Focusing on stability Wichford P.L.C. Annual Report 2008 2008 review Governance Company financials How we performed A responsible business 2008 in numbers Introduction 1 Report of the Directors 22 Report of the Independent Auditors 54 At a glance 2 Statement of Directors’ responsibilities 25 Company balance sheet 56 Investing securely 4 Corporate governance statement 26 Notes to the accounts 57 Minimising risk 6 Directors’ Remuneration Report 29 Highlights 8 Report of the Independent Auditors 30 Chairman’s statement 9 Business review 10 Directors 20 Consolidated financials Investors 2008 in numbers Additional information Consolidated income statement 32 List of properties 64 Consolidated statement of recognised Four year review 67 income and expense 32 Company information 68 Consolidated balance sheet 33 Glossary of terms 69 Consolidated cash flow statement 34 Notes to the financial statements 35 Wichford P.L.C. is a property investment company, registered in the Isle of Man, with a portfolio of 79 properties occupied principally by Central and State Government bodies in both the UK and Continental Europe. Our portfolio totals over 341,000 sq m (3.47 million sq ft) and is independently valued at £598 million. Number of properties 79 2007: 78 Rental income now index-linked 61.1% 2007: 45% Average unexpired lease length 9.21 years 2007: 12.13 years OPPOSITE pagE: CENTENARY COURT, BRADFORD 2008 review Governance Consolidated financials Company financials Investors 1 How we performed A responsible business 2008 in numbers 2008 in numbers Additional information At a glance Wichford has 79 properties with a wide geographical spread across the UK and other major European countries. During the year under review, the Company disposed of one property in the UK and acquired one property in the Netherlands and one in the UK. LONG-TERM STABILITY The Company’s tenants are Government bodies and the overall vacancy rate continues to be less the one per cent. CENTRAL STATE GOVERNMENT LONG-TERM STABILITY GOVERNMENT ST ANNE HOUSE, CROYDON This 73,000 sq ft office building was acquired during the year from an institutional vendor and is let primarily to the Home Office until 2017 at an annual rent of £1.1 million. Wichford P.L.C. Annual Report 2008 2 Core Portfolio Number and value of properties Active Portfolio in UK Portfolio Continental Europe 72 UK £446.4m Annualised rental income of properties in UK Portfolio £33.0m Net initial yield of properties in UK Portfolio 7.4% Number and value of properties in Continental European Portfolio 7 EUROPE £151.3m Annualised rental income of properties in Continental European Portfolio £9.8m Net initial yield on valuation of properties in Continental European Portfolio 6.2% Portfolio value (£m) Year UK Core UK Active European Total 2005 206 61 – 267 2006 344 112 – 456 2007 367 159 147 673 2008 312 135 151 598 Geographical split of index-linked properties A A SOUTh 33.14% E D B Midlands 21.85% C NorTh 30.58% D WalEs 5.09% E ScoTland 9.34% B C 2008 review Governance Consolidated financials Company financials Investors 3 How we performed A responsible business 2008 in numbers 2008 in numbers Additional information The Company believes that its approach of acquiring properties primarily occupied by Central and State Government departments continues to provide the most secure income available in the marketplace. Vacancy rates continue to run at less than one per cent of the Company’s total floor space of 341,000 sq m. Investing THIS PAGE: DALE STREET, LIVERPOOL Wichford P.L.C. Annual Report 2008 4 CENTENARY COURT, BRADFORD THEATRE STREET, Norwich Regional Inland Revenue headquarters 9,000 sq ft building let to the Department with lease expiry in 2027 at an annual of Work and Pensions until 2030 at an rent of £1.8 million and RPI indexation annual rent of £164,000. throughout the lease. securely 2008 review Governance Consolidated financials Company financials Investors 5 How we performed A responsible business 2008 in numbers 2008 in numbers Additional information The Company’s properties are occupied by a range of governmental departments including the Police, various justice departments, the DVLA, the Passport Office, and more recently, The International Criminal Court. (For a full list of tenants/occupiers, see page 64). Minimising Lease re-negotiations during the year 17 UXBRIDGE COUNTY COURT, HAYES Freehold modern office building fitted out as courts occupied by Uxbridge County Court. Let until 2018 at an annual rent of £180,000. Wichford P.L.C. Annual Report 2008 6 THIS pagE: THE HAGUE, NETHERLANDS During the year, the Company completed the acquisition of Haagse Veste1 in The Hague, Netherlands. The building is occupied by the Royal Dutch Government for use by the International Criminal Court. It is let for a term of six years with the tenants’ option to extend for a further four years. The initial rent is €2.1 million and is indexed to 100 per cent of the Dutch CPI on a yearly basis. risk 2008 review Governance Consolidated financials Company financials Investors 7 How we performed A responsible business 2008 in numbers 2008 in numbers Additional information Highlights Trading Operations Profit after tax 04 (£3.0m) 05 06 £7.8m £10.3m 07 £11.4m 2007: £11.4m 08 £10.3m Total loss after tax ( £130.4m) 2007: (£9.8m) Trading Operations earnings per share 04 (6.51p) 05 06 8.06p 7.77p 07 9.70p 2007: 9.70p 08 7.77p Total earnings per share ( 98.23p) 2007: (£8.40p) Net asset value per share 05 168.6p 06 217.2p 88.9p 07 208.5p 2007: 208.5p 08 88.9p Recommended final dividend Total dividend for Number of new Continental Europe by value per share the year properties acquired of total portfolio 3.15p 7.25p 2 25% 2007: 6.2p 2007: 10.20p 2007: 13 2007: 22% Wichford P.L.C. Annual Report 2008 8 Chairman’s statement 2007-08 was a challenging period for everyone with the most difficult economic conditions in years. Inevitably, the downturn had a negative impact on the value of our property portfolio. However, our income remains secure and we continue to make profits on a trading performance that proved relatively strong in Philippe de Nicolay the context of the commercial property sector. Chairman I believe that Wichford has the strength to weather the Corporate reporting current turbulence without compromising its proven strategy: This year’s Annual Report looks very different from its to generate robust income streams by renting quality real predecessors. It reflects our commitment to achieving the estate to quality tenants. highest standards of governance and transparency for our investors and other Stakeholders. Giving them the information Financial results they need to assess our strategy and performance accurately The profit from Trading Operations for the year to 30 September is an important way of reciprocating their loyalty. 2008 was £10.3 million, down 9.6 per cent on the prior year. The value of the Group’s portfolio fell by £141.3 million. Dividend In light of the uncertainty regarding the Company’s interest Following this valuation reduction, the overall result for the year rate hedges and of prevailing economic conditions we took is a loss of £130.4 million. Net assets at 30 September 2008 a decision to reduce our total dividend for the year to were £118.0 million against £276.7 million the previous year. between 7 pence and 8 pence per share. The Directors are recommending a final dividend of 3.15 pence per share, The earnings per share (eps) from trading operations under which, with the interim dividend of 4.1 pence per share, IFRS were 7.77 pence (2007 eps: 9.70 pence). The total basic will make a total dividend of 7.25 pence per share for the eps for the year ended 30 September 2008 is a loss of year. The final dividend, if approved by Shareholders, will 98.23 pence per share compared to a loss of 8.40 pence be paid on 20 February 2009 to Shareholders on the register per share the previous year. of members at the close of business on 30 January 2009. In future years, we intend to split the dividend for the year Key events into two equal payments. On 28 December 2007, we listed on the London Stock Exchange’s Main Market, having joined the AIM in August 2004. Outlook In July 2008, we completed the acquisition of Haagse Veste1 in Our rental income remains secure despite the current The Hague, Netherlands, for a consideration of €35.0 million. economic instability. Because our tenants are all Central In August 2008, we signed an agreement with Land Securities and State Government bodies, there is a very low risk of Trillium that extended our leases on 16 properties occupied by them defaulting on rent and as our tenant turnover is so UK Central Government tenants until 2023, linking their rents to low, we have the advantage of long-term stability. the UK consumer price index (CPI). For further details of these transactions, see pages 10-11. With the likelihood of more turbulence ahead during 2009, we will be aiming to maintain this stability rather Funding than expanding our portfolio. However, I am cautiously Amongst the casualties of the credit crunch was Lehman optimistic that we will see signs of recovery the following Bros, who structured the funding vehicles that provided the year. In preparation, we are conducting a comprehensive majority of our borrowings. The principal funding through review of our financial arrangements, our portfolio and our these vehicles is unaffected by Lehman’s demise, although strategy to ensure our business is in a good position to there have been some issues with interest rate hedges, as take advantage of the recovery when it arrives.