<pre>http://pdf.reuters.com/Regnews/regnews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20080627:Rnsa6633X . RNS Number : 6633X Westcity PLC 27 June 2008 CHAIRMAN'S STATEMENT The Company, as property adviser to the Stonehage Westcity Property Fund ("Fund"), completed a number of transactions for the Fund during the year whilst continuing to pursue new opportunities. However, due to delays in completing a number of transactions, the income for the year has been lower than expected. The Company incurred a loss after tax of £1,604,000 (2006: profit £1,317,000 after including the release of £2,141,000 from provisions for onerous leases). Westcity's major asset, its investment in the Fund, showed an increase in the carrying value of £1,570,000 million (after accounting for costs, year-end valuation adjustments, exchange rate fluctuations and Westcity's share of the Fund's net asset value at 31 December 2007). However,the increase in carrying value, was entirely offset by the foreign exchange loss incurred as a result of the hedging of this investment against the Euro. REVIEW OF OPERATIONS The global real estate market is experiencing a period of volatility as a result of the international banking and credit crisis, with investment financing and mortgage offers becoming increasingly difficult to obtain as a result of tighter restrictions and higher margins being imposed by lending institutions. Despite this environment, the Company has made excellent progress during this period in completing numerous investments on behalf of the Stonehage Westcity Property Fund ("Fund"). The Fund, with equity of approximately E85 million, including approximately E29 million invested by the Company, had invested or committed around 75% of available equity at year end. If the Malaysian transaction completes in the latter half of 2008, the Fund will be over 90% invested. During the year under review the Company has established a strong infrastructure of real estate investment and development managers and support staff. This will enable the Company to successfully manage its development and investment pipeline through the life of the fund. The cost of this infrastructure was not matched by revenues in the year, so that the company produced a loss for the period. However, this team had successfully concluded a number of transactions for the Fund by year end which will produce income to the Company in the years ahead if the Malaysian transaction completes, in the latter part of 2008, the Fund will be almost fully invested and the Company's contracted revenue stream will match its overhead structure. Going forward, the Company's fixed cost base will provide operational leverage for additional development projects which the Company is continually assessing, thereby increasing revenues and operational profitability The company has concluded negotiations and signed a Memorandum of Understanding with Covent Garden London Limited (part of the Liberty International Group) for project management and a profit share arrangement on their Covent Garden portfolio regarding their residential assets. LIQUIDITY In November 2007 the Company successfully negotiated the early repayment of a £4.5 million long term loan due to it, resulting in cash on hand at 31 December 2007 of £4.8 million. However, the Company's hedging position against its Euro-denominated investment in the Fund, which matured in June 2008, had a loss of approximately £3 million. Although this loss is offset against an unrealised currency gain on the Fund investment, the hedging loss was paid in cash at maturity on 9th June 2008, reducing the Company's cash resources by that amount. As a result of this cash outflow, the Company successfully secured a loan facility from Chapman International Investment Ltd,(Chapman) the Company's largest shareholder, on the following terms. The loan facility is for £2 million available over a 2 year period. The interest rate is 2.5% above the prevailing LIBOR rate. A 1% arrangement fee is payable to Chapman and the Company will grant Chapman a charge over 5 million units in the Fund, as security for the loan. The loan is repayable at the end of the 2 year period. The facility will only be drawn down to the extent that the Company's remaining cash resources for working capital are insufficient. OUTLOOK The Fund's portfolio is well balanced across investment and development assets, in line with the Fund Manager's objectives. The Fund's investments in standing assets are in Germany and Russia and the revenue yields are all substantially above their debt interest rates which have been fixed for between 5 and 7 years. The Fund has two development projects in London. Whilst the outlook for residential values in the UK remains negative,we anticapate prices in prime London areas are not expected to decline as much as the rest of the UK. These development projects, which are both in the planning stage, are long-term projects and it is hoped that the residential market would have ended its anticipated decline by the time that these developments are for sale. The Company believes that all of its development locations are of the highest quality. In addition, the Fund has invested in the Rutley Russia Fund, providing the potential to benefit from Russia's robust resource and energy based economy. The remaining investments are relatively liquid, providing the resource to take advantage of further opportunities as they arise. Investment Properties German property has not been immune to the credit crunch but yields are reported to have softened to a much lesser degree than the UK and other European countries. The Fund's Investment Portfolio, which represents approximately 30% of the total invested and committed equity, is located exclusively in Germany.. All of the properties in the investment portfolio have been purchased with revenue yields substantially above the cost of borrowing, which in all cases has been fixed for at least five years. Whilst the German portion of the Fund's total portfolio is viewed as defensive and cash generative, value enhancement will be dependent on asset management, cost control and successful tenanting of vacating leases and achieving rental escalations over the longer term in a potentially slowing economy. Concordia Building, Hannover The Fund has invested equity of E4.4 million in a commercial property in Hannover, Germany, at an initial yield on purchase price of 7.1%. The property consists of approximately15,678 square metres over 9 floors and is 100% let to a large German insurance company on a lease which terminates in 2020 with annual CPI rent reviews. The gross cost to the fund was E20.7m, of which 78% was funded by non-recourse senior debt. Rental income has increased by approximately 2.5% since the property was acquired, with annual reviews in line with CPI going forward. This property was professionally valued at E22m at 31 December 2007, which is the carrying value as at that date. Mustang Portfolio In partnership with the European Added Value Fund, which is managed by AXA Investment Management, the Fund acquired a portfolio of 10 commercial properties in secondary/tertiary German towns and cities for E85 million, at an initial yield on purchase price of 7.2%. The portfolio was professionally valued at E84.5 million at year end. The Fund's equity investment after acquisition costs amounted to approximately E14.1 million for its 50% share, with the Fund's portion of non-recourse secured debt of approximately E25.5 million carrying interest of 5.37% fixed for seven years as well as E5.3 million of mezzanine debt at a rate of 7.04%.The 10 properties comprise of approximately 60,000 square metres of primarily commercial space, including a nominal element of retail and the portfolio is approximately 85% let. Frankfurt and Maintal In December 2007 the Fund, together with the European Added Value Fund, had contracted for the acquisition of 4 properties comprising a total of 20,000 square metres in Frankfurt and Maintal at an initial yield on purchase price of 8.6%. This transaction was completed in March 2008 and these properties will be added to the Mustang Portfolio. The Fund's share of equity, after total non-recourse secured debt of E8.8 million, amounts to E2.2 million. Berlin Residential Properties The Fund invested E5.1 million of equity capital into a specialist residential fund in Berlin, Germany. With approximately 28% 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 29 properties which comprise 750 residential units and 60 retail units with an aggregate purchase cost of E56 million at an average entry yield of 7.2%. The portfolio has been funded by equity and 85% of senior non-recourse debt. The portfolio was professionally valued at E62 million but as a result of one-off acquisition costs and operating expenses the Fund's book value of this investment at 31 December 2007 amounted to E3.5 million. Development Projects Market sentiment and current indicators point to a slowing in market activity and downturn in prices for the UK residential market over the coming years. However, due to the strong locations of the developments and the quality design that Westcity produce, we are of the opinion that our developments should be less exposed than the general market. It is widely acknowledged that with international monies still attracted to top end residential properties in prime-locations in London, the locations of the Fund's residential developments should be less exposed to any fall in house prices. Greenwich, London The Fund has entered into a joint venture with Capital & Counties for a mixed-use development in the centre of Greenwich, London. Subject to planning approvals, the development will comprise 129 residential units and approximately 2,500 square metres of prime retail space . The Fund's 50% share of the equity requirement is E11.2 million. The Fund's book value of its share of this investment at 31 December 2007 amounted to E11.6 million, reflecting an increase based on the professional valuation completed at year end. The project has an approximate gross development value of £57 million. Westcity will undertake the management of the development, utilising 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. Queen's Wharf, London In December 2007 the Fund, in a 50/50 joint venture with Byrne Estates Limited (part of the Ardmore Group), contracted to purchase a property at Queen's Wharf, Hammersmith for £30.7million. The acquisition was completed in March 2008 and the purchase price has been funded by approximately 25% equity and 75% senior debt which was provided by Kaupthing Singer and Friedland. The Fund's equity investment will amount to approximately E11.8 million. The gross development value of the project has been appraised at approximately £109 million. The Queen's Wharf site, located on the River Thames adjacent to the Hammersmith Bridge, is a prime site enjoying excellent river views. The Company, together with Byrne Estates Limited, will jointly develop approximately 140,000 square feet of net saleable area, which will comprise of residential and retail accommodation. The opportunity to develop this unique site fits perfectly within the core development skills of Westcity. Kenny Heights, Kuala Lumpur The Malaysian market, as with the rest of South East Asia, is expected to grow on the back of increasing confidence resulting from the additional provisions for infrastructure improvement and economic development. In November 2007 the Fund contracted into a Joint Venture with experienced local partners for the development of a mixed residential and retail project in an exclusive location in Kuala Lumpur, Malaysia. The consortium has instructed four of the worlds leading architects (Fosters, Conran, Adjaye and Benoy) to design this hugely impressive new district. Completion of the agreement is conditional upon a number of conditions and is anticipated to close in the latter half of 2008. The proposed development site, known as Kenny Heights, consists of a land parcel of 10 acres which forms the core of an 80 acre site owned by the Fund's Joint Venture partners, which will be independently developed at a later stage. Kenny Heights is a prime residential site located close to Kuala Lumpur's Central Business District, and adjacent to the prime residential suburb of Kenny Hills It is also the site of the new Malaysian Royal Palace which is under construction. The scheme consists of approximately 2,500,000 sq ft of development, comprising of 700 residential units, a luxury hotel with associated apartments and a retail shopping centre of approximately 300,000 sq ft. Westcity will co-manage the development with the Fund's Joint Venture partner. The three development opportunities outlined above will draw on Westcity plc development expertise, and should provide good development profits. Other Investments UK Care Homes The Fund has contracted as a mezzanine finance provider for the identification of sites, planning and subsequent development of Care Homes in the United Kingdom. This sector has been seen as demographically defensive in the current downturn. The Fund has committed an initial E6.5 million to provide mezzanine funding to a well established UK company for the acquisition of development land and the subsequent development of Care Homes throughout the UK. The Fund, which has a deal by deal veto, is entitled to a fixed return on their investment, in addition to a 30% profit share. Demand for care beds in the United Kingdom has increased over recent years, with demand expected to significantly increase over the next few decades. At the same time, supply of care beds is falling, due to increased regulation and the subsequent closure of care homes. Portland Fund The listed property sector in the UK recorded substantial negative returns in 2007, with a number of securities trading currently at large discounts to Net Asset Values. The Funds investment in June 2007 in the Portland Global Real Estate Securities Fund has given the fund international exposure in publically traded real estate securities. The hedging instruments and strategies employed allows for the fund to benefit from both the positive and negative movement in the market, especially in light of the current market conditions. This investment, as part of the Fund's indirect property instrument portfolio allocation, is liquid and provides the potential as a hedge against part of the Fund's overall portfolio. The Portland Fund seeks superior absolute returns by investing in publicly traded real estate securities, primarily in Europe. The Fund, managed by Portland Capital LLP, is targeting net returns above 15%. Capitalising on the principal's expertise in investments, real estate private equity, debt and derivative markets, the Fund will have the opportunity to benefit from attractive returns in both positive and negative market environments by applying Portland's investment skills to the real estate market. Russia The Russian real estate market is also expected to give the Fund the opportunity to achieve attractive returns driven by development, yield compression and rental growth. Hence, the Fund has invested in the Rutley Russia Property Fund. As part of a portfolio the Russian real estate market offers superior opportunity for capital appreciation through rental uplift and yield compression compared to many European markets. The Fund has invested 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 Petersberg, Moscow and larger regional Russian cities. The Rutley Fund has currently invested 30% of its equity with an extremely attractive pipeline under consideration. 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 has representation on the investment board of the Rutley Russia Property Fund. DIVIDEND No dividend will be paid on the ordinary shares in respect of the period under review (2006: NIL). BOARD As announced on 20th March 2008, the Board has been restructured with the roles of Executive Chairman and Chief Executive Officer being combined. The Board of the Company believes that this streamlining of the Company's executive management will enhance the Company's operational capability. Rex Wood-Ward, who resigned as Executive Chairman, continues to serve on the Board as a non-executive director. The Board of the Company joins me in expressing its appreciation to Rex for his contribution to the Company over the past five years. Ira Rapp Executive Chairman 26 June 2008 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 2007 2006 Notes £'000 £'000 REVENUE 1,132 568 Other income Finance revenue 2 335 676 Employee benefits expense 3 (2,312) (936) Depreciation and amortisation expense 2,8 (36) (18) Other expenses (912) (725) Release of provision for onerous leases - 2,141 Profit / (loss) on investment held at fair value through 2 1,570 (432) profit and loss Finance costs 2 - (125) Share of profits of equity accounted investments 7 69 76 Loss on forward exchange contract 2 (1,550) - Profit on Sale of HixonLand 100 - (LOSS)/PROFIT BEFORE TAX (1,604) 1,225 Income Taxes 5 - 92 (LOSS)/PROFIT FOR THE YEAR ATTRIBUTABLE TO EQUITY HOLDERS (1,604) 1,317 OF THE PARENT Basic (loss)/earnings per share 6 (2.12)p 2.05p Diluted (loss)/earnings per share 6 (2.12)p 2.04p BALANCE SHEETS AS AT 31 DECEMBER 2007 Group Group Company Company 2007 2006 2007 2006 Notes £'000 £'000 £'000 £'000 NON-CURRENT ASSETS Property, plant and equipment 8 70 31 70 31 Equity accounted investments 7 123 89 13 13 Other financial assets 9 21,138 24,068 44,693 47,623 21,331 24,188 44,776 47,667 CURRENT ASSETS Trade and other receivables 11 413 119 2,733 119 Prepayments 34 56 34 56 Cash and cash equivalents 4,787 2,231 4,787 2,231 5,234 2,406 7,554 2,406 TOTAL ASSETS 26,565 26,594 52,330 50,073 CURRENT LIABILITIES Trade and other payables 12 403 514 2,951 511 Financial liability on forward exchange contract 2 1,550 - 1,550 - Provisions 13 55 55 55 55 2,008 569 4,556 566 NON-CURRENT LIABILITIES Amounts owed to subsidiary undertakings - - 23,808 23,808 Provisions 13 405 459 155 209 405 459 23,963 24,017 TOTAL LIABILITIES 2,413 1,028 28,519 24,583 NET ASSETS 24,152 25,566 23,811 25,490 CAPITAL AND RESERVES Issued share capital 15 743 743 743 743 Share based payments reserve 16 321 131 321 131 Other capital reserves 16 25,589 25,488 25,589 25,488 Retained earnings 16 (2,501) (796) (2,842) (872) SHAREHOLDERS' EQUITY 24,152 25,566 23,811 25,490 CASH FLOW STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 Group Group Company Company 2007 2006 2007 2006 Notes £'000 £'000 £'000 £'000 Net cash flows from operating activities 17 (2,190) (4,767) (2,190) (10,549) Investing activities Interest received 334 676 334 676 Purchase of property, plant and equipment (88) (16) (88) (16) Proceeds from the sale of investment property - 450 - 450 Payments to acquire equity accounted investments - (13) - (13) Payments to acquire other financial assets - (20,000) - (20,000) Net cash flows used in investing activities 246 (18,903) 246 (18,903) Financing activities Net proceeds from the issue of share capital - 7,457 - 7,457 Interest paid - (125) - (125) Repayment of borrowings - (5,904) - - Amounts received from subsidiaries - - - (100) Amounts repaid by related entities 4,500 - 4,500 - Net cash flows used in financing activities 4,500 1,428 4,500 7,232 Net increase/(decrease) in cash and cash equivalents 2,556 (22,242) 2,556 (22,220) Cash and cash equivalents at 1 January 2,231 24,473 2,231 24,451 Cash and cash equivalents at 31 December 4,787 2,231 4,787 2,231 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007 Group Issued capital Share premium Share based payment reserve Other capital reserves Retained earnings Total equity £'000 £'000 £'000 £'000 £'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 - - 93 743 - 131 25,488 (796) 25,566 At 31 December 2006 / 1 January 2007 Loss for the year - - - - (1,604) (1,604) Total income and expense for the year - - - - (1,604) (1,604) Share based payment - - 190 - - 190 Adjustment relating to previous capital reduction - - - 101 (101) - At 31 December 2007 743 - 321 25,589 (2,501) 24,152 Company Issued capital Share premium Share based payment reserve Other capital reserves Retained earnings Total equity £'000 £'000 £'000 £'000 £'000 £'000 At 1 January 2006 2,846 16,841 38 3,976 (7,002) 16,699 Profit for the year - - - - 1,241 1,241 Total income and expense for the year - - - - 1,241 1,241 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 (872) 25,490 1 January 2007 Loss for the year - - - - (1,869) (1,869) Total income and expense for the year - - - - (1,869) (1,869) Share based payment - - 190 - - 190 Accruals Reversal - - - 101 (101) - At 31 December 2007 743 - 321 25,589 (2,842) 23,811 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2007 1. ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below. Basis of Preparation The consolidated financial statements of Westcity Plc and all its subsidiaries (the 'Group') have been prepared in accordance with International Financial Reporting Standards (IFRS). These financial statements have been prepared on a historical cost convention except as otherwise described in these accounting policies. Basis of consolidation The consolidated financial statements comprise the financial statements of Westcity Plc and its subsidiaries as at 31 December each year. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company and have been adjusted to ensure that there are consistent accounting policies between all group companies. All intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions that are recognised in assets, are eliminated in full. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. Businesses acquired or disposed of during the year are accounted for using purchase method principles, The Group has an interest in a joint venture which is a jointly controlled entity. A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control, and a jointly controlled entity is a joint venture that involves the establishment of a separate entity in which each venture has an interest. The Group recognises its interest in the joint venture using the equity accounting method. The financial statements of the joint venture are prepared for the same reporting year as the parent company, using consistent accounting policies. Consistency of accounting policies The accounting policies adopted are consistent with those of the previous financial year. During the year the Group adopted the following interpretations to published standards: * IFRIC 8 Scope of IFRS 2 applies to transactions when the consideration received is less than the fair value of the equity instruments granted. The interpretation does not have any effect on the group financial statements as no such transactions took place during the year. * IFRIC 10 Interim financial reporting and impairment states that the group should not reverse an impairment loss recognised in a previous interim period in respect of goodwill or an investment. This does not have any effect on the group financial statements as the group did not reverse any impairment charges recognised in a previous interim period. * IFRS 7 Financial Instruments: Disclosure and IAS 1 (Amendment) Capital Disclosures bring in new disclosures relating to financial instruments and have affected the presentation of the accounts but not the valuations. In addition, the following interpretations were mandatory for the groups accounting period, but were not relevant to the operations of the group. * IFRIC 7 Applying the restatement approach under IAS 29 Financial reporting in hyperinflationary economies. * IFRIC 9 Reassessment of embedded derivatives. Future requirements The following standards and interpretations were issued and available for early application but have not yet been applied by the group in these financial statements. The Group intends to apply these standards and interpretations, where relevant, when they become effective: Standards that become effective for years ending 31 December 2008 comprise: * IFRIC 11 IFRS 2 - Group and treasury share transactions addresses share-based payment transactions involving an entity's own equity instruments and share-based payment transactions involving equity instruments of a parent company. Application of the interpretation is unlikely to have any effect on the group. * IFRIC 12 Service concession arrangements provide guidance on the accounting by operators for public-to-private service concession arrangements. The group does not provide any public services and therefore the interpretation is not relevant to the group's operations* * IFRIC 14 IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction addresses when refunds from or reductions in future contributions to a defined benefit pension scheme can be recognised as an asset. The interpretation also addresses how a minimum funding requirement might affect the availability of reductions in future contributions and when a minimum funding requirement might give rise to a liability. The group does not operate any defined benefit pension schemes and the interpretation is therefore not relevant to the group's operations.* Standards that become effective for years ending 31 December 2009 comprise: * IFRIC 13 Customer loyalty programmes addresses accounting by the entity that grants award credits to its customers. The group does not grant any customer loyalty awards and therefore the interpretation is not relevant to the group's operations.* * IFRS 8 Operating segments replaces IAS 14 'Segment Reporting' and requires the group to adopt the management approach to reporting on the financial performance of its operating segments. Generally, the information to be reported would be what management uses internally for evaluating segment performance and deciding how to allocate resources to operating segments. The new standard will significantly change the way segmental information is currently reported. * IAS 23 (Amendment) Borrowing costs changes the previous version of the standard by removing the option to expense borrowing costs that relate to assets that take a substantial period of time to get ready for use or sale. Such borrowing costs will in future be required to be included in the cost of the fixed asset or inventory item to which they relate. The amendment will not affect the group results as the group does not have any such assets.* * IAS1 (revised 2007) "Presentation of Financial Statements" will require certain presentational changes to the financial statements. * standards or Interpretations not yet endorsed by the EU Significant accounting judgements, estimates and assumptions The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of income, expenditure, assets and liabilities. Estimates and judgements are continually evaluated, including expectations of future events that are believed to be reasonable for the future. The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include consideration of deferred tax assets, onerous lease and other provisions and liabilities, fair value estimations and share based payment assumptions. Further details of all of these estimates and assumptions are set out in each of the relevant accounting policies and detailed notes to the financial statements. Revenue Recognition Fee income represents the invoiced value of fees earned, less value added tax. Revenue is derived from providing Portfolio Management Services to the Fund, Trailer Fees for sourcing funding, Acquisition Fees for sourcing development & investment opportunities and for providing specialist advisory & consulting services. Property, plant and equipment Property, plant and equipment is stated at cost, excluding the costs of day to day servicing, less accumulated depreciation and impairment. Where indications of impairment arise, a review is carried out and the carrying value of the asset is adjusted through an impairment charge. Where a subsequent change in conditions leads to an increase in the recoverable amount, a reversal of the impairment is recognised. Cost includes the cost of replacing part of the plant and equipment when that cost is incurred, if the recognition criteria are met. Depreciation is calculated on a straight line basis over the useful life of the assets as follows : Equipment and motor vehicles - 20% to 331/3% Assets are derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is included in the income statement in the year the asset is derecognised. The asset's residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Impairment At each reporting date, the Group reviews the carrying values of its assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value in use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset for which the estimates of future cash flows have not been adjusted. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset or cash generating unit is increased to the revised recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised in prior years. A reversal of the impairment loss is recognised as income in the income statement, unless the relevant asset is carried at a revalued amount, in which case the reversal is recognised as a revaluation reserve. Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfilment of the arrangement is dependent on the use of, or right to use specific assets. A reassessment is made after inception of the lease only if : * there is a change in contractual terms, other than a renewal or extension of More to follow, for following part double-click [nRn2a6633X]</pre>