(CPT) Carpathian

Carpathian PLC

Preliminary results for the year ended 31 December 2011

Carpathian PLC (AIM: CPT), the commercial property investment company focused on retail properties within Central and Eastern Europe, today announces its preliminary results for the year ended 31 December 2011.

Financial Highlights 

-       Loss after tax of €3.5 million (2010: profit after tax of €15 million)

-       Loss per share of 1.4 euro cents for the period (2010:  earnings per share of 6.5 euro cents)

-       Net asset value per share of 0.6 euro cents (39.1 euro cents as at 31 December 2010)

-       Net rental income of €8.9 million (2010: €22.2 million)

-       Total Group cash as at 31 December 2011 was €49.9 million (as at 31 December 2010: €26.8 million) and as at 29 February 2012 was approximately €5.4 million (reflecting the post year-end Distributed Capital Payment to the Property Adviser and distribution to shareholders). 

Operational Highlights

-       All of the key objectives defined as part of the Strategic Review in January 2010 have been completed.

-       As at 31 December 2011, the total distribution to shareholders following the Strategic Review was 41.5 euro cents per share (€96.3 million in total). In comparison, the weighted average share price was 16.2 euro cents during the period of the Strategic Review between November 2008 and April 2009.

-       The property transactions completed in 2011 recovered €96.4 million equity from the core portfolio representing 99% of their latest year end valuations as described below.

-       The corporate restructuring of the Company has enabled a reduction of €21 million tax liability, while management charges were also below allowable budget by €0.6 million.

-       In Poland, the four properties in the Blue Knight portfolio of assets were sold in two separate transactions for a gross consideration of €74.7 million. The net equity amount realised from the partial Blue Knight sale was approximately €26.3 million.

-       The most valuable asset of the Company, the Promenada shopping centre in Warsaw, Poland was sold for a gross consideration of €169.5 million as announced on 6 May 2011. The net equity realised from the sale after transaction costs was approximately €59.5 million.

-       On 20 March 2012, the Group disposed of its various interests held in the Galleria shopping centre in Riga, Latvia for a cash consideration of €2.3 million.

-       Carpathian disposed of the non-core Plaza property portfolio in Hungary for a nominal sum to the financing bank in Hungary on 19 April 2011.

-       New arrangements have now been entered into with the existing property investment adviser, CPT LLP and Carpathian Asset Management Limited (together "CAM") for the provision of corporate and asset management services in 2012 and for the amendment of certain provisions of the existing Portfolio Management Agreement.

-       The Company has also entered into a Settlement Deed and Release, which deals with all outstanding profit re-investment obligations of various members and affiliates of Dawnay, Day Group by paying out approximately €4.4 million net. As a consequence, the Net Asset Value of the Company has increased by €1.7 million.

Rory Macnamara, Non-executive Chairman of Carpathian, said: 

"The Board is very pleased with the results achieved since the completion of the Strategic Review. We will continue to focus on the timely and orderly wind down of the Company with the intention to return any excess cash to shareholders from further realisations (after allowing for actual and contingent liabilities) and expect to be in a position to make a further announcement on the timing of these steps within the next few weeks."

-Ends-

Enquiries:

Notes to Editors

Chairman's Statement

I am pleased to announce that the Strategic Review's key objectives set out in January 2010 have been successfully achieved. 

During the period of the Strategic Review from November 2008 to April 2009, the weighted average share price was approximately 16.2 euro cents.  Since then, the Board has been able to announce three distributions totalling 41.5 euro cents per share (4.5 cents on 17 December 2009, 25 cents on 21 September 2011 and 12 cents on 15 December 2011).

This is the result of successful sales and delivering operational costs targets within the agreed timescale.

Financial results

As a consequence of the substantial disposals during 2011 and the going concern note below, the Company has presented its Consolidated Statement of Comprehensive Income in accordance with International Financial Reporting Standard 5 ('IFRS 5'), with all operations now classified as discontinuing.

The loss after tax for the year is €3.5 million, while the Group generated a profit of €15.0 million during 2010.  Losses per share are 1.4 euro cents (2010: earnings per share of 6.5 euro cents).  All expected liquidation costs and other expenses expected to be incurred post year end and up to the completion of the liquidation have been provided for in the Consolidated Balance Sheet as at 31 December 2011 - the total amount accrued is some €2.0 million.

During 2011, the Group's net rental and related income was €8.9 million (2010: €22.2 million). The decrease is the direct result of the property sales completed.

Administrative expenses for the year were €6.8 million (2010: €6.0 million). As mentioned above, administrative expenses for the year include liquidation costs and one-off items relating to the sold assets as well as corporate restructuring costs of approximately €0.8 million. The restructuring of various Group companies has delivered reductions in corporate income tax liabilities of approximately €21.6 million from the sales of the core property portfolio as shown in the movement of the net deferred tax liabilities (described below).

On a cumulative basis, the operational expenses relating to the Property Investment Adviser are €0.6 million below the maximum amount set out in the Property Management Agreement signed in February 2010.  This expense is allocated substantially within property operating expenses in the Consolidated Statement of Comprehensive Income. The Distributed Capital Payout of €10.5 million, based on performance measures set out in the Strategic Review, payable to the Property Investment Adviser has been fully accrued for as at 31 December 2011 and paid in 2012.

The Group's net asset value per share is 0.6 euro cents as at 31 December 2011 (as at 31 December 2010: 39.1 euro cents) based on the latest independent property valuations as at 31 December 2011.

Total Group cash as at 31 December 2011 was €49.9 million (as at 31 December 2010: €26.8 million) and €5.4 million as at 29 February 2012 post the payment of dividends and the Distributed Capital Payout. As at 31 December 2011, the Group had approximately €47.5 million cash at holding company level including its entities in Isle of Man and Luxembourg and €4 million as at 29 February 2012.

The Group has reclassified all of its long-term assets to current assets as they are held for sale during 2012. The Group has no long-term liabilities.

During the year the Group took the decision to derecognise the non-core MID portfolio with effect from 1 October 2011 as all the risks and rewards of ownership are no longer retained by the Group. The overall accounting profit on derecognition was €3.4 million.

The Group has no assets and liabilities relating to non-core assets recognised in the financial statements as at 31 December 2011.

The Group had no consolidated debt position as at 31 December 2011, compared to €221.3 million as at 31 December 2010.  All outstanding bank facilities have either been repaid from sales or, in the case of the non-core MID portfolio, derecognised.

The Group had no deferred tax liabilities as at 31 December 2011 (as at 31 December 2010: €21.6 million).

The Group also had no goodwill as at 31 December 2011 (as at 31 December 2010: €6.6 million).

Key operational matters for the period

The Promenada shopping centre in Warsaw, Poland was sold for a gross consideration of €169.5 million as announced on 6 May 2011.  This price was subject to a net deduction of €1 million arising principally from payments for warranty insurance and modification of the trademark licence. An escrow account was established of €0.6 million, all of which has been released.  Carpathian also received an additional consideration of €1.5 million in August 2011 when the purchaser reclaimed the relevant VAT.  Total bank debt and related fees payable to DPB were approximately €108.1 million, which included a loan repayment of approximately €1 million against the Gdansk property, an additional €2.1 million against the Babilonas shopping centre in Lithuania and a further €0.2 million repayment in relation to the corporate restructuring. The initial net closing payment was €59.8 million, while the net equity realised from the sale after transaction costs was approximately €59.5 million.

As announced on 9 March 2011, three out of the four properties in the Blue Knight portfolio of assets in Poland were sold for a gross consideration of €40.2 million. The initial net equity amount realised from the partial Blue Knight sale was approximately €7.6 million. The financing bank, Deutsche Pfandbriefbank ('DPB') retained approximately €9.4 million in addition to the allocated loan amount of approximately €22 million to cover an additional loan repayment against the fourth property in Gdansk of €7.9 million and the Babilonas shopping centre of €0.9 million, as originally agreed during the DPB debt restructuring in June 2009. A further loan repayment of €0.6 million has also been agreed in connection with obtaining DPB's consent for the corporate restructuring which has delivered substantial tax benefits to the Group.

On 18 May 2011, the sale of the fourth and last remaining asset in the Blue Knight portfolio - Osowa shopping centre in Gdansk - was completed for a consideration of €34.5 million in cash. The sale price included a €3 million retention to be released to the Company if questions related to the occupancy permit were resolved before the end of 2011. As these questions have not yet been resolved, the retention has now decreased to €1.5 million with a final deadline of 30 June 2012 after which, if there is no resolution, the retention will reduce to nil. At this stage, realisation of this retention is uncertain.  The initial net equity released after transaction costs was approximately €9.8 million. Further to this, DPB released retained funds of €8.9 million previously held from the sale of the first three assets in the Blue Knight portfolio and Promenada.

The single tenanted property in Slupsk, Poland was sold for a consideration of €0.75 million on 18 April 2011 delivering net equity proceeds of approximately €0.7 million.

In Lithuania, the local holding company of the Babilonas shopping centre in Panevezys was sold for a gross sales price of €24.1 million on 7 December 2011. The net equity released from the transaction was approximately €5 million. 

In Romania, the Company sold two assets in November 2011. The Macromall shopping centre in Brasov, Romania was sold for €1.3 million and the Satu Mare development land plot was sold for €1.1 million and both were received as equity proceeds.

On 20 March 2012, the Group disposed of its various interests held in the Galleria shopping centre in Riga, Latvia for a cash consideration of €2.3 million.

The only remaining core property asset of the Company is the Baia Mare development land plot in Romania that is also in a preliminary stage of a sales process.

Carpathian transferred its ownership of the non-core Plaza property portfolio in Hungary to the financing bank in Hungary for a nominal sum on 19 April 2011. This portfolio was derecognised from our Balance Sheet in 2010.

In December 2011, the Group entered into a Settlement Deed and Release, which dealt with all outstanding profit re-investment obligations of various members and affiliates of Dawnay, Day Group. These arrangements completed in January 2012 and included a net cash payment by the Company of €4.4 million, the transfer to the Company of 1,190,202 Ordinary Shares, which were subsequently cancelled for a nominal sum, the acquisition by the Group of a loan note in respect of deferred consideration payable and the novation of a put and call option to the Group. These arrangements were fully provided for at 31 December 2011.

New arrangements have now been entered into with the existing property investment adviser, Carpathian Asset Management Limited for the provision of corporate and asset management services in 2012 and for the amendment of certain provisions of the existing Portfolio Management Agreement.

Note on going concern and outlook

The financial statements of the Group and Company have been prepared under the historical cost convention. The Company intends to seek shareholders' approval to de-list its shares from the Alternative Investment Market of the London Stock Exchange and to implement a members' voluntary liquidation.  The Directors will provide further detail on these proposals in due course.  Adequate cash reserves will be retained for all applicable actual and contingent liabilities.  Any net surplus from sales and other recoveries in 2012 and cash released as a result of unrealised liabilities will be distributed to shareholders.

The Directors therefore do not consider the Company to be a going concern and have prepared the financial statements on a break up basis. There has been no financial impairment of the Group's and Company's assets as a result of a break up basis of valuation, as remaining assets held for sale are carried at fair value less expected sales costs. All expected liquidation costs and expenses expected to be incurred post year end until eventual liquidation have been accrued for, in line with management's best estimates.

Rory Macnamara

Chairman

24 April 2012

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2011

Company Statement of Comprehensive Income

for the year ended 31 December 2011

Consolidated Statement of Changes in Equity

for the year ended 31 December 2011

Company Statement of Changes in Equity

for the year ended 31 December 2011

Statements of Financial Position

As at 31 December 2011

Statements of Cash Flows

for the year ended 31 December 2011

Notes to the financial statements

for the year ended 31 December 2011                                                                                                                                                                                

1      General information

Carpathian PLC (the "Company") is a company domiciled and incorporated in the Isle of Man on 2 June 2005 for the purpose of investing in the retail property market in Central and Eastern Europe. On 24 July 2009 the Company re-registered as a company governed by the Isle of Man Companies Act 2006 and redenominated the par value of it's Ordinary Shares from pounds Sterling 0.01 to Euro 0.01.

The consolidated financial statements include the share capital of the Company denominated in Euro. As from 24 July 2009 the share capital was converted from pounds Sterling, based on the exchange rate prevailing on that date.

The Company's registered address is IOMA House, Hope Street, Douglas, Isle of Man IM1 1AP.

The Company was admitted to the AIM of the London Stock Exchange and commenced trading its shares on 26 July 2005. The Company raised approximately £140 million at listing and a further £100 million in May 2007 (before admission costs).

2      Significant accounting policies

(a)   Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS's") and its interpretations adopted by the International Accounting Standards Board ("IASB").

The consolidated financial statements were authorised for issue by the Board on 24 April 2012.                                                         

(b)   New standards and interpretations                                                                                                                                                                                                                        

As of the date of authorisation of these financial statements, the following Standards and Interpretations, which have not been applied in these financial statements, were in issue but not yet effective:

IAS 1 Presentation of Financial Statements - amendments to revise the way other comprehensive income is reported

IAS 12 Income Taxes - limited scope amendment

IAS 19 Employee Benefits - amendment resulting from Post Employment Benefits and Termination Benefits projects

IAS 27 Consolidated and Separate Financial Statements

IAS 28 Investments in Associates

IAS 32 Financial Instruments Presentation - amendments to the offsetting of financial assets and liabilities

IFRS 7 Financial Instruments - Disclosures

IFRS 9 Financial Instruments - classification and measurement and derecognition of financial liabilities

IFRS 10 Consolidated Financial Instruments

IFRS 11Joint Arrangements

IFRS 12 Disclosure of Interests in Other Entities

IFRS 13 Fair Value Measurement

IFRIC Interpretation

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.

(c)   Basis of preparation

The functional currency of the consolidated financial statements is the Euro as it is the currency of the primary economic environment in which the Group operates.

The Group applies revised IAS 1 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Group presents in the consolidated statement of changes in equity all owner changes in equity, whereas non-owner changes in equity are presented in the consolidated statement of comprehensive income.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain assets including the revaluation of investment property and financial instruments. The accounting policies have been consistently applied to the results, gains and losses, assets, liabilities and cash flows of all entities included in the consolidated financial statements.

The preparation of financial statements in conformity with IFRS requires the Directors to make judgements, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses.  These estimates and associated assumptions are based on historical experience and various other factors which are believed to be reasonable under the circumstances, and are reviewed on an ongoing basis; they may have a significant impact on the financial statements, and actual results may differ from these estimates.  Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years.

The financial statements of the Group and Company have been prepared under the historical cost convention. The Company intends to seek shareholders' approval to de-list the Company from the Alternative Investment Market of the London Stock Exchange and in due course thereafter to commence and implement an orderly members voluntary liquidation.  As explained in the Directors' Report, the Directors therefore do not consider the Company to be a going concern and have prepared the financial statements on a break up basis and therefore all operations are presented as discontinuing operations. There has been no financial impairment of the Group's and Company's assets as a result of a break up basis of valuation, as remaining assets held for sale are carried at fair value less expected sales costs. All expected liquidation costs and expenses expected to be incurred post year end until eventual liquidation have been accrued for, in line with management's best estimates.

(d)   Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the non-controlling interest in the subsidiary's equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to ensure uniformity with the accounting policies adopted by the Group.

The Company does not continue to consolidate entities where effective control over the company's assets has been asserted by another party. The Company will recognise the deconsolidation on the date at which control and any rights to significant risk and reward is transferred to the superseding party. The results of subsidiaries deconsolidated during the year are included in the consolidated Statement of Comprehensive Income up to the effective date of disposal.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.             

(e)   Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised provisionally at the best estimate of their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5: Non-current assets held for sale and discontinued operations are recognised and measured at fair value less costs to sell.                

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. Goodwill is subject to an impairment review by the Directors at a minimum of an annual basis.                                                                                                                                                                                                                                    

The non-controlling interest in the acquiree is initially measured at the non-controlling interest's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.                                                    

The revenue and profit of the subsidiaries in relation to all business combinations effected during the year has not been disclosed as the information is not readily available.

(f)    Jointly controlled entities

A jointly controlled entity is a joint venture that involves the establishment of a corporation, partnership or other entity in which each venturer has an interest and contractual arrangements between the venturers establish joint control over the economic activity of the entity.

Jointly controlled entities are accounted for using the equity method.  They are recognised initially at cost and adjusted thereafter for the post acquisition change in the Group's share of net assets of the joint controlled entity.  The Group Statement of Comprehensive Income includes the Group's share of the profit or loss of the jointly controlled entity from the date that joint control commences until the date that joint control ceases.  When the Group's share of losses exceeds its interest in a jointly controlled entity, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the jointly controlled entity.

(g)   Goodwill               

Goodwill is allocated as described in note 16. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. This impairment review is performed at least annually. Any impairment is recognised immediately in the Statement of Comprehensive Income and is not subsequently reversed. Since goodwill is calculated and attributed to the purchase of property portfolios rather than individual companies, negative goodwill is not credited to the Statement of Comprehensive Income, but offset against positive goodwill generated by the purchase of the portfolio as a whole.

(h)   Revenue recognition

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts over the expected life of the financial asset to that asset's net carrying amount.

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.                                                                                                                                                                

(i)    Leases

Leases are classified as finance leases whenever the terms of the lease substantially transfer the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Group only has operating leases where it is the lessor (note 2h). Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

(j)    Foreign currencies

The functional currency of the Group and the Company is considered to be the Euro.  It is the currency of the primary economic environment in which it operates. For the purpose of the financial statements, the results and financial position of the Company and Group are presented in Euros as the Company is listed on the London Stock Exchange and its share price is quoted in Euros.

In preparing the financial statements of the individual companies, transactions (other than those in the functional currency) are recorded in foreign currency. The functional currency equivalent is also recorded where the underlying transaction is not denominated in functional currency. At each Balance Sheet date, all monetary assets and liabilities denominated in foreign currency are translated to functional currency at the rate prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Income and expense items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are used.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in the Statement of Comprehensive Income for the year. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included the Statement of Comprehensive Income for the year except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.

In order to hedge its exposure to certain foreign exchange risks, the Group reviews its position to enter into forward contracts and options (see note 2(m) for details of the Group's accounting policies in respect of such derivative financial instruments).

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group's operations are translated at exchange rates prevailing on the Balance Sheet date. Income and expense items are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during that year, in which case the exchange rates at the date of transactions are used. Such translation differences are recognised as income or as expenses in the year in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(k)   Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.                                                                                                                                                                                                                            

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the Balance Sheet date.                          

Deferred tax represents the tax expected to be payable or recoverable arising 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 Statement of Financial Position 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 difference arises 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 accounting profit nor the tax profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each Balance Sheet date and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off, when they relate to income taxes levied by the same taxation authority and the Group intends to settle its tax on a net basis.

 (l)   Investment property

Investment properties are properties held for long term rental income or for capital appreciation or both.

Acquisitions through direct asset purchases are initially stated at cost, including related transaction costs. Acquisitions through business combinations are stated at fair value at the date of acquisition.  Additions to investment properties consist of costs of a capital nature.                                                                                                                                                                                                                                     

Acquisitions through long term leases which substantially transfer the risks and rewards of ownership to the lessee are treated as finance leases, and are initially stated at the lower of fair value or the present value of minimum lease payments. Where finance lease payments are subsequently adjusted, the present value of the minimum lease payments are adjusted accordingly.

The Group applies revised IAS 40 Investment Property (2008), which became effective as of 1 January 2009.  As a result, the Group's development properties are now classified as Investment Property and are recognised initially at cost and subsequently at fair value.  Cost includes all costs directly associated with the purchase and construction of development properties and attributable interest.  Fair value is independently determined by professionally qualified valuers at market value at the Statement of Financial Position date.  Gains or losses arising from changes in fair value of investment properties are included in the Statement of Comprehensive Income in the year in which they arise.  This presentation has been applied in these financial statements as of and for the year ended 31 December 2009.

Borrowing costs relating to development properties are capitalised to the asset on which they are incurred.

(m)  Financial instruments

Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument in accordance with IAS 39 Financial Instruments Recognition and Measurement.                                                                                                                                                                                                                              

Trade receivables

Trade receivables are classified under the loans and receivable category and are measured at initial recognition at fair value. Subsequently, they are measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the Statement of Financial Position when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Investments

Investments are classified as available for sale financial assets and recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract which terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at cost, including transaction costs.                                                                        

Loans to subsidiaries

Loans are initially measured at fair value. After initial recognition, loans are measured net of any accumulated impairment losses. This impairment review is performed at least annually. Any impairment is recognised immediately in the Statement of Comprehensive Income.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and other short-term, highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value.                                                                                                                     

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities, except for borrowing costs incurred in respect of development projects which are capitalised as per note 2(l).                                  

Bank borrowings

Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs, which is considered to be its fair value. Finance charges, except for borrowing costs incurred in respect of development projects which are capitalised as per note 2(l), including premiums payable on settlement or redemption and direct issue costs, are accounted for in the Statement of Financial Position at amortised cost using the effective interest rate method and are added to the carrying amount of the instrument to the extent that they are not settled in the year in which they arise.               

Trade payables

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost using the effective interest rate method.                                                                                                                                                                                                                        

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs, which is considered to be its fair value.                                                                                                                                                                                                                                   

Derivative financial instruments              

The Group uses interest rate swap contracts to hedge all the interest on its external debt, and classifies these under the financial instruments at fair value though profit and loss on initial recognition.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value.  Derivatives are measured at initial recognition at fair value excluding transaction costs, and are subsequently measured at fair value. Fair value is the estimated amount that the Group would receive or pay to terminate the derivative at the Statement of Financial Position date, taking account of current interest rates. Gains or losses on the revaluation of derivatives are reported in the Statement of Comprehensive Income.                                                                                                                                                                                                                                  

(n)   Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors best estimate of the expenditure required to settle the obligation at the Statement of Financial Position date, and are discounted to present value where the effect is material.                                                                                                                                                                         

 (o)  Determination and presentation of operating segments

The Group determines and presents operating segments based on the information that internally is provided to the Board of Directors.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. An operating segment's operating results are reviewed regularly by the Board to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available.

Segment results that are reported to the Board of Directors include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly income and expenditure associated with the various holding companies within the Group.

The operating segments frequently transact between themselves. The transactions include intra-group loans, associated interest and recharged expenses. Loan interest is charged at market rates and expenses are recharged at cost.                                                                                                                                                                                                                                   

(p) Assets held for sale

A non-current asset is classified as held for sale if the Group has entered into a sale transaction with an expected date of completion within twelve months of the year end and if such asset meets the full criteria laid down in IFRS 5 'Non-current Assets Held for Sale and Discontinued Operations'. A non-current asset classified as held for sale is measured at the value prescribed by the sales agreement to which it pertains less future costs to sell.

Non-current assets held for sale are shown separately on the face of the Statement of Financial Position.

3      Critical accounting judgments and key sources of estimation uncertainty

Critical judgments in applying the Group's accounting policies

In the process of applying the Group's accounting policies, which are described in note 2, the Directors have made the following judgments that have the most significant effect on the amounts recognised in the consolidated financial statements.

Investment and loan to subsidiary

Following a detailed review of the financial positions of the Company's subsidiaries, the Directors are satisfied that the carrying amount of investments and loans to subsidiaries, net of the impairment for the year, is justified. More details are available in note 15.

Impairment of goodwill

Following a detailed review of the business combinations acquired, the Directors are satisfied that the carrying amount of the goodwill, net of the impairment loss for the year, is justified. More details on goodwill are available in note 16.

Valuation of investment and development property

The fair value of the Group's investment and development property was determined by independent valuers. The valuation, which conforms to the appropriate sections of both the current Practice Statement and United Kingdom Practice Statements contained within the RICS Valuations Standards, 6th Edition (the "Red Book"), was arrived at by reference to market evidence of transaction prices for similar properties. Further details on investment and development property are available in note 14.

4      Operating segments

The Group has three reportable segments, as described below, which are the Groups business units. The business units are managed separately because they represent the varying strategic objectives of the Group. For each of these strategic business units the Board reviews internal management accounts on at least a quarterly basis.

The Fund segment comprises the holding companies in Isle of Man and Luxembourg.

Core assets are those which are considered to retain significant enduring equity value, to protect on a prudent basis. All other assets are classified as non-core.      

Information for 2010 is not shown as it does not provide any meaningful comparison due to the current position of the Company as stated in note 1. This information is available on the Company website.