REG-Lon.&Assoc.Props PLC: Annual Financial Report <Origin Href="QuoteRef">LAS.L</Origin> - Part 1
28/04/2017 12:05
FOR IMMEDIATE RELEASE
28 APRIL 2017
LONDON & ASSOCIATED PROPERTIES PLC:
RESULTS FOR 12 MONTHS TO 31 DECEMBER 2016
HIGHLIGHTS
LAP:
* Directly owned property values rose to £89.2 million from £88.8 million
* Rental income increased to £6.2 million (2015: £6.1 million)
* Revenue levels maintained at £6.7 million (2015: £6.8 million)
* Voids of just 2.15% by rental income
PROPERTIES:
* Orchard Square: * Negotiated new 10 year lease with anchor tenant T K Maxx
* Virgin Money completed cutting edge banking offer complete with bowling
alley and cinema
* Brixton: * Two markets remain fully let and an ever-lengthening waiting list
of retailers
* West Bromwich: * Continues to benefit from bus station and tram interchange
at centre’s rear
* Centre once again effectively fully occupied
* Harrogate Portfolio: * All three centres continue to trade well and have
high occupancy levels
GROUP:
* “Continues to make steady progress against continuing backdrop of
uncertainty and transition”
* Substantial reduction in pre-tax losses to £0.97 million from £2.09
million
* Group net assets of £48.6 million (2015: £49.7 million)
* Final dividend increase of 3% to 0.165p per share recommended
BISICHI MINING:
* Achieved EBITDA of £2.4 million (2015: £1.4 million) in challenging market
conditions
* Property portfolio performed well: * Net revenue of £1.06 million (2015:
£1.01 million)
* UK investment properties valued at £13.25 million (2015: 12.8 million)
“Another satisfactory year in the property business of LAP despite a
continuing backdrop of uncertainty and transition in the retailing world,”
Sir Michael Heller, Chairman, and John Heller, Chief Executive.
Contact:
London & Associated Properties
PLC
Tel: 020 7415 5000
John Heller, Chief Executive, or Anil Thapar, Finance Director
Baron Phillips Associates
Tel: 07767 444193
Baron Phillips
LONDON & ASSOCIATED PROPERTIES
ANNUAL REPORT 2016
Contents
OVERVIEW...........................................................................................................................................................
3
LAP at a
glance....................................................................................................................................................
3
Chairman and Chief Executive’s
statement........................................................................................................
5
STRATEGIC
REPORT.......................................................................................................................................
9
Financial
review....................................................................................................................................................
9
Principal activities, strategy & business
model.................................................................................................
13
Risks and
uncertainties......................................................................................................................................
13
Bisichi risks and
uncertainties...........................................................................................................................
14
Key performance
indicators...............................................................................................................................
14
Corporate
responsibility.....................................................................................................................................
15
GOVERNANCE.................................................................................................................................................
17
Directors &
advisors..........................................................................................................................................
17
Directors’
report.................................................................................................................................................
19
Corporate
Governance.......................................................................................................................................
24
Governance Statement by the Chairman of The Remuneration
Committee.................................................... 26
Annual remuneration
report................................................................................................................................
27
Remuneration policy
summary..........................................................................................................................
32
Remuneration
policy..........................................................................................................................................
34
Audit committee
report.......................................................................................................................................
38
Directors’ responsibilities
statement..................................................................................................................
39
Independent auditor’s
report...............................................................................................................................
40
FINANCIAL
STATEMENTS............................................................................................................................
42
Consolidated income
statement........................................................................................................................
42
Consolidated statement of comprehensive
income..........................................................................................
43
Consolidated balance
sheet...............................................................................................................................
44
Consolidated statement of changes in shareholders’
equity.............................................................................
46
Consolidated cash flow
statement.....................................................................................................................
48
Group accounting
policies..................................................................................................................................
50
Notes to the financial
statements.......................................................................................................................
58
Five year financial
summary..............................................................................................................................
91
Financial calendar
Annual General Meeting
6 June 2017
Announcement of half year results to 30 June 2017
Late August 2017
Announcement of annual results for 2017
Late April 2018
OVERVIEW
LAP at a glance
London & Associated Properties PLC (“LAP”) is a main market listed group
which invests in UK shopping centres and retail property whilst also managing
property assets for institutional clients. LAP owns and/or manages £221
million of property investments.
The Group also holds a substantial investment in Bisichi Mining PLC, which
operates coal mines in South Africa and owns UK property investments. In
accordance with IFRS 10 the results of Bisichi have been consolidated in the
group accounts.
Looking to create environments where retailers can thrive.
Financial highlights
Fully diluted net assets per share
44.83p
2015: 47.26p
IFRS net assets
£48.6m
2015: £49.7m
Portfolio valuation*
£221m
2015: £246m
*Including properties under management
KEY PROJECTS HIGHLIGHT
Wholly owned • Orchard Square, Sheffield • Market Row and Brixton Village Brixton • King Square, West Bromwich A number of value enhancing lettings at Orchard Square, Sheffield
Joint ventures and management • Langney Shopping Centre Eastbourne Joint venture with Columbus Capital in Langney. Investment in joint venture sold in March 2016
Investments and management • Kingsgate Centre, Dunfermline • The Rushes Centre, Loughborough • The Vancouver Quarter Centre Kings Lynn Co-investment with Oaktree Capital Management and manage three of their shopping centres
Coal production • In South Africa, Black Wattle produced 1.26 million metric tonnes of Run of Mine Coal in 2016 (2015: 1.58 million metric tonnes)
Chairman and Chief Executive’s statement
We are pleased to report another satisfactory year in the property business of
LAP despite a continuing backdrop of uncertainty and transition in the
retailing world. Our comments below deal primarily with the LAP property
business with supplementary comments about our investment in Bisichi Mining
PLC, in which we own 41.5%, being based on the comments of the Bisichi
management.
The Referendum in June 2016 for the United Kingdom’s planned withdrawal from
the European Union has led to a number of retailers delaying their expansion
plans as adverse currency movements and political upheaval combine to create a
much more difficult trading environment. In addition, the ongoing shift
towards online retailing has led to further consolidation within the occupier
market, which, in turn, has led to a greater surfeit of units. Many retailers
have either reduced their estate or merged. Finally, retailer insolvencies
have added further to the number of vacant units competing for tenants.
Total property assets under management in which we have a financial interest
were valued at £220.7 million as at 31 December 2016 compared to £226.9
million in 2015. This includes those of Bisichi, Dragon Retail Properties (our
joint venture with Bisichi) and Project Harrogate (our joint venture with
Oaktree Capital Management).
Total occupancy of the group property portfolio stands at 97.9%.
For shareholders to get a proper understanding of the accounts, it is
necessary to consider separately the position of LAP and Bisichi. Although
both are consolidated into group accounts (as required by IFRS 10), they are
managed independently.
Consolidated RESULTs
Group net assets at the year-end were £48.63 million (2015: £49.65 million).
Most of this change is attributable to a reduction of £1.3 million in
recoverable deferred tax. It should be noted that the group has a potential
future benefit of £5.4 million in respect of unrecognised taxation losses
available to offset future profits and gains.
At the same time £0.8 million (2015: £0.6 million) of liabilities relates to
a mark to market of interest rate derivatives, primarily swaps that were taken
out to hedge a loan from Santander and which expire at the same date. We do
not intend to repay the loan early and therefore these derivative liabilities
are unlikely to crystalise.
The Group loss after valuation movements and before taxation for the year was
£0.97 million (2015: £2.09 million). A full breakdown of group income and
results by sector is included in the financial review on page 15 and in the
segmental analysis in Note 1 to the accounts.
Over the course of the next 18 months, a legacy debenture of which
£3.75million is outstanding, with a coupon of 11.6% will be repaid. We are
already talking to potential lenders about a refinancing of the properties
held as collateral and are confident that this will lead to a significant
reduction in interest payable. We will keep shareholders informed as
negotiations progress.
LAP property activities
LAP’s rental income actually rose from £6.1 million to
£6.2 million. Once again our intensive management style has enabled us to
maintain our total revenue levels at £6.7 million (2015: £6.8 million). The
small drop in total property revenue was due to lower management income from
third party properties of £0.5 million as compared to £0.7 million in 2015
following the disposal of an investment.
At the same time, LAP’s direct property costs fell from
£1.5 million to £1.2 million. Much of this drop is attributable to lower
vacancy costs following new lettings but we also worked hard to reduce
expenses and fees.
Shopping centre values generally were affected by deteriorating market
sentiment and we were unable to escape this market shift altogether.
Nevertheless, our directly owned properties were valued at the year-end at
£89.2 million compared to £88.9 million in the preceding year.
We believe our core property holdings will continue to interest investors as
they are all either part of a major city that will remain a destination in its
own right; a differentiated offer which forms part of a leisure experience; or
they fulfil
a role providing convenient retail facilities.
Orchard Square, Sheffield
Orchard Square continued to trade well in 2016. Currently there is only one
vacant unit within the Square, which arose following the insolvency of a
tenant in the second half of the year. The unit is being let on a temporary
basis, and we are in discussions with a number of retailers for a permanent
lease.
In May 2016, we re-geared our lease with TK Maxx, the anchor tenant of the
Centre which trades from a 45,000 square feet unit. We now have an unbroken 10
year lease from March 2016 at an annual rent of £475,000 compared to
£625,000 previously. This rental adjustment reflects in part market
conditions – particularly the competition we faced from other landlords
within Sheffield for this highly regarded retailer – and partly the lack of
a rent free period that such a letting would normally attract.
We are very pleased that TK Maxx confirmed Orchard Square to be its favoured
location in Sheffield, and believe that this re-gearing will assist us in
attracting new retailers to the scheme as well as securing lease renewals from
our existing tenants.
Elsewhere within the Centre, Virgin Money completed the development of its
cutting-edge banking offer which incorporates a bowling alley, cinema, reading
room and other non-traditional banking services. The end result is dramatic,
and makes for an exciting experience for visitors to the Centre.
We are also carrying out a number of smaller lettings in the Centre where
existing leases are expiring. These include a nail bar/beautician and a
tattooist, which all form part of the shopping-as-leisure experience. We have
also worked with pop-up retail operators to put food trucks within our Centre
to attract shoppers. These retailers have been well received by the public.
Finally, we refurbished the common parts and a floor of offices over Virgin
Money during the course of the year.
As a result, we have signed a new lease with one of the existing office
tenants whose lease was expiring, and we are in discussions for a new lease on
the only vacant office floor.
Brixton
These two markets remain fully let with an ever-lengthening waiting list of
retailers.
Brixton exemplifies successful modern shopping as it combines independent
retail with interesting street food and a non-High Street feel. This tangible
experience cannot be replicated online and our markets are a destination for
shoppers and diners from all over London and beyond. We expect this strong
trend towards experiential shopping to continue enhancing the prospects of
these markets.
The redevelopment of the land opposite the rear of Brixton Village is now to
commence in 2017 following a number of unforeseen delays resulting from the
need to assemble all
of the land on behalf of the Council. This will see a further
303 apartments being built to the rear of our markets
West Bromwich
This Shopping Centre has, for some years, felt the effect of too many
available shops within the town centre following the 473,000 square feet
development of a large Tesco and additional retail space on the opposite side
of the High Street to our own Centre. Nevertheless, we continue to benefit
from the bus station and tram interchange at the rear of our scheme which has
ensured the Centre remains popular with shoppers.
We have steadily filled the void units caused by aggressive poaching of our
tenants on terms we were unwilling to match by the adjacent developer, and the
Centre is once again approaching full occupancy. Retailers aiming at value and
convenience, trade extremely well from this location, and we are confident
that trading will continue to be positive here in the future.
Other
The rest of our portfolio continues to trade well and LAP’s portfolio has a
void level of just 2.15% (2015: 2.07%).
Harrogate Portfolio
Kings Lynn
This Centre continues to trade well. During the year, we secured planning
permission and freeholder consent for the redevelopment of a former Beales
department store whose lease had recently expired. The consent is for 33,000
square feet of retail across five units, including a 20,000 square feet anchor
store, and the headlease was re-geared to enable us to extend the footprint of
the building over existing walkways. We have agreed a new lease with an anchor
tenant, and will shortly exchange an agreement for lease, enabling demolition
of the existing building and construction of the new property to commence.
Elsewhere within the scheme, our Sainsbury foodstore sub-let half its space to
B&M Retail. While we do not benefit in rental terms, this sub-letting has
contributed
to increased footfall throughout the Centre
Loughborough
Occupancy at this Centre has remained extremely high throughout the year,
restricting the number of asset management initiatives we have been able to
undertake.
Dunfermline
This Centre has traded well all year and we have been able to carry out a
number of lease extensions to existing retailers as well as new lettings to
various retailers.
Dragon Retail Properties
Dragon’s principal asset is a building in Clifton, Bristol. During the year,
the building remained fully occupied and was valued at £2.6 million (2015:
£2.6 million).
MINING ACTIVITIES BY Bisichi Mining Plc
The management of Bisichi report that for the year ended 31 December 2016, the
company achieved earnings before interest, tax, depreciation and amortisation
(EBITDA) of £2.4 million (2015: £1.4 million), a significant improvement on
the previous year despite the impact on Black Wattle, its direct coal mining
subsidiary in South Africa, of both mining challenges and a sluggish coal
market for most of the year.
For the first half of 2016 Black Wattle continued to supplement production
from its own reserves with coal mined at Blue Nightingale under an agreement
to purchase Run of Mine coal. Unfortunately, the quality of the Blue
Nightingale coal deteriorated as the reserve came to an end and the higher
cost per tonne produced, along with supressed coal prices, impacted on overall
earnings during the first half of the year.
In anticipation of the Blue Nightingale reserve coming to an end, management
plans were already in place to increase production from Black Wattle’s own
reserves. Part of this plan entailed increasing the production from an
existing opencast area at Black Wattle as well as the development of a new
opencast area to replace the coal purchased from Blue Nightingale.
In these new opencast areas Bisichi has had to deal with stone contamination
issues which have affected both yield and mining production through the
washing plant and have consequently impacted on their earnings in the second
half of the year. Management are initiating various infrastructure
improvements to the coal washing plant which will be completed by the end of
the second quarter of 2017. The new infrastructure will assist in reducing
stone contamination through the plant and will allow Black Wattle to mine at a
higher rate of production at our opencast areas and increase yield.
As a result of the lower production in the second half of the year, overall
Run of Mine production from Black Wattle decreased in 2016, with total
production for the year of 1.26 million metric tonnes (2015: 1.58 million
metric tonnes).
Black Wattle continues to perform well under the
Quattro Programme, which allows junior black-economic empowerment coal
producers direct access to the coal export market via Richards Bay Coal
Terminal.
Looking forward into 2017, coal prices have continued to remain stable at
somewhat higher levels compared to the prior year and Bisichi continues to see
strong demand for coal in both the domestic and export markets.
Bisichi’s property portfolio is managed by LAP and continues to perform
well. Overall, net Property revenue (excluding joint ventures) was £1.06
million (2015: £1.01 million). The increase, compared to the prior year, can
mainly be attributed to the contribution to revenue from a new retail property
in Northampton, which was acquired in October 2015.
The property portfolio was externally valued at 31 December 2016 and the value
of UK investment properties attributable to the group at year end was £13.25
million (2015: £12.8 million).
Bisichi has decided to hold the dividend at the 2015 level and will recommend
a final dividend of 3p (2015: 3p). LAP’s cash share of this is £177,000
(2015: £177,000).
Dividend
Your directors are pleased to recommend a dividend of 0.165p, an increase of
3% over 2015.
Finally, we would like to thank all of our staff and advisors for their hard
work during the course of the year.
Sir Michael Heller, John Heller,
Chairman Chief Executive
27 April 2017
STRATEGIC REPORT
Financial review
The financial statements for 2016 have been prepared to reflect the
requirements of IFRS 10. This means that the accounts of Bisichi Mining PLC (a
London Stock Exchange main market quoted company – BISI) (“Bisichi”),
have been consolidated with those of LAP.
Bisichi continues to operate as a fully independent company and currently LAP
owns only 41.52% of the issued ordinary share capital. However, because
related parties also have shareholdings in Bisichi and there is a wide
disposition of other shareholdings, LAP is deemed under IFRS 10 to have
effective control of Bisichi for accounting purposes. This treatment means
that the income and net assets of Bisichi are disclosed in full and the value
attributable to the “non-controlling interest” (58.48%) is shown
separately in the equity section as a non-controlling interest. There is no
impact on the net assets attributable to LAP shareholders.
Dragon Retail Property Limited (“Dragon”), our 50:50 joint venture with
Bisichi is also consolidated.
Shareholders are aware that LAP is a property business with a significant
investment in a listed mining company. The effect of consolidating the
results, assets and liabilities of the property business and the mining
company make the figures complex and less transparent. Property company
accounts are already subject to significant volatility as valuations of
property assets as well as derivative liabilities can be subject to major
movements based on market sentiment. Most of these changes, though, have
little or no effect on the cash position and it is, of course, self-evident
that cash flow is the most important factor influencing the success of a
property business. We have endeavoured to explain the factors affecting the
property business first, clearly separating these from factors affecting the
mining business which we do not manage. Comments about Bisichi (the mining
business) are based on information provided by the independent management of
that company.
LOANS
Long term debt of LAP (excluding Bisichi and Dragon which are detailed
separately below), consists of a £45 million facility expiring in July 2019
and two debentures: one of £10 million expiring in August 2022 and another of
£3.75 million with £0.75 million and £3 million repayable in August 2017
and August 2018, respectively. As in previous years, all loans and debentures
are secured on core property and cash deposits and are covenant compliant.
LAP’s five year £35 million non-recourse loan from Santander, as senior
lender, is supported by a £10 million loan from Europa Capital Mezzanine
Limited, as mezzanine lender. The senior loan facility is fully hedged and at
the year end, 50% of the loan was swapped at a rate of 2.25% and the remaining
50% was covered by an interest cap at 2.25%. This gives a blended current
interest rate of 4.71% for the total £45 million debt. In February 2016, an
interest cap swaption was replaced by an interest cap at 2.25%.
Cash flow
The operating cash flow and net cash balances at the year-end were as follows:
CASH FLOW FROM OPERATIONS 2016 2015 £’000
£’000
LAP 2,623 2,380
Bisichi 2,879 1,931
Dragon 84 64
Group total 5,586 4,375
Note: The figures exclude inter-company transactions.
NET CASH BALANCES 2016 2015 £’000
£’000
LAP 3,706 3,192
Bisichi (890) (626)
Dragon 115 9
Group total 2,931 2,575
Our investment with Oaktree Capital Management (HRGT Shopping Centres LP),
remains profitable and generates management fees (2016: £0.46 million and
2015: £0.46 million) for our wholly owned subsidiary (London & Associated
Management Services Limited). We also received £0.1 million (2015: £0.2
million) as a partial repayment of our loan.
During the year, LAP and Bisichi sold their entire investment (of 12.5% each)
in Langney Shopping Centre Unit Trust for £2.28 million in cash. Additionally
£0.2 million was received for dividends and loan repayment.
Income statement
The segmental analysis in note 1 to the financial statements gives more detail
but the tables below give a clearer summary of the Group results.
RESULTS BEFORE REVALUATIONS AND NON-CASH MOVEMENTS 2016 2015 £’000
£’000
LAP (1,070) (1,900)
Bisichi (241) (431)
Dragon 9 69
Group total (1,302) (2,262)
Note: The figures exclude inter-company transactions.
Strenuous efforts to cut costs at LAP are reflected in lower overheads and
property expenses, resulting in an improvement of £0.8 million in the
operating result before revaluations of the core property business.
Our property portfolio (including Bisichi) of £105.1 million increased on
revaluation by £0.5 million, a 0.5% increase.
As shown below the stable property revenues, reductions in running costs and
increased property valuations, have resulted in the property business showing
a reduction of £0.74 million in the LAP loss before taxation to £1.15
million (2015: £1.89 million).
(Loss)/profit before taxation 2016 2015 £’000
£’000
LAP (1,150) (1,886)
Bisichi 216 (217)
Dragon (40) 10
Group loss before taxation (974) (2,093)
Note: The figures exclude inter-company transactions.
The LAP Group taxation charge of £1.17 million (2015: credit £0.05 million)
is mainly due to writing off part of the deferred tax asset, because the
current estimate of the amount of foreseeable taxable profit is insufficient
to offset all of the carrying value.
Balance sheet
Taking account of the changes required by IFRS 10 (see table below) LAP has
group net assets of £48.6 million (2015: £49.7 million). This reduction of
£1.1 million in net assets arises from the loss after taxation of £2.1
million offset by exchange differences on translation of Bisichi Mining
PLC’s foreign operations (£1.1 million). (see page 59).
Net assets attributable to equity shareholders at the year-end were 44.83p per
share (2015: 47.26p per share).
2016 LAP Original Group £’000 Bisichi Mining PLC Group £’000 Dragon Retail Properties £’000 Consolidation adjustments £’000 LAP Net assets £’000
Investment properties 93,791 13,426 2,630 - 109,847
Other fixed assets 112 8,520 21 - 8,653
Investments in Bisichi Mining PLC 6,918 - - (6,918) -
Investments and loans in joint ventures 866 2,671 - (1,732) 1,805
Other non current assets 3,008 32 - - 3,040
Current assets 5,559 12,224 2,447 (4,347) 15,883
Current liabilities (9,014) (10,326) (2,078) 4,347 (17,071)
Non-current liabilities (62,697) (9,541) (1,288) - (73,526)
Net assets 38,543 17,006 1,732 (8,650) 48,631
2015
Investment properties 93,510 12,994 2,668 – 109,172
Other fixed assets 148 5,374 30 – 5,552
Investments in Bisichi Mining PLC 6,357 – – (6,357) –
Investments and loans in joint ventures and assets held for sale 2,041 3,266 – (1,747) 3,560
Other non current assets 4,385 14 – – 4,399
Current assets 5,534 9,467 2,548 (4,531) 13,018
Current liabilities (8,605) (6,501) (2,199) 4,531 (12,774)
Non-current liabilities (62,992) (8,983) (1,300) – (73,275)
Net assets 40,378 15,631 1,747 (8,104) 49,652
Bisichi mining plc
Although the results of Bisichi Mining PLC have been consolidated in these
financial statements, the Board of LAP has no direct influence over the
management of Bisichi. The comments below are based on the published accounts
of Bisichi.
The Bisichi group results are stated in full in its published 2016 financial
statements which are available on its website: www.bisichi.co.uk.
The Bisichi group increased its EBITDA to £2.4 million (2015: £1.4 million),
mainly due to revaluation movements on UK investment property of £0.6 million
(2015: £0.2 million) and exchange rate gains of £0.4 million (2015: loss
£0.5 million). Profit for the year after tax was £0.3 million (2015: loss
£0.1 million). Bisichi has two core revenue streams – investment in retail
property in the UK and coal mining in South Africa.
The volatility in South African Rand against UK Sterling, continued to impact
on the earnings during the year. The results of the year were positively
impacted by an exchange rate gain of £0.4 million against an exchange rate
loss of £0.5 million during the prior year. These exchange movements are
mainly due to retranslation of Rand denominated inter-company trade receivable
balances with the group’s South African mining operations that are held
within the UK. Before taking into account of the impact of the above exchange
movements, The Bisichi group’s operating activities achieved an adjusted
EBITDA (Operating profit before depreciation, fair value adjustments and
exchange movements) of £1.5 million (2015: £1.7 million). This decrease is
mainly due to lower Run of Mine production at Black Wattle offsetting the
impact of the higher coal prices in the last quarter.
The UK retail property portfolio was valued at the year end at £13.25 million
(2015: £12.8 million). The increase is mainly due to higher valuation of a
retail property in Northampton. The property portfolio is actively managed by
LAP and generates rental income of £1.0 million (2015: £1.0 million).
In South Africa, a subsidiary of Bisichi signed an increase in the structured
trade finance facility from R60 million to R80 million (South African Rand) in
October 2013 with Absa Bank Limited. This facility is renewable annually at
30 June and is secured against inventory, debtors and cash that are held in
the Bisichi group’s South African operations.
In the UK, the Bisichi group signed a £6 million five-year term loan with
Santander in December 2014. £123,300 of this loan was repaid in the year.
This loan is secured against UK investment property.
Overall the Bisichi group achieved a net increase in cash and cash equivalents
of £0.4 million (2015: decrease of £1.7 million). This increase was mainly
attributable to a one off cash receipt from the sale of its interest in
Langney Shopping Centre Unit Trust for £1.14 million. After taking into
account an exchange loss of £0.7 million on the translation of the Bisichi
group’s year end net cash borrowings that were held in South African Rand,
the group’s net balance owing of cash and cash equivalents (including bank
overdrafts) at year end was £0.9 million (2015: £0.6 million). The Bisichi
group’s cash and cash equivalents (excluding bank overdrafts) at the
year-end were £2.4 million (2015: £1.6 million).
The Bisichi group’s financial position remains strong. Its net assets at 31
December 2016 were £17 million (2015: £15.6 million).The group expect to
continue to achieve significant value from its existing mining operation. In
addition, Bisichi seeks to expand its operations in South Africa through the
acquisition of additional coal reserves.
DRAGON RETAIL PROPERTIES LIMITED
Dragon is a UK property investment company. The company has a Santander bank
loan of £1.25 million secured against its investment property and is covenant
compliant. It paid management fees of £72,000 (2015: £84,000) split equally
to the two joint venture partners. Its results continue to be near breakeven
after taxation. Dragon has net assets of
£1.7 million (2015: £1.7 million).
Accounting judgements and going concern
The most significant judgements made in preparing these accounts relate to the
carrying value of the properties, investments and interest rate hedges. The
hedges have been valued by the hedge provider. The Group uses external
property valuers to determine the fair value of its properties.
Under IFRS10 the Group has included Bisichi Mining PLC in the consolidated
accounts, as it is deemed to be under the effective control of LAP and has
therefore been treated as a subsidiary.
The Directors exercise their commercial judgement when reviewing the Group’s
cash flow forecasts and the underlying assumptions on which the forecasts are
based. The Group’s business activities, together with the factors likely to
affect its future development, are set out in the Chairman and Chief
Executive’s Statement and in this review. In addition, the Directors
consider that note 23 to the financial statements sets out the Group’s
objectives, policies and processes for managing its capital; its financial
risk management objectives; details of its financial instruments and hedging
activities; and its exposure to credit risk, liquidity risk and other risks.
With a quality property portfolio comprising a majority of tenants with long
leases supported by suitable financial arrangements, the Directors believe the
company is well placed to manage its business risks successfully, despite the
continuing uncertain economic climate. The Directors therefore have a
reasonable expectation that the company has adequate resources to continue in
operational existence for the foreseeable future. Thus, they continue to adopt
the going concern basis of accounting in preparing the annual financial
statements.
TAXation
The LAP Group tax strategy is to account for tax on an accurate and timely
basis. We only structure our affairs based on sound commercial principles and
wish to maintain a low tax risk position. We do not engage in aggressive tax
planning.
The LAP Group (excluding Bisichi and Dragon) has unused tax losses and
deductions with a potential value of £10.18 million of which only £4.73
million has been recognised in the 2016 financial statements. As LAP returns
to profit, these tax losses and deductions should be utilised.
Dividends and future prospects
The directors are proposing a final dividend of 0.165p
per ordinary share payable in September 2017. This is an increase of 3%
compared to the 2015 dividend of 0.16p per ordinary share.
The Group remains confident about its trading and future outlook and is
looking to further reduce its overhead costs and interest payable; while it
stabilises its property income together with seeking out growth opportunities.
Principal activities, strategy & business model
The Group’s principal business model is the investment in and management of
town centre retail property through direct investment and joint ventures,
where we manage the property ourselves and on behalf of our partners.
The principal activity of Bisichi Mining PLC is coal mining in South Africa.
Further information is available in its 2016 Financial Statements which are
available on their web site: www.bisichi.co.uk
STRATEGIC PRIORITIES ARE OUR STRATEGY IS
MAXIMISING INCOME By achieving an appropriate tenant mix and shopping experience we can increase footfall through the centres, hence increase tenant demand for space and enhance income.
CREATING QUALITY PROPERTY We look to improve the consumer experience at all our centres by achieving an appropriate tenant mix and a vibrant trading environment through investment activity, enhancement, refurbishment and development.
CAPITAL STRENGTH We operate within a prudent and flexible financial structure. Our gearing, which has been substantially reduced, provides financial stability whilst giving capacity and flexibility to look for further investments.
MAINTAIN THE VALUE OF INVESTMENT IN BISICHI By encouraging the Bisichi management to maximise sustainable profits and cash distributions.
Risks and uncertainties
DESCRIPTION DESCRIPTION MITIGATION
OF RISK OF IMPACT
ASSET MANAGEMENT:
TENANT FAILURE Financial loss. Initial and subsequent assessment of tenant covenant strength combined with an active credit control function.
LEASES NOT RENEWED Financial loss. Lease expiries regularly reviewed. Experienced in house teams with strong tenant and market knowledge who manage appropriate tenant mix.
ASSET LIQUIDITY (SIZE AND GEOGRAPHICAL LOCATION) Assets may be illiquid and affect flexing of balance sheet. Regular reporting of current and projected position to the Board with efficient treasury management.
PEOPLE:
RETENTION AND RECRUITMENT OF STAFF Unable to retain and attract the best people for the key roles. Nomination Committee and senior staff review skills gaps and succession planning. Training and development offered.
REPUTATION:
BUSINESS INTERRUPTION Loss in revenue. Impact on footfall. Adverse publicity. Potential for criminal/ civil proceedings. Documented Recovery Plan in place. General and terrorism insurance policies in place and risks monitored by trained security staff. Health and Safety policies in place. CCTV in centres.
FINANCING:
FLUCTUATION IN PROPERTY VALUES Impact on covenants and other loan agreement obligations. Secure income flows. Regular monitoring of LTV and IC covenants and other obligations. Focus on quality assets.
REDUCED AVAILABILITY OF BORROWING FACILITIES Insufficient funds to meet existing debts/interest payments and operational payments. Efficient treasury management. Loan facilities extended where possible. Regular reporting of current and projected position to the Board.
LOSS OF CASH AND DEPOSITS Financial loss. Only use a spread of banks and financial institutions which have a strong credit rating.
FLUCTUATION OF INTEREST RATES Uncertainty of interest rate costs. Manage derivative contracts to achieve a balance between hedging interest rate exposure and minimising potential cash calls.
Bisichi risks and uncertainties
Bisichi (although it is consolidated into group accounts as required by IFRS
10) is managed independently of LAP. The risks outlined below are an
abbreviated summary of the risks reported by the Directors of Bisichi to the
shareholders of that Company. Full details are available in the published
accounts of Bisichi (www.bisichi.co.uk).
These risks, although critical to Bisichi, are of less significance to LAP
which only has a minority investment of 41.52% in the company. In the unlikely
event that Bisichi was unable to continue trading, it would not affect the
ability of LAP to continue operating as a going concern.
DESCRIPTION OF RISK DESCRIPTION OF IMPACT MITIGATION
COAL PRICES CAN BE IMPACTED MATERIALLY BY MARKET AND CURRENCY VARIATIONS Affects sales value and therefore margins. Forward sales contracts are used to manage value expectations.
MINING OPERATIONS ARE INHERENTLY RISKY. MINERAL RESERVES, REGULATIONS, LICENSING, POWER AVAILABILITY, HEALTH AND SAFETY CAN ALL DAMAGE OPERATIONS Loss of production causing loss of revenue. Use of geology experts, careful attention to regulations, health and safety training, employee dialogue to minimise controllable risks.
CURRENCY RISK Affects realised sales value and therefore margins. Regular monitoring and review of forward currency situation.
CASHFLOW VARIATION BECAUSE OF MINING RISKS, COMMODITY PRICE OR CURRENCY VARIATIONS Variations can deliver significant shifts in cash flow. UK property investments used to offset high risk mining operations.
Key performance indicators
The Group’s Key Performance Indicators are selected to ensure clear
alignment between its strategy and shareholder interests.
The KPIs are calculated using data from management reporting systems.
Strategic priority KPI Performance
MAXIMISING INCOME – LIKE FOR LIKE PROPERTY INCOME
To increase the like-for-like income from the property year on year. Like-for-like rental income as a percentage of the prior year rental. The like-for-like rental income has increased by £0.18m.
MAXIMISING INCOME – OCCUPANCY
We aim to maximise the total income in our properties by achieving full occupancy. The ERV of the empty units as a percentage of our total income. Void levels have stabilised.
CAPITAL STRENGTH – GROWTH IN NET ASSET VALUE PER SHARE
The net assets per share is the principal measure used by the group for monitoring its performance and is an indicator of the level of reserves available for distribution by way of dividend. Movement in the net assets per share. The net assets per share fell by 2.43 pence per share or 5.1%. The small reduction in NAV was to be expected as the assets and liabilities are re-organised and positioned for growth.
Corporate responsibility
Sustainable Development
Bisichi’s Black Wattle continues to strive to conduct business in a safe,
environmentally and socially responsible manner. Some highlights of their
Health, Safety and Environment performance in 2016:
• Black Wattle Colliery recorded one Lost Time Injury during 2016 (2015:
Two).
• No cases of Occupational Diseases were recorded.
• Zero claims for the Compensation for Occupational Diseases were submitted.
They continue to adhere and make progress in terms of their Social and Labour
Plan and their various BEE initiatives. A fuller explanation of these can be
found in Bisichi’s 2016 Financial Statements which are available on their
web site: www.bisichi.co.uk
Greenhouse gas reporting
We have reported on all of the emission sources required under the Companies
Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013 for the
reporting period 1st January 2016 to 31st December 2016. The emissions are
detailed in tables 1, 2, 3 and 4 below.
We have employed the Financial Control definition to outline our carbon
footprint boundary reporting Scope 1 & 2 emissions only. Emissions from both
landlord & tenant controlled areas of LAP owned shopping centres and
facilities that fall within the footprint boundary. LAP has landlord
controlled areas in Kings Square, Orchard Square, Brewery Street, Shipley and
Bridgend. Excluded from our footprint boundary are: properties that we manage
on behalf of others or are not wholly owned by LAP and emissions considered
non material by the business.
Emissions for landlord controlled areas have been calculated based on actual
consumption information collected from each shopping centre. Emissions from
tenant controlled areas have been calculated based on floor area and energy
consumption benchmarks for general retail services in the UK.
The Bisichi Group has employed the Operational Control boundary definition to
outline the carbon footprint boundary. Included within that boundary are Scope
1 & 2 emissions from coal extraction and onsite mining processes for Black
Wattle Colliery. Excluded from the footprint boundary are emission sources
considered non material by Bisichi Group, including refrigerant use onsite.
We have used the GHG Protocol Corporate Accounting and Reporting Standard
(revised edition) and guidance provided by UK’s Department of Environment
and Rural Affairs (DEFRA) on voluntary and mandatory carbon reporting.
Emission factors were used from UK Government’s GHG Conversion Factors for
Company Reporting 2016.
As well as reporting Scope 1 and Scope 2 emissions, legislation requires that
at least one intensity ratio is reported for the given reporting period. The
intensity figure represented below shows the emissions in tCO2e per thousand
pounds revenue.
Table1. landlord & tenant controlled areas
Emissions Source 2016 2015
Scope 1 emissions Natural gas (tCO2e) 234 245
Refrigerants (tCO2e) 5 -
Scope 2 emissions Electricity (tCO2e) 3,491 3,948
Total tCO2e 3,730 4,193
Intensity ratio (tCO2e/£thousand) 0.076 0.089
Table 2. LAP controlled areas
Emissions Source 2016 2015
Scope 1 emissions Natural gas (tCO2e) 234 245
Refrigerants (tCO2e) 5 -
Scope 2 emissions Electricity (tCO2e) 236 297
Total tCO2e 475 542
Table 3. Tenant controlled areas
Emissions Source 2016 2015
Scope 1 emissions Natural gas (tCO2e) - -
Refrigerants (tCO2e) - -
Scope 2 emissions Electricity (tCO2e) 3,255 3,651
Total tCO2e 3,255 3,651
1. 2015 and 2016 Guidelines to DEFRA/DECC’s GHG Conversion Factors for
Company Reporting, Department for environment,
Food and Rural Affairs (DEFRA) and Department for Energy and Climate Change
(DECC)
2. 2015 electricity and natural gas consumption figures have been restated due
to an increase of data accuracy.
Table 4. Coal mining carbon footprint
2016 CO2e Tonnes 2015 CO2e Tonnes
Emissions source:
Scope 1 Combustion of fuel & operation of facilities 11,860 10,571
Scope 1 Emissions from coal mining activities 22,171 27,789
Scope 2 Electricity, heat, steam and cooling purchased for own use 8,530 7,571
Total 42,561 45,931
Intensity:
Intensity 1 Tonnes of CO2 per pound sterling of revenue 0.0019 0.00179
Intensity 2 Tonnes of CO2 per pound of coal produced 0.034 0.0291
Environment
United Kingdom
The Group’s principal UK activity is property investment, which involves
renting premises to retail businesses. We seek to provide those tenants with
good quality premises from which they can operate in an efficient and
environmentally friendly manner. Where possible, improvements, repairs and
replacements are made in an environmentally efficient manner and waste
re-cycling arrangements are in place at all of the Company’s locations.
South Africa
The Bisichi group’s principal activity in South Africa is coal mining. Under
the terms of the mine’s Environmental Management Programme approved by the
Department of Mineral Resource (“DMR”), Black Wattle undertakes a host of
environmental protection activities to ensure that the approved Environmental
Management Plan is fully implemented. A performance assessment audit was
conducted to verify compliance to Their Environmental Management Programme and
no significant deviations were found.
Employee, social, community and human rights
The Group’s policy is to attract staff and motivate employees by offering
competitive terms of employment. The Group provides equal opportunities to all
employees and
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