At 28th February 2015, the Group held interest rate swaps, caps and collars designated as economic hedges and not qualifying as effective hedges under IAS 39. The derivatives are used to mitigate the Group's interest rate exposure to variable rate loans of GBP63,148,000 (2014: GBP59,230,000). The fair value of the derivatives amounting to GBP189,000 and GBP438,000 are recorded as financial assets and liabilities respectively at 28th February 2015 (2014: GBP23,000 asset and GBP474,000 liability) with the fair value loss taken to finance costs.

At 28th February 2014, the Group held one cross-currency interest rate swap designated as a hedge of expected future cash flows arising from EUR47,000,000 variable rate loan notes issued in September 2007. This cash flow hedge was cancelled in March 2014 following the renegotiation of the loan notes. On cancellation of the hedging arrangements, the Group incurred a foreign currency translation loss of GBP6,012,000, and paid a termination fee of GBP1,035,000. The Group was also required to write off transaction costs of GBP870,000. The total of GBP7,917,000 is shown as an exceptional item in the Consolidated income statement. The unwinding of the hedging arrangements also generated a corresponding credit to Other comprehensive income of GBP7,647,000.

   12   Note to the cash flow statement 

Reconciliation of profit before income tax to net cash outflow from operating activities:

 
                                                                               2015      2014 
                                                                            GBP'000   GBP'000 
=========================================================================  ========  ======== 
Profit before income tax                                                     34,757    19,527 
Adjustments for: 
Gain on disposal of investment properties                                   (3,843)     (539) 
Gain on revaluation of property portfolio                                   (7,824)   (3,109) 
Other income                                                                  (175)     (471) 
Share of post-tax profits of joint ventures and associates                  (2,875)  (12,834) 
Loss from sale of investment                                                     86       250 
Profit from sale of joint venture                                             (521)         - 
Loss/(profit) on sale of other plant and equipment                               20      (34) 
Finance income                                                              (7,914)   (2,552) 
Finance cost                                                                 12,751    13,532 
Exceptional item: Acquisition costs associated with business combination      2,724         - 
Exceptional item: Termination of cross currency interest rate swap            7,917         - 
Depreciation of property, plant and equipment                                   875       768 
Amortisation of goodwill                                                        238         - 
=========================================================================  ========  ======== 
Operating cash flows before movements in working capital                     36,216    14,538 
Decrease/(increase) in development and trading properties                    37,951  (38,930) 
Increase in receivables                                                    (10,137)  (16,018) 
Increase in payables                                                         16,575     7,911 
Decrease in provisions                                                        (450)      (28) 
=========================================================================  ========  ======== 
Cash flows generated from/(used in) operating activities                     80,155  (32,527) 
=========================================================================  ========  ======== 
 
   13   Contingent liabilities 

In the normal course of its development activity, the Group is required to guarantee performance bonds provided by banks in respect of certain obligations of Group companies. At 28th February 2015, such guarantees amounted to GBP10,129,000 (2014: GBP4,708,000).

The Group has provided guarantees for rent liabilities in respect of properties previously occupied by Group companies. In the event that the current tenants ceased to pay rent, the Group would be liable to cover any shortfall until the building could be re-let. The Group has made provision against crystallised liabilities in this regard. In respect of potential liabilities where no provision has been made, the annual rent-roll of the buildings benefiting from such guarantees is GBP279,000 (2014: GBP279,000) with an average unexpired lease period of 3.1 years (2014: 4.1 years).

The Group has guaranteed its 50.0 per cent share of the capital and interest payable by Curzon Park Limited, a joint venture, in respect of the company's borrowings of GBP4,110,000 (refer note 11(a)).

The Group has guaranteed its share of interest up to a maximum of GBP575,000 in respect of the GBP26,000,000 loan in Notting Hill (Guernsey Holdco) Limited.

14 Business combinations

On 19th May 2014, the Group acquired 100 per cent of the issued shares in Cathedral Group (Holdings) Limited, Cathedral Special Projects (Holdings) Limited and Cathedral (ESCO) Limited and 95.0 percent of the shares issued in Deadhare Limited (Cathedral Group), a property development group specialising in mixed-use regeneration schemes in the South East.

As at 28th February 2014, the balance sheet value of the Group's interest in the Cathedral Group was GBP13,765,000, analysed as Investment in joint venture GBP9,332,000 and Available-for-sale financial assets of GBP4,433,000.

Details of the purchase consideration, the identifiable net assets acquired and goodwill are as follows:

 
                                                 GBP'000 
===============================================  ======= 
Purchase consideration 
- Cash paid                                       11,005 
- Shares                                           6,013 
- Contingent consideration                         2,500 
- Deferred consideration                           3,373 
===============================================  ======= 
Total consideration transferred                   22,891 
Fair value of equity interest in joint venture    10,345 
Fair value of interest in financial asset          4,778 
===============================================  ======= 
Total consideration                               38,014 
===============================================  ======= 
 

Recognised amounts of identifiable assets acquired and liabilities assumed:

 
                                                  Provisional 
                                                   fair value 
                                                      GBP'000 
================================================  =========== 
Cash and cash equivalents                               4,080 
Monies held in restricted accounts and deposits         6,529 
Inventory - development and trading properties         64,969 
Interest in joint ventures                              3,959 
Trade and other receivables                             1,585 
Trade and other payables                             (21,323) 
Borrowings                                           (20,687) 
Net deferred tax liabilities                          (3,131) 
================================================  =========== 
Total identifiable assets acquired                     35,981 
Non-controlling interest                                 (26) 
Goodwill                                                2,059 
================================================  =========== 
Total consideration                                    38,014 
================================================  =========== 
 

The goodwill of GBP2,059,000 is attributable to Cathedral Group Holdings Limited's expertise and reputation and expected future profits of development projects that were acquired. None of the goodwill is expected to be deductible for tax purposes.

Acquisition-related costs of GBP2,724,000 have been charged to exceptional items in the Consolidated income statement for the year ended 28th February 2015.

The fair value adjustments in respect of inventory relate to specific projects that have been independently valued at the date of acquisition. The fair value has been adjusted for project specific risks and uncertainties that may impact the profit level. These adjustments are provisional and are based on management's best estimates.

The contingent consideration requirement requires the Group to pay the former owners of Cathedral Group Holdings Limited GBP2,500,000 on securing a named development scheme. The contingent consideration was paid in full in July 2014.

A further GBP4,000,000 deferred consideration is payable on completion of the Morden Wharf and Preston Barracks developments should the performance of these schemes significantly exceed the Board's expectations and overall returns from Cathedral schemes surpass pre- determined levels. No provision has currently been made for this consideration. The Board will continue to monitor the Cathedral schemes.

GBP1,187,000 of consideration has been deferred for one year and GBP2,186,000 for two years. No performance conditions are associated with payment of this consideration

The acquired business contributed revenues of GBP31,032,000 and a net profit of GBP3,551,000 to the Group for the period from 19th May 2014 to 28th February 2015. If the acquisition had occurred on 1st March 2014, consolidated revenue and consolidated loss for the year ended 28th February 2015 would have been GBP33,667,000 and GBP1,205,000 respectively.

15 Projects in partnership

The following is a summary of the Group's projects in partnership and the Balance Sheet classification of