Year ended 31st March 2016 - Chancellor of the Duchy of ... · 18-hole golf course at Rushden and a...

Report and AccountsYear ended 31st March 2016

Preserving the past, investing for the future

annual report to 31st March 2016

Annual Report

Report and accounts of the Duchy of Lancaster for the year ended 31 March 2016

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


River Hodder, Whitewell Estate, Lancashire.


3Preserving the past, investing for the future


IntroductionThe Duchy of Lancaster is a private

estate owned by Her Majesty The

Queen as Duke of Lancaster. It has

been the personal estate of the

reigning Monarch since Henry IV in

1399 and is held separately to all other

Crown possessions.

The ancient inheritance began over

750 years ago. Historically, its growth

was achieved via legacy, alliance

and appropriation. In more modern

times, growth has been delivered

through active asset management.

Today, the estate covers 18,542

hectares of rural land divided into

five Surveys: Cheshire, Lancashire,

Southern, Staffordshire and Yorkshire.

It also includes Foreshore, Minerals and

an Urban Survey which is made up of

a number of office, retail and industrial

properties across the country.

HistoryIn 1265, King Henry III gifted to his

son Edmund the baronial lands of

Simon de Montfort. A year later, he

added the estate of Robert Ferrers,

Earl of Derby and then the ‘honor,

county, town and castle of Lancaster’,

giving Edmund the new title of Earl of

Lancaster.

In 1267, Edmund also received from his

father the manor of Newcastle-under-

Lyme in Staffordshire, together with

lands and estates in both Yorkshire

and Lancashire. This substantial

inheritance was further added to

by Edmund’s mother, Eleanor of

Provence, who bestowed on him the

manor of the Savoy in 1284.

Edmund’s inheritance passed to his

son Thomas, Earl of Lancaster who was

executed in 1322 by King Edward II for

Royal Visit to Myerscough Estate, Lancashire, May 2015.

Her Majesty The Queen, Duke of Lancaster.


4 Preserving the past, investing for the future


Introduction continued

rebellion. His lands and titles eventually

passed to his brother Henry and on his

death to Henry’s son, Henry Grosmont,

who was a celebrated diplomat and

soldier. In 1351 Edward III conferred on

him the title of Duke of Lancaster ‘in

recognition of (his) astonishing deeds

of prowess and feats of arms’.

Edward III also raised Lancaster to a

County Palatine for the duration of

Henry’s life. Palatinate powers were

devolved royal powers for use in

regions where central government

was difficult. These devolved

powers gave the Duke of Lancaster

administrative control of the law

courts and the right to appoint the

sheriff, judges, justices of the peace

and other senior officials serving the

County.

When Henry Grosmont died in 1361,

the inheritance became part of his

daughter Blanche’s dowry. She had

married one of Edward III’s sons, John

of Gaunt, in 1359.

John was made 2nd Duke of

Lancaster in 1362 and persuaded

his father Edward III to grant the

Palatinate powers to him and his heirs

permanently.

When John died in 1399, King

Richard II confiscated the Lancaster

inheritance and banished John’s son,

Henry Bolingbroke, from England for

life. Within the year, Henry Bolingbroke

returned from exile, raised an army

and forced Richard to abdicate. He

ascended to the throne as Henry IV in

October 1399.

One of Henry’s first acts as King was

to stipulate the conditions on which

the Lancaster inheritance should

be held, specifying that it should be

held separately from all other Crown

possessions, and should descend

through the Monarchy as a private

estate.

Some 300 years later, under the Crown

Lands Act 1702, it was provided that

the Sovereign should only receive

income and not capital from the

Duchy.

And so it remains to this day.

The Duchy TodaySeven hundred and fifty years on, the

Duchy of Lancaster remains largely

the same in terms of its land and

historic property holdings. However,

as a modern landed estate, it also

includes a diverse portfolio of office,

retail and industrial property.

Responsibility for the management

of the portfolio and the discharge

of the Duchy’s administrative duties

associated with its Palatinate rights

and responsibilities in Lancashire,

Merseyside and Greater Manchester

has been delegated by the

Chancellor of the Duchy of Lancaster

to the Duchy Council, although the

present Duke retains a keen interest.

The origins of the Duchy of Lancaster date back to 1265.



annual report to 31st March 2016annual report to 31st March 2016

The net revenue of the estate is paid

to the Keeper of the Privy Purse for

Her Majesty the Queen as Duke of

Lancaster. The Duchy is not subject

to corporation tax because it is not a

separate legal entity for tax purposes.

However, Her Majesty the Queen

voluntarily pays tax on the income

which She receives from the Duchy.

Guiding Principles

Preserving the past, investing for the future

The Duchy of Lancaster is a historic

organisation with a keen eye on

the future. Our role is to ensure an

appropriate balance between long-

term commitment to our tenants, the

communities in which we operate

and the long-term sustainability of our

land and property assets. This means

acting responsibly, investing prudently

and delivering effectively on clear

commercial objectives.

As a major owner of agricultural

land and areas of outstanding

natural beauty, the Duchy takes

great care to ensure environmental

sustainability across the estates. The

partnership between the Duchy and

its agricultural tenants extends beyond

the contractual, which includes the

provision of experienced support and

advice. Land use is monitored with

investment in new technologies and

energy sources actively encouraged.

Our commercial strategy is to deliver

revenue growth while working with our

tenant communities and respecting at

all times our heritage and our values.

It is a strategy which is continually

reviewed and updated in response to

the cyclicality of markets so that we

maintain a sustainable business for the

long term.

The Duchy owns many historic

properties, including ten castles from

Lancaster in the North to Ogmore in

the South. Most of these are leased or

entrusted to guardians responsible for

managing visitor access. The Duchy

maintains an active watching brief

over the maintenance and restoration

of these historic monuments as

appropriate.

The estates include a number of sites

with potential for development. These

are subject to the Duchy’s own Design

Standard to ensure that, wherever

possible, the highest standards of

construction and specification are

achieved. Working with tenants and

partners across England and Wales,

the Duchy Council is happy to support

diversification and innovation as a

means of safeguarding the stability

and long-term sustainability of the

estate as a whole.

The Duchy is committed to environmental sustainability across its rural estates.



The Surveys RuralThe historic Rural Surveys were

realigned in 2015 to more closely

reflect their geographic boundaries

and the profile of their local

communities: Cheshire, Lancashire,

Staffordshire and Yorkshire. The

Duchy’s Lincolnshire assets are

combined with those in Derbyshire,

Northamptonshire and South Wales

to form the Southern Survey which is

managed in-house.

• CheshireThe Cheshire Survey is largely made

up of the Crewe estate to the south

of the county and includes the

smaller Marbury estate which lies on

the Cheshire/Shropshire border.

Centred on the historic properties

of Crewe Hall and Crewe Hall Farm,

the Crewe estate extends to 1,380

hectares, stretching from the edge

of the town to the M6 at Junction

16. There are 10 main farms on the

estate which are involved in dairy,

arable and livestock production, as

well as equestrian businesses and

woodlands. At Crewe Hall Farm the

Duchy has created a highly sought-

after business address, with 10

companies in flexible office suites of

varying sizes surrounded by views of

the open countryside.

The estate also includes a residential

lettings portfolio of 74 rural

cottages and farmhouses, as well

as a roadside Service Area and

a number of potential residential

and commercial development

opportunities.

The smaller Marbury estate, on

the Shropshire border, consists of a

single dairy farm and five residential

properties.

• Lancashire The Lancashire Survey extends to

3,849 hectares in total, comprising

four rural estates: Myerscough,

Salwick, Whitewell and Wyreside.

Minerals

The Duchy has an extensive

mineral portfolio which

extends from South Wales

to North Yorkshire. It consists

of limestone and sandstone

quarries, which supply material

to the UK construction sector;

and a mine supplying gypsum

to the cement industry.

Coronation Wood, Crewe Estate, Cheshire.


The Duchy has owned Myerscough

since the 13th century. There are six

principal agricultural holdings on the

598-hectare estate, including three

which form part of the renowned

agricultural training centre at

Myerscough College. Six residential

properties and six commercial

lettings are also part of the estate.

The 535-hectare Salwick estate is

predominantly farmland, but also

includes around 15 hectares of

woodland, as well as two residential

properties and six commercial

lettings. There are five large

agricultural holdings on the estate,

the majority of which are dairy

farms.

At 2,441 hectares, Whitewell is the

largest estate in the Survey. It lies

within the Area of Outstanding

Natural Beauty that is the Forest of

Bowland and includes nine main

farms, 37 residential properties and

28 commercial and miscellaneous

lettings. The residential properties

are clustered around picturesque

villages such as Dunsop Bridge,

while the commercial interests

include office units, a garage, post

office, village store, café and hotel/

restaurant.

The Wyreside estate covers some

275 hectares, including one main

agricultural holding and four

residential properties. There are also

34 commercial and miscellaneous

lettings, ranging from private

fishing lakes to family camping and

caravan parks.

• SouthernIn 2015, the Duchy of Lancaster

brought together the management

of its Eastern estates with land

and property assets in Derbyshire,

Northamptonshire and South Wales

to form a new Southern Survey.

The management is carried out

in-house.


Newborough Hall Farm, Needwood Estate, Staffordshire.

Foreshore

The Duchy of Lancaster’s

ancient Foreshore runs from

the River Mersey in the south,

to Barrow-in-Furness in the

north. It includes 85 individual

lettings in total, including

moorings, pipe bridges

and outfall structures, wild

fowling licences, sheep and

cattle grazing agreements

on coastal marshes, sub-sea

pipelines and fibre-optic

cables.


The Surveys continued


The Eastern estates comprise 858

hectares of prime agricultural

land in Lincolnshire. Two strategic

acquisitions in the year have

significantly increased the

Lincolnshire land holdings in line

with the Duchy’s strategy of

investing in root crop farming and

arable farmland. Each of the four

farms on the estate is operated by

experienced potato and salad/root

crop producers.

At Castleton in the Derbyshire

Peak District, the Duchy owns 114

hectares of grazing land as well

as Peveril Castle, the Peak Cavern

tourist attraction, and historic

mineral rights under a wide area.

The Northamptonshire estates

are centred on the 13th century

inheritance of Higham Ferrers and

Wollaston, and consist mainly of

arable farms. They also include an

18-hole golf course at Rushden and

a Vocational Skills Academy at New

Farm College developed jointly by

the Duchy and Moulton College.

In South Wales, the Ogmore estate

consists of more than 1,500 hectares

largely of common land and

includes an active limestone quarry,

a Castle and a golf course.

• StaffordshireThe Staffordshire Survey is comprised

of the 2,995-hectare Needwood

estate.

Originally a large area of ancient

woodland with extensive stocks

of wolf, wild boar and fallow deer,

today the Needwood estate

comprises a mix of 50 arable, dairy,

sheep and beef farms, 59 residential

properties and 51 commercial

and miscellaneous lettings. The

commercial interests across the

estate are diverse and range from

specialist equestrian centres and

liveries to a saw mill, shooting and

fishing licenses, live/work units and a

private airfield.

The Duchy continues its programme

of works to improve the quality of

just over 500 hectares of existing

woodland, parts of which are open

to the public. Areas of the estate

also form part of the National Forest

designation and have been planted

with new woodland in conjunction

with the National Forest.

• Yorkshire The Yorkshire Survey covers 6,803

hectares across four main estates:

Cloughton, Goathland, Pickering

and Pontefract.

Cloughton is made up of 1,173

hectares of arable land as well as 40

residential and tenanted properties.

The creation of a sustainable new

model farm at Fields Farm was

completed in December 2015,

moving the agricultural operation

out of the village centre and into

the open countryside.

A number of Castles and

historic properties are also

included in the ancient Duchy

inheritance, including the

Queen’s Chapel of the Savoy.

Most are managed on the

Duchy’s behalf by the relevant

local authority or agencies

such as English Heritage. Only

Lancaster Castle, Tutbury

Castle and the Chapel are

managed directly by the

Duchy.



The 4,532-hectare Goathland estate

includes a large area of heather

moorland, much of which is a Site

of Special Scientific Interest (SSSI).

Upland grazing and grouse shooting

form the majority of the let interests

on the estate.

The Pickering estate is home to a

mix of arable and livestock farming,

together with a large area of native

broadleaf forestry.

The Pontefract estate lies on the

edge of the town and consists of

a single large farm and several

commercial properties.

UrbanThe Duchy’s Urban Survey makes a

significant contribution to the income

performance of the portfolio. The core

Urban portfolio includes land and

property assets in high value locations

such as the Savoy Estate in Central

London and Harrogate in North

Yorkshire, as well as a growing number

of commercial, industrial/warehouse

buildings in London, Birmingham and

the North West.

The Savoy Estate in London is the

largest asset in the Urban portfolio,

comprising office and retail

accommodation. It is bounded to the

north and south by the Strand and

Embankment respectively and to the

west and east by the Savoy Hotel and

Somerset House. It is well placed to

Cattle at Fields Farm, Cloughton Estate, Yorkshire.

Wardley Industrial Estate, Greater Manchester.

The Duchy has developed

sixteen luxury holiday

cottages, the majority of

which are at Scalby Lodge

near Scarborough. In 2015, a

number of the cottages were

refurbished in line with the new

Duchy Design Standard. The

cottages have received a

5-star rating from Visit England

and continue to enjoy

high levels of occupancy

throughout the year.


The Surveys continued


take advantage of the strength of the

mid-town commercial market and

the public realm improvements being

proposed by the NorthBank Business

Improvement District. The estate also

includes The Queen’s Chapel of the

Savoy.

The Harrogate estate in Yorkshire

includes a care home, residential

properties, a hotel and a school,

as well as The Stray, a 103-hectare

expanse of public open space. The

residential element in Harrogate

comprises a converted 18th century

villa and a new apartment complex.

The key industrial holdings include

Tower Bridge Business Park in London,

Wood Lane, Erdington in Birmingham

and Centenary Park in Manchester.

The diversified nature of the portfolio

and the quality of the Duchy’s offering

place it in an advantageous position

for growth. The investment markets

are continuously monitored to identify

further opportunities for acquisition.

Planning and DevelopmentOver the last 12 months, the Duchy

has been looking at its strategic land

holdings to assess where land might

be released in response to the need

of various local authorities to meet

their five-year targets and address

the national housing shortage. At the

same time the Duchy is also exploring

potential commercial development

sites across its portfolio.

The Duchy is mindful of the shortage

of high quality and affordable living

accommodation available to local

people living in rural communities. It

supports the design and delivery of

low density development schemes

which are sympathetic to the natural

landscape, while also protecting the

character of the surrounding built

environment.

A number of land holdings have been

identified as potential development

sites this year, including land in

Cheshire, Northamptonshire and

Yorkshire. These are currently being

progressed with the relevant local

authorities as part of the formal

planning process.

In all of its development proposals,

the Duchy is committed to ensuring,

wherever possible, the highest

standards of design and specification,

and to enhancing the place-making

process through public consultation.

Financial PortfolioA further component of the Duchy’s

portfolio is its financial investments.

These take the form of equities, bonds

and other financial investments . They

are prudently managed to ensure a

stable income stream and to protect

the real capital value of the financial

portfolio over the longer term.

Duchy of Lancaster offices, Lancaster Place, London.



Highlights of 2015-16Royal Visit In May 2015, Her Majesty The

Queen, as Duke of Lancaster,

visited Lancashire to mark the 750th

anniversary of the creation of the

Duchy of Lancaster inheritance.

The visit included Lancaster Castle,

Myerscough College and a number

of Duchy farms on the Myerscough

Estate.

Thousands of well-wishers lined the

route to Lancaster Castle, where Her

Majesty was received by the Lord-

Lieutenant of Lancashire, The Lord

Shuttleworth KCVO, Chairman of the

Duchy Council Mr Mark Hudson and

the Constable of the Castle, Mrs Pam

Barker. Mrs Barker formally presented

Her Majesty with the historic keys to

the Castle. Local air, sea and army

cadets, as well as members of the

Duke of Lancaster’s Own Yeomanry

were in attendance.

Following a short performance of one

of the scenes from Shakespeare’s

Richard II in the Chapel courtyard,

Her Majesty then attended a private

reception for 100 guests in ‘A’ wing, an

area of the Castle recently opened,

having been closed to the public as

part of Her Majesty’s Prison Lancaster

until 2012. Before leaving the Castle,

Her Majesty unveiled a new plaque

recording the date of Her visit.

Her Majesty then travelled to

Myerscough to meet agricultural

students from Myerscough College

and greet around 100 Duchy tenants

from the Duchy of Lancaster Estates

across Lancashire.

Restoration and Renewal £2.0m has been invested this year

in the restoration and repair of the

Duchy’s residential properties. This

investment has focused on upgrading

the fabric of the properties to achieve

higher EPC ratings and improved

thermal efficiency through the

installation of additional insulation,

replacement double glazed timber

windows and the upgrading of

heating systems. The Duchy has also

invested in traditional ‘lime’ pointing

to protect against water ingress as

well as the painting of external doors

and windows.

2015 saw the introduction of a new

Design Standard and specification

for the Duchy’s residential properties.

Several period properties and historic

cottages across the estate have been

restored and upgraded to this new

Standard, including Brakenhurst Farm

in Staffordshire, Amicia Tenement in

Cheshire and Harbour Farmhouse in

Lancashire. The new Design Standard

will continue to be rolled out across

the residential portfolio to ensure that

Duchy properties are refurbished,

maintained and managed to the

same consistently high quality and

common standard.

Her Majesty’s visit to Lancaster, May 2015.


Highlights of 2015-16 continued


The Duchy has continued to progress

restoration works at Lancaster

Castle. This year, the lead roofs of the

Victorian clock tower and adjoining

workshops have been replaced,

together with the clock itself and

its early 19th century bronze bell.

Repointing work, damp-proofing and

repairs to the windows and doors

have also been completed as part of

the Duchy’s drive to ensure that the

buildings are wind and watertight so

that the Castle can remain open to

the public for generations to come.

Investment ActivityCommercial acquisitions this year

have included an industrial estate in

the North West and a supermarket

in South London. Although the latter

is a departure from the Duchy’s

stated policy of industrial/warehouse

investments, it offers long-term

secure income at an attractive

yield with good asset management

opportunities. The only commercial

disposal was of a largely vacant office

building in Manchester.

The Duchy has also continued to

improve the quality of its agricultural

land holdings over the last 12 months

through the acquisition of Grade I

listed farms in Lincolnshire. These units

complement the Duchy’s existing

holdings and bring the total area

owned in Lincolnshire to just over 850

hectares.

The Duchy continues to invest in high quality land, Lincolnshire, Southern.

The fully restored roof clocktower and bell at Lancaster Castle.


Strategic Report


Financial and Risk Review●● The Net Surplus has increased in

the year by 7.7% to £17.8m (2015:

£16.6m).

●● Increase in Net Asset Value of 4.8% to

£494.7m (2015: £472.1m).

This has been a positive year with

growth in all business sectors. The

Duchy has made strategic acquisitions

in both rural and urban Surveys. The

introduction in 2015 of a new Design

Standard for our rural residential

properties has contributed significantly

to raising the quality of our product,

market rents and reducing voids.

Over the year, the Duchy sold £10.9m

of its property portfolio, including

the disposal of a largely vacant

office building in Manchester and

purchased £14.6m of new stock.

Overall, the Duchy has invested

£3.3m in capital improvements.

The review of strategic land is a

growing area of focus in response to

housing needs across the country.

The Duchy continues to develop

a robust and sustainable business

strategy to deliver long term attractive

returns which is informed by ever

improving information systems.

10

12

14

16

18

20

20162015201420132012

Net SurplusChange over previous year (%)

Net

Su

rplu

s (£

m)

-2.2% -3.0%

14.7%

13.7%

7.7%

300

400

500

600

20162015201420132012

Tota

l Ca

pita

l (£m

)

Total Capital ValueChange over previous year (%)

5.8%5.7%

3.2%6.8%

4.8%

A summary of the performance over the last five years is shown below


Strategic Report continued


Liquidity and the Financial Portfolio

Over the year, the Duchy has

increased its borrowing levels to

£60m and has continued to benefit

from historically low interest rates

throughout the period. The level of

gearing is continually under review

and Council has approved borrowing

up to £100m. However, in accordance

with the revised borrowing policy

and risk mitigation, about one half

of current debt remains on a fixed

rate for the remaining duration of the

loans.

The financial portfolio, as well as

providing a significant income

for the Duchy, remains the major

source of liquidity. The management

of the quoted portfolio has been

predominantly placed in the hands of

a single manager, Newton Investment

Management Limited, which has

helped to enhance accountability

and reduce administration.

Stanhope Capital act as the Duchy’s

investment consultants in order to

maintain an independent watch over

the financial portfolio.

Principal risks and uncertaintiesThe Duchy seeks to ensure that

risks are identified, quantified and

managed appropriately. There is a

comprehensive risk register reviewed

by Council annually. In addition, an

annual risk review is presented to

Council which considers the key areas

of property income risk across the

Duchy portfolio.

The Duchy has also established

an advisory group which meets

twice a year to specifically focus

on occupational, investment and

construction markets in the business

sectors and geographic areas in

which the Duchy operates.

The principal risks faced by the Duchy

are shown below.

Strategic risk

Each year the Duchy carries out a five

year strategic review and business

plan as well as preparing rolling

forecasts for the year ahead. As part

of this process a review is undertaken

of long term trends to assess options

for continued and ongoing viability of

Duchy operations.

Property risk

The principal property risk is the loss

of income. A full annual review of

tenants and sectors is undertaken

to ensure a well-diversified tenant

base and to assess the target of

improving the covenant strength

and diversification across the Duchy

portfolios.

Keeper’s Cottage, Wyreside Estate, Lancashire.



Development risk

The Duchy has established a robust

evaluation process through closely

monitoring occupational markets,

investment activity and construction

pricing. Development risk is managed

in-house using external advisors as

appropriate.

Financial portfolio risk

The Duchy employs an investment

consultant to advise overall and an

investment manager to manage

the financial portfolio on a day-to-

day basis. The portfolio is reviewed

quarterly by both Duchy Council and

the investment consultant to ensure

that it remains in line with the risk and

return objectives set by the Duchy.

Interest rate risk

The Duchy has an approved debt

policy and hedging strategy in place

in order to maintain interest rate risk at

an agreed and manageable level.

Liquidity risk

The Duchy seeks to maintain liquidity

within its financial portfolio to satisfy

short term cash requirements as well

as to maintain headroom within its

borrowing covenants. Long term

liquidity is reviewed and addressed

as part of the five year business plan

process.

Environmental risk

The comprehensive risk register

highlights the key environmental risks

which are reviewed annually along

with the mitigating controls and

actions.

Reputational risk

As a matter of course, the Duchy gives

ongoing consideration regarding

any of its acts or omissions that could

adversely impact the reputation of the

Duchy or Her Majesty The Queen.

Council is responsible for ensuring

that an effective system of internal

financial controls is maintained and

operated by the Duchy. Council’s

review of the system of these controls

is informed by comments made by the

external auditors in their management

letter and other reports.

Mark Hudson

Nathan Thompson

London

5 July 2016


Report of Council


Review of Governance

Duchy Capital and Revenue

The Duchy of Lancaster is governed

by a number of statutes which place

constraints and controls upon the

management and administration of

the Duchy and its assets. The principal

Acts are:

●● The Crown Lands Act of 1702

●● The Duchy of Lancaster Act 1817

●● The Duchies of Lancaster and

Cornwall (Accounts) Act 1838

●● The Duchy of Lancaster Lands Act

1855



●● The Trustee Act 2000

The Sovereign is entitled neither to the

Duchy’s Capital nor to Capital profits.

Church Livings

Her Majesty the Queen is Patron of 42

Church Livings in Right of Her Duchy of

Lancaster.

Political and charitable donations

Charitable donations were made

from the net income from the bona

vacantia and Palatinate account

credited to Duchy of Lancaster

charitable funds, as described below.

There were no political donations.

The Duchy of Lancaster charitable

funds

The Duchy of Lancaster charitable

funds comprise separate registered

charities set up with The Queen’s

consent. The Duchy of Lancaster

Benevolent Fund, formed in 1993,

makes donations to a wide range

of charitable causes primarily within

the County Palatine. The Duchy of

Lancaster Jubilee Trust was formed in

2001 to benefit charitable causes in

all areas associated with the Duchy.

The Duke of Lancaster Housing Trust

was incorporated in 2007 to provide

affordable rural housing initially within

estates in the ownership of the Duchy.

The accounts of these charities

are published separately and are

available from the Charity Commission

and from the Duchy Office.

AdministrationThe Chancellor of the Duchy of

Lancaster is responsible to The

Sovereign for the administration of

the Duchy. The current Chancellor

is The Rt Hon Oliver Letwin MP, who

has delegated certain functions,

particularly those relating to asset

management, to the Duchy Council.

The accounts are prepared in

compliance with the Treasury

Direction set out on pages 50-51.

The Chancellor has designated the

members of the Council of the Duchy

of Lancaster as the Proper Officers

and that the Chairman of Council and

Clerk of the Council are authorised

to sign the accounts on behalf of

Council.

The Proper Officers are responsible

for the preparation of accounts

which are required to be submitted

to the Treasury and presented to

both Houses of Parliament by Section

2 of the Duchies of Lancaster and

Cornwall (Accounts) Act 1838.

The Queen’s Chapel of the Savoy, London.



Council of the Duchy of LancasterThe Chancellor is responsible to Her

Majesty the Queen in connection with

the affairs of the Duchy of Lancaster

separate from his or her Parliamentary

role. On 1 July 2000 the Chancellor

revocably delegated certain

functions, particularly those relating

to asset management, to Council.

The revocable Delegation has been

reaffirmed by successive Chancellors.

Certain powers have been excluded

from the Delegation which relate

to senior Duchy appointments and

such powers conferred upon the

Chancellor by Statute. The Clerk of

the Council is a member of Council

and reports to that body, with Council

being responsible to the Chancellor.

The members of Council who served

since 1 April 2015 were:

●● Mr Mark Hudson (Chairman of the

Council)

●● Sir Alan Reid GCVO (The Receiver

General)

●● Mr Robert Miles QC (The Attorney

General)

●● Mr Nathan Thompson (Chief

Executive and Clerk of the Council)

●● Mr Christopher Adcock LVO (Chief

Finance Officer)

●● Mr Martin Beaumont

●● Mr Ian Coull, retired 30 June 2015

●● Mrs Kathryn Matthews, appointed

1 February 2015

●● Mr Hugh Bullock, appointed

1 November 2015

Council is a body to which

appointments are made by Her

Majesty the Queen on the advice of

the Chancellor.

Meremoor Barns, Crewe Estate, Cheshire.


Report of Council continued


Responsibilities of the Proper OfficersThe Proper Officers are responsible

for ensuring that proper accounting

records are maintained with respect

to the affairs of the Duchy and

for preparing the annual Report

and Accounts in accordance with

applicable law and International

Financial Reporting Standards and for

submitting the Report and Accounts

annually to the Lords’ Commissioners

of the Treasury in an agreed form. The

Proper Officers are also responsible for

safeguarding the Duchy’s assets and

for maintaining a satisfactory system

of control over transactions affecting

Duchy property in accordance with

the statutes.

In preparing the accounts the Proper

Officers will:

●● select suitable accounting policies

and apply them consistently;

●● make judgements and estimates

that are reasonable and prudent;

●● ensure that applicable accounting

standards have been followed,

subject to any material departures

disclosed and explained in the

accounts; and prepare the

accounts on a going concern basis.

The Proper Officers are responsible for

the maintenance and integrity of the

corporate and financial information

included on the Duchy’s website.

So far as the Proper Officers are

aware, there is no relevant audit

information of which the Duchy’s

auditors are unaware. The Proper

Officers have taken all the steps

that they ought to have taken as

Proper Officers in order to make

themselves aware of any relevant

audit information and to establish that

the Duchy’s auditors are aware of that

information.

The Council believes that it is good

practice to review the external audit

function in line with the Combined

Code on Corporate Governance.

Sustainability PolicyThe Duchy of Lancaster is

committed to being environmentally

responsible in the way it is run. The

key components of the policy are

addressing climate change, reducing

waste and encouraging biodiversity.

The evaluation and operation of the

policy and associated procedures

is monitored and reviewed by the

Management Board, with overview

by Council, to ensure that they remain

effective and appropriate to the

activities of the Duchy.

Statement on corporate governanceThe Combined Code on Corporate

Governance (the UK Corporate

Governance Code) issued by the

Financial Reporting Council is widely

acknowledged as representing best

practice in governance. Although

the Duchy is not obliged to comply

with the requirements of the Code,

Council nevertheless supports the

principles and provisions set out in

the code, and seeks to comply with

the code in so far as it is applicable

to the circumstances of the Duchy.

Some of the Duchy’s historic records and archives.



A full compliance statement is

produced internally and annually

reviewed by Council. The only

subcommittee of Council is the Audit

Committee.

Internal control and riskThe Duchy of Lancaster operates

within a control framework

appropriate for its size. This

incorporates:

●● a defined management structure

with the appropriate delegation

of authority to operational

management;

●● setting detailed annual budgets

and reporting annual results against

them;

●● setting targets to measure financial

and other performance;

●● regular reviews of budget

performance reports;

●● physical and computer security

procedures and contingency

planning; and

●● risk assessment reviews.

Information on the use of financial

instruments by the Duchy and its

management of financial risk is

described on pages 14-15.

Going ConcernThe Duchy’s financial projections

show that it has considerable financial

resources and is forecast to operate

within its available cash flows for a

period of at least twelve months. The

Proper Officers report that, following

a review of the relevant financial

information, they have a reasonable

expectation that the Duchy has

adequate resources to continue

in operation for the foreseeable

future. Accordingly, they continue

to adopt the going concern basis of

accounting in preparing the annual

financial statements.

Viability statementIn line with the Combined Code on

Corporate Governance, the Council

has reviewed cashflow and profit

projections based on conservative

assumptions for the next 5 years and

consider that there is a reasonable

expectation of being able to continue

in operation and meet all liabilities as

they fall due. A period of 5 years has

been selected as the Duchy is able to

control expenditure and it has largely

predictable income streams.

Mark Hudson

Nathan Thompson

London

5 July 2016

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

We have audited the financial statements of theDuchy of Lancaster for the year ended 31 March 2016which comprise the Revenue Account Statement ofComprehensive Income, the Capital AccountStatement of Comprehensive Income, the BalanceSheet, the Statement of Changes in Capital andReserves, the Statement of Cash Flows and therelated notes. These accounts have been preparedunder the accounting policies set out therein.

The financial reporting framework that has beenapplied in their preparation is applicable law andInternational Financial Reporting Standards (IFRSs) asadopted by the European Union and as applied to theDuchy of Lancaster by the Accounts Direction givenby the Treasury dated June 2016.

This report is made solely to the Council, as a body.Our audit work has been undertaken so that wemight state to the Council those matters we arerequired to state to them in an auditors’ report andfor no other purpose. To the fullest extent permittedby law, we do not accept or assume responsibility toanyone other than the Council as a body, for ouraudit work, for this report, or for the opinions wehave formed.

Respective responsibilities of the Proper Officers andauditors As explained more fully in the Proper Officers’Responsibilities Statement on page 18, the ProperOfficers are responsible for the preparation of thefinancial statements and for being satisfied that theygive a true and fair view. Our responsibility is to auditand express an opinion on the financial statements inaccordance with applicable law and InternationalStandards on Auditing (UK and Ireland). Thosestandards require us to comply with the AuditingPractices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements An audit involves obtaining evidence about theamounts and disclosures in the financial statementssufficient to give reasonable assurance that thefinancial statements are free from materialmisstatement, whether caused by fraud or error. Thisincludes an assessment of: whether the accountingpolicies are appropriate to the Duchy’s circumstancesand have been consistently applied and adequatelydisclosed; the reasonableness of significantaccounting estimates made by the Proper Officers;and the overall presentation of the financialstatements. In addition, we read all the financial andnon-financial information in the Report of Council toidentify material inconsistencies with the audited

financial statements and to identify any informationthat is apparently materially incorrect based on, ormaterially inconsistent with, the knowledge acquiredby us in the course of performing the audit. If webecome aware of any apparent materialmisstatements or inconsistencies we consider theimplications for our report.

Opinion on financial statementsIn our opinion the financial statements:

• give a true and fair view of the state of affairs ofthe Duchy as at 31 March 2016 and of the Duchy’sresult for the year then ended; and

• have been properly prepared in accordance withInternational Financial Reporting Standards (IFRSs)as adopted by the European Union and as appliedto the Duchy of Lancaster by the AccountsDirection given by the Treasury dated June 2016;and

• have been prepared in accordance with therequirements of the Accounts Direction given bythe Treasury dated June 2016.

Opinion on other matterIn our opinion the information given in the StrategicReport and the Report of Council for the financialyear for which the financial statements are preparedis consistent with the financial statements.

Matters on which we report by exceptionWe have nothing to report in respect of the followingmatters where we are required to report to you if, inour opinion:

• adequate accounting records have not been keptby the Duchy, or returns adequate for our audithave not been received from branches not visitedby us; or

• the Duchy financial statements are not inagreement with the accounting records andreturns; or

• certain disclosures of Proper officers’ remunerationas specified by the Accounts Direction given by theTreasury dated June 2016 are not made; or

• we have not received all the information andexplanations we require for our audit.

Jamie Younger

For and on behalf ofSaffery ChampnessChartered AccountantsStatutory AuditorsLondon5 July 2016



Year ended Year ended31 March 2016 31 March 2015

Note £’000 £’000

Revenue 2 21,804 20,553 Operating costs 3 (3,808) (3,914)Administrative expenses (1,548) (1,525)

Operating surplus 16,448 15,114

Finance income 5 2,840 2,641 Finance costs 6 (1,458) (1,159)

Net operating income 17,830 16,596

Development expenditure – (171)Development expenditure recovered from Capital – 137Net proceeds of bona vacantia 9 891 2,471Payable to the Duchy of Lancaster charitable funds (891) (2,471)

Net surplus for the year 17,830 16,562

Other comprehensive income:

Actuarial gain on retirement benefit obligations 20 709 69

Total comprehensive income on Revenue account 18,539 16,631

Capital Account Statement of Comprehensive Income


Note £’000 £’000

Net gain from fair value adjustment on investment property 18,497 26,751Gain on disposal of investment property 3,833 472Gain on disposal of property held for sale 60 497Repayments to capital:

Proportion of mineral royalties 3 57 140Less recovery of capital valuation fees (57) (117)

Net income from escheats 15 1Net gain on the disposal of financial assets 244 237

Surplus for the year on Capital account 22,649 27,981

Other comprehensive income:

Net gain from fair value adjustment on other property 13 830 738Net (loss)/gain on the revaluation of financial assets (1,051) 2,422Loss on financial derivatives (716) (1,645)

Total comprehensive income on Capital account 21,712 29,496

The notes to the accounts on pages 25 to 47 are an integral part of these financial statements.

Revenue Account Statement of Comprehensive Income



Balance sheet

31 March 2016 31 March 2015Note £’000 £’000

Assets

Non-current assetsInvestment property 12 491,937 462,655Property, plant and equipment 13 6,034 4,012Financial assets 14 69,625 64,582

Total non-current assets 567,596 531,249

Current assets

Investment property assets held for sale 15 1,251 2,416Trade and other receivables 16 3,873 3,232Cash and cash equivalents 9,781 15,180

Total current assets 14,905 20,828

Total assets 582,501 552,077

Liabilities

Current liabilitiesTrade and other payables 17 (21,528) (24,137)

Total current liabilities (21,528) (24,137)

Non-current liabilitiesBorrowings 18 (60,000) (50,000)Interest rate swaps 18 (2,361) (1,645)Provisions 19 (3,872) (3,202)Retirement benefit obligations 20 3 (949)

Total non-current liabilities (66,230) (55,796)

Total liabilities (87,758) (79,933)

Net assets 494,743 472,144

Capital and reservesCapital Account 495,497 473,069Capital hedging reserve 18 (2,361) (1,645)Revenue Account 2,222 2,044Retirement benefit reserve (615) (1,324)

Total reserves 494,743 472,144

Mark HudsonNathan Thompson

5 July 2016

The notes to the accounts on pages 25 to 47 are an integral part of these financial statements.



Statement of Changes in Capital and Reserves

Capital Revenue Totalaccount account

Capital Capital Revenue Retirementreserve hedging reserve benefit

reserve reserveNote £’000 £’000 £’000 £’000 £’000

Balance as at 31 March 2014 441,952 – 1,487 (1,393) 442,046

Net surplus for the year 27,981 16,562 44,543

Other comprehensive income:Net gain from fair value adjustment on

other property 738 738 Net gain on the revaluation of financial assets 2,422 2,422 Net loss from impairment on property held

for sale (24) (24)Loss on financial derivatives (1,645) (1,645)Actuarial gain on retirement benefit

obligations 20 69 69

Less amounts payable to the Privy Purse (16,005) (16,005)

Balance as at 31 March 2015 473,069 (1,645) 2,044 (1,324) 472,144

Net surplus for the year 22,649 – 17,830 – 40,479

Other comprehensive income:Net gain from fair value adjustment on

other property 13 830 830 Net loss on the revaluation of financial assets (1,051) (1,051)Net loss from impairment on property

held for sale 15 – –Loss on financial derivatives (716) (716)Actuarial gain on retirement benefit

obligations 20 709 709

Less amounts payable to the Privy Purse (17,652) (17,652)

Balance as at 31 March 2016 495,497 (2,361) 2,222 (615) 494,743



Statement of Cash Flows


Note £’000 £’000

Cash generated from operating activities 22 14,974 18,265 Interest paid (1,458) (1,159)

Net cash from operating activities 13,516 17,106

Cash flows from investing activitiesPurchase and improvement of investment property (17,893) (26,837)Purchase of owner occupied property (14) –Purchase of property held for sale – (1)Purchase of financial investments (36,794) (5,712)Purchase of property, plant and equipment (22) (44)Proceeds from additional borrowings 10,000 19,000 Proceeds from disposal of investment properties 9,405 6,950 Proceeds from disposal of property held for sale 1,515 5,082 Proceeds from disposal of financial investments 31,053 1,585 Financial investment income 2,840 2,641

Net cash inflow from investing activities 90 2,664

Cash flows from financing activitiesPayments made to the Privy Purse (19,005) (14,461)

(Decrease)/increase in cash in the year (5,399) 5,309 Cash and cash equivalents at start of year 15,180 9,871

Cash and cash equivalents at end of year 9,781 15,180



Notes to the accounts

Separate Statements of Comprehensive Income are presented for the Revenue account and the Capital accountwhich represents a departure from the requirements of IFRS. IFRS require the presentation of a single Statementof Comprehensive Income. This departure is necessary due to the separate nature of the Duchy Revenue andCapital accounts, and because only the surplus of the Revenue account may be distributed to the Privy Purse andno distribution may be made of the proceeds from the disposal of capital assets or the gains or losses on theirrevaluation. The Statement of Changes in Capital and Reserves is also analysed between the Revenue and Capitalaccounts. These variations to IFRS are as specified in the Accounts Direction given by HM Treasury set out on pages50-51.

1. Accounting policies(a) Basis of accounting

The accounts have been prepared under the historical cost convention as modified by the revaluation ofproperty investments and in accordance with all applicable accounting standards. The accounts are incompliance with the Treasury Direction set out on pages 50-51 and, except as disclosed above, in accordancewith International Financial Reporting Standards (IFRS) issued by the International Accounting StandardsBoard as adopted by the European Union and as modified by HM Treasury.

At the date of approval of these financial statements the following standards and guidelines relevant to theDuchy of Lancaster were in issue but not effective as not yet endorsed by the European Union for thecurrent financial period:

IFRS 9 Financial Instruments (amended) 1 January 2018IFRS 15 Revenue from contracts with customers 1 January 2018

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

(b) Significant judgements, key assumptions and estimates

Retirement benefit obligationsThe Duchy recognises and discloses its retirement benefit obligation in accordance with the measurementand presentational requirement of IAS 19, 'Retirement Benefit Obligations.' The calculations include anumber of judgements and estimations in respect of the expected rate of return on assets, the discount rate,inflation assumptions, the increase in salaries, and life expectancy, amongst others. Changes in theseassumptions can have a significant effect on the value of the retirement benefit obligation. Further detailsof the assumptions are set out in note 20.

Bona Vacantia late claims fundThe Late Claims Fund is a provision for legitimate claims on Estates declared to be bona vacantia and whoseassets have already been distributed. The provision is based on 30% of the Bona Vacantia account. This is asignificant judgement based on the anticipated level of late claims (see note 19).

Financial instruments valuationsThe Duchy discloses the fair value of its financial instruments in a hierarchy that prioritises the inputs tovaluation techniques used to measure fair value. The three levels are as follows:• Level 1 financial instruments are valued at unadjusted quoted prices in active markets for identical

instruments, these require no judgement.• Level 2 financial instruments are valued based significantly on observable market data. Inputs other than

quoted prices are directly or indirectly observable for the asset or liability.• Level 3 financial instruments use valuation techniques which incorporate at least one input (with a

potentially significant impact on valuation) which is based on unobservable market data.

Classification within the hierachy and the valuation techniques applied require judgement and furtherdetails are set out in note 21.



Notes to the accounts (continued)

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

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

All the valuations are in accordance with the principles of the Appraisal and Valuation Manual of the RoyalInstitution of Chartered Surveyors as follows:(i) Investment properties including land held for development and properties occupied by the Duchy are

valued on the basis of Market Value, being the estimated amount for which a property could beexchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s-lengthtransaction after proper marketing wherein the parties had acted knowledgeably, prudently andwithout compulsion. Mineral bearing land is valued on the basis of Existing Use Value.

(ii) Mineral and foreshore assets are only valued where a letting exists, where entry has occurred, or wherean interest is likely to be sold in the next year for a capital premium.

(iii) Castles and other historical properties which are not commercially let are valued at the lower ofdepreciated replacement cost and net realisable value, or, where there is no market in assets of thattype and the property could not be physically reconstructed, a nil value is applied.

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

The aggregate surplus or deficit arising from revaluation is transferred to the Capital Account, which is notdistributable.

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

(e) Owner occupied propertyProperties occupied by the Duchy of Lancaster are valued on the basis of fair value. The properties areincluded within property, plant and equipment. Any surplus or deficit arising on revaluation is taken directlyto the Capital Account Statement of Comprehensive Income.

No depreciation is provided in respect of these properties. The residual value of the property at the pointwhere the Duchy would cease to use it, or would dispose of it, is expected to be materially in line with fairvalue. As such, any depreciation (between fair value and residual value) at any point would be immaterial.

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

(g) Depreciation(i) In accordance with IAS 40 no depreciation is provided on investment properties.(ii) Revenue fixed assets are fully depreciated in the year of purchase.




(h) WoodlandsSales of timber and expenditure relating to the upkeep of the woodlands are included in the RevenueAccount.

(i) Recognition of incomeIncome from property and interest income is accounted for on an accruals basis. Dividends and income frombona vacantia are accounted for when received.

(j) Mineral rents and royaltiesThe receipts from mineral royalties are apportioned on the basis of one half to Capital and one half toRevenue.

(k) Pension liabilities and post retirement benefitsDefined benefit pension scheme current service costs relating to the year, together with the scheme interestcost less the expected return on the scheme assets for the year, are recorded in administrative expenseswithin the Revenue account. Actuarial gains and losses are recognised in the Revenue Account Statement ofComprehensive Income.

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

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

(l) Capitalisation of staff costsStaff costs are recharged to the Capital account on a relevant time basis for dealing with appropriate capitalworks transactions.

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

Net income from bona vacantia and the sale of escheated property, after allocations for future liabilities andthe costs of administering bona vacantia, is applied to the costs of Palatinate administration and historicalobligations, and, at the direction of the Council, the balance is transferred to the Duchy of Lancaster JubileeTrust, a separate registered charity.

The proceeds from bona vacantia are accounted for by the Duchy in the year in which they are received andrepresent the proceeds received from estates settled by the Solicitor for the Affairs of the Duchy of Lancasterin the year ended 30 September 2015. The accounts of the Solicitor for the Affairs of the Duchy of Lancasterfor the year ended 30 September 2015 are, for the purposes of information, set out on page 49.




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

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

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

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

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

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

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

(r) Hedge accountingDerivative financial and hedging activities: Derivatives are initially recognised at fair value on the date aderivative contract is entered into and are subsequently re-measured at their fair value. The method ofrecognising the resulting gain or loss depends on whether the derivative is designated as a hedginginstrument, and if so, the nature of the item being hedged. The Duchy designates certain derivatives ashedges of a particular risk associated with a recognised asset or liability or a highly probable forecasttransaction (cash flow hedge). The gains or losses arising on the revaluation of the derivative contracts arerecognised in the Capital hedging reserve in the Capital Account.

At the inception of the hedge relationship, the Duchy documents the relationship between the hedginginstrument and the hedged item, along with its risk management objectives and its strategy for undertakingvarious hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Duchydocuments whether the hedging instrument is highly effective in offsetting changes in fair values or cashflows of the hedged item.

Note 21 sets out details of the fair values of the derivative instruments used for hedging purposes.

Movements in the hedging reserve in equity are detailed in note 18.



(s) Cash flow hedgesThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flowhedges is recognised in other comprehensive income within the Capital account. The gain or loss relating tothe ineffective portion is recognised immediately in the capital income statement, and is included in the‘other gains and losses’ line item.

Amounts previously recognised in other comprehensive income and accumulated in equity are reclassifiedto the capital income statement in the periods when the hedged item is recognised in the capital incomestatement, in the same line of the income statement as the recognised hedged item. However, when theforecast transaction that is hedged results in the recognition of a non-financial asset or a non-financialliability, the gains and losses previously accumulated in equity are transferred from equity and includedin the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Duchy revokes the hedging relationship, the hedginginstrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any gainor loss recognised in other comprehensive income at that time is accumulated in equity and is recognisedwhen the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is nolonger expected to occur, the gain or loss accumulated in equity is recognised immediately in the capitalincome statement.

2. Revenue2016 2015£’000 £’000

Income from PropertyCommercial 13,276 11,912Agricultural 4,077 4,120Residential 2,071 1,960Mineral rents and royalties 1,028 734 Indirect property investment income 1,352 1,827

Total 21,804 20,553

3. Operating costsRepairs and Repayments Total Totalother direct to Capital

costs 2016 2015£’000 £’000 £’000 £’000

Expenditure on propertyCommercial 725 – 725 916Agricultural 447 – 447 351Residential 573 – 573 357Mineral rents and royalties – 57 57 142

1,745 57 1,802 1,766Staff costs, administration and professional fees 2,006 – 2,006 2,148

Total 3,751 57 3,808 3,914





4. Leasing: Operating leases with tenants

The Duchy of Lancaster leases out all of its investment properties under operating leases with, on average,26 years remaining to expiry. The aggregate minimum rentals, excluding contingent rents, receivable undernon-cancellable leases are as follows:

2016 2015£’000 £’000

Less than one year 15,227 14,574Between two to five years 45,898 41,937After five years 145,844 151,403

206,969 207,914

The value of the assets generating this rental income is detailed in notes 12 and 15.

2016 2015£’000 £’000

Contingent rents receivable 1,046 764

5. Finance income2016 2015£’000 £’000

Interest on other fixed interest stocks and unit trusts 495 458Income from financial assets 2,356 2,191Bank and other interest 23 25Investment management fees (34) (33)

2,840 2,641

6. Finance costs2016 2015£’000 £’000

Loan interest 1,458 1,159

7. Total comprehensive income for the year2016 2015£’000 £’000

Total comprehensive income for the year is arrived at after charging:Staff costs (note 8(a)) 2,212 1,807Depreciation of Property, Plant and Equipment 89 22Auditors’ remuneration

– audit services 24 23– non-audit services 3 3




8. Employee information

(a) The total cost of employees (excluding fees paid to the Chancellor and non-executive Council members)during the year was as follows:

2016 2015£’000 £’000

Wages and salaries 1,564 1,241Social security costs 196 153Pension contributions 452 413

2,212 1,807

(b) The average number of employees (excluding the Chancellor and non-executive Council members) duringthe year was 17 (2015: 16).

(c) The full details of the Chancellor and each Council member’s remuneration package for the financial yearare set out below. These individuals are the key management personnel.

Basic Taxablesalary Performance benefits and Total Total

and fees payments allowances 2016 2015£’000 £’000 £’000 £’000 £’000

Rt Hon Oliver Letwin MP – – – – –(appointed as Chancellor on 16 July 2014)

Lord Shuttleworth KG, KCVO – – – – 51 (retired 31 December 2014)

Mr Mark Hudson 68 – – 68 40Sir Alan Reid GCVO – – – – –Mr Nathan Thompson 235 40 1 276 221Mr Christopher Adcock LVO 150 20 1 171 141Mr Martin Beaumont 18 – – 18 17Mr Robert Miles QC 15 – – 15 12Mrs Kathryn Matthews 18 – – 18 3

(appointed 1 February 2015)Mr Hugh Bullock 8 – – 8 –

(appointed 1 November 2015)Mr Ian Coull (retired 30 June 2015) 4 – – 4 17Ms Anne Richards CVO, CBE – – – – 13(retired 31 December 2014)

In addition pension contributions paid by the Duchy for the financial year are set out below:

2016 2015£’000 £’000

Mr Nathan Thompson 25 23Mr Christopher Adcock LVO 20 18

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




9. Net proceeds from bona vacantia2016 2015£’000 £’000

Proceeds from bona vacantia 4,440 5,017Provisions for late claims transferred to Late Claims Fund (1,332) (1,505)

3,108 3,512Costs of palatinate administration and historical obligations (note 10) (2,217) (1,041)

891 2,471

10. Palatinate administration and historical obligations2016 2015£’000 £’000

Administration of bona vacantia – costs met directly by the Duchy 118 122Upkeep of castles and historic monuments 1,696 464Rental and other income from castles (2) (2)Savoy Chapel – stipends, running costs and repairs 99 232Ceremonial, ancient stipends, charitable annuities and preservation of historic records 253 177Administration of Duchy of Lancaster charitable funds 53 48

2,217 1,041

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




11. Analysis of balance sheetRevenue Capital

2016 2015 2016 2015£’000 £’000 £’000 £’000

AssetsNon-current assetsInvestment property – – 491,937 462,655Property, plant and equipment – 68 6,034 3,944Financial assets 4,772 5,202 64,853 59,380

Total non-current assets 4,772 5,270 562,824 525,979

Current assetsInvestment property assets held for sale – – 1,251 2,416Trade and other receivables 3,858 3,217 15 15Cash and cash equivalents 6,874 7,472 2,907 7,708Balances due from Capital 4,430 12,759 – –

Total current assets 15,162 23,448 4,173 10,139

Total assets 19,934 28,718 566,997 536,118

LiabilitiesCurrent liabilitiesTrade and other payables (14,458) (23,847) (7,070) (290)Balances due to Revenue – – (4,430) (12,759)

Total current liabilities (14,458) (23,847) (11,500) (13,049)

Non-current liabilitiesBorrowings – – (60,000) (50,000)Interest rate swaps – – (2,361) (1,645)Provisions (3,872) (3,202) – –Retirement benefit obligations 3 (949) – –

Total non-current liabilities (3,869) (4,151) (62,361) (51,645)

Total liabilities (18,327) (27,998) (73,861) (64,694)

Net assets 1,607 720 493,136 471,424

Capital and reservesRevenue Account 2,222 2,044 – –Capital Account – – 493,136 471,424Retirement benefit reserve (615) (1,324) – –

Total reserves 1,607 720 493,136 471,424




12. Investment PropertyCommercial Agriculturaland indirect woods Land

property minerals held forinvestment foreshores Residential development Total

£’000 £’000 £’000 £’000 £’000

Value at 1 April 2014 198,931 161,059 54,342 3,303 417,635 Purchases at cost 23,411 1,333 2,093 – 26,837 Transfers from Owner Occupied Property – – – – –Transfers from investment property held for sale – 26 – – 26 Transfers to investment property held for sale – (971) (1,145) – (2,116)Disposals (3,859) (452) (2,167) – (6,478)Change in fair value 18,794 2,758 5,775 (576) 26,751

Value at 31 March 2015 237,277 163,753 58,898 2,727 462,655

Commercial Agriculturaland indirect woods Land


£’000 £’000 £’000 £’000 £’000

Value at 1 April 2015 237,277 163,753 58,898 2,727 462,655 Purchases at cost 11,928 4,800 1,165 – 17,893 Transfers to Owner Occupied Property – – (1,246) – (1,246)Transfers from investment property held for sale – – – – –Transfers to investment property held for sale – – (290) – (290)Disposals (4,946) (13) (613) – (5,572)Change in fair value 21,913 (4,048) (975) 1,607 18,497

Value at 31 March 2016 266,172 164,492 56,939 4,334 491,937

The changes in fair values are recognised in the Capital Account Statement of Comprehensive Income.

All landed property is situated in England and Wales. Purchases at cost include expenses of purchases andexpenditure on permanent improvements of £3,299,000 (2015: £3,396,000). Sales proceeds are net of expensesof sale and development costs charged from Revenue.

At 31 March 2016 virtually all of the commercial property portfolio was valued externally by professionallyqualified valuers. The rural property portfolio was valued externally by professionally qualified valuers. Thebreakdown of the external valuations at 31 March 2016 by valuer is as follows:

Knight Frank 51%Savills 48%Others 1%




13. Property, plant and equipmentOwner

Occupied Motor Plant & TotalProperty Vehicles Equipment

£’000 £’000 £’000 £’000

Cost or valuationBalance at 1 April 2015 3,944 17 291 4,252Additions during the year 14 – 22 36Change in fair value 830 – – 830Transfers from Investment property 1,246 – – 1,246Less: disposals during the year – – (13) (13)

Balance at 31 March 2016 6,034 17 300 6,351

Accumulated depreciationBalance at 1 April 2015 – 5 235 240Charged during the year – 12 77 89Less: disposals during the year – – (12) (12)

Balance at 31 March 2016 – 17 300 317

Net Book Value31 March 2016 6,034 – – 6,034

31 March 2015 3,944 12 56 4,012

14. Financial assetsValue at Additions Sales Change in Value at1 April at cost proceeds market 31 March2015 value 2016£’000 £’000 £’000 £’000 £’000

Capital Financial AssetsFixed interest unit trust 4,497 – – (1,391) 3,106Equities and bonds 47,418 36,333 (27,833) 138 56,056Private equity 7,465 – (2,220) 446 5,691

59,380 36,333 (30,053) (807) 64,853

Other Financial AssetsFixed income unit trust 5,202 461 (1,000) 109 4,772

5,202 461 (1,000) 109 4,772

Total 64,582 36,794 (31,053) (698) 69,625

The changes in market values are recognised in the Capital Account Statement of Comprehensive Income apartfrom the change in market value of the Fixed interest unit trust which is recognised in note 19.

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




15. Investment property assets held for saleCommercial Agriculturaland indirect woods Land


£’000 £’000 £’000 £’000 £’000

Value at 1 April 2014 – 2,086 2,848 – 4,934 Purchases at cost – – 1 – 1 Transfers to investment property – (26) – – (26)Transfers from investment property – 1,321 795 – 2,116 Disposals – (2,060) (2,525) – (4,585)Impairment – – (24) – (24)

Value at 31 March 2015 – 1,321 1,095 – 2,416

Commercial Agriculturaland indirect woods Land


£’000 £’000 £’000 £’000 £’000

Value at 1 April 2015 – 1,321 1,095 – 2,416 Purchases at cost – – – – –Transfers to investment property – – – – –Transfers from investment property – – 290 – 290 Disposals – (360) (1,095) – (1,455)Impairment – – – – –

Value at 31 March 2016 – 961 290 – 1,251

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

16. Trade and other receivables2016 2015£’000 £’000

Trade receivables (rents) 1,090 678Other receivables 164 168Prepayments and accrued income 2,619 2,386

3,873 3,232

All receivables are denominated in Sterling.




16. Trade and other receivables (continued)

As of 31 March 2016 trade receivables of £1,090,000 (2015: £678,000) were past due but not impaired.

The ageing analysis of these trade receivables is as follows:2016 2015£’000 £’000

Under 3 months 964 6413 to 12 months 111 15Over 12 months 15 22

As of 31 March 2016 trade receivables of £357,000 (2015: £298,000) were impaired and provided for. Theimpaired receivables mainly relate to tenants who are in financial difficulty.

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

Movements in the provision for impairment of trade receivables are as follows:2016 2015£’000 £’000

At 1 April 298 338Provision for receivables impairment 66 (23)Receivables written off (7) (17)

At 31 March 357 298

The recognition and release of the provision for impaired receivables has been included in the RevenueAccount Statement of Comprehensive Income.

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

17. Trade and other payables2016 2015£’000 £’000

Amounts falling due within one year:Trade payables 1,157 613Other taxes and social security 863 710Other payables 9,211 8,438Late claims provision 900 2,000Accruals and deferred income 5,254 5,300Due to the Privy Purse 3,252 4,605Due to Duchy of Lancaster charitable funds 891 2,471

21,528 24,137



18. BorrowingsLess than 1 to 5 Over 2016

1 year years 5 years Total£’000 £’000 £’000 £’000

Borrowings – 15,000 45,000 60,000Interest rate swaps – 269 2,092 2,361

The total borrowings of £60m consists of 5 loans with the following terms; Loan of £9m repayable June 2024,interest in the year is at a floating rate which has been fully swapped to a fixed rate of 3.98%. Loan of £31mrepayable October 2021, interest in the year is at a floating rate, £11m of the loan has been swapped to afixed rate of 3.3875%. Loan of £10m repayable February 2020, interest in the year is at a floating rate, £2.5mof the loan has been swapped to a fixed rate of 2.635%. Loan of £5m repayable July 2020, interest in the yearis at a floating rate which has been fully swapped to a fixed rate of 2.914%. Loan of £5m repayable October2025, interest in the year is at a floating rate, £2.5m of the loan has been swapped to a fixed rate of 3.0%.

The fair value of borrowings is not considered to be significantly different from their book values.

The Duchy has five interest rate derivatives designated into cash flow hedge relationships on loan facilitiestotalling £30m. As at 31 March 2016 a loss of £2.361m was recognised in Other Comprehensive Income in theCapital Accounts Statement in respect of the fair value movement of the cash flow hedging derivatives.

19. Provisions for liabilities and charges

The Late Claims Fund was established to provide a form of insurance against legitimate claims on estatesdeclared to be bona vacantia and whose assets have already been distributed. Income earned on the assets ofthe fund is retained to meet claims. Any surplus on the fund is payable to the Duchy of Lancaster charitablefunds. The fund is separately invested in a unit trust (note 14). The movements of the fund are as follows:

2016 2015£’000 £’000

Provisions for late claims received from the bona vacantia account met directly by the Duchy 1,332 1,505Provisions for late claims received from the bona vacantia account – –Increase in value of investments 108 518Claims paid during the year (1,870) (847)

(Deficit)/surplus for the year (430) 1,176Late Claims Fund balance at 1 April 5,202 4,026

Late Claims Fund balance at 31 March 4,772 5,202

2016 2015£’000 £’000

Shown as:Included in Trade and other payables 900 2,000Included in Non-current liabilities – provisions 3,872 3,202




20. Retirement benefit obligations

A full actuarial valuation was carried out at 31 March 2015 and has been updated to 31 March 2016 by aqualified independent actuary. The major assumptions used by the actuary were:

31 March 31 March 31 March 31 March 31 March2016 2015 2014 2013 2012% pa % pa % pa % pa % pa

Rate of increase in pensionable salaries 4.1 4.2 4.8 4.8 4.8Rate of increase in pensions in payment 1.6 1.7 2.3 2.3 2.5Discount rate 3.4 3.0 4.3 4.0 4.7Inflation assumption (RPI) 2.6 2.7 3.3 3.3 3.3Inflation assumption (CPI) 1.6 1.7 2.3 2.3 2.5

The mortality assumptions used by the actuary (and resulting life expectancies) were:

Mortality Life assumption expectancy

Pensioners now aged 60Males S2PA YOB with CMI 2014 27.1 Females projection and a long-term rate 29.3

of improvement of 1.25%

Future pensioners from age 60 but currently aged 40Males S2PA YOB with CMI 2014 29.0Females projection and a long-term rate 31.3

of improvement of 1.25%

At 31 March 2016, the weighted-average duration of the Scheme’s liabilities was approximately 14 years.

The assets in the Scheme, the Scheme liabilities and the resulting surplus/deficits at various dates were asfollows:

Value at Value at Value at Value at Value at31 March 31 March 31 March 31 March 31 March

2016 2015 2014 2013 2012%pa %pa %pa %pa %pa£’000 £’000 £’000 £’000 £’000

Equities 3,770 3,994 3,453 3,517 2,723Gilts 1,074 1,060 872 916 4,742Corporate Bonds 3,885 3,891 3,878 3,834 –Cash 34 45 14 172 356

Total market value of assets 8,763 8,990 8,217 8,439 7,821Present value of Scheme benefits (8,760) (9,939) (9,451) (9,712) (8,935)

Surplus/(deficit) in the Scheme 3 (949) (1,234) (1,273) (1,114)




20. Retirement benefit obligations (continued)

Analysis of the amount charged to operating profit:

2016 2015£’000 £’000

Current service cost 60 54Past service cost – –Scheme administrative cost 28 70

Total operating charge 88 124

Analysis of the amount credited to other finance income:

2016 2015£’000 £’000

Interest income on Scheme assets 266 349Interest on pension Scheme liabilities (290) (394)

Net interest on the net defined benefit liability (24) (45)

Remeasurement of net defined benefit (asset)/liability to be shown in other comprehensive income (OCI)

2016 2015£’000 £’000

Net remeasurement (gain)/loss – financial (541) 804Net remeasurement (gain)/loss – demographic (248) –Net remeasurement (gain)/loss – experience (160) (184)Return on assets, excluding interest income 240 (689)

Total remeasurement of net defined benefit (asset)/liability to be shown in OCI (709) (69)

Movement in Scheme liabilities during the year

2016 2015£’000 £’000

Liabilities at start of year 9,939 9,451Movement in year:

Current service cost 60 54Interest cost 290 394Contributions paid by Scheme members 3 3Benefits paid (583) (583)Net remeasurement (gain)/loss – financial (541) 804Net remeasurement (gain)/loss – demographic (248) –Net remeasurement (gain)/loss – experience (160) (184)

Liabilities at end of year 8,760 9,939





Movement in Scheme assets during the year

2016 2015£’000 £’000

Assets at start of year 8,990 8,217Movement in year:

Interest income on Scheme assets 266 349Return on assets, excluding interest income (240) 689Contributions (total paid by employer and scheme members) 358 388Benefits paid (583) (583)Scheme administrative cost (28) (70)

Assets at end of year 8,763 8,990

2016 2015£’000 £’000

Scheme assets 8,763 8,990Scheme liabilities (8,760) (9,939)

Net asset/(liability) arising from retirement benefit obligations 3 (949)

Major categories of Scheme assets

Value at Value at31 March 31 March

2016 2015£’000 £’000

Real Return FundNewton Real Return Fund 3,770 3,994

3,770 3,994

BondsNewton Index Linked Gilt Fund 1,074 1,060 Newton Long Corporate Bond Fund 3,885 3,891

4,959 4,951

Cash and net current assets 34 45

Total 8,763 8,990





Characteristics of the Scheme and the risks associated with the Scheme

(a) Information about the characteristics of the Scheme

(i) The Scheme provides pensions in retirement and death benefits to members. Pension benefits arelinked to a member’s final salary and their length of service.

(ii) The Scheme is a registered scheme under UK legislation and is contracted-in to the State SecondPension.

The Scheme is subject to the scheme funding requirements outlined in UK legislation. The last schemefunding valuation of the Scheme was at 31 March 2015 and revealed a deficit of £2,300,000. In therecovery plan dated 12 November 2015 the Duchy agreed to pay contributions of £285,864 per annum(increasing annually at 3% per annum) with the view to eliminating the shortfall by 30 April 2022.

Under rule 23 of the Scheme’s trust deed and rules dated 31 March 1995, the Duchy has a right to arefund of any surplus in the Scheme if the Scheme winds up, although the Trustees do have the powerto augment benefits before any surplus is paid to the Duchy. However, given the power to wind upthe Scheme lies with the Duchy, there is no additional liability recognised on the balance sheet as aresult of the recovery plan dated 12 November 2015.

(iii) The Scheme was established from 1 April 1995 under trust and is governed by the Scheme’s trust deedand rules dated 31 March 1995. The Trustees are responsible for the operation and the governance ofthe Scheme, including making decisions regarding the Scheme’s funding and investment strategy inconjunction with the Duchy.

(b) Information about the risks associated with the Scheme

The ultimate cost of the Scheme to the Duchy will depend upon actual future events rather than theassumptions made. Many of the assumptions made are unlikely to be borne out in practice and as such thecost of the Scheme may be higher (or lower) than disclosed.

In general, the risk to the Duchy is that the assumptions underlying the disclosures, or the calculation ofcontribution requirements are not borne out in practice and the cost to the Duchy is higher than expected.This could result in higher contributions required from the Duchy and a higher deficit disclosed. This mayalso impact the Duchy’s ability to grant discretionary benefits or other enhancements to members.

More specifically, the assumptions not being borne out in practice could include:

(i) The return on the Scheme’s assets being lower than assumed, resulting in an unaffordable increase inthe required Duchy contribution rate.

(ii) Falls in asset values (particularly equities) not being matched by similar falls in the value of liabilities.

(iii) Unanticipated future changes in mortality patterns leading to an increase in the Scheme’s liabilities.Future mortality rates cannot be predicted with certainty. This is especially so bearing in mind that theyoungest Plan members could be expected to still be alive in 60 years or more and it is not possible toreliably predict what medical advances may or may not have occurred by this time.

(iv) The potential exercise (by members or others) of options against the Scheme.

(v) The relatively small number of Scheme members is likely to lead to particular volatility in the deficitand the Duchy contributions as the future demographic experience of such a group is more uncertainthan would be the case for a larger group.

The Employer may also wish to consider the risk that the assumptions underlying the disclosures are notborne out in practice and the cost to the Duchy is lower than expected. This could lead to a surplus in theScheme which is not recoverable by the Duchy.





(c) Information about any amendments, curtailments or settlements

There have been no amendments, curtailments or settlements over the financial year.

The Scheme's investment strategyThe Scheme’s investment strategy is to invest broadly 40% in return seeking assets and 60% in matchingassets. This strategy is overweight in (well diversified) return seeking assets when compared to theScheme’s liability profile, but is consistent with the Trustees’ and Duchy’s attitude to risk.

Sensitivity analysisThe results in the disclosures are inherently volatile, particularly the figures shown on the balance sheet.The results disclosures are dependent on the assumptions chosen by the Trustees. The following table setsout the sensitivity of the balance sheet position to changes in assumptions.

Change in liabilities 31 March 2016

Discount rate -1.0% pa +14%Inflation rate (CPI) + 0.2% pa +2%Mortality (increase life expectancy by 1 year) +4%

Expected future cashflows to and from the PlanThe Scheme is subject to the scheme funding requirements outlined in UK legislation. The last schemefunding valuation of the Scheme was at 31 March 2015 and revealed a funding deficit of £2,300,000. In therecovery plan dated 12 November 2015 the Duchy has agreed to pay £285,864 per annum (increasingannually at 3% per annum) with the view to eliminating the shortfall by 30 April 2022.

In accordance with the schedule of contributions dated 12 November 2015 the Duchy is expected to paycontributions of £338,000 over the next accounting period. This includes a fixed annual amount of £50,000for the accrual of benefits and insurance premiums for death in service lump sums for active members.

In addition, the Duchy is expected to meet the cost of administrative expenses and Pension Protection Fundlevies for the Scheme.

The liabilities of the Scheme are based upon the current value of expected benefit payment cashflows tomembers of the Scheme over the next 60 or so years. The average duration of the liabilities isapproximately 14 years.




21. Fair value measurements

The following table sets out the Duchy’s assets and liabilities that are measured and recognised at fair value at31 March 2016.

Level 1 Level 2 Level 3 Total£’000 £’000 £’000 £’000

Financial assetsAvailable-for-sale equity securities 63,934 5,691 – 69,625

Total recurring financial assets 63,934 5,691 – 69,625

Financial liabilitiesInterest rate swaps – 2,361 – 2,361

Total recurring financial liabilities – 2,361 – 2,361

Non-financial assets:Investment properties – – 491,937 491,937 Owner occupied properties – – 6,034 6,034

Total recurring non-financial assets – – 497,971 497,971

Non-recurring fair value measurementsProperty held for sale – – 1,251 1,251

Total non-recurring assets – – 1,251 1,251

The Duchy has measured land at fair value on a non-recurring basis as a result of the reclassification of the land asheld for sale.

There have been no transfers between levels 1 and level 2 recurring fair value measurements during the year.

The Duchy’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date theevent or change in circumstances that caused the transfer occurred.

The following table sets out the total gains or losses for the period included in profit or loss that is attributable tothe changes in unrealised gains or loss relating to those assets and liabilities held at the end of the reportingperiod that is included in gains/(losses) recognised in other income.

Unlisted Ownerequity Investment occupied

securities property property Total£’000 £’000 £’000 £’000

Unrealised gains recognised in profit or loss attributable to assets held at the end of the reporting period – 18,497 830 19,327




21. Fair value measurements (continued)

The following table sets out the valuation techniques used in the determination of fair values within Level 3including the key unobservable inputs used and the relationship between unobservable inputs to fair value.

Item and valuation approach

Key unobservable inputs

Relationship between unobservableinputs to fair value

Investment propertyFair value has been determinedby a range of recognisedvaluation methodologiesdepending on the nature of theindividual properties. As shownin note 12 most of the propertieshave been valued by externalprofessionally qualified valuers.

The methodologies applied bythe valuers include the following:

Investment Method: An assessment is made on thebasis of a collation and analysisof appropriate comparableinvestment, rental and saletransactions, together withevidence of demand within thevicinity of the subject property.With the benefit of suchtransactions these are thenapplied to the property, takinginto account size, location, terms,covenant and other materialfactors.

Market rents are assessed on atenant by tenant basis takinginto account significantvariation between location,sector, size and quality.

The higher the discount rate, terminalyield and expected vacancy rate thelower the fair value.

Residual Method: The Market Value of the site inits existing condition is arrived atusing the residual method whichis a generally accepted methodfor valuing properties that areconsidered to have possibledevelopment potential. Havingformed an opinion of the valueof the completed development(Gross Development Value), usingthe Investment Method describedabove, it is deducted from thetotal costs of development andan allowance for developer’sprofit.

The estimated market value ofa completed project,development costs andexpected appreciation in theprice.

The lower the development costs thegreater the anticipated market value.

Fair values of trade receivables and payables, short term investments, Unsecured bank overdrafts and cashand cash equivalents are assumed to approximate to cost due to the short term maturity of the instrumentsand as the impact of discounting is not significant.




21. Fair value measurements (continued)

The following table sets out the valuation technique used in determination of fair values within levels 2 and 3including the key inputs used.

22. Reconciliation of Revenue account operating surplus to net cash inflow from operating activities

2016 2015£’000 £’000

Net surplus on Revenue account 17,830 16,562Adjusted for:

Depreciation 89 21Current service costs less contributions to pension scheme (243) (216)Net finance income (1,382) (1,482)Net income/(expenditure) from escheats 15 1Repayments to Capital – 23Decrease/(increase) in valuation of other financial investments (109) (518)(Profit)/loss on disposal of property, plant and equipment 1 2(Increase)/decrease in receivables (641) (347)(Decrease)/increase in payables (586) 4,219

Net cash inflow from operating activities 14,974 18,265

23. Related party transactions

Charitable donations of £891,000 (2015: £2,471,000) were made to the Duchy of Lancaster Jubilee Trust arisingfrom the surplus receipts of bona vacantia (see note 9). All Council members except the Chief Finance Officeract as trustees of the Duchy of Lancaster Jubilee Trust.

During the year the Duchy of Lancaster sold 3 residential properties to the Duke of Lancaster Housing Trust for£300,000.

Item Valuation approach and inputs used

Financial Assets The fair values of financial assets andfinancial liabilities have beendetermined with reference toavailable market information at thebalance sheet date.

Level 2

Interest rate swaps Future cash flows are estimatedbased on forward interest rates(from observable yield curves at theend of the reporting period) andcontracted interest rates, discountedat a rate that reflects the credit riskof various counterparties.

Level 2




24. Financial risk management

A review of the Duchy’s financial risks is set out in the Strategic Report on pages 14 to 15.

Market Risk – cash flow and fair value interest rate riskThe Duchy’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose theDuchy to cash flow interest rate risk. Borrowings issued at fixed rates expose the Duchy to fair value interestrate risk.

The Duchy analyses its interest rate exposure on a periodic basis. In particular when entering into a new swapagreement various scenarios are considered to understand the effect that a change in the base rates wouldhave on both interest rate risk and fair value interest rate risk.

The Duchy manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interestrate swaps have the economic effect of converting borrowings from floating rates to fixed rates. The Duchyhas set policies as to the proportion of its borrowings against which interest rate swaps must be taken out inorder to mitigate its interest rate risk.

Liquidity riskAlthough current liabilities are in excess of current assets, the majority of the Duchy’s financial liabilities all falldue within one year and notes 17-20 provide further details of these liabilities. The Duchy continually monitorsits liquidity position through cashflow forecasts. It is not possible to state the maturity profile of the Duchy’sLate Claims Fund provision (see Note 19) and its retirement benefit obligations (see Note 20) due to theuncertain timing of their potential crystallisation.

Credit riskThe Duchy uses external investment consultants to assess the credit quality of banks and financial institutionsbased on their financial position, experience of past performance and other factors as deemed relevant. As setout in note 16 there is no significant concentration of credit risk with respect to trade receivables as the Duchyhas a large number of tenants.

Capital managementThe Duchy continually monitors its financial situation by means of regular management information andaccounts. This ensures that the covenants in relation to the bank loan facility are adhered to.

25. Capital commitments

As at 31 March 2016 the Duchy had entered into contracts for major improvements works that gave rise to acapital commitment of £1.08m.






The Duchy of Lancaster Rural Surveys totalling approximately 18,500 hectares are located as follows:

Hectares

The Staffordshire Survey 2,995 Needwood estate

The Cheshire Survey 1,415 Crewe estateMarbury estate

The Lancashire Survey 3,849 Whitewell estateMyerscough estateWyreside estateSalwick estate

The Yorkshire Survey 6,803 Cloughton estatePickering estateMarishes estateGoathland estatePontefract estate

The Southern Survey 3,480 Higham Ferrers estateCastleton estateOgmore estateLincolnshire estate

18,542

Duchy of Lancaster Rural Surveys



Accounts of the Solicitor for the Affairs of the Duchy of Lancaster

for the year ended 30 September 2015

The accounts of the Solicitor for the Affairs of the Duchy of Lancaster are not part of the accounts of the Duchy ofLancaster and are included for information. During the year 283 intestate estates (2014: 283) and 2,133 dissolvedcompanies (2014: 2,403) were formally reported.

Income and expenditure account for the year ended 30 September 20152015

£

IncomeMonies received from dissolved companies 3,597,251 Monies received from intestate estates 2,101,095 Interest and other 12,680

Monies received 5,711,026

ExpenditurePayments to next of kin (1,169,963)Company restoration (473,555)Ex-gratia payments to claimants (104,661)Administration costs (728,179)

Net income less expenditure 3,234,668

Paid to the Duchy of Lancaster (3,168,255)

Net income for the year ended 30 September 2015 66,413

Cash balances at 1 October 2014 4,354,126 Net income for the year ended 30 September 2015 66,413

Cash balances at 30 September 2015 4,420,539

Balance sheet as at 30 September 20152015

£

Current assetsCash and deposits 4,420,539

4,420,539

Current liabilitiesThe Duchy of Lancaster (2,031,387)Other creditors (73,500)

(2,104,887)

Total assets less current liabilities 2,315,652

Representing:

Estates under administration 2,315,652

Operating Review

1. The Duchy of Lancaster shall prepare accounts for the financial year ended 31 March 2016 and subsequentfinancial years comprising:

• a Report of Council including a Governance Statement;• a revenue account statement of comprehensive income;• a capital account statement of comprehensive income, with a reconciliation of movements in the capital

account;• a balance sheet; and• a cash flow statement.

including such notes as may be necessary for the purposes described in the following paragraphs.

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

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

4. This direction supersedes that of May 2014. It shall be reproduced as an appendix to the accounts.

Richard BrownTreasury Officer of Accounts June 2016



Accounts direction given by HM Treasury



Schedule 1 – Accounting and disclosure requirements

Companies Act 2006

1. The disclosure exemptions permitted by the CA shall not apply to the Duchy of Lancaster unless specificallyapproved by the Treasury.

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

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

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

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

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

7. The Duchy is not required to comply with the requirement specified in paragraph 35 of Schedule 1 Part 1 ofSI20081410 to maintain a revaluation reserve.

Accounting standards

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

Other disclosure requirements

9. The Report of Council shall, inter alia:

• state that the accounts have been prepared in accordance with this Treasury direction;• include a brief history of the Duchy and its statutory background, and identify its estates by county and

area;• include a resume of the powers delegated to the Council and those retained by the Chancellor of the Duchy

of Lancaster over and above those delegated to the Council;• provide information concerning the Duchy’s charitable and other activities and the principles supporting

them. The information should also indicate where copies of the accounts of the charities may be obtained.

10. The notes to the accounts shall, inter alia:

• distinguish between the Capital and Revenue elements of the consolidated statements and discloseamounts owing from Revenue to Capital for permanent improvements (including the repayment profile)and depreciation rates;

• disclose the names and qualifications of the valuers, both internal and external;• (where it arises) provide details of the terms of any loan from the capital account for revenue purposes, and

the purpose for which it is required, together with explicit assurance that the loan is not being used toinflate the revenue surplus payable;

• provide details of the remuneration package of the Chancellor of the Duchy of Lancaster and each Councilmember, together with a note of the pension contributions made in respect of Council members.

11. A formal valuation of the pension scheme was undertaken in 2015 and the contribution rate subsequentlyadjusted to ensure that the deficit is forecast to be made good within the term recommended by the actuaryand agreed by the Council and trustees after discussion with HM Treasury. Accordingly, the pension reserverequired by IAS 19 shall be a separate non-distributable reserve within the revenue account balance sheet.The next formal valuation of the pension scheme will be undertaken during 2018.

Annual ReportReport and accounts of the Duchy of Lancaster for the year ended 31 March 2016

www.duchyo� ancaster.co.uk

� is Report & Accounts is printed by Witherbys Print London which holds theISO 14001 Environmental Management certi� cation.

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

� e paper used for this publication is Cocoon Silk made from 50% recycled material.

Date post:	20-Jun-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

Year ended 31st March 2016 - Chancellor of the Duchy of ... · 18-hole golf course at Rushden and a...

Documents