Daejan Holdings PLC Report & Financial Statements 2005 Daejan Holdings PLC Report & Financial Statements 2005 Summary of Results Year ended 31 March 2004 »000 2005 »000 31,269 21,904 133.8p 61.0p 30,442 22,920 140.6p 58.0p »35.12 »30.96 Pro¢t before Taxation Pro¢t after Taxation Earnings per Share Dividends per Share Equity Shareholders’ Funds per Share (based on Balance Sheet values) Final Dividend of 36p per share payable on 1 November 2005 to shareholders on the register on 7 October 2005 Summary of Results Some of our Properties Chairman’s Statement Directors’ Report Directors’ Remuneration Report Corporate Governance Directors’ Responsibilities Independent Auditors’ Report Consolidated Pro¢t & Loss Account Consolidated Balance Sheet Company Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Total Recognised Gains & Losses Reconciliation of Movements in Consolidated Shareholders’ Funds Notes to the Financial Statements Report of the UK Valuers Five-Year Record Directors & Advisers Notice of Meeting Contents Page 1 2 4 7 11 13 18 19 21 22 23 24 25 26 27 41 42 43 44 Page 1 Daejan Holdings PLC Report & Financial Statements 2005 Some of our Properties Right: Oslo Court Regents Park London NW8 Below : Grove Hall Court St John’s Wood London NW8 Above: Sainsbury’s, Watford, Hertfordshire Right: Cadogan Square, Glasgow Page 2 Daejan Holdings PLC Report & Financial Statements 2005 Left: Burnham Court London W2 Far left: Vincent Court Hendon London NW4 Above: Park West Marble Arch London W2 Left: National Farmers’ Union building Shaftesbury Avenue London WC2 Far Left: Somer¢eld Supermarket Oakham Rutland Page 3 Daejan Holdings PLC Report & Financial Statements 2005 Chairman’s Statement I am pleased to present the Report and Accounts for the year ended 31 March 2005, a year which has seen good growth in net assets per share and continuation of the steady progress that has been our hallmark for many years. The revaluation of our investment properties at »660 million represents an uplift of some 9.5%, a signi¢cantly higher rate than we have experienced in recent years (2004 ^ 4.4%). The table below shows how our various holdings contributed to the year’s investment property valuation surplus: Commercial Property UK USA Residential Property UK USA Total Valuation March 2005 Percentage Change »470m »23m »121m »46m »660m +8.3% NIL +4.3% +45.8% +9.5% Within our UK commercial investment portfolio, it has been our properties in London with an uplift of 11% (2004 ^ 5%) that have seen the highest rate of growth in 2005. Last year I reported on the acquisition of an apartment complex at Fort Lauderdale, Florida. As planned, we have refurbished the complex and it has been substantially re-let during the year at enhanced rentals. This has resulted in an independent professional revaluation as at 31 March 2005 of $51.4 million, an uplift of 84%. Originally acquired for trading, this property will now be retained for the longer term and accordingly has been reclassi¢ed as an investment property. So far Above & right : 30 Kensington Church Street London W8 Page 4 Daejan Holdings PLC Report & Financial Statements 2005 as our USA commercial properties are concerned, whilst uplift, we retain con¢dence in their long term growth potential. there has been no overall revaluation We continue to expand our investment in the USA and in March we were able to complete the acquisition of a residential property in New Jersey for $32 million. Following this acquisition our US portfolio of investment and trading properties at 31 March 2005 stood at a combined value of $245 million (2004 ^ $170 million). Whilst our Pro¢t before Tax at »31.3 million represents a modest increase on last year (2004 ^ »30.4 million), a rise in the effective rate of taxation to 30% (2004 ^ 25%) results in a Pro¢t after Tax of »21.9 million which is a reduction of some 4% on last year (2004 ^ »22.9 million). Rents and service charges receivable increased in both the UK and USA but whereas costs in the UK decreased slightly, thanks mainly to a reduction in repair expenditure, our US costs increased as a consequence of the refurbishment expenditure on our Fort Lauderdale property as mentioned above. The overall result was a reduction of »0.6 million in the Net Rental Income (2004 ^ »0.6 million reduction). We remain committed to a substantial programme of repairs and refurbishment with »19.5 million (2004 ^ »21 million) being spent during the year of which »11 million (2004 ^ »12 million) is recoverable from lessees via service charges. During the year projects totalling a further »15 million (2004 ^ »17 million) were approved for works to be carried out over several accounting periods. These works are necessary both to maintain the quality of our properties and to enhance future income. Although still not buoyant, our UK letting activity for both the commercial and residential portfolios is encouraging with a reduction in the level of vacancies. Since the year end we have concluded a long outstanding rent review for the Strand Palace Hotel and the cumulative uplift totalling »3.5 million, will be included in the accounts for the current year. Above & far left: Freshwater House Shaftesbury Avenue London WC2 Left: Wales Square St Faiths Lane Norwich Norfolk Page 5 Daejan Holdings PLC Report & Financial Statements 2005 Chairman’s Statement (continued) Investment property sales at »18.7 million were signi¢cantly higher than last year (2004 ^ »2.7 million). This increase was attributable to the sale to Tesco of a development site at Fulham Wharf, London. As ever, our principal focus remains the enhancement of the quality of the portfolio so as to deliver sustainable rental income and capital growth for the future; with this in mind, we completed the strategic acquisition of an of¢ce block adjacent to our Head Of¢ce in Shaftesbury Avenue. The strength of the Group and our con¢dence in the future enables your Board to recommend an increase in the total dividend for the year from 58p to 61p; an increase of 5%. During the year the interim dividend was increased by 3p to 25p in order to narrow the gap between the two payments. The ¢nal dividend payable in November will be 36p per share (subject to shareholder approval). Your Board will continue with its policy of increasing dividend levels prudently in line with the Group’s continuing progress. At 31 March 2005 equity shareholders’ funds, as shown in the balance sheet, stood at »572 million (2004 ^ »505 million) an increase of 13% in the year, after allowing for the proposed ¢nal dividend. When those items not included in the balance sheet are taken into account the adjusted net assets per share* at the year end were »38.50 (2004 ^ »34.59) an increase of 11%. The Group has for many years operated in a conservative manner with a carefully balanced approach to risk; this attitude has provided the foundation for the Group’s enduring ¢nancial strength. Gearing continues to be low, 21% at the year end (2004 ^ 22%) with cash and undrawn facilities available of »138 million (2004 ^ »126 million). These liquid resources mean that we are well placed to take advantage of investment opportunities as they become available. This is the last time that our accounts will be presented in this format as next year we will be required to adopt the new International Financial Reporting Standards which will signi¢cantly affect the presentation and content of the ¢nancial information disclosed. In particular, the inclusion of revaluation adjustments in the pro¢t and loss account will produce greater volatility in our reported results. We will however endeavour to ensure clarity in our ¢nancial reporting and do whatever we can to explain to shareholders the impact of the new Standards on the Group’s accounts. The Company’s Memorandum and Articles of Association have not been signi¢cantly updated for over 30 years and so we have taken the opportunity this year to bring them into line with current good practice. It is pleasing to note that the re-rating in the market price of our shares that I referred to in last year’s report has been sustained throughout the period. Looking forward, the economic outlook is uncertain with sectors such as retail and industrial under particular pressure. Investor enthusiasm for commercial property has driven yields to their lowest levels for many years. The market is experiencing the divergent trend of an active property investment market combined with less than buoyant tenant demand. However, our traditional approach and the broad spread of our property portfolio should enable us to continue the growth in asset value. On behalf of all shareholders, I would staff like to express whose effort are major factors in delivering the success which we continue to enjoy. to our and commitment thanks B.S.E. FRESHWATER Chairman Above: Grove Hall Court London NW8 Below right : 1 & 2 Cadogan Square Glasgow * The basis of the calculation of adjusted net asset value is set out in the Directors’ Report on Page 7. Page 6 Daejan Holdings PLC Report & Financial Statements 2005 Directors’ Report The Directors have pleasure in presenting their Report together with the Financial Statements for the year to 31 March 2005. Principal Activities of the Group Daejan Holdings PLC is a holding company whose principal activities, carried on through its subsidiary undertakings, are property investment and trading, with some development also being undertaken. The major part of the Group’s property portfolio comprises commercial, industrial and residential premises throughout the United Kingdom. Some subsidiary undertakings are incorporated in the United States of America and carry out property investment and trading in that country. Properties A professional revaluation of all the Group’s United Kingdom investment properties was carried out at 31 March 2005 by the Group’s external valuers, Cardales, Chartered Surveyors, and a copy of their report appears on page 41. The resultant ¢gures have been included in the Financial Statements now presented and the increase of »43.1 million over previous book values has been transferred to Revaluation Reserve. The Group’s trading portfolio in the UK was professionally valued at 31 March 2002 by the Group’s external valuers, Cardales, and showed a surplus over book value of »148.5 million which has not been incorporated into the Financial Statements. The Group’s United States investment properties were also professionally valued at 31 March 2005 by KTR Newmark, Meredith & Grew and Joseph J. Blake and Associates, Inc. US General Certi¢ed Appraisers and the increase of »14.4 million over previous book values has been transferred to Revaluation Reserve. This revaluation surplus includes »12.4 million which arose following the reclassi¢cation as a Fixed Asset of a property previously held for trading. The Group’s United States trading properties were professionally valued at 31 March 2002 and produced a surplus over cost of »26.2 million which has not been incorporated into the Financial Statements. Net Asset Values Equity shareholders’ funds per share based on balance sheet values are »35.12 (2004 ^ »30.96). Adjusted Net Asset Value per share of »38.50 (2004 ^ »34.59) representing equity shareholders’ funds with the trading stock based on a professional valuation as at 31 March 2002 (as adjusted for sales since that date) but after full allowance is made for tax (at applicable UK and US rates) on realisation of investment and trading properties at valuation and for the deduction of the fair value adjustment after tax of »7.0 million (2004 ^ »8.3 million), as calculated under Financial Reporting Standard 13. The adjustment for trading properties amounted to »165.9 million (2004 ^ »168.5 million) while the tax adjustment in respect of the trading properties amounted to »49.7 million (2004 ^ »53.2 million) and the tax adjustment in respect of properties held for investment amounted to »54.0 million (2004 ^ »48.2 million). Results & Dividend The pro¢t for the ¢nancial year amounted to »21,808,000 (2004 ^ »22,919,000). An Interim Dividend of 25p per share was paid on 11 March 2005 and the Directors now recommend the Page 7 Daejan Holdings PLC Report & Financial Statements 2005 Directors’ Report (continued) payment of a Final Dividend of 36p per share, making a total for the year of 61p per share, an increase of 3p over the previous year. The dividends will absorb »9,940,000 (2004 ^ »9,451,000) and will leave »11,868,000 (2004 ^ »13,468,000) to be added to retained pro¢ts. A review of the activities of the Group is contained in the Chairman’s Statement on pages 4 to 6. An analysis of the Group’s property income and pro¢t before taxation for the year is as follows:^ Rents and Charges Sales of Trading and Investment Properties Other Activities Financing Charges (net) Administrative and Other Expenses Pro¢t before Taxation Property Income Profit UK »000 USA »000 UK »000 USA »000 69,862 13,409 33,242 3,269 23,995 48 93,905 246 108 9,860 48 246 108 13,763 43,150 3,623 (3,028) (545) 50 (4,807) (7,124) 31,219 50 31,269 Payment Policy It has long been the Group’s policy to settle the terms of payment with suppliers when agreeing the terms of each transaction, to ensure that those suppliers are aware of those terms and to abide by the agreed terms of payment. The Group does not, however, follow any formal code or statement on payment practice. The Group and the Company do not have material trade creditor balances. Directors The Directors who served throughout the year, and who are still in of¢ce, are:^ Mr B S E Freshwater Mr D Davis Mr S I Freshwater The Director retiring at the Annual General Meeting is Mr D Davis who having attained the age of 70 years during the year will be standing for re-election to the Board in accordance with Section 293 of the Companies Act 1985. Brief biographies of the Directors are as follows:^ Mr B S E Freshwater. Aged 57 ^ Joined the Board in December 1971 with primary responsibility for the Group’s ¢nances. In July 1976 he was appointed Managing Director and, additionally, became Chairman in July 1980. Page 8 Daejan Holdings PLC Report & Financial Statements 2005 Mr D Davis. Aged 70 ^ A Chartered Accountant and member of the Institute of Taxation, was previously a partner in Cohen, Arnold & Co., the Group’s consulting accountants. He relinquished his partnership in 1971 in order to devote more time to his numerous business and other interests. He has been a non-executive Director of the Company since December 1971. Mr S I Freshwater. Aged 54 ^ Directs the Group’s operations in the USA and also has responsibility for the Group’s UK sales division. He has been a Director of the Company since January 1986. Directors’ Interests Day-to-day management of the Group’s properties in the United Kingdom is mainly carried out by Highdorn Co. Limited and by Freshwater Property Management Limited. Mr B S E Freshwater and Mr S I Freshwater are Directors of both companies and are also interested in the share capital of Highdorn Co. Limited. Mr B S E Freshwater and Mr D Davis are also Directors of the parent company of Freshwater Property Management Limited but have no bene¢cial interest in either company. Details of the amounts paid for the provision of these services are set out in note 22 to the ¢nancial statements. Substantial Interests & Interests of Directors Daejan Holdings PLC Ordinary Shares D Davis B S E Freshwater S I Freshwater (notes 2 & 3) (notes 1, 2, 3 & 4) (notes 2, 3 & 4) Notes: 31 March 2005 31 March 2004 763 590,033 89,270 763 590,033 89,270 1. All the above holdings were bene¢cially owned. Mr B S E Freshwater’s shareholding represents 3.6% of the Issued Share Capital of the Company. 2. A further 4,363,116 shares (2004 ^ 4,363,116) representing 26.8% of the Issued Share Capital of the in which Company were held by Freshwater companies charitable and by family trusts Mr B S E Freshwater, Mr S I Freshwater and Mr D Davis have no bene¢cial interest. 3. In addition to the holding shown in the table and in note 2 above, companies owned and controlled by Mr B S E Freshwater, Mr S I Freshwater and by their families, and family trusts, held at 31 March 2005 a total of 7,876,431 shares (2004 ^ 7,876,431) representing 48.3% of the Issued Share Capital of the Company. Mr D Davis has a non-bene¢cial interest in some of these shares as a Director of the companies concerned, or as a trustee. 4. Of these shares 89,270 are held by a company owned jointly by Mr B S E Freshwater and Mr S I Freshwater. 5. There have been no changes in any of the above interests since 31 March 2005 up to the date of signing this report. Page 9 Daejan Holdings PLC Report & Financial Statements 2005 Directors’ Report (continued) Included in notes 2 and 3 are the following holdings, each amounting to 3% or more of the Company’s Issued Share Capital:^ Henry Davies (Holborn) Limited Trustees of the B S E Freshwater Settlement Trustees of the S I Freshwater Settlement Distinctive Investments Limited Quoted Securities Limited Centremanor Limited Mayfair Charities Limited Shares 1,934,090 1,705,000 1,560,000 1,464,550 1,305,631 1,000,000 565,000 % 11.9 10.5 9.6 9.0 8.0 6.1 3.5 Related Party Transaction On 14 October 2004 as part of the wider ¢nancial planning strategy, Daejan Holdings PLC (‘‘Daejan’’) and Metropolitan Properties Co. Limited (‘‘Metropolitan’’) acquired, respectively, a 74.9% and 24.9% shareholding in Arch Holdings Limited. On the same date, Arch Holdings Limited acquired a 100% shareholding in Arch (2004) Limited (formerly CBS Underwriting Limited) (‘‘CBS’’). Metropolitan and its Associates own more than 10% of Daejan’s Ordinary Share Capital and moreover is controlled by two of the Directors of Daejan. Metropolitan is therefore a related party of Daejan. As a result, the acquisition of the interests in Arch Holdings Limited and Arch (2004) Limited were related party transactions as de¢ned by the rules of the United Kingdom Listing Authority. Full details of the acquisitions are set out in note 10 on Page 32 of the Report and Accounts. Brewin Dolphin Securities, the Company’s Stockbrokers, have stated that, in their opinion, the transaction to acquire the stake in CBS was fair and reasonable insofar as the shareholders of Daejan were concerned. Capital Gains Tax For the purpose of computing Capital Gains Tax the market value of the Company’s Shares was 185p on 31 March 1982. Charitable Donations Charitable Donations made by the Group amounted to »120,000 (2004 ^ »120,000). There were no political contributions (2004 ^ »Nil). Auditors The Company’s auditors, KPMG Audit Plc, have expressed their willingness to continue in of¢ce. In accordance with Section 384 of the Companies Act 1985, resolutions for the reappointment of KPMG Audit Plc as auditors of the Company, and to authorise the Directors to determine their remuneration, are to be proposed at the forthcoming Annual General Meeting. By Order of the Board, M R M Jenner Secretary 10 August 2005 Page 10 Daejan Holdings PLC Report & Financial Statements 2005 Directors’ Remuneration Report Audited Information Remuneration Details of individual Director’s remuneration are set out below on an accruals basis. 2005 Mr B S E Freshwater Mr D Davis Mr S I Freshwater 2004 Mr B S E Freshwater Mr D Davis Mr S I Freshwater Salary » 500,000 ç 435,000 Fees » Sub-total » Pensions » 20,000 20,000 20,000 520,000 20,000 455,000 935,000 60,000 995,000 Salary » 430,000 ç 416,000 846,000 Fees » 20,000 20,000 20,000 60,000 Sub-total » 450,000 20,000 436,000 906,000 ç ç ç ç Pensions » 49,000 ç ç 49,000 Total » 520,000 20,000 455,000 995,000 Total » 499,000 20,000 436,000 955,000 » 77,500 Pension to Widow of former managing director Pensions Mr B S E Freshwater participates in a Small Self-administered Pension Scheme which provides at any time after age 60 a sum of money to purchase a pension subject to Inland Revenue limits and other statutory rules. The pension scheme also provides on death in service, for all contributions made to be applied in providing bene¢ts for Mr Freshwater’s dependants. This is a de¢ned contribution scheme to which Mr B S E Freshwater contributes 15% of gross salary per annum. The ¢gure for pension contributions shown above is the contribution paid by the Group. Unaudited Information Compliance The Board considers that the Company has complied throughout the year with the requirements of the Combined Code in relation to Directors’ remuneration with the exception of the provision relating to the formation and constitution of a remuneration committee (see page 13). In determining remuneration policy, the Board has given full consideration to the Principles of Good Governance and Code of Best Practice as set out in Section 1 of the Combined Code annexed to the Listing Rules of the Financial Services Authority. Policy The remuneration policy adopted by the Board is designed to ensure that the Directors’ interests are allied to the long-term growth of the Group and therefore to the interests of the shareholders as a whole. The Group does not operate any form of bonus scheme or share option scheme since the Executive Directors’ salaries for the year are determined by the Board once the results for the year Page 11 Daejan Holdings PLC Report & Financial Statements 2005 Directors’ Remuneration Report (continued) are known with any salary increase calculated and paid with effect from the beginning of the ¢nancial year. Remuneration of Non Executive Directors The fees of the non-executive Directors are reviewed periodically by the Executive Directors who make recommendations to the Board. The current level of »20,000 has been ¢xed for a number of years. Service Contracts No Director has a service contract. Total Shareholder Return The following graph shows the total shareholder returns for the Company for each of the last ¢ve ¢nancial years compared to the FTSE All-Share Real Estate Index. The Company is a constituent of the FTSE All-Share Real Estate Index, and the Board considers this to be the most appropriate broad market equity index for illustrating the Company’s performance. Daejan Holdings Total Shareholder Return Index versus FTSE Real Estate Sector Total Return Index for the ¢ve ¢nancial years ended 31 March 2005 (rebased as at 1 April 2000) TSR Performance Graph 340 320 300 280 260 240 220 200 180 160 140 120 100 80 Daejan FTSE 2000 2001 2002 2003 2004 2005 Daejan Holdings Plc FTSE Real Estate Sector Source: Thomson Datastream Approved by the Board on 10 August 2005 and signed on its behalf by M R M Jenner Company Secretary Page 12 Daejan Holdings PLC Report & Financial Statements 2005 Corporate Governance Corporate Governance The Board is required by the Financial Services Authority to report on the extent of its application of the principles and of its compliance with the provisions contained in the revised Combined Code issued by the Financial Reporting Council in July 2003. Your Board fully supports the goal of better Corporate Governance and we comply with the majority of the provisions of the revised Code. We do not comply with the provisions of the revised Code in connection with non-executive representation on the Board, as we are doubtful that further extending non-executive participation at present would bene¢t our shareholders. We consider it vital that the principles of a unitary Board of Directors sharing responsibility for all facets of the Company’s business should not be undermined by reserving areas of decision making solely for non-executive Directors. For this reason the matters which the Code recommends should be reserved for audit, nomination and remuneration committees are dealt with by the entire Board and it is intended to continue this practice. In view of the fact that the Board comprises only three Directors it is also not considered necessary to split the roles of Chairman and Chief Executive. Formal evaluation of both the Board’s and Chairman’s performance is undertaken at the ¢nal Board meeting. Executive remuneration is not directly related to performance, but we consider that an indirect link is established by the fact that remuneration is not agreed upon until after the publication of the accounts. Changes should be made when they are appropriate and in the best interests of the Company, rather than for the sake of change itself. This Company has a successful track record and whilst the Board will continue to keep under review any proposals which may improve the ef¢ciency of its operations, the current structure has stood the Company is good stead over many years and should continue to do so in the future. The Board The Group is controlled through its Board of Directors. The Board’s main roles are to create value to shareholders, to provide entrepreneurial leadership of the Group, to approve the Group’s strategic objectives and to ensure that the necessary ¢nancial and other resources are made available to enable them to meet those objectives. The Board meets regularly throughout the year on both a formal and informal basis. Comprehensive management information covering all aspects of the Company’s business is supplied to the Board in a timely manner and in a form and quality to enable it to discharge its duties. The Board’s principal focus, in accordance with the formal schedule of matters referred to it for decision, is on the formation of strategy and the monitoring and control of operations and ¢nancial performance. All Page 13 Daejan Holdings PLC Report & Financial Statements 2005 Corporate Governance (continued) Directors have access to the Company Secretary who is responsible for ensuring that the Board procedures are complied with. The Board has agreed a procedure for Directors in the furtherance of their duties to take independent professional advice if necessary, at the Company’s expense. The Board consult on a regular basis with the Group’s external auditors and are charged with ensuring that their objectivity and independence is safeguarded. The entire Board is responsible for the selection and approval of candidates for appointment to the Board. All Directors retire by rotation and submit themselves to shareholders at Annual General Meetings at regular intervals and at least every three years. The Board acknowledge that in view of his length of service the non-executive Director is not technically independent. The non- executive Director will stand for re-election on an annual basis in order to comply with the revised Combined Code. During the year there were three formal Board Meetings and attendance was: B S E Freshwater (3), S I Freshwater (3), D Davis (3). Directors and Directors’ Independence The Board currently comprises the Chairman, one non-executive Director and one executive Director. The names of the Directors together with their biographical details are set out on page 8. All the Directors served throughout the period under review. Directors’ Remuneration Details of the Directors’ remuneration are contained in the Remuneration Report on page 11. Internal Controls The Board is ultimately responsible for the group’s system of internal control and for reviewing its effectiveness. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The revised Combined Code introduced a requirement that the Directors review the effectiveness of the Group’s system of internal controls. This extends the existing requirement in respect of internal ¢nancial controls to cover all controls including: ¢nancial, operational, compliance, and risk management. The Board con¢rms that there is an ongoing process for identifying, evaluating and managing the signi¢cant business risks faced by the Group, that this process has been in place for the year under Page 14 Daejan Holdings PLC Report & Financial Statements 2005 review and up to the date of approval of the Annual Report and Accounts. This process is reviewed by the Board at regular intervals and accords with the Turnbull guidance. The Board has considered the bene¢ts likely to arise from the appointment of an internal audit function and have concluded that this is not currently necessary having regard for other controls which operate within the Group. Key elements of the Group’s system of internal controls are as follows : Controls environment: The Group is committed to the highest standards of business conduct and seeks to maintain these standards across all its operations across the world. The Group has a clear organisational structure for planning, executing and monitoring business operations in order to achieve the Group’s objectives. Lines of responsibility and delegation of authority are well de¢ned. Risk identi¢cation and evaluation: Management is responsible for the identi¢cation and evaluation of key risks applicable to the areas of the property market which impact their objectives. These risks are assessed on a continual basis and may be associated with a variety of internal and external sources. The Board considers the risk implications of business decisions including those affecting all major transactions. Information and communication: Periodic strategic reviews are carried out which include the consideration of long term ¢nancial projections. Annual budgets are prepared and performance against plan is actively monitored at the Board level. Through these mechanisms group performance is monitored, risks identi¢ed in a timely manner, their implications assessed, control procedures re-evaluated and corrective actions agreed and implemented. Control procedures: The Group has implemented control procedures designed to ensure complete and accurate accounting for ¢nancial transactions and to limit the potential exposure to loss of assets or fraud. Measures include physical controls, segregation of duties, reviews by management and external audit to the extent necessary to arrive at their audit opinion. Monitoring and corrective action: The Board meets regularly formally and informally throughout the year to review the internal controls. This includes an annual review of the signi¢cant business risks, formally considering the scope and effectiveness of the Group’s system of internal control. In addition, the Directors and senior management staff have a close involvement in the day to day operations of the Group and as such the controls are subject to ongoing monitoring. Investor relations The Board values communication with private and institutional shareholders and with analysts. The Annual General Meeting is used as an opportunity to meet private shareholders. Other opportunities Page 15 Daejan Holdings PLC Report & Financial Statements 2005 Corporate Governance (continued) are taken during the year to discuss the strategic and other issues with institutional shareholders and analysts. The Board continues to support the concept of individual resolutions on separate issues at Annual General Meetings. Details of proxy voting on each resolution are disclosed to the Meeting after it has been dealt with by a show of hands. In accordance with the revised Code, notice of the Annual General Meeting and the Report and Financial Statements will be sent to shareholders at least twenty working days before the meeting. Financial Reporting The Board are responsible for the preparation of the Report and Financial Statements within which they seek to present a balanced and understandable assessment of the Company’s business. Further details are given in the Chairman’s Statement. Compliance Statement The Board consider the Company has complied throughout the year ended 31 March 2005 with the provisions of the revised Code with the exception of the following paragraphs : Paragraph Subject A.2.1^2 A.3.1^3 split of Chairman and CEO roles strong independent non-executive element A.4.1^3, A.4.6 appointment of nomination committee and their proceedings A.7.2 B.1.1 B.2.1^2 C.3.1^6 length of service of non-executive directors performance related remuneration for executive directors appointment of remuneration committee and their proceedings appointment of audit committee and their proceedings Going Concern After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the ¢nancial statements. Financial Reporting Standard 13 The Group operates a cautious ¢nancial policy within clear authorities on a non-speculative and long term basis in order to enable the Group to carry on its business in con¢dence and with strength. The Group aims to ensure that the cost of capital is kept to a minimum through the maintenance of its many long standing relationships with leading banks and other ¢nancial institutions. The Group seeks to minimise the risk of sudden and unexpected rises in ¢nance Page 16 Daejan Holdings PLC Report & Financial Statements 2005 costs by way of ¢nancial derivative instruments whilst retaining some ability to take advantage of falling interest rates. The fair values as at 31 March 2005 as set out in note 16 on page 36 exceeded the book values of the Group’s borrowings and receivables by »10 million re£ecting a reduction in long term interest rates since the rates were originally ¢xed. The adjustment to fair value would reduce reported net assets per share by 61p and would increase balance sheet gearing. After taking account of tax relief, the adjustment to net assets would be 43p per share. There is no obligation or present intention to repay the borrowings other than at maturity. Market values are affected by many external factors and ironically the stronger the company the higher the market value of its debt. The strength of the Group’s balance sheet facilitates the raising of any ¢nance that may be necessary for new acquisitions and further developments on competitive terms. Page 17 Daejan Holdings PLC Report & Financial Statements 2005 Directors’ Responsibilities Company law requires the Directors to prepare ¢nancial statements for each ¢nancial year which give a true and fair view of the state of the affairs of the Company and of the Group and of the pro¢t or loss for that period. In preparing those ¢nancial statements, the Directors are required to:^ . . . . select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures being disclosed and explained in the ¢nancial statements; and prepare the ¢nancial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the ¢nancial position of the Company and enable them to ensure that the ¢nancial statements comply with the Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and of the Group and to prevent and detect fraud and other irregularities. Page 18 Daejan Holdings PLC Report & Financial Statements 2005 Independent Auditors’ Report Independent auditors’ report to the members of Daejan Holdings PLC We have audited the ¢nancial statements on pages 21 to 40. We have also audited the information in the directors’ remuneration report that is described as having been audited. This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors & auditors The directors are responsible for preparing the Annual Report and the directors’ remuneration report. As described on page 18, this includes responsibility for preparing the ¢nancial statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board, the Listing Rules of the Financial Services Authority, and by our profession’s ethical guidance. We report to you our opinion as to whether the ¢nancial statements give a true and fair view and whether the ¢nancial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the ¢nancial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information speci¢ed by law regarding directors’ remuneration and transactions with the group is not disclosed. We review whether the Corporate Governance statement on pages 13 to 16 re£ects the company’s compliance with the nine provisions of the 2003 FRC Code speci¢ed for our review by the Listing Rules, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report, including the corporate governance statement and the unaudited part of the directors’ remuneration report, and consider whether it is consistent with the audited ¢nancial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the ¢nancial statements. Page 19 Daejan Holdings PLC Report & Financial Statements 2005 Independent Auditors’ Report (continued) Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the ¢nancial statements and the part of the directors’ remuneration report to be audited. It also includes an assessment of the signi¢cant estimates and judgements made by the directors in the preparation of the ¢nancial statements, and of whether the accounting policies are appropriate to the group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with suf¢cient evidence to give reasonable assurance that the ¢nancial statements and the part of the directors’ remuneration report to be audited are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the ¢nancial statements and the part of the directors’ remuneration report to be audited. Opinion In our opinion: . . the ¢nancial statements give a true and fair view of the state of affairs of the company and the group as at 31 March 2005 and of the pro¢t of the group for the year then ended; and the ¢nancial statements and the part of the directors’ remuneration report to be audited have been properly prepared in accordance with the Companies Act 1985. KPMG Audit Plc Chartered Accountants Registered Auditor London 10 August 2005 Page 20 Daejan Holdings PLC Report & Financial Statements 2005 Consolidated Profit & Loss Account for the year ended 31 March 2005 Notes 2005 »000 2004 »000 Turnover Net Rental Income Surplus on Sale of Trading Properties Other Income Gross Pro¢t Administrative and Other Expenses Operating Pro¢t Share of Operating Pro¢t in Associate Surplus on Sale of Investment Properties Pro¢t on Ordinary Activities before Interest Net Interest Payable and Other Similar Items Pro¢t on Ordinary Activities before Taxation Tax on Pro¢t on Ordinary Activities Pro¢t on Ordinary Activities after Taxation Minority Interests ^ Equity Pro¢t for the Financial Year Dividends: Interim Final (proposed) Retained Pro¢t for the Year Basic and diluted earnings per Share Dividends per Share 2 2 2 2 10 2 3 4 5 6 19 7 88,845 90,007 36,511 37,138 5,210 156 7,002 196 41,877 44,336 (7,669) (7,342) 34,208 36,994 ç 4,896 ç 1,489 39,104 38,483 (7,835) (8,041) 31,269 30,442 (9,365) (7,522) 21,904 22,920 (96) (1) 21,808 22,919 (4,074) (5,866) (3,585) (5,866) (9,940) (9,451) 11,868 13,468 133.8p 140.6p 61.0p 58.0p All activities are continuing. The notes on pages 27 to 40 form part of these Financial Statements. Page 21 Daejan Holdings PLC Report & Financial Statements 2005 Consolidated Balance Sheet as at 31 March 2005 Notes »000 2005 »000 »000 2004 »000 Fixed Assets Tangible Assets Investments Investment in Associate Current Assets Properties held for Trading Debtors: Due within one year Investments Cash at Bank Creditors: Amounts falling due within one year Net Current Assets Total Assets Less Current Liabilities Creditors: Amounts falling due after more than one year Provisions for liabilities and charges Net Assets Capital and Reserves Called up Share Capital Share Premium Account Revaluation Reserve Other Reserves Pro¢t and Loss Account Equity Shareholders’ Funds Minority Interests ^ Equity 8 9 10 11 12 13 57,147 26,309 149 44,825 128,430 14 (56,219) 15 17 18 19 19 19 19 Equity Shareholders’ Funds per Share 7 660,512 617 ç 661,129 573,218 617 ç 573,835 71,648 24,127 158 44,014 139,947 (64,387) 72,211 733,340 (154,174) (6,747) 572,419 4,074 555 315,594 6,784 245,206 572,213 206 572,419 »35.12 75,560 649,395 (137,265) (7,492) 504,638 4,074 555 269,581 6,784 223,511 504,505 133 504,638 »30.96 The Financial Statements on pages 21 to 40 were approved by the Board of Directors on 10 August 2005 and were signed on its behalf by:^ B S E Freshwater D Davis Director Director The notes on pages 27 to 40 form part of these Financial Statements. Page 22 Daejan Holdings PLC Report & Financial Statements 2005 Company Balance Sheet as at 31 March 2005 Notes »000 2005 »000 »000 2004 »000 Fixed Assets Investment in subsidiary undertakings Current Assets Debtors: Due within one year Cash at Bank Creditors: Amounts falling due within one year Net Current Liabilities Total Assets Less Current Liabilities Creditors: Amounts falling due after more than one year Net Assets Capital and Reserves Called up Share Capital Share Premium Account Revaluation Reserve Other Reserves Pro¢t and Loss Account 20 12 614,100 558,794 784 9,433 10,217 ç 8,871 8,871 14 (14,354) (24,410) (4,137) 609,963 (37,750) 572,213 4,074 555 335,642 893 231,049 572,213 (15,539) 543,255 (38,750) 504,505 4,074 555 287,627 893 211,356 504,505 15 18 19 19 19 19 The Financial Statements on pages 21 to 40 were approved by the Board of Directors on 10 August 2005 and were signed on its behalf by:^ B S E Freshwater D Davis Director Director The notes on pages 27 to 40 form part of these Financial Statements. Page 23 Daejan Holdings PLC Report & Financial Statements 2005 Consolidated Cash Flow Statement for the year ended 31 March 2005 »000 2005 »000 »000 2004 »000 Operating activities Net cash in£ow from operating activities (note 21(i)) Returns on investments and servicing of ¢nance Interest received Interest paid Minority interests Net cash out£ow from returns on investments and servicing of ¢nance Taxation UK Corporation tax paid Overseas tax paid Capital expenditure Purchase of investment properties Sale of investment properties Net cash (out£ow)/in£ow for capital expenditure Equity Dividends paid Cash (out£ow)/in£ow before ¢nancing Financing Repayment of secured loans Repayment of mortgage advances New mortgage advances Net cash in£ow/(out£ow) from ¢nancing (note 21(iii)) Increase/(decrease) in cash in the year (note 21(ii&iii)) 31,400 34,618 2,472 (9,794) 17 (8,049) (7,305) (7,688) (44) (9,323) (7,732) (1,547) 2,636 2,151 (10,223) 23 (9,152) (171) (29,469) 19,091 (10,378) (9,940) (6,290) (13,306) (967) 21,311 (33,558) (2,325) 12,857 7,038 748 1,089 (8,962) 11,708 (23,026) (11,318) The notes on pages 27 to 40 form part of these Financial Statements. Page 24 Daejan Holdings PLC Report & Financial Statements 2005 Consolidated Statement of Total Recognised Gains & Losses for the year ended 31 March 2005 Pro¢t for the ¢nancial year Unrealised surplus on revaluation of investment properties Tax on realisation of revalued properties Translation differences on foreign currency net investments Total net recognised gains and losses relating to the year 2005 »000 21,808 57,537 (3,567) 1,870 77,648 2004 »000 22,919 27,843 (1) (6,311) 44,450 Note of Consolidated Historical Cost Profits & Losses for the year ended 31 March 2005 Reported pro¢t on ordinary activities before taxation Realisation of investment property revaluation gains of previous years Historical cost pro¢t on ordinary activities before taxation 2005 »000 31,269 12,731 44,000 2004 »000 30,442 882 31,324 Historical cost pro¢t for the year retained after tax, minority interests and dividends 21,032 14,349 The notes on pages 27 to 40 form part of these Financial Statements. Page 25 Daejan Holdings PLC Report & Financial Statements 2005 Reconciliation of Movements in Consolidated Shareholders’ Funds for the year ended 31 March 2005 Pro¢t for the ¢nancial year Dividends: Interim Final (proposed) Retained pro¢t for the year Other net recognised gains and losses relating to the year Net increase in shareholders’ funds Equity Shareholders’ Funds brought forward Equity Shareholders’ Funds carried forward 2005 »000 21,808 (4,074) (5,866) 11,868 55,840 67,708 2004 »000 22,919 (3,585) (5,866) 13,468 21,531 34,999 504,505 469,506 572,213 504,505 The notes on pages 27 to 40 form part of these Financial Statements. Page 26 156162b Daejan Holdings PLC Report & Financial Statements 2005 Notes to the Financial Statements 1. Principal Accounting Policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Group’s Financial Statements. (a) Basis of Accounting The Financial Statements have been prepared in accordance with applicable accounting standards and under the historical cost convention modi¢ed by the revaluation of investment properties (note 1(g)) and investments in subsidiary undertakings (note 1(k)) and with the Companies Act 1985 except as noted below under note 1(d). (b) Consolidation and Presentation of Financial Information The Group Financial Statements consist of a consolidation of the Financial Statements of the Company with those of its subsidiary undertakings. All Financial Statements are drawn up to 31 March. The Financial Statements of certain subsidiary undertakings have not been consolidated (see note 20). A separate pro¢t and loss account dealing with the results of the Company only has not been presented, in accordance with Section 230(4), Companies Act 1985. The Group’s share of pro¢ts less losses of associates is included in the Consolidated Pro¢t and Loss account and its interest in their net assets is included in Investments in the Consolidated Balance Sheet. (c) Income Available for Distribution Under the Articles of Association of certain Group investment undertakings, realised capital surpluses are not available for distribution as dividends and these surpluses are transferred from Consolidated Pro¢t and Loss Account to Other Non-Distributable Reserves. (d) Depreciation In accordance with Statement of Standard Accounting Practice No. 19 investment properties are revalued annually. Surpluses or de¢cits arising are taken to the revaluation reserve. Any impairment is taken to the pro¢t and loss account for the year. No depreciation or amortisation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years to run. This treatment, as regards certain of the Group’s investment properties, may be a departure from the requirements of the Companies Act concerning depreciation of ¢xed assets. However, these properties are not held for consumption but for investment and the Directors consider that systematic annual depreciation would be inappropriate. The accounting policy adopted is therefore necessary for the ¢nancial statements to give a true and fair view. Depreciation or amortisation is only one of the many factors re£ected in the annual valuation and the amount which might otherwise have been shown cannot be separately identi¢ed or quanti¢ed. Leases having an unexpired term of less than 20 years are amortised evenly over the remaining period of the lease. (e) Acquisitions and Disposals of Properties Acquisitions and disposals are accounted for at the date of completion. (f) Deferred Taxation Deferred tax is provided in respect of all timing differences that have originated but not reversed at the balance sheet date where an event has occurred that results in an obligation to pay more or less tax in the future, except that: Page 27 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) (i) (ii) provision is not made in respect of property revaluation surpluses unless the sale has been completed and rollover relief is not available to cover any gain arising; and deferred tax assets are recognised only to the extent that it is more likely than not that there will be suitable deferred tax pro¢ts from which the future reversal of the relevant timing differences can be deducted. Deferred tax is measured on a non discounted basis at the tax rates which apply at the balance sheet date. (g) Properties (i) Investment Properties Investment properties are included in the Balance Sheet at professional valuation. Any surplus, and any temporary de¢cit is transferred to the revaluation reserve, and on realisation this surplus or is transferred to the cumulative Consolidated Pro¢t and Loss Account as a reserve de¢cit movement. De¢cits which are expected to be permanent are charged to Pro¢t and Loss Account, and subsequent reversals of such de¢cits are credited to Pro¢t and Loss Account in the same way. (ii) Trading Properties Trading properties are stated at the lower of cost and net realisable value. (h) Foreign Currencies liabilities and results of the overseas subsidiary Foreign currency borrowings and the assets, undertakings are translated into sterling at the rates of exchange ruling at the Balance Sheet date. Differences on exchange arising from the translation of opening balance sheets of overseas companies at year end rates and on foreign currency borrowings used to ¢nance long term foreign equity investments are taken directly to Reserves. Other differences on exchange are dealt with in the Pro¢t and Loss Account. (i) Sales of Investment Properties It is Group policy to sell, as individual units, £ats in residential blocks which have been held as investments but which are now considered uneconomic to retain. Occasionally there are sales of residential and commercial investment blocks. Since such sales of all types of investment property are expected to continue, the resulting surplus based on the excess of sales proceeds over valuation is included within the Group pro¢t on ordinary activities, and taxation applicable thereto is shown as part of the taxation charge. (j) Repairs The cost of repairs is written off to Pro¢t and Loss Account in the year in which the expenditure is incurred. (k) Investments in Subsidiary Undertakings Investments in subsidiary and associated undertakings are included in the Company Balance Sheet at Directors’ valuation carried out at regular intervals and based on net asset value as shown in the subsidiaries’ ¢nancial statements. (l) Turnover Turnover comprises rent and service charges receivable less applicable provisions and proceeds from the sale of trading properties. Page 28 156162b Daejan Holdings PLC Report & Financial Statements 2005 2. Property Income An analysis of the main sources of property income, the only class of business, and their respective contribution towards the pro¢t for the year is as follows: Rents and service charges receivable (see (i) below) Trading property sales Property Income »000 Costs »000 2005 Profit Arising »000 Property Income »000 Costs »000 2004 Profit Arising »000 83,271 5,574 (46,760) (364) 36,511 5,210 82,411 7,596 (45,273) (594) 37,138 7,002 88,845 (47,124) 41,721 90,007 (45,867) 44,140 Investment property sales Other income 18,667 156 (13,771) ç 4,896 156 2,693 196 (1,204) ç 1,489 196 107,668 (60,895) 46,773 92,896 (47,071) 45,825 The geographical analysis of property income, pro¢t and net assets is as follows: UK »000 USA »000 2005 Total »000 UK »000 USA »000 2004 Total »000 Property income 93,905 13,763 107,668 79,344 13,552 92,896 Pro¢t before ¢nancing charges Financing charges 36,026 (4,807) 3,078 (3,028) 39,104 (7,835) 34,449 (5,344) 4,034 (2,697) 38,483 (8,041) Pro¢t on ordinary activities before taxation 31,219 50 31,269 29,105 1,337 30,442 Net assets 524,176 48,243 572,419 473,982 30,656 504,638 (i) Cost of rents and service charges receivable includes: Wages and salaries Social security costs 2005 »000 1,060 94 1,154 2004 »000 1,020 88 1,108 These ¢gures relate only to porterage staff of whom an average number of 76 (2004 ^ 76) were employed during the year. 3. Net Interest Payable Interest payable on loans Interest payable on overdrafts Interest receivable Net interest payable 2005 »000 9,973 13 9,986 2004 »000 9,771 11 9,782 (2,151) (1,741) 7,835 8,041 Page 29 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) 4. Profit on Ordinary Activities before Taxation Pro¢t on ordinary activities before taxation is stated after charging the following: Auditors’ remuneration ^ Audit services (including irrecoverable VAT) ^ Group ^ Company Taxation services paid to KPMG LLP 2005 »000 2004 »000 417 20 300 425 20 ç The Group jointly employed an average of 140 persons during the year (2004 ^ 146). The aggregate payroll costs were »5,030,000 (2004 ^ »4,873,000). Details of the Directors’ remuneration are contained in the Directors’ Remuneration Report on page 11. The Group contributes to a Director’s Pension Scheme as described in the Directors’ Remuneration Report on page 11. There were no outstanding contributions or prepayments at the year end. 5. Tax on Profit on Ordinary Activities Taxation based on the pro¢t for the year UK corporation tax at 30% (2004 ^ 30%) Overseas taxation Adjustments to prior years’ charges Total current tax Deferred tax on origination and reversal of timing differences (Note 17) Factors affecting the tax charge for the year Pro¢t on ordinary activities before taxation Corporation tax at the standard rate of 30% (2004 ^ 30%) Expenses disallowed Adjustments in respect of previous periods ^ UK Reduced tax on overseas pro¢ts not subject to UK corporation tax Timing differences Non-taxable income and other differences 2005 »000 2004 »000 10,140 (717) 9,423 233 9,656 (291) 8,449 101 8,550 (609) 7,941 (419) 9,365 7,522 31,269 30,442 9,381 577 233 (52) (66) (417) 9,133 184 (609) (40) (630) (97) 9,656 7,941 Note 17 sets out the Group’s deferred taxation provision. During the year the group has acquired a wholly owned subsidiary undertaking J2C PLC, (note 20) an associate, Arch Holdings Limited (note 10), and an investment in Triteam Limited (note 9). The companies have been acquired as part of the Group’s ¢nancial planning strategy. They have realised tax losses, the use of which is subject to agreement by HM Revenue & Customs. 6. Profit on Ordinary Activities After Taxation Pro¢t after taxation of »29,455,000 arises in the holding company, »23,363,000 being dividends paid by subsidiary companies (2004 ^ »23,786,000; dividends ^ »14,665,000). Page 30 156162b Daejan Holdings PLC Report & Financial Statements 2005 7. Basic and Diluted Earnings per Share/Equity Shareholders’ Funds per Share Earnings per share is calculated on earnings, after taxation and minority interests, of »21,808,000 (2004 ^ »22,919,000) and the weighted average number of shares in issue during the year of 16,295,357 (2004 ^ 16,295,357). Equity Shareholders’ Funds per Share are calculated on Equity Shareholders’ Funds of »572,213,000 (2004 ^ »504,505,000) and the number of shares in issue at the year end of 16,295,357 (2004 ^ 16,295,357). 8. Tangible Assets – Investment Properties At Valuation 1 April 2004 Disposals Additions Revaluation Foreign Exchange movements Transfer from Trading Properties (see note 11) Freehold »000 Long Leasehold »000 Short Leasehold »000 Total 2005 »000 455,327 100,748 (13,701) 29,469 46,350 (779) 14,769 (1) ç 9,162 ç ç 17,143 573,218 ç (13,702) ç 29,469 2,025 57,537 ç (779) ç 14,769 At Valuation 31 March 2005 531,435 109,909 19,168 660,512 The historical cost of investment properties is »340m. A professional valuation of all the Group’s United Kingdom investment properties was carried out at 31 March 2005 by Cardales, Chartered Surveyors. The revalued ¢gures are based on open market values in accordance with the Practice Statements in the RICS Appraisal and Valuation Manual. (See report on page 41.) The Group’s US properties held for investment were also professionally valued at 31 March 2005 by KTR Newmark, Meredith & Grew and Joseph J. Blake and Associates, Inc. US General Certi¢ed Appraisers. The revalued ¢gures are based on open market values. As mentioned in the Directors’ Report on page 7 one of the Group’s US trading properties has been reclassi¢ed as an investment property and is disclosed at cost in the transfer ¢gure above. 9. Investments held as Fixed Assets Investments held as ¢xed assets in the Group Balance Sheet represent the cost of interests in syndicates holding industrial buildings. During the year the Company purchased 16.7% of the ordinary shares of Triteam Limited for a consideration of »1. Page 31 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) 10. Investment in Associate For the reasons explained in note 5, on 14 October 2004 Daejan Holdings PLC bought 74.9% of the ordinary share capital of Arch Holdings Limited for a total consideration of 74.9 pence. A further 24.9% of the ordinary share capital of Arch Holdings Limited is owned by Metropolitan Properties Co. Limited, a company which is related to Daejan Holdings PLC. On 14 October 2004 Arch Holdings Limited bought 100% of the ordinary share capital of Arch (2004) Limited (formerly CBS Underwriting Limited) for a total consideration of »1. Daejan Holdings PLC’s shareholding provides 50% of the voting rights in Arch Holdings Limited and hence in Arch (2004) Limited. Arch Holdings Limited’s principal activity is a holding company. Arch (2004) Limited’s principal activity was to carry on the business of underwriting as a corporate member at Lloyds of London. The company ceased underwriting on 31 December 2001. Arch (2004) Limited is fully indemni¢ed by its former parent for all liabilities in excess of the company’s assets and the former parent is also liable for all ongoing operating expenses of the company. Because of the above arrangements Daejan Holdings PLC has no obligation to fund any losses of Arch (2004) Limited or any excess of its liabilities over assets. At 31 December 2004 the excess amounted to »35.1 million. After adjusting for this excess, Daejan Holdings PLC’s share in the total assets, total liabilities and net assets/liabilities of Arch (2004) Limited amounted to »nil. Investments Debtors Other assets Provisions Creditors: amounts falling due after more than one year Other creditors Net assets/liabilities 11. Properties held for Trading »000 56,851 50,860 39,656 (139,386) (3,270) (4,711) »000 147,367 (147,367) ç At the lower of cost and net realisable value Transfer (see note 8) UK »000 USA »000 2005 Total »000 UK »000 USA »000 2004 Total »000 21,572 50,344 ç (14,769) 71,916 (14,769) 21,424 ç 50,224 ç 71,648 ç 21,572 35,575 57,147 21,424 50,224 71,648 »4.6m (2004 ^ »4.7m) of the properties held for trading in the USA are held through shares in co-operative corporations. The trading properties were professionally valued at 31 March 2002. This resulted in a surplus over book value of »148.5m in respect of the UK properties and »26.2m for the US properties which have not been incorporated into the ¢nancial statements. The Directors are satis¢ed that the net realisable value of the properties remain substantially in excess of their book value. Page 32 156162b Daejan Holdings PLC Report & Financial Statements 2005 12. Debtors Rents and service charges Other debtors and prepayments Mortgages granted repayable within one year Escrow account Due within one year The Group 2005 »000 14,545 10,179 801 784 2004 »000 14,810 8,661 656 ç 26,309 24,127 The Company 2005 »000 2004 »000 ç ç ç 784 784 ç ç ç ç ç 13. Investments held as current assets Investments held as current assets include listed securities of »127,000 (2004 ^ »136,000) held at the lower of cost and net realisable value. The market value of these securities at 31 March 2005 was »169,000 (2004 ^ »167,000). 14. Creditors: amounts falling due within one year The Group 2005 »000 Bank loans and overdrafts (see note below) Mortgage instalments Rents and service charges charged in advance Other creditors and accruals Taxation Dividends payable 6,565 2,596 13,578 17,073 10,541 5,866 2004 »000 17,930 2,655 12,805 18,661 6,470 5,866 The Company 2005 »000 2004 »000 7,565 ç ç 816 107 5,866 18,728 ç ç 718 (902) 5,866 56,219 64,387 14,354 24,410 Note: Bank loans and overdrafts of the Group and of the Company are secured on certain of the Group’s properties. Page 33 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) 15. Creditors: amounts falling due after more than one year Mortgage advances Secured bank loans The Group 2005 »000 77,385 76,789 2004 »000 58,180 79,085 The Company 2005 »000 2004 »000 ç ç 37,750 38,750 154,174 137,265 37,750 38,750 Analysis of creditors falling due after more than one year Amounts repayable after 1 April 2010 Mortgages Secured bank loans Interest rate The Group 2005 »000 2004 »000 The Company 2005 »000 2004 »000 4.46%^7.89% 4.64%^8.55% 65,844 65,361 45,908 68,516 ç ç 33,750 34,750 131,205 114,424 33,750 34,750 Amounts repayable between 1 April 2007 and 31 March 2010 Mortgages Secured bank loans 4.375%^5.89% 4.64%^8.55% 5,665 8,663 11,973 8,272 14,328 20,245 Amounts repayable between 1 April 2006 and 31 March 2007 Mortgages Secured bank loans 4.52%^6.76% 4.64%^8.55% 5,876 2,765 8,641 300 2,296 2,596 ç 3,000 3,000 ç 1,000 1,000 ç 3,000 3,000 ç 1,000 1,000 Amount of Long Term Loans secured on certain of the Group’s properties 154,174 137,265 37,750 38,750 16. Financial instruments The Group’s strategy in respect of the use of ¢nancial instruments to manage risk is detailed on page 16. Financial assets The Group’s ¢nancial assets are investments held as ¢xed assets (note 9), short and long term debtors (note 12), current asset investments (note 13) and cash at bank and in hand. The interest rate and liquidity risk pro¢le of cash balances of the Group is set out below: Cash ^ Sterling denominated Cash ^ US dollar denominated Total 2005 »000 30,293 14,532 2004 »000 32,299 11,715 44,825 44,014 All cash balances receive interest at a variable rate with reference to LIBOR for sterling denominated balances and US Prime rate for US dollar denominated balances. All cash balances are repayable on demand. Page 34 156162b Daejan Holdings PLC Report & Financial Statements 2005 The Group has short term debtors of »6,428,000 (2004 ^ »6,775,000) denominated in US dollars. Current asset investments and investments held as ¢xed assets are denominated in Sterling. Financial liabilities Liquidity risk ^ pro¢le The maturity pro¢le of the Group’s ¢nancial liabilities is set out below: Within one year or less or on demand Between one and two years Between two and ¢ve years After ¢ve years 2005 »000 2004 »000 9,161 8,641 14,328 131,205 20,585 2,596 20,245 114,424 163,335 157,850 The Group has undrawn borrowing facilities of »88.5m (2004 ^ »77m) expiring within one year and »5m (2004 ^ »5m) expiring after ¢ve years. Interest rate risk ^ pro¢le The interest rate pro¢le of the Group’s ¢nancial liabilities at 31 March, after taking account of interest rate instruments taken out by the Group was: Floating rate liabilities ç Sterling denominated Floating rate liabilities ç US dollar denominated Fixed rate liabilities ç Sterling denominated Fixed rate liabilities ç US dollar denominated 2005 »000 18,753 6,562 69,585 68,435 2004 »000 48,703 7,727 52,490 48,930 163,335 157,850 The £oating rate ¢nancial liabilities comprise: . Sterling denominated bank borrowings bearing rates based on LIBOR. . US dollar denominated bank borrowings bearing rates based on US Prime rate. Hedge pro¢le ^ type and maturity of protection The weighted average interest rate on the ¢xed rate debt was 6.77% (2004 ^ 7.43%) and the weighted average period for which the borrowing is ¢xed at 31 March 2005 was 10 years (2004 ^ 10 years). All of the »60,335,000 (2004 ^ »61,690,000) of ¢xed rate swaps mature after ¢ve years. Page 35 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) Fair value of ¢nancial assets and liabilities The table below sets out by category the book values and fair value of the Group’s ¢nancial assets and liabilities : Notional Principal »000 2005 Fair value adjustment »000 2004 Fair value adjustment »000 Fair value »000 Book value »000 Financial instruments held or issued to ¢nance the Group’s operations Assets: Investments held as current assets Liabilities: Floating rate debt Fixed rate debt Fair value adjustment 127 (25,315) (138,020) ç ç ç 42 169 31 (25,315) (148,010) ç (9,990) (9,948) ç (12,898) (12,867) The fair values were calculated as at 31 March 2005 and re£ect the replacement values of the ¢nancial instruments used to manage the Group’s exposure to adverse interest rate movements. All gains and losses arising from hedging instruments which crystallised during the year have been recognised in the pro¢t and loss account. A recalculation of the fair value adjustment has been carried out at 18 July 2005 (the last practical date before the printing of these Financial Statements) which due to movements in interest rates since 31 March 2005 has resulted in a current fair value adjustment of »13,328,000 in place of the March ¢gure of »9,948,000. Currency pro¢le The Group had net monetary assets of »60,000 (2004 ^ »1,032,000) denominated in US dollars held in entities using Sterling as the functional currency. 17. Provisions for liabilities and charges Deferred taxation: At 1 April 2004 Credit to pro¢t and loss account Foreign exchange movement At 31 March 2005 2005 »000 7,492 (291) (454) 6,747 The provision represents deferred tax on timing differences resulting from capital allowances, tax depreciation and industrial building allowances. In the event of a realisation of the Group’s investment properties at an amount equal to the valuation recorded in the Financial Statements, a liability to corporation tax on chargeable gains would arise estimated at not more than »54.0m (2004 ^ »48.2m) and for which no provision has been made in these Financial Statements in accordance with FRS 19. Page 36 156162b Daejan Holdings PLC Report & Financial Statements 2005 18. Share Capital Authorised: Ordinary shares of 25 pence per share Allotted, called up and fully paid: Ordinary shares of 25 pence per share 19. Reserves Share Premium Account: At 1 April 2004 and 31 March 2005 Number 2005 »000 2004 »000 18,722,596 4,681 4,681 16,295,357 4,074 4,074 The Group »000 »000 The Company »000 »000 555 555 Revaluation Reserve: At 1 April 2004 Foreign exchange movements Transfer to pro¢t and loss account of revaluation surplus on investment properties now realised Fixed asset revaluation 269,581 1,207 (12,731) 57,537 287,627 (387) ç 48,402 At 31 March 2005 315,594 335,642 Other Non-Distributable Reserves: At 1 April 2004 and 31 March 2005 Pro¢t and Loss Account: At 1 April 2004 Foreign exchange movements Revaluation reserve realised on disposal Tax on revaluation reserve realised Retained pro¢t for the year 6,784 893 223,511 663 12,731 (3,567) 11,868 211,356 178 ç ç 19,515 At 31 March 2005 245,206 231,049 The revaluation reserves arise from the revaluation of investment properties and investments in subsidiary undertakings in the Group and Company respectively. Investment in subsidiary undertakings 20. The Company At 1 April 2004 Loans Revaluation Effect of foreign exchange differences At 31 March 2005 Shares at valuation »000 Loans »000 Total »000 305,409 ç 48,402 (387) 253,385 7,291 ç ç 558,794 7,291 48,402 (387) 353,424 260,676 614,100 The historical cost of shares in subsidiary undertakings is »17,876,000 (2004 ^ »17,876,000). Shares in subsidiary undertakings have been valued by the Directors at 31 March 2005 based on the net asset values of the subsidiary undertakings. Page 37 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) In June 2004, Ponteland Properties Limited, a wholly-owned subsidiary undertaking of Daejan Holdings PLC, acquired 100% of the issued share capital of J2C PLC. The results of certain subsidiary undertakings, acquired at a cost of »146,000 and valued by the Directors at »Nil (2004 ^ »Nil) have been excluded from the Consolidated Financial Statements. The combined pro¢ts since acquisition attributable to the Company as indicated by their ¢nancial statements amounted to »40,000 (2004 ^ »40,000) and their aggregate liabilities at 31 March 2005 were »54,000 (2004 ^ »54,000). The inclusion of these undertakings would not materially affect the Consolidated Financial Statements. 21. Notes to the Consolidated Cash Flow Statement 2005 »000 2004 »000 (i) Reconciliation of operating pro¢t to net cash in£ow from operating activities. Operating pro¢t Decrease/(increase) in properties held for trading (Increase)/decrease in debtors (Decrease)/increase in creditors Decrease/(increase) in investments held as current assets 34,208 152 (2,182) (787) 9 36,994 (11,953) 6,108 3,495 (26) Net cash in£ow from operating activities 31,400 34,618 (ii) Reconciliation of net cash £ow to movement in net debt Increase/(decrease) in cash New mortgage advances Repayment of ¢nancing Change in net debt resulting from cash £ows Exchange movements Change in net debt Opening net debt Closing net debt (iii) Analysis of changes in net debt Cash at bank Overdrafts Secured loans Mortgage advances 2005 »000 2004 »000 748 (21,311) 14,273 (11,318) (12,857) 35,883 (6,290) 1,616 11,708 5,427 (4,674) (113,836) 17,135 (130,971) (118,510) (113,836) 1 April 2004 »000 44,014 (202) 43,812 (99,168) (58,480) Cash flow »000 546 202 748 13,306 (20,344) (113,836) (6,290) Exchange movements »000 31 March 2005 »000 265 ç 265 212 1,139 1,616 44,825 ç 44,825 (85,650) (77,685) (118,510) Cash at bank includes an amount of »786,000 (2004 ^ »794,000) which is held on behalf of tenants and cannot be utilised by the Group. Page 38 156162b Daejan Holdings PLC Report & Financial Statements 2005 22. Related party transactions Day-to-day management of the Group’s properties in the United Kingdom is mainly carried out by Highdorn Co. Limited and by Freshwater Property Management Limited. Mr B S E Freshwater and Mr S I Freshwater are Directors of both companies and are also interested in the share capital of Highdorn Co. Limited. Mr B S E Freshwater and Mr D Davis are also Directors of the parent company of Freshwater Property Management Limited but have no bene¢cial interest in either company. The net amounts paid for the provision of various management services charged by the Group’s managing agents Highdorn Co. Limited and Freshwater Property Management Limited were »3.8m (2004 ^ »3.5m). At 31 March 2005 »2.3m was due to Highdorn Co. Limited and Freshwater Property Management Ltd. (2004 ^ »6.3m). The Directors interests in the Company and the principal shareholders are described on pages 9 and 10. 23. Contingent liabilities The Company has guaranteed bank and mortgage indebtedness of certain subsidiary undertakings which at 31 March 2005 amounted to »50m (2004 ^ »51m). The Group is from time to time party to legal actions arising in the ordinary course of business. The Directors are advised that there are no current actions which could have a material adverse effect on the ¢nancial position of the Group. Page 39 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notes to the Financial Statements (continued) 24. Principal Subsidiary Undertakings Except where indicated the following are direct subsidiaries of the Company. All are wholly owned property investment or trading companies and are included in the Consolidated Financial Statements. Incorporated in the UK and registered in England Astral Estates (London) Limited* Daejan (Norwich) Limited* Bampton Holdings Limited* Bampton (B&B) Limited* Bampton (Redbridge) Limited* Brick¢eld Properties Limited Daejan (NUV) Limited* Daejan Properties Limited Daejan (Reading) Limited* Daejan Retail Properties Limited City and Country Properties Limited* Daejan (Taunton) Limited* City and Country Properties (Birmingham) Limited* Daejan (Warwick) Limited* City and Country Properties (Camberley) Limited* Daejan (Worcester) Limited* City and Country Properties (Midlands) Limited* Hampstead Way Investments Limited Coinpeak Limited Daejan (Brighton) Limited* Daejan (Cardiff) Limited* Inputstock Limited Inputstripe Limited Lawnstamp Limited Daejan Commercial Properties Limited Limebridge Co. Limited Daejan (Dartford) Limited* Pegasus Investment Company Limited* Daejan Developments Limited Rosebel Holdings Limited Daejan (Durham) Limited* Daejan Enterprises Limited Daejan Estates Limited Daejan (FH 1998) Limited Seaglen Investments Limited* St. Leonards Properties Limited The Bampton Property Group Limited* The Cromlech Property Co. Limited* Daejan (FHNV 1998) Limited The Halliard Property Co. Limited* Daejan (High Wycombe) Limited* Daejan Investments Limited Daejan Investments (Grove Hall) Limited Daejan Investments (Harrow) Limited* Incorporated in the USA Daejan Investments (Park) Limited Daejan Holdings (US) Inc.* Daejan (Kingston) Limited* Daejan (Lauderdale) Limited* Daejan (NY) Limited* Daejan Enterprises Inc.* * Indirectly owned. Page 40 156162b Daejan Holdings PLC Report & Financial Statements 2005 Report of the UK Valuers The Directors, Daejan Holdings PLC 158-162 Shaftesbury Avenue London WC2H 8HR Gentlemen, As instructed we have valued for the purpose of your Company’s accounts the investment properties owned by its subsidiaries in the United Kingdom as at 31 March 2005. The properties are listed in our separate detailed schedules. We have not had access to Title Deeds and our valuation is on the basis of the information supplied to us by you as to tenure and occupancy and other relevant information. The properties have been valued individually on the basis of open market value and in the case of Freshwater House on the basis of Existing Use Value in accordance with the Practice Statements in the Royal Institution of Chartered Surveyors, Appraisal and Valuation Manual. No allowance has been made for expenses of realisation or for any taxation which may arise, and our valuations are expressed exclusive of any Value Added Tax that may become chargeable. Our valuations assume that the properties are free from any undisclosed onerous burdens, outgoings or restrictions. We have not seen planning consents and have assumed that the properties have been erected and are being occupied and used in accordance with all requisite consents. We have not carried out Structural Surveys of the properties nor have we tested the services. Our valuations assume that the buildings contain no deleterious materials. We con¢rm that the valuations have been carried out by us as External Valuers quali¢ed for the purpose of the valuation. The valuation is made, subject to our Standard Terms of Engagement and General Principles applied in the preparation of Valuations and Reports provided to you and in accordance with instructions, the properties are inspected on a three-yearly cycle. Having regard to the foregoing we are of the opinion that the aggregate of the values of your Company’s property interests in the United Kingdom as at 31 March 2005 is »589,674,000. In accordance with our standard practice, we must state that this valuation is for the use only of the party to whom it is addressed and no responsibility is accepted to any third party for the whole or any part of its contents. Yours faithfully, Cardales Chartered Surveyors 1 Lumley Street, London W1Y 2ND 31 March 2005 Page 41 156162b Daejan Holdings PLC Report & Financial Statements 2004 Five-Year Record 2001 Restated »000 2002 »000 2003 »000 2004 »000 2005 »000 Turnover 80,066 85,823 84,132 90,007 88,845 Net Rental Income Surplus on Sale of Trading Properties Other Income 38,006 4,622 1,679 40,972 5,591 143 37,723 6,587 159 37,138 7,002 196 36,511 5,210 156 Gross pro¢t 44,307 46,706 44,469 44,336 41,877 Group Pro¢t before Taxation Taxation Minority Interests 29,765 8,436 429 30,081 9,262 53 30,692 10,057 51 30,442 7,522 1 31,269 9,365 96 Available Surplus 20,900 20,766 20,584 22,919 21,808 Earnings: p. per Share Dividends: p. per Share 128.3 49.0 127.4 52.0 126.3 55.0 140.6 58.0 133.8 61.0 Gross Assets Equity Shareholders’ Funds Equity Shareholders’ Funds: » per Share (based on balance sheet ¢gures) Represented by: Share Capital Reserves and Retained Pro¢t 602,045 382,851 669,600 442,775 704,425 469,506 713,782 504,505 789,559 572,213 23.49 27.17 28.81 30.96 35.12 4,074 378,777 4,074 438,701 4,074 465,432 4,074 500,431 4,074 568,139 Equity Shareholders’ Funds 382,851 442,775 469,506 504,505 572,213 Page 42 156162b Daejan Holdings PLC Report & Financial Statements 2005 Directors & Advisers Directors B S E Freshwater (Chairman and Managing Director) D Davis (non executive) S I Freshwater Secretary M R M Jenner F.C.I.S. Registered & Head Office Freshwater House, 158-162 Shaftesbury Avenue, London WC2H 8HR Registered in England No. 305105 Registrars Auditors KPMG Audit Plc, 8 Salisbury Square, London EC4Y 8BB Consulting Accountants Cohen, Arnold & Co., New Burlington House, 1075 Finchley Road, London NW11 0PJ Principal Bankers Lloyds TSB Bank Plc Barclays Bank PLC The Royal Bank of Scotland Group Stockbrokers Lloyds TSB Registrars, Brewin Dolphin Securities Limited The Causeway, Worthing, West Sussex BN99 6DA 7 Drumsheugh Gardens Edinburgh EH3 7QH Page 43 156162b Daejan Holdings PLC Report & Financial Statements 2004 Notice of Meeting Notice is hereby given that the Seventieth Annual General Meeting of Daejan Holdings PLC will be held at The Methven Room, CBI, 1st Floor, Centre Point, New Oxford Street, London WC1, on 23 September 2005 at 12 noon, for the following purposes:^ Ordinary Business To consider and if thought ¢t, pass the following Ordinary Resolutions : 1. To receive the Financial Statements for the year ended 31 March 2005 together with the Reports of the Directors and the Auditors. (Resolution 1.) To approve the Remuneration Report. (Resolution 2.) To declare a ¢nal dividend. (Resolution 3.) To re-elect Mr D Davis who has attained the age of 70 years as a Director. (Resolution 4.) To re-appoint KPMG Audit Plc as Auditors, and to authorise the Directors to agree their 2. 3. 4. 5. remuneration. (Resolution 5.) Special Business To consider and if thought ¢t, pass the following Special Resolution : 6. THAT (a) the Memorandum of Association of the Company be amended by the deletion of the existing objects clause, clause 4, and the insertion of a new clause 4 as contained in the printed document produced to the meeting and initialled by the Chairman for the purpose of identi¢cation; and (b) the regulations contained in the printed document produced to the meeting and initialled by the Chairman for the purpose of identi¢cation be and the same are hereby approved and adopted as the Articles of Association of the Company in substitution for and to the exclusion of the existing Articles of Association of the Company. (Resolution 6.) By Order of the Board, M R M Jenner Secretary 10 August 2005 A Member entitled to attend and vote may appoint one or more proxies to attend, and on a poll, to vote instead of him. A proxy need not be a Member of the Company. Only those Members registered in the Register of Members of the Company as at 6.00 pm on 21 September 2005 shall be entitled to attend or vote at the aforesaid Annual General Meeting in respect of the number of shares registered in their name at that time. To be valid, forms of proxy must be received by the Company’s Registrars at least 48 hours before the time ¢xed for the Meeting. The recommended ¢nal dividend will, if approved, be paid on 1 November 2005 to Shareholders registered at the close of business on 7 October 2005. No Director has a service contract. Page 44 Printed by greenaways, a member of the ormolu group. Art direction and photography by Roger Watt