Cadogan Group Limited. Annual Report 2014

Transcription

1 Cadogan Group Limited Annual Report

2 Cadogan Group Limited Cadogan Group Limited Contents Directors And Secretary Strategic Objectives And Financial Highlights Chairman s Statement Strategic Report Directors Report Independent Auditor s Report Consolidated Profit And Loss Account Consolidated Balance Sheet Other Principal Statements Company Balance Sheet Consolidated Cash Flow Statement Notes On The Financial Statements Five Year Summary Directors and Secretary Viscount Chelsea D.L.* Chairman The Hon. James Bruce* Deputy Chairman Hugh Seaborn CVO Chief Executive Richard Grant Finance Director Charles Ellingworth* John Gordon* Francis Salway* Secretary Paul Loutit Registered Office 18 Cadogan Gardens, London SW3 2RP Company Number Auditor Ernst & Young LLP 1 More London Place, London SE1 2AF * Non-executive Life President The Earl Cadogan KBE D.L. 1

3 Cadogan Group Limited Cadogan Group Limited Sloane Street Knightsbridge Station Brompton Road Cadogan is a major landowner in Chelsea and Knightsbridge in West London with a holding extending to 93 acres. This modern business is built on the foundations of a traditional landed estate which has been in the ownership of the family of the Earl Cadogan and his son, Viscount Chelsea, since South Kensington Station Cadogan freehold ownership within these areas 7 1 Sloane Street Sloane Avenue Cadogan is a property owner, manager and developer, which strives to put the local community and its future at the centre of every decision ensuring that it remains a modern, dynamic business at the heart of the local neighbourhood. Sloane Square Sloane Square Station 8 The portfolio includes approximately 3,000 flats, 200 houses, 300 shops, 500,000 sq ft of office space and over a dozen Fulham Road gardens covering around 15 acres. There are also hotels, public houses, restaurants and cultural attractions including Cadogan Hall, the Royal Court Theatre and the Saatchi Gallery. The total capital value of all the properties is nearly 5.2 billion and the current annual rent roll is 121 million. Gloucester Road Station South Kensington Station Sloane Avenue Sloane Square 10 4 Sloane Square Station King s Road Key Locations on the Estate Fulham Road THE EMBASSY OF DENMARK Chelsea Embankment 2 CADOGAN SQUARE GARDENS 3 Cadogan Hall 4 Sloane Square 5 KING S ROAD 6 Saatchi Gallery King s Road 7 Sloane Street 8 CADOGAN PLACE GARDENS 9 HOLY TRINITY CHURCH Chelsea Embankment 10 DUKE OF YORK SQUARE 2 3

4 Cadogan Group Limited Cadogan Group Limited Financial Highlights Gross rents 119.9m Gross property value 5,175.2m 5, , , , , , , , , ,043.6 Profit before taxation 55.4m Net assets per share Strategic Objectives The core objectives and strategies which underpin the management of the estate are: y To protect and enhance the estate so that it is the world s leading location in which to live, shop, work and visit. y To maintain and improve the portfolio of properties as a long-term investment, with a focus on delivering top-quality buildings and environment. y To make a positive contribution towards a sustainable environment and always to act as long-term stewards of the properties under Cadogan s ownership and control. y To be good neighbours - putting the community at the heart of decisions; whether working with local community projects, selecting new businesses for the area or managing environmental impact for future generations. y To deliver excellent customer service to both commercial and residential customers. y To recruit and retain an exceptionally talented team and to use the best external advisers. Total return Balance sheet gearing 17.2% 13.1% Hans House, 3 Hans Street. 4 5

5 Cadogan Group Limited STRATEGIC REPORT Chairman s Statement Overview Viscount Chelsea Chairman has been an excellent year for Cadogan even though it has not quite matched the outstanding success of last year. It has been a year of progress on many fronts and in this report we have highlighted some particular achievements which I hope will illustrate the progress of the business and the contribution we have made to our communities beyond the normal measures of financial success. The economic background to our business has been positive throughout the year, more strongly so than I expected when I wrote my Chairman s statement this time last year. The recovery from recession is well established and economic growth has extended outside London and the South East to most areas of the national economy. The UK economy has received a boost from lower oil prices, which are supporting household spending power by pushing down on inflation and deferring the time at which interest rates will rise from the current low levels. In purely financial terms we have seen further growth in values and rental income continuing the pattern, since the 2008 recession. The London property investment market has continued its strong run and the growth in values and transaction volumes has, if anything accelerated. The weight of overseas demand seeking income and safe haven assets has contributed to driving down prime yields in many areas to unprecedented levels. Our properties have benefited from all these factors during. Their gross value has risen to 5.18 billion, reflecting an increase of 13.5% over, a similar level of increase to that experienced in. The contracted rent roll grew by 7.4 million from million to million, an annual increase of 6.5%. The rental income recorded in our accounts for showed only a relatively small increase over as a result of the significant boost to the figure provided by certain one off factors, which have not recurred in. As a consequence gross rental income in was 119.9m, an increase of 2.4% over the equivalent figure in. In, profit before taxation was enhanced by the exceptionally strong performance on the sale of enfranchisable properties. These sales in were significantly below the level of and this was a major element in our reported profit before taxation reducing from 73.8m to 55.4m. has seen continued progress towards the strategic priorities of the business. We are seeking every opportunity to engage with our retailers for mutual benefit, and we are progressing initiatives to strengthen the quality of customer service across all areas of the business. We have reorganised our marketing resources and are focusing on the promotion of our key retail destinations using a coordinated multi-channel approach. The economy of London and the south-east has continued to grow more strongly than the rest of the UK and, of particular significance to London property, employment levels have risen to record levels. The latest forecasts indicate that this trend will continue, with office based employment in inner London rising by 2.2% per annum over the next five years, as compared with 1.5% for the UK. Notwithstanding the uncertainty created by the impending general election and a possible EU referendum, the underlying economic background appears well set to remain favourable for London property. Against this background the outlook for the London commercial property market in general looks good, while on the other hand the residential market has shown signs of slowing down. We are looking forward to 2015 and successive years with a measured sense of optimism. We continue to believe that the strength of location and quality of our properties along with our continued focus on well-defined strategic priorities will enable our business to prosper. I should like to thank my fellow directors and all our staff, led by my Chief Executive, Hugh Seaborn, for their hard work over the year and for the guidance and assistance which they have given me. Viscount Chelsea 30 April 2015 Hugh Seaborn Chief Executive The business has enjoyed a successful year in with a total return of 17.2% contributing to an annualised performance over the last five years of 15.9%, which we focus on as a longer term measure. Coupled to this the contracted rent roll grew by 6.5% to 120.5m and profit before taxation was a healthy 55.4m, a result we are no less proud of than the exceptional year in. The success of Cadogan is allied to the strength of the London property market which performed strongly last year, both from an investment and an occupational perspective. It is our good fortune to own property in an exceptional location and with this comes the responsibility to manage and maintain the estate to the highest standards, to understand the needs of our customers and to contribute to creating an environment that is attractive to people who want to live, work, shop and visit the area. Beyond the financial returns for we made good progress with our strategic objectives. We purchased new properties in the residential and commercial sectors, notably the Brompton portfolio. This represented the residue of the Gunter and Thurloe estates and provided a rare opportunity to acquire freehold residential property in Central London, subject to long leases and statutory tenancies and therefore offering reversionary returns over the long term. The portfolio is a very good fit for our business as it allows us to look beyond short term market fluctuations and to top up our long leasehold residential holdings. We have made solid progress with the hotel portfolio during the year. On selected assets we have moved away from the leasehold structure and adopted management agreements with leading hotel operators. In this way we can ensure that these hotels contribute to the wider area and, by participating in operational risk, enhance revenues for the business. The outstanding capital growth in was produced by the office portfolio, which increased by 22.2%. This reflected market strength as office availability in the London market has reduced and demand grown. It also reflects our management of the assets as we have worked over time to enhance the quality of the office portfolio through refurbishment and redevelopment. A good example of this is George House, 131 Sloane Street which is the subject of strong unsolicited interest ahead of completion in the fourth quarter of Our aim of working closely with retail occupiers is best illustrated through the business plan for Sloane Street. This represents the equivalent of a Business Improvement District for the entirety of Sloane Street although one that is funded by Cadogan and therefore not subject to the complexity of a ballot. This has allowed us to work in partnership with our retail brands to improve Sloane Street as a visitor destination. As part of this we are making good progress working closely with the Royal Borough of Kensington and Chelsea, in developing plans to enhance the public realm in a way that would be neutral for vehicular traffic but provide a much enhanced pedestrian experience for residents and visitors. Our long history referred to elsewhere in this report, provides the foundation for a modern, innovative business with a long term perspective balanced with the ability to adapt to a constantly changing business environment. This long history of family ownership and concentration on a well-defined geographical area means that we have become embedded within the local community which heightens our awareness of the impact of our business activities locally. I expect my team to act in an exemplary way in leading and inspiring others to put the welfare of the community at the heart of everything we do. Implicit in our long term estate management approach is to ensure that individual buildings make a contribution to the success of the wider area in which they are situated so that the whole is greater than the sum of the parts. Having an understanding of the needs and ambitions of our neighbours is vital to making this strategy a success and emphasises to us constantly the importance of being good neighbours. To achieve these aims requires an exceptional team and I am very fortunate indeed to work with talented and highly experienced people. I am grateful to my team and to all our advisors for their considerable contribution to our success. 6 7

6 STRATEGIC REPORT STRATEGIC REPORT Property Portfolio The growth in the value of the property portfolio in follows significant valuation increases every year since the recession of The gross value of the estate s properties has increased from 3.45 billion at the end of 2011 to 5.17 billion at the end of, a total increase in capital value over this three year period of nearly 50%. Retail, which is our largest sector, did not perform as strongly as the offices (22.2% capital growth) but produced a healthy 14.8% year on year. The attraction of central London to international retailers continues, and this is likely to be boosted by improvements in the environment and infrastructure and growing confidence in the domestic economy, all of which factors are expected to feed into higher levels of consumer spending. The residential portfolio showed a valuation increase of 11.3%, down from the 13.1% achieved in. Much of this increase occurred in the first half of ; the second half of the year being characterised by a marked slowdown in the residential market. The remainder of the portfolio, which includes leisure and other uses, saw muted growth in capital values, up 5.7% year on year. Growth in values was lower, particularly in the hotel sector, where two of our hotel properties are undergoing redevelopment and refurbishment and this had a dampening effect on current values. Total property portfolio value grew to 5.17 billion Increase of 13.5% AFTER ADJUSTING for purchases, sales and capital expenditure Residential portfolio increased in value by 11.3% London is one of the top three fashion capitals in the world, alongside New York and Paris Global Language Monitor. Commercial portfolio gained 15.0% Retail portfolio increased by 14.8% Office portfolio increased by 22.2% Hans House, 3 Hans Street. 8 9

7 STRATEGIC REPORT STRATEGIC REPORT Retail Retail is our largest sector, both by capital value and by rental income accounting for 44% of total capital value and 55% of total rental income. The retail sector continues to experience rapid change, driven by technological developments and changing spending patterns. Property owners such as ourselves, have a vital part to play in making bricks and mortar retailing enticing and attractive, enhancing the shopping experience to support retailers in a highly competitive omni-channel retailing environment. This requires ever closer cooperation with retailers, sharing research and performance information such as footfall, spending habits and consumer behaviour. We have worked hard to develop a high quality dialogue with our retailers, both large and small and we have reinforced the positioning and marketing of key retail destinations to help to drive footfall and spend from both domestic and international markets. We have experienced continuing healthy demand from retailers for properties throughout and into Overseas retailers have been at the forefront of new openings with Club Monaco, Michael Kors, J Crew and El Ganso opening during the year. We have a deliberate strategy of increasing and improving the food and drink offerings to enhance the experience of visiting the area. Within the Duke of York Square we have introduced Comptoir Libanais, in the Kings Road Rabbit has opened, offering the best of British food and, also in the Duke of York Square Polpo will be opening their Venetian version of small plate food. All these bring interest and variety; they offer food at different price points and add to the overall attraction of the area. The fine food market each week at Duke of York Square is becoming increasingly popular, particularly with local Chelsea residents. In we spent just over 34m on retail acquisitions, acquiring a bank premises in Sloane Street which we are converting to a shop, and adding further to our holdings in the Kings Road. We are also well advanced with the redevelopment of George House, Sloane Street (referred to throughout this report) which will include six new flagship units and we are in advanced discussions with a number of exciting potential occupiers for these units, which will add significantly to the retail mix at the south end of Sloane Street. These units should be open for trading early in We are also shortly to commence a consultation with those in the local area to ascertain the stores/services that they feel are most needed in the artisan retail units to the rear of the development on Pavilion Road. Following this consultation we will be going to the market to seek occupiers who can deliver to these local aspirations. Our approach to the retail mix has contributed to Chelsea being recognised as one of London s most vibrant neighbourhoods - The Vitality Index (October ) ranked Chelsea second of the Top 500 British Retail Centres. (The Vitality Index is an independent publication produced annually by Harper Dennis Hobbs). Left: Club Monaco, Sloane Square. Top: Michael Kors, Duke of York Square. m m GROSS VALUE 2,262 1, % * RENT ROLL % * Adjusted for purchases, sales and capital expenditure 10 11

8 STRATEGIC REPORT STRATEGIC REPORT Office Offices account for just over 10% of the portfolio by capital value and 15.2% of rental income. The London office market has tended to be more volatile than other sectors over time and has seen a strong recovery which we have anticipated. The recovery has been driven by restricted supply of new office product and growth in office employment. Traditionally London s strength has been in financial services and insurance, but in the last few years technology and creative businesses have been increasingly drawn to locate themselves in London. As a result rents are rising and exceptional investment demand has pushed yields lower. Both these factors are behind the substantial valuation increase which we have experienced in. One of our strategies for offices has been to increase the availability of serviced offices to encourage small businesses to the area and to nurture the larger office users of tomorrow. In we opened 45 Pont Street and in 65 Sloane Street, both high quality serviced office space. Between them these two properties provide a total of 155 desk spaces together with meeting rooms, communications facilities and a variety of flexible service options. Our expectation of a strengthening London office market has led us to improve the quality of our stock wherever possible. As a result, much of the activity in has been in the upgrading of existing office space, rather than in the letting of new offices. We anticipate that the marketing of the improved space, when it becomes available for letting during 2015 and 2016, will benefit from the strength of the London office market and specifically the relative paucity of supply in the Knightsbridge area. We expect that this space will let quickly at good rent levels. The most significant new office space that we are bringing to the market is at George House, 131 Sloane Street which will provide approximately 43,000 sq. ft. of the high quality office space over five floors in a premier location. We anticipate that this development will complete in the fourth quarter of In the meantime, this space has been subject to strong unsolicited interest. m m Left: 65 Sloane Street. Top: 11 Cavalry Square. GROSS VALUE % * RENT ROLL % * Adjusted for purchases, sales and capital expenditure 12 13

9 STRATEGIC REPORT STRATEGIC REPORT Residential Residential property is substantial in capital value terms, accounting for 40% of the total. Because much of the portfolio is held under reversionary long leases and residential yields tend to be lower than commercial yields in most situations, the residential sector accounts for only 23% of our current rent roll. We hold two very different types of residential investments. Firstly, we have a portfolio of short let properties which are available for short term lettings on the rental market. Secondly, we have freehold interests which are subject to long leases where we collect a ground rent and in respect of which the tenants are in the main, eligible to acquire either the freehold or a longer lease through leasehold enfranchisement. has been notable for the completion of some relatively large residential refurbishment projects, including 12 Herbert Crescent, 155 Sloane Street and 21/22 Hans Place. Completion of these projects has added a 5 bedroom house and 17 flats and approximately 2.2m to our annual rent roll. Significantly these projects have demonstrated the benefits of enhancing the overall quality of the homes we produce ensuring that a Cadogan flat or house will let swiftly at premium rents in a highly competitive market. The short let portfolio comprises a total of 670 units, of which the majority are one or two bedroom flats, which are the most popular in the letting market. The central London rental market has been generally good throughout the year. This coupled with the strategy of delivering high quality properties and excellent customer service has contributed to high occupancy and to minimal void periods. In our most recent customer survey (Dec ) 91% reported a Good Excellent relationship with Cadogan. The Cadogan name as a brand has value in the residential letting market, focusing on delivering exceptional customer service and emphasising the value added benefits which separate Cadogan as a landlord, from the rest of the market. These include the launch of a complimentary Cadogan Concierge service for our short-let residential customers in 2015, a dedicated 24 hour emergency service, access to private gardens and tennis courts, flexibility to move within the estate mid-tenancy and the removal of any administration, referencing or inventory fees. A major event in was the acquisition of the Brompton portfolio, a portfolio of freehold residential properties in and around South Kensington, largely subject to long leases. We acquired a total of 177 units in approximately 30 buildings at a total cost of 48.3 million. The purpose of acquiring this portfolio was to top up the enfranchisement pipeline and we expect to obtain returns from the portfolio over future years as enfranchisement claims are made and the capital invested is realised. In addition to the Brompton portfolio we acquired a further 23 flats within the Chelsea estate at a total cost of 34.1m. These flats have been added to the short let residential portfolio, following the completion of works to bring them up to the Cadogan standard. Sales of long lease residential properties through the Leasehold Reform Acts continued throughout the year but did not reach the unusually high level experienced in. Total proceeds in were 83.1m as compared to the 121.7m received in and represented a more typical year for the business. The sale of 103 units were completed ( 152 units) in. The profit achieved was 17.6m, less than the 26.3m in, but much more in line with the average level of sales and profit achieved in recent years. We strongly believe in supporting a healthy and vibrant community and this includes providing affordable tenancies for key workers (e.g. nurses and teachers who work locally) and rental support to many tenants because of their contribution locally and/or longevity of occupation. The prime central London residential market is quiet as the market absorbs the various tax changes which have already been implemented and anticipates general election uncertainty and the possibility of additional tax burdens on high value residential property in some shape or form. This market weakness is also having the effect of reducing the number of enfranchisement claims which we are receiving. m m Left and below: Hans House, 3 Hans Street. GROSS VALUE 2,084 1, % * RENT ROLL % * Adjusted for purchases, sales and capital expenditure 14 15

10 STRATEGIC REPORT STRATEGIC REPORT Leisure and Other Developments This category includes most significantly hotels and restaurants as well as a variety of other properties including schools, cultural venues, car parks and medical uses. It accounts for 5.8% by capital value and 6.2% by of rental income although contributes disproportionately to the vitality of the area and as such is very important to the business. The relatively low level of valuation increase for principally reflects the renovation and refurbishment works which we are undertaking in several hotels. The Cadogan Hotel is closed and is undergoing a major renovation prior to reopening towards the end of 2016 under the management of Belmond, previously known as the Orient Express group. The renovation will result in a repositioning of the hotel as one of London s finest boutique hotels and the opening of a signature destination restaurant which will be a focal point for Sloane Street. We have increased the emphasis on hotel and restaurant activity on the estate and expect to add to our interests in these areas in the coming years. In line with this strategy we are undertaking a refurbishment of No.11 Cadogan Gardens a 62 room boutique hotel - to upgrade the services and to bring a consistent standard across the accommodation. In January this year we announced an agreement with Costes, owners of the Hotel Costes in Paris, to open a new hotel just off Sloane Square 1 Sloane Gardens - which will bring an element of Parisian chic to Chelsea and further strengthen Sloane Square as a vibrant destination. We are hoping to open this new venture towards the end of Left: CGI of proposed reception at The Cadogan Hotel. Top: No.11 Cadogan Gardens. Overall expenditure on maintaining and improving our properties rose in, increasing from 21.9m in to 38.5m in. This represents capital expenditure in the accounts. In addition, we also incur expenditure on recurring maintenance with the aim of maintaining the portfolio to a particularly high standard. The major part of this expenditure relates to residential short let properties, where the standard of accommodation offered to the market is vital. The largest development project during was the redevelopment of George House, Sloane Street, just north of Sloane Square. Construction is well advanced and we expect to achieve completion later this year. Planning and preparatory work continue on a number of future schemes, most notably the major refurbishment of the Cadogan Hotel at 74 Sloane Street on which we expect to start construction work shortly. There has been a considerable focus on the proposed redevelopment of Kings Road, which includes Habitat, Waitrose, the Chelsea Cinema, offices, residential and the Trafalgar pub. Discussions with the local authority and various stakeholders are continuing. The complexity of this scheme has increased significantly as a result of the preliminary announcements relating to Crossrail 2, for which a station is proposed on the Kings Road, close to this site. m m GROSS VALUE % * RENT ROLL % * Adjusted for purchases, sales and capital expenditure 16 17

11 STRATEGIC REPORT STRATEGIC REPORT Stewardship, Sustainability and Community Engagement As a major landowner with a concentration of ownership in a relatively small part of central London, Cadogan has a significant impact on the local community. We are acutely conscious of the many and varied responsibilities that come with our size and heritage and we are determined to safeguard and enhance the wellbeing of those who live, work and visit this area. The word stewardship captures Cadogan s ethos and values. It reflects a strong awareness of our responsibility to both current and future generations and in this context we are deeply proud to have been shortlisted in the Commitment to Local Community category of the 2015 Better Society Awards. The stewardship strategy is divided into four complementary themes and we are taking forward a suite of projects under each. Here are the themes and examples of our key actions and achievements for : Supporting Our Customers The wellbeing of our customers and providing excellent customer service is at the heart of all that we do and the way we do it. Their interests are central to our community investments, activities and events. We have y acquired nine live/ work studios at Rosetti Studios, to support local creative businesses y voluntarily provided 34 affordable homes for key workers and we will be delivering more y organised quarterly networking and intelligence sharing meetings for our retailers on Sloane Street and Duke of York Square, with consistent attendance from 70 brands Being Part of The Community Cadogan s community extends far wider than our immediate customers and includes the local community, business groups, charities and voluntary-sector organisations, educational and religious bodies, as well as statutory agencies. The following represent just a sample of our activities. We have y created a 150,000 (including matched funding) endowment fund for local charities, through the Kensington and Chelsea Foundation y donated an additional 113,000 in sponsorship and charitable giving, quite apart from the considerably larger donations made by the Cadogan family charity, a shareholder of the company y sponsored, subsidised and supported leading local cultural attractions, including Cadogan Hall which celebrated its 10th anniversary in and is home to the Royal Philharmonic Orchestra the Royal Court Theatre, the National Army Museum and the Intermission Theatre y employed three multilingual Ambassadors, who provide a warm welcome and help to over 100,000 visitors or small groups on Sloane Street and Sloane Square y piloted a construction employment project on our major new development on Sloane Street and screened 32 people for job opportunities with the aim of getting young local people into employment y supported a mass sleep-out on Duke of York s square with West London Churches Homeless Concern, raising over 125,000 - directly funding 2 shelters in the winter months y rolled out a programme of exciting community events from Chelsea in Bloom to our popular Wimbledon screening at Duke of York Square y funded the local Christmas lights, bringing festive cheer to all of our communities and donated 5,000 of proceeds from the Christmas grotto and gift wrapping to The Prince s Foundation for Children and the Arts as well as providing direct support for their carol service at Holy Trinity Acting Responsibly Towards The Environment As a significant owner of land and property, we are keenly aware of our responsibility to safeguard and enhance the quality of the environment in and around the Estate; minimising the negative environmental impact and maximising the environmental performance both of our buildings and our business operations. Our environmental stewardship encompasses the responsible management of resources over which we have control, as well as our exercising opportunities to persuade others to do so too. We have y achieved a BREEAM rating of Excellent on one, and Very Good on four, major projects y achieved an average on-site recycling rate of 97% in against a target of 90% on our major projects and developments. y achieved a minimum EPC rating of D on all completed major and minor refurbishments y registered all our major projects with the Considerate Constructor s Scheme, achieving an average score of 36.63, with our biggest development scoring an exemplary 44 out of 50. y at Duke of York Square in we diverted 100% of commercial waste from landfill; reduced contaminated waste loads from seven per month to zero in six months; recycled an average of 24% of waste and used 358,331 kgs of waste in energy recovery equivalent to saving 142,409 kgs of CO2 and generating sufficient power for 57 houses y introduced Green Leases with environmental sustainability clauses to encourage our occupiers to adopt best practice y held sustainability support workshops for our contractors and included consideration of supplier environmental policy and actions as part of our supplier pre-qualification process y rolled out our five year strategy for Sloane Street, which includes a multi-million pound transformation of the public realm to create a cleaner, greener, more welcoming environment for pedestrians while ensuring our proposals are neutral to vehicular traffic The Bug Hotel a home for pollinating insects and mini-beast invertebrates, a project with local school children in Cadogan Place South Garden. Over 5,000 was raised for the Prince s Foundation for Children and the Arts from the Duke of York Square Santa s grotto and complimentary gift wrapping service. The Kate Spade shop on Sloane Square winning entry for the Chelsea in Bloom competition. Poppies in the World War 1 Memorial Meadow in the Cadogan Place North Garden, sown with the assistance of Chelsea Pensioners from the Royal Hospital. Cadogan as an Employer The engagement and commitment of our staff is fundamental to our capacity to be effective stewards of the estate. We are rigorous in our recruitment of new staff and development of existing employees in order to attract and retain the best available people. We seek to support staff wellbeing through a supportive work environment and attractive conditions of employment. We also actively support our people to engage with the world outside Cadogan including; y providing 100% match finance to staff who undertake charitable fund-raising y garnering staff views on their wellbeing and what more we need to do to be an exemplary employer Cadogan s Tax Contribution Another measure of our overall contribution can be seen through the amount of tax and similar payments made to the Exchequer. In each of the last two years Cadogan has paid or collected over 36 million, which is a contribution to UK government finances directly through taxes borne by Cadogan itself and indirectly by payroll and indirect taxes which are collected on behalf of the government and paid over to HMRC. This figure is several times the direct tax charge shown in our accounts and is a measure of our wider financial contribution to the UK economy. Total UK tax contribution m Tax paid by Cadogan m UK Corporation tax SDLT Employer s National Insurance Non domestic rates and Council Tax Section 106 agreements Irrecoverable VAT Other Tax collected and paid over by Cadogan PAYE and Employees National Insurance VAT TOTAL

12 STRATEGIC REPORT STRATEGIC REPORT Prospects Financial Review The outlook for the London commercial and residential property markets are somewhat varied. The office market is looking set for a period of continued growth buoyed by limited availability of new stock, and strong occupier and investor demand. The retail market is benefiting from rising consumer confidence and the continued attraction of London as an international retail destination. In contrast the residential market, particularly at higher price levels, has already slowed significantly and is currently weighed down by political uncertainty and the possibility of further adverse tax changes. In the office sector we have low availability and we expect this to continue through We have new and refurbished office space coming onto the market and are confident that we will be able to let this space on good terms and at attractive rents given the strength of demand across London. In the retail sector retailers are improving their understanding of how physical space fits within their overall multi-channel strategies. When they seek physical space they are becoming more discerning about the location and quality of the space they take and this benefits our strong retail locations. For our part we will continue to be highly selective about the retailers we let to, to ensure that we maintain the high quality of our retail offering and an attractive tenant mix. Underlying the strength of occupational demand for commercial space, investment fundamentals remain supportive with the differential between bond and property yields still historically wide. Investment in property, even at the low yields commanded by much central London investment stock, remains attractive for income and long term capital security. Looking ahead to 2015 and future years, we remain confident that the long term strategy to develop and enhance the estate will continue to provide consistent and attractive returns and will provide benefits to all our stakeholders. We will continue to invest to improve the assets and services to occupiers. I believe that this focus, coupled with the consistent application of our estate strategy will enable the business to continue to prosper in 2015 and future years. Hugh Seaborn 30 April 2015 Richard Grant Finance Director The decrease in reported profitability reflected a number of factors, most significantly some one-off gains which benefitted our results for, but which did not recur in. Most notable of these were: y the exceptional level of enfranchisement sales which occurred in. These produced profits over book values totalling 27.3m in. In contrast the profit from such sales in was 17.4m. y settlement of some long outstanding rent reviews which occurred in and which resulted in the recognition of back rents totalling approximately 3.0 million which boosted both rental income and profits in but did not recur in. In addition to these factors we also incurred additional interest cost in as a result of the completion of the two private placings of fixed term debt arranged in June and July. These added approximately 3.5 million of interest in when compared with the previous year. Trading Highlights rental income rose to Million Increase of 2.4% As the figures earlier in this report show most of the growth in the contracted rent roll in came from the retail and residential sectors. We have been able to consolidate rent levels at the north end of Sloane Street, following several successful lettings at Sloane Street which were agreed in. Elsewhere there has been a continued progression in rental values in Sloane Square, Duke of York Square and Kings Road. The growth in rental values reflects the attraction of these prime retail areas and our active management of the retail mix. We have continued to develop our retail strategy tailored to each micro location. The success of these strategies shows the benefit of our research based approach, our highly selective letting policy and targeted investment in destination marketing. The other major area where rental income is increasing is the let residential portfolio. This reflects significant investment over the last few years as we have expanded the number of rental properties, and have also invested to improve the standard of accommodation. This is coupled to providing an exceptional customer service which differentiates Cadogan as a landlord in a market which includes many accidental and amateur landlords. Contracted rent roll increased to Million Increase of 6.5% The rent roll from the short let residential portfolio increased during from 22.8m to 24.4m and the total number of properties grew from 640 units at 31 December to 670 units at 31 December. Rental growth in the residential letting sector has moderated during the year, but the improved refurbishment and refreshment process and close watch on the relative strength of demand in the market, has ensured that we minimise the void periods and maximise net return. As noted above reported profits for showed a decline from the record levels of as a result of a number of oneoff items which did not recur in. Operating profit reduced from 77.6m to 72.4m and profit on ordinary activities before taxation showed a greater reduction from 73.8m to 55.4m The profit after taxation attributable to shareholders was 46.1 million and more than covers the dividend of 36.4 million paid to shareholders during the year. It is worth noting that additional dividends totalling 5.5 million were paid during the year as a result of the high level of enfranchisement sales and profits achieved in. Profit on ordinary activities before taxation reduced to 55.4 Million Decrease of 25.0% Venus Fountain, Sloane Square

13 STRATEGIC REPORT STRATEGIC REPORT Balance Sheet and Borrowings Approach to Risk Management The rise in the year end value of investment properties was the major factor contributing to the rise in group shareholders funds, which rose from 3.89 billion to 4.52 billion. Net assets per share increased from to 37.63, an increase of 16.0%. Balance sheet gearing reduced from 13.3% to 13.1%, principally the result of the rise in property values. All financial ratios remain healthy and we continue to maintain significant headroom against the various covenants and prudential limits required of us by our bankers and our internal guidelines. Year-end net borrowings were 589.4m. The increase from the previous year-end figure of 516.5m arose principally as a result of the additional private placement in the year to fund the purchase of investment properties; our acquisitions not being funded to the same extent from enfranchisement proceeds as in. The main financing event during the year was the raising of an additional 100m of unsecured loan notes from the private placement market. This was arranged in July and drawn down in September in four equal tranches, maturing in 2029, 2034, 2039 and Average duration across all maturities was 22.5 years achieved at an all in interest rate averaging 3.99% fixed through to maturity. We approached a number of potential lenders, both existing funders and some new to Cadogan but ultimately the funds came from existing lenders, who were keen to extend their relationship with Cadogan. The principal purpose behind the finance raising was to provide funds for future acquisitions and development expenditure. The cash raised was a significant part of the year end cash balance of 111.2m which was held as cash on deposit at the year end. We have development commitments and the prospect of further acquisitions over the next couple of years, which we anticipate will utilise these funds. At the year end the group had substantial funds available for future investment and acquisitions. Total available financial headroom was 181m at the year-end, comprising the above cash and 70m of committed facilities; and in addition we have a further 50m of uncommitted facilities. We have a balanced profile of future debt maturities extending out to As at 31 December our borrowing facilities had an average maturity of 16.6 years and nearly 48% of total borrowings facilities did not mature for more than 15 years. All of the currently drawn borrowings are at fixed rates of interest, either through direct agreement with the lender or through the use of swaps; the average effective rate across all loans is 5.33%, down from 5.56% last year, as a consequence of the fifth round private placing referred to above. We are proud of and value the relationships we have developed with our lenders. Our borrowing strategy is based on fixed rates of interest and long-term maturities, and this provides certainty in our financing profile and supports our long term approach to business. Cadogan is a long term property investor with a clearly defined focus on high quality property assets located in central London. The group has appropriate policies and methodologies in place to identify, assess and manage the risks faced by the business. Because of its private ownership and long-term outlook the group aims for, and is able to achieve, a high level of resilience in all areas of the business. The group maintains a Risk Register which identifies the principal risks impacting on the business and the group s financial position. The Register provides an assessment of the likelihood of the identified risks materialising and includes an estimate of the potential impact of each area of risk on the business. The Register is formally reviewed by the board regularly and this forms an important part of the overall risk management process. The group also make use of appropriate external specialists to advise on compliance with the established policies and external regulations. The principal risks and uncertainties faced by the group and a brief summary of how it deals with each of these areas of risk are set out below: Risks associated with London s position as a global capital - London s advance as a global capital has been a significant factor in the overall prosperity of central London in recent years. There are risks to this position from a number of factors, most significantly from terrorism, from under-investment in infrastructure and from adverse changes to the tax regime, particularly affecting overseas investors. The group cannot manage or control these risks but Cadogan takes an active role in lobbying through organisations such as London First and the British Property Federation amongst others, to ensure that the long-term health of London is at the forefront of the minds of national and local government. Property market risks - the risks arising from property cycles and from shorter term unexpected changes in the market for property investment, development and occupation. As a long-term investor the group is less reliant than others upon predicting property market cycles and aims to manage the impact of the property cycle and any other short-term fluctuations in values or activity levels by ensuring a relatively high proportion of committed long term loan finance and high levels of available liquidity. These factors also assist the group in managing cash flow and liquidity risks. Although the group s properties are concentrated in a relatively small geographic area there are a large number of properties in many different uses. The largest individual property represents 3.1% of the total portfolio value and the highest individual rent 4.6% of total annual rental income. All of the group s properties are located in Kensington and Chelsea and the company monitors and is actively involved in consultation with the Royal Borough of Kensington and Chelsea where it considers that it could be affected by changes or developments to local planning policies. Cadogan regularly undertakes substantial development projects, but schedules these as far as possible to ensure that the company s exposure to development risk is controlled, both relative to its own overall portfolio and to potentially competing schemes in the same area. Cadogan consults widely on development schemes to ensure that schemes are designed to the highest quality and to assist in obtaining the most appropriate planning consent. Finance and cash flow risks - the risks associated with unexpected changes in interest rates and availability of debt finance. The majority of long-term borrowings are at fixed rates of interest, achieved either by agreement with the lender, or through the interest rate derivatives market. The board requires at least 75% of long-term debt to be subject to fixed rates of interest. The group does not undertake financial instrument transactions that are speculative or unrelated to trading activities. Board approval is required for the use of any new financial instrument. The group seeks to manage refinancing risk through the use of a spread of loan maturities. In normal circumstances loan terms are for an initial period of 10 years or more. The incidence of maturities is spread so as to ensure that major re-financings are spread over time. The various private placings of debt which the group has undertaken in recent years have included a significant proportion of US dollar borrowings. All exposure to US dollars in relation to both interest and capital repayments has been swapped into sterling on the date on which the loans were committed, and as a result there is no residual foreign exchange risk exposure to the group. Operationally the group has no foreign currency exposure. Property operational risks - the risks associated with the management and ownership of property. All the group s properties are insured against loss or damage on a full reinstatement basis, including three years loss of rental income. Cover includes terrorism risk which is provided by a major insurer and member of Pool Re. The group accords a high priority to health and safety issues and has well established compliance and reporting procedures to ensure that health and safety risks are reduced and eliminated as far as is practicable. From time to time the group undertakes external reviews and audits of its health and safety policies and procedures, the results of which have confirmed the quality and integrity of health and safety practices. Richard Grant 30 April

14 Cadogan Group Limited 31 December Cadogan Group Limited 31 December Directors Report The directors present their report and the financial statements for the year ended 31 December. Principal Activity and Review of the Business The principal activity of the group during the year continued to be property investment. The group s other activities include the operation of hotels and a concert hall. A review of the group s business during and its future prospects is contained in the Strategic Report on pages 7 to 23. Dividends Interim dividends of 36,435,000 ( 30,000,000) equivalent to 30.4p per ordinary share ( 25.0p per ordinary share) were declared and paid during the year. Risk Management A summary of the principal risks and uncertainties has been included in the Strategic Report. Directors All the directors holding office during the financial year and up to the date of this report are listed on page 1, with the exception of John de Havilland who retired as a director on 24 April. The ultimate holding company maintains liability insurance for its directors and officers and for those of its subsidiaries in respect of proceedings brought by third parties, subject to the conditions set out in section 234 of the Companies Act Such qualifying third party indemnity provision remains in force as at the date of approving the directors report. Charitable Contributions The group s charitable contributions for the year were 213,000 ( 43,000). In addition, the Cadogan Charity, a shareholder in the company, makes donations to a variety of local and national charities. Going Concern The group s business activities, together with the factors likely to affect its future development, its financial position, financial risk management objectives, details of its financial instruments and derivative activities, and its exposures to price, credit, liquidity and cash flow risk are set out in the Strategic Report. The group has considerable financial resources derived from an established investment property portfolio in prime central London. The group has substantial long-term committed financing arrangements and also has access to overdraft and revolving credit facilities from its bankers. Taking these factors into account the directors believe that the group is well placed to manage its business risks successfully. After making enquiries, the directors have a reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements. Statement of Directors Responsibilities The directors are responsible for preparing the annual report and financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the group and the company and of the profit or loss of the group for that period. In preparing those financial statements, the directors are required to: y select suitable accounting policies and then apply them consistently; y make judgements and estimates that are reasonable and prudent; y state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and y 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 adequate accounting records that disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act 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. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Disclosure of Information to the Auditors So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information, being information needed by the auditor in connection with preparing its report, of which the auditor is unaware. Having made enquiries of fellow directors and the group s auditor, each director has taken all the steps that he is obliged to take as a director in order to make himself aware of any relevant audit information and to establish that the auditor is aware of that information. Auditor A resolution concerning the re-appointment of Ernst & Young LLP as auditor will be proposed at the forthcoming annual general meeting. By order of the board Paul Loutit Secretary 30 April 2015 Registered No: Non-Executive Directors The Hon. James Bruce Deputy Chairman John Gordon Life President The Earl Cadogan KBE D.L. Charles Ellingworth Francis Salway 24 25