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The risk profile of the Group

As a predominantly London-based Group, we are particularly sensitive to factors which impact upon central London’s growth and demand for office space. Any decline in the demand for London office space or a significant increase in supply could negatively impact upon:

• the value of our property portfolio;
• occupancy rates and, subsequently, our income; and
• availability of properties for acquisition and the ease of disposal and refinancing.

The London office market has proven to be cyclical and can be impacted by a number of external and internal factors. For example, changes in political agendas or economic factors can impact upon:

• the ease of gaining planning permission for new development projects;
• cost of acquisitions e.g. stamp duty land tax; and
• value of our properties to overseas investors due to exchange rate fluctuations.

While Derwent London is a large business in terms of the size of its balance sheet and market capitalisation, we are relatively small when considering the number of people working directly in the business. Almost all of our staff work in the same building and are in close proximity to our Executive Committee members, making for close supervision and easy monitoring. Our Group structure is organised to be simple and transparent (i.e. relatively few subsidiaries, no offshore structure, very few joint ventures) and our internal control procedures and policies are well established, reviewed annually and subject to external verification.

Risk management

Risk is inherent in running any business and our risk management procedures are routinely reviewed and strengthened to ensure that all foreseeable and emerging risks are identified, understood and managed.

The role of our Board, with support from the Risk Committee, is to ensure that our risk management and internal controls are robust so that we remain able to swiftly identify and react to new threats and uncertainties. Balanced with the maintenance of a flexible business model and strong financial structure, this better enables us to weather uncertainties and take advantage of opportunities.