TIDMKCR
RNS Number : 4641N
KCR Residential REIT PLC
30 September 2021
30 September 2021
KCR Residential REIT plc
("KCR" or the "Company")
Annual Results for the year ended 30 June 2021
KCR Residential REIT plc, the residential REIT group, is pleased
to announce its annual results for the year ended 30 June 2021.
The Annual Report will shortly be available from the Company's
website, www.kcrreit.com , and will be posted to shareholders in
the coming days.
Highlights
-- Revenues of GBP1.04m (2020: GBP1.04m)
-- Whilst refurbishment of the Colherne asset throughout 2020
impacted revenues, the current let up will add to 2022 revenues
-- Portfolio level occupancy remains high (>95%), capital
values remain firm with nominal arrears across the portfolio
-- Gross profit improved by 44% to GBP1.02m (2020: GBP0.88m)
-- Strong action to reduce administrative costs and internalise
property management activities and improve gross margin
-- Secured bank borrowings at period end of GBP11.1 million (31
December 2020: GBP11.1 million)
-- Average debt cost has reduced post-period following property refinancing in August 2021
-- Net total assets were marginally lower GBP24.4m (31 December
2020: GBP25.2m) and net asset value per share was lower at 40.18p
(31 December 2020: 44.03p).
-- Ongoing focus on achieving a cash break even position over
the next 12 months from a combination of improved asset performance
and continuing focus on cost reduction.
Contacts:
KCR Residential REIT plc info@kcrreit.com
Dominic White, Chief Executive +44 20 3793 5236
Russell Naylor, Executive Director
Arden Partners plc
Richard Johnson +44 20 7614 5900
Notes to Editors:
KCR's objective is to build a substantial residential property
portfolio that generates secure income flow for shareholders. The
Directors intend that the group will acquire, develop and manage
residential property assets in a number of jurisdictions including
the UK.
CHAIRMAN'S LETTER
Dear Shareholder
This last year has been difficult for very many as a result of
Covid-19, and I should like to start by paying tribute to all our
colleagues at KCR and their considerable efforts to operate
flexibly and to maintain services to our residents and tenants in
trying conditions. Our colleagues' safety and wellbeing and that of
all our stakeholders remain a priority for us.
Strategy and Operations
During the financial year, and as reported at the interim stage,
we have been continuing with the transition of the business. This
has been led by a smaller executive team since the Torchlight
transaction of August 2019 with a consistent strategy to:
-- improve the rental revenue from the existing properties;
-- upgrade the overall portfolio quality;
-- explore the development opportunity within the retirement portfolio; and
-- focus strongly on reducing costs.
Modernising and improving the standard of the property portfolio
has been the key focus this year to increase current and future
returns from the existing assets.
The primary and most substantive refurbishment works during the
financial year have been in respect of the Coleherne Road property.
The works here are almost fully complete and the letting up of this
property currently under way will deliver rental growth for the
portfolio going forward. This well-located asset has been
repositioned from a poorly presented, bottom end rental product
into modern, spacious studio apartments. Works to 8 of the 10
apartments are now completed and finished to a high standard. It
has been necessary to enter ongoing legal processes to obtain
vacant possession of one flat to complete the balance of the
works.
Within our portfolio of retirement living accommodation,
substantive works were completed on three of the Heathside flats
during the year. This materially improved the standard and
presentation of the properties. Eight flats are now owned within
this property and their letting up has assisted in delivering
rental growth for the portfolio. We continue to look for additional
opportunities to make follow-on acquisitions of flats within this
property.
This rental growth has offset the loss of income from Coleherne
Road which has been vacant (aside from the flat subject to legal
process to obtain possession) for most of the 2021 financial year
whilst works were completed. As shown by our materially reduced
administrative expenses and reduced losses, considerable progress
has also been achieved towards bringing the group's cost base into
line with the size of its existing portfolio.
Capital and Personnel
Post balance sheet date, new lower cost facilities have been
entered into to refinance existing facilities and deliver
additional capital to support the Group's ongoing activities.
During the period since August 2019, there have been a number of
changes to the leadership team as part of the focus on
repositioning the business and reducing the cost base to more
appropriately align with the size of the business. As noted at the
interim stage Michael Davies retired as Chairman in October 2020
and the board reduced from 5 to 4. The cost savings from this and
other personnel changes will be further reflected in the current
financial year results.
Market Conditions and Outlook for the Group
From a macro-economic perspective, Covid-19 has resulted in
ongoing global disruption which has impacted markets and consumer
and business confidence. The economic impact to date has been much
softened by HM Government support which is now ending. During the
period, the main impact for KCR has been the increased supply of
rental product as properties previously used predominantly in the
short-let market were repositioned into longer term letting. This
has had an impact on time required to fill vacancies and achievable
rental levels in some parts of the Group's portfolio. However,
notwithstanding these challenges, at the accounts issue date, KCR
has maintained almost full occupancy with nominal rental
arrears.
In London and the South-East, there continues to be a greater
supply of studio, one- and two- bed flats in the letting market
which is continuing to impact timeframes for re-letting and
achievable rental levels. As Covid related travel restrictions ease
up we expect to see this position improve over the course of the
current financial year. Fundamentals for UK residential property
are positive, and it appears that people and activity are returning
to London and other major international capitals. KCR is well
placed to benefit as short-let supply is repositioned back into the
short-let market.
The Group's overall long-standing objective remains to grow the
size of its residential portfolio to deliver an increase in revenue
and profitability against its central overhead base and achieve an
ability to pay dividends. At the same time, we focus on growing net
asset value per share. Acquisition opportunities continue to be
explored and will be completed if they make sense for KCR.
On behalf of the Board and our shareholders, I would like to
thank everyone at KCR for their hard work and dedication over the
past year.
James Thornton
Chairman
29 September 2021
CHIEF EXECUTIVE'S LETTER
Dear Shareholder
I have pleasure in reporting to you on the progress of the Group
for the year to 30 June 2021.
This has continued to be a difficult period in the UK with
COVID-19 creating challenges for the whole of the year. Our efforts
restructuring the balance sheet last year prepared us well for the
ongoing economic difficulties in 2021. The significant efforts to
reduce operating costs has continued with further reductions this
year. There has been a slight revenue increase in 2021, and the
imminent boost to revenue from the re-letting of the refurbishment
project at Coleherne Road will take the Company closer than ever to
cashflow break-even. The combination of ongoing cost management and
enhanced operating performance is expected to deliver positive
cashflow by the end of the current financial year.
The focus of this year has been on the completion of the
Coleherne Road, London refurbishment, maintaining high occupancy
across the portfolio, and keeping corporate and operating costs to
a minimum. KCR is in the process of improving the quality of its
existing portfolio to increase rental and capital values and
reducing running costs. We are progressing well through the
transition process started last year, to create a stable platform
that can be successfully scaled-up.
Property portfolio
Property transactions during the year
KCR made no property acquisitions during the year.
Existing portfolio
KCR continues with its performance enhancement focus on its
existing portfolio. The refurbishment of apartments at Coleherne
Road is substantially complete. We intend to commit to more capital
expenditure (capex) to positively reposition the Ladbroke Grove
portfolio, starting this year. The objective is to lift rental and
capital values and upgrade the portfolio standard so that minimal
maintenance spend is required over the next five years.
We have already experienced an uplift in rental and capital
values at our repositioned asset in Coleherne Road. The apartments
have moved into a far higher rental bracket. The aim is for this to
be repeated at Ladbroke Grove.
KCR is in the process of creating two operating lines, clearly
identifiable by brand, property quality and letting strategy.
1. Cristal Apartments. Residential apartments, developed to a
high modern specification, furnished and let on a Walk-In-Walk-Out
(WIWO) basis (the intention is for utilities, internet, furniture,
council tax to be included in the rental payment) for a
frictionless and flexible letting experience. Rental contracts may
be from a week to multi-year.
2. Osprey Retirement Living. 4* retirement living property
rented on the same basis as above, with optionality on furniture.
Rental contracts to be assured shorthold tenancies (six months
plus).
1. Cristal Apartments (WIWO letting strategy)
The Coleherne Road property has been repositioned and now
delivers the higher quality style of apartments that the Cristal
brand represents. The Ladbroke Grove portfolio will be repositioned
into Cristal branded properties following completion of planning
work to explore avenues for optimization of the existing footprint.
Southampton is already at the higher standard appropriate for a
Cristal asset and will be bought under this brand as the apartments
are progressively furnished as existing tenancies expire.
-- The property at Coleherne Road, held within K&C
(Coleherne) Limited, comprises ten studio and one-bedroom flats.
KCR has almost completed a whole-building refurbishment of the
property (eight of ten apartments are complete) to a significantly
higher standard. The new apartments are available for rent. We are
achieving a significant increase in gross rental income on the
first lettings with reduced operating and maintenance costs
expected.
-- The Ladbroke Grove portfolio (owned by KCR (Kite) Limited)
consists of 16 one- and two-bedroom flats in three buildings which
remain more than 98% occupied. The stand-alone flat in Harrow Road
has been sold. Units have been lightly refurbished as tenants
leave, and are then relet in the private market. The Company's
intention is to undertake a whole building refurbishment of the
Ladbroke Grove assets following completion of the planning
work.
-- The Southampton block of 27 residential units at Deanery
Court, Chapel Riverside (owned by KCR (Southampton) Limited)
continues to be fully occupied. Rental demand has remained strong,
particularly from short-let operator tenants. These tenants'
customers are potential future occupiers at the building for
Cristal Apartments as they occupy under a WIWO strategy. Since the
property was constructed in 2018 there is no capital investment
required at the property to bring it up to the Cristal brand
standard. The letting strategy will be adjusted to implement the
WIWO strategy as units are progressively furnished.
2. Osprey Retirement Living (4* retirement apartments)
The Osprey portfolio (K&C (Osprey) Limited) consists of 159
flats and 13 houses let on long leases in six locations, together
with an estate consisting of 30 freehold cottages in Marlborough
where Osprey delivers estate management and sales services.
The portfolio has held its value and is expected to provide a
medium-term value boost opportunity as the terms of the
long-leasehold flats shorten and positive asset management
initiatives continue.
The key asset in the portfolio representing 68% of the Osprey
portfolio value is the freehold block at Heathside, Golders Green,
where 29 of the 37 residential units are held long leasehold. The
strategy continues to be selectively acquire long-leasehold units
in the block, subject to pricing, refurbish the units to a high
level and let them in the open market subject to assured shorthold
tenancies. This strategy is having good success; and post the
balance sheet reporting date, Osprey has successfully also become
the manager of the Heathside property, which we expect will enable
Osprey to improve the quality of the overall building.
Although KCR has been focusing on refurbishment activity at
Coleherne Road, we continue to have an interest in the potential to
enhance value through redevelopment and roof extensions at four of
the seven Osprey portfolio sites. We believe there is a significant
opportunity at some of these properties. Until a planning approval
has been received, any increase in value from these planning gains
will not be included in the Company's accounts.
Financial
The current financial year reflects the outcome of some of the
cost savings made to date with further improvement targeted during
the course of the current financial year. KCR has recorded an
operating profit before separately disclosed items and a
significantly lower operating loss for the year. Further details
regarding the financial performance of the Group can be found in
the Strategic Report on the following pages.
Prospects
The business continues to be cashflow negative, however, KCR has
made major steps to becoming cashflow positive. We continue to work
on achieving this by the end of the current financial period.
KCR is excited about the potential for the Company to grow from
a far more stable operating base, and in particular are pleased by
the significant progress made this year towards Group
profitability.
Dominic White
Chief executive
29 September 2021
The directors present the strategic report of KCR Residential
REIT plc ('KCR' or the 'Company') and its subsidiaries (together,
the 'Group') for the year ended 30 June 2021.
PRINCIPAL ACTIVITY
The Group carries on the business of acquiring, developing and
managing residential property predominantly for letting to third
parties on long and short leases. At the year-end, the Group
consisted of the Company, which is a public Company limited by
shares, and its wholly owned subsidiaries:
1. K&C (Coleherne) Limited owns a freehold residential
property in Chelsea, London containing ten studio flats
2. K&C (Osprey) Limited owns eight freehold apartments and
the freehold of several retirement properties let on long leases to
residents and provides management services in respect of these
properties and to third-party landlords
3. KCR (Kite) Limited owns three freehold residential properties
in Ladbroke Grove, London (16 flats) and at 30 June 2021 a flat on
Harrow Road, London
4. KCR (Southampton) Limited owns a long leasehold block of 27
two-bedroom apartments at Chapel Riverside, Southampton. The lease
is a 999 lease for which the Company pays a peppercorn rent
5. K&C (Newbury) Limited owns no property and is now effectively dormant.
Throughout the year the company remained a REIT and has
endeavoured to comply with REIT rules throughout the period and
since the balance sheet date.
GROUP STRATEGY
The directors intend to build a significant presence in the
residential letting market, primarily through the acquisition of
land with planning permission that will be developed into
residential property and the acquisition of existing residential
property. Assets are predominantly acquired with the purpose of
letting to third parties.
RESULTS
The Group reports a consolidated operating loss of GBP924,234
for the year to 30 June 2021 (2020 - GBP3,079,531).
REVIEW OF BUSINESS AND FINANCIAL PERFORMANCE
The Board has reviewed whether the Annual Report, taken as a
whole, presents a fair, balanced and understandable summary of the
Group's position and prospects, and believes that it provides the
information necessary for shareholders to assess the Group's
position, performance, and strategy.
In reporting financial information, KCR presents alternative
performance measures, "APMs", which are not defined or specified
under the requirements of IFRS. For example, portfolio occupancy
and percentage of rent arrears. The Company believes that these
APMs, which are not considered to be a substitute for or superior
to IFRS measures, provide stakeholders with additional helpful
information on the performance of the business. The Board reminds
readers that these APMs are not GAAP measures, are not intended as
a substitute for those measures, and that other companies may use
different measures.
Revenue in this financial year marginally increased to
GBP1,036,011 (2020 - GBP1,035,816). Core portfolio revenue
(relating to Rentals, Management fees and Ground Rent) was largely
flat due to Coleherne Road being vacant (aside from 1 tenancy) for
the financial year. Loss of this rental income was offset by growth
flowing from the letting up of Heathside and other incremental core
revenue gains. Portfolio occupancy (excluding the planned vacancy
at Coleherne Road) and rent collection remained above 95% for the
whole period.
A large part of the year's loss (GBP844,200) is attributable to
costs associated with refurbishing and modernizing the KCR
portfolio. The prior year result also includes a number of expense
items that were not related to core operating activities, including
costs associated with refinancing and third-party fundraising. The
Group therefore reports the operating result both before and after
separately disclosed items. The Group recorded an operating profit
before separately disclosed items of GBP416,669 (2020 -
GBP1,024,648 loss). After separately disclosing the expensed
redevelopment works at Coleherne Road and Heathside, the operating
loss was GBP427,531, a significant improvement on the prior year
(2020 - GBP3,079,531 loss). The loss before taxation was GBP924,234
(2020 - GBP3,560,818 loss).
Total assets at 30 June 2021 decreased to GBP24.4 million (2020
- GBP25.2 million). However, investment property increased overall
(GBP670,000) primarily due to completion of refurbishment works to
enhance asset positioning. Improved rental levels following works
is reflected in valuation outcomes. The decrease in total assets
reflects the reduction in cash balances as funds were used to fund
operating losses and investment activities.
Net assets decreased to GBP11.32 million (2020 - GBP12.14
million) and net asset value per share decreased to 40.18p (2020 -
44.03p), predominantly due to the impact of the loss and ensuing
reduction in cash balance.
Upon completion of the Torchlight transaction in the 2020
financial year, the Group entered into an option agreement to grant
Torchlight an option to subscribe for a further 50,000,000 new
Ordinary Shares during the Option Period (up to 6 August 2022).
Torchlight has the right to subscribe for the shares at a price per
share of:
-- for any notice of exercise served on the Company on any date
up to and including 31 December 2019, the Issue Price; and
-- for any notice of exercise served on the Company from 1
January 2020 until the end of the Option Period, the higher of (i)
the price per Option Share which is equivalent to 95 per cent. of
the 30-Day VWAP for the Ordinary Shares and (ii) the par value of
each Ordinary Share.
The Option is only exercisable by Torchlight during the Option
Period and if the Option is not exercised prior to the expiry of
the Option Period, it will lapse. Unless otherwise agreed, any
exercise of the Option by Torchlight shall be for not less than
2,000,000 Option Shares.
In May 2021 600,000 options were exercised and converted into
10p shares at a price of 19.8079p per share, increasing
Torchlight's interest in the Company to 9,600,000 shares,
representing 34.08% of the Company's enlarged issued share
capital.
KEY PERFORMANCE INDICATORS
The directors and management team monitor key performance
indicators relevant to each of the subsidiaries to improve Group
performance. Management reports to the board if data show
significant variances against expected outcomes and proposes
mitigation action as necessary.
Examples of the KPIs used to monitor aspects of performance
include:
1. At property level:
1.1. Vacancy rate in terms of number of units available and potential rental income
Target occupancy of at least 90 per cent achieved
1.2. Outstanding rents as a percentage of rental income
Target debtor balance of less than 10 per cent of rental revenue
achieved.
2. At Group Level
Near term focus is on reducing costs, enhancing revenue and
growing the business to achieve a cash break even position to
provide a stable base to grow from. Solid progress in this respect
is being made. The Group KPI is achieving a cash break even
position by focussing on optimising performance from the existing
assets and incremental acquisitions where they make sense.
RISKS AND UNCERTAINTIES
The Board regularly reviews the risks to which the Group is
exposed and ensures through its meetings and its regular reporting
that these risks are minimised as far as possible.
The principal risks and uncertainties facing the Group at this
stage in its development are:
-- Financing and liquidity risk
The Company has an ongoing requirement to fund its activities
through the equity markets and in future to obtain finance for
property acquisition and development. Although there is no
certainty that such funds will be available when needed, the
Company has plans in place with KCR's Capital Partner regarding
ongoing funding, and, the directors continue to focus on developing
the Group's capital structure.
-- Financial instruments
Details of risks associated with the Group's financial
instruments are given in note 21 to the financial statements. The
directors seek to mitigate these risks in manners appropriate to
the risk.
-- Valuations
The valuation of the investment property portfolio is inherently
subjective as it is made on the basis of assumptions made by the
valuer that may not prove to be accurate. The outcome of this
judgment is significant to the Group in terms of its investment
decisions and results. The directors, who have long experience of
property, seek to mitigate this risk by employing independent
valuation experts to complete periodic valuations of the assets in
the portfolio.
-- COVID-19
The impact of COVID-19 is widespread and continues to cause
economic disruption. Governments in the UK and elsewhere around the
world have taken drastic and unprecedented measures which include
compulsory business closures and tight restrictions on movement of
people and on their activities.
The Group seeks to preserve a safe environment within its
properties for its colleagues, residents, tenants and suppliers and
reviews this risk regularly, updating its procedures as required.
To date COVID-19 has not materially impacted Group operations, with
minimal impact on rent collections during the lockdown period. Only
a minimal number of tenants were in rent arrears at the balance
sheet date and up to the date of this report.
The main financial risks that the Board has identified in
relation to the pandemic are the potential income reduction and bad
debts as tenants have difficulty in maintaining rent payments and
potential voids within the portfolio arising from tenant
failures.
The actions taken to mitigate the risks are summarised
below:
-- The Group undertakes credit checks on prospective new tenants
to assess credit risk. The checks include verification of income
levels and capacity to pay, as well as checks of rental references.
Any arrears are actively managed.
-- The Group has continued with periodic monitoring of apartment
usage for short let operators. Monitoring included car park usage
(Southampton), power, water and gas readings as a proxy for
occupancy. The purpose of this was to enable the directors to form
a view as to the underlying occupancy profile of the short let
operators as a proxy for their ability to continue to meet rent.
Our sampling / testing has suggested an implied underlying
occupancy rate of 80% or better which suggests adequate capacity
for the short let operators to meet rent.
-- Recent re-lettings and inquiries at Southampton suggests
there is also solid underlying demand in this catchment for rental
properties so we would reasonably expect to be able to re-let in
the event that a short let operator failed and defaulted on their
rental obligations.
Due to the uncertainty and unprecedented nature of the
challenges posed by COVID-19 the Directors continue to monitor this
situation closely.
Directors' duty to promote the success of the Company under
Section 172 Companies Act 2006
Section 172 (1) of the Companies Act 2006 requires Directors to
act in the way they consider, in good faith, would be most likely
to promote the success of the Company for the benefit of
shareholders as a whole, and in doing so having regard to a diverse
group of stakeholders.
The Directors continue to have regard to the impact of decisions
made on all stakeholders and are aware of their responsibilities to
promote the success of the Company, in accordance with section 172
of the Companies Act 2006.
We aim to work responsibly with our stakeholders and outline
below the key Board decisions made during the 2021 financial
year:
Key Decision Stakeholders Action and Impact
Coleherne Road works Tenants / During the year the Company
Shareholders commenced a major refurbishment
program to reposition
this asset.
This resulted in a loss
of rental income during
the year whilst works
were ongoing and legal
action being commenced
to secure vacant possession
for one of the flats.
Whilst Section 21 notices
were served on tenants
to achieve vacant possession
there is an abundance
of readily available rental
accommodation in the same
geographic location. The
Company is not aware of
any tenants having issues
in securing replacement
accommodation.
Loss of rental income
and the costs associated
with completion of works
have impacted the financial
performance of the Company,
however this asset had
performed very poorly
for the duration of the
Company's ownership. Below
average standard of finish
resulted in poor rental
returns and high ongoing
recurring maintenance
expenditure.
The Company considered
that the interests of
all stakeholders were
best served by completing
a substantive upgrade
to the property.
On completion, the property
will be finished to a
very high standard and
should require minimal
ongoing investment for
the next few years.
-------------- ----------------------------------------------
FORWARD-LOOKING STATEMENTS
This Annual Report contains certain forward-looking statements
that have been made by the directors in good faith based on the
information available at the time of the approval of the Annual
Report and financial statements. By their nature, such
forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that will or may
occur in the future. Actual results may differ from those expressed
in such statements.
OUTLOOK
Whilst the near-term focus remains on reducing costs and
improving the operations performance of the existing assets, the
Group is continuing to investigate the purchase of residential
property assets that will be able to support an increasing income
yield. To achieve these, the Group may be required to raise more
capital and it is working closely with funding sources, both equity
and debt providers, to achieve this objective.
ON BEHALF OF THE BOARD:
Dominic White
Director
29 September 2021
CORPORATE GOVERNANCE STATEMENT
Introduction
During the year to 30 June 2021 KCR Residential REIT plc, while
an AIM Listed Company, was operating initially with four directors
and three employees. In September 2018 it adopted the QCA code but
with such a tightly controlled operational and risk environment was
not able to, in all areas, fully comply with the principles. During
the current year the directors have continued to update the website
to comply as far as possible with the following QCA code
principles, noting areas where the small scope of operations limits
their ability to fully comply:
Principle 1: Establish a strategy and business model which
promote long-term value for shareholders
The Company's objective is to build a substantial property
portfolio predominantly in the residential sector that generates
both secure income flow from rents and increasing net asset value
for shareholders. The Company acquires or develops blocks of
studio, one-and two-bed apartments that are close to transport
links, shopping and leisure, mostly in London, its surrounds and
the South East. These blocks are focused on attracting tenants
seeking affordable rental accommodation.
The Company brings its property corporate finance expertise to
the identification and execution of these acquisitions.
The Company looks to acquire properties at below market value to
improve yield on cost and enhance net asset value. It aims to
achieve this through acquisition strategies including:
-- using the REIT's inherent tax advantages; acquiring
properties in corporate structures with embedded capital
appreciation and deferred tax liabilities which are reduced to zero
as the corporate becomes part of the REIT group, and
-- acquiring permitted land, funding the development process and
retaining the developer's profit.
Over the medium to long term, the Company expects rental and
property values to increase in line with inflation. These increases
coupled with new acquisitions are designed to enable the Company,
once it has reached scale, to pay dividends from cash flow
generated by rents and deliver net asset value increases through
positive property revaluations. Active asset management of the
properties may also deliver value increases. The Company as a REIT
is required to distribute 90 per cent of its rental profits.
It is the Company's paramount intention to conduct its
activities in a professional and responsible manner for the benefit
of its shareholders, its employees, and the communities where it
operates.
Further detail on the key challenges that the Board addresses
are set out under Risks and Uncertainties in the Strategic
Report.
Principle 2: Seek to understand and meet shareholder needs and
expectations
In August 2019, a major equity re-capitalisation brought in
GBP4.05m of capital and a substantial new shareholder, Torchlight
Fund LP. This transaction was designed to stabilise and re-position
the Company so that it could move forward in a way that all
existing and new shareholders may benefit from future uplifts to
profitability and increases in net asset value.
The Company remains committed to engaging with its shareholders
to ensure its strategy and performance are clearly understood.
Feedback from investors is obtained through direct interaction
between the CEO and Executive Director and shareholders following
the Company's full and half year results and certain other ad hoc
meetings between executive management and shareholders that take
place during the year.
The Company seeks to communicate with its shareholders on a
timely and transparent basis at all times. Announcements through
RNS are as comprehensive as possible. As part of the Company's
repositioning, the intention is to improve the speed of reporting
of the interim and full year results to shareholders.
The executive directors hold discussions with analysts,
shareholders and investment managers from time to time.
It is apparent from such interaction that shareholders have
several concerns, including:
-- How do the directors propose to expand operations without
dilution to existing shareholdings?
Since property companies are capital-intensive, the Company will
raise equity over time to fund the acquisition of new properties.
Torchlight Fund LP exercising its option rights as approved by
shareholders will be dilutive to existing shareholders with this
dilution having already being accepted and approved by
shareholders. The board will aim to maximise the issuance price of
any additional equity offerings such that issuances are accretive
or, if that is not possible, offer all shareholders the opportunity
to participate in the offering on an equal access.
-- When will the Company become profitable?
Based on current overheads and interest forecasts, the Company
may become profitable and cash flow positive once it has
approximately GBP30m of investments generating satisfactory rental
income. Executive management is focused on achieving this objective
as soon as possible. This is naturally dependent on the
availability of suitable transactions and the ability to complete
the acquisitions either via raising additional equity capital or
debt. Executive management are also focussed on continuing to
reduce costs and optimise the performance from the existing assets
such that a profitable position can be achieved from a lower level
of investment.
Shareholder liaison is managed by Dominic White and Russell
Naylor ( info@kcrreit.com ).
Principle 3: Take into account wider stakeholder and social
responsibilities and their implications for long-term success
The Company currently operates in the UK. It identifies the main
stakeholders in the UK as being investors, tenants, and suppliers
of services (accountant, nomad, broker, lawyers), employees,
directors, third-party property managers, banks and other debt
providers and property agents introducing investment
opportunities.
The Company has an important social responsibility in its role
as a landlord of residential housing. We commit to delivering great
service to our tenants, which includes providing safe and
high-quality residential units, at market prices, managed in a
professional way.
Treating all our stakeholders well, and in particular our key
customers - our tenants, is key to growing a sustainable business
that will have long-term success.
Principle 4: Embed effective risk management, considering both
opportunities and threats, throughout the organisation
The board is responsible for setting the risk framework within
which the Company operates and ensuring that suitable
risk-management controls and reporting structures are in place
throughout the group.
The board seeks to minimise risk in the management of its
operations. The Company uses third- party advisors to address
specific issues that arise during operations where they bring
complementary expertise and experience.
Principle 5: Maintain the board as a well-functioning, balanced
team led by the chair
The Board comprises a balance of independent and non-independent
directors with collective, specific and complementary skills that
enable the Company to manage and direct its affairs in a
professional manner, with embedded corporate governance procedures
that are fit for purpose.
Full Board meetings are generally held on a quarterly basis and
all necessary documentation is provided to the board in advance, so
that they can understand the issues under review and make well-
considered decisions. During the year, between full Board meetings,
the Board convenes whenever necessary to consider and if
appropriate approve the execution and completion by executive
management of key matters that fall within the Board's defined
remit as set out below.
The Board has audit and remuneration sub-committees that are
currently chaired by the Independent Non-Executive Chairman.
All of the directors devote such time to the Company's affairs
as the board considers appropriate. The involvement of
non-executive directors varies month by month but is estimated at
3-5 days a month.
On 3 November 2020 Michael Davies stepped down as Chairman and
James Thornton, an Independent Non-Executive Director of KCR,
became the Non-Executive Chairman of the board. KCR believes that a
reduced board of four members is appropriate for a business of its
size and is in line with its efforts to reduce operating costs,
assisting with its drive to profitability. As a result of these
changes, the Company has only one Independent Non-Executive
Director. The Company acknowledges the recommendations of the QCA
Corporate Governance Code, which it has adopted, and it is intended
at the appropriate time to seek appointment of a further
Independent Non-Executive Director.
During 2021, 4 Board meetings were held, attended by all current
directors.
Principle 6: Ensure that between them the directors have the
necessary up-to-date experience, skills and capabilities
The Board maintains up-to-date skills, knowledge and experience
to enable it to direct and manage the Company's operations,
finances and its interface with investors, the public markets and
its other stakeholders.
The Board takes great care to appoint managers and staff with
the appropriate skills and experience, and is aware of the
importance of encouraging diversity among its workforce.
The Board works as a team and regularly reviews its procedures
and composition.
The relevant experience and skills of the current directors is
set out under About Us/The Board on the Company's website. Each
director is involved in other organisations which keep their
professional skills sharpened and up to date.
Principle 7: Evaluate Board performance based on clear and
relevant objectives, seeking continual improvement
Following the transaction approved by the directors of KCR as at
31 July 2019, the Board of KCR now comprises:
Name Role Appointed Status
James Thornton Non-Executive chairman 06 August 2019* Independent
Dominic White CEO 01 January 2017 Non-independent
Russell Naylor Executive director 06 August 2019 Non-independent
Richard Boon Non-Executive director 06 August 2019 Non-independent
*appointed Chairman on 3 November 2020
In accordance with its obligations under the QCA code the Board
will review internally its collective performance, and the
performance of its committees and Board members. At this stage of
its evolution and in view of the size of the Board, the Directors
do not believe that it is practical to undertake an external or a
wide-ranging evaluation of the performance of Board members. The
primary tasks of the chief executive have been and will continue to
be to grow the Company's asset base and revenue through the
delivery of additional assets to the portfolio. This has included
developing capital and asset partnerships and finding ways to raise
appropriately priced and structured debt finance to support
transactions and equity capital in an uncertain equity market. He
is a key point of contact for the capital markets.
In these tasks he will be supported by Russell Naylor, Executive
Director, who is additionally responsible for internal financial
controls, financial management, capital planning and overseeing the
preparation of financial reports to shareholders.
The primary task of the Chairman, James Thornton is to ensure
that the Board has performed its role correctly, that governance is
adhered to, and that the Company works towards delivering value to
shareholders in accordance with the Company's strategy. He is also
a point of contact for the Company's shareholders and with its
professional advisers.
Succession planning remains an important issue for the Board,
and in particular the Chairman.
Principle 8: Promote a corporate culture that is based on
ethical values and behaviours
The Board strives to promote a corporate culture based on sound
ethical values and behaviours.
The Company has adopted a code for directors' and employees'
dealings in securities, which is appropriate for a company whose
securities are traded on AIM. The code is in accordance with the
requirements of the Market Abuse Regulation that came into effect
in 2016.
The Board is also aware that the tone and culture it sets will
greatly impact all aspects of the Company and the way that
employees behave, as well as the achievement of corporate
objectives. A significant part of the Company's activities is
centered upon an open dialogue with shareholders, employees and
other stakeholders. Therefore, the importance of sound ethical
values and behaviours is crucial to the ability of the Company to
successfully achieve its corporate objectives.
Principle 9: Maintain governance structures and processes that
are fit for purpose and support good decision-making by the
Board
The Board is committed to high standards of corporate
governance. No system of internal control can completely eliminate
the risk of process or individual failures. To an extent the
corporate governance structures which the Company is able to
operate are limited by the size of the executive management team
and the small number of executive directors, which is itself
dictated by the current size of the Company's operations. Within
this limitation necessitated by the current small size of the
business, the Board is dedicated to having strong internal control
systems in place to enable it to maintain the highest possible
standards of governance and probity.
The chairman, James Thornton:
-- leads the Board and is primarily responsible for the
effective working of the Board;
-- in consultation with the Board, ensures good corporate
governance and sets clear expectations with regards to Company
culture, values and behaviour;
-- sets the Board's agenda and ensures that all Directors are
encouraged to participate fully in the activities and
decision-making process of the Board;
-- takes responsibility for relationships with the Company's
professional advisers and its major shareholders.
The chief executive, Dominic White:
-- is primarily responsible for developing the Company's
strategy in consultation with the Executive Director and the Board,
for its implementation and for the operational management of the
business;
-- is primarily responsible for new projects and expansion;
-- runs the Company on a day-to-day basis;
-- implements the decisions of the Board;
-- monitors, reviews and manages key risks;
-- is the Company's primary spokesperson, communicating with
external audiences, such as investors, analysts and the media.
The executive director, Russell Naylor:
-- works closely with the CEO to develop and execute the Company's strategy;
-- is primarily responsible for the systems of financial
controls in operation for the Company and each of its
subsidiaries;
-- is primarily responsible for all financial management and
financial planning matters;
-- monitors, reviews and manages key risks as they relate to financial impact;
-- implements the financial and internal control decisions of the Board.
The Remuneration Committee, since November 2020, is now chaired
by James Thornton, Chairman and Independent Non-Executive Director,
and comprises James Thornton and Richard Boon, Non-Independent
Non-Executive Director. The Remuneration Committee meets on an ad
hoc basis when required.
T he Audit and Risk Committee is chaired by James Thornton,
Chairman and Independent Non-Executive Director and comprises James
Thornton and, since April 2021, Richard Boon. Russell Naylor is
invited to attend as appropriate. It meets at least twice each
financial year to consider the interim and final results. In the
latter case, the auditors are present and the meeting considers and
takes action on any matters raised by the auditors arising from
their audit.
The chair of each of the Committees may invite executive
management and Board members to attend any meeting.
Matters reserved for the Board include:
-- Vision and strategy
-- Review of budgets, asset plans and trading results
-- Approving financial statements
-- Financing strategy, including debt strategy
-- Business planning relating to acquisitions, divestments and
major refurbishments not already agreed in the strategy and asset
plans
-- Capital expenditure in excess of agreed budgets
-- Corporate governance and compliance
-- Risk management and internal controls
-- Appointments and succession plans at senior management level
-- Directors' remuneration
Principle 10: Communicate how the Company is governed and is
performing by maintaining a dialogue with shareholders and other
relevant stakeholders
The Company website sets out the principal approach of the
Company to governance. It contains all relevant documents and
information for shareholders, including all RNS announcements,
Financial Reports, Shareholder Circulars, and the Company's
articles.
Shareholders are additionally encouraged to participate at the
AGM, to ensure that there is a high level of accountability and
identification with the Group's strategy and goals.
Audit Committee Report
BDO rotated audit partners during the year, following good
governance in respect of the length of time of involvement of the
previous audit partner. The Executive Director and the Chair of the
Audit Committee met in advance of the 2021 year end to plan the
audit with the new external statutory auditor and to discuss the
materiality to be used in the audit and the expected key issues to
be covered. Progress of the 2021 audit was discussed with the
external auditor before the year-end Audit Committee meeting.
At the completion of the audit, the auditor presented its
Planning document and the Audit Completion Report to the Audit
Committee before the Financial Statements were presented for Board
approval.
The discussions enabled the auditor to explain the proposed work
and its outcome and the Non-Executive Directors to raise any
issues. It is considered that the process worked well and the audit
did not raise any material issues therefore the auditors were able
to issue their audit report in the usual form.
Remuneration Committee Report
During 2021, the Remuneration Committee met to review and
approve salaries.
It is the Company's policy that the remuneration of Directors
should be commensurate with the services provided by them to the
Company and should take account of published data on reasonable
market comparable Groups, where available. During the financial
year, the Directors accepted reduced remuneration in line with the
Company's strategy to control costs. Details of the Directors'
remuneration are set out in the Directors' Report on page 18.
REPORT OF THE DIRECTORS
The directors present their report with the financial statements
of the Company and the Group for the year ended 30 June 2021.
A review of the business, risks and uncertainties and future
developments is included in the Chairman's Letter, the Chief
Executive's Letter, the Group Strategic Report, and in note 21 to
the financial statements.
DIVIDS
The directors do not recommend payment of a dividend for the
year (2020 - GBPnil).
Political donations
The Group made no political donations during the year (2020 -
GBPnil).
DIRECTORS
The following directors served during the year to 30 June 2021
and up to the date of approval of this Annual Report:
Name
=============== =========================
Michael Davies resigned 3 November 2020
James Thornton
Dominic White
Russell Naylor
Richard Boon
The beneficial interests of the directors holding office at 30
June 2021 in the issued share capital of the Company were as
follows:
Ordinary
Shares
----------------
Issued in the
At 30 June 2020 year At 30 June 2021
Name No. No. No.
James Thornton 22,222 -- 22,222
Dominic White 1,195,932 91,666 1,287,598
Russell Naylor -- -- --
Richard Boon -- -- --
---------------- ----------------- ------------- -----------------
The beneficial interests of the directors holding office at 29
September 2021 in the issued share capital of the Company were as
follows:
At 30 June 2021 Issued in the At 29 September 2021
period
Name No. No. No.
Dominic White 1,287,598 - 1,287,598
James Thornton 22,222 - 22,222
--------------- ------------- --------------------
SUBSTANTIAL SHAREHOLDINGS
As at 29 September 2021, the directors had been notified that
the following shareholders owned a disclosable interest of three
per cent or more in the Ordinary shares of the Company:
Name Interest
%
--------------------------- --------
Lynchwood Nominees Ltd 34.08%
Drumz plc 8.65%
Moore House Holding Ltd 8.38%
Poole Investments Ltd 6.39%
Venaglass Ltd 5.62%
Dominic White & White Amba
Pension Scheme 4.72%
Oliver Vaughn 3.76%
Annabel Marie-Louse James 3.50%
DIRECTORS' REMUNERATION
The directors have received the following remuneration for their
services during the year:
2021 2020
------------------------------ ------------------------------
Name Remuneration Benefits-in-kind Remuneration Benefits-in-kind
GBP GBP GBP GBP
------------ ---------------- ------------ ----------------
Michael Davies -- -- - -
Dominic White 94,500 -- 145,853 -
Russell Naylor* 77,691 -- 44,000 -
James Thornton 30,000 -- 27,192 -
Richard Boon* 20,000 -- 18,130 -
James Cane - -- 7,603 -
Timothy James - -- 5,068 -
Oliver Vaughan - -- 10,541 -
------------ ---------------- ------------ ----------------
222,191 -- 258,387 -
============ ================ ============ ================
In addition, during the year, the Group were charged fees of
GBP10,800 by DGS Capital Partners LLP, a limited liability
partnership of which Michael Davies is a member (2020 - GBP43,200)
(including irrecoverable VAT) for making available the services of
Michael Davies to the Group.
* The remuneration paid to Russell Naylor included fees of
GBP48,000 charged by Naylor Partners, a business in which Russell
Naylor is a Director (2020 - GBP44,000) and the remuneration paid
to Richard Boon included fees of GBP18,900 (2020 - GBP18,130)
charged by Artefact Partners, a business in which Richard Boon is a
Director. The remuneration of Russell Naylor also includes a
provision of GBP22,816 for a catch up payment incentive which will
be due when the business achieves cash-flow breakeven.
During the previous year, the capital structure of the Company
was reviewed and the decision was taken to terminate the Restricted
Preference shares. As a result, a number of Restricted Preference
shares were converted to Ordinary shares and the remaining
Restricted Preference shares were gifted to the Company and
subsequently cancelled. A number of directors held Restricted
Preference shares. The total gain made by the directors in the 2020
financial year, upon the conversion of Restricted Preference shares
to Ordinary shares was GBP450,910. The gain was calculated as the
market value of the Ordinary shares at the date of conversion, less
the nominal value of the Restricted Preference shares. However, the
loss made by the directors in the 2020 financial year, as a result
of gifting a number of Restricted Preference shares to the Company
was GBP721,493. No gains or losses were made in the 2021 financial
year.
INTERNAL CONTROLS AND RISK MANAGEMENT
The directors are responsible for the Group's system of internal
control. Although no system of internal control can provide
absolute assurance against material misstatement or loss, the
Group's system is designed to provide reasonable assurance that
problems are identified on a timely basis and dealt with
appropriately.
In carrying out their responsibilities, the directors have put
in place a framework of controls to ensure as far as possible that
(i) ongoing financial performance is monitored in a timely manner,
(ii) where required, corrective action is taken and (iii) risk is
identified as early as practically possible. The directors have
reviewed the effectiveness of internal controls.
The Board, subject to delegated authority, reviews, among other
things, capital investment, property sales and purchases,
additional borrowing facilities, guarantees and insurance
arrangements.
Details of financial risk management are included within the
Risks and Uncertainties section of the Group Strategic Report.
BRIBERY RISK
The Group has adopted an anti-corruption policy and
whistle-blowing policy under the Bribery Act 2010. Notwithstanding
this, the Group may be held liable for offences under that Act
committed by its employees or subcontractors, whether or not the
Group or the directors had knowledge of the commission of such
offences.
OTHER MATTERS
i. Environmental
The Group understands the importance of operating its business
in a manner that minimises any risks to the environment. Its
policies seek to ensure that it achieves this goal.
ii. Group employees
The Group considers its employees to be its most valuable assets
and ensures that it deals with them fairly and constructively at
all times.
iii. Social matters
The Group is aware that it has a responsibility to the
communities where it operates and seeks to respect them at all
times.
iv. Respect for human rights
The Group always respects the human rights of its
stakeholders.
v. Contributions to pension schemes
No pension scheme benefits are being accrued by the
directors.
DIRECTORS' INDEMNITIES AND INSURANCE
The Company has made qualifying third-party indemnity provisions
for the benefit of its directors during the year and they remain in
force at the date of approval of this Annual Report.
GOING CONCERN
The directors have adopted the going-concern basis in preparing
the financial statements.
The directors consider, as at the date of approving the
financial statements, that there is reasonable expectation that the
Group has adequate financial resources to continue to operate, and
to meet its liabilities as they fall due for payment, for at least
twelve months following the approval of the financial
statements.
Following the declaration by the World Health Organisation of
Covid-19 as a global pandemic, governments in the UK and elsewhere
have taken drastic and unprecedented lockdown and other measures
which include compulsory business closures and tight restrictions
on movement of people and on their activities. This event has the
potential to impact the Group and its business and is considered
further in the Strategic Report on pages 7 to 11.
The Company has undertaken procedures to ensure that the Company
has sufficient cash resources and bank facilities and sufficient
covenant margin to manage the potential financial impact of the
Covid-19 pandemic on its business under going concern
principles.
See note 2 to the financial statements for further details of
the procedures undertaken.
POST BALANCE SHEET EVENTS
Post balance sheet events are detailed further in the Chief
Executive's letter and note 23 of the financial statements.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare financial
statements for each financial year. Under that law, the directors
have elected to prepare the financial statements in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. Under company law, the
directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Company and the Group and of the profit or loss of
the Group for that period. In preparing these financial statements,
the directors are required to:
* select suitable accounting policies and then apply
them consistently;
* make judgments and accounting estimates that are
reasonable and prudent;
* state that the financial statements comply with IFRS;
* prepare the financial statements on the going-concern
basis unless it is inappropriate to presume that the
Group will continue in business.
The directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's and
the Group's transactions and disclose with reasonable accuracy at
any time the financial position of the Company and the Group and
enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking reasonable
steps for the prevention and detection of fraud and other
irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
STATEMENT AS TO DISCLOSURE OF INFORMATION TO THE AUDITOR
So far as the directors are aware, there is no relevant audit
information (as defined by Section 418 of the Companies Act 2006)
of which the Group's auditor is unaware, and each director has
taken all the steps that he ought to have taken as a director in
order to make himself aware of any relevant audit information and
to establish that the Group's auditor is aware of that
information.
AUDITOR
In accordance with section 489 of the Companies Act 2006, a
resolution to reappoint BDO LLP as auditor will be proposed at the
forthcoming annual general meeting.
ON BEHALF OF THE BOARD
Dominic White
Director
29 September 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
Opinion on the financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the Parent Company's affairs as at 30
June 2021 and of the Group's loss for the year then ended;
-- the Group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
-- the Parent Company financial statements have been properly
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and as
applied in accordance with the provisions of the Companies Act
2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
We have audited the financial statements of KCR Residential REIT
Plc (the 'Parent Company') and its subsidiaries (the 'Group') for
the year ended 30 June 2021 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated and Company
Statements of Financial Position, the Consolidated and Company
Statements of Changes in Equity, the Consolidated and Company
Statements of Cash Flows, and notes to the financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the Group financial statements is applicable law and
international accounting standards in conformity with the
requirements of the Companies Act 2006 and, as regards the Parent
Company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the Directors' assessment of the Group and the Parent
Company's ability to continue to adopt the going concern basis of
accounting included:
-- Corroborated key assumptions (eg reviewed forecasted
occupancy rates to those historically achieved and loan expiries to
market norms for refinancing similar properties) to underlying
documentation and ensured these were consistent with our audit work
in these areas;
-- Considered the evidence provided to us to ensure that it was not contradictory;
-- Understood and assessed the appropriateness of the key
assumptions used both in the base case and in the plausible
downside scenario, including assessing whether we considered the
downside sensitivities to be appropriately severe;
-- Tested the integrity of the underlying formulas and
calculations within the cash flow models; and
-- Reviewed the disclosures provided relating to the going
concern basis of preparation and found that these provided an
explanation of the directors' assessment that was consistent with
the evidence we obtained.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group and the Parent Company's ability to continue as a going
concern for a period of at least twelve months from when the
financial statements are authorised for issue.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Key audit matters Valuation of investment properties was the sole
key audit matter in both the audits for the year
ended 30 June 2021 and 30 June 2020.
Group financial statements as a whole
Materiality
GBP293,000 (2020:GBP306,000) based on 1.2% (2020:1.2%)
of total assets
--------------------------------------------------------
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group's system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that may have represented a
risk of material misstatement.
As part of designing our audit, we determined materiality and
assessed the risks of material misstatement in the financial
statements.
In particular, we looked at where the Directors made significant
judgements, estimates and assumptions. The key judgement noted is
that of determining fair value of investment properties - see key
audit matters below.
We considered the risk of the financial statements being
misstated or not prepared in accordance with the underlying
legislation or standards. We then directed our work toward areas of
the financial statements which we assessed as having the highest
risk of containing material misstatements, including those set out
above.
There are four significant components in the Group, which are
all registered and operate in the UK. All components of the group,
and the consolidation were subject to full scope audits by BDO LLP.
There were no significant changes to this approach during the year
compared to the previous year's audit.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
Key audit matter How the scope of our audit addressed
the key audit matter
Valuation The Group holds investment In this area our audit procedures
of investment properties which comprise included:
properties properties owned by Group
held for rental income * We compared the key valuation assumptions, which we
(see Notes and capital appreciation. consider relate to the market yields appropriate to
2 and Investment properties are the sector and location of the properties, against
12) valued by the directors our independently formed market expectations.
and the valuation approach Variances were evaluated through challenge of the
is disclosed in Note 12. directors and accumulated to determine whether they
The valuation investment supported the overall valuation.
properties requires significant
judgement in determining
the appropriate inputs
to be used in the model * We tested the accuracy of key observable valuation
and there is therefore inputs, primarily passing rental income and lease
a risk that the properties terms, to the information provided to the external
are incorrectly valued. valuers for use in their valuation for a sample of
We have therefore determined properties.
the valuation of investment
properties to be a key
audit matter.
* We met with the directors to discuss and challenge
the valuation methodology and key assumptions, and to
determine whether there were any indicators of bias
on the valuations.
* We assessed the competency, qualifications,
independence and objectivity of the external valuers
who undertook valuations of the Group's properties
around the year end and reviewed the instructions
provided to the valuer for completeness, unusual
arrangements and to check that there was no evidence
of management bias.
Key observations:
We did not identify any indicators
to suggest that the valuation
of the Group's investment properties
is inappropriate.
--------------------------------- -------------------------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial
statements
2021 2020 2021 2020
GBP GBP GBP GBP
---------------- --------------- ------------------- ------------------
Materiality 293,000 306,000 174,000 192,000
---------------- --------------- ------------------- ------------------
Basis for determining 1.2% of total 1.2% of total 1.2% of total 1.2% of total
materiality assets assets assets assets
---------------- --------------- ------------------- ------------------
Rationale for A key determinant of the The Company's main activity
the benchmark Group's value is property is the investments in subsidiaries.
applied investments. Due to this, Given this, and to be consistent
the key area of focus year-on-year, we set an
in the audit is the valuation overall Company materiality
of investment properties. level based on total assets.
On this basis, and to
be consistent year-on-year,
we set an overall Group
materiality level based
on gross asset value.
--------------------------------- ---------------------------------------
Performance materiality 205,000 214,000 121,000 134,000
---------------- --------------- ------------------- ------------------
Basis for determining We consider a number of We consider a number of
performance materiality factors including history factors including history
of misstatements, risk of misstatements, risk
assessment and aggregation assessment and aggregation
risk and determined that risk and determined that
70% was appropriate in 70% was appropriate in
the circumstances. the circumstances.
--------------------------------- ---------------------------------------
Specific materiality
We also determined that for items within pre-tax profit, a
misstatement of less than materiality for the financial statements
as a whole, specific materiality, could influence the economic
decisions of users. As a result, we determined materiality for
these items at GBP43,000 (2020 - GBP161,000) which represents 5% of
loss before tax adjusted for fair value movements on capital
items.
Component materiality
We set materiality for each component of the Group dependent on
the size and our assessment of the risk of material misstatement of
that component. Component materiality ranged from GBP79,000 to
GBP178,000. In the audit of each component, we further applied
performance materiality levels of 70% of the component materiality
to our testing to ensure that the risk of errors exceeding
component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of GBP15,000
(2020:GBP15,000). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report other than the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise explicitly
stated in our report, we do not express any form of assurance
conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other
information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic In our opinion, based on the work undertaken in the
report and course of the audit:
Directors' * the information given in the Strategic report and the
report Directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the Strategic report and the Directors' report have
been prepared in accordance with applicable legal
requirements.
In the light of the knowledge and understanding of
the Group and Parent Company and its environment obtained
in the course of the audit, we have not identified
material misstatements in the strategic report or the
Directors' report.
Matters on We have nothing to report in respect of the following
which we matters in relation to which the Companies Act 2006
are required requires us to report to you if, in our opinion:
to report
by exception * adequate accounting records have not been kept by the
Parent Company, or returns adequate for our audit
have not been received from branches not visited by
us; or
* the Parent Company financial statements are not in
agreement with the accounting records and returns; or
* certain disclosures of Directors' remuneration
specified by law are not made; or
* we have not received all the information and
explanations we require for our audit.
------------------------------------------------------------------------
Responsibilities of Directors
As explained more fully in the statement of directors'
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view, and for such internal control as the
Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
Based on our understanding of the Group and industry, we
identified that the principal risks of non-compliance with laws and
regulations related to compliance with the Real Estate Investment
Trust (REIT) status section 1158 of the Corporation Tax Act 2010
and the UK regulatory principles, such as the Companies Act 2006,
to which non-compliance might have a material effect on the
financial statements. We evaluated management's incentives and
opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and
determined that the principal risks were related to posting
inappropriate journal entries to increase revenue, management bias
in accounting estimates and judgemental areas of the financial
statements such as the valuation of investment properties (see key
audit matter above). Audit procedures performed by the engagement
team included:
-- Discussions with management, including consideration of known
or suspected instances of non-compliance with laws and regulations
and fraud;
-- Reviewing relevant meeting minutes, including those of the
Risk Committee and the Audit Committee;
-- Challenging assumptions and judgements made by management in
their significant areas of estimation; and
-- Identifying and testing journal entries, in particular any
journal entries posted with unusual account combinations, posted by
unexpected users and posted on unexpected days.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the Parent Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Alexander Tapp (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 30 JUNE 2021
30 June 30 June
2021 2020
Notes GBP GBP
CONTINUING OPERATIONS
Revenue 3 1,036,011 1,035,816
Cost of sales (20,606) (152,605)
----------- -----------
GROSS PROFIT 1,015,405 883,211
Administrative expenses (1,102,869) (1,610,547)
Other operating income 2,803 14,576
Fair value through profit and loss
- Revaluation of investment properties 12 501,330 (311,888)
----------- -----------
OPERATING PROFIT/(LOSS) BEFORE SEPARATELY
DISCLOSED ITEMS 416,669 (1,024,648)
Separately disclosed items
Share-based payment charge 19 - (1,599,681)
Costs associated with third-party
fundraising and issue of shares 6 - (317,875)
Costs associated with refinancing 6 - (137,327)
Costs associated with refurbishment
of investment properties 6 (844,200) -
----------- -----------
OPERATING LOSS (427,531) (3,079,531)
Finance costs 5 (497,432) (483,932)
Finance income 5 729 2,645
----------- -----------
LOSS BEFORE TAXATION 6 (924,234) (3,560,818)
Taxation 7 - -
----------- -----------
( 3,560,818
LOSS FOR THE YEAR (924,234) )
=========== ===========
TOTAL COMPREHENSIVE EXPENSE FOR THE ( 3,560,818
YEAR (924,234) )
=========== ===========
Loss attributable to owners of the ( 3,560,818
parent (924,234) )
=========== ===========
Loss per share expressed in pence
per share 8
Basic (3.34) (13.48)
Diluted (1.19) (4.98)
=========== ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
30 JUNE 2021
30 June 30 June
2021 2020
Notes GBP GBP
----------- -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 23,378 46,410
Investment properties 12 24,262,000 23,592,000
----------- -----------
24,285,378 23,638,410
----------- -----------
CURRENT ASSETS
Trade and other receivables 14 53,375 63,889
Cash and cash equivalents 15 66,915 1,535,946
----------- -----------
120,290 1,599,835
----------- -----------
TOTAL ASSETS 24,405,668 25,238,245
=========== ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 2,816,963 2,756,963
Share premium 13,594,317 13,535,468
Capital redemption reserve 344,424 344,424
Other reserves - 14,930
Retained earnings (5,435,867) (4,511,633)
----------- -----------
TOTAL EQUITY 11,319,837 12,140,152
----------- -----------
LIABILITIES
NON-CURRENT LIABILITIES
Interest bearing loans and borrowings 18 11,052,419 11,052,419
----------- -----------
CURRENT LIABILITIES
Trade and other payables 17 447,224 374,416
Interest-bearing loans and borrowings 18 1,586,188 1,671,258
2,033,412 2,045,674
----------- -----------
TOTAL LIABILITIES 13,085,831 13,098,093
----------- -----------
TOTAL EQUITY AND LIABILITIES 24,405,668 25,238,245
=========== ===========
Net asset value per share (pence) 8 40.18 44.03
=========== ===========
The financial statements were approved and authorised for issue
by the Board of Directors on 29 September 2021 and were signed on
its behalf by:
Dominic White
Director
COMPANY STATEMENT OF FINANCIAL POSITION
30 JUNE 2021
30 June 30 June
2021 2020
Notes GBP GBP
----------- -----------
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 11 974 2,099
Investments 13 10,706,081 10,706,081
----------- -----------
10,707,055 10,708,180
----------- -----------
CURRENT ASSETS
Trade and other receivables 14 3,758,378 3,828,071
Cash and cash equivalents 15 19,252 1,476,379
----------- -----------
3,777,630 5,304,450
----------- -----------
TOTAL ASSETS 14,484,685 16,012,630
=========== ===========
EQUITY
SHAREHOLDERS' EQUITY
Share capital 16 2,816,963 2,756,963
Share premium 13,594,317 13,535,468
Capital redemption reserve 344,424 344,424
Other reserves - 14,930
Retained earnings (9,930,751) (9,147,860)
----------- -----------
TOTAL EQUITY 6,824,953 7,503,925
----------- -----------
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 7,659,732 8,423,635
Interest-bearing loans and borrowings 18 - 85,070
7,659,732 8,508,705
----------- -----------
TOTAL LIABILITIES 7,659,732 8,508,705
----------- -----------
TOTAL EQUITY AND LIABILITIES 14,484,685 16,012,630
=========== ===========
As permitted by Section 408 of the Companies Act 2006, the
income statement of the Company is not presented as part of these
financial statements. The Company's loss for the financial year was
GBP(782,891) (2020 - GBP(3,154,620)).
The financial statements were approved and authorised for issue
by the Board of Directors on 29 September 2021 and were signed on
its behalf by:
Dominic White
Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2021
Capital
Share redemption Other Retained Total
Share capital premium reserve reserve earnings equity
-------------- ------------ ------------ ---------- ------------ ------------
GBP GBP GBP GBP GBP GBP
Balance at 1 July
2019 2,029,178 10,018,986 67,500 14,930 (2,550,496) 9,580,098
Changes in equity
Transactions with
owners:
Issue of share capital 727,785 3,516,482 276,924 - - 4,521,191
Share-based payments - - - - 1,599,681 1,599,681
-------------- ------------ ------------ ---------- ------------ ------------
Total transactions
with owners 727,785 3,516,482 276,924 - 1,599,681 6,120,872
-------------- ------------ ------------ ---------- ------------ ------------
Total comprehensive
expense - - - - (3,560,818) (3,560,818)
-------------- ------------ ------------ ---------- ------------ ------------
Balance at 30 June
2020 2,756,963 13,535,468 344,424 14,930 (4,511,633) 12,140,152
-------------- ------------ ------------ ---------- ------------ ------------
Changes in equity
Transactions with
owners:
Issue of share capital 60,000 58,849 - - - 118,849
Equity element of
loan finance - - - (14,930) - (14,930)
-------------- ------------ ------------ ---------- ------------ ------------
Total transactions
with owners 60,000 58,849 - (14,930) - 103,919
-------------- ------------ ------------ ---------- ------------ ------------
Total comprehensive
expense - - - - (924,234) (924,234)
-------------- ------------ ------------ ---------- ------------ ------------
Balance at 30 June
2021 2,816,963 13,594,317 344,424 - (5,435,867) 11,319,837
============== ============ ============ ========== ============ ============
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 JUNE 2021
Capital
Share Share redemption Other Retained Total
capital premium reserve reserve earnings equity
---------- ------------ ------------ ----------- ----------------------- ------------
GBP GBP GBP GBP GBP GBP
Balance at 1 July
2019 2,029,178 10,018,986 67,500 14,930 (7,592,921) 4,537,673
Changes in equity
Transactions with
owners:
Issue of share
capital 727,785 3,516,482 276,924 - - 4,521,191
Share-based payments - - - - 1,599,681 1,599,681
---------- ------------ ------------ ----------- ----------------------- ------------
Total transactions
with owners 727,785 3,516,482 276,924 - 1,599,681 6,120,872
---------- ------------ ------------ ----------- ----------------------- ------------
Equity element - - - - - -
of loan finance
Total comprehensive
expense - - - - (3,154,620) (3,154,620)
---------- ------------ ------------ ----------- ----------------------- ------------
Balance at 30 June
2020 2,756,963 13,535,468 344,424 14,930 (9,147,860) 7,503,925
---------- ------------ ------------ ----------- ----------------------- ------------
Changes in equity
Transactions with
owners:
Issue of share
capital 60,000 58,849 - - - 118,849
Equity element
of loan finance - - - (14,930) - (14,930)
---------- ------------ ------------ ----------- ----------------------- ------------
Total transactions
with owners 60,000 58,849 - (14,930) - 103,919
---------- ------------ ------------ ----------- ----------------------- ------------
Total comprehensive
expense - - - - (782,891) (782,891)
---------- ------------ ------------ ----------- ----------------------- ------------
Balance at 30 June
2021 2,816,963 13,594,317 344,424 - (9,930,751) 6,824,953
========== ============ ============ =========== ======================= ============
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2021
2021 2020
Note GBP GBP
------------ ------------
Cash flows from operating activities
Cash used in operations 1 (822,507) (1,554,962)
Interest paid (497,432) (483,932)
Net cash used in operating activities (1,319,939) (2,038,894)
------------ ------------
Cash flows from investing activities
Purchase of property, plant & equipment - (8,178)
Repayment of other borrowings - (1,738,076)
Purchase of investment properties
(including capital expenditure
on current properties) (168,670) (518,888)
Disposal of investment properties - 538,000
Interest received 729 2,645
------------ ------------
Net cash used in investing activities (167,941) (1,724,497)
------------ ------------
Cash flows from financing activities
Loan repayments in year 18 (100,000) (6,658,130)
New loans in year - 7,868,169
Proceeds from share issue 118,849 4,060,000
------------ ------------
Net cash generated from financing
activities 18,849 5,270,039
------------ ------------
Decrease in cash and cash equivalents (1,469,031) 1,506,648
Cash and cash equivalents at beginning
of year 1,535,946 29,298
------------ ------------
Cash and cash equivalents at end
of year 66,915 1,535,946
============ ============
COMPANY STATEMENT OF CASH FLOWS
FOR THE YEARED 30 JUNE 2021
2021 2020
Note GBP GBP
------------ ------------
Cash flows from operating activities
Cash used in operations 1 (725,591) (1,868,397)
Interest paid (1,327) (178,040)
------------ ------------
Net cash generated from/(used in)
operating activities (726,918) (2,046,437)
------------ ------------
Cash flows from investing activities
Purchase of property, plant & equipment - (980)
Interest received 727 2,569
------------ ------------
Net cash generated from investing
activities 727 1,589
------------ ------------
Cash flows from financing activities
(Decrease)/Increase in loans from
group companies (820,388) 7,787,070
Increase/(Decrease) in loans to
group companies 70,603 (2,024,997)
Loan repayments in year 18 (100,000) (6,304,180)
Proceeds from share issued 118,849 4,060,000
------------ ------------
Net cash (used in)/generated from
financing activities (730,936) 3,517,893
------------ ------------
Decrease in cash and cash equivalents (1,457,127) 1,473,045
Cash and cash equivalents at beginning
of year 1,476,379 3,334
------------ ------------
Cash and cash equivalents at end
of year 19,252 1,476,379
============ ============
NOTES TO THE STATEMENTS OF CASH FLOWS
FOR THE YEARED 30 JUNE 2021
1) RECONCILIATION OF LOSS BEFORE TAXATION TO CASH USED IN OPERATIONS
Group 2021 2020
GBP GBP
--------- -----------
Loss before taxation (924,234) (3,560,818)
Depreciation charges 23,032 23,138
Revaluation of investment properties (501,330) 311,888
Share-based payment charge - 1,599,681
Finance costs 497,432 483,932
Finance income (729) (2,645)
--------- -----------
(905,829) (1,144,824)
Decrease in trade and other receivables 10,514 13,189
Increase/(decrease) in trade and other payables 72,808 (423,327)
--------- -----------
Cash used in operations (822,507) (1,554,962)
========= ===========
Company 2021 2020
GBP GBP
--------- -----------
Loss before taxation (782,891) (3,154,620)
Depreciation charges 1,125 1,229
Share-based payment charge - 1,599,681
Finance costs 1,327 178,040
Finance income (727) (2,569)
--------- -----------
(781,166) (1,378,239)
Decrease/(increase) in trade and other receivables (910) 1 0,330
Increase/(decrease) in trade and other payables 56,485 (500,488)
--------- -----------
Cash used in operations (725,591) (1,868,397)
--------- -----------
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARED 30 JUNE 2021
1) PRESENTATION OF FINANCIAL STATEMENTS
Statement of compliance
The consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
Functional and presentation currency
These consolidated financial statements are presented in Pounds
Sterling ('GBP'), which is considered by the directors to be the
functional currency of the Group.
Changes in accounting policies
Adoption of new and revised standards
The Group has applied the following accounting standards that
are mandatorily effective for accounting periods commencing on or
after 1 January 2020:
- Amendments to IAS 1 and IAS8: Definition of Material
- Amendments to IFRS 3: Definition of a Business
- Amendments to IFRS 7, IFRS 9 and IAS 39 : Interest Rate Benchmark reform
- Amendments to References to the Conceptual Framework in IFRS Standards
- Covid-19 Related rent concessions (Amendment to IFRS 16)
The application of these amendments have not had a material
impact on the amounts reported in these financial statements.
New standards in issue but not yet effective
As at 30 June 2021, the Group has not applied the following new
and revised standards that have been issued but are not effective
until 1 January 2022:
- Amendments to IAS 1: Classification of liabilities as current or non current
- Amendments to IAS 16: Property, plant and equipment: Proceeds before intended use
- Amendments to IFRS 3: Reference to the conceptual framework
- Annual improvements to IFRS Standards 2018-2020
- Amendments to IAS 37: Onerous Contracts - cost of fulfilling a contract
The directors do not anticipate that the adoption of the above
amendments will have a significant impact on the financial
statements of the Group in future periods.
2) ACCOUNTING POLICIES
Basis of preparation
The consolidated financial statements have been prepared on the
historical cost basis other than as set out in the following
policies.
Going concern
The financial statements have been prepared on a going concern
basis. This requires the directors to consider, as at the date of
approving the financial statements, that there is reasonable
expectation that the Group has adequate financial resources to
continue to operate, and to meet its liabilities as they fall due
for payment, for at least twelve months following the approval of
the financial statements. This includes considering the borrowings
of GBP1,586,188 which fall due for repayment during that period.
The Company secured a loan of GBP2,375,000 post year end (note 23)
that has enabled refinancing and additional capital to support
Group activities.
The Group has undertaken procedures to ensure that the Group has
sufficient cash resources and bank facilities and with sufficient
covenant margin to manage the potential financial impact of the
Covid-19 pandemic on its business under going concern principles.
These procedures included the following:
-- Reviewing and establishing that cash balances and bank
facilities are sufficient to cover at least twelve months of
operations;
-- Review of financial covenant ratios and the Group's ability
to meet the covenants for a period of at least twelve months of
operation; and
-- Reviewing cash flow forecast scenarios. Any decision on
property acquisitions and developments in the next twelve months
will be taken following review of revised cash flow forecasts.
Having reviewed the Company's current position and cash flow
projections, including the confirmation that the Company's
subsidiaries which are also creditors as at the year end will
provide such financial support as is required for a period of at
least 12 months from the date of signing of these financial
statements, the Directors have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future. Accordingly they continue to adopt the
going concern basis in preparing these financial statements.
The Company has also provided an undertaking to its subsidiaries
that no intra-group amounts owed to the Company will be called for
repayment for a period of at least 12 months from the date of
approval of these financial statements unless the Subsidiary is in
a position to make payments without adversely affecting their
ability to continue to trade and settle any future obligations.
Basis of consolidation
Where the Company has control over an investee, it is classified
as a subsidiary. The Company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements incorporate the results of
business combinations using the acquisition method. In the
statement of financial position, the acquiree's identifiable
assets, liabilities and contingent liabilities are initially
recognised at their fair values at the acquisition date. The
results of acquired operations are included in the consolidated
statement of comprehensive income from the date on which control is
obtained. They are deconsolidated from the date on which control
ceases.
The subsidiaries included in the consolidated financial
statements, from the effective date of acquisition, are K&C
(Newbury) Limited, K&C (Coleherne) Limited, K&C (Osprey)
Limited, KCR (Kite) Limited, KCR (Cygnet) Limited and KCR
(Southampton) Limited.
The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a
single entity. Intercompany transactions and balances between group
companies are therefore eliminated in full.
Transaction costs, other than those of a capital nature and
those associated with the issue of debt or equity securities that
the Group incurs in connection with a business combination are
expensed as incurred.
Investments
Investments in subsidiaries are held at cost less provision for
impairment.
Revenue recognition
Revenue of the Group for the year was derived mainly from its
principal activity, being the letting to third parties of, and
management of, property assets owned by the Group. This income
includes rental income, management fees and sales commissions.
Revenue from contracts with customers is recognised when control
of the services are transferred to the customer at an amount that
reflects the consideration to which the Group expects to be
entitled in exchange for those services net of discounts, VAT and
other sales-related taxes. The Group concludes that it is the
principal in its revenue arrangements, because it typically
controls the goods or services before transferring them to the
customer. Contracts with customers do not contain a financing
component or any element of variable consideration.
Rental income from operating leases is recognised periodically
in line with the time for which the property is rented. Rental
income received in advance is recognised in deferred income.
Management fees derived from the management of property assets
owned by third parties are recognised as the services are
provided.
Revenue from sales commissions is recognised at the point in
time when control of the asset is transferred from the vendor to
the buyer.
Separately disclosed items
Separately disclosed items are those that are deemed to be
exceptional by size or nature in relation to the activities of the
Group. In the case of share-based payment charges, these are
included as a separately disclosed item as a significant non-cash
item.
Finance costs
Finance costs comprise interest expense on borrowings.
Borrowing costs that are not directly attributable to the
acquisition, construction or production of a qualifying asset are
recognised in profit or loss using the effective interest
method.
Property, plant and equipment
Property, plant and equipment are stated at cost less
accumulated depreciation.
Depreciation is provided at the following annual rates in order
to write off each asset over its estimated useful life.
Fixtures and fittings - 5% and 25% on cost
Computer equipment - 25% on cost
Investment properties
Investment properties comprise properties owned by the Group
which are held for capital appreciation, rental income or both.
Investment properties are initially measured at cost, including
expenditure that is directly attributable to the acquisition of the
asset. Investment properties are revalued on acquisition by
independent external valuers and then by the directors or
independent valuers annually thereafter. Acquisitions and disposals
are recognised on completion. Any gain or loss arising from a
change in fair value is recognised in profit or loss.
Further details of the investment property valuation methodology
are contained in note 12 of the financial statements.
Subsequent expenditure is capitalised only when it is probable
that the future economic benefits associated with the expenditure
will flow to the Group. Ongoing repairs and maintenance are
expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and balances
held with banking institutions.
Financial assets
Recognition and derecognition
Financial assets are recognised initially on the date that the
Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the
rights to receive the contractual cash flows in a transaction in
which substantially all the risks and rewards of ownership of the
financial assets are transferred.
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position only when the
Group has a legal right to offset the amounts and intends either to
settle on a net basis or to realise the asset and settle the
liability simultaneously.
Classification and initial recognition of financial assets
Except for trade receivables that do not contain a significant
financing component and are measured at the transaction price in
accordance with IFRS 15, all financial assets are initially
measured at fair value plus adjusted for any directly attributable
transaction costs.
Financial assets are classified into the following
categories:
- Amortised cost
- Fair value through profit or loss (FVTPL)
- Fair value through other comprehensive income (FVOCI)
The classification is determined by both:
- The entity's business model for managing the asset
- The contractual cash flow characteristics of the financial asset
All income and expenses relating to financial assets that are
recognised in profit or loss are presented within finance costs,
finance income or other financial items, except for impairment of
trade receivables which is presented within administrative
expenses.
Subsequent measurement of financial assets
Financial assets are measured at amortised cost if the assets
meet the following conditions (and are not designated as
FVTPL):
- They are held within a business model whose objective is to
hold the financial assets and collect its contractual cash
flows;
- The contractual terms of the financial assets give rise to
cash flows that are solely payments of principal and interest on
the principal amount outstanding.
After initial recognition, these are measured at amortised cost
using the effective interest method. Discounting is omitted where
its effect is immaterial. The Group's cash and cash equivalents,
trade and most other receivables fall into this category.
Financial assets which are designated as FVTPL are measured at
fair value with gains or losses recognised in profit or loss. The
fair values of financial assets in this category are determined
with reference to active market transactions or using a valuation
technique where no active market exists. The Group's investment
properties are designated as FVTPL assets.
Impairment of financial assets
IFRS 9's impairment requirements use forward looking information
to recognise expected credit losses - the 'expected credit loss
(ECL) method'. Recognition of credit losses is no longer dependent
on first identifying a credit loss event, but considers a broader
range of information in assessing credit risk and credit losses
including past events, current conditions, reasonable and
supportable forecasts that affect the expected collectability of
the future cash flows of the instrument.
The group makes use of a simplified approach in accounting for
trade and other receivables and records the loss allowance as
lifetime expected credit losses. These are the expected shortfalls
in contractual cash flows, considering the potential for default at
any point during the life of the financial instrument. In
calculating, the Group uses its historical experience, external
indicators and forward-looking information to calculate the
expected credit losses.
Financial liabilities
Financial liabilities are recognised initially on the date that
the Group becomes a party to the contractual provisions of the
instrument.
The Group derecognises a financial liability when its
contractual obligations are discharged, cancelled or expire.
The Group classifies non-derivative financial liabilities into
the 'other financial liabilities' category. Such financial
liabilities are recognised initially at fair value adjusted for
directly attributable transaction costs. Subsequent to initial
recognition, these financial liabilities are measured at amortised
cost using the effective interest method.
'Other financial liabilities' comprise trade and other payables
and other short-term monetary liabilities.
Bank and other borrowings are initially recognised at the fair
value of the amount advanced net of any transaction costs directly
attributable to the issue of the instrument. Such interest-bearing
liabilities are subsequently measured at amortised cost using the
effective interest method. Interest expense in this context
includes initial transaction costs and premium payable on
redemption, as well as any interest or coupon payable while the
liability is outstanding.
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities.
Share capital
Ordinary shares are classified as equity. Costs directly
attributable to the issue of Ordinary shares are recognised as a
deduction from equity.
Leasing
The Company applies IFRS 16 Leases. Lessees, with certain
exceptions for short term or low value leases, are required to
recognise all leased assets on their Statement of Financial
Position as 'right-of-use assets' with a corresponding lease
liability.
The Group has a small number of operating leases concerning
office premises and plant and equipment. IFRS 16 provides an
exemption for short term operating leases and leases of low value.
The Company has taken advantage of the exemptions rather than
establishing a right to use asset.
The costs of leases of low value items and those with a short
term at inception are recognised as incurred.
Taxation
Tax expense comprises current and deferred tax. Current and
deferred tax is recognised in profit or loss except to the extent
that it relates to a business combination, or items recognised
directly in equity or in other comprehensive income. As a REIT, the
Group is generally not liable to corporation tax.
Deferred tax would be recognised in respect of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for taxation
purposes. Deferred tax is recognised for:
-- temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination and
that affects neither the accounting nor taxable profit or loss;
-- temporary differences related to investments in subsidiaries
and jointly controlled entities to the extent that it is probable
that they will not reverse in the foreseeable future; and
-- taxable temporary differences arising on the initial recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, using tax
rates enacted or substantively enacted at the reporting date.
A deferred tax asset is recognised for unused tax losses, tax
credits and deductible temporary differences to the extent that it
is probable that future taxable profits will be available against
which they can be utilised. Deferred tax assets are reviewed at
each reporting date and are reduced to the extent that it is no
longer probable that the related tax benefit will be realised.
Provisions
A provision is recognised if, as a result of a past event, the
Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The
unwinding of the discount is recognised as finance cost.
Share-based payments
The Group allowed certain directors and other individuals to
acquire shares in the parent company until the scheme was disbanded
on 6 August 2019. The grant date fair value of share-based payment
awards granted was recognised as an employee expense with a
corresponding increase in equity, over the period that the
employees become unconditionally entitled to the awards. The fair
value of the options granted was measured using an option pricing
model, taking into account the terms and conditions upon which the
options were granted. The fair value was charged as an expense in
the income statement over the vesting period and the charge
adjusted each year to reflect the expected and actual level of
vesting. No adjustment is made to the charge after the vesting
date.
Further details regarding the conversion and cancellation of the
share-based payment awards are included in Note 19.
Critical accounting estimates and judgments
The preparation of the consolidated financial statements in
conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting
policies and the reported amount of assets, liabilities, income,
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future years
affected.
Information about critical estimates and assumptions that have
the most significant effect on the amounts recognised in the
consolidated financial statements and/or have a significant risk of
resulting in a material adjustment within the next financial year
is as follows:
-- Determination of fair values
A number of the Group's accounting policies and disclosures
require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been
determined for measurement and/or disclosure purposes based on the
following methods.
When applicable, further information about the assumptions made
in determining fair values is disclosed in the notes specific to
that asset or liability.
Investment properties
The Group's investment properties are valued, on the basis of
market value. The fair value of investment properties is based
either on independent professional valuations in accordance with
the Royal Institution of Chartered Surveyors' Appraisal and
Valuation Standards 2014 as amended or by the directors, based on
market prices for similar items. The Group's investment properties
were valued at 30 June 2021 at GBP24,262,000. See note 12 for
further details.
The directors are of the opinion that the estimates and
assumptions that they have used in the valuation of investment
properties are appropriate. Further details of the valuation
methodology are contained in note 12 of the financial
statements.
3) REVENUE
The Group is involved in UK property ownership, management and
letting and is considered to operate in a single geographical and
business segment.
The total revenue of the Group for the year was derived from its
principal activities, being the letting to third parties of, and
management of, property assets owned by the Group, and, in certain
cases, the management of property assets owned by third
parties.
The Group's investment property consists of residential housing
for the private rented sector and therefore has multiple tenants
and as a result does not have any significant customers.
2021 2020
GBP GBP
Revenue analysed by class of business
Rental income 724,680 727,859
Management fees 81,768 74,218
Resale commission 114,913 39,043
Ground rents 13,535 13,655
Leasehold extension income 96,275 168,916
Other income 4,840 12,125
--------- ---------
1,036,011 1,035,816
========= =========
4) EMPLOYEES AND DIRECTORS
Group
2021 2020
GBP GBP
------- ---------
Wages and salaries 325,525 635,023
Social security costs 35,448 69,628
Pension costs 1,275 12,732
------- ---------
362,248 717,383
======= =========
The average monthly number of employees during
the year was as follows: 2021 2020
Directors and management 4 7
Administration 3 3
------- -------
7 10
======= =======
2021 2020
GBP GBP
Directors' remuneration (as per Report
of the Directors) 222,191 258,387
Share-based payment charge relating to
directors (see Note 19) - 1,055,755
Remuneration of the highest-paid director 89,375 145,853
Amounts paid into a pension scheme of the - -
highest-paid director
======== ==========
The Group directors are considered to be key management
personnel. Certain directors and others held Restricted Preference
shares in the Company until 6 August 2019, further details of which
are contained in note 19 of the financial statements.
Company
2021 2020
GBP GBP
------- -------
Wages and salaries 264,402 573,637
Social security costs 30,118 60,631
Pension costs (2,175) 10,110
------- -------
292,345 644,378
======= =======
The average monthly number of employees during
the year was as follows
Directors and management 4 7
Administration - 1
4 8
5) FINANCE COSTS AND INCOME
2021 2020
GBP GBP
--------- ---------
Finance costs
Loan interest 497,432 483,932
========= =========
Finance income
Bank interest 729 2,645
========= =========
6) LOSS BEFORE TAXATION
The loss before taxation is stated after charging:
2021 2020
GBP GBP
====== ======
Hire of plant and machinery 10,002 10,437
Other operating leases 13,140 20,639
Depreciation - owned assets 23,032 23,138
Auditors' remuneration for the Group - audit
services for parent company 40,000 40,000
- audit services for subsidiaries 15,000 20,000
Separately disclosed items
In the previous year the Group incurred significant costs
relating to third-party fundraising and issue of shares. The costs
to the Group totalled GBP317,875. The Group also incurred
significant costs relating to refinancing during the second half of
the previous year, these totalled GBP137,327.
Further information on the share-based payments, which are shown
on the face of the Consolidated Statement of Comprehensive Income,
can be found in note 19.
During the year, the Group commenced substantial refurbishment
work to investment properties owned by K&C (Coleherne) Limited
and K&C (Osprey) Limited. The costs incurred in the 2021
financial year amounted to GBP703,946 and GBP140,254 (2020 -
GBPNil).
It is considered that the size and nature of these costs are
such that they should be disclosed on the face of the Consolidated
Statement of Comprehensive Income.
7) TAXATION
Analysis of tax
2021 2020
Current tax GBP GBP
---- ----
UK corporation tax - -
Deferred tax - -
Total tax - -
==== ====
Factors affecting the tax expense
The tax assessed for the year is higher than the standard rate
of corporation tax in the UK. The difference is explained
below:
2021 2020
GBP GBP
----------- -----------
(924,234
Loss on ordinary activities before taxation ) (3,560,818)
=========== ===========
Loss on ordinary activities multiplied by
the standard rate of corporation tax in the
UK of 19% (2020 - 19%) (175,604) (676,555)
Effects of
Expenses not deductible - 481,229
Income not taxable 175,604 (66,141)
Losses not recognised in deferred tax - 261,467
----------- -----------
Tax credit - -
=========== ===========
The Group re-entered the REIT regime on 6 August 2019 and has
remained under the REIT regime since that date.
8) LOSS PER SHARE AND NET ASSET VALUE
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average
number of Ordinary shares outstanding during the year.
Fully diluted earnings per share is calculated using the
weighted average number of shares adjusted to assume the conversion
of all dilutive potential Ordinary shares.
Basic loss per share
2021
Weighted average
number of Per share
Loss shares amount
------------ ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (924,234) 27,651,823 (3.34)
Effect of dilutive securities - - -
============ ================= ==========
2020
Weighted average
number of Per share
Loss shares amount
------------ ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (3,560,818) 26,411,154 (13.48)
Effect of dilutive securities - - -
============ ================= ==========
Diluted loss per share
2021
Weighted average
number of Per share
Loss shares amount
------------ ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (924,234) 77,569,631 (1.19)
Effect of dilutive securities - - -
============ ================= ==========
2020
Weighted average
number of Per share
Loss shares amount
------------ ----------------- ----------
GBP No Pence
Loss attributable to ordinary
shareholders (3,560,818) 71,493,121 (4.98)
Effect of dilutive securities - - -
============ ================= ==========
The net asset value is calculated by dividing the equity
attributable to ordinary shareholders by the number of Ordinary
shares in issue at the balance sheet date.
2021
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 11,319,837 28,169,631 40.18
2020
Number of Per share
Equity shares amount
----------- ----------- ----------
GBP No Pence
Net asset value 12,140,152 27,569,631 44.03
=========== =========== ==========
9) OPERATING LEASES RECEIVABLE
The Group leases residential units within certain of its
investment properties under operating leases. The future minimum
lease payments receivable under non-cancellable leases are as
follows:
30 June 30 June
2021 2020
GBP GBP
------- -------
Within one year 414,594 507,513
Between one and five years 84,533 239,355
More than 5 years 37,263 45,531
------- -------
Total 536,390 792,399
======= =======
Lease revenue is generated from properties owned by K&C
(Coleherne) Limited, KCR (Southampton) Limited and KCR (Kite)
Limited that are let on short-term tenancy agreements.
10) LEASING AGREEMENTS
Minimum lease payments, under non-cancellable operating leases,
fall due as follows:
30 June 30 June
2021 2020
GBP GBP
Within one year 24,784 24,784
Between one and five years 10,449 18,809
------- -------
Total 35,233 43,593
======= =======
11) PROPERTY, PLANT AND EQUIPMENT
GROUP Fixtures, fittings
& computer
equipment
GBP
-------------------
COST
At 1 July 2019 89,562
Additions 8,178
-------------------
At 30 June 2020 97,740
Additions -
-------------------
At 30 June 2021 97,740
-------------------
DEPRECIATION
At 1 July 2019 28,192
Charge for year 23,138
-------------------
At 30 June 2020 51,330
Charge for year 23,032
-------------------
At 30 June 2021 74,362
-------------------
NET BOOK VALUE
At 30 June 2021 23,378
===================
At 30 June 2020 46,410
===================
COMPANY Fixtures, fittings
& computer
equipment
GBP
-------------------
COST
At 1 July 2019 6,536
Additions 980
-------------------
At 30 June 2020 7,516
Additions -
-------------------
At 30 June 2021 7,516
-------------------
DEPRECIATION
At 1 July 2019 4,188
Charge for year 1,229
-------------------
At 30 June 2020 5,417
Charge for year 1,125
-------------------
At 30 June 2021 6,542
-------------------
NET BOOK VALUE
At 30 June 2021 974
===================
At 30 June 2020 2,099
===================
12) INVESTMENT PROPERTIES
Group Total
GBP
-----------
COST OR VALUATION
At 1 July 2019 23,923,000
Additions 518,888
Disposals (538,000)
Revaluations (311,888)
-----------
At 30 June 2020 23,592,000
Additions 168,670
Disposals -
Revaluations 501,330
-----------
At 30 June 2021 24,262,000
===========
At 30 June 2021 24,262,000
===========
At 30 June 2020 23,592,000
===========
The investment properties were valued by the Directors at 30
June 2021 with reference to independent external valuations
performed in June and July 2021. The external valuations were
carried out in accordance with the Royal Institution of Chartered
Surveyors' Valuation - Global Standards, 2020 (Red Book).
The directors determined that there were no material factors
that would give rise to there being a material variance between the
latest external valuation and the fair value as at 30 June 2021.The
valuation of the investment properties was GBP24,262,000, which was
included in the financial statements.
During the year to 30 June 2021 there have been additions of
GBP168,670 due to the capitalisation of certain costs relating to
the enhancement of properties at Coleherne Road and Heathside.
Fair value is based on current prices in an active market for
similar properties in the same location and condition. The current
price is the estimated amount for which a property could be
exchanged between a willing buyer and willing seller in an arm's
length transaction after proper marketing wherein the parties had
each acted knowledgeably, prudently and without compulsion.
Valuations are based on a market approach which provides an
indicative value by comparing the property with other similar
properties for which price information is available. Comparisons
have been adjusted to reflect differences in age, size, condition,
location and any other relevant factors.
The fair value for investment properties has been categorised as
Level 3 inputs under IFRS 13. The valuer visited all material
properties and his valuations were based on both internal and
external site visits.
The valuation technique used in measuring the fair value, as
well as the significant inputs and significant unobservable inputs
are summarised in the table below:
Fair Value Valuation Technique Significant Significant Unobservable
Hierarchy Inputs Used Inputs
Level Income capitalisation Adopted gross 3.00% - 5.76%
3 and or capital value yield
on a per square foot
basis
Adopted rate
per square foot GBP303 - GBP982
The fair value would increase if market rents were higher and/or
the rates per square foot were higher and/or capitalisation rates
were lower.
The fair values would decrease if market rents were lower and/or
the rates per square foot were lower and/or capitalisation rates
were higher.
If properties had been included on a historical cost basis, the
cost of the properties at 30 June 2021 would have been
GBP22,467,913 (2020 - GBP22,299,243).
The revenue earned by the Group from its investment properties
and all direct operating expenses incurred on its investment
properties are recorded in the Consolidated Statement of
Comprehensive Income.
The total rental income in relation to investment properties for
the Group equated to GBP724,680 (2020 - GBP727,859). The total
rental expenses in relation to investment properties for the Group
equated to GBP20,606 (2020 - GBP152,605).
Included within Investment Properties are leasehold properties
valued at GBP5,830,000 and freehold properties valued at
GBP18,432,000 (2020: GBP5,830,000 and GBP17,762,000
respectively).
13) INVESTMENTS
Shares in
group undertakings
Company GBP
--------------------
COST
At 1 July 2019 10,706,081
Disposals -
--------------------
At 30 June 2020 10,706,081
Disposals -
At 30 June 2021 10,706,081
====================
NET BOOK VALUE
At 30 June 2021 10,706,081
====================
At 30 June 2020 10,706,081
====================
As at 30 June 2021, the Company's investments comprise the
following:
Holding
Subsidiaries %
============================================ ========
Registered
K&C (Coleherne) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
K&C (Osprey) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
KCR (Kite) Limited office: UK 100.00
Nature of business Class of shares
Dormant Ordinary
Registered
KCR (Southampton) Limited office: UK 100.00
Nature of business Class of shares
Property letting Ordinary
Registered
K&C (Newbury) Limited office: UK 100.00
Nature of business Class of shares
Dormant Ordinary
All of the above companies are registered at Gladstone House,
77-79 High Street, Egham, Surrey, TW20 9HY.
14) TRADE AND OTHER RECEIVABLES
Group Company
2021 2020 2021 2020
GBP GBP GBP GBP
Trade debtors 246 23,460 - -
Amounts owed by group
undertakings - - 3,741,633 3,812,236
Other debtors 11,530 19,403 - 748
VAT - 604 - -
Prepayments 41,599 20,422 16,745 15,087
53,375 63,889 3,758,378 3,828,071
======= ======= ========== ==========
The Group and Company's exposure to credit risk is disclosed in
note 21.
There is no material difference between the fair value of trade
and other receivables and their book value.
All receivables are due within 12 months of 30 June 2021. None
of those receivables has been subject to a significant increase in
credit risk since initial recognition and, consequently, no
expected credit losses have been recognised.
15) CASH AND CASH EQUIVALENTS
Group Company
2021 2020 2021 2020
GBP GBP GBP GBP
Cash in hand 40 40 - -
Bank accounts 66,875 1,535,906 19,252 1,476,379
66,915 1,535,946 19,252 1,476,379
======= ========== ======= ==========
16) SHARE CAPITAL
Allotted, issued and fully paid
30 June 30 June
Number Class Nominal value 2021 2020
------------------ --------- ---------
GBP GBP
--------- ---------
28,169,631 Ordinary GBP0.10 2,816,963 2,756,963
(2020: 27,569,631) 2,816,963 2,756,963
========= =========
2021 2021 2020 Number 2020
Number GBP GBP
Ordinary shares of GBP0.10
each
At 1 July 27,569,631 2,756,963 15,791,777 1,579,178
Conversion of Restricted
Preference Shares - - 1,730,765 173,077
Shares issued as loan repayments - - 577,778 57,778
Shares issued as creditor
payments - - 447,089 44,708
Shares issued for cash 600,000 60,000 9,022,222 902,222
----------- ---------- ------------ ----------
At 30 June 28,169,631 2,816,963 27,569,631 2,756,963
=========== ========== ============ ==========
The Ordinary shares issued during the year were issued at
GBP0.19808 per share.
2021 2021 2020 Number 2020
Number GBP GBP
Restricted Preference shares
of GBP0.10 each
At 1 July - - 4,500,000 450,000
Conversion to Ordinary
shares - - (1,730,765) (173,077)
Gifted back to Company
(and subsequently cancelled) - - (2,769,235) (276,923)
---------- -------
At 30 June - - - -
========== ======= ============== ============
17) TRADE AND OTHER PAYABLES
Group Company
2021 2020 2021 2020
Current GBP GBP GBP GBP
Trade creditors 151,100 112,690 64,795 80,870
Amounts owed to group
undertakings - - 7,390,522 8,210,910
Other taxes and social
security 22,748 36,043 7,032 24,819
Other creditors 19,180 28,436 15,468 6,131
Accruals and deferred
income 254,196 197,247 181,915 100,905
-------- -------- ---------- ----------
447,224 374,416 7,659,732 8,423,635
======== ======== ========== ==========
The Group and Company exposure to liquidity risk related to
trade and other payables is disclosed in note 21.
There is no material difference between the fair value of trade
and other payables and their book value.
Amounts owed to group undertakings are repayable on demand.
18) FINANCIAL LIABILITIES - BORROWINGS
Group Company
2021 2020 2021 2020
GBP GBP GBP GBP
Current
Other loans 1,586,188 1,671,258 - 85,070
----------- ----------- ----- -------
1,586,188 1,671,258 - 85,070
=========== =========== ===== =======
Non-current
Bank loans 7,868,169 7,868,169 - -
Other loans 3,184,250 3,184,250 - -
11,052,419 11,052,419 - -
=========== =========== ===== =======
Terms and debt repayment schedule (including interest)
2021
1 year More than
or less 1-2 years 2-5 years 5 years Totals
---------- ---------- ---------- ----------- -----------
Group GBP GBP GBP GBP GBP
Bank loans 275,386 275,386 943,218 14,982,305 16,476,295
Other loans 1,761,322 175,134 525,401 3,607,490 6,069,347
---------- ---------- ---------- ----------- -----------
2,036,708 450,520 1,468,619 18,589,795 22,545,642
========== ========== ========== =========== ===========
2020
1 year More than
or less 1-2 years 2-5 years 5 years Totals
---------- ---------- ---------- ----------- -----------
Group GBP GBP GBP GBP GBP
Bank loans 275,386 275,386 825,195 15,375,714 16,751,681
Other loans 1,891,423 175,134 525,401 3,782,624 6,374,582
---------- ---------- ---------- ----------- -----------
2,166,809 450,520 1,350,596 19,158,338 23,126,263
========== ========== ========== =========== ===========
Company
Other loans 85,070 - - - 85,070
---------- ---------- ---------- ----------- -----------
85,070 - - - 85,070
========== ========== ========== =========== ===========
Details of the principal loans are as follows:
a) A three-year loan of GBP1,995,000 was entered into during the
2018 financial year. The loan was repayable by 36 monthly
instalments of GBP9,144 and a final instalment of GBP1,940,138. On
5 September 2019, the Company repaid GBP353,950. The balance
outstanding at 30 June 2021 was GBP1,586,188. The monthly
repayments from that date reduced to GBP7,568. The monthly
instalments are interest payments and do not include any capital
repayments. Interest is charged at 5.50 per cent per annum. The
loan is secured by a fixed and floating charge over all the
property and assets of K&C (Osprey) Limited, including the
property known as Heathside, 562 Finchley Road. Post balance date a
new 5 year loan of GBP2.375 million was entered into to refinance
this facility and provide additional capital to support Group
activities.
b) During 2019, the Company issued several convertible loan
notes, totalling GBP200,000, the debt element of which totalled
GBP185,070. The convertible loan notes had a redemption date of 30
June 2020. GBP100,000 of the convertible loan notes was converted
to Ordinary shares on 6 August 2019. At 30 June 2020 the debt
element outstanding was GBP85,070. The convertible loan notes were
repaid in full in July 2020.
c) O n 4 December 2018, KCR (Southampton) Limited took out a new
loan of GBP3,184,250, with Lendco Limited. The term of the loan was
10 years. The monthly instalments are interest payments and do not
include any capital repayments. Interest is charged at 3.19 per
cent for the first 24 months. Interest for the remainder of the
term will be charged at 4.79 per cent above LIBOR. The loan was
secured by a first legal mortgage and a first fixed charge over the
land at Block B, Chapel Riverside, Endle Street, Southampton. The
balance outstanding as at 30 June 2021 was GBP3,184,250.
d) On 10 February 2020, K&C (Coleherne) Limited took out a
new loan of GBP2,743,359 with Hodge Bank. The term of the loan is
25 years. The monthly instalments are interest payments and do not
include any capital repayments. Interest is charged at 3.5 per cent
for the first 60 months. After this period the interest rate
charged will be a standard variable rate. The loan is secured by a
freehold charge over 25 Coleherne Road. The balance outstanding at
30 June 2021 was GBP2,743,359.
e) On 10 February 2020, KCR (Kite) Limited took out a new loan
of GBP5,124,810 with Hodge Bank. The term of the loan is 25 years.
The monthly instalments are interest payments and do not include
any capital repayments. Interest is charged at 3.5 per cent for the
first 60 months. After this period the interest rate charged will
be a standard variable rate. The loan is secured by a freehold
charge over 25 Coleherne Road. The balance outstanding at 30 June
2021 was GBP5,124,810.
Reconciliation of net movement in cash
Group
Loans Other Net cash
Net cash Cash flow received Repayments non-cash at 30 June
at 1 July in year in year movements 2021
2020
GBP GBP GBP GBP GBP
Cash at bank
and in hand 1,535,946 (1,469,031) - - - 66,915
Borrowings (12,723,677) - - 85,070 - (12,638,607)
------------- ------------ --------------- ------------- ----------- -------------
Total financial
liabilities (11,187,731) (1,469,031) - 85,070 - (12,571,692)
============= ============ =============== ============= =========== =============
Loans received Other Net cash
Net cash Cash in year Repayments non-cash at 30 June
at 1 July flow in year movements 2020
2019
GBP GBP GBP GBP GBP
Cash at bank
and in hand 29,298 1,506,648 - - - 1,535,946
Borrowings (11,773,638) - (7,868,169) 6,658,130 260,000 (12,723,677)
------------- ------------ --------------- ------------- ----------- -------------
Total financial
liabilities (11,744,340) 1,506,648 (7,868,169) 6,658,130 260,000 (11,187,731)
============= ============ =============== ============= =========== =============
Company
Other
Net cash Repayments non-cash Net cash
at 1 July Cash flow in year movements at 30 June
2020 2021
GBP GBP GBP GBP GBP
Cash at bank
and in hand 1,476,379 (1,457,127) - - 19,252
Borrowings (85,070) - 85,070 - -
------------ ------------ ------------- ----------- -------------
Total financial
liabilities 1,391,309 (1,457,127) 85,070 - 19,252
============ ============ ============= =========== =============
Other
Net cash Repayments non-cash Net cash
at 1 July Cash flow in year movements at 30 June
2019 2020
GBP GBP GBP GBP GBP
Cash at bank
and in hand 3,334 1,473,045 - - 1,476,379
Borrowings (6,649,250) - 6,304,180 260,000 (85,070)
------------ ------------ ------------- ----------- -------------
Total financial
liabilities (6,645,916) 1,473,045 6,304,180 260,000 1,391,309
============ ============ ============= =========== =============
19) SHARE-BASED PAYMENT TRANSACTIONS
Restricted Preference shares :
Restricted Preference shares had been acquired by certain
directors and other senior managers. The Restricted Preference
shares were purchased at nominal value. Upon the achievement by the
Group of certain defined milestones, related to the NAV of the
Group, the Restricted Preference shares of GBP0.10 were able to be
converted into Ordinary shares of GBP0.10, for no further
consideration.
The estimated fair value of each Restricted Preference share was
as folllows:
Restricted Preference
shares
---------------------
Fair value of share
option/warrant (GBP) 0.688-0.787
The fair values were estimated using the Black-Scholes valuation
model. The following table lists the inputs to the model used:
Restricted Preference
shares
---------------------
Share price at
grant date (GBP) 0.8-0.9
Exercise price
(GBP) 0.1
Dividend yield
(%) 0.00
Expected volatility 51.86-63.79
(%)
Risk-free interest 0.88-1.57
rate (%)
Expected life of
share options/warrants
(years) 1.3-8.8
The expected lives of the Restricted Preference shares were
based on historical data and then-current expectations and were not
indicative of exercise patterns that may occur. The expected
volatility reflected the assumption that the historical volatility
of comparator companies over the period similar to the life of the
Restricted Preference shares is indicative of future trends, which
may not necessarily be the actual outcome.
On 6 August 2019, 1,730,765 of the Restricted Preference shares
were converted into Ordinary shares. The remaining 2,769,235
Restricted Preference shares were gifted back to the Company for no
consideration as part of the Torchlight transaction. The restricted
preference shares gifted back to the Company were subsequently
cancelled.
The conversion and cancellation of the restricted preference
shares was treated as an acceleration of vesting and therefore the
amount that would have been recognised for services received over
the remainder of the vesting period was recognised immediately, in
the 2020 financial year. The expense is shown in the following
table:
30 June 30 June
2021 2020
GBP GBP
Expenses arising from Restricted Preference
shares - 1,599,681
Total expense from share-based payments - 1,599,681
======= =========
20) FINANCIAL INSTRUMENTS
The Group's financial assets, as defined under IFRS 9, and their
estimated carrying amount are as follows:
Group Company
2021 2020 2021 2020
GBP GBP GBP GBP
Carrying amount of financial
assets at amortised cost
Trade and other receivables 53,375 63,889 3,758,378 3,828,071
Cash at bank and in hand 66,915 1,535,946 19,252 1,476,379
21) FINANCIAL RISK MANAGEMENT
The Company's directors have overall responsibility for the
establishment and oversight of the Group's risk management
framework.
The Company's and Group's risk management policies are
established to identify and analyse the risks faced by the Company
and Group, to set appropriate risk limits and controls, and to
monitor risks and adherence to limits. Risk management policies and
systems are reviewed regularly to reflect the changes in market
conditions and the Group's activities. The Company and Group,
through its training and management standards and procedures, aims
to develop a disciplined and constructive control environment in
which all employees understand their roles and obligations.
The Company and Group has exposure to the following risks
arising from financial instruments:
o credit risk
o liquidity risk
o market risk
Capital risk management
The Company and Group's objective when managing capital is to
safeguard its accumulated capital in order to provide an adequate
return to shareholders by maintaining a sufficient level of funds,
in order to support continued operations.
The Company and Group considers its capital to comprise equity
capital less accumulated losses.
The share premium reserve includes premiums received on the
issue of share capital during the year.
The Group refinanced their loan portfolio in the 2020 financial
year. As a result, the Group entered into new loan agreements with
Hodge Bank. The total loans with Hodge Bank at 30 June 2021
totalled GBP7,868,169. The loan agreements contain the following
covenants:
o The maximum available loan amount relative to the value of the
properties will not be, at any time, during the term of the loan,
more than 75% of the market value of the properties (as determined
from time to time in accordance with the lenders requirements by a
valuer appointed by the lender) ; and
o The aggregate of all rental income from the properties shall
not, in any twelve month period, be less than 125% of the aggregate
of all scheduled interest instalments or other payments due under
the loan in that period.
Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations.
The Group has no significant concentration of credit risk, with
exposure spread over a large number of counterparties and
customers.
The carrying amount of financial assets represents the maximum
credit exposure. The maximum exposure to credit risk is as reported
in the statement of financial position.
Liquidity risk
Liquidity risk is the risk that the Company and Group will
encounter difficulty in meeting the obligations associated with its
financial liabilities that are settled by delivering cash or
another financial asset. The Company's and Group's approach to
managing liquidity is to ensure, as far as possible, that it will
always have sufficient liquidity to meet its liabilities when due,
under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Company's and Group's
reputation.
The contractual maturities of financial liabilities are
disclosed in note 18.
Market risk
Market risk is the risk that changes in market prices, such as
interest rate and equity prices will affect the Group and the
Company's income or the value of its holdings of financial
instruments. The objective of market risk management is to manage
and control market risk exposure within acceptable parameters,
while optimising the return.
Sensitivity
Interest rate sensitivity:
At 30 June 2021, if interest rates had been 0.5 percentage point
higher and all other variables were held constant, it is estimated
that the Group's loss before tax would increase to GBP992,377 (2020
- GBP3,604,930). This is attributable to the Group's exposure on
its borrowings and is based on the change taking place at the
beginning of the financial year and held constant throughout the
reporting period.
22) RELATED PARTIES
Year Ended 30 June 2021
During the year, remuneration paid to Russell Naylor consisted
of fees of GBP48,000 charged by Naylor Partners, a business in
which Russell Naylor is a Director (2020 - GBP44,000).
The remuneration paid to Richard Boon in 2021 consisted of fees
of GBP18,900 (2020 - GBP18,130) charged by Artefact Partners, a
business in which Richard Boon is a Director.
During the year, the Group paid DGS Capital Partners LLP, a
limited liability partnership in which Michael Davies is a member,
fees of GBP9,000 plus VAT of GBP1,800 (2020 - GBP36,000 plus VAT of
GBP7,200).
Further details of total director remuneration is contained with
the Report of the Directors on page 19. Christopher James is also
considered as key management personnel. His remuneration in the
period totalled GBP113,027 (2020 - GBP70,881), which includes a
provision of GBP38,027 for a catch up payment incentive which will
be due when the business achieves cash-flow breakeven
Year Ended 30 June 2020
On 24 June 2018, the Company entered into a loan agreement
arranged by DGS Capital Partners LLP, a limited liability
partnership in which Michael Davies is a member, with certain
investors. The loan was for GBP1,475,000 and was subject to an
interest rate of 12 per cent per annum. The loan was to be repaid
within 300 days of the initial drawdown date of 29 June 2018. The
loan was extended during the 2019 financial year and from 10 April
2019, the interest rate was increased to 14 per cent per annum. In
the 2020 financial year, the Company incurred interest of GBP30,196
on the loan. On 6 August 2019 the loan and all outstanding interest
and fees were repaid. The repayment consisted of GBP1,425,000 cash
and GBP129,311 of Ordinary shares.
During the year ended 30 June 2019, Oliver Vaughan, an ex
director of the Company, loaned the Company GBP150,000. The loan
was unsecured and was due for repayment on 15 May 2019. The loan
was extended in June 2019. Upon extension of the loan, the lender
charged the Company a fee of GBP10,000. The loan was interest free.
GBP110,000 of the loan was repaid via the issue of Ordinary shares
in the Company on 6 August 2019. The remaining GBP50,000 was repaid
on 8 August 2019.
During the year ended 30 June 2019, the Company issued GBP50,000
of convertible loan notes to Kimono Investments Limited, an entity
in which Oliver Vaughan's children have a financial interest. The
Company was charged GBP340 interest in the 2020 financial year. The
principal loan was repaid on 22 August 2019. The repayment
consisted of GBP50,000 of Ordinary shares.
During the year to 30 June 2019, the Company issued convertible
loan notes to the White Amba Pension Scheme of GBP25,000. The
Company was charged GBP170 interest in the 2020 financial year. The
principal loan was repaid on 22 August 2019. The repayment
consisted of GBP25,000 of Ordinary shares.
During the year to 30 June 2019, the Company issued convertible
loan notes to Katie James, relative of ex director Timothy James of
GBP25,000. The Company was charged GBP170 interest in the 2020
financial year. The principal loan was repaid on 22 August 2019.
The repayment consisted of GBP25,000 of Ordinary shares.
During the previous year, Timothy Oakley, ex director of a
number of subsidiary companies, received remuneration of GBPnil
(2020 - GBP10,541). During the year ended 30 June 2019 Timothy
Oakley also loaned the Company GBP50,000 as part of the loan
arranged by DGS Capital Partners LLP, as detailed above. Interest
of GBP595 was charged to the Company in the 2020 financial year.
The loan was repaid on 22 August 2019. The repayment consisted of
GBP50,000 of Ordinary shares.
23) POST-BALANCE SHEET EVENTS
After the year end a new 5 year variable rate facility of
GBP2,375,000 was entered into with Secure Trust Bank Plc. Funds
were used to refinance the existing Proplend facility and provide
additional capital to support Group activities, including the
acquisition of another flat within the Heathside freehold which
completed on 11(th) September 2021.
A flat at Lomond Court which was a non-core asset with no
strategic value was sold and settled post balance date for
GBP280,000. The majority of net sale proceeds were utilized to
reduce the Hodge Bank facility.
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END
FR SELEFUEFSESU
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September 30, 2021 02:00 ET (06:00 GMT)
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