<pre> Part 2 : For preceding part double click [nRn1a6633X] the arrangement * a renewal option is exercised or extension granted, unless initially included in the lease term * there is a change in the determination of whether fulfilment is dependent on a specified asset * There is a substantial change to the asset Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment. For arrangements entered into prior to 1 January 2005, the date of inception is deemed to be 1 January 2005 in accordance with the transitional requirements of IFRIC 4. Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased property, or, if lower, at the present value of the minimum lease payments. The interest elements of the rental obligations are charged in the income statement over the periods of the leases and represent a constant proportion of the balances of capital repayments outstanding. Rentals payable under operating leases are charged on a straight line basis over the lease term. Provisions General Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost. Onerous leases Provision is made for all future rental liabilities less any anticipated rental income on leased properties not being utilised by Group companies discounted at the estimated cost of funds. Onerous contracts Amounts are provided to account for future losses on the continuation of onerous contracts. Estimating the provision requires management to make an estimate of the expected future cash flows to satisfy the contract and also to choose a suitable discount rate in order to calculate the present value of those cash flows. Foreign currency translation Functional and presentation currency The consolidated financial statements are presented in pounds sterling which is the Company's functional and presentation currency. Each entity in the group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. The functional currency of foreign operations is the same as the functional currency of the parent entity. Transactions and balances Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. All differences are taken to the income statement. Non monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Non-derivative financial Instruments Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial assets and liabilities are recognised on the Group's balance sheet when the Group becomes a party to the contractual provisions of the instrument. Non-derivative financial instruments are initially recognised at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below. Investments in subsidiary undertakings Investments in subsidiary undertakings are stated at cost less impairment Trade and other receivables Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the income statement when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Financial assets at fair value through profit or loss Financial assets at fair value through profit and loss includes financial assets held for trading and financial assets designated upon initial recognition into this category. Financial assets may be designated at initial recognition as at fair value through profit and loss if the following criteria are met: (i) the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising the gains and losses on them on a different basis; or (ii) the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk strategy; or (iii) the financial asset contains an embedded derivative that would need to be separately recorded. Held to maturity investments Held to maturity investments are non-derivative financial assets which carry fixed or determinable payments and fixed maturities and which the Group has the positive intention and ability to hold to maturity. After initial measurement, held to maturity investments are measured at amortised cost. Gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process. Cash and cash equivalents Cash and cash equivalents comprise of cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities and equity Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, using the effective interest rate method. Any differences between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group's accounting policy for borrowing costs. Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, loans and receivables are subsequently carried at amortised cost using the effective interest method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition. Gains and losses are recognised in the income statement when the investments are derecognised or impaired, as well as through the amortisation process. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. Forward exchange contract The company holds derivative financial instruments to hedge its currency risk exposure. The derivatives are recognised at fair value and changes therein are accounted for appropriately. Tax Income tax Corporation and overseas tax payable is provided on taxable profits using tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the balance sheet differs to its tax base. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax result nor the accounting result. Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the differences can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with future tax planning strategies. 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 income statement, except where it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Pension costs Contributions to the employees' personal pension schemes are charged to the income statement in the year in which they arise. When defined benefit schemes are closed to new members and benefits but not fully wound up, the statutory debt is recognised based on the latest actuarial advice available. Share based payments The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date. Fair values at grant date are independently determined using a Black-Scholes option pricing model that takes into account the exercise price, term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share and the risk-free interest rate for the term of the option. Borrowing costs Borrowing costs are recognised as an expense when incurred. 2. OTHER REVENUE AND EXPENSES 2007 2006 £'000 £'000 FINANCE COSTS Other interest paid - (125) FINANCE REVENUE Bank interest receivable 335 676 DEPRECIATION Depreciation (36) (18) PROFIT/(LOSS) ON INVESTMENT HELD AT FAIR VALUE Issue Costs - (400) (Decrease)/Increase in value of investment from the (240) 232 movement in NAV Profit/(loss) on foreign exchange 1,810 (264) 1,570 (432) Loss on forward exchange contract (see Note 22) (1,550) - AUDITOR'S REMUNERATION Fees for audit services - Group 28 25 Fees for non-audit services : - Services relating to corporate finance transactions - 32 entered into by the company - Other services 6 1 34 58 3. STAFF COSTS 2006 2007 £'000 £'000 Employee benefits expense Wages and salaries (2,078) (837) Social security costs (234) (77) Other pension costs - (22) (2,312) (936) The average number of employees during the period 17 6 Key Management Personnel Remuneration Directors Non-executive fees Share based payments 2007 2006 Salary £'000 £'000 Benefits in kind Salary and fees £'000 Total and fees £'000 £'000 £'000 Rex Wood-Ward 185 - - 75 260 296 Ira Rapp 300 - - 10 310 175 Raymond Davies - 24 - - 24 24 Michael Rapp - 24 - - 24 24 Sir Harry Solomon - 24 - - 24 7 Geoff Gahan (resigned 27 July 2006) - - - - - 14 Michael Tannenbaum 168 - - 17 185 - Total 653 72 - 102 827 540 Michael Tannenbaum's remuneration is for the year to 31 December 2007, although he was appointed to the Board of Westcity PLC on 20th November 2007. Other key management personnel Non-executive fees Share based payments 2007 2006 Salary £'000 £'000 Benefits in kind Salary and fees £'000 Total and fees £'000 £'000 £'000 Aggregate, including Development, Investment, Design 754 - 124 - 878 - & Sales Directors Total 754 - 124 - 878 - Directors' pensions The Company did not make any contributions to pension schemes in respect of the Directors or other key management personnel for either year. Equity Instrument disclosures relating to directors and other key management personnel Options issued during the year Further information on the options is set out in note 21 to the financial statements. 4. SEGMENT INFORMATIOn The Group income derives principally from its operations in the UK and Channel Islands being that property related investment, development and management. Accordingly, the Group has not presented any secondary segment analysis. 5. INCOME TAX Year ended Year ended 31/12/07 31/12/06 £000 £000 Current tax: Domestic - 92 Foreign - - - 92 Taxation attributable to the company and its subsidiaries - 92 Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions. The charge for the year can be reconciled to the profit per the income statement as follows. Year ended Year ended 31/12/07 31/12/06 £000 % £000 % Profit/(loss) before tax (1,604) 1,225 Tax on the domestic income tax rate of 30% (2006 :30%) (481) (30) 368 30 Tax effect of income not taxable (474) (29) - - Tax effect of expenses that are not deductible in determining 62 4 taxable profit (480) (39) Tax effect of losses not recognised 889 56 164 13 Overprovision of tax in prior years - - 92 8 Capital allowances in excess of depreciation 10 1 - - Tax effect of income from equity accounted investments (11) (1) (23) (2) Other timing differences 5 - - - Effect of different tax rates of subsidiaries operating in other jurisdictions - - (29) (2) Tax expense and effective tax rate for the year - - 92 8 % The deferred tax asset for the Group of £ 1,350,000 (2006: £2,090,000) has not been recognised. In addition, the Company has surplus ACT carried forward of £3.7m (2006: £3.7m) and UK Capital Tax losses of £44m (2006: £44m) which can be used against any future capital gains. The total potential capital tax losses amounts to £76m (2006: £76m). 6. (LOSS)/EARNINGS PER ORDINARY SHARE Basic earnings per ordinary share has been calculated on the Group's loss attributable to shareholders of £1,604,000 (2006: profit of £1,317,000) and on the weighted average number of ordinary shares in issue during the year which was 74,299,301 (2006: 64,393,594). Diluted earnings per ordinary share has been calculated on the Group's loss attributable to shareholders of £1,604,000 (2006: profit of £1,317,000) and on the diluted weighted average ordinary shares in issue during the year which was 78,955,491 (2006: 64,551,689) 7. 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. * Carrying amounts Name Principal Activity Ownership interest Consolidated entity carrying amount 2007 2006 2007 2006 % % £'000 £'000 Stonehage Westcity Management Company Ltd Fund management 50 50 123 89 123 89 Stonehage Westcity Management Company Ltd is incorporated in the Channel Islands * Movements in carrying amounts Consolidated 2007 £'000 Carrying amounts at the beginning of the financial year 89 Share of profits after tax 69 Dividend paid (35) Carrying amounts at the end of the financial year 123 (c) Share of joint venture profits Profit before tax 86 Tax expense (17) Profit after tax 69 (d) Summarised financial information of joint ventures Group's share of : 2007 Assets Liabilities Revenues Profits Stonehage Westcity Management Company Ltd 208 (82) 126 69 (e) Share of joint ventures' capital commitments The joint venture had no capital commitments as at 31 December 2007 (f) Contingent liabilities of the joint ventures The joint venture had no contingent liabilities as at 31 December 2007 8. PROPERTY, PLANT AND EQUIPMENT Motor vehicles & office equipment Group and company £'000 Cost At 1 January 2006 63 Additions 16 Disposals - At 31 December 2006 79 Additions 88 Disposals (24) At 31 December 2007 143 Accumulated depreciation At 1 January 2006 30 Charge for the period 18 Disposals - At 31 December 2006 48 Charge for the period 36 Disposals (11) At 31 December 2007 73 Net book value At 31 December 2007 70 At 31 December 2006 31 9. OTHER FINANCIAL ASSETS Group Company 2007 2006 2007 2006 £'000 £'000 £'000 £'000 NON CURRENT Loan to Victoria Heights Corporation - 4,500 - 4,500 Investments held at fair value through profit and loss 21,138 19,568 21,138 19,568 Investment in controlled entities - - 23,555 23,555 21,138 24,068 44,693 47,623 The loan to Victoria Heights carried interest at 1% p.a over base rate and was secured by a first charge over the Hixon property. The loan was repaid on 12 October 2007. Financial assets held at fair value through profit and loss represent the investment into the Stonehage Westcity Property Fund. The movement in the Fund during the period can be summarised as follows: Group and company £'000 At 1 January 2006 - Additions 20,000 Loss on fund investment (note 2) (432) At 31 December 2006 19,568 Profit on fund investment (note 2) 1,570 At 31 December 2007 21,138 The company has granted a charge over 5.8 million units in the Fund as security for the forward exchange contract (see note 22). 10. INVESTMENT IN GROUP ENTITIES Company Total Investments in subsidiaries £000 Cost At 1 January 2006 140,900 Disposals - At 31 December 2006 / 1 January 2007 140,900 Additions - At 31 December 2007 140,900 Provisions At 1 January 2006 117,345 Movement At 31 December 2006 / 1 January 2007 117,345 Provision write-back on sale of VictoriaHeights - At 31 December 2007 117,345 Cost less provisions for impairment in value At 31 December 2007 23,555 At 31 December 2006 23,555 During the year the company acquired an investment re Weasel Investments Details of the principal subsidiary undertakings are as follows: Country of incorporation and residence % owned at year end Activity Westcity Developers Limited United Kingdom 100 Development Management (from 1 January 2007) Weasel Investments Limited United Kingdom 100 Non-Trading Westcity Development Investments Limited United Kingdom 100 Dormant Westcity Property Developers Limited United Kingdom 100 Dormant Westcity Property Investments Limited United Kingdom 100 Dormant Westcity Property Development Limited United Kingdom 100 Dormant There are an additional 13 subsidiary undertakings, all of which were and continue to be dormant. 11. TRADE AND OTHER RECEIVABLES 2007 2006 2007 2006 Group Group Company Company £'000 £'000 £'000 £'000 Other receivables 413 119 413 119 Amounts due from Group Companies - - 2,320 - 413 119 2,733 119 12. TRADE AND OTHER PAYABLES 2007 2006 2007 2006 Group Group Company Company £'000 £'000 £'000 £'000 Other taxes and social security costs 164 63 164 63 Trade payables 63 16 63 16 Other payables 93 226 90 223 Accruals and deferred income 83 209 83 209 Amounts due to Group Companies - - 2,551 - 403 514 2,951 511 13. PROVISIONS Group Group Group Companyonerous property leases pension scheme deficit onerous property leases Total £'000 £'000 £'000 £'000 Provision at 1 January 2007 250 264 514 264 Provision utilised - (54) (54) (54) Release of provision no longer required - - - - Provision at 31 December 2007 250 210 460 210 Current - 55 55 55 Non-current 250 155 405 155 250 210 460 210 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. 14. FINANCIAL RISK MANAGEMENT The group's operations expose it to a number of financial risks. . The Group has exposure to the following risks from its use of financial instruments: * Interest rate risk * Credit risk * Foreign currency risk * Market risk * Liquidity risk This note presents information about the Group's exposure to each of the above risks, the Group's objectives, policies and processes for measuring and managing risk, and the Group's management of capital. Further quantitative disclosures are included throughout these financial statements. The Board of Directors have overall responsibility for the establishment and supervison of the Group's risk management framework. The Board is responsible for developing and monitoring the Group's risk management policies. A risk management programme has been established to protect the group against the potential adverse effects of these financial risks, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group's activities. Fair value of financial instruments: 2007 2006 Financial assets Carrying value Fair Carrying value Fair Value Value £'000 £'000 £'000 £'000 Cash and cash equivalents 4,787 4,787 2,231 2,231 Financial liabilities Forward exchange contract 1,550 1,550 - - It is the directors' opinion that the carrying value of the Financial Assets and Financial Liabilities approximates their fair value. Interest Rate Risk At the year end, the Group does not have material borrowings and hence it does not have an interest rate risk. Credit Risk To reduce the risk of counterparty default the group deposits its surplus funds in approved high quality banks. Credit risk is limited due to the group's close working relationship with the Fund. The trade and other receivables age analysis is evaluated on a regular basis for potential doubtful debts. It is management's opinion that no further provision for doubtful debts is required. An analysis of trade and other receivables: 2007 Neither impaired nor past due Carrying amount Past due but not impaired 61-90 days 91-120 days More than 121 days Trade and other receivables 287 287 - - - 2006 Neither impaired nor past due More to follow, for following part double-click [nRn3a6633X]</pre>