Unaudited preliminary annual results
28 May 2015
Palace Capital plc
("Palace Capital" or the "Company")
Unaudited preliminary results for the year ended 31 March 2015
Palace Capital, the property investment company that focuses on commercial property outside London, today announces its unaudited preliminary results for the year ended 31 March 2015.
Highlights
· Adjusted profit before tax of £4.6 million (14 months to 31 March 2014: £1.4 million)
· Completion of third portfolio acquisition - Property Investment Holdings (PIH) - for £32 million
· PIH acquisition supported by a £20 million equity fundraising
· Two transactions post period end:
o acquisition of Bank House, Leeds for £10 million, funded from cash
o conditional acquisition of Sol Central, Northampton for £20.7 million, supported by a £20 million equity fundraising
Property Valuation
· The valuation of the Company's portfolio increased to £102.75 million at 31 March 2015 (prior to the acquisitions of Bank House and Sol Central)
· Net Asset Value per share 396p (31 March 2014: 357p)
Asset Management
· Significant progress made on reducing irrecoverable outgoings
· Permitted development for residential conversion at Hudson House, York
· Fraser House, Staines let within 3 months of acquisition
· Milton Keynes - new 12 year lease to Rockwell Automation
Financing
· Bank borrowings of £36.2 million, representing a loan to value of 35.2%
Dividend
· Final dividend of 7p proposed, ahead of forecast, making a total dividend of 13p for the year
Stanley Davis, the Chairman of Palace Capital said:
"Palace Capital has made excellent progress with its growth strategy this year. We completed our third portfolio acquisition during the period, which grew our property portfolio to nearly £103 million. Post year end we have continued this growth with two major acquisitions totalling more than £30 million, including today's announced conditional acquisition of Sol Central in Northampton."
"This has been a very busy year for Palace Capital. The management team continues to manage the growing portfolio actively to improve potential rental income and capital values, and there are opportunities to add significant value at many of our properties.
"It is an exciting time for the Company, which has come a long way in such a short space of time. After the year end we welcomed Stephen Silvester as our Finance Director, and saw a positive outcome from the General Election for the property sector. The outlook remains very promising, and I look forward to updating our shareholders on future progress."
For further information contact:
Palace Capital plc
Stanley Davis, Non-executive Chairman
Neil Sinclair, Chief Executive
Tel. +44 (0)20 3301 8331
Allenby Capital Limited (Nominated Adviser and Joint Broker)
Nick Naylor / James Reeve
Tel. +44 (0)20 3328 5656
Arden Partners plc (Joint Broker)
Chris Hardie / Ciaran Walsh
Tel. +44 (0)207 614 5917
Broker Profile (Financial PR)
Simon Courtenay / Harry Rippon Tel. +44 (0)20 7448 3244
CHAIRMAN'S STATEMENT
I am delighted to report the Company's unaudited results for the year ended 31 March 2015. We have made excellent progress through the year and the results show that the Company had made a profit before tax of £4.6 million (14 months ended 31 March 2014: £1.4 million) after stripping out increases from revaluations, realised gains and acquisition costs. Other highlights include:
- the valuation of the Company's portfolio increased to £102.75 million at 31 March 2015 (prior to the acquisition of Bank House, Leeds, for £10.0 million on 1 April 2015);
- bank borrowings at 31 March 2015 of £36.2 million, representing a loan to value of 35.2 per cent;
- NAV per Ordinary Share increased to 396 pence (31 March 2014: 357 pence);
- total revenue for the year of £8.6 million (14 months ended 31 March 2014: £3.25 million); and
- a proposed final dividend of 7.0 pence per share, ahead of forecast, making a total dividend of 13.0 pence for the year.
Acquisition activity during the year
The Company continued with its growth strategy during the year. The particular acquisition highlight during the year was the acquisition of Property Investment Holdings Ltd ("PIH") in August 2014. This was a heavily indebted company which owned seventeen commercial properties (two of which were vacant at the time of acquisition) that were valued in August 2014 at £32.0 million. The Company concluded the acquisition for £3.6 million, payable in new ordinary shares, and arranged to repay £28.0 million of PIH's bank loans and interest rate swaps. PIH's portfolio was producing a gross income of £2.5 million per annum. Given the largely South East location of the property assets, the Board felt this was an appropriate purchase price.
After seven months of ownership the Board remains convinced that significant value can be created from the PIH assets in both the short and medium-term. The Company's management team are now busy in applying our style of active property management to deliver this value for our shareholders.
In March 2015, we exchanged contracts to purchase Bank House in Leeds. This is an 88,000 sq ft building in a premier location and only two minutes from Leeds Railway Station. The purchase price was £10.0 million and the property currently produces a net rent of £860,000 per annum, from tenants such as the Bank of England, Walker Morris and AXA. We have instructed letting agents to market the 8,800 sq ft of vacant space. Bank House was an opportunistic purchase with considerable long-term potential. The transaction was completed one day after the Company's year-end.
Existing portfolio activity
The Company's portfolio currently consists of fifty properties, with a total floor space of 1.5 million sq ft and an occupancy rate of 90.6% by lettable space.
This has been a very busy year for Palace Capital and the Company has made encouraging progress with a number of the properties in its portfolio. Our particular skill lies in taking properties that have early lease expirations, termination clauses or are vacant and making them more secure investments. Through management actions we have sought to improve the potential rental income and the capital values, as well as reducing the liabilities from empty business rates. Set out below is an update on the progress on some of the properties which the Company are managing actively.
1) Hudson House, York
The Company is making steady progress on this 103,000 sq ft office building adjacent to York Railway Station. We are confident that we are close to reaching agreement with the City of York Council regarding the mix of a major refurbishment, comprising Grade A offices and residential use, for which we believe there is considerable demand in York and we are due to submit a planning application shortly. We continue to be very positive as to the potential of this property which is in a first class location, in a vibrant and growing city.
2) The Copperfields Centre, Dartford, Kent
In the Company's last interim results statement we confirmed that we had secured Permitted Development at the property for nine residential units. We have now submitted a revised application for fourteen residential units and a decision is expected shortly from Dartford Council.
3) 2-3, Pitfield Fairways, Milton Keynes
The refurbishment of these two office buildings was completed and new leases granted to Rockwell Automation for twelve years from December 2014, with provision for upward only rent reviews every four years at a total rental income of just under £400,000 per annum. An increase of £2.5 million in the Nationwide Building Society facility was secured following this refurbishment work.
4) 124-126, Above Bar Street, Southampton
Our professional team is progressing with the City Council to submit an early planning application for a new building for retail/restaurant on the ground floor and residential above. It is intended that this area of Southampton becomes the new cultural quarter.
5) Ovest House, West Street, Brighton
The refurbishment of this property in the centre of Brighton has now been completed. The vacant office floor has now been put on the market at a much higher rental than is currently being earned from tenants in the rest of the building.
6) Fraser House, Staines
This refurbished office building adjoining Staines Railway Station had been vacant since July 2013. The team let the property within three months of its acquisition as part of the PIH portfolio. It was let to Tornier UK Ltd for a term of ten years, with a tenant's option to break at the fifth year, at a rental of £155,000 per annum commencing in July of this year. This was valued on acquisition at £1,070,000 and has been updated as at 31 March 2015 to £1,950,000.
7) Unit 1, Clayton Manor, Burgess Hill
This 16,100 sq ft warehouse/office building has been empty since June 2013, fourteen months before we acquired PIH. It was valued on purchase at £690,000 and was updated at our year end to £1,090,000. We exchanged contracts in January of this year to sell the freehold for £1,250,000, subject to planning consent being granted to use the premises for builders' merchants. This planning consent was granted on 15 May 2015 so the contract has become unconditional and we are due to complete in mid June 2015.
8) Whittle House, Coventry
The lease on this 17,800 sq ft office building was terminated on 1 August 2014. However, the outgoing tenant refurbished the building to a high standard under a Schedule of Dilapidations and paid a 6 month rent penalty. This property is now available to let and we have considerable interest.
9) Allen House, Stockport
The Company is currently in dispute with a tenant who claims to have exercised a break clause. The Company, supported by counsel's opinion, are resisting the tenant's claim and are confident of a satisfactory outcome.
10) Property Sales
In the last six months, the Company has sold three small properties (under £0.5 million each), with one property sold post year-end, leading to a small reduction in projected revenue for the current year. We anticipate this will be replaced once lettings, including Whittle House, Coventry are achieved. Progress is also expected on other lettings during the year.
The management team continues to manage the growing portfolio actively and there is the opportunity to add significant value at many of the Company's properties. The Board will advise shareholders with further news when appropriate.
Borrowings
The Company has modest levels of borrowing (including finance leases of £0.8 million), which totalled £37.0 million at 31 March 2015. Based on the revaluation of our properties at 31 March 2015 of £102.75 million, the Board believes the Company has a very comfortable level of net gearing of 30.9 per cent and a loan to value of 35.2 per cent.
Cash in hand of £12.3 million at 31 March 2015 was reduced by the acquisition of Bank House, Leeds, for £10.0 million plus costs after the year-end.
On 11 May 2015, the Company announced that it had secured a £4.5 million loan facility for a term of four years from Lloyds Bank to be charged against Bank House, Leeds.
The acquisition of the Sequel Portfolio in October 2013 was part financed by a £20.0 million bank loan from the Nationwide Building Society. Since October 2013 the Company has repaid a net £0.4 million of this bank loan and the remaining balance of £19.6 million is due to be repaid in October 2016. The loan to value on the Sequel Portfolio is 30.4% and the Company is in preliminary discussions with the Nationwide Building Society to refinance the bank loan and allow part of the security contained in the Sequel Portfolio to be released. Further announcements will be made at the appropriate time.
In addition to the bank loans secured on Bank House and the Sequel portfolio, the Company currently has a bank loan of £1.2 million secured on the Hockenhull portfolio (the Company's properties in Cheshire) and £15.4 million secured on the PIH portfolio.
Portfolio valuation
At 31 March 2015 the Company's properties have been revalued at £102.75 million against an effective cost of circa £75.0 million. The valuation does not include Bank House, Leeds, which was bought for £10.0 million on 1 April 2015.
Dividend
In the Company's Admission Document dated 2 October 2013 the Board stated its intention to recommend a dividend of 12.0 pence per share, split equally between interim and final, in respect of the period ending 31 March 2015. We paid an interim dividend of 6.0 pence per share on 30 December 2014. We are pleased to announce that we will be increasing the dividend and the Company intends to recommend payment of a final dividend of 7.0 pence per share on 31 July 2015 to those shareholders on the register as at 10 July 2015.
The Board intends to continue a progressive dividend policy as the business develops.
Management team and administration
As the Company grows we are continuing to attract talented people to join the team. I am delighted that after the year end, we announced that Stephen Silvester will be joining Palace Capital as Finance Director in July 2015. He has a first class background and experience in the sector and I am sure he will make a significant contribution to the development of the Company.
The growth in the number of properties managed by the company together with the high activity levels across the portfolio has been supported by investment in the company infrastructure, with the establishment of the company's own office. Administration costs for the year were £1.4 million which included circa £0.1 million of LTIP charges, reflecting the very strong share price performance during the year.
Conditional acquisition and fund raising
The Company is today announcing the conditional acquisition of O&H Northampton Limited which owns Sol Central, a 13 year old 190,000 sq ft mixed use leisure scheme in central Northampton near the Railway Station. Current tenants include an Ibis Hotel, Vue Cinemas, two gymnasiums and a two storey car park.
The price being paid is based on a value of £20.7 million and a net rental income of £1.89 million per annum. This is an off-market strategic acquisition for us in a growing town where considerable development is taking place.
In order to facilitate this transaction we have conditionally raised £20 million through a placing of ordinary shares (the "Placing Shares") with institutional and other investors at a price of £3.60 per share and have negotiated a five year loan of £11.385 million from Santander UK at 2.25% over Libor. The net initial yield is 8.86%, and the Weighted Average Unexpired Lease Term is 13.7 years to expiry, 13.5 years to breaks. The Placing Shares will not rank for the final dividend of 7.0 pence, announced by the Company today.
We continue to seek further acquisition opportunities which satisfy our criteria and have the potential to produce a return that we can recommend to our shareholders.
Future prospects
The result of the last General Election must be considered as being positive for the business community generally and the property sector in particular. In the Company's case, we focus on the UK regions and the incoming administration has made it very clear that they are keen to see growth in the areas in which we operate, particularly in the North of England.
The Board considers the appointment of a high calibre banker and economist to oversee the proposed Northern Powerhouse as positive, and it reaffirms our decision to focus our activities away from London. We see greater opportunity for value enhancement in the regions.
The Board believes the outlook for Palace remains favourable and looks forward to the future with confidence.
Conclusion
The Company has come a long way in such a short space of time. Palace Capital has a very strong management team and supportive shareholders. I would like to thank the Palace Capital staff and my fellow directors for all of their hard work throughout the year. We are an exciting Company and I relish our future prospects. I look forward to reporting on future progress and the value that we are able to create for all of our shareholders.
PRINCIPAL ACTIVITIES
The principal activity of the Company is to invest in entities operating within the property sector. Through its subsidiary undertakings, Signal Property Investments LLP, Property Investment Holdings Limited and Hockenhull Estates Limited, the Group has made a number of investments in the property arena. Palace Capital plc is quoted on the AIM market of the London Stock Exchange.
KEY PERFORMANCE INDICATORS (KPI)
The directors have identified rent receivable, investment property asset value, bank loans to investment property asset value and gearing as major KPIs of the Group.
Rent receivable for the year was £8,636,658 (14 months ended 31 March 2014: £3,251,818).
The investment property value at 31 March 2015 was £102,988,276 (2014: £59,440,168).
Bank loans to investment property asset value at 31 March 2015 was 35.2% (2014: 31.8%) (note 24).
The NAV to debt (Gearing) at 31 March 2015 was 30.9% (2014: 33.1%) (note 24).
PRINCIPAL RISKS AND UNCERTAINTIES
Set out below are certain risk factors which could have an impact on the Group's long term performance. The factors discussed below should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties facing the Group.
Property valuations
The valuation of all property assets includes assumptions regarding income expectations and yields that investors would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes, could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions this reappraisal can lead to a reduction in property values and a loss in net asset value, amplified by the effect of gearing.
Tenant risk
As a result of adverse conditions in the wider economy, a restriction of the availability of credit for consumers and businesses could lead to lower levels of consumer spending, a higher level of business failures and difficulties for new ventures in raising start-up capital. This could adversely affect the financial viability of the Group's tenants, potentially leading to higher levels of vacancies and declines in rental values. The directors employ professional firms of property management consultants to manage the portfolio to ensure vacancies are kept to a minimum.
Interest rate risk
The Group is exposed to significant cash flow interest rate risk on borrowings and cash balances held at variable rates, resulting in variable interest cash flows. 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.
Liquidity risk
The Directors consider that the key financial risk is liquidity risk. This is the risk of the company not being able to continue to operate as a going concern. The Directors' consideration of the Going Concern Basis is contained on page 20 of the Annual Report.
On behalf of the board
Stanley Davis
Chairman
28 May 2015
UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2015
|
|
Note |
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
|
£ |
£ |
|
|
|
|
|
|
Revenue |
1 |
8,636,658 |
3,251,818 |
|
|
|
|
|
|
Cost of sales |
5b |
(1,199,840) |
(648,181) |
|
|
|
|
|
|
Gross profit |
|
7,436,818 |
2,603,637 |
|
|
|
|
|
|
Administrative expenses |
5c |
(1,438,691) |
(648,790) |
|
Costs of acquisition |
|
(638,668) |
(516,569) |
|
Gains on revaluation of investment property portfolios |
|
9,768,719 |
19,500,531 |
|
Profit on disposal of investment properties |
|
177,698 |
786,616 |
|
|
|
|
|
|
Operating profit |
|
15,305,876 |
21,725,425 |
|
|
|
|
|
|
Other interest receivable and similar income |
3 |
18,348 |
20,519 |
|
|
|
|
|
|
Finance costs |
4 |
(1,415,977) |
(593,200) |
|
|
|
|
|
|
Profit before taxation |
|
13,908,247 |
21,152,744 |
|
|
|
|
|
|
Tax credit on profit on ordinary activities |
7 |
106,559 |
81,141 |
|
|
|
|
|
|
Profit after taxation for the year Attributable to equity holders of the parent |
|
14,014,806 |
21,233,885 |
|
|
|
|
|
|
Other comprehensive income for the year |
|
- |
- |
|
|
|
|
|
|
Total comprehensive income for the year |
|
14,014,806 |
21,233,885 |
|
|
|
|
|
|
Attributable to: |
|
|
|
|
Equity holders of the parent |
|
14,014,806 |
21,233,885 |
|
|
|
|
|
|
EARNINGS PER SHARE Basic |
8 |
82.4p |
431.6p |
|
Diluted |
|
80.1p |
403.4p |
|
|
|
|
|
|
Adjusted Earnings Per share (Diluted) |
8 |
26.9p |
27.8p |
UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 March 2015
|
|
Note |
2015 |
2014 |
|
|
|
£ |
£ |
|
Non-current assets |
|
|
|
|
Goodwill |
10 |
5,910 |
5,910 |
|
Investment properties |
12 |
102,988,276 |
59,440,168 |
|
Tangible fixed assets |
13 |
51,401 |
205 |
|
Deferred tax |
7 |
500,000 |
100,000 |
|
Trade and other receivables |
14 |
924,077 |
539,995 |
|
|
|
104,469,664 |
60,086,278 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Trade and other receivables |
14 |
3,374,657 |
1,936,795 |
|
Cash at bank and in hand |
15 |
12,278,537 |
5,123,337 |
|
|
|
15,653,194 |
7,060,132 |
|
|
|
|
|
|
Total Assets |
|
120,122,858 |
67,146,410 |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
(3,087,310) |
(2,971,423) |
|
Borrowings |
17 |
(400,000) |
(1,199,959) |
|
Creditors: amounts falling due within one year |
16 |
(3,487,310) |
(4,171,382) |
|
|
|
|
|
|
Net current assets |
|
12,165,884 |
2,888,750 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Borrowings |
17 |
(35,406,501) |
(17,384,179) |
|
Obligations under finance leases |
18 |
(1,213,533) |
(1,215,055) |
|
|
|
|
|
|
Net assets |
|
80,015,514 |
44,375,794 |
|
|
|
|
|
|
|
|
|
|
|
Capital and reserves |
|
|
|
|
Called up share capital |
19 |
2,306,911 |
1,528,438 |
|
Share premium account |
|
44,355,480 |
21,856,482 |
|
Capital redemption reserve |
|
65,000 |
65,000 |
|
Convertible loan notes - equity |
|
- |
27,934 |
|
Share based payments |
|
142,647 |
75,000 |
|
Retained earnings |
|
33,145,476 |
20,822,940 |
|
Equity - attributable to the owners of the parent |
|
80,015,514 |
44,375,794 |
|
|
|
|
|
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2015
|
|
Share Capital |
Share Premium |
Share based payments |
Capital redemption reserve |
Convertible loan notes equity |
Retained earnings |
Total equity |
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
At 31 January 2013
|
315,938 |
110,395 |
13,333 |
- |
27,934 |
(345,945) |
121,655 |
|
Profit for the period |
- |
- |
- |
- |
- |
21,233,885 |
21,233,885 |
|
Total comprehensive income |
- |
- |
- |
- |
- |
21,233,885 |
21,233,885 |
|
Issue of ordinary share capital net of expenses |
1,212,500 |
21,796,087 |
- |
- |
- |
- |
23,008,587 |
|
Warrants issued on raising of share capital |
- |
(50,000) |
50,000 |
- |
- |
- |
- |
|
Share based payments |
- |
- |
11,667 |
|
- |
- |
11,667 |
|
Redemption of preference share capital |
- |
- |
- |
65,000 |
- |
(65,000) |
- |
|
At 31 March 2014
|
1,528,438 |
21,856,482 |
75,000 |
65,000 |
27,934 |
20,822,940 |
44,375,794 |
|
Profit for the period |
- |
- |
- |
- |
- |
14,014,806 |
14,014,806 |
|
Total comprehensive income |
- |
- |
- |
- |
- |
14,014,806 |
14,014,806 |
|
|
|
|
|
|
|
|
|
|
Issue of ordinary share capital net of expenses |
778,473 |
22,498,998 |
- |
- |
- |
- |
23,277,471 |
|
Share based payments |
- |
- |
113,817 |
- |
- |
- |
113,817 |
|
Dividends |
- |
- |
- |
- |
- |
(1,766,374) |
(1,766,374) |
|
Transfer on exercise of warrants |
- |
- |
(46,170) |
- |
- |
46,170 |
- |
|
Transfer on repayment of loan |
- |
- |
- |
- |
(27,934) |
27,934 |
- |
|
|
|
|
|
|
|
|
|
|
At 31 March 2015 |
2,306,911 |
44,355,480 |
142,647 |
65,000 |
- |
33,145,476 |
80,015,514 |
For the purpose of preparing the consolidated financial statement of the Group, the share capital represents the nominal value of the issued share capital of Palace Capital plc.
Share premium represents the excess over nominal value of the fair value consideration received for equity shares net of expenses of the share issue amounting to £795,684 (2014 £1,241,413).
Share based payments reserve comprises the grant date fair value of options and performance share rights recognised as an expense. Upon exercise of options or performance share rights, any proceeds received are credited to share capital. The share-based payment reserve remains as a separate component of equity, until the options are exercised or lapse when the relevant balance is transferred to retained earnings.
The convertible loan note equity reserve represents the difference between the proceeds from issuing the convertible loan notes and the fair value assigned to the liability component at the date of issue.
The capital redemption reserve represents the value of preference shares capital redeemed.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 March 2015
|
|
Note |
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
|
|
£ |
£ |
|
|
|
|
|
|
|
|
OPERATING ACTIVITIES Net cash generated in operations |
2 |
4,388,142 |
1,297,372 |
|
|
|
|
|
|
|
|
Interest received |
|
18,348 |
20,519 |
|
|
Interest and other finance charges paid |
|
(1,610,946) |
(410,775) |
|
|
Corporation tax paid in respect of operating activities |
|
(14,556) |
(13,250) |
|
|
Net cash flows from operating activities |
|
2,780,988 |
893,866 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
Payments to acquire subsidiary undertaking |
11 |
- |
(1) |
|
|
Purchase of investment property |
12 |
(2,812,740) |
(750,000) |
|
|
Deposit paid on purchase of investment property |
26 |
(1,000,000) |
- |
|
|
Proceeds from disposal of investment property |
|
952,148 |
3,282,147 |
|
|
Purchases of fixed assets |
13 |
(61,075) |
- |
|
|
Net cash flow (used in)/from investing activities |
|
(2,921,667) |
2,532,146 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
Other loans repaid |
17 |
(300,000) |
(550,000) |
|
|
Bank loans repaid |
17 |
(28,800,137) |
(20,716,126) |
|
|
Proceeds from new bank loans |
17 |
18,500,000 |
- |
|
|
Issue of new share capital |
|
19,663,644 |
23,008,587 |
|
|
Redemption of Preference shares |
|
- |
(65,000) |
|
|
Dividends paid |
23 |
(1,766,374) |
(18,124) |
|
|
Capital element of finance lease rental payments |
|
(1,522) |
(708) |
|
|
Net cash flow from financing activities |
|
7,295,611 |
1,658,629 |
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS |
|
7,154,932 |
5,084,641 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the year |
|
5,123,337 |
38,696 |
|
|
Cash acquired |
|
268 |
- |
|
|
Cash and cash equivalents at the end of the year |
|
12,278,537 |
5,123,337 |
|
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 March 2015
BASIS OF ACCOUNTING
These non-statutory financial statements are for Palace Capital Plc ("the Company") and its subsidiary undertakings.
The financial information set out above does not constitute the Company's statutory accounts for the years ended 2015 or 2014 but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Register of Companies. Those for the year ended 31 March 2015 will be delivered following the Company's Annual General Meeting. This financial information has been extracted from the Company's Annual Report and Accounts for the year ended 31 March 2015 on which the auditors have not yet expressed an opinion. The Company intends to publish its 2015 Annual Report and Accounts in June 2015.
The Company is quoted on the AIM market of the London Stock Exchange and is domiciled and registered in England and Wales and incorporated under the Companies Act 1985. The address of its registered office is 41 Chalton Street, London, NW1 1JD.
The nature of the Company's operations and its principal activities are set out in the Chairman'.
BASIS OF PREPARATION
The Group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. These financial statements are for the year ended 31 March 2015 and are presented in pounds sterling ("GBP")
The financial statements have been prepared under the historical cost basis, as modified by valuing investment properties at fair value through the Statement of Comprehensive Income.
The principal accounting policies adopted are set out below.
GOING CONCERN
The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report on pages 2 to 6. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in these financial statements. In addition, note 27 to the financial statements includes the Group's objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and its exposures to credit risk and liquidity risk.
The Group has reasonable financial resources together with long term contracts with a wide range of tenants. As a consequence, the Directors believe that the Group is well placed to manage its business risk successfully.
After making enquiries, and in accordance with the FRC's Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts.
NEW STANDARDS ADOPTED DURING THE YEAR
The following standards, amendments and interpretations endorsed by the EU were effective for the first time for the Group's 31 March 2015 year end and had no material impact on the financial statements:
IFRS 10 Consolidated Financial Statements;
IFRS 11 Joint Arrangements;
IFRS 12 Disclosure of Interests in Other Entities;
IAS 27 (revised) - Separate Financial Statements;
IAS 28 (revised) - Investments in Associates and Joint Ventures;
IAS 32 (amended) - Financial Instruments: Presentation on Offsetting Financial Assets and Financial Liabilities;
IAS 36 (amended) - Impairment of Assets on Recoverable Amounts Disclosures for Non-Financial Assets; and
IAS 39 (amended) - Financial Instruments: Recognition and Measurement on Novation of Derivatives and Continuation of Hedge Accounting.
STANDARDS ISSUED BUT NOT YET EFFECTIVE
At the date of authorisation of these financial statements the following Standards and Interpretations, some of which have not been endorsed by the EU, which have not been applied in these financial statements but were in issue but not yet effective:
International Accounting Standards (IAS/IFRSs)
Endorsed by the EU:
IAS 19 Amendments: Defined Benefit Plans: Employee Contributions (Effective 1 July 2014)
Annual Improvements to IFRSs 2010-2012 Cycle (Effective 1 July 2014)
Annual Improvements to IFRSs 2011-2013 Cycle (Effective 1 July 2014)
Not yet endorsed by the EU:
IFRS 14 Regulatory Deferral Accounts (Effective 1 January 2016)
IFRS 11 Amendments: Accounting for Acquisitions of Interests in Joint Operations (Effective 1 January 2016)
IAS 16 and IAS 38 Amendments: Clarification of Acceptable Methods of Depreciation and Amortisation (Effective 1 January 2016)
IAS27 Amendments: Equity Method in Separate Financial Statements (Effective 1 January 2016)
IFRS10 and IAS28 Amendments: Sale or contribution of assets between an investor and its associate or joint venture (Effective 1 January 2016)
IAS1 Amendments: Presentation of Financial Statements - Disclosure initiative (Effective 1 January 2016)
IFRS10, IFRS 12 and IAS 28 Amendments: Investments Entities: Applying the Consolidation Exemption (Effective 1 January 2016)
IFRS15 Revenue from Contracts with Customers (Effective 1 January 2017)
IFRS9 Financial Instruments (Effective 1 January 2018)
Annual Improvements to IFRSs 2011-2013 Cycle (Effective 1 January 2016)
IFRS Interpretations Committee (IFRIC), endorsed by the EU:
IFRIC 21 Levies Interpretation: IAS37 Provisions, Contingent Liabilities and Contingent Assets (Effective 17 June 2014)
The Directors do not anticipate that the adoption of these Standards and Interpretations in future periods will have a material impact on the financial statements of the Group when the relevant standards and interpretations come into effect.
BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the financial statements of Palace Capital plc and its subsidiaries.
Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has variable returns from, its involvement with the entity and has the ability to affect those returns through its power over the entity. Where necessary, adjustments have been made to the financial statements of subsidiaries, associates and joint ventures to bring the accounting policies used and accounting periods into line with those of the Group. Intragroup balances and any unrealised gains and losses arising from intragroup transactions are eliminated in preparing the Consolidated Financial Statements.
The results of subsidiaries acquired during the year are included from the effective date of acquisition, being the date on which the Group obtains control. They are deconsolidated on the date that control ceases.
Business combinations are accounted for under the acquisition method. Any excess of the consideration paid for the business combination over the fair value of the identifiable assets and liabilities acquired is recognised as goodwill.
The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. This fair value includes any contingent consideration. Acquisition-related costs are expensed as incurred.
If the consideration is less than the fair value of the assets and liabilities acquired, the difference is recognised directly in the Statement of Comprehensive Income.
REVENUE
Revenue is derived from property income and represents the value of accrued charges under operating leases for rental of the Group's investment properties. Revenue is measured at fair value of the consideration received. All income is derived in the United Kingdom.
Rental income from investment properties leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease. Contingent rent reviews are recognised when such reviews have been agreed with tenants. Lease incentives and guaranteed rent review amounts are recognised as an integral part of the net consideration for use of the property and amortised on a straight-line basis over the term of lease.
Other income comprises insurance commission, property management fees and miscellaneous income.
OPERATING PROFIT
Operating profit is stated before interest and tax.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Group's balance sheet when the Group has become a party to the contractual provision of the instrument.
CONTRIBUTIONS TO PENSION SCHEMES
Defined Contribution Pension Scheme
The pension costs charged against profits are the contributions payable to the scheme in respect of the accounting period.
INVESTMENT PROPERTIES
Investment properties are those properties that are held either to earn rental income or for capital appreciation or both.
Investment properties are measured initially at cost including transaction costs and thereafter are stated at fair value, which reflects market conditions at the balance sheet date. Surpluses and deficits arising from changes in the fair value of investment properties are recognised in the Statement of Comprehensive Income in the year in which they arise.
Investment properties are stated at fair value as determined by the Directors. The fair value of the Group's property portfolio is based upon external valuations and is inherently subjective. The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms-length transaction at the date of valuation, in accordance with International Valuation Standards. The fair value of each of the properties has been assessed by the directors. In determining the fair value of investment properties, the directors make use of historical and current market data as well as existing lease agreements.
Additions and disposals of investment properties are recognised in the accounts when contracts are completed.
OBLIGATIONS UNDER FINANCE LEASES
Leases of assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease's commencement at the lower of the fair value of the property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The corresponding rental obligations, net of finance charges, are included in liabilities. The finance charges are charged to the Income Statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Investment properties classified as held under finance leases are subsequently carried at their fair value.
OPERATING LEASES
Amounts payable under operating leases are charged directly to the Statement of Comprehensive Income on a straight line basis over the period of the lease. The aggregate costs of operating lease incentives provided by the Group are recognised as a reduction in rental income on a straight line basis over the lease term.
TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost, net of depreciation and any provision for impairment. Depreciation is calculated to write down the cost less estimated residual value of all tangible fixed assets by equal annual instalments over their expected useful economic lives. The rates generally applicable are:
|
Fixtures, fittings and equipment |
25% - 33% straight line |
|
|
|
TRADE AND OTHER RECEIVABLES
Trade and other receivables are recognised and carried at the original transaction value. A provision for impairment
is established where there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables concerned.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
FINANCIAL LIABILITIES AND EQUITY
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.
TRADE PAYABLES
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective interest rate method.
CONVERTIBLE LOAN NOTES
Convertible loan notes issued by the Group are regarded as compound instruments, consisting of a liability component and an equity component. At the date of issue, the fair value of the liability component is estimated using prevailing market interest rate for similar non-convertible debt. The difference between the proceeds from issuing the convertible loan notes and the fair value assigned to the liability component, representing the embedded option to convert the liability into equity of the Group is included in equity.
Issue costs are apportioned between the liability and equity components of the convertible loan notes based on their relative carrying amounts at the respective date of issue. The portion relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the prevailing market interest rate for similar non-convertible debt to the liability component of the instrument. The difference between this amount and the interest paid is added to the carrying amount of the convertible loan note.
EQUITY INSTRUMENTS
Equity instruments issued by the company are recorded at the fair value of proceeds received, net of direct issue costs.
CURRENT TAXATION
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantively enacted, by the balance sheet date.
DEFERRED TAXATION
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
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 computation of taxable profit, and is accounted for 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. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
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 profit or loss, except when it relates to items charged or credited directly to other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
A deferred tax liability on capital allowances linked to investment properties has not been provided as it is expected that they will not reverse when the properties are disposed of.
SHARE CAPITAL
Ordinary share capital is classified as equity. Interim ordinary dividends are recognised when paid and final ordinary dividends are recognised as a liability in the period in which they are approved.
The Group's preference shares are split into debt and equity components, with the associated dividend being recognised on an accrual basis in the income statement as a finance cost.
The fair value of the debt element is established on issue of the shares, based on the discounted cash flows of the instrument to the date of maturity, and is then increased each year on an amortised cost basis through the profit and loss account in order to arrive at the redemption amount payable on maturity of the shares. On purchase and cancellation of preference shares by the Company, a gain or loss is recognised in the income statement based on the difference between the book value and fair value of the financial liability element of the instrument at the date of purchase. The difference between the book value and fair value of the equity element of the instrument is recognised as a movement in retained earnings. In addition, a transfer is made to non-distributable reserves from retained earnings in order to maintain the legal nominal value of share capital.
SHARE BASED PAYMENT
The Group has applied the requirements of IFRS 2 Share based payment to share options. The fair value of the share options are determined at the grant date and are expensed on a straight line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non-market based vesting conditions.
Fair value is measured by use of the Black Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects on non-transferability, exercise restrictions and behavioural considerations.
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost.
COMMITMENTS AND CONTINGENCIES
Commitments and contingent liabilities are disclosed in the financial statements. They are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognised in the financial statements but disclosed when an inflow of economic benefits is probable.
GOODWILL
Goodwill represents the excess of the cost of an acquisition over the fair value of the Group's share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included within intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
EVENTS AFTER THE BALANCE SHEET DATE
Post year-end events that provide additional information about a company's position at the balance sheet date and are adjusting events are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes when material.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Information about such judgements and estimation is contained in the accounting policies or the notes to the accounts, and the key areas are summarised below.
Investment properties
The key source of estimation uncertainty rests in the values of property assets, which significantly affects the value of investment properties in the Statement of Financial Position. The investment property portfolio is carried at fair value, which requires a number of judgements and estimates in assessing the qualities of the Group's assets relative to market transactions. The approach to this valuation and the amounts affected are set out in the accounting policies and note 12.
The Group has valued the investment properties at fair value. To the extent that any future valuation affects the fair value of the investment properties, this will impact on the Group's results in the period in which this determination is made.
Deferred tax
In determining the quantum of deferred tax assets to be recognised, judgement is required in excessing the extent to which it is probable that future taxable profit will arise in the companies concerned. Management use forecasts of future taxable profits and make assumptions on growth rates for each entity in assessing the recoverability of assets recognized.
1 SEGMENTAL REPORTING
For the purpose of IFRS 8, the chief operating decision maker ("CODM") takes the form of the two executive Directors, the Chairman and the Company Secretary (the Group's Executive Committee). The Group's Executive Committee are of the opinion that the business of the Group is as follows.
The principal activity of the Group was to invest in entities operating within the property sector.
The internal financial reports received by the Group's Executive Committee contain financial information broken down into three operating portfolios. Therefore, for the purposes of IFRS 8, each property portfolio is considered to be a separate operating segment in that its performance is monitored.
All of the Group's properties are based in the UK. No geographical grouping is contained in any of the internal financial reports provided to the Group's Executive Committee and, therefore, no geographical segmental analysis is required by IFRS 8.
Operating segments
The following tables present revenue, operating profit and net assets for the Group's segments for the periods ended 31 March 2015 and 31 March 2014.
|
Revenue - type |
|
|
Year ended 31 March 2015 |
14 months ended 31 March 2014 |
||
|
|
|
|
£ |
£ |
||
|
|
|
|
|
|
||
|
Rents received from investment properties |
|
|
8,180,784 |
3,178,285 |
||
|
Management fees |
|
|
455,874 |
73,533 |
||
|
|
|
|
|
|
||
|
Total Revenue |
|
|
8,636,658 |
3,251,818 |
||
|
|
|
|
|
|
||
No single tenant accounts for more than 10% of the Groups total revenue.
|
Operating profit - operating segment Year ended 31 March 2015 |
|
Sequel |
PIH |
Hockenhull |
Head office |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
Rent and Service charge income |
|
6,685,669 |
1,758,993 |
191,996 |
- |
8,636,658 |
|
Property Operating expenses |
|
(935,731) |
(260,107) |
(4,002) |
- |
(1,199,840) |
|
Administration expenses |
|
(261,047) |
(193,521) |
(18,147) |
(965,976) |
(1,438,691) |
|
Profit on disposal of investment properties |
|
134,216 |
43,482 |
- |
- |
177,698 |
|
Gains on revaluation of investment property |
|
6,649,988 |
3,088,731 |
30,000 |
- |
9,768,719 |
|
Costs of acquisition |
|
- |
- |
- |
(638,668) |
(638,668) |
|
|
|
|
|
|
|
|
|
Total Operating profit |
|
12,273,095 |
4,437,578 |
199,847 |
(1,604,644) |
15,305,876 |
|
Other interest receivable |
|
8,500 |
101 |
27 |
9,720 |
18,348 |
|
Finance costs |
|
(1,000,810) |
(334,828) |
(68,920) |
(11,419) |
(1,415,977) |
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
11,280,785 |
4,102,851 |
130,954 |
(1,606,343) |
13,908,247 |
|
Tax (charge)/credit on profit |
|
- |
226,971 |
(20,412) |
(100,000) |
106,559 |
|
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
|
11,280,785 |
4,329,822 |
110,542 |
(1,706,343) |
14,014,806 |
|
Operating profit - operating segment 14 month period ended 31 March 2014 |
|
Sequel |
PIH |
Hockenhull |
Head office |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
Rent and Service charge income |
|
3,038,153 |
- |
213,665 |
- |
3,251,818 |
|
Property Operating expenses |
|
(645,217) |
- |
(2,964) |
- |
(648,181) |
|
Administration expenses |
|
(148,030) |
- |
(25,860) |
(474,900) |
(648,790) |
|
Profit on disposal of investment properties |
|
786,616 |
- |
- |
- |
786,616 |
|
Gains on revaluation of investment property |
|
19,285,531 |
- |
215,000 |
- |
19,500,531 |
|
Costs of acquisition |
|
- |
- |
- |
(516,569) |
(516,569) |
|
|
|
|
|
|
|
|
|
Total Operating profit |
|
22,317,053 |
- |
399,841 |
(991,469) |
21,725,425 |
|
Other interest receivable |
|
355 |
- |
53 |
20,111 |
20,519 |
|
Finance costs |
|
(470,954) |
- |
(83,566) |
(38,680) |
(593,200) |
|
|
|
|
|
|
|
|
|
Profit/(loss) before tax |
|
21,846,454 |
- |
316,328 |
(1,010,038) |
21,152,744 |
|
Tax payable on profit |
|
- |
- |
(18,859) |
100,000 |
81,141 |
|
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
|
21,846,454 |
- |
297,469 |
(910,038) |
21,233,885 |
|
|
|
|
|
|
|
|
|
Net operating assets - operating segment 31 March 2015 |
|
Sequel |
PIH |
Hockenhull |
Head office |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
Assets |
|
|
|
|
|
|
|
Investment property |
|
65,808,831 |
34,919,445 |
2,260,000 |
- |
102,988,276 |
|
Goodwill |
|
- |
- |
5,910 |
- |
5,910 |
|
Tangible fixed assets |
|
- |
34 |
- |
51,367 |
51,401 |
|
Deferred tax |
|
- |
500,000 |
- |
- |
500,000 |
|
Trade and other receivables |
|
2,269,615 |
942,784 |
10,655 |
1,075,680 |
4,298,734 |
|
Cash at bank and in hand |
|
6,996,188 |
203,111 |
18,524 |
5,060,714 |
12,278,537 |
|
|
|
|
|
|
|
|
|
Total segmental assets |
|
75,074,634 |
36,565,374 |
2,295,089 |
6,187,761 |
120,122,858 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Bank borrowings |
|
19,424,310 |
15,194,194 |
1,187,997 |
- |
35,806,501 |
|
Other current liabilities |
|
1,922,448 |
1,045,609 |
32,752 |
86,501 |
3,087,310 |
|
Obligations under finance leases |
|
1,213,533 |
- |
- |
- |
1,213,533 |
|
|
|
|
|
|
|
|
|
Total segmental liabilities |
|
22,560,291 |
16,239,803 |
1,220,749 |
86,501 |
40,107,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
52,514,343 |
20,325,571 |
1,074,340 |
6,101,260 |
80,015,514 |
|
|
|
|
|
|
|
|
|
Net operating assets - operating segment 31 March 2014 |
|
Sequel |
PIH |
Hockenhull |
Head office |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
Assets |
|
|
|
|
|
|
|
Investment property |
|
57,210,168 |
- |
2,230,000 |
- |
59,440,168 |
|
Goodwill |
|
- |
- |
5,910 |
- |
5,910 |
|
Tangible fixed assets |
|
- |
- |
- |
205 |
205 |
|
Deferred tax |
|
- |
- |
- |
100,000 |
100,000 |
|
Trade and other receivables |
|
2,432,807 |
- |
3,176 |
40,807 |
2,476,790 |
|
Cash at bank and in hand |
|
3,938,379 |
- |
52,755 |
1,132,203 |
5,123,337 |
|
|
|
|
|
|
|
|
|
Total segmental assets |
|
63,581,354 |
- |
2,291,841 |
1,273,215 |
67,146,410 |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Bank borrowings |
|
17,093,560 |
- |
1,199,959 |
- |
18,293,519 |
|
Other loans |
|
- |
- |
- |
290,619 |
290,619 |
|
Other current liabilities |
|
2,867,796 |
- |
24,158 |
79,469 |
2,971,424 |
|
Obligations under finance leases |
|
1,215,055 |
- |
- |
- |
1,215,055 |
|
|
|
|
|
|
|
|
|
Total segmental liabilities |
|
21,176,411 |
- |
1,224,117 |
370,088 |
22,770,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
42,404,943 |
- |
1,067,724 |
903,127 |
44,375,794 |
|
|
|
|
|
|
|
|
2 Reconciliation of OPERATING PROFIT
Reconciliation of operating profit to cash utilised in operations
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
|
£ |
£ |
|
|
|
|
|
|
|
Profit before taxation |
13,908,247 |
21,152,744 |
|
|
Finance income |
(18,348) |
(20,519) |
|
|
Finance costs |
1,415,977 |
593,200 |
|
|
Gains on revaluation of investment property portfolio |
(9,768,719) |
(19,500,531) |
|
|
Profit on disposal of investment properties |
(177,698) |
(786,616) |
|
|
Depreciation |
9,952 |
242 |
|
|
Share based payments |
113,817 |
11,667 |
|
|
Increase in receivables |
(281,091) |
(982,382) |
|
|
Increase/(decrease) in payables |
(813,995) |
829,567 |
|
|
|
|
|
|
|
Net cash utilised in operations |
4,388,142 |
1,297,372 |
|
|
|
|
|
|
3 OTHER INTEREST RECEIVABLE AND SIMILAR INCOME
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Profit recognised on acquisition of loan at below par |
- |
20,111 |
|
Bank interest received |
18,348 |
408 |
|
|
18,348 |
20,519 |
4 Interest payable AND SIMILAR CHARGES
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Interest on bank loans |
1,284,219 |
507,714 |
|
Interest on other loans |
11,419 |
32,256 |
|
Interest on finance leases |
120,339 |
46,806 |
|
Preference share dividend |
- |
6,424 |
|
|
1,415,977 |
593,200 |
4.1
5 PROFIT FOR THE PERIOD
a) The Group's profit for the period is stated after charging the following:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
Depreciation of tangible fixed assets: |
9,952 |
242 |
|
|
|
|
|
Auditor's remuneration: |
|
|
|
Fees payable to the auditor for the audit of the Group's annual accounts |
27,500 |
30,000 |
|
Fees payable to the auditor for the audit of the subsidiary annual accounts |
10,000 |
- |
|
Fees payable to the auditor and its related entities for other services: Corporate advisory services |
50,000 |
35,098 |
|
Tax services |
- |
3,000 |
|
|
87,500 |
68,098 |
Amounts payable to BDO LLP (2014: Crowe Clark Whitehill) in respect of audit and non-audit services are disclosed in the table above.
b) The Group's cost of sales comprise the following:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Void property costs |
613,604 |
595,451 |
|
Repairs and maintenance expenses |
403,569 |
52,730 |
|
Legal and consultancy |
45,568 |
- |
|
Service charge expenses |
137,099 |
- |
|
|
1,199,840 |
648,181 |
c) The Group's administrative expenses comprise the following:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Staff costs |
508,227 |
240,343 |
|
Share based payments |
113,817 |
11,667 |
|
Legal & Professional fees |
176,576 |
102,426 |
|
Accounting and audit fees |
86,057 |
52,000 |
|
Rent, Rates and other office costs |
87,069 |
- |
|
Property management fees |
163,363 |
70,617 |
|
Bad debt expense |
24,647 |
303 |
|
PR and marketing costs |
112,815 |
35,157 |
|
Other overheads |
156,168 |
136,035 |
|
Depreciation |
9,952 |
242 |
|
|
1,438,691 |
648,790 |
6 EMPLOYEES AND DIRECTORS' REMUNERATION
Staff costs during the period were as follows:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Non-Executive Directors' fees |
67,500 |
42,473 |
|
Wages and salaries |
368,415 |
173,086 |
|
Pensions |
23,699 |
|
|
Social security costs |
48,613 |
24,784 |
|
Share based payments |
113,817 |
11,667 |
|
|
622,044 |
252,010 |
The average number of employees of the company during the period was:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
Number |
Number |
|
|
|
|
|
Directors and management |
6 |
5 |
Key management are the Group's directors. Remuneration in respect of key management was as follows:
|
|
Year Ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
Short-term employee benefits: |
|
|
|
Emoluments for qualifying services |
342,300 |
188,780 |
|
Social security costs |
40,476 |
22,192 |
|
Share based payments |
102,060 |
9,625 |
|
|
484,836 |
220,597 |
There are no retirement benefits accruing to any of the Directors.
The amounts set out above include remuneration in respect of the highest paid director as follows:
|
|
Year 31 ended March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
Short-term employee benefits: |
|
|
|
Emoluments for qualifying services |
193,967 |
119,230 |
|
Share based payments |
68,040 |
6,417 |
|
|
262,007 |
125,647 |
7 TAXATION
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Current income tax charge |
20,412 |
18,859 |
|
Deferred tax |
(126,971) |
(100,000) |
|
Tax credit |
(106,559) |
(81,141) |
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Profit on ordinary activities before tax |
13,908,247 |
21,152,744 |
|
|
|
|
|
Based on profit for the period: |
|
|
|
Tax at 21.0% (2014: 23%) |
2,920,732 |
4,865,131 |
|
|
|
|
|
Effect of: |
|
|
|
Expenses not deductible for tax purposes |
134,120 |
142,518 |
|
Capital losses and indexation used in the period |
(2,090,323) |
(4,666,044) |
|
Capital allowances in excess of depreciation |
(252,760) |
(45,258) |
|
Other adjustments |
40,285 |
(5,372) |
|
Deferred tax not previously recognised |
(126,971) |
(100,000) |
|
Trading losses used in the period |
(731,642) |
(272,116) |
|
Tax credit for the period |
(106,559) |
(81,141) |
Deferred taxes at 31 March relates to the following:
|
|
2015 |
2014 |
|
|
£ |
£ |
|
Deferred tax assets |
|
|
|
Losses available to carry forward |
500,000 |
100,000 |
|
Deferred tax asset |
500,000 |
100,000 |
|
|
2015 |
2014 |
|
|
£ |
£ |
|
|
|
|
|
Deferred tax asset - brought forward |
100,000 |
- |
|
Deferred tax credit for the period |
126,971 |
100,000 |
|
Deferred tax recognised on acquisition |
273,029 |
- |
|
Deferred tax asset - carried forward |
500,000 |
100,000 |
At 31 March 2015, the Group had tax losses of £7,117,799 (2014: £1,225,952) available to carry forward to future periods. A deferred tax asset of £500,000 (2014: £100,000) has been recognised as it is expected to be utilised in the foreseeable future and a deferred tax asset of £923,560 (2014: £157,450) has not been recognised in the financial statements due to the uncertainty as to whether it can be utilised against future profits.
Capital allowances have been claimed on improvements to investments properties amounting to £8,676,012 (2014: £7,133,720). A deferred tax liability amounting to £1,735,202 (2014: £1,327,337) has not been recognised in the financial statements as it is expected that they will not reverse when the properties are disposed of.
A deferred tax liability on the revaluation of investment properties to fair value has not been provided as once the availability of capital losses, indexation allowances and the 1982 valuations for certain properties have been taken into account it is anticipated that no capital gain tax would be payable if the properties were disposed of at their fair value. As at 31 March 2015 the Group had approximately £6,900,000 (2014: £474,219) of capital losses to carry forward.
8 EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share has been calculated on profit after tax attributable to ordinary shareholders for the period (as shown on the Consolidated Statement of Comprehensive Income) and the weighted average number of ordinary shares in issue during the period (see below table).
Diluted earnings per share
Diluted earnings per share has been calculated on profit after tax attributable to ordinary shareholders for the period (as shown on the Consolidated Income Statement) and the diluted weighted average number of ordinary shares in issue during the period (see below table):
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Profit after tax attributable to ordinary shareholders for the period |
14,014,806 |
21,233,885 |
|
Weighted average number of shares for basic earnings per share |
17,010,762 |
4,920,006 |
|
Dilutive effect of share options |
478,140 |
344,294 |
|
Weighted average number of shares for diluted earnings per share |
17,488,902 |
5,264,300 |
|
EARNINGS PER ORDINARY SHARE; Basic |
82.4p |
431.6p |
|
Diluted |
80.1p |
403.4p |
Adjusted diluted earnings per share
In order to give a truer reflection of the underlying profits of the Company the directors have decided to present an adjusted earnings per share calculation excluding costs of acquisitions, revaluation gains and gains on property disposals.
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
Profit after tax attributable to ordinary shareholders for the period |
14,014,806 |
21,233,885 |
|
Costs of acquisition |
638,668 |
516,569 |
|
Gains on revaluation of investment property portfolio |
(9,768,719) |
(19,500,531) |
|
Profit on disposal of investment properties |
(177,698) |
(786,616) |
|
Adjusted profit after tax for the period |
4,707,057 |
1,463,307 |
|
ADJUSTED EARNINGS PER ORDINARY SHARE; Basic |
27.7p |
29.7p |
|
Diluted |
26.9p |
27.8p |
9 NET ASSETS PER SHARE
|
|
2015 |
2014 |
|
|
£ |
£ |
|
|
|
|
|
Net assets at the end of the period |
80,015,514 |
44,375,794 |
|
Diluted net assets at end of the period |
80,124,698 |
45,244,308 |
|
Number of ordinary issued shares issued at the end of the period |
20,225,673 |
12,440,937 |
|
Number of ordinary issued shares for diluted net assets per share |
20,674,427 |
13,252,688 |
|
NET ASSETS PER ORDINARY SHARE Basic |
395.6p |
356.7p |
|
Diluted |
387.6p |
341.4p |
The diluted net assets and the number of diluted ordinary issued shares at the end of the period assumes that all the outstanding options at the period end are exercised at the option price.
10 INTANGIBLE FIXED ASSETS
|
|
|
|
|
|
Goodwill |
|
Cost |
|
|
|
|
|
|
At 1 February 2013 and 31 March 2014 |
|
|
|
|
5,910 |
|
On acquisitions (note 11) |
|
|
|
|
- |
|
Carrying Value at 31 March 2015 |
|
|
|
|
5,910 |
11 BUSINESS COMBINATIONS
Acquisition in year ended 31 March 2015.
On 26 August 2014 the group acquired 100% of the share capital of Property Investment Holdings Limited (PIH) for a consideration of £3,613,828. The consideration was satisfied by issuing 1,103,459 ordinary 10p shares at a fair value price of £3.275. PIH is a property investment company which was acquired to expand the Group's property portfolio.
|
|
|
Carrying value at acquisition date |
Adjustments |
Fair value at acquisition date |
|||
|
|
|
£ |
£ |
£ |
|||
|
|
|
|
|
|
|||
|
Investment properties |
|
29,385,000 |
2,356,099 |
31,741,099 |
|||
|
Tangible fixed assets |
|
73 |
- |
73 |
|||
|
Deferred tax asset |
|
- |
273,029 |
273,029 |
|||
|
Receivables and prepayment |
|
26,112 |
278,901 |
305,013 |
|||
|
Cash at bank and in hand |
|
268 |
- |
268 |
|||
|
Payables and other creditors |
|
(732,378) |
- |
(732,378) |
|||
|
Bank loans and overdraft |
|
(27,973,276) |
- |
(27,973,276) |
|||
|
Deferred tax |
|
(401,342) |
401,342 |
- |
|||
|
|
|
|
|
|
|||
|
Net assets |
|
304,457 |
3,309,371 |
3,613,828 |
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
Consideration |
|
|
|
3,613,828 |
|||
|
|
|
|
|
|
|||
|
Goodwill on acquisition |
|
|
|
- |
|||
|
|
|
|
|
|
|||
The acquired subsidiary contributed £4,102,851 to the profit before tax of the Group. If these acquisitions had occurred on 1 April 2014, Group revenue would have been an estimated £9.7m and Group profit before tax would have been an estimated £14.4m. In determining these amounts, management has assumed that the fair value adjustments that arose on the date of acquisition would have been the same if the acquisition occurred on 1 April 2014.
Capital allowances amounting to £1,744,967 have been claimed by PIH on improvements to investments properties. A deferred tax liability amounting to £348,993 has not been recognised in the fair value as it is expected that they will not reverse when the properties are disposed of.
Deferred tax asset amounting to £273,029 was recognised as a fair value adjustment at the acquisition date being management's estimate, based on budgets and forecasts, of the future utilisation of tax losses of approximately £9m that were available to carry forward following the refinancing of the bank loans of the PIH which took place at acquisition. The deferred tax asset was increased to £500,000 at 31 March 2015 as a result of the restructuring of PIH and the repayment of £10m of intra group loans which has resulted in increasing the anticipated future annual profits of PIH.
No deferred tax has been recognised on the adjustments to fair value as a result of the historical cost of the investment properties exceeding their fair value.
The fair value of the investment properties at acquisition was based on a valuation performed at the time of the acquisition amounting to £32,020,000 obtained from DTZ Debenham Tie Leung Limited less a lease incentive balance which has been included in prepayments amounting to £278,901.
A fair value adjustment to prepayments amounting to £278,901 was made to bring the revenue recognition policy of PIH into line with that of the Group so that the rental income from investment properties leased out under operating leases is recognised in the Income Statement on a straight-line basis over the term of the lease.
Acquisition related costs
The Group incurred acquisition related costs of £638,668 related to professional fees paid for due diligence, general professional fees and legal related costs. These costs have been included in non-underlying administrative expenses in the Group's consolidated income statement.
Acquisition in 14 month period ended 31 March 2014.
On 21 October 2013 the Group acquired 100% of the share capital of Quintain (Signal) Member A Limited (Sequel) and its subsidiary undertakings for a consideration of £1 from Quintain Estates and Development PLC. Quintain Estates and Development PLC waived sufficient intercompany debt to bring the net asset value of the company to £1 at the date of acquisition.
On the same day the Group also acquired from Buckingham Properties Trading Limited, a 1.5% share of Signal Property LLP which was not already owned by Quintain (Signal) Member A Limited together with a loan owing from Signal Property Investments LLP, a subsidiary undertaking of Quintain (Signal) Member A Limited, amounting to £220,111 for a consideration of £200,000.
In a separate transaction, Buckingham Properties Trading Limited used these proceeds to subscribe for 100,000 Ordinary 10p shares in the Group at a price of £2.00 per share and Quintain Estates and Development PLC subscribed for 275,000 Ordinary 10p shares in the Group at a price of £2.00 per share.
Sequel is a property investment company which was acquired to expand the Group's property portfolio in the UK secondary property market outside London.
|
|
|
Carrying value at acquisition date |
Adjustments |
Fair value at acquisition date |
|||
|
|
|
|
|
|
|||
|
Investment properties |
|
38,450,000 |
1,220,168 |
39,670,168 |
|||
|
Receivables and prepayment |
|
1,475,320 |
197,462 |
1,672,782 |
|||
|
Cash at bank and in hand |
|
- |
- |
- |
|||
|
Payables and other creditors |
|
(1,678,083) |
- |
(1,678,083) |
|||
|
Other loans |
|
(478,715) |
- |
(478,715) |
|||
|
Finance leases |
|
- |
(1,215,763) |
(1,215,763) |
|||
|
Bank loans |
|
(37,815,390) |
(154,998) |
(37,970,388) |
|||
|
|
|
|
|
|
|||
|
Net assets |
|
(46,868) |
46,869 |
1 |
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
Consideration |
|
|
|
1 |
|||
|
Goodwill on acquisition |
|
|
|
- |
|||
|
|
|
|
|
|
|||
|
|
|
|
|
|
|||
No deferred tax has been recognised on the adjustments to fair value as a result of the historical cost of the investment properties exceeding their fair value.
Acquisition related costs
The Group incurred acquisition related costs of £516,569 related to professional fees paid for due diligence, general professional fees and legal related costs. These costs have been included in non-underlying administrative expenses in the Group's consolidated income statement.
The group issued 248,715 warrants to its Nominated Advisors and Brokers to subscribe for shares at a price of 200p per share. The directors have valued these warrants at £50,000.
12 Investment Properties
|
|
|
|
Freehold Investment properties |
Leasehold Investment properties |
Total |
|
|
|
|
£ |
£ |
£ |
|
|
|
|
|
|
|
|
At 1 February 2013 |
|
2,015,000 |
- |
2,015,000 |
|
|
Arising on acquisition of subsidiary undertaking |
|
27,295,547 |
12,374,621 |
39,670,168 |
|
|
Additions |
|
750,000 |
- |
750,000 |
|
|
Gains on revaluation of investment property |
|
14,054,984 |
5,445,547 |
19,500,531 |
|
|
Disposals |
|
(2,495,531) |
- |
(2,495,531) |
|
|
At 1 April 2014 |
|
41,620,000 |
17,820,168 |
59,440,168 |
|
|
Arising on acquisition of subsidiary undertaking |
|
31,741,099 |
- |
31,741,099 |
|
|
Additions |
|
2,801,540 |
11,200 |
2,812,740 |
|
|
Gains on revaluation of investment properties |
|
9,179,699 |
589,020 |
9,768,719 |
|
|
Disposals |
|
(774,450) |
- |
(774,450) |
|
|
At 31 March 2015 |
|
84,567,888 |
18,420,388 |
102,988,276 |
|
Investment properties are stated at fair value as determined by the Directors. The fair value of the Group's property portfolio is based upon external valuations and is inherently subjective. The fair value represents the amount at which the assets could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arms-length transaction at the date of valuation, in accordance with International Financial Reporting Standard 13. The fair value of each of the properties has been assessed by the directors. In determining the fair value of investment properties, the directors make use of historical and current market data as well as existing lease agreements
As a result of the level of judgement used in arriving at the market valuations, the amounts which may ultimately be realised in respect of any giving property may differ from the valuations shown in the statement of financial position.
A reconciliation of the valuations carried out by the external valuers to the carrying values shown in the balance sheet was as follows:
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
|
|
|
|
|
|
Scanlans Consultant Surveyors LLP |
|
|
2,260,000 |
2,230,000 |
|
Cushman & Wakefield LLP |
|
|
65,215,000 |
55,990,000 |
|
DTZ Debenham Tie Leung Limited |
|
|
35,280,000 |
- |
|
Fair value |
|
|
102,755,000 |
58,220,000 |
|
|
|
|
|
|
|
Adjustment in respect of minimum payment under head leases separately included as a liability in the balance sheet |
|
1,220,168 |
1,220,168 |
|
|
Less lease incentive balance included in prepayments |
|
(986,892) |
- |
|
|
Carrying value |
|
|
102,988,276 |
59,440,168 |
Investment properties with a carrying value of £101,768,108 (2014: £58,220,000) are subject to a first charge to secure the Group's bank loans amounting to £36,205,461 (2014: £18,532,319).
The historical cost of the Group's investment properties, at the cost the properties were acquired by the relevant subsidiary undertaking, as at 31 March 2015 was £98,251,403 (2014: £60,015,591).
The valuations of all investment property held by the group is classified as Level 3 as they are based on unobservable inputs. There have been no transfers between levels of the fair value hierarchy during the year.
Valuation process
The valuation reports produced by the external valuers are based on information provided by the group such as current rents, terms and conditions of lease agreements, service charges and capital expenditure. This information is derived from the group's financial and property management systems and is subject to the group's overall control environment. In addition, the valuation reports are based on assumptions and valuation models used by the valuers. The assumptions are typically market related, such as yields and discount rates, and are based on their professional judgment and market observations. Each property is considered a separate asset, based on its unique nature, characteristics and the risks of the property.
The executive director responsible for the valuation process, verifies all major inputs to the external valuation reports, assesses the individual property valuation changes from the prior year valuation report and holds discussions with the external valuers. When this process is complete, the valuation report is recommended to the Audit Committee, which considers it as part of its overall responsibilities.
The key assumptions made in the valuation of the group's investment properties are:
- the amount and timing of future income streams;
- anticipated maintenance costs and other landlord's liabilities; and
- an appropriate yield.
Valuation technique
The valuations reflect the tenancy data supplied by the group along with associated revenue costs and capital expenditure. The fair value of the commercial investment portfolio has been derived from capitalising the future estimated net income receipts at capitalisation rates reflected by recent arm's length sales transactions.
|
31 March 2015 |
Significant unobservable inputs |
||
|
|
Sequel
|
PIH |
Hockenhull |
|
Value of investment properties |
£65,215,000 |
£35,280,000
|
£2,260,000 |
|
Area (sq ft)
|
1,095,327 |
301,392 |
22,820 |
|
Gross Estimated Rental Value
|
£6,703,332 |
£2,740,900 |
£195,653 |
|
Net Initial Yield Minimum Maximum Weighted average |
13.5% -6.4% 7.6% |
3.2% 10.8% 6.5% |
7.5% 10.0% 8.5% |
|
Reversionary Yield Minimum Maximum Weighted average |
6.0% 16.3% 6.4% |
5.9% 9.6% 7.0% |
7.5% 10.0% 8.5% |
|
Equivalent Yield Minimum Maximum Weighted average |
0.9% 13.5% 9.0% |
6.0% 9.0% 7.2% |
7.5% 10.0% 8.5% |
|
31 March 2014 |
Significant unobservable inputs |
||
|
|
Sequel
|
Hockenhull |
|
|
Value of investment properties |
£55,990,000 |
£2,230,000 |
|
|
Area (sq ft)
|
1,097,920 |
22,820 |
|
|
Gross Estimated Rental Value
|
£6,620,000 |
£190,000 |
|
|
Net Initial Yield Minimum Maximum Weighted average |
18.3% -5.4% 9.4% |
7.5% 10.0% 8.5% |
|
|
Reversionary Yield Minimum Maximum Weighted average |
6.5% 20.2% 7.3% |
7.5% 10.0% 8.5% |
|
|
Equivalent Yield Minimum Maximum Weighted average |
1.2% 15.6% 10.1% |
7.5% 10.0% 8.5% |
|
Sensitivity of measurement to variations in the significant unobservable inputs
|
Unobservable input |
Impact on fair value measurement of significant increase in input
|
Impact on fair value measurement of significant decrease in input |
|
Gross Estimated Rental Value |
Increase |
Decrease |
|
Net Initial Yield. |
Decrease |
Increase |
|
Reversionary Yield |
Decrease |
Increase |
|
Equivalent Yield |
Decrease |
Increase |
The relationship between the unobservable inputs and their impact on the fair value measurement is not certain. Changes to the tenancies and/or income profile of an investment asset may also impact the fair value outside one or more of the above inter-relationships according to individual circumstances.
Reconciliation of fair value of investment properties:
|
|
Year ended 31 March 2015 £
|
|
14 month period ended 31 March 2014 £ |
|
Opening balance |
59,440,168 |
|
2,015,000 |
|
Acquisitions at fair value |
31,741,099 |
|
39,670,168 |
|
Other purchases |
2,812,740 |
|
750,000 |
|
Disposal of properties |
(774,450) |
|
(2,495,531) |
|
Gains recognised in profit or loss |
9,768,719 |
|
19,500,531 |
|
Closing balance |
102,988,276 |
|
59,440,168 |
In addition to the gain on revaluation of investment properties included in the table above, realised gains of £177,698 (2014: £786,616) relating to investment properties disposed of during the year were recognised in profit or loss.
13 TANGIBLE FIXED ASSETS
|
|
|
|
|
|
IT and fixtures and fittings |
|
|
|
At 1 February 2013 |
|
|
|
|
670 |
|
|
|
Additions |
|
|
|
|
- |
|
|
|
At 1 April 2014 |
|
|
|
|
670 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets acquired |
|
|
|
|
73 |
|
|
|
Additions |
|
|
|
|
61,075 |
|
|
|
At 31 March 2015 |
|
|
|
|
61,818 |
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
At 1 February 2013 |
|
|
|
|
223 |
|
|
|
Provided during the period |
|
|
|
|
242 |
|
|
|
At 1 February 2014 |
|
|
|
|
465 |
||
|
|
|
|
|
|
|
|
|
|
Provided during the year |
|
|
|
|
9,952 |
|
|
|
At 31 March 2015 |
|
|
|
|
10,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value at 31 March 2015 |
|
|
|
|
51,401 |
|
|
|
Net book value at 31 March 2014 |
|
|
|
|
205 |
|
|
14 TRADE AND OTHER RECEIVABLES
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
Current |
|
|
|
|
|
Trade receivables |
|
|
1,938,281 |
1,499,278 |
|
Less: allowance for doubtful trade receivables |
|
|
(90,178) |
(88,946) |
|
Other taxes |
|
|
5,150 |
36,925 |
|
Deposit on purchase of investment property (note 26) |
|
1,000,000 |
- |
|
|
Other debtors |
|
|
26,880 |
71,806 |
|
Accrued income |
|
|
62,815 |
135,126 |
|
Prepayments |
|
|
431,709 |
282,606 |
|
|
|
|
3,374,657 |
1,936,795 |
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
Non-Current |
|
|
|
|
|
Accrued income |
|
|
924,077 |
539,995 |
|
|
|
|
924,077 |
539,995 |
Accrued income relates to rents recognised in advance as a result of spreading the effect of rent free and reduced rent periods, capital contributions in lieu of rent free periods and contracted rent uplifts over the expected terms of their respective leases. Together with £62,815 (2014: £135,126), which was included as current assets within trade and other receivables, these amounts totalled £986,892 at 31 March 2015 (2014: £675,121).
Movements in the provision for impairment of trade receivables were as follows:
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
Brought forward |
|
|
88,946 |
- |
|
Arising on acquisition |
|
|
10,000 |
107,443 |
|
Utilised in the period |
|
|
(33,415) |
(49,362) |
|
Provisions increased |
|
|
24,647 |
30,865 |
|
|
|
|
90,178 |
88,946 |
As at 31 March, the analysis of trade receivables that were past due but not impaired is as follows:
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
0-30 days |
|
|
1,599,224 |
1,265,874 |
|
31-60 days |
|
|
(33,981) |
346 |
|
61-90 days |
|
|
52,265 |
12,604 |
|
91 - 120 days |
|
|
203,763 |
42,706 |
|
More than 120 days |
|
|
26,832 |
88,802 |
|
|
|
|
1,848,103 |
1,410,332 |
15 CASH AND CASH EQUIVALENTS
All of the Group's cash and cash equivalents at 31 March 2015 and 31 March 2014 are in sterling and held at floating interest rates.
|
|
2015 |
2014 |
|
|
£ |
£ |
|
|
|
|
|
Cash and cash equivalents |
12,278,537 |
5,123,337 |
The Directors consider that the carrying amount of cash and cash equivalents approximates to their fair value.
16 TRADE AND OTHER PAYABLES
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
|
|
|
|
|
|
Trade payables |
|
|
242,327 |
338,812 |
|
Bank loans (note 17) |
|
|
400,000 |
1,199,959 |
|
Other taxes |
|
|
573,687 |
827,280 |
|
Income tax |
|
|
13,324 |
7,468 |
|
Other payables |
|
|
21,283 |
46,103 |
|
Deferred rental income |
|
|
1,842,561 |
1,406,053 |
|
Accruals |
|
|
394,128 |
345,707 |
|
|
|
|
3,487,310 |
4,171,382 |
17 BORROWINGS
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
Current |
|
|
|
|
|
Bank loans |
|
|
400,000 |
1,199,959 |
|
Non-current liabilities |
|
|
|
|
|
Convertible loan notes (note 22) |
|
|
- |
290,619 |
|
Bank loans |
|
|
35,406,501 |
17,093,560 |
|
Total Non-current liabilities |
|
|
35,406,501 |
17,384,179 |
|
|
|
|
|
|
|
Total borrowings |
|
|
35,806,501 |
18,584,138 |
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
Non-current liabilities |
|
|
|
|
|
Bank loans |
|
|
35,805,461 |
17,332,360 |
|
Un amortised lending costs |
|
|
(398,960) |
(238,800) |
|
|
|
|
35,406,501 |
17,093,560 |
The maturity profile of the Group's debt was as follows
|
|
|
|
2015 |
2014 |
|
|
|
|
£ |
£ |
|
|
|
|
|
|
|
Within one year |
|
|
400,000 |
1,199,959 |
|
From one to two years |
|
|
20,002,964 |
300,000 |
|
From two to five years |
|
|
15,802,497 |
17,332,360 |
|
|
|
|
36,205,461 |
18,832,319 |
Included within bank loans is an amount of £1,199,997 (2014: £1,199,959) which is secured on the investment properties in the Hockenhull portfolio. Interest is charged at a rate of 4% above the 1 month Libor rate with a minimum rate of 5% and is payable monthly. The loan was renewed during the year and the new facility is repayable on 30 September 2017.
Included within bank loans is an amount of £19,602,964 (2014: £17,332,360) which is secured on the investment properties in the Sequel portfolio. An additional amount of £2,500,000 was drawn down on this facility on 19 March 2015. Interest is charged at a rate of 3.75% above the 1 month Libor rate and is payable monthly. The loan is repayable on 21 October 2016.
Included within bank loans is an amount of £15,402,500 (2014: £nil) which is secured on the investment properties in the PIH portfolio. Interest is charged at a rate of 2.75% above the National Westminster Bank plc base rate and is payable quarterly. The loan is repayable at a rate of £100,000 quarterly with the balance of the loan repayable at the end of the term of the loan on 26 August 2019.
The convertible loan notes of £300,000 were repaid during the year to a pension scheme of which Stanley Davis is a beneficiary at an interest rate of 4%. The interest accrued during the period amounted to £2,032 (2014: £13,940).
The Group has no unused loan or overdraft facilities (2014: £nil).
18 LEASES
Operating lease receipts in respect of rents on investment properties are receivable as follows:
|
|
2015 |
2014 |
|
|
£ |
£ |
|
|
|
|
|
Within one year |
8,268,635 |
5,870,048 |
|
From one to two years |
6,984,156 |
5,360,652 |
|
From two to five years |
12,999,454 |
10,019,084 |
|
From five to 25 years |
12,139,090 |
6,852,408 |
|
After 25 years |
692,872 |
700,697 |
|
|
41,084,207 |
28,806,889 |
Operating lease payments in respect of rents on leasehold properties occupied by the Group are payable as follows:
|
|
2015 |
2014 |
|
|
£ |
£ |
|
|
|
|
|
Within one year |
44,800 |
- |
|
From one to two years |
44,800 |
- |
|
From two to five years |
12,028 |
- |
|
|
101,628 |
- |
Finance lease obligations in respect of rents payable on leasehold properties were payable as follows:
|
|
|
2015 |
2014 |
|||||
|
|
Minimum lease payments |
Interest |
Present value of minimum lease payments |
Present value of minimum lease payments |
|
|||
|
|
£ |
£ |
£ |
£ |
|
|||
|
|
|
|
|
|
|
|||
|
Within one year |
86,980 |
(85,346) |
1,634 |
1,521 |
|
|||
|
From one to two years |
86,980 |
(85,226) |
1,754 |
1,634 |
|
|||
|
From two to five years |
260,940 |
(254,864) |
6,076 |
5,660 |
|
|||
|
From five to 25 years |
1,707,100 |
(1,643,436) |
63,664 |
65,375 |
|
|||
|
After 25 years |
6,316,120 |
(5,175,715) |
1,140,405 |
1,140,865 |
|
|||
|
|
|
8,458,120 |
(7,244,587) |
1,213,533 |
1,215,055 |
|
||
The net carrying amount of the leasehold properties is shown in note 12.
The Group has over 150 leases granted to its tenants. These vary dependent on the individual tenant and the respective property and demise and vary considerably from short term leases of less than 1 year to longer term leases of over 10 years. A number of these leases contain rent free periods. Standard lease provisions include service charge payments and recovery of other direct costs. All investment properties in the Group's portfolio generated rental income during the both the current and prior periods.
19 Share capital
|
|
2015 |
2014 |
|
Authorised, issued and fully paid share capital is as follows: |
£ |
£ |
|
|
|
|
|
20,225,673 ordinary shares of 10p each (2014: 12,440,937) |
2,022,567 |
1,244,094 |
|
315,937 deferred shares of 90p each (2014: 315,937) |
284,344 |
284,344 |
|
|
2,306,911 |
1,528,438 |
The deferred shares have the following rights and restrictions. As regards income the Deferred Shares shall not entitle the holders thereof to receive any dividend or other distribution unless and until the holders of the Ordinary Shares shall have received in aggregate amongst them the sum of £100,000,000 in respect of such dividend or distribution. As regards voting the Deferred Shares shall not entitle the holders thereof to receive notice of or to attend or vote at any General Meeting of the Company. As regards capital on a return of capital on a winding up the holders of Deferred Shares shall only entitled to receive the amount paid up on such shares after the holders of the Ordinary Shares have received the sum of £1,000,000 for each Ordinary Share held by them and shall have no other right to participate in the assets of the Company.
|
|
2015 |
2014 |
|
Reconciliation of movement in ordinary share capital |
£ |
£ |
|
|
|
|
|
At start of period |
1,244,094 |
959,750 |
|
Issued in the period |
778,473 |
284,344 |
|
At end of period |
2,022,567 |
1,244,094 |
On 23 June 2014 79,665 warrants were exercised and as a result the company issued 79,665 ordinary 10p shares at a price of £2.00.
On 26 August 2014 the company issued 6,451,712 ordinary 10p shares at a price of £3.10. Issue costs amounting to £795,684 were incurred and have been deducted from the share premium account.
In addition, on the same day the company issued 1,103,459 ordinary 10p shares in exchange for 100% of the share capital of Property Investment Holdings Limited. The fair value of these shares was £3.275 per share.
On 18 February 2015 150,000 warrants were exercised and as a result the company issued 150,000 ordinary 10p shares at a price of £2.00.
Share options:
|
|
2015 |
2014 |
|
Reconciliation of movement in outstanding share options |
No of options |
No of options |
|
|
|
|
|
At start of period |
811,752 |
191,594 |
|
Issued in the period |
- |
646,825 |
|
Exercised in the period |
(229,665) |
- |
|
Lapsed in the period |
(133,333) |
(26,667) |
|
At end of period |
448,754 |
811,752 |
As at 31 March 2015, the Company had the following outstanding unexpired options.
|
Description of unexpired share options |
2015 |
2014 |
||
|
|
No of options |
Weighted average Option price |
No of options |
Weighted average Option price |
|
Senior executive plan (note 20) |
429,704 |
17p |
429,704 |
17p |
|
Options on convertible loans |
- |
- |
133,333 |
225p |
|
Warrants issued to Nominated advisors and Broker |
19,050 |
200p |
248,715 |
200p |
|
Total |
448,754 |
25p |
811,752 |
107p |
|
Exercisable |
19,050 |
200p |
382,048 |
209p |
|
Not exercisable |
429,704 |
17p |
429,704 |
17p |
|
|
|
|
|
|
Warrants issued to the Groups Nominated advisors and Broker
No new share options were issued to the Group's Nominated advisor or Broker during the year. The Group's Nominated advisor and Broker received £248,715 options in 2014 in exchange for part of the fee charged by the brokers for the share issue that occurred during that year and the directors considered the fair value of the service to be £50,000. These options were exercisable at a price of £2.00 per share.
A total of 229,665 share options issued to the Group's Broker were exercised during the year (2014: nil). The average share price at the date of exercise was £3.48 per share.
Option on convertible loans
As part of the loan agreements (see note 17) 133,333 options were granted to convert £300,000 of loans to shares. Following the repayment of this loan on 23 June 2014 these options lapsed (2014: 26,667 option on loan notes lapsed).
The weighted average remaining contractual life of the options outstanding at 31 March 2015 was 2 years (2014: 2).
20 Share bASED PAYMENT
Senior executive plan
The following table illustrates the number and weighted average exercise prices of, and movements in, share options during the year:
|
|
|
Number of options |
Exercise price |
Date from which exercisable |
Expiry date |
|
|
|
|
|
|
|
|
Outstanding at 1 February 2013 |
|
31,594 |
225p |
3 Oct 2014 |
3 Oct 2021 |
|
Issued during the period (LTIP 2014) |
|
398,110 |
0p |
31 Mar 2017 |
31 Mar 2017 |
|
Outstanding at 31 March 2014 and 2015 |
|
429,704 |
17p |
|
|
LTIP 2014
The options are awarded to management on achievements against target on 2 separate measures over the three financial years ending 31 March 2017. Half the options will be awarded based on the first target and half based on the achievement of the second.
Earnings per share (EPS) growth: is based on a pro forma profit after tax excluding property revaluations and 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%.
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 |
|
|
|
18.10.13 |
|
|
|
|
|
|
|
Exercise price |
|
|
|
0p |
|
Term years |
|
|
|
3.4 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 an 82% likelihood of the options vesting.
Palace Capital No 1 share option scheme
On 3 October 2011 31,594 share options were issued at an exercise price of £2.25. The fair value of grants is 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 |
|
|
|
3.10.11 |
|
|
|
|
|
|
|
Exercise price |
|
|
|
225p |
|
Term years |
|
|
|
10 years |
|
Expected volatility |
|
|
|
25% |
|
Expected dividend yield |
|
|
|
0% |
|
Risk free rate |
|
|
|
1% |
|
Expected forfeiture p.a. |
|
|
|
0% |
The expense recognised for employee services received during the period is shown in the following table:
|
|
2015 |
2014 |
|
|
£ |
£ |
|
|
|
|
|
Palace Capital No 1 share option scheme |
5,000 |
11,667 |
|
LTIP 2014 |
108,817 |
- |
|
Total expense arising from share-based payment transactions |
113,817 |
11,667 |
21 RELATED PARTY TRANSACTIONS
A convertible loan note amount of £300,000, provided by a pension scheme in which Stanley Davis is a beneficiary, was repaid on 23 June 2014. Interest charged during the period amounted to £2,032 (2014: £13,940). Accrued unpaid interest on this loan amounted to £nil (2014: £29,885).
Accounting services amounting to £56,057 (2014: £22,000) have been provided to the Group by Stanley Davis Group Limited, a company where Stanley Davis is a director.
22 CONVERTIBLE LOAN NOTES
Loan notes amounting to £300,000 were convertible at the option of the loan note holder into ordinary shares of the Company at any time between the date of issue of the loan notes and their maturity date of 3 October 2015 at 225p per share. These loan notes were repaid on 23 June 2014 and the options lapsed on this date.
The effective rate of interest used to calculate the interest charged on the loan notes to the income statement was 6%. Interest of 4% per annum was payable quarterly.
There were no transaction costs incurred on the issue of these loan notes. The proceeds from the issue of the convertible loan notes have been split between the liability element and an equity component, representing the fair value of the embedded option to convert the liability into equity of the Group as follows:
|
|
2015 £ |
2014 £ |
|
|
|
|
|
Convertible loan notes issued |
- |
300,000 |
|
Equity component |
- |
(21,197) |
|
Liability component at date of issue |
- |
278,803 |
|
Interest charged |
- |
41,728 |
|
Interest payable |
- |
(29,912) |
|
|
- |
290,619 |
23 DIVIDENDS
|
|
|
|
|
|
|
|||
|
|
Payment date |
Dividend per share |
2015 £ |
2014 £ |
|
|||
|
|
|
|
|
|
|
|
||
|
Current year |
|
|
|
|
|
|
||
|
2015 final dividend |
31 July 2015 |
7.00 |
- |
- |
|
|||
|
2015 interim dividend |
30 December 2014 |
6.00 |
1,204,540 |
- |
|
|||
|
Distribution of current year profit |
|
13.00 |
1,204,540 |
- |
|
|||
|
|
|
|
|
|
|
|
||
|
Prior year |
|
|
|
|
|
|
||
|
2014 final dividend |
31 July 2014 |
2.50 |
313,015 |
- |
|
|||
|
2014 interim dividend |
7 May 2014 |
2.00 |
248,819 |
- |
|
|||
|
Distribution of prior year profit |
|
4.50 |
561,834 |
- |
|
|||
|
|
|
|
|
|
|
|||
|
Dividends reported in the Group statement of changes in equity |
|
1,766,374 |
- |
|
||||
|
|
|
|
|
|
||||
Proposed Dividends
|
|
|
|
|
|
|
|||
|
|
|
|
2015 £ |
2014 £ |
|
|||
|
2015 final dividend :7p (2014 interim: 2p and final dividend: 2.5p) |
1,415,797 |
561,834 |
|
|||||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
||||
Proposed dividends on ordinary shares are subject to approval at the annual general meeting and are not recognised as a liability as at 31 March.
24 GEARING and loan to value RATIO
The calculation of gearing is based on the following calculations of net assets and net debt:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Net asset value |
80,015,514 |
44,375,794 |
|
|
|
|
|||
|
Borrowings |
35,806,501 |
18,584,138 |
|||
|
Obligations under finance leases |
1,213,533 |
1,215,055 |
|||
|
Cash and cash equivalents |
(12,278,537) |
(5,123,337) |
|||
|
Net Debt |
24,741,497 |
14,675,856 |
|||
|
NAV Gearing |
30.9% |
33.1% |
|
||
The calculation of bank loan to property value is calculated as follows:
|
|
Year ended 31 March 2015 |
14 month period ended 31 March 2014 |
|
|
£ |
£ |
|
|
|
|
|
Fair value of Property portfolio |
102,755,000 |
58,220,000 |
|
Borrowings - Bank loans |
36,205,461 |
18,532,319 |
|||
|
Loan to value ratio |
35.2% |
31.8% |
|
||
25 CAPITAL COMMITMENTS
At 31 March 2015 the Group had exchanged contracts to purchase an additional investment property for £10m (see note 26). As at 31 March 2015 the company has paid a deposit of £1,000,000 against this contract.
Contracts for the repair or maintenance of investment properties and not provided for in the accounts amounted to £46,957 (2014: £nil). There were no obligations for capital expenditure relating to the construction, development or enhancement of investment properties entered into by the Group at 31 March 2015 (2014 £nil).
26 POST BALANCE SHEET EVENT
On 1 April 2015 the Group completed the acquisition of Bank House, a freehold property in Leeds. Bank House, which is a 88,000 sq ft building within two minutes of Leeds Railway Station, was acquired for £10 million, satisfied from the £1,000,000 deposit paid prior to the year end and the remainder payable from the Company's existing cash resources.
On 10 May 2015, a new loan amounting to £4,500,000 was provided by Lloyds Bank PLC. The loan carries an interest rate of 2.1% above Libor. This loan is secured on the Bank House property and is repayable on 9 May 2019.
On 27 May 2015, the Group has entered into a conditional agreement to acquire the entire issued share capital of O&H Northampton Limited (O&H), the owner of Sol Central, a mixed use leisure scheme in Northampton. Under the terms of the Acquisition Agreement, the consideration payable by the Group for all of the issued shares of O&H is £1. The Company will also procure the repayment of £20.7 million of the outstanding indebtedness owed by O&H to its existing bank and other creditors. There will also be an adjustment to reflect the net assets of O&H at the date of the Acquisition. The total amount payable by the Group in connection with the acquisition of O&H is expected to be approximately £20.7 million. Sol Central is a 190,000 sq ft mixed use leisure scheme located close to the centre of Northampton. Constructed in 2002, Sol Central has two anchor tenants, a 10 screen Vue Cinema and a 151 bed Ibis Hotel. To finance the repayment of O&H's indebtedness and to provide additional capital to exploit further opportunities, the Board has announced a conditional placing of 5,555,556 Placing Shares at the Issue Price of 360p to raise approximately £20 million (before expenses).
The Acquisition is conditional on, inter alia, O&H and Santander entering into the Facility Agreement. The Facility will provide O&H with £11.39 million, which will be used, along with part of the Placing proceeds, to repay O&H's outstanding indebtedness up to an aggregate amount of £20.7 million (subject to adjustment to reflect the net assets of O&H at the date of completion of the Acquisition).
27 CATEGORIES OF Financial instruments
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 £80,015,514 at 31 March 2015 (2014: £44,375,794). 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.
The Group has covenanted to maintain a specified consolidated leverage ratio and a consolidated net interest expense coverage ratio, 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 on pages 20 to 25 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 2015 and 2014 were:
|
|
Nil rate assets |
Floating rate assets |
Fixed rate liability |
Floating rate liability |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
|
As at 31 March 2015 |
|
|
|
|
|
|
|
Trade and other receivables |
2,874,983 |
- |
- |
- |
2,874,983 |
|
|
Cash and cash equivalents |
|
12,278,537 |
- |
- |
12,278,537 |
|
|
Trade and other payables |
(657,738) |
- |
- |
- |
(657,738) |
|
|
Bank borrowings |
|
- |
- |
(35,806,501) |
(35,806,501) |
|
|
Obligation under finance leases |
- |
- |
(1,213,533) |
- |
(1,213,533) |
|
|
|
2,217,245 |
12,278,537 |
(1,213,533) |
(35,806,501) |
(22,524,252) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nil rate assets |
Floating rate assets |
Fixed rate liability |
Floating rate liability |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
|
As at 31 March 2014 |
|
|
|
|
|
|
|
Trade and other receivables |
1,482,138 |
- |
- |
- |
1,482,138 |
|
|
Cash and cash equivalents |
|
5,123,337 |
- |
- |
5,123,337 |
|
|
Trade and other payables |
(730,622) |
- |
- |
- |
(730,622) |
|
|
Bank borrowings |
- |
- |
- |
(18,293,519) |
(18,293,519) |
|
|
Other borrowings |
- |
- |
(290,619) |
- |
(290,619) |
|
|
Obligation under finance leases |
- |
- |
(1,215,055) |
- |
(1,215,055) |
|
|
|
751,516 |
5,123,337 |
(1,505,674) |
(18,293,519) |
(13,924,340) |
|
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 £12m (2014: £5m). The income statement would be affected by £120,000 (2014: £50,000) by a reasonably possible one percentage point change in floating interest rates on a full year basis.
The Group has loans amounting to £36,205,461 (2014: £18,532,319) which have interest payable at rates linked to the 1 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 £362,055 (2014: £185,323).
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.
Palace Capital plc has its cash held on deposit with two large banks in the United Kingdom. At 31 March 2015 the concentration of credit risk held with Barclays Bank plc, the largest of these banks, was £12,075,426 (2014: £2,994,106). 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 7% (2014: 9%) 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 2015 was £2,874,983 (2014: £1,482,138). The details of the provision for impairment are shown in note 14.
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 holdscash 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 |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
As at 31 March 2015 |
|
|
|
|
|
|
|
Interest bearing loans |
- |
1,695,692 |
20,961,402 |
16,974,092 |
- |
39,631,186 |
|
Finance leases |
- |
86,980 |
86,980 |
260,940 |
8,023,220 |
8,458,120 |
|
Trade and other payables |
657,738 |
- |
- |
- |
- |
657,738 |
|
|
657,738 |
1,782,672 |
21,048,382 |
17,235,032 |
8,023,220 |
48,747,044 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On demand |
0 - 1 years |
1 to 2 years |
2 to 5 years |
> 5 years |
Total |
|
|
|
£ |
£ |
£ |
£ |
£ |
|
As at 31 March 2014 |
|
|
|
|
|
|
|
Interest bearing loans |
|
1,897,921 |
956,046 |
17,695,627 |
- |
20,549,594 |
|
Finance leases |
|
86,980 |
86,980 |
260,940 |
8,110,200 |
8,545,100 |
|
Trade and other payables |
730,622 |
- |
- |
- |
- |
730,622 |
|
|
730,622 |
1,984,901 |
1,043,026 |
17,956,567 |
8,110,200 |
29,825,316 |
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 |
||
|
|
2015 |
2014 |
2015 |
2014 |
|
|
£ |
£ |
£ |
£ |
|
Financial assets |
|
|
|
|
|
Trade and other receivables |
2,874,983 |
1,482,138 |
2,874,983 |
1,482,138 |
|
Cash and cash equivalents |
12,278,537 |
5,123,337 |
12,278,537 |
5,123,337 |
|
|
15,153,520 |
6,605,475 |
15,153,520 |
6,605,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current financial liabilities |
|
|
|
|
|
Trade payables |
242,347 |
338,812 |
242,347 |
338,812 |
|
Other payables |
21,283 |
46,105 |
21,283 |
46,105 |
|
Accruals |
394,128 |
345,707 |
394,128 |
345,707 |
|
Borrowings - bank loan |
35,806,501 |
18,293,519 |
35,806,501 |
18,293,519 |
|
Borrowings - other loans |
- |
290,619 |
- |
290,619 |
|
Obligations under finance leases |
1,213,533 |
1,215,055 |
1,213,533 |
1,215,055 |
|
|
37,677,792 |
20,529,817 |
37,677,792 |
20,529,817 |
It is our view 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 17 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.
This information is provided by RNS
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