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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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DP Property | LSE:DPE | London | Ordinary Share | GB00B124YN79 | ORD NPV |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 7.00 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMDPE RNS Number : 7673K DP Property Europe Limited 26 April 2010 DP Property Europe Limited (Formerly Rutley European Property Limited) Audited Results for the year ended 31 December 2009 DP Property Europe Limited today announces its audited results for the year ended 31 December 2009. Highlights: · During the year the Company received approaches from third parties which resulted in an offer being made by DP Global Properties Limited "DPGP" (formerly Black Sea Global Properties Limited). In August 2009 DPGP secured acceptances giving it a controlling stake of approximately 73.5% of the share capital of the Company. · The Board announced the termination of the management agreement between the Company and Rutley Capital Partners LLP, a wholly owned subsidiary of Knight Frank LLP, with effect from 30 November 2009. Certain staff of Rutley Capital Partners LLP who were providing services to the Company were transferred to a newly incorporated wholly owned subsidiary of the Company, DP Property Europe Management Limited "DPPEML (formerly Rutley European Property Management Limited). · NAV per share decreased by 43% to 25.9p compared to 45.3p as at 31 December 2008 mainly driven by falling asset valuations, fair value losses on interest rate swaps and the weakening of the Euro relative to Sterling. · Since the interim results the NAV of the Company has increased by just over 8% from 23.9p to 25.9p primarily as a result of a modest increase in property values in Euro terms and a strengthening of the Euro against Sterling. The NAV calculated after elimination of deferred tax assets and liabilities is 26.6p as at 31 December 2009. · Loss before tax for the year ended 31 December 2009 of GBP44.4 million results primarily from falling asset values and fair value losses on interest rate swaps. This compares to a GBP77.4 million loss before tax for the year ended 31 December 2008. · Increased cash inflow from operating activities of GBP24.9 million (FY 2008 GBP20.8 million). · Real estate portfolio valued at GBP485.3 million comprising 55 properties and over 600 tenants in 6 countries. Occupancy level remained high at approximately 95% across the portfolio. · The independent valuation of the property portfolio as at 31 December 2009 is 7.2% lower, in Euro terms, than the valuation as at 31 December 2008, but 0.31% above the valuation at 30 June 2009. The portfolio has continued to show resilience to market conditions with a low vacancy rate of 4.98%, no material tenant defaults and stable rental flow. · The weighted average cost of debt is 5.32% (weighted average fixed rate of 4.36%) which is unchanged from last year and a weighted average loan to value of 88% (FY 2008 79%) across the investment portfolio. The Company is currently discussing its borrowing facilities with the Company's lenders with which it maintains excellent relationships. The first loan agreement comes to maturity on 30 June 2011. The majority of loans expire in 2012. Performance Summary: +----------------------+----------------------+-------------------+ | | Year ended 31 | Year ended 31 | | | December | December 2008 | | | 2009 | | + +----------------------+-------------------+ | | Audited | Audited | +----------------------+----------------------+----------------------+ | NAV | GBP54.3 million | GBP107.2 million | +----------------------+----------------------+-------------------+ | NAV Per Share | GBP0.259 | GBP0.453 | +----------------------+----------------------+-------------------+ | NAV Per Share | GBP0.266 | GBP0.453 | | excluding deferred | | | | tax | | | +----------------------+----------------------+-------------------+ | (Loss)/profit Per | GBP(0.21) | GBP(0.33) | | Share After Tax | | | +----------------------+----------------------+-------------------+ | Dividends paid in | None | 2.01p per share | | the period | | and 1.00p per | | | | share | | | | | +----------------------+----------------------+-------------------+ | Gearing (debt/gross | 82% | 76% | | assets) | | | +----------------------+----------------------+-------------------+ David Pinckney, Chairman of DP Property Europe Limited, commented: "I am pleased to report our audited results for the year ended 31 December 2009. The Company continued to face a number of challenges for 2009 with the first half of the year showing falls in property values of 7.6% in Euro terms. In the second half of the year the properties showed a modest increase in value of 0.31%. Your Board believe this is an indication that the portfolio is stabilising in value terms. The Company is anticipating gains in value later in the year, as a result of lettings and asset management activities, as apparent investor confidence returns. It continues to be a priority for the Directors to agree revised terms with its lenders. Your Board will also continue to review all ways in which costs can be reduced to improve the efficiency of the Group." DP PROPERTY EUROPE LIMITED (Formerly RUTLEY EUROPEAN PROPERTY LIMITED) ANNUAL REPORT AND ACCOUNTS 31 DECEMBER 2009 TABLE OF CONTENTS +----------------------------------------------------------+----+ | Company Summary | 1 | +----------------------------------------------------------+----+ | Chairman's Statement | 2 | +----------------------------------------------------------+----+ | Manager's Report | 5 | +----------------------------------------------------------+----+ | Directors' Report | 11 | +----------------------------------------------------------+----+ | Corporate Governance | 16 | +----------------------------------------------------------+----+ | Independent Auditor's Report (Group) | 18 | +----------------------------------------------------------+----+ | Consolidated Income Statement | 19 | +----------------------------------------------------------+----+ | Consolidated Statement of Comprehensive Income | 20 | +----------------------------------------------------------+----+ | Consolidated Balance Sheet | 21 | +----------------------------------------------------------+----+ | Consolidated Statement of Changes in Equity | 22 | +----------------------------------------------------------+----+ | Consolidated Cash Flow Statement | 23 | +----------------------------------------------------------+----+ | Notes to the Consolidated Financial Statements | 24 | +----------------------------------------------------------+----+ | Management and Administration | 60 | +----------------------------------------------------------+----+ Company Summary DP Property Europe Limited (formerly Rutley European Property Limited) ("the Company") and its subsidiaries ("the Group") constitute a core-plus commercial real estate fund which was established in 2005 with a primary geographical focus on Central and Western Europe and an objective of generating for Shareholders a geared net IRR of not less than 12% per annum on the issue price of its share capital from both capital growth and dividend income. In March this year, an EGM was held to agree to various changes in the Company's Articles of Association including change of name, investment parameters, gearing levels and its status as an evergreen property investment company. Following these changes the stated objective of an IRR return of not less than 12% is no longer relevant, however, it remains the objective of the company to maximise growth and value for shareholders. The company's investment policy has also been amended to reflect the change in status from a finite life investment vehicle to an evergreen company by the removal of the requirement to cease investment activity after 1 January 2010 and return capital to shareholders. For details of the changes made at the EGM the Directors would like to draw your attention to a Company circular dated 18 February 2010 which is available on the Company's website. Since the second half of 2008, economic conditions leading to falls in property values have created uncertainty over the prospects of capital growth achievable in the future from the Company's portfolio of European real estate assets. These economic conditions appear to be easing and it is possible that valuations for the next six to twelve months will be stable with growth commencing in 2011. The management of the Company, which since inception was undertaken by Rutley Capital Partners LLP, a member of the Knight Frank Group, was internalised on 30 November 2009 with the transfer of certain Rutley Capital Partners LLP staff to a newly formed wholly owned subsidiary of the Company, DP Property Europe Management Limited ("DPPEML"), which now provides management services to the Company. DPPEML focuses its activities on managing the Company's office and retail assets across Germany, Belgium, The Netherlands, France, Sweden and Poland. Chairman's Statement The Board of Directors is pleased to present the Annual Report and Consolidated Financial Statements of DP Property Europe Limited for the year ended 31 December 2009. The Company has a diversified, Continental European portfolio of real estate assets with a market value assessed by external valuers of GBP485.3 million (EUR539.3 million). The 31 December 2009 valuations show a decrease in the Company's property portfolio in Euro terms of approximately 7.2% over the year. The value of the Company's property portfolio, in Euro terms, increased by 0.31% on a like for like basis over the last six months of the year (EUR537.6 million as at 30 June 2009). The Sterling value of the property portfolio as at 31 December 2009 increased by 6.15% to GBP485.3 million over the same period (GBP457.2 million as at 30 June 2009, on a like for like basis excluding the Osnabruck 64 asset which was disposed of during the year) as a result of the strengthening of the Euro against Sterling over the period. The overall fall in value, in Euro terms, is due to the very low transaction volume, lack of liquidity and debt finance in the first half of the year which resulted in a 7.6% fall in value in Euro terms across the Company's portfolio. The second half of 2009, in contrast, saw an increase in the volume of investment transactions throughout Western and Central European markets, with investors exploiting mispriced core assets. A shortage of willing sellers has resulted, in some instances, in modest yield compression. Your board of Directors is confident that the portfolio has stabilised in terms of value and the management team anticipates gains in value later in the year, as a result of lettings and asset management activities and an anticipated stabilisation of values in core plus investment product as investor confidence returns. At the end of March 2009, the Board announced that it had received approaches from third parties which might or might not lead to an offer being made for the entire issued redeemable preference share capital of the Company. This led to discussions between the Board of Directors and DP Global Properties Limited (formerly Black Sea Global Properties Limited) ("DPGP") followed by an offer of 7.25 pence per share, which your Board recommended to shareholders. DPGP owns approximately 73.5% of the share capital of the Company. The Board announced the termination of the management agreement between the Company and Rutley Capital Partners LLP, a wholly owned subsidiary of Knight Frank LLP, with effect from 30 November 2009. Certain employees of Rutley Capital Partners LLP who were providing services to the Company were transferred to a newly incorporated wholly owned subsidiary of the Company, DPPEML (formerly Rutley European Property Management Limited). Over the year, the Company's share price continued to suffer a significant discount to NAV along with those of its peer group. The Directors still consider that the quality of the assets and their underlying cash flows, in association with a robust asset management plan, should help the Company through these difficult times. The resilience to occupational pressure should result in the portfolio enjoying increases in valuations as yields start to contract. Results Financial highlights are as follows: +------------------------------------------+--------------+--------------+ | | | | | | Year | Year | | | ended | ended | | | 31-12-2009 | 31-12-2008 | +------------------------------------------+--------------+--------------+ | | GBP | GBP | +------------------------------------------+--------------+--------------+ | Loss before tax | (42,761,618) | (82,103,375) | +------------------------------------------+--------------+--------------+ | Loss after tax | (44,424,598) | (77,382,592) | +------------------------------------------+--------------+--------------+ | Foreign exchange (losses)/gains (in | (7,657,544) | 29,511,725 | | equity) | | | +------------------------------------------+--------------+--------------+ | Total assets | 513,585,488 | 606,565,890 | +------------------------------------------+--------------+--------------+ | Net assets | 54,271,090 | 107,194,468 | +------------------------------------------+--------------+--------------+ | Net asset value ("NAV") per share | 0.259 | 0.453 | +------------------------------------------+--------------+--------------+ | Adjusted NAV per share | 0.266 | 0.453 | +------------------------------------------+--------------+--------------+ Note: adjusted NAV per share is calculated using Group net assets after eliminating deferred tax assets and liabilities. The Directors believe this is relevant additional information, due to the Group's corporate structure which should minimise tax on capital gains as explained below. Chairman's Statement (continued) Results (continued) The loss for the year amounting to GBP44,424,598 results primarily from falling asset valuations being recognised as losses through fair value adjustments to the Consolidated Income Statement. In terms of gross revenue generation the portfolio has demonstrated resilience to a very challenging occupational market. The Company saw a small fall in rental income from EUR45.7 million for the year ended 31 December 2008 to EUR45.4million for the year ended 31 December 2009 primarily due to the expiry of a rental guarantee of EUR1 million per annum. The portfolio continues to generate healthy cash flows with no material tenant defaults, low vacancy and longer leases. Property irrecoverable costs have increased slightly from EUR5.3million for the year ended 31 December 2008 to EUR5.5 million for the year ended 31 December 2009 mainly as a result of a small increase in the level of vacancy of 3.8% in 2008 to 4.98% in 2009. Property operating expenses were 30% of rental income for the year ended 31 December 2009, which is consistent with the previous year. Administrative expenses are in line with the previous year, at 20% of rental income compared to 18% in 2008. Additional fees were incurred as a result of the Tender Offer and the change in major shareholder, but these were offset with cost reductions achieved through streamlining administrative costs. During the year, the Group disposed of a retail asset in Osnabruck, Germany, for EUR3.9 million. The sales proceeds were used to re-pay debt. The property was sold at a small profit to fair value. Group net assets have decreased by GBP52.9 million in the current financial year, which primarily relates to the decrease in the valuation of the property portfolio. The Group's overall net asset position has also suffered from the movement in the Euro-Sterling conversion rate. Although the weakening of the Euro relative to Sterling has increased the impact of the fall in the valuation of the property portfolio in Sterling terms it does have the counter impact of decreasing the Sterling value of indebtedness. Financing The prevailing absence of liquidity in the financial markets has continued to have a negative impact on the availability of debt finance. Although the last six months have seen a small increase in the value of the portfolio in Euro terms, values are low and loan-to-values ("LTV's") remain in excess of covenant on a large portion of the portfolio. The Board, working in close association with the Manager, continues to monitor changes in the valuation of the portfolio and loan to value ("LTV") covenants in respect of borrowings. According to the 31 December 2009 property valuations, in local currency terms the Company has LTV ratios exceeding LTV covenant ratios in eight out of ten special purpose vehicle ("SPV") facilities. The total loan value in these cases is approximately EUR336 million. All the debt is limited recourse to the SPV holding the relevant assets which means that, in the event that lenders decide to enforce security where the LTVs exceed covenant levels, lenders can only seek recourse to the asset(s) in the SPV holding the relevant asset(s) after costs as defined in the loan agreements. In the case of loans to SPVs in the Netherlands and France, by reason of a cross default clause, the lender can seek recourse to the assets of both SPVs in the event of a covenant breach by either SPV. Excluding one SPV in Germany where there is no LTV covenant, the weighted average LTV is now 87.93% against a weighted average LTV covenant of 76.62%. The management team has been in discussion with its main lenders throughout the year. The Directors believe that lending banks are more likely to agree to mutually satisfactory restructuring and/or cash sweep provisions than to exercise their right to call their loans. The Manager is currently discussing appropriate mechanisms and calculations for cash sweeps and potential for restructuring some facilities with the Company's lenders with which it has excellent relationships. As at 31 December 2009, the Company had approximately EUR471 million of loans outstanding. The majority of these loans will expire during 2012. In respect of six out of eight of the loans where LTV ratios exceed covenants levels, the Group no longer has an unconditional right to defer settlement of the loans for more than twelve months from the balance sheet date, if covenants were to be tested by finance providers. Consequently, an amount of GBP143.6 million (EUR159.6 million) has been represented as a current liability. Although each of these six loans is shown as a short term liability the corresponding asset is shown in the usual way under "Investment Property" in non-current assets. In the case of the remaining loans where there are either no issues regarding LTV covenants, or where the Company retains the right to defer settlement until loan maturity, these are treated as non-current liabilities. Chairman's Statement (continued) Financing (continued) Although the Balance Sheet shows a net current liability position, the limited recourse nature of the loans means that any cash and other assets of the holding companies in the Group are unaffected and available to meet commitments for the foreseeable future. The interest cover on all facilities remains robust as a result of the strong tenant base, at a weighted average of 1.50 versus a weighted average interest cover covenant of 1.26, although in two cases the interest cover is below that permitted by the finance documents. The Directors, therefore, do not consider that the breaching of covenants as set out in note 2.1 to the Consolidated Financial Statements will impact the ability of the Group to continue as a going concern. As at 31 December 2009 the Group's gearing ratio was approximately 82% (Debt/Gross Assets) which is below the maximum borrowing limit of 95%, as set out in the Articles of Association of the Company as revised at the EGM held on 16 March 2010. The Company actively hedges interest rate exposure by entering into interest rate swap contracts in respect of all floating rate bank borrowings. Foreign currency exposure is mitigated by entering into matched funding wherever possible. The Group has not entered into any hedging instruments to hedge foreign exchange exposure. This is constantly under review in light of changes in market conditions. Portfolio Synopsis The Group's portfolio currently has a weighted average gross yield of 7.10% per annum (2008: 7.38%),(calculated as 31 December 2009 gross contracted rent / initial net purchase price) and a weighted average cost of debt of 5.32% (2008: 5.32%). The Company is continuing to market vacant areas and is reducing vacancy as a result of these efforts. The portfolio has continued to show resilience to market conditions with a low vacancy rate of 4.98%, no material tenant defaults and stable rental flow. The Manager has negotiated several significant lease transactions since the year end and is taking every opportunity to extend lease lengths to help protect values. The weighted average unexpired lease term ("WAULT") has improved through the effects of active asset management. At 31 December 2009 the WAULT was 4.15 years (2008: 4.66 years). Had there not been active asset management, the WAULT would have been 3.66 years. Dividends No dividends were recommended for payment for the interim period. In light of current market conditions the dividend policy remains under review. Summary and Prospects Your board of Directors is of the view that the portfolio has stabilised in terms of value. The Board and the management team are looking for gains in value as a result of lettings and asset management activities, provided the apparent improvement in investor confidence continues. The Board would like to draw your attention to the Company's website www.dppel.com where comprehensive information about the Company, including the latest share price and public announcements, can be viewed. The Board of Directors would like to take this opportunity to thank the Manager, the administrators and advisers for their hard work and high quality of professionalism demonstrated throughout the year. David Pinkney Chairman 23 April 2009 Manager's Report Manager Rutley Capital Partners LLP acted as Manager to the Company from 1 January 2009 until 30 November 2009. The management of the Company was internalised on 1 December 2009 with the transfer of twelve Rutley Capital Partners LLP staff to a newly formed wholly owned subsidiary of the Company, DP Property Europe Management Limited (formerly Rutley European Property Management Limited) ("DPPEML"). The Manager's principal objective is to protect and enhance income and value through active asset management including reducing vacancy, increasing lease lengths and average rental value. The Manager has an experienced international property team working alongside a local property management network established by the Manager to achieve the Company's objective. Commercial Property Market Commentary The Eurozone's two largest economies, Germany and France, were the first to emerge from recession in Q2 2009 and this expansion continued into Q3 with GDP growth of 0.7% and 0.3% respectively. Having experienced five consecutive quarters of negative GDP growth, the Eurozone emerged from recession in Q3 2009 with modest growth of 0.4%, underpinned by combination of government fiscal support, demand-supporting policy measures and employment incentives. However, with Eurozone unemployment levels at 9.7% in September 2009 and consumer confidence remaining weak, further economic expansion in the Eurozone economy is forecast at a modest 1.2% in 2010. Despite the return to positive GDP growth across the Eurozone, the occupier market fundamentals continue to remain weak across all sectors due to reduced demand. As a result, occupier markets have witnessed declining rental levels, increased tenant incentives and shorter, more flexible lease terms. The office sector in particular has seen a marked decline in rental levels and increased vacancy, whilst retail rents showed some signs of stabilisation in the second half of 2009. The continued low interest rate environment and lack of alternative high yielding investments has resulted in investors returning to the market in search of mispriced core assets resulting in the transactional volume increasing during the second half of 2009. This in turn has led to the stabilisation and, in some instances, modest compression of prime yields. There is a growing consensus that yields have peaked and values of core assets are unlikely to fall further. This is perceived to have positive implications for a core plus portfolio. Growing confidence in the economy and improved outlook into 2010 should result in the gradual stabilisation of occupier markets and, as opportunistic investors re-enter the market, the principal focus will return to core plus / value add product with active asset management potential. Manager's Report (continued) Portfolio Activity and Asset Management The following provides a high level summary of the 2009 activity and a look ahead at 2010: Germany As at 31 December 2009 the Company owned 43 properties located throughout Germany of which 23% are offices, 47% retail and 30% mixed use assets. The Company's German portfolio represents 62% of the Company's property assets by value and comprises 252,356.8sq. m. of accommodation, generating an annual rental income of EUR26.7m as at 31 December 2009. The portfolio has a Weighted Average Unexpired Lease Term ("WAULT") of 4.95 years and a vacancy rate of 6.23%. In 2009 in excess of 19,000 sq. m. of accommodation was re-geared or let. The Company owns ten office properties, acquired in four transactions, located in cities including Berlin, Cologne, Hamburg, Munich and Nuremberg. Asset management initiatives throughout 2009 have resulted in letting activity in excess of 12,000 sq. m. of office accommodation, in particular, the lease re-gears on 4,049 sq. m. in Berlin, 5,071 sq. m. in Bochum and the letting of the 1,030 sq. m. ground floor at Munich. The office portfolio benefits from low vacancy levels and discussions are ongoing with a number of tenants to let substantially the remaining vacancy at the Berlin property. The Company's retail portfolio comprises 20 properties, acquired in six transactions. The portfolio offers a secure income profile with a WAULT of 7.25 years secured against tenants including REWE, REAL and Kaufland. During 2009 the Company completed the sale of two assets, Bramsche and Osnabruck 64, at prices in excess of valuation. The disposals enabled the sub-portfolio's LTV to be reduced and returned cash to the Group. Significant projects include the leasing of the vacancy in Troisdorf and ongoing discussions with a number of tenants with a view to securing new, long term leases. In addition, the Company owns 13 mixed use assets, acquired as part of the G-PEC portfolio. The assets typically have a high residential content, with supporting retail units and in some instances, small office units. The portfolio benefits from a highly granular tenant base. Asset management activity has been focussed on extending the WAULT and reducing vacancy with key activity including the lease extension on 1,138 sq. m. supermarket at the Potsdam asset. The German portfolio (excluding the Bramsche and Osnabruck assets) was initially valued at EUR400.9 million (GBP360.7 million)* providing a gross initial yield of 6.92% per annum. The valuation at 31 December 2009 was EUR333.1 million (GBP299.8 million). Sweden The Company owns a portfolio of five properties located in the city of Karlstad in Western Sweden. The portfolio comprises 74,076 sq. m. of accommodation of which a significant proportion of the income generated is secured against government institutions. During 2009, in excess of 23,000 sq. m. let to government institutions were secured for a further six years. In addition, letting activity during 2009 has realised rental increases to market levels and there remain a number of value-added asset management opportunities over the medium term. The vacancy rate was 1.58% as at 31 December 2009. In addition to increasing income from the portfolio, the Manager is also focussed on reducing irrecoverable operating costs. To this end, the Company, through the Manager, is reviewing local management arrangements and investigating the merits of internalising the local property management function. The portfolio was initially valued at SEK 1,005.0 million (GBP87.7 million)* providing a gross initial yield of 5.14% per annum, and achieved a valuation of SEK 947.5 million (GBP82.6 million) at 31 December 2009. Manager's Report (continued) Portfolio Activity and Asset Management (continued) Poland The Company acquired two assets in Poland in separate transactions. The two assets comprise 32,209 sq. m. of predominantly office accommodation and generate an annual rental income of EUR5.34 million. The larger of the two assets, Buma Square in Krakow, is a well located, large office and retail scheme building offering Class B accommodation. Even though high volumes of speculative Class A office accommodation have been developed in Krakow over the last 36 months the rental levels at the property have remained stable and vacancy levels low at 3.35% as at 31 December 2009. A number of smaller lettings were completed in 2009 and the Manager is in discussions with several of the larger tenants with a view to bringing forward lease renewal discussions. The second asset, Prima Court in Warsaw, is a very well located, purpose built and multi-tenanted building. The Manager is in discussions with a number of existing tenants, with a view to securing lease renewals for three to five years on approximately 40% of the property. In addition, the existing vacancy is being actively marketed. The portfolio was initially valued at EUR62.1 million (GBP55.9 million)* providing a gross initial yield of 6.87% per annum. The valuation at 31 December 2009 was EUR62.7 million (GBP56.5 million). The Netherlands The Company acquired the three office assets situated in Amsterdam and The Hague as part of the G-PEC portfolio. The properties total 13,954 sq. m. and generated an annual rental income of EUR2.8m as at 31 December 2009. Asset management activity in 2009 included the letting of the 3,163 sq. m. of office accommodation at Jan Van Nassaustraat, The Hague to the Dutch government and the marketing of accommodation at the Amsterdam property that is due to be handed back in 2010 as part of the Mondial lease re-gear. The portfolio was initially valued at EUR40.1 million (GBP36.1 million)* providing a gross initial yield of 6.61% per annum. The valuation at 31 December 2009 was EUR26.7 million (GBP24.0 million). Belgium The Company owns a single office property which is located in Wemmel on the outskirts of Brussels. Following strong letting activity throughout 2008 the building is fully let and providing an annual rental income of EUR1.2 million. The property has a WAULT of 4 years. The portfolio was initially valued at EUR15.4 million (GBP13.9 million)* providing a gross initial yield of 7.58% per annum. The valuation at 31 December 2009 was EUR13.9 million (GBP12.5 million). France The Company owns a single office property, located in central Paris, which was acquired as part of the G-PEC portfolio. The property is single let to a government funded body on a lease to 2015 (with break in 2012). The property's location, lot size and income characteristics are attractive to investors in the current market. The portfolio was initially valued at EUR14.4 million (GBP13.0 million)* providing a gross initial yield of 5.28% per annum. The valuation at 31 December 2009 was EUR11.0 million (GBP9.9 million). Manager's Report (continued) Portfolio cost and valuation +----------------------------------------+-----------+-----------+ | | EUR | GBP | | | millions | millions | +----------------------------------------+-----------+-----------+ | | | | +----------------------------------------+-----------+-----------+ | Initial price at purchase** | 641.6 | 577.3 | +----------------------------------------+-----------+-----------+ | Acquisition costs | 35.8 | 32.2 | +----------------------------------------+-----------+-----------+ | Total acquisition cost | 677.4 | 609.5 | +----------------------------------------+-----------+-----------+ | | | | +----------------------------------------+-----------+-----------+ | Valuation as at 31 December 2009 | 539.3 | 485.3 | +----------------------------------------+-----------+-----------+ | | | | +----------------------------------------+-----------+-----------+ | Capital growth (initial price at | (102.3) | (92.0) | | purchase*) | | | +----------------------------------------+-----------+-----------+ | % | (15.9)% | (15.9)% | +----------------------------------------+-----------+-----------+ | Capital growth (total acquisition | (138.1) | (124.2) | | cost) | | | +----------------------------------------+-----------+-----------+ | % | (20.4)% | (20.4)% | +----------------------------------------+-----------+-----------+ *for translation purposes all euro amounts have been converted at the 2009 year end exchange rate * *exclusive of acquisition costs and asset sales (Bramsche and Osnabruck) Key Statistics Largest tenants (top ten) +------------------------------+----------------+------------+------------+ | Tenant | Property | % of | Lease | | | | portfolio | Expiry | +------------------------------+----------------+------------+------------+ | Real Markt | 2 German | 5.50% |31 October | | | retail | | 2012* | | | leases | | | +------------------------------+----------------+------------+------------+ | Total Deutschland | Mosse | 5.10% | 31 | | GmbH | Zentrum, | | December | | | Berlin | | 2012 | +------------------------------+----------------+------------+------------+ | Rewe | 9 German | 4.75% |31 October | | Grossflaechenhandels | retail | | 2011* | | GmbH | leases | | | +------------------------------+----------------+------------+------------+ | Kaufland | Neunkirchen | 3.26% | 31 July | | | | | 2022 | +------------------------------+----------------+------------+------------+ | Mondial | Poeldijkstraat | 2.82% | 30 | | | 4, Amsterdam | | September | | | | | 2020 | +------------------------------+----------------+------------+------------+ | Toom Baumarkt GmbH | Schildgasse, | 2.81% | 30 April | | | Rheinfelden | | 2019 | +------------------------------+----------------+------------+------------+ | DEGES Deutsche | Mosse | 2.79% | 31 | | Einheit | Zentrum, | | December | | Fernstrassenplanungs-und-Bau | Berlin | | 2015 | | GmbH | | | | +------------------------------+----------------+------------+------------+ | Forsäkringskassan I | Karolinen 2, | 2.08% | 30 April | | Värmland | Karlstadt | | 2015 | +------------------------------+----------------+------------+------------+ | Myndigheten För | Karolinen 2, | 2.04% | 31 March | | Samhällsskydd | Karlstad | | 2016 | +------------------------------+----------------+------------+------------+ | Sopexa | 11 bis rue | 1.99% | 21 May | | | Torricelli, | | 2015 | | | Paris | | | +------------------------------+----------------+------------+------------+ | Total | | 33.14% | | +------------------------------+----------------+------------+------------+ | Remaining tenants | | 66.86% | | +------------------------------+----------------+------------+------------+ * note: the tenant has several leases and the date quoted is that of the earliest lease expiry Manager's Report (continued) Property portfolio summary +-------------+--------+-----------+-----------+---------+----------+-------------+ | Country | Sector | Lettable | ERV | Vacancy | Market | Current | | | | area | | rate | value | yield | | | | | | | (as at | (calculated | | | | | | | 31 | as EUR | | | | | | | December | contracted | | | | | | | 2009) | gross rent | | | | | | | | as at 31 | | | | | | | | December | | | | | | | | 2009 / EUR | | | | | | | | market | | | | | | | | value as at | | | | | | | | 31 December | | | | | | | | 2009) | +-------------+--------+-----------+-----------+---------+----------+-------------+ | | | square | GBP | % area | GBP | % per | | | | m | per | | million | annum | | | | | annum | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | Germany | Office | 92,126.3 | 9,201,140 | 7.15% | 127.0 | 7.98% | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | Germany | Retail | 103,580.4 | 8,511,500 | 0.00% | 119.7 | 8.44% | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | Germany | Mixed | 49,954.1 | 4,414,806 | 18.32% | 53.1 | 7.18% | | | use | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | Poland | Office | 32,123.5 | 4,993,575 | 6.36% | 56.5 | 8.51% | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | Sweden | Office | 75,084.5 | 7,153,321 | 1.56% | 82.6 | 9.30% | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | Belgium | Office | 7,614.0 | 1,065,888 | 0.00% | 12.5 | 8.73% | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | The | Office | 13,954.0 | 2,317,289 | 0.53% | 24.0 | 10.57% | | Netherlands | | | | | | | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ | France | Office | 1,863.0 | 677,400 | 0.00% | 9.9 | 8.26% | | | | | | | | | +-------------+--------+-----------+-----------+---------+----------+-------------+ Summary The valuation of the Company's assets was GBP485.3 million (EUR539.3 million) as at 31 December 2009. Whilst this reflects a fall in value in Sterling terms of 14.2% against the 31 December 2008 valuations, this can be attributed to the first six months of 2009 against a backdrop of huge uncertainty and virtually no transactional activity. The second half of 2009 however witnessed increased investment transaction volumes, in particular for core product. For the six month period to 31 December 2009, the portfolio increased by 6.2% against 30 June 2009 Sterling values (0.31% increase in Euro terms over the same period). From a rental perspective, the portfolio has benefitted from the granularity of the tenant base, the financial strength of the top twenty tenants and the low incidence of arrears and no material defaults. The Manager will continue to develop close relationships with the tenant base and pro-actively manage their accommodation requirements, bringing discussions forward where necessary. Over 2009, asset management activity has maintained portfolio vacancy levels at 4.98% and a portfolio WAULT of 4.15 years. Directors' Report The Directors present their report and the audited Financial Statements of the Group for the year ended 31 December 2009. Principal Activity DP Property Europe Limited (formerly Rutley European Property Limited) ("the Company") is a Guernsey registered property investment company listed on the London Stock Exchange and the Channel Islands Stock Exchange. Principal Risks and Uncertainties The Directors consider that the principal risks and uncertainties for the Group are in respect of the valuation of the Group's investment properties and financial risks. These risks are described in notes 13, 21 and 23. Results and Dividends The results for the year are set out in the attached Consolidated Financial Statements. A review of the results for the year and prospects for the future are included within the Chairman's Statement and the Manager's Report. No dividends have been recommended for payment for the year ended 31 December 2009. In light of current market conditions the dividend policy remains under review. The Company paid interim dividends of 2.01 pence per share (GBP4,756,901) and 1.00 pence per share (GBP2,366,618) in respect of the year ended 31 December 2008. Going Concern As set out in note 23, the current economic conditions have created a number of uncertainties and, in particular, have impacted the Group's ability to comply with its LTV covenants (see note 2.1). However, because of the non recourse nature of the debt facilities described in the Chairman's Statement, the Directors do not consider that the risk of breaching LTV covenants will impact the ability of the Group to continue as a going concern. This liquidity position of the Group and the related borrowing facilities are described in notes 21 and 23 of the Consolidated Financial Statements. Listing Requirements The Company considers that it has, since the date of its last annual report, complied with the conditions applicable to property investment companies set out in paragraph 15 of the London Stock Exchange Listing Rules and Chapter VII of the listing rules of the Channel Islands Stock Exchange. Property Portfolio A valuation of all the properties held on the Group's Balance Sheet as at 31 December 2009 was carried out by Knight Frank LLP. This valuation produced an open market value of GBP485.3 million (2008: GBP569.3 million). The valuation in respect of the year ended 31 December 2008 was performed by CB Richard Ellis Limited and King Sturge LLP. Directors' Report (continued) Directors The Directors who held office at the year end and their interests in the Shares of the Company as at 31 December 2009 were: +----------------------+------------+------------+ | | Number of shares | +----------------------+-------------------------+ | | 31-12-09 | 31-12-08 | +----------------------+------------+------------+ | David Pinckney | 200,000 | 200,000 | | (Chairman) | | | +----------------------+------------+------------+ | David Allison | - | - | +----------------------+------------+------------+ | Nicholas Moss | - | - | +----------------------+------------+------------+ | Christopher Sherwell | - | - | | | | | +----------------------+------------+------------+ | Obie Moore | - | - | +----------------------+------------+------------+ | Michael Lloyd | - | - | +----------------------+------------+------------+ David Allison resigned as Director on 30 September 2009 and was reappointed on 11 December 2009. Obie Moore and Michael Lloyd were appointed as Directors on 25 August 2009 and 11 December 2009 respectively. Michael Lloyd resigned as Director on 18 March 2010. David Pinckney M.A., F.C.A. (Non-executive Chairman) aged 69, was, until 31 December 2003, Chief Operating Officer-Far East, and then Vice Chairman of AXA Investment Managers SA, the investment management arm of the AXA Group with $500 billion under management. Prior to joining AXA in 1998, he was Group Finance Director and joint Managing Director of the Thornton Group, which in 1988 became a subsidiary of Dresdner Bank AG, and which specialised in international equity fund management, in particular in the Asia Pacific Region. From 1963 to 1983, he was with Peat Marwick Mitchell (now KPMG) first in London, then in France (from 1968 to 1983), where for six years his last position was Senior Audit Partner, responsible for France and French-speaking Africa. He was also a member of the firm's European Partnership Board. He is a Chartered Accountant and an "Expert Comptable" and currently a Director of Albion Development VCT plc and Chairman of Ventus VCT plc and Chairman of their Audit Committees and until 31 March 2010 he was Chairman of Syndicate Asset Management plc. David Allison B.A. (Hons.) (Non-executive Director) aged 56, is a Guernsey resident and has spent the last 30 years of his professional career working either as a solicitor in private practice or in the offshore financial services sector. He joined Rothschild's in 1983 after qualifying as a solicitor in 1979 with a firm in London and spending a further four years there. He holds a B.A. (Hons.) degree in law. In 1988 he left Rothschild's and joined Carey Olsen and qualified as a Guernsey Advocate in 1990. He rejoined Rothschild Trust Guernsey Limited as Managing Director in 1992 and was responsible for running its operations. He left Rothschild's in December 2005 and set up an independent trust and fiduciary business with two former Rothschild colleagues. He holds a number of other non executive Board appointments. He is a member of the Law Society and the Guernsey Bar. Nicholas Moss B.A., A.C.A. (Non-executive Director) aged 50, is a founding member of Virtus Trust Group, a Guernsey based fiduciary, corporate services and investment consulting business. Previously he was a Managing Director within the Rothschild Trust Group, where he spent 16 years structuring and administering complex onshore and offshore trusts for corporates and ultra high net worth families. He has wide experience in the selection of investment managers and their subsequent evaluation and monitoring. He holds a number of Non-executive Board appointments including the London listed BH Global Limited, Absolute Return Trust Limited and Carador PLC. He is a Chartered Accountant and is resident in Guernsey. Christopher Sherwell B.Sc., M.A., M.Phil (Non-executive Director) aged 62, is a Non-executive Director of a number of investment-related companies. He was Managing Director of Schroders (CI) Limited from April 2000 until January 2004 and served as a Director of various Schroder group companies and investment funds, and continued as a Non-executive Director of Schroders (CI) Limited before stepping down on 31 December 2008. His current Directorships include Chairmanship of Goldman Sachs Dynamic Opportunities Limited, a fund of hedge funds, and of Hermes Commodities Umbrella Fund Limited. Before joining Schroders in 1993, he worked as Far East Regional Strategist with Smith New Court Securities in London and then Hong Kong. He was previously a journalist, working for the Financial Times. He is a resident of Guernsey. Directors' Report (continued) Directors (continued) Obie Moore (Non-executive Director) aged 54, is a US national and a qualified lawyer. Prior to his appointment as Chief Executive Officer of DP Holding SA, he has worked in the legal profession for over 25 years in the United States of America, Romania and the United Kingdom. He is currently a director of DP Holding SA, DP Global Properties Limited, RPH Real Estate Limited, Deutsche Land PLC and Fabian Romania Limited. In the previous five years, he has been a partner of Salans LLP, and member of its Global Board of Directors. In accordance with the Company's Articles of Association, the number of Directors nearest to one-third of the Board will retire at the Annual General Meeting and, being eligible, offer themselves for re-election. An evaluation of the individual performance of Directors was undertaken in 2009, and the Board believe that the performance of each Director for the year in question was, and continues to be, effective and demonstrates commitment to the role. During the year, the Directors received the following emoluments in the form of fees from the Company and its subsidiaries: +--------------------------+-------------+------------+ | | Year ended | Year ended | | | 31-12-2009 | 31-12-2008 | | | | | +--------------------------+-------------+------------+ | | GBP | GBP | +--------------------------+-------------+------------+ | David Pinckney | 94,073 | 65,088 | | (Chairman) | | | +--------------------------+-------------+------------+ | David Allison | 56,866 | 39,369 | +--------------------------+-------------+------------+ | Nicholas Moss | 73,887 | 54,452 | +--------------------------+-------------+------------+ | Christopher Sherwell | 56,968 | 39,369 | +--------------------------+-------------+------------+ | Obie Moore (Appointed 25 | 14,054 | - | | August 2009) | | | +--------------------------+-------------+------------+ | Michael Lloyd (Appointed | 1,716 | - | | 11 December 2009 and | | | | resigned 18 March 2010) | | | +--------------------------+-------------+------------+ Directors' Report (continued) Management The management agreement between the Company and Rutley Capital Partners LLP, a wholly owned subsidiary of Knight Frank LLP, was terminated with effect from 30 November 2009. Certain employees of Rutley Capital Partners LLP who were providing services to the Company were transferred to a newly incorporated, wholly owned UK subsidiary of the Company, DPPEML (formerly Rutley European Property Management Limited). Statement of Directors' Responsibilities The Directors are responsible for preparing the Annual Report and Consolidated Financial Statements in accordance with applicable Guernsey law and International Financial Reporting Standards as adopted by the European Union ("IFRS"). The Directors are required by The Companies (Guernsey) Law, 2008, to prepare Financial Statements for each financial period that give a true and fair view of the state of affairs of the Group as at the end of the financial period and of the total profit or loss of the Group for that period. In preparing those Financial Statements, the Directors are required to: · select suitable accounting policies and then apply them consistently; · make judgements and estimates that are reasonable and prudent; · state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and · prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Group and to enable them to ensure that the Financial Statements have been properly prepared in accordance with The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. So far as each of the Directors is aware, there is no relevant audit information of which the Company's auditor is unaware, and each has taken all the steps he ought to have taken as a Director to make himself aware of any relevant information and to establish that the Company's auditor is aware of that information. Significant Shareholdings Shareholders with holdings of more than 3% of the issued Redeemable Preference Shares of the Company at 31 December 2009 and 31 March 2010 were as follows: +--------------------------+-------------+-------------+----------+----------+ | | Number of Shares | Relative | | | | holding (%) | +--------------------------+---------------------------+---------------------+ | | 31-12-09 | 31-03-10 | 31-12-09 | 31-03-10 | +--------------------------+-------------+-------------+----------+----------+ | | | | | | +--------------------------+-------------+-------------+----------+----------+ | BBHISL Nominees Limited | 153,907,495 | 153,907,495 | 73.55 | 73.55 | +--------------------------+-------------+-------------+----------+----------+ | Nortrust Nominees | 10,000,000 | 10,130,000 | 4.78 | 4.84 | | Limited | | | | | +--------------------------+-------------+-------------+----------+----------+ Insurance of Directors The Group maintains insurance cover for the Company's Directors in respect of their duties as Directors. Directors' Report (continued) Auditors A resolution to re-appoint Ernst & Young LLP as auditors to the Company will be considered at the forthcoming Annual General Meeting. 2010 Annual General Meeting It is proposed that the 2010 Annual General Meeting will be held on 17 June 2010. Confirmation of this and a circular and notice of the meeting including any explanatory notes for the resolutions to be proposed will be posted to Shareholders. Responsibility Statements under the Disclosure and Transparency Rules Each of the Directors listed on page 60 confirm that to the best of their knowledge: · the Financial Statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and loss of the Company and the undertakings included in the consolidation taken as a whole; and · the Chairman's Statement and Manager's report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face. David Pinkney Chairman 23 April 2010 Corporate Governance Introduction Over the reporting period the Company was a closed-ended investment company registered in Guernsey, and as such the Company is not subject to the requirements of the Combined Code ("the Code") issued by the Financial Reporting Council. The Board has however, put in place a framework for corporate governance that it believes is suitable for a property investment company and which enables the Company voluntarily to comply with the main requirements of the Code, which sets out principles of good governance and a code of best practice. Since the EGM held on 16 March 2010 the Company is now an evergreen property investment company and is subject to the requirements of the Combined Code. Arrangements in respect of corporate governance have therefore been made by the Board, which it believes are appropriate for the Company. Except as disclosed in the following paragraphs, the Company complied through the year with the provisions of the Code. Since all the Directors are non-executive, the provision of the Code in respect of Directors' remuneration are not relevant to the Company except in so far as they relate to non-executive Directors. In view of its non-executive and independent nature, and the requirement of the Articles of Association that the number of Directors nearest to one-third will retire at each Annual General Meeting, the Board considers that it is not appropriate for the Directors to be appointed for a specified term as recommended by Code provision A.7.2, for a Senior Independent Director to be appointed as recommended by Code provision A.3.3, nor for there to be a Nomination Committee as recommended by Code provision A.4.1. The Board The Board, of which David Pinckney is Chairman, consists of non-executive Directors. As at the year end all the Directors are considered by the Board to be independent, except for Obie Moore and Michael Lloyd. The Company has no Executive Directors. All matters, including strategy, investment and dividend policies, gearing and corporate governance procedures, are reserved for the approval of the Board of Directors. The Board currently meets at least quarterly and receives full information on the Company's investment performance, assets, liabilities and other relevant information in advance of Board meetings. In making commercial assessments, the Directors review detailed reports prepared by the Manager which include, inter alia, financial forecasts of return on capital, return on cash and the potential impact on gearing. Strategy is determined with due consideration of forecast developments within the European commercial property sector and the general financial environment. Close and constant communication with the Manager (and through the Manager, the Company's brokers) assists the Board in its consideration of issues affecting the Company and its future development. Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The attendance of Directors at meetings during the year is set out below: +--------------------------+-------+----------+---------+----------+ | | Board Meetings | Audit Committee | | | | Meetings | +--------------------------+------------------+--------------------+ | | Held | Attended | Held | Attended | +--------------------------+-------+----------+---------+----------+ | | | | | | +--------------------------+-------+----------+---------+----------+ | David Pinckney | 8 | 7 | 4 | 4 | | (Chairman) | | | | | +--------------------------+-------+----------+---------+----------+ | David Allison | 7 | 7 | 4 | 3 | +--------------------------+-------+----------+---------+----------+ | Nicholas Moss | 8 | 7 | 4 | 4 | +--------------------------+-------+----------+---------+----------+ | Christopher Sherwell | 8 | 8 | 4 | 4 | +--------------------------+-------+----------+---------+----------+ | Obie Moore (Appointed 25 | 2 | 1 | N/A | N/A | | August 2009) | | | | | +--------------------------+-------+----------+---------+----------+ | Michael Lloyd (Appointed | N/A | N/A | N/A | N/A | | 11 December 2009 and | | | | | | resigned 18 March 2010) | | | | | +--------------------------+-------+----------+---------+----------+ A further 36 ad hoc meetings of the Board were held in Guernsey during the year. Corporate Governance (continued) Audit Committee The Audit Committee is chaired by David Pinckney and has met four times during the year. The Board recognises that the appointment of David Pinckney as Chairman of the Audit Committee departs from the Combined Code as he is also Chairman of the Board of Directors of the Company. David Pinckney's appointment as Chairman of the Audit Committee is considered by the Board to be in the interests of Shareholders given his extensive international auditing experience. The duties of the Audit Committee include, inter alia, reviewing the Annual and Interim Financial Statements prior to their submission to the Board, the system of internal control and the terms of the appointment of the auditor together with their remuneration. It is also the forum through which the auditor reports to the Board of Directors. The Audit Committee Terms of Reference are held by the Company's administrator. The Committee also reviews the independence and objectivity of the auditor, especially in relation to the provision of non-audit services. Internal Control The Board acknowledges its responsibility for the Company's system of internal control and has established procedures that are designed to provide reasonable, but not absolute, assurance against material misstatement or loss. These procedures have been developed since the Company's inception and have operated throughout the year and up to the date of the approval of the Annual Report and Consolidated Financial Statements. As the Company does not have an internal audit function, the Directors have taken steps to review the effectiveness of the system of internal control. During the year ended 31 December 2008, the Directors engaged an independent firm of accountants to carry out a limited assurance review and report their findings on the following: · the accounting controls and processes operated by the Manager; · evidence of the documentation thereof; · confirmation that the documented processes are being implemented; and · the continuity or otherwise of the key members of the Manager's staff, and any possible breaches of control procedures arising as a result. The conclusions of the report were satisfactory. During the year the Audit Committee and the Directors have continued to review financial controls and risk management. All major investment and financing decisions are made solely at the Board's discretion, and this includes significant capital expenditure projects recommended by the Manager as part of the strategy of enhancement of the Group's investment property assets. Appropriate cash-flow monitoring and authorisation procedures have been adopted. The Board monitors the investment performance of the Company in comparison with its stated objective and against comparable companies. The Board also reviews the Company's activities since the last Board meeting to ensure that the Manager has adhered to the agreed investment policy. In addition, the Board receives reports from the Administrator in respect of compliance matters and duties performed on behalf of the Company. Relations with Shareholders The Board welcomes Shareholders' views and places great importance on communication with its Shareholders. The Board receives regular reports on the views of Shareholders and the Chairman and other Directors are available to meet Shareholders if required. The Annual General Meeting of the Company provides a forum for Shareholders to meet and discuss issues with the Directors and the Manager. David Pinkney Chairman 23 April 2010 Independent Auditor's Report to the members of DP Property Europe Limited (formerly Rutley European Property Limited) We have audited the group financial statements of DP Property Europe Limited for the year ended 31 December 2009 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement and the Consolidated Statement of Changes in Equity and the related notes 1 to 28. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. 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. As explained more fully in the Directors' Responsibilities Statement set out on page 14, the directors are responsible for the preparation of the group financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the group 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 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 our opinion the group financial statements: · give a true and fair view of the state of the group's affairs as at 31 December 2009 and of its loss for the year then ended; · have been properly prepared in accordance with IFRSs as adopted by the European Union; and · have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008. Emphasis of matter - Going concern In forming our opinion on the financial statements, which is not qualified, we have considered the adequacy of the disclosure made in note 2.1 to the financial statements concerning the Group's ability to continue as a going concern. These conditions indicate the existence of material uncertainties which may cast significant doubt about the Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion: · proper accounting records have not been kept by the Company; · the Company's accounts are not in agreement with the accounting records; or · we have not received all the information and explanations we require for our audit. Iain Wilkie Ernst & Young LLP London 23 April 2010 Consolidated Income Statement +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | | | Year ended | | Year | | | | 31-12-2009 | | ended | | | | | | 31-12-2008 | +-------------------------------+-------+--------------+----+--------------+ | |Notes | GBP | | GBP | +-------------------------------+-------+--------------+----+--------------+ | Rental income | | 40,416,761 | | 36,312,908 | +-------------------------------+-------+--------------+----+--------------+ | Service charge income | | 7,179,481 | | 6,537,433 | +-------------------------------+-------+--------------+----+--------------+ | Property operating expenses | | (12,116,644) | | (10,781,692) | +-------------------------------+-------+--------------+----+--------------+ | NET RENTAL INCOME | | 35,479,598 | | 32,068,649 | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | Administrative and other | 5 | (8,130,618) | | (6,641,059) | | expenses | | | | | +-------------------------------+-------+--------------+----+--------------+ | Impairment of goodwill | 14 | - | | (6,927,480) | +-------------------------------+-------+--------------+----+--------------+ | Fair value decrease in | 13 | (43,056,062) | | (56,744,414) | | investment properties | | | | | +-------------------------------+-------+--------------+----+--------------+ | Net profit on disposal of | | 246,667 | | 825,243 | | investment properties | | | | | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | OPERATING LOSS | | (15,460,415) | | (37,419,061) | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | Finance income | 8 | 136,021 | | 473,689 | +-------------------------------+-------+--------------+----+--------------+ | Finance costs | 9 | (24,581,873) | | (25,883,864) | +-------------------------------+-------+--------------+----+--------------+ | Fair value adjustment on | 9 | (2,855,351) | | (19,274,139) | | derivative financial | | | | | | instruments | | | | | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | LOSS BEFORE TAX | | (42,761,618) | | (82,103,375) | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | Tax (charge)/credit on | 10 | (1,662,980) | | 4,720,783 | | loss for the year | | | | | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | LOSS AFTER TAX | | (44,424,598) | | (77,382,592) | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | Loss for the year | | | | | | attributable to: | | | | | +-------------------------------+-------+--------------+----+--------------+ | Redeemable Preference | | (44,424,598) | | (77,382,592) | | Shareholders | | | | | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | Basic and diluted loss per: | | | | | +-------------------------------+-------+--------------+----+--------------+ | Redeemable Preference Share | 11 | (0.21) | | (0.33) | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ | | | | | | +-------------------------------+-------+--------------+----+--------------+ The notes on pages 24 to 59 are an integral part of these Consolidated Financial Statements. All operations are continuing. Consolidated Statement Of Comprehensive Income +----------------------------------+-----+--------------+----+--------------+ | | | | | | | | | Year ended | | Year | | | | | | ended | +----------------------------------+-----+--------------+----+--------------+ | | | 31-12-2009 | | 31-12-2008 | +----------------------------------+-----+--------------+----+--------------+ | | | GBP | | GBP | +----------------------------------+-----+--------------+----+--------------+ | | | | | | +----------------------------------+-----+--------------+----+--------------+ | Loss for the period | | (44,424,598) | | (77,382,592) | +----------------------------------+-----+--------------+----+--------------+ | | | | | | +----------------------------------+-----+--------------+----+--------------+ | Exchange differences on | | (7,657,544) | | 29,511,725 | | translation of foreign | | | | | | operations | | | | | +----------------------------------+-----+--------------+----+--------------+ | | | | | | +----------------------------------+-----+--------------+----+--------------+ | Other comprehensive | | (7,657,544) | | 29,511,725 | | (loss)/income for the period | | | | | +----------------------------------+-----+--------------+----+--------------+ | | | | | | +----------------------------------+-----+--------------+----+--------------+ | Total comprehensive loss for the | | (52,082,142) | | (47,870,867) | | period | | | | | +----------------------------------+-----+--------------+----+--------------+ | | | | | | +----------------------------------+-----+--------------+----+--------------+ | | | | | | +----------------------------------+-----+--------------+----+--------------+ | Total comprehensive loss for the | | | | | | period attributable to: | | | | | +----------------------------------+-----+--------------+----+--------------+ | Redeemable Preference | | (52,082,142) | | (47,870,867) | | Shareholders | | | | | +----------------------------------+-----+--------------+----+--------------+ The notes on pages 24 to 59 are an integral part of these Consolidated Financial Statements. Consolidated Balance Sheet +-----------------------+-------+-------------+---+-------------+ | | | As at | | As at | +-----------------------+-------+-------------+---+-------------+ | | | 31-12-2009 | | 31-12-2008 | +-----------------------+-------+-------------+---+-------------+ | |Notes | GBP | | GBP | +-----------------------+-------+-------------+---+-------------+ | Non-current Assets | | | | | +-----------------------+-------+-------------+---+-------------+ | Investment property | 13 | 485,285,877 | | 569,273,444 | +-----------------------+-------+-------------+---+-------------+ | Intangible assets | 14 | - | | - | +-----------------------+-------+-------------+---+-------------+ | Other financial | 15 | 2,750,508 | | 772,986 | | assets | | | | | +-----------------------+-------+-------------+---+-------------+ | Deferred tax asset | 16 | - | | 175,901 | +-----------------------+-------+-------------+---+-------------+ | | | 488,036,385 | | 570,222,331 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | Current Assets | | | | | +-----------------------+-------+-------------+---+-------------+ | Trade and other | 18 | 1,923,346 | | 10,290,969 | | receivables | | | | | +-----------------------+-------+-------------+---+-------------+ | Cash and cash | 19 | 22,546,539 | | 26,052,590 | | equivalents | | | | | +-----------------------+-------+-------------+---+-------------+ | Other financial | 15 | 1,079,218 | | - | | assets | | | | | +-----------------------+-------+-------------+---+-------------+ | | | 25,549,103 | | 36,343,559 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | TOTAL ASSETS | | 513,585,488 | | 606,565,890 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | Equity | | | | | +-----------------------+-------+-------------+---+-------------+ | Share capital | 20 | 1 | | 1 | +-----------------------+-------+-------------+---+-------------+ | Share premium | | 1,353,867 | | 1,353,867 | +-----------------------+-------+-------------+---+-------------+ | Retained earnings | | 16,545,802 | | 61,811,636 | +-----------------------+-------+-------------+---+-------------+ | Translation reserve | | 36,371,420 | | 44,028,964 | +-----------------------+-------+-------------+---+-------------+ | | | 54,271,090 | | 107,194,468 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | Non-current | | | | | | Liabilities | | | | | +-----------------------+-------+-------------+---+-------------+ | Deferred taxation | 16 | 1,389,445 | | 119,248 | +-----------------------+-------+-------------+---+-------------+ | Derivative financial | 17 | 6,390,792 | | 10,823,883 | | instruments | | | | | +-----------------------+-------+-------------+---+-------------+ | Borrowings | 21 | 277,343,061 | | 341,535,278 | +-----------------------+-------+-------------+---+-------------+ | | | 285,123,298 | | 352,478,409 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | Current Liabilities | | | | | +-----------------------+-------+-------------+---+-------------+ | Derivative financial | 17 | 16,866,550 | | 11,216,042 | | instruments | | | | | +-----------------------+-------+-------------+---+-------------+ | Trade and other | 22 | 13,707,603 | | 17,136,600 | | payables | | | | | +-----------------------+-------+-------------+---+-------------+ | Borrowings | 21 | 143,616,947 | | 118,540,371 | +-----------------------+-------+-------------+---+-------------+ | | | 174,191,100 | | 146,893,013 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | TOTAL LIABILITIES | | 459,314,398 | | 499,371,422 | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | TOTAL EQUITY AND | | 513,585,488 | | 606,565,890 | | LIABILITIES | | | | | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | Number of Redeemable | 20 | 209,245,575 | | 236,661,750 | | Preference Shares | | | | | +-----------------------+-------+-------------+---+-------------+ | | | | | | +-----------------------+-------+-------------+---+-------------+ | Net Asset Value: | | | | | +-----------------------+-------+-------------+---+-------------+ | Per Redeemable | | 0.259 | | 0.453 | | Preference Share | | | | | +-----------------------+-------+-------------+---+-------------+ These Consolidated Financial Statements were approved by the Board of Directors and authorised for issue on 23 April 2010 and were signed on its behalf by Chairman Director The notes on pages 24 to 59 form an integral part of these Consolidated Financial Statements. Consolidated Statement of Changes in Equity +----------------------------------+------+---------+---------+----------+--------------+----+--------+-----+--------+----------+ | | | Share | Share | Retained | Translation | | | | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | Capital | Premium | Earnings | Reserve | Total | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | |Note | GBP | GBP | GBP | GBP | GBP | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | +----------------------------------+------+---------+---------+------------------------------+--------------+-------------------+ | EQUITY AT 1 JANUARY 2008 | | 1 | 1,353,867 | 146,317,747 | 14,517,239 | 162,188,854 | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Loss for the period | | - | - | (77,382,592) | - | (77,382,592) | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Other comprehensive income | | | | | | | | | - exchange differences on | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | translation of overseas | | - | - | - | 29,511,725 | 29,511,725 | | | operation | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Total comprehensive(loss)/ | | | | (77,382,592) | 29,511,725 | (47,870,867) | | | income | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Interim dividend | 12 | - | - | (7,123,519) | - | (7,123,519) | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | EQUITY AT 31 DECEMBER 2008 | | 1 | 1,353,867 | 61,811,636 | 44,028,964 | 107,194,468 | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Loss for the period | | - | - | (44,424,598) | - | (44,424,598) | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Other comprehensive income | | | | | | | | | - exchange differences on | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | translation of overseas | | - | - | - | (7,657,544) | (7,657,544) | | | operation | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Total comprehensive loss | | | | (44,424,598) | (7,657,544) | (52,082,142) | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | Purchase of own shares | 20 | - | - | (841,236) | - | (841,236) | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | EQUITY AT 31 DECEMBER 2009 | | 1 | 1,353,867 | 16,545,802 | 36,371,420 | 54,271,090 | | +----------------------------------+------+---------+--------------------+--------------+-------------+--------------+----------+ | | | | | | | | | | | | +----------------------------------+------+---------+---------+----------+--------------+----+--------+-----+--------+----------+ The notes on pages 24 to 59 are an integral part of these Consolidated Financial Statements. Consolidated Cash flow Statement +-----------------------------------+---------------+-----+--------------+ | | Year | | Year | | | ended | | ended | | | 31-12-2009 | | 31-12-2008 | +-----------------------------------+---------------+-----+--------------+ | | GBP | | GBP | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Cash flows from operating | | | | | activities | | | | +-----------------------------------+---------------+-----+--------------+ | Loss before tax for the year | (42,761,618) | | (82,103,375) | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Adjustments: | | | | +-----------------------------------+---------------+-----+--------------+ | Net finance costs | 24,238,844 | | 21,191,137 | +-----------------------------------+---------------+-----+--------------+ | Income tax paid | (500,761) | | (274,834) | +-----------------------------------+---------------+-----+--------------+ | Movement in working capital | (1,779,613) | | (157,198) | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Non-cash items: | | | | +-----------------------------------+---------------+-----+--------------+ | Fair value decrease in investment | 43,056,062 | | 56,744,414 | | properties | | | | +-----------------------------------+---------------+-----+--------------+ | Net profit on disposal of | (246,667) | | (825,243) | | investment properties | | | | +-----------------------------------+---------------+-----+--------------+ | Fair value adjustments on | 2,855,351 | | 19,274,139 | | interest rate swaps | | | | +-----------------------------------+---------------+-----+--------------+ | Impairment of goodwill | - | | 6,927,480 | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | NET CASH INFLOW FROM OPERATING | 24,861,598 | | 20,776,520 | | ACTIVITIES | | | | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Cash flows from investing | | | | | activities | | | | +-----------------------------------+---------------+-----+--------------+ | Acquisition of investment | (1,475,128) | | (7,407,038) | | property | | | | +-----------------------------------+---------------+-----+--------------+ | Proceeds from the disposal of | 10,771,435 | | 2,778,963 | | investment property | | | | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | NET CASH INFLOW/(OUTFLOW) FROM | | | | | INVESTING ACTIVITIES | 9,296,307 | | (4,628,075) | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Cash flows from financing | | | | | activities | | | | +-----------------------------------+---------------+-----+--------------+ | Finance income | 461,865 | | 300,309 | +-----------------------------------+---------------+-----+--------------+ | Finance costs | (24,464,467) | | (19,995,573) | +-----------------------------------+---------------+-----+--------------+ | Drawdown of bank loans | - | | 820,678 | +-----------------------------------+---------------+-----+--------------+ | Repayment of borrowings | (9,005,880) | | (4,420,999) | +-----------------------------------+---------------+-----+--------------+ | Cash deposits paid to lenders | (3,829,726) | | - | +-----------------------------------+---------------+-----+--------------+ | Purchase of own shares | (841,236) | | - | +-----------------------------------+---------------+-----+--------------+ | Dividends paid | - | | (7,123,519) | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | NET CASH OUTFLOW FROM FINANCING | (37,679,444) | | (30,419,104) | | ACTIVITIES | | | | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | DECREASE IN CASH AND CASH | (3,521,539) | | (14,270,659) | | EQUIVALENTS | | | | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Cash and cash equivalents at the | 26,052,590 | | 31,649,398 | | start of the year | | | | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | Effect of exchange rates on Cash | 15,488 | | 8,673,851 | | and Cash Equivalents | | | | +-----------------------------------+---------------+-----+--------------+ | | | | | +-----------------------------------+---------------+-----+--------------+ | CASH AND CASH EQUIVALENTS AT THE | 22,546,539 | | 26,052,590 | | END OF THE YEAR | | | | +-----------------------------------+---------------+-----+--------------+ The notes on pages 24 to 59 are an integral part of these Consolidated Financial Statements. Notes to the Consolidated Financial Statements 1. GENERAL INFORMATION DP Property Europe Limited (formerly Rutley European Property Limited) ('the Company") and its subsidiaries (together, "the Group") is principally involved in investment in commercial property in Europe. The Company is a limited liability, investment company incorporated in Guernsey on 17 November 2005, registration number 43943. The address of its registered office is Trafalgar Court, Les Banques, St. Peter Port, Guernsey. The Company is listed on the London Stock Exchange and the Channel Islands Stock Exchange. These Consolidated Financial Statements were authorised for issue by the Board of Directors on 23 April 2010. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these Consolidated Financial Statements are consistent with the previous financial year and are set out below. 2.1 Basis of preparation The Group's Financial Statements have been prepared in accordance with International Financial Reporting Standards and interpretations issued by the International Financial Interpretations Reporting Committee as adopted by the European Union ('IFRS'), applicable Guernsey Law and the applicable Listing Rules of the UK Listing Authority. The Group's property portfolios are partly funded by debt facilities provided to special purpose vehicles ('SPVs'). Under the terms of the debt agreements, the lenders have recourse only to the assets of those SPVs as security for their loans, and have no recourse to the ultimate parent or other Group holding companies. The 31 December 2009 portfolio valuation indicates that the LTV ratio on eight out of ten of the loans would, if tested by the finance providers, be above the permissible LTV levels specified in the finance documents. The Company's management continues to be in discussions with all lenders where the LTV, as indicated by the 31 December 2009 valuation, is close to or exceeds LTV covenant ratios. In assessing the implications of potential covenant breaches, the Directors have also considered that: · the lenders to each property SPV have the ability to waive any breaches of covenant and have not to date indicated that they are preparing to enforce security; and · most of the property SPV's retain good interest cover, although in two cases the interest ratio cover is below that permitted by the finance documents; and ongoing constructive discussions are taking place with the Group's lenders, which the Directors believe will result in a satisfactory outcome for the Group. Consequently, the Directors consider that security enforcement by lenders is not an expected eventuality, although this remains an option for lenders. Notwithstanding the above, the Directors consider that the non recourse nature of the debt facilities means that the risk of security enforcement will not necessarily impact the ability of the Group to continue as a going concern. However: · the outcome of the discussions with lenders and the majority shareholder could result in a cross-collateralisation of debt, a reorganisation of the Group and/or a distribution of remaining funds to the shareholders; or · in the event that a satisfactory outcome is not forthcoming, the Directors will need to reduce the expenditure of the parent company sufficiently quickly such that its existing cash balances allow it continue to as a going concern with any remaining properties. Notes to the Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.1 Basis of preparation (continued) Having considered the issues identified above, although there are material uncertainties related to events or conditions that may cast doubt about the Group's ability to continue as a going concern, the Directors consider that the going concern basis remains appropriate for the following reasons: · The Directors are aware that the Company needs to maintain a minimum level of cash at the level of the ultimate parent and consider they can reduce corporate administration costs as necessary. The Directors will not authorise a distribution if such a distribution impairs the ability of the parent company to retain sufficient cash to continue as a going concern; · The non recourse nature of the loans, as discussed above, means that should the lenders accelerate the repayment of any of the SPV's debt, the cash and other assets of the holding companies in the Group are unaffected and available to meet commitments for the foreseeable future. The Directors will not agree to a renegotiation of the non recourse structure to an extent which brings the parent company into the lenders' security structure; · The Directors have no reason to believe that the majority shareholder will not make available appropriate funds to agree mutually acceptable financing terms with existing lenders. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern. The Consolidated Financial Statements have been prepared on a historical cost basis, except for Investment Properties and Derivative Financial Instruments that have been measured at fair value. The Financial Statements are presented in Sterling. The preparation of Financial Statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Consolidated Financial Statements are disclosed in note 3. Although these estimates are based on the Directors' best knowledge of the amounts, events or actions, actual results ultimately may differ from those estimates. Notes to the Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.2 New standards and interpretations The following new or revised standards have been adopted in these financial statements: IAS 1 Revised Presentation of Financial Statements The revised Standard separates owner and non-owner changes in equity. The Statement of Changes in Equity includes only details of transactions with owners, with non-owner changes in equity presented as a single line. In addition IAS 1 Revised Presentation of Financial Statements introduces the Statement of Comprehensive Income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements. The Standard has also been clarified such that derivative financial instruments must be separated into current and non-current portions unless held primarily for trading. Such derivative instruments should be separated based on an assessment of the facts and circumstances, and classified accordingly. The Consolidated Balance Sheet has been represented such that GBP6.4 million (2008: GBP10.8 million) of the derivative financial instruments have been classified as non-current. This presentation has no impact on the reported net assets or profits. IFRS 8 Operating Segments IFRS 8 Operating Segments requires disclosure of information about the Group's operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of IFRS 8 Operating Segments did not have any effect on the financial position or performance of the Group. The Group determined that the operating segments were the same as the business segments previously identified under IAS 14 Segmental Reporting. Additional disclosures about each of these segments are shown in note 4, including revised comparative information. IFRS 7 Financial Instruments: Disclosures The Standard requires a quantitative analysis of the fair value of financial instruments based on a three-level hierarchy in tabular format. The level within which the fair value measurement is categorised is based on the lowest level of input to the instruments valuation that is significant to the fair value measurement in its entirety. This disclosure is shown within note 23. The IASB and IFRIC have issued a number of standards and interpretations with an effective date after the date of these Financial Statements. The Directors have set out below only those which may have a material impact on the Financial Statements in future periods: IAS 17 Leases - amendment This amendment deletes much of the existing wording in the standard to the effect that all leases of land (where title does not pass) were operating leases. The amendment requires that in determining whether the lease of land (either separately or in combination with other property) is an operating or a finance lease, the same criteria are applied as for any other asset. This may have the impact in the future that more leases of land will be treated as finance lease rather than operating leases, but the Directors do not presently expect a material impact on the Financial Statements. IFRS 3 (Revised) Business Combinations and IAS 27 (Amended) Consolidated and Separate Financial Statements The revised standards are effective prospectively for business combination affected in financial periods beginning on or after 1 July 2009. IFRS 3 (Revised) Business Combinations introduces a number of changes in the accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. Notes to the Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.3 Consolidation Subsidiaries are entities that are directly or indirectly controlled by the Group. Control exists where the Group has the power to govern the financial and operating policies of the entity so as to obtain benefits from its activities. The purchase method of accounting is used to account for business combinations. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisitions. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. 2.4 Foreign currency translation (a) Functional and presentation currency Items included in the Financial Statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The functional currency of the Group's entities, excluding the subsidiaries in Sweden, is the Euro. The functional currency of the subsidiaries in Sweden is the Swedish Krona. The Financial Statements are presented in Pounds Sterling (the 'presentation currency'). Pounds Sterling has been adopted as the Presentation Currency as the Directors consider that the majority of investors prefer that the financial information be reported in this currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies other than the functional currency are recognised in the income statement. Translation differences on assets and liabilities recorded at fair value are reported as part of the revaluation gain or loss. Notes to the Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.4 Foreign currency translation (continued) (c) Group companies The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: · Assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that Balance Sheet; · Income and expense for each income statement are translated at average exchange rates; and · All resulting exchange differences are recognised in other comprehensive income. 2.5 Revenue recognition Revenue is measured as the fair value of the consideration received or receivable in the ordinary course of the Group's activities and is stated net of sales taxes and value added taxes. (a) Rental and similar income Rental income from operating leases is recognised on a straight line basis over the lease term. Where the Group provides incentives to customers, the costs of incentives are recognised over the lease term, on a straight line basis, as a reduction of rental income. The majority of rental income received relates to contingent rents, for which the base rental amount is indexed. (b) Service charge income Service charge income is recognised on a gross basis in the accounting period in which the services are rendered. (c) Finance income Interest receivable is recognised on a time apportioned basis using the effective interest rate method. 2.6 Leases - where a group company is a lessee With the exception of leases over investment property (see 2.8 below), leases in which substantially all risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight line basis over the period of the lease. 2.7 Current and deferred tax The charge for current taxation is based on the results for the year, as adjusted for items which are non-taxable or disallowed. Deferred tax is provided using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the Consolidated Financial Statements. However, deferred tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is recognised on all unrealised gains on investment property, through comparison of their tax base and their accounting fair value at a rate of tax which would apply in the period in which the gains are expected to be realised. Deferred tax is determined using tax rates and laws that have been enacted or substantively enacted by the Balance Sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Notes to the Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.8 Investment property Property that is held for long-term rental yields or for capital appreciation or both, is classified as Investment Property. This comprises freehold land, freehold property and any land or property held on leasehold that satisfies the normal criteria for recognition as investment property. Investment property is initially measured at cost, including related transaction costs. After initial recognition, investment property is carried at fair value. The fair value is defined as market value, which is the estimated amount a property would be exchanged for in an arm's-length transaction on the date of valuation. Gains or losses arising from changes in fair values are included in the Income Statement in the period in which they arise. Investment properties are recognised when the Group acquires substantially all the risks and rewards of ownership, which is when both parties to the sale and purchase transaction have entered into an unconditional binding agreement, regardless of the timing of flow of funds to satisfy the purchase consideration. 2.9 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the identifiable net assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Where goodwill is generated by the recognition, on the acquisition of businesses, of deferred tax liabilities in excess of the fair value of such liabilities, the post-tax discount rate is adjusted in order to determine the appropriate pre-tax discount rate. Therefore, the deferred tax liability in excess of its fair value, as determined at acquisition, is offset against the goodwill and the net amount tested to determine whether that goodwill is impaired. To the extent that the deferred tax provision in excess of the fair value of that liability is subsequently reduced or eliminated, for example through a change in the tax circumstances of the Group, then the goodwill arising from the initial recognition of the deferred tax provision may become impaired. 2.10 Derivative financial instruments The Group uses derivatives to help manage its interest rate risk but does not utilise hedge accounting. The Group does not hold or issue derivatives for trading purposes. Derivatives are recognised initially at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of any derivative instruments are recognised immediately in the Income Statement. The methods used to calculate the fair value of the derivative instruments at the Balance Sheet date are set out in note 9. 2.11 Cash and cash equivalents Cash and cash equivalents in the Balance Sheet comprise cash at banks and in hand and short term deposits with an original maturity of three months or less. 2.12 Trade receivables Trade receivables are carried at nominal amount less any allowance for impairment. Notes to the Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 2.13 Borrowings All loans and borrowings are initially recognised at fair value less directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are an integral part of the effective interest rate. Gains and losses are recognised in profit or loss when the liabilities are de-recognised as well as through the amortisation process. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after the Balance Sheet date. 2.14 Share capital Founder Shares and Redeemable Preference Shares are classified as Equity within the Consolidated Balance Sheet. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. 3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The Group makes estimates and assumptions concerning the future and such accounting estimates may differ from the actual results. The estimates and assumptions that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year relate primarily to the valuation of investment properties. The fair value of investment properties in the Consolidated Balance Sheet represents an estimate by external professional valuers of the open market value of those properties as at 31 December 2009. In assessing the open market value of investment properties, the professional valuers will consider lettings, tenants' profiles, future revenue streams, capital values of both fixtures and fittings and plant and machinery, any environmental matters and the overall repair and condition of the property in the context of the local market. Data regarding local market conditions is primarily historic in nature and provides a guide as to current letting values and yields. The significant methods and assumptions used by the valuers in estimating the fair value of investment property are set out in note 13. Notes to the Consolidated Financial Statements 4. SEGMENTAL INFORMATION For management purposes, information is provided to the Board of Directors, the chief operating decision-maker, on a geographical basis. The Board of Directors assess the performance of the operating segments based on rental income, asset valuations and debt. The four reportable operating segments as follows: (1) Germany (2) Sweden (3) Poland (4) France, Belgium and The Netherlands All of the Group's business activities are reported within the above segments. Sweden, Germany and Poland are significant reporting segments and therefore have been categorised individually. Each of the geographical regions France, Belgium and The Netherlands do not individually meet the quantitative criteria of a reporting segment, however as they do not differ materially from either a risk or operational point of view these have been aggregated. Segment assets are investment properties as these are the only assets reported to the Board on a segmental basis. Segment liabilities represent borrowings as these are the only liabilities reported to the Board on a segmental basis. Whilst segment liabilities include borrowings, segment profit/(loss) does not include related finance costs. Segment results for the year ended 31 December 2009 are as follows: +-------------------------+--------------+-----------+-------------+-------------+--------------+ | | Germany | Sweden | Poland | France, | Total | | | | | | Belgium | | | | | | | and The | | | | | | | Netherlands | | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | | GBP | GBP | GBP | GBP | GBP | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Continuing operations | 24,891,715 | 6,317,259 | 4,853,500 | 4,354,287 | 40,416,761 | | Rental income | | | | | | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Valuation (loss)/gain | (33,536,114) | 2,901,362 | (6,585,949) | (5,835,361) | (43,056,062) | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Segment (loss)/profit | (8,644,399) | 9,218,621 | (1,732,449) | (1,481,074) | (2,639,301) | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Service charge income | | | | | 7,179,481 | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Property operating | | | | | (12,116,644) | | expenses | | | | | | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Administrative and | | | | | (8,130,618) | | other expenses | | | | | | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Net profit on disposal | | | | | 246,667 | | of investment | | | | | | | properties | | | | | | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Net finance costs | | | | | (27,301,203) | | (including fair value | | | | | | | adjustment on | | | | | | | derivative financial | | | | | | | instruments) | | | | | | +-------------------------+--------------+-----------+-------------+-------------+--------------+ | Loss before tax | | | | | (42,761,618) | +-------------------------+--------------+-----------+-------------+-------------+--------------+ Notes to the Consolidated Financial Statements 4. SEGMENTAL INFORMATION (CONTINUED) Segment results for the year ended 31 December 2008 are as follows: +-------------------------+---------------+-------------+-----------+--------------+--------------+ | | Germany | Sweden | Poland | France, | Total | | | | | | Belgium | | | | | | | and The | | | | | | | Netherlands | | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | | GBP | GBP | GBP | GBP | GBP | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Continuing operations | 23,183,899 | 6,008,619 | 3,392,075 | 3,728,315 | 36,312,908 | | Rental income | | | | | | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Valuation (loss)/gain | (42,731,068)) | (7,884,110) | 4,347,253 | (10,476,489) | (56,744,414) | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Segment (loss)/profit | (19,547,169) | (1,875,491) | 7,739,328 | (6,748,174) | (20,431,506) | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Service charge income | | | | | 6,537,433 | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Property operating | | | | | (10,781,692) | | expenses | | | | | | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Administrative and | | | | | (6,641,059) | | other expenses | | | | | | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Impairment of goodwill | | | | | (6,927,480) | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Net profit on disposal | | | | | 825,243 | | of investment | | | | | | | properties | | | | | | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Net finance costs | | | | | (44,684,314) | | (including fair value | | | | | | | adjustment on | | | | | | | derivative financial | | | | | | | instruments) | | | | | | +-------------------------+---------------+-------------+-----------+--------------+--------------+ | Loss before tax | | | | | (82,103,375) | +-------------------------+---------------+-------------+-----------+--------------+--------------+ There are no property operating expenses which relate to investment properties that did not generate rental income. The following table presents segment assets of the Group's segments as at 31 December 2009 and 31 December 2008. +-----------------+-------------+------------+------------+-------------+------------+-------------+ | | Germany | Sweden | Poland | France, | *Non | Total | | | | | | Belgium | segment | | | | | | | and The | assets | | | | | | | Netherlands | | | +-----------------+-------------+------------+------------+-------------+------------+-------------+ | | GBP | GBP | GBP | GBP | GBP | GBP | +-----------------+-------------+------------+------------+-------------+------------+-------------+ | Segment assets | 299,753,442 | 82,643,926 | 56,456,402 | 46,432,107 | 28,299,611 | 513,585,488 | | At 31 December | | | | | | | | 2009 | | | | | | | +-----------------+-------------+------------+------------+-------------+------------+-------------+ | At 31 December | 364,389,603 | 80,088,281 | 68,234,034 | 56,561,526 | 37,292,446 | 606,565,890 | | 2008 | | | | | | | +-----------------+-------------+------------+------------+-------------+------------+-------------+ *Non segment assets: At 31 December 2009 Segment assets do not include other financial assets (GBP3,829,726), trade and other receivables (GBP1,923,346) and cash and cash equivalents (GBP22,546,539). At 31 December 2008 Segment assets do not include other non-current assets (GBP772,986), deferred tax asset (GBP175,901), trade and other receivables (GBP10,290,969) and cash and cash equivalents (GBP26,052,590). Notes to the Consolidated Financial Statements 4. SEGMENTAL INFORMATION (CONTINUED) The following table presents segment liabilities of the Group's segments as at 31 December 2009 and 31 December 2008: +----------------+-------------+------------+------------+-------------+-------------+-------------+ | | Germany | Sweden | Poland | France, | *Non | Total | | | | | | Belgium | segment | | | | | | | and The | liabilities | | | | | | | Netherlands | | | +----------------+-------------+------------+------------+-------------+-------------+-------------+ | | GBP | GBP | GBP | GBP | GBP | GBP | +----------------+-------------+------------+------------+-------------+-------------+-------------+ | Segment | 266,851,953 | 69,779,249 | 41,953,118 | 45,015,972 | 35,714,106 | 459,314,398 | | liabilities | | | | | | | | At 31 December | | | | | | | | 2009 | | | | | | | +----------------+-------------+------------+------------+-------------+-------------+-------------+ | At 31 December | 298,084,112 | 70,891,053 | 45,387,948 | 48,701,568 | 36,306,741 | 499,371,422 | | 2008 | | | | | | | +----------------+-------------+------------+------------+-------------+-------------+-------------+ *Non segment liabilities: At 31 December 2009 Segment liabilities do not include deferred tax liability (GBP1,389,445), derivative financial instruments (GBP23,257,342), trade and other payables (GBP13,707,603), unamortised loan arrangement fees (GBP1,916,376) and security deposits (GBP723,908). At 31 December 2008 Segment liabilities do not include derivative financial instruments (GBP22,039,925), trade and other payables (GBP17,136,600), deferred tax liability (GBP119,248) and unamortised loan arrangement fees (GBP2,989,032). 5. ADMINISTRATIVE AND OTHER EXPENSES +-------------------------------------------+--+------------+-+------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | | | | | | | +-------------------------------------------+--+------------+-+------------+ | | | GBP | | GBP | +-------------------------------------------+--+------------+-+------------+ | | | | | | +-------------------------------------------+--+------------+-+------------+ | Legal and professional fees | | 2,159,087 | | 486,889 | +-------------------------------------------+--+------------+-+------------+ | Management fees | | 2,848,943 | | 3,208,855 | +-------------------------------------------+--+------------+-+------------+ | Audit fees | | 325,921 | | 396,202 | +-------------------------------------------+--+------------+-+------------+ | Administration fees and other expenses | | 2,499,103 | | 2,350,835 | +-------------------------------------------+--+------------+-+------------+ | Directors' fees | | 297,564 | | 198,278 | +-------------------------------------------+--+------------+-+------------+ | | | 8,130,618 | | 6,641,059 | +-------------------------------------------+--+------------+-+------------+ Amounts paid to the Auditors include GBP325,921 (2008: GBP396,202) in respect of the audit of the Group Financial Statements. Included in legal and professional fees are GBP195,962 (2008: GBP193,860) in respect of other audit related services and GBP515,050 (2008: GBP183,134) in respect of other services. Notes to the Consolidated Financial Statements 6. EMPLOYEE COSTS +-------------------------------------------+--+------------+-+------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | | | | | | | +-------------------------------------------+--+------------+-+------------+ | | | GBP | | GBP | +-------------------------------------------+--+------------+-+------------+ | | | | | | +-------------------------------------------+--+------------+-+------------+ | Wages and salaries | | 313,000 | | 210,100 | +-------------------------------------------+--+------------+-+------------+ | Social security costs | | 54,900 | | 78,500 | +-------------------------------------------+--+------------+-+------------+ | | | 367,900 | | 288,600 | +-------------------------------------------+--+------------+-+------------+ The average monthly number of employees, excluding Directors, during the year is analysed as follows: +-------------------------------------------+--+------------+-+------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+------------+-+------------+ | | | Number | | Number | +-------------------------------------------+--+------------+-+------------+ | | | | | | +-------------------------------------------+--+------------+-+------------+ | Administration | | 5 | | 4 | +-------------------------------------------+--+------------+-+------------+ | Property management | | 3 | | 4 | +-------------------------------------------+--+------------+-+------------+ | | | 8 | | 8 | +-------------------------------------------+--+------------+-+------------+ 7. DIRECTORS' REMUNERATION +----------------------------------------------+------------+-+------------+ | | Year | | Year | | | ended | | ended | | | 31-12-2009 | | 31-12-2008 | +----------------------------------------------+------------+-+------------+ | | Total | | Total | +----------------------------------------------+------------+-+------------+ | | GBP | | GBP | +----------------------------------------------+------------+-+------------+ | | | | | +----------------------------------------------+------------+-+------------+ | David Pinckney (Chairman) | 94,073 | | 65,088 | +----------------------------------------------+------------+-+------------+ | David Allison | 56,866 | | 39,369 | +----------------------------------------------+------------+-+------------+ | Nicholas Moss | 73,887 | | 54,452 | +----------------------------------------------+------------+-+------------+ | Christopher Sherwell | 56,968 | | 39,369 | +----------------------------------------------+------------+-+------------+ | Obie Moore (Appointed 25 August 2009) | 14,054 | | - | +----------------------------------------------+------------+-+------------+ | Michael Lloyd (Appointed 11 December 2009 | 1,716 | | - | | and resigned 18 March 2010) | | | | +----------------------------------------------+------------+-+------------+ | | 297,564 | | 198,278 | +----------------------------------------------+------------+-+------------+ No other emoluments were paid or due to Directors in respect of the financial year ended 31 December 2009 (2008: GBPnil). Notes to the Consolidated Financial Statements 8. FINANCE INCOME +------------------------------------------+--+------------+-+------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +------------------------------------------+--+------------+-+------------+ | | | GBP | | GBP | +------------------------------------------+--+------------+-+------------+ | | | | | | +------------------------------------------+--+------------+-+------------+ | Interest receivable on short term bank | | 136,021 | | 356,393 | | deposits | | | | | +------------------------------------------+--+------------+-+------------+ | Other interest receivable | | - | | 117,296 | +------------------------------------------+--+------------+-+------------+ | | | 136,021 | | 473,689 | +------------------------------------------+--+------------+-+------------+ 9. FINANCE COSTS +------------------------------------------+--+------------+-+------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +------------------------------------------+--+------------+-+------------+ | | | GBP | | GBP | +------------------------------------------+--+------------+-+------------+ | | | | | | +------------------------------------------+--+------------+-+------------+ | Foreign exchange losses | | 207,008 | | 4,219,038 | +------------------------------------------+--+------------+-+------------+ | Interest on bank loans and other | | 23,434,803 | | 21,664,826 | | borrowings | | | | | +------------------------------------------+--+------------+-+------------+ | Fair value adjustments on derivative | | 2,855,351 | | 19,274,139 | | financial instruments | | | | | +------------------------------------------+--+------------+-+------------+ | Other finance costs | | 940,062 | | - | +------------------------------------------+--+------------+-+------------+ | | | 27,437,224 | | 45,158,003 | +------------------------------------------+--+------------+-+------------+ The derivative financial instruments are interest rate swaps (see note 17). These are measured at fair value at each balance sheet date and movements in the period are reported in profit and loss. The fair value is calculated as the discounted expected net cash flows arising from an exchange of a series of payments between the counter parties. The series of payments exchanged are called the legs of a swap. Typically, one leg of the swap is based on a pre-defined fixed rate, which is referred to as the fixed leg; and the other leg is based on the relevant floating rate index, which is referred to as the floating leg. The floating leg expected cash flows are calculated based on the forward rates implied from the current yield curve. The aggregate net fair value of the interest rate swaps as at 31 December 2009 is a liability of GBP23.3 million (2008: net liability of GBP22.0 million). The consequent movement in the fair value during the period, in aggregate, is a loss of GBP2.9 million (2008: loss of GBP19.3 million). This fair value as at 31 December 2009 represents that the prevailing forward rates to the various swap contract maturities are lower than the rates in the contracts entered into by the Group. The fair market value adjustment will vary from year to year as a result of changes in the prevailing forward rates and the effluxion of time up to the end of the swap contracts. Notes to the Consolidated Financial Statements 10. TAXATION The Company is subject to taxation under the laws of Guernsey. The Company qualifies for exempt status which will result in no Guernsey taxation on income it receives, including interest and dividends received, or capital gains from the disposal of investments. +------------------------------------------+--+------------+-+-------------+ | Current income tax: | | | | | | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +------------------------------------------+--+------------+-+-------------+ | | | GBP | | GBP | +------------------------------------------+--+------------+-+-------------+ | Current income tax charge | | 236,153 | | 1,591,080 | +------------------------------------------+--+------------+-+-------------+ | Amounts in respect of prior years | | - | | 110,312 | +------------------------------------------+--+------------+-+-------------+ | Total current tax charge | | 236,153 | | 1,701,392 | +------------------------------------------+--+------------+-+-------------+ | | | | | | +------------------------------------------+--+------------+-+-------------+ | Deferred tax charge/(credit) arising on | | 1,426,827 | | (6,422,175) | | origination and reversal of temporary | | | | | | differences | | | | | +------------------------------------------+--+------------+-+-------------+ | | | | | | +------------------------------------------+--+------------+-+-------------+ | Total tax charge/(credit) for the year | | 1,662,980 | | (4,720,783) | +------------------------------------------+--+------------+-+-------------+ The differences between the total current tax shown above and the amount calculated by applying the standard rate of corporation tax are as follows: +------------------------------------------+--+--------------+-+--------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +------------------------------------------+--+--------------+-+--------------+ | | | GBP | | GBP | +------------------------------------------+--+--------------+-+--------------+ | | | | | | +------------------------------------------+--+--------------+-+--------------+ | Loss before tax | | (42,761,618) | | (82,103,375) | +------------------------------------------+--+--------------+-+--------------+ | | | | | | +------------------------------------------+--+--------------+-+--------------+ | Tax at the effective rate in Guernsey | | - | | - | | (nil%) (2008: nil%) | | | | | +------------------------------------------+--+--------------+-+--------------+ | The effects of higher tax rates in other | | (5,861,943) | | (22,945,680) | | countries | | | | | +------------------------------------------+--+--------------+-+--------------+ | Disallowable expenditure | | 84,563 | | 1,869,444 | +------------------------------------------+--+--------------+-+--------------+ | Tax losses not recognised | | 2,607,534 | | 4,592,640 | +------------------------------------------+--+--------------+-+--------------+ | Deferred tax assets arising on valuation | | 3,996,656 | | 7,374,573 | | of investment properties not recognised | | | | | +------------------------------------------+--+--------------+-+--------------+ | Prior year adjustment | | - | | 110,312 | +------------------------------------------+--+--------------+-+--------------+ | Short term timing differences | | 836,170 | | 4,211,387 | +------------------------------------------+--+--------------+-+--------------+ | Other movements | | - | | 66,541 | +------------------------------------------+--+--------------+-+--------------+ | | | | | | +------------------------------------------+--+--------------+-+--------------+ | Total tax charge/(credit) in Income | | 1,662,980 | | (4,720,783) | | Statement | | | | | +------------------------------------------+--+--------------+-+--------------+ Notes to the Consolidated Financial Statements 11. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of Shares in issue during the year. As the Group has no potentially dilutive instruments, the diluted earnings per share is equal to the basic earnings per share. +-------------------------------------------+--+--------------+-+--------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+--------------+-+--------------+ | | | GBP | | GBP | +-------------------------------------------+--+--------------+-+--------------+ | | | | | | +-------------------------------------------+--+--------------+-+--------------+ | Redeemable Preference Shares | | | | | +-------------------------------------------+--+--------------+-+--------------+ | Loss attributable to Redeemable | | (44,424,598) | | (77,382,592) | | Preference Shareholders | | | | | +-------------------------------------------+--+--------------+-+--------------+ | Weighted average number of Redeemable | | 213,496,183 | | 236,661,750 | | Preference Shares in issue (number) | | | | | +-------------------------------------------+--+--------------+-+--------------+ | | | | | | +-------------------------------------------+--+--------------+-+--------------+ | Basic loss per share | | (0.21) | | (0.33) | +-------------------------------------------+--+--------------+-+--------------+ | Diluted loss per share | | (0.21) | | (0.33) | +-------------------------------------------+--+--------------+-+--------------+ 12. DIVIDENDS +-------------------------------------------+--+------------+-+------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+------------+-+------------+ | | | GBP | | GBP | +-------------------------------------------+--+------------+-+------------+ | | | | | | +-------------------------------------------+--+------------+-+------------+ | Declared and paid during the year: | | | | | +-------------------------------------------+--+------------+-+------------+ | Equity dividends on Redeemable Preference | | | | | | Shares: | | | | | +-------------------------------------------+--+------------+-+------------+ | Interim dividend for 2008: 2.01 pence per | | - | | 4,756,901 | | share | | | | | +-------------------------------------------+--+------------+-+------------+ | Interim dividend for 2008: 1.00 pence per | | - | | 2,366,618 | | share | | | | | +-------------------------------------------+--+------------+-+------------+ | | | - | | 7,123,519 | +-------------------------------------------+--+------------+-+------------+ Notes to the Consolidated Financial Statements 13. INVESTMENT PROPERTY +------------------------------+----------+-------------+--------------+--------------+ | | | Long | Freehold | Total | | | | Leasehold | GBP | GBP | | | | GBP | | | +------------------------------+----------+-------------+--------------+--------------+ | | | | | | +------------------------------+----------+-------------+--------------+--------------+ | At 1 January 2008 | | 58,952,914 | 442,008,833 | 500,961,747 | +------------------------------+----------+-------------+--------------+--------------+ | Movement arising from | | 15,022,704 | 112,817,789 | 127,840,493 | | exchange rate variances | | | | | +------------------------------+----------+-------------+--------------+--------------+ | Acquisitions - capital | | 226,442 | 6,135,399 | 6,361,841 | | expenditure | | | | | +------------------------------+----------+-------------+--------------+--------------+ | Disposals | | (3,115,265) | (6,030,958) | (9,146,223) | +------------------------------+----------+-------------+--------------+--------------+ | Net valuation | | 84,350 | (56,828,764) | (56,744,414) | | gains/(losses) | | | | | +------------------------------+----------+-------------+--------------+--------------+ | At 31 December 2008 | | 71,171,145 | 498,102,299 | 569,273,444 | +------------------------------+----------+-------------+--------------+--------------+ | Movement arising from | | (5,477,665) | (33,518,804) | (38,996,469) | | exchange rate variances | | | | | +------------------------------+----------+-------------+--------------+--------------+ | Acquisitions - capital | | 87,323 | 1,237,787 | 1,325,110 | | expenditure | | | | | +------------------------------+----------+-------------+--------------+--------------+ | Disposals | | (3,260,146) | - | (3,260,146) | +------------------------------+----------+-------------+--------------+--------------+ | Net valuation losses | | (4,381,541) | (38,674,521) | (43,056,062) | +------------------------------+----------+-------------+--------------+--------------+ | At 31 December 2009 | | 58,139,116 | 427,146,761 | 485,285,877 | +------------------------------+----------+-------------+--------------+--------------+ The investment properties were valued at 31 December 2009 at their open market value using an income capitalisation method in accordance with the Royal Institution of Chartered Surveyors Valuation Standards. The property valuations for the year ended 31 December 2009 were carried out by Knight Frank LLP, who are external, professionally qualified valuers who have recent experience in the location and category of the investment properties being valued. For the year ended 31 December 2008, the property valuations were carried out by CB Richard Ellis Limited and King Sturge LLP. Valuation of property is based on a number of factors including existing lease terms, estimates of market rents and estimates of capitalisation rates using comparable market evidence where available. The primary judgements made in arriving at the open market values are the yields. The table below sets out the weighted average yields for the initial (as at 31 December) and equivalent yields applied on a country basis: +--------------------------------+------------+---------+----------+------------+---------+ | | 2009 | | 2008 | +--------------------------------+----------------------+----------+----------------------+ | | Equivalent | Initial | | Equivalent | Initial | | | Yield (%) | Yield | | Yield (%) | Yield | | | | (%) | | | (%) | +--------------------------------+------------+---------+----------+------------+---------+ | | | | | | | +--------------------------------+------------+---------+----------+------------+---------+ | Belgium | 7.89 | 7.96 | | 7.21 | *0.95 | +--------------------------------+------------+---------+----------+------------+---------+ | Germany | 7.83 | 7.99 | | 6.30 | 6.44 | +--------------------------------+------------+---------+----------+------------+---------+ | The Netherlands | 9.30 | 10.96 | | 6.70 | 7.92 | +--------------------------------+------------+---------+----------+------------+---------+ | France | 6.55 | 7.61 | | 5.75 | 6.12 | +--------------------------------+------------+---------+----------+------------+---------+ | Poland | 8.62 | 8.31 | | 6.75 | 6.19 | +--------------------------------+------------+---------+----------+------------+---------+ | Sweden | 7.29 | 6.72 | | 6.90 | 6.46 | +--------------------------------+------------+---------+----------+------------+---------+ *As at 31 December 2008 the weighted average initial yield for Belgium is very low as a result of rent free periods at the calculation date. As a result of the level of judgement used in the valuations, the amounts ultimately realised in respect of any given property may differ from the valuations included within the Group's Balance Sheet. As at 31 December 2009 GBP485,285,877 (2008: GBP569,273,444) of investment properties are charged as security against Group borrowings. For details on borrowings see note 21. Notes to the Consolidated Financial Statements 14. INTANGIBLE ASSETS +---------------------------+--------+-------------+ | Goodwill | | Net | | | | Amount | | | | GBP | +---------------------------+--------+-------------+ | | | | +---------------------------+--------+-------------+ | At 1 January 2008 | | 7,551,337 | +---------------------------+--------+-------------+ | | | | +---------------------------+--------+-------------+ | Movement arising from | | (623,857) | | exchange rate variances | | | +---------------------------+--------+-------------+ | Impairment of goodwill | | (6,927,480) | +---------------------------+--------+-------------+ | | | | +---------------------------+--------+-------------+ | At 31 December 2008 and | | - | | 2009 | | | +---------------------------+--------+-------------+ Goodwill of GBP6,927,480 arose as a result of the purchase of Karolinen Fastigheter AB, during the year ended 31 December 2007, which holds a portfolio of properties in Sweden. The goodwill included GBP4,970,420 arising from the provision of deferred taxation on the difference between the fair values of the investment property and their tax base. The deferred tax provision in relation to these properties had been recalculated for the year ended 31 December 2008 and was GBPnil. The recoverability of the net amount of goodwill was assessed by considering the incremental cash flows anticipated to be generated by the business over and above those accruing to individual investment properties. Based on these assessments, and reflecting the difficult financial climate as at 31 December 2008, the Directors considered it appropriate to impair the total amount of goodwill, including the goodwill arising from the initial recognition of the deferred tax provision. 15. OTHER FINANCIAL ASSETS +-------------------------------------------+--+------------+--+------------+ | | | As at | | As at | +-------------------------------------------+--+------------+--+------------+ | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+------------+--+------------+ | | | GBP | | GBP | +-------------------------------------------+--+------------+--+------------+ | Non-current | | | | | +-------------------------------------------+--+------------+--+------------+ | Other | | 2,750,508 | | 772,986 | +-------------------------------------------+--+------------+--+------------+ | | | | | | +-------------------------------------------+--+------------+--+------------+ | Current | | | | | +-------------------------------------------+--+------------+--+------------+ | Other | | 1,079,218 | | - | +-------------------------------------------+--+------------+--+------------+ | | | | | | +-------------------------------------------+--+------------+--+------------+ | Total other financial assets | | 3,829,726 | | 772,986 | +-------------------------------------------+--+------------+--+------------+ Other financial assets represent cash held in bank accounts which is pledged as collateral in respect of external debt. The collateral hold in respect of non-current external debt is disclosed within non-current assets and collateral held in respect of current external debt is disclosed within current assets. In 2008, other financial assets of GBP772,986 represented a security deposit, including interest, held by the lender under the terms of the loan facility financing the investment property held by Zattara BVBA, a Group subsidiary. The security was held as an interest bearing cash deposit, and was recoverable at the termination of the agreement in 2012. The security deposit of GBP723,908 is now shown within borrowings as during the year the Company agreed to set off the deposit against the loan value to reduce the LTV. Notes to the Consolidated Financial Statements 16. DEFERRED TAXATION +-------------------------------------------+--+-------------+--+-------------+ | | | Year | | Year | | | | ended | | ended | | | | 31-12-2009 | | 31-12-2008 | | | | | | | +-------------------------------------------+--+-------------+--+-------------+ | | | GBP | | GBP | +-------------------------------------------+--+-------------+--+-------------+ | | | | | | +-------------------------------------------+--+-------------+--+-------------+ | At 1 January | | 56,653 | | (6,728,343) | +-------------------------------------------+--+-------------+--+-------------+ | Credit/(charge) to the Income | | (1,426,827) | | 6,422,175 | | Statement | | | | | +-------------------------------------------+--+-------------+--+-------------+ | Movement arising from exchange rate | | (19,271) | | 362,821 | | variances | | | | | +-------------------------------------------+--+-------------+--+-------------+ | At 31 December | | (1,389,445) | | 56,653 | +-------------------------------------------+--+-------------+--+-------------+ The balance as at 31 December is analysed as follows: +-------------------------------------------+--+-------------+--+-------------+ | | | As at | | As at | +-------------------------------------------+--+-------------+--+-------------+ | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+-------------+--+-------------+ | | | GBP | | GBP | +-------------------------------------------+--+-------------+--+-------------+ | Deferred tax assets | | | | - | +-------------------------------------------+--+-------------+--+-------------+ | Short term timing differences | | 22,283 | | 758,369 | +-------------------------------------------+--+-------------+--+-------------+ | Tax losses | | 1,721,104 | | 1,254,377 | +-------------------------------------------+--+-------------+--+-------------+ | Arising on valuation of investment | | 48,752 | | - | | properties | | | | | +-------------------------------------------+--+-------------+--+-------------+ | Deferred tax assets - total | | 1,792,139 | | 2,012,746 | +-------------------------------------------+--+-------------+--+-------------+ | | | | | | +-------------------------------------------+--+-------------+--+-------------+ | Deferred tax (liabilities) | | | | | +-------------------------------------------+--+-------------+--+-------------+ | Short term timing differences | | (52,745) | | (204,827) | +-------------------------------------------+--+-------------+--+-------------+ | Arising on valuation of investment | | (3,128,839) | | (1,751,266) | | properties | | | | | +-------------------------------------------+--+-------------+--+-------------+ | Deferred tax (liabilities) - total | | (3,181,584) | | (1,956,093) | +-------------------------------------------+--+-------------+--+-------------+ | At 31 December | | (1,389,445) | | 56,653 | +-------------------------------------------+--+-------------+--+-------------+ As disclosed on the Consolidated Balance Sheet: +--------------------------------------------+--+-------------+--+------------+ | | | As at | | As at | +--------------------------------------------+--+-------------+--+------------+ | | | 31-12-2009 | | 31-12-2008 | +--------------------------------------------+--+-------------+--+------------+ | | | GBP | | GBP | +--------------------------------------------+--+-------------+--+------------+ | Deferred tax assets | | - | | 175,901 | +--------------------------------------------+--+-------------+--+------------+ | Deferred tax (liabilities) | | (1,389,445) | | (119,248) | +--------------------------------------------+--+-------------+--+------------+ | | | (1,389,445) | | 56,653 | +--------------------------------------------+--+-------------+--+------------+ Deferred income tax assets are recognised only to the extent that the realisation of the related tax benefit through future taxable profits is probable. At 31 December the Group did not recognise deferred income tax assets as follows: +--------------------------------------------+--+------------+--+------------+ | | | | | | +--------------------------------------------+--+------------+--+------------+ | | | 31-12-2009 | | 31-12-2008 | +--------------------------------------------+--+------------+--+------------+ | | | GBP | | GBP | +--------------------------------------------+--+------------+--+------------+ | Tax losses (with no expiry date) | | 3,491,769 | | 6,576,544 | +--------------------------------------------+--+------------+--+------------+ | Timing differences | | 3,343,185 | | 5,164,525 | +--------------------------------------------+--+------------+--+------------+ | Arising on valuation of investment | | 14,759,496 | | 10,050,720 | | properties | | | | | +--------------------------------------------+--+------------+--+------------+ | Deferred income tax assets not provided | | 21,594,450 | | 21,791,789 | +--------------------------------------------+--+------------+--+------------+ Notes to the Consolidated Financial Statements 17. DERIVATIVE FINANCIAL INSTRUMENTS +----------------------------------+----+------------+---+------------+ | | | As at | | As at | +----------------------------------+----+------------+---+------------+ | | | 31-12-2009 | | 31-12-2008 | +----------------------------------+----+------------+---+------------+ | | | GBP | | GBP | +----------------------------------+----+------------+---+------------+ | | | | | | +----------------------------------+----+------------+---+------------+ | Non-current | | | | | +----------------------------------+----+------------+---+------------+ | Interest rate swaps (not | | 6,390,792 | | 10,823,883 | | accounted for as hedges) - | | | | | | liabilities | | | | | +----------------------------------+----+------------+---+------------+ | | | | | | +----------------------------------+----+------------+---+------------+ | Current | | | | | +----------------------------------+----+------------+---+------------+ | Interest rate swaps (not | | 16,866,550 | | 11,216,042 | | accounted for as hedges) - | | | | | | liabilities | | | | | +----------------------------------+----+------------+---+------------+ | | | 23,257,342 | | 22,039,925 | +----------------------------------+----+------------+---+------------+ 18. TRADE AND OTHER RECEIVABLES +-------------------------------------------+--+------------+--+------------+ | | | As at | | As at | +-------------------------------------------+--+------------+--+------------+ | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+------------+--+------------+ | | | GBP | | GBP | +-------------------------------------------+--+------------+--+------------+ | | | | | | +-------------------------------------------+--+------------+--+------------+ | Trade receivables | | 887,929 | | 1,106,350 | +-------------------------------------------+--+------------+--+------------+ | Other taxation recoverable | | 285,298 | | 721,661 | +-------------------------------------------+--+------------+--+------------+ | Disposal proceeds receivable | | - | | 7,546,729 | +-------------------------------------------+--+------------+--+------------+ | Sundry receivables and prepayments | | 750,119 | | 916,229 | +-------------------------------------------+--+------------+--+------------+ | | | 1,923,346 | | 10,290,969 | +-------------------------------------------+--+------------+--+------------+ Trade receivables are non-interest bearing and are generally on 30 day terms. The carrying value of trade and other receivables also represents their fair value. As at 31 December 2009, trade receivables at initial value of GBP145,213 (2008: GBP62,076) were impaired and fully provided for. The movements in the provision for impairment of receivables were as follows: +-------------------------------------------+--+------------+--+------------+ | | | Individually | | | | impaired | +-------------------------------------------+--+----------------------------+ | | | 31-12-2009 | | 31-12-2008 | +-------------------------------------------+--+------------+--+------------+ | | | GBP | | GBP | +-------------------------------------------+--+------------+--+------------+ | | | | | | +-------------------------------------------+--+------------+--+------------+ | At 1 January | | 62,076 | | - | +-------------------------------------------+--+------------+--+------------+ | Charge for the year | | 83,137 | | 62,076 | +-------------------------------------------+--+------------+--+------------+ | At 31 December | | 145,213 | | 62,076 | +-------------------------------------------+--+------------+--+------------+ The Group considers that where a trade receivable is outstanding for a period of more than six months and positive response from the tenant is not forthcoming in respect of credit control action, sufficient objective evidence exists to make provision for impairment of the receivable. Notes to the Consolidated Financial Statements 18. TRADE AND OTHER RECEIVABLES (continued) At 31 December 2009, the ageing analysis of trade receivables is as follows: +-------------+-----------+--------+----------+---------+---------+---------+-----------+ | | | | Neither | Past due | | | | | past | | | | | | due | | +-------------+-----------+--------+----------+-----------------------------------------+ | | Total | | nor | 0-30 | 30-60 | 60-90 | Over | | | | | impaired | days | days | days | 90 | | | | | | | | | days | +-------------+-----------+--------+----------+---------+---------+---------+-----------+ | | GBP | | GBP | GBP | GBP | GBP | GBP | +-------------+-----------+--------+----------+---------+---------+---------+-----------+ | | | | | | | | | +-------------+-----------+--------+----------+---------+---------+---------+-----------+ | Trade | 1,033,142 | | 742,673 | 103,997 | 14,627 | 11,192 | 160,653 | | receivables | | | | | | | | +-------------+-----------+--------+----------+---------+---------+---------+-----------+ | Bad | (145,213) | | - | (5,752) | (5,217) | (1,195) | (133,049) | | debt | | | | | | | | | provision | | | | | | | | +-------------+-----------+--------+----------+---------+---------+---------+-----------+ | | 887,929 | | 742,673 | 98,245 | 9,410 | 9,997 | 27,604 | +-------------+-----------+--------+----------+---------+---------+---------+-----------+ At 31 December 2008, the ageing analysis of trade receivables is as follows: +-------------+-----------+--------+----------+---------+--------+--------+----------+ | | | | Neither | Past due | | | | | past | | | | | | due | | +-------------+-----------+--------+----------+--------------------------------------+ | | Total | | nor | 0-30 | 30-60 | 60-90 | Over | | | | | impaired | days | days | days | 90 | | | | | | | | | days | +-------------+-----------+--------+----------+---------+--------+--------+----------+ | | GBP | | GBP | GBP | GBP | GBP | GBP | +-------------+-----------+--------+----------+---------+--------+--------+----------+ | | | | | | | | | +-------------+-----------+--------+----------+---------+--------+--------+----------+ | Trade | 1,168,426 | | 489,753 | 479,937 | 71,526 | 46,605 | 80,605 | | receivables | | | | | | | | +-------------+-----------+--------+----------+---------+--------+--------+----------+ | Bad | (62,076) | | - | - | - | - | (62,076) | | debt | | | | | | | | | provision | | | | | | | | +-------------+-----------+--------+----------+---------+--------+--------+----------+ | | 1,106,350 | | 489,753 | 479,937 | 71,526 | 46,605 | 18,529 | +-------------+-----------+--------+----------+---------+--------+--------+----------+ | | | | | | | | | +-------------+-----------+--------+----------+---------+--------+--------+----------+ 19. CASH AND CASH EQUIVALENTS +---------------------------------------+--+--------------+----------+------------+ | | | As at | | As at | +---------------------------------------+--+--------------+----------+------------+ | | | 31-12-2009 | | 31-12-2008 | +---------------------------------------+--+--------------+----------+------------+ | | | GBP | | GBP | +---------------------------------------+--+--------------+----------+------------+ | | | | | | +---------------------------------------+--+--------------+----------+------------+ | Cash at bank and in hand | | 12,868,028 | | 17,743,034 | +---------------------------------------+--+--------------+----------+------------+ | Short term bank deposits | | 9,678,511 | | 8,309,556 | +---------------------------------------+--+--------------+----------+------------+ | | | 22,546,539 | | 26,052,590 | +---------------------------------------+--+--------------+----------+------------+ Cash at bank earns interest at floating rates based on daily bank deposit rates. Short term bank deposits represent amounts held in Money Market Fund accounts. Deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates. The fair value of these deposits approximates to the carrying amount as a result of the short maturity of the financial instruments concerned. Cash at bank and in hand includes deposits of GBP2,436,111 (2008: GBP3,639,462) held by one of the lenders in respect of written form leases in Germany. Notes to the Consolidated Financial Statements 19. CASH AND CASH EQUIVALENTS (continued) The currency profile of cash and cash equivalents is as follows: +------------------------------+----------------+------------+----------+------------+ | At 31 December 2009 | Cash | Short-term | | Total | | | GBP | deposits | | GBP | | | | GBP | | | +------------------------------+----------------+------------+----------+------------+ | | | | | | +------------------------------+----------------+------------+----------+------------+ | Pounds Sterling | 198,427 | 73,945 | | 272,372 | +------------------------------+----------------+------------+----------+------------+ | Polish Zloty | 535,409 | 1,209,555 | | 1,744,964 | +------------------------------+----------------+------------+----------+------------+ | Euro | 10,567,025 | 8,395,011 | | 18,962,036 | +------------------------------+----------------+------------+----------+------------+ | Swedish Kroner | 1,567,167 | - | | 1,567,167 | +------------------------------+----------------+------------+----------+------------+ | Total | 12,868,028 | 9,678,511 | | 22,546,539 | +------------------------------+----------------+------------+----------+------------+ +-------------------------------------+------------+------------+----------+------------+ | At 31 December 2008 | Cash | Short-term | | Total | | | GBP | deposits | | | | | | GBP | | GBP | +-------------------------------------+------------+------------+----------+------------+ | Pounds Sterling | 240,945 | 1,610,364 | | 1,851,309 | +-------------------------------------+------------+------------+----------+------------+ | Polish Zloty | 567,959 | 1,804,379 | | 2,372,338 | +-------------------------------------+------------+------------+----------+------------+ | Euro | 14,659,829 | 4,894,813 | | 19,554,642 | +-------------------------------------+------------+------------+----------+------------+ | Swedish Kroner | 2,274,301 | - | | 2,274,301 | +-------------------------------------+------------+------------+----------+------------+ | Total | 17,743,034 | 8,309,556 | | 26,052,590 | +-------------------------------------+------------+------------+----------+------------+ Notes to the Consolidated Financial Statements 20. SHARE CAPITAL +------------------------------------------------------+------------+----------+------------+ | | As | | As | | | at | | at | +------------------------------------------------------+------------+----------+------------+ | | 31-12-2009 | | 31-12-2008 | +------------------------------------------------------+------------+----------+------------+ | | GBP | | GBP | +------------------------------------------------------+------------+----------+------------+ | Authorised Share Capital | | | | +------------------------------------------------------+------------+----------+------------+ | 100 Founder Shares of EUR1.00 each (2008: 100 Founder | 67 | | 67 | | Shares at EUR1.00 each) | | | | +------------------------------------------------------+------------+----------+------------+ | 100 Redeemable Preference Carried Interest Shares of | - | | - | | no par value (2008: 100 Redeemable Preference | | | | | Carried Interest Shares of no par value) | | | | +------------------------------------------------------+------------+----------+------------+ | 250,000,000 Redeemable Preference Shares of no par | - | | - | | value (2008: 250,000,000 Redeemable Preference | | | | | Shares of no par value) | | | | +------------------------------------------------------+------------+----------+------------+ | 500,000,000 Convertible C Shares of no par value | - | | - | | (2008: 500,000,000 Convertible C Shares of no par | | | | | value) | | | | +------------------------------------------------------+------------+----------+------------+ | | | | | +------------------------------------------------------+------------+----------+------------+ | | 67 | | 67 | +------------------------------------------------------+------------+----------+------------+ +------------------------------------------------------+------------+----------+------------+ | | As | | As | | | at | | at | +------------------------------------------------------+------------+----------+------------+ | | 31-12-2009 | | 31-12-2008 | +------------------------------------------------------+------------+----------+------------+ | | GBP | | GBP | +------------------------------------------------------+------------+----------+------------+ | Issued Share Capital | | | | +------------------------------------------------------+------------+----------+------------+ | 2 Founder Shares of EUR1.00 each (2008: 2 Founder | 1 | | 1 | | Shares at EUR1.00 each) | | | | +------------------------------------------------------+------------+----------+------------+ | 100 Redeemable Preference Carried Interest Shares of | - | | - | | no par value (2008: 100 Redeemable Preference | | | | | Carried Interest Shares of no par value) | | | | +------------------------------------------------------+------------+----------+------------+ | 209,245,575 Redeemable Preference Shares of no par | - | | - | | value (2008: 236,661,750 Redeemable Preference | | | | | Shares of no par value) | | | | +------------------------------------------------------+------------+----------+------------+ | Nil Convertible C Shares of no par value (2008: Nil | - | | - | | Convertible C Shares of no par value) | | | | +------------------------------------------------------+------------+----------+------------+ | | | | | +------------------------------------------------------+------------+----------+------------+ | | 1 | | 1 | +------------------------------------------------------+------------+----------+------------+ Notes to the Consolidated Financial Statements 20. SHARE CAPITAL (continued) During the year, the Company proposed a Tender Offer for the purchase of up to 23,666,175 Redeemable Preference Shares at a price of 3 pence each. The Tender Offer was oversubscribed and the settlement of the valid tenders in respect to Tendered Shares purchased was effected on 27 February 2009. All of the Tendered Shares of 23,666,175 were initially held in treasury and subsequently cancelled by the Board of Directors on 5 March 2009. Following the completion of the Tender Offer the Tendered Shares were withdrawn from the Official List and from trading on the London Stock Exchange's main market for listed securities and on 5 March 2009 cancelled by board resolution. During the year, the Company purchased 3,750,000 of its Shares at a price of 3.5 pence each for cancellation. The Directors authorised the purchase of Shares following receipt of sales proceeds from the disposal of the Bramsche property. Again, the Board took a prudent view on cash available for the buy back. As a result of both the Tender Offer and Buy Back the total number of Redeemable Preference Shares in the Company is now 209,245,575. Founder Shares Founder Shares which are not redeemable, may only be issued at par value to or on behalf of the administrator and shall have the following rights: * no entitlement to receive any dividends or other distributions out of the profits of the Company; * entitlement to participate in the distributions of capital on a winding up; and * entitlement to receive notice of, and attend and vote (until such time as the Redeemable Preference Shares have been issued and allotted) at, general meetings of the Company. Redeemable Preference Shares and Convertible C Shares Redeemable Preference Shares ("Shares") were issued as a result of the initial placing. The net proceeds of the C Share issue were accounted for as a separate cash asset until the Group was at least 75 per cent invested in properties. When the Group reached this level of commitment, the C Shares were converted to Redeemable Preference Shares as provided for in the Articles of Association of the Company. Redeemable Preference Shares have the following rights in respect of the assets attributable to their own share class: * entitlement to receive, and participate in, any dividends or other distributions out of the profits of the Company; * entitlement to participate in the distributions of capital on a winding up; and * entitlement to receive notice of and attend and vote at general meetings of the Company. The Company is entitled, but not obliged, at any time at the discretion of the Board to redeem part of the Redeemable Preference Shares in issue, provided that the number of Redeemable Preference Shares that may be redeemed at any time before the Company is wound up shall not exceed 90 per cent of the Redeemable Preference Shares in issue at the date of such redemption. Redeemable Preference Carried Interest Shares (cancelled 16 March 2010) Redeemable Preference Carried Interest Shares have the following rights: * entitlement to receive, and participate in, any dividends or other distributions allocated to the Carried Interest Fund but no other or further rights to participate in any dividends or other distributions out of the profits of the Company; * entitlement on a winding up to participate in the distribution of capital to the extent of the balance of reserves in the Carried Interest Fund remaining at the date of winding up; and * no entitlement to vote at general meetings of the Company. In accordance with the Private Placing Memorandum, Rutley Capital Partners LLP was allotted all 100 Redeemable Preference Carried Interest Shares. These shares were transferred to DP Property Europe Management (Guernsey) Limited (formerly Rutley European Property Management (Guernsey) Limited) on 30 November 2009. Notes to the Consolidated Financial Statements 20. SHARE CAPITAL (continued) The capital structure of the Company consists of cash and cash equivalents as disclosed in note 19, equity comprising issued capital, reserves and retained earnings as disclosed within this note and the Consolidated Statement of Changes in Equity, and debt comprising secured loans as disclosed in note 21. The primary objective of the Company's capital management is to ensure that it maintains a diversified property portfolio, and appropriate gearing ratios in order to support its business and maximise shareholder value. The Group's gearing ratio as at 31 December 2009 was 82.48% (2008: 76.34%), which is below the maximum borrowing limit of 85%, as disclosed in the Articles of Association of the Company (raised to 95% in the new Articles of Association adopted by the EGM held on 16 March 2010). The Company manages its capital, and the investment thereof, in line with investment restrictions as included in the Prospectus and Articles of Association of the Company, as modified by the Listing Rules and Prospectus rules as appropriate. The full investment restrictions may be found in the Articles of Association that are available from the registered office of the Company. In the event of a breach of these restrictions by the Company, the Company will notify investors of such a breach through a notice published to the London Stock Exchange and Channel Islands Stock Exchange. There were no breaches in the year ended 31 December 2009. The investment policy was amended at the EGM held on 16 March 2010. Details of the revised investment policy are contained in the circular to Shareholders for the EGM and the revised Articles of Association. 21. BORROWINGS Borrowings are repayable as follows: +------------------------------------------------+-------------+-------------+ | | As at | As at | | | 31-12-2009 | 31-12-2008 | +------------------------------------------------+-------------+-------------+ | | GBP | GBP | +------------------------------------------------+-------------+-------------+ | | | | +------------------------------------------------+-------------+-------------+ | Secured bank loans | 145,161,073 | 119,592,621 | +------------------------------------------------+-------------+-------------+ | Unamortised loan arrangement fees | (820,218) | (1,052,250) | +------------------------------------------------+-------------+-------------+ | Security deposit | (723,908) | - | +------------------------------------------------+-------------+-------------+ | Current liabilities | 143,616,947 | 118,540,371 | +------------------------------------------------+-------------+-------------+ | | | | +------------------------------------------------+-------------+-------------+ | Secured bank loans | 278,439,219 | 343,472,060 | +------------------------------------------------+-------------+-------------+ | Unamortised loan arrangement fees | (1,096,158) | (1,936,782) | +------------------------------------------------+-------------+-------------+ | Non-current liabilities - in more than two | 277,343,061 | 341,535,278 | | years but not more than five years | | | +------------------------------------------------+-------------+-------------+ | | | | +------------------------------------------------+-------------+-------------+ | Total borrowings | 420,960,008 | 460,075,649 | +------------------------------------------------+-------------+-------------+ All loans are secured on the relevant properties and are held by the SPV that has title to the property concerned, and are non-transferable between SPVs. All interest on bank loans is charged at floating rates of LIBOR or EURIBOR plus margins, with the exception of a fixed rate loan at 5.7055% in Zattara BVBA in Belgium. Floating rate margins range between 0.80% and 1.35%. Interest is paid on a quarterly basis in arrears. Protection from interest rate movement is provided by interest rate swaps hedging any variable interest rate exposure, and results in effective interest rates ranging from 4.70% to 5.74%. The weighted average interest rate for the year was 5.32% (2008: 5.32%). At 31 December 2009, the Group had available GBPnil (2008: GBPnil) of undrawn committed borrowing facilities in respect of which all conditions precedent had been met. Notes to the Consolidated Financial Statements 21. BORROWINGS (continued) The carrying amounts of the Group's borrowings are denominated as follows: +---------------------+-----------+-------------+-------------+-------------+ | At 31 December 2009 | | Fixed | Floating | Total | | | | rate | rate | | | | | financial | financial | GBP | | | | liabilities | liabilities | | | | | GBP | GBP | | +---------------------+-----------+-------------+-------------+-------------+ | | | | | | +---------------------+-----------+-------------+-------------+-------------+ | Euro | | 11,527,040 | 342,294,003 | 353,821,043 | +---------------------+-----------+-------------+-------------+-------------+ | Swedish Kroner | | - | 69,779,249 | 69,779,249 | +---------------------+-----------+-------------+-------------+-------------+ | Total | | 11,527,040 | 412,073,252 | 423,600,292 | +---------------------+-----------+-------------+-------------+-------------+ +---------------------+-----------+-------------+-------------+-------------+ | At 31 December 2008 | | Fixed | Floating | Total | | | | rate | rate | | | | | financial | financial | GBP | | | | liabilities | liabilities | | | | | GBP | GBP | | +---------------------+-----------+-------------+-------------+-------------+ | | | | | | +---------------------+-----------+-------------+-------------+-------------+ | Euro | | 12,470,794 | 379,702,833 | 392,173,627 | +---------------------+-----------+-------------+-------------+-------------+ | Swedish Kroner | | - | 70,891,054 | 70,891,054 | +---------------------+-----------+-------------+-------------+-------------+ | Total | | 12,470,794 | 450,593,887 | 463,064,681 | +---------------------+-----------+-------------+-------------+-------------+ According to the external property valuations as at 31 December 2009 in local currency terms LTV ratios exceed LTV covenants ratios in 8 out of 10 facilities. The total value of loans with LTV's outside covenant ratios has fallen from approximately EUR411 million to approximately EUR336 million as a result of one of the larger loans moving back into LTV compliance. The weighted average LTV is now 87.93% against a weighted average LTV covenant of 76.62%. The Group's gearing ratio was 82% (Debt/Gross Assets) which is below the maximum borrowing limit of 95% as set out in the amended articles of the Company. All borrowings of the Group are limited recourse to each SPV borrower which means that each loan is secured on the properties and shares of the relevant SPV. In the event that lenders decide to enforce their security where LTV's exceed covenant levels, lenders can only seek recourse to the assets in the relevant SPV. If the lender, having enforced its security, sells the SPV or the asset(s) for an amount in excess of the loan amount the excess proceeds after reasonable costs are due to the company. In circumstances where a loan is called there will be a break in the fixed interest swap pertaining to the loan and any cost associated with the break of the swap will, again, be recoverable only from enforcement of the asset and pledge on shares of the SPV. No loans are subject to cross default with the exception of the loans to the SPV's in the Netherlands and France. The interest cover on all the facilities remains robust at a weighted average of 1.50 versus a weighted average interest cover covenant of 1.26. The majority of the Company's borrowings of EUR470.7million will expire during 2012. In respect of 6 out of 8 loans where LTV ratios exceed covenant levels, the group no longer has an unconditional right to defer settlement of the loans for more than 12 months from the Balance Sheet date, if covenants were to be tested by finance providers. Consequently, an amount of GBP143.6 million (EUR159.6 million) has been represented as a current liability. Although each of these 6 loans is shown as a short terms liability the corresponding asset is shown in the usual way under "Investment Property" in non-current assets. In the case of the remaining loans where there are either no issues regarding LTV covenants, or where the Company retains the right to defer settlement until loan maturity, these are treated as non-current liabilities. Notes to the Consolidated Financial Statements 22. TRADE AND OTHER PAYABLES Trade and other payables for the Group are analysed as follows: +--------------------------------------+--+------------+--+------------+ | | | As at | | As at | +--------------------------------------+--+------------+--+------------+ | | | 31-12-2009 | | 31-12-2008 | +--------------------------------------+--+------------+--+------------+ | | | GBP | | GBP | +--------------------------------------+--+------------+--+------------+ | | | | | | +--------------------------------------+--+------------+--+------------+ | Trade payables | | 2,198,054 | | 2,789,434 | +--------------------------------------+--+------------+--+------------+ | Social security and other taxes | | 330,854 | | 1,150,031 | +--------------------------------------+--+------------+--+------------+ | Sundry payables | | 1,210,702 | | 1,385,763 | +--------------------------------------+--+------------+--+------------+ | Accruals and deferred income | | 8,315,459 | | 9,511,960 | +--------------------------------------+--+------------+--+------------+ | Income tax | | 1,652,534 | | 2,299,412 | +--------------------------------------+--+------------+--+------------+ | | | 13,707,603 | | 17,136,600 | +--------------------------------------+--+------------+--+------------+ Trade payables are non-interest bearing and are normally settled on 30 day terms or as otherwise agreed with suppliers. All other payables are non-interest bearing and have an average term of three months. Interest payable, included within accruals and deferred income, is normally settled quarterly throughout the financial year, or as prescribed by the terms of the relevant loan agreement. 23.FINANCIAL RISK FACTORS The Group's activities create exposures to a variety of financial risks: market risk (including interest rate risk and currency risk), credit risk and liquidity risk. The overall risk management programme focuses on the unpredictability of financial markets and specific risks pertaining to the real estate market, and seeks to minimise potential adverse effects on financial performance. Derivative financial instruments are used to hedge exposure to interest rate risks. The Group's principal financial instruments, other than derivatives, comprise bank loans, cash and cash equivalents, trade receivables and trade payables. Risk management is undertaken by the Board in association with the Manager. The Board provides outlines of policies and principles for overall risk management, including foreign exchange risk and interest rate risk, and the use of derivative financial instruments. The Manager will recommend operating strategies to the Board on the basis of the policy outlines, and this includes regular reviews of the existing property portfolio. Notes to the Consolidated Financial Statements 23. FINANCIAL RISK FACTORS (continued) (a) Market risk (i) Interest rate risk All interest on floating rate bank loans is swapped to fixed rates through the use of interest rate swaps, and therefore a change in interest rates would have no effect on the Group's interest payable. As the market interest rate has fallen during the year this has resulted in the interest rate swaps being a net liability of GBP23,257,342 as at 31 December 2009 (2008: GBP22,039,925). This reflects the downward movement of the Euribor and Stibor, resulting in a lower market rate than the fixed rate interest terms. The following table demonstrates the sensitivity of the fair value of the interest rate swaps to possible changes in the Euribor and Stibor, with all other variables held constant. +--------+-------------------+--------------+---------------+ | | Increase/decrease | Effect | Effect | | | interest rate | on | on | | | | equity | profit/(loss) | | | | | before tax | | | | GBP | GBP | | | | | | +--------+-------------------+--------------+---------------+ | 2009 | + 1% | 6,489,530 | 6,422,091 | +--------+-------------------+--------------+---------------+ | | -1% | (10,160,760) | (10,055,168) | +--------+-------------------+--------------+---------------+ | | | | | +--------+-------------------+--------------+---------------+ | 2008 | + 1% | 11,106,005 | 9,056,338 | +--------+-------------------+--------------+---------------+ | | -1% | (13,021,272) | (10,618,134) | +--------+-------------------+--------------+---------------+ | | | | | +--------+-------------------+--------------+---------------+ The effect of the management of net debt through using derivatives to hedge interest rate risk is as follows: +--------------------------+------------+--------------+--------------+ | 2009 | Fixed rate | Floating | Total | | | GBP | rate | GBP | | | | GBP | | +--------------------------+------------+--------------+--------------+ | Cash and cash | - | 136,021 | 136,021 | | equivalents - interest | | | | | receivable | | | | +--------------------------+------------+--------------+--------------+ | Borrowings - interest | (659,880) | (10,701,841) | (11,361,721) | | payable | | | | +--------------------------+------------+--------------+--------------+ | Net interest - | (659,880) | (10,565,820) | (11,225,700) | | pre-derivative | | | | +--------------------------+------------+--------------+--------------+ | Derivative effect | - | (11,289,419) | (11,289,419) | +--------------------------+------------+--------------+--------------+ | Net interest | (659,880) | (21,855,239) | (22,515,119) | +--------------------------+------------+--------------+--------------+ +--------------------------+------------+--------------+--------------+ | 2008 | Fixed rate | Floating | Total | | | GBP | rate | GBP | | | | GBP | | +--------------------------+------------+--------------+--------------+ | Cash and cash | - | 473,689 | 473,689 | | equivalents - interest | | | | | receivable | | | | +--------------------------+------------+--------------+--------------+ | Borrowings - interest | (589,877) | (22,550,755) | (23,140,632) | | payable | | | | +--------------------------+------------+--------------+--------------+ | Net interest - | (589,877) | (22,077,066) | (22,666,943) | | pre-derivative | | | | +--------------------------+------------+--------------+--------------+ | Derivative effect | - | 1,930,545 | 1,930,545 | +--------------------------+------------+--------------+--------------+ | Net interest | (589,877) | (20,146,521) | (20,736,398) | +--------------------------+------------+--------------+--------------+ Notes to the Consolidated Financial Statements 23. FINANCIAL RISK FACTORS (continued) (ii) Currency risk The Group principally maintains capital, invests, borrows and generates income and expenditure in Euros. The Company's functional currency is the Euro. The Group seeks to limit its exposure to currency risk and manages this exposure through the acquisition of assets with debt held in the same currency. The Group's most significant exposure to currency risk is a result of the translation of the financial results to the presentation currency, Pounds Sterling, at the Balance Sheet reporting dates. The following table demonstrates the sensitivity to possible changes in the Euro exchange rate with the reporting currency of Pounds Sterling, with all other variables held constant. +--------+-------------------+-------------+---------------+ | | Increase/decrease | Effect | Effect | | | in Euro rate | on | on | | | | equity | profit/(loss) | | | | | before tax | | | | GBP | GBP | | | | | | +--------+-------------------+-------------+---------------+ | 2009 | + 5% | 2,836,605 | (2,304,723) | +--------+-------------------+-------------+---------------+ | | -5% | (2,566,449) | 2,085,265 | +--------+-------------------+-------------+---------------+ | | | | | +--------+-------------------+-------------+---------------+ | 2008 | + 5% | 5,561,480 | (4,307,283) | +--------+-------------------+-------------+---------------+ | | -5% | (5,031,825) | 3,897,062 | +--------+-------------------+-------------+---------------+ | | | | | +--------+-------------------+-------------+---------------+ Notes to the Consolidated Financial Statements 23. FINANCIAL RISK FACTORS (continued) (b) Credit risk Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group. The Group's principal financial assets are cash and bank deposits of GBP22,546,539 (2008: GBP26,052,590) and trade and other receivables of GBP1,923,346 (2008: GBP10,290,969). The most significant credit risk concentration occurs where un-invested funds are held in short-term, highly liquid cash deposit accounts. To mitigate this risk, cash and deposits are only held with reputable banking institutions, with credit ratings of A or above. The largest individual credit exposure at the Balance Sheet date is an amount of GBP4,466,069 (2008: GBP4,540,217) that represents the amount held on deposit in Euro by the parent company. The deposit is held in a highly liquid short term money market investment account. Following the year end, the Group is undertaking to invest its cash into a greater number of deposit accounts with reputable banks with credit ratings of A or above to reduce its credit risk. The Directors consider that there is limited credit risk arising from operating activities, given the limited concentration and the procedures that are in place in respect of tenant agreements. These include obtaining credit checks and credit histories for significant tenants. Given the risk of a weakening occupational market in Europe, the Directors are aware that there could be increased risk of tenant defaults. However, there is no evidence of material tenant defaults. The credit strength of the tenant base is constantly under review. An analysis of the largest tenants is given on page 8. Notes to the Consolidated Financial Statements 23. FINANCIAL RISK FACTORS (continued) (c) Liquidity risk Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. In order to minimise the liquidity risk the Group seeks to maintain sufficient cash reserves in order to meet operating commitments. The Group also invests any surplus cash into highly liquid short-term investments. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of short term deposits. However, as set out in note 2, the portfolio valuations as at 31 December 2009 indicated that certain Group debt facilities are above the LTV covenant ratios. A formal breach of covenant would occur if a Lender requests that the SPV commissions a valuation on behalf of the bank by the Lender's recommended external professional valuer and the bank subsequently declares a formal breach supported by such valuation or the bank declares a formal breach supported by the valuation produced by the Company. Formal breaches have occurred with respect to some of the German borrowings. The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments. +-------------+--------+--------+-------------+-------------+-------------+ | At 31 December | | Less | 1-5 | Total | | 2009 | | than | years | | | | | 12 | | | | | | months | | | +----------------------+--------+-------------+-------------+-------------+ | | | | GBP | GBP | GBP | +-------------+--------+--------+-------------+-------------+-------------+ | | | | | | | +-------------+--------+--------+-------------+-------------+-------------+ | Interest | | | 157,958,354 | 284,611,074 | 442,569,428 | | bearing | | | | | | | loans | | | | | | | and | | | | | | | borrowings | | | | | | +-------------+--------+--------+-------------+-------------+-------------+ | Trade | | | 9,031,672 | 1,037,939 | 10,069,611 | | and | | | | | | | other | | | | | | | payables | | | | | | +-------------+--------+--------+-------------+-------------+-------------+ | Derivative | | | 22,982,093 | 13,432,223 | 36,414,316 | | financial | | | | | | | instruments | | | | | | +-------------+--------+--------+-------------+-------------+-------------+ | | | 189,972,119 | 299,081,236 | 489,053,355 | +----------------------+--------+-------------+-------------+-------------+ | | | | | | +----------------------+--------+-------------+-------------+-------------+ | At 31 December | | Less | 1-5 | Total | | 2008 | | than | years | | | | | 12 | | | | | | months | | | +----------------------+--------+-------------+-------------+-------------+ | | | GBP | GBP | GBP | +----------------------+--------+-------------+-------------+-------------+ | | | | | | +----------------------+--------+-------------+-------------+-------------+ | Interest | | 148,171,209 | 410,598,351 | 558,769,560 | | bearing loans | | | | | | and borrowings | | | | | +----------------------+--------+-------------+-------------+-------------+ | Trade and other | | 14,837,188 | - | 14,837,188 | | payables | | | | | +----------------------+--------+-------------+-------------+-------------+ | Derivative | | 6,790,132 | 20,728,187 | 27,518,319 | | financial | | | | | | instruments | | | | | +----------------------+--------+-------------+-------------+-------------+ | | | 169,798,529 | 431,326,538 | 601,125,067 | +-------------+--------+--------+-------------+-------------+-------------+ The fair value of cash and cash equivalents approximates to book value due to its short-term maturity. The book value of bank loans approximates to fair value, as these loans are predominantly at floating rates. The fair value of trade and other receivables and trade and other payables approximates to the book value of these balances. Interest rate swap assets and liabilities are recorded at fair value. Notes to the Consolidated Financial Statements 23. FINANCIAL RISK FACTORS (continued) (d) Fair value hierarchy The following table shows an analysis of the fair values of financial instruments recognised in the Consolidated Balance Sheet by level of the fair value hierarchy*: +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | At 31 December | |Level | | Level | |Level | | Total | | 2009 | | 1 | | 2 | | 3 | | fair | | | | | | | | | | value | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | | | GBP | | GBP | | GBP | | GBP | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | | | | | | | | | | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | Derivative | | - | | 23,257,342 | | - | | 23,257,342 | | financial | | | | | | | | | | instruments | | | | | | | | | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | | | | | | | | | | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | At 31 December | |Level | | Level | |Level | | Total | | 2008 | | 1 | | 2 | | 3 | | fair | | | | | | | | | | value | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | | | GBP | | GBP | | GBP | | GBP | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | | | | | | | | | | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ | Derivative | | - | | 22,039,925 | | - | | 22,039,925 | | financial | | | | | | | | | | instruments | | | | | | | | | +--------------------+----------+-------+----------+------------+----------+-------+----------+------------+ *Explanation of the fair value hierarchy: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date Level 2 - Use of a model with inputs (other than quoted prices included in level 1) that are directly or indirectly observable market data Level 3 - Use of a model with inputs that are not based on observable market data Notes to the Consolidated Financial Statements 24. OPERATING LEASE ARRANGEMENTS The Group as a lessor: The Group has entered into commercial property leases on its investment property portfolio, consisting of office, retail and residential properties. At the Balance Sheet date, the Group had total future minimum sublease payments receivable under non-cancellable operating subleases of GBP171.0 million (2008: GBP215.5 million). The Group's portfolio of receivable operating leases comprises approximately 1,000 (2008: 1,000) lease contracts. Contract periods range between 0.04 and 19 years as at 31 December 2009 (0.03 and 20 years as at 31 December 2008). The Group's leases often provide for upward revision of rent during the lease term by linking to a specified index. The future minimum lease payments receivable under non-cancellable operating leases in the aggregate are as follows for each of the following periods: +-----------------------------------------------+------------+-+-------------+ | | As at | | As at | | | | | | +-----------------------------------------------+------------+-+-------------+ | | 31-12-2009 | | 31-12-2008 | +-----------------------------------------------+------------+-+-------------+ | | GBP | | GBP | +-----------------------------------------------+------------+-+-------------+ | Less than one year | 37,834,156 | | 45,173,190 | +-----------------------------------------------+------------+-+-------------+ | One to five years | 89,083,445 | | 108,827,069 | +-----------------------------------------------+------------+-+-------------+ | More than five years | 44,077,784 | | 61,526,117 | +-----------------------------------------------+------------+-+-------------+ | | | | | +-----------------------------------------------+------------+-+-------------+ The Group as a lessee: The Group leases office space in certain jurisdictions in Europe for its own administrative use. The future minimum lease payments payable under non-cancellable operating leases in the aggregate are as follows for each of the following periods: +----------------------------------------------+------------+-+------------+ | | As at | | As at | +----------------------------------------------+------------+-+------------+ | | 31-12-2009 | | 31-12-2008 | +----------------------------------------------+------------+-+------------+ | | GBP | | GBP | +----------------------------------------------+------------+-+------------+ | Less than one year | 230,583 | | 268,714 | +----------------------------------------------+------------+-+------------+ | One to five years | 484,990 | | 835,803 | +----------------------------------------------+------------+-+------------+ | More than five years | - | | - | +----------------------------------------------+------------+-+------------+ | | | | | +----------------------------------------------+------------+-+------------+ The expense recognised in the Income Statement in respect of minimum lease payments was GBP239,299 (2008: GBP216,222). Notes to the Consolidated Financial Statements 25. RELATED PARTY TRANSACTIONS During the year, the Group entered into transactions, in the normal course of business, with related parties. Transactions entered into and balances outstanding at 31 December with related parties are set out below: +-----------------------+--------+----------+-----------+-+------------+ | | | | Purchases | | Amounts | | | | | of | | owed to | | | | | services | | related | | | | | from | | parties | | | | | related | | | | | | | parties | | | +-----------------------+--------+----------+-----------+-+------------+ | | | | GBP | | GBP | +-----------------------+--------+----------+-----------+-+------------+ | | | | | | | +-----------------------+--------+----------+-----------+-+------------+ | The Manager | | | | | | +-----------------------+--------+----------+-----------+-+------------+ | 2009 | | | 3,135,038 | | - | +-----------------------+--------+----------+-----------+-+------------+ | 2008 | | | 3,701,319 | | 6,655 | +-----------------------+--------+----------+-----------+-+------------+ | | | | | | | +-----------------------+--------+----------+-----------+-+------------+ | Affiliates of the | | | | | | | Manager | | | | | | +-----------------------+--------+----------+-----------+-+------------+ | 2009 | | | 364,426 | | 25,613 | +-----------------------+--------+----------+-----------+-+------------+ | 2008 | | | 221,762 | | 18,763 | +-----------------------+--------+----------+-----------+-+------------+ | | | | | | | +-----------------------+--------+----------+-----------+-+------------+ The key management personnel of the Group are considered to be the Directors of the Company. Directors Details of Directors' emoluments and interests in Shares can be found in the Directors' Report and note 7 to the Consolidated Financial Statements. Shareholders DP Global Properties Limited (formerly Black Sea Global Properties Limited) owns 73.5% of the share capital of the Company, giving it a controlling stake. There were no transactions between the Group and DPGP during the year. Manager Up to 30 November 2009 the Manager, Rutley Capital Partners LLP, was entitled to receive a fee paid in accordance with the Management Agreement as disclosed in note 27 to these Consolidated Financial Statements. For the year ended 31 December 2009, the total amount charged to the Income Statement is disclosed as above. The Board announced the termination of the management agreement between the Company and Rutley Capital Partners LLP, a wholly owned subsidiary of Knight Frank LLP, with effect from 30 November 2009. From 1 December 2009 certain employees from Rutley Capital Partners LLP were transferred to a wholly owned subsidiary DPPEML (formerly Rutley European Property Management Limited) to provide similar non discretionary management services. Affiliates of the Manager Up to 30 November 2009 affiliates of the Manager, Rutley Capital Partners LLP, include other entities within the Knight Frank LLP Group. Compensation of senior personnel of the non discretionary management Group +-----------------------+--------+----------+------------+-+------------+ | | | | Year | | Year ended | | | | | ended | | 31-12-2008 | | | | | 31-12-2009 | | | | | | | | | | +-----------------------+--------+----------+------------+-+------------+ | | | | GBP | | GBP | +-----------------------+--------+----------+------------+-+------------+ | | | | | | | +-----------------------+--------+----------+------------+-+------------+ | Short-term employee | | | 59,794 | | - | | benefits | | | | | | +-----------------------+--------+----------+------------+-+------------+ | | | | | | | +-----------------------+--------+----------+------------+-+------------+ | | | | 59,794 | | - | +-----------------------+--------+----------+------------+-+------------+ The above costs exclude Directors' emoluments. Notes to the Consolidated Financial Statements 26. GROUP ENTITIES DP Property Europe Limited (formerly Rutley European Property Limited), ("the Company"), is the parent of the Group. The Group is comprised of the subsidiaries: Directly owned by DP Property Europe Limited (formerly Rutley European Property Limited) at 31 December 2009 +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | DP Property Europe | Luxembourg | 25 | 100% | | Holdings S.à r.l | | November | | | (formerly Rutley | | 2005 | | | European Property | | | | | Holdings S.à r.l.) | | | | +-----------------------+----------------+---------------+-----------+ | DP Property Europe | Guernsey | 27 | 100% | | Management (Guernsey) | | November | | | Limited (formerly | | 2009 | | | Rutley European | | | | | Property Management | | | | | (Guernsey) Limited) | | | | +-----------------------+----------------+---------------+-----------+ Rutley European Property Holdings S.à r.l. changed its name to DP Property Europe Holdings S.à r.l on 17 March 2010. Rutley European Property Management (Guernsey) Limited changed its name to DP Property Europe Management (Guernsey) Limited on 24 March 2010. Owned by DP Property Europe Management (Guernsey) Limited (formerly Rutley European Property Management (Guernsey) Limited ) DP Property Europe Management (Guernsey) Limited (formerly Rutley European Property Management (Guernsey) Limited), incorporated in Guernsey, is wholly owned by DP Property Europe Limited (formerly Rutley European Property Limited). +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | DPPEML (formerly | United Kingdom | 30 | 100% | | Rutley European | | November | | | Property Management | | 2009 | | | Limited) | | | | +-----------------------+----------------+---------------+-----------+ Rutley European Property Management Limited changed its name to DP Property Europe Management Limited on 26 March 2010. Owned by DP Property Europe Holdings S.à r.l. (formerly Rutley European Property Holdings S.à r.l.) DP Property Europe Holdings S.à r.l (formerly Rutley European Property Holdings S.à r.l.), incorporated in Luxembourg, is wholly owned by DP Property Europe Limited (formerly Rutley European Property Limited). +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | RE German Small | Luxembourg | 8 August | 100% | | Properties Two | | 2006 | | | General Partners S.à | | | | | r.l. (formerly RE | | | | | German Office 2 | | | | | General Partners S.à | | | | | r.l.) | | | | +-----------------------+----------------+---------------+-----------+ | RE German Office | Luxembourg | 25 July | 100% | | General Partners S.à | | 2006 | | | r.l. | | | | +-----------------------+----------------+---------------+-----------+ | RE Mosse Zentrum | Luxembourg | 7 April | 100% | | General Partners | | 2006 | | | S.à r.l. | | | | +-----------------------+----------------+---------------+-----------+ | RE German Small | Luxembourg | 20 June | 100% | | Properties General | | 2006 | | | Partners S.à r.l. | | | | +-----------------------+----------------+---------------+-----------+ | RE Netherlands | The | 5 July | 100% | | Property Investments | Netherlands | 2006 | | | BV | | | | +-----------------------+----------------+---------------+-----------+ | RE Investments S.à | Luxembourg | 7 April | 100% | | r.l. | | 2006 | | +-----------------------+----------------+---------------+-----------+ | RE German Properties | Luxembourg | 17 July | 100% | | Two General Partners | | 2007 | | | S.à r.l. | | | | +-----------------------+----------------+---------------+-----------+ | Zattara BVBA | Belgium | 6 February | 1% | | | | 2006 | | +-----------------------+----------------+---------------+-----------+ | RE German Properties | Luxembourg | 25 April | 100% | | General Partners S.à | | 2007 | | | r.l. | | | | +-----------------------+----------------+---------------+-----------+ Notes to the Consolidated Financial Statements 26. GROUP ENTITIES (continued) Owned by RE Investments S.à r.l. RE Investments S.à r.l., incorporated in Luxembourg, is wholly owned by DP Property Europe Holdings S.à r.l (formerly Rutley European Property Holdings S.à r.l.). +-----------------------+---------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+---------------+---------------+-----------+ | RE German Office S.à | Luxembourg | 25 July | 100% | | r.l. | | 2006 | | +-----------------------+---------------+---------------+-----------+ | RE German Small | Luxembourg | 8 August | 100% | | Properties Two S.à | | 2006 | | | r.l. (formerly RE | | | | | German Office 2 S.à | | | | | r.l.) | | | | +-----------------------+---------------+---------------+-----------+ | RE Mosse Zentrum S.à | Luxembourg | 7 April | 100% | | r.l. | | 2006 | | +-----------------------+---------------+---------------+-----------+ | RE German Small | Luxembourg | 20 June | 100% | | Properties S.à r.l. | | 2006 | | +-----------------------+---------------+---------------+-----------+ | RE Polish Property SP | Poland | 27 June | 100% | | Zoo | | 2006 | | +-----------------------+---------------+---------------+-----------+ | RE Polish Property 1 | Poland | 5 | 100% | | SP Zoo | | September | | | | | 2006 | | +-----------------------+---------------+---------------+-----------+ | RE Polish Property 2 | Poland | 5 | 100% | | SP Zoo | | September | | | | | 2006 | | +-----------------------+---------------+---------------+-----------+ | Carmel Investments SP | Poland | 9 March | 100% | | Zoo | | 2006 | | +-----------------------+---------------+---------------+-----------+ | Zattara BVBA | Belgium | 6 February | 99% | | | | 2006 | | +-----------------------+---------------+---------------+-----------+ | RE Netherlands Office | The | 31 May | 100% | | BV | Netherlands | 2007 | | +-----------------------+---------------+---------------+-----------+ | RE French Investments | Luxembourg | 25 April | 100% | | S.à r.l. | | 2007 | | +-----------------------+---------------+---------------+-----------+ | RE French Investments | Luxembourg | 25 May | 100% | | 2 S.à r.l. | | 2007 | | +-----------------------+---------------+---------------+-----------+ | RE Sweden Properties | Sweden | 23 April | 100% | | AB | | 2007 | | +-----------------------+---------------+---------------+-----------+ | RE German Properties | Luxembourg | 17 July | 100% | | Two S.à r.l. | | 2007 | | +-----------------------+---------------+---------------+-----------+ | RE German Properties | Luxembourg | 25 April | 100% | | S.à r.l. | | 2007 | | +-----------------------+---------------+---------------+-----------+ Owned by RE German Office S.à r.l. +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE German Office S.à | Germany | 24 July | 100% | | r.l. & Co. KG | | 2006 | | +-----------------------+----------------+---------------+-----------+ Owned by RE German Small Properties Two S.à r.l. (formerly RE German Office 2 S.à r.l.) +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE German Small | Germany | 9 | 100% | | Properties Two S.à | | September | | | r.l. & Co. KG | | 2006 | | | (formerly RE German | | | | | Office 2 | | | | | S.à r.l. & Co. KG) | | | | +-----------------------+----------------+---------------+-----------+ Owned by RE Mosse Zentrum S.à r.l. +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE Mosse Zentrum S.à | Germany | 7 April | 100% | | r.l. & Co. KG | | 2006 | | +-----------------------+----------------+---------------+-----------+ Owned by RE German Small Properties S.à r.l. +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE German Small | Germany | 18 July | 100% | | Properties S.à r.l. & | | 2006 | | | Co. KG | | | | +-----------------------+----------------+---------------+-----------+ Notes to the Consolidated Financial Statements 26. GROUP ENTITIES (continued) Owned by RE German Properties S.à r.l. +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE German Properties | Germany | 22 May | 100% | | S.à r.l. & Co. KG | | 2007 | | +-----------------------+----------------+---------------+-----------+ Owned by RE French Investments S.à r.l. +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE French Investments | France | 13 June | 99.9% | | SCI | | 2007 | | +-----------------------+----------------+---------------+-----------+ Owned by RE French Investments 2 S.à r.l. +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | RE French Investments | France | 13 June | 0.01% | | SCI | | 2007 | | +-----------------------+----------------+---------------+-----------+ Owned by RE Sweden Properties AB +-----------------------+----------------+---------------+-----------+ | Subsidiary | Country of | Date of | Ownership | | | incorporation | incorporation | interest | +-----------------------+----------------+---------------+-----------+ | | | | | | Karolinen Fastigheter | Sweden | 11 March | 100% | | AB | | 2004 | | +-----------------------+----------------+---------------+-----------+ 27. MATERIAL AGREEMENTS Up to 30 November 2009, Rutley Capital Partners LLP was appointed as the Manager of the Group pursuant to a Management Agreement dated 15 December 2005. Under the terms of the Management Agreement, the Manager was entitled to a management fee of 2% of adjusted capital (the sum of gross issue proceeds and retained capital gains less capital returned and realised capital losses) payable quarterly in arrears. On 30 November 2009 the Board announced the termination of the management agreement between the Company and Rutley Capital Partners LLP, a wholly owned subsidiary of Knight Frank LLP, with effect from 30 November 2009. Certain employees of Knight Frank LLP who were providing services to the Company were transferred to a newly incorporated wholly owned UK subsidiary of the Company, DPPEML (formerly Rutley European Property Management Limited). In accordance with the Private Placing Memorandum, Rutley Capital Partners LLP was allotted all 100 Redeemable Preference Carried Interest Shares, details of which are described in note 20 to these Consolidated Financial Statements. These shares were transferred to DP Property Europe Management (Guernsey) Limited (formerly Rutley European Property Management (Guernsey) Limited on 30 November 2009. Notes to the Consolidated Financial Statements 28. POST BALANCE SHEET EVENTS An EGM was held on 16 March 2010 by the Shareholders and it was agreed that a number of corporate actions be taken by the Company following the completion of the offer and the internalisation of the management function, these were as follows: · updating the Company's investment policy, including a change to permit additional investments after 31 December 2009 and to increase the gearing limit to 95% of the Company's gross assets on a consolidated basis; · removing the limit on the authorised share capital of the Company in relation to no par value shares of the Company; · changing the Company's name; · extending the life of the Company beyond 31 December 2013; · redesignating the Preference Shares and the C Shares of the Company as Ordinary Shares (none of the C Shares have been issued by the Company at present); · cancelling the Redeemable Preference Carried Interest Shares; · replacing the existing objects clause in the memorandum of incorporation of the Company with a new unrestricted objects clause; and · adopting new articles of incorporation of the Company in order, inter alia, to take account of the foregoing proposals and recent Guernsey company law developments. Management and administration _______________________________________________________________________________ ________________________ Directors David Pinckney (Chairman) David Allison Nicholas Moss Christopher Sherwell Obie Moore Michael Lloyd (resigned 18 March 2010) _______________________________________________________________________________ ________________________ Registered Office Trafalgar Court Les Banques St. Peter Port Guernsey _______________________________________________________________________________ ________________________ Administrator, Secretary and Registrar Northern Trust International Fund Administration Services (Guernsey) Limited P.O. Box 255 Trafalgar Court Les Banques St. Peter Port Guernsey GY1 3QL _______________________________________________________________________________ ________________________------------------ Auditor Ernst & Young LLP 1 More London Place London SE1 2AF _______________________________________________________________________________ ________________________ Legal Advisers As to Guernsey Law As to UK Law Ozannes Nabarro Berwin Leighton Paisner LLP P.O. Box 186 Lacon House Adelaide House 1 Le Marchant Street 84 Theobald's Road London Bridge St. Peter Port London London Guernsey WC1X 8RW EC4R 9HA GY1 4HP _______________________________________________________________________________ ________________________ External Valuation Agents Knight Frank LLP 55 Baker Street London W1U 8AN _______________________________________________________________________________ ________________________ Management and administration (continued) _______________________________________________________________________________ ________________________ Tax Advisers Ernst & Young LLP KPMG LLP 1 More London Place 1 Canada Square London London SE1 2AF E14 5AG _______________________________________________________________________________ ________________________ Corporate Finance Advisers Lazard & Co. Limited Spencer House Partners LLP 50 Stratton Street 15 St James's Place London London W1J 8LL SW1A 1NP _______________________________________________________________________________ ________________________ Brokers Oriel Securities Limited 125 Wood Street London EC2V 7AN _______________________________________________________________________________ ________________________ All Enquiries: David Pinckney, Chairman DP Property Europe Limited 020 7659 7495 Nick Burnell, Managing Director / Marcus Davidson-Wright, Finance Director DP Property Europe Management Limited 020 7861 1230 / 1543 Tom Durie / Neil Langford Oriel Securities 020 7710 7600 This information is provided by RNS The company news service from the London Stock Exchange END FR SEISUMFSSEEL
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