Chairman's Report

JOHN SHEEHAN Chairman

I present to shareholders the 2011 Desane Group Holdings Limited Chairman's Report.

The increasing volatility of global finance markets will continue to raise questions about the appropriateness of various classes of equities as a secure investment vehicle.  It is clear that equities sourced from manufacturing, retailing, services and even exploratory mining will be more volatile and indeed more directly reflect the instabilities evident in the aforementioned global markets.  Nevertheless those equities such as Desane Group Holdings Limited, which are based in commercial and industrial property holdings are revealing a marked stability which separates this class of equities from those more volatile investment vehicles.  The length of time involved in obtaining development consent for development or redevelopment only aggravates the shortage of such properties as a source of investment and there is little indication that this situation, especially in the Sydney metropolitan area, will change for the better.  Desane is well placed in this regard, having a valuable portfolio of existing industrial and specialised commercial properties which yet again are revealing a very stable rental income.

As required, the Group's accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS).  Pleasingly, the Group's asset value has firmed in the 2011 financial year, a clear response to the increasing shortage of quality industrial and specialised commercial properties such as those held by the Group in its portfolio.  It is gratifying to note that the portfolio has remained fully leased throughout the 2011 financial year, and the Group remains in a comfortable financial position, well situated to take advantage of the continuing firming of the specialised commercial property market in particular.  Accordingly, the Directors have decided to recommend a dividend of 1 cent per share (unfranked).

In my 2010 annual report, I forecast a continuing focus by investment funds in mining stock which would direct funds away from the property sector, and indeed, other sectors in the equities market.  There continues to be growing evidence that investment funds are now being rebalanced with a greater level of involvement in either REITs or in direct property ownership.  The volatility of production resource equities has seen this rebalancing focussing on property rather than other investment areas such as manufacturing or retailing, as outlined earlier.  The very strong position of the Australian currency is obviously impacting upon retailing and manufacturing, however this is being balanced by the continuation of a shortage of office space and quality specialised indistrial space in the inner Sydney metropolitan area.  It is this area that Desane's property portfolio is based, and hence the property values have continued to be more robust than in other property sectors.

The Group's management has been particularly diligent in negotiating with Australian major banks an overall reduction of interest costs for the Group, and this is pleasing to record in the current financial environment.  The result of these significant interest savings in the Group's borrowing costs continues to be reflected in the very restrained operating costs of managing the property portfolio.

I also note that the Group's management is continuing to assess the appropriate manner of realising the greatest value for shareholders in the 12,000m² high-rise residentailly zoned waterfront property, located in the Sydney suburb of Lane Cove, which is 50% owned by Desane.  As you are aware, our Group's management succeeded in obtaining a rezoning of the site, and consideration is now being given to the site's disposal and the most appropriate manner and time frame in which this is to occur.  Whilst the property has been earmarked to be sold, your Board is of the view that the property should be only disposed of at a time in which the Sydney waterfront residential unit market is most robust.

Your Board remains confident that the Group's continuing strategies will result in good asset growth in the 2011/2012 financial year, as the property market continues to firm.  Your Board congratulates both the Group Executive and the employees of Desane Group Holdings Limited for the prudent and diligent management of the day to day operation of the Group as evident from this year's financial result.

Finally, I would like to welcome those shareholders who have recently joined the Company. The Board looks forward to a long association with those new shareholders during the coming years.

JOHN SHEEHAN
Chairman