Financial Statements

Notes to the Consolidated Financial Statementsfor the year to 31 December 2008

5. Net operating expenses and profit on ordinary activities before finance costs

Net operating expenses, continuing operations:
2008
£m
2007
(restated)
£m
Administration expenses 269.0 270.7
Net other income (25.8) (7.2)
Exceptional items 871.7 90.0
1,114.9 353.5

Net other income includes profits on the sale of property, plant and equipment and broker fees from mortgage origination services.

Exceptional items, continuing operations: 2008
£m
2007
£m
Land and work in progress write downs 1,012.8 289.7
Goodwill impairment 699.8
Other intangible impairments 116.3 30.0
Restructuring costs 35.1 60.0
Refinancing costs 20.5
Exceptional items 1,884.5 379.7

Net land and work in progress write downs of £1,012.8m (2007: £289.7m) were required to reduce the carrying value of some of the Group's inventory to the lower of cost and net realisable value, reflecting the deterioration in market conditions first experienced in the US housing market in 2007 and in the UK and European housing markets in 2008, resulting in lower pricing required to maintain satisfactory sales rates in the UK, US and European markets.

Goodwill of £699.8m (2007: nil) and other intangible assets of £116.3m (2007: £30m) were fully impaired in 2008 following a detailed impairment review – further detail on the impairment is set out in note 13.

Restructuring costs of £35.1m (2007: £60m) arose on further restructuring of the UK housing business in response to the deteriorating market conditions during 2008 following on from the post-merger reorganisation of the business in 2007. The costs incurred in both years include redundancy costs and costs incurred in relocating certain functions and operations. A provision for restructuring of £22.1m (2007: £33.6m) remains in the balance sheet at 31 December 2008 – see note 25.

Refinancing costs of £20.5m (2007: nil) were costs incurred in relation to the proposed equity raising in the first half of 2008 and in relation to the refinancing of the Group's debt. Further refinancing costs will be incurred in 2009 on the signing of the new debt agreements.

Profit on ordinary activities before financing costs for continuing operations has been arrived at after charging/(crediting): 2008
£m
2007
(restated)
£m
Cost of inventories recognised as expense in cost of sales, before write downs of inventories 2,946.9 3,285.8
Write-downs of inventories 1,071.8 289.7
Reversal of specific write downs of inventories (59.0)
Depreciation – plant and equipment 7.5 7.0
Amortisation – intangibles* 123.0 35.7
Minimum lease payments under operating leases recognised in income for the year 8.8 5.1

* The amortisation of intangibles in 2008 includes the impairments of the George Wimpey brand of £103.9m and of software development costs of £12.4m (2007: impairment losses of £30.0m on the Laing and Morrison Homes brands).

The remuneration paid to Deloitte LLP, the Group’s external auditors, is as follows: 2008
£m
2007
£m
Fees payable to the Company’s auditors for the audit of the Company’s annual accounts and consolidated financial statements 0.2 0.3
The audit of the Company’s subsidiaries pursuant to legislation 0.6 0.7
Total audit fees 0.8 1.0
Other services pursuant to legislation 0.1 0.1
Tax services 0.3 0.3
Corporate finance services 2.2 0.7
Other services 0.6 0.1
Total non-audit fees 3.2 1.2
Total fees 4.0 2.2

Non-audit services in 2008 predominantly relate to work required as a result of Deloitte LLP’s role as auditors, or work resultant from knowledge and experience gained as part of the role. Corporate finance services include necessary work related to the Group’s proposed equity raising and subsequent advice and support with bank renegotiations. It also includes work performed in connection with the disposal of the construction business. Their work was either the subject of a competitive tender or was best performed by the Group’s auditors because of their knowledge of the Group. Tax services include tax compliance work for certain subsidiaries, as well as advice in connection with a restructuring of the Group. Other services include advice in respect of the Group’s forecasting and cash management procedures. See Corporate Governance Report page of this report for details of the Group’s policies in respect of non-audit services and approval by the Audit Committee.