REG - Develop North PLC - Annual Financial Report
19/03/2025 14:30
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RNS Number : 3471B Develop North PLC 19 March 2025
To: RNS
From: Develop North PLC
LEI: 213800EXPWANYN3NEV68
Date: 19 March 2025
Subject: Annual Financial Report
Chairman's Statement
Highlights
· Net Asset Value total return of 6.3% (2023: 1.4%)
· Increase in investment income to £1.94m, 13% higher than in
previous year
· Total dividends of 4.00 pence per share paid or payable for the
year
· Share buybacks during the year enhanced the NAV per share for
remaining shareholders by 0.5p
· £9.2m deployed into seven projects and repayment of five
projects, bringing the number of exits to twenty three since inception
· 69% of funds deployed in the North East of England, reflecting
the Company's increased focus on selected regional markets
INTRODUCTION
I am pleased to present the Company's results for the year ended 30 November
2024, during which the Company entered its eighth year of trading.
Despite a notably volatile economic and geopolitical backdrop over the twelve
months under report, Develop North PLC has met the targets set out by the
Board and Investment Adviser, Tier One Capital Ltd (TOC) a year ago. These
included identifying and investing in real estate projects of the highest
quality, increasing the overall strength of the portfolio and continuing to
pay out valuable and attractive dividends each quarter.
In the background, meanwhile, the net asset value per share has increased
slightly over the period, with the potential to create further shareholder
value over the longer term.
OBJECTIVE
The Company seeks to achieve its investment objective primarily through a
diversified portfolio of fixed rate loans predominantly secured over land
and/or property in the UK and managed by TOC. The Investment Adviser's Report
may be found on pages 8 to 11.
REGIONAL FOCUS
As reported previously, the change of the Company's name to Develop North PLC
has proved beneficial in gaining recognition of its purpose and regional
focus. This is important at a time when the North East of England is very much
in the ascendant, not least following the landmark devolution deal signed with
the UK government in 2023, bringing with it a single Mayoral Combined
Authority with access to significant new funding and powers. This subject is
discussed in more detail in the Outlook section below.
The Company's web site, www.developnorth.co.uk (http://www.developnorth.co.uk)
, was significantly redeveloped a little over a year ago and is expected to be
extended and upgraded over time as the Company expands.
ECONOMIC BACKDROP
On the domestic front, 2024 was marked primarily by the first general election
victory for Labour since 2005, with a resounding majority of 174 seats and a
manifesto of significant change, the full effects of which, at the time of
writing, remain to be seen.
On a broader front, despite the continuing conflict in Ukraine, tensions in
the Middle East and a range of reactions to the return of Donald Trump to the
White House, global forecasters predict another solid year of economic growth.
Goldman Sachs, by way of example, expect worldwide GDP to expand by 2.7% in
2025. Predictions for the UK's growth figures are still positive though lower
at around 1.6%.
The UK inflation figure for the twelve months to October 2024 was 3.2%, still
above the Bank of England's 2% target, but at a level which allowed its
Monetary Policy Committee (MPC) to consider cutting interest rates. Ending
eleven consecutive months at 5.25%, the highest for 16 years, the MPC cut
rates to 5% in August 2024 and then to 4.75% on 6 November the same year.
The Bank of England has reiterated its objective of cutting rates further
during 2025. However, a number of independent commentators are currently
forecasting "higher (rates) for longer".
Turning to UK house prices, these remained broadly static for much of the year
with some increases being reported in the second half of the year. The
Investment Adviser has adopted Savills' prediction of a 4% increase in House
Prices across the UK, over the year ahead but with a slightly more optimistic
forecast of a 5% increase in both the North East of England and in Scotland.
Building cost inflation and labour rates eased during the year, leading to
increased confidence across the sector. Taken with the renewed focus upon the
region in which the Company primarily invests, namely the North East of
England, this can only be helpful for companies such as Develop North PLC.
These factors are discussed further in the Outlook section, below.
PERFORMANCE; NET ASSET VALUE
The Company's net asset value NAV increased to 79.81 pence per share as at 30
November 2024, having been 78.92 pence per share twelve months earlier.
Taking into account dividends paid or declared for the period, this equates to
a net asset value total return for the financial year of approximately 6.3%
and after a modest decrease in the impairment charge, reflecting the
Investment Adviser's expectations for the UK economy in the year ahead.
This figure may be placed into context by comparison with the total return
figures over the same period of the Association of Investment Companies' (AIC)
'Property-Debt' sector, of which the Company is a component member, of -1.1%
and of the AIC's 'Debt-Loans' sector of +8.7% (Source: Morningstar).
The total value of the Company's portfolio now stands at £21.1m.
REVENUE AND DIVIDENDS
The Company has adhered to the dividend policy established in 2021, namely to
pay dividends at a rate of 1 penny per share per quarter, equivalent to 4
pence per share per year in aggregate.
Depending upon the performance of the investment portfolio and considering
broader market conditions, a final balancing payment may be made at the end of
the financial year, while ensuring the Company continues to comply with the
investment trust qualification requirements as prescribed by HMRC in
accordance with Chapter 4 of Part 24 Corporation Tax Act 2010.
For the year to 30 November 2024, revenue increased to 5.0 pence per share
(2023: 2.5 pence). The increase in earnings per share primarily reflects an
increase in blended interest rates charged across the portfolio, as rates have
increased and underperforming loans have exited the portfolio, alongside
reduced impairments and capital losses as the newer loans continue to perform
as expected. The Board has declared and paid three quarterly interim dividends
of 1.0 pence per share for the year ended 30 November 2024 and I am pleased to
report that a fourth interim dividend of 1.0 pence per share has been
declared. This dividend will be paid on 11 April 2025 to shareholders on the
register at the close of business on 21 March 2025 (ex-dividend date 20 March
2025).
SHARE BUYBACKS
In November 2023 the Company announced the introduction of a share buyback
programme to repurchase an initial figure of up to £500,000 of its Ordinary
shares. The programme was extended until 31 December 2023. The programme's
objective is to reduce the discount to net asset value at which the shares may
be trading. In April 2024 the Company announced a new share buyback programme
enabling it to purchase a further £500,000 of its Ordinary shares.
During the financial year ending 30 November 2024 the Company had repurchased
1,256,024 Ordinary shares at an average discount to NAV of 9.2%.
GEARING
Loan facilities during the year consisted of a £6 million credit facility
with Shawbrook Bank Limited. £2.1m was drawn under the loan facility as at 30
November 2024.
The Shawbrook loan facility runs until May 2025, thereby providing adequate
liquidity for the Investment Adviser to take advantage of lending
opportunities as they arise. Shawbrook has indicated that it remains
supportive of the Company and its objectives and expects to renew the loan
facility upon expiry.
INVESTMENT PORTFOLIO; NEW INVESTMENTS; PROJECT IMPAIRMENTS
The total value of the Company's portfolio now stands at £21.1m, from 16
projects, an increase of £1.6m since last year.
The high quality of the underlying loan book continues to be maintained, while
the average Loan to Value (LTV) figure moved from c. 65% at 30 November 2023
to c. 70% at the financial year end.
New Investments During the year £9.2m was invested in seven projects. Of
these four were new loans, including a £2.7 million, 8 month facility to fund
the construction of residential apartments and commercial units in Hexham, a
£1.9m, 9 month facility to fund executive homes in rural Northumberland, a
£1.35m, 21 month residential project in North West England and a £0.6m, 12
month loan to fund a roadside retail outlet in Sunderland.
Portfolio Exits Five loans were repaid over the period, bringing the number of
exits in the portfolio to 23 since inception. There were also seven partial
redemptions, totalling £6.9m during the year.
As required under the stringent requirements of accountancy standard IFRS 9,
the Company recognises the gross interest receivable on all its Stage 1 and 2
loans and then recognises an impairment charge when that interest is not paid
by the borrower, and there is not a clear expectation that this can be
recovered subsequently. During the year, there were two projects unable to
meet their interest requirements in full.
For Stage 3 loans, interest income is calculated based on the net carrying
amount, which is the gross carrying amount of the financial asset less the
calculated impairment.
IFRS 9 also requires the Company to consider various credit loss scenarios and
assign a risk weighting to these. This calculation generates a provision which
is taken as a further impairment for the year. In this period the Company has
decreased the provision to £49,000 from the £146,000 that was in place at 30
November 2023. This provision is based on look-forward statements to withstand
market-related shocks reflecting current economic uncertainties.
Profit Share Projects There are currently four Profit Share projects in the
portfolio (Nov 2023: six) reflecting further progress in our strategic aim to
simplify and focus on debt-only products.
As at 30 November 2024, 80.2% of deployed funds were invested across 11
projects with a residential focus with a further £0.82m committed to live
projects.
Pipeline There is a pipeline of some £5.9m of potential new projects. These
are at various stages of due diligence across four commercial sites, all of
which are in the North East of England.
The Investment Adviser's Report on pages 8 to 11 provides further detail on
performance and activity within the loan portfolio. This includes information
on deployment of capital, progress on projects undertaken, any profit share
received, impairments and uplifts on loans and loan redemptions.
PERFORMANCE SINCE 2018
Since 1 June 2018, the company has provided £49.8m across twenty five new
projects. These projects have generated an average Internal Rate of Return
(IRR) of 9.3% per annum, with only 0.5% of capital write offs, the latter more
than covered by associated exit and plot fees.
These post-2018 projects have been completed with lower risk profiles,
generally lower LTV ratios and better risk-adjusted investment returns than
were achieved with historic "legacy" projects that pre-dated the listing of
the Company.
BOARD OF DIRECTORS
In accordance with the requirements of the UK Corporate Governance Code and
the AIC Code of Corporate Governance, published in February 2019 (AIC Code)
all Directors will stand for re- appointment at the AGM.
ANNUAL GENERAL MEETING
The Company's AGM will be held at Royal Station Hotel, Neville Street,
Newcastle NE1 5DH on Thursday, 1 May 2025 at 12 noon. Visitors are requested
to arrive at the Hotel Reception no later than 11:50 a.m.
The Board strongly encourages all shareholders to exercise their votes in
respect of the meeting in advance, by completing and returning their proxy
forms to the Company's registrar. This will ensure that the votes are
registered.
In addition, shareholders are encouraged to raise any questions in advance of
the AGM with the Company Secretary via email to cosec-uk@apexgroup.com or by
post to the Company Secretary at the address set out on page 70 of this
report.
Any questions received will be replied to by the Company after the AGM.
OUTLOOK
The year under report has proved a successful one for Develop North PLC,
despite a testing economic background, with key achievements including an
increase in net asset value per share and a rock-solid stream of valuable
quarterly dividends being paid out.
New projects have been, and will continue to be, agreed at very satisfactory
rates of interest, with the potential to create not just high income streams
but to permit incremental improvements in the net asset value per share over
the medium to longer term.
Having inherited government debt at levels not seen in a generation, the
incoming Labour UK administration has taken a number of steps that will
increase costs for all businesses, such as increases in National Insurance
contributions and in minimum wage rates. These moves are likely to have
effects on manpower-intensive sectors such as housebuilding.
Certain upcoming government initiatives, on the other hand, have the potential
to have positive effects on the Real Estate and Construction sectors that
could safely outweigh the added input costs referred to above. For instance,
the National Planning Policy Framework published in December 2024 proposes the
introduction of mandatory housing targets, requirements for local authorities
to demonstrate a five-year supply of housing land and the re-categorisation of
lower-quality areas of Green Belt land as "Grey Belt", on which planning
consent may be sought and approved.
A further positive indication is given by the near-record figures for business
start-ups which are being reported across the North East region, as well as
the formation of The North East Combined Authority (NECA), following the
signing of the "deeper devolution" deal by the Government on 18 March 2024. On
top of that there is the potential for inward investment from countries and
enterprises in the Middle East, aided at least to some extent by the
investment in Newcastle United Football Club by Saudi and other business
interests.
In summary, although sentiment has dipped following the Autumn budget, and
businesses clearly face additional costs, we continue to have a positive
outlook for 2025. This view is underpinned by stable inflation forecasts,
improving house prices and government plans to encourage more ambitious
housing planning and construction across the UK.
Lastly, and as described above, we consider the Company's core region, the
North East of England, to be particularly well positioned for growth, to the
long-term benefit of Develop North PLC and its shareholders.
John Newlands
Chairman
18 March 2025
Investment Adviser's RePORT:
REVIEW OF THE 12 MONTHS TO 30 NOVEMBER 2023
Investment Adviser's Highlights:
· NAV Total Return of 6.3% for the year to 30 November 2024 and an
annualised dividend yield of 5.1% resulting in £1.1m of income distributed to
shareholders
· £9.2m deployed into seven projects including four new projects
· Exits of five portfolio projects, bringing the number of exits since
inception to twenty-three.
· Increase in investment income to £1.938m, a 13% increase on last
year
· 68.6% of funds deployed in North East England reflecting the
Company's ongoing commitment to focus operations on our chosen regional
markets.
This Annual Report and Accounts covers the seventh full year of performance
and eighth audit review of the Company, since it's listing in January 2017.
The Company's primary purpose is to provide debt finance to the property
sector. The Company also benefits from exit fees on redemption of other
projects that additionally contributes to the Senior & Profit lending
type.
Progress on the Company's Strategic Objectives:
· Weighted Average interest generated was 9.8% - up from 8.2% on the
prior year
· Portfolio year on year size decreased due to five exits
· Prudent cost control saw overheads maintained at £0.55m, a decrease
of 5.7% year on year
· Portfolio LTV maintained at 71.2%
· Further progress in managing non-performing assets and improvement in
loan book quality, including £0.81m repaid by legacy projects
· Fund liquidity further improved, with the continuation of the share
buyback exercise
The Economic Backdrop and Outlook:
The political landscape in the UK underwent significant changes in 2024, with
the Labour Party achieving a landslide victory in the general elections held
in July. This marked a major shift from the Conservative Party's 14-year
tenure as the primary governing party. Labour's focus on increased public
spending and investment in infrastructure, green energy, and housing is likely
to stimulate economic growth. However, the higher taxation and borrowing
required to fund these initiatives may also lead to increased fiscal pressure
and potential inflationary effects. Businesses will need to navigate these
changes carefully, balancing the opportunities presented by new government
initiatives with the challenges posed by higher costs and regulatory
adjustments.
Inflation for the twelve months to October 2024 was at 3.2%, still above the
Bank of England's 2% target, but at a level which allowed the MPC to cut rates
from 5.25% to 4.75% over the past six months. They are forecasting for
inflation to stay marginally above the 2% target which would still allow the
base rate to be 3.75% by Q4 2025 supported by 1.7% GDP growth for the coming
year.
2024 was a broadly flat year for house prices with a slight uptick in the
latter half. Looking forward, we have adopted Savills prediction of a 4%
increase in House Prices across the UK, and a 5% increase in both the Scottish
and North East regions.
This financial year also saw continued easing to both build cost inflation and
labour rates. BCIS are forecasting an increase in build costs by 15% over the
next five years, while tender prices will rise by 20% over the same period. On
the input costs side, labour remains the main driver, though annual growth in
the BCIS Labour Cost Index is forecast to slow, increasing overall by 16%
between Q3 2024 and Q3 2029. Materials cost inflation has been moderating
since peaking in 2022 and annual growth in the BCIS Materials Cost Index has
been in negative territory in recent quarters. BCIS expects the index to grow
by 15% over the forecast period.
Business confidence remained steady during 2024, with the Construction sector
now the most confident ahead of Banking, Finance and Insurance, IT and
Communications and Business Services. Retail and Wholesale and Manufacturing
remain below the average and confidence has slumped in Energy and Water and
Transport and Storage. Most sectors are optimistic about domestic sales and
exports of the coming year.
Although sentiment has dipped following the Autumn budget and business face
additional costs, we continue to have a positive outlook for 2025 supported by
stable inflation forecasts and improving house prices. We continue to see our
core region, the North East of England, as well positioned for growth as the
region continues to attract significant local and overseas investment.
The quality of the underlying loan book continues to be maintained with Loan
to Value moving from 65.1% at 30 November 2023 to 71.2% at year end.
Portfolio Exits
There were five loans repaid during the year, bringing the number of exits in
the portfolio to twenty three since inception.
Partial Redemptions Update
During the year there was £6.97m of partial redemptions across seven of the
portfolio projects including the five exits in the year.
Impairments
The Company, in accordance with IFRS 9, recognises the gross interest
receivable on all its Stage 1 and 2 loans, and then recognises an impairment
charge when that interest is not paid by the borrower, and there is not a
clear expectation that this can be recovered subsequently. During the year,
there were two projects unable to meet their interest requirements in full.
For Stage 3 loans, interest income is calculated based on the net carrying
amount, which is the gross carrying amount of the financial asset less the
calculated impairment.
The ECL provision recognised as at 30 November 2024 has decreased by £1,558k
to £584k compared to the previous year (2023: £2,142k). This reduction in
ECL has been driven by two project closures and other provision movements
recognized during the year.
Gearing
In May 2023, the Company refreshed a committed revolving credit facility with
Shawbrook Bank for a further two years. Again the key driver was headroom and
liquidity and its renewal demonstrates the support that the Company has from
its lender, and the growing confidence in future deployment given the current
strength of pipeline.
PROFIT SHARE PROJECTS
There are currently four Profit Share projects in the portfolio (Nov 2023:
four) reflecting further progress in our strategic aim to simplify and focus
on debt-only products.
BUYBACK PROGRAMME
In November 2023, the Company announced the commencement of a share buyback
program. To date the Company has purchased 1,945,862 shares in the market.
These shares will be held as treasury shares on the Company's balance sheet.
OUTLOOK
Residential
As at 30 November 2024, 80.2% of deployed funds were invested across 11
projects with a residential focus with a further £0.82m committed to live
projects.
This represented a 21.3% increase over 2023.
Commercial
As at 30 November 2024, 19.3% of deployed funds were invested across 4
projects with a commercial focus. This represented a 17.2% decrease over 2023.
PIPELINE
There is currently £5.9m at various stages of due diligence across four
commercial projects with 100% in the North East.
PERFORMANCE SINCE 2018
Since 1 June 2018, the company has provided £49.8m across twenty five new
projects. These projects have generated an average IRR of 9.3% with only 0.5%
of capital write offs which have been more than covered by associated exit and
plot fees. These projects have also been lower risk projects with the LTVs
than the historic projects.
The quality and experience of each management team that we are in discussions
with will continue to enhance the Company's portfolio and strengthen its
reputation in the market. This should lead to the creation of shareholder
value that is sustainable in the longer term.
Ian McElroy
Tier One Capital Ltd
18 March 2025
THE INVESTMENT PORTFOLIO AS AT 30 NOVEMBER 2024
Sector % of LTV* Loan Value LTV* Loan Value
Portfolio (Nov 24) (Nov 24) (Nov 23) (Nov 23)
£'000s £'000s
Residential 80.2% 75.3% 17,032 62.1% 14,221
Commercial 19.2% 53.9% 4,082 73.6% 5,005
Cash 0.6% - 118 - 1,154
General Impairment - - (49) - (146)
Total/Weighted Average 100.0% 71.2% 21,183 65.1% 20,235
*LTV has been calculated using the carrying value of the loans as at the
balance sheet date
PRINCIPAL AND EMERGING RISKS
The Board of Directors has overall responsibility for risk management and
internal control within the context of achieving the Company's objectives.
The Board and the Investment Adviser seek to ensure that the Company's assets
are invested in such a way as to spread investment risk, whilst adhering to
its published investment policy. Further details of the management of the
Company's key risks are set out below.
The Directors confirm that they have carried out a robust assessment of the
principal and emerging risks facing the Company, including those that would
threaten its business model, future performance, solvency or liquidity, as
they operated during the year and up to the approval of the Annual Report.
The Board agrees the strategy of the Company, taking into consideration the
Company's risk appetite. With the assistance of the Investment Adviser, the
Board has drawn up a risk matrix, which identifies the key risks to the
Company, as well as emerging risks. In assessing the risks and how they can be
mitigated, the Board has given particular attention to those risks that might
threaten the viability of the Company. These key risks fall broadly under the
following categories:
· Investment and strategy risk
The Company's targeted returns are targets only and are based on estimates and
assumptions about a variety of factors including, without limitation, yield
and performance of the Company's investments, which are inherently subject to
significant business, economic and market uncertainties and contingencies, all
of which are beyond the Company's control and which may adversely affect the
Company's ability to achieve its targeted returns. Accordingly, the actual
rate of return achieved may be materially lower than the targeted returns, or
may result in a partial or total loss, which could have a material adverse
effect on the Company's profitability, the Net Asset Value (NAV) and the price
of Ordinary shares.
Borrowers under the loans in which the Company invests may not fulfil their
payment obligations in full, or at all, and/or may cause, or fail to rectify,
other events of default under the loans.
The Board is responsible for setting the investment strategy to achieve the
targeted returns and for monitoring the performance of the Investment Adviser
and the implementation of the agreed strategy.
An inappropriate strategy could lead to poor capital performance and lower
than targeted income yields.
This risk is mitigated through regular reviews and updates with the Investment
Adviser, monitoring of the portfolio sectors against the investment
restrictions on a quarterly basis and tracking of loan to value ratios of the
underlying property projects.
· Market risk
The Company's investment strategy relies in part upon local credit and real
estate market conditions. Adverse conditions may prevent the Company from
making investments that it might otherwise have made, leading to a reduction
in yield and an increase in the default rate.
The Company holds 100% of its assets in the United Kingdom.
To mitigate the market risks, the Board receives quarterly updates from the
Investment Adviser containing information on the local market conditions and
trends.
This information is reviewed alongside the sector split of the portfolio to
ensure the portfolio is aligned to meet future challenges.
· Financial risk
The Company's activities expose it to a variety of financial risks that
include interest rate risk, liquidity risk and credit risk. Further details on
these risks and the way in which they are mitigated are disclosed in the notes
to the financial statements.
· Operational risk
The Company has no employees and relies upon the services provided by third
parties. It is primarily dependent on the control systems of the Investment
Adviser and Administrator who respectively maintain the assets and accounting
records.
Failure by any service provider to carry out its obligations in accordance
with the terms of their appointment could have a detrimental effect on the
Company.
To mitigate these risks, the Board reviews the overall performance of the
Investment Adviser and other key third-party service providers on a regular
basis and has the ability to terminate agreements if necessary. The business
continuity plans of key third-party service providers are subject to Board
scrutiny.
· Legal and Regulatory risk
In order to qualify as an investment trust, the Company must comply with
section 1158 of the Corporation Tax Act 2010. The Company has been approved by
HM Revenue & Customs as an investment trust. The Company is listed on the
London Stock Exchange. Non-compliance with the taxes act or a breach of
listing rules could lead to financial penalties and reputational loss.
These risks are mitigated by the Board's review of quarterly financial
information and compliance with the relevant rules.
Management Report and Directors' Responsibility Statement
Management report
Listed companies are required by the DTRs to include a management report in
their Financial Statements. The information is included in the Strategic
Report on pages 12 to 19 inclusive (together with the sections of the Annual
Report and Accounts incorporated by reference) and the Directors' Report on
pages 22 to 26. Therefore, a separate management report has not been included.
Directors' responsibility statement
The Directors are responsible for preparing the Annual Report and financial
statements, in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the
financial statements in accordance with UK adopted International Financial
Reporting Standards (UK adopted IFRS) and with the Companies Act 2006, as
applicable to companies reporting under international accounting standards.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that, taken as a whole, they are fair, balanced and
understandable and provide the information necessary for shareholders to
assess the Company's position and performance, business model and strategy and
that they give a true and fair view of the state of affairs of the Company and
of the total return or loss of the Company for that period. In order to
provide these confirmations and in preparing these financial statements, the
Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgments and estimates that are reasonable and prudent;
· state whether applicable UK adopted IFRS have been followed,
subject to any material departures disclosed and explained in the financial
statements; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will continue in
business and the Directors confirm that they have done so.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006, where applicable. They are responsible for taking such steps as are
reasonably open to them to safeguard the assets of the Company and to prevent
and detect fraud and other irregularities.
The financial statements are published on www. DevelopNorth.co.uk
(http://www.DevelopNorth.co.uk) which is a website maintained by the Company's
Investment Adviser. The Directors are responsible for the maintenance and
integrity of the corporate and financial information included on the Company's
website. Legislation in the UK governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Under applicable UK law and regulations, the Directors are also responsible
for preparing a Strategic Report, a Directors' Report, Statement of Corporate
Governance and Directors' Remuneration Report that complies with that law and
those regulations.
Directors' confirmation statement
Each of the Directors, whose names and functions appear on pages 20 and 21,
confirm that to the best of their knowledge:
· the financial statements, prepared in accordance with UK adopted
IFRS and with the Companies Act 2006, as applicable to companies reporting
under international accounting standards, give a true and fair view of the
assets, liabilities and financial position and total return or loss of the
Company; and
· The Management Report, referred to herein, which comprises the
Chairman's Statement, the Investment Adviser's Report, Strategic Report
(including risk factors) and note 17 of the Financial Statements includes a
fair review of the development and performance of the business and position of
the Company, together with the principal risks and uncertainties that it
faces.
The Directors consider that the Annual Report and Accounts taken as a whole,
is fair, balanced and understandable and it provides the information necessary
to assess the Company's position and performance, business model and strategy.
On behalf of the Board
John Newlands, Chairman
18 March 2025
INCOME STATEMENT
Year ending Year ending
30 November 2024 30 November 2023
Notes Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
REVENUE 2 1,938 - 1,938 1,722 - 1,722
Investment interest
Total revenue 1,938 - 1,938 1,722 - 1,722
Losses on investments held at fair value through profit or loss 4, 8 - (143) (143) (201) (2) (203)
Amortisation of exit fees 8, 9 - 126 126 - 32 32
Total net income 1,938 (17) 1,921 1,521 30 1,551
Expenditure 3 (61) - (61) (65) - (65)
Investment adviser fee
Impairments on investments held 4, 9 (47) (75) (122) (116) (441) (557)
at amortised cost
Other expenses 4 (484) - (484) (513) - (513)
Total expenditure (592) (75) (667) (694) (411) (1,135)
Profit/(loss) before finance costs and taxation 1,346 (92) 1,254 827 (411) 416
Finance costs (84) - (84) (155) - (155)
Interest payable
Profit/(loss) before taxation 1,262 (92) 1,170 672 (411) 261
Taxation 5 - - - - - -
Profit/(loss) for the year 1,262 (92) 1,170 672 (411) 261
Basic and diluted earnings per share 7 5.00p (0.36)p 4.64p 2.50p (1.53)p 0.97p
The accompanying notes form an integral part of the financial statements.
The total column of this statement represents the Company's Income Statement,
prepared in accordance with UK adopted IFRS. The supplementary revenue return
and capital return columns are both prepared under guidance published by the
Association of Investment Companies.
All revenue and capital items in the above statement derive from continuing
operations.
There is no other comprehensive income as all income is recorded in the
statement above.
Statement of Financial Position
As at As at
30 November 2024 30 November 2023
Notes £'000 £'000
Non-current assets
Loans at amortised cost 9 1,000 6,208
1,000 6,208
Current assets
Investments held at fair value through profit or loss 8 2,899 3,024
Loans at amortised cost 9 18,146 10,496
Other receivables and prepayments 10 17 13
Cash and cash equivalents 115 1,154
21,177 14,687
Total assets 22,177 20,895
Current liabilities
Loan facility 11 (2,100) -
Other payables and accrued expenses 12 (141) (191)
Total liabilities (2,241) (191)
Net assets 19,936 20,704
Share capital and reserves
Share capital 13 269 269
Share premium 9,094 9,094
Special distributable reserve 10,973 12,267
Capital reserve (1,162) (1,059)
Revenue reserve 762 133
Equity shareholders' funds 19,936 20,704
Net asset value per ordinary share 79.81p 78.92p
The accompanying notes form an integral part of the financial statements.
These financial statements were approved by the Board of Directors of Develop
North PLC (a public limited company incorporated in England and Wales with
company number 10395804) and authorised for issue on 18 March 2025. They were
signed on its behalf by
John Newlands
Chairman
Statement of Changes in Equity
For the year ending 30 November 2024 Share capital Share premium Special distributable reserve Capital reserve Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At beginning of the year 269 9,094 12,267 (1,059) 133 20,704
Total comprehensive income for the year:
Profit for the year - - - (92) 1,262 1,170
Transactions with owners recognised directly in equity:
Dividends paid (Note 6) - - (386) - (633) (1,019)
Repurchase of shares into treasury (Note 13) - - (908) (11) - (919)
At 30 November 2024 269 9,094 10,973 (1,162) 762 19,936
For the year ending 30 November 2023 Share capital Share premium Special distributable reserve Capital reserve Revenue reserve Total
£'000 £'000 £'000 £'000 £'000 £'000
At beginning of the year 269 9,094 12,849 (644) 453 22,021
Total comprehensive income for the year:
Profit for the year - - - (411) 672 261
Transactions with owners recognised directly in equity:
Dividends paid (Note 6) - - (85) - (992) (1,077)
Repurchase of shares into treasury (Note 13)
- - (497) (4) - (501)
At 30 November 2023 269 9,094 12,267 (1,059) 133 20,704
Cash Flow Statement
Year ending Year ending
30 November 30 November
2024 2023
Notes £'000 £'000
Operating activities
Profit before taxation 1,170 261
Losses on investments held at fair value through profit and loss 143 213
Impairments on loans at amortised cost 75 592
Gains on investments held at fair value through profit and loss - (10)
Uplifts on loans at amortised cost 4 - (35)
Amortisation of exit fees (126) (32)
Interest expense 84 155
Changes in working capital
Increase in loan interest receivable on investments held at fair value through 8 (84) (93)
profit and loss
Increase in loan interest receivable on loans at amortised cost 9 (152) (133)
Increase in other receivables 10 (4) (2)
(Decrease)/increase in other payables 12 (50) 82
Net cash inflow from operating activities after taxation 1,056 998
Investing activities
Loans given 9 (9,151) (3,369)
Loans repaid 8, 9 6,978 8,620
Net cash (OUTFLOW)/INFLOW from investing activities (2,173) (5,251)
Financing
Equity dividends paid 6 (1,019) (1,077)
Repurchase of shares into Treasury 13 (919) (501)
Bank loan drawn down 14 6,125 -
Repayment of bank loan 14 (4,025) (4,000)
Interest paid (84) (155)
Net cash INFLOW/(OUTFLOW) from financing 78 (5,733)
(DECREASE)/Increase in cash and cash equivalents (1,039) 516
Cash and cash equivalents at the start of the year 1,154 638
Cash and cash equivalents at the end of the year 115 1,154
Notes to the Financial Statements
1. Accounting Policies
Significant Accounting Policies
(a) Basis of Preparation
The financial statements of Develop North PLC have been prepared in accordance
with UK adopted IFRS and with the Companies Act 2006, as applicable to
companies reporting under international accounting standards. The financial
statements were also prepared in accordance with the Statement of Recommended
Practice, Financial Statements of Investment Trust Companies and Venture
Capital Trusts (SORP) issued by the AIC (as issued in July 2022), where this
guidance is consistent with UK adopted IFRS.
The financial statements have been prepared on a going concern basis under the
historical cost convention, except for certain investment valuations which are
measured at fair value.
The notes and financial statements are presented in pounds sterling (being the
functional currency and presentational currency for the Company) and are
rounded to the nearest thousand except where otherwise indicated.
The Company reviews forthcoming changes to UK adopted IFRS and does not
anticipate material changes as a result of these.
NEW STANDARDS OR AMENDMENTS FOR 2024 FOR FORTHCOMING REQUIREMENTS
The company has not early adopted the new or amended standards which have been
issued but not yet effective:
· Presentation and Disclosure in Financial Statements (IFRS 18).
· Amendments to classification and measurement requirements for
financial instruments (Amendments to IFRS 9 and IFRS 7)
The following standards and interpretations apply for the first time to
financial reporting periods commencing on or after 1 January 2024:
· Classification of Liabilities as Current or Non-current
(Amendments to IAS 1)
· Non-Current Liabilities with Covenants ( Amendments to IAS 1)
The Directors do not expect the above new standards and interpretations to
have a significant impact on the financial statements.
GOING CONCERN
The Financial Statements have been prepared on a going concern basis. The
disclosures on going concern within the Directors' Report form part of these
financial statements.
INTEREST INCOME
For financial instruments measured at amortised cost, the effective interest
rate method is used to measure the carrying value of a financial asset or
liability and to allocate associated interest income or expense over the
relevant period. The effective interest rate is the rate that discounts
estimated future cash payments or receipts over the expected life of the
financial instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or financial liability. In calculating
the effective interest rate, the cash flows are estimated considering all
contractual terms of the financial instrument but does not consider expected
credit losses. The calculation includes all fees received and paid and costs
borne that are an integral part of the effective interest rate.
On an ongoing basis the Investment Adviser assesses whether there is evidence
that a financial asset is impaired. The basis of calculating interest income
on the three stages of impairment (detailed below) are as follows:
Stage 1 Interest is calculated on the gross outstanding principal
Stage 2 Interest is calculated on the gross outstanding principal
Stage 3 Interest income is calculated based on the net carrying amount, which
is the gross carrying amount of the financial asset less the calculated
impairment
EXPENSES
Expenses are accounted for on an accruals basis. The Company's administration
fees, finance costs and all other expenses are charged through the Income
Statement and are charged to revenue. Fees incurred in relation to operational
costs of the loan portfolio, such as legal fees, are charged through the
Income Statement and are charged to capital.
DIVIDENDS TO SHAREHOLDERS
Interim dividends declared during the year are recognised when they are paid.
Any final dividends declared are recognised when they are approved by the
Shareholders at the Annual General Meeting.
TAXATION
Taxation on the profit or loss for the period comprises current and deferred
tax. Taxation is recognised in profit or loss except to the extent that it
relates to items recognised in other comprehensive income or directly in
equity, in which case it is also recognised in other comprehensive income or
directly in equity respectively.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates and laws enacted or substantively enacted at the reporting
date.
Deferred income taxes are calculated using rates and laws that are enacted or
substantivity are expected to apply as or when the associated temporary
differences reverse. Deferred income tax is provided using the liability
method on all temporary differences at the reporting date between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes. Deferred income tax assets are recognised only to the
extent that it is probable that taxable profit will be available against which
deductible temporary differences, carried forward tax credits or tax losses
can be utilised. The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of assets and
liabilities. Deferred income is recognised in profit or loss unless it relates
to a transaction recorded in other comprehensive income or equity, in which
case it is also recognised in other comprehensive income or directly in equity
respectively.
FINANCIAL ASSETS AND FINANCIAL LIABILITIES
The financial assets and financial liabilities are classified at inception
into the following categories:
Amortised cost:
Financial assets that are held for collection of contractual cash flows where
those cash flows represent SPPI ('solely payment of principal and interest')
and that are not designated at fair value through profit and loss are measured
at amortised cost. The carrying amount of these assets is adjusted by any
expected credit loss allowance as described in the impairment note below.
The Company's cash and cash equivalents, other receivables, other payables and
accruals, and the Company's loan facility are included within this category.
Fair value through profit and loss:
The Company has a number of borrower facilities in which it received a
minority equity stake or exit fee mechanism in conjunction with providing
those loan facilities. These loans are recognised at fair value through profit
and loss. The fair value of the contracts is monitored and reviewed quarterly
using discounted cash flow forecasts based on the estimated cash flows that
will flow through from the underlying development project. A sensitivity
analysis is included in note 16.
Any values attributed to the equity stakes of these borrowers are incorporated
into the overall loan valuation.
Exit fees:
Some of the financial assets measured at amortised costs have an exit fee.
There are two types of exit fees; those recognised at the end of the term of
the financial asset once it has been repaid, and those recognised during the
term of the financial instrument where here they are linked to specific events
such as plot sales.
IMPAIRMENT
At initial recognition, an impairment allowance is required for ECL resulting
from possible default events within the next 12 months. When an event occurs
that increases the credit risk, an allowance is required for ECL for possible
defaults over the term of the financial instrument.
The key inputs into the measurement of ECL are probability of default (PD),
loss given default (LGD), and exposure at default (EAD). These inputs are then
considered and applied against residential and commercial facilities in the
loan book. ECL are calculated by multiplying the PD by LGD and EAD.
PD has been determined by considering the local market where the underlying
assets are situated, economic indicators including inflationary pressures on
build costs, government policy, and market sentiment. For residential loans
this has been further broken down into two scenarios; where only sales risk is
still present, and where both construction risk and sales risk still exist.
LGD is the magnitude of the likely loss if there is a default. The LGD models
consider the structure, collateral, seniority of the claim, and recovery costs
of any collateral that is integral to the financial asset. LTV ratios are a
key parameter in determining LGD. LGD estimates are recalibrated for different
economic scenarios and, for lending collateralised by property, to reflect
possible changes in property prices. EAD represents the expected exposure in
the event of a default. The Company derives the EAD from the current exposure
to the borrower. The EAD of a financial asset is its gross carrying amount at
the time of default. EAD for residential facilities has been further broken
down into two scenarios; where the build is complete, and where construction
is ongoing.
A financial asset is credit-impaired when one or more events that have
occurred have a significant impact on the expected future cash flows of the
financial asset. It includes observable data that has come to our attention
regarding one or more of the following events:
· delinquency in contractual payments of principal and interest;
· cash flow difficulties experienced by the borrower;
· initiation of bankruptcy proceedings;
· the borrower being granted a concession that would otherwise not
be considered;
· observable data indicating that there is a measurable decrease in
the estimated future cash flows from a portfolio of assets since the initial
recognition of those assets, although the decrease cannot yet be identified
with the individual financial assets in the portfolio; and
· a significant decrease in assets values held as security.
Impairment of financial assets is recognised on a loan-by-loan basis in
stages:
· Stage 1: A general impairment covering what may happen within the next 12
months, based on the adoption of BIS standards as outlined below.
· Stage 2: Significant increase in credit risk, where the borrower is in
default, potentially in arrears, where full repayment is expected and the
underlying asset value remains robust. The ECL calculation recognises the
lifetime of the loan.
· Stage 3: Credit impaired, where the borrower is in default of their loan
contract, in arrears, full loan repayment is uncertain and there is a
shortfall in underlying asset value. The ECL calculation recognises likely
failure of the borrower.
As at 30 November 2024, there were sixteen loans in the portfolio. Four of
those projects supported included either an equity stake of at least 25% for
the Company or an exit fee mechanism. Please see note 8 for details on these
four projects.
The Board has deemed that seven projects (November 2023: six); are currently
impaired and specific additional provisions have been made against these
facilities in these financial statements.
The other twelve loans have been assessed as not impaired.
The Company's response to IFRS 9 requirements has been based on the Bank for
International Settlements (BIS) Basel Supervisory Committee liquidity risk
tool recommendations.
FAIR VALUE HIERARCHY
Accounting standards recognise a hierarchy of fair value measurements for
financial instruments which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The classification of
financial instruments depends on the lowest significant applicable input, as
follows:
· Level 1 - Unadjusted, fully accessible and current quoted prices in
active markets for identical assets or liabilities. Examples of such
instruments would be investments listed or quoted on any recognised stock
exchange.
· Level 2 - Quoted prices for similar assets or liabilities, or other
directly or indirectly observable inputs which exist for the duration of the
period of investment. Examples of such instruments would be forward exchange
contracts and certain other derivative instruments.
· Level 3 - External inputs are unobservable. Value is the Directors'
best estimate, based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar instrument.
All loans are considered Level 3.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash in hand and short-term deposits in
banks with an original maturity of three months or less from inception.
OTHER RECEIVABLES
Other receivables do not carry interest and are short-term in nature. There
were no irrecoverable amounts accounted for at the year end or the prior
period end.
RESERVES
SHARE PREMIUM
The surplus of net proceeds received from the issuance of new shares over
their par value is credited to this account and the related issue costs are
deducted from this account.
CAPITAL RESERVE
The following are accounted for in the capital reserve:
· Capital charges;
· Increases and decreases in the fair value of and impairments of loan
capital held at the year end
As at year end the Capital Reserve comprises both realised and unrealised
gains and losses and so does not contain distributable reserves.
REVENUE RESERVE
The net profit/(loss) arising in the revenue column of the Income Statement is
added to or deducted from this reserve which is available for paying
dividends.
SPECIAL DISTRIBUTABLE RESERVE
Created from the Court of Session cancellation of the initial launch share
premium account and is available for paying dividends and the repurchase of
shares. The Special distributable reserve is used to prevent the Revenue
reserve going into a negative position when paying distributions.
REPURCHASE OF SHARES TO HOLD IN TREASURY
The cost of repurchasing ordinary shares to hold in Treasury is charged to the
Special distributable reserve and the related stamp duty and transaction cost
is charged to the 'capital reserve' and dealt with in the Statement of Changes
in Equity. Share repurchase transactions are accounted for on a trade date
basis.
SEGMENTAL REPORTING
The Chief Operating Decision Maker is the Board of Directors. The Directors
are of the opinion that the Company is engaged in a single segment of
business, being the investment of the Company's capital in financial assets
comprising loans. All loan income is derived from the UK. The Company derived
revenue totalling £789,000 (November 2023: £714,000) where the amounts from
two (November 2023: two) individual borrowers each exceeded 10% or more of the
Company's revenue. The individual amounts were £429,000 and £360,000,
(November 2023: £354,000 and £360,000).
USE OF SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of financial statements requires management to make estimates
and assumptions that affect the amounts reported for assets and liabilities as
at the reporting date and the amounts reported for revenue and expenses during
the year. The nature of the estimation means that actual outcomes could differ
from those estimates. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimates are revised and in any future periods affected.
The key driver to determine whether loans are classified as fair value through
profit or loss or amortised cost is if the facility has an exit fee or equity
stake attached. Where these are present the loan is classified as fair value
through profit or loss.
The following are areas of particular significance to the Company's financial
statements and include the use of estimates or the application of judgement:
CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE COMPANY'S ACCOUNTING
POLICIES - INVESTMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS:
The Company owns profit share holdings or has exit fees mechanism in relation
to 6 of the borrowers in place as at the year end. The loans held have been
designated at fair value through profit and loss. The determination of the
fair value requires the use of estimates. A sensitivity analysis is included
in note 16. The key uncertainties are around the timings and amounts of both
drawdown and repayments as these are determined by construction progress and
the timing of sales.
CRITICAL JUDGEMENTS AND ESTIMATES IN APPLYING THE COMPANY'S ACCOUNTING
POLICIES - LOANS AMORTISED COST CLASSIFICATION AND IMPAIRMENTS:
The Company uses critical judgements to determine whether it accounts for its
loans at either amortised cost using the effective interest rate method less
impairment provisions or at fair value through profit and loss. The
determination of the required impairment adjustment requires the use of
estimates. The key uncertainties are around the timings and amounts of both
drawdown and repayments as these are determined by construction progress and
the timing of sales. See notes 8 and 9 for further details.
2. REVENUE
30 November 2024 30 November 2023
£'000 £'000
Interest from loans 1,938 1,722
Total income 1,938 1,722
3. Investment Adviser's Fees
Investment Adviser
In its role as the Investment Adviser, Tier One Capital Ltd is entitled to
receive from the Company an investment adviser fee which is calculated and
paid quarterly in arrears at an annual rate of 0.25% per annum of the
prevailing Net Asset Value if less than £100m; or 0.50%. per annum of the
prevailing Net Asset Value if £100m or more.
There is no balance accrued for the Investment Adviser for the period ended 30
November 2024 (year to 30 November 2023: £nil).
There are no performance fees payable
30 November 2024 30 November 2023
£'000 £'000
Investment Adviser fee 61 65
4. Operating expenses
30 November 2024 30 November 2023
Revenue Capital Revenue Capital
£'000 £'000 £'000 £'000
Legal & professional 3 - 20 -
Directors' fees 85 - 85 -
Audit fees related to the audit of the financial statements 72 - 77 -
Fund Administration and Company Secretarial 101 - 97 -
Brokers' fees 30 - 30 -
Marketing fees 10 - 1 -
AIFM fee 18 - 18 -
Impairments on loans amortised at cost* 47 75 116 476
Uplifts on loans amortised at cost* - - - (35)
Losses on investments held at fair value through profit or loss* - 143 201 2
Other expenses 165 - 185 -
Total other expenses 531 218 830 443
* Loan impairments consist of impairments to interest on loans of £47,000
(November 2023: £317,000) and a capital impairment on the loan of £218,000
(November 2023: £478,000). Loan uplifts consist of a capital uplift on the
loans of £nil (November 2022: £35,000).
All expenses are inclusive of VAT where applicable. Further details on
Directors' fees can be found in the Directors' Remuneration Report within the
Annual Report.
5. Taxation
As an investment trust the Company is exempt from corporation tax on capital
gains. The Company's revenue income from loans is subject to tax, but offset
by any interest distribution paid, which has the effect of reducing the
corporation tax. The interest distribution may be taxable in the hands of the
Company's shareholders.
30 November 2024 30 November 2023
£'000 £'000
Current corporation tax at 25% (November 2023:23%) - -
Deferred taxation - -
Tax on profit on ordinary activities - -
Reconciliation of tax charge
Profit on ordinary activities before taxation 1,170 261
Taxation at standard corporation tax rate 25% (November 2023: 23%) 293 60
Effects of:
Expenses/(income) not subject to tax 23 95
Interest distributions (255) (248)
Tax losses not recognised within deferred tax (61) 93
Tax charge for the year - -
There is an unrecognised deferred tax asset not recognised on losses of
£265,833 (November 2023: £331,409) calculated at the relevant deferred tax
rate of 25%. There is no expiry date for the recognition of the unrecognised
deferred tax asset.
6. Ordinary dividends
30 November 2024 30 November 2023
Pence per Pence
share per
£'000 share £'000
Dividends paid in the year relating to previous year:
Interim dividend for the quarter ended August, paid in December 1.0 262 1.0 269
Interim dividend for the quarter ended November, paid in April 1.0 257 1.0 269
Dividends paid during and relating to the year:
Interim dividend for the quarter ended February, paid in June 1.0 250 1.0 269
Interim dividend for the quarter ended May, paid in September 1.0 250 1.0 270
Total dividends paid in the year 1,019 1,077
Of the dividends paid in the year, £386,000 (November 2023: £85,000) has
been paid from the Special distributable reserve. This is to ensure the
Revenue reserve doesn't go into a negative position.
The Company intends to distribute at least 85% of its distributable income
earned in each financial year by way of interest distribution. A third interim
dividend of 1.0 pence per share was declared on 21 November 2024, payable on
27 December 2024. On 12 March 2025, the Company declared a fourth interim
dividend of 1 pence per share for the quarter ended 30 November 2024, payable
on 11 April 2025.
7. Earnings per share
The revenue, capital and total return per ordinary share is based on each of
the profit after tax and on 25,246,760 ordinary shares (2023: 26,907,053),
being the weighted average number of ordinary shares in issue (excluding
shares held in Treasury of 1,945,862 (2023: 689,838)) throughout the year.
During the year there were no dilutive instruments held, therefore the basic
and diluted earnings per share are the same.
8. Investments held at fair value through profit or loss
The Company's investment held at fair value through profit or loss represents
its profit share arrangements whereby the Company owns 25.1% or has an exit
fee mechanism for four companies.
30 November 30 November
2024 2023
£'000 £'000
Opening Balance 3,024 4,874
Loans deployed - 59
Principal repayments (66) (1,802)
Movements in interest receivable 84 93
Unrealised losses on investments held at fair value through profit or loss (143) (203)
Amortisation of exit fees - 3
Total investments held at fair value through profit and loss 2,899 3,024
Split:
Non-current assets: Investments held at fair value through profit and loss due - -
for repayment after one year
Current assets: Investments held at fair value through profit and loss due for 2,899 3,024
repayment under one year
Please refer to note 16 for details of the approach to valuation and
sensitivity analysis.
9. Loans at amortised cost
30 November 30 November
2024 2023
£'000 £'000
Opening balance 16,704 20,607
Loans deployed 9,151 3,310
Principal repayments (6,912) (6,818)
Movements in interest receivable 152 133
Movement in impairments (75) (557)
Amortisation of exit fees 126 29
Total loans at amortised cost 19,146 16,704
Split: 1,000 6,208
Non-current assets: Loans at amortised cost due for repayment after one year
Current assets: Loans at amortised cost due for repayment 18,146 10,496
under one year
The Company's loans held at amortised cost are accounted for using the
effective interest method. The carrying value of each loan is determined after
taking into consideration any requirement for impairment provisions during the
year, allowances for impairment losses amounted to £75,000 (November 2023:
£557,000).
Movements in allowances for impairment losses in the year
Nominal value
£'000
at 1 December 2023 2,142
Provisions for impairment losses 75
ECLs released due to project closures (1,633)
at 30 November 2024 584
Stage 1 provisions at 1 December 2023 146
Provisions for impairment losses (97)
Stage 1 provisions at 30 November 2024 49
Stage 2 provisions at 1 December 2023 -
Provisions for impairment losses 132
Stage 2 provisions at 30 November 2024 132
Stage 3 provisions at 1 December 2023 1,996
Provisions for impairment losses 40
ECLs released due to project closures (1,633)
Stage 3 provisions at 30 November 2024 403
Stage 1, 2, and 3 are referenced in more detail below.
10. Receivables
30 November 30 November
2024 2023
£'000 £'000
Prepayments 17 13
Total receivables 17 13
11. loan facility
30 November 30 November
2024 2023
£'000 £'000
Bank loan 2,100 -
In May 2023 the Company renewed its £6.5m committed revolving facility with
Shawbrook Bank Limited, expiring in May 2025. This facility was reduced to
£6m on 14 August 2024. £2.1m was drawn down at the year end.
The facility is secured against a debenture over the assets of the Company.
12. Other Payables
30 November 30 November
2024 2023
£'000 £'000
Accruals 141 191
Total other payables 141 191
13. Share Capital
2024 2023
Allotted, issued and fully paid £'000 £'000
24,978,201 (November 2023: 26,234,225) ordinary shares of 1p each* 250 262
1,945,862 (November 2023: 689,838) ordinary shares of 1p held in Treasury 19 7
26,924,063 (November 2023: 26,924,063) total ordinary shares of 1p each 269 269
* The Ordinary Shares (excluding shares held in Treasury) are eligible to vote
and have the right to participate in either an interest distribution or
participate in a capital distribution (on winding up).
No shares were issued by the Company during the year (November 2023: nil).
During the year, the Company bought back 1,256,024 shares to be held in
Treasury at a cost of £919,000 (November 2023: 689,838 at a cost of
£501,000).
There were no shares bought back between 1 December 2024 and 18 March 2025.
14. RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES
At 30 November 2023 Cash Non-cash At 30 November
£'000 flows flows 2024
£'000 £'000 £'000
Short term borrowings - 2,100 - 2,100
Total liabilities from financing activities - 2,100 - 2,100
At 30 November 2022 Cash Non-cash At 30 November
£'000 flows flows 2023
£'000 £'000 £'000
Short term borrowings 4,000 (4,000) - -
Total liabilities from financing activities 4,000 (4,000) - -
15. Related Parties
The Directors are considered to be related parties. No Director has an
interest in any transactions which are, or were, unusual in their nature or
significant to the nature of the Company.
The Directors of the Company received £85,000 fees for their services during
the year to 30 November 2024 (30 November 2023: £85,000). £nil was payable
at the period and prior year end.
Ian McElroy is Chief Executive of Tier One Capital Ltd and is a founding
shareholder and director of the firm.
Tier One Capital Ltd received £61,000 investment adviser's fee during the
year (30 November 2023: £65,000) and £nil was payable at the year end (30
November 2023: £nil). Tier One Capital Ltd receives up to a 20% margin and
arrangement fee for all loans it facilitates.
There are various related party relationships in place with the borrowers as
below:
The following related parties arise due to the opportunity taken to advance
the profit share contracts:
· Thursby Homes (Springs)
The Company owns 25.1% of the borrower Thursby Homes (Springs) Ltd. The loan
was repaid during the year and the balance was £nil (30 November 2023:
£36,000). Transactions in relation to loans repaid during the year amounted
to £24,000) (30 November 2023: £1.5m). Interest due to be received as at 30
November 2024 was £nil (30 November 2023: £1,000). Interest received during
the year amounted to £2,000 (30 November 2023: £33,000).
· Northumberland
Develop North PLC owns 25.1% of the borrower Northumberland Ltd. The loan was
repaid during the year and the balance was £nil (30 November 2023: £42,000).
Transactions in relation to loans repaid during the year amounted to
(£42,000) (30 November 2023: £288,000). Interest due to be received as at 30
November 2024 was £nil (30 November 2023: £2,000). Interest received during
the year amounted to £6,200 (30 November 2023: £3,000).
· Coalsnaughton
Develop North PLC owns 40.1% of the borrower Kudos Partnership. The loan
amount outstanding as at 30 November 2024 was £1.9m (30 November 2023:
£2.0m). Transactions in relation to loans made during the year amounted to
£nil (30 November 2023: £nil). Interest due to be received as at 30 November
2024 was £513,000 (30 November 2023: £424,000). Interest received during the
year amounted to £25,000 (30 November 2023: £108,000).
· Oswald Street
Develop North PLC owns 25.1% of the Riverfront Property Limited Partnership.
The loan amount outstanding as at 30 November 2024 was £448,000 (30 November
2023: £448,000). Transactions in relation to loans made during the year
amounted to £nil (30 November 2023: £59,000). Interest due to be received as
at 30 November 2024 was £8,000 (30 November 2023: £8,000). Interest received
during the year amounted to £49,000 (30 November 2023: £47,000).
16. Financial Instruments
Consistent with its objective, the Company holds a diversified portfolio of
fixed rate loans secured with collateral in the form of; land or property in
the UK, charges held over bank accounts and personal or corporate guarantees.
The benefit of a related profit share or exit fee mechanism may also be
agreed. In addition, the Company's financial instruments comprise cash and
receivables and payables that arise directly from its operations. The Company
does not have exposure to any derivative instruments.
The Company is exposed to various types of risk that are associated with
financial instruments. The most important types are credit risk, liquidity
risk, interest rate risk and market price risk. There is no foreign currency
risk as all assets and liabilities of the Company are maintained in pounds
sterling.
The Board reviews and agrees policies for managing the Company's risk
exposure. These policies are summarised below:
CREDIT RISK
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
In the event of default by a borrower if it is in financial difficulty or
otherwise unable to meet its obligations under the agreement, the Company will
suffer an interest shortfall and potentially a loss of capital. This
potentially will have a material adverse impact on the financial condition and
performance of the Company and/or the level of dividend cover. Management
determines concentrations of risk by assessing the characteristics of each
borrower and including these in the underwriting process. The most applicable
of these are the geographical location of the projects and the economic sector
the borrowers operate in. The Board receives regular reports on concentrations
of risk and the performance of the projects underlying the loans, using loan
to value percentages to help monitor the level of risk. The Investment Adviser
monitors such reports in order to anticipate, and minimise the impact of,
default.
There were financial assets which were considered impaired at 30 November
2024, with impairments amounting to £75,000 (30 November 2023: £557,000).
Our maximum exposure to credit risk as at 30 November 2024 was £22,177,000
(30 November 2023: £20,895,000).
All of the Company's cash is placed with financial institutions with a
long-term credit rating of A or better. Bankruptcy or insolvency of such
financial institutions may cause the Company's ability to access cash placed
on deposit to be delayed or limited. Should the credit quality or the
financial position of the banks currently employed significantly deteriorate,
cash holdings would be moved to another bank.
The carrying amount for investments held at fair value through profit or loss
best represents the maximum exposure to credit risk. The Company holds assets
as collateral against loans issued. The Company does not have assets held as
collateral.
Further details on the exposure to, and management of, credit risk by the
Company is included in both the Investment Advisor's report and the Strategic
Report within the Annual Report.
Loans held at amortised cost as at 30 November 2024
Total
£'000
Stage 1 9,821
Stage 2 9,050
Stage 3 275
19,146
Loans held at amortised cost as at 30 November 2023
Total
£'000
Stage 1 16,390
Stage 2 275
Stage 3 39
16,704
LIQUIDITY RISK
Liquidity risk is the risk that the Company will encounter difficulties in
realising assets or otherwise raising funds to meet financial commitments. The
Company's investments comprise loans.
Property and property-related assets in which the Company invests via loans
are not traded in an organised public market and are relatively illiquid
assets, requiring individual attention to sell in an orderly way. As a result,
the Company may not be able to liquidate quickly its investments in these
loans at an amount close to their fair value in order to meet its liquidity
requirements.
The Company's liquidity risk is managed on an ongoing basis by the Investment
Adviser and monitored on a quarterly basis by the Board. In order to mitigate
liquidity risk the Company has a comprehensive three-year cash flow forecast
that aims to have sufficient cash balances, taking into account projected
drawdowns on the live facilities to meet its obligations for a period of at
least 12 months. At the reporting date, the maturity of the financial assets
and liabilities was:
Financial assets as at 30 November 2024
In one year In two or more Total
£'000 years £'000
£'000
Cash and cash equivalents 115 - 115
Loans at amortised cost 18,146 1,000 19,146
Investments held at fair value 2,899 - 2,899
Total 21,160 5,117 22,160
Financial assets as at 30 November 2023
In one year In two or more Total
£'000 years £'000
£'000
Cash and cash equivalents 1,154 - 1,154
Loans at amortised cost 10,421 6,283 16,704
Investments held at fair value 3,024 - 3,024
Total 14,674 6,283 20,882
Financial liabilities as at 30 November 2024
In one year In two or more Total
£'000 years £'000
£'000
Bank loan 2,100 - 2,100
Total 2,100 - 2,100
Financial liabilities as at 30 November 2023
In one year In two or more Total
£'000 years £'000
£'000
Bank loan - - -
Total - - -
INTEREST RATE RISK
The interest rate profile of the Company was as follows:
as at 30 November 2024
Financial net assets on which no interest is paid Variable rate financial net assets
£'000 Fixed rate Financial Assets £'000
£'000 Total
£'000
Other receivables and prepayments 17 - - 17
Loan Interest receivable 979 - - 979
Other payables and accrued expenses (141) - - (141)
Cash and cash equivalents - - 115 115
Loan facility - - (2,100) (2,100)
Investments held at fair value through profit and loss - 2,378 - 2,378
Loans at amortised cost - 18,688 - 18,688
Total 855 21,066 (1,985) 19,936
as at 30 November 2023
Financial net assets on which no interest is paid Variable rate financial net assets
£'000 Fixed rate Financial Assets £'000
£'000 Total
£'000
Other receivables and prepayments 13 - - 13
Loan Interest receivable 766 - - 766
Other payables and accrued expenses (191) - - (191)
Cash and cash equivalents - - 1,154 1,154
Investments held at fair value through profit and loss - 2,588 - 2,588
Loans at amortised cost - 16,374 - 16,374
Total 588 18,962 1,154 20,704
Shawbrook provide a working capital facility which is capped at 30% of the Net
Asset value of the Company. Using forward looking SONIA figures as at November
2024, the forecast decrease in interest rates will see £3k decrease in
finance costs over the next twelve months assuming an average drawn balance of
£0.9m in the year. Since year end, the outlook for interest rate rises has
eased.
Sensitising the equity discount rate has immaterial impact on the loans held
at fair value.
MARKET PRICE RISK
The management of market price risk is part of the investment management
process and is typical of an investment company. The portfolio is managed with
an awareness of the effects of adverse valuation movements through detailed
and continuing analysis, with an objective of maximising overall returns to
shareholders. Investments in property and property-related assets are
inherently difficult to value due to the individual nature of each property.
As a result, valuations are subject to substantial uncertainty. There is no
assurance that the estimates resulting from the valuation process will reflect
the actual sales price even where such sales occur shortly after the valuation
date. Such risk is minimised through the appointment of external property
valuers. The basis of valuation of the loan portfolio is set out in detail in
the accounting policies. The inputs into the DCF models are the forecast
monthly cashflows including sales values and build costs, the discount rate
which is the imputed interest rate at the time the facility was entered into
adjusted for any movements in the risk free rate as at current year end, and a
30% (November 2023: 30%) discount rate for the equity element to reflect the
higher level of uncertainty. Any changes in market conditions will directly
affect the profit and loss reported through the Income Statement. Details of
the Company's investment portfolio held at the balance sheet date are
disclosed in the Investment Adviser's Review on page 11. A 10% fall in the
sales value of the
residential development projects and a 10% reduction in asset value of
commercial and investment property assets for those loans held at fair value
would have resulted in a further impairment to the portfolio of £439,000 as
at 30 November 2024 (30 November 2023: £254,000). The calculations are based
on the property valuations at the respective balance sheet date and are not
representative of the year as a whole, nor reflective of future market
conditions.
VALUATION OF FINANCIAL INSTRUMENTS
Accounting standards recognise a hierarchy of fair value measurements for
financial instruments which gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1) and the
lowest priority to unobservable inputs (Level 3). The classification of
financial instruments depends on the lowest significant applicable input, as
follows:
· Level 1 - Unadjusted, fully accessible and current quoted prices in
active markets for identical assets or liabilities. Examples of such
instruments would be investments listed or quoted on any recognised stock
exchange.
· Level 2 - Quoted prices for similar assets or liabilities, or other
directly or indirectly observable inputs which exist for the duration of the
period of investment. Examples of such instruments would be forward exchange
contracts and certain other derivative instruments.
· Level 3 - External inputs are unobservable. Value is the Directors'
best estimate, based on advice from relevant knowledgeable experts, use of
recognised valuation techniques and on assumptions as to what inputs other
market participants would apply in pricing the same or similar instrument.
30 November 2024
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit and loss - - 2,899 2,899
Total - - 2,899 2,899
30 November 2023
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Investments held at fair value through profit and loss - - 3,024 3,024
Total - - 3,024 3,024
A reconciliation of fair value measurements in Level 3 is set out in the
following table:
30 November 2024 30 November 2023
£'000 £'000
Opening Balance 3,024 4,874
Loans deployed - 59
Principal repayments (67) (1,802)
Movements in interest receivable 85 93
Unrealised losses on investments held at fair value through profit or loss
(143) (203)
Amortisation of exit fees - 3
Closing Balance 2,899 3,024
17. CAPITAL MANAGEMENT
The Company's capital is represented by the Ordinary Shares, share premium,
capital reserves, revenue reserve and special distributable reserve. The
Company is not subject to any externally imposed capital requirements.
The capital of the Company is managed in accordance with its investment
policy, in pursuit of its investment objective. Capital management activities
may include the allotment of new shares, the buy back or re-issuance of shares
from treasury, the management of the Company's discount to net asset value and
consideration of the Company's net gearing level.
18. Post Balance Sheet Events
* Since the year end £900,000 has been repaid/ drawndown on the Shawbrook loan
facility
* On 21 November 2024, a third interim dividend of 1.0 pence per share was
declared, paid on 27 December 2024
* On 12 March February 2025, a fourth interim dividend of 1 pence per share was
declared, payable on 11 April 2025
For further information regarding the Company (Ticker: DVNO) (LEI:
213800EXPWANYN3NEV68) please call:
Tier One Capital Ltd (Investment Adviser) +44 (0) 191 222 0099
Ian McElroy/Brendan O'Grady
Cavendish Capital Markets Ltd (Financial Adviser and Broker) +44 (0) 207 220 0500
Andrew Worne
Apex Fund Administration Services (UK) Limited (Secretary) +44 (0) 1245 398950
ENDS
Annual Report and Financial Statements
The Annual Report and Financial Statements will be posted to shareholders and
will shortly be available on the Company's website (www.DevelopNorth.co.uk
(http://www.DevelopNorth.co.uk) ) or in hard copy format from the Company's
Registered Office.
A copy of the annual report will be submitted to the FCA's National Storage
Mechanism and will be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
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