Daejan Holdings PLC
Annual Report 2011

Plain-text annual report

146120 Project Daejan Holdings R&A cover_146120 Project Daejan Holdings R&A cover 22/07/2011 13:26 Page 1 Daejan Holdings PLC Report & Financial Statements 2011 146120 Project Daejan Holdings R&A cover_146120 Project Daejan Holdings R&A cover 22/07/2011 13:26 Page 2 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 1 Daejan Holdings PLC Report & Financial Statements 2011 Profit before Taxation Profit after Taxation Earnings per Share Dividends per Share Equity Shareholders’ Funds per Share Summary of Results Year ended 31 March 2010 £000 61,129 45,655 £2.80 74.0p £48.17 2011 £000 84,363 67,833 £4.16 75.0p £51.43 Final Dividend of 50p per share payable on 11 November 2011 to shareholders on the register on 14 October 2011. Contents Summary of Results Chairman’s Statement Directors’ Report Directors’ Remuneration Report Corporate Governance Directors’ Responsibilities Independent Auditors’ Report Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity 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 and Advisers Notice of Meeting 1 2 12 16 18 22 23 25 26 26 27 28 29 50 51 54 55 56 Page 1 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 2 Daejan Holdings PLC Report & Financial Statements 2011 Chairman’s Statement I have pleasure in presenting the Report and Financial Statements for the year ended 31 March 2011. It is encouraging to be able to report that, notwithstanding the challenging economic environment, total rental and related income has exceeded £100 million for the first time in the Group’s history. Investment Property The table below shows a summary of the annual revaluation of our Investment Property: Commercial Property UK USA Residential Property UK USA Total Valuation Percentage Change March 2011 £m 575.4 36.3 408.8 205.9 +4.1% +2.0% +7.0% +10.5% 1,226.4 +6.1% The rate of growth in the value of our portfolio reflected in the interim statement increased somewhat during the second half of the year to produce an overall annual uplift of 6.1% (2010–2.5%). In the UK the uplift in valuation has been £49.7 million, equivalent to 5.3% (2010–4.4%). Property values have increased across all sectors of our portfolio with the exception of our holding of care Above & right: 260 West End Avenue Manhattan, New York. Far right: Africa House, Kingsway, London WC2 (currently undergoing major refurbishment). Page 2 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 3 Daejan Holdings PLC Report & Financial Statements 2011 homes which is discussed in more detail below. The strongest growth has come from our residential portfolio, particularly in London, and from our office properties. In the USA I am pleased to report a return to growth in values with an overall like-for-like gain on revaluation in dollar terms of 4.9% (2010–5.3% reduction). The table below provides an analysis of the movement in the value of the investment property portfolio and the impact of both revaluation and foreign exchange movements over the year: Movement in Valuation of the Total Investment Property Portfolio Opening Valuation New Acquisitions Additions to Existing Properties Disposals Revaluation Gain Foreign Exchange Loss Closing Valuation* 2011 £m 1,155.4 23.2 6.8 (0.9) 1,184.5 52.0 (11.7) 1,224.8 2010 £m 1,126.7 11.3 5.6 (0.2) 1,143.4 25.0 (13.0) 1,155.4 *In this table and in the Financial Statements, the total valuation of £1,226.4 million is stated net of £1.6 million of lease incentives, as required by accounting standards – see Note 9. This page: 77 North Washington, Boston, Mass. Page 3 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 17:12 Page 4 Daejan Holdings PLC Report & Financial Statements 2011 Chairman’s Statement (continued) Acquisitions and Funding In the UK our primary focus has continued to be the enhancement of capital values and rental income within our existing portfolio. We continue to review the market for potential acquisitions which meet our rigorous criteria and it is possible that in the coming year more property will come onto the market as a consequence of owners seeking to reduce gearing and increase liquidity. We have seen some easing in the general availability and pricing of finance in the UK but we take a long term approach to the ownership of property and there are still too few financial institutions who take a similarly long view. During the year we have continued our programme of acquisitions in the USA with the purchase of a number of residential properties in Bronx, New York at a total cost of $35.4 million. Analysis by Property Type Property UK Property USA Commercial £575.4m Residential £408.8m Commercial £36.3m Residential £205.9m Commercial Property UK Commercial Property USA Offices £200.2m Leisure £23.5m Industrial £31.7m Retail £260.7m Land & Development £28.4m Care Homes £30.9m Offices £33.9m Retail £2.4m Analysis by Location UK Valuations USA Valuations London & the South £732.5m Midlands & East Anglia £110.7m Wales & West £61.7m North & Scotland £79.3m New York £119.6m Boston £26.2m Baltimore £15.0m Florida £54.7m New Jersey £24.3m Pennsylvania £2.4m Page 4 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 5 Daejan Holdings PLC Report & Financial Statements 2011 Top: Park West, Marble Arch, London W2. Above: Oslo Court, Regents Park, London NW8. Left & opposite page: 611, West 158th Street, Manhattan, New York. Page 5 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 6 Daejan Holdings PLC Report & Financial Statements 2011 Chairman’s Statement (continued) Mention needs to be made of the nine care homes, purchased in 2008, which are leased to Southern Cross Healthcare Group PLC whose financial difficulties have been widely reported in the media. In accordance with the requirements of accounting standards the care homes have been included in the independent professional valuation at 31 March 2011 on the basis of the information which was available on that date.We are actively exploring alternative courses of action aimed at sustaining the value of these properties. However, it is likely that, at least in the short term, the income and the value of our care homes will be adversely affected. At 31 March 2011 the combined book value of these properties represented 2.5% of the total investment property portfolio. Development Activity I am pleased to report that work commenced on site at the beginning of January this year on our major scheme of refurbishment and extension of Africa House WC2. Based on progress to date, the building will become available for occupation in early 2013. Development projects can take several years to bring to fruition and at any time we have a number of potential projects under consideration. The developments which we have completed in the last few years at 164 Shaftesbury Avenue WC2, 25/29 Worship Street, EC2 and 49/50 Great Marlborough Street WC1, are now all fully let. Results for the Year The profit before taxation for the year ended 31 March 2011 amounts to £84.4 million (2010 – £61.1 million); this result includes a net valuation gain of £52.0 million arising on investment property (2010 – £25.0 million). This page: The Franconia, 20 West 72nd Street, Manhattan, New York. Opposite page: The Square, Broad Street, Birmingham . Page 6 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 7 Daejan Holdings PLC Report & Financial Statements 2011 The table below shows the performance of our core rental business before and after property valuation movements: Total Rental and Related Income from Investment Property Property Operating Expenses Net Rental and Related Income from Investment Property Profit on Disposals of Investment Property Administrative Expenses Net Operating Profit before Net Valuation Gains Net Valuation Gains on Investment Property Net Financing Costs Profit before Tax 2011 £m 102.7 (60.7) 42.0 9.3 (10.6) 40.7 52.0 (8.3) 84.4 2010 £m 99.9 (56.0) 43.9 5.1 (10.0) 39.0 25.0 (2.9) 61.1 The increase in total rental income principally arises in the USA whilst increases in UK residential rents have largely been offset by an increase in commercial voids. The last year has seen a significant reduction in UK residential vacancy rates and the cost of the refurbishment works necessary to achieve this improvement has contributed to an increase in the level of property operating expenses. It remains our policy not actively to seek the sale of properties from our portfolio and the surplus on disposals of £9.3 million (2010---£5.1 million) arises largely from the sale of leasehold extensions in the UK. Page 7 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 8 Daejan Holdings PLC Report & Financial Statements 2011 Chairman’s Statement (continued) A decrease of £6.2 million in the accounting adjustment for the net fair value gains on financial instruments is the cause of the increase in net financing costs. Interest payments actually decreased slightly year on year. Dividend Your Board has for some time pursued a policy of increasing dividend levels prudently in line with the Group’s continuing progress and this year we are pleased to recommend an increase in total dividend to 75p (2010---74p). Balance Sheet At 31 March 2011 shareholders’ funds stood at £838 million (2010---£785 million).This is equivalent to £51.43 per share (2010---£48.17) an increase of 6.8%. Top & below: 515 West 85th Street, Manhattan, New York. Cash deposits at 31 March were £71.6 million (2010---£24.6 million) with undrawn medium and long term facilities of £30.6 million (2010---£41.6 million). Gearing, although still relatively low, has risen to 18.6% (2010---16.6%) principally as a result of a short term borrowing of £41 million which was repaid in April. Below Right: Prestamex House, Preston Road, Brighton, East Sussex. Environment We recognise our responsibility to take all possible steps to minimise the environmental impact arising from our business activities. Every year we undertake programmes of repair and refurbishment which provide opportunities to improve the energy efficiency of our buildings and the plant therein. Page 8 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:05 Page 9 Daejan Holdings PLC Report & Financial Statements 2011 It continues to be our policy that when undertaking developments or major schemes of refurbishment we seek to achieve the highest BREEAM rating consistent with the nature of the building and the scheme being undertaken. BREEAM is a widely used environmental assessment method for buildings. Wherever possible we ensure that the waste which we generate is recycled. Employees The Group continues to enjoy a stable workforce with low staff turnover.This ensures that the costs of recruitment are minimised and that the experience of the staff gained over the years is retained for the benefit of the Group. Staff are supported by the Group in the pursuit of programmes of appropriate professional training. Health and Safety It is important that our properties provide a safe and healthy environment for our tenants, staff and all other users. Our properties are risk assessed on a regular basis and with the help of outside consultants comprehensive Health and Safety policies have been established. The Board monitors progress in this area on an annual basis. Sub-contractors are required to employ risk management procedures of an equivalent standard. This page: 30 Kensington Church Street, London W8. Page 9 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:06 Page 10 Daejan Holdings PLC Report & Financial Statements 2011 Chairman’s Statement (continued) Community We continue to support community activities, focusing principally on education; donations this year totalled £150,000 (2010---£120,000). Some years ago shares representing 6.3% of the capital of the Company were donated to charitable companies which, in consequence, received dividend payments in the year of £760,000 (2010---£750,000). Risks Economic recovery in the UK and USA is slow and uneven. In the UK, continuing pressure on household consumption has led to a number of failures in the retail sector and this trend may continue for some time. In the USA unemployment remains stubbornly high. Against this background the Group is exposed to the risk of increasing bad debts and voids. This risk will be greater if economic growth falters or there is a return to recession. Above: 43-30 48th Street, Sunnyside, Queens, New York. The Group depends on the availability of funding in order to finance acquisitions, developments and major schemes of refurbishment. We have seen some further easing in this area but increased regulatory and financial pressure on lenders resulting in a reduction in the availability of finance on acceptable terms could constrain our ability to grow. With almost 20% by value of the Group’s property portfolio located in the USA, movements in the Above: 677 West End Avenue, Manhattan, New York. Right: 164 Shaftesbury Avenue, London WC2. Page 10 146120 Project Daejan Holdings R&A Pt1_146120 Project Daejan Holdings R&A Pt1 22/07/2011 14:06 Page 11 Daejan Holdings PLC Report & Financial Statements 2011 sterling/dollar exchange rate will produce accounting adjustments in the Group’s consolidated financial statements.The overall impact in the current year is not significant but this may not always be the case. The Group is exposed to general valuation movements in the UK and USA property markets. Outlook In today's uncertain economic conditions it is particularly pleasing to have been able to report another year of progress with encouraging growth in the value of our properties. It is more than usually difficult at present to form a clear view of what the immediate future may hold for us. Nevertheless, our property portfolio is diverse and our finances are sound and this gives us the confidence that your Group will sustain its progress through the continued application of the prudent, long term business approach which has served us so well over the years. Loyal and hardworking staff are essential to our continued success; to them must go our sincere thanks. B S E Freshwater Chairman This page: Swan Courtyard, Yardley, Birmingham. Page 11 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 12 Daejan Holdings PLC Report & Financial Statements 2011 Directors’ Report The Directors have pleasure in presenting their Report together with the Financial Statements for the year to 31 March 2011. 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. Whilst the major part of the Group’s property portfolio comprises commercial, industrial and residential premises throughout the United Kingdom, a number of subsidiary undertakings are incorporated in the United States of America and carry out property investment in that country. Investment Property A professional valuation of all the Group’s properties was carried out at 31 March 2011. The resultant figures are included in the Financial Statements now presented and the net increase of £52.0 million (2010 – £25.0 million) over previous book values has been included in the Income Statement. The Group’s UK properties were valued by Colliers CRE, Chartered Surveyors and produced a revaluation surplus of £44.6 million (2010 – £38.8 million). The Group’s USA properties were valued by Colliers, Meredith & Grew, Joseph J. Blake and Associates Inc. and Metropolitan Valuation Services Inc. All the USA firms are General Certified appraisers. The revaluation surplus arising on the USA properties was £7.4 million (2010 – £13.8 million deficit). Business Review The Group’s Business Review is included in the Chairman’s Statement set out on pages 2 to 11 and is included in this report by reference. Results and Dividend The profit for the year amounted to £67.8 million (2010 – £45.7 million). An Interim Dividend of 25p per share was paid on 4 March 2011 and the Directors now recommend the payment of a Final Dividend of 50p per share, making a total for the year of 75p per share (2010 – 74p per share). Financial Objectives and Policies and Exposure to Financial Risk The Group operates a cautious financial policy within clear authorities on a non-speculative and long term basis in order to enable the Group to carry on its business in confidence 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 financial institutions. The Group seeks to minimise the risk of sudden and unexpected rises in finance costs by way of fixed rate debt and financial derivative instruments whilst retaining some flexibility in relation to short term interest rates. There is no obligation or present intention to repay the Group’s borrowings other than at maturity. Payment Policy It is 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, providing that it is satisfied that the supplier has provided the goods or services in accordance with the agreed terms and conditions. The Group does not, however, follow any formal code or statement on payment practice. Page 12 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 13 Daejan Holdings PLC Report & Financial Statements 2011 Directors The Directors who served throughout the year, and who are still in office, are: Mr B S E Freshwater Mr D Davis Mr S I Freshwater Mr R E Freshwater Mr A M Freshwater (USA) (appointed 6 July 2010) (appointed 6 July 2010) Brief biographies of the Directors are as follows: Mr B S E Freshwater. Aged 63 – Joined the Board in December 1971 with primary responsibility for the Group’s finances. In July 1976 he was appointed Managing Director and, additionally, became Chairman in July 1980. Mr D Davis. Aged 76 – 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 60 – 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. Mr R E Freshwater Aged 41 – He is currently pursuing an academic career and lectures to graduate students. He is an actual and a potential beneficiary of trusts with substantial holdings of the Company’s equity. Mr A M Freshwater Aged 40 – He is resident in the UK and sits as an Arbitrator in complex commercial disputes. He is a potential beneficiary of trusts and a trustee of certain other trusts with substantial holdings of the Company’s equity. The rules governing the election and re-election of Directors are set out in the Corporate Governance section on page 18. The powers of Directors of the Company are as set out in the Company’s articles of association. Directors’ Interests in Transactions Day-to-day management of the Group’s properties in the United Kingdom is mainly carried out by Highdorn Co. Limited and by Freshwater Property Management Limited. Mr B S E Freshwater and Mr S I Freshwater are Directors of both companies. They have no beneficial interest in the share capital of Highdorn Co. Limited. Mr B S E Freshwater, Mr S I Freshwater and Mr D Davis are also Directors of the parent company of Freshwater Property Management Limited but have no beneficial interest in either company. Mr R E Freshwater has a beneficial interest in a trust holding interests in shares in Highdorn Co. Limited. Details of the amounts paid for the provision of these services are set out in Note 18 to the Financial Statements. Page 13 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 14 Daejan Holdings PLC Report & Financial Statements 2011 Directors’ Report (continued) Share Capital and Substantial Directors’ and other Shareholdings The structure of the Company’s Share Capital, including the rights and obligations attaching to the shares, is given in Note 14 to the Financial Statements. Directors’ interests in the Share Capital of the Company are as follows: D Davis B S E Freshwater S I Freshwater R E Freshwater A M Freshwater (Notes 2 & 3) (Notes 1, 2, 3 & 4) (Notes 2, 3 & 4) (Notes 2 & 3) (Notes 2 & 3) Daejan Holdings PLC Ordinary Shares 31 March 2010 31 March 2011 763 340,033 89,270 – – 763 340,033 89,270 – – Notes: 1. 2. 3. All the above holdings were beneficially owned. Mr B S E Freshwater’s shareholding represents 2.1% of the Issued Share Capital of the Company. A further 2,908,116 shares (2010 – 2,908,116) representing 17.8% of the Issued Share Capital of the Company were held by Freshwater family trusts and by charitable companies in which Mr B S E Freshwater, Mr S I Freshwater, Mr D Davis and Mr A M Freshwater have no beneficial interest. Mr D Davis and Mr A M Freshwater are trustees of a trust which owns 250,000 shares representing 1.5% of the Issued Share Capital of the Company. Mr R E Freshwater has a beneficial interest in certain trusts referred to in this Note 2 which together hold 326,294 shares, representing 2.0% of the Issued Share Capital of the Company. In addition to the holdings shown in the table and in Note 2 above, companies owned and controlled by Mr B S E Freshwater, Mr S I Freshwater, their families and family trusts, held at 31 March 2011 a total of 7,876,431 shares (2010 – 7,876,431) representing 48.3% of the Issued Share Capital of the Company. Mr D Davis and Mr A M Freshwater have a non-beneficial interest in some of these shares, either as a Director of the companies concerned, or as a trustee. Mr R E Freshwater has a beneficial interest in certain trusts included in this Note 3 which indirectly have interests in 3,774,853 shares, representing 23.2% of the Issued Share Capital of the Company. 4. Of these shares 89,270 are held by a company owned jointly by Mr B S E Freshwater and Mr S I Freshwater. Included in Notes 2 and 3 are the following holdings at 31 March 2011, each amounting to 3% or more of the Company’s Issued Share Capital: Henry Davies (Holborn) Limited Trustees of the S I Freshwater Settlement Distinctive Investments Limited Quoted Securities Limited Centremanor Limited Mayfair Charities Limited Tabard Property Investment Company Limited Shares 1,934,090 1,560,000 1,464,550 1,305,631 1,000,000 565,000 500,000 % 11.9 9.6 9.0 8.0 6.1 3.5 3.1 In addition, the Company has been notified of the following substantial interests in its Share Capital at 31 March 2011: Valand Investments Limited Silda 2 Limited Shares 1,000,000 705,000 % 6.1 4.3 The Company is not aware of any changes to any of the above interests from 31 March 2011 up to the date of signing this report. Page 14 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 15 Daejan Holdings PLC Report & Financial Statements 2011 Significant Agreements Part 6 of Schedule 7 of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 requires the Company to identify those significant agreements to which the Company is party that take effect, alter or terminate upon a change of control of the Company following a takeover bid and the effects of any such agreements. The Group has five bank loan and mortgage facilities which contain change-of-control clauses. Three of these facilities require the prior written consent of the lender to a change of control over the parent company, without which such change of control would constitute an event of default. A change of control under the remaining two facilities would similarly constitute an event of default but no provision is made for the prior written consent of the lender. At 31 March 2011, these facilities represented £112.3 million (2010 – £72.2 million) of the loans and borrowings in the financial statements and all of the undrawn facilities (£30.6 million, 2010 – £41.6 million). Charitable Donations Charitable Donations made by the Group amounted to £150,000 (2010 – £120,000). There were no political contributions (2010 – £Nil). Auditors The Company’s auditors, KPMG Audit Plc, have expressed their willingness to continue in office. In accordance with Section 489 of the Companies Act 2006, 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 office at the date of approval of this Directors’ Report confirm that, so far as they each are aware there is no relevant audit information of which the Company’s auditors are unaware, and each Director has taken all the steps he ought to have taken as a Director to make himself 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 22 July 2011 Page 15 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 16 Daejan Holdings PLC Report & Financial Statements 2011 Directors’ Remuneration Report Audited Information Remuneration Details of each individual Director’s remuneration are set out below on an accruals basis. 2011 Mr B S E Freshwater Mr D Davis Mr S I Freshwater Mr R E Freshwater Mr A M Freshwater 2010 Mr B S E Freshwater Mr D Davis Mr S I Freshwater Salary £ 720,000 – 651,000 – – Fees £ 20,000 20,000 20,000 15,000 15,000 Total £ 740,000 20,000 671,000 15,000 15,000 1,371,000 90,000 1,461,000 700,000 – 638,000 20,000 20,000 20,000 720,000 20,000 658,000 1,338,000 60,000 1,398,000 Unaudited Information Compliance The Company’s compliance with the requirements of The Combined Code on Corporate Governance issued by the Financial Reporting Council in June 2008 (the “Combined Code”) is set out under Corporate Governance on page 20. 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 financial year. Remuneration of Non Executive Directors The fees of the non-executive Directors are reviewed periodically by the Executive Directors who make recommendations to the Board. The current level of £20,000 has been fixed for a number of years. Service Contracts No Director has a service contract. Page 16 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 17 Daejan Holdings PLC Report & Financial Statements 2011 Total Shareholder Return The following graph shows the total shareholder returns for the Company (rebased as at 1 April 2006) for each of the last five financial years compared to the FTSE All Share Real Estate Investment and Services Index and the FTSE 350 Index. The Company is a constituent of both these indices and the Board considers these to be the most appropriate broad market equity indices for illustrating the Company’s performance. Total Shareholder Return Performance Graph 140 120 100 80 60 40 20 2006 2007 2008 2009 2010 DAEJAN HOLDINGS PLC FTSE ALL SHARE REAL ESTATE INVESTMENTS AND SERVICES Source: Thomson Reuters Datastream FTSE 350 Approved by the Board on 22 July 2011 and signed on its behalf by M R M Jenner Company Secretary Page 17 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 18 Daejan Holdings PLC Report & Financial Statements 2011 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 Combined Code. Your Board fully supports the goal of better Corporate Governance and we comply with the majority of the principles of the Combined Code. We do not comply with the provisions of the Combined Code in connection with non-executive representation on the Board, as we are doubtful that further extending independent non-executive participation at present would benefit 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 Combined 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 five 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 efficiency of its operations, the current structure has stood the Company in 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 for shareholders, to provide entrepreneurial leadership of the Group, to approve the Group’s strategic objectives and to ensure that the necessary financial and other resources are made available to enable those objectives to be met. 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 financial performance. All Directors have access to the Company Secretary who is responsible for ensuring that the Board procedures are complied with. The Board has agreed a procedure for Directors in the furtherance of their duties to take independent professional advice if necessary, at the Company’s expense. The Board consults 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. During the year there were two full, formal Board Meetings attended by all Directors and three further formal executive Board Meetings attended by both executive Directors. Page 18 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 19 Daejan Holdings PLC Report & Financial Statements 2011 Directors and Directors’ Independence The Board currently comprises the Chairman, one executive Director and three non-executive Directors. The names of the Directors together with their biographical details are set out on page 13. Mr R E Freshwater and Mr A M Freshwater are not independent by virtue of their membership of the Freshwater family. The Board acknowledges that in view of his length of service, D Davis is not technically independent. Directors’ Remuneration Details of the Directors’ remuneration are contained in the Directors’ Remuneration Report on page 16. 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 Combined Code requires that the Directors review the effectiveness of the Group’s system of internal controls, covering financial, operational and compliance controls and risk management. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant business risks faced by the Group and that this process has been in place for the year 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 benefits likely to arise from the appointment of an internal audit function and has concluded that this is not currently necessary having regard to 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. 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 defined. Risk identification and evaluation: Management is responsible for the identification and evaluation of key risks applicable to the areas of the property market which impact its 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 financial projections. Financial performance is actively monitored at Board level. Through these mechanisms group performance is monitored, risks identified 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 financial transactions and to limit the potential exposure to loss of assets Page 19 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 20 Daejan Holdings PLC Report & Financial Statements 2011 Corporate Governance (continued) or fraud. Measures include physical controls, segregation of duties, reviews by management and reviews by 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 significant business risks, formally considering the scope and effectiveness of the Group’s system of internal control. In addition, the executive 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 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 Combined 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 is responsible for the preparation of the Report and Financial Statements within which it seeks to present a balanced and understandable assessment of the Group’s business. Further details are given in the Chairman’s Statement. Compliance Statement The Board considers the Company has complied throughout the year ended 31 March 2011 with the provisions of the Combined Code with the exception of the following paragraphs: Subject split of Chairman and CEO roles strong independent non-executive element appointment of nomination committee and their proceedings 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 Paragraph A.2.1–2 A.3.2–3 A.4.1–4, A.4.6 A.1.3; A.6 A.7.2 B.1.1 B.2.1–2 C.3.1–6 Going Concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Statement on pages 2 to 11, which also refers to the financial position of the Group, its cash flows, liquidity position and borrowing facilities. In addition, Note 17 to the financial statements includes the Group’s objectives, policies and processes for managing its financial risks, together with details of its financial instruments, hedging activities and exposures to credit, liquidity and market risks. Page 20 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 21 Daejan Holdings PLC Report & Financial Statements 2011 As shown in the Consolidated Statement of Cash Flows, the Group generated net cash from operating activities of £26.1 million during the year (2010 – £17.0 million). Gearing, on the basis of gross debt to total assets, was 18.6% (2010 – 16.6%, as restated). Net debt (total loans and borrowings less cash and cash equivalents) has remained broadly unchanged at £174.5 million (2010 – £176.0 million, as restated). Furthermore, the Group has undrawn committed facilities of £30.6 million at the balance sheet date. The Group therefore has considerable financial resources and very low gearing. As a consequence, the Directors consider that the Group is well placed to manage its business risks successfully despite the continued uncertain economic outlook. Consequently, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Page 21 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 22 Daejan Holdings PLC Report & Financial Statements 2011 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 financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare group and parent company financial statements for each financial year. Under that law they are required to prepare the group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and applicable law and have elected to prepare the parent company financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and parent company and of their profit or loss for that period. In preparing each of the group and parent company financial statements, the Directors are required to: l l l l l select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; for the group financial statements, state whether they have been prepared in accordance with IFRS; for the parent company financial statements, state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the parent company financial statements; and prepare the financial 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 adequate accounting records that are sufficient to show and explain the parent company’s transactions and disclose with reasonable accuracy at any time the financial position of the parent company and enable them to ensure that its financial statements comply with the Companies Act 2006. 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. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the Board, B S E Freshwater Director 22 July 2011 Page 22 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 23 Daejan Holdings PLC Report & Financial Statements 2011 Independent Auditor’s Report Independent auditor’s report to the members of Daejan Holdings PLC We have audited the financial statements of Daejan Holdings PLC for the year ended 31 March 2011 set out on pages 25 to 53. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRS) as adopted by the EU. The financial reporting framework that has been applied in the preparation of the parent company financial statements is applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. 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 As explained more fully in the Directors’ Responsibilities Statement set out on page 22, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s web-site at www.frc.org.uk/apb/scope/private.cfm Opinion on financial statements In our opinion: l l l l the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2011 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with IFRS as adopted by the EU; the parent company financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice; the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, as regards the group financial statements, Article 4 of the IAS Regulation. Page 23 146120 Project Daejan Holdings R&A Pt2_146120 Project Daejan Holdings R&A Pt2 22/07/2011 14:09 Page 24 Daejan Holdings PLC Report & Financial Statements 2011 Independent Auditor’s Report (continued) Opinion on other matters prescribed by the Companies Act 2006 In our opinion: l l l the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements; and the information given in the Corporate Governance Statement set out on pages 18 to 21 with respect to internal control and risk management systems in relation to financial reporting processes and about share capital structures is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies Act 2006 we are required to report to you if, in our opinion: l l l l l adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or certain disclosures of directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit; or a Corporate Governance Statement has not been prepared by the company. Under the Listing Rules we are required to review: l l l the directors’ statement, set out on pages 20 and 21, in relation to going concern; the part of the Corporate Governance Statement on page 20 relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review; and certain elements of the report to Shareholders by the Board on directors’ remuneration. W E J Holland (Senior Statutory Auditor) for and on behalf of KPMG Audit Plc, Statutory Auditor Chartered Accountants 15 Canada Square London, E14 5GL 22 July 2011 Page 24 146120 Project Daejan Holdings R&A Pt3_146120 Project Daejan Holdings R&A Pt3 22/07/2011 13:41 Page 25 Daejan Holdings PLC Report & Financial Statements 2011 Consolidated Income Statement for the year ended 31 March 2011 Gross Rental Income Service Charge Income Total Rental and Related Income from Investment Property Property Operating Expenses Net Rental and Related Income from Investment Property Profit on Disposal of Investment Property Net Valuation Gains on Investment Property Administrative Expenses Net Operating Profit before Net Financing Costs Fair Value Gains on Fixed Rate Loans and Borrowings Fair Value Gains on Derivative Financial Instruments Fair Value (Losses)/Gains on Current Investments Other Financial Income Financial Expenses Net Financing Costs Profit before Taxation Income Tax Profit for the Year Attributable to: Equity Holders of the Parent Minority Interest Profit for the Year Year ended 31 March 2011 Notes £000 88,613 14,079 Year ended 31 March 2010 (as restated*) £000 85,878 14,035 3 9 4 5 5 102,692 (60,743) 99,913 (55,983) 41,949 9,257 52,024 43,930 5,073 24,997 (10,558) (10,013) 92,672 63,987 1,495 556 (16) 512 6,265 1,981 16 571 (10,856) (11,691) (8,309) (2,858) 84,363 6 (16,530) 61,129 (15,474) 67,833 45,655 67,823 10 45,636 19 67,833 45,655 Basic and Diluted Earnings per Share 7 £4.16 £2.80 *See Note 1(t). Page 25 146120 Project Daejan Holdings R&A Pt3_146120 Project Daejan Holdings R&A Pt3 22/07/2011 13:41 Page 26 Daejan Holdings PLC Report & Financial Statements 2011 Consolidated Statement of Comprehensive Income for the year ended 31 March 2011 Profit for the Year Foreign Exchange Translation Differences Year ended 31 March 2011 £000 Year ended 31 March 2010 £000 67,833 (2,648) 45,655 (8,063) Total Comprehensive Income for the Year 65,185 37,592 Attributable to: Equity Holders of the Parent Minority Interest 65,183 2 37,580 12 Total Comprehensive Income for the Year 65,185 37,592 Consolidated Statement of Changes in Equity Issued Share Share Translation Retained Equity Minority Premium Reserve Earnings Shareholders’ Interest Total Equity Capital Account £000 4,074 £000 555 £000 £000 29,112 725,552 – 45,636 Funds £000 759,293 45,636 £000 135 19 £000 759,428 45,655 (8,056) – – – – (8,056) – (11,897) (11,897) (7) (4) – (8,063) (4) (11,897) for the year ended 31 March 2011 Balance at 1 April 2009 Profit for the Year Foreign Exchange Translation Differences Movements in Minority Interest Dividends to Equity Shareholders – – – – – – – – Profit for the Year Foreign Exchange Translation Differences Movements in Minority Interest Dividends to Equity Shareholders – – – – – – – – Balance at 1 April 2010 4,074 555 21,056 759,291 – 67,823 784,976 67,823 143 10 785,119 67,833 (2,640) – – – – (2,640) – (12,059) (12,059) (8) 17 – (2,648) 17 (12,059) Balance at 31 March 2011 4,074 555 18,416 815,055 838,100 162 838,262 Page 26 146120 Project Daejan Holdings R&A Pt3_146120 Project Daejan Holdings R&A Pt3 22/07/2011 13:41 Page 27 Daejan Holdings PLC Report & Financial Statements 2011 Consolidated Balance Sheet as at 31 March 2011 Assets Investment Property Deferred Tax Assets Total Non-Current Assets Trade and Other Receivables Current Investments Cash and Cash Equivalents Total Current Assets Total Assets Equity Share Capital Share Premium Translation Reserve Retained Earnings Total Equity Attributable to Equity Holders of the Parent Minority Interest Total Equity Liabilities Loans and Borrowings Deferred Tax Liabilities Total Non-Current Liabilities Loans and Borrowings Trade and Other Payables Current Taxation Total Current Liabilities Total Liabilities Notes 31 March 2011 £000 31 March 2010 (as restated*) £000 9 10 1,224,800 4,378 1,155,384 5,533 11 12 13 14 16 10 16 15 1,229,178 1,160,917 41,221 246 75,296 40,274 256 28,268 116,763 68,798 1,345,941 1,229,715 4,074 555 18,416 815,055 838,100 162 4,074 555 21,056 759,291 784,976 143 838,262 785,119 194,577 196,204 200,519 191,048 390,781 391,567 55,248 40,821 20,829 3,734 38,141 11,154 116,898 53,029 507,679 444,596 Total Equity and Liabilities 1,345,941 1,229,715 The Financial Statements on pages 25 to 49 were approved by the Board of Directors on 22 July 2011 and were signed on its behalf by: B.S.E. Freshwater D. Davis Director Director *See Note 1(t). Page 27 146120 Project Daejan Holdings R&A Pt3_146120 Project Daejan Holdings R&A Pt3 22/07/2011 13:41 Page 28 Daejan Holdings PLC Report & Financial Statements 2011 Consolidated Statement of Cash Flows for the year ended 31 March 2011 Cash Flows from Operating Activities Cash Receipts – Rent and Service Charges Cash Paid to Suppliers and Employees Cash Generated from Operations Interest Received Interest Paid Receipts from/(Distributions to) Minority Interest UK Corporation Tax Recovered/(Paid) Overseas Tax Paid Year ended 31 March 2011 £000 £000 Year ended 31 March 2010 £000 £000 113,164 (77,568) 35,596 519 (10,942) 17 1,523 (575) 106,252 (76,796) 29,456 565 (11,541) (4) (1,249) (260) Net Cash from Operating Activities 26,138 16,967 Cash Flows from Investing Activities Acquisition and Development of Investment Property Proceeds from Sale of Investment (29,990) (16,932) Property 10,163 5,255 Net Cash from Investing Activities (19,827) (11,677) Cash Flows from Financing Activities Repayment of Bank Loans New Bank Loans Repayment of Mortgages New Mortgages Dividends Paid Net Cash from Financing Activities Net 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 13) (1,375) 41,000 (2,171) 16,089 (12,059) (11,375) – (1,678) 22,549 (11,897) 41,484 47,795 28,058 (557) (2,401) 2,889 26,174 (1,005) 75,296 28,058 Page 28 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 29 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements 1. Significant accounting policies Daejan Holdings PLC is a company domiciled in the United Kingdom. The Consolidated Financial Statements of the Company for the year ended 31 March 2011 comprise the Company and its subsidiaries (together referred to as the “Group”). The Consolidated Financial Statements were authorised for issuance on 22 July 2011. (a) Statement of compliance The Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (“IFRS”) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Company has elected to prepare its parent Company Financial Statements in accordance with UK GAAP and these are presented on pages 50 to 53. (b) Basis of preparation The Consolidated Financial Statements are presented in sterling, the Company’s functional currency, rounded to the nearest thousand. They are prepared on the historical cost basis except that the following assets and liabilities are stated at their fair value: investment property, derivative financial instruments, fixed rate loans and borrowings and current asset investments. Except as noted below, the accounting policies set out in this Note 1 have been applied consistently throughout the Group to all periods presented in the Consolidated Financial Statements. During the financial year the following revised standards were adopted by the Company: l l IFRS 3 Business Combinations (revised) IAS 27 Consolidated and Separate Financial Statements (revised) The adoption of these revised standards did not have a material impact on the Consolidated Financial Statements. The following revised standard has been endorsed but is not effective for the financial year and has not been adopted early: l IAS 24 Related Party Disclosures (revised) The Company does not expect the adoption of the above revised standard to have a material impact on the Consolidated Financial Statements. The financial statements have been prepared on a going concern basis as explained in the Corporate Governance section on pages 20 and 21. The preparation of financial 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. Although these estimates are based on management’s best knowledge of the events or amounts involved, actual results ultimately may differ from those estimates. The areas involving a higher degree of complexity, judgement or estimation are set out in Note 1(u) below. (c) Subsidiaries Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain Page 29 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 30 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. (d) Transactions eliminated on consolidation Intra-group balances and any unrealised gains and losses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. (e) Income available for distribution Under the Articles of Association of certain Group investment undertakings, realised capital surpluses are not available for distribution as dividends. (f) 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 differences arising on re-translation are recognised directly in a separate component of equity. The cumulative translation difference for all foreign operations was deemed to be zero as at the date of transition to IFRS.The year end and average rates used for these purposes were as follows: US Dollar (g) Derivative financial instruments Year end Average 2011 1.60 2010 1.52 2011 1.56 2010 1.60 The Group uses derivative financial instruments to hedge its exposure to interest rate risk arising from operational and financing activities. As these derivatives do not qualify for hedge accounting, they are accounted for as trading instruments. Derivative financial instruments are initially recognised, and subsequently recorded, 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. (h) Investment property IFRS defines investment properties as those which are held either to earn rental income or for capital appreciation or both. All of the Group’s property portfolio falls within this definition. Investment property is initially recognised at cost and subsequently recorded at fair value. External, independent valuation firms having appropriate recognised professional qualifications and recent relevant 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.The valuations are prepared either by considering the aggregate of the net annual rent receivable from the properties using a market yield which reflects the risks inherent in the net cash flow which is then applied to the net annual rents, or on a sales comparison basis.Any gains or losses arising from a change in fair value are recognised in the Income Statement. Page 30 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 31 Daejan Holdings PLC Report & Financial Statements 2011 When the Group begins to redevelop an existing investment property for continued future use as an investment property, the property remains an investment property, and is measured based on the fair value model. Interest is not capitalised on such developments as the property is held at fair value. A property interest under an operating lease is classified 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 classified as an investment property is carried at fair value.Where material, the present value of minimum future lease payments under such leases is recognised as a liability. 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 classification of the property. If the Group’s utilisation is less than five per cent., this is regarded as immaterial such that the whole property is classified as an investment property and stated at fair value. Acquisitions and disposals are recognised on the date that the significant risks and rewards of ownership have been transferred. It is Group policy to sell, as individual units, flats in residential blocks which have been held as investment properties but which are now considered uneconomic to retain. Occasionally there are sales of residential and commercial investment blocks.Any resulting gain or loss based on the difference between sale proceeds and valuation is included in the Income Statement and taxation applicable thereto is shown as part of the taxation charge. (i) Current Investments Investments comprise equity securities held for trading and classified as current assets stated at fair value, with any resultant gain or loss recognised in the Income Statement. (j) Trade and other receivables Trade and other receivables are initially stated at fair value and subsequently carried at cost less an allowance for impairment. These assets are not discounted as it is deemed immaterial. (k) Cash and cash equivalents Cash and cash equivalents comprise cash balances and short term deposits. These short term deposits are highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant 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. (l) Dividends Dividends are recognised as a liability in the period in which they are approved. (m) Trade and other payables Trade and other payables are stated at their amortised cost. (n) 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 Page 31 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 32 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) 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 recoverable 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. (o) 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. (p) Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income 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 financial 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. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. (q) Segmental reporting The Company has identified its operating segments on the basis of those components of the Group which are engaging in business activities from which they may earn revenues and incur expenses and for which discrete financial information is available and regularly reviewed by the Chief Operating Decision Maker in order to allocate resources and assess performance. The Company has determined the Chief Operating Decision Maker to be the Board of Directors. (r) Impairment The carrying amounts of the Group’s assets, other than investment property (see Note 1 (h)) and deferred tax assets (see Note 1 (p)), are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists the asset’s recoverable amount is estimated and an impairment loss recognised whenever the carrying amount of the asset exceeds its recoverable amount. Impairment losses are recognised in the Income Statement. The recoverable amount of an asset is the greater of its fair value less costs to sell and its value-in-use. The value-in-use is determined as the net present value of the future cashflows expected to be derived from the asset, discounted using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Page 32 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 33 Daejan Holdings PLC Report & Financial Statements 2011 (s) 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 outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (t) Loans and borrowings Floating rate loans and borrowings are initially recognised at fair value and are subsequently recorded at amortised cost. Fixed rate loans and borrowings are initially recognised, and subsequently recorded, at fair value. In the case of floating rate loans and borrowings, transaction costs are deducted from the fair value at recognition and any differences between the amount initially recognised and the redemption value is recognised in the Income Statement over the period of the borrowings on an effective interest rate basis. Previously, the adjustment required to re-measure fixed rate loans and borrowings at fair value at each balance sheet date has been included within Fair Value Gains and Losses on Financial Instruments in the Income Statement and as part of Derivative Financial Instruments within Trade and Other Payables in the Balance Sheet. In order to show the carrying value of fixed rate loans and borrowings more clearly, the required adjustment is now shown separately in the Income Statement and within the carrying value of the fixed rate component of Loans and Borrowings in the Balance Sheet. Comparative amounts have been reclassified accordingly by transferring an amount of £15,224,000 from Derivative Financial Instruments to Loans and Borrowings, £211,000 against Current Liabilities and £15,013,000 against Non-current Liabilities. (u) Significant judgements, key assumptions and estimates The Group’s significant accounting policies are set out above. Not all of these policies require management to make subjective or complex judgements or estimates. The following is intended to provide further detail relating to those accounting policies that management consider particularly significant because of the level of complexity, judgement or estimation involved in their application and their impact on the Consolidated Financial Statements. (i) Property valuations The valuation of the Group’s property portfolio is inherently subjective, depending on many factors, including the individual nature of each property, its location and expected future rental values, market yields and comparable market transactions. Therefore the valuations are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of market volatility or low transaction volumes, as is the case in current economic conditions. As noted in Note 1 (h) above, all the Group’s properties are valued by external valuers with appropriate qualifications and experience. (ii) Income taxes The tax treatment of some transactions and calculations cannot be determined until a formal resolution has been reached with the relevant tax authorities. In such cases, the Group’s policy is to be prudent in its assessment of the tax benefit which may accrue in accordance with the contingent asset rules in IAS 37. Where the final outcome of such matters is different from the amounts initially recorded, those differences will be reflected in the income and deferred taxes amounts at the time of formal resolution. Page 33 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 34 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) Additionally, judgement has been exercised in relation to the recognition of deferred tax assets where the utilisation of the underlying tax losses is uncertain. The Group’s operational policy is generally to hold its investment property for the long term. Consequently, the revalued carrying amount of its properties will be recovered through use and thus the deferred tax relating to the revaluation is calculated accordingly, i.e. without taking account of indexation. (iii) Fixed interest rate loans and borrowings The treatment of fixed rate debt as at fair value through profit and loss reflects the Group’s overall management, on a fair value basis, of its investment property portfolio together with the large majority of the debt which finances it. This treatment also is in order to provide consistency of accounting measurement between fixed rate debt and floating rate debt which has been fixed through the use of interest rate swaps; these two categories of debt comprise the large majority of the Group’s total loans and borrowings. (iv) Valuation of hedging instruments The fair value of hedging instruments that are not traded in an active market is determined by using valuation techniques. Management, based on independent advice, uses its judgement to select appropriate methods and assumptions which are based mainly on market conditions existing at the balance sheet date. (v) Trade receivables Management uses details of the age of trade receivables and the status of any disputes together with external evidence of the credit status of the counterparty in making judgements concerning any need to impair the carrying values. Page 34 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 35 Daejan Holdings PLC Report & Financial Statements 2011 2. Segmental Analysis The Group is managed through two discrete geographical divisions and has only one product or service, being investment in property for the generation of rental income and/or capital appreciation. This is reflected in the Group’s structure and in the segment information reviewed by the Board. for the year ended 31 March 2011 Rental and related income Property operating expenses Profit on disposal of property Net valuation movements on property Administrative expenses Profit before finance costs Fair value (losses)/gains Other financial income Financial expenses Profit before taxation Income tax charge Profit for the year Capital expenditure as at 31 March 2011 Investment property Other assets Total segment assets Total segment liabilities Capital employed USA Eliminations £000 £000 UK £000 74,542 (41,746) 9,257 44,643 (10,107) 76,589 (384) 421 (4,266) 72,360 (9,616) 62,744 28,150 (18,997) – 7,381 (451) 16,083 2,419 622 (7,121) 12,003 (6,914) 5,089 4,488 25,502 Total £000 102,692 (60,743) 9,257 52,024 (10,558) 92,672 2,035 512 (10,856) 84,363 (16,530) 67,833 29,990 – – – – – – – (531) 531 – – – – 982,653 102,269 1,084,922 (337,509) 242,147 23,772 265,919 (175,070) – (4,900) (4,900) 4,900 1,224,800 121,141 1,345,941 (507,679) 747,413 90,849 – 838,262 No single lessee accounted for more than 5% of the Group’s rental and related income in the year. Page 35 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 36 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) for the year ended 31 March 2010 Rental and related income Property operating expenses Profit on disposal of properties Net valuation movements on properties Administrative expenses Profit/(Loss) before financing costs Fair value gains Other financial income Financial expenses Profit/(Loss) before taxation Income tax (charge)/credit Profit/(Loss) for the year Capital expenditure as at 31 March 2010 Investment properties Other assets Total segment assets Total segment liabilities Capital employed USA Eliminations £000 £000 UK £000 73,986 (38,548) 5,073 38,811 (9,623) 69,699 2,652 378 (5,323) 67,406 (17,496) 49,910 25,927 (17,435) – (13,814) (390) (5,712) 5,610 765 (6,940) (6,277) 2,022 (4,255) 3,461 13,471 Total £000 99,913 (55,983) 5,073 24,997 (10,013) 63,987 8,262 571 (11,691) 61,129 (15,474) 45,655 16,932 – – – – – – – (572) 572 – – – – 933,352 48,225 981,577 (288,231) 222,032 34,576 256,608 (164,835) – (8,470) (8,470) 8,470 1,155,384 74,331 1,229,715 (444,596) 693,346 91,773 – 785,119 No single lessee accounted for more than 5% of the Group’s rental and related income in the year. 3. Property Operating Expenses Porterage, Cleaning and Repairs Insurance Building Services Other Management Costs 2011 £000 31,445 3,917 15,248 10,133 2010 £000 27,447 3,761 15,739 9,036 60,743 55,983 Of the property operating expenses shown above, an amount of £1,704,000 (2010 – £1,823,000) related to properties which generated no income during the year. Page 36 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 37 Daejan Holdings PLC Report & Financial Statements 2011 4. Administrative Expenses Salaries Directors’ Remuneration Audit and Accountancy Legal and Other Administrative Expenses 2011 £000 5,855 1,497 779 2,427 2010 £000 5,230 1,439 725 2,619 10,558 10,013 Auditors’ Remuneration During the year the Group paid KPMG Audit Plc £20,000 (2010 – £20,000), excluding VAT, for the audit of the Company and £331,000 (2010 – £322,500), excluding VAT, for the audit of the Group’s subsidiaries. The Group jointly employed an average of 141 persons during the year (2010 – 143). The aggregate payroll costs were: Wages NI Contributions Pensions 2011 £000 5,028 446 381 2010 £000 4,427 390 413 5,855 5,230 Details of Directors’ Remuneration are as set out in the Directors’ Remuneration Report. 5. Financial Income and Expenses Financial income: Bank interest receivable Other financial income Financial expenses: Interest payable on bank loans Interest payable on mortgages Other interest payable 2011 £000 200 312 512 2010 £000 198 373 571 2,328 8,505 23 3,990 7,679 22 10,856 11,691 Page 37 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 38 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) 6. Taxation Taxation based on the profit for the year of the Company and its subsidiaries: UK Corporation Tax UK Prior Year Adjustment Overseas Taxation Total Current Tax Deferred Tax Deferred Tax Prior Year Adjustment Total Tax Charge Reconciliation of Tax Expense Profit before Taxation Corporation Tax at the Standard Rate of 28% (2010 – 28%) Reduction in Future Tax Rate Higher Tax Rate on Overseas Operations Prior Year Adjustments Other Total Tax Charge 2011 £000 7,734 577 2010 £000 7,395 (1,518) 8,311 5,877 416 274 8,727 6,151 5,888 1,915 9,323 – 7,803 9,323 16,530 15,474 84,363 61,129 23,622 (12,152) 1,837 2,492 731 17,116 – 48 (1,518) (172) 16,530 15,474 The Finance (No. 2) Act 2010 enacted a reduction in the UK Corporation Tax rate from 28% to 27% with effect from April 2011. On 23 March 2011 the UK Government announced that the Corporation Tax rate would reduce to 26% from April 2011, with three further annual 1% cuts to 23% by April 2014. Other than the change to 26%, which became substantively enacted on 29 March 2011, the effects of the announced changes are not reflected in these financial statements as they were either substantively enacted after the balance sheet date or they have not yet been enacted and, in each case, the impact has not yet been estimated. 7. Earnings per Share Earnings per share is calculated on the earnings, after taxation and minority interests, of £67,823,000 (2010 – £45,636,000) and the weighted average shares in issue during the year of 16,295,357 (2010 – 16,295,357). Page 38 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 39 Daejan Holdings PLC Report & Financial Statements 2011 8. Dividends Amounts recognised as distributions to equity holders in the year: Final dividend for the year to 31 March 2009 Paid 6 November 2009 @ 48p per share Interim dividend for the year to 31 March 2010 Paid 5 March 2010 @ 25p per share Final Dividend for the year to 31 March 2010 Paid 12 November 2010 @ 49p per share Interim Dividend for the year to 31 March 2011 Paid 4 March 2011 @ 25p per share 2011 £000 2010 £000 7,823 4,074 7,985 4,074 12,059 11,897 The Board has recommended a Final Dividend for the year to 31 March 2011 of £8,148,000, representing 50p per share. The dividend has not been included as a liability in these financial statements. 9. Investment Property Long Short Freehold Leasehold Leasehold £000 £000 £000 Total 2011 £000 Total 2010 £000 Balance at 1 April Disposals New Acquisitions Additions to Existing Properties Revaluation Foreign Exchange Movements 919,300 (905) 23,068 6,698 30,586 (9,564) 223,656 (1) 108 116 24,088 (2,128) 12,428 1,155,384 1,126,694 (182) 11,294 5,638 24,997 (13,057) (906) 23,176 6,814 52,024 (11,692) – – – (2,650) – Balance at 31 March 969,183 245,839 9,778 1,224,800 1,155,384 Professional valuations of all the Group’s UK investment properties were carried out at 31 March 2011 by Colliers CRE, Chartered Surveyors. The revalued figures of £984.2 million 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 2011 by Colliers, Meredith & Grew, Joseph J Blake and Associates, Inc. and Metropolitan Valuation Services Inc., USA General Certified Appraisers. The revalued figures of £242.2 million are based on open market values. Professional valuations included in the above table have been stated net of £1.6 million of lease incentives which are included in Trade and Other Receivables. The present value of future minimum lease payments in relation to the leasehold investment properties is not material. Contractual obligations not yet invoiced or paid, for the purchase, construction, development or enhancement of investment properties, amounted to £32.1 million at 31 March 2011 (2010 – £0.8 million). In 2011, these related principally to the refurbishment and extension of Africa House, WC2. Page 39 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 40 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) 10. Deferred Tax Assets and Liabilities Assets Liabilities £000 £000 2011 Net £000 Assets Liabilities £000 £000 2010 Net £000 Investment Property Accelerated Tax Depreciation Financial Instruments – (179,100) (179,100) (17,104) (17,104) – 4,378 4,378 – – (179,870) (179,870) (11,178) – 5,533 5,533 (11,178) – 4,378 (196,204) (191,826) 5,533 (191,048) (185,515) Movement in Deferred Tax: Accelerated Tax Financial Investment Depreci- Instru- Property £000 ation £000 ments £000 Total 2011 £000 Total 2010 £000 Balance at 1 April Recognised in Income Foreign Exchange Movements (179,870) (11,178) (6,390) 464 (485) 1,255 5,533 (185,515) (7,803) (928) 1,492 (227) (176,192) (9,323) – Balance at 31 March (179,100) (17,104) 4,378 (191,826) (185,515) At the balance sheet date, the Group had unutilised tax losses of £6,569,000 (2010 – £5,782,000) available for offset against certain future profits, on which no deferred tax asset has been recognised due to uncertainty over the future recoverability of those losses. 11. Trade and Other Receivables Rent and Service Charges Other Debtors and Prepayments Mortgages granted repayable within one year 2011 £000 20,972 19,602 647 2010 £000 20,527 19,005 742 41,221 40,274 The ageing of rent and service charge receivables was as follows: Not past due Past due by less than one month Past due by one to three months Past due by three to six months Past due by more than six months 2011 Impair- ment £000 – (969) (547) (267) (9,843) Gross £000 9,365 6,708 3,792 1,849 10,884 Net £000 9,365 5,739 3,245 1,582 1,041 Gross £000 7,162 7,631 3,829 2,123 10,657 2010 Impair- ment £000 – (912) (458) (254) (9,251) Net £000 7,162 6,719 3,371 1,869 1,406 32,598 (11,626) 20,972 31,402 (10,875) 20,527 Page 40 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 41 Daejan Holdings PLC Report & Financial Statements 2011 The movement in the allowance for impairment in respect of trade and other receivables during the year was as follows: Balance at 1 April Amounts written off Movement in allowance for impairment Balance at 31 March 12. Current Investments Listed Securities 13. Cash and Cash Equivalents Bank Balances Short Term Deposits Cash and Cash Equivalents in the Balance Sheet Bank Overdrafts 2011 £000 10,875 (808) 1,559 2010 £000 9,749 (721) 1,847 11,626 10,875 2011 £000 246 2010 £000 256 2011 £000 67,237 8,059 75,296 – 2010 £000 16,510 11,758 28,268 (210) Cash and Cash Equivalents in the Cash Flow Statement 75,296 28,058 Included within Bank Balances are tenants’ deposits of £2,035,000 (2010 – £2,043,000) in the UK and £1,693,000 (2010 – £1,626,000) in the USA, which cannot be used in the ordinary course of business. 14. Share Capital Allotted, Called Up and Fully Paid: Ordinary Shares of 25 pence per share Number 2011 £000 2010 £000 16,295,357 4,074 4,074 The Company has one class of share, which carries no special rights or rights to fixed income. There are no restrictions on the transfer of these shares or restrictions on voting rights. Page 41 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 42 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) 15. Trade and Other Payables Rent and Service Charges charged in advance Other Creditors and Accruals Derivative Financial Instruments 16. Loans and Borrowings Non-current Liabilities Mortgages Bank Loans Current Liabilities Bank Overdrafts Mortgages Bank Loans Total Loans and Borrowings Bank Overdrafts Mortgages Bank Loans 2011 2010 (as restated*) £000 £000 14,495 22,344 3,982 12,980 20,623 4,538 40,821 38,141 2011 2010 (as restated*) £000 £000 148,296 46,281 152,863 47,656 194,577 200,519 – 12,873 42,375 210 2,149 1,375 55,248 3,734 – 161,169 88,656 210 155,012 49,031 249,825 204,253 All mortgages and bank loans are secured on specific investment properties owned by subsidiary undertakings. The maturity profile of the Group’s loans and borrowings was as follows: 2011 Bank loans and overdrafts Mortgages £000 £000 42,375 1,375 4,125 40,781 12,873 13,851 49,105 85,340 2010 Total (as restated*) £000 3,734 14,515 53,326 132,678 Total £000 55,248 15,226 53,230 126,121 88,656 161,169 249,825 204,253 Due within one year Due within one to two years Due within two to five years Due after more than five years * See Note 1(t). Page 42 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 43 Daejan Holdings PLC Report & Financial Statements 2011 The risk profile of the Group’s loans and borrowings, after taking account of interest rate swaps, was as follows: 2011 2010 (as restated*) Fixed Floating £000 £000 Total £000 Fixed £000 Floating £000 Total £000 Sterling US Dollar 48,665 137,504 63,656 112,321 – 137,504 48,240 131,772 24,241 – 72,481 131,772 186,169 63,656 249,825 180,012 24,241 204,253 Floating rate bank loans bear rates based on LIBOR. The Group’s interest rate swaps are set out in Note 17. The interest rate profile of the Group’s fixed rate mortgages was as follows: Per cent. 4.0-4.5 4.5-5.0 5.0-5.5 5.5-6.0 6.0-6.5 6.5-7.0 7.5-8.0 9.5-10.0 2011 £000 2010 £000 16,956 2,435 26,378 41,887 46,020 11,494 2,193 13,806 6,813 2,692 23,466 42,736 48,906 12,265 18,134 – 161,169 155,012 The weighted average rate (after taking account of interest rate swaps) and the weighted average term of the Group’s fixed rate loans and borrowings were as follows: Sterling US Dollar *See Note 1(t) 2011 Per cent. 2010 Per cent. 6.17 6.04 6.17 6.08 2011 Years 13.0 5.7 2010 Years 14.0 6.8 Page 43 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 44 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) 17. Financial Assets and Liabilities The Group’s financial instruments are analysed into category as follows: 2011 Financing Carrying Income/ amount (expense) £000 246 246 £000 (16) (16) 2010 Carrying amount £000 Income/ (expense) £000 256 256 16 16 Current Asset Investments Current Assets at Fair Value Derivative Financial Instruments Fixed Rate Loans and Borrowings (3,982) (161,169) 556 (7,010) (4,538) (155,012) 1,981 (1,414) Current and Non-current Liabilities at Fair Value (165,151) (6,454) (159,550) Trade and Other Receivables Cash and Cash Equivalents Current Assets at Amortised Cost Trade and Other Payables Floating Rate Loans and Borrowings Current and Non-current Liabilities at 41,221 75,296 116,517 (36,839) (88,656) 312 200 512 40,274 28,268 68,542 567 373 198 571 (23) (2,328) (33,603) (49,241) (22) (3,990) Amortised Cost (125,495) (2,351) (82,844) (4,012) Total Financial Instruments (173,883) (8,309) (173,596) (2,858) In common with all businesses, the Group is exposed to the following types of risk which arise from its use of financial instruments: Credit risk Liquidity risk Market risk This note presents information about the nature of the Group’s exposure to such risks, its objectives, policies and processes for measuring and managing risk and the Group’s management of capital. Reference to disclosures given elsewhere in the financial statements is included as appropriate. The Board has overall responsibility for determining the Group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, have delegated to the finance function the authority for designing and operating processes that ensure the effective implementation of those objectives.The overall objectives of the Board are to set policies that seek to reduce risk as far as possible without unduly affecting the Group’s competitiveness and flexibility. Credit Risk The Group’s exposure to credit risk arises from the potential financial loss if a tenant or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s trade receivables from tenants. Page 44 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 45 Daejan Holdings PLC Report & Financial Statements 2011 Trade receivables The majority of the Group’s rental income is demanded quarterly in advance and demands are sent out prior to the due date. Management monitors arrears continually and prompt action is taken to address potential significant defaults as appropriate.The credit worthiness of each tenant is assessed prior to the agreement of the lease. Collateral is generally required by the Group to support lease obligations. In many cases this takes the form of a tenant security deposit but also includes parent company guarantees or bank guarantees where appropriate. Provision is made on a sliding scale against any rental arrears where recovery is in doubt or where solicitors have been instructed to recover the debt, with full provision for impairment usually being made where a tenant is in arrears for more than a year. Details of the Group’s trade receivables and the extent of impairment provisions against them are set out in Note 11. Due to the large number of tenants across various sectors and geographical locations, the Board does not consider there to be a significant concentration of credit risk. Cash and derivative financial instruments The credit rating of counterparties to financial instruments is kept under review, particularly in the current economic conditions.The Group’s interest rate swaps are currently significantly out-of-the- money; consequently, counterparty risk on swaps does not represent a major risk at the current time. The counterparty risk on cash and short-term deposits is managed by limiting the aggregate exposure to any institution by reference to their credit rating. Such balances are generally placed with major financial institutions where credit risk is not considered significant. Maximum exposure The aggregate carrying amounts of the Group’s financial assets, which are stated net of impairment provisions, represents the Group’s maximum exposure to credit risk, before taking into account the value of the tenant security deposits held and other collateral. Liquidity Risk Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due and arises from the Group’s management of its working capital and the finance charges and amortisation of its loans and borrowings. The Group’s policy is to seek to maintain cash balances to meet all short and medium term requirements.The Group has a low level of gearing relative to the property investment sector as a whole and has long standing relationships with many leading banks and financial institutions from which the Board expect to be able to raise further funds if required.At 31 March 2011, gearing was 18.6 per cent. (2010 – 16.6 per cent., as restated) on the basis of gross debt to gross assets. In April 2011, £41.0 million of bank loans, which had only been drawn down for a short period, were repaid; excluding this repayment, £14.2 million of loans and borrowing were repayable within one year. Cash and short term deposits at 31 March 2011, excluding the cash being held for the loan repayment of £41.0 million and tenants deposits, were £30.6 million (2010 – £24.6 million). In addition, at the same date, the Group had undrawn committed facilities of £30.6 million (2010 – £41.6 million) or £71.6 million after the loan repayment in April 2011. Of this, £61.6 million expires in 2015 and £10.0 million in 2018. Page 45 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 46 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) The maturity analysis of the undiscounted cash flows arising from the Group’s financial liabilities at 31 March 2011 was as follows: Aggregate Due Due Due Due after Carrying undiscounted within within within more than amount £000 88,656 161,169 – 3,982 36,839 290,646 cash flows £000 88,656 147,440 69,786 9,230 36,839 351,951 one year £000 42,375 11,784 9,017 1,207 36,839 101,222 1-2 years £000 1,375 12,690 8,337 1,207 – 23,609 2-5 years £000 4,125 45,002 19,931 3,622 – 72,680 5 years £000 40,781 77,964 32,501 3,194 – 154,440 Bank loans Mortgages Interest Interest rate swaps Trade and other payables Market Risk Market risk arises mainly from the impact that changes in interest rates might have on the cost of Group borrowing and the impact that changes in the US$/£ exchange rate might have on the Group’s USA net assets. Interest rates The Group seeks to reduce the interest rate risk by fixing rates on a majority of its loans and borrowings, whilst maintaining some loans at floating rates in order to retain flexibility in relation to short term interest rates. Interest rates are fixed either through the use of fixed rate mortgage finance or through interest rate swaps. The Group does not speculate in treasury products but uses these only to limit exposure to potential interest rate fluctuations.The interest rate profile of the Group’s loans and borrowings is set out in Note 16. It is estimated that a general increase of one percentage point in interest rates would decrease the Group’s profit before taxation by approximately £0.2 million, after taking account of the interest swaps in place. There also exists a risk to the Income Statement arising from the recognition and re-measurement of fixed rate debt and interest rate swaps at fair value. It is estimated that a general increase of one percentage point in interest rates would give rise to a reduction in fair value of fixed rate debt and interest rate swaps of £7.7 million. Interest rate swaps The interest rate swaps held by the Group at the year end were as follows: Contracted rate (excluding margin) Notional principal Fair value 2011 2010 2011 Maturing in less than one year Maturing in more than five years Per cent. – 5.6 Per cent. 7.8 5.6 £000 – 25,000 25,000 2010 £000 26,611 25,000 51,611 2011 £000 – 3,982 3,982 2010 £000 318 4,220 4,538 Foreign exchange rates The Group seeks to reduce its exposure to foreign currency risk in relation to its USA net assets by funding its USA investment property with US Dollar denominated loans and borrowings. As the Group’s investment in USA assets are held for the long term and funds are not usually returned to Page 46 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 47 Daejan Holdings PLC Report & Financial Statements 2011 the UK, the Group’s policy is not to hedge its residual exposure. Management monitors exchange rates on a regular basis and elects to transfer funds only when the rate is favourable to do so. It is estimated that a 10 per cent. movement in the US$/£ exchange rate would cause a movement in the sterling value of the Group’s USA net assets of £8.3 million. Capital Management The capital structure of the Group consists of equity attributable to equity holders of the parent together with net debt.This is kept under constant review to ensure the Group has sufficient capital to fund its operations and that the Group’s strategy of low gearing is maintained.The Group seeks to maintain a balance between longer-term finance appropriate to fund its long-term investment property holding strategy and cost effectiveness, given availability of debt in the market. Equity comprises issued share capital, reserves and retained earnings as set out in the Consolidated Statement of Changes in Equity. Net debt comprises a mix of fixed rate mortgages and shorter-term bank loans as set out in Note 16 and cash and short term deposits as set out in Note 13.All loans and borrowings are secured against investment property and the bank loans are drawn against committed facilities. Fair Values of Financial Instruments With the exception of floating rate loans and borrowings which have not been fixed through the use of interest rate swaps, the Group’s financial instruments are either recorded at fair value or their fair values are not materially different from their carrying amounts.The fair value of the Group’s floating rate loans and borrowings is as follows: Floating rate loans and borrowings at carrying amount Adjustment to fair value Floating rate loans and borrowings at fair value 2011 2010 £000 63,656 (1,911) £000 24,241 (2,083) 61,745 22,158 The fair values of fixed rate loans and borrowings and derivative financial instruments recorded in the financial statements, together with the fair values of floating rate loans and borrowings shown above, have been determined by discounting the differences between cash flows based on contractual principal and interest amounts and cash flows based on forecast market rates. As such these measurements are classified as Level 2 as defined by IFRS 7.The amount of the change in the fair value of the Group’s fixed rate loans and borrowings, both during the period and cumulatively, which is attributable to changes in the credit risk of the liability is immaterial. This has been determined by assessing the amount of change that is not due to changes in market conditions. 18. Related party transactions Day-to-day management of the Group’s properties in the United Kingdom is mainly carried out by Highdorn Co. Limited and by Freshwater Property Management Limited. Mr B S E Freshwater and Mr S I Freshwater are Directors of both companies. They have no beneficial interest in the share capital of Highdorn Co. Limited. Mr B S E Freshwater, Mr S I Freshwater and Mr D Davis are Directors of the parent company of Freshwater Property Management Limited but have no beneficial interest in either company. Mr R E Freshwater has a beneficial interest in a trust holding interests in shares in Highdorn Co. Limited. In their capacity as property managing agents, Highdorn Co. Limited and Freshwater Property Management Limited collect rents and incur direct property expenses on behalf of the Group. At Page 47 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 48 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Consolidated Financial Statements (continued) 31 March 2011, the aggregate net amounts due to the Group from Highdorn Co. Limited and Freshwater Property Management Limited in relation to such agency receipts and payments was £3.0 million (2010 – £5.2 million). These amounts are not secured and are payable on demand. No guarantees have been given or received and the amounts are settled in cash. The amounts paid by the Group for the provision of property and other management services by Highdorn Co. Limited and Freshwater Property Management Limited, not included above, were as follows: Balance due to related party managing agents at 1 April Charged during the year Paid during the year Balance due to related party managing agents at 31 March 2011 £000 843 3,668 (3,839) 2010 £000 701 3,259 (3,117) 672 843 The Directors’ interests in the Company and the principal shareholders are described on page 14. The Board considers that the Directors are the key management personnel of the Group and their remuneration is disclosed on page 16. 19. Contingent liabilities The Group is from time to time party to legal actions arising in the ordinary course of business. The Directors are not aware of any current actions which could have a material adverse effect on the financial position of the Group. 20. Operating lease agreements The Group earns rental income by leasing its investment properties to tenants under operating leases which vary in terms and provisions between type of property and type of tenure. Leases providing for contingent rents are rare within the Group’s property portfolio and no amounts for contingent rents are included in rental income for the year (2010 – £nil). At the balance sheet date, future minimum lease payments receivable by the Group under such leases were as follows: Due within one year Due within one to two years Due within two to five years Due after more than five years 2011 £000 2010 £000 81,429 49,236 103,644 301,871 77,987 49,442 106,288 316,387 536,180 550,104 Many of the Group’s residential properties are let under assured shorthold tenancies which typically are for initial terms of 12 months or less whereafter they are cancellable at short notice. The Group’s experience is that a significant proportion of such tenancies are held over after the expiry of their initial term. Page 48 146120 Project Daejan Holdings R&A Pt4_146120 Project Daejan Holdings R&A Pt4 22/07/2011 13:40 Page 49 Daejan Holdings PLC Report & Financial Statements 2011 21. Principal Subsidiary Undertakings Except where indicated the following are indirect subsidiaries of the Company. All are wholly owned property investment companies and are included in the Consolidated Financial Statements. Incorporated in Great Britain and registered in England and Wales Astral Estates (London) Limited Bampton Holdings Limited Bampton (B&B) Limited Bampton (Redbridge) Limited Brickfield Properties Limited Daejan (Norwich) 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) Daejan Traders Limited* Limited City and Country Properties (Camberley) Limited City and Country Properties (Midlands) Limited Coinsun Limited Daejan (Brighton) Limited Daejan (Cambridge) Limited Daejan (Cardiff) Limited Daejan (Care Homes) Limited* Daejan Commercial Properties Limited Daejan (Dartford) Limited Daejan Developments 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 Daejan Investments (Harrow) Limited Daejan Investments (Park) Limited Daejan (Kingston) Limited Daejan (Lauderdale) Limited * Directly owned. Note: Minority interests arise on investments in a U.S. subsidiary. Daejan (UK) Limited* Daejan (US) Limited* Daejan (Warwick) Limited Daejan (Watford) Limited Daejan (Worcester) Limited Hampstead Way Investments Limited Inputstock Limited Inputstripe Limited Lawnstamp Limited Limebridge Co. Limited Pegasus Investment Company Limited Rosebel Holdings Limited Seaglen Investments Limited St. Leonards Properties Limited The Bampton Property Group Limited The Cromlech Property Co. Limited The Halliard Property Co. Limited Incorporated in the USA (see note) Daejan Holdings (US) Inc. Daejan (NY) Limited Daejan Enterprises Inc. Page 49 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 50 Daejan Holdings PLC Report & Financial Statements 2011 Company Balance Sheet as at 31 March 2011 Fixed Assets Investment in Subsidiary Undertakings Current Assets Cash at Bank Notes £000 2011 £000 £000 2010 £000 3 1,016,886 856,719 58,118 58,118 4,808 4,808 Creditors: Amounts falling due within one year 4 (190,623) (28,895) 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 Other Reserves Profit and Loss Account 5 6 7 7 7 (132,505) 884,381 (46,281) 838,100 4,074 555 893 832,578 838,100 (24,087) 832,632 (47,656) 784,976 4,074 555 893 779,454 784,976 The Financial Statements on pages 50 to 53 were approved by the Board of Directors on 22 July 2011 and were signed on its behalf by: B.S.E. Freshwater Director D. Davis Director Page 50 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 51 Daejan Holdings PLC Report & Financial Statements 2011 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 financial statements. (a) Basis of Preparation The financial statements have been prepared under the historical cost convention, modified to include the revaluation of investments in subsidiaries, and in accordance with applicable UK accounting standards and applicable law. As permitted by section 408 of the Companies Act 2006, a separate profit and loss account dealing with the results of the Company has not been presented. The Company’s profit for the year after taxation is £67,667,000 (2010 – £40,854,000). (b) Investments in Subsidiary Undertakings Investments in subsidiary undertakings comprise shares in, and loans to, those undertakings and are stated at fair value in order better to reflect the underlying value of those assets. Fair value has been assessed by the Directors having regard to the underlying net assets of the subsidiary undertakings and the fair values of the investment properties held by those undertakings where such fair value is not included in the net assets. (c) 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 profit and loss account. 2. Profit on ordinary activities before taxation The company has no staff other than its Directors and their remuneration is set out on page 16 of the Group accounts. The Parent Company audit fee is disclosed on page 37 of the Group accounts. 3. Investments in Subsidiary Undertakings At 1 April 2010 Loans Additional Investments Revaluation Effect of Foreign Exchange Differences Shares at Valuation £000 – – 115,930 (102,246) (2,905) Loans £000 856,719 (10,526) – 159,914 – Total £000 856,719 (10,526) 115,930 57,668 (2,905) At 31 March 2011 10,779 1,006,107 1,016,886 The historical cost of shares in subsidiary undertakings is £241.0 million (2010 – £125.1 million). Page 51 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 52 Daejan Holdings PLC Report & Financial Statements 2011 Notes to the Company Financial Statements (continued) 4. Creditors: Amounts falling due within one year Bank loans and overdrafts Other creditors and accruals Taxation 2011 £000 10,875 169,898 9,850 190,623 2010 £000 1,375 23,323 4,197 28,895 5. Creditors: Amounts falling due after more than one year Secured bank loans 6. Share Capital Allotted, called up and fully paid: Ordinary Shares of 25 pence per share 7. Reserves Share Premium Account: At 1 April 2010 and 31 March 2011 Other Non-Distributable Reserves: At 1 April 2010 and 31 March 2011 Profit and Loss Account: At 1 April 2010 Foreign Exchange Movements Profit after Tax for the Year Dividend Paid in the Year At 31 March 2011 2011 £000 2010 £000 46,281 47,656 Number 2011 £000 2010 £000 16,295,357 4,074 4,074 £000 555 893 779,454 (2,484) 67,667 (12,059) 832,578 In the year to 31 March 2009, the Company transferred its shareholdings in certain of its wholly owned subsidiary undertakings to three intermediate holding companies for a consideration of £832.9 million. As a result of that transaction, the parent company transferred £645.1 million of revaluation gains relating to these investments to the profit and loss reserve. As the transfer of these revaluation gains arose as a result of a sale of assets within the Group, it is unlikely that the Company will seek to treat the profit and loss reserve thus arising as distributable. Under the Articles of Association of certain Group investment undertakings, realised capital surpluses are not available for distribution as dividends. Page 52 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 53 Daejan Holdings PLC Report & Financial Statements 2011 8. Reconciliation of Movements in Shareholders’ Funds Profit after Tax for the Year Foreign Exchange Movements Dividend Paid in the Year Net Movement in Shareholders’ Funds Shareholders’ Funds at 1 April Shareholders’ Funds at 31 March 2011 £000 67,667 (2,484) (12,059) 53,124 784,976 838,100 2010 £000 40,854 (3,274) (11,897) 25,683 759,293 784,976 Page 53 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 54 Daejan Holdings PLC Report & Financial Statements 2011 Five-Year Record Total Rental and Related Income Property Operating Expenses Net Rental and Related Income Profit on Disposal of Investment Properties Net Valuation Gains/(Losses) on Investment Properties Administrative Expenses Net Operating Profit/(Loss) Before Financing Costs 2007 £000 2008 £000 2009 £000 2010 £000 2011 £000 90,176 (49,808) 86,952 (46,464) 95,973 (53,470) 99,913 (55,983) 102,692 (60,743) 40,368 40,488 42,503 43,930 41,949 17,169 6,578 6,758 5,073 9,257 153,872 (7,630) 20,664 (261,603) (12,039) (8,629) 24,997 (10,013) 52,024 (10,558) 203,779 59,101 (224,381) 63,987 92,672 Profit/(Loss) before Taxation Income Tax (Expense)/Credit 198,316 (56,487) 47,067 (248,037) 69,341 7,040 61,129 (15,474) 84,363 (16,530) Profit/(Loss) for the Year 141,829 54,107 (178,696) 45,655 67,833 868.6p 331.8p (1,096.6)p 416.2p 1,302,420 1,328,297 1,196,660 1,229,715 1,345,941 759,293 838,100 46.60 51.43 861,727 52.88 902,778 55.40 784,976 48.17 280.1p Earnings/(Loss) per Share Total Assets Equity Shareholders Funds Equity Shareholders Funds £ per Share Page 54 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 55 Daejan Holdings PLC Report & Financial Statements 2011 Directors and Advisers Directors B S E Freshwater (Chairman and Managing Director) D Davis (non-executive) S I Freshwater Auditors KPMG Audit Plc, 15 Canada Square London E14 5GL A M Freshwater (non-executive) Consulting Accountants R E Freshwater (non-executive) Cohen Arnold Secretary M R M Jenner F.C.I.S. New Burlington House, 1075 Finchley Road, London NW11 0PJ Registered & Head Office Principal Bankers Freshwater House, Lloyds Banking Group plc 158-162 Shaftesbury Avenue, Barclays Bank PLC The Royal Bank of Scotland Group plc Stockbrokers Brewin Dolphin Limited, 7 Drumsheugh Gardens, Edinburgh EH3 7QH London WC2H 8HR Registered in England No. 305105 Registrars Equiniti, Aspect House Spencer Road, Lancing, West Sussex BN99 8AH Page 55 146120 Project Daejan Holdings R&A Pt5_146120 Project Daejan Holdings R&A Pt5 22/07/2011 13:49 Page 56 Daejan Holdings PLC Report & Financial Statements 2011 Notice of Meeting Notice is hereby given that the Seventy Sixth 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 Tuesday 20 September 2011 at 2.00 p.m. for the following purposes: Ordinary Business To consider and if thought fit, pass the following Ordinary Resolutions: 1. 2. 3. 4. 5. To receive the Financial Statements for the year ended 31 March 2011 together with the Reports of the Directors and the Auditors. (Resolution 1.) To approve the Remuneration Report for the year ended 31 March 2011. (Resolution 2.) To declare a final dividend. (Resolution 3.) To re-elect B S E Freshwater as a Director, who retires by rotation. (Resolution 4.) To re-appoint KPMG Audit Plc as Auditors, and to authorise the Directors to agree their remuneration. (Resolution 5.) By Order of the Board, M R M Jenner Secretary 22 July 2011 A member entitled to attend and vote at the Meeting may appoint another person(s) to exercise all or any of his rights to attend, speak and vote at the meeting. A proxy need not be a member of the Company but must attend the meeting for the member’s vote to be counted. A member can appoint more than one proxy in relation to the Meeting, provided that each proxy is appointed to exercise the rights attaching to different shares held by him. As at 22 July 2011 (being the latest business day prior to the publication of this Notice), the Company’s issued share capital consists of 16,295,357 ordinary shares, carrying one vote each. Therefore the total voting rights in the Company are 16,295,357. The recommended final dividend will, if approved, be paid on 11 November 2011 to Shareholders registered at the close of business on 14 October 2011. Page 56 sterling 146120 Design, art direction and photography by Roger Watt 146120 Project Daejan Holdings R&A cover_146120 Project Daejan Holdings R&A cover 22/07/2011 13:26 Page 3 146120 Project Daejan Holdings R&A cover_146120 Project Daejan Holdings R&A cover 22/07/2011 13:26 Page 4 

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