REG - Palace Capital PLC - Final Results <Origin Href="QuoteRef">PCA.L</Origin> - Part 3
06/06/2016 07:05
- Part 3: For the preceding part double click ID:nRSF2361Ab
disposal profits/losses for the financial
year. This target will measure the compound growth in EPS over the three year
period ending 31 March 2017.
Total shareholder return (TSR) measures the total shareholder return (price
rise plus dividends) over the period from 21 October 2013 to 31 March 2017.
The base price being £2.00 per share which was the placing price on that day.
Average annual TSR (compounded) over the TSR performance period Vesting % Average annual EPS growth (compounded) over the EPS performance period Vesting %
<20% 0 <15% 0
Equal to 20% 33.33 Equal to 15% 50
Equal to 25% 66.66 Equal to 30% 100
Equal to 30% 100
For the TSR measure, the achievement of between 25 per cent and 30 per cent
compound growth will result in the number of Ordinary shares vesting to be
calculated on a straight line basis between 66.66 per cent and 100 per cent.
A similar rule will apply between 20% and 25% and for the EPS condition
between 15% and 30%.
LTIP 2015
The options are awarded to management on achievements against target on two
separate measures over the three financial years ending 30 September 2018.
Half the options will be awarded based on the first target and half based on
the achievement of the second.
Net asset value per share (NAV) growth: is based on the Company's EPRA NAV
value per share as at 30 September 2018 adding back dividends per share paid
during the period. This target will measure the compound growth in NAV over
the three-year period ending 30 September 2018. The base price being £4.04
per share which was the value at the 30 September 2015.
Total shareholder return (TSR) measures the total shareholder return (price
rise plus dividends) over the period from 1 October 2015 to 30 September 2018.
The base price being £3.70 per share which was the market price at the grant
date.
Average annual TSR (compounded) over the TSR performance period Vesting % Average annual NAV growth (compounded) over the EPS performance period Vesting %
<8% 0 <8% 0
Equal to 8% 33.33 Equal to 8% 33.33
Equal to 13% 100.00 Equal to 13% 100
For the TSR measure, the achievement of between 8 per cent and 13 per cent
compound growth will result in the number of Ordinary shares vesting to be
calculated on a straight line basis between 33.33 per cent and 100 per cent.
A similar rule will apply for the NAV condition between 8% and 13%.
The fair value of grants was measured at the grant date using a Black-Scholes
pricing model, taking into account the terms and conditions upon which the
instruments were granted. The services received and a liability to pay for
those services are recognised over the expected vesting period. The main
assumptions of the Black-Scholes pricing model are as follows:
Grant date 8.12.15
Exercise price 0p
Term 3 years
Expected volatility 25%
Expected dividend yield 4%
Risk free rate 1%
Expected forfeiture p.a. 0%
For the portion of the options subject to market conditions (TSR measure), it
has been assessed that there was a likelihood of 50% the options vesting.
The fair value of the options granted was £1.65 for the TSR tranche and £3.30
for the NAV tranche.
The expense recognised for employee services received during the period is
shown in the following table:
2016 2015
£'000 £'000
Palace Capital No 1 share option scheme - 5
LTIP 2014 77 109
LTIP 2015 33 -
Total expense arising from share-based payment transactions 110 114
114
23 RELATED PARTY TRANSACTIONS
Accounting services amounting to £75,633 (2015: £56,057) have been provided to
the Group by Stanley Davis Group Limited, a company where Stanley Davis is a
director.
24 CAPITAL COMMITMENTS
The obligation for capital expenditure relating to the construction,
development or enhancement of investment properties entered into by the Group
at 31 March 2016 amounted to £1,435,985 (2015 £nil).
25 POST BALANCE SHEET EVENT
There have been no post balance sheet events that would require disclosure or
adjustment to these financial statements.
26 Financial RISK MANAGEMENT
The Group's principal financial liabilities are loans and borrowings. The main
purpose of the Group's loans and borrowings is to finance the acquisition and
development of the Group's property portfolio. The Group has rent and other
receivables, trade and other payables and cash and short-term deposits that
arise directly from its operations.
All financial assets are classified as loans and receivables and all financial
liabilities are measured at amortised cost.
The Group is exposed to market risk (including interest rate risk and real
estate risk), credit risk and liquidity risk.
The Group's senior management oversee the management of these risks, and the
Board of Directors has overall responsibility for the determination of the
Group's risk management objectives and policies and it sets policies that seek
to reduce risk as far as possible without unduly affecting the Group's
competitiveness and flexibility. Further details regarding these policies are
set out below:
Capital risk management
The Group considers its capital to comprise its share capital, share premium,
other reserves and retained earnings which amounted to £106,815,113 at 31
March 2016 (2015: £80,015,514). The Group's capital management objectives are
to safeguard the entity's ability to continue as a going concern, so that it
can continue to provide returns for shareholders and benefits for other
stakeholders and to provide an adequate return to shareholders by pricing its
services commensurately with the level of risk.
Within the subsidiaries of the Group, the business has covenanted to maintain
a specified leverage ratio and a net interest expense coverage ratio, all the
terms of which have been adhered to during the year.
The Group manages its capital structure, and makes adjustments to it, in the
light of changes in economic conditions. To maintain or adjust the capital
structure, the Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares.
Significant Accounting Policies
Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
income and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instrument are disclosed at the
beginning of the notes to these financial statements.
Foreign currency risk
The Group has minimal exposure to the differing types of foreign currency
risk. It has no foreign currency denominated monetary assets or liabilities
and does not make sales or purchases from overseas countries.
Interest rate risk
The interest rate exposure profile of the Group's financial assets and
liabilities as at 31 March 2016 and 31 March 2015 were:
Nil rateassets and liabilities Floatingrate assets Fixed rate liability Floating rate liability Total
£'000 £'000 £ '000 £'000 £'000
As at 31 March 2016
Trade and other receivables 2,521 - - - 2,521
Cash and cash equivalents - 8,576 - - 8,576
Trade and other payables (2,512) - - - (2,512)
Bank borrowings - - - (71,944) (71,944)
Obligation under finance leases - - (2,067) - (2,067)
9 8,576 (2,067) (71,944) (65,426)
Nil rateassets and liabilities Floatingrate assets Fixed rate liability Floating rate liability Total
£'000 £'000 £'000 £'000 £'000
As at 31 March 2015
Trade and other receivables 2,875 - - - 2,875
Cash and cash equivalents - 12,278 - - 12,278
Trade and other payables (658) - - - (658)
Bank borrowings - - - (35,806) (35,806)
Obligation under finance leases - - (1,214) - (1,214)
2,217 12,278 (1,214) (35,806) (22,525)
(1,214)
(35,806)
(22,525)
The Group is exposed to changes in interest rates as a result of the cash
balances that it holds. The cash balances of the Group at the year end were
around £8m (2015: £12m). The income statement would be affected by £80,000
(2015: £120,000) by a reasonably possible one percentage point change in
floating interest rates on a full year basis.
The Group has loans amounting to £72,678,000 (2015: £36,205,461) which have
interest payable at rates linked to the 3 month Libor interest rates or bank
base rates. A 1% increase in the Libor or base rate will have the effect of
increasing interest payable by £726,780 (2015: £362,055).
The Group is therefore relatively sensitive to changes in interest rates. The
directors regularly review its position with regard to interest rates in order
to minimise the Group's risk.
Credit risk management
Credit risk refers to the risk that a counter-party will default on its
contractual obligations resulting in financial loss to the Group.
The Group has its cash held on deposit with four large banks in the United
Kingdom. At 31 March 2016 the concentration of credit risk held with Barclays
Bank plc, the largest of these banks, was £7,138,979 (2015: £12,075,426).
Credit risk on liquid funds is limited because the counterparty is a UK bank
with a high credit rating assigned by international credit rating agencies.
Credit risk also results from the possibility of a tenant in the Group's
property portfolio defaulting on a lease. The largest lease amounts to 4.2%
(2015: 7.0%) of the Group's anticipated income. The directors assess a
tenants' credit worthiness prior to granting leases and employ professional
firms of property management consultants to manage the portfolio to ensure
that tenants debts are collected promptly and the directors in conjunction
with the property managers take appropriate actions when payment is not made
on time.
The carrying amount of financial assets (excluding cash balances) recorded in
the financial statements, net of any allowances for losses, represents the
Group's maximum exposure to credit risk without taking account of the value of
any collateral obtained. The carrying amount of these assets at 31 March 2016
was £2,521,000 (2015: £2,874,983). The details of the provision for
impairment are shown in note 15.
Liquidity risk management
The Group's policy is to hold cash and obtain loan facilities at a level
sufficient to ensure that the Group has available funds to meet its medium
term capital and funding obligations, including organic growth and acquisition
activities, and to meet certain unforeseen obligations and opportunities. The
Group holds cash to enable the Group to manage its liquidity risk.
The Group monitors its risk to a shortage of funds using a monthly cash
management process. This process considers the maturity of both the Group's
financial investments and financial assets (e.g. accounts receivable, other
financial assets) and projected cash flows from operations.
The Group's objective is to maintain a balance between continuity of funding
and flexibility through the use of multiple sources of funding including bank
loans, term loans, loan notes, overdrafts and finance leases.
The table below summarises the maturity profile of the Group's financial
liabilities based on contractual undiscounted payments:
On demand 0 - 1 years 1 to 2 years 2 to 5 years > 5 years Total
£'000 £'000 £ '000 £ '000 £'000 £'000
As at 31 March 2016
Interest bearing loans - 4,529 19,967 57,234 - 80,730
Finance leases - 130 130 386 12,831 13,477
Trade and other payables 2,521 - - - - 2,521
2,521 4,659 20,097 57,620 12,831 96,728
On demand 0 - 1 years 1 to 2 years 2 to 5 years > 5 years Total
£'000 £'000 £'000 £'000 £'000 £'000
As at 31 March 2015
Interest bearing loans - 1,696 20,961 16,974 - 39,631
Finance leases - 87 87 261 8,023 8,458
Trade and other payables 658 - - - - 658
658 1,783 21,048 17,235 8,023 48,747
21,048
17,235
8,023
48,747
Derivative financial instruments
The Group does not currently use derivative financial instruments as hedging
is not considered necessary. Should the Group identify a requirement for the
future use of such financial instruments, a comprehensive set of policies and
systems, as approved by the Directors, will be implemented.
In accordance with IAS 39, "Financial instruments: recognition and
measurement", the Group has reviewed all contracts for embedded derivatives
that are required to be separately accounted for if they do not meet specific
requirements set out in the standard. No material embedded derivatives have
been identified.
Fair value measurements
Set out below is a comparison by class of the carrying amounts and fair value
of the Group's financial instruments that are carried in the financial
statements:
Carrying amount Fair value
2016 2015 2016 2015
£'000 £'000 £'000 £'000
Financial assets
Trade and other receivables 2,521 2,875 2,521 2,875
Cash and cash equivalents 8,576 12,278 8,576 12,278
11,097 15,153 11,097 15,153
Current financial liabilities
Trade payables 638 242 638 242
Other payables 67 21 67 21
Accruals 1,807 394 1,807 394
Borrowings - bank loans 71,944 35,806 71,944 35,806
Obligations under finance leases 2,067 1,214 2,067 1,214
76,523 37,677 76,523 37,677
37,677
76,523
37,677
The directors consider that the fair value of the Group's financial
instruments are not materially different to their carrying value. This view
was formed on the basis that, as indicated in note 18 of the financial
statements, the bank loans and the loan notes attracted a variable rate of
interest and that the cash deposits, and trade payables and receivables, are
short term in nature. Consequently, in accordance with paragraph 29(a) of
IFRS 7, no fair value information has been disclosed and the information in
paragraph 97 of IFRS 13 is not required.
This information is provided by RNS
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