a) Basis of preparation

The Financial Statements have been prepared under the historical cost convention as modified by the revaluation of certain fixed assets and in conformity with International Accounting Standards.

b) Basis of consolidation

The consolidated Financial Statements incorporate the audited financial statements of the Company, its subsidiaries, associates and joint ventures on the basis set out below.

i) Subsidiaries

Subsidiaries are companies in which the Group has an attributable interest of more than 50% of the ordinary share capital held for the long term and over which it exercises dominant influence. The results of subsidiaries are included or excluded from their effective dates of acquisition or disposal respectively.

ii) Associates and joint ventures

Associates are companies, not being subsidiaries, in which the Group has an attributable interest of 20% or more of the ordinary share capital held for the long term and over which it exercises significant influence.

Joint ventures are companies where the Group has a contractual arrangement with third parties to undertake an economic activity which is subject to joint control.

Associates and joint ventures are included on the equity basis of accounting. Provision is only made where, in the opinion of the Directors, there is a permanent diminution in value. The results of associates and joint ventures are included from their respective effective dates of acquisition and are based on their latest financial statements.

iii) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net assets of the acquired subsidiary, associate or joint venture at the date of acquisition. Goodwill on acquisitions occurring on or after 1st January 1995 is reported in the balance sheet as an intangible asset or included within associates and joint ventures, as appropriate, and is amortised using the straight line method over its estimated useful life. Goodwill on acquisitions which occurred prior to 1st January 1995 was taken directly to reserves.

The profit or loss on disposal of subsidiaries, associates and joint ventures is calculated by reference to the net assets at the date of disposal including the attributable amount of goodwill which remains unamortised but does not include any attributable goodwill previously eliminated against reserves.

iv) Own shares

The cost of shares held in the Company by a subsidiary and dividends thereon are eliminated from Shareholders' funds and the consolidated profit and loss account respectively.

c) Investments

i) Fixed asset investments are stated at cost. As the investments are held for the long term, provision is only made where, in the opinion of the Directors, there is a permanent diminution in value.

ii) Liquid investments which are readily convertible to known amounts of cash are included in bank balances and other liquid funds and are stated at market value. Any increase or decrease in value is reflected in the consolidated profit and loss account.

d) Foreign currencies

Assets and liabilities of subsidiaries, associates and joint ventures together with all other monetary assets and liabilities expressed in foreign currencies are translated into United States Dollars at the rates of exchange ruling at the year end. Profits and losses expressed in foreign currencies are translated into United States Dollars at the average rates of exchange ruling during the year.

Net exchange differences arising from the hedging of the Group's interests in subsidiaries, associates and joint ventures denominated in foreign currencies and the translation of the foreign currency financial statements of subsidiaries, associates and joint ventures are taken directly to the exchange fluctuation reserve. All other exchange differences are dealt with in the consolidated profit and loss account.

e) Properties

i) Investment properties

Investment properties are defined as properties which are income producing and intended to be held for the long term. Properties held under long leases are included in the balance sheet at their then open market value on the basis of an annual independent professional valuation. Revaluation surpluses and deficits are dealt with in the property revaluation reserve, except for movements on individual properties below cost which are dealt with in the profit and loss account. Long leases are defined as leases with more than 20 years to run. Properties having an unexpired lease term of less than 20 years are stated at the carrying value after deduction of depreciation set out in (f) below.

The profit or loss on disposal of an investment property is recognised by reference to its carrying value.

The cost of maintenance, repairs and minor equipment is charged to income as incurred; the cost of major renovations and improvements is capitalised.

ii) Development properties

Development properties are stated at cost, inclusive of interest capitalised up to the date when the occupation permit or its equivalent is obtained, less such provisions for impairment as are considered necessary by the Directors. Where properties are transferred from the investment to the development portfolio, cost is deemed for this purpose to be the market value at date of transfer.

A development property is not re-classified as an investment property until the earliest of:
- the date when the development becomes substantially let; or
- the date when income exceeds outgoings; or
- a date within two years of completion to allow for letting.

iii) Other properties

Other properties are stated at cost less such provisions for permanent diminution in value as are considered necessary by the Directors.

f) Depreciation

i) Investment properties

No depreciation is provided on investment properties except for leasehold properties having an unexpired lease term of less than 20 years, in which case the carrying value of any such property at the last balance sheet date is written off on a straight line basis over the remaining life of the lease.

ii) Other properties and assets

Depreciation is provided on a straight line basis at rates determined by the estimated useful life of the asset. No amortisation is provided where the carrying value of the leasehold properties is less than the residual value.

g) Net income from properties

Net income from properties includes net rental income from properties and net income from property trading. Net rental income comprising gross rental receivable under operating leases after deduction of landlord's expenditures and any under-recovery of tenants' expenditures is accounted for on the accruals basis. All intra-group transactions are eliminated on consolidation.

h) Property held for sale

Property held for sale is shown at the lower of cost and net realisable value.

i) Deferred taxation

Deferred tax is accounted, using the liability method, in respect of all temporary differences between the tax bases of assets and liabilities and their carrying values. This is a change in accounting policy as previously deferred taxation was provided under the liability method in respect of timing differences between profit as computed for taxation purposes and profit as stated in the Financial Statements to the extent that a liability or asset was expected to be payable or receivable in the foreseeable future.

The comparative figures for 1997 have been restated to reflect the change in policy. The effect of this change has been to decrease the profit after taxation and minority interests for the year ended 31st December 1997 by US$2.3 million. Shareholders' funds have been increased by US$1.6 million at 1st January 1997 and decreased by US$0.7 million at 1st January 1998 (see Note 19).

Provision for withholding tax which could arise on the remittance of earnings retained overseas is only made where there is a current intention to remit such earnings.

A deferred tax asset is recognised for tax losses to the extent that it is expected to be utilised in the foreseeable future.

j) Pensions

The Group operates defined benefit schemes, the assets of which are held in trustee administered funds.

The pension costs relating to the defined benefit schemes are assessed in accordance with the advice of independent qualified actuaries using the attained age normal method. Surpluses or deficits arising from past service costs, experience adjustments and the effects of changes in actuarial assumptions are amortised as an even percentage of pensionable payroll over the expected remaining working lives of the participating employees.

k) Derivative financial instruments

The Group makes use of derivative financial instruments to hedge part of its underlying exposures.

i) Interest rate

Interest receipts and payments due under interest rate swap agreements used to manage the interest rate exposure on borrowings and investments are accrued so as to match the net costs with the related finance income and expense.

ii) Foreign exchange

Gains and losses on forward foreign exchange contracts used to hedge the Group's investments denominated in foreign currencies are taken directly to reserves to match the losses and gains on translation of these investments.

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