REG - Local Shopping REIT - Final Results <Origin Href="QuoteRef">LSR.L</Origin> - Part 3
12/12/2017 07:06
- Part 3: For the preceding part double click ID:nRSL0214Zb
Directors' responsibilities
As explained more fully in their statement set out on page A , the directors are responsible for: the preparation of the
financial statements including being satisfied that they give a true and fair view; such internal control as they determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error; assessing the Group and parent Company's ability to continue as a going concern, disclosing, as applicable,
matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate
the Group or the parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud, other irregularities, or error, and to issue our opinion in an auditor's report.
Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud, other irregularities
or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the financial statements. The risk of not detecting a material
misstatement resulting from fraud or other irregularities is higher than for one resulting from error, as they may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control and may involve any area
of law and regulation not just those directly affecting the financial statements.
A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.
8 The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies
Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required
to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for
this report, or for the opinions we have formed.
Mark Flanagan (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
31 Park Row
Nottingham
NG1 6FQ
11 December 2017
Financial Statements
Consolidated Income Statement for the year ended 30 September 2017
Note 2017 2016
£000s £000s
Gross rental income 6,023 6,989
Property operating expenses 2 (1,968) (1,862)
Net rental income 4,055 5,127
Loss on disposal of investment properties 3 (1,298) (199)
Loss from change in fair value of investment properties 7 (689) (1,073)
Administrative expenses including non-recurring items 4 (1,738) (1,710)
Operating profit before net financing costs 330 2,145
Financing income 5 5 25
Financing expenses 5 (1,193) (3,833)
Movement in fair value of financial derivatives 5 - 2,294
(Loss)/Profit before tax (858) 631
Taxation 6 - -
(Loss)/Profit the year from continuing operations (858) 631
(Loss)/Profit for the financial year attributable to equity holders of the Company (858) 631
Basic and diluted (loss)/profit per share on profit for the year 15 (1.04)p 0.76p
Basic and diluted (loss)/profit per share on continuing operations for the year 15 (1.04)p 0.76p
Consolidated Statement of Comprehensive Income for the year ended 30 September 2017
2017 2016
£000s £000s
(Loss)\Profit for the financial year (858) 631
Items that are or may be reclassified to profit and loss
Total comprehensive (loss)/income for the year (858) 631
Attributable to:
Equity holders of the parent Company (858) 631
Consolidated Balance Sheet as at 30 September 2017
Note 2017 2016
£000s £000s
Non-current assets
Investment properties 7 54,613 74,285
54,613 74,285
Current assets
Trade and other receivables 8 2,143 2,094
Investment properties held for sale 7 1,280 1,590
Cash 9 10,455 11,000
13,878 14,684
Total assets 68,491 88,969
Non-current liabilities
Interest bearing loans and borrowings 10 (29,462) (49,635)
Finance lease liabilities 12 (431) (567)
(29,893) (50,202)
Current liabilities
Interest bearing loans and borrowings 10 (1,209) (907)
Trade and other payables 11 (2,600) (2,311)
(3,809) (3,218)
Total liabilities (33,702) (53,420)
Net assets 34,789 35,549
Equity
Issued capital 13 18,334 18,334
Reserves 13 3,773 3,773
Capital redemption reserve 13 1,764 1,764
Retained earnings 10,918 11,678
Total attributable to equity holders of the Company 34,789 35,549
Consolidated Statement of Cash Flows for the year ended 30 September 2017
2017 2016
Note £000s £000s
Operating activities
(Loss)/Profit for the year (858) 631
Adjustments for:
Loss from change in fair value of investment properties 7 689 1,073
Net financing costs 5 1,188 1,514
Loss on disposal of investment properties 1,298 199
Equity secured share-based payment expenses 98 66
2,415 3,483
Increase in trade and other receivables (49) (66)
Increase\(Decrease) in trade and other payables 388 (423)
2,754 2,994
Interest paid (1,087) (2,353)
Loan arrangement fees paid (280) (5)
Interest received 5 25
Net cash from operating activities 1,392 661
Investing activities
Net proceeds from sale of investment properties 18,373 4,919
Acquisition and improvements to investment properties 7 (514) (210)
Cash flows from investing activities 17,859 4,709
Net cash flows from operating activities and investing activities 19,251 5,370
Financing activities
Repayment of borrowings (19,796) (5,352)
Payments to close swaps - (1,758)
Cash flows from financing activities (19,796) (7,110)
Net decrease in cash (545) (1,740)
Cash at beginning of year 11,000 12,740
Cash at end of year 9 10,455 11,000
Consolidated Statement of Changes in Equity for the year ended 30 September 2017
Capital
redemption Retained
Share capital Reserves reserve earnings Total
£000 £000 £000 £000 £000
Balance at 1 October 2015 18,334 3,773 1,764 10,981 34,852
Total comprehensive income for the year
Profit for the year - - - 631 631
Total contributions by and distributions to owners - - - - -
Share based payments - - - 66 66
Balance at 30 September 2016 18,334 3,773 1,764 11,678 35,549
Total comprehensive income for the year
Loss for the year - - - (858) (858)
Total contributions by and distributions to owners - - - - -
Share based payments 98 98
Balance at 30 September 2017 18,334 3,773 1,764 10,918 34,789
Notes to the Financial Statements for the year ended 30 September 2017
1. Accounting Policies
Basis of Preparation
The Local Shopping REIT plc (the "Company") is a public company incorporated, domiciled and registered in England. The
registered number is 05304743 and the registered address is 65, Grosvenor Street, London, W1K 3JH.
The group financial statements consolidate those of the Company and its subsidiaries (together referred to as the "Group").
The parent company financial statements present information about the Company as a separate entity and not about its
group.
The group financial statements have been prepared and approved by the directors in accordance with International Financial
Reporting Standards as adopted by the EU ("Adopted IFRSs") and in accordance with the provisions of the Companies Act 2006.
The Company has elected to prepare its parent company financial statements in accordance with FRS 102; these are presented
on pages 59 to 65.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these group financial statements.
Judgements made by the directors, in the application of these accounting policies that have significant effect on the
financial statements and estimates with a significant risk of material adjustment in the next year are discussed later in
this note under the heading "Use of Estimates and Judgements".
The financial statements are prepared in pounds sterling, rounded to the nearest thousand. They have been prepared under
the historical cost convention except for the following assets which are measured on the basis of fair value: investment
properties, derivative financial instruments and investment properties held for sale.
Going Concern
The directors have considered whether it is appropriate to prepare the financial statements on a going concern basis. The
directors are pursuing a number of approaches for selling down the property portfolio and note that this may take several
years to achieve, depending on market conditions. The directors review progress with the investment strategy on a regular
basis. The directors note that a number of alternative strategies remain available to the Company, such as selling the
Company as a going concern or continuing to trade as a going concern. They will continue to evaluate these, and will make
recommendations to shareholders on alternative strategies if appropriate.
The directors have prepared profit and cash flow forecasts for the two year period to 30 September 2019 which include
assumptions relating to the sale of properties under the current investment strategy which the directors consider to be
reasonable. These forecasts project that the Group's and Company's funding needs will be comfortably met by the revised
banking facility agreements entered into in November 2016 (see note 10) without any breach of related covenants .
On the basis of these projections the directors consider that the Group will continue to be compliant with its banking
covenants and sufficient resources will be available to enable it to continue as a going concern for at least the next 12
months. The financial statements do not include the adjustments that would result from the going concern basis of
preparation being inappropriate.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in
these financial statements.
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company and all its subsidiary undertakings
up to 30 September 2017. Subsidiaries are entities controlled by the Group. The Group controls an entity when it is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those
returns through its power over the entity. In assessing control, the Group takes into consideration potential voting
rights. The acquisition date is the date on which control is transferred to the acquirer. The financial statements of
subsidiaries are included in the consolidated financial statements from the date that control commences until the date that
control ceases. The financial statements of subsidiaries are prepared using consistent accounting policies. Inter-company
transactions and balances are eliminated.
Investment Property
Investment properties are those properties owned by the Group that are held to earn rental income or for capital
appreciation or both and are not occupied by the Company or any of its subsidiaries.
For the Group as a whole Allsop LLP, a firm of independent chartered surveyors valued the Group's property portfolio at 30
September 2017, 31 March 2017, 30 September 2016 and 31 March 2016. On each of these dates Allsop LLP performed a full
valuation of 25% of the Group's properties (including site inspections) and a desktop valuation of the remainder, such that
all properties owned by the Group have been inspected and valued over the two-year period. The valuations, using
assumptions regarding yield rates, void levels and comparable market transactions, were undertaken in accordance with the
Royal Institute of Chartered Surveyors Appraisal and Valuation Standards on the basis of market value. Market value is
defined as the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a
willing seller in an arm's length transaction, after proper marketing wherein the parties had each acted knowledgeably,
prudently and without compulsion.
Investment properties are treated as acquired at the point the Group assumes the significant risks and returns of
ownership. Subsequent expenditure is charged to the asset's carrying value only when it is probable that future economic
benefits associated with the expenditure will flow to the Group and the cost of each item can be reliably measured. All
other repairs and maintenance costs are charged to the Income Statement during the period in which they are incurred.
During the year an accelerated sales programme commenced, primarily via auction, where the economic risk transfers on the
auction date. It was decided to recognise these sales at the auction date instead of the subsequent completion date in
order to properly reflect the level of property sales activity. Provision is made for the relevant auction and legal fees
arising on the sales in calculating the gain or loss on disposal. The effect of this change on the September 2016
financial statements is not material, and therefore no re-statement of comparative figures has been made.
Interest on loans associated with acquiring investment properties is expensed on an effective interest rate basis.
Rental income from investment properties is accounted for as described below.
Investment Properties Held for Sale
Investment properties held for sale are included in the Balance Sheet at their fair value. In determining whether assets no
longer meet the investment criteria of the Group, consideration has been given to the conditions required under IFRS 5.
An investment property shall classify a non-current asset as held for sale if its carrying amount will be recovered
principally through a sale transaction rather than through continuing use.
The asset must be available for immediate sale in its present condition subject only to terms that are usual and customary
for sales of such assets and its sale must be highly probable as at the year end.
Head Leases
Where a property is held under a head lease and is classified as an investment property, it is initially recognised as an
asset based on the sum of the premium paid on acquisition and if the remaining life of the lease at the date of acquisition
is considered to be material, the net present value of the minimum ground rent payments. The corresponding rent liability
to the leaseholder is included in the Balance Sheet as a finance obligation in current and non-current liabilities.
The payment of head rent reduces the gross liability and the interest element of the finance lease is charged to the Income
Statement. Head leases considered not to have a material life remaining at the date of acquisition are accounted for as
operating leases with the head rent paid being expensed through the Income Statement.
Trade and Other Receivables
Trade and other receivables are initially recognised at fair value and subsequently held at amortised cost less impairment.
Impairment is made where it is established that there is objective evidence that the Group will not be able to collect all
amounts due according to the original terms of the receivable. The impairment is recorded in the Income Statement.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash balances and deposits held on call. Cash equivalents are short-term, highly liquid
investments with original maturities of three months or less.
Derivative Financial Instruments and Hedging
The Group has used derivative financial instruments such as interest rate swaps to economically hedge risks associated with
interest rate fluctuations. The Group does not hold or issue derivatives for trading purposes.
Such instruments are initially measured at fair value on the date on which a contract is entered into and are subsequently
re-measured at fair value. Financial derivatives are recognised as current and non-current based on the maturity profile of
the associated cash flows.
The Group has determined that the derivative financial instruments held did not qualify as effective for hedge accounting
under the criteria set out in IAS 39 and consequently any gains or losses arising from changes in their fair value are
taken to the Income Statement. In the future and on an ongoing basis if new derivative financial instruments are entered
into, the directors will review the derivative contracts to consider whether they qualify for hedge accounting.
During the year to 30 September 2016, all the outstanding interest rate swaps were paid down.
Financial Assets
Financial assets are impaired when there is objective evidence that the cash flows from the financial asset are reduced.
Trade and Other Payables
Trade and other payables are initially recognised at fair value and subsequently held at amortised cost.
Ordinary Share Capital
External costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds.
Shares which have been repurchased are classified as treasury shares and shown in retained earnings. They are recognised at
the trade date for the amount of consideration paid, together with directly attributable costs. This is presented as a
deduction from total equity. Shares held by the Employee Benefit Trust are treated as being those of the Group until such
time as they are distributed to employees, when they are expensed in the profit and loss account.
The nominal value of shares cancelled has been taken to a capital redemption reserve.
Rental Income
Rental income from investment properties leased out under operating leases is recognised in the Income Statement on a
straight-line basis over the term of the lease. When the Group provides lease incentives to its tenants the cost of
incentives are recognised over the lease term, on a straight-line basis, as a reduction to income.
Taxation
Corporation tax on the profit or loss for the year comprises current and deferred tax. Corporation tax is recognised in the
Income Statement except to the extent that it relates to items recognised directly in equity, in which case it is
recognised in equity.
As a REIT, the Group will be exempt from corporation tax on the profits and gains from its property investment business,
provided it continues to meet certain conditions. Non-qualifying profits and gains of the Group (the residual business)
continue to be subject to corporation tax. Therefore, current tax is the expected tax payable on the taxable income for the
year, using tax rates enacted or substantively enacted at the balance sheet date and any adjustment to tax payable in
respect of previous years. The REIT entry charge is expensed on the date of entry to the REIT regime. Deferred tax is
provided using the balance sheet liability method. Provision is made for temporary differences between the carrying amounts
of assets and liabilities in the financial statements for financial reporting purposes and the amounts used for taxation
purposes. Deferred income tax is calculated after taking into account any indexation allowances and capital losses on an
undiscounted basis. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities using tax rates enacted or substantially enacted at the balance sheet date.
Deferred tax assets are recognised only to the extent that it is probable that future profits will be available against
which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the
related tax benefit will be realised. Deferred tax assets and liabilities are only offset if there is a legally enforceable
right of set-off.
Pensions
The Company has no pension arrangements in operation.
Share-based Payments
Share based payments are recognised as an employee expense, with a corresponding increase in equity.
Employee Benefit Trust
In 2007 the Group established an Employee Benefit Trust in connection with its various share based incentive schemes. The
Group either purchased its own shares directly or it funded the trust to acquire shares in the Company. Transactions of the
Employee Benefit Trust are treated as being those of the Company and are therefore reflected in the Group financial
statements.
Use of Estimates and Judgements
To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and
assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial statements.
These estimates are based on historical experience and various other assumptions that management and the Board of directors
believe are reasonable under the circumstances. The results of these considerations form the basis for making judgements
about the carrying value of assets and liabilities that are not readily available from other sources.
The areas requiring the use of estimates and judgements that may significantly impact the Group's earnings and financial
position include the estimation of: the fair value of investment properties and derivative financial instruments.
The valuation basis of the Group's investment properties is set out above.
Segmental reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports that are regularly reported to the
chief operating decision maker to allocate resources to the segments and to assess their performance.
Since the strategy review in July 2013 the Group has identified one operation and one reporting segment which is reported
to the Board of directors on a quarterly basis. The Board of directors is considered to be the chief operating decision
maker.
Adoption of new and revised standards
In the current year, the Group has applied a number of amendments to IFRS that are mandatorily effective. Their adoption
has not had any material impact on the disclosures or on the amounts reported in these financial statements.
Standards not affecting the reported results or the financial position
There are no changes to existing standards and interpretations listed below that have been enacted and adopted by the Group
in the period in the preparation of these financial statements.
At the date of approval of these financial statements, the following standards and interpretations, which have not been
applied in these financial statements, were in issue but not yet effective:
Effective for periods beginning on or after:
IFRS9 Financial Instruments 1 January 2018
Amendments to IAS7 Disclosure Initiatives 1 January 2017
Amendments to IAS12 Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017
Amendments to IFRS2 Clarification and Measurement of Share-based Payment Transactions 1 January 2018
IFRS16 Leases 1 January 2019
None of the above standards is expected to have a material impact on the future financial statements of the Group.
The IASB has issued IFRS15, which has been endorsed by the European Union.
The Company presently recognises rental income under the principles set out in IAS 17, and will continue to do so under
this standard. Consideration has been given to the impact of IFRS 15 on service charge income. 90% of the properties in
the group have no service charge; therefore it is not anticipated that IFRS 15, when adopted, will have a significant, if
any, effect on the Company's financial results.
2. Property Operating Expenses
2017 2016
£000 £000
Bad debt charge (353) (356)
Head rent payments (31) (31)
Repairs (343) (377)
Business rates and council tax (245) (246)
Irrecoverable service charge (160) (134)
Utilities (66) (70)
Insurance* (92) 2
Managing agent fees (242) (279)
Leasing costs (231) (211)
Legal & professional (73) (72)
EPC amortisation, Abortives, and Misc (132) (88)
Total property operating expenses (1,968) (1,862)
* The negative insurance in 2016 was due to an overprovision
3. Property Disposals
2017 2016
Number Number
000s 000s
Number of sales 142 27
£000 £000
Average value 136 185
Sales
Total sales 19,287 4,997
Carrying value (19,671) (5,025)
(Loss)/profit on disposals before transaction costs (384) (28)
Transaction costs
Legal fees (307) (67)
Agent fees, marketing and brochure costs (499) (74)
Disbursements (23) (12)
Non recoverable VAT (on non-opted and residential elements) (85) (18)
Total transaction costs (914) (171)
Loss on disposals after transaction costs (1,298) (199)
Transaction costs as percentage of sales value 4.7% 3.4%
4. Administrative Expenses
2017 2016
£000 £000
£000 £000
Investment manager fees (918) (963)
Legal and professional (145) (348)
Tax and audit* (116) (99)
Remuneration Costs (1) (187) (133)
Other (44) (39)
Irrecoverable VAT on Administration expenses (2) (200) (128)
December 2016 General Meeting costs (128) -
Total administrative expenses (1,738) (1,710)
(1) Remuneration costs include £98,000 ( 30 September 2016 : £ 66,000) in respect of the expensing of employee share options which vest in 2018 onwards or if liquidation targets are met. This amount has a corresponding entry in equity and has no impact on the Company's net assets now or in the future.
(2) The company's portfolio contains residential elements and commercial properties not opted for VAT. Accordingly VAT on overheads is not fully recoverable.
Financials
* The following fees have been paid to the Group's Auditors:
2017 2016
£000 £000
Auditors' remuneration for audit services:
Audit of parent Company 34 33
Audit related assurance services 16 16
Statutory audit of subsidiaries 39 38
Auditors' remuneration for non-audit services:
Tax services - 24
Other services supplied - 9
5. Net Financing Costs
2017 2016
£000 £000
Interest receivable 5 25
Interest receivable excluding fair value movements 5 25
Fair value gains on derivative financial instruments (note 14) - 2,294
Financing income 5 2,319
Bank loan interest (961) (1,924)
Amortisation of loan arrangement fees (181) (117)
Head rents treated as finance leases (27) (34)
Bank facility fees (24) -
Financing expenses excluding swap closing costs (1,193) (2,075)
Payments to close swaps - (1,758)
Financing expenses (1,193) (3,833)
Net financing costs (1,188) (1,514)
6. Taxation
2017 2,016
£000 £000
(Loss)/Profit before tax (858) 20
Corporation tax in the UK of 20% (2015: 20.5%) (172) 4
Tax relief available from REIT status 114 (464)
Effects of:
Revaluation deficit and other non-deductible items (163) 445
Deferred tax asset/(liability) not recognised 221 15
Total tax - -
Factors that may affect future current and total tax charges
Reductions in the UK corporation tax rate from 23% to 21% (effective from 1 April 2014) and 20% (effective from 1 April
2016) were substantively enacted on 2 July 2013. Further reductions to 19% (effective 1 April 2017) and to 18% (effective
1 April 2020) were substantively enacted on 26 October 2016. This will reduce the company's future current tax charge
accordingly and reduce the deferred tax asset at 30 September (which has been calculated based on the rate of 20%
substantively enacted at the balance sheet date) by £0.24m. From 11 May 2007, the Group elected to join the UK REIT regime.
As a result, the Group will be exempt from corporation tax on the profits and gains from its property investment business
from this date, provided it continues to meet certain conditions. Non-qualifying profits and gains of the Group (the
residual business) continue to be subject to corporation tax. The directors consider that all the rental income post-11 May
2007 originates from the Group's tax exempt business.
Due to the availability of losses no provision for corporation tax has been made in these accounts. The deferred tax asset
not recognised relating to these losses can be carried forward indefinitely. It is not anticipated that sufficient profits
from the residual business will be generated in the foreseeable future to utilise the losses carried forward as the current
year losses will be adequate to cover foreseeable profits. The non-provided deferred tax asset at 30 September 2017 was
£2.41m (2016: £2.35m).
7. Investment Properties
Freehold Leasehold
Investment Investment
Properties Properties Total
£000 £000 £000
At 30 September 2015 63,625 15,843 79,468
Additions 188 22 210
Disposals - property (4,538) (488) (5,026)
Disposals - head leases - (92) (92)
Fair value adjustments (481) (592) (1,073)
Movement on Investment properties held for sale 540 258 798
At 30 September 2016 59,334 14,951 74,285
Additions 449 65 514
Disposals - property (16,472) (3,199) (19,671)
Disposals - head leases - (136) (136)
Fair value adjustments (863) 174 (689)
Movement on Investment properties held for sale 122 188 310
At 30 September 2017 42,570 12,043 54,613
The investment properties have all been revalued to their fair value at 30 September 2017.
All rental income recognised in the Income Statement is generated by the investment properties held and all direct
operating expenses incurred resulted from investment properties that generated rental income.
A reconciliation of the portfolio valuation to the total value given in the Balance Sheet for investment properties is as
follows:
2017 2016
£000 £000
Portfolio valuation 55,462 75,308
Investment properties held for sale (1,280) (1,590)
Head leases treated as investment properties held under finance leases per IAS 17 431 567
Total per Balance Sheet 54,613 74,285
8. Trade and Other Receivables
2017 2016
£000 £000
Trade receivables 620 1,086
Other receivables 840 255
Prepayments 683 753
2,143 2,094
9. Cash
2017 2016
£000 £000
Cash in the Statement of Cash Flows 10,455 11,000
Included in bank balances are amounts held pending the next interest payment due in October 2017. Until the interest
payment has been deducted from these balances the cash is not available for use by the Group. At the year end the amount
held on such account was £1.218m (2016: £2.513m) with accruals for interest due of £0.118m (2016: £0.326m).
10. Interest Bearing Loans and Borrowings
2017 2016
£000 £000
Non-current liabilities
Secured bank loans 29,723 49,821
Loan arrangement fees (261) (186)
29,462 49,635
Current liabilities
Current portion of secured bank loans 1,209 907
All bank borrowings are secured by fixed charges over certain of the Group's property assets and floating charges over the
companies which own the assets charged.
During November 2016 the bank borrowings were extended. The changes included a £7m cash payment of loan balance, and an
extension of the repayment date from April 2018 to December 2019.
This was considered to be a modification and the costs associated with it were added to the loan arrangement fees for
amortisation. One subsidiary company loan was fully repaid and costs of £0.046 in respect of this loan were expensed.
The remaining bank loan is in £Sterling and carries interest at 2% over 3-month LIBOR.
For more information about the Group's exposure to interest rate risk, see note 17.
11. Trade and Other Payables
2017 2016
£000 £000
Trade payables 346 110
Other taxation and social security 240 180
Other payables 991 684
Accruals and deferred income 1,023 1,337
2,600 2,311
Other payables include rent deposits held in respect of commercial tenants of £0.455m (2016: £0.459m).
12. Leasing
Obligations Under Finance leases
Finance lease liabilities on head rents are payable as follows:
Minimum Lease Payment Interest Principal
£000 £000 £000
At 30 September 2015 4,599 (3,940) 659
Disposals (470) 378 (92)
(Payments)/charge (34) 34 -
At 30 September 2016 4,095 (3,528) 567
Disposals (993) 857 (136)
(Payments)/charge (27) 27 -
At 30 September 2017 3,075 (2,644) 431
In the above table, interest represents the difference between the carrying amount and the contractual liability/cash
flow.
All leases expire in more than five years.
13. Capital and Reserves
Share Capital
2017 2016
Ordinary 20p Shares Ordinary 20p Shares
Number Amount Number Amount
000s £000s 000s £000s
Allotted, called up and fully paid 91,670 18,334 91,670 18,334
Investment in Own Shares
At the year end, 9,164,017 shares were held in treasury (2016: 9,164,017).
Employee Benefit Trust("EBT")
The number of shares held by the Company's Employee Benefit Trust, LSR Trustee Limited at the year end was 791,098 (2016:
921,098). During the year:
1.Options over 130,000 shares which had vested in 2016 under the Local Shopping REIT plc Employee & Former Employee
Incentive Scheme 2015 were exercised, and this number of shares was transferred from the EBT to beneficiaries of this
scheme.
2. 791,098 shares (2016: Nil) were allocated to beneficiaries under the Local Shopping REIT Plc Employee & Former Employee
Incentive Scheme 2016.None of these shares had vested as at 30 September 2017.
3. The EBT transferred no shares to employees on the exercise of awards under either the Company's Long Term Incentive Plan
or the Company's Share Option Scheme.
Reserves
The value of shares issued to purchase Gilfin Property Holdings Limited in excess of their nominal value has been shown as
a separate reserve in accordance with the Companies Act 2006.
Capital Redemption Reserve
The capital redemption reserve arose in prior years on the cancellation of 8,822,920 Ordinary 20p Shares.
Calculation of Net Asset Value Per Share (NAV)
2017 2016
£000 £000
Net assets 34,789 35,549
2017 2016
Number Number
000s 000s
Allotted, called up and fully paid shares 91,670 91,670
Treasury shares (9,164) (9,164)
Number of shares 82,506 82,506
NAV per share 42p 43p
14. Dividends
No dividends were paid during the current and previous year.
15. Earnings Per Share
Basic Earnings Per Share
The calculation of basic earnings per share was based on the profit attributable to Ordinary Shareholders and a weighted
average number of Ordinary Shares outstanding, calculated as follows:
Profit Attributable to Ordinary Shares
2017 2016
£000 £000
(Loss)/Profit for the year (858) 631
(Loss)/Profit on continuing operations for the year (858) 631
Weighted Average Number of Ordinary Shares
2017 2016
Number Number
Issued Ordinary Shares at 1 October 2016 91,670 91,670
Treasury shares (9,164) (9,164)
Weighted average number of Ordinary Shares at 30 September 2017 82,506 82,506
Basic and diluted (loss)/profit per share on profit for the year (1.04)p 0.76p
Diluted Earnings Per Share
As shares held in the Employee Benefit Trust are entitled to dividends, these have been included in the weighted average
number of shares. There are no other potentially dilutive securities and therefore no difference between basic and diluted
earnings per share.
16. Derivative Financial Instruments
Derivative financial instruments held by the Group are interest rate swaps used to manage the Group's interest rate
exposure. These are shown in the Balance Sheet as follows:
Movements Movements
Fair Value in Income Fair Value in Income Fair Value
2015 Statement 2016 Statement 2017
Current liabilities (2,294) 2,294 - - -
Fair value (2,294) 2,294 - - -
A summary of the swaps and their maturity dates as they stood at 30 September 2015, and their movement in the year to 30
September 2016 is as follows:
Notional value of swap Effective date Maturity date Rate payable Fair Value Movements Fair Value
on fixed leg 2015 in Income 2016
£000 % £000 Statement £000
20,178 16/07/2007 31/01/2017 4.85 (1,087) 1,087 -
22,500 30/04/2013 20/07/2017 5.05 (823) 823 -
10,500 30/04/2013 29/07/2017 5.05 (384) 384 -
(2,294) 2,294 -
The swaps were fully paid down during 2016.
The derivative financial instruments included in the above tables are stated at their fair value based on quotations from
the Group's bank.
More details of the Group's policy regarding the management of interest rate risk are given in note 17.
17. Financial Instruments and Risk Management
The Board of directors has overall responsibility for the establishment and oversight of the Group's risk management
framework.
As described in the Corporate Governance report, this responsibility has been assigned to the executive directors with
support and feedback from the Audit Committee. The Audit Committee oversees how management monitors compliance with the
Group's risk management policies and procedures and reviews the adequacy of the risk management framework in relation to
the risks faced by the Group.
The Group has identified exposure to the following financial risks from its use of financial instruments: capital
management risk, market risk, credit risk and liquidity risk.
Capital Management Risk
The Group's capital consists of long-term borrowings, cash and equity attributable to the shareholders. The Board's policy
is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future
development of the business. The Board regularly reviews the Group's capital structure, cost of capital, gearing levels and
other specific measures. From time to time, the Company has purchased its own shares when the Board considered that this
course of action would enhance the value of the Group for shareholders. Since the restructuring in July 2013 dividend
policy has been reviewed half-yearly by the Board. No dividend has been paid during the year. There were no other changes
in the Group's approach to capital management during the year.
Market Risk
Market risk is the risk that changes in market conditions, such as interest rates, foreign exchange rates and equity
prices, will affect the Group's profit or loss and cash flows. The Group's exposure to market risks is restricted to
interest rate risk only. The Group borrows at floating rates of interest and has in the past used financial instruments to
fix the floating rates of interest in accordance with its policy. The last of these instruments was fully paid down in
2016.
The Group does not speculate in financial instruments. They have only been used to limit exposure to interest rate
fluctuations. The Company continues to monitor the interest rate environment, and may enter into some hedging arrangements
in the future. However, given the currently low and stable rates and the Company's sales programme, this would not be
advantageous at present.
Sensitivity Analysis
IFRS 7 requires an illustration of the impact on the Group's financial performance of changes in interest rates. The
following sensitivity analysis has been prepared in accordance with the Group's existing accounting policies and considers
the impact on the Income Statement and on equity of an increase of 100 basis points (1%) in interest rates. As interest
rates were below 1% in the current and previous year, it has not been possible to consider the impact of a decrease of 100
basis points on interest income and expense as it would result in a negative rate of interest. Therefore, the impact of a
fall in interest rates has been restricted to a floor of 0%. All other variables remain the same and any consequential tax
impact is excluded. The analysis assumes that changes in market interest rates affect the interest income and interest
expense of derivative financial instruments.
Actual results in the future may differ materially from these assumptions and, as such, these tables should not be
considered as a projection of likely future gains and losses.
2017 2016
Impact on Income Impact on Equity Impact on Income Impact on Equity
Increase Decrease Increase Decrease Increase Decrease Increase Decrease
by 1% to 0% by 1% to 0% by 1% to 0% by 1% to 0%
Impact on Interest income and expense in £000s
(238) 79 (238) 79 (398) 228 (398) 228
Fair value measurements recognised in the statement of financial position
Investment properties and Investment properties held for sale are measured subsequent to initial recognition at fair value
and have been group as Level 3 (2016: level 3) based on the degree to which fair value is observable.
- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets
and liabilities;
- Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
- Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or
liability that are not based on observable market data (unobservable inputs).
Investment properties have been valued
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