REG-Lon.&Assoc.Props PLC: Annual Financial Report
30/06/2020 07:05
FOR IMMEDIATE RELEASE
30 June 2020
LONDON & ASSOCIATED PROPERTIES PLC (“LAP”):
ANNUAL RESULTS FOR 12 MONTHS TO 31 DECEMBER 2019
HIGHLIGHTS
* Following lock-down, most of our properties have now reopened and
appropriate safety measures have been put in place. We expect the few units
that remain closed to reopen in July.
* Rent collection for the March quarter currently 64%
* £9.5 million sale of a retail unit on Fargate in Sheffield to Metro Bank
* Reduction in LAP borrowings (excluding Bisichi and Dragon) of £14.6 million
to £30.8 million * £28.3 million term loan repaid
* New £14 million loan secured against Orchard Square, Sheffield completed
* Result reflects previously reported loss on Harrogate joint venture (£1.7
million) following decision not to inject further capital into the project.
* Group loss for the year before taxation was £4.5 million, after reflecting
a £4.7 million write-down of investment and trading property. (2018: £1.3
million profit after £2.6 million property valuation decrease)
* Asset management initiatives continuing to improve marketability of Orchard
Square, Sheffield which has had strong recent lettings with rental levels
proving resilient.
* Bisichi profit before tax of £3.0 million.
* No dividend recommended until such time as the effects of the COVID-19
lock-down are better understood.
“We have now entered a totally new chapter in economics. The effect of the
coronavirus has been severe and is continuing to cause massive disruption
across the UK. As the lockdown continues to be relaxed we feel that the
location and quality of our portfolio remains a key advantage going
forward.” Sir Michael Heller, Chairman, and John Heller, Chief Executive.
Contact:
London & Associated Properties PLC Tel: 020 7415 5000
John Heller, CEO or Jonathan Mintz, Finance Director
Baron Phillips Associates Tel: 07767 444193
Baron Phillips
Chairman’s statement and Chief Executive’s review 2019
While this statement focuses on LAP’s performance in 2019, all eyes are
currently on the outbreak of Covid-19 and its far-reaching impact on every
aspect of the economy, including real estate.
COVID-19 UPDATE
At LAP, our first priority will always be the health and safety of our staff,
particularly those who will come into contact with members of the public on a
daily basis. Our operational response to the virus was swift and decisive and
we ensured that our staff were isolated from the public wherever possible,
even before the lockdown was announced on 23rd March. Since the lockdown, we
have shuttered a number of our retail assets that have no essential retailers,
and worked with both our staff and tenants to minimise contact where shops or
takeaways have remained open.
Rent collection on the week around the March quarter day was approximately 50%
(of £1.8m billed), rising to around 55% within a month. This compares with
65% around the March quarter day in 2019. We are working hard with our
managing agents to agree plans with our tenants that will allow them to pay
rent over time. In some cases, this may be after they have reopened and been
trading for a period. Many of our tenants are eligible for grants and we are
working with them to access the grants that will enable them to continue to
trade and pay the rent. Tenants owing around £600k have, so far, not engaged
satisfactorily and are being pursued, although our efforts are being hampered
by the current Government-imposed moratorium on legal action against tenants.
While March quarter day showed a significant drop in collection rates, we are
bracing ourselves for a markedly lower level of collections in June. Almost
all our tenants will have been closed since mid-March and this will have had a
serious effect on their liquidity. We will again work with them to ensure that
they are able to survive and pay us in due course.
So far, none of our tenants has commenced an insolvency procedure and all
rents remain due and payable.
Currently we have unencumbered property worth £4.0m and unencumbered cash
reserves of £4.3m. This money had been earmarked for future investment,
although all non-essential capital expenditure is currently on hold to
maintain sufficient liquidity to ensure that we can survive this lockdown.
We have not furloughed any head office staff. This is in part due to our
decision to outsource much of our day-to-day property management to Carter
Towler, a firm of chartered surveyors in Leeds. This move is cash neutral at
day one, although we anticipate that it will lead to substantial savings in
due course as we are able to reduce head office costs and other expenses. This
change means that a previously fixed cost has been converted to a variable
cost which will fluctuate with rental income. Our experience of the quality of
the outsourcing services provided has been positive to date.
We will now turn to our 2019 results.
CONSOLIDATED RESULTS
2019 was a difficult year for real estate generally as political uncertainty
weighed on investor sentiment. This was particularly acute in retail property
as investors shied away from shopping centres particularly
in mid-market towns with low levels of differentiation.
Our own property portfolio was revalued at £47.9m compared to £50.7m the
year before. This 5.5% drop is a creditable performance given underlying
negative sentiment towards the retail sector. We have suffered less than many
as a result of focusing primarily on value orientated locations which continue
to remain relevant and where tenants have been better able to avoid insolvency
procedures.
Net assets fell from £55.7m to £49.1m. This reflects the reduction in the
value of the property portfolio of £3.0m and the loss relating to our
investment in Project Harrogate of £1.7m. These items together with other
gains of £0.2m and a nil profit before revaluations (2018: £3.7m) led to a
loss before tax of £4.5m compared with a profit of £1.3m for the same period
last year.
DEBT MANAGEMENT
More positively we have reduced our borrowings by £15.4m to £41.2m improving
gearing from 70.5% to 65.0%.
Our five year loans with Santander and Europa Mezzanine Finance expired in May
2019. Although these loans initially had totalled £45.0m, they had been paid
down to a combined £28.3m by the start of 2019. The loans were further
reduced to £18.3m following the disposal of part of our shopping centre in
Sheffield in July 2019, which we describe more fully below.
Many consider that the lending market for retail property reached a low during
2019. However, following an extensive review of all lenders still willing to
finance retail property assets, we were able to agree terms with clients of
PMM, specialist lenders, to refinance Orchard Square in Sheffield with a new
£14m loan at an all-in rate of 6.95%. Although this debt is significantly
more expensive than the previous loan on this asset, the new financing
reflects the market and it should be noted that this was one of the only loans
to be made against a shopping centre during the whole of 2019. Our successful
refinancing reflects the quality of the asset as well as our strong reputation
for asset management, allied to the fact that we have never defaulted on a
loan.
The balance of the outstanding Santander loan was repaid from our cash
resources leaving Wickersley uncharged. We have, however, since the financial
year end, charged £2.35m of the Wickersley property to Metro Bank to enable
us to access £2.27m of cash held by them in a locked account.
LAP PROPERTY ACTIVITIES
Orchard Square, Sheffield
While progressing with our efforts to develop this site for realisation, we
have continued to manage it actively. Progress has been satisfactory,
particularly given the harsh trading backdrop for shopping centres.
The most significant deal that we completed was the disposal of a
long-leasehold interest, for £9.5m, of our unit on Fargate – previously let
to River Island at £0.5m a year. The buyer was Metro Bank, who will occupy
the unit as a flagship bank at ground level with offices throughout the
remainder of the building.
As part of the development process we continue to reposition Orchard Square
towards experiential retail, in particular food and beverage. We were carrying
out works to create a street food market when the lockdown was announced. The
management contract to operate this market is under offer to an established
and successful market operator with experience of South Yorkshire and we
expect to conclude this contract once the lockdown is lifted.
As part of the repositioning we have let two units at first floor adjacent to
a large terrace to two restaurant operators. This includes an existing
successful independent restaurateur who has opened a wood-fired pizza
restaurant and a new venture that is selling macaroni cheese. Both units
opened just before the lockdown and initial trading was strong.
We also commissioned a large mural at first floor level to improve the public
realm and appeal to a different type of consumer. The mural has received much
positive media coverage.
Manor Park, Runcorn
We have had a successful year at Manor Park where we own eight freehold
industrial units. During 2019 and the early part of 2020, we completed an
extension of the 16,500 sq. ft. unit let to Bay-Lynx to add a further 6,000
sq. ft. As part of the deal, we have signed a new 10 year lease, with a 5 year
break, at a rent which is some 25% higher than before.
This is the first deal that we have completed for a different asset class,
where we have used the skill set which, for many years we have applied to
investing in multi-let retail. We believe that this demonstrates the
transferability of these skills and we look forward to completing further
similar transactions in the future both at Manor Park and in other
investments.
We also completed the re-gear of a lease on another unit and are about to
refurbish a large self-contained unit which the tenant vacated towards the end
of the year. We have received strong interest in the unit and are confident
that not only will it be let quickly but also that we should see positive
rental growth.
West Ealing
We acquired this residential development site in West Ealing in a joint
venture with Bisichi plc and Metroprop, a developer, in 2018. Following a long
pre-application process with Ealing Council, we have now submitted a planning
application to develop 54 flats with ground floor retail. The application has
been well received and we are negotiating some design details with the
Council. The lockdown has interrupted the planning process but we expect to
make progress over the next few months.
West Bromwich
This shopping centre continues to trade at full occupancy although there is
some turnover of traders as is usual in a community-orientated shopping centre
with a number of independent retailers. Prior to the lockdown, we had not
struggled to find new occupiers.
In addition, Superdrug renewed their lease albeit at a rent some 45% lower
than that agreed in 2009. Similarly, Bon Marche opted to keep their store
following their administration in October at a rent some 19% lower than was
previously passing.
Brixton
In July we completed the sale of 414 Coldharbour Lane in Brixton, the final
asset from the Ocean Portfolio which we had acquired in 2005. We received
£2.35m compared to a 2018 book value of £1.25m. The buyer was the same as
for Brixton Markets the previous year.
As this property formed part of the collateral pledged to Metro Bank, the net
cash receipts of £2.25m were held on deposit, but, as noted above, this cash
has been released as a result of part of Wickersley being added to the
collateral for the loan.
Project Harrogate
In May 2019, LAP announced that its partner, Oaktree Capital Management, had
declined to inject further cash into the joint venture to cure a loan-to-value
breach following the annual revaluation in March. As a result, the mezzanine
lender, DRC, exercised its right to take over the equity of the joint venture
and our stake became worthless. This has led to a write down of £1.7m. This
was a most unsatisfactory end to what had been a reasonable performance of the
shopping centres against strong retail headwinds and reflected the poor
investment market for secondary shopping centres.
Following a refinancing in December 2017, in which we declined to participate,
Oaktree owned approximately 97% of the equity and we were therefore unable to
influence the decisions that led to the ultimate loss of control.
DRAGON RETAIL PROPERTIES
Dragon had a good year as Boots the chemist, its principal tenant, signed a
new 10 year lease with a 5 year break at £93,000 per annum, a 1.1% increase
over the previous passing rent. This was an excellent result in the current
retail climate. Dragon has a £1.2m loan against this property which expires
in September 2020. We are talking to Santander, the existing lender, about a
new loan or a short extension to enable us to refinance in an orderly manner.
I will update shareholders on progress in due course.
BISICHI PLC
Bisichi PLC benefited from improved coal prices and stable operating costs but
these advantages were offset by lower coal production and adverse exchange
rates. This resulted in an operating profit before depreciation, fair value
adjustments and exchange movements (adjusted EBITDA) of £7.4m, as compared
with the £9.1m achieved in 2018.
Looking forward is more difficult. Bisichi’s South African coal mining and
processing operations have been designated as essential business operations,
which has allowed the Group’s operations to continue during lockdown
periods, although with a reduced or socially distanced workforce to help
safeguard the health and safety of our employees. In terms of the coal
markets, Bisichi has seen the significant downturn in economic activity
related to the Covid-19 pandemic have an impact on overall demand for coal in
the international market. However, demand for their particular coal in the
domestic market has to date remained more stable. The duration and extent of
the impact of the Covid-19 pandemic on the Bisichi South African operations,
particularly in terms of their coal markets, remains uncertain. Similarly, the
pandemic may have a significant impact on rental revenue collections from
Bisichi’s UK retail property portfolio, which is managed by LAP.
Bisichi continues to do all it can to ensure that the health and safety of its
employees and stakeholders are protected and that its operations can continue
in an efficient manner. In the circumstances, the directors of Bisichi have
decided that they will not be recommending a dividend for the financial year
ending 31 December 2019, although they will keep this position under review in
the coming months depending on how the situation evolves. LAP’s share of the
dividend in 2019 was £266,000.
Summary
As mentioned above we have now entered a totally new chapter in economics. The
effect of the coronavirus has been severe and is continuing to cause massive
disruption across the UK. As the lockdown continues to be relaxed we feel that
the location and quality of our portfolio remains a key advantage going
forward.
Sir Michael Heller, John Heller,
Chairman Chief
Executive
29 June 2020
STRATEGIC
REPORT
Financial and performance review
The financial statements for 2019 have been prepared to reflect the
requirements of IFRS 10. This means that the accounts of Bisichi 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 Properties Limited (“Dragon”) and West Ealing Projects
Limited (West Ealing), are both 50:50 joint ventures with Bisichi and are 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 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.
This report comments on the performance of each of the Group’s segments
separately.
LONDON & ASSOCIATED PROPERTIES PLC
LAP’s main objectives in 2019 have been to:
- Continue to provide environments in which tenants can thrive.
- Improve the business’ operating cashflow on an ongoing basis.
- Reduce exposure to the retail sector.
- Ensure gearing is at an appropriate level.
- Maintain sufficient cash in the business to enable it to react to
opportunities when they arise.
During 2019, as a result of ongoing negative market sentiment in the retail
property sector, sensible investment opportunities have been limited, so LAP
has sought to reduce its gearing levels.
During the year the following key actions have been taken to meet these
objectives:
- Sale of part of the Sheffield development property, which has
reduced LAP’s exposure to the retail sector, in particular mid-market
fashion retail, and enabled LAP to reduce its debt by £9.3m.
- Refinancing, in September 2019, of the debt outstanding against the
Sheffield property, with a new £14m facility, the details of which are shown
in note 18.
- As part of this refinancing £3.5m of cash was utilised to
unencumber another property secured against this loan, further improving
LAP’s gearing.
- Sale of the remaining property in Brixton, in July 2019, for
£2.35m. This cash was held as security by the lender on the Brixton property
at 31 December 2019. In May 2020, this cash was released to LAP, with a
further property being substituted as security, improving liquidity.
- Outsourcing LAP’s property management activities to a third party
provider, while retaining key strategic management. This is part of ongoing
efforts to reduce overheads and improve operating cashflow. The full benefit
of these changes is not expected to
be seen until late 2020 and beyond.
- Development of the largest asset, Orchard Square, Sheffield, to
refocus its use, reflecting the changing ways in which the public interacts
with the city centre. In the current early stages of development, this is
being achieved using existing cash resources.
As the business moves into 2020, on a more stable financial footing as a
result of these actions, the key objectives remain the same.
The business continues to look for investment opportunities, particularly
within the industrial sector and is taking further actions to improve its
efficiency and its operating cashflow. The business continues to develop and
refurbish its properties to provide environments in which tenants can thrive.
Income Statement
2019 2018
£’000 £’000
BUSINESS ANALYSIS
Rental income 4,813 5,049
Service charge income 628 802
Proceeds from sale of trading properties 9,500 –
Management income from third party properties 607 718
LAP Revenue 15,548 6,569
Direct property costs (1,823) (2,269)
Impairment of inventory (1,750) –
Costs of sale of trading properties (10,491) –
Overheads (3,230) (4,035)
Depreciation (215) (9)
Operating (loss)/profit (1,961) 256
Finance income 58 37
Finance expenses (2,552) (3,111)
Result before valuation movements (4,455) (2,818)
Other segment items
Net decrease on revaluation of investment properties (1,498) (2,170)
Decrease in value of other investments (1,749) –
Adjustment to interest rate derivative 169 265
Revaluation and other movements (3,078) (1,905)
LAP loss for the year before taxation (7,533) (4,723)
Note: The figures exclude inter-company transactions.
LAP generates the majority of its income from property rentals, property
management fees and development activities.
Rental income is down £236,000 year on year, although like for like rental
income is up by £13,000, 0.3%, which in view of market conditions is a
positive result.
In July 2019, part of our development property in Sheffield was sold for
£9.5m. This was previously held at £10.3m, being the agreed sale price, less
costs, at the date of the last Annual Report. The subsequent reduction in
sales price has resulted in a trading loss of £1.0m. The gross revenue of
£9.5m and total cost of the sale of £10.5m are shown in the Income
Statement. The value of the Sheffield property, which is held as inventory,
was reduced by £1.75m at 31 December 2019.
Net property costs after taking into account costs recovered through service
charges have decreased by £0.3m to £1.2m, mostly as a result of the sale of
Brixton Markets in 2018.
Overheads have reduced by £0.8m in the year to £3.2m. Lower Directors’
bonuses in LAP of £0.7m (pre employers NIC) accounted for the majority of
this. Following the adoption of IFRS 16 in 2019, £0.2m of office rent
payments are no longer recognised as an overhead cost, rather the right-of-use
asset created at 1 January 2019 has been depreciated by £0.2m in the year and
an interest charge of £0.047m recognised on the lease liability.
Finance expenses have reduced by £0.6m, predominantly due to the reduction in
total debt of LAP, following the sale of part of Sheffield, the subsequent
repayment of debt held against that property and then the refinancing of this
debt package.
Revaluation movements in the year include a £1.5m decrease (4.3%)
in the value of investment properties to £33.7m. This was driven by
increasing yields in the year, within the retail property sector, with
a more minor impact from reduced rental values.
Revaluation movements in the year also include the previously announced write
off of LAP’s investment with Oaktree Capital Management (HRGT Shopping
Centres LP) of £1.7m. This is explained in the Statement by the Chairman and
Chief Executive. LAP acted as asset and property manager of the properties in
the joint venture. Its annual gross fees of approximately £0.4m ended when
our management agreement was terminated in September 2019. This is reflected
in management income from third parties in the segmental analysis for 2019 in
note 1. While the impact of this loss in income has been mitigated in 2020 by
an overhead reduction arising from the outsourcing of our day to day
management role to a new provider, it is still expected to have a net negative
impact of approximately £0.2m in 2020.
Excluding the loss on sale and the impairment of trading properties in the
year, the adjusted loss before valuation movements was £1.7m. This excludes
management income and dividends received from Bisichi. Reducing this loss
through the activities described above and generating more rental income
remains a key focus for the business.
BALANCE SHEET
2019 2018
£’000 £’000
Segment assets
- Non-current assets – property 33,718 35,011
- Non-current assets – property, plant & equipment 946 106
Assets held for sale – 2,285
Trading assets 26,915 38,556
- Cash & cash equivalents 5,709 11,345
- Non-current assets – other – 1,748
- Current assets – others 686 1,947
Total assets excluding investment in joint ventures, assets held for sale and trading 67,974 90,998
Segment liabilities
Borrowings (30,764) (45,352)
Current liabilities (5,750) (6,372)
Non-current liabilities (3,156) (3,122)
Total liabilities (39,670) (54,846)
Net assets 28,304 36,152
Note: The figures exclude inter-company transactions.
The reduction in non-current property assets is largely as a result
of a £1.5m (4.3%) reduction in the valuation of LAP’s investment
properties.
The increase in property, plant and equipment follows the inclusion under IFRS
16 of a value for the rented head office building occupied by the Company.
This was reclassified as an asset valued at £1.054m on 1 January 2019 and has
been depreciated by £0.211m in the year, having a net book value of £0.843m
at 31 December 2019. The present value of future rentals of £0.861m is
included within liabilities.
In May 2019, LAP sold its Brixton property for £2.35m, shown as an asset held
for sale in 2018. After costs there was no profit or loss on this transaction
as the gain had been reflected in the 2018 accounts
Trading assets include Sheffield Orchard Square, which is currently being
developed for sale and a residential development property in West Ealing. Both
of these properties are held at the lower of cost and net realisable value.
The reduction to zero in the value of the other non-current assets relates
entirely to the HRGT Shopping Centres LP joint venture and is discussed above.
Borrowings have reduced by £14.6m. We repaid loans to Santander (£21.5m) and
Europa (£6.8m) which had a blended interest rate of 5.33%. As part of this
debt repayment a new non-recourse loan of £14.0m was placed, with Phoenix CRE
Sàrl, at a current interest rate
of 6.95%. The loan has a minimum and maximum LIBOR agreement limiting the
interest rate to between 6.95% and 7.45%. The increase in the interest rate of
the new loan reflects the market for retail property lending in the UK
currently.
LAP’s debt now consists of the £14m facility expiring in September 2022, a
debenture of £10m repayable in August 2022 and a £3.9m facility expiring in
2028. As in previous years, all loans and debentures are secured on core
property and cash deposits and are covenant compliant at the year end.
Gearing 2019 2018
£’000 £’000
Total borrowings 30,764 43,352
Less cash and cash equivalents (5,709) (11,345)
Net borrowings 25,055 32,077
Total Equity 28,304 36,152
88.5% 88.7%
The business has not set a target gearing level but monitors its debt and
asset values constantly to maintain an appropriate level, taking into account
market sentiment, the availability and cost of debt and cash flow forecasts.
Cash flow
CASH FLOW FROM OPERATIONS 2019 2018
£’000 £’000
Cash inflows / (outflows) from operating activities 9,295 (272)
Cash inflows from investing activities 2,471 27,058
Cash outflows from financing activities (17,402) (17,550)
Net (decrease) / increase in cash and cash equivalents (5,636) 9,236
Cash and cash equivalents at 1 January 11,345 2,109
Cash and cash equivalents at 31 December 5,709 11,345
Note: The figures within the LAP cashflow include inter-company transactions.
Cash inflows from operating activities in 2019 include net sale proceeds of
£9.3m from the part sale of the Sheffield development property in July 2019.
Other operating cashflow was at break-even.
Investing activities include:
- The sale of Coldharbour Lane Brixton for £2.35m before costs
in May 2019.
- No substantial acquisitions were made in 2019.
Financing activities include:
- The full repayment of the remaining Santander and Europa loans of
£28.3m in September 2019.
- A new £14.0m, 3 year term loan in September 2019, with
Phoenix CRE Sàrl, at 5.95% above LIBOR where LIBOR has a minimum and maximum
rate of 1.0% and 1.5% respectively.
WEST EALING PROJECTS LIMITED
West Ealing is a 50:50 joint venture between LAP and Bisichi created with the
purpose of delivering a primarily residential development in West Ealing,
London. The joint venture owns 90% of the property which is under development
and on which £6.67m has been spent to date. There is a linked development
loan of £3.61 million, described further in note 18.
Bisichi plc (Formerly Bisichi Mining PLC)
Although the results of Bisichi 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 2019 financial
statements which are available on its website
www.bisichi.co.uk.
Bisichi has two core revenue streams – investment in retail property in the
UK and coal mining in South Africa.
The Bisichi group profit before tax reduced to £3.0m (2018: £6.1m) mainly
due to lower coal production and sales from the South African operations as
well as a weakening in the South African Rand to UK Sterling. The weakening of
the Rand offset the higher prices achieved for coal and stable operating costs
achieved in 2019.
UK retail property investments were valued at the year end at £11.75m (2018:
£13.23m). The property portfolio is actively managed by LAP and generated
rental income of £1.2 million in the year
(2018: £1.1 million).
Bisichi has a South African structured trade finance facility with Absa Bank
Limited for R100million (South African Rand) which covers the fluctuating
working capital requirements of the South African operations. As part of the
process and sale of the washing plant facilities from Black Wattle Colliery
(Pty) Limited to its wholly owned subsidiary Sisonke Coal Processing (Pty)
Limited (“Sisonke Coal Processing”), the R100million bank overdraft
facility held by Black Wattle Colliery (Pty) Limited with Absa Bank Limited at
31 December 2018 was replaced in January 2019 by a new structured trade
finance facility for R100million held by Sisonke Coal Processing (“new trade
facility”). The new trade facility is renewable annually at 25 January and
is secured against inventory, debtors and cash that are held in the South
African operations.
In December 2019, Bisichi repaid its £5.84million loan facility with
Santander Bank PLC and signed a new £3.96million term loan facility with
Julian Hodge Bank Limited. The new debt package has a five year term and is
repayable at the end of the term in December 2024. The interest cost of the
loan is 4.00% above LIBOR. The loan is secured by way of a first charge over
the investment properties in the UK which are included in the financial
statements at a value of £11,565,000. No banking covenants were breached by
the group during the year.
The reduction in operating profit impacted cash flow negatively by £1.7m
although this was offset by a saving in income tax paid of £1.1m. Additional
investment in working capital of £1.9m as compared with last year’s
investment of £1.6m meant that operating cash flow was £3.7m as compared
with £4.8m. Additional asset purchases including extra reserves and
investments totalling £3.8m, net repayment of borrowings £2.1m and dividends
paid (£0.6m) resulted in a reduction in cash resources of £2.8m.
The Bisichi group’s financial position remains strong. Its net assets at
31st December 2019 were £20.6 million (2018: £20.1 million). The group
expects to continue achieving significant value in 2020 from its existing
mining operation.
Bisichi continues to seek to expand its operations in South Africa through the
acquisition of additional coal reserves. In the UK, management is looking
forward to progressing its development in West Ealing and is currently
investigating other major investment opportunities in the domestic property
sector. This is in line with Bisichi’s overall strategy of balancing the
high risk of the mining operations with a dependable cash flow and capital
appreciation from the UK property investment operations.
DRAGON RETAIL PROPERTIES LIMITED
Dragon is a UK property investment company. The company has a Santander bank
loan of £1.2m secured against its investment property, see note 18. It paid
management fees of £88,000 (2018: £72,000) split equally between the two
joint venture partners. Its results continue to be near breakeven after
taxation. Dragon has net assets of £1.6m (2018: £1.5m).
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 most of its properties.
Under IFRS10 the Group has included Bisichi 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. Further disclosure of specific
factors affecting going concern are discussed in more detail in the going
concern section of the group accounting policies of the financial statements.
In addition, the Directors consider that Note 21 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.
STATEMENT REGARDING SECTION 172 OF THE UK COMPANIES ACT
Section 172 of the UK Companies Act requires the Board to report on how the
directors have had regard to the matters outlined below in performing their
duties. During the year, the Directors consider that they have acted in a way,
and have made decisions that would, most likely promote the success of the
Group for the benefit of its members as a whole as outlined in the matters
below:
- The likely consequences of any decision in the long term: see
Principal Activity, Strategy & Business Model and Risks and Uncertainties on
pages 10 to 11;
- The interests of the Group’s employees; ethics and compliance;
fostering of the Company’s business relationships with suppliers, customers
and others; and the impact of the Group’s operations on the community and
environment: see Corporate Responsibility and Sustainability reports on pages
13 to 14;
- The need to act fairly between members of the Company: see the
Corporate Responsibility section on page 14;
- The desirability of maintaining a reputation for high standards of
business conduct: see the Corporate Governance section on pages 19 to 20
Covid-19 update
LAP
At this time, our main priority is the health and safety of our staff,
tenants and the public. For that reason properties have been closed in line
with government guidance, as described further in the Chairman’s statement
and Chief Executive’s Review.
We have received 64% of all rent in relation to the March quarter and we are
expecting a similar amount to be paid in respect of the June quarter.
Excluding VAT, LAP would normally expect to receive circa £1.2m in rent each
quarter.
LAP has unencumbered cash of £4.3m currently, all of which is held in UK bank
accounts. There are no barriers, taxes or other costs to be paid in accessing
this cash. The cash is available to meet any shortfalls brought about by the
impacts on the business of COVID -19. These may include:
- Delayed tenant payments
- Unpaid debt due to tenant insolvencies
- Additional costs to ensure our properties are safe for use
We are working with our tenants so that they pay their obligations to us when
they are financially able. Many tenants are eligible for the various
Government schemes set up in the wake of the Coronavirus pandemic and we are
supporting them in accessing these, including:
- Coronavirus Job Retention Scheme
- Business Rates Relief
- Business Support Grant Funds
- Coronavirus Business Interruption Loan Scheme
- Coronavirus Bounce Back Loan
- Deferral of VAT payments
LAP has conducted a range of cashflow scenario testing and believes that its
existing available cash resources are sufficient to meet its obligations, even
in, what the Directors consider, is the worst case scenario. The Directors are
of the opinion that LAP does not require additional funding to meet the cash
impact of COVID-19 on the business.
LAP has no overdraft facility or undrawn credit lines and has three existing
borrowing arrangements all of which are secured against its properties. No
banking covenants have been breached and LAP has met all of its obligations
under its agreements with lenders. The Directors see no impediment to LAP
continuing to meet its obligations to lenders in the future.
LAP currently has unencumbered properties, valued at 31 December 2019 at circa
£4m.
To mitigate the cash impact of COVID-19 on the business, LAP is managing its
expenditure until such time as the Directors consider the risks to have
sufficiently subsided.
- The Directors are not recommending a final dividend for the current
financial year.
- A number of staff located at our properties have been furloughed.
- VAT payments have been deferred in line with the amended rules
- All refurbishment and development capital expenditure has been
suspended and projects placed on hold. There will be no material additional
cost to the business of doing this.
- We have actively reduced spending where possible following the
cessation of trading at our properties. This will result in lower service
charge costs for our tenants and a saving for the business on any vacant
properties.
- Material property acquisitions are on hold.
The Directors have produced a four year cashflow forecast with varying
scenarios examining the sensitivity of LAP’s liquidity to the following
variables:
- Length of duration of COVID-19’s impact on the business
- Value of delayed receipts from tenants over that period
- Length of duration of delayed receipts from tenants
- Loss in cash receipts from tenants never settling their lease
obligations
- Volume of tenants going into insolvency or administration and
the length of time expected to re-let the property
The Directors have taken into consideration our experiences of tenant payments
to date, information received directly from tenants about their financial
position and expectations of our tenants’ future trading. The Directors
anticipate that the effects of the closure of some of our properties will have
a permanent effect on the results of the business in 2020 although are unable
to estimate the quantum at this stage.
LAP has three principal loans, as described in note 18, with the below
maturity dates:
- £10m Debenture August 2022
- £14m term loan September 2022
- £3.9m term loan September 2028 (Bank
break September 2023)
The £10m debenture and £3.9m term loan have remained compliant after the
year end and are anticipated to continue to do so, based on the scenario
forecasting.
The £14m term loan was covenant compliant in April 2020, but due to lower
tenant receipts in March and April following the COVID-19 lockdown there was
insufficient cash in the subsidiary for it to meet its obligation to the
lender. The Board agreed with the lender that the LAP Group will fund its
subsidiary’s obligations under the loan agreement in April and is putting in
place the same arrangement for July 2020.
The Directors are satisfied that LAP has sufficient liquidity to meet its
obligations under any of the scenarios examined and is committed to doing so.
The Board continues to monitor the situation and our modelling is updated
continually.
BISICHI
Bisichi has consulted with the government authorities and its stakeholders in
South Africa to determine and agree the appropriate measures to be taken
across its South African mining and processing operations. Such measures have
been focused on the health and safety of employees, assisting in the
continuing provision of coal as an essential raw material, the security and
integrity of the assets, and the ability to maintain operations at levels of
activity that are aligned with government objectives and the country’s
broader economic interests.
Bisichi continues to monitor and adhere to all of the South African
government’s Covid-19 related guidelines and regulations including all
updates and advice from the National Department of Health, the Department of
Minerals Resources and Energy and the Office of
the President.
The Group’s South African coal mining and processing operations have been
designated as essential business operations as they fall within the supply
chains of other essential businesses as defined by the South African
government. Since late March, Bisichi’s South African operations, have
continued, although with a reduced or socially distanced workforce to
safeguard the health and safety of employees.
Bisichi management have been fully engaged in managing the impact of the
Covid-19 pandemic on its operations both in the UK and in South Africa.
Bisichi management’s priorities are the health and safety of all of
employees and stakeholders and the continuity of the business during this
challenging time.
In terms of business continuity, Bisichi’s South African coal mining and
processing operations have been designated as essential business operations.
At present, the final impact of the pandemic on Bisichi’s future prospects
and financial performance remains uncertain. However, to date, the financial
position has remained strong and at present, there are adequate financial
resources to ensure the business remains viable for the foreseeable future and
that liabilities are met.
OVERALL POSITION
With a quality property portfolio comprising a majority of tenants with long
leases supported by suitable financial arrangements, the Directors believe
that the group property operations (including Bisichi and Dragon) are well
placed to address the current business risks successfully, despite the
continuing uncertain economic climate. The mining operations too, as a key
industry in South Africa, have a positive future despite the pandemic risks.
It is also relevant that LAP would be able to continue as a viable business if
Bisichi were to face unexpected problems as there are no cross guarantees and
LAP is not dependent on the income from Bisichi.
The Directors therefore have a reasonable expectation that the Group and the
Company have 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 £7.9m (2018: £7.2m). As LAP returns to
profit, these tax losses and deductions should be utilised.
DIVIDENDS AND FUTURE PROSPECTS
Due to the current economic uncertainties, the LAP Board has agreed that it
will not be recommending a dividend for the financial year ending 31 December
2019.
The Group remains reasonably optimistic about our ability to weather the
COVID-19 storm. We have strong relations with our tenants and are in active
discussion with a number of them to ensure that we are paid the rent that we
are owed while they are able to continue trading once non-essential shops and
restaurants are permitted to re-open. We have also refinanced two loans to
ensure that further cash is now uncharged and available to spend if required.
Looking through to our medium term trading, we intend to pursue our previously
stated strategies. These include further reducing the Group’s reliance on
retail property although we feel that our value-orientated properties with low
reliance on fashion retailers have inbuilt defensive qualities. We do not need
to fire-sell assets therefore, but we are prepared to enter into negotiations
with parties that have approached us to explore disposals or joint ventures to
redevelop certain assets within our portfolio. A number of these negotiations
are ongoing although we are not yet able to say if any will come to fruition.
We will also pursue our policy of investing in other asset classes, including
industrial property where we have enjoyed early success and in further joint
ventures to undertake residential development. We will see through our
development in Ealing to satisfactory planning consent and then either build
it out or seek to sell our shares in the joint venture.
We will also pursue our strategy of developing our Sheffield shopping centre.
We have commenced initial preparation of a number of plans there which fit in
with the Local Authority’s wider aspirations for the city centre.
Principal activities, strategy & business model
The LAP Group’s principal business model is the investment in and management
and development of industrial and retail property through direct investment
and joint ventures.
The principal activity of Bisichi PLC is coal mining in South Africa. Further
information is available in its 2019 Financial Statements which are available
on their web site: www.bisichi.co.uk
STRATEGIC OUR STRATEGY IS
PRIORITIES ARE
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 policy 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 OF RISK DESCRIPTION OF IMPACT MITIGATION
COVID-19 risk Health and safety of employees and stakeholders. Risks related to business interruption and tenant failures as outlined below. Strategies for mitigating the risks have been defined and specific measures for achieving these are already underway. These include the measures outlined in the Chairman’s Statement and Financial & Performance Review sections of this report.
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 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
COVID-19 risk Health and safety of employees and stakeholders and risks related to coal prices and demand and the value of UK property. Strategies for mitigating the risks have been defined and specific measures for achieving these are already underway. These include the measures outlined in the Chairman’s Statement and Financial & Performance Review sections of this report.
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 each property year on year. Like-for-like rental income as a percentage of the prior year rental. The like-for-like rental income by property has remained broadly unchanged. In the continuing difficult trading environment, this is considered satisfactory.
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 increased to 8.38%, with a larger industrial unit in Runcorn currently being refurbished.
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 reduced by 7.79 pence per share (15.3%) to 43.04p.
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 2019:
- Black Wattle Colliery recorded one Lost Time Injury during 2019.
- No cases of Occupational Diseases were recorded.
- Zero claims for the Compensation for Occupational Diseases
were submitted.
They continue to be compliant 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 2019 Financial Statements which are available on
their web site:
www.bisichi.co.uk
Greenhouse gas reporting
We have reported on all emission sources required under the Companies Act 2006
(Strategic Report and Directors’ Reports) Regulations 2013 for the reporting
period 1st January 2019 to 31st December 2019. The emissions are detailed in
Tables 1, 2
and 3 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 fall within the footprint boundary. LAP has landlord-controlled
areas in Kings Square, Orchard Square, Brewery Street, Shipley and Bridgend.
Properties that we manage on behalf of others or are not wholly owned by LAP
are excluded from our footprint boundary.
Emissions for landlord-controlled areas have been calculated based on actual
consumption data 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.
We have used the ISO14046-1 Standard (2006) 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 20191.
As well as reporting Scope 1 and Scope 2 emissions, the regulations require
that at least one intensity ratio is reported for the given reporting period.
The intensity figure below shows the emissions
in tCO2e per thousand pounds revenue.
Table 1. Landlord & tenant controlled areas
Emissions Source 2019 2018
Scope 1 emissions Natural gas (tCO2e) 53 169
Refrigerants (tCO2e) 0 0
Scope 2 emissions Electricity (tCO2e) 1,354 2,519
Total tCO2e 1,407 2,688
Intensity ratio (tCO2e/£thousand) 0.296 0.514
Table 2. LAP controlled areas
Emissions Source 2019 2018
Scope 1 emissions Natural gas (tCO2e) 53 169
Refrigerants (tCO2e) 0 0
Scope 2 emissions Electricity (tCO2e) 104 134
Total tCO2e 157 303
Table 3. Tenant controlled areas
Emissions Source 2019 2018
Scope 1 emissions Natural gas (tCO2e) 0 0
Refrigerants (tCO2e) 0 0
Scope 2 emissions Electricity (tCO2e) 1,250 2,385
Total tCO2e 1,250 2,385
1. 2019 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).
Table 4. Coal mining carbon footprint
2019 2018
CO2e CO2e
Tonnes Tonnes
Emissions source:
Scope 1 Combustion of fuel & operation of facilities 22,626 21,348
Scope 1 Emissions from coal mining activities 26,435 27,428
Scope 2 Electricity, heat, steam and cooling purchased for own use 13,153 12,177
Total 62,213 60,953
Intensity:
Intensity 1 Tonnes of CO2 per pound sterling of revenue 0.0013 0.0012
Intensity 2 Tonnes of CO2 per pound of coal produced 0.0486 0.0462
Environment
United Kingdom
The Group’s principal UK activity is property investment, which involves
renting premises to commercial 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 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 prospective employees including those who are disabled and
operates in compliance with
all relevant national legislation.
The Group believes that it is in the interest of shareholders to consider
social and human rights issues when conducting business. Various policies and
initiatives implemented by the Group that fall within these areas are
discussed within this report.
ANTI-SLAVERY AND HUMAN TRAFFICKING
The Group is committed to the prevention of the use of forced labour and has a
zero tolerance policy for human trafficking and slavery.
The Group’s policies and initiatives in this area can be found within the
Group’s Anti-slavery and human trafficking statement found
on the Group’s website at www.lap.co.uk.
DIVERSITY AND EQUALITY
The Board recognises the importance of diversity, both in its membership, and
in the Group’s employees. It has a clear policy to promote diversity across
the business. The Board considers that quotas are not appropriate in
determining its composition and has therefore chosen not to set targets. All
aspects of diversity, including but not limited to gender, are considered at
every level of recruitment. Gender diversity of the Board and the Group is set
out below.
DIRECTORS, EMPLOYEES AND GENDER REPRESENTATION
At the year end the LAP Group (excluding Bisichi and Dragon), had 6 directors
(6 male, 0 female), 2 senior managers (2 male, 0 female) and 10 employees (5
male, 5 female).
BISICHI PLC
Bisichi PLC’s Group at the year end had 8 directors (7 male, 1 female), 7
senior managers (6 male, 1 female) and 219 employees (150 male, 69 female).
Detailed information relating to the Bisichi Strategic Report is available in
its 2019 financial statements.
Approved on behalf of the board of directors
Jonathan Mintz
Finance Director
29 June 2020
GOVERNANCE
Directors & advisors
EXECUTIVE DIRECTORS
Sir Michael Heller MA FCA*
(Chairman)
John A Heller LLB MBA
(Chief Executive)
Jonathan Mintz FCA
(Finance Director) Appointed 11 February 2019
NON-EXECUTIVE DIRECTORS
Howard D Goldring BSC (ECON) ACA†
Howard Goldring is Executive Chairman of Delmore Holdings Limited which
specialises in the discretionary management of investment portfolios for
pension funds, charities, family trusts and private clients. He also acts as
an advisor providing high level asset allocation advice to family offices and
pension schemes. He has been a member of the LAP Board since July 1992, and
has almost 40 years’ experience of the real estate market. He was a director
of Baronsmead VCT 2 PLC from 2010-2016, and has specialised in providing many
companies with investor relations support.
Clive A Parritt FCA CF FIIA #†
Clive Parritt joined the board on 1 January 2006. He is a chartered accountant
with over 40 years’ experience of providing strategic, financial and
commercial advice to businesses of all sizes. He is a director of Jupiter US
Smaller Companies plc, chairman of BG Training Limited and a member of the
Performance, Audit and Risk Committee of Arts Council England. Until April
2016 he was Group Finance Director of Audiotonix Limited (an international
manufacturer of audio mixing consoles). He has chaired and been a director of
a number of other public and private companies. Clive Parritt was President of
the Institute of Chartered Accountants in England and Wales in 2011-12. He is
Chairman of the Audit Committee and as Senior Independent Director he chairs
the Nomination and Remuneration Committees.
Robin Priest MA
Robin Priest joined the board on 31 July 2013. He is a senior advisor to
Alvarez & Marsal LLP (“A&M”) and to a major listed German real estate
investment fund manager. He has more than 38 years’ experience in real
estate and structured finance. He was formerly Managing Director of A&M’s
real estate practice, advising private sector and public sector clients on
both operational and financial real estate matters. Prior to joining A&M,
Robin was lead partner for Real Estate Corporate Finance in London with
Deloitte LLP and before this he founded and ran a property company backed by
private equity. He is also a trustee of London’s Oval House Theatre.
* Member of the nomination committee
† Member of the audit, remuneration and nomination committees
# Senior independent director
SECRETARY & REGISTERED OFFICE
Jonathan Mintz FCA
24 Bruton Place
London W1J 6NE
AUDITOR
RSM UK Audit LLP
PRINCIPAL BANKERS
Phoenix CRE Sàrl
Santander UK plc
Metro Bank plc
SOLICITORS
Pinsent Masons LLP
Wake Smith Solicitors Limited
STOCKBROKER
Shore Capital Markets Limited
REGISTRARS & TRANSFER OFFICE
Link Asset Services
Shareholder Services
The Registry
34 Beckenham Road
Beckenham
Kent
BR3 4TU
UK telephone: 0871 664 0300
International telephone: +44 371 664 0300
(Calls cost 12p per minute plus your phone company’s access charge.
Calls outside the United Kingdom will be charged at the applicable
international rate).
Lines are open between 9.00am to 5.30pm, Monday to Friday, excluding public
holidays in England and Wales.
Website: www.linkassetservices.com
Email: enquiries@linkgroup.co.uk
Company registration number
341829 (England and Wales)
WEBSITE
www.lap.co.uk
E-MAIL
admin@lap.co.uk
Directors’ report
The Directors submit their report and the audited financial statements for the
year ended 31 December 2019.
Strategic report
A comprehensive review and assessment of the Group’s activities during the
year as well as its position at the year end and prospects for the forthcoming
year are included in the Chairman and Chief Executive’s Statement and the
Strategic Report. These reports can be found on pages 2 to 14 and should be
read in conjunction with this report.
Activities
The principal activities of the Group during the year were property investment
and development, as well as investment in joint ventures and an associated
company. The associated company is Bisichi PLC (Bisichi) in which the Company
holds a 41.52 % interest. Bisichi is listed on the main market of the London
Stock Exchange and operates in England and South Africa with subsidiaries
which are involved in overseas mining and mining investment. The results,
together with the assets and liabilities, of Bisichi are consolidated with
those of LAP in accordance with the terms of IFRS 10 even though the Group
only has a minority interest – under IFRS 10 the 58.48% majority interest is
disclosed as a “non-controlling interest”.
Business review AND POST BALANCE SHEET EVENTS
Review of the Group’s development and performance
A review of the Group’s development and performance can be found below and
should be read in conjunction with the Strategic Report on pages 4 to 14.
Details of any post balance sheet events are disclosed in Note 29 to the
financial statements.
Future developments
The Group continues to look for new opportunities to acquire real estate
assets where it feels it can increase value by applying its intensive
management skills. At the same time, it seeks to reduce its interest payments
on its loans as they expire or where opportunities arise to refinance on
better terms. We also seek to improve our existing estate through the
continued pursuit of asset management initiatives.
Property activities
The Group is a long-term investor in property. It acquires properties,
actively manages those assets to improve rental income, and thus seeks to
enhance the value of its properties over time. In reviewing performance,
the principal areas regularly monitored by the Group include:
- Rental income – the aim of the Group is to maximise the
maintainable income from each property by careful tenant management supported
by sympathetic and revenue enhancing development. Income may be affected
adversely by the inability of tenants to pay their rent, but careful
monitoring of rent collection and tenant quality helps to mitigate this risk.
Risk is also minimised by a diversified tenant base, which should limit the
impact of the failure of any individual tenant.
- Cash flow – allowing for voids, acquisitions, development
expenditure, disposals and the impact of operating costs and interest charges,
the Group aims to maintain a positive cash flow over time.
- Financing costs – the exposure of the Group to interest rate
movements is managed partly by the use of swap and cap arrangements (see Note
21 for full details of the contracts in place) and also by using loans with
fixed terms and interest rates. These arrangements are designed to ensure that
our interest costs are known in advance and are always covered by anticipated
rental income.
- Property valuations – market sentiment and economic conditions
have a direct effect on property valuations, which can vary significantly
(upwards or downwards) over time. Bearing in mind the long term nature of the
Group’s business, valuation changes have little direct effect on the ongoing
activities or the income and expenditure of the Group. Tenants generally have
long term leases, so rents are unaffected by short term valuation changes.
Borrowings are secured against property values and if those values fall very
significantly, this could limit the ability of the Group to develop the
business using external borrowings. The risk is minimised by trying to ensure
that there is adequate cover to allow for fluctuations in value on a short
term basis.
It continues to be the policy of the Group to realise property assets when the
valuation of those assets reaches a level at which the directors consider that
the long-term rental yield has been reached. The Group also seeks to acquire
additional property investments on an opportunistic basis when the potential
rental yields offer scope for future growth.
Investment activities
The investments in joint ventures and Bisichi are for the long term.
LAP manages the UK property assets of Bisichi. However, the principal activity
of Bisichi is overseas mining investment (in South Africa). While IFRS 10
requires the consolidation of Bisichi, the investment is held to generate
income and capital growth over the longer term. It is managed independently of
LAP and should be viewed by shareholders as an investment and not a
subsidiary. The other listed investments are held as current assets to provide
the liquidity needed to support the property activities while generating
income and capital growth.
Investments in property are made through joint ventures when the financing
alternatives and spreading of risk make such an approach desirable.
Dividend
In the light of the current uncertain economic environment, the directors are
not recommending payment of a final dividend for 2019 (2018: 0.18p per share).
The company’s ordinary shares held in treasury
At 31 December 2019, 218,197 (2018: 218,197) ordinary shares were held in
Treasury with a market value of £47,349 (2018: £56,731). At the Annual
General Meeting (AGM) in June 2019 members renewed the authority for the
Company to purchase up to 10 per cent of its issued ordinary shares. The
Company will be asking members to renew this authority at the next AGM to be
held on Wednesday 23 July 2020.
Treasury shares held at 1 January 2019 and at 31 December 2019 218,197
Treasury shares are not included in issued share capital for the purposes of
calculating earnings per share or net assets per share and they do not qualify
for dividends payable.
Investment properties
The freehold and long leasehold properties of the Company, its subsidiaries
and Bisichi were revalued as at 31 December 2019 by independent professional
firms of chartered surveyors – Allsop LLP, London (71.1 per cent of the
portfolio), Carter Towler, Leeds (26.0 per cent) – and by the Directors (2.9
per cent). The valuations, which are reflected in the financial statements,
amount to £44.6m (2018: £47.4m).
No property (2018: £2.3m) is included under current assets, as assets held
for sale.
Property of £26.9m (2018: £38.6m) is included under current assets, as
inventory, at the lower of cost or net realisable value.
Taking account of prevailing market conditions, the valuation of the
properties at 31 December 2019 resulted in a decrease of £3.0m (2018:
decrease of £2.6m). The proportion of this revaluation attributable to the
Group (net of taxation) is reflected in the consolidated income statement and
the consolidated balance sheet.
Financial instruments
Note 21 to the financial statements sets out the risks in respect of financial
instruments. The board reviews and agrees overall treasury policies,
delegating appropriate authority for applying these policies to the Chief
Executive and Finance Director. Financial instruments are used to manage the
financial risks facing the Group and speculative transactions are prohibited.
Treasury operations are reported at each board meeting and are subject to
weekly internal reporting. Hedging arrangements are in place for the Company,
its subsidiaries and joint ventures in order to limit the effect of higher
interest rates upon the Group. Where appropriate, hedging arrangements are
covered in the Chairman and Chief Executive’s Statement and the Financial
Review.
Directors
Sir Michael Heller, J A Heller, H D Goldring, C A Parritt and R Priest were
Directors of the company for the whole of 2019. Mr J Mintz was appointed as a
Director on 11 February 2019.
R Priest is retiring by rotation at the Annual General Meeting in 2020 and
offers himself for re-election.
Robin Priest is a senior advisor to Alvarez & Marsal LLP (“A&M”) and to a
German real estate investment fund manager. He has more than 38 years’
experience in real estate and structured finance. He was formerly Managing
Director of A&M’s real estate practice, advising private sector and public
sector clients on both operational and financial real estate matters. Prior to
joining A&M, Robin was lead partner for Real Estate Corporate Finance in
London with Deloitte LLP and before this he founded and ran a property company
backed by private equity. He is also a trustee of London’s Oval House
Theatre. The board has considered the appointment of Robin Priest and
recommends his re-election as Director. His knowledge of structured finance
and experience of dealing with challenging and complex assets and portfolios
is of significant benefit to the business.
Directors’ interests
The interests of the Directors in the ordinary shares of the Company,
including family and trustee holdings, where appropriate, can be found on page
24 in the Annual Remuneration Report.
Substantial shareholdings
31 Dec 2019 31 Dec 2018
no. % no. %
Sir Michael Heller and family 48,080,511 56.35 48,080,511 56.35
Cavendish Asset Management Limited 8,211,044 9.62 8,061,044 9.45
James Hyslop 4,886,258 5.73 4,886,258 5.73
Maland Pension Fund 3,323,383 3.89 2,931,198 3.44
The Company does not consider that the Heller family has a controlling share
interest irrespective of the number of shares held as no individual party
holds a majority and there is no legal obligation for shareholders to act in
concert. The Directors do not consider that any single party has control.
The Company is not aware of any other holdings exceeding 3 per cent of the
issued share capital.
share capital and Takeover directive
The Company has one class of share capital, namely ordinary shares. Each
ordinary share carries one vote. All the ordinary shares rank pari passu.
There are no securities issued by the Company which carry special rights with
regard to control of the Company.
The identity of all significant direct or indirect holders of securities
in the Company and the size and nature of their holdings is shown
in “Substantial Shareholdings” above.
The rights of the ordinary shares to which the HMRC approved Share Incentive
Plan relates are exercisable by the trustees on behalf of the employees.
There are no restrictions on voting rights or on the transfer of ordinary
shares in the Company, save in respect of treasury shares. The rules governing
the appointment and replacement of Directors, alteration of the articles of
association of the Company and the powers of the Company’s Directors accord
with usual English company law provisions. Each Director is subject to
re-election at least every three years.
The Company is not party to any significant agreements that take effect, alter
or terminate upon a change of control of the Company following a takeover bid.
The Company is not aware of any agreements between holders of its ordinary
shares that may result in restrictions on the transfer of its ordinary shares
or on voting rights.
There are no agreements between the Company and its Directors or employees
providing for compensation for loss of office or employment that occurs
because of a takeover bid.
Statement as to disclosure of information to the auditor
The Directors in office at the date of approval of the financial statements
have confirmed that, so far as they are aware, there is no relevant audit
information of which the auditor is unaware. Each of the Directors has
confirmed that they have taken all the steps that they ought to have taken as
a Director in order to make them aware of any relevant audit information and
to establish that it has been communicated to the auditor.
indemnities and insurance
The Articles of Association of the company provide for it to indemnify, to the
extent permitted by law, directors and officers (excluding the Auditor) of the
company, including officers of subsidiaries and associated companies, against
liabilities arising from the conduct of the Group’s business. The
indemnities are qualifying third party indemnity provisions of the Companies
Act 2006 and each of these qualifying third party indemnities was in force
during the course of the financial year ended 31 December 2019 and as at the
date of this Directors’ report. No amount has been paid under any of these
indemnities during the year.
The Group maintains Directors and officers insurance, which is reviewed
annually and is considered to be adequate by the Company and its insurance
advisers.
Donations
No political donations were made during the year (2018: £Nil). £2,250 of
donations for charitable purposes were made during the year (2018: £2,800).
CORPORATE RESPONSIBILITY
Environment
The environmental considerations of the group’s South African coal mining
operations are covered in the Bisichi PLC Strategic Report.
The group’s UK activities are principally property investment whereby
premises are provided for rent to commercial businesses. The group seeks to
provide those tenants with good quality premises from which they can operate
in an efficient and environmentally efficient manner and waste re-cycling
arrangements are in place at all the company’s locations.
Greenhouse gas emissions
Details of the group’s greenhouse gas emissions for the year ended 31
December 2019 can be found on pages 13 and 14 of the Strategic Report.
Employment
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 prospective employees including those who are disabled. The
Bisichi PLC Strategic Report gives details of the Bisichi group’s activities
and policies concerning the employment, training, health and safety and
community support and social development concerning the Bisichi group’s
employees in South Africa.
Going concern
The directors have reviewed the cash flow forecasts of the Group and the
underlying assumptions on which they are based. The directors have reviewed
the COVID-19 scenario forecasts and the underlying assumptions on which they
are based, which are described in more detail in the COVID-19 section of the
Strategic Report. The Group’s business activities, together with the factors
likely to affect its future development, are set out in the Chairman’s and
Chief Executive’s Statement and Financial Review. In addition, Note 21 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.
With secured long term banking facilities, sound financial resources and long
term leases in place the Directors believe it remains appropriate 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.
Corporate Governance
The Corporate governance report can be found on pages 19 and 20 of the annual
report and accounts.
Annual General Meeting
The Annual General Meeting will be held at 24 Bruton Place, London, W1J 6NE on
Thursday 30 July 2020 at 10.00 a.m. Items 1 to 7 will be proposed as ordinary
resolutions. More than 50 per cent. of shareholders’ votes cast at the
meeting must be in favour for those ordinary resolutions to be passed. The
Directors consider that all of the resolutions to be put to the meeting are in
the best interests of the Company and its shareholders as a whole and
accordingly the board unanimously recommends that shareholders vote in favour
of all of the resolutions as the Directors intend to do in respect of their
own beneficial holdings of ordinary shares. Please note that the following
paragraphs are only summaries of certain of the resolutions to be proposed at
the Annual General Meeting and do not represent the full text of the
resolutions. You should therefore read this section in conjunction with the
full text of the resolutions contained in the notice of Annual General Meeting
which accompanies this Directors’ Report.
Ordinary resolutions
Resolution 7 – Authority to allot securities
Paragraph 7.1.1 of Resolution 7 would give the Directors the authority to
allot shares in the Company and grant rights to subscribe for or convert any
security into shares in the Company up to an aggregate nominal value of
£2,836,478. This represents approximately 1/3 (one third) of the ordinary
share capital of the Company in issue (excluding treasury shares) as at 26
June 2020 (being the last practicable date prior to the publication of this
Directors’ Report).
In line with guidance issued by the Institutional Voting Information Service
(IVIS), paragraph 7.1.2 of Resolution 7 would give the directors the authority
to allot shares in the Company and grant rights to subscribe for or convert
any security into shares in the Company up to a further aggregate nominal
value of £2,836,478, in connection with an offer by way of a rights issue.
This amount represents approximately another 1/3 (one third) of the ordinary
share capital of the Company in issue (excluding treasury shares) as at 26
June 2020 (being the last practicable date prior to the publication of this
Directors’ Report).
The Directors’ authority will expire on the earlier of 31 August 2021 or the
next AGM. The Directors do not currently intend to make use of this authority.
However, if they do exercise the authority, the Directors intend to follow
best practice as recommended by the IVIS regarding its use (including as
regards the Directors standing for re-election in certain cases).
OTHER MATTERS
RSM UK Audit LLP has expressed its willingness to continue in office as
auditor. A proposal will be made at the Annual General Meeting for its
reappointment.
By order of the board
Jonathan Mintz
Secretary
For and on behalf of London & Associated Properties PLC
29 June 2020
24 Bruton Place
London
W1J 6NE
Corporate Governance
The Company has adopted the Corporate Governance Code for Small and Mid-Size
Quoted Companies (the QCA Code) published by the Quoted Companies Alliance.
The QCA Code provides governance guidance to small and mid-size quoted
companies. The paragraphs below set out how the Company has applied this
guidance during the year. The Company
has complied with the QCA Code
throughout the year.
Principles of corporate governance
The board promotes good corporate governance in the areas of risk management
and accountability as a positive contribution to business prosperity. The
board endeavours to apply corporate governance principles in a sensible and
pragmatic fashion having regard to the circumstances of the business. The key
objective is to enhance
and protect shareholder value.
Board structure
During the year the board comprised the Chairman, the Chief Executive, one
other executive Director and three non-executive Directors. Their details
appear on page 15. The board is responsible to shareholders for the proper
management of the Group.
The Directors’ responsibilities statement in respect of the accounts is
set
out on page 32. The non-executive Directors have a particular responsibility
to ensure that the strategies proposed by the executive Directors are fully
considered. To enable the board to discharge its duties, all Directors have
full and timely access to all relevant information and there is a procedure
for all Directors, in furtherance of their duties, to take independent
professional advice, if necessary, at the expense of the Group. The board has
a formal schedule of matters reserved to it and normally has eleven regular
meetings scheduled each year. Additional meetings are held for special
business when required.
The board is responsible for overall Group strategy, approval of major capital
expenditure and consideration of significant financial and operational
matters.
The board committees, which have written terms of reference, deal with
specific aspects of the Group’s affairs:
- The nomination committee is chaired by C A Parritt and comprises one
other non-executive Director and the executive Chairman. The committee is
responsible for proposing candidates for appointment to the board, having
regard to the balance and structure of the board. In appropriate cases
recruitment consultants may be used to assist the process. All Directors are
subject to re-election at a maximum of every three years.
- The remuneration committee is responsible for making recommendations
to the board on the Company’s framework of executive remuneration and its
cost. The committee determines the contract terms, remuneration and other
benefits for each of the executive directors, including performance related
bonus schemes, pension rights, option grants and compensation payments. The
board itself determines the remuneration of the non-executive Directors. The
committee comprises two non-executive Directors and it is chaired by C A
Parritt. The executive Chairman of the board is normally invited to attend.
The Annual Remuneration Report is set out on pages 22 to 25.
- The audit committee comprises two non-executive Directors and is
chaired by C A Parritt. The audit committee report, with its terms of
reference, is set out on page 31. The Chief Executive and Finance Director are
normally invited to attend.
Board and board committee meetings held in 2019
The number of regular meetings during the year and attendance was as follows:
Meetings Meetings
held attended
Sir Michael Heller Board Nomination committee Remuneration committee 10 1 1 9 1 1
J A Heller* Board Audit committee 10 2 10 2
J Mintz* Board Audit committee 10 2 10 2
C A Parritt Board Audit committee Nomination committee Remuneration committee 10 2 1 1 10 2 1 1
H D Goldring Board Audit committee Nomination committee Remuneration committee 10 2 1 1 9 2 1 1
R Priest Board 10 10
*Attended audit committee by invitation.
Performance evaluation – board, board committees and directors
The performance of the board as a whole, its committees and the non-executive
Directors is assessed by the Chairman and the Chief Executive and is discussed
with the senior independent non-executive Director. Their recommendations are
discussed at the nomination committee prior to proposals for re-election being
recommended to the board. The performance of executive Directors is discussed
and assessed by the remuneration committee. The senior independent Director
meets regularly with the Chairman, executive and non-executive Directors
individually outside of formal meetings. The Directors will take outside
advice in reviewing performance but
have not found this to be necessary to date.
Independent directors
The senior independent non-executive Director is C A Parritt. The other
independent non-executive Directors are H D Goldring and R Priest. Delmore
Holdings Limited (Delmore) is a Company in which H D Goldring is the majority
shareholder and the Executive Chairman. Delmore provides consultancy services
to the Company on a fee paying basis. R Priest provides services to the
Company on a fee paying basis. C A Parritt also provides some advisory
services as part of his accounting practice.
The board encourages all three non-executive Directors to act independently
and does not consider that length of service of any individual non-executive
Director, nor any connection with the above mentioned consultancy and advisory
companies, has resulted in the inability or failure to act independently. In
the opinion of the board the three non-executive Directors continue to fulfil
their roles as independent non-executive Directors. Their background and
skills are set out on page 15.
The independent Directors exchange views regularly between board meetings and
meet when required to discuss corporate governance and other issues concerning
the Group.
Internal control
The Directors are responsible for the Group’s system of internal control and
for reviewing its effectiveness at least annually, and for the preparation and
review of its financial statements. The board has designed the Group’s
system of internal control in order to provide the Directors with reasonable
assurance that assets are safeguarded, that transactions are authorised and
properly recorded and that material errors and irregularities are either
prevented or would be detected within a timely period. However, no system of
internal control can eliminate the risk of failure to achieve business
objectives or provide absolute assurance against material misstatement or
loss. The key elements of the control system in operation are:
- The board meets regularly on full notice with a formal schedule of
matters reserved for its decision and has put in place an organisational
structure with clearly defined lines of responsibility and with appropriate
delegation of authority;
- There are established procedures for planning, approval and
monitoring of capital expenditure and information systems for monitoring the
Group’s financial performance against approved budgets and forecasts;
- The departmental heads are required annually to undertake a full
assessment process to identify and quantify the risks that face their
departments and functions, and assess the adequacy of the prevention,
monitoring and modification practices in place for those risks. In addition,
regular reports about significant risks and associated control and monitoring
procedures are made to the executive Directors. The process adopted by the
Group accords with the guidance contained in the document “Internal Control
Guidance for Directors on the Combined Code” issued by the Institute of
Chartered Accountants in England and Wales. The audit committee receives
reports from external auditors and from executive Directors of the Group.
During the period the audit committee has reviewed the effectiveness of the
system of internal control as described above. The board receives periodic
reports from all committees.
- There are established procedures for the presentation and review of
the financial statements and the Group has in place an organisational
structure with clearly defined lines of responsibility and with appropriate
delegation of authority.
There are no internal control issues to report in the annual report and
financial statements for the year ended 31 December 2019. Up to the date of
approval of this report and the financial statements, the board has not been
required to deal with any related material internal control issues. The
Directors confirm that the board has reviewed the effectiveness of the system
of internal control as described during the period.
COMMUNICATION WITH SHAREHOLDERS
Prompt communication with shareholders is given high priority. Extensive
information about the Group and its activities is provided in the Annual
Report. In addition, a half-year report is produced for each financial year
and published on the Company’s website. The Company’s website
www.lap.co.uk is updated promptly with announcements and Annual Reports upon
publication. Copies from previous years are also available on the website.
The share price history and market information can be found at
http://www.londonstockexchange.com/prices-and-markets/markets/prices.htm. The
company code is LAS.
There is a regular dialogue with the Company’s stockbrokers and
institutional investors. Enquiries from individuals on matters relating to
their shareholdings and the business of the Group are dealt with promptly and
informatively.
The Company’s website is under continuous development to enable better
communication with both existing and potential new shareholders.
THE BRIBERY ACT 2010
The Company is committed to acting ethically, fairly and with integrity in all
its endeavours and compliance with the Company’s anti–bribery code is
monitored closely.
Governance statement by the Chairman of the remuneration committee
The remuneration committee is pleased to present its report for the year ended
31 December 2019. The report is presented in two parts in accordance with the
remuneration regulations.
The first part is the Annual Remuneration Report which details remuneration
awarded to Directors and non-executive Directors during the year. The
shareholders will be asked to approve the Annual Remuneration Report as an
ordinary resolution (as in previous years) at the AGM in July 2020.
The current remuneration policy, which details the remuneration policy for
directors, can be found at www.lap.co.uk. The current remuneration policy was
subject to a binding vote which was approved by shareholders at the AGM in
June 2017. The approval will continue to apply for a
3 year period up to the AGM on 30 July 2020.
The second part details the Remuneration Policy for Directors.
This policy is subject to a binding vote which will be proposed to
shareholders at the AGM in 2020 and if approved will apply for a
3 year period commencing from the conclusion of the AGM.
Both of the reports have been prepared in accordance with The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013.
The Company’s auditor, RSM UK Audit LLP is required by law to audit certain
disclosures and where disclosures have been audited that is indicated.
C A Parritt
Chairman, Remuneration Committee
29 June 2020
Annual remuneration report
The following information has been audited
Single total figure of remuneration for the year ended 31 December 2019
Salary BONUSES BENEFITS PENSIONS TOTAL SHARE TOTAL
and fees £’000 £’000 £’000 BEFORE SHARE OPTIONS OPTIONS 2019
£’000 £’000 £’000 £’000
Executive Directors
Sir Michael Heller* 7 - 59 - 66 n/a 66
Sir Michael Heller - Bisichi 82 200 - - 282 n/a 282
J A Heller 533 - 43 - 576 n/a 576
J Mintz 143 50 - 12 205 n/a 205
765 250 102 12 1,129 - 1,129
Non-executive Directors
H D Goldring*+ 18 - 9 - 27 n/a 27
C A Parritt*+ 37 - - - 37 n/a 37
R Priest* 35 - - - 35 n/a 35
90 - 9 - 99 - 99
Total 855 250 111 12 1,228 - 1,228
J A Heller has an entitlement to an employer pension contribution of £72,000
at 31 December 2019, but has elected for this not to be paid.
Single total figure of remuneration for the year ended 31 December 2018
Salary BONUSES BENEFITS PENSIONS TOTAL SHARE TOTAL
and fees £’000 £’000 £’000 BEFORE SHARE OPTIONS OPTIONS 2018
£’000 £’000 £’000 £’000
Executive Directors
Sir Michael Heller* 7 350 55 - 412 n/a 412
Sir Michael Heller - Bisichi 82 200 2 - 284 n/a 284
J A Heller 533 300 37 - 870 n/a 870
A K Thapar 161 60 11 10 242 n/a 242
783 910 105 10 1,808 - 1,808
Non-executive Directors
H D Goldring*+ 18 - 8 - 26 n/a 26
C A Parritt*+ 40 - - - 40 n/a 40
R Priest* 35 - - - 35 n/a 35
93 - 8 - 101 - 101
Total 876 910 113 10 1,909 - 1,909
* Note 25 “Related party transactions”
+ Members of the remuneration committee for years ended 31 December
2018 and 31 December 2019. C A Parritt was the chair of the remuneration
committee throughout both years.
Benefits include the provision of car, health and other insurance
and subscriptions.
Sir Michael Heller is a director of Bisichi PLC, (a subsidiary for IFRS 10
purposes) and received a salary from that company of £82,500 (2018: £82,500)
for services. He also received a bonus of
£200,000 in each year.
Although Sir Michael Heller receives reduced remuneration in respect of his
services to LAP, the Company does supply office premises, property management,
general management, accounting and administration services for a number of
companies in which Sir Michael Heller has an interest. The board estimates
that the annual value of these services, if supplied to a third party, would
have been £300,000 (2018: £300,000). Further details of these services are
set out in Note 25 to the financial statements “Related party
transactions”.
J A Heller is a director of Dragon Retail Properties Limited, (a subsidiary
for IFRS 10 purposes) and received benefits from that company of £9,632
(2018: £6,500) for services. This is included in the remuneration figures
disclosed above.
Using its discretion the Committee awarded a bonus of £50,000
to J Mintz in recognition of his considerable contribution to the
cost cutting programme.
The remuneration figures disclosed for H D Goldring include fees paid to his
company, Delmore Holdings Limited for consultancy services provided to the
Group. This is detailed in Note 25 to the financial statements.
The remuneration figures for C A Parritt include fees paid to his accountancy
practice for consultancy services provided to the Group. This is detailed in
Note 25 to the financial statements.
R Priest provides consultancy services to the Group. This is detailed in Note
25 to the financial statements.
Summary of directors’ terms
Date of Unexpired term Notice period
contract
Executive Directors
Sir Michael Heller 1 January 1971 Continuous 6 months
John Heller 1 May 2003 Continuous 12 months
Jonathan Mintz 11 February 2019 Continuous 3 months
Non-executive Directors
H D Goldring 1 July 1992 Continuous 3 months
C A Parritt 1 January 2006 Continuous 3 months
R Priest 31 July 2013 Continuous 3 months
Total pension entitlements
One director had benefits under money purchase schemes. Under his contract of
employment, he was entitled to a regular employer contribution (currently
£15,000 a year). There are no final salary schemes in operation. No pension
costs are incurred on behalf of non-executive Directors.
Share Incentive Plan (SIP)
In 2006 the Directors set up an HMRC approved share incentive plan (SIP). The
purpose of the plan, which is open to all eligible LAP executive Directors and
head office based staff, is to enable them to acquire shares in the Company
and give them a continuing stake in the Group.
The SIP comprises four types of share – (1) free shares under which the
Company may award shares of up to the value of £3,000 each year, (2)
partnership shares, under which members may save up to £1,500 per annum to
acquire shares, (3) matching shares, through which the Company may award up to
two shares for each share acquired as a partnership share, and (4) dividend
shares, acquired from dividends paid on shares within the SIP.
1. Free shares: No free shares were issued for 2019 bonuses or for 2018
bonuses.
2. Partnership shares: No partnership shares were issued between November
2018 and October 2019.
3. Matching shares: The partnership share agreements for the year to 31
October 2018 provide for two matching shares to be awarded free of charge for
each partnership share acquired. No partnership shares were acquired in 2018
(2017: nil). Matching shares will usually be forfeited if a member leaves
employment in the Group within five years of their grant.
4. Dividend shares: Dividends on shares acquired under the SIP will be
utilised to acquire additional shares. Accumulated dividends received on
shares in the SIP to 31 December 2019 amounted to £Nil (2018: £Nil).
Dividend shares issued:
Number of members Number of shares Value of shares
2019 2018 2019 2018 2019 2018
£ £
Directors: J A Heller - 1 - 448 - 125
A K Thapar - 1 - 579 - 161
Staff - - - - - -
Total at 31 December - 2 - 1,027 - 286
The SIP is set up as an employee benefit trust. The trustee is London &
Associated Securities Limited, a wholly owned subsidiary of LAP, and all
shares and dividends acquired under the SIP will be held by the trustee until
transferred to members in accordance with the rules of the SIP.
Share Option Schemes
The Company has an HMRC approved scheme (Approved Scheme). It was set up in
1986 in accordance with HMRC rules to gain HMRC approved status which gave the
members certain tax advantages. There are no performance criteria for the
exercise of options under the Approved Scheme, as this was set up before such
requirements were considered to be necessary. No Director has any options
outstanding under the Approved Scheme nor were any options granted under the
Approved Scheme for the year ended 31 December 2019.
A share option scheme known as the “Non-approved Executive Share Option
Scheme” (Unapproved Scheme) which does not have HMRC approval was set up
during 2000. At 31 December 2019 there were no options to subscribe for
ordinary shares outstanding. The exercise of options under the Unapproved
Scheme is subject to the satisfaction of objective performance conditions
specified by the remuneration committee which conforms to institutional
shareholder guidelines and best practice provisions. Further details of this
scheme are set out in Note 23 “Share Capital” to the financial statements.
Payments to past directors
No payments were made to past Directors in the year ended 31 December 2019.
Payments for loss of office
No payments for loss of office were made in the year ended 31 December 2019.
Statement of directors’ shareholdingS and share interestS
Directors’ interests
The interests of the Directors in the ordinary shares of the Company,
including family and trustee holdings, where appropriate, were as follows:
Beneficial Non-beneficial interests
interests
31 Dec 19 1 Jan 19 31 Dec 19 1 Jan 19
Sir Michael Heller 5,749,341 5,753,541 19,277,931 19,277,931
H D Goldring 19,819 19,819 - -
J A Heller 1,872,041 1,867,841 †14,073,485 †14,073,485
C A Parritt 36,168 36,168 - -
R Priest - - - -
J Mintz - - - -
† These non-beneficial holdings are duplicated with those of Sir Michael
Heller.
The beneficial holdings of Directors shown above include their interests in
the Share Incentive Plan.
No share awards were made to the Directors in the year, and accordingly no
discretion was exercised in determining any award or bonus payment as a result
of any share price appreciation.
The following information is unaudited:
The graph illustrates the Company’s performance as compared with a broad
equity market index over a five year period. Performance is measured by total
shareholder return. The directors have chosen the FTSE All Share – Total
Return Index as a suitable index for this comparison as it gives an indication
of performance against a large spread of quoted companies.
The middle market price of London & Associated Properties PLC ordinary shares
at 31 December 2019 was 21.7p (2018: 26p). During the year the share middle
market price ranged between 18.5p and 26p.
Total Shareholder Return
Remuneration of the Chief Executive over the last ten years
Year CEO Chief Executive Single Annual bonus payment Long-term incentive
total figure of against maximum vesting rates
remuneration opportunity* against maximum
£’000 % opportunity*
%
2019 J A Heller 576 0% n/a
2018 J A Heller 870 20% n/a
2017 J A Heller 487 11% n/a
2016 J A Heller 569 18% n/a
2015 J A Heller 762 41% n/a
2014 J A Heller 835 49% n/a
2013 J A Heller 716 n/a n/a
2012 J A Heller 417 n/a n/a
2011 J A Heller 671 n/a n/a
2010 J A Heller 577 n/a n/a
2009 J A Heller 982 n/a n/a
*There were no formal criteria or conditions to apply in determining the
amount of bonus payable or the number of shares to be issued prior to 2014.
Percentage change in Chief Executive’s Remuneration (audited)
The table below shows the percentage change in Chief Executive remuneration
for the prior year compared to the average percentage change for all other
Head Office based employees. To provide a meaningful comparison, the same
group of employees (although not necessarily the same individuals) appears in
the 2018 and 2019 group. The remuneration committee chose head office based
employees as the comparator group as this group forms the closest comparator
group.
Chief Executive Head Office Employees*
£’000 £’000
2019 2018 % change 2019 2018 % change
Base salary and allowances 533 533 0% 279 256 9.0%
Taxable benefits 43 37 16.2% 78 72 8.3%
Annual bonus 0 300 -100% 37 383 -90.3%
Total 576 870 -33.8% 394 711 -44.6%
*Head office employees consist of those employed by the business for the whole
of 2018 and 2019 and differ from those included in the calculation in the
previous Annual Report.
Relative importance of spend on pay
The total expenditure of the Group on remuneration to all employees (Note 26
refers) is shown below:
2019 2018
£’000 £’000
Employee Remuneration 9,614 9,889
Distributions to shareholders 0 256
Statement of implementation of remuneration policy
The policy was approved at the AGM in June 2017 and was effective from 6 June
2017. The vote on the remuneration policy is binding in nature. The Company
may not then make a remuneration payment or payment for loss of office to a
person who is, is to be, or has been a director of the Company unless that
payment is consistent with the approved remuneration policy, or has otherwise
been approved by
a resolution of members. It is to be presented for approval at the forthcoming
AGM.
Consideration by the directors of matters relating to directors’
remuneration
The Remuneration Committee considered the executive Directors’ remuneration
and the Board considered the non-executive Directors’ remuneration in the
year ended 31 December 2019. No increases were awarded and no external advice
was taken in reaching this decision.
Shareholder voting
At the Annual General Meeting on 12 June 2019, there was an advisory vote on
the resolution to approve the Remuneration Report, other than the part
containing the remuneration policy.
In addition, on 6 June 2017, there was a binding vote on the resolution to
approve the Remuneration Policy. The results are detailed below:
% of votes % of votes Number of votes
for against withheld
Resolution to approve the Remuneration Report (12 June 2019) 72.91 27.09 41,952
Resolution to approve the Remuneration Policy (6 June 2017) 83.14 16.69 89,602
Although more than 20% of shareholders voted against the approval of the
remuneration report at the 2019 AGM, the Remuneration Committee and the Board
believe that the current remuneration policy (approved by shareholders in
2017) is still appropriate. They have noted that a number of shareholders
voted against the remuneration report. However, they believe that it is
essential to reward executive directors at a commercial rate and that the
payments are in accordance with the agreed Policy.
Remuneration policy summary
The remuneration policy summary below is an extract of the group’s current
remuneration policy on directors’ remuneration, which was approved by a
binding vote at the 2017 AGM. The approved policy took effect from 6 June
2017.
Element Purpose Policy Operation Opportunity and performance conditions
Executive directors
Base salary To recognise: Skills Responsibility Accountability Experience Value Considered by remuneration committee on appointment Set at a level considered appropriate to attract, retain, motivate and reward the right individuals Reviewed annually whenever there is a change of role or operational responsibility Paid monthly in cash There is no prescribed maximum salary or maximum rate of increase No individual
director will be awarded a base salary in excess of £700,000 a year No specific
performance conditions are attached to base salaries
Pension To provide competitive retirement benefits Company contribution offered at up to 10% of base salary as part of overall remuneration package The contribution payable by the Company is included in the director’s contract of employment Paid into money purchase schemes Company contribution offered at up to 10% of base salary as part of overall
remuneration package No specific performance conditions are attached to pension
contributions
Benefits To provide a competitive benefits package Contractual benefits include: Car or car allowance Group health cover Death in service cover Permanent health insurance The committee retains the discretion to approve changes in contractual benefits in exceptional circumstances or where factors outside the control of the Group lead to increased costs (e.g. medical inflation) The costs associated with benefits offered are closely controlled and reviewed on an
annual basis No director will receive benefits of a value in excess of 30% of their
base salary No specific performance conditions are attached to contractual benefits
Annual bonus To reward and incentivise In assessing the performance of the executive team, and in particular to determine whether bonuses are merited the remuneration committee takes into account the overall performance of the business, as well as individual contribution to the business in the period The remuneration committee determines the level of bonus on an annual basis In assessing performance consideration is given to the level of net rental income, cash flow, voids, realised development gains and income from managing joint ventures. Achieved results are then compared with expectation taking account of market conditions Bonuses are generally offered in cash or shares The current maximum bonus will not exceed 200% of base salary in any one year but the
remuneration committee reserves the power to award up to 300% in an exceptional year
Performance conditions will be assessed on an annual basis The performance measures
applied may be financial, non-financial, corporate, divisional or individual and in
such proportion as the remuneration committee considers appropriate
Share options To provide executive directors with a long-term interest in the company Share options may be granted under existing schemes (see page 23) Where it is necessary to attract, retain, motivate and reward the right individuals, the directors may establish new schemes to replace any expired schemes Offered at appropriate times by the remuneration committee Entitlements to share options granted under the Approved Option scheme are not
subject to performance criteria. Share Options granted under the Unapproved Scheme
are subject to the performance criteria specified in the Scheme rules The aggregate
number of shares over which options may be granted under all of the company’s option
schemes (including any options and awards granted under the company’s employee share
plans) in any period of ten years, will not exceed, at the time of grant, 10 % of the
ordinary share capital of the company from time to time Share options will be offered
by the remuneration committee as appropriate
Share incentive plan (SIP) To offer a shorter term incentive in the company and to give directors a stake in the group Offered to executive directors and head office staff Maximum participation levels are set by HMRC Of any bonus awarded, Directors may opt to have maximum of £3,000 per year paid in
‘Free Shares’ under the SIP scheme rules
Non-executive directors
Base salary To recognise: Skills Responsibility Experience Risk Value Considered by the board on appointment Set at a level considered appropriate to attract, retain and motivate he individual Experience and time required for the role are considered on appointment Reviewed annually No individual non-executive director will be awarded a base salary in excess of
£40,000 a year No performance conditions are attached to base salaries
Pension No pension offered
Benefits No benefits offered except to one non-executive director who is eligible for health cover (see annual remuneration report page 22) The committee retains the discretion to approve changes in contractual benefits in exceptional circumstances or where factors outside the control of the Group lead to increased costs (e.g. medical inflation) The costs associated with benefits offered are closely controlled and reviewed on an
annual basis No non-executive director will receive benefits in excess of £10,000 a
year No specific performance conditions are attached to contractual benefits
Share options Non-executive directors do not participate in the share option schemes
Notes to the Remuneration Policy
The remuneration committee considers the performance measures outlined in the
table above to be appropriate measures of performance and that the KPIs chosen
align the interests of the directors and shareholders.
A copy of the full policy can be found at www.lap.co.uk.
Remuneration policy
INTRODUCTION
Set out below is the LAP Group policy on directors’ remuneration (excluding
Bisichi). This will be proposed for a binding vote at the 2020 AGM. If
approved the policy will take effect from 30 July 2020.
Future policy table
Element Purpose Policy Operation Opportunity and performance conditions
Executive directors
Base salary To recognise: Skills Responsibility Accountability Experience Value Considered by remuneration committee on appointment Set at a level considered appropriate to attract, retain, motivate and reward the right individuals Reviewed annually whenever there is a change of role or operational responsibility There is no prescribed maximum salary or maximum rate of increase, although any increase in excess of inflation is unlikely, unless there are changes in responsibility. No individual director will be awarded a base salary in excess of £575,000 a year No specific performance conditions are attached to base salaries
Paid monthly in cash
Pension To provide competitive retirement benefits Company contribution offered at up to 10% of base salary as part of overall remuneration package The contribution payable by the Company is included in the director’s contract of Company contribution offered at up to 10% of base salary as part of overall remuneration package No specific performance conditions are attached to pension contributions
employment Paid into money purchase schemes
Benefits To provide a competitive benefits package Contractual benefits include: Car or car allowance Group health cover Death in service cover Permanent health insurance The committee retains the discretion to approve changes in contractual benefits in The costs associated with benefits offered are closely controlled and reviewed on an annual basis No director will receive benefits of a value in excess of 30% of their base salary No specific performance conditions are attached to contractual benefits
exceptional circumstances or where factors outside the control of the Group lead to
increased costs (e.g. medical inflation)
Annual bonus To reward and incentivise In assessing the performance of the executive team, and in particular to determine whether bonuses are merited the remuneration committee takes into account the overall performance of the business, as well as individual contribution to the business in the period The remuneration committee is using its discretion to determine the level of bonus on The current maximum bonus will not exceed 80% of base salary in any one year but the remuneration committee reserves the power to award up to 150% in an exceptional year Performance conditions will be assessed on an annual basis The performance measures applied may be financial, non-financial, corporate, divisional or individual and in such proportion as the remuneration committee considers appropriate
an annual basis In assessing performance consideration is given to the level of net
rental income, cash flow, voids, realised development gains and income from managing
joint ventures, as well as NAV changes. Achieved results are then compared with
expectation taking account of market conditions Bonuses are generally offered in cash
or shares
Share options To provide executive directors with a long-term interest in the company Share options may be granted under existing schemes (see page 23) Where it is necessary to attract, retain, motivate and reward the right individuals, the directors may establish new schemes to replace any expired schemes Offered at appropriate times by the remuneration committee The aggregate number of shares over which options may be granted under all of the company’s option schemes (including any options and awards granted under the company’s employee share plans) in any period of ten years, will not exceed, at the time of grant, 10% of the ordinary share capital of the company from time to time Share options will be offered by the remuneration committee at their discretion and will be subject to
appropriate performance criteria at the time.
Share incentive plan (SIP) To offer a shorter term incentive in the company and to give directors a stake in the group Offered to executive directors and head office staff Maximum participation levels are set by HMRC Of any bonus awarded, Directors may opt to have maximum of £3,000 per year paid in ‘Free Shares’ under the SIP scheme rules
Non-executive directors
Base salary To recognise: Skills Responsibility Experience Risk Value Considered by the board on appointment Set at a level considered appropriate to attract, retain and motivate the individual Experience and time required for the role are considered on appointment Reviewed annually No individual non-executive director will be awarded a base salary in excess of £40,000 a year No performance conditions are attached to base salaries
Pension No pension offered
Benefits No benefits offered except in exchange for sacrificing fees.
Share options Non-executive directors do not participate in the share option schemes
Notes to the Remuneration Policy
The changes made to the remuneration policy impose greater limitation on
maximum bonuses payable to executive directors and add greater clarity to the
arrangements for share options. There have been no other significant changes
made to the proposed future remuneration policy from its predecessor.
In setting the policy, the Remuneration Committee has taken the following into
account:
- The need to attract, retain and motivate individuals of a calibre
who will ensure successful leadership and management of the company
- The LAP Group’s general aim of seeking to reward all employees
fairly according to the nature of their role and their performance
- Remuneration packages offered to similar companies within the same
sector
- The need to align the interests of shareholders as a whole with the
long-term growth of the Group; and
- The need to be flexible and adjust with operational changes
throughout the term of this policy
The remuneration of non-executive directors is determined by the board, and
takes into account additional remuneration for services outside the scope of
the ordinary duties of non-executive directors.
The remuneration committee considers the performance measures outlined in the
table above to be appropriate measures of performance and that the KPIs chosen
align the interests of the directors and shareholders.
For details of remuneration of other company employees please see page 25
Remuneration scenarios
An indication of the possible level of remuneration that would be received by
each Executive director in the year commencing 30 July 2020 in accordance with
the directors’ remuneration policy is
shown below.
Sir Michael Heller
J A Heller
J Mintz
The base salary level for Sir Michael Heller for the purpose of these graphs
(and bonus calculations) is £300k as per note on page 22.
Assumptions
Minimum
Consists of base salary, benefits and pension. Base salary, benefits and
pension for 2020 are assumed at the levels included in the single total figure
remuneration table for the year ended 31 December 2019.
On target
Based on the minimum, enhanced by a bonus calculated as the average percentage
bonus awarded to the individual in the three years ended on 31 December 2019.
As outlined in the policy table above, the remuneration committee has
discretion to award bonuses of up to 80% of base salary in any one year (up to
150% in an exceptional year).
Maximum
Based on the minimum, enhanced by the maximum bonus available in an
exceptional year (150% of base salary).
Approach to NEW recruitment remuneration
All appointments to the board are made on merit. The components of the
remuneration package (for a new director who is recruited within the life of
the approved remuneration policy) would comprise base salary, pension,
benefits and an opportunity to earn an annual bonus and be granted share
options as outlined above. The approach to such appointments is detailed
within the policy summary above. The company will pay remuneration to new
directors at a level that will enable it to attract appropriately skilled and
experienced individuals but which is not, in the opinion of the remuneration
committee excessive.
Service contracts
All executive directors have full-time contracts of employment with the
company. Non-executive directors have contracts of service. No director has a
contract of employment or contract of service with the company, its joint
venture or associated companies with a fixed term which exceeds twelve months.
Directors’ notice periods (see the annual remuneration report) are set in
line with market practice and are of a length considered sufficient to ensure
an effective handover of duties should a director leave the company.
All directors’ contracts as amended from time to time, have run from the
date of appointment. Service contracts are kept at the registered office.
Policy on payment for loss of office
There are no contractual provisions that could impact on a termination
payment. Termination payments will be calculated in accordance with the
existing contract of employment or service contract. It is the policy of the
remuneration committee to issue employment contracts to executive directors
with normal commercial terms and without extended terms of notice which could
give rise to extraordinary termination payments.
Consideration of employment conditions elsewhere in the company
In setting this policy for directors’ remuneration the remuneration
committee has been mindful of the company’s objective to reward all
employees fairly according to their role, performance and market forces. In
setting the policy for Directors’ remuneration the committee has considered
the pay and employment conditions of the other employees within the group, but
no formal consultation has been undertaken with employees in drawing up the
policy. The committee has not used formal comparison measures.
Consideration of shareholder views
There have been no direct consultations with shareholders in formulating this
policy, but the Committee has taken note of comments made at the 2019 AGM and
the votes against the Remuneration report. In accordance with the regulations,
an ordinary resolution for approval of this policy will be put to shareholders
at the AGM on 30 July 2020.
Audit committee 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 a year 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
- reviewed and discussed with the auditors the results of the FRC
Audit Quality Review in respect of the 2018 accounts and, noting that the FRC
considered that limited improvements were required, we discussed the
auditor’s proposals to address these for the 2019 audit; and, in addition
- the chairman of the audit committee has also had separate meetings
and discussions with the external audit partner.
FINANCIAL REPORTING
As part of its role, the Audit Committee assessed the audit findings that were
considered most significant to the financial statements, including those areas
requiring significant judgement and/or estimation. When assessing the
identified financial reporting matters, the committee assessed quantitative
materiality primarily by reference to the carrying value of the group’s
total assets, given that the group operates a principally asset based
business. When determining quantitative materiality, the Board also gave
consideration to the value of revenues generated by the group and net asset
value, given that they are key trading and business KPIs. The qualitative
aspects of any financial reporting matters identified during the audit process
were also considered when assessing their materiality. Based on the
considerations set out above we have considered quantitative errors
individually or in aggregate in excess of approximately £1.5 million in
relation to the consolidated balance sheet and £0.4 million for underlying
profitability and £0.3 million for the Bisichi group to be material.
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 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
29 June 2020
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 GUIDANCE and Transparency
Rules
Each of the directors, whose names and functions are listed on page 15,
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 and regulations in the United Kingdom governing the preparation
and dissemination of financial statements may differ from legislation and
regulations in other jurisdictions.
Independent auditor’s report
TO THE MEMBERS OF LONDON & ASSOCIATED PROPERTIES PLC
Opinion
We have audited the financial statements of London & Associated Properties
plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the
year ended 31 December 2019 which comprise the consolidated income statement,
the consolidated statement of comprehensive income, the consolidated balance
sheet, the consolidated statement of changes in shareholders’ equity, the
consolidated cash flow statement, the company balance sheet, the company
statement of changes in equity 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 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
including FRS 101 “Reduced Disclosure Framework” (United Kingdom Generally
Accepted Accounting Practice).
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 2019 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 regulations.
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 are independent of
the group and 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 public interest entities and we
have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to
which the ISAs (UK) require us to report to you where:
- the directors’ use of the going concern basis of accounting in the
preparation of the financial statements is not appropriate; or
- the directors have not disclosed in the financial statements any
identified material uncertainties that may cast significant doubt about the
group’s or the parent company’s ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months from the
date when the financial statements are authorised for issue.
Summary of our audit approach
Key audit matters Group - Going concern - Valuation of investment and development properties Parent Company - None
Materiality Group - Overall materiality: £1.50 million (2018: £1.50 million) Parent Company - Overall materiality: £0.65 million (2018: £0.65 million)
Scope Our audit procedures covered 99.7% of revenue, 99.8% of net assets and 98.3% of loss before tax.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the group financial statements of the
current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) 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 group financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Going concern
Key audit matter description Following the year end, Covid-19 was declared a global pandemic and is having a significant and unprecedented impact on all sections of the global economy, the extent of which is not yet fully apparent. The potential risks to the Group include: - tenants defaulting on, or deferring, rent payments resulting in cash flow difficulties for the Group; - reductions in asset values in the property market, which may cause the Group to breach loan to value covenants; and - tightening of lending conditions including covenants. The financial statements are prepared on the going concern basis of accounting, and the above factors have an impact on the assessment of the Group’s ability to continue as a going concern. There is a risk, therefore, that the judgements involved in assessing going concern in the current climate are inappropriate, resulting in a material misstatement. There is also a risk that the disclosures made, including of
whether there is a material uncertainty in relation to going concern, are inadequate or incomplete. Group management has set out its disclosures in relation to Covid-19 and going concern on pages 18 and 42.
How the matter was addressed in the audit We discussed with management the process they undertook to assess going concern, including the impact of Covid-19. We audited the Group’s assessment of going concern, including cash flow projections and forecast covenant compliance based on normal trading conditions, which were then sensitised to enable management to assess the potential impact of Covid-19. The audit work included: - reviewing minutes of board meetings, and the board paper prepared on going concern - reviewing the base case forecasts in detail for the period to September 2021. We checked the mathematical accuracy of the model, and compared revenues and costs to the actual results for 2019, taking account of known and reasonably foreseeable changes; - considering the reasonableness of assumptions and the sensitivity analysis prepared by management; - checking projected covenant compliance to the model and against the loan agreements; - applying reverse stress
tests to the model, which included a reduction in property revenues due to deferral of collection of 60% of rent to Q1 2021, non-payment of rents of 20% for the remainder of the 2020 calendar year and Q1 of 2021, and a reduction in property valuations of up to 20%. - considering the likelihood and reasonableness of possible mitigating actions proposed by management, including the provision of additional security to cure possible loan to value covenant breaches, and alternative financing plans; and - reviewing the disclosures made in the financial statements in respect of going concern.
Key observations The conclusions in relation to going concern are set out in the “Conclusions relating to going concern” paragraph above.
Valuation of investment and development properties
Key audit matter description The group’s properties are accounted for in the financial statements as investment properties under IAS 40 and held at fair value, or as inventory where appropriate and
held at the lower of cost and net realisable value. The majority of investment properties are valued by two firms of independent external valuers and these valuations are
adopted in the financial statements. At 31 December 2019 investment property valued at £44.6 million (note 8) was disclosed within non-current assets in the financial
statements. Separately, property inventory was carried at £26.9 million (note 12). The directors’ assessment of the value of properties is considered a key audit matter
due to the relative importance of these assets to the group’s financial statements, the potential impact of movements in the values of the assets, and the subjectivity
and complexity of the valuation process, which involves significant judgements and estimates as disclosed on page 44 of the financial statements. The valuations are
carried out by two firms of professional external valuers, together with, in respect of one property, an internal valuer in accordance with the methodology described in
note 8.
How the matter was addressed in the audit Investment properties Our response included: - agreeing the valuations of all properties recorded in the financial statements and subject to the external valuation
process to the valuation reports prepared by the valuers. These reports covered all of the value of investment properties, except one property valued at £1.3 million
which was subject to internal valuation; - assessing the qualifications and expertise of management’s valuers, considering their objectivity and any threats to their
independence. We concluded that there was no threat which might impair the valuers’ independence and objectivity; - meeting the valuers, both external and internal, to
discuss and challenge the assumptions used and the movements in valuations observed in the year; - consulting an independent auditor’s expert on the valuation of certain
properties in the portfolio whose values fell outside our expectations; and - comparing the key inputs to the valuation model to the underlying records of the leases and
records of rents received and against our knowledge of market yields. Development properties Our response included: - agreeing the cost of properties held as inventory to
underlying records; - for the Sheffield property, held at a value of £21.3 million, we assessed the value of the related development project by o reviewing and
challenging the assumptions made by management in respect of anticipated sales prices and development costs, and the forecast profit margin on the project; o consulting
an independent auditor’s expert in respect of these assumptions; and o considering the adequacy of the impairment charge.
Key observations The carrying values of the properties are consistent with the valuation reports provided for investment properties. Properties held in inventory, after impairment, are
carried at the lower of cost and net realisable value.
Our application of materiality
When establishing our overall audit strategy, we set certain thresholds which
help us to determine the nature, timing and extent of our audit procedures.
When evaluating whether the effects of misstatements, both individually and on
the financial statements as a whole, could reasonably influence the economic
decisions of the users we take into account the qualitative nature and the
size of the misstatements. Based on our professional judgement, we determined
materiality as follows:
Group Parent company
Overall materiality £1.50 million (2018: £1.50 million) £0.65 million (2018: £0.65 million)
Basis for determining overall materiality 3% of net assets 2.5% of net assets
Rationale for benchmark applied Net assets are the key criteria on which the performance of the group is measured, and the group regularly reports net asset value per share as a metric to shareholders.
Reporting of misstatements to the Audit Committee Misstatements in excess of £37,500 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds. Misstatements in excess of £16,250 and misstatements below that threshold that, in our view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
The group consists of 31 components. 27 of these are based in the UK and four
are based in South Africa.
Full scope audits were undertaken for 28 components. This resulted in coverage
of 99.8% of the group’s net assets, 99.7% of revenue and 98.3% of the loss
for the period.
Of the above, full scope audits for eight components were undertaken by
component auditors.
One other component was considered significant as it contained material
amounts of inventory, the recognition of which is a key audit matter for the
group. That component was subject to specific audit procedures, in respect of
development properties. The remaining two components were subject to
analytical review procedures at group level.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the annual report set out on pages 2 to
31 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.
In connection with our audit of the financial statements, 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 audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. 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.
Opinions 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.
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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the audit, we have not
identified material misstatements in the Strategic Report or the Directors’
Report.
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 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.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out
on page 32, 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.
As part of our audit, we will consider the susceptibility of the group and
parent company to fraud and other irregularities, taking account of the
business and control environment established and maintained by the directors,
as well as the nature of transactions, assets and liabilities recorded in the
accounting records. Owing to the inherent limitations of an audit, there is an
unavoidable risk that some material misstatements of the financial statements
may not be detected, even though the audit is properly planned and performed
in accordance with the ISAs. However, the principal responsibility for
ensuring that the financial statements are free from material misstatement,
whether caused by fraud or error, rests with management who should not rely on
the audit to discharge those functions.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at:
http://www.frc.org.uk/auditorsresponsibilities. This description forms part of
our auditor’s report.
Other matters which we are required to address
Following the recommendation of the audit committee, we were appointed by the
Board of Directors on 27 July 1987 to audit the financial statements for the
year ended 31 December 1987 and subsequent financial periods.
The period of total uninterrupted engagement is 33 years, covering the years
ending 31 December 1987 to 31 December 2019.
The non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the group or the parent company and we remain independent of the
group and the parent company in conducting our audit.
During the period under review agreed upon procedures were completed in
respect of a number of the group’s service charge accounts.
Our audit opinion is consistent with the additional report to the audit
committee.
Use of our report
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 (Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP, Statutory Auditor
Chartered Accountants
25 Farringdon Street
London
EC4A 4AB
29 June 2020
financial statements
Consolidated income statement
for the year ended 31 December 2019
Notes 2019 £’000 2018 £’000
Group revenue 1 63,966 56,651
Operating costs (60,766) (49,293)
Operating profit 3,200 7,358
Finance income 4 86 61
Finance expenses 4 (3,252) (3,682)
Result before revaluation and other movements 34 3,737
Non–cash changes in valuation of assets and liabilities and other movements
Decrease in value of investment properties 8 (2,988) (2,565)
Decrease in value of trading investments (6) (169)
Decrease in value of other investments (1,749) –
Adjustment to interest rate derivative 21 169 265
(Loss)/profit for the year before taxation 2 (4,540) 1,268
Income tax charge 5 (951) (675)
(Loss)/profit for the year (5,491) 593
Attributable to:
Equity holders of the Company (6,477) (2,082)
Non-controlling interest 24 986 2,675
(Loss)/profit for the year (5,491) 593
Earnings per share
Loss per share - basic and diluted 7 (7.59)p (2.44)p
Consolidated statement of comprehensive income
for the year ended 31 December 2019
2019 £’000 2018 £’000
(Loss)/profit for the year (5,491) 593
Other comprehensive income/(expense):
Items that may be subsequently recycled to the income statement:
Exchange differences on translation of Bisichi PLC foreign operations (49) (430)
Other comprehensive expense for the year net of tax (49) (430)
Total comprehensive (expense)/income for the year net of tax (5,540) 163
Attributable to:
Equity shareholders (6,493) (2,239)
Non–controlling interest 953 2,402
(5,540) 163
Consolidated balance sheet
at 31 December 2019
Notes 2019 £’000 2018 £’000
Non–current assets
Market value of properties attributable to Group 8 44,580 47,430
Present value of head leases 8 3,326 3,261
Property 47,906 50,691
Mining reserves, property, plant and equipment 9 10,472 8,659
Investments 14 287 1,783
58,665 61,133
Current assets
Inventories - Property 12 26,915 38,556
Inventories - Mining 13 2,432 1,511
Assets held for sale 10 – 2,285
Trade and other receivables 15 8,399 8,022
Corporation tax recoverable 19 –
Investments 16 1,119 887
Cash and cash equivalents 13,533 20,655
52,417 71,916
Total assets 111,082 133,049
Current liabilities
Trade and other payables 17 (12,835) (13,341)
Borrowings 18 (10,120) (41,388)
Lease liabilities 19 (424) (213)
Interest rate derivatives – (169)
Current tax liabilities (457) (73)
(23,836) (55,184)
Non–current liabilities
Borrowings 18 (31,063) (15,255)
Lease liabilities 19 (3,842) (3,048)
Provisions 20 (1,554) (1,571)
Deferred tax liabilities 22 (1,654) (2,305)
(38,113) (22,179)
Total liabilities (61,949) (77,363)
Net assets 49,133 55,686
Equity attributable to the owners of the parent
Share capital 23 8,554 8,554
Share premium account 4,866 4,866
Translation reserve (Bisichi PLC) (868) (852)
Capital redemption reserve 47 47
Retained earnings (excluding treasury shares) 24,271 30,906
Treasury shares 23 (144) (144)
Retained earnings 24,127 30,762
Total equity attributable to equity shareholders 36,726 43,377
Non–controlling interest 24 12,407 12,309
Total equity 49,133 55,686
Net assets per share - basic and diluted 7 43.04p 50.83p
These financial statements were approved by the board of directors and
authorised for issue on 29 June 2020 and signed on its behalf by:
Sir Michael Heller Jonathan Mintz Company
Registration No. 341829
Director
Director
Consolidated statement of changes in shareholders’ equity
for the year ended 31 December 2019
Share capital Share premium Translation reserves Capital redemption Treasury shares Retained earnings Total excluding Non– controlling Total equity
£’000 £’000 £’000 reserve £’000 excluding Non– Interests £’000
£’000 treasury Controlling £’000
shares Interests
£’000 £’000
Balance at 1 January 2018 8,554 4,866 (695) 47 (145) 33,227 45,854 10,856 56,710
Profit for year – – – – – (2,082) (2,082) 2,675 593
Other comprehensive expense:
Currency translation – – (157) – – – (157) (273) (430)
Total other comprehensive expense – – (157) – – – (157) (273) (430)
Total comprehensive expense – – (157) – – (2,082) (2,239) 2,402 163
Transactions with owners:
Share options charge – – – – – 17 17 7 24
Dividends – equity holders – – – – – (256) (256) – (256)
Dividends – non–controlling interests – – – – – – – (956) (956)
Disposal of own shares – – – – 1 – 1 – 1
Transactions with owners – – – – 1 (239) (238) (949) (1,187)
Balance at 31 December 2018 8,554 4,866 (852) 47 (144) 30,906 43,377 12,309 55,686
(Loss)/profit for year – – – – – (6,477) (6,477) 986 (5,491)
Other comprehensive income/(expense):
Currency translation – – (16) – – – (16) (33) (49)
Total comprehensive income/(expense) – – (16) – – – (16) (33) (49)
Total comprehensive income/(expense) – – (16) – – (6,477) (6,493) 953 (5,540)
Transactions with owners:
Dividends – equity holders – – – – – (158) (158) (158)
Dividends – non–controlling interests – – – – – – – (855) (855)
Transactions with owners – – – – – (158) (158) (855) (1,013)
Balance at 31 December 2019 8,554 4,866 (868) 47 (144) 24,271 36,726 12,407 49,133
Consolidated cash flow statement
for the year ended 31 December 2019
2019 £’000 2018 £’000
Operating activities
(Loss)/profit for the year before taxation (4,540) 1,268
Finance income (86) (61)
Finance expense 3,252 3,682
Decrease in value of investment properties 2,988 2,565
Decrease in trading and other investments 1,755 169
Adjustment to interest rate derivative (169) (265)
Depreciation 2,407 2,122
Share based payment expense – 18
Development expenditure on inventories (409) (6,256)
Sale of inventory - property (net of costs) 9,309 –
Loss on sale of inventory - property 991 –
Exchange adjustments 123 65
Change in inventories 805 (797)
Change in receivables (448) (235)
Change in payables (994) (354)
Cash generated from operations 14,984 1,921
Income tax paid (1,199) (2,281)
Cash inflows/(outflows) from operating activities 13,785 (360)
Investing activities
Disposal of assets held for sale 2,285 36,474
Acquisition of investment properties, mining reserves, plant and equipment (3,350) (9,438)
Acquisition of other investments (490) –
Sale of plant and equipment – 1
Interest received 86 199
Cash (outflows)/inflows from investing activities (1,469) 27,236
Financing activities
Interest paid (2,932) (3,711)
Interest obligation under leases (259) (178)
Repayment of lease liability (193) –
Receipt of bank loan - Bisichi PLC 3,908 753
Repayment of bank loan - Bisichi PLC (6,011) (19)
Repayment of bank loan - Dragon Retail Properties Ltd – (65)
Receipt of bank loan - London & Associated Properties PLC 13,725 7,202
Repayment of bank loan - London & Associated Properties PLC (28,482) (16,438)
Repayment of short term loan from joint ventures and related parties – (30)
Repayment of debenture stocks – (3,000)
Equity dividends paid (154) (255)
Equity dividends paid - non-controlling interests (375) (309)
Cash outflows from financing activities (20,773) (16,050)
Net increase in cash and cash equivalents (8,457) 10,826
Cash and cash equivalents at beginning of year 17,120 6,266
Exchange adjustment 28 28
Cash and cash equivalents at end of year 8,691 17,120
The cash flows above relate to continuing operations.
Cash and cash equivalents
For the purpose of the cash flow statement, cash and cash equivalents comprise
the following balance sheet amounts:
2019 £’000 2018 £’000
Cash and cash equivalents (before bank overdrafts) 13,533 20,655
Bank overdrafts (4,842) (3,535)
Cash and cash equivalents at end of year 8,691 17,120
£340,000 of cash deposits at 31 December 2019 were charged as security to
debenture stocks (2018: £340,000).
£2,271,000 of cash deposits at 31 December 2019 were charged as security to
bank loans (2018: £500,000).
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
30. The financial statements are prepared under the historical cost
convention, except for the revaluation of freehold and leasehold properties
and financial assets at fair value through profit and loss as well as fair
value of interest rate derivatives at fair value.
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 is the currency of the
country in which the entity has been incorporated. Details of the country in
which each entity has been incorporated can be found in note 11.
The exchange rates used in the accounts were as follows:
£1 Sterling: Rand £1 Sterling: Dollar
2019 2018 2019 2018
Year-end rate 18.5759 18.3723 1.3254 1.2690
Annual average 18.4326 17.5205 1.2781 1.3096
London & Associated Properties PLC (“LAP”), the parent company, is a
public limited company incorporated and domiciled in England and quoted on the
London Stock Exchange. The Company registration number is 341829. LAP and its
subsidiaries (“the Group”) consist of LAP, all of its subsidiary
undertakings, including Bisichi PLC (“Bisichi”) and Dragon Retail
Properties Limited (“Dragon”). The Group without Bisichi and Dragon is
referred to as LAP Group.
Going concern
In reviewing going concern it is necessary to consider separately the position
of LAP Group 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 Group 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 for the 15 months from the date
of signing. 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, including separate sections
discussing the potential impact of COVID-19 on the LAP Group. In addition,
Note 21 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.
Given the significant impact of Covid-19 on the macro-economic conditions in
which LAP is operating, additional stress-testing has been carried out on
LAP’s ability to continue in operation under extremely unfavourable
operating conditions, including a scenario in which we are unable to collect a
significant proportion of our rent for an extended period of time. While the
assumptions we have applied in these scenarios are possible, they do not
represent our view of the likely outturn. However, the results of these tests
help to inform the Directors’ assessment of the viability of LAP. We have
assessed the impact of these assumptions on the key financial metrics over a
four year period, including the net cash position and debt covenants. The
majority of our properties serve local communities with convenience retail and
tenants therefore tend to be sole traders, rather than large fashion
retailers. Sole traders rely on their property to serve the local community
and are less affected by the structural disruptions seen in the wider retail
environment. We have over two hundred tenants and we are not reliant on any
single large tenant.
Cash position
Our worst-case scenario, which we consider a remote possibility, assumes that
over a twelve-month period:
- 60% of tenants delay payments for nine months
- 20% of tenants are never able to pay
- 15% of tenants become insolvent
- It takes 5 months to re-let an empty property
- No dividend is received from Bisichi until 2021
As a result of the above assumptions, in June 2021 LAP’s cash balances would
fall to £0.5m and increase to £1.3m by June 2024. These estimates include
discretionary spending that could be delayed or stopped entirely and assume
that no further sources of funding are sought.
Debt Covenants
We have looked at falls in valuations across all our properties and assessed
the effect on our debt covenants. In all cases we have the option to paydown
the loans to cure Loan to Value covenants.
A 20% reduction in property valuations, being our worst-case scenario, would
require LAP to repay loans of £2.0m to meet Loan to Value covenants. This
could either be met from existing cash reserves, by providing currently
unencumbered properties, valued at £4.275 million, as additional security or
by selling or leveraging other investments and assets.
Some, but not all, loans are non-recourse to the group. Our largest loan, of
£14 million with Phoenix CRE S.à r.l, is non-recourse and could be called
without a material impact on the wider group in the short and medium term.
Should properties secured against London & Associated Properties PLC’s £10
million debenture with Aviva suffer a 20% fall in value, either currently
unencumbered properties or £320,000 of cash could be added to the existing
security. The property mix of the current security is 72% community retail and
28% industrial; values of the latter are widely considered to be more
resilient in the current climate.
Loan debt service covenants react more immediately to short term delays in
rent payments than property values. For all loans, the group is able, at its
discretion, to provide assistance to match any shortfall in rents received.
Debt Refinancing
Dragon has a £1.2 million loan expiring within the next year, where we have
been granted an extension to January 2021 by the existing lender to assist us
in the refinancing, following the delays caused by COVID. We are exploring a
number of options for this refinancing which we expect to be able to complete
in good time. The LTV on this loan is relatively low at 49% and the security
is considered attractive.
Broadway Regen has a development loan expiring in July 2020 on which an
extension is currently being arranged with the existing lender, following
extensions of the facility in July 2019 and January 2020. This is a
residential development on which we anticipate strong returns. We expect this
refinancing to be completed shortly, and that the lender will continue to roll
over until such time as we dispose of the project.
Both these loans are ring-fenced within the group’s joint venture vehicles,
where the major partner is Bisichi PLC. Although in both cases we are
confident that refinancing can be achieved satisfactorily, we note that, were
the loans to be called, there are sufficient assets available to settle the
obligations and their disposal would not affect the ability of the group to
continue to operate as a going concern.
Bisichi PLC
The directors note the consideration of going concern by the Bisichi board,
but also note that any failure of Bisichi would not itself impact on the going
concern status of the LAP group for the reasons set out on page 8 of the
financial statements.
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 Financial Reporting Standards (IFRS)
The Group has adopted all of the new and revised Standards and Interpretations
issued by the International Accounting Standards Board (“IASB”) that are
relevant to its operations and effective for accounting periods beginning 1
January 2019.
IFRS 16 ‘Leases’ – IFRS 16 ‘Leases’ was issued by the IASB in
January 2017 and is effective for accounting periods beginning on or after 1
January 2019. The new standard has replaced IAS 17 ‘Leases’ and eliminates
the classification of leases as either operating leases or finance leases and,
instead, introduces a single lessee accounting model specifying how leases are
recognised, measured, presented and disclosed.
The Group has applied IFRS 16 using the modified retrospective approach and
has not adjusted prior period figures, resulting in a nil impact on opening
equity.
In applying IFRS 16 for the first time, the group has used the following
practical expedients permitted by the standard:
- the use of a single discount rate to a portfolio of leases with
reasonably similar characteristics
- reliance on previous assessments on whether leases are onerous
- the accounting for operating leases with a remaining lease term of
less than 12 months as at 1 January 2020 as short-term leases; and
- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease
The group has also elected not to reassess whether a contract is, or contains
a lease at the date of initial application. Instead, for contracts entered
into before the transition date the group relied on its assessment made
applying IAS 17 and IFRIC 4 Determining whether an Arrangement contains a
Lease.
Right of use assets totalling £1,111,000, being £1,054,000 of properties
occupied by the Group and £57,000 of mining equipment, were recognised on
transition at 1 January 2019 at a value equal to the lease liability using a
discount rate at the date of the initial application. This has been applied
using the exemption not to re-present the prior reporting period. The related
lease liability of £1,111,000 is recognised as the present value of the lease
payments. No impairment provisions have been made against leases as they are
not considered to be onerous.
Interest is accrued on the lease liability based on the discount rate and is
reported in finance costs and subsequent payments reduce the lease liability.
The right of use asset is depreciated over the life of the contract on a
straight line basis. In the cashflow statement the principal and interest
portions of the lease payments are classified within financing activities.
The table below sets out the impact on the Consolidated Balance Sheet as at 31
December 2019 and 1 January 2019:
31 December 2019 £’000 1 January 2019 £’000
Right of Use Assets
Head leases 3,326 3,261
Property 843 1,054
Equipment 81 57
4,250 4,372
Lease liability
> 1 year 424 213
< 1 year 3,842 4,159
4,266 4,372
The table below shows the impact on the Consolidated Statement of
Comprehensive Income for the year to 31 December 2019 compared tor reporting
under IAS17:
12 months ended 31 December 2019 £’000
Loss before tax under IFRS 16 (2,790)
Depreciation of right of use assets 224
Finance costs 252
(2,314)
Rental cost under IAS17 (452)
Profit before tax under IAS 17 (2,766)
Whilst the cash flows of the group have not been affected by the adoption of
IFRS 16, during the period ended 31 December 2019 cash outflows from financing
activities presented with the Consolidated Statement of Cash Flows increased
by £193,000 for cash payments of the principal portion and £47,000 for cash
payments of the interest portion of leases recognised within lease liabilities
under IFRS 16. Cash generated from operations reflects the corresponding
reduction of £240,000 of payments for leases previously classified as
operating leases under IAS 17.
Differences between the operating lease commitments disclosed at 31 December
2018 under IAS17 discounted at the incremental borrowing rate of 4.5% at 1
January 2019 and lease liabilities recognised at 1 January 2019 are shown
below:
£’000
Operating lease commitments at 31 December 2018 1,200
Impact of discounting (146)
Finance lease liabilities at 31 December 2018 3,261
Other reconciling items (net) 57
Lease liability opening balance 1 January 2019 4,372
The Group has not adopted any Standards or Interpretations in advance of the
required implementation dates. A number of standards and amendments to
standards have been issued but are not effective for the current year. These
are not expected to have a material impact on the Group financial statements.
We are committed to improving disclosure and transparency and will continue to
work with our different stakeholders to ensure they understand the detail of
these accounting changes. We continue to remain committed to a robust
financial policy.
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 and judgements which may have a material
impact on next year’s financial statements are contained in the Directors’
Report.
Property operations
Fair value measurements of investment properties
An assessment of the fair value of these assets is undertaken annually. The
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 and is discussed further in the Directors’ Report and shown in
note 8.
Inventories - Property
When the Group begins to redevelop an existing investment property with a view
to sale, the property is transferred to inventory and held as a current asset.
The property is re-measured to fair value as at the date of the transfer with
any gain or loss being taken to the income statement. The re-measured amount
becomes the deemed cost at which the property is then carried in trading
properties plus any costs for asset management initiatives or development in
preparation for sale and subject to any provision required to reduce cost to
net realisable value.
In assessing the net realisable value of a property development, the directors
make significant estimates and judgements regarding, inter alia, forecast
sales and costs per square foot, gross internal area, affordable housing
allocations and appropriate rates of financing. The degree to which these
variables can be accurately forecast will depend on the stage of development
of the particular project and the impact of changes in these assumptions to
the net realisable value could be material. Further detail is included in note
12.
Mining operations
Life of mine and reserves
The directors of Bisichi consider their judgements and estimates surrounding
the life of the mine and its reserves to have significant effect on the
amounts recognised in the financial statements and to be an area where the
financial statements are subject to significant estimation uncertainty. The
life of mine remaining is currently estimated at 4 years. This life of mine is
based on the group’s existing coal reserves including reserves acquired but
subject to regulatory approval. The life of mine excludes future coal
purchases and coal reserve acquisitions. The group’s estimates of proven and
probable reserves are prepared utilising the South African code for the
reporting of exploration results, mineral resources and mineral reserves (the
SAMREC code) and are subject to assessment by an independent Competent Person
experienced in the field of coal geology and specifically opencast and pillar
coal extraction. Estimates of coal reserves impact assessments 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
geotechnical factors as well as economic 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 9.
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 20.
Mining impairment
Property, plant and equipment representing the Group’s mining assets in
South Africa are reviewed for impairment at each reporting date. 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 9.
The impairment test indicated significant headroom as at 31 December 2019 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 yields
associated with mining areas based on assessments by the Competent Person and
empirical data. A 11% reduction in average forecast coal prices or a 12%
reduction in yield would give rise to a breakeven scenario. However, the
Bisichi directors consider the forecasted yield levels and pricing to be
appropriate and supportable best estimates.
Basis of consolidation
The Group accounts incorporate the accounts of LAP 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 11.
The directors are required to consider the implications of IFRS 10 on the LAP
investment in Bisichi 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 and West Ealing Properties Limited are also subsidiaries for
accounting purposes, as LAP and Bisichi each own 50% of these joint venture
businesses.
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 properties where leases have granted tenants a right
of occupation and use of the properties. 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.
Service charge income
Service charge income and management fees are recorded as income in the period
in which they are earned.
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 revised. In respect of the
share option scheme, the fair value of options granted is calculated using the
binomial method.
Pensions
The Company operates a defined contribution pension scheme. The contributions
payable to the scheme are expensed in the period to which they relate.
Foreign currencies
Monetary assets and liabilities are translated at year end exchange rates and
the resulting exchange rate differences are included in the consolidated
income statement within the results of operating activities if arising from
trading activities, including inter-company trading balances and within
finance cost / income if arising from financing.
For consolidation purposes, income and expense items are included in the
consolidated income statement at average rates, and assets and liabilities are
translated at year end exchange rates. Translation differences arising on
consolidation are recognised in other comprehensive income. Foreign exchange
differences on intercompany loans are recorded in other comprehensive income
when the loans are not considered trading balances and are not expected to be
repaid in the foreseeable future. Where foreign operations are sold or closed,
the cumulative exchange differences attributable to that foreign operation are
recognised in the consolidated income statement when the gain or loss on
disposal is recognised.
Transactions in foreign currencies are translated at the exchange rate ruling
on transaction date.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised in the Group’s
consolidated statement of financial position when the group becomes a party to
the contractual provisions of the instrument.
Financial assets
Financial assets are classified as either financial assets at amortised cost,
at fair value through other comprehensive income (“FVTOCI”) or at fair
value through profit or loss (“FVPL”) depending upon the business model
for managing the financial assets and the nature of the contractual cash flow
characteristics of the financial asset.
A loss allowance for expected credit losses is determined for all financial
assets, other than those at FVPL, at the end of each reporting period. The
Group applies a simplified approach to measure the credit loss allowance for
trade receivables using the lifetime expected credit loss provision. The
lifetime expected credit loss is evaluated for each trade receivable taking
into account payment history, payments made subsequent to year end and prior
to reporting, past default experience and the impact of any other relevant and
current observable data. The group applies a general approach on all other
receivables classified as financial assets. The general approach recognises
lifetime expected credit losses when there has been a significant increase in
credit risk since initial recognition.
The Group no longer recognises a financial asset when the contractual rights
to the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to
another party. The Group does not recognise financial liabilities when the
Group’s obligations are discharged, cancelled, or have expired.
Investments
Current financial asset investments and other investments classified as
non-current (“The investments”) comprise of shares in listed companies.
The investments are measured at fair value. Any changes in fair value are
recognised in the profit or loss account and accumulated in retained earnings.
Trade and other receivables
Trade receivables are recorded at amortised cost. As the interest that would
be recognised from discounting future cash payments over the short payment
period is not considered to be material, trade receivables which do not carry
any interest are stated at their nominal value as reduced by credit loss
allowances for estimated recoverable amounts.
Trade and other payables
Trade and other payables are non-interest bearing and are stated at their
nominal value, as the interest that would be recognised from discounting
future cash payments over the short payment period is not considered to be
material.
Bank loans and overdrafts
Bank loans and overdrafts are included as financial liabilities on the Group
balance sheet net of the unamortised costs of issue. The cost of issue is
recognised in the Group income Statement over the life of the bank loan.
Interest payable on those facilities is expensed as a finance cost in the
period to which it relates.
Debenture loans
The debenture loan is included as a financial liability on the balance sheet
net of the unamortised costs on issue. The cost of issue is recognised in the
Group income statement over the life of the debenture. Interest payable to
debenture holders is expensed in the period to which it relates.
Leases
At inception, the Group assesses whether a contract is or contains a lease.
This assessment involves the exercise of judgement about whether the Group
obtains substantially all the economic benefits from the use of that asset,
and whether the Group has the right to direct the use of the asset. The Group
recognises a right-of-use (“ROU”) asset and the lease liability at the
commencement date of the lease.
Lease liabilities include the present value of payments which generally
include fixed payments and variable payments that depend on an index (such as
an inflation index). Each lease payment is allocated between the liability and
finance cost. The lease payments are discounted using the interest rate
implicit in the lease if that rate can be readily determined or if not, the
incremental borrowing rate is used. The finance cost is charged to profit or
loss over the lease period so as to produce a constant rate of interest on the
remaining balance of the liability for each period. In the cashflow statement
the principal and interest portions of the lease payments are classified
within financing activities.
The ROU asset is measured at a cost based on the amount of the initial
measurement of the lease liability, plus initial direct costs and the cost of
obligations to refurbish the asset, less any incentives received. The ROU
asset (other than the ROU assets that relate to land or property that meets
the definition of investment property under IAS 40) is depreciated over the
shorter of the lease term or the useful life of the underlying asset. The ROU
asset is subject to testing for impairment if there is an indicator of
impairment. ROU assets are included in the heading Property, plant and
equipment, and the lease liability is included in the headings current and
non-current lease labilities on the Balance Sheet
Lease liabilities arise for those investment properties held under a leasehold
interest and recorded as investment property. The liability is calculated as
the present value of the minimum lease payments, reducing in subsequent
reporting periods by the apportionment of payments to the lessor. Lease
payments are allocated between the liability and finance charges to achieve a
constant financing rate. Contingent rents payable, such as rent reviews or
those related to rental income, are charged as an expense in the period in
which they are incurred.
The Group has elected not to recognise ROU assets and liabilities for leases
where the total lease term is less than or equal to 12 months, or for low
value leases. The payments for such leases are recognised in the Income
Statement on a straight-line basis over the lease term.
Interest rate derivatives
The Group uses derivative financial instruments to hedge the interest rate
risk associated with the financing of the Group’s business. No trading in
such financial instruments is undertaken. At each reporting date, these
interest rate derivatives are recognised at their fair value to the business,
being the Net Present Value of the difference between the hedged rate of
interest and the market rate of interest for the remaining period of the
hedge.
Ordinary shares
Shares are classified as equity when there is no obligation to transfer cash
or other assets. Incremental costs directly attributable to the issue of new
shares are shown in equity as a deduction, net of tax, from the proceeds.
Treasury shares
When the Group’s own equity instruments are repurchased, consideration paid
is deducted from equity as treasury shares until they are cancelled. When such
shares are subsequently sold or reissued, any consideration received is
included in equity.
Investment properties
Valuation
Investment properties are those that are held either to earn rental income or
for capital appreciation or both, including those that are undergoing
redevelopment for future use as an investment property. They are reported on
the Group balance sheet at fair value, being the amount for which an
investment property could be exchanged between knowledgeable and willing
parties in an arm’s length transaction. The directors’ property valuation
is at fair value.
The external valuation of properties is undertaken by independent valuers who
hold recognised and relevant professional qualifications and have recent
experience in the locations and categories of properties being valued.
Surpluses or deficits resulting from changes in the fair value of investment
properties are reported in the Group income statement in the period in which
they arise.
Capital expenditure
Investment properties are measured initially at cost, including related
transaction costs. Additional expenditure of a capital nature, directly
attributable to the redevelopment or refurbishment of an investment property
held for future use as an investment property, up to the point of it being
completed for its intended use, is capitalised in the carrying value of that
property. Where there is a change of use, such as commencement of development
with a view to sale, the property is transferred to inventory at deemed cost,
which is its fair value on the date of the change in use. Capitalised interest
is calculated with reference to the actual rate payable on borrowings for
development purposes, or for that part of the development costs financed out
of borrowings the capitalised interest is calculated on the basis of the
average rate of interest paid on the relevant debt outstanding.
Disposal
The disposal of investment properties is recorded on completion of the
contract. On disposal, any gain or loss is calculated as the difference
between the net disposal proceeds and the valuation at the last year end plus
subsequent capitalised expenditure in the period.
Depreciation and amortisation
In applying the fair value model to the measurement of investment properties,
depreciation and amortisation are not provided.
Other assets and depreciation
The cost, less estimated residual value, of other property, plant and
equipment is written off on a straight–line basis over the asset’s
expected useful life. Residual values and useful lives are reviewed, and
adjusted if appropriate, at each balance sheet date. Changes to the estimated
residual values or useful lives are accounted for prospectively. The
depreciation rates generally applied are:
Motor vehicles 25–33 per cent per annum
Office equipment 10–33 per cent per annum
Assets held for sale
Non-current assets are classified as held-for-sale if it is highly probable
that they will be recovered primarily through sale rather through continuing
use. Such assets are generally measured at the lower of their carrying amount
and fair value less costs of sale. Impairment losses on initial classification
as assets held-for-sale and subsequent gains and losses on remeasurement are
recognised in profit or loss. Once classified as held-for-sale, intangible
assets and property, plant and equipment are no longer amortised or
depreciated, and any equity-accounted investment is no longer equity
accounted.
Inventories–property
Properties held as trading inventory are those which are being developed with
a view to sale. Inventories are recorded at the lower of cost and net
realisable value. If the net realisable value of inventory is lower than its
carrying value, an impairment loss is recorded in the income statement. If, in
subsequent periods, the net realisable value of inventory that was previously
impaired increases above its carrying value, the impairment is reversed to
align the carrying value of the property with the net realisable value.
Inventory is presented on the balance sheet within current assets.
Income taxes
The charge for current taxation is based on the results for the year as
adjusted for disallowed or non–assessable items. Tax payable upon
realisation of revaluation gains recognised in prior periods is recorded as a
current tax charge with a release of the associated deferred tax. Deferred tax
is the tax expected to be payable or recoverable on differences between the
carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the tax computations and is recorded using the
balance sheet liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. In
respect of the deferred tax on the revaluation surplus, this is calculated on
the basis of the chargeable gains that would crystallise on the sale of the
investment portfolio as at the reporting date. The calculation takes account
of indexation on the historic cost of properties and any available capital
losses. Deferred tax is calculated at the tax rates that are expected to apply
in the period when the liability is settled or the asset is realised. Deferred
tax is charged or credited in the Group income statement, except when it
relates to items charged or credited directly to equity, in which case it is
also dealt with in equity.
Dividends
Dividends payable on the ordinary share capital are recognised as a liability
in the period in which they are approved.
Cash and cash equivalents
Cash comprises cash in hand and on-demand deposits. Cash and cash equivalents
comprise short-term, highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant risk of
changes in value and original maturities of three months or less.
The cash and cash equivalents shown in the cashflow statement are stated net
of bank overdrafts that are repayable on demand in accordance with IAS 7. This
includes the structured trade finance facility held in South Africa as
detailed in note 21. These facilities are considered to form an integral part
of the treasury management of the Group and can fluctuate from positive to
negative balances during the period.
Bisichi PLC (formerly Bisichi Mining plc)
Mining revenue
Revenue is recognised when the customer has a legally binding obligation to
settle under the terms of the contract when the performance obligations have
been satisfied, which is once control of the goods and/or services have
transferred to the buyer. Revenue is measured based on consideration specified
in the contract with a customer on a per metric tonne basis.
Export revenue is generally recognised when the product is delivered to the
export terminal location specified in the customer contract, at which point
control of the goods have been transferred to the customer. Domestic coal
revenues are generally recognised on collection by the customer from the mine
or when loaded into transport from the mine’s rail sidings, where the
customer pays the transportation costs. Fulfilment costs to satisfy the
performance obligations of coal revenues such as transport and loading costs
borne by the group from the mine to the delivery point are recoded in
operating costs.
Mining costs
Expenditure is recognised in respect of goods and services received. Where
coal is purchased from third parties at point of extraction the expenditure is
only recognised when the coal is extracted and all of the significant risks
and rewards of ownership have been transferred.
Mining reserves, plant and equipment
The cost of property, plant and equipment comprises its purchase price and any
costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in accordance with
agreed specifications. Freehold land is not depreciated. Other property, plant
and equipment is stated at historical cost less accumulated depreciation. The
cost recognised includes the recognition of any decommissioning assets related
to property, plant and equipment.
Heavy surface mining and other plant and equipment is depreciated at varying
rates depending upon its expected usage. The depreciation rates generally
applied are between 5-10 per cent per annum, but limited to the shorter of its
useful life or the life of the mine.
Other non–current assets, comprising motor vehicles and office equipment,
are depreciated at a rate of between 10% and 33% per annum which is calculated
to write off the cost, less estimated residual value of the assets, on a
straight line basis over their expected useful lives.
Mine inventories
Inventories are stated at the lower of cost and net realisable value. Cost
includes materials, direct labour and overheads relevant to the stage of
production. Cost is determined using the weighted average method. Net
realisable value is based on estimated selling price less all further costs to
completion and all relevant marketing, selling and distribution costs.
Mine provisions
Provisions are recognised when the Group has a present obligation as a result
of a past event which it is probable will result in an outflow of economic
benefits that can be reliably estimated.
A provision for rehabilitation of the mine is initially recorded at present
value and the discounting effect is unwound over time as a finance cost.
Changes to the provision as a result of changes in estimates are recorded as
an increase/decrease in the provision and associated decommissioning asset.
The decommissioning asset is depreciated in line with the Group’s
depreciation policy over the life of mine. The provision includes the
restoration of the underground, opencast, surface operations and
de-commissioning of plant and equipment. The timing and final cost of the
rehabilitation is uncertain and will depend on the duration of the mine life
and the quantities of coal extracted from the reserves.
Mine impairment
Whenever events or changes in circumstance indicate that the carrying amount
of an asset may not be recoverable that asset is reviewed for impairment. This
includes mining reserves, plant and equipment and net investments in joint
ventures. A review involves determining whether the carrying amounts are in
excess of the recoverable amounts.
An asset’s recoverable amount is determined as the higher of its fair value
less costs of disposal and its value in use. Such reviews are undertaken on an
asset-by-asset basis, except where assets do not generate cash flows
independent of other assets, in which case the review is undertaken on a
company or Group level.
If the carrying amount of an asset exceeds its recoverable amount the carrying
value is written down to its estimated recoverable amount (being the higher of
the fair value less cost to sell and value in use). Any change in carrying
value is recognised in the comprehensive income statement.
Mine reserves and development cost
The purpose of mine development is to establish secure working conditions and
infrastructure to allow the safe and efficient extraction of recoverable
reserves. Depreciation on mine development is not charged until production
commences or the assets are put to use. On commencement of full commercial
production, depreciation is charged over the life of the associated mine
reserves extractable using the asset on a unit of production basis. The unit
of production calculation is based on tonnes mined as a ratio to proven and
probable reserves and also includes future forecast capital expenditure. The
cost recognised includes the recognition of any decommissioning assets related
to mine development.
Post production stripping
In surface mining operations, the Group may find it necessary to remove waste
materials to gain access to coal reserves prior to and after production
commences. Prior to production commencing, stripping costs are capitalised
until the point where the overburden has been removed and access to the coal
seam commences. Subsequent to production, waste stripping continues as part of
the extraction process as a run of mine activity. There are two benefits
accruing to the Group from stripping activity during the production phase:
extraction of coal that can be used to produce inventory and improved access
to further quantities of material that will be mined in future periods.
Economic coal extracted is accounted for as inventory. The production
stripping costs relating to improved access to further quantities in future
periods are capitalised as a stripping activity asset, if and only if, all of
the following are met:
- it is probable that the future economic benefit associated with the
stripping activity will flow to the Group;
- the Group can identify the component of the ore body for which
access has been improved; and
- the costs relating to the stripping activity associated with that
component or components can be measured reliably.
In determining the relevant component of the coal reserve for which access is
improved, the Group separates its mine into geographically distinct sections
or phases to which the stripping activities being undertaken within that
component are allocated. Such phases are determined based on assessment of
factors such as geology and mine planning.
The Group depreciates deferred costs capitalised as stripping assets on a unit
of production method, with reference to the tons mined and reserve of the
relevant ore body component or phase.
Segmental reporting
For management reporting purposes, the Group is organised into business
segments distinguishable by economic activity. The Group’s business segments
are LAP operations, Bisichi operations and Dragon operations. These business
segments are subject to risks and returns that are different from those of
other business segments and are the primary basis on which the Group reports
its segmental information. This is consistent with the way the Group is
managed and with the format of the Group’s internal financial reporting.
Significant revenue from transactions with any individual customer, which
makes up 10 per cent or more of the total revenue of the Group, is separately
disclosed within each segment. All coal exports are sales to coal traders at
Richard Bay’s terminal in South Africa with the risks and rewards passing to
the coal trader at the terminal. Whilst the coal traders will ultimately sell
the coal on the international markets the Group has no visibility over the
ultimate destination of the coal. Accordingly, the export sales are recorded
as South Africa revenue.
Notes to the financial statements
for the year ended 31 December 2019
1. Results for the year and segmental analysis
Operating Segments are based on the internal reporting and operational
management of the Group. LAP is focused primarily on property activities
(which generate trading income), but it also holds and manages investments.
IFRS 10 requires the Group to treat Bisichi as a subsidiary and therefore it
is consolidated, rather than being included in the accounts as an associate
using the equity method. The Group has also consolidated Dragon, a company
which the Company jointly controls with Bisichi; Bisichi is a coal mining
company with operations in South Africa and also holds investment property in
the United Kingdom and derives income from property rentals. Dragon is a
property investment company and derives its income from property rentals.
These operating segments (LAP, Bisichi and Dragon) are each viewed separately
and have been so reported below.
Business segments
2019
BUSINESS ANALYSIS LAP £’000 BISICHI £’000 DRAGON £’000 TOTAL £’000
Rental income 4,813 1,249 172 6,234
Service charge income 628 181 – 809
Proceeds from sale of trading properties 9,500 – – 9,500
Management income from third party properties 607 – – 607
Mining – 46,816 – 46,816
Group Revenue 15,548 48,246 172 63,966
Direct property costs (1,823) (572) – (2,395)
Impairment of inventory (1,750) – – (1,750)
Cost of sale of trading properties (10,491) – – (10,491)
Direct mining costs – (33,484) – (33,484)
Overheads (3,230) (6,745) (143) (10,118)
Exchange losses – (123) – (123)
Depreciation (215) (2,190) – (2,405)
Operating profit/(loss) (1,961) 5,132 29 3,200
Finance income 58 28 – 86
Finance expenses (2,552) (667) (33) (3,252)
Result before valuation movements (4,455) 4,493 (4) 34
Other segment items
Net decrease on revaluation of investment properties (1,498) (1,480) (10) (2,988)
Decrease in value of other investments (1,749) – – (1,749)
Net decrease on revaluation of investments held for trading – (6) – (6)
Adjustment to interest rate derivative 169 – – 169
Revaluation and other movements (3,078) (1,486) (10) (4,574)
(Loss)/profit for the year before taxation (7,533) 3,007 (14) (4,540)
Segment assets
- Non-current assets - property 33,718 11,748 2,440 47,906
- Non-current assets - plant & equipment 946 9,508 18 10,472
- Cash & cash equivalents 5,709 7,720 104 13,533
- Non-current assets - other – 287 – 287
- Current assets - others 686 10,940 343 11,969
Total assets excluding investment in joint ventures, assets held for sale and trading 41,059 40,203 2,905 84,167
Segment liabilities
Borrowings (30,764) (9,244) (1,175) (41,183)
Current liabilities (5,750) (7,887) (79) (13,716)
Non-current liabilities (3,156) (3,857) (37) (7,050)
Total liabilities (39,670) (20,988) (1,291) (61,949)
Net assets 1,389 19,215 1,614 22,218
Inventories-property 26,915 – – 26,915
Net assets as per balance sheet 49,133
Major customers
Customer A – 32,424 – 32,424
Customer B – 10,985 – 10,985
Customer C – 989 – 989
These customers are for mining revenue in South Africa.
Geographic analysis United Kingdom £’000 South Africa £’000 2019 Total £’000
Revenue 17,303 46,663 63,966
Operating (loss)/profit (1,074) 4,274 3,200
Non-current assets excluding investments 48,901 9,477 58,378
Total net assets 44,081 5,052 49,133
Capital expenditure 582 3,177 3,759
BUSINESS ANALYSIS LAP £’000 BISICHI £’000 DRAGON £’000 2018 TOTAL £’000
Rental income 5,049 1,065 167 6,281
Service charge income 802 137 – 939
Management income from third party properties 718 – – 718
Mining – 48,713 – 48,713
Group Revenue 6,569 49,915 167 56,651
Direct property costs (2,269) (340) – (2,609)
Direct mining costs – (34,309) – (34,309)
Overheads (4,035) (6,050) (105) (10,190)
Exchange losses – (63) – (63)
Depreciation (9) (2,113) – (2,122)
Operating profit 256 7,040 62 7,358
Finance income 37 24 – 61
Finance expenses (3,111) (538) (33) (3,682)
Result before valuation movements (2,818) 6,526 29 3,737
Other segment items
Net decrease on revaluation of investment properties (2,170) (215) (180) (2,565)
Net decrease on revaluation of investments held for trading – (169) – (169)
Adjustment to interest rate derivative 265 – – 265
Revaluation and other movements (1,905) (384) (180) (2,469)
(Loss)/profit for the year before taxation (4,723) 6,142 (151) 1,268
Segment assets
- Non-current assets - property 35,011 13,230 2,450 50,691
- Non-current assets - plant & equipment 106 8,531 22 8,659
- Cash & cash equivalents 11,345 9,221 89 20,655
- Non-current assets - other 1,748 35 – 1,783
- Current assets - others 1,947 8,290 183 10,420
Total assets excluding investment in joint ventures, assets held for sale and property inventories 50,157 39,307 2,744 92,208
Segment liabilities
Borrowings (45,352) (10,127) (1,164) (56,643)
Current liabilities (6,372) (7,158) (73) (13,603)
Non-current liabilities (3,122) (3,962) (33) (7,117)
Total liabilities (54,846) (21,247) (1,270) (77,363)
Net (liabilities)/assets (4,689) 18,060 1,474 14,845
Assets held for sale 2,285 – – 2,285
Inventories-property 38,556 – – 38,556
Net assets as per balance sheet 55,686
Major customers
Customer A – 34,112 – 34,112
Customer B – 11,557 – 11,557
These customers are for mining revenue in South Africa.
Geographic analysis United Kingdom £’000 South Africa £’000 2018 Total £’000
Revenue 8,015 48,636 56,651
Operating profit 1,274 6,084 7,358
Non-current assets excluding investments 50,820 8,530 59,350
Total net assets 51,118 4,568 55,686
Capital expenditure 6,574 2,864 9,438
Group revenue is external to the Group and the directors consider that inter
segmental revenues are not material.
2. PROFIT before taxation
2019 £’000 2018 £’000
Profit before taxation is stated after charging:
Staff costs (see note 26) 9,614 9,889
Depreciation on tangible fixed assets - owned assets 2,185 2,123
Depreciation on tangible fixed assets - right of use assets 224 –
Operating lease rentals - land and buildings – 240
Exchange loss 123 63
Profit on disposal of motor vehicles and office equipment – 6
Amounts payable to the auditor in respect of both audit and non-audit services
Audit services
Statutory - Company and consolidation 88 83
Subsidiaries - audited by RSM 19 17
Subsidiaries - audited by other auditors 89 78
Further assurance services 4 4
Other services 11 9
211 191
Staff costs are included in overheads.
Following the adoption of IFRS 16 ‘Leases’, operating leases have been
recognised as Right of use Assets within property, plant and equipment in the
balance sheet at 1 January 2019 and depreciated in the year.
3. Directors’ emoluments
2019 £’000 2018 £’000
Emoluments 823 1,899
Defined contribution pension scheme contributions 85 10
908 1,909
Sir Michael Heller received £283,000 (2018: £284,000) as a Director of
Bisichi PLC.
Details of directors’ emoluments and share options are set out in the
remuneration report.
4. Finance income and expenses
2019 £’000 2018 £’000
Finance income 86 61
Finance expenses
Interest on bank loans and overdrafts (1,963) (2,034)
Unwinding of discount (Bisichi) – (43)
Other loans (915) (1,169)
Interest on derivatives (122) (269)
Interest on lease obligations (252) (167)
Total finance expenses (3,252) (3,682)
5. Income tax
2019 £’000 2018 £’000
Current tax
Corporation tax on profit of the period 1,584 2,017
Corporation tax on profit of previous periods (2) 33
Total current tax 1,582 2,050
Deferred tax
Loss relief 44 3,740
Origination of timing differences 75 (57)
Revaluation of investment properties (412) (5,056)
Accelerated capital allowances (370) (120)
Fair value of interest derivatives 32 51
Adjustment in respect of prior years – 67
Total deferred tax (note 22) (631) (1,375)
Tax on profit on ordinary activities 951 675
Factors affecting tax charge for the year
The corporation tax assessed for the year is different from that at the
effective rate of corporation tax in the United Kingdom of 19.00 per cent
(2018: 19.00 per cent). The differences are explained below:
2019 £’000 2018 £’000
(Loss)/Profit for the year before taxation (4,540) 1,268
Taxation at 19 per cent (2018: 19 per cent) (863) 241
Effects of:
Capital gains / (losses) on disposal 54 (1,799)
Other differences 386 1,637
Losses 913 421
Adjustment in respect of prior years (2) (33)
Deferred tax rate adjustment 463 208
Income tax charge for the year 951 675
Analysis of United Kingdom and overseas tax:
United Kingdom tax included in above:
2019 £’000 2018 £’000
Corporation tax 14 (10)
Adjustment in respect of prior years - 33
Current tax 14 23
Deferred tax (671) (1,458)
(657) (1,435)
Overseas tax included above:
2019 £’000 2018 £’000
Corporation tax 1,570 2,026
Adjustments in respect of prior years (2) -
Current tax 1,568 2,026
Deferred tax 40 84
1,608 2,110
Factors that may affect future tax charges:
Based on current capital expenditure plans, the Group expects to continue to
be able to claim capital allowances in excess of depreciation in future years,
but at a slightly lower level than in the current year.
A deferred tax provision has been made for gains on revaluing investment
properties.
The Finance (no. 2) Act 2017 was substantively enacted on 16 November 2017.
This includes a restriction on the utilisation of brought forward tax losses
and corporate interest in certain circumstances effective from 1 April 2017.
Following the year end, in the Budget of 11 March 2020, the Chancellor
announced the reversal of the previously enacted reduction in the rate of
corporation tax. This reversal was subsequently confirmed by a resolution
under the Provisional Collection of Taxes Act 1968, which set the rate at 19%.
The impact of this reversal, which will be recognised in 2020, will be
negligible.
6. Dividend
2019 2018
Per share £’000 Per share £’000
Dividends paid during the year relating to the prior period 0.180p 154 0.300p 256
Dividends to be paid:
Proposed final dividend for the year – – 0.180p 154
The Directors are not recommending a final dividend for 2019, because of the
uncertain state of the global economy.
7. Loss per share and net assets per share
Loss per share has been calculated as follows:
2019 2018
Loss for the year (£’000) (6,477) (2,082)
Weighted average number of ordinary shares in issue (’000) 85,322 85,325
Basic loss per share (7.59)p (2.44)p
Weighted average number of shares in issue is calculated after excluding
treasury shares of 218,197 (2018: 218,197).
Net assets per share have been calculated as follows:
2019 2018
Net assets (£’000) 36,726 43,377
Shares in issue (’000) 85,322 85,322
Basic net assets per share 43.04p 50.83p
8. Investment properties
Total £’000 Freehold £’000 Leasehold over 50 years £’000 Leasehold under 50 years £’000
Cost or valuation at 1 January 2019 50,691 32,318 16,314 2,059
Reclassification – – 1,802 (1,802)
Decrease on revaluation (2,988) (1,722) (1,216) (50)
Acquisition of property 138 62 76 –
Increase/(decrease) in present value of head leases 65 – 65 –
At 31 December 2019 47,906 30,658 17,041 207
Representing assets stated at:
Valuation 44,580 30,658 13,722 200
Present value of head leases 3,326 – 3,319 7
47,906 30,658 17,041 207
Total £’000 Freehold £’000 Leasehold over 50 years £’000 Leasehold under 50 years £’000
Cost or valuation at 1 January 2018 81,258 62,425 16,856 1,977
(Decrease)/increase on revaluation (2,565) (2,075) (575) 85
Transfer to assets held for sale (note 10) (2,285) (2,285) – –
Transfer to inventory (note 12) (32,300) (32,300) – –
Acquisition of property 6,553 6,553 – –
Increase/(decrease) in present value of head leases 30 – 33 (3)
At 31 December 2018 50,691 32,318 16,314 2,059
Representing assets stated at:
Valuation 47,430 32,318 13,996 1,116
Present value of head leases 3,261 – 2,318 943
50,691 32,318 16,314 2,059
The leasehold and freehold properties, excluding the present value of head
leases and directors’ valuations, were valued as at 31 December 2019 by
professional firms of chartered surveyors. The valuations were made at fair
value. The directors’ property valuations were made at fair value.
2019 £’000 2018 £’000
Allsop LLP 31,715 32,785
Carter Towler 11,565 13,045
Directors’ valuations 1,300 1,600
44,580 47,430
Add: present value of headleases 3,326 3,261
47,906 50,691
Head leases on investment property represent the right-of-use asset on certain
investment property that has a head lease interest. In the current year total
cash outflow for head leases and other lease liabilities is £0.2 million
(2018: £0.2 million). A number of these leases provide for payment of
contingent rent, usually a proportion of net rental income, in addition to
fixed rents.
The historical cost of investment properties, including total capitalised
interest of £1,161,000 (2018: £1,161,000) was as follows:
2019 2018
Freehold £’000 Leasehold Over 50 years £’000 Leasehold under 50 years £’000 Freehold £’000 Leasehold Over 50 years £’000 Leasehold under 50 years £’000
Cost at 1 January 35,151 17,653 1,939 67,702 17,653 1,939
Reclassification – 1,154 (1,154) – – –
Transfer to assets held for sale (note 10) – – – (202) – –
Transfer to inventory (note 12) – – – (38,902) – –
Additions 62 76 – 6,553 – –
Cost at 31 December 35,213 18,883 785 35,151 17,653 1,939
Each year external valuers are appointed by the executive directors on behalf
of the Board. The valuers are selected based upon their knowledge,
independence and reputation for valuing assets such as those held by the
Group.
Valuations are performed annually and are performed consistently across all
properties in the Group’s portfolio. At each reporting date appropriately
qualified employees of the Group verify all significant inputs and review the
computational outputs. Valuers submit their report to the Board on the outcome
of each valuation.
Valuations take into account tenure, lease terms and structural condition. The
inputs underlying the valuations include market rent or business
profitability, likely incentives offered to tenants, forecast growth rates,
yields, EBITDA, discount rates, construction costs including any specific site
costs (for example section 106), professional fees, developer’s profit
including contingencies, planning and construction timelines, lease regear
costs, planning risk and sales prices based on known market transactions for
similar properties to those being valued.
Valuations are based on what is determined to be the highest and best use.
When considering the highest and best use the valuer will consider, on a
property by property basis, its actual and potential uses which are
physically, legally and financially viable. Where the highest and best use
differs from the existing use, the valuer will consider the cost and
likelihood of achieving and implementing this change in arriving at the
valuation.
There are often restrictions on Freehold and Leasehold property which could
have a material impact on the realisation of these assets. The most
significant of these occur when planning permission or lease extension and
renegotiation of use are required or when a credit facility is in place. These
restrictions are factored into the property’s valuation by the external
valuer.
The methods of fair value measurement are classified into a hierarchy based on
the reliability of the information used to determine the valuation,
as follows:
Level 1: valuation based on inputs on quoted market prices in active
markets.
Level 2: valuation based on inputs other than quoted prices included
within level 1 that maximise the use of observable data directly or from
market prices or indirectly derived from market prices.
Level 3: where one or more significant inputs to valuations are not based
on observable market data.
Class of property Level 3 Carrying / Fair value 2019 £’000 Carrying/ Fair value 2018 £’000 Valuation technique Key unobservable inputs Range (weighted average) 2019 Range (weighted average) 2018
Freehold – external valuation 29,358 30,720 Income capitalisation Estimated Rental Value Per sq ft p.a Equivalent Yield £3 – £37 (£15) 5.5% – 13.3% (9.8%) £4 – £39 (£16) 5.3% – 12.9% (9.7%)
Leasehold over 50 years – external valuation 13,722 13,995 Income capitalisation Estimated Rental Value Per sq ft p.a Equivalent Yield £4 – £10 (£8) 5.8% – 21.4% (14.9%) £5 – £10 (£9) 5.8% – 19.9% (12.9%)
Leasehold under 50 years – external valuation 200 1,115 Income capitalisation Estimated Rental Value Per sq ft p.a Equivalent Yield £5 – £5 (£5) 30.5% – 30.5% (30.5%) £4 – £5 (£5) 22.9% – 25.8% (23.5%)
Freehold – Directors’ valuation 1,300 1,600 Income capitalisation Estimated Rental Value Per sq ft p.a Equivalent Yield £4 – £4 (£4) 7.0% – 7.0% (7.0%) £5 – £5 (£5) 7.0% – 7.0% (7.0%)
At 31 December 44,580 47,430
There are interrelationships between all these inputs as they are determined
by market conditions. The existence of an increase in more than one input
would be to magnify the input on the valuation. The impact on the valuation
will be mitigated by the interrelationship of two inputs in opposite
directions, for example, an increase in rent may be offset by an increase in
yield.
The table below illustrates the impact of changes in key unobservable inputs
on the carrying / fair value of the Group’s properties.
Estimated rental value 10% increase or (decrease) Equivalent yield 25 basis point contraction or (expansion)
2019 £’000 2018 £’000 2019 £’000 2018 £’000
Freehold – external valuation 2,932/(2,932) 3,067/(3,067) 884/(831) 948/(891)
Leasehold over 50 years – external valuation 1,372/(1,372) 1,400/(1,400) 302/(289) 337/(320)
Leasehold under 50 years – external valuation 20/(20) 112/(112) 2/(2) 12/(12)
Freehold – Directors’ valuation 130/(130) 160/(160) 48/(45) 59/(55)
9. Mining reserves, plant and equipment
Total £’000 Mining reserves £’000 Mining equipment £’000 Office building £’000 Office equipment and motor vehicles £’000
Cost at 1 January 2019 28,173 1,240 26,148 – 785
Exchange adjustment (310) (14) (293) – (3)
IFRS 16 transition adjustment 1,111 – 57 1,054 –
Additions 3,212 – 3,074 – 138
Disposals (2,326) – (2,312) – (14)
At 31 December 2019 29,860 1,226 26,674 1,054 906
Accumulated depreciation at 1 January 2019 19,514 1,213 17,777 – 524
Exchange adjustment (209) (14) (193) – (2)
Charge for the year 2,409 13 2,133 211 52
Disposals in year (2,326) – (2,312) – (14)
Accumulated depreciation at 31 December 2019 19,388 1,212 17,405 211 560
Net book value at 31 December 2019 10,472 14 9,269 843 346
Cost at 1 January 2018 27,996 1,366 25,902 – 728
Exchange adjustment (2,688) (126) (2,531) – (31)
Additions 2,883 – 2,777 – 106
Disposals (18) – – – (18)
Cost at 31 December 2018 28,173 1,240 26,148 – 785
Accumulated depreciation at 1 January 2018 19,261 1,308 17,441 – 512
Exchange adjustment (1,853) (121) (1,712) – (20)
Charge for the year 2,123 26 2,048 – 49
Disposals (17) – – (17)
Accumulated depreciation at 31 December 2018 19,514 1,213 17,777 – 524
Net book value at 31 December 2018 8,659 27 8,371 – 261
Included in the above line items are right-of-use assets over the following:
Total £’000 Mining equipment £’000 Office building £’000 Office equipment and motor vehicles £’000
Net book value at 1 January 2019 - - - -
IFRS 16 transition adjustment 1,111 57 1,054 -
Additions 38 5 - 33
Exchange adjustment (1) (1)
Depreciation (224) (9) (211) (4)
Net book value at 31 December 2019 924 52 843 29
10. ASSETS HELD FOR SALE
2019 £’000 2018 £’000
At 1 January 2,285 36,441
Transfer from investment property (note 8) - 2,285
Disposal (2,285) (36,441)
At 31 December - 2,285
In April 2018 the sale of both Brixton markets was completed for a combined
price of £37.25 million. The properties were held at a valuation of £36.441
million. This value equated to the net sale proceeds and there was no profit
on sale.
In July 2019 the sale of the Group’s remaining property in Brixton was
completed for a price of £2.457 million. The property was held at a valuation
of £2.285 million. This value equated to the net sale proceeds and there was
no profit on sale.
11. Subsidiary companies
In accordance with Section 409 of the Companies Act 2006 a full list of
subsidiaries, the principal activity, the country of incorporation and the
percentage of equity owned, as at 31 December 2019 is disclosed below:
Entity Activity Percentage of share capital Registered address Country of incorporation
Analytical Investments Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Portfolios Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Properties Holdings Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Properties Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Analytical Ventures Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
24 Bruton Place Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
24 BPL (Harrogate) Limited Investment 88% 24 Bruton Place, London, W1J 6NE England and Wales
24 BPL (Harrogate ) Two Limited Investment 100% 24 Bruton Place, London, W1J 6NE England and Wales
Brixton Village Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Market Row Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1243 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1244 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1245 Limited Property Management Services 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1299 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1300 Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
LAP Ocean Holdings Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
LAP Ocean Two Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated (Rugeley) Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated Securities Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & Associated Management Services Limited Property Management Services 100% 24 Bruton Place, London, W1J 6NE England and Wales
London & African Investments Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Orchard Chambers Residential Limited Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Orchard Square Limited Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi PLC (note D) Coal mining 41.52% 24 Bruton Place, London, W1J 6NE England and Wales
Mineral Products Limited (note A)(note D) Share dealing 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi (Properties) Limited (note A)(note D) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Mining (Exploration) Limited (note A)(note D) Holding company 100% 24 Bruton Place, London, W1J 6NE England and Wales
Sisonke Coal Processing (pty) Limited (note A) Coal processing 62.5% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Black Wattle Colliery (Pty) Limited (note A)(note D) Coal mining 62.5% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Bisichi Coal Mining (Pty) Limited (note A)(note D) Coal mining 100% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Urban First (Northampton) Limited (note A)(note D) Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Trustee Limited (note A)(note D) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Mining Management Services Limited (note A)(note D) Dormant 100% 24 Bruton Place, London, W1J 6NE England and Wales
Ninghi Marketing Limited (note A)(note D) Dormant 90.1% 24 Bruton Place, London, W1J 6NE England and Wales
Bisichi Northampton Limited (note A)(note D) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
Amandla Ehtu Mineral Resource Development (Pty) Limited (note A)(note D) Dormant 70% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Black Wattle Klipfontein (Pty) Limited (note A)(note D) Coal mining 62.5% Samora Machel Street, Bethal Road, Middelburg, Mpumalanga, 1050 South Africa
Dragon Retail Properties Limited (note B)(note D) Property 50% 24 Bruton Place, London, W1J 6NE England and Wales
Newincco 1338 Limited (note C) Property 100% 24 Bruton Place, London, W1J 6NE England and Wales
West Ealing Projects Limited (note B)(note D) Property 50% 24 Bruton Place, London, W1J 6NE England and Wales
Broadway Regen Limited (note E) Property 90% 73 Cornhill, London, EC3V 3QQ England and Wales
Details on the non–controlling interest in subsidiaries are shown under note
24.
Note A: these companies are owned by Bisichi and the equity shareholdings
disclosed relate to that company.
Note B: this entity is a joint venture owned 50% by LAP and 50% by Bisichi.
Note C: this company is owned by Dragon and the equity shareholdings disclosed
relate to that company.
Note D: Bisichi, Dragon and West Ealing Projects and their subsidiaries are
included in the consolidated financial statements in accordance with IFRS 10.
Note E: This company is 90% owned by West Ealing Projects and the equity
shareholdings disclosed relate to that company.
12. Inventories – Property
Development land and infrastructure:
2019 £’000 2018 £’000
At 1 January 38,556 –
Capitalised expenditure 127 6,196
Capitalised interest 282 60
Sales (10,300) –
Impairments (1,750) –
Transfer from investment property (note 8) - 32,300
At 31 December 26,915 38,556
The net realisable value of developments is assessed by the Directors and is
subject to key estimates made in respect of future sales prices and build
costs. Variations in these assumptions can have significant effects on the net
realisable value of developments.
In 2018 the Group acquired a development property through West Ealing Projects
Limited a 50:50 joint venture with Bisichi. This property is held at cost of
£6.665 million (2018: £6.256 million) and is currently being developed for
sale.
In 2018 the Group decided to develop for sale Orchard Square, Sheffield and
transferred the asset to inventory. In 2019 part of this property was sold.
The remainder of the property is held at a value of £20.25 million, being
cost of £22 million less an impairment provision of £1.75 million, and is
being developed for sale. A 5% movement in the estimated sales price of this
development would have an effect of £2.6 million on its net realisable value.
A 5% movement in the estimated build costs of this development would have an
effect of £1.8 million on its net realisable value. The uncertainties in the
assumptions used to calculate the net realisable value of this development
will reduce over time, but will not resolve within the next 12 months due to
the duration of this project.
13. Inventories - Mining
2019 £’000 2018 £’000
Coal
Washed 2,037 777
Mining production 135 316
Work in progress 215 378
Other 45 40
2,432 1,511
14. Non-current asset investments
2019 Total £’000 Listed Shares £’000 Unlisted shares £’000 Loan stock £’000 2018 Total £’000 Listed Shares £’000 Unlisted shares £’000 Loan stock £’000
At 1 January 1,783 35 1 1,747 1,925 51 1 1,873
Additions 255 255 – – – – – –
Repayments – – – – (141) (15) – (126)
Exchange adjustment – – – – (1) (1) – –
Impairments (1,751) (3) (1) (1,747) – – – –
At 31 December 287 287 – – 1,783 35 1 1,747
In May 2019, The Group declined to inject further capital into the 3.17%
(2018: 3.17%) investment in the HRGT Shopping Centres LP, a limited
partnership set up in England to acquire and own 3 shopping centres in
Dunfermline, Kings Lynn and Loughborough, following a revaluation by the
senior lender resulting in a breach of the loan to value covenant. As a
result, the investment was fully written down. The investment was subsequently
sold to the mezzanine loan provider in October 2019.
The listed shares are all listed on overseas stock exchanges (Level 1
hierarchy).
15. Trade and other receivables
2019 £’000 2018 £’000
Trade receivables 6,609 6,055
Other receivables 1,143 949
Prepayments and accrued income 647 1,018
8,399 8,022
Financial assets falling due within one year are held at amortised cost. The
fair value of trade and other receivables approximates their carrying amounts.
The Group applies a simplified approach to measure the credit loss allowance
for trade receivables using the lifetime expected credit loss provision. The
lifetime expected credit loss is evaluated for each trade receivable taking
into account payment history, payments made subsequent to year end and prior
to reporting, past default experience and the impact of any other relevant and
current observable data. The group applies a general approach on all other
receivables classified as financial assets. At year end, the group allowance
for impairment of trade receivables was £301,000 (2018: £277,000).
16. Investments IN LISTED SECURITIES HELD AT FVPL
2019 £’000 2018 £’000
Market value of listed Investments:
Listed in Great Britain 863 847
Listed outside Great Britain 256 40
1,119 887
Original cost of listed investments 1,150 916
Unrealised surplus / deficit of market value versus cost (31) (29)
The market value of listed investments is derived from their quoted share
price on public markets (Level 1 hierarchy).
17. Trade and other payables
2019 £’000 2018 £’000
Trade payables 3,996 4,637
Other taxation and social security costs 427 411
Other payables 3,894 3,372
Accruals and deferred income 4,518 4,921
12,835 13,341
The directors consider that the carrying amount of trade and other payables
approximates to their fair value.
18. Borrowings
2019 £’000 Current 2019 £’000 Non- current 2018 £’000 Current 2018 £’000 Non- current
Other loans (Bisichi) 261 382 205 547
£1.25 million term bank loan (secured) repayable by 2020 (Dragon)* 1,175 – – 1,164
Bank overdrafts (secured) (Bisichi) 4,842 – 3,535 –
£14 million term bank loan (secured) repayable by 2022 at 6.95 per cent* 96 13,502 – –
£10 million first mortgage debenture stock 2022 at 8.109 per cent* – 9,956 – 9,939
£3.96 million term bank loan (secured) repayable by 2024 (Bisichi)* – 3,759 – –
£5.876 million term bank loan (secured) repayable by 2019 (Bisichi)* – – 5,840 –
£3.605 million term loan (secured) - repayable by 2019 (Broadway Regen) 3,605 – 3,461 –
£34.897 million term bank loan (secured) repayable by 2019* – – 21,403 –
£10.105 million term bank loan (secured) repayable by 2019 at 9.5 per cent* – – 6,808 –
£3.932 million term loan (secured) repayable by 2028* 141 3,464 136 3,605
10,120 31,063 41,388 15,255
Borrowings analysis by origin:
2019 £’000 2018 £’000
United Kingdom 35,698 52,356
South Africa 5,485 4,287
41,183 56,643
* The £10 million debenture and bank loans are shown after
deduction of un-amortised issue costs.
Interest payable on the term bank loans is variable being based upon the
London inter–bank offered rate (LIBOR) plus margin.
No banking covenants were breached by the group during the year.
In September 2019, the £34.897 million Santander bank loan and £10.105
million Europa bank loan were repaid in full, utilising proceeds from the sale
of property and a new £14 million term loan.
The £14 million term loan taken out in September 2019, with Phoenix CRE S.à
r.l., is secured by way of a charge on a single freehold property, included in
the financial statements as inventory at a value of £20.25 million. This loan
has an interest rate of 5.95% above LIBOR, where LIBOR has a minimum and
maximum rate of 1.0% and 1.5%, respectively.
The First Mortgage Debenture Stock August 2022 is secured by way of a charge
on specific freehold and leasehold properties which are included in the
financial statements at a value of £13.15 million. In addition, £0.34
million of cash deposits are charged as security to debenture stocks. An
additional property has been charged to this Debenture in April 2020 and the
cash deposit released.
In September 2018 a 10 year term, loan of £3.932 million was taken out with
Metro Bank secured by way of a charge on freehold and leasehold properties
which are included in the financial statements at a value of £4.875 million.
In addition, £2.271 million of cash deposits are charged as security,
following the sale of a property previously held as security. The interest
cost of the loan is 2.95 per cent above the bank’s base rate and the loan is
amortised over a 20 year repayment profile, with a final bullet payment after
10 years.
In South Africa, as part of a restructuring and sale of the washing plant
facilities from Black Wattle Colliery (Pty) Limited (“Black Wattle”) to
its wholly owned subsidiary Sisonke Coal Processing (Pty) Limited (“Sisonke
Coal Processing”), the R100million bank overdraft facility held by Black
Wattle with Absa Bank Limited was replaced in January 2019 by a new structured
trade finance facility for R100million held by Sisonke Coal Processing (“new
trade facility”). The South African bank loans are secured by way of a first
charge over specific pieces of mining equipment, inventory and the debtors of
the relevant company which holds the loan which are included in the financial
statements at a value of £10,533,000.
In December 2019, Bisichi repaid its £5.84 million loan facility with
Santander Bank PLC and signed a new £3.96 million term loan facility with
Julian Hodge Bank Limited. The new debt package has a five year term and is
repayable at the end of the term in December 2024. The interest cost of the
loan is 4.00% above LIBOR. The loan is secured by way of a first charge over
the investment properties in the UK which are included in the financial
statements at a value of £11,565,000.
The bank loan of £1.25 million (Dragon) which is repayable in November 2020
is secured by way of a first charge on specific freehold property which is
included in the financial statements at a value of £2.44 million. The
interest cost of the loan is 2 per cent above LIBOR. A refinancing of this
loan is currently underway. An extension of the existing loan is available, if
required, to allow time for refinancing discussions to be concluded.
The bank loan of £3.605 million (Broadway Regen) which is repayable in June
2020, following an extension of the facility, is secured by way of a first
charge on a specific freehold development property, which is included in the
financial statements at £6.7 million. The interest cost of the loan is fixed
at 7.0% per annum. The extension of this development loan is currently being
discussed with the lender and our expectation is that this will be extended on
the same terms to allow sufficient time to achieve a planning decision.
The Group’s objectives when managing capital are:
– To safeguard the Group’s ability to continue as a going concern, so
that it may provide returns for shareholders and benefits for other
stakeholders; and
– To provide adequate returns to shareholders by ensuring returns are
commensurate with the risk.
Analysis of the changes in liabilities arising from financing activities:
2019 £’000 Bank borrowings 2019 £’000 Lease obligations 2018 £’000 Bank borrowings 2018 £’000 Finance leases
Balance at 1 January 56,643 3,261 65,949 3,233
Exchange adjustments (57) – (273) –
Cash movements excluding exchange adjustments (15,583) (456) (9,044) –
Valuation movements 180 1,461 11 28
Balance at 31 December 41,183 4,266 56,643 3,261
19. LEASE LIABILITIES
2019 Total £’000 2019 Head leases on investment property 1 £’000 2019 Office 2 £’000 2019 Other 2 £’000 2018 Total £’000
Minimum lease payments fall due:
Within one year 476 212 240 24 213
Second to fifth year 1,639 849 720 70 849
After five years 20,105 20,105 – – 16,725
22,220 21,166 960 94 17,787
Future finance charges on lease liabilities (17,954) (17,840) (99) (15) (14,526)
Present value of lease liabilities 4,266 3,326 861 79 3,261
Present value of lease liabilities:
Within one year 424 212 193 19 213
Second to fifth year 1,511 783 668 60 783
After five years 2,331 2,331 – – 2,265
4,266 3,326 861 3,261
Lease liabilities greater than one year are £3,842,000.
1 Many head leases on investment properties provide for contingent rent in
addition to the rents above, usually a proportion of rental income.
2 On adoption of IFRS 16 Leases (see note 1 for details), at 1 January 2019
the Group recognised right-of-use assets of £1,111,000 and lease liabilities
of an equivalent amount. The right-of-use assets are presented within
property, plant and equipment on the balance sheet, as shown in note 9.
The office lease minimum lease payments at 31 December 2018 were:
£’000
Minimum lease payments fall due:
Within one year 240
Second to fifth year 960
After five years –
Lease liabilities are effectively secured as the rights to the leased asset
revert to the lessor in the event of default.
20. Provisions
2019 £’000 2018 £’000
At 1 January 1,571 1,349
Exchange adjustment (17) (150)
Additions – 329
Unwinding of discount – 43
At 31 December 1,554 1,571
The above provision relates to mine rehabilitation costs in Bisichi.
21. Financial instruments
Total financial assets and liabilities
The Group’s financial assets and liabilities and their fair values are as
follows:
2019 2018
Fair value £’000 Carrying value £’000 Fair value £’000 Carrying value £’000
Cash and cash equivalents 13,533 13,533 20,655 20,655
Investments - non-current assets 287 287 1,783 1,783
Investments - current assets 1,119 1,119 887 887
Other assets 7,793 7,793 7,004 7,004
Derivative liabilities – – (169) (169)
Bank overdrafts (4,842) (4,842) (3,535) (3,535)
Bank loans (26,385) (26,385) (43,521) (43,169)
Lease liabilities (4,266) (4,266) (3,261) (3,261)
Other liabilities (7,923) (7,923) (8,008) (8,008)
Total financial liabilities before debentures (20,684) (20,684) (28,165) (27,813)
Fair value of the Group’s debenture liabilities:
2019 2018
Book value £’000 Fair value £’000 Fair value adjustment £’000 Fair value adjustment £’000
Debenture stocks (10,000) (10,497) (497) (1,977)
Tax at 19 per cent (2018: 19 per cent) – – 94 376
Post tax fair value adjustment – – (403) (1,601)
Post tax fair value adjustment – basic pence per share – – (0.47p) (1.88p)
Except for debenture stocks there is no material difference between the
carrying value and fair value of financial liabilities or financial assets.
The fair values of the debentures are based on the net present value at the
relevant gilt interest rate of the future payments of interest on the
debentures.
Treasury policy
The Group enters derivative transactions such as interest rate swaps and
forward exchange contracts in order to help manage the financial risks arising
from the Group’s activities. The main risks arising from the Group’s
financing structure are interest rate risk, liquidity risk and market price
risk, credit risk, commodity price risk and foreign exchange risk. The
policies for managing each of these risks and the principal effects of these
policies on the results are summarised below.
Sensitivity analysis
The LAP Group and Dragon have variable interest term debts which are covered
by derivatives. Additionally, The LAP Group has a variable interest term debt
with minimum and maximum rates. At 31 December 2019, with other variables
unchanged, a 1% increase in interest rates would change the profit/loss for
the year by £119,000 (2018: £91,000). Bisichi has variable loans and a 1%
increase in interest rates would change the profit/loss for the year by
£107,000 (2018: £101,000).
Interest rate risk
Treasury activities take place under procedures and policies approved and
monitored by the Board to minimise the financial risk faced by the Group.
The Bisichi United Kingdom bank loans and overdraft are secured by way of a
first charge on certain fixed assets. The rates of interest vary based on
LIBOR in the UK.
The Bisichi South African bank loans are secured by way of a first charge over
specific pieces of mining equipment, inventory and the debtors of the relevant
company which holds the loan. The rates of interest vary based on PRIME in
South Africa.
The £3.932 million bank loan is secured by way of a first charge on specific
freehold and leasehold property. The rate of interest varies based on the
bank’s base rate.
The £1.25 million bank loan (Dragon) is secured by way of a first charge on
specific freehold property. The rate of interest varies based on LIBOR in the
UK.
The £3.605 million bank loan (Broadway Regen) is secured by way of first
charge on a specific freehold development property. This loan is based on a
fixed interest rate of 7.0%.
The £14 million bank loan is secured by way of first charge on a specific
freehold development property held in inventory. The rates of interest vary
based on LIBOR in the UK, with a minimum LIBOR of 1% and a maximum LIBOR of
1.5%.
Liquidity risk
The Group’s policy is to minimise refinancing risk by balancing its exposure
to interest risk and to refinancing risk. In effect the Group seeks to borrow
for as long as possible at the lowest acceptable cost. Efficient treasury
management and strict credit control minimise the costs and risks associated
with this policy which ensures that funds are available to meet commitments as
they fall due. Cash and cash equivalents earn interest at rates based on LIBOR
in the UK. The cash resources and funding facilities together are considered
adequate to meet the Group’s anticipated cash flow requirements for the
foreseeable future.
In South Africa, as part of the restructuring and sale of the washing plant
facilities from Black Wattle Colliery (Pty) Limited (“Black Wattle”) to
its wholly owned subsidiary Sisonke Coal Processing (Pty) Limited (“Sisonke
Coal Processing”), the R100million facility held by Black Wattle with Absa
Bank Limited at the year end (“old trade facility”) was replaced in
January 2019 by a new structured trade finance facility for R100million held
by Sisonke Coal Processing (“new trade facility”).
The new trade facility comprises of a R100million revolving facility to cover
the working capital requirements of the group’s South African operations.
The interest cost of the loan is at the South African prime lending rate. The
new trade facility is renewable annually each January, is repayable on demand
and is secured against inventory, debtors and cash that are held by Sisonke
Coal Processing (Pty)
The old trade facility, which was also repayable on demand, is included in
cash and cash equivalents within the cashflow statement.
In December 2019, Bisichi repaid its £5.84million loan facility with
Santander Bank PLC and signed a new £3.96million term loan facility with
Julian Hodge Bank Limited. The loan is secured against Bisichi’s UK retail
property portfolio. The debt package has a five year term and is repayable at
the end of the term in December 2024. The interest cost of the loan is 4.00%
above LIBOR.
In September 2019 the LAP Group’s £34.897 million term bank loan and the
£10.105 million bank loan were repaid and a new £14 million facility signed
with Pheonix CRE S.à r.l. This loan is secured on a single freehold property
and is repayable in September 2022. The interest cost is 5.95% above LIBOR,
where LIBOR has a minimum and maximum rate of 1.0% and 1.5%, respectively.
The table below analyses the Group’s financial liabilities (excluding
interest rate derivatives) into maturity groupings and also provides details
of the liabilities that bear interest at fixed, floating and non–interest
bearing rates.
2019 Total £’000 Less than 1 year £’000 2-5 years £’000 Over 5 years £’000
Bank overdrafts (floating) 4,842 4,842 – –
Debentures (fixed) 9,956 – 9,956 –
Bank loans (fixed) 3,605 3,605 – –
Bank loans (floating)* 22,780 1,673 18,269 2,838
Lease liabilities 4,266 424 1,511 2,331
Trade and other payables (non–interest) 12,408 12,408 – –
57,857 22,952 29,736 5,169
2018 Total £’000 Less than 1 year £’000 2-5 years £’000 Over 5 years £’000
Bank overdrafts (floating) 3,535 3,535 – –
Debentures (fixed) 9,939 – 9,939 –
Bank loans (fixed) 11,433 10,269 1,164 –
Bank loans (floating)* 31,736 27,584 1,156 2,996
Lease liabilities 3,261 213 783 2,265
Trade and other payables (non–interest) 12,930 12,930 – –
72,834 54,531 13,042 5,261
The Group would normally expect that sufficient cash is generated in the
operating cycle to meet the contractual cash flows as disclosed above through
effective cash management.
*Certain bank loans are fully hedged with appropriate interest derivatives.
Details of all hedges are shown on the next page.
Market price risk
The Group is exposed to market price risk through interest rate and currency
fluctuations.
Credit risk
The group is mainly exposed to credit risk on its cash and cash equivalents,
trade and other receivables. The maximum exposure to credit risk is
represented by the carrying amount of each financial asset in the balance
sheet which at year end amounted to £22,691,000 (2018: £30,329,000).
To mitigate risk on its cash and cash equivalents, the group only deposits
surplus cash with well-established financial institutions of high quality
credit standing.
The group’s credit risk is primarily attributable to its trade receivables.
Customers’ credit ratings are reviewed regularly. The Group’s review
includes measures such as the use of external ratings and establishing
purchase limits for each customer. The Group’s approach to measure the
credit loss allowance for trade receivables is outlined in note 15. At year
end, the group allowance for doubtful debts provided against trade receivables
was £301,000 (2018: £277,000).
The Group exposure to credit risk on its other receivables is mitigated
through ongoing review of the underlying performance and resources of the
counterparty including evaluation of different scenarios of probability of
default and expected loss applicable to each of the underlying balances.
Foreign exchange risk
Only Bisichi is subject to this risk. All trading is undertaken in the local
currencies except for certain export sales which are invoiced in US Dollars.
It is not the Bisichi Group’s policy to obtain forward contracts to mitigate
foreign exchange risk on these contracts as payment terms are within 15 days
of invoice or earlier. Funding is also in local currencies other than
inter-company investments and loans and it is also not the Bisichi Group’s
policy to obtain forward contracts to mitigate foreign exchange risk on these
amounts. During 2019 and 2018 the Bisichi Group did not hedge its exposure of
foreign investments held in foreign currencies.
The principal currency risk to which the Bisichi Group is exposed in regard to
inter-company balances is the exchange rate between Pounds Sterling and South
African Rand. It arises as a result of the retranslation of Rand denominated
inter-company trade receivable balances held within the UK which are payable
by South African Rand functional currency subsidiaries.
Based on the Bisichi Group’s net financial assets and liabilities as at 31
December 2019, a 25% strengthening of Sterling against the South African Rand,
with all other variables held constant, would decrease the Bisichi Group’s
profit after taxation by £176,000 (2018: £130,000). A 25% weakening of
Sterling against the South African Rand, with all other variables held
constant would increase the Bisichi Group’s profit after taxation by
£294,000 (2018: £216,000).
The 25% sensitivity has been determined based on the average historic
volatility of the exchange rate for 2018 and 2019.
The table below shows the Bisichi currency profiles of cash and cash
equivalents:
2019 £’000 2018 £’000
Sterling 4,741 6,897
South African Rand 1,672 2,322
US Dollar 1,307 2
7,720 9,221
Cash and cash equivalents earn interest at rates based on LIBOR in Sterling
and Prime in Rand.
The tables below shows the Bisichi currency profiles of net monetary assets
and liabilities by functional currency:
2019: UK £’000 South Africa £’000
Sterling 1,151 -
South African Rand 40 (3,510)
US Dollar 1,582 -
2,773 (3,510)
2018: UK £’000 South Africa £’000
Sterling 1,042 -
South African Rand 37 (1,974)
US Dollar 13 -
1,092 (1,974)
Borrowing facilities
At 31 December 2019 the Group was within its bank borrowing facilities and was
not in breach of any of the covenants. Term loan repayments are as set out at
the end of this note. Details of other financial liabilities are shown in
Notes 17, 18 and 19.
Interest rate and hedge profile
2019 £’000 2018 £’000
Fixed rate borrowings 13,561 20,224
Floating rate borrowings
– Subject to interest rate swap 14,773 18,685
– Other borrowings 12,849 18,048
41,183 56,957
Average fixed interest rate 7.82% 8.39%
Weighted average swapped interest rate 6.63% 4.16%
Weighted average cost of debt on overdrafts, bank loans and debentures 7.06% 5.92%
Average period for which borrowing rate is fixed 2.1 years 2.1 years
Average period for which borrowing rate is swapped 2.6 years 0.6 years
The Group’s floating rate debt bears interest based on LIBOR for the term
bank loans and bank base rate for the overdraft.
At 31 December 2019 the Group had a £14 million floating rate loan to
September 2022, where LIBOR has a minimum and maximum rate of 1.0% and 1.5%,
respectively.
The Group’s hedges for £21.489 million expired in July 2019 and the bank
loans which they covered were repaid in September 2019.
At the year end the fair value liability in the accounts was £nil (2018:
£169,000), as valued by the hedge provider.
At 31 December 2019, Dragon had an interest rate hedge of £1.25 million to
cover the £1.25 million bank loan. This consists of a 5 year £1.25 million
cap agreement taken out in November 2016 at 2.5%. At the year end, the fair
value asset in the accounts was nil (2018: £nil), as valued by the hedge
provider.
Fair value of financial instruments
Fair value estimation
The Group has adopted the amendment to IFRS 7 for financial instruments that
are measured in the balance sheet at fair value. This requires the methods of
fair value measurement to be classified into a hierarchy based on the
reliability of the information used to determine the valuation, as follows:
– Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
– Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices) (level 2).
– Inputs for the asset or liability that are not based on observable
market data (that is unobservable inputs) (level 3).
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 2019 Gain/(loss) to income statement £’000
Financial assets
Quoted equities – non-current assets 287 – – 287 (3)
Quoted equities – current assets 1,119 – – 1,119 (2)
Financial liabilities
Interest rate swaps – – – – 169
Level 1 £’000 Level 2 £’000 Level 3 £’000 Total £’000 2018 Gain/(loss) to income statement £’000
Financial assets
Quoted equities – non-current assets 35 – – – –
Quoted equities – current assets 887 – – 887 -
Interest rate swaps – – – – (1)
Financial liabilities
Interest rate swaps – 169 – 169 266
Capital structure
The Group sets the amount of capital in proportion to risk. It ensures that
the capital structure is commensurate to the economic conditions and risk
characteristics of the underlying assets. In order to maintain or adjust the
capital structure, the Group may vary the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets
to reduce debt.
The Group considers its capital to include share capital, share premium,
capital redemption reserve, translation reserve and retained earnings, but
excluding the interest rate derivatives.
Consistent with others in the industry, the Group monitors its capital by its
debt to equity ratio (gearing levels). This is calculated as the net debt
(loans less cash and cash equivalents) as a percentage of the equity
calculated as follows:
2019 £’000 2018 £’000
Total debt 45,449 59,904
Less cash and cash equivalents (13,533) (20,655)
Net debt 31,916 39,249
Total equity 49,133 55,686
65.0% 70.5%
The Group does not have any externally imposed capital requirements.
Following the introduction of IFRS 16 total debt now includes lease
liabilities.
Financial assets
The Group’s principal financial assets are bank balances and cash, trade and
other receivables, investments and assets held for sale. The Group has no
significant concentration of credit risk as exposure is spread over a large
number of counterparties and customers. The credit risk in liquid funds and
derivative financial instruments is limited because the counterparties are
banks with high credit ratings assigned by international credit–rating
agencies. The Group’s credit risk is primarily attributable to its trade
receivables. The amounts presented in the balance sheet are net of allowances
for doubtful receivables, estimated by the Group’s management based on prior
experience and the current economic environment.
Financial assets maturity
Cash and cash equivalents all have a maturity of less than three months.
2019 £’000 2018 £’000
Cash at bank and in hand 13,533 20,655
These funds are primarily invested in short term bank deposits maturing within
one year bearing interest at the bank’s variable rates.
Financial liabilities maturity
The following table sets out the maturity profile of contractual undiscounted
cashflows of financial liabilities as at 31 December:
Repayment of borrowings
2019 £’000 2018 £’000
Bank loans and overdrafts:
Repayable on demand or within one year 10,120 41,388
Repayable between two and five years 18,269 2,320
Repayable after five years 2,838 2,996
31,227 46,704
Debentures:
Repayable between two and five years 9,956 9,939
41,183 56,643
Certain borrowing agreements contain financial and other conditions that if
contravened by the Group, could alter the repayment profile.
22. Deferred tax liabilitIES
2019 £’000 2018 £’000
Balance at 1 January 2,305 3,848
Transferred (to)/from consolidated income statement (631) (1,375)
Exchange adjustment (20) (168)
Balance at 31 December 1,654 2,305
The deferred tax balance comprises the following:
Revaluation of properties 314 726
Accelerated capital allowances 2,810 2,166
Short-term timing differences (532) 139
Unredeemed capital deductions – (32)
Losses and other deductions (938) (694)
Deferred tax liability provision at end of year: 1,654 2,305
There is no time limit in respect of the Group tax loss relief.
In addition, the Group has unused losses and reliefs with a potential value of
£7,339,000 (2018: £6,310,000), which have not been recognised as a deferred
tax asset. As the Group returns to profit, these losses and reliefs can be
utilised.
23. Share capital
The Company has one class of ordinary shares which carry no right to fixed
income.
Number of ordinary 10p shares 2019 Number of ordinary 10p shares 2018 2019 £’000 2018 £’000
Authorised: ordinary shares of 10p each 110,000,000 110,000,000 11,000 11,000
Allotted, issued and fully paid share capital 85,542,711 85,542,711 8,554 8,554
Less: held in Treasury (see below) (218,197) (218,197) (22) (22)
“Issued share capital” for reporting purposes 85,324,514 85,324,514 8,532 8,532
Treasury shares
Number of ordinary 10p shares Cost /issue value
2019 2018 2019 £’000 2018 £’000
Shares held in Treasury at 1 January 218,197 221,061 144 145
Issued for share incentive plan - dividends investment (June 2018 - 30p) – (1,271) – –
Issued for share incentive plan - dividends investment (Dec 2018 - 26p) – (1,593) – (1)
Shares held in Treasury at 31 December 218,197 218,197 144 144
Share Option Schemes
Employees’ share option scheme (Approved scheme)
At 31 December 2019 there were no options to subscribe for ordinary shares
outstanding, issued under the terms of the Employees’ Share Option Scheme.
This share option scheme was approved by members in 1986, and has been
approved by Her Majesty’s Revenue and Customs (HMRC).
There are no performance criteria for the exercise of options under the
Approved scheme, as this was set up before such requirements were considered
to be necessary.
A summary of the shares allocated and options issued under the scheme up to 31
December 2019 is as follows:
Changes during the year
At 1 January 2019 Options Exercised Options granted Options lapsed At 31 December 2019
Shares issued to date 2,367,604 – – – 2,367,604
Shares allocated over which options have not been granted 1,549,955 – – – 1,549,955
Total shares allocated for issue to employees under the scheme 3,917,559 – – – 3,917,559
Non–approved Executive Share Option Scheme (Unapproved scheme)
A share option scheme known as the “Non–approved Executive Share Option
Scheme” which does not have HMRC approval was set up during 2000. At 31
December 2019 there were no options to subscribe for ordinary shares
outstanding.
The exercise of options under the Unapproved scheme is subject to the
satisfaction of objective performance conditions specified by the remuneration
committee which confirms to institutional shareholder guidelines and best
practice provisions.
A summary of the shares allocated and options issued under the scheme up to 31
December 2019 is as follows:
Changes during the year
At 1 January 2019 Options Exercised Options granted Options lapsed At 31 December 2019
Shares issued to date 450,000 – – – 450,000
Shares allocated over which options have not yet been granted 550,000 – – – 550,000
Total shares allocated for issue to employees under the scheme 1,000,000 – – – 1,000,000
The Bisichi PLC Unapproved Option Schemes
Details of the share option schemes in Bisichi are as follows:
Year of grant Subscription price per share Period within which options exercisable Number of shares for which options outstanding at 31 December 2018 Number of share options issued/exercised/ (cancelled) during year Number of shares for which options outstanding at 31 December 2019
2015 87.0p Sep 2015 – Sep 2025 300,000 – 300,000
2018 73.5p Feb 2018 - Feb 2028 380,000 – 380,000
The exercise of options under the Unapproved Share Option Schemes, for certain
option issues, is subject to the satisfaction of the objective performance
conditions specified by the remuneration committee, which will conform to
institutional shareholder guidelines and best practice provisions in force
from time to time.
There are no performance or service conditions attached to 2015 and 2018
options which are outstanding at 31 December 2019.
2019 Number 2019 Weighted average exercise price 2018 Number 2018 Weighted average exercise price
Outstanding at 1 January 680,000 79.5p 380,000 111.3p
Issued during year – – 380,000 73.5p
Lapsed/surrended during year – – (80,000) 205.5p
Outstanding at 31 December 680,000 79.5p 680,000 79.5p
Exercisable at 31 December 680,000 79.5p 680,000 79.5p
24. Non–controlling interest (“NCI”)
2019 £’000 2018 £’000
As at 1 January 12,309 10,856
Share of profit for the year 986 2,675
Dividends received (858) (957)
Shares issued – 8
Exchange movement (30) (273)
As at 31 December 12,407 12,309
The following subsidiaries had material NCI:
Bisichi PLC
Black Wattle Colliery (Pty) Ltd
Summarised financial information for these subsidiaries is set out below. The
information is before inter–company eliminations with other companies in the
Group.
BISICHI PLC 2019 £’000 2018 £’000
Revenue 48,274 49,945
Profit for the year attributable to owners of the parent 1,046 3,314
Profit/(loss) for the year attributable to NCI 549 729
Profit for the year 1,595 4,043
Other comprehensive income attributable to owners of the parent (42) (377)
Other comprehensive income attributable to NCI (7) (53)
Other comprehensive income for the year (49) (430)
Balance sheet
Non–current assets 22,885 23,118
Current assets 18,849 18,475
Total assets 41,734 41,593
Current liabilities (13,179) (16,929)
Non–current liabilities (7,998) (4,529)
Total liabilities (21,177) (21,458)
Net current assets at 31 December 20,557 20,135
Cash flows
From operating activities 4,305 4,767
From investing activities (3,730) (3,373)
From financing activities (3,411) 200
Net cash flows (2,836) 1,594
The non–controlling interest comprises of a 37.5% shareholding in Black
Wattle Colliery (Pty) Ltd, a coal mining company incorporated in South Africa.
Summarised financial information reflecting 100% of the underlying
subsidiary’s relevant figures, is set out below.
Black Wattle Colliery (Pty) Limited (“Black Wattle”) 2019 £’000 2018 £’000
Revenue 46,706 48,666
Expenses (43,040) (43,801)
Profit for the year 3,666 4,865
Total comprehensive income for the year 3,666 4,865
Non–current assets 9,480 8,532
Current assets 10,462 9,587
Current liabilities (12,087) (10,540)
Non–current liabilities (3,682) (3,800)
Net assets at 31 December 4,173 3,779
The non–controlling interest relates to the disposal of a 37.5% shareholding
in Black Wattle in 2010. The total issued share capital in Black Wattle
Colliery (Pty) Ltd was increased from 136 shares to 1,000 shares at par of
ZAR1 (South African Rand) through the following shares issue:
– a subscription for 489 ordinary shares at par by Bisichi Mining
(Exploration) Limited increasing the number of shares held from 136 ordinary
shares to a total of 625 ordinary shares;
– a subscription for 110 ordinary shares at par by Vunani Mining (Pty)
Ltd;
– a subscription for 265 “A” shares at par by Vunani Mining (Pty)
Ltd
Bisichi Mining (Exploration) Limited is a wholly owned subsidiary of Bisichi
PLC incorporated in England and Wales.
Vunani Mining (Pty) Ltd is a South African Black Economic Empowerment company
and minority shareholder in Black Wattle.
The “A” shares rank pari passu with the ordinary shares save that they
will have no dividend rights until such time as the dividends paid by Black
Wattle Colliery (Pty) Ltd on the ordinary shares subsequent to 30 October 2008
will equate to ZAR832,075,000.
A non–controlling interest of 15% in Black Wattle is recognised for all
profits distributable to the 110 ordinary shares held by Vunani Mining (Pty)
Ltd from the date of issue of the shares (18 October 2010). An additional
non–controlling interest will be recognised for all profits distributable to
the 265 “A” shares held by Vunani Mining (Pty) Ltd after such time as the
profits available for distribution, in Black Wattle Colliery (Pty) Ltd, before
any payment of dividends after 30 October 2008, exceeds ZAR832,075,000.
25. Related party transactions
Cost recharged to (by) related party £’000 Amounts owed by (to) related party £’000 Advanced to (by) related party £’000
Related party:
Simon Heller Charitable Trust
Current account (63) – –
Loan account – (700) –
Directors and key management
M A Heller and J A Heller 18 (i) 1 –
H D Goldring (Delmore Holdings Limited) (17) (ii) (7) –
C A Parritt (18) (ii) – –
R Priest (35) (ii) (9) –
Totals at 31 December 2019 (115) (715) –
Totals at 31 December 2018 (115) (707) –
Nature of costs recharged – (i) Property management fees (ii) Consultancy
fees.
Directors
London & Associated Properties PLC provides office premises, property
management, general management, accounting and administration services for a
number of private property companies in which Sir Michael Heller and J A
Heller have an interest. Under an agreement with Sir Michael Heller no charge
is made for these services on the basis that he reduces by an equivalent
amount the charge for his services to London & Associated Properties PLC. The
board estimates that the value of these services, if supplied to a third
party, would have been £300,000 for the year (2018: £300,000).
The companies for which services are provided are: Barmik Properties Limited,
Cawgate Limited, Clerewell Limited, Cloathgate Limited, Ken–Crav Investments
Limited, London & South Yorkshire Securities Limited, Metroc Limited, Penrith
Retail Limited, Shop.com Limited, South Yorkshire Property Trust Limited,
Wasdon Investments Limited, Wasdon (Dover) Limited, and Wasdon (Leeds)
Limited.
In addition the Company received management fees of £10,000 (2018: £10,000)
for work done for two charitable foundations, the Michael & Morven Heller
Charitable Foundation and the Simon Heller Charitable Trust.
The Simon Heller Trust has placed on deposit with LAP £700,000 at an interest
rate of 9% which is refundable on demand.
Delmore Holdings Limited (Delmore) is a Company in which H D Goldring is a
majority shareholder and director. Delmore provides consultancy services to
the Company on an invoiced fee basis.
R Priest provided consultancy services to the Company on an invoiced fee
basis.
In 2012 a loan was made by Bisichi to one of the Bisichi directors, Mr A R
Heller, for £116,000. Interest is payable on the Director’s Loan at a rate
of 6.14 per cent. There is no fixed repayment date for the Director’s Loan.
The loan amount outstanding at year end was £41,000 (2018: £41,000) and no
repayment (2018: £15,000) was made during the year.
The directors are considered to be the only key management personnel and their
remuneration including employer’s national insurance for the year was
£1,464,000 (2018: £1,838,000). All other disclosures required, including
interest in share options in respect of those directors, are included within
the remuneration report.
26. Employees
The average number of employees, including directors, of the Group during the
year was as follows:
2019 2018
Production 204 231
Administration 44 46
248 277
Staff costs during the year were as follows:
2019 £’000 2018 £’000
Salaries and other costs 8,741 8,994
Social security costs 386 494
Pension costs 487 377
Share based payments – 24
9,614 9,889
27. Capital Commitments
2019 £’000 2018 £’000
Commitments for capital expenditure approved and contracted at the year end – 751
All the above relates to Bisichi PLC.
28. LEASE rentals receivable
The Group leases out its investment properties to tenants giving them the
right to occupation and use of the properties in exchange for rental payments.
The future aggregate minimum rentals receivable under non–cancellable leases
are as follows:
2019 £’000 2018 £’000
2020 4,997 5,379
2021 4,247 4,847
2022 3,583 4,070
2023 2,854 3,493
2024 + 18,327 23,123
34,008 40,912
29. Contingent liabilities and events AFTER THE REPORTING PERIOD
There were no contingent liabilities at 31 December 2019 (2018: £Nil), except
as disclosed in Note 21.
COVID-19 and the subsequent lockdown of many of our tenants’ businesses will
have had a short and medium term effect on asset values as tenants’ ability
to meet their obligations to landlords has been affected in some cases. In the
longer term asset values may be affected if there is a more permanent
deterioration in our tenants’ trading due to a wider slowdown in the
economy. The Directors are unable to give guidance on how this might affect
asset values due to the level of uncertainty at this time. This is discussed
further in the COVID-19 update in the Strategic Report on page 8 and in the
Going Concern section of the Group Accounting Policies on page 42.
Bank guarantees have been issued by the bankers of Black Wattle Colliery (Pty)
Limited on behalf of the Company to third parties. The guarantees are secured
against the assets of the Company and have been issued in respect of the
following:
2019 £’000 2018 £’000
Rail siding & transportation 54 54
Rehabilitation of mining land 1,553 1,259
Water & electricity 52 52
1,659 1,365
The interpretation of laws and regulations in South Africa where Bisichi
operates can be complex and can lead to challenges from or disputes with
regulatory authorities. Such situations often take significant time to
resolve. Where there is a dispute and where a reliable estimate of the
potential liability cannot be made, or where Bisichi, based on legal advice,
considers that it is improbable that there will be an outflow of economic
resources, no provision is recognised.
Black Wattle Colliery (Pty) Ltd is currently involved in a tax dispute in
South Africa related to VAT. The dispute arose subsequent to the year end and
is related to events which occurred during and prior to the years ended 31
December 2019. As at 5 June 2020, Bisichi has been advised that it has a
strong legal case, that it has complied fully with the legislation and,
therefore, no economic outflow is expected to occur. Because of the nature and
complexity of the dispute, the possible financial effect of a negative
decision cannot be measured reliably. Accordingly, no provision has been
booked at the year end. At this stage, Bisichi believes that the dispute will
be resolved in its favour.
30. Company financial statements
Company balance sheet at 31 December 2019
Notes 2019 £’000 2018 £’000
Fixed assets
Tangible assets 30.3 23,341 23,872
Other investments:
Associated company – Bisichi Mining PLC 30.4 489 489
Subsidiaries and others including Dragon Retail Properties Limited 30.4 47,922 42,598
48,411 43,087
71,752 66,959
Current assets
Debtors 30.5 5,848 3,764
Bank balances 2,359 9,887
8,207 13,651
Creditors
Amounts falling due within one year 30.6 (44,043) (54,731)
Deferred tax falling due after more than one year (345) (744)
Net current liabilities (36,181) (41,823)
Total assets less current liabilities 35,571 25,136
Creditors
Amounts falling due after more than one year 30.7 (11,604) (10,918)
Net assets 23,967 14,217
Capital and reserves
Share capital 30.9 8,554 8,554
Share premium account 4,866 4,866
Capital redemption reserve 47 47
Treasury shares 30.9 (144) (144)
Retained earnings 10,644 894
Shareholders’ funds 23,967 14,217
The profit for the financial year, before dividends was £9,904,000 (2018:
loss of £6,805,000)
These financial statements were approved by the board of directors and
authorised for issue on 29 June 2020 and signed on its behalf by:
Sir Michael Heller Jonathan Mintz Company
Registration No. 341829
Director
Director
COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019
Share capital £’000 Share premium £’000 Capital redemption reserve £’000 Treasury shares £’000 Retained earnings excluding treasury shares £’000 Total equity £’000
Balance at 1 January 2018 8,554 4,866 47 (145) 7,955 21,277
Loss for the year – – – – (6,805) (6,805)
Total comprehensive expense – – – – (6,805) (6,805)
Transactions with owners:
Dividends – equity holders – – – – (256) (256)
Disposal of own shares – – – 1 – 1
Transactions with owners – – – 1 (256) (255)
Balance at 31 December 2018 8,554 4,866 47 (144) 894 14,217
Profit for the year – – – – 9,904 9,904
Total comprehensive income – – – – 9,904 9,904
Transaction with owners:
Dividends – equity holders – – – – (154) (154)
Transactions with owners – – – – (154) (154)
Balance at 31 December 2019 8,554 4,866 47 (144) 10,644 23,967
£11.3 million (2018: £0.2 million) of retained earnings (excluding treasury
shares) is distributable.
30.1. COMPANY
Accounting policies
The following are the main accounting policies of the Company:
Basis of preparation
The financial statements have been prepared on a going concern basis and in
accordance with Financial Reporting Standard 101 ’Reduced Disclosure
Framework’ (FRS 101) and Companies Act 2006. The financial statements are
prepared under the historical cost convention as modified to include the
revaluation of freehold and leasehold properties and fair value adjustments in
respect of current asset investments and interest rate hedges.
The results of the Company are included in the consolidated financial
statements. No profit or loss is presented by the Company as permitted by
Section 408 of the Companies Act 2006.
In these financial statements, the company has applied the exemptions
available under FRS 101 in respect of the following disclosures:
- Cash Flow Statement and related notes;
- Comparative period reconciliations for share capital, tangible fixed
assets and intangible assets;
- Disclosures in respect of transactions with wholly owned
subsidiaries;
- Disclosures in respect of capital management;
- The effects of new but not yet effective IFRSs;
- Disclosures in respect of the compensation of Key Management
Personnel.
As the consolidated financial statements include the equivalent disclosures,
the Company has also taken the exemptions under FRS 101 available in respect
of the following disclosures:
- IFRS 2 Share Based Payments in respect of Group settled share based
payments;
- The disclosures required by IFRS 7 and IFRS 13 regarding financial
instrument disclosures have not been provided apart from those which are
relevant for the financial instruments which are held at fair value and are
not either held as part of the trading portfolio or derivatives.
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 and
in the Group accounting policies.
Investments in subsidiaries, associated undertakings and joint ventures
Investments in subsidiaries, associated undertakings and joint ventures are
held at cost less accumulated impairment losses.
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. 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 fair value measurement of the investment properties may be
considered to be less judgemental where external valuers have been used as is
the case with the Company.
The following accounting policies are consistent with those of the Group and
are disclosed on page 42 to 48 of the Group financial statements.
- Revenue
- Property operating expenses
- Employee benefits
- Financial instruments
- Investment properties
- Other assets and depreciation
- Assets held for sale
- Income taxes
- Leases
30.2. RESULT for the financial year
The Company’s result for the year was a profit of £11,665,000 (2018: loss
of £6,805,000). In accordance with the exemption conferred by Section 408 of
the Companies Act 2006, the Company has not presented its own profit and loss
account.
30.3. Tangible assets
Investment Properties Office
Total £’000 Freehold £’000 Leasehold over 50 years £’000 Leasehold under 50 years £’000 equipment and motor vehicles £’000 Office Building £’000
Cost or valuation at 1 January 2019 24,112 13,970 9,540 256 346 –
IFRS 16 transition adjustment - right of use asset 1,054 – – – – 1,054
Additions in the year 63 62 – – 1 –
(Decrease)/increase in present value of head leases (1) – (1) – – –
(Decrease)/increase on revaluation (1,432) (382) (1,000) (50) – –
Cost or valuation at 31 December 2019 23,796 13,650 8,539 206 347 1,054
Representing assets stated at:
Valuation 22,395 13,650 8,539 206 – –
Cost 1,401 – – – 347 1,054
23,796 13,650 8,539 206 347 1,054
Depreciation at 1 January 2019 240 – – – 240 –
Charge for the year 215 – – – 4 211
Disposals – – – – – –
Depreciation at 31 December 2019 455 – – – 244 211
Net book value at 1 January 2019 23,872 13,970 9,540 256 106 –
Net book value at 31 December 2019 23,341 13,650 8,539 206 103 843
The freehold and leasehold properties, excluding the present value of head
leases and directors’ valuations, were valued as at 31 December 2019 by
professional firms of chartered surveyors. The valuations were made at fair
value. The directors’ property valuations were made at fair value.
2019 £’000 2018 £’000
Allsop LLP 20,050 21,120
Directors’ valuation 1,300 1,600
21,350 22,720
Add: Present value of headleases 1,045 1,046
22,395 23,766
The historical cost of investment properties was as follows:
Freehold £’000 Leasehold over 50 years £’000 Leasehold under 50 years £’000
Cost at 1 January 2019 10,228 9,333 785
Additions 62 – –
Cost at 31 December 2019 10,290 9,333 785
Head leases on investment property represent the value attributed to the right
of the Company to occupy and use investment property that has a head lease
interest. In the current year total cash outflow for head leases is £0.1
million (2018: £0.1 million). A number of these leases provide for payment of
contingent rent, usually a proportion of net rental income, in addition to
fixed rents.
Office building represents the value attributed under IFRS 16 to the right of
the Company to occupy its sole office building. In the current year total cash
outflow for the office lease liability is £0.2 million.
30.4. Other investments
Cost or valuation Total £’000 Shares in subsidiary companies £’000 Shares in joint ventures £’000 Shares in associate £’000
At 1 January 2019 43,087 42,434 164 489
Additions 8,533 8,533 – –
Impairment provision (3,209) (3,209) – –
At 31 December 2019 48,411 47,758 164 489
Subsidiary companies
Details of the Company’s subsidiaries are set out in Note 11. Under IFRS 10
Bisichi PLC and its subsidiaries, West Ealing Projects Limited and its
subsidiary and Dragon Retail Properties Limited are treated in the financial
statements as subsidiaries of the Company.
During the year the Company impaired its investment in the subsidiary
undertaking that held the Group’s interest in HRGT Shopping Centres LP by
£1,448,000. Disclosure of the impairment recognised in the consolidated
financial statements is included in Note 14. Other than this impairment, in
the opinion of the directors the value of the investment in subsidiaries is
not less than the amount shown in these financial statements.
During the year the Company impaired its investment in Orchard Square Limited
by £1,761,000, following a reduction in the carrying value of the Orchard
Square, Sheffield property.
30.5. Debtors
2019 £’000 2018 £’000
Trade debtors 352 351
Amounts due from associate and joint ventures 872 755
Amounts due from subsidiary companies 4,049 2,127
Other debtors 139 82
Prepayments and accrued income 436 449
5,848 3,764
30.6. Creditors: amounts falling due within one year
2019 £’000 2018 £’000
Amounts owed to subsidiary companies 40,223 50,874
Amounts owed to joint ventures 156 156
Other taxation and social security costs 267 200
Lease liabilities 258 66
Other creditors 1,393 1,442
Accruals and deferred income 1,746 1,993
44,043 54,731
30.7. Creditors: amounts falling due after more than one year
2019 £’000 2018 £’000
Present value of head leases on properties 979 979
Lease liabilities 669 –
Term Debenture stocks:
£10 million First Mortgage Debenture Stock 2022 at 8.109 per cent net of un-amortised issue costs 9,956 9,939
11,604 10,918
Details of terms and security of overdrafts, loans and loan renewal and
debentures are set out in note 18.
Repayment of borrowings: 2019 £’000 2018 £’000
Debentures:
Repayable within one year – –
Repayable between two and five years 9,956 9,939
Repayable in more than five years – –
9,956 9,939
2019 2018
Lease liabilities: Total £’000 Head leases on investment property 1 £’000 Office 2 £’000 Total £’000
Minimum lease payments fall due:
Within one year 306 66 240 66
Second to fifth year 986 266 720 266
After five years 8,000 8,000 – 8,066
9,292 8,332 960 8,398
Future finance charges on lease liabilities (7,386) (7,287) (99) (7,352)
Present value of lease liabilities 1,906 1,045 861 1,046
Present value of lease liabilities:
Within one year 258 66 192 66
Second to fifth year 916 247 669 247
After five years 732 732 – 733
1,906 1,045 861 1,046
Lease liabilities falling due after more than one year are £669,000 for the
office lease and £979,000 for head leases, totalling £1,648,000.
Lease liabilities are effectively secured as the rights to the leased asset
revert to the lessor in the event of default.
1 Many head leases on investment properties provide for contingent
rent in addition to the rents above, usually a proportion of rental income.
2 On adoption of IFRS 16 Leases (see note 1 for details), at 1
January 2019 a right-of-use asset (being the property occupied by the Company)
was recognised at a value of of £1,054,000, equal to the lease liability. The
value is presented within property, plant and equipment on the balance sheet.
The related lease liability of £1,054,000 is recognised as the present value
of the lease payments.
30.8. deferred tax LIABILITY
2019 £’000 2018 £’000
Deferred Taxation
Balance at 1 January (744) 2,059
Transfer to profit and loss account 399 (2,803)
Balance at 31 December (345) (744)
The deferred tax balance comprises the following:
Accelerated capital allowances (391) (795)
Short–term timing differences (181) (124)
Revaluation of investment properties 227 175
Deferred tax liability at year end (345) (744)
30.9. Share capital
Details of share capital, treasury shares and share options are set out in
Note 23.
30.10. Related party transactions
Cost recharged to (by) related party £’000 Amounts owed by (to) related party £’000 Advanced to (by) related party £’000
Related party:
Dragon Retail Properties Limited
Current account 44 (i) (156) –
Bisichi Mining PLC
Current account 200 (ii) 33 –
Simon Heller Charitable Trust
Current account (63) – –
Loan account – (700) –
Directors and key management
M A Heller and J A Heller 18 (i) 1 –
H D Goldring (Delmore Holdings Limited) (17) (iii) (7) –
C A Parritt (18) (iii) – –
R Priest (35) (iii) (9) –
Totals at 31 December 2019 129 (838) –
Totals at 31 December 2018 (29) (860) 2,000
Nature of costs recharged – (i) Management fees (ii) Property management
fees (iii) Consultancy fees
During the period, the Company entered into transactions, in the ordinary
course of business, with other related parties. The company has taken
advantage of the exemption under paragraph 8(k) of FRS101 not to disclose
transactions with wholly owned subsidiaries.
Dragon Retail Properties Limited – ‘Dragon’ is owned equally by the
Company and Bisichi PLC.
Bisichi PLC – The company has 41.52 per cent ownership of ‘Bisichi’.
Details of other related party transactions are given in note 25.
30.11. EMPLOYEES
The average weekly number of employees of the company during the year were as follows: 2019 2018
Directors & Administration 22 24
Staff costs during the year were as follows: 2019 £’000 2018 £’000
Salaries 1,490 2,184
Social Security costs 163 263
Pension costs 178 107
1,831 2,554
30.12. Capital commitments
There were no capital commitments at 31 December 2019 (2018: £Nil).
30.13. FUTURE AGGREGATE MINIMUM RENTALS RECEIVABLE
The Company leases out its investment properties to tenants under operating
leases. The future aggregate minimum rentals receivable under
non–cancellable operating leases are as follows:
2019 £’000 2018 £’000
2020 1,524 1,637
2021 1,155 1,442
2022 896 996
2023 666 807
2024 + 1,680 2,355
5,921 7,237
30.14. Contingent liabilities and post balance sheet events
There were no contingent liabilities at 31 December 2019 (2018: £Nil).
COVID-19 and the subsequent lockdown of many of our tenants’ businesses will
have had a short and medium term effect on asset values as tenants’ ability
to meet their obligations to landlords has been affected in some cases. In the
longer term asset values may be affected if there is a more permanent
deterioration in our tenants’ trading due to a wider slowdown in the
economy. The Directors are unable to give guidance on how this might affect
asset values due to the level of uncertainty at this time.
Five year financial summary
2019 £M 2018 £M 2017 £M 2016 £M 2015 £M
Portfolio size
Investment properties–LAP^ 31 32 62 89 89
Investment properties–joint ventures - – – – 19
Investment properties–Dragon Retail Properties 2 2 3 3 3
Investment properties–Bisichi ^ 12 13 13 13 13
Assets held for sale-LAP - 2 36 - 2
Inventories-LAP 27 39 - - -
72 88 114 105 126
Portfolio activity £M £M £M £M £M
Acquisitions 0.14 6.55 – – 1.00
Disposals (12.59) (36.44) – – (0.40)
Capital Expenditure 0.41 6.26 – 0.16 0.36
0.14 (23.63) – 0.16 0.96
Consolidated income statement £M £M £M £M £M
Group income 63.97 56.65 47.87 31.81 34.61
Profit/(loss) before tax (4.54) 1.27 11.28 (0.97) (2.09)
Taxation (0.95) (0.68) (2.98) (1.18) 0.04
Profit/(loss) attributable to shareholders (6.48) (2.08) 7.69 (2.36) (1.90)
(Loss)/earnings per share – basic and diluted (7.59)p (2.44)p 9.01p (2.77)p (2.24)p
Dividend per share 0.00p 0.18p 0.300p 0.165p 0.160p
Consolidated balance sheet £M £M £M £M £M
Shareholders’ funds attributable to equity shareholders 36.73 43.38 45.86 38.24 40.08
Net borrowings, excluding lease obligations 27.65 35.99 58.42 62.22 62.39
Net assets per share – basic 43.04p 50.83p 53.74p 44.83p 47.26p
– fully diluted 43.04p 50.83p 53.74p 44.83p 47.26p
Consolidated cash flow statement £M £M £M £M £M
Cash generated from operations 14.89 1.92 10.29 5.59 4.37
Capital investment and financial investment (1.61) 20.78 (1.80) (0.18) (2.77)
Notes:
^ Excluding the present value of head leases
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