Kenmore European Industrial Fund Limited - Hemscott IR

Kenmore European Industrial Fund Limited 

2007 Annual Report and Accounts for the year ended 31 December 2007

Kenmore European Industrial Fund Limited Report and Accounts 2007 

Contents 

01 Company Summary 

02 Financial Highlights 

03 Performance Summary 

04 Chairman’s Statement 

06 Investment Manager 

07 Investment Manager’s Review 

09 Portfolio Statistics 

10 Property Portfolio 

11 Board of Directors 

12 Report of the Directors 

15 Directors’ Responsibility Statement 

16 Independent Auditors’ Report 

17 Income Statements 

18 Balance Sheets 

19 Statements of Changes in Equity 

21 Cash Flow Statements 

22 Notes to the Accounts 

34 Notice of Annual General Meeting 

35 Shareholder Information 

36 Corporate Information 

This document is important and relates to certain matters on which voting action is required. Shareholders who are in any doubt as to what 

action to take should consult an appropriate independent adviser immediately. 

If any shareholder has sold or transferred all their shares in the Company, he or she should pass this document to the person through whom 

the transfer or sale was effected for onwards transmission to the transferee or purchaser.

0 Kenmore European Industrial Fund Limited Report and Accounts 2007 

Company Summary 

The Company is a limited liability, closed-ended, Guernsey 

registered investment company. Its shares are listed on the 

Official List of the UK Listing Authority and traded on the 

London Stock Exchange. It was incorporated on 25 August 

2006 and its shares were admitted to listing on 25 September 

2006. At 31 December 2007 total assets less current liabilities 

were £421 million and shareholders’ funds were £148 million. 

Investment Objective and Policy 

The investment objective of the Company is to provide Ordinary Shareholders with an attractive level of income together with 

the potential for income and capital growth. Its investment policy is to focus on investments in industrial real estate assets 

primarily across Western and Northern European jurisdictions (but with no investments being made in the United Kingdom). 

The Investment Manager expects the investments will be made primarily in France, Benelux, Germany, Italy, Iberia and 

Scandinavia. 

Details of the 30 largest property holdings are given on page 10 and a full portfolio listing is available on the Company’s 

website detailed below. 

Management 

At launch the Board appointed Kenmore Financial Services Limited as Investment Managers. The investment management 

agreement appointing them is for an initial three year period ending on 25 September 2009 and, with effect from that date, 

may be terminated by either party by giving not less than 12 months’ notice. Further details of the investment management 

agreement are provided in the Notes to the Accounts. 

Capital Structure and Gearing 

At admission on 25 September 2006, the Company had a capital structure comprising 140 million Ordinary Shares. Ordinary 

shareholders are entitled to all dividends declared by the Company and to all the Company’s assets after repayment of liabilities 

including its borrowings. Borrowings consist of bank facilities provided by The Royal Bank of Scotland plc and Hypo Real 

Estate Bank International AG. The gearing policy of the Company is to keep borrowings at approximately 70% of gross assets 

when fully invested. 

Status 

The Company’s shares are eligible for ISAs and PEP transfers and for inclusion within SASS and SIPPS. 

Website 

The Company’s internet address is: www.kenmoreeifund.com


Financial Highlights 

• Adjusted net asset value before deferred tax liabilities per share increased by 6.8 per cent from 04. pence 

at 3 December 2006 to 2 .6 pence at 3 December 2007. 

• Dividend announced in respect of the period of 6.0 pence per share. 

Kenmore European Industrial Fund Limited Share Price from January to 3 December 2007 

125 

115 

105 

95 

85 

75 

65 

FTSE Real Estate Sector (Rebased) 

Jan 07 Feb 07 Mar 07 Apr 07 May 07 Jun 07 Jul 07 Aug 07 Sep 07 Oct 07 Nov 07 Dec 07 

Reconciliation of net asset value per accounts to adjusted net asset value before deferred tax liabilities: 

Total Per share 

£’000 Pence 

Net asset value per accounts 

Adjustments: 

147,752 105.5p 

Deferred tax liabilities (see note 10(a)) 10,531 7.5p 

Unrecognised deferred tax adjusted for within initial purchase price consideration 

Unrecognised deferred tax contingently adjusted for within initial purchase price 

14,080 10.1p 

consideration (see note 10(b)) (2,135) (1.5)p 

Adjusted net asset value 70,228 2 .6p 

Reconciliation of net asset value per accounts to adjusted net asset value after deferred tax liabilities and 

contingent deferred tax: 

Total Per share 

£’000 Pence 

Net asset value per accounts 

Adjustments: 

147,752 105.5p 

Unrecognised deferred tax liabilities (see note 10(b)) (47,618) (34.0)p 

Unrecognised deferred tax adjusted for within initial purchase price consideration 14,080 10.1p 

Adjusted net asset value after deferred tax liabilities and contingent deferred tax 4,2 4 8 .6p 

The above adjusted net asset values (‘NAV’) are based on the NAV per accounts which is calculated in accordance with International Financial Reporting Standards issued by, or adopted 

by, the International Accounting Standards Board (the ‘‘IASB’’) and interpretations issued by the International Financial Reporting Standards Committee. In order to reconcile these to the 

published accounts it is necessary to adjust for those items identified above. 

KEIF


Performance Summary 

Returns (for year ended 3 December 2007) 

31 December 

2007 

Growth in adjusted net asset value per share +16.8% 

Ordinary Share price -27.0% 

FTSE All-Share Index 2.0% 

Capital Values 

31 December 31 December % 

2007 2006 Change 

Total assets less current liabilities (£000’s) 421,239 314,994 +33.7 

Adjusted net asset value 121.6p 104.1p +16.8 

Ordinary Share price 82.25p 112.75p -27.1 

FTSE All-Share Index 3,286.67 3,221.42 +2.0 

(Discount)/premium to adjusted net asset value per share (32.4)% 8.3% – 

Gearing‡ 62.4% 54.3% – 

Earnings and Dividends (for year ended 3 December 2007)† 

Earnings per Ordinary Share 2.5p 

Dividends announced per Ordinary Share 6.0p 

Highs/Lows (during year ended 3 December 2007) 

High Low 

Ordinary Share price 124.25p 79.75p 

‡ Gearing: Secured bank loans (at face value) ÷ total assets (less current liabilities). 

† Including dividends announced but not paid in respect of the year to 31 December 2007. 

Source: Datastream.


Chairman’s Statement 

I am delighted to report this second set of results of the 

Kenmore European Industrial Fund (the “Fund” / “Company”), 

covering the full financial year to 31 December 2007, a period 

during which the Company has made excellent progress in 

building a strong and diverse portfolio of income-producing 

assets. 

The Fund was launched in September 2006 with a successful 

fund raising of £140 million. Shortly after admission to the 

London Stock Exchange on 25 September 2006, it acquired 

a seed portfolio of 70 properties costing £213 million. This 

was augmented by further acquisitions at a cost of £65 

million in the period to 31 December 2006. The current 

financial year has seen the portfolio grow by a further £96 

million of acquisitions to a total cost of £374 million. 

The Fund’s investment objective is to provide investors with 

an attractive level of income together with the potential for 

capital growth through the ownership and management of 

industrial assets in Western and Northern Europe, excluding 

the UK, and primarily in France, Germany, Scandinavia and 

the Benelux countries. 

Results 

The underlying performance of the Fund continues to be 

strong and I have pleasure in reporting that net assets per 

share, excluding deferred tax, have increased to 121.6 pence, 

a rise of 16.8% from 104.1 pence at 31 December 2006. This 

represents an increase on net asset value (after listing costs) 

of 16.8% in the 12 months or 27.3% in the 15 month period 

since admission to the London Stock Exchange and is 

calculated after paying dividends of 4.5p per share. 

The table below sets out the movement in adjusted net 

asset value per share for the current financial year (since 

31 December 2006) and for the period since admission: 

NAV per share (Pence) Since admission This year 

Opening, excluding deferred tax 

and after listing costs 95.5 104.1 

Uplift from valuation gains 16.4 10.8 

Expensing of acquisition costs (4.6) (3.7) 

Uplift from balance of retained profits 1.3 0.3 

Improvement in mark to market of debt 1.4 0.6 

Dividends paid (4.5) (4.5) 

Foreign exchange movements 7.6 7.4 

Deferred tax compensated for at acquisition 8.5 6.6 

As at 31 December 2007, 

excluding deferred tax 121.6 121.6 

Profits before tax in the year to 31 December 2007 were 

£11.4 million (25 September 2006 to 31 December 2006 

– £7.7 million) giving earnings per share of 2.5p. 

The Fund has generated strong underlying performance 

in line with the original business plan, but the share price 

performance has been caught up in the negative sentiment 

being shown by investors towards commercial property 

on the back of the well publicised global credit crunch in 

financial markets. The Fund’s share price is now standing 

at a substantial discount to the net asset value. 

The Board constantly monitors the share price performance 

and regularly consider options to make the most efficient 

use of capital, including the potential for share buybacks. 

In doing so, it takes into account other potential calls on 

the Group’s cash resources and the potential returns from 

further investment and capital expenditure on enhancing 

the property portfolio. At the present time the Board feels 

that it is appropriate to retain surplus cash within the fund 

to provide flexibility to invest in the portfolio as further 

opportunities arise.


Portfolio 

During the year, the Company acquired 27 assets at a cost 

of £96 million (excluding acquisition costs). As at the balance 

sheet date, the Company held properties at a market value 

of £429 million. The year also saw the first property sales 

and realisation of profits with the sale of Palaiseau in France 

for £1.3 million, generating a profit of £0.2 million. Further 

information on the portfolio and the pipeline of assets is 

contained in the Investment Manager’s Review. 

Gearing 

Fund policy, as stated in the prospectus, is to keep 

borrowings at approximately 70% of gross assets when 

fully invested. The prospectus also explained that during 

the period when the Fund is being invested the level of 

gearing may fall below this level. As at 31 December 2007, 

the Company had drawn £263 million of debt from its total 

facilities to finance the acquisition of the portfolio. This 

represented gearing of 61%. In line with Board policy the 

drawings under these facilities reflect, as far as practical, 

the currencies in which the underlying assets are held. At 

the year end 73% of total borrowings were denominated in 

Euros, 20% in Norwegian Kroner and 7% in Swedish Krona. 

The Company has hedged the risk of interest rate increases 

by the use of interest rate swaps. As at 31 December 2007, 

a total of 83% of the Company’s debt has been protected in 

this way. Although interest rates across Europe have eased 

in recent months, they are still above those at flotation; the 

blended cost of money based on debt drawn to date is 

currently 4.24% (5.21% including margin) and the Fund is 

well protected by the hedging instruments in place. The 

results for the year reflect an improvement in the mark to 

market value of the Company’s hedge instruments over 

the year of £0.8 million. 

Dividends 

I am delighted to report that the Board has decided to 

declare a further dividend of 3.0 pence per share for the 

current financial year. This will be paid on 25 April 2008 

to shareholders on the register on 11 April 2008. An initial 

dividend of 3.0 pence per share in respect of the current 

financial year was paid on 26 September 2007. This adds 

to the initial dividend of 1.5 pence per share in respect of 

the period from admission to 31 December 2006 that was 

paid on 25 April 2007 and fulfils the dividend policy outlined 

to shareholders at the time of the Company’s fund raising. 

Shareholder Communication 

The Board considers it important that shareholders 

are kept regularly informed of the progress of the Fund. 

The adjusted Net Asset Value per share will continue to 

be published quarterly. 

Corporate Governance 

The Company is registered in Guernsey. As such, it is not 

formally required to comply with the Combined Code on 

Corporate Governance. However, the directors intend to 

comply with the Code, and our statement on compliance 

is contained in this annual report. 

Prospects 

Over the past year, mainland European property markets 

have not been subject to the same level of readjustment as 

those in the UK. Although there are now some signs of yields 

drifting out, there are however significant variations across 

markets, with some countries holding up better than others. 

Spain for example is showing poor results, while Scandinavia 

is expected to perform considerably better. 

Towards the middle of the year the board expects there to 

be opportunities to buy higher yielding secondary properties 

discounted by the current economic uncertainty and plans 

for the Fund to take advantage of this. Strategic realisations 

in some localities will provide opportunities to reinvest in 

higher yielding properties in better performing markets 

and locations. 

The Investment Manager’s acquisition team, through its local 

network of contacts, is ideally placed to identify opportunities 

as they arise through the year and will continue to focus on 

buying well located secondary properties which are multi-let 

and offer stable income. 

At 31 December 2007 the portfolio was yielding 7.51% 

and continues to have a strong defensive income profile. 

The key asset management focus for 2008 will continue to 

be on improving the level of leasing through reducing current 

vacancies and maintaining a high level of tenant retention. 

There remain significant value creation opportunities within 

the portfolio not only from increasing income through leasing 

to market rents but also through refurbishment and 

expansion of existing assets. 

The Board believes that the wide spread of the Fund’s 

activities across Europe means the Company is well placed 

to capitalise on the opportunities that will develop this year 

and that the portfolio will continue to see an improvement 

on its already strong and stable income profile. This will help 

defend capital value in what will continue to be challenging 

market conditions. 

Giles Weaver 

Chairman


Investment Manager 

Kenmore Financial Services Limited is the Investment 

Manager of the Company and the Luxembourg 

Subsidiaries (and their subsidiaries) pursuant to the 

Investment Management Agreement. The Investment 

Manager is responsible for advising the Group on the 

overall management of the Group’s investments and 

for managing the Group’s cash and investments in fixed 

income instruments in accordance with the Company’s 

investment objective and policy and subject to the overall 

control and supervision of the Directors. 

The Directors have satisfied themselves that the Investment 

Manager has procedures in place to address potential 

conflicts of interest. 

Kenmore Property Group Limited (‘‘Kenmore’’) is the 

parent company of the Investment Manager. Kenmore was 

founded in 1986. Its principal activities are property trading, 

development and fund management. Kenmore currently 

has offices in Edinburgh, London, Manchester, Birmingham, 

Bristol, Leeds, Stockholm, Paris, Berlin, Antwerp and Dubai. 

In addition to its office network it currently has eleven primary 

joint venture funds with seven of these investing in Europe. 

Kenmore has 93 full time and attached staff in total and 

encompasses all the disciplines associated with property 

investment management: research, acquisitions, disposals, 

development, finance, property management and 

administration.


Investment Manager’s Review 

Property Market Review 

2007 was a record year for investment transactions in 

Europe, with CBRE recording a total volume of €240 billion 

of which 8% were industrial and the majority involved crossborder 

investors. However, as a percentage of overall 

investments, the market share of industrial transactions fell 

due to a lack of available product. The market is dominated 

by a shortage of land for new developments and high 

construction costs which together act to limit new supply. 

Despite the volatility in financial markets, underlying European 

property market fundamentals remained strong in Q4 2007 

and have remained so in the first few months of 2008. 

Indeed in France, KEIF saw the strongest quarter for leasing 

performance in 2007 with 22,414 sqm leased to 23 tenants 

with a total rent roll of £1.2 million per annum (17,948 sqm 

being new leases). Nevertheless, while leasing remained 

strong, property values did plateau in the quarter and in 

some cases saw minor reductions. Although market 

sentiment and valuations across Europe are expected to 

show some declines in 2008, it is important to note that 

some markets should perform better than others with in 

most cases northern Europe out performing southern 

Europe. KEIF’s properties are weighted towards those 

countries expected to fare better than average. 

The first half of 2008 is expected to see a reduction in 

investment activity but this is anticipated to pick up in the 

second half with some vendors reducing pricing to reflect 

revised investor expectations. Tougher financing terms and 

reducing values may lead to some investors having no option 

but to sell, leading to cash rich investors benefiting from good 

buying opportunities. 

The biggest potential threat to the industrial market is that 

the impact from recent volatility in the financial markets spills 

over into the wider economy affecting occupiers’ business 

performance. However, so far the signs in Q1 2008 are that 

property market fundamentals remain strong in western and 

northern Europe with strong leasing activity, especially for 

units in assets such as those in the Company’s portfolio. 

Belgium 

The first half of 2007 saw healthy take-up for industrial 

property with levels in the order of 114,000 sqm and this 

performance is expected to be matched in the second half 

of the year. As with elsewhere, increasing construction costs, 

shortage of land and the need for companies to maintain 

flexibility have resulted in an increasing trend of occupiers 

moving from a traditional owner-occupier route towards 

leasing. While investment activity was strong in 2007, 

only a minority of transactions involved industrial property, 

due to a shortage of suitable product. 

Finland 

There is a continuing lack of good quality industrial and 

logistics properties in Finland and this, combined with 

restraints on new supply, continues to attract strong 

investment interest from both domestic and international 

investors. Occupier demand is still strongly based in the 

Greater Helsinki Economic Region. Void rates are estimated 

to be between 1% and 3% with a significant element of 

that vacancy being in older obsolete properties. The Finnish 

investment market is rapidly maturing with circa 70% of all 

investment transactions in 2007 involving foreign investors. 

France 

Demand for industrial and logistics property remained 

strong in 2007 and it is estimated that an additional 1.4 million 

square metres of new stock is added on average annually. 

There is an increasing trend for French companies to 

outsource distribution leading to high levels of demand for 

new large high-bay warehousing. It is estimated that 60% of 

overall take-up in 2007 was by third party logistics providers 

moving to or expanding into modern logistics buildings. 

The majority of industrial leasing activity remains in the Ile 

de France area and leasing activity has remained buoyant 

through Q4 2007 into Q1 2008. France saw another record 

breaking year with circa £14.7 billion of transactions, although 

within this, the percentage of industrial transactions in the 

market reduced largely due to lack of product. 

Germany 

Despite improvement in the fourth quarter 2007, overall 

take-up was 30% down on 2006, which was a record 

year for leasing activity. The German industrial market is 

characterised by dramatic regional differences with Hamburg 

and Munich amongst the most popular and Eastern Germany 

still underperforming. Supply picked up in 2007 pointing 

to improving dynamics in the industrial market. General 

investment activity in Germany was again strong in 2007 

and is expected to remain so in 2008, albeit, as with 

elsewhere in Europe, the availability of good well located 

secondary properties will limit opportunities. 

The Netherlands 

For 2007, leasing activity was strong and this is expected 

to continue into the first half of 2008. Vacancy is reported 

to be reducing in and around Amsterdam and the port of 

Rotterdam, a maritime hub, continues to see high demand. 

The shortage of development land, a stable occupier market 

and low vacancy rates are keeping yields low and it continues 

to attract both international and domestic investors. 

Norway 

The market is characterised by a shift from rational owner 

occupiers towards leasing modern high-tech properties. 

This is increasingly resulting in voids in older stock and 

increased competition by landlords could lead to rental 

falls. Strong economic performance is expected to fuel 

tenant demand but again this is likely to be focused on 

modern prime property. Norway is an investment market 

traditionally dominated by domestic investors although 

there is an increasing interest from international investors. 

Prime yields should hold firm with higher interest rates 

and lending constraints already putting upward pressure 

on secondary yields. 

Sweden 

Strong tenant demand throughout 2007 has been bolstered 

by increasing employment, a strong economy and good 

access to investment capital. This has led to increasing 

new supply despite tight planning control. This strong 

performance is expected to continue into 2008 and lead to 

modest rental growth. Increasing interest from international 

investors is expected to lead to another good year in 2008 

and strong competition between buyers should lead to 

stable or falling yields.


Investment Manager’s Review 

Portfolio Overview 

Belgium Finland France Germany Netherlands Norway Sweden Total 

Number of Assets 9 7 64 4 4 15 7 110 

Number of Tenants 72 14 315 36 4 60 44 545 

Total Area (sqm) 125,316 34,138 274,803 142,790 88,875 122,532 103,060 891,514 

Average Lot Size £’000 £5,353 £2,981 £2,760 £6,240 £8,556 £6,194 £4,420 £3,897 

Value (per sqm) £384 £611 £643 £175 £385 £758 £300 £481 

Area/Tenancy (sqm) 1,740 2,438 872 3,966 22,219 2,042 2,342 1,636 

Area/Asset (sqm) 13,924 4,877 4,294 35,697 22,219 8,169 14,723 8,105 

As at 31 December 2007 the total portfolio was valued at 

over £428.8m compared to £287.9m at 31 December 2006. 

By value the portfolio breaks down across seven countries 

as follows: 

France 41% 

Norway 22% 

Belgium 11% 

Netherlands 8% 

Sweden 7% 

Germany 6% 

Finland 5% 

This shows a reduction in exposure to France by 8% 

from 49% at the year start. 

The portfolio comprises 110 properties, 891,513 sqm with 

545 individual leases. The current portfolio rent is £30.5m 

(NOI) reflecting a net yield of 7.51% with a void of 11.2% by 

area and reversionary yield of 8.22%. 

During the year, 87 new leases were signed or renewed 

across the portfolio, representing 19.5% of gross income 

and 10.5% or 93,488 sqm of total area. 38 tenants vacated 

premises, representing 3.8% of gross income and 28,813 

sqm. The occupancy of the whole portfolio has increased 

by 1.3% to 88.7% by year end. Despite strong leasing 

performance during the quarter, the new acquisitions, 

purchased with 77.9% occupancy, have led to the occupancy 

of the total portfolio increasing only marginally. Without these 

fourth quarter acquisitions, the portfolio occupancy would 

have been 89.4%. 

From 31 December 2006 to 31 December 2007, a total 

of 27 properties were purchased, increasing the total net 

operating income of the portfolio by £8.8m, giving a net 

initial yield of 7.34% and a reversionary yield of 8.56%. 

Outlook 

It remains difficult to predict the impact of the volatility in the 

financial markets over 2008 but despite some risks to value 

on the downside, the shortage of development land and 

continuing high construction costs across our key markets 

will help to limit falls in industrial property values. There also 

remains a weight of capital seeking opportunities which, 

once the markets settle, should help stabilise. Against this 

background, the KEIF portfolio has a strong and stable rent 

profile with potential for strong value creation through active 

asset management. The Investment Manager’s local network 

of offices and strong relationships with local owners and 

developers will ensure that the portfolio continues to be 

aggressively and pro-actively managed. 

During 2008 we expect the Fund will trade out of assets 

where there is either a threat to value by holding longer or 

to release capital for investing in higher yielding assets with 

strong income profiles. The slow but increasing trend of 

European organisations moving away from being owneroccupiers 

towards leasing will continue and we believe 

KEIF remains well positioned to take advantage of the 

opportunities this will bring. 

Rob Brook 

Kenmore Financial Services Limited 

Investment Manager


Portfolio Statistics 

Geographical Analysis as at 3 December 2007 Tenure Analysis as at 3 December 2007 

Lease Expiry Profile 

At 31 December 2007 the average lease length through to expiry for the portfolio was 5.1 years. 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

0-5 years 5-10 years 10-15 years 15+ years 

Top Ten Tenants at 3 December 2007 

France France 41% 41% 

Norway Norway 22% 22% 

Belgium Belgium 11% 11% 

Netherlands 8% 8% 

Sweden Sweden 7% 7% 

Germany Germany 6% 6% 

Finland Finland 5% 5% 

Freehold Freehold 99% 99% 

Leasehold Leasehold 1% 1% 

% Total 

Passing Portfolio 

Rent Passing 

Tenant £’000s Rent 

Kuehne + Nagel Logistics 1,865 5.5% 

EDEKA 1,470 4.4% 

Bauda AS 1,142 3.4% 

Machinery Oy 847 2.5% 

Kuehne + Nagel Chilled Logistics 781 2.3% 

Skandinavisk Transport System AS 619 1.8% 

Daimler Crysler AG 578 1.7% 

Blondie Logistics 518 1.5% 

I.N.A. 494 1.5% 

Bongs Konvolutter 478 1.4% 

8,7 2 26.0%


Property Portfolio 

As at 3 December 2007 

% of Total 

Market Assets 

Net value (less Current 

Property Country Yield £’000s Liabilities) 

Marshallweg 1, Veghel Netherlands 6.59% 24,405 5.8% 

Svelvikveien 59B, Drammen Norway 7.07% 16,262 3.9% 

Interleuvenlaan, Aarschot Belgium 7.31% 13,013 3.1% 

Croissy Beaubourg France 8.01% 11,797 2.8% 

Brackeler-Hellweg, Dortmund Germany 11.40% 11,451 2.7% 

Ansatie 5, Vantaa Finland 6.85% 11,252 2.7% 

Leiraveien 13B, Skedsmo Norway 6.28% 8,639 2.1% 

Varla 6:15 Sweden 5.77% 8,516 2.0% 

Östmarkveien 27, Ulsrud Eiendom Norway 6.67% 8,316 2.0% 

Building 1, 2, 3, 20, Torcy Nord France 8.17% 8,150 1.9% 

Ten largest property holdings 2 ,80 2 .0% 

Sindelfingen Germany 5.67% 8,091 1.9% 

Leuvensesteenweg 573, Zaventem Belgium 5.75% 7,921 1.9% 

Banvakten 1, Borlange Sweden 6.68% 7,881 1.9% 

Avenue des Hautes Patures, Nanterre France 6.13% 7,870 1.9% 

Professor Birkelandsvei 36, Oslo Norway 8.21% 7,865 1.9% 

Vestvollveien 10, Skedsmo Norway 8.75% 7,726 1.8% 

Vikelvfaret, Trondheim Norway 7.86% 6,667 1.6% 

Bekkeveien 161, Stokke Norway 9.70% 6,422 1.5% 

John G. Mattesonsvei 4, Oslo * Norway 8.41% 5,963 1.4% 

Runnenbergweg 12,14 / Talhoutweg 2, Vaassen Netherlands 8.47% 5,943 1.4% 

Twenty largest property holdings 4, 0 46.2% 

Industrielaan 9, Olen Belgium 8.11% 5,611 1.3% 

Bry-sur-Marne France 9.39% 5,541 1.3% 

Glasstraat, Merksem, Antwerp Belgium 6.56% 5,479 1.3% 

ZAC de Bois Chaland, Lisses France 7.41% 5,177 1.2% 

Holterkollveien 3, Frogn Norway 7.70% 5,082 1.2% 

Charles V Property, Ternat Belgium 8.07% 4,889 1.2% 

Kokstaddalen 41, Bergen Norway 9.33% 4,675 1.1% 

85 Av de Neuilly, Fontenay France 8.79% 4,628 1.1% 

Bredmyra 10-12, Sarpsborg Norway 8.53% 4,505 1.1% 

Bunkagarden Vastra 8, Helsingborg Sweden 9.72% 4,476 1.1% 

Thirty largest property holdings 244,2 3 8. % 

Other properties 184,613 43.7% 

Total property portfolio 428,826 0 .8% 

Price adjustment related to deferred tax liabilities (14,080) (3.3)% 

Total investment properties per accounts 4 4,746 8. % 

Other non-current assets and net current assets 6,493 1.5% 

Total assets (less current liabilities) 42 ,23 00.0% 

*Leasehold property


Board of Directors 

Giles Weaver (Chairman) 

Aged 61, is currently Chairman of Charter European Trust 

PLC, Helical Bar PLC and AH Medical Properties PLC. He is 

a non-executive director of Aberdeen Asset Management 

PLC and a number of other investment companies. He was 

formerly chairman of Murray Johnstone Ltd. and a director 

of Ivory & Sime PLC. 

Jonathan Gamble 

Aged 40, is currently a director of Asset Risk Consultants 

Limited, which provides investment consulting services. He 

has worked professionally in London, Australia and Singapore 

as a dealer for Morgan Stanley and Société Générale before 

moving to Guernsey. He serves on the boards of a number 

of companies. 

Helen Green 

Aged 45, is a chartered accountant and a partner in Saffery 

Champness, a UK top 20 firm of chartered accountants. She 

joined the firm in 1984, qualified as a chartered accountant 

in 1988 and became a partner in the London office in 1997. 

Since November 2000 she has been based in the Guernsey 

office where she is a client liaison director responsible for 

trust and company administration. Helen serves on the 

boards of a number of companies in various jurisdictions. 

John Kennedy 

Aged 56, has over 30 years’ experience in the property 

market. He is Chairman of Kenmore and has worked 

professionally in Scotland, Australia and the West Indies. 

He qualified as a chartered surveyor in 1973, formed 

Kenmore Investments Limited in 1986 and ran his own 

building company before turning exclusively to commercial 

property trading, development and investment. He is 

a prior winner of Property Week Personality of the Year 

and Entrepreneur of the Year. 

Christopher Spencer 

Aged 57. Christopher Spencer qualified as a chartered 

accountant in London in 1975. Following two years post 

qualification work in Bermuda he moved to Guernsey. Mr 

Spencer, who specialised in audit and fiduciary work, was 

managing partner/director of the Guernsey Practice of Pannell 

Kerr Forster (Guernsey) Limited and Praxis Fiduciaries Limited 

from 1990 until his retirement in May 2000. Mr Spencer is a 

non-executive Director of a number of hedge funds, funds of 

hedge funds and other investment and insurance companies.


Report of the Directors 

The Directors present their report and accounts of the 

Group for the year ended 31 December 2007 (the “year”). 

Results and Dividends 

The results for the year are set out in the attached accounts. 

The Company has paid interim dividends of 1.5p and 3p 

during the year ended 31 December 2007. It is the policy 

of the Directors to declare and pay dividends as interim 

dividends. The Directors do not therefore recommend a 

final dividend but propose a further interim dividend of 

3p to be paid on 25 April 2008 to shareholders on the 

register on 11 April 2008. 

Principal Activity and Status 

The Company is a Guernsey registered company and 

during the year carried on business as a property investment 

company. The Company’s Investment Policy and a review of 

the business during the year is contained in the Chairman’s 

Statement and the Investment Manager’s Review. 

Directors 

The Directors who held office during the year and their 

interests in the shares of the Company at 31 December 

2007 (all of which were beneficial) were: 

Ordinary Shares 

CGH Weaver 200,000 

JJ Gamble – 

HF Green 5,000 

JAB Kennedy *1,700,000 

CP Spencer 15,000 

* 1,500,000 are held within a group pension scheme 

of which Mr Kennedy is a member. 

There have been no changes in the above interests 

between 31 December 2007 and 8 March 2008. 

Biographical details of each of the Directors are shown 

on page 11. 

With the exception of Mr Kennedy, all Directors are 

considered to be independent and are elected for fixed terms 

of three years. In accordance with the Company’s Articles 

of Association (the “Articles”) each Director retired at the 

Company’s Annual General Meeting in 2007, being the first 

such meeting following their appointment and, being eligible, 

offered themselves for re-election. All were duly re-elected. 

Mr Kennedy is a director of Kenmore Financial Services 

Limited (the “Investment Manager”) and Kenmore Property 

Group Limited (its ultimate parent company) as well as of the 

Company is therefore not considered to be independent. 

As a consequence, he is required by the United Kingdom 

Listing Authority Listing Rules to retire at each Annual 

General Meeting and is standing for re-election at the 

Annual General Meeting in May 2008. 

An evaluation of the performance of individual Directors was 

carried out during the year and the Board is satisfied that the 

performance of each Director continues to be effective and 

demonstrates their commitment to the role. 

During the year the Directors received the following 

emoluments in the form of fees: 

CGH Weaver 35,000 

JJ Gamble 23,095 

HF Green 20,000 

JAB Kennedy 20,000 

CP Spencer 31,705 

Total 2 ,800 

There are no service contracts in existence between the 

Company and any Directors but each of the Directors 

was appointed by a letter of appointment which sets out 

the main terms of their role as directors of the Company. 

Management 

The Investment Manager provides management services to 

the Company. A summary of the Investment Management 

Agreement is given in note 2 to the accounts. 

During the year, the Management Engagement Committee 

(which consists of all the Directors other than Mr Kennedy) 

reviewed the appropriateness of the Investment Manager’s 

appointment. In carrying out the review the Committee 

considered the investment performance of the Company 

during the year and the capability and resources of the 

Investment Manager to deliver satisfactory investment 

performance. It also considered the length of the notice 

period of the Investment Management Agreement and the 

fees payable to the Investment Manager, together with the 

standard of the other services provided. Following this review, 

it is the Directors’ opinion that the continuing appointment 

of the Investment Manager on the terms agreed is in the 

interests of shareholders as a whole. 

Substantial Interests in Share Capital 

At 7 March 2008 the following holdings representing more 

than 3 per cent of the Company’s issued share capital had 

been notified to the Company: 

No. of Ordinary Percentage 

Shares Held Held 

Vidacos Nominees 11,564,357 8.26% 

Kenmore Investments Limited 10,500,000 7.50% 

Adam & Co. Nominees Limited 8,931,065 6.37% 

Ameriprise Financial Inc. 7,618,000 5.44% 

Rensburg Sheppards 

Investments Limited 6,304,106 4.50% 

Corporate Governance 

It is the Company’s policy to comply with best practice on 

good corporate governance that is applicable to investment 

companies. 

As a Guernsey registered company, the Company is not 

required to comply with the Combined Code on Corporate 

Governance issued by the Financial Reporting Council in 

July 2003 (the “Combined Code”). 

£


The Company is a member of the Association of Investment 

Companies (“AIC”) and applies the principles of the AIC Code 

of Corporate Governance (the “AIC Code”). The AIC Code 

addresses all the principles set out in the Section 1 of the 

Combined Code (as explained in the AIC’s Corporate 

Governance Guide for Investment Companies (the AIC 

“Guide”)). Those provisions of the Combined Code on which 

the Company does not report in detail in this Report have 

been excluded because the Company does not consider 

them to be relevant to it, as explained in the AIC Guide. 

Except as disclosed below, the Company believes that it 

complied with the provisions of the AIC Code throughout the 

period (and, as a consequence has also complied with the 

provisions of the Combined Code and paragraph 9.8.6 of the 

Listing Rules). 

No Director has a service contract with the Company. 

Their letters of appointment, dated 5 September 2006, state 

that their appointment and any subsequent termination or 

retirement shall be subject to the provisions of the Articles. 

The Articles require that all Directors retire by rotation at least 

every three years. Because of this, the Board considers that 

it is not appropriate for the Directors to be appointed for a 

specific term as recommended by Combined Code provision 

A.7.2 and principle 3 of the AIC code. In addition, since the 

Company has only been operating since September 2006, 

the Board considers that it is not yet appropriate for the 

Company to have a formal policy on Directors’ tenure (as 

recommended by AIC Code principle 4). 

Mr Weaver is Chairman. To date the board has not deemed 

it appropriate to appoint a Deputy Chairman or a Senior 

Independent Director. To date, no new directors have been 

appointed to the Board since the Company’s launch. New 

Directors will be entitled to receive an induction from the 

Investment Manager and Secretary on joining the Board 

and all Directors are entitled to receive relevant training as 

necessary upon request. 

The Company has no executive directors or employees. 

The Investment Management Agreement sets out the matters 

over which the Investment Manager has authority and the 

limits beyond which Board approval must be sought. All other 

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. 

Levels of Directors’ remuneration have not been reviewed 

since the Company’s establishment. As a consequence, the 

Directors have not yet considered it necessary to establish 

a separate Remuneration Committee, but will continue to 

review the position. 

The Audit Committee, chaired by Mr Spencer, meets at 

least bi-annually and operates within clearly defined terms 

of reference and comprised all the Directors except for 

Mr Kennedy. Since the year end, Mr Weaver has stepped 

down from the Audit Committee. The duties of the Audit 

Committee include reviewing the Annual and Interim 

Accounts; the system of internal controls; and the terms of 

appointment of the auditors together with their remuneration. 

It is also the forum through which the auditors report to the 

Board of Directors. The objectivity of the auditors is reviewed 

by the Audit Committee which also reviews the terms under 

which the auditors are appointed to perform non-audit 

services. The Committee reviews the scope and results of 

the audit, its cost effectiveness and the independence and 

objectivity of the auditors, with particular regard to non-audit 

fees. Such fees amounted to £17,000 for the year ended 

31 December 2007 and related to the independent review 

of the Group’s Interim Accounts to 30 June 2007. The Audit 

Committee considers KPMG Channel Islands Limited to 

be independent of the Company and that the provision of 

such non-audit services is not a threat to the objectivity 

and independence of the conduct of the audit. 

The Management Engagement Committee, chaired by 

Mr Weaver, comprises the full Board, except for Mr Kennedy, 

and reviews the performance of the Investment Manager 

and the continuing ability of Directors to act independently 

of any substantial shareholder, and their associates. 

The table below sets out the number of Board and Audit 

Committee meetings held during the year and the number 

of meetings attended by each Director: 

Board of Audit 

Directors Committee 

Meetings attended/Held 4 3 

G Weaver 4 *0 

J Gamble 4 3 

H Green 4 3 

J Kennedy 4 N/A 

C Spencer 4 2 

* On the basis of professional advice received, Mr Weaver 

did not participate in the Audit Committee (or other Company) 

meetings held in Guernsey by telephone when he was in the 

United Kingdom. For this reason he was unable to attend 

the Audit Committee meetings during the year and has 

subsequently stood down from the Audit Committee. 

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 

Company maintains appropriate Directors’ and Officers’ 

liability insurance. After making enquiries, and bearing in 

mind the nature of the Company’s business and assets, 

the Directors consider that the Company has adequate 

resources to continue in operational existence for the 

foreseeable future. 

For this reason, they continue to adopt the going concern 

basis in preparing the accounts.


Report of the Directors 

Principal Risks and Uncertainties 

The Company invests in real estate in Europe and 

Scandinavia. It is therefore exposed to variations in market 

conditions for such assets and to responses to market 

conditions, to local and national economic conditions, 

changes to the currency and interest rate profiles, tax rates 

and other future events. In addition the Company will also 

face risks from breach of laws or regulations, poor selection 

of assets, failure of systems or procedures in any of the 

countries in which the Company operates, and actions 

leading to central management and control of the assets 

being regarded as taxable in the UK. 

The Investment Manager, through its active management and 

review processes, will seek to minimise these risks wherever 

possible, and the Board, through its review of the Investment 

Manager’s work, will seek to identify any additional 

exposures. 

The Board uses a number of key performance indicators 

to assist in measuring the performance of the Company. 

These are the: 

• running yield on the portfolio; 

• cost of the Company’s debt; 

• performance of the share price and its relativity 

to NAV per share excluding deferred tax; and 

• dividend yield. 

Internal Controls 

The Board is responsible for the Company’s system of 

internal control and for reviewing its effectiveness, consistent 

with the guidance issued by the Financial Reporting Council 

in October 2005. The process is based principally on the 

Investment Manager’s approach to internal control. 

At its meetings the Board reviews a report from the 

Investment Manager on the management of the portfolio 

of assets within the Company. At each Board meeting the 

Board monitors the investment performance of the Company 

in comparison to its stated objective. The Board also reviews 

the Company’s activities since the last Board meeting to 

ensure that the Investment Manager adheres to the agreed 

investment policy and approved investment guidelines 

and, if necessary will approve changes to such policy and 

guidelines. In addition, at each Board meeting, the Board 

receives reports from the Secretary in respect of compliance 

matters and duties performed on behalf of the Company. 

By their nature these procedures can provide reasonable, 

but not absolute, assurance against material misstatement 

or loss. 

The Board has reviewed the need for an internal audit 

function. The Board has decided that the systems and 

procedures employed by the Investment Manager and 

the Secretary and the work carried out by the Company’s 

external auditors, provide sufficient assurance that a sound 

system of internal control, which safeguards the Company’s 

assets, is maintained. An internal audit function specific to 

the Company is therefore considered unnecessary. 

Relations with Shareholders 

The Company welcomes the views of shareholders 

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. Any requests 

for meetings should be made to the Administrator. 

Directors’ Authority to Buy Back Shares 

The Company did not purchase any shares for cancellation 

during the year. 

The Directors will seek renewal of the current authority of the 

Company to make market purchases of up to 14.99 per cent 

of the issued Ordinary Share Capital and Special Resolution 

1, as set out in the notice of the Annual General Meeting, 

seeks renewal of such authority until the earlier of the Annual 

General Meeting in 2009 and 22 August 2009. Any buy back 

of Ordinary Shares will be made subject to Guernsey law and 

within any guidelines established from time to time by the 

Board (which will take into account the income and cash flow 

requirements of the Company). The making and timing of any 

buy backs will be at the absolute discretion of the Board. 

Purchases of Ordinary Shares will only be made through the 

market for cash at prices below the prevailing net asset value 

of the Ordinary Shares (as last calculated) where the Directors 

believe such purchases will enhance shareholder value. The 

purchases will only be made in accordance with the rules of 

the UK Listing Authority. The price to be paid must not be 

more than five per cent above the average market value of 

the Shares for the five business days prior to the day the 

purchase is made. 

It is intended that buy backs will only be made if doing so will 

represent an attractive investment opportunity for ongoing 

shareholders not participating in any such buy backs. 

Accordingly, purchases of Ordinary Shares will only be made 

through the market for cash at prices below the prevailing 

Net Asset Value per Ordinary Share of the remaining Shares. 

Auditors 

KPMG Channel Islands Limited have expressed their 

willingness to continue in office as auditors and a resolution 

proposing their re-appointment will be submitted at the 

Annual General Meeting. 

Approved by the Board on 8 March 2008. 

Jonathan Gamble Helen Green 

Director Director


Directors’ Responsibility Statement 

The Directors are responsible for preparing the Directors’ 

Report and the Group and parent Company accounts 

for each financial period which give a true and fair view of 

the state of affairs of the Group and the parent Company 

and of the profit or loss of the Group and the parent 

Company for that period and which are in accordance 

with applicable laws. In preparing those accounts 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 accounts; and 

• prepare the accounts on the going concern basis unless it 

is appropriate to presume that the Group will not continue 

in business. 

The Directors are responsible for keeping proper accounting 

records which disclose with reasonable accuracy at any time 

the financial position of the Group and which enable them 

to ensure that the accounts have been properly prepared 

in accordance with the Companies (Guernsey) Law, 1994. 

They are also responsible for safeguarding the assets of the 

Company and hence for taking reasonable steps for the 

prevention and detection of fraud and other irregularities.


Independent Auditors’ Report 

Independent Auditors’ Report to the Members 

of Kenmore European Industrial Fund Limited 

We have audited the Group and parent Company accounts 

(the ‘‘accounts’’) of Kenmore European Industrial Fund 

Limited for the year ended 31 December 2007 which 

comprise the Group and Company Income Statements, 

the Group and Company Balance Sheets, the Consolidated 

and Company Statements of Changes in Equity, the Group 

and Company Cash Flow Statements and the related notes. 

These accounts have been prepared under the accounting 

policies set out therein. 

This report is made solely to the Company’s members, 

as a body, in accordance with section 64 of The Companies 

(Guernsey) Law, 1994. Our audit work has been undertaken 

so that we might state to the Company’s members those 

matters we are required to state to them in an auditor’s report 

and for no other purpose. To the fullest extent permitted by 

law, we do not accept or assume responsibility to anyone 

other than the Company and the Company’s members as 

a body, for our audit work, for this report, or for the opinions 

we have formed. 

Respective Responsibilities of Directors and Auditors 

The Directors are responsible for preparing the Directors’ 

Report and the accounts in accordance with applicable 

Guernsey law and International Financial Reporting 

Standards (IFRSs) as set out in the Statement of Directors’ 

Responsibilities above. 

Our responsibility is to audit the accounts in accordance with 

relevant legal and regulatory requirements and International 

Standards on Auditing (UK and Ireland). 

We report to you our opinion as to whether the accounts give 

a true and fair view and are properly prepared in accordance 

with The Companies (Guernsey) Law, 1994. We also report 

to you if, in our opinion, the Company has not kept proper 

accounting records, or if we have not received all the 

information and explanations we require for our audit. 

We read the Directors’ Report and consider the implications 

for our report if we become aware of any apparent 

misstatements within it. 

We read the other information accompanying the accounts 

and consider whether it is consistent with those statements. 

We consider the implications for our report if we become 

aware of any apparent misstatements or material 

inconsistencies with the accounts. 

Basis of Audit Opinion 

We conducted our audit in accordance with International 

Standards on Auditing (UK and Ireland) issued by the Auditing 

Practices Board. An audit includes examination, on a test 

basis, of evidence relevant to the amounts and disclosures in 

the accounts. It also includes an assessment of the significant 

estimates and judgements made by the Directors in the 

preparation of the accounts, and of whether the accounting 

policies are appropriate to the Company’s circumstances, 

consistently applied and adequately disclosed. 

We planned and performed our audit so as to obtain all 

the information and explanations which we considered 

necessary in order to provide us with sufficient evidence to 

give reasonable assurance that the accounts are free from 

material misstatement, whether caused by fraud or other 

irregularity or error. In forming our opinion we also evaluated 

the overall adequacy of the presentation of information in 

the accounts. 

Opinion 

In our opinion the accounts: 

• give a true and fair view, in accordance with IFRSs, 

of the state of the Group’s and the parent Company’s 

affairs as at 31 December 2007 and of the Group’s 

profit and the parent Company’s loss for the year 

then ended; and 

• have been properly prepared in accordance with 

The Companies (Guernsey) Law, 1994. 

KPMG Channel Islands Limited 

Guernsey, Channel Islands 8 March 2008


Income Statements 

For the year ended 3 December 2007 

Year ended Four months ended 

31 December 2007 31 December 2006 

Company Group Company Group 

Notes £’000 £’000 £’000 £’000 

Revenue 

Rental income – 27,948 – 5,193 

Other income – 4,946 – 522 

Gains on investments 

Unrealised gains on revaluation of investment properties 8 – 15,111 – 5,072 

Realised gains on disposal of investment properties – 171 – – 

Total income – 48, 76 – 0,787 

Expenditure 

Property acquisition and related costs – (5,237) – – 

Other expenses 2a, 3 (7,046) (22,688) (170) (3,001) 

Total expenditure (7,046) (27, 2 ) ( 70) (3,00 ) 

Net operating profit/(loss) before finance costs (7,046) 20,2 ( 70) 7,786 

Net finance costs 

Interest receivable 7,690 3,052 2,029 677 

Finance costs 4 (1,659) (11,880) (720) (762) 

6,03 (8,828) ,30 (8 ) 

Net profit/(loss) before taxation ( ,0 ) ,423 , 3 7,70 

Taxation on profit/(loss) 5 – (7,991) – (2,804) 

Net profit/(loss) for the year ( ,0 ) 3,432 , 3 4,8 7 

Basic earnings per share 7 2. p 3. p 

Diluted earnings per share 7 2.4p 3. p 

The accompanying notes are an integral part of this statement.


Balance Sheets 


2007 2006 


Notes £’000 £’000 £’000 £’000 

Non-current assets 

Property, plant and equipment – 45 – 3 

Investment properties 8 – 414,746 – 283,010 

Investment in subsidiary undertakings 9 184,303 – 144,236 – 

Other investments, including derivatives 17 – 3,180 – 2,135 

Deferred tax assets 10a – 969 – 159 

84,303 4 8, 40 44,236 28 ,307 

Current assets 

Trade and other receivables 11b – 18,553 18 16,723 

Cash and cash equivalents 12 2,094 13,981 25,294 33,581 

2,0 4 32, 34 2 ,3 2 0,304 

Total assets 86,3 7 4 ,474 6 , 48 33 ,6 

Current liabilities 

Trade and other payables 13 (44,128) (30,235) (32,924) (20,617) 

Non-current liabilities 

Loans and borrowings 14 – (262,956) – (172,002) 

Deferred tax liabilities 10a – (10,531) – (2,583) 

– (273,487) – ( 74, 8 ) 

Total liabilities (44, 28) (303,722) (32, 24) ( ,202) 

Net assets 42,26 47,7 2 36,624 40,40 

Represented by: 

Share capital 15 – – – – 

Share premium 15 2,985 2,985 2,985 2,985 

Special distributable reserve 15 126,200 126,200 132,500 132,500 

Translation reserve 15 12,960 10,238 – 27 

Revenue reserve 15 124 8,329 1,139 4,897 

Equity shareholders’ funds 42,26 47,7 2 36,624 40,40 

Net asset value per share 0 . p 00.3p 

The accounts on pages 17 to 33 were approved by the Board of Directors on 8 March 2008 and signed on its behalf by: 

JJ Gamble HF Green 

Director Director 



Statements of Changes in Equity 

Share Special 

Capital Distributable Translation Revenue Group 

& Premium Reserve Reserve Reserve Total 

Consolidated £’000 £’000 £’000 £’000 £’000 

Income and expense 

recognised directly in equity: 

Foreign currency translation differences – – 27 – 27 

– – 27 – 27 

Net profit for the period – – – 4,897 4,897 

Recognised income and expense – – 27 4,897 4,924 

Issue of ordinary share capital, net of issue costs 135,485 – – – 135,485 

Conversion (132,500) 132,500 – – – 

As at 3 December 2006 2, 8 32, 00 27 4,8 7 40,40 



Foreign currency translation differences – – 10,211 – 10,211 

– – 10,211 – 10,211 

Net profit for the year – – – 3,432 3,432 

Recognised income and expense – – 10,211 3,432 13,643 

Dividends paid – (6,300) – – (6,300) 

As at 3 December 2007 2, 8 26,200 0,238 8,32 47,7 2 



Statements of Changes in Equity 

Share Special 

Capital Distributable Translation Revenue Company 

& Premium Reserve Reserve Reserve Total 

Company £’000 £’000 £’000 £’000 £’000 

Net profit for the period – – – 1,139 1,139 

Recognised income and expense – – – 1,139 1,139 

Issue of ordinary share capital, 

net of issue costs 135,485 – – – 135,485 

Conversion (132,500) 132,500 – – – 

As at 3 December 2006 2, 8 32, 00 – , 3 36,624 



Foreign currency translation differences – – 12,960 – 12,960 

– – 12,960 – 12,960 

Net loss for the year – – – (1,015) (1,015) 

Recognised income and expense – – 12,960 (1,015) 11,945 

Dividends paid – (6,300) – – (6,300) 

As at 3 December 2007 2, 8 26,200 2, 60 24 42,26 



Cash Flow Statements 

For the year ended 3 December 2007 

The accompanying notes are an integral part of this statement. 




Notes £’000 £’000 £’000 £’000 

Cash flows from operating activities 

Net profit/(loss) before taxation 

Adjustments for: 

Unrealised gains on revaluations 

(1,015) 11,423 1,139 7,701 

of investment properties – (15,111) – (5,072) 

Realised gains on disposal of investment properties – (171) – – 

Depreciation – 3 – 1 

Foreign exchange movements 12,960 (2,048) – – 

Taxation paid – (1,163) – (216) 

Decrease/(increase) in trade and other receivables 18 (1,830) (18) (16,723) 

Increase in trade and other payables 11,204 9,928 32,924 19,970 

Net cash inflow from operating activities 23, 67 ,03 34,04 ,66 

Cash flows from investing activities 

Acquisition of investment properties 8 – (86,953) – (275,170) 

Development expenditure 8 – (1,893) – (2,258) 

Proceeds from disposal of investment properties – 1,265 – – 

Acquisition of property, plant & equipment – (45) – (4) 

Investment in subsidiaries 9 (40,067) – (144,236) – 

Increase in other investments – (1,045) – (2,135) 

Net cash outflow from investing activities (40,067) (88,67 ) ( 44,236) (27 , 67) 

Cash flows from financing activities 

Proceeds from issue of ordinary share capital – – 140,000 140,000 

Issue costs of ordinary share capital – – (4,515) (4,515) 

Receipt of borrowings 14 – 73,547 – 172,002 

Dividends paid 6 (6,300) (6,300) – – 

Net cash inflow/(outflow) from financing activities (6,300) 67,247 3 ,48 307,487 

Net (decrease)/increase in cash and cash equivalents (23,200) (20,393) 25,294 33,581 

Cash and cash equivalents at start 25,294 33,581 – – 

Foreign exchange movements on cash and cash equivalents – 793 – – 

Cash and cash equivalents at end 2,0 4 3, 8 2 ,2 4 33, 8


Notes to the Accounts 


. Accounting policies 

Kenmore European Industrial Fund Limited is a company domiciled in Guernsey. The address of the Company’s registered 

office is Trafalgar Court, Les Banques, St Peter Port, Guernsey. The Group accounts comprise the accounts of the Company 

and all of its subsidiaries, being entities controlled by the Company, drawn up to 31 December each year. The accounts were 

approved by the Board of Directors on 8 March 2008. 

A summary of the principal accounting policies, all of which have been applied consistently throughout the period, 

is set out below. 

(a) Basis of Accounting 

The Group accounts have been prepared in accordance with International Financial Reporting Standards issued by, or 

adopted by, the International Accounting Standards Board (the ‘‘IASB’’), interpretations issued by the International Financial 

Reporting Interpretations Committee, applicable legal and regulatory requirements of Guernsey Law and the Listing Rules 

of the UK Listing Authority. The Company considers that it has complied (and intends to continue to comply) with the 

conditions applicable to property investment companies set out in paragraph 15.5.15R of the Listing Rules of the United 

Kingdom Listing Authority. 

No International Financial Reporting Standards have been adopted early, however it is likely that any Standards issued, 

but that are not yet effective, would only require changes in disclosure and not result in changes to the accounting policies 

for recognition and measurement. IFRS 8 Operating Segments introduces the “management approach” to segment reporting 

which will require the disclosure in the Group’s 2008 accounts of segment information based on internal reports. 

(b) Basis of Preparation 

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated 

from the date on which control is transferred out of the Group. 

These Group accounts are presented in Sterling, which is the Company’s functional currency. All financial information 

presented in Sterling has been rounded to the nearest thousand. The Group accounts have been prepared on an historic 

cost basis except for the items noted in (i) and (j) below which are stated at fair value. 

(c) Use of Estimates and Judgements 

The preparation of accounts in conformity with adopted International Financial Reporting Standards requires management to 

make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of 

assets, liabilities, income and expenses. Such decisions have been taken in respect of the performance fee and investment 

properties. Actual results may differ from these estimates. 

(d) Segmental Reporting 

The Directors are of the opinion that the Group is engaged in a single segment of business being property investment 

business, in one geographical area, Europe (excluding the United Kingdom). 

(e) Foreign Exchange 

. Foreign currency transactions 

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates 

at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are 

retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is 

the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest 

and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the 

period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated 

to the functional currency at the exchange rate at the date the fair value was determined. Foreign currency differences arising 

on retranslation are recognised in the Income Statement. 

2. Foreign operations 

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, 

are translated to Sterling at exchange rates at the reporting date. The income and expenses of foreign operations are 

translated to Sterling at exchange rates at the dates of the transactions. 

Foreign currency differences are recognised directly in equity. When a foreign operation is disposed of, in part or in full, 

the relevant amount in equity is transferred to the Income Statement. 

(f) Revenue Recognition 

Rental income, excluding VAT, arising on investment properties is accounted for in the Income Statement on a straight-line 

basis over the lease term of ongoing leases. Lease incentives granted are recognised as an integral part of the total rental 

income, over the term of the lease. 

Other income (which relates to cost recharges) and interest income are accounted for on an accruals basis.


(g) Expenses 

Expenses are accounted for on an accruals basis. The Group’s investment management and administration fees, finance costs 

and all other expenses are charged through the Income Statement. 

(h) Taxation 

Deferred income tax is provided, using the liability method, on temporary differences at the balance sheet date between the 

tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities 

are measured at the tax rates that are expected to apply to the period when the liability is settled or the temporary difference 

reverses, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. 

As required by IAS 12, deferred income tax is not recognised on temporary differences at the time of initial recognition 

arising from transactions treated as asset acquisitions. The aggregate amount of such deferred income tax is disclosed 

as unrecognised deferred income tax. 

Deferred income tax assets are only recognised if it is considered probable that there will be suitable profits from which the 

future reversal of the underlying temporary differences can be deducted. 

(i) Investment Properties 

Freehold investment properties, or the local legal equivalent, are initially recognised at cost, being the fair value of consideration 

given, including associated transaction costs. 

Leasehold investment properties, or the local legal equivalent, are initially recognised at the lower of fair value and the present 

value of minimum lease payments. 

After initial recognition, investment properties are measured at fair value, with unrealised gains and losses recognised in the 

Income Statement. Fair value is based on the open market valuation provided by CB Richard Ellis Ltd, chartered surveyors, 

at the balance sheet date. 

On derecognition, realised gains and losses on disposals of investment properties are recognised in the Income Statement. 

Recognition and derecognition occurs on the exchange of signed unconditional contracts between a willing buyer and a 

willing seller. 

In the case of development expenditure, cost includes the cost of materials and direct labour and any other costs directly 

attributable to bringing the asset to a working condition for its intended use. Cost also includes capitalised borrowing costs 

up to the point of practical completion. 

(j) Derivative Financial Instruments 

The Group holds derivative financial instruments to hedge its interest rate risk exposure. Derivatives are recognised initially 

at fair value; attributable transaction costs are recognised in the Income Statement when incurred. Subsequent to initial 

recognition, derivatives are measured at fair value. Hedge accounting is not applied to derivative instruments and changes 

in fair value are recognised in the Income Statement as part of net finance costs. 

(k) Cash and Cash Equivalents 

Cash at bank and short term deposits that are held to maturity are carried at amortised cost. Cash and cash equivalents 

consist of cash in hand and short term deposits in banks with an original maturity of three months or less. 

(l) Trade and Other Receivables 

Trade receivables, which are generally due for settlement at the relevant quarter end are recognised and carried at the 

original invoice amount. As impairment events are identified, provisions are made on either a specific or collective basis, 

as may be applicable. 

(m) Trade and Other Payables 

Trade payables are recognised at fair value and then stated at amortised cost. 

(n) Interest-Bearing Borrowings 

All non-current borrowings are initially recognised at fair value of the consideration received, net of arrangement costs 

associated with the borrowing. After initial recognition, all interest bearing borrowings are subsequently measured at amortised 

cost using the effective yield method. The effective yield method recognises interest in the Income Statement in the period to 

which it relates. Amortised cost is calculated by taking into account any loan arrangement costs and any discount or premium 

on settlement. 

(o) Share Issue Expenses 

Incremental external costs directly attributable to the equity transaction that would have otherwise not been incurred are written 

off against the Share Premium Account. 

All other expenses relating to the launch of the Company not directly attributable to the issue of equity are expensed through 

the Income Statement.




2. Fees 

Four months 

Year ended ended 

31 December 31 December 

2007 2006 

Group Group 

£’000 £’000 

(a) Investment management fees 9,299 504 

Under the terms of the Investment Management Agreement, Kenmore Financial Services Limited (the Investment Manager) is 

entitled to a base fee equal to 0.75 per cent per annum of the aggregate value of the real estate assets of the Group, until such 

time that 90 per cent of the fund is committed or invested and thereafter equal to 0.90 per cent per annum of the aggregate 

value of the real estate assets of the Group. The base fee rate will reduce to 0.85 per cent per annum to the extent that such 

assets exceed £550 million and to 0.75 per cent per annum to the extent that such assets exceed £700 million. 

The base fee is payable quarterly in arrears and, in respect of each calendar quarter, will be calculated by reference to the time 

weighted average of the aggregate value of the real estate assets of the Group for the relevant quarter. 

Performance fee 

In addition, the Investment Manager is entitled to a performance fee in respect of each performance period if the growth 

in net asset value (excluding deferred tax on unrealised capital gains or losses in the Property Portfolio plus dividend returns, 

at the end of that performance period) exceeds 10 per cent per annum and, further, if the Company has met its stated 

dividend policy during such performance period. 

The performance fee rate is set at 20 per cent of such outperformance. The trigger for a performance fee payment for each 

period is subject to a ‘‘high water mark’’ which is reset every 3 years, such that the 10 per cent hurdle applies to the previous 

highest financial period end NAV within each consecutive 3 year period. 

50 per cent of the performance fee, if payable in respect of any performance period, will be paid in cash. An amount equal 

to the remaining 50 per cent in ordinary shares in the Company will be set aside and paid to the Investment Manager if the 

Company has met its stated dividend policy for a period of 2 years commencing at the end of the performance period in 

respect of which the performance fee provisionally accrued. 

The issue price of any shares to be issued to the Investment Manager shall be the higher of the average market price of the 

shares over 20 Business Days prior to the end of the financial period in respect of which the performance fee was earned 

and the published NAV (calculated excluding any deferred tax on capital gains) as at the end of such performance period. 

The first performance period shall be the period from Admission to 31 December 2007 and, thereafter, the performance period 

shall be each 12 month period ending on 31 December. A fee of £6,471,000 (2006 – no fee) has been accrued in the year to 

31 December 2007. At each interim reporting date the Board will consider the need to make an accrual for any fee due under 

the Investment Management Agreement taking into account performance to date and their view of the outlook for the balance 

of each performance period. 

Termination 

The Investment Management Agreement may be terminated by either the Company or the Investment Manager on not 

less than twelve months’ notice in writing but so as not to expire prior to 25 September 2010. Pursuant to the terms of 

the Investment Management Agreement, the Company and the Investment Manager agree to review the terms of such 

agreement on the fourth anniversary of the Investment Management Agreement. 

(b) Valuers’ fees 

The valuers, CB Richard Ellis Ltd, have agreed to provide valuation services in respect of the property portfolio.


3. Other expenses 




£’000 £’000 £’000 £’000 

Direct operating expenses of let rental property – 9,588 – 1,446 

Investment management fees (see note 2(a)) 6,471 9,299 – 504 

Provision for bad debts – 422 – 235 

Valuation and other professional fees 382 2,925 30 427 

Directors’ fees and expenses 122 132 42 42 

Auditors remuneration for: 

– audit of these accounts 46 46 38 38 

– audit of subsidiaries’ accounts – 223 – 54 

– other services to the Group 17 17 – – 

Other 8 36 60 255 

7,046 22,688 70 3,00 

In addition to the above, the auditors received £nil (2006 – £31,000) for services provided in connection with the launch of the 

Company. This expense was set against the proceeds from the share issue. 

4. Finance costs 




£’000 £’000 £’000 £’000 

Interest on borrowings – 10,783 – 1,962 

Unrealised gains on interest rate swaps – (1,505) – (1,092) 

Other interest 1,659 2,602 720 (108) 

. Taxation 

,6 ,880 720 762 




£’000 £’000 £’000 £’000 

Current income tax charge – 372 – 221 

Adjustment for prior periods – (251) – – 

– 121 – 221 

Deferred income tax relating to origination and reversal of 

temporary differences (see note 10) – 7,870 – 2,583 

Total tax charge – 7, – 2,804 

Deferred income tax principally arises on temporary differences between the tax bases of investment property assets and their 

carrying amounts for financial reporting purposes.




. Taxation – continued 

A reconciliation of the current income tax charge applicable to the results at the statutory income tax rate to the charge for the 

period is as follows: 

2007 2006 


£’000 £’000 £’000 £’000 

Net profit/(loss) before taxation (1,015) 11,423 1,139 7,701 

Income tax at following – 4,193 – 2,460 

applicable tax rates 0% 36.71% 0% 31.94% 

Effects of: 

Tax exempt income – (567) – (56) 

Non-deductible expenses – 1,954 – 12 

Losses not utilised – 2,192 – 100 

Other timing differences – 470 – 288 

Overprovided in prior periods – (251) – – 

Total tax charge – 7, – 2,804 

The group applicable income tax rate represents a blended rate across the tax jurisdictions in which the group operates. 

The Company is exempt from Guernsey taxation on dividend income derived outside Guernsey under the Income Tax 

(Exempt Bodies) (Guernsey) Ordinance, 1989. A fixed annual fee of £600 is payable to the States of Guernsey in respect 

of this exemption. 

The Directors intend to conduct the Company’s affairs such that the management and control is not exercised in the United 

Kingdom and so that the Company does not carry on any trade in the United Kingdom. Accordingly, the Company will not be 

liable for United Kingdom taxation on its income or gains other than certain income deriving from a United Kingdom source. 

The Company’s subsidiaries are subject to local income tax on income arising on the property portfolio after deduction of its 

allowable debt financing costs and other allowable expenses, dependent upon the residence of each subsidiary. 

As noted in accounting policy note 1(h), deferred income tax is not recognised on temporary differences at the time of initial 

recognition arising from transactions treated as asset acquisitions. This policy is different from that used in the pro-forma 

financial information contained in the prospectus dated 8 September 2006 which recognised deferred tax on such differences 

on the balance sheet in order to calculate net assets per share. 

6. Dividends 

During the year, the Company paid interim dividends amounting to 4.5 pence per share – a total of £6,300,000 (25 April 2007 

– 1.5 pence totalling £2,100,000; 26 September 2007 – 3.0 pence totalling £4,200,000). 

An interim dividend of 3.0 pence per share, totalling £4,200,000 will be paid on 25 April 2008 to shareholders on the register 

on 11 April 2008. Although this payment relates to the year ended 31 December 2007, under International Financial Reporting 

Standards it will be accounted for in the year ending 31 December 2008, being the year during which it becomes 

unconditionally payable. 

7. Earnings per share 

The earnings per Ordinary Share are based on the net profit for the year of £3,432,000 and on 140,000,000 Ordinary Shares, 

being the weighted average number of shares in issue during the year. 

The diluted earnings per Ordinary Share are based on the net profit for the year of £3,432,000 and on 142,563,936 Ordinary 

Shares, being the weighted average number of shares in issue during the year plus the potential dilutive ordinary shares that 

may be issued in respect of the performance fee (see note 2(a)).


8. Investment properties 

2007 2006 


£’000 £’000 £’000 £’000 

Freehold and leasehold properties 

Balance at start – 283,010 – – 

Acquisitions – 86,953 – 275,950 

Development costs – 1,893 – 2,258 

Disposals – (1,179) – – 

Reclassification – – – (270) 

Change in fair value – 15,111 – 5,072 

Foreign exchange movements – 28,958 – – 

Balance at end – 4 4,746 – 283,0 0 

CB Richard Ellis Ltd, who have appropriate professional qualifications and recent experience in the location and category of the 

property being valued, completed a valuation of Group investment properties at 31 December 2007 on an open market basis 

in accordance with the requirements of the Appraisal and Valuation Manual published by the Royal Institution of Chartered 

Surveyors, which is deemed to equate to fair value. Fair value is determined by reference to market based evidence, which is 

the amounts for which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing 

seller in an arm’s length transaction as at the valuation date. The market value of these investment properties amounted to 

£428,826,000. 

On the acquisition of certain properties, the Group negotiated a purchase price adjustment for contingent deferred tax. 

The aggregate amount of such adjustments obtained to 31 December 2007 was £14,080,000. It is assumed that in the case 

of a future sale, any prospective buyer would seek a similar adjustment and so the closing valuation has been reduced to 

reflect this. 

Included within the above is one leasehold, or the local legal equivalent, property with a closing market valuation of £5,963,000. 

The Group has adopted IAS 40, allowing leasehold properties to be carried at fair value rather than amortised over the term 

of the lease. The same valuation criteria are therefore applied to leasehold as freehold properties. The property valuer is 

independent and external to the Group. The property valuer takes account of deleterious materials included in the construction 

of the investment properties in arriving at its estimate of open market valuation, when the Investment Managers advise the 

presence of such materials. 

The Group has entered into leases on its property portfolio as lessor (see note 19 for further information). No one property 

accounts for more than 15 per cent of the gross assets of the Group. The only leasehold property which the Group holds 

as lessee has more than 30 years remaining on the lease term. 

There are no restrictions on the realisability of the Group’s investment properties or on the remittance of income or proceeds 

of disposal. However, the Group’s investments comprise European commercial property, which may be difficult to realise as 

described in Liquidity risk, note 17. The majority of leases are on a full repairing basis and as such the Group is not liable for 

costs in respect of repairs, maintenance or enhancements to its investment properties.




. Investment in subsidiary undertakings 

The Company owns 100 per cent of the issued ordinary share capital of KEIF Luxembourg Sarl and KEIF Luxembourg Scandi 

Sarl, both companies incorporated in Luxembourg whose principal business is that of intermediary holding companies. 

Investments comprise share equity of £682,000 (2006 – £682,000) and loans to subsidiary undertakings of £183,621,000 

(2006 – £143,554,000). Included within loans to subsidiary undertakings are £64,443,000 (2006 – £65,864,000) of convertible 

bonds subscribed for by the Company. Each bond has a par value of €25, carries a fixed interest rate of 3.67 per cent per 

annum and has a maturity date of the 49th anniversary of the date of issuance. 

Significant subsidiaries of KEIF Luxembourg Sarl and KEIF Luxembourg Scandi Sarl include: 

Country of 

Incorporation Ownership 

KEIF Norge AS Norway 100 

KEIF Sweden AB Sweden 100 

Feldrien Investments BV The Netherlands 100 

KEIF Belgium BVBA Belgium 100 

0. Deferred tax assets and liabilities 

(a) Recognised deferred tax assets and liabilities 

Deferred tax assets and liabilities are attributable to the following items: 

2007 2006 

Group Group Group Group 

Assets Liabilities Assets Liabilities 

£’000 £’000 £’000 £’000 

Investment property – on revaluation surplus – (10,283) – (2,583) 

Tax loss carry-forwards 969 – 159 – 

Other temporary differences – (248) – – 

6 ( 0, 3 ) (2, 83) 

(b) Unrecognised deferred tax assets and liabilities 

At 31 December 2007, deferred tax liabilities of £47,618,000 (2006 – £29,948,000) on temporary differences at the time of 

initial recognition arising from transactions treated as asset acquisitions have not been recognised in accordance with IAS 12. 

Included within this is an amount of £2,135,000 (2006 – £2,135,000) which is potentially payable under the initial acquisition 

agreement in the event of certain subsidiaries being sold in the future. 

. Trade and other receivables 

2007 2006 


£’000 £’000 £’000 £’000 

Accrued income – 234 – 325 

Rents and cost recharges receivable (net of provision for bad debts) – 6,644 – 4,786 

VAT recoverable – 1,411 – 1,490 

Other receivables and prepayments – 10,264 18 10,122 

– 8, 3 8 6,723 

Rents receivable, which are generally due for settlement at the relevant quarter end, are recognised and carried at the original 

invoice amount less an allowance for any uncollectable amounts. An estimate for doubtful debts is made when collection of the 

full amount is no longer probable. Bad debts are written off when identified. 

2. Cash and cash equivalents 

All cash balances were held in current accounts or with banks on short term deposits with an original maturity of three months 

or less at the year end.


3. Trade and other payables 

2007 2006 


£’000 £’000 £’000 £’000 

Rental income received in advance – 4,564 – 3,033 

Trade payables – 6,032 – 2,008 

Investment manager’s fee payable 6,471 7,432 – 504 

Tax (including VAT) payable – 1,875 – 1,471 

Due to subsidiary undertakings 37,494 – 32,613 – 

Other payables 163 10,332 311 13,601 

44, 28 30,23 32, 24 20,6 7 

The Company’s payment policy is to ensure settlement of supplier invoices in accordance with stated terms. 

4. Loans and borrowings 

2007 2006 


£’000 £’000 £’000 £’000 

Secured bank loans – 262,956 – 172,002 

Terms and conditions of the Group’s outstanding loans and borrowings, all of which are secured over the property assets to 

which they relate, were as follows: 

Nominal Year of 

Currency interest rate maturity £’000 

Secured bank loans Euro 3.94% 2010-2011 190,664 

Secured bank loans NOK 5.11% 2011 53,038 

Secured bank loans SEK 4.78% 2011 19,254 

262, 6 

The principal covenant relating to the loans included above requires a ratio of outstanding loan to property market value of less 

than 70% is maintained. 

The following are the contractual maturities of financial liabilities, including estimated interest payments: 

Carrying Contractual Within Over 

amount cash flows 1 year 1-2 years 2-5 years 5 years 

£’000 £’000 £’000 £’000 £’000 £’000 

Secured bank loans 262,956 (302,055) (11,171) (11,171) (279,713) –




. Share capital and share premium account and reserves 

31 December 2007 and 2006 

Company and Group 

£’000 

Authorised share capital 

Ordinary Shares of nil par value each Unlimited 

Issued share capital 

140,000,000 Ordinary Shares of nil par value each, fully paid – 

Share premium account 

Opening and closing balance 2, 8 

Special distributable reserve 

The special distributable reserve was created by the cancellation of part of the Company’s Share Premium Account in 2006. 

It is a distributable reserve to be used for all purposes permitted under Guernsey law, including the buy back of shares and 

the payment of dividends. 

Translation reserve 

The translation reserve comprises all foreign exchange differences arising from the translation of the accounts of foreign 

operations. 

Revenue reserve 

Any surplus arising from the net profit on ordinary activities after taxation after payment of dividends is taken to this reserve, 

with any deficit up to the level of the special distributable reserve being charged to that reserve. 

6. Related party transactions 

Kenmore Financial Services Limited received fees for its services as Investment Manager. Further details are provided in 

note 2. The total charge to the Income Statement during the year was £9,299,000 of which £7,432,000 remained payable 

at the year end. 

The Directors of the Company received fees for their services to the Group. Further details are provided in the Report of 

the Directors on page 12 and in note 3. Total fees and expenses for the year were £132,000. No fees remained payable 

at the year end. 

At the end of the year, the Company was due £183,621,000 from its immediate subsidiaries (including £64,443,000 of 

convertible bonds). The Company’s Income Statement for the year recognised £7,292,000 of interest income in respect 

of this amount (£2,455,000 relating to the convertible bonds). 

At the end of the year, the Company owed £37,494,000 to its immediate subsidiaries. The Company’s Income Statement 

for the year recognised £1,656,000 of interest charge in respect of these amounts. 

All of the above transactions were undertaken on an arm’s length basis.


7. Financial instruments 

The Group’s investment objective is to provide ordinary shareholders with an attractive level of income together with the 

potential for capital and income growth from investing in a diversified European commercial property portfolio. Consistent 

with that objective, the Group holds European commercial property investments. 

The main risks arising from the Group’s financial instruments are credit risk, liquidity risk, interest rate risk and foreign currency 

risk. The Board reviews and agrees policies for managing its risk exposure. These policies are summarised below and have 

remained unchanged for the period under review. 

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. In the event of default by an occupational tenant, the Group will suffer a rental shortfall and incur additional costs, 

including legal expenses, in maintaining, insuring and re-letting the property until it is re-let. The Board receives regular reports 

on concentrations of risk and any tenants in arrears. The Managers monitor such reports on an on-going basis in order to 

anticipate, and minimise the impact of, defaults by occupational tenants. Credit evaluations are performed on new tenants 

and regularly across the portfolio. 

The rent and cost recharges receivables of the Group at 31 December 2007 are disclosed in note 11. The maximum exposure 

from rent and cost recharges receivables of the Group at 31 December 2007 was: 

2007 2006 

£’000 £’000 

Less than 30 days overdue 4,868 3,444 

Between 30 – 60 days overdue 861 609 

Between 60 – 90 days overdue 277 196 

More than 90 days overdue 1,505 1,065 

7,511 5,314 

Less: Provided for (867) (528) 

6,644 4,786 

The amounts provided for relate to specific tenants. Based on historic default rates, the Group believes that no allowance is 

necessary in respect of the remaining rent and cost recharges receivables. The Group’s credit risk in respect of rent receivables 

is spread across a number of tenants, assets, and seven different European countries. 

With respect to credit risk arising from other financial assets of the Group, which comprise cash and cash equivalents of 

£13,981,000 (2006 – £33,581,000), the Group’s exposure to credit risk arises from default of the counterparty with a maximum 

exposure equal to the carrying value of these instruments. There are no significant concentrations of credit risk within the Group. 

Liquidity risk 

Liquidity risk is the risk that the Group will encounter in realising assets or otherwise raising funds to meet financial commitments. 

The Group maintains sufficient short-term liquidity to meet its immediate payment requirements. The Board monitors the working 

capital position of the Group. Note 14 sets out the contractual maturities of the Group’s financial liabilities. Loan repayments are 

only required on the maturity of the facilities unless there are earlier property disposals. 

The Group’s investments comprise European commercial property. Property and property related assets are inherently difficult 

to value due to the individual nature of each property. As a result, valuations are subject to substantial uncertainty. There is no 

assurance that the estimates resulting from the valuation process will reflect the actual sales price even where such sales occur 

shortly after the valuation date.




7. Financial instruments – continued 

Interest rate risk 

The Group’s exposure to interest rate risk relates primarily to the Group’s long-term debt obligations. These consist of secured 

bank loans, further details of which are provided in note 14. 

Interest rate exposure has been limited by the purchase of interest rate swap contracts. The Group has entered into interest 

rate swaps with a notional amount of £218,338,000 used to hedge the exposure to changes in interest rates. The swaps fix the 

interest rate payable for a weighted average period of 3.5 years to a weighted average rate of 4.24%, and a total rate inclusive 

of margin of 5.21%. The fair value of the interest rate swaps at 31 December 2007 are £3,180,000 (2006 – £2,135,000). The fair 

values are estimated as the present value of the expected future net interest cash flows, based on current and expected future 

interest rates at the year end. 

An increase of one percentage points in variable rate interest rates would have an immaterial impact on the Group’s net profit 

before taxation for the year ended 31 December 2007. 

The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows: 

2007 2006 

Carrying Fair Carrying Fair 

amount value amount value 

£’000 £’000 £’000 £’000 

Fixed rate instruments 

Financial liabilities 

Secured bank loans (218,694) (215,514) (139,831) (137,696) 

Variable rate instruments 

Financial assets 

Cash and cash equivalents 13,981 13,981 33,581 33,581 


Secured bank loans (44,262) (44,262) (32,171) (32,171) 

Instruments with no interest 

Financial assets 

Rents and cost recharges receivables 6,644 6,644 4,786 4,786 

Other receivables and prepayments 10,264 10,264 10,122 10,122 

16,908 16,908 14,908 14,908 


Trade payables (6,032) (6,032) (2,008) (2,008) 

Investment manager’s fee payable (7,432) (7,432) (504) (504) 

Other payables (10,332) (10,332) (13,601) (13,601) 

(23,796) (23,796) (16,113) (16,113) 

Apart from the secured bank loans as disclosed in note 14, the fair value of financial assets and liabilities is not materially 

different from their carrying value in the accounts. The fair values of trade and other receivables and payables are estimated as 

the present value of future cash flows, discounted at the market rate of interest at the balance sheet date. As all are receivable 

or payable in less than one year the fair value is considered to equate to the carrying value.


Foreign currency risk 

The foreign currency exchange risk arises from assets, liabilities and net investments in foreign operations. The Directors 

operate prudent policies with respect to currency hedging. Where feasible, and as appropriate, the finances assets using 

local currency denominated financing. 

The Group’s net exposure to foreign currency risk was as follows based on notional amounts: 

2007 2006 

Euro NOK SEK Euro NOK SEK 

£’000 £’000 £’000 £’000 £’000 £’000 

Investment properties 304,982 92,902 30,942 204,361 68,587 14,907 

Secured bank loans (190,664) (53,038) (19,254) (133,307) (38,695) – 

114,318 39,864 11,688 71,054 29,892 14,907 

Impact of 5% strengthening of Sterling (5,444) (1,895) (557) (3,384) (1,423) (710) 

The analysis above shows the impact of a 5% strengthening of Sterling against the Euro, the Norwegian Kroner and 

the Swedish Krona at 31 December 2007. The analysis assumes that all other variables remain constant. The analysis 

is performed on the same basis for 2006. 

Capital management 

The Board maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain future 

development of the business. The Board monitors the return on total shareholders’ equity with reference to earnings per 

ordinary share and also monitors the level of dividends to ordinary shareholders. 

8. Capital commitments 

The Group has no capital commitments as at 31 December 2007 (2006 – none). 

. Lease length 

The Group leases out its investment properties under operating leases. 

The total minimum future lease payments due, analysed by the year in which they fall due, was as follows: 

Less than one year 

Group 

£’000 

34,554 

Between two and five years 98,636 

Over five years 52,933 

Total 86, 23 

The largest single tenant at the year end accounted for 6.1 per cent of the current annual rental income (2006 – 7.3 per cent). 

The unoccupied property expressed as a percentage of estimated total rental value was 9.6 per cent at the year end 

(2006 – 8.5 per cent). 

The Group has entered into commercial property leases on its investment property portfolio. These properties, held under 

operating leases, are measured under the fair value model as the properties are held to earn rentals. The majority of these 

non-cancellable leases have remaining non-cancellable lease terms of between 5 and 15 years.


Notice of Annual General Meeting 

Notice is hereby given that the Second Annual General Meeting of Kenmore European Industrial Fund Limited (the “Company”) 

will be held at Trafalgar Court, Les Banques, St Peter Port, Guernsey on 22 May 2008 at 2pm for the following purposes. 

To consider and, if thought fit, pass the following as Ordinary Resolutions: 

1 That the Annual Report and Accounts of the Company for the year ended 31 December 2007 be received and approved. 

2 That KPMG Channel Islands Limited be re-appointed as Auditors of the Company. 

3 That the Board of Directors be authorised to determine the remuneration of the Auditors. 

4 That Mr John Kennedy be re-elected as a Director of the Company. 

To consider and, if thought fit, pass the following as a Special Resolution: 

1 That the Company be authorised, in accordance with section 5 of The Companies (Purchase of Own Shares) Ordinance 

1998 (the ‘‘Ordinance’’), to make market purchases (within the meaning of section 18 of the Ordinance) of ordinary shares 

of no par value each (‘‘Ordinary Shares’’), provided that: 

(a) the maximum number of Ordinary Shares hereby authorised to be purchased shall be 14.99 per cent of the issued Ordinary 

Shares 

on the date on which this resolution is passed; 

(b) the minimum price which may be paid for an Ordinary Share shall be 1p; 

(c) the maximum price (exclusive of expenses) which may be paid for an Ordinary Share shall be 105 per cent of the average 

of the middle market quotations (as derived from the Daily Official List) for the Ordinary Shares for the five business days 

immediately preceding the 

date of purchase; 

(d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire on 22 August 2009 or, if earlier, 

at the conclusion of the Annual General Meeting of the Company to be held in 2009, save that the Company may, prior to 

such expiry, enter into a contract to purchase Ordinary Shares under such authority and may make a purchase of Ordinary 

Shares pursuant to any such contract. 

By order of the Board 

Northern Trust International Fund 

Administration Services (Guernsey) Limited 

Secretary 

Trafalgar Court, Les Banques 

St Peter Port, Guernsey GY1 3QL 

8 March 2008 

Notes: 

1. A member who is entitled to attend and vote at the Meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of him or her. A proxy need not be a member 

of the Company. 

2. A form of proxy is enclosed for use at the Meeting. The form of proxy should be completed and sent, together with the power of attorney or other authority (if any) under which 

it is signed, or a notarially certified copy of such power or authority, so as to reach Computershare Investor Services (Channel Islands) Limited, PO Box 83, Ordnance House, 

31 Pier Road, St Helier, Jersey JE4 8PW not later than 2pm on 20 May 2008. 

3. Completing and returning a form of proxy will not prevent a member from attending in person at the Meeting and voting should he or she so wish. 

4. The existing Articles of Association and the Directors’ letters of appointment will be available for inspection at the Annual General Meeting.


Shareholder Information 

Dividends 

Dividends are paid in bi-annual instalments in April and 

September each year. Shareholders who wish to have 

dividends paid directly into a bank account rather than by 

cheque to their registered address can complete a mandate 

form for the purpose. Mandates may be obtained from 

Northern Trust International Fund Administration Services 

(Guernsey) Limited, Trafalgar Court, Les Banques, St Peter 

Port, Guernsey GY1 3QL on request. Where dividends are 

paid directly to shareholders’ bank accounts, dividend tax 

vouchers are sent directly to shareholders’ registered 

addresses. 

Share Price 

The Company’s Ordinary Shares are listed on the London 

Stock Exchange. Prices are given daily in the Financial Times 

under ‘‘Investment Companies’’ and in other newspapers. 

Change of Address 

Communications with shareholders are sent to the 

address held on the share register. In the event of a 

change of address or other amendment this should be 

notified to Northern Trust International Fund Administration 

Services (Guernsey) Limited, Trafalgar Court, Les Banques, 

St Peter Port, Guernsey GY1 3QL under the signature of 

the registered holder. 

Financial Calendar 

25 April 2008 Payment of first interim dividend 

22 May 2008 Annual General Meeting 

August 2008 Announcement of interim results 

September 2008 Payment of second interim dividend 

Shareholder Enquiries 

Contact Northern Trust International Fund Administration 

Services (Guernsey) Limited, Trafalgar Court, Les Banques, 

St Peter Port, Guernsey GY1 3QL. Additional information 

regarding the Company may also be found at its website 

address which is: www.kenmoreeifund.com


Corporate Information 

Directors (all non-executive) 

CGH Weaver (Chairman) 

JJ Gamble 

HF Green 

JAB Kennedy 

CP Spencer 

Registered Office 

Trafalgar Court 

Les Banques 

St Peter Port 

Guernsey 

Administrator, Secretary and Registrar 

Northern Trust International Fund 

Administration Services (Guernsey) Limited 

Trafalgar Court 

Les Banques 

St Peter Port 

Guernsey GY1 3QL 

Investment Manager 

Kenmore Financial Services Limited 

33 Castle Street 

Edinburgh EH2 3DN 

Property Valuation Agents 

CB Richard Ellis Ltd 

Kingsley House 

Wimple Street 

London W1G 0RE 

Auditors 

KPMG Channel Islands Limited 

20 New Street 

St Peter Port 

Guernsey GY1 4AN 

Solicitors as to English Law 

Herbert Smith LLP 

Exchange House 

Primrose Street 

London EC2A 2HS 

Advisers as to Guernsey Law 

Ozannes 

1 Le Marchant Street 

St Peter Port 

Guernsey GY1 4HP 

Marketing Adviser 

Financial Dynamics Limited 

Holborn Gate 

26 Southampton Buildings 

London WC2A 1PB

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www.kenmoreeifund.com

Kenmore European Industrial Fund Limited - Hemscott IR

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