Annual Report - 12 months to 31 December 2007 - MWB Business ...

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Annual Report - 12 months to 31 December 2007 - MWB Business ...

MWB Business Exchange PlcANNUAL REPORT 31 December 2007OUTSTANDINGPEOPLE& ASSETS


MWB Business Exchange Plc – KEY FINANCIAL HIGHLIGHTS03The key performance indicators, together with the trading performance and balance sheets for the year ended31 December 2007, are summarised below:-Operating statisticsYearYearended ended31 December 31 December2007 2006Revenue £’000 100,046 82,305Occupancy at year end % 90 78Annualised revenue per available workstation (REVPAW) at year end* £ 8,435 6,870Annualised revenue per occupied workstation (REVPOW) at year end* £ 9,355 8,830EBITDA £’000 17,477 8,875Number of leased centres at year end 41 39Number of Operating and Management Agreements at year end 16 16* REVPAW and REVPOW figures for 2006 revised as referred to on page 19.Financial performanceYearYearended ended31 December 31 December2007 2006Profit before tax £’000 13,242 7,626Basic earnings per share 18.9p 11.0pDividend proposed per share 1.93p 1.79pBalance sheet compositionAtAt31 December 31 December2007 2006Property, plant and equipment £’000 42,197 31,451Equity attributable to shareholders £’000 22,945 11,062


Helene Reymond Meeting and ConferencingExecutive, Regent Street Started January 2006.Helene was one of our first appointments to theposition of Meeting and Conference Executiveinitially working at the Meeting Venues facility atOxford Street. In March 2007, Helene moved toour Regent Street location, to continue her goodwork in meeting and exceeding the requirementsof our diverse client base.05“The passion, theresponsibility, and the manyopportunities for developmentare the reasons why I loveworking at BusinessExchange.”Michael Bailey Assistant CentreManager in training, Berkeley StreetStarted April 2007. Michael worked as aVirtual Office Customer Service Advisorbefore being promoted to Team Leader inthe Summer 2007. Michael is nowworking as an Assistant Centre Managerin training at our Berkeley Street, Mayfairlocation.


MWB Business Exchange Plc – CHAIRMAN’S STATEMENT07MWB Business Exchange PlcYears ended 31 December2007 2006£m £mRevenue 100.0 82.3EBITDA 17.5 8.9Profit before tax 13.2 7.6Property, plant and equipment 42.2 31.5Net assets 22.9 11.1At year end Business Exchangecomprised 15,600 workstationsin 57 centres.We now have almost 1.5m sq ftof flexible office accommodation.Highly successful 250 strongMeeting and ConferenceRoom offer.Continue to focus on primeoffice markets.“I am delighted to report a 97% increasein EBITDA from £8.9m to £17.5m forthe year to December 2007.”Keval PankhaniaFinance DirectorMWB Business Exchange Plc“We look ahead to 2008 withconfidence.The strategy of sustainabilityand risk mitigation is ongoing as wecontinue to improve profitability acrossthe portfolio.”John SpencerChief ExecutiveMWB Business Exchange Plc


08Over the year to December 2007 we closedseven locations to improve our overall businessmodel and enhance shareholder returns.At the year end, MWB Business Exchangecomprised approximately 15,600 workstationsin 57 centres, of which 44 operated under thefour/five star Business Exchange brand includingfour OMAs, together with 13 City ExecutiveCentres, our three-star brand, which are allmanagement contracts. As a result we now havealmost 1.5m sq ft of flexible office accommodation,incorporating our highly successful 250 strongMeeting and Conference Room offer.One of the business’s strengths is its extremelybroad client spread.We are not reliant on a fewspecialised sectors and, at the same time, only avery small number of clients occupy more than15% of the workstations in any one centre.Thisprevents the business from being materiallyexposed to a departure from a large occupier atthe end of a contract and allows us to plan moveoutsin a controlled and efficient manner.In instances where a client does occupy morethan 15% of a centre, we ensure a phased exitclause is incorporated into their contract enablingus to develop a pipeline of prospective clientswho can move in once the first phase ofdeparture occurs; further ensuring our exposureto large move-outs is limited.Our sales and marketing continues to focuson attracting smaller and medium size businesses(SMEs) alongside the ongoing development ofexisting and new corporate relationships. As aresult we have a broad range of clients acrosswidely diverse sectors including: professionalservices, media, consultancy, leisure, real estate,financial services and government.We believe thebreadth of our client base is a major strength inthe current economic and financial climate.Our proposition offers an ideal solution forcompanies, in particular SMEs, looking toestablish a footprint in major UK commercialareas.The traditional leased office model,prevalent elsewhere in the market, is restrictive ifcompanies are expanding or contracting in anever-changing business environment. It is also anunnecessary risk for companies to take on, whichis why so many are choosing the more flexibleand risk averse route we provide.This is reflected in the demand for ourunbranded proposition which has remainedstrong. Lead flow has increased by 30% and thenumber of workstation sales across our networkincreased by 31% to December 2007 incomparison to the 12 months to December2006.The rate we accomplish for workstationssales has gone from strength to strength and wehave achieved an 11% increase in 2007 over theprevious comparable period, largely as a result ofthe ongoing improvement in our proposition.Strong workstation sales+31%Workstation sales across the network increased by31% in the year to December 2007 comparedto the same period a year earlier.REVPAW continuesstrong growth+23%REVPAW increased by 23% during year toDecember 2007 to £8,435, from £6,870a year earlier.


MWB Business Exchange Plc – CHAIRMAN’S STATEMENT09Over the year we have continued our strategyof focusing on prime office markets withparticular emphasis on London’s West End.Todaywe have approximately 5,000 workstations in theWest End, representing 32% of our portfolio,generating 45% of our total revenue and 54%of our EBITDA before central costs.We have significantly expanded our CentralLondon portfolio where demand remains strong,with new centres reaching maturity in the WestEnd – Baker Street,Tottenham Court Road andCavendish Square – and the City – CannonStreet, London Bridge and London Wall.This wasfurther enhanced by our acquisition of StanhopeBusiness Centres which gave us two moreexcellent properties in Covent Garden, an areawhere we have previously been underrepresented,that we believe will deliversignificant future earnings.Our experienced acquisitions and launch teamensures each new centre has a high level ofoccupancy prior to opening.An excellent exampleis our latest centre close to Liverpool StreetStation in the City of London which was virtuallyfully occupied on opening, following the signingof a long agreement with a major clearing bank.In the year to December 2007 we also addednew locations in Central Manchester, Newcastleand Basinghall Street in the City of London,while Baker Street and London Bridge becamefully operational. On average, all our new centresachieve 85% occupancy within less than sixmonths of opening, representing a strongperformance for the group. As we have statedpreviously, our focus is on ensuring we driveincome and that each centre delivers increasinglyprofitable revenue through optimising revenueper available workstation.This approach,combined with targeted sales and marketing, hasresulted in occupancy over the year growing to90% compared with 78% at the previous yearend.An excellent achievement considering wehave opened and launched five new centres overthis year, plus the two Stanhope locations.At the heart of this performance is thesubstantial progress we have made in growingincome at the basic workstation level. As a resultof increases in rate and services income, revenueper available workstation (REVPAW) increasedby 23% to £8,435 from £6,870 at December2006 while we achieved a 6% rise in revenue peroccupied workstation (REVPOW) to £9,355from £8,830 a year ago. Service income alsoimproved, growing by 29% during the year toDecember 2007.Clients contract with us, on average, foran initial eight month period, with over 70%renewing.This leads to an average total stay ofnearly two years. Our strong contracted incomeequates to over 60% of our current 12-monthprojections for the year to December 2008.When renewals are factored in, this figure risesto 80% further underpinning our business modeland providing certainty of our future incomestream.Currently we have around 1,450 contractedclients with an average initial requirement ofseven workstations.We recognise that our client’sbrand – not ours – is most important to them,which is why a majority of our centres areunbranded, and all will be by the end of 2008.Our client base is predominantly SMEs.Theirfeedback indicates that they choose us on thebasis of our ongoing investment in contemporary,bright and non-branded interiors situated inprime business locations, priced reasonably whilestill delivering superior service.Our highly successful meeting and conferenceroom division, offering 250 rooms across the UK,grew revenue by 36% to £10.5m from £7.7mfor the year to December 2006. Demand remainsstrong for our business meeting rooms,particularly from non-residential clients; thevolume of repeat bookings is growing and oursales and marketing activity continues to generatefurther new business.Our continued drive to provide clients witha truly differentiated proposition remains criticallyimportant to us. As the first person our clientssee or talk to, and the people who support themon a day-to-day basis, our staff are effectively anextension of our clients’ business.We investconsiderably in staff training through our “We’rethe business” programme, to ensure that everyonein the business fully understands our service ethosand delivers exceptional client service.


10“Centres of Excellence” were establishedacross our business during 2007 in order to utiliseexceptionally high performing centres to educateand develop other business centre managers anddevelop best practice throughout the Group.Thisprogramme has been a great success and provideslearning and development opportunities both fornew recruits and existing employees. Also thesecentres are the first to trial our new products andservices as we seek to continually improve theservice we offer to our clients.The Group takes staff recruitment andtraining very seriously and retaining highachievers is important to us.We concentrateon creating client-focused teams, strengtheningstaff capabilities and rewarding people forperformance.We are extremely proud that researchreveals approximately 75 per cent of our peopleare highly committed to the business, anextraordinary statistic when compared to otherservice industries. Our employees are enthusiasticand supportive and aim to create a lively, positiveatmosphere in all our centres.We look ahead to 2008 with confidence.The strategy of sustainability and risk mitigationis ongoing as we continue to improve profitabilityacross the portfolio and pursue new growthopportunities in areas that we have prioritised.The Group will also seek to furtherdifferentiate our proposition in the marketplaceand look at new and innovative ways to improveour clients’ experience with MWB BusinessExchange.We believe that the right businessmodel is in place to ensure that we continue todeliver growth in shareholder value.Richard Balfour-LynnChairmanMWB Business Exchange Plc11 March 2008Meeting and ConferenceRoom revenue+36%Revenue from Meeting and Conference Rooms roseby 36% to £10.5m in year to December 2007from £7.7m the previous year.Strong improvement inworkstation rate+11%The rate for workstation sales accomplished inyear to December 2007 rose by 11% over previousyear, reflecting continuing improvement inour proposition.Contracted income for yearto December 200860%Current strong contracted income equates to over60% of current 12 month projections for yearto December 2008.


11Business Exchange Plc three year Group Revenue110,000100,000(£’000)90,00080,00070,00060,00050,0002005 2006 2007Three year Group profit after tax13,00011,0009,000(£’000)7,0005,0003,0001,0002005 2006 2007“Our growth has focused on two main areas: acquisition ofoccupational leases in London where the market shows thegreatest demand characteristics for the services we provide,and regional OMAs.”


centres of excellencefocus on client service


adding client valuethrough our people


highly successful meetingand conferenceroom offer


a centralLondon focus


DIRECTORS AND PRINCIPAL ADVISERS16DirectorsR.G. Balfour-Lynn BA (Hons) FinanceCHAIRMANJ.R. Spencer BEd. (Hons)CHIEF EXECUTIVER. Aspland-Robinson BSc (Hons) MRICSEXECUTIVE DIRECTORK. Pankhania BA (Hons) FCCA MBAFINANCE DIRECTORJ. Singh BA (Hons) FCCANON-EXECUTIVE DIRECTORG. SpellinsNON-EXECUTIVE DIRECTORHead Office1 West Garden PlaceKendal StreetLondon W2 2AQTelephone: 020 7479 9300Business Centres: 0808 100 1800Website: www.mwbex.comNominated Adviser and BrokerKBC Peel Hunt Ltd111 Old Broad StreetLondon EC2N 1PHSecretaryFilex Services LimitedRegistered Office179 Great Portland StreetLondon W1W 5LSAuditorsKPMG Audit Plc8 Salisbury SquareLondon EC4Y 8BBSolicitorsDechert LLP160 Queen Victoria StreetLondon EC4V 4QQPrincipal BankersBank of Scotland PlcHead OfficeThe MoundEdinburgh EH1 1YZRegistrars & Transfer OfficeCapita RegistrarsNorthern HouseWoodsome ParkFenay BridgeHuddersfieldWest Yorkshire HD8 0LATelephone: 0871 664 0300 from the UK (calls cost 10pper minute plus network extras)Fax: 01484 600 911Overseas: +44 20 8639 3399Registered number5628635


Directors17RICHARD BALFOUR-LYNN, CHAIRMAN (AGED 54)Formed Warwick Balfour Properties Plc in 1982, a commercial and residential property development and investmentcompany, working in established and growth areas of central London. He co-founded Marylebone Warwick BalfourGroup Plc, the Company’s ultimate holding company, in 1994 and is the chief executive of and a substantialshareholder in that company. He has been a Director of the principal operating companies in Business Exchangesince the formation of this division by Marylebone Warwick Balfour Group Plc in 1996 and has been a Director of theCompany since November 2005. He is responsible for leading the Board in determining the Group’s strategy and theachievement of its objectives.JOHN SPENCER, CHIEF EXECUTIVE (AGED 49)Joined the Group as Chief Executive in April 2004. For the 11 years prior to joining the Group, John worked forChubb Plc, the last four of those as managing director of Chubb Fire Limited. He has been a Director of the principaloperating companies in Business Exchange since he joined the Group in 2004 and he has been a Director of theCompany since November 2005. He is responsible for running the business and for formulating and implementing theBoard’s strategy for delivering profitability and shareholder value. He is also responsible for liaison between theCompany and its shareholders.RICK ASPLAND-ROBINSON, EXECUTIVE DIRECTOR (AGED 48)Joined Marylebone Warwick Balfour Group Plc in 1996. He has been a Director of the principal operating companiesin Business Exchange since 2004 and has been a Director of the Company since November 2005. He is responsiblefor property acquisitions and the negotiation of major tenancies and licences as well as all corporate propertypartnerships agreements.KEVAL PANKHANIA, FINANCE DIRECTOR (AGED 35)Joined Marylebone Warwick Balfour Group Plc as a finance executive in 1998 and transferred to Business Exchangeas Finance Director in August 2003. He has been a Director of the principal operating companies since then and hasbeen a Director of the Company since November 2005. He is responsible for financial and commercial managementacross the Group, including financial statements issued by the Group to its shareholders and debt and equity raisingundertaken by the Group. He is also responsible for liaison between the Company and its shareholders.JAG SINGH, NON-EXECUTIVE DIRECTOR (AGED 49)Joined Hill Samuel in 1980 specialising in investment management. He moved to Lombard Odier et Cie. in 1985where he was responsible for corporate and investment finance for quoted companies. He joined the Board of theMarylebone Warwick Balfour Group Plc in November 1998 and, amongst his other responsibilities, has managed itsinvestment in the principal operating companies in Business Exchange. He has been a Director of these companiesfor a number of years and he has been a Director of the Company since November 2005.GARY SPELLINS, NON-EXECUTIVE DIRECTOR (AGED 50)Joined the Board of MWB Business Exchange Plc on 1 May 2006. He is Chief Executive Officer of IndependentClinical Services (‘ICS’), one of the UK’s leading healthcare staffing businesses. He led ICS’s management buyoutteam in September 2002 acquiring the business with Duke Street Capital, the private equity firm. Before ICS he wasgroup managing director of RAC Plc and held senior positions within Lex Service Plc, GE Capital and AmericanExpress both in the UK and overseas. He is the Chairman of the Audit Committee.


Report of the Directorsfor the year ended 31 December 200718INTRODUCTIONThe Directors present their report and the audited consolidated financial statements of the Group for the year ended31 December 2007.PRINCIPAL ACTIVITIESThe Group is a leading provider of flexible serviced offices with 57 business centres throughout the United Kingdom.The Group’s business centres represent an alternative to conventional office space. These business centres offeradvantages of convenience, flexibility and immediate availability for SMEs, corporate and other clients. The Groupoperates in four distinct areas: four and five star Business Exchange Centres; mid-market City Executive Centres;Meeting and Conference Rooms; and Corporate Property Partnerships. A detailed review of the Group’s operations isset out in the Chairman’s Statement.DIRECTORSThe Directors who served during the year and to the date of this report were as follows:-R.G. Balfour-LynnNon-Executive ChairmanJ.R. SpencerChief ExecutiveR. Aspland-Robinson Executive DirectorK. Pankhania Finance DirectorJ. Singh Non-Executive DirectorG. Spellins Non-Executive DirectorThe Articles of Association of the Company require that all Directors appointed by the Board during the year and priorto the next Annual General Meeting, as well as one third of all other Directors, retire at the next Annual GeneralMeeting. No new Directors were appointed during the year ended 31 December 2007.At the 2008 Annual General Meeting J. Singh and G. Spellins will retire by rotation in accordance with the Articlesof Association of the Company. Being eligible, they all offer themselves for re-election. The Board believes that it is inthe Company’s best interest for J. Singh and G. Spellins to be re-elected to the Board because of their capability andknowledge of the business.Details of service contracts between the Company and its Executive Directors are set out in the Report onRemuneration of Directors on page 37. The Non-Executive Directors do not have service contracts with the Company.Details of the terms of engagement of the Non-Executive Directors with the Company are set out in the Report onRemuneration of Directors on page 38.The biographies of the Directors are shown on page 17.Details of Directors’ interests and shareholdings are given in the Report on Remuneration of Directors on page 39.CORPORATE STRATEGYThe Directors have developed a clear strategy for the Group, which is to build long-term financial returns through thedevelopment of sustainable income streams, whilst reducing operational risk. Strong organic and acquisitiveprogrammes will be underwritten by dedicated risk mitigation strategies.The Directors plan that Business Exchange Centres will grow organically, primarily by improving yield. Theprincipal drivers in the division are occupancy and price. The strategy is to maintain occupancy at 80 per cent. orabove and to increase revenues from both existing and new clients by increased service delivery. Business ExchangeCentres continue to reduce operational risk, by reducing the number of clients that occupy more than15 per cent. of any business centre and continually reviewing sector reliance.The Group has always provided meeting and conference rooms as part of its business centre service and theBoard sees this as a core growth opportunity. The Board’s strategy for the Meeting and Conference Rooms division isto continue to develop this division and to grow occupancy, whilst driving yield, from both existing clients and theexternal client market.This continued growth in activity ensures that the Group is well placed to deliver attractive profits, growth andcash generation over the short and medium term.


Report of the Directorsfor the year ended 31 December 200719BUSINESS REVIEWThe results for the year are set out in the Consolidated Income Statement on page 44 of the financial statements andthe financial position of the Group is set out in the Consolidated Balance Sheet on page 45 of the financial statements.KEY PERFORMANCE INDICATORS (‘KPIs’) MONITORED BY THE BOARDThe Directors use a number of KPIs which they consider are effective in measuring delivery of the strategy of thebusiness and assist the Directors in managing the business. The main KPIs used by the Directors are as follows:-Average occupancyOccupancy is calculated on a pro rata basis on the number of days a room is occupied in a month. This KPI indicatesthe level of utilisation of the Group’s properties. Average occupancy for the twelve months to 31 December 2007 was86 per cent., a 6 per cent. increase over the comparable period a year ago. Since the year-end, occupancy levelshave been maintained at a minimum of 90 per cent. as per the Company’s yield management strategy.Revenue per available workstation (‘REVPAW’)REVPAW is the total revenue generated across all workstations of the Group. This is an annualised figure based on amonth’s performance and is a key indicator of overall yield across the network. REVPAW has risen over the year by23 per cent. to £8,435 in December 2007 compared to £6,870 for December 2006.Revenue per occupied workstation (‘REVPOW’)REVPOW is the revenue generated from each occupied workstation of the Group. This is an annualised figure basedon a month’s performance and is a key indicator of occupied yield across the network. REVPOW showed a 6 percent. increase at £9,355 in December 2007 compared to £8,830 for December 2006.The December figures for REVPAW and REVPOW are affected each year by seasonality. The average REVPAWand REVPOW for the quarter ended 31 December 2007 were £8,840 and £9,775 respectively compared to £7,920and £9,855 for the quarter ended 31 December 2006.Revision of REVPAW and REVPOW figures for 2006The 2006 figures for REVPAW and REVPOW of £6,870 and £8,830 respectively have been revised from the figures of£7,300 and £9,500 respectively referred to in the 2006 financial statements. This followed the addition of extraworkstations within our portfolio during 2007. The additional workstations are unrelated to new centre growth andaccordingly the revision ensures a like-for-like comparison of 2007 results with those of 2006.Earnings before interest, tax, depreciation and amortisation (‘EBITDA’)The Directors consider that EBITDA is a good indicator of the Group’s operational cash flow. Note 3 in the financialstatements explains how this is calculated.EBITDA has improved to £17.5 million for the year ended 31 December 2007, compared to £8.9 million for theyear to 31 December 2006.Employee commitmentThe management team conducts annual staff surveys to gauge the level of commitment and understanding by staff ofthe Company’s overall goals and objectives.The 2007 study revealed that approximately 75% of staff are highly engaged with the business – materially aheadof the UK norm of only 14%.Client satisfactionThe management team conducts annual client surveys to understand the levels of satisfaction across the network.The 2007 study revealed that over 90% of the Group’s clients reported they were satisfied or very satisfied with theGroup’s service delivery and over 75% of clients said they definitely or probably would recommend the Group to their peers.


Report of the Directorsfor the year ended 31 December 200720PRINCIPAL RISKS AND UNCERTAINTIESAs part of the business review, the Directors comment below on risks surrounding the business. These risks are notnew to the business and reflect the sector in which the Group operates. This section describes some of the specificrisks that could materially affect the Group’s business. The risks outlined below should be considered in connectionwith any financial information in the financial statements. These risks could affect the Group’s business, its operatingprofits, net assets and capital resources.(i)Market volatilityMost of the risks faced by the Group arise out of natural market volatility, relating to supply and demandimbalances in the following core areas:-• Economic cycles, including the impact on customer demand of interest rates and inflation;• Reductions in demand for space from office users in the Group’s serviced office business;• Differential pricing for different locations and buildings;• Legislative changes, including planning consents and taxation; and• The efficient functioning of the capital markets including the availability of debt and equity finance. TheGroup has confirmed and dedicated bank facilities for its business, details of which are set out in note 15to the financial statements.(ii)Declines in revenueFluctuations in revenues are driven largely by general economic and local market conditions, which in turn affectlevels of business. The local supply of similar properties and class to those operated by the Group will alsoaffect a given property’s revenue. If local supply is strong relative to demand, this can lead to occupancy andrates falling and can enable competitors to implement more effective pricing strategies than the Group.(iii) Reliance in part on reputation of brandsThe Group operates its core operations under the MWB Business Exchange brand. If an event occurred thatmaterially damaged the reputation of the Group’s brand or there was a failure to sustain the appeal of theGroup’s brand to its customers, this could have an adverse impact on the Group’s forecast revenues andresultant shareholder value.In addition, the value of the Group’s brands is influenced by a number of external factors including consumerpreference and perceptions. The Group is highly focused on service delivery to ensure that the product providedmatches customer preferences. Strict controls are in place to ensure adherence to all legislative aspects affectingthe business and experienced executives manage these important areas of the Group.(iv)Reliance on key business centres and the London marketThe Group’s portfolio is deliberately London biased as the Board considers that this market shows the bestdemand characteristics for the service provided by the Group. The 30 London centres (4 of which are located inGreater London) account for 58 per cent. of the Group’s total workstations and 71 per cent. of total turnover.55 per cent. of London turnover is attributable to West End and Mid Town centres.Dedicated marketing and sales resources are deployed to these key locations to ensure occupancy andrevenues are maintained and to satisfy levels of existing and prospective client demand. The buildings aresituated in prime central London locations and are well maintained.(v)Reliance on key clientsThe Business Exchange Centres division has concentrated on increasing the number of SMEs and smallercorporate clients, thereby preventing a reliance on a small number of larger clients.Consequently, the number of clients who occupy more than 15 per cent. of any one centre across theportfolio has been significantly reduced.


Report of the Directorsfor the year ended 31 December 200721PRINCIPAL RISKS AND UNCERTAINTIES (continued)(vi) Changes in property marketIf the conventional property market changes significantly and landlords begin to offer variations to existingleases such as shorter leases, more flexible lease terms, giving significant rent reductions, or providingsignificant rent free periods, the Group’s business centres may become less attractive to both existing andpotential clients.Externally compiled evidence suggests that in London, where there is a high concentration of the Group’scentres, market conditions are strong. Independent research also indicates that the conventional office market ismore robust and rents are increasing and therefore landlords are not offering major variations to existing leases.This is a key indicator of improving demand for the Group’s serviced offices.(vii) Refurbishment and reinstatement costsThe terms of most of the property leases held by the Group require it to ensure the property is kept in goodrepair throughout the lease term and that the property is reinstated at the end of the lease to the condition priorto any alterations carried out to the premises. Full reinstatement costs may be incurred on termination of suchleases causing an adverse impact on the Group’s operations and financial condition.The Group’s buildings are kept in a good state of repair and a significant annual budget is used to maintainbuildings to an agreed standard. This ensures dilapidation costs on exit should be minimal.(viii) Changes in long term growth driversThere can be no assurance that the factors the Directors expect to drive the long term growth in the servicedoffice market in the future will in fact do so. For example, the trends towards flexible working styles andincreased outsourcing of office and related services may not develop as expected by the Directors. Changes inworking practices could occur which would be detrimental to the Group, such as more employees working fromhome.By focusing on developing a critical mass of SME and start-up clients, the Directors believe that any changesto long term growth drivers would only have a limited effect to the existing business.(ix) Long term cost base does not match short term revenue profileThe Group currently leases the majority of its properties. The length of the leases and the time at which theGroup may exercise any break option in such leases is nearly always longer than the duration of the period ofoccupation by our clients. If revenues decline, the Group may not be able to reduce significantly its propertyrelated cost base throughout the remaining period of the lease.Most of the Group’s business centres are profitable and the overall strong profitability of the network negatesthis impact. Whilst the Group cannot assign a lease without landlord consent, it could sublet which wouldsubstantially reduce the liability. Operating and Management Agreements and Management Agreements are alsoused to mitigate the risk from leases as these agreements generate revenue streams to the Group regardless oflevels of occupancy and market conditions, although the upside benefit to the Group is also fixed.(x)Changes in competitive landscapeThere are few barriers to entry into the serviced office market at the local and national level because there areno significant legislative or regulatory barriers. Although it is harder to establish a national network, this may notdeter new entrants or existing competitors. In addition, there is the potential for local operators to establishwider networks, for example by forming alliances amongst operators to provide scale.If the Group is unable to respond adequately to the competitive challenges it faces, or to maintain asustainable competitive advantage, it may be unable to retain its position and it may lose market share. Inaddition, competitive markets produce a downward pressure on prices. This could affect the prices that theGroup can charge for its business centres, which may cause an adverse impact on the Group’s revenue andprofitability.


Report of the Directorsfor the year ended 31 December 200722PRINCIPAL RISKS AND UNCERTAINTIES (continued)(x) Changes in competitive landscape (continued)The Directors continue to leverage their property expertise and property contacts within the industry, whichenables the business to manage buildings effectively and acquire buildings in key business locations. Through theeconomies of scale the Group is able to achieve, the Group can minimise initial set-up costs which competitorsoperating on a smaller scale may be unable to achieve. These savings will then be available to management todeliver a more robust proposition to the Group’s client base. The ongoing enhancement of its service deliveryproposition enables the Group to provide a differentiated proposition to existing and prospective clients in orderto maintain its competitive advantage. Investment in this area is also made on a continual basis.(xi) Technology and systemsThe Group provides its clients with access to IT and telecommunications equipment. Significant developmentsin the technology which businesses use would require the Group to make further investments in that newtechnology.The Group continually invests to ensure that its IT infrastructure can accommodate new technologies andalso to ensure it is abreast of new ideas.(xii) Tax affairs of the GroupIn a similar manner to most companies in the UK, the tax affairs of the Group up to and including its mostrecent accounting period ended 31 December 2007, and those for its current accounting period ending31 December 2008, are not yet agreed with the relevant taxation authorities. Provision has been made forcurrent and deferred taxation in accordance with the Group’s accounting policies. Should the amount of taxprovided prove to be insufficient to meet agreed liabilities, further provision may be necessary, which couldaffect the level of profitability in future years(xiii) Economic, political, social and regulatory risksThe Group is exposed to the risks of global and regional adverse political, economic and financial marketdevelopments (including recession, inflation and currency fluctuation) that could lower the Group’s revenues andoperating results in the future.The Group’s results could also be adversely affected by events that reduce domestic or internationalbusiness, such as industrial action, increased transportation and fuel costs and natural disasters. Therefore adownturn in these sectors could have a material and adverse effect on the revenues and net operating profits ofthe Group, which could reduce the Group’s net cash return to shareholders.(xiv) Movements in share priceThe trading price of the ordinary shares may be subject to fluctuations in response to many factors, includingstock market fluctuations. This may be accentuated by market volatility, the level of which may be unusual orexcessive, and which may also be caused by restrictions in the availability of equity or debt finance. Thesefluctuations can also be caused by general economic conditions or changes in political sentiment that mayadversely affect the market price of the Company’s ordinary shares, regardless of the Group’s actualperformance or conditions in its key markets. Factors which may affect the Company’s share price include, butare not limited to, the Group’s expected and actual performance and the performance of the sectors in whichthe Group operates.Shareholders should be aware that past performance is not necessarily indicative of likely futureperformance. Furthermore, the Company’s share price may fall in response to the market’s view of the Group’scurrent strategy or if the Group’s operating results and prospects from time to time are below the expectationsof market analysts and investors, or if market sentiment is adversely affected by third party commentaryconcerning the Board’s or the Group’s activities.The market price of the Company’s ordinary shares may not reflect the current or anticipated value of theCompany. In addition, this may fluctuate from day to day, depending on factors such as supply and demand,market conditions, the performance of the Group and general market sentiment. The price of ordinary shares isalso subject to normal stock market fluctuations and other risks inherent in investing in securities.


Report of the Directorsfor the year ended 31 December 200723PRINCIPAL RISKS AND UNCERTAINTIES (continued)(xv) Loss of Executive DirectorsThe loss of any of the Executive Directors could harm the Group or cause delay in the implementation of theGroup’s strategy due to the loss of input from those individuals. The future success of the Group is, in part,dependent upon the ability of its existing management team and on the Group’s ability to motivate and retainstaff with the requisite experience.The Executive Directors are committed to the Company and incentivised through the long-term incentiveplan. The involvement of Non-Executive Directors with many years’ experience in the services sector also assistsin this respect.(xvi) Potential influence of the principal shareholderMarylebone Warwick Balfour Group Plc (‘MWB Group Plc’) has maintained the 67.9 per cent. majorityshareholding in MWB Business Exchange Plc that it held at flotation in December 2005. The fact that MWBGroup Plc did not realise its historical investment at flotation is a demonstration of its confidence in the Group’sbusiness. As a majority shareholder owning over 50 per cent. of the Group, MWB Group Plc could influence thedecisions of the Board. However, its goals are aligned with other shareholders in terms of requiring growth andreturn from the business and the Board continues to operate in an independent manner.RESULTSThe results of the Group for the year ended 31 December 2007 are summarised as follows:-Year ended Year ended31 December 31 December2007 2006£’000 £’000Profit for the year after taxation 13,062 7,626Basic earnings per share, based on weighted average number of sharesin issue during the year 18.9p 11.0pDividend proposed per share 1.93p 1.79pFurther details of the results are set out in the Consolidated Income Statement on page 44 of the financial statements.INTANGIBLE ASSETSGoodwill of £7.6 million arose during the year from the acquisition of Stanhope Business Centres Limited inSeptember 2007. An impairment review was undertaken by the Directors at 31 December 2007 comparing thecarrying value of goodwill with the recoverable amount of the cash-generating unit to which goodwill was allocated.As a result of this review, the Directors have determined that there has been no impairment to goodwill during theyear ended 31 December 2007.


Report of the Directorsfor the year ended 31 December 200724CASH FLOWThe Consolidated Cash Flow Statement on page 46 shows the funds generated by the Group, those raised fromexternal sources, the investments made and the effect thereof on the Group’s cash position.This can be summarised as follows:-Year ended Year ended31 December 31 December2007 2006£’000 £’000Net cash inflow from operating activities 18,937 9,233Net cash outflow from investing activities (22,542) (14,596)Net cash received/(used) in financing activities 7,541 (5,674)Net increase/(decrease) in cash and cash equivalents 3,936 (11,037)Opening cash and cash equivalents 576 11,613Closing cash and cash equivalents 4,512 576DIVIDENDThe Directors are recommending a dividend of 1.93p per ordinary share, to be paid on 30 May 2008 to members onthe register at the close of business on 9 May 2008.SUBSTANTIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANYThe Company has been notified of the following interests which represent 3 per cent. or more of the issued sharecapital of the Company at 11 March 2008:-Numberof ordinaryshares heldPercentageMWB Group Plc and certain wholly owned subsidiaries 46,951,379 67.9%Chase Nominees 5,434,300 7.9%HSBC Global Custody Nominees 5,080,490 7.4%BNY SG Nominees 3,143,596 4.5%60,609,765 87.7%ENVIRONMENTAL RESPONSIBILITY AND HEALTH AND SAFETYThe Company considers that corporate social responsibility and effective corporate governance are importantcomponents of its businesses. The Group is committed to fair treatment of all stakeholders in the business,responsible employment policies and, where appropriate, involvement in the communities in which its businessesoperate.The Group’s risk review assists the Board in identifying and assessing risks that could affect the businesses of theGroup. This in turn enables them to implement appropriate social, ethical and environmental policies in conjunctionwith the financial policies of the Group. The Group does not operate in areas of high environmental risk. One of itsprincipal environmental impacts arises from energy consumption, which the Group continues to monitor and to setreduction targets where practicable. The Group also seeks to reduce the impact of paper usage by recycling and bythe increasing use of online transmissions and electronic data collection.


Report of the Directorsfor the year ended 31 December 200725ENVIRONMENTAL RESPONSIBILITY AND HEALTH AND SAFETY (continued)The Board continues to operate the business in pursuit of good environmental standards at properties managed andoccupied by the Group. Environmental considerations by the Group include the following:-• Respecting the environment in which we operate, whilst maintaining commercial viability and long termprofitability.• Setting objectives and targets and monitoring our performance to ensure adherence. Raising environmentalawareness of our employees, agents and clients. Working in partnership with suppliers and contractors to ensureeffective management of our environmental and social impacts and to minimise any adverse impact of ouroperations on the environment.• Compliance with relevant legislation and related requirements.• Undertaking environmental risk assessments as part of the due diligence process prior to entering newagreements or on acquiring new properties.• Designing energy efficiency into new buildings that are acquired, operated or managed by the Group andensuring that energy is used wisely in all of the Group’s operations.The Group employs project managers and building surveyors who are responsible for monitoring adherence tothe Group’s environmental policy in relation to the specific projects and properties which they handle. Ultimateresponsibility for environmental issues within the Group rests with John Spencer, the Chief Executive of the Company.The Board continues to adopt high levels of health and safety at work. Health and safety considerations areaddressed as follows:-• Providing a good working environment for our employees and treating all employees with fairness,dignity and respect.• Promoting a high standard of health and safety for our staff and contractors.• Operating an equal opportunities policy to ensure all job applicants are treated equally.• Compliance with relevant legislation and related requirements.• Ensuring that health and safety is a high priority and is factored into the design of new buildings anddevelopments undertaken by the Group.• Introducing measures to protect workers, visitors and clients from unacceptable risks and hazards.• Ensuring that a safe and healthy working environment is maintained for the well-being of all employees.• Providing first aid training to selected senior employees at each Group location to ensure the Group has senioremployees able to handle issues in an efficient and beneficial manner.The Group ensures that health and safety issues in relation to buildings and developments are the responsibilityof the health and safety manager, project managers and building surveyors. Overall responsibility for health and safetyissues within the Group rests with John Spencer, the Chief Executive of the Company.EMPLOYMENT POLICIESThe Group’s employment and remuneration policies are summarised on page 35.DONATIONSThe Group made £3,250 of charitable donations during the year (2006: £1,000). No political donations were made ineither year.


Report of the Directorsfor the year ended 31 December 200726PAYMENT POLICY FOR CREDITORSThe Group’s policy is to use its purchasing power fairly and, wherever possible, to pay in accordance with termsagreed with suppliers.The Group agrees payment terms with suppliers when it orders items or commits expenditure. It is the Group’spolicy to make payments for purchases on agreed terms, provided that the relevant invoice is presented to the Groupin a timely fashion and is complete. It seeks to adhere to these arrangements providing it is satisfied that the supplierhas provided the goods or services in accordance with the agreed terms and conditions. In instances where delays inpayments occur, remedial action is sanctioned by an executive of the Company. Amounts due to creditors of theGroup are paid on average within 24 days from receipt of invoice. The Company itself does not have a significantlevel of trade creditors.DIRECTORS’ INDEMNITIES AND DIRECTORS’ ANDOFFICERS’ LIABILITY INSURANCEIn accordance with the Company’s Articles of Association, the Directors are granted an indemnity from the Companyto the extent permitted by law in respect of liabilities incurred as a result of their office as Directors. Liability insurancecover has also been maintained during the year by the Group in respect of Directors and Senior Executives of the Group.INFORMATION TO AUDITORSThe Directors who held office at the date of approval of this Directors’ report confirm that, so far as they are aware,there is no relevant audit information of which the Company’s auditors are unaware and each Director has taken allthe steps that he ought to have taken as a Director to make himself aware of any relevant audit information and toestablish that the Company’s auditors are aware of that information.AUDITORSIn accordance with Section 384 of the Companies Act 1985 (‘the Act’), a Resolution proposing the re-appointment ofKPMG Audit Plc as auditors of the Company and authorising the Directors to agree their remuneration will beproposed at the Annual General Meeting. It is the Board’s opinion that the appointment of the auditors and the feespayable to the auditors are inter-related issues and they are therefore dealt with as part of one resolution.ANNUAL GENERAL MEETINGThe Company holds an annual general meeting in each calendar year, which it normally aims to hold approximatelyone month after publication of its year end financial statements. The Company’s 2007 Annual General Meeting washeld on 21 May 2007. A notice convening the 2008 Annual General Meeting, which will be held on 1 May 2008, is setout on pages 79 and 80.Ordinary business to be considered at the 2008 Annual General MeetingApproval of financial statements and related reports – Resolutions 1, 2, and 6Resolutions 1, 2 and 6 deal with the approval of the Company’s Annual Report and financial statements for the yearended 31 December 2007, approval of the Report on Remuneration of Directors and the re-appointment of theCompany’s auditors. These resolutions are similar to resolutions passed on these matters in previous years.Approval of final dividend of 1.93p per ordinary share – Resolution 3Resolution 3 deals with the approval of the final dividend of 1.93p per ordinary share for the year ended 31 December2007, payable on 30 May 2008 to shareholders on the register on 9 May 2008.Rotation and proposed re-election of Directors – Resolutions 4 and 5The Articles of Association of the Company require all new Directors appointed by the Board during the year and priorto the Annual General Meeting of that year, as well as one third of all other Directors, to retire, and if appropriate, putthemselves forward for re-election at the next Annual General Meeting of the Company. No new Directors have beenappointed since the 2007 Annual General Meeting. Jag Singh and Gary Spellins are the Directors retiring by rotationthis year. The Board has concluded that the retiring Directors are both effective, committed to their roles, and, subjectto shareholder approval, should continue in office. They have therefore each put themselves forward for re-election atthe 2008 Annual General Meeting.


Report of the Directorsfor the year ended 31 December 200727ANNUAL GENERAL MEETING (continued)Special business to be considered at the 2008 Annual General MeetingIn addition to the ordinary business referred to in Resolutions 1 to 6 of the Notice, the Directors propose certainspecial business as set out in Resolutions 7 to 9 of the Notice. Where appropriate, the proposed authorities and theconditions which attach to these Resolutions are within the guidelines laid down by the Investment Committees of theInsurance and Pension Management Industries and by the UK Listing Authority. Resolutions 7 to 8 are similar to thosepassed at the Annual General Meeting of the Company held in May 2007.A summary of the special business proposed at the meeting, which is the subject of Resolutions 7 to 9, is asfollows:-Resolution 7Resolution 7 will grant the Directors authority to allot, pursuant to Section 80 of the Act, up to 23,033,000 ordinaryshares (being £23,033 in nominal amount) of the Company’s authorised but unissued share capital.The Directors have no present intention of issuing the shares for which authority to allot is being sought. Ifapproved, the authority to allot up to 23,033,000 ordinary shares will expire at the conclusion of the Annual GeneralMeeting of the Company next following the passing of this resolution which is expected to be in May 2009, or in anyevent before 1 August 2009.Resolution 8Resolution 8 relates to issues of shares for cash. Section 89 of the Act requires that when Directors propose to allotordinary shares for cash, they must first offer such shares to existing shareholders in proportion to their existingholdings, unless powers have previously been given to the Directors under Section 95 of the Act to disapply theseprovisions.This resolution refers to proposed disapplications of these statutory pre-emption rights in the very limited instanceof allotments for cash of up to £3,455 in nominal value of the Company’s share capital (being 3,455,000 ordinaryshares), representing 5% of the issued ordinary share capital at the date of approval of these financial statements. Ifapproved, this authority will expire at the conclusion of the Annual General Meeting of the Company next following thepassing of the resolution which is expected to be in May 2009, or in any event before 1 August 2009.Resolution 9In common with a many listed companies, the Directors are seeking shareholders’ approval this year of a resolution togive limited authority to the Company to make market purchases of its own ordinary shares. The Directors considerthat it would be in the interests of all shareholders for the Company to be able to have this authority to purchase itsordinary shares in the market.The terms of the proposed authority state that the Company will be required to pay a minimum price (exclusive ofexpenses) of not less than 1p for each ordinary share and a maximum price of 105% of the average middle marketprice of an ordinary share for the five business days immediately preceding any such purchase.The Directors have no present intention to make any purchases under the proposed authority. However, theyconsider it appropriate for the Company to have the flexibility to do so. The Directors will only exercise the power tomake market purchases of ordinary shares if they believe that it is in the best interests of shareholders generally andthat it will enhance the earnings per ordinary share of the Company. If the Directors do utilise the authority they willneither be encouraging nor recommending shareholders to buy or sell ordinary shares in the Company, nor in any waysuggesting that it is an appropriate time to deal in such shares.The authority will only be exercised if the Directors are satisfied that the Company has sufficient financialresources to enable it to carry out the intended purchase of ordinary shares. Purchases would be financed from theGroup’s cash resources and made out of the Company’s distributable reserves. Accordingly, any purchase andsubsequent cancellation of shares would result in a reduction in the Company’s distributable reserves which mightotherwise be available for distribution to shareholders.


Report of the Directorsfor the year ended 31 December 200728ANNUAL GENERAL MEETING (continued)Action to be takenA Form of Proxy for use in connection with the 2008 Annual General Meeting is enclosed. Whether or not you intendto be present at the Annual General Meeting, you are asked to complete and return the Form of Proxy in accordancewith the instructions thereon as soon as possible and, in any event, so that it is received not later than 48 hoursbefore the time of the 2008 Annual General Meeting. The completion and return of the Form of Proxy will enable youto vote at the meeting without having to be present at the meeting, but will not preclude you from attending theAnnual General Meeting and voting in person if you so wish.Location of Annual General MeetingThe Annual General Meeting of the Company will be held at the offices of the Company, 1 West Garden Place, KendalStreet, London W2 2AQ on 1 May 2008, commencing at 11.00 a.m. The notice for the 2008 Annual General Meetingis set out on pages 79 and 80 of these financial statements.RecommendationsThe Directors consider that the ordinary business to be considered in Resolutions 1 to 6, and the special businessreferred to in Resolutions 7 to 9, is in the best interests of shareholders as a whole. Accordingly, the Directorsunanimously recommend shareholders to vote in favour of Resolutions 1 to 9 to be proposed at the 2008 AnnualGeneral Meeting.The Directors and persons connected with them intend to vote in favour of Resolutions 1 to 9 in respect of theirown shareholdings, amounting to 893,016 ordinary shares, representing approximately 1.3% of the current issuedordinary share capital of the Company.By order of the BoardFilex Services LimitedSecretary179 Great Portland StreetLondon W1W 5LS11 March 2008


Report on Corporate Governance29INTRODUCTIONMWB Business Exchange’s policy is to adhere to best practice standards in its business operations. Theseprocedures are documented in detail, the more important of which are referred to below. This section of the AnnualReport and financial statements, together with the section entitled ‘Report on Remuneration of Directors for the yearended 31 December 2007’, describes how the Company has applied the principles set out in Section 1 of theCombined Code on Corporate Governance.Although the Company is listed on AIM rather than the Main Market, the Board fully supports the principles ofgood governance through the operation of the Board. The Company and its subsidiaries have a policy of seeking tocomply with established best practice in the field of corporate governance. Accordingly, it has adopted elements ofthe Combined Code (June 2006) during the year ended 31 December 2007. The Board has adopted core values andGroup standards which set out the behaviours expected of staff in their dealings with shareholders, customers,colleagues, suppliers and other stakeholders of the Group.THE BOARDCompositionThe Company is run by the Board, which leads and controls the Group. The current Board comprises three ExecutiveDirectors and three Non-Executive Directors including the Chairman; all of the Directors bring a wide range ofexperience and skills to the Company.The division of responsibilities between the Chairman of the Board, Richard Balfour-Lynn, and the ChiefExecutive, John Spencer, is clearly defined and has been approved by the Board. This ensures there is a balance ofpower and authority within the Board.The Chairman leads the Board in the determination of its strategy and in the achievement of its objectives. TheChairman is responsible for organising the business of the Board, ensuring its effectiveness and setting its agenda.The Chairman has no involvement in the day-to-day business of the Group. The Chairman facilitates the effectivecontribution of Non-Executive Directors and ensures that constructive relations exist between Executive and Non-Executive Directors. Keval Pankhania, the Finance Director, is responsible for ensuring that Directors receive accurate,timely and clear information.The Chief Executive is responsible for running the business and for formulating and implementing Board strategyand policy. He also has direct charge and overall control of the Group on a day-to-day basis and is accountable tothe Board for the financial and operational performance of the Group.The terms of appointment of the Executive and Non-Executive Directors are available for inspection during normalbusiness hours from the Company Secretary at the Company’s registered office. They are also available for inspectionat the place of the Company’s Annual General Meeting, both before and after the meeting.ResponsibilityThe Board’s main roles are to define the Group’s strategic objectives, to provide entrepreneurial leadership of theGroup, to create value for shareholders and to ensure that the necessary financial and other resources are madeavailable to enable the Group and the Board to meet those objectives.The specific responsibilities reserved to the Board include: the setting of Group strategy; the growth of theCompany; approving annual budgets and medium term projections; reviewing operational and financial performance;approving corporate acquisitions, leases, management agreements and capital expenditure; the setting of borrowinglimits; treasury policy; reviewing the Group’s systems of financial control and risk management; ensuring thatappropriate management development and succession plans are in place; reviewing the environmental, health andsafety performance of the Group; approving appointments to the Board and of the Company Secretary; approvingpolicies relating to Directors’ remuneration and the severance of Directors’ service contracts; and ensuring that asatisfactory dialogue takes place with shareholders over the Group’s results and its aspirations for the future.


Report on Corporate Governance30THE BOARD (continued)Responsibility (continued)The Board has delegated certain responsibilities to the Executive Directors. These include development andrecommendation of strategic plans for consideration by the Board that reflect the longer term objectives and prioritiesestablished by the Board, including the dividend policy; implementation of the strategies and policies of the Group asdetermined by the Board; monitoring the operating and financial results against plans and budgets; monitoringacquisitions and business operations against objectives; prioritising the allocation of capital, the management andcontrol of borrowing limits and treasury policy; technical and human resources; and developing and implementing riskmanagement systems.Directors’ independenceThe names of the Directors, together with their biographical details, are set out on page 17.The Board considers Gary Spellins, the Independent Non-Executive Director, to be independent in character and injudgement. In reaching this conclusion, the Board took into account that he has not:-• Ever been an employee of the Group;• Had a material business relationship with the Group;• Received remuneration other than a Director’s fee, details of which are set out on page 38;• Had close family ties with any of the Group’s advisors, Directors or senior employees;• Held cross-directorships or have significant links with other Directors through involvement in other companiesor bodies;• Represented a significant shareholder; or• Served on the Board for more than nine years.Business and professional developmentOn appointment, Directors receive information about the Group, the role of the Board and the matters reserved for itsdecision, the terms of reference and membership of the principal Board Committees, the powers so delegated, theGroup’s corporate governance practices and procedures and the up to date financial information on the Group. Thisis supplemented by visits to key locations and meetings with senior executives. The Directors are updated on theGroup’s business, the competitive and regulatory environments in which it operates, other changes affecting theGroup and the sectors in which it operates, by written briefings to all members of the Board and by regular meetingswith senior executives. Directors are also advised in writing on appointment of their legal and other duties andobligations as a Director of a listed company. They are also formally reminded of these duties when the Companyissues circulars to shareholders, which occurs more than once each year. They are also updated on changes to thelegal and governance requirements of the Group and of themselves as Directors, by the Group’s Nominated Adviserand Broker.Regular reports and papers are circulated to the Directors in a timely manner in advance of Board Meetings andCommittee Meetings. These papers are supplemented by information specifically requested by the Directors fromtime to time. The Non-Executive Directors also receive regular management information which enables them toscrutinise the Group’s and management’s performance against agreed objectives.


Report on Corporate Governance31BOARD COMMITTEESDuring the year ended 31 December 2007, the Directors performed their functions through the Board and through itsseparate committees. The Board has an established Audit Committee, Remuneration Committee and NominationCommittee which operate within defined terms of reference. Minutes of the meetings of these Committees arecirculated to all members of the Board.The Audit Committee is chaired by Gary Spellins, the Independent Non-Executive Director. This Committeedetermines the terms of engagement of the Company’s auditors and, in consultation with them, the scope of theaudit. It receives and reviews reports from management and the Company’s auditors relating to the interim and annualfinancial statements and the accounting and internal control systems in use by the Group. The Audit Committee hasunrestricted access to the Company’s auditors. Under its terms of reference, the Audit Committee monitors, amongstother matters, the integrity of the Group’s financial statements. The Committee is responsible for monitoring theeffectiveness of the external audit process and making recommendations to the Board in relation to the reappointmentof the external auditors. It is responsible for ensuring that an appropriate business relationship ismaintained between the Group and the external auditors including reviewing non-audit services and fees. During theyear ended 31 December 2007, due diligence procedures were undertaken by the auditors to assist on theacquisition of Stanhope Business Centres Ltd, as the Committee was satisfied that they were the most appropriateadvisers to undertake this work. The Committee meets with Executive Directors and management as well as meetingprivately with the external auditors.The Remuneration Committee is chaired by Richard Balfour-Lynn and reviews the scale and structure of theExecutive Directors’ remuneration, including the long term incentive scheme, the grant of options and the terms oftheir service contracts. The Board as a whole determines the remuneration of Non-Executive Directors. The Report onRemuneration of Directors appears on pages 36 to 40.The Nominations Committee is chaired by Jag Singh. This committee is responsible for reviewing the structure,size and composition of the Board.ROTATION OF DIRECTORSEach Director’s appointment is subject to the Company’s Articles of Association, the Companies Acts and satisfactoryperformance by the Director concerned. All Directors are appointed for an initial term. At the first Annual GeneralMeeting after a Director’s appointment and also prior to the third Annual General Meeting after he was elected, theBoard discusses with the Director concerned whether it is appropriate for a further term to be served. If re-election isagreed, that Director will be proposed for re-election at the next Annual General Meeting of the Company.THE COMPANY SECRETARY AND EXTERNAL PROFESSIONAL ADVICEThe Company Secretary is responsible for advising the Board through the Chairman on all governance matters. AllDirectors have access to the advice and services of the Company Secretary. The Company’s Articles of Associationand the schedule of matters reserved to be decided only by the Board provide that the appointment and removal ofthe Company Secretary is a matter for the Board. Subject to prior written approval and due consideration at ameeting of the Board, the Directors are given access to secondary external professional advice at the Group’sexpense, if the Board deems this necessary in order to enable them to carry out their responsibilities.INTERNAL CONTROL AND RISK MANAGEMENTThe Directors operate the Company in accordance with its Articles of Association which set out the overall operatingframework of the Group. The Board acknowledges its responsibility to maintain sound systems of internal controlwhich safeguard shareholder investment in the Company and control the Company’s assets.The Group’s overriding corporate objective is to maximise shareholder value whilst matching the expectations ofits customers, employees and business partners. In so doing, the Directors recognise that creating value is thereward for taking and accepting risk. The Board has overall responsibility for the Group’s approach to assessing risk,for the related systems of internal control and for monitoring their effectiveness in providing shareholders with a returnthat is consistent with a responsible assessment and mitigation of risks. This includes reviewing financial, operationaland compliance controls and risk management procedures. The senior executive team is charged with implementingthe Board’s policies on risk and control and to provide assurance on compliance with these policies. Employees areaware that they are accountable for operating within these policies.


Report on Corporate Governance32INTERNAL CONTROL AND RISK MANAGEMENT (continued)The Board has established procedures that monitor the effectiveness of the Group’s internal controls. These includerisk management and the regular review of internal controls by Directors at Board and management meetings. Theresults of these reviews are documented and monitored on a regular basis throughout the year. Ongoing reporting,monitoring and improvement of internal controls are performed by the Finance Department under the overall controlof the Finance Director.The Board is responsible for the Group’s systems of internal control and risk management and for reviewing theeffectiveness of those systems. These systems are designed to manage, rather than to eliminate, the risks withineach division, as a balanced level of risk can enhance the rate of return achieved for the benefit of shareholders.These systems are structured to enable business objectives to be met, whilst accepting that any system can provideonly reasonable and not absolute assurance against material misstatement or loss. Within this environment, the Boardplaces reliance on adherence to the Group’s control framework by employees and senior executives of the Group.The Directors are also responsible for the Group’s internal financial controls. These are structured to ensure thattransactions are executed in accordance with management authority, transactions are appropriately recorded topermit the preparation of reliable financial statements that are free from material misstatement, the Company’s assetsare protected and that fraud should be prevented or detected.The Group’s management structure has delegated authority levels, functional reporting lines and accountabilitywithin the Group. The Group operates a comprehensive budgeting and financial reporting system, which comparesactual performance to budget on a monthly and quarterly basis. These comparisons are undertaken both at regionaland at Group levels. Variances against forecasts and budgeted performance are examined and businessenhancements are implemented where feasible. This allows management to monitor financial and operationalperformance on a continuing basis and to identify and respond to business risks before and as they arise.The Group has policies for health and safety which ensure that appropriate standards are maintained. Thesepolicies, together with environmental considerations, have been integrated into the day to day business managementof the Group, its operating businesses and its properties. Further details of these are summarised on pages 24 and25 of the Report of the Directors.The Executive Directors review management controls and internal controls at their weekly management meetingsand accordingly the Directors have reviewed the effectiveness of the Group’s internal controls throughout the year.Due to the Group’s small size, with equity shareholders’ funds of less than £25 million, internal audit functions are notan established feature of the Group. However, major elements of its operations are subject to significant independentchecking and review. When reviewing the Company’s interim and final financial statements, the Board receivesdetailed analytical reports on the results and financial position of the Group from Keval Pankhania, Finance Director.The Directors have reviewed the Group’s systems of internal control and the framework for this control. They havereviewed this throughout the year and its appropriateness for the Group for succeeding years. Systems have beenestablished for many years in respect of the principal financial areas of the Group. These systems will be monitoredand reviewed by members of the Audit Committee in their own meetings during the year, at meetings of the Board intheir roles as Non-Executive Directors and in their meetings with the external auditors.


Report on Corporate Governance33INTERNAL CONTROL AND RISK MANAGEMENT (continued)The principal financial controls that are in operation across the Group are as follows:-• A defined control environment. There is a clear organisational structure with defined lines of responsibility,authorisation procedures and delegation of authority. Formal policies, including the documentation of key systemsand procedures, are in place and are regularly controlled.• The assessment of risk and the improvement of returns therefrom. The Board is responsible for identifyingbusiness risks affecting the Group and for assessing the likelihood of their impact. The Board’s approach to riskmanagement and internal control aims to assist the Group in meeting the challenge of balancing commercialsuccess with cost efficiency. This is managed by the Executive Directors through regular and formal decisionmakingprocesses for each major division of the Group.• In-depth property appraisals. The Group has defined guidelines for capital expenditure, taking on new leases ormanagement agreements or acquiring new buildings. Before investing in any major asset, assessments ofmaximum capital expenditure, maximum cash requirements, forecast levels of profitability and the risk profile ofthe asset to be acquired, leased or managed are quantified and analysed by the Executive Directors. Whereactual results are materially different from those previously forecast, remedial action is taken which may, ifnecessary, involve the early disposal of the asset concerned.• Financial management and results. Monthly budgets and rolling six month forecasts are prepared for each of thedivisions, against which actual results are monitored and controlled by the Executive Directors. Variances arisingare investigated and business process changes implemented where appropriate.• Financial reporting. Monthly management accounts are provided to all members of the Board. These providedetailed analysis of the financial performance, sales, balance sheet, cash flow and profitability projections andrelated KPI based information for the Group on a monthly performance and on a year to date basis. This enablesmembers of the Board to appraise actual and projected performance for the current and future years and toconsider improvement where appropriate.• Employment. Experienced and qualified staff take responsibility for the human resource requirements of theGroup. Annual appraisal procedures assess performance against agreed objectives and where necessary identifychanges to improve the Group’s performance.INVESTOR RELATIONSThe investor relations activities of the Group are designed to provide a balanced level of communication between theCompany and its shareholders. Procedures are in place to ensure the timely release to the Stock Market of pricesensitive information relating to the Group as soon as the matter concerned has been finalised. The Group will publishsix-monthly and annual results within the time periods stipulated by the AIM Rules. The Group’s public relationsactivity ensures that all press releases and related announcements issued by the Group are provided to the Company’sInstitutional shareholders, financial analysts and the press at the same time as they are released to the Stock Market,thus improving the wider investment markets’ awareness of the objectives and achievements of the Group.The Chief Executive, John Spencer, and the Finance Director, Keval Pankhania, meet with Institutionalshareholders and analysts to explain transactions being undertaken by the Group; matters that are of benefit toshareholders in assessing the Group’s performance; methodology of the Group’s operations; aspirations and strategybeing adopted by the Board; results of the Group for the half year and for the full year; and the Board’s expectationsfor the future. In addition, the Group responds to individual ad hoc requests for discussions from Institutionalshareholders throughout the year.The Annual General Meeting is attended by all Directors and shareholders are invited to ask questions during themeeting and to meet with Directors after the formal proceedings have been concluded.


Report on Corporate Governance34INVESTOR RELATIONS (continued)The Directors appreciate the importance of private shareholders in the Company and will use the Company’sExtraordinary General Meetings and Annual General Meeting as further opportunities to communicate with privateinvestors. The Company provides fund managers and financial institutions with copies of its Half-Yearly FinancialReport, Annual Financial Statements and press releases.It is the Company’s policy to involve shareholders fully in the affairs of the Group and to give them the opportunityat the Annual General Meeting and at any Extraordinary General Meetings called during the year to ask questionsabout its activities and prospects. The Board will also structure these meetings so that shareholders can voteseparately on each matter by proposing separate resolutions for each item to be considered. It is the Board’s opinionthat the re-appointment of the auditors and the fees payable to the auditors are inter-related issues and these aretherefore dealt with as part of one resolution.The proxy votes for and against each resolution will be counted before the Annual General Meeting. The resultswill be provided to the meeting after each resolution has been voted upon by shareholders, thus enablingshareholders present to vote independently of the results of proxy votes already received. The same procedures willbe followed for any Extraordinary General Meetings of the Company.The Chairmen of the Audit Committee, the Remuneration Committee and the Nominations Committee, as well asother Directors, will be available to answer questions from shareholders at the 2008 Annual General Meeting to beheld on 1 May 2008.In accordance with the provisions of the Combined Code, the notice of the 2008 Annual General Meeting is beingsent to shareholders at least 20 working days before the meeting. Shareholders will have the opportunity to voteseparately on each proposal at the Annual General Meeting either in person or by proxy.GOING CONCERN REVIEWThe provisions of the Combined Code require Directors to confirm whether, after making appropriate enquires, theyhave reasonable expectations that the Company and the Group have adequate financial resources to continue inoperational existence for the foreseeable future.As part of the regular financial management of the Group, the Directors review the detailed cash flow projectionsof the Group. These cash flow projections include capital expenditure proposals and the financial effect of plannedbusiness expansion and disposals. They also model the cash effects from all principal operations of the Group. Theprojections take into account all bank and other financing facilities available to the Group and assess the cash flowadequacy of the Group on a month by month basis for a two year forward period.After making such enquiries as they consider appropriate, the Directors consider that there is a reasonableexpectation that the Group has adequate resources to continue in business for the foreseeable future. They havetherefore adopted the going concern basis in the preparation of the financial statements for the year ended31 December 2007.


Group Remuneration Policies35MANAGEMENT PHILOSOPHYMWB Business Exchange Plc is managed by the Board, utilising the services of its experienced management team.The Executive Directors and senior management of the Group work closely together to ensure that the Company’sstrategy is implemented and monitored on a continuous basis. The Executive Directors are responsible foracquisitions, disposals, new lease or management agreements, equity and debt funding and management across theCompany. They also co-ordinate the assessment and reporting of financial disciplines, controls and results.The Executive Directors have ensured that, below Board level, there is a strong team employed to ensure that theGroup’s day-to-day activities are properly managed and controlled. The Board is confident that the Group continuesto have strength in depth, both at senior executive and at middle management levels.EMPLOYMENT POLICIESIt is Group policy to keep employees informed of the aims, objectives, activities and financial performance of theGroup and to encourage them to take a wider interest in its affairs. This is achieved in a variety of ways, includingregional and segmental reporting, briefing sessions, quarterly reviews, monthly newsletters and distribution ofinformation by electronic media. Copies of all financial statements, circulars and press releases are also madeavailable to members of staff. Directors and senior management regularly visit the Group’s business centres and theydiscuss with employees matters of current interest and concern to the business.The health and safety of employees is important to the Group. Safety awareness is promoted in the workingenvironment. A health and safety manager is employed to ensure that the Group adopts good health and safetypractices and complies with all relevant legislation. Further details relating to the Group’s health and safety policies areset out in the Report of the Directors on pages 24 and 25.The Group is an equal opportunities employer and is committed to developing a working culture which enables allemployees to make their own distinctive contribution. Employment policies are designed to be fair and equitable andto be consistent with the abilities of the employees and the needs of the Group. Applications for employment bydisabled persons are fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of anymember of staff becoming disabled, effort would be made to enable their employment with the Group to continue. Itis the policy of the Group that the training, career development and promotion of disabled persons should, as far aspossible, be similar to that of other employees. Where the needs of the Group change, or an individual’s capabilitybecomes different from those required by the Group, senior management would endeavour to amend workingpractices to accommodate all existing employees. Where this is not possible, separate arrangements are made toensure that employees who are departing the Group are fairly treated.PENSIONS AND LIFE ASSURANCEThe Group operates a defined contribution personal pension plan and life assurance cover for most employees of theGroup. These arrangements continued throughout the year. Separate pension fund reports are provided on an annualbasis to all members of the Group’s defined contribution schemes.Contributions by employees to the defined contribution personal pension plans are set at a minimum level of3 per cent. of basic salary for employees. The employer’s contribution can increase with service from 4.25 per cent.of basic monthly salary at the date of joining the scheme, to 5.25 per cent. after one year’s membership and to6.25 per cent. after two years’ membership and thereafter. Only basic salary is pensionable; other forms ofremuneration are not pensionable.The personal pension plans provide employees with a pension and lump sum on retirement, the value of which isdependent on the contributions made and the rate of return achieved. These combine to produce a value of funds foreach individual that is accumulated until retirement of the employee concerned. A separate life assurance schemeprovides for a lump sum of four times basic salary in the event of death in service and a dependent’s pension of25 per cent. of a member’s basic salary. Other than the employee contributions referred to above, all costs of thedefined contribution pension scheme and the life assurance arrangements are borne by the Group.


Report on Remuneration of Directorsfor the year ended 31 December 200736INTRODUCTIONThe Statement of Group Remuneration Policies, summarised on page 35, embodies the principles of good governanceset out in Section 1 of the Combined Code. The principal Group Remuneration Policies referred to therein set out thearrangements that have been put in place to incentivise employees of the Group to produce enhanced performance forthe benefit of shareholders. The policies set out therein are applicable to senior members of staff including the ExecutiveDirectors of the Company, but the Non-Executive Directors do not participate in these arrangements.STRUCTURE OF THE REMUNERATION COMMITTEEThe Remuneration Committee is formally constituted with written terms of reference. Richard Balfour-Lynn is the chairmanof the Committee. Further details relating to the Committee and its principal responsibilities are set out on page 31.REMUNERATION POLICY FOR EXECUTIVE DIRECTORSBasic salaries and benefits are reviewed on 1 January in each year. In considering appropriate levels of remunerationfor Executive Directors, the Remuneration Committee reviews the value being contributed to the Company by theDirectors concerned, the other incentive arrangements that are in place and the overall endeavour to restrict the costincurred by the Group where possible. The performance of Executive Directors is measured primarily by reference tomeasures that the Remuneration Committee considers are expected to enhance reported EBITDA of the Group.In setting the remuneration of Executive Directors, the Board considers a number of factors and objectives,including:-• The value contributed to the Group by the Director concerned;• The importance of a reasonably competitive remuneration package to attract, retain and motivate management ofthe appropriate calibre and experience for the benefit of the Group;• The degree of influence that performance related rewards can have on returns to shareholders and on theperformance of the business; and• The size and nature of the business, whilst having regard to the interests of shareholders and the financial healthof the Group.In implementing this policy, the Board uses published data and market research to ensure that the totalremuneration payable to each Executive Director is not excessive, with regard to companies of a similar size in otherindustries, whilst at the same time remaining competitive.The remuneration payable to Executive Directors comprises the following:-• An annual salary.• An annual bonus payable on achievement of targets that will be set on an annual basis by theRemuneration Committee.• Participation in the Long Term Incentive Scheme provided by the Company. Further details are set out on page 37.• Contributions to defined contribution pension plans and private health insurance at a similar level at which suchbenefits are provided for other employees. No contributions are made by the Group on behalf of Directors todefined benefit pension schemes.The Executive Directors are not provided with Company cars.


Report on Remuneration of Directorsfor the year ended 31 December 200737SERVICE CONTRACTS OF EXECUTIVE DIRECTORSThe unexpired term of the service contracts of all Executive Directors is restricted to one year. The total salaries andpension contributions of the Executive Directors borne by the Group for the year ended 31 December 2007, are setout below:-PensionDirector Responsibility Annual salary entitlementJ.R. Spencer Chief Executive £245,000 £15,513R. Aspland-Robinson Executive Director £210,000 £13,125K. Pankhania Finance Director £195,000 –£650,000 £28,638The Directors’ service contracts are reviewed annually, the next review being due on 1 January 2009. Each agreementis terminable by either party giving 12 months’ written notice.DIRECTORS’ PENSION BENEFITS FOR THE YEAR ENDED 31 DECEMBER 2007During the year ended 31 December 2007, the three Executive Directors received pension contributions into definedcontribution personal pension plans. These contributions were made partly by the Company and partly by the Directorsconcerned. These were at the same rates as those received by other members of staff and were on the same basisas in previous years. The pension consequences and associated costs to the Company of basic salary increases andother changes in remuneration are borne in mind by the Remuneration Committee in setting salary levels.THE LONG TERM INCENTIVE SCHEME (‘LTIS’)On 16 December 2005 the Company adopted a Long Term Incentive Scheme pursuant to which the relevantparticipants are entitled to receive payments under the LTIS upon specific events, including a sale or takeover of theCompany, or a valuation of the Company prepared as at 30 June 2010.The aggregate payments to which participants in the LTIS are entitled are calculated as follows:-(i)(ii)in the event of a takeover or merger, the proceeds received by Shareholders, or in the event of a sale or otherrealisation by the Company the proceeds received by the Company, or if such events have not occurred by30 June 2010, a valuation of the Company; andby reference to the total sale or realisation proceeds received or valuation as appropriate:-(a)less stated costs which include the gross proceeds of the placing of ordinary shares in the Company inDecember 2005 (‘Placing’), the gross proceeds of any similar equity fund raisings, all sale costs, bank andother interest bearing debt and finance leases of the Group; but(b)adding back cash of the Group not invested (other than the net proceeds arising from the Placing or anysimilar equity fund raisings);in each case known as the Net Cash Return or ‘NCR’.The terms of the LTIS provide that the aggregate amount of payments due to all participants in the LTIS increase instages proportionate to the level of NCR. This is from £3 million if the first threshold of NCR of £40 million is achieved,to £10 million if the threshold of NCR of £80 million is achieved. For NCR achieved between £80 million and £99.5million, no further amounts are payable to participants in the LTIS. If NCR exceeds £99.5 million, which would representa substantial outperformance by the senior management team, a further aggregate amount equal to 15 per cent. of theamount by which the NCR exceeds £99.5 million will be payable to the LTIS and distributed to its participants.The terms of the LTIS provide that participants shall be entitled to payments under the LTIS in the followingproportions: John Spencer: 40 per cent.; Rick Aspland-Robinson: 25 per cent.; Keval Pankhania: 15 per cent.; andother executive management in total (as determined individually by the Remuneration Committee): 20 per cent. Suchproportions shall not alter unless a participant is no longer eligible to participate in the LTIS at the sole discretion ofthe Board. If aggregate payments under the LTIS are in excess of £10 million, participants would be entitled to suchexcess payments under the LTIS in the following proportions: John Spencer: 26.7 per cent.; Rick Aspland-Robinson:26.7 per cent.; Keval Pankhania: 26.6 per cent.; and other executive management in total (as determined individuallyby the Remuneration Committee): 20 per cent.


Report on Remuneration of Directorsfor the year ended 31 December 200738TERMS OF ENGAGEMENT OF NON-EXECUTIVE DIRECTORSNone of the Non-Executive Directors have service contracts with the Company. Their services are the subject ofdetailed terms of engagement and, in the same manner as the Executive Directors, the Non-Executive Directors aresubject to retirement by rotation under the Articles of Association of the Company. Their remuneration takes intoaccount the level of responsibility, experience and abilities required from each Director, together with the marketplacefor similar positions in comparable companies. The dates and period of their appointments are as follows:-R.G. Balfour-LynnLetter of appointment dated 16 December 2005 in respect of his appointment as Non-ExecutiveChairman. This appointment can be terminated at any time on three months’ written notice forno consideration. The appointment will terminate automatically upon Mr. Balfour-Lynn vacatingoffice, being removed from office, not being re-elected to office or material breach. No fee ispayable under this appointment. His duties include attending and participating in Boardmeetings, committee meetings and general meetings of the Company, as well as other generalBoard duties.J. Singh Letter of appointment dated 16 December 2005 in respect of his appointment as a Non-Executive Director. This appointment can be terminated at any time on three months’ writtennotice for no consideration. The appointment will terminate automatically upon Mr. Singhvacating office, being removed from office, not being re-elected to office or material breach. Nofee is payable under this appointment. His duties include attending and participating in Boardmeetings, committee meetings and general meetings of the Company, as well as other generalBoard duties.G. Spellins Letter of appointment dated 10 April 2006 under which he was appointed as Independent Non-Executive Director with effect from 1 May 2006 at a fee of £30,000 per annum. The term expireson 31 December 2008 but the appointment can be terminated at any time on three months’written notice for no consideration. The appointment will terminate automatically upon Mr.Spellins vacating office, being removed from office, not being re-elected to office or materialbreach. His duties include attending and participating in Board meetings, committee meetingsand general meetings of the Company, as well as other general Board duties.REMUNERATION OF NON-EXECUTIVE DIRECTORSThe remuneration of Non-Executive Directors, who are members of the Remuneration Committee, is a matterreserved for the Board. Their services are the subject of detailed terms of engagement and, in the same manner asthe Executive Directors, the Non-Executive Directors are subject to retirement by rotation in accordance with theArticles of Association of the Company.None of the Non-Executive Directors received, or will receive, any pension or other benefits from the Company,nor do they participate in the Long Term Incentive Scheme of the Company.TERMINATION ARRANGEMENTS OF DIRECTORS’ SERVICE CONTRACTSAND LETTERS OF ENGAGEMENTOther than as set out above, there are no provisions in the service contracts of the Executive Directors or the termsof engagement of the Non-Executive Directors for compensation to be payable on early termination of engagementwith any of the Directors. No Directors left the Company during the year ended 31 December 2007; no compensationwas paid to the departing Director during the year ended 31 December 2006.


Report on Remuneration of Directorsfor the year ended 31 December 200739EQUITY INTERESTS OF DIRECTORS IN THE COMPANYThe interests of the Directors and of their families, which are beneficial unless otherwise referred to below, in theissued ordinary shares of the Company as shown in the Register of Directors’ Interests required to be kept underSections 324, 325 and 328 of the Companies Act 1985, or which are required pursuant to Section 325 of the Act tobe entered in the register referred to in that Section, or which are interests of persons connected (within the meaningof Section 346 of the Act) with any of the Directors and the existence of which is known to, or could with reasonablediligence be ascertained by that Director, at 31 December 2007 and at the previous financial year end are as follows:-31 December 31 December2007 2006Ordinary shares Ordinary sharesR.G. Balfour-Lynn 577,500 482,500J.R. Spencer 41,666 41,666R. Aspland-Robinson 41,666 41,666K. Pankhania 41,666 41,666J. Singh 162,500 62,500G. Spellins 28,018 –893,016 669,998EQUITY INTERESTS OF THE DIRECTORS INMARYLEBONE WARWICK BALFOUR GROUP PLCMarylebone Warwick Balfour Group Plc has an interest of 67.9% in the issued share capital of MWB BusinessExchange Plc.The interests of the Directors and of their families, which are beneficial unless otherwise referred to below, in theissued ordinary shares of the ultimate parent company, Marylebone Warwick Balfour Group Plc, as shown in theRegister of Directors’ Interests required to be kept under Sections 324, 325 and 328 of the Companies Act 1985,or which are required pursuant to Section 325 of the Act to be entered in the register referred to in that Section, orwhich are interests of persons connected (within the meaning of Section 346 of the Act) with any of the Directors,and the existence of which is known to, or could with reasonable diligence be ascertained by that Director, at31 December 2007 and at the previous year end of 31 December 2006, are as follows:-31 December 31 December2007 2006Ordinary shares Ordinary sharesR.G. Balfour-Lynn 7,533,655 7,533,655J. Singh 1,030,803 1,165,803R. Aspland-Robinson 50,000 50,0008,614,458 8,749,458Percentage of total share capital 10.7% 10.9%The other Directors of the Company do not have an interest in the share capital of Marylebone Warwick BalfourGroup Plc.


Report on Remuneration of Directorsfor the year ended 31 December 200740DIRECTORS’ INTERESTS IN SHARE OPTIONSAt 31 December 2007 and at the previous year end, no Director had an interest in any options granted by theCompany over its ordinary shares. Further details of the options granted are set out in note 20 to the financialstatements.APPROVALThe proposed adoption of this Report on Remuneration of Directors is included as Resolution 2 in the Notice for the2008 Annual General Meeting.Richard Balfour-LynnChairman of theRemuneration Committee of the BoardLondon11 March 2008


Statement of Directors’ Responsibilities in Respect of theReport of the Directors and the Financial Statements41The Directors are responsible for preparing the Report of the Directors and the Group and Parent Company financialstatements in accordance with applicable law and regulations.Company law requires the Directors to prepare Group and Parent Company financial statements for each financialyear. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financialstatements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the EU andapplicable laws and have elected to prepare the Parent Company financial statements in accordance with UKAccounting Standards and applicable law (‘UK Generally Accepted Accounting Practice’ or ‘UK GAAP’).The Group financial statements are required by law and IFRSs as adopted by the EU to present fairly the financialposition and the performance of the Group; the Companies Act 1985 provides in relation to such financial statementsthat references in the relevant part of that Act to financial statements giving a true and fair view are references to theirachieving a fair presentation.The Parent Company financial statements are required by law to give a true and fair view of the state of affairsof the Parent Company.In preparing each of the Group and Parent Company financial statements, the Directors are required to:-• Select suitable accounting policies and then apply them consistently;• Make judgements and estimates that are reasonable and prudent;• For the Group financial statements, state whether they have been prepared in accordance with IFRSs as adoptedby the EU;• For the Parent Company financial statements, state whether applicable UK Accounting Standards have beenfollowed, subject to any material departures disclosed and explained in the financial statements; and• Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Groupand the Parent Company will continue in business.The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy atany time the financial position of the Company and enable them to ensure that its financial statements comply withthe Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them tosafeguard the assets of the Group and to prevent and detect fraud and other irregularities.The Directors are responsible for the maintenance and integrity of the corporate and financial information includedon the Company’s website. Legislation in the UK governing the preparation and dissemination of financial statementsmay differ from legislation in other jurisdictions.


42Independent Auditors’ Report to the Membersof MWB Business Exchange PlcKPMG Audit Plc8 Salisbury SquareLondon EC4Y 8BBWe have audited the Group and Parent Company financial statements (the ‘financial statements’) of MWB BusinessExchange Plc for the year ended 31 December 2007 which comprise the Consolidated Income Statement, theConsolidated and Parent Company Balance Sheets, the Consolidated Cash Flow Statement and the related notes.These financial statements have been prepared under the accounting policies set out therein.This report is made solely to the Company’s members, as a body, in accordance with section 235 of theCompanies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members thosematters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’smembers as a body, for our audit work, for this report, or for the opinions we have formed.RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORSThe Directors’ responsibilities for preparing the Annual Report, and the Group financial statements in accordance withapplicable law and International Financial Reporting Standards (‘IFRSs’) as adopted by the EU, and for preparing theParent Company financial statements in accordance with applicable law and UK Accounting Standards (‘UK GenerallyAccepted Accounting Practice’) are set out in the Statement of Directors’ Responsibilities on page 41.Our responsibility is to audit the financial statements in accordance with relevant legal and regulatoryrequirements and International Standards on Auditing (UK and Ireland).We report to you our opinion as to whether the financial statements give a true and fair view and are properlyprepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Report of theDirectors is consistent with the financial statements. In addition we report to you if, in our opinion, the Company hasnot kept proper accounting records, if we have not received all the information and explanations we require for ouraudit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.We read other information contained in the Annual Report and Accounts and consider whether it is consistentwith the audited financial statements. We consider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to anyother information.BASIS OF AUDIT OPINIONWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by theAuditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of the significant estimates and judgementsmade by the Directors in the preparation of the financial statements and of whether the accounting policies areappropriate to the Group’s and Company’s circumstances, consistently applied and adequately disclosed.We planned and performed our audit so as to obtain all the information and explanations which we considerednecessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion wealso evaluated the overall adequacy of the presentation of information in the financial statements


Independent Auditors’ Report to the Membersof MWB Business Exchange Plc43OPINIONIn our opinion:-• The Group’s financial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of thestate of the Group’s affairs as at 31 December 2007 and of its profit for the year then ended;• The Parent Company financial statements give a true and fair view, in accordance with UK Generally AcceptedAccounting Practice, of the state of the Parent Company’s affairs as at 31 December 2007;• The financial statements have been properly prepared in accordance with the Companies Act 1985;• The information given in the Report of the Directors is consistent with the financial statements.KPMG Audit PlcChartered AccountantsRegistered AuditorLondon11 March 2008


Consolidated Income Statementfor the year ended 31 December 200744Year ended Year ended31 December 31 December2007 2006Notes £’000 £’000Revenue 2 100,046 82,305Cost of sales (84,895) (73,805)Gross profit 15,151 8,500Administrative expenses (1,662) (1,105)Results from operating activities 13,489 7,395Finance income 6 352 473Finance expense 6 (599) (242)Profit before taxation 7 13,242 7,626Taxation 8 (180) –Profit for the year 19 13,062 7,626Basic earnings per share 9 18.9p 11.0pDiluted earnings per share 9 18.8p 11.0pAll amounts relate to continuing operations. The notes on pages 47 to 72 form part of these financial statements.


Consolidated Balance Sheetat 31 December 20074531 December 31 December2007 2006Notes £’000 £’000Non-current assetsIntangible assets 10 7,587 –Property, plant and equipment 11 42,197 31,45149,784 31,451Current assetsTrade and other receivables 12 17,889 15,464Cash and cash equivalents 13 4,512 57622,401 16,040Total assets 72,185 47,491Current liabilitiesLoans and borrowings 15 (491) (573)Trade and other payables 14 (28,397) (27,786)(28,888) (28,359)Non-current liabilitiesLoans and borrowings 15 (9,411) (344)Other payables and accruals 14 (10,941) (7,726)(20,352) (8,070)Total liabilities (49,240) (36,429)Net assets 22,945 11,062EquityShare capital 18 69 69Share premium account 19 35,459 35,459Merger reserve 19 38,831 38,831Retained earnings 19 (51,414) (63,297)Total equity 19 22,945 11,062The notes on pages 47 to 72 form part of these financial statements. Approved by the Board of Directors on11 March 2008 and signed on its behalf by:-John SpencerChief ExecutiveKeval PankhaniaFinance Director


Consolidated Cash Flow Statementfor the year ended 31 December 200746Year ended Year ended31 December 31 December2007 2006£’000 £’000Profit for the year 13,062 7,626Adjustments for non-cash itemsFinance expense 599 242Finance income (352) (473)Depreciation of property, plant and equipment 3,988 1,480Equity settled share-based payments 58 59Cash flows from operations before changes in working capital 17,355 8,934Change in trade and other receivables (391) (3,551)Change in trade and other payables 2,496 4,144Cash generated from operations 19,460 9,527Interest paid (523) (294)Net cash from operating activities 18,937 9,233Cash flows from investing activitiesInterest received 352 473Purchase of property, plant and equipment (12,695) (15,069)Acquisition of subsidiary net of cash acquired (note 10) (10,199) –Net cash from investing activities (22,542) (14,596)Cash flows from financing activitiesProceeds from drawdown of borrowings 9,411 917Borrowings repaid (633) (4,914)Payment of finance lease liabilities – (1,677)Dividends paid (1,237) –Net cash received/(used) in financing activities 7,541 (5,674)Net increase/(decrease) in cash and cash equivalents 3,936 (11,037)Opening cash and cash equivalents 576 11,613Closing cash and cash equivalents 4,512 576


Notes to the Consolidated Financial Statements47MWB Business Exchange Plc (‘the Company’) is a company domiciled in the United Kingdom. The consolidatedfinancial statements of the Company as at and for the year ended 31 December 2007 comprise the Company and itssubsidiaries (together ‘the Group’). The Group is primarily involved in the provision of flexible serviced office space.1. ACCOUNTING POLICIESBasis of preparationThe Group financial statements for the year ended 31 December 2007 have been prepared in accordance withInternational Financial Reporting Standards (‘IFRSs’) as adopted by the EU (‘Adopted IFRS’). These are the firstset of audited consolidated financial statements of the Company to be prepared under Adopted IFRS. TheCompany has elected to prepare its Parent Company financial statements in accordance with UK GAAP.The consolidated financial statements are prepared on the historical cost basis. These consolidatedfinancial statements are presented in Sterling, which is the Company’s functional currency. All financialinformation has been rounded to the nearest thousand pounds unless otherwise indicated.The accounting policies set out below have, unless otherwise stated, been applied consistently to allperiods presented in these Group financial statements and in preparing an opening IFRS balance sheet at1 January 2006 for the purposes of the transition to Adopted IFRS.Transition to Adopted IFRSThe Group is preparing its financial statements in accordance with Adopted IFRS for the first time in thesefinancial statements for the year ended 31 December 2007 and has applied IFRS 1 First Time Adoption ofInternational Financial Reporting Standards. The adoption of IFRSs has no effect on the underlying operationsof the Group, its strategy and management, nor on the cash flows derived from the Group’s businessoperations. These standards do, however, affect the way in which such activities are presented in the Groupfinancial statements.An explanation of how the transition to Adopted IFRS has effected the reported financial performance,positions and cash flows of the Group is set out in detail in note 24 to the financial statements.Use of estimates and judgementsThe preparation of financial statements requires management to make judgements, estimates and assumptionsthat affect the application of accounting policies and the reported amounts of assets, liabilities, income andexpenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewedon an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate isrevised and in any future periods affected.In particular, information about significant areas of estimation, uncertainty and critical judgements inapplying accounting policies that have the most significant effect on the amount recognised in the financialstatements are described in the following notes:-Note 10 – measurement of recoverable amounts of cash generating units containing goodwillNote 11 – measurement of property, plant and equipmentNote 16 – measurement of financial instruments


Notes to the Consolidated Financial Statements481. ACCOUNTING POLICIES (continued)Basis of consolidationSubsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly orindirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.In assessing control, potential voting rights that are currently exercisable or convertible are taken into account.The financial statements of subsidiaries are included in the consolidated financial statements from the datethat control commences until the date that control ceases. Where necessary, accounting policies of subsidiariesare changed on acquisition to align them with the policies adopted by the Group.Intra-group balances and transactions and any unrealised income and expenses arising from intra-grouptransactions are eliminated in preparing the consolidated financial statements.GoodwillGoodwill arises on the acquisition of subsidiaries and represents the excess of cost of acquisition over theGroup’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiredcompany. When the excess is negative it is recognised immediately in the Income Statement. Goodwill ismeasured at cost less accumulated impairment losses.Property, plant and equipmentLeasehold improvements relating to operating leases, fixtures and equipment are measured at cost lessaccumulated depreciation and any impairment losses. Cost includes expenditure that is directly attributableto the acquisition of an asset and includes professional fees and, for qualifying assets, capitalisedborrowing costs.The gain or loss on disposal or retirement of property, plant and equipment is determined by comparingthe sale proceeds with the carrying amount of the asset at the date of disposal or derecognition, and isrecognised in the Income Statement.Depreciation is charged so as to write off the cost or valuation of property, plant and equipment, using thestraight line method, over the following estimated useful lives:-Operating leasehold improvements:-Machinery and electricalCeilings, floors and partitionsFront of houseOther plant, machinery and equipmentThe shorter of the useful economic life and the term of the leaseThe shorter of 15 years and the term of the leaseThe shorter of 7 years and the term of the lease3 to 10 yearsLeased assetsLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks andrewards of ownership to the lessee. All other leases are classified as operating leases.Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at thepresent value of the minimum lease payments, each determined at the inception of the lease. Thecorresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the finance lease obligation, so as toachieve a constant rate of interest on the remaining balance of the liability.Assets held under operating leases are not recognised as assets of the Group. Rentals payable andincentives received under operating leases are recognised in the Income Statement on a straight-line basisover the non-cancellable period of the lease.


Notes to the Consolidated Financial Statements491. ACCOUNTING POLICIES (continued)ImpairmentThe carrying amounts of the Group’s non-financial assets other than deferred tax assets are reviewed at eachbalance sheet date to determine whether there is any indication of impairment. If any indication exists, theasset’s recoverable amount is estimated. For goodwill and intangible assets that have an indefinite useful life,the recoverable amount is estimated at each balance sheet date.The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fairvalue, less costs to sell. In assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-discount rate that reflects current market assessments of the time value of money,and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into thesmallest group of assets that generates cash inflows from continuing use which is largely independent of thecash inflows of other assets or groups of assets (the ‘cash-generating unit’). For the purpose of impairmenttesting, the goodwill acquired in a business combination is allocated to cash-generating units that areexpected to benefit from the synergies of the combination.An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unitexceeds its recoverable amount. Impairment losses are recognised in the Income Statement. Impairmentlosses recognised in respect of cash-generating units are allocated first to reduce the carrying amount ofany goodwill allocated to the units and then to reduce the carrying amount of other assets in the unit on apro-rata basis.Financial instrumentsNon-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, loansand borrowings and trade and other payables. Non-derivative financial instruments are recognised initially atfair value. Subsequent to initial recognition, non-derivative financial instruments excluding cash and cashequivalents, are measured at amortised cost using the effective interest method, less any impairment losses.Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayableon demand and form an integral part of the Group’s cash management are included as a component of cashand cash equivalents for the purpose only of the Cash Flow Statement.Interest bearing bank loans and overdrafts are initially recorded at fair value. The net amount of anypremium or discount over the nominal value, less issue costs, is amortised over the life of the instrument usingthe effective interest method at a constant cost of financing over its life and charged or credited to interestpayable in the Income Statement.Ordinary share capital is classified as equity. Incremental costs directly attributable to the issue of ordinaryshares and share options are recognised as a deduction from equity, net of any tax effects. When share capitalrecognised as equity is purchased by the Company, the amount of consideration paid including directlyattributable costs, net of any tax effects, is recognised as a deduction from total equity.Retirement benefitsPayments to defined contribution retirement benefit schemes are charged as an expense as they fall due.Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in futurecontributions is available as a result of such prepaid amounts.ProvisionsA provision is recognised in the balance sheet when the Group has a present legal or constructive obligation asa result of a past event, and it is probable that an outflow of economic benefits will be required to settle theobligation. If the effect is material, provisions are determined by discounting the expected future cash flows ata pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, therisks specific to the liability.


Notes to the Consolidated Financial Statements501. ACCOUNTING POLICIES (continued)Revenue recognitionRevenue is measured at the fair value of consideration received or receivable. Revenue principally compriseslicence fees billed to clients for their office accommodation, rentals charged and service charges invoiced totenants. Licence fee income is invoiced in advance, deferred and recognised on provision of the service.Service income is recognised in the month the service is provided. Where a rent free period is included in alease, the rental income foregone is allocated evenly over the period from the date of lease commencement tothe earliest termination date. In all instances, revenue is shown net of discounts and VAT.Cost of salesCost of sales comprises the direct costs incurred in managing and operating the Group’s operational activities.Share-based payment transactionsThe share option programme allows certain employees to acquire shares in the Company.The fair value of options granted to employees is recognised as an employee expense, with acorresponding increase in equity, over the period in which the employees become unconditionally entitled tothe options. The fair value of the options granted is measured using an option valuation model, taking intoaccount the terms and conditions upon which the options were granted. The amount recognised as anexpense is adjusted to reflect the actual number of share options that vest except where forfeiture is due onlyto share prices not achieving the threshold for vesting.DividendsDividends which have been approved by shareholders at previous Annual General Meetings are included withinliabilities if still unpaid at the balance sheet date. Interim and final dividends proposed at the balance sheetdate that are subject to approval by shareholders at the Annual General Meeting are not included as a liabilityin the current period’s financial statements.Finance income and expenseFinance income comprises interest receivable on funds invested. Interest income is recognised in the IncomeStatement as it accrues, using the effective interest method.Finance expense comprises interest payable and finance charges on finance leases that are recognised inthe Income Statement. Interest incurred on loans specific to leasehold improvement in the course ofdevelopment is capitalised during the development phase but ceases to be capitalised once the improvementis completed and ready for occupation. Where such interest is allowable in computing the taxation liabilities ofthe Group, this is used to reduce the tax charge in the Income Statement. All other interest payable is chargedto the Income Statement.


Notes to the Consolidated Financial Statements511. ACCOUNTING POLICIES (continued)TaxationIncome tax expense comprises current and deferred tax. Income tax expense is recognised in the IncomeStatement except to the extent that it relates to items recognised directly in Equity, in which case any tax effectis also recognised on the appropriate line within the Equity section of the Balance Sheet.Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted orsubstantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.Deferred tax is recognised using the balance sheet method, providing for temporary differences between thecarrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxationpurposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assetsor liabilities in a transaction which is not a business combination and which affects neither accounting nortaxable profit, and differences relating to investments in subsidiaries and jointly controlled entities to the extentthat it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognisedfor taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the taxrates that are expected to be applied to the temporary differences when they reverse, based on the laws thathave been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset ifthere is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxeslevied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settlecurrent tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be availableagainst which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting dateand are reduced to the extent that it is no longer probable that the related tax benefit will be realised.Additional income taxes which arise from the distribution of dividends are recognised at the same time asthe liability to pay the related dividend is recognised.New standards and interpretations not yet adoptedA number of new standards, amendments to standards and interpretations have been issued recently but arenot effective for this financial year ended 31 December 2007. Accordingly, they have not been applied inpreparing these financial statements. Their adoption is not expected to have a material affect on the financialstatements. The main standard which may affect future financial statements of the Group is IFRS 8 OperatingSegments which introduces the management approach to segment reporting. IFRS 8, which will be mandatoryfor the Group’s 31 December 2009 financial statements, will require the disclosure of segment informationbased on the internal reports regularly reviewed by the Board in order to assess each segment’s performanceand to allocate resources to them. There is no profit impact from the adoption of IFRS 8.


Notes to the Consolidated Financial Statements522. REVENUEYear ended Year ended31 December 31 December2007 2006£’000 £’000Licence fees and related income from leased assets 95,266 75,548Licence fees and related income from Operating and Management Agreements 4,780 6,757Revenue per the Consolidated Income Statement 100,046 82,305All operations are carried out in the UK.3. EARNINGS BEFORE INTEREST, TAXATION, DEPRECIATIONAND AMORTISATION (‘EBITDA’)The Board’s primary measure of return used to monitor results is the level of earnings before interest, taxation,depreciation and amortisation (‘EBITDA’). The EBITDA for the year ended 31 December 2007, withcomparatives for the previous year, is calculated as follows:-Year ended Year ended31 December 31 December2007 2006£’000 £’000Results from operating activities 13,489 7,395Add depreciation of property, plant and equipment 3,988 1,480Total EBITDA for the year 17,477 8,8754. REMUNERATION OF DIRECTORSYear ended Year ended31 December 31 December2007 2006£’000 £’000Remuneration of Executives 1,085 1,036Fees of Non-Executive Directors 30 45Benefits in kind and round sum expense allowances 37 44Pension contributions 29 261,181 1,151Additional information is set out in the Report on Remuneration of Directors on pages 36 to 40. Included in thetable above is £429,000 (2006: £441,000) for J.R. Spencer, who was the highest paid director during the year.


Notes to the Consolidated Financial Statements535. STAFF NUMBERS AND COSTSThe average number of staff employed by the Group (including Directors) during the year and analysed bycategory, was as follows:-Year ended Year ended31 December 31 December2007 2006Number NumberOn-site staff 310 264Head office, procurement and administration 87 66397 330The aggregate payroll costs of the Group was as follows:-Year ended Year ended31 December 31 December2007 2006£’000 £’000Wages and salaries 12,363 9,946Social security costs 1,284 981Share based payment transactions 58 59Defined contribution pension costs 173 13013,878 11,116Incentive arrangements and share based paymentsArrangements have been put in place to incentivise certain executives of the Company to realise valuefor shareholders in cash or cash equivalents at levels significantly in excess of their current book values.A minimum level of cash realisation has to be achieved before a minimum level of bonus becomes payable.Thereafter, varying levels of bonus become payable after the achievement of further target amounts to cashrealisation. These schemes are not capped so as to incentivise participants to achieve material outperformancefor the benefit of shareholders.The Company also operates an Employee Share Option Scheme. Options granted under either schemecannot be exercised during the first three years of ownership and lapse at the end of 10 years. A charge of£58,000 (2006: £59,000) has been included in administrative expenses in the Consolidated Income Statementto reflect the value of these options that accrued to the employees concerned during the year ended31 December 2007. The same amount has also been credited to Retained Earnings attributable to theGroup in note 19 to the financial statements, so there is no net reduction in net assets of the Group asa result of the charge made.


Notes to the Consolidated Financial Statements546. FINANCE INCOME AND EXPENSEYear ended Year ended31 December 31 December2007 2006£’000 £’000Finance income arose on:-Interest income on cash deposits 352 473Finance expense arose on:-Bank loans and overdrafts 176 53Bank charges 173 108Finance lease and hire purchase contracts – 37Other loans 250 44599 2427. PROFIT BEFORE TAXATIONYear ended Year ended31 December 31 December2007 2006£’000 £’000The profit before taxation is stated after charging the following:-Depreciation – property, plant and equipment owned 3,988 681Depreciation – property, plant and equipment acquired underfinance leases and hire purchase contract – 799Operating lease expense 32,967 29,565Auditors’ remuneration charged:-Fees payable to the Company’s auditors for theaudit of the Company’s annual accounts 47 33Fees payable to the Company’s auditors and theirassociates for other services:-Audit of the Company’s subsidiaries, pursuant to legislation 70 61Other services relating to taxation – 5Services relating to corporate acquisition 117 –All other services 19 15Further details relating to the choice of the auditors to undertake non-audit due diligence work on anacquisition undertaken by the Group are set out in the Audit Committee section of the Report on CorporateGovernance on page 31. Fees paid to the Company’s auditors, KPMG Audit Plc and its associates, for nonauditservices to the Company itself are not disclosed separately above because the Company’s consolidatedfinancial statements are required to disclose such fees on a consolidated basis.


Notes to the Consolidated Financial Statements558. TAXATIONYear ended Year ended31 December 31 December2007 2006£’000 £’000The current taxation for the year arose as follows:-UK Corporation taxTax on result for the year 180 –As referred to in note 17, no deferred tax was required to be recognised in the Consolidated Income Statementduring the year ended 31 December 2007 or in the previous year ended 31 December 2006.The taxation has been reduced from the amount that would arise from applying the prevailing corporationtax rate to the profit before taxation in the Consolidated Income Statement, as follows:-Year ended Year ended31 December 31 December2007 2006£’000 £’000UK corporation tax charge at 30% (2006: 30%) for the year on theprofit before taxation in Consolidated Income Statement 3,973 2,288Excess of capital allowances claimed over depreciation charged (763) (1,130)Expenditure permanently disallowed for taxation purposes andunrelieved tax losses – 470Profits not taxable and capitalised expenditure deductible fortaxation purposes (1,247) (138)Tax losses brought forward from earlier years utilised in current year (1,783) (1,490)Total corporation tax charge for the year 180 –9. EARNINGS PER SHAREThe earnings per share figures are calculated by dividing the profit attributable to equity shareholders of theCompany for the year by the weighted average number of ordinary shares in issue during the year, as follows:-Year ended Year ended31 December 31 December2007 2006£’000 £’000Profit on ordinary activities after taxation 13,062 7,626Number Number’000 ’000Weighted average number of ordinary shares (basic) 69,100 69,100Effect of shares issuable under share option schemes 545 262Weighted average number of shares (diluted) 69,645 69,362Basic earnings per share 18.9p 11.0pDiluted earnings per share 18.8p 11.0p


Notes to the Consolidated Financial Statements5610. INTANGIBLE ASSETS31 December 31 December2007 2006£’000 £’000CostAt 1 January – –Acquisition in the year (see below) 7,587 –At 31 December 7,587 –The goodwill balance arose from the acquisition of Stanhope Business Centres Limited on 28 September2007. For the period between the date of acquisition and 31 December 2007 Stanhope Business CentresLimited contributed £1.4 million revenue, £0.5 million EBITDA and £0.4 million profit before tax to the Group’sresults. If Stanhope Business Centres Limited had been acquired on 1 January 2007, the additional revenue forthe year would have been £3.7 million, EBITDA £1.7 million and profit before tax £1.2 million. Thus thecorresponding Group figures would have been: revenue £103.7 million; EBITDA £19.2 million; profit before tax£14.4 million.The Directors do not consider that any separately identifiable intangible assets were acquired as the valueof the business to the Group resides in the incorporation of the centres into the MWB Business Exchangebusiness model and not in any other element of the companies acquired.An impairment review was undertaken by the Directors on 31 December 2007 which compared thecarrying value of goodwill with the anticipated recoverable amount of the cash-generating unit to whichgoodwill was allocated. The recoverable amount of the cash-generating unit is based on value in use, which iscalculated from cash flow projections for years ending 31 December 2008 and 31 December 2009 using datafrom Board approved budgets. The key assumptions for value in use calculations are those regarding discountrates, licence fee income, client renewals and occupancy rates. The Directors estimate discount rates usingpre-tax rates that reflect the current market assessments of the time value of money and risks specific to thecash-generating unit, and therefore the discount rate that is considered by the Directors to be appropriate is apre-tax risk adjusted discount rate of 11%. Changes in licence fee income, client renewals, occupancy ratesand direct costs are based on an assumed compound growth rate of 6%, past experience and expectations offuture changes in the market. As a result of this review, the Directors have concluded that there has been noimpairment to goodwill during the year ended 31 December 2007.


Notes to the Consolidated Financial Statements5710. INTANGIBLE ASSETS (continued)On 28 September 2007, the Group acquired 100% of the issued share capital of Stanhope Business CentresLimited for a total consideration of £12.0 million. Stanhope Business Centres Limited is the parent company ofa group of companies providing flexible serviced office solutions identical to the Group’s existing activities. Thistransaction was accounted for using the purchase method of accounting and is summarised below:-Fair value Fair value atBook value adjustments acquisition£’000 £’000 £’000Net assets acquiredProperty, plant and equipment 2,039 – 2,039Trade and other receivables 2,034 – 2,034Cash and cash equivalents 1,775 – 1,775Trade and other payables (3,755) 2,294 (1,461)2,093 2,294 4,387Goodwill 7,587Total consideration 11,974Satisfied by:- £’000Cash 11,516Directly attributable costs 458Cash consideration paid 11,974Cash consideration 11,974Cash and cash equivalents acquired (1,775)Net cash outflow arising on acquisition 10,199£’000The fair value adjustment to trade and other payables reflects the alignment of accounting policies of thesubsidiaries acquired to those of the rest of the Group. The goodwill arising on the acquisition of StanhopeBusiness Centres Limited is attributable to the profitability of the sites acquired and the complementary fit ofthe business operations.


Notes to the Consolidated Financial Statements5811. PROPERTY, PLANT AND EQUIPMENTPlant,Operating machinery,leasehold fixtures &improvements equipment Total£’000 £’000 £’000CostAt 1 January 2007 66,599 22,878 89,477Acquisition of subsidiaries 1,731 308 2,039Additions 9,428 3,267 12,695At 31 December 2007 77,758 26,453 104,211DepreciationAt 1 January 2007 (42,342) (15,684) (58,026)Charge for the year (1,427) (2,561) (3,988)At 31 December 2007 (43,769) (18,245) (62,014)Net book value at 31 December 2007 33,989 8,208 42,197Plant,Operating machinery,leasehold fixtures &improvements equipment Total£’000 £’000 £’000CostAt 1 January 2006 57,484 16,924 74,408Additions 9,115 5,954 15,069At 31 December 2006 66,599 22,878 89,477DepreciationAt 1 January 2006 (41,543) (15,003) (56,546)Charge for the year (799) (681) (1,480)At 31 December 2006 (42,342) (15,684) (58,026)Net book value at 31 December 2006 24,257 7,194 31,451


Notes to the Consolidated Financial Statements5912. TRADE AND OTHER RECEIVABLES31 December 31 December2007 2006£’000 £’000Due after more than one yearOther receivables 1,801 839Prepayments and accrued income 143 1481,944 987Due within one yearTrade receivables 1,765 3,159Other receivables 1,466 329Amounts due from related parties 2 –Prepayments and accrued income 10,558 9,403Retention balances 2,154 1,58615,945 14,47717,889 15,464Retention balances predominantly comprise cash funds received from tenants as security. These are retained inbank accounts that are separate from the main Group facilities and are not generally available for use in theGroup’s operations.13. CASH AND CASH EQUIVALENTS31 December 31 December2007 2006£’000 £’000Cash and cash equivalents per consolidated balance sheet andconsolidated cash flow statement 4,512 576Retention balances previously recorded in cash are now included under trade and other receivables and thecomparative figures in notes 12 and 13 amended accordingly.14. TRADE AND OTHER PAYABLES31 December 31 December2007 2006£’000 £’000Due within one yearTrade payables 1,910 909Amounts due to related parties – 73Client deposits 13,203 11,575Operating lease incentives 1,096 1,188Accruals 8,007 9,711Corporation tax 180 –PAYE, NIC and VAT 1,904 988Deferred income 2,097 3,34228,397 27,786Due after more than one yearOperating lease incentives 10,293 6,964Deferred income 648 76210,941 7,726


Notes to the Consolidated Financial Statements6015. LOANS AND BORROWINGS31 December 31 December2007 2006£’000 £’000Current liabilities:-Unsecured other loan borrowings 491 573491 573Non-current liabilities:-Secured bank loan borrowings 9,411 –Other unsecured loan borrowings – 3449,411 344Terms and debt repayment scheduleThe Group’s loans are denominated in Sterling; no foreign exchange risk was suffered by the Group on its debtarrangements during the year ended 31 December 2007 or in the previous year. The Group’s loans bearfloating rates of interest which are normally for periods ranging from one week to one year, set by reference toBank Base Rate. The terms and conditions on the Group’s outstanding loans at 31 December 2007, inclusiveof bank margin, were as follows:-31 December 2007 31 December 2006Face Carrying Face CarryingNominal Year of value amount value amountinterest rate maturity £’000 £’000 £’000 £’000Current liabilitiesOther unsecured loan borrowings 7% 2008 491 491 573 573Non-current liabilitiesSecured bank loans Base +1% 2009 9,500 9,411 – –Other unsecured loan borrowings 7% 2008 – – 344 3449,991 9,902 917 917The secured borrowings above are secured by charges on substantially all of the Group’s property, plant andequipment. At 31 December 2007, the group had £3.5 million of undrawn bank facilities.Funding financial riskThe Group’s funding financial risk centres on the total interest cost incurred on the Group’s short and mediumterm loans, which at 31 December 2007 totalled £10.0 million. The Board has currently chosen to retain thesefunds at floating rates due to the relatively low level of current interest rates by reference to the earningscapability of the Group’s business centres which were acquired with the funds drawn. The Board reviews thispolicy on a regular basis to ensure good management of its exposure to interest rate fluctuations.


Notes to the Consolidated Financial Statements6116. FINANCIAL INSTRUMENTSOverall summaryThe Group has exposure to the following principal risks in the operation and management of its business:-(i) Liquidity risk;(ii) Market risk;(iii) Interest rate risk; and(iv) Credit risk.Set out below is information about the Group’s exposure to each of the above risks, the Group’sobjectives, policies and processes for measuring and managing risk, and the Group’s management of capital.Further quantitative disclosures are included throughout these consolidated financial statements.The Directors have overall responsibility for the establishment and oversight of the Group’s riskmanagement framework. The Audit Committee of the Board monitors the Group’s risk management policiesand reports to the Board on its activities.The Group’s risk management policies are established to identify and analyse the risks faced by the Group,to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk managementpolicies to provide protection for the Group’s activities are reviewed during the year to reflect changes inmarket conditions. The Group, through its management standards and procedures, aims to develop adisciplined and constructive control environment in which employees understand their roles and obligations.The Audit Committee oversees how management monitors compliance with the Group’s risk managementpolicies and procedures and reviews the adequacy of the risk management framework in relation to the risksfaced by the Group.This is managed and controlled through a detailed funding policy and capital management strategy, detailsof which are set out below.Funding policyThe Group’s treasury policies are designed to ensure that:-(i)(ii)Sufficient committed loan facilities are available to support current and future business requirements. Cashand loan management is a core feature of the Board’s business model and two year rolling cash flowforecasts, updated on a monthly basis, are controlled by the Executive Directors to manage theserequirements.The interest cost on Group debt is supported as much as possible from maintainable income flows, withthe retirement of debt matched against forecast inflows over short and medium term programmes.(iii)Interest rate exposure is managed through interest rate swaps, thus fixing interest rates when appropriateby reference to passing income at the date of drawdown.Capital management strategyThe Board’s policy is to maintain a strong capital base within the Group so as to maintain investor and creditorprotection, and to maintain market confidence in the Group. This strategy also sustains future developmentpotential of the Group. The Directors monitor the Return on Capital achieved by the Group, which the Boardhas defined as EBITDA divided by total shareholders’ equity, and its comparison to Return on Value, beingEBITDA divided by Group enterprise value.The Board seeks to maintain a balance between the higher returns that might be possible with higherlevels of borrowings and the advantages and security afforded by a sound capital position. Neither theCompany nor any of its subsidiaries are subject to externally imposed capital requirements. There were nomaterial changes in the Group’s approach to capital management during the year ended 31 December 2007 orduring the previous year.


Notes to the Consolidated Financial Statements6216. FINANCIAL INSTRUMENTS (continued)Liquidity riskLiquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. TheBoard’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficientliquidity to meet its liabilities as they fall due, under both normal and stressed conditions, without incurringunacceptable losses or risking damage to the Group’s reputation.The Group uses detailed cash flow reporting, which assists the Board in monitoring cash flowrequirements and optimising cash returns across the whole Group. The Group typically ensures it has sufficientforecast cash and available facilities to meet expected cash out flows for a period of two years, including theservicing of financial obligations. These forecasts include all generally predictable events within the Groupbut necessarily exclude the potential impact of extreme circumstances such as natural disasters thatcannot reliably be modelled and forecast. In addition, the Group maintains available bank facilities whichtotalled £3.5 million at 31 December 2007, as set out in note 15 to the financial statements. These provideadditional liquidity protection for the Group. The contractual maturity of the Group’s financial liabilities is setout below and in note 15 to the financial statements.Market riskMarket risk that affects the Group is the risk that changes in market prices, such as interest rates and equityprices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of theGroup’s market risk management is to manage and control market risk exposures within acceptableparameters, while seeking to optimise returns to shareholders.Interest rate riskThe Group’s fixed rate borrowings are exposed to a risk of change in their fair value due to changes in interestrates. The Group’s variable rate borrowings are exposed to a risk of change in cash flows due to changes ininterest rates. Investments in short term receivables and payables are not exposed to interest rate risk.Fair value sensitivity analysis for fixed rate instrumentsThe Group does not account for fixed rate financial assets and liabilities at fair value through the IncomeStatement. Therefore a change in interest rates at 31 December 2007 would not have had an affect on thereported results in the Income Statement. A change of 100 basis points in interest rates would have increasedor decreased equity by £95,000 (2006: £nil).Cash flow sensitivity analysis for variable rate instrumentsA change of 100 basis points in interest rates at 31 December 2007 would have directly increased/(decreased)equity and the Income Statement by the amounts shown below. This analysis assumes that all other variablesremain constant.Income StatementEquity100 bp 100 bp 100 bp 100 bpIncrease Decrease Increase Decrease£’000 £’000 £’000 £’00031 December 2007Variable rate instruments (95) 95 – –Cash flow sensitivity (net)31 December 2006Variable rate instruments – – – –Cash flow sensitivity (net)


Notes to the Consolidated Financial Statements6316. FINANCIAL INSTRUMENTS (continued)Credit riskCredit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrumentfails to meet its contractual obligations. The risk to the Group arises principally from the Group’s receivablesfrom customers.The Group has established credit policies under which each new customer is analysed individually forcreditworthiness before the Group’s standard payment and delivery terms and conditions are offered. TheGroup’s review includes external ratings when available, and in some cases bank references. Purchase limitsare established for each customer, which represent the maximum open amount that may be permitted in theday-to-day operations of the Group without requiring prior approval from a member of middle or seniormanagement. Customers that fail to meet the Group’s benchmark creditworthiness level may still transact withthe Group but on a restricted basis and generally only on a prepayment basis.In recent years, losses from impairment of the Group’s revenue have been minimal and this continuedduring the year ended 31 December 2007. Customers that are graded as high risk are placed on a restrictedcustomer list, and future sales are only made on a restricted basis. Customers are generally required to deposittwo months licence fee at the commencement of the licence as security for their receivables due to the Group.Exposure to credit riskThe Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Thedemographics of the Group’s customer base, including the general default risk in the sector in which the Groupoperates, has less of an influence on credit risk. Geographically there is a concentration of credit risk inLondon, where the Group has 30 serviced offices. Total turnover in London and the Greater London areatotalled £69.3 million for the year ended 31 December 2007.The carrying amount of financial assets represents their maximum credit exposure to the Group, which at31 December 2007 was as follows:-31 December 31 December2007 2006Note £’000 £’000Trade and other receivables 12 17,889 15,464Cash and cash equivalents 13 4,512 57622,401 16,040No customer of the Group comprised more than 4% of the carrying amount of Group trade receivables at31 December 2007 or at 31 December 2006. The ageing of trade receivables at 31 December 2007 wasas follows:-31 December 2007 31 December 2006Gross Impairment Gross Impairment£’000 £’000 £’000 £’0001-30 days overdue 666 – 1,946 –31-120 days overdue 1,236 (137) 1,158 –120+ days overdue 677 (677) 541 (486)2,579 (814) 3,645 (486)Based on historical default rates, the Board believes that no material amount of impairment allowance isnecessary in respect of trade receivables not past due or past due by up to 60 days; the majority of thebalance relates to customers that have good financial track records with the Group.


Notes to the Consolidated Financial Statements6416. FINANCIAL INSTRUMENTS (continued)Determination of fair valuesThe following tables show the carrying amounts and fair values of the Group’s financial instruments at 31December 2007 and at the previous year end. The carrying amounts are included in the Group Balance Sheet.The fair values of the financial instruments are the amounts at which the instruments could be exchanged in acurrent transaction between willing parties. The fair value of all other financial instruments is not materiallydifferent from the carrying amounts because they incur interest at variable rates. The fair values of otherfinancial instruments reflect the replacement values of the financial instruments used to manage the Group’sexposure to adverse interest rate movements.The carrying amounts of financial assets and liabilities, together with their fair values at 31 December 2007and at the previous year end, were as follows:-31 December 2007 31 December 2006Carrying Fair Carrying Fairamount value amount value£’000 £’000 £’000 £’000Trade and other receivables 17,889 17,889 15,464 15,464Cash and cash equivalents 4,512 4,512 576 576Secured bank loans (9,411) (9,500) – –Unsecured loans (491) (491) (917) (917)Trade and other payables excluding operatinglease incentives and deferred income (25,204) (25,204) (23,256) (23,256)(12,705) (12,794) (8,133) (8,133)Liquidity risk profileThe maturity profile of the Group’s financial liabilities, including interest payments is set out below:-Contractual cash flowsWithin Between Betweenone year or one and two and Carrying31 December 2007on demand two years five years Total amount£’000 £’000 £’000 £’000 £’000Non-derivative financial liabilitiesSecured bank loans – 9,500 – 9,500 9,411Other loan borrowings 491 – – 491 491Trade and other payables excluding operatinglease incentives and deferred income 25,204 – – 25,204 25,20425,695 9,500 – 35,195 35,106Contractual cash flowsWithin Between Betweenone year or one and two and Carrying31 December 2006on demand two years five years Total amount£’000 £’000 £’000 £’000 £’000Non-derivative financial liabilitiesOther loan borrowings 573 344 – 917 917Trade and other payables excluding operatinglease incentives and deferred income 23,256 – – 23,256 23,25623,829 344 – 24,173 24,173


Notes to the Consolidated Financial Statements6517. DEFERRED TAXATIONThe deferred taxation liability/(assets) at 31 December 2007 and at the previous year end arose as follows:-31 December 31 December2007 2006£’000 £’000ProvidedShort term timing differences – –Accelerated capital allowances – 512Trading tax losses – (512)Deferred tax liability at year end – –UnprovidedAccelerated capital allowances (147) –Trading tax losses (1,205) (1,990)Deferred tax assets at year end (1,352) (1,990)At 31 December 2007, after deducting deferred tax liabilities arising on capital expenditure, the Group hadgross accelerated capital allowances representing deferred tax assets of approximately £0.5 million (2006:deferred tax liability of £1.7 million). At the same date, it had trading losses carried forward in certain parts ofthe Group of approximately £4.3 million (2006: £8.5 million). These gross tax assets totalling £4.8 million (2006:£6.8 million) are reflected at the prevailing tax rate of 28% (2006: 30%) in the net unprovided deferred taxasset of £1.4 million (2006: £2 million) referred to above. Due to uncertainty as to the timing and use of any ofthe net deferred tax assets, particularly the trading losses which are restricted in their use, these tax assetshave not been recognised as an asset in the consolidated balance sheet at 31 December 2007 or at theprevious year end. No charges or credits were made in the Consolidated Income Statement in respect ofdeferred taxation during the periods referred to above.18. SHARE CAPITAL31 December 31 December2007 2006£’000 £’000Authorised equity share capital150 million ordinary shares of 0.1p each 150 150Allotted, called up and fully paid equity share capital69.1 million fully paid ordinary shares of 0.1p each 69 69Dividends on ordinary sharesHolders of ordinary shares are entitled to receive dividends per share as declared from time to time and areentitled to one vote per share at shareholder meetings of the Company.During the year ended 31 December 2007, the Company declared and paid a dividend of 1.79p perordinary share. This dividend was paid on 31 May 2007 to members on the register at the close of business on4 May 2007.


Notes to the Consolidated Financial Statements6618. SHARE CAPITAL (continued)Market purchases of ordinary sharesIt is intended that a resolution proposing an authority for the company to purchase 23,033,000 ordinary shareswill be considered at the 2008 Annual General Meeting. If passed, this resolution will provide authority to theCompany to make market purchases within the guidelines laid down by the Investment Committees of theInsurance and Pension Management Industries and by the UK Listing Authority, and will be available for useby the Company until the conclusion of the 2009 Annual General Meeting, which is expected to be held inMay 2009.Under the proposed authority, purchases could be made at a minimum price of 1p per share and amaximum price of 5% above the average middle market quotation for an ordinary share for the five dealingdays immediately prior to the date of purchase.Share optionsDetails of share options issued are set out in note 20 to the financial statements.Unissued share capitalAt 11 March 2008, being the date of approval of these financial statements, the authorised but unissued andunreserved ordinary share capital amounted to 78,038,593 shares. Of this amount 23,033,333 ordinary sharesare available for issue by the Company in accordance with the Company’s share option scheme, or generallyunder the authority granted by shareholders at the 2007 Annual General Meeting.19. CONSOLIDATED STATEMENT OF CHANGES IN EQUITYAttributable to equity holders of the companyShare Share Merger Retainedcapital premium reserve earnings Total£’000 £’000 £’000 £’000 £’000At 1 January 2007 69 35,459 38,831 (63,297) 11,062Profit for the year – – – 13,062 13,062Total recognised income and expense 69 35,459 38,831 (50,235) 24,124Dividends to equity shareholders – – – (1,237) (1,237)Share-based payments – – – 58 58At 31 December 2007 69 35,459 38,831 (51,414) 22,945At 1 January 2006 69 35,459 38,831 (70,982) 3,377Profit for the year – – – 7,626 7,626Total recognised income and expense 69 35,459 38,831 (63,356) 11,003Share-based payments – – – 59 59At 31 December 2006 69 35,459 38,831 (63,297) 11,062


Notes to the Consolidated Financial Statements6720. SHARE-BASED PAYMENTSIn December 2005 the Company established the MWB Business Exchange Plc Executive Share OptionScheme 2005 (‘the Option Scheme’) after shareholder approval. The Option Scheme enables the Board togrant options over shares to certain employees (excluding Directors) which are exercisable between three andten years after the date of grant. The exercise of options granted under the Option Scheme is subject to theachievement of certain performance criteria related to the growth in EBITDA.The table below summarises the options outstanding and their exercise price together with an analysisof the movements in the number of options during the year. No options were forfeited during the year.Weightedaverageexercise priceAtper share Numbers 31 DecemberDate of grant pence granted Lapsed 2007 Exercisable from Expiry date21 December 2005 89p 1,390,521 (174,175) 1,216,346 21 December 2008 21 December 201510 July 2007 172p 1,645,061 – 1,645,061 10 July 2010 10 July 2017134p 3,035,582 (174,175) 2,861,407The options over shares at the year end have been valued using the Black Scholes option-pricing model. Theinputs to the model were as follows:-Grant date21 December 10 July2005 2007Share price on grant date 80p 172pExercise price 89p 172pExpected volatility based on the historic volatility adjusted for anyabnormal movement in share prices. 20% 20%Option life 3 years 3 yearsRisk free interest rate 5% 5%Expected dividend – –


Notes to the Consolidated Financial Statements6821. RELATED PARTY BALANCES AND TRANSACTIONS31 December 31 December2007 2006£’000 £’000Current assetsTrade and other receivables (note 12)Amounts owed by subsidiaries of Marylebone Warwick Balfour Group Plc 2 –Current liabilitiesTrade and other payables (note 14)Amounts owed to subsidiaries of Marylebone Warwick Balfour Group Plc – 73During the year ended 31 December 2007, the Group incurred £1.7 million (2006: £1.5 million) of charges fromMarylebone Warwick Balfour Group Plc (MWB Group Plc) in respect of salary and accommodation costs inaccordance with the services agreement between the Company and MWB Group Plc dated 16 December 2005.The costs of such services are charged to the Company, proportionately to the relevant service provided. Thisagreement also provides for the Group to use office space at its head office under licence from MWB Group Plc.All costs charged to the Group in accordance with this agreement are recharged at cost and are calculated onan arm’s length basis. The amount due at the year end is included in amounts due to related parties at 31December 2007.22. COMMITMENTS AND GUARANTEESCapital commitments31 December 31 December2007 2006£’000 £’000Authorised but not contracted 651 –Contracted but not provided 438 4,6841,089 4,684Capital commitments will be financed from available cash and cash equivalents of £4.5 million (2006: £0.6 million)as shown in note 13 and undrawn bank facilities totalling £3.5 million (2006: £nil) as detailed in note 15.Operating lease commitmentsNon-cancellable operating lease rentals of the Group relate to land and buildings. These expire in yearssubsequent to 31 December 2007 and involve total payments in future years as follows:-31 December 31 December2007 2006£’000 £’000Within one year 37,339 30,758Between two and five years 144,826 114,095After more than five years 204,497 167,991386,662 312,844


Notes to the Consolidated Financial Statements6923. PARENT UNDERTAKINGThe ultimate parent undertaking is Marylebone Warwick Balfour Group Plc, a company registered in England andWales and listed on the London Stock Exchange. The financial statements of the Company are consolidated inthe financial statements of Marylebone Warwick Balfour Group Plc. The consolidated financial statements ofboth companies are available to the public and may be obtained from the Company Secretary of MaryleboneWarwick Balfour Group Plc, City Group P.L.C, 30 City Road, London EC1Y 2AG and the MWB BusinessExchange Plc Company Secretary, Filex Services Limited, 179 Great Portland Street, London W1W 5LS.24. EXPLANATION OF TRANSITION TO IFRSAs stated in note 1, these financial statements are the first audited consolidated financial statements of theGroup that have been presented under Adopted IFRS.The comparative figures for the financial year ended 31 December 2006 are not the Company’s statutoryfinancial statements for that financial year. Those financial statements, which were prepared under UK GAAP,have been reported on by the Company’s auditors and delivered to the registrar of companies. The report ofthe auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drewattention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section237(2) or (3) of the Companies Act 1985.The accounting policies in note 1 have been applied consistently in preparing the consolidated financialstatements for the year ended 31 December 2007, together with the comparative information for the yearended 31 December 2006 which are set out in this document. The same policies have also been applied in thepreparation of an opening IFRS balance sheet at 1 January 2006, the Group’s date of transition.In preparing the opening IFRS balance sheet and the comparative information for the year ended31 December 2006, the Board has adjusted amounts reported previously in its financial statements for theyears then ended which had been prepared in accordance with UK GAAP. An explanation of how the transitionfrom previous UK GAAP to IFRS has affected the Group’s reported financial position and its reported financialperformance is set out in the following tables and the notes that accompany these tables.The principal change arising from the adoption of IFRS on the results of the Group for the year ended31 December 2006, and the resultant effect on the results for the year ended 31 December 2007,is as follows:-• SIC 15 Operating Lease Incentives. Under UK GAAP, lease incentives are required to be amortised overthe period to the next rent review. Under SIC 15, these are required to be amortised over the noncancellableperiod of the lease. The effect of this has been to reduce the credit to the Income Statementrelating to the amortisation of lease incentives received in prior years, and to increase the resultingprovision carried in the Balance Sheet at 31 December 2006.The effect on equity attributable to shareholders of the Group at 31 December 2006 as a result ofadopting IFRS was as follows:-Pence£’000 per shareEquity attributable to shareholders under UK GAAP 17,503 25.3pSIC 15 – Lease incentives amortised over non-cancellable period of lease (6,441) (9.3p)Equity attributable to shareholders under Adopted IFRS 11,062 16.0p


Notes to the Consolidated Financial Statements7024. EXPLANATION OF TRANSITION TO IFRS (continued)Reconciliation of Consolidated Income Statement for the year ended31 December 2006Previously SIC 15reported Reclassification Operating Restatedunder of bank lease underUK GAAP charges incentives IFRSFor the year ended 31 December 2006 £’000 £’000 £’000 £’000Revenue 82,305 – – 82,305Cost of sales (73,766) 108 (147) (73,805)Gross profit 8,539 108 (147) 8,500Administrative expenses (997) (108) – (1,105)Results from operating activities 7,542 – (147) 7,395Net finance income 231 – – 231Profit before tax 7,773 – (147) 7,626Taxation – – – –Profit for the year 7,773 – (147) 7,626Basic profit per share – pence 11.2p – (0.2p) 11.0pDiluted profit per share – pence 11.2p – (0.2p) 11.0pIFRS adjustmentsSIC 15 – Lease incentives amortised over term of lease


Notes to the Consolidated Financial Statements7124. EXPLANATION OF TRANSITION TO IFRS (continued)Reconciliation of net assets and equity at 31 December 20061 January2006Previously Opening SIC 15reported balance Operating Restatedunder sheet lease underUK GAAP adjustment incentives IFRSAt 31 December 2006 £’000 £’000 £’000 £’000Non-current assetsOperational properties 24,257 – – 24,257Plant and equipment 7,194 – – 7,19431,451 – – 31,451Current assetsTrade and other receivables 13,878 1,586 – 15,464Cash and cash equivalents 2,162 (1,586) – 57616,040 – – 16,040Total assets 47,491 – – 47,491Current liabilitiesTrade and other payables (26,970) (257) (559) (27,786)Borrowings including finance leases (573) – – (573)(27,543) (257) (559) (28,359)Non-current liabilitiesLoans, borrowings, other payables and accruals (2,445) (6,037) 412 (8,070)Total liabilities (29,988) (6,294) (147) (36,429)Net assets 17,503 (6,294) (147) 11,062EquityShare capital 69 – – 69Share premium account 35,459 – – 35,459Merger reserve 38,831 – – 38,831Retained earnings (56,856) (6,294) (147) (63,297)Total equity 17,503 (6,294) (147) 11,062


Notes to the Consolidated Financial Statements7224. EXPLANATION OF TRANSITION TO IFRS (continued)Reconciliation of net assets and equity – opening balance sheet at 1 January 2006Previously SIC 15reported Operating Restatedunder lease underUK GAAP incentives IFRSAt 1 January 2006 £’000 £’000 £’000Non-current assetsOperational properties 15,941 – 15,941Plant and equipment 1,921 – 1,92117,862 – 17,862Current assetsTrade and other receivables 9,472 – 9,472Cash and cash equivalents 14,054 – 14,05423,526 – 23,526Total assets 41,388 – 41,388Current liabilitiesTrade and other payables (24,129) (257) (24,386)Borrowings including finance leases (6,591) – (6,591)(30,720) (257) (30,977)Non-current liabilitiesLoans, borrowings, other payables and accruals (997) (6,037) (7,034)Total liabilities (31,717) (6,294) (38,011)Net assets 9,671 (6,294) 3,377EquityCalled up share capital 69 – 69Share premium account 35,459 – 35,459Merger reserve 38,831 – 38,831Retained earnings (64,688) (6,294) (70,982)Total equity 9,671 (6,294) 3,377


Parent Company Balance Sheetat 31 December 20077331 December 31 December2007 2006Notes £’000 £’000Fixed assetsInvestment in subsidiary undertakings 27 18,898 18,898Current assetsDebtors 28 29,461 20,851Cash 1,317 1,581Net current assets 30,778 22,432Net assets 49,676 41,330Capital and reservesCalled up share capital 69 69Share premium 29 35,459 35,459Profit and loss account 29 14,148 5,802Equity shareholders’ funds 30 49,676 41,330The notes on pages 74 to 76 form part of these financial statements. Approved by the Board of Directors on11 March 2008 and signed on its behalf by:-John SpencerChief ExecutiveKeval PankhaniaFinance Director


Notes to the Parent Company Financial Statements7425. ACCOUNTING POLICIESThe following accounting policies have been applied consistently in dealing with items which are consideredmaterial in relation to the financial statements.Basis of preparationThe financial statements have been prepared in accordance with applicable accounting standards (UK GAAP),and under the historical cost accounting rules.Under section 230(4) of the Companies Act 1985, the Company is exempt from the requirement to presentits own profit and loss account.Under Financial Reporting Standard 1, the Company is exempt from the requirement to prepare a cashflow statement on the grounds that the consolidated cash flow statement included in these published financialstatements includes the cash flow of the Company.The Company has taken advantage of the exemption contained in Financial Reporting Standard 8 and hastherefore not disclosed transactions or balances with entities which form part of the Group (or investees of thegroup qualifying as related parties).Investment in subsidiary undertakingsThe interest of the Company in the shares of subsidiary undertakings is stated at cost less any provisionfor impairment.The carrying values of fixed asset investments are reviewed for impairment in periods if events or changesin circumstances indicate the carrying value may not be recoverable. An impairment is recognised bycomparing the carrying amount to the higher of the recoverable amount and value in use.26. DIRECTORS AND EMPLOYEESYear ended Year ended31 December 31 December2007 2006£’000 £’000Remuneration of Executives 1,085 1,036Fees of Non-Executive Directors 30 45Benefits in kind and round sum expense allowances 37 44Pension contributions 29 261,181 1,151The Company has no employees other than the six Directors (2006: six Directors), whose emoluments aredisclosed above.27. INVESTMENT IN SUBSIDIARY UNDERTAKINGS31 December 31 December2007 2006£’000 £’000Investment in subsidiary undertakings 18,898 18,898


Notes to the Parent Company Financial Statements7527. INVESTMENT IN SUBSIDIARY UNDERTAKINGS (continued)The Company is a holding company. The results of all subsidiaries of the Company have been included in theconsolidated financial statements. The subsidiaries of the Company set out below are wholly owned, registeredin England and Wales and are incorporated and operate in the United Kingdom. A full list of subsidiaries will beincluded with the Company’s Annual Return. The material subsidiaries of the Company at the year end, both ofwhich are engaged in the operation of serviced offices or related activities, or act as intermediary holdingcompanies for such operations, were as follows:-Immediate holdingName of undertaking Classes of issued share capital held by the Group company in the GroupMWB Business Exchange 1 ordinary share of £1 MWB Business Exchange PlcCentres LimitedMWB Business Exchange 18,312,090 New First A preference shares MWB Business Exchange PlcUK Limitedof 0.001p each4,250,000 New First B preference sharesof 0.001p each12,000,000 New First C preference sharesof 0.001p each1,250 New Third preference sharesof 0.001p each9,737,910 New Fourth preference sharesof 0.001p each1 2005 A preference share of £13,000,000 First C preference sharesof £1 each6,300,000 2005 preference sharesof £1 each1,250 ordinary shares of £1 each28. DEBTORS31 December 31 December2007 2006£’000 £’000Amounts due from subsidiary companies 29,461 20,846Other debtors – 529,461 20,851


Notes to the Parent Company Financial Statements7629. MOVEMENT ON RESERVESShareProfitPremium and lossaccount account£’000 £’000At 1 January 2007 35,459 5,802Profit for the year – 9,583Dividends paid – (1,237)At 31 December 2007 35,459 14,14830. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS’ FUNDSYear ended Year ended31 December 31 December2007 2006£’000 £’000Profit for the year 9,583 5,788Dividends paid (1,237) –Net increase in shareholders’ funds 8,346 5,788Opening equity shareholders’ funds 41,330 35,542Closing equity shareholders’ funds 49,676 41,330


Group Business Centresat 31 December 200777Contact details for all Business Centres operated by the Group:-Telephone: freephone 0808 100 1800Web: www.mwbex.comNumber ofLeased properties Location workstations43 Temple Row Birmingham B2 5LS 275Atrium Court, The Ring Bracknell RG12 1BW 358Highview House, Charles Square Bracknell RG12 1DF 223Lower Castle Street Bristol BS1 3AG 276Wellington House, East Road Cambridge CB1 1BH 1739-10 St. Andrew Square Edinburgh EH2 2AF 352Westpoint, 4 Redheughs Rigg, South Gyle Edinburgh EH12 9DQ 2611 Farnham Road Guildford GU2 4RG 290Vantage House, 21-23 Wellington Street Leeds LS1 4DE 3701 Whitehall, Whitehall Road Leeds LS1 4HR 411Liverpool Street, 55 Old Broad Street London EC2M 1RX 41052-54 Leadenhall Street London EC3A 2BJ 215107-111 Fleet Street London EC4A 2AB 39760 Cannon Street London EC4N 6JP 3396 Hays Lane London SE1 2QG 25510 Greycoat Place London SW1P 1SB 578Basil Street London SW3 1AH 401Lasenby House, 32 Kingly Street London W1B 5QQ 260Liberty House, 222 Regent Street London W1B 5TR 29777 Oxford Street London W1D 2ES 29718 Soho Square London W1D 3QL 27833 Cavendish Square London W1G 0PW 306Marble Arch Tower, 55 Bryanston Street London W1H 7AJ 2131 Berkeley Street London W1J 8DJ 35685 Tottenham Court Road London W1T 4DU 36183 Baker Street London W1U 6LA 34726-28 Hammersmith Grove London W6 7BA 5051a Hammersmith Broadway London W6 9DL 32288 Kingsway London WC2B 6AA 339Amadeus House, Floral Street London WC2E 9DP 26953-59 Chandos Place London WC2N 4HS 211Golden Cross House, 8 Duncannon Street London WC2N 4JF 502Siena Court, The Broadway Maidenhead SL6 1NJ 176Trident One, Styal Road Manchester M22 5XB 325Exchange House, 494 Midsummer Boulevard Milton Keynes MK9 2EA 249Beckett House, 14 Billing Road Northampton NN1 5AW 5115 Wheeler Gate Nottingham NG1 2NA 118John Eccles House, Robert Robinson Avenue, Oxford Science Park Oxford OX4 4GP 124Atlantic House, Imperial Way Reading RG2 0TD 360Parkshot House, 5 Kew Road Richmond TW9 2PR 412Centurion House, London Road Staines TW18 4AX 18641 centres at 31 December 2007 12,448


Group Business Centresat 31 December 200778Number ofOperating and Management Agreements Location workstationsTower Point 44, North Road Brighton BN1 1YR 350Europa House, Barcroft Street Bury BL9 5BT 269Temple Court, Cathedral Road Cardiff CF11 9HA 164Castle Court, Cathedral Road Cardiff CF11 9LJ 92Silk House Court, Tithebarn Street Liverpool L2 2LZ 114Level 33, 25 Canada Square, Canary Wharf London E14 5LB 2561 Sekforde Street, Clerkenwell London EC1R 0BE 213London Wall City Business Centre 2 London Wall Buildings London EC2M 5UU 153City Tower, 40 Basinghall Street London EC2V 5DE 2212 Finch Lane London EC3V 3NA 71118 Piccadilly, Mayfair London W1J 7NW 102Pall Mall Court, King Street Manchester M2 4PD 241Cuthbert House, City Road, All Saints Newcastle-upon-Tyne NE1 2ET 189Quorum Business Park, Benton Lane Newcastle-upon-Tyne NE12 8BX 385Watson Chambers, Market Place Sheffield S1 2GH 101Provincial House, Solly Lane Sheffield S1 4BB 19816 centres at 31 December 2007 3,119Total57 centres at 31 December 2007 15,567


Notice of Annual General Meeting79NOTICE IS HEREBY GIVEN that the 2008 Annual General Meeting of MWB Business Exchange Plc will be held at11.00am on 1 May 2008 at the Company’s Head Office, 1 West Garden Place, Kendal Street, London W2 2AQ, forthe following purposes:-As Ordinary business, to consider and, if thought fit, pass the following Resolutions which will be proposed asOrdinary Resolutions:-1. To adopt the financial statements of the Company for the year ended 31 December 2007, together with theReport of the Directors and the Independent Auditors Report.2. To adopt the Report on Remuneration of Directors for the year ended 31 December 2007.3. To declare a final dividend of 1.93p per ordinary for the year ended 31 December 2007 payable on 30 May 2008to shareholders who were on the register on 9 May 2008.4. To re-elect as a Director Jag Singh, who retires by rotation in accordance with the Company’s Articlesof Association.5. To re-elect as a Director Gary Spellins, who retires by rotation in accordance with the Company’s Articlesof Association.6. To re-appoint KPMG Audit Plc to hold office as auditors of the Company until the conclusion of the next AnnualGeneral Meeting at which financial statements for the Company are presented and to authorise the Directors toagree their remunerationAs Special Business, to consider and, if thought fit, pass the following Resolutions which will be proposed asSpecial Resolutions:-7. That the Directors be and they are hereby generally and unconditionally authorised to exercise all powers of theCompany to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985), as reservedfor issue under the Company’s share option scheme and up to an aggregate nominal amount of £23,033PROVIDED THAT this authority shall expire on the date of the next Annual General Meeting of the Company afterthe passing of this Resolution or in any event on 1 August 2009 unless such authority is renewed, varied orrevoked prior to such time, save that the Company may before such expiry make an offer or agreement whichwould or might require relevant securities to be allotted after such expiry and the Directors may allot relevantsecurities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired;8. That the Directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allotequity securities (within the meaning of Section 94 of the said Act) for cash as if Section 89 (1) of the said Act didnot apply to any such allotment PROVIDED THAT this power shall be limited to:-(i)the allotment of equity securities in connection with a rights issue in favour of holders of ordinary shares prorata to their then existing shareholdings; and(ii) the allotment of equity securities up to an aggregate nominal value of £3,455.and shall expire on the date of the next Annual General Meeting of the Company after the passing of thisResolution or in any event on 1 August 2009 unless such authority is renewed, varied or revoked prior to suchtime, save that the Company may before such expiry make an offer or agreement which would or might requireequity securities to be allotted after such expiry in pursuance of such an offer or agreement and the Directorsmay allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby hadnot expired.


Notice of Annual General Meeting80(a)(b)(c)the maximum number of Ordinary Shares hereby authorised to be purchased is 7,117,300 representingapproximately 10.3% of the issued ordinary share capital of the Company at the date of the meeting;the minimum price which may be paid for an Ordinary Share is 1p, exclusive of all expenses;the maximum price which may be paid for an Ordinary Share is an amount, exclusive of all expenses, equalto 105% of the average of the middle market quotations of Ordinary Shares as derived from the Daily OfficialList of the London Stock Exchange for each of the five business days immediately preceding the day onwhich the Ordinary Share is contracted to be purchased;(d)the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of theCompany after the passing of this resolution or in any event on 1 August 2009 unless such authority isrenewed, varied or revoked prior to such time; and(e)the Company may validly make a contract to purchase Ordinary Shares under the authority hereby conferredprior to expiry of such authority which will or may be executed wholly or partly after expiry of such authority,and may validly make a purchase of Ordinary Shares in pursuance of any such contract.By Order of the BoardFilex Services LimitedRegistered OfficeSecretary179 Great Portland Street8 April 2008 London W1W 5LS9. That the Company be and is hereby generally and unconditionally authorised to make market purchases (withinthe meaning of section 163(3) of the Companies Act 1985) of ordinary shares of 0.1p each in the capital of theCompany (‘Ordinary Shares’) provided that:-Notes:-(i) Pursuant to Regulation 34 of the Uncertificated Securities Regulations 1995, shareholders included in the registerof members of the Company 48 hours before the time proposed for the start of the meeting will be entitled toattend and vote at the Annual General Meeting in respect of the number of shares registered in their name atthat time. Changes to the register of members after that time will be disregarded in determining the rights of anyperson to attend or vote at that meeting.(ii) A Member entitled to attend and vote at the Meeting convened by this Notice is entitled to appoint one or moreproxies to attend and, on a poll, to vote in his or her stead. A proxy need not be a Member of the Company. Theappointment of a proxy will not preclude a Member from being present at the Meeting and voting in person if heor she should subsequently decide to do so.(iii) To be valid, the enclosed form of proxy must be lodged with the Company’s Registrars, Capita Registrars, notlater than 48 hours before the time appointed for the holding of the Meeting.(iv) The following documents will be available for inspection at the Company’s registered office, 179 Great PortlandStreet, London W1W 5LS during normal business hours on any weekday (Saturdays and Public Holidays excepted)from the date of this Notice until the date of the Annual General Meeting and at the place of the Annual GeneralMeeting for 15 minutes prior to, during and 15 minutes after the Meeting:-(a) the Register of Directors’ Interests in the ordinary shares of the Company kept in accordance with Section325 of the Companies Act 1985; and(b) copies of service contracts of the Executive Directors of the Company and letters of appointment of theNon-Executive Directors; and(c) the terms of reference of the Audit Committee, the Remuneration Committee and the Nomination Committeeof the Board; and(d) the rules of the Company’s Share Option Scheme; and(e) the rules of the Long Term Incentive Scheme of the Company.


“The Company’s strategy of sustainable growth across itsfour main areas of activity – Business Exchange, City ExecutiveCentres, Meeting Rooms and Partnerships – is consistentand well established.”Designed and produced by MAGEEwww.magee.co.ukPrinted by PUSH


MWB Business Exchange Plc1 West Garden PlaceKendal StreetLondon W2 2AQTelephone: 020 7479 9300Business Centres: 0808 100 1800www.mwbex.com

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