2012

REPORT AND ACCOUNTS OF THE DUCHY OF LANCASTER This Report & Accounts is printed by Witherbys Print London which holds the ISO 14001 Environmental Management certification. FOR THE YEAR ENDED 31 MARCH 2012

The printing inks are made using vegetable-based oils. 95% of the cleaning solvents are recycled for further use, and 94% of the waste associated with this product will be recycled.

The paper used for this publication is 9 lives 55 Silk made from 55% recovered fibres including a minimum of 25% post consumer waste and 45% ECF virgin fibre. Duchy of Lancaster Report and accounts of the Duchy of Lancaster for the year ended 31 March 2012

Presented to Parliament pursuant to Section 2 of the Duchies of Lancaster and Cornwall (Accounts) Act 1838

1 Duchy of Lancaster

Financial Highlights for the year to 31 March 2012

Revenue 2012 2011 Change £m £m %

• Total gross income 18.06 18.48 -2.2%

• Net operating income 12.68 13.87 -8.6%

• Surplus payable to the Keeper 12.87 13.28 -3.1% of the Privy Purse

Capital 2012 2011 Change £m £m %

• Total capital value 405.34 383.19 +5.8%

Surplus Payable (£m) Total Capital Value (£m) Change over previous year (%) Change over previous year (%)

£m £m

15 450 14 6.1% 0.0% 0.1% 13 -3.1% 5.8% 7.6% 400 0.2% 12 10.0%

11 350 7.9%

10 -19.1%

9 300

8

7 250

6

5 200 2008 2009 2010 2011 2012 20012008 2002 2009 2003 2010 2004 2011 2005 2012

2 Duchy of Lancaster

Report of Council

Operating Review His Honour Mr Justice Richards relinquished his role as Vice Chancellor to be replaced by His Honour Mr Introduction Justice Briggs, a former Attorney General to the As anticipated last year, 2012 has not been an easy Duchy, while our Attorney General, Mr Robert year for occupiers or the Duchy, but notwithstanding Hildyard has been appointed a High Court Judge. We this, the results for the year have shown the resilience have subsequently appointed Mr Robert Miles as our of the Duchy portfolio in adverse financial markets new Attorney General. We would like to record our and the benefits to be gained from the continued thanks to both retiring Duchy Officers and to all drive to improve the quality of the assets within the those who have provided support and advice to the portfolio. With the refurbishment of Wellington Duchy and its management, both past and present. House, the purchase of a new agricultural es tate in Lincolnshire and the consolidation of our ownership Financial performance on the Tower Bridge Business Park we believe that we The financial statements have been prepared for the are placing ourselves in a stronger position with these first time in accordance with International Financial prime assets while continuing to work on new Reporting St andards (IFRS). Further information schemes and initiatives within the existing portfolio. regarding the impact of this can be found on page 16. Our environmental effort was highlighted by our new Diamond Jubilee Woods at Needwood. This Net Operating Income has reduced in the year by plantation has been designated into the Woodland 8.6% to £12.7m (2011: £13.9m). The Net Surplus Trust’s Jubilee Woods scheme to commemorate Her delivered to the Keeper of the Privy Purse Majesty’s Diamond Jubilee. The site includes the consequently decreased by 3.1% to £12.9m (2011: planting of over 5,000 trees, 830 metres of new £13.3m). The most significant impact on performance hedgerow creation and 320 metres of hedgerow was the loss of income in the year arising from the restoration and was marked by a ceremonial planting decision to refurbish the office space within of an oak tree in May 2011. Wellington House. In addition, the Duchy has not been i mmune from the economic slowdown with the failure of a significant tenant within one of our largest industrial units at Centenary Park, Manchester and other smaller failures, resulting in debt write-offs in the year of £0.2m. This has resulted in a reduction in the commercial income for the year, but there has been encouraging and consistent income growth from the other asset classes within the Duchy.

Capital has performed well, with an increase in Net Asset Value of 5.8% to £405.3m (2011: £383.2m) which is the first time that the Duchy has passed through the £400m barrier. The continued recovery The ceremonial planting of the Diamond Jubilee from 2009 has been shared across all parts of the Woods, Needwood portfolio but again with particularly strong contributions from both the agricultural and The Duchy has added to the strength of its team commercial portfolios. through the appointment of Mr Tim Crow to the newly created post of Head of Legal Services. Day to Despite the decrease in Net Operating Income in the day management of individual Rural Surveys is year, the performance over the last ten years has seen undertaken by Smiths Gore, Savills and Bidwells and Net Surplus grow by 67%, delivering over £121m to at the end of the year we were delighted to welcome the Keeper of The Privy Purse over that period. In Mr Philip Coles on a part-time secondment from addition, capital has grown by £184m or 84% over Smiths Gore to act as the Duchy’s Rural Surveyor of the same ten year timeframe. Lands. He will oversee the management and strategic direction of the rural assets and brings many years of experience to the Duchy Office.

3 Duchy of Lancaster

Report of Council (continued)

Compound % change in Surplus payable 100%

75%

50% Compound % growth 25%

0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Paid to Privy Purse RPIX 68 Willow Walk, South London

Compound % change in Capital Value On the Urban Survey the opportunity arose to 100% purchase 68 Willow Walk, the one commercial unit on the Tower Bridge Business Park, London which we did

75% not own. The unit is let to City Link and, together with the two units let to the Metropolitan Police and the Royal Mail, represents a good long term income 50% investment in a prime area with considerable growth potential. Compound % growth 25% Sales for the year totalled £12.4m while purchases were slightly in excess of this at £14.6m.

0% 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Harrogate Ladies College has been part of the Capital Value RPIX Duchy’s Harrogate estate for many years and negotiations continue for the surrender and re-grant Asset Management of a new modern form of lease which provides both 2012 will be marked as a year of substantial activity parties with security for the future. The balance of within the agricultural sector of our portfolio as the the Harrogate estate and the Stray are “ancient Winmarleigh Estate (Lancashire) was sold with the inheritance” and located within an affluent regional majority of our tenants taking the opportunity to town. With the predominantly res idential holding purchase their farms. The sales programme was having been diminished in the seventies and eighties initiated to achieve a rebalancing of the land holding as a result of leasehold enfranchisement, a core away from our dominance in the dairy sector towards holding remains which the Duchy will seek to a greater exposure to the arable sector, resulting in improve in the medium term. the purchase of 1,000 acres in Donington, Lincolnshire. This land is grade 1 and 2 and superior to the majority of our current agricultural holdings. At the same time, an outlying farm in Midville, Lincolnshire was sold as was New Lodge, Needwood, where the Duchy secured planning consent for redevelopment as new houses. These sales, together with other residential sales, continue the policy of reducing the number of peripheral and non-core properties so managemen t can concentrate upon the enhancement of the underlying quality of assets on core estates.

Harrogate Ladies College

4 Duchy of Lancaster

Report of Council (continued)

The City of Lancaster is another conurbation where to the North of Scarborough. These are early days the Duchy has an opportunity to make a contribution but the initial results from their investigations are to the local environment by identifying a new use for positive, identifying a substantial reserve of potash at Lancaster Castle following the surrender of the lease a deep level.S irius will continue their investigations as a prison by the Ministry of Justice. A team of over the next year and will be consulting with major consultants has been appointed to undertake this stakeholders throughout the project, including work and it is hoped that the initial investigations as seeking planning permission for a mine head and to potential future uses will be concluded by the extraction at a location to be identified. autumn of 2012. This is a 75,000 square foot building with a fascinating history and a considerable Mineral interests are a relatively small element of potential for both the Duchy and the City of the Duchy portfolio but windfall opportunities do Lancaster. However, we do not underestimate the emphasise the importance of protecting those challenges that this presents. interests. The Land Registration Act has necessitated mineral owners to register their titles with the Land Registry and the Duchy has been doing this in respect of both its surface and mineral ownership. The exercise was completed for the Lancashire foreshore holding in 2010/11 and has greatly simplified the identification of opportunities while equally informing all adjoining owners and operators of the precise Duchy ownership. The entire registration project is due to be completed in 2013.

John O’Gaunt Gate, Lancaster Castle

Computer Generated Image of Wellington House including the ne w 7th floor Inside the Shire Hall, Lancaster Castle The refurbishment of Wellington House continues At the end of the year we surrendered an apace and is on target and budget with completion intermediary leasehold interest in Creechurch House, expected in September. This is the last programmed London, to the freeholder, the City of London major project on the Savoy Estate for the next few Corporation, to release some capital from a very low years and the loss of income has had a detrimental yielding asset. The interest was purchased in 1957 but effect upon returns for 2011/12 but will contribute to never achieved its potential and as such was felt to be the anticipated growth in future. The letting market a drain upon portfolio performance. in this particular area is still reasonably strong and our agents remain confident that the space will let Sirius Minerals, operating as York Potash, has entered wel l once completed. With the continued successful into a prospecting agreement with the Duchy and promotion of Somerset House, bringing London other landowners in the Cloughton and Scalby Estates Fashion Week and Jewellery Week to the vicinity,

5 Duchy of Lancaster

Report of Council (continued) it is becoming recognised as a media and design hub considering our posit ion following the refusal. The popular with employees as well as new and existing Crewe Green Village expansion has undergone the businesses. The Duchy has been involved in the Duchy’s voluntary consultation stage and we are promotion, together with other major businesses in working up with our development partner an the area, of the Northbank Business Improvement application which will be submitted in the summer. District, comprising of the Strand, Aldwych and The Government’s National Planning Policy Trafalgar Square area, with the active support of Framework (NPPF) was published in late March 2012 Westminster City Council. This will raise the profile and it is to be seen whether the strategy of and attractiveness of the general area of which the encouraging the controlled, sustainable growth of Savoy Estate is a part. much needed housing in this country will be achieved. The Duchy believes that its responsible Liquidity and the Financial Portfolio approach to its development programme is consistent As the Duchy remains fully invested, it does not have with the objectives of the NPPF. significant cash reserves. Although long term strategic asset allocation targets and quality improvement objectives are the main drivers of the sales and purchases programme, we will still take advantage of any opportunistic purchases if they are deemed appropriate for the improvement of performance.

The Duchy has maintained m odest levels of borrowing (£31m) and has continued to benefit from historically low floating interest rates throughout the period. However, in accordance with the revised borrowing policy and risk mitigation, about one third of this debt is now on a fixed rate for the remaining Artist’s sketch of Meremoor Barns conversion duration of the loan. On a more positive note, planning consent has been The financial portfolio remains the source of achieved to convert the Meremoor Barns, Crewe, into immediately realisable cash for the Duchy. The four houses while at Scalby Farm, Yorkshire, management of the quoted portfolio has been placed following the success of our first holiday in the hands of a single manager ,Newton Investment accommodation, consent has been obtained to Management Limited, which has helped to enhance redevelop the redundant steading into a complex of accountability and reduce administration. In addition, 21 units in two phases. Demolit ion of the surplus we have appointed Stanhope Jewson as investment farm buildings has been completed and the project consultants to maintain an independent watch over should catch the Christmas and New Year letting the whole of the financial portfolio. This market. The quality will be to a 5 star standard and arrangement has worked well during the year with let through English Country Cottages in an area total return of 6.8%. In addition to the beneficial where such accommodation is not readily available. performance during the year, the financial portfolio The high level of occupancy and repeat business provides a flexible home for surplus funds, while encouraged us to continue to expand our exposure to p roviding the all-important liquidity as and when the leisure market but concentrating upon groups of needed. smaller, well located properties which are easier to l et, maintain and manage. Development The last year has been one of frustration and Charitable activities uncertainty in relation to those major schemes which The Duchy of Lancaster Benevolent Fund maintained we are seeking to undertake. The planning its level of donations to local charities at application for Cloughton Village, Yorkshire was £400,000.The Duke of Lancaster Housing Trust is heard in April by the Scarborough Borough Council continuing to support the rural economy and its first planning committee which rejected our proposals. A affordable housing project in Dunsop Bridge, huge volume of work and consultation with the local Lancashire, comprising of twelve new houses, is community had been undertaken and we are nearing completion.

6 Duchy of Lancaster

Report of Council (continued)

Surplus Payable to Privy Purse 14,000

12,000

10,000

8,000

£’000s 6,000

4,000

2,000

0 1952 1962 1972 1982 1992 2002 2012

The affordable housing project in Dunsop Bridge In 2012 the Duchy provided the Keeper of the Privy Purse £12.9m. We have a thriving, vibrant and Two further projects are being investigated near the diversified landed estate with a committed and Yorkshire Survey and at Needwood in Staffordshire professional staff working with and for the benefit which may add a further twenty rural affordable of those who live, work or visit our Surveys. Life is homes. more hectic, regulated and demanding but everyone involved with this organisation, both past and The Queen’s Chapel of the Savoy is undergoing present, holds an immense sense of pride in what the substantial remodelling works to extend the Queen’s Duchy stands for and what has been achieved over Robing Room and upgrade the substandard offices the last 60 years. The Duchy will continue to serve the and kitchen facilities used by the Chapel Sovereign in future years with loyalty, dedication and congregation and staff. Co mpletion of the building enthusiasm. works will be in September and at that time a new stained glass window will be installed to celebrate Her Majesty The Queen’s Diamond Jubilee.

Conclusion This year we celebrate Her Majesty’s Diamond Jubilee. The Duchy is proud to have supported Her Majesty The Queen over the 60 years of her reign and is well placed to continue that support for generations to come. For the 1952 financial year the Duchy paid to the Keeper of the Privy Purse £110,000 and the S tatement of Accounts comprised just four pages. Capital valuations were not undertaken and undoubtedly the pace of working life on the Surveys and the Duchy Office was much more sedate than today.

Her Majesty The Queen

7 Duchy of Lancaster

Report of Council (continued)

Constitution and Review of Governance The Duchy of Lancaster charitable funds The Duchy of Lancaster charitable funds comprise Background separate registered charities set up with The Queen’s The estates and assets of the Duchy of Lancaster are consent. The Duchy of Lancaster Benevolent Fund, defined by Charter, granted by Henry IV upon taking constituted in 1993, makes donations to a wide range the throne in 1399, as a separate inheritance from the of charitable causes primarily within the County Crown Estate and to be administered independently Palatine. The Duchy of Lancaster Jubilee Trust was from those estates. The revenues are payable to the constituted in 2001 to benefit charitable causes in Sovereign. all areas associated with the Duchy. The Duke of Lancaster Housing Trust was constituted in 2007 The Duchy is a body incorporated by Charter in 1461 to provide affordable rural housing initially within which is both an owner of property and the medium estates in the ownership of the Duchy. The accounts throu gh which certain Palatine rights and of these funds are published separately and are responsibilities are exercised in Lancashire, Greater available from the Charity Commission and from Manchester and Merseyside. Its origins lie in the grant the Duchy Office. of lands to Edmund, the first Earl of Lancaster, in 1265 and in the elevation of Lancaster to a County Political and charitable donations Palatine in 1351. There were no political donations. There were no charitable donations other than the net income from The Duchy manages the property and investments bona vacantia and Palatinate account credited to the in its ownership and discharges the administrative Duke of Lancaster Housing Trust, as described above. duties associated with the Duchy’s Palatinate rights and responsibilities in Lancashire, Greater Manchester Payment policy and Merseyside. The net revenues from property and It is the policy of the Duchy of Lancaster to pay its investments are paid to the Keeper of the Privy Purse suppliers by the due date specific to each transaction. for Her Majesty The Queen. The Duchy is not subject The effect of this policy is that the average period to Corporation Tax as it is not a separate legal entity between invoice date and payment date was 29 days for tax purposes; however, Her Majesty The Queen (2011: 30 days). voluntarily pays Income Tax on Revenue received from the Duchy. Administration The Duchy of Lancaster is administered on behalf of Duchy Capital and Revenue the Sovereign by the Chancellor of the Duchy, and by The Duchy of Lancaster is governed by a number of the Clerk of the Council. The current Chancellor is the statutes which place constraints and controls upon Rt Hon Lord Strathclyde (appointed 13 May 2010). the management and admini stration of the Duchy and its Assets. The principal Acts are: Th e Proper Officers are responsible for the preparation of accounts which are submitted to the • The Crown Lands Act of 1702 Treasury and presented to both Houses of Parliament. • The Duchy of Lancaster Act 1817 The accounts are prepared in compliance with the • The Duchy of Cornwall and Duchy of Lancaster Treasury Direction set out on pages 37-38. Act 1838 • The Duchy of Lancaster Lands Act 1855 The Chancellor has designated the members of the • The Duchy of Lancaster Act 1920 Duchy of Lancaster Council as the Proper Officers and • The Duchy of Lancaster Act 1988 the Chairman of Council and Clerk of the Council are • The Trustee Act 2000 authorised to sign the accounts on behalf of Council.

The Sovereign is entitled neither to the Duchy’s Council of the Duchy of Lancaster Capital nor to Capital profits. The Chancellor is responsible to Her Majesty The Queen in connection with the affairs of the Duchy of Church Livings Lancaster separate from his or her Parliamentary role. Her Majesty The Queen is Patron of 42 Church Livings On 1 July 2000 the then Chancellor revocably in Right of Her Duchy of Lancaster. delegated certain functions, particularly those relating to asset management, to Council. The

8 Duchy of Lancaster

Report of Council (continued) revocable Delegation has been reaffirmed by The Proper Officers are responsible for the successive Chancellors. Certain powers have been maintenance and integrity of the corporate and excluded from the Delegation which relate to senior financial information included on the Duchy’s Duchy appointments and such powers conferred website. upon the Chancellor by Statute. The Clerk of the Council is a member of Council and reports to that So far as the Proper Officers are aware, there is no body, with Council being responsible to the relevant audit information of which the Duchy’s Chancellor. auditors are unaware. The Proper Officers have taken all the steps that they ought to have taken as Proper The members of Council who served since 1 April Officers in order to make themselves aware of any 2011 were: relevant audit information and to establish that the Duchy’s auditors are aware of that information. The Lord Shuttleworth KCVO (Chairman of the Council) • Council believes that it is good practice periodically to Mr Paul Clarke CVO (Chief Executive and Clerk of • tender the external audit function. the Council) Sir Alan Reid KCVO (The Receiver General) • Environmental Policy • Mr Robert Hildyard QC (The Attorney General) – The Duchy of Lancaster is committed to being retired 2 April 2012 environmentally responsible in the way it is run. The • Mr Robert Miles QC (The Attorney General) – key components of the policy are addressing climate appointed 2 April 2012 change, reducing waste and encouraging biodiversity. • Ms Anne Richards • Mr Hugh Seaborn The evaluation and operation of the policy and • Mr Mark Hudson associated procedures is monitored and reviewed by • Mr Christopher Adcock the Management Committee, with overview by • Mr Martin Beaumont Council, to ensure that they remain effective and appropriate to the activities of the Duchy. Council is a body to which appointments are made by Her Majesty The Queen on the advice of the Statement on corporate governance Chancellor. The Combined Code on Corporate Governance (the UK Corporate Governance Code) issued by the Responsibilit ies of the Proper Officers Financial Reporting Council is widely acknowledged The Proper Officers are responsible for ensuring that as representing best practice in governance. Although proper accounting records are maintained with the Duchy of Lancaster is not obliged to comply with respect to the affairs of the Duchy and for preparing the requirements of the Code, Council nevertheless the annual Report and Accounts in accordance with supports the principles and provisions set out in the applicable law and International Financial Reporting Code, and seeks to comply with the code in so far as Standards and for submitting the Report and it is applicable to the circumstances of the Duchy of Accounts annually to the Lords’ Commissioners of the Lancaster. A full compliance statement is produced Treasury in an agreed form. The Proper Officers are internally and annually reviewed by Council. The only also responsible for safeguard ing the Duchy’s assets sub committee of Council is the Audit Committee. and for maintaining a satisfactory system of control over transactions affecting Duchy property. Internal control and risk The Duchy of Lancaster operates within a control In preparing the accounts the Proper Officers will: framework appropriate for its size. This incorporates: • select suitable accounting policies and apply them • a defined management struc ture with the consistently; appropriate delegation of authority to operational make judgements and estimates that are • management; reasonable and prudent; setting detailed annual budgets and reporting ensure that applicable accounting standards have • • annual results against them; been followed, subject to any material departures regular reviews of periodic and annual financial disclosed and explained in the accounts; and • reports which indicate financial performance • prepare the account s on a going concern basis. against forecasts; • setting targets to measure financial and other performance;

9 Duchy of Lancaster

Report of Council (continued)

• physical and computer security procedures and • Interest rate risk contingency planning; and The Duchy has an approved debt policy and • risk assessment reviews. hedging strategy in place in order to maintain interest rate risk at an agreed and manageable Principal risks and uncertainties level. The Duchy seeks to ensure that the risks encountered Liquidity risk by it are identified, quantified where possible, • The Duchy seeks to ma intain liquidity within its understood and managed appropriately. A financial portfolio to satisfy short term cash comprehensive risk register has been prepared and is requirements and in addition looks to maintain reviewed by Council annually and any actions headroom within its borrowing covenants. Long required are taken. In addition, an annual risk review term liquidity is reviewed and addressed as part is presented to Council which considers the key areas of the five year budgeting process. of property income risk across the Duchy portfolio. The principal risks faced by the Duchy are shown • Environmental risk below. The comprehensive risk register highlights the key environmental risks which are reviewed annually Strategic risk • along with the mitigating controls and actions. The Duchy carries out a five year strategic review and budget and prepares rolling forecasts on a The Proper Officers are responsible for ensuring that quarterly basis. In addition, a 2025 rural vision an effective system of internal financial controls is document has been prepared to review long term maintained and operated by the Duchy. The Proper trends and assess options for continued and Officers’ review of the system of these controls is ongoing viability of Duchy operations. informed by comments made by the external • Property risk auditors in their management letter and other The principal property risk is the loss of inc ome. reports. A full annual review of tenants and sectors is performed to ensure a well-diversified tenant base Going Concern and to assess the target of improving the covenant The Duchy’s financial projections show that it has strength and diversification across the Duchy considerable financial resources and is forecast to portfolios. operate within its available cash flows for a period of at least twelve months. The Proper Officer s report Development risk • that, following a review of the relevant financial The Duchy has a robust evaluation process and information, they have a reasonable expectation seeks to manage the development cycle including that the Duchy has adequate resources to continue obtaining planning consents and controlling the in operation for the foreseeable future. Accordingly, construction process. Construction risk is managed they continue to adopt the going concern basis of in-house using external advisors and contrac tors as accounting in preparing the annual financial appropriate. statements. • Investment risk The Duchy employs an investment consultant to advise and an investment manager to manage the financial portfolio. The portfolio is reviewed Shuttleworth quarterly to ensure that it remains in line with the Paul R Clarke risk and return objectives as set by the Duchy. London 4 July 2012

10 Duchy of Lancaster

Independent Auditors’ Report to the Council of the Duchy of Lancaster

We have audited the financial statements of the financial statements. If we become aware of any Duchy of Lancaster for the year ended 31 March 2012 apparent material misstatements or inconsistencies which comprise the Revenue Account Statement of we consider the implications for our report. Comprehensive Income, the Capital Account Statement of Comprehensive Income, the Balance Opinion on financial statements Sheet, the Statement of Changes in Capital and In our opinion the financial statements: Reserves, the Statement of Cash Flows and the • give a true and fair view of the state of affairs of related notes. These accounts have been prepared the Duchy as at 31 Mar ch 2012 and of its result for under the accounting policies set out therein. the year then ended; and

The financial reporting framework that has been • have been properly prepared in accordance with applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) International Financial Reporting Standards (IFRSs) as as adopted by the European Union and as applied adopted by the European Union and as applied to the to the Duchy of Lancaster by the Accounts Duchy of Lancaster by the Accounts Direction given Direction given by the Treasury dated 14 March by the Treasury dated 14 March 2012. 2012; and • have been prepared in accordance with the This report is made solely to the Council, as a body. requirements of the Accounts Direction given by Our audit work has been undertaken so that we the Treasury dated 14 March 2012. might state to the Council those matters we ar required to state to them in an auditors’ report and Opinion on other matter for no other purpose. To the fullest extent permitted In our opinion the information given in the Report of by law, we do not accept or assume responsibility to Council for the financial year for which the financial anyone other than the Council as a body, for our statements are prepared is consistent with the audit work, for this report, or for the opinions we financial statements. have formed. Matters on which we report by exception Respective responsibilities of the Proper Officers We have nothing to report in respect of the following and auditors matters where we are required to report to you if, in As explained more fully in the Proper Officer’s our opinion: Responsibilities Statement on page 9, the Proper Officers are responsible for the preparation of the • adequate accounting records have not been kept financial statements and for being satisfied that they by the Duchy, or returns adequate for our audit give a true and fair view. Our responsibility is to audit have not been received from branches not visited and express an opinion on the financial statements in by us; or accordance with applicable law and International • the Duchy financ ial statements are not in Standards on Auditing (UK and Ireland). Those agreement with the accounting records and standards require us to comply with the Auditing returns; or Practices Board’s Ethical Standards for Auditors. • certain disclosures of Proper Officers’ remuneration as specified by the Accounts Scope of the audit of the financial statements Direction given by the Treasury dated 14 March An audit involves obtaining evidence about the 2012 are not made; or amount s and disclosures in the financial statements sufficient to give reasonable assurance that the • we have not received all the information and financial statements are free from material explanations we require for our audit. misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting Nicholas Kelsey policies are appropriate to the Duchy’s circumstances (Senior Statutory Auditor) and have been consistently applied and adequately disclosed; the reasonableness of significant For and on behalf of accounting estimates made by the Proper Officers; Saffery Champness and the overall presentat ion of the financial Chartered Accountants statements. In addition, we read all the financial and Statutory Auditors non-financial information in the Report of Council to London identify material inconsistencies with the audited 4 July 2012

11 Duchy of Lancaster

Revenue Account Statement of Comprehensive Income

Year ended Year ended 31 March 2012 31 March 2011 Restated Note £’000 £’000

Revenue 2 15,129 15,560 Operating costs 3 (3,173) (2,714) Administrative expenses (1,179) (1,176)

Operating surplus 10,777 11,670 Finance income 5 2,935 2,918 Finance costs 6 (1,037) (721)

Net operating income 12,675 13,867 Development expenditure (607) (925) Development expenditure recovered from Capital 1,018 435 Net proceeds of bona vacantia 9 1,560 1,598 Payable to the Duchy of Lancaster charitable funds (1,560) (1,598)

Net surplus for the year 13,086 13,377

Other comprehensive income: Actuarial (loss)/gain on retirement benefit obligations 20 (655) 1,084

Total comprehensive income on Revenue account 12,431 14,461

Capital Account Statement of Comprehensive Income

Year ended Year ended 31 March 2012 31 March 2011 Note £’000 £’000

Net gain from fair value adjustment on investment property 12 22,643 28,484 Net (loss)/gain from fair value adjustment on other property 13 (8) 276 Net (loss)/gain on the revaluation of financial assets 14 (103) 5,047 Repayments to capital: Proportion of mineral royalties 3 96 37 Less recovery of Capital valuation fees (54) (37) Net income/(expenditure) from escheats 5 (11)

Surplus for the year 22,579 33,796

Total comprehensive income on Capital account 22,579 33,796

These accounts have been prepared for the first time in accordance with International Financial Reporting Standards (IFRSs) – see note 1 for further details.

The notes to the accounts on pages 16 to 34 are an integral part of these financial statements.

12 Duchy of Lancaster

Balance sheets

31 March 2012 31 March 2011 1 April 2010 Restated Restated Note £’000 £’000 £’000

Assets Non-current assets Investment property 12 379,583 349,062 321,269 Property, plant and equipment 13 2,509 2,505 2,229 Financial assets 14 53,516 61,945 53,270

Total non-current assets 435,608 413,512 376,768

Current assets Investment property assets held for sale 15 2,967 3,523 1,100 Trade and other receivables 16 2,539 2,101 1,391 Cash and cash equivalents 17,880 6,834 5,851

Total current assets 23,386 12,458 8,342

Total assets 458,994 425,970 385,110

Liabilities Current liabilities Trade and other payables 17 (17,463) (8,898) (8,320)

Total current liabilities (17,463) (8,898) (8,320)

Non-current liabilities Borrowings 18 (31,000) (31,000) (25,000) Provisions 19 (4,079) (2,199) (1,713) Retirement benefit obligations 20 (1,114) (680) (1,865)

Total non-current liabilities (36,193) (33,879) (28,578)

Total liabilities (53,656) (42,777) (36,898)

Net assets 405,338 383,193 348,212

Capital and reserves Capital Account 405,902 383,323 349,527 Revenue Account 279 58 (43) Retirement benefit reserve 20 (843) (188) (1,272)

Total reserves 405,338 383,193 348,212

Shuttleworth Paul R Clarke

4 July 2012

In accordance with IFRS 1 the opening balance sheet under IFRS is included as a primary statement. See note 1 for further details.

The notes to the accounts on pages 16 to 34 are an integral part of these financial statements.

13 Duchy of Lancaster

Statement of Changes in Capital and Reserves

Capital Revenue Total account account Capital Revenue Retirement reserve reserve benefit reserve Note £’000 £’000 £’000 £’000

Balance as at 1 April 2010 (restated) 349,527 (43) (1,272) 348,212 Net surplus for the year 33,796 13,377 47,173 Other comprehensive income: Actuarial gain on retirement benefit obligations 20 1,084 1,084 Less amounts payable to the Privy Purse (13,276) (13,276)

Balance as at 31 March 2011 (restated) 383,323 58 (188) 383,193

Net surplus for the year 22,579 13,086 35,665 Other comprehensive income: Actuarial loss on retirement benefit obligations 20 (655) (655) Less amounts payable to the Privy Purse (12,865) (12,865) Balance as at 31 March 2012 405,902 279 (843) 405,338

14 Duchy of Lancaster

Statement of Cash Flows

Year ended Year ended 31 March 2012 31 March 2011 Restated Note £’000 £’000

Cash generated from operating activities 21 21,051 11,316 Interest paid (1,037) (721)

Net cash from operating activities 20,014 10,595 Cash flows from investing activities Purchase of investment property (19,747) (17,172) Purchase of financial investments (1,680) (47,755) Purchase of property, plant and equipment (41) (27) Proceeds from disposal of investment properties 12,425 21,440 Proceeds from disposal of financial investments 10,416 44,246 Financial investment income 2,935 2,918

Net cash inflow from investing activities 4,308 3,650 Cash flows from financing activities Payments made to the Privy Purse (13,276) (13,262)

Increase in cash in the year 11,046 983 Cash and cash equivalents at start of year 6,834 5,851

Cash and cash equivalents at end of year 17,880 6,834

15 Duchy of Lancaster

Notes to the accounts

First time adoption of International Financial Reporting Standards In the current year the Duchy of Lancaster has adopted International Financial Reporting and Accounting Standards (IFRSs) as modified by H M Treasury for the first time. IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied to provide a starting point for reporting under International Financial Reporting and Accounting Standards. IFRS 1 sets out the transition rules which must be applied when IFRSs are adopted for the first time.

The comparative figures have been restated to reflect the new IFRS accounting policies and standards.

Separate Statements of Comprehensive Income are presented for the Revenue account and the Capital account which represents a departure from the requirements of IFRS. IFRS require the presentation of a single Statement of Comprehensive Income. This departu re is necessary due to the separate nature of the Duchy Revenue and Capital accounts, and because only the surplus of the Revenue account may be distributed to the Privy Purse and no distribution may be made of the proceeds from the disposal of capital assets or the gains or losses on their revaluation. The Statement of Changes in Capital and Reserves is also analysed between the Revenue and Capital accounts. These variations to IFRS are as specified in the Accounts Direction g iven by H M Treasury set out on pages 37-38.

The principal impacts of adopting IFRS are set out in note 23. The transition to IFRS has had no impact on the surplus distributable to the Privy Purse nor on the cash flows of the Duchy.

1. Accounting policies (a) Basis of accounting The accounts have been prepared under the historical cost convention as modified by the revaluation of property investments and in accordance with all applicable accounting standards. The accounts are in compliance with the Treasury Direction set out on pages 37-38, in accordance with International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board as adopted by the European Union and as modified by HM Treasury.

At the date of approval of these financial statements the following standards and guidelines relevant to the Duchy of Lancaster were in issue but not effective for the current financial period:

IFRS 7 Financial Instr uments: Disclosures 1 January 2013 IFRS 9 Financial Instruments 1 January 2015 IFRS 13 Fair Value Measurement 1 January 2013 IAS 19 Employee Benefits 1 January 2013 IAS 32 Financial Instruments: Presentation 1 January 2013

These are not expected to have a material impact on the Duchy of Lancaster’s Financial Statements.

(b) Operating leases The Proper Officers have exercised judgement in determining that in all material respects, where the Duchy of Lancaster is the lessor, all such leases are accounted for as operating leases. In excersing this judgement consideration has been given to the nature and economic life of the buildings (which are all accounted for within investment properties), the split of lease rentals between the land and buildings elements, and whether substantially all the risks and rewards of ownership remain with the Duchy.

(c) Valuation of property Investment property, investment property assets held for sale and owner occupied property are all held at fair value. The policy of the Duchy is to have the investment and operational property assets independently valued at least every five years. In the current year, the commercial properties and land held for development were mainly valued externally.

16 Duchy of Lancaster

Notes to the accounts (continued)

All the valuations are in accordance with the principles of the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors as follows: (i) Investment properties including land held for development and properties occupied by the Duchy are valued on the basis of Market Value, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a w illing seller in an arm’s-length transaction after proper marketing wherein the parties had acted knowledgeably, prudently and without compulsion. Mineral bearing land is valued on the basis of Existing Use Value. (ii) Mineral and foreshore assets are only valued where a letting exists, where entry has occurred, or where an interest is likely to be sold in the next year for a capital premium. (iii) Castles and other historical properties which are not commercially let are valued at the lower of depreciated replacement cost and net realisable value, or, where there is no market in assets of that type and the property could not be physically reconstructed, a nil value is applied.

The indirect property investment is shown at latest formal independent valuation.

The aggregate surplus or deficit arising from revaluation is transferred to the Capital Account, which is not distributable.

The purchase or sale of property is recognised from the dat e on which an unconditional contract is entered into or the last substantive condition in a conditional contract is satisfied. The profit or loss on disposal of property is taken to the Capital Account Statement of Comprehensive Income. Investment properties held for sale are shown in the Balance Sheet as investment property within current assets.

(d) Owner occupied property Properties occupied by the Duchy of Lancaster are valued on the basis of fair value. The propereties ar included within property, plant and equipment. Any surplus or deficit arising on revaluation is taken directly to the Capital Account Statement of Comprehensive Income.

No depreciation is provided in respect of these properties: Owner occupied property is maintained to a high standard and will continue to be so. As a result the residual value of the property at the point where the Duchy would cease to use it, or would dispose of it, is expected to be materially in lin e with fair value. As such, any depreciation (between fair value and residual value) at any point would be immaterial.

(e) Valuation of financial assets Financial assets are classified as available for sale. Quoted investments are shown at fair value, determined on market value based on quoted prices. Unquoted investments are shown at latest independent valuation. Any profit or loss is taken to the Capital Account Statement of Comprehensive Income.

(f) Depreciation (i ) In accordance with IFRS 17 no depreciation is provided on investment properties. (ii) Revenue fixed assets are depreciated over their estimated useful lives on a straight line basis, applying the following rates: Motor vehicles 20% per annum Plant and equipment, including computers 20-25% per annum

(g) Woodlands Sales of timber and expenditure relating to the upkeep of the woodlands are included in the Revenue Account.

(h) Recognition of income Income from property and interest income is accounted for on an accruals basis. Dividends and income from bona vacantia are accounted for when received.

17 Duchy of Lancaster

Notes to the accounts (continued)

(i) Mineral rents and royalties The receipts from mineral royalties are apportioned on the basis of one half to Capital and one half to Revenue.

(j) Pension liabilities and post retirement benefits Defined benefit pension scheme current service costs relating to the year, together with the scheme interest cost less the expected return on the scheme assets for the year, are recorded in administrative expenses within the Revenue account. Actuarial gains and losses are recognised in the Revenue Account Statement of Comprehensive Income.

The scheme assets are measured at fair value at the balance sheet date. Scheme liabilities are measured on an actuarial basis at the balance sheet date using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent term to the scheme liabilities. The resulting defined bene fit liability is presented within the provisions for liabilities in the balance sheet.

Contributions by the Duchy to personal pension arrangements of 10% of salaries up to age 50 and 13% of salaries thereafter are charged to the Revenue account as they fall due.

(k) Development expenditure (Development site and other project expenditure) Legal and professional costs incurred in bringing forward land for development and other potential Capital projects are charged to R evenue. These costs can be recovered from Capital only when there is a disposal for a Capital sum of an interest in the land concerned, or when the potential Capital projects are commenced.

Internal costs relating to staff time spent working on Capital projects are also charged to Capital on completion of the project.

(l) Bona vacantia Proceeds of bona vacantia comprise the residue of assets and liabilities which have fallen to be dealt with by the Solicitor for the Affairs of the Duchy of Lancaster acting as a Corporation Sole under the Administration of Estates Act 1925, the Companies Act 2006, and other relevant legislation.

Net income from bona vacantia and the sale of escheated property, after allocations for future liabilities and the costs of administering bona vacantia, is applied to the costs of Palatinate administration and historical obligations, and, at the direction of the Council, the balance is transferred to the Duchy of Lanc aster Jubilee Trust, a separate registered charity.

The proceeds from bona vacantia are accounted for by the Duchy in the year in which they are received and represent the proceeds received from estates settled by the Solicitor for the Affairs of the Duchy of Lancaster in the year ended 30 September 2011. The accounts of the Solicitor for the Affairs of the Duchy of Lancaster for the year ended 30 September 2011 are, for the purposes of information, set out on page 36.

(m) Herita ge assets There is no International Financial Reporting Standards equivalent to the UK GAAP Heritage Assets standard, FRS 30. However the Duchy continues to refer to those assets previously treated as Heritage Assets as such. Heritage assets are a collection of assets that the Duchy has held over the centuries. These assets are considered to be of historic and artistic importance and cover a range of items including paintings, furniture and works on paper. Certain Heritage Assets of the Duchy are held by museums, galleries or other institutions open to the public, where they are on loan and managed as part of their permanent collections.

18 Duchy of Lancaster

Notes to the accounts (continued)

The Duchy’s Heritage Assets are managed by the Assistant Keeper of the Records who reports to the Keeper of the Records, being the Chief Executive of the Duchy. In addition, a register of the Duchy’s Heritage Assets is maintained on a database and there are a number of paper records which relate to individual collections. All objects are subject to regular reviews to verify location and any change in conservation status. Where appropriate specialist conservation and curatorial advice is sought from relevant experts.

It is the intention that the Duchy’s Heritage Assets will be held for the long term. In exceptional circumstances, Council may consider a disposal of objects and there are no current plans to add further to the collection.

The assets hold no material value except to the extent that they add to the cultural and historical wealth of the country and accordingly they are not shown a s assets within these financial statements.

(n) Provisions Provisions are recognised for legitimate claims on Estates declared to be bona vacantia and whose assets have already been distributed.

(o) Trade and other receivables Trade and other receivables are stated at amortised cost less appropriate allowances for estimated irrecoverable amounts. Such allowances are based on an individual assessment of each receivable.

(p) Trade payables Trade payables are recog nised initially at fair value and subsequently measured at amortised cost.

(q) Borrowings Borrowings are initially recognised at fair value and subsequently measured at amortised cost.

2. Revenue 2012 2011 £’000 £’000

Income from Property Commercial 9,655 9,168 Agricultural 3,021 2,766 Residential 1,930 1,894 Mineral rents and royalties 270 169 Indirect property investment income 253 1,563

Total 15,129 15,560

19 Duchy of Lancaster

Notes to the accounts (continued)

3. Operating costs Repairs and Repayments Total Total other direct to Capital costs 2012 2011 £’000 £’000 £’000 £’000

Expenditure on property Commercial 757 – 757 477 Agricultural 308 – 308 320 Residential 379 – 379 387 Mineral rents and royalties – 96 96 37

1,444 96 1,540 1,221 Staff costs, administration and professional fees 1,633 – 1,633 1,493 Total 3,077 96 3,173 2,714

4. Leasing: Operating leases with tenants The Duchy of Lancaster leases out all of its investment properties under operating leases with, on average, 25 years remaining to expiry. The aggregate minimum rentals, excluding contingent rents, receivable under non-cancellable leases are as follows: 2012 2011 £’000 £’000

Less than one year 11,199 10,541 Between two to five years 33,986 33,111 After five years 115,236 115,616

160,421 159,268

The value of the assets generating this rental income is detailed in notes 12 and 15. 2012 2011 £’000 £’000 Contingent rents receivable 240 89

5. Finance income 2012 2011 £’000 £’000

Interest on other fixed interest stocks and unit trusts 571 995 Income from financial assets 2,322 1,938 Bank and other interest 75 25 Investment management fees (33) (40)

2,935 2,918

20 Duchy of Lancaster

Notes to the accounts (continued)

6. Finance costs 2012 2011 £’000 £’000

Loan interest 1,037 721

7. Total comprehensive income for the year 2012 2011 £’000 £’000

Total comprehensive income for the year is arrived at after charging: Staff costs (note 8(a)) 1,544 1,302 Depreciation of Property, Plant and Equipment 27 27 Auditors’ remuneration – audit services 23 27 – non-audit services 25 5

8. Employee information (a) The total cost of employees (excluding fees paid to the Chancellor and non-executive Council members) during the year was as follows: 2012 2011 £’000 £’000

Wages and salaries 904 806 Bonuses 175 75 Social security costs 124 97 Pension contributions 341 324

1,544 1,302

(b) The average number of employees (excluding the Chancellor and non-executive Council members) during the year was 16 (2011: 15).

(c) The full details of the Chancellor and each Council member’s remuneration package for the financial year are set out below: Basic Taxable salary Performance benefits and Total Total and fees payments allowances 2012 2011 £’000 £’000 £’000 £’000 £’000

Rt Hon The Lord Strathclyde –– –– – (Appointed as Chancellor on 13 May 2010) Lord Shuttleworth KCVO 63 ––63 62 Mr Paul Clarke CVO 169 37 1 207 179 Mr Christopher Adcock 115 23 1 139 120 Sir Alan Reid KCVO –– –– – Mr Robert Hildyard QC 6 ––6 12 Ms Anne Richards 17 ––17 16 Mr Hugh Seaborn 17 ––17 16 Mr Mark Hudson 17 ––17 16 Mr Martin Beaumont 17 ––17 16

21 Duchy of Lancaster

Notes to the accounts (continued)

8. Employee information (continued) In addition pension contributions paid by the Duchy for the financial year are set out below: 2012 2011 £’000 £’000

Mr Paul Clarke CVO 22 22 Mr Christopher Adcock 12 11

Where an executive Council member is released to serve as a non-executive Director outside the Duchy of Lancaster, the executive Council member does not receive any earnings from that appointment.

9. Net proceeds from bona vacantia 2012 2011 £’000 £’000

Proceeds from bona vacantia 4,530 3,160 Provisions for late claims transferred to Late Claims Fund (2,133) (1,290)

2,397 1,870 Costs of palatinate administration and historical obligations (note 10) (837) (272)

1,560 1,598

10. Palatinate administration and historical obligations 2012 2011 £’000 £’000

Administration of bona vacantia – costs met directly by the Duchy 81 51 Upkeep of castles and historic monuments 53 30 Rental and other income from castles (2) (2) Savoy Chapel – stipends, running costs and repairs 510 64 Ceremonial, ancient stipends, charitable annuities and preservation of historic records 162 109 Administration of Duchy of Lancaster charitable funds 33 20

837 272

Rental income from castles has been mainly receivable under short term agreements. Where agreements have been translated into long term agreements the income and expenditure are included in income from property.

22 Duchy of Lancaster

Notes to the accounts (continued)

11. Analysis of balance sheet Revenue Capital 2012 2011 2012 2011 (restated) (restated) £’000 £’000 £’000 £’000

Assets Non-current assets Investment property – – 379,583 349,062 Property, plant and equipment 54 42 2,455 2,463 Financial assets 4,079 2,199 49,437 59,746

Total non-current assets 4,133 2,241 431,475 411,271

Current assets Investment property assets held for sale – – 2,967 3,523 Trade and other receivables 1,739 2,100 800 1 Cash and cash equivalents 14,100 6,444 3,780 390 Balances due from Capital 1,143 710 ––

Total current assets 16,982 9,254 7,547 3,914 Total assets 21,115 11,495 439,022 415,185

Liabilities Current liabilities Trade and other payables (16,486) (8,746) (977) (152) Balances due to Revenue – – (1,143) (710)

Total current liabilities (16,486) (8,746) (2,120) (862)

Non-current liabilities Borrowings ––(31,000) (31,000) Provisions (4,079) (2,199) – – Retirement benefit obligations (1,114) (680) – –

Total non-current liabilities (5,193) (2,879) (31,000) (31,000) Total liabilities (21,679) (11,625) (33,120) (31,862) Net assets (564) (130) 405,902 383,323

Capital and reserves Revenue Account 279 58 – – Capital Account – – 405,902 383,323 Retirement benefit reserve (843) (188) – –

Total reserves (564) (130) 405,902 383,323

23 Duchy of Lancaster

Notes to the accounts (continued)

12. Investment Property Transfers to Value at Purchases investment Sales Change Value at 1 April at cost properties proceeds in fair 31 March 2010 held for sale value 2011 £’000 £’000 £’000 £’000 £’000 £’000

Agricultural property Farmland 87,694 1,441 (475) (2,691) 18,228 104,197 Woodlands 4,171 – – – 672 4,843 Foreshores 4,670 – – – 125 4,795

96,535 1,441 (475) (2,691) 19,025 113,835 Residential property 66,250 1,635 (2,298) 373 (774) 65,186 Commercial property 137,097 14,010 (750) (2,117) 10,887 159,127 Mineral rights 1,052 – – – (81) 971 Land held for development 3,907 86 – 98 22 4,113 Indirect property investment 16,428 6,000 – (16,003) (595) 5,830

Total investment property 321,269 23,172 (3,523) (20,340) 28,484 349,062

Transfers to Value at Purchases investment Sales Change Value at 1 April at cost properties proceeds in fair 31 March 2011 held for sale value 2012 £’000 £’000 £’000 £’000 £’000 £’000

Agricultural property Farmland 104,197 11,189 (2,057) (4,699) 10,712 119,342 Woodlands 4,843 – – – 1,168 6,011 Foreshores 4,795 – – – 255 5,050

113,835 11,189 (2,057) (4,699) 12,135 130,403 Residential property 65,186 483 (910) (2,577) (832) 61,350 Commercial property 159,127 8,075 – (1,627) 9,713 175,288 Mineral rights 971 – – – 745 1,716 Land held for development 4,113 – – 1 542 4,656 Indirect property investment 5,830 – – – 340 6,170

Total investment property 349,062 19,747 (2,967) (8,902) 22,643 379,583

All landed property is situated in England and Wales. Purchases at cost include expenses of purchases and expenditure on permanent improvements of £5,137,000 (2011: £4,183,000). Sales proceeds are net of expenses of sale and development costs charged from Revenue.

At 31 March 2012 most of the commercial property portfolio was valued internally. The rural property portfolio was valued externally by professionally qualified valuers. The breakdown of the external valuations at 31 March 2012 by valuer is as follows: Savills 53% Smiths Gore 46% Others 1%

24 Duchy of Lancaster

Notes to the accounts (continued)

13. Property, plant and equipment Owner Occupied Motor Plant & Total Property Vehicles Equipment (restated) £’000 £’000 £’000 £’000

Cost or valuation Balance at 1 April 2010 2,187 12 302 2,501 Additions during the year – – 27 27 Revaluations during the year 276 – – 276 Less: disposals during the year – – (5) (5)

Balance at 31 March 2011 2,463 12 324 2,799 Accumulated depreciation Balance at 1 April 2010 – 5 267 272 Charged during the year – 3 24 27 Less: disposals during the year – – (5) (5)

Balance at 31 March 2011 – 8 286 294

Net Book Value 31 March 2011 2,463 4 38 2,505 31 March 2010 2,187 7 35 2,229

Cost or valuation Balance at 1 April 2011 2,463 12 324 2,799 Additions during the year – – 41 41 Revaluations during the year (8) – – (8) Less: disposals during the year – – (2) (2)

Balance at 31 March 2012 2,455 12 363 2,830 Accumulated depreciation Balance at 1 April 2011 – 8 286 294 Charged during the year – 2 25 27 Less: disposals during the year – – – –

Balance at 31 March 2012 – 10 311 321

Net Book Value 31 March 2012 2,455 2 52 2,509 31 March 2011 2,463 4 38 2,505

25 Duchy of Lancaster

Notes to the accounts (continued)

14. Financial assets Value at Additions Sales Change in Value at 1 April at cost proceeds market 31 March 2010 value 2011 £’000 £’000 £’000 £’000 £’000

Capital Investments Fixed interest unit trust 20,008 – (18,627) 2,959 4,340 Equities 24,785 46,281 (24,654) 1,308 47,720 Private equity fund 6,764 875 (733) 780 7,686

51,557 47,156 (44,014) 5,047 59,746

Other Investments Fixed interest unit trust 1,713 599 (232) 119 2,199 1,713 599 (232) 119 2,199 Total 53,270 47,755 (44,246) 5,166 61,945

Value at Additions Sales Change in Value at 1 April at cost proceeds market 31 March 2011 value 2012 £’000 £’000 £’000 £’000 £’000

Capital Financial Assets Fixed interest unit trust 4,340 – – (72) 4,268 Equities 47,720 – (9,600) (822) 37,298 Private equity fund 7,686 210 (816) 791 7,871

59,746 210 (10,416) (103) 49,437 Other Financial Assets Fixed interest unit trust 2,199 1,470 – 410 4,079

2,199 1,470 – 410 4,079 Total 61,945 1,680 (10,416) 307 53,516

All financial assets except the private equity funds are listed on recognised stock exchanges, are authorised unit trusts, or are authorised open ended investment companies. Other financial assets are investments held to cover late claims liabilities (note 19).

26 Duchy of Lancaster

Notes to the accounts (continued)

15. Investment property assets held for sale 2012 2011 £’000 £’000

Investment property assets held for sale 2,967 3,523

At the year end the Duchy was actively marketing properties for sale at the fair values less costs to sell stated above and these are expected to be sold within 12 months of the balance sheet date.

16. Trade and other receivables 2012 2011 £’000 £’000

Trade receivables (rents) 798 1,004 Other receivables 826 11 Prepayments and accrued income 915 1,086

2,539 2,101

All receivables are denominated in Sterling.

As of 31 March 2012 trade receivables of £798,000 (2011: £1,005,000) were past due but not impaired.

The ageing analysis of these trade receivables is as follows: 2012 2011 £’000 £’000 Under 3 months 790 988 3 to 12 months 8 17 Over 12 months – –

As of 31 March 2012 trade receivables of £344,000 (2011: £255,000) were impaired and provided for. The impaired receivables mainly relate to tenants who are in financial difficulty.

There is no significant concentration of credit risk with respect to trade receivables as the Duchy has a large number of tenants

Movements in the provision for impairment of trade receivables are as follows: 2012 2011 £’000 £’000

At 1 April 255 199 Provision for receivables impairment 293 76 Receivables written off (204) (20)

At 31 March 344 255

The creation and release of the provision for impaired receivables has been included in the Revenue Account Statement of Comprehensive Income.

The other classes within trade and other receivables do not contain impaired assets.

27 Duchy of Lancaster

Notes to the accounts (continued)

17. Trade and other payables 2012 2011 £’000 £’000

Amounts falling due within one year: Trade payables 197 389 Other taxes and social security 1,113 758 Other payables 8,833 655 Accruals and deferred income 4,595 3,522 Due to the Privy Purse 2,665 3,076 Due to Duchy of Lancaster charitable funds 60 498

17,463 8,898

18. Borrowings 2012 2011 £’000 £’000

Long term borrowings 31,000 31,000

A bank loan of £31 million is repayable on 6 October 2014. Interest for the year was at a combination of fixed and floating rates over the agreed margin of between 1.4% and 2%.

19. Provisions for liabilities and charges The Late Claims Fund was established to provide a form of insurance against legitimate claims on estates declared to be bona vacantia and whose assets have already been distributed. Income earned on the assets of the fund is ret ained to meet claims. Any surplus on the fund is payable to the Duchy of Lancaster charitable funds. The fund is separately invested in a unit trust (note 14). The movements of the fund are as follows:

2012 2011 £’000 £’000

Provisions for late claims received from the bona vacantia account met directly by the Duchy 2,133 1,290 Provisions for late claims received from the bona vacantia account 13 – Increase in value of investments 409 119 Claims paid during the year (675) (923)

Surplus for the year 1,880 486 Late Claims Fund balance at 1 April 2,199 1,713

Late Claims Fund balance at 31 March 4,079 2,199

28 Duchy of Lancaster

Notes to the accounts (continued)

20. Retirement benefit obligations The Duchy of Lancaster Staff Pension Scheme is a defined benefit scheme. It was closed to new entrants with effect from 6 February 2002.

From 1 January 2007 the Duchy made contributions to the scheme of a fixed annual amount of £28,150 payable monthly for salaried staff and in addition fixed payments in respect of past service of £121,000 per annum payable monthly, increasing at 2.8% per annum compound. From 1 January 2010 the Duchy amended its current service contributions to a fixed annual amount of £39,200 payable monthly for salaried staff and in addition fixed payments in respect of past service of £210,000 per annum payable monthly, increasing at 3.0% per annum compound.

The Scheme’s last actuarial valuation was carried out with an effective date of 31 March 2009 by an independent actuary. The disclosures below have been based on these results, updated using approximate methods to 31 March 2012. The fi gures for the previous two years are included for comparison.

As the Scheme is closed to new members, under the projected unit method the current service cost will increase as the remaining active members of the Scheme approach retirement.

The major assumptions used by the actuary were: 2012 2011 2010 % pa % pa % pa Rate of increase in pensionable salaries 4.8 5.1 5.3 Rate of increase in pensions in payment 2.5 2.8 3.8 Discount rate 4.7 5.6 5.6 Inflation assumption (RPI) 3.3 3.6 3.8 Inflation assumption (CPI) 2.5 2.8 n/a

The mortality assumptions used by the actuary (and resulting life expectancies) were: Mortality Life assumption expectancy Pensioners now aged 60 Males S1PA YOB with 26.3 Females medium cohort 28.9 and 1% floor Future pensioners from age 60 but currently aged 40 Males S1PA YOB with 28.3 Females medium cohort 31.0 and 1% floor

29 Duchy of Lancaster

Notes to the accounts (continued)

20. Retirement benefit obligations (continued)

The assets in the Duchy of Lancaster Staff Pension Scheme and the expected rate of return were: Long term Value at Long term Value at Long term Value at rate of 31 March rate of 31 March rate of 31 March return 2012 return 2011 return 2010 expected at expected at expected at 31 March 31 March 31 March 2012 2011 2010 %pa £’000 %pa £’000 %pa £’000

Equities 5.30 2,723 6.4 2,251 6.5 2,183 Bonds 3.80 4,742 4.9 5,124 5.0 4,822 Cash 0.50 356 0.5 76 0.5 326

Total market value of assets 7,821 7,451 7,331 Present value of Scheme liabilities (8,935) (8,131) (9,196)

Deficit in the Scheme (1,114) (680) (1,865)

Analysis of the amount charged to operating profit: 2012 2011 £’000 £’000

Current service cost 35 47 Past service cost – –

Total operating charge 35 47

Analysis of the amount credited to other finance income: 2012 2011 £’000 £’000

Expected return on assets 386 378 Interest on pension scheme liabilities (441) (501)

Net return (55) (123)

Amount recognised in other comprehensive income 2012 2011 £’000 £’000

Actuarial (loss)/gain recognised in OCI (655) 1,084

30 Duchy of Lancaster

Notes to the accounts (continued)

20. Retirement benefit obligations (continued)

Movement in scheme liabilities during the year 2012 2011 £’000 £’000 Liabilities at start of year 8,131 9,196 Movement in year: Current service cost 35 47 Interest cost 441 501 Contributions paid by scheme members 3 4 Benefits paid (554) (534) Actuarial loss/(gain) 879 (1,083)

Liabilities at end of year 8,935 8,131

Movement in scheme assets during the year 2012 2011 £’000 £’000

Assets at start of year 7,451 7,331 Expected return on scheme assets 386 378 Contributions (total paid by employer and scheme members) 314 275 Benefits paid (554) (534) Actuarial gain 224 1

Assets at end of year 7,821 7,451

History of scheme assets, obligations and experience adjustments 2012 2011 2010 2009 2008

Present value of scheme liabilities 8,935 8,131 9,196 7,176 7,677 Fair value of scheme assets 7,821 7,451 7,331 6,533 7,543 Deficit in the scheme (1,114) (680) (1,865) (643) (134) Experience adjustments arising on scheme liabilities (£’000) (292) 161 135 133 46 Experience item as a percentage of scheme liabilities (3%) 2% 1% 2% 1% Experience adjustments arising on scheme assets (£’000) 224 1 871 (965) (955) Experience item as a percentage of scheme assets 4% 0% 12% (14%) (1)3% Cumulative actuarial (loss)/gain shown in OCI (843) (188) (1,272) (108) 458

31 Duchy of Lancaster

Notes to the accounts (continued)

21. Reconciliation of Revenue account operating surplus to net cash inflow from operating activities 2012 2011 £’000 £’000

Net surplus on Revenue account 13,086 13,377 Adjusted for: Depreciation 27 27 Current service costs less contributions to pension scheme (221) (101) Net finance (income)/costs (1,898) (2,197) Net income/(expenditure) from escheats 5 (11) Repayments to Capital 42 – Increase in valuation of other financial investments (410) (119) Loss on disposal of property, plant and equipment 2 – Increase in receivables (438) (710) Increase in payables 10,856 1,050

Net cash inflow from operating activities 21,051 11,316

22. Related party transactions Charitable donations of £1,560,000 (2011: £1,598,000) were made to the Duke of Lancaster Housing Trust, arising from the surplus receipts of bona vacantia (see note 9). Two of the Council members act as trustees of The Duke of Lancaster Housing Trust.

23. Explanation of the transition to IFRS

2012 is the first year that the Duchy of Lancaster is presenting its financial statements unde r IFRS and in accordance with the Accounts Direction given by H M Treasury. The last financial statements presented under UK GAAP and the Accounts Direction given by H M Treasury were for the year ended 31st March 2011.

As IFRS comparatives must be prepared for the year ended 31st March 2011, the date of the transition to IFRS was 1st April 2010.

The transition to IFRS has had no impact on the surplus distributable to the Privy Purse nor on the cash flows of the Duchy. Reconciliation s of the Revenue and Capital account balance sheets are set out in note 24. The principal adjustments are explained below. The references refer to the adjustments in note 24. a) Owner-occupied property: IAS 16 requires owner-occupied property to be shown within Property, Plant and Equipment at cost or fair value. The Duchy has selected fair value. Previously under UK GAAP these properties were included within investment properties.

b) Investment Properties held for sal e: Under IFRS 5, properties held with the intention of disposal within 12 months of the balance sheet date are valued at the lower of carrying amount and fair value less costs to sell. They are shown in the balance sheet as current property assets. Previously such property was included within investment properties. c) Pension reserve: These show the difference between the pension reserve as previously reported and the pension reserve under IAS 19.

32 Duchy of Lancaster

Notes to the accounts (continued)

24. Reconciliation of the Capital Account Statement of Total Recognised Gains and Losses as previously reported under UK GAAP to the Capital Account Statement of Comprehensive Income 1 April 2010

As previously Owner Properties Other Re–stated reported, presented Occupied held Disclosure under IFRS in IFRS format Property for sale Adjustments Capital Revenue Capital Revenue account account (a) (b) (c) account account £’000 £’000 £’000 £’000 £’000 £’000 £’000

Non–current assets Investment property 324,556 – (2,187) (1,100) – 321,269 – Property, plant and equipment – 42 2,187 – – 2,187 42 Financial assets 51,557 1,713 – – – 51,557 1,713

Total non–current assets 376,113 1,755 – (1,100) – 375,013 1,755 Current assets Investment property assets held for sale – – – 1,100 – 1,100 – Trade and other receivables 1 1,390 – – – 1 1,390 Balances due from Revenue/Capital – 1,237 – – – – 1,237 Cash and cash equivalents 184 5,667 – – – 184 5,667

Total current assets 185 8,294 – 1,100 – 1,285 8,294 Total assets 376,298 10,049 – – – 376,298 10,049 Current liabilities Trade and other payables (534) (7,786) – – – (534) (7,786) Balances due to Capital/Revenue (1,237) – – – – (1,237) –

Total current liabilities (1,771) (7,786) – – – (1,771) (7,786) Non–current liabilities Borrowings (25,000) – – – – (25,000) – Provisions – (1,713) – – – – (1,713) Retirement benefit obligations (1,865) – – – – (1,865)

Total non–current liabilities (25,000) (3,578) – – – (25,000) (3,578) Total liabilities (26,771) (11,364) – – – (26,771) (11,364) Net assets 349,527 (1,315) – – – 349,527 (1,315) Capital and reserves Capital reserve 349,527 – – – – 349,527 – Revenue reserve – 550 – – (593) – (43) Retirement benefit reserve – (1,865) – – 593 – (1,272)

Total capital and reserves 349,527 (1,315) – – – 349,527 (1,315)

33 Duchy of Lancaster

Notes to the accounts (continued)

24. Reconciliation of the Capital Account Statement of Total Recognised Gains and Losses as previously reported under UK GAAP to the Capital Account Statement of Comprehensive Income (continued) 31 March 2011

As previously Owner Properties Other Re–stated reported, presented Occupied held Disclosure under IFRS in IFRS format Property for sale Adjustments Capital Revenue Capital Revenue account account (a) (b) (c) account account £’000 £’000 £’000 £’000 £’000 £’000 £’000

Non-current assets Investment property 355,048 – (2,463) (3,523) – 349,062 – Property, plant and equipment – 42 2,463 – – 2,463 42 Financial assets 59,746 2,199 – – – 59,746 2,199

Total non-current assets 414,794 2,241 – (3,523) – 411,271 2,241 Current assets Investment property assets held for sale – – – 3,523 – 3,523 – Trade and other receivables 1 2,100 – – – 1 2,100 Balances due from Revenue/Capital – 710 – – – – 710 Cash and cash equivalents 390 6,444 – – – 390 6,444

Total current assets 391 9,254 – 3,523 – 3,914 9,254 Total assets 415,185 11,495 – – – 415,185 11,495 Current liabilities Trade and other payables (152) (8,746) – – – (152) (8,746) Balances due to Capital/Revenue (710) – – – – (710) –

Total current liabilities (862) (8,746) – – – (862) (8,746) Non-current liabilities Borrowings (31,000) – – – – (31,000) – Provisions – (2,199) – – – – (2,199) Retirement benefit obligations – (680) – – – – (680)

Total non-current liabilities (31,000) (2,879) – – – (31,000) (2,879) Total liabilities (31,862) (11,625) – – – (31,862) (11,625) Net assets 383,323 (130) – – – 383,323 (130) Capital and reserves Capital reserve 383,323 – – – – 383,323 – Revenue reserve – 550 – – (492) – 58 Retirement benefit reserve – (680) – – 492 – (188)

Total capital and reserves 383,323 (130) – – – 383,323 (130)

34 Duchy of Lancaster

Duchy of Lancaster Surveys

The Duchy of Lancaster Surveys are rural estates totalling approximately 18,000 hectares located as follows:

Hectares The Needwood Survey 2,953 Staffordshire

The Crewe and South Survey 3,922 Cheshire Northamptonshire Derbyshire Lincolnshire Glamorgan Shropshire Leicestershire

The Lancashire Survey 4,102 Lancashire

The Yorkshire Survey 6,698 Yorkshire

The Eastern Survey 412 Lincolnshire

18,087

35 Duchy of Lancaster

Accounts of the Solicitor for the Affairs of the Duchy of Lancaster for the year ended 30 September 2011

The accounts of the Solicitor for the Affairs of the Duchy of Lancaster are not part of the accounts of the Duchy of Lancaster and are included for information.

During the year 266 intestate estates (2010: 260) and 1,564 dissolved companies (2010: 1,921) were formally reported.

Income and expenditure account for the year ended 30 September 2011 2011 £

Income Monies received from dissolved companies 2,785,656 Monies received from intestate estates 3,356,765 Interest and other 39,027

Monies received 6,181,448

Expenditure Payments to next of kin (890,874) Company restoration (534,780) Ex-gratia payments to claimants (203,065) Administration costs (1,205,252)

Net income less expenditure 3,347,477

Paid to the Duchy of Lancaster (3,697,937) Net expenditure for the year ended 30 September 2011 (350,460)

Cash balances at 1 October 2010 6,715,614 Net expenditure for the year ended 30 September 2011 (350,460)

Cash balances at 30 September 2011 6,365,154

Balance sheet as at 30 September 2011 2011 £

Current assets Cash and deposits 6,365,154

6,365,154

Current liabilities The Duchy of Lancaster (1,830,802) Other creditors (89,873)

(1,920,675) Total assets less current liabilities 4,444,479

Representing: Estates under administration 4,444,479

36 Duchy of Lancaster

Accounts direction given by H.M. Treasury

Operating Review 1. The Duchy of Lancaster shall prepare accounts for the financial year ended 31 March 2012 and subsequent financial years comprising: • a Report of Council including an Operating Review and a Governance Statement; • a revenue account statement of comprehensive income; • a capital account statement of comprehensive income, with a reconciliation of movements in the capital account; • a balanc e sheet; and • a cash flow statement. including such notes as may be necessary for the purposes described in the following paragraphs.

2. The accounts shall give a true and fair view of the income and expenditure, total recognised gains and losses and cash flows for the financial year, and the state of affairs as at the end of the financial year. Subject to these requirements and the exemptions set out in Schedule 1, the accounts shall be prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

3. The application of the accounting and disclosure requirements of the Companies Act 2006 (CA), accounting standards, and other disclosure requirements is given in Schedule 1 attached.

4. This direction supersedes that of 7 March 2011. It shall be reproduced as an appendix to the accounts.

Paula Diggle Treasury Officer of Accounts 14 March 2012

37 Duchy of Lancaster

Schedule 1 – Accounting and disclosure requirements

Companies Act 2006 1. The disclosure exemptions permitted by the CA shall not apply to the Duchy of Lancaster unless specifically approved by the Treasury.

2. The CA requires certain information to be disclosed in the Directors’ Report. To the extent that it is appropriate, information relating to the Duchy shall be contained in the Report of Council for the year, which shall be signed and dated by the Cler k of the Council or other Proper Officer.

3. The Duchy shall take into consideration the CA requirements as they apply to non-listed companies (to the extent that they can be applied in the circumstances of the Duchy).

4. When preparing its revenue account, the Duchy shall take into consideration the requirements of the profit and loss account format 2 prescribed in statutory instruments 2008 No 410 (SI20081410), Schedule 1 Part 1.

5. When preparing its balance sheet, t he Duchy shall take into consideration the requirements of the balance sheet format 1 prescribed in Schedule 1 Part 1 of SI20081410, subject to the exceptions listed below. The balance sheet totals shall be struck at “Net Assets” and the balance sheet shall be signed by the Clerk of the Council or other Proper Officer.

6. The Duchy is not required to provide the historical cost information described in paragraph 34(3) of Schedule 1 Part 1 of SI20081410.

7. The Duchy is not requi red to comply with the requirement specified in paragraph 35 of Schedule 1 Part 1 of SI20081410 to maintain a revaluation reserve.

Accounting standards 8. It is considered that the Duchy should prepare separate statements of comprehensive income for both the revenue and capital accounts rather than one statement of comprehensive income as required by IAS 1.

Other disclosure requirements 9. The Report of Council shall, inter alia: • state that the accounts have been prepared in accordance with this Treasury direction; • include a brief history of the Duchy and its statutory background, and identify its estates by county and area; • include a resume of the powers delegated to the Council and those retained by the Chancellor of the Duchy of Lancaster over and above those delegated to the Council; • provide information concerning the Duchy’s charitable and other activities and the principles supporting them. The information should also indic ate where copies of the accounts of the charities may be obtained.

10. The notes to the accounts shall, inter alia: • distinguish between the Capital and Revenue elements of the consolidated statements and disclose amounts owing from Revenue to Capital for permanent improvements (including the repayment profile) and depreciation rates; • disclose the names and qualifications of the valuers, both internal and external; • (where it arises) provide details of the terms of any loan from the capital account for revenue purposes, and the purpose for which it is required, together with explicit assurance that the loan is not being used to inflate the revenue surplus payable; • provide details of the remuneration package of the Chancellor of the Duchy of Lancaster and each Council member, together with a note of the pension contributions made in respect of Council members. 11. A formal valuation of the pension scheme was undertaken in 2009 and the cont ribution rate subsequently adjusted to ensure that the deficit is forecast to be made good within the term recommended by the actuary and agreed by the Council and trustees after discussion with HM Treasury. Accordingly, the pension reserve required by IAS 19 shall be a separate non-distributable reserve within the revenue account balance sheet. The next formal valuation of the pension scheme will be undertaken during 2012.

38 2012

REPORT AND ACCOUNTS OF THE DUCHY OF LANCASTER This Report & Accounts is printed by Witherbys Print London which holds the ISO 14001 Environmental Management certification. FOR THE YEAR ENDED 31 MARCH 2012

The printing inks are made using vegetable-based oils. 95% of the cleaning solvents are recycled for further use, and 94% of the waste associated with this product will be recycled.

The paper used for this publication is 9 lives 55 Silk made from 55% recovered fibres including a minimum of 25% post consumer waste and 45% ECF virgin fibre.