REG - KCR Residential REIT - Final Results
30/09/2021 07:00
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RNS Number : 4641N KCR Residential REIT PLC 30 September 2021
30 September 2021
KCR Residential REIT plc
("KCR" or the "Company")
Annual Results for the year ended 30 June 2021
KCR Residential REIT plc, the residential REIT group, is pleased to announce
its annual results for the year ended 30 June 2021.
The Annual Report will shortly be available from the Company's website,
www.kcrreit.com (http://www.kcrreit.com) , and will be posted to shareholders
in the coming days.
Highlights
· Revenues of £1.04m (2020: £1.04m)
· Whilst refurbishment of the Colherne asset throughout 2020
impacted revenues, the current let up will add to 2022 revenues
· Portfolio level occupancy remains high (>95%), capital
values remain firm with nominal arrears across the portfolio
· Gross profit improved by 44% to £1.02m (2020: £0.88m)
· Strong action to reduce administrative costs and internalise
property management activities and improve gross margin
· Secured bank borrowings at period end of £11.1 million (31
December 2020: £11.1 million)
· Average debt cost has reduced post-period following property
refinancing in August 2021
· Net total assets were marginally lower £24.4m (31 December
2020: £25.2m) and net asset value per share was lower at 40.18p (31 December
2020: 44.03p).
· Ongoing focus on achieving a cash break even position over
the next 12 months from a combination of improved asset performance and
continuing focus on cost reduction.
Contacts:
KCR Residential REIT plc info@kcrreit.com (mailto:info@kcrreit.com)
+44 20 3793 5236
Dominic White, Chief Executive
Russell Naylor, Executive Director
Arden Partners plc +44 20 7614 5900
Richard Johnson
Notes to Editors:
KCR's objective is to build a substantial residential property portfolio that
generates secure income flow for shareholders. The Directors intend that the
group will acquire, develop and manage residential property assets in a number
of jurisdictions including the UK.
CHAIRMAN'S LETTER
Dear Shareholder
This last year has been difficult for very many as a result of Covid-19, and I
should like to start by paying tribute to all our colleagues at KCR and their
considerable efforts to operate flexibly and to maintain services to our
residents and tenants in trying conditions. Our colleagues' safety and
wellbeing and that of all our stakeholders remain a priority for us.
Strategy and Operations
During the financial year, and as reported at the interim stage, we have been
continuing with the transition of the business. This has been led by a smaller
executive team since the Torchlight transaction of August 2019 with a
consistent strategy to:
• improve the rental revenue from the existing
properties;
• upgrade the overall portfolio quality;
• explore the development opportunity within the
retirement portfolio; and
• focus strongly on reducing costs.
Modernising and improving the standard of the property portfolio has been the
key focus this year to increase current and future returns from the existing
assets.
The primary and most substantive refurbishment works during the financial year
have been in respect of the Coleherne Road property. The works here are almost
fully complete and the letting up of this property currently under way will
deliver rental growth for the portfolio going forward. This well-located asset
has been repositioned from a poorly presented, bottom end rental product into
modern, spacious studio apartments. Works to 8 of the 10 apartments are now
completed and finished to a high standard. It has been necessary to enter
ongoing legal processes to obtain vacant possession of one flat to complete
the balance of the works.
Within our portfolio of retirement living accommodation, substantive works
were completed on three of the Heathside flats during the year. This
materially improved the standard and presentation of the properties. Eight
flats are now owned within this property and their letting up has assisted in
delivering rental growth for the portfolio. We continue to look for additional
opportunities to make follow-on acquisitions of flats within this property.
This rental growth has offset the loss of income from Coleherne Road which has
been vacant (aside from the flat subject to legal process to obtain
possession) for most of the 2021 financial year whilst works were completed.
As shown by our materially reduced administrative expenses and reduced losses,
considerable progress has also been achieved towards bringing the group's cost
base into line with the size of its existing portfolio.
Capital and Personnel
Post balance sheet date, new lower cost facilities have been entered into to
refinance existing facilities and deliver additional capital to support the
Group's ongoing activities.
During the period since August 2019, there have been a number of changes to
the leadership team as part of the focus on repositioning the business and
reducing the cost base to more appropriately align with the size of the
business. As noted at the interim stage Michael Davies retired as Chairman in
October 2020 and the board reduced from 5 to 4. The cost savings from this and
other personnel changes will be further reflected in the current financial
year results.
Market Conditions and Outlook for the Group
From a macro-economic perspective, Covid-19 has resulted in ongoing global
disruption which has impacted markets and consumer and business confidence.
The economic impact to date has been much softened by HM Government support
which is now ending. During the period, the main impact for KCR has been the
increased supply of rental product as properties previously used predominantly
in the short-let market were repositioned into longer term letting. This has
had an impact on time required to fill vacancies and achievable rental levels
in some parts of the Group's portfolio. However, notwithstanding these
challenges, at the accounts issue date, KCR has maintained almost full
occupancy with nominal rental arrears.
In London and the South-East, there continues to be a greater supply of
studio, one- and two- bed flats in the letting market which is continuing to
impact timeframes for re-letting and achievable rental levels. As Covid
related travel restrictions ease up we expect to see this position improve
over the course of the current financial year. Fundamentals for UK residential
property are positive, and it appears that people and activity are returning
to London and other major international capitals. KCR is well placed to
benefit as short-let supply is repositioned back into the short-let market.
The Group's overall long-standing objective remains to grow the size of its
residential portfolio to deliver an increase in revenue and profitability
against its central overhead base and achieve an ability to pay dividends. At
the same time, we focus on growing net asset value per share. Acquisition
opportunities continue to be explored and will be completed if they make sense
for KCR.
On behalf of the Board and our shareholders, I would like to thank everyone at
KCR for their hard work and dedication over the past year.
James Thornton
Chairman
29 September 2021
CHIEF EXECUTIVE'S LETTER
Dear Shareholder
I have pleasure in reporting to you on the progress of the Group for the year
to 30 June 2021.
This has continued to be a difficult period in the UK with COVID-19 creating
challenges for the whole of the year. Our efforts restructuring the balance
sheet last year prepared us well for the ongoing economic difficulties in
2021. The significant efforts to reduce operating costs has continued with
further reductions this year. There has been a slight revenue increase in
2021, and the imminent boost to revenue from the re-letting of the
refurbishment project at Coleherne Road will take the Company closer than ever
to cashflow break-even. The combination of ongoing cost management and
enhanced operating performance is expected to deliver positive cashflow by the
end of the current financial year.
The focus of this year has been on the completion of the Coleherne Road,
London refurbishment, maintaining high occupancy across the portfolio, and
keeping corporate and operating costs to a minimum. KCR is in the process of
improving the quality of its existing portfolio to increase rental and capital
values and reducing running costs. We are progressing well through the
transition process started last year, to create a stable platform that can be
successfully scaled-up.
Property portfolio
Property transactions during the year
KCR made no property acquisitions during the year.
Existing portfolio
KCR continues with its performance enhancement focus on its existing
portfolio. The refurbishment of apartments at Coleherne Road is substantially
complete. We intend to commit to more capital expenditure (capex) to
positively reposition the Ladbroke Grove portfolio, starting this year. The
objective is to lift rental and capital values and upgrade the portfolio
standard so that minimal maintenance spend is required over the next five
years.
We have already experienced an uplift in rental and capital values at our
repositioned asset in Coleherne Road. The apartments have moved into a far
higher rental bracket. The aim is for this to be repeated at Ladbroke Grove.
KCR is in the process of creating two operating lines, clearly identifiable by
brand, property quality and letting strategy.
1. Cristal Apartments. Residential apartments, developed to a high
modern specification, furnished and let on a Walk-In-Walk-Out (WIWO) basis
(the intention is for utilities, internet, furniture, council tax to be
included in the rental payment) for a frictionless and flexible letting
experience. Rental contracts may be from a week to multi-year.
2. Osprey Retirement Living. 4* retirement living property rented on the
same basis as above, with optionality on furniture. Rental contracts to be
assured shorthold tenancies (six months plus).
1. Cristal Apartments (WIWO letting strategy)
The Coleherne Road property has been repositioned and now delivers the higher
quality style of apartments that the Cristal brand represents. The Ladbroke
Grove portfolio will be repositioned into Cristal branded properties following
completion of planning work to explore avenues for optimization of the
existing footprint. Southampton is already at the higher standard appropriate
for a Cristal asset and will be bought under this brand as the apartments are
progressively furnished as existing tenancies expire.
· The property at Coleherne Road, held within K&C (Coleherne)
Limited, comprises ten studio and one-bedroom flats. KCR has almost
completed a whole-building refurbishment of the property (eight of ten
apartments are complete) to a significantly higher standard. The new
apartments are available for rent. We are achieving a significant increase
in gross rental income on the first lettings with reduced operating and
maintenance costs expected.
· The Ladbroke Grove portfolio (owned by KCR (Kite) Limited) consists
of 16 one- and two-bedroom flats in three buildings which remain more than 98%
occupied. The stand-alone flat in Harrow Road has been sold. Units have been
lightly refurbished as tenants leave, and are then relet in the private
market. The Company's intention is to undertake a whole building
refurbishment of the Ladbroke Grove assets following completion of the
planning work.
· The Southampton block of 27 residential units at Deanery Court,
Chapel Riverside (owned by KCR (Southampton) Limited) continues to be fully
occupied. Rental demand has remained strong, particularly from short-let
operator tenants. These tenants' customers are potential future occupiers at
the building for Cristal Apartments as they occupy under a WIWO strategy.
Since the property was constructed in 2018 there is no capital investment
required at the property to bring it up to the Cristal brand standard. The
letting strategy will be adjusted to implement the WIWO strategy as units are
progressively furnished.
2. Osprey Retirement Living (4* retirement apartments)
The Osprey portfolio (K&C (Osprey) Limited) consists of 159 flats and 13
houses let on long leases in six locations, together with an estate consisting
of 30 freehold cottages in Marlborough where Osprey delivers estate management
and sales services.
The portfolio has held its value and is expected to provide a medium-term
value boost opportunity as the terms of the long-leasehold flats shorten and
positive asset management initiatives continue.
The key asset in the portfolio representing 68% of the Osprey portfolio value
is the freehold block at Heathside, Golders Green, where 29 of the 37
residential units are held long leasehold. The strategy continues to be
selectively acquire long-leasehold units in the block, subject to pricing,
refurbish the units to a high level and let them in the open market subject to
assured shorthold tenancies. This strategy is having good success; and post
the balance sheet reporting date, Osprey has successfully also become the
manager of the Heathside property, which we expect will enable Osprey to
improve the quality of the overall building.
Although KCR has been focusing on refurbishment activity at Coleherne Road, we
continue to have an interest in the potential to enhance value through
redevelopment and roof extensions at four of the seven Osprey portfolio sites.
We believe there is a significant opportunity at some of these properties.
Until a planning approval has been received, any increase in value from these
planning gains will not be included in the Company's accounts.
Financial
The current financial year reflects the outcome of some of the cost savings
made to date with further improvement targeted during the course of the
current financial year. KCR has recorded an operating profit before
separately disclosed items and a significantly lower operating loss for the
year. Further details regarding the financial performance of the Group can be
found in the Strategic Report on the following pages.
Prospects
The business continues to be cashflow negative, however, KCR has made major
steps to becoming cashflow positive. We continue to work on achieving this
by the end of the current financial period.
KCR is excited about the potential for the Company to grow from a far more
stable operating base, and in particular are pleased by the significant
progress made this year towards Group profitability.
Dominic White
Chief executive
29 September 2021
The directors present the strategic report of KCR Residential REIT plc ('KCR'
or the 'Company') and its subsidiaries (together, the 'Group') for the year
ended 30 June 2021.
PRINCIPAL ACTIVITY
The Group carries on the business of acquiring, developing and managing
residential property predominantly for letting to third parties on long and
short leases. At the year-end, the Group consisted of the Company, which is
a public Company limited by shares, and its wholly owned subsidiaries:
1. K&C (Coleherne) Limited owns a freehold residential
property in Chelsea, London containing ten studio flats
2. K&C (Osprey) Limited owns eight freehold apartments
and the freehold of several retirement properties let on long leases to
residents and provides management services in respect of these properties and
to third-party landlords
3. KCR (Kite) Limited owns three freehold residential
properties in Ladbroke Grove, London (16 flats) and at 30 June 2021 a flat on
Harrow Road, London
4. KCR (Southampton) Limited owns a long leasehold block
of 27 two-bedroom apartments at Chapel Riverside, Southampton. The lease is a
999 lease for which the Company pays a peppercorn rent
5. K&C (Newbury) Limited owns no property and is now
effectively dormant.
Throughout the year the company remained a REIT and has endeavoured to comply
with REIT rules throughout the period and since the balance sheet date.
GROUP STRATEGY
The directors intend to build a significant presence in the residential
letting market, primarily through the acquisition of land with planning
permission that will be developed into residential property and the
acquisition of existing residential property. Assets are predominantly
acquired with the purpose of letting to third parties.
RESULTS
The Group reports a consolidated operating loss of £924,234 for the year to
30 June 2021 (2020 - £3,079,531).
REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
The Board has reviewed whether the Annual Report, taken as a whole, presents a
fair, balanced and understandable summary of the Group's position and
prospects, and believes that it provides the information necessary for
shareholders to assess the Group's position, performance, and strategy.
In reporting financial information, KCR presents alternative performance
measures, "APMs", which are not defined or specified under the requirements of
IFRS. For example, portfolio occupancy and percentage of rent arrears. The
Company believes that these APMs, which are not considered to be a substitute
for or superior to IFRS measures, provide stakeholders with additional helpful
information on the performance of the business. The Board reminds readers
that these APMs are not GAAP measures, are not intended as a substitute for
those measures, and that other companies may use different measures.
Revenue in this financial year marginally increased to £1,036,011 (2020 -
£1,035,816). Core portfolio revenue (relating to Rentals, Management fees and
Ground Rent) was largely flat due to Coleherne Road being vacant (aside from 1
tenancy) for the financial year. Loss of this rental income was offset by
growth flowing from the letting up of Heathside and other incremental core
revenue gains. Portfolio occupancy (excluding the planned vacancy at Coleherne
Road) and rent collection remained above 95% for the whole period.
A large part of the year's loss (£844,200) is attributable to costs
associated with refurbishing and modernizing the KCR portfolio. The prior year
result also includes a number of expense items that were not related to core
operating activities, including costs associated with refinancing and
third-party fundraising. The Group therefore reports the operating result both
before and after separately disclosed items. The Group recorded an operating
profit before separately disclosed items of £416,669 (2020 - £1,024,648
loss). After separately disclosing the expensed redevelopment works at
Coleherne Road and Heathside, the operating loss was £427,531, a significant
improvement on the prior year (2020 - £3,079,531 loss). The loss before
taxation was £924,234 (2020 - £3,560,818 loss).
Total assets at 30 June 2021 decreased to £24.4 million (2020 - £25.2
million). However, investment property increased overall (£670,000) primarily
due to completion of refurbishment works to enhance asset positioning.
Improved rental levels following works is reflected in valuation outcomes.
The decrease in total assets reflects the reduction in cash balances as
funds were used to fund operating losses and investment activities.
Net assets decreased to £11.32 million (2020 - £12.14 million) and net asset
value per share decreased to 40.18p (2020 - 44.03p), predominantly due to the
impact of the loss and ensuing reduction in cash balance.
Upon completion of the Torchlight transaction in the 2020 financial year, the
Group entered into an option agreement to grant Torchlight an option to
subscribe for a further 50,000,000 new Ordinary Shares during the Option
Period (up to 6 August 2022). Torchlight has the right to subscribe for the
shares at a price per share of:
• for any notice of exercise served on the Company on any date up
to and including 31 December 2019, the Issue Price; and
• for any notice of exercise served on the Company from 1 January
2020 until the end of the Option Period, the higher of (i) the price per
Option Share which is equivalent to 95 per cent. of the 30-Day VWAP for the
Ordinary Shares and (ii) the par value of each Ordinary Share.
The Option is only exercisable by Torchlight during the Option Period and if
the Option is not exercised prior to the expiry of the Option Period, it will
lapse. Unless otherwise agreed, any exercise of the Option by Torchlight shall
be for not less than 2,000,000 Option Shares.
In May 2021 600,000 options were exercised and converted into 10p shares at a
price of 19.8079p per share, increasing Torchlight's interest in the Company
to 9,600,000 shares, representing 34.08% of the Company's enlarged issued
share capital.
KEY PERFORMANCE INDICATORS
The directors and management team monitor key performance indicators relevant
to each of the subsidiaries to improve Group performance. Management reports
to the board if data show significant variances against expected outcomes and
proposes mitigation action as necessary.
Examples of the KPIs used to monitor aspects of performance include:
1. At property level:
1.1. Vacancy rate in terms of number of units available and
potential rental income
Target occupancy of at least 90 per cent achieved
1.2. Outstanding rents as a percentage of rental income
Target debtor balance of less than 10 per cent of rental revenue achieved.
2. At Group Level
Near term focus is on reducing costs, enhancing revenue and growing the
business to achieve a cash break even position to provide a stable base to
grow from. Solid progress in this respect is being made. The Group KPI is
achieving a cash break even position by focussing on optimising performance
from the existing assets and incremental acquisitions where they make sense.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is exposed and
ensures through its meetings and its regular reporting that these risks are
minimised as far as possible.
The principal risks and uncertainties facing the Group at this stage in its
development are:
· Financing and liquidity risk
The Company has an ongoing requirement to fund its activities through the
equity markets and in future to obtain finance for property acquisition and
development. Although there is no certainty that such funds will be available
when needed, the Company has plans in place with KCR's Capital Partner
regarding ongoing funding, and, the directors continue to focus on developing
the Group's capital structure.
· Financial instruments
Details of risks associated with the Group's financial instruments are given
in note 21 to the financial statements. The directors seek to mitigate these
risks in manners appropriate to the risk.
· Valuations
The valuation of the investment property portfolio is inherently subjective as
it is made on the basis of assumptions made by the valuer that may not prove
to be accurate. The outcome of this judgment is significant to the Group in
terms of its investment decisions and results. The directors, who have long
experience of property, seek to mitigate this risk by employing independent
valuation experts to complete periodic valuations of the assets in the
portfolio.
· COVID-19
The impact of COVID-19 is widespread and continues to cause economic
disruption. Governments in the UK and elsewhere around the world have taken
drastic and unprecedented measures which include compulsory business closures
and tight restrictions on movement of people and on their activities.
The Group seeks to preserve a safe environment within its properties for its
colleagues, residents, tenants and suppliers and reviews this risk regularly,
updating its procedures as required. To date COVID-19 has not materially
impacted Group operations, with minimal impact on rent collections during the
lockdown period. Only a minimal number of tenants were in rent arrears at the
balance sheet date and up to the date of this report.
The main financial risks that the Board has identified in relation to the
pandemic are the potential income reduction and bad debts as tenants have
difficulty in maintaining rent payments and potential voids within the
portfolio arising from tenant failures.
The actions taken to mitigate the risks are summarised below:
· The Group undertakes credit checks on prospective new tenants to
assess credit risk. The checks include verification of income levels and
capacity to pay, as well as checks of rental references. Any arrears are
actively managed.
· The Group has continued with periodic monitoring of apartment
usage for short let operators. Monitoring included car park usage
(Southampton), power, water and gas readings as a proxy for occupancy. The
purpose of this was to enable the directors to form a view as to the
underlying occupancy profile of the short let operators as a proxy for their
ability to continue to meet rent. Our sampling / testing has suggested an
implied underlying occupancy rate of 80% or better which suggests adequate
capacity for the short let operators to meet rent.
· Recent re-lettings and inquiries at Southampton suggests there is
also solid underlying demand in this catchment for rental properties so we
would reasonably expect to be able to re-let in the event that a short let
operator failed and defaulted on their rental obligations.
Due to the uncertainty and unprecedented nature of the challenges posed by
COVID-19 the Directors continue to monitor this situation closely.
Directors' duty to promote the success of the Company under Section 172
Companies Act 2006
Section 172 (1) of the Companies Act 2006 requires Directors to act in the way
they consider, in good faith, would be most likely to promote the success of
the Company for the benefit of shareholders as a whole, and in doing so having
regard to a diverse group of stakeholders.
The Directors continue to have regard to the impact of decisions made on all
stakeholders and are aware of their responsibilities to promote the success of
the Company, in accordance with section 172 of the Companies Act 2006.
We aim to work responsibly with our stakeholders and outline below the key
Board decisions made during the 2021 financial year:
Key Decision Stakeholders Action and Impact
Coleherne Road works Tenants / During the year the Company commenced a major refurbishment program to
reposition this asset.
Shareholders
This resulted in a loss of rental income during the year whilst works were
ongoing and legal action being commenced to secure vacant possession for one
of the flats.
Whilst Section 21 notices were served on tenants to achieve vacant possession
there is an abundance of readily available rental accommodation in the same
geographic location. The Company is not aware of any tenants having issues
in securing replacement accommodation.
Loss of rental income and the costs associated with completion of works have
impacted the financial performance of the Company, however this asset had
performed very poorly for the duration of the Company's ownership. Below
average standard of finish resulted in poor rental returns and high ongoing
recurring maintenance expenditure.
The Company considered that the interests of all stakeholders were best served
by completing a substantive upgrade to the property.
On completion, the property will be finished to a very high standard and
should require minimal ongoing investment for the next few years.
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements that have been
made by the directors in good faith based on the information available at the
time of the approval of the Annual Report and financial statements. By their
nature, such forward-looking statements involve risks and uncertainties
because they relate to events and depend on circumstances that will or may
occur in the future. Actual results may differ from those expressed in such
statements.
OUTLOOK
Whilst the near-term focus remains on reducing costs and improving the
operations performance of the existing assets, the Group is continuing to
investigate the purchase of residential property assets that will be able to
support an increasing income yield. To achieve these, the Group may be
required to raise more capital and it is working closely with funding sources,
both equity and debt providers, to achieve this objective.
ON BEHALF OF THE BOARD:
Dominic White
Director
29 September 2021
CORPORATE GOVERNANCE STATEMENT
Introduction
During the year to 30 June 2021 KCR Residential REIT plc, while an AIM Listed
Company, was operating initially with four directors and three employees. In
September 2018 it adopted the QCA code but with such a tightly controlled
operational and risk environment was not able to, in all areas, fully comply
with the principles. During the current year the directors have continued to
update the website to comply as far as possible with the following QCA code
principles, noting areas where the small scope of operations limits their
ability to fully comply:
Principle 1: Establish a strategy and business model which promote long-term
value for shareholders
The Company's objective is to build a substantial property portfolio
predominantly in the residential sector that generates both secure income flow
from rents and increasing net asset value for shareholders. The Company
acquires or develops blocks of studio, one-and two-bed apartments that are
close to transport links, shopping and leisure, mostly in London, its
surrounds and the South East. These blocks are focused on attracting tenants
seeking affordable rental accommodation.
The Company brings its property corporate finance expertise to the
identification and execution of these acquisitions.
The Company looks to acquire properties at below market value to improve yield
on cost and enhance net asset value. It aims to achieve this through
acquisition strategies including:
· using the REIT's inherent tax advantages; acquiring properties
in corporate structures with embedded capital appreciation and deferred tax
liabilities which are reduced to zero as the corporate becomes part of the
REIT group, and
· acquiring permitted land, funding the development process and
retaining the developer's profit.
Over the medium to long term, the Company expects rental and property values
to increase in line with inflation. These increases coupled with new
acquisitions are designed to enable the Company, once it has reached scale, to
pay dividends from cash flow generated by rents and deliver net asset value
increases through positive property revaluations. Active asset management of
the properties may also deliver value increases. The Company as a REIT is
required to distribute 90 per cent of its rental profits.
It is the Company's paramount intention to conduct its activities in a
professional and responsible manner for the benefit of its shareholders, its
employees, and the communities where it operates.
Further detail on the key challenges that the Board addresses are set out
under Risks and Uncertainties in the Strategic Report.
Principle 2: Seek to understand and meet shareholder needs and expectations
In August 2019, a major equity re-capitalisation brought in £4.05m of capital
and a substantial new shareholder, Torchlight Fund LP. This transaction was
designed to stabilise and re-position the Company so that it could move
forward in a way that all existing and new shareholders may benefit from
future uplifts to profitability and increases in net asset value.
The Company remains committed to engaging with its shareholders to ensure its
strategy and performance are clearly understood. Feedback from investors is
obtained through direct interaction between the CEO and Executive Director and
shareholders following the Company's full and half year results and certain
other ad hoc meetings between executive management and shareholders that take
place during the year.
The Company seeks to communicate with its shareholders on a timely and
transparent basis at all times. Announcements through RNS are as comprehensive
as possible. As part of the Company's repositioning, the intention is to
improve the speed of reporting of the interim and full year results to
shareholders.
The executive directors hold discussions with analysts, shareholders and
investment managers from time to time.
It is apparent from such interaction that shareholders have several concerns,
including:
· How do the directors propose to expand operations
without dilution to existing shareholdings?
Since property companies are capital-intensive, the Company will raise equity
over time to fund the acquisition of new properties. Torchlight Fund LP
exercising its option rights as approved by shareholders will be dilutive to
existing shareholders with this dilution having already being accepted and
approved by shareholders. The board will aim to maximise the issuance price of
any additional equity offerings such that issuances are accretive or, if that
is not possible, offer all shareholders the opportunity to participate in the
offering on an equal access.
· When will the Company become profitable?
Based on current overheads and interest forecasts,
the Company may become profitable and cash flow positive once it has
approximately £30m of investments generating satisfactory rental income.
Executive management is focused on achieving this objective as soon as
possible. This is naturally dependent on the availability of suitable
transactions and the ability to complete the acquisitions either via raising
additional equity capital or debt. Executive management are also focussed on
continuing to reduce costs and optimise the performance from the existing
assets such that a profitable position can be achieved from a lower level of
investment.
Shareholder liaison is managed by Dominic White and Russell Naylor
(info@kcrreit.com (mailto:info@kcrreit.com) ).
Principle 3: Take into account wider stakeholder and social responsibilities
and their implications for long-term success
The Company currently operates in the UK. It identifies the main stakeholders
in the UK as being investors, tenants, and suppliers of services (accountant,
nomad, broker, lawyers), employees, directors, third-party property managers,
banks and other debt providers and property agents introducing investment
opportunities.
The Company has an important social responsibility in its role as a landlord
of residential housing. We commit to delivering great service to our tenants,
which includes providing safe and high-quality residential units, at market
prices, managed in a professional way.
Treating all our stakeholders well, and in particular our key customers - our
tenants, is key to growing a sustainable business that will have long-term
success.
Principle 4: Embed effective risk management, considering both opportunities
and threats, throughout the organisation
The board is responsible for setting the risk framework within which the
Company operates and ensuring that suitable risk-management controls and
reporting structures are in place throughout the group.
The board seeks to minimise risk in the management of its operations. The
Company uses third- party advisors to address specific issues that arise
during operations where they bring complementary expertise and experience.
Principle 5: Maintain the board as a well-functioning, balanced team led by
the chair
The Board comprises a balance of independent and non-independent directors
with collective, specific and complementary skills that enable the Company to
manage and direct its affairs in a professional manner, with embedded
corporate governance procedures that are fit for purpose.
Full Board meetings are generally held on a quarterly basis and all necessary
documentation is provided to the board in advance, so that they can understand
the issues under review and make well- considered decisions. During the year,
between full Board meetings, the Board convenes whenever necessary to consider
and if appropriate approve the execution and completion by executive
management of key matters that fall within the Board's defined remit as set
out below.
The Board has audit and remuneration sub-committees that are currently chaired
by the Independent Non-Executive Chairman.
All of the directors devote such time to the Company's affairs as the board
considers appropriate. The involvement of non-executive directors varies month
by month but is estimated at 3-5 days a month.
On 3 November 2020 Michael Davies stepped down as Chairman and James Thornton,
an Independent Non-Executive Director of KCR, became the Non-Executive
Chairman of the board. KCR believes that a reduced board of four members is
appropriate for a business of its size and is in line with its efforts to
reduce operating costs, assisting with its drive to profitability. As a result
of these changes, the Company has only one Independent Non-Executive Director.
The Company acknowledges the recommendations of the QCA Corporate Governance
Code, which it has adopted, and it is intended at the appropriate time to seek
appointment of a further Independent Non-Executive Director.
During 2021, 4 Board meetings were held, attended by all current directors.
Principle 6: Ensure that between them the directors have the necessary
up-to-date experience, skills and capabilities
The Board maintains up-to-date skills, knowledge and experience to enable it
to direct and manage the Company's operations, finances and its interface with
investors, the public markets and its other stakeholders.
The Board takes great care to appoint managers and staff with the appropriate
skills and experience, and is aware of the importance of encouraging diversity
among its workforce.
The Board works as a team and regularly reviews its procedures and
composition.
The relevant experience and skills of the current directors is set out under
About Us/The Board on the Company's website. Each director is involved in
other organisations which keep their professional skills sharpened and up to
date.
Principle 7: Evaluate Board performance based on clear and relevant
objectives, seeking continual improvement
Following the transaction approved by the directors of KCR as at 31 July 2019,
the Board of KCR now comprises:
Name Role Appointed Status
James Thornton Non-Executive chairman 06 August 2019* Independent
Dominic White CEO 01 January 2017 Non-independent
Russell Naylor Executive director 06 August 2019 Non-independent
Richard Boon Non-Executive director 06 August 2019 Non-independent
*appointed Chairman on 3 November 2020
In accordance with its obligations under the QCA code the Board will review
internally its collective performance, and the performance of its committees
and Board members. At this stage of its evolution and in view of the size of
the Board, the Directors do not believe that it is practical to undertake an
external or a wide-ranging evaluation of the performance of Board members. The
primary tasks of the chief executive have been and will continue to be to grow
the Company's asset base and revenue through the delivery of additional assets
to the portfolio. This has included developing capital and asset partnerships
and finding ways to raise appropriately priced and structured debt finance to
support transactions and equity capital in an uncertain equity market. He is a
key point of contact for the capital markets.
In these tasks he will be supported by Russell Naylor, Executive Director, who
is additionally responsible for internal financial controls, financial
management, capital planning and overseeing the preparation of financial
reports to shareholders.
The primary task of the Chairman, James Thornton is to ensure that the Board
has performed its role correctly, that governance is adhered to, and that the
Company works towards delivering value to shareholders in accordance with the
Company's strategy. He is also a point of contact for the Company's
shareholders and with its professional advisers.
Succession planning remains an important issue for the Board, and in
particular the Chairman.
Principle 8: Promote a corporate culture that is based on ethical values and
behaviours
The Board strives to promote a corporate culture based on sound ethical values
and behaviours.
The Company has adopted a code for directors' and employees' dealings in
securities, which is appropriate for a company whose securities are traded on
AIM. The code is in accordance with the requirements of the Market Abuse
Regulation that came into effect in 2016.
The Board is also aware that the tone and culture it sets will greatly impact
all aspects of the Company and the way that employees behave, as well as the
achievement of corporate objectives. A significant part of the Company's
activities is centered upon an open dialogue with shareholders, employees and
other stakeholders. Therefore, the importance of sound ethical values and
behaviours is crucial to the ability of the Company to successfully achieve
its corporate objectives.
Principle 9: Maintain governance structures and processes that are fit for
purpose and support good decision-making by the Board
The Board is committed to high standards of corporate governance. No system of
internal control can completely eliminate the risk of process or individual
failures. To an extent the corporate governance structures which the Company
is able to operate are limited by the size of the executive management team
and the small number of executive directors, which is itself dictated by the
current size of the Company's operations. Within this limitation necessitated
by the current small size of the business, the Board is dedicated to having
strong internal control systems in place to enable it to maintain the highest
possible standards of governance and probity.
The chairman, James Thornton:
· leads the Board and is primarily responsible for
the effective working of the Board;
· in consultation with the Board, ensures good
corporate governance and sets clear expectations with regards to Company
culture, values and behaviour;
· sets the Board's agenda and ensures that all
Directors are encouraged to participate fully in the activities and
decision-making process of the Board;
· takes responsibility for relationships with the
Company's professional advisers and its major shareholders.
The chief executive, Dominic White:
· is primarily responsible for developing the
Company's strategy in consultation with the Executive Director and the Board,
for its implementation and for the operational management of the business;
· is primarily responsible for new projects and
expansion;
· runs the Company on a day-to-day basis;
· implements the decisions of the Board;
· monitors, reviews and manages key risks;
· is the Company's primary spokesperson,
communicating with external audiences, such as investors, analysts and the
media.
The executive director, Russell Naylor:
· works closely with the CEO to develop and execute
the Company's strategy;
· is primarily responsible for the systems of
financial controls in operation for the Company and each of its subsidiaries;
· is primarily responsible for all financial
management and financial planning matters;
· monitors, reviews and manages key risks as they
relate to financial impact;
· implements the financial and internal control
decisions of the Board.
The Remuneration Committee, since November 2020, is now chaired by James
Thornton, Chairman and Independent Non-Executive Director, and comprises James
Thornton and Richard Boon, Non-Independent Non-Executive Director. The
Remuneration Committee meets on an ad hoc basis when required.
The Audit and Risk Committee is chaired by James Thornton, Chairman and
Independent Non-Executive Director and comprises James Thornton and, since
April 2021, Richard Boon. Russell Naylor is invited to attend as appropriate.
It meets at least twice each financial year to consider the interim and final
results. In the latter case, the auditors are present and the meeting
considers and takes action on any matters raised by the auditors arising from
their audit.
The chair of each of the Committees may invite executive management and Board
members to attend any meeting.
Matters reserved for the Board include:
· Vision and strategy
· Review of budgets, asset plans and trading
results
· Approving financial statements
· Financing strategy, including debt strategy
· Business planning relating to acquisitions,
divestments and major refurbishments not already agreed in the strategy and
asset plans
· Capital expenditure in excess of agreed budgets
· Corporate governance and compliance
· Risk management and internal controls
· Appointments and succession plans at senior
management level
· Directors' remuneration
Principle 10: Communicate how the Company is governed and is performing by
maintaining a dialogue with shareholders and other relevant stakeholders
The Company website sets out the principal approach of the Company to
governance. It contains all relevant documents and information for
shareholders, including all RNS announcements, Financial Reports, Shareholder
Circulars, and the Company's articles.
Shareholders are additionally encouraged to participate at the AGM, to ensure
that there is a high level of accountability and identification with the
Group's strategy and goals.
Audit Committee Report
BDO rotated audit partners during the year, following good governance in
respect of the length of time of involvement of the previous audit partner.
The Executive Director and the Chair of the Audit Committee met in advance of
the 2021 year end to plan the audit with the new external statutory auditor
and to discuss the materiality to be used in the audit and the expected key
issues to be covered. Progress of the 2021 audit was discussed with the
external auditor before the year-end Audit Committee meeting.
At the completion of the audit, the auditor presented its Planning document
and the Audit Completion Report to the Audit Committee before the Financial
Statements were presented for Board approval.
The discussions enabled the auditor to explain the proposed work and its
outcome and the Non-Executive Directors to raise any issues. It is considered
that the process worked well and the audit did not raise any material issues
therefore the auditors were able to issue their audit report in the usual
form.
Remuneration Committee Report
During 2021, the Remuneration Committee met to review and approve salaries.
It is the Company's policy that the remuneration of Directors should be
commensurate with the services provided by them to the Company and should take
account of published data on reasonable market comparable Groups, where
available. During the financial year, the Directors accepted reduced
remuneration in line with the Company's strategy to control costs. Details of
the Directors' remuneration are set out in the Directors' Report on page 18.
REPORT OF THE DIRECTORS
The directors present their report with the financial statements of the
Company and the Group for the year ended 30 June 2021.
A review of the business, risks and uncertainties and future developments is
included in the Chairman's Letter, the Chief Executive's Letter, the Group
Strategic Report, and in note 21 to the financial statements.
DIVIDENDS
The directors do not recommend payment of a dividend for the year (2020 -
£nil).
Political donations
The Group made no political donations during the year (2020 - £nil).
DIRECTORS
The following directors served during the year to 30 June 2021 and up to the
date of approval of this Annual Report:
Name
Michael Davies resigned 3 November 2020
James Thornton
Dominic White
Russell Naylor
Richard Boon
The beneficial interests of the directors holding office at 30 June 2021 in
the issued share capital of the Company were as follows:
Ordinary
Shares
Issued in the
At 30 June 2020 year At 30 June 2021
Name No. No. No.
James Thornton 22,222 -- 22,222
Dominic White 1,195,932 91,666 1,287,598
Russell Naylor -- -- --
Richard Boon -- -- --
The beneficial interests of the directors holding office at 29 September 2021
in the issued share capital of the Company were as follows:
At 30 June 2021 Issued in the period At 29 September 2021
Name No. No. No.
Dominic White 1,287,598 - 1,287,598
James Thornton 22,222 - 22,222
SUBSTANTIAL SHAREHOLDINGS
As at 29 September 2021, the directors had been notified that the following
shareholders owned a disclosable interest of three per cent or more in the
Ordinary shares of the Company:
Name Interest
%
Lynchwood Nominees Ltd 34.08%
Drumz plc 8.65%
Moore House Holding Ltd 8.38%
Poole Investments Ltd 6.39%
Venaglass Ltd 5.62%
Dominic White & White Amba Pension Scheme 4.72%
Oliver Vaughn 3.76%
Annabel Marie-Louse James 3.50%
DIRECTORS' REMUNERATION
The directors have received the following remuneration for their services
during the year:
2021 2020
Name Remuneration Benefits-in-kind Remuneration Benefits-in-kind
£
£
£
£
Michael Davies -- -- - -
Dominic White 94,500 -- 145,853 -
Russell Naylor* 77,691 -- 44,000 -
James Thornton 30,000 -- 27,192 -
Richard Boon* 20,000 -- 18,130 -
James Cane - -- 7,603 -
Timothy James - -- 5,068 -
Oliver Vaughan - -- 10,541 -
222,191 -- 258,387 -
In addition, during the year, the Group were charged fees of £10,800 by DGS
Capital Partners LLP, a limited liability partnership of which Michael Davies
is a member (2020 - £43,200) (including irrecoverable VAT) for making
available the services of Michael Davies to the Group.
* The remuneration paid to Russell Naylor included fees of £48,000 charged by
Naylor Partners, a business in which Russell Naylor is a Director (2020 -
£44,000) and the remuneration paid to Richard Boon included fees of £18,900
(2020 - £18,130) charged by Artefact Partners, a business in which Richard
Boon is a Director. The remuneration of Russell Naylor also includes a
provision of £22,816 for a catch up payment incentive which will be due when
the business achieves cash-flow breakeven.
During the previous year, the capital structure of the Company was reviewed
and the decision was taken to terminate the Restricted Preference shares. As a
result, a number of Restricted Preference shares were converted to Ordinary
shares and the remaining Restricted Preference shares were gifted to the
Company and subsequently cancelled. A number of directors held Restricted
Preference shares. The total gain made by the directors in the 2020 financial
year, upon the conversion of Restricted Preference shares to Ordinary shares
was £450,910. The gain was calculated as the market value of the Ordinary
shares at the date of conversion, less the nominal value of the Restricted
Preference shares. However, the loss made by the directors in the 2020
financial year, as a result of gifting a number of Restricted Preference
shares to the Company was £721,493. No gains or losses were made in the 2021
financial year.
INTERNAL CONTROLS AND RISK MANAGEMENT
The directors are responsible for the Group's system of internal control.
Although no system of internal control can provide absolute assurance against
material misstatement or loss, the Group's system is designed to provide
reasonable assurance that problems are identified on a timely basis and dealt
with appropriately.
In carrying out their responsibilities, the directors have put in place a
framework of controls to ensure as far as possible that (i) ongoing financial
performance is monitored in a timely manner, (ii) where required, corrective
action is taken and (iii) risk is identified as early as practically possible.
The directors have reviewed the effectiveness of internal controls.
The Board, subject to delegated authority, reviews, among other things,
capital investment, property sales and purchases, additional borrowing
facilities, guarantees and insurance arrangements.
Details of financial risk management are included within the Risks and
Uncertainties section of the Group Strategic Report.
BRIBERY RISK
The Group has adopted an anti-corruption policy and whistle-blowing policy
under the Bribery Act 2010. Notwithstanding this, the Group may be held liable
for offences under that Act committed by its employees or subcontractors,
whether or not the Group or the directors had knowledge of the commission of
such offences.
OTHER MATTERS
i. Environmental
The Group understands the importance of operating its business in a manner
that minimises any risks to the environment. Its policies seek to ensure
that it achieves this goal.
ii. Group employees
The Group considers its employees to be its most valuable assets and ensures
that it deals with them fairly and constructively at all times.
iii. Social matters
The Group is aware that it has a responsibility to the communities where it
operates and seeks to respect them at all times.
iv. Respect for human rights
The Group always respects the human rights of its stakeholders.
v. Contributions to pension schemes
No pension scheme benefits are being accrued by the directors.
DIRECTORS' INDEMNITIES AND INSURANCE
The Company has made qualifying third-party indemnity provisions for the
benefit of its directors during the year and they remain in force at the date
of approval of this Annual Report.
GOING CONCERN
The directors have adopted the going-concern basis in preparing the financial
statements.
The directors consider, as at the date of approving the financial statements,
that there is reasonable expectation that the Group has adequate financial
resources to continue to operate, and to meet its liabilities as they fall due
for payment, for at least twelve months following the approval of the
financial statements.
Following the declaration by the World Health Organisation of Covid-19 as a
global pandemic, governments in the UK and elsewhere have taken drastic and
unprecedented lockdown and other measures which include compulsory business
closures and tight restrictions on movement of people and on their activities.
This event has the potential to impact the Group and its business and is
considered further in the Strategic Report on pages 7 to 11.
The Company has undertaken procedures to ensure that the Company has
sufficient cash resources and bank facilities and sufficient covenant margin
to manage the potential financial impact of the Covid-19 pandemic on its
business under going concern principles.
See note 2 to the financial statements for further details of the procedures
undertaken.
POST BALANCE SHEET EVENTS
Post balance sheet events are detailed further in the Chief Executive's letter
and note 23 of the financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report and the
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 international accounting standards in
conformity with the requirements of the Companies Act 2006. Under company law,
the directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Company and the Group and of the profit or loss of the Group for that
period. In preparing these financial statements, the directors are required
to:
· select suitable accounting policies and then apply
them consistently;
· make judgments and accounting estimates that are
reasonable and prudent;
· state that the financial statements comply with
IFRS;
· prepare the financial statements on the
going-concern basis unless it is inappropriate to presume that the Group will
continue in business.
The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's and the Group's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and the Group and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
So far as the directors are aware, there is no relevant audit information (as
defined by Section 418 of the Companies Act 2006) of which the Group's auditor
is unaware, and each director has taken all the steps that he ought to have
taken as a director in order to make himself aware of any relevant audit
information and to establish that the Group's auditor is aware of that
information.
AUDITOR
In accordance with section 489 of the Companies Act 2006, a resolution to
reappoint BDO LLP as auditor will be proposed at the forthcoming annual
general meeting.
ON BEHALF OF THE BOARD
Dominic White
Director
29 September 2021
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state of
the Group's and of the Parent Company's affairs as at 30 June 2021 and of the
Group's loss for the year then ended;
• the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006;
• the Parent Company financial statements have been properly prepared
in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and as applied in accordance with the
provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements of KCR Residential REIT Plc (the
'Parent Company') and its subsidiaries (the 'Group') for the year ended 30
June 2021 which comprise the Consolidated Statement of Comprehensive Income,
the Consolidated and Company Statements of Financial Position, the
Consolidated and Company Statements of Changes in Equity, the Consolidated and
Company Statements of Cash Flows, and notes to the financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of
the Group financial statements is applicable law and international accounting
standards in conformity with the requirements of the Companies Act 2006 and,
as regards the Parent Company financial statements, as applied in accordance
with the provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with
the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the Directors'
assessment of the Group and the Parent Company's ability to continue to adopt
the going concern basis of accounting included:
· Corroborated key assumptions (eg reviewed forecasted occupancy rates
to those historically achieved and loan expiries to market norms for
refinancing similar properties) to underlying documentation and ensured these
were consistent with our audit work in these areas;
· Considered the evidence provided to us to ensure that it was not
contradictory;
· Understood and assessed the appropriateness of the key assumptions
used both in the base case and in the plausible downside scenario, including
assessing whether we considered the downside sensitivities to be appropriately
severe;
· Tested the integrity of the underlying formulas and calculations
within the cash flow models; and
• Reviewed the disclosures provided relating to the going concern
basis of preparation and found that these provided an explanation of the
directors' assessment that was consistent with the evidence we obtained.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group and the Parent Company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
Key audit matters Valuation of investment properties was the sole key audit matter in both the
audits for the year ended 30 June 2021 and 30 June 2020.
Group financial statements as a whole
Materiality
£293,000 (2020:£306,000) based on 1.2% (2020:1.2%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
As part of designing our audit, we determined materiality and assessed the
risks of material misstatement in the financial statements.
In particular, we looked at where the Directors made significant judgements,
estimates and assumptions. The key judgement noted is that of determining fair
value of investment properties - see key audit matters below.
We considered the risk of the financial statements being misstated or not
prepared in accordance with the underlying legislation or standards. We then
directed our work toward areas of the financial statements which we assessed
as having the highest risk of containing material misstatements, including
those set out above.
There are four significant components in the Group, which are all registered
and operate in the UK. All components of the group, and the consolidation were
subject to full scope audits by BDO LLP. There were no significant changes to
this approach during the year compared to the previous year's audit.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key audit matter How the scope of our audit addressed the key audit matter
Valuation of investment properties The Group holds investment properties which comprise properties owned by Group In this area our audit procedures included:
held for rental income and capital appreciation. Investment properties are
valued by the directors and the valuation approach is disclosed in Note 12.
The valuation investment properties requires significant judgement in
(see Notes 2 and 12) determining the appropriate inputs to be used in the model and there is · We compared the key valuation assumptions, which we consider relate
therefore a risk that the properties are incorrectly valued. We have therefore to the market yields appropriate to the sector and location of the properties,
determined the valuation of investment properties to be a key audit matter. against our independently formed market expectations. Variances were evaluated
through challenge of the directors and accumulated to determine whether they
supported the overall valuation.
· We tested the accuracy of key observable valuation inputs, primarily
passing rental income and lease terms, to the information provided to the
external valuers for use in their valuation for a sample of properties.
· We met with the directors to discuss and challenge the valuation
methodology and key assumptions, and to determine whether there were any
indicators of bias on the valuations.
· We assessed the competency, qualifications, independence and
objectivity of the external valuers who undertook valuations of the Group's
properties around the year end and reviewed the instructions provided to the
valuer for completeness, unusual arrangements and to check that there was no
evidence of management bias.
Key observations:
We did not identify any indicators to suggest that the valuation of the
Group's investment properties is inappropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Group financial statements Parent company financial statements
2021 2020 2021 2020
£ £ £ £
Materiality 293,000 306,000 174,000 192,000
Basis for determining materiality 1.2% of total assets 1.2% of total assets 1.2% of total assets 1.2% of total assets
Rationale for the benchmark applied A key determinant of the Group's value is property investments. Due to this, The Company's main activity is the investments in subsidiaries. Given this,
the key area of focus in the audit is the valuation of investment properties. and to be consistent year-on-year, we set an overall Company materiality level
On this basis, and to be consistent year-on-year, we set an overall Group based on total assets.
materiality level based on gross asset value.
Performance materiality 205,000 214,000 121,000 134,000
Basis for determining performance materiality We consider a number of factors including history of misstatements, risk We consider a number of factors including history of misstatements, risk
assessment and aggregation risk and determined that 70% was appropriate in the assessment and aggregation risk and determined that 70% was appropriate in the
circumstances. circumstances.
Specific materiality
We also determined that for items within pre-tax profit, a misstatement of
less than materiality for the financial statements as a whole, specific
materiality, could influence the economic decisions of users. As a result, we
determined materiality for these items at £43,000 (2020 - £161,000) which
represents 5% of loss before tax adjusted for fair value movements on capital
items.
Component materiality
We set materiality for each component of the Group dependent on the size and
our assessment of the risk of material misstatement of that component.
Component materiality ranged from £79,000 to £178,000. In the audit of each
component, we further applied performance materiality levels of 70% of the
component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of £15,000 (2020:£15,000). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report other than the
financial statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form
of assurance conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during
the course of the audit, we are required by the Companies Act 2006 and ISAs
(UK) to report on certain opinions and matters as described below.
Strategic report and Directors' report In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic report and the Directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the Strategic report and the Directors' report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent
Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the Directors'
report.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the Parent Company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of Directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the statement of directors' responsibilities, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group's and the 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 the Directors 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 for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
Based on our understanding of the Group and industry, we identified that the
principal risks of non-compliance with laws and regulations related to
compliance with the Real Estate Investment Trust (REIT) status section 1158 of
the Corporation Tax Act 2010 and the UK regulatory principles, such as the
Companies Act 2006, to which non-compliance might have a material effect on
the financial statements. We evaluated management's incentives and
opportunities for fraudulent manipulation of the financial statements
(including the risk of override of controls), and determined that the
principal risks were related to posting inappropriate journal entries to
increase revenue, management bias in accounting estimates and judgemental
areas of the financial statements such as the valuation of investment
properties (see key audit matter above). Audit procedures performed by the
engagement team included:
· Discussions with management, including consideration of known
or suspected instances of non-compliance with laws and regulations and fraud;
· Reviewing relevant meeting minutes, including those of the Risk
Committee and the Audit Committee;
· Challenging assumptions and judgements made by management in
their significant areas of estimation; and
· Identifying and testing journal entries, in particular any
journal entries posted with unusual account combinations, posted by unexpected
users and posted on unexpected days.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities
(http://insite.bdo.co.uk/sites/audit/Documents/www.frc.org.uk/auditorsresponsibilities)
. This description forms part of our auditor's report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and
the Parent Company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
Alexander Tapp (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2021
30 June 30 June
2021
2020
Notes £ £
CONTINUING OPERATIONS
Revenue 3 1,036,011 1,035,816
Cost of sales (20,606) (152,605)
GROSS PROFIT 1,015,405 883,211
Administrative expenses (1,102,869) (1,610,547)
Other operating income 2,803 14,576
Fair value through profit and loss - Revaluation of investment properties 12 501,330 (311,888)
OPERATING PROFIT/(LOSS) BEFORE SEPARATELY DISCLOSED ITEMS 416,669 (1,024,648)
Separately disclosed items
Share-based payment charge 19 - (1,599,681)
Costs associated with third-party fundraising and issue of shares 6 - (317,875)
Costs associated with refinancing 6 - (137,327)
Costs associated with refurbishment of investment properties 6 (844,200) -
OPERATING LOSS (427,531) (3,079,531)
Finance costs 5 (497,432) (483,932)
Finance income 5 729 2,645
LOSS BEFORE TAXATION 6 (924,234) (3,560,818)
Taxation 7 - -
LOSS FOR THE YEAR (924,234) (3,560,818)
TOTAL COMPREHENSIVE EXPENSE FOR THE YEAR (924,234) (3,560,818)
Loss attributable to owners of the parent (924,234) (3,560,818)
Loss per share expressed in pence per share 8
Basic (3.34) (13.48)
Diluted (1.19) (4.98)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2021
30 June 30 June
2021
2020
Notes £ £
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 23,378 46,410
Investment properties 12 24,262,000 23,592,000
24,285,378 23,638,410
CURRENT ASSETS
Trade and other receivables 14 53,375 63,889
Cash and cash equivalents 15 66,915 1,535,946
120,290 1,599,835
TOTAL ASSETS 24,405,668 25,238,245
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 2,816,963 2,756,963
Share premium 13,594,317 13,535,468
Capital redemption reserve 344,424 344,424
Other reserves - 14,930
Retained earnings (5,435,867) (4,511,633)
TOTAL EQUITY 11,319,837 12,140,152
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 11,052,419 11,052,419
CURRENT LIABILITIES
Trade and other payables 17 447,224 374,416
Interest-bearing loans and borrowings 18 1,586,188 1,671,258
2,033,412 2,045,674
TOTAL LIABILITIES 13,085,831 13,098,093
TOTAL EQUITY AND LIABILITIES 24,405,668 25,238,245
Net asset value per share (pence) 8 40.18 44.03
The financial statements were approved and authorised for issue by the Board
of Directors on 29 September 2021 and were signed on its behalf by:
Dominic White
Director
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2021
30 June 30 June
2021
2020
Notes £ £
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 974 2,099
Investments 13 10,706,081 10,706,081
10,707,055 10,708,180
CURRENT ASSETS
Trade and other receivables 14 3,758,378 3,828,071
Cash and cash equivalents 15 19,252 1,476,379
3,777,630 5,304,450
TOTAL ASSETS 14,484,685 16,012,630
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 2,816,963 2,756,963
Share premium 13,594,317 13,535,468
Capital redemption reserve 344,424 344,424
Other reserves - 14,930
Retained earnings (9,930,751) (9,147,860)
TOTAL EQUITY 6,824,953 7,503,925
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 7,659,732 8,423,635
Interest-bearing loans and borrowings 18 - 85,070
7,659,732 8,508,705
TOTAL LIABILITIES 7,659,732 8,508,705
TOTAL EQUITY AND LIABILITIES 14,484,685 16,012,630
As permitted by Section 408 of the Companies Act 2006, the income statement of
the Company is not presented as part of these financial statements. The
Company's loss for the financial year was £(782,891) (2020 - £(3,154,620)).
The financial statements were approved and authorised for issue by the Board
of Directors on 29 September 2021 and were signed on its behalf by:
Dominic White
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Share capital Share Capital redemption reserve Other Retained earnings Total equity
reserve
premium
£ £ £ £ £ £
Balance at 1 July 2019 2,029,178 10,018,986 67,500 14,930 (2,550,496) 9,580,098
Changes in equity
Transactions with owners:
Issue of share capital 727,785 3,516,482 276,924 - - 4,521,191
Share-based payments - - - - 1,599,681 1,599,681
Total transactions with owners 727,785 3,516,482 276,924 - 1,599,681 6,120,872
Total comprehensive expense - - - - (3,560,818) (3,560,818)
Balance at 30 June 2020 2,756,963 13,535,468 344,424 14,930 (4,511,633) 12,140,152
Changes in equity
Transactions with owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of loan finance - - - (14,930) - (14,930)
Total transactions with owners 60,000 58,849 - (14,930) - 103,919
Total comprehensive expense - - - - (924,234) (924,234)
Balance at 30 June 2021 2,816,963 13,594,317 344,424 - (5,435,867) 11,319,837
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2021
Share capital Share Capital redemption reserve Other reserve Retained earnings Total equity
premium
£ £ £ £ £ £
Balance at 1 July 2019 2,029,178 10,018,986 67,500 14,930 (7,592,921) 4,537,673
Changes in equity
Transactions with owners:
Issue of share capital 727,785 3,516,482 276,924 - - 4,521,191
Share-based payments - - - - 1,599,681 1,599,681
Total transactions with owners
727,785 3,516,482 276,924 - 1,599,681 6,120,872
Equity element of loan finance - - - - - -
Total comprehensive expense - - - - (3,154,620) (3,154,620)
Balance at 30 June 2020 2,756,963 13,535,468 344,424 14,930 (9,147,860) 7,503,925
Changes in equity
Transactions with owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of loan finance - - - (14,930) - (14,930)
Total transactions with owners
60,000 58,849 - (14,930) - 103,919
Total comprehensive expense - - - - (782,891) (782,891)
Balance at 30 June 2021 2,816,963 13,594,317 344,424 - (9,930,751) 6,824,953
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
2021 2020
Note £ £
Cash flows from operating activities
Cash used in operations 1 (822,507) (1,554,962)
Interest paid (497,432) (483,932)
Net cash used in operating activities (1,319,939) (2,038,894)
Cash flows from investing activities
Purchase of property, plant & equipment - (8,178)
Repayment of other borrowings - (1,738,076)
Purchase of investment properties (including capital expenditure on current (168,670) (518,888)
properties)
Disposal of investment properties - 538,000
Interest received 729 2,645
Net cash used in investing activities (167,941) (1,724,497)
Cash flows from financing activities
Loan repayments in year 18 (100,000) (6,658,130)
New loans in year - 7,868,169
Proceeds from share issue 118,849 4,060,000
Net cash generated from financing activities 18,849 5,270,039
Decrease in cash and cash equivalents (1,469,031) 1,506,648
Cash and cash equivalents at beginning of year 1,535,946 29,298
Cash and cash equivalents at end of year 66,915 1,535,946
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
2021 2020
Note £ £
Cash flows from operating activities
Cash used in operations 1 (725,591) (1,868,397)
Interest paid (1,327) (178,040)
Net cash generated from/(used in) operating activities (726,918) (2,046,437)
Cash flows from investing activities
Purchase of property, plant & equipment - (980)
Interest received 727 2,569
Net cash generated from investing activities 727 1,589
Cash flows from financing activities
(Decrease)/Increase in loans from group companies (820,388) 7,787,070
Increase/(Decrease) in loans to group companies 70,603 (2,024,997)
Loan repayments in year 18 (100,000) (6,304,180)
Proceeds from share issued 118,849 4,060,000
Net cash (used in)/generated from financing activities (730,936) 3,517,893
Decrease in cash and cash equivalents (1,457,127) 1,473,045
Cash and cash equivalents at beginning of year 1,476,379 3,334
Cash and cash equivalents at end of year 19,252 1,476,379
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2021
1) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED
IN OPERATIONS
Group 2021 2020
£ £
Loss before taxation (924,234) (3,560,818)
Depreciation charges 23,032 23,138
Revaluation of investment properties (501,330) 311,888
Share-based payment charge - 1,599,681
Finance costs 497,432 483,932
Finance income (729) (2,645)
(905,829) (1,144,824)
Decrease in trade and other receivables 10,514 13,189
Increase/(decrease) in trade and other payables 72,808 (423,327)
Cash used in operations (822,507) (1,554,962)
Company 2021 2020
£ £
Loss before taxation (782,891) (3,154,620)
Depreciation charges 1,125 1,229
Share-based payment charge - 1,599,681
Finance costs 1,327 178,040
Finance income (727) (2,569)
(781,166) (1,378,239)
Decrease/(increase) in trade and other receivables (910) 1 0,330
Increase/(decrease) in trade and other payables 56,485 (500,488)
Cash used in operations (725,591) (1,868,397)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 JUNE 2021
1) PRESENTATION OF FINANCIAL STATEMENTS
Statement of compliance
The consolidated financial statements have been prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006.
Functional and presentation currency
These consolidated financial statements are presented in Pounds Sterling
('GBP'), which is considered by the directors to be the functional currency of
the Group.
Changes in accounting policies
Adoption of new and revised standards
The Group has applied the following accounting standards that are mandatorily
effective for accounting periods commencing on or after 1 January 2020:
- Amendments to IAS 1 and IAS8: Definition of Material
- Amendments to IFRS 3: Definition of a Business
- Amendments to IFRS 7, IFRS 9 and IAS 39 : Interest Rate
Benchmark reform
- Amendments to References to the Conceptual Framework in IFRS
Standards
- Covid-19 Related rent concessions (Amendment to IFRS 16)
The application of these amendments have not had a material impact on the
amounts reported in these financial statements.
New standards in issue but not yet effective
As at 30 June 2021, the Group has not applied the following new and revised
standards that have been issued but are not effective until 1 January 2022:
- Amendments to IAS 1: Classification of liabilities as current or
non current
- Amendments to IAS 16: Property, plant and equipment: Proceeds
before intended use
- Amendments to IFRS 3: Reference to the conceptual framework
- Annual improvements to IFRS Standards 2018-2020
- Amendments to IAS 37: Onerous Contracts - cost of fulfilling a
contract
The directors do not anticipate that the adoption of the above amendments will
have a significant impact on the financial statements of the Group in future
periods.
2) ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared on the historical
cost basis other than as set out in the following policies.
Going concern
The financial statements have been prepared on a going concern basis. This
requires the directors to consider, as at the date of approving the financial
statements, that there is reasonable expectation that the Group has adequate
financial resources to continue to operate, and to meet its liabilities as
they fall due for payment, for at least twelve months following the approval
of the financial statements. This includes considering the borrowings of
£1,586,188 which fall due for repayment during that period. The Company
secured a loan of £2,375,000 post year end (note 23) that has enabled
refinancing and additional capital to support Group activities.
The Group has undertaken procedures to ensure that the Group has sufficient
cash resources and bank facilities and with sufficient covenant margin to
manage the potential financial impact of the Covid-19 pandemic on its business
under going concern principles. These procedures included the following:
· Reviewing and establishing that cash balances and bank facilities are
sufficient to cover at least twelve months of operations;
· Review of financial covenant ratios and the Group's ability to meet
the covenants for a period of at least twelve months of operation; and
· Reviewing cash flow forecast scenarios. Any decision on property
acquisitions and developments in the next twelve months will be taken
following review of revised cash flow forecasts.
Having reviewed the Company's current position and cash flow projections,
including the confirmation that the Company's subsidiaries which are also
creditors as at the year end will provide such financial support as is
required for a period of at least 12 months from the date of signing of these
financial statements, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future. Accordingly they continue to adopt the going concern basis
in preparing these financial statements.
The Company has also provided an undertaking to its subsidiaries that no
intra-group amounts owed to the Company will be called for repayment for a
period of at least 12 months from the date of approval of these financial
statements unless the Subsidiary is in a position to make payments without
adversely affecting their ability to continue to trade and settle any future
obligations.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
The consolidated financial statements incorporate the results of business
combinations using the acquisition method. In the statement of financial
position, the acquiree's identifiable assets, liabilities and contingent
liabilities are initially recognised at their fair values at the acquisition
date. The results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is obtained.
They are deconsolidated from the date on which control ceases.
The subsidiaries included in the consolidated financial statements, from the
effective date of acquisition, are K&C (Newbury) Limited, K&C
(Coleherne) Limited, K&C (Osprey) Limited, KCR (Kite) Limited, KCR
(Cygnet) Limited and KCR (Southampton) Limited.
The consolidated financial statements present the results of the Company and
its subsidiaries ("the Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore eliminated in
full.
Transaction costs, other than those of a capital nature and those associated
with the issue of debt or equity securities that the Group incurs in
connection with a business combination are expensed as incurred.
Investments
Investments in subsidiaries are held at cost less provision for impairment.
Revenue recognition
Revenue of the Group for the year was derived mainly from its principal
activity, being the letting to third parties of, and management of, property
assets owned by the Group. This income includes rental income, management fees
and sales commissions.
Revenue from contracts with customers is recognised when control of the
services are transferred to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for those
services net of discounts, VAT and other sales-related taxes. The Group
concludes that it is the principal in its revenue arrangements, because it
typically controls the goods or services before transferring them to the
customer. Contracts with customers do not contain a financing component or any
element of variable consideration.
Rental income from operating leases is recognised periodically in line with
the time for which the property is rented. Rental income received in advance
is recognised in deferred income.
Management fees derived from the management of property assets owned by third
parties are recognised as the services are provided.
Revenue from sales commissions is recognised at the point in time when control
of the asset is transferred from the vendor to the buyer.
Separately disclosed items
Separately disclosed items are those that are deemed to be exceptional by size
or nature in relation to the activities of the Group. In the case of
share-based payment charges, these are included as a separately disclosed item
as a significant non-cash item.
Finance costs
Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the acquisition,
construction or production of a qualifying asset are recognised in profit or
loss using the effective interest method.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated
depreciation.
Depreciation is provided at the following annual rates in order to write off
each asset over its estimated useful life.
Fixtures and fittings - 5% and 25% on cost
Computer equipment - 25% on cost
Investment properties
Investment properties comprise properties owned by the Group which are held
for capital appreciation, rental income or both. Investment properties are
initially measured at cost, including expenditure that is directly
attributable to the acquisition of the asset. Investment properties are
revalued on acquisition by independent external valuers and then by the
directors or independent valuers annually thereafter. Acquisitions and
disposals are recognised on completion. Any gain or loss arising from a change
in fair value is recognised in profit or loss.
Further details of the investment property valuation methodology are contained
in note 12 of the financial statements.
Subsequent expenditure is capitalised only when it is probable that the future
economic benefits associated with the expenditure will flow to the Group.
Ongoing repairs and maintenance are expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and balances held with
banking institutions.
Financial assets
Recognition and derecognition
Financial assets are recognised initially on the date that the Group becomes a
party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or it transfers the rights to receive the
contractual cash flows in a transaction in which substantially all the risks
and rewards of ownership of the financial assets are transferred.
Financial assets and liabilities are offset and the net amount presented in
the statement of financial position only when the Group has a legal right to
offset the amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Classification and initial recognition of financial assets
Except for trade receivables that do not contain a significant financing
component and are measured at the transaction price in accordance with IFRS
15, all financial assets are initially measured at fair value plus adjusted
for any directly attributable transaction costs.
Financial assets are classified into the following categories:
- Amortised cost
- Fair value through profit or loss (FVTPL)
- Fair value through other comprehensive income (FVOCI)
The classification is determined by both:
- The entity's business model for managing the asset
- The contractual cash flow characteristics of the financial asset
All income and expenses relating to financial assets that are recognised in
profit or loss are presented within finance costs, finance income or other
financial items, except for impairment of trade receivables which is presented
within administrative expenses.
Subsequent measurement of financial assets
Financial assets are measured at amortised cost if the assets meet the
following conditions (and are not designated as FVTPL):
- They are held within a business model whose objective is to hold
the financial assets and collect its contractual cash flows;
- The contractual terms of the financial assets give rise to cash
flows that are solely payments of principal and interest on the principal
amount outstanding.
After initial recognition, these are measured at amortised cost using the
effective interest method. Discounting is omitted where its effect is
immaterial. The Group's cash and cash equivalents, trade and most other
receivables fall into this category.
Financial assets which are designated as FVTPL are measured at fair value with
gains or losses recognised in profit or loss. The fair values of financial
assets in this category are determined with reference to active market
transactions or using a valuation technique where no active market exists. The
Group's investment properties are designated as FVTPL assets.
Impairment of financial assets
IFRS 9's impairment requirements use forward looking information to recognise
expected credit losses - the 'expected credit loss (ECL) method'. Recognition
of credit losses is no longer dependent on first identifying a credit loss
event, but considers a broader range of information in assessing credit risk
and credit losses including past events, current conditions, reasonable and
supportable forecasts that affect the expected collectability of the future
cash flows of the instrument.
The group makes use of a simplified approach in accounting for trade and other
receivables and records the loss allowance as lifetime expected credit losses.
These are the expected shortfalls in contractual cash flows, considering the
potential for default at any point during the life of the financial
instrument. In calculating, the Group uses its historical experience, external
indicators and forward-looking information to calculate the expected credit
losses.
Financial liabilities
Financial liabilities are recognised initially on the date that the Group
becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial liability when its contractual obligations
are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into the 'other
financial liabilities' category. Such financial liabilities are recognised
initially at fair value adjusted for directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at
amortised cost using the effective interest method.
'Other financial liabilities' comprise trade and other payables and other
short-term monetary liabilities.
Bank and other borrowings are initially recognised at the fair value of the
amount advanced net of any transaction costs directly attributable to the
issue of the instrument. Such interest-bearing liabilities are subsequently
measured at amortised cost using the effective interest method. Interest
expense in this context includes initial transaction costs and premium payable
on redemption, as well as any interest or coupon payable while the liability
is outstanding.
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
Share capital
Ordinary shares are classified as equity. Costs directly attributable to the
issue of Ordinary shares are recognised as a deduction from equity.
Leasing
The Company applies IFRS 16 Leases. Lessees, with certain exceptions for short
term or low value leases, are required to recognise all leased assets on their
Statement of Financial Position as 'right-of-use assets' with a corresponding
lease liability.
The Group has a small number of operating leases concerning office premises
and plant and equipment. IFRS 16 provides an exemption for short term
operating leases and leases of low value. The Company has taken advantage of
the exemptions rather than establishing a right to use asset.
The costs of leases of low value items and those with a short term at
inception are recognised as incurred.
Taxation
Tax expense comprises current and deferred tax. Current and deferred tax is
recognised in profit or loss except to the extent that it relates to a
business combination, or items recognised directly in equity or in other
comprehensive income. As a REIT, the Group is generally not liable to
corporation tax.
Deferred tax would be recognised in respect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. Deferred tax is
recognised for:
· temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and that
affects neither the accounting nor taxable profit or loss;
· temporary differences related to investments in subsidiaries and
jointly controlled entities to the extent that it is probable that they will
not reverse in the foreseeable future; and
· taxable temporary differences arising on the initial recognition
of goodwill.
Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, using tax rates enacted or
substantively enacted at the reporting date.
A deferred tax asset is recognised for unused tax losses, tax credits and
deductible temporary differences to the extent that it is probable that future
taxable profits will be available against which they can be utilised.
Deferred tax assets are reviewed at each reporting date and are reduced to
the extent that it is no longer probable that the related tax benefit will be
realised.
Provisions
A provision is recognised if, as a result of a past event, the Group has a
present legal or constructive obligation that can be estimated reliably, and
it is probable that an outflow of economic benefits will be required to settle
the obligation. Provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risks specific to the liability. The unwinding of
the discount is recognised as finance cost.
Share-based payments
The Group allowed certain directors and other individuals to acquire shares in
the parent company until the scheme was disbanded on 6 August 2019. The grant
date fair value of share-based payment awards granted was recognised as an
employee expense with a corresponding increase in equity, over the period that
the employees become unconditionally entitled to the awards. The fair value of
the options granted was measured using an option pricing model, taking into
account the terms and conditions upon which the options were granted. The fair
value was charged as an expense in the income statement over the vesting
period and the charge adjusted each year to reflect the expected and actual
level of vesting. No adjustment is made to the charge after the vesting date.
Further details regarding the conversion and cancellation of the share-based
payment awards are included in Note 19.
Critical accounting estimates and judgments
The preparation of the consolidated financial statements in conformity with
IFRS requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amount of
assets, liabilities, income, and expenses. Actual results may differ from
these 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 years affected.
Information about critical estimates and assumptions that have the most
significant effect on the amounts recognised in the consolidated financial
statements and/or have a significant risk of resulting in a material
adjustment within the next financial year is as follows:
§ Determination of fair values
A number of the Group's accounting policies and disclosures require the
determination of fair value, for both financial and non-financial assets and
liabilities. Fair values have been determined for measurement and/or
disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining
fair values is disclosed in the notes specific to that asset or liability.
Investment properties
The Group's investment properties are valued, on the basis of market value.
The fair value of investment properties is based either on independent
professional valuations in accordance with the Royal Institution of Chartered
Surveyors' Appraisal and Valuation Standards 2014 as amended or by the
directors, based on market prices for similar items. The Group's investment
properties were valued at 30 June 2021 at £24,262,000. See note 12 for
further details.
The directors are of the opinion that the estimates and assumptions that they
have used in the valuation of investment properties are appropriate. Further
details of the valuation methodology are contained in note 12 of the financial
statements.
3) REVENUE
The Group is involved in UK property ownership, management and letting and is
considered to operate in a single geographical and business segment.
The total revenue of the Group for the year was derived from its principal
activities, being the letting to third parties of, and management of, property
assets owned by the Group, and, in certain cases, the management of property
assets owned by third parties.
The Group's investment property consists of residential housing for the
private rented sector and therefore has multiple tenants and as a result does
not have any significant customers.
2021 2020
£ £
Revenue analysed by class of business
Rental income 724,680 727,859
Management fees 81,768 74,218
Resale commission 114,913 39,043
Ground rents 13,535 13,655
Leasehold extension income 96,275 168,916
Other income 4,840 12,125
1,036,011 1,035,816
4) EMPLOYEES AND DIRECTORS
Group
2021 2020
£ £
Wages and salaries 325,525 635,023
Social security costs 35,448 69,628
Pension costs 1,275 12,732
362,248 717,383
The average monthly number of employees during the year was as follows:
2021 2020
Directors and management 4 7
Administration 3 3
7 10
2021 2020
£ £
Directors' remuneration (as per Report of the Directors) 222,191 258,387
Share-based payment charge relating to directors (see Note 19) - 1,055,755
Remuneration of the highest-paid director 89,375 145,853
Amounts paid into a pension scheme of the highest-paid director - -
The Group directors are considered to be key management personnel. Certain
directors and others held Restricted Preference shares in the Company until 6
August 2019, further details of which are contained in note 19 of the
financial statements.
Company
2021 2020
£ £
Wages and salaries 264,402 573,637
Social security costs 30,118 60,631
Pension costs (2,175) 10,110
292,345 644,378
The average monthly number of employees during the year was as follows
Directors and management 4 7
Administration - 1
4 8
5) FINANCE COSTS AND INCOME
2021 2020
£ £
Finance costs
Loan interest 497,432 483,932
Finance income
Bank interest 729 2,645
6) LOSS BEFORE TAXATION
The loss before taxation is stated after charging:
2021 2020
£ £
Hire of plant and machinery 10,002 10,437
Other operating leases 13,140 20,639
Depreciation - owned assets 23,032 23,138
Auditors' remuneration for the Group - audit services for parent company 40,000 40,000
- audit services 15,000 20,000
for subsidiaries
Separately disclosed items
In the previous year the Group incurred significant costs relating to
third-party fundraising and issue of shares. The costs to the Group totalled
£317,875. The Group also incurred significant costs relating to refinancing
during the second half of the previous year, these totalled £137,327.
Further information on the share-based payments, which are shown on the face
of the Consolidated Statement of Comprehensive Income, can be found in note
19.
During the year, the Group commenced substantial refurbishment work to
investment properties owned by K&C (Coleherne) Limited and K&C
(Osprey) Limited. The costs incurred in the 2021 financial year amounted to
£703,946 and £140,254 (2020 - £Nil).
It is considered that the size and nature of these costs are such that they
should be disclosed on the face of the Consolidated Statement of Comprehensive
Income.
7) TAXATION
Analysis of tax
2021 2020
Current tax £ £
UK corporation tax - -
Deferred tax - -
Total tax - -
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate of corporation
tax in the UK. The difference is explained below:
2021 2020
£ £
Loss on ordinary activities before taxation (924,234) (3,560,818)
Loss on ordinary activities multiplied by the standard rate of corporation tax
in the UK of 19% (2020 - 19%)
(175,604) (676,555)
Effects of
Expenses not deductible - 481,229
Income not taxable 175,604 (66,141)
Losses not recognised in deferred tax - 261,467
Tax credit - -
The Group re-entered the REIT regime on 6 August 2019 and has remained under
the REIT regime since that date.
8) LOSS PER SHARE AND NET ASSET VALUE
Basic loss per share is calculated by dividing the loss attributable to
ordinary shareholders by the weighted average number of Ordinary shares
outstanding during the year.
Fully diluted earnings per share is calculated using the weighted average
number of shares adjusted to assume the conversion of all dilutive potential
Ordinary shares.
Basic loss per share
2021
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (924,234) 27,651,823 (3.34)
Effect of dilutive securities - - -
2020
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (3,560,818) 26,411,154 (13.48)
Effect of dilutive securities - - -
Diluted loss per share
2021
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (924,234) 77,569,631 (1.19)
Effect of dilutive securities - - -
2020
Loss Weighted average number of shares Per share amount
£ No Pence
Loss attributable to ordinary shareholders (3,560,818) 71,493,121 (4.98)
Effect of dilutive securities - - -
The net asset value is calculated by dividing the equity attributable to
ordinary shareholders by the number of Ordinary shares in issue at the balance
sheet date.
2021
Equity Number of shares Per share amount
£ No Pence
Net asset value 11,319,837 28,169,631 40.18
2020
Equity Number of shares Per share amount
£ No Pence
Net asset value 12,140,152 27,569,631 44.03
9) OPERATING LEASES RECEIVABLE
The Group leases residential units within certain of its investment properties
under operating leases. The future minimum lease payments receivable under
non-cancellable leases are as follows:
30 June 30 June
2021
2020
£ £
Within one year 414,594 507,513
Between one and five years 84,533 239,355
More than 5 years 37,263 45,531
Total 536,390 792,399
Lease revenue is generated from properties owned by K&C (Coleherne)
Limited, KCR (Southampton) Limited and KCR (Kite) Limited that are let on
short-term tenancy agreements.
10) LEASING AGREEMENTS
Minimum lease payments, under non-cancellable operating leases, fall due as
follows:
30 June 30 June
2021
2020
£ £
Within one year 24,784 24,784
Between one and five years 10,449 18,809
Total 35,233 43,593
11) PROPERTY, PLANT AND EQUIPMENT
GROUP Fixtures, fittings & computer equipment
£
COST
At 1 July 2019 89,562
Additions 8,178
At 30 June 2020 97,740
Additions -
At 30 June 2021 97,740
DEPRECIATION
At 1 July 2019 28,192
Charge for year 23,138
At 30 June 2020 51,330
Charge for year 23,032
At 30 June 2021 74,362
NET BOOK VALUE
At 30 June 2021 23,378
At 30 June 2020 46,410
COMPANY Fixtures, fittings & computer equipment
£
COST
At 1 July 2019 6,536
Additions 980
At 30 June 2020 7,516
Additions -
At 30 June 2021 7,516
DEPRECIATION
At 1 July 2019 4,188
Charge for year 1,229
At 30 June 2020 5,417
Charge for year 1,125
At 30 June 2021 6,542
NET BOOK VALUE
At 30 June 2021 974
At 30 June 2020 2,099
12) INVESTMENT PROPERTIES
Group Total
£
COST OR VALUATION
At 1 July 2019 23,923,000
Additions 518,888
Disposals (538,000)
Revaluations (311,888)
At 30 June 2020 23,592,000
Additions 168,670
Disposals -
Revaluations 501,330
At 30 June 2021 24,262,000
At 30 June 2021 24,262,000
At 30 June 2020 23,592,000
The investment properties were valued by the Directors at 30 June 2021 with
reference to independent external valuations performed in June and July 2021.
The external valuations were carried out in accordance with the Royal
Institution of Chartered Surveyors' Valuation - Global Standards, 2020 (Red
Book).
The directors determined that there were no material factors that would give
rise to there being a material variance between the latest external valuation
and the fair value as at 30 June 2021.The valuation of the investment
properties was £24,262,000, which was included in the financial statements.
During the year to 30 June 2021 there have been additions of £168,670 due to
the capitalisation of certain costs relating to the enhancement of properties
at Coleherne Road and Heathside.
Fair value is based on current prices in an active market for similar
properties in the same location and condition. The current price is the
estimated amount for which a property could be exchanged between a willing
buyer and willing seller in an arm's length transaction after proper marketing
wherein the parties had each acted knowledgeably, prudently and without
compulsion.
Valuations are based on a market approach which provides an indicative value
by comparing the property with other similar properties for which price
information is available. Comparisons have been adjusted to reflect
differences in age, size, condition, location and any other relevant factors.
The fair value for investment properties has been categorised as Level 3
inputs under IFRS 13. The valuer visited all material properties and his
valuations were based on both internal and external site visits.
The valuation technique used in measuring the fair value, as well as the
significant inputs and significant unobservable inputs are summarised in the
table below:
Fair Value Hierarchy Valuation Technique Significant Inputs Used Significant Unobservable Inputs
Level 3 Income capitalisation and or capital value on a per square foot basis Adopted gross yield 3.00% - 5.76%
Adopted rate per square foot £303 - £982
The fair value would increase if market rents were higher and/or the rates per
square foot were higher and/or capitalisation rates were lower.
The fair values would decrease if market rents were lower and/or the rates per
square foot were lower and/or capitalisation rates were higher.
If properties had been included on a historical cost basis, the cost of the
properties at 30 June 2021 would have been £22,467,913 (2020 - £22,299,243).
The revenue earned by the Group from its investment properties and all direct
operating expenses incurred on its investment properties are recorded in the
Consolidated Statement of Comprehensive Income.
The total rental income in relation to investment properties for the Group
equated to £724,680 (2020 - £727,859). The total rental expenses in relation
to investment properties for the Group equated to £20,606 (2020 - £152,605).
Included within Investment Properties are leasehold properties valued at
£5,830,000 and freehold properties valued at £18,432,000 (2020: £5,830,000
and £17,762,000 respectively).
13) INVESTMENTS
Company Shares in group undertakings
£
COST
At 1 July 2019 10,706,081
Disposals -
At 30 June 2020 10,706,081
Disposals -
At 30 June 2021 10,706,081
NET BOOK VALUE
At 30 June 2021 10,706,081
At 30 June 2020 10,706,081
As at 30 June 2021, the Company's investments comprise the following:
Subsidiaries Holding
%
K&C (Coleherne) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
K&C (Osprey) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
KCR (Kite) Limited Registered office: UK 100.00
Nature of business Class of shares
Dormant Ordinary
KCR (Southampton) Limited Registered office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
K&C (Newbury) Limited Registered office: UK 100.00
Nature of business Class of shares
Dormant Ordinary
All of the above companies are registered at Gladstone House, 77-79 High
Street, Egham, Surrey, TW20 9HY.
14) TRADE AND OTHER RECEIVABLES
Group Company
2021 2020 2021 2020
£ £ £ £
Trade debtors 246 23,460 - -
Amounts owed by group undertakings - - 3,741,633 3,812,236
Other debtors 11,530 19,403 - 748
VAT - 604 - -
Prepayments 41,599 20,422 16,745 15,087
53,375 63,889 3,758,378 3,828,071
The Group and Company's exposure to credit risk is disclosed in note 21.
There is no material difference between the fair value of trade and other
receivables and their book value.
All receivables are due within 12 months of 30 June 2021. None of those
receivables has been subject to a significant increase in credit risk since
initial recognition and, consequently, no expected credit losses have been
recognised.
15) CASH AND CASH EQUIVALENTS
Group Company
2021 2020 2021 2020
£ £ £ £
Cash in hand 40 40 - -
Bank accounts 66,875 1,535,906 19,252 1,476,379
66,915 1,535,946 19,252 1,476,379
16) SHARE CAPITAL
Allotted, issued and fully paid
Number Class Nominal value 30 June 30 June
2021
2020
£ £
28,169,631 Ordinary £0.10 2,816,963 2,756,963
(2020: 27,569,631) 2,816,963 2,756,963
2021 2021 2020 Number 2020
Number £ £
Ordinary shares of £0.10 each
At 1 July 27,569,631 2,756,963 15,791,777 1,579,178
Conversion of Restricted Preference Shares - - 1,730,765 173,077
Shares issued as loan repayments - - 577,778 57,778
Shares issued as creditor payments - - 447,089 44,708
Shares issued for cash 600,000 60,000 9,022,222 902,222
At 30 June 28,169,631 2,816,963 27,569,631 2,756,963
The Ordinary shares issued during the year were issued at £0.19808 per share.
2021 2021 2020 Number 2020
Number £ £
Restricted Preference shares of £0.10 each
At 1 July - - 4,500,000 450,000
Conversion to Ordinary shares - - (1,730,765) (173,077)
Gifted back to Company (and subsequently cancelled)
- - (2,769,235) (276,923)
At 30 June - - - -
17) TRADE AND OTHER PAYABLES
Group Company
2021 2020 2021 2020
Current £ £ £ £
Trade creditors 151,100 112,690 64,795 80,870
Amounts owed to group undertakings - - 7,390,522 8,210,910
Other taxes and social security 22,748 36,043 7,032 24,819
Other creditors 19,180 28,436 15,468 6,131
Accruals and deferred income 254,196 197,247 181,915 100,905
447,224 374,416 7,659,732 8,423,635
The Group and Company exposure to liquidity risk related to trade and other
payables is disclosed in note 21.
There is no material difference between the fair value of trade and other
payables and their book value.
Amounts owed to group undertakings are repayable on demand.
18) FINANCIAL LIABILITIES - BORROWINGS
Group Company
2021 2020 2021 2020
£ £ £ £
Current
Other loans 1,586,188 1,671,258 - 85,070
1,586,188 1,671,258 - 85,070
Non-current
Bank loans 7,868,169 7,868,169 - -
Other loans 3,184,250 3,184,250 - -
11,052,419 11,052,419 - -
Terms and debt repayment schedule (including interest)
2021
1 year or less 1-2 years 2-5 years More than 5 years Totals
Group £ £ £ £ £
Bank loans 275,386 275,386 943,218 14,982,305 16,476,295
Other loans 1,761,322 175,134 525,401 3,607,490 6,069,347
2,036,708 450,520 1,468,619 18,589,795 22,545,642
2020
1 year or less 1-2 years 2-5 years More than 5 years Totals
Group £ £ £ £ £
Bank loans 275,386 275,386 825,195 15,375,714 16,751,681
Other loans 1,891,423 175,134 525,401 3,782,624 6,374,582
2,166,809 450,520 1,350,596 19,158,338 23,126,263
Company
Other loans 85,070 - - - 85,070
85,070 - - - 85,070
Details of the principal loans are as follows:
a) A three-year loan of £1,995,000 was entered into
during the 2018 financial year. The loan was repayable by 36 monthly
instalments of £9,144 and a final instalment of £1,940,138. On 5 September
2019, the Company repaid £353,950. The balance outstanding at 30 June 2021
was £1,586,188. The monthly repayments from that date reduced to £7,568. The
monthly instalments are interest payments and do not include any capital
repayments. Interest is charged at 5.50 per cent per annum. The loan is
secured by a fixed and floating charge over all the property and assets of
K&C (Osprey) Limited, including the property known as Heathside, 562
Finchley Road. Post balance date a new 5 year loan of £2.375 million was
entered into to refinance this facility and provide additional capital to
support Group activities.
b) During 2019, the Company issued several convertible
loan notes, totalling £200,000, the debt element of which totalled £185,070.
The convertible loan notes had a redemption date of 30 June 2020. £100,000
of the convertible loan notes was converted to Ordinary shares on 6 August
2019. At 30 June 2020 the debt element outstanding was £85,070. The
convertible loan notes were repaid in full in July 2020.
c) On 4 December 2018, KCR (Southampton) Limited
took out a new loan of £3,184,250, with Lendco Limited. The term of the loan
was 10 years. The monthly instalments are interest payments and do not include
any capital repayments. Interest is charged at 3.19 per cent for the first 24
months. Interest for the remainder of the term will be charged at 4.79 per
cent above LIBOR. The loan was secured by a first legal mortgage and a first
fixed charge over the land at Block B, Chapel Riverside, Endle Street,
Southampton. The balance outstanding as at 30 June 2021 was £3,184,250.
d) On 10 February 2020, K&C (Coleherne) Limited
took out a new loan of £2,743,359 with Hodge Bank. The term of the loan is 25
years. The monthly instalments are interest payments and do not include any
capital repayments. Interest is charged at 3.5 per cent for the first 60
months. After this period the interest rate charged will be a standard
variable rate. The loan is secured by a freehold charge over 25 Coleherne
Road. The balance outstanding at 30 June 2021 was £2,743,359.
e) On 10 February 2020, KCR (Kite) Limited took out a
new loan of £5,124,810 with Hodge Bank. The term of the loan is 25 years. The
monthly instalments are interest payments and do not include any capital
repayments. Interest is charged at 3.5 per cent for the first 60 months. After
this period the interest rate charged will be a standard variable rate. The
loan is secured by a freehold charge over 25 Coleherne Road. The balance
outstanding at 30 June 2021 was £5,124,810.
Reconciliation of net movement in cash
Group
Loans received in year Other non-cash movements Net cash
Net cash at 1 July 2020 Cash flow Repayments in year at 30 June 2021
£ £ £ £ £
Cash at bank and in hand 1,535,946 (1,469,031) - - - 66,915
Borrowings (12,723,677) - - 85,070 - (12,638,607)
Total financial liabilities (11,187,731) (1,469,031) - 85,070 - (12,571,692)
Loans received in year Other Net cash
Net cash at 1 July 2019 Cash flow Repayments in year non-cash movements at 30 June 2020
£ £ £ £ £
Cash at bank and in hand 29,298 1,506,648 - - - 1,535,946
Borrowings (11,773,638) - (7,868,169) 6,658,130 260,000 (12,723,677)
Total financial liabilities (11,744,340) 1,506,648 (7,868,169) 6,658,130 260,000 (11,187,731)
Company
Other
Net cash at 1 July 2020 Repayments in year non-cash movements Net cash
Cash flow at 30 June 2021
£ £ £ £ £
Cash at bank and in hand 1,476,379 (1,457,127) - - 19,252
Borrowings (85,070) - 85,070 - -
Total financial liabilities 1,391,309 (1,457,127) 85,070 - 19,252
Other
Net cash at 1 July 2019 Repayments in year non-cash movements Net cash
Cash flow at 30 June 2020
£ £ £ £ £
Cash at bank and in hand 3,334 1,473,045 - - 1,476,379
Borrowings (6,649,250) - 6,304,180 260,000 (85,070)
Total financial liabilities (6,645,916) 1,473,045 6,304,180 260,000 1,391,309
19) SHARE-BASED PAYMENT TRANSACTIONS
Restricted Preference shares:
Restricted Preference shares had been acquired by certain directors and other
senior managers. The Restricted Preference shares were purchased at nominal
value. Upon the achievement by the Group of certain defined milestones,
related to the NAV of the Group, the Restricted Preference shares of £0.10
were able to be converted into Ordinary shares of £0.10, for no further
consideration.
The estimated fair value of each Restricted Preference share was
as folllows:
Restricted Preference shares
Fair value of share option/warrant (£) 0.688-0.787
The fair values were estimated using the Black-Scholes valuation model. The
following table lists the inputs to the model used:
Restricted Preference shares
Share price at grant date (£) 0.8-0.9
Exercise price (£) 0.1
Dividend yield (%) 0.00
Expected volatility (%) 51.86-63.79
Risk-free interest rate (%) 0.88-1.57
Expected life of share options/warrants (years) 1.3-8.8
The expected lives of the Restricted Preference shares were based on
historical data and then-current expectations and were not indicative of
exercise patterns that may occur. The expected volatility reflected the
assumption that the historical volatility of comparator companies over the
period similar to the life of the Restricted Preference shares is indicative
of future trends, which may not necessarily be the actual outcome.
On 6 August 2019, 1,730,765 of the Restricted Preference shares were converted
into Ordinary shares. The remaining 2,769,235 Restricted Preference shares
were gifted back to the Company for no consideration as part of the Torchlight
transaction. The restricted preference shares gifted back to the Company were
subsequently cancelled.
The conversion and cancellation of the restricted preference shares was
treated as an acceleration of vesting and therefore the amount that would have
been recognised for services received over the remainder of the vesting period
was recognised immediately, in the 2020 financial year. The expense is shown
in the following table:
30 June 2021 30 June 2020
£ £
Expenses arising from Restricted Preference shares - 1,599,681
Total expense from share-based payments - 1,599,681
20) FINANCIAL INSTRUMENTS
The Group's financial assets, as defined under IFRS 9, and their estimated
carrying amount are as follows:
Group Company
2021 2020 2021 2020
£ £ £ £
Carrying amount of financial assets at amortised cost
Trade and other receivables 53,375 63,889 3,758,378 3,828,071
Cash at bank and in hand 66,915 1,535,946 19,252 1,476,379
21) FINANCIAL RISK MANAGEMENT
The Company's directors have overall responsibility for the establishment and
oversight of the Group's risk management framework.
The Company's and Group's risk management policies are established to identify
and analyse the risks faced by the Company and Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect the changes
in market conditions and the Group's activities. The Company and Group,
through its training and management standards and procedures, aims to develop
a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Company and Group has exposure to the following risks arising from
financial instruments:
o credit risk
o liquidity risk
o market risk
Capital risk management
The Company and Group's objective when managing capital is to safeguard its
accumulated capital in order to provide an adequate return to shareholders by
maintaining a sufficient level of funds, in order to support continued
operations.
The Company and Group considers its capital to comprise equity capital less
accumulated losses.
The share premium reserve includes premiums received on the issue of share
capital during the year.
The Group refinanced their loan portfolio in the 2020 financial year. As a
result, the Group entered into new loan agreements with Hodge Bank. The total
loans with Hodge Bank at 30 June 2021 totalled £7,868,169. The loan
agreements contain the following covenants:
o The maximum available loan amount relative to the value of the properties
will not be, at any time, during the term of the loan, more than 75% of the
market value of the properties (as determined from time to time in accordance
with the lenders requirements by a valuer appointed by the lender) ; and
o The aggregate of all rental income from the properties shall not, in any
twelve month period, be less than 125% of the aggregate of all scheduled
interest instalments or other payments due under the loan in that period.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations.
The Group has no significant concentration of credit risk, with exposure
spread over a large number of counterparties and customers.
The carrying amount of financial assets represents the maximum credit
exposure. The maximum exposure to credit risk is as reported in the statement
of financial position.
Liquidity risk
Liquidity risk is the risk that the Company and Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another financial asset.
The Company's and Group's approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions, without
incurring unacceptable losses or risking damage to the Company's and Group's
reputation.
The contractual maturities of financial liabilities are disclosed in note 18.
Market risk
Market risk is the risk that changes in market prices, such as interest rate
and equity prices will affect the Group and the Company's income or the value
of its holdings of financial instruments. The objective of market risk
management is to manage and control market risk exposure within acceptable
parameters, while optimising the return.
Sensitivity
Interest rate sensitivity:
At 30 June 2021, if interest rates had been 0.5 percentage point higher and
all other variables were held constant, it is estimated that the Group's loss
before tax would increase to £992,377 (2020 - £3,604,930). This is
attributable to the Group's exposure on its borrowings and is based on the
change taking place at the beginning of the financial year and held constant
throughout the reporting period.
22) RELATED PARTIES
Year Ended 30 June 2021
During the year, remuneration paid to Russell Naylor consisted of fees of
£48,000 charged by Naylor Partners, a business in which Russell Naylor is a
Director (2020 - £44,000).
The remuneration paid to Richard Boon in 2021 consisted of fees of £18,900
(2020 - £18,130) charged by Artefact Partners, a business in which Richard
Boon is a Director.
During the year, the Group paid DGS Capital Partners LLP, a limited liability
partnership in which Michael Davies is a member, fees of £9,000 plus VAT of
£1,800 (2020 - £36,000 plus VAT of £7,200).
Further details of total director remuneration is contained with the Report of
the Directors on page 19. Christopher James is also considered as key
management personnel. His remuneration in the period totalled £113,027 (2020
- £70,881), which includes a provision of £38,027 for a catch up payment
incentive which will be due when the business achieves cash-flow breakeven
Year Ended 30 June 2020
On 24 June 2018, the Company entered into a loan agreement arranged by DGS
Capital Partners LLP, a limited liability partnership in which Michael Davies
is a member, with certain investors. The loan was for £1,475,000 and was
subject to an interest rate of 12 per cent per annum. The loan was to be
repaid within 300 days of the initial drawdown date of 29 June 2018. The loan
was extended during the 2019 financial year and from 10 April 2019, the
interest rate was increased to 14 per cent per annum. In the 2020 financial
year, the Company incurred interest of £30,196 on the loan. On 6 August 2019
the loan and all outstanding interest and fees were repaid. The repayment
consisted of £1,425,000 cash and £129,311 of Ordinary shares.
During the year ended 30 June 2019, Oliver Vaughan, an ex director of the
Company, loaned the Company £150,000. The loan was unsecured and was due for
repayment on 15 May 2019. The loan was extended in June 2019. Upon extension
of the loan, the lender charged the Company a fee of £10,000. The loan was
interest free. £110,000 of the loan was repaid via the issue of Ordinary
shares in the Company on 6 August 2019. The remaining £50,000 was repaid on 8
August 2019.
During the year ended 30 June 2019, the Company issued £50,000 of convertible
loan notes to Kimono Investments Limited, an entity in which Oliver Vaughan's
children have a financial interest. The Company was charged £340 interest in
the 2020 financial year. The principal loan was repaid on 22 August 2019. The
repayment consisted of £50,000 of Ordinary shares.
During the year to 30 June 2019, the Company issued convertible loan notes to
the White Amba Pension Scheme of £25,000. The Company was charged £170
interest in the 2020 financial year. The principal loan was repaid on 22
August 2019. The repayment consisted of £25,000 of Ordinary shares.
During the year to 30 June 2019, the Company issued convertible loan notes to
Katie James, relative of ex director Timothy James of £25,000. The Company
was charged £170 interest in the 2020 financial year. The principal loan was
repaid on 22 August 2019. The repayment consisted of £25,000 of Ordinary
shares.
During the previous year, Timothy Oakley, ex director of a number of
subsidiary companies, received remuneration of £nil (2020 - £10,541). During
the year ended 30 June 2019 Timothy Oakley also loaned the Company £50,000 as
part of the loan arranged by DGS Capital Partners LLP, as detailed above.
Interest of £595 was charged to the Company in the 2020 financial year. The
loan was repaid on 22 August 2019. The repayment consisted of £50,000 of
Ordinary shares.
23) POST-BALANCE SHEET EVENTS
After the year end a new 5 year variable rate facility of £2,375,000 was
entered into with Secure Trust Bank Plc. Funds were used to refinance the
existing Proplend facility and provide additional capital to support Group
activities, including the acquisition of another flat within the Heathside
freehold which completed on 11(th) September 2021.
A flat at Lomond Court which was a non-core asset with no strategic value was
sold and settled post balance date for £280,000. The majority of net sale
proceeds were utilized to reduce the Hodge Bank facility.
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