REG - Workspace Grp PLC - Half Year Results <Origin Href="QuoteRef">WKP.L</Origin> - Part 2
08/11/2017 07:46
- Part 2: For the preceding part double click ID:nRSH8502Va
- (0.2)
Total taxation charge - - 0.1
The Group is a Real Estate Investment Trust (REIT). The Group's UK property
rental business (both income and capital gains) is exempt from tax. The
Group's other income is subject to corporation tax. No tax charge has arisen
on this other income for the half year (31 March 2017: £0.1m, 30 September
2016: £nil).
5. Dividends
Ordinary dividends paid Payment date Per share 6 months ended 30 September 2017£m 6 months ended 30 September 2016£m Year ended 31 March 2017£m
For the year ended 31 March 2016:
Final dividend August 2016 10.19p - 16.5 16.5
For the year ended 31 March 2017:
Interim dividend February 2017 6.80p - - 11.2
Final dividend August 2017 14.27p 23.2 - -
Dividends for the period 23.2 16.5 27.7
Timing difference on payment of withholding tax (1.3) (0.7) (0.3)
Dividends cash paid 21.9 15.8 27.4
In addition the Directors are proposing an interim dividend in respect of the
financial year ending 31 March 2018 of 8.84 pence per ordinary share which
will absorb an estimated £14.5m of revenue reserves and cash. The dividend
will be paid on 6 February 2018 to shareholders who are on the register of
members on 12 January 2018. The dividend will be paid as a REIT Property
Income Distribution (PID) net of withholding tax where appropriate.
6. Earnings per share
Earnings used for calculating earnings per share: 6 months ended 30 September 2017£m 6 months ended 30 September 2016£m Year ended 31 March 2017£m
Basic and diluted earnings 123.7 7.1 88.7
Change in fair value of investment properties (71.2) 14.6 (39.5)
(Profit)/loss on disposal of investment properties (22.9) 0.1 0.6
Loss on disposal of joint ventures - 0.1 0.2
Group's share of EPRA adjustments of joint ventures - (0.1) -
EPRA adjusted earnings 29.6 21.8 50.0
Adjustment for non-trading items:
Group's share of joint ventures other expenses - 0.3 0.1
Other income (note 2(c)) (0.2) (1.1) (2.1)
Exceptional finance cost - 1.4 1.4
Other expense (note 2(c)) - 1.2 1.2
Taxation - - 0.1
Adjusted underlying earnings 29.4 23.6 50.7
Earnings have been adjusted and calculated on a diluted basis to derive an
earnings per share measure as defined by the European Public Real Estate
Association (EPRA) and an underlying earnings measure. Adjusted underlying
earnings represents trading profits after interest, including trading profits
of joint ventures.
Number of shares used for calculating earnings per share: 6 months ended 30 September 2017 6 months ended 30 September 2016 Year ended 31 March 2017
Weighted average number of shares (excluding own shares held in trust) 163,351,276 162,598,961 162,833,428
Dilution due to share option schemes 1,233,148 1,576,312 2,892,100
Weighted average number of shares for diluted earnings per share 164,584,424 164,175,273 165,725,528
In pence: 6 months ended30 September 2017 6 months ended30 September 2016 Year ended 31 March 2017
Basic earnings per share 75.7p 4.4p 54.5p
Diluted earnings per share 75.1p 4.3p 53.5p
EPRA earnings per share1 18.0p 13.0p 30.2p
Adjusted underlying earnings per share1 17.9p 14.4p 30.6p
1. EPRA earnings per share and adjusted underlying earnings per share are
calculated on a diluted basis.
7. Net assets per share
Net assets used for calculating net assets per share: 30 September 2017 £m 31 March 2017£m 30 September 2016£m
Net assets at end of period (basic) 1,679.9 1,578.5 1,513.7
Derivative financial instruments at fair value (8.2) (12.1) (11.2)
EPRA net assets 1,671.7 1,566.4 1,502.5
Number of shares used for calculating net assets per share: 30 September 2017 31 March2017 30September2016
Shares in issue at year-end 163,800,867 163,199,045 163,195,611
Less own shares held in trust at period-end (163,874) (118,274) (122,362)
Number of shares for calculating basic net assets per share 163,636,993 163,080,771 163,073,249
Dilution due to share option schemes 1,145,053 1,227,537 1,197,807
Number of shares for calculating diluted adjusted net assets per share 164,782,046 164,308,308 164,271,056
30 September 2017 31 March 2017 30 September 2016
EPRA net assets per share £10.14 £9.53 £9.15
Basic net assets per share £10.27 £9.68 £9.28
Net assets have been adjusted and calculated on a diluted basis to derive a
net asset per share measure as defined by EPRA.
8. Investment Properties
30 September 2017£m 31 March 2017£m 30 September 2016£m
Balance at 1 April 1,839.0 1,749.4 1,749.4
Purchase of investment properties 268.0 - -
Acquisition of head lease 9.1 - -
Capital expenditure 34.5 57.1 29.4
Capitalised interest on refurbishments (note 3) 0.6 1.5 0.6
Disposals during the period (70.9) (8.5) -
Change in fair value of investment properties 71.2 39.5 (14.6)
Balance at end of period 2,151.5 1,839.0 1,764.8
Less: reclassified as held for sale (25.6) - -
Total investment properties 2,125.9 1,839.0 1,764.8
Investment properties represent a single class of property being business
accommodation for rent in London.
During the period the Group acquired two properties, The Salisbury and 13-17
Fitzroy Street for a combined £268m.
Capitalised interest is included at a rate of capitalisation of 4.4% (March
2017: 5.2%). The total amount of capitalised interest included in investment
properties is £8.8m (March 2017: £8.2m).
The change in fair value of investment properties is recognised in the
Consolidated income statement.
Valuation
The Group's investment properties are held at fair value and were revalued at
30 September 2017 by the external valuer, CBRE Limited, a firm of independent
qualified valuers in accordance with the Royal Institution of Chartered
Surveyors Valuation - Professional Standards 2014. All the properties are
revalued at period end regardless of the date of acquisition. This includes a
physical inspection of all properties, at least once a year. In line with IFRS
13, all investment properties are valued on the basis of their highest and
best use. For like-for-like properties their current use equates to the
highest and best use. For properties undergoing refurbishment or
redevelopment, most of these are currently being used for business
accommodation in their current state. However, the valuation is based on the
current valuation at the balance sheet date including the impact of the
potential refurbishment and redevelopment as this represents the highest and
best use.
The Executive Committee and the Board both conduct a detailed review of each
property valuation to ensure appropriate assumptions have been applied.
Meetings are held with the valuers to review and challenge the valuations,
ensuring they have considered all relevant information, and rigorous reviews
are performed to ensure valuations are sensible.
The valuation of like-for-like properties (which are not subject to
refurbishment or redevelopment) is based on the income capitalisation method
which applies market-based yields to the Estimated Rental Values (ERVs) of
each of the properties. Yields are based on current market expectations
depending on the location and use of the property. ERVs are based on estimated
rental potential considering current rental streams, market comparatives,
occupancy and timing of rent reviews. Whilst there is market evidence for
these inputs and recent transaction prices for similar properties, there is
still a significant element of estimation and judgement. As a result of
adjustments made to market observable data, the significant inputs are deemed
unobservable under IFRS 13.
When valuing properties being refurbished by Workspace, the residual value
method is used. The completed value of the refurbishment is determined as for
like-for-like properties above. Capital expenditure required to complete the
building is then deducted and a discount factor is applied to reflect the time
period to complete construction and allowance made for construction and market
risk to arrive at the residual value of the property.
The discount factor used is the property yield that is also applied to the
Estimated Rental Value to determine the value of the completed building. Other
risks such as unexpected time delays relating to planned capital expenditure
are assessed on a project-by-project basis, looking at market comparable data
where possible and the complexity of the proposed scheme.
Redevelopment properties are also valued using the residual value method. The
completed proposed redevelopment which would be undertaken by a residential
developer is valued based on the market value for similar sites and then
adjusted for costs to complete, developer's profit margin and a time discount
factor. Allowance is also made for planning and construction risk depending on
the stage of the redevelopment. If a contract is agreed for the
sale/redevelopment of the site, the property is valued based on agreed
consideration.
For all methods the valuers are provided with information on tenure, letting,
town planning and the repair of the buildings and sites.
An increase/decrease to ERVs will increase/decrease valuations respectively,
while an increase/decrease to yields will decrease/increase valuations
respectively. There are interrelationships between these inputs as they are
partially determined by market conditions.
An increase/decrease in costs to complete and the discount factor will
decrease/increase valuations respectively.
The reconciliation of the valuation report total to the amount shown in the
Consolidated balance sheet as non-current assets, investment properties, is as
follows:
30 September 2017£m 31 March 2017£m 30 September 2016£m
Total per CBRE valuation report 2,138.9 1,844.0 1,779.8
Deferred consideration on sale of property (3.4) (12.1) (22.2)
Head leases treated as finance leases under IAS 17 16.1 7.1 7.1
Less reclassified as held for sale (25.6) - -
Total investment properties per balance sheet 2,125.9 1,839.0 1,764.8
The Group's Investment properties are carried at fair value and under IFRS 13
are required to be analysed by level depending on the valuation method
adopted. The different valuation methods are as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets
or liabilities that the entity can access at the measurement date.
Level 2 - Use of a model with inputs (other than quoted prices included in
Level 1) that are directly or indirectly observable market data.
Level 3 - Use of a model with inputs that are not based on observable
market data.
Property valuations are complex and involve data which is not publicly
available and involves a degree of judgement. All the investment properties
are classified as Level 3, due to the fact that one or more significant inputs
to the valuation are not based on observable market data. If the degree of
subjectivity or nature of the measurement inputs changes then there could be a
transfer between Levels 2 and 3 of classification. No changes requiring a
transfer have occurred during the current or previous year.
The following table summarises the valuation techniques and inputs used in the
determination of the property valuation at 30 September 2017.
Key unobservable inputs:
ERVs - per sq. ft. Equivalent yields
Property category Valuation£m Valuationtechnique Range Weighted average Range Weighted average
Like-for-like 1,093.7 1 £12 - £85 £38 5.0% - 7.5% 6.5%
Completed projects 282.8 1 £27 - £60 £47 5.2% - 7.1% 6.8%
Refurbishments 282.4 2 £16 - £75 £41 5.5% - 6.8% 5.8%
Redevelopments 203.4 2 £15 - £35 £24 5.2% - 7.0% 6.2%
Other 273.1 1 £25 - £72 £64 4.3% - 6.4% 5.6%
Head leases 16.1 n/a
Total 2,151.5
Less classified as held for sale (25.6)
Total per balance sheet 2,125.9
1 = Income capitalisation method.
2 = Residual value method.
9. Investment in joint ventures
The Group's investment in joint ventures represents:
30 September 2017£m 31 March 2017£m 30 September 2016 £m
Balance at 1 April 0.3 22.3 22.3
Capital distributions received† - (2.7) (2.7)
Share of gains - 0.1 0.1
Income distributions received† - (0.6) (0.8)
Disposal of joint ventures (note 2(b)) - (18.9) (18.8)
Realisation of profits on sale of properties out of joint ventures (note 2(a)) - 0.1 0.1
Balance at end of period 0.3 0.3 0.2
† Capital distributions were from proceeds on disposal of investment
properties. Income distributions were from trading profits.
The Group had the following joint venture during the period:
Partner Established Ownership MeasurementMethod
Generate Studio Limited Whitebox Creative Limited February 2014 50% Equity
Generate Studio Limited is engaged in the design and project management of
office fit outs and workplace consultancy both for Group properties and third
parties.
The Group has no funding commitments relating to its joint venture.
10. Trade and other receivables
Non-current trade and other receivables 30 September 2017£m 31 March 2017£m 30 September 2016£m
Prepayments and accrued income - 3.0 -
Deferred consideration on sale of investment properties 3.4 4.3 6.4
3.4 7.3 6.4
Deferred consideration on sale of investment properties: 30 September 2017£m 31 March 2017£m 30 September 2016 £m
Balance at 1 April 4.3 7.0 7.0
Additions 0.5 0.2 -
Cash settlements (1.6) (1.9) -
Change in fair value (note 2(c)) 0.2 (1.0) (0.6)
Balance at end of period 3.4 4.3 6.4
The deferred consideration arising on the sale of investment properties
relates to cash and overage. It has been fair valued by CBRE Limited on the
basis of residual value, using appropriate discount rates, and will be
revalued on a regular basis. This is a Level 3 valuation of a financial asset,
as defined by IFRS 13. The change in fair value recorded in the Consolidated
income statement was a profit of £0.2m (31 March 2017: loss of £0.5m, 30
September 2016: loss of £1.3m) (note 2(c)).
Trade receivables 4.8 3.5 4.4
Less provision for impairment of receivables (0.5) (0.3) (0.3)
Trade receivables - net 4.3 3.2 4.1
Prepayments and accrued income 13.6 14.2 8.5
Deferred consideration on sale of investment properties - 7.8 15.8
17.9 25.2 28.4
15.8
17.9
25.2
28.4
Receivables at fair value:
Included within deferred consideration (both non-current and current) on sale
of investment properties is £0.9m (March 2017: £9.4m, September 2016: £19.3m)
of overage or cash which is held at fair value through profit and loss. For
September 2017, the Group believes the amount is receivable after the
following 12 months and has therefore been classified as non current
receivables.
Receivables at amortised cost:
The remaining receivables are held at amortised cost. There is no material
difference between the above amounts and their fair values due to the
short-term nature of the receivables. Trade receivables are impaired when
there is evidence that the amounts may not be collectable under the original
terms of the receivable. All the Group's trade and other receivables are
denominated in Sterling.
11. Cash and cash equivalents
Cash at bank and in hand 17.7 2.7 3.0
Restricted cash - tenants' deposit deeds 4.0 3.8 3.5
21.7 6.5 6.5
21.7
6.5
6.5
Tenants' deposit deeds represent returnable cash security deposits received
from tenants and are ring-fenced under the terms of the individual lease
contracts.
12. Trade and other payables
30 September 2017£m 31 March 2017£m 30 September2016£m
Trade payables 5.8 4.6 5.0
Other tax and social security payable 4.8 2.0 3.2
Corporation tax payable - 0.3 -
Tenants' deposit deeds (note 14) 4.0 3.8 3.5
Tenants' deposits 18.6 18.0 17.1
Accrued expenses 25.5 20.2 18.1
Deferred income - rent and service charges 7.2 3.3 3.5
65.9 52.2 50.4
There is no material difference between the above amounts and their fair
values due to the short-term nature of the payables.
13. Borrowings
(a) Balances
30 September 2017£m 31 March 2017£m 30 September 2016£m
Non-current
Bank loans (unsecured) 22.5 28.4 29.2
6% Retail Bond (unsecured) 57.2 57.1 57.0
5.6% Senior US Dollar Notes 2023 (unsecured) 75.4 80.1 72.3
5.53% Senior Notes 2023 (unsecured) 83.8 83.8 83.8
Senior Floating Rate Notes 2020 (unsecured) 9.0 9.0 9.0
3.07% Senior Notes (unsecured) 79.6 - -
3.19% Senior Notes (unsecured) 119.6 - -
Finance lease obligations 16.1 7.1 7.1
463.2 265.5 258.4
(b) Net Debt
30 September 2017£m 31 March 2017£m 30 September 2016£m
Borrowings per (a) above 463.2 265.5 258.4
Adjust for:
Finance leases (16.1) (7.1) (7.1)
Cost of raising finance 3.9 2.3 2.7
Foreign exchange differences (11.0) (15.7) (8.0)
440.0 245.0 246.0
Cash at bank and in hand (note 14) (17.7) (2.7) (3.0)
Net Debt 422.3 242.3 243.0
At 30 September 2017, the Group had £225m (31 March 2017: £120m) of undrawn
bank facilities and £17.7m of unrestricted cash (31 March 2017: £2.7m).
(c) Maturity
Unaudited 30 September 2017£m Audited 31 March 2017£m Unaudited 30 September 2016£m
Repayable between two and three years 57.5 57.5 -
Repayable between three years and four years 9.0 9.0 57.5
Repayable between four years and five years 25.0 30.0 -
Repayable in five years or more 348.5 148.5 188.5
440.0 245.0 246.0
Cost of raising finance (3.9) (2.3) (2.7)
Foreign exchange differences 11.0 15.7 8.0
447.1 258.4 251.3
Finance leases
Repayable in five years or more 16.1 7.1 7.1
463.2 265.5 258.4
(d) Interest rate and repayment profile
Principal atperiod end £m Interest rate Interest payable Repayable
Current
Bank overdraft due within one year or on demand (£2m facility) - Base +2.25% Variable On demand
Non-current
Private Placement Notes:
5.6% Senior US Dollar Notes 64.5 5.6% Half Yearly June 2023
5.53% Senior Notes 84.0 5.53% Half Yearly June 2023
Senior Floating Rate Notes 9.0 LIBOR +3.5% Half Yearly June 2020
3.07% Senior Notes 80.0 3.07% Half Yearly August 2025
3.19% Senior Notes 120.0 3.19% Half Yearly August 2027
Revolver loan 25.0 LIBOR +1.65% Monthly June 2022
6% Retail Bond 57.5 6.0% Half Yearly October 2019
440.0
In June 2017, the Group extended its revolver loan term by twelve months
taking the maturity date to June 2022. In August 2017, the Group raised £200m
of new funds via a Private Placement to finance the acquisition of Salisbury
House.
(e) Derivative financial instruments
The following derivative financial instruments are held:
Cash flow hedge - cross currency swap $100m/£64.5m 5.66% June 2023
Cash flow hedge - cross currency swap
$100m/£64.5m
5.66%
June 2023
The above instrument represents a cross currency swap to ensure the US Dollar
liability streams generated from the US Dollar Notes are fully hedged into
Sterling for the life of the transaction. Through entering into the cross
currency swap the Group has created a synthetic Sterling fixed rate liability
totalling £64.5m. This swap has been designated as a cash flow hedge with
changes in fair value dealt with in other comprehensive income.
(f) Financial instruments and fair values
Unaudited30 September 2017Book Value£m Fair Value £m Audited 31 March 2017Book Value£m Fair Value£m Unaudited 30 September 2016 Book Value £m Fair Value £m
Financial liabilities held at amortised cost
Bank loans 22.5 25.0 28.4 28.4 29.2 29.2
6% Retail Bond 57.2 61.3 57.1 61.7 57.0 61.7
Private Placement Notes 367.4 388.5 172.9 172.9 165.1 165.1
Finance lease obligations 16.1 16.1 7.1 7.1 7.1 7.1
463.2 490.9 265.5 270.1 258.4 263.1
Financial (assets)/liabilities at fair value through other comprehensive income
Derivative financial instruments:
Cash flow hedge - derivatives used for hedging (8.2) (8.2) (12.1) (12.1) (11.2) (11.2)
(8.2) (8.2) (12.1) (12.1) (11.2) (11.2)
Financial assets at fair value through profit or loss
Deferred consideration 0.9 0.9 9.4 9.4 19.3 19.3
The fair value of the Retail Bond has been established from the quoted market
price at 30 September 2017 and is thus a Level 1 valuation as defined by IFRS
13.
In accordance with IFRS 13 disclosure is required for financial instruments
that are carried in the financial statements at fair value. The fair values of
all the Group's financial derivatives have been determined by reference to
market prices and discounted expected cash flows at prevailing interest rates
and are Level 2 valuations. There have been no transfers between levels in the
year.
The different levels of valuation hierarchy as defined by IFRS 13 are set out
in note 8.
The total change in fair value of derivative financial instruments recorded in
other comprehensive income was a £0.6m profit (March 2017: loss of £2.2m,
September 2016: profit of £4.6m).
14. Notes to cash flow statement
Reconciliation of profit for the year to cash generated from operations:
6 months ended 30 September 2017£m 6 months ended 30 September 2016£m Year ended 31 March 2017£m
Profit before tax 123.7 7.1 88.8
Depreciation 0.6 0.3 0.9
Amortisation of intangibles 0.1 0.1 0.2
Loss/(profit) on disposal of investment properties (22.9) 0.2 0.6
Loss on disposal of joint ventures - - 0.2
Other income (0.2) 2.4 (2.1)
Other expense - - 1.2
Net gain from change in fair value of investment property (71.2) 14.6 (39.5)
Equity settled share based payments 0.7 0.8 1.9
Finance income - - (0.1)
Finance expense 8.7 7.4 13.7
Exceptional finance cost - 1.4 1.4
Gains from share in joint ventures - (0.1) (0.1)
Changes in working capital:
Increase in trade and other receivables (8.0) (7.3) (2.2)
Increase in trade and other payables 9.7 3.3 4.8
Cash generated from operations 41.2 30.2 69.7
For the purposes of the cash flow statement, cash and cash equivalents
comprise the following:
30 September 2017 £m 31 March 2017 £m 30 September 2016£m
Cash at bank and in hand 17.7 2.7 3.0
Restricted cash - tenants' deposit deeds 4.0 3.8 3.5
21.7 6.5 6.5
15. Capital commitments
At the period end the estimated amounts of contractual commitments for future
capital expenditure not provided for were:
Unaudited 30 September 2017 £m Audited 31 March 2017£m Unaudited 30 September 2016£m
Construction or refurbishment of investment properties 55.4 31.6 27.6
Purchase of investment properties - 9.5 -
16. Related party transactions
Transactions for the period ending: Unaudited 30 September 2017 £m Audited 31 March 2017£m Unaudited 30 September 2016£m
Capital distributions received from joint ventures - 2.7 2.7
Fee income and recharges to joint venturesFee income and recharges from joint ventures -- 0.4(1.4) 0.4(1.4)
Income distributions from joint ventures - 0.6 0.6
17. Post balance sheet events
In September 2017, the Group exchanged contracts for the sale of Stratford
Office Village for £14.0m with completion of the sale on 2 November 2017. As
such this has been classified as an asset held for sale at the balance sheet
date.
The Group also received proceeds of £13.0m for the sale of Arches Business
Centre on 2 November 2017 which exchanged for sale in October 2016. This
property was also classified as an asset held for sale at 30 September 2017.
Responsibility statement of the directors in respect of the half-yearly
financial report
We confirm that to the best of our knowledge:
• the condensed set of financial statements has been prepared in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU;
• the interim management report includes a fair review of the information
required by:
(a) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an
indication of important events that have occurred during the first six months
of the financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and uncertainties for the
remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being
related party transactions that have taken place in the first six months of
the current financial year and that have materially affected the financial
position or performance of the entity during that period; and any changes in
the related party transactions described in the last annual report that could
do so.
The Directors of Workspace Group PLC are listed in the Workspace Group PLC
Annual Report and Accounts for 31 March 2017. A list of current Directors is
maintained on the Workspace Group website: www.workspace.co.uk.
Approved by the Board on 7 November 2017 and signed on its behalf by
J Hopkins
G Clemett
Directors
INDEPENDENT REVIEW REPORT TO WORKSPACE GROUP PLC
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 30
September 2017 which comprises the Consolidated Income Statement, Consolidated
Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated
Statement of Changes in Equity, Consolidated Statement of Cash Flows and the
related explanatory notes.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 September 2017 is not prepared,
in all material respects, in accordance with IAS 34 Interim Financial
Reporting as adopted by the EU and the Disclosure Guidance and Transparency
Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA").
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures.
We read the other information contained in the half-yearly financial report
and consider whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and consequently does not enable
us to obtain assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been
approved by, the directors. The directors are responsible for preparing the
half-yearly financial report in accordance with the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards as
adopted by the EU. The directors are responsible for preparing the condensed
set of financial statements included in the half-yearly financial report in
accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the half-yearly financial report based on our
review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the DTR of the
UK FCA. Our review has been undertaken so that we might state to the Company
those matters we are required to state to it in this 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 for our review work, for this
report, or for the conclusions we have reached.
Richard Kelly
for and on behalf of KPMG LLP
Chartered Accountants
15 Canada Square
London
E14 5GL
7 November 2017
Principal Risks and uncertainties
The Board continuously assesses and monitors the key risks of the business.
The key risks that could affect the Group's medium-term performance and the
factors which mitigate these risks, have not materially changed from those set
out in the Group's Annual Report and Accounts 2017 and have been assessed in
line with the requirements of the 2014 UK Corporate Governance Code. They are
reproduced below. The Board is satisfied that we continue to operate within
our risk profile.
Risk area Description Mitigating activities
Financing Reduced availability of financing options resulting in inability to meet business plans or satisfy liabilities. · Inability to fund business plans· Restricted ability to invest in new opportunities· Increased interest costs.· Negative reputational impact amongst lenders and in the investment community · We regularly review funding requirements for business plans and ensure we have a wide range of options to fund our forthcoming plans. We also prepare a five-year
business plan which is reviewed and updated annually.· We have a broad range of funding relationships in place and regularly review our refinancing strategy· We
maintain a specific interest rate profile via use of fixed rates and swaps on our loan facilities so that our interest payment profile is stable
Valuation Value of our properties declining as a result of external market or internal management factors · Covenants (Loan to Value)· Impact on share price · Market-related valuation risk is largely dependent on external factors which we cannot influence. However, we continue to do the following to ensure we are aware
of any market changes, and are generating the maximum value from our portfolio:· Monitor the investment market mood· Monitor market yields and pricing of property
transactions across the London market· Alternative use opportunities pursued across the portfolio and continue to drive progress made in achieving planning consent
for mixed-use development schemes
Customer Demand for our accommodation declining as a result of social, economic or competitive factors. · Fall in occupancy levels at our properties· Falling rent roll and property valuation · Every week the Executive Committee meet with Senior Management to monitor occupancy levels, pricing, demand levels and reasons for customers vacating. This ensures
we react quickly to changes in any of these indicators· Our extensive marketing programme ensures that we are in control of our own customer leads and pipeline of
deals. We also utilise social media, backed up by a busy events programme which has further helped us to engage with customers. This differentiates us as we provide not
only space but also an opportunity to network with other businesses based in our portfolio· We stress test our business plans to assess the sensitivity we could
tolerate if demand from our customers reduced
Development Impact on underlying income and capital performance. · Failure to deliver expected returns on developments· Cost over runs· Delayed delivery of key projects· Poor reputation amongst contractors and customers if projects are delayed. · For every potential development scheme we work hard to gain a thorough understanding of the planning environment and ensure we seek counsel from appropriate
advisers· We undertake a detailed development analysis and appraisal prior to commencing a development scheme. Appraisals are presented for Investment Committee
approval and sign-off is required for every project· The Investment Committee reviews progress on refurbishments and redevelopments every fortnight, against project
timings and cost budgets both during and after the completion of a project
London Changes in the political, infrastructure and environmental dynamics of London lead to reduced demand from our customers. · Impact on demand for space if London adversely affected by a major incident · Having been based within the London market for a number of years, we know our markets and areas well· We regularly monitor the London economy and commission
research reports. We also hold regular meetings with the GLA and the councils in the London boroughs in which we operate to ensure that we are aware of any changes coming
through ahead of time
Investment Under performance due to inappropriate strategy on acquisitions and disposals. · Poor timing of disposals· Poor timing of acquisitions· Failure to achieve expected returns· Negative reputational impact amongst investors and sell-side analysts. · We undertake regular monitoring of asset performance and positioning of our portfolio with periodic detailed portfolio reviews· For each new acquisition we
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