March 2008, 83.7% (2007: 54.8%) of the Group’s net debt was fixed or protected.



With the intention of taking advantage of a fall in interest rates, all the Group’s interest rate swaps in existence at the start of the year were cancelled and replaced with £225 million of interest rate caps at 6.5% with a maturity date of April 2013. During the year, these were augmented by a further £50 million of caps at rates between 5.50% and 5.75% with a maturity date of January 2013. The cost of the caps is being amortised over the period of their life through the Income Statement which also reflects a negative mark-to-market adjustment of £403,000. Further information on the Group’s interest rate caps is given in note 21. During the year, the Group purchased £150 million of interest rate swaps with a maturity date of January 2013 and an average swap rate of 4.97%. One of these, a swap for £50 million, has a start date of 3 April 2008. Further information on the Group’s interest rate swaps is given in note 21. The Group is also exposed to market rate risk through the activities of its joint ventures, which borrow at variable rates and use financial instruments to safeguard against market movements in rates. This is disclosed in note 21 in respect of the Group’s interests in its Quercus and iQ Funds. In addition, the Group has exposure to currency rate fluctuations through its Euro cash deposit of €20.1 million following the sale of its sole French property at the beginning of 2007. In order to limit the Group’s exposure to any downward exchange rate movements in Sterling against the Euro, a forward exchange contract on Euros for an amount of €13.5 million was entered into at a rate of £1 : €1.45. At the balance sheet date, this has resulted in an actual cash revaluation gain of £1,555,000 being reduced to a gain of £105,000 due to the recognition of a liability arising from the Euro forward exchange contract. The unhedged portion of the deposit is retained to meet local liabilities, the most material item being taxation relating to the sale of the property. Capital management The Board’s policy is to maintain a strong capital base with a view to underpinning investor, creditor and market confidence and sustaining the future development of the business. The Board receives ongoing reports on the demographic spread of shareholders and maintains regular contact with the principal investors in order to discuss performance and communicate strategy. The Board monitors the Group’s performance in terms of its main financial indicator, total return, at both a corporate and individual asset level, and sets internal guidelines for interest cover and gearing. The Executive Directors monitor the Group’s current and projected financial position against these guidelines. In the interest of the shareholders, the Board pursues a progressive dividend policy, subject to the Group’s cash requirements. The Board also encourages employees to participate in the share ownership structure through savings investment plans, the share-based element of bonus arrangements and the various performance related employee share option schemes, all of which it considers best aligns the interest of employees with those of the Group and its shareholders. From time to time, the Group purchases its own shares on the market. Such purchases can take the form of treasury shares with the aim of using these as treasury shares to cover entitlements under bonus arrangements and options schemes but also for cancellation on occasions when the Board considers that this course of action would enhance the value of the Group for the shareholders. There were no changes in the Group’s approach to capital management during the year. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements other than those referred to above in connection with the refinancing. i) FINANCIAL INCOME AND EXPENSE 2008

£000 2007 £000

Recognised in Income Statement: Interest expense on financial liabilities measured at amortised cost 30,747 20,518 Loan costs written-off on refinancing 2,798 -

Finance expenses on liabilities not recognised at fair value in the Income Statement 33,545 20,518 Interest on obligations under finance leases 812 865

Financial expenses 34,357 21,383

Finance income on assets not recognised at fair value in the Income Statement (9,161) (3,511)

Finance income on assets recognised at fair value in Income Statement Interest income from available for sale investments held at fair value (760) (248) Change in fair value of interest rate swaps and caps (1,851) (1,493) (2,611) (1,741)

Financial income (11,772) (5,252)

Net financial income and expense 22,585 16,131 Capitalised interest (12,022) (9,209)

Net finance expenses (note 5) 10,563 6,922

Recognised directly in equity: Gain (deficit) on revaluation of other non-current investments 757 (882) Effective portion of changes in fair value of cash flow hedges (416) 7,047 Foreign currency translation differences 232 (319)

573 5,846



ii) SENSITIVITY ANALYSIS As at 31 March 2008, it is estimated that an increase of 50 basis points in interest rates would have increased the Group’s loss before tax by £1,789,000 (2007: reduction in profit before tax of £592,000) and that a decrease of 50 basis points would have decreased the Group’s loss before tax by £1,789,000 (2007: increase in profit before tax of £592,000). There would have been no effect on amounts recognised directly in equity. These estimates have been compiled by applying the interest rate change to the variable rate borrowings net of interest rate swaps and caps in existence during the year. In relation to foreign exchange, the Group has a Euro deposit of €20.1 million. Of this, €13.5 million is fully hedged. The balance is retained to meet local liabilities and so the Group has no exposure to foreign exchange movements. iii) FINANCIAL ASSETS The currencies in which the Group’s cash and cash equivalents were held were as follows:

2008

£000 2007 £000

Sterling 11,785 22,364 Euros 15,979 13,439 United States dollars 218 245

27,982 36,048

Details of the Group’s other financial assets are shown in the table below.

iv) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Group’s financial assets and liabilities was as follows:

2008 Book value

£000

2008 Fair value

£000

2008 Fair value

adjustment £000

2007 Book value

£000

2007 Fair value

£000

2007 Fair value

adjustment £000

Other non-current investments 15,196 15,196 - 3,044 3,044 - Non-current receivable 42,987 42,987 - 45,349 45,349 - Trade and other receivables Trade receivables 20,660 20,660 - 12,175 12,175 - Other receivables 6,898 6,898 - 7,047 7,047 - Amounts due under contracts for sale 6,500 6,500 - 51,275 51,275 - Interest rate caps 1,546 1,546 - - - - Current investments 4 4 4 4 - Cash and cash equivalents 27,982 27,982 - 36,048 36,048 -

Total financial assets 121,773 121,773 - 154,942 154,942 -

Current liabilities: bank loans and other borrowings - - - (3,000) (3,000) - Trade and other payables Trade payables (2,809) (2,809) - (6,751) (6,751) - Other payables (10,963) (10,963) - (7,535) (7,535) - Accruals (22,536) (22,536) - (18,774) (18,774) - Interest rate swaps (46) (46) - (4,406) (4,406) - Current tax liability (7,269) (7,269) - (9,216) (9,216) - Non-current liabilities: bank loans and other borrowings (541,637) (541,906) (269) (333,924) (333,959) (35) Obligations under finance leases (11,727) (11,727) - (11,734) (11,734) - Other payables (2,392) (2,392) - (4,919) (4,919) -

Total financial liabilities (599,379) (599,648) (269) (400,259) (400,294) (35)

Total net financial liabilities (477,606) (477,875) (269) (245,317) (245,352) (35)

Fair value on a post-tax basis (194) (25)

The fair values of non-current liabilities: bank loans and other borrowings were calculated by JC Rathbone Associates Limited as at 31 March 2008 and reflect the replacement values of the financial instruments used to manage the Group’s exposure as at that date.



v) MATURITY OF FINANCIAL LIABILITIES The maturity analysis of financial liabilities was as follows: As at 31 March 2008 Bank

loans

£000

10% first mortgage

debenture stock £000

Interest

£000

Unamortised borrowing

costs

£000

Financial liability

cashflows

£000

Within one year - - 36,926 - 36,926 From one to two years - - 36,926 - 36,926

From two to five years 219,031 4,807 108,822 969 333,629

From five to 25 years 317,799 - 27,270 1,701 346,770 After 25 years - - - - -

536,830 4,807 209,944 2,670 754,251

Financial liability

cash flows (as above)

£000

Current liabilities

Trade payables

£000

Current liabilities

Other payables

£000

Current liabilities Accruals

£000

Current liabilities

Interest rate swaps

£000

Current liabilities

Current tax liability

£000

Obligations under

finance leases

£000

Non-current

liabilities Other

payables £000

Total

£000

Within one year 36,926 2,809 10,963 22,536 - 7,269 819 - 81,322 From one to two years 36,926 - - - - - - - 36,926 From two to five years 333,629 - - - 46 - 3,277 2,392 339,344

From five to 25 years 346,770 - - - - - 16,387 - 363,157 After 25 years - - - - - - 42,751 - 42,751

754,251 2,809 10,963 22,536 46 7,269 63,234 2,392 863,500

As at 31 March 2007 Bank loans

£000

10% first mortgage debenture

stock £000

Other loans

£000

Interest

£000

Unamortised borrowing

costs

£000

Financial liability

cashflows

£000

Within one year - - 3,000 22,556 - 25,556 From one to two years - - - 22,556 - 22,556

From two to five years 329,054 4,870 - 48,865 1,946 384,735

From five to 25 years - - - - - - After 25 years - - - - - -

329,054 4,870 3,000 93,977 1,946 432,847

Financial liability

cash flows (as above)

£000

Current liabilities

Trade payables

£000

Current liabilities

Other payables

£000

Current liabilities Accruals

£000

Current liabilities

Interest rate swaps

£000

Current liabilities

Current tax liability

£000

Obligations under

finance leases £000

Non-current liabilities

Other payables

£000

Total

£000

Within one year 25,556 6,751 7,535 18,774 4,406 9,216 815 - 73,053 From one to two years 22,556 - - - - - - 4,919 27,475 From two to five years 384,735 - - - - - 3,277 - 388,012 From five to 25 years - - - - - - 16,387 - 16,387 After 25 years - - - - - - 43,628 - 43,628

432,847 6,751 7,535 18,774 4,406 9,216 64,107 4,919 548,555

21 FINANCIAL INSTRUMENTS i) EFFECTIVE CASHFLOW HEDGES The profile of the Group’s interest swaps which were entered into during the year, were in existence as at 31 March 2008 and for the purpose of these financial statements were classified as effective cashflow hedges with the fair value adjustments reflected in equity, was as follows:

Amount

£000

Maturity date Swap rate

2008 Fair value

adjustments £000

50,000 03.01.13 4.97% (11) 50,000 03.01.13 4.94% 50 50,000 03.01.13 5.01% (85)

150,000 (46)

These swaps were valued as at 31 March 2008 by JC Rathbone Associates Limited.



ii) INTEREST RATE CAPS As at 31 March 2008, the Group has entered into the following interest rate caps, the cost of which is being amortised over the life of the caps. The adjustment arising from restating the amortised cost as at 31 March 2008 to fair value as estimated by JC Rathbone Associates Limited has been classified as ineffective and reflected in the Income Statement.

Amount

£000

Maturity date Strike rate Fair value at inception

£000

Fair value as at 31.03.08

£000

2008 Fair value

adjustments £000

225,000 20.04.13 6.50% 1,490 996 (494) 25,000 03.01.13 5.50% 264 314 50 25,000 03.01.13 5.75% 195 236 41

275,000 1,949 1,546 (403)

iii) JOINT VENTURE FINANCIAL INSTRUMENTS As at 31 March 2008, the following interest rate swaps shown at the full amount, were held within Quercus, a joint venture in which the Group has a 26.92% interest (2007: 27.96%).

Amount

£000

Maturity date Swap rate 2008 Fair value

adjustments £000

2007 Fair value

adjustments £000

Quintain share reflected in

equity £000

50,000 22.10.07 5.32% - 100 (29) 40,000 22.01.09 4.86% 179 570 (112) 50,000 22.10.09 4.84% 252 1,006 (216) 25,000 25.11.09 5.02% 548 404 41 80,000 22.01.13 5.11% (498) - (143)

100,000 22.01.13 4.99% (112) - (31) 345,000 369 2,080 (490)

As at 31 March 2008, the following accreting interest rate caps and collars, entered into during the year and shown at full amount, were held within iQ, a joint venture in which the Group has a 50.00% interest.

Amount

£000

Maturity date Strike rate Floor

Strike rate Cap

Fair value at inception

£000

Fair value as at

31.03.08

£000

2008 Fair value

adjustments

£000

Quintain share

reflected in Income Statement

£000

Quintain share

reflected in equity

£000

12,951 04.10.12 5.08% 6.00% 77 (861) (784) (392) - 12,951 04.10.12 5.28% 5.75% 42 (1,010) (968) - (484) 12,951 04.10.12 4.89% 6.25% 88 (798) (710) (355) - 12,952 04.10.12 4.69% 6.50% 89 (679) (590) (295) - 51,805 296 (3,348) (3,052) (1,042) (484)

22 RECONCILIATION OF MOVEMENTS IN EQUITY Issued

capital

£000

Share premium account

£000

Revaluation reserve

£000

Other capital

reserves

£000

Cashflow hedge

reserve

£000

Translation reserve

£000

Retained earnings

£000

Own shares

held reserve

£000

Equity share-

holders’ funds £000

Balance 1 April 2006 32,324 47,265 248,836 113,227 (4,808) 405 242,920 (3,494) 676,675 Recognised income and expense for the year - - 138,291 - 5,479 (319) 42,662 - 186,113 Transfer between reserves - - - (5,091) - - 5,091 - - Issue of shares less costs 133 3,532 - - - - (2,545) - 1,120 Purchase of own shares as treasury shares - - - - - - - (6,060) (6,060) Cost relating to share-based payment schemes - - - - - - 3,718 - 3,718 Shares awarded to employees under bonus scheme - - - - - - (210) 210 - Short leasehold amortisation - - (102) - - - 102 - - Realisation of revaluation gains on sale - - (16,211) - - - 16,211 - - Tax on realised gains - - - - - - (1,724) - (1,724) Dividends paid in year - - - - - - (13,744) - (13,744)

Balance 31 March 2007 32,457 50,797 370,814 108,136 671 86 292,481 (9,344) 846,098 Recognised income and - - (43,454) - (993) 232 (40,124) - (84,339)



expense for the year Issue of shares less costs 26 546 - - - - (333) - 239 Purchase of own shares as treasury shares - - - - - - - (3,078) (3,078) Cost relating to share- based payment schemes - - - - - - 2,147 - 2,147 Dividends paid in year - - - - - - (15,366) - (15,366)

Balance 31 March 2008 32,483 51,343 327,360 108,136 (322) 318 238,805 (12,422) 745,701

Part of the gain on the revaluation of investment and development properties is recognised in the Income Statement and part directly through equity. 2008

£000 2007 £000

Recognised in Income Statement: Gains on revaluation of investment properties 338 12,616 Deficits on revaluation of investment properties (44,661) (924) Deficits on revaluation of development properties (5,265) (182) Reversal of deficits on revaluation of development properties - 1,255 Gains on revaluation of investment properties in joint ventures 934 27,916 Deficits on revaluation of investment properties in associate (125) (650) Recognised directly in equity: Gains on revaluation of development properties 1,838 182,289 Deficits on revaluation of development properties (79,006) -

(125,947) 222,320

The movement in the Group’s Other capital reserves was as follows:

Capital redemption

reserve £000

Convertible loan stock

reserve £000

Merger reserve

£000

Capital reserve

£000

Total Other capital

reserves £000

Balance 1 April 2006 2,074 786 106,062 4,305 113,227 Transfer to retained earnings - (786) - (4,305) (5,091)

Balance 31 March 2007 and 31 March 2008 2,074 - 106,062 - 108,136

The charge against retained earnings in respect of the issue of shares less costs related to options exercised by staff in a subsidiary company. There was no equivalent entry in the accounts of the Company. As at 31 March 2008, ESOP Trusts held 2,134,739 (2007: 1,359,774) shares in the Company which had been purchased in the market at a cost of £12,390,000 (2007: £7,714,000). The purpose of the Trusts is to acquire and hold shares which will be transferred to employees to meet future obligations under the Group employee share-based payment schemes as set out in note 23 and share-based bonus entitlements. As at 31 March 2008, these shares had a market value of £9,622,000 (2007: £12,177,000). The Quintain Group Employee Benefit Trust has waived the right to receive dividends. As at 31 March 2008, the Company also held 5,234 (2007: 267,640) of its own shares which had been purchased in the market at a cost of £32,000 (2007: £1,630,000). As at that date, these shares had a market value of £24,000 (2007: £2,397,000). CAPITAL REDEMPTION RESERVE The capital redemption reserve reflects the nominal value of shares purchased by the Group for cancellation. MERGER RESERVE The merger reserve has arisen following corporate acquisitions where the Group’s equity has formed all or part of the consideration and represents the premium on the shares issued less costs. CASHFLOW HEDGE RESERVE The cashflow hedge reserve comprises the effective portion of the cumulative net change in the cashflow hedging instruments. TRANSLATION RESERVE The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of the Group’s foreign subsidiaries.



23 SHARE CAPITAL Number of

shares 000

Nominal value £000

Authorised as at 31 March 2007 and 2008: Ordinary shares of 25p each 200,000 50,000

Allotted, called up and fully paid: In issue at 1 April 2006 129,295 32,324 Issue of shares under share-based payment schemes at between 25p and 556.3p 531 133

In issue at 31 March 2007 129,826 32,457 Issue of shares under share-based payment schemes at between 25p and 460p 104 26

In issue at 31 March 2008 129,930 32,483

As at 31 March 2008, share capital included 2,134,749 (2007: 1,359,774) shares held by ESOP Trusts. These shares had a nominal value of £533,687 (2007: £339,944). The Company also held 5,234 (2007: 267,640) of its own shares with a nominal value of £1,309 (2007: £66,910). As at 31 March 2008, the following commitments to issue shares to employees under various share-based payment schemes remained outstanding: Date of grant Number of shares Exercise price

per share pence

Exercise period from

Exercise period

to

Executive Directors’ Performance Share Plan (LTIP) 26.09.03 1,000,000 - 26.09.12 27.09.12 12.07.05 375,000 - 12.07.14 13.07.14 27.06.07 125,000 - 27.06.16 28.06.16

1,500,000

1996 Approved Executive Share Option Scheme (1996 Approved) 22.02.99 6,040 151.5 22.02.02 21.02.09 13.06.00 29,151 155.3 13.06.03 12.06.10 04.09.01 1,504 199.5 04.09.04 03.09.11 17.06.02 13,043 271.0 17.06.05 16.06.12 13.06.03 63,540 287.0 13.06.06 12.06.13 02.02.04 8,720 344.0 02.02.07 01.02.14 13.09.04 69,087 460.0 13.09.07 12.09.14 12.07.05 36,878 556.3 12.07.08 11.07.15 09.01.06 9,450 634.8 09.01.09 08.01.16

237,413

2005 Share Option Plan (2005 Plan) 10.07.06 32,976 653.0 10.07.09 09.07.16 27.06.07 36,147 798.2 27.06.10 26.06.17

69,123

1996 Executive Share Option (No.2) Scheme (1996 Unapproved) 04.09.01 79,845 155.3 04.09.04 03.09.08 04.09.01 132,833 199.5 04.09.04 03.09.08 17.06.02 84,982 155.3 17.06.05 16.06.09 17.06.02 892,741 271.0 17.06.05 16.06.09 13.06.03 14,373 271.0 13.06.06 12.06.10 13.06.03 399,066 287.0 13.06.06 12.06.10

1,603,840

2004 Unapproved Share Plan (2004 Unapproved) 13.06.03 12,290 25.0 13.06.06 12.06.10 02.02.04 7,450 25.0 02.04.07 01.02.14 02.02.04 10,551 25.0 02.04.08 01.02.14 02.02.04 11,729 25.0 02.04.09 01.02.14 13.09.04 160,109 25.0 13.09.07 12.09.14 12.07.05 183,663 25.0 12.07.08 11.07.15 09.01.06 1,566 25.0 09.01.09 09.01.16 10.07.06 117,398 25.0 10.07.09 09.07.16 27.06.07 137,538 25.0 27.06.10 26.06.17

642,294

Deferred Bonus Plan 19.06.07 254,780 - 19.06.10 19.06.10

Total 4,307,450

The Group’s share-based payments are all equity settled. The following share based payment schemes are operated by the Group: Executive Directors’ Performance Share Plan The Plan was approved by shareholders of the Company in September 2003 on the following terms: i) participation in the plan is confined to executive directors of the Company ii) individual awards to directors are restricted to 1% of the Company’s issued share capital on the date of award and an aggregate of 2.5% of the Company’s



issued share capital iii) awards are granted at nil cost to participants iv) vesting occurs, subject to the achievement of performance conditions, over years 5,6,7,8 and 9. No release of shares shall take place until the ninth anniversary of the award date. 1996 Approved Executive Share Option Scheme The Scheme is an HMRC approved scheme with the following provisions: i) since 2004 vesting of the options has been subject to a share price based performance condition ii) individual awards are restricted to £30,000 No awards have been made under the scheme since 2005. 2005 Share Option Plan The Scheme is an HMRC approved scheme and has expired as to new awards. It has the following provisions: i) vesting of the options is subject to a share price based performance condition ii) individual awards are restricted to £30,000 and 10% of the Group’s issued share capital in the aggregate. Executive Share Option (No.2) Scheme The Scheme is not approved by HMRC and has expired as to new awards. It has the following provisions: i) options do not have any performance conditions attached ii) individual awards are restricted to four times earnings over a ten year period Aggregate awards are restricted to: (a) when combined with other shares to be issued on exercise of options under this and any scheme, no more than 5% of the issued share capital over a ten year period (b) when combined with other shares to be issued on exercise of options under this and any scheme, no more than 3% of the issued share capital over a three year period 2004 Unapproved Share Plan The Scheme is not approved by HMRC and has the following provisions: i) vesting of rights is subject to achievement of total return based performance conditions and ii) individual awards are restricted to annual earnings. Aggregate awards are restricted to 5% of the issued share capital of the Company on the date of issue. Deferred Bonus Plan The Plan is not approved by HMRC and its main provisions are as follows: i) shares are held on trust for a three year period and released, at nil cost, to the participants ii) no performance conditions, other than continued employment, apply. The movement in the year in the number and weighted average exercise price of outstanding options was as follows: 2008

Number of shares

2008 Weighted

average exercise

price (pence)

2007 Number of

shares

2007 Weighted

Average exercise

price (pence)

In issue as at 1 April 3,895,358 147.3 4,300,080 155.8 Options granted 553,465 62.2 172,232 383.1 Options exercised (103,994) (230.0) (531,031) (210.8) Options lapsed (37,379) (383.9) (45,923) (232.4)

In issue as at 31 March 4,307,450 131.8 3,895,358 147.3

The weighted average share price at the date of exercise for share options exercised during the year was 550p (2007: 690p). The options outstanding as at 31 March 2008 had a weighted average remaining contingent life of 4.1 years (2007: 4.7 years). Options granted during the current and previous year have been valued using the Black-Scholes and binomial models on the basis of the following main assumptions: Date of grant 10.07.06

Approved 10.07.06

2004 Unapproved

19.06.07 Deferred

Bonus Plan

27.06.07 LTIP

27.06.07 2005 Plan

27.06.07 2004 Unapproved

Number 42,416 129,816 254,780 125,000 36,147 137,538 Exercise price (pence) 653.0 25.0 - - 798.2 25.0 Term of option (years) 10 7 3 9 10 7 Expected volatility (%) 22 22 22 22 22 22 Expected annual dividend yield (%) 1.6 1.6 1.4 1.4 1.4 1.4 Risk free rate (%) 4.7 4.7 5.6 5.6 5.6 5.6 Fair value (pence) 135.0 561.0 705.0 715.0 184.0 718.0



24 CAPITAL COMMITMENTS As at 31 March 2008, the Group had capital commitments of £16,475,000 (2007: £15,669,000) in relation to its own development properties and £130,000 (2007: £nil) in respect of contractual commitments for repairs, maintenance and enhancement in relation to its investment properties. The Group’s share of capital commitments in relation to its joint ventures was £63,939,000 (2007: £81,450,000). 25 OPERATING LEASE ARRANGEMENTS i) GROUP AS LESSEE Future minimum lease payments payable by the Group under non-cancellable operating leases were as follows:

2008 £000

2007 £000

Operating leases which expire: From two to five years 365 22 After five years 6,310 7,144

6,675 7,166

The Group’s lease commitments relate to its own offices at 16 Grosvenor Street, London W1K 4QF and 66 Grosvenor Street, London W1K 3JL. ii) GROUP AS LESSOR The Group earns rental income by leasing its investment properties to tenants under non-cancellable operating leases. The majority of properties are let for terms from five to 35 years at a market rent. Standard lease provisions include service charge recovery and upward only rent reviews every five years. On review, rents are increased either by a contractual formula or to current market rent (estimated rental value or ERV). Typically, single let properties are leased on terms where the tenant is responsible for repair, insurance and running costs while multi-let properties are leased on terms which include recovery of a share of service charge expenditure and insurance. Only one of the Group’s properties is let on terms which include a turnover based element. Future minimum lease payments receivable by the Group under such leases were as follows:

2008 £000

2007 £000

Operating leases which expire: Within one year 1,388 1,785 From two to five years 18,781 14,199 After five years 147,480 128,577 167,649 144,561

In addition, the Group’s share of minimum lease payments receivable under non-cancellable operating leases contained within the Group’s joint ventures was £472,742,000 (2007: £377,222,000). 26 RELATED PARTY DISCLOSURES During the year, the Group received the following fees in respect of services provided to its joint ventures: 2008

£000 2007 £000

Quercus Property Partnership 6,416 4,014 iQ Property Partnership 2,188 177 Meridian Delta Limited 944 71 BioRegional Quintain Limited 277 192 Quintessential Homes (Wembley) LLP 260 161 Quantum Property Partnership 20 10 Quart Property Partnership 15 25

10,120 4,650

The Group also received interest on loan notes amounting to £2,733,000 (2007: £1,741,000) from Meridian Delta Limited and £691,000 (2007: £108,000) from BioRegional Quintain Limited, which are included in finance income. The following amounts due from related parties are included in other receivables in note 15.

2008 £000

2007 £000

Quercus Property Partnership 11,447 6,281 iQ Property Partnership 589 504 Meridian Delta Limited 303 77 BioRegional Quintain Limited 1,278 353 Quintessential Homes (Wembley) LLP - 185 Quantum Property Partnership 73 5 Quart Property Partnership 29 12

13,719 7,417

Amounts due from related parties are due on demand and are unsecured.



The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the applicable categories specified in IAS 24 ‘Related Party Disclosures’. Further information about the remuneration of individual directors is provided in the audited section of the Remuneration Report. 2008

£000 2007 £000

Short-term employee benefits 3,608 3,576 Post-employment benefits 221 216

Directors remuneration included in administrative expenses (note 4) 3,829 3,792 Share-based payments 289 911

4,118 4,703

The members of the Board are the only key management personnel as defined under IAS 24. 27 ACQUISITION OF SUBSIDIARY During the year, the Group acquired for cash the remaining 50% of Countryside Quintain Birmingham Limited, which was classified as a joint venture undertaking as at 31 March 2007, for a consideration of £5,451,000. This was treated as the acquisition of a trading property which was the sole asset of the company together with a deferred tax liability of £1,361,000 (note 6). This was treated as the acquisition of a trading property for £6,812,000. 28 DISPOSAL OF INTEREST IN SUBSIDIARIES In the year ended 31 March 2007, the Company sold for cash to two unrelated parties a 50% interest in two subsidiary undertakings, the main assets of which were investment and development properties. Following the sales, the two entities were accounted for as joint ventures. The balance sheets of the two subsidiaries and the impact of the sales on the Income Statement of the Group were as follows: IQ Unit Trust

£000

Quintessential Homes

(Wembley) LLP £000

Investment / development properties 50,502 8,952 Current assets: trade receivables 2,037 - Cash and cash equivalents 579 1,040 Current liabilities: trade payables (282) (850) Non-current liabilities: bank loans and other borrowings (31,984) -

Net assets 20,852 9,142 Net assets transferred to joint ventures (note 12i (a)) (10,426) (4,573)

Share of net assets sold 10,426 4,569

Proceeds from sale 14,523 7,572 Share of net assets sold (10,426) (4,569)

Gross profit 4,097 3,003 Expenses of sale (231) (83)

Profit from sale of shares in subsidiaries 3,866 2,920

Apart from the investment and development properties, all other assets and liabilities were valued at disposal at their carrying value. There were no disposals of such interests in the year to 31 March 2008.

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