<pre> RNS Number:4651T Westcity PLC 22 March 2007 WESTCITY PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 CHAIRMAN'S REPORT The year under review saw significant corporate activity as your company embarked in new directions. Activity in the first half was consumed with preparations for the transformation of the Company, whilst the second six months saw the metamorphosis of Westcity plc into an established property and property-related investment, development and management company. Financial review The Group achieved a profit after tax of £1,317,000 (2005: loss £5,662,000) after including the release of £2,141,000 (2005: charge of £4,812,000) from provisions for onerous leases. This release followed the successful negotiation for settlement of a liability on a property lease which did not expire until 2023 and had been provided for at £5,500,000 at 31 December 2005. In recent years, the only source of income has been from net interest received on the Company's cash resources. Whilst net interest received in 2006 declined to £551,000 (2005:£791,000) reflecting the reduction in cash during the year following the property fund investment, the second half of the year saw the group generate fee income of £568,000 from its new activities. In August 2006 the group invested £20 million into the Stonehage Westcity Property Fund (the "Fund"). At December 2006, the carrying value of the investment was £19.568 million after accounting for costs, exchange rate fluctuations and Westcity's share of the funds net asset value at 31 December 2006. This £432,000 net reduction in value is included in the consolidated income statement. Share issue and capital reorganisation In July 2006 shareholders approved a number of initiatives, including the capital raising by the Company of £7.4 million (net of expenses) through a placing and fully underwritten open offer. The Company's share capital was then consolidated so that every 5 ordinary shares in issue were converted into 1 ordinary share, resulting in the Company having the lower 74,299,301 ordinary shares in issue. Finally, the Company completed a capital reorganisation, sanctioned by the High Court in October 2006, which eliminated most of the deficit on the Company's profit and loss account at that date so that any future profits of the Company should be available for distribution to shareholders. Operations I am pleased to report that the phased introduction of the Company's infrastructure is now complete. Commencing with the employment of Ira Rapp and Mike Tannenbaum in August, the Company has seamlessly integrated a strong financial and administration team reporting to Mike. In addition, Ira has now assembled his experienced property development team within Westcity. On behalf of the board I welcome the new Westcity team and look forward to much success. The Fund's investment guideline strategy envisaged a fully invested asset allocation balanced in the main between property developments and standing investment assets, with a smaller equity deployment into strategic and indirect investments and with no more than 25% in any single property and a maximum of 40% in any specific sector. The Fund raised a total of approximately e85 million, including approximately e29 million invested by the Company. The Stonehage Group was successful in raising substantially more than the amount that was originally targeted. This increased equity base, together with debt financing, will provide the fund with an asset base of up to approximately e350 million once fully invested. The Fund is managed by Stonehage Westcity Management Company Limited of which Westcity plc owns 50%, the balance being owned by the Stonehage Group. This has been treated as a jointly controlled entity in the group accounts. At the year end, under its acquisition mandate, Westcity had introduced four transactions to the Fund. Two of the transactions were completed prior to the year end, one has subsequently been completed since December 2006 and the other is with solicitors pending final completion. These initial four transactions represent approximately 30% of the Fund's equity available for investment and are more fully described in the Chief Executive's Review. We have built a strong potential investment pipeline, with another four proposed investments approved by the Fund and currently in final stage due diligence and / or legal process. These four proposed investments represent an aggregate additional equity commitment of approximately e40 million (45%) of the Fund's available equity. If all of these proposed transactions were to complete, the Fund's portfolio would be well balanced across a diversified spread of standing and development assets over the commercial and residential segments in a number of regions. In addition, the Company has several early stage investments and projects under investigation. The acquisition process involves the assessment of many opportunities of which only a small number may proceed to formal expressions of intent, with still fewer proceeding to formal due diligence and onto legal completion. Outlook There can be no certainty that the transactions already in process will complete. However, given the successes enjoyed to date, I am optimistic that the Fund will be fully invested during 2007. As a result of the relatively small value of acquisitions actually completed by the Fund before December 2006, the Company will benefit from the strong acquisition pipeline in 2007 as fees are earned from the various activities. Dividend No dividend will be paid on the ordinary shares in respect of the period under review (2005: NIL). The board During 2006 Geoff Gahan retired from the board and at the end of the year we said farewell to Jerome Fester who had served the Company diligently for many years as financial controller and company secretary. On behalf of the board I would like to thank both Geoff and Jerome for their valuable service and contributions to the Company. Once again I would like to record our welcome to Ira Rapp and Sir Harry Solomon, both of whom joined the board in the latter half of 2006, and to Mike Tannenbaum our CFO and Company Secretary. Rex Wood-Ward Chairman 22 March 2007 CHIEF EXECUTIVE'S REVIEW Since August 2006 our activities have been focused on two fronts - establishment of the Company's infrastructure and generating acquisition opportunities for the Stonehage Westcity Property Fund (the "Fund"). Pleasingly, we have met with significant success on both counts. The complete staffing resource and infrastructure has now been in place since 1 January 2007, which has enabled us to source and process a much higher level of potential investment opportunities. In August 2006 the Company invested approximately e29 million (£20 million) into the Fund. After origination fees and exchange rate adjustments, Westcity's net carrying value of this investment at 31st December 2006 is £19.6 million. In addition to this direct investment in the Fund, Westcity is a 50% shareholder in Stonehage Westcity Management Company Ltd, the manager of the Fund. The fund is denominated in Euros and as a consequence my review is reported thus. Property advisory activities Under an agreement with Stonehage Westcity Management Company Limited and the Stonehage Westcity Property Fund, the Company is the exclusive property advisor to the Fund for an initial period of three years for which the Company will receive a fee on all properties acquired by the fund that are sourced by it. The Fund has now invested in three of four transactions introduced by Westcity prior to December 2006 under its acquisition mandate. Two of these transactions were completed prior to 31 December 2006, generating direct fee income for Westcity. Of the remaining two investments, one was completed in February 2007 and the other is pending final legal completion, with the relevant fee income for both accruing in 2007. These initial four transactions represent approximately 30% of the Fund's equity available for investment and are more fully described in the Fund Overview. The Fund has approximately e56 million of equity funds remaining for investment and, once fully deployed, should reach a gross asset value after debt funding of approximately e350 million. In addition to the four transactions above, Westcity has introduced numerous investment proposals to the Fund. Four of these have been approved by the Fund for investment and are currently in final stage due diligence and / or legal process. It can be reasonably expected that some of these transactions will complete by July 2007. If all of these proposed transactions proceed to legal completion, over 75% of the Fund's available equity will have been deployed at that point. In addition, Westcity has sourced and developed a strong pipeline of investments and projects which are at varying stages of assessment and negotiation. The acquisition process involves the assessment of many opportunities of which only a small number may proceed to formal expressions of intent. With still fewer proceeding to formal due diligence and onto legal completion, it is not possible to speculate as to the quantum and timing of opportunities within this pipeline that may eventually represent investments made by the Fund. Stonehage Westcity Property Fund Fund Overview - Total equity raised (net of origination fees) e83.7 million - Completed transactions - total equity invested or committed e17.2 million - Transaction in final legal completion - equity value e10 million - Pipeline transactions in final due diligence / legal process - equity value e40 million against a background of - Continued strong yield compression across the Euro zone as well as central and eastern Europe during 2006 - Rising Sterling and Euro interest rates The Fund's investment guideline strategy envisaged a fully invested asset allocation balanced in the main between property developments and standing investment assets, with a smaller equity deployment into strategic and indirect investments and with no more than 25% in any single property and a maximum of 40% in any specific sector. Completed transactions As at 15th March 2007, the Fund had completed equity investments or commitments totalling approximately e17.2 million. In October 2006 the Fund invested e4.4 million of equity capital to purchase the shares in a German limited partnership with an underlying commercial property in Hannover, Germany, at an initial yield on purchase price of 7.1%. The property consists of 15,678 sqm over 9 floors and is 100% let to a large German insurance company on a lease which terminates in 2020 with an annual CPI rent review. The gross cost to the fund was e21.35m, of which 78% was funded by non-recourse senior debt, producing a cash yield before debt amortization of over 11% p.a German residential property and particularly in Berlin, with the ability to generate good rental returns, is viewed as a strategic opportunity for potential capital appreciation in the longer term. In order to benefit from the potential offered, investors need to have presence in the market, thus enabling the investor to build a portfolio of residential properties prior to exit. In December 2006, the Fund invested e5.1 million of equity capital into a specialist residential fund in Berlin, Germany. With approximately a 30% share of the Berlin fund's equity base, the Fund is represented on the advisory board, and benefits from a significant reduction in management and ongoing fees. The Berlin fund has acquired 14 properties with a gross value of e27 million at an average entry yield of 7.1%. To date the portfolio has been funded by equity and 85% of senior non-recourse debt. The Berlin fund is approximately 25% invested and has a strong deal pipeline of approximately e50million.The Fund has been able to participate in the Berlin residential property market, something the Fund could not achieve with its own resources and within a reasonable timeframe, by partnering with the Berlin fund. As part of a portfolio the Russian real estate market currently offers superior opportunity for capital appreciation through rental uplift and yield compression compared to many European markets. In order to invest in this market the Fund requires a local Russian presence. During February 2007 the Fund committed to invest e7.7 million (US$10 million) into the Rutley Russia Property Fund, which will invest in commercial, industrial and retail standing properties and developments in St Petersburg, Moscow and larger regional Russian cities. The Fund also has the right of first refusal as the preferred co-investment partner of up to e150 million in the Russian retail sector with our partners and will have representation on the investment board of the Russia fund. By actively participating in the Russia fund, the Fund will benefit from that fund's infrastructure, which includes access to some 200 people on the ground in Russia. Final legal completion The Fund is entering into a joint venture with a subsidiary of a major London listed property company for a mixed-use (residential and retail) development in Greenwich, London. The Fund's 50% share of the equity requirement is e10 million. The project has a gross development cost of e75 million. Westcity will undertake the management of the development, utilizing its core in-house development competencies. Combining the residential development skills of Westcity with the retail property skills of the Fund's JV partner this project should enhance the portfolio's overall returns. This transaction is currently in the final stages of legal completion. Pipeline - due diligence / legal completion The Fund has four transactions in which final due diligence is currently in process. These transactions, with an aggregate invested equity capital requirement of approximately e40 million, include a joint venture partnership with a large European fund to acquire a portfolio of 11 commercial properties in non-primary German towns and cities, a mixed-use residential/retail site in Kent, a partnership with an experienced property group to develop care homes across the UK and three residential developments in Eastern Europe. If the Kent and Eastern European opportunities complete, Westcity will undertake the development management of these schemes. Early investment pipeline In addition to the opportunities described above, Westcity has a range of potential development and investment transactions in its pipeline, with a total equity requirement in excess of e100 million. There is no certainty that any of these opportunities will proceed to completion. Investment Environment As expected, 2006 saw increased investment activity across Europe. Strong demand for property assets and the weight of money combined with higher availability of financing had a direct impact on yields, which continued to fall during 2006. However, rising £ and Euro interest rates reduced the margin between property yields and borrowing costs and as a result we anticipate that this will limit the potential for further significant falls in yields in many of the European markets. With the outlook for further yield compression limited, property investments will increasingly depend on active asset management and a combination of falling vacancy rates and/or rising rental rates to deliver future uplifts in value. One of the strong trends to emerge during the year has been the growth of investment in niche segments with more attractive yields outside of the traditional office, retail and industrial sectors. These niche markets include leisure, health care and mixed-use properties. Simultaneously, the more attractive returns which may be achieved in new developments have seen a positive shift in sentiment towards that area of activity. Additionally, the rate of yield compression outstripped many western European cities in central and eastern European capitals as investors were increasingly prepared to accept higher risks in order to achieve higher entry yields. Against this background Westcity has assembled a diverse yet balanced pipeline of completed and potential transactions for the Fund. In particular, our core development competency should provide opportunity to improve the overall performance of the Fund. Development activities Westcity's infrastructure now includes an experienced residential and mixed-use property development team who are situated within 100% owned subsidiary Westcity Developers Limited which commenced from 1 January 2007. The core competencies of the team cover all aspects of the property development process from site identification and acquisition through planning, design and specification, construction management, financing and financial reporting to sales and marketing. This team has successfully delivered four London development projects over the past six years with a gross development value of approximately £600 million. Our development division has been responsible for the due diligence and appraisal of the Greenwich mixed-use development project for the Fund and Westcity Developers will be appointed development manager for this scheme. Having sourced and then produced the relevant plans and appraisals, this group will also be responsible for the development management of a mixed-use residential/retail site in Kent and three residential developments in Eastern Europe in the event that the Fund invests in these projects. Over the past years our team has developed a strong network of real estate professionals, advisors and finance providers, many of whom are pan-European organisations, both as partners and associates. The last six months has seen us expand this network into many parts of Europe and beyond. We believe that by joining forces with strong local partners we can introduce many of our skills to joint ventures, bringing mutual benefits. In the transactions completed by the Fund to date and in the deal pipeline, we are partnering with local expertise to maximize our potential returns and reduce risk. Examples of this are the investments already completed in Berlin, and Russia, as well as the Greenwich development project. This accumulation of partners and expanding network coverage on the ground will stand us in good stead in the years to come. Prospects With our structure well implemented and a strong diverse transactional pipeline I am optimistic that the end of 2007 will find the Fund fully invested and Westcity's development team deployed across a number of projects. At the same time, the Company's e29 million investment in the Fund will benefit in the longer term as the Fund completes the deployment of its cash resources and maximises its returns from these investments through active management of the portfolio in the years ahead. Ira Rapp Chief Executive Officer 22 March 2007 WESTCITY PLC CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2006 Unaudited Restated 2006 2005 Notes £'000 £'000 REVENUE 568 - Other income - 318 Finance revenue 5 676 1,157 Employee benefits expense (936) (524) Depreciation and amortisation expense (18) (9) Other expenses (725) (776) Release/(charge) of provision for onerous leases 2,141 (4,812) Impairment write-down of investment property - (650) Impairment loss on investment in property fund 5 (432) - Finance costs 5 (125) (366) Share of profits of equity accounted investments 8 76 - PROFIT/(LOSS) BEFORE TAX 1,225 (5,662) Income tax credit 92 - --------- ----------- PROFIT/(LOSS) FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 1,317 (5,662) ========= =========== Basic earnings/(loss) per share 7 2.05p (9.95)p Diluted earnings/(loss) per share 7 2.04p (9.95)p WESTCITY PLC BALANCE SHEETS AS AT 31 DECEMBER 2006 Unaudited Restated Group Group 2006 2005 Notes £'000 £'000 NON-CURRENT ASSETS Property, plant and equipment 31 33 ------------ ----------- Investment property 8 - 4,950 Equity accounted investments 9 89 - Other financial assets 24,068 - ------------ ----------- 24,188 4,983 ------------ ----------- CURRENT ASSETS Trade and other receivables 119 50 Prepayments 56 41 Cash and cash equivalents 2,231 24,473 ------------ ----------- 2,406 24,564 ------------ ----------- TOTAL ASSETS 26,594 29,547 ============ =========== CURRENT LIABILITIES Trade and other payables 514 883 Interest bearing loans and borrowings - 79 Income tax payable - 93 Provisions 10 55 623 ------------ ----------- 569 1,678 ------------ ----------- NON-CURRENT LIABILITIES Interest bearing loans and borrowings - 5,825 Provisions 10 459 5,345 ------------ ----------- 459 11,170 ------------ ----------- TOTAL LIABILITIES 1,028 12,848 ============ =========== NET ASSETS 25,566 16,699 ============ =========== CAPITAL AND RESERVES Issued share capital 11 743 2,846 Share premium account 12 - 16,841 Share based payments reserve 12 131 38 Other capital reserves 12 25,488 3,976 Retained earnings 12 (796) (7,002) ------------ ----------- SHAREHOLDERS' EQUITY 25,566 16,699 ============ =========== WESTCITY PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2006 Unaudited Restated 2006 2005 £'000 £'000 Net cash flows from operating activities (4,767) (512) ======== ========= Investing activities Interest received 676 1,157 Purchase of property, plant and equipment (16) (24) Proceeds from the sale of property, plant and equipment - 6 Proceeds from the sale of investment property 450 - Payments to acquire equity accounted investments (13) - Payments to acquire other financial assets (20,000) - -------- --------- Net cash flows used in investing activities (18,903) 1,139 ======== ========= Financing activities Net proceeds from the issue of share capital 7,457 - Interest paid (125) (366) Repayment of borrowings (5,904) (79) -------- --------- Net cash flows used in financing activities 1,428 (445) ======== ========= Net (decrease)/increase in cash and cash equivalents (22,242) 182 Cash and cash equivalents at 1 January 24,473 24,291 -------- --------- Cash and cash equivalents at 31 December 2,231 24,473 ======== ========= WESTCITY PLC STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2006 Group Issued Share Share Revaluation Other Retained Total capital premium based reserve Capital earnings equity £'000 £'000 payment £'000 reserves £'000 £'000 reserve £'000 £'000 At 1 January 2006 2,846 16,841 38 - 3,976 (7,002) 16,699 ======== ======== ======== ========= ======== ======== ======== Profit for the year - - - - - 1,317 1,317 -------- -------- -------- --------- -------- -------- -------- Total income and expense for the year - - - - - 1,317 1,317 ======== ======== ======== ========= ======== ======== ======== Issue of share capital (net of issue costs) 869 6,588 - - - - 7,457 Capital reduction (2,972) (23,429) - - 21,512 4,889 - Share based payment - - 93 - - - 93 -------- -------- -------- --------- -------- -------- -------- At 31 December 2006 743 - 131 - 25,488 (796) 25,566 ======== ======== ======== ========= ======== ======== ======== Group Issued Share Share Revaluation Other Retained Total capital premium based reserve Capital earnings equity £'000 £'000 payment £'000 reserves £'000 £'000 reserve £'000 £'000 At 1 January 2005 (restated) 2,846 16,841 13 600 3,976 (1,340) 22,936 ======== ======== ======== ========= ======== ======== ======== Revaluation deficit - - - (600) - - (600) -------- -------- -------- --------- -------- -------- -------- Total income and expense for the year recognised directly in equity - - - (600) - - (600) ======== ======== ======== ========= ======== ======== ======== Profit for the year - - - - - (5,662) (5,662) -------- -------- -------- --------- -------- -------- -------- Total income and expense for the year - - - (600) - (5,662) (6,262) ======== ======== ======== ========= ======== ======== ======== Issue of share capital Share based payment - - 25 - - - 25 -------- -------- -------- --------- -------- -------- -------- At 31 December 2005 2,846 16,841 38 - 3,976 (7,002) 16,699 ======== ======== ======== ========= ======== ======== ======== WESTCITY PLC NOTES TO FINANCIAL INFORMATION FOR THE YEAR ENDED 31 DECEMBER 2006 1. This preliminary financial information has been prepared on a historical cost or fair value basis as appropriate. 2. For all periods up to and including the year ended 31 December 2005, the Group prepared its financial statements in accordance with generally accepted accounting practice (UK GAAP). The financial statements for the year ended 31 December 2006, are the first the Group has prepared in accordance with International Financial Reporting Standards (IFRS). Accordingly, the Group has prepared financial statements which comply with IFRS applicable for periods beginning on or after 1 January 2006. In preparing these financial statements, the Group opening balance sheet was prepared as at 1 January 2005, the Group's transition to IFRS. The adoption of IFRS2, 'share based payments', required the group to reflect in its income statement the effects of share based payments such as employee share options. The group's accounting policy is to charge the value of the share options granted to the income statement on a straight line basis over the period from grant to vesting, The effect is to reduce the reported profit before tax for the year by £93,000 (2005: £25,000). The comparative figures for the year ended 31 December 2005 have been restated to reflect this change in accounting policy. The Group is evaluating the effect of IFRIC interpretations not yet effective and expect that adoption of these interpretations will have no material impact on the Group's financial statements when implemented. 3. The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2005 and 31 December 2006 but is derived from those accounts. Statutory accounts for 2005 have been delivered to the Registrar of Companies, the auditors reported on those accounts and that report was unqualified and did not contain statements under Section 237 (2) or (3) of the Companies Act 1985. Those for 2006 will be delivered following the Company's Annual General Meeting. Whilst the financial information included in this announcement has been compiled in accordance with the recognition and measurement principles of applicable IFRS, this announcement does not itself contain sufficient information to comply with IFRS. Westcity plc expects to publish full financial statements that comply with IFRS during April 2007. 4. The financial information in this report is in the process of being audited. 5. OTHER REVENUE AND EXPENSES 2006 2005 £'000 £'000 OTHER INCOME Net gains on disposal of investments - 318 FINANCE COSTS Other interest paid (125) (366) FINANCE REVENUE Bank interest receivable 676 1,157 The impairment loss on the fund investment is made up of : Issue Costs (400) Increase in value of investment from profits 232 Loss on foreign exchange (264) -------- (432) ======== 6. SEGMENT INFORMATION The Group operates in one geographical and business segment being that of property fund investment in the United Kingdom and Channel Islands. 7. EARNINGS/(LOSS) PER ORDINARY SHARE Basic earnings per ordinary share has been calculated on the Group's profit attributable to shareholders of £1,317,000 (2005:loss of £5,662,000) and on the weighted average number of ordinary shares in issue during the year which was 64,393,594 (2005: 56,916,300). Diluted earnings per ordinary share has been calculated on the Group's profit attributable to shareholders of £1,317,000 (2005 : loss of £5,662,000) and on the diluted weighted average ordinary shares in issue during the year which was 64,551,689 (2005: 56,916,300) The number of ordinary shares used to calculate 2005 earnings per share have been adjusted, as if the 1 for 5 consolidation that took place on 27 July 2006 had already taken place as of 1 January 2005, to present the results on a comparable basis. 8. EQUITY ACCOUNTED INVESTMENTS Investments in joint venture arrangements are accounted for in the consolidated financial statements using the equity method of accounting and are carried at cost by the parent entity. Information relating to the joint ventures is set out below. (a) Carrying amounts Ownership Consolidated interest entity carrying Name Principal Activity amount 2006 2005 2006 2005 % % £'000 £'000 Stonehage Westcity Management Company Ltd Fund management 50 - 89 - -------- ------- 89 - ======== ======= Stonehage Westcity Management Company Ltd is incorporated in the Channel Islands (b) Movements in carrying amounts Consolidated 2006 £'000 Carrying amounts at the beginning of the financial year - Additional investments in the year 13 Share of profits after tax 76 --------- Carrying amounts at the end of the financial year 89 ========= (c) Share of joint venture profits Profit before tax 95 Tax expense (19) --------- Profit after tax 76 ========= (d) Summarised financial information of joint ventures Group's share of : 2006 - £'000 Assets Liabilities Revenues Profits Stonehage Westcity Management Company Ltd 165 (76) 607 76 ======== ======== ========= ========= 9. OTHER FINANCIAL ASSETS Group Group 2006 2005 £'000 £'000 NON CURRENT Loan to Victoria Heights Corporation 4,500 - Investments held at fair value through profit and 19,568 - loss ------------ ------------ 24,068 - ============ ============ The loan to Victoria Heights Corporation is carrying interest at 1% p.a over base rate and is secured by a first charge over the Hixon property. The loan is repayable no later than 12 May 2011. Investments held at fair value through the profit and loss account represent the investment into the Stonehage Westcity Property Fund. 10. PROVISIONS Group Group Group pension onerous Total scheme property deficit leases £'000 £'000 £'000 Provision at 1 January 2005 250 5,718 5,345 Provision utilised - (3,313) (4,831) Release of provision no longer required (2,141) - ----------- -------- ---------- Provision at 31 December 2006 250 264 514 =========== ======== ========== Current - 55 55 Non-current 250 209 459 ----------- -------- ---------- 250 264 514 =========== ======== ========== Provision is made in these financial statements for all material liabilities including any legal claims which are expected to materialise and lease liabilities which had materialised on premises formerly occupied by a Group company. The Directors have considered the adequacy of provisions for product liability, property lease liabilities which have materialised, trade disputes and environmental issues relating to disposed businesses and consider that adequate provision has been made, or sufficient funds held in escrow, to meet any contingent costs. 11. SHARE CAPITAL 31 December 31 December 31 December 31 December 2006 2005 2006 2005 No. No. £'000 £'000 Authorised Ordinary shares of 1p each 141,793,724 438,991,964 1,418 4,390 --------- --------- -------- -------- Issued and fully paid Ordinary shares of 1p each 74,299,301 284,581,499 743 2,846 --------- --------- -------- -------- No. £'000 1 January 2006 Opening balance 284,581,499 2,846 11 October 2006 5 to 1 consolidation (resolution (227,665,717) - passed on 27 July) 27 July 2006 Issue of new shares 17,383,519 869 27 July 2006 Capital reduction - (2,972) ---------- -------- 31 December 2006 Closing balance 74,299,301 743 ========== ======== On 27th July 2006 shareholders approved resolutions to raise £7.4m after expenses by way of a placing of 30 million ordinary shares and a fully underwritten Open offer of 56,916,300 ordinary shares at a price of 8.875p per ordinary share. The Company's share capital was then consolidated so that every 5 ordinary shares in issue was converted into 1 ordinary share of 5p each which was immediately subdivided into 1 ordinary share of 1p and 1 deferred share of 4p. Pursuant to a resolution passed by shareholders on 27th July 2006 and following an or order of the High Court of Justice passed on 11 October 2006 the share capital of the Company was reduced from £4,389,919.64 divided into 141,793,466 Ordinary Shares of 1p each, 74,299,599 Deferred shares of 4 pence each to £1,417,937 divided into 141,793,724 Ordinary shares of 1p each. As a result as from 11 October 2006, the Company's issued and fully paid up share capital was 74,299,301 ordinary shares of 1p each. On the same day, the Court approved the resolution to cancel the amounts of £3,784,343 standing to the credit of the capital redemption reserve and £23,428,395 standing to the credit of the share premium account and in accordance with an undertaking given by the Company to the Court the sum of £24,649,598 was transferred to a special reserve. The special reserve is not to be treated as representing realised profits of the Company and will be treated as an un-distributable reserve of the Company for the purposes of section 264 of the Companies Act 1985, as it may apply to the Company, for so long as any debts of or claims against the Company as at 11 October 2006 shall remain outstanding. Subsequent to the capital reduction, £555,625 relating to an onerous lease provision was recovered and a tax provision of £92,725 was reversed as no longer required. These amounts have been adjusted against the Special Reserve. 12. RESERVES Group Share Share Other Retained Premium based capital income account payments reserves reserve £ £ £ £ At 1 January 2005 16,841 13 3,976 (1,340) Share based payment 25 - - Retained profit for the year - - - (5,662) -------- -------- ------- -------- At 1 January 2006 16,841 38 3,976 (7,002) Share based payment - 93 - - Issue of share capital 6,588 - - - Capital reduction (23,429) - 21,512 4,889 Retained profit for the year - - - 1,317 -------- -------- ------- -------- At 31 December 2006 - 131 25,488 (796) ======== ======== ======= ======== As permitted by Section 230 of the Companies Act 1985, the income statement of the company is not presented as part of these accounts. The consolidated profit for the financial year of £1,317,000 (2005:£5,662,000 loss) includes a profit of £933,000 (2005: £6,237,000 loss) which is dealt with in the accounts of the company. Nature and purpose of other reserves Share based payments reserve The share based payments reserve is used to recognise the fair value of options expensed but not exercised. Special reserve The special reserve arose following the cancellation of amounts included in the capital redemption reserve and share premium account. The special reserve is not to be treated as representing realised profits of the Company and will be treated as an undistributable reserve for the purposes of section 264 of the Companies Act 1985, as it may apply to the Company, for so long as any debts of or claims against the Company as at 11 October 2006 shall remain outstanding. 13. NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2006 2005 £'000 £'000 Operating Profit/(Loss) 1,225 (162) Revaluation deficit on property - 872 Profit on sale of property, plant and equipment - (6) Depreciation 18 9 Share based payments expense 93 25 Share of profits of equity accounted investment (76) - Decrease in the fair value of investments 32 - Finance income (676) (1,157) Finance expense 125 366 Costs of acquiring other financial assets 400 (Increase)/decrease in receivables (69) 30 Increase in trade investments - 1,000 (Increase) in prepayments (15) - (Decrease) in payables (369) (689) (Decrease) in provisions (5,455) (800) --------- --------- (4,767) (512) --------- --------- 14. CONTINGENT LIABILITIES Contingent liabilities Indemnities and warranties The Group continues to have contingent liabilities in connection with indemnities and warranties given to the purchasers of its former businesses. As no claims have been made under these indemnities and warranties, the Directors are unable to quantify these potential liabilities. Property lease liabilities The Group continues to have contingent liabilities in connection with the property leases of its former businesses, for which it is exposed to lease obligations in the event of an assignee's default. The remaining lengths of these leases range from 2 to 7 years. Whilst all assignees continue to meet their obligations under these leases, the current annual rent obligations (which may be subject to periodic reviews), before allowing for any mitigating activities, for all such leases are approximately £317,000.No provision has been made in respect of these contingent matters. 15. SHARE BASED PAYMENT PLANS The expense recognised for employee services received during the year is shown in the following table : 2006 2005 £000 £000 Expense arising from equity settled share-based payment transactions 93 25 On Behalf of the Board MJ Tannenbaum Company Secretary 22 March 2007 Westcity PLC Registered in England No. 164213 This information is provided by RNS The company news service from the London Stock Exchange END FR DFLFLDXBLBBL</pre>