REG-Lon.&Assoc.Props PLC: Annual Financial Report <Origin Href="QuoteRef">LAS.L</Origin> - Part 4
28/04/2017 12:05
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report
The committee’s terms of reference have been approved by the board and
follow published guidelines, which are available on request from the company
secretary.
At the year end the audit committee comprised two of the non-executive
directors – H D Goldring and C A Parritt, both of whom are Chartered
Accountants.
The audit committee’s primary tasks are to:
• review the scope of external audit, to receive regular reports from RSM UK
Audit LLP and to review the half-yearly and annual accounts before they are
presented to the board, focusing in particular on accounting policies and
areas of management judgement and estimation;
• monitor the controls which are in force to ensure the integrity of the
information reported to the shareholders;
• act as a forum for discussion of internal control issues and contribute to
the board’s review of the effectiveness of the Group’s internal control
and risk management systems and processes;
• to review the risk assessments made by management, consider key risks with
action taken to mitigate these and to act as a forum for discussion of risk
issues and contribute to the board’s review of the effectiveness of the
Group’s risk management control and processes;
• consider once a year the need for an internal audit function;
• advise the board on the appointment of the external auditors, the rotation
of the audit partner every five years and on their remuneration for both audit
and non-audit work; discuss the nature and scope of their audit work and
undertake a formal assessment of their independence each year, which includes:
i) a review of non-audit services provided to the Group and
related fees;
ii) discussion with the auditors of their written report
detailing all relationships with the Company and any other parties that could
affect independence or the perception of independence;
iii) a review of the auditors’ own procedures for ensuring the
independence of the audit firm and partners and staff involved in the audit,
including the regular rotation of the audit partner; and
iv) obtaining a written confirmation from the auditors that, in their
professional judgement, they are independent.
Meetings
The committee meets at least twice prior to the publication of the annual
results and discusses and considers the half year results prior to their
approval by the board. The audit committee meetings are attended by the
external audit partner, chief executive, finance director and company
secretary. During the year the members of the committee also meet on an
informal basis to discuss any relevant matters which may have arisen.
Additional formal meetings may be held as necessary.
During the past year the committee:
• met with the external auditors, and discussed their reports to the audit
committee;
• approved the publication of annual and half year financial results;
• considered and approved the annual review of internal controls;
• decided that there was no current need for an internal audit function;
• agreed the independence of the auditors and approved their fees for both
audit and non-audit services as set out in note 2 to the financial statements;
and
• the chairman of the audit committee has also had separate meetings and
discussions with the external audit partner.
External Auditor
RSM UK Audit LLP held office throughout the period under review. In the United
Kingdom London & Associated Properties PLC provides extensive administration
and accounting services to Bisichi Mining PLC, which has its own audit
committee and employs BDO LLP, a separate and independent firm of registered
auditor.
C A Parritt
Chairman – Audit Committee
27 April 2017
Directors’ responsibilities statement
The Directors are responsible for preparing the Strategic Report and the
Directors’ Report, the Directors’ Remuneration Report and the financial
statements in accordance with applicable law and regulations.
English company law requires the Directors to prepare Group and Company
financial statements for each financial year. The Directors are required under
the Listing Rules of the Financial Conduct Authority to prepare Group
financial statements in accordance with International Financial Reporting
Standards (“IFRS”) as adopted by the European Union (“EU”) and have
elected under English company law to prepare the Company financial statements
in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards and applicable law) including FRS101
‘Reduced Disclosure Framework’.
The Group financial statements are required by law and IFRS adopted by the EU
to present fairly the financial position and performance of the Group; the
Companies Act 2006 provides in relation to such financial statements that
references in the relevant part of that Act to financial statements giving a
true and fair view are references to their achieving a fair presentation.
Under English 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 Group and the Company and of the profit or
loss of the Group for that period.
In preparing each of the Group and Company financial statements, the Directors
are required to:
a. select suitable accounting policies and then apply them consistently;
b. make judgements and accounting estimates that are reasonable and
prudent;
c. for the Group financial statements, state whether they have been
prepared in accordance with IFRS adopted by the EU and for the company
financial statements state whether applicable UK accounting standards have
been followed, subject to any material departures disclosed and explained in
the financial statements; and
d. prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and the Company will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group’s and the Company’s transactions
and disclose with reasonable accuracy at any time the financial position of
the Group and the Company and enable them to ensure that the financial
statements and the Directors’ Remuneration Report comply with the Companies
Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Regulations. They are also responsible for safeguarding the assets of the
Group and the Company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
Directors’ statement pursuant to the Disclosure and Transparency Rules
Each of the directors, whose names and functions are listed on page 34,
confirms that to the best of each person’s knowledge:
a. the financial statements, prepared in accordance with the applicable
set of accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit of the Company and the undertakings
included in the consolidation taken as a whole; and
b. the Strategic Report contained in the Annual Report includes a fair
review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and uncertainties
that they face.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the London & Associated
Properties PLC website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Independent auditor’s report
OPINION ON FINANCIAL STATEMENTS
We have audited the Group and parent Company financial statements (“the
financial statements”) on pages 55 to 99. The financial reporting framework
that has been applied in the preparation of the group financial statements is
applicable law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union. The financial reporting framework that has been
applied in the preparation of the parent company financial statements is
applicable law and United Kingdom Accounting Standards (United Kingdom
Generally Accepted Accounting Practice) including FRS 101 ‘Reduced
Disclosure Framework’.
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 31 December 2016 and of
the group’s loss for the year then ended;
• the group financial statements have been properly prepared in accordance
with IFRSs as adopted by the European Union;
• the parent company financial statements have been properly prepared in
accordance with United Kingdom Generally Accepted Accounting Practice; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements is provided on
the Financial Reporting Council’s website at
http://www.frc.org.uk/auditscopeukprivate
Opinion on other matters prescribed by the Companies Act 2006
In our opinion:
• the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• 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.
Matters on which we are required to report by exception
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 any material misstatements in the Strategic Report or the
Directors’ Report.
We have nothing to report in respect of the following:
Under the Companies Act 2006 we are required 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 and the part of the Directors’
Remuneration Report to be audited 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.
Respective responsibilities of directors and auditor
As more fully explained in the Directors’ Responsibilities Statement set out
on page 52 the Directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial statements
in accordance with applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing Practices
Board’s (APB’s) Ethical Standards for Auditors.
This report is made solely to the company’s members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s
members as a body, for our audit work, for this report, or for the opinions we
have formed.
Geoff Wightwick BA FCA (Senior Statutory Auditor)
For and on behalf of
RSM UK AUDIT LLP
Statutory Auditor
Chartered Accountants
25 Farringdon Street
London EC4A 4AB
28 April 2017
FINANCIAL STATEMENTS
Consolidated income statement
for the year ended 31 December 2016
Notes 2016 £’000 2015 £’000
Group revenue 1 29,704 32,666
Operating costs (26,860) (30,675)
Income from listed investments held for trading 3 2 3
Operating profit 2,846 1,994
Finance income 5 144 123
Finance expenses 5 (4,292) (4,221)
Debenture break cost 23 – (158)
Result before revaluation and other movements (1,302) (2,262)
Non–cash changes in valuation of assets and liabilities and other movements
Increase/(decrease) in value of investment properties 532 (185)
Loss on disposal of investment properties – (32)
Increase/(decrease) in trading investments 1 (1)
Increase/(decrease) in value of other investments 12 (11)
Adjustment to interest rate derivative 23 (217) 84
Share of profit of joint ventures, net of tax 12 – 71
Loss on reclassification of asset as held for sale 12 – (276)
Result including revaluation and other movements (974) (2,612)
Profit from discontinued operations 7 – 519
Loss for the year before taxation 2 (974) (2,093)
Income tax (charge)/credit 6 (1,175) 47
Loss for the year (2,149) (2,046)
Attributable to:
Equity holders of the Company (2,357) (1,899)
Non–controlling interest 27 208 (147)
Loss for the year (2,149) (2,046)
Earnings per share
Loss per share – basic and diluted – continuing operations 9 (2.77)p (2.85)p
Profit per share – basic and diluted – discontinued operations 9 – 0.61p
Total 9 (2.77)p (2.24)p
Consolidated statement of comprehensive income
for the year ended 31 December 2016
2016 £’000 2015 £’000
Loss for the year (2,149) (2,046)
Other comprehensive income/(expense):
Items that may be subsequently recycled to the income statement:
Exchange differences on translation of Bisichi Mining PLC foreign operations 1,106 (1,167)
Transfer of gain/(loss) on available for sale investments 193 (201)
Taxation (13) 41
Other comprehensive income/(expense) for the year net of tax 1,286 (1,327)
Total comprehensive expense for the year net of tax (863) (3,373)
Attributable to:
Equity shareholders (1,864) (2,414)
Non–controlling interest 1,001 (959)
(863) (3,373)
Consolidated balance sheet
at 31 December 2016
Notes 2016 £’000 2015 £’000
Non–current assets
Market value of properties attributable to Group 10 105,080 104,388
Present value of head leases 31 4,767 4,784
Property 109,847 109,172
Mining reserves, plant and equipment 11 8,653 5,552
Investments in joint ventures 12 455 325
Loan to joint venture 13 1,350 900
Held to maturity investments 17 1,874 1,995
Other investments 17 32 14
Deferred tax 24 1,134 2,390
123,345 120,348
Current assets
Inventories 16 1,721 1,049
Assets held for sale 14 – 2,335
Trade and other receivables 18 7,061 6,502
Interest rate derivatives 23 4 15
Corporation tax recoverable 32 29
Available for sale investments 19 781 594
Investments held for trading 19 19 20
Cash and cash equivalents 6,265 4,809
15,883 15,353
Total assets 139,228 135,701
Current liabilities
Trade and other payables 20 (12,942) (10,497)
Borrowings 21 (4,108) (2,267)
Current tax liabilities (21) (10)
(17,071) (12,774)
Non–current liabilities
Borrowings 21 (64,401) (64,951)
Interest rate derivatives 23 (793) (587)
Present value of head leases on properties 31 (4,767) (4,784)
Provisions 22 (1,236) (847)
Deferred tax liabilities 25 (2,329) (2,106)
(73,526) (73,275)
Total liabilities (90,597) (86,049)
Net assets 48,631 49,652
Equity attributable to the owners of the parent
Share capital 26 8,554 8,554
Share premium account 4,866 4,866
Translation reserve (Bisichi Mining PLC) (728) (1,145)
Capital redemption reserve 47 47
Retained earnings (excluding treasury shares) 25,648 28,238
Treasury shares 26 (145) (482)
Retained earnings 25,503 27,756
Total equity attributable to equity shareholders 38,242 40,078
Non–controlling interest 27 10,389 9,574
Total equity 48,631 49,652
Net assets per share 9 44.83p 47.26p
Diluted net assets per share 9 44.83p 47.26p
These financial statements were approved by the board of directors and
authorised for issue on 27 April 2017 and signed on its behalf by:
Sir Michael
Heller Anil
Thapar Company Registration No. 341829
Director
Director
Consolidated statement of changes in shareholders’ equity
for the year ended 31 December 2016
Share Share Translation Capital Treasury Retained Total Non– Total
capital premium reserves redemption shares earnings excluding controlling equity
£’000 £’000 £’000 reserve £’000 excluding Non– Interests £’000
£’000 treasury Controlling £’000
shares Interests
£’000 £’000
Balance at 1 January 2015 8,554 4,866 (696) 47 (883) 30,659 42,547 10,826 53,373
Loss for year – – – – – (1,899) (1,899) (147) (2,046)
Other comprehensive expense:
Currency translation – – (449) – – – (449) (718) (1,167)
Loss on available for sale investments (net of tax) – – – – – (66) (66) (94) (160)
Total other comprehensive expense – – (449) – – (66) (515) (812) (1,327)
Total comprehensive – – (449) – – (1,965) (2,414) (959) (3,373)
expense
Transactions with owners:
Share options charge – – – – – 13 13 18 31
Share options cancelled – – – – – (45) (45) (64) (109)
Dividends – equity holders – – – – – (133) (133) – (133)
Dividends – non–controlling interests – – – – – – – (250) (250)
Change in equity held by LAP – – – – – (5) (5) 3 (2)
Acquisition of own shares – – – – (111) – (111) – (111)
Disposal of own shares – – – – 226 – 226 – 226
Loss on transfer of own shares – – – – 286 (286) – – –
Transactions with owners – – – – 401 (456) (55) (293) (348)
Balance at 31 December 2015 8,554 4,866 (1,145) 47 (482) 28,238 40,078 9,574 49,652
(Loss)/profit for year – – – – – (2,357) (2,357) 208 (2,149)
Other comprehensive income:
Currency translation – – 417 – – – 417 689 1,106
Gain on available for sale investments (net of tax) – – – – – 76 76 104 180
Total other comprehensive income – – 417 – – 76 493 793 1,286
Total comprehensive – – 417 – – (2,281) (1,864) 1,001 (863)
income/ (expense)
Transactions with owners:
Share options charge – – – – – 45 45 64 109
Dividends – equity holders – – – – – (136) (136) – (136)
Dividends – non–controlling interests – – – – – – – (250) (250)
Disposal of own shares – – – – 119 – 119 – 119
Loss on transfer of own shares – – – – 218 (218) – – –
Transactions with owners – – – – 337 (309) 28 (186) (158)
Balance at 31 December 2016 8,554 4,866 (728) 47 (145) 25,648 38,242 10,389 48,631
Consolidated cash flow statement
for the year ended 31 December 2016
2016 2015 £’000
£’000
Operating activities
Loss for the year before taxation (974) (2,093)
Finance income (144) (123)
Finance expense 4,292 4,221
Debenture break cost – 158
(Increase)/decrease in value of investment properties (532) 185
Loss on disposal of investment properties – 32
(Increase)/decrease in trading investments (1) 1
(Increase)/decrease in value of other investments (12) 11
Adjustment to interest rate derivative 217 (84)
Share of profit of joint ventures, net of tax – (71)
Loss on reclassification of asset as held for sale – 276
Profit from discontinued operations – (511)
Depreciation 1,818 1,329
Profit on disposal of non-current assets (32) –
Share based payment expense 109 31
Gain on investment held for trading 4 122
Exchange adjustments (449) 497
Change in inventories (258) 393
Change in receivables – continuing operations 468 581
Change in receivables – discontinued operations – (424)
Change in payables 1,080 (156)
Cash generated from operations 5,586 4,375
Income tax paid (57) (1)
Cash inflows from operating activities 5,529 4,374
Investing activities
Disposal of shares and loans held to maturity 121 201
Disposal of assets held for sale 2,275 –
Share of profit in joint ventures (assets held for sale) 60 210
Acquisition of investment properties, mining reserves, plant and equipment (3,022) (3,339)
Sale of investment properties, plant and equipment – continuing operations 32 368
Residual receipt from Windsor Shopping Centre disposal – discontinued operations 414 –
Interest received – continuing operations 133 88
– discontinued operations – 87
Cash inflows/(outflows) from investing activities 13 (2,385)
2016 2015 £’000
£’000
Financing activities
Purchase of treasury shares – (111)
Sale of treasury shares 119 226
Interest paid (3,943) (3,996)
Interest obligation under finance leases (216) (247)
Debenture stock break costs paid – (158)
Receipt of bank loan – Bisichi Mining PLC 37 18
Repayment of bank loan – Bisichi Mining PLC (131) (66)
Receipt of bank loan – Dragon Retail Properties Ltd – 1,250
Repayment of bank loan – Dragon Retail Properties Ltd – (1,900)
Repayment of bank loan – (201)
Repayment of debenture stocks – (1,250)
Equity dividends paid (136) (133)
Equity dividends paid – non-controlling interests (250) (250)
Cancelled share options – Bisichi Mining PLC – (109)
Cash outflows from financing activities (4,520) (6,927)
Net increase/(decrease) in cash and cash equivalents 1,022 (4,938)
Cash and cash equivalents at beginning of year 2,575 7,118
Exchange adjustment (666) 395
Cash and cash equivalents at end of year 2,931 2,575
The cash flows above relate to continuing and discontinued operations. See
Note 7 for information on discontinued operations.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
the following balance sheet amounts:
2016 £’000 2015 £’000
Cash and cash equivalents (before bank overdrafts) 6,265 4,809
Bank overdrafts (3,334) (2,234)
Cash and cash equivalents at end of year 2,931 2,575
£530,000 of cash deposits at 31 December 2016 were charged as security to
debenture stocks.
Group accounting policies
The following are the principal Group accounting policies:
Basis of accounting
The Group financial statements are prepared in accordance with International
Financial Reporting Standards (IFRS), as adopted by the European Union and
with those parts of the Companies Act 2006 applicable to companies reporting
under IFRS.
The Company has elected to prepare the parent company’s financial statements
in accordance with Financial Reporting Standard 101 ’Reduced Disclosure
Framework’ (FRS 101) and Companies Act 2006 and these are presented in Note
33. The financial statements are prepared under the historical cost
convention, except for the revaluation of freehold and leasehold properties
and financial assets held for trading as well as fair value of interest
derivatives.
The Group financial statements are presented in Pounds Sterling and all values
are rounded to the nearest thousand pounds (£’000) except when otherwise
stated.
The functional currency for each entity in the Group, and for joint
arrangements, is the currency of the country in which the entity has been
incorporated. Details of which country each entity has been incorporated in
can be found in note 15 for subsidiaries and Note 12 for joint arrangements.
The exchange rates used in the accounts were as follows:
£1 Sterling: Rand £1 Sterling: Dollar
2016 2015 2016 2015
Year-end rate 16.9472 22.9067 1.23321 1.47634
Annual average 19.9269 19.5017 1.35477 1.51750
London & Associated Properties PLC, the parent company, is a listed public
company incorporated and domiciled in England and quoted on the London Stock
Exchange. The Company registration number is 341829.
Going concern
In reviewing going concern 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 and in the unlikely event
that Bisichi was unable to continue trading this would not affect the ability
of LAP to continue operating as a going concern. The same would be true for
Bisichi in reverse.
The directors have reviewed the cash flow forecasts of the LAP Group and the
underlying assumptions on which they are based. The LAP 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 Financial
Review. In addition, 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 and liquidity risk.
The directors believe that the LAP Group has adequate resources to continue in
operational existence for the foreseeable future and that the LAP Group is
well placed to manage its business risks. Thus they continue to adopt the
going concern basis of accounting in preparing the annual financial
statements.
The Bisichi directors continue to adopt the going concern basis of accounting
in preparing the Bisichi annual financial statements.
International Accounting Standards (IAS/IFRS)
The financial statements are prepared in accordance with International
Financial Reporting Standards and Interpretations in force at the reporting
date. These are prepared under the historic cost basis as modified by the
revaluation of investment properties and held for trading and available for
sale investments and interest rate derivatives.
The following Amendments were mandatory for the accounting period:
• Amendments to IAS 1, Presentation of Financial Statements (“IAS 1”)
• Amendments to IAS 16 and IAS 38, Clarification of Acceptable Methods of
Depreciation and Amortisation
• Amendments to IFRS 10, IFRS 12 and IAS 28, Investment Entities: Applying
the Consolidation Exception
• Amendments to IFRS 11, Accounting for Acquisition of Interest in Joint
Operations
• Amendments to IAS 27, Separate financial statements
• Annual Improvements to IFRSs 2012-2014 Cycle
The application of these amendments has had no effect on the Group’s
financial statements.
The Group has not adopted any standards or interpretations in advance of the
required implementation dates. The following new or revised standards that are
applicable to the Group were issued but not yet effective:
• Annual Improvements to IFRS Standards 2014-2016 Cycle
• IFRIC Interpretation 22 Foreign Currency Transactions and Advance
Consideration
• Amendments to IAS 7 – Statement of Cash Flows
• Amendments to IAS 12 – Recognition of Deferred Tax Assets for Unrealized
Losses
• Amendments to IFRS 2 – Classification and Measurement of Share-based
Payment Transactions
• Amendments to IAS 40: Transfers of Investment Property
It is not expected that adoption of any standards or interpretations above,
which have been issued by the International Accounting Standards Board but
have not been adopted will have a material impact on the financial statements.
The directors are currently evaluating the financial and operational impact of
the following new or revised standards and the impact of adopting these
standards cannot be reliably measured until this work is substantially
complete.
• IFRS 15 ‘Revenue from Contracts with Customers’ was issued by the IASB
in May 2014. It is effective for accounting periods beginning on or after 1
January 2018. The new standard will replace existing accounting standards, and
provides enhanced detail on the principle of recognising revenue to reflect
the transfer of goods and services to customers at a value which the company
expects to be entitled to receive. The standard also updates revenue
disclosure requirements. The standard was endorsed by the EU on 22 September
2016.
• IFRS 9 was published in July 2014 and will be effective for the Group from
1 January 2018. The standard was endorsed by the EU on 22 November 2016 It is
applicable to financial assets and financial liabilities, and covers the
classification, measurement, impairment and de-recognition of financial assets
and financial liabilities together with a new hedge accounting model.
• IFRS 16 ‘Leases’ – IFRS 16 ‘Leases’ was issued by the IASB in
January 2016 and is effective for accounting periods beginning on or after 1
January 2019. The new standard will replace IAS 17 ‘Leases’ and will
eliminate the classification of leases as either operating leases or finance
leases and, instead, introduce a single lessee accounting model. The standard
provides a single lessee accounting model, specifying how leases are
recognised, measured, presented and disclosed. The standard has yet to be
endorsed by the EU.
Key judgements and estimates
The preparation of the financial statements requires management to make
assumptions and estimates that may affect the reported amounts of assets and
liabilities and the reported income and expenses, further details of which are
set out below. Although management believes that the assumptions and estimates
used are reasonable, the actual results may differ from those estimates.
Further details of the estimates are contained in the Directors’ Report.
Property operations
Fair value measurements of investment properties and investments
An assessment of the fair value of certain assets and liabilities, in
particular investment properties, is required to be performed. In such
instances, fair value measurements are estimated based on the amounts for
which the assets and liabilities could be exchanged between market
participants. To the extent possible, the assumptions and inputs used take
into account externally verifiable inputs. However, such information is by
nature subject to uncertainty. The directors note that the fair value
measurement of the investment properties may be considered to be less
judgemental where external valuers have been used and as a result of the
nature of the underlying assets.
Mining operations
Life of mine and reserves
The directors consider the judgements and estimates surrounding the life of
the mine and its reserves have the most significant effect on the amounts
recognised in the financial statements and to be the area where the financial
statements are at most risk of a material adjustment due to estimation
uncertainty. The remaining life of the mine is currently estimated at 5 years.
This life of mine is based on the group’s existing coal reserves and
excludes future run of mine coal purchases and coal reserve acquisitions. The
Group’s coal reserves are subject to assessment by an independent Competent
Person and impact assessments are made of the carrying value of property,
plant and equipment, depreciation calculations and rehabilitation and
decommissioning provisions. There are numerous uncertainties inherent in
estimating coal reserves and changes to these assumptions may result in
restatement of reserves. These assumptions include factors such as commodity
prices, production costs and yield.
Depreciation, amortisation of mineral rights, mining development costs and
plant & equipment
The annual depreciation/amortisation charge is dependent on estimates,
including coal reserves and the related life of the mine, expected development
expenditure for probable reserves, the allocation of certain assets to
relevant ore reserves and estimates of residual values of the processing
plant. The charge can fluctuate when there are significant changes in any of
the factors or assumptions used, such as estimating mineral reserves which in
turn affects the life of mine or the expected life of reserves. Estimates of
proven and probable reserves are prepared by an independent Competent Person.
Assessments of depreciation/amortisation rates against the estimated reserve
base are performed regularly. Details of the depreciation/amortisation charge
can be found in note 11.
Provision for mining rehabilitation including restoration and de-commissioning
costs
A provision for future rehabilitation including restoration and
decommissioning costs requires estimates and assumptions to be made around the
relevant regulatory framework, the timing, extent and costs of the
rehabilitation activities and of the risk free rates used to determine the
present value of the future cash outflows. The provisions, including the
estimates and assumptions contained therein, are reviewed regularly by
management. The Group engages an independent expert to assess the cost of
restoration and decommissioning annually as part of management’s assessment
of the provision. Details of the provision for mining rehabilitation can be
found in note 22.
Mining impairment
Property, plant and equipment representing the Group’s mining assets in
South Africa are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying value may not be fully recoverable.
The impairment test is performed using the approved Life of Mine plan and
those future cash flow estimates are discounted using asset specific discount
rates and are based on expectations about future operations. The impairment
test requires estimates about production and sales volumes, commodity prices,
proven and probable reserves (as assessed by the Competent Person), operating
costs and capital expenditures necessary to extract reserves in the approved
Life of Mine plan. Changes in such estimates could impact recoverable values
of these assets. Details of the carrying value of property, plant and
equipment can be found in note 11.
The impairment test indicated significant headroom as at 31 December 2016 and
therefore no impairment is considered appropriate. The key assumptions
include: coal prices, including domestic coal prices based on recent pricing
and assessment of market forecasts for export coal; production based on proven
and probable reserves assessed by the independent Competent Person and an
increase in yield of 8% associated with new mining areas based on assessments
by the Competent Person and empirical data. If export coal prices reduce by
10% a 5.25% decrease in yield below expectation would be required to create
breakeven scenario. However, the Bisichi directors consider the forecasted
yield levels to be achievable.
Carrying value of Ezimbokodweni joint venture
The Group holds a £1.8 million (2015: £1.2 million) net investment in
Ezimbokodweni Mining (Pty) Limited (“Ezimbokodweni”), made up of a £1.35
million loan (2015: £0.9 million) and a £0.45 million (2015: £0.3 million)
joint venture investment, as in note 12 and 13. The carrying value of the
investment is dependent upon the completion of the acquisition of the Pegasus
coal project (“the project”) in South Africa.
Although the South African Department of Mineral Resources (“DMR”) has
previously approved the transfer of legal title for the reserve to
Ezimbokodweni, a proposed sale and purchase agreement negotiated and a deposit
paid for the project, the conclusion of the transaction has been delayed
pending the commercial transfer of the prospecting right from the current
owners of the project to Ezimbokodweni. Previous negotiations to complete the
commercial acquisition of the project have been beset by various delays
outside the control of the Bisichi Group. More recently, Ezimbokodweni has
indicated to the current owners of the project their ability to fund and
complete the transaction via a consortium of newly proposed shareholders of
Ezimbokodweni. The proposed consortium includes Anglo American PLC, Butsunani
Energy Investment Holdings, Vunani Limited, our BEE partner in Black Wattle,
and Bisichi Mining PLC. The consortium meets the Black Economic Empowerment
requirements as required for the transaction as per the DMR. The current
owners of the project have very recently notified Ezimbokodweni that they do
not wish to divest the project at this stage and, accordingly, the Bisichi
Board have considered the likelihood of the acquisition ultimately completing
in due course as part of its assessment of the carrying value of the
investment in Ezimbokodweni. The Bisichi Board remain committed to engaging
with the current owners, the DMR and relevant stakeholders in order to
conclude the transaction and plan further discussions with these parties in
the near future.
In light of the previously approved legal transfer from the DMR, our
understanding of the potential concerns the DMR may have if current owners do
not ultimately divest of the asset and the support expressed for the
transaction by the DMR as an important stakeholder, the Bisichi Board remain
confident of the transaction completing in due course. The Bisichi Board has
exercised significant judgement in forming its assessment that the transaction
will ultimately complete. We will continue to evaluate the status of our
investment on an ongoing basis as the planned engagement with the relevant
stakeholders is undertaken. However, at present, we believe the Bisichi Group
is still able to achieve significant value from the project in excess of its
carrying value.
The carrying value of the net investment in the joint venture was tested for
impairment based on the economic model for the project and no impairment
indicators were considered to exist in terms of the underlying value of the
asset. The carrying value of the underlying project is supported by its coal
reserves and life of mine plan and is considered appropriate given the
underlying economic value of the project.
Deferred tax
The calculation of deferred tax involves the exercise of judgement in relation
to the amount of income and gains which will be realised in future to support
the recognition of a deferred tax asset in respect of unrelieved losses.
Interest rate hedges
All interest rate hedges are held at fair value as valued by the
hedge provider.
Further detail is provided in notes 21 and 23.
Basis of consolidation
The Group accounts incorporate the accounts of London & Associated Properties
PLC and all of its subsidiary undertakings, together with the Group’s share
of the results and net assets of its joint ventures.
Non–controlling interests in subsidiaries are presented separately from the
equity attributable to equity owners of the parent company. When changes in
ownership in a subsidiary do not result in a loss of control, the
non–controlling shareholders’ interests are initially measured at the
non–controlling interests’ proportionate share of the subsidiaries’ net
assets. Subsequent to this, the carrying amount of non–controlling interests
is the amount of those interests at initial recognition plus the
non–controlling interests’ share of subsequent changes in equity. Total
comprehensive income is attributed to non–controlling interests even if this
results in the non–controlling interests having a deficit balance.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an
entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns
through its power over the entity. Subsidiaries acquired during the year are
consolidated using the acquisition method. Their results are incorporated from
the date that control passes.
All intra Group transactions, balances, income and expenses are eliminated on
consolidation. Details of the Group’s trading subsidiary companies are set
out in Note 15.
The directors are required to consider the implications of IFRS 10 on the LAP
investment in Bisichi Mining PLC (“Bisichi”). Related parties also have
shareholdings in Bisichi. When combined with the 42% held by LAP and, taking
account of the wide disposition of other shareholders, there is potential for
LAP and these related parties to exercise voting control over Bisichi. IFRS 10
makes it clear that possible voting control is of more significance than
actual management control.
For this reason the directors have concluded that there is a requirement to
consolidate Bisichi with LAP. While, in theory, they could achieve control, in
practice they do not get involved in the day to day operations of Bisichi. The
directors have presented consolidated accounts using the published accounts of
Bisichi but it is important to note that any figures, risks and assumptions
attributable to that company are the responsibility of the Bisichi Board of
directors who are independent from LAP.
As a result of treating Bisichi as a subsidiary, Dragon Retail Properties
Limited is also a subsidiary for accounting purposes, as LAP and Bisichi each
own 50% of that joint venture business.
Joint ventures
Investments in joint ventures, being those entities over whose activities the
Group has joint control, as established by contractual agreement, include the
appropriate share of the results and net assets of those undertakings.
Loans to joint ventures are classified as non-current assets when they are not
expected to be received in the normal working capital cycle. The loan to
Ezimbokodweni is included in joint ventures as a part of net investment in
joint venture as it is not expected to be repaid in the foreseeable future, as
the recoverability is dependent upon the acquisition of the Pegasus coal
project in South Africa and development over the life of mine. Trading
receivables and payables to joint ventures are classified as current assets
and liabilities.
Goodwill
Goodwill arising on acquisition is recognised as an intangible asset and
initially measured at cost, being the excess of the cost of the acquired
entity over the Group’s interest in the fair value of the assets and
liabilities acquired. Goodwill is carried at cost less accumulated impairment
losses. Goodwill arising from the difference in the calculation of deferred
tax for accounting purposes and fair value in negotiations is judged not to be
an asset and is accordingly impaired on completion of the relevant
acquisition.
Revenue
Revenue comprises sales of coal, property rental income and property
management fees.
Rental income
Rental income arises from operating leases granted to tenants. An operating
lease is a lease other than a finance lease. A finance lease is one whereby
substantially all the risks and rewards of ownership are passed to the lessee.
Rental income is recognised in the Group income statement on a straight–line
basis over the term of the lease. This includes the effect of lease incentives
to tenants, which are normally in the form of rent free periods. Contingent
rents, being the difference between the rent currently receivable and the
minimum lease payments, are recognised in property income in the periods in
which they are receivable. Rent reviews are recognised when such reviews have
been agreed with tenants.
Reverse surrender premiums
Payments received from tenants to surrender their lease obligations are
recognised immediately in the income statement.
Dilapidations
Dilapidations monies received from tenants in respect of their lease
obligations are recognised immediately in the income statement.
Other revenue
Revenue in respect of listed investments held for trading represents
investment dividends received and profit or loss recognised on realisation.
Dividends are recognised in the income statement when the dividend
is received.
Property operating expenses
Operating expenses are expensed as incurred and any property operating
expenditure not recovered from tenants through service charges is charged to
the income statement.
Employee benefits
Share based remuneration
The Company operates a long–term incentive plan and two share option
schemes. The fair value of the conditional awards on shares granted under the
long–term incentive plan and the options granted under the share option
scheme is determined at the date of grant. This fair value is then expensed on
a straight–line basis over the vesting period, based on an estimate of the
number of shares that will eventually vest. At each reporting date, the fair
value of the non–market based performance criteria of the long–term
incentive plan is recalculated and the expense is
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