ANNUAL REPORT for the year ended 30 September 2006

Transcription

1 ANNUAL REPORT for the year ended 30 September 2006

2 CONTENTS DIRECTORS 01 CHAIRMAN S STATEMENT 02 PROPERTY ADVISER S REPORT 04 REPORT OF THE DIRECTORS 09 CORPORATE GOVERNANCE STATEMENT 13 INDEPENDENT AUDITOR S REPORT 16 CONSOLIDATED PROFIT & LOSS ACCOUNT 17 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES 17 CONSOLIDATED BALANCE SHEET 18 COMPANY BALANCE SHEET 19 CONSOLIDATED CASH FLOW STATEMENT 20 NOTES TO THE FINANCIAL STATEMENTS 21 NOTICE OF ANNUAL GENERAL MEETING 37 NOTICE OF EXTRAORDINARY GENERAL MEETING 39 CORPORATE PROFILE 43 PROXY FORM FOR ANNUAL GENERAL MEETING PROXY FORM FOR EXTRAORDINARY GENERAL MEETING Loose leaf Loose leaf KINGS COURT, SHEFFIELD SAPPHIRE HOUSE, TELFORD BUSINESS PARK, PLYMOUTH CENTRAL LOFTS, WATERLOO SQUARE, NEWCASTLE Cover image: AQUEOUS 2, BIRMINGHAM

3 DIRECTORS 1. MICHAEL SHEEHAN (76) Non-Executive Chairman Michael Sheehan has been a director of public companies since He is currently Chairman of Aer Lingus Beachey Limited and Markev Investments Limited, a director of J S Insurance Limited (J. Sainsbury) and Scottish Power Insurance Limited. His previous roles include acting as Chairman of Rea Brothers (Isle of Man) Limited, Chairman of Finsbury International Hedge Investment Company Limited, managing director of the Irish Bank of Commerce and managing director of Hill, Samuel & Co. (Ireland) Limited. He was the inaugural chairman of the Association of International Banks in Ireland. Member of the Audit Committee. 2. JAMES JOLL (70) Non-Executive Director James Joll has been Chairman of Pearson Group Pension Trustee Limited ( Pearson ) since 1988 and Chairman of Atrium Underwriting plc since July Previously he was finance director of Pearson for 11 years and an executive director of NM Rothschild & Sons. His other positions included Chairman of AIB Asset Management Holdings Limited, Deputy Chairman of Jarvis Hotels plc and a non-executive director of The Economist Newspaper Limited. Chairman of the Audit Committee. 3. ITA MCARDLE (42) Non-Executive Director Ita McArdle qualified as a Manx Advocate in 1995 and became a partner of Simcocks Advocates Limited in She practices in corporate commercial law, financial services, trust, internet and intellectual property law for both private and corporate clients. She sits on the boards of a number of collective investment schemes and also of private companies in conjunction with clients. She is a director of NGT Insurance Company (Isle of Man) Limited and Holiday Break Insurance Company Limited. She is a member of the Northern Irish Law Society, English Law Society, Manx Law Society and the International Bar Association. Company Secretary. 4. PHILIPPE DE NICOLAY (51) Non-Executive Director Philippe de Nicolay is a General Partner of Rothschild et Cie Banque and was a director of Rothschild Asset Management London ( ). He was a director of Insight Investment Management (Global) ( ) and Chief Operating Officer of Rothschild Asset Management BV ( ). 5. HUGH WARD (54) Non-Executive Director Hugh Ward has worked in the investment services industry since 1973 during which time he has held senior executive positions with Schroders, Capital House and more recently INVESCO. During his time at INVESCO, he was Chief Executive Officer of INVESCO Group s UK and offshore business and was a member of the AMVESCAP Group executive board. He is currently a non-executive director of a number of companies within the financial services sector. Member of the Audit Committee

4 CHAIRMAN S STATEMENT I am pleased to announce the results for the year ended 30 September Profit after tax for the 12 months was 9.9 million and the net assets rose from million at the start of the year to million at 30 September The year was one of substantial progress. The portfolio owned by the Group has grown from 267 million to 456 million, an increase of 71%. During the year, three properties were sold for a total consideration of 14.7 million resulting in a net profit of 2.6 million. Earnings per share ( eps ) were 10.18p. The Directors are recommending the payment of a final dividend of 6.5p per share, which together with the interim dividend of 3p per share, makes a total dividend of 9.5p for the year. This is an increase of 5.6% over the dividend paid for the period ended 30 September 2005 which was, however, a longer period of 15 months. The final dividend, if approved by Shareholders, will be paid on 19 February 2007 to Shareholders on the Register at the close of business on 9 February Net assets per share at 30 September 2006 (before final dividend) were 220.0p, compared with 175.7p per share on the same date in This is an increase of 25%. The Group has acquired a further 18 Government occupied properties at an average yield of 6.45% and at 30 September 2006 owned 61 buildings. Annualised rental income grew to 27.3 million (2005: 17.6 million). The Group continued its policy of actively managing the portfolio and lease extensions were negotiated on four properties. At the year end the properties owned by the Group were conservatively valued on a weighted average yield of 6.0% (2005: 6.2%). During the year, the Board reviewed the Group s investment strategy. This reassessment was caused by the continuing compression of property yields and the rise in UK interest rates. As a result, the decision was taken to expand the geographical area in which the Group will invest first to include Central London as stated in my interim results statement and now to be expanded further, following a detailed review, to include Continental Europe focusing on developed markets. The Directors believe that there may be attractive opportunities to acquire buildings in Continental Europe, where the prospects for rental growth and capital appreciation are as good as or better than in the UK. This can be achieved without sacrificing significant covenant quality. The Directors have considered the legislation contained in the Finance Act 2006 and the regulations issued at the beginning of November by HMRC concerning the introduction of UK Real Estate Investment Trusts ( REITs ). The Board presently believes that Shareholders would not benefit from conversion to a REIT, and that the current status as an Isle of Man company gives considerable operational flexibility. The Board intends to review periodically the option of conversion to a REIT. The Board has decided to seek authority from Shareholders to cancel 50 million of the Company s Share Premium account, subject to court approval, in order to provide further flexibility in the Group s financial structure. To this effect, an Extraordinary General Meeting will be held at 12.30pm, after the conclusion of the Annual General Meeting, on 31 January 2007 at the Company s registered office. 02 ANNUAL REPORT 2006

5 The Group has acquired a further six properties since the year end. It is expected that these acquisitions will increase the size of the portfolio by 41.7 million. Within the existing portfolio there are opportunities to enhance value by active management. The Board therefore views the Group s prospects for the current year with cautious optimism. MICHAEL SHEEHAN Chairman 15 December

6 PROPERTY ADVISER S REPORT Wichford Property Management Limited acts as Property Adviser to the Group. As stated in the Chairman s Statement, the Group has had an extremely active 12 months growing the property portfolio by some 71%. At the financial year end the Company owned 61 properties which were independently valued at 456 million. During the year some 18 properties were acquired in individual transactions ranging in size from 1 million to 25 million. The total consideration for the new properties was million and the blended initial yield was 6.4% per annum. These acquisitions added 76,135 sq metres (824,629 sq ft) to the Group s portfolio. The financial year ended with the Core Portfolio valued at 344 million representing 75.4% and the Active at 112 million being 24.6% of the whole. (i) The Core Portfolio This is the main part of the Group s assets and the principal income generator. The Core Portfolio consists of properties which have lease terms in excess of seven years as at 30 September During the financial year the Group disposed of three properties for 14.7 million at a blended yield of 5.3% and acquired eleven properties for million at a blended yield of 6.0% per annum. As at 30 September 2006 the weighted average unexpired lease term on this portfolio was 11.4 years to the initial breaks and 12.3 years to lease expiries. (ii) The Active Portfolio The Active Portfolio consists of properties with leases of less than seven years to expiry, or a possible lease break date at the tenant s option, as at 30 September This portfolio focuses on individual properties which have strong potential for value enhancement through active management including lease renewals. During the year, the Group did not dispose of any properties within this portfolio but properties in Washington, Bedford and Bromley were successfully re-geared with the Government taking new, longer leases. As a result the NAV per share increased by some 7.0p. These three buildings have been transferred into the Core Portfolio. During the year, the Group acquired seven properties in the Active Portfolio for a total consideration of 50.1 million reflecting a blended net initial yield of 7.4% per annum. As at 30 September 2006 the weighted average unexpired lease term on this portfolio was 3.9 years to the initial breaks and 6.5 years to lease expiries. 04 ANNUAL REPORT 2006

7 RENTAL LEVELS As at 30 September 2006 the Group owned 61 properties throughout the UK totalling 208,734 sq metres (2,260,842 sq ft). The average passing rent of the Portfolio was per sq metre ( per sq ft). However, rental growth in the regions is lagging behind Central London and in many towns we are only just beginning to see any increase in rental levels. The Company completed six rent reviews during the year with three of these leading to nil increases. Overall the additional rent achieved through reviews on the Company s assets totalled 273,193 per annum or a 14.6% uplift on the rents that actually rose. The Company has been successful in increasing the percentage of the Portfolio which benefits from contracted fixed increases in rent. At the financial year end this amounted to 28.2% by value and 14 out of 61 properties. PERCENTAGE OF RENT DUE FOR REVIEW PER YEAR 30% 25% 20% 15% 10% 5% 0% PERCENTAGE OF LEASES EXPIRING PER YEAR 25% 20% 15% 10% 5% 0%

8 PROPERTY ADVISER S REPORT continued PROPERTY MANAGEMENT There are a number of Government Departments occupying the Group s properties and the tables below show the breakdown between them. The Government has continued to outsource premises management to companies such as Land Securities Trillium and Mapeley and 59% of the Group s Portfolio, is now managed by these entities. OCCUPATIONAL TENANTS % 1. Secretary of State for the Environment Police/Crown Prosecution/Immigration Secretary of State for Work & Pensions/ Department of Work and Pensions 8 4. Inland Revenue 8 5. The Environment Agency 6 6. Health Service 3 7. Child Support Agency 2 8. DVLA 2 PROPERTY MANAGERS % 1. Land Securities Trillium Government Department/Agency Mapeley ANNUAL REPORT 2006

9 DEBT FINANCING The Group has continued to use debt finance during the year with total borrowing increasing to million from million as at the end of the previous period. This represents a loan to value ratio of 58.0% which is a reduction from 69.0% at the end of the previous period due mainly to the increase in property valuations. The loan to value ratio net of cash balances at 30 September 2006 was 54.0%, an increase from 51.0% at the end of the previous period as the significant cash balances existing at the previous year end have been used substantially to fund property acquisitions. All borrowings are fully hedged against swapped fixed rate agreements at a blended cost of 4.816% per annum plus margin of 74.5 bps. These agreements terminate in October In July 2006, an amount of million of the loans from Lehman Brothers formed part of a securitisation package arranged by the bank. The Group was able to secure more favourable terms in respect of the covenant concerning the weighted average unexpired lease term. Prior to the securitisation exercise, this was a minimum of ten years but has now been reduced to six years for the loans that were part of the securitisation package and eight years on the remaining loans. There is still no requirement for any overall loan to value covenant. Since the year end the Group has entered into further swap agreements totalling 50 million at a blended rate of 5.177% to match the amount of new borrowings drawndown on 4 December to finance the Group s acquisition programme. The effect of this is to increase the blended cost of finance (before margin) from 4.816% to 4.873%. No foreign exchange hedging or commitments have been entered into as at 30 September As and when the Group acquires properties outside of the United Kingdom it is the Board s intention to enter into suitable financing and hedging arrangements. WICHFORD PROPERTY MANAGEMENT LIMITED 15 December

10 LOCATION OF EXISTING PORTFOLIO as at 30 September 2006 ABERDEEN X 2 ACTON BARNSLEY BASILDON BEDFORD BILLINGHAM BIRKENHEAD BIRMINGHAM BIRMINGHAM X 2 BRADFORD X 2 BRIDGWATER BROMLEY CARDIFF X 2 CARLISLE CHESTER CHIPPENHAM CROYDON DALKEITH DUNDEE X 2 EDGBASTON EDINBURGH GRAYS HARROW HARTLEPOOL HAYES IPSWICH ISLINGTON LEEDS X 3 LIVERPOOL X 2 MANCHESTER MANCHESTER X 2 NORTHAMPTON PAISLEY PETERBOROUGH PLYMOUTH REDCAR REDDITCH ROTHERHAM SHEFFIELD X 2 SOUTHAMPTON ST ASAPH SWANSEA SWANSEA SWINDON TAUNTON TELFORD WASHINGTON WATFORD WIGAN WOLVERHAMPTON YORK CORE PORTFOLIO ACTIVE PORTFOLIO 08 ANNUAL REPORT 2006

11 REPORT OF THE DIRECTORS The Directors present their report and the audited financial statements for the year ended 30 September RESULTS AND DIVIDENDS The Group profit for the year after taxation amounted to 9.9 million. The Directors recommend the payment of a final dividend of 6.5p per share and accordingly a resolution will be put to the Annual General Meeting on 31 January 2007 to declare a final dividend in respect of the year ended 30 September 2006 payable on 19 February 2007 to those Shareholders on the register at the close of business on 9 February The Group s results for the period ended 30 September 2005 have been restated due to the adoption of FRS 21: Events after the balance sheet date. PRINCIPAL ACTIVITY The principal activity of the Company and its subsidiaries is the generation of rental income and capital growth through investment in properties across the UK and, more recently, Continental Europe, which are occupied by national or regional government bodies. REVIEW OF THE BUSINESS AND FUTURE ACTIVITIES The Chairman s Statement on pages 2 and 3, and the Property Adviser s Report on pages 4 to 8 contain a review of the business and an indication of future developments. PRINCIPAL RISKS AND UNCERTAINTIES FACING THE COMPANY The following identifies what the Company believes to be its principal risks and the ways in which it manages and controls these risks: (i) The inability to identify additional return enhancing properties the Group manages this process by thoroughly evaluating each acquisition introduced to it by the Property Manager; (ii) The risk of tenants exercising their break options or leases not being renewed at the end of their term, both resulting in properties lying vacant this risk is managed by the Group aiming to keep the Active Portfolio at around 20% of the whole portfolio. Please see the graphs on page 5 for further detail; (iii) The risk of a general downturn in the property market negatively impacting on the valuation of individual properties whilst the Group cannot influence the property market, it has negotiated with its lenders that there is no continuing loan to value covenant and therefore there will be no requirement to repay any part of the loans due to such a downturn; (iv) The risk of operating in a complex regulatory and legislative environment the Group manages these risks by appointing managers, administrators and advisers, who are familiar with regulatory requirements, to ensure that the activities of the Group are compliant with all applicable regulations. The financial risks and the ways in which the Group manages them are listed overleaf. 09

12 REPORT OF THE DIRECTORS continued (i) Interest Rate Risk The Group finances its operations through equity, retained profits and bank borrowings. The Group then uses interest rate derivatives to manage its exposure to interest rate fluctuations. At the year end all of the Group s borrowings were at fixed rates after taking account of interest rate swaps (see note 14 of the financial statements). (ii) Debt Financing The bank borrowings are secured by fixed and floating charges over the assets and income streams of the Company and Group. The principal covenants relating to these borrowings are an interest cover ratio and a weighted average unexpired lease term but there is no loan to value covenant. (iii) Exchange Rate Risk As the Group acquires properties in Continental Europe, there is now the additional risk of movements in exchange rates the Group minimises the initial exposure to foreign currency exchange rate movements by matching, as much as possible, the revenue streams (net of interest) and acquisition costs in the same currency. COMPANY S OBJECTIVES, POLICIES AND STRATEGIES IN RESPECT OF FINANCIAL INSTRUMENTS The Group s treasury operations are co-ordinated and managed in accordance with policies and procedures approved by the Board. They are designed to mitigate the financial risks faced by the Group, which primarily relate to funding and interest rate exposure. The Group s financial instruments comprise bank borrowings, interest rate swaps, interest rate collars, and other items such as trade debtors and creditors that arise directly from its operations. Further details of financial instruments are given in note 14 to the financial statements. The Board reviews and agrees policies for managing financial risks, which are summarised above. SHARE CAPITAL As at 29 September 2006 (the last business day of the reporting period), the Company had 97,325,697 Ordinary shares in issue. On 29 September 2006, the middle market quotation per 10p Ordinary share was 203p. The comparable figure at 30 September 2005 was 191p. NOTIFIED SHAREHOLDINGS As at the date of this report, the following interests in the Ordinary shares of the Company of 3% and over of the issued share capital had been notified to the Company: No. of shares % of Issued Share Capital J O Hambro Capital Management Limited 8,606, J O Hambro Investment Management Limited 3,985, ANNUAL REPORT 2006

13 DIRECTORS Biographical details for all of the Company s Directors can be found on page 1. According to Article 95 of the Articles of Association of the Company at each AGM one third of the Directors shall retire from office by rotation. The Director to retire by rotation at the forthcoming Annual General Meeting is Ms Ita McArdle. Gareth Evans resigned as a Non-Executive Director with effect from 1 May DIRECTORS INTERESTS The interests of the Directors in the share capital of the Company (all of which are beneficial unless otherwise stated) as at 30 September 2006 are set out below: No. of shares No. of shares as at as at 30 Sept Sept 2005 M Sheehan* 5,000 J Joll 33,333 33,333 I McArdle* 5,000 P de Nicolay H Ward 10,000 10,000 These interests remain unchanged as at the date of this report. * Following a change in the tax status of the Company allowing a person resident in the Isle of Man to hold shares in the Company, Mr Sheehan and Ms McArdle purchased 5,000 shares each on 13 July 2006 and 1 August 2006 respectively. DISCLOSURE OF INFORMATION TO THE AUDITOR At the date of this report, each of the Directors of the Company, as set out on page 1, confirm the following: so far as each Director is aware, there is no relevant information needed by the Company's Auditor in connection with the preparation of its report of which the Auditor is unaware; and each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant information needed by the Auditor in connection with the preparation of its report and to establish that the Auditor is aware of that information. ANNUAL GENERAL MEETING The Annual General Meeting of the Company will be held on 31 January 2007 at midday at the Registered Office of the Company: Top Floor, 14 Athol Street, Douglas, Isle of Man, IM1 1JA. The Ordinary business comprises receipt of the Report of the Directors and audited financial statements for the year ended 30 September 2006; the declaration of a final dividend; the re-appointment of a Director; the re-appointment of RSM Robson Rhodes as Auditor, the authorisation of the Directors to determine the Auditor s remuneration and to change the investment policy to allow the acquisition of properties in Continental Europe. Resolutions 1 to 5 deal with these matters. 11

14 REPORT OF THE DIRECTORS continued The Special Business comprises the authorisation of the Directors to allot Ordinary shares up to a maximum nominal amount of 3,244,189 during the period to expire on the date of the Annual General Meeting held in The Special Business also comprises the authorisation of the Directors to make market purchases (within the meaning of Section 13 of the Isle of Man Companies Act 1992) of Ordinary shares provided that: (a) the maximum number of Ordinary shares authorised to be acquired is 5% of the issued Ordinary shares at the date of this report; (b) the minimum price which may be paid for any such Ordinary share is 10p; (c) the maximum price which may be paid for any such Ordinary share is the amount equivalent to 105% of the arithmetical average of the middle market quotations (as derived from the AIM appendix of the Daily Official List of the London Stock Exchange plc) for the five business days immediately preceding the day on which the Ordinary share is purchased; and (d) the authority shall expire on the date of the Annual General Meeting of the Company to be held in The current authorities for the Directors to allot shares and to make market purchases expire on the date of the 2007 Annual General Meeting, currently scheduled for 31 January Resolutions 6 and 7 deal with these matters. The last item of Special Business will renew the Directors authority to disapply pre-emption rights. The current authority will expire on the date of the 2007 Annual General Meeting, currently scheduled for 31 January The Notice of the Annual General Meeting and the resolutions to be put to the Meeting are included at the end of this Annual Report and financial statements on pages 37 and 38. EXTRAORDINARY GENERAL MEETING An Extraordinary General Meeting of the Company will be held on 31 January 2007 at 12.30pm at the Registered Office of the Company, Top Floor, 14 Athol Street, Douglas, Isle of Man IM1 1JA. The Special business of this meeting will be the authorisation of the Directors to cancel 50 million of the Company s Share Premium account, subject to the confirmation of the court, in order to provide further flexibility for the Company s financial structure. Also, a Special Resolution will be put to the meeting recommending that the Company s Articles of Association are amended in order to permit the Company to ascertain the beneficial ownership of its issued share capital. CREDITOR PAYMENT POLICY It is the Group policy to settle suppliers accounts in accordance with their individual terms of business. As at 30 September 2006, the Company had 965,000 of trade creditors representing 21 creditor days (2005: 669,000 of trade creditors representing 17 creditor days). By order of the Board ITA MCARDLE Company Secretary 15 December ANNUAL REPORT 2006

15 CORPORATE GOVERNANCE STATEMENT The Group is committed to high standards of corporate governance and as such has voluntarily complied with The Combined Code issued in 2003 by the UK s Financial Reporting Council (the Combined Code ) so far as is practicable for a public company of its size and nature quoted on AIM. The Company also follows the recommendations on corporate governance of the Quoted Companies Alliance as far as practicable. The Company has voluntarily complied with the Combined Code as described below. COMPLIANCE WITH THE COMBINED CODE ON CORPORATE GOVERNANCE JULY 2003 The Board considers that the Group has complied with the provisions of Section 1 of the Combined Code on Corporate Governance July 2003 throughout the year ended 30 September INTERNAL CONTROL The Directors are responsible for overseeing the effectiveness of the internal control systems of the Group, which are designed to ensure that proper accounting records are maintained, that the financial information on which the business decisions are made and which are issued for publication is reliable, and that the assets of the Group are safeguarded. The Board recognises its ultimate responsibility for the Group s system of internal controls and for monitoring its effectiveness and believes that an appropriate framework is in place to meet the requirements of the Combined Code. The Board has an ongoing process for identifying, evaluating and managing risks that the Group is exposed to and has identified risk management controls in the key areas of business objectives, accounting, compliance, operations and secretarial as areas for the extended review. This accords with the guidance in Internal Control Guidance for Directors on the Combined Code (the Turnbull Report). The process is conducted throughout the year and has been conducted up to the date of signing of this report. It has, however, to be understood that systems of internal control, however carefully designed, operated and supervised, can provide only reasonable and not absolute assurance against material misstatement or loss. The Group does not have its own internal audit function but places reliance on the compliance and other control functions of its service providers. PROPERTY ADVISER During the year, Wichford Property Management Limited ( WPML ) acted as Property Adviser to the Group under a Property Adviser s Agreement and received from the Group an annual fee of 0.6% of the gross asset value of the Group (excluding cash) and 0.3% of the Group s cash balances. The fee is payable quarterly in arrears. Under a revised Property Adviser s Agreement dated 10 May 2006, the agreement between the Group and WPML can be terminated by either party giving the other not less than three years written notice. WPML is also entitled to receive a performance fee calculated as 20% of the amount by which the total shareholder return (share price movement plus dividends) exceeds 10% for the immediately preceding financial year. This fee will be settled by the issue of further shares in the Company only if the annualised shareholder return in the succeeding two year period has exceeded 10% per annum and the Company s net asset value per share is greater than that pertaining at the time of the Company s original flotation. The Board keeps under review the performance of WPML as Property Adviser to the Group. In the opinion of the Directors the continuing appointment of WPML on the agreed terms is in the best interests of the shareholders as a whole. The Directors believe that WPML is well resourced to act as Property Adviser to the Group and well equipped to identify attractive investment opportunities. 13

16 CORPORATE GOVERNANCE STATEMENT continued PROPERTY MANAGER During the period under review, Brown Cooper Marples Limited ( BCM or the Property Manager ) provided investment advisory and management services to the Group under the Property Manager s Agreement. In consideration of BCM providing these services, it receives a fee equivalent to 1% plus VAT of the contract price or sale proceeds arising on the acquisition or disposal of properties unless BCM did not introduce the property in question to the Group, in which case the fee reduces to 0.5% plus VAT. It also receives an annual fee equivalent to 0.8% plus VAT of the annual occupational rents received. The agreement between the Group and BCM can be terminated by either party giving the other 12 months notice of termination. SECRETARIAL AND ADMINISTRATION MANAGER During the year, Simcocks Trust Limited ( STL ) provided administration services to the Group under the terms of the Administration Agreement and receives fees based on time spent. DIRECTORS The Board currently comprises the Chairman and four other Non-Executive Directors, all of whom are independent from the management team of WPML. All Directors with the exception of Michael Sheehan, the Chairman, were appointed on 28 June Michael Sheehan was appointed on 16 July The Directors biographies are set out on page 1. The Board is responsible for setting the overall Group strategy and investment policy, monitoring Group performance and property acquisitions and disposals, as well as overseeing borrowing and hedging decisions. To assist it in discharging these responsibilities, it receives regular financial and portfolio reports from WPML (the Property Adviser). It also receives updates on regulatory issues and corporate governance rules and guidelines on a regular basis from STL (the Administrator). The Board meets quarterly and has adopted a schedule of matters reserved for its decision. The table below lists the number of Board and Committee meetings attended by each Director. During the year ended 30 September 2006, there were 4 Board Meetings and 2 Audit Committee Meetings. Board Meetings Audit Committee Director Attended Meetings Attended Michael Sheehan 4 2 James Joll 3 2 Ita McArdle 3 n/a Philipe de Nicolay 3 n/a Hugh Ward 4 2 The Board does not consider it necessary to establish a separate Remuneration Committee as it has no executive directors. The Board, as a whole, being non-executive, will constitute a Nominations Committee. ACCOUNTABILITY AND AUDIT The Audit Committee currently comprises Michael Sheehan, James Joll (Chairman) and Hugh Ward. Given the size and nature of the Company, it is important that the Chairman of the Board should be a member of the Audit Committee as, in practice, the Audit Committee does most of the work reviewing the Annual and Interim Reports and financial statements. The Audit Committee plays an important role in the appraisal and supervision of key aspects of the Group s business including financial reporting and internal controls. The Company s Audit Committee meets representatives of the Property Adviser who report as to the proper conduct of business in accordance with the regulatory environment in 14 ANNUAL REPORT 2006

17 which both the Group and the Property Manager operate. The Group s external auditor also attends the Committee, at least once a year, and reports on its work procedures, the appropriateness of the Group s accounting procedures and its findings in relation to the Group s statutory financial statements. The responsibilities of the Audit Committee include review of the internal financial controls, accounting policies, financial statements, the management contract and the appointment and remuneration of the auditor. During the period, the Audit Committee reviewed the effectiveness and independence of the Group s external auditors and the outcome of the review was satisfactory. The Audit Committee has put in place a policy on non-audit services. Services that are of a compliance nature or that are closely related to the audit are pre-approved. All other services shall be considered on a case by case basis by the Audit Committee. REMUNERATION The Board as a whole agree Directors remuneration and will periodically review the level of Directors fees relative to other comparable companies and in light of the Directors responsibilities. During the year under review, the Board reviewed Directors fees and increased them to reflect the amount of time spent on the Group s business. The amount of work and the responsibilities of the Directors have increased as the Company has grown. Before 1 April 2006, the fees were 15,000 per annum for all of the Directors save Messrs. Sheehan and Joll. Mr Sheehan, as Chairman of the Board, received 25,000 per annum. Mr Joll, as Chairman of the Audit Committee, received 20,000 per annum. Subsequent to 1 April 2006, the fees are 20,000 per annum for Ms McArdle and Mr de Nicolay and 22,000 per annum for Mr Ward. Mr Sheehan, as Chairman of the Board, now receives a fee of 32,000 per annum. Mr Joll, as Chairman of the Audit Committee, now receives an annual fee of 25,000. Each of the Directors has entered into an engagement letter dated 29 July 2004 with the Company which records the terms of his or her appointment as a Non-Executive Director. CONTACT WITH SHAREHOLDERS The Company maintains communication with institutional shareholders through their meetings with the Property Adviser and the Property Manager. The Board supports the principle that the Annual General Meeting be used to communicate with private shareholders and encourages them to attend and participate. STATEMENT OF DIRECTORS RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS Isle of Man company law requires the Directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the financial statements comply with the Isle of Man Companies Acts 1931 to They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 15

18 AUDITOR S INDEPENDENT AUDIT REPORT TO WICHFORD PLC We have audited the financial statements on pages 17 to 36. These financial statements have been prepared under the accounting policies set out therein. This report is made solely to the Company s Shareholders, as a body, in accordance with section 15 of the Companies Act Our audit work has been undertaken so that we might state to the Company s Shareholders 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 Shareholders as a body, for our audit work, for this report, or for the opinions we have formed. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS The Directors responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant Isle of Man legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with the Companies Acts 1931 to In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors remuneration and other transactions is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Report of the Directors, the Chairman s Statement, the Property Adviser s Report, and the Corporate Governance Statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. BASIS OF AUDIT OPINION We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group s and the Company s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion: the financial statements give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of affairs of the Group and Parent Company as at 30 September 2006 and of the profit of the Group for the year then ended; and the financial statements have been properly prepared in accordance with the Companies Acts 1931 to RSM ROBSON RHODES, Chartered Accountants Douglas, Isle of Man 15 December ANNUAL REPORT 2006

19 CONSOLIDATED PROFIT & LOSS ACCOUNT for the year ended 30 September June 2004 to September 2005 (restated) Notes TURNOVER 2 24,163 15,968 PROFIT ON SALE OF INVESTMENT PROPERTIES 2,567 1,785 ADMINISTRATIVE EXPENSES (4,964) (3,490) OPERATING PROFIT 4 21,766 14,263 Interest receivable 5 2, Interest payable 5 (14,000) (10,483) Exceptional cost of financial restructuring 6 (2,340) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 9,982 2,409 Taxation 7 (73) (4) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 18, 19 9,909 2,405 Earnings per share (pence) basic CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS & LOSSES for the year ended 30 September June 2004 to September 2005 (restated) Profit on ordinary activities after taxation 9,909 2,405 Unrealised surplus on revaluation of properties 38,775 9,243 TOTAL GAINS AND LOSSES RELATING TO THE PERIOD 48,684 11,648 All activities are continuing. 17

20 CONSOLIDATED BALANCE SHEET as at 30 September (restated) Notes FIXED ASSETS Tangible assets investment properties 9 457, , , ,085 CURRENT ASSETS Debtors 11 12,300 3,378 Cash at bank 17,312 90,112 29,612 93,490 CREDITORS AMOUNTS FALLING DUE WITHIN ONE YEAR: 12 (13,055) (9,206) NET CURRENT ASSETS 16,557 84,284 TOTAL ASSETS LESS CURRENT LIABILITIES 474, ,369 CREDITORS AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR: 13 (260,263) (180,399) NET ASSETS 214, ,970 CAPITAL AND RESERVES Called up share capital 15 9,733 9,733 Share premium account , ,857 Revaluation reserve 17 48,018 9,243 Profit & loss account 18 7,526 3,137 EQUITY SHAREHOLDERS FUNDS , ,970 NET ASSET VALUE Basic pence per share After deducting dividends proposed and payable pence per share ANNUAL REPORT 2006

21 COMPANY BALANCE SHEET as at 30 September (restated) Notes FIXED ASSETS Investments 10 CURRENT ASSETS Debtors , ,009 Cash at bank 580 3, , ,852 CREDITORS AMOUNTS FALLING DUE WITHIN ONE YEAR: 12 (1,038) (5,920) NET CURRENT ASSETS 174, ,932 TOTAL ASSETS LESS CURRENT LIABILITIES 174, ,932 NET ASSETS 174, ,932 CAPITAL AND RESERVES Called up share capital 15 9,733 9,733 Share premium account , ,857 Profit & loss account 18 15,959 8,342 EQUITY SHAREHOLDERS FUNDS , ,932 These financial statements were approved by the Board of Directors on 15 December 2006 and signed on its behalf by: MICHAEL SHEEHAN Chairman ITA MCARDLE Company Secretary 19

22 CONSOLIDATED CASH FLOW STATEMENT for the year ended 30 September June 2004 to September 2005 Notes NET CASH INFLOW FROM OPERATING ACTIVITIES 21 15,010 16,792 RETURN ON INVESTMENT AND SERVICING OF FINANCE Interest received 2, Interest paid (13,318) (8,577) NET CASH OUTFLOW FROM RETURN ON INVESTMENT AND SERVICING OF FINANCE (11,102) (7,608) TAXATION PAID (73) CAPITAL EXPENDITURE Payments to acquire investment properties (164,105) (125,882) Receipts on sale of investment properties 14,667 17,137 NET CASH OUTFLOW FOR CAPITAL EXPENDITURE (149,438) (108,745) ACQUISITIONS AND DISPOSALS Net cash inflow on acquisitions (4,179) EQUITY DIVIDENDS PAID (6,404) NET CASH OUTFLOW BEFORE FINANCING (152,007) (103,740) FINANCING Share issue expense adjustment 25 Ordinary shares issued (net of expenses) 125,960 Increase in debt 79,182 67,892 NET CASH INFLOW FROM FINANCING 79, ,852 (DECREASE)/INCREASE IN CASH 24, 25 (72,800) 90, ANNUAL REPORT 2006

23 NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The principal accounting policies are summarised below. They have all been applied consistently throughout the year. BASIS OF ACCOUNTING The financial information has been prepared under the historical cost convention and in accordance with applicable Isle of Man law and United Kingdom accounting standards. BASIS OF CONSOLIDATION The Group s financial statements consolidates the accounts of the Company and its subsidiary undertakings up to 30 September The results of a subsidiary undertaking acquired during the year are included from the date of acquisition. Profits or losses on intra-group transactions are eliminated in full. On acquisition of a subsidiary, all of the subsidiary s identifiable assets and liabilities which exist at the date of acquisition are recorded at their fair values at that date. As permitted by Section 3 of the Companies Act 1982 (Isle of Man), the Company has not presented its own income statement. The amount of the Company s profit for the financial year dealt with in the financial statements of the Group is 13,137,000 (2005: 7,610,000). PRIOR PERIOD RESTATEMENT FRS 21: Events after the balance sheet date is applicable for the first time in full for the year ended 30 September The impact of this, which is solely the presentation of the dividends relating to the period ended 30 September 2005, has been reflected on the balance sheets and in Notes 12, 18, 19, 20 and 23 of these financial statements. INVESTMENT PROPERTIES Investment properties are initially recognised at cost, being the fair value of consideration given, including acquisition costs associated with the purchase of the investment property. All the Group s properties are held for long-term investment. After initial recognition, investment properties are carried at open market value and are accounted for in accordance with SSAP19, Accounting for Investment Properties as follows: (i) investment properties are revalued semi-annually. The surplus or deficit on revaluation is transferred to the Revaluation Reserve unless a deficit below original cost, or its reversal, on an individual investment property is expected to be permanent, in which case it is recognised in the profit and loss account for the period; and (ii) no depreciation is provided in respect of freehold/feuhold and long leasehold properties. The Directors believe that the policy of not providing depreciation is necessary in order to give a true and fair view since the current value of investment properties and changes to that value, are of primary importance rather than a calculation of systematic depreciation. Depreciation is only one of many factors reflected in the semi-annual valuation and the amount which might otherwise have been included cannot be separately identified or quantified. PROPERTY DISPOSALS Profits or losses on disposal of a property are recognised upon the completion of a sale. 21

24 NOTES TO THE FINANCIAL STATEMENTS continued 1. ACCOUNTING POLICIES continued RECOGNITION OF INCOME Rental income under operating leases is included in these financial statements on a receivable basis. Interest receivable on short term deposits is accounted for on an accruals basis. Insurance premiums recharged to tenants are not reflected in either income or expense. EXPENSES Expenses are incurred by the Group in relation to the establishment, constitution, administration and business of the Group. Costs incurred in the purchase of investment properties are capitalised as part of the cost of investment. Costs relating to aquisitions in progress are retained in the balance sheet and included in the cost of aquisition on completion. Costs incurred on aborted aquisitions are written off to the profit and loss account. LOAN ISSUE COSTS In accordance with FRS 4 Capital Instruments, loans are included initially in the Financial Statements at cost, being the fair value of the consideration received, net of issue costs relating to the borrowing. After initial recognition, the loans are measured at amortised cost using the effective interest method. The amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. DERIVATIVE INSTRUMENTS The Group uses interest rate derivatives to hedge interest rate exposures on the Group s borrowings. The Group s criteria for adopting hedge accounting for interest rate swaps are: (i) the derivative instrument must be related to a liability at inception; and (ii) it must reduce the interest rate risk on the related liability by converting a variable rate to a fixed rate. The Group s criteria for adopting hedge accounting for interest rate caps are: (i) the derivative must be related to expected interest rate exposures based on current and anticipated borrowing capabilities; and (ii) it must reduce interest rate risk on such future borrowings as to limit the exposure to increases in interest rates. Interest differentials are recognised by accruing the net interest payable. The cost of interest rate hedges is recorded in the balance sheet against the associated borrowing and is taken to the profit and loss account over the life of the hedging relationship. If the hedge is terminated early, the gain/loss is recognised on a basis which matches the timing and accounting treatment of the hedged item. TAXATION Current tax, including UK corporation tax, UK income tax and foreign tax, is provided at amounts expected to be paid or recovered using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date. Where transactions or events have occurred at that date that will result in an obligation to pay more, or a right to pay less or receive more, tax, with the following exceptions: 22 ANNUAL REPORT 2006

25 1. ACCOUNTING POLICIES continued Provision is made for tax on gains from the revaluation (and similar fair value adjustments) of fixed assets, or gains on disposal of fixed assets that have been rolled over into replacement assets, only to the extent that, at the balance sheet date, there is a binding agreement to dispose of the assets concerned. However, no provision is made where, on the basis of all available evidence at the balance sheet date, it is more likely than not that the taxable gain will be rolled over into replacement assets and charged to tax only where the replacement assets are sold. Deferred tax assets are recognised only to the extent that the Directors consider that it is more likely than not that there will be suitable taxable profits from which the underlying timing differences can be deducted. Where required deferred tax is provided, without discounting, under the liability method at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. SHARE BASED PAYMENTS As part of the contract with the Property Adviser, a performance fee is payable and this is to be satisfied by the issuance of new shares in the Company. This performance fee is related to the total return to Shareholders, based on the share price and dividends paid. The resulting performance fee for a particular performance period will be settled by the issuance of shares to the Property Adviser, subject to certain vesting conditions, at the end of the subsequent two years. The performance fee is charged to the profit and loss account over the vesting period in accordance with UITF 17 and FRS 20. Until the issuance of any shares under this contract, and in accordance with guidance issued by the Institute of Chartered Accountants of England and Wales, the charge to profit and loss account is added back to distributable reserves, as it does not result in cash leaving the Company. On the issuance of any shares under this contract, the full market value of the shares issued will be charged to the Company's distributable reserves. 2. TURNOVER 28 June 2004 to September Rental income 24,104 15,968 Other income 59 Total 24,163 15, DIRECTORS EMOLUMENTS Directors emoluments paid in the year were 113,644 (2005: 131,250). 23