Daejan Holdings PLC Report & Financial Statements 2006 137723 Cover 27/5/02 11:52 pm Page ifc1 Daejan Holdings PLC Report & Financial Statements 2006 Summary of Results Year ended 31 March 2006 »000 162,659 113,112 690.1p 65.0p »45.74 2005 »000 96,420 67,509 413.7p 61.0p »38.94 Pro¢t before Taxation Pro¢t after Taxation Earnings per Share Dividends per Share Equity Shareholders’ Funds per Share Final Dividend of 40p per share payable on 1 November 2006 to shareholders on the register on 6 October 2006 Summary of Results Some of our Properties Chairman’s Statement Directors’ Report Directors’ Remuneration Report Corporate Governance Directors’ Responsibilities Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Recognised Income and Expense Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Company Balance Sheet Notes to the Company Financial Statements Five-Year Record Directors & Advisers Notice of Meeting Contents Page 1 2 4 9 14 16 20 21 23 24 25 26 27 45 46 49 50 51 Page 1 Daejan Holdings PLC Report & Financial Statements 2006 Some of our Properties Right: Bedford House, Park Street, Taunton, Somerset. Below : Barclays House, High Street, Crawley, West Sussex. Above: Queensway Meadow, Newport, Gwent. Right: Prestamex House, Preston Road, Brighton, East Sussex. Page 2 Daejan Holdings PLC Report & Financial Statements 2006 Left: Swan Courtyard, Charles Edward Road, Yardley, Birmingham. Below: Beacontree Plaza, Gillette Way, Reading, Berks. Above: Somerfield Supermarket, High Street, Newport, Shropshire. Left: 4200 Inverrary Boulevard, Lauderhill, Florida. Page 3 Daejan Holdings PLC Report & Financial Statements 2006 Chairman’s Statement I have great pleasure in presenting the Report and Accounts for the year ended 31 March 2006, our ¢rst annual accounts to be prepared using International Financial Reporting Standards (IFRS). These new standards are intended to be accepted internationally and have been mandated by the European Union (EU) for adoption in the preparation of the consolidated accounts of all companies whose shares are listed on a recognised Stock Exchange within the EU. The adoption of IFRS has led to a number of changes to the way in which our results and ¢nancial position have traditionally been presented (UK GAAP). In particular, all properties are now included in the Consolidated Balance Sheet at valuation and the resultant year on year changes in valuation are included in arriving at Pro¢t for the Year. Our pro¢t and loss accounts over many years have been based upon net property revenue and property sales and this has produced long term, steady progress in our reported pro¢t. The IFRS approach will have the unintended consequence of injecting volatility into our reported pro¢t, with every percentage point change in annual revaluation producing a swing of some »11 million in reported Pro¢t before Tax. Taking this years results as an example, the table below illustrates that the stated Pro¢t before Tax of »162.6 million would, under UK GAAP, have been reported as a pro¢t of »34.6 million. Full details of the adjustments which have been made in order to restate the Consolidated Balance Sheet and Income Statement from UK GAAP onto an IFRS basis are set out in note 23 on page 42. Pro¢t under UK GAAP Valuation Gains Valuation Losses Fair Value Gains Adjustment for Gain on Sales of Ex-Trading Properties Pro¢t under IFRS 2006 »000 34,627 149,728 (18,752) 1,288 (4,232) 162,659 2005 »000 31,269 70,586 (6,207) 2,919 (2,147) 96,420 Above: Euro House, High Street, Hounslow, Middx. Right: The Square, Broad Street, Birmingham. Page 4 Daejan Holdings PLC Report & Financial Statements 2006 The new IFRS presentation includes in the Consolidated Income Statement all gains, both realised and unrealised. It is however important to remember that the cash which we utilise to run the income and business and pay dividends to Shareholders is largely generated from net rental realised gains. This is set out in the Consolidated Statement of Cash Flows on page 26, which shows Net Cash from Operating Activities in 2006 amounting to »17.1 million (2005 ^ »8.7 million). Whilst the way in which we report to you may have changed, we have been constant in our focus on the reality of the business in our traditional manner and I am pleased to report a further satisfactory period with signi¢cant increases in both pro¢t and the Group’s net worth. The revaluation of our Investment Properties at »1.1 billion is most encouraging and represents an overall annual uplift of 14%; this compares favourably with the uplift of 7% in 2005. The table below shows the contribution to this uplift by type of property: Commercial Property UK USA Residential Property UK USA Total Valuation March 2006 Percentage Change »564.5m »34.2m »349.9m »152.4m »1,101.0m +12.2% +18.3% +18.5% +3.7% 14% Above: Barton Street, Bath. Left: Jeffries Passage, North Street, Guildford, Surrey. Far left: Temple Street, Birmingham. Page 5 Daejan Holdings PLC Report & Financial Statements 2006 Chairman’s Statement (continued) Analysis by Property Type Property UK Property USA Commercial £564.5m Residentital £349.9m Commercial £34.2m Residential £152.4m Commercial Property UK Commercial Property USA Offices £186m Leisure £23m Industrial £49m Retail £278.5m Land & Development £28m Offices £32.1m Retail £2.1m Analysis by Location UK Valuations London & the South £686.1m Midlands £116.5m Wales & West £47.3m North & Scotland £64.5m USA Valuations New York £85.0m Boston £24.7m Baltimore £12.5m Florida £38.7m New Jersey £23.7m Pennsylvania £2.0m Properties in the USA now comprise 17% of our total portfolio and it is intended that our holdings in the USA should be gradually expanded. Turning to the results for the year, our Gross Rental Income at »77.5 million is up 17.5% on last year (2005 ^ »66 million). As I mentioned in my last report, we received in July 2005 a cumulative uplift of »3.5 million following the settlement of a long outstanding rent review for the Strand Palace Hotel. After adjusting for this non-recurring item, for new additions to our portfolio late in 2005 and for exchange rate movements we achieved an underlying rental growth of 5.5% in the UK and 9.2% in the USA, giving 6.3% rental growth overall. Expenditure in the year on repairs at »22.4 million is »2.9 million up on last year (2005 ^ »19.5 million). In the UK, expenditure was up »1.1 million at »18.4 million with signi¢cant major works programmes at Park West, Heathcroft, Oakwood Court and a further 12 properties accounting for Page 6 Daejan Holdings PLC Report & Financial Statements 2006 Far left: The Promenade, Cheltenham, Gloucs. Left: 1625 East 13th Street, Brooklyn, New York, USA. Below: 4 Crossroads Drive, Hamilton, New Jersey, USA. half of the repair spend. The remainder was spread widely on numerous small projects across the entire UK portfolio. Of the total UK repair expenditure »12 million is recoverable from lessees via service charges (2005 ^ »11 million). At 31 March 2006 expenditure on major works projects on our UK properties with a total estimated cost of »16 million had been approved but not incurred; these projects will be completed over several accounting periods. In the USA the increase of »1.9 million was very largely attributable to costs incurred following damage by Hurricane Wilma to our apartment complex in Fort Lauderdale, Florida. In the UK the residential letting market continues to be fairly active and our level of lettings is similar to last year. As far as our commercial properties are concerned the letting market has been somewhat less buoyant with an increase in rental income of only 2.5% in the year. Increased lettings in the USA, particularly at Fort Lauderdale, Florida have contributed to the growth in USA rental income. The Group’s continuing performance gives your Board con¢dence to recommend an increase in the total dividend for the year from 61p to 65p per share; an increase of 6.6% (2005 ^ 5%). The ¢nal dividend payable in November, subject to shareholder approval, will be 40p per share. Your Board will continue with its policy of prudently increasing dividend levels in line with the Group’s progress. The Consolidated Balance Sheet at 31 March 2006 shows clearly the Group’s continuing ¢nancial strength with Equity Shareholders Funds of »745 million (2005 ^ »634 million); equivalent to »45.74 per share (2005 ^ »38.94). This is an increase of 17.5% in the year. In keeping with our conservative approach we continue to maintain gearing at a relatively low level ; 13% at the year end (2005 ^ 16%). Our cash resources and undrawn facilities, amounting at 31 March 2006 to »181 million (2005 ^ »138 million), enable us to readily respond to suitable investment opportunities. Page 7 Daejan Holdings PLC Report & Financial Statements 2006 Chairman’s Statement (continued) Although it seems unlikely that we will be able to take advantage of the introduction of the new Real Estate Investment Trust (REITS) legislation, we continue to keep the situation under active review. these lower yields will prevail The property market has continued to see reductions in investment yields and it seems likely the that immediate future. Looking forward, however, we cannot rule out the possibility of a change in sentiment which may impact on yields and values. for Yield compression has had a positive effect on valuations of our existing properties. It also means that pro¢t margins on prospective purchases, particularly in the UK, have been narrower which allows a lesser margin of protection against commercial risk. We have therefore concentrated our efforts on seeking new opportunities to enhance rental and capital values within our existing portfolio. I have con¢dence that our approach of enterprise tempered by caution, combined with the strength and diversity of our portfolio, will enable us to deliver the long term steady progress that has become the hallmark of our Group. I would like to conclude this report by expressing my sincere thanks to our staff for their unstinting efforts on behalf of the Group and its shareholders throughout the year. B.S.E. FRESHWATER Chairman Above: Kew House, Brentford, Middx. Right: Hills Road, Cambridge. Page 8 Daejan Holdings PLC Report & Financial Statements 2006 Directors’ Report The Directors have pleasure in presenting their Report together with the Financial Statements for the year to 31 March 2006. Principal Activities of the Group Daejan Holdings PLC is a holding company whose principal activity, carried on through its subsidiary undertakings, is property investment, 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 in that country. Properties A professional valuation of all the Group’s properties was carried out at 31 March 2006. The resultant ¢gures are included in the Financial Statements now presented and the increase of »131 million over previous book values has been included in the Income Statement. The Group’s UK properties were valued by Cardales, Chartered Surveys and by Colliers CRE, Chartered Surveyors and produced a revaluation surplus of »119 million. The Group’s USA properties were valued by KTR Newmark, Meredith & Green, Joseph J. Blake and Associates Inc. and Metropolitan Valuation Services Inc. All the USA ¢rms are General Certi¢ed appraisers. The revaluation surplus arising on the USA properties was »12 million. Business Review The Group’s Business Review and future developments are included in the Chairman’s Statement set out on pages 4 to 8 which are included in this report by reference. International Financial Reporting Standards Daejan Holdings PLC has adopted International Financial Reporting Standards (‘‘IFRS’’) for the ¢rst time in these ¢nancial statements. The 2005 comparatives have been restated for IFRS. Reconciliations of the results and net assets under UK GAAP, as previously reported, to IFRS are given in note 23. The adoption of IFRS has resulted in a number of adjustments to the previously reported results and net assets which are explained in the same note. Page 9 Daejan Holdings PLC Report & Financial Statements 2006 Directors’ Report (continued) Results & Dividend The pro¢t for the ¢nancial year amounted to »113,112,000 (2005 ^ »67,509,000). An Interim Dividend of 25p per share was paid on 10 March 2006 and the Directors now recommend the payment of a Final Dividend of 40p per share, making a total for the year of 65p per share, an increase of 4p over the previous year. An analysis of the Group’s property income and pro¢t before taxation for the year is as follows:^ Property Income Profit Gross Rental and Service Charges Sales of Investment Properties Net Valuation Gains Financing Charges (net) Administrative and Other Expenses Pro¢t before Taxation UK »000 77,114 7,969 119,138 204,221 USA »000 18,575 4,196 11,838 34,609 UK »000 38,794 4,884 119,138 162,816 (5,908) (8,568) USA »000 3,915 1,289 11,838 17,042 (2,200) (523) 148,340 14,319 14,319 162,659 Principal Accounting Estimates and Judgements The Group’s critical accounting policies and estimates are disclosed in full in note 1 to the ¢nancial statements. This note is intended to highlight those policies that are critical to the business based on the level of management judgement required in their application, their complexity and potential impact on the results and ¢nancial position reported for the Group. The principal area of judgement is the valuation of properties. Financial Objectives and Policies and Exposure to Financial Risk 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 costs by way of ¢nancial derivative instruments whilst retaining some ability to take advantage of falling interest rates. There is no obligation or present intention to repay the borrowings other than at maturity. Impact of Future Accounting Standards not yet endorsed Additional standards have been issued but were not effective during the year and are not expected to have any material effect on the results of the Group. Page 10 Daejan Holdings PLC Report & Financial Statements 2006 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 Brief biographies of the Directors are as follows:^ Mr B S E Freshwater. Aged 58 ^ 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. Mr D Davis. Aged 71 ^ A Chartered Accountant and member of the Institute of Taxation, was previously a partner in Cohen Arnold, 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 55 ^ 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 21 to the ¢nancial statements. Page 11 Daejan Holdings PLC Report & Financial Statements 2006 Directors’ Report (continued) 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 2006 31 March 2005 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 (2005 ^ 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 2006 a total of 7,876,431 shares (2005 ^ 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 2006 up to the date of signing this report. 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 holdings are set out in note 9 on page 35 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. Page 12 Daejan Holdings PLC Report & Financial Statements 2006 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 (2005 ^ »120,000). There were no political contributions (2005 ^ »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. Statement of Disclosure of Information to Auditors The Directors who held of¢ce at the date of approval of this Directors’ Report con¢rm that, so far as they are aware there is no relevant audit information of which the Company’s auditors are unaware, and each Director has taken all the steps they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. By Order of the Board, M R M Jenner Secretary 9 August 2006 Page 13 Daejan Holdings PLC Report & Financial Statements 2006 Directors’ Remuneration Report Audited Information Remuneration Details of individual Director’s remuneration are set out below on an accruals basis. 2006 Mr B S E Freshwater Mr D Davis Mr S I Freshwater 2005 Mr B S E Freshwater Mr D Davis Mr S I Freshwater Pensions Salary » 575,000 ^ 504,000 Fees » 20,000 20,000 20,000 Total » 595,000 20,000 524,000 1,079,000 60,000 1,139,000 Salary » 500,000 ^ 435,000 935,000 Fees » 20,000 20,000 20,000 60,000 Total » 520,000 20,000 455,000 995,000 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 no further contributions will be made. 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 16). 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 are known with any salary increase calculated and paid with effect from the beginning of the ¢nancial year. Page 14 Daejan Holdings PLC Report & Financial Statements 2006 Remuneration of Non Executive Directors The fee of the non-executive Director is 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 2006 (rebased as at 1 April 2001) TSR Performance Graph 450 400 350 300 250 200 150 100 50 Daejan FTSE 2001 2002 2003 2004 2005 2006 Daejan Holdings Plc FTSE Real Estate Sector Source: Thomson Datastream Approved by the Board on 9 August 2006 and signed on its behalf by M R M Jenner Company Secretary Page 15 Daejan Holdings PLC Report & Financial Statements 2006 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. Executive remuneration is not directly related to performance, but a link is established by the fact that remuneration is not agreed upon until after the results for the year are known. 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 Directors have access to the Company Secretary who is responsible for ensuring that the Board Page 16 Daejan Holdings PLC Report & Financial Statements 2006 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 four formal Board Meetings and attendance was: B S E Freshwater (4), S I Freshwater (4), D Davis (4). 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 11. All the Directors served throughout the period under review. Directors’ Remuneration Details of the Directors’ remuneration are contained in the Remuneration Report on page 14. 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 Page 17 Daejan Holdings PLC Report & Financial Statements 2006 Corporate Governance (continued) under 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 18 Daejan Holdings PLC Report & Financial Statements 2006 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 2006 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.6 A.7.2 B.1.1 B.2.1^2 C.3.1^6 performance evaluation of the Board 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. Page 19 Daejan Holdings PLC Report & Financial Statements 2006 Directors’ Responsibilities Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements The directors are responsible for preparing the Annual Report and the group and parent company ¢nancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare group and parent company ¢nancial statements for each ¢nancial year. Under that law they are required to prepare the group ¢nancial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the parent company ¢nancial statements in accordance with UK Accounting Standards. The group ¢nancial statements are required by law and IFRSs as adopted by the EU to present fairly the ¢nancial position and the performance of the group. The Companies Act 1985 provides in relation to such ¢nancial statements, that references in the relevant part of that Act to ¢nancial statements giving a true and fair view, are references to their achieving a fair presentation. The parent company ¢nancial statements are required by law to give a true and fair view of the state of affairs of the parent company and of the pro¢t or loss of the parent company for that period. In preparing each of the group and parent company ¢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; for the group ¢nancial statements, state whether they have been prepared in accordance with IFRSs as adopted by the EU; for the parent company ¢nancial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company ¢nancial statements; and prepare the ¢nancial statements on the going concern basis unless it is inappropriate to presume that the group and the parent company will continue in business. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the ¢nancial position of the parent company and enable them to ensure that its ¢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 group and to prevent and detect fraud and other irregularities. Under applicable law and regulations, the directors are also responsible for preparing a Directors’ Report, Directors’ Remuneration Report and Corporate Governance Statement that comply with that law and those regulations. Page 20 Daejan Holdings PLC Report & Financial Statements 2006 Independent Auditors’ Report Independent auditors’ report to the members of Daejan Holdings PLC We have audited the group and parent company ¢nancial statements (the ‘‘¢nancial statements’’) of Daejan Holdings Plc for the year ended 31 March 2006 which comprise the primary statements such as the Group Income Statement, the Group and Parent Company Balance Sheets, the Group Cash Flow Statement, the Group Statement of Recognised Income and Expense and the related notes. These ¢nancial statements have been prepared under the accounting policies set out therein. 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 and auditors The directors’ responsibilities for preparing the Annual Report and the group ¢nancial statements in accordance with applicable law and International Financial Reporting Standards (IFRSs) as adopted by the EU, and for preparing the parent company ¢nancial statements and the Directors’ Remuneration Report in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities on page 20. Our responsibility is to audit the ¢nancial statements and the part of the Directors’ Remuneration Report to be audited in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). 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 and, as regards the group ¢nancial statements, Article 4 of the IAS Regulation. 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 other transactions is not disclosed. We review whether the Corporate Governance Statement re£ects the company’s compliance with the nine provisions of the 2003 FRC Combined Code speci¢ed for our review by the Listing Rules of the Financial Services Authority, 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 Page 21 Daejan Holdings PLC Report & Financial Statements 2006 Independent Auditors’ Report (continued) 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 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. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) 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 judgments made by the directors in the preparation of the ¢nancial statements, and of whether the accounting policies are appropriate to the group’s and company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we 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 group ¢nancial statements give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the group’s affairs as at 31 March 2006 and of its pro¢t for the year then ended; the parent company ¢nancial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of the parent company’s affairs as at 31 March 2006; 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 and, as regards the group ¢nancial statements, Article 4 of the IAS Regulation. KPMG Audit Plc Chartered Accountants Registered Auditor London 9 August 2006 Page 22 Daejan Holdings PLC Report & Financial Statements 2006 Consolidated Income Statement for the year ended 31 March 2006 Gross Rental Income Service Charge Income Year ended 31 March 2006 »000 Year ended 31 March 2005 »000 Notes 77,526 18,163 65,985 17,442 Total Rental and Related Income from Investment Properties Property Operating Expenses 95,689 (52,980) 83,427 (46,760) 3 Net Rental & Related Income from Investment Properties Pro¢t on Disposal of Investment Properties Valuation Gains on Investment Properties Valuation Losses on Investment Properties 42,709 6,173 149,728 (18,752) 36,667 7,959 70,586 (6,207) Net Valuation Gains on Investment Properties 130,976 64,379 Administrative Expenses 4 (9,091) (7,669) Net Operating Pro¢t before Net Financing Costs 170,767 101,336 Fair Value Gains on Financial Instruments Fair Value (Losses)/Gains on Current Investments Financial Income Financial Expenses 1,298 (10) 2,119 (11,515) 2,908 11 2,151 (9,986) Net Financing Costs 5 (8,108) (4,916) Share of Post Tax Pro¢t of Equity Accounted Associates ^ ^ Pro¢t Before Taxation Income Tax Expense Pro¢t for the Year Attributable to:^ Equity Holders of the Parent Minority Interest Pro¢t for the Year 162,659 96,420 6 (49,547) (28,911) 113,112 67,509 112,460 652 67,413 96 113,112 67,509 Basic and Diluted Earnings per Share 7 690.1p 413.7p The notes on pages 27 to 44 form part of these Financial Statements. Page 23 Daejan Holdings PLC Report & Financial Statements 2006 Consolidated Statement of Recognised Income and Expense for the year ended 31 March 2006 Foreign Exchange translation differences Income & Expense Recognised Directly in Equity Pro¢t for the Year Year ended 31 March 2006 »000 Year ended 31 March 2005 »000 8,307 1,870 8,307 113,112 1,870 67,509 Total Recognised Income & Expense for the Year 121,419 69,379 Attributable to:^ Equity Holders of the Parent Minority Interest 120,767 69,283 652 96 Total Recognised Income & Expense for the Year 121,419 69,379 The notes on pages 27 to 44 form part of these Financial Statements. Page 24 Daejan Holdings PLC Report & Financial Statements 2006 Consolidated Balance Sheet as at 31 March 2006 Assets Investment Properties Investment in Associate Other Investments Deferred Tax Assets Total Non-Current Assets Trade and Other Receivables Investments Cash at Bank Total Current Assets Total Assets Equity Issued Capital Share Premium Retained Earnings Total Equity Attributable to Equity Holders of the Parent Minority Interest Total Equity Liabilities Interest Bearing Loans and Borrowings Deferred Tax Liabilities Total Non-Current Liabilities Bank Overdrafts Interest Bearing Loans and Borrowings Trade and Other Payables Taxation Total Current Liabilities Total Liabilities Total Equity & Liabilities Notes 8 9 10 11 12 13 14 15 15 15 17 11 14 17 16 31 March 2006 »000 1,101,048 ^ 617 2,608 31 March 2005 »000 955,157 ^ 617 2,997 1,104,273 958,771 32,043 160 37,300 69,503 26,354 169 44,825 71,348 1,173,776 1,030,119 4,074 555 740,659 4,074 555 629,832 745,288 330 634,461 206 745,618 634,667 140,212 219,045 154,174 180,912 359,257 335,086 15 8,448 42,209 18,229 68,901 ^ 9,161 40,664 10,541 60,366 428,158 395,452 1,173,776 1,030,119 The Financial Statements on pages 23 to 44 were approved by the Board of Directors on 9 August 2006 and were signed on its behalf by:^ B.S.E Freshwater D. Davis Director Director The notes on pages 27 to 44 form part of these Financial Statements. Page 25 Daejan Holdings PLC Report & Financial Statements 2006 Consolidated Statement of Cash Flows for the year ended 31 March 2006 Cash Flows From Operating Activities Cash Receipts ^ Rent and Charges Cash Paid to Suppliers and Employees Cash Generated from Operations Interest Received Interest Paid Drawings by Minority Interest in USA partnership UK Corporation Tax Paid Overseas Tax Paid Net Cash from Operating Activities (Note 19) Cash Flows from Investing Activities Year ended 31 March 2006 Year ended 31 March 2005 »000 »000 »000 »000 90,284 (59,785) 30,499 2,119 (11,543) (528) (3,352) (83) 81,254 (55,170) 26,084 2,151 (10,223) (23) (9,152) (171) 17,112 8,666 Acquisition of Investment Properties (6,806) Proceeds from Sale of Investment Properties 12,165 (29,991) 24,975 Net cash from Investing Activities 5,359 (5,016) Cash Flows from Financing Activities Repayment of Secured Loans Repayment of Mortgage Advances New Mortgage Advances Dividends Paid (24,782) (1,321) 4,728 (9,940) (13,306) (967) 21,311 (9,940) Net Cash from Financing Activities (31,315) (2,902) Net (Decrease)/Increase in Cash and Cash Equivalents Cash and Cash Equivalents Brought Forward Effect of Exchange Rate Fluctuations on Cash Held Cash and Cash Equivalents (Note 14) (8,844) 44,825 1,304 37,285 748 43,812 265 44,825 The notes on pages 27 to 44 form part of these Financial Statements. Page 26 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements 1. Significant accounting policies Daejan Holdings PLC is a company domiciled in the United Kingdom. The consolidated ¢nancial statements of the Company for the year ended 31 March 2006 comprise the Company and its subsidiaries (together referred to as the ‘‘Group’’) and the Group’s interest in associates. The consolidated ¢nancial statements were authorised for issuance on 9 August. (a) Statement of compliance The consolidated ¢nancial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs). These are the Group’s ¢rst IFRS consolidated ¢nancial statements and IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. An explanation of how the transition to IFRS has affected the reported ¢nancial position, ¢nancial performance and cash £ows of the Group is provided in note 23. This note includes reconciliations of equity and pro¢t or loss for the comparative period reported under United Kingdom GAAP (previous GAAP) to those reported for those periods under IFRSs. The Company has elected to prepare its parent Company Financial Statements in accordance with UK GAAP and these are presented on pages 45 to 48. (b) Basis of preparation The ¢nancial statements are presented in sterling, rounded to the nearest thousand. They are prepared on the historical cost basis except that the following assets and liabilities are stated at their investment properties, other non-current investments and current asset investments. fair value: derivative ¢nancial instruments, The preparation of ¢nancial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. These consolidated ¢nancial statements have been prepared on the basis of IFRSs in issue that are effective at the Group’s ¢rst IFRS annual reporting date, 31 March 2006. The preparation of the consolidated ¢nancial statements in accordance with IFRS resulted in changes to the accounting policies as compared with most recent annual ¢nancial statements prepared under previous GAAP. The accounting policies set out below, unless otherwise stated, have been applied consistently to all periods presented in these consolidated ¢nancial statements. They also have been applied in preparing an opening IFRS balance sheet at 1 April 2004 for the purposes of the transition to IFRSs, as required by IFRS 1. The impact of the transition from previous GAAP to IFRSs is explained in note 23. The accounting policies have been applied consistently throughout the Group for purposes of these consolidated ¢nancial statements. (c) Subsidiaries Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the ¢nancial and operating policies of an entity so as to obtain bene¢ts from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. Page 27 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) (d) Associates Associates are those entities in which the Group has signi¢cant in£uence, but not control, over the ¢nancial and operating policies. The consolidated ¢nancial statements includes the Group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date that signi¢cant in£uence commences until the date that signi¢cant in£uence ceases. (e) Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated ¢nancial statements. (f) Income available for distribution Under the Articles of Association of certain Group investment undertakings, realised capital surpluses are not available for distribution as dividends. (g) Foreign currency translation The assets and liabilities of foreign operations are translated to sterling at the foreign exchange rate ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to sterling at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange difference arising on retranslation are recognised directly in a separate component of equity. (h) Derivative ¢nancial instruments The Group uses derivative ¢nancial instruments to hedge its exposure to interest rate risk arising from operational and ¢nancing activities. As the derivatives do not qualify for hedge accounting, they are accounted for as trading instruments. Derivative ¢nancial instruments are recognised initially at fair value. Subsequent to initial recognition, derivative ¢nancial instruments are stated at fair value. The fair value of interest rate swaps is the estimated amount that the Group would recover or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the credit worthiness of the swap counterparties. The gain or loss on re- measurement to fair value is recognised immediately in the Income Statement. (i) Investment property IFRS de¢nes Investment properties as those which are held either to earn rental income or for capital appreciation or both. Investment properties are stated at fair value. External, independent valuation ¢rms having appropriate recognised professional quali¢cations and recent experience in the location and category of property being valued, value the portfolio annually at the Company’s year end. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. As at 31 March 2005 and as part of the transition to IFRS the Directors in conjunction with advice received from professional valuers, valued the properties which under UK GAAP were characterised as trading properties but which under IFRS are classi¢ed as investment properties. At 31 March 2006 these properties were valued by Colliers CRE, Chartered Surveyors (see note 8). The Group’s other investment properties were valued as set out in note 8 on page 35. Page 28 Daejan Holdings PLC Report & Financial Statements 2006 The valuations are prepared by considering the aggregate of the net annual rent receivable from the properties. A yield which re£ects the risks inherent in the net cash £ows is then applied to the net annual rents to arrive at the property valuation. Any gains or losses arising from a change in fair value are recognised in the Income Statement. When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property, which is measured based on the fair value model. A property interest under an operating lease is classi¢ed and accounted for as an investment property on a property-by-property basis when the Group holds it to earn rentals or for capital appreciation or both. Any such property interest under an operating lease classi¢ed as an investment property is carried at fair value. When the Group uses only part of a property it owns and retains the remainder to generate rental income or capital appreciation the extent of the Group’s utilisation is considered to determine the classi¢cation of the property. If the Group’s utilisation is less than ¢ve per cent., this is regarded as immaterial such that the whole property is classi¢ed as an investment property and stated at fair value. Acquisition and disposals are accounted for at the date of completion. It is Group policy to sell, as individual units, £ats in residential blocks which have been held as investment but which are now considered uneconomic to retain. Occasionally there are sales of residential and commercial investment blocks. The resulting surplus based on the excess sale proceeds over valuation is included in the Income Statement and taxation applicable thereto is shown as part of the taxation charge. (j) Other non-current investments Other non-current investments are classi¢ed as available for sale investments and are stated at fair value with any resultant gain or loss recognised through reserves. (k) Investment in equity securities Investments held for trading are classi¢ed as current assets and are stated at fair value, with any resultant gain or loss recognised in the Income Statement. (l) Other receivables Trade and other receivables are stated at their cost less impairment losses. (m) Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insigni¢cant risk of changes in value. Bank overdrafts are repayable on demand and form an integral part of the Group’s cash management. Bank overdrafts have therefore been included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows. (n) Dividends Dividends are recognised as a liability in the period in which they are declared. Page 29 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) (o) Trade and other payables Trade and other payables are stated at their cost. (p) Net rental income Net rental income comprises rent and service charges receivable less applicable provisions and costs associated with the properties. Rental income from investment property leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income. Service charge income is recognised as the services are provided. Net rental income is stated net of VAT. The cost of repairs is written off to the Income Statement in the year in which the expenditure occurred. Lease payments under operating leases are recognised in the Income Statement on a straight-line basis over the term of the lease. (q) Dividend income Dividend income is recognised in the Income Statement on the date the entity’s right to receive payments is established which in the case of quoted securities is the ex-dividend date. (r) Taxation Corporation tax on the pro¢t or loss for the year comprises current and deferred tax. Corporation tax is recognised in the Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for ¢nancial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. The deferred tax liability relates to potential capital gains on the sale of investment properties. The Group has no intention of making material disposals of its property assets in the foreseeable future and as such no allowance has been made for the effect of indexation. A deferred tax asset is recognised only to the extent that it is probable that future taxable pro¢ts will be available against which the asset can be utilised. (s) Segment reporting A segment is a distinguishable component of the Group that is engaged in providing products or services within a particular business segment or geographic location, which is subject to risks and rewards that are different from those of other segments. (t) Impairment The carrying amounts of the Group’s assets, other than investment property (see accounting policy (i)) and deferred tax assets (see accounting policy (r)), are reviewed at each balance sheet date to Page 30 Daejan Holdings PLC Report & Financial Statements 2006 determine whether there is any indication of impairment. If any such indication exists the asset’s recoverable amount is estimated. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the Income Statement. Impairment losses recognised in respect of cash generating units are allocated to ¢rst reduce the carrying amount of any goodwill allocated to cash generating units (group of units) and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis. When a decline in the fair value of an available-for-sale ¢nancial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that had been recognised directly in equity is recognised in pro¢t or loss even though the ¢nancial asset has not been derecognised. The amount of the cumulative loss that is recognised in pro¢t or loss is the difference between the acquisition cost and the current fair value, less any impairment loss on that ¢nancial asset previously recognised in pro¢t or loss. (i) Calculation of recoverable amount The recoverable amount of the Group’s investments in held-to-maturity securities and receivables is calculated as the present value of expected future cash £ows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these ¢nancial assets). Receivables with a short duration are not discounted. The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in use, the estimated future cash £ows are discounted to their present value using a pre-tax discount rate that re£ects current market assessments of the time value of money and the risks speci¢c to the asset. For an asset that does not generate largely independent cash in£ows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. (ii) Reversal of impairment An impairment loss in respect of a receivable is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (u) Provisions A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an out£ow of economic bene¢ts will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash £ows at a pre-tax rate that re£ects current market assessments of the time value of money and, where appropriate, the risks speci¢c to the liability. (v) Policy on interest bearing borrowings The Group seeks to minimise the risk of sudden and unexpected rises in ¢nance costs by way of ¢nancial derivative instruments while retaining the ability to take advantage of falling interest rates. Page 31 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) 2. Segmental Analysis The group operates in one business segment, Investment Property, across two geographical segments, UK & USA. The geographical analysis of property income, pro¢t and total assets and liabilities is as follows:^ Total rental and related income Pro¢t on disposal of investment properties UK »000 USA »000 2006 Total »000 UK »000 USA »000 2005 Total »000 77,114 18,575 95,689 69,910 13,517 83,427 4,884 1,289 6,173 7,925 34 7,959 Property Income 81,998 19,864 101,862 77,835 13,551 91,386 Pro¢t before ¢nancing charges Financing Charges 154,248 (5,908) 16,519 (2,200) 170,767 (8,108) 77,715 (4,524) 23,621 (392) 101,336 (4,916) Pro¢t before taxation 148,340 14,319 162,659 73,191 23,229 96,420 Total Assets 962,194 211,582 1,173,776 849,600 180,519 1,030,119 Total Liabilities Capital Expenditure 304,755 1,597 123,403 5,209 428,158 6,806 278,153 12,792 117,299 17,199 395,452 29,991 3. Property Operating Expenses Porterage, Cleaning and Repairs Insurance Building Services Other Management Costs 2006 »000 28,944 3,745 11,057 9,234 2005 »000 25,303 3,638 9,187 8,632 52,980 46,760 Page 32 Daejan Holdings PLC Report & Financial Statements 2006 4. Administrative Expenses Salaries Directors’ Remuneration Audit and Accountancy Legal and Other Administrative Expenses 2006 »000 4,387 1,079 551 3,074 9,091 2005 »000 4,142 995 506 2,026 7,669 Auditors’ Remuneration The Group paid »451,000 (2005 ^ »417,000) for Audit Services (including irrecoverable VAT) to its Auditors and »Nil (2005 ^ »300,000) for Taxation Services to KPMG LLP. The Group jointly employed an average of 145 persons during the year (2005 ^ 140). The aggregate payroll costs were:^ Wages NI Contributions Pensions Details of Directors’ Remuneration is as set out in the Directors’ Report. 5. Net Financing Costs Fair Value Gains on Derivative Financial Instruments Fair Value (Losses)/Gains on Current Investments Interest Receivable Financial Income Interest Payable on Loans Repayable within 5 years Interest Payable on Loans Repayable after 5 years Financial Expenses 2006 »000 3,662 305 420 4,387 2006 »000 1,298 (10) 2,119 3,407 2005 »000 3,461 287 394 4,142 2005 »000 2,908 11 2,151 5,070 (1,738) (9,777) (569) (9,417) (11,515) (9,986) (8,108) (4,916) Page 33 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) 6. Taxation on Profit on Ordinary Activities Taxation based on the pro¢t for the year of the Company and its subsidiaries:^ UK Corporation Tax at 30% (2005 ^ 30%) Overseas Taxation Prior Years Adjustments Deferred Tax Reconciliation of Tax Expense Pro¢t on Ordinary Activities before Taxation Corporation Tax at the Standard Rate of 30% (2005 ^ 30%) Expenses Disallowed Adjustments in Respect of Previous Period ^ UK Reduced Tax on Overseas Pro¢ts Not Subject to UK Corporation Tax Non-taxable Income and Other Differences 2006 »000 10,484 462 10,946 79 38,522 2005 »000 9,891 (394) 9,497 (31) 19,445 49,547 28,911 162,659 96,420 48,798 825 79 (343) 188 28,926 577 233 (52) (773) 49,547 28,911 The Group has a wholly owned subsidiary undertaking J2C PLC, an associate Arch Holdings Limited and an investment in Triteam Limited. The Companies have been acquired as part of the Group’s ¢nancial planning strategy. They have realised tax losses of »52m (2005 ^ »52m). A deferred tax asset has not been recognised on the basis that these losses are still subject to agreement by HM Revenue & Customs. 7. Earnings per Share Earnings per share is calculated on the earnings, after taxation and minority interests, of »112,460,000 (2005 ^ »67,413,000) and the weighted average shares in issue during the year of 16,295,357 (2005 ^ 16,295,357). Page 34 Daejan Holdings PLC Report & Financial Statements 2006 8. Investment Properties Professional Valuation at 1 April 2005 Disposals Additions Revaluation Foreign Exchange Movements Freehold »000 774,047 (3,175) 6,283 88,335 10,995 Long Leasehold »000 Short Leasehold »000 174,505 (2,819) ^ 34,654 3,008 6,605 ^ 523 7,987 100 Total 2006 »000 955,157 (5,994) 6,806 130,976 14,103 Total 2005 »000 875,522 (13,956) 29,991 64,379 (779) Professional Valuation at 31 March 2006 876,485 209,348 15,215 1,101,048 955,157 Professional valuations of all the Group’s United Kingdom investment properties were carried out at 31 March 2006 by Cardales, Chartered Surveyors and Colliers CRE, Chartered Surveyors. The revalued ¢gures are based on open market values in accordance with the Practice Statements in the RICS Appraisal and Valuation Manual. The Group’s USA investment properties were also professionally valued at 31 March 2006 by KTR Newmark, Meredith & Grew, Joseph J Blake and Associates, Inc. and Metropolitan Valuation Services Inc., USA General Certi¢ed Appraisers. The revalued ¢gures are based on open market values. 9. Investment in Associate Daejan Holdings PLC owns 74.9% (2005 ^ 74.9%) of the ordinary share capital of Arch Holdings Limited, incorporated in the UK, a holding company which owns 100% of the ordinary share capital of Arch (2004) Limited. The Company’s shareholding provides 50% of the voting rights in Arch Holdings Limited and hence in Arch (2004) Limited. Arch (2004) Limited’s principal activity was underwriting, which it ceased on 31 December 2001. The company 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. Due to this arrangement Daejan Holdings PLC has no obligation to fund any losses of Arch (2004) Limited or any excess of its liabilities over assets. Daejan Holding PLC’s interest in the net assets revenues and pro¢ts of Arch (Holdings) Limited amounted to »nil (2005 ^ »nil). 10. Other Investments Interest in syndicates holding Industrial Buildings 2006 »000 2005 »000 617 617 Page 35 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) 11. Deferred Tax Assets and Liabilities Assets »000 Liabilities »000 2006 Net »000 Assets »000 Liabilities »000 2005 Net »000 Investment Property Temporary Differences Fair value payables ^ ^ 2,608 (212,167) (6,878) ^ (212,167) (6,878) 2,608 ^ ^ 2,997 (174,165) (6,747) ^ (174,165) (6,747) 2,997 2,608 (219,045) (216,437) 2,997 (180,912) (177,915) Movement in Deferred Tax:^ Balance 1 April 2005 Recognised in Income Balance 31 March 2006 Investment Property »000 Temporary Differences »000 Fair Values »000 Total 2006 »000 Total 2005 »000 (174,165) (38,002) (6,747) (131) 2,997 (389) (177,915) (38,522) (158,470) (19,445) (212,167) (6,878) 2,608 (216,437) (177,915) 12. Trade and Other Receivables Rent and Service Charges Other Debtors and Prepayments Mortgages granted repayable within one year Escrow Account 13. Investments held as Current Assets Listed Securities 14. Cash and Cash Equivalents Bank Balances Call Deposits Cash at Bank Bank Overdrafts 2006 »000 14,046 12,083 2,105 3,809 2005 »000 14,545 10,224 801 784 32,043 26,354 2006 »000 160 2005 »000 169 2006 »000 27,793 9,507 37,300 (15) 2005 »000 41,340 3,485 44,825 ^ 37,285 44,825 Included within Bank Balances are tenants’ deposits of »933,000 (2005 ^ »786,000) which cannot be used in the ordinary course of business. Page 36 Daejan Holdings PLC Report & Financial Statements 2006 15. Capital and Reserves Share Capital Authorised: Ordinary Shares of 25 pence per share Allotted, Called Up and Fully Paid: Ordinary Shares of 25 pence per share Balance at 1 April 2004 Total Recognised Income and Expense Dividends to Shareholders Balance at 31 March 2005 Balance at 1 April 2005 Total Recognised Income and Expense Dividends to Shareholders Balance at 31 March 2006 Number 2006 »000 2005 »000 18,722,596 4,681 4,681 16,295,357 4,074 4,074 Share Capital »000 Share Premium »000 Retained Earnings »000 Minority Interest »000 Total »000 Total Equity »000 4,074 ^ ^ 4,074 4,074 ^ ^ 4,074 555 ^ ^ 570,489 69,283 (9,940) 575,118 69,283 (9,940) 133 96 (23) 575,251 69,379 (9,963) 555 629,832 634,461 206 634,667 555 ^ ^ 629,832 120,767 (9,940) 634,461 120,767 (9,940) 206 652 (528) 634,667 121,419 (10,468) 555 740,659 745,288 330 745,618 Included within retained earnings is a translation reserve of (»1,879,000) (2005 ^ (»5,299,000)). 16. Trade and Other Payables Rent and Service Charges charged in advance Other Creditors and Accruals Fair Value Payables 2006 »000 14,127 19,422 8,660 42,209 2005 »000 13,578 17,138 9,948 40,664 Page 37 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) 17. Interest Bearing Loans and Borrowings Non-current Liabilities Mortgage Advances Secured Bank Loans Analysis of creditors falling due after more than one year:^ 2006 »000 86,907 53,305 2005 »000 77,385 76,789 140,212 154,174 Amounts Repayable After 1 April 2011 Instalment Mortgages Secured Bank Loans Amounts Repayable Between 1 April 2008 and 31 March 2011 Instalment Mortgages Secured Bank Loans Amounts Repayable Between 1 April 2007 and 31 March 2008 Instalment Mortgages Secured Bank Loans Interest Rate % 2006 »000 4.46^7.89 5.23^8.55 78,688 49,306 2005 »000 65,844 65,361 127,994 131,205 4.375^5.89 5.23^8.55 4.5^6.76 5.23^8.55 4,586 3,000 7,586 3,632 1,000 4,632 5,665 8,663 14,328 5,876 2,765 8,641 Total Amount of Long Term Loans 140,212 154,174 Amount of Long Term Loans secured on certain of the Group’s properties Current Liabilities Bank Loans Mortgage Advances 140,212 154,174 2006 »000 7,148 1,300 8,448 2005 »000 6,565 2,596 9,161 Page 38 Daejan Holdings PLC Report & Financial Statements 2006 18. Financial Instruments Financial Assets Cash ^ Sterling denominated Cash ^ USA dollar denominated 2006 »000 21,450 15,850 37,300 2005 »000 30,293 14,532 44,825 All cash balances receive interest at a variable rate with reference to LIBOR for sterling denominated balances and USA Prime rate for USA dollar denominated balances. All cash balances are repayable on demand. The Group has trade and other receivables of »8,386,000 (2005 ^ »6,428,000) and trade and other payables of »7,873,000 (2005 ^ »8,373,000) denominated in USA dollars. Current asset investments and other non-current asset investments are denominated in Sterling. Current and non-current asset investments, trade and other receivables and payables are included in these accounts at fair value. 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 2006 »000 8,463 4,632 7,586 127,994 148,675 2005 »000 9,161 8,641 14,328 131,205 163,335 The Group has undrawn borrowing facilities of »115m (2005 ^ »88.5m) expiring within one year and »29m (2005 ^ »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 ^ Sterling denominated Floating rate liabilities ^ USA dollar denominated Fixed rate liabilities ^ Sterling denominated Fixed rate liabilities ^ USA dollar denominated 2006 »000 18,265 7,149 45,005 78,256 2005 »000 18,753 6,562 69,585 68,435 148,675 163,335 The £oating rate ¢nancial liabilities comprise Sterling denominated bank borrowings bearing rates based on LIBOR and USA dollar denominated bank borrowings bearing rates based on USA Prime rate. Hedge pro¢le ^ type and maturity of protection The weighted average interest rate on the ¢xed rate debt was 6.71% (2005 ^ 6.77%) and the weighted average period for which the borrowing is ¢xed at 31 March 2006 was 9 years (2005 ^ 10 years). All of the »59,039,000 (2005 ^ »60,335,000) of ¢xed rate swaps mature after ¢ve years. Details of Financial Risk Management are set out in the Directors Report. Page 39 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) Fair value of ¢nancial liabilities The table below sets out by category the book values and fair value of the Group’s ¢nancial liabilities. The disclosures exclude short term trade and other receivables and payables as the carrying value is a reasonable approximation of fair value. Financial instruments held or issued to ¢nance the Group’s operations Liabilities: Floating rate debt Fixed rate debt Fair value adjustment Book Value »000 Notional Principle »000 2005 Fair Value adjustment »000 Fair Value »000 (25,315) (138,020) ^ ^ (25,315) (148,010) ^ (9,990) (9,990) Book Value »000 Notional Principle »000 2006 Fair Value adjustment »000 Fair Value »000 Financial instruments held or issued to ¢nance the Group’s operations Liabilities: Floating rate debt Fixed rate debt Fair value adjustment (25,414) (123,261) ^ ^ (25,414) (131,953) ^ (8,692) (8,692) 19. Net Cash from Operating Activities Pro¢t for the Year Adjustments for:^ Valuation Gains on Investment Properties Fair Value Gains Gain on Sale of Investment Properties Interest Income Interest Expense Income Tax Expense Operating Pro¢t Before Changes in Working Capital and Provisions Increase in Debtors Increase/(Decrease) in Creditors Decrease in Investments held as Current Assets Cash Generated from Operations Interest Received Interest Paid Drawings by Minority Interest in USA partnership UK Corporation Tax Paid Overseas Tax Paid Net Cash from Operating Activities 2006 »000 2005 »000 113,112 67,509 (130,976) (1,288) (6,173) (2,119) 11,515 49,547 33,618 (4,772) 1,652 1 30,499 2,119 (11,543) (528) (3,352) (83) 17,112 (64,379) (2,919) (7,959) (2,151) 9,986 28,911 28,998 (2,136) (787) 9 26,084 2,151 (10,223) (23) (9,152) (171) 8,666 Page 40 Daejan Holdings PLC Report & Financial Statements 2006 20. Dividends Final dividend for the year to 31 March 2004 Paid 1 November 2004 @ 36p per share Interim dividend for the year to 31 March 2005 Paid 11 March 2005 @ 25p per share Final dividend for the year to 31 March 2005 Paid 1 November 2005 @ 36p per share Interim dividend for the year to 31 March 2006 Paid 10 March 2006 @ 25p per share 21. Related party transactions »000 5,866 4,074 5,866 4,074 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 »3.9m (2005 ^ »3.8m). At 31 March 2006 »3.8m was due to Highdorn Co. Limited and Freshwater Property Management Ltd. (2005 ^ »2.3m). The Directors interests in the Company and the principal shareholders are described on pages 11 and 12. 22. Contingent liabilities The Company has guaranteed bank and mortgage indebtedness of certain subsidiary undertakings which at 31 March 2006 amounted to »25m (2005 ^ »50m). 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 41 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) 23. Explanation of Transition to IFRS Reconciliation of Equity at 1 April 2004 UK GAAP Balance 1 April 2004 Revaluation of Trading Properties Deferred Tax on Revaluation Reserve Dividend Fair Value of Derivative Financial Instruments Deferred Tax on Derivative Financial Instruments Fair Value of Listed Investments Deferred Tax on Listed Investments »000 504,638 232,803 (159,049) 5,866 (12,898) 3,869 31 (9) 575,251 Year to 31 March 2006 »000 UK GAAP Year to 31 March 2005 »000 Year to 31 March 2006 »000 Adjustments Year to 31 March 2005 »000 Year to 31 March 2006 »000 IFRS Year to 31 March 2005 »000 Notes Gross Rental Income Service Charge Income Property Operating Expenses Net Rental and Related Income Surplus on Sale of Trading Properties Other Income Pro¢t on Disposal of Investment Properties Valuation Gains on Investment Properties Valuation Losses on Investment Properties Net Valuation Gains on Investment Properties Administrative Expenses Operating Pro¢t before Net Financing Costs Fair Value Gains on Financial Instruments Fair Value (Losses)/Gains on Current i a i a,b g d Investments Financial Income Financial Expenses Net Financing Costs Pro¢t Before Taxation Income Tax Expense Pro¢t for the Year Attributable to: Equity holders of the parent Minority Interest 77,110 18,163 (52,980) 65,829 17,442 (46,760) 416 0 0 42,293 9,365 416 1,040 0 0 36,511 5,210 156 4,896 0 0 416 (9,365) (416) 5,133 149,728 (18,752) 156 0 0 156 (5,210) (156) 3,063 70,586 (6,207) 77,526 18,163 (52,980) 42,709 0 0 6,173 149,728 (18,752) 65,985 17,442 (46,760) 36,667 0 0 7,959 70,586 (6,207) 0 0 130,976 64,379 130,976 64,379 (9,091) (7,669) 0 0 (9,091) (7,669) 44,023 0 39,104 0 126,744 1,298 62,232 2,908 170,767 1,298 101,336 2,908 0 2,119 (11,515) 0 2,151 (9,986) (10) 0 0 11 0 0 (10) 2,119 (11,515) 11 2,151 (9,986) (9,396) (7,835) 1,288 2,919 (8,108) (4,916) b,d,f,g 34,627 (9,868) 31,269 (9,365) 128,032 (39,679) 65,151 (19,546) 162,659 (49,547) 96,420 (28,911) 24,759 21,904 88,353 45,605 113,112 67,509 24,107 652 21,808 96 88,353 0 45,605 0 112,460 652 67,413 96 Pro¢t for the Year 24,759 21,904 88,353 45,605 113,112 67,509 Basic and Diluted Earnings per Share 147.9p 133.8p 542.2p 279.9p 690.1p 413.7p Page 42 Daejan Holdings PLC Report & Financial Statements 2006 Notes 31 March 2006 »000 UK GAAP 31 March 2005 »000 31 March 2006 »000 Adjustments 31 March 2005 »000 31 March 2006 »000 IFRS 31 March 2005 »000 a d a 737,912 0 617 0 660,512 0 617 0 363,136 0 0 2,608 294,645 0 0 2,997 1,101,048 0 617 2,608 955,157 0 617 2,997 738,529 661,129 365,744 297,642 1,104,273 958,771 63,048 31,998 148 37,300 57,147 26,309 149 44,825 (63,048) 45 12 0 (57,147) 45 20 0 0 32,043 160 37,300 0 26,354 169 44,825 132,494 128,430 (62,991) (57,082) 69,503 71,348 871,023 789,559 302,753 240,560 1,173,776 1,030,119 4,074 555 386,424 6,784 266,870 4,074 555 315,594 6,784 245,206 0 0 (386,424) (6,784) 473,789 0 0 (315,594) (6,784) 384,626 4,074 555 0 0 740,659 4,074 555 0 0 629,832 a,c,g,h h a,b,c,d,e,f,g Assets Investment Properties Investment in Associate Other Investments Deferred Tax Assets Total Non-Current Assets Properties held for Trading Trade and Other Receivables Investments Cash at Bank Total Current Assets Total Assets Equity Issued Capital Share Premium Revaluation Reserve Other Reserves Retained Earnings Total Equity Attributable to Equity Holders of the Parent Minority Interest 664,707 330 572,213 206 80,581 0 62,248 0 745,288 330 634,461 206 Total Equity 665,037 572,419 80,581 62,248 745,618 634,667 Liabilities Interest Bearing Loans and Borrowings Deferred Tax Liabilities 140,212 6,878 154,174 6,747 0 212,167 0 174,165 140,212 219,045 154,174 180,912 f,g Total Non-Current Liabilities 147,090 160,921 212,167 174,165 359,257 335,086 Bank Overdrafts Interest Bearing Loans and Borrowings Trade and Other Payables Taxation 15 8,448 32,204 18,229 0 9,161 36,517 10,541 0 0 10,005 0 0 0 4,147 0 15 8,448 42,209 18,229 0 9,161 40,664 10,541 d,e Total Current Liabilities 58,896 56,219 10,005 4,147 68,901 60,366 Total Liabilities 205,986 217,140 222,172 178,312 428,158 395,452 Total Equity and Liabilities 871,023 789,559 302,753 240,560 1,173,776 1,030,119 a. Properties previously classed as held for trading have been reclassi¢ed as Investment Properties to comply with IFRS and are held at valuation. All pro¢ts on disposals are now shown as Pro¢t on Disposal of Investment Properties c. d. b. On the sale of investment properties previously held as trading assets only the surplus over valuation is treated as Pro¢t on Disposal. Any revaluation surplus is realised in retained earnings. Taxation arising is shown on the Income Statement and is offset by the release of the deferred taxation liability previously booked on the revaluation. All foreign exchange differences on translation of foreign operations are now transferred to Retained Earnings. All movements on the marking to fair value of ¢nancial instruments are now shown on the face of the Consolidated Income Statement. Dividends are disclosed as a liability in the period in which they are declared and paid rather than on an accruals basis. Full provision is made for deferred tax on the revaluation surplus of Investment Properties and fair value of ¢nancial instruments. Surpluses and de¢cits arising on the revaluation of Investment Properties are recognised as part of the pro¢t and loss for the year. Revaluation Reserves and Other Reserves have been reclassi¢ed as Retained Earnings. Other Income is now shown with Net Rental and Related Income. h. i. g. e. f. Page 43 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Consolidated Financial Statements (continued) 24. Principal Subsidiary Undertakings Except where indicated the following are direct subsidiaries of the Company. All are wholly owned property investment 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 (Cambridge) Limited Daejan (Cardiff) Limited* Inputstock Limited Inputstripe Limited Lawnstamp Limited Limebridge Co. Limited Daejan Commercial Properties Limited Pegasus Investment Company Limited* Daejan (Dartford) Limited* Rosebel Holdings Limited Daejan Developments Limited Seaglen Investments Limited* Daejan (Durham) Limited* Daejan Enterprises Limited Daejan Estates Limited Daejan (FH 1998) Limited Daejan (FHNV 1998) Limited Daejan (High Wycombe) Limited* Daejan Investments Limited Daejan Investments (Grove Hall) Limited St. Leonards Properties Limited The Bampton Property Group Limited* The Cromlech Property Co. Limited* The Halliard Property Co. 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 44 Daejan Holdings PLC Report & Financial Statements 2006 Company Balance Sheet as at 31 March 2006 Notes »000 2006 »000 »000 Restated(1) 2005 »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 3 4 698,621 590,737 3,812 7,775 11,587 784 9,433 10,217 5 (15,729) (8,488) (4,142) 694,479 (37,250) 657,229 4,074 555 418,479 893 233,228 657,229 1,729 592,466 (37,750) 554,716 4,074 555 335,642 893 213,552 554,716 6 7 8 8 8 8 The Financial Statements on pages 45 to 48 were approved by the Board of Directors on 9 August 2006 and were signed on its behalf by:^ B S E Freshwater D Davis Director Director (1) See Note 1 accounting policies The notes on pages 46 to 48 form part of these Financial Statements. Page 45 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Company Financial Statements 1. Accounting Policies The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company’s ¢nancial statements. Basis of Preparation The ¢nancial statements have been prepared under the historical cost convention, modi¢ed to include the revaluation of investments in subsidiaries, and in accordance with applicable UK accounting standards. As permitted by section 230(4) of the Companies Act 1985, a separate pro¢t and loss account dealing with the results of the Company has not been presented. The Company’s pro¢t for the year after taxation is »20,242,000 (2005 ^ »20,757,000). During the year the Company adopted FRS 21 ‘‘Events after the balance sheet date’’ which superseded SSAP 17. Under the new standard ¢nal dividends payable and receivable are recognised only in the period in which they are declared and therefore become a liability and interim dividends are recognised in the period in which they are paid, whereas under SSAP 17 dividends were accrued for when proposed. This has resulted in a decrease of »17,497,000 in retained pro¢t for the year ended 31 March 2005. Cash Flow Statement Under FRS 1 Cash Flow Statements the Company is exempt from the requirement to prepare a cash £ow statement on the grounds that it is consolidated within the consolidated ¢nancial statements of the Group. Investments in Subsidiary undertakings The historical cost of shares in subsidiary undertakings is »17,876,000 (2005 ^ »17,876,000). Shares in subsidiary undertakings have been valued by the Directors at 31 March 2006 based on the net asset values of the subsidiary undertakings. Foreign Currencies Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction and gains and losses on translation are included in the pro¢t and loss account. 2. Profit on ordinary activities before taxation Pro¢t on ordinary activities before taxation is stated after charging Auditors Remuneration (including unrecoverable VAT) of »20,000 (2005 ^ »20,000). The company has no staff other than its Directors and their remuneration is set out on page 14. 3. Investments in subsidiary undertakings At 1 April 2005 Loans Revaluation Effect of Foreign Exchange Differences Shares at Valuation »000 353,424 ^ 81,604 1,233 Loans »000 237,313 25,047 ^ ^ Total »000 590,737 25,047 81,604 1,233 At 31 March 2006 436,261 262,360 698,621 Page 46 Daejan Holdings PLC Report & Financial Statements 2006 4. Debtors: Due within on year Escrow account Other debtors and prepayments 5. Creditors: Amounts falling due within one year Bank loans and overdrafts Other creditors and accruals Taxation 6. Creditors: Amounts falling due after more than one year 2006 »000 3,809 3 3,812 2006 »000 8,149 832 6,748 15,729 2005 »000 784 ^ 784 2005 »000 7,565 816 107 8,488 2006 »000 2005 »000 37,250 37,750 Secured bank loans 7. Share Capital Authorised: Ordinary Shares of 25 pence per share Allotted, called up and fully paid: Ordinary Shares of 25 pence per share Number 2006 »000 2005 »000 18,722,596 4,681 4,681 16,295,357 4,074 4,074 Page 47 Daejan Holdings PLC Report & Financial Statements 2006 Notes to the Company Financial Statements (continued) 8. Reserves Share Premium Account: At 1 April 2005 and 31 March 2006 Revaluation Reserve: At 1 April 2005 Foreign exchange movements Fixed asset revaluation At 31 March 2006 Other Non-Distributable Reserves: At 1 April 2005 and 31 March 2006 Pro¢t and Loss Account: At 1 April 2005 Prior Year Adjustments Restated Foreign Exchange Movements Retained pro¢t for the Year At 31 March 2006 »000 555 335,642 1,233 81,604 418,479 893 231,049 (17,497) 213,552 (566) 20,242 233,228 Page 48 PREPARED UNDER UK GAAP Turnover Net Rental Income Surplus on Sale of Trading Properties Other Income Gross pro¢t Group Pro¢t before Taxation Taxation Minority Interests Available Surplus Earnings: p. per Share Dividends: p. per Share Gross Assets Equity Shareholders’ Funds Equity Shareholders’ Funds: » per Share (based on balance sheet ¢gures) Represented by: Share Capital Reserves and Retained Pro¢t Equity Shareholders’ Funds PREPARED UNDER IFRS Total Rental and Related Income Property Operating Expenses Net Rental and Related Income Pro¢t on Disposal of Properties Net Valuation Gains Administrative Expenses Net Operating Pro¢t Before Financing Costs Pro¢t before Taxation Income Tax Expense Pro¢t for the Year Earnings per Share Total Assets Equity Shareholders Funds Equity Shareholders Funds » per Share Issued Share Capital Reserves and Retained Earnings Equity Shareholders’ Funds Daejan Holdings PLC Report & Financial Statements 2006 Five-Year Record 2002 »000 2003 »000 2004 »000 85,823 84,132 90,007 40,972 5,591 143 37,723 6,587 159 37,138 7,002 196 46,706 44,469 44,336 30,081 9,262 53 30,692 10,057 51 30,442 7,522 1 20,766 20,584 22,919 127.4 52.0 126.3 55.0 140.6 58.0 669,600 442,775 704,425 469,506 713,782 504,505 27.17 28.81 30.96 4,074 438,701 4,074 465,432 4,074 500,431 442,775 469,506 504,505 2005 »000 2006 »000 83,427 (46,760) 95,689 (52,980) 36,667 7,959 64,379 (7,669) 42,709 6,173 130,976 (9,091) 101,336 170,767 96,420 (28,911) 162,659 (49,547) 67,509 113,112 413.7p 690.1p 1,030,119 1,173,776 745,288 45.74 634,461 38.94 4,074 630,387 4,074 741,214 634,461 745,288 Page 49 Daejan Holdings PLC Report & Financial Statements 2006 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 Of¢ce Freshwater House, 158-162 Shaftesbury Avenue, London WC2H 8HR Registered in England No. 305105 Auditors KPMG Audit Plc, 8 Salisbury Square, London EC4Y 8BB Consulting Accountants Cohen Arnold New Burlington House, 1075 Finchley Road, London NW11 0PJ Principal Bankers Lloyds TSB Bank Plc Barclays Bank PLC The Royal Bank of Scotland Group Registrars Stockbrokers Lloyds TSB Registrars, Brewin Dolphin Securities Limited The Causeway, Worthing, West Sussex BN99 6DA 7 Drumsheugh Gardens Edinburgh EH3 7QH Page 50 Daejan Holdings PLC Report & Financial Statements 2006 Notice of Meeting Notice is hereby given that the Seventy First 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 Friday 27 October 2006 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 2006 together with the 2. 3. 4. 5. 6. 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 retires in accordance with the requirements of the Combined Code. (Resolution 4.) To re-elect Mr BSE Freshwater who retires by rotation. (Resolution 5.) To re-appoint KPMG Audit Plc as Auditors, and to authorise the Directors to agree their remuneration. (Resolution 6.) By Order of the Board, M R M Jenner Secretary 9 August 2006 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 25 October 2006 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 2006 to Shareholders registered at the close of business on 6 October 2006. No Director has a service contract. Page 51 Printed by greenaways, a member of the ormolu group. Art direction by Roger Watt; photography by Roger Watt and Jeremy Pembrey 137723 Cover 27/5/02 11:52 pm Page ifc1 137723 Cover 27/5/02 11:52 pm Page ifc1