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

15 Cadogan Group Limited 31 December Cadogan Group Limited 31 December Independent Auditor s Report Consolidated Profit and Loss Account We have audited the financial statements of Cadogan Group Limited for the year ended 31 December which comprise the Consolidated Profit and Loss Account, the Consolidated and Company Balance Sheets, the Consolidated Statement of Total Recognised Gains and Losses, The Note of Historical Cost Profits and Losses, The Reconciliation of Movement in Consolidated Shareholders Funds, the Consolidated Cash Flow Statement and the related notes 1 to 24. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act Our audit work has been undertaken so that we might state to the company s members those matters we are required to state to them in an auditor s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors Responsibilities set out on page 24, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group s and the parent company s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report and financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on the financial statements In our opinion the financial statements: y give a true and fair view of the state of the group s and parent company s affairs as at 31 December and of the group s profit for the year then ended; y have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and y have been prepared in accordance with the requirements of the Companies Act Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the Chairman s Statement, the Strategic Report and the Directors Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: y adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or y the parent company financial statements are not in agreement with the accounting records and returns; or y certain disclosures of directors remuneration specified by law are not made; or y we have not received all the information and explanations we require for our audit. Eamonn McGrath (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor London 30 April 2015 TURNOVER 2 Note Continuing operations 129, ,040 Cost of sales (40,274) (34,790) GROSS PROFIT 89,130 93,250 Administrative expenses (16,677) (15,631) OPERATING PROFIT 5 Continuing operations 72,453 77,619 Profit on sale of investment properties 3 17,363 27,276 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 89, ,895 Interest receivable Interest payable 4 (34,881) (31,319) PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 55,402 73,839 Tax on profit on ordinary activities 7 (9,290) (9,164) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION ATTRIBUTABLE TO SHAREHOLDERS 46,112 64,675 Dividends 8 (36,435) (30,000) RETAINED PROFIT FOR THE YEAR 9 9,677 34,675 EARNINGS PER SHARE p 53.9p Notes 1 to 24 form an integral part of these financial statements

16 Cadogan Group Limited 31 December Cadogan Group Limited 31 December Consolidated Balance Sheet Other Principal Statements FIXED ASSETS Note Tangible fixed assets 11 5,177,528 4,458,971 CURRENT ASSETS Stock 6 37 Debtors 13 22,375 20,391 Cash at bank and in hand ,242 88,146 CREDITORS amounts falling due within one year 133, ,574 CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES Profit for the year attributable to shareholders 46,112 64,675 Unrealised actuarial gain/(loss) on pension commitments (1,844) 1,645 Deferred taxation on the actuarial (gain)/loss on pension commitments 369 (329) Unrealised surplus on revaluation of investment properties 639, ,788 Unrealised surplus/(deficit) on revaluation of land and buildings (23,941) 3,047 Attributable taxation on realised revaluation surplus - (157) TOTAL RECOGNISED GAINS AND LOSSES IN THE YEAR 660, ,669 Bank loans and other borrowings 15 4,000 4,000 Trade and other creditors 14 75,180 52,192 Corporation tax 4,018 5,192 83,198 61,384 NET CURRENT ASSETS 50,425 47,190 TOTAL ASSETS LESS CURRENT LIABILITIES 5,227,953 4,506,161 CREDITORS amounts falling due after more than one year Bank loans and other long term borrowings , ,672 NOTE OF HISTORICAL COST PROFITS AND LOSSES Reported profit on ordinary activities before taxation 55,402 73,839 Realisation of property revaluation gains of previous years 59,713 94,389 Historical cost profit on ordinary activities before taxation 115, ,228 Historical cost profit for the year retained after taxation and dividends 69, ,907 PROVISIONS FOR LIABILITIES AND CHARGES Deferred taxation 16 11,192 10,410 Long term pension liability 22 3,962 2,876 4,516,127 3,892,203 CAPITAL AND RESERVES Share capital , ,000 Revaluation reserve 18 3,410,434 2,854,425 Profit and loss account , ,778 SHAREHOLDERS FUNDS 4,516,127 3,892,203 RECONCILIATION OF MOVEMENT IN CONSOLIDATED SHAREHOLDERS FUNDS Total recognised gains and losses in the year 660, ,669 Dividends (36,435) (30,000) Net addition to shareholders funds 623, ,669 Opening shareholders funds 3,892,203 3,316,534 Closing shareholders funds 4,516,127 3,892,203 Notes 1 to 24 form an integral part of these financial statements. Viscount Chelsea - Director Hugh Seaborn - Director 30 April 2015 Notes 1 to 24 form an integral part of these financial statements

17 Cadogan Group Limited 31 December Cadogan Group Limited 31 December Company Balance Sheet Consolidated Cash Flow Statement Note Note FIXED ASSETS Net cash inflow from operating activities 19 72,786 74,143 Investments , ,317 Returns on investments and servicing of finance CURRENT ASSETS Amounts due from subsidiary undertakings 998, ,833 Interest received Interest paid (33,733) (29,979) Net cash outflow from returns on investments and servicing of finance (33,316) (29,738) CREDITORS amounts falling due within one year Other creditors Taxation 9 9 Taxation Corporation tax paid (9,585) (9,416) NET CURRENT ASSETS 998, ,742 TOTAL ASSETS LESS CURRENT LIABILITIES 1,115,767 1,047,059 CREDITORS amounts falling due after more than one year Long term borrowings 15 3,080 3,080 Capital expenditure and financial investment Purchase of tangible fixed assets (101,610) (140,542) Proceeds from sales of fixed assets 82, ,335 Net cash outflow from capital expenditure and financial investment (19,250) (17,207) 1,112,687 1,043,979 Acquisitions and disposals CAPITAL AND RESERVES Share capital , ,000 Profit and loss account , ,979 Purchase of subsidiary undertaking 12 (28,020) - Net cash acquired with subsidiary undertaking Net cash outflow from acquisitions and disposals (28,020) - SHAREHOLDERS FUNDS 1,112,687 1,043,979 Equity dividends paid (36,435) (30,000) Viscount Chelsea - Director Net cash outflow before financing (53,820) (12,218) Hugh Seaborn 30 April Director Financing Increase in long term borrowings 100, ,000 Notes 1 to 24 form an integral part of these financial statements. Repayment of long term borrowings (23,084) (4,000) Net cash inflow from financing 20 76,916 96,000 Increase in cash for the year 21 23,096 83,782 Notes 1 to 24 form an integral part of these financial statements

18 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 1 ACCOUNTING POLICIES 1 ACCOUNTING POLICIES (continued) (a) (b) (c) (d) Accounting convention The financial statements have been prepared under the historical cost convention modified by the revaluation of investment properties and properties under development and in accordance with UK applicable accounting standards. Compliance with SSAP 19 Accounting for Investment Properties requires a departure from the requirements of the Companies Act 2006 relating to depreciation and an explanation of this departure is given in (g) below. Basis of consolidation The group financial statements consolidate the financial statements of Cadogan Group Limited and its subsidiary undertakings for the year ended 31 December. No profit and loss account is presented for Cadogan Group Limited as permitted by section 408 of the Companies Act Turnover Turnover in the property investment business is stated net of VAT, and comprises gross rents, including reverse premiums received on early lease terminations, commissions and other fees receivable. The cost of all lease incentives (such as rent-free periods) is offset against the total rent due and the net rental income is then spread evenly over the period from the start of the lease to the date of the next rent review or the lease end date. Increases in rents arising from rent reviews are recognised when the review has been completed and agreed with the tenant. Turnover in the hotel and concert hall operations represents amounts derived from the provision of goods and services, stated net of VAT. Investments Investments in subsidiaries are included at cost, less a provision for diminution in value where applicable. (e) (f) (g) (h) Land and buildings, investment properties and properties under development Land and buildings, investment properties and properties under development are included in the financial statements at market valuation at the year end. Any surplus arising on revaluation is taken through the statement of total recognised gains and losses to the revaluation reserve. Any resulting deficit, if temporary, is taken through the statement of total recognised gains and losses to the revaluation reserve. If a deficit below original cost arises and is deemed to be permanent it is taken through the profit and loss account. Additions to properties include costs of a capital nature only; interest and other costs in respect of developments and refurbishments are charged to the profit and loss account as incurred. Profit on sale of properties Profits or losses on the sale of investment properties are calculated by reference to the book value at the end of the previous year, adjusted for any subsequent capital expenditure, and are treated as exceptional items. Such transactions are recognised on the exchange of contracts, providing no material conditions remain outstanding. Depreciation In accordance with SSAP 19 no depreciation is provided on freehold investment properties. Although the Companies Act 2006 requires all properties to be depreciated the directors believe that departure from this requirement is necessary in order for the financial statements to give a true and fair view. Depreciation is reflected in the open market value of the investment properties and land and buildings included in the financial statements and cannot be quantified separately. Plant and equipment is depreciated on a straight line basis at annual rates varying between 10% and 33%. Stocks (i) (j) (k) Taxation Provision is made for deferred taxation on all material timing differences. No deferred taxation is provided on the revaluation of investment properties, unless a binding agreement for the sale of the asset exists at the year end. Foreign currencies Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction or at the contracted rate if the transaction is covered by a forward foreign currency contract. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date or if appropriate at the forward contract rate. Derivative instruments The group uses forward foreign currency contracts to reduce exposure to foreign exchange rates. The group also uses interest rate swaps to adjust interest rate exposures. The group considers its derivative instruments qualify for hedge accounting when certain criteria are met. Details of the relevant criteria are set out below. Forward foreign currency contracts The criteria for forward foreign currency contracts are: y the instrument must be related to a firm foreign currency commitment; y it must involve the same currency as the hedged item; and y it must reduce the risk of foreign currency exchange movements on the group s operations. The rates under such contracts are used to record the hedged item. As a result, gains and losses are offset against the foreign exchange gains and losses on the related financial assets and liabilities, or where the instrument is used to hedge a committed future transaction, are not recognised until the transaction occurs. (l) Interest rate swaps The group s criteria for interest rate swaps are: y the instrument must be related to an asset or a liability; and y it must change the character of the interest rate by converting a variable rate to a fixed rate or vice versa. Interest differentials are recognised by accruing within net interest payable. Interest rate swaps are not revalued to fair value or shown on the group balance sheet at the year end. If they are terminated early, the gain/ loss is spread over the remaining maturity of the original instrument. Pension benefits The pension costs relating to the group s defined benefit scheme are accounted for in accordance with Financial Reporting Standard 17 Retirement Benefits (FRS17). Current service costs and net financial returns are included in the profit and loss account in the year to which they relate. Actuarial gain and losses and movements on the deferred asset relating to the pension liability are recognised in the statement of recognised gains and losses. The annual contributions for defined contribution schemes are charged to the profit and loss account in the year to which they relate. Stocks are stated at the lower of cost and net realisable value

19 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 2 TURNOVER AND SEGMENTAL ANALYSIS Turnover, group profit on ordinary activities before tax and net assets are analysed as follows: Turnover Property investment Hotels and Concert Hall Total Total Gross rental income and other sales 119, ,093 8,061 9, , ,750 4 INTEREST PAYABLE Interest on bank loans and other borrowings not wholly repayable within five years 32,810 30,960 Interest on bank loans, overdrafts and other borrowings repayable within five years 1, Other interest ,881 31,319 Other income 1,446 1, ,446 1,290 Total turnover 121, ,383 8,061 9, , ,040 5 OPERATING PROFIT Turnover of Thurloe Court Properties included above Operating profit is stated after charging: Operating profit Continuing operations 72,771 77,260 (318) ,453 77,619 Profit on disposal of fixed assets 17,363 27,276 Net interest (34,414) (31,056) Profit on ordinary activities before taxation 55,402 73,839 Operating profit of Thurloe Court Properties included above Depreciation 1,049 1,222 Auditors remuneration: Audit of the financial statements includes 53,500 in respect of the company ( 51,150) Other fees to auditors tax services Other fees to auditors other services Hire of plant and equipment - 22 Net assets Continuing operations 4,457,998 3,822,972 58,129 69,231 4,516,127 3,892,203 Net assets of Thurloe Court Properties included above 43, ,340-6 DIRECTORS AND EMPLOYEES Aggregate directors emoluments in respect of qualifying services 1,830 1,920 All operations take place within the United Kingdom. The group operates in two principal areas of activity, property investment and hotels and concert hall activities. Included within directors emoluments above are contributions to money purchase pension schemes for two directors amounting to 83,000 ( 3 directors 145,000). The emoluments, excluding pension contributions, of the highest paid director were 812,000 ( 802,000). 3 PROFIT ON SALE OF INVESTMENT PROPERTIES Profits on sales of freeholds and receipt of long lease premiums, less directly related costs and expenses 17,363 27,276 Employee costs: Wages and salaries 7,119 6,953 Social security costs Pension costs defined contribution scheme Pension costs net cost of defined benefit scheme ,558 8,345 The average number of persons employed by the group, including executive directors, during the year was 170 ( 180)

20 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 7 TAXATION (a) Current tax: Analysis of charge in the year UK corporation tax 9,049 10,557 Adjustments in respect of previous years (541) (563) Total current tax 8,508 9,994 Deferred tax: Origination and reversal of timing differences 782 (830) 7 TAXATION (continued) (c) Factors that may affect future tax charges The UK corporation tax rate reduced to 21% from April. The rate will reduce to 20% from April At the Balance Sheet date, this future tax reduction had been substantively enacted and hence in accordance with Accounting Standards, it has been reflected in the company s financial statements as at 31 December. The rate changes will impact the amount of future tax payments to be made by the group. No provision has been made for deferred tax which would arise in the event that the group disposed of its freehold and investment properties at their current market values included in these financial statements. Tax would be payable on these disposals to the extent that rollover relief is not available. The total potential deferred tax liability on the sale of all the group s freehold and investment properties is 863 million ( 738 million). Total deferred tax 782 (830) Tax on profit on ordinary activities 9,290 9,164 8 DIVIDENDS 4.6p per share paid on 16 May 5,535 - (b) Factors affecting tax charge for the year The tax charge for the current year is lower than ( lower than) the current standard rate of corporation tax in the UK of 21.5% ( 23.25%). The difference is explained as follows: Standard tax rate Actual current tax rate Difference (7) (10) Explained by: Effect of rollover relief and indexation allowance on taxable profits on property disposals. (7) (9) Capital allowances in excess of depreciation (1) (1) Sundry permanent differences 2 1 % % 25.8p per share paid on 16 December 30, p per share paid on 16 October - 30,000 9 RETAINED PROFIT FOR THE YEAR The profit for the year has been retained by: 36,435 30,000 The company 68, ,735 Subsidiaries (59,031) (81,060) The parent company s profit before dividends for the financial year was 105,143,000 ( 145,735,000). 9,677 34,675 Adjustment to tax in respect of prior periods (1) (1) (7) (10) 10 EARNINGS PER SHARE The calculation of earnings per ordinary share for is based on earnings attributable to ordinary shareholders of 46,112,000 ( 64,675,000) and on 120,000,000 ordinary shares ( 120,000,000 ordinary shares) being the effective number of such shares in issue during the year

21 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 11 TANGIBLE FIXED ASSETS Group 12 FIXED ASSET INVESTMENTS Company Freehold investment properties Freehold land and buildings Total properties Plant and equipment Total Investment in subsidiary companies at cost At 31 December and 31 December 117,317 Cost or valuation At 1 January 4,369,287 86,725 4,456,012 12,603 4,468,615 Revaluation 639,663 (23,941) 615, ,722 Additions 165,979 2, , ,934 The principal subsidiary companies at 31 December were: Company Nature of business Proportion of shares held Disposals (65,050) - (65,050) (4,048) (69,098) At 31 December 5,109,879 65,300 5,175,179 8,994 5,184,173 Held directly Cadogan Estates Limited Chelsea Land Limited Property investment Intermediate holding company % Depreciation At 1 January ,644 9,644 Charge for the year ,049 1,049 Disposals (4,048) (4,048) At 31 December ,645 6,645 Held indirectly Cadogan Estates Property Investments Limited Cadogan Developments Limited Cadogan Hall Limited Cadogan Holdings Limited Brompton Road Properties Limited Thurloe Court Properties Limited Cadogan Hotel Partners Limited Leda Hotels Limited Property investment Property investment Venue management Property investment Intermediate holding company Property investment Hotel operator Hotel operator Net book value At 31 December 5,109,879 65,300 5,175,179 2,349 5,177,528 At 31 December 4,369,287 86,725 4,456,012 2,959 4,458,971 On 24 June the group acquired Brompton Road Properties Limited, a holding company which owned the business, assets and liabilities of Thurloe Court Properties Limited, a property investment business which owned the Brompton portfolio in central London. Consideration for the acquisition was 28,020,000 satisfied by cash. The valuation of the group s freehold properties at 31 December was carried out by CBRE (commercial properties) and Cluttons (residential properties), both firms of chartered surveyors, on the basis of market value, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. Analysis of the acquisition of Brompton Road Properties Limited: Book value Revaluation adjustments Fair value to group The historical cost of freehold properties at 31 December was 1,763,481,000 ( 1,600,323,000). These amounts are stated after the deduction of accumulated impairment losses of 2,611,000 ( 2,611,000). - Tangible fixed assets 47,162-47,162 Debtors 3-3 Creditors due within one year (61) - (61) Long term borrowings (19,084) - (19,084) Net assets 28,020-28,020 Goodwill - 28,020 The business of Thurloe Court Properties Limited contributed 92,000 to the group s net operating cash flow and 4,261,000 from proceeds from sales of fixed assets

22 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 13 DEBTORS Trade debtors 6,130 4,733 Other debtors 6,998 7,658 Accrued income 9,247 8,000 Group 22,375 20, BORROWINGS (continued) (b) Other long term borrowings Amounts falling within one year: Group Company 6.941% commercial mortgage loan ,000 4, Amounts falling due in two to five years: 5.75% unsecured loan notes ,080 3,080 3,080 3, % commercial mortgage loan ,000 16, TRADE AND OTHER CREDITORS Group Company 6.45% $40m unsecured loan notes ,141 20, % 4m unsecured loan notes ,000 4, Trade creditors 2,539 2, Other creditors and accruals 40,486 20, Social security and other taxation Deferred income 31,695 28, ,180 52, ,221 43,221 3,080 3,080 Amounts falling due in more than five years: 6.60% $45m unsecured loan notes ,659 22, % 45m unsecured loan notes ,000 45, % 15m unsecured loan notes ,000 15, % $23m unsecured loan notes ,581 11, % commercial mortgage loan ,000 68, % 50m unsecured loan notes ,000 50, % 15m unsecured loan notes ,000 15, BORROWINGS (a) BANK LOANS AND OVERDRAFTS At 31 December the group had committed but undrawn credit facilities of 50.0 million ( million) under a revolving credit facility arrangement. 5.25% $60m unsecured loan notes ,523 37, % 25m unsecured loan notes , % 50m unsecured loan notes ,000 50, % $60m unsecured loan notes ,524 37, % 25m unsecured loan notes , % $90m unsecured loan notes ,720 45, % 30m unsecured loan notes ,000 30, % 25m unsecured loan notes , % 20m unsecured loan notes ,000 20, % $30m unsecured loan notes ,240 15, % 25m unsecured loan notes , % 25m unsecured loan notes ,000 25, % $58m unsecured loan notes ,204 29, % 40m unsecured loan notes ,000 40, , , Total other long term borrowings 700, ,672 3,080 3,

23 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 15 BORROWINGS (continued) (b) Other long term borrowings (continued) 700,672,000 ( 604,672,000) of the total borrowings and overdrafts is subject to fixed rates of interest to maturity, which average 5.56% ( 5.56%). The 6.941% commercial mortgage loan 2025 is secured by fixed charges over specific assets of subsidiary companies. All the interest payments and principal repayments relating to the loan notes issued in US dollars were swapped into sterling at fixed exchange rates. This currency swap has the effect of reducing the effective interest rate on the US dollar loans from the rates shown above to an average effective rate of 6.04% ( 6.04%). This, combined with the fixed interest rates payable on the sterling loan notes gives an overall effective interest rate across all the series of notes, fixed until maturity, of 5.11% ( 5.32%). The market value of the group s swap contracts at 31 December was 45,683,000 ( 27,837,000) less than their book value. 16 DEFERRED TAXATION At 1 January 10,410 11,240 Deferred tax charge for the year: Profit and loss account 782 (830) At 31 December 11,192 10,410 Group 17 SHARE CAPITAL Authorised, allotted, issued and fully paid Number of shares Authorised, allotted, issued and fully paid Number of shares Ordinary shares of 1 each 120,000, , ,000, , RESERVES Arising on land and buildings Arising on investment properties Revaluation reserve Group Profit and loss account Total At 1 January 13,106 2,841,319 2,854, ,778 Profit for the year ,112 Dividend declared and paid (36,435) Surplus/(deficit) on revaluation of land and buildings and investment properties (23,941) 639, ,722 - Revaluation surplus realised on premiums and sales of freeholds - (59,713) (59,713) 59,713 Actuarial loss on pension commitments (1,844) Attributable taxation on actuarial loss on pension commitments At 31 December (10,835) 3,421,269 3,410, ,693 The liability for deferred taxation comprises the following: Accelerated capital allowances 11,587 10,805 Other timing differences (395) (395) 11,192 10,410 Deferred tax has not been provided on the chargeable gains that have been rolled over. The unprovided deferred tax on rolled over gains is 163,279,000 ( 148,683,000). Company Profit and loss account At 1 January 923,979 Profit for the year 105,143 Dividend declared and paid (36,435) At 31 December 992,

24 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 19 RECONCILIATION OF OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES Operating profit 72,453 77,619 Depreciation 1,049 1,222 Difference between current service cost and pension contributions (606) (539) Decrease in stock Increase in debtors (1,931) (7,070) Increase in creditors 1,790 2,889 Movement in working capital (110) (4,159) Net cash inflow from operating activities 72,786 74,143 Group 22 PENSION ARRANGEMENTS The group operates both defined benefit and defined contribution funded pension schemes for its employees. The assets of these schemes are held separately from those of the group in independently administered funds. Defined benefit scheme The group s defined benefit pension scheme, which is closed to new members and was closed to future accrual for active members on 31 March, is called the Cadogan Pension & Assurance Scheme ( the Scheme ). The Scheme provides benefits based on final pensionable earnings, and contributions are based on valuations carried out every three years by an independent actuary using the attained age method. The following disclosures exclude any allowance for defined contribution schemes operated by the group. The FRS 17 liability value does not include allowance for any discretionary benefits. The group expects to contribute around 755,000 to the Scheme during the year to 31 December. Assumptions The principal assumptions used to calculate Scheme liabilities include: 20 Reconciliation of net cash flow to movement in net debt Group Discount rate 3.60%pa 4.50%pa Inflation assumption (RPI) n/a 3.00%pa Increase in cash for the year 23,096 83,782 Cash inflow from increase in debt (76,916) (96,000) Loans acquired with subsidiary undertaking (19,084) - Movement in net debt for the year (72,904) (12,218) Pension increases in payment 5.00%pa 5.00%pa Revaluation in deferment 5.00%pa 5.00%pa Salary Increases n/a 4.00%pa Retirements All members retire at age 60 All members retire at age 60 Withdrawals An allowance is made for a certain proportion of active members to leave service each year before reaching Normal Retirement Date Net debt at 31 December (516,526) (504,308) Net debt at 31 December (589,430) (516,526) Post retirement mortality assumption 80% S2NxA based on year of birth using the CMI core projection model with a long term improvement rate of 1% per annum 80% S1NxA based on year of birth using the CMI 2010 core projection model with a long term improvement rate of 1% per annum 21 ANALYSIS OF NET DEBT At 31 December Group Cash flow Acquisitions At 31 December Tax-free cash No allowance No allowance Long term expected rate of return on the Scheme s assets 3.60%pa 4.60%pa Other assumptions are as for the long term ongoing funding basis in the actuarial valuation as at 25 December Cash at bank and in hand 88,146 23, ,242 Debt due within one year (4,000) 19,084 (19,084) (4,000) Debt due after one year (600,672) (96,000) - (696,672) (516,526) (53,820) (19,084) (589,430) 44 45

25 Cadogan Group Limited 31 December Cadogan Group Limited 31 December 22 PENSION ARRANGEMENTS (continued) 22 PENSION ARRANGEMENTS (continued) Under the mortality tables adopted, the assumed future life expectancy at age 60 is as follows: Amounts recognised in the statement of total recognised gains and losses over the year Life expectancy at age 60 Years Years Male currently aged Female currently aged Actuarial gains and (losses) (1,844) 1,645 Total amount recognised in statement of total recognised gains and losses (1,844) (1,645) Male currently aged Female currently aged Assets The major categories of assets as a proportion of total assets are as follows: Asset category % % Equities Gilts Bonds Other 1 1 Total The actual return on the Scheme s assets net of expenses over the period to the Review Date was a gain of 4,494,000 ( gain - 2,321,000). The assets do not include any investment in shares or property of the group. The expected return on assets is a weighted average of the assumed long-term returns for the various asset classes. Equity returns are developed based on the selection of an appropriate risk premium above the risk free rate which is measured in accordance with the yield on government bonds. Bond returns are selected by reference to the yields on government and corporate debt as appropriate to the Scheme s holdings of these instruments. Amounts recognised in the profit and loss account over the year Current service cost (56) (152) Interest cost (1,431) (1,387) Losses on settlements or curtailments (57) - Expected return on assets 1,311 1,205 Total amounts recognised in the profit and loss account over the year (233) (334) Reconciliation of assets and defined benefit obligation The change in assets over the year was: Fair value of assets at 1 January 28,506 26,185 Expected return on assets 1,311 1,205 Employer contributions Benefits paid (719) (691) Actuarial gain on assets 3,183 1,116 Fair value of assets at 31 December 33,000 28,506 Amounts recognised in the balance sheet Fair value of assets 33,000 28,506 Present value of funded obligations (37,953) (32,101) Deficit before tax (4,953) (3,595) Related deferred tax asset Net deficit (3,962) (2,876) The change in defined benefit obligation over the year was: Defined benefit obligation at 1 January 32,101 31,782 Current service cost Interest cost 1,431 1,387 Benefits paid (719) (691) Change due to settlements or curtailments 57 - Actuarial (gain)/loss 5,027 (529) Defined benefit obligation at 31 December 37,953 32,

26 Cadogan Group Limited 31 December Cadogan Group Limited 31 December Five Year Summary 22 PENSION ARRANGEMENTS (continued) Summary of prior year amounts Present value of defined benefit obligation (37,953) (32,101) (31,782) (29,156) (24,559) Scheme assets 33,000 28,506 26,185 24,373 25,094 Surplus/(deficit) (4,953) (3,595) (5,597) (4,783) 535 Experience gains and losses on scheme liabilities ,151 Changes in assumptions used to value scheme liabilities (5,587) 485 (1,856) (3,631) (1,292) Experience adjustments on scheme assets 3,183 1, (2,277) 1, Net assets Properties at valuation m 5, , , , ,043.6 Net borrowings m Shareholders funds m 4, , , , ,571.5 Net assets per share The cumulative amount of actuarial gains and losses recognised in the statement of total recognised gains and losses since the Scheme s inception was a loss of 5,267,000 ( loss 3,792,000). Defined contribution schemes The pension charge in respect of defined contribution schemes represents contributions payable by the group to such schemes and amounted to 525,000 ( 506,000), of which nil ( nil) was unpaid at the balance sheet date. Earnings Gross rents m Operating profit m Profit on sale of investment properties m Profit before interest m Net interest payable m Profit before taxation m CAPITAL AND OTHER COMMITMENTS Outstanding capital commitments were as follows: Group Taxation m Profit after taxation m Earnings for ordinary shareholders m Earnings per share p Capital expenditure contracted for but not provided for in the financial statements 30,138 50,129 There were no outstanding commitments for capital expenditure in the company at either year end. Key financial ratios Balance sheet gearing % ULTIMATE OWNERSHIP Gross rents/interest cover times Interest cover times The ultimate holding company is Cadogan Settled Estates Limited, which is registered in England and Wales and which is ultimately controlled by The Eighth Earl Cadogan s 6 December 1961 Settlement. The consolidated financial statements of Cadogan Settled Estates Limited may be obtained from The Registrar of Companies, Companies House, Crown Way, Cardiff, CF14 3UZ

27 18 Cadogan Gardens London SW3 2RP T