Annual Report 2012 - Cadogan
Annual Report 2012 - Cadogan
Annual Report 2012 - Cadogan
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
CADOGAN GROUP LIMITED<br />
<strong>Annual</strong> <strong>Report</strong> <strong>2012</strong>
Contents<br />
Chairman’s Statement<br />
Directors and Secretary<br />
Financial Highlights<br />
Chief Executive’s Review<br />
Directors’ <strong>Report</strong><br />
Independent Auditor’s <strong>Report</strong><br />
Consolidated Profit and Loss Account<br />
Consolidated Balance Sheet<br />
Other Principal Statements<br />
Company Balance Sheet<br />
Consolidated Cash Flow Statement<br />
Notes on the Financial Statements<br />
Five Year Summary<br />
1<br />
2<br />
3<br />
4-18<br />
19-20<br />
21<br />
22<br />
23<br />
24<br />
25<br />
26<br />
27-44<br />
45
CHAIRMAN’S STATEMENT 31 DECEMBER <strong>2012</strong><br />
VisCount Chelsea<br />
I took over as chairman of <strong>Cadogan</strong> Group Limited from my father in March <strong>2012</strong>. Since then I am delighted that the<br />
group has continued to prosper and <strong>2012</strong> has proved to be a successful year in which to have taken over the reins of<br />
our business.<br />
The eyes of the world were focused on London in <strong>2012</strong>. The Queen's Diamond Jubilee celebrations, the Olympics and<br />
the Paralympics were all successful and greatly acclaimed. The great sense of history and tradition, for which London<br />
has always been known, married perfectly with London's modern cosmopolitan culture and ethnic diversity to produce<br />
truly memorable events again and again.<br />
While the sporting and cultural events of <strong>2012</strong> took centre stage, the economic backdrop provided continuing strong<br />
support to activity levels and market sentiment. London’s broad international investment appeal has proved a great<br />
strength, enhanced by its status as an international ‘safe haven’, and by the continuing weakness and wobbles of the<br />
Eurozone. Each renewed bout of economic fragility in Europe or political instability in the Middle East has only added<br />
to the perceived attractions of London.<br />
These factors have contributed to the desirability of London as a place in which to work, to live and to operate a business.<br />
They help to generate continuing healthy levels of occupational demand for both residential and commercial properties.<br />
Thus the property market in central London has flourished with yields remaining firm and with high levels of investment<br />
and occupational activity. Again the strength of the property market in London has been in marked contrast to much of<br />
the rest of the UK, where the lack of any consistent growth in the economy and a depressed property market have<br />
produced poor returns and minimal activity levels.<br />
With all our property interests focused in central London and specifically in Chelsea and Knightsbridge, I am therefore<br />
able to present another successful set of results for <strong>2012</strong>. The total value of our properties reached £3.88 billion, gross<br />
rental income £104.7 million and profit before taxation was £57.3 million. This is less than the profit before taxation<br />
figure we reported last year of £71.6 million, but the reduction largely reflects a lower write back of £3.9 million (2011<br />
- £16 million) from the release of provisions made previously against the value of our investment properties.<br />
In spite of the gloomy prognosis for the broader UK economy, the outlook for London remains positive. There will come<br />
a time when the property market in the UK regions starts to recover, but there is no reason to expect that that will of<br />
itself damage London's prospects. We believe that our attractive locations and clear strategic priorities will enable our<br />
business to continue to prosper in the years ahead.<br />
I was delighted to announce at the end of <strong>2012</strong> that Francis Salway had agreed to join the board as a non-executive<br />
director. As former Chief Executive of Land Securities and a non-executive director of Next plc, Francis brings immense<br />
experience and judgement which we are already benefitting from greatly and which augment the considerable talents<br />
provided by the rest of the board.<br />
I have very much enjoyed my first year as chairman of <strong>Cadogan</strong>, and I am extremely grateful to my fellow directors and<br />
all our staff, led by Hugh Seaborn, for the guidance and assistance which they have given me over this time.<br />
Viscount Chelsea<br />
25 April 2013<br />
VisCount Chelsea<br />
1
DIRECTORS AND SECRETARY & FINANCIAL HIGHLIGHTS 31 DECEMBER <strong>2012</strong><br />
Directors<br />
Viscount Chelsea*<br />
Chairman<br />
the hon. James Bruce*<br />
Deputy Chairman<br />
hugh seaborn<br />
Chief Executive<br />
Richard Grant<br />
Finance Director<br />
Charles ellingworth*<br />
John Gordon*<br />
John de havilland*<br />
Francis salway*<br />
secretary<br />
Paul Loutit<br />
Registered office<br />
18 <strong>Cadogan</strong> Gardens<br />
London SW3 2RP<br />
Company number<br />
2997357<br />
life President<br />
The Earl <strong>Cadogan</strong> D.L.<br />
auditor<br />
Ernst & Young LLP<br />
1 More London Place<br />
London SE1 2AF<br />
*Non-executive<br />
2
Financial Highlights<br />
GROSS RENTS AND INTEREST 2008 - <strong>2012</strong><br />
£ Million<br />
120<br />
Gross rents<br />
Interest payable<br />
2011 <strong>2012</strong><br />
£ million £ million<br />
100<br />
80<br />
Property income 100.2 107.3<br />
60<br />
40<br />
Profit on sale of<br />
investment Properties 17.2 17.3<br />
20<br />
0<br />
Profit on ordinary activities<br />
Before taxation 71.6 57.3<br />
2008 2009 2010<br />
2011 <strong>2012</strong><br />
PRINCIPAL BALANCE SHEET ITEMS 2008 - <strong>2012</strong><br />
£ Million<br />
Properties<br />
Shareholders’ funds<br />
Net borrowings<br />
4500<br />
4000<br />
3500<br />
3000<br />
2011 <strong>2012</strong><br />
£ million £ million<br />
2500<br />
2000<br />
1500<br />
Properties at Valuation 3,455 3,875<br />
1000<br />
500<br />
0<br />
net Borrowings 419 504<br />
shareholders’ Funds 2,988 3,317<br />
2008 2009 2010<br />
2011 <strong>2012</strong><br />
NET ASSETS PER SHARE 2008 - <strong>2012</strong><br />
£ per share<br />
Net assets per share<br />
30<br />
25<br />
20<br />
2011 <strong>2012</strong><br />
15<br />
net assets Per share £24.90 £27.64<br />
10<br />
earnings Per share 50.7p 40.9p<br />
2008 2009 2010<br />
2011 <strong>2012</strong><br />
3
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
huGh seaBoRn<br />
Overview<br />
This has been a successful year across all property sectors.<br />
The value of the portfolio rose to £3.88bn (up 9%) and<br />
gross rental income increased to £104.7m (up 5.6%), both<br />
all-time highs. The business produced a profit before tax<br />
of £57.3m.<br />
The growth in values of 9%, after adjusting for acquisitions<br />
and disposals, was led by our retail properties, up a shade<br />
over 13%, while residential showed an increase of 7.6%.<br />
We have been successful in acquiring a number of<br />
properties within our traditional estate boundaries, with a<br />
total value in excess of £160 million. All these acquisitions<br />
enable us to further progress our estate management<br />
strategies. The property market in central London and<br />
particularly in Chelsea and Knightsbridge, has been strong<br />
throughout the year. Demand from occupiers for both our<br />
commercial and residential properties has remained healthy<br />
and vacancy levels have stayed low.<br />
We continue to adopt a long term approach to the way in<br />
which we do business. This demands however that careful<br />
attention is paid to the short term to ensure we are on the<br />
right course and delivering competitive performance,<br />
balanced with maintaining a long view of our interests<br />
and the health and prosperity of the area in which we do<br />
business.<br />
We concentrate on the tight geographical area of Chelsea<br />
and Knightsbridge. This focus means we know our markets<br />
intimately. We have a high quality portfolio concentrated<br />
on luxury retail and high end residential. We have an<br />
innovative leasing approach which, on the one hand,<br />
reflects our customers’ businesses and on the other, our<br />
need to manage carefully each property for the benefit of<br />
the whole. Our close relationship with our customers<br />
allows us to understand their business needs and to<br />
respond dynamically. Low levels of gearing and long term<br />
financing mean we are able to, and do, respond rapidly<br />
to opportunities to invest in new properties while<br />
maintaining our refurbishment and redevelopment<br />
programme.<br />
We have a highly professional and proficient in-house<br />
team managing the Estate and these people have<br />
demonstrated their commitment and good work over the<br />
past year for which I am immensely grateful. It is vital to<br />
the business to continue to attract, retain, develop and<br />
motivate talented people. This team is supported by bestin-class<br />
external advisers to whom I also owe a great debt<br />
of gratitude.<br />
We have a genuine long term vested interest in the<br />
area which underpins all that we do. We consider our role<br />
to be one of stewardship, that is to improve the assets<br />
for present and future generations. As such, we have a<br />
responsibility to actively manage the environmental impact<br />
of our activities. We also have a responsibility to the<br />
communities we affect and to the occupiers of our<br />
buildings. We are working hard to integrate our community,<br />
customer and environmental principles into the heart of<br />
the business and aim to be an organisation recognised as<br />
both a good neighbour and one with which it is good to<br />
do business. This makes <strong>Cadogan</strong> a more resilient business.<br />
What does this mean in practice? One example is our<br />
commitment to provide voluntarily 45 flats with a value<br />
in excess of £20 million, which will be provided to key<br />
workers at reduced rents. London as a world class city<br />
needs to function and to do so it must be able to house<br />
people of all incomes. There must come a time when<br />
housing costs become a drag on the competitiveness of<br />
the capital and this will require long term measures to be<br />
taken now to avert future problems.<br />
Another example is that <strong>Cadogan</strong> also owns and operates<br />
<strong>Cadogan</strong> Hall, one of London’s leading concert halls and<br />
home to the Royal Philharmonic Orchestra. As well as<br />
contributing to a diverse mix of attractions for Chelsea’s<br />
residents and visitors, the Hall does much more locally. It<br />
plays a role in the local community, running a number of<br />
events throughout the year specifically targeted at<br />
supporting aspiring musicians, inspiring young people and<br />
supporting other community groups.<br />
There are many other examples of our environmental,<br />
community and customer activities, a selection of which<br />
have been posted to our website.<br />
4
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
Property Portfolio<br />
investment Performance highlights<br />
• total property portfolio value grew to £3.88 billion<br />
Increase of 9.0% adjusting for purchases and sales<br />
• Residential portfolio increased in value by 7.6%<br />
• Commercial portfolio gained 10.1%<br />
Retail portfolio increased by 13.4%<br />
Office portfolio increased by 4.6%<br />
The outstanding performer in terms of capital value growth<br />
was our retail portfolio, while the residential portfolio, which<br />
performed so strongly in 2011, showed a slowdown from<br />
the rapid growth of the previous year. Rental growth at the<br />
north end of Sloane Street was the prime factor in improving<br />
our retail values and demand for our best retail locations<br />
remained strong throughout the year. Prime central London<br />
residential property continued to benefit from international<br />
demand and limited supply availability, but the increases<br />
and changes to Stamp Duty Land Tax, announced in the<br />
<strong>2012</strong> budget, which created considerable uncertainty in the<br />
marketplace, undoubtedly had a dampening effect on<br />
activity levels and sentiment in the market.<br />
acquisitions a nd Disposals<br />
We were active in the retail, office and hotel sectors<br />
acquiring a number of interests at a total cost of £139<br />
million. Included within this total was a head leasehold<br />
retail interest in Sloane Street, an office building off the<br />
Kings Road and the head lease and business of the boutique<br />
hotel at No. 11 <strong>Cadogan</strong> Gardens. All these acquisitions fit<br />
well with our strategic priorities and will enable us to<br />
enhance our returns over the medium and long term. We<br />
were able to utilise the substantial cash balances which<br />
had built up during the course of the year to fund the<br />
major part of these acquisitions. The balance was financed<br />
through a drawdown from one of our standby facilities.<br />
In a quieter residential market, we acquired fewer long<br />
lease residential units than we have in recent years. We<br />
purchased one house and 13 flats at a total cost of just<br />
over £22 million. We acquire residential properties to<br />
enable us to consolidate our ownership, particularly in<br />
key mixed-use buildings and to expand our portfolio of<br />
market let residential units.<br />
Sales of residential properties through the Leasehold<br />
Reform Act process continued at a steady pace and<br />
totalled just over £90 million (2011 - £83 million). We<br />
completed on the sale of 108 units (2011 – 104 units). The<br />
profit achieved over the previous year’s valuation was<br />
£16.3 million, slightly less than the figure of £17.1 million<br />
achieved in 2011.<br />
We have continued to receive a steady level of<br />
enfranchisement claims since the beginning of 2013.<br />
6
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
Developments<br />
Development expenditure rose in <strong>2012</strong>, as compared to<br />
a relatively quiet year in 2011. Total development<br />
expenditure in <strong>2012</strong> was a shade under £20 million and<br />
covered a wide variety of small and medium-size projects.<br />
There was significant activity also in planning and<br />
preparatory work on a number of future schemes, most<br />
notable of which is the redevelopment of Liscartan and<br />
Granville Houses at 127 – 135 Sloane Street.<br />
Major completed projects include the reconfiguration of<br />
the three large retail units at 201 – 206 Sloane Street. Our<br />
work on these units was completed in the autumn and all<br />
three were handed over to their new tenants before the<br />
year end. We completed the major refurbishment of 18<br />
serviced apartments units at 13 – 19 Sloane Gardens<br />
which are subject to a management contract. We also<br />
completed the refurbishment of a number of houses in<br />
Oakley Gardens and the conversion into three flats of a<br />
house in Tedworth Square.<br />
We are also nearing completion of two residential<br />
schemes at 107/109 <strong>Cadogan</strong> Gardens and 21/22 Hans<br />
Place. Completion of the 13 residential units will provide<br />
a substantial boost to the quality of our residential letting<br />
portfolio.<br />
As noted above we have been working hard preparing for<br />
the redevelopment of 127 – 135 Sloane Street. We have<br />
met our original timetable for the commencement of this<br />
development and the site was handed over to the<br />
contractor, Mace, in February of this year. The<br />
development programme envisages completion in the first<br />
half of 2015. Once complete, this scheme will provide<br />
45,000 ft.² of Grade A office space over five floors, and<br />
approximately 50,000 ft.² of retail space, including six<br />
large retail units fronting onto Sloane Street, and a new<br />
restaurant unit on Pavilion Road.<br />
This high quality development will further enhance the<br />
attraction of the Sloane Square area, which has seen the<br />
opening of Café Colbert and Rag and Bone in <strong>2012</strong>, and<br />
where we have a number of other attractive retail lettings<br />
in the pipeline.<br />
8
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
lettings<br />
We experienced good demand for residential, retail and<br />
office units throughout <strong>2012</strong>. As a result vacancy levels<br />
across all our sectors remained low throughout the year and<br />
we anticipate this continuing into 2013.<br />
We have experienced some fluctuations in demand for<br />
residential lettings over the course of <strong>2012</strong>, but we monitor<br />
the market closely and are able to respond quickly to<br />
changes to maintain our occupancy levels. We have<br />
devoted much effort to improving the speed with which we<br />
refresh units between lettings, while at the same time<br />
improving the quality of both the accommodation we<br />
provide and the quality of service we offer to our customers.<br />
Our most significant new retail lettings in the year were of<br />
the three reconfigured units at the north end of Sloane Street<br />
which were let to Tom Ford, Ermenegildo Zegna and<br />
Alberto Ferretti. The first two are new to Sloane Street and<br />
will further enhance the breadth and quality of brands<br />
represented on the street. We have continued to attract<br />
other new and interesting retailers including Browns,<br />
Bimba & Lola and Stefanel. In response to their changing<br />
needs we were also able to provide additional space to<br />
some of our most successful existing retailers, including<br />
Hackett, Loro Piana and Smythsons.<br />
Demand from international brands looking to enter or<br />
extend their presence into London has remained strong<br />
throughout the year. We have a number of lease expiries<br />
arising in 2013, particularly in Duke of York Square and<br />
we have discussions with a number of high-quality<br />
international retailers who are keen to come to Chelsea.<br />
10
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
Financial Review<br />
trading highlights<br />
• Rental income rose to £104.7 million<br />
Increase of 5.6 %<br />
• Residential enfranchisement sales increased to £90.1<br />
million Increase of 8.9%<br />
• Profit on ordinary activities before taxation reduced<br />
to £57.3 million Reduction of 19.9%<br />
• earnings per share reduced to 40.9 pence per share<br />
Reduction of 19.3%<br />
All sectors of the business contributed to the growth in<br />
rental income.<br />
During the course of <strong>2012</strong> the annual rental income<br />
derived from our residential market let portfolio increased<br />
from just under £17 million at the beginning of the year<br />
to nearly £20.3 million at the year end. The number of<br />
active tenancies increased from 468 to 529 over the same<br />
period. These increases principally reflected acquisitions<br />
made during 2010 and 2011 which, after refurbishment<br />
works, were added to our letting portfolio during <strong>2012</strong>.<br />
We also benefited from an overall increase of circa 6% in<br />
rental values during the year and from reducing the time<br />
taken between vacation and re-letting.<br />
Within the commercial portfolio the principal driver in our<br />
rental growth was from index linked rents. The rents on<br />
the majority of our retail units are linked to increases in<br />
retail prices and these averaged around 3.5% over <strong>2012</strong>.<br />
Rental income in <strong>2012</strong> also benefited from the new leases<br />
signed towards the end of 2011 with Massimo Dutti, Rag<br />
and Bone and Café Colbert.<br />
The artistic success of <strong>Cadogan</strong> Hall continues. We take<br />
great care to attract a high quality and varied artistic<br />
programme to the hall, while carefully managing the<br />
significant cost of this enterprise. In 2014 the hall will be<br />
celebrating its 10th anniversary and is planning an eclectic<br />
programme of events throughout the year to celebrate this<br />
milestone.<br />
Last year's financial results benefited to the extent of<br />
£16.0 million from the write back to the profit and loss<br />
account of provisions made in previous years to reflect<br />
impairments in the value of our investment properties. The<br />
equivalent and much reduced figure in <strong>2012</strong> is £3.9 million,<br />
and this is the most significant factor in explaining the<br />
overall reduction in the reported profit before taxation,<br />
down from £71.6 million in 2011 to £57.3 million in <strong>2012</strong>.<br />
With the rise in property values over the last three years<br />
virtually all of the provisions made previously to reflect<br />
impairment in the value of investment properties have<br />
now been reversed.<br />
Net interest payable increased marginally from £28.8 million<br />
to £28.9 million; the level of borrowings outstanding<br />
during the course of the year remained fairly steady, and<br />
with rates of interest fixed on virtually all our borrowings,<br />
the charge for the year remained stable.<br />
12
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
Balance sheet and Borrowings<br />
The rise in the year end value of our investment properties<br />
was the major factor contributing to the rise in group<br />
shareholders’ funds, which rose from £2.99 billion to<br />
£3.32 billion. Net assets per share increased from £24.90<br />
to £27.64. Balance sheet gearing increased from 14.0%<br />
to 15.2%. Our financial ratios remain healthy and we<br />
continue to maintain significant headroom against the<br />
various covenants and prudential limits required of us by<br />
our bankers and the board.<br />
Year-end net borrowings were £504.3 million, a<br />
substantial increase from the previous year-end figure of<br />
£419.3 million. Most of this increase however arose<br />
shortly before the year end as a result of expenditure on<br />
acquisitions and the payment of dividends.<br />
During the year we renewed our revolving credit facility.<br />
The previous facility amounting to £75 million had been<br />
provided on a sole basis by the Royal Bank of Scotland.<br />
In April <strong>2012</strong> we negotiated a new five year facility with<br />
a consortium comprising the Royal Bank of Scotland and<br />
Lloyds Banking Group and reduced the amount of the<br />
facility to £50 million.<br />
In addition to this committed revolving credit facility we<br />
have also arranged an uncommitted standby facility<br />
amounting to approximately £100 million which is<br />
provided by one of our long-standing private placement<br />
investors. Although the facility is not provided on a<br />
committed basis it gives us cost effective access to funding<br />
which can be drawn at short notice, subject to agreeing<br />
interest rates and margins based on prevailing market rates.<br />
Towards the end of the year we drew £30 million from this<br />
facility, split into two equal tranches of £15 million, one<br />
with a ten year maturity, the other with a fifteen year<br />
maturity. The overall effective interest rate, which was fixed<br />
through to the maturity of the loans, was 3.67%.<br />
14
At the year end the group had substantial funds available<br />
for future acquisitions. These comprise approximately £70<br />
million of committed facilities and a further £70 million<br />
from the uncommitted facility referred to above.<br />
We have a balanced profile of future debt maturities<br />
extending out to 2056. As at 31 December <strong>2012</strong> our<br />
borrowing facilities had an average maturity of 17.8 years<br />
and 48% of our total borrowings facilities do not mature<br />
for more than 15 years. All of our currently drawn<br />
borrowings are at fixed rates of interest, either through<br />
direct agreement with the lender or through the use of<br />
swaps; the average rate across all our loans is 5.90%.<br />
We are proud of and value the relationships we have<br />
developed with our long-term lenders. The borrowing<br />
strategy which we have developed, which is based on<br />
fixed rates of interest and long-term maturities, provides<br />
certainty in our financing profile and supports our overall<br />
strategy for the business.<br />
15
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
approach to Risk Management<br />
<strong>Cadogan</strong> is a long term property investor with a clearly<br />
defined focus on high quality property assets located in<br />
central London. The group has appropriate policies and<br />
methodologies in place to identify, assess and manage the<br />
risks faced by the business. Because of its private ownership<br />
and long-term outlook the group aims for, and is able to<br />
achieve, a high level of resilience in all areas of its business.<br />
The group maintains a Risk Register which identifies the<br />
principal risks impacting on the group's operations and<br />
financial position. The Register provides an assessment of<br />
the likelihood of the identified risks materialising and<br />
includes an estimate of the potential impact of each area<br />
of risk on the group's business. The Register also lists the<br />
key actions which have been put in place to avoid,<br />
eliminate or mitigate the identified risks. The group also<br />
make use of appropriate external specialists to advise on<br />
compliance with the established policies and regulations.<br />
The principal risks and uncertainties faced by the group<br />
and a brief summary of how it deals with each of these<br />
areas of risk are set out below:<br />
Property market risks – the risks arising from property cycles<br />
and from shorter term unexpected changes in the market<br />
for property investment, development and occupation.<br />
As a long-term investor the group is less reliant than others<br />
upon predicting property market cycles and aims to<br />
manage the impact of the property cycle and any other<br />
short-term fluctuations in values or activity levels by<br />
ensuring that the group has a relatively high proportion of<br />
committed long term loan finance and high levels of<br />
available liquidity. These factors also assist the group in<br />
managing cash flow and liquidity risks.<br />
Although the group’s properties are concentrated in a<br />
relatively small geographic area there are a large number of<br />
properties in many different uses. The largest individual<br />
property represents 4.6% of the total portfolio value and the<br />
highest individual rent 4.2% of total annual rental income.<br />
Finance and cash flow risks – the risks associated with<br />
unexpected changes in interest rates and availability of<br />
debt finance.<br />
The majority of the group's long-term borrowings are at<br />
fixed rates of interest, achieved either by agreement with<br />
the lender, or through the interest rate derivatives market.<br />
The group board requires at least 75% of long-term debt<br />
to be subject to fixed rates of interest. The group does not<br />
undertake financial instrument transactions that are<br />
speculative or unrelated to the group's trading activities.<br />
Board approval is required for the use of any new financial<br />
instrument.<br />
The group seeks to manage refinancing risk through the<br />
use of a spread of loan maturities. In normal circumstances<br />
loan terms are for an initial period of 10 years or more. The<br />
incidence of maturities is spread so as to ensure that major<br />
re-financings do not coincide in a single year.<br />
The various private placings of debt which the group has<br />
undertaken in recent years have included a significant<br />
proportion of US dollar borrowings. All exposure to US<br />
dollars in relation to both interest and capital repayments<br />
was swapped into sterling on the date on which the loans<br />
were committed, and as a result there is no residual foreign<br />
exchange risk exposure to the group. Operationally the<br />
group has no foreign currency exposure.<br />
Property operational risks – the risks associated with the<br />
management and ownership of property.<br />
The group accords a high priority to health and safety<br />
issues. The group has well established compliance and<br />
reporting procedures to ensure that health and safety risks<br />
are reduced and eliminated as far as is practicable. During<br />
the course of <strong>2012</strong> the group sought an external audit of<br />
its health and safety policies and procedures, the results of<br />
which confirmed the quality and integrity of the group's<br />
health and safety practices.<br />
16
CHIEF ExECUTIVE’S REVIEW 31 DECEMBER <strong>2012</strong><br />
21<br />
Prospects<br />
There is no doubt that the success of London as a world<br />
city contributes to our performance. On a range of<br />
measures London has done well. Economic forecasts are<br />
generally positive, suggesting that, subject to further<br />
significant deterioration in the economy, it will continue<br />
to do so, supported by continued growth in the TMT and<br />
professional services sectors, and further ahead we can<br />
also expect a gradual recovery in financial services.<br />
The UK economy faces many challenges and growth rates<br />
are unlikely to be as strong as prior to the financial crisis.<br />
However, we have a high quality portfolio concentrated<br />
on luxury retail and high end residential, which is very<br />
attractive to occupiers, the advantage of being able to<br />
manage the parts for the benefit of the whole Estate, a high<br />
calibre team and a very strong financial structure that<br />
supports our business objectives.<br />
We remain committed to our long term strategy of<br />
developing and enhancing the Estate and I firmly believe<br />
that our focus on our existing assets, delivery of quality<br />
accommodation and service to meet the needs of our<br />
customers, remain the right approach for long term success.<br />
Hugh Seaborn<br />
25 April 2013<br />
18
20<br />
DIRECTORS’ REPORT 31 DECEMBER <strong>2012</strong><br />
The directors present their report and the financial statements for the year ended 31 December <strong>2012</strong>.<br />
Principal activity and Review of the Business<br />
The principal activity of the group during the year continued to be property investment. The group’s other activities<br />
include the operation of hotels and a concert hall. A review of the group’s business during <strong>2012</strong> and its future prospects<br />
is contained in the Chief Executive’s review on pages 4 to 18.<br />
Results and Dividends<br />
The consolidated profit and loss account set out on page 22 shows a profit attributable to the shareholders for the year<br />
of £49,118,000 (2011 – £60,885,000). Interim dividends of £34,000,000 (2011 – £30,000,000) equivalent to 28.3p<br />
per ordinary share (2011 – 25p per ordinary share) were declared and paid during the year.<br />
Risk Management<br />
A summary of the principal risks and uncertainties has been included in the Chief Executive’s review on page 16.<br />
Directors<br />
Earl <strong>Cadogan</strong> stepped down as a director on 26 March <strong>2012</strong> on the occasion of his retirement as Chairman of the<br />
company and Lord Churston retired as a director on 4 April <strong>2012</strong>.<br />
F W Salway was appointed a director on 6 December <strong>2012</strong>. All the other directors holding office during the financial<br />
year and up to the date of this report are listed on page 2.<br />
The ultimate holding company maintains liability insurance for its directors and officers and for those of its subsidiaries<br />
in respect of proceedings brought by third parties, subject to the conditions set out in section 234 of the Companies Act<br />
2006. Such qualifying third party indemnity provision remains in force as at the date of approving the directors’ report.<br />
Directors’ interests<br />
The directors’ interests in the shares of the company at 31 December <strong>2012</strong> were as follows:<br />
Non-beneficial<br />
31 December <strong>2012</strong> 31 December 2011<br />
The Earl <strong>Cadogan</strong> Ordinary shares of £1 each 10,275,547 10,275,547<br />
Viscount Chelsea Ordinary shares of £1 each 4,982,083 4,982,083<br />
Viscount Chelsea also held a beneficial interest in 5,000,000 (2011 – 5,000,000) ordinary shares of £1 each in the<br />
ultimate holding company. In addition, the children of Viscount Chelsea are amongst the beneficiaries of trust funds<br />
which held 28,435,000 (2011 – 28,435,000) ordinary shares of £1 each in the ultimate holding company and 7,710,367<br />
(2011 – 7,710,367) ordinary shares of £1 each in <strong>Cadogan</strong> Group Limited.<br />
The interests of the Hon. J H M Bruce, C V Ellingworth, J D Gordon and J A de Havilland are disclosed in the financial<br />
statements of the ultimate holding company.<br />
Charitable Contributions<br />
The group’s charitable contributions for the year were £151,000 (2011 – £45,000). In addition, the <strong>Cadogan</strong> Charity, a<br />
shareholder in the company, makes donations to a variety of local and national charities.<br />
19
21<br />
DIRECTORS’ REPORT 31 DECEMBER <strong>2012</strong><br />
Going Concern<br />
The group’s business activities, together with the factors likely to affect its future development, its financial position,<br />
financial risk management objectives, details of its financial instruments and derivative activities, and its exposures to<br />
price, credit, liquidity and cash flow risk are set out in the Chief Executive’s review.<br />
The group has considerable financial resources derived from an established investment property portfolio in prime central<br />
London. The group has substantial long-term committed financing arrangements and also has access to overdraft and<br />
revolving credit facilities from its bankers. Taking these factors into account the directors believe that the group is well<br />
placed to manage its business risks successfully.<br />
After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue<br />
in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in<br />
preparing the annual report and financial statements.<br />
statement of Directors’ Responsibilities<br />
The directors are responsible for preparing the report and financial statements in accordance with applicable law and<br />
regulations.<br />
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors<br />
have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting<br />
Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve<br />
the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and<br />
the company and of the profit or loss of the group for that period. In preparing those financial statements, the directors<br />
are required to:<br />
• select suitable accounting policies and then apply them consistently;<br />
• make judgements and estimates that are reasonable and prudent;<br />
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed<br />
and explained in the financial statements; and<br />
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company<br />
will continue in business.<br />
The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time<br />
the financial position of the company and to enable them to ensure that the financial statements comply with the<br />
Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking<br />
reasonable steps for the prevention and detection of fraud and other irregularities.<br />
The directors are responsible for the maintenance and integrity of the corporate and financial information included on<br />
the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial<br />
statements may differ from legislation in other jurisdictions.<br />
Disclosure of information to the auditors<br />
So far as each person who was a director at the date of approving this report is aware, there is no relevant audit<br />
information, being information needed by the auditor in connection with preparing its report, of which the auditor is<br />
unaware. Having made enquiries of fellow directors and the group’s auditor, each director has taken all the steps that he<br />
is obliged to take as a director in order to make himself aware of any relevant audit information and to establish that the<br />
auditor is aware of that information.<br />
auditor<br />
A resolution concerning the re-appointment of Ernst & Young LLP as auditor will be proposed at the forthcoming annual general<br />
meeting.<br />
By order of the board<br />
Paul loutit Secretary<br />
25 April 2013 Registered Number: 2997357<br />
20
INDEPENDENT AUDITOR’S REPORT 31 DECEMBER <strong>2012</strong><br />
We have audited the financial statements of <strong>Cadogan</strong> Group Limited for the year ended 31 December <strong>2012</strong> which<br />
comprise the Consolidated Profit and Loss Account, the Consolidated and Company Balance Sheets, the Consolidated<br />
Statement of Total Recognised Gains and Losses, The Note of Historical Cost Profit and Losses, The Reconciliation of<br />
Movement in Consolidated Shareholders’ Funds, the Consolidated Cash Flow Statement and the related notes 1 to 25.<br />
The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom<br />
Accounting Standards (United Kingdom Generally Accepted Accounting Practice).<br />
This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the<br />
Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those<br />
matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted<br />
by law, we do not accept or assume responsibility to anyone other than the company and the company's members as<br />
a body, for our audit work, for this report, or for the opinions we have formed.<br />
Respective Responsibilities of Directors and auditor<br />
As explained more fully in the Statement of Directors’ Responsibilities set out on page 20, the directors are responsible<br />
for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility<br />
is to audit and express an opinion on the financial statements in accordance with applicable law and International<br />
Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical<br />
standards for Auditors.<br />
scope of the audit of the Financial statements<br />
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give<br />
reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or<br />
error. This includes an assessment of: whether the accounting policies are appropriate to the group’s and the parent<br />
company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant<br />
accounting estimates made by the directors; and the overall presentation of the financial statements.<br />
In addition, we read all the financial and non-financial information in the annual report and financial statements to<br />
identify material inconsistencies with the audited financial statements. If we become aware of any apparent material<br />
misstatements or inconsistencies we consider the implications for our report.<br />
opinion on the Financial statements<br />
In our opinion the financial statements:<br />
• give a true and fair view of the state of the group’s and parent company’s affairs as at 31 December <strong>2012</strong> and of the<br />
group’s profit for the year then ended;<br />
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and<br />
• have been prepared in accordance with the requirements of the Companies Act 2006.<br />
opinion on other Matters Prescribed By the Companies act 2006<br />
In our opinion the information given in the Chairman’s Statement, the Chief Executive’s Review and the Directors’ <strong>Report</strong><br />
for the financial year for which the financial statements are prepared is consistent with the financial statements.<br />
Matters on Which We are Required to <strong>Report</strong> By exception<br />
We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you<br />
if, in our opinion:<br />
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not<br />
been received from branches not visited by us; or<br />
• the parent company financial statements are not in agreement with the accounting records and returns; or<br />
• certain disclosures of director’ remuneration specified by law are not made; or<br />
• we have not received all the information and explanations we require for our audit.<br />
eamonn McGrath (Senior statutory auditor)<br />
for and on behalf of Ernst & Young LLP, Statutory Auditor<br />
London<br />
25 April 2013<br />
21
CONSOLIDATED PROFIT AND LOSS ACCOUNT 31 DECEMBER <strong>2012</strong><br />
Note <strong>2012</strong> 2011<br />
£000 £000<br />
turnover<br />
Continuing operations<br />
Acquisitions<br />
Group turnover<br />
Cost of sales<br />
Gross Profit<br />
Administrative expenses<br />
Movements in provision for diminution of value<br />
operating Profit<br />
Continuing operations<br />
Acquisitions<br />
Profit on sale of investment properties<br />
113,845 102,074<br />
2,604 3,850<br />
2 116,449 105,924<br />
(34,086) (27,865)<br />
82,363 78,059<br />
(17,295) (10,786)<br />
3 3,919 15,960<br />
6<br />
68,795 82,073<br />
192 1,160<br />
68,987 83,233<br />
4 17,293 17,155<br />
Profit on ordinary activities before interest<br />
Interest receivable<br />
Interest payable<br />
Profit on ordinary activities before taxation<br />
Tax on profit on ordinary activities<br />
Profit on ordinary activities after taxation attributable to shareholders<br />
Dividends<br />
Retained Profit for the Year<br />
earnings Per share<br />
86,280 100,388<br />
733 857<br />
5 (29,677) (29,664)<br />
57,336 71,581<br />
8 (8,218) (10,696)<br />
49,118 60,885<br />
9 (34,000) (30,000)<br />
10 15,118 30,885<br />
11 40.9p 50.7p<br />
Notes 1 to 25 form an integral part of these financial statements.<br />
22
CONSOLIDATED BALANCE SHEET 31 DECEMBER <strong>2012</strong><br />
Fixed assets<br />
Tangible fixed assets<br />
Note <strong>2012</strong> 2011<br />
£000 £000<br />
12 3,878,514 3,458,108<br />
Current assets<br />
Stock<br />
Debtors<br />
Cash at bank and in hand<br />
Creditors amounts falling due within one year<br />
Bank loans and other borrowings<br />
Trade and other creditors<br />
Corporation tax<br />
net Current assets/(liabilities)<br />
59 40<br />
14 13,299 11,113<br />
22 4,364 63,328<br />
17,722 74,481<br />
16 4,000 4,000<br />
15 50,784 41,511<br />
4,696 5,007<br />
59,480 50,518<br />
(41,758) 23,963<br />
total assets less Current liabilities<br />
3,836,756 3,482,071<br />
Creditors amounts falling due after more than one year<br />
Bank loans and other long term borrowings<br />
16 504,672 478,672<br />
Provisions For liabilities and Charges<br />
Deferred taxation<br />
Long term pension (asset)/liability<br />
17 11,240 11,698<br />
23 4,310 3,587<br />
3,316,534 2,988,114<br />
Capital and Reserves<br />
Share capital<br />
Revaluation reserve<br />
Profit and loss account<br />
shareholders’ Funds<br />
18 120,000 120,000<br />
19 2,408,979 2,166,771<br />
19 787,555 701,343<br />
3,316,534 2,988,114<br />
Viscount Chelsea<br />
- Director<br />
Hugh Seaborn<br />
25 April 2013<br />
- Director<br />
Notes 1 to 25 form an integral part of these financial statements.<br />
23
OTHER PRINCIPAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
Consolidated statement of Recognised Gains and losses<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Profit for the year attributable to shareholders<br />
Unrealised actuarial loss on pension commitments<br />
Deferred taxation on the actuarial loss on pension commitments<br />
Unrealised surplus on revaluation of investment properties<br />
Unrealised surplus on revaluation of land and buildings<br />
Attributable taxation on realised revaluation surplus<br />
total Recognised Gains and losses in the Year<br />
49,118 60,885<br />
(1,240) (5,845)<br />
285 1,461<br />
313,693 384,421<br />
564 5,770<br />
- (72)<br />
362,420 446,620<br />
note of historical Cost Profits and losses<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
<strong>Report</strong>ed profit on ordinary activities before taxation<br />
Realisation of property revaluation gains of previous years<br />
historical cost profit on ordinary activities before taxation<br />
historical Cost Profit For the Year Retained after taxation, and Dividends<br />
57,336 71,581<br />
72,049 63,838<br />
129,385 135,419<br />
87,167 94,651<br />
Reconcilliation of Movement in Consolidated shareholders’ Funds<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Total recognised gains and losses in the year<br />
Dividends<br />
Net addition to shareholders’ funds<br />
Opening shareholders’ funds<br />
Closing shareholders’ Funds<br />
362,420 446,620<br />
(34,000) (30,000)<br />
328,420 416,620<br />
2,988,114 2,571,494<br />
3,316,534 2,988,114<br />
Notes 1 to 25 form an integral part of these financial statements.<br />
24
COMPANY BALANCE SHEET 31 DECEMBER <strong>2012</strong><br />
Fixed assets<br />
Investments<br />
Note <strong>2012</strong> 2011<br />
£000 £000<br />
13 117,317 117,317<br />
Current assets<br />
Amounts due from subsidiary undertakings<br />
814,098 682,776<br />
Creditors amounts falling due within one year<br />
Other creditors<br />
Taxation<br />
net Current assets<br />
15 82 75<br />
9 9<br />
91 84<br />
814,007 682,692<br />
total assets less Current liabilities<br />
931,324 800,009<br />
Creditors amounts falling due after more than one year<br />
Long term borrowings<br />
16 3,080 3,080<br />
928,244 796,929<br />
Capital and Reserves<br />
Share capital<br />
Profit and loss account<br />
shareholders’ Funds<br />
18 120,000 120,000<br />
19 808,244 676,929<br />
928,244 796,929<br />
Viscount Chelsea<br />
- Director<br />
Hugh Seaborn<br />
25 April 2013<br />
- Director<br />
Notes 1 to 25 form an integral part of these financial statements.<br />
25
CONSOLIDATED CASH FLOW STATEMENT 31 DECEMBER <strong>2012</strong><br />
Note <strong>2012</strong> 2011<br />
£000 £000<br />
net Cash inflow From operating activities<br />
20 60,072 68,281<br />
Returns on investments and servicing of Finance<br />
Interest received<br />
Interest paid<br />
net Cash outflow From Returns on investments and servicing of Finance<br />
1,279 311<br />
(29,728) (26,844)<br />
(28,449) (26,533)<br />
taxation<br />
Corporation tax paid<br />
(8,793) (10,709)<br />
Capital expenditure and Financial investment<br />
Purchase of tangible fixed assets<br />
Proceeds from sales of fixed assets<br />
net Cash inflow/(outflow) From Capital expenditure and Financial investment<br />
(141,066) (64,587)<br />
91,485 82,725<br />
(49,581) 18,138<br />
acquisitions and Disposals<br />
Purchase of subsidiary undertaking<br />
Net cash acquired with subsidiary undertaking<br />
net Cash outflow From acquisitions and Disposals<br />
13 (4,855) (548)<br />
13 18 416<br />
(4,837) (132)<br />
equity Dividends Paid<br />
(34,000) (30,000)<br />
net Cash inflow/(outflow) Before Financing<br />
(65,588) 19,045<br />
Financing<br />
Increase in long term borrowings<br />
Repayment of long term borrowings<br />
net Cash inflow From Financing<br />
30,000 150,047<br />
(23,376) (117,033)<br />
21 6,624 33,014<br />
increase/(Decrease) in Cash For the Year<br />
22 (58,964) 52,059<br />
Notes 1 to 25 form an integral part of these financial statements.<br />
26
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
1 accounting Policies<br />
(a) accounting convention<br />
The financial statements have been prepared under the historical cost convention modified by the revaluation of investment properties and<br />
properties under development and in accordance with UK applicable accounting standards. Compliance with SSAP 19 “Accounting for<br />
Investment Properties” requires a departure from the requirements of the Companies Act 2006 relating to depreciation and an explanation<br />
of this departure is given in (g) below.<br />
(b) Basis of consolidation<br />
The group financial statements consolidate the financial statements of <strong>Cadogan</strong> Group Limited and its subsidiary undertakings for the<br />
yearended 31 December <strong>2012</strong>. No profit and loss account is presented for <strong>Cadogan</strong> Group Limited as permitted by section 408 of the<br />
Companies Act 2006.<br />
(c) turnover<br />
Turnover in the property investment business is stated net of VAT, and comprises gross rents, including reverse premiums received on early<br />
lease terminations, commissions and other fees receivable. The cost of all lease incentives (such as rent-free periods) is offset against the total<br />
rent due and the net rental income is then spread evenly over the period from the start of the lease to the date of the next rent review or the<br />
lease end date. Increases in rents arising from rent reviews are recognised when the review has been completed and agreed with the tenant.<br />
Turnover in the hotel and concert hall operations represents amounts derived from the provision of goods and services, stated net of VAT.<br />
(d) investments<br />
Investments in subsidiaries are included at cost, less a provision for diminution in value where applicable.<br />
(e) land and buildings, investment properties and properties under development<br />
Land and buildings, investment properties and properties under development are included in the financial statements at market valuation at<br />
the year end. Any surplus arising on revaluation is taken through the statement of total recognised gains and losses to the revaluation reserve.<br />
Any resulting deficit, if temporary, is taken through the statement of total recognised gains and losses to the revaluation reserve. If a deficit below<br />
original cost arises and is deemed to be permanent it is taken through the profit and loss account. Additions to properties include costs of a<br />
capital nature only; interest and other costs in respect of developments and refurbishments are charged to the profit and loss account as incurred.<br />
(f) Profit on sale of properties<br />
Profits or losses on the sale of investment properties are calculated by reference to the book value at the end of the previous year, adjusted<br />
for any subsequent capital expenditure, and are treated as exceptional items. Such transactions are recognised on the exchange of contracts,<br />
providing no material conditions remain outstanding.<br />
(g) Depreciation<br />
In accordance with SSAP 19 no depreciation is provided on freehold investment properties. Although the Companies Act 2006 requires all<br />
properties to be depreciated the directors believe that departure from this requirement is necessary in order for the financial statements to give<br />
a true and fair view. Depreciation is reflected in the open market value of the investment properties and land and buildings included in the<br />
financial statements and cannot be quantified separately.<br />
Plant and equipment is depreciated on a straight line basis at annual rates varying between 10% and 33%.<br />
27
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
1 accounting Policies (continued)<br />
(h) stocks<br />
Stocks are stated at the lower of cost and net realisable value.<br />
(i) taxation<br />
Provision is made for deferred taxation on all material timing differences. No deferred taxation is provided on the revaluation of investment<br />
properties, unless a binding agreement for the sale of the asset exists at the year end.<br />
(j) Foreign currencies<br />
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by<br />
a forward foreign currency contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling<br />
at the balance sheet date or if appropriate at the forward contract rate.<br />
(k) Derivative instruments<br />
The group uses forward foreign currency contracts to reduce exposure to foreign exchange rates. The group also uses interest rate swaps to adjust<br />
interest rate exposures. The group considers its derivative instruments qualify for hedge accounting when certain criteria are met. Details of the<br />
relevant criteria are set out below.<br />
Forward foreign currency contracts<br />
The criteria for forward foreign currency contracts are:<br />
• the instrument must be related to a firm foreign currency commitment;<br />
• it must involve the same currency as the hedged item; and<br />
• it must reduce the risk of foreign currency exchange movements on the group’s operations.<br />
The rates under such contracts are used to record the hedged item. As a result, gains and losses are offset against the foreign exchange gains and<br />
losses on the related financial assets and liabilities, or where the instrument is used to hedge a committed future transaction, are not recognised<br />
until the transaction occurs.<br />
Interest rate swaps<br />
The group’s criteria for interest rate swaps are:<br />
• the instrument must be related to an asset or a liability; and<br />
• it must change the character of the interest rate by converting a variable rate to a fixed rate or vice versa.<br />
Interest differentials are recognised by accruing within net interest payable. Interest rate swaps are not revalued to fair value or shown on the<br />
group balance sheet at the year end. If they are terminated early, the gain/ loss is spread over the remaining maturity of the original instrument.<br />
(l) Pension benefits<br />
The pension costs relating to the group’s defined benefit scheme are accounted for in accordance with Financial <strong>Report</strong>ing Standard 17 –<br />
‘Retirement Benefits’ (FRS17). Current service costs and net financial returns are included in the profit and loss account in the year to which<br />
they relate. Actuarial gain and losses and movements on the deferred asset relating to the pension liability are recognised in the statement of<br />
recognised gains and losses.<br />
The annual contributions for defined contribution schemes are charged to the profit and loss account in the year to which<br />
they relate.<br />
28
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
2 turnover and segmental analysis<br />
Turnover, group profit on ordinary activities before tax and net assets are analysed as follows:<br />
Property investment Hotels and Concert Hall Total<br />
<strong>2012</strong> 2011 <strong>2012</strong> 2011 <strong>2012</strong> 2011<br />
£000 £000 £000 £000 £000 £000<br />
turnover<br />
Gross rental income<br />
and other sales<br />
Other income<br />
Total turnover<br />
Turnover of No.11<br />
<strong>Cadogan</strong> Gardens<br />
included above<br />
104,714 99,174 9,160 5,676 113,874 104,850<br />
2,575 1,074 – – 2,575 1,074<br />
107,289 100,248 9,160 5,676 116,449 105,924<br />
– – 2,604 3,850 2,604 3,850<br />
Profit<br />
Continuing operations<br />
68,655 82,783 332 450 68,987 83,233<br />
Profit on disposal of<br />
fixed assets<br />
Net interest<br />
Profit on ordinary activities<br />
before taxation<br />
Operating profit of<br />
No.11 <strong>Cadogan</strong> Gardens<br />
included above<br />
17,293 17,155<br />
(28,944) (28,807)<br />
57,336 71,581<br />
– – 192 1,160 192 1,160<br />
net assets<br />
Continuing operations<br />
Net assets of<br />
No.11 <strong>Cadogan</strong> Gardens<br />
included above<br />
3,267,303 2,971,734 49,231 16,380 3,316,534 2,988,114<br />
– – 33,510 16,556 33,510 16,556<br />
All operations take place within the United Kingdom. The group operates in two principal areas of activity, property investment and hotels and<br />
concert hall activities. On 25 January <strong>2012</strong> the group acquired Couture Holdings Limited, a holding company which owned indirectly the<br />
business, assets and liabilities of No.11 <strong>Cadogan</strong> Gardens, a luxury boutique hotel in Chelsea. The activities of this business are included within<br />
the Hotels and Concert Hall sector shown above together with those of <strong>Cadogan</strong> Hotel Partners Limited, which was acquired in 2011.<br />
29
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
3 Movements in Provision For Diminution in Value<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Write back of impairment losses on investment properties<br />
3,919 15,960<br />
The figures for <strong>2012</strong> include no amounts relating to the acquisition of<br />
No.11 <strong>Cadogan</strong> Gardens.<br />
4 Profit on sale of investment Properties<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Profits on sales of freeholds and receipt of long lease premiums,<br />
less directly related costs and expenses<br />
17,293 17,155<br />
The figures for <strong>2012</strong> include no amounts relating to the acquisition of<br />
No.11 <strong>Cadogan</strong> Gardens.<br />
5 interest Payable<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Interest on bank loans and other borrowings not wholly repayable within five years<br />
Interest on bank loans, overdrafts and other borrowings repayable within five years<br />
Other interest<br />
29,199 27,388<br />
340 2,514<br />
138 (238)<br />
29,677 29,664<br />
6 operating Profit<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Operating profit is stated after charging:<br />
Depreciation<br />
Auditors’ remuneration:<br />
Audit of the financial statements – includes £50,000 in respect of<br />
the company (2011 – £48,000)<br />
Other fees to auditors – tax services<br />
– other services<br />
Hire of plant and equipment<br />
2,050 826<br />
195 179<br />
338 242<br />
242 102<br />
18 5<br />
30
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
7 Directors and employees<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Aggregate directors’ emoluments in respect of qualifying services<br />
1,690 1,977<br />
Included within directors’ emoluments above are contributions to money<br />
purchase pension schemes for three directors amounting to £128,000<br />
(2011 3 directors – £126,000).<br />
The emoluments, excluding pension contributions, of the highest paid director<br />
were £645,000 (2011 – £648,000).<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Employee costs:<br />
Wages and salaries<br />
Social security costs<br />
Pension costs – defined contribution scheme<br />
Pension costs – net cost of defined benefit scheme<br />
6,833 5,029<br />
754 585<br />
468 434<br />
159 248<br />
8,214 6,296<br />
The average number of persons employed by the group, including executive<br />
directors, during the year was 185 (2011 – 110).<br />
8 taxation<br />
(a) analysis of charge in the year<br />
Current tax:<br />
UK corporation tax<br />
Adjustments in respect of previous years<br />
Total current tax<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
9,355 10,280<br />
(679) (383)<br />
8,676 9,897<br />
Deferred tax:<br />
Origination and reversal of timing differences<br />
Total deferred tax<br />
(458) 799<br />
(458) 799<br />
Tax on profit on ordinary activities<br />
8,218 10,696<br />
31
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
8 taxation (continued)<br />
(b) Factors affecting tax charge for the year<br />
The tax charge for the current year is lower than the current standard rate of<br />
corporation tax in the UK of 24.5% (2011 – 26.5%). The difference is explained<br />
as follows:<br />
Standard tax rate<br />
Actual current tax rate<br />
Difference<br />
<strong>2012</strong> 2011<br />
% %<br />
25 27<br />
15 14<br />
(10) (13)<br />
Explained by:<br />
Effect of rollover relief and indexation allowance on taxable profits<br />
on property disposals.<br />
Capital allowances in excess of depreciation<br />
Non-taxable write back of provision for diminution in value of<br />
investment properties<br />
Sundry permanent differences<br />
Adjustment to tax in respect of prior periods<br />
(7) (6)<br />
(1) (2)<br />
(2) (6)<br />
1 2<br />
(1) (1)<br />
(10) (13)<br />
(c) Factors that may affect future tax charges<br />
The UK corporation tax rate reduced to 24% from April <strong>2012</strong> and will<br />
reduce to 23% from April 2013. A further 2% reduction was proposed in the<br />
December <strong>2012</strong> Autumn Statement, taking the rate to 21% by April 2014.<br />
In addition, a further 1% reduction was proposed in the March 2013 Budget,<br />
taking the rate to 20% by April 2015.<br />
As at the balance sheet date, only the first 1% tax reduction from April 2013<br />
had been “substantively enacted” and hence in accordance with accounting<br />
standards, it is only the impact of this 1% reduction that has been reflected in<br />
the group’s financial statements as at 31 December <strong>2012</strong>.<br />
The effect on the group of the further proposed reductions in the UK corporation<br />
tax rate will be reflected in the group's financial statements in future years,<br />
as appropriate, once the proposals have been substantively enacted.<br />
The effect of the reduction in the tax rate to 20% on the group's deferred tax<br />
liability would be to reduce the deferred tax liability (set out in note 17) by<br />
£1,466,000. The rate changes will also impact the amount of future tax<br />
payments to be made by the group.<br />
No provision has been made for deferred tax which would arise in the event<br />
that the group disposed of its investment properties at their current market<br />
values included in these financial statements. Tax would be payable on these<br />
disposals to the extent that rollover relief is not available. The total potential<br />
deferred tax liability on the sale of all the group’s investment properties is<br />
£741 million (2011 – £699 million).<br />
32
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
9 Dividends<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
15.83p per share paid on 11 June <strong>2012</strong><br />
12.5p per share paid on 28 December <strong>2012</strong><br />
12.5p per share paid on 4 October 2011<br />
12.5p per share paid on 14 December 2011<br />
19,000 –<br />
15,000 –<br />
– 15,000<br />
– 15,000<br />
34,000 30,000<br />
10 Retained Profit For the Year<br />
The profit for the year has been retained by:<br />
The company<br />
Subsidiaries<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
131,315 110,870<br />
(116,197) (79,985)<br />
15,118 30,885<br />
The parent company’s profit before dividends for the financial year was<br />
£165,315,000 (2011 – £140,870,000).<br />
11 earnings Per share<br />
The calculation of earnings per ordinary share for <strong>2012</strong> is based on earnings<br />
attributable to ordinary shareholders of £49,118,000 (2011 – £60,885,000)<br />
and on 120,000,000 ordinary shares (2011 – 120,000,000 ordinary shares)<br />
being the effective number of such shares in issue during the year.<br />
33
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
12 tangible Fixed assets<br />
Group<br />
Cost or valuation<br />
At 1 January <strong>2012</strong><br />
Transfers<br />
Revaluation<br />
Additions<br />
Acquired with subsidiary<br />
Disposals<br />
Write back of impairment losses<br />
at 31 December <strong>2012</strong><br />
Freehold Freehold<br />
investment land and total Plant and<br />
properties buildings properties equipment total<br />
£000 £000 £000 £000 £000<br />
3,405,653 49,425 3,455,078 9,402 3,464,480<br />
(1,600) 1,600 – – –<br />
313,693 564 314,257 – 314,257<br />
143,890 – 143,890 1,297 145,187<br />
– 31,901 31,901 1,044 32,945<br />
(73,852) – (73,852) – (73,852)<br />
3,919 – 3,919 – 3,919<br />
3,791,703 83,490 3,875,193 11,743 3,886,936<br />
Depreciation<br />
At 1 January <strong>2012</strong><br />
Charge for the year<br />
Disposals<br />
at 31 December <strong>2012</strong><br />
– – – 6,372 6,372<br />
– – – 2,050 2,050<br />
– – – – –<br />
– – – 8,422 8,422<br />
net Book Value<br />
at 31 December <strong>2012</strong><br />
At 31 December 2011<br />
3,791,703 83,490 3,875,193 3,321 3,878,514<br />
3,405,653 49,425 3,455,078 3,030 3,458,108<br />
The valuation of the group’s freehold<br />
properties at 31 December <strong>2012</strong> was<br />
carried out by Chapman Petrie (commercial<br />
properties) and Cluttons (residential<br />
properties), both firms of chartered<br />
surveyors, on the basis of market value,<br />
in accordance with the Appraisal and<br />
Valuation Manual of the Royal Institution<br />
of Chartered Surveyors.<br />
The historical cost of freehold properties<br />
at 31 December <strong>2012</strong> was £1,464,950,000<br />
(2011 –£1,287,043,000). These amounts<br />
are stated after the deduction of<br />
accumulated impairment losses of<br />
£2,611,000 (2011 –£6,530,000).<br />
34
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
13 Fixed asset investments<br />
Investment in subsidiary companies at cost<br />
at 31 December <strong>2012</strong> and 31 December 2011<br />
Company<br />
£000<br />
117,317<br />
The principal subsidiary companies at 31 December <strong>2012</strong> were:<br />
Company<br />
Held directly<br />
<strong>Cadogan</strong> Estates Limited<br />
Chelsea Land Limited<br />
nature of business<br />
Proportion<br />
of shares<br />
held<br />
%<br />
Property investment 100<br />
Intermediate holding company 100<br />
Held indirectly<br />
<strong>Cadogan</strong> Estates Property Investments Limited<br />
<strong>Cadogan</strong> Developments Limited<br />
<strong>Cadogan</strong> Hall Limited<br />
<strong>Cadogan</strong> Holdings Limited<br />
Chelsea Land Developments Limited<br />
<strong>Cadogan</strong> Hotel Partners Limited<br />
Leda Hotels Limited<br />
Property investment 100<br />
Property investment 100<br />
Venue management 100<br />
Property investment 100<br />
Property investment 100<br />
Hotel operator 100<br />
Hotel operator 100<br />
On 25 January <strong>2012</strong> the group acquired Couture Holdings Limited,<br />
a holding company which owned indirectly the business, assets and<br />
a liabilities of No.11 <strong>Cadogan</strong> Gardens, a luxury boutique hotel in Chelsea.<br />
Consideration for the acquisition was £4,855,000 satisfied by cash. In<br />
a subsequent internal reorganisation the business, the assets and liabilities<br />
of the hotel were transferred to Leda Hotels Limited, an existing<br />
wholly-owned subsidiary of the group. Subsequent to this transfer<br />
Couture Holdings Limited and its subsidiaries were disposed of for £1.<br />
Analysis of the acquisition of Couture Holdings Limited:<br />
Revaluation Fair value<br />
Book value adjustments to group<br />
£000 £000 £000<br />
Tangible fixed assets<br />
Stock<br />
Debtors<br />
Cash<br />
Creditors due within one year<br />
Bank loan and long term borrowings<br />
Net assets<br />
Goodwill<br />
The business of No.11 <strong>Cadogan</strong> Gardens contributed £254,000 to<br />
the group’s net operating cash flows and utilised £381,000 for capital<br />
expenditure and financial investment.<br />
30,297 2,648 32,945<br />
20 - 20<br />
45 - 45<br />
18 - 18<br />
(8,797) - (8,797)<br />
(19,376) - (19,376)<br />
2,207 2,648 4,855<br />
–<br />
4,855<br />
35
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
13 Fixed asset investments (continued)<br />
The acquired hotel, 11 <strong>Cadogan</strong> Gardens, earned<br />
a profit after tax of £72,000 in the year ended 31<br />
December <strong>2012</strong>, of which a loss of £120,000 arose<br />
in the period 1 January <strong>2012</strong> to 25 January <strong>2012</strong>.<br />
The summarised profit and loss account for the period<br />
from 1 January 2011 to the effective date of<br />
acquisition is as follows:<br />
<strong>2012</strong><br />
£000<br />
Turnover<br />
82<br />
Operating loss<br />
(61)<br />
Loss before taxation<br />
Taxation<br />
Loss for the period to 25 January<br />
(120)<br />
–<br />
(120)<br />
There were no recognised gains or losses in the period<br />
from 1 January <strong>2012</strong> to 25 January <strong>2012</strong> other than the<br />
loss of £120,000 above.<br />
14 Debtors<br />
Group<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Trade debtors<br />
Other debtors<br />
Accrued income<br />
1,991 328<br />
4,509 5,585<br />
6,799 5,200<br />
13,299 11,113<br />
15 trade and other Creditors<br />
Group<br />
Company<br />
<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />
£000 £000 £000 £000<br />
Trade creditors<br />
Other creditors and accruals<br />
Social security and other taxation<br />
Deferred income<br />
5,147 3,409 – –<br />
18,878 14,057 53 49<br />
543 345 29 26<br />
26,216 23,700 – –<br />
50,784 41,511 82 75<br />
36
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
16 Borrowings<br />
(a) Bank loans and overdrafts<br />
Repayable other than by instalments:<br />
Group<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Bank loans and overdrafts<br />
– –<br />
At 31 December <strong>2012</strong> the group had committed but<br />
undrawn credit facilities of £50.0 million (2011 -<br />
£75.0 million) under a revolving credit facility<br />
arrangement.<br />
(b) other long term Borrowings<br />
Amounts falling within one year:<br />
6.941% commercial mortgage loan 2025<br />
Amounts falling due in two to five years:<br />
5.75% unsecured loan notes 2016<br />
6.941% commercial mortgage loan 2025<br />
Amounts falling due in more than five years:<br />
5.75% unsecured loan notes 2016<br />
6.45% $40m unsecured loan notes 2018<br />
7.33% £4m unsecured loan notes 2018<br />
6.60% $45m unsecured loan notes 2020<br />
5.04% £45m unsecured loan notes 2021<br />
3.45% £15m unsecured loan notes 2022<br />
6.75% $23m unsecured loan notes 2023<br />
6.941% commercial mortgage loan 2025<br />
3.88% £15m unsecured loan notes 2027<br />
5.25% $60m unsecured loan notes 2028<br />
5.53% $60m unsecured loan notes 2032<br />
5.77% $90m unsecured loan notes 2036<br />
6.01% £30m unsecured loan noted 2041<br />
6.87% £20m unsecured loan notes 2042<br />
5.92% $30m unsecured loan notes 2046<br />
5.11% £25m unsecured loan notes 2046<br />
7.40% $58m unsecured loan notes 2051<br />
5.13% £40m unsecured loan notes 2056<br />
Group<br />
Company<br />
<strong>2012</strong> 2011 <strong>2012</strong> 2011<br />
£000 £000 £000 £000<br />
4,000 4,000 – –<br />
3,080 – 3,080 –<br />
16,000 16,000 – –<br />
19,080 16,000 3,080 –<br />
– 3,080 – 3,080<br />
20,141 20,141 – –<br />
4,000 4,000 – –<br />
22,659 22,659 – –<br />
45,000 45,000 – –<br />
15,000 – – –<br />
11,581 11,581 – –<br />
72,000 76,000 – –<br />
15,000 – – –<br />
37,523 37,523 – –<br />
37,524 37,524 – –<br />
45,720 45,720 – –<br />
30,000 30,000 – –<br />
20,000 20,000 – –<br />
15,240 15,240 – –<br />
25,000 25,000 – –<br />
29,204 29,204 – –<br />
40,000 40,000 – –<br />
485,592 462,672 – 3,080<br />
Total other long term borrowings<br />
508,672 482,672 3,080 3,080<br />
37
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
16 Borrowings (continued)<br />
(b) other long term Borrowings (continued)<br />
£508,672,000 (2011 – £482,672,000) of the total borrowings and overdrafts<br />
is subject to fixed rates of interest to maturity, which average 5.90% (2011 –<br />
6.04%).<br />
The 6.941% commercial mortgage loan 2025 is secured by fixed charges<br />
over specific assets of subsidiary companies.<br />
All the interest payments and principal repayments relating to the loan notes<br />
issued in US dollars were swapped into sterling at fixed exchange rates.<br />
This currency swap has the effect of reducing the effective interest rate on<br />
the US dollar loans from the rates shown above to an average effective rate<br />
of 5.90% (2011 – 6.04%). This, combined with the fixed interest rates payable<br />
on the sterling loans gives an overall effective interest rate across all the series<br />
of notes, fixed until maturity, of 5.66% (2011 – 5.82%).<br />
The market value of the group’s swap contracts at 31 December <strong>2012</strong> was<br />
£54,707,000 (2011 –£79,001,000) less than their book value.<br />
17 Deferred taxation<br />
Group<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
At 1 January<br />
11,698 10,899<br />
Deferred tax charge for the year:<br />
Profit and loss account<br />
at 31 December<br />
(458) 799<br />
11,240 11,698<br />
The liability for deferred taxation comprises the following:<br />
Accelerated capital allowances<br />
Other timing differences<br />
11,725 12,240<br />
(485) (542)<br />
11,240 11,698<br />
Deferred tax has not been provided on the chargeable gains that have<br />
been rolled over. The unprovided deferred tax on rolled over gains is<br />
£145,560,000 (2011 – £138,724,000).<br />
38
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
18 share Capital<br />
<strong>2012</strong> 2011<br />
authorised, allotted, Authorised, allotted,<br />
issued and fully paid issued and fully paid<br />
number of<br />
Number of<br />
shares £000 shares £000<br />
Ordinary shares of £1 each<br />
120,000,000 120,000 120,000,000 120,000<br />
19 Reserves<br />
Group<br />
Revaluation reserve<br />
arising on arising on Profit<br />
land and investment and loss<br />
buildings properties total account<br />
£000 £000 £000 £000<br />
At 1 January <strong>2012</strong><br />
9,495 2,157,276 2,166,771 701,343<br />
Profit for the year<br />
Dividend declared and paid<br />
Surplus on revaluation of land and<br />
buildings and investment properties<br />
Revaluation surplus realised on premiums<br />
and sales of freeholds<br />
Attributable taxation on disposal of<br />
investment properties<br />
Actuarial loss on pension commitments<br />
Attributable taxation on actuarial loss on<br />
pension commitments<br />
at 31 December <strong>2012</strong><br />
– – – 49,118<br />
– – – (34,000)<br />
564 313,693 314,257 –<br />
– (72,049) (72,049) 72,049<br />
– – – –<br />
– – – (1,240)<br />
– – – 285<br />
10,059 2,398,920 2,408,979 787,555<br />
Company<br />
Profit<br />
and loss<br />
account<br />
£000<br />
At 1 January <strong>2012</strong><br />
676,929<br />
Profit for the year<br />
Dividend declared and paid<br />
at 31 December <strong>2012</strong><br />
165,315<br />
(34,000)<br />
808,244<br />
39
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
20 Reconciliation of operating Profit to net<br />
Cash inflow From operating activities<br />
Group<br />
<strong>2012</strong> 2011<br />
£000 £000 £000 £000<br />
Operating profit<br />
Depreciation<br />
Provisions for diminution in value<br />
Difference between current service cost and<br />
pension contributions<br />
(Increase)/decrease in stock<br />
(Increase)/decrease in debtors<br />
(Decrease) in creditors<br />
Movement in working capital<br />
68,987 83,233<br />
2,050 826<br />
(3,919) (15,960)<br />
(564) (289)<br />
1 (15)<br />
(3,027) 659<br />
(3,456) (173)<br />
(6,482) 471<br />
net cash inflow from operating activities<br />
60,072 68,281<br />
21 Reconciliation of net Cash Flow to<br />
Movement in net Debt<br />
Group<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Increase/(decrease) in cash for the year<br />
Increase in debt<br />
Loans acquired with subsidiary undertaking<br />
Movement in net debt for the year<br />
Net debt at 31 December 2011<br />
net debt at 31 December <strong>2012</strong><br />
(58,964) 52,059<br />
(6,624) (33,014)<br />
(19,376) (13,033)<br />
(84,964) 6,012<br />
(419,344) (425,356)<br />
(504,308) (419,344)<br />
22 analysis of net Debt<br />
Group<br />
At 31 at 31<br />
December<br />
December<br />
2011 Cash flow Acquisitions <strong>2012</strong><br />
£000 £000 £000 £000<br />
Cash at bank and in hand<br />
63,328 (58,964) – 4,364<br />
Debt due within one year<br />
Debt due after one year<br />
(4,000) 19,376 (19,376) (4,000)<br />
(478,672) (26,000) – (504,672)<br />
(419,344) (65,588) (19,376) (504,308)<br />
40
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
23 Pension arrangements<br />
The group operates both defined benefit and defined contribution funded pension schemes for its employees. The assets of these schemes are<br />
held separately from those of the group in independently administered funds.<br />
Defined benefit scheme<br />
The group’s defined benefit pension scheme, which is closed to new members, is called the <strong>Cadogan</strong> Pension & Assurance Scheme<br />
(“the Scheme”). The Scheme provides benefits based on final pensionable earnings, and contributions are based on valuations carried out<br />
every three years by an independent actuary using the “attained age method”. The following disclosures exclude any allowance for defined<br />
contribution schemes operated by the group. The FRS 17 liability value does not include allowance for any discretionary benefits.<br />
The group expects to contribute around £664,000 to the Scheme during the year to 31 December 2013.<br />
Assumptions<br />
The principal assumptions used to calculate Scheme liabilities include:<br />
Discount rate<br />
Inflation assumption (RPI)<br />
Pension increases in payment<br />
Revaluation in deferment<br />
Salary Increases<br />
<strong>2012</strong> 2011<br />
4.40% pa 4.70% pa<br />
2.50% pa 2.50% pa<br />
5.00% pa 5.00% pa<br />
5.00% pa 5.00% pa<br />
4.00% pa 4.00% pa<br />
Retirements<br />
Withdrawals<br />
Post retirement mortality assumption<br />
Tax-free cash<br />
Long term expected rate of return on<br />
the Scheme’s assets<br />
All members retire at age 60<br />
An allowance is made for a certain proportion of active<br />
members to leave service each year before reaching<br />
Normal Retirement Date<br />
S1NxA based on year of S1NxA based on year of<br />
birth using the CMI 2010 birth using the CMI 2010<br />
core projection model core projection model<br />
with a long term<br />
with a long term<br />
improvement rate of 1% improvement rate of 1%<br />
per annum and a<br />
per annum and a<br />
multiplier of 80% multiplier of 80%<br />
No allowance<br />
No allowance<br />
4.60% pa 5.00% pa<br />
Other assumptions are as for the long term ongoing funding basis in the actuarial valuation as at 25 December 2010.<br />
41
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
23 Pension arrangements (continued)<br />
Under the mortality tables adopted, the assumed future life expectancy at<br />
age 60 is as follows:<br />
life expectancy at age 60<br />
<strong>2012</strong> 2011<br />
Years Years<br />
Male currently aged 40<br />
Female currently aged 40<br />
Male currently aged 60<br />
Female currently aged 60<br />
30.3 30.2<br />
32.8 32.7<br />
28.7 28.6<br />
31.2 31.1<br />
Assets<br />
The major categories of assets as a proportion of total assets are as follows:<br />
Asset category<br />
<strong>2012</strong> 2011<br />
% %<br />
Equities<br />
Bonds<br />
Other<br />
total<br />
53 60<br />
36 36<br />
11 4<br />
100 100<br />
The actual return on the Scheme’s assets net of expenses over the period<br />
to the Review Date was a gain of £1,812,000 (2011 loss - £721,000).<br />
The assets do not include any investment in shares or property of the group.<br />
The expected return on assets is a weighted average of the assumed long-term<br />
returns for the various asset classes. Equity returns are developed based on<br />
the selection of an appropriate risk premium above the risk free rate which<br />
is measured in accordance with the yield on government bonds. Bond returns<br />
are selected by reference to the yields on government and corporate debt as<br />
appropriate to the Scheme’s holdings of these instruments.<br />
Amounts recognised in the balance sheet<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Fair value of assets<br />
Present value of funded obligations<br />
Deficit before tax<br />
Related deferred tax asset<br />
net deficit<br />
26,185 24,373<br />
(31,782) (29,156)<br />
(5,597) (4,783)<br />
1,287 1,196<br />
(4,310) (3,587)<br />
42
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
23 Pension arrangements (continued)<br />
Amounts recognised in the statement of total recognised gains and losses<br />
over the year<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Actuarial gains and losses<br />
Effect of limit on recognisable surplus<br />
total amount recognised in statement of total recognised gains and losses<br />
(1,240) (5,845)<br />
– –<br />
(1,240) (5,845)<br />
Amounts recognised in the profit and loss account over the year<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Current service cost<br />
Interest cost<br />
Expected return on assets<br />
total amounts recognised in the profit and loss account over the year<br />
(159) (248)<br />
(1,357) (1,318)<br />
1,219 1,556<br />
(297) 10<br />
Reconciliation of assets and defined benefit obligation<br />
The change in assets over the year was:<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Fair value of assets at 1 January<br />
Expected return on assets<br />
Employer contributions<br />
Benefits paid<br />
Actuarial gain/(loss) on assets<br />
Fair value of assets at 31 December<br />
24,373 25,094<br />
1,219 1,556<br />
723 537<br />
(723) (537)<br />
593 (2,277)<br />
26,185 24,373<br />
The change in defined benefit obligation over the year was:<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
Defined benefit obligation at 1 January<br />
Current service cost<br />
Interest cost<br />
Benefits paid<br />
Actuarial loss<br />
Defined benefit obligation at 31 December<br />
29,156 24,559<br />
159 248<br />
1,357 1,318<br />
(723) (537)<br />
1,833 3,568<br />
31,782 29,156<br />
43
NOTES ON THE FINANCIAL STATEMENTS 31 DECEMBER <strong>2012</strong><br />
23 Pension arrangements (continued)<br />
Summary of prior year amounts<br />
<strong>2012</strong> 2011 2010 2009 2008<br />
£000 £000 £000 £000 £000<br />
Present value of defined benefit obligation<br />
Scheme assets<br />
Surplus/(deficit)<br />
Experience gains and losses on<br />
scheme liabilities<br />
Changes in assumptions used to value<br />
scheme liabilities<br />
Experience adjustments on scheme assets<br />
(31,782) (29,156) (24,559) (23,317) (19,403)<br />
26,185 24,373 25,094 21,903 18,206<br />
(5,597) (4,783) 535 (1,414) (1,197)<br />
23 63 1,151 (16) 1,210<br />
(1,856) (3,631) (1,292) (3,523) 398<br />
593 (2,277) 1,833 2,586 (4,562)<br />
The cumulative amount of actuarial gains and losses<br />
recognised in the statement of total recognised gains<br />
and losses since the Scheme's inception was a loss of<br />
£5,108,000 (2011 – loss £4,153,000).<br />
Defined contribution schemes<br />
The pension charge in respect of defined contribution<br />
schemes represents contributions payable by the<br />
group to such schemes and amounted to £468,000<br />
(2011 – £434,000), of which £nil (2011 – £nil) was<br />
unpaid at the balance sheet date.<br />
24 Capital and other Commitments<br />
Outstanding capital commitments were as follows:<br />
Capital expenditure contracted for but not provided<br />
for in the financial statements<br />
Group<br />
<strong>2012</strong> 2011<br />
£000 £000<br />
21,068 10,630<br />
There were no outstanding commitments for capital expenditure in the<br />
company at either year end.<br />
25 ultimate ownership<br />
The ultimate holding company is <strong>Cadogan</strong> Settled Estates Limited, which is registered in England and Wales and which is ultimately controlled<br />
by The Eighth Earl <strong>Cadogan</strong>’s 6 December 1961 Settlement. The consolidated financial statements of <strong>Cadogan</strong> Settled Estates Limited may be<br />
obtained from The Registrar of Companies, Companies House, Crown Way, Cardiff, CF14 3UZ.<br />
44
FIVE YEAR SUMMARY 31 DECEMBER <strong>2012</strong><br />
<strong>2012</strong> 2011 2010 2009 2008<br />
Net Assets<br />
Properties at valuation<br />
£m 3,875.2 3,455.1 3,043.6 2,736.1 2,562.5<br />
net borrowings<br />
£m 504.3 419.3 425.4 403.5 409.3<br />
shareholders’ funds<br />
£m 3,316.5 2,988.1 2,571.5 2,300.8 2,118.6<br />
net assets per share<br />
£ 27.64 24.90 21.43 19.17 17.66<br />
Earnings<br />
Gross rents<br />
operating profit:<br />
Profit on sale of investment properties<br />
Profit before interest<br />
Net interest payable<br />
Profit before taxation<br />
Taxation<br />
Profit after taxation<br />
earnings for ordinary shareholders<br />
£m 104.7 99.2 92.3 88.5 82.3<br />
£m 69.0 83.2 62.6 57.0 51.4<br />
£m 17.3 17.2 4.3 6.4 11.7<br />
£m 86.3 100.4 66.9 63.4 63.1<br />
£m 29.0 28.8 24.6 25.4 22.7<br />
£m 57.3 71.6 42.3 38.0 40.4<br />
£m 8.2 10.7 10.3 9.9 8.4<br />
£m 49.1 60.9 32.0 28.1 32.0<br />
£m 49.1 60.9 32.0 28.1 32.0<br />
earnings per share<br />
p 40.9 50.7 26.7 23.5 26.7<br />
Key financial ratios<br />
Balance sheet gearing<br />
Gross rents/interest cover<br />
interest cover<br />
% 15.21 14.03 16.54 17.54 19.32<br />
times 3.61 3.44 3.75 3.48 3.63<br />
times 2.85 2.93 2.67 2.50 2.78<br />
45
18 <strong>Cadogan</strong> Gardens<br />
London SW3 2RP<br />
T. 020 7730 4567<br />
www.cadogan.co.uk