Helical
Annual Report 2006

Plain-text annual report

H e l i c a l B a r p l c A n n u a l R e p o r t & A c c o u n t s 2 0 0 6 Helical Bar plc Annual Report & Accounts 2006 Helical Bar plc, registered office: 11-15 Farm Street, London W1J 5RS Tel: 020 7629 0113, Fax: 020 7408 1666 email: info@helical.co.uk website: www.helical.co.uk Front cover: Trinity Square, Nottingham Contents Financial Highlights 01 Share price chart 02 Chairman’s Statement 05 Operating Review Development programme 09 Operating Review Investment Portfolio 14 Financial Review 18 Consolidated Income Statement 19 Balance Sheets 21 Statement of Recognised Income and Expense 22 Group and Company Cash Flow Statement 23 Notes to the Financial Statements 47 Ten Year Review 48 The Board of Directors and Senior Management 49 Directors’ Report 51 Corporate Governance Report 55 Directors’ Remuneration Report 63 Report of the Independent Auditors 64 Corporate Social Responsibility 66 Glossary of Terms 67 Financial calendar 68 Advisors Financial Highlights *Adjusted for the 5 for 1 share on 1 September 2005 Five year summary Notes IFRS 31.03.06 £m IFRS 31.03.05 £m UK GAAP 31.03.04 £m UK GAAP 31.03.03 £m UK GAAP 31.03.02 £m Net rental income Development profits Trading profits Adjusted profits before tax 1 Gain/(loss) on revaluation of investment property Gain on sale of investment properties Pre-tax profits Return of cash/special dividend Investment portfolio Shareholders’ funds Dividend per ordinary share Diluted earnings per share Adjusted diluted net asset value per share Adjusted diluted triple net asset value per share 4 4 2/4 3/4 16.5 4.6 13.4 13.6 35.7 7.8 57.1 2.4 294.6 230.1 pence 3.65 51.8 278 284 20.4 12.7 5.8 20.5 30.1 14.1 64.7 97.2 271.3 182.5 pence 3.32 53.7 224 219 23.0 – 1.0 11.7 24.2 2.0 13.7 – 334.9 234.9 pence 3.32 7.9 177 161 25.6 4.6 0.3 16.7 (13.4) 2.1 25.2 – 342.5 226.9 pence 3.00 11.8 155 141 27.8 17.1 0.2 20.3 18.5 2.5 22.6 28.4 439.9 227.7 pence 2.75 11.8 155 133 Notes 1. Excludes profit on sale of investment properties and loss on sale of subsidiary. 2. After adding back additional deferred taxation arising from the clawback of capital allowances on sale of investment properties, the deferred taxation on the revaluation surpluses of the investment portfolio and the fair value of financial instruments. 3. Adjusted for the directors’ valuation of trading stock but after adding back the deferred taxation referred to in 3 above. 4. Comparative figures have been adjusted for the 5 for 1 share split on 1 September 2005. Design and production Radley Yeldar (London) Pre-tax profit £m 2002200320042005200622.625.213.764.657.1Ordinary dividend per share Pence* 200220032004200520062.753.003.323.323.65Adjusted diluted net asset value per share Pence*Net asset values per share have been restated for the impact of the adoption in 2005 of UITF38 –Accounting for ESOP Trusts.20022003200420052006155155177224278Cash returned to shareholders £mCash returned to shareholders represents special dividends, shares bought in for cancellation and the Return of Cash in December 2004 but excludes ordinary dividends per share.2002200320042005200628.4–21.596.5–Pre-tax profit £m 2002200320042005200622.625.213.764.657.1Ordinary dividend per share Pence* 200220032004200520062.753.003.323.323.65Adjusted diluted net asset value per share Pence*Net asset values per share have been restated for the impact of the adoption in 2005 of UITF38 –Accounting for ESOP Trusts.20022003200420052006155155177224278Cash returned to shareholders £mCash returned to shareholders represents special dividends, shares bought in for cancellation and the Return of Cash in December 2004 but excludes ordinary dividends per share.2002200320042005200628.4–21.596.5–Corporate Statement Helical Bar is a property development and investment company. Our objective is to maximise growth in assets per share using a recurring stream of development and trading profits to build up the investment portfolio. “A property company’s share price should reflect growth in net assets per share”. Share price chart 01 Helical Bar plc Report & Accounts 2006 85Adjusted for the 5 for 1 share split on 1 September 2005Year878688899091929394959697989900010203040506020406080100120140160180200220240260280320340360380300400Pence80preturnof cash407p20p1st specialdividend20p2nd specialdividendChairman’s Statement In my first statement as Chairman I am pleased to report that for the second year running, Helical has produced 30% net asset value per share growth (including trading stock surplus). This reflects profits from a wide spread of projects and activities. We have continued to increase our diversification investing in 15 schemes in the UK as well as forming new joint ventures in Poland and with The Asset Factor. Results Profits before tax, prepared under International Financial Reporting Standards (“IFRS”) for the first time, reduced to £57.1m (2005: £64.7m), as lower levels of net rental income and development profits exceeded the rise in trading profits. The return of almost £100m to shareholders in December 2004, representing circa 40% of shareholder value, contributed to the reduction in profits this year. As a consequence, diluted earnings per share fell to 51.8p (2005: 53.7p). The gain on sale and revaluation of the investment portfolio was steady at £43.6m (2005: £44.2m) reflecting a like for like valuation increase of 17.3% and sales of investment properties at 16.9% over 2005 book values. The Group’s adjusted net asset value per share rose by 24% (2005: 24%) to 278p (2005: 224p). This takes no account of any surplus on the £86m of trading and development stock which are held in our books, in accordance with normal practice, at the lower of cost and net realisable value. The directors’ valuation of trading and development stock shows a surplus of £29m (2005: £13m) which, if taken into account, would increase adjusted net asset value per share to 309p (2005: 238p), an increase of 30%. The Company’s prospects for 2006/2007 are encouraging and allow the Board to recommend to shareholders a final dividend of 2.45p per share (2005: 2.20p), an increase of 11%. Under IFRS dividends are accounted for once declared and, as a consequence, this final dividend is not reflected in these accounts. However, taken with the interim dividend paid in December 2005 of 1.45p (2005: 1.32p) it represents a total dividend of 3.90p (2005: 3.52p), an increase of 11%. International Financial Reporting Standards (IFRS) These accounts are the first annual accounts to be prepared in accordance with IFRS. Included in the accounts are restated comparative figures for the year to 31 March 2005. Reconciliations to, and explanations of the differences between these figures and those previously reported under UK GAAP, are provided in note 2 of these accounts. The adoption of IFRS has changed the presentation and format of the annual report. However, it has no impact on the cash flows of the business or its underlying performance. Share capital On the 31 August 2005 shareholders approved a five for one share split effective from 1 September 2005. As a consequence the 18,424,385 ordinary 5p shares in existence on 1 September 2005 were divided into 92,121,925 ordinary 1p shares. The net asset value per share and earnings per share calculations for the current and comparative periods have all been adjusted accordingly. Adjusted net asset value per share growth 2006 30% 02 Helical Bar plc Report & Accounts 2006 Key property performance indicators and benchmarks A property company’s share price should reflect growth in net assets per share. Our Company’s main objective is to maximise growth in assets from increases in investment portfolio values and from retained earnings from other property related activities. We incentivise management to outperform the Company’s competitors by setting the right levels for performance indicators against which rewards are measured. We also design our remuneration packages to align management’s interests with shareholders’ aspirations. Key to this is the monitoring and reporting against identifiable performance targets and benchmarks. For a number of years we have reported on these, the most important of which are: Investment Property Databank The Investment Property Databank (“IPD”) produces a number of independent benchmarks of property returns which are regarded as the main industry indices. They have compared the ungeared performance of Helical’s total property portfolio against that of portfolios within IPD for the last 16 years. The Company’s annual performance target is to exceed the top quartile of the IPD database. Helical’s ungeared performance for the year to 31 March 2006 was 25.9% (2005: 28.5%) compared to the IPD median benchmark of 20.6% (2005: 17.2%) and upper quartile benchmark of 22.8% (2005: 20.3%). IPD (all monthly and quarterly valued funds) Ungeared returns Total Returns % % % % % Annualised over 1 year 3 years 5 years 10 years 16 years Helical IPD Benchmark Percentile rank 25.9 20.6 10 22.9 16.4 1 17.9 13.0 4 20.3 12.8 18.2 9.2 0* 0* * “0” means the top ranked fund. The returns on shareholder capital earned by Helical are generally higher than those measured by IPD due to the use of gearing. The returns noted above take no account of the £29m (2005: £13m) surplus of trading and development stock above book value arising from the directors’ valuation. Total Shareholder Return Total Shareholder Return (“TSR”) measures the return to shareholders from share price movements and dividend income and is used to compare returns between companies listed on the Stock Exchange. Management is incentivised to exceed the top quartile of the real estate sector. Helical’s TSR for the year to 31 March 2006 was 73.5% (2005: 35.6%) compared to the median of the listed real estate sector of 49.3% (2005: 25.4%). Net asset value Net asset value per share represents the share of net assets attributable to each ordinary share. Whilst the basic and diluted net asset per share calculation provide a guide to performance the property industry prefers to use an adjusted diluted net asset per share. The adjustments necessary to arrive at this figure are shown in note 32 to these accounts. Management is incentivised to exceed 15% pa growth in net asset value per share. The adjusted diluted net asset value per share, excluding trading stock surplus, at 31 March 2006 was 278p (2005: 224p), an increase of 24%. Including the surplus on valuation of trading and development stock, the adjusted diluted net asset value per share at 31 March 2006 was 309p (2005: 238p) an increase of 29.7% (2005: 31.2%). Adjusted triple net asset value per share rose by 29.6% (2005: 33.6%) to 284p (2005: 219p). Total Shareholder Return measures the return to shareholders from share price movements and dividend income Total Shareholder Return Helical Bar plc UK equity market Listed real estate sector index Direct property Source: New Bridge Street Consultants/Datastream. 03 Helical Bar plc Report & Accounts 2006 03 Helical Bar plc Report & Accounts 2006 1 year from 31.3.05 % 3 years from 31.3.03 % 5 years from 31.3.01 % 10 years from 31.3.96 % 15 years from 31.3.91 % 20 years from 31.3.86 % 73.5 28.0 49.3 20.9 52.6 24.7 44.6 17.2 26.5 5.7 19.3 13.8 26.1 8.4 15.7 13.0 23.3 10.2 11.6 11.1 29.4 10.9 11.2 11.4 Chairman’s Statement continued Real Estate Investment Trust (“REIT”) Legislation The real estate sector has welcomed the Government’s proposed legislation for the introduction of REIT’s to the UK. This legislation is likely to be enacted in July 2006. Companies converting to REIT status will benefit from a tax free status on their qualifying property activities, subject to meeting certain conditions. There is further consultation to be finalised before the new legislation is enacted, but it would appear unlikely that the Helical “model” which has generated trading and development profits equal to investment income, will qualify. Helical’s consistent success throughout the last 22 years since inception suggests that we should not alter our modus operandi solely to reduce tax liabilities. We are confident that our model is strong enough to continue to outperform our peers on a net of tax basis. The Board After serving the Company for almost 25 years, first as consultant with Laing & Cruickshank and, since 1986, as non-executive director and Chairman, John Southwell will step down from the Board at the 2006 AGM. In his time with the Company, John Southwell has been an instrumental part of a management team that has seen the share price increase from an equivalent 1p level to a share price on 15 June 2006 of 407p having paid out special dividends of 120p per share along the way. The Board would like to express its gratitude to John for his guidance, leadership and wise counsel over this long period at the helm of the Company. During the year the Board was strengthened by two appointments. As mentioned in last year’s accounts on 14 April 2005 Wilf Weeks joined as a non-executive director. Wilf specialises in Government Relations and is Chairman of European Public Affairs at Weber Shandwick. On 1 March 2006 Andrew Gulliford joined as a non-executive director. Andrew is a former Deputy Senior Partner of Cushman & Wakefield Healey & Baker where he headed up their Investment Group. I believe that these two appointments improve the strength of the Board from both an operational and a corporate governance viewpoint. Outlook Commercial property continues to deliver excellent returns as a result of yield compression. At some stage this will cease. In what will become a more challenging climate we will continue to obtain good results by adding value whether by refurbishment, redevelopment, active management on change of use via the planning process. We have increased the number of our joint ventures enabling us to tap into specialist skills whether geographical or sectarial. All of this activity diversifies our risk and enables us to find deals at reasonable prices. Helical has demonstrated its ability to outperform in good times and in bad. After a terrific run we believe that the rate of yield compression will slow and property returns will not be sustained at the exceptional levels of recent years. However, we believe our ability to outperform and provide good returns for our shareholders will continue. Giles Weaver Chairman Below: Retail development in Poland 04 Helical Bar plc Report & Accounts 2006 Total shareholder return in year to 31 March 2006 73.5% Operating Review Development Programme Below: Commercial Road, Bournemouth 05 Helical Bar plc Report & Accounts 2006 Development Programme Helical’s development objective is to create profit streams by focusing on large Central London office schemes, major mixed-use developments and retail schemes. As in the last cycle it is anticipated that the retail schemes will contribute to developments profits before the larger office and mixed use schemes come on stream. In the year under review the major components of development profits recognised have come from the retail development at Commercial Road, Bournemouth and the mixed use retail and student accommodation scheme at Trinity Square, Nottingham, with a contribution from a second phase at Stafford. On the offices side, the Company continues to work on schemes at Ropemaker Place EC2, Mitre Square EC3, Clareville House SW1, as well as other Central London opportunities and in the longer term at White City and Amen Corner, Bracknell. Development schemes – current and future programme Offices City Mitre Square, London EC3 Ropemaker Place, London EC2 Central London – mixed use Clareville House, London SW1 Wood Lane, White City Thames Valley Amen Corner, Bracknell Retail/mixed use Approximate start date Size Sq.ft. 2008 350,000 2006 500,000 2006 60,000 2008+ 43 acres 2010 500,000 Office developments Mitre Square, London EC3 At Mitre Square we are planning a 350,000 sq.ft. office scheme in a joint venture with Ansbacher Property Development Ltd. In July 2005 the City resolved to grant detailed planning consent for the scheme subject to completion of a S.106 agreement, which is currently being negotiated. Completing the site acquisition is underway and the design is being worked up. The project is planned to commence on site 2007 or 2008. Ropemaker Place, London EC2 Demolition of the previous building was completed last September. Helical were acting as Development Manager for DB Real Estate. DB Real Estate sold the site to British Land in March and the Development Management Agreement has been assigned to British Land who are planning to start on site this year. The Agreement provides for a fixed fee and a profit share dependent upon outcome. Wood Lane, White City, London W12 Working on behalf of the consortium of landowners the Company has, with Rem Koolhaas of The Office of Metropolitan Architecture and Arup, produced a masterplan scheme for the 43 acre site. We will be looking to obtain formal adoption of this masterplan within the next few months. We are already proceeding with the production of an Environmental Impact Assessment with the intention of submitting, in early 2007, an outline planning application for a high density mixed use scheme of 5 million sq.ft. plus. Commercial Road, Bournemouth – completed 2005 48,000 Trinity Square, Nottingham Bluebrick, Wolverhampton Hatters Retail Park, Luton Town Centre Shirley, Solihull Shrub Hill, Worcester 2005 235,000 2006 170,000 2006 105,000 2007 200,000 2007 35,000 Below: Mitre Square, London EC3 06 Helical Bar plc Report & Accounts 2006 06 Helical Bar plc Report & Accounts 2006 06 Helical Bar plc Report & Accounts 2006 Clareville House, London SW1 We are acting as Development Manager for Lattice Group Pension Scheme with regard to the proposed refurbishment of the existing listed building. A planning application has been submitted for a scheme involving 35,000 sq.ft. of offices, bar/nightclub of 17,000 sq.ft., restaurant of 4,000 sq.ft. and 2,000 sq.ft. of retail space. We are hoping to achieve planning consent shortly to allow a start on site at the beginning of 2007. Amen Corner, Bracknell We hold a number of properties and options over land at Amen Corner, Bracknell and are promoting a gateway office development off the A329(M). Future opportunities The Company is currently working on several new large projects in London which we hope to announce over the next few months. Joint ventures Helical Poland A joint venture vehicle has been established with Jonathan Tinker and Peter Evans both of whom are based in Warsaw and who have considerable experience acquired over a number of years of the Polish Property Market. The joint venture is concentrating exclusively on out of town retail developments. Currently three sites are under contract comprising circa 1 million sq.ft. of retail space. The Asset Factor The Company announced during the year a new outsourcing joint venture called The Asset Factor. The Asset Factor is a joint venture with Matthew Punshon, Oliver Jones and Keith Perry all of whom have considerable experience of outsourcing. The venture will offer organisations integrated property asset management solutions with the aim of reducing costs, increasing efficiency and making their accommodation work for their business. Residential developments Lime Tree Village, Dunchurch, Rugby At Lime Tree Village, Dunchurch, Rugby we have refurbished, with our joint venture partners, a Victorian country house and are substantially through a programme constructing a retirement village of 153 bungalows, cottages and apartments. Phase 1 and 2 are complete and only a few units remain unoccupied. Work on the final phase commenced early in the new year and the first units have been released for sale. These have been well received at prices well in advance of phase1 and 2. A fourth phase is being planned to commence 2008/2009. Bramshott Place, Liphook At Bramshott Place, Liphook two resolutions to grant planning permission, one for a retirement village of 144 units and one for 150 open market units were granted by the local authority on 6 April subject to entering a S.106 Agreement. The site has already been adopted by East Hampshire District Council in its Local Plan. We anticipate the final consent to be granted around June 2006, whereupon the site will be sold to a housebuilder. Maudsley Park, Great Alne Maudsley Park, Great Alne is a 314,000 sq.ft. industrial estate on a 20 acre site with potential for a retirement village development use. Stratford District Council has accepted the Local Plan Inspector’s recommendation and this site is now in policy terms a major development site in the green belt upon which new forms of development are appropriate. A planning brief is being prepared promoting a mixed use scheme of a nursing home, small nursery units to let and a retirement village of circa 230,000 sq.ft. together with a Country Club facility. It is anticipated that the outcome of this planning application will be known in the autumn of 2006. Below: Lime Tree Village, Dunchurch, Rugby 07 Helical Bar plc Report & Accounts 2006 07 Helical Bar plc Report & Accounts 2006 Development programme continued Retail developments 56–76 Commercial Road, Bournemouth This £40m scheme was completed during the year and the units handed over to the retailers at the end of 2005 for fitting out. The redeveloped section, comprising 48,000 sq.ft. was let to Hennes, Zara, Republic and Ann Summers. The scheme was pre-sold to Irish investors, and also includes three retained shops let to Wallis, Dixons and Carphone Warehouse. Trinity Square, Nottingham The £45m building contract was awarded to Shepherd Construction in 2005, and work is now well under way on this 10 storey scheme divided into two blocks. Completion of the works and trading by retailers is expected by the summer of 2007. The development comprises nearly 200,000 sq.ft. of retail accommodation, plus 700 student units and a multi storey car park. Nearly 60% of the retail accommodation has been pre-let to Borders, TK Maxx and Dixons. The entire scheme has been pre-sold to Morley for over £100m and their Beech Fund will operate the student accommodation. Friary Retail Park, Stafford Phase 2 of this retail park was successfully completed in March of this year with the construction of a 4,000 sq.ft. unit for Laura Ashley Home Furnishings at the entrance to the scheme. The entire development of 42,400 sq.ft. is fully let to PC World, T K Maxx, Choices and Laura Ashley with rents now reaching £20 per sq.ft. reflecting the strong trading location. The park was funded by Arlington Investment Managers last year for £12m. Bluebrick, Wolverhampton Building work has commenced on the first phase of the 11 acre site which is a major mixed-use regeneration scheme. Planning consent was received in spring 2006 and an infrastructure contract is underway to prepare the sites that have been pre-sold to Reg Vardy for a 20,000 sq.ft. car showroom and Whitbread for an 88 bed hotel and a 7,000 sq.ft. public house. The three acre residential site of 208 apartments is being marketed for sale and the listed Low Level Station buildings are under offer to a casino operator subject to obtaining a gaming licence. A further two phases are under discussion with potential tenants and with planning authorities. Current retail development programme (sq,ft.) 745,000 Hatters Retail Park, Luton This former brownfield site of approx. 8.5 acres received planning consent last year for a mixed retail and industrial scheme. The site was acquired in two stages with the final purchase completing in October 2005. Phase 1 will comprise a bulky goods retail park of 80,000 sq.ft. and so far lettings have been secured with anchor tenants DFS, SCS, Carpetright and P Simon Furnishings. Two further units are under offer to Harveys and Pizza Hut. Enabling works on site were completed in April 2006 and the main contract will commence in the autumn with completion due April 2007. Phase 2 will comprise approximately 25,000 sq.ft. of industrial space split into small starter units with completion estimated for April 2008. Parkgate, Shirley, Solihull The scheme which comprises 200,000 sq.ft. of retail anchored by an 80,000 sq.ft. Asda foodstore and some 200 apartments is being progressed through a 50:50 joint venture with Coltham Developments Ltd. Development agreements have been exchanged with Solihull Metropolitan Borough Council and Asda and a planning application has been submitted. Marketing of the retail units will commence in summer 2006 with a view to starting on site in summer 2007. A further phase offers the opportunity for a major leisure/residential project. Shrub Hill, Worcester A purchase contract has been exchanged with First Bus on the four acre site close to the centre of Worcester which has the benefit of planning consent for 35,000 sq.ft. of retail warehousing and 45 apartments. A relocation site has been identified for the bus depot and vacant possession of the site should be achieved in spring 2007. Gerald Kaye Development Director Below: Hatters Retail Park, Luton 08 Helical Bar plc Report & Accounts 2006 08 Helical Bar plc Report & Accounts 2006 08 Helical Bar plc Report & Accounts 2006 Operating Review Investment Portfolio Below: C4.1, Milton Keynes Investment portfolio In-town retail Out-of-town retail Offices Industrial Total Valuation yields In-town retail Out of town retail Offices Industrial Total Like for like Average valuation unexpired term increase years 22.1% 28.7% 14.9% 6.1% 17.3% 9.5 11.4 7.8 8.3 8.7 True Initial Reversionary Equivalent equivalent 3.4% 4.4% 6.8% 5.7% 5.3% 6.3% 5.4% 7.2% 7.8% 6.8% 6.0% 5.3% 6.6% 7.7% 6.4% 6.2% 5.5% 6.9% 8.1% 6.7% Investment Portfolio The investment and trading portfolio had another good year with a like for like valuation increase of 17.3%, sales of investment properties at 16.9% over 2005 valuation and trading profits of £13.4m. In all, this produced an unleveraged total return of 27.2% as against 27.6% in the previous year. All figures exclude the surplus arising from the valuation of trading and development stock referred to in the Chairman’s Statement. Retail The first phase of our refurbishment of the 225,000 sq.ft. Morgan Department Store in Cardiff is due to complete in the autumn. Pre-lets to Borders and SportsWorld make up over 60% of the anticipated new income with two further lettings in solicitors’ hands increasing this to 80%. The conversion of the top floors to 55 flats will complete next year. The Royal and Morgan Arcades, which form the final part of this holding, comprise 55 retail units which forge a link between the main public transport nodes and the proposed St David’s 2 Shopping Centre. Further growth was secured at our shopping centre in Letchworth with five new lettings setting rentals at double the level pertaining at the time of our purchase in 2003. Meanwhile, our retail holding at Chiswick was sold at circa 150% over original purchase cost having obtained a residential consent at the rear of the site and regeared the retail lease. Unleveraged total return on investment and trading portfolio 27.2% Below: Morgan Department Store, Cardiff 10 Helical Bar plc Report & Accounts 2006 10 Helical Bar plc Report & Accounts 2006 10 Helical Bar plc Report & Accounts 2006 10 Helical Bar plc Report & Accounts 2006 10 Helical Bar plc Report & Accounts 2006 A portfolio of 95 small off-licences acquired for £25.5m in 2005 was traded out at auction over the year to show a profit of circa £9m, over 30% on cost. Our retail warehouse park in Weston-super-Mare was sold during the year for £42.65m. This price included the forward purchase of a new 29,000 sq.ft. unit, currently under construction and prelet to Wickes. The transaction showed a profit of circa 200% on 1999 purchase cost plus capital expenditure. At Crowborough, a property acquired last year, we regeared the occupational lease to Focus and sold on at a 30% profit on cost. Our retail warehouse in Sheffield, also acquired last year, was traded on to a residential developer at over 50% above purchase cost. In joint venture with local developers Abbeygate we have recently commenced construction of the £100m C4.1 mixed use project in Milton Keynes. The retail element, a 110,000 sq.ft. supermarket, has been forward sold to Sainsbury’s and the social element of the 440 unit residential scheme pre-sold to Genesis. We have also recently submitted a planning application in Milton Keynes for a 300,000 sq.ft. retail and leisure scheme anchored by furniture retailer ILVA on the site of our existing 120,000 sq.ft. Leisure Plaza. Investment Properties Town Centre Retail Morgans Department Store, Cardiff Morgan & Royal Arcades, Cardiff Garden Square, Letchworth Average passing (sq.ft.) rent (psf) Size Vacancy rate Ownership interest/ acquired Comments Year 160,000 £14 37% 2005 Prelets to Borders & SportsWorld 65,000 £40ZA 3% 2005 165,000 £45ZA 6% 2003 New lettings @ £65 psf ZA East Grinstead 37,000 £9 0% Adjoins proposed development Glasgow Portfolio 23,000 £30 450,000 10% 16% Out-of-town retail Otford Road Retail Park, Sevenoaks 43,000 £14 0% 2003 Homebase, St Austell 36,000 £8 0% 2002 Focus, Ashford 32,000 £15 0% 2004 Focus, Paignton 24,000 £12 0% 2005 Wickes, Worthing 26,000 £11 0% 2003 161,000 £12 0% 75% interest 75% interest 75% interest 67% interest 75% interest Below: Leisure Plaza, Milton Keynes 11 Helical Bar plc Report & Accounts 2006 11 Helical Bar plc Report & Accounts 2006 11 Helical Bar plc Report & Accounts 2006 11 Helical Bar plc Report & Accounts 2006 Offices At Shepherds Building we have in recent years converted a large 150,000 sq.ft. office building in an unconventional location in Shepherds Bush into a thriving media related hub. Over 50 tenants occupy units from 200 sq.ft. to 35,000 sq.ft. anchored around a communal bar café. We have a waiting list of tenants seeking to move into the building and lettings recently agreed show a 25% increase in rental value. We have now rolled this format out in Battersea where we have just finished converting a 60,000 sq.ft. disused TV Studios. Ten lettings have been secured to date and after the year end planning consent was granted for a further 50,000 sq.ft. of floorspace on site. Our 80,000 sq.ft. Rex House in St James’s, which was refurbished and let in 2001, has been enjoying a strong underlying rental recovery and has considerable marriage value potential – comprising a 30 year leasehold interest. At 61 Southwark Street the location of our holding continues to improve with the imminent completion of the Bankside development nearby, adding to the Southbank’s renaissance. Investment Portfolio continued Investment Properties London Offices Average passing (sq.ft.) rent (psf) Size Vacancy rate Ownership interest/ acquired Comments Year Rex House, SW1 80,000 £56 0% 2000 Leasehold expires 2035 Shepherds Building, W14 151,000 £20 0% 2000 61Southwark Street, 66,000 SE1 £20 10% 1998 Battersea Studios, SW8 Amberley Court, Crawley 53,000 £17 73% 2005 31,000 £11 43% 2006 90% interest 50% interest 90% interest 381,000 £28 16% Industrial Hawtin Park, Blackwood Aldridge, Walsall Sawston, Cambridge Golden Cross, Hailsham Waterside, Fleet 251,000 £2.85 63% 2003 208,000 £2.40 29% 2006 188,000 £4.40 0% 2003 90% interest 67% interest 102,000 £5.50 0% 2001 54,000 £7.00 9% 1999Residential potential Standard Estate, N Woolwich 50,000 £9.00 35% 2002 60% interest Mailcom, 28,000 £6.00 0% 2004 Retail 881,000 £4.10 27% warehouse potential Milton Keynes Other Cardiff Royal Infirmary – vacant hospital on a peppercorn lease with redevelopment potential Below: Battersea Studios, SW8 12 Helical Bar plc Report & Accounts 2006 12 Helical Bar plc Report & Accounts 2006 12 Helical Bar plc Report & Accounts 2006 12 Helical Bar plc Report & Accounts 2006 12 Helical Bar plc Report & Accounts 2006 Trading Properties Address Description C4.1, Milton Keynes Leisure Plaza, Milton Keynes Upper High Street, Epsom Sandiacre, Nottingham Great Alne, Maudslay Park Aycliffe & Peterlee Sawston, Cambridge 110,000 sq.ft. supermarket + 440 residential units under construction 119,000 sq.ft. leisure scheme with potential for retail warehouse use Residential site with supermarket potential 145,000 sq.ft. industrial with supermarket potential 314,000 sq.ft. industrial estate on a 20 acre site with potential for a retirement home use Industrial sites with residential or retail potential 65,000 sq.ft. offices/industrial developed for owner occupier sales Watlington Road, 73,000 sq.ft. offices/industrial Oxford in course of refurbishment/ redevelopment for owner occupier sales Kidlington, Oxford Southall, West London Millbrook, Southampton 140,000 sq.ft. industrial to be developed for owner occupier sales 250,000 sq.ft. industrial to be developed for owner occupier sales 135,000 sq.ft. industrial to be developed for owner occupier sales Year acquired % interest 2006 50% 2003 50% 2005 100% 2005 75% 2004 100% 1987 100% 2003 67% 2005 80% 2006 80% 2006 80% 2006 80% Industrials During the year, sites have been acquired for schemes at Southall, West London (250,000 sq.ft.), Kidlington, Oxford (140,000 sq.ft.) and Southampton (135,000 sq.ft.) in joint venture with Chancerygate to develop small units for freehold sales. Final sales were completed at our existing schemes in Slough and Edenbridge and good progress made on sales in Sawston, Cambridge (65,000 sq.ft./73% sold) and Cowley, Oxford (73,000 sq.ft./43% sold). Our site in Newmarket, acquired in 2005, was sold on to an owner occupier at a 25% profit on cost. All these projects are held as trading stock. From within the investment portfolio we sold our holdings in Preston at 12% over valuation and 150% over historic purchase cost. We also sold just over half of our Woolwich estate at more than the whole cost of purchase in 2002 and subsequent refurbishment. We are hopeful of securing this year a retirement village consent on our twenty acre industrial holding in Great Alne, Warwickshire. We also continue to make progress in pursuing a residential consent for our industrial estate in Fleet, having recently acquired an amenity site to overcome objections by English Nature. Over the year we assembled a site in Sandiacre, Nottingham acquiring three separate interests which is now under offer to be sold to a supermarket operator. Michael Brown Investment Director Like-for-like valuation increase on investment and trading portfolio 17.3% 13 Helical Bar plc Report & Accounts 2006 13 Helical Bar plc Report & Accounts 2006 13 Helical Bar plc Report & Accounts 2006 13 Helical Bar plc Report & Accounts 2006 Financial Review International Financial Reporting Standards (“IFRS”) In common with all companies listed on European Union stock exchanges, Helical adopted IFRS with effect from 1 April 2004, although for practical purposes these Reports and Accounts are the first to be prepared in accordance with IFRS. Included in these accounts are restated comparative figures for the year to 31 March 2005. Prior to the adoption of IFRS, the financial statements of the Group had been prepared in accordance with the United Kingdom Generally Accepted Accounting Principles (“UK GAAP”). UK GAAP differs in certain respects from IFRS and certain accounting valuation and consolidation methods have been amended, when preparing these financial statements, to comply with IFRS. Reconciliations to, and explanations of the differences between these figures and those previously reported under UK GAAP are provided in note 2 of these accounts. The adoption of IFRS has changed the presentation and format of the annual report. However, it has no impact on the cash flows of the business or its underlying performance. The principal changes arising from the presentation of these accounts under IFRS are as follows: Disclosure of financial information under IFRS A Consolidated Income Statement replaces the Consolidated Profit and Loss Account. This Income Statement provides a more detailed sectional analysis of gross profit and includes revaluation movements where previously they had been shown through the revaluation reserve. The impact on deferred tax associated with the revaluation movements are taken to the Income Statement whereas previously they were shown as unprovided contingent liabilities or assets. Movements in the fair value of financial instruments, previously disclosed as contingent assets and liabilities are now taken to the Income Statement and Balance Sheet. The Consolidated Balance Sheet under IFRS analyses assets and liabilities between current and non-current. The Consolidated Cash Flow Statement is restated to reconcile opening and closing cash balances, reconciling cash from operating activities with cash generated from investing and financial activities. Changes in accounting policies under IFRS In addition to the changes in disclosure relating to investment property revaluation surpluses, their associated deferred tax liabilities, the fair value of financial instruments and deferred tax assets, the adoption of IFRS has resulted in changes to the accounting policies on goodwill, amortisation of rent free periods and other lease incentives and letting costs. The provisions of IFRS2 on Share Based Payments have also been applied in respect of equity settled awards granted since 7 November 2002 where those awards had not vested by 1 January 2005. Details of the accounting policies adopted by the Group and Company under IFRS are included in note 1 on pages 23 to 25. Share capital On 31 August 2005 shareholders approved a five for one share split effective from 1 September 2005. As a consequence the 18,424,385 ordinary 5p shares in existence on 1 September 2005 were divided into 92,121,925 ordinary 1p shares. Net asset values per share, earnings per share, dividends and share awards for the current and comparative periods have all been adjusted accordingly. Consolidated Income Statement Profits Profits before tax fell to £57.1m (2005: £64.7m) as reduced levels of net rental income and development profits exceeded the increase in trading profits. Adjusted profits before tax, which excludes the gain on sale and revaluation of investment properties, fell to £13.6m (2005: £20.5m). Profits after tax and minority interest fell to £47.6m (2005: £65.5m). Rental income Net rental income for the year fell to £16.5m (2005: £20.4m) reflecting the sale of let investment and trading properties and their replacement with vacant or partially let properties with refurbishment and rental growth prospects. During the year £110m of investment and trading properties, yielding £5.3m of rental income were sold. £40m was used to add to the investment portfolio and £37m was used to purchase income producing properties to be re-developed or traded. Together these currently produce a passing rent of £2.0m. Rent reviews and new lettings, net of lease expiries and rent free periods, added rental income of £1.4m on the remaining portfolio. Rental costs increased from £2.3m to £3.6m, reflecting the costs of vacant space at properties undergoing refurbishment. Trading and other profits Trading profits of £13.4m were up on last year (2005: £5.8m) and arose from the sale of a number of properties at Harlow, Sawston, Edenbridge, Newmarket, Dunstable, Oxford, Slough and Sheffield, as well as a portfolio of Unwins retail outlets. 14 Helical Bar plc Report & Accounts 2006 Development profits The development programme produced profits at the retail schemes at Bournemouth, Nottingham and Stafford. Developments Profits IFRS 2006 £000 4,594 IFRS 2005 £000 12,664 UK GAAP 2004 £000 38 UK GAAP 2003 £000 4,630 UK GAAP 2002 £000 17,072 Share of results of joint ventures The major contributor to the results of the joint ventures during the period was the recognition of the remaining profit (net of tax) at the Homebase development at Winterhill, Milton Keynes. Administrative expenses Administrative expenses increased from £15.8m to £16.6m due to an increased charge for share based payments offsetting a lower level of performance related cash bonuses. Administrative expenses, before impairment of goodwill and executive bonuses, increased to £6.1m (2005: £5.6m). Gain on sale and revaluation of investment properties During the year to 31 March 2006 the Group sold investment properties with book values of £57.6m (2005: £124.2m) on which it made £7.8m (2005: £14.1m) of profit. The properties sold included the retail park at Weston-Super-Mare, a Focus DIY store at Crowborough, a retail unit in Chiswick and a number of industrial units at Woolwich, Sawston and Preston. The revaluation surplus for the year was £35.7m (2005: £30.1m). Finance costs and finance income Lower levels of debt throughout the year reduced finance costs to £7.4m (2005: £8.7m), after capitalising £2.8m (2005: £2.3m) of interest. Finance income earned on cash deposits reduced from £1.9m to £1.3m. Net finance costs Interest payable on bank loans Other interest payable Finance arrangement costs Interest capitalised Interest receivable IFRS 2006 £000 7,638 2,346 234 (2,797) (1,295) 6,126 IFRS 2005 £000 8,330 2,243 457 (2,296) (1,948) 6,786 UK GAAP 2004 £000 UK GAAP 2003 £000 7,548 1,741 170 (1,817) (1,070) 6,572 9,543 2,351 783 (795) (2,244) 9,638 UK GAAP 2002 £000 14,804 3,215 408 (1,006) (2,642) 14,779 Taxation The corporation tax charge for the year is less than the standard rate of 30% due to the use of capital allowances and tax losses. It is expected that the corporation tax charge in the year to 31 March 2007 will be less than the standard rate of 30% due to the use of capital allowances. The deferred tax charge for the year reflects a provision for tax on revaluation surpluses and on temporary differences between the carrying amount of assets and liabilities in the financial statements and their corresponding tax bases in accordance with IFRS. Dividends The Board is recommending to shareholders at the Annual General Meeting on 20 July 2006 a final dividend of 2.45p per share (2005: 2.20p) to be paid on 21 July 2006 to shareholders on the register on 23 June 2006. This final dividend, amounting to £2.2m (2005: £1.8m) has not been included as a liability at 31 March 2006, in accordance with IFRS. Dividends Interim Prior period final Total Special IFRS 2006 pence 1.45 2.20 3.65 – 3.65 IFRS 2005 pence 1.32 2.00 3.32 – 3.32 UK GAAP 2004 pence UK GAAP 2003 pence UK GAAP 2002 pence 1.32 2.00 3.32 – 3.32 1.20 1.80 3.00 – 3.00 1.10 1.65 2.75 20.00 22.75 In the year to 31 March 2005 a 400p per share dividend was paid to shareholders holding 14,143,020 A ordinary 5p shares as part of the Return of Cash on 23 December 2004. 15 Helical Bar plc Report & Accounts 2006 Financial Review continued Earnings per share Earnings per share in the year to 31 March 2006 were 54.7p (2005: 56.3p) per share and on a diluted basis were 51.8p (2005: 53.7p) per share. Earnings per share Earnings per share Diluted earnings per share Adjusted diluted earnings per share IFRS 2006 pence 54.7 51.8 8.5 IFRS 2005 pence 56.3 53.7 11.5 UK GAAP 2004 pence UK GAAP 2003 pence UK GAAP 2002 pence 8.2 7.9 – 12.2 11.8 – 12.0 11.6 – Adjusted diluted earnings per share excludes from earnings the IFRS effects of including the gain on sale and revaluation of investment properties and fair value movement on derivative financial instruments. Consolidated Balance Sheet Investment portfolio During the year investment properties with a book value of £57.6m were sold and partly replaced by £30.8m of new properties. In addition around £9.4m of capital expenditure was spent on refurbishing various office, industrial and retail buildings. At 31 March 2006 there was a revaluation surplus of £35.7m (2005: £30.1m) on the investment portfolio. Investment portfolio Cost or valuation at 1 April Additions at cost Disposals Revaluation IFRS 2006 £000 IFRS 2005 £000 UK GAAP 2004 £000 UK GAAP 2003 £000 UK GAAP 2002 £000 271,315 335,114 342,484 439,911 453,607 45,100 30,314 50,464 47,175 32,838 (57,565) (124,210) (82,178) (131,168) (65,062) 35,733 30,097 24,162 (13,434) 18,528 Cost or valuation at 31 March 294,583 271,315 334,932 342,484 439,911 Net asset values The adoption of IFRS, with effect from 1 April 2004, reduced net assets at that date by £15.9m, and by £10.5m as at 31 March 2005. The individual adjustments are included in note 2 d) on page 27. The performance of the Group in the year to 31 March 2006 has increased equity shareholders’ funds, on which the net asset value per share is calculated, by £47.6m and this has led to a 23% increase in diluted net assets per share to 253p and a 24% increase in adjusted diluted net assets per share to 278p. Taking into account the directors’ valuation of trading and development stock of £29m (2005: £13m) the adjusted diluted net assets per share increased by 30% to 309p (2005: 238p). Net asset values per ordinary share Diluted – 1 Adjusted diluted – 2 Adjusted diluted plus stock – 3 1 – net asset value diluted for share options. IFRS 2006 pence 253 278 309 IFRS 2005 pence 205 224 238 IFRS 2004 pence 164 182 n/a UK GAAP 2003 pence UK GAAP 2002 pence 155 141 n/a 155 133 n/a 2 – net asset value diluted for share options and adding back deferred tax on revaluation surpluses and capital allowances and fair value of financial instruments. 3 – net asset value as per 2, plus the surplus on directors’ valuation of trading and development stock. Borrowings and financial risk The Group’s increased trading activity and net sales of investment property have continued the reduction in debt and, at 31 March 2006, net debt had fallen from £125.0m to £112.7m. Taken with an increase in net assets of £43.9m, the reduction in net debt combined to reduce the Group’s net gearing from 67% to 49%. Net debt and gearing Net debt Gearing IFRS 2006 IFRS 2005 UK GAAP 2004 UK GAAP 2003 UK GAAP 2002 £112.7m £125.0m £129.8m £140.9m £152.4m 49% 67% 55% 62% 67% The Group seeks to manage liquidity risk by ensuring that there is sufficient financial liquidity to meet foreseeable needs and to invest surplus cash safely and profitably. At the year end, Helical had £56m of undrawn bank facilities and cash of £10.1m (2005: £28.2m). In addition it had £158m (2005: £130m) of uncharged property on which the Group could borrow funds. As at 16 June 2006 Helical’s average interest rate was 5.83%. 16 Helical Bar plc Report & Accounts 2006 Performance Measures Key performance indicators, such as the Company's performance against an Investment Property Databank ("IPD") benchmark, Total Shareholder Return and net asset value growth, are included in the Chairman's Statement. In addition, in order to evaluate its overall performance against other small to mid-size companies, both here and abroad, Helical looks at equity added value. Equity value added Year ended 31 March Capital employed Return on capital Weighted average cost of capital Spread Equity value added/(lost) IFRS 2006 336 21.7 6.9 14.8 49.6 IFRS 2005 347 22.1 6.7 15.4 53.4 UK GAAP 2004 UK GAAP 2003 UK GAAP 2002 348 11.5 7.0 4.5 15.6 377 3.9 6.1 (2.2) (8.5) 390 10.5 6.3 4.2 19.6 £m % % % £m Nigel McNair Scott Finance Director 17 Helical Bar plc Report & Accounts 2006 Consolidated Income Statement Helical Bar plc and subsidiary undertakings for the year ended 31 March 2006 Revenue Net rental income Trading profits Development profits Share of results of joint ventures Other operating income Gross profit before gain on investment properties Gain on sale and revaluation of investment properties Gross profit Administrative expenses Operating profit Finance costs Finance income Change in fair value of derivative financial instruments Profit before tax Tax Profit after tax – attributable to minority interests – attributable to equity shareholders Profit for the year Basic earnings per share Diluted earnings per share Year ended 31.3.06 £000 Year ended 31.3.05 £000 119,274 101,469 16,524 13,441 4,594 437 235 35,231 43,551 78,782 20,440 5,771 12,664 2,699 235 41,809 44,204 86,013 (16,582) (15,757) 62,200 (7,421) 1,295 1,046 57,120 (9,676) 47,444 (124) 47,568 47,444 54.7p 51.8p 70,256 (8,734) 1,948 1,225 64,695 844 65,539 17 65,522 65,539 56.3p 53.7p Note 3 4 5 6 7 7 8 12 12 18 Helical Bar plc Report & Accounts 2006 18 Helical Bar plc Report & Accounts 2006 Balance Sheets Helical Bar plc and subsidiary undertakings at 31 March 2006 Note Group 31.3.06 £000 Group 31.3.05 £000 Company 31.3.06 £000 Company 31.3.05 £000 13 14 15 16 17 18 19 20 21 22 26 23 23 9 25 294,583 271,315 489 – 295 68 540 – 2,195 182 – 489 – 540 15,300 15,300 150 – – – 295,435 274,232 15,939 15,840 86,076 95,568 66 33,925 10,135 130,202 425,637 161 41,528 28,203 165,460 439,692 522 – 472 – 310,148 226,147 3,030 20,776 313,700 329,639 247,395 263,235 (49,506) (75,833) (183,277) (174,159) (3,394) – (5,787) (2,451) (42,683) (21,136) (1,743) – – (4,919) (2,451) – (95,583) (105,207) (185,020) (181,529) (80,160) (132,043) (610) (1,657) (19,005) (14,438) (182) (182) (99,957) (148,320) – – (276) – (276) – – (124) – (124) (195,540) (253,527) (185,296) (181,653) 230,097 186,165 144,343 81,582 Non-current assets Investment properties Owner occupied property, plant and equipment Investments Investment in joint ventures Goodwill Current assets Land, developments and trading properties Available-for-sale investments Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade payables and other payables Tax liabilities Redeemable preference shares Borrowings Non-current liabilities Borrowings Derivative financial instruments Deferred tax provision Obligations under finance leases Total liabilities Net assets 19 Helical Bar plc Report & Accounts 2006 Group 31.3.05 £000 Company 31.3.06 £000 Company 31.3.05 £000 1,170 39,110 54,530 7,467 291 86,822 (6,893) 1,209 42,490 – 7,478 1,987 98,318 (7,139) 1,170 39,110 – 7,467 1,987 38,741 (6,893) 81,582 – Equity attributable to equity holders of the parent 230,097 182,497 144,343 Minority interests Total equity – 3,668 – 230,097 186,165 144,343 81,582 Balance Sheets continued Helical Bar plc and subsidiary undertakings at 31 March 2006 Equity Called-up share capital Share premium account Revaluation reserve Capital redemption reserve Other reserves Retained earnings Investment in own shares Group 31.3.06 £000 1,209 42,490 64,820 7,478 291 120,948 (7,139) Note 29 29 29 29 29 29 29 The financial statements were approved by the Board of Directors on 16 June 2006. M.E. Slade Director N.G. McNair Scott Director 20 Helical Bar plc Report & Accounts 2006 20 Helical Bar plc Report & Accounts 2006 Statement of Recognised Income and Expense Helical Bar plc and subsidiary undertakings for the year ended 31 March 2006 Profit for the year Fair value movements on available-for-sale investments Total recognised income and expense for the year – attributable to equity shareholders – attributable to minority interest Group Year ended 31.3.06 £000 Group Year ended 31.3.05 £000 Company Year ended 31.3.06 £000 Company Year ended 31.3.05 £000 47,444 65,539 62,715 29,622 (14) 47,430 47,554 (124) 38 65,577 65,560 17 – 62,715 62,715 – – 29,622 29,622 – 47,430 65,577 62,715 29,622 21 Helical Bar plc Report & Accounts 2006 Group and Company Cash Flow Statements Cash flows from operating activities Operating profit Depreciation Gain on investment properties Other non-cash items Cash flows from operations before changes in working capital Change in trade and other receivables Change in land, developments and trading properties Change in trade and other payables Cash generated from operations Finance costs Finance income Minority interest dividends paid Dividends from joint ventures Dividends from subsidiaries Tax paid Cash flows from operating activities Cash flows from investing activities Purchase of investment property Sale of investment property Purchase of shares Purchase of shares by ESOP Acquisitions Sale of plant and equipment Purchase of plant and equipment Cash flows from financing activities Issue of shares Borrowings drawn down Borrowings repaid Equity dividends paid Repurchase of shares Group Year to 31.3.06 £000 62,200 179 Group Year to 31.3.05 £000 70,256 190 (43,551) (44,204) (454) 18,374 3,232 11,989 (30,779) 2,816 (3,428) 22,814 (14,375) (21,366) 42,188 29,261 (10,256) (10,408) 1,295 (3,545) 2,337 – (4,743) (14,912) (12,096) 1,942 (1,249) 846 – (42) (8,911) 20,350 (39,055) (54,515) 65,991 138,305 – (85) – 47 (140) – (4,078) (124) 47 (231) 26,758 79,404 3,418 35,146 (65,647) (3,127) – 3,965 51,114 (46,255) (60,798) (4,467) Company Year to 31.3.06 £000 Company Year to 31.3.05 £000 158 179 – (34) 303 (616) 190 – (43) (469) (60,932) 118,114 (50) (380) 9,340 (53,127) (51,339) 64,138 (123) 7,525 – 2,488 31,205 (4,853) 36,242 (453) 7,490 – – 45,403 (473) 51,967 (15,097) 116,105 – – (311) (85) – 47 (140) (489) – – (7,104) (4,078) – 47 (231) (11,366) 3,418 3,965 – – – – (3,127) (60,798) – (4,467) Return of Cash – B share repurchase (2,451) (32,465) (2,451) (32,465) – expenses Refinancing costs Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at 1 April 2005 Cash and cash equivalents at 31 March 2006 – (69) (32,730) (18,068) 28,203 10,135 (709) (220) – – (709) – (89,835) (2,160) (94,474) 9,919 18,284 28,203 (17,746) 20,776 3,030 10,265 10,511 20,776 22 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements 1. Principal accounting policies – group and company Basis of preparation The consolidated financial statements have, for the first time, been prepared in accordance with applicable International Financial Reporting Standards (“IFRS”), as adopted by the European Union and IFRS as issued by the International Accounting Standards Board. The parent company’s financial statements have also been prepared in accordance with IFRS, as adopted by the European Union. The directors have taken advantage of the exemption offered by S.230 of the Companies Act not to present a separate income statement for the parent company. The financial statements have been prepared under the historical cost convention as modified by the revaluation of investment properties, available for sale investments and derivative financial instruments. The measurement bases and principal accounting policies of the Group are set out below. The policies have changed from the previous year when the financial statements were prepared under applicable United Kingdom Generally Accepted Accounting Principles (“UK GAAP”). The comparative information has been restated in accordance with IFRS. The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are provided in note 2. The date of transition to IFRS was 1 April 2004. The Group has taken advantage of certain exemptions available under IFRS 1 First-time adoption of International Financial Reporting Standards. The exemptions used are explained under the respective accounting policy. Basis of consolidation The Group financial statements consolidate those of the Company and all of its subsidiary undertakings drawn up to 31 March 2006. Subsidiary undertakings are those entities over which the Group has the ability to govern the financial and operating policies through the exercise of voting rights. Unrealised gains on transactions between the Company and its subsidiaries and between subsidiaries are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Revenue recognition Property revenue consists of gross rental income on an accruals basis, together with sales of trading and development properties, excluding sales of investment properties. Rental income receivable in the period from lease commencement to the earlier of lease expiry and any tenant option to break is spread evenly over that period. Any incentive for lessees to enter into a lease agreement and any costs associated with entering into the lease are spread over the same period. Revenue in respect of investment and other income represents investment income, fees and commissions earned on an accruals basis and profits or losses recognised on investments held for the short-term. Dividends are recognised when the shareholders’ right to receive payment has been established. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate. A property is regarded as sold when the significant risks and returns have been transferred to the buyer. For conditional exchanges, sales are recognised when the conditions are satisfied. Share-based payments The Group provides share-based payments in the form of share options, performance share plan awards and a share incentive plan. These payments are discussed in greater detail in the Directors’ Remuneration Report on pages 55 to 62. All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements. The Group uses a stochastic valuation model and the resulting value is amortised through the Consolidated Income Statement (“Income Statement”) over the vesting period of the share-based payments. For the performance share plan and share incentive plan awards, where non-market conditions apply, the expense is allocated over the vesting period, to the Income Statement based on the best available estimate of the number of awards that are expected to vest. Estimates are subsequently revised if there is any indication that the number of awards expected to vest differs from previous estimates. Depreciation In accordance with IAS40 Investment Property, depreciation is not provided for on freehold investment properties or on leasehold investment properties. The Group does not own the freehold land and buildings which it occupies. Costs incurred in respect of leasehold improvements to the Group’s head office at 11-15 Farm Street, London W1J 5RS are capitalised and held as short leasehold improvements. Leasehold improvements, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Residual values are reassessed annually. Depreciation is charged so as to write off the cost of assets less residual value, over their estimated useful lives, using the straight line method, on the following basis: Short leasehold improvements – 10% or length of lease, if shorter Plant and equipment – 25% Taxation The taxation charge represents the sum of tax currently payable and deferred tax. The charge for current taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. It is calculated using rates that have been enacted or substantively enacted by the balance sheet date. Tax payable upon 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 the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. 23 Helical Bar plc Report & Accounts 2006 23 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 1. Principal accounting policies (continued) The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the assets to be recovered. Deferred tax is determined using tax rates that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. It is recognised in the Income Statement except when it relates to items credited or charged directly to equity, in which case the deferred tax is also dealt with in equity. Dividends Dividend distributions to the Company’s shareholders are recognised as a liability in the financial statements in the period in which dividends are declared. Investment properties Investment properties are properties owned or leased by the Group which are held for long-term rental income and for capital appreciation. Investment properties are initially recognised at cost and revalued at the balance sheet date to fair value as determined by professionally qualified external valuers. In accordance with IAS40, investment properties held under leases are stated gross of the recognised finance lease liability. Gains or losses arising from changes in the fair value of investment properties are included in other operating income in the Income Statement of the period in which they arise. In accordance with IAS40, as the Group uses the fair value model, no depreciation is provided in respect of investment properties including integral plant. When the Group redevelops an existing investment property for continued future use as investment property, the property remains an investment property measured at fair value and is not reclassified. Interest is capitalised before tax relief until the date of practical completion. Investment in joint ventures Entities whose economic activities are controlled jointly by the Group and by other ventures independent of the Group are accounted for using the equity method of accounting. Under IFRS the Group’s share of the results and of the net assets of the joint ventures are shown in the Income Statement and Consolidated Balance Sheet (“Balance Sheet”) respectively. Under IFRS the Company’s cost of investment in joint ventures is shown in the Company Balance Sheet. Investments in subsidiaries Investments in subsidiaries are held in the Company balance sheet at cost and reviewed annually for impairment. Goodwill Goodwill representing the excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired, is capitalised and reviewed annually for impairment. Goodwill is carried at cost less accumulated impairment losses. Negative goodwill is recognised immediately after acquisition in the Income Statement. Land, developments and trading properties Land, developments and trading properties held for sale are inventory and are included in the Balance Sheet at the lower of cost and net realisable value. Investments Investments are classified as available-for-sale investments or trading investments dependent on the purpose for which they were acquired. Available-for-sale investments, being investments intended to be held for an indefinite period, are revalued to fair value at the balance sheet date. For listed investments, fair value is the bid market listed value ruling at the balance sheet date. Gains or losses arising from changes in fair value are included in the revaluation reserve except to the extent that losses are attributable to impairment, in which case they are recognised in the Income Statement. Upon disposal, accumulated fair value adjustments are included in the Income Statement. Trade receivables Trade receivables do not carry any interest and are stated at fair value and subsequently at amortised cost as reduced by appropriate allowances for estimated irrecoverable amounts. Cash and cash equivalents Cash and cash equivalents are carried in the Balance Sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash in hand, deposits with banks, other short-term, highly liquid investments with original maturities of three months or less, net of bank overdrafts. Trade and other payables Trade and other payables are not interest bearing and are initially recognised at fair value and subsequently at amortised cost. Borrowing and borrowing costs Interest bearing bank loans and overdrafts are initially recorded at fair value, net of finance and other costs yet to be amortised. Finance and other costs incurred in respect of the obtaining and maintenance of borrowings are accounted for on an accruals basis and written-off to the Income Statement over the length of the associated borrowings. Borrowing costs directly attributable to the acquisition and construction of new development and investment properties are added to the costs of such properties until the earliest of: • the date when the development or investment becomes fully let; • the date when the income exceeds outgoings; and, • the date of completion of the development or investment. All other borrowing costs are recognised in the Income Statement in the period in which they are incurred. 24 Helical Bar plc Report & Accounts 2006 1. Principal accounting policies (continued) Derivative financial instruments Derivative financial assets and financial liabilities are recognised on the Balance Sheet when the Group becomes a party to the contractual provisions of the instrument. The Group enters into derivative transactions such as interest rate caps and floors in order to manage the risks arising from its activities. Derivatives are initially recorded at fair value and are subsequently remeasured to fair value based on market prices, estimated future cash flows and forward rates as appropriate. Any change in the fair value of such derivatives is recognised immediately in the Income Statement as a finance cost. Leases Leases are classified according to the substance of the transaction. A lease that transfers substantially all the risks and rewards of ownership to the lessee is classified as a finance lease. All other leases are classified as operating leases. In accordance with IAS40, finance and operating leases of investment property are accounted for as finance leases and recognised as an asset and an obligation to pay future minimum lease payments. The investment property asset is included in the balance sheet at fair value, gross of the recognised finance lease liability. Lease payments are allocated between the liability and finance charges so as to achieve a constant financing rate. Assets leased out under operating leases are included in investment property, with rental income recognised on a straight-line basis over the lease term. Employee Share Ownership Plan Trust Shares held in the Helical Bar Employee Share Ownership Plan Trust (“ESOP”) are shown as a deduction in arriving at equity funds. Assets, liabilities and reserves of the ESOP are included in the statutory headings to which they relate. Use of estimates and judgements To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial accounts. These estimates are based on historical experience and various other assumptions that management and the Board of Directors believe are reasonable under the circumstances. The results of these considerations form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources. Areas requiring the use of estimates and critical judgement that may significantly impact on the Group’s earnings and financial position are: – revenue and cost recognition on developments where profits, recognised only when developments are sold and let, are spread over the construction period using estimates of the final outcome; – valuation of investment properties, where external valuers are used to provide third party valuations; – calculation of deferred tax liabilities, where indexation is used to reduce the provision for deferred tax on revaluation surpluses; – calculation and assessment of recoverability of deferred tax assets, where it has been assumed that the provision for ESOP purchases of shares in the Company will be tax deductible on the vesting of share awards made by the Performance Share Plan; and, – recognition of share-based payments charge, where it has been assumed that the share awards made under the terms of the Performance Share Plan will vest in full and require the purchase of shares in the Company by the ESOP. 2. Reconciliations between UK GAAP and IFRS The principal changes arising from the presentation of the 31 March 2004 and 31 March 2005 results under IFRS are: (a) Profit after tax Group Year to 31.3.05 £000 26,814 29,844 8,881 65,539 Company Year to 31.3.05 £000 23,281 6,343 (2) 29,622 As previously reported under UK GAAP IFRS adjustments to profit before taxation IFRS adjustments to taxation IFRS profit after tax 25 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 2. Reconciliations between UK GAAP and IFRS (continued) (b) Profit before tax As previously reported under UK GAAP Goodwill amortisation Amortisation of rent free periods and other lease incentives Amortisation of letting costs Share-based payments Joint venture share of taxation Revaluation gains on investment properties reported as income – subsidiaries – associated companies Movement in fair value of derivative financial instruments Dividends IFRS adjustments IFRS profit before tax Notes 1 2 3 4 5 6 6 7 8 Group Year to 31.3.05 £000 34,851 86 (1,029) (82) (75) (570) 30,098 191 1,225 – 29,844 64,695 Company Year to 31.3.05 £000 27,695 – – – – – – – – 6,343 6,343 34,038 Notes: 1 Under IFRS, goodwill, representing the excess of cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired, is capitalised and reviewed annually for impairment rather than amortised equally in annual instalments over its estimated useful life. 2 Under IFRS, property lease rent free periods, stepped rents and other incentives are amortised over the full lease term rather than the period to first open market rent review. 3 Under IFRS, the costs of letting properties are amortised over the lease term rather than the period to first open market rent review. 4 Under IFRS, share-based payments are amortised over their vesting period and are recognised at fair value. 5 Under IFRS, the joint venture share of taxation is netted off the Group’s share of profit rather than disclosed in the Group’s taxation charge. 6 Under IFRS, gains and losses arising on revaluation of investment properties are recorded as operating income in the Income Statement rather than as a movement on reserves. 7 Under IFRS, derivative financial instruments are carried in the balance sheet at fair value with gains or losses dealt with in the Income Statement. 8 Under IFRS, proposed dividends, receivable and payable, are not recognised as assets and liabilities at the balance sheet date. (c) Taxation Current tax Joint venture share of current tax Deferred tax Investment property surpluses Capital allowances Financial instruments Tenants incentives Letting costs Performance share plan award Share option gains Deferred tax adjustments IFRS tax adjustments As previously reported under UK GAAP Tax as restated under IFRS 26 Helical Bar plc Report & Accounts 2006 Group Year to 31.3.05 £000 (570) (5,825) (93) 368 (309) (24) (303) (2,125) (8,311) (8,881) 8,037 (844) Company Year to 31.3.05 £000 – – 2 – – – – – 2 2 4,413 4,415 2. Reconciliations between UK GAAP and IFRS (continued) (d) Net assets As previously reported under UK GAAP Amortisation of rent free periods and other lease incentives Amortisation of letting costs Fair value of financial instruments Tax effect of the above Goodwill impairment Share-based payment Fair value of available-for-sale investments Preference shares Dividends Provision for contingent tax liability – on revaluation surplus – on capital allowances – other temporary differences IFRS adjustments As at 31 March under IFRS Notes: Notes 9 10 11 12 13 14 15 16 17 18 19 Group At 31.3.05 £000 196,712 3,240 1,606 Group At 01.4.04 £000 238,615 4,269 1,687 (1,657) (2,882) (957) (491) (24) 38 (2,451) 1,831 (922) (576) 51 – – Company At 31.3.05 £000 102,458 Company At 01.4.04 £000 177,176 – – – – – – – (2,451) – – – – – – – – 2,524 (18,407) (24,058) (14,684) (20,509) (306) 3,308 (399) 880 – (18) – – (15) – (10,547) (15,877) (20,876) (24,073) 186,165 222,738 81,582 153,103 9 Under IFRS, property lease rent free periods, stepped rents and other incentives are amortised over the full lease term rather than the period to first open market rent review. 10 Under IFRS, the costs of letting properties are amortised over the lease term rather than the period to first open market rent review. 11 Under IFRS, derivative financial instruments are carried in the balance sheet at fair value with gains or losses dealt with in the Income Statement. 12 Under IFRS. the impact on the Group’s tax charge of the IFRS adjustments in 9, 10 and 11 is reflected in the deferred tax provision. 13 Under IFRS, goodwill representing the excess cost of acquisition over the fair value of the Group’s share of identifiable net assets acquired, is capitalised and reviewed annually for impairment rather than amortised equally in annual instalments over its estimated useful life. 14 Under IFRS, share-based payments are amortised over their vesting period and are recognised at fair value. 15 Under IFRS, available-for-sale investments are valued at fair value rather than at historic cost. 16 Under IFRS, the non-cumulative preference shares of 17⁄8p each are treated as debt. 17 Under IFRS, proposed dividends, receivable and payable, are not recognised as assets and liabilities at the balance sheet date. 18 Under IFRS, provision is made for the deferred tax liability associated with the revaluation of investment properties and other temporary differences, whereas UK GAAP requires that the contingent liability on the sale of the property be disclosed as contingent tax but not provided in the balance sheet. 19 Under IFRS, deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. (e) Adjusted net asset value per share – group As previously reported Amortisation period of lease incentives (net of tax) Amortisation of letting costs (net of tax) Dividend adjustment Deferred tax on other timing differences Restated under IFRS At 31.3.05 pence 216 At 01.04.04 pence 177 2 1 2 3 2 1 2 – 224 182 (f) Cash flows – group and company Under IFRS, the cash flow statements reconcile the movements in cash and cash equivalents, whereas in the last audited UK GAAP financial statements they reconciled the movements in cash only. Other than this there are no material differences in the restated statements of cash flow from those previously reconciled. 27 Helical Bar plc Report & Accounts 2006 Total Year ended 31.3.05 £000 22,745 25,432 52,916 101,093 376 101,469 31.3.05 £000 20,440 5,771 12,664 2,699 44,204 85,778 235 86,013 (15,757) (5,561) 64,695 Notes to the Financial Statements continued 3. Segmental information Revenue Rental income Trading property sales Developments Other Revenue Investment and trading Year ended 31.3.06 £000 20,102 72,101 – 92,203 Developments Year ended 31.3.06 £000 – – 26,756 26,756 Total Year ended 31.3.06 £000 20,102 72,101 26,756 Investment and trading Year ended 31.3.05 £000 22,745 25,432 – 118,959 48,177 Developments Year ended 31.3.05 £000 – – 52,916 52,916 315 119,274 All sales were within the UK. All revenue is attributable to continuing operations. Profit before tax Net rental income Trading profits Development profits Share of results of joint venture Gain on sale of investment properties Other operating income Gross profit Unallocated administrative expenses Unallocated net finance costs Profit before tax Balance sheet Investment properties Land, development and trading properties 31.3.06 £000 16,524 13,441 – 437 43,551 73,953 31.3.06 £000 294,583 45,508 340,091 31.3.05 £000 20,440 5,771 31.3.05 £000 – – – 12,664 2,699 44,204 73,114 – – 12,664 31.3.06 £000 – – 4,594 – – 4,594 31.3.06 £000 16,524 13,441 4,594 437 43,551 78,547 235 78,782 (16,582) (5,080) 57,120 31.3.06 £000 31.3.06 £000 31.3.05 £000 31.3.05 £000 31.3.05 £000 – 294,583 271,315 – 271,315 40,568 40,568 86,076 60,857 380,659 332,172 34,711 34,711 95,568 366,883 Borrowings (122,843) – (122,843) (153,179) – (153,179) 217,248 40,568 257,816 178,993 34,711 213,704 Unallocated assets Unallocated liabilities Net assets 44,978 (72,697) 230,097 72,809 (100,348) 186,165 The segmental information has been provided in respect of the two main divisions of the Group, the investment and trading department and the development department. Details of capital expenditure are included in notes 13 and 14. 28 Helical Bar plc Report & Accounts 2006 4. Net rental income Gross rental income Rents payable Other property outgoings Net rental income 5. Gain on sale and revaluation of investment properties Net proceeds from the sale of investment properties Book value (note 13) Lease incentive and letting costs adjustment Gain on sale of investment properties Revaluation gains on investment properties Gain on sale and revaluation of investment properties 6. Administrative expenses Administrative expenses Operating profit is stated after: Staff costs during the year: – salaries and other remuneration – social security costs – other pension costs Depreciation: – owner occupied property, plant and equipment Share-based payments charge Auditors’ remuneration: – audit services – non-audit services (IFRS and internal controls advice) Year ended 31.3.06 £000 Year ended 31.3.05 £000 20,102 22,745 (489) (3,089) 16,524 (396) (1,909) 20,440 31.3.06 £000 65,992 31.3.05 £000 140,183 (57,565) (124,210) (609) (1,867) 7,818 35,733 43,551 31.3.06 £000 16,582 7,700 1,501 287 9,488 179 3,458 137 16 14,106 30,098 44,204 31.3.05 £000 15,757 9,940 1,455 76 11,471 190 1,010 110 47 Details of the remuneration of Directors’ amounting to £13,358,000 (2005: £13,810,000) are included in the Directors’ Remuneration Report on pages 55 to 62. The amount of the share-based payments charge incurred in relation to share awards made to Directors is £2,524,000 (2005: £747,000). Other pension costs relate to payments to individual pension plans. The average number of employees (management and administration) of the Group during the year was 22 (2005: 22). 29 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 7. Finance costs and finance income Interest payable on bank loans and overdrafts Other interest payable and similar charges Finance arrangement costs Interest capitalised Finance costs Interest receivable and similar income Finance income 8. Taxation on profit on ordinary activities The tax charge is based on the profit for the year and represents: United Kingdom corporation tax at 30% (2005: 30%) – Group corporation tax – adjustment in respect of prior periods Current tax charge Deferred tax – capital allowances – other temporary differences – revaluation surpluses Deferred tax Tax on profit on ordinary activities Factors affecting tax charge for period: Year ended 31.3.06 £000 Year ended 31.3.05 £000 7,638 2,346 234 10,218 (2,797) 7,421 1,295 1,295 8,330 2,243 457 11,030 (2,296) 8,734 1,948 1,948 31.3.06 £000 31.3.05 £000 5,983 – 5,983 (804) (872) 5,369 3,693 9,676 6,100 1,913 8,013 (639) (2,393) (5,825) (8,857) (844) The tax assessed for the period is lower than the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2005: 30%) Effect of: – Payments for use of tax losses – Expenses not deductible for tax purposes – Capital allowances not reflected through deferred tax – Tax relief on share options – Capital losses utilised – Operating profit of joint ventures – Prior year adjustment – Other temporary differences Total tax charge for period 31.3.06 £000 57,120 31.3.05 £000 64,695 17,136 19,409 3,633 (263) (591) (2,260) (7,879) (131) – 31 9,676 3,586 579 (787) (3,891) (19,646) (810) 1,509 (793) (844) Factors that may affect future tax charges The tax charge is expected to be less than the full rate in future years, primarily due to the Group continuing to claim capital allowances in respect of eligible expenditure on investment properties. 30 Helical Bar plc Report & Accounts 2006 9. Deferred tax Deferred taxation provided for in the financial statements is set out below: Capital gains Capital allowances Other temporary differences Deferred tax provision Group 31.3.06 £000 20,927 2,175 (4,097) 19,005 Group 31.3.05 £000 14,684 2,105 (2,351) 14,438 Company 31.3.06 £000 Company 31.3.05 £000 – 276 – 276 – 124 – 124 Under IAS12, deferred tax provisions are made for the tax that would potentially be payable on the realisation of investment properties and other assets at book value. Other timing differences represent deferred tax assets arising from future tax relief available to the Group from capital allowances and when Performance Share Plan awards vest. If upon sale of the investment properties the Group retained all the capital allowances the deferred tax provision in respect of capital allowances of £2.2m would be released and further capital allowances of £16.7m would be available to reduce future tax liabilities. The provision in respect of capital gains tax has been reduced by indexation. 10. Dividends paid Attributable to equity share capital Ordinary – interim paid of 1.45p (2005: 1.32p) per share – prior period final paid of 2.20p (2005: 2.00p) per share Total ordinary paid 3.65p (2005: 3.32p) per share A shares – Return of Cash – paid 23 December 2004 Total dividends paid in year Year ended 31.3.06 £000 Year ended 31.3.05 £000 1,296 1,831 3,127 – 3,127 1,702 2,524 4,226 56,572 60,798 The interim dividend of 1.45p was paid on 22 December 2005 to shareholders on the register on 2 December 2005. The final dividend, if approved at the AGM on 20 July 2006, will be paid on 21 July 2006 to shareholders on the register on 23 June 2006. This final dividend, amounting to £2,174,000, representing 2.45p per share, has not been included as a liability at 31 March 2006. 11. Parent company The Company has taken advantage of Section 230 of the Companies Act 1985 and has not included its own profit and loss account in the financial statements. The profit for the year of the Company was £62,715,000 (2005: £29,622,000). 31 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 12. Earnings per share The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. Shares held by the ESOP, which has waived its entitlement to receive dividends, are treated as cancelled for the purposes of this calculation. The calculation of diluted earnings per share is based on the basic earnings per share, adjusted to allow for the issue of shares on the assumed exercise of all dilutive options. Reconciliations of the earnings and weighted average number of shares used in the calculations are set out below. Ordinary shares in issue Weighting adjustment Weighted average ordinary shares in issue for calculation of basic earnings per share Weighted average ordinary shares issued on exercise of share options Weighted average ordinary shares to be issued on exercise of share options Weighted average ordinary shares to be issued under performance share plan Year end 31.3.06 000’s 90,506 Year end 31.3.05 000’s 135,740 (3,540) (19,430) 86,966 116,310 1,087 2,535 1,296 1,250 4,185 250 Weighted average ordinary shares in issue for calculation of diluted earnings per share 91,884 121,995 Earnings used for calculation of basic and diluted earnings per share Basic earnings per share Diluted earnings per share Earnings used for calculation of basic and diluted earnings per share Less gain on sale and revaluation of investment properties Less fair value movement on derivative financial instruments Add back deferred tax in respect of investment properties Add back deferred tax in respect of derivative financial instruments Earnings used for calculation of adjusted earnings per share Adjusted earnings per share Adjusted diluted earnings per share 31.3.06 £000 47,568 31.3.05 £000 65,522 54.7p 56.3p 51.8p 53.7p 47,568 65,522 (43,551) (44,204) (1,046) 4,565 314 7,850 (1,225) (6,463) 368 13,998 9.0p 12.0p 8.5p 11.5p 32 Helical Bar plc Report & Accounts 2006 13. Investment properties Group Fair value at 1 April Additions at cost Disposals Revaluation surplus Fair value at 31 March Freehold 31.3.06 £000 Leasehold 31.3.06 £000 Total 31.3.06 £000 Freehold 31.3.05 £000 Leasehold 31.3.05 £000 Total 31.3.05 £000 203,683 39,800 (57,565) 25,533 211,451 67,632 5,300 271,315 270,182 64,932 335,114 45,100 29,324 990 30,314 – (57,565) (117,853) (6,357) (124,210) 10,200 83,132 35,733 22,030 8,067 30,097 294,583 203,683 67,632 271,315 Interest capitalised during the year in respect of the refurbishment of investment properties amounted to £300,000 (2005: £nil). Interest capitalised in respect of the development of investment properties is included in investment properties to the extent of £1,313,000 (2005: £1,013,000). The investment properties have been valued on an open market basis at 31 March 2006 as follows: Cushman & Wakefield Healey & Baker, International Real Estate Consultants DTZ Debenham Tie Leung, International Property Advisors Jones Lang LaSalle, International Real Estate Consultants Drivers Jonas, Chartered Surveyors Directors’ valuation The net surplus arising of £35,733,000 (2005: £30,097,000) has been transferred to the revaluation reserve. The historical cost of investment property is £209,527,000 (2005: £201,919,000). 14. Owner occupied property, plant and equipment – group and company Company Cost at 1 April Additions at cost Disposals Cost at 31 March Depreciation at 1 April Provision for the year Eliminated on disposals Depreciation at 31 March Net book amount at 31 March 646 – – 646 458 47 – 505 141 Short leasehold improvements 31.3.06 £000 Plant and equipment 31.3.06 £000 Total 31.3.06 £000 1,499 142 (129) 1,512 959 179 Short leasehold improvements 31.3.05 £000 Plant and equipment 31.3.05 £000 646 – – 646 412 46 – 458 188 820 232 (199) 853 551 144 (194) 501 352 853 142 (129) 866 501 132 (115) (115) 518 348 1,023 489 £000 194,200 17,850 75,400 5,250 1,883 294,583 Total 31.3.05 £000 1,466 232 (199) 1,499 963 190 (194) 959 540 Plant and equipment include vehicles, fixtures and fittings and other office equipment. 33 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 15. Investments At 1 April Acquired during year Further investment in existing subsidiaries At 31 March The Company’s principal subsidiary undertakings, all of which have been consolidated, are: Name of undertaking Nature of business Aycliffe and Peterlee Development Company Ltd Development and trading Aycliffe and Peterlee Investment Company Ltd* Baylight Developments Ltd* Dencora (Docklands) Ltd Dencora (Dunstable) Ltd Dencora (Edenbridge) Ltd Dencora (Harlow) Ltd Chancerygate (Albion) Ltd Chancerygate (Mill Street) Ltd HB Sawston No. 3 Ltd HB Dales Manor No. 3 Ltd HB Cambs No. 3 Ltd Harbour Developments (Bracknell) Ltd Helical Bar (Berkeley Square) Ltd Helical Bar (CL) Investments Ltd* Investment Investment Investment Trading Trading Trading Trading Trading Investment Investment Investment Development Development Investment Helical Bar Developments (South East) Ltd Development and trading Helical Bar (Hawtin Park No. 3) Ltd Helical Bar (Rex House) Ltd Helical Bar Services Ltd Helical Bar Trustees Ltd Helical Bar (Wales) Ltd* Helical Properties Ltd Helical Properties Investment Ltd Helical Properties Retail Ltd Helical Retail Ltd Helical Retail (RBS) Ltd* Helical (Cardiff) Ltd Helical (CR) Ltd Helical (Crowborough) Ltd Helical (Fleet) No. 2 Ltd* Helical (HIS) Ltd Helical (Letchworth) Ltd* Helical (Liphook) Ltd Helical (Sevenoaks) Ltd Helical (St Austell) Ltd Helical (Wednesfield) Ltd Helical (Westfields) Ltd Helical (Worthing) Ltd 34 Helical Bar plc Report & Accounts 2006 Investment Investment Management Services Trustee of Share Incentive Plan Investment Investment and trading Investment Investment Development and trading Development and trading Investment Development and trading Investment Investment Investment Investment Development (Jersey) Investment Investment Investment Investment Investment Company 31.3.06 £000 15,300 – – Company 31.3.05 £000 8,337 1,303 5,660 15,300 15,300 Percentage of ordinary share capital held 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 15. Investments (continued) Name of undertaking Intercontinental Land and Development Co. Ltd* Nature of business Investment development and trading Percentage of ordinary share capital held 100% Networth Ltd* Maudslay Park Ltd Prescot Street Investments Ltd 56/76 CR (Holdings) Ltd 61 Southwark Street Ltd* Helical (Interchange) Ltd Helical Properties (WSM) Ltd* Investment Development Investment Development Investment Investment Investment 100% 100% 100% 100% 100% 100% 75% All principal subsidiary undertakings operate in the United Kingdom and, unless otherwise indicated, are incorporated and registered in England and Wales. A full list of all subsidiaries is lodged with the Annual Return at Companies House. *Ordinary capital is held by a subsidiary undertaking. 16. Investment in joint ventures Summarised income statements Revenue Operating profit Net finance costs Profit before tax Tax Profit after tax Summarised balance sheets Non-current assets Current assets Current liabilities Non-current liabilities Net assets Group 31.3.06 £000 1,067 997 (285) 712 (275) 437 8 5,562 (2,792) (2,483) 295 Group 31.3.05 £000 3,078 3,269 – 3,269 (570) 2,699 – 7,861 (3,184) (2,482) 2,195 The cost of the Company’s investment in joint ventures was £150,000 (2005: £nil). At 31 March 2006 the Group and the Company had interests in the following joint venture companies: Abbeygate Helical (Leisure Plaza) Ltd Abbeygate Helical (Winterhill) Ltd Grosvenor Hill (Sprucefields) Ltd The Asset Factor Ltd Shirley Advance LLP Country of incorporation Class of share Proportion held Group capital held Proportion held Company Nature of business United Kingdom United Kingdom United Kingdom United Kingdom United Kingdom Ordinary Ordinary Ordinary Ordinary n/a 50% 50% 50% 50% 50% Property 50% development Property 50% development Property 50% investment 50% Outsourcing Property 50% development 35 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 17. Goodwill Cost at 1 April Additions Cost at 31 March Impairment at 1 April Impairment for the year Impairment at 31 March Fair value at 31 March Group At 31.3.06 £000 1,515 – 1,515 1,333 114 1,447 68 Group At 31.3.05 £000 1,391 124 1,515 1,095 238 1,333 182 The carrying values of the Group’s goodwill is reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If analysis indicates that the carrying value is too high, then this is reduced to its recoverable amount which is the higher of fair value and its value in use. 18. Land, developments and trading properties Development sites Properties held as trading stock Group 31.3.06 £000 40,568 45,508 86,076 Group 31.3.05 £000 34,711 60,857 95,568 Company 31.3.06 £000 Company 31.3.05 £000 522 – 522 472 – 472 The directors’ valuation of trading and development stock shows a surplus of £29m above book value (2005: £13m). Interest capitalised in respect of the development of sites is included in stock to the extent of £2,867,000 (2005: £2,185,000). Interest capitalised during the year in respect of development sites amounted to £2,497,000 (2005: £2,296,000). 19. Available-for-sale investments UK listed investments at fair value 20. Trade and other receivables Trade receivables Amounts owed by joint venture undertakings Amounts owed by subsidiary undertakings Other receivables Prepayments and accrued income Group 31.3.06 £000 66 66 Group 31.3.06 £000 13,156 3,712 – 2,287 14,770 33,925 Group 31.3.05 £000 161 161 Group 31.3.05 £000 16,056 2,939 Company 31.3.06 £000 Company 31.3.05 £000 – – – – Company 31.3.06 £000 406 2,616 Company 31.3.05 £000 423 2,939 – 301,370 219,956 9,040 13,493 41,528 1,507 4,249 1,232 1,597 310,148 226,147 Included in prepayments is £nil (2005: £3.6m) which relates to payments made by the Group to potentially reduce capital gains tax liabilities. The prepayment has been written off as part of the Group’s tax charge in proportion to the capital losses utilised. 36 Helical Bar plc Report & Accounts 2006 21. Cash and cash equivalents Rent deposits and cash held at managing agents Cash secured against debt and cash held at solicitors Cash held to fund future development costs Cash deposits 22. Trade payables and other payables Trade creditors Social security costs and other taxation Amounts owed to joint venture undertakings Amounts owed to subsidiary undertakings Other payables Accruals and deferred income 23. Borrowings Current borrowings Bank loans repayable within: – one to two years – two to three years – three to four years – four to five years – after five years Deferred arrangement costs Non-current borrowings Group 31.3.06 £000 1,980 189 382 7,584 10,135 Group 31.3.06 £000 8,424 (262) – – 7,634 33,710 49,506 Group 31.3.06 £000 42,683 24,355 31,988 14,324 5,200 4,536 Group 31.3.05 £000 2,612 2,368 364 22,859 28,203 Group 31.3.05 £000 32,149 1,574 – – 7,336 34,774 75,833 Group 31.3.05 £000 21,136 32,060 45,535 37,356 17,500 – 80,403 132,451 (243) (408) 80,160 132,043 Company 31.3.06 £000 Company 31.3.05 £000 – – – – – – 3,030 3,030 20,776 20,776 Company 31.3.06 £000 857 – 114 Company 31.3.05 £000 146 1,465 – 180,923 171,011 187 1,196 358 1,179 183,277 174,159 Company 31.3.06 £000 Company 31.3.05 £000 – – – – – – – – – – – – – – – – – – Bank overdrafts and term loans in creditors falling due within one year and after one year are secured against properties held in the normal course of business by subsidiary undertakings to the value of £205,070,000 (2005: £237,942,000). These will be repayable when the underlying properties are sold. Bank overdrafts and term loans exclude the Group’s share of borrowings in joint venture companies of £2,500,000 (2005: £2,500,000). 37 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 24. Financing and financial instruments The policies for dealing with liquidity and interest rate risk are noted in the Financial Review on page 16. Bank overdraft and loans – maturity Due after more than one year Due within one year Group 31.3.06 £000 80,160 42,683 Group 31.3.05 £000 132,043 21,136 122,843 153,179 The Group has various undrawn committed borrowing facilities. The facilities available at 31.3.06 in respect of which all conditions precedent had been met were as follows: Expiring in one year or less Expiring in more than one year but not more than two years Expiring in more than two years Interest rates Fixed rate borrowings: – fixed – swap rate plus bank margin – swap rate plus bank margin – swap rate plus bank margin – swap rate plus bank margin – swap rate plus bank margin – swap rate plus bank margin – swap rate plus bank margin Weighted average Floating rate borrowings Total borrowings Deferred arrangement costs % Expiry 9.050 4.965 5.846 5.819 5.939 6.329 5.439 5.759 6.279 Feb 2009 Mar 2007 Jun 2006 Sep 2007 Sep 2009 Feb 2008 Jun 2011 Nov 2010 Feb 2009 31.3.06 £000 7,388 5,925 3,500 3,460 14,324 5,800 4,536 5,200 50,133 72,953 123,086 (243) 122,843 Group 31.3.06 £000 45,000 2,011 8,691 55,702 % Expiry 9.050 4.965 5.846 5.819 5.939 6.329 5.901 6.004 6.311 Feb 2009 Mar 2007 Jun 2006 Sep 2007 Sep 2009 Feb 2008 Dec 2007 Oct 2008 May 2008 Group 31.3.05 £000 30,578 – 20,625 51,203 31.3.05 £000 7.913 5,925 3,500 3,460 17,500 5,800 26,750 3,100 73,948 79,639 153,587 (408) 153,179 Floating rate borrowings bear interest at rates based on LIBOR. Hedging In addition to the fixed rates, borrowings are also hedged by the following financial instruments: Instrument Current: – cap Value £000 Rate % Start Expiry 80,000 7.000 Jan. 2006 Sep. 2009 38 Helical Bar plc Report & Accounts 2006 24. Financing and financial instruments (continued) Gearing Total borrowings Cash Net borrowings 31.3.06 £000 31.3.05 £000 122,843 153,179 (10,135) (28,203) 112,708 124,976 Net borrowings exclude the Group’s share of borrowings in joint ventures of £2,500,000 (2005: £2,500,000). Net assets Gearing 25. Obligations under finance leases Lease payments under finance leases fall due: Not later than one year Later than one year and not later than five years Later than five years Present value of finance lease obligations 26. Share capital Authorised 31.3.06 £000 31.3.05 £000 230,097 186,165 49% 67% 31.3.06 £000 31.3.05 £000 14 46 122 182 31.3.06 £000 39,577 39,577 14 46 122 182 31.3.05 £000 39,577 39,577 The authorised share capital of the Company is £39,576,626.60 divided into ordinary shares of 1p each, 5.25p convertible cumulative redeemable preference shares 2012 of 70p each, deferred shares of 1⁄8p each. Allotted, called up and fully paid – 94,371,925 ordinary shares of 1p each (2005: 18,101,164 ordinary shares of 5p each) – 212,145,300 deferred shares of 1⁄8p each 31.3.06 £000 31.3.05 £000 944 265 905 265 1,209 1,170 39 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 26. Share capital (continued) As at 1 April 2005 the Company had 18,101,164 ordinary 5p shares in issue. On 17 June 2005 options over 323,221 ordinary 5p shares were exercised increasing the issued share capital of the Company to 18,424,385 ordinary 5p shares. On 1 September 2005, following approval by shareholders at an EGM on 31 August 2005, each 5p share was split into five 1p shares. Following this share split there were 92,121,925 ordinary 1p shares in issue. On 7 September options over 1,750,000 ordinary 1p shares were exercised. On 16 December options over 300,000 ordinary 1p shares were exercised. On 6 January 2006 options over 102,173 ordinary 1p shares were exercised. On 13 January 2006 options over 97,827 ordinary 1p shares were exercised. At 31 March 2006 there were 94,371,925 ordinary 1p shares in issue. 1 September 2005 share split – five 1p shares for each one 5p share 92,121,925 Ordinary shares At 1 April New shares issued Shares purchased At 20 December 2004 21 December 2004 – share consolidation New shares issued At 31 August 2005 New shares issued At 31 March Preference shares At 1 April New shares issued Shares purchased At 31 March Deferred shares At 1 April New shares issued Shares purchased At 31 March Shares in issue 31.3.06 Number Share capital 31.3.06 £000 Shares in issue 31.3.05 Number Share capital 31.3.05 £000 18,101,164 905 27,147,903 1,357 323,221 16 538,622 – – – 18,424,385 2,250,000 94,371,925 27 (26) 1,358 887 18 – – – – 921 921 23 (530,000) 27,156,525 17,731,164 370,000 – – – 944 18,101,164 905 612,704 2,451 – – – 10,586,829 42,347 (612,704) (2,451) (9,974,125) (39,896) – – 612,704 2,451 212,145,300 – – 265 – – – 212,145,300 – 212,145,300 265 212,145,300 – 265 – 265 The non-cumulative preference shares of 17⁄8p each are disclosed in current liabilities at 31 March 2005. 40 Helical Bar plc Report & Accounts 2006 27. Share options Share options At 31 March 2006 unexercised options over 3,655,510 (2005: 7,521,615) new ordinary 1p shares in the Company and 6,234,695 (2005: 6,484,695) purchased ordinary 1p shares held by the ESOP had been granted to Directors and employees under the Company’s share option schemes. During the period no new options were granted. Options over 323,221 new ordinary 5p shares, 2,250,000 new ordinary 1p shares and 250,000 purchased ordinary 1p shares were exercised. Exercise price per share pence Number of shares Date from which exercisable Expiry date of options Senior Executive 1988 Share Option Scheme Purchase options Options granted: – 27 November 1997 – 10 July 1998 Helical Bar 1999 Share Option Scheme Subscription options Options granted: – 8 March 1999 – 8 January 2001 – 21 November 2002 Purchase options Options granted: – 8 March 1999 – 18 December 2000 – 8 January 2001 – 15 November 2001 Helical Bar 1999 Approved Share Option Scheme Subscription options Options granted: – 8 March 1999 – 21 November 2002 At 1 April Options granted Options exercised Option expired/lapsed At 31 March 41 Helical Bar plc Report & Accounts 2006 90.5 55,000 27 Nov. 2001 26 Nov. 2007 113.0 2,000,000 10 Jul. 2002 9 Jul. 2008 88.5 2,990,525 8 Mar. 2004 7 Mar. 2009 156.0 141.5 88.5 150.0 156.0 153.3 150,000 8 Jan. 2006 7 Jan. 2011 299,310 21 Nov. 2007 20 Nov. 2012 215,000 8 Mar. 2004 7 Mar. 2009 2,645,000 18 Dec. 2005 17 Dec. 2010 170,510 8 Jan. 2006 7 Jan. 2011 1,149,185 15 Nov. 2006 14 Nov. 2011 88.5 194,475 8 Mar. 2002 7 Mar. 2009 141.50 21,200 21 Nov. 2005 20 Nov. 2012 9,890,205 Weighted average exercise price 31.3.06 Number 31.3.06 Number 31.3.05 14,006,310 112p 18,874,420 – – – (4,116,105) 89p (4,868,110) – – – 9,890,205 121p 14,006,310 Weighted average exercise price 31.3.05 105p – 87p – 112p Notes to the Financial Statements continued 28. Share-based payments The Company provides share-based payments to employees in the form of share options, performance share plan awards and a share incentive plan. All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements. The Company uses a stochastic valuation model and the resulting value is amortised through the Income Statement over the vesting period of the share-based payments. Share options granted after 7 November 2002 Outstanding at beginning and end of period 2006 Weighted average exercise price 141.50 Options 320,510 320,510 2005 Weighted average exercise price 141.50 Options 320,510 320,510 The options outstanding at 31 March 2006 had a weighted average remaining contractual life of six years and eight months. The input into the stochastic model of valuation of the options were as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends 2006 146.72 141.50 16% 6 years 4.48% 1.99% 2005 146.72 141.50 16% 6 years 4.48% 1.99% Expected volatility was determined by calculating the historical volatility of the Company’s shares over the last six years. The expected life used in the model has been adjusted, based on the Company’s best estimate, for the effects of employee changes (subject to good leaver provisions), exercise restrictions and behavourial considerations. Performance share plan awards Outstanding at beginning of period Awards made during the period Outstanding at end of period 2006 Weighted average award value 192p 277p 229p Awards – 2,549,760 2,549,760 2005 Weighted average award value – 192p 192p Awards 2,549,760 1,964,620 4,514,380 The performance share plan awards outstanding at 31 March 2006 had a weighted average remaining contractual life of two years nine months. The inputs into the stochastic model of valuation of the PSP awards were as follows: Weighted average share price Weighted average exercise price Expected volatility Expected life Risk free rate Expected dividends 2006 229p – n/a 3 years n/a 1.53% 2005 229p – n/a 3 years n/a 1.53% The Company recognised total expenses of £3,458,000 (2005: £1,010,000) in relation to share-based payments. 42 Helical Bar plc Report & Accounts 2006 29. Statement of changes in equity At 1 April 2004 Issue of shares Purchase of shares Revaluation surplus Realised on disposals Return of cash Provision released Total recognised income Dividends paid Minority interest Performance share plan Provision for ESOP purchase At 31 March 2005 Issue of shares Revaluation surplus Realised on disposals Total recognised income Dividends paid Minority interest Purchase of shares Share options exercised Performance share plan Provision for ESOP purchase Share capital £000 Capital Share Revaluation redemption reserve reserve £000 £000 premium £000 Other reserves £000 Retained earnings £000 Investment in own shares £000 Total £000 1,357 35,900 68,814 7,246 291 115,538 (10,106) 219,040 45 (26) – – (206) – – – – – – 3,210 – – – – – – – – – – – – – 221 36,114 (49,438) – – – – (960) – – – – – – – – – – – – – – – – – – – – – – – – 3,255 (46,802) (3,776) (50,383) (36,114) 49,438 – – – – – – 7,431 7,225 (442) (442) 65,577 (60,798) (17) 707 (707) – – – – – 65,577 (60,798) (977) 707 (707) 1,170 39,110 54,530 7,467 291 86,822 (6,893) 182,497 39 3,380 – – – – – – – – – – – – – – – – – – – 30,364 (20,074) – – – – – – – – – – – – – 11 – – – – – – – – – – – – – – (30,364) 20,074 47,430 (3,127) 124 (11) – 3,128 (3,128) – – – – – – 3,419 – – 47,430 (3,127) 124 (472) (472) 226 – – 226 3,128 (3,128) At 31 March 2006 1,209 42,490 64,820 7,478 291 120,948 (7,139) 230,097 The provision released in the year to 31 March 2005 of £442,000 is in respect of the shares held by the Helical Bar Employee Share Ownership Plan Trust (“ESOP”). The adjustment to retained earnings of £3,128,000 (2005: £707,000) adds back the share based payments charge, net of tax, in accordance with IFRS 2 Share Based Payments. The Group has made a provision of £3,835,000 (2005: £707,000) in respect of future purchases of shares by the ESOP in anticipation of the vesting of share awards under the Group’s Performance Share Plan. Notes: Share capital – represents the nominal value of issued share capital Share premium – represents the excess of value of shares issued over their nominal value Revaluation reserve – represents the surplus of fair value of investment properties over their historic cost Capital redemption reserve – represents amounts paid to purchase issued shares for cancellation at their nominal value Retained earnings – is distributable and represents the accumulated profit of the Group Investment in own shares – represents the shares purchased by the Helical Bar Employees’ Share Ownership Plan Trust 43 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 29. Statement of changes in equity (continued) Share capital £000 Capital Share Revaluation redemption reserve reserve £000 £000 premium £000 Other reserves £000 Retained earnings £000 Investment in own shares £000 Total £000 Company At 1 April 2004 Issue of shares Purchase of shares Return of cash Total recognised income Provisions released Dividends paid At 31 March 2005 Issue of shares Total recognised income Dividends paid Shares purchased Share options exercised 1,357 35,900 45 (26) (206) – – – 3,210 – – – – – 1,170 39,110 39 3,380 – – – – – – – – At 31 March 2006 1,209 42,490 – – – – – – – – – – – – – – 7,246 1,987 116,719 (10,106) 153,103 – 221 – – – – – – – – – – – – 3,255 (46,802) (3,776) (50,383) – 7,431 7,225 29,622 – 29,622 – (442) (442) (60,798) – (60,798) 7,467 1,987 38,741 (6,893) 81,582 – – – 11 – – – – – – – 62,715 (3,127) – – – 3,419 62,715 (3,127) (11) (472) (472) – 226 226 7,478 1,987 98,318 (7,139) 144,343 30. Investment in own shares Following approval at the 1997 Annual General Meeting the Company established the Helical Bar Employees’ Share Ownership Plan Trust (the “Trust”) to be used as part of the remuneration arrangements for employees. The purpose of the Trust is to facilitate and encourage the ownership of shares by or for the benefit of employees by the acquisition and distribution of shares in the Company. The Trust purchases shares in the Company to satisfy the Company’s obligations under its Share Option Schemes and Performance Share Plan. At 31 March 2006 the Trust held 5,648,080 (2005: 5,695,580) ordinary 1p shares in Helical Bar plc. At 31 March 2006 options over 6,234,695 (2005: 6,484,695) ordinary 1p shares in Helical Bar plc had been granted through the Trust. At 31 March 2006 awards over 4,514,380 (2005: 2,549,750) ordinary 1p shares in Helical Bar plc had been made under the terms of the Performance Share Plan. 31. Contingent liabilities The Company has entered into cross guarantees in respect of the banking facilities of its subsidiaries. Other than these contingent liabilities there were no contingent liabilities at 31 March 2006 (2005: nil). 44 Helical Bar plc Report & Accounts 2006 32. Net assets per share Net asset value Less: deferred shares Basic net asset value Add: unexercised share options Diluted net asset value Adjustment for: – deferred tax on capital allowances – deferred tax on capital gains – fair value of financial instruments 31.3.06 £000 230,097 (265) 229,832 3,506 233,338 2,175 20,927 427 Number* of shares 000s 88,724 88,724 3,655 92,379 31.3.06 pence per share 31.3.05 £000 182,497 (265) 259 182,232 6,925 253 189,157 Number* of shares 000s 84,810 84,810 7,522 92,332 31.3.05 pence per share 215 205 2,105 14,684 1,160 Adjusted diluted net asset value 256,867 92,379 278 207,106 92,332 224 Adjustment for: – directors’ valuation of trading stock Adjusted diluted net asset value plus stock surplus Adjustment for: – deferred tax on capital allowances – deferred tax on capital gains – fair value of financial instruments 28,704 12,884 285,571 92,379 309 219,990 92,332 238 (2,175) (20,927) (427) (2,105) (14,684) (1,160) Adjusted diluted triple NAV 262,042 92,379 284 202,041 92,332 219 *The shares held by the Company’s ESOP Trust are excluded from this calculation. 45 Helical Bar plc Report & Accounts 2006 Notes to the Financial Statements continued 33. Related party transactions At 31 March 2006 and 31 March 2005 the following amounts were due from the Group’s joint ventures Abbeygate Helical (Leisure Plaza) Ltd Abbeygate Helical (Winterhill) Ltd Grosvenor Hill (Sprucefield) Ltd Shirley Advance LLP The Asset Factor Ltd At 31.3.06 £000 572 (895) (4) 3,921 119 At 31.3.05 £000 352 238 (4) 2,353 – The amounts due from the Group’s joint ventures represent interest free loans which are repayable once the underlying property has been sold. At 31 March 2006 and 31 March 2005 there were the following balances between the Company and its subsidiaries. Amounts due from subsidiaries Amounts due to subsidiaries At 31.3.06 £000 301,370 180,923 At 31.3.05 £000 219,956 171,011 During the years to 31 March 2006 and 31 March 2005 there were the following transactions between the Company and its subsidiaries: Management charges Interest receivable Interest payable Year ended 31.3.06 £000 Year ended 31.3.05 £000 2,513 6,358 – 1,621 5,665 332 All of these transactions, and the year end balance sheet amounts arising from these transactions were conducted on an arm’s length basis and on normal commercial terms. 46 Helical Bar plc Report & Accounts 2006 Ten Year Review IFRS 31.3.06 £000 IFRS UK GAAP UK GAAP UK GAAP UK GAAP UK GAAP UK GAAP UK GAAP UK GAAP 31.3.97 31.3.01 £000 £000 31.3.98 £000 31.3.99 £000 31.3.00 £000 31.3.02 £000 31.3.03 £000 31.3.04 £000 31.3.05 £000 Revenue 119,274 101,469 54,566 135,192 136,632 165,259 149,922 121,244 214,416 100,529 Net rental income 16,524 20,440 22,980 25,619 27,827 25,532 23,652 18,475 18,598 18,759 Trading profits 13,441 5,771 1,031 349 154 920 372 72 4,363 2,359 Development profits 4,594 12,664 38 4,630 17,072 29,507 19,345 21,601 16,686 9,152 Share of results of joint ventures Other income Gross profit before gain on investment properties Gain on sale of and revaluation of investment properties 437 235 2,699 1,636 1,544 235 601 626 986 (67) 86 342 – – – – 113 (1,144) (872) (986) 35,231 41,809 26,286 32,768 45,972 56,387 43,482 39,004 38,775 29,284 43,551 44,204 2,035 2,126 2,463 709 4,555 415 838 (558) Administrative expenses (16,582) (15,757) (8,037) (6,391) (10,888) (12,031) (9,669) (6,860) (6,904) (5,566) Loss on sale of subsidiary Negative goodwill Net finance costs Profit before tax – – – – (59) – (195) – 6,362 – – – – – – – – – – – (5,080) (5,561) (6,572) (9,638) (14,779) (19,241) (16,348) (12,515) (14,215) (11,127) 57,120 64,695 13,653 25,227 22,573 25,824 22,020 20,044 18,494 12,033 Tax (9,676) 844 (2,199) (7,660) (5,353) (5,471) (6,032) (3,899) (3,884) (3,001) Profit after tax 47,444 65,539 11,454 17,567 17,220 20,353 15,988 16,145 14,610 9,032 Investment portfolio 294,583 271,315 334,932 342,484 439,911 453,607 419,570 332,457 250,718 201,570 Shareholders’ funds 230,097 186,165 234,917 226,870 227,653 223,606 171,770 132,652 132,289 101,080 Dividend per ordinary share 3.65p 3.32p 3.32p 3.00p 2.75p 2.50p 2.23p 2.00p 1.80p 1.6p Special dividend per ordinary share Diluted earnings per ordinary share Adjusted diluted net assets per share – – – – 20.0p – – 20.0p – 0.4p 51.8p 53.7p 7.9p 11.8p 11.8p 13.5p 13.8p 10.3p 8.1p 5.7p 278p 224p 177p 155p 155p 151p 116p 94p 96p 74p The financial statements to 31 March 1997 were for a 14 month accounting period. The financial statements for the year to 31 March 2005 have been restated to reflect the adoption of International Financial Reporting Standards. The financial statements for the year to 31 March 1998 and subsequently have been restated to reflect the impact of the 5 for 1 share issue on 1 September 2005. 47 Helical Bar plc Report & Accounts 2006 47 Helical Bar plc Report & Accounts 2006 47 Helical Bar plc Report & Accounts 2006 The Board of Directors and Senior Management The Board of Helical Bar plc is collectively responsible for providing the entrepreneurial leadership of the Company within a framework of controls and reporting structures which assist the Company in pursuing its strategic aims and business objectives. The Board of Helical Bar plc comprises four executive directors and five non-executive directors. Board of Directors and other officers Executive directors Managing Director Michael Slade, BSc (Est Man) FRICS FSVA, joined the Board as executive director in 1984 and was appointed Managing Director in 1986. Aged 59. Finance Director Nigel McNair Scott, MA FCA FCT, joined the Board as non-executive director in 1985 and was subsequently appointed Finance Director in 1987. A former director of Johnson Matthey plc and Govett Strategic Investment Trust plc he is Chairman of Avocet Mining Plc. Aged 60. Development Director Gerald Kaye, BSc (Est Man) FRICS, was appointed to the Board as executive director in 1994 and is responsible for the Company’s development activities. He is a former director of London & Edinburgh Trust Plc. Aged 48. Investment Director Michael Brown, BSc (Est Man) MRICS, was appointed to the Board as executive director in 1998 and is responsible for the Company’s property investment activities. He is a former director of Threadneedle Property Fund Managers. Aged 45. Non-executive directors Chairman Giles Weaver, FCA, was appointed to the Board as non-executive director in 1993 and was appointed Chairman following the 2005 AGM. He is Chairman of the Remuneration and Nominations and Appointments Committees. A recent Chairman of Murray Johnstone Ltd, he is a director of Aberdeen Asset Management plc, James Finlay Ltd, Isotron plc, ISIS Property Trust 2 Ltd as well as being Chairman or director of a number of investment companies. Aged 60. John Southwell, MA, joined the Board of Helical Bar plc as non-executive director in 1986 and was non-executive Chairman between 1988 and July 2005. He is to retire from the Board at the AGM on 20 July 2006. He is a former director of Laing & Cruickshank, Corporate Finance. Aged 73. Antony Beevor, BA, was appointed to the Board as non-executive director in 2000. He is the Senior Independent Director and Chairman of the Audit Committee. He is also a member of the Remuneration and Nominations and Appointments Committees. A former Head of Corporate Finance at Hambros Bank, he is a Deputy Chairman of the Takeover Panel. Aged 66. Wilf Weeks, was appointed to the Board as non-executive director on 14 April 2005. He was appointed to the Audit, Remuneration and Nominations and Appointments Committees on 1 June 2005. He is the Chairman of European Public Affairs at Weber Shandwick and has specialised in Government Relations throughout his career. Aged 58. Andrew Gulliford, BSc(Est.Man), FRICS, was appointed to the Board as an independent non-executive director on 1 March 2006. He is a member of the Audit, Remuneration and Nominations and Appointments Committees. A former Deputy Senior Partner of Cushman & Wakefield Healey & Baker, he is a non-executive director of McKay Securities PLC, ISIS Property Trust 2 Ltd and various other companies. Aged 59. Company Secretary Tim Murphy, ACA, was appointed Company Secretary in 1994. Aged 46. Senior management Matthew Bonning-Snook joined the Company as a development executive in 1995. Aged 38. Jack Pitman joined the Company as an investment executive in 2001. Aged 37. John Inwood joined the Company as a management executive in 1995. Aged 40. 48 Helical Bar plc Report & Accounts 2006 48 Helical Bar plc Report & Accounts 2006 48 Helical Bar plc Report & Accounts 2006 Directors’ Report The directors’ present their report and financial statements for the year ended 31 March 2006. Principal activities The principal activity of the Company is that of a holding company and the principal activities of the subsidiaries are property investment, dealing and development. A full review of these activities and the Group’s future prospects are given on pages 2 to 17. Trading results The results for the year are set out on page 18. The profit after tax amounts to £47,444,000 (2005: £65,539,000). Share capital The detailed movements in share capital are set out in note 26 to these financial statements. At 31 March 2006 and 16 June 2006 there were 94,371,925 ordinary 1p shares in issue. Dividends A final dividend of 2.45p (2005: 2.20p) per share is recommended for approval at the Annual General Meeting on 20 July 2006. The total ordinary dividend paid in the year of 3.65p (2005: 3.32p) per share amounts to £3,127,000 (2005: £4,226,000). Charitable donations Donations to charities amounted to £40,220 (2005: £14,010). No contributions were made to any political party. Creditor payment policy The Company’s policy is to settle all agreed liabilities within the terms established with suppliers. At 31 March 2006 there were 75 days’ (2005: 61 days’) purchases outstanding in respect of the Company’s creditors. Auditors Grant Thornton UK LLP offer themselves for re-appointment as auditors in accordance with Section 385 of the Companies Act 1985. Substantial shareholdings At 7 June 2006 the shareholders listed in Table A on page 50 had notified the Company of a disclosable interest of 3% or more in the nominal value of the ordinary share capital of the Company. Directors’ remuneration Details of directors’ remuneration, share awards, service contracts and pension contributions are noted in the Directors’ Remuneration Report on pages 55 to 62. Directors and their interests The directors who were in office during the year and their interests, all of which were beneficial, in the ordinary shares of the Company are listed in Table B on page 50. Shares purchased on behalf of directors under the terms of the Share Incentive Plan are disclosed in the Directors’ Remuneration Report on pages 55 to 62. There have been no changes in the directors’ interests in the period from 31 March 2006 to 16 June 2006. Corporate governance The Company’s application of the principles of corporate governance is noted in the Corporate Governance Report on pages 51 to 54. Financial risk Financial risk policies and objectives are discussed in the Corporate Governance Report on page 54. Directors’ responsibilities for the financial statements The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union. Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing these financial statements, the directors are required to: – select suitable accounting policies and then apply them consistently; – make judgements and estimates that are reasonable and prudent; – state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business. 49 Helical Bar plc Report & Accounts 2006 49 Helical Bar plc Report & Accounts 2006 49 Helical Bar plc Report & Accounts 2006 Directors’ Report continued Directors’ responsibilities for the financial statements (continued) The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. In so far as the directors are aware: – there is no relevant audit information of which the Company’s auditors are unaware; and, – the directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Annual General Meeting The Annual General Meeting of the Company will be held on 20 July 2006 at 11.30 a.m. at The Westbury, Bond Street, London W1S 2YF. The notice of meeting and the resolutions to be proposed at that meeting are set out in the enclosed circular. Table A – Substantial shareholdings Michael Slade Helical Bar Share Ownership Plan Trust Barclays Global Investors Schroder Investment Management Legal & General Fidelity Table B – Directors’ interests Giles Weaver Michael Slade Nigel McNair Scott John Southwell Antony Beevor Wilf Weeks Andrew Gulliford Gerald Kaye Michael Brown Total directors’ interests Issued share capital Percentage of issued share capital By Order of the Board T.J. Murphy Secretary 16 June 2006 50 Helical Bar plc Report & Accounts 2006 50 Helical Bar plc Report & Accounts 2006 50 Helical Bar plc Report & Accounts 2006 Number of ordinary shares 12,747,203 5,702,797 3,552,007 3,519,804 3,249,398 2,870,506 % 13.5 6.0 3.8 3.7 3.4 3.0 Ordinary 1p shares 31 March 2006 Ordinary 5p shares 1 April 2005 96,250 19,250 12,747,203 2,548,939 2,013,001 401,264 114,840 22,968 8,750 923 – – – – 977,858 907,063 195,070 180,912 16,864,965 3,369,326 94,371,925 18,101,164 17.9 18.6 Corporate Governance Report The Company is committed to applying the highest principles of corporate governance. The Board is accountable to the Company’s shareholders for good corporate governance. This report and the Directors’ Remuneration Report describe how the Company complies with the provisions of the Combined Code (2003) (the “Code”). Compliance The Company has complied throughout the year with the Code provisions set out in Section 1 of the Combined Code (2003). Application of the principles The Board consists of four executive directors who hold the key operational positions in the Company and five non-executive directors, who bring a breadth of experience and knowledge to their roles. This provides a balance whereby the Board’s decision making cannot be dominated by an individual or small group. Chairman and Chief Executive The Chairman of the Board is Giles Weaver. The Company’s business is run by Michael Slade, the Managing Director. Board balance and independence As noted above the four executive directors are balanced by five non-executive directors (reducing to four at the 2006 AGM). The Chairman, Giles Weaver, has been a non-executive director of Helical since 1993. In the Company’s view, the experience gained as a chairman or director of several listed companies in the financial sector provides him with the necessary skills of leadership and guidance that the role of Chairman of this Company requires. These skills together with his detachment from day-to-day issues within the Company, and his robustly independent approach to the role of Chairman provide the Board with the necessary comfort that despite his time as a non-executive director he could properly be regarded as independent at the time of his appointment as Chairman. The senior independent director is Antony Beevor. The remaining non-executive directors, after John Southwell’s retirement at the 2006 AGM, are Wilf Weeks (appointed 14 April 2005) and Andrew Gulliford (appointed 1 March 2006). The breadth of experience provided by the non-executive directors allied to the management information provided by the Company enable the non-executive Board members to assess and advise the full Board on the major risks faced by the Company. In view of this we continue to believe that all the non-executive directors are independent and for the purposes of this report are referred to below as independent directors. The Board of Directors The Company supports the concept of an effective Board leading and controlling the Company. The Board provides entrepreneurial leadership of the Group within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board sets the Group’s strategic aims, ensures that the necessary financial and human resources are in place for the Group to meet its objectives and reviews management performance. The Board sets the Group’s values and standards and ensures that the Company’s obligations to its shareholders and others are understood and met. The members of the Board, and the roles of each director are given in the biographical details of the directors on page 48. All directors take decisions objectively in the interests of the Company. As part of their role as members of the Board, non-executive directors constructively challenge and help develop proposals on strategy. Non-executive directors scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, executive directors, and in succession planning. In addition to ad hoc meetings arranged to discuss particular transactions and events and the 2005 AGM and 31 August 2005 and 14 December 2005 EGM’s, the full Board met on five occasions during the year under review. All directors attended every meeting of the Board and its Committees during their term of office on those Committees. The attendance record of the directors is shown in the table below. Mr. C.G.H. Weaver Mr. N.G. Slade McNair Scott Mr. J.P. Southwell Mr. A. Gulliford Mr. P.M. Brown Mr. A.R. Beevor Mr. G.A. Kaye Mr. W. Weeks Mr. M.E. Meetings Full Board Audit Committee Remuneration Committee Nominations and Appointments Committee 5 1 3 3 5 n/a n/a n/a 5 n/a n/a n/a 5 n/a n/a n/a 5 n/a n/a n/a 5 1 2 2 5 3 3 3 5 2 2 1 1 1 n/a n/a The Board has a schedule of matters specifically reserved to it for decision. The Board controls the business but delegates day-to-day responsibility to the executive management. However, there are a number of matters which are required to be or, in the interests of the Company, should only be decided by the Board of Directors as a whole. A summary of the decisions reserved for the Board is set out below: Schedule of matters reserved for the Board: • Strategy and management – responsibility for the overall management of the Group; approval of the Group’s long-term objectives and commercial strategy; approval of annual administration budgets; oversight of the Group’s operations; extension of the Group’s activities into new business areas; any decision to cease to operate all or any material part of the Group’s business. • Structure and capital – changes to the Group’s capital structure; major changes to the Group’s corporate structure; changes to the Group’s management and control structure; changes to the Company’s listing or plc status. 51 Helical Bar plc Report & Accounts 2006 51 Helical Bar plc Report & Accounts 2006 51 Helical Bar plc Report & Accounts 2006 Corporate Governance Report continued • Financial reporting and controls – approval of interim and preliminary announcements; approval of annual report and accounts, including the corporate governance statement and the directors’ remuneration report; approval of dividend policy; approval of significant changes in accounting policies or practices; approval of treasury policies. • Internal controls – ensuring maintenance of a sound system of internal control and risk management. • Communication – approval of resolutions and documentation to be put to shareholders in general meeting; approval of press releases concerning matters decided by the Board. • Board membership and other appointments to senior management. • Both the appointment and removal of the Company Secretary. • Corporate governance matters including directors’ performance evaluations. • Approval of policies including code of conduct; share dealing code; health and safety policy; environmental and corporate social responsibility policy and equal opportunity policy. Nominations and Appointments Committee The terms of reference of the Nominations and Appointments Committee are available by request and are included on the Company’s website at www.helical.co.uk. The membership of the Committee is as follows: Giles Weaver (Chairman) Antony Beevor Wilf Weeks (appointed 1 June 2005) Andrew Gulliford (appointed 1 March 2006) Directors – appointments to the Board Appointments are made on merit and against objective criteria. Care is taken to ensure that appointees have enough time available to devote to the job. The Nominations Committee controls the process for Board appointments and makes recommendations to the Board. A majority of the Committee are independent non-executive Directors. The work of the Nominations Committee in the year The Committee met three times during the period, and all eligible members of the Committee were in attendance at each meeting. During the first of these meetings, the Committee concluded its consideration with regard to the appointment of a new non-executive and recommended to the Board the appointment of Wilf Weeks on 14 April 2005. At the second meeting it was resolved that Giles Weaver, John Southwell and Wilf Weeks be recommended to shareholders for re-appointment as directors at the 2005 AGM. At this meeting the Committee also considered potential candidates for the role of Chairman to be appointed immediately following the 2005 AGM, upon John Southwell’s retirement from that position. It was resolved that Giles Weaver be proposed, subject to his re-appointment as a director at the 2005 AGM. At the third meeting during the year the Committee considered additional candidates for the position of non-executive director. In view of his extensive experience of the property sector it was resolved that Andrew Gulliford be recommended to the Board for appointment as a non-executive director on 1 March 2006. Directors – information and professional development The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties and its directors are free to seek any further information they consider necessary. Under the direction of the Chairman, the Company Secretary’s responsibilities include ensuring good information flows within the Board and its Committees and between senior management and non-executive directors, as well as facilitating induction and assisting with professional development as required. The Company Secretary is responsible for advising the Board through the Chairman on all governance matters. The Board ensures that directors, especially non-executive directors, have access to independent professional advice at the Company’s expense where they judge it necessary to discharge their responsibilities as directors. Training is available for new directors and other directors as necessary. All directors have access to the advice and services of the Company Secretary, who is responsible to the Board for ensuring that board procedures are complied with. The Company has arranged appropriate insurance cover in case of legal action against its directors. Directors – performance evaluation The Board undertook a formal evaluation of its own performance and that of its Committees and individual directors in the period. The Chairman is responsible for the annual evaluation process, and will act on its outcome. This process involves each director submitting an appraisal to the Chairman in respect of the performance of the main Board, and in respect of each Board Committee of which they are a member. The non-executive directors, led by the senior independent non-executive director, are responsible for performance evaluation of the Chairman, taking into account views of executive directors. Each director completed an evaluation of the Chairman’s performance and provided this evaluation to the senior independent non-executive director. Directors re-election All directors are subject to re-election, after receiving the recommendation of the Nominations and Appointments Committee, every three years and, on appointment, at the first AGM after appointment. The Nominations and Appointments Committee have recommended the re-appointment of the following directors: – Giles Weaver has served more than nine years on the Board and in accordance with the Code offers himself for re-election; – Andrew Gulliford, appointed on the 1 March 2006, seeks formal re-election for the first time; 52 Helical Bar plc Report & Accounts 2006 52 Helical Bar plc Report & Accounts 2006 52 Helical Bar plc Report & Accounts 2006 – Antony Beevor is due to retire by rotation and offers himself for re-election; – Michael Slade is due to retire by rotation and offers himself for re-election; and, – Nigel McNair Scott is due to retire by rotation and offers himself for re-election. Biographical details of the directors are given on page 48. Relations with shareholders The Company values the views of its shareholders and recognises their interest in the Company’s strategy and performance, Board membership and quality of management. It therefore holds regular meetings with, and presentations to, its institutional shareholders to discuss its objectives. The Board also regularly meets, with the help of its brokers, institutions that do not currently hold shares in the Company to inform them of its objectives. The AGM is used to communicate with private investors and they are encouraged to participate. The members of the Audit, Remuneration and Nominations and Appointments Committees are available to answer questions. Separate resolutions are proposed on each issue so that they can be given proper consideration and there is a resolution to consider the annual report and accounts. The Company counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands. The Company communicates with all shareholders through the issue of regular press releases and through its website at www.helical.co.uk. The Company receives regular reports from sector analysts and its investor relations advisors on how it is viewed by its shareholders. Accountability and audit Financial reporting The Board presents a balanced and understandable assessment of the Company’s position and prospects. It seeks to do so in all published information and in particular in interim and preliminary announcements and other price-sensitive reports and reports to regulators as well as in the information required to be presented by statutory requirements. Going concern After making enquiries, the directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the financial statements. Audit Committee and auditors The terms of reference of the Audit Committee are available by request and are included on the Company’s website at www.helical.co.uk. The membership of the Committee is as follows: Antony Beevor (Chairman) Wilf Weeks (appointed 1 June 2005) Andrew Gulliford (appointed 1 March 2006) The Committee endorses the principles set out in the Smith Guidance for Audit Committees. The Board has formal and transparent arrangements for considering how it applies the financial reporting and internal control principles and for maintaining an appropriate relationship with the Company’s auditors. Whilst all directors have a duty to act in the interests of the Company, the Audit Committee has a particular role, acting independently from the executive, to ensure that the interests of shareholders are properly protected in relation to financial reporting and internal control. Appointments to the Audit Committee are made by the Board on the recommendation of the Nominations and Appointments Committee in consultation with the Audit Committee Chairman. The work of the Audit Committee in the year The Audit Committee met three times during the year and each meeting was attended by all eligible members of the Committee. The Audit Committee met the external auditors three times to discuss matters arising from the annual and interim audits. In addition to matters discussed in relation to the annual and interim audits, the scope of the auditors review of the design effectiveness of internal controls, as required under International Standards on Auditing, was discussed and agreed by the Audit Committee. The report was presented to the Audit Committee on 1 March 2006, and the key findings and recommendation of this report, which cover governance, operational controls and financial reporting, have been considered and, where appropriate, will be implemented during the second half of 2006. Internal control The Board is responsible for maintaining a sound system of internal control to safeguard shareholders’ investment and the Company’s assets. Such a system is designed to manage, but cannot eliminate, the risk of failure to achieve business objectives. There are inherent limitations in any control system and, accordingly, even the most effective system can provide only reasonable, and not absolute, assurance against material misstatement or loss. The key features of the Company’s system of internal control are as follows: – clearly defined organisational responsibilities and limits of authority. The day-to-day involvement of the executive directors in the running of the business ensures that these responsibilities and limits are adhered to; – financial controls and review procedures; – financial information systems including cash flow, profit and capital expenditure forecasts. The Board receive regular and comprehensive reports on the day-to-day running of the business; – an Audit Committee which meets with the auditors and deals with any significant internal control matter. In the year under review the Committee met with the Auditors on three occasions. 53 Helical Bar plc Report & Accounts 2006 53 Helical Bar plc Report & Accounts 2006 53 Helical Bar plc Report & Accounts 2006 Corporate Governance Report continued Internal audit The Board reviewed its position during 2005/06 and reaffirmed its stance that in view of the relatively small size of the Company it does not consider that an Internal Audit function would provide any significant additional assistance in maintaining a system of internal controls. Business risk In accordance with the guidance of the Turnbull Committee, a review group of the UK Financial Reporting Council, on Internal Control, an ongoing process has been established for identifying, evaluating and managing risks faced by the Company. This process has been in place from the start of the financial year under review to the date of approval of these financial statements. As part of this process the Board has identified key risks faced by the Company. These key risks include net gearing and interest rate exposure, control over cash and other liquid assets and security of ownership of key assets. The risks have been prioritised and a strategy has been set out to deal with them. The Board papers produced for each Board meeting include reports by each of the executive directors together with management accounts, profit and cash flow forecasts. The annual business development plan was presented to the Board in January 2006. This document discusses the commercial environment in which the Company operates, undertakes a SWOT analysis on the Company and sets short, medium and long-term targets for the business. The Board papers also include regular updates on corporate governance matters and during the year under review has received reports on risk assessment, interest rate risks, taxation, and matters reserved for Board approval. In between Board meetings the non-executive directors receive copies of the minutes of weekly management meetings between the executive Board members and senior management at which the property portfolio, and other matters are discussed, and minutes of meetings with the Company’s major joint venture partners. Non-executive directors also receive copies of analysts’ reports on the Company. The directors are free to seek any further information they consider necessary. Audit independence A policy of reviewing audit independence has been adopted whereby non-audit services undertaken by the auditors is approved prior to work being carried out. During the year under review non-audit services comprised VAT and other taxation advice, accounting and financial reporting advice on the implications of adopting International Financial Reporting Standards and a review of internal controls. Financial risk management objectives and policies The Group principally uses secured bank loans, overdraft facilities, cash resources generated directly from its operations and credit control of its trade debtors and creditors to raise finance for the Group’s operations. The existence of these financial assets and liabilities exposes the Company to a number of financial risks, which are described in more detail below. In order to manage the Company’s exposure to those risks, in particular the Company’s exposure to interest rate risk, the Company enters into a number of derivative transactions including, but not limited to, variable and fixed rate interest swaps. All transactions in derivatives are undertaken to manage the risks arising from underlying business activities and no transactions of a speculative nature are undertaken. The main risks arising from the Company’s financial assets and liabilities are cash flow interest rate risk, credit risk and liquidity risk. The directors review and agree policies for managing each of these risks and they are summarised below. These policies have remained unchanged from previous years. Liquidity risk The Company seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably. Short-term flexibility is achieved by overdraft facilities. The maturity of borrowings is set out in note 23 to the financial statements. In addition to these borrowings the Company has access to undrawn committed borrowing facilities of an additional £56m and is able to raise additional funds on £158m of property, not currently secured on borrowings. Interest rate risk The Company finances its operations through a mixture of retained profits and bank borrowings. The Company exposure to interest rate fluctuations on its borrowings is managed by the use of both fixed and floating facilities. At the year end 41% of the borrowings were at fixed rates; this percentage is calculated without reference to the financial liabilities on which no interest is charged. The Company has an interest rate cap at 7% on £80m of borrowings until September 2009. The interest rate exposure of the financial assets and liabilities of the Group is shown in note 24 above. Credit risk The Company’s principal financial assets are cash and trade debtors. The credit risk associated with cash is limited as the counterparties have high credit ratings assigned by international credit-rating agencies. The principal credit risk arises therefore from its trade debtors. Trade debtors due from sales of property are secured against those properties until the proceeds are received. Rental debtors are unsecured but the Group’s exposure to tenant default is limited as no tenant accounts for more than 5% of the total rent. 54 Helical Bar plc Report & Accounts 2006 54 Helical Bar plc Report & Accounts 2006 54 Helical Bar plc Report & Accounts 2006 Directors’ Remuneration Report Directors’ remuneration The Board recognises that directors’ remuneration is of legitimate concern to shareholders and is committed to following current best practice. In accordance with Section 241A of the Companies Act 1985, the Board presents the directors’ remuneration report for shareholder approval. Information not subject to audit Remuneration Committee The terms of reference of the Remuneration Committee are available on request and are included on the Company’s website at www.helical.co.uk. The Remuneration Committee (“Committee”) has responsibility for making recommendations to the Board to determine the Company’s general policy on salary, bonuses, pensions and other remuneration issues for individual directors. It carries out the policy on behalf of the Board and in the year under review the Committee met three times. All meetings of the Committee were attended by all its members. The membership of the Committee is as follows: Giles Weaver (Chairman) Antony Beevor Wilf Weeks (appointed 1 June 2005) Andrew Gulliford (appointed 1 March 2006) All the members of the Committee are independent non-executive directors. None of the Committee has any personal financial interest in the matters to be decided (other than as shareholders), potential conflicts of interest arising from cross-directorships nor any day-to-day involvement in running the business. The Committee consults the Managing Director and Finance Director about its proposals and has access to professional advice from inside and outside the Company. During the year under review the Committee were advised by New Bridge Street Consultants in relation to the performance criteria of the Company’s share option schemes and the renewal of the Company’s five year Executive Bonus Plan. Policy on executive directors’ remuneration The Company operates within a competitive environment and its performance depends on the individual contributions of the directors and employees. Executive remuneration packages are designed to attract, motivate and retain directors of the calibre necessary to maintain the Company’s position as a market leader and to reward them for enhancing shareholder value and return. The performance measurement of the executive directors and the determination of their annual remuneration package is undertaken by the Committee. The remuneration packages of individual directors are structured so that the performance related elements form a significant proportion of the total and are designed to align their interests with those of the shareholders. Share incentives are designed so that they recognise the long-term growth of the Company. No director has a service contract of more than one year. There are four main elements to the executive directors’ remuneration packages: i basic annual salary, pension contributions and benefits-in-kind; ii annual sector bonus payments; iii Executive Bonus Plan; and, iv share incentives. Basic annual salary, pension contributions and benefits-in-kind Basic annual salaries for executive directors are reviewed having regard to individual performance and market practice and were last reviewed in April 2005. The remuneration packages of each executive director include a payment of 20% of basic salary as pension entitlement. Each director takes this entitlement as additional salary. Benefits-in-kind provided to executive directors include the provision of a company car and health insurance. Annual sector bonus payments The Committee establishes the objectives which must be met for annual cash bonuses to be paid. Performance related cash bonuses, which recognise the relative success of the different parts of the business, may be paid to the executive directors responsible for their parts. A proportion of the Group’s total administration costs is deducted in arriving at each sector bonus. The maximum amount payable in each year is £1m to each of the Development and Investment Directors. The sector bonus payable to the Development Director is based on the development profits generated in the year. The Sector Bonus payable to the Investment Director is based on the profits and gains made on the investment and trading portfolio in the year net of associated finance costs. Payment of annual sector bonuses is at the discretion of the Committee. 55 Helical Bar plc Report & Accounts 2006 55 Helical Bar plc Report & Accounts 2006 55 Helical Bar plc Report & Accounts 2006 Directors’ Remuneration Report continued Executive Bonus Plan The Company operates an Executive Bonus Plan designed to align the motivations of the senior management team with the interests of shareholders and to link their remuneration to the performance of the Company’s property portfolio. Shareholders voted to continue the Executive Bonus Plan (“Plan”), previously known as the “Incentive Plan”, at an EGM on 14 December 2005. The Plan operates over a five year period from 1 April 2006 and cash bonuses will be paid annually subject to the achievement of challenging performance targets. The performance conditions, which are identical to the Incentive Plan that it replaces, are as follows: Performance conditions The Committee may, at its discretion, award bonuses in respect of a financial year subject to performance conditions, the aim of which is to link the size of bonuses paid to financial growth of the Group over that financial year. For the first bonuses, namely those due for the financial year ending 31 March 2007 or such other date to which the Group shall make up audited accounts (pro rata for less than or more than a 12 month period) and the four following years until 31 March 2011, the Committee proposes that no bonus will be payable unless the following conditions are satisfied: i Increase in net asset value net asset value at the end of the financial year exceeds net asset value at the beginning of the financial year; ii Absolute Performance of the Portfolio – ungeared total return the percentage increase in the total return on property assets of the Group over the financial year (the “Performance Period”) is greater than the percentage increase achieved by the portfolio ranked nearest to three-quarters up the performance table (taken in ascending order of return) (the “Upper Quartile”) of the portfolios of all quarterly valued funds measured by the Investment Property Databank at the beginning of the relevant Performance Period and compounded monthly during the Performance Period (the “IPD Total Return Benchmark”); and, iii Performance of the net asset value per share the percentage increase in net asset value per share for the Performance Period must be greater than the percentage increase achieved by the Upper Quartile of the portfolios of all quarterly valued funds measured by the Investment Property Databank at the beginning of the relevant Performance Period and compounded monthly during the Performance Period (the “IPD Capital Growth Benchmark”). As before, the Committee will recommend the size of the bonus payable by reference to the same sliding scale based on the amount by which the increase in net asset value per share exceeds the increase in the Upper Quartile of the IPD Capital Growth Benchmark subject to a cap. Calculation of amounts payable The total amount of the bonuses payable in any one year shall be determined by: • calculating the difference between the percentage increase in net asset value per share for the Performance Period and the percentage increase in the Upper Quartile of the IPD Capital Growth Benchmark over the same period (the “Difference”); and, • calculating the sum of the amounts payable in relation to each 1% of the Difference on the following basis: Amount of Difference Less than 1% 1 per cent. to less than 2% % of base net asset value payable 0.01 0.02 And thereafter for every additional 1% An increment of 0.01 For example: From 4% to less than 5% 0.05 If the net asset value at the end of a financial year is less than the net asset value at the beginning of that year, the bonus payable for any subsequent year will be calculated by reference to the highest net asset value in the preceding years. Financial accounts The audited financial accounts which record the financial performance on which the Plan operates will be those accounts prepared in accordance with International Financial Reporting Standards. 2006 Plan and individual limits The total amount payable under the 2006 Plan in any one year is limited to £4 million. An individual employee’s participation in the 2006 Plan is limited so that the bonus which may be paid to him under the 2006 Plan will not exceed £2m per annum. There is a further limit that payments under the 2006 Plan in any year may not exceed 20% of the Group’s pre-tax profits and payments under the 2006 Plan. Among other constraints the Committee could restrict the bonuses if payment would affect the financial or trading position of the Company. Timing of bonuses Bonuses will ordinarily be paid, subject to the performance conditions being satisfied, and provided that the participant remains a director or employee of the Group at the time of payment on a specified bonus date, which will fall within four months of the end of the relevant Performance Period. Bonuses are not transferable, nor will benefits obtained under the 2006 Plan be pensionable. Termination of employment If a participant dies, the bonus that would have been paid for the relevant financial year may, at the discretion of the Committee, be paid to the participant’s personal representatives, but will be scaled down pro rata to reflect the period elapsed since the start of the Performance Period. If a participant’s employment ends in any other circumstances prior to the payment of the bonus, no entitlement will arise. 56 Helical Bar plc Report & Accounts 2006 56 Helical Bar plc Report & Accounts 2006 56 Helical Bar plc Report & Accounts 2006 Change of control In the event of a change in control of the Group, bonuses in respect of the financial year in which the change of control falls may be paid to the extent that the relevant performance target(s) have been satisfied over an adjusted Performance Period. Termination of the 2006 Plan The Committee will not recommend the making of bonuses under the 2006 Plan in connection with a financial year later than the year ended 31 March 2011 without further shareholder authority. Service contracts The service contracts of Michael Slade, Nigel McNair Scott and Gerald Kaye operate from 1 July 1997 and of Michael Brown from 8 September 1997. Each service contract provides for a one year notice period. On termination of employment each director is entitled to a payment in lieu of notice of basic salary and other contractual entitlements ie provision of car and health insurance. Non-executive directors Non-executive directors are subject to re-appointment by shareholders at the Company’s AGM at least every three years. The remuneration of the non-executive directors is determined by the Board and was last increased in April 2005. Non-executive directors do not participate in any of the Company’s share option schemes. The former Chairman, John Southwell, is provided with a company car. Total shareholder return The performance criteria of the Company’s 1999 share option schemes, referred to on pages 58 to 60 below, require the Company to exceed certain targets of total shareholder return. The total shareholder return for a holding in the Company’s shares in the five years to 31 March 2006 is shown in the graph below. This graph looks at the value, by 31 March 2006, of £100 invested in Helical Bar on 31 March 2001 compared with the value of £100 invested in the FTSE All-Share Real Estate Index. The other points plotted are the values at intervening financial year-ends. Dividends received are re-invested in shares. Information subject to audit: Remuneration of directors Remuneration in respect of the directors was as follows: Salary/fees £000 Benefits- in-kind £000 Cash bonuses £000 Gain on exercise of share options £000 Incentive plan £000 2006 Total £000 2005 Total £000 Pensions 2006 Total £000 Pensions 2005 Total £000 Chairman Giles Weaver Non-executive directors John Southwell Antony Beevor Wilf Weeks (appointed 14/4/05) Andrew Gulliford (appointed 1/3/06) Executive directors Michael Slade Nigel McNair Scott Gerald Kaye Michael Brown 47 36 33 28 – 480 300 258 258 – 15 – – – 35 19 30 30 1,440 129 – – – – – – – 188 785 973 – – – – – – – – – – 3,322 1,448 483 483 483 549 2,758 1,075 7,704 47 51 33 28 – 28 65 28 – – 5,285 1,351 3,717 2,631 4,055 2,536 3,344 3,754 2,897 13,143 13,810 – – – – – – – – 215 215 – – – – – – – – – – Michael Slade was the highest paid director during the year with a total remuneration of £5,285,000 (including gain on exercise of share options) (2005: Michael Slade £4,055,000). 57 Helical Bar plc Report & Accounts 2006 57 Helical Bar plc Report & Accounts 2006 57 Helical Bar plc Report & Accounts 2006 Total shareholder return value (Value £)35030020025015010050Helical BarFTSE All-Share Real Estate Index31/3/200131/3/200331/3/200231/3/200431/3/200531/3/2006Source: Thomson FinancialDirectors’ Remuneration Report continued The £1,000,000 sector bonus awarded to Michael Brown has been partly paid in cash (£785,000) and partly paid by pension contributions (£215,000). In order to compensate option holders for the payment of the special dividend in April 2002, the Company pays a cash bonus of 20p per share on the date option holders exercise their options, as noted on page 60. The gain on exercise of share options of the directors includes cash bonuses of £693,000 arising out of the exercise of options during the year. The cost of these cash bonuses is included in administrative expenses. Directors’ fees Fees receivable by Nigel McNair Scott in his capacity as Chairman of Avocet Mining Plc are shown in the financial statements of that Company. Share options The Company operated three share option schemes during the year. The Senior Executive 1988 Share Option Scheme ceased to be able to grant options over new shares (“subscription shares”) and shares held by the Helical Bar Share Ownership Plan Trust (“purchase shares”) in June 2001. Share options granted in respect of this scheme are included in note 27. Under this scheme options only vest if the increase in the net asset value per share is greater than that achieved by the upper quartile of the Investment Property Databank index for capital growth of all funds over a five year period. All the performance criteria of the options granted under the terms of this scheme have been met and option holders are, therefore, able to exercise their options at any date prior to their expiry. The Helical Bar 1999 Share Option Scheme operates in respect of the grant of share options which exceed the Inland Revenue limit of £30,000. Under this scheme the aggregate market value of shares issued or issuable to an individual under this and other option schemes may not exceed eight times his annual earnings. Share options granted in respect of this scheme are included in note 27. The Helical Bar 1999 Approved Share Option Scheme is an Inland Revenue approved scheme. Under the terms of this scheme options up to a maximum value of £30,000 per individual may be granted. Share options granted in respect of this scheme are included in note 27. The performance criteria of the two 1999 schemes require total shareholder return over a set period to exceed a certain percentile of the aggregate performance of companies in the Real Estate Sector Index of the FTSE All-Share Index. For the approved scheme the relevant period is three years and the 50th percentile. For the unapproved scheme the relevant period is five years and 25th percentile. These share option schemes have been replaced by the Performance Share Plan, details of which are included on pages 61 and 62, and future share option grants will only be made in exceptional circumstances and only following consultation with principal shareholders on the key terms of those options. 58 Helical Bar plc Report & Accounts 2006 58 Helical Bar plc Report & Accounts 2006 58 Helical Bar plc Report & Accounts 2006 The directors’ interests in the Share Option Schemes during the year were as follows: Type At start of year Options exercised in year At end of year Exercise Date from which price exercisable Expiry date Profit if options exercised at 31 March 2006 Michael Slade Senior Executive 1988 Share Option Scheme Senior Executive 1988 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar Approved 1999 Share Option Scheme Nigel McNair Scott Senior Executive 1988 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar Approved 1999 Share Option Scheme Gerald Kaye Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar Approved 1999 Share Option Scheme Purchase 30,000 – 30,000 90.5p 27.11.01 26.11.07 91,350 Purchase 2,000,000 – 2,000,000 113.0p 10.07.02 09.07.08 5,640,000 Subscription 2,466,105(1,500,000) 966,105 88.5p 08.03.04 07.03.09 2,961,112 Purchase 740,000 Subscription 33,895 – – 740,000 150.0p 18.12.05 17.12.10 * 33,895 88.5p 08.03.02 07.03.09 103,888 5,270,000(1,500,000)3,770,000 8,796,350 Purchase 250,000 (250,000) – – 27.11.01 26.11.07 – Purchase 215,000 – 215,000 88.5p 08.03.04 07.03.09 658,975 Subscription 1,176,105 – 1,176,105 88.5p 08.03.04 07.03.09 3,604,762 Purchase 360,000 Subscription 33,895 – – 360,000 150.0p 18.12.05 17.12.10 * 33,895 88.5p 08.03.02 07.03.09 103,888 2,035,000 (250,000)1,785,000 4,367,625 Subscription 1,466,105(1,216,105) 250,000 88.5p 08.03.04 07.03.09 766,250 Purchase 635,000 Purchase 647,095 Subscription 33,895 – – – 635,000 150.0p 18.12.05 17.12.10 647,095 153.3p 15.11.06 14.11.11 * * 33,895 88.5p 08.03.02 07.03.09 103,888 2,782,095(1,216,105)1,565,990 870,138 *Performance conditions not satisfied as at 31 March 2006. Share options outstanding at 31 March 2005 and 31 March 2006, number of options exercised and exercise prices have all been adjusted for the five for one share split on 1 September 2005. 59 Helical Bar plc Report & Accounts 2006 59 Helical Bar plc Report & Accounts 2006 59 Helical Bar plc Report & Accounts 2006 Directors’ Remuneration Report continued Michael Brown Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar 1999 Share Option Scheme Helical Bar Approved 1999 Share Option Scheme Type At start of year Options exercised in year At end of year Exercise Date from which price exercisable Expiry date Profit if options exercised at 31 March 2006 Subscription 966,105 (500,000) 466,105 88.5p 08.03.04 07.03.09 1,428,612 Purchase 530,000 Purchase 502,090 Subscription 33,895 – – – 530,000 150.0p 18.12.05 17.12.10 502,090 153.3p 15.11.06 14.11.11 * * 33,895 88.5p 08.03.02 07.03.09 103,888 2,032,090 (500,000)1,532,090 1,532,500 *Performance conditions not satisfied as at 31 March 2006. Share options outstanding at 31 March 2005 and 31 March 2006, number of options exercised and exercise prices have all been adjusted for the five for one share split on 1 September 2005. The following share options were exercised during the year by directors: Date of exercise Type of option Number of shares Exercise price Sale price Gain Director Michael Slade Nigel McNair Scott Gerald Kaye Gerald Kaye Gerald Kaye Gerald Kaye Gerald Kaye 07.09.05 Subscription 1,500,000 07.09.05 Purchase 17.06.05 Subscription 07.09.05 Subscription 16.12.05 Subscription 06.01.06 Subscription 13.01.06 Subscription 250,000 466,105 250,000 300,000 102,173 97,827 88.5p 90.5p 88.5p 88.5p 88.5p 88.5p 88.5p 88.5p 290.0p 3,322,500 290.0p 548,750 283.5p 1,002,033 290.0p 310.0p 310.0p 305.1p 553,750 724,500 246,748 231,458 283.5p 1,074,900 Michael Brown 17.06.05 Subscription 500,000 The number of options exercised and exercise prices have all been adjusted for the five for one share split on 1 September 2005. The market price of the ordinary shares at 31 March 2006 was 395p (2005: 230p). This market price varied between 233p and 398p during the year (adjusted for the five for one share split on 1 September 2005. The gain on exercise of share options includes a cash bonus of 20p per 1p share in accordance with the matter referred to under special dividend below. Special dividend In order to compensate option holders for the payment of a special dividend or a distribution of capital, the Board has, under the terms of the Executive 1988 Option Scheme and the Helical Bar 1999 Option Scheme (“the Schemes”), the authority to adjust the number of shares subject to option or the exercise price of those options. The Company is currently unable to increase the number of shares under option in sufficient quantity to satisfy the requirement to compensate option holders for the special dividend of 100p paid in April 2002. An adjustment to the exercise price of the existing options would result in an increased national insurance cost to the Company. Accordingly, the Board has considered alternative ways of compensating option holders and, as a result, the Company will compensate holders of options at the time the special dividend was declared, on the dates they exercise their options by 20p per 1p share (previously 100p per 5p share), equivalent to the special dividend. In the year under review compensation of £823,221 was paid following the exercise of options over 4,116,105 1p shares. 60 Helical Bar plc Report & Accounts 2006 60 Helical Bar plc Report & Accounts 2006 60 Helical Bar plc Report & Accounts 2006 Performance Share Plan At the 2004 Annual General Meeting the Company received approval for the adoption of a Performance Share Plan (“PSP”). General The operation of the PSP is supervised by the Remuneration Committee (the “Committee”). The PSP is capable of delivering shares to an executive after a period of not less than three years, other than in exceptional circumstances and with the approval of the Committee, subject to meeting pre-specified performance targets. Eligibility All employees of the Company and its subsidiaries (including directors who are required to devote substantially the whole of their working time to the business of the Group) who are not under notice nor within six months of any contractual retirement ages will be eligible to receive invitations to participate in the PSP at the discretion of the Remuneration Committee. Grant of awards Awards may be made within the six weeks following approval at a general meeting, the announcement by the Company of its results for any period, or the removal of any statutory or regulatory restriction which had previously prevented an award being granted or any other times considered by the Remuneration Committee to be exceptional. No awards may be made more than ten years after the adoption of the PSP by the Company. The Remuneration Committee will formally review the operation of the PSP after no more than five years. An award consists of the right to acquire shares in the Company for either no payment or payment of a nominal sum. Awards are neither transferable nor pensionable. Limit on individual participation No awards may be granted over shares in any financial year whose value is greater than three times an employee’s annual rate of salary. Exercise of awards Other than in exceptional circumstances, an award will vest no earlier than the third anniversary of its grant to the extent that the applicable performance conditions (see below) have been satisfied and the participant is still employed by the Group. Once exercisable, awards will then remain capable of exercise for a period of normally no more than six months. The Remuneration Committee has set demanding performance conditions for the vesting of shares. There are two performance conditions, one based on absolute growth in the Company’s net asset value per share and the other based on the gross total property return per share relative to other property funds as determined by IPD but excluding those funds worth less than £50m at the start of the three year period. Performance will be measured over the three years following grant. Participants will not normally be permitted to sell shares received through the PSP, other than to meet taxation (and national insurance contributions) liabilities, until they own shares to the value of 2 x salary for directors and 1 x salary for other executives. For the growth in net asset value, the “fully diluted triple net” net asset value as at the start of the financial year in which a grant takes place will be compared to the value three years later (having added back dividends). (a) Absolute net asset value per share (having added back dividends) condition Annual compound increase after three years 15% pa or more Between 7.5% pa and 15% pa 7.5% pa Below 7.5% pa % of award vesting 66.7% Pro rata between 6.7% and 66.7% 6.7% Zero If UK inflation (RPI) is higher than 3% per annum over the three year period then the required compound increases will be raised by the excess over the 3% per annum average. (b) Total property return v IPD property funds condition Ranking after three years Upper quartile or above % of award vesting 33.3% Between median and upper quartile Pro rata between 3.3% and 33.3% Median Less than median 3.3% Zero Provided the net asset value per share (having added back dividends) increases over the three year period. Alignment with shareholders’ interests The Remuneration Committee has analysed the potential gains that may be made by executives (directors and those below Board level) through the PSP and other incentive arrangements currently in place. It has concluded that the share of the increase in the value of the Company (measured as the increase in the net asset value plus cash returned as dividends to shareholders) that could accrue to all executives through the Company’s long and short- term incentive and bonus plans (excluding gains on share options granted before December 2002) at the point at which the maximum awards vest might be of the order of 20%. At this point, in absolute terms, the Company will have increased its triple net asset value by at least 15% per annum with the Company’s relative performance placing it in the top quartile of IPD, over the three year period. Share awards will be cancelled where the gross return falls below the IPD median and where the growth in triple net asset value is below 7.5% per annum over the three year period. Relationship to the Company’s share option schemes The PSP has replaced future share option grants which will only be made in exceptional circumstances and only following consultation with principal shareholders on the key terms of those options. 61 Helical Bar plc Report & Accounts 2006 61 Helical Bar plc Report & Accounts 2006 61 Helical Bar plc Report & Accounts 2006 Directors’ Remuneration Report continued Awards made to directors under the terms of the PSP were as follows: Director Michael Slade Nigel McNair Scott Gerald Kaye Michael Brown Shares awarded 18.08.04 Shares awarded 06.07.05 Total 750,000 519,855 1,269,855 375,000 324,910 699,910 375,000 279,420 654,420 375,000 279,420 654,420 Helical Bar 2002 Approved Share Incentive Plan On 24 July 2002 the shareholders approved the Helical Bar 2002 Approved Share Incentive Plan (the “Plan”). Under the terms of this Plan employees of the Company are given up to £3,000 of free shares in any tax year. Participants in the Plan may purchase additional shares up to a value of £1,500 which is matched in a ratio of 2:1 by the Company. Provided participants remain employed by the Company for a minimum of three years they will retain the free and matching shares. Shares allocated to, or purchased on behalf of, the directors under the rules of the Plan were as follows: Michael Slade Nigel McNair Scott Gerald Kaye Michael Brown Shares held by the Trustees of the Plan at 31 March 2006 were 200,015 (2005: 164,085). 6 July 2005 at 277.0p 26 January 2006 at 325.25p 1,890 1,890 1,890 1,890 618 618 618 618 62 Helical Bar plc Report & Accounts 2006 62 Helical Bar plc Report & Accounts 2006 62 Helical Bar plc Report & Accounts 2006 Report of the Independent Auditors to the Members of Helical Bar plc We have audited the Group and parent company financial statements (the “financial statements”) of Helical Bar plc for the year ended 31 March 2006 which comprise the principal accounting policies, the Consolidated income statement, the Group and parent balance sheets, the Group and parent cash flow statements, the Group and parent company statements of recognised income and expense and notes 1 to 33. These financial statements have been prepared under the accounting policies set out therein. We have also audited the information in the Directors’ Remuneration Report that is described as having been audited. This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted for use in the European Union are set out in the statement of directors’ responsibilities. Our responsibility is to audit the financial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view, whether the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and article 4 of the IAS Regulation and whether the information given in the Directors’ Report is consistent with the financial statements. We also report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed. We review whether the corporate governance statement reflects the Company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report, the unaudited part of the Directors’ Remuneration Report, the Chairman’s statement, operating and financial review, the corporate governance statement and corporate social responsibility report and financial highlights. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the part of the Directors’ Remuneration Report to be audited. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the part of the Directors’ Remuneration Report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements and the part of the Directors’ Remuneration Report to be audited. Opinion In our opinion: – the financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the Group’s affairs as at 31 March 2006 and of its profit for the year then ended; – the parent company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union as applied in accordance with the provisions of the Companies Act 1985, of the state of the parent company’s affairs as at 31 March 2006; – the financial statements and the part of the Directors’ Remuneration Report to be audited have been properly prepared in accordance with the Companies Act 1985 and article 4 of the IAS Regulation; and, – the information given in the Directors’ Report is consistent with the financial statements for the year ended 31 March 2006. Separate opinion in relation to IFRSs As explained in the notes to the Group financial statements, the Group in addition to complying with its legal obligation to comply with IFRSs as adopted by the European Union, has also complied with the IFRSs as issued by the International Accounting Standards Board. In our opinion the Group financial statements give a true and fair view, in accordance with IFRSs, of the state of the Group’s affairs as at 31 March 2006 and of its profit for the year then ended. Grant Thornton UK LLP Registered Auditors Chartered Accountants London 16 June 2006 63 Helical Bar plc Report & Accounts 2006 63 Helical Bar plc Report & Accounts 2006 63 Helical Bar plc Report & Accounts 2006 Corporate Social Responsibility Helical Bar plc recognises and acknowledges that the conduct of its business has an impact on its employees, its partners, its customers and suppliers and the economy, community and environment of its property portfolio. An indication of the Company’s commitment to good corporate social responsibility is its inclusion on the FTSE4Good UK Index, a benchmark index of companies which meet criteria set down by EIRIS (Ethical Investment Research Service) on environmental, social and ethical performance. The criteria established by EIRIS encompass corporate governance, environment, human rights, stakeholder issues, employee issues and customers and suppliers. The Company’s corporate governance policies are noted on page 51 above and on the environment on page 65. The Company has no business activities in any countries which have unacceptable human rights records. The Company’s relationship with its key stakeholders, its shareholders, is noted on page 53 above. Employees Helical Bar plc is committed to non-discrimination in all its forms and supports the training and development of all its employees. The Company actively encourages participation in the ownership of the business through the operation of a Share Incentive Plan authorised by shareholders at the 2002 AGM. This Plan replaced the Profit Sharing Scheme which had operated since 1997. All employees are eligible to benefit from Company contributions into personal pension plans or into the Company’s Stakeholder Pension Plan. Statement of General Health and Safety Policy Helical Bar’s policy is to develop a culture throughout its organisation that is committed to the prevention of injuries and ill health to its employees or others that may be affected by its activities. The Board of Directors and senior staff are responsible for implementing this policy throughout the Company and must ensure that health and safety considerations are always given priority in planning and in day-to-day activities. Helical Bar recognises its legal responsibility for health and safety. The Managing Director has overall responsibility for policy formulation, development and implementation. The Company shall liaise and co-operate with the appropriate authorities and will obtain expert advice where necessary to determine the risks to health and safety in its activities. Facilities will be provided for employer/employee consultation on health and safety matters. All employees are expected to co-operate with the Company to achieve the objectives of this policy and must ensure that their own work, so far as is reasonably practicable, is carried out without risk to themselves or others. The Company is committed to providing information and necessary ongoing training to employees in respect of risks to health and safety, which may arise out of their activities or at their workplace. This policy statement will be displayed prominently at all Company offices and the organisation and arrangements for implementing this policy will be available at all Company offices for reference. The policy will be reviewed and updated as necessary and any revisions will be communicated to those affected by the changes. Community involvement Helical Bar plc has for many years joined in efforts to raise money for charitable causes. In 2005 the Company organised an entry under the Helical banner into the London to Brighton Bike Ride raising over £91,000 for the British Heart Foundation. The Company’s Managing Director, Mr Michael Slade, is a Trustee of the Land Aid Charitable Trust, a charity established in 1985 to focus the fundraising efforts of the property industry. Land Aid’s mission is to support the homeless and vulnerable by raising funds to help provide accommodation, assist in refurbishment projects and give financial assistance where needed. In 2005 the charity was relaunched and organised several fundraising events during the year. The Company also makes charitable donations in its own right and in the year under review the donations amounted to £40,220 (2005: £14,010). Ethical concerns The Company has adopted a Code of Ethics which sets out its approach to its business principles and provides details of good business practices promoted by the Company. It includes a clear policy statement that the Company does not condone any form of corrupt behaviour in its business dealings. The Company also formally adopted during the year an Equal Opportunities Policy which sets out its determination to treat all employees in accordance with that policy. 64 Helical Bar plc Report & Accounts 2006 64 Helical Bar plc Report & Accounts 2006 64 Helical Bar plc Report & Accounts 2006 Environmental policy and objectives Helical Bar recognises its responsibility to reduce any adverse environmental impacts arising from its business activities. The corporate commitment is encapsulated by the environmental policy and objectives, which are listed at www.helical.co.uk. The Company is keen to comply with all applicable environmental legislation, and seeks to continuously improve its environmental performance, achieving good practice in both development and management activities. Annual targets are set to drive further improvements in management and performance, and to track progress over time. It should be noted that, to be consistent with the Company’s financial reporting period, the environmental reporting period has been altered from a calendar year basis to a financial year basis (i.e. April to March). In 2005, 56% of all the environmental targets were fully achieved, with just 6% remaining un-progressed. A detailed review of progress against individual targets can be found at www.helical.co.uk and specific highlights and challenges are outlined below. Building design and construction • Helical has extended its engagement with principal contractors and joint venture partners to inform them of Helical Bar’s environmental policy and targets for the year. On larger projects (e.g. Cardiff), the tender process has specifically requested contractors to disclose previous pollution incidents and fines incurred. • Helical Bar continues to use the BREEAM tool to evaluate the environmental performance of designs for larger schemes. In 2005, a preliminary assessment was undertaken by the architects for the mixed use scheme being developed in Nottingham. The pre-assessment BREEAM report for Helical’s development in Milton Keynes also indicates that this is capable of achieving a Very Good or an Excellent BREEAM rating. Property management • Through its managing agent, Helical continues to engage proactively with tenants on the issue of waste management. During 2005, this received a positive response from tenants at Rex House where a more coordinated approach to waste recycling may be introduced, and Helical will seek to extend this approach in future to other tenants and buildings. The Company’s ambition is to provide tenants with a direct cost-comparison between recycling and not recycling to inform future discussions. • Similar albeit slower engagement is taking place with tenants over energy use, but there have been some positive responses and Helical Bar’s managing agents hope to work with two key tenants in the coming months to identify and prioritise energy saving measures that can be taken by both the tenant and Helical Bar to improve energy efficiency. Own-occupation • Helical has increased the amount of waste recycled at head office by 15% and other types of waste are now being recycled using a maxi-waste system. • In 2005-06 the Company conducted a survey of staff travel to work. This will be reviewed with a view to identifying sustainable transport initiatives where appropriate. Future priorities Key priorities for the next reporting period will include: • Further engagement with tenants on improving efficiencies in multi-let offices, in particular extending waste recycling schemes, and better understanding of energy use patterns and potential reduction measures. • Development of environmental information packs tailored for joint venture partners (with a particular focus on sustainable procurement), and for tenants regarding environmental matters relating to the use of Helical’s buildings. • Further reducing the adverse environmental impacts of Helical’s own head office, and ensuring more effective communication with all interested stakeholders. A full list of targets for 2005-06 can be found on the Company website at www.helical.co.uk. 65 Helical Bar plc Report & Accounts 2006 65 Helical Bar plc Report & Accounts 2006 65 Helical Bar plc Report & Accounts 2006 Glossary of Terms Adjusted diluted net assets per share Diluted net asset value per share adjusted to exclude fair value of financial instruments and deferred tax on capital allowances and on investment properties revaluation. Adjusted diluted triple net asset value Diluted net asset value per share adjusted to include the surplus of value from the directors’ valuation of trading stock. Adjusted earnings per share Earnings per share adjusted to exclude gains on sale and revaluation of investment properties, fair value movements on derivative financial instruments and their deferred tax adjustments, on a diluted basis. Average Unexpired Lease Term The average unexpired lease term expressed in years. BREEAM Building Research Establishment’s Environmental Assessment Method. Diluted figures Reported amounts adjusted to include the effects of potential shares issuable under the employee share option schemes. Earnings per share Profit after tax divided by the weighted average number of ordinary shares in issue. Estimated rental value (ERV) The market rental value of lettable space as estimated by the Company’s valuers at each balance sheet date. Initial yield Annualised net rents on investment properties as a percentage of the investment property valuation. IPD The Investment Property Databank Limited (IPD) is a company that produces an independent benchmark of property returns. Like-for-like portfolio Properties that have been held for the whole of the period of account. Net assets per share or net asset value (NAV) Equity shareholders’ funds divided by the number of ordinary shares at the balance sheet date. Net gearing Total borrowings less short-term deposits and cash as a percentage of equity shareholders’ funds. REIT Real Estate Investment Trust. Return on capital employed (ROCE) Return on capital employed is measured as profit before financing costs plus revaluation surplus on investment property divided by the opening gross capital. Reversionary yield The anticipated yield, which the initial yield will rise to once the rent reaches the ERV. Total shareholder return (TSR) The growth in the ordinary share price as quoted on the London Stock Exchange plus dividends per share received for the period expressed as a percentage of the share price at the beginning of the period. True equivalent yield The constant capitalisation rate which, if applied to all cash flows from an investment property, including current rent, reversions to current market rent and such items as voids and expenditures, equates to the market value. Assumes rent is received quarterly in advance. Weighted Average Cost of Capital (WACC) The weighted average pre-tax cost of the Group’s debt and the notional cost of the Group’s equity used as a benchmark to assess investment returns. 66 Helical Bar plc Report & Accounts 2006 66 Helical Bar plc Report & Accounts 2006 66 Helical Bar plc Report & Accounts 2006 Financial Calendar Year ended 31 March 2006 Annual General Meeting to be held 20 July 2006 Final ordinary dividend payable 21 July 2006 Half year ending 30 September 2006 Results and interim ordinary dividend announced November 2006 Interim ordinary dividend payable December 2006 Year ending 31 March 2007 Results and final dividend announced June 2007 Final ordinary dividend payable July 2007 67 Helical Bar plc Report & Accounts 2006 67 Helical Bar plc Report & Accounts 2006 Advisors Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers Barclays Bank plc Hypo Real Estate The Royal Bank of Scotland plc Aareal Bank AG Stockbrokers JP Morgan Cazenove 20 Moorgate London EC2R 6DA Auditors Grant Thornton UK LLP Grant Thornton House Melton Street Euston Square London NW1 2EP Merchant bankers Lazard 50 Stratton Street London W1J 8LL Solicitors Ashurst Clifford Chance Dechert Lawrence Graham Mishcon de Reya Norton Rose Olswang 68 Helical Bar plc Report & Accounts 2006 Front cover: Trinity Square, Nottingham Contents Financial Highlights 01 Share price chart 02 Chairman’s Statement 05 Operating Review Development programme 09 Operating Review Investment Portfolio 14 Financial Review 18 Consolidated Income Statement 19 Balance Sheets 21 Statement of Recognised Income and Expense 22 Group and Company Cash Flow Statement 23 Notes to the Financial Statements 47 Ten Year Review 48 The Board of Directors and Senior Management 49 Directors’ Report 51 Corporate Governance Report 55 Directors’ Remuneration Report 63 Report of the Independent Auditors 64 Corporate Social Responsibility 66 Glossary of Terms 67 Financial calendar 68 Advisors Financial Highlights *Adjusted for the 5 for 1 share on 1 September 2005 Five year summary Notes IFRS 31.03.06 £m IFRS 31.03.05 £m UK GAAP 31.03.04 £m UK GAAP 31.03.03 £m UK GAAP 31.03.02 £m Net rental income Development profits Trading profits Adjusted profits before tax 1 Gain/(loss) on revaluation of investment property Gain on sale of investment properties Pre-tax profits Return of cash/special dividend Investment portfolio Shareholders’ funds Dividend per ordinary share Diluted earnings per share Adjusted diluted net asset value per share Adjusted diluted triple net asset value per share 4 4 2/4 3/4 16.5 4.6 13.4 13.6 35.7 7.8 57.1 2.4 294.6 230.1 pence 3.65 51.8 278 284 20.4 12.7 5.8 20.5 30.1 14.1 64.7 97.2 271.3 182.5 pence 3.32 53.7 224 219 23.0 – 1.0 11.7 24.2 2.0 13.7 – 334.9 234.9 pence 3.32 7.9 177 161 25.6 4.6 0.3 16.7 (13.4) 2.1 25.2 – 342.5 226.9 pence 3.00 11.8 155 141 27.8 17.1 0.2 20.3 18.5 2.5 22.6 28.4 439.9 227.7 pence 2.75 11.8 155 133 Notes 1. Excludes profit on sale of investment properties and loss on sale of subsidiary. 2. After adding back additional deferred taxation arising from the clawback of capital allowances on sale of investment properties, the deferred taxation on the revaluation surpluses of the investment portfolio and the fair value of financial instruments. 3. Adjusted for the directors’ valuation of trading stock but after adding back the deferred taxation referred to in 3 above. 4. Comparative figures have been adjusted for the 5 for 1 share split on 1 September 2005. Design and production Radley Yeldar (London) Pre-tax profit £m 2002200320042005200622.625.213.764.657.1Ordinary dividend per share Pence* 200220032004200520062.753.003.323.323.65Adjusted diluted net asset value per share Pence*Net asset values per share have been restated for the impact of the adoption in 2005 of UITF38 –Accounting for ESOP Trusts.20022003200420052006155155177224278Cash returned to shareholders £mCash returned to shareholders represents special dividends, shares bought in for cancellation and the Return of Cash in December 2004 but excludes ordinary dividends per share.2002200320042005200628.4–21.596.5–Pre-tax profit £m 2002200320042005200622.625.213.764.657.1Ordinary dividend per share Pence* 200220032004200520062.753.003.323.323.65Adjusted diluted net asset value per share Pence*Net asset values per share have been restated for the impact of the adoption in 2005 of UITF38 –Accounting for ESOP Trusts.20022003200420052006155155177224278Cash returned to shareholders £mCash returned to shareholders represents special dividends, shares bought in for cancellation and the Return of Cash in December 2004 but excludes ordinary dividends per share.2002200320042005200628.4–21.596.5–H e l i c a l B a r p l c A n n u a l R e p o r t & A c c o u n t s 2 0 0 6 Helical Bar plc Annual Report & Accounts 2006 Helical Bar plc, registered office: 11-15 Farm Street, London W1J 5RS Tel: 020 7629 0113, Fax: 020 7408 1666 email: info@helical.co.uk website: www.helical.co.uk 

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